<PAGE>
This prospectus describes a Variable Adjustable Life Insurance Policy issued by
The Minnesota Mutual Life Insurance Company ("Minnesota Mutual"). It provides
life insurance protection for the life of the insured so long as scheduled
premiums are paid. Under some plans of insurance, the face amount of insurance
may decrease or terminate during the life of the insured. The lowest annual base
premium allowed for any plan of insurance is $300. The minimum face amount on a
Policy is $50,000.
The Policy may be adjusted, within described limits, as to face amount, premium
amount and the plan of insurance.
We assess certain charges under the Policy and these are fully described under
the heading "Policy Charges" in this prospectus on page 29. The Policy also
contains a cancellation right which is fully described under the heading "Free
Look" in this prospectus on page 29.
Variable Adjustable Life policy values may be invested in a separate account of
Minnesota Mutual called the Variable Life Account. Policy values may also be
invested in a Minnesota Mutual general account option. The actual cash value of
all Policies will vary with the investment experience of these options. The
Variable Life Account, through its sub-accounts, invests its assets in shares of
MIMLIC Series Fund, Inc. (the "Fund"). The Fund has ten Portfolios which are
available to the Variable Life Account. They are: the Growth Portfolio; the Bond
Portfolio; the Money Market Portfolio; the Asset Allocation Portfolio; the
Mortgage Securities Portfolio; the Index 500 Portfolio; the Capital Appreciation
Portfolio; the International Stock Portfolio; the Small Company Portfolio and
the Value Stock Portfolio. There is no minimum cash value associated with these
variable sub-accounts.
The Variable Adjustable Life Policy provides two death benefit options: the Cash
Option and the Protection Option. The Cash Option provides a guaranteed death
benefit equal to the current face amount. Favorable investment returns, if any,
will be reflected only in increased actual cash values, unless the policy value
exceeds the net single premium for the then current face amount, at which time
the death benefit will increase. The Protection Option provides a variable death
benefit guaranteed to be at least equal to the current face amount. Favorable
investment returns, if any, will be reflected primarily in increased life
insurance coverage as well as increased actual cash values. The Protection
Option is only available until the policy anniversary nearest the insured's age
70. At the policy anniversary nearest the insured's age 70, the death benefit
option will be changed to the Cash Option.
Replacing existing insurance with a Policy described in this prospectus may not
be to your advantage.
THIS PROSPECTUS IS NOT VALID UNLESS ATTACHED TO A CURRENT PROSPECTUS OF MIMLIC
SERIES FUND, INC. THIS PROSPECTUS SHOULD BE READ CAREFULLY AND RETAINED FOR
FUTURE REFERENCE.
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.
Prospectus
Variable Adjustable Life Insurance Policy
Logo
The Minnesota Mutual Life Insurance Company
400 Robert Street North, St. Paul, Minnesota 55101-2098
(612) 298-3500
Dated: May 1, 1995
<PAGE>
- ---------------------------------------------------------------
TABLE OF CONTENTS
<TABLE>
<CAPTION>
Page
<S> <C>
Summary..................................................... 1
Condensed Financial Information............................. 7
General Descriptions
The Minnesota Mutual Life Insurance Company............. 9
Variable Life Account................................... 9
MIMLIC Series Fund, Inc................................. 9
Additions, Deletions or Substitutions................... 10
Selection of Sub-Accounts............................... 10
The Guaranteed Principal Account........................ 11
Detailed Information about the Variable Adjustable Life
Insurance Policy
Adjustable Life Insurance............................... 12
Policy Adjustments...................................... 14
Applications and Policy Issue........................... 19
Policy Premiums......................................... 19
Policy Values........................................... 23
Death Benefit Options................................... 25
Variations in Death Benefit............................. 26
Policy Loans............................................ 26
Surrender............................................... 28
Free Look............................................... 29
Conversion.............................................. 29
Policy Charges.......................................... 29
Other Policy Provisions................................. 32
Other Matters
Federal Tax Status...................................... 36
Trustees and Principal Officers of Minnesota Mutual..... 39
Voting Rights........................................... 39
Distribution of Policies................................ 40
Legal Matters........................................... 41
Legal Proceedings....................................... 41
Experts................................................. 41
Registration Statement.................................. 41
Special Terms............................................... 42
Financial Statements of Minnesota Mutual Variable Life
Account.................................................... 43
Financial Statements of The Minnesota Mutual Life Insurance
Company.................................................... 56
Appendix I- Illustrations of Policy Values, Death Benefits
and Accumulated Premiums......................... 74
Appendix II-Summary of Policy Charges....................... 84
Appendix III-Illustration of Death Benefit Calculation...... 89
Appendix IV-Policy Loan Example............................. 90
Appendix V-Example of Sales Load Computation................ 91
Appendix VI-Average Annual Returns.......................... 92
Appendix VII-S&P 500 Performance History.................... 93
Appendix VIII-Range of Returns.............................. 94
</TABLE>
<PAGE>
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SUMMARY
The following summary is designed to answer certain general questions
concerning the Policy and to give you a brief overview of the more significant
Policy features. This summary is not comprehensive and is qualified in its
entirety by the more specific information contained elsewhere in this
prospectus. Reference should be made to the heading "Special Terms" for the
definitions of unfamiliar terms.
WHAT IS A VARIABLE ADJUSTABLE LIFE INSURANCE POLICY?
The Variable Adjustable Life Insurance Policy (the "Policy") described in
this prospectus combines traditional insurance provisions, flexible
administrative procedures and significant and useful market sensitive investment
features. First and foremost, the Policy provides a guaranteed death benefit for
the insured's lifetime so long as scheduled premiums are paid. In this respect,
the Policy is similar to conventional whole life insurance. In addition,
however, the Policy contains adjustment features which give you the flexibility
to tailor the Policy to your individual requirements at issue and to adjust the
Policy thereafter as your insurance needs change. Throughout the life of the
insured, policy values are invested at your direction in the several portfolios
of MIMLIC Series Fund, Inc. (the "Fund") or in a Minnesota Mutual general
account option. Such investment enables you to obtain market rates of return on
your investment in the Policy in combination with guaranteed insurance
protection.
This prospectus describes two versions of the Variable Adjustable Life
Insurance Policy. The older version ("VAL '87") will be replaced by a newer
version ("VAL '95"). After May 1, 1995, we will issue VAL '95 in the states
where that policy form is approved.
WHAT IS THE GUARANTEED DEATH BENEFIT?
We guarantee that the face amount of insurance shown on the policy
specification page will be paid on the death of the insured so long as you do
not have policy indebtedness and all scheduled premiums have been paid. Some
Policies will have a scheduled decrease in such guaranteed face amount at the
end of the initial policy protection period. In such case, the time and amount
of the decrease are also shown on the policy specification page. The importance
of the guarantee is that adverse investment performance may never reduce your
life insurance protection below the guaranteed amount. We impose a charge of 1.5
percent of premiums for providing this guarantee.
WHAT MAKES THE POLICY "ADJUSTABLE"?
The Policy is termed "Adjustable" because it allows you the flexibility to
custom-design your Policy at issue and thereafter to change or "adjust" your
Policy as your insurance needs change. The three major components in designing
your Policy are the level of premiums you wish to pay, the level of death
benefit protection you need and the appropriate "plan" of insurance for you. You
may choose any two of the three components--premium, face amount and plan--and
we will calculate the third component.
Within very broad limits, including those designed to assure that the Policy
qualifies as life insurance for tax purposes, you may choose any level of
premium or death benefit that you wish. In addition, we offer a broad range of
"plans" of insurance. Generally speaking, a plan refers to the level of cash
value accumulation assumed in the design of the Policy and, for whole life
plans, the period of time over which you will have to pay premiums. The greater
your plan of insurance, the larger the policy values you may expect to be
available for investment in the Policy's actual cash value, loans or partial
surrenders and, for whole life plans, the shorter the period of time for which
you will have to pay premiums.
The maximum plan of insurance available is one where the Policy becomes
paid-up after the payment of ten annual premiums. A paid-up Policy is one for
which no additional premiums are required to guarantee the face amount of
insurance for the entire life of the insured, provided there is no policy
indebtedness. Whole life plans may be suitable for individuals who wish to
ensure lifetime coverage, without any scheduled reduction in face amount as
described below, by the payment of relatively higher premiums and, in certain
cases, for a lesser period of time, or who
1
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wish to accumulate substantial cash values by utilizing the investment features
of the Policy.
The minimum plan that we offer at original issue is a ten year protection
Policy. If the insured's age at original issue is over 55, the minimum plan of
protection will be less than ten years, as described in the table below:
<TABLE>
<CAPTION>
MINIMUM PLAN
ISSUE AGE (IN YEARS)
- --------------- ------------
<S> <C>
56 9
57 8
58 7
59 6
60 or greater 5
</TABLE>
As used herein a protection Policy is one which provides only a term plan of
insurance, namely one with a stated face amount and premium level, providing an
illustrated face amount for a specified number of years, always less than for
whole life. A protection plan of insurance is designed to accumulate cash value
at the end of the time during which the initial face amount is in force only to
the extent that investment returns exceed the assumed rate of return indicated
in your Policy as the tabular cash value. Absent an adjustment to a new plan, at
the end of the initial protection period you would have a whole life plan of
insurance for a lower face amount, based on continued payment of your scheduled
premiums. A protection plan requires the lowest initial level of premiums and
offers the most insurance protection with the lowest investment element. The
protection plan may be a suitable starting point for young policy owners who
have not reached their peak earning years but who have substantial life
insurance needs.
For any given face amount of insurance, you may select a plan that falls
anywhere between the minimum protection plan and the maximum ten premium payment
whole life plan. The higher the premium you pay, the greater will be your cash
value accumulation at any given time and therefore, for whole life plans, the
shorter the period during which you need to pay premiums before your Policy
becomes paid-up. For example, the table below shows the premium required for
various plans for a standard non-smoker risk, male, age 40 at issue, insured
with a $100,000 VAL '95 Policy.
<TABLE>
<CAPTION>
ANNUAL
PLAN OF INSURANCE PREMIUM
- --------------------------------------------- -----------
<S> <C> <C>
Minimum-- 10 year protection plan
$428
30 year protection plan
$ 939
Whole life plan
$ 1,723
Life paid-up at age 70
$ 1,923
Maximum-- 10 year, limited payment,
whole life plan
$ 3,833
</TABLE>
The flexibility described above with respect to designing your Policy to
suit your needs at issue continues throughout the time the Policy remains in
force by virtue of its adjustability features. As your insurance needs and
personal circumstances change over the years, you may change, subject to the
limitations described herein, the premium and face amount and thus the plan.
Some limitations do apply to policy adjustments, and these limitations are
more fully described in this prospectus. See the heading "Policy Adjustments" in
this prospectus on page 14. Any policy adjustment for a change in premium must
result in a change of the annual premium of at least $100 and any adjustment to
a Policy's face amount generally must result in a change of the face amount of
at least $5,000. Other than an automatic adjustment at the point when the face
amount is scheduled to decrease, an automatic adjustment made under VAL '95 upon
the change to the Cash Option death benefit at the insured's age 70, or an
adjustment to a zero or stop premium, an adjusted Policy must provide a level
face amount of insurance to the next policy anniversary after the later of: (a)
five years from the date of adjustment; or (b) ten years from the date of policy
issue. If the insured's age at original issue is over 55, the adjusted Policy
must provide a level face amount of insurance to the next policy anniversary
after the later of: (a) five years from the date of adjustment; or (b) a certain
number of years from the date of policy issue, based on the table below:
<TABLE>
<CAPTION>
ISSUE AGE NUMBER OF YEARS
- --------------- ---------------
<S> <C>
56 9
57 8
58 7
59 6
60 or greater 5
</TABLE>
WHAT MAKES THE POLICY "VARIABLE"?
The Policy is termed "Variable" because unlike traditional whole life and
universal life contracts which provide for accumulations of contract values at
fixed rates determined by
2
<PAGE>
the insurance company, Variable Adjustable Life policy values may be invested in
a separate account of ours called the Minnesota Mutual Variable Life Account
("Variable Life Account"), the sub-accounts of which invest in corresponding
Portfolios of the Fund. Thus, your policy values invested in these sub-accounts
will reflect market rates of return.
The actual cash value of the Policies, to the extent invested in
sub-accounts of the Variable Life Account, will vary with the investment
experience of the sub-accounts of the Variable Life Account. These have no
guaranteed minimum actual cash value. Therefore, you bear the risk that adverse
investment performance may depreciate your investment in the Policy. At the same
time, the Policy offers you the opportunity to have your actual cash value
appreciate more rapidly than it would under comparable fixed benefit contracts
by virtue of favorable investment performance. In addition, under some Policies,
the death benefit will also increase and decrease (but not below the guaranteed
amount) with investment experience.
Those seeking the traditional insurance protections of a guaranteed cash
value may allocate premiums to the guaranteed principal account. The guaranteed
principal account is a general account option with a guaranteed accumulation at
a fixed rate of interest. While it is more fully described in the Policy,
additional information on this option may be found under the heading "The
Guaranteed Principal Account" in this prospectus on page 11.
WHAT VARIABLE INVESTMENT OPTIONS ARE AVAILABLE?
The Variable Life Account invests in ten Portfolios of the Fund. These offer
policy owners the opportunity to invest in stocks, bonds, mortgage securities
and money market instruments. Policy owners who wish to actively manage the
investment of their actual cash values may direct their funds to the Growth,
Bond, Money Market, Mortgage Securities, Index 500, Capital Appreciation,
International Stock, Small Company and Value Stock Portfolios. We also offer an
Asset Allocation Portfolio, which is designed to offer policy owners who do not
wish to direct their investment the opportunity to have the Fund's investment
adviser make the decisions concerning what percentages of the assets should be
invested in stocks, bonds and money market instruments at any given time. The
investment objectives and certain policies of these Portfolios of the Fund are
as follows:
The GROWTH PORTFOLIO seeks the long-term accumulation of capital. Current
income, while a factor in portfolio selection, is a secondary objective. The
Growth Portfolio will invest primarily in common stocks and other equity
securities. Common stocks are more volatile than debt securities and involve
greater investment risk.
The BOND PORTFOLIO seeks as high a level of long-term total rate of return
as is consistent with prudent investment risk. A secondary objective is to
seek preservation of capital. The Bond Portfolio will invest primarily in
long-term, fixed-income, high-quality debt instruments. The value of debt
securities will tend to rise and fall inversely with the rise and fall of
interest rates.
The MONEY MARKET PORTFOLIO seeks maximum current income to the extent
consistent with liquidity and the preservation of capital. The Money Market
Portfolio will invest in money market instruments and other debt securities
with maturities not exceeding one year. The return produced by these
securities will reflect fluctuations in short-term interest rates.
AN INVESTMENT IN THE MONEY MARKET PORTFOLIO IS NEITHER INSURED NOR
GUARANTEED BY THE U.S. GOVERNMENT AND THERE CAN BE NO ASSURANCE THAT THE
PORTFOLIO WILL BE ABLE TO MAINTAIN A STABLE NET ASSET VALUE OF $1.00 PER
SHARE.
The ASSET ALLOCATION PORTFOLIO seeks as high a level of long-term total
rate of return as is consistent with prudent investment risk. The Asset
Allocation Portfolio will invest in common stocks and other equity securities,
bonds and money market instruments. The Asset Allocation Portfolio involves
the risks inherent in stocks and debt securities of varying maturities and the
risk that the Portfolio may invest too much or too little of its assets in
each type of security at any particular time.
The MORTGAGE SECURITIES PORTFOLIO seeks a high level of current income
consistent with prudent investment risk. In pursuit of this objective the
Mortgage Securities Portfolio will follow a policy of investment primarily in
mortgage-related securities. Prices of mortgage-related securities will tend
to rise and fall inversely with the rise and fall of the general level of
interest rates.
3
<PAGE>
The INDEX 500 PORTFOLIO seeks investment results that correspond generally
to the price and yield performance of the common stocks included in the
Standard & Poor's Corporation 500 Composite Stock Price Index (the "Index").
It is designed to provide an economical and convenient means of maintaining a
broad position in the equity market as part of an overall investment strategy.
All common stocks, including those in the Index, involve greater investment
risk than debt securities. The fact that a stock has been included in the
Index affords no assurance against declines in the price or yield performance
of that stock.
The CAPITAL APPRECIATION PORTFOLIO seeks growth of capital. Investments
will be made based upon their potential for capital appreciation. Therefore,
current income will be incidental to the objective of capital growth. Because
of the market risks inherent in any equity investment, the selection of
securities on the basis of their appreciation possibilities cannot ensure
against possible loss in value.
The INTERNATIONAL STOCK PORTFOLIO seeks long-term capital growth. In
pursuit of this objective the International Stock Portfolio will follow a
policy of investing in stocks issued by companies, large and small, and debt
obligations of companies and governments outside the United States. Current
income will be incidental to the objective of capital growth. The Portfolio is
designed for persons seeking international diversification. Investors should
consider carefully the substantial risks involved in investing in securities
issued by companies and governments of foreign nations, which are in addition
to the usual risks inherent in domestic investments.
The SMALL COMPANY PORTFOLIO seeks long-term accumulation of capital. In
pursuit of this objective, the Small Company Portfolio will follow a policy of
investing primarily in common and preferred stocks issued by small companies,
defined in the terms of either market capitalization or gross revenues.
Investments in small companies usually involve greater investment risks than
fixed income securities or corporate equity securities generally. Small
companies will typically have a market capitalization of less than $1.5
billion or annual gross revenues of less than $1.5 billion.
The VALUE STOCK PORTFOLIO seeks long-term accumulation of capital. The
production of income through the holding of dividend paying stocks will be a
secondary objective of the Portfolio. The Value Stock Portfolio will invest
primarily in equity securities of companies which, in the opinion of the
Portfolio's investment adviser, have market values which appear low relative
to their underlying value or future earnings and growth potential.
There is no assurance that any Portfolio will meet its objectives.
Additional information concerning the investment objectives, policies and risks
of the Portfolios can be found in the current prospectus for the Fund, which is
attached to this prospectus.
HOW DO YOU ALLOCATE YOUR NET PREMIUMS?
In your initial policy application, you indicate how you want your net
premiums allocated among the guaranteed principal account and the sub-accounts
of the Variable Life Account. All future net premiums will be allocated in the
same proportion until you send us a written request to change the allocation.
Similarly, you may transfer amounts from one sub-account to another by sending
us a written request or by calling Minnesota Mutual.
WHAT DEATH BENEFIT OPTIONS ARE OFFERED UNDER THE POLICY?
The Policy provides two death benefit options: the Cash Option and the
Protection Option. Your choice will depend on whether you want favorable
investment experience of amounts invested in sub-accounts of the Variable Life
Account to be reflected in accelerated accumulations of actual cash value or in
enhanced life insurance coverage. If investment performance is less than that
assumed in the design of the Policy, the death benefit will still equal the
current face amount.
The Cash Option provides a fixed death benefit equal to the guaranteed face
amount. Favorable investment returns, if any, will be reflected in increased
actual cash values which will, on whole life plans, shorten the premium paying
period. Only if and when the policy value exceeds the net single premium for the
then current face amount will the death benefit vary.
The Protection Option provides a variable death benefit from the issue date
as well as variable actual cash values. Favorable investment returns will be
reflected both in
4
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increased life insurance coverage and increased cash value accumulations,
although any increases in actual cash values under the Protection Option will
not be as great as under the Cash Option. With VAL '95, the Protection Option is
only available until the policy anniversary nearest the insured's age 70. At the
policy anniversary nearest the insured's age 70, the Protection Option is
automatically converted to the Cash Option. At that time we will automatically
adjust your Policy. We will retain the current premium amount, adjust the face
amount to equal the death benefit immediately preceding the adjustment, and
waive any adjustment restrictions that would otherwise apply.
DO YOU HAVE ACCESS TO YOUR POLICY VALUES?
Yes. Your actual cash value is available to you during the insured's
lifetime. You may use the actual cash value to provide retirement income, as
collateral for a loan, to continue some insurance protection if you do not wish
to continue paying premiums or to obtain cash by surrendering your Policy in
full or in part.
You may also borrow up to 90 percent of your policy value as a policy loan.
Each alternative may be subject to conditions described in the Policy or in this
prospectus under the heading "Policy Values" on page 23 and certain transactions
may have tax consequences as described under the heading "Federal Tax Status" on
page 36.
WHAT CHARGES ARE ASSOCIATED WITH THE POLICY?
We assess certain charges from each premium payment, from policy values and
from the amounts held in the Variable Life Account. All of these charges, which
are largely designed to cover our expenses in providing insurance protection and
in distributing and administering the Policies, are fully described under the
heading "Policy Charges" in this prospectus on page 29. Because of the
significance of these charges in early policy years, prospective purchasers
should purchase a Policy only if they intend to and have the financial capacity
to keep it in force for a substantial period.
Against base premiums we deduct a basic sales load of 7 percent and we may
also deduct a first year sales load not to exceed 23 percent. We also deduct
from premiums an underwriting charge, a premium tax charge of 2.5 percent and a
face amount guarantee charge of 1.5 percent. Nonrepeating premiums are currently
subject only to the premium tax charge.
Against the actual cash value of a Policy we deduct an administration charge
of $60 per year, a transaction charge for each Policy adjustment and a cost of
insurance charge.
Against the assets held in the Variable Life Account we assess a mortality
and expense risk charge which is deducted from the Variable Life Account assets
on each valuation date at an annual rate of .50 percent of the Variable Life
Account average daily net assets.
With VAL '87, a charge for sub-standard risks is deducted from the actual
cash value of a Policy. With VAL '95, a charge for sub-standard risks is
deducted from the premium.
MIMLIC Asset Management Company, one of our subsidiaries, acts as the
investment adviser to the Fund and deducts from the asset value of each
Portfolio of the Fund a fee for its services which are provided under an
investment advisory agreement. The investment advisory agreement provides that
the fee shall be computed at the annual rate of .4 percent of the Index 500
Portfolio, .75 percent of the Capital Appreciation, Small Company and Value
Stock Portfolios, 1.0 percent of the International Stock Portfolio and .5
percent of each of the remaining Portfolio's average daily net assets.
For more information about the Fund, see the prospectus of MIMLIC Series
Fund, Inc. which is attached to this prospectus.
ARE THE BENEFITS UNDER A POLICY SUBJECT TO FEDERAL INCOME TAX?
With respect to a Policy issued on the basis of a standard premium class, we
believe that such a Policy should qualify as a life insurance contract for
Federal income tax purposes. With respect to a Policy issued on a sub-standard
basis, it is not clear whether or not such a Policy would qualify as a life
insurance contract for Federal tax purposes. Assuming that a Policy qualifies as
a life insurance contract for Federal income tax purposes, the benefits under
Policies described in this prospectus should receive the same tax treatment
under the Internal Revenue Code of 1986 as benefits under traditional fixed
benefit life insurance policies. Thus, death proceeds payable under variable
life insurance policies should be excludable from the beneficiary's gross income
for Federal income tax purposes. It is also believed
5
<PAGE>
that you should not be in constructive receipt of the cash values of your Policy
until actual distribution. See the heading "Federal Tax Status" in this
prospectus on page 36.
It should be noted, however, that under recent legislation the tax treatment
described above relating to distributions is available only for policies not
described as "modified endowment contracts." Policies described as modified
endowment contracts are treated as life insurance with respect to the tax
treatment of death proceeds and the tax-free inside build-up of yearly cash
value increases. However, any amounts received by the owner, such as dividends,
cash withdrawals, loans and amounts received from partial or total surrender of
the contract will be subject to the same tax treatment as amounts received under
an annuity. Annuity tax treatment includes the ten percent additional income tax
imposed on the portion of any distribution that is included in income, except
where the distribution or loan is made on or after the policy owner attains age
59 1/2, is attributable to the policy owner becoming disabled, or is part of a
series of substantially equal periodic payments for the life of the policy owner
or the joint lives of the policy owner and beneficiary.
A determination as to whether a policy is a modified endowment contract and
subject to this special tax treatment will require an examination of the premium
paid in relation to the death benefit of the policy. A modified endowment
contract results if the cumulative premiums during the first seven contract
years exceed the sum of the net level premiums which would be paid under a
seven-pay life policy. In addition, a policy which is subject to a material
change will be treated as a new policy on the date that such a material change
takes effect. A determination must be made at that time to test whether such a
policy meets the seven-pay standard by taking into account the previously
existing cash surrender value.
HOW DO YOU PURCHASE A POLICY?
To be eligible to purchase a Policy you must be under age 80, satisfy our
underwriting standards and purchase a Policy with a face amount of at least
$50,000. The procedure to purchase a Policy is to complete an application,
provide us with evidence of insurability satisfactory to us and pay your first
scheduled premium. See the heading "Applications and Policy Issue" in this
prospectus on page 19.
For a limited time after your application for the Policy and delivery of it,
the Policy may be returned for a refund of all premium payments within the terms
of its "free look" provision. See the heading "Free Look" in this prospectus on
page 29. Moreover, while the Policy is in force and the premiums fully paid and
prior to the death of the insured, it may be converted to any adjustable life
policy with a fixed death benefit and fixed cash values which we may then offer.
On conversion, the issue age and risk class of the insured shall be as stated in
this Policy. For VAL '95, this conversion privilege is only available during the
first 24 months from the original policy date, but comparable fixed insurance
coverage can be obtained after 24 months from the original policy date by
transferring all of the policy value to the guaranteed principal account and
thereafter allocating all premiums to that account.
6
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CONDENSED FINANCIAL INFORMATION
The financial statements of The Minnesota Mutual Life Insurance Company and
of Minnesota Mutual Variable Life Account may be found elsewhere in this
prospectus.
The table below gives per unit information about the financial history of
each sub-account from the inception of each to December 31, 1994. This
information should be read in conjunction with the financial statements and
related notes of Minnesota Mutual Variable Life Account included in this
prospectus.
<TABLE>
<CAPTION>
PERIOD FROM
JUNE 1, 1987
(COMMENCEMENT
YEAR ENDED OF OPERATIONS)
DECEMBER 31, TO DECEMBER 31,
1994 1993 1992 1991 1990 1989 1988 1987
---------- ---------- --------- --------- --------- --------- --------- ------------------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Growth Sub-Account:
Unit value at
beginning of
period $1.788 $1.718 1.647 1.234 1.237 0.987 0.859 1.000
Unit value at end of
period $1.794 $1.788 1.718 1.647 1.234 1.237 0.987 0.859
Number of units
outstanding at end
of period 9,964,217 6,671,352 3,703,167 1,251,845 511,276 257,995 98,047 11,899
Bond Sub-Account:
Unit value at
beginning of
period $1.720 $1.567 1.477 1.262 1.184 1.056 0.994 1.000
Unit value at end of
period $1.634 $1.720 1.567 1.477 1.262 1.184 1.056 0.994
Number of units
outstanding at end
of period 3,659,230 2,240,344 1,281,711 654,954 484,684 247,525 93,351 8,295
Money Market Sub-
Account:
Unit value at
beginning of
period $1.403 $1.373 1.337 1.274 1.188 1.100 1.038 1.000
Unit value at end of
period $1.447 $1.403 1.373 1.337 1.274 1.188 1.100 1.038
Number of units
outstanding at end
of period 2,920,337 1,849,721 1,167,590 536,680 341,717 141,494 41,617 2,814
Asset Allocation Sub-
Account:
Unit value at
beginning of
period $1.828 $1.726 1.617 1.261 1.223 1.022 0.927 1.000
Unit value at end of
period $1.793 $1.828 1.726 1.617 1.261 1.223 1.022 0.927
Number of units
outstanding at end
of period 23,769,797 18,341,417 8,943,507 2,587,520 1,202,183 408,152 181,732 62,173
Mortgage Securities
Sub-Account:
Unit value at
beginning of
period $1.800 $1.656 1.564 1.352 1.242 1.100 0.998 1.000
Unit value at end of
period $1.731 $1.800 1.656 1.564 1.352 1.242 1.100 0.998
Number of units
outstanding at end
of period 3,250,971 2,419,453 1,471,984 555,964 241,631 95,633 32,351 4,520
Index 500 Sub-Account:
Unit value at
beginning of
period $1.766 $1.617 1.514 1.173 1.226 0.945 0.819 1.000
Unit value at end of
period $1.778 $1.766 1.617 1.514 1.173 1.226 0.945 0.819
Number of units
outstanding at end
of period 8,997,722 6,074,831 4,026,796 1,307,951 658,612 237,854 37,484 5,936
</TABLE>
7
<PAGE>
<TABLE>
<CAPTION>
PERIOD FROM
JUNE 1, 1987
(COMMENCEMENT
YEAR ENDED OF OPERATIONS)
DECEMBER 31, TO DECEMBER 31,
1994 1993 1992 1991 1990 1989 1988 1987
---------- ---------- --------- --------- --------- --------- --------- ------------------
Capital Appreciation
Sub-Account:
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Unit value at
beginning of
period $2.059 $1.874 1.793 1.272 1.303 0.948 0.885 1.000
Unit value at end of
period $2.095 $2.059 1.874 1.793 1.272 1.303 0.948 0.885
Number of units
outstanding at end
of period 12,929,134 9,082,661 5,053,453 1,689,614 802,456 181,898 74,444 17,514
International Stock
Sub-Account:
Unit value at
beginning of
period $1.332 $0.929 1.000*
Unit value at end of
period $1.321 $1.332 0.929
Number of units
outstanding at end
of period 15,062,750 6,244,750 1,615,754
Small Company Sub-
Account:
Unit value at
beginning of
period $1.149 $1.000**
Unit value at end of
period $1.213 $1.149
Number of units
outstanding at end
of period 7,074,933 1,261,521
Value Stock Sub-
Account:
Unit value at
beginning of
period 1.000***
Unit value at end of
period 1.035
Number of units
outstanding at end
of period 971,938
<FN>
*The information for the sub-account is shown for the period May 1, 1992 to
December 31, 1992. May 1, 1992 was the effective date of the 1933 Act
Registration.
**The information for the sub-account is shown for the period May 3, 1993 to
December 31, 1993. May 3, 1993 was the effective date of the 1933 Act
Registration.
***The information for the sub-account is shown for the period May 2, 1994 to
December 31, 1994. May 2, 1994 was the effective date of the 1933 Act
Registration.
</TABLE>
8
<PAGE>
- --------------------------------------------------------------------------------
GENERAL DESCRIPTIONS
THE MINNESOTA MUTUAL LIFE INSURANCE COMPANY
We are a mutual life insurance company organized in 1880 under the laws of
Minnesota. Our home office is at 400 Robert Street North, St. Paul, Minnesota
55101-2098, telephone: (612) 298-3500. We are licensed to do a life insurance
business in all states of the United States (except New York where we are an
authorized reinsurer), the District of Columbia, Canada and Puerto Rico.
VARIABLE LIFE ACCOUNT
A separate account called the Minnesota Mutual Variable Life Account was
established on October 21, 1985, by our Board of Trustees in accordance with
certain provisions of the Minnesota insurance law. The separate account is
registered as a "unit investment trust" with the Securities and Exchange
Commission under the Investment Company Act of 1940, but such registration does
not signify that the Securities and Exchange Commission supervises the
management, or the investment practices or policies, of the Variable Life
Account. The separate account meets the definition of a "separate account" under
the federal securities laws.
We are the legal owner of the assets in the Variable Life Account. The
obligations to policy owners and beneficiaries arising under the Policies are
general corporate obligations of Minnesota Mutual and thus our general assets
back the Policies. The Minnesota law under which the Variable Life Account was
established provides that the assets of the Variable Life Account shall not be
chargeable with liabilities arising out of any other business which we may
conduct, but shall be held and applied exclusively to the benefit of the holders
of those variable life insurance policies for which the separate account was
established. The investment performance of the Variable Life Account is entirely
independent of both the investment performance of our General Account and of any
other separate account which we may have established or may later establish.
The Variable Life Account currently has ten sub-accounts to which policy
owners may allocate premiums. Each sub-account invests in shares of a
corresponding Portfolio of the Fund.
MIMLIC SERIES FUND, INC.
The Variable Life Account currently invests exclusively in MIMLIC Series
Fund, Inc. (the "Fund"), a mutual fund of the series type. The Fund is
registered with the Securities and Exchange Commission as a diversified,
open-end management investment company, but such registration does not signify
that the Commission supervises the management, or the investment practices or
policies, of the Fund. The Fund issues its shares, continually and without sales
charge, only to us and certain of our separate accounts including the Variable
Life Account. Shares are sold and redeemed at net asset value.
The Fund's investment adviser is MIMLIC Asset Management Company ("MIMLIC
Management"). It acts as an investment adviser to the Fund pursuant to an
advisory agreement. MIMLIC Management is a subsidiary of Minnesota Mutual.
While MIMLIC Management acts as investment adviser to the Fund and its
Portfolios, Winslow Capital Management Inc., a Minnesota corporation with
principal offices in Minneapolis, Minnesota, has been retained under an
investment sub-advisory agreement to provide investment advice to the Capital
Appreciation Portfolio of the Fund. Similarly, Templeton Investment Counsel,
Inc., a Florida corporation with principal offices in Fort Lauderdale, has been
retained under an investment sub-advisory agreement to provide investment advice
to the International Stock Portfolio of the Fund.
The Fund currently has fourteen investment Portfolios, ten of which are
available to the Variable Life Account. A series of the Fund's common stock is
issued for each Portfolio. The assets of each Portfolio are separate from the
others and each has different investment objectives and policies. Therefore,
each Portfolio operates as a separate investment fund and the investment
performance of one has no effect on the investment performance of any other
Portfolio.
All dividends and capital gains distributions from the Portfolios are
automatically reinvested in shares of that Portfolio at net asset value.
For more information on the Fund and its Portfolios, see "Summary--What
investment
9
<PAGE>
options are available?" in this prospectus and the prospectus of the MIMLIC
Series Fund, Inc. which is attached to this prospectus.
ADDITIONS, DELETIONS OR SUBSTITUTIONS
We reserve the right to add, combine or remove any sub-accounts of the
Variable Life Account when permitted by law. Each additional sub-account will
purchase shares in a new portfolio or mutual fund. Such sub-accounts may be
established when, in our sole discretion, marketing, tax, investment or other
conditions warrant such action. We will use similar considerations should there
be a determination to eliminate one or more of the sub-accounts of the Variable
Life Account. The addition of any investment option will be made available to
existing policy owners on such basis as may be determined by us.
We retain the right, subject to any applicable law, to make substitutions
with respect to the investments of the sub-accounts of the Variable Life
Account. If investment in a Fund Portfolio should no longer be possible or if we
determine it becomes inappropriate for Policies of this class, we may substitute
another mutual fund or portfolio for a sub-account. Substitution may be made
with respect to existing policy values and future premium payments. A
substitution may be made only with any necessary approval of the Securities and
Exchange Commission.
We reserve the right to transfer assets of the Variable Life Account as
determined by us to be associated with the Policies to another separate account.
A transfer of this kind may require the approvals of state regulatory
authorities and of the Securities and Exchange Commission.
We also reserve the right, when permitted by law, to de-register the
Variable Life Account under the Investment Company Act of 1940, to restrict or
eliminate any voting rights of the policy owners, and to combine the Variable
Life Account with one or more of our other separate accounts.
Shares of the Portfolios of the Fund are also sold to other of our separate
accounts, which are used to receive and invest premiums paid under our variable
annuity contracts and variable life insurance policies. It is conceivable that
in the future it may be disadvantageous for variable life insurance separate
accounts and variable annuity separate accounts to invest in the Fund
simultaneously. Although neither Minnesota Mutual nor the Fund currently
foresees any such disadvantages either to variable life insurance policy owners
or to variable annuity contract owners, the Fund's Board of Directors intends to
monitor events in order to identify any material conflicts between such policy
owners and contract owners and to determine what action, if any, should be taken
in response thereto. Such action could include the sale of Fund shares by one or
more of the separate accounts, which could have adverse consequences. Material
conflicts could result from, for example, (1) changes in state insurance laws,
(2) changes in Federal income tax laws, (3) changes in the investment management
of any of the Portfolios of the Fund, or (4) differences in voting instructions
between those given by policy owners and those given by contract owners.
SELECTION OF SUB-ACCOUNTS
Although the purpose of the Policy is primarily to provide lifetime life
insurance protection, a central objective is to provide benefits that will
increase in value if favorable investment results are achieved. Historically,
for investments held over relatively long periods, the investment performance of
common stocks has generally been superior to that of long-term or short-term
debt securities, even though common stocks have been subject to more dramatic
changes in value over short periods of time. Accordingly, the common stock
sub-accounts, growth or value, may be the more desirable option for policy
owners who are willing to accept such short-term risks. The selection of the
aggressive growth sub-account and the small company sub-account will tend to
magnify such risks, as will the international stock sub-account, while the
selection of the index sub-account will tend to match those risks with the
performance of those common stocks included in the underlying index.
On the other hand, the experience of the recent past has been sharply
divergent from the long-term historical record. Short-term interest rates were,
for a time, at a historically high level and for some period the prices of a
diversified portfolio of equity securities were declining during a period when
the cost of living was rising. The value of long-term bonds and mortgage
securities have fallen and risen to a much greater extent than in the past. Some
policy owners, who desire the greatest safety of principal, may prefer the money
market sub-account, recognizing that the level of short-term rates may change
rather rapidly. Some policy owners may wish to divide their funds among two or
more
10
<PAGE>
sub-accounts. Some may wish to rely on MIMLIC Management's judgment for an
appropriate asset mix by choosing the asset allocation sub-account. You must
make a choice, taking into account how willing you might be to accept investment
risks and the manner in which your other assets are invested.
THE GUARANTEED PRINCIPAL ACCOUNT
The guaranteed principal account is a general account option. You may
allocate net premiums and may transfer your actual cash value subject to Policy
limitations to the guaranteed principal account which is part of Minnesota
Mutual's general account.
Because of exemptive and exclusionary provisions, interests in Minnesota
Mutual's general account have not been registered under the Securities Act of
1933, and the general account has not been registered as an investment company
under the Investment Company Act of 1940. Therefore, neither the guaranteed
principal account nor any interest therein are subject to the provisions of
these Acts, and Minnesota Mutual has been advised that the staff of the SEC does
not review disclosures relating to it. Disclosures regarding the guaranteed
principal account may, however, be subject to certain generally applicable
provisions of the Federal Securities Laws relating to the accuracy and
completeness of statements made in prospectuses.
This prospectus describes a Variable Adjustable Life insurance policy and is
generally intended to serve as a disclosure document only for the aspects of the
Policy relating to the sub-accounts of the Variable Life Account. For complete
details regarding the guaranteed principal account, please see the Variable
Adjustable Life Policy.
GENERAL DESCRIPTION Minnesota Mutual's general account consists of all
assets owned by Minnesota Mutual other than those in the Variable Life Account
and any other separate accounts which Minnesota Mutual may establish. The
guaranteed principal account is that portion of the general assets of Minnesota
Mutual which is attributable to this Policy and policies of this class,
exclusive of policy loans. The description is for accounting purposes only and
does not represent a division of the general account assets for the specific
benefit of contracts of this class. Allocations to the guaranteed principal
account become part of the general assets of Minnesota Mutual and are used to
support insurance and annuity obligations. Subject to applicable law, Minnesota
Mutual has sole discretion over the investment of assets of the general account.
Policy owners do not share in the actual investment experience of the assets in
the general account.
A portion or all the net premiums may be allocated or transferred to
accumulate at a fixed rate of interest in the guaranteed principal account. Such
amounts are guaranteed by Minnesota Mutual as to principal and a minimum rate of
interest. Transfers from the guaranteed principal account to the sub-accounts of
the Variable Life Account are subject to certain limitations with respect to
timing and amount.
GENERAL ACCOUNT VALUE Minnesota Mutual bears the full investment risk for
amounts allocated to the guaranteed principal account and guarantees that
interest credited to each policy owner's actual cash value in the guaranteed
principal account will not be less than an annual rate of 4 percent without
regard to the actual investment experience of the general account. Consequently,
if a policy owner allocates all net premiums only to the guaranteed principal
account, and if all scheduled premiums are paid when due, there is no policy
adjustment, and we deduct the maximum cost of insurance charges and all other
charges as set forth in this Policy, then the actual cash value will be at least
equal to the tabular cash value of the Policy. Minnesota Mutual may, at its sole
discretion, credit a higher rate of interest, "excess interest," although it is
not obligated to credit interest in excess of 4 percent per year, and might not
do so. Any interest credited on the Policy's actual cash value in the guaranteed
principal account in excess of the guaranteed minimum rate per year will be
determined at the sole discretion of Minnesota Mutual. The policy owner assumes
the risk that interest credited may not exceed the guaranteed minimum rate.
Even if excess interest is credited to the actual cash value in the
guaranteed principal account, no excess interest will be credited to that
portion of the policy value which is in the loan account in the general account.
However, such loan account will be credited interest at a rate which is not less
than the policy loan interest rate minus 2 percent per annum.
11
<PAGE>
- --------------------------------------------------------------------------------
DETAILED INFORMATION ABOUT THE
- --------------------------------------------------------------------------------
VARIABLE ADJUSTABLE LIFE INSURANCE POLICY
ADJUSTABLE LIFE INSURANCE
VARIABLE ADJUSTABLE LIFE This Policy is similar to a Minnesota Mutual
conventional life insurance product known as "adjustable life". This Policy,
like conventional adjustable life insurance, permits you to determine the amount
of life insurance protection you need and the amount of money you can afford to
pay. Based on your selection of any two of the three components of a
Policy--face amount, premium and plan--we will then calculate the third. Thus,
adjustable life allows you the flexibility to custom-design a Policy to meet
your needs. Theoretically, each Policy can be unique because of the different
combinations of age, amount of life insurance protection and premium. In
addition, adjustable life is designed to adapt to your changing needs and
objectives by allowing you to change your Policy after issue. The face amount
and premium level, and thus the plan of insurance, may be adjusted by you,
subject to the limitations described herein, so long as the Policy remains in
force.
FLEXIBILITY AT ISSUE The Policy offered by this prospectus provides the
same type of flexibility found in conventional adjustable life. Subject to
certain minimums, maximums and our underwriting standards, you may choose any
level of premium or face amount that you wish. This flexibility results in a
broad range of plans of insurance. Generally speaking, a plan, when used with
respect to the Policies, refers to the level of cash value accumulation assumed
in the design of the Policy and, for whole life plans, the period of coverage
over which you will have to pay premiums.
Whole life insurance plans provide life insurance in an amount at least
equal to the initial face amount at the death of the insured whenever that
occurs. Premiums may be payable for a specified number of years or for the life
of the insured. Whole life insurance plans contemplate an eventual cash value
accumulation, at or before the insured's age 100, equal to the net single
premium required for that face amount of insurance. The net single premium for a
whole life insurance plan is the amount of money that is necessary, at the
insured's attained age, to pay for all future guaranteed cost of insurance
charges for the entire lifetime of the insured without the payment of additional
premium. This determination assumes that the current face amount of the Policy
will be constant and that the Policy will perform at its assumed rate of return.
Protection insurance plans provide life insurance in an amount at least
equal to the initial face amount at the death of the insured for a specified
period. Protection plans of insurance assume an eventual exhaustion of cash
value at the end of that period, except for the cash value associated with a
residual amount of insurance coverage at the end of the initial protection
period. Under this Policy, after that initial protection period, insurance
coverage in a reduced amount is available for the lifetime of the insured.
The "greater" your plan of insurance, the larger the policy values you may
expect to be available for investment in the Fund Portfolios, loans or partial
surrenders and, for whole life plans of insurance, the shorter the period of
time for which you will have to pay premiums. Under the Policy, the highest
premium amount permitted at the time of issue, or the maximum plan of insurance,
for a specific face amount is one which will provide a fully paid-up Policy
after the payment of ten annual premium payments. A Policy is paid-up when its
policy value is such that no further premiums are required to provide the face
amount of insurance coverage for the life of the insured, provided there is no
policy indebtedness.
Examples of such whole life plans include Policies which become paid-up upon
the payment of a designated number of annual premiums, such as ten pay life or
twenty pay life, or Policies which become paid-up at a designated age of the
insured, such as paid-up at 65. If you select a premium level for a specific
face amount which would cause the Policy to become paid-up at other than a
policy anniversary, you will be required to pay scheduled premiums until the
policy anniversary immediately following the date the Policy is scheduled to
become paid-up. The Policy will be issued with a scheduled increase in face
amount to reflect the fact that the scheduled premiums were in excess of the
premiums required to
12
<PAGE>
have a paid-up Policy for the initial face amount of coverage.
If you select a premium amount which is less than the premium required for a
whole life plan or, in other words, if you select a protection plan of
insurance, the face amount of insurance provided by the Policy will not be level
during the whole lifetime of the insured. In that instance, the initial face
amount will be in effect until the Policy's tabular cash value, i.e., the cash
value which is assumed in designing the Policy and which would be guaranteed in
a conventional fixed-benefit policy, is exhausted. At that time a lower amount
of insurance will become effective, such amount being calculated on the basis of
the continued payment of the scheduled premiums and a whole life plan of
insurance. The result is that the Policy, on issue, will have an initial
guaranteed death benefit extending to a stated age. In addition, a lower death
benefit is illustrated, which is guaranteed thereafter for the life of the
insured.
If, at the time of a scheduled reduction in face amount under a protection
type plan of insurance, the policy value has not been exhausted, a new face
amount will be determined to reflect that value. The new face amount will also
be based upon the continued payment of the scheduled premium and a whole life
plan of insurance. Because the existing policy value, if any, is used in
determining the new face amount, there is no loss of benefits realized from:
(1) Previous investment performance more favorable than the assumed annual net
rate of 4 percent, or
(2) Any cost of insurance charges less than those assumed in the mortality
tables on which tabular cash values are based.
At the time of a scheduled reduction in face amount under a protection type
plan absent any other instructions, a policy adjustment will be made to maintain
the current face amount of the Policy. For the kinds of changes available under
the Policies, please see the heading "Policy Adjustments" immediately following.
This will result in the recalculation of the plan of insurance.
For example, if a standard risk VAL '95 Policy were issued with a face
amount of $100,000 and an annual premium of $926, the plan of insurance for a
male non-smoker insured age 45 at issue would be full coverage until age 65, at
which time the face amount would be reduced to $14,701 guaranteed for the whole
of life. If we assume a hypothetical gross annual investment return of 8
percent, the Cash Option death benefit, current mortality charges, no loans, and
no policy adjustments, the policy value of the Policy at age 65 would be
$16,015. Based on this policy value, a whole life plan, and the continued
payment of the $926 premium, the face amount would be reduced to $42,417
guaranteed thereafter for the whole of life.
The table below shows the policy values and death benefits for the Policy
described in the above example, if the scheduled reduction is allowed to occur,
which is twenty years after issue.
SCHEDULED REDUCTION
<TABLE>
<CAPTION>
GUARANTEED
MINIMUM
POLICY ATTAINED ANNUAL POLICY VALUE DEATH BENEFIT DEATH BENEFIT
YEAR AGE PREMIUM END OF YEAR BEGINNING OF YEAR AT ISSUE
- ----------- --------------- ------------- ------------- -------------------- ----------------
<S> <C> <C> <C> <C> <C>
5 50 $ 926 $ 2,084 $ 100,000 $ 100,000
10 55 926 5,905 100,000 100,000
15 60 926 10,759 100,000 100,000
20 65 926 16,015 100,000 100,000
21 66 926 17,699 42,417 14,701
22 67 926 19,498 42,417 14,701
23 68 926 21,425 42,417 14,701
24 69 926 23,495 42,417 14,701
25 70 926 25,727 42,417 14,701
</TABLE>
Alternately, for the VAL '95 Policy above we will make a policy adjustment
effective the same date as the scheduled reduction to maintain the $100,000 face
amount and the $926 premium. The new guaranteed plan of insurance would be full
coverage until age 74, at which
13
<PAGE>
time the face amount would be reduced to not less than $9,457, again with the
face amount guaranteed for the whole of life.
The following table shows the policy values and death benefits when a policy
adjustment to maintain the initial face amount is automatically done after
twenty years.
POLICY ADJUSTMENT
<TABLE>
<CAPTION>
GUARANTEED
MINIMUM
POLICY ATTAINED ANNUAL POLICY VALUE DEATH BENEFIT DEATH BENEFIT
YEAR AGE PREMIUM END OF YEAR BEGINNING OF YEAR ADJUSTMENT
- ----------- --------------- ------------- ------------- -------------------- ----------------
<S> <C> <C> <C> <C> <C>
5 50 $ 926 $ 2,084 $ 100,000 $ 100,000
10 55 926 5,905 100,000 100,000
15 60 926 10,759 100,000 100,000
20 65 926 16,015 100,000 100,000
21 66 926 17,044 100,000 100,000
22 67 926 18,064 100,000 100,000
23 68 926 19,077 100,000 100,000
24 69 926 20,081 100,000 100,000
25 70 926 21,080 100,000 100,000
</TABLE>
The lowest annual base premium allowed for any plan of insurance is $300.
Subject to this limitation, the lowest premium you may choose for any specific
amount of life insurance protection is a premium which will provide a level
death benefit for a period which shall be the longer of ten years from the
policy issue date or five years from the date of a policy adjustment. If the
insured's age at original issue is over age 55, the minimum plan of protection
will be less than ten years, as described in the table below:
<TABLE>
<CAPTION>
MINIMUM PLAN
ISSUE AGE (IN YEARS)
- --------------- ---------------
<S> <C>
56 9
57 8
58 7
59 6
60 or greater 5
</TABLE>
This is the minimum plan of insurance for any given face amount. The minimum
initial face amount on a Policy is $50,000.
POLICY ADJUSTMENTS
Adjustable life insurance policies allow an owner to change the premium,
face amount or the plan of insurance of the Policy after it is issued. Subject
to the limitations described more fully below, you can at any time change the
face amount of your Policy or your scheduled premium. A change in scheduled
premium or face amount will usually result in a change in the plan of insurance.
Depending upon the change you request, the premium paying period may be
lengthened or shortened for whole life plans or the plan may be converted from a
whole life plan to a protection type plan which provides for a scheduled
reduction in face amount at a future date. For Policies having a protection type
plan, a change in face amount or premium may convert the Policy to a whole life
plan by eliminating the scheduled decrease in face amount or it may change the
time at which the decrease is scheduled to occur.
Changes in premium, face amount or the plan of insurance are referred to as
policy adjustments. They may be made singly or in combination with one another.
There are also four other types of policy adjustments: (1) a partial surrender
of a Policy's cash value; (2) an adjustment so that there are no further
scheduled base premiums; (3) an automatic adjustment at the point when the face
amount is scheduled to decrease; and (4) an automatic adjustment made under VAL
'95 upon the change in the death benefit option at the policy anniversary
nearest the insured's age 70. When a Policy is adjusted, we compute a new plan
of insurance, face amount or premium amount, if any. If a partial surrender of
actual cash value is made, the Policy will be automatically adjusted to a new
face amount which will be equal to the old face amount less the amount of the
partial surrender, unless a different face amount is requested or required to
satisfy the restrictions on adjustability described below. An adjustment
providing for no further scheduled base premium payments, regardless of whether
the Policy is paid-up, is also referred to as a "stop premium" mode and is
described under the caption "Avoiding
14
<PAGE>
Lapse" on page 22 of this prospectus. At the point when the face amount is
scheduled to decrease, an adjustment may be made to maintain the current face
amount and premium of the Policy, as described on page 17. Certain adjustments
may cause a Policy to become a modified endowment contract. See "Federal Tax
Status" for a description of the federal tax treatment of modified endowment
contracts.
In computing either a new face amount or new plan of insurance as a result
of an adjustment, we will make the calculation on the basis of the higher of the
Policy's "policy value" or its "tabular cash value" at the time of the change.
The "policy value" is the actual cash value of the Policy plus the amount of any
policy loan, while the "tabular cash value" is what the actual cash value of the
Policy would have been if all scheduled premiums were paid annually on the
premium due date, there were no policy adjustments or policy loans, any
percentage increase in the actual cash value matched the Policy's assumed rate
of return, the net investment experience of the sub-accounts selected by the
owner or the interest credited to the guaranteed principal account matched the
policy's assumed rate of return, the maximum cost of insurance charges were
deducted once at the end of the policy year and other charges provided for in
the Policy were deducted. See, for a further description of these values, the
sections "Policy Values" and "Variations in Death Benefit" in this prospectus on
pages 23 and 26. If the policy value is higher than the tabular cash value, a
policy adjustment will translate the excess value into enhanced insurance
coverage, as either a higher face amount or an improved plan of insurance. If
the policy value is less than the tabular cash value, use of the tabular cash
value insures that the Policy's guarantee of a minimum death benefit is not
impaired by the adjustment.
Any adjustment will result in a redetermination of a Policy's tabular cash
value. For a further discussion of the tabular cash value, see the heading
"Variations in Death Benefit" in this prospectus on page 26. After adjustment,
the tabular cash value shall be equal to the greater of the policy value or the
tabular cash value prior to that adjustment, plus any nonrepeating premium paid
at the time of the adjustment and minus the amount of any partial surrender made
at the time of the adjustment.
On adjustment, you may request a new Policy face amount. In the absence of
instructions to the contrary, we will calculate the face amount after adjustment
depending on the Policy's death benefit option, the type of adjustment, and
whether the Policy is a VAL '95 or a VAL '87. With both VAL '87 and VAL '95, if
the Policy has the Cash Option death benefit the new face amount will be equal
to the face amount of the Policy less the amount of any partial surrender made
as part of the adjustment. With a VAL '87 Policy with the Protection Option
death benefit the face amount after adjustment shall be equal to the greater of
the face amount of the Policy or the death benefit provided by the Policy
immediately prior to the adjustment, less the amount of any partial surrender
made as part of the adjustment. With a VAL '95 Policy with the Protection Option
death benefit the face amount after adjustment will be equal to the face amount
of the Policy immediately prior to the adjustment.
To illustrate the operation of an adjustment, consider a standard risk VAL
'95 Policy issued with a face amount of $100,000 and an annual premium of $926
to a male non-smoker insured age 45. If we assume a hypothetical gross annual
investment return of 8 percent, the Protection Option death benefit, current
mortality charges, no loans, and no policy adjustments, the policy value of the
Policy at age 50 would be $2,070 and the Policy's tabular cash value would be
$1,680. Assume the owner requests a policy adjustment to increase the scheduled
premium to $1,500, but does not specify the face amount. As described above, we
compare the policy value less the charge on adjustment to the tabular cash value
to determine the policy value to be used in the plan of insurance calculation.
In this example, the policy value (less the charge on adjustment) is greater
than the tabular cash value, so the policy value is used. The tabular cash value
is then set equal to the policy value. The policy adjustment would therefore
result in a face amount of $100,000, a scheduled premium of $1,500, and a plan
of insurance of full coverage until age 74, at which time the face amount would
be scheduled to reduce to $14,980.
15
<PAGE>
The table below shows the tabular cash values, policy values and death
benefits for the first ten years of the example described.
<TABLE>
<CAPTION>
END OF YEAR
ATTAINED ANNUAL TABULAR CASH END OF YEAR BEGINNING OF YEAR
POLICY YEAR AGE PREMIUM VALUE POLICY VALUE DEATH BENEFIT
- ----------- ---------- ----------- ------------- ------------- --------------------
<S> <C> <C> <C> <C> <C>
1 46 $ 926 $ 0 $ 13 $ 100,000
2 47 926 437 475 100,013
3 48 926 865 944 100,475
4 49 926 1,280 1,476 100,944
5 50 926 1,680 2,070 101,476
6 51 1,500 2,838 2,921 102,070
7 52 1,500 3,763 4,038 102,921
8 53 1,500 4,681 5,271 104,038
9 54 1,500 5,587 6,615 105,271
10 55 1,500 6,473 8,063 106,615
</TABLE>
All of these changes may be accomplished under a single Policy. There is no
need to surrender the Policy or purchase a new one simply because of a change in
your insurance needs. Whenever adjustments are made, new policy information
pages will be provided. These pages state the new face amount, scheduled
premium, plan of insurance, attained age and tabular cash value.
NONREPEATING PREMIUMS The Policy also allows a policy owner to pay a premium
called a nonrepeating premium. This payment of premium is in addition to the
scheduled premium payments called for by the terms of the Policy. While the
payment of a nonrepeating premium does not cause an adjustment to the Policy,
any such payment will be reflected in the tabular cash value of the Policy at
issue or upon any later adjustment. The payment of a nonrepeating premium will
increase the policy values you have available for investment in the Fund. With
VAL '95, we may impose additional restrictions or refuse to permit nonrepeating
premiums in our discretion.
RESTRICTIONS ON ADJUSTMENTS Adjustments can be made on any monthly
anniversary of the policy date. You may request a policy adjustment by
completing an application for adjustment. Adjustments will not apply to any
additional benefit agreements which are attached to your Policy. Any adjustment
will be effective on the date that it is approved by us and recorded at our home
office.
An adjustment must satisfy certain limitations on premiums, face amount and
plan. Other limitations on adjustments and combinations of adjustments may also
apply. The current limits on adjustments are those described here. We reserve
the right to change these limitations from time to time.
An adjustment may not result in more than a paid-up whole life plan for the
then current face amount. After age 80, increases in face amount requiring
evidence of insurability will not be allowed.
Any adjustment for a change of premium must result in a change of the annual
premium of at least $100. Currently, we will waive this limitation for changes
in premium which are the result of a face amount change under the Cost of Living
Agreement. Any adjustment involving an increase in premium may not result in a
whole life plan of insurance requiring the payment of premiums for less than ten
years or to age 100, if less. In addition, any Policy adjustment, other than a
change to a stop premium, must result in a Policy with an annual base premium of
at least $300.
Any adjustment for a change of the face amount must result in a change of
the face amount of at least $5,000, except for face amount changes which are the
result of a Cost of Living Agreement change, a partial surrender under the
Policy or face amount changes which are required to satisfy limitations
pertaining to plans of insurance.
After adjustment, other than an automatic adjustment at the point when the
face amount is scheduled to decrease, an automatic adjustment made under VAL '95
upon the change to the Cash Option death benefit at the insured's age 70, or
adjustment to stop premium, the Policy must provide a level face amount of
insurance to the next policy anniversary after the later of: (a) five years from
the date of adjustment; or (b) ten years from the date of issue. If the
insured's age at original issue is over age 55, the minimum
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plan of protection will be less than ten years from the policy issue date, as
described on page 14. An automatic adjustment at the point when the face amount
is scheduled to decrease or an adjustment to stop premium requires that a Policy
have an actual cash value at the time of the adjustment as would be sufficient
to keep the Policy in force until the next policy anniversary.
As an example of the operation of the plan limitation on policy adjustment,
assume a minimum plan VAL '95 Policy issued to a standard non-smoker risk male
at age 40 with a level face amount of $100,000 for a period of ten years (until
age 50) on a protection type plan for an annual premium of $428. Assume also
that the Policy has a policy value equal at all times to its tabular cash value.
If at the end of five years (at age 45) the policy owner wished to decrease the
premium so as to reduce the period before a scheduled reduction in face amount
took place from age 50 to age 49, the adjustment would not be allowed because a
face amount decrease at age 49 would be only four years from the date of the
policy adjustment, and nine years from the date of issue. On the other hand, if
the owner wished to postpone a scheduled reduction in face amount until age 65
by increasing the premium of the Policy to $835 for the same initial face
amount, the adjustment would be permitted because the face amount decrease would
occur 25 years from the original issue date and 20 years from the date of
adjustment, both periods of time which are within the policy adjustment
limitations on plans of insurance.
The plan limitations apply for each type of adjustment. Consider a situation
similar to the one above except that the Policy has an initial face amount of
$200,000. In that case the annual premium for a minimum plan of ten years
(before the scheduled reduction in face amount) would be $800. If the policy
owner wished to make a partial surrender of $500 at the end of five years, the
surrender would not be permitted without either an increase in premium or a
further reduction in face amount, since the annual premium of $800 would support
the adjusted face amount of $199,500 for only two more years from the point of
adjustment. This resulting plan would be less than the minimum plan of five
years. If the owner elected to increase the premium in order to maintain the new
face amount of $199,500, the new premium would have to be sufficient to continue
the new face amount for an additional five years from the policy adjustment
date.
Similarly, if the owner requested a reduction in face amount below $199,500
in order to satisfy the limitations pertaining to plans of insurance, the new
face amount would have to continue for an additional five years, which is ten
years from the date the Policy was issued. As indicated, a face amount change
made for the purpose of bringing an adjustment into compliance with the plan
limitation will not be subject to the usual minimum face amount change
requirement of $5,000. A partial surrender may often require a reduction in face
amount by more than the amount of the surrender in order to satisfy plan
limitations.
PROOF OF INSURABILITY All adjustments resulting in an increase in face amount
require proof of insurability except for those made pursuant to a face amount
increase agreement attached to the Policy or a Cost of Living Agreement
described below. In addition, proof of insurability is required for partial
surrenders where, at the request of the policy owner, no reduction is made in
the Policy's death benefit. Decreases in face amount or premium and increases in
premium not resulting in any increase in death benefit do not require evidence
of insurability. With VAL '87, the payment of a nonrepeating premium will
require evidence of insurability when the Protection Option death benefit option
is in effect or if the Policy is paid-up at the time of payment. With VAL '95,
we may require evidence of insurability when a nonrepeating premium is paid if
the death benefit of your Policy increases as a result of the payment of a
nonrepeating premium.
CHARGES IN CONNECTION WITH POLICY ADJUSTMENTS In connection with a policy
adjustment, we will make a special $25 charge to cover the administrative costs
associated with processing the adjustment. If, however, the only policy
adjustment is a partial surrender, the transaction charge shall be the lesser of
$25 or 2 percent of the amount surrendered. In addition, because of the
underwriting and selling expenses anticipated for any change resulting in an
increase in premium, we will assess a new first year sales load on any increase
in premium on adjustment. We will also assess an underwriting charge on any
increase in face amount requiring evidence of insurability. See, for a further
description of these charges, the section "Policy Charges"
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<PAGE>
in this prospectus on page 29. Limiting the first year sales load and
underwriting charge to the increased premium or face amount is in substance the
equivalent of issuing a new Policy for the increase. A policy adjustment will
always be more favorable than the purchase of a second Policy for the increased
amount since there is no duplication of administrative charges. A policy
adjustment will always be more favorable than the application for a new Policy
for the entire amount since there is no duplication of the first year sales load
or underwriting charges.
The chart below illustrates the kinds of changes that may be made as a
policy adjustment and the effect of each.
<TABLE>
<S> <C> <C> <C>
IF YOU MAKE THIS KIND OF IT WILL DO THIS:
ADJUSTMENT,
If you. . .
Decrease the current while the premium remains then: a scheduled decrease in
face amount........... the same................... the current face amount, if
or while the premium any, will take place at an
Retain the current increases.................. increased age of the insured;
face amount........... a scheduled decrease in the
face amount will be
eliminated; or the premium
paying period will be
shortened.
If you. . .
Increase the current with no increase in then: a scheduled decrease in
face amount........... premium.................... the current face amount, if
or while the premium any, will take place at a
Retain the current decreases.................. decreased age of the insured;
face amount........... while the premium and face a scheduled decrease in the
or amount remain the same..... face amount will occur; or
Make a partial the premium paying period
surrender............. will be lengthened.
If you. . .
Stop base premium..... while the face amount then: a scheduled decrease in
remains the same........... the current face amount, if
any, will take place at a
decreased age of the insured
and no insurance will be
provided after the decrease;
or, a scheduled decrease in
the face amount will occur.
However, for VAL '95, you
must continue to pay the
charge for a sub-standard
risk, or your Policy will
lapse.
</TABLE>
You may request a description of the effect of other types or combinations
of adjustments from us.
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APPLICATIONS AND POLICY ISSUE
Persons wishing to purchase a Policy must send a completed application to us
at our home office. The minimum face amount we will issue on a Policy is $50,000
and we require an annual base premium on each Policy of at least $300. The
minimum plan of insurance at policy issue is a protection plan which has a level
death benefit for a period of ten years. If the insured's age at original issue
is over age 55, the minimum plan of protection will be less than ten years from
the Policy issue date, as described on page 14. The Policy must be issued on an
insured under the age of 80. Before issuing any Policy, we require evidence of
insurability satisfactory to us, which in some cases will require a medical
examination. Persons who satisfy the underwriting requirements are offered the
most favorable premium rates, while a higher premium is charged to persons with
a greater mortality risk. Acceptance of an application is subject to our
underwriting rules and we reserve the right to reject an application for any
reason.
If we accept an application, accompanied by a check for all or at least
one-twelfth of the annual premium, the policy date will be the issue date, which
is the date the decision to accept the application and issue the Policy is made.
The policy date will be used to determine subsequent policy anniversaries and
premium due dates.
If we accept an application NOT accompanied by a check for the initial
premium, a Policy will be issued with a policy date which is 15 days after the
issue date. The 15 day period has been determined to be the normal time during
which delivery of the Policy to the policy owner is expected to occur. We/or our
agent must receive the initial premium within 60 days after the issue date. No
life insurance coverage is provided until the initial premium is paid. If the
initial premium is paid after the policy date (and the policy date is not
changed as described below), you will have paid for insurance coverage during a
period when no coverage was in force. Therefore, in such circumstance you should
consider requesting a current policy date, I.E., the date on which our home
office receives the premium. You will be sent updated policy pages to reflect
the change in policy date. This request should be made at or prior to the time
you pay the initial premium.
In certain circumstances it may be to your advantage to have the policy date
be the same as the issue date in order to preserve an issue age on which premium
rates are based. In that case, all premiums due between the issue date and the
date of delivery of the Policy must be paid on delivery.
When the Policy is issued, the face amount, premium, tabular cash values and
a listing of any supplemental agreements are stated on the policy information
pages of the policy form, page 1.
POLICY PREMIUMS
The Policies have a level premium throughout the life of the insured or
until the Policy becomes paid-up. We guarantee that we will not increase the
amount of premiums for a Policy in force. Subject to the limitations discussed
under the heading "Restrictions on Adjustments" in this prospectus on page 16,
you may choose to adjust the Policy at any time and alter the amount of future
premiums.
In addition to scheduled premiums, you may pay a nonrepeating premium. For
VAL '95, we may refuse to accept a nonrepeating premium. The maximum
nonrepeating premium we will accept is the amount sufficient to change your
Policy to a paid-up whole life policy for the then current face amount. The
minimum nonrepeating premium is $500. We will waive this minimum amount for
nonrepeating premiums if you make arrangements for the payment of a nonrepeating
premium through an automatic bank check plan and the amount of each such payment
under that plan is an amount of at least $200. We will bill for nonrepeating
premiums in connection with Policies having a minimum base premium of at least
$2,400. The minimum nonrepeating premium in those circumstances remains at $500.
With VAL '95 we may impose additional restrictions or refuse to permit
nonrepeating premiums in our discretion.
The payment of a nonrepeating premium may have Federal income tax
consequences. See the heading "Federal Tax Status" in this prospectus on page
36.
The amount of premium required for a Policy will depend on the Policy's
initial face amount, the plan of insurance, the insured's age at issue, sex,
risk classification, smoking status and the additional benefits associated with
the Policy.
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<PAGE>
The first premium is due as of the policy date and must be paid on or before
your Policy is delivered. Between the date we receive an initial premium for the
Policy, either a full first premium or a partial premium, and the date insurance
coverage commences under the Policy, the life of the insured may be covered
under the terms of a conditional insurance agreement. All scheduled premiums
after the first premium are payable on or before the date they are due and must
be mailed to us at our home office. In some cases, you may elect to have
premiums paid automatically under our automatic bank check plan through
pre-authorized transfers from a bank checking account or such other account as
may be approved by your bank.
Scheduled premiums on the Policy are payable during the insured's lifetime
on an annual, semi-annual, quarterly or monthly basis on the due dates set forth
in the Policy. For this purpose, a scheduled premium may be paid no earlier than
twenty days prior to the date that it is due. For premiums paid after the due
date, see the paragraph following the heading "Lapse" in this section of the
prospectus.
With VAL '87, charges for additional benefits are deducted from premiums to
calculate base premiums. From base premiums we deduct charges assessed against
premiums and nonrepeating premiums, to calculate net premiums. With VAL '95,
charges for additional benefits and for sub-standard risks are deducted from
premiums to calculate base premiums. From base premiums we deduct charges
assessed against premiums and nonrepeating premiums to calculate net premiums.
Net premiums, namely premiums after the deduction of the charges assessed
against premiums and nonrepeating premiums, are allocated to the guaranteed
principal account or sub-accounts of the Variable Life Account which, in turn,
invest in Fund shares.
You make your selection on your application for the Policy. You may change
your allocation instructions for future premiums by giving us a written request.
The allocation to the guaranteed principal account or to any sub-account of the
Variable Life Account must be at least 10 percent of the net premium. We reserve
the right to delay the allocation of net premiums to named sub-accounts for a
period of 30 days after Policy issue or an adjustment. If we exercise this
right, net premiums will be allocated to the Money Market sub-account until the
end of that period. This right, which has not been implemented to date, will be
exercised by us only when we believe economic conditions make such an allocation
necessary to reduce market risk during the free look period.
We reserve the right to restrict the allocation of premiums to the
guaranteed principal account. If we do so, no more than 50 percent of the net
premium may be allocated to the guaranteed principal account. Currently, we do
not exercise such a restriction, and this restriction is not applicable when you
are allocating all of your premiums to the guaranteed principal account as a
conversion privilege.
The Policy allows for transfers of the actual cash value between the
guaranteed principal account and the Variable Life Account or among the
sub-accounts of the Variable Life Account. You may request a transfer at any
time or you may arrange in advance for systematic transfers: transfers of
specified dollar or unit value amounts to be made periodically among the
sub-accounts and the guaranteed principal account. The amount to be transferred
to or from a sub-account or the guaranteed principal account must be at least
$250. If the balance is less than $250, the entire actual cash value
attributable to that sub-account or the guaranteed principal account must be
transferred. If a transfer would reduce the actual cash value in the sub-account
from which the transfer is to be made to less than $250, we reserve the right to
include that remaining sub-account actual cash value in the amount transferred.
We will make the transfer on the basis of sub-account unit values as of the end
of the valuation period during which your written or telephone request is
received at our home office. A transfer is subject to a transaction charge, not
to exceed $10, for each transfer of actual cash value among the sub-accounts and
the guaranteed principal account. Currently, there is a charge only for
non-systematic transfers in excess of four per year. None of these requirements
will apply when you are transferring all of the policy value to the guaranteed
principal account as a conversion privilege.
Your instructions for transfer may be made in writing or you, or a person
authorized by you, may make such changes by telephone. To do so, you may call us
at (612) 298-3737 between the hours of 8:00 a.m. and 4:30 p.m., Central Time,
our regular business
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<PAGE>
hours. Policy owners may also submit their requests for transfer, surrender or
other transactions to us by facsimile (FAX) transmission. Our FAX number is
(612) 223-4194.
Transfers made pursuant to a telephone call are subject to the same
conditions and procedures as would apply to written transfer requests. During
periods of marked economic or market changes, policy owners may experience
difficulty in implementing a telephone transfer due to a heavy volume of
telephone calls. In such a circumstance, policy owners should consider
submitting a written transfer request while continuing to attempt a telephone
redemption. We reserve the right to restrict the frequency of, or otherwise
modify, condition, terminate or impose charges upon, telephone transfer
privileges. For more information on telephone transfers, contact us.
While for some policy owners we have used a form to pre-authorize telephone
transactions, we now make this service automatically available to all policy
owners. We will employ reasonable procedures to satisfy ourselves that
instructions received from policy owners are genuine and, to the extent that we
do not, we may be liable for any losses due to unauthorized or fraudulent
instructions. We require policy owners to identify themselves in those telephone
conversations through policy numbers, social security numbers and such other
information as we may deem to be reasonable. We record telephone transfer
instruction conversations and we provide the policy owners with a written
confirmation of the telephone transfer.
The maximum amount of actual cash value to be transferred out of the
guaranteed principal account to the sub-accounts of the Variable Life Account
may be limited to 20 percent of the guaranteed principal account balance.
Transfers to or from the guaranteed principal account may be limited to one such
transfer per policy year. Neither of these restrictions will apply when you are
transferring all of the policy value to the guaranteed principal account as a
conversion privilege.
Transfers from the guaranteed principal account must be made by a written or
telephone request. It must be received by us or postmarked in the 30-day period
before or after the last day of the policy year. Written requests for transfers
which meet these conditions will be effective after we approve and record them
at our home office. Currently, we do not impose such restrictions.
In the case of a transfer, the charge is assessed against the amount
transferred.
LAPSE Your Policy may lapse in one of two ways: (1) if a scheduled premium is
not paid; or (2) if there is no actual cash value when there is a policy loan.
As a scheduled premium policy, your Policy will lapse if a premium is not
paid on or before the date it is due or within the 31-day grace period provided
by the Policy. You may pay that premium during the 31-day period immediately
following the premium due date. Your premium payment, however, must be received
in our home office within the 31-day grace period. The insured's life will
continue to be insured during this 31-day period.
With VAL '95, if a Policy covers an insured in a sub-standard risk class,
the portion of the scheduled premium equal to the charge for such risk will
continue to be payable notwithstanding the adjustment to a stop premium mode. As
with any scheduled premium, failure to pay the premium for the sub-standard risk
within the grace period provided will cause the Policy to lapse.
If scheduled premiums are paid on or before the dates they are due or within
the grace period, absent any policy loans, the Policy will remain in force even
if the investment results of the sub-accounts have been so unfavorable that the
actual cash value has decreased to zero. However, should the actual cash value
decrease to zero while there is an outstanding policy loan the Policy will
lapse, even if the Policy was paid-up and all scheduled premiums had been paid.
If the Policy lapses because not all scheduled premiums have been paid or if
a Policy with a policy loan has no actual cash value, we will send you a notice
of default that will indicate the payment required to keep the Policy in force
on a premium paying basis. If the payment is not received within 31 days after
the date of mailing the notice of default, the Policy will terminate or the
nonforfeiture benefits will apply. For more information on lapse, see "Avoiding
Lapse" on page 22.
If at the time of any lapse a Policy has a surrender value, that is, an
amount remaining after subtracting from the actual cash value all unpaid policy
charges, it will be used to purchase extended term insurance. The extended term
benefit is a fixed life insurance benefit calculated on the 1980 Commissioners
Standard Ordinary Mortality Tables with
21
<PAGE>
4 percent interest. As an alternative to the extended term insurance, you may
have the surrender value paid to you in a single sum payment, thereby
terminating the Policy. Unless you request a single sum payment of your
surrender value within 62 days of the date of the first unpaid premium, we will
apply it to purchase extended term insurance on the insured's life.
The duration of the extended term benefit is determined by applying the
surrender value of your Policy as of the end of the grace period as a net single
premium to buy fixed benefit term insurance. The extended term benefit is not
provided through the Variable Life Account and the death benefit will not vary
during the extended term insurance period. The amount of this insurance will be
equal to the face amount of your Policy, less the amount of any policy loans at
the date of lapse. During the extended term period a Policy has a surrender
value equal to the reserve for the insurance coverage for the remaining extended
term period. At the end of the extended term period all insurance provided by
your Policy will terminate and the Policy will have no further value.
You may arrange for automatic premium loans to keep the Policy in force in
the event that a scheduled premium payment is not made. For more information on
this option, please see the heading "Policy Loans" in this prospectus on page
26.
REINSTATEMENT At any time within three years from the date of lapse you may
ask us to restore your Policy to a premium paying status unless the Policy
terminated because the surrender value has been paid or the period of extended
insurance has expired. We will require:
(1) your written request to reinstate the Policy;
(2) that you submit to us at our home office during the insured's lifetime
evidence satisfactory to us of the insured's insurability so that we may
have time to act on the evidence during the insured's lifetime; and
(3) at our option a premium payment which is equal to all overdue premiums with
interest at a rate not to exceed 8 percent per annum compounded annually and
any policy loan in effect at the end of the grace period following the date
of default with interest at a rate not exceeding 8 percent per annum
compounded annually. At the present time we do not require the payment of
all overdue premiums.
After a lapse and reinstatement, the reinstated Policy may be adjusted. The
standard minimum requirements for adjustments will continue to apply, as
described under the section "Restrictions on Adjustments" in this prospectus on
page 16.
AVOIDING LAPSE If your Policy has sufficient loan value, you can avoid a
lapse due to the failure to pay a scheduled premium by arranging for an
automatic premium loan. The effect of a policy loan on policy values and the
restrictions applicable thereto are described under the caption "Policy Loans"
on page 26 of this prospectus. An automatic premium loan is particularly
advantageous for a policy owner who contemplates early repayment of the amount
loaned, since it permits the policy owner to restore policy values without
additional sales and underwriting charges. Automatic premium loans for the long
term are generally not advantageous.
You may also avoid a lapse due to the failure to pay a scheduled premium by
adjusting your Policy to a stop premium mode. The greater of your policy value
or tabular cash value will be used to determine a new plan of insurance based on
the greater of the then current face amount or death benefit of the Policy and
the assumption that no further premiums will be paid. The new plan may be a term
or protection plan, but unlike other term plans there will be no reduced face
amount of coverage at the time the tabular cash value is scheduled to expire
because no further premiums will be payable. If at that time the Policy has a
surrender value, it will be used either to purchase extended term coverage or it
will be paid to you in a single sum thereby terminating the Policy.
The insurance coverage resulting from an adjustment to a stop premium mode
is similar to the coverage available under the extended term option in that
under both, the coverage is available only for a limited period of time. The
arrangements are, however, fundamentally different. Extended term coverage is a
fixed benefit with fixed cash values providing a longer guaranteed period of
coverage than the same amount applied as a stop premium. The stop premium mode
provides variable insurance with an actual cash value and, under the Protection
Option, a death benefit
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<PAGE>
that will vary to reflect any investment experience of selected sub-accounts and
the deduction of smaller cost of insurance charges than the maximum charges
derived from the 1980 CSO mortality tables. Because the actual cash value
continues to exist, policy charges assessed to the actual cash value will
continue to be made while the Policy is on stop premium. Moreover with VAL '95,
if a Policy covers an insured in a sub-standard risk class, the portion of the
scheduled premium equal to the charge for such risk will continue to be payable.
There are also other differences which should be considered. In general, if
you contemplate resuming premium payments at a future date, the stop premium
mode may be more desirable in that you may resume premium payments at any time
without evidence of insurability, while the reinstatement option available
during the extended term period requires proof of insurability and must be
exercised within three years following the date of lapse.
If you do not contemplate resuming premium payments, your choice between
permitting your Policy to lapse and adjusting it to a stop premium mode should
depend on, first, whether the surrender value of your Policy at that time
exceeds its tabular cash value and, second, whether you expect your Policy's
policy value to exceed its tabular cash value in the future. If at the time of
possible lapse your Policy's surrender value is less than its tabular cash
value, you should consider adjusting to a stop premium mode because the period
of insurance coverage will be based on the higher tabular cash value while the
period of extended term coverage upon lapse would be computed on the basis of
the lower surrender value. If the two values are the same, the period of
guaranteed coverage under the extended term option will be longer than under the
stop premium mode. Thus, you should be sure that the benefit of using the higher
tabular cash value is not offset by the shorter period of guaranteed insurance
coverage usually resulting from the stop premium mode.
On the other hand, if the surrender value of your Policy exceeds its tabular
cash value, you should evaluate the benefit of a guaranteed longer period of
insurance coverage under the extended term option against the possibility of
longer coverage under the stop premium mode. With the stop premium mode there
may be an available policy value at the end of the plan which could be used to
continue the face amount of the Policy to a later time than provided under the
extended term option. In considering this possibility, you should keep in mind
that a Policy with the Cash Option death benefit is more likely to have a higher
policy value than a comparable Policy with the Protection Option death benefit.
POLICY VALUES
The Policy has an actual cash value which varies with the investment
experience of the guaranteed principal account and the sub-accounts of the
Variable Life Account. Depending upon the death benefit selected, the death
benefit may also vary although it will never be less than the then current face
amount. Net premiums, namely premiums after the deduction of all charges, will
be allocated to the guaranteed principal account or sub-accounts of the Variable
Life Account selected by you on your application for the Policy.
The value of the Policy's interest in the guaranteed principal account and
the sub-accounts of the Variable Life Account is known as its actual cash value.
It is determined separately for your guaranteed principal account actual cash
value and for your separate account actual cash value. The separate account
actual cash value will include all sub-accounts of the Variable Life Account.
Unlike a traditional fixed benefit life insurance policy, a Policy's actual cash
value cannot be determined in advance, even if scheduled premiums are made when
required, because the separate account actual cash value varies daily with the
investment performance of the sub-accounts of the Variable Life Account in which
the Policy participates. Even if the policy owner continues to pay scheduled
premiums when due, the separate account actual cash value of a Policy could
decline to zero because of unfavorable investment experience and the assessment
of charges. Upon request, we will tell you the actual cash value of your Policy.
We will also send you a report each year on the policy anniversary advising you
of your Policy's actual and tabular cash values, the face amount and the death
benefit as of the date of the report. It will also summarize Policy transactions
during the year. It will be as of a date within two months of its mailing.
The guaranteed principal account actual cash value is the sum of all net
premium
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payments allocated to the guaranteed principal account. This amount will be
increased by any interest, dividends, loan repayments, policy loan interest
credits and transfers into the guaranteed principal account. This amount will be
reduced by any policy loans, unpaid policy loan interest, partial surrenders,
transfers into the sub-accounts of the Variable Life Account and charges
assessed against your guaranteed principal account actual cash value. Interest
is credited on the guaranteed principal account actual cash value of your
Policy. Interest is credited daily at a rate of not less than 4 percent per
year, compounded annually. We guarantee this minimum rate for the life of the
Policy without regard to the actual experience of the general account. As
conditions permit, we will credit additional amounts of interest to the
guaranteed principal account actual cash value. Your guaranteed principal
account actual cash value is guaranteed by us. It cannot be reduced by any
investment experience of the general account.
The portion of a Policy's separate account actual cash value is determined
separately. The separate account actual cash value is not guaranteed. The
determination of the separate account actual cash value is made by multiplying
the current number of sub-account units credited to a Policy by the current
sub-account unit value. A unit is a measure of your Policy's interest in a sub-
account. The number of units credited with respect to each net premium payment
is determined by dividing the portion of the net premium payment allocated to
each sub-account by the then current unit value for that sub-account. The number
of units so credited is determined as of the end of the valuation period during
which we receive your premium at our home office.
Once determined, the number of units credited to your Policy will not be
affected by changes in the unit value. However, the number will be increased by
the allocation of subsequent net premiums, nonrepeating premiums, dividends,
loan repayments, loan interest credits and transfers to that sub-account. The
number of units of each sub-account credited to your Policy will be decreased by
policy charges to the sub-account, policy loans and loan interest, transfers
from that sub-account and partial surrenders from that sub-account. Such number
of sub-account units will decrease to zero on a policy surrender, the purchase
of extended term insurance or termination.
The unit value of a sub-account will be determined on each valuation date.
The amount of any increase or decrease will depend on the net investment
experience of that sub-account. The value of a unit for each sub-account was
originally set at $1.00 on the first valuation date. For any subsequent
valuation date, its value is equal to its value on the preceding valuation date
multiplied by the net investment factor for that sub-account for the valuation
period ending on the subsequent valuation date.
The net investment factor for a valuation period is: the gross investment
rate for such valuation period, less a deduction for the mortality and expense
risk charge under this Policy which is assessed at an annual rate of .50 percent
against the average daily net assets of each sub-account of the Variable Life
Account. The gross investment rate is equal to:
(1) the net asset value per share of a Fund share held in the sub-account of the
Variable Life Account determined at the end of the current valuation period;
plus
(2) the per share amount of any dividend or capital gain distributions by the
Fund if the "ex-dividend" date occurs during the current valuation period;
with the sum divided by
(3) the net asset value per share of that Fund share held in the sub-account
determined at the end of the preceding valuation period.
We determine the value of the units in each sub-account on each day on which
the Portfolios of the Fund are valued. The net asset value of the Fund's shares
is 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 (as of the date hereof the primary close of
trading is 3:00 p.m. (Central Time), but this time may be changed) on each day,
Monday through Friday, except (i) days on which changes in the value of the
Fund's portfolio securities will not materially affect the current net asset
value of the Fund's shares, (ii) days during which no the Fund's shares are
tendered for redemption and no order to purchase or sell the Fund's shares is
received by
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the Fund and (iii) customary national business holidays on which the New York
Stock Exchange is closed for trading (as of the date hereof, New Year's Day,
Presidents' Day, Good Friday, Memorial Day, Independence Day, Labor Day,
Thanksgiving Day and Christmas Day).
Although the actual cash value for each Policy is determinable on a daily
basis, we update our records to reflect that value on each monthly anniversary.
We also make policy value determinations on the date of the insured's death and
on a policy adjustment, surrender, and lapse. When the policy value is
determined, we will assess and update to the date of the transaction those
charges made against your actual cash value, namely the administration charge of
$60 per year and the cost of insurance charge (and, any charge for VAL '87 for
sub-standard risks). Increases or decreases in policy values will not be uniform
for all Policies but will be affected by policy transaction activity, cost of
insurance charges, (charges for sub-standard risks for VAL '87) and the
existence of policy loans.
To illustrate the operation of the Policy under various assumptions, we have
prepared several tables, along with additional explanatory text, that may be of
assistance. For these tables, please see Appendix I, "Illustrations of Policy
Values, Death Benefits and Accumulated Premiums," found on page 74 of this
prospectus. For additional materials and tables, including values after policy
charges, please see Appendix II, Summary of Policy Charges, found on page 84 of
this prospectus.
DEATH BENEFIT OPTIONS
The death benefit provided by the Policy depends upon the death benefit
option you choose. You may choose one of two available death benefit
options--the Cash Option or the Protection Option. If you fail to make an
election, the Cash Option will be in effect. The scheduled premium for a Policy
is the same no matter which death benefit option is chosen.
Under the Cash Option, the death benefit will be the current face amount at
the time of the insured's death. The death benefit will not vary unless the
policy value exceeds the net single premium for the then current face amount.
Under the Protection Option of VAL '87, if at the date of the insured's
death the tabular value is greater than the policy value, the death benefit will
be the then current face amount. If at the date of the insured's death, the
policy value is greater than the tabular cash value, the death benefit shall be
an amount which is equal to the then current face amount, plus an additional
amount of insurance which is equal to that which could be purchased using the
difference between the policy value and the tabular cash value as the net single
premium for that coverage, based upon the policy assumptions and the insured's
then attained age.
Under the Protection Option of VAL '95, the death benefit will be the policy
value, plus the larger of:
(a) the then current face amount; and
(b) the amount of insurance which could be purchased using the policy value as a
net single premium.
The Protection Option is only available until the policy anniversary nearest
the insured's age 70. At the policy anniversary nearest the insured's age 70,
the Protection Option death benefit is automatically converted to the Cash
Option death benefit. At that time, we will automatically adjust your Policy and
adjust the face amount to equal the death benefit immediately preceding the
adjustment.
You should select the death benefit option that best meets your needs and
objectives. The Protection Option results primarily in an increased death
benefit. If you are satisfied with the amount of your insurance coverage and
wish to have any favorable investment results reflected to the maximum extent in
increasing actual cash values, you should choose the Cash Option. In addition,
there are other distinctions between the two options which may influence your
selection. In the event of a superior investment performance, the Cash Option
will result in a Policy becoming paid-up more rapidly than the Protection
Option. This is because of larger cost of insurance charges under the Protection
Option resulting from the additional amount of death benefit provided under that
option. But under the Cash Option favorable investment experience does not
increase the death benefit unless the policy value exceeds the net single
premium for the then current face amount, and the beneficiary will not benefit
from any larger actual cash value which exists at the time of the insured's
death because of the favorable investment experience.
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<PAGE>
You may elect to have the death benefit option changed while the Policy is
in force by filing a written request with us at our home office. We may require
that you provide us with satisfactory evidence of the insured's insurability
before we make a change to the Protection Option. The change will take effect
when we approve and record it in our home office. A change in death benefit
option may have Federal income tax consequences. See the heading "Federal Tax
Status" in this prospectus on page 36.
The amount payable as death proceeds upon the insured's death will be the
death benefit provided by the Policy, plus any additional insurance on the
insured's life provided by an additional benefit agreement, if any, minus any
policy charges and minus any policy loans. In addition, if the Cash Option death
benefit is in effect at the insured's death, we will pay to the beneficiary any
part of a paid premium that covers the period from the end of the policy month
in which the insured died to the date to which premiums are paid.
VARIATIONS IN DEATH BENEFIT
PROTECTION OPTION The death benefit provided by the Protection Option will
vary with the investment experience of the allocation options selected by the
policy owner, any interest credited as a result of a policy loan and the extent
to which we assess lower insurance charges than those maximums derived from the
1980 Commissioners Standard Ordinary Mortality Tables.
With VAL '87, the amount of the death benefit is equal to the current face
amount or, if the policy value is greater than the tabular cash value at the
date of the insured's death, the current face amount plus an additional amount
of insurance which could be purchased by using that difference between values as
a net single premium. When a Policy becomes paid-up, the death benefit under the
Protection Option is the greater of the face amount of the Policy when it became
paid-up or the amount of insurance which could be purchased at the date of the
insured's death by using the policy value as a net single premium based upon the
policy assumptions as defined in the Policy and the insured's attained age.
With VAL '95, the amount of the death benefit is equal to the policy value,
plus the larger of:
(a) the then current face amount; and
(b) the amount of insurance which could be purchased using the policy value as a
net single premium.
CASH OPTION As noted, the death benefit under the Cash Option does not vary
from the Policy's face amount until the policy value exceeds the net single
premium for the current face amount. At this point, the death benefit under the
Cash Option is the greater of the face amount of the Policy when it became
paid-up or the amount of insurance which could be purchased at the date of the
insured's death by using the policy value as a net single premium based upon the
policy assumptions as defined in your Policy and the insured's attained age. The
policy value of a Policy will never exceed the net single premium for a death
benefit payable on the insured's death.
A Policy is paid-up when no additional premiums are required to provide the
face amount of insurance for the life of the insured. We may or may not accept
additional premiums. When a Policy becomes paid-up, the policy value will then
equal or exceed the net single premium needed to purchase an amount of insurance
equal to the face amount of the Policy at the insured's then attained age.
However, its actual cash value will continue to vary daily to reflect the
investment experience of the Variable Life Account and any interest credited as
a result of a policy loan. Once a Policy becomes paid-up, it will always retain
its paid-up status regardless of any subsequent decrease in its policy value.
However, on a paid-up Policy with indebtedness, where the actual cash value
decreases to zero, a loan repayment may be required to keep the Policy in force.
See the discussion in this prospectus under the heading "Policy Loans," below.
We will make a determination on each policy anniversary as to whether a
Policy is paid-up. When a Policy becomes paid-up, we will send you a notice.
For an illustration of the calculation of the death benefit under the Policy
options, please see Appendix III, "Illustration of Death Benefit Calculation,"
on page 89 of this prospectus.
POLICY LOANS
You may borrow from us using only your Policy as the security for the loan.
The total amount of your loan may not exceed 90 percent of your policy value. A
loan taken from, or secured by a Policy, may have Federal income tax
consequences. See the
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heading "Federal Tax Status" in this prospectus on page 36.
The policy value is the actual cash value of your Policy plus any policy
loan. Any policy loan paid to you in cash must be in an amount of at least $100.
Policy loans in smaller amounts are allowed under the automatic premium loan
provision. We will deduct interest on the loan in arrears. At your request, we
will send you a loan request form for your signature. You may also obtain a
policy loan by calling Minnesota Mutual between the hours of 8:00 a.m. and 4:30
p.m., Central Time, our regular business hours. Should you make a telephone call
to us you will be asked, for security purposes, for your personal identification
and policy number. The Policy will be the only security required for your loan.
Your policy value will be determined as of the date we receive your written
request at our home office.
When you take a loan, we will reduce the actual cash value. It will be
reduced by the amount you borrow and any unpaid interest. Unless you direct us
otherwise, the policy loan will be taken from your guaranteed principal account
actual cash value and separate account actual cash value in the same proportion
that those values bear to each other and, as to the actual cash value in the
separate account, from each sub-account in the proportion that the actual cash
value in such sub-account bears to your actual cash value in all of the
sub-accounts. The number of units to be cancelled will be based upon the value
of the units as of the end of the valuation period during which we receive your
loan request at our home office. This amount shall be transferred to the loan
account. The loan account continues to be part of the Policy in the general
account. A policy loan has no immediate effect on policy value since at the time
of the loan the policy value is the sum of your actual cash value and any policy
loan.
The actual cash value of your Policy may decrease between premium due dates.
If your Policy has indebtedness and no actual cash value, the Policy will lapse.
In this event, to keep your Policy in force, you will have to make a loan
repayment. We will give you notice of our intent to terminate the Policy and the
loan repayment required to keep it in force. The time for repayment will be
within 31 days after our mailing of the notice.
POLICY LOAN INTEREST The interest rate on a policy loan will not be more than
the rate shown on page 1 of your Policy. The interest rate charged on a policy
loan will not be more than that permitted in the state in which the Policy is
delivered.
Policy loan interest is due on the date of the death of the insured, on a
policy adjustment, surrender, lapse, a policy loan transaction and on each
policy anniversary. If you do not pay the interest on your loan in cash, your
policy loan will be increased and your actual cash value will be reduced by the
amount of the unpaid interest. The new loan will be subject to the same rate of
interest as the loan in effect.
Interest is also credited to your Policy when there is a policy loan.
Interest credits on a policy loan shall be at a rate which is not less than your
policy loan interest rate minus 2 percent per annum. Policy loan interest
credits are allocated to your actual cash value as of the date of the death of
the insured, on a policy adjustment, surrender, lapse, a policy loan transaction
and on each policy anniversary. Interest credits are allocated to the guaranteed
principal account and separate account following your instructions to us. We
will use your instructions for the allocation of net premiums. In the absence of
such instructions, this amount will be allocated to the guaranteed principal
account actual cash value and separate account actual cash value in the same
proportion that those values bear to each other and, as to the actual cash value
in the separate account, to each sub-account in the proportion that the actual
cash value in such sub-account bears to your actual cash value in all of the
sub-accounts.
Currently, the loan account credits interest, as described above, at a rate
which is not less than your policy loan interest rate minus 2 percent per annum.
However, depending on the insured's age and the period of time that the Policy
has been in force, we may credit the Policy with interest at a more favorable
rate. Under our current procedures, if all the conditions are met then your loan
will be credited at a rate which is equal to the policy loan rate minus .75
percent per annum. The conditions which must be met have to do with your age,
the actual duration of the Policy, and its average duration. To begin, the
insured's age must be greater than or equal to age 55 as of the last policy
anniversary. The actual duration of the Policy, which is the number of years
during which the Policy has been in force as a
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Variable Adjustable Life Policy, must be greater than or equal to 10. Finally,
the average duration of your Policy must be greater than or equal to 7. For
Policies not on the stop premium mode, the average duration is defined as the
lesser of: (a) the Policy's actual duration; or (b) the sum of all scheduled
policy premiums, other than nonrepeating premiums paid to date, divided by the
current scheduled annual policy premium. The Policy's average duration may be
less than the number of years the Policy has been in force where there has been
an adjustment resulting in an increase of the scheduled premium. For Policies
which are on the stop premium mode, the average duration will equal the actual
duration.
Policy loans may also be used as automatic premium loans to keep your Policy
in force. If you asked for this service in your application, or if you write us
and ask for this service after your Policy has been issued, we will make
automatic premium loans. You can also write to us at any time and tell us you do
not want this service. If you have this service and you have not paid the
premium that is due before the end of the grace period, we will make a policy
loan to pay the premium. Interest on such a policy loan is charged from the date
the premium was due. However, in order for an automatic premium loan to occur,
the amount available for a loan must be enough to pay at least a quarterly
premium. If the loan value is not enough to pay at least a quarterly premium,
your Policy will lapse.
POLICY LOAN REPAYMENTS If your Policy is in force, your loan can be repaid in
part or in full at any time before the insured's death. Your loan may also be
repaid within 60 days after the date of the insured's death, if we have not paid
any of the benefits under the Policy. Any loan repayment must be at least $100
unless the balance due is less than $100. When implemented, we will waive this
minimum loan repayment provision for loan repayments made under our automatic
payment plan where loan repayments are in an amount of at least $25.
Loan repayments are allocated to the guaranteed principal account until all
loans from the guaranteed principal account have been repaid, thereafter, loan
repayments are allocated to the guaranteed principal account or the sub-accounts
of the Variable Life Account as you direct. In the absence of your instructions,
loan repayments will be allocated to the guaranteed principal account actual
cash value and separate account actual cash value in the same proportion that
those values bear to each other and, as to the actual cash value in the separate
account, to each sub-account in the proportion that the actual cash value in
such sub-account bears to your actual cash value in all of the sub-accounts.
Loan repayments reduce your loan account by the amount of the loan
repayment.
A policy loan, whether or not it is repaid, will have a permanent effect on
the policy value because the investment results of the sub-accounts will apply
only to the amount remaining in the sub-accounts. The effect could be either
positive or negative. If net investment results of the sub-accounts are greater
than the amount being credited on the loan, the policy value will not increase
as rapidly as it would have if no loan had been made. If investment results of
the sub-accounts are less than the amount being credited on the loan, the policy
value will be greater than if no loan had been made. For an example of the
effect of a policy loan on a Policy and its death benefit, please see Appendix
IV, "Policy Loan Example," in this prospectus on page 90.
SURRENDER
You may request a surrender or partial surrender of your Policy at any time
while the insured is living. On surrender, the surrender value of the Policy is
the actual cash value minus unpaid policy charges which are assessed against
actual cash value. The determination of the surrender value is made as of the
end of the valuation period during which we receive your surrender request at
our home office. You may surrender the Policy by sending us the Policy and a
written request for its surrender. You may request that the surrender value be
paid to you in cash or, as an alternative, you may request that the surrender
value be applied on a settlement option or to provide extended protection
insurance on the life of the insured.
A partial surrender of the actual cash value of the Policy is also permitted
in any amount of $500 or more. However, a partial surrender will not be
permitted, if immediately after the partial surrender, it would reduce the
actual cash value to an amount which is less than 10 percent of the policy value
immediately after the partial surrender. Except for VAL '95, the greater of the
face amount or the
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death benefit of the Policy will be reduced by the amount of the partial
surrender and the Policy will be adjusted to reflect the new face amount and
actual cash value and, unless otherwise instructed, the existing level of
premium payments. With a VAL '95 Policy with the Protection Option death
benefit, the face amount after adjustment will be equal to the face amount of
the Policy immediately prior to the adjustment.
We are currently waiving these restrictions requiring a minimum amount for a
partial surrender where a partial withdrawal from a Policy, which is on stop
premium, is being used to pay premiums for sub-standard risks of premiums on any
benefits and riders issued as part of the Policy. Transaction fees otherwise
applicable to such a partial withdrawal are also waived.
On a partial surrender, you may tell us which Variable Life Account
sub-accounts from which a partial surrender is to be taken or whether it is to
be taken in whole or in part from the guaranteed principal account. If you do
not, partial surrenders will be deducted from your guaranteed principal account
actual cash value and separate account actual cash value in the same proportion
that those values bear to each other and, as to the actual cash value in the
separate account, from each sub-account in the proportion that the actual cash
value in such sub-account bears to your actual cash value in all of the
sub-accounts. We will tell you, on request, what amounts are available for a
partial surrender under your Policy.
Payment of a surrender or partial surrender will be made as soon as
possible, but not later than seven days after our receipt of your written
request for surrender. However, an exception to this is that if any portion of
the actual cash value to be surrendered is attributable to a premium or
nonrepeating premium payment made by non-guaranteed funds such as a personal
check, we will delay mailing that portion of the surrender proceeds until we
have reasonable assurance that the payment has cleared and that good payment has
been collected. The amount you receive on surrender may be more or less than the
total premiums paid to your Policy.
FREE LOOK
It is important to us that you are satisfied with this Policy after it is
issued. If you are not satisfied with it, you may return the Policy to us or
your agent by the later of: (a) ten days after you receive it; (b) 45 days after
you have signed the application; or (c) ten days after we mail to you a notice
of your right of withdrawal. If you return the Policy, you will receive within
seven days of the date we receive your notice of cancellation a full refund of
the premiums you have paid.
If the Policy is adjusted, as described under the heading "Policy
Adjustments" in this prospectus on page 14, and if the adjustment results in an
increased premium, you will again have a right to examine the Policy and you may
return the Policy within the time periods stated in the immediately preceding
paragraph. If you return the Policy, the requested premium adjustment will be
cancelled. You will receive a refund of the additional premiums paid within
seven days of the date we receive your notice of cancellation for that
adjustment.
CONVERSION
So long as your Policy is in force and all scheduled premiums have been duly
paid, you may convert the Policy to an adjustable life policy, with a fixed
death benefit and cash values, which we may then offer. This right is in
addition to your right to make described policy adjustments. For VAL '95, this
conversion privilege is only available during the first 24 months from the
original policy date, but comparable fixed insurance coverage can be obtained
after 24 months from the original policy date by transferring all of the policy
value to the guaranteed principal account and thereafter allocating all premiums
to that account.
The converted Policy shall have the same face amount as is currently
provided by your Policy and premiums based upon the same issue age and risk
classification of the insured as stated in your Policy. The premiums and actual
cash values provided by the converted Policy may be different as a result of an
equitable adjustment made to reflect any variances in the premiums and cash
values under the Policy and the new Policy.
POLICY CHARGES
PREMIUM CHARGES Premium charges vary depending on whether the premium is a
scheduled premium or a nonrepeating premium. Generally, the word "premium" when
used in this prospectus means a scheduled premium only. With VAL '87, charges
for sub-standard risks are assessed against the actual cash values. With VAL
'95, charges for sub-standard risks are deducted from the premium, to calculate
the base premium.
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With both VAL '87 and VAL '95, charges for additional benefits are deducted from
the premium to calculate the base premium.
From base premiums we deduct a sales load, an underwriting charge, a premium
tax charge and a face amount guarantee charge. The base premium excludes any
charge deducted from the premium to provide for any additional benefits provided
by rider and, in the case of VAL '95, any charge deducted for sub-standard
risks. With VAL '87, any charge for sub-standard risk is deducted from the
Policy's actual cash value.
(1) The SALES LOAD consists of a deduction from each premium of 7 percent and it
may also include a first year sales load deduction not to exceed 23 percent.
The first year sales load will apply only to base premiums, scheduled to be
paid in the twelve month period following the policy date, any policy
adjustment involving an increase in base premium or any policy adjustment
occurring during a period when a first year sales load is being assessed. It
will also apply only to that portion of an annual base premium necessary for
an original issue whole life plan of insurance. In other words, for plans of
insurance greater than whole life, the amount of the base premium in excess
of such whole life base premium will be subject only to the 7 percent basic
sales load.
If any adjustment involving an increase in base premium occurs, a first
year sales load will be assessed on that increase in premium.
If any adjustment occurs during a period when a first year sales load is
being collected, an additional sales load will be collected over the next
twelve months. In that case, that additional first year sales load shall be
calculated using a percentage, not to exceed 23 percent, which shall be
equal to the first year sales load in effect prior to that adjustment. This
percentage shall be applied to the premium amount, determined on the basis
of the lesser of the base premium in effect prior to or following the
adjustment, to be received during the time from the current adjustment to
the end of the period over which the prior first year sales load was being
collected. This additional first year sales load will be collected during
the twelve month period following the adjustment together with the sales
load applicable to the adjustment.
All of the sales load charges are designed to average not more than 9
percent of the base premiums (in the case of a VAL '87 Policy, the base
premium less any charge for sub-standard risks) over the lesser of: the life
expectancy of the insured at policy issue or adjustment; or 15 years from
the policy issue or adjustment; or the premium paying period. Compliance
with the 9 percent ceiling will be achieved by reducing the amount of the
first year sales load, if necessary. For examples of how we compute sales
load charges, see the heading "Examples of Sales Load Computations" in this
prospectus on page 32.
The sales load is designed to compensate us for distribution expenses
incurred with respect to the Policies. The amount of the sales load in any
policy year cannot be specifically related to sales expenses for that year.
To the extent that sales expenses are not recovered from the sales load, we
will recover them from our other assets or surplus including profits from
mortality and expense risk charges.
(2) The UNDERWRITING CHARGE currently is an amount not to exceed $5 per $1,000
of face amount of insurance. This amount may vary by the age of the insured
and the premium level for a given amount of insurance. This charge is made
ratably from premiums scheduled to be made during the first policy year and
during the twelve months following certain policy adjustments. The
underwriting charge is designed to compensate us for the administrative
costs associated with issuance or adjustment of the Policies, including the
cost of processing applications, conducting medical exams, classifying
risks, determining insurability and risk class and establishing policy
records. This charge is not guaranteed, so that on a policy adjustment the
then current underwriting charge will apply to any increase in face amount
which requires new evidence of insurability. In the event of a policy
adjustment which results in a face amount increase and no premium, you must
then remit the then current underwriting charge to us prior to the effective
date of the adjustment or we
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will assess the charge against your actual cash value as a transaction
charge on adjustment. The underwriting charge is not expected to be a source
of profit to us.
(3) The PREMIUM TAX CHARGE of 2.5 percent is deducted from each base premium.
This charge is designed to cover the aggregate premium taxes we pay to state
and local governments for this class of policies. This charge is not
guaranteed and may be increased in the future, but only as necessary to
cover our premium tax expenses.
(4) The FACE AMOUNT GUARANTEE CHARGE of 1.5 percent is deducted from each base
premium. This charge is designed to compensate us for our guarantee that the
death benefit will always be at least equal to the current face amount in
effect at the time of death regardless of the investment performance of the
sub-accounts in which net premiums have been invested. The face amount of a
Policy at issue or adjustment and the appropriate premium therefor reflect a
"tabular cash value" (defined on page 15 above) based upon an assumed annual
rate of return of 4 percent. If the policy value is less than the tabular
cash value at the time of death, it will not be sufficient to support the
face amount of the Policy under the actuarial assumptions made in designing
the Policy. The face amount guarantee is a guarantee that the face amount
will be available as a death benefit notwithstanding the failure of the
Policy to perform in accordance with the assumptions made in its design.
Thus, even if the policy value should be less than the amount needed to pay
the deductions to be made from the actual cash value on the next monthly
policy anniversary, see discussion below, the Policy's guaranteed death
benefit will remain in effect and the Policy will remain in force. We
guarantee not to increase this charge.
NONREPEATING PREMIUMS Nonrepeating premiums are currently subject only to the
2.5 percent premium tax charge. No face amount guarantee charge, underwriting
charge or sales load is assessed against nonrepeating premiums.
<TABLE>
<CAPTION>
CHARGES TAKEN FROM
PREMIUM PLUS, IN THE FIRST YEAR
- ------------------------- ------------------------
<S> <C>
7.00% Sales Load Additional Sales
1.50% Face Amount Load (up to 23%)
Guarantee Underwriting Charge
2.50% Premium Tax (up to $5/$1000 of
11.00% Total Insurance Coverage)
</TABLE>
ACTUAL CASH VALUE CHARGES In addition to deductions from premiums and
nonrepeating premiums, we assess from the actual cash value of a Policy an
administration charge, certain transaction charges and the cost of insurance
charge, (and in the case of a VAL '87 Policy, any charge for sub-standard
risks). These charges are as follows:
(1) The ADMINISTRATION CHARGE is designed to cover certain of our administrative
expenses, including those attributable to the records maintained for your
Policy. The administration charge is $60 for each policy year. This charge
is not expected to be a source of profit to us.
(2) The TRANSACTION CHARGES are for expenses associated with processing
transactions. There is a charge of $25 for each policy adjustment. We also
reserve the right to make a charge, not to exceed $10, for each transfer of
actual cash value among the guaranteed principal account and the
sub-accounts of the Variable Life Account. No charge is currently made for
transfers. If the only policy adjustment is a partial surrender, the
transaction charge shall be the lesser of $25 or 2 percent of the amount
surrendered.
(3) The COST OF INSURANCE CHARGE compensates us for providing the death benefit
under a Policy. The charge is calculated by multiplying the net amount at
risk under your Policy by a rate which varies with the insured's age, sex,
risk class, the level of scheduled premiums for a given amount of insurance,
duration of the Policy and the smoking habits of the insured. The rate is
guaranteed not to exceed the maximum charges for mortality derived from the
1980 Commissioners Standard Ordinary Mortality Tables. The net amount at
risk is the death benefit under your Policy less your policy value. Where
circumstances require, we will base our rates on "unisex," rather than
sex-based, mortality tables.
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Administration, and cost of insurance (and for a VAL '87 Policy,
sub-standard risk charges, if any,) are assessed against your actual cash value
on the monthly policy anniversary. In addition, such charges are assessed on the
occurrence of the death of the insured, policy surrender, lapse or a policy
adjustment. Transaction charges are assessed against your actual cash value at
the time of a policy adjustment or when a transfer is made. In the case of a
transfer, the charge is assessed against the amount transferred. Charges will be
assessed against your actual cash value. They will be assessed against your
guaranteed principal account actual cash value and separate account actual cash
value in the same proportion that those values bear to each other and, as to the
actual cash value in the separate account, from each sub-account in the
proportion that the actual cash value in such sub-account bears to your actual
cash value in all of the sub-accounts.
CHARGES TAKEN FROM ACTUAL CASH VALUE
- - Administration Charge ($60/year)
- - Cost of Insurance Charge
- - If Applicable: Special Risk Charge, Transac-
tion Charge and Charge for Sub-Standard
Risks
SEPARATE ACCOUNT CHARGES We assess a mortality and expense risk charge
directly against the assets held in the Variable Life Account. The mortality and
expense risk charge compensates us for assuming the risks that cost of insurance
charges will be insufficient to cover actual mortality experience and that the
other charges will not cover our expenses in connection with the Policy. The
mortality and expense risk charge is deducted from Variable Life Account assets
on each valuation date at an annual rate of .50 percent of the average daily net
assets of the Variable Life Account.
We reserve the right to charge or make provision for any taxes payable by us
with respect to the Variable Life Account or the Policies by a charge or
adjustment to such assets. No such charge or provision is made at the present
time.
CHARGES TAKEN FROM SEPARATE ACCOUNT
- - .50% Mortality and Expense Risk Charge
EXAMPLES OF SALES LOAD COMPUTATIONS As noted previously, all sales load
charges are designed to average not more than 9 percent of base premiums (in the
case of a VAL '87 Policy, the base premium less any charge for sub-standard
risks) over the lesser of: the life expectancy of the insured at policy issue or
adjustment, or 15 years from the policy issue or adjustment; or the premium
paying period. A number of examples of sales load computations are included in
Appendix V, Example of Sales Load Computation, in this prospectus on page 91.
It should be noted from the above that the sales load charges are designed
to be spread over time and they assume a continuation of the Policy. Early
adjustment of the Policy to lower premium levels or early surrender of policy
values will have the effect of increasing the portion of premium payments used
for sales load charges. In addition, because a first year sales load is applied
to increases in premium, a pattern of adjustments should be avoided where a
decreased premium schedule is followed by a subsequent increase in premium.
POLICIES ISSUED IN EXCHANGE Certain charges assessed against base premiums as
described above will be waived or modified in situations where existing
Minnesota Mutual life insurance policy owners wish to exchange their policies
for the Policies described herein. Those policy owners may do so, subject to
their application for this Policy and our approval of the exchange. A $100
administrative charge is currently required for the exchange.
In those situations where a Policy is issued in exchange for a current
policy issued by us, we will not assess any charges, except for the
administrative charge, to the existing cash values at the time they are
transferred to the Policy. Subsequent premium payments, absent adjustment and
unless the exchanged policy was not in force for at least one year, will not be
subject to a first year sales load or underwriting charge at the established
face amount and the level of premiums of the exchanged policy. All other charges
will apply to the Policy and premiums paid under it thereafter.
OTHER POLICY PROVISIONS
ADDITIONAL BENEFITS When a Policy is issued, you may be able to obtain
additional policy benefits. These benefits will be provided by a rider to the
Policy, which may require the payment of additional premium. The Waiver of
Premium Agreement provides for the payment of policy premium in the
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<PAGE>
event of the insured's disability. Waiver of premium coverage is provided on
most Policies, unless you elect not to have it. The Face Amount Increase
Agreement provides for the insured's guaranteed insurability on Policies issued
between an insured's age of 0 and 37. The Family Term Rider provides fixed
amount protection insurance on children of an insured.
Three agreements may be added by us at no extra cost: the Cost of Living
Agreement, which provides for face amount increases without evidence of
insurability, the Exchange of Insurance Agreement, which allows for the transfer
of existing insurance coverage to another insured within a business setting, and
the Accelerated Benefits Agreement, which allows for the payment of an
accelerated benefit payment, in the form of a loan against the Policy, if you
have a terminal condition as described in the rider. Certain restrictions may
apply to each type of coverage and those restrictions are described in each
rider. Samples of these riders are available from us on request.
Most Policies will be issued with a Cost of Living Agreement. This agreement
helps you maintain the purchasing power of the protection provided by the
Policy. The agreement is automatically included on Policies issued on a standard
premium basis for insureds with an attained age of 52 or under and, subject to
underwriting approval, on some Policies on a sub-standard basis. There is no
specific premium charge for this feature.
The Cost of Living Agreement provides for a face amount increase equal to
the percentage increase in the consumer price index during the previous three
years, provided that you have not made a face amount adjustment during that
time. Unless we agree otherwise, the cost of living increase may not exceed 20
percent of the Policy's face amount before the increase or $100,000. An increase
in premiums is required for the additional coverage but no proof of insurability
is necessary. The increase in premiums and face amount is treated as a policy
adjustment described elsewhere in this prospectus. Prior to the effective date
of the increased coverage we will notify you of the offered increase in face
amount and the required premium increase for the new face amount. You may elect
to accept the increase in face amount and premium. If you fail to accept the
cost of living face amount increase, no further increases will generally be
offered when the insured is over the age of 21.
Policies issued to individual insureds will be issued with the Accelerated
Benefits Agreement. This agreement allows you to receive a significant portion
of your Policy's death benefit, which for this purpose is essentially defined as
the face amount less any policy loan, while you are still living. Subject to
certain conditions, you may apply to receive a loan in excess of the Policy's
maximum loan amount if the insured develops a terminal condition due to sickness
or injury. A terminal condition is defined as having a life expectancy of 12
months or less. The maximum accelerated benefit we will pay is the lesser of
$1,000,000 or 75 percent of the death benefit. The minimum accelerated benefit
we will pay is $10,000.
The accelerated benefit will be treated as a loan, apart from the policy
loan provisions described elsewhere. Amounts received as a loan under the
Accelerated Benefit Agreement will be charged interest at an annual rate not to
exceed the greater of the "published monthly average" for the calendar month
ending two months before the beginning of the calendar quarter in which you made
application for the accelerated benefit or the policy loan interest rate. The
"published monthly average" means the Moody's Composite Average Of Yields On
Bonds as published by the Moody's Investors Service. Once the accelerated
benefit is paid, the interest rate will not change. Upon the death of the
insured, the accrued loan balance will be deducted prior to the payment of the
Policy's proceeds. A receipt of amounts under the agreement may be taxable. You
should seek assistance from your personal tax adviser.
We also make available a Survivorship Life Agreement. This agreement, which
has an extra cost, allows you to purchase a specified amount of additional
insurance, without evidence of insurability, at the death of another person
previously designated by you. This right extends for a period of 90 days after
the death of that other person. Typically, the person you designate will also
purchase a similar right to buy additional life insurance in the event of your
death. In the event you and the previously designated life die simultaneously,
we will pay your beneficiary one-half of the specified amount of this agreement
in addition to the death benefit due on your Policy.
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<PAGE>
The Survivorship Life Agreement is useful if there is another person whose
death would require you to need more life insurance protection. It is of
particular benefit to a husband and wife who wish to provide liquidity to pay
estate taxes, and to business owners who wish to insure the continuity of their
business in the event of one of the owner's premature death by providing
themselves with the right to purchase needed additional insurance.
The Short Term Agreement is temporary protection insurance, on a fixed death
benefit basis only, issued for a period of time less than a year. It is issued
to provide temporary life insurance coverage until the later issue date of the
insured's Policy. It may be used in situations where specific policy dating is
required, yet insurance coverage is needed immediately. The Short Term Agreement
terminates on the policy issue date of the Policy.
BENEFICIARY When we receive proof satisfactory to us of the insured's death,
we will pay the death proceeds of a Policy to the beneficiary or beneficiaries
named in the application for the Policy unless the owner has changed the
beneficiary. In that event, we will pay the death proceeds to the beneficiary
named in the last change of beneficiary request as provided below.
If a beneficiary dies before the insured, that beneficiary's interest in the
Policy ends with that beneficiary's death. Only those beneficiaries who survive
the insured will be eligible to share in the death proceeds. If no beneficiary
survives the insured we will pay the death proceeds of this Policy to the owner,
if living, otherwise to the owner's estate, or, if the owner is a corporation,
to it or its successor.
You may change the beneficiary designated to receive the proceeds. If you
have reserved the right to change the beneficiary, you can file a written
request with us to change the beneficiary. If you have not reserved the right to
change the beneficiary, the written consent of the irrevocable beneficiary will
be required.
Your written request will not be effective until it is recorded in our home
office. After it has been so recorded, it will take effect as of the date you
signed the request. However, if the insured dies before the request has been so
recorded, the request will not be effective as to those death proceeds we have
paid before your request was recorded in our home office records.
ASSIGNMENT The Policy may be assigned. The assignment must be in writing and
filed at our home office in St. Paul, Minnesota. We assume no responsibility for
the validity or effect of any assignment of the Policy or of any interest in it.
Any proceeds which become payable to an assignee will be payable in a single
sum. Any claim made by an assignee will be subject to proof of the assignee's
interest and the extent of the assignment.
SETTLEMENT OPTIONS The proceeds of a Policy will be payable if the Policy is
surrendered, or we receive proof satisfactory to us of the insured's death.
These events must occur while the Policy is in force. The proceeds will be paid
at our home office and in a single sum unless a settlement option has been
selected. We will deduct any indebtedness and unpaid charges from the proceeds.
Proof of any claim under this Policy must be submitted in writing to our home
office.
We will pay interest on single sum death proceeds from the date of the
insured's death until the date of payment. Interest will be at an annual rate
determined by us, but never less than 3 percent (4 percent for VAL '87).
The proceeds of a Policy may be paid in other than a single sum and you may,
during the lifetime of the insured, request that we pay the proceeds under one
of the Policy's settlement options. We may also use any other method of payment
that is agreeable between you and us. A settlement option may be selected only
if the payments are to be made to a natural person in that person's own right.
Each settlement option is payable in fixed amounts as described below. The
payments do not vary with the investment performance of the Variable Life
Account.
OPTION 1--INTEREST PAYMENTS
This is an annuity based upon the payment of interest on the proceeds at
such times and for a period that is agreeable to you and us. Withdrawals of
proceeds may be made in amounts of at least $500. At the end of the period, any
remaining proceeds will be paid in either a single sum or under any other method
we approve.
OPTION 2--PAYMENTS FOR A SPECIFIED PERIOD
This is an annuity payable for a specified number of years. The amount of
guaranteed payments for each $1,000 of proceeds applied is as shown in the
Policy. Monthly
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<PAGE>
payments for periods not shown and current rates are available from us at your
request.
OPTION 3--LIFE INCOME
This is an annuity payable monthly during the lifetime of the person who is
to receive the income and terminating with the last monthly payment immediately
preceding that person's death. We may require proof of the age and sex of the
annuitant. The amount of guaranteed payments for each $1,000 of proceeds applied
is as shown in the Policy. Monthly payments for ages not shown and current rates
are available from us at your request. It would be possible under this option
for the annuitant to receive only one annuity payment if he died prior to the
due date of the second annuity payment, two if he died before the due date of
the third annuity payment, etc.
OPTION 4--PAYMENTS OF A SPECIFIED AMOUNT
This is an annuity payable in a specified amount until the proceeds and
interest are fully paid.
If you request a settlement option, you will be asked to sign an agreement
covering the election which will state the terms and conditions of the payments.
Unless you elect otherwise, a beneficiary may select a settlement option after
the insured's death.
The minimum amount of interest we will pay under any settlement option is 3
percent per annum (4 percent for a VAL '87 Policy). Additional interest
earnings, if any, on deposits under a settlement option will be payable as
determined by us.
MISSTATEMENT OF AGE If the insured's age has been misstated, the amount of
proceeds payable under the Policy will be adjusted to reflect cost of insurance
charges based upon the insured's correct age.
INCONTESTABILITY After a Policy has been in force during the insured's
lifetime for two years from the original policy date, we cannot contest the
Policy, except for fraud or for nonpayment of premium. However, if there has
been a face amount increase for which we required evidence of insurability, that
increase will be contestable for two years with respect to information provided
at that time, during the lifetime of the insured, from the effective date of the
increase.
SUICIDE If the insured, whether sane or insane, dies by suicide, within two
years of the original policy date, our liability will be limited to an amount
equal to the premiums paid for the Policy. If there has been a face amount
increase for which we required evidence of insurability, and if the insured dies
by suicide within two years from the effective date of the increase, our
liability with respect to the increase will be limited to an amount equal to the
premiums paid for such increase.
DIVIDENDS The Policies are participating policies. Each year we will
determine if this class of Policies and your Policy will share in our divisible
surplus. We call your share of this participation a dividend. We do not
anticipate that dividends will be declared with respect to these Policies.
Dividends, if received, may be added to your actual cash value or, if you so
elect, they may be paid in cash.
A dividend applied to actual cash value will be allocated to the guaranteed
principal account or to the sub-accounts of the separate account in accordance
with your instructions for new premiums. In the absence of instruction,
dividends will be allocated to the guaranteed principal account actual cash
value and separate account actual cash value in the same proportion that those
actual cash values bear to each other and, as to the actual cash value in the
separate account, to each sub-account in the proportion that the actual cash
value in such sub-account bears to your actual cash value in all of the sub-
accounts.
REPORTS Each year we will send you a report. This report will show your
Policy's status on the policy anniversary. It will include the actual cash
value, the tabular cash value, the face amount and the variable death benefit as
of the date of the report. It will also show the premiums paid during the year,
policy loan activity and the policy value. The report will be sent to you
without cost. The report will be as of a date within two months of its mailing.
PAYMENT OF PROCEEDS Normally, we will pay any policy proceeds within seven
days after our receipt of all the documents required for such a payment. Other
than the death proceeds, which are determined as of the date of death of the
insured, the amount of payment will be determined as of the end of the valuation
period during which a request is received at our home office. However, we
reserve the right to defer policy payments, including policy loans, for up to
six months from the date of your request, if such payments are based upon policy
values which
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<PAGE>
do not depend on the investment performance of the Variable Life Account. In
that case, if we postpone a payment other than a policy loan payment for more
than 31 days, we will pay you interest at 3 percent per annum (4 percent for a
VAL '87 Policy) for the period beyond that time that payment is postponed. For
payments based on policy values which do depend on the investment performance of
the Variable Life Account, we may defer payment only: (a) for any period during
which the New York Stock Exchange is closed for trading (except for normal
holiday closing); or (b) when the Securities and Exchange Commission has
determined that a state of emergency exists which may make such payment
impractical.
- --------------------------------------------------------------------------------
OTHER MATTERS
FEDERAL TAX STATUS
The discussion contained herein is general in nature and is not intended as
tax advice. Each person concerned should consult a competent tax adviser. No
attempt is made to consider any applicable state or other tax laws. In addition,
this discussion is based on our understanding of federal income tax laws as they
are currently interpreted. No representation is made regarding the likelihood of
continuation of current income tax laws or the current interpretations of the
Internal Revenue Service.
We are taxed as a "life insurance company" under the Internal Revenue Code.
The operations of the Variable Life Account form a part of, and are taxed with,
our other business activities. Currently, no federal income tax is payable by us
on income dividends received by the Variable Life Account or on capital gains
arising from the Variable Life Account's activities. The Variable Life Account
is not taxed as a "regulated investment company" under the Code and it does not
anticipate any change in that tax status.
On the death of the insured, we believe that the death benefit provided by
the Policies will be excludable from the gross income of the beneficiary under
Section 101(a) of the Internal Revenue Code. Additionally, under Section 7702 of
the Code, life insurance contracts such as the Policies will be treated as life
insurance under the Code if certain tests are met. Guidance on how these tests
are to be applied is limited.
However, the Internal Revenue Service has issued proposed regulations that
would specify what will be considered reasonable mortality charges under Section
7702. In light of these proposed regulations and the other available guidance on
the application of the tests under Section 7702, we generally believe that a
Policy issued in respect of a standard risk should meet the statutory definition
of a life insurance contract under Section 7702. However, it remains unclear
whether a substandard risk Policy will meet the statutory life insurance
contract definition.
Section 817(h) of the Code authorizes the Treasury to set standards by
regulation or otherwise for the investments of the Variable Life Account to be
"adequately diversified" in order for the Policy to be treated as a life
insurance contract for Federal tax purposes. The Variable Life Account, through
the Fund, intends to comply with the diversification requirements prescribed in
Regulations Section 1.817-5, which affect how the Fund's assets may be invested.
Although the investment adviser is an affiliate of Minnesota Mutual, Minnesota
Mutual does not have control over the Fund or its investments. Nonetheless,
Minnesota Mutual believes that each Portfolio of the Fund in which the Variable
Life Account owns shares will be operated in compliance with the requirements
prescribed by the Treasury.
In certain circumstances, owners of variable life policies may be considered
the owners, for federal income tax purposes, of the assets of the separate
account used to support their policies. In those circumstances, income and gains
from the separate account assets would be includible in the variable life policy
owner's gross income. The IRS has stated in published rulings that a variable
policy owner will be considered the owner of separate account assets if the
policy owner possesses incidents of ownership in those assets, such as the
ability to exercise the investment control over the assets. The Treasury
Department has also announced, in connection with the issuance of regulations
concerning investment diversification, that those regulations "do not provide
guidance concerning the circumstances in which
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<PAGE>
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." This announcement also
states that guidance would be issued by way of regulations or rulings on the
"extent to which policyholders may direct their investments to particular
subaccounts without being treated as owners of the underlying assets." As of the
date of this prospectus, no such guidance has been issued.
The ownership rights under the Policy are similar to, but different in
certain respects from, those described by the IRS in rulings in which it was
determined that policy owners were not owners of separate account assets. For
example, the owner of a Policy has the choice of more sub-accounts in which to
allocate net purchase payments and policy values, and may be able to transfer
among sub-accounts more frequently than in such rulings. These differences could
result in a policy owner being treated as the owner of the assets of the
Variable Life Account. In addition, we do not know what standards will be set
forth, if any, in the regulations or rulings which the Treasury Department has
stated it expects to issue. We therefore reserve the right to modify the Policy
as necessary to attempt to prevent a policy owner from being considered the
owner of a pro rata share of the assets of the Variable Life Account.
The following discussion assumes that the Policy will qualify as a life
insurance contract for Federal income tax purposes.
The policy owner is not currently taxed on any part of his interest until
the policy owner actually receives cash from the Policy. However, taxability may
also be determined by the individual's contributions to the Policy and prior
Policy activity. We also believe that policy loans will be treated as
indebtedness and will not be currently taxable as income to the policy owner.
However, a surrender or partial surrender of the actual cash values of a Policy
may have tax consequences. On surrender, a policy owner will not be taxed on
values received except to the extent that they exceed the gross premiums paid
under the Policy. An exception to this general rule occurs in the case of a
partial withdrawal, a decrease in the face amount, or any other change that
reduces benefits under the Policy in the first 15 years after the Policy is
issued and that results in a cash distribution to the policy owner in order for
the Policy to continue complying with the Section 7702 definitional limits. In
that case, such distribution will be taxed in whole or in part as ordinary
income (to the extent of any gain in the Policy) under rules prescribed in
Section 7702. Premiums for additional benefits are not used in the calculation
for computing the tax on actual cash values.
It should be noted, however, that under the Internal Revenue Code the tax
treatment described above is available only for policies not described as a
modified endowment contract. In general, the tests used in the Code to make such
a determination will have an impact on policies which have a high premium in
relation to the death benefit. Thus, the Code requires that the cumulative
premiums paid on a life insurance policy during the first seven contract years
not exceed the sum of the net level premiums which would be paid under a 7-pay
life policy. If the cumulative premiums during the first seven contract years
exceed the 7-pay life premiums, the policy is a modified endowment contract.
Modified endowment contracts would still be treated as life insurance with
respect to the tax treatment of death proceeds and to the extent that the inside
build-up of cash value would not be taxed on a yearly basis. However, any
amounts received by the policy owner, such as dividends, cash withdrawals, loans
and amounts received from partial or total surrender of the contract would be
subject to the same tax treatment as the same amounts received under an annuity.
This annuity tax treatment includes the 10 percent additional income tax which
would be imposed on the portion of any distribution that is included in income
except where the distribution or loan is made on or after the policy owner
attains age 59 1/2, or is attributable to the policy owner becoming disabled, or
as part of a series of substantially equal periodic payments for the life of the
policy owner or the joint lives of the policy owner and beneficiary.
The provisions of the Code apply to all policies entered into on or after
June 21, 1988. It should be noted, in addition, that a policy which is subject
to a "material change" shall be treated as newly entered into on the date on
which such material change takes effect. Appropriate adjustment shall be made in
determining whether such a policy meets
37
<PAGE>
the 7-pay test by taking into account the previously existing cash surrender
value. The addition of the guaranteed principal account to an outstanding Policy
may have Federal income tax implications, e.g., whether the addition of such
account causes a "material change." While certain adjustments described herein
may result in a material change, the law provides that any cost of living
increase described in the regulations and based upon an established broad-based
index will not be treated as a material change if any increase is funded ratably
over the remaining period during which premiums are required to be paid under
the policy. To date, no regulations under this provision have been issued.
Due to the Policy's flexibility, classification of a Policy as a modified
endowment contract will depend upon the circumstances of each Policy.
Accordingly, a prospective policy owner should contact a competent tax adviser
before purchasing a policy to determine the circumstances under which the Policy
would be a modified endowment contract. In addition, a policy owner should
contact a competent tax adviser before paying any nonrepeating premiums or
making any other change to, including an exchange of, a Policy to determine
whether such premium or change would cause the Policy (or the new Policy in the
case of an exchange) to be treated as a modified endowment contract.
Under the Code, all modified endowment contracts, issued by us (or an
affiliated company) to the same policy owner during any calendar year will be
treated as one modified endowment contract for purposes of determining the
amount includable in gross income under Section 72(e) of the Code. Additional
rules may be promulgated under this provision to prevent avoidance of its
effects through serial contracts or otherwise. For further information on
current aggregation rules under this provision, see your own tax adviser. A life
insurance policy received in exchange for a modified endowment contract will
also be treated as a modified endowment contract. Accordingly, a policy owner
should consult a tax adviser before effecting an exchange of any life insurance
policy.
Federal estate and state and local estate, inheritance, and other tax
consequences of ownership or receipt of Policy proceeds depend upon the
circumstances of each policy owner or beneficiary. A competent tax adviser
should be consulted for further information.
The Policies may be used in various arrangements, including nonqualified
deferred compensation or salary continuance plans, split dollar insurance plans,
executive bonus plans, retiree medical benefit plans and others. The tax
consequences of such plans may vary depending on the particular facts and
circumstances of each individual arrangement. Therefore, if you are
contemplating the use of such Policies in any arrangement the value of which
depends in part on its tax consequences, you should be sure to consult a
qualified tax adviser regarding the tax attributes of the particular
arrangement.
It should be understood that the foregoing description of the federal income
tax consequences under the Policies is not exhaustive and that special rules are
provided with respect to situations not discussed. Statutory changes in the
Internal Revenue Code, with varying effective dates, and regulations adopted
thereunder may also alter the tax consequences of specific factual situations.
Due to the complexity of the applicable laws, tax advice may be needed by a
person contemplating the purchase of a variable life insurance policy or
exercising elections under such a policy. For further information, a qualified
tax adviser should be consulted.
At the present time, we make no charge to the Variable Life Account for any
Federal, state or local taxes (other than state premium taxes) that we incur
that may be attributable to such Account or to the Policies. We, however,
reserve the right in the future to make a charge for any such tax or other
economic burden resulting from the application of the tax laws that we determine
to be properly attributable to the Variable Life Account or the Policies.
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<PAGE>
TRUSTEES AND PRINCIPAL OFFICERS OF MINNESOTA MUTUAL
The Trustees and principal officers of Minnesota Mutual are as follows:
<TABLE>
<CAPTION>
Trustees Principal Occupation
- ------------------------- -----------------------------------------------------------
<S> <C>
Anthony L. Andersen Chair--Board of Directors and Chief Executive Officer, H.
B. Fuller Company, St. Paul, Minnesota (Adhesive Products)
Coleman Bloomfield Chairman of the Board, The Minnesota Mutual Life Insurance
Company
John F. Grundhofer Chairman of the Board, President and Chief Executive
Officer, First Bank System, Inc., Minneapolis, Minnesota
(Banking)
Harold V. Haverty Chairman, President and Chief Executive Officer, Deluxe
Corporation, Shoreview, Minnesota (Check Printing)
Lloyd P. Johnson Chairman of the Board, Norwest Corporation, Minneapolis,
Minnesota (Banking)
David S. Kidwell, Ph.D. Dean and Professor of Finance, The Curtis L. Carlson School
of Management, University of Minnesota, since August 1991;
prior thereto, Dean of the School and Professor, University
of Connecticut, School of Business Administration from 1988
to July 1991
Reatha C. King, Ph.D. President and Executive Director, General Mills Foundation,
Minneapolis, Minnesota
Thomas E. Rohricht Member, Doherty, Rumble & Butler Professional Association,
St. Paul, Minnesota (Attorneys)
Terry N. Saario, Ph.D. President, Northwest Area Foundation, St. Paul, Minnesota
(Private Regional Foundation)
Robert L. Senkler Chief Executive Officer and President, The Minnesota Mutual
Life Insurance Company since July 1994; prior thereto for
more than five years Vice President and Actuary, The
Minnesota Mutual Life Insurance Company
Frederick T. Weyerhaeuser Chairman, Clearwater Management Company, St. Paul Minnesota
(Financial Management)
</TABLE>
Principal Officers (other than Trustees)
<TABLE>
<CAPTION>
Name Position
- ------------------- ----------------------
<S> <C>
John F. Bruder Senior Vice President
Keith M. Campbell Vice President
Paul H. Gooding Vice President and
Treasurer
Robert E. Hunstad Executive Vice
President
James E. Johnson Senior Vice President
and Actuary
Joel W. Mahle Vice President
Dennis E. Prohofsky Vice President,
General Counsel and
Secretary
Gregory S. Strong Vice President and
Actuary
<CAPTION>
Name Position
- ------------------- ----------------------
<S> <C>
Terrence M. Senior Vice President
Sullivan
Randy F. Wallake Senior Vice President
</TABLE>
All Trustees who are not also officers of Minnesota Mutual have had the
principal occupation (or employers) shown for at least five years with the
exception of Dr. Kidwell, whose prior employment is as indicated above. All
officers of Minnesota Mutual have been employed by Minnesota Mutual for at least
five years.
VOTING RIGHTS
We will vote the Fund shares held in the various sub-accounts of the
Variable Life Account at regular and special shareholder meetings of the Fund in
accordance with your instructions. If, however, the 1940 Act or any
39
<PAGE>
regulation thereunder should change and we determine that it is permissible to
vote the Fund shares in our own right, we may elect to do so. The number of
votes as to which you have the right to instruct will be determined by dividing
your Policy's actual cash value in a sub-account by the net asset value per
share of the corresponding Fund portfolio. Fractional shares will be counted.
The number of votes as to which you have the right to instruct will be
determined as of the date coincident with the date established by the Fund for
determining shareholders eligible to vote at the meeting of the Fund. Voting
instructions will be solicited in writing prior to such meeting in accordance
with procedures established by the Fund. We will vote Fund shares held by the
Variable Life Account as to which no instructions are received in proportion to
the voting instructions which are received from policy owners with respect to
all Policies participating in the Variable Life Account. Each policy owner
having a voting interest will receive proxy material, reports and other material
relating to the Fund.
We may, when required by state insurance regulatory authorities, disregard
voting instructions if the instructions require that shares be voted so as to
cause a change in subclassification or investment policies of the Fund or
approve or disapprove an investment advisory contract of the Fund. In addition,
we may disregard voting instructions in favor of changes in the investment
policies or the investment adviser of the Fund if we reasonably disapprove of
such changes. A change would be disapproved only if the proposed change is
contrary to state law or disapproved by state regulatory authorities on a
determination that the change would be detrimental to the interests of policy
owners or if we determined that the change would be inconsistent with the
investment objectives of the Fund or would result in the purchase of securities
for the Fund which vary from the general quality and nature of investments and
investment techniques utilized by other separate accounts created by us or any
of our affiliates which have similar investment objectives. In the event that we
disregard voting instructions, a summary of that action and the reason for such
action will be included in your next semi-annual report.
DISTRIBUTION OF POLICIES
The Policies will be sold by our state licensed life insurance agents who
are also registered representatives of MIMLIC Sales Corporation ("MIMLIC Sales")
or of other broker-dealers who have entered into selling agreements with MIMLIC
Sales. MIMLIC Sales acts as principal underwriter for the Policies. MIMLIC Sales
is a wholly-owned subsidiary of MIMLIC Corporation, which in turn is a
wholly-owned subsidiary of Minnesota Mutual. MIMLIC Corporation is also the sole
owner of the shares of MIMLIC Asset Management Company, a registered investment
adviser and the investment adviser to the Fund.
MIMLIC Sales Corporation, whose address is 400 Robert Street North, St.
Paul, Minnesota 55101-2098, is a registered broker-dealer under the Securities
Exchange Act of 1934 and a member of the National Association of Securities
Dealers, Inc. The Policies are sold in the states where their sale is lawful.
The insurance underwriting and the determination of a proposed insured's risk
classification and whether to accept or reject an application for a Policy is
done in accordance with our rules and standards.
Commissions to registered representatives on the sale of Policies include:
up to 50 percent of gross premium in the first policy year; 6 percent of the
gross premium in policy years two through ten; 2 percent in policy years
thereafter; and 0 percent of nonrepeating premiums. This description of
commissions shows the maximum amount of commissions payable under the Variable
Adjustable Life Insurance Policy for plans of insurance described as protection
and whole life insurance plans. The commissions payable on premiums received for
plans described as greater than whole life plans will differ from the
percentages shown above, as a first year commission will be paid only on such
amounts as we may classify as a first year premium, based upon a whole life
premium per $1,000 of face amount and a Policy face amount of $100,000. The
premiums received in excess of that amount will pay commissions at a rate of 4
percent.
In addition, MIMLIC Sales Corporation or Minnesota Mutual will pay, based
uniformly on the sales of Variable Adjustable Life Insurance Policies by
registered representatives, credits which allow registered representatives
(Agents) who are responsible for sales of the Policies to attend conventions and
other meetings sponsored by us or our affiliates for the purpose of promoting
the sale of insurance and/or investment products offered by us and our
affiliates. Such credits may cover the registered representatives'
transportation,
40
<PAGE>
hotel accommodations, meals, registration fees and the like. We may also pay
registered representatives additional amounts based upon their production and
the persistency of life insurance and annuity business placed with us.
LEGAL MATTERS
Legal matters in connection with federal securities laws applicable to the
issue and sale of the Variable Adjustable Life Policies have been passed upon by
Jones & Blouch, 2100 Pennsylvania Avenue, N.W., Washington, D.C. 20037. All
other legal matters, including the right to issue such Policies under Minnesota
law and applicable regulations thereunder, have been passed upon by Donald F.
Gruber, Esquire, 400 Robert Street North, St. Paul, Minnesota 55101.
LEGAL PROCEEDINGS
As an insurance company, we are ordinarily involved in litigation. We are of
the opinion that such litigation is not material with respect to the Policies or
the Variable Life Account.
EXPERTS
The financial statements of Minnesota Mutual and the Variable Life Account
included in this prospectus have been audited by KPMG Peat Marwick, independent
auditors, 4200 Norwest Center, 90 South Seventh Street, Minneapolis, Minnesota
55402, whose reports thereon appears elsewhere herein, and have been so included
in reliance upon the report of KPMG Peat Marwick and upon the authority of said
firm as experts in accounting and auditing.
Actuarial matters included in this prospectus have been examined by Jaymes
G. Hubbell, F.S.A., Second Vice President and Actuary of Minnesota Mutual, as
stated in his opinion filed as an exhibit to the Registration Statement.
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
Policies 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 Life Account, Minnesota Mutual, and the
Policies. Statements contained in this prospectus as to the contents of Policies
and other legal instruments are summaries, and reference is made to such
instruments as filed.
41
<PAGE>
- --------------------------------------------------------------------------------
SPECIAL TERMS
As used in this prospectus, the following terms have the indicated meanings:
ACTUAL CASH VALUE: the value of your Variable Life Account and guaranteed
principal account interest under a Policy. It is composed of a Policy's interest
in the guaranteed principal account and in one or more sub-accounts of the
Variable Life Account. The interest in each is valued separately. For each
Variable Life Account sub-account, the value is determined by multiplying the
current number of sub-account units credited to a Policy by the current
sub-account unit value. Actual cash value does not include the loan account.
BASE PREMIUM: the premium less any amount deducted from the premium for
additional benefits and, for VAL '95, for sub-standard risks.
CODE: the Internal Revenue Code of 1986, as amended.
FUND: the mutual fund or separate investment portfolio within a series mutual
fund which we have designated as an eligible investment for the Variable Life
Account, currently, MIMLIC Series Fund, Inc. and its Portfolios.
GENERAL ACCOUNT: all of our assets other than those in the Variable Life Account
or in other separate accounts established by us.
GUARANTEED PRINCIPAL ACCOUNT: the portion of the general account of Minnesota
Mutual which is attributable to Policies of this class, exclusive of policy
loans. It is not a separate account or a division of the general account.
LOAN ACCOUNT: the portion of the general account attributable to policy loans
under Policies of this type. The loan account balance is the sum of all
outstanding loans under this Policy.
NET SINGLE PREMIUM: the amount of money necessary, at the insured's attained
age, to pay for all future guaranteed cost of insurance charges for the entire
lifetime of the insured, or for the coverage period in the case of extended term
insurance, without the payment of additional premium. This determination shall
assume that the current face amount of the Policy will remain constant and that
the Policy will perform at its assumed rate of return.
NONREPEATING PREMIUM: a payment made to this Policy in addition to its scheduled
payments.
POLICY OWNER: the owner of a Policy.
POLICY VALUE: the actual cash value of a Policy plus any policy loan.
POLICY YEAR: a period of one year beginning with the policy date or a policy
anniversary.
PREMIUM: a scheduled payment required for this Policy.
UNIT: an accounting device used to determine the interest of a Policy in the
sub-accounts of the Variable Life Account.
VALUATION DATE: each date on which a Fund Portfolio is valued.
VALUATION PERIOD: the period between successive valuation dates measured from
the time of one determination to the next.
VARIABLE LIFE ACCOUNT: a separate investment account called the Minnesota Mutual
Variable Life Account, where the investment experience of its assets is kept
separate from our other assets.
WE, OUR, US: The Minnesota Mutual Life Insurance Company.
YOU, YOUR: the policy owner.
42
<PAGE>
- --------------------------------------------------------------------------------
INDEPENDENT AUDITORS' REPORT
The Board of Trustees of The Minnesota
Mutual Life Insurance Company and
Policy Owners of Minnesota Mutual
Variable Life Account:
We have audited the accompanying statements of assets and liabilities of the
Growth, Bond, Money Market, Asset Allocation, Mortgage Securities, Index 500,
Capital Appreciation, International Stock, Small Company and Value Stock
Segregated Sub-Accounts of Minnesota Mutual Variable Life Account as of December
31, 1994 and the related statements of operations and the statements of changes
in net assets for each of the years in the three-year period ended December 31,
1994 (years ended December 31, 1994 and 1993 and period from May 1, 1992 to
December 31, 1992 for International Stock Segregated Sub-Account, year ended
December 31, 1994 and period from May 3, 1993 to December 31, 1993 for Small
Company Segregated Sub-Account and period from May 2, 1994 to December 31, 1994
for Value Stock Segregated Sub-Account) and the financial highlights for each of
the years in the five-year period ended December 31, 1994 for the Growth, Bond,
Money Market, Asset Allocation, Mortgage Securities, Index 500, and Capital
Appreciation Segregated Sub-Accounts and for the years ended December 31, 1994
and 1993 and the period from May 1, 1992 to December 31, 1992 for the
International Stock Segregated Sub-Account, the year ended December 31, 1994 and
period from May 3, 1993 to December 31, 1993 for Small Company Segregated Sub-
Account and period from May 2, 1994 to December 31, 1994 for Value Stock
Segregated Sub-Account. These financial statements and the financial highlights
are the responsibility of the Account's management. Our responsibility is to
express an opinion on these financial statements and the financial highlights
based on our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements and the financial
highlights are free of material misstatement. An audit includes examining, on a
test basis, evidence supporting the amounts and disclosures in the financial
statements. Investments owned at December 31, 1994 were verified by examination
of the underlying portfolios of MIMLIC Series Fund, Inc. An audit also includes
assessing the accounting principles used and significant estimates made by
management, as well as evaluating the overall financial statement presentation.
We believe that our audits provide a reasonable basis for our opinion.
In our opinion, the financial statements and the financial highlights
referred to above present fairly, in all material respects, the financial
position of the Growth, Bond, Money Market, Asset Allocation, Mortgage
Securities, Index 500, Capital Appreciation, International Stock, Small Company
and Value Stock Segregated Sub-Accounts of Minnesota Mutual Variable Life
Account at December 31, 1994 and the results of their operations, changes in
their net assets, and the financial highlights for the periods stated in the
first paragraph above, in conformity with generally accepted accounting
principles.
KPMG Peat Marwick LLP
Minneapolis, Minnesota
February 13, 1995
43
<PAGE>
- --------------------------------------------------------------------------------
MINNESOTA MUTUAL VARIABLE LIFE ACCOUNT
STATEMENTS OF ASSETS AND LIABILITIES
DECEMBER 31, 1994
<TABLE>
<CAPTION>
SEGREGATED SUB-ACCOUNTS
-----------------------------------------------------------------------------------
MONEY ASSET MORTGAGE
GROWTH BOND MARKET ALLOCATION SECURITIES INDEX 500
-------------- ----------- ----------- ------------- ------------ ------------
<S> <C> <C> <C> <C> <C> <C>
ASSETS
Investments in shares of MIMLIC Series
Fund, Inc.:
Growth Portfolio, 9,578,603 shares at
net asset value of $1.866 per share
(cost $17,617,414) $ 17,873,678 -- -- -- -- --
Bond Portfolio, 5,167,243 shares at
net asset value of $1.157 per share
(cost $6,212,984) -- 5,977,533 -- -- -- --
Money Market Portfolio, 4,226,402
shares at net asset value of $1.000
per share (cost $4,226,402) -- -- 4,226,402 -- -- --
Asset Allocation Portfolio,
27,971,162 shares at net asset
value of $1.524 per share (cost
$42,581,514) -- -- -- 42,630,947 -- --
Mortgage Securities Portfolio,
5,124,053 shares at net asset value
of $1.098 per share (cost
$5,836,324) -- -- -- -- 5,626,795 --
Index 500 Portfolio, 10,536,776
shares at net asset value of $1.518
per share (cost $15,509,606) -- -- -- -- -- 15,999,317
Capital Appreciation Portfolio,
14,985,208 shares at net asset
value of $1.808 per share (cost
$25,319,446) -- -- -- -- -- --
International Stock Portfolio,
16,116,894 shares at net asset
value of $1.235 per share (cost
$20,203,526) -- -- -- -- -- --
Small Company Portfolio, 6,999,176
shares at net asset value of $1.226
per share (cost $8,129,341) -- -- -- -- -- --
Value Stock Portfolio, 963,696 shares
at net asset value of $1.044 per
share (cost $1,012,666) -- -- -- -- -- --
-------------- ----------- ----------- ------------- ------------ ------------
17,873,678 5,977,533 4,226,402 42,630,947 5,626,795 15,999,317
Receivable from Minnesota Mutual for
contract purchase payments 50,694 31,309 59,773 105,069 10,974 31,795
Receivable from MIMLIC Series Fund,
Inc. for investments sold 20,226 7,898 2,018 53,583 5,718 16,409
Dividends receivable from MIMLIC Series
Fund, Inc. -- -- 599 -- -- --
-------------- ----------- ----------- ------------- ------------ ------------
Total assets 17,944,598 6,016,740 4,288,792 42,789,599 5,643,487 16,047,521
-------------- ----------- ----------- ------------- ------------ ------------
<CAPTION>
LIABILITIES
<S> <C> <C> <C> <C> <C> <C>
Payable to MIMLIC Series Fund, Inc. for
investments purchased 50,694 31,309 59,773 105,069 10,974 31,795
Payable to Minnesota Mutual for
contract terminations and mortality
and expense charges 20,226 7,898 2,018 53,583 5,718 16,409
-------------- ----------- ----------- ------------- ------------ ------------
Total liabilities 70,920 39,207 61,791 158,652 16,692 48,204
-------------- ----------- ----------- ------------- ------------ ------------
NET ASSETS APPLICABLE TO POLICY OWNERS $ 17,873,678 5,977,533 4,227,001 42,630,947 5,626,795 15,999,317
-------------- ----------- ----------- ------------- ------------ ------------
-------------- ----------- ----------- ------------- ------------ ------------
UNITS OUTSTANDING 9,964,217 3,659,230 2,920,337 23,769,797 3,250,971 8,997,722
-------------- ----------- ----------- ------------- ------------ ------------
-------------- ----------- ----------- ------------- ------------ ------------
NET ASSET VALUE PER UNIT $ 1.794 1.634 1.447 1.793 1.731 1.778
-------------- ----------- ----------- ------------- ------------ ------------
-------------- ----------- ----------- ------------- ------------ ------------
<CAPTION>
CAPITAL INTERNATIONAL SMALL
APPRECIATION STOCK COMPANY VALUE STOCK
---------------- ----------------- ------------ -----------
<S> <C> <C> <C> <C>
ASSETS
Investments in shares of MIMLIC Series
Fund, Inc.:
Growth Portfolio, 9,578,603 shares at
net asset value of $1.866 per share
(cost $17,617,414) -- -- -- --
Bond Portfolio, 5,167,243 shares at
net asset value of $1.157 per share
(cost $6,212,984) -- -- -- --
Money Market Portfolio, 4,226,402
shares at net asset value of $1.000
per share (cost $4,226,402) -- -- -- --
Asset Allocation Portfolio,
27,971,162 shares at net asset
value of $1.524 per share (cost
$42,581,514) -- -- -- --
Mortgage Securities Portfolio,
5,124,053 shares at net asset value
of $1.098 per share (cost
$5,836,324) -- -- -- --
Index 500 Portfolio, 10,536,776
shares at net asset value of $1.518
per share (cost $15,509,606) -- -- -- --
Capital Appreciation Portfolio,
14,985,208 shares at net asset
value of $1.808 per share (cost
$25,319,446) 27,086,019 -- -- --
International Stock Portfolio,
16,116,894 shares at net asset
value of $1.235 per share (cost
$20,203,526) -- 19,902,092 -- --
Small Company Portfolio, 6,999,176
shares at net asset value of $1.226
per share (cost $8,129,341) -- -- 8,584,404 --
Value Stock Portfolio, 963,696 shares
at net asset value of $1.044 per
share (cost $1,012,666) -- -- -- 1,005,911
---------------- ----------------- ------------ -----------
27,086,019 19,902,092 8,584,404 1,005,911
Receivable from Minnesota Mutual for
contract purchase payments 94,563 178,877 157,558 86,077
Receivable from MIMLIC Series Fund,
Inc. for investments sold 29,735 20,550 11,930 1,325
Dividends receivable from MIMLIC Series
Fund, Inc. -- -- -- --
---------------- ----------------- ------------ -----------
Total assets 27,210,317 20,101,519 8,753,892 1,093,313
---------------- ----------------- ------------ -----------
LIABILITIES
<S> <C> <C> <C> <C>
Payable to MIMLIC Series Fund, Inc. for
investments purchased 94,563 178,877 157,558 86,077
Payable to Minnesota Mutual for
contract terminations and mortality
and expense charges 29,735 20,550 11,930 1,325
---------------- ----------------- ------------ -----------
Total liabilities 124,298 199,427 169,488 87,402
---------------- ----------------- ------------ -----------
NET ASSETS APPLICABLE TO POLICY OWNERS 27,086,019 19,902,092 8,584,404 1,005,911
---------------- ----------------- ------------ -----------
---------------- ----------------- ------------ -----------
UNITS OUTSTANDING 12,929,134 15,062,750 7,074,933 971,938
---------------- ----------------- ------------ -----------
---------------- ----------------- ------------ -----------
NET ASSET VALUE PER UNIT 2.095 1.321 1.213 1.035
---------------- ----------------- ------------ -----------
---------------- ----------------- ------------ -----------
</TABLE>
44 See accompanying notes to financial statements.
<PAGE>
- --------------------------------------------------------------------------------
MINNESOTA MUTUAL VARIABLE LIFE ACCOUNT
STATEMENTS OF OPERATIONS
YEAR ENDED DECEMBER 31, 1994 (PERIOD FROM MAY 2, 1994
TO DECEMBER 31, 1994 FOR VALUE STOCK)
<TABLE>
<CAPTION>
SEGREGATED SUB-ACCOUNTS
------------------------------------------------------------------------------------
ASSET MORTGAGE
GROWTH BOND MONEY MARKET ALLOCATION SECURITIES INDEX 500
------------- ------------ ------------ ------------- ------------ ------------
<S> <C> <C> <C> <C> <C> <C>
Investment income (loss):
Investment income distributions from
underlying mutual funds $ 137,686 176,495 116,862 750,369 209,882 199,386
Mortality and expense charges (note 3) (74,204) (23,955) (15,521) (189,661) (25,132) (66,230)
------------- ------------ ------------ ------------- ------------ ------------
Investment income (loss)--net 63,482 152,540 101,341 560,708 184,750 133,156
------------- ------------ ------------ ------------- ------------ ------------
Realized and unrealized gains (losses)
on investments--net:
Realized gain distributions from
underlying mutual fund 283,186 110,137 -- 218,666 99,701 40,363
------------- ------------ ------------ ------------- ------------ ------------
Realized gains (losses) on sales of
investments (note 4):
Proceeds from sales 5,517,029 2,347,048 5,451,482 15,550,866 2,436,609 4,825,884
Cost of investments sold (5,436,921) (2,445,624) (5,451,482) (15,569,220) (2,529,982) (4,668,104)
------------- ------------ ------------ ------------- ------------ ------------
80,108 (98,576) -- (18,354) (93,373) 157,780
------------- ------------ ------------ ------------- ------------ ------------
Net realized gains on investments 363,294 11,561 -- 200,312 6,328 198,143
------------- ------------ ------------ ------------- ------------ ------------
Net change in unrealized appreciation
or depreciation of investments (346,307) (384,138) -- (1,400,184) (369,942) (229,615)
------------- ------------ ------------ ------------- ------------ ------------
Net gains (losses) on investments 16,987 (372,577) -- (1,199,872) (363,614) (31,472)
------------- ------------ ------------ ------------- ------------ ------------
Net increase (decrease) in net assets
resulting from operations $ 80,469 (220,037) 101,341 (639,164) (178,864) 101,684
------------- ------------ ------------ ------------- ------------ ------------
------------- ------------ ------------ ------------- ------------ ------------
<CAPTION>
CAPITAL INTERNATIONAL SMALL VALUE
APPRECIATION STOCK COMPANY STOCK
---------------- ----------------- ------------ ---------
<S> <C> <C> <C> <C>
Investment income (loss):
Investment income distributions from
underlying mutual funds 17,564 351,737 11,999 7,337
Mortality and expense charges (note 3) (111,166) (70,069) (22,967) (1,056)
---------------- ----------------- ------------ ---------
Investment income (loss)--net (93,602) 281,668 (10,968) 6,281
---------------- ----------------- ------------ ---------
Realized and unrealized gains (losses)
on investments--net:
Realized gain distributions from
underlying mutual fund 298,807 577,998 -- 2,954
---------------- ----------------- ------------ ---------
Realized gains (losses) on sales of
investments (note 4):
Proceeds from sales 9,432,639 5,232,132 2,297,893 75,011
Cost of investments sold (8,941,876) (4,886,541) (2,270,554) (75,414)
---------------- ----------------- ------------ ---------
490,763 345,591 27,339 (403)
---------------- ----------------- ------------ ---------
Net realized gains on investments 789,570 923,589 27,339 2,551
---------------- ----------------- ------------ ---------
Net change in unrealized appreciation
or depreciation of investments (85,694) (1,491,123) 391,884 (6,755)
---------------- ----------------- ------------ ---------
Net gains (losses) on investments 703,876 (567,534) 419,223 (4,204)
---------------- ----------------- ------------ ---------
Net increase (decrease) in net assets
resulting from operations 610,274 (285,866) 408,255 2,077
---------------- ----------------- ------------ ---------
---------------- ----------------- ------------ ---------
</TABLE>
YEAR ENDED DECEMBER 31, 1993 (PERIOD FROM MAY 3, 1993
TO DECEMBER 31, 1993 FOR SMALL COMPANY)
<TABLE>
<CAPTION>
SEGREGATED SUB-ACCOUNTS
------------------------------------------------------------------------------------
ASSET MORTGAGE
GROWTH BOND MONEY MARKET ALLOCATION SECURITIES INDEX 500
------------- ------------ ------------ ------------- ------------ ------------
<S> <C> <C> <C> <C> <C> <C>
Investment income (loss):
Investment income distributions from
underlying mutual fund $ 99,068 96,850 46,169 421,238 117,747 122,778
Mortality and expense charges (note
3) (44,901) (14,397) (8,840) (124,535) (16,630) (41,559)
------------- ------------ ------------ ------------- ------------ ------------
Investment income (loss)--net 54,167 82,453 37,329 296,703 101,117 81,219
------------- ------------ ------------ ------------- ------------ ------------
Realized and unrealized gains on
investments--net:
Realized gain distributions from
underlying mutual fund 124,129 42,919 -- 494,621 39,468 34,607
------------- ------------ ------------ ------------- ------------ ------------
Realized gains on sales of
investments (note 4): Proceeds from
sales 4,040,872 1,348,826 2,162,659 9,508,735 1,261,896 4,277,442
Cost of investments sold (3,892,578) (1,283,714) (2,162,659) (9,203,008) (1,216,218) (4,039,899)
------------- ------------ ------------ ------------- ------------ ------------
148,294 65,112 -- 305,727 45,678 237,543
------------- ------------ ------------ ------------- ------------ ------------
Net realized gains on investments 272,423 108,031 -- 800,348 85,146 272,150
------------- ------------ ------------ ------------- ------------ ------------
Net change in unrealized appreciation
or depreciation of investments 126,006 39,172 -- 393,909 56,735 364,519
------------- ------------ ------------ ------------- ------------ ------------
Net gains on investments 398,429 147,203 -- 1,194,257 141,881 636,669
------------- ------------ ------------ ------------- ------------ ------------
Net increase in net assets resulting
from operations $ 452,596 229,656 37,329 1,490,960 242,998 717,888
------------- ------------ ------------ ------------- ------------ ------------
------------- ------------ ------------ ------------- ------------ ------------
<CAPTION>
CAPITAL INTERNATIONAL
APPRECIATION STOCK SMALL COMPANY
---------------- ----------------- -----------------
<S> <C> <C> <C>
Investment income (loss):
Investment income distributions from
underlying mutual fund 29,851 41,641 --
Mortality and expense charges (note
3) (68,412) (18,587) (1,701)
---------------- ----------------- -----------------
Investment income (loss)--net (38,561) 23,054 (1,701)
---------------- ----------------- -----------------
Realized and unrealized gains on
investments--net:
Realized gain distributions from
underlying mutual fund 310,803 45,550 19,206
---------------- ----------------- -----------------
Realized gains on sales of
investments (note 4): Proceeds from
sales 5,608,219 1,357,302 325,343
Cost of investments sold (5,370,971) (1,223,096) (318,751)
---------------- ----------------- -----------------
237,248 134,206 6,592
---------------- ----------------- -----------------
Net realized gains on investments 548,051 179,756 25,798
---------------- ----------------- -----------------
Net change in unrealized appreciation
or depreciation of investments 1,087,799 1,239,089 63,179
---------------- ----------------- -----------------
Net gains on investments 1,635,850 1,418,845 88,977
---------------- ----------------- -----------------
Net increase in net assets resulting
from operations 1,597,289 1,441,899 87,276
---------------- ----------------- -----------------
---------------- ----------------- -----------------
</TABLE>
See accompanying notes to financial statements. 45
<PAGE>
- --------------------------------------------------------------------------------
MINNESOTA MUTUAL VARIABLE LIFE ACCOUNT
STATEMENTS OF OPERATIONS (CONTINUED)
YEAR ENDED DECEMBER 31, 1992 (PERIOD FROM MAY 1, 1992
TO DECEMBER 31, 1992 FOR INTERNATIONAL STOCK)
<TABLE>
<CAPTION>
SEGREGATED SUB-ACCOUNTS
----------------------------------------------------------------------------------
ASSET MORTGAGE
GROWTH BOND MONEY MARKET ALLOCATION SECURITIES INDEX 500
------------- ---------- ------------ ------------- ------------ ------------
<S> <C> <C> <C> <C> <C> <C>
Investment income (loss):
Investment income distributions
from underlying mutual fund $ 39,209 57,735 33,163 129,098 51,696 50,936
Mortality and expense charges
(note 3) (19,389) (7,006) (5,488) (43,969) (8,276) (18,986)
------------- ---------- ------------ ------------- ------------ ------------
Investment income (loss)-- net 19,820 50,729 27,675 85,129 43,420 31,950
------------- ---------- ------------ ------------- ------------ ------------
Realized and unrealized gains
(losses) on investments--net:
Realized gain distributions from
underlying mutual fund 38,433 11,679 -- 148,212 22,364 146,943
------------- ---------- ------------ ------------- ------------ ------------
Realized gains (losses) on sales
of investments (note 4):
Proceeds from sales 1,839,704 579,366 1,179,845 3,425,144 725,576 1,803,969
Cost of investments sold (1,737,909) (555,693) (1,179,845) (3,237,210) (709,002) (1,740,731)
------------- ---------- ------------ ------------- ------------ ------------
101,795 23,673 -- 187,934 16,574 63,238
------------- ---------- ------------ ------------- ------------ ------------
Net realized gains (losses) on
investments 140,228 35,352 -- 336,146 38,938 210,181
------------- ---------- ------------ ------------- ------------ ------------
Net change in unrealized
appreciation or depreciation of
investments 161,291 2,779 -- 434,816 30,832 107,212
------------- ---------- ------------ ------------- ------------ ------------
Net gains (losses) on
investments 301,519 38,131 -- 770,962 69,770 317,393
------------- ---------- ------------ ------------- ------------ ------------
Net increase (decrease) in net
assets resulting from operations $ 321,339 88,860 27,675 856,091 113,190 349,343
------------- ---------- ------------ ------------- ------------ ------------
------------- ---------- ------------ ------------- ------------ ------------
<CAPTION>
CAPITAL INTERNATIONAL
APPRECIATION STOCK
---------------- -----------------
<S> <C> <C>
Investment income (loss):
Investment income distributions
from underlying mutual fund 17,447 18,917
Mortality and expense charges
(note 3) (27,471) (2,129)
---------------- -----------------
Investment income (loss)-- net (10,024) 16,788
---------------- -----------------
Realized and unrealized gains
(losses) on investments--net:
Realized gain distributions from
underlying mutual fund 150,507 2,539
---------------- -----------------
Realized gains (losses) on sales
of investments (note 4):
Proceeds from sales 2,924,011 209,976
Cost of investments sold (2,803,436) (218,658)
---------------- -----------------
120,575 (8,682)
---------------- -----------------
Net realized gains (losses) on
investments 271,082 (6,143)
---------------- -----------------
Net change in unrealized
appreciation or depreciation of
investments 252,216 (49,400)
---------------- -----------------
Net gains (losses) on
investments 523,298 (55,543)
---------------- -----------------
Net increase (decrease) in net
assets resulting from operations 513,274 (38,755)
---------------- -----------------
---------------- -----------------
</TABLE>
46 See accompanying notes to financial statements.
<PAGE>
- --------------------------------------------------------------------------------
MINNESOTA MUTUAL VARIABLE LIFE ACCOUNT
STATEMENTS OF CHANGES IN NET ASSETS
YEAR ENDED DECEMBER 31, 1994 (PERIOD FROM MAY 2, 1994
TO DECEMBER 31, 1994 FOR VALUE STOCK)
<TABLE>
<CAPTION>
SEGREGATED SUB-ACCOUNTS
-------------------------------------------------------------------------------------
ASSET MORTGAGE
GROWTH BOND MONEY MARKET ALLOCATION SECURITIES INDEX 500
-------------- ------------ ------------ ------------- ------------ ------------
<S> <C> <C> <C> <C> <C> <C>
Operations:
Investment income (loss)--net $ 63,482 152,540 101,341 560,708 184,750 133,156
Net realized gains on investments 363,294 11,561 -- 200,312 6,328 198,143
Net change in unrealized
appreciation or depreciation of
investments (346,307) (384,138) -- (1,400,184) (369,942) (229,615)
-------------- ------------ ------------ ------------- ------------ ------------
Net increase (decrease) in net assets
resulting from operations 80,469 (220,037) 101,341 (639,164) (178,864) 101,684
-------------- ------------ ------------ ------------- ------------ ------------
Policy transactions (notes 3 and 5):
Policy purchase payments 11,306,528 4,667,840 6,967,161 25,106,087 3,862,411 9,928,770
Policy withdrawals and charges (5,442,825) (2,323,093) (5,435,960) (15,361,205) (2,411,477) (4,759,654)
-------------- ------------ ------------ ------------- ------------ ------------
Increase in net assets from policy
transactions 5,863,703 2,344,747 1,531,201 9,744,882 1,450,934 5,169,116
-------------- ------------ ------------ ------------- ------------ ------------
Increase in net assets 5,944,172 2,124,710 1,632,542 9,105,718 1,272,070 5,270,800
Net assets at the beginning of period 11,929,506 3,852,823 2,594,459 33,525,229 4,354,725 10,728,517
-------------- ------------ ------------ ------------- ------------ ------------
Net assets at the end of period $ 17,873,678 5,977,533 4,227,001 42,630,947 5,626,795 15,999,317
-------------- ------------ ------------ ------------- ------------ ------------
-------------- ------------ ------------ ------------- ------------ ------------
<CAPTION>
CAPITAL INTERNATIONAL SMALL
APPRECIATION STOCK COMPANY VALUE STOCK
---------------- ----------------- ------------ -----------
<S> <C> <C> <C> <C>
Operations:
Investment income (loss)--net (93,602) 281,668 (10,968) 6,281
Net realized gains on investments 789,570 923,589 27,339 2,551
Net change in unrealized
appreciation or depreciation of
investments (85,694) (1,491,123) 391,884 (6,755)
---------------- ----------------- ------------ -----------
Net increase (decrease) in net assets
resulting from operations 610,274 (285,866) 408,255 2,077
---------------- ----------------- ------------ -----------
Policy transactions (notes 3 and 5):
Policy purchase payments 17,095,782 17,030,883 9,002,013 1,077,789
Policy withdrawals and charges (9,321,473) (5,162,063) (2,274,926) (73,955)
---------------- ----------------- ------------ -----------
Increase in net assets from policy
transactions 7,774,309 11,868,820 6,727,087 1,003,834
---------------- ----------------- ------------ -----------
Increase in net assets 8,384,583 11,582,954 7,135,342 1,005,911
Net assets at the beginning of period 18,701,436 8,319,138 1,449,062 --
---------------- ----------------- ------------ -----------
Net assets at the end of period 27,086,019 19,902,092 8,584,404 1,005,911
---------------- ----------------- ------------ -----------
---------------- ----------------- ------------ -----------
</TABLE>
YEAR ENDED DECEMBER 31, 1993 (PERIOD FROM MAY 3, 1993
TO DECEMBER 31, 1993 FOR SMALL COMPANY)
<TABLE>
<CAPTION>
SEGREGATED SUB-ACCOUNTS
-------------------------------------------------------------------------------------
ASSET MORTGAGE
GROWTH BOND MONEY MARKET ALLOCATION SECURITIES INDEX 500
-------------- ------------ ------------ ------------- ------------ ------------
<S> <C> <C> <C> <C> <C> <C>
Operations:
Investment income (loss)--net $ 54,167 82,453 37,329 296,703 101,117 81,219
Net realized gains on investments 272,423 108,031 -- 800,348 85,146 272,150
Net change in unrealized
appreciation or depreciation of
investments 126,006 39,172 -- 393,909 56,735 364,519
-------------- ------------ ------------ ------------- ------------ ------------
Net increase in net assets resulting
from operations 452,596 229,656 37,329 1,490,960 242,998 717,888
-------------- ------------ ------------ ------------- ------------ ------------
Policy transactions (notes 3 and 5):
Policy purchase payments 9,110,537 2,948,951 3,108,005 25,985,643 2,919,646 7,734,018
Policy withdrawals and charges (3,995,971) (1,334,429) (2,153,819) (9,384,200) (1,245,266) (4,235,883)
-------------- ------------ ------------ ------------- ------------ ------------
Increase in net assets from policy
transactions 5,114,566 1,614,522 954,186 16,601,443 1,674,380 3,498,135
-------------- ------------ ------------ ------------- ------------ ------------
Increase in net assets 5,567,162 1,844,178 991,515 18,092,403 1,917,378 4,216,023
Net assets at the beginning of period 6,362,344 2,008,645 1,602,944 15,432,826 2,437,347 6,512,494
-------------- ------------ ------------ ------------- ------------ ------------
Net assets at the end of period $ 11,929,506 3,852,823 2,594,459 33,525,229 4,354,725 10,728,517
-------------- ------------ ------------ ------------- ------------ ------------
-------------- ------------ ------------ ------------- ------------ ------------
<CAPTION>
CAPITAL INTERNATIONAL
APPRECIATION STOCK SMALL COMPANY
---------------- ----------------- -----------------
<S> <C> <C> <C>
Operations:
Investment income (loss)--net (38,561) 23,054 (1,701)
Net realized gains on investments 548,051 179,756 25,798
Net change in unrealized
appreciation or depreciation of
investments 1,087,799 1,239,089 63,179
---------------- ----------------- -----------------
Net increase in net assets resulting
from operations 1,597,289 1,441,899 87,276
---------------- ----------------- -----------------
Policy transactions (notes 3 and 5):
Policy purchase payments 13,172,269 6,715,273 1,685,428
Policy withdrawals and charges (5,539,807) (1,338,715) (323,642)
---------------- ----------------- -----------------
Increase in net assets from policy
transactions 7,632,462 5,376,558 1,361,786
---------------- ----------------- -----------------
Increase in net assets 9,229,751 6,818,457 1,449,062
Net assets at the beginning of period 9,471,685 1,500,681 --
---------------- ----------------- -----------------
Net assets at the end of period 18,701,436 8,319,138 1,449,062
---------------- ----------------- -----------------
---------------- ----------------- -----------------
</TABLE>
See accompanying notes to financial statements. 47
<PAGE>
- --------------------------------------------------------------------------------
MINNESOTA MUTUAL VARIABLE LIFE ACCOUNT
STATEMENTS OF CHANGES IN NET ASSETS (CONTINUED)
YEAR ENDED DECEMBER 31, 1992 (PERIOD FROM MAY 1, 1992
TO DECEMBER 31, 1992 FOR INTERNATIONAL STOCK)
<TABLE>
<CAPTION>
SEGREGATED SUB-ACCOUNTS
---------------------------------------------------------------------
ASSET MORTGAGE
GROWTH BOND MONEY MARKET ALLOCATION SECURITIES
------------- ----------- ------------ ------------- ------------
<S> <C> <C> <C> <C> <C>
Operations:
Investment income (loss)--net $ 19,820 50,729 27,675 85,129 43,420
Net realized gains (losses) on investments 140,228 35,352 -- 336,146 38,938
Net change in unrealized appreciation or depreciation
of investments 161,291 2,779 -- 434,816 30,832
------------- ----------- ------------ ------------- ------------
Net increase (decrease) in net assets resulting from
operations 321,339 88,860 27,675 856,091 113,190
------------- ----------- ------------ ------------- ------------
Policy transactions (notes 3 and 5):
Policy purchase payments 5,799,990 1,525,008 2,032,278 13,774,100 2,171,697
Policy withdrawals and charges (1,820,315) (572,360) (1,174,357) (3,381,175) (717,300)
------------- ----------- ------------ ------------- ------------
Increase in net assets from policy transactions 3,979,675 952,648 857,921 10,392,925 1,454,397
------------- ----------- ------------ ------------- ------------
Increase in net assets 4,301,014 1,041,508 885,596 11,249,016 1,567,587
Net assets at the beginning of period 2,061,330 967,137 717,348 4,183,810 869,760
------------- ----------- ------------ ------------- ------------
Net assets at the end of period $ 6,362,344 2,008,645 1,602,944 15,432,826 2,437,347
------------- ----------- ------------ ------------- ------------
------------- ----------- ------------ ------------- ------------
<CAPTION>
CAPITAL INTERNATIONAL
INDEX 500 APPRECIATION STOCK
------------ ---------------- -----------------
<S> <C> <C> <C>
Operations:
Investment income (loss)--net 31,950 (10,024) 16,788
Net realized gains (losses) on investments 210,181 271,082 (6,143)
Net change in unrealized appreciation or depreciation
of investments 107,212 252,216 (49,400)
------------ ---------------- -----------------
Net increase (decrease) in net assets resulting from
operations 349,343 513,274 (38,755)
------------ ---------------- -----------------
Policy transactions (notes 3 and 5):
Policy purchase payments 5,967,347 8,825,617 1,747,283
Policy withdrawals and charges (1,784,984) (2,896,539) (207,847)
------------ ---------------- -----------------
Increase in net assets from policy transactions 4,182,363 5,929,078 1,539,436
------------ ---------------- -----------------
Increase in net assets 4,531,706 6,442,352 1,500,681
Net assets at the beginning of period 1,980,788 3,029,333 --
------------ ---------------- -----------------
Net assets at the end of period 6,512,494 9,471,685 1,500,681
------------ ---------------- -----------------
------------ ---------------- -----------------
</TABLE>
48 See accompanying notes to financial statements.
<PAGE>
- --------------------------------------------------------------------------------
MINNESOTA MUTUAL VARIABLE LIFE ACCOUNT
NOTES TO FINANCIAL STATEMENTS
(1) ORGANIZATION
The Minnesota Mutual Variable Life Account (the Account) was established on
October 21, 1985 as a segregated asset account of The Minnesota Mutual Life
Insurance Company (Minnesota Mutual) under Minnesota law and is registered as a
unit investment trust under the Investment Company Act of 1940. The Account
currently has ten segregated sub-accounts to which policy owners may allocate
their purchase payments. The Account did not commence operations until June 1,
1987. On May 1, 1992, an additional segregated sub-account, International Stock,
was added to the Account. On May 3, 1993, an additional segregated sub-account,
Small Company, was added to the Account. On May 2, 1994, an additional
segregated sub-account, Value Stock, was added to the Account.
The assets of each segregated sub-account are held for the exclusive benefit
of the variable adjustable life insurance policy owners and are not chargeable
with liabilities arising out of the business conducted by any other account or
by Minnesota Mutual. Variable policy owners allocate their purchase payments to
one or more of the ten segregated sub-accounts. Such payments are then invested
in shares of MIMLIC Series Fund, Inc. (the Fund) which was organized by
Minnesota Mutual as the investment vehicle for its variable adjustable life
insurance policies and variable annuity contracts. The Fund is registered under
the Investment Company Act of 1940 as a diversified, open-end management
investment company. Payments allocated to the Growth, Bond, Money Market, Asset
Allocation, Mortgage Securities, Index 500, Capital Appreciation, International
Stock, Small Company and Value Stock segregated sub-accounts are invested in
shares of the Growth, Bond, Money Market, Asset Allocation, Mortgage Securities,
Index 500, Capital Appreciation, International Stock, Small Company and Value
Stock Portfolios of the Fund, respectively.
MIMLIC Sales Corporation acts as the underwriter for the Account. MIMLIC
Asset Management Company acts as the investment adviser for the Fund. Both
entities are wholly-owned subsidiaries of Minnesota Mutual.
(2) SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
INVESTMENTS IN MIMLIC SERIES FUND, INC.
Investments in shares of the Fund portfolios are stated at market value which is
the net asset value per share as determined daily by the Fund. Investment
transactions are accounted for on the date the shares are purchased or sold. The
cost of investments sold is determined on the average cost method. All dividend
distributions received from the Fund are reinvested in additional shares of the
Fund and are recorded by the sub-accounts on the ex-dividend date.
FEDERAL INCOME TAXES
The Account is treated as part of Minnesota Mutual for federal income tax
purposes. Under current interpretations of existing federal income tax law, no
income taxes are payable on investment income or capital gain distributions
received by the Account from the Fund.
(3) MORTALITY AND EXPENSE AND OTHER POLICY CHARGES
The mortality and expense charge paid to Minnesota Mutual is computed daily and
is equal, on an annual basis, to .50% of the average daily net assets of the
Account. This charge is an expense of the Account and is deducted daily from net
assets of the Account.
Policy purchase payments are reflected net of the following charges paid to
Minnesota Mutual:
A basic sales load of 7 percent is deducted from each premium payment. A
first year sales load not to exceed 23 percent may also be deducted. Total
sales charges deducted from premium payments for the years ended December
31, 1994, 1993 and 1992 amounted to $10,312,243, $7,903,095 and $4,307,458,
respectively.
An underwriting charge is deducted from first year purchase payments in
an amount not to exceed $5 per $1,000 of face amount of insurance. The
amount may vary by the age of the insured and the premium level for a given
amount of insurance. The underwriting charge is paid for administrative
costs associated with issuance or adjustment of policies. Total underwriting
charges deducted from premium
49
<PAGE>
---------------------------------------------------------------
MINNESOTA MUTUAL VARIABLE LIFE ACCOUNT
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
(3) MORTALITY AND EXPENSE AND OTHER POLICY CHARGES (CONTINUED)
payments for the years ended December 31, 1994, 1993 and 1992 amounted to
$4,826,308, $4,345,882 and $2,689,814, respectively.
A premium tax charge in the amount of 2.5 percent is deducted from each
premium payment. Premium taxes are paid to state and local governments.
Total premium tax charges deducted from premium payments for the years ended
December 31, 1994, 1993 and 1992 amounted to $2,147,159, $1,430,618 and
$687,361, respectively.
A face amount guarantee charge of 1.5 percent is deducted from each
premium payment. The charge is paid for the guarantee that the death benefit
will always be at least equal to the current face amount of insurance
regardless of the investment performance. Total face amount guarantee
charges deducted from premium payments for the years ended December 31,
1994, 1993 and 1992 amounted to $1,125,385, $730,912 and $339,485,
respectively.
In addition to deductions from premium payments, an administration charge,
certain transaction charges, a cost of insurance charge and a charge for
sub-standard risks, if any, are assessed from the actual cash value of each
policy. These charges are paid by redeeming units of the Account held by the
individual policy owner. The administration charge is $60 for each policy year.
The transaction charges are for expenses incurred by Minnesota Mutual for
processing certain transactions. A charge of $25 is assessed for each policy
adjustment. A charge, not to exceed $10, may be assessed for each transfer of
actual cash value among the segregated sub-accounts.
The cost of insurance charge varies with the amount of insurance, the
insured's age, sex, risk class, level of scheduled premium and duration of the
policy. The charge for substandard risks is for providing death benefits for
policies which have mortality risks in excess of the standard. The total of cash
value charges for the years ended December 31, 1994, 1993 and 1992 for each
segregated sub-account (years ended December 31, 1994 and 1993 and period from
May 1, 1992 to December 31, 1992 for International Stock, year ended December
31, 1994 and period from May 3, 1993 to December 31, 1993 for Small Company and
period from May 2, 1994 to December 31, 1994 for Value Stock) are as follows:
<TABLE>
<CAPTION>
1994 1993 1992
------------- ------------- -------------
<S> <C> <C> <C>
Growth $ 2,691,861 $ 1,900,285 $ 881,459
Bond 968,023 532,924 212,792
Money Market 406,353 318,629 165,701
Asset Allocation 7,226,753 5,240,867 1,938,571
Mortgage Securities 914,930 652,947 301,615
Index 500 2,186,930 1,426,956 810,400
Capital Appreciation 4,034,243 2,924,788 1,408,834
International Stock 2,670,738 834,888 115,357
Small Company 1,114,925 91,432 --
Value Stock 45,146 -- --
</TABLE>
50
<PAGE>
- --------------------------------------------------------------------------------
MINNESOTA MUTUAL VARIABLE LIFE ACCOUNT
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
(4) INVESTMENT TRANSACTIONS
The Account's purchases of Fund shares, including reinvestment of dividend
distributions, were as follows during the years ended December 31, 1994, 1993
and 1992 (years ended December 31, 1994 and 1993 and period from May 1, 1992 to
December 31, 1992 for International Stock, year ended December 31, 1994 and
period from May 3, 1993 to December 31, 1993 for Small Company and period from
May 2, 1994 to December 31, 1994 for Value Stock):
<TABLE>
<CAPTION>
1994 1993 1992
-------------- -------------- --------------
<S> <C> <C> <C>
Growth Portfolio $ 11,727,400 $ 9,333,734 $ 5,877,632
Bond Portfolio 4,954,472 3,088,721 1,594,422
Money Market Portfolio 7,083,425 3,154,175 2,065,441
Asset Allocation Portfolio 26,075,122 26,901,502 14,051,410
Mortgage Securities Portfolio 4,171,994 3,076,862 2,245,757
Index 500 Portfolio 10,168,519 7,891,402 6,165,225
Capital Appreciation Portfolio 17,412,153 13,512,923 8,993,572
International Stock Portfolio 17,960,618 6,802,461 1,768,739
Small Company Portfolio 9,014,012 1,704,635 --
Value Stock Portfolio 1,088,077 -- --
</TABLE>
(5) UNIT ACTIVITY FROM POLICY TRANSACTIONS
Transactions in units for each segregated sub-account for the years ended
December 31, 1994, 1993 and 1992 were as follows:
<TABLE>
<CAPTION>
SEGREGATED SUB-ACCOUNTS
---------------------------------------------------------------------
MONEY ASSET MORTGAGE
GROWTH BOND MARKET ALLOCATION SECURITIES
------------ ------------ ------------ ------------- ------------
<S> <C> <C> <C> <C> <C>
Units outstanding at December 31, 1991 1,251,845 654,954 536,680 2,587,520 555,964
Policy purchase payments 3,571,081 1,008,783 1,494,516 8,417,736 1,366,713
Deductions for policy withdrawals and charges (1,119,759) (382,026) (863,606) (2,061,749) (450,693)
------------ ------------ ------------ ------------- ------------
Units outstanding at December 31, 1992 3,703,167 1,281,711 1,167,590 8,943,507 1,471,984
Policy purchase payments 5,272,736 1,746,839 2,233,968 14,678,567 1,655,358
Deductions for policy withdrawals and charges (2,304,551) (788,206) (1,551,837) (5,280,657) (707,889)
------------ ------------ ------------ ------------- ------------
Units outstanding at December 31, 1993 6,671,352 2,240,344 1,849,721 18,341,417 2,419,453
Policy purchase payments 6,348,390 2,825,826 4,896,347 14,022,145 2,217,484
Deductions for policy withdrawals and charges (3,055,525) (1,406,940) (3,825,731) (8,593,765) (1,385,966)
------------ ------------ ------------ ------------- ------------
Units outstanding at December 31, 1994 9,964,217 3,659,230 2,920,337 23,769,797 3,250,971
------------ ------------ ------------ ------------- ------------
------------ ------------ ------------ ------------- ------------
</TABLE>
51
<PAGE>
---------------------------------------------------------------
MINNESOTA MUTUAL VARIABLE LIFE ACCOUNT
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
(5) UNIT ACTIVITY FROM POLICY TRANSACTIONS (CONTINUED)
Transactions in units for each segregated sub-account for the years ended
December 31, 1994, 1993 and 1992 (years ended December 31, 1994 and 1993 and
period from May 1, 1992 to December 31, 1992 for International Stock, year ended
December 31, 1994 and period from May 3, 1993 to December 31, 1993 for Small
Company and May 2, 1994 to December 31, 1994 for Value Stock) were as follows:
<TABLE>
<CAPTION>
SEGREGATED SUB-ACCOUNTS
------------------------------------------------------------------------
INDEX CAPITAL INTERNATIONAL SMALL VALUE
500 APPRECIATION STOCK COMPANY STOCK
------------ -------------- --------------- ------------ -----------
<S> <C> <C> <C> <C> <C>
Units outstanding at December 31, 1991 1,307,951 1,689,614 -- -- --
Policy purchase payments 3,883,163 5,014,911 1,838,256 -- --
Deductions for policy withdrawals and charges (1,164,318) (1,651,072) (222,502) -- --
------------ -------------- --------------- ------------ -----------
Units outstanding at December 31, 1992 4,026,796 5,053,453 1,615,754 -- --
Policy purchase payments 4,548,485 6,957,826 5,801,772 1,563,329 --
Deductions for policy withdrawals and charges (2,500,450) (2,928,618) (1,172,776) (301,808) --
------------ -------------- --------------- ------------ -----------
Units outstanding at December 31, 1993 6,074,831 9,082,661 6,244,750 1,261,521 --
Policy purchase payments 5,628,519 8,441,310 12,670,160 7,794,579 1,043,691
Deductions for policy withdrawals and charges (2,705,628) (4,594,837) (3,852,160) (1,981,167) (71,753)
------------ -------------- --------------- ------------ -----------
Units outstanding at December 31, 1994 8,997,722 12,929,134 15,062,750 7,074,933 971,938
------------ -------------- --------------- ------------ -----------
------------ -------------- --------------- ------------ -----------
</TABLE>
(6) FINANCIAL HIGHLIGHTS
The following tables for each segregated sub-account show certain data for an
accumulation unit outstanding during the periods indicated:
GROWTH
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31,
----------------------------------
1994 1993 1992 1991 1990
------ ----- ----- ----- -----
<S> <C> <C> <C> <C> <C>
Unit value, beginning of year $1.788 1.718 1.647 1.234 1.237
------ ----- ----- ----- -----
Income from investment
operations:
Net investment income (loss) .008 .010 .009 (.007) .007
Net gains or losses on
securities (both realized
and unrealized) (.002) .060 .062 .420 (.010)
------ ----- ----- ----- -----
Total from investment
operations .006 .070 .071 .413 (.003)
------ ----- ----- ----- -----
Unit value, end of year $1.794 1.788 1.718 1.647 1.234
------ ----- ----- ----- -----
------ ----- ----- ----- -----
</TABLE>
52
<PAGE>
- --------------------------------------------------------------------------------
MINNESOTA MUTUAL VARIABLE LIFE ACCOUNT
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
(6) FINANCIAL HIGHLIGHTS (CONTINUED)
BOND
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31,
----------------------------------
1994 1993 1992 1991 1990
------ ----- ----- ----- -----
<S> <C> <C> <C> <C> <C>
Unit value, beginning of year $1.720 1.567 1.477 1.262 1.184
------ ----- ----- ----- -----
Income from investment
operation
Net investment income (loss) .054 .048 .055 (.007) .115
Net gains or losses on
securities (both realized
and unrealized) (.140) .105 .035 .222 (.037)
------ ----- ----- ----- -----
Total from investment
operations (.086) .153 .090 .215 .078
------ ----- ----- ----- -----
Unit value, end of year $1.634 1.720 1.567 1.477 1.262
------ ----- ----- ----- -----
------ ----- ----- ----- -----
</TABLE>
MONEY MARKET
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31,
----------------------------------
1994 1993 1992 1991 1990
------ ----- ----- ----- -----
<S> <C> <C> <C> <C> <C>
Unit value, beginning of year $1.403 1.373 1.337 1.274 1.188
------ ----- ----- ----- -----
Income from investment
operations:
Net investment income .044 .030 .036 .063 .086
------ ----- ----- ----- -----
Total from investment
operations .044 .030 .036 .063 .086
------ ----- ----- ----- -----
Unit value, end of year $1.447 1.403 1.373 1.337 1.274
------ ----- ----- ----- -----
------ ----- ----- ----- -----
</TABLE>
ASSET ALLOCATION
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31,
----------------------------------
1994 1993 1992 1991 1990
------ ----- ----- ----- -----
<S> <C> <C> <C> <C> <C>
Unit value, beginning of year $1.828 1.726 1.617 1.261 1.223
------ ----- ----- ----- -----
Income from investment
operations:
Net investment income (loss) .027 .021 .016 (.007) .080
Net gains or losses on
securities (both realized
and unrealized) (.062) .081 .093 .363 (.042)
------ ----- ----- ----- -----
Total from investment
operations (.035) .102 .109 .356 .038
------ ----- ----- ----- -----
Unit value, end of year $1.793 1.828 1.726 1.617 1.261
------ ----- ----- ----- -----
------ ----- ----- ----- -----
</TABLE>
53
<PAGE>
---------------------------------------------------------------
MINNESOTA MUTUAL VARIABLE LIFE ACCOUNT
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
(6) FINANCIAL HIGHLIGHTS (CONTINUED)
MORTGAGE SECURITIES
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31,
----------------------------------
1994 1993 1992 1991 1990
------ ----- ----- ----- -----
<S> <C> <C> <C> <C> <C>
Unit value, beginning of year $1.800 1.656 1.564 1.352 1.242
------ ----- ----- ----- -----
Income from investment
operations:
Net investment income (loss) .064 .054 .044 (.007) .156
Net gains or losses on
securities (both realized
and unrealized) (.133) .090 .048 .219 (.046)
------ ----- ----- ----- -----
Total from investment
operations (.069) .144 .092 .212 .110
------ ----- ----- ----- -----
Unit value, end of year $1.731 1.800 1.656 1.564 1.352
------ ----- ----- ----- -----
------ ----- ----- ----- -----
</TABLE>
INDEX 500
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31,
----------------------------------
1994 1993 1992 1991 1990
------ ----- ----- ----- -----
<S> <C> <C> <C> <C> <C>
Unit value, beginning of year $1.766 1.617 1.514 1.173 1.226
Income from investment
operations:
Net investment income (loss) .018 .017 .013 (.007) .047
Net gains or losses on
securities (both realized
and unrealized) (.006) .132 .090 .348 (.100)
------ ----- ----- ----- -----
Total from investment
operations .012 .149 .103 .341 (.053)
------ ----- ----- ----- -----
Unit value, end of year $1.778 1.766 1.617 1.514 1.173
------ ----- ----- ----- -----
------ ----- ----- ----- -----
</TABLE>
CAPITAL APPRECIATION
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31,
----------------------------------
1994 1993 1992 1991 1990
------ ----- ----- ----- -----
<S> <C> <C> <C> <C> <C>
Unit value, beginning of year $2.059 1.874 1.793 1.272 1.303
------ ----- ----- ----- -----
Income from investment
operations:
Net investment income (loss) (.009) (.005) (.003) (.005) .009
Net gains or losses on
securities (both realized
and unrealized) .045 .190 .084 .526 (.040)
------ ----- ----- ----- -----
Total from investment
operations .036 .185 .081 .521 (.031)
------ ----- ----- ----- -----
Unit value, end of year $2.095 2.059 1.874 1.793 1.272
------ ----- ----- ----- -----
------ ----- ----- ----- -----
</TABLE>
54
<PAGE>
- --------------------------------------------------------------------------------
MINNESOTA MUTUAL VARIABLE LIFE ACCOUNT
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
(6) FINANCIAL HIGHLIGHTS (CONTINUED)
INTERNATIONAL STOCK
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER
31, PERIOD FROM
-------------------- MAY 1, 1992* TO
1994 1993 DECEMBER 31, 1992
--------- --------- -----------------------
<S> <C> <C> <C>
Unit value, beginning of period $ 1.332 .929 1.000
--------- --------- -----
Income from investment operations:
Net investment income .027 .007 .025
Net gains or losses on securities (both realized and unrealized) (.038) .396 (.096)
--------- --------- -----
Total from investment operations (.011) .403 (.071)
--------- --------- -----
Unit value, end of period $ 1.321 1.332 .929
--------- --------- -----
--------- --------- -----
<FN>
*Commencement of the segregated sub-account's operations.
</TABLE>
SMALL COMPANY
<TABLE>
<CAPTION>
PERIOD FROM
YEAR ENDED MAY 3, 1993* TO
DECEMBER 31, 1994 DECEMBER 31, 1993
--------------------- -----------------------
<S> <C> <C>
Unit value, beginning of period $ 1.149 1.000
Income from investment operations:
Net investment loss (.003) (.004)
Net gains or losses on securities (both realized and unrealized) .067 .153
------- -----
Total from investment operations .064 .149
------- -----
Unit value, end of period $ 1.213 1.149
------- -----
------- -----
<FN>
*Commencement of the segregated sub-account's operations.
</TABLE>
VALUE STOCK
<TABLE>
<CAPTION>
PERIOD FROM
MAY 2, 1994* TO
DECEMBER 31, 1994
---------------------
<S> <C>
Unit value, beginning of period $ 1.000
Income from investment operations:
Net investment income .019
Net gains or losses on securities (both realized and unrealized) .016
-------
Total from investment operations .035
-------
Unit value, end of period $ 1.035
-------
-------
<FN>
*Commencement of the segregated sub-account's operations.
</TABLE>
55
<PAGE>
- --------------------------------------------------------------------------------
INDEX TO FINANCIAL STATEMENTS AND FINANCIAL STATEMENT SCHEDULES
THE MINNESOTA MUTUAL LIFE INSURANCE COMPANY
<TABLE>
<C> <S> <C>
Independent Auditors' Report...................................................................... 57
Balance Sheets.................................................................................... 58
Statements of Operations and Policyowners' Surplus................................................ 59
Statements of Cash Flows.......................................................................... 60
Notes to Financial Statements..................................................................... 61
Financial Statement Schedules:
I. Summary of Investments--Other than Investments in Related Parties...................... 71
V. Supplementary Insurance Information.................................................... 72
VI. Reinsurance............................................................................ 73
</TABLE>
56
<PAGE>
- --------------------------------------------------------------------------------
INDEPENDENT AUDITORS' REPORT
The Board of Trustees
The Minnesota Mutual Life Insurance Company:
We have audited the accompanying balance sheets of The Minnesota Mutual Life
Insurance Company as of December 31, 1994 and 1993 and the related statements of
operations and policyowners' surplus and cash flows for each of the years in the
three-year period ended December 31, 1994. In connection with our audits of the
financial statements, we also have audited the financial statement schedules as
listed in the accompanying index. These financial statements and financial
statement schedules are the responsibility of the Company's management. Our
responsibility is to express an opinion on these financial statements and
financial statement schedules based on our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements are free of material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements. An audit also includes
assessing the accounting principles used and significant estimates made by
management, as well as evaluating the overall financial statement presentation.
We believe that our audits provide a reasonable basis for our opinion.
In our opinion, the financial statements referred to above present fairly,
in all material respects, the financial position of The Minnesota Mutual Life
Insurance Company as of December 31, 1994 and 1993, and the results of its
operations and its cash flows for each of the years in the three-year period
ended December 31, 1994, in conformity with generally accepted accounting
principles (notes 1 and 10). Also in our opinion, the related financial
statement schedules, when considered in relation to the basic financial
statements taken as a whole, present fairly, in all material respects, the
information set forth therein.
KPMG Peat Marwick LLP
Minneapolis, Minnesota
February 9, 1995
57
<PAGE>
- --------------------------------------------------------------------------------
THE MINNESOTA MUTUAL LIFE INSURANCE COMPANY
BALANCE SHEETS
DECEMBER 31, 1994 AND 1993
<TABLE>
<CAPTION>
ASSETS
1994 1993
---------- ----------
(IN THOUSANDS)
<S> <C> <C>
Bonds $5,134,554 $4,985,026
Common stocks 209,958 211,792
Mortgage loans 598,186 542,356
Real estate, including Home Office
property 76,346 80,655
Other invested assets 60,604 49,599
Policy loans 185,599 177,820
Investments in subsidiary companies 155,404 125,865
Cash and short-term securities 112,869 90,266
Premiums deferred and uncollected 125,422 186,978
Other assets 134,594 118,596
---------- ----------
Total assets, excluding separate
accounts 6,793,536 6,568,953
Separate account assets 1,750,680 1,235,157
---------- ----------
Total assets $8,544,216 $7,804,110
---------- ----------
---------- ----------
LIABILITIES AND POLICYOWNERS' SURPLUS
Liabilities:
Policy reserves:
Life insurance $1,981,469 $1,875,570
Annuities and other fund deposits 3,179,279 3,166,944
Accident and health 343,241 317,825
Policy claims in process of
settlement 53,670 98,351
Dividends payable to policyowners 100,287 94,224
Other policy liabilities 388,538 371,333
Asset valuation reserve 165,341 135,936
Interest maintenance reserve 19,922 24,349
Federal income taxes 35,050 15,644
Other liabilities 186,575 162,934
---------- ----------
Total liabilities, excluding
separate accounts 6,453,372 6,263,110
Separate account liabilities 1,708,529 1,193,100
---------- ----------
Total liabilities 8,161,901 7,456,210
Policyowners' surplus 382,315 347,900
---------- ----------
Total liabilities and
policyowners' surplus $8,544,216 $7,804,110
---------- ----------
---------- ----------
</TABLE>
58 See accompanying notes to financial statements.
<PAGE>
- --------------------------------------------------------------------------------
THE MINNESOTA MUTUAL LIFE INSURANCE COMPANY
STATEMENTS OF OPERATIONS AND POLICYOWNERS' SURPLUS
YEARS ENDED DECEMBER 31, 1994, 1993, AND 1992
<TABLE>
<CAPTION>
STATEMENTS OF OPERATIONS
1994 1993 1992
---------- ---------- ----------
(IN THOUSANDS)
<S> <C> <C> <C>
Revenues:
Premiums, annuity considerations and
fund deposits $1,424,352 $1,289,954 $1,234,413
Net investment income 488,813 493,011 485,284
---------- ---------- ----------
Total revenues 1,913,165 1,782,965 1,719,697
---------- ---------- ----------
Benefits and expenses:
Policyowner benefits 1,259,685 1,131,638 968,539
Increase in policy reserves 94,116 122,280 243,014
General insurance expenses and taxes 279,022 268,041 249,943
Commissions 75,443 70,899 65,088
Federal income taxes 49,626 36,656 39,845
---------- ---------- ----------
Total benefits and expenses 1,757,892 1,629,514 1,566,429
---------- ---------- ----------
Gain from operations before net
realized capital gains (losses)
and dividends 155,273 153,451 153,268
Realized capital gains (losses), net of
tax 18,559 2,907 (23,311)
---------- ---------- ----------
Gain from operations before
dividends 173,832 156,358 129,957
Dividends to policyowners 108,709 97,937 98,116
---------- ---------- ----------
Net income $ 65,123 $ 58,421 $ 31,841
---------- ---------- ----------
---------- ---------- ----------
STATEMENTS OF POLICYOWNERS' SURPLUS
Policyowners' surplus, beginning of year $ 347,900 $ 264,542 $ 219,488
Net income 65,123 58,421 31,841
Net change in unrealized capital
gains and losses (317) 3,286 8,294
Change in policy reserve bases 1,463 -- (2,790)
Change in asset valuation reserve (29,405) (17,002) 2,217
Change in prior year federal income
tax liability (512) 857 2,814
Guaranty fund certificate redemption
(contribution) -- 19,171 (4,500)
Change in separate account surplus (3,764) 5,623 7,910
Business combination -- 16,684 --
Other, net 1,827 (3,682) (732)
---------- ---------- ----------
Policyowners' surplus, end of year $ 382,315 $ 347,900 $ 264,542
---------- ---------- ----------
---------- ---------- ----------
</TABLE>
See accompanying notes to financial statements. 59
<PAGE>
- --------------------------------------------------------------------------------
THE MINNESOTA MUTUAL LIFE INSURANCE COMPANY
STATEMENTS OF CASH FLOWS
YEARS ENDED DECEMBER 31, 1994, 1993, AND 1992
<TABLE>
<CAPTION>
CASH PROVIDED: 1994 1993 1992
- ---------------------------------------- ---------- ---------- ----------
(IN THOUSANDS)
<S> <C> <C> <C>
From operations:
Revenues:
Premiums, annuity considerations and
fund deposits $1,474,471 $1,252,183 $1,258,050
Net investment income 468,927 473,487 466,199
---------- ---------- ----------
Total receipts 1,943,398 1,725,670 1,724,249
---------- ---------- ----------
Benefits and expenses paid:
Policyowner benefits 1,301,060 1,069,090 957,013
Dividends to policyowners 103,634 97,697 93,087
Commissions and expenses 360,150 348,397 320,394
Federal income taxes 40,482 50,994 37,698
---------- ---------- ----------
Total payments 1,805,326 1,566,178 1,408,192
---------- ---------- ----------
Cash provided from operations 138,072 159,492 316,057
Proceeds from investments sold, matured
or repaid:
Bonds 1,031,279 1,631,215 1,080,940
Common stocks 113,228 113,945 113,503
Mortgage loans 152,418 265,356 272,337
Real estate 17,571 10,100 46,142
Other invested assets 16,831 17,266 6,414
Separate account redemption 14,519 -- --
Business combination -- 24,628 --
Other sources, net 58,072 53,531 --
---------- ---------- ----------
Total cash provided 1,541,990 2,275,533 1,835,393
---------- ---------- ----------
CASH APPLIED:
- ----------------------------------------
Cost of investments acquired:
Bonds 1,146,117 1,966,653 1,678,256
Common stocks 132,301 123,185 94,724
Mortgage loans 203,803 109,559 69,587
Real estate 11,904 16,572 13,312
Other invested assets 12,732 9,800 8,079
Guaranty fund certificate contribution -- -- 4,500
Separate account investment 12,530 3,365 10,000
Other applications, net -- -- 6,051
---------- ---------- ----------
Total cash applied 1,519,387 2,229,134 1,884,509
---------- ---------- ----------
Net change in cash and
short-term securities 22,603 46,399 (49,116)
Cash and short-term securities,
beginning of year 90,266 43,867 92,983
---------- ---------- ----------
Cash and short-term securities, end of
year $ 112,869 $ 90,266 $ 43,867
---------- ---------- ----------
---------- ---------- ----------
</TABLE>
60 See accompanying notes to financial statements.
<PAGE>
- --------------------------------------------------------------------------------
THE MINNESOTA MUTUAL LIFE INSURANCE COMPANY
NOTES TO FINANCIAL STATEMENTS
(1) SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
The accompanying financial statements of The Minnesota Mutual Life Insurance
Company (the Company) have been prepared in accordance with accounting practices
prescribed or permitted by the Commerce Department of the State of Minnesota
(Department of Commerce), which are currently considered generally accepted
accounting principles for mutual life insurance companies (note 10). The
significant accounting policies follow:
REVENUES AND EXPENSES
Premiums are credited to revenue over the premium paying period of the policies.
Annuity considerations and fund deposits are recognized as revenue when
received. Expenses, including acquisition costs related to acquiring new
business, are charged to operations as incurred. Investment income is recognized
as earned, net of related investment expenses.
VALUATION OF INVESTMENTS
Bonds and stocks are valued as prescribed by the National Association of
Insurance Commissioners (NAIC). Bonds are generally carried at cost, adjusted
for the amortization of premiums and discounts, and common stocks at market
value. Premiums and discounts are amortized over the estimated lives of the
bonds based on the interest yield method.
Mortgage loans are generally stated at the outstanding principal balances,
net of unamortized premiums and discounts. Premiums and discounts are amortized
over the terms of the related mortgage loans based on the interest yield method.
Real estate, exclusive of properties acquired through foreclosure, is
carried at cost less accumulated depreciation of $35,707,000 and $34,723,000 at
December 31, 1994 and 1993, respectively. Depreciation is computed principally
on a straight-line basis. Properties acquired through foreclosure are carried at
the lower of cost or market.
In 1992, the Company transferred $31,770,000 of its investment in oil and
gas limited partnerships to Robert Street Energy, Incorporated (Robert Street),
a wholly-owned subsidiary. The carrying value of oil and gas investments is
reflected in investments in subsidiary companies. The oil and gas investments
are carried at the lower of cost or market value and accounted for on a pooled
investment basis. Cost represents the original cost of the investment adjusted
for depletion, and market value represents discounted values based on estimates
of the remaining oil and gas reserves at oil and gas prices as of the valuation
date. Depletion is computed on the unit-of-production method.
As permitted by the Department of Commerce, changes in carrying values of
oil and gas investments, related to market value changes incurred prior to
January 1, 1992, the date of transfer to Robert Street, were reflected as
unrealized losses and charged to policyowners' surplus. The unrealized losses
incurred prior to January 1, 1992 were evaluated on a pooled basis to determine
if such losses are other than temporary. Realized losses of $1,717,000,
$9,257,000, and $8,362,000 were recognized in 1994, 1993, and 1992,
respectively, based upon such valuation. Changes in unrealized losses on oil and
gas investments of $1,717,000, $4,757,000, and $8,362,000 were credited to
surplus in 1994, 1993, and 1992, respectively. As of December 31, 1994, Robert
Street holds no oil and gas investments.
Policy loans are carried at the unpaid principal balance.
Investments in subsidiary companies are accounted for using the equity
method. The Company records its equity in the earnings of its subsidiaries as
investment income and its equity in other changes in its subsidiaries' surplus
as credits (charges) to policyowners' surplus. These investments include
$74,154,000 and $28,026,000 at December 31, 1994 and 1993, respectively, in
registered investment funds managed by a subsidiary of the Company which are
carried at the market value of the underlying net assets. All significant
subsidiaries are wholly-owned.
Short-term securities at December 31, 1994 and 1993 amounted to $103,203,000
and $64,947,000, respectively, and are included in the caption cash and
short-term securities.
61
<PAGE>
- --------------------------------------------------------------------------------
THE MINNESOTA MUTUAL LIFE INSURANCE COMPANY
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
(1) SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)
The Asset Valuation Reserve (AVR) is a formula reserve for possible losses
on bonds, stocks, mortgage loans, real estate, and other invested assets.
Changes in the reserve are reflected as direct charges or credits to
policyowners' surplus and are included in the change in asset valuation reserve
line.
INTEREST MAINTENANCE RESERVE
The Company separates realized capital gains and losses, net of tax, on fixed
income investments between those due to changes in interest rates and those due
to changes in credit quality. The net capital gains and losses due to interest
rate changes are amortized into investment income over the original remaining
life of the related bond or mortgage sold. Realized capital gains and losses
that are due to credit deterioration are recognized immediately as realized
capital gains and losses, net of applicable taxes.
CAPITAL GAINS AND LOSSES
Unrealized capital gains and losses are accounted for as a direct increase or
decrease to policyowner's surplus. Realized capital gains and losses, net of
related taxes and amounts transferred to the Interest Maintenance Reserves
(IMR), if any, are reflected as a component of net income. Both unrealized and
realized capital gains and losses are determined using the specific
identification method.
NON-ADMITTED ASSETS
Certain assets, designated as "non-admitted assets" (principally furniture,
equipment and certain receivables), amounting to $26,123,000 and $32,352,000 at
December 31, 1994 and 1993, respectively, have been charged to policyowners'
surplus.
SEPARATE ACCOUNT BUSINESS
Separate account business represents funds administered and invested by the
Company for the exclusive benefit of certain pension and variable life policy
and annuity contract holders. The Company receives administrative and investment
advisory fees for services rendered on behalf of these funds. Separate account
assets are carried at market value.
The Company periodically invests money in its separate accounts. The
appreciation or depreciation on the investment is reflected as a direct charge
or credit to policyowners' surplus. In 1994, the Company made a contribution to
its separate accounts in the amount of $12,530,000. The Company also redeemed a
portion of its investment in its separate accounts in the amount of $14,518,730.
A realized capital gain of $3,018,000 was recognized as a result of this
redemption.
POLICY RESERVES
Policy reserves for life insurance and annuities are based on mortality and
interest assumptions without consideration for lapses and withdrawals. Mortality
assumptions for life insurance and annuities are based on various mortality
tables including American Experience, 1941 Commissioners Standard Ordinary
(CSO), 1958 CSO, 1980 CSO, Progressive Annuity and 1960 Commissioners Standard
Group. Interest assumptions range from 2.0% to 6.0% for ordinary policy reserves
and from 2.25% to 12.0% for group policy and annuity reserves. An unearned
premium reserve is held for credit life policies.
Approximately 16% of the ordinary life reserves are calculated on a net
level reserve basis and 84% on a modified reserve basis. The use of a modified
reserve basis partially offsets the effect of immediately expensing acquisition
costs by providing a policy reserve increase in the first policy year which is
less than the reserve increase in renewal years. Policy reserves for group
mortgage life are computed on a mid-terminal basis.
Policy reserves for individual deferred annuities are generally equal to the
total contract holders' account balance, less applicable surrender charges,
calculated according to the Commissioners Annuity Reserve Valuation Method.
Policy reserves for immediate annuities and supplementary contracts are equal to
the present value of future benefit payments based on the purchase interest rate
and the Progressive Annuity tables. Group annuity reserves are equal to the
account value plus expected interest strengthening.
62
<PAGE>
- --------------------------------------------------------------------------------
THE MINNESOTA MUTUAL LIFE INSURANCE COMPANY
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
(1) SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)
Policy reserves for individual accident and health contracts include
reserves for active lives based on various morbidity tables including the 1964
Commissioners Disability Table (CDT) and the 1985 Commissioners Disability Table
A, modified for actual morbidity experience discounted at 7% interest. Disabled
reserves on individual policies are based on company morbidity experience at
interest rates varying from 5.15% to 7%. Group mortgage disability reserves are
equal to the present value of future benefits at 3% interest and the 1964 CDT
modified for Company experience. An unearned premium reserve is held for credit
disability policies.
The Company issues certain life and annuity products which are considered
financial instruments. The estimated fair value of these liabilities as of the
respective years ended December 31 are as follows:
<TABLE>
<CAPTION>
1994 1993
---------------------------- ----------------------------
CARRYING CARRYING
VALUE FAIR VALUE VALUE FAIR VALUE
------------- ------------- ------------- -------------
(IN THOUSANDS)
<S> <C> <C> <C> <C>
Deferred annuities $ 2,042,383 $ 2,042,060 $ 1,970,037 $ 1,978,374
Annuity certain contracts 41,934 41,828 38,431 41,940
Other fund deposits 798,509 791,732 736,467 765,875
Guaranteed investment contracts 68,568 69,353 204,663 212,308
Supplementary contracts without life contingencies 43,205 42,433 42,587 44,301
------------- ------------- ------------- -------------
Total financial liabilities $ 2,994,599 $ 2,987,406 $ 2,992,185 $ 3,042,798
------------- ------------- ------------- -------------
------------- ------------- ------------- -------------
</TABLE>
The fair value of deferred annuities, annuity certain contracts, and other
fund deposits, which have guaranteed interest rates and surrender charges, were
calculated using Commissioners' Annuity Reserve Valuation Method calculation
procedures and current market interest rates. Contracts without guaranteed
interest rates and surrender charges have fair values equal to their
accumulation values plus applicable market value adjustments. The fair value of
guaranteed investment contracts and supplementary contracts without life
contingencies were calculated using discounted cash flows, based on interest
rates currently offered for similar products with maturities consistent with
those remaining for the contracts being valued. The use of different market
assumptions and/or estimation methodologies may have a material effect on the
estimated fair value amounts.
The fair value estimates presented herein are based on pertinent information
available to management as of December 31, 1994 and 1993. Although management is
not aware of any factors that would significantly affect the estimated fair
values, such amounts have not been comprehensively revalued since those dates
and therefore, estimates of fair value subsequent to the valuation dates may
differ significantly from the amounts presented herein.
PARTICIPATING BUSINESS
Substantially all of the Company's premium revenues are derived from
participating policies. Dividends and other discretionary payments are declared
by the Board of Trustees based upon actuarial determinations which take into
consideration current mortality, interest earnings and expense factors,
including federal income tax expense, attributable to the policies. Dividends
are generally recognized as expense consistent with the recognition of premiums
and contract considerations.
FEDERAL INCOME TAXES
Federal income taxes are based on income that is currently taxable. Deferred
federal income taxes are not provided for differences between financial
statement and taxable income.
RECLASSIFICATIONS
Certain 1993 financial statement balances have been reclassified to conform with
the 1994 presentation.
63
<PAGE>
- --------------------------------------------------------------------------------
THE MINNESOTA MUTUAL LIFE INSURANCE COMPANY
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
(2) ACCOUNTING CHANGES
CAPITAL GAINS AND LOSSES
Prior to 1993, the Company generally recorded credit deterioration by reducing
the carrying value of the related asset and recording a realized capital loss.
Beginning in 1993, the Company continues to reduce the carrying value of its
assets for credit deterioration but records a realized capital loss only if the
underlying asset has been converted to another asset of lesser value. Otherwise,
losses due to credit deterioration are included in unrealized capital losses.
The effect of the accounting change resulted in an increase in income of
$10,761,000 in 1993.
SEPARATE ACCOUNT BUSINESS
Effective January 1, 1992, the Company changed its basis for computing statutory
reserves for deferred variable annuities from full accumulation value to cash
value, net of surrender charges. The change resulted in an increase in earnings
of $6,577,000 for the year ended December 31, 1992.
(3) INVESTMENTS
Net investment income for the respective years ended December 31, is as follows:
<TABLE>
<CAPTION>
1994 1993 1992
----------- ----------- -----------
(IN THOUSANDS)
<S> <C> <C> <C>
Bonds $ 412,873 $ 404,353 $ 382,890
Common stocks--unaffiliated 3,188 3,390 3,960
Common stocks--affiliated 8,526 9,562 8,674
Mortgage loans 49,882 63,881 78,837
Real estate, including Home Office property 11,337 11,554 11,938
Policy loans 11,800 10,866 10,021
Short-term securities 4,026 2,067 2,652
Other, net 1,717 2,868 2,237
----------- ----------- -----------
503,349 508,541 501,209
Amortization of interest maintenance reserve 3,741 3,458 1,728
Investment expenses (18,277) (18,988) (17,653)
----------- ----------- -----------
Total $ 488,813 $ 493,011 $ 485,284
----------- ----------- -----------
----------- ----------- -----------
</TABLE>
Changes in unrealized capital gains (losses) for the respective years ended
December 31, are as follows:
<TABLE>
<CAPTION>
1994 1993 1992
--------- --------- ---------
(IN THOUSANDS)
<S> <C> <C> <C>
Bonds $ 4,039 $ (3,753) $ 5,392
Common stocks--unaffiliated (5,465) 2,854 (1,840)
Common stocks--affiliated (997) (1,305) (2,387)
Mortgage loans (71) 1,361 (580)
Real estate 2,270 4,211 8,072
Other, net (93) (82) (363)
--------- --------- ---------
Total $ (317) $ 3,286 $ 8,294
--------- --------- ---------
--------- --------- ---------
</TABLE>
64
<PAGE>
- --------------------------------------------------------------------------------
THE MINNESOTA MUTUAL LIFE INSURANCE COMPANY
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
(3) INVESTMENTS (CONTINUED)
The cost and gross unrealized gains (losses) on unaffiliated common stocks
at December 31, are as follows:
<TABLE>
<CAPTION>
1994 1993 1992
----------- ----------- -----------
(IN THOUSANDS)
<S> <C> <C> <C>
Cost $ 159,511 $ 155,881 $ 128,342
Gross unrealized gains 56,813 58,440 55,172
Gross unrealized losses (6,366) (2,529) (2,159)
----------- ----------- -----------
Admitted asset value $ 209,958 $ 211,792 $ 181,355
----------- ----------- -----------
----------- ----------- -----------
</TABLE>
Net realized capital gains (losses) for the respective years ended December
31 are as follows:
<TABLE>
<CAPTION>
1994 1993 1992
--------- --------- ----------
(IN THOUSANDS)
<S> <C> <C> <C>
Bonds $ (3,511) $ 31,234 $ (5,012)
Common stocks--unaffiliated 11,268 9,651 11,599
Mortgage loans (46) (741) 1,025
Real estate 2,041 (8,496) (13,420)
Other 15,872 7,837 (378)
--------- --------- ----------
25,624 39,485 (6,186)
Less: Amount transferred to the interest maintenance reserve, net of taxes (685) 20,336 9,199
Income tax expense 7,750 16,242 7,926
--------- --------- ----------
Total $ 18,559 $ 2,907 $ (23,311)
--------- --------- ----------
--------- --------- ----------
</TABLE>
Gross realized gains (losses) on sales of bonds for the respective years
ended December 31, are as follows:
<TABLE>
<CAPTION>
1994 1993 1992
---------- --------- ----------
(IN THOUSANDS)
<S> <C> <C> <C>
Gross realized gains $ 13,249 $ 38,443 $ 20,092
Gross realized losses (16,760) (7,209) (11,547)
</TABLE>
Proceeds from the sale of bonds amounted to $638,420,000, $1,058,684,000 and
$522,546,000 for the years ended December 31, 1994, 1993, and 1992,
respectively.
Bonds and mortgage loans held at December 31, 1994 and 1993 for which no
income was recorded for the previous twelve months totaled $88,000 and $847,000,
respectively.
At December 31, 1994, bonds with a carrying value of $2,497,000 were on
deposit with various regulatory authorities as required by law.
The estimated fair value of the Company's financial instruments has been
determined using available market information as of December 31, 1994 and 1993
and appropriate valuation methodologies. Considerable judgment, however, is
required to interpret market data to develop the estimates of fair value.
Accordingly, the estimates presented herein are not necessarily indicative of
the amounts the Company could realize in a current market exchange. The use of
different market assumptions and/or estimation
65
<PAGE>
- --------------------------------------------------------------------------------
THE MINNESOTA MUTUAL LIFE INSURANCE COMPANY
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
(3) INVESTMENTS (CONTINUED)
methodologies may have a material effect on the estimated fair value amounts.
The admitted asset value and estimated fair value for financial instruments as
of December 31, are as follows:
<TABLE>
<CAPTION>
1994 1993
---------------------------- ----------------------------
ADMITTED FAIR ADMITTED FAIR
ASSET VALUE VALUE ASSET VALUE VALUE
------------- ------------- ------------- -------------
(IN THOUSANDS)
<S> <C> <C> <C> <C>
Bonds $ 5,134,554 $ 4,919,495 $ 4,985,026 $ 5,358,573
Common stocks 209,958 209,958 211,792 211,792
Commercial mortgages 342,205 341,195 287,932 298,698
Residential mortgages 255,981 255,449 254,424 268,783
Policy loans 185,599 185,599 177,820 177,820
Cash and short-term securities 112,869 112,869 90,266 90,266
Other assets 157,138 157,109 137,841 137,841
------------- ------------- ------------- -------------
Total financial instruments $ 6,398,304 $ 6,181,674 $ 6,145,101 $ 6,543,773
------------- ------------- ------------- -------------
------------- ------------- ------------- -------------
</TABLE>
Fair values for bonds and commercial and residential mortgages are based on
quoted market prices, where available. If quoted market prices are not
available, fair values are estimated using values obtained from independent
pricing services which specialize in matrix pricing and modeling techniques for
estimating fair values. The admitted asset value approximates fair value for
common stock, policy loans, cash and short-term securities, and other assets.
The fair value estimates presented herein are based on pertinent information
available to management as of December 31, 1994 and 1993. Although management is
not aware of any factors that would significantly affect the estimated fair
value amounts, such amounts have not been comprehensively revalued for purposes
of the financial statements since the original valuation dates and therefore,
subsequent estimates of fair value may differ significantly from the amounts
presented herein.
The admitted asset value, gross unrealized appreciation and depreciation,
and estimated fair value of investments in bonds are as follows:
<TABLE>
<CAPTION>
GROSS UNREALIZED
ADMITTED ------------------------------ FAIR
DECEMBER 31, 1994 ASSET VALUE APPRECIATION DEPRECIATION VALUE
- -------------------------------------------------------------- ------------- -------------- -------------- -------------
(IN THOUSANDS)
<S> <C> <C> <C> <C>
Federal government $ 210,335 $ 19 $ 9,983 $ 200,371
State and local government 26,493 10 1,171 25,332
Foreign government 17,691 413 20 18,084
Corporate bonds 3,325,331 41,167 167,404 3,199,094
Mortgage-backed securities 1,554,704 11,110 89,200 1,476,614
------------- -------------- -------------- -------------
Total $ 5,134,554 $ 52,719 $ 267,778 $ 4,919,495
------------- -------------- -------------- -------------
------------- -------------- -------------- -------------
</TABLE>
66
<PAGE>
- --------------------------------------------------------------------------------
THE MINNESOTA MUTUAL LIFE INSURANCE COMPANY
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
(3) INVESTMENTS (CONTINUED)
<TABLE>
<CAPTION>
GROSS UNREALIZED
ADMITTED ------------------------------- FAIR
DECEMBER 31, 1993 ASSET VALUE APPRECIATION DEPRECIATION VALUE
- -------------------------------------------------------------- ------------- -------------- --------------- -------------
(IN THOUSANDS)
<S> <C> <C> <C> <C>
Federal government $ 99,240 $ 569 $ 586 $ 99,223
State and local government 5,295 817 -- 6,112
Foreign government 2,721 126 94 2,753
Corporate bonds 3,246,373 289,746 4,606 3,531,513
Mortgage-backed securities 1,631,397 90,437 2,862 1,718,972
------------- -------------- ------- -------------
Total $ 4,985,026 $ 381,695 $ 8,148 $ 5,358,573
------------- -------------- ------- -------------
------------- -------------- ------- -------------
</TABLE>
The amortized cost and estimated fair value of bonds at December 31, 1994,
by contractual maturity, are shown below. Expected maturities will differ from
contractual maturities because borrowers may have the right to call or prepay
obligations with or without call or prepayment penalties.
<TABLE>
<CAPTION>
ADMITTED FAIR
ASSET VALUE VALUE
------------- -------------
(IN THOUSANDS)
<S> <C> <C>
Due in one year or less $ 81,762 $ 80,250
Due after one year through five years 802,900 793,430
Due after five years through ten years 1,433,303 1,363,187
Due after ten years 1,261,885 1,206,014
------------- -------------
3,579,850 3,442,881
Mortgage-backed securities 1,554,704 1,476,614
------------- -------------
Total $ 5,134,554 $ 4,919,495
------------- -------------
------------- -------------
</TABLE>
(4) FEDERAL INCOME TAXES
The federal income tax expense varies from amounts computed by applying the
federal income tax rates of 35% for 1994 and 1993, and 34% for 1992, to the gain
from operations after dividends to policyowners and before federal income taxes
and realized capital gains (losses). The reasons for this difference, and the
tax effects thereof, are as follows:
<TABLE>
<CAPTION>
1994 1993 1992
--------- --------- ---------
(IN THOUSANDS)
<S> <C> <C> <C>
Computed tax expense $ 33,666 $ 32,260 $ 32,299
Difference between statutory and tax basis:
Investment income (5,853) (7,204) (7,409)
Policy reserves (767) (2,079) (700)
Dividends to policyowners 593 (1,907) (77)
Acquisition expense 9,013 8,393 8,592
Other expenses 2,137 3,739 750
Special tax on mutual life insurance companies 15,466 3,396 4,667
Other, net (4,629) 58 1,723
--------- --------- ---------
Tax expense $ 49,626 $ 36,656 $ 39,845
--------- --------- ---------
--------- --------- ---------
</TABLE>
The Company's tax returns for 1991 through 1992 are under examination by the
Internal Revenue Service. The Company believes additional taxes, if any,
assessed as a result of these examinations will not have a material effect on
its financial position.
67
<PAGE>
- --------------------------------------------------------------------------------
THE MINNESOTA MUTUAL LIFE INSURANCE COMPANY
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
(5) ACCIDENT AND HEALTH CLAIM LIABILITY
Activity in the liability for unpaid claims and claim adjustment expenses are
summarized as follows:
<TABLE>
<CAPTION>
1994 1993 1992
----------- ----------- -----------
(IN THOUSANDS)
<S> <C> <C> <C>
Balance at January 1 $ 274,253 $ 246,777 $ 227,548
Less: reinsurance recoverable 38,418 29,622 21,227
----------- ----------- -----------
Net balance at January 1 235,835 217,155 206,321
----------- ----------- -----------
Incurred related to:
Current year 91,573 85,112 87,268
Prior years (308) 7,121 125
----------- ----------- -----------
Total incurred 91,265 92,233 87,393
----------- ----------- -----------
Paid related to:
Current year 23,019 22,002 24,380
Prior years 50,380 51,551 52,179
----------- ----------- -----------
Total paid 73,399 73,553 76,559
----------- ----------- -----------
Net Balance at December 31 253,701 235,835 217,155
Plus: reinsurance recoverable 47,651 38,418 29,622
----------- ----------- -----------
Balance at December 31 $ 301,352 $ 274,253 $ 246,777
----------- ----------- -----------
----------- ----------- -----------
</TABLE>
Incurred claims related to prior years are due to the difference between
actual and estimated claims incurred as of the prior year end.
(6) BUSINESS COMBINATION
On July 1, 1993, the Company entered into an "Agreement and Plan of
Reorganization" that combined all of the assets, liabilities, and surplus of
Ministers Life--A Mutual Life Insurance Company (Ministers Life) into the
Company. Ministers Life sold life and health insurance products to religious
professionals in the continental United States. The business combination
increased the Company's assets by $272,649,000, liabilities by $255,965,000 and
policyowners' surplus by $16,684,000.
(7) RELATED PARTY TRANSACTIONS
In 1993, the Company received 2,375,000 shares of common stock of the Minnesota
Fire and Casualty Company (the Casualty Company) in return for the surrender of
outstanding guaranty fund certificates totalling $21,800,000 which had
previously been charged to surplus. The surrender of the certificates and
concurrent issuance of stock were part of the Casualty Company's
"Demutualization and Stock Conversion Plan" (the Plan) approved by the
Department of Commerce. Pursuant to the Plan, the Casualty Company became a
subsidiary of the Company on December 31, 1993. The effect of the transaction
was an increase to investments in subsidiary companies and an increase to
policyowners' surplus as of December 31, 1993 of $19,171,000.
The Company has an agreement with two of its subsidiaries which requires the
Company to invest additional capital, as needed, for repayment of any debt
outstanding to the Company. As of December 31, 1994 and 1993, $41,050,000 of
subsidiary debt owed the Company was subject to this agreement.
(8) PENSION PLANS AND OTHER RETIREMENT PLANS
PENSION PLANS
The Company has self-insured, noncontributory, defined benefit retirement plans
covering substantially all employees. The Company's funding policy is to
contribute annually the maximum amount that may be
68
<PAGE>
- --------------------------------------------------------------------------------
THE MINNESOTA MUTUAL LIFE INSURANCE COMPANY
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
(8) PENSION PLANS AND OTHER RETIREMENT PLANS (CONTINUED)
deducted for federal income tax purposes. The Company expenses amounts as
contributed. The Company made a contribution of $1,714,200 in 1994. No
contributions were made in 1993 or 1992. Information for these plans as of the
beginning of the plan year is as follows:
<TABLE>
<CAPTION>
1994 1993 1992
--------- --------- ---------
(IN THOUSANDS)
<S> <C> <C> <C>
Actuarial present value of accumulated benefits:
Vested $ 42,849 $ 36,281 $ 33,761
Nonvested 12,033 12,996 10,556
--------- --------- ---------
Total $ 54,882 $ 49,277 $ 44,317
--------- --------- ---------
--------- --------- ---------
Net assets available for benefits $ 85,651 $ 78,952 $ 74,735
--------- --------- ---------
--------- --------- ---------
</TABLE>
In determining the actuarial present value of accumulated benefits, a
weighted average assumed rate of return of 8.4% was used in 1994, 1993, and
1992.
PROFIT SHARING PLANS
The Company also has profit sharing plans covering substantially all employees
and agents. The Company's contribution rate to the employee plan is determined
annually by the Trustees of the Company and is applied to each participant's
prior year earnings. The Company's contribution to the agent plan is made as a
certain percentage, based upon years of service, applied to each agent's total
annual compensation. The Company recognized contributions to the plans during
1994, 1993, and 1992 of $6,866,000, $6,753,000 and $4,630,000, respectively.
Participants may elect to receive a portion of their contributions in cash.
POSTRETIREMENT BENEFITS OTHER THAN PENSIONS
The Company also has postretirement plans that provide certain health care and
life insurance benefits ("postretirement benefits") to substantially all retired
employees and agents. These plans are unfunded.
In 1993, the Company changed its method of accounting for the costs of its
postretirement benefit plans to the accrual method, and elected to amortize its
transition obligation for retirees and fully eligible employees and agents over
20 years. The unamortized transition obligation was $13,000,000 and $15,085,000
at December 31, 1994 and 1993, respectively.
The net postretirement benefit cost for the years ended December 31, 1994
and 1993, was $3,202,000 and $3,832,000, respectively. This amount includes the
expected cost of such benefits for newly eligible employees, interest cost, and
amortization of the transition obligation. The Company made payments under the
plans of $526,000 and $555,000 in 1994 and 1993, respectively, as claims were
incurred.
At December 31, 1994 and 1993, the postretirement benefit obligation for
retirees and other fully eligible participants was $19,635,000 and $18,362,000,
respectively. The estimated cost of the benefit obligation for active employees
and agents who are not yet fully eligible was $13,065,000 and $12,270,000 for
1994 and 1993, respectively. The discount rate used in determining the
accumulated postretirement benefit obligation for 1994 and 1993 were 7.5% and
8.0%, respectively. The 1994 net health care cost trend rate was 11.5%, graded
to 5.5% over 12 years, and the 1993 rate was 12.5%, graded to 6% over 13 years.
The health care cost trend rate assumption has a significant effect on the
amounts reported. To illustrate, increasing the assumed health care cost trend
rates by one percentage point in each year would increase the postretirement
benefit obligation as of December 31, 1994 by $2,182,000 and the estimated
eligibility cost and interest cost components of net periodic postretirement
benefit costs for 1994 by $337,000.
(9) COMMITMENTS AND CONTINGENCIES
The Company reinsures certain individual and group business. At December 31,
1994, policy reserves in the accompanying balance sheet are reflected net of
reinsurance ceded of $49,564,000. To the extent that an assuming reinsurer is
unable to meet its obligation under its agreement, the Company remains liable.
69
<PAGE>
- --------------------------------------------------------------------------------
THE MINNESOTA MUTUAL LIFE INSURANCE COMPANY
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
(9) COMMITMENTS AND CONTINGENCIES (CONTINUED)
The Company has issued certain participating group annuity and life
insurance contracts jointly with another life insurance company. The joint
contract issuer has liabilities related to these contracts of $419,278,000 as of
December 31, 1994. To the extent the joint contract issuer is unable to meet its
obligation under the agreement, the Company remains liable.
The Company has long-term commitments to fund venture capital and real
estate investments totaling $78,000,000 as of December 31, 1994. The Company
estimates that $18,000,000 of these commitments will be paid in 1995 with the
remaining $60,000,000 paid over the next five years.
At December 31, 1994, the Company had guaranteed the payment of $58,400,000
in policyowner dividends payable in 1995. The Company has pledged bonds, valued
at $62,809,000, to secure this guarantee.
The Company is contingently liable under state regulatory requirements for
possible assessment pertaining to future insolvencies and impairments of
unaffiliated companies.
(10) MUTUAL LIFE INSURANCE COMPANY ACCOUNTING POLICIES
In April 1993 the Financial Accounting Standards Board (FASB) issued
Interpretation No. 40, "Applicability of Generally Accepted Accounting
Principles to Mutual Life Insurance and Other Enterprises." In January 1995 the
FASB issued Statement of Financial Accounting Standards No. 120 (Statement),
"Accounting and Reporting by Mutual Life Insurance Enterprises and by Insurance
Enterprises for Certain Long-Duration Participating Contracts" and, jointly with
the American Institute of Certified Public Accountants, issued a Statement of
Position (SOP), "Accounting for Certain Insurance Activities of Mutual Insurance
Enterprises." Under Interpretation No. 40, the Statement and SOP, mutual life
insurance companies that report their financial statements in conformity with
generally accepted accounting principles (GAAP) will be required to apply all
related authoritative accounting pronouncements.
Interpretation No. 40, the Statement and SOP apply to years beginning after
December 15, 1995. All of the guidance will require restatement of prior year
balances. Applying the provisions of Interpretation No. 40, the Statement and
SOP may result in policyholders' surplus and net income (loss) amounts differing
from the amounts reported under existing practices. Management has not yet
determined the impact of the adoption of GAAP.
Alternatively, the Company may continue to prepare its financial statements
in accordance with statutory accounting practices prescribed or permitted by the
Department of Commerce, which will no longer be considered generally accepted
accounting principles after December 31, 1995.
70
<PAGE>
- --------------------------------------------------------------------------------
THE MINNESOTA MUTUAL LIFE INSURANCE COMPANY
SCHEDULE I
SUMMARY OF INVESTMENTS--OTHER THAN
INVESTMENTS IN RELATED PARTIES
DECEMBER 31, 1994
<TABLE>
<CAPTION>
AMOUNT AT WHICH
SHOWN IN THE
BALANCE
TYPE OF INVESTMENT COST(4) MARKET VALUE SHEET(1)(3)
- ------------------------------------------------------------------------ ------------- --------------- -------------------
(IN THOUSANDS)
<S> <C> <C> <C>
Bonds:
United States government and government agencies and authorities $ 210,335 $ 200,371 $ 210,335
States, municipalities and political subdivisions 26,493 25,332 26,493
Foreign governments 17,691 18,084 17,691
Public utilities 568,271 547,165 568,271
Mortgage-backed securities 1,554,704 1,476,614 1,554,704
All other corporate bonds 2,725,055 2,614,705 2,716,010
------------- --------------- -------------------
Total bonds 5,102,549 4,882,271 5,093,504
------------- --------------- -------------------
Equity securities:
Common stocks:
Public utilities 19,766 21,233 21,233
Banks, trusts and insurance companies 18,247 25,393 25,393
Industrial, miscellaneous and all other 121,499 163,332 163,332
------------- --------------- -------------------
Total equity securities 159,512 209,958 209,958
------------- --------------- -------------------
Mortgage loans on real estate 598,186 xxxxxx 598,186
Real estate (2) 76,346 xxxxxx 76,346
Policy loans 185,599 xxxxxx 185,599
Other long-term investments 60,604 xxxxxx 60,604
Short-term investments 92,363 xxxxxx 92,550
------------- -------------------
Total $ 1,013,098 xxxxxx $ 1,013,285
------------- -------------------
Total investments $ 6,275,159 xxxxxx $ 6,316,747
------------- -------------------
------------- -------------------
<FN>
- ---------
(1) Debt securities are carried at amortized cost or investment values
prescribed by the National Association of Insurance Commissioners.
(2) The carrying value of real estate acquired in satisfaction of indebtedness
is $4,192. Real estate includes property occupied by the Company.
(3) Differences between cost and amounts shown in the balance sheet for
investments, other than equity securities and bonds, represent non-admitted
investments.
(4) Original cost for equity securities and original cost reduced by repayments
and adjusted for amortization of premiums or accrual of discounts for
bonds.
</TABLE>
71
<PAGE>
- --------------------------------------------------------------------------------
THE MINNESOTA MUTUAL LIFE INSURANCE COMPANY
SCHEDULE V
SUPPLEMENTARY INSURANCE INFORMATION
<TABLE>
<CAPTION>
AS OF DECEMBER 31,
---------------------------------------------------------
FUTURE POLICY
DEFERRED BENEFITS, OTHER POLICY
POLICY LOSSES, CLAIMS CLAIMS AND
ACQUISITION AND SETTLEMENT UNEARNED BENEFITS
SEGMENT COSTS(1) EXPENSES(3) PREMIUMS(3) PAYABLE
- ----------------------------------- ----------- -------------- ----------- ------------
(IN THOUSANDS)
<S> <C> <C> <C> <C>
1994:
Life insurance $1,981,469 $37,909
Accident and health insurance 343,241 15,754
Annuity considerations 3,179,279 7
----------- -------------- ----------- ------------
Total -- 5,503,989 -- 53,670
----------- -------------- ----------- ------------
----------- -------------- ----------- ------------
1993:
Life insurance $1,875,570 $83,365
Accident and health insurance 317,825 14,979
Annuity considerations 3,166,944 7
----------- -------------- ----------- ------------
Total -- $5,360,339 -- $98,351
----------- -------------- ----------- ------------
----------- -------------- ----------- ------------
1992:
Life insurance $1,686,676 $39,643
Accident and health insurance 292,703 13,971
Annuity considerations 3,011,272 3
----------- -------------- ----------- ------------
Total -- $4,990,651 -- $53,617
----------- -------------- ----------- ------------
----------- -------------- ----------- ------------
<CAPTION>
FOR THE YEARS ENDED DECEMBER 31,
----------------------------------------------------------------------------------
AMORTIZATION
PREMIUMS AND BENEFITS, OF DEFERRED
ANNUITY AND NET CLAIMS, LOSSES POLICY OTHER
OTHER FUND INVESTMENT AND SETTLEMENT ACQUISITION OPERATING PREMIUMS
SEGMENT DEPOSITS INCOME EXPENSES COSTS(1) EXPENSES WRITTEN(2)
- ----------------------------------- ------------ ---------- -------------- ------------ --------- ----------
<S> <C> <C> <C> <C> <C> <C> <C>
1994:
Life insurance $ 802,265 $196,877 $ 608,091 $230,327
Accident and health insurance 142,032 32,724 93,634 71,958
Annuity considerations 480,055 259,212 652,076 52,180
------------ ---------- -------------- ------------ --------- ----------
Total 1,424,352 488,813 1,353,801 -- 354,465 --
------------ ---------- -------------- ------------ --------- ----------
------------ ---------- -------------- ------------ --------- ----------
1993:
Life insurance $ 718,232 $193,724 $ 538,880 $220,861
Accident and health insurance 138,690 31,452 88,857 72,616
Annuity considerations 433,032 267,835 626,181 45,463
------------ ---------- -------------- ------------ --------- ----------
Total $1,289,954 $493,011 $1,253,918 -- $338,940 --
------------ ---------- -------------- ------------ --------- ----------
------------ ---------- -------------- ------------ --------- ----------
1992:
Life insurance $ 672,004 $209,325 $ 507,921 $204,283
Accident and health insurance 135,176 16,927 85,555 71,190
Annuity considerations 427,233 259,032 618,077 39,558
------------ ---------- -------------- ------------ --------- ----------
Total $1,234,413 $485,284 $1,211,553 -- $315,031 --
------------ ---------- -------------- ------------ --------- ----------
------------ ---------- -------------- ------------ --------- ----------
<FN>
- -------------
(1) Does not apply to financial statements of mutual life insurance companies
which are prepared on a statutory basis.
(2) Does not apply to life insurance.
(3) Unearned premiums and other deposit funds are included in future policy
benefits, losses, claims and settlement expenses.
</TABLE>
72
<PAGE>
- --------------------------------------------------------------------------------
THE MINNESOTA MUTUAL LIFE INSURANCE COMPANY
SCHEDULE VI
REINSURANCE
FOR THE YEARS ENDED DECEMBER 31, 1994, 1993, AND 1992
<TABLE>
<CAPTION>
PERCENTAGE
CEDED TO ASSUMED OF AMOUNT
GROSS OTHER FROM OTHER ASSUMED TO
AMOUNT COMPANIES COMPANIES NET AMOUNT NET
----------- ----------- ----------- ------------ ----------
(IN THOUSANDS)
<S> <C> <C> <C> <C> <C>
1994:
Life insurance in force $97,181,118 $13,314,267 $20,555,910 $104,422,761 19.7%
----------- ----------- ----------- ------------ ---
----------- ----------- ----------- ------------ ---
Premiums, annuity
considerations and fund
deposits:
Life insurance $ 792,087 $ 48,773 $ 58,951 $ 802,265 7.3%
Accident and health
insurance 150,876 10,145 1,301 142,032 0.9%
Annuity 480,055 -- -- 480,055 --
----------- ----------- ----------- ------------ ---
Total premiums*,
annuity
considerations
and fund
deposits $ 1,423,018 $ 58,918 $ 60,252 $ 1,424,352 4.2%
----------- ----------- ----------- ------------ ---
----------- ----------- ----------- ------------ ---
1993:
Life insurance in force $93,206,579 $11,674,202 $19,758,935 $101,291,312 19.5%
----------- ----------- ----------- ------------ ---
----------- ----------- ----------- ------------ ---
Premiums, annuity
considerations and fund
deposits:
Life insurance $ 704,172 $ 43,313 $ 57,373 $ 718,232 8.0%
Accident and health
insurance 147,229 9,699 1,160 138,690 0.8%
Annuity 433,032 -- -- 433,032 --
----------- ----------- ----------- ------------ ---
Total premiums*,
annuity
considerations
and fund
deposits $ 1,284,433 $ 53,012 $ 58,533 $ 1,289,954 4.5%
----------- ----------- ----------- ------------ ---
----------- ----------- ----------- ------------ ---
1992:
Life insurance in force $89,317,556 $8,962,842 $17,182,599 $ 97,537,313 17.6%
----------- ----------- ----------- ------------ ---
----------- ----------- ----------- ------------ ---
Premiums, annuity
considerations and fund
deposits:
Life insurance $ 661,835 $ 37,038 $ 47,207 $ 672,004 7.0%
Accident and health
insurance 143,432 9,424 1,168 135,176 0.9%
Annuity 427,233 -- -- 427,233 --
----------- ----------- ----------- ------------ ---
Total premiums*,
annuity
considerations
and fund
deposits $ 1,232,500 $ 46,462 $ 48,375 $ 1,234,413 3.9%
----------- ----------- ----------- ------------ ---
----------- ----------- ----------- ------------ ---
<FN>
- ------------
* There are no premiums related to either property and liability or title
insurance.
</TABLE>
73
<PAGE>
- --------------------------------------------------------------------------------
APPENDIX I
ILLUSTRATIONS OF POLICY VALUES, DEATH BENEFITS AND ACCUMULATED PREMIUMS
The Appendix I illustrations beginning on page 76 show the projected actual
cash values and death benefits for various combinations of age, premium level,
face amount of insurance, death benefit option and level of cost of insurance
charges. The illustrations assume that 100 percent of net premiums are invested
in the sub-accounts of the Variable Life Account. Illustrations are provided for
a non-smoking male aged 40. The plan of insurance for each illustration is a
whole life plan, each with an initial face amount of $250,000. Both death
benefit options--the Cash Option and the Protection Option--are shown. We show
all illustrations based on both guaranteed maximum and current mortality
charges. Finally illustrations for both VAL '87 and VAL '95 are included.
Guaranteed maximum cost of insurance charges will vary by age, sex, risk
class and policy form. We use the male, female and unisex 1980 Commissioners
Standard Ordinary Mortality Tables ("1980 CSO"), as appropriate. The unisex
tables are used in circumstances where legal considerations require the
elimination of sex-based distinctions in the calculation of mortality costs. Our
maximum cost of insurance charges are based on an assumption of mortality not
greater than the mortality rates reflected in 1980 CSO Tables.
In most cases we intend to impose cost of insurance charges which are
substantially lower than the maximum charges determined as described above. In
addition to the factors governing maximum cost of insurance charges, actual
charges will vary depending on the level of scheduled premiums for a given
amount of insurance, the duration of the Policy and the smoking habits of the
insured. We illustrate current cost of insurance charges since they represent
our current practices with respect to mortality charges for this class of
Policies. Accordingly, the illustrations based upon the guaranteed maximum
mortality charges are provided primarily to show, by comparison with the other
tables, the consequences of our charging less than the full 1980 CSO based
charges.
The illustrations show how actual cash values and death benefits would vary
over time if the return on the assets held in the Variable Life Account equaled
a gross annual rate after tax, of 0 percent, 6 percent and 12 percent. The
actual cash values and death benefits would be different from those shown if the
returns averaged 0 percent, 6 percent and 12 percent but fluctuated over the
life of the Policy. The illustrations assume scheduled premiums are paid when
due.
The amounts shown for the hypothetical actual cash value and death benefit
as of each policy year reflect the fact that the net investment return on the
assets held in the sub-accounts is lower than the gross, after-tax return. This
is because a daily investment management fee assessed against the net assets of
the Fund and a daily mortality and expense risk charge assessed against the net
assets of the Variable Life Account are deducted from the gross return. The
mortality and expense risk charge reflected in the illustrations are at an
annual rate of .50 percent. The investment management fee illustrated represents
an average of the fee charged for all ten Fund Portfolios. Although five of the
portfolios of the Fund currently pay fees at a .50 percent annual rate, the
Index 500 Portfolio pays a lower fee (.40 percent) and the Capital Appreciation
Portfolio, the Small Company Portfolio, the Value Stock Portfolio and the
International Stock Portfolio pay a higher fee (.75 percent, .75 percent, .75
percent and 1.0 percent, respectively). As the International Stock Portfolio
pays a management fee based upon the size of the Portfolio, its actual 1994
result of .82 percent is reflected in the calculation of the illustrations. In
addition to the deduction for the investment management fee, the illustrations
also reflect a deduction for those Fund costs and expenses not assumed by
Minnesota Mutual. It is anticipated that, because of Minnesota Mutual's
absorption of certain expenses, the ratio of those expenses to average daily net
assets will not exceed .15 percent, with the exception of the International
Stock Portfolio where the maximum expense ratio is 1.00 percent. As this maximum
is not applicable as the Portfolios grow in asset size, actual 1994 results are
reflected in the calculation of the Growth, Bond, Asset Allocation, Mortgage
Securities, Index 500, Capital Appreciation and International Stock Portfolio,
at .06 percent, .11 percent, .06 percent, .10 percent, .10 percent, .08 percent
and .42 percent, respectively. Therefore, gross annual rates of return of 0
percent, 6 percent and 12 percent correspond to approximate net annual rates of
return of -1.24 percent, 4.76 percent and 10.76 percent. (For a description of
the
74
<PAGE>
arrangement whereby Minnesota Mutual voluntarily absorbs certain expenses of the
Fund, see "Investment Adviser" in the attached prospectus for MIMLIC Series
Fund, Inc.)
The tables reflect the fact that no charges for federal, state or local
income taxes are currently made against the Variable Life Account. If such a
charge is made in the future, it will take a higher gross rate of return to
produce after-tax returns of 0 percent, 6 percent and 12 percent than it does
now.
Upon request, we will furnish a comparable illustration based upon a
proposed insured's age, sex and risk classification, and on the face amount,
premium, plan of insurance and gross annual rate of return requested. It should
be remembered that actual illustrations may be materially different from those
illustrated, depending upon the proposed insured's actual situation. For
example, illustrations for females, smokers or individuals who are rated
sub-standard will differ materially in premium amount and illustrated values,
even though the proposed insured may be the same age as the proposed insured in
our sample illustration.
75
<PAGE>
- --------------------------------------------------------------------------------
VARIABLE ADJUSTABLE LIFE INSURANCE
VAL '95
DEATH BENEFIT OPTION--CASH OPTION
MALE ISSUE AGE 40 FOR NON-SMOKERS
INITIAL DEATH BENEFIT--$250,000(1)
$4,205.30 INITIAL SCHEDULED PREMIUM(2)
USING CURRENT MORTALITY CHARGES
<TABLE>
<CAPTION>
-ASSUMING HYPOTHETICAL INVESTMENT RETURNS OF-
0% GROSS(3) 6.00% GROSS(3) 12.00% GROSS(3)
(-1.24% NET) (4.76% NET) (10.76% NET)
POL ATT INITIAL BASE POLICY DEATH POLICY DEATH POLICY DEATH
YR AGE PREMIUM VALUE BENEFIT VALUE BENEFIT VALUE BENEFIT
----- ----- ------------- ----------- ----------- ----------- ----------- ----------- -----------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
1 41 4205 901 250000 976 250000 1051 250000
2 42 4205 3945 250000 4286 250000 4635 250000
3 43 4205 6917 250000 7718 250000 8571 250000
4 44 4205 9812 250000 11274 250000 12891 250000
5 45 4205 12631 250000 14961 250000 17639 250000
6 46 4205 15368 250000 18779 250000 22858 250000
7 47 4205 18022 250000 22736 250000 28605 250000
8 48 4205 20707 250000 26962 250000 35072 250000
9 49 4205 23442 250000 31483 250000 42346 250000
10 50 4205 26199 250000 36288 250000 50491 250000
15 55 4205 39793 250000 64610 250000 107681 250000
20 60 4205 51739 250000 100447 250000 205416 370380
25 65 4205 60162 250000 145145 250000 365187 581882
30 70 4205 63542 250000 202153 299624 623049 885632
<FN>
(1) The initial death benefit is guaranteed to age 100.
(2) If premiums are paid more frequently than annually, the payments would be
$2,102.65 semi-annually, $1,051.33 quarterly, or $350.45 monthly. The death
benefits and policy values would be slightly different for a policy with
more frequent premium payments.
(3) Assumes no policy loan has been made.
</TABLE>
THE HYPOTHETICAL INVESTMENT RATES OF RETURN SHOWN ABOVE AND ELSEWHERE IN THIS
PROSPECTUS ARE ILLUSTRATIVE ONLY AND SHOULD NOT BE DEEMED A REPRESENTATION OF
PAST OR FUTURE INVESTMENT RATES OF RETURN. ACTUAL RATES OF RETURN MAY BE MORE OR
LESS THAN THOSE SHOWN AND WILL DEPEND ON A NUMBER OF FACTORS, INCLUDING THE
INVESTMENT ALLOCATIONS MADE BY AN OWNER, AND PREVAILING INTEREST RATES. THE
DEATH BENEFITS AND POLICY VALUES FOR A POLICY WOULD BE DIFFERENT FROM THOSE
SHOWN IF THE ACTUAL RATES OF RETURN AVERAGED 0%, 9%, AND 12% OVER A PERIOD OF
YEARS BUT ALSO FLUCTUATED ABOVE OR BELOW THOSE AVERAGES FOR INDIVIDUAL POLICY
YEARS. NO REPRESENTATIONS CAN BE MADE BY MINNESOTA MUTUAL OR THE FUND THAT THESE
HYPOTHETICAL RATES OF RETURN CAN BE ACHIEVED FOR ANY ONE YEAR OR SUSTAINED OVER
ANY PERIOD OF TIME.
76
<PAGE>
- --------------------------------------------------------------------------------
VARIABLE ADJUSTABLE LIFE INSURANCE (CONTINUED)
VAL '95
DEATH BENEFIT OPTION--CASH OPTION
MALE ISSUE AGE 40 FOR NON-SMOKERS
INITIAL DEATH BENEFIT--$250,000(1)
$4,205.30 INITIAL SCHEDULED PREMIUM(2)
USING MAXIMUM CONTRACTUAL MORTALITY CHARGES
<TABLE>
<CAPTION>
-ASSUMING HYPOTHETICAL INVESTMENT RETURNS OF-
0% GROSS(3) 6.00% GROSS(3) 12.00% GROSS(3)
(-1.24% NET) (4.76% NET) (10.76% NET)
POL ATT INITIAL BASE POLICY DEATH POLICY DEATH POLICY DEATH
YR AGE PREMIUM VALUE BENEFIT VALUE BENEFIT VALUE BENEFIT
----- ----- ------------- ----------- ----------- ----------- ----------- ----------- -----------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
1 41 4205 901 250000 976 250000 1051 250000
2 42 4205 3943 250000 4286 250000 4635 250000
3 43 4205 6912 250000 7718 250000 8571 250000
4 44 4205 9803 250000 11274 250000 12891 250000
5 45 4205 12617 250000 14961 250000 17639 250000
6 46 4205 15347 250000 18779 250000 22858 250000
7 47 4205 17991 250000 22731 250000 28596 250000
8 48 4205 20547 250000 26822 250000 34911 250000
9 49 4205 23013 250000 31058 250000 41867 250000
10 50 4205 25382 250000 35439 250000 49533 250000
15 55 4205 35510 250000 59602 250000 101585 250000
20 60 4205 41665 250000 87572 250000 187364 340243
25 65 4205 41657 250000 119849 250000 320468 514822
30 70 4205 30575 250000 157632 250000 521821 749378
<FN>
(1) The initial death benefit is guaranteed to age 100.
(2) If premiums are paid more frequently than annually, the payments would be
$2,102.65 semi-annually, $1,051.33 quarterly, or $350.45 monthly. The death
benefits and policy values would be slightly different for a policy with
more frequent premium payments.
(3) Assumes no policy loan has been made.
</TABLE>
THE HYPOTHETICAL INVESTMENT RATES OF RETURN SHOWN ABOVE AND ELSEWHERE IN THIS
PROSPECTUS ARE ILLUSTRATIVE ONLY AND SHOULD NOT BE DEEMED A REPRESENTATION OF
PAST OR FUTURE INVESTMENT RATES OF RETURN. ACTUAL RATES OF RETURN MAY BE MORE OR
LESS THAN THOSE SHOWN AND WILL DEPEND ON A NUMBER OF FACTORS, INCLUDING THE
INVESTMENT ALLOCATIONS MADE BY AN OWNER, AND PREVAILING INTEREST RATES. THE
DEATH BENEFITS AND POLICY VALUES FOR A POLICY WOULD BE DIFFERENT FROM THOSE
SHOWN IF THE ACTUAL RATES OF RETURN AVERAGED 0%, 9%, AND 12% OVER A PERIOD OF
YEARS BUT ALSO FLUCTUATED ABOVE OR BELOW THOSE AVERAGES FOR INDIVIDUAL POLICY
YEARS. NO REPRESENTATIONS CAN BE MADE BY MINNESOTA MUTUAL OR THE FUND THAT THESE
HYPOTHETICAL RATES OF RETURN CAN BE ACHIEVED FOR ANY ONE YEAR OR SUSTAINED OVER
ANY PERIOD OF TIME.
77
<PAGE>
- --------------------------------------------------------------------------------
VARIABLE ADJUSTABLE LIFE INSURANCE (CONTINUED)
VAL '95
DEATH BENEFIT OPTION--PROTECTION OPTION
MALE ISSUE AGE 40 FOR NON-SMOKERS
INITIAL DEATH BENEFIT--$250,000(1)
$4,205.30 INITIAL SCHEDULED PREMIUM(2)
USING CURRENT MORTALITY CHARGES
<TABLE>
<CAPTION>
-ASSUMING HYPOTHETICAL INVESTMENT RETURNS OF-
0% GROSS(3) 6.00% GROSS(3) 12.00% GROSS(3)
(-1.24% NET) (4.76% NET) (10.76% NET)
POL ATT INITIAL BASE POLICY DEATH POLICY DEATH POLICY DEATH
YR AGE PREMIUM VALUE BENEFIT VALUE BENEFIT VALUE BENEFIT
----- ----- ------------- ----------- ----------- ----------- ----------- ----------- -----------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
1 41 4205 898 250000 973 250000 1048 250000
2 42 4205 3932 250898 4271 250973 4620 251048
3 43 4205 6885 253932 7681 254271 8530 254620
4 44 4205 9750 256885 11202 257681 12807 258530
5 45 4205 12530 259750 14838 261202 17491 262807
6 46 4205 15215 262530 18586 264838 22616 267491
7 47 4205 17832 265215 22492 268586 28293 272616
8 48 4205 20507 267832 26685 272492 34694 278293
9 49 4205 23217 270507 31152 276685 41867 284694
10 50 4205 25935 273217 35881 281152 49873 291867
15 55 4205 39126 286576 63374 307354 105393 341871
20 60 4205 50080 298193 96816 339713 197536 533444
25 65 4205 56263 305552 134850 376980 338691 850683
30 70 4205 55476 306203 176043 431985 541907 1277565
<FN>
(1) The initial death benefit is guaranteed to age 100.
(2) If premiums are paid more frequently than annually, the payments would be
$2,102.65 semi-annually, $1,051.33 quarterly, or $350.45 monthly. The death
benefits and policy values would be slightly different for a policy with
more frequent premium payments.
(3) Assumes no policy loan has been made.
</TABLE>
THE HYPOTHETICAL INVESTMENT RATES OF RETURN SHOWN ABOVE AND ELSEWHERE IN THIS
PROSPECTUS ARE ILLUSTRATIVE ONLY AND SHOULD NOT BE DEEMED A REPRESENTATION OF
PAST OR FUTURE INVESTMENT RATES OF RETURN. ACTUAL RATES OF RETURN MAY BE MORE OR
LESS THAN THOSE SHOWN AND WILL DEPEND ON A NUMBER OF FACTORS, INCLUDING THE
INVESTMENT ALLOCATIONS MADE BY AN OWNER, AND PREVAILING INTEREST RATES. THE
DEATH BENEFITS AND POLICY VALUES FOR A POLICY WOULD BE DIFFERENT FROM THOSE
SHOWN IF THE ACTUAL RATES OF RETURN AVERAGED 0%, 9%, AND 12% OVER A PERIOD OF
YEARS BUT ALSO FLUCTUATED ABOVE OR BELOW THOSE AVERAGES FOR INDIVIDUAL POLICY
YEARS. NO REPRESENTATIONS CAN BE MADE BY MINNESOTA MUTUAL OR THE FUND THAT THESE
HYPOTHETICAL RATES OF RETURN CAN BE ACHIEVED FOR ANY ONE YEAR OR SUSTAINED OVER
ANY PERIOD OF TIME.
78
<PAGE>
- --------------------------------------------------------------------------------
VARIABLE ADJUSTABLE LIFE INSURANCE (CONTINUED)
VAL '95
DEATH BENEFIT OPTION--PROTECTION OPTION
MALE ISSUE AGE 40 FOR NON-SMOKERS
INITIAL DEATH BENEFIT--$250,000(1)
$4,205.30 INITIAL SCHEDULED PREMIUM(2)
USING MAXIMUM CONTRACTUAL MORTALITY CHARGES
<TABLE>
<CAPTION>
-ASSUMING HYPOTHETICAL INVESTMENT RETURNS OF-
0% GROSS(3) 6.00% GROSS(3) 12.00% GROSS(3)
(-1.24% NET) (4.76% NET) (10.76% NET)
POL ATT INITIAL BASE POLICY DEATH POLICY DEATH POLICY DEATH
YR AGE PREMIUM VALUE BENEFIT VALUE BENEFIT VALUE BENEFIT
----- ----- ------------- ----------- ----------- ----------- ----------- ----------- -----------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
1 41 4205 898 250000 973 250000 1048 250000
2 42 4205 3930 250898 4271 250973 4620 251048
3 43 4205 6880 253930 7681 254271 8530 254620
4 44 4205 9741 256880 11202 257681 12807 258530
5 45 4205 12516 259741 14838 261202 17491 262807
6 46 4205 15195 262516 18586 264838 22616 267491
7 47 4205 17774 265195 22446 268586 28225 272616
8 48 4205 20251 267774 26417 272446 34362 278225
9 49 4205 22622 270251 30501 276417 41082 284362
10 50 4205 24877 272622 34692 280501 48435 291082
15 55 4205 34079 282568 57012 302412 96900 335425
20 60 4205 38391 288016 80231 325621 171253 468066
25 65 4205 35170 286637 101217 347479 273331 697694
30 70 4205 19439 273851 113128 361898 393779 951884
<FN>
(1) The initial death benefit is guaranteed to age 100.
(2) If premiums are paid more frequently than annually, the payments would be
$2,102.65 semi-annually, $1,051.33 quarterly, or $350.45 monthly. The death
benefits and policy values would be slightly different for a policy with
more frequent premium payments.
(3) Assumes no policy loan has been made.
</TABLE>
THE HYPOTHETICAL INVESTMENT RATES OF RETURN SHOWN ABOVE AND ELSEWHERE IN THIS
PROSPECTUS ARE ILLUSTRATIVE ONLY AND SHOULD NOT BE DEEMED A REPRESENTATION OF
PAST OR FUTURE INVESTMENT RATES OF RETURN. ACTUAL RATES OF RETURN MAY BE MORE OR
LESS THAN THOSE SHOWN AND WILL DEPEND ON A NUMBER OF FACTORS, INCLUDING THE
INVESTMENT ALLOCATIONS MADE BY AN OWNER, AND PREVAILING INTEREST RATES. THE
DEATH BENEFITS AND POLICY VALUES FOR A POLICY WOULD BE DIFFERENT FROM THOSE
SHOWN IF THE ACTUAL RATES OF RETURN AVERAGED 0%, 9%, AND 12% OVER A PERIOD OF
YEARS BUT ALSO FLUCTUATED ABOVE OR BELOW THOSE AVERAGES FOR INDIVIDUAL POLICY
YEARS. NO REPRESENTATIONS CAN BE MADE BY MINNESOTA MUTUAL OR THE FUND THAT THESE
HYPOTHETICAL RATES OF RETURN CAN BE ACHIEVED FOR ANY ONE YEAR OR SUSTAINED OVER
ANY PERIOD OF TIME.
79
<PAGE>
- --------------------------------------------------------------------------------
VARIABLE ADJUSTABLE LIFE INSURANCE (CONTINUED)
VAL '87
DEATH BENEFIT OPTION--CASH OPTION
MALE ISSUE AGE 40 FOR NON-SMOKERS
INITIAL DEATH BENEFIT--$250,000(1)
$4,641.31 INITIAL SCHEDULED PREMIUM(2)
USING CURRENT MORTALITY CHARGES
<TABLE>
<CAPTION>
-ASSUMING HYPOTHETICAL INVESTMENT RETURNS OF-
0% GROSS(3) 6.00% GROSS(3) 12.00% GROSS(3)
(-1.24% NET) (4.76% NET) (10.76% NET)
POL ATT INITIAL BASE POLICY DEATH POLICY DEATH POLICY DEATH
YR AGE PREMIUM VALUE BENEFIT VALUE BENEFIT VALUE BENEFIT
----- ----- ------------- ----------- ----------- ----------- ----------- ----------- -----------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
1 41 4641 1011 250000 1099 250000 1187 250000
2 42 4641 4245 250000 4624 250000 5013 250000
3 43 4641 7387 250000 8263 250000 9199 250000
4 44 4641 10429 250000 12017 250000 13777 250000
5 45 4641 13375 250000 15894 250000 18796 250000
6 46 4641 16384 250000 20064 250000 24474 250000
7 47 4641 19487 250000 24574 250000 30918 250000
8 48 4641 22638 250000 29397 250000 38170 250000
9 49 4641 25814 250000 34525 250000 46295 250000
10 50 4641 28993 250000 39955 250000 55374 250000
15 55 4641 44526 250000 71799 250000 118844 250000
20 60 4641 58308 250000 112205 250000 227417 394515
25 65 4641 68644 250000 163676 263638 404843 627103
30 70 4641 74205 250000 227757 331381 691862 964947
<FN>
(1) The initial death benefit is guaranteed to age 100.
(2) If premiums are paid more frequently than annually, the payments would be
$2,320.66 semi-annually, $1,160.33 quarterly, or $386.78 monthly. The death
benefits and policy values would be slightly different for a policy with
more frequent premium payments.
(3) Assumes no policy loan has been made.
</TABLE>
THE HYPOTHETICAL INVESTMENT RATES OF RETURN SHOWN ABOVE AND ELSEWHERE IN THIS
PROSPECTUS ARE ILLUSTRATIVE ONLY AND SHOULD NOT BE DEEMED A REPRESENTATION OF
PAST OR FUTURE INVESTMENT RATES OF RETURN. ACTUAL RATES OF RETURN MAY BE MORE OR
LESS THAN THOSE SHOWN AND WILL DEPEND ON A NUMBER OF FACTORS, INCLUDING THE
INVESTMENT ALLOCATIONS MADE BY AN OWNER, AND PREVAILING INTEREST RATES. THE
DEATH BENEFITS AND POLICY VALUES FOR A POLICY WOULD BE DIFFERENT FROM THOSE
SHOWN IF THE ACTUAL RATES OF RETURN AVERAGED 0%, 9%, AND 12% OVER A PERIOD OF
YEARS BUT ALSO FLUCTUATED ABOVE OR BELOW THOSE AVERAGES FOR INDIVIDUAL POLICY
YEARS. NO REPRESENTATIONS CAN BE MADE BY MINNESOTA MUTUAL OR THE FUND THAT THESE
HYPOTHETICAL RATES OF RETURN CAN BE ACHIEVED FOR ANY ONE YEAR OR SUSTAINED OVER
ANY PERIOD OF TIME.
80
<PAGE>
- --------------------------------------------------------------------------------
VARIABLE ADJUSTABLE LIFE INSURANCE (CONTINUED)
VAL '87
DEATH BENEFIT OPTION--CASH OPTION
MALE ISSUE AGE 40 FOR NON-SMOKERS
INITIAL DEATH BENEFIT--$250,000(1)
$4,641.31 INITIAL SCHEDULED PREMIUM(2)
USING MAXIMUM CONTRACTUAL MORTALITY CHARGES
<TABLE>
<CAPTION>
-ASSUMING HYPOTHETICAL INVESTMENT RETURNS OF-
0% GROSS(3) 6.00% GROSS(3) 12.00% GROSS(3)
(-1.24% NET) (4.76% NET) (10.76% NET)
POL ATT INITIAL BASE POLICY DEATH POLICY DEATH POLICY DEATH
YR AGE PREMIUM VALUE BENEFIT VALUE BENEFIT VALUE BENEFIT
----- ----- ------------- ----------- ----------- ----------- ----------- ----------- -----------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
1 41 4641 1011 250000 1099 250000 1187 250000
2 42 4641 4245 250000 4624 250000 5013 250000
3 43 4641 7387 250000 8263 250000 9199 250000
4 44 4641 10429 250000 12017 250000 13777 250000
5 45 4641 13373 250000 15891 250000 18793 250000
6 46 4641 16211 250000 19885 250000 24288 250000
7 47 4641 18945 250000 24005 250000 30320 250000
8 48 4641 21570 250000 28254 250000 36948 250000
9 49 4641 24086 250000 32639 250000 44239 250000
10 50 4641 26484 250000 37161 250000 52266 250000
15 55 4641 36360 250000 61821 250000 106738 250000
20 60 4641 41489 250000 89966 250000 196318 343355
25 65 4641 39640 250000 122446 250000 334106 522510
30 70 4641 25391 250000 160974 250000 541111 763487
<FN>
(1) The initial death benefit is guaranteed to age 100.
(2) If premiums are paid more frequently than annually, the payments would be
$2,320.66 semi-annually, $1,160.33 quarterly, or $386.78 monthly. The death
benefits and policy values would be slightly different for a policy with
more frequent premium payments.
(3) Assumes no policy loan has been made.
</TABLE>
THE HYPOTHETICAL INVESTMENT RATES OF RETURN SHOWN ABOVE AND ELSEWHERE IN THIS
PROSPECTUS ARE ILLUSTRATIVE ONLY AND SHOULD NOT BE DEEMED A REPRESENTATION OF
PAST OR FUTURE INVESTMENT RATES OF RETURN. ACTUAL RATES OF RETURN MAY BE MORE OR
LESS THAN THOSE SHOWN AND WILL DEPEND ON A NUMBER OF FACTORS, INCLUDING THE
INVESTMENT ALLOCATIONS MADE BY AN OWNER, AND PREVAILING INTEREST RATES. THE
DEATH BENEFITS AND POLICY VALUES FOR A POLICY WOULD BE DIFFERENT FROM THOSE
SHOWN IF THE ACTUAL RATES OF RETURN AVERAGED 0%, 9%, AND 12% OVER A PERIOD OF
YEARS BUT ALSO FLUCTUATED ABOVE OR BELOW THOSE AVERAGES FOR INDIVIDUAL POLICY
YEARS. NO REPRESENTATIONS CAN BE MADE BY MINNESOTA MUTUAL OR THE FUND THAT THESE
HYPOTHETICAL RATES OF RETURN CAN BE ACHIEVED FOR ANY ONE YEAR OR SUSTAINED OVER
ANY PERIOD OF TIME.
81
<PAGE>
- --------------------------------------------------------------------------------
VARIABLE ADJUSTABLE LIFE INSURANCE (CONTINUED)
VAL '87
DEATH BENEFIT OPTION--PROTECTION OPTION
MALE ISSUE AGE 40 FOR NON-SMOKERS
INITIAL DEATH BENEFIT--$250,000(1)
$4,641.31 INITIAL SCHEDULED PREMIUM(2)
USING CURRENT MORTALITY CHARGES
<TABLE>
<CAPTION>
-ASSUMING HYPOTHETICAL INVESTMENT RETURNS OF-
0% GROSS(3) 6.00% GROSS(3) 12.00% GROSS(3)
(-1.24% NET) (4.76% NET) (10.76% NET)
POL ATT INITIAL BASE POLICY DEATH POLICY DEATH POLICY DEATH
YR AGE PREMIUM VALUE BENEFIT VALUE BENEFIT VALUE BENEFIT
----- ----- ------------- ----------- ----------- ----------- ----------- ----------- -----------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
1 41 4641 1011 250000 1098 250000 1185 250000
2 42 4641 4245 250000 4621 250102 5004 250373
3 43 4641 7387 250000 8257 250265 9172 251427
4 44 4641 10429 250000 12005 250506 13710 253230
5 45 4641 13375 250000 15873 250824 18679 255795
6 46 4641 16384 250000 20040 251219 24326 259185
7 47 4641 19486 250000 24542 252161 30711 264020
8 48 4641 22638 250000 29349 253740 37865 270355
9 49 4641 25814 250000 34450 255818 45839 278124
10 50 4641 28993 250000 39837 258308 54696 287315
15 55 4641 44526 250000 71077 275592 115136 356023
20 60 4641 58308 250000 109217 299382 211335 469239
25 65 4641 68644 250000 153021 325874 355420 632004
30 70 4641 74205 250000 200950 353337 558142 847289
<FN>
(1) The initial death benefit is guaranteed to age 100.
(2) If premiums are paid more frequently than annually, the payments would be
$2,320.66 semi-annually, $1,160.33 quarterly, or $386.78 monthly. The death
benefits and policy values would be slightly different for a policy with
more frequent premium payments.
(3) Assumes no policy loan has been made.
</TABLE>
THE HYPOTHETICAL INVESTMENT RATES OF RETURN SHOWN ABOVE AND ELSEWHERE IN THIS
PROSPECTUS ARE ILLUSTRATIVE ONLY AND SHOULD NOT BE DEEMED A REPRESENTATION OF
PAST OR FUTURE INVESTMENT RATES OF RETURN. ACTUAL RATES OF RETURN MAY BE MORE OR
LESS THAN THOSE SHOWN AND WILL DEPEND ON A NUMBER OF FACTORS, INCLUDING THE
INVESTMENT ALLOCATIONS MADE BY AN OWNER, AND PREVAILING INTEREST RATES. THE
DEATH BENEFITS AND POLICY VALUES FOR A POLICY WOULD BE DIFFERENT FROM THOSE
SHOWN IF THE ACTUAL RATES OF RETURN AVERAGED 0%, 9%, AND 12% OVER A PERIOD OF
YEARS BUT ALSO FLUCTUATED ABOVE OR BELOW THOSE AVERAGES FOR INDIVIDUAL POLICY
YEARS. NO REPRESENTATIONS CAN BE MADE BY MINNESOTA MUTUAL OR THE FUND THAT THESE
HYPOTHETICAL RATES OF RETURN CAN BE ACHIEVED FOR ANY ONE YEAR OR SUSTAINED OVER
ANY PERIOD OF TIME.
82
<PAGE>
- --------------------------------------------------------------------------------
VARIABLE ADJUSTABLE LIFE INSURANCE (CONTINUED)
VAL '87
DEATH BENEFIT OPTION--PROTECTION OPTION
MALE ISSUE AGE 40 FOR NON-SMOKERS
INITIAL DEATH BENEFIT--$250,000(1)
$4,641.31 INITIAL SCHEDULED PREMIUM(2)
USING MAXIMUM CONTRACTUAL MORTALITY CHARGES
<TABLE>
<CAPTION>
-ASSUMING HYPOTHETICAL INVESTMENT RETURNS OF-
0% GROSS(3) 6.00% GROSS(3) 12.00% GROSS(3)
(-1.24% NET) (4.76% NET) (10.76% NET)
POL ATT INITIAL BASE POLICY DEATH POLICY DEATH POLICY DEATH
YR AGE PREMIUM VALUE BENEFIT VALUE BENEFIT VALUE BENEFIT
----- ----- ------------- ----------- ----------- ----------- ----------- ----------- -----------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
1 41 4641 1011 250000 1098 250000 1185 250000
2 42 4641 4245 250000 4621 250102 5004 250373
3 43 4641 7387 250000 8257 250265 9172 251427
4 44 4641 10429 250000 12005 250506 13710 253230
5 45 4641 13373 250000 15869 250824 18679 255795
6 46 4641 16211 250000 19847 251214 24326 259132
7 47 4641 18945 250000 23945 251672 30711 263252
8 48 4641 21570 250000 28164 252195 37865 268166
9 49 4641 24086 250000 32507 252780 45839 273885
10 50 4641 26484 250000 36973 253422 54696 280421
15 55 4641 36360 250000 61008 257364 97481 325532
20 60 4641 41489 250000 87329 262084 162468 390403
25 65 4641 39640 250000 115232 266874 245863 470488
30 70 4641 25391 250000 142925 270748 338700 552383
<FN>
(1) The initial death benefit is guaranteed to age 100.
(2) If premiums are paid more frequently than annually, the payments would be
$2,320.66 semi-annually, $1,160.33 quarterly, or $386.78 monthly. The death
benefits and policy values would be slightly different for a policy with
more frequent premium payments.
(3) Assumes no policy loan has been made.
</TABLE>
THE HYPOTHETICAL INVESTMENT RATES OF RETURN SHOWN ABOVE AND ELSEWHERE IN THIS
PROSPECTUS ARE ILLUSTRATIVE ONLY AND SHOULD NOT BE DEEMED A REPRESENTATION OF
PAST OR FUTURE INVESTMENT RATES OF RETURN. ACTUAL RATES OF RETURN MAY BE MORE OR
LESS THAN THOSE SHOWN AND WILL DEPEND ON A NUMBER OF FACTORS, INCLUDING THE
INVESTMENT ALLOCATIONS MADE BY AN OWNER, AND PREVAILING INTEREST RATES. THE
DEATH BENEFITS AND POLICY VALUES FOR A POLICY WOULD BE DIFFERENT FROM THOSE
SHOWN IF THE ACTUAL RATES OF RETURN AVERAGED 0%, 9%, AND 12% OVER A PERIOD OF
YEARS BUT ALSO FLUCTUATED ABOVE OR BELOW THOSE AVERAGES FOR INDIVIDUAL POLICY
YEARS. NO REPRESENTATIONS CAN BE MADE BY MINNESOTA MUTUAL OR THE FUND THAT THESE
HYPOTHETICAL RATES OF RETURN CAN BE ACHIEVED FOR ANY ONE YEAR OR SUSTAINED OVER
ANY PERIOD OF TIME.
83
<PAGE>
- --------------------------------------------------------------------------------
APPENDIX II
SUMMARY OF POLICY CHARGES
What sets cash value life insurance apart from other types of savings and
investment vehicles? It is the only product creating immediate and substantial
dollars in the form of a death benefit plus offering an accumulation component.
This is unlike other vehicles that can only create dollars over time as
contributions are made.
All life insurance policies have basically the same charges, although the
charges may be taken in different ways or at different points in time. VAL has
two distinct ways to recover expenses from a standard policy:
I. CHARGES TAKEN FROM THE BASE PREMIUM:
As premium contributions are received by Minnesota Mutual each year, the
company takes a certain percentage to partially cover expenses. A sales load is
taken to pay commissions to the agent. Two charges are also taken as a
percentage of the premium to cover the state premium tax and provide a
guaranteed death benefit.
Also, in the first year of any life insurance policy, two things are
different than in ongoing years: a larger commission is paid, and the policy
must be underwritten. To begin to cover these costs, an additional sales load
and an underwriting charge are taken from the premium in just the first year.
These two charges may be assessed on future increases in premium and face amount
adjustments.
<TABLE>
<S> <C>
CHARGES TAKEN FROM PREMIUM: PLUS, IN FIRST YEAR:
7.00% Sales load Additional sales load (up to 23%)
1.50% Face amount guarantee Underwriting charge (up to
2.50% State premium tax $5/$1,000 of insurance coverage)
- -----------------------
11.00% TOTAL
</TABLE>
II. CHARGES TAKEN FROM THE ACTUAL CASH VALUE:
After the above charges are taken from the premium, the remaining amount is
the net premium. The net premium is then invested in the MIMLIC Series Fund
portfolio(s) you have selected which is referred to as your actual cash value or
the Variable Life Account. With a VAL insurance policy, the actual cash value
amount is determined by the number of units in each of your portfolios and their
current value.
There are two sets of charges that affect your actual cash value. One set is
a direct charge and the other set is an indirect charge. The direct set is the
cost of insurance and an administration charge which is taken from the policy
actual cash value on a monthly basis. (Refer to Table A.) The cost of insurance
charge goes to cover the risk of premature death while the administration charge
covers the cost of maintaining each policy.
TABLE A
DIRECT CHARGES TAKEN FROM ACTUAL CASH VALUE:
- - Administration charge ($60/year)
- - Cost of insurance charge
- - If applicable: Transaction Charges
In addition to the charges described above, there are additional charges for
substandard risk policies. These charges are taken directly from the premium in
the case of VAL '95 policies and as charges against the policy value on VAL '87
policies.
84
<PAGE>
The indirect set of charges include the Mortality and Expense Risk charge
(from the Variable Life Account) plus the Advisory Fee and Fund Expense (from
the MIMLIC Series Fund). The Mortality and Expense Risk charge protects the
insurance company from the risk that total policy charges may not be adequate to
cover actual company expenses. The Series Fund charges cover the advisory fee of
the fund manager and portfolio expense for each of VAL's portfolios.
For illustration purposes, we use an average of the actual Mortality and
Expense Risk Charge, Advisory Fee and Fund Expense which is 1.24%. These are
listed for each portfolio in Table B.
Your actual cash value is determined daily, net of the charges associated
with the portfolios you have selected, so they do not appear as a direct
expense. This is reflected illustratively by an assumed net rate of return.
Consider this example: assumed gross rate of 9.00%-Average of actual expenses
total in Table B of 1.24%=assumed net rate of return of 7.76%.
TABLE B -- INDIRECT CHARGES
ACTUAL VARIABLE LIFE SEPARATE ACCOUNT EXPENSES AND SERIES FUND FEES
<TABLE>
<CAPTION>
MORTALITY ADVSY FUND
PORTFOLIO NAME & EXP RISK FEE + EXP = TOTAL
<S> <C> <C> <C> <C> <C> <C>
Index 500 .50 .40 + .10 = 1.00
Asset Allocation .50 .50 + .06 = 1.06
Bond .50 .50 + .11 = 1.11
Growth .50 .50 + .06 = 1.06
Money Market .50 .50 + .15 = 1.15
Mortgage Securities .50 .50 + .10 = 1.10
Capital Appreciation .50 .75 + .08 = 1.33
Value Stock .50 .75 + .15 = 1.40
Small Company .50 .75 + .15 = 1.40
International Stock .50 .82 + .42 = 1.74
--
----- ---- -----
AVERAGE .50 .605 + .138 = 1.24
</TABLE>
(THE AVERAGE OF THE MAXIMUM VARIABLE LIFE SEPARATE ACCOUNT AND SERIES FUND FEES
AND EXPENSES IS 1.35%.)
85
<PAGE>
EDGAR REPRESENTATION OF DATA POINTS USED IN PRINTED GRAPHIC
<TABLE>
<CAPTION>
NET PREMIUM CHARGES FROM PREMIUM ACTUAL CASH VALUE
<S> <C> <C> <C> <C>
Year 1 1.333 3.666 Year 1 $1,014
Year 2 4 1 Year 2 $4,459
Year 3 4 1 Year 3 $8,138
Year 4 4 1 Year 4 $12,062
</TABLE>
86
<PAGE>
- --------------------------------------------------------------------------------
VARIABLE ADJUSTABLE LIFE INSURANCE
VAL '95
DEATH BENEFIT OPTION--CASH OPTION
MALE ISSUE AGE 40 FOR NON-SMOKERS
INITIAL DEATH BENEFIT--$250,000(1)
$4,205.30 INITIAL SCHEDULED PREMIUM(2)
USING CURRENT MORTALITY CHARGES
<TABLE>
<CAPTION>
-ASSUMING HYPOTHETICAL INVESTMENT RETURNS OF-
0% GROSS(3) 9.00% GROSS(3) 12.00% GROSS(3)
(-1.24% NET) (7.76% NET) (10.76% NET)
POL ATT INITIAL BASE POLICY DEATH POLICY DEATH POLICY DEATH
YR AGE PREMIUM VALUE BENEFIT VALUE BENEFIT VALUE BENEFIT
----- ----- ------------- ----------- ----------- ----------- ----------- ----------- -----------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
1 41 4205 901 250000 1014 250000 1051 250000
2 42 4205 3945 250000 4459 250000 4635 250000
3 43 4205 6917 250000 8138 250000 8571 250000
4 44 4205 9812 250000 12062 250000 12891 250000
5 45 4205 12631 250000 16254 250000 17639 250000
6 46 4205 15368 250000 20728 250000 22858 250000
7 47 4205 18022 250000 25511 250000 28605 250000
8 48 4205 20707 250000 30756 250000 35072 250000
9 49 4205 23442 250000 36509 250000 42346 250000
10 50 4205 26199 250000 42787 250000 50491 250000
15 55 4205 39793 250000 83187 250000 107681 250000
20 60 4205 51739 250000 143157 262983 205416 370380
25 65 4205 60162 250000 230322 374683 365187 581882
30 70 4205 63542 250000 352559 512433 623049 885632
<FN>
(1) The initial death benefit is guaranteed to age 100.
(2) If premiums are paid more frequently than annually, the payments would be
$2,102.65 semi-annually, $1,051.33 quarterly, or $350.45 monthly. The death
benefits and policy values would be slightly different for a policy with
more frequent premium payments.
(3) Assumes no policy loan has been made.
</TABLE>
THE HYPOTHETICAL INVESTMENT RATES OF RETURN SHOWN ABOVE AND ELSEWHERE IN THIS
PROSPECTUS ARE ILLUSTRATIVE ONLY AND SHOULD NOT BE DEEMED A REPRESENTATION OF
PAST OR FUTURE INVESTMENT RATES OF RETURN. ACTUAL RATES OF RETURN MAY BE MORE OR
LESS THAN THOSE SHOWN AND WILL DEPEND ON A NUMBER OF FACTORS, INCLUDING THE
INVESTMENT ALLOCATIONS MADE BY AN OWNER, AND PREVAILING INTEREST RATES. THE
DEATH BENEFITS AND POLICY VALUES FOR A POLICY WOULD BE DIFFERENT FROM THOSE
SHOWN IF THE ACTUAL RATES OF RETURN AVERAGED 0%, 9%, AND 12% OVER A PERIOD OF
YEARS BUT ALSO FLUCTUATED ABOVE OR BELOW THOSE AVERAGES FOR INDIVIDUAL POLICY
YEARS. NO REPRESENTATIONS CAN BE MADE BY MINNESOTA MUTUAL OR THE FUND THAT THESE
HYPOTHETICAL RATES OF RETURN CAN BE ACHIEVED FOR ANY ONE YEAR OR SUSTAINED OVER
ANY PERIOD OF TIME.
87
<PAGE>
- --------------------------------------------------------------------------------
VARIABLE ADJUSTABLE LIFE INSURANCE (CONTINUED)
VAL '95
DEATH BENEFIT OPTION--CASH OPTION
MALE ISSUE AGE 40 FOR NON-SMOKERS
INITIAL DEATH BENEFIT--$250,000(1)
$4,205.30 INITIAL SCHEDULED PREMIUM(2)
USING MAXIMUM CONTRACTUAL MORTALITY CHARGES
<TABLE>
<CAPTION>
-ASSUMING HYPOTHETICAL INVESTMENT RETURNS OF-
0% GROSS(3) 9.00% GROSS(3) 12.00% GROSS(3)
(-1.24% NET) (7.76% NET) (10.76% NET)
POL ATT INITIAL BASE POLICY DEATH POLICY DEATH POLICY DEATH
YR AGE PREMIUM VALUE BENEFIT VALUE BENEFIT VALUE BENEFIT
----- ----- ------------- ----------- ----------- ----------- ----------- ----------- -----------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
1 41 4205 901 250000 1014 250000 1051 250000
2 42 4205 3943 250000 4459 250000 4635 250000
3 43 4205 6912 250000 8138 250000 8571 250000
4 44 4205 9803 250000 12062 250000 12891 250000
5 45 4205 12617 250000 16254 250000 17639 250000
6 46 4205 15347 250000 20728 250000 22858 250000
7 47 4205 17991 250000 25505 250000 28596 250000
8 48 4205 20547 250000 30606 250000 34911 250000
9 49 4205 23013 250000 36059 250000 41867 250000
10 50 4205 25382 250000 41886 250000 49533 250000
15 55 4205 35510 250000 77670 250000 101585 250000
20 60 4205 41665 250000 128173 250000 187364 340243
25 65 4205 41657 250000 199638 327059 320468 514822
30 70 4205 30575 250000 293228 430136 521821 749378
<FN>
(1) The initial death benefit is guaranteed to age 100.
(2) If premiums are paid more frequently than annually, the payments would be
$2,102.65 semi-annually, $1,051.33 quarterly, or $350.45 monthly. The death
benefits and policy values would be slightly different for a policy with
more frequent premium payments.
(3) Assumes no policy loan has been made.
</TABLE>
THE HYPOTHETICAL INVESTMENT RATES OF RETURN SHOWN ABOVE AND ELSEWHERE IN THIS
PROSPECTUS ARE ILLUSTRATIVE ONLY AND SHOULD NOT BE DEEMED A REPRESENTATION OF
PAST OR FUTURE INVESTMENT RATES OF RETURN. ACTUAL RATES OF RETURN MAY BE MORE OR
LESS THAN THOSE SHOWN AND WILL DEPEND ON A NUMBER OF FACTORS, INCLUDING THE
INVESTMENT ALLOCATIONS MADE BY AN OWNER, AND PREVAILING INTEREST RATES. THE
DEATH BENEFITS AND POLICY VALUES FOR A POLICY WOULD BE DIFFERENT FROM THOSE
SHOWN IF THE ACTUAL RATES OF RETURN AVERAGED 0%, 9%, AND 12% OVER A PERIOD OF
YEARS BUT ALSO FLUCTUATED ABOVE OR BELOW THOSE AVERAGES FOR INDIVIDUAL POLICY
YEARS. NO REPRESENTATIONS CAN BE MADE BY MINNESOTA MUTUAL OR THE FUND THAT THESE
HYPOTHETICAL RATES OF RETURN CAN BE ACHIEVED FOR ANY ONE YEAR OR SUSTAINED OVER
ANY PERIOD OF TIME.
88
<PAGE>
- --------------------------------------------------------------------------------
APPENDIX III
ILLUSTRATION OF DEATH BENEFIT CALCULATION
As an example of the calculation of the death benefit under the Policy,
assume a Policy and an insured with the following characteristics: The insured
is a male, age 40 at Policy issue, and a non-smoker. The Variable Adjustable
Life Insurance Policy has a face amount of $250,000, with a level face amount
and premiums for the life of the insured and the Protection Option has been
chosen as the form of the death benefit. Further, assume that 100 percent of net
premiums are invested in the Variable Life Account sub-accounts, that the gross
investment rate in the Variable Life Account was 12 percent each year and that
Minnesota Mutual deducted current mortality charges. This situation is shown in
Appendix I, "Illustrations of Policy Values, Death Benefits and Accumulated
Premiums," on page 74 of this prospectus.
Now, further assume that the insured dies at age 65, after the Policy has
been in force for a period of ten years and during which time all of the
premiums have been paid. No policy loans or withdrawals have been made under the
Policy.
Given these assumptions, the policy value of a VAL '95 Policy (the actual
cash value plus any policy loan) on the date of the insured's death--composed of
the Policy's interest in one or more of the sub-accounts of the Variable Life
Account--is equal to $49,873. Under the Protection Option the death benefit will
be $299,873.
Given these assumptions, the policy value of a VAL '87 Policy (the actual
cash value plus any policy loan) on the date of the insured's death--composed of
the Policy's interest in one or more of the sub-accounts of the Variable Life
Account--is equal to $54,696. Under the Protection Option the death benefit will
be $298,859.
The total proceeds payable under either Policy would be adjusted to include
any additional insurance provided by an additional benefit agreement and the
amount payable would be reduced by any unpaid policy charges or any policy loan.
As an alternative, consider the same example, except that the insured
elected the Cash Option death benefit. This situation is shown in Appendix I,
"Illustrations of Policy Values, Death Benefits and Accumulated Premiums," on
page 74 of this prospectus.
The death benefit under the Cash Option does not vary from the Policy's face
amount until the Policy becomes paid-up. In this example, again assuming timely
payment of premiums, no withdrawals and no policy loan activity, the policy
value on the date of the insured's death would be $50,491 in the case of a VAL
'95 Policy and $55,374 for a VAL '87 Policy. These are higher value than that
under the Protection Option, reflecting lower mortality costs charged to the
Policy because of the level death benefit. Here, the death benefit is the
current face amount or $250,000.
In determining the total proceeds payable under the Policy, the same
adjustments are made to the death benefit as described under the Protection
Option. However, under the Cash Option any premium paid beyond the end of the
policy month in which the insured died is also included as part of the Policy
proceeds.
89
<PAGE>
- --------------------------------------------------------------------------------
APPENDIX IV
POLICY LOAN EXAMPLE
As an example of the effect of a policy loan upon the Policy and upon the
death benefit, assume a VAL '95 Policy and an insured with the following
characteristics: The insured is a male, age 40 at Policy issue, and a
non-smoker. The Variable Adjustable Life Insurance Policy has a face amount of
$250,000, with a level face amount and premiums for the life of the insured and
the Protection Option has been chosen as the form of the death benefit. Further,
assume that 100 percent of net premiums are invested in the sub-accounts of the
Variable Life Account, that the gross investment rate in the Variable Life
Account was 12 percent each year and that Minnesota Mutual deducted current
mortality charges. This situation is shown in Appendix I, "Illustrations of
Policy Values, Death Benefits and Accumulated Premiums," on page 74 of this
prospectus.
Now assume that the insured, who is also the owner of the Policy, takes a
policy loan in the amount of $5,000 at the end of the fourth policy year and
after all premiums have been paid for that year.
When a loan is taken, the actual cash value invested in the Variable Life
Account is reduced by the amount borrowed and any unpaid interest. The amount is
then transferred to the loan account. Interest is charged on the policy loan as
described in the Policy, but for purposes of this example, assume a policy loan
interest rate of 8 percent per annum. Interest is also credited to a Policy when
there is a policy loan. Interest credits on a policy loan are at a rate which is
not less than the policy loan interest rate less 2 percent per annum. The
interest credit in this example would then be 6 percent.
The following table shows the effect on the year five values, namely those
values at the end of that year, if a policy loan of $5,000 is made at the end of
the fourth year.
<TABLE>
<CAPTION>
End of Year
Policy Value Total Death Benefit
With Loan Without Loan With Loan Without Loan
- ----------- ------------- ----------- ------------
<S> <C> <C> <C>
$ 17,225 $ 17,491 $ 267,225 $ 267,491
</TABLE>
Note that the difference in policy values here represents the difference
between the actual Policy performance in the sub-accounts of the Variable Life
Account and the interest credited on the principal amount of the policy loan. If
interest credited on a policy loan exceeds the Policy performance, then a Policy
with a loan will have a greater value than a Policy with no loan activity. Where
Policy performance exceeds the interest credited on a policy loan, the resulting
policy value will be lower than it would have been if the loan were not made.
Now consider an identical situation to that above except that the insured
has elected the Cash Option death benefit. The following table shows the effect
on the same year five values if a policy loan of $5,000 is made at the end of
the fourth year.
<TABLE>
<CAPTION>
End of Year
Policy Value Total Death Benefit
With Loan Without Loan With Loan Without Loan
- ----------- ------------- ----------- ------------
<S> <C> <C> <C>
$ 17,373 $ 17,639 $ 250,000 $ 250,000
</TABLE>
The values above under the "With Loan" headings are policy values, which is
the actual cash value of a Policy plus any policy loan. If the insured were to
surrender the Policy at the end of the fifth year, he would receive only the
actual cash value in the sub-accounts of the Variable Life Account.
Similarly, if the insured were to die at the end of the fifth year we would
pay out the death benefit listed under the "With Loan" heading less the amount
of the policy loan.
90
<PAGE>
- --------------------------------------------------------------------------------
APPENDIX V
EXAMPLE OF SALES LOAD COMPUTATION
As an example of the method we use to compute sales load, assume a
protection type plan where the annual base premium is $1,000 and where the
premium paying period, prior to any reduction in face amount, is 20 years. The
insured is a male, age 35 with a life expectancy of 38 years. As premiums are
paid in each year, we will assess a basic sales load of 7 percent or $70 in each
year. Also, as premiums are paid in the first year, we will assess a first year
sales load of 23 percent or $230. Therefore, in the first year the sales load
charges will total $300 or 30 percent ($300 DIVIDED BY $1,000), and over the 15
year period from policy issue sales load charges will total $1,280 or 8.54
percent ($1,280 DIVIDED BY $15,000).
Compliance with the 9 percent limitation will be achieved by reducing the
first year sales load, if necessary. For example, consider a Policy with a
protection type plan where the annual base premium is $1,000 and where the
premium paying period prior to any reduction in face amount is 20 years. Further
assume that the insured is a male, age 72 at issue, with a life expectancy of 9
years. In this case, the first year sales load must be reduced so that the total
sales load will not exceed 9 percent over the life expectancy of the insured. As
premiums are paid in each year we will assess the basic sales load of 7 percent,
or $70, but the first year sales load applicable to premiums paid in the first
year will be reduced from 23 percent to 18 percent, or $180. Therefore, in the
first year the sales load charges will total $250 or 25 percent
($250 DIVIDED BY $1,000), and over the period of the insured's life expectancy
sales load charges will total $810 or 9 percent ($810 DIVIDED BY $9,000).
As an example of the method we use to assess sales load when an adjustment
occurs during a period in which a first year sales load is being collected,
consider a Policy where an adjustment is made after one-half of the first annual
premium is paid. Assume that the premium is $1,000 annually as in the example
above and further assume that the premiums are being paid on a monthly basis,
$83.33 per month. As premiums are paid in each year we will assess a basic sales
load of 7 percent of premiums received or $70 in that year. A first year sales
load, taken in addition to the basic sales load, would also be assessed in a
total amount of $230. Now assume an adjustment is made, after the payment of six
monthly premiums, and that the premium is increased from $1,000 to $1,200. Both
before and after the adjustment we will continue to assess a basic sales load of
7 percent of the premiums received. However, since only one-half of the first
year sales load of $230 has been collected, a first year sales load of $115
remains to be collected. The $200 increase in premium will also be assessed a
first year sales load of 23 percent, or $46. Both are added together and will be
collected in the 12 months following the adjustment. Therefore, after the
adjustment of the premium to a $1,200 amount, and assuming that premiums
continue to be paid on a monthly basis, each monthly premium of $100 will be
subjected to a total sales load amount of $20.42, consisting of $7 of basic
sales load, and $13.42 of first year sales load.
91
<PAGE>
- --------------------------------------------------------------------------------
APPENDIX VI
AVERAGE ANNUAL RETURNS
TWENTY-YEAR HOLDING PERIODS
EDGAR REPRESENTATION OF DATA POINTS USED IN PRINTED GRAPHIC
<TABLE>
<CAPTION>
STOCKS BONDS US TREAS. INFLATION
<S> <C> <C> <C> <C> <C>
1954 10.63 3.77 0.55 1954 3.64
1959 13.48 2.1 0.99 1959 3.69
1964 15.11 2.45 1.63 1964 2.9
1969 14.92 1.93 2.6 1969 1.96
1974 10.85 2.83 3.64 1974 2.75
1979 6.53 4.1 4.72 1979 4.34
1984 8.28 4.66 6.8 1984 6.12
1989 9.54 8.3 7.5 1989 6.3
1994 12.76 10.16 7.49 1994 5.91
</TABLE>
Ending periods from 1954-1994
Source: Stocks, Bonds, Bills and Inflation (SBBI), 1994 Yearbook, Ibbotson
Associates, Inc., Chicago, All rights reserved.
The above information contains the average annual rate of return over
twenty-year holding periods for common stocks (S&P 500), high grade corporate
bonds, 30-day U.S. Treasury bills, and inflation (example: 1934-1954, 1940-1959,
etc.). These average rates assume reinvestment of capital gains, dividends and
interest. This is a retrospective view of performance and should in no way be
construed as a projection of future trends.
This graph shows that even though stock investments tend to be more volatile
in short time intervals historically, they have generated rates of return that
have consistently been higher than inflation. Bonds and U.S. Treasury bills have
not always kept up with inflation. The figures do not take into account the
charges associated with a Variable Adjustable Life policy, but do indicate the
potential gain of holding the assets illustrated.
Some additional statistics on the performance of stocks in relation to high
grade, long-term corporate bonds and U.S. Treasury bills over the 50 twenty-year
periods beginning in 1926 and ending in 1994 include:
The average annual return of stocks was higher than that of bonds in 47 of
the 50 periods.
The average annual return of stocks was higher than that of U.S. Treasury
bills in all of the 50 periods.
The average annual return of stocks was higher than inflation in all of the
50 periods.
In the 40 thirty-year periods beginning in 1926 and ending in 1994, the
average annual return of stocks was higher than that of bonds, U.S. Treasury
bills and inflation in all 40 time periods.
From 1926 through 1994, the average annual return for this 69 year period
was:
10.2% for common stocks
5.4% for high-grade, long-term corporate bonds
3.7% for U.S. Treasury bills
92
<PAGE>
- --------------------------------------------------------------------------------
APPENDIX VII
S&P 500
PERFORMANCE HISTORY 1926-1994
EDGAR REPRESENTATION OF DATA POINTS USED IN PRINTED GRAPHIC
<TABLE>
<CAPTION>
ANNUAL TOTAL RETURN
<S> <C>
1926 11.62
37.5
43.6
-8.4
-24.9
-43.3
-8.2
54
-1.4
47.7
33.9
-35
31.1
0
1940 -9.8
11.6
20.3
25.9
19.8
36.4
-8.1
5.7
5.5
18.8
1950 31.7
24
18.4
-0.01
52.6
31.6
6.6
-10.8
43.4
12
1960 0
26.9
-8.7
22.8
16.5
12.5
-10.1
24
-8.5
1970 4
14.3
19
-14.7
-26.5
37.2
23.8
-7.2
6.6
18.4
1980 32.4
-4.9
21.4
22.5
6.3
32.2
18.5
5.2
16.8
31.5
-3.2
30.4
7.67
1993 9.99
1994 1.31
</TABLE>
Source: Stocks, Bonds, Bills and Inflation (SBBI), 1995 Yearbook, Ibbotson
Associates, Inc., Chicago. All rights reserved.
The above chart illustrates that, in any calendar year, the rate of return
for stocks can be positive or negative. However, when viewed over the entire
period of 69 years, stocks have had a positive return in more than two out of
every three years. For the person with a long term view, the results of this
pattern have been very rewarding.
93
<PAGE>
- --------------------------------------------------------------------------------
APPENDIX VIII
RANGE OF RETURNS
ROLLING PERIOD RETURNS USING IBBOTSON ASSET CLASS INFORMATION*
(1960 THROUGH 1994)
EDGAR REPRESENTATION OF DATA POINTS USED IN PRINTED GRAPHIC
<TABLE>
<CAPTION>
HIGH LOW MEAN 1 YEAR
<S> <C> <C> <C> <C>
Small Cap 83.57 -30.9 17.23
Large Cap 37.2 -26.47 11.43
Corp. Bonds 43.79 -8.09 7.99
Gov...t Bonds 40.36 -9.18 7.65
U.S. T-Bills 14.71 2.13 6.19
high low mean 5 year
Small Cap 39.81 -12.25 15.06
Large Cap 20.4 -2.35 10.57
Corp. Bonds 22.41 -2.22 7.35
Gov...t Bonds 21.62 -2.14 6.87
U.S. T-Bills 11.12 2.72 6.48
high low mean 10 year
Small Cap 30.38 3.2 14.49
Large Cap 17.59 1.24 9.99
Corp. Bonds 16.27 1.68 7.26
Gov...t Bonds 15.56 1.3 6.72
U.S. T-Bills 9.17 3.52 6.77
high low mean 15 year
Small Cap 23.33 5.87 15.06
Large Cap 16.61 4.31 9.56
Corp. Bonds 11.57 3.11 6.88
Gov...t Bonds 11.68 2.46 6.37
U.S. T-Bills 8.32 4.22 6.81
high low mean 20 year
Small Cap 18.82 11.47 15.01
Large Cap 12.76 6.76 9.51
Corp. Bonds 10.16 3.05 6.86
Gov...t Bonds 10.1 2.59 6.35
U.S. T-Bills 7.72 4.72 6.81
high low mean 30 year
Small Cap 15.1 13.47 14.33
Large Cap 10.87 10.15 10.4
Corp. Bonds 7.69 6.8 7.2
Gov...t Bonds 7.37 6.18 6.71
U.S. T-Bills 6.64 6.16 6.46
</TABLE>
Source: Ibbotson & Associates.
* Past performance is no guarantee of future results.
The above chart illustrates the volatility in the rate of return for stocks,
represented by Small Cap Stocks, Large Cap Stocks (S&P 500), Corporate Bonds,
Gov't Bonds, and U.S. T-Bills for progressively longer holding periods. This
volatility is reduced as the holding period is increased from one year to just
five years. For holding periods of 10 years or longer, volatility of return is
reduced even more. These longer holding periods have produced returns that are
quite consistent, and are very attractive when compared with the returns from
U.S. Treasury bills and high-grade, long-term corporate bonds.
The strategy of reducing the year-to-year volatility in the rate of return
for stocks by lengthening the holding period can work to the advantage of a
person who buys a cash value life insurance policy like Variable Adjustable
Life, and utilizes stock sub-accounts. That's because the holding period for
such a policy typically can be extremely long--at least 10 years, and possibly
20, 30 or more years.
94
