<PAGE>
File Number 33-64395
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM S-6
PRE-EFFECTIVE AMENDMENT NUMBER 1
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)
Copy to:
J. Sumner Jones, Esq.
Jones & Blouch L.L.P.
1025 Thomas Jefferson Street, N.W.
Washington, D.C. 20007
Approximate Date of Public Offering: As soon as practical after the date of this
Registration Statement.
<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 SECOND DEATH
INSURANCE POLICY
[LOGO OF MINNESOTA MUTUAL APPEARS HERE]
This prospectus describes a Variable Adjustable Life Second Death Insurance
Policy ("VAL-SD") issued by The Minnesota Mutual Life Insurance Company
("Minnesota Mutual"). It provides life insurance protection payable at the
death of the second insured to die ("second death") 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 insureds. The lowest annual
base premium allowed for any plan of insurance is $600. The minimum face amount
on a Policy is $200,000.
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 28. The Policy also
contains a cancellation right which is fully described under the heading "Free
Look" in this prospectus on page 28.
VAL-SD 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.
VAL-SD 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 younger
insured's age 70. At the policy anniversary nearest the younger 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:
<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 Second Death In-
surance Policy
Adjustable Life Insurance.............................................. 12
Policy Adjustments..................................................... 14
Applications and Policy Issue.......................................... 18
Policy Premiums........................................................ 18
Policy Values.......................................................... 22
Death Benefit Options.................................................. 24
Variations in Death Benefit............................................ 25
Policy Loans........................................................... 25
Surrender.............................................................. 27
Free Look.............................................................. 28
Conversion............................................................. 28
Policy Exchange........................................................ 28
Policy Charges......................................................... 28
Other Policy Provisions................................................ 31
Other Matters
Federal Tax Status..................................................... 34
Trustees and Principal Management 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...... 62
Appendix I-Illustrations of Policy Values, Death Benefits and Premiums... 85
Appendix II-Summary of Policy Charges.................................... 91
Appendix III-Illustration of Death Benefit Calculation................... 96
Appendix IV-Policy Loan Example.......................................... 97
Appendix V-Example of Sales Load Computation............................. 98
Appendix VI-Average Annual Returns....................................... 99
Appendix VII-S&P 500 Performance History................................. 100
Appendix VIII-Range of Returns........................................... 101
</TABLE>
<PAGE>
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 SECOND DEATH 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 payable at the second death so long as scheduled premiums are paid. In
this respect, the Policy is similar to conventional survivorship life policies.
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. 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.
WHAT IS THE GUARANTEED DEATH BENEFIT?
We guarantee that the face amount of insurance shown on the policy
specification page will be paid at the second death 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 not to
exceed 3 cents per thousand dollars of face amount per month for providing this
guarantee.
WHAT MAKES THE POLICY "ADJUSTABLE"?
The Policy is termed "Adjustable" because it allows you the flexibility to
custom-design your Policy at issue and thereafter to change or "adjust" your
Policy as your insurance needs change. The three major components in designing
your Policy are the level of premiums you wish to pay, the level of death
benefit protection you need and the appropriate "plan" of insurance for you.
You may choose any two of the three components--premium, face amount and plan--
and we will calculate the third component.
Within very broad limits, including those designed to assure that the Policy
qualifies as life insurance for tax purposes, you may choose any level of
premium or death benefit that you wish. In addition, we offer a broad range of
"plans" of insurance. Generally speaking, a plan refers to the level of cash
value accumulation assumed in the design of the Policy and, for whole life
plans, the period of time over which you will have to pay premiums. The greater
your plan of insurance, the larger the policy values you may expect to be
available for investment in the Policy's actual cash value, loans or partial
surrenders and, for whole life plans, the shorter the period of time for which
you will have to pay premiums.
The maximum plan of insurance available is one where the Policy becomes paid-
up after the payment of ten annual premiums. A paid-up Policy is one for which
no additional premiums are required to guarantee the face amount of insurance
until the second death, 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 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.
1
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If the younger insured's age at original issue is over 70, the minimum plan of
protection will be less than ten years, as described in the table below:
<TABLE>
<CAPTION>
YOUNGER INSURED'S MINIMUM PLAN
ISSUE AGE (IN YEARS)
- ----------------- ------------
<S> <C>
71 9
72 8
73 7
74 6
75 or greater 5
</TABLE>
As used herein a protection Policy is one which provides only a term plan of
insurance, namely one with a stated face amount and premium level, providing
an illustrated face amount for a specified number of years, always less than
for whole life. A protection plan of insurance is designed to accumulate cash
value at the end of the time during which the initial face amount is in force
only to the extent that investment returns exceed the assumed rate of return
indicated in your Policy as the tabular cash value. Absent an adjustment to a
new plan, at the end of the initial protection period you would have a whole
life plan of insurance for a lower face amount, based on continued payment of
your scheduled premiums. A protection plan requires the lowest initial level
of premiums and offers the most insurance protection with the lowest
investment element. The protection plan may be a suitable starting point for
young policy owners who have not reached their peak earning years but who have
substantial life insurance needs.
For any given face amount of insurance, you may select a plan that falls
anywhere between the minimum protection plan and the maximum ten premium
payment whole life plan. The higher the premium you pay, the greater will be
your cash value accumulation at any given time and therefore, for whole life
plans, the shorter the period during which you need to pay premiums before
your Policy becomes paid-up. For example, the table below shows the premium
required for various plans for two insureds, one female age 40 and one male
age 40, both standard nonsmokers for a $1,000,000 face amount VAL-SD Policy.
<TABLE>
<CAPTION>
ANNUAL
PLAN OF INSURANCE PREMIUM
- ----------------- -------
<S> <C>
Minimum--10 year protection plan $ 712
20 year protection plan $ 1,019
Whole life plan $10,805
25 pay life plan $13,396
Maximum--10 pay life plan $26,265
</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 $300 and any
adjustment to a Policy's face amount generally must result in a change of the
face amount of at least $50,000. Other than an automatic adjustment at the
point when the face amount is scheduled to decrease, an automatic adjustment
upon the change to the Cash Option death benefit at the younger 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 younger insured's age at original issue
is over 70, 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>
YOUNGER INSURED'S MINIMUM PLAN
ISSUE AGE (IN YEARS)
- ----------------- ------------
<S> <C>
71 9
72 8
73 7
74 6
75 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, VAL-SD 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,
2
<PAGE>
your policy values invested in these sub-accounts will reflect market rates of
return.
The actual cash value of the Policies, to the extent invested in sub-
accounts of the Variable Life Account, will vary with the investment
experience of the sub-accounts of the Variable Life Account. These have no
guaranteed minimum actual cash value. Therefore, you bear the risk that
adverse investment performance may depreciate your investment in the Policy.
At the same time, the Policy offers you the opportunity to have your actual
cash value appreciate more rapidly than it would under comparable fixed
benefit contracts by virtue of favorable investment performance. In addition,
under some Policies, the death benefit will also increase and decrease (but
not below the guaranteed amount) with investment experience.
Those seeking the traditional insurance protections of a guaranteed cash
value may allocate premiums to the guaranteed principal account. The
guaranteed principal account is a general account option with a guaranteed
accumulation at a fixed rate of interest. While it is more fully described in
the Policy, additional information on this option may be found under the
heading "The Guaranteed Principal Account" in this prospectus on page 11.
WHAT VARIABLE INVESTMENT OPTIONS ARE AVAILABLE?
The Variable Life Account invests in ten Portfolios of the Fund. These offer
policy owners the opportunity to invest in stocks, bonds, mortgage securities
and money market instruments. Policy owners who wish to actively manage the
investment of their actual cash values may direct their funds to the Growth,
Bond, Money Market, Mortgage Securities, Index 500, Capital Appreciation,
International Stock, Small Company and Value Stock Portfolios. We also offer
an Asset Allocation Portfolio, which is designed to offer policy owners who do
not wish to direct their investment the opportunity to have the Fund's
investment adviser make the decisions concerning what percentages of the
assets should be invested in stocks, bonds and money market instruments at any
given time. The investment objectives and certain policies of these Portfolios
of the Fund are as follows:
The GROWTH PORTFOLIO seeks the long-term accumulation of capital. Current
income, while a factor in portfolio selection, is a secondary objective. The
Growth Portfolio will invest primarily in common stocks and other equity
securities. Common stocks are more volatile than debt securities and involve
greater investment risk.
The BOND PORTFOLIO seeks as high a level of long-term total rate of return
as is consistent with prudent investment risk. A secondary objective is to
seek preservation of capital. The Bond Portfolio will invest primarily in
long-term, fixed-income, high-quality debt instruments. The value of debt
securities will tend to rise and fall inversely with the rise and fall of
interest rates.
The MONEY MARKET PORTFOLIO seeks maximum current income to the extent
consistent with liquidity and the preservation of capital. The Money Market
Portfolio will invest in money market instruments and other debt securities
with maturities not exceeding one year. The return produced by these
securities will reflect fluctuations in short-term interest rates.
AN INVESTMENT IN THE MONEY MARKET PORTFOLIO IS NEITHER INSURED NOR
GUARANTEED BY THE U.S. GOVERNMENT AND THERE CAN BE NO ASSURANCE THAT THE
PORTFOLIO WILL BE ABLE TO MAINTAIN A STABLE NET ASSET VALUE OF $1.00 PER
SHARE.
The ASSET ALLOCATION PORTFOLIO seeks as high a level of long-term total
rate of return as is consistent with prudent investment risk. The Asset
Allocation Portfolio will invest in common stocks and other equity
securities, bonds and money market instruments. The Asset Allocation
Portfolio involves the risks inherent in stocks and debt securities of
varying maturities and the risk that the Portfolio may invest too much or too
little of its assets in each type of security at any particular time.
The MORTGAGE SECURITIES PORTFOLIO seeks a high level of current income
consistent with prudent investment risk. In pursuit of this objective the
Mortgage Securities Portfolio will follow a policy of investment primarily in
mortgage-related securities. Prices of mortgage-related securities will tend
to rise and fall inversely
3
<PAGE>
with the rise and fall of the general level of interest rates.
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
4
<PAGE>
premium paying period. Only if and when the policy value exceeds the net
single premium for the then current face amount will the death benefit vary.
The Protection Option provides a variable death benefit from the issue date
as well as variable actual cash values. Favorable investment returns will be
reflected both in 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. The
Protection Option is only available until the policy anniversary nearest the
younger insured's age 70. At the policy anniversary nearest the younger
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 until the second death. 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 22 and certain
transactions may have tax consequences as described under the heading "Federal
Tax Status" on page 34.
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 28.
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 premiums we deduct sub-standard risk charges and premiums for
additional benefits.
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 federal tax charge of 1.25 percent. Nonrepeating premiums are currently
subject to the premium tax charge and the federal tax charge.
Against the actual cash value of a Policy we deduct an administration charge
not to exceed $15 per month, a face amount guarantee charge not to exceed 3
cents per thousand dollars of face amount per month, a transaction charge for
each Policy adjustment or transfer, 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.
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?
Under current federal tax law, life insurance policies receive tax-favored
treatment. The death benefit is generally excludable from the beneficiary's
gross income for federal income tax purposes, according to Section 101(a)(1)
of the Internal Revenue Code. Owners of a life insurance
5
<PAGE>
policy are not taxed on any increase in the cash value while the policy
remains in force.
If a Policy is a modified endowment policy under federal tax law, certain
distributions made during either insured's lifetime, such as loans and partial
withdrawals from, and collateral assignments of, the Policy are includable in
gross income on an income-first basis. A 10 percent penalty tax may also be
imposed on distributions made before the policy owner attains age 59 1/2.
Policies that are not modified endowment policies under federal tax law
receive preferential tax treatment with respect to certain distributions.
For a discussion of the tax issues associated with this Policy, see "Federal
Tax Status" in this prospectus on page 34.
HOW DO YOU PURCHASE A POLICY?
To be eligible to purchase a Policy both insureds must be between age 20 and
age 85 inclusive, satisfy our underwriting standards and the Policy must have
a face amount of at least $200,000. 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 18.
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 28. As a conversion privilege you can obtain comparable
fixed insurance coverage 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
period $2.218 $1.794 $1.788 $1.718 $1.647 $1.234 $1.237 $0.987 $0.859
Number of units
outstanding at end of
period 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
period $1.946 $1.634 $1.720 $1.567 $1.477 $1.262 $1.184 $1.056 $0.994
Number of units
outstanding at end of
period 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
period $1.518 $1.447 $1.403 $1.373 $1.337 $1.274 $1.188 $1.100 $1.038
Number of units
outstanding at end of
period 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
period $2.231 $1.793 $1.828 $1.726 $1.617 $1.261 $1.223 $1.022 $0.927
Number of units
outstanding at end of
period 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
period $2.032 $1.731 $1.800 $1.656 $1.564 $1.352 $1.242 $1.100 $0.998
Number of units
outstanding at end of
period 3,616,256 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
period $2.421 $1.778 $1.766 $1.617 $1.514 $1.173 $1.226 $0.945 $0.819
Number of units
outstanding at end of
period 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
period $2.559 $2.095 $2.059 $1.874 $1.793 $1.272 $1.303 $0.948 $0.885
Number of units
outstanding at end of
period 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 $1.332 $0.929 $1.000*
Unit value at end of
period $1.502 $1.321 $1.332 $0.929
Number of units
outstanding at end of
period 20,883,317 15,062,750 6,244,750 1,615,754
Small Company Sub-
Account:
Unit value at beginning
of period $1.213 $1.149 $1.000**
Unit value at end of
period $1.594 $1.213 $1.149
Number of units
outstanding at end of
period 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
period $1.369 $1.035
Number of units
outstanding at end of
period 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, Florida,
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 variable policies, 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 payable at the second death, a central objective is to
provide benefits that will increase in value if favorable investment results
are achieved. Historically, for investments held over relatively long periods,
the investment performance of common stocks has generally been superior to
that of long-term or short-term debt securities, even though common stocks
have been subject to more dramatic changes in value over short periods of
time. Accordingly, the common stock sub-accounts, growth or value, may be the
more desirable option for policy owners who are willing to accept such short-
term risks. The selection of the aggressive growth sub-account and the small
company sub-account will tend to magnify such risks, as will the international
stock sub-account, while the selection of the index sub-account will tend to
match those risks with the performance of those common stocks included in the
underlying index.
On the other hand, the experience of the recent past has been sharply
divergent from the long-term historical record. Short-term interest rates
were, for a time, at a historically
10
<PAGE>
high level and for some period the prices of a diversified portfolio of equity
securities were declining during a period when the cost of living was rising.
The value of long-term bonds and mortgage securities have fallen and risen to
a much greater extent than in the past. Some policy owners, who desire the
greatest safety of principal, may prefer the money market sub-account,
recognizing that the level of short-term rates may change rather rapidly. Some
policy owners may wish to divide their funds among two or more 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 is 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 VAL-SD 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 VAL-SD
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 other variable
policies, 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 variable life policies. 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
11
<PAGE>
DETAILED INFORMATION ABOUT THE VARIABLE
ADJUSTABLE LIFE SECOND DEATH INSURANCE POLICY
policy owner assumes the risk that interest credited may not exceed the
guaranteed minimum rate.
Even if excess interest is credited to the actual cash value in the
guaranteed principal account, no excess interest will be credited to that
portion of the policy value which is in the loan account in the general
account. However, such loan account will be credited interest at a rate which
is not less than the policy loan interest rate minus 2 percent per annum.
ADJUSTABLE LIFE INSURANCE
VARIABLE ADJUSTABLE LIFE SECOND DEATH This Policy is similar both to a
Minnesota Mutual product known as "adjustable life" and to a Minnesota Mutual
product known as "joint survivor life". This Policy, like joint survivor life
insurance, pays a death benefit at the death of the second to die of two named
insureds. This Policy, like 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 ages, amount of life insurance protection and
premium. In addition, adjustable life is designed to adapt to your changing
needs and objectives by allowing you to change your Policy after issue. The
face amount and premium level, and thus the plan of insurance, may be adjusted
by you, subject to the limitations described herein, so long as the Policy
remains in force.
FLEXIBILITY AT ISSUE The Policy offered by this prospectus provides the same
type of flexibility found in conventional adjustable life. Subject to certain
minimums, maximums and our underwriting standards, you may choose any level of
premium or face amount that you wish. This flexibility results in a broad
range of plans of insurance. Generally speaking, a plan, when used with
respect to the Policy, refers to the level of cash value accumulation assumed
in the design of the Policy and, for whole life plans, the period of coverage
over which you will have to pay premiums.
Whole life insurance plans provide life insurance in an amount at least
equal to the initial face amount at the second death whenever that occurs.
Premiums may be payable for a specified number of years or until the second
death. Whole life insurance plans contemplate an eventual cash value
accumulation, at or before the younger 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, on any given date, to pay for all future guaranteed cost of
insurance charges for the entire lifetime of both insureds without the payment
of additional premium. This determination assumes that the current face amount
of the Policy will be constant and that the Policy will perform at its assumed
rate of return.
Protection insurance plans provide life insurance in an amount at least
equal to the initial face amount at the second death for a specified period.
Protection plans of insurance assume an eventual exhaustion of cash value at
the end of that period, except for the cash value associated with a residual
amount of insurance coverage at the end of the initial protection period.
Under this Policy, after that initial protection period, insurance coverage in
a reduced amount is available until the second death.
The "greater" your plan of insurance, the larger the policy values you may
expect to be available for investment in the Fund Portfolios, loans or partial
surrenders and, for whole life plans of insurance, the shorter the period of
time for which you will have to pay premiums. Under the Policy, the highest
premium amount permitted at the time of issue, or the maximum plan of
insurance, for a specific face amount is one which will provide a fully paid-
up Policy after the payment of ten annual premium payments. A Policy is paid-
up when its policy value is such that no further premiums are required to
provide the face amount of insurance coverage until the second death, provided
there is no policy indebtedness.
12
<PAGE>
Examples of such whole life plans include Policies which become paid-up upon
the payment of a designated number of annual premiums, such as ten pay life or
twenty pay life. 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.
If you select a premium amount which is less than the premium required for a
whole life plan or, in other words, if you select a protection plan of
insurance, the guaranteed face amount of insurance provided by the Policy will
not be level during the lifetimes of both insureds. In that instance, the
initial face amount will be in effect until the Policy's tabular cash value,
i.e., the cash value which is assumed in designing the Policy and which would
be guaranteed in a conventional fixed-benefit policy, is exhausted. At that
time a lower amount of insurance will become effective, such amount being
calculated on the basis of the continued payment of the scheduled premiums and
a whole life plan of insurance. The result is that the Policy, on issue, will
have an initial guaranteed death benefit extending to a stated date. In
addition, a lower death benefit is illustrated, which is guaranteed thereafter
until the second death.
For example, if a standard risk VAL-SD Policy were issued with a face amount
of $1,000,000 and an annual premium of $11,300, the plan of insurance for a
male age 40 and a female age 40 at issue, both nonsmokers, would be full
coverage for twenty years at which time the face amount would be reduced to
$95,615 guaranteed until the second death.
The table below shows the tabular cash values and guaranteed death benefits
for the Policy described in the above example, and the scheduled reduction
which occurs twenty years after issue.
SCHEDULED REDUCTION
<TABLE>
<CAPTION>
GUARANTEED
TABULAR MINIMUM
VALUE DEATH
POLICY ANNUAL END OF BENEFIT AT
YEAR PREMIUM YEAR ISSUE
- ------ ------- ------- ----------
<S> <C> <C> <C>
5 $11,300 $38,443 $1,000,000
10 11,300 80,437 1,000,000
15 11,300 91,878 1,000,000
20 11,300 590 1,000,000
21 11,300 6,289 95,615
25 11,300 26,742 95,615
</TABLE>
At the policy anniversary when the scheduled reduction is to occur, we will
attempt to make a policy adjustment to maintain the face amount of $1,000,000
and the annual premium of $11,300. If the actual cash value with the annual
premium is sufficient to provide at least one year of protection at the then
current face amount, we will adjust your Policy, keeping your face amount and
annual premium constant, either eliminating the scheduled reduction in the
face amount or providing that reduction at a later policy anniversary.
If we cannot make the adjustment to maintain the current face amount, the
scheduled reduction in face amount will occur as scheduled; the resulting face
amount will not be less than that guaranteed.
13
<PAGE>
The lowest annual base premium allowed for any plan of insurance is $600.
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
younger insured's age at original issue is over age 70, the minimum plan of
protection will be less than ten years, as described in the table below:
<TABLE>
<CAPTION>
YOUNGER INSURED'S MINIMUM PLAN
ISSUE AGE (IN YEARS)
- ----------------- ------------
<S> <C>
71 9
72 8
73 7
74 6
75 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 $200,000.
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
upon the change in the death benefit option at the policy anniversary nearest
the younger 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 21 of this
prospectus. At the point when the face amount is scheduled to decrease, an
adjustment may be made to maintain the current face amount and premium of the
Policy, as described on page 15. Certain adjustments may cause a Policy to
become a modified endowment contract. See "Federal Tax Status" in this
prospectus on page 34 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 at the maximum amount. See,
for a further description of these values, the sections "Policy Values" and
"Variations in Death Benefit" in this prospectus on pages 22 and 25. If the
policy value is higher than
14
<PAGE>
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 25. 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 and the type of
adjustment. 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 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.
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 ages 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. We
may impose additional restrictions or refuse to permit nonrepeating premiums
at our discretion.
RESTRICTIONS OF 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. If either insured is over age 85, 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 $300. 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 the younger insured's 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 $600.
Any adjustment for a change of the face amount must result in a change of
the face amount of at least $50,000, except for a partial surrender under the
Policy or face amount changes which are required to satisfy limitations
pertaining to plans of insurance. The face amount requested must be at least
$200,000, except in the case of a reduction in face amount equal to the amount
of a partial surrender.
After adjustment, other than an automatic adjustment at the point when the
face amount is scheduled to decrease, an automatic adjustment made upon the
change to the Cash Option death benefit at the younger 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
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<PAGE>
from the date of adjustment; or (b) ten years from the date of issue. If the
younger insured's age at original issue is over age 70, 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.
If you are disabled and receiving, or are entitled to receive, waiver of
premium benefits under a Waiver of Premium Agreement attached to this Policy,
no adjustments will be permitted, except as provided in the Waiver of Premium
Agreement.
PROOF OF INSURABILITY All adjustments resulting in an increase in face amount
require proof of insurability on both insureds. 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. 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 $95 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 $95 or 2 percent of the amount surrendered. In addition, because of the
underwriting and selling expenses anticipated for any change resulting in an
increase in premium, we will assess a new first year sales load on any
increase in premium on adjustment. We will also assess an underwriting charge
on any increase in face amount requiring evidence of insurability. See, for a
further description of these charges, the section "Policy Charges" in this
prospectus on page 28. 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.
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<PAGE>
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,
- --------------------------------------------------------------------------------
<TABLE>
<S> <C> <C>
If you . . .
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 a later policy anniversary; a
face amount.......... while the premium increases 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 an
Retain the current earlier policy anniversary;
face amount.......... while the premium a scheduled decrease in
or decreases.................. the face amount will occur;
Make a partial or the premium paying
surrender............ while the premium and face 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 an
earlier policy anniversary and
no insurance will be provided
after the decrease; or, a
scheduled decrease in the face
amount will occur. However, you
must continue to pay the charge
for a sub-standard risk, or
your Policy will lapse.
</TABLE>
You may request a description of the effect of other types or combinations
of adjustments from us.
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<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
$200,000 and we require an annual base premium on each Policy of at least
$600. 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 younger insured's
age at original issue is over age 70, the minimum plan of protection will be
less than ten years from the Policy issue date, as described on page 14. Both
insureds must be between age 20 and age 85 inclusive when the Policy is
issued. Before issuing any Policy, we require evidence of insurability
satisfactory to us on both insureds. In some cases we will require a medical
examination. Persons whom we evaluate as good mortality risks 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 Policy has a level premium until the second death 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 15, 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. 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. We may
impose additional restrictions or refuse to permit nonrepeating premiums at
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
34.
The amount of premium required for a Policy will depend on the Policy's
initial face amount; the plan of insurance; the insureds' ages at issue; sex,
risk classification and smoking status of each insured and the additional
benefits associated with the Policy.
The first premium is due as of the policy date and must be paid on or before
the date
18
<PAGE>
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, insurance may be in effect
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 until the second death 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.
Charges for additional benefits and for sub-standard risks are deducted from
premiums to calculate base premiums. From base premiums we deduct charges
assessed against premiums and nonrepeating premiums to calculate net premiums.
Net premiums, namely premiums after the deduction of the charges assessed
against premiums and nonrepeating premiums, are allocated to the guaranteed
principal account or sub-accounts of the Variable Life Account which, in turn,
invest in Fund shares.
You make your selection on your application for the Policy. You may change
your allocation instructions for future premiums by giving us a written
request. The allocation to the guaranteed principal account or to any sub-
account of the Variable Life Account must be at least 10 percent of the net
premium. We reserve the right to delay the allocation of net premiums to named
sub-accounts for a period of 30 days after Policy issue or an adjustment. If
we exercise this right, net premiums will be allocated to the Money Market
sub-account until the end of that period. This right, which has not been
implemented to date, will be exercised by us only when we believe economic
conditions make such an allocation necessary to reduce market risk during the
free look period.
We reserve the right to restrict the allocation of premiums to the
guaranteed principal account. If we do so, no more than 50 percent of the net
premium may be allocated to the guaranteed principal account. Currently, we do
not exercise such a restriction, and this restriction is not applicable when
you are allocating all of your premiums to the guaranteed principal account as
a conversion privilege.
The Policy allows for transfers of the actual cash value between the
guaranteed principal account and the Variable Life Account or among the sub-
accounts of the Variable Life Account. You may request a transfer at any time
or you may arrange in advance for systematic transfers: transfers of specified
dollar or unit value amounts to be made periodically among the sub-accounts
and the guaranteed principal account. The amount to be transferred to or from
a sub-account or the guaranteed principal account must be at least $250. If
the balance is less than $250, the entire actual cash value attributable to
that sub-account or the guaranteed principal account must be transferred. If a
transfer would reduce the actual cash value in the sub-account from which the
transfer is to be made to less than $250, we reserve the right to include that
remaining sub-account actual cash value in the amount transferred. We will
make the transfer on the basis of sub-account unit values as of the end of the
valuation period during which your written or telephone request is received at
our home office. A transfer is subject to a transaction charge, not to exceed
$25, for each transfer of actual cash value among the sub-accounts and the
guaranteed principal account. Currently, there is a charge of $10 only for
non-systematic transfers in excess of four per year. Establishing a systematic
transfer program will be deemed to be a non-systematic transfer for purposes
of determining the transfer charge. None of these requirements will apply when
you are transferring all of the policy value to the guaranteed principal
account as a conversion privilege.
Your instructions for transfer may be made in writing by 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
19
<PAGE>
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 insurance provided by
this Policy will continue during this 31-day period. If the second death occurs
during the 31-day grace period, we will deduct a premium for the 31-day grace
period from the death proceeds.
If a Policy covers an insured in a sub-standard risk class, the portion of
the scheduled premium equal to the charge for such risk will continue to be
payable notwithstanding the adjustment to a stop premium mode. As with any
scheduled premium, failure to pay the premium for the sub-standard risk within
the grace period provided will cause the Policy to lapse.
If scheduled premiums are paid on or before the dates they are due or within
the grace period, absent any policy loans, the Policy will remain in force even
if the investment results of the sub-accounts have been so unfavorable that the
actual cash value has decreased to zero. However, should the actual cash value
decrease to zero while there is an outstanding policy loan the Policy will
lapse, even if the Policy was paid-up and all scheduled premiums had been paid.
If the Policy lapses because not all scheduled premiums have been paid or if
a Policy with a policy loan has no actual cash value, we will send you a notice
of default that will indicate the payment required to keep the Policy in force
on a premium paying basis. If the payment is not received within 31 days after
the date of mailing the notice of default, the Policy will terminate or the
nonforfeiture benefits will apply. For more information on lapse, see "Avoiding
Lapse" on page 21.
20
<PAGE>
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, payable at the second death.
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 25.
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. We will require:
(1) your written request to reinstate the Policy;
(2) that you submit to us at our home office during the lifetime of both
insureds evidence satisfactory to us of the insurability of both insureds
so that we may have time to act on the evidence during the lifetime of
both insureds; and
(3) at our option a premium payment which is equal to all overdue premiums
with interest at a rate not to exceed 6 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.
If your Policy is reinstated, it will be contestable for two years from the
date of reinstatement as to representations contained in your request to
reinstate.
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 15.
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 25 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 base premiums will be paid. The new plan
may be a term or protection plan, but unlike other term plans there will be no
reduced face amount of coverage at the time the tabular cash value is
scheduled to expire because no further premiums will be payable. If at that
time the Policy has a surrender value, it will be used either to purchase
extended term coverage or it will be paid to you in a single sum thereby
terminating the Policy.
The insurance coverage resulting from an adjustment to a stop premium mode
is similar to the coverage available under the
21
<PAGE>
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. For example, if a
Policy covers an insured in a sub-standard risk class, the portion of the
scheduled premium equal to the charge for such risk will continue to be
payable.
There are also other differences which should be considered. In general, if
you contemplate resuming premium payments at a future date, the stop premium
mode may be more desirable in that you may resume premium payments at any time
without evidence of insurability, while the reinstatement option available
during the extended term period requires proof of insurability and must be
exercised within three years following the date of lapse.
If you do not contemplate resuming premium payments, your choice between
permitting your Policy to lapse and adjusting it to a stop premium mode should
depend on, first, whether the surrender value of your Policy at that time
exceeds its tabular cash value and, second, whether you expect your Policy's
policy value to exceed its tabular cash value in the future. If at the time of
possible lapse your Policy's surrender value is less than its tabular cash
value, you should consider adjusting to a stop premium mode because the period
of insurance coverage will be based on the higher tabular cash value while the
period of extended term coverage upon lapse would be computed on the basis of
the lower surrender value. If the two values are the same, the period of
guaranteed coverage under the extended term option will be longer than under
the stop premium mode. Thus, you should be sure that the benefit of using the
higher tabular cash value is not offset by the shorter period of guaranteed
insurance coverage usually resulting from the stop premium mode.
On the other hand, if the surrender value of your Policy exceeds its tabular
cash value, you should evaluate the benefit of a guaranteed longer period of
insurance coverage under the extended term option against the possibility of
longer coverage under the stop premium mode. With the stop premium mode there
may be an available policy value at the end of the plan which could be used to
continue the face amount of the Policy to a later time than provided under the
extended term option. In considering this possibility, you should keep in mind
that a Policy with the Cash Option death benefit is more likely to have a
higher policy value than a comparable Policy with the Protection Option death
benefit.
POLICY VALUES
The Policy has an actual cash value which varies with the investment
experience of the guaranteed principal account and the sub-accounts of the
Variable Life Account. Depending upon the death benefit selected, the death
benefit may also vary although it will never be less than the then current
face amount. Net premiums, namely premiums after the deduction of all charges,
will be allocated to the guaranteed principal account or sub-accounts of the
Variable Life Account selected by you on your application for the Policy.
The value of the Policy's interest in the guaranteed principal account and
the sub-accounts of the Variable Life Account is known as its actual cash
value. It is determined separately for your guaranteed principal account
actual cash value and for your separate account actual cash value. The
separate account actual cash value will include all sub-accounts of the
Variable Life Account. Unlike a traditional fixed benefit life insurance
policy, a Policy's actual cash value cannot be determined in advance, even if
scheduled premiums are made when required, because the separate account actual
cash value varies daily with the investment performance of the sub-accounts of
the Variable Life Account in which the Policy participates. Even if the policy
owner continues to pay scheduled premiums when due, the separate account
actual cash value of a Policy could decline to zero because of
22
<PAGE>
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 cash value, 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.
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 the Money
23
<PAGE>
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
second 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 not to exceed $15 per month, the face amount guarantee charge not to
exceed 3 cents per thousand of face amount per month, and the cost of
insurance charge. 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 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 85 of this
prospectus. For additional materials and tables, including values after policy
charges, please see Appendix II, "Summary of Policy Charges," found on page 91
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 second 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, 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 younger insured's age 70. At the policy anniversary nearest the younger
insured's age 70, the Protection Option death benefit is automatically
converted to the Cash Option death benefit. At that time, we will
automatically adjust your Policy and adjust the face amount to equal the death
benefit immediately preceding the adjustment.
You should select the death benefit option that best meets your needs and
objectives. The Protection Option results primarily in an increased death
benefit. If you are satisfied with the amount of your insurance coverage and
wish to have any favorable investment results reflected to the maximum extent
in increasing actual cash values, you should choose the Cash Option. In
addition, there are other distinctions between the two options which may
influence your selection. In the event of a superior investment performance,
the Cash Option will result in a Policy becoming paid-up more rapidly than the
Protection Option. This is because of larger cost of insurance charges under
the Protection Option resulting from the additional amount of death benefit
provided under that option. But under the Cash Option favorable investment
experience does not increase the death benefit unless the policy value exceeds
the net single premium for the then current face amount, and the beneficiary
will not benefit from any larger actual cash value which exists at the time of
the second death because of the favorable investment experience.
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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 insurability of
both insureds 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 34.
The amount payable as death proceeds upon the second death will be the death
benefit provided by the Policy, plus any additional insurance 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 second 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 second
death occurred 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.
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
second death by using the policy value as a net single premium based upon the
policy assumptions as defined in your Policy. The policy value of a Policy
will never exceed the net single premium for a death benefit payable at the
second death.
A Policy is paid-up when no additional premiums are required to provide the
face amount of insurance. 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. However, its actual cash value will continue to vary
daily to reflect the investment experience of the Variable Life Account and
any interest credited as a result of a policy loan. Once a Policy becomes
paid-up, it will always retain its paid-up status regardless of any subsequent
decrease in its policy value. However, on a paid-up Policy with indebtedness,
where the actual cash value decreases to zero, a loan repayment may be
required to keep the Policy in force. See the discussion in this prospectus
under the heading "Policy Loans," below.
We will make a determination on each policy anniversary as to whether a
Policy is paid-up. When a Policy becomes paid-up, we will send you a new page
1.
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 96 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
34.
The policy value is the actual cash value of your Policy plus any policy
loan. Any policy loan paid to you in cash must be in an amount of at least
$100. Policy loans in smaller amounts are allowed under the automatic premium
loan provision. We will deduct interest on the loan in arrears. At your
request, we will send you a loan request form for your signature. You may also
obtain a policy loan by calling Minnesota Mutual between the hours of 8:00
a.m. and 4:30 p.m., Central Time, our regular business hours. Should you make
a telephone call to us you will be asked, for security purposes, for your
personal identification and policy
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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 second death, 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 second
death, on a policy adjustment, surrender, lapse, a policy loan transaction and
on each policy anniversary. Interest credits are allocated to the guaranteed
principal account and separate account following your instructions to us. We
will use your instructions for the allocation of net premiums. In the absence
of such instructions, this amount will be allocated to the guaranteed
principal account actual cash value and separate account actual cash value in
the same proportion that those values bear to each other and, as to the actual
cash value in the separate account, to each sub-account in the proportion that
the actual cash value in such sub-account bears to your actual cash value in
all of the sub-accounts.
Currently, the loan account credits interest, as described above, at a rate
which is not less than your policy loan interest rate minus 2 percent per
annum. However, depending on the insured's age and the period of time that the
Policy has been in force, we may credit the Policy with interest at a more
favorable rate. Under our current procedures, if all the conditions are met
then your loan will be credited at a rate which is equal to the policy loan
rate minus .75 percent per annum. The conditions which must be met are: (a)
the age of either insured must be age 55 or older as of the last policy
anniversary; and (b) the number of years during which the Policy has been in
force as a VAL-SD 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
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<PAGE>
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 second death. Your loan may also be
repaid within 60 days after the date of the second 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 97.
SURRENDER
You may request a surrender or partial surrender of your Policy at any time
while either 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 term insurance.
A partial surrender of the actual cash value of the Policy is also permitted
in any amount of $500 or more. In addition, the amount of a partial surrender
may not exceed the amount available as a policy loan. With the Cash Option
death benefit, if the Policy is not paid-up, the face amount of the Policy
will be reduced by the amount of the partial surrender.
If the Policy is paid-up, the death benefit is 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 the Protection Option death
benefit, the face amount of the Policy is not changed by the amount of the
partial surrender. However, if the Policy is not paid-up, the death benefit of
the Policy is reduced by the amount of the partial surrender; if the Policy is
paid-up, the death benefit of the Policy is reduced so as to retain the ratio
between the policy value and the death benefit of the Policy as existed prior
to the partial surrender.
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 surrender 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
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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
As a conversion privilege, you can obtain fixed insurance coverage by
transferring all of the policy value to the guaranteed principal account and
thereafter allocating all premiums to that account.
POLICY EXCHANGE
So long as both insureds are alive, you may ask us to exchange this Policy
for two individual policies, insuring each of the insureds separately. We will
require evidence of insurability to make the exchange. The two new policies
will be issued on the variable or fixed policy form we are using on the date
of the exchange; each new policy will have one-half the death benefit, cash
value, loan and dividends of this Policy.
POLICY CHARGES
PREMIUM CHARGES Premium charges vary depending on whether the premium is a
scheduled premium or a nonrepeating premium. Generally, the word "premium"
when used in this prospectus means a scheduled premium only. Charges for sub-
standard risks and 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 federal tax charge.
(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 either 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
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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 over the lesser of: the joint life expectancy
of the insureds 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 31.
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 $10 per
$1,000 of face amount of insurance. This amount may vary by the age of the
insureds and the premium level for a given amount of insurance. This
charge is made ratably from premiums scheduled to be made during the first
policy year and during the twelve months following certain policy
adjustments. The underwriting charge is designed to compensate us for the
administrative costs associated with issuance or adjustment of the
Policies, including the cost of processing applications, conducting
medical exams, classifying risks, determining insurability and risk class
and establishing policy records. This charge is not guaranteed, so that on
a policy adjustment the then current underwriting charge will apply to any
increase in face amount which requires new evidence of insurability. In
the event of a policy adjustment which results in a face amount increase
and no base 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 FEDERAL TAX CHARGE of 1.25 percent is deducted from each base premium.
This charge is designed to cover a federal tax related to premium
payments. This charge is not guaranteed and may be increased in the
future, but only as necessary to cover the federal tax related to premium
payments.
CARGES TAKEN FROMH
BASE PREMIUM
PLUS, IN THE
- --------------- ---------------FIRST YEAR
7.00% Sales Additional
Load Sales Load (up
1.25% Federal to 23%)
Tax Underwriting
2.50% Premium Charge (up to
Tax $10/$1000 of
- --------------- Insurance
10.75% Total Coverage)
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NONREPEATING PREMIUMS Nonrepeating premiums are currently subject to the 2.5
percent premium tax charge and the 1.25 percent federal tax charge, but not to
a sales load charge. No underwriting charge is assessed against nonrepeating
premiums.
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, the face amount guarantee charge, certain transaction
charges and the cost of insurance charge. 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 guaranteed not to
exceed $15 per month. Currently we charge $10 per month. This charge is
not expected to be a source of profit to us.
(2) The FACE AMOUNT GUARANTEE CHARGE is guaranteed not to exceed 3 cents per
thousand dollars of face amount per month. Currently we charge 2 cents per
thousand dollars. 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 the second 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 14 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 the second 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.
(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 is based on the age,
gender, risk class, and the smoking habits of each insured. The rate also
reflects the plan of insurance and any policy adjustments since issue. 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.
(4) The TRANSACTION CHARGES are for expenses associated with processing
transactions. There is a charge of $95 for each policy adjustment. We also
reserve the right to make a charge, not to exceed $25, for each transfer
of actual cash value among the guaranteed principal account and the sub-
accounts of the Variable Life Account. Currently we charge $10 only for
non-systematic transfers in excess of four per year. Establishing a
systematic transfer program will be deemed to be a non-systematic transfer
for purposes of determining the transfer charge. If the only policy
adjustment is a partial surrender, the transaction charge shall be the
lesser of $95 or 2 percent of the amount surrendered.
Administration, face amount guarantee and cost of insurance charges are
assessed against your actual cash value on the monthly policy anniversary. In
addition, such charges are assessed on the occurrence of the second death,
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
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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
.Face Amount Guarantee Charge
.Cost of Insurance Charge
.Transaction Charge
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 over
the lesser of: the joint life expectancy of the insureds 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
98.
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 policy owners
of existing Minnesota Mutual joint life policies wish to exchange their
policies for the Policies described herein. These policy owners may do so,
subject to their application for this Policy and our approval of the exchange.
An administrative charge of $250 is currently required for the exchange.
In those situations where a Policy is issued in exchange for a current
policy issued by us, we will not assess any charges, except for the
administrative charge, to the existing cash values at the time they are
transferred to the Policy. Subsequent premium payments, absent adjustment and
unless the exchanged policy was not in force for at least one year, will not
be subject to a first year sales load or underwriting charge at the
established face amount and the level of premiums of the exchanged policy. All
other charges will apply to the Policy and premiums paid under it thereafter.
OTHER POLICY PROVISIONS
ADDITIONAL BENEFITS When a Policy is issued, you may be able to obtain
additional policy benefits. These benefits will be provided by a rider to the
Policy, which will require the payment of additional premium. The Waiver of
Premium Agreement provides for the payment of policy premium in the event of a
covered insured's disability. You may add the Waiver of Premium coverage on
either or both insureds.
The Single Life Term Insurance Agreement, which has an extra cost, allows
you to purchase a specified amount of additional insurance, on one, specific,
named insured. The insurance provided is term insurance, renewable to age 90
and convertible. The premiums are indeterminate, which means that there is a
table of renewal premiums that we currently charge, along with a table of
guaranteed renewal premiums which are the maximums which we can charge. This
agreement is most useful in situations where there is also a need at the death
of the first insured.
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<PAGE>
The Estate Preservation Agreement permits you to purchase additional four-
year term insurance on the death of the designated insured, without evidence
of insurability. This right extends for a period of 90 days after the death of
that person. Typically, the person you designate will be the younger of the
two persons insured under this Policy. In the event that both insureds under
this Policy die simultaneously, we will pay nothing under this Agreement. The
Estate Preservation Agreement is useful if there is a need to have the Policy
owned initially by one or both of the insureds and subsequently to change the
ownership to a trust.
The Short Term Agreement is temporary protection insurance, on a fixed death
benefit basis only, issued for a period of time less than a year. It is issued
to provide temporary life insurance coverage until the later issue date of the
Policy. It may be used in situations where specific policy dating is required,
yet insurance coverage is needed immediately. The Short Term Agreement
terminates on the policy issue date of the Policy.
BENEFICIARY When we receive proof satisfactory to us of the second 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. You must
give us proof of the first death as soon as is reasonably possible, even
though no death benefit is payable at the first death.
If a beneficiary dies before the second death, that beneficiary's interest
in the Policy ends with that beneficiary's death. Only those beneficiaries who
are living at the second death will be eligible to share in the death
proceeds. If no beneficiary is living at the second death 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.
If both insureds die under circumstances which make it impossible to
determine the order of their deaths, we will assume that the older insured
died first.
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 second death occurs 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 second 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
second death until the date of payment. Interest will be at an annual rate
determined by us, but never less than 3 percent.
The proceeds of a Policy may be paid in other than a single sum and you may,
before the second death, 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.
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<PAGE>
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.
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 gender
and sex of the annuitant. The amount of guaranteed payments for each $1,000 of
proceeds applied is as shown in the Policy. Monthly payments for ages not
shown and current rates are available from us at your request. It would be
possible under this option for the annuitant to receive only one annuity
payment if he died prior to the due date of the second annuity payment, two if
he died before the due date of the third annuity payment, etc.
OPTION 4--PAYMENTS OF A SPECIFIED AMOUNT
This is an annuity payable in a specified amount until the proceeds and
interest are fully paid.
If you request a settlement option, you will be asked to sign an agreement
covering the election which will state the terms and conditions of the
payments. Unless you elect otherwise, a beneficiary may select a settlement
option after the second death.
The minimum amount of interest we will pay under any settlement option is 3
percent per annum. Additional interest earnings, if any, on deposits under a
settlement option will be payable as determined by us.
MISSTATEMENT OF AGE If the date of birth of either insured 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 date of birth.
INCONTESTABILITY After a Policy has been in force during the lifetimes of both
insureds 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 or a reinstatement for which we required evidence
of insurability, that increase or the reinstatement will be contestable for
two years with respect to information provided at that time, during the
lifetimes of both insureds, from the effective date of the increase or the
reinstatement.
SUICIDE If either 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 either 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 face amount and the variable death benefit as of the date of
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<PAGE>
OTHER MATTERS
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 the second
death, 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 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 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.
FEDERAL TAX STATUS
INTRODUCTION
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.
In order to qualify as a life insurance contract for federal tax purposes,
the Policy must meet the definition of a life insurance contract which is set
forth in Section 7702 of the Internal Revenue Code of 1986, as amended (the
"Code"). The manner in which Section 7702 should be applied to certain
features of the Policy offered in this prospectus is not directly addressed by
Section 7702 or any guidance issued to date under Section 7702. Nevertheless,
Minnesota Mutual believes it is reasonable to conclude that the Policy will
meet the Section 7702 definition of a life insurance contract. In the absence
of final regulations or other pertinent interpretations of Section 7702,
however, there is necessarily some uncertainty as to whether a Policy will
meet the statutory life insurance contract definition, particularly if it
insures a substandard risk. If a Policy were determined not to be a life
insurance contract for purposes of Section 7702, such Policy would not provide
most of the tax advantages normally provided by a life insurance contract.
If it is subsequently determined that a Policy does not satisfy Section
7702, Minnesota Mutual may take whatever steps are appropriate and reasonable
to attempt to cause such a Policy to comply with Section 7702. For these
reasons, Minnesota Mutual reserves the right to restrict Policy transactions
as necessary to attempt to qualify it as a life insurance contract under
Section 7702.
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
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<PAGE>
insurance contract for federal tax purposes. The Variable Life Account,
through the Fund, intends to comply with the diversification requirements
prescribed in Regulations Section 1.817-5, which affect how the Fund's assets
may be invested. Although the investment adviser is an affiliate of Minnesota
Mutual, Minnesota Mutual does not have control over the Fund or its
investments. Nonetheless, Minnesota Mutual believes that each Portfolio of the
Fund in which the Variable Life Account owns shares will be operated in
compliance with the requirements prescribed by the Treasury.
In certain circumstances, owners of variable life policies may be considered
the owners, for federal income tax purposes, of the assets of the separate
account used to support their policies. In those circumstances, income and
gains from the separate account assets would be includible in the variable
life policy owner's gross income. The IRS has stated in published rulings that
a variable policy owner will be considered the owner of separate account
assets if the policy owner possesses incidents of ownership in those assets,
such as the ability to exercise the investment control over the assets. The
Treasury Department has also announced, in connection with the issuance of
regulations concerning investment diversification, that those regulations "do
not provide guidance concerning the circumstances in which 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.
TAX TREATMENT OF POLICY BENEFITS
In general the policy owner is not currently taxed on any part of his
interest until the policy owner actually receives cash from the Policy. As
discussed below, taxability is determined by the individual's contributions to
the Policy and prior Policy activity. The death benefit under a Policy should,
however, be excludable from the gross income of the beneficiary under Section
101(a)(1) of the Code.
Depending on the circumstances, the exchange of a Policy, the receipt of a
Policy in an exchange, a change in the Policy's Death Benefit Option (e.g., a
change from Cash Option to Protection Option), a policy loan, a partial
surrender, a surrender, a change in ownership, a change of insured, an
adjustment of face amount, or an assignment of the Policy may have federal
income tax consequences. A person considering any such transaction should
consult a tax adviser before effecting the transaction.
We also believe that policy loans will be treated as indebtedness and will
not be currently taxable as income to the policy owner. However, if there is
any borrowing against the Policy, whether a modified endowment contract or
not, the interest paid on loans may not be tax deductible.
A surrender or partial surrender of the actual cash values of a Policy may
have tax consequences. On surrender, a policy owner generally 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
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<PAGE>
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. Finally, upon a complete surrender or lapse of
a Policy or when benefits are paid at a Policy's maturity date, if the amount
received plus the amount of indebtedness exceeds the total investment in the
Policy, the excess will generally be treated as ordinary income subject to
tax.
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 ("7-pay test"). If the cumulative premiums during the first seven
contract years exceed the 7-pay test, the policy is a modified endowment
contract.
Modified endowment contracts would still be treated as life insurance with
respect to the tax treatment of death proceeds and to the extent that the
inside build-up of cash value would not be taxed on a yearly basis. However,
any amounts received by the policy owner, such as dividends, cash withdrawals,
loans and amounts received from partial or total surrender of the contract
would be subject to the same tax treatment as the same amounts received under
an annuity. This annuity tax treatment includes the 10 percent additional
income tax which would be imposed on the portion of any distribution that is
included in income except where the distribution or loan is made on or after
the policy owner attains age 59 1/2, or is attributable to the policy owner
becoming disabled, or as part of a series of substantially equal periodic
payments for the life of the policy owner or the joint lives of the policy
owner and beneficiary.
Compliance with the 7-pay test does not imply or guarantee that only seven
payments will be required for the initial death benefit to be guaranteed for
life. Making additional payments or reducing the benefits (for example,
through a partial withdrawal, a change in death benefit option, or a scheduled
reduction) may either violate the 7-pay test or reduce the amount that may be
paid in the future under the 7-pay test. Further, reducing the death benefit
at any time will require retroactive retesting and will probably result in a
failure of the 7-pay test regardless of any efforts by Minnesota Mutual to
provide a payment schedule that will not violate the 7-pay test.
Any Policy received in an exchange for a modified endowment contract will be
considered a modified endowment contract and will be subject to the tax
treatment accorded to modified endowment contracts. A Policy that is not
originally classified as a modified endowment contract can become so
classified if there is a reduction in benefits at any time or if a material
change is made in the contract at any time. A material change includes, but is
not limited to, a change in the benefits that was not reflected in a prior 7-
pay test computation.
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. 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.
If a Policy becomes a modified endowment contract, distributions that occur
during the Policy year it becomes a modified endowment contract and any
subsequent Policy year will be taxed as distributions from a modified
endowment contract. In addition, distributions from a Policy within two years
before it becomes a modified endowment contract will be taxed in this manner.
This
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<PAGE>
means that a distribution made from a Policy that is not a modified endowment
contract could later become taxable as a distribution from a modified
endowment contract.
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.
MULTIPLE POLICIES
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.
TAXATION OF POLICY SPLIT. A Policy may be split into two other individual
contracts upon the occurrence of certain events. A policy split could have
adverse tax consequences; for example, it is not clear whether a policy split
will be treated as a nontaxable exchange under Section 1031 through 1043 of
the Code. If a policy split is not treated as a nontaxable exchange, a split
could result in the recognition of taxable income in an amount up to any gain
in the Policy at the time of the split. Before you exercise rights provided by
the policy split provision, it is important that you consult with a competent
tax adviser regarding the possible consequences of a policy split.
OTHER TAX CONSIDERATIONS. The transfer of the Policy or the designation of a
beneficiary may have federal, state, and/or local transfer and inheritance tax
consequences, including the imposition of gift, estate and generation-skipping
transfer taxes. For example, the transfer of the Policy to, or the designation
as beneficiary of, or the payment of proceeds to, a person who is assigned to
a generation which is two or more generations below the generation assignment
of the policy owner, may have Generation-Skipping Transfer tax considerations
under Section 2601 of the Code.
The individual situation of each policy owner or beneficiary will determine
the extent, if any, to which federal, state and local transfer taxes may be
imposed. Consult with your tax adviser for specific information in connection
with these taxes.
The particular situation of each policy owner or beneficiary will determine
how ownership or receipt of policy proceeds will be treated for purposes of
federal estate tax as well as state and local estate, inheritance, generation
skipping and other taxes.
In addition, the tax consequences associated with a Policy remaining in
force after the younger insured's 100th birthday are unclear. A tax adviser
should be consulted in such circumstances.
OTHER TRANSACTIONS. Changing the policy owner may have tax consequences.
Exchanging this Policy for another involving the same insureds should have no
federal income tax consequences if there is no debt and no cash or other
property is received, according to Section 1035(a)(1) of the Code. The new
policy would have to satisfy the 7-pay test from the date of the exchange to
avoid characterization as a modified endowment contract. An exchange of a life
insurance contract for a new life insurance contract may, however, result in a
loss of grandfathering status for statutory changes made after the old policy
was issued. A tax adviser should be consulted before effecting an exchange.
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
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<PAGE>
others. The tax consequences of such plans may vary depending on the
particular facts and circumstances of each individual arrangement. Therefore,
if you are contemplating the use of such Policies in any arrangement the value
of which depends in part on its tax consequences, you should be sure to
consult a qualified tax adviser regarding the tax attributes of the particular
arrangement.
It should be understood that the foregoing description of the federal income
tax consequences under the Policies is not exhaustive and that special rules
are provided with respect to situations not discussed. Statutory changes in
the Internal Revenue Code, with varying effective dates, and regulations
adopted thereunder may also alter the tax consequences of specific factual
situations. Due to the complexity of the applicable laws, tax advice may be
needed by a person contemplating the purchase of a variable life insurance
policy or exercising elections under such a policy. For further information, a
qualified tax adviser should be consulted.
At the present time, we make no charge to the Variable Life Account for any
federal, state or local taxes (other than state premium taxes) that we incur
that may be attributable to such Account or to the Policies. We, however,
reserve the right in the future to make a charge for any such tax or other
economic burden resulting from the application of the tax laws that we
determine to be properly attributable to the Variable Life Account or the
Policies.
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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. Former President and prior thereto, to March 1996, for
more than five years, 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 Investment Trust since May 1996,
prior thereto for more than five years, Chairman,
Clearwater Management Company, St. Paul, Minnesota
(Financial Management)
</TABLE>
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<PAGE>
Principal Officers (other than Trustees)
<TABLE>
<CAPTION>
NAME POSITION
---- --------
<S> <C>
John F. Bruder Senior Vice President
Keith M. Campbell Vice President
Paul H. Gooding Vice President and
Treasurer
Robert E. Hunstad Executive Vice
President
James E. Johnson Senior Vice President
and Actuary
Richard D. Lee Vice President
</TABLE>
<TABLE>
<CAPTION>
NAME POSITION
---- --------
<S> <C>
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 the last five years. 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 Asset Management
Company, which in turn is a wholly-owned subsidiary of Minnesota Mutual.
MIMLIC Asset Management Company is a registered investment adviser and the
investment adviser to the Fund.
MIMLIC Sales Corporation, whose address is 400 Robert Street North, St.
Paul, Minnesota 55101-2098, is a registered broker-dealer under the Securities
Exchange
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<PAGE>
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 each 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 40 percent of gross premium in the first policy year; 3 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 VAL-SD 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. The
premiums received in excess of that amount will pay commissions at a rate of 2
percent.
In addition, MIMLIC Sales Corporation or Minnesota Mutual will pay, based
uniformly on the sales of VAL-SD 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 VAL-SD 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 December 31, 1995 financial statements of Minnesota Mutual and Minnesota
Mutual 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 sub-standard risks.
CODE: the Internal Revenue Code of 1986, as amended.
FIRST DEATH: the death of the first insured to die. You must give us proof
of the first death as soon as is reasonably possible.
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 variable policies, 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 any given date, to pay
for all future guaranteed cost of insurance charges for the entire lifetime of
both insureds, or for the coverage period in the case of extended term
insurance, without the payment of additional premium. We will determine the
net single premium using the policy assumptions and the assumption that the
current face amount of the Policy will remain constant.
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.
SECOND DEATH: the death of the second insured to die. We will pay the death
proceeds when we receive due proof of the second death.
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 INTERNATIONAL SMALL
ASSETS GROWTH BOND MARKET ALLOCATION SECURITIES INDEX 500 APPRECIATION STOCK COMPANY
------ ------------ ---------- --------- ---------- ---------- ---------- ------------ ------------- ----------
<S> <C> <C> <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)..... -- -- -- -- -- -- -- 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)...... -- -- -- -- -- -- -- -- --
------------ ---------- --------- ---------- --------- ---------- ---------- ---------- ----------
28,442,859 10,391,658 5,328,183 61,647,151 7,350,455 28,851,507 42,452,809 31,357,054 20,878,742
Receivable from
Minnesota Mutual
for contract pur-
chase payments.... 80,843 73,395 203,869 122,530 20,010 417,282 143,323 198,222 124,048
Receivable from
MIMLIC Series
Fund, Inc. for in-
vestments sold.... 43,324 7,323 3,861 74,398 6,827 299,208 51,801 26,332 21,086
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 31,581,608 21,023,876
------------ ---------- --------- ---------- --------- ---------- ---------- ---------- ----------
LIABILITIES
-----------
Payable to MIMLIC
Series Fund, Inc.
for investments
purchased......... 80,843 73,395 203,869 122,530 20,010 417,282 143,323 198,222 124,048
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 26,332 21,086
------------ ---------- --------- ---------- --------- ---------- ---------- ---------- ----------
Total liabili-
ties............ 124,167 80,718 207,730 196,928 26,837 716,490 195,124 224,554 145,134
------------ ---------- --------- ---------- --------- ---------- ---------- ---------- ----------
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 31,357,054 20,878,742
============ ========== ========= ========== ========= ========== ========== ========== ==========
UNITS OUTSTANDING. 12,822,494 5,340,539 3,509,791 27,633,273 3,616,256 11,917,281 16,587,673 20,883,317 13,089,758
============ ========== ========= ========== ========= ========== ========== ========== ==========
NET ASSET VALUE
PER UNIT.......... $ 2.218 1.946 1.518 2.231 2.032 2.421 2.559 1.502 1.594
============ ========== ========= ========== ========= ========== ========== ========== ==========
<CAPTION>
---------
VALUE
ASSETS STOCK
------ ---------
<S> <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)..... --
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)...... 5,291,031
---------
5,291,031
Receivable from
Minnesota Mutual
for contract pur-
chase payments.... 53,222
Receivable from
MIMLIC Series
Fund, Inc. for in-
vestments sold.... 6,415
Dividends receiv-
able from MIMLIC
Series Fund, Inc.. --
---------
Total assets.... 5,350,668
---------
LIABILITIES
-----------
Payable to MIMLIC
Series Fund, Inc.
for investments
purchased......... 53,222
Payable to Minne-
sota Mutual for
contract termina-
tions and mortal-
ity and expense
charges........... 6,415
---------
Total liabili-
ties............ 59,637
---------
NET ASSETS APPLI-
CABLE TO POLICY
OWNERS............ 5,291,031
=========
UNITS OUTSTANDING. 3,864,294
=========
NET ASSET VALUE
PER UNIT.......... 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
GROWTH BOND MARKET ALLOCATION SECURITIES INDEX 500
----------- ---------- ---------- ----------- ---------- ----------
<S> <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)
----------- ---------- ---------- ----------- ---------- ----------
Investment
income (loss)--
net ........... 84,267 221,283 188,474 1,160,310 385,990 236,198
----------- ---------- ---------- ----------- ---------- ----------
Realized and
unrealized gains
(losses) on
investments--net:
Realized gain
distributions from
underlying mutual
fund .............. 752,601 -- -- 518,544 -- 136,462
----------- ---------- ---------- ----------- ---------- ----------
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
Cost of invest-
ments sold ...... (6,150,138) (3,547,747) (5,767,756) (14,667,948) (2,419,084) (5,975,182)
----------- ---------- ---------- ----------- ---------- ----------
556,995 121,124 -- 1,120,961 21,373 1,000,897
----------- ---------- ---------- ----------- ---------- ----------
Net realized
gains on
investments ... 1,309,596 121,124 -- 1,639,505 21,373 1,137,359
----------- ---------- ---------- ----------- ---------- ----------
Net change in
unrealized
appreciation or
depreciation of
investments ....... 3,358,404 1,040,640 -- 8,349,477 623,587 5,160,678
----------- ---------- ---------- ----------- ---------- ----------
Net gains on
investments ... 4,668,000 1,161,764 -- 9,988,982 644,960 6,298,037
----------- ---------- ---------- ----------- ---------- ----------
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
=========== ========== ========== =========== ========== ==========
</TABLE>
<TABLE>
<CAPTION>
SEGREGATED SUB-ACCOUNT
------------------------------------------------
CAPITAL INTERNATIONAL SMALL VALUE
APPRECIATION STOCK COMPANY STOCK
------------ ------------- ---------- ----------
<S> <C> <C> <C> <C>
Investment income
(loss):
Investment income
distributions from
underlying mutual
fund............... -- -- 23,415 38,421
Mortality and
expense charges
(note 3) .......... (178,191) (125,629) (72,140) (14,473)
---------- ---------- ---------- ----------
Investment
income (loss)--
net ........... (178,191) (125,629) (48,725) 23,948
---------- ---------- ---------- ----------
Realized and
unrealized gains
(losses) on
investments--net:
Realized gain
distributions from
underlying mutual
fund .............. 820,112 -- 203,581 220,693
---------- ---------- ---------- ----------
Realized gains on
sales of
investments (note
4):
Proceeds from
sales ........... 10,629,551 9,110,210 4,928,714 1,202,928
Cost of invest-
ments sold ...... (9,193,408) (8,713,211) (4,259,828) (1,092,357)
---------- ---------- ---------- ----------
1,436,143 396,999 668,886 110,571
---------- ---------- ---------- ----------
Net realized
gains on
investments ... 2,256,255 396,999 872,467 331,264
---------- ---------- ---------- ----------
Net change in
unrealized
appreciation or
depreciation of
investments ....... 4,611,948 2,953,006 3,168,698 429,503
---------- ---------- ---------- ----------
Net gains on
investments ... 6,868,203 3,350,005 4,041,165 760,767
---------- ---------- ---------- ----------
Net increase in
net assets
resulting from
operations .... 6,690,012 3,224,376 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 INTERNATIONA
GROWTH BOND MARKET ALLOCATION SECURITIES 500 APPRECIATION STOCK
----------- ---------- ---------- ----------- ---------- ---------- ------------ ------------
<S> <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
Mortality and
expense charges
(note 3)........... (74,204) (23,955) (15,521) (189,661) (25,132) (66,230) (111,166) (70,069)
----------- ---------- ---------- ----------- ---------- ---------- ---------- ----------
Investment
income (loss)--
net............ 63,482 152,540 101,341 560,708 184,750 133,156 (93,602) 281,668
----------- ---------- ---------- ----------- ---------- ---------- ---------- ----------
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
----------- ---------- ---------- ----------- ---------- ---------- ---------- ----------
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
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)
----------- ---------- ---------- ----------- ---------- ---------- ---------- ----------
80,108 (98,576) -- (18,354) (93,373) 157,780 490,763 345,591
----------- ---------- ---------- ----------- ---------- ---------- ---------- ----------
Net realized
gains on
investments.... 363,294 11,561 -- 200,312 6,328 198,143 789,570 923,589
----------- ---------- ---------- ----------- ---------- ---------- ---------- ----------
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)
----------- ---------- ---------- ----------- ---------- ---------- ---------- ----------
Net gains
(losses) on
investments.... 16,987 (372,577) -- (1,199,872) (363,614) (31,472) 703,876 (567,534)
----------- ---------- ---------- ----------- ---------- ---------- ---------- ----------
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)
=========== ========== ========== =========== ========== ========== ========== ==========
<CAPTION>
--------------------
SMALL VALUE
COMPANY STOCK
---------- -------
<S> <C> <C>
Investment income
(loss):
Investment income
distributions from
underlying mutual
fund............... 11,999 7,337
Mortality and
expense charges
(note 3)........... (22,967) (1,056)
---------- -------
Investment
income (loss)--
net............ (10,968) 6,281
---------- -------
Realized and
unrealized gains
(losses) on
investments--net:
Realized gain
distributions from
underlying mutual
fund............... -- 2,954
---------- -------
Realized gains
(losses) on sales
of investments
(note 4):
Proceeds from
sales............ 2,297,893 75,011
Cost of
investments sold. (2,270,554) (75,414)
---------- -------
27,339 (403)
---------- -------
Net realized
gains on
investments.... 27,339 2,551
---------- -------
Net change in
unrealized
appreciation or
depreciation of
investments......... 391,884 (6,755)
---------- -------
Net gains
(losses) on
investments.... 419,223 (4,204)
---------- -------
Net increase
(decrease) in
net assets
resulting from
operations..... 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
GROWTH BOND MARKET ALLOCATION SECURITIES 500 APPRECIATION
----------- ---------- ---------- ----------- ---------- ---------- ------------
<S> <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)
Net realized
gains on
investments.... 1,309,596 121,124 -- 1,639,505 21,373 1,137,359 2,256,255
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
----------- ---------- ---------- ----------- ---------- ---------- -----------
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
----------- ---------- ---------- ----------- ---------- ---------- -----------
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
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)
----------- ---------- ---------- ----------- ---------- ---------- -----------
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
----------- ---------- ---------- ----------- ---------- ---------- -----------
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
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
----------- ---------- ---------- ----------- ---------- ---------- -----------
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
=========== ========== ========== =========== ========== ========== ===========
</TABLE>
<TABLE>
-------------------------------------
INTERNATIONAL SMALL VALUE
STOCK COMPANY STOCK
------------- ---------- ----------
<S> <C> <C> <C>
Operations:
Investment
income (loss)--
net............ (125,629) (48,725) 23,948
Net realized
gains on
investments.... 396,999 872,467 331,264
Net change in
unrealized
appreciation or
depreciation of
investments.... 2,953,006 3,168,698 429,503
---------- ---------- ----------
Net increase in
net assets
resulting from
operations...... 3,224,376 3,992,440 784,715
---------- ---------- ----------
Policy
transactions
(notes 3 and 5):
Policy purchase
payments....... 17,215,167 13,158,472 4,688,860
Policy
withdrawals and
charges........ (8,984,581) (4,856,574) (1,188,455)
---------- ---------- ----------
Increase in net
assets from
policy
transactions.... 8,230,586 8,301,898 3,500,405
---------- ---------- ----------
Increase in net
assets.......... 11,454,962 12,294,338 4,285,120
Net assets at the
beginning of
year............ 19,902,092 8,584,404 1,005,911
---------- ---------- ----------
Net assets at the
end of year..... 31,357,054 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
=========== ========== ========== =========== ========== ========== ========== ========== ==========
<CAPTION>
-----------
VALUE
STOCK
---------
<S> <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>
MINNESOTA MUTUAL VARIABLE LIFE ACCOUNT
STATEMENTS OF ASSETS AND LIABILITIES
JUNE 30, 1996
(UNAUDITED)
<TABLE>
<CAPTION>
SEGREGATED SUB-ACCOUNTS
---------------------------------------------------------------------------------------------------------
MONEY ASSET MORTGAGE CAPITAL INTERNATIONAL SMALL
ASSETS GROWTH BOND MARKET ALLOCATION SECURITIES INDEX 500 APPRECIATION STOCK COMPANY
------ ------------ ---------- --------- ---------- ---------- ---------- ------------ ------------- ----------
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C>
Investments in
shares of MIMLIC
Series Fund, Inc.:
Growth Portfolio,
15,882,203 shares
at net asset
value of $2.215
per share (cost
$31,761,926)..... $ 35,179,820 -- -- -- -- -- -- -- --
Bond Portfolio,
9,879,914 shares
at net asset
value of $1.219
per share (cost
$12,240,024)..... -- 12,038,901 -- -- -- -- -- -- --
Money Market
Portfolio,
5,649,306 shares
at net asset
value of $1.000
per share (cost
$5,649,306)...... -- -- 5,649,306 -- -- -- -- -- --
Asset Allocation
Portfolio,
40,281,381 shares
at net asset
value of $1.754
per share (cost
$65,377,461)..... -- -- -- 70,665,110 -- -- -- -- --
Mortgage Securi-
ties Portfolio,
6,977,349 shares
at net asset
value of $1.126
per share (cost
$7,969,386)...... -- -- -- -- 7,853,271 -- -- -- --
Index 500 Portfo-
lio, 18,064,679
shares at net as-
set value of
$2.173 per share
(cost
$32,178,937)..... -- -- -- -- -- 39,247,353 -- -- --
Capital Apprecia-
tion Portfolio,
21,962,525 shares
at net asset
value of $2.334
per share (cost
$42,404,559)..... -- -- -- -- -- -- 51,265,997 -- --
International
Stock Portfolio,
27,277,330 shares
at net asset
value of $1.447
per share (cost
$36,447,102)..... -- -- -- -- -- -- -- 39,474,889 --
Small Company
Portfolio,
17,194,228 shares
at net asset
value of $1.689
per share (cost
$24,724,341)..... -- -- -- -- -- -- -- -- 29,048,149
Value Stock Port-
folio, 6,672,059
shares at net as-
set value of
$1.471 per share
(cost
$8,735,738)...... -- -- -- -- -- -- -- -- --
------------ ---------- --------- ---------- --------- ---------- ---------- ---------- ----------
35,179,820 12,038,901 5,649,306 70,665,110 7,853,271 39,247,353 51,265,997 39,474,889 29,048,149
Receivable from
Minnesota Mutual
for contract pur-
chase payments.... 50,653 8,499 177,006 129,652 5,369 215,180 79,664 72,966 104,652
Receivable from
MIMLIC Series
Fund, Inc. for in-
vestments sold.... 34,632 9,628 7,288 57,998 7,640 25,712 58,534 33,252 24,816
Dividends receiv-
able from MIMLIC
Series Fund, Inc.. -- -- 1,466 -- -- -- -- -- --
------------ ---------- --------- ---------- --------- ---------- ---------- ---------- ----------
Total assets.... 35,265,105 12,057,028 5,835,066 70,852,760 7,866,280 39,488,245 51,404,195 39,581,107 29,177,617
------------ ---------- --------- ---------- --------- ---------- ---------- ---------- ----------
<CAPTION>
LIABILITIES
-----------
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C>
Payable to MIMLIC
Series Fund, Inc.
for investments
purchased......... 50,653 8,499 177,006 129,652 5,369 215,180 79,664 72,966 104,652
Payable to Minne-
sota Mutual for
contract termina-
tions and mortal-
ity and expense
charges........... 34,632 9,628 7,288 57,998 7,640 25,712 58,534 33,252 24,816
------------ ---------- --------- ---------- --------- ---------- ---------- ---------- ----------
Total liabili-
ties............ 85,285 18,127 184,294 187,650 13,009 240,892 138,198 106,218 129,468
------------ ---------- --------- ---------- --------- ---------- ---------- ---------- ----------
NET ASSETS APPLI-
CABLE TO POLICY
OWNERS............ $ 35,179,820 12,038,901 5,650,772 70,665,110 7,853,271 39,247,353 51,265,997 39,474,889 29,048,149
============ ========== ========= ========== ========= ========== ========== ========== ==========
UNITS OUTSTANDING. 14,362,013 6,341,596 3,642,852 30,005,572 3,880,823 14,811,436 18,076,283 24,280,249 16,944,933
============ ========== ========= ========== ========= ========== ========== ========== ==========
NET ASSET VALUE
PER UNIT.......... $ 2.450 1.898 1.551 2.355 2.023 2.650 2.836 1.626 1.716
============ ========== ========= ========== ========= ========== ========== ========== ==========
<CAPTION>
---------
VALUE
ASSETS STOCK
------ ---------
<S> <C>
Investments in
shares of MIMLIC
Series Fund, Inc.:
Growth Portfolio,
15,882,203 shares
at net asset
value of $2.215
per share (cost
$31,761,926)..... --
Bond Portfolio,
9,879,914 shares
at net asset
value of $1.219
per share (cost
$12,240,024)..... --
Money Market
Portfolio,
5,649,306 shares
at net asset
value of $1.000
per share (cost
$5,649,306)...... --
Asset Allocation
Portfolio,
40,281,381 shares
at net asset
value of $1.754
per share (cost
$65,377,461)..... --
Mortgage Securi-
ties Portfolio,
6,977,349 shares
at net asset
value of $1.126
per share (cost
$7,969,386)...... --
Index 500 Portfo-
lio, 18,064,679
shares at net as-
set value of
$2.173 per share
(cost
$32,178,937)..... --
Capital Apprecia-
tion Portfolio,
21,962,525 shares
at net asset
value of $2.334
per share (cost
$42,404,559)..... --
International
Stock Portfolio,
27,277,330 shares
at net asset
value of $1.447
per share (cost
$36,447,102)..... --
Small Company
Portfolio,
17,194,228 shares
at net asset
value of $1.689
per share (cost
$24,724,341)..... --
Value Stock Port-
folio, 6,672,059
shares at net as-
set value of
$1.471 per share
(cost
$8,735,738)...... 9,814,872
---------
9,814,872
Receivable from
Minnesota Mutual
for contract pur-
chase payments.... 34,068
Receivable from
MIMLIC Series
Fund, Inc. for in-
vestments sold.... 10,634
Dividends receiv-
able from MIMLIC
Series Fund, Inc.. --
---------
Total assets.... 9,859,574
---------
<CAPTION>
LIABILITIES
-----------
<S> <C>
Payable to MIMLIC
Series Fund, Inc.
for investments
purchased......... 34,068
Payable to Minne-
sota Mutual for
contract termina-
tions and mortal-
ity and expense
charges........... 10,634
---------
Total liabili-
ties............ 44,702
---------
NET ASSETS APPLI-
CABLE TO POLICY
OWNERS............ 9,814,872
=========
UNITS OUTSTANDING. 6,330,687
=========
NET ASSET VALUE
PER UNIT.......... 1.550
=========
</TABLE>
See accompanying notes to financial statements.
57
<PAGE>
MINNESOTA MUTUAL VARIABLE LIFE ACCOUNT
STATEMENTS OF OPERATIONS
PERIOD FROM JANUARY 1, 1996 TO JUNE 30, 1996 (UNAUDITED)
<TABLE>
<CAPTION>
SEGREGATED SUB-ACCOUNTS
------------------------------------------------------------------------
MONEY ASSET MORTGAGE
GROWTH BOND MARKET ALLOCATION SECURITIES INDEX 500
----------- ---------- ---------- ---------- ----------- ----------
<S> <C> <C> <C> <C> <C> <C>
Investment income
(loss):
Investment income
distributions from
underlying mutual
fund............... $ 278,451 603,154 124,013 2,095,397 499,341 476,493
Mortality and
expense charges.... (78,829) (27,481) (12,930) (162,923) (18,897) (84,765)
----------- ---------- ---------- ---------- ----------- ----------
Investment
income (loss)--
net ........... 199,622 575,673 111,083 1,932,474 480,444 391,728
----------- ---------- ---------- ---------- ----------- ----------
Realized and
unrealized gains
(losses) on
investments--net:
Realized gain
distributions from
underlying mutual
fund .............. 2,616,611 108,728 -- 3,836,599 -- 246,659
----------- ---------- ---------- ---------- ----------- ----------
Realized gains on
sales of
investments:
Proceeds from
sales ........... 4,518,305 2,257,934 4,724,592 8,485,852 1,164,754 5,056,369
Cost of invest-
ments sold ...... (3,988,870) (2,198,531) (4,724,592) (7,556,108) (1,148,668) (4,111,054)
----------- ---------- ---------- ---------- ----------- ----------
529,435 59,403 -- 929,744 16,086 945,315
----------- ---------- ---------- ---------- ----------- ----------
Net realized
gains on
investments ... 3,146,046 168,131 -- 4,766,343 16,086 1,191,974
----------- ---------- ---------- ---------- ----------- ----------
Net change in
unrealized
appreciation or
depreciation of
investments ....... (196,774) (1,006,312) -- (3,111,261) (530,173) 1,418,027
----------- ---------- ---------- ---------- ----------- ----------
Net gains
(losses) on
investments ... 2,949,272 (838,181) -- 1,655,082 (514,087) 2,610,001
----------- ---------- ---------- ---------- ----------- ----------
Net increase
(decrease) in
net assets
resulting from
operations .... $ 3,148,894 (262,508) 111,083 3,587,556 (33,643) 3,001,729
=========== ========== ========== ========== =========== ==========
</TABLE>
<TABLE>
<CAPTION>
CAPITAL INTERNATIONAL SMALL VALUE
APPRECIATION STOCK COMPANY STOCK
------------ ------------- ---------- ----------
<C> <C> <C> <C>
Investment income
(loss):
Investment income
distributions from
underlying mutual
fund............... -- 928,852 206 637
Mortality and
expense charges.... (117,840) (90,930) (61,687) (18,651)
---------- ---------- ---------- ----------
Investment
income (loss)--
net ........... (117,840) 837,922 (61,481) (18,014)
---------- ---------- ---------- ----------
Realized and
unrealized gains
(losses) on
investments--net:
Realized gain
distributions from
underlying mutual
fund .............. 1,271,186 1,016,871 522,413 89,173
---------- ---------- ---------- ----------
Realized gains on
sales of
investments:
Proceeds from
sales ........... 6,645,704 5,737,635 3,313,553 1,604,704
Cost of invest-
ments sold ...... (5,477,858) (5,214,821) (2,750,896) (1,428,034)
---------- ---------- ---------- ----------
1,167,846 522,814 562,657 176,670
---------- ---------- ---------- ----------
Net realized
gains on
investments ... 2,439,032 1,539,685 1,085,070 265,843
---------- ---------- ---------- ----------
Net change in
unrealized
appreciation or
depreciation of
investments ....... 2,482,917 376,215 700,047 656,386
---------- ---------- ---------- ----------
Net gains
(losses) on
investments ... 4,921,949 1,915,900 1,785,117 922,229
---------- ---------- ---------- ----------
Net increase
(decrease) in
net assets
resulting from
operations .... 4,804,109 2,753,822 1,723,636 904,215
========== ========== ========== ==========
</TABLE>
See accompanying notes to financial statements.
58
<PAGE>
MINNESOTA MUTUAL VARIABLE LIFE ACCOUNT
STATEMENTS OF OPERATIONS
PERIOD FROM JANUARY 1, 1995 TO JUNE 30, 1995
(UNAUDITED)
<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 98,517 1,419,229 418,709 345,109 -- --
Mortality and
expense charges.... (51,157) (17,750) (9,199) (118,075) (15,392) (46,953) (77,472) (55,975)
----------- ---------- ---------- ---------- ---------- ---------- ---------- ----------
Investment
income (loss)--
net ........... 148,675 243,841 89,318 1,301,154 403,317 298,156 (77,472) (55,975)
----------- ---------- ---------- ---------- ---------- ---------- ---------- ----------
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:
Proceeds from
sales ........... 2,988,931 1,354,438 2,759,530 7,873,671 1,141,400 2,694,863 4,726,581 4,265,683
Cost of invest-
ments sold ...... (2,851,910) (1,352,931) (2,759,530) (7,594,785) (1,159,700) (2,451,270) (4,321,700) (4,225,751)
----------- ---------- ---------- ---------- ---------- ---------- ---------- ----------
137,021 1,507 -- 278,886 (18,300) 243,593 404,881 39,932
----------- ---------- ---------- ---------- ---------- ---------- ---------- ----------
Net realized
gains on
investments ... 889,622 1,507 -- 797,430 (18,300) 380,055 1,224,993 39,932
----------- ---------- ---------- ---------- ---------- ---------- ---------- ----------
Net change in
unrealized
appreciation or
depreciation of
investments ....... 1,718,480 541,079 -- 3,857,257 272,167 2,680,962 3,190,943 1,777,785
----------- ---------- ---------- ---------- ---------- ---------- ---------- ----------
Net gains
(losses) on
investments ... 2,608,102 542,586 -- 4,654,687 253,867 3,061,017 4,415,936 1,817,717
----------- ---------- ---------- ---------- ---------- ---------- ---------- ----------
Net increase
(decrease) in
net assets
resulting from
operations .... $ 2,756,777 786,427 89,318 5,955,841 657,184 3,359,173 4,338,464 1,761,742
=========== ========== ========== ========== ========== ========== ========== ==========
<CAPTION>
---------------------
SMALL VALUE
COMPANY STOCK
---------- --------
<S> <C> <C>
Investment income
(loss):
Investment income
distributions from
underlying mutual
fund............... -- 48
Mortality and
expense charges.... (28,258) (4,780)
---------- --------
Investment
income (loss)--
net ........... (28,258) (4,732)
---------- --------
Realized and
unrealized gains
(losses) on
investments--net:
Realized gain
distributions from
underlying mutual
fund .............. -- 14,953
---------- --------
Realized gains on
sales of
investments:
Proceeds from
sales ........... 1,916,173 421,756
Cost of invest-
ments sold ...... (1,762,924) (400,658)
---------- --------
153,249 21,098
---------- --------
Net realized
gains on
investments ... 153,249 36,051
---------- --------
Net change in
unrealized
appreciation or
depreciation of
investments ....... 1,295,150 234,898
---------- --------
Net gains
(losses) on
investments ... 1,448,399 270,949
---------- --------
Net increase
(decrease) in
net assets
resulting from
operations .... 1,420,141 266,217
========== ========
</TABLE>
See accompanying notes to financial statements.
59
<PAGE>
MINNESOTA MUTUAL VARIABLE LIFE ACCOUNT
STATEMENTS OF CHANGES IN NET ASSETS
PERIOD FROM JANUARY 1, 1996 TO JUNE 30, 1996 (UNAUDITED)
<TABLE>
<CAPTION>
SEGREGATED SUB-ACCOUNTS
------------------------------------------------------------------------
MONEY ASSET MORTGAGE INDEX
GROWTH BOND MARKET ALLOCATION SECURITIES 500
----------- ---------- ---------- ---------- ---------- ----------
<S> <C> <C> <C> <C> <C> <C>
Operations:
Investment
income (loss)--
net............ $ 199,622 575,673 111,083 1,932,474 480,444 391,728
Net realized
gains on
investments.... 3,146,046 168,131 -- 4,766,343 16,086 1,191,974
Net change in
unrealized
appreciation or
depreciation of
investments.... (196,774) (1,006,312) -- (3,111,261) (530,173) 1,418,027
----------- ---------- ---------- ---------- ---------- ----------
Net increase
(decrease) in
net assets
resulting from
operations...... 3,148,894 (262,508) 111,083 3,587,556 (33,643) 3,001,729
----------- ---------- ---------- ---------- ---------- ----------
Policy
transactions:
Policy purchase
payments....... 8,027,543 4,140,204 4,921,700 13,753,332 1,682,316 12,365,721
Policy
withdrawals and
charges........ (4,439,476) (2,230,453) (4,711,662) (8,322,929) (1,145,857) (4,971,604)
----------- ---------- ---------- ---------- ---------- ----------
Increase in net
assets from
policy
transactions.... 3,588,067 1,909,751 210,038 5,430,403 536,459 7,394,117
----------- ---------- ---------- ---------- ---------- ----------
Increase in net
assets.......... 6,736,961 1,647,243 321,123 9,017,959 502,816 10,395,846
Net assets at the
beginning of
period.......... 28,442,859 10,391,658 5,329,649 61,647,151 7,350,455 28,851,507
----------- ---------- ---------- ---------- ---------- ----------
Net assets at the
end of period... $35,179,820 12,038,901 5,650,772 70,665,110 7,853,271 39,247,353
=========== ========== ========== ========== ========== ==========
</TABLE>
<TABLE>
<CAPTION>
SEGREGATED SUB-ACCOUNTS
-------------------------------------------------
CAPITAL INTERNATIONAL SMALL VALUE
APPRECIATION STOCK COMPANY STOCK
------------ ------------- ---------- ----------
<S> <C> <C> <C> <C>
Operations:
Investment
income (loss)--
net............ (117,840) 837,922 (61,481) (18,014)
Net realized
gains on
investments.... 2,439,032 1,539,685 1,085,070 265,843
Net change in
unrealized
appreciation or
depreciation of
investments.... 2,482,917 376,215 700,047 656,386
---------- ---------- ---------- ----------
Net increase
(decrease) in
net assets
resulting from
operations...... 4,804,109 2,753,822 1,723,636 904,215
---------- ---------- ---------- ----------
Policy
transactions:
Policy purchase
payments....... 10,536,943 11,010,718 9,697,637 5,205,679
Policy
withdrawals and
charges........ (6,527,864) (5,646,705) (3,251,866) (1,586,053)
---------- ---------- ---------- ----------
Increase in net
assets from
policy
transactions.... 4,009,079 5,364,013 6,445,771 3,619,626
---------- ---------- ---------- ----------
Increase in net
assets.......... 8,813,188 8,117,835 8,169,407 4,523,841
Net assets at the
beginning of
period.......... 42,452,809 31,357,054 20,878,742 5,291,031
---------- ---------- ---------- ----------
Net assets at the
end of period... 51,265,997 39,474,889 29,048,149 9,814,872
========== ========== ========== ==========
</TABLE>
See accompanying notes to financial statements.
60
<PAGE>
MINNESOTA MUTUAL VARIABLE LIFE ACCOUNT
STATEMENTS OF CHANGES IN NET ASSETS (CONTINUED)
PERIOD FROM JANUARY 1, 1995 TO JUNE 30, 1995
(UNAUDITED)
<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............ $ 148,675 243,841 89,318 1,301,154 403,317 298,156 (77,472) (55,975) (28,258)
Net realized
gains on
investments.... 889,622 1,507 -- 797,430 (18,300) 380,055 1,224,993 39,932 153,249
Net change in
unrealized
appreciation or
depreciation of
investments.... 1,718,480 541,079 -- 3,857,257 272,167 2,680,962 3,190,943 1,777,785 1,295,150
----------- ---------- ---------- ---------- ---------- ---------- ---------- ---------- ----------
Net increase
(decrease) in
net assets
resulting from
operations...... 2,756,777 786,427 89,318 5,955,841 657,184 3,359,173 4,338,464 1,761,742 1,420,141
----------- ---------- ---------- ---------- ---------- ---------- ---------- ---------- ----------
Policy
transactions:
Policy purchase
payments....... 5,760,325 2,909,056 1,965,596 11,399,499 1,496,974 4,980,970 9,170,672 7,941,159 6,149,504
Policy
withdrawals and
charges........ (2,937,774) (1,336,688) (2,750,331) (7,755,596) (1,126,008) (2,647,910) (4,649,109) (4,209,708) (1,887,915)
----------- ---------- ---------- ---------- ---------- ---------- ---------- ---------- ----------
Increase in net
assets from
policy
transactions.... 2,822,551 1,572,368 (784,735) 3,643,903 370,966 2,333,060 4,521,563 3,731,451 4,261,589
----------- ---------- ---------- ---------- ---------- ---------- ---------- ---------- ----------
Increase in net
assets.......... 5,579,328 2,358,795 (695,415) 9,599,744 1,028,150 5,692,233 8,860,027 5,493,193 5,681,730
Net assets at the
beginning 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
----------- ---------- ---------- ---------- ---------- ---------- ---------- ---------- ----------
Net assets at the
end of period... $23,453,006 8,336,328 3,531,586 52,230,691 6,654,945 21,691,550 35,946,046 25,395,285 14,266,134
=========== ========== ========== ========== ========== ========== ========== ========== ==========
<CAPTION>
---------
VALUE
STOCK
---------
<S> <C>
Operations:
Investment
income (loss)--
net............ (4,732)
Net realized
gains on
investments.... 36,051
Net change in
unrealized
appreciation or
depreciation of
investments.... 234,898
---------
Net increase
(decrease) in
net assets
resulting from
operations...... 266,217
---------
Policy
transactions:
Policy purchase
payments....... 1,948,874
Policy
withdrawals and
charges........ (416,976)
---------
Increase in net
assets from
policy
transactions.... 1,531,898
---------
Increase in net
assets.......... 1,798,115
Net assets at the
beginning of
period.......... 1,005,911
---------
Net assets at the
end of period... 2,804,026
=========
</TABLE>
See accompanying notes to financial statements.
61
<PAGE>
MINNESOTA MUTUAL VARIABLE LIFE ACCOUNT
NOTES TO FINANCIAL STATEMENTS
JUNE 30, 1996
(UNAUDITED)
(1)BASIS OF PRESENTATION
The Minnesota Mutual Variable Life Account (the Account) is established as a
segregated asset account of The Minnesota Mutual Life Insurance Company under
Minnesota law and is registered as a unit investment trust under the Investment
Company Act of 1940 (as amended).
The accompanying unaudited financial statements have been prepared in
accordance with generally accepted accounting principles for interim financial
statements. Accordingly, they do not include all of the information and
footnotes required by generally accepted accounting principles for complete
financial statements. In the opinion of management, all adjustments of a normal
recurring nature necessary for a fair presentation have been included.
Operating results for the six month period ended June 30, 1996 should not be
regarded as an indication of the results that may be expected for the year
ended December 31, 1996.
For further information, refer to the Account's audited financial statements
for the year ended December 31, 1995 included in this prospectus.
62
<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>
THE MINNESOTA MUTUAL LIFE INSURANCE COMPANY
BALANCE SHEETS
JUNE 30, 1996 AND 1995
(UNAUDITED)
ASSETS
<TABLE>
<CAPTION>
1996 1995
----------- ----------
(IN THOUSANDS)
<S> <C> <C>
Bonds $ 5,308,143 $5,282,271
Common stocks 390,831 225,874
Mortgage loans 784,465 649,072
Real estate, including Home Office property 72,566 75,857
Other invested assets 158,186 67,621
Policy loans 200,950 190,759
Investments in subsidiary companies 202,583 192,892
Cash and short-term securities 126,732 118,079
Premiums deferred and uncollected 134,159 153,702
Other assets 150,789 144,699
----------- ----------
Total assets, excluding separate accounts 7,529,404 7,100,826
Separate account assets 3,138,176 2,181,337
----------- ----------
Total assets $10,667,580 $9,282,163
=========== ==========
LIABILITIES AND POLICYOWNERS' SURPLUS
Liabilities:
Policy reserves:
Life insurance $ 2,184,044 $2,048,536
Annuities and other fund deposits 3,281,174 3,291,493
Accident and health 379,006 351,645
Policy claims in process of settlement 81,527 80,509
Dividends payable to policyowners 111,491 105,339
Other policy liabilities 409,965 391,634
Asset valuation reserve 232,807 185,159
Interest maintenance reserve 27,680 27,037
Federal income taxes 24,947 39,568
Other liabilities 216,272 191,391
----------- ----------
Total liabilities, excluding separate accounts 6,948,913 6,712,311
Separate account liabilities 3,085,458 2,135,162
----------- ----------
Total liabilities 10,034,371 8,847,473
Policyowners' surplus
Surplus notes 125,000 --
Unassigned funds 508,209 434,690
----------- ----------
Total policyowners' surplus 633,209 434,690
Total liabilities and policyowners' surplus $10,667,580 $9,282,163
=========== ==========
</TABLE>
See accompanying notes to financial statements.
81
<PAGE>
THE MINNESOTA MUTUAL LIFE INSURANCE COMPANY
STATEMENTS OF OPERATIONS AND POLICYOWNERS' SURPLUS
SIX MONTHS ENDED JUNE 30, 1996 AND 1995 (UNAUDITED)
STATEMENTS OF OPERATIONS
<TABLE>
<CAPTION>
1996 1995
---------- --------
(IN THOUSANDS)
<S> <C> <C>
Revenues:
Premiums, annuity considerations and fund deposits $ 834,002 $747,241
Net investment income 263,193 248,821
---------- --------
Total revenues 1,097,195 996,062
---------- --------
Benefits and expenses:
Policyowner benefits 790,448 544,174
Increase in policy reserves (1,760) 162,093
General insurance expenses and taxes 156,886 143,550
Commissions 41,942 38,993
Federal income taxes 22,234 22,453
---------- --------
Total benefits and expenses 1,009,750 911,263
---------- --------
Gain from operations before net realized capital gains
and dividends 87,445 84,799
Realized capital gains, net of tax 17,694 6,048
---------- --------
Gain from operations before dividends 105,139 90,847
Dividends to policyowners 58,899 58,339
---------- --------
Net income $ 46,240 $ 32,508
========== ========
STATEMENTS OF POLICYOWNERS' SURPLUS
Policyowners' surplus, beginning of period $ 601,565 $382,315
Net income 46,240 32,508
Net change in unrealized capital gains and losses 22,178 36,429
Change in asset valuation reserve (31,086) (19,818)
Change in separate account surplus 1,407 5,283
Other, net (7,095) (2,027)
---------- --------
Policyowners' surplus, end of period $ 633,209 $434,690
========== ========
</TABLE>
See accompanying notes to financial statements.
82
<PAGE>
THE MINNESOTA MUTUAL LIFE INSURANCE COMPANY
STATEMENTS OF CASH FLOWS
SIX MONTHS ENDED JUNE 30, 1996 AND 1995 (UNAUDITED)
<TABLE>
<CAPTION>
CASH PROVIDED: 1996 1995
- -------------- ---------- ----------
(IN THOUSANDS)
<S> <C> <C>
From operations:
Revenues:
Premiums, annuity considerations and fund deposits $ 817,911 $ 719,023
Net investment income 254,050 244,779
---------- ----------
Total receipts 1,071,961 963,802
---------- ----------
Benefits and expenses paid:
Policyowner benefits 765,386 526,460
Dividends to policyowners 55,403 53,704
Commissions and expenses 207,608 193,103
Federal income taxes 42,812 26,581
---------- ----------
Total payments 1,071,209 799,848
---------- ----------
Cash provided from operations 752 163,954
Proceeds from investments sold, matured or repaid:
Bonds 654,728 853,075
Common stocks 118,099 81,861
Mortgage loans 84,251 49,186
Real estate 9,976 5,120
Other invested assets 3,225 6,416
Separate account redemption -- 1,585
Other sources, net 22,983 40,604
---------- ----------
Total cash provided 894,014 1,201,801
---------- ----------
<CAPTION>
CASH APPLIED:
- -------------
<S> <C> <C>
Cost of investments acquired:
Bonds 547,244 991,802
Common stocks 189,037 92,397
Mortgage loans 113,169 98,696
Real estate 4,154 6,122
Other invested assets 12,491 7,574
Separate account investment 218 --
---------- ----------
Total cash applied 866,313 1,196,591
---------- ----------
Net change in cash and short-term securities 27,701 5,210
Cash and short-term securities, beginning of period 99,031 112,869
---------- ----------
Cash and short-term securities, end of period $ 126,732 $ 118,079
========== ==========
</TABLE>
See accompanying notes to financial statements.
83
<PAGE>
THE MINNESOTA MUTUAL LIFE INSURANCE COMPANY
NOTES TO FINANCIAL STATEMENTS
JUNE 30, 1996
(UNAUDITED)
(1)BASIS OF PRESENTATION
The accompanying financial statements of The Minnesota Mutual Life Insurance
Company (the Company) have been prepared in accordance with accounting
practices prescribed or permitted by the Commerce Department of the State of
Minnesota. The financial statements have been prepared on an interim basis in
accordance with Article 10 of Regulation S-X and, therefore, do not include
certain information and footnotes normally found in an annual filing.
In the opinion of management, all adjustments of a normal recurring nature
necessary to present fair balance sheets as of June 30, 1996 and 1995,
Statements of Operations and Policyowners' Surplus for the six month interim
periods ended June 30, 1996 and 1995, and Statements of Cash Flows for the six
month interim periods ended June 30, 1996 and 1995 have been included. The
results of operations for the six month period ended June 30, 1996 are not
necessarily indicative of the results that may be expected for the year ended
December 31, 1996.
(2)CONTINGENCIES
The Company reinsures certain individual and group business. At June 30, 1996,
policy reserves in the accompanying balance sheet are reflected net of
reinsurance ceded of $108,254,599. 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 contracts
jointly with another life insurance company. The joint contract issuer has
liabilities related to these contracts of $356,152,624 as of June 30, 1996. To
the extent that the joint issuer is unable to meet its obligation under the
agreement, the Company remains liable.
At December 31, 1995, the Company had guaranteed the payment of $64,100,000
in policyowner dividends payable in 1996. As of June 30, 1996, $15,100,000 of
the guaranteed amount had yet to be paid. The Company has pledged bonds, valued
at $59,506,366, to secure the guarantee.
The Company is contingently liable under state regulatory requirements for
possible assessment pertaining to future insolvencies and impairments of
unaffiliated companies.
84
<PAGE>
APPENDIX I
ILLUSTRATIONS OF POLICY VALUES, DEATH BENEFITS AND PREMIUMS
The Appendix I illustrations beginning on page 87 show the projected actual
cash values and death benefits for various combinations of age, premium level,
face amount of insurance, death benefit option and level of cost of insurance
charges. The illustrations assume that 100 percent of net premiums are invested
in the sub-accounts of the Variable Life Account. Illustrations are provided
for a male and female, both non-smokers and both aged 40. The plan of insurance
for each illustration is a whole life plan, each with an initial face amount of
$1,000,000. Both death benefit options--the Cash Option and the Protection
Option are shown. We show all illustrations based on both guaranteed maximum
and current charges.
Guaranteed maximum cost of insurance charges will vary by age, sex, and risk
class. 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 both
insureds. We illustrate current cost of insurance charges since they represent
our current practices with respect to mortality charges for this class of
Policies.
Similarly, we impose a current administration charge and a current face
amount guarantee charge which are less than the guaranteed contractual. These
current charges are expected to compensate us for the actual costs of
administration and for guaranteeing the face amount. If the actual costs
change, these charges may increase or decrease, as necessary although they may
not exceed the maximum stated in the Policy.
The illustrations labeled "Using Current Charges" show actual cash values and
death benefits resulting from charging the Policy for cost of insurance,
administration and the face amount guarantee at the current level. The
illustrations labeled "Using Guaranteed Maximum Charges" shows actual cash
values and death benefits when cost of insurance, administration and the face
amount guarantee charges are deducted from the Policy at the maximum level as
stated in the Policy. These two ledger formats can be compared to demonstrate
the result of our charging less than the maximum 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,
85
<PAGE>
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.)
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 the age,
sex and risk classification of each insured, 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 actual situation. For example, illustrations
for smokers or individuals who are rated sub-standard will differ materially in
premium amount and illustrated values, even though the insureds may be the same
ages as the insureds in our sample illustration.
86
<PAGE>
VAL-SD
DEATH BENEFIT OPTION--CASH OPTION
MALE NONSMOKER ISSUE AGE 40
FEMALE NONSMOKER ISSUE AGE 40
INITIAL DEATH BENEFIT--$1,000,000(1)
$10,806 INITIAL SCHEDULED PREMIUM(2)
USING CURRENT CHARGES
<TABLE>
<CAPTION>
-ASSUMING HYPOTHETICAL INVESTMENT RETURNS OF-
0% GROSS(3) 6.00% GROSS(3) 12.00% GROSS(3)
INITIAL (-1.19% NET) (4.81% NET) (10.81% NET)
POL BASE POLICY DEATH POLICY DEATH POLICY DEATH
YR PREMIUM VALUE BENEFIT VALUE BENEFIT VALUE BENEFIT
- --- ------- -------- ---------- -------- ---------- ---------- ----------
<S> <C> <C> <C> <C> <C> <C> <C>
1 $10,806 $ 176 $1,000,000 $ 199 $1,000,000 $ 221 $1,000,000
2 10,806 9,326 1,000,000 9,929 1,000,000 10,535 1,000,000
3 10,806 18,359 1,000,000 20,118 1,000,000 21,953 1,000,000
4 10,806 27,266 1,000,000 30,779 1,000,000 34,587 1,000,000
5 10,806 36,048 1,000,000 41,934 1,000,000 48,568 1,000,000
6 10,806 44,709 1,000,000 53,607 1,000,000 64,043 1,000,000
7 10,806 53,240 1,000,000 65,816 1,000,000 81,164 1,000,000
8 10,806 61,644 1,000,000 78,587 1,000,000 100,111 1,000,000
9 10,806 69,913 1,000,000 91,938 1,000,000 121,074 1,000,000
10 10,806 78,051 1,000,000 105,899 1,000,000 144,381 1,000,000
15 10,806 117,760 1,000,000 187,261 1,000,000 304,972 1,000,000
20 10,806 155,236 1,000,000 290,003 1,000,000 576,888 1,337,289
25 10,806 189,936 1,000,000 419,487 1,000,000 1,031,292 2,012,929
30 10,806 220,175 1,000,000 583,244 1,009,081 1,787,087 2,959,633
</TABLE>
(1) The initial death benefit is guaranteed to age 100.
(2) If premiums are paid more frequently than annually, the payments would be
$5,403.00 semi-annually, $2,701.50 quarterly, or $900.50 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.
87
<PAGE>
VAL-SD
DEATH BENEFIT OPTION--CASH OPTION
MALE NONSMOKER ISSUE AGE 40
FEMALE NONSMOKER ISSUE AGE 40
INITIAL DEATH BENEFIT--$1,000,000(1)
$10,806 INITIAL SCHEDULED PREMIUM(2)
USING GUARANTEED MAXIMUM CHARGES
<TABLE>
<CAPTION>
-ASSUMING HYPOTHETICAL INVESTMENT RETURNS OF-
0% GROSS(3) 6.00% GROSS(3) 12.00% GROSS(3)
INITIAL (-1.19% NET) (4.81% NET) (10.81% NET)
POL BASE POLICY DEATH POLICY DEATH POLICY DEATH
YR PREMIUM VALUE BENEFIT VALUE BENEFIT VALUE BENEFIT
- --- ------- -------- ---------- -------- ---------- ---------- ----------
<S> <C> <C> <C> <C> <C> <C> <C>
1 $10,806 $ 0 $1,000,000 $ 15 $1,000,000 $ 33 $1,000,000
2 10,806 8,974 1,000,000 9,552 1,000,000 10,137 1,000,000
3 10,806 17,831 1,000,000 19,539 1,000,000 21,324 1,000,000
4 10,806 26,565 1,000,000 29,988 1,000,000 33,701 1,000,000
5 10,806 35,177 1,000,000 40,921 1,000,000 47,397 1,000,000
6 10,806 43,669 1,000,000 52,362 1,000,000 62,556 1,000,000
7 10,806 52,033 1,000,000 64,327 1,000,000 79,328 1,000,000
8 10,806 60,272 1,000,000 76,842 1,000,000 97,887 1,000,000
9 10,806 68,379 1,000,000 89,924 1,000,000 118,420 1,000,000
10 10,806 76,355 1,000,000 103,604 1,000,000 141,143 1,000,000
15 10,806 113,940 1,000,000 181,627 1,000,000 296,522 1,000,000
20 10,806 146,577 1,000,000 277,689 1,000,000 555,880 1,290,843
25 10,806 171,181 1,000,000 394,335 1,000,000 980,712 1,920,671
30 10,806 179,444 1,000,000 533,058 1,000,000 1,659,058 2,763,624
</TABLE>
(1) The initial death benefit is guaranteed to age 100.
(2) If premiums are paid more frequently than annually, the payments would be
$5,403.00 semi-annually, $2,701.50 quarterly, or $900.50 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.
88
<PAGE>
VAL-SD
DEATH BENEFIT OPTION--PROTECTION OPTION
MALE NONSMOKER ISSUE AGE 40
FEMALE NONSMOKER ISSUE AGE 40
INITIAL DEATH BENEFIT--$1,000,000(1)
$10,806 INITIAL SCHEDULED PREMIUM(2)
USING CURRENT CHARGES
<TABLE>
<CAPTION>
-ASSUMING HYPOTHETICAL INVESTMENT RETURNS OF-
0% GROSS(3) 6.00% GROSS(3) 12.00% GROSS(3)
INITIAL (-1.19% NET) (4.81% NET) (10.81% NET)
POL BASE POLICY DEATH POLICY DEATH POLICY DEATH
YR PREMIUM VALUE BENEFIT VALUE BENEFIT VALUE BENEFIT
- --- ------- -------- ---------- -------- ---------- ---------- ----------
<S> <C> <C> <C> <C> <C> <C> <C>
1 $10,806 $ 176 $1,000,000 $ 199 $1,000,000 $ 221 $1,000,000
2 10,806 9,326 1,000,176 9,929 1,000,199 10,535 1,000,221
3 10,806 18,358 1,009,326 20,117 1,009,929 21,953 1,010,535
4 10,806 27,264 1,018,358 30,776 1,020,117 34,585 1,021,953
5 10,806 36,044 1,027,264 41,928 1,030,776 48,562 1,034,585
6 10,806 44,700 1,036,044 53,597 1,041,928 64,030 1,048,562
7 10,806 53,225 1,044,700 65,797 1,053,597 81,140 1,064,030
8 10,806 61,620 1,053,225 78,555 1,065,797 100,070 1,081,140
9 10,806 69,876 1,061,620 91,887 1,078,555 121,005 1,100,070
10 10,806 77,996 1,069,876 105,822 1,091,887 144,298 1,121,005
15 10,806 117,671 1,109,869 187,125 1,169,305 304,768 1,265,792
20 10,806 155,071 1,147,810 289,673 1,267,235 576,227 1,846,100
25 10,806 189,536 1,182,911 418,509 1,390,373 1,028,792 2,927,887
30 10,806 217,886 1,213,033 580,100 1,548,794 1,776,991 4,541,657
</TABLE>
(1) The initial death benefit is guaranteed to age 100.
(2) If premiums are paid more frequently than annually, the payments would be
$5,403.00 semi-annually, $2,701.50 quarterly, or $900.50 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.
89
<PAGE>
VAL-SD
DEATH BENEFIT OPTION--PROTECTION OPTION
MALE NONSMOKER ISSUE AGE 40
FEMALE NONSMOKER ISSUE AGE 40
INITIAL DEATH BENEFIT--$1,000,000(1)
$10,806 INITIAL SCHEDULED PREMIUM(2)
USING GUARANTEED MAXIMUM CHARGES
<TABLE>
<CAPTION>
-ASSUMING HYPOTHETICAL INVESTMENT RETURNS OF-
0% GROSS(3) 6.00% GROSS(3) 12.00% GROSS(3)
INITIAL (-1.19% NET) (4.81% NET) (10.81% NET)
POL BASE POLICY DEATH POLICY DEATH POLICY DEATH
YR PREMIUM VALUE BENEFIT VALUE BENEFIT VALUE BENEFIT
- --- ------- -------- ---------- -------- ---------- ---------- ----------
<S> <C> <C> <C> <C> <C> <C> <C>
1 $10,806 $ 0 $1,000,000 $ 15 $1,000,000 $ 33 $1,000,000
2 10,806 8,973 1,000,000 9,552 1,000,015 10,137 1,000,033
3 10,806 17,831 1,008,973 19,539 1,009,552 21,323 1,010,137
4 10,806 26,563 1,017,831 29,986 1,019,539 33,698 1,021,323
5 10,806 35,173 1,026,563 40,916 1,029,986 47,391 1,033,698
6 10,806 43,660 1,035,173 52,352 1,040,916 62,544 1,047,391
7 10,806 52,019 1,043,660 64,308 1,052,352 79,304 1,062,544
8 10,806 60,249 1,052,019 76,811 1,064,308 97,847 1,079,304
9 10,806 68,342 1,060,249 89,875 1,076,811 118,353 1,097,847
10 10,806 76,302 1,068,342 103,528 1,089,875 141,035 1,118,353
15 10,806 113,662 1,106,559 181,156 1,164,334 295,715 1,258,326
20 10,806 145,536 1,139,730 275,569 1,255,298 551,466 1,772,195
25 10,806 167,941 1,164,612 386,341 1,363,125 960,327 2,751,349
30 10,806 170,362 1,172,201 505,206 1,481,513 1,572,684 4,075,282
</TABLE>
(1) The initial death benefit is guaranteed to age 100.
(2) If premiums are paid more frequently than annually, the payments would be
$5,403.00 semi-annually, $2,701.50 quarterly, or $900.50 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.
90
<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-SD
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 a federal tax
related to premiums.
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 FIRST YEAR:
-----------------------------------------------------------------------------------------
<S> <C>
7.00% Sales Load Additional sales load (up to 23%)
1.25% Federal Tax Underwriting charge (up to $10/$1,000 of
insurance coverage)
2.50% Premium Tax
-----------------
10.75% TOTAL
</TABLE>
In addition to the charges described above, there are additional charges for
substandard risk policies. These charges are taken directly from the premium.
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-SD insurance policy, the actual cash value amount is determined by the
number of units in each of your portfolios and their current value.
There are two sets of charges that affect your actual cash value. One set is
a direct charge and the other set is an indirect charge. The direct set is the
cost of insurance, the face amount guarantee charge 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. The face amount guarantee charge compensates the company for
guaranteeing the face amount of the policy. In addition, transaction charges
are also taken from the actual cash value as transactions occur.
TABLE A
DIRECT CHARGES TAKEN FROM ACTUAL CASH VALUE:
--------------------------------------------------------------
.Administration charge (currently $10/month)
.Face amount guarantee charge (currently 2c/1,000/month
.Cost of insurance charge
.If applicable: Transaction Charges
91
<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 the 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 .593 + .101 = 1.19
</TABLE>
(The average of the maximum Variable Life Separate Account and Series Fund Fees
and Expenses is 1.35%.)
92
<PAGE>
(ART)
YOUR VAL-SD PREMIUM AT WORK
---------------------------
<TABLE>
<CAPTION>
YEAR 1 YEAR 2 YEAR 3 YEAR 4
$10,806 $10,806 $10,806 $10,806
<S> <C> <C> <C> <C>
=========================================== ------- ----------- ----------- -----------
Variable Adjusted Life Second Death Charge Charge from Charge from Charge from
----------------------------------- From Premium Premium Premium
. Male and Female, both Age 40, Non-smokers Premium ----------- ----------- -----------
. $1,000,000 Insurance Benefit ------- ----------- ----------- -----------
. Cash Death Benefit Option -------
=========================================== Net Net Net Net
Premium Premium Premium Premium
+ Net X Actual Cash Value ------- ----------- ----------- -----------
-------------------------------------------
9.00% Gross Rate --------------------
-1.19% Charges from Variable Life To Actual Cash Value
Account & Series Fund --------------------
------
7.81% Net Rate
-------------------------------------------
$32,645
- - Charges from Actual Cash Value -------
$21,026
------------------------------------------- -------
Administration Fee
Face Guarantee Charge $10,231
Cost of Insurance Charge -------
------------------------------------------- $210
-------
= VAL-SD Policy Values ------- ------- ------- -------
</TABLE>
[X] Charges taken annually from the $10,806 premium: sales load (7%),
premium tax (2.5%) and federal tax (1.25%).
Charges taken from the $10,806 premium in the first year only: sales
load (23%) and underwriting charge (up to $10 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.
- - Administrative fee is $10 a month and face guarantee charge of 2 cents
per thousand per month. Cost of insurance charge is the cost of
providing the death benefit which varies based on age, gender, health,
premium level and duration.
<PAGE>
VAL-SD
DEATH BENEFIT OPTION--CASH OPTION
MALE NONSMOKER ISSUE AGE 40
FEMALE NONSMOKER ISSUE AGE 40
INITIAL DEATH BENEFIT--$1,000,000(1)
$10,806 INITIAL SCHEDULED PREMIUM(2)
USING CURRENT CHARGES
<TABLE>
<CAPTION>
-ASSUMING HYPOTHETICAL INVESTMENT RETURNS OF-
0% GROSS(3) 9.00% GROSS(3) 12.00% GROSS(3)
INITIAL (-1.19% NET) (7.81% NET) (10.81% NET)
POL BASE POLICY DEATH POLICY DEATH POLICY DEATH
YR PREMIUM VALUE BENEFIT VALUE BENEFIT VALUE BENEFIT
- --- ------- -------- ---------- ---------- ---------- ---------- ----------
<S> <C> <C> <C> <C> <C> <C> <C>
1 $10,806 $ 176 $1,000,000 $ 210 $1,000,000 $ 221 $1,000,000
2 10,806 9,326 1,000,000 10,231 1,000,000 10,535 1,000,000
3 10,806 18,359 1,000,000 21,026 1,000,000 21,953 1,000,000
4 10,806 27,266 1,000,000 32,645 1,000,000 34,587 1,000,000
5 10,806 36,048 1,000,000 45,153 1,000,000 48,568 1,000,000
6 10,806 44,709 1,000,000 58,620 1,000,000 64,043 1,000,000
7 10,806 53,240 1,000,000 73,112 1,000,000 81,164 1,000,000
8 10,806 61,644 1,000,000 88,711 1,000,000 100,111 1,000,000
9 10,806 69,913 1,000,000 105,495 1,000,000 121,074 1,000,000
10 10,806 78,051 1,000,000 123,585 1,000,000 144,381 1,000,000
15 10,806 117,760 1,000,000 238,372 1,000,000 304,972 1,000,000
20 10,806 155,236 1,000,000 405,332 1,000,000 576,888 1,337,289
25 10,806 189,936 1,000,000 652,656 1,301,661 1,031,292 2,012,929
30 10,806 220,175 1,000,000 1,011,083 1,713,314 1,787,087 2,959,633
</TABLE>
(1) The initial death benefit is guaranteed to age 100.
(2) If premiums are paid more frequently than annually, the payments would be
$5,403.00 semi-annually, $2,701.50 quarterly, or $900.50 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.
94
<PAGE>
VAL-SD
DEATH BENEFIT OPTION--CASH OPTION
MALE NONSMOKER ISSUE AGE 40
FEMALE NONSMOKER ISSUE AGE 40
INITIAL DEATH BENEFIT--$1,000,000(1)
$10,806 INITIAL SCHEDULED PREMIUM(2)
USING GUARANTEED MAXIMUM CHARGES
<TABLE>
<CAPTION>
-ASSUMING HYPOTHETICAL INVESTMENT RETURNS OF-
0% GROSS(3) 9.00% GROSS(3) 12.00% GROSS(3)
INITIAL (-1.19% NET) (7.81% NET) (10.81% NET)
POL BASE POLICY DEATH POLICY DEATH POLICY DEATH
YR PREMIUM VALUE BENEFIT VALUE BENEFIT VALUE BENEFIT
- --- ------- -------- ---------- -------- ---------- ---------- ----------
<S> <C> <C> <C> <C> <C> <C> <C>
1 $10,806 $ 0 $1,000,000 $ 24 $1,000,000 $ 33 $1,000,000
2 10,806 8,974 1,000,000 9,844 1,000,000 10,137 1,000,000
3 10,806 17,831 1,000,000 20,422 1,000,000 21,324 1,000,000
4 10,806 26,565 1,000,000 31,808 1,000,000 33,701 1,000,000
5 10,806 35,177 1,000,000 44,064 1,000,000 47,397 1,000,000
6 10,806 43,669 1,000,000 57,259 1,000,000 62,556 1,000,000
7 10,806 52,033 1,000,000 71,459 1,000,000 79,328 1,000,000
8 10,806 60,272 1,000,000 86,742 1,000,000 97,887 1,000,000
9 10,806 68,379 1,000,000 103,185 1,000,000 118,420 1,000,000
10 10,806 76,355 1,000,000 120,881 1,000,000 141,143 1,000,000
15 10,806 113,940 1,000,000 231,501 1,000,000 296,522 1,000,000
20 10,806 146,577 1,000,000 390,277 1,000,000 555,880 1,290,843
25 10,806 171,181 1,000,000 619,585 1,239,633 980,712 1,920,671
30 10,806 179,444 1,000,000 938,066 1,598,477 1,659,058 2,763,624
</TABLE>
(1) The initial death benefit is guaranteed to age 100.
(2) If premiums are paid more frequently than annually, the payments would be
$5,403.00 semi-annually, $2,701.50 quarterly, or $900.50 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.
95
<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 insureds with the following characteristics: The insureds
are a male and a female, both non-smokers and both age 40 at Policy issue. The
VAL-SD Insurance Policy has a face amount of $1,000,000, with a level face
amount and a whole life plan of insurance. The Protection Option has been
chosen as the form of the death benefit option. 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 charges. This situation is
shown in Appendix I, "Illustrations of Policy Values, Death Benefits and
Premiums," on page 85 of this prospectus.
Now, further assume that the second death occurs at the end of the tenth
policy year, 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 (the actual cash value plus any
policy loan) on the date of the second death--composed of the Policy's interest
in one or more of the sub-accounts of the Variable Life Account--is equal to
$144,298. Under the Protection Option the death benefit will be $1,144,298.
The total proceeds 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 Cash Option
death benefit was elected. This situation is shown in Appendix I,
"Illustrations of Policy Values, Death Benefits and Premiums," on page 85 of
this prospectus.
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 then
current face amount. In this example, again assuming timely payment of
premiums, no withdrawals and no policy loan activity, the policy value on the
date of the second death would be $144,381. This is a higher value than 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 $1,000,000.
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 second death occurs is also included as part of the
Policy proceeds.
96
<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 Policy with the following characteristics: The insureds
are a male and a female, both non-smokers and both age 40 at Policy issue. The
VAL-SD Insurance Policy has a face amount of $1,000,000, with a level face
amount and a whole life plan of insurance. 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 charges. This situation is
shown in Appendix I, "Illustrations of Policy Values, Death Benefits and
Premiums," on page 85 of this prospectus.
Now assume that the owner of the Policy takes a policy loan in the amount of
$5,000 at the end of the fourth policy year and after all premiums have been
paid for that year.
When a loan is taken, the actual cash value invested in the Variable Life
Account is reduced by the amount borrowed and any unpaid interest. The amount
is then transferred to the loan account. Interest is charged on the policy loan
as described in the Policy, but for purposes of this example, assume a policy
loan interest rate of 8 percent per annum. Interest is also credited to a
Policy when there is a policy loan. Interest credits on a policy loan are at a
rate which is not less than the policy loan interest rate less 2 percent per
annum. The interest credit in this example would then be 6 percent.
The following table shows the effect on the year five values, namely those
values at the end of that year, if a policy loan of $5,000 is made at the end
of the fourth year.
<TABLE>
<CAPTION>
End of Year
Policy Value Total Death Benefit
With Loan Without Loan With Loan Without Loan
- --------- ------------ --------- ------------
<S> <C> <C> <C>
$48,321 $48,562 $1,048,321 $1,048,562
</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 Cash Option
death benefit was elected. The following table shows the effect on the same
year five values if a policy loan of $5,000 is made at the end of the fourth
year.
<TABLE>
<CAPTION>
End of Year
Policy Value Total Death Benefit
With Loan Without Loan With Loan Without Loan
- --------- ------------ --------- ------------
<S> <C> <C> <C>
$48,328 $48,568 $1,000,000 $1,000,000
</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, the owner would receive only
the actual cash value in the sub-accounts of the Variable Life Account.
Similarly, if the second death were to occur 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.
97
<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 $10,000 and where the premium paying
period, prior to any reduction in face amount, is 20 years. The insureds are a
male and a female, both non-smokers and both age 60 at Policy issue, with a
joint life expectancy of 25 years. As premiums are paid in each year, we will
assess a basic sales load of 7 percent or $700 in each year. Also, as premiums
are paid in the first year, we will assess a first year sales load of 23
percent or $2,300. Therefore, in the first year the sales load charges will
total $3,000 or 30 percent ($3,000 / $10,000), and over the 15 year period from
policy issue sales load charges will total $12,800 or 8.54 percent ($12,800 /
$150,000).
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 $10,000 and where the
premium paying period prior to any reduction in face amount is 20 years.
Further assume that the insureds are a male and a female, both non-smokers and
both age 80 at Policy issue, with a joint 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 joint life expectancy of the insureds. As
premiums are paid in each year we will assess the basic sales load of 7
percent, or $700, but the first year sales load applicable to premiums paid in
the first year will be reduced from 23 percent to 18 percent, or $1,800.
Therefore, in the first year the sales load charges will total $2,500 or 25
percent ($2,500 / $10,000), and over the period of the joint life expectancy of
the insureds sales load charges will total $8,100 or 9 percent ($8,100 /
$90,000).
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 $10,000 annually as in the
example above and further assume that the premiums are being paid on a monthly
basis, $833.33 per month. As premiums are paid in each year we will assess a
basic sales load of 7 percent of premiums received or $700 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 $2,300. Now assume an adjustment is made, after
the payment of six monthly premiums, and that the premium is increased from
$10,000 to $12,000. 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 $2,300 has been collected, a
first year sales load of $1,150 remains to be collected. The $2,000 increase in
premium will also be assessed a first year sales load of 23 percent, or $460.
Both are added together and will be collected in the 12 months following the
adjustment. Therefore, after the adjustment of the premium to a $12,000 amount,
and assuming that premiums continue to be paid on a monthly basis, each monthly
premium of $1,000 will be subjected to a total sales load amount of $204.17,
consisting of $70 of basic sales load, and $134.17 of first year sales load.
98
<PAGE>
APPENDIX VI
AVERAGE ANNUAL RETURNS
TWENTY-YEAR HOLDING PERIODS
(ART)
[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), 1995 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 VAL-SD 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 40 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
99
<PAGE>
APPENDIX VII
S&P 500
PERFORMANCE HISTORY 1926-1995
(ART)
[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.
100
<PAGE>
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
(ART)
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 VAL-SD, 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.
101
<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 103 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.; previously filed.
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 33-64395, 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.
(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 95-690; previously
filed as Exhibit A(5)(a) to Registrant's Form S-6, File Number
33-64395, is hereby incorporated by reference.
(b) Waiver of Premium Agreement, form 95-917; previously filed as
Exhibit A(5)(b) to Registrant's Form S-6, File Number 33-64395, is
hereby incorporated by reference.
(c) Estate Preservation Agreement, form 95-943; previously filed as
Exhibit A(5)(c) to Registrant's Form S-6, File Number 33-64395, is
hereby incorporated by reference.
(d) Single Life Term Insurance Agreement, form 95-944; previously
filed as Exhibit A(5)(d) to Registrant's Form S-6, File Number
33-64395, is hereby incorporated by reference.
(e) Short Term Agreement, form F. E324.1 3-65; previously filed as
Exhibit A(5)(a) to Registrant's Form S-6, File Number 33-64395, is
hereby incorporated by reference.
(6) The certificate of incorporation or other instrument of organization
and bylaws of the depositor.
(a) Charter of the Depositor; previously filed on August 25, 1995, as
this Exhibit 6(a) to Form N-4, file Number 33-62147, is hereby
incorporated by reference.
(b) Bylaws of the Depositor, previously filed on August 25, 1995, as
this Exhibit 6(b) to Form N-4, File Number 33-62147, 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.
(b) Supplement to Application - Part 1, form F. 43186V 7-95;
previously filed as Exhibit A(10)(b) to Registrant's Form S-6,
File Number 33-64395, is hereby incorporated by reference.
(c) 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.
(d) 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.
(e) 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. previously filed as
Exhibit E to Registrant's Form S-6, File Number 33-64395, is hereby
incorporated by reference.
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;
previously filed as Exhibit I(1) to Registrant's Form S-6, File Number
33-64395, is hereby incorporated by reference.
(2) Notice of Withdrawal Right and Request for Cancellation of Policy
Adjustment; previously filed as Exhibit I(2) to Registrant's Form S-6,
File Number 33-64395, is hereby incorporated by reference.
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.
(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 1st
day of August, 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 1st
day of August, 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: August 1, 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
- -------------- ----------------------
C. Opinion and Consent of Donald F. Gruber, Esq.
D. Consent of KPMG Peat Marwick LLP
F. Consent of Jones & Blouch L.L.P.
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>
Exhibit 99-C
June 13, 1996
The Minnesota Mutual Life Insurance Company
Minnesota Mutual Life Center
400 Robert Street North
St. Paul, Minnesota 55101
Re: File Number 33-64395
Pre-Effective Amendment Number 1
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 Pre-Effective Amendment Number 1 to its Registration
Statement on Form S-6. This Registration Statement 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.
Based upon that review, I am of the following opinion:
1. The Account is a separate account of the Company duly created and
validly existing pursuant to the laws of the State of Minnesota; and
2. The issuance and sale of the variable 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,
/s/ Donald F. Gruber
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
July 25, 1996
<PAGE>
Exhibit 99-F
[LETTERHEAD OF JONES & BLOUCH L.L.P. APPEARS HERE]
June 13, 1995
The Minnesota Mutual Life
Insurance Company
400 Robert Street North
St. Paul, MN 55101
Ladies and Gentlemen:
We hereby consent to the reference to this firm under the caption "Legal
Matters" in the prospectus contained in Pre-effective Amendment No.1 to the
registration statement on Form S-6 of Minnesota Mutual Variable Life Account,
File No. 33-64395, to be filed with the Securities and Exchange Commission.
Very truly yours,
/s/ Jones & Blouch L.L.P.
Jones & Blouch L.L.P.
<PAGE>
Exhibit 99-J
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
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