485BPOS 1 c49537be485bpos.txt 485BPOS File Number: 333-111067 SECURITIES AND EXCHANGE COMMISSION Washington, D.C. 20549 FORM N-4 REGISTRATION STATEMENT UNDER THE SECURITIES ACT OF 1933 Post-Effective Amendment Number 11 and/or REGISTRATION STATEMENT UNDER THE INVESTMENT COMPANY ACT OF 1940 VARIABLE ANNUITY ACCOUNT (formerly Minnesota Mutual 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) (Depositor's Telephone Number, Including Area Code) (651) 665-3500 Dwayne C. Radel, Esq. Senior 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) Approximate date of Public Offering: As soon as practicable after the effective date of this Registration Statement It is proposed that this filing will become effective (check appropriate box) immediately upon filing pursuant to paragraph (b) --- X on May 1, 2009 pursuant to paragraph (b) of Rule 485 --- 60 days after filing pursuant to paragraph (a)(i) --- on (date) pursuant to paragraph (a)(i) --- 75 days after filing pursuant to paragraph (a)(ii) --- --- on (date) pursuant to paragraph (a)(ii) of Rule 485. If appropriate, check the following box: this post-effective amendment designates a new effective date for a --- previously filed post-effective amendment. TITLE OF SECURITIES BEING REGISTERED Variable Annuity Contracts Variable Annuity Account Cross Reference Sheet to Prospectus Form N-4
Item Number Caption in Prospectus 1. Cover Page 2. Special Terms and How To Contact Us 3. An Overview of Contract Features 4. Condensed Financial Information; Performance Data - Appendix A 5. General Information 6. Contract Charges and Fees 7. Description of the Contract 8. Annuitization Benefits and Options 9. Death Benefits 10. Description of the Contract; Purchase Payments, Purchase Payments and Value of the Contract; Contract Charges and Fees - Deferred Sales Charge. 11. Description of the Contract; Redemptions, Withdrawals and Surrender 12. Federal Tax Status 13. Not Applicable 14. Table of Contents of the Statement of Additional Information
PART A INFORMATION REQUIRED IN A PROSPECTUS Waddell & Reed Advisors Retirement Builder Annuity a variable annuity contract issued by Minnesota Life Insurance Company (MINNESOTA LIFE LOGO) 400 Robert Street North - St. Paul, Minnesota 55101-2098 - Telephone: 1-800-362- 3141 - http://www.minnesotalife.com This Prospectus sets forth the information that a prospective investor should know before investing. It describes an individual, flexible payment, variable annuity contract ("the contract") offered by the Minnesota Life Insurance Company. This contract is designed for long term investors. It may be used in connection with personal retirement plans or independent of a retirement plan. For contracts issued after May 1, 2008, (or such later date if approved later in your state) this contract contains a feature that applies a credit enhancement to the contract value in certain circumstances. The benefit of the credit enhancement may be more than offset by the additional asset- based fees that the contract owner will pay as the result of the increased contract value due to the credit enhancements. A contract without credits may cost less. This contract is NOT: - a bank deposit or obligation - federally insured - endorsed by any bank or government agency You may invest your contract values in our Variable Annuity Account, our General Account, or in the Guarantee Periods of the Guaranteed Term Account. The Variable Annuity Account invests in the following Fund portfolios: (W&R TARGET FUNDS WADDELL & REED LOGO) Ivy Funds Variable Insurance Portfolios, Inc. (formerly known as W&R Target Funds, Inc.) - Ivy Funds VIP Asset Strategy - Ivy Funds VIP Balanced - Ivy Funds VIP Bond - Ivy Funds VIP Core Equity - Ivy Funds VIP Dividend Opportunities - Ivy Funds VIP Energy - Ivy Funds VIP Global Natural Resources - Ivy Funds VIP Growth - Ivy Funds VIP High Income - Ivy Funds VIP International Growth - Ivy Funds VIP International Value - Ivy Funds VIP Micro Cap Growth - Ivy Funds VIP Mid Cap Growth - Ivy Funds VIP Money Market - Ivy Funds VIP Mortgage Securities - Ivy Funds VIP Real Estate Securities - Ivy Funds VIP Science and Technology - Ivy Funds VIP Small Cap Growth - Ivy Funds VIP Small Cap Value - Ivy Funds VIP Value - Ivy Funds VIP Pathfinder Aggressive - Ivy Funds VIP Pathfinder Moderately Aggressive - Ivy Funds VIP Pathfinder Moderate - Ivy Funds VIP Pathfinder Moderately Conservative - Ivy Funds VIP Pathfinder Conservative Your contract value and the amount of each variable annuity payment will vary in accordance with the performance of the investment portfolio(s) ("Portfolio(s)") you select for amounts allocated to the Variable Annuity Account. You bear the entire investment risk for amounts you allocate to those Portfolios. This Prospectus includes the information you should know before purchasing a contract. You should read it and keep it for future reference. A Statement of Additional Information, with the same date, contains further contract information. It has been filed with the Securities and Exchange Commission ("SEC") and is incorporated by reference into this Prospectus. A copy of the Statement of Additional Information may be obtained without charge by calling 1-800-362-3141 or by writing to us at the address shown above. 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 PORTFOLIOS SHOWN ABOVE. THESE SECURITIES HAVE NOT BEEN APPROVED OR DISAPPROVED BY THE SECURITIES AND EXCHANGE COMMISSION, NOR HAS THE COMMISSION PASSED UPON THE ACCURACY OR ADEQUACY OF THIS PROSPECTUS. ANY REPRESENTATION TO THE CONTRARY IS A CRIMINAL OFFENSE. THIS PROSPECTUS SHOULD BE READ CAREFULLY AND RETAINED FOR FUTURE REFERENCE. THE DATE OF THIS PROSPECTUS AND OF THE STATEMENT OF ADDITIONAL INFORMATION IS: MAY 1, 2009. THIS PROSPECTUS IS NOT AN OFFERING IN ANY JURISDICTION IN WHICH THE OFFERING WOULD BE UNLAWFUL. WE HAVE NOT AUTHORIZED ANY DEALER, SALESPERSON, REPRESENTATIVE 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.................... 3 AN OVERVIEW OF CONTRACT FEATURES..... 4 CONTRACT CHARGES AND EXPENSES........ 9 CONDENSED FINANCIAL INFORMATION AND FINANCIAL STATEMENTS............... 12 DESCRIPTION OF THE CONTRACT.......... 14 Right of Cancellation or "Free Look"........................... 14 1035 Exchanges or Replacements..... 14 Purchase Payments.................. 14 Credit Enhancement and Recapture... 15 Automatic Purchase Plan............ 17 Purchase Payment Allocation Options......................... 17 Transfers.......................... 17 Market Timing and Disruptive Trading......................... 18 Systematic Transfer Arrangements... 19 Automatic Portfolio Rebalancing................... 19 Dollar Cost Averaging........... 20 Purchase Payments and Value of the Contract........................ 20 Crediting Accumulation Units....... 20 Value of the Contract.............. 21 Accumulation Unit Value............ 21 Net Investment Factor for Each Valuation Period................ 21 Redemptions, Withdrawals and Surrender....................... 22 Modification and Termination of the Contract........................ 23 Assignment......................... 23 Deferment of Payment............... 23 Confirmation Statements and Reports......................... 24 CONTRACT CHARGES AND FEES............ 24 Deferred Sales Charge.............. 24 Nursing Home or Terminal Illness Waiver........................ 26 Unemployment Waiver............. 26 Mortality and Expense Risk Charge.. 27 Annual Maintenance Fee............. 27 Optional Contract Rider Charges.... 27 Premium Taxes...................... 29 Market Value Adjustment............ 29 Underlying Portfolio Charges....... 29 ANNUITIZATION BENEFITS AND OPTIONS... 30 Annuity Payments................... 30 Electing the Retirement Date and Annuity Option.................. 30 Annuity Options.................... 31 Calculation of Your First Annuity Payment......................... 32 Amount of Subsequent Variable Annuity Payments................ 33 Value of the Annuity Unit.......... 33 Transfers after you have Annuitized your Contract................... 33 DEATH BENEFITS....................... 34 Before Annuity Payments Begin...... 34 Optional Death Benefits............ 35 Highest Anniversary Value Death Benefit Option.................. 36 5% Death Benefit Increase Option... 38 Premier Death Benefit Option....... 40 Estate Enhancement Benefit (EEB) Option.......................... 41 Death Benefit After Annuity Payments Begin.................. 43 OTHER CONTRACT OPTIONS (LIVING BENEFITS).......................... 43 Guaranteed Income Provider Benefit (GIPB) Option................... 44 Guaranteed Minimum Withdrawal Benefit (GMWB) Option........... 47 Guaranteed Lifetime Withdrawal Benefit (GLWB) Option........... 51 Guaranteed Lifetime Withdrawal Benefit II-Single (GLWB II- Single) Option.................. 56 Guaranteed Lifetime Withdrawal Benefit II-Joint (GLWB II-Joint) Option.......................... 63
GENERAL INFORMATION.................. 70 The Company -- Minnesota Life Insurance Company............... 70 The Separate Account -- Variable Annuity Account................. 71 Changes to the Separate Account -- Additions, Deletions or Substitutions................... 71 Compensation Paid for the Sale of Contracts....................... 72 Payments Made by Underlying Mutual Funds........................... 73 The General Account and the Guaranteed Term Account......... 74 VOTING RIGHTS........................ 76 FEDERAL TAX STATUS................... 77 PERFORMANCE DATA..................... 84 STATEMENT OF ADDITIONAL INFORMATION.. 85 APPENDIX A -- CONDENSED FINANCIAL INFORMATION........................ A-1 APPENDIX B -- ILLUSTRATION OF VARIABLE ANNUITY VALUES............ B-1 APPENDIX C -- TYPES OF QUALIFIED PLANS.............................. C-1 APPENDIX D -- EXAMPLES ILLUSTRATING THE GUARANTEED INCOME PROVIDER BENEFIT OPTION..................... D-1 APPENDIX E -- EXAMPLES OF THE GUARANTEED MINIMUM WITHDRAWAL BENEFIT OPTION..................... E-1 APPENDIX F -- EXAMPLES OF THE GUARANTEED LIFETIME WITHDRAWAL BENEFIT OPTION..................... F-1 APPENDIX G -- EXAMPLES OF THE GUARANTEED LIFETIME WITHDRAWAL BENEFIT II-SINGLE AND JOINT OPTIONS............................ G-1 APPENDIX H -- EXAMPLES ILLUSTRATING CREDIT ENHANCEMENT................. H-1
SPECIAL TERMS As used in this Prospectus, the following terms have the indicated meanings: Accumulation Unit: an accounting unit of measure used to calculate the value of a sub-account of the variable annuity account, of this contract before annuity payments begin. 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 unit of measure used to calculate the value of annuity payments under a variable annuity income option. Assumed Investment Return: the annual investment return (AIR) used to determine the amount of the initial variable annuity payment. Currently the AIR is equal to 4.5%. Code: the Internal Revenue Code of 1986, as amended. Commuted Value: the present value of any remaining period certain payments payable in a lump sum. The value will be based upon the then current dollar amount of one payment and the same interest rate that served as a basis for the annuity. If a commuted value is elected for a period certain on a variable annuity payment during the life of the annuitant, a deferred sales charge may apply. 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 Value: the sum of your values in the variable annuity account, the general account, and/or the guaranteed period(s) of the guaranteed term account. 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. General Account: all of our assets other than those held in our other separate accounts. Guarantee Period: a period of one or more years, for which the current interest rate is guaranteed. Guaranteed Term Account: a non-unitized separate account providing guarantee periods of different lengths. Amounts allocated to the guarantee periods of the guaranteed term account are credited with interest rates guaranteed by us for the entire guarantee period. The assets of the guaranteed term account are ours and are not subject to claims arising out of any other business of ours. Market Value Adjustment ("MVA"): the adjustment made to any amount you withdraw, surrender, apply to provide annuity payments, or transfer from a guarantee period of the guaranteed term account prior to the renewal date. This adjustment may be positive or negative and reflects the impact of changes in applicable interest rates between the time the purchase payment, transfer, or renewal is allocated to the guaranteed term account and the time of the withdrawal, surrender, annuity payment election or transfer. Maturity Date: The date this contract matures. The maturity date will be the first of the month following the later of: (a) the annuitant's 85th birthday; or (b) ten years after the contract date, unless otherwise agreed to by us. Net Investment Factor: the net investment factor for a valuation period is the gross investment rate for such valuation period less a deduction for the charges to the variable account including any applicable optional benefit riders. The gross investment factor is a measure of the performance of the underlying fund after deductions for all charges to the variable account including those for applicable optional benefit riders. Plan: a tax-qualified employer pension, profit-sharing, or annuity purchase plan under which benefits are to be provided by the contract. Portfolio(s): the mutual funds whose separate investment portfolios we have designated as eligible investments for the variable annuity account. Each sub- account of the variable annuity account Page 1 invests in a different portfolio. Currently these include the portfolios shown on the cover page of this Prospectus. Purchase Payments: amounts paid to us under your contract in consideration of the benefits provided. Separate Account: a separate investment account for which the investment experience of its assets is separate from that of our other assets. Sub-Account: a division of the variable annuity account. Each sub-account invests in a different portfolio. Valuation Date or Valuation Days: each date on which a portfolio is valued. Variable Annuity: an annuity providing for payments varying in amount in accordance with the investment experience of the portfolios. 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. You, Your: the contract owner. Page 2 HOW TO CONTACT US At Minnesota Life, we make it easy for you to find information on your annuity. Here's how you can get the answers you need. ON THE INTERNET Visit our On-line Service Center 24 hours a day, 7 days a week at www.minnesotalife.com. Our On-line Service Center offers access to: - Account values - Variable investment performance - Interest rates (when applicable) (WWW GRAPHIC) - Service forms - Beneficiary information - Transactions to transfer among investment options or change your allocation percentage - Contribution and transaction history MINNESOTA LIFE'S ANNUITY SERVICE LINE - Call 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, during normal business days. (TELEPHONE GRAPHIC) BY MAIL - For purchase payments sent by regular mail: Minnesota Life Annuity Services P.O. Box 64628 St. Paul, MN 55164-0628 (MAIL GRAPHIC) - 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 - To receive a current copy of the W&R Advisors Retirement Builder Annuity Statement of Additional Information (SAI) without charge, call 1-800-362-3141, or complete and detach the following and send it to: Minnesota Life Insurance Company Annuity Services 400 Robert Street North St. Paul, MN 55101-2098 Name ----------------------------------------- Address --------------------------------------- City ---------- State ------ Zip ---------------------------------- Page 3 AN OVERVIEW OF CONTRACT FEATURES ANNUITY CONTRACTS 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 in which annuity payments begin right away, generally within a month or two after our receipt of your purchase payment. A deferred annuity contract delays your annuity payments until a later date. During this deferral period, also known as the accumulation period, your annuity purchase payments and any earnings accumulate on a tax deferred basis. TYPE OF CONTRACT 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. Below is a summary of certain contract features and expenses. Please see the corresponding section of the Prospectus for complete details, restrictions or limitations that may apply. Your contract has a right of cancellation which is described in detail in the section entitled "Right of Cancellation or Free- look." Charges that apply to your contract may be found in the section titled "Contract Charges and Fees". State variations of certain features may exist. See your registered representative for more information and to help determine if this product is right for you. PURCHASE PAYMENTS:* Initial Minimum $10,000 $2,000 for IRAs and qualified plans Subsequent payment minimum $500 ($100 for automatic payment plans) * Please note: If you intend to use this contract as part of a qualified retirement plan or IRA, the qualified plan or IRA may have contribution minimums which are different than those that apply to this contract. In addition you will receive no additional benefit from the tax deferral feature of the annuity since the retirement plan or IRA is already tax deferred. You should consult your tax advisor to ensure that you meet all the requirements and limitations, and to be sure this contract is appropriate for your situation.
CREDIT ENHANCEMENT: For contracts issued after May 1, 2008, (or such later date if approved later than this date in your state) when you make a purchase payment to your contract, we will add an amount, called a credit enhancement, to your contract value if your cumulative net purchase payments meet or exceed $250,000. Cumulative net purchase payments are the total of all purchase payments we have received for this contract less any prior withdrawals from contract value (including associated charges). No credit enhancement will be applied if your cumulative purchase payments are less than $250,000. When we receive a purchase payment, we will evaluate whether your contract is eligible for a credit enhancement based on your cumulative net purchase payments. The credit enhancement will be added to your contract value and allocated to the sub-accounts of the variable account, the general account, and the guaranteed term account options in the same proportion as the purchase payment that triggers the credit enhancement calculation. Credit enhancements, and any gains or losses attributable to the credit enhancements are not a purchase payment and will be considered earnings under the contract. Page 4 We will take back, or recapture, all credit enhancements if you elect to terminate the contract under the right to examine (or "free look") provision. In addition, we will recapture any credit enhancements applied to your contract within 12 months of the date any amounts are paid out as a death benefit or within 12 months of the date you apply amounts to provide annuity payments. We will not recapture any amounts paid out as a death benefit or applied to provide annuity payments more than 12 months after the last credit enhancement was added to the contract. For a detailed discussion, including how the credit enhancement is calculated and applied, please refer to the section entitled "Credit Enhancement and Recapture". The credit enhancement feature may not be available in all states. Ask your representative if this is available in your state. We have filed an application with the Securities and Exchange Commission ("SEC") requesting the required relief to permit the offering of the proposed credit enhancement and its recapture. We will not effect any recapture unless and until the SEC has issued an order approving the pending credit enhancement application. INVESTMENT OPTIONS: Fixed Account Minnesota Life General Account Guaranteed Term Account 3 year guarantee period* 5 year guarantee period* 7 year guarantee period* 10 year guarantee period* Variable Annuity Account See the list of portfolios on the cover page * Subject to market value adjustment on early withdrawal -- see "General Information Section" for additional details. The 3 year period is not currently available. WITHDRAWALS: Minimum withdrawal amount $250 (Withdrawals and surrenders may be subject to deferred sales charges and/or market value adjustment depending upon how your contract value is allocated.)
In certain cases the deferred sales charge ("DSC") is waived on withdrawal or surrender. The following DSC waivers are included in this contract if the withdrawal or surrender is after the first contract anniversary: - Nursing Home Waiver - Terminal Illness Waiver - Unemployment Waiver State variations may apply to these waivers. See your representative and the section titled "Contract Charges and Fees" for more details. The DSC is also waived at death and upon annuitization. DEATH BENEFIT AND OPTIONAL DEATH BENEFITS Your contract provides a death benefit. The standard death benefit included with the contract is known as the GUARANTEED MINIMUM DEATH BENEFIT. Certain optional death benefits may also be selected and may provide the opportunity for a larger death benefit. The optional death benefits include: the HIGHEST ANNIVERSARY VALUE (HAV) DEATH BENEFIT OPTION; the 5% DEATH BENEFIT INCREASE (5% DBI) OPTION or the PREMIER DEATH BENEFIT (PDB) OPTION. Page 5 In addition, you may also elect the ESTATE ENHANCEMENT BENEFIT (EEB) OPTION. This contract option provides for an additional amount to be included in the death benefit proceeds when the death benefit proceeds become payable under your contract. It is intended to provide additional amounts to help offset expenses that may be due upon your death, such as federal and state taxes that may be payable on any taxable gains in your contract. Please see "Death Benefits-Estate Enhancement Benefit (EEB) Option" for complete details. In order to elect one or more of these optional death benefits you must be less than 76 years old and you may only elect to purchase an optional death benefit when the contract is issued. Once you elect an option it may not be cancelled or terminated. Each of these optional choices has a specific charge associated with it. ALLOCATION OF CONTRACT VALUES You can change your allocation of future purchase payments by giving us written notice or a telephone call notifying us of the change. Before annuity payments begin, you may transfer all or a part of your contract value among the portfolios and/or the general account and/or one or more of the guarantee periods of the guaranteed term account. A market value adjustment may apply if you move amounts from the guaranteed term account prior to the end of a guarantee period. After annuity payments begin, you may instruct us to transfer amounts held as annuity reserves among the variable annuity sub-accounts or to a fixed annuity, subject to some restrictions. During the annuity period, annuity reserves may only be transferred from a variable annuity to a fixed annuity. AVAILABLE ANNUITY OPTIONS The annuity options available include 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 or fixed annuity or a combination of the two. Other annuity options may be available from us on request. OTHER OPTIONAL RIDERS Effective May 15, 2009, we are suspending availability of the following optional living benefits: - Guaranteed Minimum Withdrawal Benefit (GMWB) - Guaranteed Lifetime Withdrawal Benefit II - Single (GLWB II - Single) - Guaranteed Lifetime Withdrawal Benefit II - Joint (GLWB II - Joint) Applications, election forms, and any related transfer paperwork must be signed no later than May 15, 2009 and received by the home office no later than close of the New York Stock Exchange on Friday, May 22, 2009. This suspension does not impact the terms of any guarantees provided under previously issued living benefits. Certain other contract options may be available to you. These are sometimes referred to as "living benefits." Only one living benefit may be elected on a contract. When you elect a living benefit rider (except for the Guaranteed Income Provider Benefit) your investment choices will be limited and you must allocate your entire contract value to one of the Ivy Funds VIP Pathfinder portfolios approved for use with this rider. Each contract feature may or may not be beneficial to you depending on your specific circumstances and how you intend to use your contract. For example, if you take withdrawals in excess of the annual guaranteed amount(s) it may adversely effect the benefit of the rider. These descriptions are brief overviews of the optional riders. Please refer to the section entitled "Other Contract Options" for a complete description of each rider, its benefits and its limitations and restrictions read the prospectus section(s) carefully and consult your tax advisor and your Page 6 representative before you elect any optional contract features. These options may not be available in every state and we reserve the right to stop offering any option(s) at any time. EACH OPTION HAS A CHARGE THAT APPLIES TO IT. THE CHARGES ARE DISCUSSED IN THE SECTION ENTITLED "OPTIONAL CONTRACT RIDER CHARGES." GUARANTEED LIFETIME WITHDRAWAL BENEFIT (GLWB) This contract option is designed to provide a benefit that guarantees the contract owner a minimum withdrawal amount, generally over their life regardless of underlying sub-account performance. It allows a contract owner to take withdrawals from their contract each contract year up to a specified maximum amount known as the Guaranteed Annual Income (GAI) amount. The annual GAI amount will be set based on the age of the oldest contract owner on the GLWB effective date and it will range from 4.0% to 6.0% of the Guaranteed Withdrawal Benefit (GWB). This option allows a contract owner to take these withdrawals from the contract for the longer of: a) the duration of the contract owner's life (or in the case of joint owners, the lifetime of the first joint owner to die) or, b) until the Guaranteed Withdrawal Benefit (GWB) is reduced to zero. SINCE THIS BENEFIT IS ACCESSED THROUGH WITHDRAWALS FROM THE CONTRACT, IF YOU DO NOT INTEND TO TAKE WITHDRAWALS FROM YOUR CONTRACT, THEN THIS OPTION MAY NOT BE APPROPRIATE FOR YOU. THIS RIDER DOES NOT GUARANTEE AN INVESTMENT RETURN IN YOUR CONTRACT VALUE. This optional rider differs, in part, from either of the GLWB II riders (single or joint) below in that the GAI amount is based on the age of the oldest contract owner and has a range of 4.0% to 6.0%; while the GLWB II riders have a set GAI amount of 5.0%. GUARANTEED LIFETIME WITHDRAWAL BENEFIT II - SINGLE (GLWB II - SINGLE) NO APPLICATIONS OR REQUESTS FOR THIS RIDER WILL BE ACCEPTED AFTER MAY 15, 2009. EFFECTIVE MAY 15, 2009, WE ARE SUSPENDING AVAILABILITY OF THIS OPTION. This contract option is also designed to provide a benefit that guarantees the contract owner a minimum annual withdrawal amount, generally over the contract owner's life, regardless of underlying sub-account performance. Beginning on the later of the contract anniversary following the contract owner's 59(th) birthday or the date this contract option is added, it allows a contract owner to take withdrawals from the contract each contract year up to a specified maximum amount known as the Guaranteed Annual Income (GAI) amount. The GAI amount will be 5% of the Guaranteed Withdrawal Benefit (GWB). The GWB amount is equal to the initial purchase payment if this rider is added at contract issue. If the rider is added on a subsequent anniversary, the initial GWB will be equal to the contract value on the effective date of the rider. This option allows a contract owner to take these withdrawals from the contract for the longer of: a) the duration of the contract owner's life (or in the case of joint owners, the lifetime of the first joint owner to die) or, b) until the GWB is reduced to zero. SINCE THIS BENEFIT IS ACCESSED THROUGH WITHDRAWALS FROM THE CONTRACT, IF YOU DO NOT INTEND TO TAKE WITHDRAWALS FROM YOUR CONTRACT, THEN THIS OPTION MAY NOT BE APPROPRIATE FOR YOU. THIS RIDER DOES NOT GUARANTEE AN INVESTMENT RETURN IN YOUR CONTRACT VALUE. GUARANTEED LIFETIME WITHDRAWAL BENEFIT II - JOINT (GLWB II - JOINT) NO APPLICATIONS OR REQUESTS FOR THIS RIDER WILL BE ACCEPTED AFTER MAY 15, 2009. EFFECTIVE MAY 15, 2009, WE ARE SUSPENDING AVAILABILITY OF THIS OPTION. This contract option is also designed to provide a benefit that guarantees the contract owner a minimum annual withdrawal amount, and it works very similar to the Guaranteed Lifetime Withdrawal Benefit II -- Single Life Option. However its guarantee is over the lifetime of both "designated lives", (instead of a single life) regardless of underlying sub-account performance. Page 7 Beginning on the later of the contract anniversary following the 59(th) birthday of the youngest designated life or the date this contract option is added, it allows a contract owner to take withdrawals from the contract each contract year up to a specified maximum amount known as the Guaranteed Annual Income (GAI) amount. The GAI amount will be 5% of the Guaranteed Withdrawal Benefit (GWB). The GWB amount is equal to the initial purchase payment if this rider is added at contract issue. If the rider is added at a subsequent anniversary, the initial GWB will be equal to the contract value on the effective date of this rider. This option allows a contract owner to take these withdrawals from the contract for the longer of: a) the duration of both designated lives, or, b) until the GWB is reduced to zero. SINCE THIS BENEFIT IS ACCESSED THROUGH WITHDRAWALS FROM THE CONTRACT, IF YOU DO NOT INTEND TO TAKE WITHDRAWALS FROM YOUR CONTRACT, THEN THIS OPTION MAY NOT BE APPROPRIATE FOR YOU. THIS RIDER DOES NOT GUARANTEE AN INVESTMENT RETURN IN YOUR CONTRACT VALUE. GUARANTEED MINIMUM WITHDRAWAL BENEFIT (GMWB) NO APPLICATIONS OR REQUESTS FOR THIS RIDER WILL BE ACCEPTED AFTER MAY 15, 2009. EFFECTIVE MAY 15, 2009, WE ARE SUSPENDING AVAILABILITY OF THIS OPTION. This contract option provides for a guarantee that allows a contract owner to withdraw an amount from the contract each contract year up to a specified maximum amount, known as the Guaranteed Annual Withdrawal, until the Guaranteed Withdrawal Benefit is reduced to zero. A detailed explanation of how these amounts are calculated is provided in the section of this Prospectus describing this contract option. SINCE THIS BENEFIT IS ACCESSED THROUGH WITHDRAWALS FROM THE CONTRACT, IF YOU DO NOT INTEND TO TAKE WITHDRAWALS FROM YOUR CONTRACT, THEN THIS OPTION MAY NOT BE APPROPRIATE FOR YOU. THIS RIDER DOES NOT GUARANTEE AN INVESTMENT RETURN IN YOUR CONTRACT VALUE. GUARANTEED INCOME PROVIDER BENEFIT (GIPB) This contract option provides for a guaranteed minimum fixed income benefit if you elect certain annuity options. It is designed to provide a guaranteed level of annuity income regardless of the actual investment performance that you experience during your accumulation period. IF YOU DO NOT INTEND TO ANNUITIZE YOUR CONTRACT, YOU WILL NOT RECEIVE THE BENEFIT OF THIS OPTION, AND THEREFORE THIS OPTION MAY NOT BE APPROPRIATE FOR YOU. ONCE YOU ELECT THIS CONTRACT OPTION YOU MAY NOT CHANGE OR TERMINATE THE OPTION. THIS RIDER DOES NOT GUARANTEE AN INVESTMENT RETURN IN YOUR CONTRACT VALUE. Page 8 CONTRACT CHARGES AND EXPENSES The following contract expense information is intended to illustrate the expenses of the 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 that 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 SALES LOAD IMPOSED ON PURCHASES (as a percentage of purchase payments) None DEFERRED SALES CHARGE (as a percentage of each purchase payment)
CONTRACT YEARS SINCE PAYMENT ---------------------------- 0-1 8% 1-2 8% 2-3 7% 3-4 6% 4-5 6% 5-6 5% 6-7 4% 7-8 3% 8 and thereafter 0% SURRENDER FEES None TRANSFER FEE None
The next table describes the fees and expenses that you will pay periodically during the time that you own the contract, not including Portfolio company fees and expenses. ANNUAL MAINTENANCE FEE** $50
** (Applies only to contracts where the greater of the contract value or purchase payments, less withdrawals, is less than $50,000 on the contract anniversary and at surrender. Does not apply after annuitization.) SEPARATE ACCOUNT ANNUAL EXPENSES (as a percentage of average account value) BEFORE ANNUITY PAYMENTS COMMENCE Base Contract Only
TOTAL SEPARATE MORTALITY ACCOUNT AND EXPENSE ANNUAL EXPENSES RISK FEES (BASE CONTRACT) ----------- --------------- 1.25% 1.25%
Optional Death Benefits
TOTAL SEPARATE ACCOUNT ANNUAL EXPENSES DEATH BENEFIT (DEATH BENEFIT + CHARGE BASE CONTRACT) ------------- ---------------- Highest Anniversary Value 0.15% 1.40% 5% Death Benefit Increase 0.25% 1.50% Premier Death Benefit (PDB) 0.35% 1.60% Estate Enhancement Benefit (EEB) 0.25% 1.50%
Page 9 Other Contract Options
TOTAL SEPARATE ACCOUNT ANNUAL EXPENSES CHARGE FOR (THIS OPTION ONLY + OPTION BASE CONTRACT) ---------- ------------------- Guaranteed Income Provider Benefit (GIPB) 0.50% 1.75%
Maximum Possible Separate Account Charges Base(1.25%) + PDB(.35%) + EEB(.25%) + GIPB (.50%) = 2.35% (The GMWB, GLWB, and GLWB II options are not included with the above charges because the charges are calculated on a different basis then the above - described charges.) OTHER OPTIONAL BENEFIT CHARGES TAKEN FROM CONTRACT VALUE
Guaranteed Minimum Withdrawal Maximum possible charge 1.00% Benefit (GMWB) Charge(1) Current benefit charge 0.50%
Guaranteed Lifetime Withdrawal Maximum possible charge 0.60% Benefit (GLWB) Charge(2) Current benefit charge 0.60%
Guaranteed Lifetime Withdrawal Maximum possible charge 1.00% Benefit II -- Single (GLWB II- Current benefit charge 0.60% Single) Charge(3)
Guaranteed Lifetime Withdrawal Maximum possible charge 1.15% Benefit II -- Joint (GLWB II- Current benefit charge 0.75% Joint) Charge(4)
(1) The current annual charge for this option is equal to 0.50% times the Guaranteed Withdrawal Benefit (GWB) amount The GWB amount is equal to the initial purchase payment if GMWB is added at contract issue. If the option is added on a subsequent contract anniversary, the initial GWB will be equal to the contract value on the effective date of the option. Beginning with the GMWB effective date and at the end of every three months thereafter, one quarter of the GMWB charge (0.125%) will be multiplied by the GWB amount on that date and will be deducted in proportion to the contract owner's allocation to the sub-accounts in the variable annuity account. Please see the GMWB section of the prospectus for a detailed discussion of charges and formulas used to calculate these amounts. This option may not be elected if you have selected the 5% Death Benefit Increase, Premier Death Benefit, GIPB, GLWB or either GLWB II. (2) The annual charge for this option is equal to 0.60% of contract value, deducted quarterly. Beginning with the GLWB effective date and at the end of every three months thereafter, one-quarter of the GLWB charge (0.15%) will be multiplied by the contract value on that date and will be deducted in proportion to the contract owner's allocation to sub-accounts in the variable annuity account. Please see the GLWB section of the prospectus for details. This option may not be elected if you have selected the 5% Death Benefit Increase, Premier Death Benefit, GIPB, GMWB or either GLWB II. (3) The annual charge for this option is equal to 0.60% of the greater of the contract value, or the Guaranteed Withdrawal Benefit (GWB) amount deducted quarterly. The GWB amount is equal to the initial purchase payment if GLWB II-Single is added at contract issue. If the option is added on a subsequent anniversary, the initial GWB will be equal to the contract value on the effective date of the option. Beginning with the GLWB II-Single effective date and at the end of every three months thereafter, one-quarter of the GLWB II-Single charge (0.15%) will be multiplied by the greater of the contract value or the GWB on that date and will be deducted in proportion to the contract owner's allocation to sub-accounts in the variable annuity account. Please see the GLWB II-Single section of the prospectus for details. This option may not be elected if you have selected the 5% Death Benefit Increase, Premier Death Benefit, GIPB, GMWB, GLWB, or GLWB II-Joint. (4) The annual charge for this option is equal to 0.75% of the greater of the contract value or the Guaranteed Withdrawal Benefit (GWB) amount, deducted quarterly. The GWB amount is equal to the initial purchase payment if GLWB II-Joint is added at contract issue. If the option is added on a subsequent anniversary, the initial GWB will be equal to the contract value on the effective date of the option. Beginning with the GLWB II-Joint effective date and at the end of every three months thereafter, one-quarter of the annual GLWB II-Joint charge (0.1875%) will be multiplied by the greater of the contract value or the GWB on that date and will be deducted in proportion to the contract owner's allocation to sub-accounts in the variable annuity account. Please see the GLWB II-Joint section of the prospectus for details. This option may not be elected if you have selected the 5% Death Benefit Increase, Premier Death Benefit, GIPB, GMWB, GLWB, or GLWB II-Single. Page 10 The next item shows the minimum and maximum total operating expenses charged by the Portfolios (before any waivers or reimbursements) that you may pay periodically during the time that you own the contract. More detail concerning each of the Portfolio's 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) 0.75% 1.43%
State premium taxes may also be deducted, ranging from 0% to 3.5% depending on applicable law. See "Premium Tax" section for more information. CONTRACT OWNER EXPENSE EXAMPLE This Example is 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 contract owner transaction expenses, annual maintenance fees, separate account annual expenses, and Portfolio company fees and expenses. Please note: - You may elect only one living benefit on the contract. - You may not elect the 5% Death Benefit Increase or the Premier Death Benefit with GMWB, GLWB, GLWB II-Single or GLWB II-Joint. The Example assumes that you invest $10,000 in the contract for the time periods indicated. The Example also assumes that your investment has a 5% return each year, and uses the separate account annual expenses before annuity payments commence. The Example is shown using both the least expensive Portfolio (Minimum Fund Expenses) and the most expensive Portfolio (Maximum Fund Expenses) before any reimbursements, with the most expensive contract design over the time period: - Base + PDB+ EEB + GIPB Although your actual costs may be higher or lower, based on these assumptions, your costs would be:
IF YOU ANNUITIZE AT THE END OF THE IF YOU SURRENDERED YOUR CONTRACT AT AVAILABLE TIME PERIOD OR YOU DO NOT THE END OF THE APPLICABLE TIME PERIOD SURRENDER YOUR CONTRACT ------------------------------------- ------------------------------------- 1 YEAR 3 YEARS 5 YEARS 10 YEARS 1 YEAR 3 YEARS 5 YEARS 10 YEARS ------ ------- ------- -------- ------ ------- ------- -------- MAXIMUM FUND EXPENSES Base + PDB + EEB + GIPB............... $1,182 $1,861 $2,558 $4,036 $382 $1,161 $1,958 $4,036 MINIMUM FUND EXPENSES Base + PDB + EEB + GIPB............... $1,115 $1,663 $2,235 $3,429 $315 $ 963 $1,635 $3,429
Different fees and expenses not reflected in the examples above apply after annuity payments commence. Please see the section entitled "Contract Charges and Fees" for a discussion of those expenses. The examples contained in this table should not be considered a representation of past or future expenses. Actual expenses may be greater or less than those shown. Page 11 Expenses After Annuity Payments Commence The next section shows the fees and charges that apply to your contract after you have annuitized it. SEPARATE ACCOUNT BASED CHARGES Mortality and Expense Risk Fee 1.35% Optional Death Benefit Charges Not Applicable Other Optional Separate Account Charges Not Applicable
OTHER CHARGES Other Optional Benefit Charges taken from Contract Value Not Applicable
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. THE PORTFOLIOS Below is a list of the portfolios and their investment adviser and investment sub-adviser. The prospectus for the portfolios must accompany this Prospectus and contain more detailed information about each portfolio. The portfolio's investment objectives are contained within the portfolio's prospectus. No assurance can be given that a portfolio will achieve its investment objective. You should carefully read the prospectus before investing in the contract.
INVESTMENT INVESTMENT FUND/PORTFOLIO ADVISER SUB-ADVISER -------------- ---------- ----------- IVY FUNDS VARIABLE INSURANCE PORTFOLIOS, INC.: Ivy Funds VIP Asset Strategy Waddell & Reed Investment Management Company Ivy Funds VIP Balanced Waddell & Reed Investment Management Company Ivy Funds VIP Bond Waddell & Reed Investment Management Company Ivy Funds VIP Core Equity Waddell & Reed Investment Management Company Ivy Funds VIP Dividend Opportunities Waddell & Reed Investment Management Company Ivy Funds VIP Energy Waddell & Reed Investment Management Company Ivy Funds VIP Global Natural Resources Waddell & Reed Investment Mackenzie Financial Management Company Corporation Ivy Funds VIP Growth Waddell & Reed Investment Management Company Ivy Funds VIP High Income Waddell & Reed Investment Management Company Ivy Funds VIP International Growth Waddell & Reed Investment Management Company Ivy Funds VIP International Value Waddell & Reed Investment Templeton Investment Management Company Counsel, LLC Ivy Funds VIP Micro Cap Growth Waddell & Reed Investment Wall Street Associates Management Company Ivy Funds VIP Mid Cap Growth Waddell & Reed Investment Management Company Ivy Funds VIP Money Market Waddell & Reed Investment Management Company Ivy Funds VIP Mortgage Securities Waddell & Reed Investment Advantus Capital Management, Management Company Inc. Ivy Funds VIP Real Estate Securities Waddell & Reed Investment Advantus Capital Management, Management Company Inc. Ivy Funds VIP Science and Technology Waddell & Reed Investment Management Company Ivy Funds VIP Small Cap Growth Waddell & Reed Investment Management Company Ivy Funds VIP Small Cap Value Waddell & Reed Investment Management Company
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INVESTMENT INVESTMENT FUND/PORTFOLIO ADVISER SUB-ADVISER -------------- ---------- ----------- Ivy Funds VIP Value Waddell & Reed Investment Management Company Ivy Funds VIP Pathfinder Aggressive Waddell & Reed Investment Management Company Ivy Funds VIP Pathfinder Moderately Aggressive Waddell & Reed Investment Management Company Ivy Funds VIP Pathfinder Moderate Waddell & Reed Investment Management Company Ivy Funds VIP Pathfinder Moderately Conservative Waddell & Reed Investment Management Company Ivy Funds VIP Pathfinder Conservative Waddell & Reed Investment Management Company
Page 13 DESCRIPTION OF THE CONTRACT Your 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 retirement plan. The contract provides for a variable annuity or a fixed annuity to begin at some future date. You must complete an application and submit it to us. We will review your application form for compliance with our issue criteria, and if it is accepted, we will issue the contract to you. In some states you may be able to purchase the contract through an automated electronic transmission process. Ask your representative about availability and details. The annuitant must be the same as the owner except in situations where the owner is other than a natural person, such as a trust, corporation or similar entity or where otherwise agreed to by us. RIGHT OF CANCELLATION OR "FREE LOOK" You should read your contract carefully as soon as you receive it. You may cancel your contract within twenty 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 during the "free look period", we will refund to you the amount required by your state. This amount is either your contract value less the amount of any credit enhancement(s) which were credited to your contract plus any premium tax charges that may have been deducted, or your purchase payments at the time you exercise your free look right. Purchase payments will be invested in accordance with your allocation instructions during the free look period. You may bear the investment risk for your purchase payments during this period. 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. See your contract for complete details regarding your right to cancel. 1035 EXCHANGES OR REPLACEMENTS If you are considering the purchase of this contract with the proceeds of another annuity or life insurance contract, also referred to as a "Section 1035 Exchange" or "Replacement", it may or may not be advantageous to replace your existing contract with this contract. You should compare both contracts carefully. You may have to pay surrender charges on your old contract and there is a deferred sales charge period for this contract. In addition, the charges for this contract may be higher (or lower) and the benefits or investment options may be different from your old contract. You should not exchange another contract for this one unless you determine, after knowing all of the facts, that the exchange is in your best interest. PURCHASE PAYMENTS You choose when to make purchase payments. Your initial purchase payment must be at least equal to the following and must be in U.S. dollars: $10,000 $2,000 for IRAs and Qualified Retirement Plans
We may reduce the initial purchase payment requirement if you purchase this contract through a 1035 exchange or qualified plan, direct transfer from a contract issued by another carrier and at the time of application the value of the other contract(s) meets or exceeds the applicable minimum initial purchase payment for this contract; but prior to receipt by us of the proceeds from the other Page 14 contract(s), the value drops below the minimum initial purchase payment requirement due to market conditions. You must submit this amount along with your application. There may also be limits on the maximum contributions that you can make to retirement plans. Be sure to review your retirement plan's contribution rules applicable to your situation. We will return your initial payment or any subsequent payment within five business days if: (1) your application or instructions fail to specify which Portfolios you desire, or are otherwise incomplete, or (2) you do not consent to our retention of your payment until the application or instructions are made complete and in "good order." Purchase payments subsequent to your initial payment must be at least $500 regardless of the type of contract you purchase or the retirement plan with which it is used. Total purchase payments may not exceed $5,000,000, for the same owner or annuitant except with our consent. In addition, total aggregate purchase payments (or transfers) allocated to the General Account and each of the Guarantee Periods of the Guaranteed Term Account, may not exceed $250,000, without our prior consent. Currently we are waiving this limitation up to an aggregate amount of $500,000. For purposes of this limitation, we may aggregate other Minnesota Life annuity contracts with this one. 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 deferred sales charges. CREDIT ENHANCEMENT AND RECAPTURE We have filed an application with the SEC requesting the required relief to permit the offering of the proposed credit enhancement and its recapture. We will not effect any recapture unless and until the SEC has issued an order approving the pending credit enhancement application. For contracts issued after May 1, 2008, when you make a purchase payment to your contract, we will add an amount, called a credit enhancement, to your contract value if your cumulative net purchase payments meet or exceed $250,000. Cumulative net purchase payments are the total of all purchase payments we have received for this contract less any prior withdrawals from contract value (including associated charges). No credit enhancement will be applied if your cumulative purchase payments are less than $250,000. When we receive a purchase payment, we will evaluate whether your contract is eligible for a credit enhancement based on your cumulative net purchase payments, according to the following schedule:
CUMULATIVE NET PURCHASE PAYMENTS CREDIT ENHANCEMENT PERCENTAGE -------------------------------- ----------------------------- $250,000-$499,999.99 0.25% $500,000-$749,999.99 0.50% $750,000-$999,999.99 0.75% $1,000,000 or more 1.00%
The amount of the credit enhancement will be calculated as follows: a. cumulative net purchase payments; multiplied by b. the applicable credit enhancement percentage from the table above; minus c. any credit enhancements previously applied to contract value The credit enhancement will be added to your contract value and allocated to the sub-accounts of the variable account, the general account and the guaranteed term account options in the same proportion as the purchase payment that triggers the credit enhancement calculation. Page 15 We will take back, or recapture, credit enhancements in the following circumstances: 1) If you return your contract under the right of cancellation/free look provision, we will deduct an amount equal to all of the credit enhancements added to your contract; 2) If a death benefit is paid, we will deduct an amount equal to all credit enhancements added to your contract within 12 months of the date any amounts are paid out as a death benefit; and 3) If you apply amounts to provide annuity payments (i.e., annuitize) we will recapture all credit enhancements added to your contract within 12 months of the date you apply amounts to provide annuity payments. We will never recapture more than the dollar amount of the credit enhancement added to your contract. In other words, we do not recapture investment gain or earnings attributable to credit enhancements. However, decreases in your contract's sub-account values, which includes the value of the accumulation units attributable to credit enhancements, does not diminish the dollar amount subject to recapture. Therefore, additional accumulation units must become subject to recapture as the value of accumulation units decreases. Stated differently, you bear the investment risk for the credit enhancements added to your contract because the proportionate share of any contract owner's variable contract value that we recapture increases as the variable contract value decreases. This has the potential to dilute somewhat the contract owner's interest in their contract as compared to other contract owners who do not trigger the recapture provision. Finally, because it is not administratively feasible to track unvested credit enhancements, we are unable to refund any asset based fees or charges that might be applied to credit enhancements which are subsequently recaptured. The credit enhancements are treated as earnings for federal tax purposes. Credit enhancements are also treated as earnings, not purchase payments, when you calculate a benefit, such as an optional benefit, under the contract. Some of the guaranteed and optional benefits under this contract have an initial benefit value equal to the amount of your purchase payments. Since the credit enhancement is not treated as a purchase payment, it will not increase the initial value of that benefit. If however, a benefit calculation uses the contract value, such as when a benefit "resets" or if the benefit is added on a contract anniversary with an initial benefit equal to contract value, the current value of the credit enhancement will be reflected in the guaranteed or optional benefit. The following guaranteed or optional benefits have initial benefit values based on purchase payments: Guaranteed Minimum Death Benefit, 5% Death Benefit Increase, Highest Anniversary Death Benefit, Premier Death Benefit, Guaranteed Income Protection Benefit, Guaranteed Minimum Withdrawal Benefit, Guaranteed Lifetime Withdrawal Benefit and the Guaranteed Lifetime Withdrawal Benefit II. For examples of how the credit enhancement may impact a particular optional benefit, please see Appendix H. The deferred sales charges may be higher and the deferred sales charge period may be longer than other products that do not offer a credit enhancement. Also, the mortality and expense risk charge may be higher than that charged under other products which, in some cases, offer comparable features, but which have no credit enhancement. We use a portion of the deferred sales charge and mortality and expense risk charge to recover the cost of providing the credit enhancement and to the extent these amounts exceed our costs we expect to make a profit. There may be circumstances under which the contract owner may be worse off from having received the credit enhancement. For example, if the contract owner cancels the contract during the free look period, we recapture the dollar value of all of the credit enhancements that had been credited to your Page 16 contract. If the state law provides that contract value is returned on a free look, and if the performance of the applicable sub-accounts has been negative during that period, we will return the contract value less the credit enhancement(s). The negative performance associated with the credit enhancement will reduce the contract value more than if the credit enhancement had not been applied. AUTOMATIC PURCHASE PLAN If you elect to establish an Automatic Purchase Plan (APP), the minimum subsequent purchase payment amount is reduced to $100. You may elect purchase payments to occur on a bi-weekly, monthly, bi-monthly, quarterly, semi-annual or annual basis. You must also select which day of the month you would like your APP draft to occur. You may select from the 1st day of the month through the 25th day. If the date you selected falls on a date that is not a valuation date, for example because it's a holiday or weekend, the transaction will be processed on the next valuation date. PURCHASE PAYMENT ALLOCATION OPTIONS Your purchase payments may be allocated to a portfolio of the variable annuity account, to our general account or to one or more guarantee period(s) of the guaranteed term account. There is no minimum amount which must be allocated to any of the allocation options. Total aggregate purchase payments or transfers allocated to the General Account and each of the Guarantee Periods of the Guaranteed Term Account, may not cause the aggregate value of the general account and each of the guarantee periods of the Guaranteed Term Account to exceed $250,000 without our prior consent. Currently we are waiving this limitation up to an aggregate amount of $500,000. TRANSFERS Values may be transferred between the general account, guarantee period(s) of the guaranteed term account and/or between or among the portfolios of the variable annuity account. You may effect transfers or change allocation of future purchase payments by written request, internet (through our on-line service center) or telephone transfer. We will make the transfer on the basis of accumulation unit values next determined after receipt of your request at our home office. You may make 12 transfers each contract year for each contract by U.S. Mail, facsimile, or telephone. Once you have executed the 12 transfers, you may only submit additional transfer requests by U.S. Mail or overnight delivery service. Transfer requests submitted through same day mail or courier service will not be accepted. If you want to cancel a transfer request after you have executed 12 transfers, you must also cancel it in writing by U.S. Mail or overnight delivery service. Systematic transfers will not count towards this limitation. Unless stated otherwise, the same conditions and procedures that apply to written requests apply to telephone requests including any faxed requests. We have procedures designed to provide reasonable assurance that telephone or faxed 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 or faxed transactions. There is generally no dollar amount limitation on transfers. However, transfers may not cause the aggregate value of the general account and each of the guaranteed periods to exceed $250,000 without our prior consent. Currently we are waiving this limitation up to an aggregate amount of $500,000. In addition, transfers from the general account will be limited to a single transfer during Page 17 any contract year in an amount not to exceed 20% of the general account value at the time of the transfer request. However, in the case of general account values of $1,000 or less, we will allow a one-time transfer of the entire general account value to the portfolios of the variable annuity account or to a guarantee period of the guaranteed term account. (Additional limitations apply in the case of systematic transfer arrangements. See "Systematic Transfer Arrangements".) No deferred sales charge will be imposed on transfers. In addition, there is no charge for transfers. A market value adjustment may apply in the case of amounts transferred from a guarantee period of the guaranteed term account. Please refer to the section "General Information -- The General Account and Guaranteed Term Account" for details. During periods of marked economic or market changes, you may experience difficulty making a telephone request due to the volume of telephone calls. If that occurs, you should consider submitting a written request while continuing to attempt your transaction request. 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; Page 18 - 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 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. In addition to our market timing procedures, the underlying portfolios may have their own market timing policies and restrictions. While we reserve the right to enforce the portfolios' policies and procedures, contract owners and other persons with interests under the contracts should be aware that we may not have the contractual authority or the operational capacity to apply the market timing policies and procedures of the portfolios, except that, under SEC rules, we are required to: (1) enter into a written agreement with each portfolio or its principal underwriter that obligates us to provide the portfolio promptly upon request certain information about the trading activity of individual contract owners, and (2) execute instructions from the portfolio to restrict or prohibit further purchases or transfers by specific contract owners who violate the market timing policies established by the portfolios. None of these limitations apply to transfers under systematic transfer programs such as Dollar Cost Averaging or Automatic Portfolio Rebalancing. SYSTEMATIC TRANSFER ARRANGEMENTS We offer certain systematic transfer arrangements including rebalancing and dollar cost averaging. You may elect either of these methods to occur on a monthly, quarterly, semi-annual or annual basis. However, you may not elect both of these systematic transfer arrangements on the same contract at the same time. You must also select the day of the month you would like the transaction to be processed (ranging from the 1st to the 25th day of the month). After annuitization, the date must range from the 2nd to the 25th day of the month. If a transaction cannot be completed on that date, for example, because it's a weekend or holiday, it will be processed on the next valuation date. There will be no charge for any of the systematic transfer arrangements described below, and they will not count toward your 12 transfers in any single contract year described above. AUTOMATIC PORTFOLIO REBALANCING Rebalancing is a technique where you instruct us to re-allocate specific portfolios periodically to a predetermined percentage. We will re-allocate your portfolios based on the designated date, frequency and percentage instructions you provide to us. Rebalancing will not affect your allocation of future purchase payments and is not limited to a maximum or minimum number of portfolios. Rebalancing is not available for values in a guarantee period of the guaranteed term account. You may transfer 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 value at the time of Page 19 the transfer request. For contracts where the general account 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, rebalances will be allowed to the extent of the greater of the current transfer amount or 10% of the then current general account value. We reserve the right to alter such transfer restrictions, even if you have established rebalancing out of the general account previously, but will do so only upon prior written notice to you. If you elect a variable annuitization, the annuitant may instruct us to rebalance the variable sub-accounts. Rebalancing is not available for any portion that is a fixed annuitization. DOLLAR COST AVERAGING Dollar Cost Averaging ("DCA") is another type of systematic transfer arrangement. DCA is an investment technique by which you invest a set amount of money at regular intervals. This technique averages the cost of the units you purchase over the period of time and may help to even out the market's volatility in your portfolio. You must instruct us with the date, amount, frequency and the portfolios you wish to be included. DCA will not affect your allocation of future purchase payments and is not limited to a maximum or minimum number of portfolios. DCA instructions will remain active until the portfolio is depleted in the absence of specific instructions otherwise. Although DCA is available for values in the guaranteed term account remember that amounts transferred prior to the end of a guarantee period may be subject to a market value adjustment. DCA is not available after you annuitize. You may use DCA to transfer your entire general account value out of the general account over a set period of time. The minimum period of time is 12 months if it is set up on a monthly basis. If set up on a less frequent basis, the minimum period of time is the time period needed to complete 12 transfers, (e.g., quarterly would be over a period of 3 years). You may also transfer 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 value at the time of the transfer request. For contracts where the general account 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, DCA will be allowed to the extent of the greater of the current transfer amount or 10% of the then current general account value. We reserve the right to alter such transfer restrictions, even if you have established DCA out of the general account previously, but will do so only upon prior written notice to you. PURCHASE PAYMENTS AND VALUE OF THE CONTRACT CREDITING ACCUMULATION UNITS During the accumulation period each purchase payment is credited on the valuation date on or following the date we receive the purchase payment at our home office. We will credit your purchase payments allocated to the variable annuity account, 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. Page 20 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 portfolio(s). We will determine the value of accumulation units on each day on which each portfolio is valued. The net asset value of the portfolios' shares shall be computed once daily, and, in the case of money market portfolio, after the declaration of the daily dividend, as of the primary closing time for business on the New York Stock Exchange ("Exchange") (currently, 3:00 p.m., Central Time), on each day, Monday through Friday, except: - days on which changes in the value of that portfolio's securities will not materially affect the current net asset value of that portfolio's shares, - days during which none of that portfolio's shares are tendered for redemption and no order to purchase or sell that portfolio's shares is received by that portfolio, and - customary national business holidays on which the Exchange is closed for trading. The value of accumulation units for any given sub-account will be the same for 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- account of the variable annuity account, the contracts allow you to allocate purchase payments to our general account or to the guarantee periods of the guaranteed term account for accumulation at a guaranteed interest rate. VALUE OF THE CONTRACT The contract 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 portfolio to which you allocate values by the current value of those units and then adding the values so calculated. Then add to that amount any value you have allocated to the general account and guarantee period(s) of the guaranteed term account. There is no assurance that your contract value will equal or exceed your purchase payments. 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. NET INVESTMENT FACTOR FOR EACH VALUATION PERIOD The net investment factor is an index used to measure the investment performance of a sub-account of the variable annuity 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 Page 21 1.25% per annum (1.35% per annum after annuitization). If you elected an optional death benefit option and/or other optional benefit, the charge associated with that option will also be deducted. The gross investment rate may be positive or negative and 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. REDEMPTIONS, WITHDRAWALS AND SURRENDER Prior to the date annuity payments begin you may make partial withdrawals from your contract in amounts of at least $250. We will waive the minimum withdrawal amount: - on withdrawals where a systematic withdrawal program is in place and the smaller amount satisfies the minimum distribution requirements of the Code, or - when the withdrawal is requested because of an excess contribution to a tax-qualified contract. To request a withdrawal or surrender (including 1035 exchanges) you must submit to Annuity Services, a fully completed and signed Minnesota Life surrender or withdrawal form. The form(s) may be sent to us via facsimile. Our FAX number is: (651) 665-7942. Payment of a partial withdrawal or surrender will be made to you within 7 days after we receive your completed request. Withdrawal values will be determined as of the valuation date we receive your written withdrawal request at our home office. Unless you tell us otherwise, withdrawals (including systematic withdrawals) will be made from the variable annuity account, the general account and all guarantee periods of the guaranteed term account on a pro rata basis. Your contract value will be reduced by the amount of your withdrawal and any applicable deferred sales charge. Withdrawals or surrenders from one of the guarantee periods of the guaranteed term account may also be subject to a market value adjustment. Please refer to the sections titled; "General Information -- The General Account" and the "Guaranteed Term Account" for details. If a withdrawal leaves you with a contract value of less than $1,000, we may elect to treat your withdrawal as a full surrender of your contract and send you your contract's surrender value, as calculated below. Before annuity payments begin, you may surrender the contract for its surrender value. You will receive the surrender value in a single cash sum. The surrender value of your contract is the contract value computed as of the valuation date your surrender request is received, reduced by any applicable deferred sales charge and any market value adjustment for amounts held in a guarantee period of the guaranteed term account. 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 annuity benefit and receive a single sum instead (see "Electing the Retirement Date and Annuity Option" for more information). Page 22 MODIFICATION AND TERMINATION 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. The contract permits us to cancel your contract, and pay you its contract 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 contract 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. We will not terminate your contract solely because of poor sub-account performance. If we do elect to terminate your contract under this provision, no deferred sales charge will apply. 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: - neither the annuitant's or your interest may 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. You should discuss the tax consequences with your tax advisor. 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. 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 Exchange is closed other than customary weekend and holiday closings, or during which trading on the Exchange is restricted, as determined by the Securities and Exchange Commission ("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 Page 23 - other periods the SEC by order permits for the protection of the contract owners. See the section titled "General Account and Guaranteed Term Account", for additional restrictions on those options. CONFIRMATION STATEMENTS AND REPORTS You will receive confirmation statements of any unscheduled purchase payment, transfer, or withdrawal; surrender; and payment of any death benefit. You will also receive quarterly statements with certain contract information. Statements will include the number of accumulation units in your contract, current value of those units and the contract's total value. Scheduled transactions such as systematic withdrawals, automatic purchase payment plans and systematic transfers will be shown on your quarterly statement following the transaction. It will also include information related to any amount you have allocated to the general account or guarantee periods of the guaranteed term account. CONTRACT CHARGES AND FEES 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 value is reduced by a withdrawal or a surrender, a deferred sales charge ("DSC") may be deducted. The DSC applies to the total amount withdrawn, including the DSC (see example below). A DSC of up to 8% may apply to partial withdrawals and surrenders. The DSC will be deducted pro rata from all sub-accounts from which withdrawals are made. This is designed to compensate us for the distribution expenses of the contract. To the extent the sales expenses are not recovered from the sales charge, we will recover them from our other assets or surplus, including profits from mortality and expense risk charges. 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. The applicable DSC percentage is as shown in the table below:
CONTRACT YEARS SINCE PAYMENT CHARGE ---------------------------- ------ 0-1 8% 1-2 8% 2-3 7% 3-4 6% 4-5 6% 5-6 5% 6-7 4% 7-8 3% 8 and thereafter 0%
Page 24 The amount of the DSC 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 DSC from all purchase payments so calculated. This amount is then deducted from your contract value. EXAMPLE Assume that all amounts to be withdrawn are subject to a DSC. If the contract owner requests a withdrawal of $1,000, and the applicable sales charge is 8% (because the purchase payment was made within the last 2 years), the contract owner will receive $1,000, the sales charge will be $86.96 (which represents the sales charge applied to the total amount withdrawn, including the sales charge) and the total withdrawal amount deducted from the contract value will equal $1,086.96. The DSC will not apply to: - Amounts withdrawn in any contract year that are less than or equal to the annual "free amount." The free amount shall be equal to 10% of purchase payments not previously withdrawn and received by us during the current contract year, plus the greater of: (1) contract value less purchase payments not previously withdrawn, as of the most recent contract anniversary; or (2) 10% of the sum of purchase payments not previously withdrawn and still subject to DSC as of the most recent contract anniversary. - Amounts withdrawn to pay the annual maintenance fee. - 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). - The difference between any required minimum distribution due (according to Internal Revenue Service (IRS) rules) on this contract and any annual "free amount" allowed. - A surrender or withdrawal requested any time after the first contract anniversary and if you meet the requirements of a qualifying confinement in a hospital or medical care facility as described below. - A surrender or withdrawal requested any time after the first contract anniversary and in the event that you are diagnosed with a terminal illness as described below. - A surrender or a single withdrawal amount any time after the first contract anniversary if the unemployment waiver applies. - Withdrawals in a contract year if less than or equal to the Guaranteed Annual Withdrawal (GAW) if you have purchased the Guaranteed Minimum Withdrawal Benefit option. - Withdrawals in a contract year if less than or equal to the Guaranteed Annual Income (GAI) if you have purchased the Guaranteed Lifetime Withdrawal Benefit, Guaranteed Lifetime Withdrawal Benefit II-Single or Guaranteed Lifetime Withdrawal Benefit II-Joint. Page 25 NURSING HOME OR TERMINAL ILLNESS WAIVER 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 DSC (Nursing Home Waiver). 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 DSC (Terminal Illness Waiver). 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 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. 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 in accordance with the provisions of this contract, a one-year waiting period will apply after the date of the change before the new owner or annuitant is eligible for this benefit. The Nursing Home Waiver is not available in Massachusetts. In Texas and New Jersey there is no one year waiting period for 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. UNEMPLOYMENT WAIVER Any time after the first contract anniversary, the DSC will be waived for a single withdrawal from or surrender of your contract if you become unemployed. To qualify for this benefit, you must take the following steps: - provide us proof from a state unemployment agency indicating you have been receiving unemployment benefits for at least 60 consecutive days; - provide us proof that you were a full-time employee (at least 30 hours per week) on the date your contract was issued; and - apply for this benefit within 180 days of receipt of your first unemployment compensation payment. Page 26 If the owner, or annuitant in the case of a contract owned by a non-natural person, is changed in accordance with the provisions of this contract, a one-year waiting period will apply after the date of the change before the new owner or annuitant is eligible for this benefit. This waiver may be exercised only one time. It is not available in Texas or Massachusetts. MORTALITY AND EXPENSE RISK CHARGE We assume mortality risk under the contract by our obligation to pay death benefits and 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. This charge is deducted during both the accumulation phase and the annuity phase of the contract. For assuming these risks, we make a deduction from the variable annuity account at the rate of 1.25% annually following of the net asset value during the accumulation period. During the annuity period the annual rate changes to 1.35%. ANNUAL MAINTENANCE FEE We charge an annual maintenance fee for maintaining the records and documents with each contract. This fee is $50 and it will be deducted on each contract anniversary and at surrender of the contract on a pro rata basis from your accumulation value in the variable annuity account. We waive this fee if the greater of your purchase payments, less withdrawals, or your contract value is $50,000 or more at each contract anniversary. OPTIONAL CONTRACT RIDER CHARGES If you elect one of the optional death benefits and/or one of the other contract options, the charge described below will apply to your contract. A complete description of each optional contract rider can be found under the corresponding section of the Prospectus. 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 to us. Some or all of such profit or "retained earnings" may be used to cover any distribution costs not recovered through the Deferred Sales Charge (DSC). Highest Anniversary Value (HAV) Death Benefit Option -- Charge - If you purchase the HAV optional death benefit, we will deduct an annual HAV death benefit charge (HAV charge) for expenses related to this optional benefit. The HAV charge is equal to 0.15% annually of the variable contract value and this amount will be deducted daily from amounts held in the variable annuity account. The charge does not apply after annuitization, or in the case of a partial annuitization to the portion of your contract annuitized. 5% Death Benefit Increase (5% DBI) Option -- Charge - If you purchase the 5% DBI optional death benefit, we will deduct an annual 5% DBI death benefit charge for expenses related to this optional benefit. The 5% DBI charge is equal to 0.25% annually of the variable contract value and this amount will be deducted daily from amounts held in the variable annuity account. The charge does not apply after annuitization, or in the case of a partial annuitization to the portion of your contract annuitized. Page 27 Premier Death Benefit (PDB) Option -- Charge - If you purchase the PDB optional death benefit, we will deduct an annual PDB death benefit charge for expenses related to this optional benefit. The PDB charge is equal to 0.35% annually of the variable contract value and this amount will be deducted daily from amounts held in the variable annuity account. The charge does not apply after annuitization, or in the case of a partial annuitization to the portion of your contract annuitized. Estate Enhancement Benefit (EEB) Option -- Charge - If you purchase the EEB optional benefit, we will deduct an annual EEB benefit charge for expenses related to this optional benefit. The EEB charge is equal to 0.25% annually of the variable contract value and this amount will be deducted from amounts held in the variable annuity account. This charge will also reduce the interest rate available with this option. See the "Other Contract Options -- Estate Enhancement Benefit Option" section of this Prospectus for additional information. The charge does not apply after annuitization, or in the case of a partial annuitization to the portion of your contract annuitized. Guaranteed Income Provider Benefit (GIPB) Option -- Charge - If you purchase the GIPB optional benefit, we will deduct an annual GIPB benefit charge for expenses related to this optional benefit. The GIPB charge is equal to 0.50% annually of the variable contract value and this amount will be deducted daily from amounts held in the variable annuity account. The charge does not apply after annuitization, or in the case of a partial annuitization to the portion of your contract annuitized. Guaranteed Minimum Withdrawal Benefit (GMWB) Option -- Charge - If you purchase the GMWB optional benefit, we will deduct a GMWB benefit charge on a quarterly basis for expenses related to this optional benefit. The current GMWB charge is equal to 0.50% annually multiplied by the Guaranteed Withdrawal Benefit (GWB) amount. Beginning with the GMWB effective date and at the end of every three months thereafter, one quarter of the GMWB charge (0.125%) will be multiplied by the GWB amount on that date will be deducted in proportion to the contract owner's allocation to the sub-accounts in the variable annuity account. The maximum possible annual charge will never exceed 1.00% of the GWB amount. The charge does not apply after annuitization, or in the case of a partial annuitization to the portion of your contract annuitized. In the event that the rider terminates or is cancelled prior to the charge being taken for the period, a pro rata portion of the charge will be taken for the period. Guaranteed Lifetime Withdrawal Benefit (GLWB) Option -- Charge - If you purchase the GLWB optional benefit, we will deduct a GLWB benefit charge on a quarterly basis for expenses related to this optional benefit. The GLWB charge is equal to 0.60% of contract value, deducted quarterly. Beginning with the GLWB effective date and at the end of every three months thereafter, one quarter of the GLWB charge (0.15%) will be multiplied by the contract value on that date and will be deducted in proportion to the contractowner's allocation to sub-accounts in the variable annuity account. The charge does not apply after annuitization, or in the case of a partial annuitization to the portion of your contract annuitized. In the event that the rider terminates or is cancelled prior to the charge being taken for the period, a pro rata portion of the charge will be taken for the period. Page 28 Guaranteed Lifetime Withdrawal Benefit II-Single (GLWB II-Single) Option -- Charge - If you purchase the GLWB II-Single Life optional benefit, we will deduct a GLWB II-Single benefit charge on a quarterly basis for expenses related to this optional benefit. The GLWB II-Single charge is equal to 0.60% of the greater of the contract value or the Guaranteed Withdrawal Benefit (GWB) amount, deducted quarterly. The maximum possible charge for the rider is 1.00%. The GWB amount is equal to the initial purchase payment if this rider is added at contract issue. If the rider is added at a subsequent anniversary, the initial GWB will be equal to the contract value on the effective date of the rider. Beginning with the GLWB II- Single effective date and at the end of every three months thereafter, one quarter of the GLWB II-Single charge (0.15%) will be multiplied by the greater of the contract value or GWB on that date and will be deducted in proportion to the contract owner's allocation to sub-accounts in the variable annuity account. The charge does not apply after annuitization, or in the case of partial annuitization to the portion of your contract annuitized. In the event that the rider terminates or is cancelled prior to the charge being taken for the period, a pro rata portion of the charge will be taken for the period. Guaranteed Lifetime Withdrawal Benefit II-Joint (GLWB II-Joint) Option -- Charge - If you purchase the GLWB II-Joint Life optional benefit, we will deduct a GLWB II-Joint benefit charge on a quarterly basis for expenses related to this optional benefit. The GLWB II-Joint charge is equal to 0.75% of the greater of the contract value, or the Guaranteed Withdrawal Benefit (GWB) amount deducted quarterly. The maximum possible charge for the rider is 1.15%. The GWB amount is equal to the initial purchase payment if this rider is added at contract issue. If the rider is added at a subsequent anniversary, the initial GWB will be equal to the contract value on the effective date of the rider. Beginning with the GLWB II-Joint effective date and at the end of every three months thereafter, one quarter of the GLWB II-Joint charge (0.1875%) will be multiplied by the greater of the contract value or GWB on that date and will be deducted in proportion to the contract owner's allocation to sub-accounts in the variable annuity account. The charge does not apply after annuitization, or in the case of partial annuitization to the portion of your contract annuitized. In the event that the rider terminates or is cancelled prior to the charge being taken for the period, a pro rata portion of the charge will be taken for the period. PREMIUM TAXES Deduction for any applicable state premium taxes may be made from each purchase payment or when annuity payments begin. 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. MARKET VALUE ADJUSTMENT See the section titled "The General Account and the Guaranteed Term Account" for a complete description of this charge. UNDERLYING PORTFOLIO CHARGES These are deductions from and expenses paid out of the assets of the portfolio companies that are described in the prospectuses of those portfolios. Page 29 ANNUITIZATION BENEFITS AND OPTIONS ANNUITY PAYMENTS When you elect annuity payments to commence, or annuitize, you elect to convert your contract value into a stream of payments. This is sometimes referred to as the "payout" phase of your contract. You may choose a fixed or variable annuitization, or a combination of both. You may annuitize your entire contract or a portion of your contract. In the event you annuitize only a portion of your contract, your contract value will be reduced by the amount you annuitize. You may also wish to consult with your tax advisor in the event you choose a partial annuitization as the tax treatment under the Internal Revenue Code is unclear. Values will be allocated at your direction to our general account for purposes of providing a fixed annuity payment and to the sub-accounts of the variable annuity account for purposes of providing variable annuity payments. You also need to elect an annuity option, which is described below. If you choose a variable annuitization, annuity payments are determined by several factors: (a) the Assumed Investment Return (AIR) and mortality table specified in the contract, (b) the age and gender of the annuitant and any joint annuitant, (c) the type of annuity payment option you select, and (d) the investment performance of the 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 described in the contract. The annuitant will receive the value of a fixed number of annuity units each month. The value of those units, and thus the amounts of the monthly annuity payments will, however, reflect investment gains and losses and investment income of the portfolios. In other words, the annuity payments will vary with the investment experience of the assets of the portfolios you select. The dollar amount of payment determined for each sub- account will be aggregated for purposes of making payments. When your contract is annuitized, any death benefit or living benefit rider is terminated and you are no longer eligible for any death benefit(s) or living benefit(s) if elected under the contract. However, your beneficiaries may be entitled to any remaining annuity payments, depending on the annuity option used. You should refer to the section of the prospectus describing the specific optional benefit you have elected and the Annuity Options section below for additional information. Annuitization may provide higher income amounts and/or different tax treatment than payments or withdrawals taken as part of a living benefit. You should consult with your tax advisor, your financial advisor and consider requesting an annuitization illustration before you decide. ELECTING THE RETIREMENT DATE AND ANNUITY OPTION You may elect to begin annuity payments immediately or at a future date you specify. If you do not elect to begin annuity payments, annuity payments will begin on the annuity commencement date. You may request a change in the annuity commencement date at any time before the maturity date. You must notify us in writing at least 30 days before annuity payments are to begin. Under the contract, if you do not make an election for an annuity commencement date, annuity payments will begin automatically on the maturity date. The maturity date is the first of the month following the later of: - the 85th birthday of the annuitant, or - ten years after the date of issue of the contract. Page 30 Currently, it is our practice to await your instructions before beginning to pay annuity payments and we may allow you to extend the annuity commencement or maturity date stated in your contract. However, we reserve the right, in our sole discretion, to refuse to extend your annuity commencement date or the maturity date, regardless of whether we may have granted extensions in the past to you or other similarly situated contract owners. There may be adverse tax consequences for delaying the maturity date. See the section of this Prospectus entitled "Federal Tax Status" for a further description of those risks. Some broker-dealers may not allow you to elect an annuity commencement date or extend a maturity date beyond age 95. The contract permits an annuity payment to begin on the first day of any month. The minimum first annuity payment whether on a variable or fixed dollar basis must be at least $50 for the payment frequency elected. If the first annuity payment would be less than $50, we may fulfill our obligation by paying in a single sum the surrender value of the contract. The maximum amount which may be applied to provide a fixed annuity under the contract without our prior consent is $1,000,000. ANNUITY OPTIONS 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. Except for variable annuity payment under Option 4, once annuity payments have commenced you cannot surrender an annuity benefit and receive a single sum settlement in lieu thereof. If you fail to elect an annuity option and your entire contract value is in the general account, a fixed annuity will be provided and the annuity option will be a life annuity with cash refund. If a portion of your contract value is allocated to the variable sub-accounts, a fixed and/or variable annuity will be provided proportional to the allocation of your available value and the annuity option will be Option 2A, a life annuity with a period certain of 120 months, unless a shorter period certain is needed to meet IRS requirements. OPTION 1 -- LIFE ANNUITY This is an annuity payment option which is payable monthly during the lifetime of the annuitant and it terminates with the last scheduled payment preceding the death of the annuitant. This option offers the maximum monthly payment (of those options which involve a life contingency) 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 payment option which is 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 payment option which is 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 continuation of payments to 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 Page 31 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 payment option which is payable monthly for a period certain of 10 to 20 years, as you choose; our consent is required for any other period of years. 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 any amounts in 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. If you have elected an optional GMWB, GLWB or GLWB II benefit and it is still in effect when you reach the maximum maturity date, we will offer you a fifth annuity option. For GMWB, this option provides a fixed annuity payment equivalent on an annual basis to your maximum GAW until the GWB is reduced to zero at which point annuity payments will cease. For GLWB and GLWB II, the annuity option will provide a fixed annuity payment equivalent on an annual basis to your current GAI for the remainder of your life (or the life of the joint owner or designated life, where applicable). These options will generally be more favorable when your remaining benefit value is greater than the current contract value and you believe it is unlikely your contract value will exceed the remaining benefit value in the future. You should consider requesting an annuitization illustration if you have questions about which annuity option is appropriate for you. CALCULATION OF YOUR FIRST ANNUITY PAYMENT The contract value, adjusted for any applicable market value adjustment for amounts in the guaranteed term account, is available to provide annuity payments. Some states impose a premium tax on the amounts used to provide annuity payments. These taxes may vary based on the type of plan involved and we may deduct these amounts from the amount available to provide annuity payments. The amount of the first monthly payment depends on the annuity payment option elected, gender (except in tax-qualified plans that require the use of genderless rates), 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 which show the dollar amount of the first monthly payment for each $1,000 of value applied for fixed or variable annuity payment options. If, when payments are elected, we are using tables of annuity rates for this contract which are more favorable, we will apply those rates instead. If you elect a variable annuity payment, the first monthly payment is determined from the applicable tables in the contract. This initial payment is then allocated in proportion to your value in each sub-account of the variable annuity account. A number of annuity units is then determined by dividing this dollar amount by the then current annuity unit value for each sub-account. Thereafter, the number of annuity units remains unchanged during the period of annuity payments, except for transfers and in the case of certain joint annuity payment options which provide for a reduction in payment after the death of the annuitant. Page 32 A 4.50% assumed investment return (AIR) is used for the initial variable annuity payment determination. This 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%. (See section entitled 'Value of Annuity Unit'). Annuity payments are generally made as of the first day of a month, unless otherwise agreed to by us. The contract requires that we receive notice of election to begin annuity payments at least thirty days prior to the annuity commencement date. AMOUNT OF SUBSEQUENT VARIABLE ANNUITY PAYMENTS The dollar amount of the second and later variable annuity payments is equal to the number of annuity units determined for each sub-account multiplied by the current annuity unit value for that sub-account. This dollar amount may increase or decrease from month to month. VALUE OF THE ANNUITY UNIT The value of an annuity unit for each sub-account of the variable annuity account will vary to reflect the investment experience of the applicable portfolio(s). It will be determined by multiplying: (a) the value of the annuity unit for that sub-account for the preceding valuation date by; (b) the net investment factor (as defined in 'Special Terms') for that sub- account for the valuation date for which the annuity unit value is being calculated; and by (c) a factor that neutralizes the assumed investment return. This factor reverses the assumed investment return (AIR) which is used to calculate the initial variable payment and annuity units. It substitutes the performance of the underlying funds in place of the AIR to determine the increase or decrease in the value of the annuity units. TRANSFERS AFTER YOU HAVE ANNUITIZED YOUR CONTRACT After you annuitize, we hold amounts as "reserves" for our obligations to make annuity payments under your contract. You specify where we hold those reserves by choosing your payment allocation. 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 $1,000 or the entire amount of the reserve remaining in that sub-account, if less. - Such transfers are limited to one per contract year. - We must receive the written request for an annuity transfer in the home office at least 3 days in advance of the due date of the annuity payment subject to the transfer. A transfer request received less than 3 days prior to the annuity payment due date will be made as of the next annuity payment due date. 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- Page 33 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. 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 transfers of annuity reserves it will be effective for future annuity payments. DEATH BENEFITS BEFORE ANNUITY PAYMENTS BEGIN 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. The death benefit will be paid in a single sum to the beneficiary designated unless another form of settlement has been requested and agreed to by us. 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 contract value on the date we receive due proof of death will be directed into the general account, guaranteed term account or the sub-accounts of the variable annuity account, in the same proportion that each allocation bears to the contract value on the date the death benefit is calculated, in fulfillment of the guaranteed death benefit provision of the contract. The death benefit will be equal to the greater of: (a) the contract value; or (b) the total amount of purchase payments, adjusted pro rata(1) for partial withdrawals (including any DSC or MVA that applied to the partial withdrawal); or (c) if you purchased an optional death benefit when your contract was issued, the value due under the selected optional death benefit rider. (See the section titled "Optional Death Benefits" for details of this calculation.) 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 contract value) shall continue to be affected by the portfolio performance as allocated by the contract owner. The beneficiary has the right to allocate or transfer any amount to any available portfolio option, subject to the same limitations imposed on the contract owner. (1) The pro rata adjustment will be calculated by taking the total amount withdrawn, divided by the contract value prior to the withdrawal, and multiplying the result by the death benefit just prior to the withdrawal. For example: (10,000 withdrawal / 90,000 contract value prior to the withdrawal) x 100,000 death benefit just prior to withdrawal = 11,111. So "b" equals: 100,000 - 11,111 = 88,889 Page 34 SURVIVING SPOUSE OPTION 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 may be an adjustment to the contract value in the form of a death benefit. BENEFICIARY OTHER THAN THE SURVIVING SPOUSE If the designated beneficiary is a person other than the owner's spouse, that beneficiary may: (1) 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, or (2) take the entire value in the contract within five years after death of the owner. If there is no designated beneficiary, then the entire value in the contract must be distributed within five years after death of the owner. Alternatively, and if permitted by the IRS, a beneficiary may elect to receive a systematic distribution over a period not exceeding the beneficiary's life expectancy using a method that would be acceptable for purposes of calculating the minimum distribution required under the section 401(a)(9) of the Internal Revenue Code. Below is an overview of some of the more common scenarios and who would receive the death benefit (if any) under the contract terms. IF DEATH OCCURS BEFORE ANNUITY PAYMENTS BEGIN:
-------------------------------------------------------------------------------------- IF: THEN: -------------------------------------------------------------------------------------- The contract owner dies; and The joint contract owner receives the - there is a surviving joint contract death benefit owner; and - the annuitant is either living or deceased. -------------------------------------------------------------------------------------- The contract owner dies; and The designated beneficiary receives the - there is no joint contract owner; and death benefit - the annuitant is either living or deceased. -------------------------------------------------------------------------------------- The contract owner dies; and Contract owner's estate receives the death - there is no joint contract owner and benefit - there is no designated beneficiary (or all of the beneficiaries pre-decease the contract owner); and - the annuitant is either living or deceased. -------------------------------------------------------------------------------------- The annuitant dies; and The contract owner may name a new - contract owner is living annuitant -------------------------------------------------------------------------------------- The annuitant dies; and The designated beneficiary receives the - the contract owner is a non-natural death benefit. person, such as a trust --------------------------------------------------------------------------------------
OPTIONAL DEATH BENEFITS At the time you purchase your contract you may elect one of the optional death benefits. There is a particular charge associated with each optional death benefit. See the section titled "Optional Contract Rider Charges" for more information. Each optional contract feature may or may not be beneficial to you, depending upon your circumstances. You should consult your tax advisor and your financial advisor before you elect any optional features. These optional benefits are subject to state availability and we reserve the right to stop offering any option(s) at any time. Page 35 HIGHEST ANNIVERSARY VALUE DEATH BENEFIT OPTION - You may only elect this option at the time your contract is issued. - Once you elect this option you may not terminate or cancel the option. - The oldest contract owner, or oldest annuitant in the case where a non- natural person owns the contract, must be under age 76 at the time the contract is issued, in order to elect this option. The Highest Anniversary Value death benefit option provides for a periodic calculation of a death benefit based on the highest contract value on contract anniversaries as described below. The highest anniversary value will be determined on every contract anniversary prior to and including the contract anniversary following your 80th birthday. On the day your death benefit is determined, the highest anniversary value is equal to the greater of: (a) the contract value; or (b) the previous highest anniversary value increased by any purchase payments and reduced pro rata for amounts withdrawn since the previous highest anniversary value was determined. Where joint owners exist, there will be no further highest anniversary values determined after the contract anniversary following the 80(th) birthday of the oldest joint owner. After the death of the first joint owner, determination of new highest anniversary values may resume on the next contract anniversary if the surviving joint owner continues the contract. Death benefit guarantees continue to apply and will be based on the age of the surviving owner. This death benefit option will terminated at the earliest of the payment of all death benefits available under the contract, termination or surrender of the contract, or the annuity commencement date where all remaining contract value has been applied to provide annuity payments. Page 36 HIGHEST ANNIVERSARY VALUE DEATH BENEFIT RIDER ILLUSTRATION
HIGHEST CONTRACT PURCHASE PAYMENTS CONTRACT ANNIVERSARY DEATH ANNIVERSARY AGE ADJUSTED FOR WITHDRAWALS VALUE VALUE BENEFIT ----------- --- ------------------------ -------- ----------- ------- 0 65 10,000 10,000 10,000 10,000 1 66 10,000 9,000 10,000 10,000 2 67 10,000 8,000 10,000 10,000 3 68 10,000 9,000 10,000 10,000 4 69 10,000 11,000 11,000 11,000 5 70 10,000 13,500 13,500 13,500 6 71 9,473 9,000 12,789 12,789 7 72 9,473 10,000 12,789 12,789 8 73 9,473 12,000 12,789 12,789 9 74 9,473 14,000 14,000 14,000 10 75 9,473 12,000 14,000 14,000 11 76 9,473 15,000 15,000 15,000 12 77 9,473 17,000 17,000 17,000 13 78 9,473 19,000 19,000 19,000 14 79 9,473 21,200 21,200 21,200 15 80 9,473 23,000 23,000 23,000 16 81 9,473 24,000 23,000 24,000
(PERFORMANCE GRAPH) Page 37 To illustrate the highest anniversary value death benefit rider, assume a contract is issued to an owner at age 65. A single $10,000 purchase payment is made into the variable annuity account with a single withdrawal of $500 on the sixth contract anniversary. On the sixth contract anniversary (owner age 71), a withdrawal of $500 occurs. Just prior to the withdrawal, the contract value is $9,500. The purchase payment adjusted for withdrawal is reduced pro rata for the withdrawal as follows: $10,000 - 10,000 x 500 / 9,500 = $9,473.68. The remaining contract value after the withdrawal is $9,000. The previous highest anniversary value is adjusted pro rata for the withdrawal as follows: $13,500 - 13,500 x 500 / 9,500 = 12,789.47. The adjusted highest anniversary value is still higher than the current contract value so the new highest anniversary value, and the resulting death benefit, is now $12,789.47. On the 10th contract anniversary (owner age 75), the highest anniversary value exceeds the contract value ($12,000) and purchase payments adjusted for withdrawals ($9,473). Therefore, the death benefit is equal to $14,000. On the 15th contract anniversary (owner age 80), both the highest anniversary value and contract value are $23,000. Since this value exceeds the purchase payments adjusted for withdrawals ($9,473), the death benefit is equal to $23,000. After the 15th contract anniversary (owner ages 81 and older), the highest anniversary value cannot exceed the highest anniversary value for the contract anniversary following the owner's 80th birthday. On the 16th contract anniversary (owner age 81), for example, the highest anniversary value is not increased to the contract value. Instead, the highest anniversary value remains $23,000, the highest anniversary value at owner age 80. Therefore, the death benefit at owner age 81 is equal to the $24,000 contract value. 5% DEATH BENEFIT INCREASE OPTION - You may only elect this option at the time your contract is issued. - Once you elect this option you may not terminate or cancel the option. - The oldest contract owner, or oldest annuitant in the case where a non- natural person owns the contract, must be under age 76 at the time the contract is issued, in order to elect this option. The 5% Death Benefit Increase option provides for the calculation of a death benefit based on accumulation at a guaranteed interest rate for values in the variable annuity account. On the day your death benefit is determined, the 5% death benefit increase value is equal to the sum of: (a) the portion of the contract value in the general account and guaranteed term account; and (b) purchase payments and transfers into the variable annuity account, less withdrawals and transfers out of the variable annuity account, accumulated to the earlier of the date we receive due proof of death or the contract anniversary following your 80th birthday at an interest rate of 5%, compounded annually. The 5% death benefit increase value shall not exceed 200% of the sum of purchase payments adjusted pro rata for any amounts previously withdrawn. If you die after the contract anniversary following your 80th birthday, the 5% death benefit increase value will be as of the contract anniversary following your 80th birthday, subject to the limit set forth above, less subsequent amounts withdrawn. Where joint owners exist, there will be no further accumulation of the 5% death benefit increase value after the contract anniversary following the 80th birthday of the oldest joint owner. After the Page 38 death of the first joint owner, accumulation of the 5% death benefit increase value may resume if the surviving joint owner continues the contract. Death benefit guarantees continue to apply and will be based on the age of the surviving owner. This death benefit option will terminate at the earliest of the payment of all death benefits available under the contract, termination or surrender of the contract, or the annuity commencement date where all remaining contract value has been applied to provide annuity payments. 5% DEATH BENEFIT INCREASE RIDER ILLUSTRATION
5% DEATH PURCHASE PAYMENTS BENEFIT CONTRACT ADJUSTED FOR CONTRACT INCREASE DEATH ANNIVERSARY AGE WITHDRAWALS VALUE VALUE BENEFIT ----------- --- ----------------- -------- -------- ------- 0 65 10,000 10,000 10,000 10,000 1 66 10,000 9,000 10,500 10,500 2 67 10,000 8,000 11,025 11,025 3 68 10,000 9,000 11,576 11,576 4 69 10,000 11,000 12,155 12,155 5 70 10,000 13,500 12,763 13,500 6 71 9,473 9,000 12,901 12,901 7 72 9,473 10,000 13,546 13,546 8 73 9,473 12,000 14,223 14,223 9 74 9,473 14,000 14,934 14,934 10 75 9,473 12,000 15,681 15,681 11 76 9,473 15,000 16,465 16,465 12 77 9,473 17,000 17,289 17,289 13 78 9,473 19,000 18,153 19,000 14 79 9,473 21,200 18,947 21,200 15 80 9,473 23,000 18,947 23,000 16 81 9,473 24,000 18,947 24,000
(PERFORMANCE GRAPH) To illustrate the 5% death benefit increase option, assume a contract is issued to an owner at age 65. A single $10,000 purchase payment is made into the variable annuity account with a single withdrawal of $500 on the sixth contract anniversary. Page 39 On the sixth contract anniversary (owner age 71), a withdrawal of $500 occurs. Just prior to the withdrawal, the contract value is $9,500 and the 5% death benefit increase value is $13,401. The purchase payment adjusted for withdrawal is reduced pro rata for the withdrawal as follows: $10,000 - 10,000 x 500 / 9,500 = $9,473.68. The remaining contract value after the withdrawal is $9,000. The 5% death benefit increase value is reduced by the amount of the withdrawal to $12,901 ($13,401 - 500), with $12,901 as the resulting death benefit. On the 10th contract anniversary (owner age 75), the 5% death benefit increase value exceeds the contract value ($12,000) and purchase payments adjusted for withdrawals ($9,473). Therefore, the death benefit is equal to $15,681. On the 14th contract anniversary (owner age 79), the 5% death benefit increase value reaches the maximum of 200% of purchase payments adjusted for withdrawals ($18,947). The contract value of $21,200 exceeds both the 5% death benefit increase value and the purchase payments adjusted for withdrawals ($9,473). For that reason, the death benefit is equal to $21,200. After the 15th contract anniversary (owner ages 81 and older), the 5% death benefit increase value cannot exceed the 5% death benefit increase value for the contract anniversary following the owner's 80th birthday. On the 16th contract anniversary (owner age 81), for example, the 5% death benefit increase value is not accumulated at 5%. Instead, the 5% death benefit increase value remains $18,947, the 5% death benefit increase value at owner age 80. Therefore, the death benefit at owner age 81 is equal to the $24,000 contract value. PREMIER DEATH BENEFIT OPTION - You may only elect this option at the time your contract is issued. - Once you elect this option you may not terminate or cancel the option. - The oldest contract owner, or oldest annuitant in the case where a non- natural person owns the contract, must be under age 76 at the time the contract is issued, in order to elect this option. The Premier Death Benefit option provides for a death benefit equal to the greater of the Highest Anniversary value or the 5% Death Benefit Increase value. Where joint owners exist, there will be no further highest anniversary value determined or accumulation of the 5% death benefit increase value after the contract anniversary following the 80th birthday of the oldest joint owner. After the death of the first joint owner, determination of the new highest anniversary value and accumulation of the 5% death benefit increase value may resume if the surviving joint owner continues the contract. Death benefit guarantees continue to apply and will be based upon the age of the surviving owner. This death benefit option will terminate at the earliest of the payment of all death benefits available under the contract; termination or surrender of the contract; or the annuity commencement date where all remaining contract value has been applied to provide annuity payments. PREMIER DEATH BENEFIT RIDER ILLUSTRATION
5% DEATH HIGHEST BENEFIT CONTRACT PURCHASE PAYMENTS CONTRACT ANNIVERSARY INCREASE DEATH ANNIVERSARY AGE ADJUSTED FOR WITHDRAWALS VALUE VALUE VALUE BENEFIT ----------- --- ------------------------ -------- ----------- -------- ------- 0 65 10,000 10,000 10,000 10,000 10,000 1 66 10,000 9,000 10,000 10,500 10,500 2 67 10,000 8,000 10,000 11,025 11,025 3 68 10,000 9,000 10,000 11,576 11,576
Page 40
5% DEATH HIGHEST BENEFIT CONTRACT PURCHASE PAYMENTS CONTRACT ANNIVERSARY INCREASE DEATH ANNIVERSARY AGE ADJUSTED FOR WITHDRAWALS VALUE VALUE VALUE BENEFIT ----------- --- ------------------------ -------- ----------- -------- ------- 4 69 10,000 11,000 11,000 12,155 12,155 5 70 10,000 13,500 13,500 12,763 13,500 6 71 9,473 9,000 12,789 12,901 12,901 7 72 9,473 10,000 12,789 13,546 13,546 8 73 9,473 12,000 12,789 14,223 14,223 9 74 9,473 14,000 14,000 14,934 14,934 10 75 9,473 12,000 14,000 15,681 15,681 11 76 9,473 15,000 15,000 16,465 16,465 12 77 9,473 17,000 17,000 17,289 17,289 13 78 9,473 19,000 19,000 18,153 19,000 14 79 9,473 21,200 21,200 18,947 21,200 15 80 9,473 23,000 23,000 18,947 23,000 16 81 9,473 24,000 23,000 18,947 24,000
To illustrate the premier death benefit option, assume a contract is issued to an owner at age 65. A single $10,000 purchase payment is made into the variable annuity account with a single withdrawal of $500 on the sixth contract anniversary. On the sixth contract anniversary (owner age 71), a withdrawal of $500 occurs. Just prior to the withdrawal, the contract value is $9,500 and the 5% death benefit increase value is $13,401. The purchase payment adjusted for withdrawal is reduced pro rata for the withdrawal as follows: $10,000 - 10,000 x 500 / 9,500 = $9,473.68. The remaining contract value after the withdrawal is $9,000. The previous highest anniversary value is adjusted pro rata for the withdrawal as follows: $13,500 - 13,500 x 500 / 9,500 = 12,789.47. The 5% death benefit increase value is reduced by the amount of the withdrawal to $12,901 ($13,401 - 500). The 5% death benefit increase value exceeds the contract value ($9,000), the purchase payments adjusted for withdrawals ($9,473) and the highest anniversary value ($12,789) resulting in a death benefit equal to $12, 901. On the 10th contract anniversary (owner age 75), the 5% death benefit increase value exceeds the contract value ($12,000), the purchase payments adjusted for withdrawals ($9,473) and the highest anniversary value ($14,000). Therefore, the death benefit is equal to $15,681. On the 15th contract anniversary (owner age 80), the highest anniversary value and contract value are equal and exceed both the purchase payments adjusted for withdrawals ($9,473) and 5% death benefit increase value ($18,947). Therefore, the death benefit is equal to $23,000. After the 15th contract anniversary (owner ages 81 and older), neither the highest anniversary value nor 5% death benefit increase value can exceed their respective values for the contract anniversary following the owner's 80th birthday. On the 16th contract anniversary (owner age 81), the contract value exceeds the purchase payments adjusted for withdrawals ($9,473), the highest anniversary value ($23,000) and the 5% death benefit increase value ($18,947). Therefore, the death benefit is equal to the $24,000 contract value. ESTATE ENHANCEMENT BENEFIT (EEB) OPTION - You may only elect this option at the time your contract is issued. - Once you elect this option you may not terminate or cancel the option. - The oldest contract owner, or oldest annuitant in the case where a non- natural person owns the contract, must be under age 76 at the time the contract is issued, in order to elect this option. Page 41 This contract option provides an additional amount to be added to the death benefit proceeds that become payable upon your death. It is designed to help pay expenses that may be due upon your death. We do not guarantee that the amounts provided by the EEB option will be adequate to cover any such expenses that your heirs may have to pay. If any contract owner dies before annuity payments begin, we will pay the EEB to the beneficiary. If the contract owner is a non-natural person, we will pay the EEB to the beneficiary based on the death of the annuitant. If you elect the EEB option, the interest rate which will be credited to any amounts in your contract which are allocated to any fixed account or any of the guarantee periods of the guaranteed term account, may be lower than the interest rate credited to a contract where the EEB option was not elected. This reduced interest rate helps to pay for the EEB benefit since the EEB benefit is based on all of the gain in your contract, including any interest credited under the fixed amount options. The interest rate used will in no event be less than the minimum guaranteed interest rate for your contract. FOR EXAMPLE: Assume a contract with a $10,000 purchase payment allocated entirely into the fixed account of the contract and the contract owner elects the EEB option. If the current interest rate credited for this fixed account is 3.50% generally, the interest rate credited will be 3.25% if the EEB option is elected. At the end of the first contract year, the contract owner will have a contract value in the fixed account of $10,325. Assuming the contract owner was under age 70, took no withdrawals, had the guaranteed minimum death benefit and died at the end of the first contract year, the EEB benefit would be $130. This is arrived at in the following way: death benefit amount, in this case contract value ($10,325) less purchase payments not previously withdrawn ($10,000) equals $325; multiplied by 0.40%, which equals $130. The 200% "cap" of purchase payments ($20,000 in this example) would not have been triggered, so the EEB benefit for this example is $130. Using the same assumptions as above, a contract owner who did not elect the EEB option would have received $25 in additional interest in his/her contract due to the higher interest rate credited (3.50% versus 3.25%), but that contract owner would not receive the EEB benefit of $130. The Estate Enhancement Benefit is calculated as follows: If the age of the contract owner (or annuitant as applicable) is less than 70 years old as of the contract date, the EEB is equal to 40% of the lesser of: (a) the calculated death benefit amount of the death benefit you selected less purchase payments not previously withdrawn; or (b) 200% of purchase payments not previously withdrawn, reduced starting with the third contract year, by any purchase payments received within the previous twelve months. If the age of the contract owner (or annuitant as applicable) is equal to or greater than 70 years old as of the contract date, the EEB is equal to 25% of the lesser of: (a) the calculated death benefit amount of the death benefit you selected less purchase payments not previously withdrawn; or (b) 200% of purchase payments not previously withdrawn, reduced starting with the third contract year, by any purchase payments received within the previous twelve months. The age used in determining the EEB is determined at the time the contract is issued. Where joint owners exist, the age of the oldest joint owner as of the contract date will be used in determining the EEB. If the owner of the contract is other than a natural person, the age of the oldest annuitant as of the contract date will be used in determining the EEB. Page 42 The value of the EEB will be determined as of the valuation date coincident with or next following the day we receive due proof of death at our home office. Any amounts due as an EEB will be directed into the general account, guaranteed term account, or the sub-accounts of the variable annuity account based on the same proportion that each bears in the contract value on the date the benefit is calculated. If the surviving spouse of a deceased contract owner is the sole beneficiary of the contract and elects to continue the contract, the spouse may choose to: Option A: Continue the EEB option. In this case the EEB amount is not calculated until the death of the surviving spouse making this election and charges for the option will continue to apply; or Option B: Stop the EEB option. In this case the EEB amount is calculated and added to the contract. The EEB option is then terminated and the additional 0.25% charge for the option will cease. A surviving spouse must make this election within 30 days of the date proof of death is provided to us at our home office. If no election is made within that time by the surviving spouse, Option B will apply and the EEB option will terminate. If there are any non-spouse beneficiaries in addition to the surviving spouse on a contract, only Option B will apply. This rider will terminate on the earliest of: - the payment of the EEB available; - termination or surrender of the contract; or - the date on which the contract has been fully annuitized. DEATH BENEFIT AFTER ANNUITY PAYMENTS BEGIN If the annuitant dies on or 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. OTHER CONTRACT OPTIONS (LIVING BENEFITS) Effective May 15, 2009, we are suspending availability of the following optional living benefits: - Guaranteed Minimum Withdrawal Benefit (GMWB) - Guaranteed Lifetime Withdrawal Benefit II - Single (GLWB II - Single) - Guaranteed Lifetime Withdrawal Benefit II - Joint (GLWB II - Joint) Applications, election forms, and any related transfer paperwork must be signed no later than May 15, 2009 and received by the home office no later than close of the New York Stock Exchange on Friday, May 22, 2009. This suspension does not impact the terms of any guarantees provided under previously issued living benefits. Your contract may also allow you to choose an optional contract feature described below. These are sometimes referred to as "living benefits" and may not be available in every state. We reserve the right to stop offering any or all of the contract options at any time. Before you elect a living benefit you should consider it's specific benefits and features carefully. Optional contract features may or may not be beneficial to you depending on your specific circumstances. In considering your specific circumstances, you may wish to consider how long you intend to hold the contract; how long you may be required to hold the contract before you may access the benefit; whether you intend to take withdrawals from the contract, including how much and how frequently; Page 43 whether you intend to annuitize the contract; what kind of assurances you are seeking in a benefit. Other considerations may apply to your circumstances. There is also a specific charge associated with each contract option which is described in detail in the "Optional Contract Rider Charges" section of this Prospectus. The longer you are required to hold the contract before the benefit may be utilized generally the more you will pay in charges. None of the living benefits guarantees an investment return in your contract value nor do they guarantee that the income or amounts received will be sufficient to cover any individual's particular needs. You should consider whether the benefits provided by the option and its costs (which reduce contract value) are consistent with your financial goals. All living benefit options terminate once the contract moves into the pay-out phase, (i.e., once the contract is annuitized). In purchasing your contract and when considering the election of a living benefit in this contract, you should also consider whether annuitizing the contract will produce better financial results for you than a living benefit option. You should discuss these important considerations with your financial advisor or tax advisor before making a determination. GUARANTEED INCOME PROVIDER BENEFIT (GIPB) OPTION The GIPB option is a type of guaranteed minimum income benefit. The GIPB option guarantees a stated or fixed, income payment in the pay-out phase of your annuity contract, for the annuity options set forth below. It is designed to help protect you against poor investment performance before annuitization of your contract. It does not however, guarantee a contract value or minimum return for any investment option or for the contract. All requests to elect this option must be in writing on a form provided by us. - If you do not intend to annuitize your contract, you will not receive the benefit of this option, and therefore this option may not be appropriate for you. - You may elect this option when your contract is issued or within 30 days following any contract anniversary date. The option will be effective on either the issue date or contract anniversary date. - Once you elect this option you may not terminate or cancel the option. - The oldest contract owner, or oldest annuitant in the case where a non- natural person owns the contract, must be under age 76 at the time the contract is issued, in order to elect this option. - You may not elect this option in combination with any other living benefit. This option may be exercised by the contract owner on or within 30 days following a contract anniversary, after a 10 year waiting period from the effective date of the option. However, it may not be exercised after the contract anniversary following the earlier of the oldest annuitant's 90th birthday or the oldest contract owner's 90th birthday. After that date the option and associated charge will automatically terminate. If the owner is a non-natural person, the age of the oldest annuitant is the basis for determining the benefit. If you wish to annuitize only a portion of your contract and invoke this option you may do so once, however, you must annuitize at least one-half of your contract value as of the date you elect to annuitize. To invoke this option at any other time you must annuitize your entire contract value. In Page 44 addition, under the GIPB option, only a fixed annuity is available and only the following annuity options are available to you if you exercise the GIPB option: - Option 1 - Life Annuity - Option 2 - Life Annuity with a Period Certain of 120 months (Option 2A), 180 months (Option 2B) or 240 months (Option 2C) - Option 3 - Joint and Last Survivor Annuity The GIPB option is equal to a fixed annuity payment amount. The fixed annuity payment amount is equal to the following formula: the Guaranteed Income Provider Basis, adjusted for any premium taxes not previously deducted, and applied to the annuity tables that accompany the GIPB option. The annuity tables that accompany the GIPB option supersede those annuity tables that were issued with your base contract, but only if you invoke the GIPB option. These tables are more conservative than those issued with the base contract. The dollar amount of the annuity payment will depend on the annuity option selected, the amount applied and the age of the annuitant (and joint annuitant if applicable). The Guaranteed Income Provider Basis is the greater of: - the Guaranteed Income Provider Highest Anniversary Value prior to the date annuity payments are elected, increased by any purchase payments and reduced using the reduction procedure for the Guaranteed Income Provider Highest Anniversary Value defined below for amounts withdrawn or annuitized since the previous Guaranteed Income Provider Highest Anniversary Value was determined; or - the Guaranteed Income Provider 5% Increase Value. The Guaranteed Income Provider Highest Anniversary Value is equal to the greater of: - the contract value; or - the previous Guaranteed Income Provider Highest Anniversary Value increased by any purchase payments and reduced using the reduction procedure for the Guaranteed Income Provider Highest Anniversary Value defined below for amounts withdrawn or annuitized since the previous Guaranteed Income Provider Highest Anniversary Value was determined. The Guaranteed Income Provider Highest Anniversary Value will be determined on every contract anniversary starting with the contract anniversary on which this option was effective, up to and including the contract anniversary following your 85th birthday. Reduction Procedure for the Guaranteed Income Provider Highest Anniversary Value: A withdrawal or annuitization will reduce the Guaranteed Income Provider Highest Anniversary Value as follows: (i) On a dollar-for-dollar basis if the cumulative withdrawal and annuitization amount, including the current withdrawal or annuitization, occurring during the current contract year is less than or equal to 5% of the Guaranteed Income Provider Highest Anniversary Value as of the most recent contract anniversary. (ii) On a pro rata basis if the cumulative withdrawal and annuitization amount, including the current withdrawal or annuitization, occurring during the current contract year is greater than 5% of the Guaranteed Income Provider Highest Anniversary Value as of the most recent contract anniversary. The pro rata adjustment will reduce the Guaranteed Income Provider Highest Anniversary Value by the proportion that the current amount withdrawn or annuitized bears to the contract value just prior to the withdrawal or annuitization. Page 45 The Guaranteed Income Provider 5% Increase Value is equal to the sum of: - the portion of the contract value in the general account and all of the guarantee periods of the Guaranteed Term Account; and - Purchase Payments and transfers into the variable annuity account reduced for withdrawals, annuitizations and transfers out of the variable annuity account using the reduction procedure defined below, accumulated to the earlier of the date annuity payments are elected or the contract anniversary following your 85th birthday at an interest rate of 5%, compounded annually. Please note, after the contract anniversary following your 85th birthday, the variable annuity account portion of the Guaranteed Income Provider 5% Increase Value will not increase further. Any amounts withdrawn, annuitized or transferred out of the variable annuity account will reduce the value using the reduction procedure for the Guaranteed Income Provider 5% Increase Value, as described below. Reduction Procedure for the Guaranteed Income Provider 5% Increase Value: A withdrawal, annuitization, or transfer out of the General Account or the Guaranteed Term Account will reduce the Guaranteed Income Provider 5% Increase Value on a dollar for dollar basis. A withdrawal, annuitization, or transfer out of the variable annuity account will reduce the variable annuity account portion of the Guaranteed Income Provider 5% Increase Value as follows: (i) On a dollar-for-dollar basis if the cumulative withdrawal, annuitization, and transfer out amount from the variable annuity account, including the current withdrawal, annuitization, or transfer from the variable annuity account, occurring during the current contract year is less than or equal to 5% of the variable annuity account portion of the Guaranteed Income Provider 5% Increase Value as of the most recent contract anniversary. (ii) On a pro rata basis if the cumulative withdrawal, annuitization, and transfer out amount; including the current withdrawal, annuitization, or transfer from the variable annuity account; occurring during the current contract year is greater than 5% of the variable annuity account portion of the Guaranteed Income Provider 5% Increase Value as of the most recent contract anniversary. The pro rata adjustment will reduce the variable annuity account portion of the Guaranteed Income Provider 5% Increase Value by the proportion that the current amount withdrawn, annuitized, or transferred out of the variable annuity account bears to the contract value in the variable annuity account just prior to the withdrawal, annuitization, or transfer. At no time shall either the Guaranteed Income Provider Highest Anniversary Value or the Guaranteed Income Provider 5% Increase Value exceed 200% of the sum of the contract value as of the effective date of the option, plus any subsequent purchase payments received more than 12 months prior to the date annuity payments are elected, adjusted pro rata for subsequent withdrawals and annuitizations. Where joint owners exist, there will be no further Guaranteed Income Provider Highest Anniversary Values determined or accumulation of the variable annuity account portion of the Guaranteed Income Provider 5% Increase Value after the contract anniversary following the 85th birthday of the oldest joint owner. After the death of the first joint owner, determination of new Guaranteed Income Provider Highest Anniversary Values and accumulation of the variable annuity account portion of the Guaranteed Income Provider 5% Increase Value may resume if the surviving joint owner continues the contract. If a surviving spouse elects to assume his or her deceased spouse's contract, this option and its associated charge will continue to be effective and based upon the new owner's age as long as it is Page 46 less than or equal to age 90. In the event the surviving spouse's age is greater than 90, the option and its charge will automatically terminate. This option and its associated charge will also terminate automatically in the following circumstances: - the contract is fully annuitized; - the contract is terminated or surrendered; or - the contract anniversary following the oldest contract owner or annuitant's 90th birthday. GUARANTEED MINIMUM WITHDRAWAL BENEFIT (GMWB) OPTION NO APPLICATIONS OR REQUESTS FOR THIS RIDER WILL BE ACCEPTED AFTER MAY 15, 2009. EFFECTIVE MAY 15, 2009, WE ARE SUSPENDING AVAILABILITY OF THIS OPTION. This contract option provides for a guarantee that allows a contract owner to withdraw an amount from the contract each contract year up to a specified maximum amount, known as the Guaranteed Annual Withdrawal, until the Guaranteed Withdrawal Benefit is reduced to zero. If you withdraw amount(s) in excess of the Guaranteed Annual Withdrawal, you will reduce the benefit you receive with this contract option. - Election of this option may or may not be beneficial to you. Since this benefit is accessed through withdrawals from the contract, if you do not intend to take withdrawals from your contract, then this option may not be appropriate for you. Amounts taken under the GMWB will first be taken from your contract value as described below. Our obligation to pay you more than your contract value will only arise in certain circumstances. Therefore, as you consider election of this option you should consider whether the value of the benefit and the level of protection that the option provides you, along with its costs, are consistent with your financial objectives and the assurances you are seeking. - You may elect this option at the time your contract is issued or within 30 days prior to any contract anniversary. The option will be effective on either the issue date or contract anniversary date, also known as the GMWB effective date. - Beginning 7 years after the GMWB effective date, you may elect to terminate this option by sending us written notice within 30 days prior to any contract anniversary. Termination will be effective on the contract anniversary date and no further benefit will be available. - Your entire contract value must be allocated to one of the lvy Funds VIP Pathfinder portfolios, while this option is in effect. - The oldest contract owner (or annuitant, if a non-natural contract owner) must be under age 81 at the time the rider becomes effective. - You may not elect this contract option if you have selected either the 5% Death Benefit Increase or the Premier Death Benefit optional death benefits for your contract. In addition, you may not elect this contract option in combination with any other living benefit. - This rider may not be purchased for a "stretch" IRA or other "decedent" type account. The GMWB option is designed to provide a benefit that guarantees the contract owner a minimum withdrawal amount, regardless of underlying sub-account performance, during the contract's deferral period. This option does not guarantee any investment gains nor does it guarantee any lifetime income payments. Several examples to help show how this option works are included in Appendix E. In each contract year, you may withdraw up to the Guaranteed Annual Withdrawal (GAW) from your contract until the Guaranteed Withdrawal Benefit (GWB) is reduced to zero. The method used to calculate the GAW and the GWB is described below. Page 47 This contract option also provides for an opportunity in certain cases to increase the GWB or reset the GWB amount as described further below in the sections entitled: "Guaranteed Withdrawal Benefit Enhancement" and "Guaranteed Withdrawal Benefit Reset Option". Calculating the Initial GWB and GAW The GWB for your contract will be equal to the initial purchase payment if this option is added when your contract is issued. If the option is added on a subsequent contract anniversary, the initial GWB will be equal to the contract value on the effective date of the option. The GWB is subject to a maximum of $5,000,000 at all times. The initial GAW for your contract will be equal to 7% of the GWB. Once these initial amounts are established they will remain the same until there is a subsequent purchase payment, withdrawal, withdrawals exceed the GAW in a contract year, or as otherwise described below. Adjustment for Subsequent Purchase Payments The GWB will be increased by the amount of any subsequent purchase payments. The GAW will be recalculated and will be equal to the greater of: (a) GAW prior to the purchase payment; or (b) 7% of the new GWB determined at the time the subsequent purchase payment is applied. After the first contract year following the GMWB effective date we restrict the application of subsequent purchase payments to the GWB to $100,000 without our prior written approval. Currently this restriction is being waived. Adjustments for Withdrawals Each contract year you may withdraw an amount less than or equal to the GAW. Such withdrawals will reduce the contract value and the GWB by the amount of the withdrawal, but will not reduce the GAW. If withdrawals in any contract year are less than the GAW, the additional amount may not be carried forward to future contract years. Withdrawals will be taken pro rata from your values in the general account and each sub-account of the variable annuity account. Amounts less than the entire contract value that are applied to provide annuity payments under an annuity payment option will be treated as a withdrawal for purposes of adjusting the GWB and GAW. Withdrawals in excess of the GAW or the Required Minimum Distribution (RMD) for this contract (whichever might be greater) if part of a tax qualified plan, in any one contract year, will cause both the GWB and GAW to be recalculated. In that case, the GWB will be reduced to the lesser of: (a) the contract value after the excess withdrawal; or (b) the GWB prior to the excess withdrawal less the amount of the withdrawal. The GAW will also be adjusted to equal the lesser of: (a) GAW prior to the withdrawal; or (b) the greater of either: (i) 7% of the recalculated GWB; or (ii) 7% of the current contract value after the withdrawal. For purposes of this rider, the RMD amount is equal to the amount needed based on the value of your contract and any riders to meet any required minimum distribution requirement for this contract, pursuant to the Internal Revenue Code and the regulations promulgated thereunder. Applicable contracts include those issued pursuant to a retirement plan under the provisions of Sections 401, 403, 404, 408, or 457 of the Internal Revenue Code. Amounts withdrawn in excess of the RMD may be treated as an excess withdrawal as described above. For a given amount of excess withdrawal, the lower the contract value, the greater the reduction in GWB. Page 48 If the contract value is reduced to zero and the GWB immediately after the withdrawal is greater than zero, the contract will enter the automatic payment phase. During this phase, no additional purchase payments may be made and all other contract features, benefits, and guarantees except the guarantees provided by this rider are terminated. You may elect to receive the GAW at any frequency offered by us, but no less frequently than annually, until the GWB reaches zero. Once selected, the frequency may not be changed without our prior consent. If you die before the GWB reaches zero, the remaining payments will be made to your beneficiaries. When the GWB reaches zero, this rider terminates and no further benefits are payable. At our discretion, we may elect to pay you a lump sum in lieu of future periodic withdrawals. The lump sum value will be equal to the present value of the remaining periodic withdrawal amounts discounted at an interest rate. The interest rate will be the weekly average of the "Interest Rate Swap" rates as reported in the Federal Reserve Bulletin Release H.15 for the period applicable to the remaining withdrawal period plus 0.50%. Withdrawals may be taken in a lump sum, in multiple withdrawals or on a systematic withdrawal basis, as allowed by your contract. Please remember that withdrawals under the GMWB are treated like any other contract withdrawals for purposes of deferred sales charges, reducing the contract value, free withdrawal amounts, or any other contract features impacted by a withdrawal and may have tax consequences. For IRAs or other contracts subject to Section 401(a)(9) of the Internal Revenue Code, you may be required to take withdrawals to satisfy minimum required distribution requirements. Such withdrawals may exceed the GAW amount which could quickly and substantially decrease your GWB. IN A DECLINING MARKET, WITHDRAWALS THAT EXCEED THE GAW MAY SUBSTANTIALLY REDUCE YOUR GWB AND GAW. Guaranteed Withdrawal Benefit Enhancement If you do not take any withdrawals during the first three years after the GMWB effective date, your GWB will be increased on the third contract anniversary following the GMWB effective date. The GWB will be increased by an amount equal to 10% of the total of the purchase payments received within 12 months of the GMWB effective date. The GAW will be increased to 7% of the recalculated GWB. Guaranteed Withdrawal Benefit Reset Option Beginning with the third contract anniversary following the GMWB effective date and prior to your 81st birthday, you may elect to reset your GWB to your current contract value, if higher. IF YOU ELECT TO RESET THE GWB, THE RIDER CHARGE WILL BE INCREASED TO THE THEN CURRENT CHARGE FOR EACH CLASS OF GMWB RIDERS. In addition, a three year waiting period will be required before you may elect another reset. Your written request to elect to reset your GWB must be received by us within 30 days prior to the applicable contract anniversary. The GAW will also be re-calculated at this time and will be equal to the greater of (a) the GAW prior to the reset, or (b) 7% of the reset GWB amount. You must request your election of the reset in writing in a form satisfactory to us, within 30 days prior to the contract anniversary. Sub-Account Allocation Effective May 1, 2008 and while this rider is in effect, your full contract value must be allocated to any combination of the permitted Pathfinder portfolios. The Ivy Funds VIP Pathfinder Moderate portfolio, Ivy Funds VIP Pathfinder Moderately Conservative portfolio or Ivy Funds VIP Pathfinder Conservative portfolio all may be used with this rider. The contract owner may elect to change their allocation among these Ivy Funds VIP Pathfinder portfolios which have been approved by us for use with this optional benefit. We reserve the right to add, delete or modify the portfolios which may be used. Page 49 If this rider is elected after the contract is issued, your contract value will be reallocated to the Ivy Funds VIP Pathfinder portfolios you elect on the valuation date coincident with or next following the day the rider is effective. Each of the Ivy Funds VIP Pathfinder portfolios is a "Fund of Funds" which means that each Ivy Funds VIP Pathfinder portfolio will seek to achieve its particular level of risk/return by investing substantially all of its assets in other mutual funds in Funds, Inc. and short-term investments in varying combinations and percentage amounts to achieve each Ivy Funds VIP Pathfinder portfolio's particular investment objective. A detailed discussion of each Ivy Funds VIP Pathfinder portfolio's allocations, objectives and risks may be found in the portfolio's prospectus. The Ivy Funds VIP Pathfinder portfolios are intended to provide various levels of potential capital appreciation at various levels of risk. Each of the Ivy Funds VIP Pathfinder portfolios is designed to provide a different asset allocation option corresponding to different investment goals ranging from the highest potential for growth with the highest amount of tolerance for risk, to the lowest potential for growth with the lowest amount of tolerance for risk, and the highest potential for income. In selecting a Ivy Funds VIP Pathfinder portfolio, you should consider your personal objectives, investment time horizons, risk tolerance and other financial circumstances. If you were previously in another asset allocation "model" when you elected the option, you will not automatically be transferred, nor will you be required to transfer to these portfolios. You may keep your allocation as it currently is. If you elect to change your allocation it must be to one of these portfolios if you choose to change it. Effect of Payment of Death Benefit If the contract owner dies before the GWB is reduced to zero and there is contract value, the beneficiary may elect to take the death benefit under the contract and the contract and this option will terminate. Alternatively, the beneficiary may be able to elect to continue this option (and the contract) by taking withdrawals equal in an amount to the GAW annually, over a period no longer than the beneficiary's life expectancy. If the beneficiary elects to continue this option, the charges for this option will continue to apply. If withdrawals of the GAW annually would extend beyond the beneficiary's life expectancy, the beneficiary will not be able to elect to continue the rider and the GMWB will terminate and the beneficiary will be required to take the death benefit under the contract. Any option elected by the beneficiary must comply with Internal Revenue Code sections 72(s) and 401(a)(9), as applicable. A beneficiary may contact us for the life expectancy according to the mortality tables. Rider Termination Beginning seven contract years after the GMWB effective date the contract owner may elect to cancel this contract option. You must request the cancellation in writing within 30 days prior to the applicable contract anniversary in a form satisfactory to us. Once cancelled the GMWB may not be elected again until the next contract anniversary. The contract option will automatically terminate at the earliest of the following: - if the GWB is reduced to zero; or - if the contract to which this rider is attached is surrendered, applied to provide annuity payments, or otherwise terminated; or - if the contract's death benefits are paid as a lump sum to a beneficiary under the terms of the contract. Page 50 Upon termination of this rider, the benefits and charges within this rider will terminate. A pro rata amount of the rider charge will be deducted upon termination of this rider or surrender of the contract. Annuity Payments On annuity commencement or when your contract reaches its maturity date, and if we have not agreed to an extension of the maturity date, your contract value will be applied to an annuity option you have selected and this contract option and its benefits will terminate. In the case of a partial annuitization, the amount of contract value applied to provide annuity payments will be treated as a withdrawal from the contract. If the GMWB option is still in effect and annuity payments are required to begin, you may choose an additional annuity option. This annuity option provides a fixed annuity payment equivalent on an annual basis to your maximum GAW, until the GWB is reduced to zero, at which point annuity payments will cease. This option will generally be more favorable when your remaining benefit value is greater than the current contract value and you believe it is unlikely your contract value will exceed the remaining benefit value in the future. You should examine your circumstances and options carefully before making any election. You should consider requesting an annuitization illustration if you have any questions about which annuity option is appropriate for you. GUARANTEED LIFETIME WITHDRAWAL BENEFIT (GLWB) OPTION This contract option is designed to provide a benefit that guarantees the contract owner a minimum withdrawal amount, generally over their life regardless of underlying sub-account performance. It allows a contract owner to take withdrawals from their contract each contract year up to a specified maximum amount known as the Guaranteed Annual Income (GAI) amount. The annual GAI amount will be set based on the age of the oldest contract owner on the GLWB effective date and it will range from 4.0% to 6.0% of the Guaranteed Withdrawal Benefit (GWB). If you withdraw amount(s) in excess of the guaranteed amount you will reduce the benefit you receive under this contract option. - Election of this contract option may or may not be beneficial to you. Since this benefit is accessed through withdrawals from the contract, if you do not intend to take withdrawals from your contract, then this option may not be appropriate for you. - The oldest contract owner (or annuitant, if a non-natural contract owner) must be age 50 or over and must be under age 81 at the time the rider becomes effective. - You may elect this option at the time your contract is issued or within 30 days prior to any contract anniversary. The option will be effective on either the issue date or contract anniversary date, also known as the GLWB effective date. - Beginning 7 years after the GLWB effective date, you may elect to terminate this option by sending us written notice within 30 days prior to any contract anniversary. Termination will be effective on the contract anniversary date. - Your entire contract value must be allocated to one of the Ivy Funds VIP Pathfinder portfolios while this option is in effect. - You may not elect this contract option if you have selected the 5% Death Benefit Increase or the Premier Death Benefit optional death benefits or the Guaranteed Income Provider Benefit or the Guaranteed Minimum Withdrawal Benefit in the same contract. Page 51 - After the first contact year following the GLWB effective date, subsequent purchase payments that may be applied to the GLWB option are limited to a total of $25,000 in the aggregate, without our prior consent. Currently this restriction is being waived. - This rider may not be purchased for use with a "stretch" IRA or other "decedent" type account. The GLWB option is designed to provide a benefit that guarantees the contract owner an annual minimum withdrawal amount, regardless of underlying sub-account performance. In each contract year, you may withdraw up to the Guaranteed Annual Income (GAI) from your contract for the longer of: (a) the duration of the contract owner's life (or in the case of joint owners, the lifetime of the first joint owner to die), or (b) until the Guaranteed Withdrawal Benefit (GWB) is reduced to zero. The method used to calculate the GAI and the GWB is described below. This option does not guarantee any investment gains. Several examples to help show how this option works are included in Appendix F. Calculating the Initial GWB and GAI The GWB for your contract will be equal to the initial purchase payment if this option is added when your contract is issued. If the option is added on a subsequent contract anniversary, the initial GWB will be equal to the contract value on the effective date of the option. The GWB is subject to a maximum of $5,000,000 at all times. The initial GAI for your contract will be equal to the GWB multiplied by the Annual Income Percentage shown below, which is based on the age of the oldest contract owner (or oldest annuitant in the case of a non-natural owner) at the GLWB effective date. Once these initial amounts are established they will remain the same until there is a subsequent purchase payment, withdrawal, a withdrawal that exceeds the GAI in a contract year, Guaranteed Annual Income Reset or as otherwise described below.
AGE ANNUAL INCOME PERCENTAGE ------- ------------------------ 50 - 59 4.0% 60 - 69 5.0% 70 - 79 5.5% 80+ 6.0%
These percentages apply for purchase payments, as well as the Guaranteed Annual Income Reset described later. When there are multiple purchase payments over several years, more than one Annual Income Percentage may apply for purposes of calculating the GAI. For example, if a purchase payment is made at age 58, the Annual Income Percentage that will apply to that payment is 4.0%. If a subsequent purchase payment is made at age 65, the Annual Income Percentage that applies to the subsequent payment is 5.0%. If there are withdrawals that exceed the GAI in any contract year, there will no longer be a single applicable Annual Income Percentage from this table since the GAI and GWB are adjusted based on the contract value at the time of the withdrawal(s). Adjustment for Subsequent Purchase Payments The GWB will be increased by the amount of any subsequent purchase payments as of the date the purchase payment is credited to the contract. The GAI will also be increased by the amount of the subsequent purchase payment multiplied by the applicable Annual Income Percentage shown above, based on the age of the oldest contract owner (or oldest annuitant in the case of a non-natural owner) as of the date the purchase payment is credited to the contract. After the first contract year following the GLWB effective date we restrict the application of subsequent purchase payments to the GWB and GAI to $25,000 in the aggregate without our prior written approval. Currently this restriction is being waived. Page 52 Withdrawals Withdrawals may be taken in a lump sum, in multiple withdrawals or on a systematic withdrawal basis, as allowed by your contract. Please remember that withdrawals under the GLWB are treated like any other contract withdrawals for purposes of deferred sales charges, reducing the contract value, free withdrawal amounts, or any other contract features impacted by a withdrawal and which may have tax consequences. Adjustments for Withdrawals less than the Guaranteed Annual Income Each contract year you may withdraw an amount less than or equal to the GAI. Such withdrawals will immediately reduce the contract value and the GWB by the amount of the withdrawal, but will not reduce the GAI. If withdrawals in any contract year are less than the GAI, the additional amount may not be carried forward to future contract years. Withdrawals will be taken pro rata from your values in the general account and each sub-account of the variable annuity account. If you decide to annuitize your contact in an amount less than the entire contract value to provide annuity payments under an annuity payment option, that amount will be treated as a withdrawal for purposes of adjusting the GWB and GAI. Be sure to read the section entitled "Annuitization Benefits and Options" if you are considering annuitizing your contract. Adjustments for Withdrawals in excess of the Guaranteed Annual Income Withdrawals in excess of the GAI or the Required Minimum Distribution (RMD) for this contract (whichever might be greater) if part of a qualified tax plan, in any one contract year, will cause both the GWB and GAI to be recalculated as follows: The GWB will be reduced by an amount equal to: (a) multiplied by (b), divided by (c) where: (a) is the GWB immediately prior to the excess portion of the withdrawal, (b) is the excess portion of the excess withdrawal amount, and (c) is the contract value immediately prior to the excess portion of the withdrawal. The GAI will be reduced by an amount equal to: (a) multiplied by (b), divided by (c) where: (a) is the GAI prior to the withdrawal, (b) is the amount of the excess withdrawal, and (c) is the contract value immediately prior to the excess portion of the withdrawal. For purposes of this rider, the RMD amount is equal to the amount needed based on the value of your contract and any riders to meet any required minimum distribution requirement for this contract, pursuant to the Internal Revenue Code and the regulations promulgated thereunder. Applicable contracts include those issued pursuant to a retirement plan under the provisions of Sections 401, 403, 404, 408, or 457 of the Internal Revenue Code. Amounts withdrawn in excess of the RMD may be treated as an excess withdrawal as described above. For a given amount of excess withdrawal, the lower the contract value, the greater the reduction in GWB. Automatic Payment Phase If the contract value is reduced to zero, the contract will enter the automatic payment phase. You may elect to receive the GAI at any frequency offered by us, but no less frequently than annually, until the death of the contract owner or the death of any joint owner (or annuitant in the case of a non-natural owner). Once selected, the frequency may not be changed without our prior consent. During this phase, no additional purchase payments may be made and all other contract features, benefits, and guarantees except the guarantees provided by this rider are terminated. Upon the death of the contract owner or any joint owner (or annuitant in the case of a non-natural owner) before the GWB reaches zero, the GAI will be paid at least annually to your beneficiaries Page 53 until the GWB reaches zero. When the GWB reaches zero, this rider terminates and no further benefits are payable. At our discretion, we may elect to pay your beneficiaries a lump sum in lieu of future periodic withdrawals. The lump sum value will be equal to the present value of the remaining periodic withdrawal amounts discounted at an interest rate. The interest rate will be the weekly average of the "Interest Rate Swap" rates as reported in the Federal Reserve Bulletin Release H.15 for the period applicable to the remaining withdrawal period plus 0.50%. Guaranteed Annual Income Reset Beginning with the third contract anniversary following the GLWB effective date and every 3 years thereafter the GAI will go through a "Guaranteed Annual Income Reset" (GAI Reset) process. This GAI Reset will occur automatically and the charge for the contract option will not change. The new GAI will be equal to the greater of (a) or (b) where: (a) is the GAI immediately prior to the GAI reset; and (b) is an amount equal to: (1) multiplied by (2) where: 1) is the greater of the GWB or the contract value; and 2) is the Annual Income Percentage based on the age of the oldest owner, (or oldest annuitant if a non-natural owner), at the time of the GAI reset. In no event however, will the new GAI be less than the old GAI. The GAI following the GAI Reset may be the same as before the GAI Reset even if the applicable Annual Income Percentage based on current age has increased. In the event you are receiving systematic withdrawals, and the systematic withdrawal amount you are receiving is equal to some percentage of your GAI, referred to as the "percentage of GAI" option, and if the value of the GAI increases, then your systematic withdrawal amount will automatically increase. You may elect a fixed amount for your systematic withdrawal if you do not want your withdrawal amount to automatically increase. Sub-Account Allocation Effective May 1, 2008 and while this rider is in effect, your full contract value must be allocated to any combination of the permitted Ivy Funds VIP Pathfinder portfolios. The Ivy Funds VIP Pathfinder Moderate portfolio, Ivy Funds VIP Pathfinder Moderately Conservative portfolio or Ivy Funds VIP Pathfinder Conservative portfolio all may be used with this rider. The contract owner may elect to change their allocation among those Ivy Funds VIP Pathfinder portfolios which have been approved by us for use with this optional benefit. We reserve the right to add, delete or modify the portfolios which may be used. If this rider is elected after the contract is issued, your contract value will be reallocated to the Ivy Funds VIP Pathfinder portfolios you elect on the valuation date coincident with or next following the day the rider is effective. Each of the Ivy Funds VIP Pathfinder portfolios is a "Fund of Funds" which means that each Ivy Funds VIP Pathfinder portfolio will seek to achieve its particular level of risk/return by investing substantially all of its assets in other mutual funds in Ivy Funds Variable Insurance Portfolios, Inc. and short-term investments in varying combinations and percentage amounts to achieve each Ivy Funds VIP Pathfinder portfolio's particular investment objective. A detailed discussion of each Ivy Funds VIP Pathfinder portfolio's allocations, objectives and risks may be found in the portfolio's prospectus. The Ivy Funds VIP Pathfinder portfolios are intended to provide various levels of potential capital appreciation at various levels of risk. Each of the Ivy Funds VIP Pathfinder portfolios is designed to provide a different asset allocation option corresponding to different investment goals ranging from Page 54 the highest potential for growth with the highest amount of tolerance for risk, to the lowest potential for growth with the lowest amount of tolerance for risk, and the highest potential for income. In selecting a Ivy Funds VIP Pathfinder portfolio, you should consider your personal objectives, investment time horizons, risk tolerance and other financial circumstances. If you were previously in another asset allocation "model" when you elected the option, you will not automatically be transferred, nor will you be required to transfer to these portfolios. You may keep your allocation as it currently is. If you elect to change your allocation it must be to one of these portfolios if you choose to change it. Effect of Payment of Death Benefit At the death of the first contract owner (or first annuitant if a non-natural owner) and if the contract owner (or annuitant, as applicable) dies before the GWB is reduced to zero and there is contract value, the beneficiary may elect to receive the death benefit under the contract and the contract and this option will terminate. Alternatively, the beneficiary may be able to elect to continue this option (and the contract) by taking withdrawals of the current GAI at least annually until the GWB is reduced to zero, over a period no longer than the beneficiary's life expectancy. No additional purchase payments may be made and no additional GAI Reset will occur. If the beneficiary elects to continue the GLWB option, the charges for this option will continue to apply. If your designated beneficiary is not your surviving spouse, and if withdrawals of the GAI annually would extend beyond the beneficiary's life expectancy, the beneficiary will not be able to elect to continue the rider and the GLWB will terminate and the beneficiary will be required to take the death benefit under the contract. Any option elected by the beneficiary must comply with Internal Revenue Code sections 72(s) and 401(a)(9), as applicable. A beneficiary may contact us for the life expectancy according to the mortality tables. Rider Termination Beginning seven contract years after the GLWB effective date the contract owner may elect to cancel this contract option. You must request the cancellation in writing within 30 days prior to the applicable contract anniversary in a form satisfactory to us. The termination effective date will be on the contract anniversary date. Once cancelled the GLWB may not be elected again until the next contract anniversary, subject to availability. The GLWB option will automatically terminate at the earliest of the following: - the date of termination or surrender of the contract, or - any change of the contract owner or joint contract owner after the GLWB effective date, or in the case of a non-natural owner, any change of the annuitant or joint annuitant after the GLWB effective date; or - the annuity commencement date where all remaining contract value has been applied to provide annuity payments; or - the date any death benefits are paid either as a lump sum or as an adjustment to the contract value under the terms of the contract; or - the date the GWB is reduced to zero following the death of the contract owner, the first joint owner, or in the case of a non-natural owner, the annuitant or any joint annuitant. Upon termination of this rider, the benefits and charges within this rider will terminate. A pro rata amount of the rider charge will be deducted upon termination of this rider or surrender of the contract. Page 55 Annuity Payments On annuity commencement or when your contract reaches its maturity date, and if we have not agreed to an extension of the maturity date, your contract value will be applied to an annuity option you have selected and this contract option and its benefits will terminate. In case of a partial annuitization, the amount of contract value applied to provide annuity payments will be treated as a withdrawal from the contract. If annuity payments are required to begin, you may also choose from an additional annuity option. The annuity option will provide a fixed annuity payment equivalent on an annual basis to your current GAI for the remainder of your life. This option will generally be more favorable when your remaining benefit value is greater than the current contract value and you believe it is unlikely your contract value will exceed the remaining benefit value in the future. You should examine your circumstances and options carefully before making any election. You should consider requesting an annuitization illustration if you have any questions about which annuity option is appropriate for you. Conversion If you have previously elected the GMWB option we will waive the prohibition on the termination for 7 years and allow you to terminate the GMWB option if you to elect the GLWB option at the same time. You must request this "conversion" in writing within 30 days prior to the contract anniversary in a form satisfactory to us. As of the contract anniversary date, the GMWB option will be terminated. The GLWB option will then be effective as of the contract anniversary date based on the contract values on that date. The GWB value, as it existed under your GMWB even if greater than the contract value on the contract anniversary date, will be eliminated and the GWB value under the GLWB option will be the contract value on the contract anniversary date. You should consider the following before you make any election to convert your GMWB to a GLWB: - Because the GLWB will be established based on contract value at the date of conversion, if your contract value has declined since you purchased the GMWB option, the GWB in the GLWB will be lower. - Your GAI under the GLWB will potentially be lower than any GAW under the GMWB. This means that your annual withdrawal amounts may be lower under the GLWB than under the GMWB option. - If you are concerned about outliving the GWB under the GMWB option you may wish to consider the GLWB option. - If you are looking for lifetime income for two lives or joint owners, annuitization may be more appropriate for you than either GMWB or GLWB. We reserve the right to eliminate this waiver of the 7 year requirement for termination on the GMWB option at any time. GUARANTEED LIFETIME WITHDRAWAL BENEFIT II-SINGLE (GLWB II-SINGLE) OPTION NO APPLICATIONS OR REQUESTS FOR THIS RIDER WILL BE ACCEPTED AFTER MAY 15, 2009. EFFECTIVE MAY 15, 2009, WE ARE SUSPENDING AVAILABILITY OF THIS OPTION. This contract option is also designed to provide a benefit that guarantees the contract owner a minimum annual withdrawal amount, generally over the contract owner's life, regardless of underlying sub-account performance. Beginning on the later of the contract anniversary following the contract owner's 59(th) birthday or the date this contract option is added, it allows a contract owner to take withdrawals from the contract each contract year up to a specified maximum amount known as Page 56 the Guaranteed Annual Income (GAI) amount. The GAI amount will be 5% of the Guaranteed withdrawal Benefit described below. - Election of this contract option may or may not be beneficial to you. Since this benefit is accessed through withdrawals from the contract, if you do not intend to take withdrawals from your contract, then this option may not be appropriate for you. - Beginning 7 years after the GLWB II-Single effective date, you may elect to terminate this option by sending us written notice within 30 days prior to any contract anniversary. Termination will be effective on the contract anniversary date. - If you take withdrawals prior to the Benefit Date or in excess of the annual amount guaranteed, you will reduce the benefit you receive. - The oldest contract owner (or annuitant, if a non-natural contract owner) must be age 50 or over and must be under age 81 at the time the rider becomes effective. - You may elect this option at the time your contract is issued or within 30 days prior to any contract anniversary. The option will be effective on either the issue date or contract anniversary date, also known as the GLWB II-Single effective date. - Your entire contract value must be allocated to one of the Ivy Funds VIP Pathfinder portfolios while this option is in effect. - You may not elect this contract option if you have selected the 5% Death Benefit Increase, Premier Death Benefit optional death benefit or in combination with any other living benefit. - After the first contact year following the GLWB II-Single effective date, subsequent purchase payments that may be applied to the GLWB II-Single option are limited to a total of $25,000 in the aggregate, without our prior consent. Currently this restriction is being waived. - This rider may not be purchased for a "stretch" IRA or other "decedent" type account. The GLWB II-Single option is designed to provide a benefit that guarantees the contract owner an annual minimum withdrawal amount, regardless of underlying sub-account performance. In each contract year, beginning at the Benefit Date, you may withdraw up to the Guaranteed Annual Income (GAI) from your contract for the longer of: (a) the duration of the contract owner's life (or in the case of joint owners, the lifetime of the first joint owner to die), or (b) until the Guaranteed Withdrawal Benefit (GWB) is reduced to zero. The Benefit Date is the later of the contract anniversary following the 59th birthday of the oldest contract owner (or oldest annuitant, in the case of a non-natural owner) or the GLWB II-Single effective date. The method used to calculate the GAI and the GWB is described below. This option does not guarantee any investment gains. Several examples to help show how this option works are included in Appendix G. Calculating the Initial GWB and GAI The GWB for your contract will be equal to the initial purchase payment if this option is added when your contract is issued. If the option is added on a subsequent contract anniversary, the initial GWB will be equal to the contract value on the effective date of the option. The GWB is subject to a maximum of $5,000,000 at all times. The initial GAI for your contract will be equal to 5% of the initial GWB value on the effective date of the option. Once these initial amounts are established they will remain the same until there is a subsequent purchase payment, withdrawal, withdrawal that exceeds the GAI in a contract year, Guaranteed Withdrawal Benefit Reset, Guaranteed Withdrawal Benefit Enhancement or as otherwise described below. Page 57 Adjustment for Subsequent Purchase Payments The GWB will be increased by the amount of any subsequent purchase payments as of the date the purchase payment is credited to the contract. The GAI will also be increased by the amount of the subsequent purchase payment multiplied by 5% as of the date the purchase payment is credited to the contract. After the first contract year following the effective date of the option you may make additional purchase payments to your contract. However, we restrict the application of subsequent purchase payments to the GLWB II-Single to $25,000 in the aggregate without our prior written approval. Currently this restriction is being waived. Withdrawals - Withdrawals taken prior to the Benefit Date will reduce the benefit you will receive, as described below. - Withdrawals may be taken in a lump sum, in multiple withdrawals or on a systematic withdrawal basis, as allowed by your contract. - Please remember that withdrawals under this contract option are treated like any other contract withdrawals for purposes of deferred sales charges, reducing the contract value, free withdrawal amounts, or any other contract features impacted by a withdrawal and may have tax consequences. - Withdrawals will be taken pro rata from your values in any general account or other fixed accounts and each sub-account of the variable annuity account. If you decide to annuitize your contract in an amount less than the entire contract value to provide annuity payments under an annuity payment option, that amount will be treated as a withdrawal for purposes of adjusting the GWB and GAI. Be sure to read the section entitled "Annuitization Benefits and Options" if you are considering annuitizing your contract. Withdrawals taken prior to the Benefit Date If you take withdrawals from your contract prior to the Benefit Date, it will cause both the GWB and the GAI to be recalculated and reduced, as follows: The GWB will be reduced by an amount equal to: (a) multiplied by (b) divided by (c) where: (a) is the GWB immediately prior to the withdrawal, (b) is the amount of the withdrawal, and (c) is the contract value immediately prior to the withdrawal. The GAI will be 5% of the GWB as recalculated above. Withdrawals after the Benefit Date and less than the Guaranteed Annual Income Each contract year you may withdraw an amount less than or equal to the GAI or the Required Minimum Distribution (RMD) for this contract (whichever may be greater) if part of a qualified tax plan. Such withdrawals will immediately reduce the contract value and the GWB by the amount of the withdrawal, but will not reduce the GAI. If withdrawals in any contract year are less than the GAI or RMD, the additional amount may not be carried forward to future contract years. Under the Internal Revenue Code, RMDs are calculated and taken on a calendar year basis. Under this optional rider, the GAI is based on contract year. Because the intervals for the GAI and RMD are different, withdrawals may be more likely to result in a reduction of the GAI and therefore a reduced benefit. For a contract which is part of a qualified plan or IRA, if the sum of the withdrawals in a contract year exceeds the highest of the RMD for either of the two calendar years occurring in that contract year and the GAI for that contract year, then the GWB and GAI would be Page 58 recalculated, as described in the section entitled "Withdrawals after the Benefit Date in excess of the Guaranteed Annual Income". If your contract year is the same as the calendar year, then the sum of the withdrawals should not exceed the greater of the RMD and the GAI. Below is an example of how this would apply. Assume an IRA with a contract year of April 1 to March 31, and that there are no withdrawals other than as described. The GAI for the 2006 contract year ending March 31, 2007 is $5,000. The RMDs for calendar years 2006 and 2007 are $6,000 and $8,000, respectively. If the owner withdraws $1,500 in each of the quarters of calendar year 2006 and $2,000 in the first quarter of 2007, then the owner will have withdrawn $6,500 for the 2006 contract year. Since the sum of the owner's withdrawals for the 2006 contract year is less than the higher RMD (i.e., $8,000) for either of the two calendar years occurring in that contract year, the GAI would not be recalculated. Using the same assumptions as in the above paragraph, but instead of taking $2,000 in the first quarter of 2007, the owner takes a withdrawal of $4,000 in the first quarter of 2007. In that case, the owner will have withdrawn $8,500 for the 2006 contract year. Since the sum of the owner's withdrawals for the 2006 contract year (i.e., $8,500) is greater than the higher RMD amount (i.e., $8,000) for either of the two calendar years occurring in that contract year, the withdrawal is in excess of the allowed amount and the GAI would be recalculated as described in the section entitled "Withdrawals after the Benefit Date in excess of the Guaranteed Annual Income". Withdrawals after the Benefit Date in excess of the Guaranteed Annual Income Withdrawals in excess of the GAI or the RMD for this contract (whichever might be greater) if part of a qualified tax plan, in any one contract year, will cause both the GWB and GAI to be recalculated as follows: The GWB will be reduced by an amount equal to: (a) multiplied by (b), divided by (c) where: (a) is the GWB immediately prior to the excess portion of the withdrawal, (b) is the excess portion of the withdrawal amount, and (c) is the contract value immediately prior to the excess portion of the withdrawal. The GAI will be reduced by an amount equal to: (a) multiplied by (b), divided by (c) where: (a) is the GAI prior to the withdrawal, (b) is the excess portion of the withdrawal amount, and (c) is the contract value immediately prior to the excess portion of the withdrawal. For purposes of this rider, the RMD amount is equal to the amount needed based on the value of your contract and any riders to meet any required minimum distribution requirement for this contract, pursuant to the Internal Revenue Code and the regulations promulgated thereunder. Applicable contracts include those issued pursuant to a retirement plan under the provisions of Section 401, 403, 404, 408, or 457 of the Internal Revenue Code. Amounts withdrawn in excess of the RMD may be treated as an excess withdrawal as described above. For a given amount of excess withdrawal, the lower the contract value, the greater the reduction in GWB. Please see Appendix G for examples of how withdrawals impact the benefit. Guaranteed Withdrawal Benefit Reset Beginning with the first contract anniversary following the effective date of the option and every year thereafter prior to the oldest contract owner's 86(th) birthday, the GWB will automatically be reset to your current contract value, if higher. The GAI will automatically reset to 5% of the reset GWB, if higher. Page 59 In the event that you are receiving systematic withdrawals, and the systematic withdrawal amount you are receiving is equal to some percentage of your GAI, referred to as the "percentage of GAI" option, and if the value of the GAI increases, then your systematic withdrawal amount will automatically increase. You may elect a fixed amount for your systematic withdrawal if you do not want your withdrawal amount to automatically increase. On the date of the Guaranteed Withdrawal Benefit Reset, if the rider charge at which we are currently offering the GLWB II-Single to new customers is higher than the rider charge that currently applies to your GLWB II-Single rider, then we reserve the right to increase the charge for your rider. The rider charge following the reset will not exceed the current rider charge for other GLWB II- Single riders issued on that day. If we are no longer issuing this rider, we reserve the right to increase the rider charge on the date of the GWB reset. The rider charge following the reset will not exceed the maximum annual rider charge and will be the same for all GLWB II-Single riders which have a GWB reset on that date. YOU MAY ELECT TO DECLINE THE AUTOMATIC GWB RESET. IF YOU CHOOSE TO DO SO, YOUR GLWB II-SINGLE RIDER CHARGE WILL REMAIN THE SAME (I.E., THE RIDER CHARGE WILL NOT INCREASE). YOU WILL BE NOTIFIED IN WRITING AT LEAST 30 DAYS PRIOR TO THE AUTOMATIC GWB RESET DATE OF YOUR OPTION TO DECLINE THE AUTOMATIC GWB RESET. WE MUST RECEIVE YOUR WRITTEN NOTIFICATION TO DECLINE AN AUTOMATIC GWB RESET NO LESS THAN 7 CALENDAR DAYS PRIOR TO THE AUTOMATIC RESET DATE. ELECTING TO DECLINE AN AUTOMATIC GWB RESET WILL SERVE AS AN ELECTION TO CEASE ANY FUTURE AUTOMATIC GWB RESETS UNTIL WE RECEIVE A WRITTEN INSTRUCTION FROM YOU TO REINSTATE THE AUTOMATIC GWB RESET AT THE NEXT AUTOMATIC RESET DATE. Guaranteed Withdrawal Benefit Enhancement This optional benefit also provides an enhancement to the benefit if you do not take withdrawals from your contract for the first ten years you have this optional benefit. On each contract anniversary prior to your first withdrawal from the contract, for a period of up to 10 years following the option effective date, the GWB will be increased by 5% of the GWB amount on the date prior to the enhancement. In addition, the GAI will be increased by 5% of the GWB following the enhancement. The Guaranteed Withdrawal Benefit Enhancement will not change the charge for your GLWB II-Single and it will occur prior to the GWB reset on any contract anniversary where both are applicable. In the event you are receiving systematic withdrawals, and the systematic withdrawal amount you are receiving is equal to some percentage of your GAI, referred to as the "percentage of GAI" option, and if the value of the GAI increases, then your systematic withdrawal amount will automatically increase. You may elect a fixed amount for your systematic withdrawal if you do not want your withdrawal amount to automatically increase. Please see Appendix G for examples. Sub-Account Allocation Effective May 1, 2008 and while this rider is in effect, your full contract value must be allocated to any combination of the permitted Ivy Funds VIP Pathfinder portfolios. The Ivy Funds VIP Pathfinder Moderate portfolio, Ivy Funds VIP Pathfinder Moderately Conservative portfolio or Ivy Funds VIP Pathfinder Conservative portfolio all may be used with this rider. The contract owner may elect to change their allocation among these Ivy Funds VIP Pathfinder portfolios which have also been approved by us for use with this optional benefit. We reserve the right to add, delete or modify the portfolios which may be used. Page 60 If this rider is elected after the contract is issued, your contract value will be reallocated to the Ivy Funds VIP Pathfinder portfolios you elect on the valuation date coincident with or next following the day the rider is effective. Each of the Ivy Funds VIP Pathfinder portfolios is a "Fund of Funds" which means that each Ivy Funds VIP Pathfinder portfolio will seek to achieve its particular level of risk/return by investing substantially all of its assets in other mutual funds in. Ivy Funds Variable Insurance Portfolios, Inc. and short-term investments in varying combinations and percentage amounts to achieve each Ivy Funds VIP Pathfinder portfolio's particular investment objective. A detailed discussion of each Ivy Funds VIP Pathfinder portfolio's allocations, objectives and risks may be found in the portfolio's prospectus. The Ivy Funds VIP Pathfinder portfolios are intended to provide various levels of potential capital appreciation at various levels of risk. Each of the Ivy Funds VIP Pathfinder portfolios is designed to provide a different asset allocation option corresponding to different investment goals ranging from the highest potential for growth with the highest amount of tolerance for risk, to the lowest potential for growth with the lowest amount of tolerance for risk, and the highest potential for income. In selecting a Ivy Funds VIP Pathfinder portfolio, you should consider your personal objectives, investment time horizons, risk tolerance and other financial circumstances. If you were previously in another asset allocation "model" when you elected the option, you will not automatically be transferred, nor will you be required to transfer to these portfolios. You may keep your allocation as it currently is. If you elect to change your allocation it must be to one of these portfolios if you choose to change it. Effect of Payment of Death Benefit At the death of the first contract owner (or first annuitant if a non-natural owner) and if the contract owner (or annuitant, as applicable) die before the GWB is reduced to zero and there is contract value, the beneficiary may elect to receive the death benefit under the contract and the contract and this option will terminate. Alternatively, the beneficiary may be able to elect to continue this option by taking withdrawals of the current GAI at least annually until the GWB is reduced to zero, over a period no longer than the beneficiary's life expectancy. The beneficiary may contact us for the life expectancy to be applied. No additional purchase payments may be made and no additional GWB Reset(s) will occur. If the beneficiary elects to continue the GLWB II-Single option, the charges for this option will continue to apply. If your designated beneficiary is not your surviving spouse, and if withdrawals of the GAI annually would extend beyond the beneficiary's life expectancy, the beneficiary will not be able to elect to continue the rider and the GLWB II-Single will terminate and the beneficiary will be required to take the death benefit under the contract. Any option elected by the beneficiary must comply with Internal Revenue Code Sections 72(s) and 401(a)(9), as applicable. A beneficiary may contact us for the life expectancy according to the mortality tables. Rider Termination Beginning seven contract years after the GLWB II-Single effective date the contract owner may elect to cancel this contract option. You must request the cancellation in writing within 30 days prior to the applicable contract anniversary in a form satisfactory to us. The termination effective date will be on the contract anniversary date. Once cancelled the GLWB II-Single may not be elected again until the next contract anniversary, subject to availability. The GLWB II-Single option will automatically terminate at the earliest of the following: - the date of termination or surrender of the contract; or Page 61 - any change of the contract owner or joint contract owner after the GLWB II-Single effective date, or in the case of a non-natural owner, any change of the annuitant or joint annuitant after the GLWB II-Single effective date; or - the annuity commencement date where all remaining contract value has been applied to provide annuity payments; or - the date any death benefits are paid either as a lump sum or as an adjustment to the contract value under the terms of the contract; or - the date the GWB is reduced to zero following the death of the contract owner, the first joint owner, or in the case of a non-natural owner, the annuitant or any joint annuitant. Upon termination of this rider, the benefits and charges within this rider will terminate. A pro rata amount of the rider charge will be deducted upon termination of this rider or surrender of the contract. Automatic Payment Phase If the contract value is reduced to zero, the contract will enter an automatic payment phase. You may elect to receive the GAI at any frequency offered by us, but at least annually, until the death of the contract owner or the death of any joint owner. Once selected, the frequency may not be changed without our consent. During this phase, no additional purchase payments may be made and all other contract features, benefits, riders, and guarantees except the guarantees provided by this rider are terminated. Following the death of the contract owner or the death of any joint owner, this rider terminates and no further benefits are payable unless the GWB is greater than zero. If the GWB is greater than zero at the time of death, the remaining payments will be made to your beneficiaries. At our discretion, we may elect to pay you or your beneficiaries a lump sum in lieu of future periodic withdrawals if the lump sum amount would be $10,000 or less. We will contact you if this is the case. The lump sum value will be equal to the present value of the remaining periodic withdrawal amounts discounted at an interest rate. The interest rate will be the weekly average of the "Interest Rate Swap" rates as reported in Federal Reserve Bulletin Release H.15 for the period applicable to the remaining withdrawal period plus 0.50%. Annuity Payments On annuity commencement or when your contract reaches its maturity date, and if we have not agreed to an extension of the maturity date, your contract value will be applied to an annuity option you have selected and this contract option and its benefits will terminate. In case of a partial annuitization, the amount of contract value applied to provide annuity payments will be treated as a withdrawal from the contract. If annuity payments are required to begin, you may also choose from an additional annuity option. The annuity option will provide a fixed annuity payment equivalent on an annual basis to your current GAI for the remainder of your life. This option will generally be more favorable when your remaining benefit value is greater than the current contract value and you believe it is unlikely your contract value will exceed the remaining benefit value in the future. You should examine your circumstances and options carefully before making any election. You should consider requesting an annuitization illustration if you have any questions about which annuity option is appropriate for you. Conversion If you have previously elected the GMWB option for your contract we will waive the prohibition on the termination for 7 years and allow you to terminate the GMWB option if you elect the GLWB II-Single option at the same time. You must request this "conversion" in writing within 30 days prior to the contract anniversary in a form satisfactory to us. As of the contract anniversary date, the GMWB option will be terminated. The GLWB II-Single option will then be effective as of the contract anniversary date Page 62 based on the contract values on that date. The GWB value, as it existed under your GMWB even if greater than the contract value on the contract anniversary date, will be eliminated and the GWB value under the GLWB II-Single option will be the contract value on the contract anniversary date. You should consider the following before you make any election to convert your GMWB to a GLWB II-Single: - Because the GLWB II-Single will be established based on contract value at the date of conversion, if your contract value has declined since you purchased the GMWB option, the GWB in the GLWB II-Single will be lower. - Your GAI under the GLWB II-Single will potentially be lower than any GAW under the GMWB. This means that your annual withdrawal amounts may be lower under the GLWB II-Single than under the GMWB option. - If you are concerned about outliving the GWB under the GMWB option you may wish to consider the GLWB II-Single option. - If you are looking for lifetime income for two lives or joint owners, annuitization or GLWB II-Joint may be more appropriate for you than either GMWB or GLWB II-Single. We reserve the right to eliminate this waiver of the 7 year requirement for termination on the GMWB option at any time. GUARANTEED LIFETIME WITHDRAWAL BENEFIT II-JOINT (GLWB II-JOINT) OPTION NO APPLICATIONS OR REQUESTS FOR THIS RIDER WILL BE ACCEPTED AFTER MAY 15, 2009. EFFECTIVE MAY 15, 2009, WE ARE SUSPENDING AVAILABILITY OF THIS OPTION. This contract option is also designed to provide a benefit that guarantees the contract owner a minimum annual withdrawal amount, and it works very similar to the Guaranteed Lifetime Withdrawal Benefit II -- Single Life Option. However its guarantee is over the lifetime of both "designated lives", (instead of a single life) regardless of underlying sub-account performance. Beginning on the later of the contract anniversary following the 59(th) birthday of the youngest designated life or the date this contract option is added, it allows a contract owner to take withdrawals from the contract each contract year up to a specified maximum amount known as the Guaranteed Annual Income (GAI) amount. The GAI amount will be 5% of the Guaranteed Withdrawal Benefit described below. - Election of this contract option may or may not be beneficial to you. Since this benefit is accessed through withdrawals from the contract, if you do not intend to take withdrawals from your contract, then this option may not be appropriate for you. - Beginning 7 years after the GLWB II-Joint effective date, you may elect to terminate this option by sending us written notice within 30 days prior to any contract anniversary. Termination will be effective on the contract anniversary date. - If you take withdrawals prior to the Benefit Date, or in excess of the annual amount guaranteed, you will reduce the benefit you receive. - Both "Designated Lives" must be age 50 or over and must be under age 81 at the time the rider becomes effective. - You may elect this option at the time your contract is issued or within 30 days prior to any contract anniversary. The option will be effective on either the issue date or contract anniversary date, also known as the GLWB II-Joint effective date. - Your entire contract value must be allocated to one of the Ivy Funds VIP Pathfinder portfolios while this option is in effect. Page 63 - You may not elect this contract option if you have selected the 5% Death Benefit Increase, Premier Death Benefit optional death benefit or in combination with any other living benefit. - After the first contact year following the GLWB II-Joint effective date, subsequent purchase payments that may be applied to the GLWB II-Joint option are limited to a total of $25,000 in the aggregate, without our prior consent. Currently this restriction is being waived. - This rider may not be purchased for a: "stretch" IRA or other "decedent" type account; TSA; Deferred Compensation Plan; Charitable Remainder Trust; Qualified Retirement Plan; 412(i) Plan; or corporate non-qualified contract. The GLWB II-Joint option is designed to provide a benefit that guarantees the contract owner an annual minimum withdrawal amount, regardless of underlying sub-account performance. In each contract year, beginning at the Benefit Date, you may withdraw up to the Guaranteed Annual Income (GAI) from your contract for the longer of: (a) the duration of both designated lives, or (b) until the Guaranteed Withdrawal Benefit (GWB) is reduced to zero. The Benefit Date is the later of the contract anniversary following the 59th birthday of the youngest designated life or the GLWB II-Joint effective date. The method used to calculate the GAI and the GWB is described below. This option does not guarantee any investment gains. Several examples to help show how this option works are included in Appendix G. Designated Life, Joint Designated Life and Designated Lives The "Designated Life" is the owner of the contract, or the annuitant in the case of a non-natural owner, unless otherwise agreed to by us. The "Joint Designated Life" is either the joint owner, joint annuitant if a non-natural owner, or the sole primary beneficiary on the contract, unless otherwise agreed to by us. The Joint Designated Life must be the spouse of the designated life. All references to "Designated Lives" will mean both the Designated Life and the Joint Designated Life. The Designated Life and Joint Designated Life will be used to determine the benefits under the GLWB II-Joint option. The Designated Life and the Joint Designated Life will be shown on your contract rider. Calculating the Initial GWB and GAI The GWB for your contract will be equal to the initial purchase payment if this option is added when your contract is issued. If the option is added on a subsequent contract anniversary, the initial GWB will be equal to the contract value on the effective date of the option. The GWB is subject to a maximum of $5,000,000 at all times. The initial GAI for your contract will be equal to 5% of the initial GWB value on the effective date of the option. Once these initial amounts are established they will remain the same until there is a subsequent purchase payment, withdrawal, withdrawal that exceeds the GAI in a contract year, Guaranteed Withdrawal Benefit Reset, Guaranteed Withdrawal Benefit Enhancement, or as otherwise described below. Adjustment for Subsequent Purchase Payments The GWB will be increased by the amount of any subsequent purchase payments as of the date the purchase payment is credited to the contract. The GAI will also be increased by the amount of the subsequent purchase payment multiplied by 5% as of the date the purchase payment is credited to the contract. After the first contract year following the effective date of the option you may make additional purchase payments to the contract. However, we restrict the application of subsequent purchase payments to the GLWB II-Joint to $25,000 in the aggregate without our prior written approval. Currently this restriction is being waived. Page 64 Withdrawals - Withdrawals taken prior to the Benefit Date will reduce the benefit you will receive, as described below. - Withdrawals may be taken in a lump sum, in multiple withdrawals or on a systematic withdrawal basis, as allowed by your contract. - Please remember that withdrawals under this contract option are treated like any other contract withdrawals for purposes of deferred sales charges, reducing the contract value, free withdrawal amounts, or any other contract features impacted by a withdrawal and which may have tax consequences. - Withdrawals will be taken pro rata from your values in any general account or other fixed accounts and each sub-account of the variable annuity account. If you decide to annuitize your contract in an amount less than the entire contract value to provide annuity payments under an annuity payment option, that amount will be treated as a withdrawal for purposes of adjusting the GWB and GAI. Be sure to read the section entitled "Annuitization Benefits and Options" if you are considering annuitizing your contract. Withdrawals taken prior to the Benefit Date If you take withdrawals from your contract prior to the Benefit Date, it will cause both the GWB and the GAI to be recalculated and reduced, as follows: The GWB will be reduced by an amount equal to: (a) multiplied by (b) divided by (c) where: (a) is the GWB immediately prior to the withdrawal, (b) is the amount of the withdrawal, and (c) is the contract value immediately prior to the withdrawal. The GAI will be 5% of the GWB as recalculated above. Withdrawals after the Benefit Date and less than the Guaranteed Annual Income Each contract year you may withdraw an amount less than or equal to the GAI or the Required Minimum Distribution (RMD) for this contract (whichever may be greater) if part of a qualified tax plan. Such withdrawals will immediately reduce the contract value and the GWB by the amount of the withdrawal, but will not reduce the GAI. If withdrawals in any contract year are less than the GAI or RMD, the additional amount may not be carried forward to future contract years. Under the Internal Revenue Code, RMDs are calculated and taken on a calendar year basis. Under this optional rider, the GAI is based on contract year. Because the intervals for the GAI and RMD are different, withdrawals may be more likely to result in a reduction of the GAI and therefore a reduced benefit. For a contract which is part of a qualified plan or IRA, if the sum of the withdrawals in a contract year exceeds the highest of the RMD for either of the two calendar years occurring in that contract year or the GAI for that contract year, then the GWB and GAI would be recalculated, as described in the section entitled "Withdrawals after the Benefit Date in excess of the Guaranteed Annual Income". If your contract year is the same as the calendar year, then the sum of the withdrawals should not exceed the greater of the RMD and the GAI. Below is an example of how this would apply. Assume an IRA with a contract year of April 1 to March 31, and that there are no withdrawals other than as described. The GAI for the 2006 contract year ending March 31, 2007 is $5,000. The RMDs for calendar years 2006 and 2007 are $6,000 and $8,000, respectively. If the owner withdraws $1,500 in each of the quarters of calendar year 2006 and $2,000 in the first quarter of 2007, then the owner will have withdrawn $6,500 for the 2006 contract year. Since the sum of the owner's Page 65 withdrawals for the 2006 contract year is less than the higher RMD (i.e., $8,000) for either of the two calendar years occurring in that contract year, the GAI would not be recalculated. Using the same assumptions as in the above paragraph, but instead of taking $2,000 in the first quarter of 2007, the owner takes a withdrawal of $4,000 in the first quarter of 2007. In that case, the owner will have withdrawn $8,500 for the 2006 contract year. Since the sum of the owner's withdrawals for the 2006 contract year (i.e., $8,500) is greater than the higher RMD amount (i.e., $8,000) for either of the two calendar years occurring in that contract year, the withdrawal is in excess of the allowed amount and the GAI would be recalculated as described in the section entitled "Withdrawals after the Benefit Date in excess of the Guaranteed Annual Income". Withdrawals after the Benefit Date in excess of the Guaranteed Annual Income Withdrawals in excess of the GAI or the RMD for this contract (whichever might be greater) if part of a qualified tax plan, in any one contract year, will cause both the GWB and GAI to be recalculated as follows: The GWB will be reduced by an amount equal to: (a) multiplied by (b), divided by (c) where: (a) is the GWB immediately prior to the excess portion of the withdrawal, (b) is the excess portion of the withdrawal amount, and (c) is the contract value immediately prior to the excess portion of the withdrawal. The GAI will be reduced by an amount equal to: (a) multiplied by (b), divided by (c) where: (a) is the GAI prior to the withdrawal, (b) is the excess portion of the withdrawal amount, and (c) is the contract value immediately prior to the excess portion of the withdrawal. For purposes of this rider, the RMD amount is equal to the amount needed based on the value of your contract and any riders to meet any required minimum distribution requirement for this contract, pursuant to the Internal Revenue Code and the regulations promulgated thereunder. Applicable contracts include those issued pursuant to a retirement plan under the provisions of Section 401, 403, 404, 408, or 457 of the Internal Revenue Code. Amounts withdrawn in excess of the RMD may be treated as an excess withdrawal as described above. For a given amount of excess withdrawal, the lower the contract value, the greater the reduction in GWB. Please see Appendix G for examples of how withdrawals impact the benefit. Guaranteed Withdrawal Benefit Reset Beginning with the first contract anniversary following the effective date of the option and every year thereafter prior to the youngest Designated Life's 86th birthday, the GWB will automatically be reset to your current contract value, if higher. The GAI will automatically reset to 5% of the reset GWB, if higher. In the event you are receiving systematic withdrawals, and the systematic withdrawal amount you are receiving is equal to some percentage of your GAI, referred to as the "percentage of GAI" option, and if the value of the GAI increases, then your systematic withdrawal amount will automatically increase. You may elect a fixed amount for your systematic withdrawal if you do not want your withdrawal amount to automatically increase. On the date of the Guaranteed Withdrawal Benefit Reset, if the rider charge at which we are currently offering the GLWB II-Joint to new customers is higher than the rider charge that currently applies to your GLWB II-Joint rider, then we reserve the right to increase the charge for your rider. The rider charge following the reset will not exceed the current rider charge for other GLWB II- Joint Page 66 riders issued on that day. If we are no longer issuing this rider, we reserve the right to increase the rider charge on the date of the GWB reset. The rider charge following the reset will not exceed the maximum annual rider charge and will be the same for all GLWB II-Joint riders which have a GWB reset on that date. YOU MAY ELECT TO DECLINE THE AUTOMATIC GWB RESET. IF YOU CHOOSE TO DO SO, YOUR GLWB II-JOINT RIDER CHARGE WILL REMAIN THE SAME (I.E., THE RIDER CHARGE WILL NOT INCREASE). YOU WILL BE NOTIFIED IN WRITING AT LEAST 30 DAYS PRIOR TO THE AUTOMATIC GWB RESET DATE OF YOUR OPTION TO DECLINE THE AUTOMATIC GWB RESET. WE MUST RECEIVE YOUR WRITTEN NOTIFICATION TO DECLINE AN AUTOMATIC GWB RESET NO LESS THAN 7 CALENDAR DAYS PRIOR TO THE AUTOMATIC RESET DATE. ELECTING TO DECLINE AN AUTOMATIC GWB RESET WILL SERVE AS AN ELECTION TO CEASE ANY FUTURE AUTOMATIC GWB RESETS UNTIL WE RECEIVE A WRITTEN INSTRUCTION FROM YOU TO REINSTATE THE AUTOMATIC GWB RESET AT THE NEXT AUTOMATIC RESET DATE. Guaranteed Withdrawal Benefit Enhancement This optional benefit also provides an enhancement to the benefit if you don't take withdrawals from your contract for the first ten years you have the optional benefit. On each contract anniversary prior to your first withdrawal from the contract, and for a period of 10 years following the option effective date, the GWB will be increased by 5% of the GWB amount on the date prior to the enhancement. In addition, the GAI will be increased to 5% of the GWB following the enhancement. The Guaranteed Withdrawal Benefit Enhancement will not change the charge for your GLWB II-Joint and it will occur prior to the GWB reset on any contract anniversary where both are applicable. Please see Appendix G for examples. Sub-Account Allocation Effective May 1, 2008 and while this rider is in effect, your full contract value must be allocated to any combination of the permitted Ivy Funds VIP Pathfinder portfolios. The Ivy Funds VIP Pathfinder Moderate portfolio, Ivy Funds VIP Pathfinder Moderately Conservative portfolio or Ivy Funds VIP Pathfinder Conservative portfolio all may be used with this rider. The contract owner may elect to change their allocation among those Pathfinder portfolios which have been approved by us for use with this optional benefit. We reserve the right to add, delete or modify the portfolios which may be used. If this rider is elected after the contract is issued, your contract value will be reallocated to the Ivy Funds VIP Pathfinder portfolios you elect on the valuation date coincident with or next following the day the rider is effective. Each of the Ivy Funds VIP Pathfinder portfolios is a "Fund of Funds" which means that each Ivy Funds Pathfinder portfolio will seek to achieve its particular level of risk/return by investing substantially all of its assets in other mutual funds in lvy Funds Variable Insurance Portfolios, Inc. and short-term investments in varying combinations and percentage amounts to achieve each Ivy Funds VIP Pathfinder portfolio's particular investment objective. A detailed discussion of each Ivy Funds VIP Pathfinder portfolio's allocations, objectives and risks may be found in the portfolio's prospectus. The Ivy Funds VIP Pathfinder portfolios are intended to provide various levels of potential capital appreciation at various levels of risk. Each of the Ivy Funds VIP Pathfinder portfolios is designed to provide a different asset allocation option corresponding to different investment goals ranging from the highest potential for growth with the highest amount of tolerance for risk, to the lowest potential for growth with the lowest amount of tolerance for risk, and the highest potential for income. Page 67 In selecting a Ivy Funds VIP Pathfinder portfolio, you should consider your personal objectives, investment time horizons, risk tolerance and other financial circumstances. If you were previously in another asset allocation "model" when you elected the option, you will not automatically be transferred, nor will you be required to transfer to these portfolios. You may keep your allocation as it currently is. If you elect to change your allocation it must be to one of these portfolios if you choose to change it. Effect of Payment of Death Benefit If both Designated Lives die before the GWB is reduced to zero and there is contract value, the beneficiary may elect to receive the death benefit under the contract and the contract and this option will terminate. Each of the available asset allocation model portfolios represents a combination of sub-accounts with a different level of risk. Asset allocation is the process of investing in different asset classes such as equity funds, fixed income funds, and money market funds depending on your personal investment goals, tolerance for risk, and investment time horizon. By spreading your money among a variety of asset classes, you may be able to reduce the risk and volatility of investing, although there are no guarantees, and asset allocation does not insure a profit or protect against loss in a declining market. The asset allocation models, as well as the terms and conditions of the asset allocation program, are fully described in a separate form which will be provided to you when you elect the optional rider. There is no charge for the asset allocation models. No personalized investment advice is provided in connection with the asset allocation program and you should not rely on the model allocations as providing individualized investment recommendations to you. This program is considered "static" because once you have selected an asset allocation model, the sub- accounts and the percentage of contract value allocated to each sub-account cannot be changed without your consent. We do not change your original percentage allocations among the sub-accounts in your chosen model, unless you advise us to do so. Nevertheless, we have selected an independent third-party consultant who reviews the existing models periodically to determine whether the model(s) should be revised in light of changing markets. Based upon this review, the third-party may recommend that new models be substituted for the currently offered models. If so, the new models will only be offered to contracts issued on or after the date the new model goes into effect or to contract owners who elect an asset allocation program on or after that date. Contract owners of any existing asset allocation models may make an independent decision to change their asset allocations at any time. You should consult your investment professional periodically to consider whether the model you have selected is still appropriate for you. Alternatively, the beneficiary may be able to elect to continue this option by taking withdrawals of the current GAI at least annually until the GWB is reduced to zero, over a period no longer than the beneficiary's life expectancy. The beneficiary may contact us for the life expectancy to be applied. No additional purchase payments may be made and no additional GWB Reset(s) will occur. If the beneficiary elects to continue the GLWB II-Joint option, the charges for this option will continue to apply. If your beneficiary is not your surviving spouse, and if withdrawals of the GAI annually would extend beyond the beneficiary's life expectancy, the beneficiary will not be able to elect to continue the rider and the GLWB II-Joint will terminate and the beneficiary will be required to take the death benefit under the contract. Any option elected by the beneficiary must comply with Internal Revenue Code Sections 72(s) and 401(a)(9), as applicable. A beneficiary may contact us for the life expectancy according to the mortality tables. Page 68 Spousal Continuation If the Designated Life dies, the surviving spouse may elect to continue the contract and this rider under the following conditions: (a) the surviving spouse is also the Joint Designated Life, and (b) this rider is in effect at the time of the contract continuation. Rider Termination Beginning seven contract years after the GLWB II-Joint effective date the contract owner may elect to cancel this contract option. You must request the cancellation in writing within 30 days prior to the applicable contract anniversary in a form satisfactory to us. The termination effective date will be on the contract anniversary date. Once cancelled the GLWB II-Joint may not be elected again until the next contract anniversary, subject to availability. The GLWB II-Joint option will automatically terminate at the earliest of the following: - the date of termination or surrender of the contract; or - any change to the Designated Lives after the GLWB II-Joint effective date; or - the annuity commencement date where all remaining contract value has been applied to provide annuity payments; or - the date any death benefits are paid as a lump sum under the terms of the contract; or - the date the GWB is reduced to zero following the death of both Designated Lives. Upon termination of this rider, the benefits and charges within this rider will terminate. A pro rata amount of the rider charge will be deducted upon termination of this rider or surrender of the contract. Automatic Payment Phase If the contract value is reduced to zero, the contract will enter an automatic payment phase. You may elect to receive the GAI at any frequency offered by us, but at least annually, until the death of the contract owner or the death of both Designated Lives. Once selected, the frequency may not be changed without our consent. During this phase, no additional purchase payments may be made and all other contract features, benefits, riders, and guarantees except the guarantees provided by this rider are terminated. Following the death of both Designated Lives, this rider terminates and no further benefits are payable unless the GWB is greater than zero. If the GWB is greater than zero at the time of death, the remaining payments will be made to your beneficiaries. At our discretion, we may elect to pay you or your beneficiaries a lump sum in lieu of future periodic withdrawals if the lump sum amount would be $10,000 or less. We will contact you if this is the case. The lump sum value will be equal to the present value of the remaining periodic withdrawal amounts discounted at an interest rate. The interest rate will be the weekly average of the "Interest Rate Swap" rates as reported in Federal Reserve Bulletin Release H.15 for the period applicable to the remaining withdrawal period plus 0.50%. Annuity Payments On annuity commencement or when your contract reaches its maturity date, and if we have not agreed to an extension of the maturity date, your contract value will be applied to an annuity option you have selected and this contract option and its benefits will terminate. In case of a partial annuitization, the amount of contract value applied to provide annuity payments will be treated as a withdrawal from the contract. Page 69 If annuity payments are required to begin, you may also choose from an additional annuity option. The annuity option will provide a fixed annuity payment equivalent on an annual basis to your current GAI for the remainder of your life. This option will generally be more favorable when your remaining benefit value is greater than the current contract value and you believe it is unlikely your contract value will exceed the remaining benefit value in the future. You should examine your circumstances and options carefully before making any election. You should consider requesting an annuitization illustration if you have any questions about which annuity option is appropriate for you. Conversion (GMWB to GLWB II-Joint) If you have previously elected the GMWB option for your contract we will waive the prohibition on the termination for 7 years and allow you to terminate the GMWB option if you elect the GLWB II-Joint option at the same time. You must request this "conversion" in writing within 30 days prior to the contract anniversary in a form satisfactory to us. As of the contract anniversary date, the GMWB option will be terminated. The GLWB II-Joint option will then be effective as of the contract anniversary date based on the contract values on that date. The GWB value, as it existed under your GMWB even if greater than the contract value on the contract anniversary date, will be eliminated and the GWB value under the GLWB II-Joint option will be the contract value on the contract anniversary date. You should consider the following before you make any election to convert your GMWB to a GLWB II-Joint: - Because the GLWB II-Joint will be established based on contract value at the date of conversion, if your contract value has declined since you purchased the GMWB option, the GWB in the GLWB II-Joint will be lower. - Your GAI under the GLWB II-Joint will potentially be lower than any GAW under the GMWB. This means that your annual withdrawal amounts may be lower under the GLWB II-Joint than under the GMWB option. - If you are concerned about outliving the GWB under the GMWB option you may wish to consider the GLWB II-Joint option. - If you are looking for lifetime income for two lives or joint owners, annuitization may be more appropriate for you than either GMWB or GLWB II-Joint. We reserve the right to eliminate this waiver of the 7 year requirement for termination on the GMWB option at any time. We reserve the right to eliminate this waiver of the 7 year requirement for termination on the GLWB option at any time. GENERAL INFORMATION THE COMPANY -- 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, 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 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 Page 70 "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 address, telephone and internet address are shown on the cover page. We are licensed to engage in the 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. THE SEPARATE ACCOUNT -- 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. The variable annuity account has sub-accounts to which you may allocate purchase payments. Each sub-account invests in shares of a corresponding portfolio. Additional sub-accounts may be added at our discretion. The assets of the variable annuity account are not chargeable with liabilities arising out of any other business we may conduct. The investment performance of the variable annuity account is entirely independent of the investment performance of our general account, amounts in the guaranteed term account and our other separate accounts. All obligations under the contracts are our general corporate obligations. The general account is not segregated or insulated from the claims of insurance company creditors. Investors look to the financial strength of the insurance company for its insurance guarantees. Guarantees provided by the insurance company as to the benefits promised in the contract are subject to the claims paying ability of the insurance company and are subject to the risk that the insurance company may default on its obligations under those guarantees. CHANGES TO THE SEPARATE ACCOUNT -- 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 an investment in a portfolio should no longer be possible or if we determine it becomes inappropriate for these contracts, we may substitute another portfolio. Substitution may be with respect to existing accumulation values, future purchase payments or future annuity payments. We also reserve the right to add, combine or remove any sub-accounts of the variable annuity account. 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 portfolios serve 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 portfolio 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 Page 71 policies and variable annuity contracts to invest in the portfolio at the same time, or (ii) the owners of such policies and contracts issued by different life insurance companies to invest in the portfolio at the same time or (iii) participating qualified plans to invest in shares of the portfolio at the same time as one or more life insurance companies. Neither the portfolio nor Minnesota Life currently foresees any disadvantage, but if the portfolio 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 portfolio'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 portfolio 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. 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. 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 are paid directly to the 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. 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. Commissions paid to broker-dealers, and indirectly to registered representatives, 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 6.5% of purchase payments. We do not pay any additional compensation on the sale or exercise of any of the contract's optional benefit riders offered. Additional Payments Broker-dealers also receive additional payments in the form of marketing allowances which equal 0.25% annually of contract values. The marketing allowances are intended to provide further encouragement to broker-dealers to sell contracts. 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 7.75% of purchase payments. Broker-dealers also receive additional cash payments. These payments may be for such things as: access to registered representatives and/or broker dealers; one- on-one wholesaler visits, or attendance and visibility at national/regional sales meetings or similar events; inclusion of our products on a Page 72 broker-dealer's "preferred list"; articles in broker-dealer or similar publications promoting our services or products; occasional meals and/or entertainment, tickets to sporting/other events, and other gifts; joint marketing campaigns, broker-dealer event participation/advertising; sponsorship of broker-dealer sales contests or promotions in which participants (including registered representatives) receive prizes such as travel, awards, merchandise or other recognition; sales support through the provision of hardware, software, or links to our websites from broker-dealer websites and other expense allowance or reimbursement; educational, due diligence, sales or training seminars, conferences and programs, sales and service desk training, and/or client or prospect seminar sponsorships. In no event are total front-end commissions paid to broker-dealers in connection with the sales of contracts exceed 7.75% of purchase payments (i.e., loan commissions plus additional payments). All of the compensation described here 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 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. 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. These payments, which are sometimes known as revenue sharing, are in addition to the 12b-1 fees and those other fees and expenses incurred by a fund and disclosed in its prospectus fee table. Service and administrative payments are paid to 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. Because funds selected for inclusion in the contract may also benefit from expanded marketing opportunities as a result of such inclusion, a fund's investment adviser (or its affiliates) may have an incentive to make such payments regardless of other benefits the fund may derive from services performed by Minnesota Life. 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 Page 73 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. THE GENERAL ACCOUNT AND THE GUARANTEED TERM ACCOUNT The interests of contract owners arising from the allocation of purchase payments or the transfer of contract values to our general account or one of the guarantee periods of the guaranteed term account, are not registered under the Securities Act of 1933, nor is either 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. In addition, the staff of the commission has not reviewed the disclosures in the prospectus relating to those. Disclosures relating to interests in these options however, may be subject to certain generally applicable provisions of the federal securities laws relating to accuracy of statements made in a registration statement. The guaranteed interest rate on new amounts allocated or transferred to the general account or a guarantee period is determined from time-to-time by Minnesota Life in accordance with existing market conditions. In no event will the guaranteed rate of interest be less than the minimum guaranteed rate of interest as stated in your contract. Once an interest rate is established for a guarantee period, it is guaranteed for the duration of the stated period and may not be changed by Minnesota Life. The guaranteed term account is a separate account of Minnesota Life titled "Modified Guaranteed Annuity Fixed Separate Account". There are no units in this separate account. Amounts allocated to this separate account do not participate in the investment gain or loss in the separate account. Such gain or loss accrues solely to Minnesota Life. We retain the risk that the value of the assets in this separate account may drop below the reserves and other liabilities we must maintain. Should this occur, Minnesota Life may transfer assets from its general account to this separate account to make up the difference. Minnesota Life also reserves the right to transfer to its general account any assets of this separate account in excess of the required reserves and liabilities. We maintain assets in this separate account for other Minnesota Life annuities. Guarantee Periods of the Guaranteed Term Account. There are four guarantee periods of the guaranteed term account. These provide for the accumulation of interest at a guaranteed interest rate when held for three, five, seven and ten year periods. Minnesota Life may offer additional guarantee periods at its discretion. It also may at any time stop accepting new purchase payments, transfers or renewals for a particular guarantee period. The guaranteed term account is not available in all states. Contract owners may allocate purchase payments, or make transfers from or to guarantee periods at any time prior to the annuity commencement date as long as the guarantee period for such allocation does not extend past the contract maturity date. Minnesota Life establishes a separate entry in the guaranteed term account for accounting and interest rate purposes each time the contract owner allocates or transfers amounts to the guaranteed term account guarantee period option. Renewals. At the end of a guarantee period, the contract owner may establish a new guarantee period with the same guarantee period at the then current interest rate, select a different guaranteed Page 74 term account guarantee period option or transfer the amounts to a variable annuity account option, or the general account or those amounts may be withdrawn from the contract (though such amounts withdrawn may be subject to a DSC). You may make your election during the period 30 days prior to or immediately following the renewal date of each guarantee period without having the market value adjustment applied. If a renewal date falls on a non-valuation date, the next following valuation date shall be used. If the contract owner does not specify the guarantee period option desired at the time of renewal, Minnesota Life will automatically renew the funds held in that guarantee period option for the same duration at the newly established interest rate, provided, however, that we will select a period which does not extend beyond the maturity date previously elected in the contract. The interest rate applicable to the new guarantee period may be higher or lower than the interest rate which was credited to the expired guarantee period. If, at the time of renewal, a guarantee period of the same duration is no longer available, Minnesota Life will select the next shortest available guarantee period. If no guarantee period of the guaranteed term account is available, we will allocate the funds to be renewed to the general account. Transfers. Prior to the annuity commencement date, the contract owner may transfer amounts between or among the guarantee periods of the guaranteed term account or from a guarantee period to the variable annuity account or general account options. Transfers prior to the end of a guarantee period may be subject to a market value adjustment, which is described below. The market value adjustment, if applicable, may increase or decrease the amount of the transfer. For further information regarding transfers, see the heading "Transfers" in this Prospectus. The contract owner must specify the guarantee period from or to which a transfer is to be made. Withdrawals. The contract owner may make withdrawals of, or may surrender amounts held in guarantee periods of the guaranteed term account at any time prior to death and prior to the start of annuity payments. Withdrawals from guarantee periods of the guaranteed term account will be made in the same manner and be subject to the same limitations as set forth under the heading "Withdrawals and Surrender" in this Prospectus. In addition, the following provisions apply to withdrawals from the guarantee periods of the guaranteed term account: (1) Minnesota Life reserves the right to defer payment of amounts withdrawn from guarantee periods of the guaranteed term account for up to six months from the date it receives the written withdrawal request (if a withdrawal is deferred for more than 30 days pursuant to this right, Minnesota Life will pay interest on the amount deferred at a rate not less than the minimum guaranteed interest rate as stated in your contract; (2) if there are multiple investment entries under a guarantee period of the guaranteed term account, amounts will be withdrawn from such accounts on a first-in-first-out basis; and (3) the market value adjustment described above may apply to withdrawals from any guarantee period of the guarantee term account. In the case of a contract surrender, the market value adjustment to each guarantee period option, if applicable, will be calculated using the full amount in that guarantee period option, and the amount of the adjustment will be added to or subtracted from such amount and paid to the owner. In the case of a withdrawal, the market value adjustment to each guarantee period option affected by the withdrawal will be calculated using the full amount to be taken from that guarantee period in order to provide the amount requested, after application of the adjustment and deduction of applicable charges, and the amount of the adjustment will be added to or subtracted from the contract value remaining after payment of the requested amount. Page 75 Withdrawals from the contract may also be subject to income tax and a 10% penalty tax. Retirement plan limitations may also apply. See the heading "Federal Tax Status", in this Prospectus. Market Value Adjustment. Amounts surrendered, withdrawn, transferred or applied to provide annuity payments from a guarantee period of the guaranteed term account prior to the renewal date may be subject to a market value adjustment. The market value adjustment may increase or decrease the amount of the guarantee period value which is being transferred, withdrawn or surrendered. The market value adjustment will be calculated by multiplying the amount transferred, withdrawn, or surrendered by the market value adjustment factor. The market value adjustment factor is equal to: (1 + i) (n/12) --------------- [ (1 + j + .0025) ] -1
where i = Treasury Rate for the week prior to the date of allocation into the guarantee term account for a maturity equal to the guarantee period. j = Treasury Rate for the week prior to the date of surrender, withdrawal, transfer or application to provide annuity payments with a maturity equal to the number of whole months remaining in the guarantee period. n = the number of whole months remaining in the guarantee period.
If a Treasury Rate maturity is not available for the necessary period, we will determine the rate by linear interpolation based on the Treasury Rates with maturity closest to the period being measured. If Treasury Rates are no longer available we will use an appropriate rate approved by the insurance department of the state which has jurisdiction over the contract. We guarantee that the amount of the market value adjustment will never exceed, in a positive or negative direction, the excess interest earned on the guarantee period from which the withdrawal, surrender, amount applied to provide annuity payments, or transfer is to be made. For this purpose, excess interest is defined as the dollar amount of interest earned on each allocation into a guarantee period of the guaranteed term account in excess of interest earned based on the minimum guaranteed interest rate for the guarantee period. There will be no market value adjustment in the following situations: (a) transfers, withdrawals, surrenders and amounts applied to provide annuity payments occurring within 30 days prior to or immediately following the renewal date of each guarantee period; (b) amounts payable as a death benefit; and (c) amounts withdrawn from the guaranteed term account to pay any annual maintenance fee, transfer charge or periodic charges if any, for optional benefit riders. However, amounts withdrawn or surrendered may be subject to the deferred sales charge. VOTING RIGHTS We will vote the portfolio shares held in the variable annuity account at shareholder meetings of the portfolios. 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 Page 76 a contract owner may provide instructions will be calculated separately for each sub-account of the variable annuity account. One of the effects of proportional voting is that a small number of contract owners may determine the outcome of the vote. 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 contract value of the contract attributable to each sub-account of the variable annuity account by the net asset value per share of the portfolio 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 of the variable annuity account by the net asset value per share of the portfolio 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 portfolio 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. 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. This annuity contract will no longer be issued to Section 403(b) Plans effective May 1, 2008. 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. There are specific rules for the taxation of annuity products. In many cases, these rules differ from tax rules which apply to other types of investments. For example, as an illustration of points more fully discussed below, a gain recognized upon a withdrawal from an annuity contract may be taxed differently than the gain on the sale of other types of investments, such as corporate stocks, bonds or mutual funds. The gain in an annuity contract, represented by the difference between the cash value and the sum of the premiums paid into the contract, is taxed as ordinary income. By contrast, the sale of shares of corporate stock, bonds or mutual funds would be taxed as capital gains based upon the difference between the sale price and the purchase price. Depending upon how long the corporate stock, bonds or mutual funds were held, the owner may be entitled to reduced tax rates applicable to long term capital gains. For variable annuity contracts, increases in contract values attributable to dividends and interest from underlying investment funds are not currently taxed, but instead the taxation of such gains is Page 77 deferred until there is a withdrawal, contract surrender, or annuity payments begin, at which time they are taxed as ordinary income (as described above). This favorable treatment allows the value of the contract to remain undiminished and allows the owner to determine the timing of the receipt of taxable income. Note, however, that variable annuity contracts held in Tax Qualified Accounts do not provide any additional tax deferral benefit. A Tax Qualified Account independently provides a tax deferral benefit for gains on all assets held in such an account. By contrast, the owner of a corporate stock, bond or mutual fund held on a non-tax qualified basis who receives dividends or interest, whether in cash or as automatic reinvestments, must report such income as taxable on an annual basis. In some cases, the receipt of dividends from corporate stocks and mutual funds may enjoy favorable tax rates. This prospectus makes no representation as to the tax rules which apply to those other types of investments and the discussion which follows makes no comparison of the described insurance products to such other investments. For a complete discussion of matters relating to taxation and the tax impact on your investments or for a comparison of taxation differences between investment products and types, please see your tax advisor. TAXATION OF MINNESOTA LIFE AND THE VARIABLE ANNUITY ACCOUNT We are taxed as a "life insurance company" under the Internal Revenue Code (the "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. In calculating our corporate income tax liability, we derive certain corporate income tax benefits associated with the investment of company assets, including separate account assets that are treated as company assets under applicable income tax law. These benefits, which reduce our overall corporate income tax liability may include dividends, received deductions and foreign tax credits which can be material. We do not pass these benefits through to the separate accounts, principally because: (i) the great bulk of the benefits results from the dividends received deduction, which involves no reduction in the dollar amount of dividends that the separate account receives; and (ii) under applicable income tax law, contract owners are not the owners of the assets generating the benefits. TAXATION OF ANNUITY CONTRACTS IN GENERAL Section 72 of the Code governs the 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 income 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 Sections 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 the purchase of the annuity, and (iii) which provides for a series of substantially equal periodic Page 78 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. If you do not annuitize your nonqualified contract on or before the maturity date, it is possible that the IRS could challenge the status of your contract as an annuity contract for tax purposes. The result of such a challenge could be that you would be viewed as either constructively receiving the increase in the contract value each year from the inception of the contract or the entire increase in the contract value would be taxable in the year you reach the maturity date. In either situation, you could realize taxable income even if the contract proceeds are not distributed to you at that time. Accordingly, before purchasing a contract, you should consult your tax advisor with respect to these issues. 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 Sections 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 the Advantus fund is an affiliate of ours, we do not control the Advantus fund nor the investments of its portfolios. Nonetheless, we believe that each portfolio of the 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. The Internal Revenue Service has further amplified and clarified its position in Rev. Rul. 2003-91 by issuing new regulations in 2005 and additional Revenue Rulings. Minnesota Life believes that the regulations and additional rulings are meant to clarify the IRS position in Rev. Rul. 2003-91 and that the ownership rights of a contract owner under the contract will not result in any contract owner Page 79 being treated as the owner of the assets of the Variable Annuity Account. However, Minnesota Life does not know whether the IRS will issue additional guidance that will place restrictions on such ownership rights. Therefore, Minnesota Life reserves the right to modify the contract as necessary to attempt to prevent a contract owner from being considered the owner of a pro rata share of the assets of the Variable Annuity Account. TAXATION OF PARTIAL AND FULL WITHDRAWALS For payments made in the event of a full surrender of an annuity that is not part of a qualified program, the taxable portion of the amount you receive is generally the amount in excess of the "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 an annuity payment is generally equal to the excess of the payment over the exclusion amount. In the case of a fixed annuity payment, 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. TAXES PAYABLE ON OPTIONAL RIDERS The GLWB and GMWB options provide benefits that are different from the usual benefits available under variable annuity contracts. If you elect these options a contract owner or beneficiary may be allowed to take withdrawals under the option even after the contract value is equal to zero. Like any withdrawal under the option it is treated as a withdrawal from the contract for income tax purposes. If the investment in the contract has been fully recovered for tax purposes, then these withdrawals are generally included in the taxpayer's income. 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 Page 80 the owner's death. That is, the investment in the contract remains the amount of any purchase payments paid which were not excluded from gross income. PENALTY TAX ON PREMATURE DISTRIBUTIONS The Code imposes a 10% penalty tax on the taxable portion of certain distributions from annuity contracts. This additional tax does not apply where the payment is made under an immediate annuity contract, as defined above, or: - where the taxpayer is 59 1/2 or older, - where payment is made on account of the taxpayer's disability, or - where payment is made by reason of the death of the owner, and - in certain other circumstances. The Code also provides an exception to the penalty tax for distributions, in periodic payments, of substantially equal installments (not less frequently than annually), where they are made for the life (or life expectancy) of the taxpayer or the joint lives (or joint life expectancies) of the taxpayer and beneficiary. For 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. 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. Page 81 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 the legislation is passed). 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. Tax deferral under annuity contracts purchased in connection with tax qualified plans arises under the specific provisions of the Code governing the tax-qualified plan, so a contract should be purchased only for the features and benefits other than tax deferral that are available under an annuity contract purchased in connection with tax qualified plans, and not for the purpose of obtaining tax deferral. 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. 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. Under certain limited circumstances IRS regulations permit partial withdrawals from your qualified Page 82 retirement plan contract after annuity payments have begun after the required beginning date without violating the RMD rules. 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 Sections 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 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 reaches age 70 1/2. Roth IRAs under Section 408A do not require distributions at any time prior to the owner's death. To the extent the optional death benefit riders alter the timing or the amount of the payment of distributions under a qualified contract, the riders cannot be paid out in violation of the minimum distribution rules of the code. In accordance with recent changes in laws and regulations RMDs may be calculated based on the sum of the contract value and the actuarial value of any additional death benefits and benefits from optional riders that you have purchased under the contract. As a result, the RMDs may be larger than if the calculation were based on the contract value alone. This may result in an earlier (but not before the required beginning date) distribution under the contract and an increased amount of taxable income distributed to the contract owner, and a reduction of death benefits and benefits of any optional riders. 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 mandatory 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 Page 83 individuals which are eligible for rollover may still be placed in another tax- qualified plan or individual retirement account or individual retirement annuity if the transaction is completed within 60 days after the distribution has been received. 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 portfolio, 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 portfolios, 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 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 was issued when the underlying portfolios first became available to the variable annuity account under other contracts issued by us. The money market portfolio 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 portfolios 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. Page 84 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 Contract Performance Independent Registered Public Accounting Firm Registration Statement Financial Statements RULE 12H-7 REPRESENTATION: Consistent with well established industry and SEC practice, Minnesota Life does not believe that the Company is subject to the periodic reporting requirements of the Securities Exchange Act of 1934 (the "Securities Exchange Act") as depositor of the Variable Annuity Account or for any other variable separate account for which we act as Depositor. Nevertheless, to the extent the SEC takes the position that insurance company depositors of variable insurance product separate accounts registered with the SEC are subject to the periodic reporting requirements of the Securities Exchange Act, Minnesota Life intends to rely upon the exemption from those requirements set forth in Rule 12h-7 under the Securities Exchange Act to the extent necessary to avoid any such periodic reporting obligation. Page 85 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, 2008. 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. 1.25% Variable Account Charge
UNIT VALUE UNIT VALUE NUMBER OF UNITS AT BEGINNING AT END OUTSTANDING AT OF PERIOD OF PERIOD END OF PERIOD ------------ ---------- --------------- IVY FUNDS VIP ASSET STRATEGY SUB-ACCOUNT:(G) 2008................ 2.38 1.74 6,760,024 2007................ 1.67 2.38 5,704,958 2006................ 1.41 1.67 3,864,030 2005................ 1.15 1.41 1,687,434 2004................ 1.00(a) 1.15 373,632 IVY FUNDS VIP BALANCED SUB-ACCOUNT:(G) 2008................ 1.39 1.08 1,598,233 2007................ 1.24 1.39 1,363,216 2006................ 1.13 1.24 1,005,018 2005................ 1.09 1.13 855,108 2004................ 1.00(a) 1.09 323,954 IVY FUNDS VIP BOND SUB-ACCOUNT:(G) 2008................ 1.11 1.10 18,451,308 2007................ 1.06 1.11 20,593,101 2006................ 1.03 1.06 9,742,450 2005................ 1.03 1.03 3,091,585 2004................ 1.00(a) 1.03 411,452 IVY FUNDS VIP CORE EQUITY SUB-ACCOUNT:(G) 2008................ 1.53 0.99 3,340,243 2007................ 1.36 1.53 2,797,881 2006................ 1.18 1.36 1,746,449 2005................ 1.09 1.18 1,038,484 2004................ 1.00(a) 1.09 415,490 IVY FUNDS VIP DIVIDEND OPPORTUNITIES SUB-ACCOUNT:(G)(H) 2008................ 1.60 1.01 3,742,689 2007................ 1.39 1.60 3,467,497 2006................ 1.22 1.39 2,301,609 2005................ 1.09 1.22 1,259,154 2004................ 1.00(a) 1.09 269,938 IVY FUNDS VIP ENERGY SUB-ACCOUNT:(G) 2008................ 1.38 0.73 3,257,903 2007................ 0.92 1.38 2,653,862 2006................ 1.00(f) 0.92 2,096,876 IVY FUNDS VIP GLOBAL NATURAL RESOURCES SUB-ACCOUNT:(G) 2008................ 2.20 0.84 4,317,960 2007................ 1.55 2.20 3,789,743 2006................ 1.25 1.55 2,888,076 2005................ 1.00(e) 1.25 1,527,521 IVY FUNDS VIP GROWTH SUB-ACCOUNT:(G) 2008................ 1.49 0.93 18,947,337 2007................ 1.20 1.49 15,869,465 2006................ 1.15 1.20 9,668,108 2005................ 1.05 1.15 3,807,415 2004................ 1.00(a) 1.05 853,491 IVY FUNDS VIP HIGH INCOME SUB-ACCOUNT:(G) 2008................ 1.21 0.94 14,368,528 2007................ 1.18 1.21 14,061,942 2006................ 1.09 1.18 7,821,304 2005................ 1.07 1.09 3,314,045 2004................ 1.00(a) 1.07 721,334 IVY FUNDS VIP INTERNATIONAL GROWTH SUB-ACCOUNT:(G)(C) 2008................ 1.84 1.05 2,592,411 2007................ 1.53 1.84 2,316,247 2006................ 1.28 1.53 1,527,003 2005................ 1.12 1.28 795,153 2004................ 1.00(a) 1.12 206,176 IVY FUNDS VIP INTERNATIONAL VALUE SUB-ACCOUNT:(G)(D) 2008................ 1.82 1.04 13,679,409 2007................ 1.68 1.82 9,745,481 2006................ 1.31 1.68 4,763,610 2005................ 1.19 1.31 1,983,740 2004................ 1.00(a) 1.19 334,555 IVY FUNDS VIP MICRO CAP GROWTH SUB-ACCOUNT:(G) 2008................ 1.56 0.80 1,119,890 2007................ 1.48 1.56 1,011,683 2006................ 1.33 1.48 842,599 2005................ 1.12 1.33 595,695 2004................ 1.00(a) 1.12 177,065 IVY FUNDS VIP MID CAP GROWTH SUB-ACCOUNT:(G) 2008................ 1.43 0.90 3,756,233 2007................ 1.29 1.43 3,559,846 2006................ 1.20 1.29 3,157,516 2005................ 1.00(e) 1.20 2,522,292 IVY FUNDS VIP MONEY MARKET SUB-ACCOUNT:(G) 2008................ 1.07 1.08 6,079,525 2007................ 1.04 1.07 6,206,370 2006................ 1.01 1.04 2,878,339 2005................ 1.00 1.01 676,909 2004................ 1.00(a) 1.00 1,179,640
A-1 1.25% Variable Account Charge Continued
UNIT VALUE UNIT VALUE NUMBER OF UNITS AT BEGINNING AT END OUTSTANDING AT OF PERIOD OF PERIOD END OF PERIOD ------------ ---------- --------------- IVY FUNDS VIP MORTGAGE SECURITIES SUB-ACCOUNT:(G) 2008................ 1.11 0.98 8,611,207 2007................ 1.09 1.11 8,194,875 2006................ 1.05 1.09 8,323,345 2005................ 1.04 1.05 13,270,388 2004................ 1.00(b) 1.04 15,458,353 IVY FUNDS VIP REAL ESTATE SECURITIES SUB-ACCOUNT:(G) 2008................ 1.53 0.97 2,317,303 2007................ 1.85 1.53 2,040,652 2006................ 1.44 1.85 1,717,637 2005................ 1.32 1.44 1,045,401 2004................ 1.00(b) 1.32 5,432,797 IVY FUNDS VIP SCIENCE AND TECHNOLOGY SUB-ACCOUNT:(G) 2008................ 1.76 1.15 3,380,238 2007................ 1.43 1.76 3,070,735 2006................ 1.35 1.43 2,296,503 2005................ 1.16 1.35 1,467,854 2004................ 1.00(a) 1.16 394,776 IVY FUNDS VIP SMALL CAP GROWTH SUB-ACCOUNT:(G) 2008................ 1.45 0.87 2,446,013 2007................ 1.30 1.45 2,163,468 2006................ 1.25 1.30 1,792,565 2005................ 1.12 1.25 1,076,397 2004................ 1.00(a) 1.12 300,173 IVY FUNDS VIP SMALL CAP VALUE SUB-ACCOUNT:(G) 2008................ 1.26 0.92 11,588,161 2007................ 1.33 1.26 10,192,407 2006................ 1.16 1.33 4,998,796 2005................ 1.12 1.16 1,948,420 2004................ 1.00(a) 1.12 321,559 IVY FUNDS VIP VALUE SUB-ACCOUNT:(G) 2008................ 1.33 0.87 26,622,147 2007................ 1.33 1.33 21,864,521 2006................ 1.15 1.33 12,206,168 2005................ 1.11 1.15 4,259,227 2004................ 1.00(a) 1.11 637,855 IVY FUNDS VIP PATHFINDER AGGRESSIVE SUB-ACCOUNT:(I) 2008................ -- 0.73 737,666 IVY FUNDS VIP PATHFINDER MODERATELY AGGRESSIVE SUB-ACCOUNT:(I) 2008................ -- 0.76 48,430,754 IVY FUNDS VIP PATHFINDER MODERATE SUB-ACCOUNT:(I) 2008................ -- 0.79 25,495,644 IVY FUNDS VIP PATHFINDER MODERATELY CONSERVATIVE SUB-ACCOUNT:(I) 2008................ -- 0.83 9,476,295 IVY FUNDS VIP PATHFINDER CONSERVATIVE SUB-ACCOUNT:(I) 2008................ -- 0.86 3,393,993
1.35% Variable Account Charge
UNIT VALUE UNIT VALUE NUMBER OF UNITS AT BEGINNING AT END OUTSTANDING AT OF PERIOD OF PERIOD END OF PERIOD ------------ ----------- --------------- IVY FUNDS VIP ASSET STRATEGY SUB-ACCOUNT:(G) 2008................ 2.37 1.73 78,994 2007................ 1.67 2.37 50,086 2006................ 1.40 1.67 28,488 2005................ -- 1.40 30,979 IVY FUNDS VIP BALANCED SUB-ACCOUNT:(G) 2008................ 1.38 1.08 5,648 2007................ 1.23 1.38 6,300 2006................ 1.12 1.23 4,895 2005................ -- 1.12 5,421 IVY FUNDS VIP BOND SUB-ACCOUNT:(G) 2008................ 1.10 1.09 67,949 2007................ 1.06 1.10 44,021 2006................ 1.03 1.06 5,158 2005................ -- 1.03 5,513 IVY FUNDS VIP CORE EQUITY SUB-ACCOUNT:(G) 2008................ 1.52 0.98 91,709 2007................ 1.36 1.52 99,371 2006................ 1.17 1.36 105,461 2005................ -- 1.17 113,705 IVY FUNDS VIP DIVIDEND OPPORTUNITIES SUB-ACCOUNT:(G)(H) 2008................ 1.60 1.01 56,233 2007................ 1.39 1.60 59,404 2006................ 1.21 1.39 34,341 2005................ -- 1.21 37,543 IVY FUNDS VIP ENERGY SUB-ACCOUNT:(G) 2008................ 1.38 0.73 17,102 2007................ -- 1.38 -- IVY FUNDS VIP GLOBAL NATURAL RESOURCES SUB-ACCOUNT:(G) 2008................ 2.19 0.83 11,044 2007................ 1.55 2.19 10,868 2006................ 1.25 1.55 7,765 2005................ 1.00(e) 1.25 8,336 IVY FUNDS VIP GROWTH SUB-ACCOUNT:(G) 2008................ 1.48 0.93 104,755 2007................ 1.19 1.48 113,728 2006................ 1.15 1.19 106,392 2005................ -- 1.15 114,855 IVY FUNDS VIP HIGH INCOME SUB-ACCOUNT:(G) 2008................ 1.21 0.93 60,134 2007................ 1.18 1.21 32,295 2006................ 1.09 1.18 17,142 2005................ -- 1.09 19,472 IVY FUNDS VIP INTERNATIONAL GROWTH SUB-ACCOUNT:(G)(C) 2008................ 1.83 1.05 38,286 2007................ 1.53 1.83 26,203 2006................ 1.28 1.53 17,043 2005................ -- 1.28 18,273 IVY FUNDS VIP INTERNATIONAL VALUE SUB-ACCOUNT:(G)(D) 2008................ 1.81 1.03 41,332 2007................ 1.67 1.81 30,985 2006................ 1.31 1.67 17,641 2005................ -- 1.31 19,075
A-2 1.35% Variable Account Charge Continued
UNIT VALUE UNIT VALUE NUMBER OF UNITS AT BEGINNING AT END OUTSTANDING AT OF PERIOD OF PERIOD END OF PERIOD ------------ ----------- --------------- IVY FUNDS VIP MICRO CAP GROWTH SUB-ACCOUNT:(G) 2008................ 1.55 0.79 5,510 2007................ 1.48 1.55 5,912 2006................ 1.33 1.48 6,335 2005................ -- 1.33 6,778 IVY FUNDS VIP MID CAP GROWTH SUB-ACCOUNT:(G) 2008................ 1.43 0.90 11,370 2007................ 1.29 1.43 12,297 2006................ 1.20 1.29 7,893 2005................ 1.00(e) 1.20 8,474 IVY FUNDS VIP MONEY MARKET SUB-ACCOUNT:(G) 2008................ 1.07 1.08 9,316 2007................ 1.04 1.07 9,987 2006................ 1.01 1.04 10,688 2005................ -- 1.01 11,424 IVY FUNDS VIP MORTGAGE SECURITIES SUB-ACCOUNT:(G) 2008................ 1.11 0.97 7,470 2007................ 1.08 1.11 8,029 2006................ 1.05 1.08 7,645 2005................ -- 1.05 8,171 IVY FUNDS VIP REAL ESTATE SECURITIES SUB-ACCOUNT:(G) 2008................ 1.53 0.97 26,955 2007................ 1.85 1.53 28,936 2006................ 1.44 1.85 2,171 2005................ -- 1.44 2,321 IVY FUNDS VIP SCIENCE AND TECHNOLOGY SUB-ACCOUNT:(G) 2008................ 1.75 1.14 101,234 2007................ 1.43 1.75 96,716 2006................ 1.34 1.43 84,771 2005................ -- 1.34 91,471 IVY FUNDS VIP SMALL CAP GROWTH SUB-ACCOUNT:(G) 2008................ 1.45 0.87 14,072 2007................ 1.29 1.45 15,214 2006................ 1.25 1.29 10,008 2005................ -- 1.25 10,735 IVY FUNDS VIP SMALL CAP VALUE SUB-ACCOUNT:(G) 2008................ 1.26 0.92 9,480 2007................ 1.33 1.26 10,411 2006................ 1.15 1.33 10,511 2005................ -- 1.15 11,453 IVY FUNDS VIP VALUE SUB-ACCOUNT:(G) 2008................ 1.33 0.87 89,164 2007................ 1.32 1.33 96,776 2006................ 1.15 1.32 100,619 2005................ -- 1.15 108,596
1.40% Variable Account Charge
UNIT VALUE UNIT VALUE NUMBER OF UNITS AT BEGINNING AT END OUTSTANDING AT OF PERIOD OF PERIOD END OF PERIOD ------------ ---------- --------------- IVY FUNDS VIP ASSET STRATEGY SUB-ACCOUNT:(G) 2008................ 2.36 1.73 4,172,659 2007................ 1.66 2.36 3,745,048 2006................ 1.40 1.66 2,129,371 2005................ 1.15 1.40 925,973 2004................ 1.00(a) 1.15 341,610 IVY FUNDS VIP BALANCED SUB-ACCOUNT:(G) 2008................ 1.38 1.08 634,057 2007................ 1.23 1.38 508,488 2006................ 1.12 1.23 338,990 2005................ 1.08 1.12 251,403 2004................ 1.00(a) 1.08 83,909 IVY FUNDS VIP BOND SUB-ACCOUNT:(G) 2008................ 1.10 1.09 4,473,296 2007................ 1.06 1.10 3,981,568 2006................ 1.03 1.06 1,785,728 2005................ 1.03 1.03 798,134 2004................ 1.00(a) 1.03 234,567 IVY FUNDS VIP CORE EQUITY SUB-ACCOUNT:(G) 2008................ 1.52 0.98 1,569,299 2007................ 1.35 1.52 1,374,226 2006................ 1.17 1.35 743,524 2005................ 1.09 1.17 402,518 2004................ 1.00(a) 1.09 135,819 IVY FUNDS VIP DIVIDEND OPPORTUNITIES SUB-ACCOUNT:(G)(H) 2008................ 1.59 1.01 2,237,663 2007................ 1.39 1.59 1,813,515 2006................ 1.21 1.39 983,589 2005................ 1.09 1.21 473,996 2004................ 1.00(a) 1.09 149,816 IVY FUNDS VIP ENERGY SUB-ACCOUNT:(G) 2008................ 1.38 0.73 869,283 2007................ 0.92 1.38 456,662 2006................ 1.00(f) 0.92 97,903 IVY FUNDS VIP GLOBAL NATURAL RESOURCES SUB-ACCOUNT:(G) 2008................ 2.19 0.83 2,481,154 2007................ 1.55 2.19 1,996,664 2006................ 1.25 1.55 1,204,580 2005................ 1.00(e) 1.25 300,993 IVY FUNDS VIP GROWTH SUB-ACCOUNT:(G) 2008................ 1.48 0.93 5,597,795 2007................ 1.19 1.48 4,924,117 2006................ 1.15 1.19 3,096,488 2005................ 1.05 1.15 1,341,498 2004................ 1.00(a) 1.05 537,871 IVY FUNDS VIP HIGH INCOME SUB-ACCOUNT:(G) 2008................ 1.21 0.93 3,872,579 2007................ 1.18 1.21 3,617,174 2006................ 1.08 1.18 2,005,305 2005................ 1.07 1.08 1,072,142 2004................ 1.00(a) 1.07 291,918 IVY FUNDS VIP INTERNATIONAL GROWTH SUB-ACCOUNT:(G)(C) 2008................ 1.83 1.04 2,018,982 2007................ 1.53 1.83 1,701,060 2006................ 1.28 1.53 1,011,004 2005................ 1.12 1.28 287,137 2004................ 1.00(a) 1.12 84,993
A-3 1.40% Variable Account Charge Continued
UNIT VALUE UNIT VALUE NUMBER OF UNITS AT BEGINNING AT END OUTSTANDING AT OF PERIOD OF PERIOD END OF PERIOD ------------ ---------- --------------- IVY FUNDS VIP INTERNATIONAL VALUE SUB-ACCOUNT:(G)(D) 2008................ 1.81 1.03 3,523,232 2007................ 1.67 1.81 2,745,916 2006................ 1.31 1.67 1,353,328 2005................ 1.19 1.31 616,318 2004................ 1.00(a) 1.19 138,106 IVY FUNDS VIP MICRO CAP GROWTH SUB-ACCOUNT:(G) 2008................ 1.55 0.79 687,159 2007................ 1.47 1.55 546,963 2006................ 1.33 1.47 466,920 2005................ 1.12 1.33 197,706 2004................ 1.00(a) 1.12 77,142 IVY FUNDS VIP MID CAP GROWTH SUB-ACCOUNT:(G) 2008................ 1.43 0.90 1,719,736 2007................ 1.29 1.43 1,411,109 2006................ 1.20 1.29 784,397 2005................ 1.00(e) 1.20 106,938 IVY FUNDS VIP MONEY MARKET SUB-ACCOUNT:(G) 2008................ 1.07 1.08 1,796,699 2007................ 1.04 1.07 1,411,541 2006................ 1.01 1.04 1,024,069 2005................ -- 1.01 151,508 IVY FUNDS VIP MORTGAGE SECURITIES SUB-ACCOUNT:(G) 2008................ 1.10 0.97 1,801,366 2007................ 1.08 1.10 1,464,100 2006................ 1.05 1.08 496,454 2005................ 1.04 1.05 289,729 2004................ 1.00(b) 1.04 90,330 IVY FUNDS VIP REAL ESTATE SECURITIES SUB-ACCOUNT:(G) 2008................ 1.53 0.96 1,528,118 2007................ 1.84 1.53 1,226,995 2006................ 1.44 1.84 819,054 2005................ 1.32 1.44 533,370 2004................ 1.00(b) 1.32 251,151 IVY FUNDS VIP SCIENCE AND TECHNOLOGY SUB-ACCOUNT:(G) 2008................ 1.75 1.14 1,991,171 2007................ 1.43 1.75 1,704,648 2006................ 1.34 1.43 1,111,701 2005................ 1.16 1.34 561,625 2004................ 1.00(a) 1.16 158,132 IVY FUNDS VIP SMALL CAP GROWTH SUB-ACCOUNT:(G) 2008................ 1.45 0.87 1,821,317 2007................ 1.29 1.45 1,490,845 2006................ 1.25 1.29 917,061 2005................ 1.12 1.25 434,724 2004................ 1.00(a) 1.12 168,526 IVY FUNDS VIP SMALL CAP VALUE SUB-ACCOUNT:(G) 2008................ 1.26 0.92 2,774,115 2007................ 1.33 1.26 2,283,775 2006................ 1.15 1.33 1,251,181 2005................ 1.12 1.15 783,072 2004................ 1.00(a) 1.12 342,801 IVY FUNDS VIP VALUE SUB-ACCOUNT:(G) 2008................ 1.33 0.87 5,675,209 2007................ 1.32 1.33 4,462,668 2006................ 1.15 1.32 2,497,977 2005................ 1.11 1.15 1,170,365 2004................ 1.00(a) 1.11 413,726 IVY FUNDS VIP PATHFINDER AGGRESSIVE SUB-ACCOUNT:(I) 2008................ -- 0.73 33,282 IVY FUNDS VIP PATHFINDER MODERATELY AGGRESSIVE SUB-ACCOUNT:(I) 2008................ -- 0.76 6,431,553 IVY FUNDS VIP PATHFINDER MODERATE SUB-ACCOUNT:(I) 2008................ -- 0.79 1,981,409 IVY FUNDS VIP PATHFINDER MODERATELY CONSERVATIVE SUB-ACCOUNT:(I) 2008................ -- 0.83 2,177,877 IVY FUNDS VIP PATHFINDER CONSERVATIVE SUB-ACCOUNT:(I) 2008................ -- 0.86 562,457
1.50% Variable Account: Charge
UNIT VALUE UNIT VALUE NUMBER OF UNITS AT BEGINNING AT END OUTSTANDING AT OF PERIOD OF PERIOD END OF PERIOD ------------ ---------- --------------- IVY FUNDS VIP ASSET STRATEGY SUB-ACCOUNT:(G) 2008................ 2.35 1.72 388,768 2007................ 1.66 2.35 348,647 2006................ 1.40 1.66 304,366 2005................ 1.14 1.40 138,337 2004................ 1.00(a) 1.14 35,499 IVY FUNDS VIP BALANCED SUB-ACCOUNT:(G) 2008................ 1.38 1.07 101,062 2007................ 1.23 1.38 40,903 2006................ 1.12 1.23 41,480 2005................ -- 1.12 43,519 IVY FUNDS VIP BOND SUB-ACCOUNT:(G) 2008................ 1.10 1.09 368,443 2007................ 1.06 1.10 276,187 2006................ 1.03 1.06 167,719 2005................ -- 1.03 148,420 IVY FUNDS VIP CORE EQUITY SUB-ACCOUNT:(G) 2008................ 1.52 0.97 874,784 2007................ 1.35 1.52 848,131 2006................ 1.17 1.35 676,511 2005................ 1.09 1.17 585,359 2004................ 1.00(a) 1.09 367,385 IVY FUNDS VIP DIVIDEND OPPORTUNITIES SUB-ACCOUNT:(G)(H) 2008................ 1.59 1.00 228,422 2007................ 1.38 1.59 238,640 2006................ 1.21 1.38 205,607 2005................ 1.09 1.21 114,480 2004................ 1.00(a) 1.09 50,058
A-4 1.50% Variable Account: Charge Continued
UNIT VALUE UNIT VALUE NUMBER OF UNITS AT BEGINNING AT END OUTSTANDING AT OF PERIOD OF PERIOD END OF PERIOD ------------ ---------- --------------- IVY FUNDS VIP ENERGY SUB-ACCOUNT:(G) 2008................ 1.38 0.73 46,778 2007................ 0.92 1.38 16,777 2006................ 1.00(f) 0.92 5,916 IVY FUNDS VIP GLOBAL NATURAL RESOURCES SUB-ACCOUNT:(G) 2008................ 2.18 0.83 270,755 2007................ 1.54 2.18 183,658 2006................ 1.25 1.54 123,306 2005................ 1.00(e) 1.25 25,281 IVY FUNDS VIP GROWTH SUB-ACCOUNT:(G) 2008................ 1.47 0.92 970,506 2007................ 1.19 1.47 1,008,594 2006................ 1.15 1.19 898,691 2005................ 1.05 1.15 741,889 2004................ 1.00(a) 1.05 474,844 IVY FUNDS VIP HIGH INCOME SUB-ACCOUNT:(G) 2008................ 1.20 0.93 633,957 2007................ 1.18 1.20 574,047 2006................ 1.08 1.18 401,958 2005................ 1.07 1.08 285,712 2004................ 1.00(a) 1.07 109,267 IVY FUNDS VIP INTERNATIONAL GROWTH SUB-ACCOUNT:(G)(C) 2008................ 1.82 1.04 273,699 2007................ 1.52 1.82 195,258 2006................ 1.28 1.52 195,318 2005................ 1.11 1.28 102,972 2004................ 1.00(a) 1.11 40,373 IVY FUNDS VIP INTERNATIONAL VALUE SUB-ACCOUNT:(G)(D) 2008................ 1.80 1.02 276,776 2007................ 1.66 1.80 250,787 2006................ 1.30 1.66 158,787 2005................ 1.19 1.30 95,553 2004................ 1.00(a) 1.19 30,162 IVY FUNDS VIP MICRO CAP GROWTH SUB-ACCOUNT:(G) 2008................ 1.54 0.79 137,764 2007................ 1.47 1.54 124,945 2006................ 1.33 1.47 98,917 2005................ 1.12 1.33 122,700 2004................ 1.00(a) 1.12 12,067 IVY FUNDS VIP MID CAP GROWTH SUB-ACCOUNT:(G) 2008................ 1.42 0.89 171,584 2007................ 1.28 1.42 150,982 2006................ 1.20 1.28 113,396 2005................ 1.00(e) 1.20 36,955 IVY FUNDS VIP MONEY MARKET SUB-ACCOUNT:(G) 2008................ 1.06 1.07 213,822 2007................ 1.03 1.06 72,768 2006................ 1.01 1.03 36,307 2005................ -- 1.01 6,514 IVY FUNDS VIP MORTGAGE SECURITIES SUB-ACCOUNT:(G) 2008................ 1.10 0.96 370,331 2007................ 1.08 1.10 438,465 2006................ 1.05 1.08 384,416 2005................ 1.04 1.05 363,444 2004................ 1.00(b) 1.04 153,433 IVY FUNDS VIP REAL ESTATE SECURITIES SUB-ACCOUNT:(G) 2008................ 1.52 0.96 313,690 2007................ 1.84 1.52 299,936 2006................ 1.44 1.84 267,986 2005................ 1.31 1.44 266,921 2004................ 1.00(b) 1.31 154,980 IVY FUNDS VIP SCIENCE AND TECHNOLOGY SUB-ACCOUNT:(G) 2008................ 1.75 1.14 321,008 2007................ 1.42 1.75 328,001 2006................ 1.34 1.42 259,214 2005................ 1.16 1.34 187,679 2004................ 1.00(a) 1.16 66,335 IVY FUNDS VIP SMALL CAP GROWTH SUB-ACCOUNT:(G) 2008................ 1.44 0.86 268,197 2007................ 1.29 1.44 265,015 2006................ 1.24 1.29 213,368 2005................ 1.12 1.24 169,014 2004................ 1.00(a) 1.12 47,898 IVY FUNDS VIP SMALL CAP VALUE SUB-ACCOUNT:(G) 2008................ 1.25 0.91 230,031 2007................ 1.33 1.25 229,333 2006................ 1.15 1.33 152,902 2005................ 1.12 1.15 181,038 2004................ 1.00(a) 1.12 40,315 IVY FUNDS VIP VALUE SUB-ACCOUNT:(G) 2008................ 1.32 0.86 469,411 2007................ 1.32 1.32 435,331 2006................ 1.14 1.32 362,409 2005................ 1.11 1.14 281,496 2004................ 1.00(a) 1.11 77,394 IVY FUNDS VIP PATHFINDER MODERATELY AGGRESSIVE SUB-ACCOUNT:(I) 2008................ -- 0.76 298,303 IVY FUNDS VIP PATHFINDER MODERATE SUB-ACCOUNT:(I) 2008................ -- 0.79 342,393 IVY FUNDS VIP PATHFINDER MODERATELY CONSERVATIVE SUB-ACCOUNT:(I) 2008................ -- 0.83 359,074
1.60% Variable Account: Charge
UNIT VALUE UNIT VALUE NUMBER OF UNITS AT BEGINNING AT END OUTSTANDING AT OF PERIOD OF PERIOD END OF PERIOD ------------ ---------- --------------- IVY FUNDS VIP ASSET STRATEGY SUB-ACCOUNT:(G) 2008................ 2.35 1.71 1,462,989 2007................ 1.65 2.35 988,588 2006................ 1.40 1.65 677,045 2005................ 1.14 1.40 335,658 2004................ 1.00(a) 1.14 56,769
A-5 1.60% Variable Account: Charge Continued
UNIT VALUE UNIT VALUE NUMBER OF UNITS AT BEGINNING AT END OUTSTANDING AT OF PERIOD OF PERIOD END OF PERIOD ------------ ---------- --------------- IVY FUNDS VIP BALANCED SUB-ACCOUNT:(G) 2008................ 1.37 1.07 354,512 2007................ 1.23 1.37 279,674 2006................ 1.12 1.23 251,987 2005................ 1.08 1.12 224,203 2004................ 1.00(a) 1.08 189,181 IVY FUNDS VIP BOND SUB-ACCOUNT:(G) 2008................ 1.09 1.08 927,922 2007................ 1.05 1.09 416,560 2006................ 1.03 1.05 178,887 2005................ 1.03 1.03 216,679 2004................ 1.00(a) 1.03 76,573 IVY FUNDS VIP CORE EQUITY SUB-ACCOUNT:(G) 2008................ 1.51 0.97 601,401 2007................ 1.35 1.51 600,204 2006................ 1.17 1.35 419,927 2005................ 1.09 1.17 288,432 2004................ 1.00(a) 1.09 113,012 IVY FUNDS VIP DIVIDEND OPPORTUNITIES SUB-ACCOUNT:(G)(H) 2008................ 1.58 1.00 646,763 2007................ 1.38 1.58 359,363 2006................ 1.21 1.38 227,492 2005................ 1.09 1.21 141,852 2004................ 1.00(a) 1.09 80,161 IVY FUNDS VIP ENERGY SUB-ACCOUNT:(G) 2008................ 1.37 0.73 235,537 2007................ 0.92 1.37 116,395 2006................ 1.00(f) 0.92 2,725 IVY FUNDS VIP GLOBAL NATURAL RESOURCES SUB-ACCOUNT:(G) 2008................ 2.17 0.82 823,604 2007................ 1.54 2.17 554,814 2006................ 1.25 1.54 401,460 2005................ 1.00(e) 1.25 178,765 IVY FUNDS VIP GROWTH SUB-ACCOUNT:(G) 2008................ 1.47 0.92 967,341 2007................ 1.18 1.47 986,829 2006................ 1.15 1.18 956,212 2005................ 1.05 1.15 842,889 2004................ 1.00(a) 1.05 457,293 IVY FUNDS VIP HIGH INCOME SUB-ACCOUNT:(G) 2008................ 1.20 0.92 793,034 2007................ 1.17 1.20 644,818 2006................ 1.08 1.17 557,839 2005................ 1.07 1.08 483,928 2004................ 1.00(a) 1.07 206,431 IVY FUNDS VIP INTERNATIONAL GROWTH SUB-ACCOUNT:(G)(C) 2008................ 1.82 1.03 530,506 2007................ 1.52 1.82 579,082 2006................ 1.28 1.52 447,466 2005................ 1.11 1.28 325,677 2004................ 1.00(a) 1.11 108,726 IVY FUNDS VIP INTERNATIONAL VALUE SUB-ACCOUNT:(G)(D) 2008................ 1.79 1.02 497,980 2007................ 1.66 1.79 521,563 2006................ 1.30 1.66 435,973 2005................ 1.19 1.30 427,002 2004................ 1.00(a) 1.19 194,820 IVY FUNDS VIP MICRO CAP GROWTH SUB-ACCOUNT:(G) 2008................ 1.54 0.79 77,011 2007................ 1.47 1.54 71,268 2006................ 1.33 1.47 67,654 2005................ 1.12 1.33 42,313 2004................ 1.00(a) 1.12 15,651 IVY FUNDS VIP MID CAP GROWTH SUB-ACCOUNT:(G) 2008................ 1.42 0.89 350,763 2007................ 1.28 1.42 308,855 2006................ 1.20 1.28 217,791 2005................ 1.00(e) 1.20 112,197 IVY FUNDS VIP MONEY MARKET SUB-ACCOUNT:(G) 2008................ 1.06 1.07 211,623 2007................ 1.03 1.06 68,524 2006................ 1.00 1.03 20,904 2005................ -- 1.00 6,910 IVY FUNDS VIP MORTGAGE SECURITIES SUB-ACCOUNT:(G) 2008................ 1.10 0.96 413,674 2007................ 1.08 1.10 257,855 2006................ 1.04 1.08 153,626 2005................ 1.04 1.04 138,613 2004................ 1.00(b) 1.04 79,014 IVY FUNDS VIP REAL ESTATE SECURITIES SUB-ACCOUNT:(G) 2008................ 1.52 0.95 244,579 2007................ 1.84 1.52 263,478 2006................ 1.43 1.84 213,549 2005................ 1.31 1.43 182,464 2004................ 1.00(b) 1.31 91,869 IVY FUNDS VIP SCIENCE AND TECHNOLOGY SUB-ACCOUNT:(G) 2008................ 1.74 1.13 583,167 2007................ 1.42 1.74 657,946 2006................ 1.34 1.42 639,350 2005................ 1.16 1.34 606,335 2004................ 1.00(a) 1.16 179,948 IVY FUNDS VIP SMALL CAP GROWTH SUB-ACCOUNT:(G) 2008................ 1.43 0.86 646,417 2007................ 1.28 1.43 575,133 2006................ 1.24 1.28 524,156 2005................ 1.12 1.24 426,685 2004................ 1.00(a) 1.12 195,640 IVY FUNDS VIP SMALL CAP VALUE SUB-ACCOUNT:(G) 2008................ 1.25 0.91 379,362 2007................ 1.32 1.25 336,910 2006................ 1.15 1.32 349,111 2005................ 1.12 1.15 370,461 2004................ 1.00(a) 1.12 198,697
A-6 1.60% Variable Account: Charge Continued
UNIT VALUE UNIT VALUE NUMBER OF UNITS AT BEGINNING AT END OUTSTANDING AT OF PERIOD OF PERIOD END OF PERIOD ------------ ---------- --------------- IVY FUNDS VIP VALUE SUB-ACCOUNT:(G) 2008................ 1.32 0.86 766,120 2007................ 1.31 1.32 700,657 2006................ 1.14 1.31 738,464 2005................ 1.11 1.14 782,039 2004................ 1.00(a) 1.11 336,284 IVY FUNDS VIP PATHFINDER AGGRESSIVE SUB-ACCOUNT:(I) 2008................ -- 0.73 117,822 IVY FUNDS VIP PATHFINDER MODERATELY AGGRESSIVE SUB-ACCOUNT:(I) 2008................ -- 0.76 111,454 IVY FUNDS VIP PATHFINDER MODERATE CONSERVATIVE SUB-ACCOUNT:(I) 2008................ -- 0.83 473,778 IVY FUNDS VIP PATHFINDER CONSERVATIVE SUB-ACCOUNT:(I) 2008................ -- 0.86 54,428
1.65% Variable Account: Charge
UNIT VALUE UNIT VALUE NUMBER OF UNITS AT BEGINNING AT END OUTSTANDING AT OF PERIOD OF PERIOD END OF PERIOD ------------ ---------- --------------- IVY FUNDS VIP ASSET STRATEGY SUB-ACCOUNT:(G) 2008.............. 2.34 1.71 244,783 2007.............. 1.65 2.34 282,287 2006.............. 1.40 1.65 230,969 2005.............. 1.14 1.40 162,739 2004.............. 1.00(a) 1.14 54,608 IVY FUNDS VIP BALANCED SUB-ACCOUNT:(G) 2008.............. 1.37 1.06 3,020 2007.............. 1.22 1.37 3,041 2006.............. 1.12 1.22 3,443 2005.............. 1.08 1.12 62,869 2004.............. 1.00(a) 1.08 59,373 IVY FUNDS VIP BOND SUB-ACCOUNT:(G) 2008.............. 1.09 1.08 135,099 2007.............. 1.05 1.09 140,679 2006.............. 1.03 1.05 139,998 2005.............. -- 1.03 109,801 IVY FUNDS VIP CORE EQUITY SUB-ACCOUNT:(G) 2008.............. 1.51 0.97 93,470 2007.............. 1.34 1.51 113,626 2006.............. 1.17 1.34 126,635 2005.............. 1.09 1.17 192,080 2004.............. 1.00(a) 1.09 36,978 IVY FUNDS VIP DIVIDEND OPPORTUNITIES SUB-ACCOUNT:(G)(H) 2008.............. 1.58 1.00 89,633 2007.............. 1.38 1.58 90,020 2006.............. 1.21 1.38 84,976 2005.............. 1.09 1.21 109,902 2004.............. 1.00(a) 1.09 3,148 IVY FUNDS VIP GLOBAL NATURAL RESOURCES SUB-ACCOUNT:(G) 2008.............. 2.17 0.82 109,531 2007.............. 1.54 2.17 110,514 2006.............. 1.25 1.54 97,238 2005.............. 1.00(e) 1.25 60,396 IVY FUNDS VIP GROWTH SUB-ACCOUNT:(G) 2008.............. 1.46 0.92 294,619 2007.............. 1.18 1.46 295,793 2006.............. 1.14 1.18 282,914 2005.............. 1.05 1.14 221,089 2004.............. 1.00(a) 1.05 30,952 IVY FUNDS VIP HIGH INCOME SUB-ACCOUNT:(G) 2008.............. 1.20 0.92 125,347 2007.............. 1.17 1.20 125,260 2006.............. 1.08 1.17 113,397 2005.............. 1.07 1.08 66,763 2004.............. 1.00(a) 1.07 1,229 IVY FUNDS VIP INTERNATIONAL GROWTH SUB-ACCOUNT:(G)(C) 2008.............. 1.81 1.03 67,374 2007.............. 1.52 1.81 67,510 2006.............. 1.28 1.52 51,406 2005.............. 1.11 1.28 47,019 2004.............. 1.00(a) 1.11 18,434 IVY FUNDS VIP INTERNATIONAL VALUE SUB-ACCOUNT:(G)(D) 2008.............. 1.79 1.02 58,746 2007.............. 1.66 1.79 46,913 2006.............. 1.30 1.66 51,129 2005.............. 1.19 1.30 36,199 2004.............. 1.00(a) 1.19 19,078 IVY FUNDS VIP MICRO CAP GROWTH SUB-ACCOUNT:(G) 2008.............. 1.53 0.78 25,362 2007.............. 1.46 1.53 25,475 2006.............. 1.33 1.46 20,133 2005.............. 1.12 1.33 25,609 2004.............. 1.00(a) 1.12 26,806 IVY FUNDS VIP MID CAP GROWTH SUB-ACCOUNT:(G) 2008.............. 1.42 0.89 7,279 2007.............. -- 1.42 7,158
A-7 1.65% Variable Account: Charge Continued
UNIT VALUE UNIT VALUE NUMBER OF UNITS AT BEGINNING AT END OUTSTANDING AT OF PERIOD OF PERIOD END OF PERIOD ------------ ---------- --------------- IVY FUNDS VIP MONEY MARKET SUB-ACCOUNT:(G) 2008.............. 1.06 1.06 399,512 2007.............. 1.03 1.06 387,564 2006.............. -- 1.03 330,837 IVY FUNDS VIP MORTGAGE SECURITIES SUB-ACCOUNT:(G) 2008.............. 1.09 0.96 148,643 2007.............. 1.07 1.09 149,020 2006.............. 1.04 1.07 146,090 2005.............. -- 1.04 156,836 IVY FUNDS VIP REAL ESTATE SECURITIES SUB-ACCOUNT:(G) 2008.............. 1.51 0.95 156,314 2007.............. 1.83 1.51 157,007 2006.............. 1.43 1.83 149,058 2005.............. 1.31 1.43 167,453 2004.............. 1.00(b) 1.31 1,687 IVY FUNDS VIP SCIENCE AND TECHNOLOGY SUB-ACCOUNT:(G) 2008.............. 1.74 1.13 132,678 2007.............. 1.42 1.74 111,318 2006.............. 1.34 1.42 113,404 2005.............. 1.16 1.34 138,263 2004.............. 1.00(a) 1.16 29,091 IVY FUNDS VIP SMALL CAP GROWTH SUB-ACCOUNT:(G) 2008.............. 1.43 0.86 78,065 2007.............. 1.28 1.43 56,635 2006.............. 1.24 1.28 43,900 2005.............. 1.12 1.24 44,352 2004.............. 1.00(a) 1.12 25,924 IVY FUNDS VIP SMALL CAP VALUE SUB-ACCOUNT:(G) 2008.............. 1.25 0.90 48,316 2007.............. 1.32 1.25 44,332 2006.............. 1.15 1.32 42,335 2005.............. 1.12 1.15 49,916 2004.............. 1.00(a) 1.12 29,263 IVY FUNDS VIP VALUE SUB-ACCOUNT:(G) 2008.............. 1.31 0.86 165,163 2007.............. 1.31 1.31 137,662 2006.............. 1.14 1.31 177,825 2005.............. 1.11 1.14 251,231 2004.............. 1.00(a) 1.11 55,469 IVY FUNDS VIP PATHFINDER MODERATELY AGGRESSIVE SUB-ACCOUNT:(I) 2008.............. -- 0.76 104,276 IVY FUNDS VIP PATHFINDER MODERATE SUB-ACCOUNT:(I) 2008.............. -- 0.79 929,183
1.75% Variable Account: Charge
UNIT VALUE UNIT VALUE NUMBER OF UNITS AT BEGINNING AT END OUTSTANDING AT OF PERIOD OF PERIOD END OF PERIOD ------------ ---------- --------------- IVY FUNDS VIP ASSET STRATEGY SUB-ACCOUNT:(G) 2008................ 2.33 1.70 5,767,804 2007................ 1.65 2.33 5,643,408 2006................ 1.40 1.65 3,904,268 2005................ 1.14 1.40 2,278,503 2004................ 1.00(a) 1.14 496,173 IVY FUNDS VIP BALANCED SUB-ACCOUNT:(G) 2008................ 1.36 1.06 843,027 2007................ 1.22 1.36 833,848 2006................ 1.12 1.22 715,696 2005................ 1.08 1.12 659,320 2004................ 1.00(a) 1.08 476,106 IVY FUNDS VIP BOND SUB-ACCOUNT:(G) 2008................ 1.09 1.07 2,802,393 2007................ 1.05 1.09 2,645,501 2006................ 1.02 1.05 1,576,233 2005................ 1.03 1.02 1,414,158 2004................ 1.00(a) 1.03 591,625 IVY FUNDS VIP CORE EQUITY SUB-ACCOUNT:(G) 2008................ 1.50 0.96 1,722,346 2007................ 1.34 1.50 1,745,968 2006................ 1.17 1.34 1,238,148 2005................ 1.09 1.17 748,940 2004................ 1.00(a) 1.09 236,969 IVY FUNDS VIP DIVIDEND OPPORTUNITIES SUB-ACCOUNT:(G)(H) 2008................ 1.57 0.99 2,188,716 2007................ 1.37 1.57 2,048,284 2006................ 1.21 1.37 1,672,331 2005................ 1.09 1.21 1,157,937 2004................ 1.00(a) 1.09 491,566 IVY FUNDS VIP ENERGY SUB-ACCOUNT:(G) 2008................ 1.37 0.72 1,069,368 2007................ 0.92 1.37 819,952 2006................ 1.00(f) 0.92 445,852 IVY FUNDS VIP GLOBAL NATURAL RESOURCES SUB-ACCOUNT:(G) 2008................ 2.17 0.82 3,418,454 2007................ 1.54 2.17 3,169,943 2006................ 1.25 1.54 2,351,712 2005................ 1.00(e) 1.25 881,859 IVY FUNDS VIP GROWTH SUB-ACCOUNT:(G) 2008................ 1.46 0.91 6,648,882 2007................ 1.18 1.46 6,877,222 2006................ 1.14 1.18 6,238,627 2005................ 1.05 1.14 4,861,158 2004................ 1.00(a) 1.05 2,108,730 IVY FUNDS VIP HIGH INCOME SUB-ACCOUNT:(G) 2008................ 1.19 0.92 4,085,946 2007................ 1.17 1.19 4,230,869 2006................ 1.08 1.17 3,387,236 2005................ 1.07 1.08 2,601,496 2004................ 1.00(a) 1.07 1,216,633
A-8 1.75% Variable Account: Charge Continued
UNIT VALUE UNIT VALUE NUMBER OF UNITS AT BEGINNING AT END OUTSTANDING AT OF PERIOD OF PERIOD END OF PERIOD ------------ ---------- --------------- IVY FUNDS VIP INTERNATIONAL GROWTH SUB-ACCOUNT:(G)(C) 2008................ 1.81 1.03 3,751,284 2007................ 1.51 1.81 3,532,950 2006................ 1.27 1.51 2,769,504 2005................ 1.11 1.27 1,773,055 2004................ 1.00(a) 1.11 689,650 IVY FUNDS VIP INTERNATIONAL VALUE SUB-ACCOUNT:(G)(D) 2008................ 1.79 1.01 3,221,819 2007................ 1.65 1.79 3,078,242 2006................ 1.30 1.65 2,545,575 2005................ 1.19 1.30 2,094,318 2004................ 1.00(a) 1.19 693,413 IVY FUNDS VIP MICRO CAP GROWTH SUB-ACCOUNT:(G) 2008................ 1.53 0.78 1,505,204 2007................ 1.46 1.53 1,386,515 2006................ 1.32 1.46 1,234,985 2005................ 1.11 1.32 917,525 2004................ 1.00(a) 1.11 409,318 IVY FUNDS VIP MID CAP GROWTH SUB-ACCOUNT:(G) 2008................ 1.42 0.89 2,104,451 2007................ 1.28 1.42 1,995,316 2006................ 1.20 1.28 1,259,585 2005................ 1.00(e) 1.20 447,047 IVY FUNDS VIP MONEY MARKET SUB-ACCOUNT:(G) 2008................ 1.06 1.06 2,319,684 2007................ 1.03 1.06 1,047,921 2006................ 1.00 1.03 756,656 2005................ -- 1.00 361,426 IVY FUNDS VIP MORTGAGE SECURITIES SUB-ACCOUNT:(G) 2008................ 1.09 0.95 1,172,377 2007................ 1.07 1.09 1,402,750 2006................ 1.04 1.07 1,289,611 2005................ 1.04 1.04 859,600 2004................ 1.00(b) 1.04 342,397 IVY FUNDS VIP REAL ESTATE SECURITIES SUB-ACCOUNT:(G) 2008................ 1.51 0.95 2,323,879 2007................ 1.83 1.51 2,130,700 2006................ 1.43 1.83 1,852,008 2005................ 1.31 1.43 1,226,770 2004................ 1.00(b) 1.31 594,302 IVY FUNDS VIP SCIENCE AND TECHNOLOGY SUB-ACCOUNT:(G) 2008................ 1.73 1.12 3,924,163 2007................ 1.42 1.73 3,877,724 2006................ 1.34 1.42 3,377,345 2005................ 1.16 1.34 2,285,533 2004................ 1.00(a) 1.16 990,683 IVY FUNDS VIP SMALL CAP GROWTH SUB-ACCOUNT:(G) 2008................ 1.43 0.85 3,751,504 2007................ 1.28 1.43 3,611,743 2006................ 1.24 1.28 3,259,859 2005................ 1.12 1.24 2,445,202 2004................ 1.00(a) 1.12 1,136,611 IVY FUNDS VIP SMALL CAP VALUE SUB-ACCOUNT:(G) 2008................ 1.24 0.9 2,070,347 2007................ 1.32 1.24 2,075,268 2006................ 1.15 1.32 1,980,474 2005................ 1.12 1.15 1,805,079 2004................ 1.00(a) 1.12 919,312 IVY FUNDS VIP VALUE SUB-ACCOUNT:(G) 2008................ 1.31 0.85 4,292,500 2007................ 1.31 1.31 4,183,475 2006................ 1.14 1.31 3,908,616 2005................ 1.11 1.14 3,266,554 2004................ 1.00(a) 1.11 1,412,938 IVY FUNDS VIP PATHFINDER AGGRESSIVE SUB-ACCOUNT:(I) 2008................ -- 0.73 62,518 IVY FUNDS VIP PATHFINDER MODERATELY AGGRESSIVE SUB-ACCOUNT:(I) 2008................ -- 0.76 943,735 IVY FUNDS VIP PATHFINDER MODERATE SUB-ACCOUNT:(I) 2008................ -- 0.79 561,085 IVY FUNDS VIP PATHFINDER MODERATELY CONSERVATIVE SUB-ACCOUNT:(I) 2008................ -- 0.83 128,829 IVY FUNDS VIP PATHFINDER CONSERVATIVE SUB-ACCOUNT:(I) 2008................ -- 0.86 44,626
1.85% Variable Account: Charge
UNIT VALUE UNIT VALUE NUMBER OF UNITS AT BEGINNING AT END OUTSTANDING AT OF PERIOD OF PERIOD END OF PERIOD ------------ ---------- --------------- IVY FUNDS VIP ASSET STRATEGY SUB-ACCOUNT:(G) 2008............... 2.32 1.69 562,176 2007............... 1.64 2.32 433,147 2006............... 1.39 1.64 151,539 2005............... 1.14 1.39 78,048 2004............... 1.00(a) 1.14 34,109 IVY FUNDS VIP BALANCED SUB-ACCOUNT:(G) 2008............... 1.36 1.05 130,545 2007............... 1.22 1.36 159,342 2006............... 1.11 1.22 189,432 2005............... 1.08 1.11 178,863 2004............... 1.00(a) 1.08 175,546 IVY FUNDS VIP BOND SUB-ACCOUNT:(G) 2008............... 1.08 1.07 275,891 2007............... 1.05 1.08 113,429 2006............... 1.02 1.05 134,075 2005............... 1.02 1.02 141,679 2004............... 1.00(a) 1.02 77,265
A-9 1.85% Variable Account: Charge Continued
UNIT VALUE UNIT VALUE NUMBER OF UNITS AT BEGINNING AT END OUTSTANDING AT OF PERIOD OF PERIOD END OF PERIOD ------------ ---------- --------------- IVY FUNDS VIP CORE EQUITY SUB-ACCOUNT:(G) 2008............... 1.50 0.96 217,919 2007............... 1.34 1.50 180,731 2006............... 1.16 1.34 106,923 2005............... 1.09 1.16 85,857 2004............... 1.00(a) 1.09 55,340 IVY FUNDS VIP DIVIDEND OPPORTUNITIES SUB-ACCOUNT:(G)(H) 2008............... 1.57 0.99 162,073 2007............... 1.37 1.57 182,864 2006............... 1.20 1.37 65,201 2005............... 1.08 1.20 67,065 2004............... 1.00(a) 1.08 36,998 IVY FUNDS VIP ENERGY SUB-ACCOUNT:(G) 2008............... 1.37 0.72 54,146 2007............... 0.92 1.37 26,600 2006............... 1.00(f) 0.92 2,174 IVY FUNDS VIP GLOBAL NATURAL RESOURCES SUB-ACCOUNT:(G) 2008............... 2.16 0.82 246,046 2007............... 1.53 2.16 181,070 2006............... 1.24 1.53 75,894 2005............... 1.00(e) 1.24 30,826 IVY FUNDS VIP GROWTH SUB-ACCOUNT:(G) 2008............... 1.45 0.91 435,189 2007............... 1.18 1.45 323,504 2006............... 1.14 1.18 238,679 2005............... 1.05 1.14 134,355 2004............... 1.00(a) 1.05 82,561 IVY FUNDS VIP HIGH INCOME SUB-ACCOUNT:(G) 2008............... 1.19 0.91 230,563 2007............... 1.17 1.19 167,817 2006............... 1.08 1.17 63,018 2005............... 1.07 1.08 22,435 2004............... 1.00(a) 1.07 6,934 IVY FUNDS VIP INTERNATIONAL GROWTH SUB-ACCOUNT:(G)(C) 2008............... 1.80 1.02 288,962 2007............... 1.51 1.80 192,612 2006............... 1.27 1.51 72,192 2005............... 1.11 1.27 27,162 2004............... 1.00(a) 1.11 10,517 IVY FUNDS VIP INTERNATIONAL VALUE SUB-ACCOUNT:(G)(D) 2008............... 1.78 1.01 268,980 2007............... 1.65 1.78 218,111 2006............... 1.30 1.65 116,059 2005............... 1.19 1.30 78,155 2004............... 1.00(a) 1.19 30,922 IVY FUNDS VIP MICRO CAP GROWTH SUB-ACCOUNT:(G) 2008............... 1.52 0.78 97,342 2007............... 1.46 1.52 104,859 2006............... 1.32 1.46 98,074 2005............... 1.11 1.32 97,378 2004............... 1.00(a) 1.11 56,529 IVY FUNDS VIP MID CAP GROWTH SUB-ACCOUNT:(G) 2008............... 1.41 0.88 284,513 2007............... 1.28 1.41 197,298 2006............... 1.20 1.28 71,849 2005............... 1.00(e) 1.20 20,341 IVY FUNDS VIP MONEY MARKET SUB-ACCOUNT:(G) 2008............... 1.05 1.05 185,666 2007............... 1.02 1.05 20,930 2006............... 1.00 1.02 20,404 2005............... -- 1.00 5,736 IVY FUNDS VIP MORTGAGE SECURITIES SUB-ACCOUNT:(G) 2008............... 1.09 0.95 78,672 2007............... 1.07 1.09 65,733 2006............... 1.04 1.07 11,365 2005............... 1.04 1.04 11,831 2004............... 1.00(b) 1.04 355 IVY FUNDS VIP REAL ESTATE SECURITIES SUB-ACCOUNT:(G) 2008............... 1.50 0.94 145,409 2007............... 1.82 1.50 144,325 2006............... 1.43 1.82 102,468 2005............... 1.31 1.43 89,054 2004............... 1.00(b) 1.31 51,945 IVY FUNDS VIP SCIENCE AND TECHNOLOGY SUB-ACCOUNT:(G) 2008............... 1.72 1.12 326,852 2007............... 1.41 1.72 310,071 2006............... 1.33 1.41 221,996 2005............... 1.16 1.33 184,457 2004............... 1.00(a) 1.16 76,442 IVY FUNDS VIP SMALL CAP GROWTH SUB-ACCOUNT:(G) 2008............... 1.42 0.85 234,073 2007............... 1.28 1.42 219,357 2006............... 1.24 1.28 144,482 2005............... 1.12 1.24 88,307 2004............... 1.00(a) 1.12 80,318 IVY FUNDS VIP SMALL CAP VALUE SUB-ACCOUNT:(G) 2008............... 1.24 0.90 189,177 2007............... 1.31 1.24 178,566 2006............... 1.15 1.31 102,329 2005............... 1.12 1.15 103,412 2004............... 1.00(a) 1.12 28,334 IVY FUNDS VIP VALUE SUB-ACCOUNT:(G) 2008............... 1.30 0.85 268,980 2007............... 1.30 1.30 200,691 2006............... 1.14 1.30 135,833 2005............... 1.11 1.14 93,682 2004............... 1.00(a) 1.11 70,432 IVY FUNDS VIP PATHFINDER MODERATELY AGGRESSIVE SUB-ACCOUNT:(I) 2008............... -- 0.76 328,751 IVY FUNDS VIP PATHFINDER MODERATE SUB-ACCOUNT:(I) 2008............... -- 0.79 135,522
A-10 1.90% Variable Account: Charge
UNIT VALUE UNIT VALUE NUMBER OF UNITS AT BEGINNING AT END OUTSTANDING AT OF PERIOD OF PERIOD END OF PERIOD ------------ ---------- --------------- IVY FUNDS VIP ASSET STRATEGY SUB-ACCOUNT:(G) 2008................ 2.32 1.69 2,179,989 2007................ 1.64 2.32 1,901,384 2006................ 1.39 1.64 1,624,228 2005................ 1.14 1.39 998,555 2004................ 1.00(a) 1.14 392,707 IVY FUNDS VIP BALANCED SUB-ACCOUNT:(G) 2008................ 1.36 1.05 299,268 2007................ 1.22 1.36 355,016 2006................ 1.11 1.22 270,752 2005................ 1.08 1.11 270,986 2004................ 1.00(a) 1.08 200,760 IVY FUNDS VIP BOND SUB-ACCOUNT:(G) 2008................ 1.08 1.07 1,231,766 2007................ 1.04 1.08 1,173,510 2006................ 1.02 1.04 755,036 2005................ 1.02 1.02 637,465 2004................ 1.00(a) 1.02 422,954 IVY FUNDS VIP CORE EQUITY SUB-ACCOUNT:(G) 2008................ 1.49 0.96 1,216,392 2007................ 1.34 1.49 1,163,915 2006................ 1.16 1.34 1,013,711 2005................ 1.09 1.16 877,951 2004................ 1.00(a) 1.09 414,808 IVY FUNDS VIP DIVIDEND OPPORTUNITIES SUB-ACCOUNT:(G)(H) 2008................ 1.57 0.98 1,044,551 2007................ 1.37 1.57 944,329 2006................ 1.20 1.37 861,054 2005................ 1.08 1.20 631,863 2004................ 1.00(a) 1.08 398,490 IVY FUNDS VIP ENERGY SUB-ACCOUNT:(G) 2008................ 1.37 0.72 258,699 2007................ 0.92 1.37 189,489 2006................ 1.00(f) 0.92 177,527 IVY FUNDS VIP GLOBAL NATURAL RESOURCES SUB-ACCOUNT:(G) 2008................ 2.16 0.82 1,649,125 2007................ 1.53 2.16 1,450,059 2006................ 1.24 1.53 1,222,852 2005................ 1.00(e) 1.24 732,882 IVY FUNDS VIP GROWTH SUB-ACCOUNT:(G) 2008................ 1.45 0.91 2,750,378 2007................ 1.18 1.45 3,120,283 2006................ 1.14 1.18 2,835,292 2005................ 1.04 1.14 2,649,811 2004................ 1.00(a) 1.04 1,285,312 IVY FUNDS VIP HIGH INCOME SUB-ACCOUNT:(G) 2008................ 1.19 0.91 1,399,974 2007................ 1.16 1.19 1,641,414 2006................ 1.08 1.16 1,370,564 2005................ 1.07 1.08 1,236,952 2004................ 1.00(a) 1.07 712,833 IVY FUNDS VIP INTERNATIONAL GROWTH SUB-ACCOUNT:(G)(C) 2008................ 1.80 1.02 1,258,914 2007................ 1.51 1.80 1,162,706 2006................ 1.27 1.51 975,680 2005................ 1.11 1.27 733,166 2004................ 1.00(a) 1.11 352,166 IVY FUNDS VIP INTERNATIONAL VALUE SUB-ACCOUNT:(G)(D) 2008................ 1.78 1.01 1,304,177 2007................ 1.65 1.78 1,326,042 2006................ 1.29 1.65 1,210,251 2005................ 1.19 1.29 1,140,047 2004................ 1.00(a) 1.19 439,274 IVY FUNDS VIP MICRO CAP GROWTH SUB-ACCOUNT:(G) 2008................ 1.52 0.77 686,807 2007................ 1.45 1.52 730,177 2006................ 1.32 1.45 684,858 2005................ 1.11 1.32 562,575 2004................ 1.00(a) 1.11 268,294 IVY FUNDS VIP MID CAP GROWTH SUB-ACCOUNT:(G) 2008................ 1.41 0.88 713,827 2007................ 1.28 1.41 618,958 2006................ 1.20 1.28 397,984 2005................ 1.00(e) 1.20 173,321 IVY FUNDS VIP MONEY MARKET SUB-ACCOUNT:(G) 2008................ 1.05 1.05 356,197 2007................ 1.02 1.05 109,005 2006................ 1.00 1.02 85,222 2005................ 0.99 1.00 32,667 2004................ 1.00(a) 0.99 31,586 IVY FUNDS VIP MORTGAGE SECURITIES SUB-ACCOUNT:(G) 2008................ 1.08 0.95 381,946 2007................ 1.07 1.08 420,400 2006................ 1.04 1.07 360,077 2005................ 1.04 1.04 279,164 2004................ 1.00(b) 1.04 176,435 IVY FUNDS VIP REAL ESTATE SECURITIES SUB-ACCOUNT:(G) 2008................ 1.50 0.94 1,045,066 2007................ 1.82 1.50 1,074,100 2006................ 1.43 1.82 1,001,080 2005................ 1.31 1.43 914,136 2004................ 1.00(b) 1.31 416,159 IVY FUNDS VIP SCIENCE AND TECHNOLOGY SUB-ACCOUNT:(G) 2008................ 1.72 1.12 1,910,206 2007................ 1.41 1.72 2,006,754 2006................ 1.33 1.41 1,852,031 2005................ 1.16 1.33 1,579,146 2004................ 1.00(a) 1.16 592,816 IVY FUNDS VIP SMALL CAP GROWTH SUB-ACCOUNT:(G) 2008................ 1.42 0.85 1,388,389 2007................ 1.27 1.42 1,502,341 2006................ 1.24 1.27 1,360,847 2005................ 1.12 1.24 1,248,850 2004................ 1.00(a) 1.12 750,242
A-11 1.90% Variable Account: Charge Continued
UNIT VALUE UNIT VALUE NUMBER OF UNITS AT BEGINNING AT END OUTSTANDING AT OF PERIOD OF PERIOD END OF PERIOD ------------ ---------- --------------- IVY FUNDS VIP SMALL CAP VALUE SUB-ACCOUNT:(G) 2008................ 1.23 0.89 915,266 2007................ 1.31 1.23 1,010,344 2006................ 1.14 1.31 957,171 2005................ 1.12 1.14 957,390 2004................ 1.00(a) 1.12 410,162 IVY FUNDS VIP VALUE SUB-ACCOUNT:(G) 2008................ 1.30 0.85 1,611,989 2007................ 1.30 1.30 1,818,735 2006................ 1.14 1.30 1,705,869 2005................ 1.11 1.14 1,631,873 2004................ 1.00(a) 1.11 937,412 IVY FUNDS VIP PATHFINDER MODERATELY AGGRESSIVE SUB-ACCOUNT:(I) 2008................ -- 0.76 544,711 IVY FUNDS VIP PATHFINDER MODERATE SUB-ACCOUNT:(I) 2008................ -- 0.79 34,976
2.00% Variable Account: Charge
UNIT VALUE UNIT VALUE NUMBER OF UNITS AT BEGINNING AT END OUTSTANDING AT OF PERIOD OF PERIOD END OF PERIOD ------------ ---------- --------------- IVY FUNDS VIP ASSET STRATEGY SUB-ACCOUNT:(G) 2008................ 2.31 1.68 703,342 2007................ 1.64 2.31 573,640 2006................ 1.39 1.64 666,839 2005................ 1.14 1.39 535,934 2004................ 1.00(a) 1.14 122,953 IVY FUNDS VIP BALANCED SUB-ACCOUNT:(G) 2008................ 1.35 1.05 47,066 2007................ 1.21 1.35 59,867 2006................ 1.11 1.21 62,645 2005................ 1.08 1.11 48,527 2004................ 1.00(a) 1.08 12,355 IVY FUNDS VIP BOND SUB-ACCOUNT:(G) 2008................ 1.08 1.06 522,860 2007................ 1.04 1.08 415,813 2006................ 1.02 1.04 343,789 2005................ 1.02 1.02 287,065 2004................ 1.00(a) 1.02 54,930 IVY FUNDS VIP CORE EQUITY SUB-ACCOUNT:(G) 2008................ 1.49 0.95 76,106 2007................ 1.33 1.49 115,305 2006................ 1.16 1.33 93,261 2005................ 1.09 1.16 72,750 2004................ 1.00(a) 1.09 30,326 IVY FUNDS VIP DIVIDEND OPPORTUNITIES SUB-ACCOUNT:(G)(H) 2008................ 1.56 0.98 214,959 2007................ 1.36 1.56 235,725 2006................ 1.20 1.36 180,648 2005................ 1.08 1.20 168,897 2004................ 1.00(a) 1.08 40,369 IVY FUNDS VIP ENERGY SUB-ACCOUNT:(G) 2008................ 1.36 0.72 101,162 2007................ 0.92 1.36 63,660 2006................ 1.00(f) 0.92 102,580 IVY FUNDS VIP GLOBAL NATURAL RESOURCES SUB-ACCOUNT:(G) 2008................ 2.15 0.81 254,754 2007................ 1.53 2.15 151,532 2006................ 1.24 1.53 187,630 2005................ 1.00(e) 1.24 135,414 IVY FUNDS VIP GROWTH SUB-ACCOUNT:(G) 2008................ 1.45 0.90 284,042 2007................ 1.17 1.45 324,430 2006................ 1.14 1.17 486,862 2005................ 1.04 1.14 467,121 2004................ 1.00(a) 1.04 190,389 IVY FUNDS VIP HIGH INCOME SUB-ACCOUNT:(G) 2008................ 1.18 0.91 237,628 2007................ 1.16 1.18 406,646 2006................ 1.07 1.16 391,565 2005................ 1.07 1.07 409,581 2004................ 1.00(a) 1.07 118,827 IVY FUNDS VIP INTERNATIONAL GROWTH SUB-ACCOUNT:(G)(C) 2008................ 1.79 1.01 130,153 2007................ 1.50 1.79 203,874 2006................ 1.27 1.50 118,013 2005................ 1.11 1.27 64,484 2004................ 1.00(a) 1.11 7,614 IVY FUNDS VIP INTERNATIONAL VALUE SUB-ACCOUNT:(G)(D) 2008................ 1.77 1.00 238,357 2007................ 1.64 1.77 332,025 2006................ 1.29 1.64 322,475 2005................ 1.19 1.29 380,991 2004................ 1.00(a) 1.19 110,973 IVY FUNDS VIP MICRO CAP GROWTH SUB-ACCOUNT:(G) 2008................ 1.51 0.77 162,633 2007................ 1.45 1.51 165,696 2006................ 1.32 1.45 194,788 2005................ 1.11 1.32 169,914 2004................ 1.00(a) 1.11 92,621 IVY FUNDS VIP MID CAP GROWTH SUB-ACCOUNT:(G) 2008................ 1.41 0.88 64,967 2007................ 1.27 1.41 119,090 2006................ 1.20 1.27 114,808 2005................ 1.00(e) 1.20 67,212
A-12 2.00% Variable Account: Charge Continued
UNIT VALUE UNIT VALUE NUMBER OF UNITS AT BEGINNING AT END OUTSTANDING AT OF PERIOD OF PERIOD END OF PERIOD ------------ ---------- --------------- IVY FUNDS VIP MONEY MARKET SUB-ACCOUNT:(G) 2008................ 1.05 1.05 69,578 2007................ 1.02 1.05 6,329 2006................ -- 1.02 69,237 IVY FUNDS VIP MORTGAGE SECURITIES SUB-ACCOUNT:(G) 2008................ 1.08 0.94 84,140 2007................ 1.07 1.08 164,787 2006................ 1.04 1.07 170,840 2005................ 1.04 1.04 152,527 2004................ 1.00(b) 1.04 83,582 IVY FUNDS VIP REAL ESTATE SECURITIES SUB-ACCOUNT:(G) 2008................ 1.49 0.94 146,439 2007................ 1.82 1.49 190,589 2006................ 1.42 1.82 188,424 2005................ 1.31 1.42 144,601 2004................ 1.00(b) 1.31 85,527 IVY FUNDS VIP SCIENCE AND TECHNOLOGY SUB-ACCOUNT:(G) 2008................ 1.71 1.11 382,550 2007................ 1.41 1.71 363,341 2006................ 1.33 1.41 411,837 2005................ 1.16 1.33 395,831 2004................ 1.00(a) 1.16 134,041 IVY FUNDS VIP SMALL CAP GROWTH SUB-ACCOUNT:(G) 2008................ 1.41 0.84 168,284 2007................ 1.27 1.41 259,248 2006................ 1.23 1.27 296,946 2005................ 1.12 1.23 256,343 2004................ 1.00(a) 1.12 126,930 IVY FUNDS VIP SMALL CAP VALUE SUB-ACCOUNT:(G) 2008................ 1.23 0.89 236,914 2007................ 1.31 1.23 275,771 2006................ 1.14 1.31 289,173 2005................ 1.12 1.14 328,916 2004................ 1.00(a) 1.12 173,397 IVY FUNDS VIP VALUE SUB-ACCOUNT:(G) 2008................ 1.30 0.84 312,796 2007................ 1.30 1.30 448,589 2006................ 1.13 1.30 525,077 2005................ 1.11 1.13 601,219 2004................ 1.00(a) 1.11 187,591
2.10% Variable Account: Charge
UNIT VALUE UNIT VALUE NUMBER OF UNITS AT BEGINNING AT END OUTSTANDING AT OF PERIOD OF PERIOD END OF PERIOD ------------ ---------- ---------------- IVY FUNDS VIP ASSET STRATEGY SUB-ACCOUNT:(G) 2008................ 2.30 1.67 459,090 2007................ 1.63 2.30 414,223 2006................ 1.39 1.63 433,463 2005................ 1.14 1.39 370,839 2004................ 1.00(a) 1.14 247,881 IVY FUNDS VIP BALANCED SUB-ACCOUNT:(G) 2008................ 1.35 1.04 52,625 2007................ 1.21 1.35 71,663 2006................ 1.11 1.21 72,736 2005................ 1.08 1.11 83,250 2004................ 1.00(a) 1.08 48,368 IVY FUNDS VIP BOND SUB-ACCOUNT:(G) 2008................ 1.08 1.06 415,820 2007................ 1.04 1.08 350,005 2006................ 1.02 1.04 184,371 2005................ 1.02 1.02 151,383 2004................ 1.00(a) 1.02 115,325 IVY FUNDS VIP CORE EQUITY SUB-ACCOUNT:(G) 2008................ 1.48 0.95 222,162 2007................ 1.33 1.48 278,006 2006................ 1.16 1.33 238,061 2005................ 1.09 1.16 248,843 2004................ 1.00(a) 1.09 111,627 IVY FUNDS VIP DIVIDEND OPPORTUNITIES SUB-ACCOUNT:(G)(H) 2008................ 1.55 0.98 195,335 2007................ 1.36 1.55 231,350 2006................ 1.20 1.36 239,216 2005................ 1.08 1.20 198,936 2004................ 1.00(a) 1.08 134,504 IVY FUNDS VIP ENERGY SUB-ACCOUNT:(G) 2008................ 1.36 0.72 42,531 2007................ 0.92 1.36 26,992 2006................ 1.00(f) 0.92 15,928 IVY FUNDS VIP GLOBAL NATURAL RESOURCES SUB-ACCOUNT:(G) 2008................ 2.15 0.81 183,676 2007................ 1.53 2.15 131,069 2006................ 1.24 1.53 112,096 2005................ 1.00(e) 1.24 95,041 IVY FUNDS VIP GROWTH SUB-ACCOUNT:(G) 2008................ 1.44 0.90 434,489 2007................ 1.17 1.44 558,494 2006................ 1.14 1.17 563,100 2005................ 1.04 1.14 501,425 2004................ 1.00(a) 1.04 275,854 IVY FUNDS VIP HIGH INCOME SUB-ACCOUNT:(G) 2008................ 1.18 0.90 354,797 2007................ 1.16 1.18 439,444 2006................ 1.07 1.16 372,538 2005................ 1.07 1.07 351,397 2004................ 1.00(a) 1.07 300,190 IVY FUNDS VIP INTERNATIONAL GROWTH SUB-ACCOUNT:(G)(C) 2008................ 1.78 1.01 183,792 2007................ 1.50 1.78 257,170 2006................ 1.27 1.50 236,905 2005................ 1.11 1.27 248,410 2004................ 1.00(a) 1.11 165,312
A-13 2.10% Variable Account: Charge Continued
UNIT VALUE UNIT VALUE NUMBER OF UNITS AT BEGINNING AT END OUTSTANDING AT OF PERIOD OF PERIOD END OF PERIOD ------------ ---------- ---------------- IVY FUNDS VIP INTERNATIONAL VALUE SUB-ACCOUNT:(G)(D) 2008................ 1.76 1.00 165,283 2007................ 1.64 1.76 257,569 2006................ 1.29 1.64 264,821 2005................ 1.19 1.29 253,571 2004................ 1.00(a) 1.19 157,798 IVY FUNDS VIP MICRO CAP GROWTH SUB-ACCOUNT:(G) 2008................ 1.51 0.77 58,934 2007................ 1.45 1.51 102,807 2006................ 1.32 1.45 98,458 2005................ 1.11 1.32 119,462 2004................ 1.00(a) 1.11 74,497 IVY FUNDS VIP MID CAP GROWTH SUB-ACCOUNT:(G) 2008................ 1.40 0.88 58,211 2007................ 1.27 1.40 52,961 2006................ 1.20 1.27 59,350 2005................ 1.00(e) 1.20 30,283 IVY FUNDS VIP MONEY MARKET SUB-ACCOUNT:(G) 2008................ 1.04 1.04 460,384 2007................ 1.02 1.04 13,680 2006................ 1.00 1.02 2,831 2005................ -- 1.00 2,789 IVY FUNDS VIP MORTGAGE SECURITIES SUB-ACCOUNT:(G) 2008................ 1.08 0.94 123,377 2007................ 1.06 1.08 156,053 2006................ 1.04 1.06 120,761 2005................ 1.04 1.04 111,360 2004................ 1.00(b) 1.04 69,936 IVY FUNDS VIP REAL ESTATE SECURITIES SUB-ACCOUNT:(G) 2008................ 1.49 0.93 174,068 2007................ 1.81 1.49 226,633 2006................ 1.42 1.81 239,621 2005................ 1.31 1.42 215,296 2004................ 1.00(b) 1.31 99,176 IVY FUNDS VIP SCIENCE AND TECHNOLOGY SUB-ACCOUNT:(G) 2008................ 1.71 1.11 281,846 2007................ 1.40 1.71 315,155 2006................ 1.33 1.40 281,817 2005................ 1.16 1.33 278,478 2004................ 1.00(a) 1.16 162,875 IVY FUNDS VIP SMALL CAP GROWTH SUB-ACCOUNT:(G) 2008................ 1.41 0.84 247,386 2007................ 1.27 1.41 318,307 2006................ 1.23 1.27 290,506 2005................ 1.11 1.23 302,736 2004................ 1.00(a) 1.11 201,889 IVY FUNDS VIP SMALL CAP VALUE SUB-ACCOUNT:(G) 2008................ 1.22 0.89 129,213 2007................ 1.30 1.22 220,425 2006................ 1.14 1.30 252,691 2005................ 1.12 1.14 222,242 2004................ 1.00(a) 1.12 145,413 IVY FUNDS VIP VALUE SUB-ACCOUNT:(G) 2008................ 1.29 0.84 401,119 2007................ 1.30 1.29 454,707 2006................ 1.13 1.30 452,309 2005................ 1.11 1.13 460,098 2004................ 1.00(a) 1.11 318,127 IVY FUNDS VIP PATHFINDER AGGRESSIVE SUB-ACCOUNT:(I) 2008................ -- 0.72 153,989 IVY FUNDS VIP PATHFINDER CONSERVATIVE SUB-ACCOUNT:(I) 2008................ -- 0.86 66,714
2.15% Variable Account: Charge
UNIT VALUE UNIT VALUE NUMBER OF UNITS AT BEGINNING AT END OUTSTANDING AT OF PERIOD OF PERIOD END OF PERIOD ------------ ---------- --------------- IVY FUNDS VIP ASSET STRATEGY SUB-ACCOUNT:(G) 2008................ 2.30 1.67 56,652 2007................ 1.63 2.30 52,946 2006................ 1.39 1.63 36,288 2005................ -- 1.39 21,309 IVY FUNDS VIP BALANCED SUB-ACCOUNT:(G) 2008................ 1.34 1.04 16,384 2007................ 1.21 1.34 19,011 2006................ 1.11 1.21 18,697 2005................ -- 1.11 18,585 IVY FUNDS VIP BOND SUB-ACCOUNT:(G) 2008................ 1.07 1.05 9,446 2007................ -- 1.07 13,914 IVY FUNDS VIP CORE EQUITY SUB-ACCOUNT:(G) 2008................ 1.48 0.94 8,784 2007................ 1.33 1.48 8,528 2006................ 1.16 1.33 4,603 2005................ -- 1.16 4,537 IVY FUNDS VIP DIVIDEND OPPORTUNITIES SUB-ACCOUNT:(G)(H) 2008................ 1.55 0.97 90,723 2007................ 1.36 1.55 91,046 2006................ 1.20 1.36 83,415 2005................ 1.08 1.20 84,167 2004................ 1.00(a) 1.08 75,674 IVY FUNDS VIP ENERGY SUB-ACCOUNT:(G) 2008................ 1.36 0.72 27,993 2007................ 0.92 1.36 23,381 2006................ 1.00(f) 0.92 5,178 IVY FUNDS VIP GLOBAL NATURAL RESOURCES SUB-ACCOUNT:(G) 2008................ 2.14 0.81 57,746 2007................ 1.53 2.14 49,911 2006................ 1.24 1.53 30,785 2005................ 1.00(e) 1.24 17,883
A-14 2.15% Variable Account: Charge Continued
UNIT VALUE UNIT VALUE NUMBER OF UNITS AT BEGINNING AT END OUTSTANDING AT OF PERIOD OF PERIOD END OF PERIOD ------------ ---------- --------------- IVY FUNDS VIP GROWTH SUB-ACCOUNT:(G) 2008................ 1.44 0.90 147,011 2007................ 1.17 1.44 156,572 2006................ 1.14 1.17 138,457 2005................ 1.04 1.14 137,227 2004................ 1.00(a) 1.04 78,051 IVY FUNDS VIP HIGH INCOME SUB-ACCOUNT:(G) 2008................ 1.17 0.90 14,640 2007................ 1.16 1.17 22,723 2006................ 1.07 1.16 24,050 2005................ -- 1.07 24,155 IVY FUNDS VIP INTERNATIONAL GROWTH SUB-ACCOUNT:(G)(C) 2008................ 1.78 1.01 41,097 2007................ 1.50 1.78 44,878 2006................ 1.27 1.50 43,937 2005................ -- 1.27 44,770 IVY FUNDS VIP INTERNATIONAL VALUE SUB-ACCOUNT:(G)(D) 2008................ 1.76 0.99 11,698 2007................ 1.64 1.76 14,908 2006................ 1.29 1.64 15,280 2005................ -- 1.29 16,347 IVY FUNDS VIP MICRO CAP GROWTH SUB-ACCOUNT:(G) 2008................ 1.51 0.77 18,843 2007................ 1.45 1.51 33,501 2006................ 1.32 1.45 19,085 2005................ -- 1.32 4,683 IVY FUNDS VIP MID CAP GROWTH SUB-ACCOUNT:(G) 2008................ 1.40 0.87 21,651 2007................ 1.27 1.40 22,162 2006................ 1.20 1.27 21,931 2005................ 1.00(e) 1.20 21,586 IVY FUNDS VIP REAL ESTATE SECURITIES SUB-ACCOUNT:(G) 2008................ 1.49 0.93 52,487 2007................ 1.81 1.49 51,092 2006................ 1.42 1.81 32,556 2005................ -- 1.42 18,546 IVY FUNDS VIP SCIENCE AND TECHNOLOGY SUB-ACCOUNT:(G) 2008................ 1.70 1.10 141,928 2007................ 1.40 1.70 142,671 2006................ 1.33 1.40 122,295 2005................ 1.16 1.33 108,471 2004................ 1.00(a) 1.16 71,389 IVY FUNDS VIP SMALL CAP GROWTH SUB-ACCOUNT:(G) 2008................ 1.41 0.84 120,377 2007................ 1.27 1.41 126,237 2006................ 1.23 1.27 121,291 2005................ 1.11 1.23 113,971 2004................ 1.00(a) 1.11 74,642 IVY FUNDS VIP SMALL CAP VALUE SUB-ACCOUNT:(G) 2008................ 1.22 0.88 8,208 2007................ 1.30 1.22 15,822 2006................ 1.14 1.30 14,123 2005................ -- 1.14 14,250 IVY FUNDS VIP VALUE SUB-ACCOUNT:(G) 2008................ 1.29 0.84 108,926 2007................ 1.29 1.29 111,661 2006................ 1.13 1.29 115,625 2005................ 1.11 1.13 116,473 2004................ 1.00(a) 1.11 74,097
2.25% Variable Account: Charge
UNIT VALUE UNIT VALUE NUMBER OF UNITS AT BEGINNING AT END OUTSTANDING AT OF PERIOD OF PERIOD END OF PERIOD ------------ ---------- --------------- IVY FUNDS VIP BOND SUB-ACCOUNT:(G) 2008................ 1.07 1.05 15,130 2007................ 1.03 1.07 17,324 2006................ 1.02 1.03 11,134 2005................ 1.02 1.02 10,599 2004................ 1.00(a) 1.02 5,834 IVY FUNDS VIP GROWTH SUB-ACCOUNT:(G) 2008................ 1.43 0.89 9,997 2007................ 1.16 1.43 14,348 2006................ 1.13 1.16 15,505 2005................ 1.04 1.13 16,136 2004................ 1.00(a) 1.04 12,627 IVY FUNDS VIP HIGH INCOME SUB-ACCOUNT:(G) 2008................ 1.17 0.89 14,714 2007................ 1.15 1.17 18,962 2006................ 1.07 1.15 20,336 2005................ 1.07 1.07 19,812 2004................ 1.00(a) 1.07 15,107 IVY FUNDS VIP INTERNATIONAL GROWTH SUB-ACCOUNT:(G)(C) 2008................ 1.77 1.00 -- 2007................ 1.49 1.77 1,789 2006................ 1.26 1.49 1,813 2005................ 1.11 1.26 1,839 2004................ 1.00(a) 1.77 1,866 IVY FUNDS VIP INTERNATIONAL VALUE SUB-ACCOUNT:(G)(D) 2008................ 1.75 0.99 5,713 2007................ 1.63 1.75 7,040 2006................ 1.29 1.63 8,269 2005................ 1.18 1.29 8,933 2004................ 1.00(a) 1.18 7,017 IVY FUNDS VIP REAL ESTATE SECURITIES SUB-ACCOUNT:(G) 2008................ 1.48 0.93 2,008 2007................ 1.80 1.48 1,688 2006................ 1.42 1.80 1,955 2005................ 1.31 1.42 2,333 2004................ 1.00(b) 1.31 2,550 IVY FUNDS VIP SCIENCE AND TECHNOLOGY SUB-ACCOUNT:(G) 2008................ 1.70 1.10 961 2007................ 1.40 1.70 840 2006................ 1.32 1.40 1,236 2005................ 1.15 1.32 1,273 2004................ 1.00(a) 1.15 1,396
A-15 2.25% Variable Account: Charge Continued
UNIT VALUE UNIT VALUE NUMBER OF UNITS AT BEGINNING AT END OUTSTANDING AT OF PERIOD OF PERIOD END OF PERIOD ------------ ---------- --------------- IVY FUNDS VIP SMALL CAP GROWTH SUB-ACCOUNT:(G) 2008................ 1.40 -- -- 2007................ 1.26 1.40 2,667 2006................ 1.23 1.26 2,704 2005................ 1.11 1.23 2,742 2004................ 1.00(a) 1.11 2,782 IVY FUNDS VIP SMALL CAP VALUE SUB-ACCOUNT:(G) 2008................ 1.22 0.88 7,885 2007................ 1.30 1.22 8,699 2006................ 1.14 1.30 9,422 2005................ 1.12 1.14 9,769 2004................ 1.00(a) 1.12 7,435 IVY FUNDS VIP VALUE SUB-ACCOUNT:(G) 2008................ 1.29 0.83 14,853 2007................ 1.29 1.29 16,554 2006................ 1.13 1.29 17,721 2005................ 1.11 1.13 17,883 2004................ 1.00(a) 1.11 12,351
2.35% Variable Account: Charge
UNIT VALUE UNIT VALUE NUMBER OF UNITS AT BEGINNING AT END OUTSTANDING AT OF PERIOD OF PERIOD END OF PERIOD ------------ ---------- --------------- IVY FUNDS VIP ASSET STRATEGY SUB-ACCOUNT:(G) 2008................ 2.28 1.65 84,893 2007................ 1.62 2.28 72,427 2006................ 1.38 1.62 73,235 2005................ 1.14 1.38 80,294 2004................ 1.00(a) 1.14 48,551 IVY FUNDS VIP BALANCED SUB-ACCOUNT:(G) 2008................ 1.33 1.03 4,028 2007................ 1.20 1.33 4,073 2006................ 1.11 1.20 4,118 2005................ 1.08 1.11 4,164 2004................ 1.00(a) 1.08 4,210 IVY FUNDS VIP BOND SUB-ACCOUNT:(G) 2008................ 1.07 1.04 85,469 2007................ 1.03 1.07 46,953 2006................ 1.01 1.03 37,025 2005................ 1.02 1.01 37,433 2004................ 1.00(a) 1.02 37,848 IVY FUNDS VIP CORE EQUITY SUB-ACCOUNT:(G) 2008................ 1.47 0.94 10,468 2007................ 1.32 1.47 -- 2006................ 1.15 1.32 10,978 2005................ 1.08 1.15 11,444 2004................ 1.00(a) 1.08 11,556 IVY FUNDS VIP DIVIDEND OPPORTUNITIES SUB-ACCOUNT:(G)(H) 2008................ 1.54 0.96 25,931 2007................ 1.35 1.54 15,788 2006................ 1.19 1.35 16,170 2005................ 1.08 1.19 16,356 2004................ 1.00(a) 1.08 16,442 IVY FUNDS VIP ENERGY SUB-ACCOUNT:(G) 2008................ 1.36 0.71 12,574 2007................ -- 1.36 -- IVY FUNDS VIP GLOBAL NATURAL RESOURCES SUB-ACCOUNT:(G) 2008................ 2.13 0.80 72,910 2007................ 1.52 2.13 53,563 2006................ 1.24 1.52 62,039 2005................ 1.00(e) 1.24 51,779 IVY FUNDS VIP GROWTH SUB-ACCOUNT:(G) 2008................ 1.43 0.89 341,870 2007................ 1.16 1.43 374,754 2006................ 1.13 1.16 389,485 2005................ 1.04 1.13 320,171 2004................ 1.00(a) 1.04 166,332 IVY FUNDS VIP HIGH INCOME SUB-ACCOUNT:(G) 2008................ 1.17 0.89 80,244 2007................ 1.15 1.17 107,746 2006................ 1.07 1.15 103,550 2005................ 1.07 1.07 103,548 2004................ 1.00(a) 1.07 74,845 IVY FUNDS VIP INTERNATIONAL GROWTH SUB-ACCOUNT:(G)(C) 2008................ 1.77 1.00 192,134 2007................ 1.49 1.77 194,203 2006................ 1.26 1.49 211,970 2005................ 1.11 1.26 142,841 2004................ 1.00(a) 1.11 28,513 IVY FUNDS VIP INTERNATIONAL VALUE SUB-ACCOUNT:(G)(D) 2008................ 1.75 0.98 72,566 2007................ 1.63 1.75 75,301 2006................ 1.29 1.63 84,682 2005................ 1.18 1.29 90,373 2004................ 1.00(a) 1.18 57,894 IVY FUNDS VIP MICRO CAP GROWTH SUB-ACCOUNT:(G) 2008................ 1.50 0.76 133,590 2007................ 1.44 1.50 115,092 2006................ 1.31 1.44 114,966 2005................ 1.11 1.31 89,072 2004................ 1.00(a) 1.11 21,831 IVY FUNDS VIP MID CAP GROWTH SUB-ACCOUNT:(G) 2008................ 1.39 0.87 48,866 2007................ 1.27 1.39 42,623 2006................ 1.19 1.27 45,259 2005................ 1.00(e) 1.19 26,953
A-16 2.35% Variable Account: Charge Continued
UNIT VALUE UNIT VALUE NUMBER OF UNITS AT BEGINNING AT END OUTSTANDING AT OF PERIOD OF PERIOD END OF PERIOD ------------ ---------- --------------- IVY FUNDS VIP MORTGAGE SECURITIES SUB-ACCOUNT:(G) 2008................ 1.07 0.93 12,004 2007................ 1.06 1.07 12,756 2006................ 1.03 1.06 12,484 2005................ 1.04 1.03 13,053 2004................ 1.00(b) 1.04 12,963 IVY FUNDS VIP REAL ESTATE SECURITIES SUB-ACCOUNT:(G) 2008................ 1.48 0.92 125,181 2007................ 1.80 1.48 116,767 2006................ 1.42 1.80 120,822 2005................ 1.31 1.42 113,581 2004................ 1.00(b) 1.31 66,520 IVY FUNDS VIP SCIENCE AND TECHNOLOGY SUB-ACCOUNT:(G) 2008................ 1.69 1.09 176,677 2007................ 1.39 1.69 182,059 2006................ 1.32 1.39 202,778 2005................ 1.15 1.32 171,465 2004................ 1.00(a) 1.15 63,106 IVY FUNDS VIP SMALL CAP GROWTH SUB-ACCOUNT:(G) 2008................ 1.40 0.83 174,804 2007................ 1.26 1.40 193,825 2006................ 1.23 1.26 203,929 2005................ 1.11 1.23 163,207 2004................ 1.00(a) 1.11 81,375 IVY FUNDS VIP SMALL CAP VALUE SUB-ACCOUNT:(G) 2008................ 1.21 0.88 106,848 2007................ 1.30 1.21 138,189 2006................ 1.14 1.30 129,918 2005................ 1.12 1.14 131,417 2004................ 1.00(a) 1.12 80,365 IVY FUNDS VIP VALUE SUB-ACCOUNT:(G) 2008................ 1.28 0.83 54,999 2007................ 1.29 1.28 67,893 2006................ 1.13 1.29 78,010 2005................ 1.11 1.13 108,631 2004................ 1.00(a) 1.11 79,410
-------- (a) Period from May 3, 2004, commencement of operations, to December 31, 2004. (b) Period from May 27, 2004, commencement of operations, to December 31, 2004. (c) Prior to May 1, 2005 the sub-account was known as W&R International Portfolio. (d) Prior to May 1, 2005, the sub-account was known as W&R International II Portfolio. (e) Period from April 28, 2005, commencement of operations, to December 31, 2005. (f) Period from May 1, 2006, commencement of operations, to December 31, 2006. (g) W&R Target Funds, Inc. changed its name to Ivy Funds Variable Portfolios, Inc. effective July 31, 2008. (h) W&R Target Dividend Income Portfolio changed its name to Ivy Funds Dividend Opportunities effective July 31, 2008. (i) Ivy Funds VIP Pathfinder Portfolios were made available effective May 1, 2008. A-17 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%, 6.93% and 10.00%. For illustration purposes, an average annual expense equal to 2.43% 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 2.43% includes: 1.35% for mortality and expense risk, and an average of 1.08% 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 portfolio operating expenses with waivers or reductions applied. 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. This illustration is based on average fund expenses. Upon request, a similar illustration specific to your situation and fund election may be available. VARIABLE ANNUITY INCOME -- HYPOTHETICAL ILLUSTRATION WADDELL & REED ADVISORS RETIREMENT BUILDER ANNUITY INCOME OPTION -- LIFE ANNUITY WITH 10 YEAR PERIOD CERTAIN PREPARED FOR: Client VARIABLE CONTRIBUTION: $100,000.00 INITIAL VARIABLE MONTHLY INCOME: $631.36 The illustration below shows how investment returns may affect variable annuity income payments. This illustration is hypothetical and is not intended to project or predict investment results. Annuity income payments will INCREASE if the returns on your investments ARE GREATER THAN the total of the Assumed Investment Return (AIR) and your annual contract expenses. Annuity income payments will DECREASE if the returns on your investments ARE LESS THAN the total of the Assumed Investment Return (AIR) and your annual contract expenses. An AIR of 4.50% annually is used for calculating the initial income payment. More information on the annual expense charges for this contract can be found in the Variable Annuity Income Disclosure section of this illustration and in the prospectus. B-1 The graph and table below show how annual gross investment returns of 0%, 6.93% and 10.00% would affect annuity income payments. The calculated income shown is after the deduction of all contract expenses (based on your investment allocation). In the example below, the annuity income amount shown assumes a constant annual investment return. The actual rate of return and resulting annuity income payments will vary over time. VARIABLE ANNUITY INCOME -- HYPOTHETICAL (PERFORMANCE GRAPH) VARIABLE ANNUITY INCOME -- SUPPORTING DETAIL
MONTHLY ANNUITY INCOME BASED ON HYPOTHETICAL RATE OF RETURN ----------------------------------------------- 0.00% GROSS 6.93% GROSS 10.00% GROSS BEGINNING OF YEAR AGE (-2.43% NET) (4.50% NET) (7.57% NET) ----------------- --- ------------ ----------- ------------ 1................................................ 65 $631 $631 $ 631 4................................................ 68 $514 $631 $ 689 7................................................ 71 $418 $631 $ 751 10............................................... 74 $340 $631 $ 819 13............................................... 77 $277 $631 $ 894 16............................................... 80 $226 $631 $ 975 19............................................... 83 $184 $631 $1,063 22............................................... 86 $149 $631 $1,160 25............................................... 89 $122 $631 $1,265 28............................................... 92 $ 99 $631 $1,380 31............................................... 95 $ 81 $631 $1,505 34............................................... 98 $ 66 $631 $1,642
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 $670.43. B-2 ILLUSTRATION OF MARKET VALUE ADJUSTMENTS The following are examples of market value adjustment (MVA) calculations using hypothetical Treasury Rates. Amounts withdrawn, surrendered, applied to provide annuity payments, or transferred from the guarantee periods of the guaranteed term account prior to their renewal date may be subject to a market value adjustment. As the examples below illustrate, the MVA may be either a negative or positive value. These examples do not include the effect of any deferred sales charge that may be assessed under the contract upon withdrawal and surrender. The MVA factor is equal to: (1 + i) (n/12) --------------- [ (1 + j + .0025) ] -1
where i = Treasury Rate for the week prior to the date of allocation into the guaranteed term account for a maturity equal to the guarantee period. j = Treasury Rate for the week prior to the date of withdrawal, surrender, application to provide annuity payments or transfer with a maturity equal to the number of whole months remaining in the guarantee period. n = the number of whole months remaining in the Guarantee Period. The amount of the MVA will never exceed, in a positive or negative direction, the excess interest earned on the guarantee period from which the withdrawal, surrender, amount applied to provide annuity payments, or transfer is to be made. For this purpose, excess interest is defined as the dollar amount of interest earned on each allocation into a guarantee period of the guaranteed term account in excess of interest earned based on the minimum guaranteed interest rate. EXAMPLE 1: NEGATIVE MVA In this example, the Treasury Rate at the time of the withdrawal is higher than the Treasury Rate as of the date of allocation. Therefore, there is a negative MVA and the resultant payment is reduced by that amount. MVA factor: (1 + 0.04) (49/12) ------------------ [ (1 +0.06 + .0025) ] -1 -0.083689
For purposes of this example, the Treasury Rate at allocation is 4% and the Treasury Rate at withdrawal is 6%. A withdrawal of $10,000 is made from the 5 year guaranteed term account 11 months after the date of allocation. The dollar amount of market value adjustment would be $10,000 x -0.083689 = -$836.89 and the resultant payment would be $10,000 - $836.89 = $9,163.11. In addition to the market value adjustment, withdrawals and surrenders may be subject to a deferred sales charge as described in the contract. The market value adjustment is done before application of any deferred sales charge. B-3 EXAMPLE 2: POSITIVE MVA In this example, the Treasury Rate at the time of the withdrawal is lower than the Treasury Rate as of the date of allocation. Therefore, there is a positive MVA and the resultant payment is increased by that amount. MVA factor: (1 + 0.06) (49/12) ------------------ [ (1 +0.04 + .0025) ] -1 = 0.070340
For purposes of this example, the Treasury Rate at allocation is 6% and the Treasury Rate at withdrawal is 4%. A withdrawal of $10,000 is made from the 5 year guaranteed term account 11 months after the date of allocation. The dollar amount of market value adjustment would be $10,000 x 0.070340 = $703.40 and the resultant payment would be $10,000 + $703.40 = $10,703.40. In addition to the market value adjustment, withdrawals and surrenders may be subject to a deferred sales charge as described in the contract. The market value adjustment is done before application of any deferred sales charge. B-4 APPENDIX C -- TYPES OF QUALIFIED PLANS Tax qualified plans provide for tax deferral. If you purchase an annuity contract in a tax qualified plan, the tax deferral feature of the annuity is redundant and offers you no additional advantage. You should purchase the annuity for reasons other than tax deferral when part of a qualified plan. PUBLIC SCHOOL SYSTEMS AND CERTAIN TAX EXEMPT ORGANIZATIONS This annuity contract will no longer be issued to Section 403(b) Plans effective May 1, 2008. Under the 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. The most comprehensive regulations under Code Section 403(b) since 1964 have been issued by the IRS. The regulations impose increased compliance obligations on employers and others involved in a Code Section 403(b) arrangement, including written plan documentation for all Code Section 403(b) plans. The regulations are generally effective January 1, 2009. You should consult a qualified tax advisor regarding the impact of these new regulations on your plan. This annuity contract does not support plan loans, even if your plan may allow it. 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 agencies. 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 at ordinary income rates when distributed from the IRA. Distributions prior to age 59 1/2 (unless certain exceptions apply) are subject to a 10% penalty tax. A portion of the amount distributed from an IRA may be taxable based on the ratio of the "investment in the contract" to the individual's balance in the IRA, generally the value of the IRA. The "investment in the C-1 contract" generally equals the nondeductible contributions to an IRA. The "investment in the contract" can be zero. 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. 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, 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. C-2 DEFERRED COMPENSATION PLANS Code Section 457 provides for certain deferred compensation plans. These plans may be offered for service to state governments, local governments, political subdivisions, agencies, instrumentalities and certain affiliates of such entities, and tax exempt organizations. The plans may permit participants to specify the form of investment for their deferred compensation account. In general, all amounts received under a Section 457 plan are taxable and are subject to federal income tax withholding as wages. 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. C-3 APPENDIX D -- EXAMPLES ILLUSTRATING THE GUARANTEED INCOME PROVIDER BENEFIT OPTION The illustration below is designed to help show how the Guaranteed Income Provider Benefit option functions. A complete description of the optional contract feature can be found in the prospectus section titled "Other Contract Options -- Guaranteed Income Provider Benefit Option".
GUARANTEED HIGHEST 5% INCOME CONTRACT PURCHASE CONTRACT ANNIVERSARY INCREASE PROVIDER ANNIVERSARY AGE PAYMENTS WITHDRAWALS VALUE VALUE VALUE BASIS ----------- --- -------- ----------- -------- ----------- -------- ---------- 0 65 10,000 -- 10,000 10,000 10,000 10,000 1 66 -- -- 10,250 10,250 10,500 10,500 2 67 1,500 -- 12,000 12,000 12,525 12,525 3 68 -- 500 11,000 11,500 12,651 12,651 4 69 -- -- 14,000 14,000 13,284 14,000 5 70 -- 2,000 11,500 11,926 11,316 11,926 6 71 -- -- 10,000 11,926 11,882 11,926 7 72 -- -- 12,000 12,000 12,476 12,476 8 73 -- -- 10,200 12,000 13,100 13,100 9 74 -- -- 11,500 12,000 13,754 13,754 10 75 -- -- 14,500 14,500 14,442 14,500
To illustrate the guaranteed income provider benefit option, assume a contract is issued to an owner at age 65. An initial purchase payment of $10,000 is made at contract issue and a subsequent purchase payment of $1,500 is made on the second contract anniversary. Both purchase payments are allocated to the variable annuity account. Withdrawals of $500 and $2,000 are assumed to occur on the third contract anniversary and the fifth contract anniversary, respectively. Values shown above have been rounded to the nearest dollar. On the second contract anniversary, the additional purchase payment is included in the contract value of $12,000 which becomes the new highest anniversary value. The prior 5% increase value is accumulated at 5% and then increased by the new purchase payment. The 5% increase value exceeds the highest anniversary value and therefore the guaranteed income provider basis is increased to $12,525. The withdrawal on the third contract anniversary is less than 5% of the highest anniversary value ($600) and 5% of the 5% increase value ($626.25) as of the prior contract anniversary. Therefore, the withdrawal adjustment for both the highest anniversary value and the 5% increase value is applied on a dollar-for- dollar basis. Since the current contract value is less than the prior highest anniversary value the prior value is simply reduced by the amount of the withdrawal (12,000 -- 500). The 5% increase value is first increased by 5% and then the withdrawal is subtracted (12,525 x 1.05 -- 500). The resulting 5% increase value exceeds the highest anniversary value and therefore the guaranteed income provider basis is increased to $12,651. On the fifth contract anniversary the withdrawal is greater than 5% of the highest anniversary value ($700) and 5% of the 5% increase value ($664) as of the prior contract anniversary. Therefore, the withdrawal adjustment for both the highest anniversary value and 5% increase value is applied on a pro rata basis. The contract value prior to the withdrawal is $13,500 so the adjustment to the highest anniversary value is $14,000 -- $14,000 x (2,000 / 13,500) with a resulting highest anniversary value of 11,925.93. The 5% increase value is first accumulated at 5% resulting in a value of $13,948 (12,651 x 1.05) and then adjusted pro rata for the withdrawal as follows: $13,948 -- 13,948 x (2,000 / 13,500) = $11,881.63. The adjusted highest anniversary value exceeds the adjusted 5% increase value therefore the guaranteed income provider basis is $11,926 after the withdrawal. D-1 APPENDIX E -- EXAMPLES OF THE GUARANTEED MINIMUM WITHDRAWAL BENEFIT OPTION Below are several examples that are designed to help show how the Guaranteed Minimum Withdrawal Benefit option functions. A complete description of the optional contract feature can be found in the prospectus section "Other Contract Options -- Guaranteed Minimum Withdrawal Benefit Option". EXAMPLE #1 -- INITIAL VALUES ON THE EFFECTIVE DATE BASED ON AN INITIAL PURCHASE PAYMENT OF $100,000.
CONTRACT CONTRACT GUARANTEED GUARANTEED VALUE PURCHASE VALUE WITHDRAWAL ANNUAL BEFORE PAYMENTS WITHDRAWAL AFTER BENEFIT WITHDRAWAL CONTRACT YEARS ACTIVITY RECEIVED AMOUNT ACTIVITY (GWB) (GAW) -------------- -------- -------- ---------- -------- ---------- ---------- Beginning of Year 1........... $0 $100,000 $0 $100,000 $100,000 $7,000
EXAMPLE #2 -- SUBSEQUENT PURCHASE PAYMENT RECEIVED DURING FIRST CONTRACT YEAR AND BEFORE ANY WITHDRAWALS HAVE BEEN TAKEN. If additional purchase payments are received, the GWB will increase by the amount of the purchase payment. The GAW will be recalculated as the greater of the previous GAW or 7% of the new GWB.
CONTRACT CONTRACT GUARANTEED GUARANTEED VALUE PURCHASE VALUE WITHDRAWAL ANNUAL BEFORE PAYMENTS WITHDRAWAL AFTER BENEFIT WITHDRAWAL CONTRACT YEARS ACTIVITY RECEIVED AMOUNT ACTIVITY (GWB) (GAW) -------------- -------- -------- ---------- -------- ---------- ---------- Beginning of Year 1.......... $ 0 $100,000 $0 $100,000 $100,000 $7,000 Activity..................... $102,000 $ 20,000 $0 $122,000 $120,000 $8,400
EXAMPLE #3 -- CUMULATIVE WITHDRAWALS DURING THE SECOND CONTRACT YEAR NOT EXCEEDING THE GAW. While the rider is in effect, the client may make cumulative withdrawals up to the GAW each contract year without any adjustment to the GAW. The GWB will be reduced on a dollar-for-dollar basis. Withdrawals may be taken in a lump sum, in multiple withdrawals, or on a systematic withdrawal basis. Any portion of the GAW not withdrawn during a contract year may not be carried over to the next contract year.
CONTRACT CONTRACT GUARANTEED GUARANTEED VALUE PURCHASE VALUE WITHDRAWAL ANNUAL BEFORE PAYMENTS WITHDRAWAL AFTER BENEFIT WITHDRAWAL CONTRACT YEARS ACTIVITY RECEIVED AMOUNT ACTIVITY (GWB) (GAW) -------------- -------- -------- ---------- -------- ---------- ---------- Beginning of Year 1.......... $ 0 $100,000 -- $100,000 $100,000 $7,000 Activity..................... $102,000 $ 20,000 -- $122,000 $120,000 $8,400 Beginning of Year 2.......... $120,000 $8,400 Activity (withdrawal)........ $119,000 -- $8,400 $110,600 $111,600 $8,400
E-1 EXAMPLE #4 -- CUMULATIVE WITHDRAWALS DURING THIRD CONTRACT YEAR EXCEEDING GAW. The client may withdraw more than the GAW in any contract year. Any withdrawal in excess of the GAW, will cause an immediate adjustment to the GWB and a recalculation of the GAW. The remaining GWB will be adjusted to the lesser of the contract value following the excess withdrawal or the GWB reduced by the amount of the withdrawal on a dollar-for-dollar basis. If contract values are declining, this can create a significant loss in guaranteed benefit. The GAW will be recalculated to the lesser of: (a) GAW before excess withdrawal; (b) greater of: 7% of new GWB or 7% of contract value following withdrawal.
CONTRACT CONTRACT GUARANTEED GUARANTEED VALUE PURCHASE VALUE WITHDRAWAL ANNUAL BEFORE PAYMENTS WITHDRAWAL AFTER BENEFIT WITHDRAWAL CONTRACT YEARS ACTIVITY RECEIVED AMOUNT ACTIVITY (GWB) (GAW) -------------- -------- -------- ---------- -------- ---------- ---------- Beginning of Year 1............. $ 0 $100,000 -- $100,000 $100,000 $7,000 Activity........................ $102,000 $ 20,000 -- $122,000 $120,000 $8,400 Beginning of Year 2............. $120,000 $8,400 Activity (withdrawal)........... $119,000 -- $8,400 $110,600 $111,600 $8,400 Beginning of Year 3............. $111,600 $8,400 Activity (withdrawal)........... $112,000 -- $8,400 $103,600 $103,200 $8,400 Activity (excess withdrawal).... $ 99,000 -- $5,000 $ 94,000 $ 94,000 $6,580
E-2 EXAMPLE #5 -- A RESET IN THE GWB IS ELECTED AT THE BEGINNING OF CONTRACT YEAR 7. THIS EXAMPLE ASSUMES THAT CUMULATIVE WITHDRAWALS FOR CONTRACT YEARS 4, 5 AND 6 DO NOT EXCEED THE GAW AND THAT NO ADDITIONAL PURCHASE PAYMENTS ARE MADE DURING THESE CONTRACT YEARS. An optional reset may be elected on any anniversary beginning 3 years after the rider was added to the contract if the current contract value is greater than the current GWB. Election of the reset option will increase the charge if the current charge is greater. Once the reset has been elected, another reset may not be elected for another 3 years. When the reset is elected, the GWB will increase to the current contract value and the GAW will be recalculated to the greater of the prior GAW or 7% of the new GWB.
CONTRACT CONTRACT GUARANTEED GUARANTEED VALUE PURCHASE VALUE WITHDRAWAL ANNUAL BEFORE PAYMENTS WITHDRAWAL AFTER BENEFIT WITHDRAWAL CONTRACT YEARS ACTIVITY RECEIVED AMOUNT ACTIVITY (GWB) (GAW) -------------- -------- -------- ---------- -------- ---------- ---------- Beginning of Year 1............. $ 0 $100,000 -- $100,000 $100,000 $7,000 Activity........................ $102,000 $ 20,000 -- $122,000 $120,000 $8,400 Beginning of Year 2............. $120,000 $8,400 Activity (withdrawal)........... $119,000 -- $8,400 $110,600 $111,600 $8,400 Beginning of Year 3............. $111,600 $8,400 Activity (withdrawal)........... $112,000 -- $8,400 $103,600 $103,200 $8,400 Activity (excess withdrawal).... $ 99,000 -- $5,000 $ 94,000 $ 94,000 $6,580 Beginning of Year 4............. $ 94,000 $6,580 Activity (withdrawal)........... $ 88,500 -- $6,580 $ 81,920 $ 87,420 $6,580 Beginning of Year 5............. $ 87,420 $6,580 Activity (withdrawal)........... $ 89,600 -- $6,580 $ 83,020 $ 80,840 $6,580 Beginning of Year 6............. $ 80,840 $6,580 Activity (withdrawal)........... $ 90,330 -- $6,580 $ 83,750 $ 74,260 $6,580 Beginning of Year 7 immediately before reset.................. $ 85,000 -- -- $ 85,000 $ 74,260 $6,580 Beginning of Year 7 immediately after reset................... $ 85,000 -- -- $ 85,000 $ 85,000 $6,580
E-3 APPENDIX F -- EXAMPLES OF THE GUARANTEED LIFETIME WITHDRAWAL BENEFIT OPTION Below are several examples that are designed to help show how the Guaranteed Lifetime Withdrawal Benefit Option functions. A complete description of the optional contract feature can be found in the prospectus section "Other Contract Options -- Guaranteed Lifetime Withdrawal Benefit Option". Contract values shown assume certain hypothetical gains or losses in order to better demonstrate how the product feature can be impacted by sub-account gain or loss. EXAMPLE #1 -- INITIAL VALUES ON THE EFFECTIVE DATE ARE BASED ON AN INITIAL PURCHASE PAYMENT OF $100,000 AND THE AGE OF THE OLDEST OWNER.
CONTRACT CONTRACT GUARANTEED GUARANTEED VALUE PURCHASE VALUE WITHDRAWAL ANNUAL ATTAINED BEFORE PAYMENTS WITHDRAWAL AFTER BENEFIT INCOME CONTRACT YEARS AGE ACTIVITY RECEIVED AMOUNT ACTIVITY (GWB) (GAI) -------------- -------- -------- -------- ---------- -------- ---------- ---------- Beginning of Year 1......... 65 $0 $100,000 $0 $100,000 $100,000 $5,000
EXAMPLE #2 -- SUBSEQUENT PURCHASE PAYMENT RECEIVED DURING FIRST CONTRACT YEAR AND BEFORE ANY WITHDRAWALS HAVE BEEN TAKEN. If additional purchase payments are received, the GWB will increase by the amount of the purchase payment. The GAI will be increased by an amount equal to the amount of the purchase payment times the applicable Annual Income Percentage based on the owner's age at the time of the purchase payment.
CONTRACT CONTRACT GUARANTEED GUARANTEED VALUE PURCHASE VALUE WITHDRAWAL ANNUAL ATTAINED BEFORE PAYMENTS WITHDRAWAL AFTER BENEFIT INCOME CONTRACT YEARS AGE ACTIVITY RECEIVED AMOUNT ACTIVITY (GWB) (GAI) -------------- -------- -------- -------- ---------- -------- ---------- ---------- Beginning of Year 1......... 65 $ 0 $100,000 $0 $100,000 $100,000 $5,000 Activity.................... -- $102,000 $ 20,000 $0 $122,000 $120,000 $6,000
EXAMPLE #3 -- CUMULATIVE WITHDRAWALS DURING THE SECOND CONTRACT YEAR NOT EXCEEDING THE GAI. While the rider is in effect, the client may make cumulative withdrawals up to the GAI each contract year without any adjustment to the GAI. The GWB will be reduced on a dollar-for-dollar basis. Withdrawals may be taken in a lump sum, in multiple withdrawals, or on a systematic withdrawal basis. Any portion of the GAI not withdrawn during a contract year may not be carried over to the next contract year.
CONTRACT CONTRACT GUARANTEED GUARANTEED VALUE PURCHASE VALUE WITHDRAWAL ANNUAL ATTAINED BEFORE PAYMENTS WITHDRAWAL AFTER BENEFIT INCOME CONTRACT YEARS AGE ACTIVITY RECEIVED AMOUNT ACTIVITY (GWB) (GAI) -------------- -------- -------- -------- ---------- -------- ---------- ---------- Beginning of Year 1............. 65 $ 0 $100,000 $ 0 $100,000 $100,000 $5,000 Activity........................ -- $102,000 $ 20,000 $ 0 $122,000 $120,000 $6,000 Beginning of Year 2............. 66 -- -- -- -- $120,000 $6,000 Activity (withdrawal)........... -- $116,600 -- $6,000 $110,600 $114,000 $6,000
F-1 EXAMPLE #4 -- CUMULATIVE WITHDRAWALS DURING THIRD CONTRACT YEAR EXCEEDING GAI. The client may withdraw more than the GAI in any contract year. Any withdrawal in excess of the GAI will cause an immediate adjustment to both the GWB and GAI. The GWB will be reduced by the ratio of the excess withdrawal to the contract value immediately prior to the excess portion of the withdrawal. If contract values are declining, this can create a larger loss in GWB. The GAI will be reduced by the result of the ratio of the excess withdrawal to the contract value immediately prior to the excess portion of the withdrawal.
CONTRACT CONTRACT GUARANTEED GUARANTEED VALUE PURCHASE VALUE WITHDRAWAL ANNUAL ATTAINED BEFORE PAYMENTS WITHDRAWAL AFTER BENEFIT INCOME CONTRACT YEARS AGE ACTIVITY RECEIVED AMOUNT ACTIVITY (GWB) (GAI) -------------- -------- -------- -------- ---------- -------- ---------- ---------- Beginning of Year 1......... 65 $ 0 $100,000 $ 0 $100,000 $100,000 $5,000 Activity.................... $102,000 $ 20,000 $ 0 $122,000 $120,000 $6,000 Beginning of Year 2......... 66 $120,000 $6,000 Activity (withdrawal)....... $116,600 -- $ 6,000 $110,600 $114,000 $6,000 Beginning of Year 3......... 67 -- -- -- -- $114,000 $6,000 Activity (excess withdrawal)....... -- $111,600 -- $11,000 $100,600 $102,886 $5,716
F-2 EXAMPLE #5 -- AN AUTOMATIC GUARANTEED ANNUAL INCOME RESET OCCURS AT THE BEGINNING OF CONTRACT YEAR 4. THIS EXAMPLE ASSUMES THAT CUMULATIVE WITHDRAWALS FOR CONTRACT YEARS 1, 2, AND 3 DO NOT EXCEED THE GAI AND THAT NO ADDITIONAL PURCHASE PAYMENTS ARE MADE DURING THESE CONTRACT YEARS. A GAI Reset is automatic beginning 3 years after the GLWB rider was added to the contract. Once the reset has occurred, another reset will not occur for another 3 years. This income reset provision only applies to the GAI. When the reset occurs, the GAI will be calculated as the Annual Income Percentage based on the age at the time of the income reset times the greater of the GWB or the current contract value, but not less than the GAI prior to the income reset.
CONTRACT CONTRACT GUARANTEED GUARANTEED VALUE PURCHASE VALUE WITHDRAWAL ANNUAL ATTAINED BEFORE PAYMENTS WITHDRAWAL AFTER BENEFIT INCOME CONTRACT YEARS AGE ACTIVITY RECEIVED AMOUNT ACTIVITY (GWB) (GAI) -------------- -------- -------- -------- ---------- -------- ---------- ---------- Beginning of Year 1............. 65 $ 0 $100,000 $ 0 $100,000 $100,000 $5,000 Activity........................ -- $102,000 $ 20,000 $ 0 $122,000 $120,000 $6,000 Beginning of Year 2............. 66 -- -- -- -- $120,000 $6,000 Activity (withdrawal)........... -- $116,600 -- $6,000 $110,600 $114,000 $6,000 Beginning of Year 3............. 67 -- -- -- -- $114,000 $6,000 Activity (withdrawal)........... -- $111,600 -- $6,000 $105,600 $108,000 $6,000 Beginning of Year 4............. 68 -- -- -- -- $108,000 $6,000 Income Reset Provision.......... -- -- -- -- $115,000 $108,000 $6,000 Beginning of Year 5............. 69 -- -- -- -- $108,000 $6,000 Activity (withdrawal)........... -- $118,600 -- $6,000 $112,600 $102,000 $6,000 Beginning of Year 6............. 70 -- -- -- -- $102,000 $6,000 Activity (withdrawal)........... -- $115,800 -- $6,000 $109,800 $ 96,000 $6,000 Beginning of Year 7............. 71 -- -- -- -- $ 96,000 $6,000 Income Reset Provision.......... -- -- -- -- $113,500 $ 96,000 $6,243
F-3 EXAMPLE #6 -- GLWB ADDED ON 2ND CONTRACT ANNIVERSARY. SUBSEQUENT PURCHASE PAYMENTS RECEIVED THE FOLLOWING YEAR WHEN THE OWNER IS AT A DIFFERENT ANNUAL INCOME PERCENTAGE. The GLWB benefit may be added at issue or within 30 days prior to any contract anniversary. At the time of election, the GWB value will be set to the current contract value and the GAI will be calculated using the Annual Income Percentage based on the age of the oldest owner at the time of election. If a subsequent purchase payment is received when the oldest owner is at an age with a higher Annual Income Percentage, the new money will receive the higher Annual Income Percentage, and the GAI will increase by an amount equal to the amount the purchase payment times the Annual Income Percentage.
CONTRACT CONTRACT GUARANTEED GUARANTEED VALUE PURCHASE VALUE WITHDRAWAL ANNUAL ATTAINED BEFORE PAYMENTS WITHDRAWAL AFTER BENEFIT INCOME CONTRACT YEARS AGE ACTIVITY RECEIVED AMOUNT ACTIVITY (GWB) (GAI) -------------- -------- -------- -------- ---------- -------- ---------- ---------- Beginning of Year 1............. -- $ 0 $100,000 $ 0 $100,000 -- -- Activity........................ -- $102,000 $ 20,000 $ 0 $122,000 -- -- Beginning of Year 2............. -- Activity (withdrawal)........... -- $116,600 -- $6,000 $110,600 -- -- Beginning of Year 3 -- add GLWB.......................... 59 -- -- -- $103,600 $103,600 $4,144 Beginning of Year 4............. 60 -- -- -- -- $103,600 $4,144 Activity........................ -- $110,000 $ 10,000 $ 0 $120,000 $113,600 $4,644 Beginning of Year 5............. 61 -- -- -- $123,000 $113,600 $4,644
F-4 EXAMPLE #7 -- A GMWB CONTRACT CONVERTS TO A GLWB ON THE 2ND CONTRACT ANNIVERSARY WHERE THE CONTRACT VALUE IS GREATER THAN THE GWB AMOUNT. Contracts with the GMWB feature may elect to convert to the GLWB feature within 30 days prior to any contract anniversary, as long as the client is within the eligible age limits. As of the contract anniversary date, the GMWB guarantees will terminate. For the GLWB benefit, the GWB value will be set to the current contract anniversary value and the GAI calculated using the Annual Income Percentage based on the oldest owner's age at the time of the conversion. The GWB will increase if the contract value is greater than the GWB value from the GMWB feature at the time of conversion.
CONTRACT CONTRACT GUARANTEED GUARANTEED VALUE PURCHASE VALUE WITHDRAWAL ANNUAL ATTAINED BEFORE PAYMENTS WITHDRAWAL AFTER BENEFIT INCOME CONTRACT YEARS AGE ACTIVITY RECEIVED AMOUNT ACTIVITY (GWB) (GAI) -------------- -------- -------- -------- ---------- -------- ---------- ---------- Beginning of Year 1......... -- $ 0 $100,000 $ 0 $100,000 $100,000 $7,000 Activity.................... -- $102,000 $ 20,000 $ 0 $122,000 $120,000 $8,400 Beginning of Year 2......... -- -- -- -- -- $120,000 $8,400 Beginning of Year 3 -- convert to GLWB...... 67 -- -- -- $132,000 $132,000 $6,600 Activity (withdrawal)....... -- $133,600 -- $6,600 $127,000 $125,400 $6,600
EXAMPLE #8 -- A GMWB CONTRACT CONVERTS TO A LIFETIME GMWB ON THE 2ND CONTRACT ANNIVERSARY WHERE THE CONTRACT VALUE IS LESS THAN THE GWB AMOUNT. Contracts with the GMWB feature may elect to convert to a lifetime GMWB within 30 days prior to any contract anniversary. As of the contract anniversary date, the GMWB guarantees will terminate. For the GLWB feature, the GWB value will be set to the current contract anniversary value and the lifetime GAI calculated using the Annual Income Percentage based on the oldest owner's age at the time of conversion. The GWB will decrease at conversion if the contract value is less than the GWB value from the GMWB feature at the time of conversion.
CONTRACT CONTRACT GUARANTEED GUARANTEED VALUE PURCHASE VALUE WITHDRAWAL ANNUAL ATTAINED BEFORE PAYMENTS WITHDRAWAL AFTER BENEFIT INCOME CONTRACT YEARS AGE ACTIVITY RECEIVED AMOUNT ACTIVITY (GWB) (GAI) -------------- -------- -------- -------- ---------- -------- ---------- ---------- Beginning of Year 1......... -- $ 0 $100,000 $ 0 $100,000 $100,000 $7,000 Activity.................... -- $102,000 $ 20,000 $ 0 $122,000 $120,000 $8,400 Beginning of Year 2......... -- -- -- -- -- $120,000 $8,400 Beginning of Year 3 -- convert to GLWB...... 67 -- -- -- $117,000 $117,000 $5,850 Activity (withdrawal)....... -- $117,100 -- $5,850 $111,250 $111,150 $5,850
F-5 APPENDIX G -- EXAMPLES OF THE GUARANTEED LIFETIME WITHDRAWAL BENEFIT II -- SINGLE AND JOINT OPTIONS Below are several examples that are designed to help show how the Guaranteed Lifetime Withdrawal Benefit II Option functions. A complete description of the optional contract feature can be found in the prospectus sections "Other Contract Options -- Guaranteed Lifetime Withdrawal Benefit II -- Single Option (GLWB II -- Single)" and "Other Contract Options -- Guaranteed Lifetime Withdrawal Benefit II -- Joint Option (GLWB II -- Joint)". Contract values shown assume certain hypothetical gains or losses in order to better demonstrate how these optional riders can be impacted by sub-account gain or loss. EXAMPLE #1 -- INITIAL VALUES ON THE EFFECTIVE DATE BASED ON AN INITIAL PURCHASE PAYMENT OF $100,000. The GWB is set equal to the initial purchase payment and the GAI is 5% of the GWB.
CONTRACT GUARANTEED GUARANTEED VALUE PURCHASE CONTRACT WITHDRAWAL ANNUAL BEFORE PAYMENTS WITHDRAWAL VALUE AFTER BENEFIT INCOME CONTRACT YEARS ACTIVITY RECEIVED AMOUNT ACTIVITY (GWB) (GAI) -------------- -------- -------- ---------- ----------- ---------- ---------- Beginning of Year 1.................. $0 $100,000 $0 $100,000 $100,000 $5,000
EXAMPLE #2 -- SUBSEQUENT PURCHASE PAYMENT RECEIVED DURING FIRST CONTRACT YEAR AND BEFORE ANY WITHDRAWALS HAVE BEEN TAKEN. If additional purchase payments are received, the GWB will increase by the amount of the purchase payment. The GAI will be increased by an amount equal to the amount of the purchase payment multiplied by 5%.
CONTRACT GUARANTEED GUARANTEED VALUE PURCHASE CONTRACT WITHDRAWAL ANNUAL BEFORE PAYMENTS WITHDRAWAL VALUE AFTER BENEFIT INCOME CONTRACT YEARS ACTIVITY RECEIVED AMOUNT ACTIVITY (GWB) (GAI) -------------- -------- -------- ---------- ----------- ---------- ---------- Beginning of Year 1................. $ 0 $100,000 -- $100,000 $100,000 $5,000 Activity............................ $102,000 $ 20,000 -- $122,000 $120,000 $6,000
G-1 EXAMPLE #3 -- GUARANTEED WITHDRAWAL BENEFIT ENHANCEMENT AND GUARANTEED ANNUAL INCOME RESET On each contract anniversary prior to the first withdrawal, for up to 10 years following the election of the rider, there will be a Guaranteed Withdrawal Benefit enhancement. The GWB will be increased by 5% of the GWB prior to the enhancement and the GAI will be increased to 5% of the GWB following the enhancement. An automatic Guaranteed Annual Income Reset will occur on every contract anniversary through age 85. The GWB will be reset to the greater of the prior GWB or the current contract value. The GAI will be recalculated to 5% of the reset GWB, but will never be lower than the GAI immediately prior to the reset. The Guaranteed Withdrawal Benefit enhancement will occur prior to the Guaranteed Withdrawal Benefit Reset on any contract anniversary where both are applicable.
CONTRACT CONTRACT GUARANTEED GUARANTEED VALUE PURCHASE VALUE WITHDRAWAL ANNUAL BEFORE PAYMENTS WITHDRAWAL AFTER BENEFIT INCOME CONTRACT YEARS ACTIVITY RECEIVED AMOUNT ACTIVITY (GWB) (GAI) -------------- -------- -------- ---------- -------- ---------- ---------- Beginning of Year 1............... $ 0 $100,000 -- $100,000 $100,000 $5,000 Activity.......................... $102,000 $ 20,000 -- $122,000 $120,000 $6,000 Enhancement....................... $128,000 -- -- $128,000 $126,000 $6,300 Income Reset...................... $128,000 -- -- $128,000 $128,000 $6,400 Beginning of Year 2............... $128,000 -- -- $128,000 $128,000 $6,400 Enhancement....................... $130,000 -- -- $130,000 $134,400 $6,720 Income Reset...................... $130,000 -- -- $130,000 $134,400 $6,720 Beginning of Year 3............... $130,000 -- -- $130,000 $134,400 $6,720
EXAMPLE #4 -- WITHDRAWAL PRIOR TO THE BENEFIT DATE Any withdrawal prior to the Benefit Date will cause an immediate adjustment to both the GWB and GAI. The GWB will be reduced by the result of the ratio of the withdrawal to the contract value immediately prior to such withdrawal. The GAI will be recalculated to 5% of the GWB following the withdrawal.
CONTRACT CONTRACT GUARANTEED GUARANTEED VALUE PURCHASE VALUE WITHDRAWAL ANNUAL BEFORE PAYMENTS WITHDRAWAL AFTER BENEFIT INCOME CONTRACT YEARS ACTIVITY RECEIVED AMOUNT ACTIVITY (GWB) (GAI) -------------- -------- -------- ---------- -------- ---------- ---------- Beginning of Year 1............... $ 0 $100,000 -- $100,000 $100,000 $5,000 Activity.......................... $102,000 $ 20,000 -- $122,000 $120,000 $6,000 Enhancement....................... $124,000 -- -- $124,000 $126,000 $6,300 Income Reset...................... $124,000 -- -- $124,000 $126,000 $6,300 Beginning of Year 2............... $124,000 -- -- $124,000 $126,000 $6,300 Activity (withdrawal)............. $125,000 -- $6,300 $118,700 $119,650 $5,983
G-2 EXAMPLE #5 -- CUMULATIVE WITHDRAWALS AFTER THE BENEFIT DATE NOT EXCEEDING THE GAI The client may make cumulative withdrawals up to the GAI each contract year following the Benefit Date without any adjustment to the GAI. The GWB will be reduced on a dollar-for-dollar basis. Withdrawals may be taken in a lump sum, in multiple withdrawals, or on a systematic withdrawal basis. Any portion of the GAI not withdrawn during a contract year may not be carried over to the next contract year.
CONTRACT CONTRACT GUARANTEED GUARANTEED VALUE PURCHASE VALUE WITHDRAWAL ANNUAL BEFORE PAYMENTS WITHDRAWAL AFTER BENEFIT INCOME CONTRACT YEARS ACTIVITY RECEIVED AMOUNT ACTIVITY (GWB) (GAI) -------------- -------- -------- ---------- -------- ---------- ---------- Beginning of Year 1............. $ 0 $100,000 -- $100,000 $100,000 $5,000 Activity........................ $102,000 $ 20,000 -- $122,000 $120,000 $6,000 Enhancement..................... $124,000 -- -- $124,000 $126,000 $6,300 Income Reset.................... $124,000 -- -- $124,000 $126,000 $6,300 Beginning of Year 2............. $124,000 -- -- $124,000 $126,000 $6,300 Activity (withdrawal)........... $125,000 -- $6,300 $118,700 $119,700 $6,300 Income Reset.................... $130,000 -- -- $130,000 $130,000 $6,500 Beginning of Year 3............. $130,000 -- -- $130,000 $130,000 $6,500
EXAMPLE #6 -- CUMULATIVE WITHDRAWALS AFTER THE BENEFIT DATE EXCEEDING THE GAI The client may withdraw more than the GAI in any contract year following the Benefit Date. Any withdrawal following the benefit date in excess of the GAI will cause an immediate adjustment to both the GWB and GAI. The GWB will be reduced by the ratio of the excess withdrawal to the contract value immediately prior to the excess portion of the withdrawal. If contract values are declining, this can create a larger loss in GWB. The GAI will be reduced by the result of the ratio of the excess withdrawal to the contract value immediately prior to the excess portion of the withdrawal.
CONTRACT CONTRACT GUARANTEED GUARANTEED VALUE PURCHASE VALUE WITHDRAWAL ANNUAL BEFORE PAYMENTS WITHDRAWAL AFTER BENEFIT INCOME CONTRACT YEARS ACTIVITY RECEIVED AMOUNT ACTIVITY (GWB) (GAI) -------------- -------- -------- ---------- -------- ---------- ---------- Beginning of Year 1............. $ 0 $100,000 -- $100,000 $100,000 $5,000 Activity........................ $102,000 $ 20,000 -- $122,000 $120,000 $6,000 Enhancement..................... $124,000 -- -- $124,000 $126,000 $6,300 Income Reset.................... $124,000 -- -- $124,000 $126,000 $6,300 Beginning of Year 2............. $124,000 -- -- $124,000 $126,000 $6,300 Activity (withdrawal)........... $125,000 -- $ 6,300 $118,700 $119,700 $6,300 Income Reset.................... $120,000 -- -- $120,000 $120,000 $6,300 Beginning of Year 3............. $120,000 -- -- $120,000 $120,000 $6,300 Activity (withdrawal)........... $122,000 -- $10,000 $112,000 $110,064 $6,099
G-3 EXAMPLE #7 -- A GMWB CONTRACT CONVERTS TO A GLWB II ON THE 2ND CONTRACT ANNIVERSARY. Contracts with the GMWB option may elect to convert to the GLWB II -- Single or GLWB II -- Joint option within 30 days prior to any contract anniversary subject to applicable age limits. As of the contract anniversary date, the GMWB guarantees will terminate. For the GLWB II benefit, the GWB value will be set to the current contract anniversary value and the GAI calculated as 5% of the GWB. The GWB will increase if the contract value is greater than the GWB value from the GMWB feature at the time of conversion. The GWB will decrease at conversion if the contract value is less than the GWB value from the GMWB option at the time of conversion.
CONTRACT CONTRACT GUARANTEED GUARANTEED VALUE PURCHASE VALUE WITHDRAWAL ANNUAL BEFORE PAYMENTS WITHDRAWAL AFTER BENEFIT INCOME CONTRACT YEARS ACTIVITY RECEIVED AMOUNT ACTIVITY (GWB) (GAI) -------------- -------- -------- ---------- -------- ---------- ---------- Beginning of Year 1............... $ 0 $100,000 $ 0 $100,000 $100,000 $7,000 Activity.......................... $102,000 $ 20,000 $ 0 $122,000 $120,000 $8,400 Beginning of Year 2............... -- -- -- $120,000 $8,400 Beginning of Year 3 -- convert to GLWB II......................... $132,000 -- -- $132,000 $132,000 $6,600 Activity (withdrawal)............. $133,600 -- $6,600 $127,000 $125,400 $6,600
G-4 APPENDIX H -- EXAMPLES ILLUSTRATING CREDIT ENHANCEMENT EXAMPLE #1 -- RECAPTURE OF CREDIT ENHANCEMENT DUE TO RIGHT OF CANCELLATION OR "FREE LOOK" In the event the contract is cancelled and returned during the free look period, we will refund the current contract value less any credit enhancements applied to the contract. The contract owner bears the investment risk for the purchase payment(s) and credit enhancements(s) during this period. For example: Purchase Payment = $500,000 Credit Enhancement = $2,500 (.50% x 500,000) Contract Value at Issue = $502,500 Assume the contract value on the valuation date has decreased to $501,000 due to poor fund performance. The amount refunded as a result of the free look cancellation is $498,500 ($501,000 - $2,500). EXAMPLE #2 -- RECAPTURE OF CREDIT ENHANCEMENT DUE TO DEATH BENEFIT The death benefit will be calculated according to the death benefit option elected at the time of contract issue. Any death benefit paid to a beneficiary will be reduced by the amount of credit enhancement(s) received within the last 12 months. For example: Purchase Payment = $500,000 Credit Enhancement = $2,500 (.50% x 500,000) Subsequent Purchase Payment fourth month following contract issue = $400,000 Additional Credit Enhancement = $4,250 (.75% x 900,000 - 2,500) Assume a death benefit of $950,000 becomes payable 15 months after contract issue. No recapture is applied to the first credit enhancement because it was added to the contract more than 12 months prior. The second credit enhancement is within the first 12 months so recapture applies. The adjusted death benefit would be $950,000 - $4,250 = $945,750. If there are two beneficiaries, each entitled to 50% of the death benefit; they would each receive $472,875. EXAMPLE #3 -- RECAPTURE OF CREDIT ENHANCEMENT WHEN AMOUNTS ARE APPLIED TO PROVIDE ANNUITY PAYMENTS If the entire contract value is applied to provide annuity payments, the value will be reduced by the amount of credit enhancement(s) received within the last 12 months. For example: Purchase Payment = $500,000 Credit Enhancement = $2,500 (.50% x 500,000) Subsequent Purchase Payment fourth month following contract issue = $400,000 Additional Credit Enhancement = $4,250 (.75% x 900,000 - 2,500) If the contract value was $945,000, the amount available to provide annuity payments prior to any applicable deduction for premium tax is $945,000 - $4,250 = $940,750. H-1 EXAMPLE #4 - DEMONSTRATION OF CREDIT ENHANCEMENT SCHEDULE The credit enhancement schedule has four levels, based on the cumulative net purchase payments. Cumulative net purchase payments are the total of all purchase payments received for a contract, less any prior withdrawals from contract value (including associated charges). With each purchase payment received, we will evaluate whether the contract is eligible for a credit enhancement. If eligible, the credit enhancement will be added to the contract value. The amount of credit enhancement is calculated as follows: cumulative net purchase payments multiplied by the applicable Credit Enhancement percentage; less any Credit Enhancements previously applied to the Contract Value. If the result of the calculation is less than zero, no credit enhancement will be applied.
CONTRACT VALUE PURCHASE CUMULATIVE NET ADDITIONAL TOTAL CONTRACT BEFORE PAYMENTS WITHDRAWAL PURCHASE CREDIT CREDIT VALUE CONTRACT YEARS ACTIVITY RECEIVED AMOUNT PAYMENTS ENHANCEMENT ENHANCEMENT AFTER ACTIVITY -------------- -------- -------- ---------- -------------- ----------- ----------- -------------- Beginning of Year 1..... $ 0 $200,000 $ 0 $ 200,000 $ 0 $ 0 $ 200,000 Activity................ $208,000 $200,000 $ 0 $ 400,000 $1,000 $ 1,000 $ 409,000 Activity (withdrawal)... $398,000 -- $250,000 $ 150,000 $ 0 $ 1,000 $ 148,000 Activity................ $163,000 $450,000 $ 0 $ 600,000 $2,000 $ 3,000 $ 615,000 Activity................ $645,000 $500,000 $ 0 $1,100,000 $8,000 $11,000 $1,153,000
EXAMPLE #5 -- DEMONSTRATION OF CREDIT ENHANCEMENT WITH GMWB ELECTED AT ISSUE When GMWB is elected at issue, the initial guaranteed withdrawal benefit (GWB) is equal to purchase payments. The credit enhancement is not considered a purchase payment and therefore, has no impact on the initial GMWB values.
CONTRACT CONTRACT GUARANTEED GUARANTEED VALUE PURCHASE CUMULATIVE NET VALUE WITHDRAWAL ANNUAL CONTRACT BEFORE PAYMENTS WITHDRAWAL PURCHASE CREDIT AFTER BENEFIT INCOME YEARS ACTIVITY RECEIVED AMOUNT PAYMENTS ENHANCEMENT ACTIVITY (GWB) (GAW) -------- -------- -------- ---------- -------------- ----------- -------- ---------- ---------- Beginning of Year 1....... $ 0 $500,000 $ 0 $500,000 $2,500 $502,500 $500,000 $35,000 Beginning of Year 2....... -- -- -- -- -- -- $500,000 $35,000 Activity (withdrawal)............ $498,000 -- $35,000 $465,000 -- $463,000 $465,000 $35,000
EXAMPLE #6 -- DEMONSTRATION OF CREDIT ENHANCEMENT WITH GLWB ELECTED AT ISSUE When GLWB is elected at issue, the initial guaranteed withdrawal benefit (GWB) is equal to purchase payments. The credit enhancement is not considered a purchase payment and therefore, has no impact on the initial GLWB values. The guaranteed annual income (GAI) in this example assumes the oldest owner is age 65 at contract issue.
CONTRACT GUARANTEED GUARANTEED VALUE PURCHASE CUMULATIVE NET CONTRACT WITHDRAWAL ANNUAL BEFORE PAYMENTS WITHDRAWAL PURCHASE CREDIT VALUE BENEFIT INCOME CONTRACT YEARS ACTIVITY RECEIVED AMOUNT PAYMENTS ENHANCEMENT AFTER ACTIVITY (GWB) (GAI) -------------- -------- -------- ---------- -------------- ----------- -------------- ---------- ---------- Beginning of Year 1....... $ 0 $500,000 $ 0 $500,000 $2,500 $502,500 $500,000 $25,000 Beginning of Year 2....... -- -- -- -- -- -- $500,000 $25,000 Activity (withdrawal)..... $498,000 -- $25,000 $475,000 -- $473,000 $475,000 $25,000
H-2 EXAMPLE #7 -- DEMONSTRATION OF CREDIT ENHANCEMENT WITH GLWB II ELECTED AT ISSUE When GLWB is elected at issue, the initial guaranteed withdrawal benefit (GWB) is equal to purchase payments. The credit enhancement is not considered a purchase payment and therefore, has no impact on the initial GLWB values. However, the contract value includes the Credit Enhancement and may increase the GLWB II values at time of reset.
CONTRACT CONTRACT GUARANTEED GUARANTEED VALUE PURCHASE CUMULATIVE NET VALUE WITHDRAWAL ANNUAL BEFORE PAYMENTS WITHDRAWAL PURCHASE CREDIT AFTER BENEFIT INCOME CONTRACT YEARS ACTIVITY RECEIVED AMOUNT PAYMENTS ENHANCEMENT ACTIVITY (GWB) (GAI) -------------- -------- -------- ---------- -------------- ----------- -------- ---------- ---------- Beginning of Year 1........ $ 0 $500,000 $ 0 $500,000 $2,500 $502,500 $500,000 $25,000 GWB Enhancement/ Income Reset............. $523,000 -- -- $500,000 -- $523,000 $523,000 $26,150 Beginning of Year 2........ $523,000 -- -- $500,000 -- $523,000 $523,000 $26,150
H-3 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 22. Not applicable 23. Financial Statements
VARIABLE ANNUITY ACCOUNT ("VARIABLE ANNUITY ACCOUNT"), A SEPARATE ACCOUNT OF MINNESOTA LIFE INSURANCE COMPANY ("MINNESOTA LIFE") 400 ROBERT STREET NORTH ST. PAUL, MINNESOTA 55101-2098 TELEPHONE: 1-800-362-3141 STATEMENT OF ADDITIONAL INFORMATION THE DATE OF THIS DOCUMENT AND THE PROSPECTUS IS: May 1, 2009 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 Independent Registered Public Accounting Firm 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 broker-dealers who have entered into selling agreements with Securian Financial and Minnesota Life. Securian Financial acts as principal underwriter of the contracts. Securian Financial is a wholly-owned subsidiary of Securian Financial Group, Inc. Securian Financial is registered as a broker-dealer under the Securities Exchange Act of 1934 and is a member of the National Association of Securities Dealers, Inc. Amounts paid by Minnesota Life to the underwriter for 2008, 2007 and 2006 were $25,216,983, $26,840,979 and $24,342,989 respectively, for payment to associated dealers on the sale of the contracts, which includes other contracts issued through the Variable Annuity Account. Agents or registered representatives of broker-dealers are paid by their broker-dealer. Minnesota Life makes payment to the broker-dealers and does not determine your registered representative's compensation. You are encouraged to ask your registered representative about the basis upon which he or she will be personally compensated for the advice or recommendations providing in connection with the sale of your contract. The types of compensation payments Minnesota Life provides are described in the prospectus. These categories are not mutually exclusive and Minnesota Life may choose to make additional types of payments in the future. Firms may receive payments under more than one, or all categories. Not all firms receive additional compensation and the amount of compensation varies. Minnesota Life determines which firms to provide support and the extent of any payments. It generally chooses to compensate firms that have an ability to distribute the contracts and that are willing to cooperate with our promotional efforts. We do not attempt to make an independent assessment of the cost of providing any service(s). Minnesota Life and Securian Financial entered into Variable Products Distribution Agreement under which Minnesota Life agrees to pay marketing allowances and commissions to Waddell & Reed, Inc. PERFORMANCE DATA From time to time our advertising and other promotional material may quote the performance (yield and total return) of a sub-account. In addition, our reports or other communications to current or prospective contract owners may also quote the yield on total return of the sub-account. Quoted results are based on past performance and reflect the performance of all assets held in that sub-account for the stated time period. QUOTED RESULTS ARE NEITHER AN ESTIMATE NOR A GUARANTEE OF FUTURE INVESTMENT PERFORMANCE, AND DO NOT REPRESENT THE ACTUAL EXPERIENCE OF AMOUNTS INVESTED BY ANY PARTICULAR CONTRACT OWNER. Total Returns A sub-account may advertise its "average annual total return" over various periods of time. "Total return" represents the percentage change in value of an investment in the sub-account from the beginning of a measuring period to the end of that measuring period. "Annualized" total return assumes that the total return achieved for the measuring period is achieved for each such period for a full year. "Average annual" total return is computed in accordance with a standard method prescribed by the SEC. Average Annual Total Return To calculate a sub-account's average annual total return for a specific measuring period, we take a hypothetical $1,000 investment in that sub-account, at its then applicable sub-account unit value (the "initial payment") and we compute the ending redeemable value of that initial payment at the end of the measuring period based on the investment experience of that sub-account ("full withdrawal value"). The full withdrawal value reflects the effect of all recurring fees and charges applicable to a contract owner under the contract, including the mortality and expense risk fee, the administrative fee and the deduction of the applicable deferred sales charge, but does not reflect any charges for applicable premium taxes and/or any other taxes, any non-recurring fees or charges or any increase in the mortality and expense risk fee for an optional death benefit rider or any charge for other optional benefits. The annual maintenance fee is also taken into account. Because this fee may vary with the size of the account, we calculate the fee by taking the total amount of annual maintenance fee collected for the prior year and dividing it by the average contract value for the prior year, and applying it in that fashion in accordance with SEC guidance. The redeemable value is then divided by the initial payment and this quotient is raised to the 365/N power (N represents the number of days in the measuring period), and 1 is subtracted from this result. Average annual total return is expressed as a percentage. T = (ERV/P)(1/N)-1 Where T = average annual total return ERV = ending redeemable value P = hypothetical initial payment of $1,000 N = number of years Average annual total return figures will generally be given for recent one, five, and ten year periods (if applicable), and may be given for other periods as well (such as from commencement of the sub-account's operations, or on a year by year basis). When considering "average" total return figures for periods longer than one year, it is important to note that the relevant sub-account's annual total return for any one year in the period might have been greater or less than the average for the entire period. Non-Standardized Returns We may also calculate non-standardized returns which may or may not reflect any annual maintenance fee, and/or deferred sales charges, charges for premium taxes and/or any other taxes, or any charge for an optional rider or optional death benefit, and any non-recurring fees or charges. For periods prior to the date of this prospectus, calculations may be based on the assumption that the contracts described in this prospectus were issued when the underlying portfolios first became available to the variable annuity account. There may also be other "hypothetical" performance information which will include a more detailed description of the information and its calculation in the specific piece. Standardized return calculations will always accompany any non-standardized returns shown. Yields Money Market Sub-Account The "yield" (also called "current yield") of the Money Market Sub-Account is computed in accordance with a standard method prescribed by the SEC. The net change in the sub-account's unit value during a seven day period is divided by the unit value at the beginning of the period to obtain a base rate of return. The current yield is generated when the base rate is "annualized" by multiplying it by the fraction 365/7; that is, the base rate of return is assumed to be generated each week over a 365 day period and is shown as a percentage of the investment. The "effective yield" of the Money Market Sub-Account is calculated similarly but, when annualized, the base rate of return is assumed to be reinvested. The effective yield will be slightly higher than the current yield because of the compounding effect of this assumed reinvestment. The formula for effective yield is: [ (Base Period Return + 1) (365/7) ] - 1. Realized capital gains or losses and unrealized appreciation or depreciation of the assets of the underlying Money Market Portfolio are not included in the yield calculation. Current yield and effective yield do not reflect any deduction of charges for any applicable premium taxes and/or any other taxes, or any charge for an optional death benefit rider, or any charge for an optional rider, but do reflect a deduction for the annual maintenance fee, the mortality and expense fee and the administrative fee. Other Sub-accounts "Yield" of the other sub-accounts is computed in accordance with a different standard method prescribed by the SEC. The net investment income (investment income less expenses) per sub-account unit earned during a specified one month of 30 day period is divided by the sub-account unit value on the last day of the specified period. This result is then annualized (that is, the yield is assumed to be generated each month or each 30 day period for a year), according to the following formula, which assumes semi-annual compounding: YIELD = 2[a-b + 1)6 - 1] CD Where a = net investment income earned during the period by the portfolio attributable to the sub-account. b = expenses accrued for the period (net of reimbursements) c = the average daily number of sub-account units outstanding during the period that were entitled to receive dividends. d = the unit value of the sub-account units on the last day of the period. The yield of each sub-account reflects the deduction of all recurring fees and charges applicable to the sub-account, such as the mortality and expense fee, the administrative fee, the annual maintenance fee but does not reflect any charge for applicable premium taxes and/or any other taxes, any charge for an optional death benefit rider, any charge for any other optional rider, or any non-recurring fees or charges. The sub-accounts' yields will vary from time to time depending upon market conditions, the composition of each portfolio and operating expenses of the fund allocated to each portfolio. Consequently, any given performance quotation should not be considered representative of the sub-account's performance in the future. Yield should also be considered relative to changes in sub-account unit values and to the relative risks associated with the investment policies and objectives of the various portfolios. In addition, because performance will fluctuate, it may not provide a basis for comparing the yield of a sub-account with certain bank deposits or other investments that pay a fixed yield or return for a stated period of time. INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM The consolidated financial statements and supplementary schedules 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. 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. <0000768609> <0000931923> 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 year ended December 31, 2008, are incorporated by reference 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, 2008. 3. Statements of Operations, period ended December 31, 2008. 4. Statements of Changes in Net Assets, years or periods ended December 31, 2008 and 2007. 5. Notes to Financial Statements. (b) Audited Consolidated Financial Statements and Supplementary Schedules of the Depositor, Minnesota Life Insurance Company and subsidiaries, are incorporated by reference 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. 2. Consolidated Balance Sheets - Minnesota Life Insurance Company and subsidiaries, as of December 31, 2008 and 2007. 3. Consolidated Statements of Operations - Minnesota Life Insurance Company and subsidiaries, for the years ended December 31, 2008, 2007 and 2006. 4. Consolidated Statements of Changes in Stockholder's Equity - Minnesota Life Insurance Company and subsidiaries, for the years ended December 31, 2008, 2007 and 2006. 5. Consolidated Statements of Cash Flows - Minnesota Life Insurance Company and subsidiaries, for the years ended December 31, 2008, 2007 and 2006. 6. Notes to Consolidated Financial Statements - Minnesota Life Insurance Company and subsidiaries, for the fiscal years ended December 31, 2008, 2007 and 2006. 7. Schedule I - Summary of Investments-Other than Investments in Related Parties - Minnesota Life Insurance Company and subsidiaries, as of December 31, 2008. 8. Schedule III - Supplementary Insurance Information - Minnesota Life Insurance Company and subsidiaries, for the years ended December 31, 2008, 2007 and 2006. 9. Schedule IV - Reinsurance - Minnesota Life Insurance Company and subsidiaries, for the years ended December 31, 2008, 2007 and 2006. (c) Exhibits 1. The Resolution of the Minnesota Life Insurance Company's Executive Committee of its Board of Trustees establishing the Variable Annuity Account previously filed as Exhibit 24(c)(1) to Variable Annuity Account's Form N-4, File Number 333-111067, Post-Effective Amendment Number 1, is hereby incorporated by reference. 2. Not applicable. 3. (a) The Amended and Restated Distribution Agreement between Minnesota Life Insurance Company and Securian Financial Services, Inc., previously filed on April 27, 2009, as exhibit 24(c)(3) to Registrant's Form N-4, File Number 2-97564, Post-Effective Amendment Number 28, is hereby incorporated by reference. (b) The Dealer Selling Agreement previously filed on July 2, 2002 as Exhibit 24(c)(3)(b) to Variable Annuity Account's Form N-4, File Number 333-91784, Initial Registration Statement, is hereby incorporated by reference. 4. (a) The Flexible Payment Deferred Variable Annuity Contract, form 03-70113 previously filed on December 12, 2003 as Exhibit 24(c)(4)(a) to Variable Annuity Account's Form N-4, File Number 333-111067, Pre-Effective Amendment Number 1, is hereby incorporated by reference. (b) The Premier Death Benefit Rider, form 02-70073 previously filed on July 2, 2002 as Exhibit 24(c)(4)(b) to Variable Annuity Account's Form N-4, File Number 333-91784, Initial Registration Statement, is hereby incorporated by reference. (c) The 5% Death Benefit Increase Rider, form 02-70074 previously filed on July 2, 2002 as Exhibit 24(c)(4)(c) to Variable Annuity Account's Form N-4, File Number 333-91784, Initial Registration Statement, is hereby incorporated by reference. (d) The Highest Anniversary Value Death Benefit Rider, form 02-70075 previously filed on July 2, 2002 as Exhibit 24(c)(4)(d) to Variable Annuity Account's Form N-4, File Number 333-91784, Initial Registration Statement, is hereby incorporated by reference. (e) The Endorsement, form MHC-82-9032 previously filed on July 2, 2002 as Exhibit 24(c)(4)(d) to Variable Annuity Account's Form N-4, file Number 333-79049, Pre-Effective Amendment Number 1, is hereby incorporated by reference. (f) The Annuity Payment Endorsement, form MHC-83-9060 previously filed on May 21, 1999 as Exhibit 24(c)(4)(e) to Variable Annuity Account's Form N-4, File Number 333-79049, Pre-Effective Amendment Number 1, is hereby incorporated by reference. (g) The Qualified Plan Agreement, form MHC-88-9176 Rev. 8-93 previously filed on May 21, 1999 as Exhibit 24(c)(4)(f) to Variable Annuity Account's Form N-4, File Number 333-79049, Pre-Effective Amendment Number 1, is hereby incorporated by reference. (h) The Individual Retirement Annuity (IRA) Agreement, SEP, Traditional IRA and Roth-IRA, form MHC-97-9418 previously filed on May 21, 1999 as Exhibit 24(c)(4)(g) to Variable Annuity Account's Form N-4, File Number 333-79049, Pre-Effective Amendment Number 1, is hereby incorporated by reference. (i) The Individual Retirement Annuity SIMPLE-(IRA) Agreement, form MHC-98-9431 previously filed on May 21, 1999 as Exhibit 24(c)(4)(h) to Variable Annuity Account's Form N-4, File Number 333-79049, Pre-Effective Amendment Number 1, is hereby incorporated by reference. (j) The Tax Sheltered Annuity Amendment, form MHC-88-9213 previously filed on March 1, 1999 as Exhibit 24(c)(4)(j) to Variable Annuity Account's Form N-4, File Number 2-97564, Post-Effective Amendment Number 16, is hereby incorporated by reference. (k) The Estate Enhancement Benefit Rider, form 03-70085 previously filed on March 12, 2004 as Exhibit 24(c)(4)(k) to Variable Annuity Account's Form N-4, File Number 333-111067, Pre-Effective Amendment Number 1, is hereby incorporated by reference. (l) The Guaranteed Income Provider Benefit Rider, form 03-70086 previously filed on March 12, 2004 as Exhibit 24(c)(4)(1) to Variable Annuity Account's Form N-4, File Number 333-111067, Pre-Effective Amendment Number 1, is hereby incorporated by reference. (m) The Guaranteed Lifetime Withdrawal Benefit Rider, form 05-70135 previously filed as Exhibit 24(c)(4)(m) to Variable Annuity Account's Form N-4, File Number 333-111067, Post-Effective Amendment Number 3, is hereby incorporated by reference. (n) The Guaranteed Minimum Withdrawal Benefit Rider, form number 04-70132 previously filed on April 21, 2006,as Exhibit 24(c) (4)(n)to Variable Annuity Account's Form N-4, File Number 333-111067, Post-Effective Amendment Number 5, is hereby incorporated by reference. (o) The Guaranteed Lifetime Withdrawal Benefit II - Single Rider, form 07-70149, previously filed on April 20, 2007 as exhibit 24(c)(4)(m) to Variable Annuity Account's Form N-4, File Number 333-136242, Post-Effective Amendment Number 2, is hereby incorporated by reference. (p) The Guaranteed Lifetime Withdrawal Benefit II - Joint Rider, form 07-70150, previously filed on April 20, 2007 as exhibit 24(c)(4)(n) to Variable Annuity Account's Form N-4, File Number 333-136242, Post-Effective Amendment Number 2, is hereby incorporated by reference. (q) The Credit Enhancement Endorsement, form 07-70151 previously filed on February 28, 2008 as exhibit 24(c)(4)(g) to Variable Annuity Account's Form N-4, File Number 333-111067, Post-Effective Amendment Number 8, is hereby incorporated by reference. 5. (a) The Flexible Variable Annuity Application, form 03-70114 Rev 5-2007. 6. Certificate of Incorporation and Bylaws. (a) The Restated Certificate of Incorporation previously filed on February 28, 2005 as Exhibit 24(c)(6)(a) to Variable Annuity Account'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 the 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 as exhibit 27(h)(1)(i) on February 27, 2003 to Registrant's Form N-6, File Number 33-85496, 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 as exhibit 27(h)(1)(ii) on February 27, 2003 to Registrant'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 as exhibit 27(h)(1)(iii) on February 27, 2003 to Registrant's Form N-6, File Number 33-85496, Post-Effective Amendment Number 10, is hereby incorporated by reference. (d) Fund Shareholder Services Agreement between Minnesota Life Insurance Company and Ascend Financial Services, Inc. filed as exhibit 27(h)(6) on February 27, 2003 to Registrant's Form N-6, File Number 33-85496, Post-Effective Amendment Number 10, is hereby incorporated by reference. (e) Investment Accounting Agreement between Securian Financial Group, Inc. and State Street Bank and Trust Company, filed on February 26, 2003 as Exhibit 24(c)(8)(v) to Variable Annuity Account's Form N-4, File Number 333-91784, Post-Effective Amendment Number 1, is hereby incorporated by reference. (f) Administration Agreement between Securian Financial Group, Inc. and State Street Bank and Trust Company, filed on February 26, 2003 as Exhibit 24(c)(8)(w) to Variable Annuity Account's Form N-4, File Number 333-91784, Post-Effective Amendment Number 1, is hereby incorporated by reference. (g) Waddell & Reed Target Funds, Inc. Participation Agreement previously filed on February 28, 2005 as Exhibit 24(c)(8)(g) to Variable Annuity Account's Form N-4, File Number 333-111067, Post-Effective Amendment Number 1, is hereby incorporated by reference. (i) First Amendment to the Target Funds Participation Agreement previously filed on April 21, 2006, as Exhibit 24(c)(8)(g)(i) to Variable Annuity Account's Form N-4, File Number 333-111067, Post-Effective Amendment Number 5, is hereby incorporated by reference. (ii) Second Amendment to the Target Funds Participation Agreement previously filed on April 21, 2006, as Exhibit 24(c)(8)(g)(ii) to Variable Annuity Account's Form N-4, File Number 333-111067, Post-Effective Amendment Number 5, is hereby incorporated by reference. (iii) Third Amendment to the Target Funds Participation Agreement previously filed on January 14, 2008, as Exhibit 26(h)(1)(v) to the Minnesota Life Individual Variable Universal Life Account's Initial Registration Statement, File Number 333-148646, is hereby incorporated by reference. (iv) Fourth Amendment to the Target Funds Participation Agreement previously filed on April 28, 2008, as Exhibit 24(c)(8)(9)(iv) to Variable Annuity Account's Form N-4, File Number 333-111067, Post-Effective Amendment Number 9, is hereby incorporated by reference. (v) Fifth Amendment to the Target Funds Participation Agreement previously filed on April 28, 2008, as Exhibit 24(c)(8)(9)(iv) to Variable Annuity Account's Form N-4, File Number 333-111067, Post-Effective Amendment Number 9, is hereby incorporated by reference. 9. Opinion and consent of Michael P. Boyle, 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 Minnesota Life Insurance Company
Name and Principal Position and Offices Business Address with Minnesota Life -------------------------------- -------------------- Brian C. Anderson Second Vice President Minnesota Life Insurance Company 400 Robert Street North St. Paul, MN 55101 Mary K. Brainerd Director HealthPartners 8170 33rd Avenue South Bloomington, MN 55425 John W. Castro Director Merrill Corporation One Merrill Circle St. Paul, MN 55108 John J. Coughlan Director XATA Corporation 151 East Cliff Road Burnsville, MN 55337 Susan L. Ebertz Vice President - Group Insurance Minnesota Life Insurance Company Services 400 Robert Street North St. Paul, MN 55101 Robert J. Ehren Senior Vice President - Life Minnesota Life Insurance Company Product Manufacturing 400 Robert Street North St. Paul, MN 55101 Craig J. Frisvold Vice President - Life New Business Minnesota Life Insurance Company 400 Robert Street North St. Paul, MN 55101 Sara H. Gavin Director Weber Shandwick Minneapolis 8000 Norman Center Drive Suite 400 Bloomington, MN 55437 John F. Grundhofer Director U.S. Bancorp 800 Nicollet Mall Suite 2870 Minneapolis, MN 55402 Thomas A. Gustafson Second Vice President Minnesota Life Insurance Company 400 Robert Street North St. Paul, MN 55101 Mark B. Hier Second Vice President Minnesota Life Insurance Company 400 Robert Street North St. Paul, MN 55101 John H. Hooley Director 4623 McDonald Drive Overlook Stillwater, MN 55082 James E. Johnson Executive Vice President Minnesota Life Insurance Company 400 Robert Street North St. Paul, MN 55101
Wilford J. Kavanaugh Senior Vice President - Individual Minnesota Life Insurance Company Distribution Management 400 Robert Street North St. Paul, MN 55101 Daniel H. Kruse Second Vice President and Actuary Minnesota Life Insurance Company 400 Robert Street North St. Paul, MN 55101 David J. LePlavy Vice President, Treasurer and Minnesota Life Insurance Company Controler 400 Robert Street North St. Paul, MN 55101 Richard L. Manke Vice President Minnesota Life Insurance Company 400 Robert Street North St. Paul, MN 55101 Jean Delaney Nelson Senior Vice President Minnesota Life Insurance Company 400 Robert Street North St. Paul, MN 55101 Maria H. O'Phelan Second Vice President Minnesota Life Insurance Company 400 Robert Street North St. Paul, MN 55101 Robert M. Olafson Senior Vice President Minnesota Life Insurance Company 400 Robert Street North St. Paul, MN 55101 H. Geoffrey Peterson Vice President Minnesota Life Insurance Company 400 Robert Street North St. Paul, MN 55101 Kathleen L. Pinkett Vice President Minnesota Life Insurance 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 Dwayne C. Radel Director, Senior Vice President and Minnesota Life Insurance Company General Counsel 400 Robert Street North St. Paul, MN 55101 Trudy A. Rautio Director Carlson 701 Carlson Parkway Minnetonka, MN 55305-8215 Robert L. Senkler Chairman, President and Chief Minnesota Life Insurance Company Executive Officer 400 Robert Street North St. Paul, MN 55101 Nancy R. Swanson Second Vice President Minnesota Life Insurance Company 400 Robert Street North St. Paul, MN 55101 Randy F. Wallake Director, Executive Vice President Minnesota Life Insurance Company & Vice Chair 400 Robert Street North St. Paul, MN 55101 Loyall E. Wilson Second Vice President Minnesota Life Insurance Company 400 Robert Street North St. Paul, MN 55101 Nancy L. Winter Second Vice President Minnesota Life Insurance Company 400 Robert Street North St. Paul, MN 55101 Warren J. Zaccaro Director, Executive Vice President Minnesota Life Insurance Company and Chief Financial Officer 400 Robert Street North St. Paul, MN 55101
ITEM 26. PERSONS CONTROLLED BY OR UNDER COMMON CONTROL WITH THE DEPOSITOR OR REGISTRANT Wholly-owned subsidiary of Minnesota Mutual Companies, Inc.: Securian Holding Company (Delaware) Wholly-owned subsidiaries of Securian Holding Company: Securian Financial Group, Inc. (Delaware) Capitol City Property Management, Inc. Robert Street Property Management, Inc. Wholly-owned subsidiaries of Securian Financial Group, Inc.: Securian Ventures, Inc. Securian Financial Network, Inc. Minnesota Life Insurance Company Advantus Capital Management, Inc. Securian Financial Services, Inc. Securian Casualty Company CNL Financial Corporation (Georgia) Capital Financial Group, Inc. (Maryland) H. Beck, Inc. (Maryland) CFG Insurance Services, Inc. (Maryland) Wholly-owned subsidiaries of Minnesota Life Insurance Company: Personal Finance Company LLC (Delaware) Enterprise Holding Corporation Allied Solutions, LLC (Indiana) Securian Life Insurance Company Wholly-owned subsidiaries of Enterprise Holding Corporation: Financial Ink Corporation Oakleaf Service Corporation Lafayette Litho, Inc. MIMLIC Funding, Inc. MCM Funding 1997-1, Inc. MCM Funding 1998-1, Inc. Wholly-owned subsidiaries of CNL Financial Corporation: Cherokee National Life Insurance Company (Georgia) CNL/Insurance America, Inc. (Georgia) CNL/Resource Marketing Corporation (Georgia) Majority-owned subsidiary of Securian Financial Group, Inc.: Securian Trust Company, N.A. Open-end registered investment company offering shares to separate accounts of Minnesota Life Insurance Company and Securian 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 February 3, 2009, the number of holders of securities of this class were as follows: Number of Record Title of Class Holders -------------- ---------------- Variable Annuity Contracts -- 4,996 ----- 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 a principal underwriter for the following investment companies: Variable Fund D Variable Annuity Account Minnesota Life Variable Life Account Minnesota Life Individual Variable Universal Life Account Minnesota Life Variable Universal Life Account Securian Life Variable Universal Life Account (b) Directors and Officers of Securian Financial Services, Inc.:
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, MN 55101 Lynda S. Czarnetzki Vice President-Financial Securian Financial Services, Inc. Management and Treasurer 400 Robert Street North St. Paul, MN 55101 Dwayne C. Radel Director Minnesota Life Insurance Company 400 Robert Street North St. Paul, MN 55101 Warren J. Zaccaro Director Minnesota Life Insurance Company 400 Robert Street North St. Paul, MN 55101 Loyall E. Wilson Vice President, Chief Securian Financial Services, Inc. Compliance Officer and 400 Robert Street North Secretary St. Paul, MN 55101 Richard A. Diehl Securian Financial Services, Inc. Vice President and 400 Robert Street North Chief Investment Officer St. Paul, MN 55101 Scott C. Thorson Vice President - Operations Securian Financial Services, Inc. 400 Robert Street North St. Paul, MN 55101 Suzanne M. Chochrek Vice President - Securian Financial Services, Inc. Business and 400 Robert Street North Market Development St. Paul, MN 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. $25,216,983 ----------- ----------- ----------- -------------
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, MN 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 the prospectus, a toll-free number and a written communication included within the prospectus, that allows an applicant to call or write 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. 333-111067, 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 As required by the Securities Act of 1933 the Registrant, Variable Annuity Account certifies that it meets the requirements of Securities Act Rule 485(b) for effectiveness of this Registration Statement and has caused this Registration Statement to be signed on its behalf in the City of St. Paul and the State of Minnesota on the 27th day of April, 2009. 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 As required by the Securities Act of 1933, the Depositor, Minnesota Life Insurance Company, certifies that it meets the requirements of Securities Act Rule 485(b) for effectiveness of this Registration Statement and has caused this Registration Statement to be signed on its behalf in the City of Saint Paul, and the State of Minnesota, on the 27th day of April, 2009. 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, the Depositor has duly caused this Registration Statement has been signed on its behalf by the undersigned, thereunto duly authorized, in the City of Saint Paul, and State of Minnesota in their capacities with the Depositor and on the date indicated.
Signature Title Date --------- ----- ---- /s/ Robert L. Senkler Chairman, President and April 27, 2009 --------------------------------------- Chief Executive Officer Robert L. Senkler * Director --------------------------------------- Mary K. Brainerd * Director --------------------------------------- John W. Castro * Director --------------------------------------- John J. Couglan * Director --------------------------------------- Sara H. Gavin * Director --------------------------------------- John F. Grundhofer * --------------------------------------- Director John H. Hooley * Director --------------------------------------- Dennis E. Prohofsky * Director --------------------------------------- Dwayne C. Radel Director --------------------------------------- Trudy A. Rautio * Director --------------------------------------- Randy F. Wallake * Director --------------------------------------- Warren J. Zaccaro /s/ Warren J. Zaccaro Executive Vice President --------------------------------------- and Chief Financial Officer Warren J. Zaccaro (chief financial officer) April 27, 2009 /s/ Warren J. Zaccaro Executive Vice President --------------------------------------- and Chief Financial Officer Warren J. Zaccaro (chief accounting officer) April 27, 2009 /s/ David J. Leplavy Vice President, Actuary and --------------------------------------- Treasurer and Controller April 27, 2009 David J. Leplavy (treasurer) /s/ Dwayne C. Radel Director and Attorney-in-Fact April 27, 2009 --------------------------------------- Dwayne C. Radel
* Pursuant to power of attorney dated February 10, 2009 a copy of which is filed herewith. EXHIBIT INDEX
Exhibit Number Description of Exhibit -------------- ---------------------- 5(a). The Flexible Variable Annuity Application, form 03-70114 Rev 5-2007. 9. Opinion and consent of Michael P. Boyle, Esq. 10. Consent of KPMG LLP. 13. Minnesota Life Insurance Company Power of Attorney to sign Registration Statements.