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File Number 33-3233
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM S-6
POST-EFFECTIVE AMENDMENT NUMBER 11
REGISTRATION STATEMENT UNDER THE SECURITIES ACT OF 1933
MINNESOTA MUTUAL VARIABLE LIFE ACCOUNT
--------------------------------------
(Name of Trust)
The Minnesota Mutual Life Insurance Company
-------------------------------------------
(Depositor)
400 Robert Street North, St. Paul, Minnesota 55101-2098
--------------------------------------------------------
(Depositor's Principal Executive Offices)
Dennis E. Prohofsky
Senior Vice President, General Counsel and Secretary
The Minnesota Mutual Life Insurance Company
400 Robert Street North
St. Paul, Minnesota 55101-2098
-------------------------------
(Agent for Service)
It is proposed that this filing will become effective check appropriate box:
immediately upon filing pursuant to paragraph (b) of Rule 485
---
X on May 1, 1996 pursuant to paragraph (b) of Rule 485
---
___ 60 days after filing pursuant to paragraph (a)(i) of Rule 485
___ on (date) pursuant to paragraph (a)(i) of Rule 485
___ this post-effective amendment designates a new effective date for a
previously filed post-effective amendment
Copy to:
J. Sumner Jones, Esq.
Jones & Blouch L.L.P.
1025 Thomas Jefferson Street, N.W., Suite 405 West
Washington, D.C. 20007
Pursuant to Regulation 270.24f-2 under the Investment Company Act of 1940,
Registrant has previously elected to register an indefinite number of its common
shares under the Securities Act of 1933. The Rule 24f-2 Notice for Registrant's
most recent fiscal year was filed on February 27, 1996.
<PAGE>
MINNESOTA MUTUAL
VARIABLE LIFE ACCOUNT
OF
THE MINNESOTA MUTUAL LIFE INSURANCE COMPANY
CROSS REFERENCE TO ITEMS
REQUIRED BY FORM N-8B-2
N-8B-2 Item Caption in Prospectus
- ----------- ---------------------
1. Cover Page
2. Cover Page; General Descriptions, The Minnesota Mutual Life
Insurance Company, Variable Life Account
3. Not Applicable
4. Distribution of Policies
5. General Descriptions, Variable Life Account
6. General Descriptions, Variable Life Account
7. Not Applicable
8. Not Applicable
9. Legal Proceedings
10. Summary; Detailed Information About the Variable Adjustable Life
Insurance Policy; Policy Charges; Voting Rights
11. Summary; Detailed Information About the Variable Adjustable Life
Insurance Policy; General Descriptions, MIMLIC Series Fund, Inc.
12. Summary; Detailed Information About the Variable Adjustable Life
Insurance Policy; General Descriptions, MIMLIC Series Fund, Inc.
13. Detailed Information About the Variable Adjustable Life Insurance
Policy; Policy Charges
14. Detailed Information About the Variable Adjustable Life Insurance
Policy, Adjustable Life Insurance; Applications and Policy Issue
15. Detailed Information About the Variable Adjustable Life Insurance
Policy, Policy Premiums
16. Not Applicable
17. Summary; Detailed Information About the Variable Adjustable Life
Insurance Policy
18. MIMLIC Series Fund, Inc.
19. Voting Rights
<PAGE>
20. Not Applicable
21. Not Applicable
22. Not Applicable
23. Not Applicable
24. Not Applicable
25. General Descriptions, The Minnesota Mutual Life Insurance Company
26. Not Applicable
27. General Descriptions, The Minnesota Mutual Life Insurance Company
28. Trustees and Principal Officers of Minnesota Mutual
29. General Descriptions, The Minnesota Mutual Life Insurance Company
30. Not Applicable
31. Not Applicable
32. Not Applicable
33. Not Applicable
34. Not Applicable
35. General Descriptions, The Minnesota Mutual Life Insurance Company
36. Not Applicable
37. Not Applicable
38. Distribution of Policies
39. Distribution of Policies
40. Not Applicable
41. Distribution of Policies
42. Not Applicable
43. Not Applicable
44. Detailed Information About the Variable Adjustable Life Insurance
Policy, Policy Values
45. Not Applicable
46. Detailed Information About the Variable Adjustable Life Insurance
Policy, Policy Loans, Surrender
47. Not Applicable
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48. Not Applicable
49. Not Applicable
50. General Descriptions, Variable Life Account
51. Summary; Detailed Information About the Variable Adjustable Life
Insurance Policy, Policy Charges
52. Summary; General Descriptions, Variable Life Account; MIMLIC
Series Fund, Inc.
53. Federal Tax Status
54. Not Applicable
55. Not Applicable
56. Not Applicable
57. Not Applicable
58. Not Applicable
59. Financial Statements
<PAGE>
PART I
INFORMATION REQUIRED IN PROSPECTUS
<PAGE>
PROSPECTUS
VARIABLE ADJUSTABLE LIFE
INSURANCE POLICY
LOGO
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 30. 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.
The Minnesota Mutual Life Insurance Company
400 Robert Street North
St. Paul, MN 55101-2098
Ph 612/298-3500
http:/www.minnesotamutual.com
Dated: May 1, 1996
<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
Flexibility at Issue.................................................... 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............................................................ 27
Surrender............................................................... 28
Free Look............................................................... 29
Conversion.............................................................. 29
Policy Charges.......................................................... 30
Other Policy Provisions................................................. 33
Additional Benefits..................................................... 35
Other Matters
Federal Tax Status...................................................... 36
Trustees and Principal Officers of Minnesota Mutual..................... 39
Voting Rights........................................................... 40
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....... 57
Appendix I-Illustrations of Policy Values, Death Benefits and Premiums.... 75
Appendix II-Summary of Policy Charges..................................... 85
Appendix III-Illustration of Death Benefit Calculation.................... 90
Appendix IV-Policy Loan Example........................................... 91
Appendix V-Example of Sales Load Computation.............................. 92
Appendix VI-Average Annual Returns........................................ 93
Appendix VII-S&P 500 Performance History.................................. 94
Appendix VIII-Range of Returns............................................ 95
</TABLE>
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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. Based on the premium and initial face
amount you choose, we will calculate the tabular cash value which results from
using the guaranteed mortality and assumed rate of return in the Policy. The
pattern of tabular cash values and the resulting schedule of face amount and
premiums define the guaranteed plan of insurance.
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 wish to accumulate substantial
1
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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)
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<S> <C>
56 9
57 8
58 7
59 6
60 or greater 5
</TABLE>
A protection Policy is one which provides only a term plan of insurance,
namely one with a stated face amount and premium level, providing a guaranteed
face amount for a specified number of years, always less than for whole life.
Absent an adjustment to a new plan, at the end of the initial protection
period, there will be a scheduled reduction in the guaranteed face amount; that
face amount will have a whole life plan of insurance, 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>
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 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
2
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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
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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
4
<PAGE>
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 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 30. 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
5
<PAGE>
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 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 the insured must be under age 80, satisfy
our underwriting standards and the Policy must have 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
<PAGE>
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, 1995. 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
OF
YEAR ENDED OPERATIONS)
DECEMBER 31, TO DECEMBER
1995 1994 1993 1992 1991 1990 1989 1988 31, 1987
---------- ---------- ---------- --------- --------- --------- ------- ------- -------------
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C>
Growth Sub-Account:
Unit value at beginning
of period $1.794 $1.788 $1.718 1.647 1.234 1.237 0.987 0.859 1.000
Unit value at end of pe-
riod $2.218 $1.794 $1.788 1.718 1.647 1.234 1.237 0.987 0.859
Number of units out-
standing at end of pe-
riod 12,822,494 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 $1.634 $1.720 $1.567 1.477 1.262 1.184 1.056 0.994 1.000
Unit value at end of pe-
riod $1.946 $1.634 $1.720 1.567 1.477 1.262 1.184 1.056 0.994
Number of units out-
standing at end of pe-
riod 5,340,539 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 $1.447 $1.403 $1.373 1.337 1.274 1.188 1.100 1.038 1.000
Unit value at end of pe-
riod $1.518 $1.447 $1.403 1.373 1.337 1.274 1.188 1.100 1.038
Number of units out-
standing at end of pe-
riod 3,509,791 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 $1.793 $1.828 $1.726 1.617 1.261 1.223 1.022 0.927 1.000
Unit value at end of pe-
riod $2.231 $1.793 $1.828 1.726 1.617 1.261 1.223 1.022 0.927
Number of units out-
standing at end of pe-
riod 27,633,273 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 $1.731 $1.800 $1.656 1.564 1.352 1.242 1.100 0.998 1.000
Unit value at end of pe-
riod $2.032 $1.731 $1.800 1.656 1.564 1.352 1.242 1.100 0.998
Number of units out-
standing at end of pe-
riod 3,616,256 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 $1.778 $1.766 $1.617 1.514 1.173 1.226 0.945 0.819 1.000
Unit value at end of pe-
riod $2.421 $1.778 $1.766 1.617 1.514 1.173 1.226 0.945 0.819
Number of units out-
standing at end of pe-
riod 11,917,281 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
OF
YEAR ENDED OPERATIONS)
DECEMBER 31, TO DECEMBER
1995 1994 1993 1992 1991 1990 1989 1988 31, 1987
---------- ---------- --------- --------- --------- ------- ------- ------ -------------
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C>
Capital Appreciation
Sub-Account:
Unit value at beginning
of period $2.095 $2.059 $1.874 1.793 1.272 1.303 0.948 0.885 1.000
Unit value at end of pe-
riod $2.559 $2.095 $2.059 1.874 1.793 1.272 1.303 0.948 0.885
Number of units out-
standing at end of pe-
riod 16,587,673 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 $1.321 $1.322 $0.929 1.000*
Unit value at end of pe-
riod $1.502 $1.321 $1.332 0.929
Number of units out-
standing at end of pe-
riod 20,883,317 15,062,750 6,244,750 1,615,754
Small Company Sub-Ac-
count:
Unit value at beginning
of period $1.213 $1.149 $1.000**
Unit value at end of pe-
riod $1.594 $1.213 $1.149
Number of units out-
standing at end of pe-
riod 13,089,758 7,074,933 1,261,521
Value Stock Sub-Account:
Unit value at beginning
of period 1.035 1.000***
Unit value at end of pe-
riod 1.369 1.035
Number of units out-
standing at end of pe-
riod 3,864,294 971,938
</TABLE>
* 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.
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
9
<PAGE>
automatically reinvested in shares of that Portfolio at net asset value.
For more information on the Fund and its Portfolios, see "Summary--What
investment
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. Since 1980 short-term interest
rates have been, for a time, at a historically high level and for some
10
<PAGE>
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 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
11
<PAGE>
DETAILED INFORMATION ABOUT THE
VARIABLE ADJUSTABLE LIFE INSURANCE POLICY
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.
FLEXIBILITY AT ISSUE
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.
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. Based on the premium and the initial face amount you
choose, we will calculate the tabular cash value which results from using the
guaranteed mortality and assumed rate of return in the Policy. The pattern of
tabular cash values and the resulting schedule of face amount and premiums
define the guaranteed plan of insurance.
WHOLE LIFE INSURANCE PLANS 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 assume an eventual
tabular 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.
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 becomes paid-up at an anniversary when its policy value
exceeds a net single premium for the then current face amount.
Examples of 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 have a paid-up Policy for the initial face amount of
coverage.
PROTECTION INSURANCE PLANS Protection insurance plans provide life insurance in
an amount at least equal to the initial face amount for a specified period.
Premiums will be payable for the life of the insured or to age 100. Protection
plans of insurance assume the exhaustion of the tabular cash value at the end
of the initial protection period. At the end of this period, the insurance
coverage will not terminate, but will be guaranteed at a
12
<PAGE>
reduced amount thereafter for life. This is called the scheduled reduction in
face amount. At the time of the scheduled reduction, the reduced amount of
insurance will be calculated on the basis of the continued payment of the
scheduled premiums and a whole life plan of insurance. Thus, a Policy with a
protection plan of insurance at issue, will have an initial guaranteed death
benefit extending to a stated age and a lower death benefit 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
$16,125. Based on this policy value, a whole life plan, and the continued
payment of the $926 premium, the face amount would be reduced to $42,607
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
POLICY DEATH MINIMUM
VALUE BENEFIT DEATH
POLICY ATTAINED ANNUAL END OF BEGINNING BENEFIT AT
YEAR AGE PREMIUM YEAR OF YEAR ISSUE
- ------ -------- ------- ------ --------- ----------
<S> <C> <C> <C> <C> <C>
5 50 $926 $ 2,088 $100,000 $100,000
10 55 926 5,921 100,000 100,000
15 60 926 10,807 100,000 100,000
20 65 926 16,125 100,000 100,000
21 66 926 17,824 42,607 14,701
22 67 926 19,640 42,607 14,701
23 68 926 21,587 42,607 14,701
24 69 926 23,680 42,607 14,701
25 70 926 25,938 42,607 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 time the face amount would be reduced to
not less than $9,756, again with the face amount guaranteed for the whole of
life.
13
<PAGE>
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
POLICY DEATH MINIMUM
VALUE BENEFIT DEATH
POLICY ATTAINED ANNUAL END OF BEGINNING BENEFIT
YEAR AGE PREMIUM YEAR OF YEAR ADJUSTMENT
- ------ -------- ------- ------ --------- ----------
<S> <C> <C> <C> <C> <C>
5 50 $926 $ 2,088 $100,000 $100,000
10 55 926 5,921 100,000 100,000
15 60 926 10,807 100,000 100,000
20 65 926 16,125 100,000 100,000
21 66 926 17,171 100,000 100,000
22 67 926 18,210 100,000 100,000
23 68 926 19,245 100,000 100,000
24 69 926 20,275 100,000 100,000
25 70 926 21,301 100,000 100,000
</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 Lapse" on page 22 of this prospectus. At
the point when the face amount is scheduled to
14
<PAGE>
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 $2,073 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 $14,998.
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
POLICY ATTAINED ANNUAL TABULAR END OF YEAR BEGINNING OF YEAR
YEAR AGE PREMIUM CASH 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 48 926 865 945 100,475
4 49 926 1,280 1,478 100,948
5 50 926 1,680 2,073 101,478
6 51 1,500 2,842 2,926 102,073
7 52 1,500 3,766 4,045 102,926
8 53 1,500 4,684 5,281 104,045
9 54 1,500 5,591 6,629 105,281
10 55 1,500 6,477 8,082 106,629
</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
16
<PAGE>
from the date of issue. 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. 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
17
<PAGE>
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" in this prospectus
on page 30. 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.
The chart below illustrates the kinds of changes that may be made as a policy
adjustment and the effect of each.
IF YOU MAKE THIS IT WILL DO THIS:
KIND OF
ADJUSTMENT,
If you . . .
<TABLE>
<S> <C> <C>
Decrease the current then: a scheduled decrease
face amount.......... while the premium remains in the current face amount,
or the same................... if any, will take place at
Retain the current an increased age of the
face amount.......... while the premium increases insured; a scheduled
decrease in the face amount
will be eliminated; or the
premium paying period will
be shortened.
- --------------------------------------------------------------------------------
If you . . .
Increase the current then: a scheduled decrease
face amount.......... with no increase in premium in the current face amount,
or if any, will take place at
Retain the current a decreased age of the
face amount.......... while the premium insured; a scheduled
or decreases.................. decrease in the face amount
Make a partial will occur; or the premium
surrender............ while the premium and face paying period will be
amount remain the same..... lengthened.
- --------------------------------------------------------------------------------
If you . . .
Stop base premium.... while the face amount then: a scheduled decrease
remains the same........... in 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.
18
<PAGE>
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.
19
<PAGE>
The first premium is due as of the policy date and must be paid on or before
the date 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
while the Policy remains in force 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.
20
<PAGE>
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 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
21
<PAGE>
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 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
27.
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 27 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
22
<PAGE>
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 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
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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 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.
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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 Fund's shares are
tendered for redemption and no order to purchase or sell the Fund's shares is
received by 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, for VAL '87 any charge
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 Premiums," found on page 75 of this prospectus. For
additional materials and tables, including values after policy charges, please
see Appendix II, Summary of Policy Charges, found on page 85 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
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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.
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
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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 90 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 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 at (612) 298-3737 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
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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 and the duration of the Policy. To begin, the insured's age must
be greater than or equal to age 55 as of the last policy anniversary. The
duration of the Policy, which is the number of years during which the Policy
has been in force as a Variable Adjustable Life Policy, must be greater than or
equal to 10.
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 91.
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.
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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. If a Policy is not paid-up, the
death benefit of the Policy will be reduced by the amount of the partial
surrender. If the Policy is paid-up, the death benefit will be reduced so as to
retain the same ratio between the policy value and the death benefit of the
Policy as existed prior to the partial surrender. With any partial surrender,
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.
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 or 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.
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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. Charges for sub-standard risks include both table ratings and
cash extra charges. 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, or 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 base premiums greater than this whole
life premium, 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.
Only adjustments that involve an increase in base premium will result
in additional first year sales load being assessed on that increase in
premium. If any adjustment occurs during a period when a first year
sales load is being collected and the adjustment results in an increase
in base premium, an additional first year sales load, not to
exceed 23 percent of the increase in base premium, will be added to the
uncollected portion of the first year sales load that was being
collected prior to the adjustment. This total amount of first year
sales load will then be collected during the 12 month period following
the adjustment.
If any adjustment occurs during the 12 month period when a first year
sales load is being collected and the adjustment does not result in an
increase in base premium, the first year sales load percentage not to
exceed 23 percent, that was in effect prior to the adjustment is
multiplied by the base premium in effect after the adjustment; this
number is then multiplied by a fraction equal to the number of months
remaining in the previous 12 month period divided by 12. This amount of
first year sales load will then be collected during the 12 month period
following 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
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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 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 to the 2.5
percent premium tax charge but not to a sales load charge. No face amount
guarantee charge or underwriting charge is assessed against nonrepeating
premiums.
CHARGES TAKEN FROM PREMIUM
PLUS, IN THE FIRST YEAR
- ----------------------------------- ----------------------------------
7.00% Sales Load Additional Sales Load (up to 23%)
1.50% Face Amount Guarantee Underwriting Charge (up to
2.50% Premium Tax $5/$1000 of Insurance Coverage)
- -----------------------------------
11.00% Total
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.
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. We also reserve the right to make a charge, not to exceed
$10, for each transfer of actual cash value among the guaranteed
principal
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account and the sub-accounts of the Variable Life Account. Currently
there is a $10 charge only for non-systematic transfers in excess of
four per year.
(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.
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 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: Transaction 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 92.
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.
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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
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 payments for periods not shown and current rates are available
from us at your request.
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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 death
occurred prior to the due date of the second annuity payment, two if death
occurred 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 do not depend on the investment
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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.
ADDITIONAL BENEFITS
ADDITIONAL BENEFITS When a Policy is issued, you may be able to obtain
additional policy benefits. Subject to underwriting approval, these benefits
will be provided by a rider to the Policy, which may require the payment of
additional premium.
WAIVER OF PREMIUM AGREEMENT The Waiver of Premium Agreement requires an
additional premium and provides for the payment of policy premium in the event
of the insured's disability. Waiver of premium coverage is provided on most
Policies, unless you elect not to have it.
POLICY ENHANCEMENT AGREEMENT AND COST OF LIVING AGREEMENT Both the Policy
Enhancement Agreement and the Cost of Living Agreement provide for increases in
the face amount, without evidence of insurability and help you maintain the
purchasing power of the protection provided by the Policy. The Policy
Enhancement Agreement requires an additional premium, but none is required for
the Cost of Living Agreement. Your Policy may not contain both of these
agreements.
The Policy Enhancement Agreement provides for an increase in the face amount
on each policy anniversary. The face amount will be increased by a specified
percent, between 3 percent and 10 percent, which you choose when you apply for
this benefit; the base premium will also be increased by the same percent. If
you reject an increase, the agreement will terminate.
Unless you choose the Policy Enhancement Agreement, we will issue most
Policies with a Cost of Living Agreement. 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. 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.
FACE AMOUNT INCREASE AGREEMENT The Face Amount Increase Agreement also provides
for increases in the face amount, without evidence of insurability. The
agreement requires an additional premium and allows increases for Policies
issued between an insured's age 0 and 37.
SURVIVORSHIP LIFE AGREEMENT The Survivorship Life Agreement requires an
additional premium and 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.
FAMILY TERM RIDER The Family Term Rider requires an additional premium and
provides a fixed amount of protection insurance on children of an insured.
EXCHANGE OF INSURANCE AGREEMENT The Exchange of Insurance requires no
additional premium and allows for the transfer of existing insurance coverage
to another insured within a business setting.
ACCELERATED BENEFITS AGREEMENT The Accelerated Benefits Agreement is issued
without additional premium on all Policies issued to individual insureds. It
allows you to receive a significant portion of your Policy's
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death benefit, which for this purpose is essentially defined as the face amount
less any policy loan, while the insured is 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. 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. 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.
SHORT TERM AGREEMENT The Short Term Agreement requires an additional premium
and provides 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.
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
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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 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
modified endowment contracts. 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.
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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 modified endowment contract 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
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
38
<PAGE>
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 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.
TRUSTEES AND PRINCIPAL MANAGEMENT OFFICERS OF MINNESOTA MUTUAL
<TABLE>
<CAPTION>
TRUSTEES PRINCIPAL OCCUPATION
-------- --------------------
<C> <S>
Giulio Agostini Senior Vice President, Finance and Office
Administration, Minnesota Mining and Manufacturing
Company, Maplewood, Minnesota since July 1991, prior
thereto for more than five years Director, Finance
and Administration, Minnesota Mining and
Manufacturing--Italy
Anthony L. Andersen Chair-Board of Directors, H. B. Fuller Company, St.
Paul, Minnesota (Adhesive Products) since June 1995,
prior thereto for more than five years President and
Chief Executive Officer, H. B. Fuller Company
John F. Grundhofer President, Chairman and Chief Executive Officer,
First Bank System, Inc., Minneapolis, Minnesota
(Banking)
Harold V. Haverty Retired since May 1995, prior thereto, for more than
five years Chairman of the Board, President and
Chief Executive Officer, Deluxe Corporation,
Shoreview, Minnesota (Check Printing)
Lloyd P. Johnson Retired since May 1995, prior thereto, for more than
five years 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 Chairman of the Board, President and Chief Executive
Officer, The Minnesota Mutual Life Insurance Company
since August 1995; prior thereto for more than five
years Vice President and Actuary, The Minnesota
Mutual Life Insurance Company
Michael E. Shannon Chairman and Chief Financial and Administrative
Officer, Ecolab Inc., St. Paul, Minnesota, since
August 1992, prior thereto President, Residential
Services Group, Ecolab Inc., St. Paul, Minnesota
from October 1990 to July 1992 (Develops and Markets
Cleaning and Sanitizing Products)
Frederick T. Weyerhaeuser Chairman, Clearwater Management Company, St. Paul,
Minnesota (Financial Management)
</TABLE>
39
<PAGE>
Principal Officers (other than Trustees)
<TABLE>
<CAPTION>
NAME POSITION
---- --------
<C> <S>
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
Richard D. Lee Vice President
</TABLE>
<TABLE>
<CAPTION>
NAME POSITION
---- --------
<C> <S>
Joel W. Mahle Vice President
Dennis E. Prohofsky Senior Vice President, General Counsel and Secretary
Gregory S. Strong Vice President and Actuary
Terrence M. Sullivan Senior Vice President
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 Messrs. Agostini, Andersen and Shannon and
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 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.
40
<PAGE>
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, 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 L.L.P., 1025 Thomas Jefferson Street, N.W., Washington, D.C. 20007. 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 LLP,
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 LLP
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, 1995 and the related statements of operations and changes in net
assets for each of the years in the three-year period ended December 31, 1995
(years ended December 31, 1995 and 1994 and the period from May 3, 1993 to
December 31, 1993 for the Small Company Segregated Sub-Account and the year
ended December 31, 1995 and the period from May 2, 1994 to December 31, 1994
for the Value Stock Segregated Sub-Account) and the financial highlights for
each of the years in the five-year period ended December 31, 1995 for the
Growth, Bond, Money Market, Asset Allocation, Mortgage Securities, Index 500
and Capital Appreciation Segregated Sub-Accounts, for each of the years in the
three-year period ended December 31, 1995 and the period from May 1, 1992 to
December 31, 1992 for the International Stock Segregated Sub-Account, each of
the years in the two-year period ended December 31, 1995 and the period from
May 3, 1993 to December 31, 1993 for the Small Company Segregated Sub-Account
and the year ended December 31, 1995 and the period from May 2, 1994 to
December 31, 1994 for the 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, 1995 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, 1995 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 16, 1996
43
<PAGE>
MINNESOTA MUTUAL VARIABLE LIFE ACCOUNT
STATEMENTS OF ASSETS AND LIABILITIES
DECEMBER 31, 1995
<TABLE>
<CAPTION>
SEGREGATED SUB-ACCOUNTS
-------------------------------------------------------------------------------
MONEY ASSET MORTGAGE CAPITAL
ASSETS GROWTH BOND MARKET ALLOCATION SECURITIES INDEX 500 APPRECIATION
------ ------------ ---------- --------- ---------- ---------- ---------- ------------
<S> <C> <C> <C> <C> <C> <C> <C>
Investments in
shares of MIMLIC
Series Fund, Inc.:
Growth Portfolio,
12,872,212 shares
at net asset
value of $2.210
per share (cost
$24,828,191)..... $ 28,442,859 -- -- -- -- -- --
Bond Portfolio,
7,799,995 shares
at net asset
value of $1.332
per share (cost
$9,586,469)...... -- 10,391,658 -- -- -- -- --
Money Market
Portfolio,
5,328,183 shares
at net asset
value of $1.000
per share (cost
$5,328,183)...... -- -- 5,328,183 -- -- -- --
Asset Allocation
Portfolio,
33,751,891 shares
at net asset
value of $1.826
per share (cost
$53,248,241)..... -- -- -- 61,647,151 -- -- --
Mortgage Securi-
ties Portfolio,
6,089,117 shares
at net asset
value of $1.207
per share (cost
$6,936,397)...... -- -- -- -- 7,350,455 -- --
Index 500 Portfo-
lio, 14,258,773
shares at net as-
set value of
$2.023 per share
(cost
$23,201,118)..... -- -- -- -- -- 28,851,507 --
Capital Apprecia-
tion Portfolio,
19,650,070 shares
at net asset
value of $2.160
per share (cost
$36,074,288)..... -- -- -- -- -- -- 42,452,809
International
Stock Portfolio,
22,233,368 shares
at net asset
value of $1.410
per share (cost
$28,705,482)..... -- -- -- -- -- -- --
Small Company
Portfolio,
13,029,316 shares
at net asset
value of $1.602
per share (cost
$17,254,981)..... -- -- -- -- -- -- --
Value Stock Port-
folio, 4,033,910
shares at net as-
set value of
$1.312 per share
(cost
$4,868,283)...... -- -- -- -- -- -- --
------------ ---------- --------- ---------- --------- ---------- ----------
28,442,859 10,391,658 5,328,183 61,647,151 7,350,455 28,851,507 42,452,809
Receivable from
Minnesota Mutual
for contract pur-
chase payments.... 80,843 73,395 203,869 122,530 20,010 417,282 143,323
Receivable from
MIMLIC Series
Fund, Inc. for in-
vestments sold.... 43,324 7,323 3,861 74,398 6,827 299,208 51,801
Dividends receiv-
able from MIMLIC
Series Fund, Inc.. -- -- 1,466 -- -- -- --
------------ ---------- --------- ---------- --------- ---------- ----------
Total assets.... 28,567,026 10,472,376 5,537,379 61,844,079 7,377,292 29,567,997 42,647,933
------------ ---------- --------- ---------- --------- ---------- ----------
<CAPTION>
LIABILITIES
-----------
<S> <C> <C> <C> <C> <C> <C> <C>
Payable to MIMLIC
Series Fund, Inc.
for investments
purchased......... 80,843 73,395 203,869 122,530 20,010 417,282 143,323
Payable to Minne-
sota Mutual for
contract termina-
tions and mortal-
ity and expense
charges........... 43,324 7,323 3,861 74,398 6,827 299,208 51,801
------------ ---------- --------- ---------- --------- ---------- ----------
Total liabili-
ties............ 124,167 80,718 207,730 196,928 26,837 716,490 195,124
------------ ---------- --------- ---------- --------- ---------- ----------
NET ASSETS APPLI-
CABLE TO POLICY
OWNERS............ $ 28,442,859 10,391,658 5,329,649 61,647,151 7,350,455 28,851,507 42,452,809
============ ========== ========= ========== ========= ========== ==========
UNITS OUTSTANDING. 12,822,494 5,340,539 3,509,791 27,633,273 3,616,256 11,917,281 16,587,673
============ ========== ========= ========== ========= ========== ==========
NET ASSET VALUE
PER UNIT.......... $ 2.218 1.946 1.518 2.231 2.032 2.421 2.559
============ ========== ========= ========== ========= ========== ==========
</TABLE>
<TABLE>
<CAPTION>
SEGREGATED SUB-ACCOUNTS
-----------------------------------------------
CAPITAL INTERNATIONAL SMALL VALUE
ASSETS APPRECIATION STOCK COMPANY STOCK
------ ------------ ------------- ---------- ---------
<S> <C> <C> <C> <C>
Investments in
shares of MIMLIC
Series Fund, Inc.:
Growth Portfolio,
12,872,212 shares
at net asset
value of $2.210
per share (cost
$24,828,191)..... -- -- -- --
Bond Portfolio,
7,799,995 shares
at net asset
value of $1.332
per share (cost
$9,586,469)...... -- -- -- --
Money Market
Portfolio,
5,328,183 shares
at net asset
value of $1.000
per share (cost
$5,328,183)...... -- -- -- --
Asset Allocation
Portfolio,
33,751,891 shares
at net asset
value of $1.826
per share (cost
$53,248,241)..... -- -- -- --
Mortgage Securi-
ties Portfolio,
6,089,117 shares
at net asset
value of $1.207
per share (cost
$6,936,397)...... -- -- -- --
Index 500 Portfo-
lio, 14,258,773
shares at net as-
set value of
$2.023 per share
(cost
$23,201,118)..... -- -- -- --
Capital Apprecia-
tion Portfolio,
19,650,070 shares
at net asset
value of $2.160
per share (cost
$36,074,288)..... 42,452,809 -- -- --
International
Stock Portfolio,
22,233,368 shares
at net asset
value of $1.410
per share (cost
$28,705,482)..... -- 31,357,054 -- --
Small Company
Portfolio,
13,029,316 shares
at net asset
value of $1.602
per share (cost
$17,254,981)..... -- -- 20,878,742 --
Value Stock Port-
folio, 4,033,910
shares at net as-
set value of
$1.312 per share
(cost
$4,868,283)...... -- -- -- 5,291,031
---------- ---------- ---------- ---------
42,452,809 31,357,054 20,878,742 5,291,031
Receivable from
Minnesota Mutual
for contract pur-
chase payments.... 143,323 198,222 124,048 53,222
Receivable from
MIMLIC Series
Fund, Inc. for in-
vestments sold.... 51,801 26,332 21,086 6,415
Dividends receiv-
able from MIMLIC
Series Fund, Inc.. -- -- -- --
---------- ---------- ---------- ---------
Total assets.... 42,647,933 31,581,608 21,023,876 5,350,668
---------- ---------- ---------- ---------
<CAPTION>
LIABILITIES
-----------
<S> <C> <C> <C> <C>
Payable to MIMLIC
Series Fund, Inc.
for investments
purchased......... 143,323 198,222 124,048 53,222
Payable to Minne-
sota Mutual for
contract termina-
tions and mortal-
ity and expense
charges........... 51,801 26,332 21,086 6,415
---------- ---------- ---------- ---------
Total liabili-
ties............ 195,124 224,554 145,134 59,637
---------- ---------- ---------- ---------
NET ASSETS APPLI-
CABLE TO POLICY
OWNERS............ 42,452,809 31,357,054 20,878,742 5,291,031
========== ========== ========== =========
UNITS OUTSTANDING. 16,587,673 20,883,317 13,089,758 3,864,294
========== ========== ========== =========
NET ASSET VALUE
PER UNIT.......... 2.559 1.502 1.594 1.369
========== ========== ========== =========
</TABLE>
See accompanying notes to financial statements.
44
<PAGE>
MINNESOTA MUTUAL VARIABLE LIFE ACCOUNT
STATEMENTS OF OPERATIONS
YEAR ENDED DECEMBER 31, 1995
<TABLE>
<CAPTION>
SEGREGATED SUB-ACCOUNTS
-----------------------------------------------------------------------------------------------------
MONEY ASSET MORTGAGE CAPITAL INTERNATIONAL
GROWTH BOND MARKET ALLOCATION SECURITIES INDEX 500 APPRECIATION STOCK
----------- ---------- ---------- ----------- ---------- ---------- ------------ -------------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Investment income
(loss):
Investment income
distributions from
underlying mutual
fund............... $ 199,832 261,591 208,114 1,419,229 418,709 345,109 -- --
Mortality and
expense charges
(note 3) .......... (115,565) (40,308) (19,640) (258,919) (32,719) (108,911) (178,191) (125,629)
----------- ---------- ---------- ----------- ---------- ---------- ---------- ----------
Investment
income (loss)--
net ........... 84,267 221,283 188,474 1,160,310 385,990 236,198 (178,191) (125,629)
----------- ---------- ---------- ----------- ---------- ---------- ---------- ----------
Realized and
unrealized gains
(losses) on
investments--net:
Realized gain
distributions from
underlying mutual
fund .............. 752,601 -- -- 518,544 -- 136,462 820,112 --
----------- ---------- ---------- ----------- ---------- ---------- ---------- ----------
Realized gains on
sales of
investments (note
4):
Proceeds from
sales ........... 6,707,133 3,668,871 5,767,756 15,788,909 2,440,457 6,976,079 10,629,551 9,110,210
Cost of invest-
ments sold ...... (6,150,138) (3,547,747) (5,767,756) (14,667,948) (2,419,084) (5,975,182) (9,193,408) (8,713,211)
----------- ---------- ---------- ----------- ---------- ---------- ---------- ----------
556,995 121,124 -- 1,120,961 21,373 1,000,897 1,436,143 396,999
----------- ---------- ---------- ----------- ---------- ---------- ---------- ----------
Net realized
gains on
investments ... 1,309,596 121,124 -- 1,639,505 21,373 1,137,359 2,256,255 396,999
----------- ---------- ---------- ----------- ---------- ---------- ---------- ----------
Net change in
unrealized
appreciation or
depreciation of
investments ....... 3,358,404 1,040,640 -- 8,349,477 623,587 5,160,678 4,611,948 2,953,006
----------- ---------- ---------- ----------- ---------- ---------- ---------- ----------
Net gains on
investments ... 4,668,000 1,161,764 -- 9,988,982 644,960 6,298,037 6,868,203 3,350,005
----------- ---------- ---------- ----------- ---------- ---------- ---------- ----------
Net increase in
net assets
resulting from
operations .... $ 4,752,267 1,383,047 188,474 11,149,292 1,030,950 6,534,235 6,690,012 3,224,376
=========== ========== ========== =========== ========== ========== ========== ==========
SMALL VALUE
COMPANY STOCK
---------- ----------
<C> <C>
Investment income
(loss):
Investment income
distributions from
underlying mutual
fund............... 23,415 38,421
Mortality and
expense charges
(note 3) .......... (72,140) (14,473)
---------- ----------
Investment
income (loss)--
net ........... (48,725) 23,948
---------- ----------
Realized and
unrealized gains
(losses) on
investments--net:
Realized gain
distributions from
underlying mutual
fund .............. 203,581 220,693
---------- ----------
Realized gains on
sales of
investments (note
4):
Proceeds from
sales ........... 4,928,714 1,202,928
Cost of invest-
ments sold ...... (4,259,828) (1,092,357)
---------- ----------
668,886 110,571
---------- ----------
Net realized
gains on
investments ... 872,467 331,264
---------- ----------
Net change in
unrealized
appreciation or
depreciation of
investments ....... 3,168,698 429,503
---------- ----------
Net gains on
investments ... 4,041,165 760,767
---------- ----------
Net increase in
net assets
resulting from
operations .... 3,992,440 784,715
========== ==========
</TABLE>
See accompanying notes to financial statements.
45
<PAGE>
MINNESOTA MUTUAL VARIABLE LIFE ACCOUNT
STATEMENTS OF OPERATIONS (CONTINUED)
YEAR ENDED DECEMBER 31, 1994 (PERIOD FROM MAY 2, 1994
TO DECEMBER 31, 1994 FOR VALUE STOCK)
<TABLE>
<CAPTION>
SEGREGATED SUB-ACCOUNTS
-------------------------------------------------------------------------------------------------------------
MONEY ASSET MORTGAGE INDEX CAPITAL INTERNATIONAL SMALL VALUE
GROWTH BOND MARKET ALLOCATION SECURITIES 500 APPRECIATION STOCK COMPANY STOCK
-------- ------ -------- ---------- ---------- ----- ------------ ------------- --------- -------
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
Investment income
(loss):
Investment income
distributions from
underlying mutual
fund............... $ 137,686 176,495 116,862 750,369 209,882 199,386 17,564 351,737 11,999 7,337
Mortality and
expense charges
(note 3)........... (74,204) (23,955) (15,521) (189,661) (25,132) (66,230) (111,166) (70,069) (22,967) (1,056)
----------- ---------- ---------- ----------- ---------- ---------- ---------- ---------- ---------- -------
Investment
income (loss)--
net............ 63,482 152,540 101,341 560,708 184,750 133,156 (93,602) 281,668 (10,968) 6,281
----------- ---------- ---------- ----------- ---------- ---------- ---------- ---------- ---------- -------
Realized and
unrealized gains
(losses) on
investments--net:
Realized gain
distributions from
underlying mutual
fund............... 283,186 110,137 -- 218,666 99,701 40,363 298,807 577,998 -- 2,954
----------- ---------- ---------- ----------- ---------- ---------- ---------- ---------- ---------- -------
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 9,432,639 5,232,132 2,297,893 75,011
Cost of
investments sold. (5,436,921)(2,445,624)(5,451,482)(15,569,220)(2,529,982)(4,668,104)(8,941,876)(4,886,541)(2,270,554)(75,414)
----------- ---------- ---------- ----------- ---------- ---------- ---------- ---------- ---------- -------
80,108 (98,576) -- (18,354) (93,373) 157,780 490,763 345,591 27,339 (403)
----------- ---------- ---------- ----------- ---------- ---------- ---------- ---------- ---------- -------
Net realized
gains on
investments.... 363,294 11,561 -- 200,312 6,328 198,143 789,570 923,589 27,339 2,551
----------- ---------- ---------- ----------- ---------- ---------- ---------- ---------- ---------- -------
Net change in
unrealized
appreciation or
depreciation of
investments......... (346,307) (384,138) -- (1,400,184) (369,942) (229,615) (85,694)(1,491,123) 391,884 (6,755)
----------- ---------- ---------- ----------- ---------- ---------- ---------- ---------- ---------- -------
Net gains
(losses) on
investments.... 16,987 (372,577) -- (1,199,872) (363,614) (31,472) 703,876 (567,534) 419,223 (4,204)
----------- ---------- ---------- ----------- ---------- ---------- ---------- ---------- ---------- -------
Net increase
(decrease) in
net assets
resulting from
operations..... $ 80,469 (220,037) 101,341 (639,164) (178,864) 101,684 610,274 (285,866) 408,255 2,077
=========== ========== ========== =========== ========== ========== ========== ========== ========== =======
</TABLE>
See accompanying notes to financial statements.
46
<PAGE>
MINNESOTA MUTUAL VARIABLE LIFE ACCOUNT
STATEMENTS OF OPERATIONS (CONTINUED)
YEAR ENDED DECEMBER 31, 1993 (PERIOD FROM MAY 3, 1993
TO DECEMBER 31, 1993 FOR SMALL COMPANY)
<TABLE>
<CAPTION>
SEGREGATED SUB-ACCOUNTS
-------------------------------------------------------------------------------------------------------------
MONEY ASSET MORTGAGE INDEX CAPITAL INTERNATIONAL SMALL
GROWTH BOND MARKET ALLOCATION SECURITIES 500 APPRECIATION STOCK COMPANY
----------- ---------- ---------- ---------- ---------- ---------- ------------ ------------- --------
<S> <C> <C> <C> <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 29,851 41,641 --
Mortality and
expense charges
(note 3) .......... (44,901) (14,397) (8,840) (124,535) (16,630) (41,559) (68,412) (18,587) (1,701)
----------- ---------- ---------- ---------- ---------- ---------- ---------- ---------- --------
Investment
income (loss)--
net ........... 54,167 82,453 37,329 296,703 101,117 81,219 (38,561) 23,054 (1,701)
----------- ---------- ---------- ---------- ---------- ---------- ---------- ---------- --------
Realized and
unrealized gains on
investments--net:
Realized gain
distributions from
underlying mutual
fund .............. 124,129 42,919 -- 494,621 39,468 34,607 310,803 45,550 19,206
----------- ---------- ---------- ---------- ---------- ---------- ---------- ---------- --------
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 5,608,219 1,357,302 325,343
Cost of
investments sold
................. (3,892,578) (1,283,714) (2,162,659) (9,203,008) (1,216,218) (4,039,899) (5,370,971) (1,223,096) (318,751)
----------- ---------- ---------- ---------- ---------- ---------- ---------- ---------- --------
148,294 65,112 -- 305,727 45,678 237,543 237,248 134,206 6,592
----------- ---------- ---------- ---------- ---------- ---------- ---------- ---------- --------
Net realized
gains on
investments ... 272,423 108,031 -- 800,348 85,146 272,150 548,051 179,756 25,798
----------- ---------- ---------- ---------- ---------- ---------- ---------- ---------- --------
Net change in
unrealized
appreciation or
depreciation of
investments ........ 126,006 39,172 -- 393,909 56,735 364,519 1,087,799 1,239,089 63,179
----------- ---------- ---------- ---------- ---------- ---------- ---------- ---------- --------
Net gains on
investments ... 398,429 147,203 -- 1,194,257 141,881 636,669 1,635,850 1,418,845 88,977
----------- ---------- ---------- ---------- ---------- ---------- ---------- ---------- --------
Net increase in net
assets resulting
from operations .... $ 452,596 229,656 37,329 1,490,960 242,998 717,888 1,597,289 1,441,899 87,276
=========== ========== ========== ========== ========== ========== ========== ========== ========
</TABLE>
See accompanying notes to financial statements.
47
<PAGE>
MINNESOTA MUTUAL VARIABLE LIFE ACCOUNT
STATEMENTS OF CHANGES IN NET ASSETS
YEAR ENDED DECEMBER 31, 1995
<TABLE>
<CAPTION>
SEGREGATED SUB-ACCOUNTS
------------------------------------------------------------------------------------------------------
MONEY ASSET MORTGAGE INDEX CAPITAL INTERNATIONAL
GROWTH BOND MARKET ALLOCATION SECURITIES 500 APPRECIATION STOCK
----------- ---------- ---------- ----------- ---------- ---------- ------------ -------------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Operations:
Investment
income (loss)--
net............ $ 84,267 221,283 188,474 1,160,310 385,990 236,198 (178,191) (125,629)
Net realized
gains on
investments.... 1,309,596 121,124 -- 1,639,505 21,373 1,137,359 2,256,255 396,999
Net change in
unrealized
appreciation or
depreciation of
investments.... 3,358,404 1,040,640 -- 8,349,477 623,587 5,160,678 4,611,948 2,953,006
----------- ---------- ---------- ----------- ---------- ---------- ----------- ----------
Net increase in
net assets
resulting from
operations...... 4,752,267 1,383,047 188,474 11,149,292 1,030,950 6,534,235 6,690,012 3,224,376
----------- ---------- ---------- ----------- ---------- ---------- ----------- ----------
Policy
transactions
(notes 3 and 5):
Policy purchase
payments....... 12,408,482 6,659,641 6,662,290 23,396,902 3,100,448 13,185,123 19,128,138 17,215,167
Policy
withdrawals and
charges........ (6,591,568) (3,628,563) (5,748,116) (15,529,990) (2,407,738) (6,867,168) (10,451,360) (8,984,581)
----------- ---------- ---------- ----------- ---------- ---------- ----------- ----------
Increase in net
assets from
policy
transactions.... 5,816,914 3,031,078 914,174 7,866,912 692,710 6,317,955 8,676,778 8,230,586
----------- ---------- ---------- ----------- ---------- ---------- ----------- ----------
Increase in net
assets.......... 10,569,181 4,414,125 1,102,648 19,016,204 1,723,660 12,852,190 15,366,790 11,454,962
Net assets at the
beginning of
year............ 17,873,678 5,977,533 4,227,001 42,630,947 5,626,795 15,999,317 27,086,019 19,902,092
----------- ---------- ---------- ----------- ---------- ---------- ----------- ----------
Net assets at the
end of year..... $28,442,859 10,391,658 5,329,649 61,647,151 7,350,455 28,851,507 42,452,809 31,357,054
=========== ========== ========== =========== ========== ========== =========== ==========
----------------------
SMALL VALUE
COMPANY STOCK
---------- ----------
<C> <C>
Operations:
Investment
income (loss)--
net............ (48,725) 23,948
Net realized
gains on
investments.... 872,467 331,264
Net change in
unrealized
appreciation or
depreciation of
investments.... 3,168,698 429,503
---------- ----------
Net increase in
net assets
resulting from
operations...... 3,992,440 784,715
---------- ----------
Policy
transactions
(notes 3 and 5):
Policy purchase
payments....... 13,158,472 4,688,860
Policy
withdrawals and
charges........ (4,856,574) (1,188,455)
---------- ----------
Increase in net
assets from
policy
transactions.... 8,301,898 3,500,405
---------- ----------
Increase in net
assets.......... 12,294,338 4,285,120
Net assets at the
beginning of
year............ 8,584,404 1,005,911
---------- ----------
Net assets at the
end of year..... 20,878,742 5,291,031
========== ==========
</TABLE>
See accompanying notes to financial statements.
48
<PAGE>
MINNESOTA MUTUAL VARIABLE LIFE ACCOUNT
STATEMENTS OF CHANGES IN NET ASSETS (CONTINUED)
YEAR ENDED DECEMBER 31, 1994 (PERIOD FROM MAY 2, 1994
TO DECEMBER 31, 1994 FOR VALUE STOCK)
<TABLE>
<CAPTION>
SEGREGATED SUB-ACCOUNTS
----------------------------------------------------------------------------------------------------------------
MONEY ASSET MORTGAGE CAPITAL INTERNATIONAL SMALL
GROWTH BOND MARKET ALLOCATION SECURITIES INDEX 500 APPRECIATION STOCK COMPANY
----------- ---------- ---------- ----------- ---------- ---------- ------------ ------------- ----------
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C>
Operations:
Investment
income (loss)--
net............ $ 63,482 152,540 101,341 560,708 184,750 133,156 (93,602) 281,668 (10,968)
Net realized
gains on
investments.... 363,294 11,561 -- (200,312) 6,328 198,143 789,570 923,589 27,339
Net change in
unrealized
appreciation or
depreciation of
investments.... (346,307) (384,138) -- (1,400,184) (369,942) (229,615) (85,694) (1,491,123) 391,884
----------- ---------- ---------- ----------- ---------- ---------- ---------- ---------- ----------
Net increase
(decrease) in
net assets
resulting from
operations...... 80,469 (220,037) 101,341 (639,164) (178,864) 101,684 610,274 (285,866) 408,255
----------- ---------- ---------- ----------- ---------- ---------- ---------- ---------- ----------
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 17,095,782 17,030,883 9,002,013
Policy
withdrawals and
charges........ (5,442,825) (2,323,093) (5,435,960) (15,361,205) (2,411,477) (4,759,654) (9,321,473) (5,162,063) (2,274,926)
----------- ---------- ---------- ----------- ---------- ---------- ---------- ---------- ----------
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 7,774,309 11,868,820 6,727,087
----------- ---------- ---------- ----------- ---------- ---------- ---------- ---------- ----------
Increase in net
assets.......... 5,944,172 2,124,710 1,632,542 9,105,718 1,272,070 5,270,800 8,384,583 11,582,954 7,135,342
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 18,701,436 8,319,138 1,449,062
----------- ---------- ---------- ----------- ---------- ---------- ---------- ---------- ----------
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 27,086,019 19,902,092 8,584,404
=========== ========== ========== =========== ========== ========== ========== ========== ==========
----------
VALUE
STOCK
----------
<C>
Operations:
Investment
income (loss)--
net............ 6,281
Net realized
gains on
investments.... 2,551
Net change in
unrealized
appreciation or
depreciation of
investments.... (6,755)
---------
Net increase
(decrease) in
net assets
resulting from
operations...... 2,077
---------
Policy
transactions
(notes 3 and 5):
Policy purchase
payments....... 1,077,789
Policy
withdrawals and
charges........ (73,955)
---------
Increase in net
assets from
policy
transactions.... 1,003,834
---------
Increase in net
assets.......... 1,005,911
Net assets at the
beginning of
period.......... --
---------
Net assets at the
end of period... 1,005,911
=========
</TABLE>
See accompanying notes to financial statements.
49
<PAGE>
MINNESOTA MUTUAL VARIABLE LIFE ACCOUNT
STATEMENTS OF CHANGES IN NET ASSETS (CONTINUED)
YEAR ENDED DECEMBER 31, 1993 (PERIOD FROM MAY 3, 1993
TO DECEMBER 31, 1993 FOR SMALL COMPANY)
<TABLE>
<CAPTION>
SEGREGATED SUB-ACCOUNTS
-------------------------------------------------------------------------------------------------------------
MONEY ASSET MORTGAGE CAPITAL INTERNATIONAL SMALL
GROWTH BOND MARKET ALLOCATION SECURITIES INDEX 500 APPRECIATION STOCK COMPANY
----------- ---------- ---------- ---------- ---------- ---------- ------------ ------------- ---------
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C>
Operations:
Investment
income (loss)--
net............ $ 54,167 82,453 37,329 296,703 101,117 81,219 (38,561) 23,054 (1,701)
Net realized
gains on
investments.... 272,423 108,031 -- 800,348 85,146 272,150 548,051 179,756 25,798
Net change in
unrealized
appreciation or
depreciation of
investments.... 126,006 39,172 -- 393,909 56,735 364,519 1,087,799 1,239,089 63,179
----------- ---------- ---------- ---------- ---------- ---------- ---------- ---------- ---------
Net increase in
net assets
resulting from
operations...... 452,596 229,656 37,329 1,490,960 242,998 717,888 1,597,289 1,441,899 87,276
----------- ---------- ---------- ---------- ---------- ---------- ---------- ---------- ---------
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 13,172,269 6,715,273 1,685,428
Policy withdraw-
als and
charges........ (3,995,971) (1,334,429) (2,153,819) (9,384,200) (1,245,266) (4,235,883) (5,539,807) (1,338,715) (323,642)
----------- ---------- ---------- ---------- ---------- ---------- ---------- ---------- ---------
Increase in net
assets from
policy
transactions.... 5,114,566 1,614,522 954,186 16,601,443 1,674,380 3,498,135 7,632,462 5,376,558 1,361,786
----------- ---------- ---------- ---------- ---------- ---------- ---------- ---------- ---------
Increase in net
assets.......... 5,567,162 1,844,178 991,515 18,092,403 1,917,378 4,216,023 9,229,751 6,818,457 1,449,062
Net assets at the
beginning of pe-
riod............ 6,362,344 2,008,645 1,602,944 15,432,826 2,437,347 6,512,494 9,471,685 1,500,681 --
----------- ---------- ---------- ---------- ---------- ---------- ---------- ---------- ---------
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 18,701,436 8,319,138 1,449,062
=========== ========== ========== ========== ========== ========== ========== ========== =========
</TABLE>
See accompanying notes to financial statements.
50
<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 (as amended).
The Account currently has ten segregated sub-accounts to which policy owners
may allocate their purchase payments. 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 adjustable life 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 life insurance policies and variable annuity contracts. The Fund is
registered under the Investment Company Act of 1940 (as amended) 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. MIMLIC
Sales Corporation is a wholly-owned subsidiary of MIMLIC Asset Management
Company. MIMLIC Asset Management Company is a wholly-owned subsidiary of
Minnesota Mutual.
(2) SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
Use of estimates
The preparation of financial statements in conformity with generally accepted
accounting principles requires management to make estimates and assumptions
that affect the reported amounts of assets and liabilities and disclosure of
contingent assets and liabilities at the date of the financial statements and
the reported amounts of increase and decrease in net assets from operations
during the period. Actual results could differ from those estimates.
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.
51
<PAGE>
MINNESOTA MUTUAL VARIABLE LIFE ACCOUNT
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
(3) MORTALITY AND EXPENSE AND OTHER POLICY CHARGES (CONTINUED)
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, 1995, 1994 and 1993 amounted to $11,373,694, $10,312,243 and
$7,903,095, 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 payments for the years ended
December 31, 1995, 1994 and 1993 amounted to $4,549,011, $4,826,308 and
$4,345,882, 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, 1995, 1994 and 1993 amounted to $2,687,472, $2,147,159
and $1,430,618, 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, 1995, 1994 and 1993 amounted to $1,411,514, $1,125,385 and
$730,912, 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, 1995, 1994
and 1993 for each segregated sub-account (years ended December 31, 1995 and
1994 and period from May 3, 1993 to December 31, 1993 for Small Company and
year ended December 31, 1995 and period from May 2, 1994 to December 31, 1995
for Value Stock) are as follows:
<TABLE>
<CAPTION>
1995 1994 1993
---------- ---------- ----------
<S> <C> <C> <C>
Growth $3,235,518 $2,691,861 $1,900,285
Bond 1,359,743 968,023 532,924
Money Market 624,184 406,353 318,629
Asset Allocation 7,306,035 7,226,753 5,240,867
Mortgage Securities 881,050 914,930 652,947
Index 500 2,752,710 2,186,930 1,426,956
Capital Appreciation 4,809,954 4,034,243 2,924,788
International Stock 3,938,698 2,670,738 834,888
Small Company 2,514,829 1,114,925 91,432
Value Stock 619,624 45,146 --
</TABLE>
52
<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, 1995, 1994
and 1993 (years ended December 31, 1995 and 1994 and period from May 3, 1993 to
December 31, 1993 for Small Company and the year ended December 31, 1995 and
period from May 2, 1994 to December 31, 1995 for Value Stock):
<TABLE>
<CAPTION>
1995 1994 1993
----------- ----------- ----------
<S> <C> <C> <C>
Growth Portfolio $13,360,915 $11,727,400 $9,333,734
Bond Portfolio 6,921,232 4,954,472 3,088,721
Money Market Portfolio 6,869,537 7,083,425 3,154,175
Asset Allocation Portfolio 25,334,675 26,075,122 26,901,502
Mortgage Securities Portfolio 3,519,157 4,171,994 3,076,862
Index 500 Portfolio 13,666,694 10,168,519 7,891,402
Capital Appreciation Portfolio 19,948,250 17,412,153 13,512,923
International Stock Portfolio 17,215,167 17,960,618 6,802,461
Small Company Portfolio 13,385,468 9,014,012 1,704,635
Value Stock Portfolio 4,947,974 1,088,077 --
</TABLE>
(5) UNIT ACTIVITY FROM POLICY TRANSACTIONS
Transactions in units for each segregated sub-account for the years ended
December 31, 1995, 1994 and 1993 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, 1992 3,703,167 1,281,711 1,167,590 8,943,507 1,471,984
Policy purchase pay-
ments 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 pay-
ments 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
Policy purchase pay-
ments 6,094,908 3,681,345 4,467,894 11,590,519 1,632,915
Deductions for policy
withdrawals and
charges (3,236,631) (2,000,036) (3,878,440) (7,727,043) (1,267,630)
---------- ---------- ---------- ---------- ----------
Units outstanding at
December 31, 1995 12,822,494 5,340,539 3,509,791 27,633,273 3,616,256
========== ========== ========== ========== ==========
</TABLE>
53
<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, 1995, 1994 and 1993 (years ended December 31, 1995 and 1994 and
period from May 3, 1993 to December 31, 1993 for Small Company and year ended
December 31, 1995 and period from 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, 1992 4,026,796 5,053,453 1,615,754 -- --
Policy purchase pay-
ments 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 pay-
ments 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
Policy purchase pay-
ments 6,137,740 8,025,347 12,197,396 9,459,804 3,860,586
Deductions for policy
withdrawals and
charges (3,218,181) (4,366,808) (6,376,829) (3,444,979) (968,230)
---------- ---------- ---------- ---------- ---------
Units outstanding at
December 31, 1995 11,917,281 16,587,673 20,883,317 13,089,758 3,864,294
========== ========== ========== ========== =========
</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,
-------------------------------
1995 1994 1993 1992 1991
------ ----- ----- ----- -----
<S> <C> <C> <C> <C> <C>
Unit value, beginning of year $1.794 1.788 1.718 1.647 1.234
------ ----- ----- ----- -----
Income from investment operations:
Net investment income (loss) .008 .008 .010 .009 (.007)
Net gains or losses on securities (both real-
ized and unrealized) .416 (.002) .060 .062 .420
------ ----- ----- ----- -----
Total from investment operations .424 .006 .070 .071 .413
------ ----- ----- ----- -----
Unit value, end of year $2.218 1.794 1.788 1.718 1.647
====== ===== ===== ===== =====
</TABLE>
BOND
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31,
-------------------------------
1995 1994 1993 1992 1991
------ ----- ----- ----- -----
<S> <C> <C> <C> <C> <C>
Unit value, beginning of year $1.634 1.720 1.567 1.477 1.262
------ ----- ----- ----- -----
Income from investment operations:
Net investment income (loss) .050 .054 .048 .055 (.007)
Net gains or losses on securities (both real-
ized and unrealized) .262 (.140) .105 .035 .222
------ ----- ----- ----- -----
Total from investment operations .312 (.086) .153 .090 .215
------ ----- ----- ----- -----
Unit value, end of year $1.946 1.634 1.720 1.567 1.477
====== ===== ===== ===== =====
</TABLE>
54
<PAGE>
MINNESOTA MUTUAL VARIABLE LIFE ACCOUNT
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
(6) FINANCIAL HIGHLIGHTS (CONTINUED)
MONEY MARKET
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31,
------------------------------
1995 1994 1993 1992 1991
------ ----- ----- ----- -----
<S> <C> <C> <C> <C> <C>
Unit value, beginning of year $1.447 1.403 1.373 1.337 1.274
------ ----- ----- ----- -----
Income from investment operations:
Net investment income .071 .044 .030 .036 .063
------ ----- ----- ----- -----
Total from investment operations .071 .044 .030 .036 .063
------ ----- ----- ----- -----
Unit value, end of year $1.518 1.447 1.403 1.373 1.337
====== ===== ===== ===== =====
</TABLE>
ASSET ALLOCATION
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31,
-------------------------------
1995 1994 1993 1992 1991
------ ----- ----- ----- -----
<S> <C> <C> <C> <C> <C>
Unit value, beginning of year $1.793 1.828 1.726 1.617 1.261
------ ----- ----- ----- -----
Income from investment operations:
Net investment income (loss) .045 .027 .021 .016 (.007)
Net gains or losses on securities (both real-
ized and unrealized) .393 (.062) .081 .093 .363
------ ----- ----- ----- -----
Total from investment operations .438 (.035) .102 .109 .356
------ ----- ----- ----- -----
Unit value, end of year $2.231 1.793 1.828 1.726 1.617
====== ===== ===== ===== =====
</TABLE>
MORTGAGE SECURITIES
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31,
-------------------------------
1995 1994 1993 1992 1991
------ ----- ----- ----- -----
<S> <C> <C> <C> <C> <C>
Unit value, beginning of year $1.731 1.800 1.656 1.564 1.352
------ ----- ----- ----- -----
Income from investment operations:
Net investment income (loss) .112 .064 .054 .044 (.007)
Net gains or losses on securities (both real-
ized and unrealized) .189 (.133) .090 .048 .219
------ ----- ----- ----- -----
Total from investment operations .301 (.069) .144 .092 .212
------ ----- ----- ----- -----
Unit value, end of year $2.032 1.731 1.800 1.656 1.564
====== ===== ===== ===== =====
</TABLE>
INDEX 500
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31,
-------------------------------
1995 1994 1993 1992 1991
------ ----- ----- ----- -----
<S> <C> <C> <C> <C> <C>
Unit value, beginning of year $1.778 1.766 1.617 1.514 1.173
------ ----- ----- ----- -----
Income from investment operations:
Net investment income (loss) .023 .018 .017 .013 (.007)
Net gains or losses on securities (both real-
ized and unrealized) .620 (.006) .132 .090 .348
------ ----- ----- ----- -----
Total from investment operations .643 .012 .149 .103 .341
------ ----- ----- ----- -----
Unit value, end of year $2.421 1.778 1.766 1.617 1.514
====== ===== ===== ===== =====
</TABLE>
55
<PAGE>
MINNESOTA MUTUAL VARIABLE LIFE ACCOUNT
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
(6) FINANCIAL HIGHLIGHTS (CONTINUED)
CAPITAL APPRECIATION
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31,
----------------------------------
1995 1994 1993 1992 1991
------ ----- ----- ----- -----
<S> <C> <C> <C> <C> <C>
Unit value, beginning of year $2.095 2.059 1.874 1.793 1.272
------ ----- ----- ----- -----
Income from investment operations:
Net investment loss (.012) (.009) (.005) (.003) (.005)
Net gains or losses on securities (both
realized and unrealized) .476 .045 .190 .084 .526
------ ----- ----- ----- -----
Total from investment operations .464 .036 .185 .081 .521
------ ----- ----- ----- -----
Unit value, end of year $2.559 2.095 2.059 1.874 1.793
====== ===== ===== ===== =====
</TABLE>
INTERNATIONAL STOCK
<TABLE>
<CAPTION>
PERIOD FROM
MAY 1,
YEAR ENDED DECEMBER 31, 1992* TO
-------------------------- DECEMBER
1995 1994 1993 31, 1992
-------- ------- ------- -----------
<S> <C> <C> <C> <C>
Unit value, beginning of period $ 1.321 1.332 .929 1.000
-------- ------- ------- -----
Income from investment operations:
Net investment income (loss) (.007) .027 .007 .025
Net gains or losses on securities (both
realized and unrealized) .188 (.038) .396 (.096)
-------- ------- ------- -----
Total from investment operations .181 (.011) .403 (.071)
-------- ------- ------- -----
Unit value, end of period $ 1.502 1.321 1.332 .929
======== ======= ======= =====
</TABLE>
SMALL COMPANY
<TABLE>
<CAPTION>
PERIOD FROM
YEAR ENDED MAY 3,
DECEMBER 31, 1993* TO
------------- DECEMBER
1995 1994 31, 1993
------ ----- -----------
<S> <C> <C> <C>
Unit value, beginning of period $1.213 1.149 1.000
------ ----- -----
Income from investment operations:
Net investment loss (.005) (.003) (.004)
Net gains or losses on securities (both realized
and unrealized) .386 .067 .153
------ ----- -----
Total from investment operations .381 .064 .149
------ ----- -----
Unit value, end of period $1.594 1.213 1.149
====== ===== =====
</TABLE>
VALUE STOCK
<TABLE>
<CAPTION>
PERIOD FROM
YEAR MAY 2,
ENDED 1994* TO
DECEMBER DECEMBER
31, 1995 31, 1994
-------- -----------
<S> <C> <C>
Unit value, beginning of period $1.035 1.000
------ -----
Income from investment operations:
Net investment income .010 .019
Net gains or losses on securities (both realized and
unrealized) .324 .016
------ -----
Total from investment operations .334 .035
------ -----
Unit value, end of period $1.369 1.035
====== =====
</TABLE>
- -------
*Commencement of the segregated sub-account's operations.
56
<PAGE>
INDEX TO FINANCIAL STATEMENTS AND FINANCIAL STATEMENT SCHEDULES
THE MINNESOTA MUTUAL LIFE INSURANCE COMPANY
<TABLE>
<CAPTION>
Page
<S> <C>
Independent Auditors' Report............................................... 1
Balance Sheets............................................................. 2
Statements of Operations and Policyowners' Surplus......................... 3
Statements of Cash Flows................................................... 4
Notes to Financial Statements.............................................. 5
Financial Statement Schedules:
I. Summary of Investments--Other than Investments in Related Parties..... 15
V. Supplementary Insurance Information................................... 16
VI. Reinsurance.......................................................... 17
</TABLE>
I
<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, 1995 and 1994 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, 1995. 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, 1995 and 1994, and the results of its
operations and its cash flows for each of the years in the three-year period
ended December 31, 1995, in conformity with generally accepted accounting
principles (notes 2 and 11). 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 7, 1996
1
<PAGE>
THE MINNESOTA MUTUAL LIFE INSURANCE COMPANY
BALANCE SHEETS
DECEMBER 31, 1995 AND 1994
ASSETS
<TABLE>
<CAPTION>
1995 1994
----------- ----------
(IN THOUSANDS)
<S> <C> <C>
Bonds $ 5,488,876 $5,134,554
Common stocks 279,353 209,958
Mortgage loans 754,501 598,186
Real estate, including Home Office property 76,639 76,346
Other invested assets 90,264 60,604
Policy loans 197,555 185,599
Investments in subsidiary companies 197,413 155,404
Cash and short-term securities 99,031 112,869
Premiums deferred and uncollected 116,878 125,422
Other assets 147,155 134,594
----------- ----------
Total assets, excluding separate accounts 7,447,665 6,793,536
Separate account assets 2,609,396 1,750,680
----------- ----------
Total assets $10,057,061 $8,544,216
=========== ==========
LIABILITIES AND POLICYOWNERS' SURPLUS
Liabilities:
Policy reserves:
Life insurance $ 2,129,336 $1,981,469
Annuities and other fund deposits 3,322,866 3,179,279
Accident and health 369,273 343,241
Policy claims in process of settlement 50,512 53,670
Dividends payable to policyowners 107,366 100,287
Other policy liabilities 403,683 388,538
Asset valuation reserve 201,721 165,341
Interest maintenance reserve 32,899 19,922
Federal income taxes 40,195 35,050
Other liabilities 237,434 186,575
----------- ----------
Total liabilities, excluding separate accounts 6,895,285 6,453,372
Separate account liabilities 2,560,211 1,708,529
----------- ----------
Total liabilities 9,455,496 8,161,901
Policyowners' surplus
Surplus notes 124,967 --
Unassigned funds 476,598 382,315
----------- ----------
Total policyowners' surplus 601,565 382,315
Total liabilities and policyowners' surplus $10,057,061 $8,544,216
=========== ==========
</TABLE>
See accompanying notes to financial statements.
2
<PAGE>
THE MINNESOTA MUTUAL LIFE INSURANCE COMPANY
STATEMENTS OF OPERATIONS AND POLICYOWNERS' SURPLUS
YEARS ENDED DECEMBER 31, 1995, 1994, AND 1993
STATEMENTS OF OPERATIONS
<TABLE>
<CAPTION>
1995 1994 1993
---------- ---------- ----------
(IN THOUSANDS)
<S> <C> <C> <C>
Revenues:
Premiums, annuity considerations and fund
deposits $1,473,666 $1,424,352 $1,289,954
Net investment income 524,671 488,813 493,011
---------- ---------- ----------
Total revenues 1,998,337 1,913,165 1,782,965
---------- ---------- ----------
Benefits and expenses:
Policyowner benefits 1,138,723 1,259,685 1,131,638
Increase in policy reserves 260,482 94,116 122,280
General insurance expenses and taxes 299,348 279,022 268,041
Commissions 78,642 75,443 70,899
Federal income taxes 46,135 49,626 36,656
---------- ---------- ----------
Total benefits and expenses 1,823,330 1,757,892 1,629,514
---------- ---------- ----------
Gain from operations before net realized
capital gains and dividends 175,007 155,273 153,451
Realized capital gains, net of tax 29,358 18,559 2,907
---------- ---------- ----------
Gain from operations before dividends 204,365 173,832 156,358
Dividends to policyowners 115,659 108,709 97,937
---------- ---------- ----------
Net income $ 88,706 $ 65,123 $ 58,421
========== ========== ==========
STATEMENTS OF POLICYOWNERS' SURPLUS
Policyowners' surplus, beginning of year $ 382,315 $ 347,900 $ 264,542
Surplus notes 124,967 -- --
Net income 88,706 65,123 58,421
Net change in unrealized capital gains
and losses 49,761 (317) 3,286
Change in asset valuation reserve (36,380) (29,405) (17,002)
Change in policy reserve bases (10,828) 1,463 --
Change in separate account surplus 7,579 (3,764) 5,623
Guaranty fund certificate redemption -- -- 19,171
Business combination -- -- 16,684
Other, net (4,555) 1,315 (2,825)
---------- ---------- ----------
Policyowners' surplus, end of year $ 601,565 $ 382,315 $ 347,900
========== ========== ==========
</TABLE>
See accompanying notes to financial statements.
3
<PAGE>
THE MINNESOTA MUTUAL LIFE INSURANCE COMPANY
STATEMENTS OF CASH FLOWS
YEARS ENDED DECEMBER 31, 1995, 1994, AND 1993
<TABLE>
<CAPTION>
CASH PROVIDED: 1995 1994 1993
- -------------- ---------- ---------- ----------
(IN THOUSANDS)
<S> <C> <C> <C>
From operations:
Revenues:
Premiums, annuity considerations and fund
deposits $1,480,303 $1,474,471 $1,252,183
Net investment income 496,421 468,927 473,487
---------- ---------- ----------
Total receipts 1,976,724 1,943,398 1,725,670
---------- ---------- ----------
Benefits and expenses paid:
Policyowner benefits 1,139,133 1,301,060 1,069,090
Dividends to policyowners 109,249 103,634 97,697
Commissions and expenses 392,337 360,150 348,397
Federal income taxes 61,245 40,482 50,994
---------- ---------- ----------
Total payments 1,701,964 1,805,326 1,566,178
---------- ---------- ----------
Cash provided from operations 274,760 138,072 159,492
Proceeds from investments sold, matured or
repaid:
Bonds 1,713,579 1,031,279 1,631,215
Common stocks 205,757 113,228 113,945
Mortgage loans 112,954 152,418 265,356
Real estate 15,948 17,571 10,100
Other invested assets 10,618 16,831 17,266
Surplus notes 124,967 -- --
Separate account redemption 2,041 14,519 --
Business combination -- -- 24,628
Other sources, net 77,772 58,072 53,531
---------- ---------- ----------
Total cash provided 2,538,396 1,541,990 2,275,533
---------- ---------- ----------
<CAPTION>
CASH APPLIED:
- -------------
<S> <C> <C> <C>
Cost of investments acquired:
Bonds 2,026,116 1,146,117 1,966,653
Common stocks 222,491 132,301 123,185
Mortgage loans 266,401 203,803 109,559
Real estate 16,596 11,904 16,572
Other invested assets 20,515 12,732 9,800
Separate account investment 115 12,530 3,365
---------- ---------- ----------
Total cash applied 2,552,234 1,519,387 2,229,134
---------- ---------- ----------
Net change in cash and short-term securi-
ties (13,838) 22,603 46,399
Cash and short-term securities, beginning of
year 112,869 90,266 43,867
---------- ---------- ----------
Cash and short-term securities, end of year $ 99,031 $ 112,869 $ 90,266
========== ========== ==========
</TABLE>
See accompanying notes to financial statements.
4
<PAGE>
THE MINNESOTA MUTUAL LIFE INSURANCE COMPANY
NOTES TO FINANCIAL STATEMENTS
(1)NATURE OF OPERATIONS
The Minnesota Mutual Life Insurance Company (the Company), both directly and
through its subsidiaries, provides a diversified array of insurance and
financial products and services designed principally to protect and enhance the
long-term financial well-being of individuals and families.
The Company's strategy is to be successful in carefully selected niche
markets, primarily in the United States, while focusing on the retention of
existing business and the maintenance of profitability. To achieve this
objective, the Company has divided its businesses into four strategic business
units, which focus on various markets: Individual, Financial Services, Group,
and Pension. Revenues in 1995 for these business units were $1,051,749,000,
$268,004,000, $205,926,000, and $472,658,000, respectively.
At December 31, 1994 the Company was one of the 15 largest mutual life
insurance companies in the United States, as measured by total assets. The
Company employs over 2,100 persons throughout the United States; in addition,
the Company maintains an independent sales force of approximately 100 general
agents and 1,850 agents. The Company insures or provides other financial
services to nearly seven million people.
(2)SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
The accompanying financial statements of 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 11). 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
generally carried at cost less accumulated depreciation of $35,323,535 and
$35,954,239 at December 31, 1995 and 1994, respectively. Depreciation is
computed principally on a straight-line basis. Properties acquired through
foreclosure are carried at the lower of cost or market.
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
$95,373,000 and $74,154,000 at December 31, 1995 and 1994, respectively, of
initial contributions to affiliated 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, 1995 and 1994 amounted to $61,561,000
and $103,203,000, respectively, and are included in the caption cash and short-
term securities.
5
<PAGE>
THE MINNESOTA MUTUAL LIFE INSURANCE COMPANY
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
(2)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. Realized capital gains and losses due to
interest rate changes are transferred to the Interest Maintenance Reserve
(IMR) and amortized into investment income over the original remaining life of
the related bond or mortgage sold.
Capital Gains and Losses
Realized capital gains and losses, net of related taxes and amounts
transferred to the IMR, if any, are reflected as a component of net income.
The Company reduces the carrying value of its assets for credit risk and
records a realized capital loss only if the underlying asset has been
converted to another asset of lesser value. Unrealized capital gains and
losses are accounted for as a direct increase or decrease to policyowners'
surplus. Both realized and unrealized capital gains and losses are determined
using the specific identification method.
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. A realized capital gain of $603,995 and
$3,018,248 was recognized in 1995 and 1994, respectively, on the separate
accounts. No gain was realized in 1993.
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 individual
life insurance policy reserves and from 2.25% to 12.0% for group policy and
annuity reserves.
Approximately 15% of the individual life and group life reserves are
calculated on a net level reserve basis and 85% 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 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.
Policy reserves for individual accident and health contracts include
reserves for active lives based on the 1964 Commissioners Disability Table
(CDT) and the 1985 Commissioners Disability Table B (CIDB), modified for
company experience and discounted at various interest rates. Disabled life
reserves on individual policies are equal to the present value of future
benefits using the 1964 CDT and the 1985 CIDB, discounted at various interest
rates. Disabled life reserves for group mortgage disability policies are equal
to the present value of future benefits using the 1964 CDT, modified for
Company experience and discounted at various interest rates.
6
<PAGE>
THE MINNESOTA MUTUAL LIFE INSURANCE COMPANY
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
(2)SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)
Group employer-employee long term disability reserves are equal to the present
value of future benefits at 3%
interest and the 1964 CDT modified for Company experience. Disabled life
reserves for credit disability are computed using a lag factor method based on
Company experience, discounted at 4% interest.
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>
1995 1994
--------------------- ---------------------
CARRYING CARRYING
VALUE FAIR VALUE VALUE FAIR VALUE
---------- ---------- ---------- ----------
(IN THOUSANDS)
<S> <C> <C> <C> <C>
Deferred annuities $2,147,662 $2,156,885 $2,042,383 $2,042,060
Annuity certain contracts 49,113 50,732 41,934 41,828
Other fund deposits 836,149 847,975 798,509 791,732
Guaranteed investment contracts 47,426 47,987 68,568 69,353
Supplementary contracts without
life contingencies 41,431 39,962 43,205 42,433
---------- ---------- ---------- ----------
Total financial liabilities $3,121,781 $3,143,541 $2,994,599 $2,987,406
========== ========== ========== ==========
</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, 1995 and 1994. 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.
Non-admitted Assets
Certain assets, designated as "non-admitted assets" (principally furniture,
equipment and certain receivables), amounting to $27,022,000 and $26,123,000 at
December 31, 1995 and 1994, respectively, have been charged to policyowners'
surplus.
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, expense factors, and
federal income taxes. Dividends are generally recognized as expenses 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.
7
<PAGE>
THE MINNESOTA MUTUAL LIFE INSURANCE COMPANY
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
Reclassifications
Certain prior year financial statement balances have been reclassified to
conform with the 1995 presentation.
(3)INVESTMENTS
Net investment income for the respective years ended December 31, is as
follows:
<TABLE>
<CAPTION>
1995 1994 1993
-------- -------- --------
(IN THOUSANDS)
<S> <C> <C> <C>
Bonds $422,242 $412,873 $404,353
Common stocks--unaffiliated 3,465 3,188 3,390
Common stocks--affiliated 16,555 8,526 9,562
Mortgage loans 58,946 49,882 63,881
Real estate, including Home Office property 11,440 11,337 11,554
Policy loans 12,821 11,800 10,866
Short-term securities 6,183 4,026 2,067
Other, net 4,994 1,717 2,868
-------- -------- --------
536,646 503,349 508,541
Amortization of interest maintenance reserve 4,527 3,741 3,458
Investment expenses (16,502) (18,277) (18,988)
-------- -------- --------
Total $524,671 $488,813 $493,011
======== ======== ========
Changes in unrealized capital gains (losses) for the respective years ended
December 31, are as follows:
<CAPTION>
1995 1994 1993
-------- -------- --------
(IN THOUSANDS)
<S> <C> <C> <C>
Bonds $ 2,332 $ 4,039 $(3,753)
Common stocks--unaffiliated 39,013 (5,465) 2,854
Common stocks--affiliated 9,863 (997) (1,305)
Mortgage loans 447 (71) 1,361
Real estate (1,481) 2,270 4,211
Other, net (413) (93) (82)
-------- -------- --------
Total $ 49,761 $ (317) $ 3,286
======== ======== ========
The cost and gross unrealized gains (losses) on unaffiliated common stocks at
December 31, are as follows:
<CAPTION>
1995 1994 1993
-------- -------- --------
(IN THOUSANDS)
<S> <C> <C> <C>
Cost $189,893 $159,511 $155,881
Gross unrealized gains 91,050 56,813 58,440
Gross unrealized losses (1,590) (6,366) (2,529)
-------- -------- --------
Admitted asset value $279,353 $209,958 $211,792
======== ======== ========
</TABLE>
8
<PAGE>
THE MINNESOTA MUTUAL LIFE INSURANCE COMPANY
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
(3)INVESTMENTS (CONTINUED)
Net realized capital gains (losses) for the respective years ended December
31 are as follows:
<TABLE>
<CAPTION>
1995 1994 1993
------- ------- -------
(IN THOUSANDS)
<S> <C> <C> <C>
Bonds $22,411 $(3,511) $31,234
Common stocks--unaffiliated 33,432 11,268 9,651
Mortgage loans (945) (46) (741)
Real estate 3,787 2,041 (8,496)
Other 7,288 15,872 7,837
------- ------- -------
65,973 25,624 39,485
Less: Amount transferred to the interest mainte-
nance reserve, net of taxes 17,503 (685) 20,336
Income tax expense 19,112 7,750 16,242
------- ------- -------
Total $29,358 $18,559 $ 2,907
======= ======= =======
</TABLE>
Gross realized gains (losses) on sales of bonds for the respective years
ended December 31, are as follows:
<TABLE>
<CAPTION>
1995 1994 1993
-------- -------- -------
(IN THOUSANDS)
<S> <C> <C> <C>
Gross realized gains $ 34,898 $ 13,249 $38,443
Gross realized losses (12,487) (16,760) (7,209)
</TABLE>
Proceeds from the sale of bonds amounted to $1,338,481,000, $638,420,000, and
$1,058,684,000 for the years ended December 31, 1995, 1994, and 1993,
respectively.
Bonds and mortgage loans held at December 31, 1995 and 1994 for which no
income was recorded for the previous twelve months totaled $20,852 and $88,000,
respectively.
At December 31, 1995 and 1994, bonds with a carrying value of $2,740,000 and
$2,748,000, respectively, 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, 1995 and 1994
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 methodologies may have a
material effect on the estimated fair value amounts. The admitted asset value
for bonds, commercial mortgages, and residential mortgages are $5,488,876,
$501,439, and $253,062 in 1995 and $5,134,554, $342,205, and $255,981 in 1994,
respectively. The estimated fair value for these financial instruments are
$5,821,024, $523,129, and $258,966 in 1995 and $4,919,495, $341,195, and
$255,449 in 1994, respectively.
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, 1995 and 1994. 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.
9
<PAGE>
THE MINNESOTA MUTUAL LIFE INSURANCE COMPANY
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
(3)INVESTMENTS (CONTINUED)
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, 1995 ASSET VALUE APPRECIATION DEPRECIATION VALUE
- ----------------- ----------- ------------ ------------ ----------
(IN THOUSANDS)
<S> <C> <C> <C> <C>
Federal government $ 241,228 $ 10,914 $ 440 $ 251,702
State and local government 26,337 3,268 0 29,605
Foreign government 861 79 0 940
Corporate bonds 3,494,386 262,214 6,542 3,750,058
Mortgage-backed securities 1,726,064 66,260 3,605 1,788,719
---------- -------- -------- ----------
Total $5,488,876 $342,735 $ 10,587 $5,821,024
========== ======== ======== ==========
<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>
The amortized cost and estimated fair value of bonds at December 31, 1995, 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 $ 39,108 $ 39,811
Due after one year through five years 764,085 803,817
Due after five years through ten years 1,677,321 1,778,549
Due after ten years 1,282,298 1,410,128
---------- ----------
3,762,812 4,032,305
Mortgage-backed securities 1,726,064 1,788,719
---------- ----------
Total $5,488,876 $5,821,024
========== ==========
</TABLE>
10
<PAGE>
THE MINNESOTA MUTUAL LIFE INSURANCE COMPANY
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
(4)FEDERAL INCOME TAXES
The federal income tax expense varies from amounts computed by applying the
federal income tax rate of 35% to the gain from operations after dividends to
policyowners and before federal income taxes and realized capital gains. The
reasons for this difference, and the tax effects thereof, are as follows:
<TABLE>
<CAPTION>
1995 1994 1993
------- ------- -------
(IN THOUSANDS)
<S> <C> <C> <C>
Computed tax expense $36,918 $33,666 $32,260
Difference between statutory and tax basis:
Investment income (9,284) (5,853) (7,204)
Policy reserves (81) (767) (2,079)
Dividends to policyowners 1,043 593 (1,907)
Acquisition expense 7,508 9,013 8,393
Other expenses 453 2,137 3,739
Special tax on mutual life insurance companies 8,201 15,466 3,396
Other, net 1,377 (4,629) 58
------- ------- -------
Tax expense $46,135 $49,626 $36,656
======= ======= =======
</TABLE>
The Company's tax returns for 1993 through 1994 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.
(5)LIABILITY FOR UNPAID ACCIDENT AND HEALTH CLAIMS AND CLAIM ADJUSTMENT
EXPENSES
Activity in the liability for unpaid accident and health claims and claim
adjustment expenses, exclusive of $96,728,000, $89,540,000, and $81,990,000,
respectively, for active life reserves, is summarized as follows:
<TABLE>
<CAPTION>
1995 1994 1993
-------- -------- --------
(IN THOUSANDS)
<S> <C> <C> <C>
Balance at January 1 $301,352 $274,253 $246,777
Less: reinsurance recoverable 47,651 38,418 29,622
-------- -------- --------
Net balance at January 1 253,701 235,835 217,155
-------- -------- --------
Incurred related to:
Current year 95,392 91,573 85,112
Prior years 1,367 (308) 7,121
-------- -------- --------
Total incurred 96,759 91,265 92,233
-------- -------- --------
Paid related to:
Current year 26,291 23,019 22,002
Prior years 51,624 50,380 51,551
-------- -------- --------
Total paid 77,915 73,399 73,553
-------- -------- --------
Net Balance at December 31 272,545 253,701 235,835
Plus: reinsurance recoverable 72,617 47,651 38,418
-------- -------- --------
Balance at December 31 $345,162 $301,352 $274,253
======== ======== ========
</TABLE>
Incurred claims related to prior years are due to the difference between
actual and estimated claims incurred as of the prior year end.
11
<PAGE>
THE MINNESOTA MUTUAL LIFE INSURANCE COMPANY
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
(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.
(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 deducted for federal income
tax purposes. The Company expenses amounts as contributed. The Company made
contributions of $3,003,400 and $1,714,200 in 1995 and 1994, respectively. No
contributions were made in 1993. Information for these plans as of the
beginning of the plan year is as follows:
<TABLE>
<CAPTION>
1995 1994 1993
------- ------- -------
(IN THOUSANDS)
<S> <C> <C> <C>
Actuarial present value of accumulated benefits:
Vested $47,271 $42,849 $36,281
Nonvested 14,588 12,033 12,996
------- ------- -------
Total $61,859 $54,882 $49,277
======= ======= =======
Net assets available for benefits $85,348 $85,651 $78,952
======= ======= =======
</TABLE>
In determining the actuarial present value of accumulated benefits, the
Company used a weighted average assumed rate of return of 8.3% in 1995 and 8.4%
in 1994 and 1993.
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
1995, 1994, and 1993 of $6,595,000, $6,866,000 and $6,753,000, 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
12
<PAGE>
THE MINNESOTA MUTUAL LIFE INSURANCE COMPANY
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
(8)PENSION PLANS AND OTHER RETIREMENT PLANS (CONTINUED)
agents over 20 years. The unamortized transition obligation was $11,203,000 and
$13,000,000 at December 31, 1995 and 1994, respectively.
The net postretirement benefit cost for the years ended December 31, 1995,
1994, and 1993, was $3,163,000, $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 $575,000, $526,000, and $555,000 in
1995, 1994, and 1993, respectively, as claims were incurred.
At December 31, 1995 and 1994, the postretirement benefit obligation for
retirees and other fully eligible participants was $17,410,000 and $19,635,000,
respectively. The estimated cost of the benefit obligation for active employees
and agents who are not yet fully eligible was $9,808,000 and $13,065,000 for
1995 and 1994, respectively. The discount rate used in determining the
accumulated postretirement benefit obligation for 1995 and 1994 was 7.5%. The
1995 net health care cost trend rate was 11.0% graded to 5.5% over 11 years,
and the 1994 net health care cost rate was 11.5%, graded to 5.5% over 12 years.
The assumptions presented herein are based on pertinent information available
to management as of December 31, 1995 and 1994. Actual results could differ
from those estimates and assumptions. For example, increasing the assumed
health care cost trend rates by one percentage point in each year would
increase the postretirement benefit obligation as of December 31, 1995 by
$1,874,000 and the estimated eligibility cost and interest cost components of
net periodic postretirement benefit costs for 1995 by $290,889.
(9)COMMITMENTS AND CONTINGENCIES
The Company reinsures certain individual and group business. At December 31,
1995 and 1994, policy reserves in the accompanying balance sheet are reflected
net of reinsurance ceded of $97,854,000 and $68,289,000, respectively. To the
extent that an assuming reinsurer is unable to meet its obligation under its
agreement, the Company remains liable.
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 $378,475,000 as of
December 31, 1995. 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 totalling $76,461,000 as of December 31, 1995. The Company
estimates that $11,650,000 of these commitments will be invested in 1996 with
the remaining $64,811,000 invested over the next five years.
At December 31, 1995, the Company had guaranteed the payment of $64,100,000
in policyowner dividends payable in 1996. The Company has pledged bonds, valued
at $66,906,000, 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) SURPLUS NOTES
In September 1995, the Company issued surplus notes with a face value of
$125,000,000, at 8.25%, due in 2025. The surplus notes are reported in the
Company's surplus at a statement value of $124,966,578, which represents the
face value of the notes less unamortized discount. The surplus notes are
subordinate to all current and future policyowners' interests, including
claims, and indebtedness of the Company. All payments of
interest and principal on the notes are subject to the approval of the
Department of Commerce. The unapproved accrued interest at December 31, 1995,
is $3,007,800. The issuance costs of $1,403,400 are deferred and treated as a
non-admitted asset. The deferred expense is amortized over 30 years on a
straight-line basis. Interest, discount amortization, and deferred expense
amortization are included in general insurance expenses in the statement of
operations. The Company's method of accounting for its surplus notes has been
approved by the Department of Commerce.
13
<PAGE>
THE MINNESOTA MUTUAL LIFE INSURANCE COMPANY
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
(11) 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 the 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 (collectively "the statements"),
mutual life insurance companies that report their financial statements in
conformity with generally accepted accounting principles will be required to
apply the statements and all related authoritative GAAP pronouncements.
The statements apply to years beginning after December 15, 1995 and will
require restatement of prior year balances. The Company plans to prepare such
financial statements as of and for the year-ended December 31, 1996 with
restatement of the then prior year financial statements. Applying the
provisions of the statements will likely result in policyholders' surplus and
net income amounts differing from the amounts included in the accompanying
financial statements. Management is in the process of determining the impact of
the adoption of GAAP.
The Company will also 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.
14
<PAGE>
THE MINNESOTA MUTUAL LIFE INSURANCE COMPANY
SCHEDULE I
SUMMARY OF INVESTMENTS--OTHER THAN INVESTMENTS IN RELATED PARTIES
DECEMBER 31, 1995
<TABLE>
<CAPTION>
AMOUNT AT
WHICH SHOWN
MARKET IN THE BALANCE
TYPE OF INVESTMENT COST(4) VALUE SHEET(1)(3)
- ------------------ ---------- ---------- --------------
(IN THOUSANDS)
<S> <C> <C> <C>
Bonds:
United States government and government
agencies and authorities $ 241,228 $ 251,702 $ 241,228
States, municipalities and political
subdivisions 26,337 29,605 26,337
Foreign governments 861 940 861
Public utilities 547,229 590,445 547,229
Mortgage-backed securities 1,726,064 1,788,719 1,726,064
All other corporate bonds 2,909,767 3,116,990 2,907,107
---------- ---------- ----------
Total bonds 5,451,486 5,778,401 5,448,826
---------- ---------- ----------
Equity securities:
Common stocks:
Public utilities 17,500 23,333 23,333
Banks, trusts and insurance companies 11,950 22,358 22,358
Industrial, miscellaneous and all
other 160,443 233,662 233,662
---------- ---------- ----------
Total equity securities 189,893 279,353 279,353
---------- ---------- ----------
Mortgage loans on real estate 755,997 xxxxxx 754,501
Real estate (2) 86,646 xxxxxx 76,639
Policy loans 197,555 xxxxxx 197,555
Other long-term investments 96,080 xxxxxx 90,264
Short-term investments 51,904 xxxxxx 51,816
---------- ----------
Total $1,188,182 xxxxxx $1,170,775
---------- ----------
Total investments $6,829,561 xxxxxx $6,898,954
========== ==========
</TABLE>
- -------
(1) Debt securities are carried at amortized cost or investment values pre-
scribed by the National Association of Insurance Commissioners.
(2) The carrying value of real estate acquired in satisfaction of indebtedness
is $1,999. Real estate includes property occupied by the Company.
(3) Differences between cost and amounts shown in the balance sheet for invest-
ments, other than equity securities and bonds, represent non-admitted in-
vestments.
(4) Original cost for equity securities and original cost reduced by repayments
and adjusted for amortization of premiums or accrual of discounts for bonds
and other investments.
15
<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
- ------- ----------- -------------- ----------- ------------
<S> <C> <C> <C> <C>
1995:
Life insurance $2,129,336 $37,784
Accident and
health insurance 369,273 12,724
Annuity consid-
erations 3,322,866 4
------- ---------- ------- -------
Total -- 5,821,475 -- 50,512
======= ========== ======= =======
1994:
Life insurance $1,981,469 $37,909
Accident and
health insurance 343,241 15,754
Annuity consid-
erations 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 consid-
erations 3,166,944 7
------- ---------- ------- -------
Total -- $5,360,339 -- $98,351
======= ========== ======= =======
</TABLE>
<TABLE>
<CAPTION>
FOR THE YEARS ENDED DECEMBER 31,
------------------------------------------------------------------------
AMORTIZATION
PREMIUMS, 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)
- ------- ------------ ---------- -------------- ------------ --------- ----------
(IN THOUSANDS)
<S> <C> <C> <C> <C> <C> <C>
1995:
Life insurance $ 789,350 $212,641 $591,775 $243,379
Accident and
health insurance 154,358 35,894 94,164 79,491
Annuity consid-
erations 529,958 276,136 713,266 55,120
---------- -------- ---------- ------- -------- -------
Total 1,473,666 524,671 1,399,205 -- 377,990 --
========== ======== ========== ======= ======== =======
1994:
Life insurance $ 802,265 $196,877 $ 608,091 $230,327 --
Accident and
health insurance 142,032 32,724 93,634 71,958
Annuity consid-
erations 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 consid-
erations 433,032 267,835 626,181 45,463
---------- -------- ---------- ------- -------- -------
Total $1,289,954 $493,011 $1,253,918 -- $338,940 --
========== ======== ========== ======= ======== =======
</TABLE>
- -----
(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.
16
<PAGE>
THE MINNESOTA MUTUAL LIFE INSURANCE COMPANY
SCHEDULE VI
REINSURANCE
FOR THE YEARS ENDED DECEMBER 31, 1995, 1994, AND 1993
<TABLE>
<CAPTION>
PERCENTAGE
CEDED TO ASSUMED OF AMOUNT
OTHER FROM OTHER NET ASSUMED TO
GROSS AMOUNT COMPANIES COMPANIES AMOUNT NET
------------ ----------- ----------- ------------ ----------
(IN THOUSANDS)
<S> <C> <C> <C> <C> <C>
1995:
Life insurance in
force $104,059,399 $15,291,357 $21,129,067 $109,897,109 19.2%
============ =========== =========== ============ ====
Premiums, annuity con-
siderations and fund
deposits:
Life insurance $ 782,558 $ 55,362 $ 62,154 $ 789,350 7.9%
Accident and health
insurance 164,683 12,724 2,399 154,358 1.6%
Annuity 529,958 -- -- 529,958 --
------------ ----------- ----------- ------------ ----
Total premiums*,
annuity considera-
tions and fund
deposits $ 1,477,199 $ 68,086 $ 64,553 $ 1,473,666 4.4%
============ =========== =========== ============ ====
1994:
Life insurance in
force $ 97,181,118 $13,314,267 $20,555,910 $104,422,761 19.7%
============ =========== =========== ============ ====
Premiums, annuity con-
siderations 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 considera-
tions 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 con-
siderations 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 considera-
tions and fund de-
posits $ 1,284,433 $ 53,012 $ 58,533 $ 1,289,954 4.5%
============ =========== =========== ============ ====
</TABLE>
- -------
* There are no premiums related to either property and liability or title
insurance.
17
<PAGE>
APPENDIX I
ILLUSTRATIONS OF POLICY VALUES, DEATH BENEFITS AND PREMIUMS
The Appendix I illustrations beginning on page 77, are provided for a non-
smoking male age 40. The illustrations show the projected actual cash values,
death benefits and premiums for the various scenarios. 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 1995 result of .78 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
1995 results are reflected in the calculation of the Growth, Bond, Money
Market, Asset Allocation, Mortgage Securities, Index 500, Capital Appreciation,
Small Company, Value Stock and International Stock Portfolios, at .05 percent,
.08 percent, .14 percent, .05 percent, .08 percent, .07 percent, .05 percent,
.09 percent, .14 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 -1.19 percent, 4.81 percent and 10.81
percent. (For a description of the arrangement whereby Minnesota Mutual
voluntarily absorbs certain expenses of the Fund, see "Investment Adviser" in
the attached prospectus for MIMLIC Series Fund, Inc.)
75
<PAGE>
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.
76
<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% GROSS(3) 12% GROSS(3)
INITIAL (-1.19% NET) (4.81% NET) (10.81% NET)
POL ATT 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 $4,205 $ 902 $250,000 $ 977 $250,000 $ 1,052 $250,000
2 42 4,205 3,948 250,000 4,288 250,000 4,638 250,000
3 43 4,205 6,924 250,000 7,725 250,000 8578 250,000
4 44 4,205 9,824 250,000 11,287 250,000 12,905 250,000
5 45 4,205 12,649 250,000 14,982 250,000 17,663 250,000
6 46 4,205 15,394 250,000 18,810 250,000 22,895 250,000
7 47 4,205 18,057 250,000 22,780 250,000 28,659 250,000
8 48 4,205 20,753 250,000 27,021 250,000 35,149 250,000
9 49 4,205 23,499 250,000 31,561 250,000 42,451 250,000
10 50 4,205 26,269 250,000 36,388 250,000 50,631 250,000
15 55 4,205 39,949 250,000 64,880 250,000 108,148 250,000
20 60 4,205 52,011 250,000 101,030 250,000 206,635 372,455
25 65 4,205 60,582 250,000 146,254 250,000 367,998 586,150
30 70 4,205 64,138 250,000 203,987 302,254 629,031 893,791
</TABLE>
(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.
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%, 6%, 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--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% GROSS(3) 12% GROSS(3)
INITIAL (-1.19% NET) (4.81% NET) (10.81% NET)
POL ATT 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 $4,205 $ 902 $250,000 $ 977 $250,000 $ 1,052 $250,000
2 42 4,205 3,948 250,000 4,288 250,000 4,638 250,000
3 43 4,205 6,924 250,000 7,725 250,000 8,578 250,000
4 44 4,205 9,824 250,000 11,287 250,000 12,905 250,000
5 45 4,205 12,649 250,000 14,982 250,000 17,663 250,000
6 46 4,205 15,394 250,000 18,810 250,000 22,895 250,000
7 47 4,205 18,054 250,000 22,775 250,000 28,650 250,000
8 48 4,205 20,629 250,000 26,881 250,000 34,988 250,000
9 49 4,205 23,116 250,000 31,135 250,000 41,972 250,000
10 50 4,205 25,508 250,000 35,538 250,000 49,671 250,000
15 55 4,205 35,779 250,000 59,864 250,000 102,043 250,000
20 60 4,205 42,116 250,000 88,126 250,000 188,500 342,199
25 65 4,205 42,322 250,000 120,900 250,000 322,956 518,640
30 70 4,205 31,478 250,000 159,554 250,000 526,835 756,296
</TABLE>
(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.
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%, 6%, 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 CURRENT MORTALITY CHARGES
<TABLE>
<CAPTION>
-ASSUMING HYPOTHETICAL INVESTMENT RETURNS OF-
0% GROSS(3) 6% GROSS(3) 12% GROSS(3)
INITIAL (-1.19% NET) (4.81% NET) (10.81% NET)
POL ATT 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 $4,205 $ 899 $250,000 $ 974 $250,000 $ 1,049 $ 250,000
2 42 4,205 3,935 250,899 4,274 250,974 4,623 251,049
3 43 4,205 6,891 253,935 7,688 254,274 8,537 254,623
4 44 4,205 9,762 256,891 11,215 257,688 12,821 258,537
5 45 4,205 12,548 259,762 14,859 261,215 17,515 262,821
6 46 4,205 15,241 262,548 18,617 264,859 22,653 267,515
7 47 4,205 17,867 265,241 22,535 268,617 28,347 272,653
8 48 4,205 20,552 267,867 26,743 272,535 34,769 278,347
9 49 4,205 23,273 270,552 31,229 276,743 41,971 284,769
10 50 4,205 26,004 273,273 35,979 281,229 50,011 291,971
15 55 4,205 39,278 286,709 63,637 307,575 105,850 342,239
20 60 4,205 50,342 298,431 97,374 340,200 198,713 536,443
25 65 4,205 56,652 305,915 135,885 377,902 341,325 856,979
30 70 4,205 55,993 306,695 178,076 436,871 547,189 1,289,501
</TABLE>
(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.
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%, 6%, 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 '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% GROSS(3) 12% GROSS(3)
INITIAL (-1.19% NET) (4.81% NET) (10.81% NET)
POL ATT 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 $4,205 $ 899 $250,000 $ 974 $250,000 $ 1,049 $250,000
2 42 4,205 3,935 250,899 4,274 250,974 4,623 251,049
3 43 4,205 6,891 253,935 7,688 254,274 8,537 254,623
4 44 4,205 9,762 256,891 11,215 257,688 12,821 258,537
5 45 4,205 12,548 259,762 14,859 261,215 17,515 262,821
6 46 4,205 15,241 262,548 18,617 264,859 22,653 267,515
7 47 4,205 17,837 265,241 22,489 268,617 28,278 272,653
8 48 4,205 20,332 267,837 26,475 272,489 34,437 278,278
9 49 4,205 22,722 270,332 30,577 276,475 41,184 284,437
10 50 4,205 25,000 272,722 34,788 280,577 48,571 291,184
15 55 4,205 34,336 282,794 57,261 302,623 97,335 335,778
20 60 4,205 38,804 288,396 80,734 326,064 172,305 470,787
25 65 4,205 35,733 287,172 102,103 348,277 275,498 702,967
30 70 4,205 20,105 274,503 114,545 363,196 397,666 960,900
</TABLE>
(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.
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%, 6%, 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 CURRENT MORTALITY CHARGES
<TABLE>
<CAPTION>
-ASSUMING HYPOTHETICAL INVESTMENT RETURNS OF-
0% GROSS(3) 6% GROSS(3) 12% GROSS(3)
INITIAL (-1.19% NET) (4.81% NET) (10.81% NET)
POL ATT 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 $4,641 $ 1,012 $250,000 $ 1,100 $250,000 $ 1,188 $250,000
2 42 4,641 4,248 250,000 4,627 250,000 5,016 250,000
3 43 4,641 7,394 250,000 8,271 250,000 9,207 250,000
4 44 4,641 10,442 250,000 12,031 250,000 13,793 250,000
5 45 4,641 13,394 250,000 15,916 250,000 18,822 250,000
6 46 4,641 16,412 250,000 20,097 250,000 24,514 250,000
7 47 4,641 19,524 250,000 24,621 250,000 30,977 250,000
8 48 4,641 22,688 250,000 29,461 250,000 38,253 250,000
9 49 4,641 25,876 250,000 34,609 250,000 46,408 250,000
10 50 4,641 29,069 250,000 40,062 250,000 55,525 250,000
15 55 4,641 44,696 250,000 72,092 250,000 119,348 250,000
20 60 4,641 58,608 250,000 112,843 250,000 228,779 396,688
25 65 4,641 69,110 250,000 164,902 265,511 408,242 632,078
30 70 4,641 74,879 250,000 229,988 334,469 699,274 974,840
</TABLE>
(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.
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%, 6%, 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--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% GROSS(3) 12% GROSS(3)
INITIAL (-1.19% NET) (4.81% NET) (10.81% NET)
POL ATT 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 $4,641 $ 1,012 $250,000 $ 1,100 $250,000 $ 1,188 $250,000
2 42 4,641 4,248 250,000 4,627 250,000 5,016 250,000
3 43 4,641 7,394 250,000 8,271 250,000 9,207 250,000
4 44 4,641 10,442 250,000 12,031 250,000 13,793 250,000
5 45 4,641 13,392 250,000 15,914 250,000 18,819 250,000
6 46 4,641 16,239 250,000 19,918 250,000 24,329 250,000
7 47 4,641 18,982 250,000 24,052 250,000 30,379 250,000
8 48 4,641 21,619 250,000 28,317 250,000 37,030 250,000
9 49 4,641 24,147 250,000 32,722 250,000 44,351 250,000
10 50 4,641 26,558 250,000 37,266 250,000 52,415 250,000
15 55 4,641 36,518 250,000 62,099 250,000 107,230 250,000
20 60 4,641 41,754 250,000 90,556 250,000 197,519 345,348
25 65 4,641 40,027 250,000 123,574 250,000 336,705 526,394
30 70 4,641 25,916 250,000 163,061 250,000 546,303 770,528
</TABLE>
(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.
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%, 6%, 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 CURRENT MORTALITY CHARGES
<TABLE>
<CAPTION>
-ASSUMING HYPOTHETICAL INVESTMENT RETURNS OF-
0% GROSS(3) 6% GROSS(3) 12% GROSS(3)
INITIAL (-1.19% NET) (4.81% NET) (10.81% NET)
POL ATT 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 $4,641 $ 1,012 $250,000 $ 1,099 $250,000 $ 1,186 $250,000
2 42 4,641 4,248 250,000 4,624 250,091 5,011 250,382
3 43 4,641 7,393 250,000 8,266 250,271 9,191 251,517
4 44 4,641 10,441 250,000 12,023 250,537 13,754 253,426
5 45 4,641 13,394 250,000 15,903 250,887 18,753 256,130
6 46 4,641 16,411 250,000 20,082 251,330 24,429 259,697
7 47 4,641 19,524 250,000 24,601 252,364 30,859 264,735
8 48 4,641 22,687 250,000 29,432 254,035 38,082 271,309
9 49 4,641 25,875 250,000 34,565 256,211 46,156 279,373
10 50 4,641 29,068 250,000 39,994 258,810 55,152 288,925
15 55 4,641 44,695 250,000 71,694 277,006 117,386 361,272
20 60 4,641 58,608 250,000 111,202 302,907 217,932 482,293
25 65 4,641 69,110 250,000 158,536 334,328 369,738 656,728
30 70 4,641 74,879 250,000 211,558 368,562 584,421 887,832
</TABLE>
(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.
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%, 6%, 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>
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% GROSS(3) 12% GROSS(3)
INITIAL (-1.19% NET) (4.81% NET) (10.81% NET)
POL ATT 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 $4,641 $ 1,012 $250,000 $ 1,099 $250,000 $ 1,186 $250,000
2 42 4,641 4,248 250,000 4,624 250,091 5,011 250,382
3 43 4,641 7,393 250,000 8,266 250,271 9,191 251,517
4 44 4,641 10,441 250,000 12,023 250,537 13,754 253,426
5 45 4,641 13,392 250,000 15,899 250,887 18,740 256,130
6 46 4,641 16,238 250,000 19,894 251,319 24,183 259,658
7 47 4,641 18,982 250,000 24,014 251,829 30,130 264,036
8 48 4,641 21,619 250,000 28,262 252,417 36,626 269,296
9 49 4,641 24,147 250,000 32,642 253,079 43,723 275,473
10 50 4,641 26,558 250,000 37,153 253,814 51,473 282,605
15 55 4,641 36,518 250,000 61,613 258,518 102,062 334,141
20 60 4,641 41,753 250,000 88,938 264,790 176,301 414,503
25 65 4,641 40,027 250,000 118,946 272,430 272,637 513,347
30 70 4,641 25,915 250,000 150,684 281,256 380,474 613,767
</TABLE>
(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.
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%, 6%, 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.
84
<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>
<CAPTION>
CHARGES TAKEN FROM PREMIUM: PLUS, IN THE FIRST YEAR:
----------------------------------------------------------------------------------------
<S> <C>
7.00% Sales load Additional sales load (up to 23%)
Underwriting charge (up to $5/$1,000 of
1.50% Face amount guarantee insurance coverage)
2.50% State premium tax
-----------------------
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 guaranteed principal
account and/or 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
or 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 death while the administration charge covers
the cost of maintaining each policy. Transaction charges are also taken from
the actual cash value as transactions occur.
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
sub-standard 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.
85
<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 1.19%. 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 1.19% = assumed net rate of return of 7.81%.
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 + .07 = .97
Asset Allocation .50 .50 + .05 = 1.05
Bond .50 .50 + .08 = 1.08
Growth .50 .50 + .05 = 1.05
Money Market .50 .50 + .14 = 1.14
Mortgage Securities .50 .50 + .08 = 1.08
Capital Appreciation .50 .75 + .05 = 1.30
Value Stock .50 .75 + .14 = 1.39
Small Company .50 .75 + .09 = 1.34
International Stock .50 .78 + .26 = 1.54
--- ---- ---- ----
AVERAGE .50 5.39 + .101 = 1.19
</TABLE>
(The average of the maximum Variable Life Separate Account and Series Fund Fees
and Expenses is 1.35%.)
86
<PAGE>
The chart illustrates how, during the first four policy years, charges are taken
from the premium and the resulting net premium becomes part of the actual cash
value.
YOUR VAL PREMIUM AT WORK
------------------------
<TABLE>
<CAPTION>
YEAR 1 YEAR 2 YEAR 3 YEAR 4
$4,205 $4,205 $4,205 $4,205
<S> <C> <C> <C> <C>
Variable Adjustable LIfe Charges From Charges From Charges From
------------------------ Premium Premium Premium
. Male, Age 40, Non-smoker Charges
. $250,000 Insurance Benefit From
. Cash Death Benefit Option Premium
Net Net Net
Premium Premium Premium
Net
Premium
| | | |
| | | |
+ Net Rate x Actual Cash Value
__________________________________________________
__________________________________ To Actual Cash Value
9.00% Gross Rate __________________________________________________
-1.24% Charges from Variable Life
------ Account & Series Fund
7.76% Net Rate
__________________________________
- Charges from Actual Cash Value
__________________________
Administration Fee
Cost of Insurance Charge
__________________________
= VAL Policy Values $1,014 $4,459 $8,138 $12,062
</TABLE>
[_] Charges taken annually from the $4,205 premium: sales load (7%), premium
tax (2.5%) and death benefit guarantee (1.5%).
Charges taken from the $4,205 premium in the first year only: sales load
(23%) and underwriting charge (up to $5 per $1,000).
+ Net Rate reflects the Mortality & Expense Risk Charge of 0.50% is taken
from the Variable Life Account with the Advisory Fee and Fund Expenses
taken from the Series Fund. This rate is for illustrative purposes and is
not an indication of future results.
- Administration fee is $60 a year. Cost of insurance charge is the cost of
providing the death benefit which varies based on age, gender, health,
premium level and duration.
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 CURRENT MORTALITY CHARGES
<TABLE>
<CAPTION>
-ASSUMING HYPOTHETICAL INVESTMENT RETURNS OF-
0% GROSS(3) 9% GROSS(3) 12% GROSS(3)
INITIAL (-1.19% NET) (7.81% NET) (10.81% NET)
POL ATT 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 $4,205 $ 902 $250,000 $ 1,014 $250,000 $ 1,052 $250,000
2 42 4,205 3,948 250,000 4,462 250,000 4,638 250,000
3 43 4,205 6,924 250,000 8,145 250,000 8,578 250,000
4 44 4,205 9,824 250,000 12,076 250,000 12,905 250,000
5 45 4,205 12,649 250,000 16,277 250,000 17,663 250,000
6 46 4,205 15,394 250,000 20,762 250,000 22,895 250,000
7 47 4,205 18,057 250,000 25,560 250,000 28,659 250,000
8 48 4,205 20,753 250,000 30,824 250,000 35,149 250,000
9 49 4,205 23,499 250,000 36,600 250,000 42,451 250,000
10 50 4,205 26,269 250,000 42,905 250,000 50,631 250,000
15 55 4,205 39,949 250,000 83,543 250,000 108,148 250,000
20 60 4,205 52,011 250,000 143,998 264,451 206,635 372,455
25 65 4,205 60,582 250,000 232,045 377,361 367,998 586,150
30 70 4,205 64,138 250,000 355,811 516,977 629,031 893,791
</TABLE>
(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.
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>
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% GROSS(3) 12% GROSS(3)
INITIAL (-1.19% NET) (7.81% NET) (10.81% NET)
POL ATT 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 $4,205 $ 902 $250,000 $ 1,014 $250,000 $ 1,052 $250,000
2 42 4,205 3,948 250,000 4,462 250,000 4,638 250,000
3 43 4,205 6,924 250,000 8,145 250,000 8,578 250,000
4 44 4,205 9,824 250,000 12,076 250,000 12,905 250,000
5 45 4,205 12,649 250,000 16,277 250,000 17,663 250,000
6 46 4,205 15,394 250,000 20,762 250,000 22,895 250,000
7 47 4,205 18,054 250,000 25,553 250,000 28,650 250,000
8 48 4,205 20,629 250,000 30,674 250,000 34,988 250,000
9 49 4,205 23,116 250,000 36,149 250,000 41,972 250,000
10 50 4,205 25,508 250,000 42,003 250,000 49,671 250,000
15 55 4,205 35,779 250,000 78,016 250,000 102,043 250,000
20 60 4,205 42,116 250,000 128,986 250,000 188,500 342,199
25 65 4,205 42,322 250,000 201,195 329,511 322,956 518,640
30 70 4,205 31,478 250,000 295,991 434,046 526,835 756,296
</TABLE>
(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.
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.
89
<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
Premiums," on page 75 of this prospectus.
Now, further assume that the insured dies at age 50, 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 $50,011. Under the Protection Option the death
benefit will be $300,011.
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 $55,152. Under the Protection Option the death
benefit will be $300,010.
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 owner elected
the Cash Option death benefit. This situation is shown in Appendix I,
"Illustrations of Policy Values, Death Benefits and Premiums," on page 75 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 $50,631 in the case of a VAL
'95 Policy and $55,525 for a VAL '87 Policy. These are higher values than those
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.
90
<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 Premiums," on page 75 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>
Policy Value
With Loan Without Loan
- --------- ------------
<S> <C>
$17,275 $17,515
</TABLE>
<TABLE>
<CAPTION>
End of Year
Total Death Benefit
With Loan Without Loan
--------- ------------
<S> <C>
$267,275 $267,515
</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 owner 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>
Policy Value
With Loan Without Loan
- --------- ------------
<S> <C>
$17,422 $17,663
</TABLE>
<TABLE>
<CAPTION>
End of Year
Total Death Benefit
With Loan Without Loan
--------- ------------
<S> <C>
$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 owner 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.
91
<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 / $1,000), and over the 15 year period from
policy issue sales load charges will total $1,280 or 8.54 percent ($1,280 /
$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 / $1,000), and over the period of the insured's life
expectancy sales load charges will total $810 or 9 percent ($810 / $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.
92
<PAGE>
APPENDIX VI
AVERAGE ANNUAL RETURNS
TWENTY-YEAR HOLDING PERIODS
[GRAPH APPEARS HERE]
<TABLE>
<CAPTION>
Stocks Bonds U.S. Treas. Inflation
------ ----- ----------- ---------
<S> <C> <C> <C> <C>
1955 12.48 2.92 0.66 3.37
1960 14.76 2.12 1.27 3.82
1965 13.84 2.23 1.97 2.84
1970 12.10 2.09 3.13 2.35
1975 7.10 3.08 4.21 3.70
1980 8.31 3.34 5.51 5.46
1985 8.66 6.67 7.31 6.36
1990 11.15 9.01 7.66 6.26
1995 14.59 10.54 7.28 5.23
</TABLE>
Ending periods from 1955-1995
Source: Stocks, Bonds, Bills and Inflation (SBBI), 1994 Yearbook, Encorr Soft-
ware, 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: 1935-1954, 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 1995 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 1995, the
average annual return of stocks was higher than that of bonds, U.S. Treasury
bills and inflation in all 39 time periods.
From 1926 through 1995, the average annual return for this 70 year period
was:
10.5% for common stocks
5.7% for high grade, long-term corporate bonds
3.7% for U.S. Treasury bills
93
<PAGE>
APPENDIX VII
S&P 500
PERFORMANCE HISTORY 1926-1995
[GRAPH APPEARS HERE]
Yr. ANNUAL TOTAL RETURN
26 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
40 -9.8
11.6
20.3
25.9
19.8
36.4
-8.1
5.7
5.5
18.8
50 31.7
24
18.4
-0.01
52.6
31.6
6.6
-10.8
43.4
12
60 0
26.9
-8.7
22.8
16.5
12.5
-10.1
24
11.1
-8.5
70 4
14.3
19
-14.7
-26.5
37.2
23.8
-7.2
6.6
18.4
80 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
9.99
1.31
95 37.43
Source: Stocks, Bonds, Bills and Inflation (SBBI), 1995 Yearbook, Ibbotson As-
sociates, 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 70 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.
94
<PAGE>
APPENDIX VIII
RANGE OF RETURNS
ROLLING PERIOD RETURNS USING IBBOTSON ASSET CLASS INFORMATION*
(1960 THROUGH 1995)
1 Yr Period
High Low Mean
Small Stocks 83.57 -30.9 18.5
Lg Cap Stock 37.43 -26.47 11
Corp Bonds 42.56 -8.09 7.56
Govt Bonds 29.1 -5.14 8.1
T-Bills 14.71 2.13 7.6
5 Yr Period
High Low Mean
Small Stocks 39.8 -12.25 15.09
Lg Cap Stock 20.4 -2.36 10.66
Corp Bonds 22.51 -2.22 7.44
Govt Bonds 16.98 2.08 7.88
T-Bills 11.12 2.83 6.34
10 Yr Period
High Low Mean
Small Stocks 30.38 3.2 14.27
Lg Cap Stock 17.59 1.24 10.33
Corp Bonds 16.32 1.68 7.57
Govt Bonds 13.13 3.48 8.03
T-Bills 9.17 3.88 6.8
15 Yr Period
High Low Mean
Small Stocks 23.33 5.87 14.99
Lg Cap Stock 16.61 4.31 10.02
Corp Bonds 13.46 3.08 7.38
Govt Bonds 11.27 4.75 8.04
T-Bills 8.32 4.56 7.03
20 Yr Period
High Low Mean
Small Stocks 20.33 11.47 15.59
Lg Cap Stock 14.59 6.76 10.1
Corp Bonds 10.58 3.03 7.26
Govt Bonds 9.85 4.84 7.95
T-Bills 7.72 5.09 7.03
30 Yr Period
High Low Mean
Small Stocks 15.1 13.47 14.3
Lg Cap Stock 10.87 9.95 10.38
Corp Bonds 8.2 6.8 7.36
Govt Bonds 8.36 7.34 7.82
T-Bills 6.72 6.34 6.6
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.
95
<PAGE>
PART II
OTHER INFORMATION
<PAGE>
CONTENTS OF REGISTRATION STATEMENT
This registration statement comprises the following papers and documents:
The Facing Sheet.
Cross Reference Sheet.
Part I
The prospectus consisting of 120 pages.
Part II
Undertakings - Indemnification; previously filed.
The Signatures.
Written consents of the following persons:
Donald F. Gruber, Esq.
KPMG Peat Marwick LLP
Jaymes G. Hubbell, F.S.A.
Jones & Blouch L.L.P.
The following Exhibits:
A. Exhibits described in Item IX(A) of Form N-8B-2.
(1) The indenture or agreement under the terms of which the trust was
organized or issued securities.
Resolution of the Board of Trustees of The Minnesota Mutual Life
Insurance Company dated October 21, 1985; previously filed as
Exhibit A(1) to Registrant's Form S-6, File Number 33-3233, is
hereby incorporated by reference.
(2) The indenture or agreement pursuant to which the proceeds of payments of
securities are held by the custodian or trustee, if such indenture or
agreement is not the same as the indenture or agreement referred to
immediately above.
None.
(3) Distributing Policies:
(a) Agreements between the trust and principal underwriter or between
the depositor and principal underwriter.
Distribution Agreement, previously filed as Exhibit A(3)(a) to
Registrant's Form S-6, File Number 33-64395, is hereby
incorporated by reference.
(b) Specimen of typical agreements between principal underwriter and
dealers, managers, sales supervisors and salesmen.
Agent and General Agent Sales Agreements, previously filed as
Exhibit A(3)(b) to Registrant's Form S-6, File Number 33-64395,
is hereby incorporated by reference.
(c) Schedules of sales commissions referred to in Item 38(c).
Combined with the Exhibit listed under A.(3)(b) above.
<PAGE>
(4) Any agreement between the depositor, principal underwriter and the
custodian or trustee other than indentures or agreements set forth above
as paragraphs (1), (2) and (3) with respect to the trust or its
securities.
None.
(5) The form of each type of security.
(a) Variable Adjustable Life Insurance Policy; form 86-660; previously
filed as Exhibit A(5)(a) to Registrant's Form S-6, File Number 33-
3233, Pre-Effective Amendment Number 1, is hereby incorporated by
reference.
(b) Variable Adjustable Life Insurance Policy; form 87-670; previously
filed as Exhibit A(5)(b) to Registrant's Form S-6, File Number 33-
3233, Post-Effective Amendment Number 2, is hereby incorporated by
reference.
(c) Variable Adjustable Life Insurance Policy; form 90-670; previously
filed as Exhibit A(5)(c) to Registrant's Form S-6, File Number 33-
3233, Post-Effective Amendment Number 4, is hereby incorporated by
reference.
(d) Variable Adjustable Life Insurance Policy; form 95-670; previously
filed as Exhibit A(5)(d) to Registrant's Form S-6, File Number 33-
3233, Post-Effective Amendment Number 10, is hereby incorporated by
reference.
(e) Guaranteed Principal Account Agreement, form 90-930; previously
filed as Exhibit A(5)(d) to Registrant's Form S-6, File Number 33-
3233, Post-Effective Amendment Number 4, is hereby incorporated by
reference.
(f) Family Term Agreement-Children, form 86-904 previously filed as
Exhibit A(5)(e) to Registrant's Form S-6, File Number 33-3233, Post-
Effective Amendment Number 8, is hereby incorporated by reference.
(g) Exchange of Insureds Agreement, form 86-914 previously filed as
Exhibit A(5)(f) to Registrant's Form S-6, File Number 33-3233, Post-
Effective Amendment Number 8, is hereby incorporated by reference.
(h) Face Amount Increase Agreement, form 86-915 previously filed as
Exhibit A(5)(g) to Registrant's Form S-6, File Number 33-3233, Post-
Effective Amendment Number 8, is hereby incorporated by reference.
(i) Cost of Living Increase Agreement, form 86-916 previously filed as
Exhibit A(5)(h) to Registrant's Form S-6, File Number 33-3233, Post-
Effective Amendment Number 8, is hereby incorporated by reference.
(j) Waiver of Premium Agreement, form 86-917 previously filed as
Exhibit A(5)(i) to Registrant's Form S-6, File Number 33-3233,
<PAGE>
Post-Effective Amendment Number 8, is hereby incorporated by
reference.
(k) Survivorship Life Agreement, form 90-929 previously filed as Exhibit
A(5)(j) to Registrant's Form S-6, File Number 33-3233, Post-
Effective Amendment Number 8, is hereby incorporated by reference.
(l) Accelerated Benefit Agreement, form 92-931 previously filed as
Exhibit A(5)(k) to Registrant's Form S-6, File Number 33-3233, Post-
Effective Amendment Number 8, is hereby incorporated by reference.
(m) Short Term Agreement, form E324 3-65 previously filed as Exhibit
A(5)(l) to Registrant's Form S-6, File Number 33-3233, Post-
Effective Amendment Number 8, is hereby incorporated by reference.
(n) Policy Enhancement Agreement, form 95-941.
(6) The certificate of incorporation or other instrument of organization and
bylaws of the depositor.
(a) Charter of the Depositor; previously filed as Exhibit A(6)(a) to
Registrant's Form S-6, File Number 33-3233, is hereby incorporated
by reference.
(b) Bylaws of the Depositor; previously filed as Exhibit A(6)(b) to
Registrant's Form S-6, File Number 33-3233, Post-Effective Amendment
Number 10, is hereby incorporated by reference.
(7) Any insurance policy under a contract between the trust and the
insurance company or between the depositor and the insurance company,
together with the table of insurance premiums.
None.
(8) Any agreement between the trust or the depositor concerning the trust
with the issuer, depositor, principal underwriter or investment adviser
of any underlying investment company or any affiliated person of such
persons.
None.
(9) All other material contracts not entered into in the ordinary course of
business of the trust or of the depositor concerning the trust.
None.
(10) Form of application for a periodic payment plan certificate.
(a) New Issue Application - Part 1, form F. 3198 Rev. 3-91, previously
filed as Exhibit A(10)(a) to Registrant's Form S-6, File Number 33-
64395, is hereby incorporated by reference.
<PAGE>
(b) Application - Part 3 - Authorization New Issue; form F. 42663 3-91,
previously filed as Exhibit A(10)(c) to Registrant's Form S-6, File
Number 33-64395, is hereby incorporated by reference.
(c) Policy Change Application - Part 1, form F. 44096 2-92, previously
filed as Exhibit A(10)(d) to Registrant's Form S-6, File Number 33-
64395, is hereby incorporated by reference.
(d) Policy Change Application - Part 3, form F. 44098 2-92, previously
filed as Exhibit A(10)(e) to Registrant's Form S-6, File Number 33-
64395, is hereby incorporated by reference.
B. A Specimen or Copy of Each Security Being Registered.
See Exhibits Listed under A.(5).
C. An opinion of counsel as to the legality of the securities being registered.
Opinion and Consent of Donald F. Gruber, Esq.
D. Consent of KPMG Peat Marwick LLP.
E. Opinion and Consent of Mr. Jaymes G. Hubbell, F.S.A.
F. Consent of Jones & Blouch L.L.P.
G. Adjustment Computation Required by Rule 6e-2(b)(13)(v)(B).
Combined with the Exhibit listed under H below.
H. Memorandum on Administrative Procedures with Respect to Issuance, Transfer
and Redemption, Required by Rule 6e-2(b)(12)(ii).
Combined with the Exhibit listed under G above.
I. Notice of Withdrawal Right and Statement of Charges Required by Rule 6e-
2(b)(13)(viii)(c).
(1) Notice of Withdrawal Right and Request for Cancellation of Policy.
(2) Notice of Withdrawal Right and Request for Cancellation of Policy
Adjustment.
J. Financial Data Schedule
(1) Growth Sub-Account.
(2) Bond Sub-Account.
(3) Money Market Sub-Account.
(4) Asset Allocation Sub-Account.
(5) Mortgage Securities Sub-Account.
<PAGE>
(6) Index 500 Sub-Account.
(7) Capital Appreciation Sub-Account.
(8) International Stock Sub-Account.
(9) Small Company Sub-Account.
(10) Value Stock Sub-Account.
K. The Minnesota Mutual Life Insurance Company - Power of Attorney to Sign
Registration Statements.
<PAGE>
SIGNATURES
Pursuant to the requirements of the Securities Act of 1933, the Registrant,
Minnesota Mutual Variable Life Account, has duly caused this amendment to the
Registration Statement to be signed on its behalf by the Undersigned, thereunto
duly authorized, in the City of Saint Paul, and State of Minnesota, on the 29
day of April, 1996.
MINNESOTA MUTUAL VARIABLE LIFE ACCOUNT
(Registrant)
By: THE MINNESOTA MUTUAL LIFE INSURANCE COMPANY
(Depositor)
By /s/ Robert L. Senkler
-------------------------------------------
Robert L. Senkler
Chairman of the Board,
President and Chief Executive Officer
Pursuant to the requirements of the Securities Act of 1933, the Depositor, The
Minnesota Mutual Life Insurance Company, has duly caused this amendment to the
Registration Statement to be signed on its behalf by the Undersigned, thereunto
duly authorized, in the City of Saint Paul, and State of Minnesota, on the 29
day of April, 1996.
THE MINNESOTA MUTUAL LIFE INSURANCE COMPANY
By /s/ Robert L. Senkler
-------------------------------------------
Robert L. Senkler
Chairman of the Board,
President and Chief Executive Officer
Pursuant to the requirements of the Securities Act of 1933, this amendment to
the Registration Statement has been signed below by the following persons in
their capacities with the Depositor and on the date indicated.
Signature Title Date
--------- ----- ----
Robert L. Senkler* Chairman of the)
- ------------------------- Board, President)
Robert L. Senkler and Chief)
Executive Officer)
)
Giulio Agostini* Trustee)
- -------------------------- )
Giulio Agostini )
)
Anthony L. Andersen* Trustee)
- -------------------------- )
Anthony L. Andersen )
<PAGE>
Signature Title Date
--------- ----- ----
John F. Grundhofer* Trustee)
- --------------------------
John F. Grundhofer )
)
Harold V. Haverty* Trustee)
- --------------------------
Harold V. Haverty )
)
Lloyd P. Johnson* Trustee) By /s/ Dennis E. Prohofsky
- -------------------------- ----------------------------
Lloyd P. Johnson ) Dennis E. Prohofsky
) Attorney-in-Fact
David S. Kidwell, Ph.D.* Trustee)
- --------------------------
David S. Kidwell, Ph.D. ) Dated: April 29, 1996
)
Reatha C. King, Ph.D.* Trustee)
- --------------------------
Reatha C. King, Ph.D. )
)
Thomas E. Rohricht* Trustee)
- --------------------------
Thomas E. Rohricht )
)
Terry N. Saario, Ph.D.* Trustee)
- --------------------------
Terry N. Saario, Ph.D. )
)
Michael E. Shannon* Trustee)
- --------------------------
Michael E. Shannon )
)
Frederick T. Weyerhaeuser* Trustee)
- --------------------------
Frederick T. Weyerhaeuser )
_____________
*Registrant's Officer and Trustee executing power of attorney dated February 12,
1996, a copy of which is filed herewith.
<PAGE>
EXHIBIT INDEX
Exhibit Number Description of Exhibit
- -------------- ----------------------
A(5)(n) Policy Enhancement Agreement, form 95-941
C Opinion and Consent of Donald F. Gruber, Esq.
D Consent of KPMG Peat Marwick LLP
E Opinion and Consent of Mr. Jaymes G. Hubbell, F.S.A.
F Consent of Jones & Blouch L.L.P.
H Memorandum on Administrative Procedures with Respect to
Issuance, Transfer and Redemption, Required by Rule 6e-
2(b)(12)(ii)
I(1) Notice of Withdrawal Right and Request for Cancellation of
Policy
I(2) Notice of Withdrawal Right and Request for Cancellation of
Policy Adjustment
J(1) Financial Data Schedule - Growth Sub-Account
J(2) Financial Data Schedule - Bond Sub-Account
J(3) Financial Data Schedule - Money Market Sub-Account
J(4) Financial Data Schedule - Asset Allocation Sub-Account
J(5) Financial Data Schedule - Mortgage Securities Sub-Account
J(6) Financial Data Schedule - Index 500 Sub-Account
J(7) Financial Data Schedule - Capital Appreciation Sub-Account
J(8) Financial Data Schedule - International Stock Sub-Account
J(9) Financial Data Schedule - Small Company Sub-Account
J(10) Financial Data Schedule - Value Stock Sub-Account
K The Minnesota Mutual Life Insurance Company - Power of
Attorney to Sign Registration Statements
<PAGE>
POLICY ENHANCEMENT AGREEMENT
This agreement is a part of the policy to which it is attached; it is subject to
all its terms and conditions.
WHAT DOES THIS AGREEMENT PROVIDE?
Each year while this agreement is in force, we will increase the face amount of
your policy without evidence of insurability. Your premium will also increase
as described below.
WHAT WILL BE THE AMOUNT OF THE INCREASE?
The face amount increase percent is shown on page 1. This percent will be
multiplied by the face amount at the time of the increase to determine the face
amount increase. The increase will be rounded off to the next higher $1,000 of
face amount. The maximum increase amount is shown on page 1.
WHEN WILL THE FACE AMOUNT BE INCREASED?
On each policy anniversary while this agreement is in force, we will determine
whether your policy is eligible for an increase. We will increase the face
amount of your policy if the following conditions are met:
(1) there has not been a policy adjustment (an increase or a decrease) to the
face amount of this policy during the six-month period immediately
preceding the policy anniversary, and
(2) an annual base premium of at least $300 has been paid during the
immediately preceding policy year.
The increase in the face amount will be effective as of the policy anniversary.
However, the face amount will be determined as of the day immediately preceding
the policy anniversary.
WHAT WILL BE THE COST OF THE INCREASE?
When the face amount of this policy is increased, the annual base premium for
this policy will also be increased, in the same percent as the face amount
increases.
The change in face amount, premium, and policy values will be made by adjusting
your policy and issuing a new page 1.
ARE THERE ANY LIMITATIONS?
Yes. Any adjustments will be subject to the Policy Adjustments section of your
policy; if the adjustment required for the increase does not satisfy the
adjustment limitations described in the
<PAGE>
Policy Adjustments section of your policy, we will not increase the face amount.
However, we will waive the minimum face amount and premium change requirements.
IS EVIDENCE OF INSURABILITY REQUIRED?
No.
IS THE INCREASE SUBJECT TO THE FREE LOOK PROVISION?
Yes. You have the right to examine your policy during the free look period, and
this provision applies to the increase. However, if you reject any increase
during the free look period, this agreement will terminate and no further
increases will be offered under this agreement.
WHAT IF THIS POLICY CONTAINS A WAIVER OF PREMIUM AGREEMENT?
Face amount increases will continue to be made while the insured is totally
disabled. We will also waive the increased premiums, as described in the Waiver
of Premium agreement, during the period of continuous total and permanent
disability.
WHAT IS THE COST FOR THIS AGREEMENT?
The annual premium for this agreement is shown on page 1. If this agreement
terminates, the total annual premium for this policy will be reduced by the
amount shown.
WHEN DOES THIS AGREEMENT BECOME INCONTESTABLE?
Except for the nonpayment of premium, this agreement will be incontestable after
it has been in force during the insured's lifetime for two years from the
effective date of this agreement.
WHEN DOES THIS AGREEMENT TERMINATE?
This agreement will terminate on the earliest of:
(1) the date any premium due for this policy remains unpaid at the end of the
grace period; or
(2) the policy anniversary nearest the insured's 59th birthday; or
(3) the date we receive your written request to cancel this agreement; or
(4) the date you reject an increase in the face amount under the free look
period; or
(5) the date this policy is surrendered, terminated or continued in force as
extended term insurance; or
(6) the date of the death of the insured.
<PAGE>
This agreement is effective as of the original policy date of this policy unless
a different effective date is shown here.
President
Secretary
<PAGE>
April 9, 1996
The Minnesota Mutual Life Insurance Company
Minnesota Mutual Life Center
400 Robert Street North
St. Paul, Minnesota 55101
Gentlepersons:
In my capacity as counsel for The Minnesota Mutual Life Insurance Company (the
"Company"), I have reviewed certain legal matters relating to the Company's
Separate Account entitled Minnesota Mutual Variable Life Account (the "Account")
in connection with Post-Effective Amendment No. 11 to its Registration Statement
on Form S-6. This Post-Effective Amendment is to be filed by the Company and
the Account with the Securities and Exchange Commission under the Securities Act
of 1933, as amended, with respect to certain variable life insurance policies
(Securities and Exchange Commission File No. 33-3233).
Based upon that review, I am of the following opinion:
1. The Account is a separate account of the Company duly created and
validly existing pursuant of the laws of the State of Minnesota; and
2. The issuance and sale of the variable life insurance policies funded by
the Account have been duly authorized by the Company and such policies,
when issued in accordance with and as described in the current
Prospectus contained in the Registration Statement, and upon compliance
with applicable local and federal laws, will be legal and binding
obligations of the Company in accordance with their terms.
I hereby consent to the filing of this opinion as an exhibit to the Registration
Statement.
Sincerely,
Donald F. Gruber
Senior Counsel
<PAGE>
KPMG Peat Marwick LLP Letterhead
Independent Auditors' Consent
-----------------------------
The Board of Directors
The Minnesota Mutual Life Insurance Company and
Policy Owners of Minnesota Mutual Variable Life Account:
We consent to the use of our reports included herein and to the reference to our
Firm under the heading "EXPERTS" in Part I of the Registration Statement.
KPMG Peat Marwick LLP
Minneapolis, Minnesota
April 23, 1996
<PAGE>
[MINNESOTA MUTUAL LETTERHEAD]
April 9, 1996
MINNESOTA MUTUAL
The Minnesota Mutual Life Insurance Company
400 Robert Street North
St. Paul, Minnesota 55101
Re: Variable Adjustable Life Policy
Dear Sir or Madam:
This opinion is furnished in connection with the filing of Post-Effective
Amendment Number 11 to the Registration Statement on Form S-6 ("Registration
Statement"), File Number 33-3233, which covers premiums expected to be received
under Variable Adjustable Life Insurance Policy ("Policies") on the form
referenced above and offered by The Minnesota Mutual Life Insurance Company. The
prospectus included in the Registration Statement describes policies which will
be offered by Minnesota Mutual, after the Amendment to the Registration
Statement is declared effective, in each state where they have been approved by
appropriate state insurance authorities. The policy form was prepared under my
direction, and I am familiar with the Registration Statement and Exhibits
thereto. In my opinion:
(1) The illustrations of death benefits, policy values and accumulated premiums
for the Policy, described under the headings "Policy Values," "Death Benefit
Options" and "Variations in Death Benefit," and fully illustrated in
Appendix I of the prospectus entitled "Illustrations of Policy Values, Death
Benefits and Premiums" and Appendix II of the prospectus entitled "Summary
of Policy Charges" and included in the Registration Statement
("Prospectus"), based upon the assumptions stated, are consistent with the
provisions of the Policies. The rate structure of the Policies has not been
designed so as to make the relationship between premiums and benefits, as
shown in Appendix I, appear to be correspondingly more favorable to a
prospective purchaser of a Policy for males age 40 than to prospective
purchasers of Policies for a male at other ages or for a female at other
ages.
(2) The table shown under the heading "Summary," illustrating the representative
premiums for maximum and minimum plans of insurance, is consistent with the
provisions of the Policies.
(3) The description under the heading "Policy Adjustments," describing the
effects of a Policy adjustment on an illustrated standard risk Policy, and
illustrating adjustments on a hypothetical policy, is consistent with the
provisions of the Policies.
<PAGE>
The Minnesota Mutual Life Insurance Company
April 9, 1996
Page 2
(4) The description under the sub-heading "Restrictions on Adjustments,"
describing the effects of restrictions on Policy adjustments in illustrated
situations, is consistent with the provisions of the Policies.
(5) The description under the heading "Policy Charges," describing sales load
computations in illustrated situations and in Appendix V, is consistent with
the provisions of the Policies.
(6) The information with respect to the Policy contained in Appendix III,
entitled "Illustration of Death Benefit Calculation," based upon the
assumptions stated therein, is consistent with the provisions of the
Policies.
(7) The information with respect to the Policy contained in Appendix IV,
entitled "Policy Loan Example," based upon the assumptions stated therein,
is consistent with the provisions of the Policies.
I hereby consent to the use of this opinion as an exhibit to the Registration
Statement and to the reference to my name under the heading "Experts" in the
Prospectus.
Very truly yours,
Jaymes G. Hubbell, F.S.A.
Second Vice President
and Actuary
JGH:pjh
<PAGE>
Jones & Blouch L.L.P. Letterhead
April 15, 1996
The Minnesota Mutual Life
Insurance Company
400 Robert Street North
St. Paul, MN 55101
Gentlemen:
We hereby consent to the reference to this firm under the caption "Legal
Matters" in the prospectus contained in Post-Effective Amendment No. 11 to the
registration statement on Form S-6 of Minnesota Mutual Variable Life Account,
File No. 33-3233, to be filed with the Securities and Exchange Commission.
Very truly yours,
Jones & Blouch L.L.P.
<PAGE>
EXHIBIT 99.2H
April 1996
DESCRIPTION OF THE MINNESOTA MUTUAL LIFE
INSURANCE COMPANY'S ISSUANCE, TRANSFER
AND REDEMPTION PROCEDURES FOR POLICIES
PURSUANT TO RULE 6E-2(b)(12)(ii)
AND
METHOD OF COMPUTING ADJUSTMENTS IN
PAYMENTS AND CASH VALUES OF POLICIES
UPON CONVERSION TO FIXED BENEFIT
POLICIES PURSUANT TO RULE 6E-2(b)(13)(v)(B)
This document sets forth the administrative procedures established by The
Minnesota Mutual Life Insurance Company ("Minnesota Mutual") in connection with
the issuance of its Variable Adjustable Life insurance policy ("policy"), the
transfer of assets held thereunder, and the redemption by policy owners of their
interests in those policies. This document also explains the method that
Minnesota Mutual will follow when a policy is exchanged for a fixed benefit
insurance policy as provided by the policy provisions and subject to Rule 6e-
2(b)(13)(v)(B).
I. PROCEDURES RELATING TO ISSUANCE AND PURCHASE OF THE POLICIES
------------------------------------------------------------
Persons wishing to purchase a policy must send a completed application to
Minnesota Mutual at its home office. The minimum face amount Minnesota
Mutual will issue on a policy is $50,000 and it requires an annual base
premium on each policy of at least $300. The minimum plan of insurance at
policy issue is a term 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, as described in the
table below:
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<TABLE>
<CAPTION>
Minimum Plan
Issue Age (in years)
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<S> <C>
56 9
57 8
58 7
59 6
60 or greater 5
</TABLE>
The policy must be issued on an insured under the age of 80. Before
issuing any policy, Minnesota Mutual will require evidence of insurability
satisfactory to it, 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
Minnesota Mutual's underwriting rules and it reserves the right to reject
an application for any reason.
Guaranteed maximum cost of insurance charges will vary by age, sex and risk
class. Minnesota Mutual uses 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. 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, Minnesota Mutual intends 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.
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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.
A. PREMIUM SCHEDULES AND UNDERWRITING STANDARDS
--------------------------------------------
Premiums for the policies will not be the same for all owners.
Insurance is based on the principle of pooling and distribution of
mortality risks, which assumes that each owner pays a premium
commensurate with the insured's mortality risk as actuarially determined
utilizing factors such as age, sex, health and occupation. A uniform
premium for all insureds would discriminate unfairly in favor of those
insureds representing greater risk. Although there will be no uniform
premium for all insureds, there will be a single price for all insureds
in a given risk classification.
The policies will be offered and sold pursuant to established premium
schedules and underwriting schedules in accordance with state insurance
laws. The prospectus specifies premiums for specified illustrative
ages. In addition, the premiums to be paid by the owner of a policy
will be specified in the policy.
B. APPLICATION AND INITIAL PREMIUM PROCESSING
------------------------------------------
Upon receipt of a completed application from an applicant Minnesota
Mutual will follow certain insurance underwriting (risk evaluation)
procedures designed to determine whether the applicant is insurable.
This process may involve such verification procedures as medical
examinations and may require that further information be provided by the
proposed insured before a determination can be made.
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A policy cannot be issued, i.e., physically issued through Minnesota
Mutual's computerized issue system, until this underwriting procedure
has been completed.
These processing procedures are designed to provide immediate benefits
to the prospective owner in connection with payment of the initial
premium and will not dilute any benefit payable to any existing owner.
Although a policy cannot be issued until after the underwriting process
has been completed, the proposed insured may receive immediate insurance
coverage, if he proves to be insurable and has paid the first premium
and is covered under the terms of a conditional insurance agreement. In
accordance with industry practice, Minnesota Mutual will establish
procedures to handle errors in initial and subsequent premium payments
to refund overpayments and collect underpayments, except for de minimis
amounts. If an application is accompanied by a check for all or at
least one-twelfth of the annual premium and the application is accepted
by Minnesota Mutual, the policy date will be the date the underwriting
decision is made. The policy date is the date used to determine
subsequent policy anniversaries and premium due dates. The issuance
will take effect as of the policy date specified in the policy, except
as altered by another agreement, e.g., the receipt and temporary life
insurance agreement. If the application is accompanied by a check for
all or at least one-twelfth of the annual premium, the insured life may
be covered under the terms of a conditional insurance agreement until
the policy date. If an application accepted by Minnesota Mutual is not
accompanied by a check for the initial premium, the policy will be
issued with a policy date which will normally be fifteen days after the
date Minnesota Mutual's underwriters approve issuance of the policy.
The initial plan premium must be received within 60 days after the issue
date. If the premium is not paid or if the application is rejected, the
policy will be cancelled and any partial premiums paid will be returned
to the applicant. In a case where there is no paid premium, there will
be
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no life insurance coverage provided. On delivery of the policy within
the 60 day period following issue, the applicant may obtain a policy
which has a policy date of the date which the home office receives the
initial plan premium. In that case the applicant has to indicate to
Minnesota Mutual his or her intention to obtain such a policy. This
should be done with payment of the first premium. As a result of your
requested change, Policy pages with updated policy information and a
policy date that reflects the date the first premium was received will
be sent to the agent for delivery to the applicant. Under certain
circumstances a policy may be issued where the applicant wishes to
retain the original policy issue date. In such cases all premiums due
between the issue date and the date of delivery must be paid on delivery
in order for the original policy issue date to be retained.
The policy date, assuming the payment of the first premium, marks the
date on which benefits begin to vary in accordance with the investment
performance of any selected sub-accounts of the Minnesota Mutual
Variable Life Account. Premium payments may also be allocated to the
guaranteed principal account. The policy date is also the date as of
which the insurance age of the proposed insured is determined. It
represents the first day of the policy year and therefore determines the
policy anniversary and also the monthly dates. It also represents the
commencement of the suicide and contestable periods for purposes of the
policy.
The owner of the policy must pay the initial premium within 60 days of
the date of the policy. The first net premiums, namely premiums after
the deduction of the charges assessed against premiums and nonrepeating
premiums, are allocated to the guaranteed principal account or any sub-
accounts of the Variable Life Account which will, in turn, invest in
shares of the Portfolios of MIMLIC Series Fund, Inc. The
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variable benefits under all policies will be calculated on the basis of
the allocation of that initial net premium to the Variable Life Account.
Net premiums are allocated to the guaranteed principal account or any
one or more of the sub-accounts as selected by the owner on the
application for the policy. The owner may change the allocation
instructions for future premiums by giving us a written request. A
change will not take effect until it is recorded by us in our home
office. The allocation to the guaranteed principal account or any sub-
account, expressed in whole percentages, must be at least 10 percent of
the net premium and preferably, in increments of 5 percent. We reserve
the right to restrict the allocation of premium. If we do so, no more
than 50 percent of the net premium may be allocated to the guaranteed
principal account. This restriction will not apply when you are
allocating all of your premiums to the guaranteed principal account as a
conversion privilege.
We also reserve the right to delay the allocation of net premiums to
named sub-accounts. Such a delay will be for a period of 30 days after
issuance of a policy or policy adjustment. If we exercise this right,
net premiums will be allocated to the money market sub-account of the
separate account until the end of that period.
C. PREMIUM PROCESSING
------------------
Twenty days before the premium due date, Minnesota Mutual will send a
premium notice for the premium due to the owner's address on record.
The amount of the net premium will depend upon such factors as the
insured's age at issue, sex, risk classification, smoking status, and
the additional benefits associated with the policy.
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D. REINSTATEMENT
-------------
At any time within three years from the date of lapse, the owner may
restore the 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. Minnesota Mutual will require:
(1) the owner's written request to reinstate the policy;
(2) that the owner submits to Minnesota Mutual at its home office during
the insured's lifetime, evidence satisfactory to it of the insured's
insurability so that Minnesota Mutual 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.
This reinstatement provision is designed to comply with the insurance
laws of a number of states.
In order to assist an owner of a lapsed policy in making a considered
judgment as to whether to reinstate, Minnesota Mutual may calculate the
amount payable upon reinstatement and "freeze" the amount for up to 15
days.
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The reinstatement will take effect as of the date the required proof of
insurability and payment of the reinstatement amount has been received
by Minnesota Mutual at its home office.
Minnesota Mutual will allocate the net premiums, namely premiums after
the deduction of the charges assessed against premiums and nonrepeating
premiums, to the guaranteed principal account or the sub-accounts of the
Variable Life Account which, in turn, invest in Fund shares. The amount
submitted by the owner is required to support the reinstated benefits.
E. REPAYMENT OF A POLICY LOAN
--------------------------
If the policy is in force, a policy loan can be repaid in part or in
full at any time before the insured's death. The loan may also be
repaid within 60 days after the date of the insured's death, if
Minnesota Mutual has 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. Currently, we will waive this Minimum Loan Repayment Provision
for loan repayments made under our automatic bank check plan.
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 separate account as the policy owner
may direct.
In the absence of instructions from the policy owner, loan repayments
will be allocated to the guaranteed principal account actual cash value
and separate account
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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 the actual cash value in all of the policy owner's sub-
accounts.
Loan repayments reduce your loan account by the amount of the loan
repayment.
II. TRANSFER AMONG SUB-ACCOUNTS
---------------------------
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 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 MIMLIC Series Fund, Inc. (the "Fund").
The amount of actual cash value to be transferred to or from a sub-account
of the separate 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.
The maximum amount of actual cash value to be transferred out of the
guaranteed principal account to the sub-accounts of the separate 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.
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None of the foregoing restrictions will apply when you are transferring all
of the policy value, or allocating all of your premiums, to the guaranteed
principal account as a conversion privilege.
Transfers from the guaranteed principal account must be made by a written
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.
III. "REDEMPTION" PROCEDURES:
------------------------
SURRENDER AND RELATED TRANSACTIONS
----------------------------------
A. REQUEST FOR SURRENDER VALUE
---------------------------
If the insured is living, Minnesota Mutual will pay the surrender value
of the policy to the policy owner upon written request. On surrender,
the surrender value of the policy is the actual cash value minus unpaid
policy charges which are assessed against the actual cash value. The
determination of the surrender value is made as of the end of the
valuation period during which we receive the surrender request at our
home office. The policy may be surrendered by sending us the policy and
a written request for its surrender. The owner may request that the
surrender value be paid in cash or, as an alternative, the owner may
request that the surrender value be applied on a settlement option as
described in the policy or to provide extended term insurance on the
life of the insured.
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A partial surrender of the actual cash value of the policy is also
permitted in any amount of $500 or more. However, if there is a policy
loan, a partial surrender will not be permitted if 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. If a Policy is
not paid-up, the death benefit of the Policy will be reduced by the
amount of the partial surrender. If the Policy is paid-up, the death
benefit will be reduced so as to retain the same ratio between the
policy value and the death benefit of the Policy as existed prior to the
partial surrender. With any partial surrender, 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.
On a partial surrender, the owner may tell Minnesota Mutual which sub-
accounts of the actual cash value of the policy should be reduced or
whether it is to be taken in whole or in part from the guaranteed
principal account. If the owner does not, partial surrenders will be
deducted from 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, from each sub-account in the proportion that the
actual cash value in such sub-account bears to the actual cash value in
all of the sub-accounts.
Payment of a surrender or a partial surrender will be made as soon as
possible, but not later than seven days after our receipt of a completed
written request for surrender. However, 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
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good payment has been collected. The amount the owner receives on the
surrender may be more or less than the total of premiums paid to the
policy.
B. DEATH CLAIMS
------------
Minnesota Mutual will pay a death benefit to the beneficiary within
seven days after receipt at its home office of due proof of death of the
insured and on completion of all other requirements necessary to make
payment. In addition, payment of the death benefit is subject to the
provisions of the policy regarding suicide and incontestability.
The death benefit provided by the policy depends upon the death benefit
option chosen by the owner. The owner may choose one of two available
death benefit options -- the Cash Option or the Protection Option. If
the owner fails 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 current
face amount.
Under the Protection Option, the death benefit 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
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of insurance which could be purchased by using that difference between
values as a net single premium.
With VAL '87, 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 and the insured's
attained age. The two assumptions we use in computing the additional
amount of insurance are an interest rate assumption of 4 percent per
year and an assumption of mortality based upon the 1980 Commissioners
Standard Ordinary Mortality Tables.
Under the Protection Option of VAL '95, the death benefit will be the
policy value, plus the larger of:
(1) the then current face amount; and
(2) the amount of insurance which could be purchased using the policy
value as a net single premium.
The Protection Option under VAL '95 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.
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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. Once paid-up, 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 and the
insured's attained age. The two assumptions we use in computing the
additional amount of insurance are an interest rate assumption of 4
percent per year and an assumption of mortality based upon the 1980
Commissioners Standard Ordinary Mortality Tables.
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.
The owner 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 the owner 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.
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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.
The death benefit is determined on each monthly policy anniversary and
as of the date of the insured's death.
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).
Proceeds of the policy may be paid in other than a single sum. The
owner, during the lifetime of the insured, may request that we pay the
proceeds under one of the policy settlement options as described in the
policy. We may also use any other method of payment that is agreeable
between the owner 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
in the policy. The payments do not vary with the investment performance
of the Variable Life Account.
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C. DEFAULT AND OPTIONS ON LAPSE
----------------------------
A 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, the 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. The owner may pay that premium during the 31-
day period immediately following the premium due date. The premium
payment, however, must be received in Minnesota Mutual's 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 have 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
the owner a notice of default
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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.
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. As
an alternative to the extended term insurance, the owner may have the
surrender value paid to the owner in a single sum payment, thereby
terminating the policy. Unless the owner requests a single sum payment
of the 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 the 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 the 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 the policy
will terminate and the policy will have no further value.
D. LOANS
-----
The policy provides that an owner, if no premium is in default beyond
the grace period, may make a loan at anytime a loan value is available.
The owner may borrow
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from Minnesota Mutual using only the policy as the security for the
loan. The total amount of the loan may not exceed 90 percent of the
policy value. The policy value is the actual cash value of the policy
plus any policy loan. Any policy loan paid to the owner 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 charge
interest on the loan in arrears. At the owner's request Minnesota Mutual
will send a loan request form for the signature of the owner. The policy
value will be determined as of the date we receive the owner's written
request at the home office.
When a loan is taken, we will reduce the actual cash value by the amount
borrowed and any unpaid interest. Unless the policy owner directs us
otherwise, the policy loan will be taken from a policy's 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 the policy's 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 Minnesota
Mutual receives the loan requests at our home office. This amount shall
be transferred to Minnesota Mutual's general account. It will continue
to be part of the policy in the general account.
The actual cash value of a policy may decrease between premium due
dates. If a policy has indebtedness and no actual cash value, the
policy will lapse. In this event, to keep a policy in force, the owner
will have to make a loan repayment. Minnesota Mutual will give the
owner notice of its intent to terminate the policy and notice of
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the amount of the loan repayment required to keep the policy in force.
The time for repayment will be within 31 days after Minnesota Mutual's
mailing of the notice.
The interest rate on a policy loan will not be more than the rate shown
on page 1 of the 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 the owner does not pay the interest on the
loan in cash, the policy loan will be increased and the 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 the policy when there is a policy loan.
Interest credits on a policy loan shall be at a rate which is not less
than the policy loan interest rate minus 2 percent per annum. Policy
loan interest credits are allocated to the 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. Policy
loan interest credits are allocated to the guaranteed principal account
and separate account following the policy owner's instructions to us.
We will use the 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 the policy's actual cash value in all of the sub-
accounts.
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Policy loans may also be used as automatic premium loans to keep a
policy in force. If the owner has asked for this service in the
application, or if the policy owner writes us and asks for this service
after the policy has been issued, we will make automatic premium loans.
The policy owner can also write to us at any time and tell us to delete
this service. If the policy owner has this service and has not paid the
premium due 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.
A policy loan has no immediate effect on policy value since at the time
of the loan the policy value is the sum of the actual cash value and any
policy loan.
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
of the Variable Life Account 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 of the Variable Life Account
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.
The guaranteed minimum death benefit is not affected by policy debt if
premiums are duly paid. However, on settlement, the amount of any
policy debt is subtracted from the insurance amount.
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IV. POLICY CONVERSION
-----------------
The policy provides that the owner may exchange the policy to an Adjustable
Life policy, with a fixed death benefit and cash value, which we may then
offer. This right exists while the policy is in force and all scheduled
premiums have been fully paid. The converted policy will have the same
face amount as was currently provided by the policy and premiums will be
based upon the same issue age and risk classification of the insured as
stated in the policy. The premiums and 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.
The procedure to effect such a conversion will be to use the surrender
value of the policy as a no load nonrepeating premium for the converted
policy which is newly created, with a new policy number and transferred
insurability. We will provide the insured with an expense allowance credit
for previously taken expense allowance under the policy. This exchange
privilege is designed to permit the owner to obtain a fixed benefit
Adjustable Life insurance policy at any time during the existence of the
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.
-21-
<PAGE>
Minnesota Mutual Letterhead
Notice of Withdrawal Right
May 1, 1996
JOHN DOE
400 ROBERT STREET NORTH
ST. PAUL MN 55101
SPECIMEN
RE: 1-234-567V
JOHN DOE
MONTHLY - $83.33
ANNUALIZED - $1,000.00
Dear John Doe:
Congratulations on your purchase of the attached Variable Adjustable Life
Insurance policy. Minnesota Mutual wants you to understand that this is an
investment-oriented life insurance contract with customary insurance expense
charges. You have a right to examine and return the contract for cancellation
and a full refund of premiums paid. This letter will explain the procedure for
returning your policy if it does not meet your needs.
Your policy cash value will vary depending on the investment experience of the
portfolios (sub-accounts) you selected. The Minnesota Mutual Variable Life
Account and all sub-accounts are described in your prospectus.
Your scheduled premium is shown on Page 1A of your policy, and we encourage you
to review your ongoing ability to pay the premium. Your prospectus describes the
various deductions from your premiums before application to the Variable Life
Account. These charges are similar to those made in a whole life insurance
policy. They are:
-- A premium tax charge of 2.5 percent, a 1.5 percent face amount guarantee
charge and a 7 percent basic sales load, and
-- A first year sales charge not to exceed 23 percent of premium and a
first year underwriting charge not to exceed $5 per $1,000 of face
amount of insurance.
These charges do not include any premiums for additional benefits or
deductions for administration, transaction or insurance costs assessed
against policy actual cash values.
If you have any questions, please contact your agent immediately. We want you to
understand and be satisfied with this adjustment. If you are satisfied, no
action on your part is required. If the policy is not what you want, you must
complete the attached form and return it, along with the policy, postmarked no
later than the later of:
-- 10 days from the date you received this notice and policy, or
-- 45 days from the date you completed Part 1 of the application.
We are confident you'll be satisfied with this policy and look forward to a long
association. Thank you for choosing Minnesota Mutual.
Sincerely,
Nancy Winter
Director
Individual Policy Services
<PAGE>
Minnesota Mutual Letterhead
Notice of Withdrawal Right
May 1, 1996
JOHN DOE
400 ROBERT STREET NORTH
ST. PAUL MN 55101
SPECIMEN
RE: 1-234-567V
JOHN DOE
MONTHLY - $83.33
ANNUALIZED - $1,000.00
May 1, 1996
Dear John Doe:
Congratulations on your recent adjustment to your Variable Adjustable Life
Insurance policy. You already know this is an investment-oriented life insurance
contract with customary insurance expense charges. You have a right to examine
and return the contract for cancellation of the adjustment and a refund of any
associated premiums. This letter will explain the procedure of declining your
adjustment if it does not meet your needs.
Your policy cash value will vary depending on the investment experience of the
portfolios (sub-accounts) you selected. The Minnesota Mutual Variable Life
Account and all sub-accounts are described in your prospectus.
Your scheduled premium is shown on Page 1A of your policy, and we encourage you
to review your ongoing ability to pay the premium. Your prospectus describes the
various deductions from your premiums before application to the Variable Life
Account. These charges are similar to those made in a whole life insurance
policy. They are:
-- A premium tax charge of 2.5 percent, a 1.5 percent face amount guarantee
charge and a 7 percent basic sales load, and
-- A first year sales charge not to exceed 23 percent of premium and a
first year underwriting charge not to exceed $5 per $1,000 of face
amount of insurance.
These charges do not include any premiums for additional benefits or
deductions for administration, transaction or insurance costs assessed
against policy actual cash values.
If you have any questions, please contact your agent immediately. We want you to
understand and be satisfied with this adjustment. If you are satisfied, no
action on your part is required. If the adjustment is not what you want, you
must complete the attached form and return it, along with the policy, postmarked
no later than the later of:
-- 10 days from the date you received this notice and adjustment, or
-- 45 days from the date you completed Part 1 of the application.
We are confident you'll be satisfied with this adjustment and look forward to a
long association. Thank you for choosing Minnesota Mutual.
Sincerely,
Nancy Winter
Director
Individual Policy Services
<TABLE> <S> <C>
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</TABLE>
<TABLE> <S> <C>
<PAGE>
<ARTICLE> 6
<SERIES>
<NUMBER> 1
<NAME> MIMLIC MONEY MARKET SUB-ACCOUNT
<MULTIPLIER> 1
<CURRENCY> US
<S> <C>
<PERIOD-TYPE> 12-MOS
<FISCAL-YEAR-END> DEC-31-1995
<PERIOD-START> JAN-01-1995
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<TABLE> <S> <C>
<PAGE>
<ARTICLE> 6
<SERIES>
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<NAME> MIMLIC ASSET ALLOCATION SUB-ACCOUNT
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<TABLE> <S> <C>
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<ARTICLE> 6
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<NAME> MIMLIC INDEX 500 SUB-ACCOUNT
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<TABLE> <S> <C>
<PAGE>
<ARTICLE> 6
<SERIES>
<NUMBER> 7
<NAME> MIMLIC CAPITAL APPRECIATION SUB-ACCOUNT
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<FISCAL-YEAR-END> DEC-31-1995
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</TABLE>
<TABLE> <S> <C>
<PAGE>
<ARTICLE> 6
<SERIES>
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<NAME> MIMLIC INTERNATIONAL STOCK SUB-ACCOUNT
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<PAGE>
The Minnesota Mutual Life Insurance Company
Power of Attorney
To Sign Registration Statements
WHEREAS, The Minnesota Mutual Life Insurance Company ("Minnesota Mutual")
has established certain separate accounts to fund certain variable annuity and
variable life insurance contracts, and
WHEREAS, Minnesota Mutual Variable Fund D ("Fund D") is a separate account
of Minnesota Mutual registered as a unit investment trust under the Investment
Company Act of 1940 offering variable annuity contracts registered under the
Securities Act of 1933, and
WHEREAS, Minnesota Mutual Variable Annuity Account ("Variable Annuity
Account") is a separate account of Minnesota Mutual registered as a unit
investment trust under the Investment Company Act of 1940 offering variable
annuity contracts registered under the Securities Act of 1933, and
WHEREAS, Minnesota Mutual Variable Life Account ("Variable Life Account")
is a separate account of Minnesota Mutual registered as a unit investment trust
under the Investment Company Act of 1940 offering variable adjustable life
insurance policies registered under the Securities Act of 1933,
WHEREAS, Minnesota Mutual Group Variable Annuity Account ("Group Variable
Annuity Account") is a separate account of Minnesota Mutual which has been
established for the purpose of issuing group annuity contracts on a variable
basis and which is to be registered as a unit investment trust under the
Investment Company Act of 1940 offering group variable annuity contracts and
certificates to be registered under the Securities Act of 1933;
WHEREAS, Minnesota Mutual Variable Universal Life Account ("Variable
Universal Life Account") is a separate account of Minnesota Mutual which has
been established for the purpose of issuing group and individual variable
universal life insurance policies on a variable basis and which is to be
registered as a unit investment trust under the Investment Company Act of 1940
offering group and individual variable universal life insurance policies to be
registered under the Securities Act of 1933.
NOW THEREFORE, We, the undersigned Trustees of Minnesota Mutual, do hereby
appoint Dennis E. Prohofsky and Garold M. Felland, and each of them
individually, as attorney in fact for the purpose of signing in their names and
on their behalf as Trustees of Minnesota Mutual and filing with the Securities
and Exchange Commission Registration Statements, or any amendment thereto, for
the purpose of: a) registering contracts and policies of Fund D, the Variable
Annuity Account, the Variable Life Account, the Group Variable Annuity Account
and the Variable Universal Life Account for sale by those entities and Minnesota
Mutual under the Securities Act of 1933; and b) registering Fund D, the Variable
Annuity Account, the Variable Life Account, the Group Variable Annuity Account
and the Variable Universal Life Account as unit investment trusts under the
Investment Company Act of 1940.
Signature Title Date
--------- ----- ----
/s/ Robert L. Senkler Chairman of the Board, February 12, 1996
- --------------------- President and Chief
Robert L. Senkler Executive Officer
<PAGE>
Signature Title Date
--------- ----- ----
/s/Giulio Agostini Trustee February 12, 1996
- ------------------------------
Giulio Agostini
/s/Anthony L. Andersen Trustee February 12, 1996
- ------------------------------
Anthony L. Andersen
/s/John F. Grundhofer Trustee February 12, 1996
- ------------------------------
John F. Grundhofer
/s/Harold V. Haverty Trustee February 12, 1996
- ------------------------------
Harold V. Haverty
/s/Lloyd P. Johnson Trustee February 12, 1996
- ------------------------------
Lloyd P. Johnson
/s/David S. Kidwell, Ph.D. Trustee February 12, 1996
- ------------------------------
David S. Kidwell, Ph.D.
/s/Reatha C. King, Ph.D. Trustee February 12, 1996
- ------------------------------
Reatha C. King, Ph.D.
/s/Thomas E. Rohricht Trustee February 12, 1996
- ------------------------------
Thomas E. Rohricht
/s/Terry N. Saario, Ph.D. Trustee February 12, 1996
- ------------------------------
Terry N. Saario, Ph.D.
/s/Michael E. Shannon Trustee February 12, 1996
- ------------------------------
Michael E. Shannon
/s/Frederick T. Weyerhaeuser Trustee February 12, 1996
- ------------------------------
Frederick T. Weyerhaeuser
