<PAGE>
PROSPECTUS
VARIABLE ADJUSTABLE LIFE
INSURANCE POLICY
LOGO
This prospectus describes a Variable Adjustable Life Insurance Policy issued
by The Minnesota Mutual Life Insurance Company ("Minnesota Mutual"). It
provides life insurance protection for the life of the insured so long as
scheduled premiums are paid. Under some plans of insurance, the face amount of
insurance may decrease or terminate during the life of the insured. The lowest
annual base premium allowed for any plan of insurance is $300. The minimum
face amount on a Policy is $50,000.
The Policy may be adjusted, within described limits, as to face amount,
premium amount and the plan of insurance.
We assess certain charges under the Policy and these are fully described under
the heading "Policy Charges" in this prospectus on page 30. The Policy also
contains a cancellation right which is fully described under the heading "Free
Look" in this prospectus on page 30.
Variable Adjustable Life policy values may be invested in a separate account
of Minnesota Mutual called the Variable Life Account. Policy values may also
be invested in a Minnesota Mutual general account option. The actual cash
value of all Policies will vary with the investment experience of these
options. The Variable Life Account, through its sub-accounts, invests its
assets in shares of Advantus Series Fund, Inc. (the "Fund"). The Fund has ten
Portfolios which are available to the Variable Life Account. They are: the
Growth Portfolio; the Bond Portfolio; the Money Market Portfolio; the Asset
Allocation Portfolio; the Mortgage Securities Portfolio; the Index 500
Portfolio; the Capital Appreciation Portfolio; the International Stock
Portfolio; the Small Company Portfolio and the Value Stock Portfolio. There is
no minimum cash value associated with these variable sub-accounts.
The Variable Adjustable Life Policy provides two death benefit options: the
Cash Option and the Protection Option. The Cash Option provides a guaranteed
death benefit equal to the current face amount. Favorable investment returns,
if any, will be reflected only in increased actual cash values, unless the
policy value exceeds the net single premium for the then current face amount,
at which time the death benefit will increase. The Protection Option provides
a variable death benefit guaranteed to be at least equal to the current face
amount. Favorable investment returns, if any, will be reflected primarily in
increased life insurance coverage as well as increased actual cash values. The
Protection Option is only available until the policy anniversary nearest the
insured's age 70. At the policy anniversary nearest the insured's age 70, the
death benefit option will be changed to the Cash Option.
Replacing existing insurance with a Policy described in this prospectus may
not be to your advantage.
THIS PROSPECTUS IS NOT VALID UNLESS ATTACHED TO A CURRENT PROSPECTUS OF
ADVANTUS 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 612/665-3500
http:/www.minnesotamutual.com
Dated: May 1, 1997
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TABLE OF CONTENTS
<TABLE>
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Page
<S> <C>
Summary................................................................... 1
Condensed Financial Information........................................... 7
General Descriptions
The Minnesota Mutual Life Insurance Company............................. 9
Variable Life Account................................................... 9
Advantus Series Fund, Inc............................................... 9
Additions, Deletions or Substitutions................................... 10
Selection of Sub-Accounts............................................... 10
The Guaranteed Principal Account........................................ 11
Detailed Information about the Variable Adjustable Life Insurance Policy
Flexibility at Issue.................................................... 12
Policy Adjustments...................................................... 15
Applications and Policy Issue........................................... 19
Policy Premiums......................................................... 20
Policy Values........................................................... 24
Death Benefit Options................................................... 26
Variations in Death Benefit............................................. 27
Policy Loans............................................................ 27
Surrender............................................................... 29
Free Look............................................................... 30
Conversion.............................................................. 30
Policy Charges.......................................................... 30
Other Policy Provisions................................................. 33
Additional Benefits..................................................... 35
Other Matters
Federal Tax Status...................................................... 37
Trustees and Principal Officers of Minnesota Mutual..................... 40
Voting Rights........................................................... 41
Distribution of Policies................................................ 41
Legal Matters........................................................... 42
Legal Proceedings....................................................... 42
Experts................................................................. 42
Registration Statement.................................................. 42
Special Terms............................................................. 43
Financial Statements of Minnesota Mutual Variable Life Account............ 44
Financial Statements of The Minnesota Mutual Life Insurance Company....... 59
Appendix I-Illustrations of Policy Values, Death Benefits and Premiums.... 81
Appendix II-Summary of Policy Charges..................................... 90
Appendix III-Illustration of Death Benefit Calculation.................... 95
Appendix IV-Policy Loan Example........................................... 96
Appendix V-Example of Sales Load Computation.............................. 97
Appendix VI-Average Annual Returns........................................ 98
Appendix VII-S&P 500 Performance History.................................. 99
Appendix VIII-Range of Returns............................................ 100
</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 INSURANCE POLICY?
The Variable Adjustable Life Insurance Policy (the "Policy") described in
this prospectus combines traditional insurance provisions, flexible
administrative procedures and significant and useful market sensitive
investment features. First and foremost, the Policy provides a guaranteed death
benefit for the insured's lifetime so long as scheduled premiums are paid. In
this respect, the Policy is similar to conventional whole life insurance. In
addition, however, the Policy contains adjustment features which give you the
flexibility to tailor the Policy to your individual requirements at issue and
to adjust the Policy thereafter as your insurance needs change. Throughout the
life of the insured, policy values are invested at your direction in the
several portfolios of Advantus Series Fund, Inc. (the "Fund") or in a Minnesota
Mutual general account option. Such investment enables you to obtain market
rates of return on your investment in the Policy in combination with guaranteed
insurance protection.
This prospectus describes two versions of the Variable Adjustable Life
Insurance Policy. The older version ("VAL '87") will be replaced by a newer
version ("VAL '95"). After May 1, 1995, we issued VAL '95 in the states where
that policy form was approved.
WHAT IS THE GUARANTEED DEATH BENEFIT?
We guarantee that the face amount of insurance shown on the policy
specification page will be paid on the death of the insured so long as you do
not have policy indebtedness and all scheduled premiums have been paid. Some
Policies will have a scheduled decrease in such guaranteed face amount at the
end of the initial policy protection period. In such case, the time
and amount of the decrease are also shown on the policy specification page. The
importance of the guarantee is that adverse investment performance may never
reduce your life insurance protection below the guaranteed amount. We impose a
charge of 1.5 percent of premiums for providing this guarantee.
WHAT MAKES THE POLICY "ADJUSTABLE"?
The Policy is termed "Adjustable" because it allows you the flexibility to
custom-design your Policy at issue and thereafter to change or "adjust" your
Policy as your insurance needs change. The three major components in designing
your Policy are the level of premiums you wish to pay, the level of death
benefit protection you need and the appropriate "plan" of insurance for you.
You may choose any two of the three components--premium, face amount and plan--
and we will calculate the third component.
Within very broad limits, including those designed to assure that the Policy
qualifies as life insurance for tax purposes, you may choose any level of
premium or death benefit that you wish. Based on the premium and initial face
amount you choose, we will calculate the tabular cash value which results from
using the guaranteed mortality and assumed rate of return in the Policy. The
pattern of tabular cash values and the resulting schedule of face amount and
premiums define the guaranteed plan of insurance.
The maximum plan of insurance available is one where the Policy becomes paid-
up after the payment of ten annual premiums. A paid-up Policy is one for which
no additional premiums are required to guarantee the face amount of insurance
for the entire life of the insured, provided there is no policy indebtedness.
Whole life plans may be suitable for individuals who wish to ensure lifetime
coverage, without any scheduled reduction in face amount as described below, by
the payment of relatively higher premiums and, in certain cases, for a lesser
period of time, or who wish to accumulate substantial
1
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cash values by utilizing the investment features of the Policy.
The minimum plan that we offer at original issue is a ten year protection
Policy. If the insured's age at original issue is over 55, the minimum plan of
protection will be less than ten years, as described in the table below:
<TABLE>
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MINIMUM PLAN
ISSUE AGE (IN YEARS)
--------- ------------
<S> <C>
56 9
57 8
58 7
59 6
60 or greater 5
</TABLE>
A protection Policy is one which provides only a term plan of insurance,
namely one with a stated face amount and premium level, providing a guaranteed
face amount for a specified number of years, always less than for whole life.
Absent an adjustment to a new plan, at the end of the initial protection
period, there will be a scheduled reduction in the guaranteed face amount;
that face amount will have a whole life plan of insurance, based on continued
payment of your scheduled premiums. A protection plan requires the lowest
initial level of premiums and offers the most insurance protection with the
lowest investment element. The protection plan may be a suitable starting
point for young policy owners who have not reached their peak earning years
but who have substantial life insurance needs.
For any given face amount of insurance, you may select a plan that falls
anywhere between the minimum protection plan and the maximum ten premium
payment whole life plan. The higher the premium you pay, the greater will be
your cash value accumulation at any given time and therefore, for whole life
plans, the shorter the period during which you need to pay premiums before
your Policy becomes paid-up. For example, the table below shows the premium
required for various plans for a standard non-smoker risk, male, age 40 at
issue, insured with a $100,000 VAL '95 Policy.
<TABLE>
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ANNUAL
PLAN OF INSURANCE PREMIUM
- ----------------- -------
<S> <C>
Minimum--10 year protection plan $ 428
30 year protection plan $ 939
Whole life plan $1,723
Life paid-up at age 70 $1,923
Maximum--10 year, limited payment, whole life plan $3,833
</TABLE>
The flexibility described above with respect to designing your Policy to
suit your needs at issue continues throughout the time the Policy remains in
force by virtue of its adjustability features. As your insurance needs and
personal circumstances change over the years, you may change, subject to the
limitations described herein, the premium and face amount and thus the plan.
Some limitations do apply to policy adjustments, and these limitations are
more fully described in this prospectus. See the heading "Policy Adjustments"
in this prospectus on page 15. Any policy adjustment for a change in premium
must result in a change of the annual premium of at least $100 and any
adjustment to a Policy's face amount generally must result in a change of the
face amount of at least $5,000. Other than an automatic adjustment at the
point when the face amount is scheduled to decrease, an automatic adjustment
made under VAL '95 upon the change to the Cash Option death benefit at the
insured's age 70, or an adjustment to a zero or stop premium, an adjusted
Policy must provide a level face amount of insurance to the next policy
anniversary after the later of: (a) five years from the date of adjustment; or
(b) ten years from the date of policy issue. If the insured's age at original
issue is over 55, the adjusted Policy must provide a level face amount of
insurance to the next policy anniversary after the later of: (a) five years
from the date of adjustment; or (b) a certain number of years from the date of
policy issue, based on the table below:
<TABLE>
<CAPTION>
ISSUE AGE NUMBER OF YEARS
--------- ---------------
<S> <C>
56 9
57 8
58 7
59 6
60 or greater 5
</TABLE>
WHAT MAKES THE POLICY "VARIABLE"?
The Policy is termed "Variable" because unlike traditional whole life and
universal life contracts which provide for accumulations of contract values at
fixed rates determined by the insurance company, Variable Adjustable Life
policy values may be invested in a separate account of ours called the
Minnesota Mutual Variable Life Account ("Variable Life Account"), the sub-
accounts of which invest in corresponding Portfolios of the Fund. Thus, your
policy values invested in
2
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these sub-accounts will reflect market rates of return.
The actual cash value of the Policies, to the extent invested in sub-
accounts of the Variable Life Account, will vary with the investment
experience of the sub-accounts of the Variable Life Account. These have no
guaranteed minimum actual cash value. Therefore, you bear the risk that
adverse investment performance may depreciate your investment in the Policy.
At the same time, the Policy offers you the opportunity to have your actual
cash value appreciate more rapidly than it would under comparable fixed
benefit contracts by virtue of favorable investment performance. In addition,
under some Policies, the death benefit will also increase and decrease (but
not below the guaranteed amount) with investment experience.
Those seeking the traditional insurance protections of a guaranteed cash
value may allocate premiums to the guaranteed principal account. The
guaranteed principal account is a general account option with a guaranteed
accumulation at a fixed rate of interest. While it is more fully described in
the Policy, additional information on this option may be found under the
heading "The Guaranteed Principal Account" in this prospectus on page 11.
WHAT VARIABLE INVESTMENT OPTIONS ARE AVAILABLE?
The Variable Life Account invests in ten Portfolios of the Fund. These offer
policy owners the opportunity to invest in stocks, bonds, mortgage securities
and money market instruments. Policy owners who wish to actively manage the
investment of their actual cash values may direct their funds to the Growth,
Bond, Money Market, Mortgage Securities, Index 500, Capital Appreciation,
International Stock, Small Company and Value Stock Portfolios. We also offer
an Asset Allocation Portfolio, which is designed to offer policy owners who do
not wish to direct their investment the opportunity to have the Fund's
investment adviser make the decisions concerning what percentages of the
assets should be invested in stocks, bonds and money market instruments at any
given time. The investment objectives and certain policies of these Portfolios
of the Fund are as follows:
The GROWTH PORTFOLIO seeks the long-term accumulation of capital. Current
income, while a factor in portfolio selection, is a secondary objective. The
Growth Portfolio will invest primarily in common stocks and other equity
securities. Common stocks are more volatile than debt securities and involve
greater investment risk.
The BOND PORTFOLIO seeks as high a level of long-term total rate of return
as is consistent with prudent investment risk. A secondary objective is to
seek preservation of capital. The Bond Portfolio will invest primarily in
long-term, fixed-income, high-quality debt instruments. The value of debt
securities will tend to rise and fall inversely with the rise and fall of
interest rates.
The MONEY MARKET PORTFOLIO seeks maximum current income to the extent
consistent with liquidity and the preservation of capital. The Money Market
Portfolio will invest in money market instruments and other debt securities
with maturities not exceeding one year. The return produced by these
securities will reflect fluctuations in short-term interest rates.
An investment in the Money Market Portfolio is neither insured nor
guaranteed by the U.S. Government and there can be no assurance that the
Portfolio will be able to maintain a stable net asset value of $1.00 per
share.
The ASSET ALLOCATION PORTFOLIO seeks as high a level of long-term total
rate of return as is consistent with prudent investment risk. The Asset
Allocation Portfolio will invest in common stocks and other equity
securities, bonds and money market instruments. The Asset Allocation
Portfolio involves the risks inherent in stocks and debt securities of
varying maturities and the risk that the Portfolio may invest too much or too
little of its assets in each type of security at any particular time.
The MORTGAGE SECURITIES PORTFOLIO seeks a high level of current income
consistent with prudent investment risk. In pursuit of this objective the
Mortgage Securities Portfolio will follow a policy of investment primarily in
mortgage-related securities. Prices of mortgage-related securities will tend
to rise and fall inversely with the rise and fall of the general level of
interest rates.
3
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The INDEX 500 PORTFOLIO seeks investment results that correspond generally
to the price and yield performance of the common stocks included in the
Standard & Poor's Corporation 500 Composite Stock Price Index (the "Index").
It is designed to provide an economical and convenient means of maintaining a
broad position in the equity market as part of an overall investment
strategy. All common stocks, including those in the Index, involve greater
investment risk than debt securities. The fact that a stock has been included
in the Index affords no assurance against declines in the price or yield
performance of that stock.
The CAPITAL APPRECIATION PORTFOLIO seeks growth of capital. Investments
will be made based upon their potential for capital appreciation. Therefore,
current income will be incidental to the objective of capital growth. Because
of the market risks inherent in any equity investment, the selection of
securities on the basis of their appreciation possibilities cannot ensure
against possible loss in value.
The INTERNATIONAL STOCK PORTFOLIO seeks long-term capital growth. In
pursuit of this objective the International Stock Portfolio will follow a
policy of investing in stocks issued by companies, large and small, and debt
obligations of companies and governments outside the United States. Current
income will be incidental to the objective of capital growth. The Portfolio
is designed for persons seeking international diversification. Investors
should consider carefully the substantial risks involved in investing in
securities issued by companies and governments of foreign nations, which are
in addition to the usual risks inherent in domestic investments.
The SMALL COMPANY PORTFOLIO seeks long-term accumulation of capital. In
pursuit of this objective, the Small Company Portfolio will follow a policy
of investing primarily in common and preferred stocks issued by small
companies, defined in the terms of either market capitalization or gross
revenues. Investments in small companies usually involve greater investment
risks than fixed income securities or corporate equity securities generally.
Small companies will typically have a market capitalization of less than $1.5
billion or annual gross revenues of less than $1.5 billion.
The VALUE STOCK PORTFOLIO seeks long-term accumulation of capital. The
production of income through the holding of dividend paying stocks will be a
secondary objective of the Portfolio. The Value Stock Portfolio will invest
primarily in equity securities of companies which, in the opinion of the
Portfolio's investment adviser, have market values which appear low relative
to their underlying value or future earnings and growth potential.
There is no assurance that any Portfolio will meet its objectives.
Additional information concerning the investment objectives, policies and
risks of the Portfolios can be found in the current prospectus for the Fund,
which is attached to this prospectus.
HOW DO YOU ALLOCATE YOUR NET PREMIUMS?
In your initial policy application, you indicate how you want your net
premiums allocated among the guaranteed principal account and the sub-accounts
of the Variable Life Account. All future net premiums will be allocated in the
same proportion until you send us a written request to change the allocation.
Similarly, you may transfer amounts from one sub-account to another by sending
us a written request or by calling Minnesota Mutual.
WHAT DEATH BENEFIT OPTIONS ARE OFFERED UNDER THE POLICY?
The Policy provides two death benefit options: the Cash Option and the
Protection Option. Your choice will depend on whether you want favorable
investment experience of amounts invested in sub-accounts of the Variable Life
Account to be reflected in accelerated accumulations of actual cash value or
in enhanced life insurance coverage. If investment performance is less than
that assumed in the design of the Policy, the death benefit will still equal
the current face amount.
The Cash Option provides a fixed death benefit equal to the guaranteed face
amount. Favorable investment returns, if any, will be reflected in increased
actual cash values which will, on whole life plans, shorten the premium paying
period. Only if and when the policy value exceeds the net single premium
4
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for the then current face amount will the death benefit vary.
The Protection Option provides a variable death benefit from the issue date
as well as variable actual cash values. Favorable investment returns will be
reflected both in increased life insurance coverage and increased cash value
accumulations, although any increases in actual cash values under the
Protection Option will not be as great as under the Cash Option. With VAL '95,
the Protection Option is only available until the policy anniversary nearest
the insured's age 70. At the policy anniversary nearest the insured's age 70,
the Protection Option is automatically converted to the Cash Option. At that
time we will automatically adjust your Policy. We will retain the current
premium amount, adjust the face amount to equal the death benefit immediately
preceding the adjustment, and waive any adjustment restrictions that would
otherwise apply.
DO YOU HAVE ACCESS TO YOUR POLICY VALUES?
Yes. Your actual cash value is available to you during the insured's
lifetime. You may use the actual cash value to provide retirement income, as
collateral for a loan, to continue some insurance protection if you do not
wish to continue paying premiums or to obtain cash by surrendering your Policy
in full or in part.
You may also borrow up to 90 percent of your policy value as a policy loan.
Each alternative may be subject to conditions described in the Policy or in
this prospectus under the heading "Policy Values" on page 24 and certain
transactions may have tax consequences as described under the heading "Federal
Tax Status" on page 37.
WHAT CHARGES ARE ASSOCIATED WITH THE POLICY?
We assess certain charges from each premium payment, from policy values and
from the amounts held in the Variable Life Account. All of these charges,
which are largely designed to cover our expenses in providing insurance
protection and in distributing and administering the Policies, are fully
described under the heading "Policy Charges" in this prospectus on page 30.
Because of the significance of these charges in early policy years,
prospective purchasers should purchase a Policy only if they intend to and
have the financial capacity to keep it in force for a substantial period.
Against base premiums we deduct a basic sales load of 7 percent and we may
also deduct a first year sales load not to exceed 23 percent. We also deduct
from premiums an underwriting charge, a premium tax charge of 2.5 percent and
a face amount guarantee charge of 1.5 percent. Nonrepeating premiums are
currently subject only to the premium tax charge.
Against the actual cash value of a Policy we deduct an administration charge
of $60 per year, a transaction charge for each Policy adjustment and a cost of
insurance charge.
Against the assets held in the Variable Life Account we assess a mortality
and expense risk charge which is deducted from the Variable Life Account
assets on each valuation date at an annual rate of .50 percent of the Variable
Life Account average daily net assets.
With VAL '87, a charge for sub-standard risks is deducted from the actual
cash value of a Policy, With VAL '95, a charge for sub-standard risks is
deducted from the premium.
Advantus Capital Management, Inc., one of our subsidiaries, acts as the
investment adviser to the Fund and also 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 a maximum 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 Advantus Series
Fund, Inc. which is attached to this prospectus.
ARE THE BENEFITS UNDER A POLICY SUBJECT TO FEDERAL INCOME TAX?
With respect to a Policy issued on the basis of a standard premium class, we
believe that such a Policy should qualify as a life insurance contract for
Federal income tax purposes. With respect to a Policy issued on a sub-standard
basis, it is not clear whether or not such a Policy would qualify as a life
insurance contract for Federal tax purposes. Assuming that a Policy qualifies
as a life insurance contract for Federal income tax
5
<PAGE>
purposes, the benefits under Policies described in this prospectus should
receive the same tax treatment under the Internal Revenue Code of 1986 as
benefits under traditional fixed benefit life insurance policies. Thus, death
proceeds payable under variable life insurance policies should be excludable
from the beneficiary's gross income for Federal income tax purposes. It is
also believed that you should not be in constructive receipt of the cash
values of your Policy until actual distribution. See the heading "Federal Tax
Status" in this prospectus on page 37.
It should be noted, however, that under recent legislation the tax treatment
described above relating to distributions is available only for policies not
described as "modified endowment contracts." Policies described as modified
endowment contracts are treated as life insurance with respect to the tax
treatment of death proceeds and the tax-free inside build-up of yearly cash
value increases. However, any amounts received by the owner, such as
dividends, cash withdrawals, loans and amounts received from partial or total
surrender of the contract will be subject to the same tax treatment as amounts
received under an annuity. Annuity tax treatment includes the ten percent
additional income tax imposed on the portion of any distribution that is
included in income, except where the distribution or loan is made on or after
the policy owner attains age 59 1/2, is attributable to the policy owner
becoming disabled, or is part of a series of substantially equal periodic
payments for the life of the policy owner or the joint lives of the policy
owner and beneficiary.
A determination as to whether a policy is a modified endowment contract and
subject to this special tax treatment will require an examination of the
premium paid in relation to the death benefit of the policy. A modified
endowment contract results if the cumulative premiums during the first seven
contract years exceed the sum of the net level premiums which would be paid
under a seven-pay life policy. In addition, a policy which is subject to a
material change will be treated as a new policy on the date that such a
material change takes effect. A determination must be made at that time to
test whether such a policy meets the seven-pay standard by taking into account
the previously existing cash surrender value.
HOW DO YOU PURCHASE A POLICY?
To be eligible to purchase a Policy the insured must be no more than age 85,
satisfy our underwriting standards and the Policy must have a face amount of
at least $50,000. The procedure to purchase a Policy is to complete an
application, provide us with evidence of insurability satisfactory to us and
pay your first scheduled premium. See the heading "Applications and Policy
Issue" in this prospectus on page 19.
For a limited time after your application for the Policy and delivery of it,
the Policy may be returned for a refund of all premium payments within the
terms of its "free look" provision. See the heading "Free Look" in this
prospectus on page 30. Moreover, while the Policy is in force and the premiums
fully paid and prior to the death of the insured, it may be converted to any
adjustable life policy with a fixed death benefit and fixed cash values which
we may then offer. On conversion, the issue age and risk class of the insured
shall be as stated in this Policy. For VAL '95, this conversion privilege is
only available during the first 24 months from the original policy date, but
comparable fixed insurance coverage can be obtained after 24 months from the
original policy date by transferring all of the policy value to the guaranteed
principal account and thereafter allocating all premiums to that account.
6
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CONDENSED FINANCIAL INFORMATION
The financial statements of The Minnesota Mutual Life Insurance Company and
of Minnesota Mutual Variable Life Account may be found elsewhere in this
prospectus.
The table below gives per unit information about the financial history of
each sub-account from the inception of each to December 31, 1996. 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 DECEMBER 31, OPERATIONS)
----------------------------------------------------------------------------------------- TO DECEMBER
1996 1995 1994 1993 1992 1991 1990 1989 1988 31, 1987
---------- ---------- ---------- ---------- --------- --------- --------- ------- ------- -------------
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
Growth Sub-Ac-
count:
Unit value at
beginning of pe-
riod $2.218 $1.794 $1.788 $1.718 $1.647 $1.234 $1.237 $0.987 $0.859 $1.000
Unit value at
end of period $2.586 $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 16,176,371 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-Ac-
count:
Unit value at
beginning of pe-
riod $1.946 $1.634 $1.720 $1.567 $1.477 $1.262 $1.184 $1.056 $0.994 $1.000
Unit value at
end of period $1.994 $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 7,366,222 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 pe-
riod $1.518 $1.447 $1.403 $1.373 $1.337 $1.274 $1.188 $1.100 $1.038 $1.000
Unit value at
end of period $1.585 $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 4,082,791 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 pe-
riod $2.231 $1.793 $1.828 $1.726 $1.617 $1.261 $1.223 $1.022 $0.927 $1.000
Unit value at
end of period $2.497 $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 32,104,595 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 Securi-
ties
Sub-Account:
Unit value at
beginning of pe-
riod $2.032 $1.731 $1.800 $1.656 $1.564 $1.352 $1.242 $1.100 $0.998 $1.000
Unit value at
end of period $2.128 $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 4,175,648 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 pe-
riod $2.421 $1.778 $1.766 $1.617 $1.514 $1.173 $1.226 $0.945 $0.819 $1.000
Unit value at
end of period $2.930 $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 17,250,529 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 DECEMBER 31, OPERATIONS)
------------------------------------------------------------------------------------------- TO DECEMBER
1996 1995 1994 1993 1992 1991 1990 1989 1988 31, 1987
---------- ---------- ---------- --------- --------- --------- ------- ------- ------ -------------
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
Capital Apprecia-
tion
Sub-Account:
Unit value at be-
ginning of
period $2.559 $2.095 $2.059 $1.874 $1.793 $1.272 $1.303 $0.948 $0.885 $1.000
Unit value at end
of period $2.995 $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 19,778,274 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-Ac-
count:
Unit value at be-
ginning of
period $1.502 $1.321 $1.322 $0.929 $1.000*
Unit value at end
of period $1.790 $1.502 $1.321 $1.332 $0.929
Number of units
outstanding at
end of period 28,056,128 20,883,317 15,062,750 6,244,750 1,615,754
Small Company
Sub-Account:
Unit value at be-
ginning of
period $1.594 $1.213 $1.149 $1.000**
Unit value at end
of period $1.689 $1.594 $1.213 $1.149
Number of units
outstanding at
end of period 19,918,050 13,089,758 7,074,933 1,261,521
Value Stock Sub-
Account:
Unit value at be-
ginning of
period $1.369 $1.035 $1.000***
Unit value at end
of period $1.784 $1.369 $1.035
Number of units
outstanding at
end of period 9,648,331 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) 665-3500. 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, Puerto Rico and Guam.
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.
ADVANTUS SERIES FUND, INC.
The Variable Life Account currently invests exclusively in Advantus Series
Fund, Inc. (the "Fund"), a mutual fund of the series type. Prior to May 1,
1997, the name of the Fund was "MIMLIC Series Fund, Inc." On January 14, 1997,
the Fund's Board of Directors approved an amendment of the Fund's Articles of
Incorporation for the purpose of changing the name of the Fund to "Advantus
Series Fund, Inc." effective May 1, 1997. The purpose of the name change is to
provide the Fund with a more distinctive name which may provide greater
visibility and name recognition, which reflects the name of its adviser, and
which may provide additional marketing opportunities for variable contracts
investing in shares of the Fund. The change in the Fund's name will not result
in any change in investment objectives, policies or practices for the Fund or
any of its Portfolios. 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 Advantus Capital Management, Inc. ("Advantus
Capital"). Advantus Capital is a wholly-owned subsidiary of MIMLIC Asset
Management Company ("MIMLIC Management") which, prior to May 1, 1997, served as
investment adviser to the Fund. MIMLIC Management is a wholly-owned subsidiary
of Minnesota Mutual. The same portfolio managers and other personnel who
previously provided investment advisory services to the Fund through MIMLIC
Management continue to provide the same services through Advantus Capital. It
acts as an investment adviser to the Fund pursuant to an advisory agreement.
9
<PAGE>
While Advantus Capital acts as investment adviser to the Fund and its
Portfolios, Winslow Capital Management, Inc., a Minnesota corporation with
principal offices in Minneapolis, Minnesota, has been retained under an
investment sub-advisory agreement to provide investment advice to the Capital
Appreciation Portfolio of the Fund. Similarly, Templeton Investment Counsel,
Inc., a Florida corporation with principal offices in Fort Lauderdale, has been
retained under an investment sub-advisory agreement to provide investment
advice to the International Stock Portfolio of the Fund.
The Fund currently has twenty investment Portfolios, ten of which are
available to the Variable Life Account. A series of the Fund's common stock is
issued for each Portfolio. The assets of each Portfolio are separate from the
others and each has different investment objectives and policies. Therefore,
each Portfolio operates as a separate investment fund and the investment
performance of one has no effect on the investment performance of any other
Portfolio.
All dividends and capital gains distributions from the Portfolios are
automatically reinvested in shares of that Portfolio at net asset value.
For more information on the Fund and its Portfolios, see "Summary--What
investment
options are available?" in this prospectus and
the prospectus of the Advantus Series Fund, Inc. which is attached to this
prospectus.
ADDITIONS, DELETIONS OR SUBSTITUTIONS
We reserve the right to add, combine or remove any sub-accounts of the
Variable Life Account when permitted by law. Each additional sub-account will
purchase shares in a new portfolio or mutual fund. Such sub-accounts may be
established when, in our sole discretion, marketing, tax, investment or other
conditions warrant such action. We will use similar considerations should there
be a determination to eliminate one or more of the sub-accounts of the Variable
Life Account. The addition of any investment option will be made available to
existing policy owners on such basis as may be determined by us.
We retain the right, subject to any applicable law, to make substitutions
with respect to the investments of the sub-accounts of the Variable Life
Account. If investment in a Fund Portfolio should no longer be possible or if
we determine it becomes inappropriate for Policies of this class, we may
substitute another mutual fund or portfolio for a sub-account. Substitution may
be made with respect to existing policy values and future premium payments. A
substitution may be made only with any necessary approval of the Securities and
Exchange Commission.
We reserve the right to transfer assets of the Variable Life Account as
determined by us to be associated with the Policies to another separate
account. A transfer of this kind may require the approvals of state regulatory
authorities and of the Securities and Exchange Commission.
We also reserve the right, when permitted by law, to de-register the Variable
Life Account under the Investment Company Act of 1940, to restrict or eliminate
any voting rights of the policy owners, and to combine the Variable Life
Account with one or more of our other separate accounts.
Shares of the Portfolios of the Fund are also sold to other of our separate
accounts, which are used to receive and invest premiums paid under our variable
annuity contracts and variable life insurance policies. It is conceivable that
in the future it may be disadvantageous for variable life insurance separate
accounts and variable annuity separate accounts to invest in the Fund
simultaneously. Although neither Minnesota Mutual nor the Fund currently
foresees any such disadvantages either to variable life insurance policy owners
or to variable annuity contract owners, the Fund's Board of Directors intends
to monitor events in order to identify any material conflicts between such
policy owners and contract owners and to determine what action, if any, should
be taken in response thereto. Such action could include the sale of Fund shares
by one or more of the separate accounts, which could have adverse consequences.
Material conflicts could result from, for example, (1) changes in state
insurance laws, (2) changes in Federal income tax laws, (3) changes in the
investment management of any of the Portfolios of the Fund, or (4) differences
in voting instructions between those given by policy owners and those given by
contract owners.
SELECTION OF SUB-ACCOUNTS
Although the purpose of the Policy is primarily to provide lifetime life
insurance
10
<PAGE>
protection, a central objective is to provide benefits that will increase in
value if favorable investment results are achieved. Historically, for
investments held over relatively long periods, the investment performance of
common stocks has generally been superior to that of long-term or short-term
debt securities, even though common stocks have been subject to more dramatic
changes in value over short periods of time. Accordingly, the common stock
sub-accounts, growth or value, may be the more desirable option for policy
owners who are willing to accept such short-term risks. The selection of the
aggressive growth sub-account and the small company sub-account will tend to
magnify such risks, as will the international stock sub-account, while the
selection of the index sub-account will tend to match those risks with the
performance of those common stocks included in the underlying index.
On the other hand, the experience of the recent past has been sharply
divergent from the long-term historical record. Since 1980 short-term interest
rates have been, for a time, at a historically high level and for some 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 Advantus Capital's judgment
for an appropriate asset mix by choosing the asset allocation sub-account. You
must make a choice, taking into account how willing you might be to accept
investment risks and the manner in which your other assets are invested.
THE GUARANTEED PRINCIPAL ACCOUNT
The guaranteed principal account is a general account option. You may
allocate net premiums and may transfer your actual cash value subject to
Policy limitations to the guaranteed principal account which is part of
Minnesota Mutual's general account.
Because of exemptive and exclusionary provisions, interests in Minnesota
Mutual's general account have not been registered under the Securities Act of
1933, and the general account has not been registered as an investment company
under the Investment Company Act of 1940. Therefore, neither the guaranteed
principal account nor any interest therein are subject to the provisions of
these Acts, and Minnesota Mutual has been advised that the staff of the SEC
does not review disclosures relating to it. Disclosures regarding the
guaranteed principal account may, however, be subject to certain generally
applicable provisions of the Federal Securities Laws relating to the accuracy
and completeness of statements made in prospectuses.
This prospectus describes a Variable Adjustable Life insurance policy and is
generally intended to serve as a disclosure document only for the aspects of
the Policy relating to the sub-accounts of the Variable Life Account. For
complete details regarding the guaranteed principal account, please see the
Variable Adjustable Life Policy.
GENERAL DESCRIPTION Minnesota Mutual's general account consists of all assets
owned by Minnesota Mutual other than those in the Variable Life Account and
any other separate accounts which Minnesota Mutual may establish. The
guaranteed principal account is that portion of the general assets of
Minnesota Mutual which is attributable to this Policy and policies of this
class, exclusive of policy loans. The description is for accounting purposes
only and does not represent a division of the general account assets for the
specific benefit of contracts of this class. Allocations to the guaranteed
principal account become part of the general assets of Minnesota Mutual and
are used to support insurance and annuity obligations. Subject to applicable
law, Minnesota Mutual has sole discretion over the investment of assets of the
general account. Policy owners do not share in the actual investment
experience of the assets in the general account.
A portion or all the net premiums may be allocated or transferred to
accumulate at a fixed rate of interest in the guaranteed principal account.
Such amounts are guaranteed by Minnesota Mutual as to principal and a minimum
rate of interest. Transfers from the guaranteed principal account to the sub-
accounts of the Variable Life Account are subject to certain limitations with
respect to timing and amount.
11
<PAGE>
DETAILED INFORMATION ABOUT THE
VARIABLE ADJUSTABLE LIFE INSURANCE POLICY
GENERAL ACCOUNT VALUE Minnesota Mutual bears the full investment risk for
amounts allocated to the guaranteed principal account and guarantees that
interest credited to each policy owner's actual cash value in the guaranteed
principal account will not be less than an annual rate of 4 percent without
regard to the actual investment experience of the general account.
Consequently, if a policy owner allocates all net premiums only to the
guaranteed principal account, and if all scheduled premiums are paid when due,
there is no policy adjustment, and we deduct the maximum cost of insurance
charges and all other charges as set forth in this Policy, then the actual
cash value will be at least equal to the tabular cash value of the Policy.
Minnesota Mutual may, at its sole discretion, credit a higher rate of
interest, "excess interest," although it is not obligated to credit interest
in excess of 4 percent per year, and might not do so. Any interest credited on
the Policy's actual cash value in the guaranteed principal account in excess
of the guaranteed minimum rate per year will be determined at the sole
discretion of Minnesota Mutual. The policy owner assumes the risk that
interest credited may not exceed the guaranteed minimum rate.
Even if excess interest is credited to the actual cash value in the
guaranteed principal account, no excess interest will be credited to
that portion of the policy value which is in the
loan account in the general account. However,
such loan account will be credited interest at a rate which is not less than
the policy loan interest rate minus 2 percent per annum.
FLEXIBILITY AT ISSUE
This Policy is similar to a Minnesota Mutual conventional life insurance
product known as "adjustable life". This Policy, like conventional adjustable
life insurance, permits you to determine the amount of life insurance
protection you need and the amount of money you can afford to pay. Based on
your selection of any two of the three components of a Policy--face amount,
premium and plan--we will then calculate the third. Thus, adjustable life
allows you the flexibility to custom-design a Policy to meet your needs.
Theoretically, each Policy can be unique because of the different combinations
of age, amount of life insurance protection and premium. In addition,
adjustable life is designed to adapt to your changing needs and objectives by
allowing you to change your Policy after issue. The face amount and premium
level, and thus the plan of insurance, may be adjusted by you, subject to the
limitations described herein, so long as the Policy remains in force.
The Policy offered by this prospectus provides the same type of flexibility
found in conventional adjustable life. Subject to certain minimums, maximums
and our underwriting standards, you may choose any level of premium or face
amount that you wish. Based on the premium and the initial face amount you
choose, we will calculate the tabular cash value which results from using the
guaranteed mortality and assumed rate of return in the Policy. The pattern of
tabular cash values and the resulting schedule of face amount and premiums
define the guaranteed plan of insurance.
WHOLE LIFE INSURANCE PLANS Whole life insurance plans provide life insurance
in an amount at least equal to the initial face amount at the death of the
insured whenever that occurs. Premiums may be payable for a specified number
of years or for the life of the insured. Whole life insurance plans assume an
eventual tabular cash value accumulation,
at or before the insured's age 100, equal to the net single premium required
for that face amount of insurance. The net single premium for a whole life
insurance plan is the amount of money that is necessary, at the insured's
attained age, to pay for all future guaranteed cost of insurance charges for
the entire lifetime of the insured without the payment of additional premium.
Under the Policy, the highest premium amount permitted at the time of issue,
or the maximum plan of insurance, for a specific face amount is one which will
provide a fully paid-up Policy after the payment of ten annual premium
payments. A Policy becomes paid-up at an anniversary when its policy value
exceeds a net single premium for the then current face amount.
Examples of whole life plans include Policies which become paid-up upon the
12
<PAGE>
payment of a designated number of annual premiums, such as ten pay life or
twenty pay life, or Policies which become paid-up at a designated age of the
insured, such as paid-up at 65. If you select a premium level for a specific
face amount which would cause the Policy to become paid-up at other than a
policy anniversary, you will be required to pay scheduled premiums until the
policy anniversary immediately following the date the Policy is scheduled to
become paid-up. The Policy will be issued with a scheduled increase in face
amount to reflect the fact that the scheduled premiums were in excess of the
premiums required to have a paid-up Policy for the initial face amount of
coverage.
PROTECTION INSURANCE PLANS Protection insurance plans provide life insurance
in an amount at least equal to the initial face amount for a specified period.
Premiums will be payable for the life of the insured or to age 100. Protection
plans of insurance assume the exhaustion of the tabular cash value at the end
of the initial protection period. At the end of this period, the insurance
coverage will not terminate, but will be guaranteed at a reduced amount
thereafter for life. This is called the scheduled reduction in face amount. At
the time of the scheduled reduction, the reduced amount of insurance will be
calculated on the basis of the continued payment of the scheduled premiums and
a whole life plan of insurance. Thus, a Policy with a protection plan of
insurance at issue, will have an initial guaranteed death benefit extending to
a stated age and a lower death benefit guaranteed thereafter for the life of
the insured.
If, at the time of a scheduled reduction in face amount under a protection
type plan of
insurance, the policy value has not been
exhausted, a new face amount will be determined to reflect that value. The new
face amount will also be based upon the continued payment of the scheduled
premium and a whole life plan of insurance. Because the existing policy value,
if any, is used in determining the new face amount, there is no loss of
benefits realized from:
(1) Previous investment performance more favorable than the assumed annual net
rate of 4 percent, or
(2) Any cost of insurance charges less than those assumed in the mortality
tables
on which tabular cash values are based.
At the time of a scheduled reduction in face amount under a protection type
plan absent any other instructions, a policy adjustment will be made to
maintain the current face amount of the Policy. For the kinds of changes
available under the Policies, please see the heading "Policy Adjustments"
immediately following. This will result in the recalculation of the plan of
insurance.
For example, if a standard risk VAL '95 Policy were issued with a face
amount of $100,000 and an annual premium of $926, the plan of insurance for a
male non-smoker insured age 45 at issue would be full coverage until age 65,
at which time the face amount would be reduced to $14,701 guaranteed for the
whole of life. If we assume a hypothetical gross annual investment return of 8
percent, the Cash Option death benefit, current mortality charges, no loans,
and no policy adjustments, the policy value of the Policy at age 65 would be
$16,125. Based on this policy value, a whole life plan, and the continued
payment of the $926 premium, the face amount would be reduced to $42,607
guaranteed thereafter for the whole of life.
The table below shows the policy values and death benefits for the Policy
described in the above example, if the scheduled reduction is allowed to
occur, which is twenty years after issue.
13
<PAGE>
SCHEDULED REDUCTION
<TABLE>
<CAPTION>
GUARANTEED
POLICY DEATH MINIMUM
VALUE BENEFIT DEATH
POLICY ATTAINED ANNUAL END OF BEGINNING BENEFIT AT
YEAR AGE PREMIUM YEAR OF YEAR ISSUE
- ------ -------- ------- ------ --------- ----------
<S> <C> <C> <C> <C> <C>
5 50 $926 $ 2,088 $100,000 $100,000
10 55 926 5,921 100,000 100,000
15 60 926 10,807 100,000 100,000
20 65 926 16,125 100,000 100,000
21 66 926 17,824 42,607 14,701
22 67 926 19,640 42,607 14,701
23 68 926 21,587 42,607 14,701
24 69 926 23,680 42,607 14,701
25 70 926 25,938 42,607 14,701
</TABLE>
Alternately, for the VAL '95 Policy above we will make a policy adjustment
effective the same date as the scheduled reduction to maintain the $100,000
face amount and the $926 premium. The new guaranteed plan of insurance would
be full coverage until age 74, at which time the face amount would be reduced
to not less than $9,756, again with the face amount guaranteed for the whole
of life.
The following table shows the policy values and death benefits when a policy
adjustment to maintain the initial face amount is automatically done after
twenty years.
POLICY ADJUSTMENT
<TABLE>
<CAPTION>
GUARANTEED
POLICY DEATH MINIMUM
VALUE BENEFIT DEATH
POLICY ATTAINED ANNUAL END OF BEGINNING BENEFIT
YEAR AGE PREMIUM YEAR OF YEAR ADJUSTMENT
- ------ -------- ------- ------ --------- ----------
<S> <C> <C> <C> <C> <C>
5 50 $926 $ 2,088 $100,000 $100,000
10 55 926 5,921 100,000 100,000
15 60 926 10,807 100,000 100,000
20 65 926 16,125 100,000 100,000
21 66 926 17,171 100,000 100,000
22 67 926 18,210 100,000 100,000
23 68 926 19,245 100,000 100,000
24 69 926 20,275 100,000 100,000
25 70 926 21,301 100,000 100,000
</TABLE>
The lowest annual base premium allowed for any plan of insurance is $300.
Subject to this limitation, the lowest premium you may choose for any specific
amount of life insurance protection is a premium which will provide a level
death benefit for a period which shall be the longer of ten years from the
policy issue date or five years from the date of a policy adjustment. If the
insured's age at original issue is over age 55, the minimum plan of protection
will be less than ten years, as described in the table below:
<TABLE>
<CAPTION>
MINIMUM PLAN
ISSUE AGE (IN YEARS)
- ------------- ------------
<S> <C>
56 9
57 8
58 7
59 6
60 or greater 5
</TABLE>
14
<PAGE>
This is the minimum plan of insurance for any given face amount. The minimum
initial face amount on a Policy is $50,000.
POLICY ADJUSTMENTS
Adjustable life insurance policies allow an owner to change the premium,
face amount or the plan of insurance of the Policy after it is issued. Subject
to the limitations described more fully below, you can at any time change the
face amount of your Policy or your scheduled premium. A change in scheduled
premium or face amount will usually result in a change in the plan of
insurance. Depending upon the change you request, the premium paying period
may be lengthened or shortened for whole life plans or the plan may be
converted from a whole life plan to a protection type plan which provides for
a
scheduled reduction in face amount at a
future date. For Policies having a protection type plan, a change in face
amount or premium may convert the Policy to a whole life plan by eliminating
the scheduled decrease in face amount or it may change the time at which the
decrease is scheduled to occur.
Changes in premium, face amount or the plan of insurance are referred to as
policy adjustments. They may be made singly or in combination with one
another. There are also four other types of policy adjustments: (1) a partial
surrender of a Policy's cash value; (2) an adjustment so that there are no
further scheduled base premiums; (3) an automatic adjustment at the point when
the face amount is scheduled to decrease; and (4) an automatic adjustment made
under VAL '95 upon the change in the death benefit option at the policy
anniversary nearest the insured's age 70. When a Policy is adjusted, we
compute a new plan of insurance, face amount or premium amount, if any. If a
partial surrender of actual cash value is made, the Policy will be
automatically adjusted to a new face amount which will be equal to the old
face amount less the amount of the partial surrender, unless a different face
amount is requested or required to satisfy the restrictions on adjustability
described below. An adjustment providing for no further scheduled base premium
payments, regardless of whether the Policy is paid-up, is also referred to as
a "stop premium" mode and is described under the caption "Avoiding Lapse" on
page 23 of this prospectus. At the point when the face amount is scheduled to
decrease, an adjustment may be made to
maintain the current face amount and premium of the Policy, as described on
page 17. Certain adjustments may cause a Policy to become a modified endowment
contract. See "Federal Tax Status" for a description of the federal tax
treatment of modified endowment contracts.
In computing either a new face amount or new plan of insurance as a result
of an adjustment, we will make the calculation on the basis of the higher of
the Policy's "policy value" or its "tabular cash value" at the time of the
change. The "policy value" is the actual cash value of the Policy plus the
amount of any policy loan, while the "tabular cash value" is what the actual
cash value of the Policy would have been if all scheduled premiums were paid
annually on the premium due date, there were no policy adjustments or policy
loans, any percentage increase in the actual cash value matched the Policy's
assumed rate of return, the net investment experience of the sub-accounts
selected by the owner or the interest credited to the guaranteed principal
account matched the policy's assumed rate of return, the maximum cost of
insurance charges were deducted once at the end of the policy year and other
charges provided for in the Policy were deducted. See, for a further
description of these values, the sections "Policy Values" and "Variations in
Death Benefit" in this prospectus on pages 24 and 27. If the policy value is
higher than the tabular cash value, a policy adjustment will translate the
excess value into enhanced insurance coverage, as either a higher face amount
or an improved plan of insurance. If the policy value is less than the tabular
cash value, use of the tabular cash value insures that the Policy's guarantee
of a minimum death benefit is not impaired by the adjustment.
Any adjustment will result in a redetermination of a Policy's tabular cash
value. For a further discussion of the tabular cash value, see the heading
"Variations in Death Benefit" in this prospectus on page 27. 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.
15
<PAGE>
On adjustment, you may request a new Policy face amount. In the absence of
instructions to the contrary, we will calculate the face amount after
adjustment depending on the Policy's death benefit option, the type of
adjustment, and whether the Policy is a VAL '95 or a VAL '87. With both VAL
'87 and VAL '95, if the Policy has the Cash Option death benefit the new face
amount will be equal to the face amount of the Policy less the amount of any
partial surrender made as part of the adjustment. With a VAL '87 Policy with
the Protection Option death benefit the face amount after adjustment shall be
equal to the greater of the face amount of the Policy or the death benefit
provided by the Policy immediately prior to the adjustment, less the amount of
any partial surrender made as part of the adjustment. With a VAL '95 Policy
with the Protection Option death benefit the face amount after adjustment will
be equal to the face amount of the Policy immediately prior to the adjustment.
To illustrate the operation of an adjustment, consider a standard risk VAL
'95 Policy issued with a face amount of $100,000 and an annual premium of $926
to a male non-smoker insured age 45. If we assume a hypothetical gross annual
investment return of 8 percent, the Protection Option death benefit, current
mortality charges, no loans, and no policy adjustments, the policy value of
the Policy at age 50 would be $2,073 and the Policy's tabular cash value would
be $1,680. Assume the owner requests a policy adjustment to increase the
scheduled premium to $1,500, but does not specify the face amount. As
described above, we compare the policy value less the charge on adjustment to
the tabular cash value to determine the policy value to be used in the plan of
insurance calculation. In this example, the policy value (less the charge on
adjustment) is greater than the tabular cash value, so the policy value is
used. The tabular cash value is then set equal to the policy value. The policy
adjustment would therefore result in a face amount of $100,000, a scheduled
premium of $1,500, and a plan of insurance of full coverage until age 74, at
which time the face amount would be scheduled to reduce to $14,998.
The table below shows the tabular cash values, policy values and death
benefits for the first ten years of the example described.
<TABLE>
<CAPTION>
END OF YEAR
POLICY ATTAINED ANNUAL TABULAR END OF YEAR BEGINNING OF YEAR
YEAR AGE PREMIUM CASH VALUE POLICY VALUE DEATH BENEFIT
- ------ -------- ------- ----------- ------------ -----------------
<S> <C> <C> <C> <C> <C>
1 46 $ 926 $ 0 $ 13 $100,000
2 47 926 437 475 100,013
3 48 926 865 945 100,475
4 49 926 1,280 1,478 100,948
5 50 926 1,680 2,073 101,478
6 51 1,500 2,842 2,926 102,073
7 52 1,500 3,766 4,045 102,926
8 53 1,500 4,684 5,281 104,045
9 54 1,500 5,591 6,629 105,281
10 55 1,500 6,477 8,082 106,629
</TABLE>
All of these changes may be accomplished under a single Policy. There is no
need to surrender the Policy or purchase a new one simply because of a change
in your insurance needs. Whenever adjustments are made, new policy information
pages will be provided. These pages state the new face amount, scheduled
premium, plan of insurance, attained age and tabular cash value.
NONREPEATING PREMIUMS The Policy also allows a policy owner to pay a premium
called a nonrepeating premium. This payment of premium is in addition to the
scheduled premium payments called for by the terms of the Policy. While the
payment of a nonrepeating premium does not cause an adjustment to the Policy,
any such payment will be reflected in the tabular cash value of the Policy at
issue or upon any later adjustment. The payment of a nonrepeating premium will
increase the policy values you have available for investment in the Fund. With
VAL '95, we may impose additional restrictions or refuse to permit
nonrepeating premiums in our discretion.
RESTRICTIONS ON ADJUSTMENTS Adjustments can be made on any monthly anniversary
of
16
<PAGE>
the policy date. You may request a policy adjustment by completing an
application for adjustment. Adjustments will not apply to any additional
benefit agreements which are attached to your Policy. Any adjustment will be
effective on the date that it is approved by us and recorded at our home
office.
An adjustment must satisfy certain limitations on premiums, face amount and
plan. Other limitations on adjustments and combinations of adjustments may
also apply.
The current limits on adjustments are those described here. We reserve the
right to change these limitations from time to time.
An adjustment may not result in more than a paid-up whole life plan for the
then current face amount. After age 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 $100. Currently, we will waive this limitation for changes
in premium which are the result of a face amount change under the Cost of
Living Agreement. Any adjustment involving an increase in premium may not
result in a whole life plan of insurance requiring the payment of premiums for
less than ten years or to age 100, if less. In addition, any Policy
adjustment, other than a change to a stop premium, must result in a Policy
with an annual base premium of at least $300.
Any adjustment for a change of the face amount must result in a change of
the face amount of at least $5,000, except for face amount changes which are
the result of a Cost of Living Agreement change, a partial surrender under the
Policy or face amount changes which are required to satisfy limitations
pertaining to plans of insurance.
After adjustment, other than an automatic adjustment at the point when the
face amount is scheduled to decrease, an automatic adjustment made under VAL
'95 upon the change to the Cash Option death benefit at the insured's age 70,
or adjustment to stop premium, the Policy must provide a level face amount of
insurance to the next policy anniversary after the later of: (a) five years
from the date of adjustment; or (b) ten years
from the date of issue. If the insured's age at original issue is over age 55,
the minimum plan of protection will be less than ten years from the policy
issue date, as described on page 14. An automatic adjustment at the point when
the face amount is scheduled to decrease or an adjustment to stop premium
requires that a Policy have an actual cash value at the time of the adjustment
as would be sufficient to keep the Policy in force until the next policy
anniversary.
As an example of the operation of the plan limitation on policy adjustment,
assume a minimum plan VAL '95 Policy issued to a standard non-smoker risk male
at age 40 with a level face amount of $100,000 for a period of ten years
(until age 50) on a protection type plan for an annual premium of $428. Assume
also that the Policy has a policy value equal at all times to its tabular cash
value. If at the end of five years (at age 45) the policy owner wished to
decrease the premium so as to reduce the period before a scheduled reduction
in face amount took place from age 50 to age 49, the adjustment would not be
allowed because a face amount decrease at age 49 would be only four years from
the date of the policy adjustment, and nine years from the date of issue. On
the other hand, if the owner wished to postpone a scheduled reduction in face
amount until age 65 by increasing the premium of the Policy to $835 for the
same initial face amount, the adjustment would be permitted because the face
amount decrease would occur 25 years from the original issue date and 20 years
from the date of adjustment, both periods of time which are within the policy
adjustment limitations on plans of insurance.
The plan limitations apply for each type of adjustment. Consider a situation
similar to the one above except that the Policy has an initial face amount of
$200,000. In that case the annual premium for a minimum plan of ten years
(before the scheduled reduction in face amount) would be $800. If the policy
owner wished to make a partial surrender of $500 at the end of five years, the
surrender would not be permitted without either an increase in premium or a
further reduction in face amount, since the annual premium of $800 would
support the adjusted face amount of $199,500 for only two more years from the
point of adjustment. This resulting plan would be less than the minimum plan
of five years. If the owner elected to increase the premium
in order to maintain the new face amount of $199,500, the new premium would
have to be sufficient to continue the new face amount for an additional five
years from the policy adjustment date.
17
<PAGE>
Similarly, if the owner requested a reduction in face amount below $199,500
in order to satisfy the limitations pertaining to plans of insurance, the new
face amount would have to continue for an additional five years, which is ten
years from the date the Policy was issued. As indicated, a face amount change
made for the purpose of bringing an adjustment into compliance with the plan
limitation will not be subject to the usual minimum face amount change
requirement of $5,000. A partial surrender may often require a reduction in
face amount by more than the amount of the surrender in order to satisfy plan
limitations.
PROOF OF INSURABILITY All adjustments resulting in an increase in face amount
require proof of insurability except for those made pursuant to a face amount
increase agreement attached to the Policy or a Cost of Living Agreement
described below. In addition, proof of insurability is required for partial
surrenders where, at the request of the policy owner, no reduction is made in
the Policy's death benefit. Decreases in face amount or premium and increases
in premium not resulting in any increase in death benefit do not require
evidence of insurability. With VAL '87, the payment of a nonrepeating premium
will require evidence of insurability when the Protection Option death benefit
option is in effect or if the Policy is paid-up at the time of payment. With
VAL '95, we may require evidence of insurability when a nonrepeating premium
is paid if the death benefit of your Policy increases as a result of the
payment of a nonrepeating premium.
CHARGES IN CONNECTION WITH POLICY ADJUSTMENTS In connection with a policy
adjustment, we will make a special $25 charge to cover the administrative
costs associated with processing the adjustment. If, however, the only policy
adjustment is a partial surrender, the transaction charge shall be the lesser
of $25 or 2 percent of the amount surrendered. In addition, because of the
underwriting and selling expenses anticipated for any change resulting in an
increase in premium, we will assess a new first year sales load on any
increase in premium on adjustment. We will also assess an underwriting charge
on any increase in face amount requiring evidence of insurability. See, for a
further description of these charges, the section "Policy Charges" in this
prospectus on page 30. Limiting the first year sales load and underwriting
charge to the
increased premium or face amount is in substance the equivalent of issuing a
new Policy for the increase. A policy adjustment will always be more favorable
than the purchase of a second Policy for the increased amount since there is
no duplication of administrative charges.
18
<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,
If you . . .
<TABLE>
<S> <C> <C>
Decrease the current then: a scheduled decrease
face amount.......... while the premium remains in the current face amount,
or the same................... if any, will take place at
Retain the current an increased age of the
face amount.......... while the premium increases insured; a scheduled
decrease in the face amount
will be eliminated; or the
premium paying period will
be shortened.
- -------------------------------------------------------------------------------
If you . . .
Increase the current then: a scheduled decrease
face amount.......... with no increase in premium in the current face amount,
or if any, will take place at
Retain the current a decreased age of the
face amount.......... while the premium insured; a scheduled
or decreases.................. decrease in the face amount
Make a partial will occur; or the premium
surrender............ while the premium and face paying period will be
amount remain the same..... lengthened.
- -------------------------------------------------------------------------------
If you . . .
Stop base premium.... while the face amount then: a scheduled decrease
remains the same........... in the current face amount, if
any, will take place at a
decreased age of the insured
and no insurance will be
provided after the decrease;
or, a scheduled decrease in the
face amount will occur.
However, for VAL '95, you must
continue to pay the charge for
a sub-standard risk, or your
Policy will lapse.
</TABLE>
You may request a description of the effect of other types or combinations
of adjustments from us.
APPLICATIONS AND POLICY ISSUE
Persons wishing to purchase a Policy must send a completed application to us
at our home office. The minimum face amount we will issue on a Policy is
$50,000 and we require an annual base premium on each Policy of at least $300.
The minimum plan of insurance at policy issue is a protection plan which has a
level death benefit for a period of ten years. If the insured's age at
original issue is over age 55, the minimum plan of protection will be less
than ten years from the Policy issue date, as described on page 14. The Policy
must be issued on an insured
19
<PAGE>
no more than age 85. Before issuing any Policy, we require evidence of
insurability satisfactory to us, which in some cases will require a medical
examination. Persons who satisfy the underwriting requirements are offered the
most favorable premium rates, while a higher premium is charged to persons
with a greater mortality risk. Acceptance of an application is subject to our
underwriting rules and we reserve the right to reject an application for any
reason.
If we accept an application, accompanied by a check for all or at least one-
twelfth of the annual premium, the policy date will be the issue date, which
is the date the decision to accept the application and issue the Policy is
made. The policy date will be used to determine subsequent policy
anniversaries and premium due dates.
If we accept an application not accompanied by a check for the initial
premium, a Policy will be issued with a policy date which is 15 days after the
issue date. The 15 day period has been determined to be the normal time during
which delivery of the Policy to the policy owner is expected to occur. We or
our agent must receive the initial premium within 60 days after the issue
date. No life insurance coverage is provided until the initial premium is
paid. If the initial premium is paid after the policy date (and the policy
date is not changed as described below), you will have paid for insurance
coverage during a period when no coverage was in force. Therefore, in such
circumstance you should consider requesting a current policy date, i.e., the
date on which our home office receives the premium. You will be sent updated
policy pages to reflect the change in policy date. This request should be made
at or prior to the time you pay the initial premium.
In certain circumstances it may be to your advantage to have the policy date
be the same as the issue date in order to preserve an issue age on which
premium rates are based. In that case, all premiums due between the issue date
and the date of delivery of the Policy must be paid on delivery.
When the Policy is issued, the face amount, premium, tabular cash values and
a listing of any supplemental agreements are stated on the policy information
pages of the policy form, page 1.
POLICY PREMIUMS
The Policies have a level premium throughout the life of the insured or
until the Policy becomes paid-up. We guarantee that we will not increase the
amount of premiums for a Policy in force. Subject to the limitations discussed
under the heading "Restrictions on Adjustments" in this prospectus on page 16,
you may choose to adjust the Policy at any time and alter the amount of future
premiums.
In addition to scheduled premiums, you may pay a nonrepeating premium. For
VAL '95, we may refuse to accept a nonrepeating premium. The maximum
nonrepeating premium we will accept is the amount sufficient to change your
Policy to a paid-up whole life policy for the then current face amount. The
minimum nonrepeating premium is $500. We will waive this minimum amount for
nonrepeating premiums if you make arrangements for the payment of a
nonrepeating premium through an automatic bank check plan and the amount of
each such payment under that plan is an amount of at least $200. We will bill
for nonrepeating premiums in connection with Policies having a minimum base
premium of at least $2,400. The minimum nonrepeating premium in those
circumstances remains at $500. With VAL '95 we may impose additional
restrictions or refuse to permit nonrepeating premiums in our discretion.
The payment of a nonrepeating premium may have Federal income tax
consequences. See the heading "Federal Tax Status" in this prospectus on page
37.
The amount of premium required for a Policy will depend on the Policy's
initial face amount, the plan of insurance, the insured's age at issue, sex,
risk classification, smoking status and the additional benefits associated
with the Policy.
The first premium is due as of the policy date and must be paid on or before
the date your Policy is delivered. Between the date we receive an initial
premium for the Policy, either a full first premium or a partial premium, and
the date insurance coverage commences under the Policy, the life of the
insured may be covered under the terms of a conditional insurance agreement.
All scheduled premiums after the first premium are payable on or before the
date they are due and must be mailed to us at our home office. In some cases,
you may elect to have premiums paid automatically under our
20
<PAGE>
automatic bank check plan through pre-authorized transfers from a bank
checking account or such other account as may be approved by your bank.
Scheduled premiums on the Policy are payable during the insured's lifetime
on an annual, semi-annual, quarterly or monthly basis on the due dates set
forth in the Policy. For this purpose, a scheduled premium may be paid no
earlier than twenty days prior to the date that it is due. For premiums paid
after the due date, see the paragraph following the heading "Lapse" in this
section of the prospectus.
With VAL '87, charges for additional benefits are deducted from premiums to
calculate base premiums. From base premiums we deduct charges assessed against
premiums and nonrepeating premiums, to calculate net premiums. With VAL '95,
charges for additional benefits and for sub-standard risks are deducted from
premiums to calculate base premiums. From base premiums we deduct charges
assessed against premiums and nonrepeating premiums to calculate net premiums.
Net premiums, namely premiums after the deduction of the charges assessed
against premiums and nonrepeating premiums, are allocated to the guaranteed
principal account or sub-accounts of the Variable Life Account which, in turn,
invest in Fund shares.
You make your selection on your application for the Policy. You may change
your allocation instructions for future premiums by giving us a written
request. The allocation to the guaranteed principal account or to any sub-
account of the Variable Life Account must be at least 10 percent of the net
premium. We reserve the right to delay the allocation of net premiums to named
sub-accounts for a period of 30 days after Policy issue or an adjustment. If
we exercise this right, net premiums will be allocated to the Money Market
sub-account until the end of that period. This right, which has not been
implemented to date, will be exercised by us only when we believe economic
conditions make such an allocation necessary to reduce market risk during the
free look period.
We reserve the right to restrict the allocation of premiums to the
guaranteed principal account. If we do so, no more than 50 percent of the net
premium may be allocated to the guaranteed principal account. Currently, we do
not exercise such a restriction, and this restriction is not applicable when
you are allocating all of your premiums to the guaranteed principal account as
a conversion privilege.
The Policy allows for transfers of the actual cash value between the
guaranteed principal account and the Variable Life Account or among the sub-
accounts of the Variable Life Account. You may request a transfer at any time
while the Policy remains in force or you may arrange in advance for systematic
transfers: transfers of specified dollar or unit value amounts to be made
periodically among the sub-accounts and the guaranteed principal account. The
amount to be transferred to or from a sub-account or the guaranteed principal
account must be at least $250. If the balance is less than $250, the entire
actual cash value attributable to that sub-account or the guaranteed principal
account must be transferred. If a transfer would reduce the actual cash value
in the sub-account from which the transfer is to be made to less than $250, we
reserve the right to include that remaining sub-account actual cash value in
the amount transferred. We will make the transfer on the basis of sub-account
unit values as of the end of the valuation period during which your written or
telephone request is received at our home office. A transfer is subject to a
transaction charge, not to exceed $10, for each transfer of actual cash value
among the sub-accounts and the guaranteed principal account. Currently, there
is a charge only for non-systematic transfers in excess of four per year. None
of these requirements will apply when you are transferring all of the policy
value to the guaranteed principal account as a conversion privilege.
Your instructions for transfer may be made in writing or you, or a person
authorized by you, may make such changes by telephone. To do so, you may call
us at 1-800-277-9244 between the hours of 8:00 a.m. and 4:30 p.m., Central
Time, our regular business hours. Policy owners may also submit their requests
for transfer, surrender or other transactions to us by facsimile (FAX)
transmission. Our FAX number is (612) 665- 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
21
<PAGE>
or market changes, policy owners may experience difficulty in implementing a
telephone transfer due to a heavy volume of telephone calls. In such a
circumstance, policy owners should consider submitting a written transfer
request while continuing to attempt a telephone redemption. We reserve the
right to restrict the frequency of, or otherwise modify, condition, terminate
or impose charges upon, telephone transfer privileges. For more information on
telephone transfers, contact us.
While for some policy owners we have used a form to pre-authorize telephone
transactions, we now make this service automatically available to all policy
owners. We will employ reasonable procedures to satisfy ourselves that
instructions received from policy owners are genuine and, to the extent that we
do not, we may be liable for any losses due to unauthorized or fraudulent
instructions. We require policy owners to identify themselves in those
telephone conversations through policy numbers, social security numbers and
such other information as we may deem to be reasonable. We record telephone
transfer instruction conversations and we provide the policy owners with a
written confirmation of the telephone transfer.
The maximum amount of actual cash value to be transferred out of the
guaranteed principal account to the sub-accounts of the Variable Life Account
may be limited to 20 percent of the guaranteed principal account balance.
Transfers to or from the guaranteed principal account may be limited to one
such transfer per policy year. Neither of these restrictions will apply when
you are transferring all of the policy value to the guaranteed principal
account as a conversion privilege.
Transfers from the guaranteed principal account must be made by a written or
telephone request. It must be received by us or postmarked in the 30-day period
before or after the last day of the policy year. Written requests for transfers
which meet these conditions will be effective after we approve and record them
at our home office. Currently, we do not impose such restrictions.
In the case of a transfer, the charge is assessed against the amount
transferred.
LAPSE Your Policy may lapse in one of two ways: (1) if a scheduled premium is
not paid; or (2) if there is no actual cash value when there is a policy loan.
As a scheduled premium policy, your Policy will lapse if a premium is not
paid on or before the date it is due or within the 31-day grace period provided
by the Policy. You may pay that premium during the 31-day period immediately
following the premium due date. Your premium payment, however, must be received
in our home office within the 31-day grace period. The insured's life will
continue to be insured during this 31-day period.
With VAL '95, if a Policy covers an insured in a sub-standard risk class, the
portion of the scheduled premium equal to the charge for such risk will
continue to be payable notwithstanding the adjustment to a stop premium mode.
As with any scheduled premium, failure to pay the premium for the sub-standard
risk within the grace period provided will cause the Policy to lapse.
If scheduled premiums are paid on or before the dates they are due or within
the grace period, absent any policy loans, the Policy will remain in force even
if the investment results of the sub-accounts have been so unfavorable that the
actual cash value has decreased to zero. However, should the actual cash value
decrease to zero while there is an outstanding policy loan the Policy will
lapse, even if the Policy was paid-up and all scheduled premiums had been paid.
If the Policy lapses because not all scheduled premiums have been paid or if
a Policy with a policy loan has no actual cash value, we will send you a notice
of default that will indicate the payment required to keep the Policy in force
on a premium paying basis. If the payment is not received within 31 days after
the date of mailing the notice of default, the Policy will terminate or the
nonforfeiture benefits will apply. For more information on lapse, see "Avoiding
Lapse" on page 23.
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
22
<PAGE>
single sum payment of your surrender value within 62 days of the date of the
first unpaid premium, we will apply it to purchase extended term insurance on
the insured's life.
The duration of the extended term benefit is determined by applying the
surrender value of your Policy as of the end of the grace period as a net
single premium to buy fixed benefit term insurance. The extended term benefit
is not provided through the Variable Life Account and the death benefit will
not vary during the extended term insurance period. The amount of this
insurance will be equal to the face amount of your Policy, less the amount of
any policy loans at the date of lapse. During the extended term period a
Policy has a surrender value equal to the reserve for the insurance coverage
for the remaining extended term period. At the end of the extended term period
all insurance provided by your Policy will terminate and the Policy will have
no further value.
You may arrange for automatic premium loans to keep the Policy in force in
the event that a scheduled premium payment is not made. For more information
on this option, please see the heading "Policy Loans" in this prospectus on
page 27.
REINSTATEMENT At any time within three years from the date of lapse you may
ask us to restore your Policy to a premium paying status unless the Policy
terminated because the surrender value has been paid or the period of extended
insurance has expired. We will require:
(1) your written request to reinstate the Policy;
(2) that you submit to us at our home office during the insured's lifetime
evidence satisfactory to us of the insured's insurability so that we may
have time to act on the evidence during the insured's lifetime; and
(3) at our option a premium payment which is equal to all overdue premiums
with interest at a rate not to exceed 8 percent per annum compounded
annually and any policy loan in effect at the end of the grace period
following the date of default with interest at a rate not exceeding 8
percent per annum compounded annually. At the present time we do not
require the payment of all overdue premiums.
After a lapse and reinstatement, the reinstated Policy may be adjusted. The
standard minimum requirements for adjustments will continue to apply, as
described under the section "Restrictions on Adjustments" in this prospectus
on page 16.
AVOIDING LAPSE If your Policy has sufficient loan value, you can avoid a lapse
due to the failure to pay a scheduled premium by arranging for an automatic
premium loan. The effect of a policy loan on policy values and the
restrictions applicable thereto are described under the caption "Policy Loans"
on page 27 of this prospectus. An automatic premium loan is particularly
advantageous for a policy owner who contemplates early repayment of the amount
loaned, since it permits the policy owner to restore policy values without
additional sales and underwriting charges. Automatic premium loans for the
long term are generally not advantageous.
You may also avoid a lapse due to the failure to pay a scheduled premium by
adjusting your Policy to a stop premium mode. The greater of your policy value
or tabular cash value will be used to determine a new plan of insurance based
on the greater of the then current face amount or death benefit of the Policy
and the assumption that no further premiums will be paid. The new plan may be
a term or protection plan, but unlike other term plans there will be no
reduced face amount of coverage at the time the tabular cash value is
scheduled to expire because no further premiums will be payable. If at that
time the Policy has a surrender value, it will be used either to purchase
extended term coverage or it will be paid to you in a single sum thereby
terminating the Policy.
The insurance coverage resulting from an adjustment to a stop premium mode
is similar to the coverage available under the extended term option in that
under both, the coverage is available only for a limited period of time. The
arrangements are, however, fundamentally different. Extended term coverage is
a fixed benefit with fixed cash values providing a longer guaranteed period of
coverage than the same amount applied as a stop premium. The stop premium mode
provides variable insurance with an actual cash value and, under the
Protection Option, a death benefit that will vary to reflect any investment
experience of selected sub-accounts and the deduction of smaller cost of
insurance charges than the maximum
23
<PAGE>
charges derived from the 1980 CSO mortality tables. Because the actual cash
value continues to exist, policy charges assessed to the actual cash value
will continue to be made while the Policy is on stop premium. Moreover with
VAL '95, if a Policy covers an insured in a sub-standard risk class, the
portion of the scheduled premium equal to the charge for such risk will
continue to be payable.
There are also other differences which should be considered. In general, if
you contemplate resuming premium payments at a future date, the stop premium
mode may be more desirable in that you may resume premium payments at any time
without evidence of insurability, while the reinstatement option available
during the extended term period requires proof of insurability and must be
exercised within three years following the date of lapse.
If you do not contemplate resuming premium payments, your choice between
permitting your Policy to lapse and adjusting it to a stop premium mode should
depend on, first, whether the surrender value of your Policy at that time
exceeds its tabular cash value and, second, whether you expect your Policy's
policy value to exceed its tabular cash value in the future. If at the time of
possible lapse your Policy's surrender value is less than its tabular cash
value, you should consider adjusting to a stop premium mode because the period
of insurance coverage will be based on the higher tabular cash value while the
period of extended term coverage upon lapse would be computed on the basis of
the lower surrender value. If the two values are the same, the period of
guaranteed coverage under the extended term option will be longer than under
the stop premium mode. Thus, you should be sure that the benefit of using the
higher tabular cash value is not offset by the shorter period of guaranteed
insurance coverage usually resulting from the stop premium mode.
On the other hand, if the surrender value of your Policy exceeds its tabular
cash value, you should evaluate the benefit of a guaranteed longer period of
insurance coverage under the extended term option against the possibility of
longer coverage under the stop premium mode. With the stop premium mode there
may be an available policy value at the end of the plan which could be used to
continue the face amount of the Policy to a later time than provided under the
extended term option. In considering this possibility, you should keep in mind
that a Policy with the Cash Option death benefit is more likely to have a
higher policy value than a comparable Policy with the Protection Option death
benefit.
POLICY VALUES
The Policy has an actual cash value which varies with the investment
experience of the guaranteed principal account and the sub-accounts of the
Variable Life Account. Depending upon the death benefit selected, the death
benefit may also vary although it will never be less than the then current
face amount. Net premiums, namely premiums after the deduction of all charges,
will be allocated to the guaranteed principal account or sub-accounts of the
Variable Life Account selected by you on your application for the Policy.
The value of the Policy's interest in the guaranteed principal account and
the sub-accounts of the Variable Life Account is known as its actual cash
value. It is determined separately for your guaranteed principal account
actual cash value and for your separate account actual cash value. The
separate account actual cash value will include all sub-accounts of the
Variable Life Account. Unlike a traditional fixed benefit life insurance
policy, a Policy's actual cash value cannot be determined in advance, even if
scheduled premiums are made when required, because the separate account actual
cash value varies daily with the investment performance of the sub-accounts of
the Variable Life Account in which the Policy participates. Even if the policy
owner continues to pay scheduled premiums when due, the separate account
actual cash value of a Policy could decline to zero because of unfavorable
investment experience and the assessment of charges. Upon request, we will
tell you the actual cash value of your Policy. We will also send you a report
each year on the policy anniversary advising you of your Policy's actual and
tabular cash values, the face amount and the death benefit as of the date of
the report. It will also summarize Policy transactions during the year. It
will be as of a date within two months of its mailing.
The guaranteed principal account actual cash value is the sum of all net
premium
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payments allocated to the guaranteed principal account. This amount will be
increased by any interest, dividends, loan repayments, policy loan interest
credits and transfers into the guaranteed principal account. This amount will
be reduced by any policy loans, unpaid policy loan interest, partial
surrenders, transfers into the sub-accounts of the Variable Life Account and
charges assessed against your guaranteed principal account actual cash value.
Interest is credited on the guaranteed principal account actual cash value of
your Policy. Interest is credited daily at a rate of not less than 4 percent
per year, compounded annually. We guarantee this minimum rate for the life of
the Policy without regard to the actual experience of the general account. As
conditions permit, we will credit additional amounts of interest to the
guaranteed principal account actual cash value. Your guaranteed principal
account actual cash value is guaranteed by us. It cannot be reduced by any
investment experience of the general account.
The portion of a Policy's separate account actual cash value is determined
separately. The separate account actual cash value is not guaranteed. The
determination of the separate account actual cash value is made by multiplying
the current number of sub-account units credited to a Policy by the current
sub-account unit value. A unit is a measure of your Policy's interest in a
sub-account. The number of units credited with respect to each net premium
payment is determined by dividing the portion of the net
premium payment allocated to each sub-account by the then current unit value
for that sub-account. The number of units so credited is determined as of the
end of the valuation period during which we receive your premium at our home
office.
Once determined, the number of units credited to your Policy will not be
affected by changes in the unit value. However, the number will be increased
by the allocation of subsequent net premiums, nonrepeating premiums,
dividends, loan repayments, loan interest credits and transfers to that sub-
account. The number of units of each sub-account credited to your Policy will
be decreased by policy charges to the sub-account, policy loans and loan
interest, transfers from that sub-account and partial surrenders from that
sub-account. Such number of sub-account units will decrease to zero on a
policy surrender, the purchase of extended term insurance or termination.
The unit value of a sub-account will be determined on each valuation date.
The amount of any increase or decrease will depend on the net investment
experience of that sub-account. The value of a unit for each sub-account was
originally set at $1.00 on the first valuation date. For any subsequent
valuation date, its value is equal to its value on the preceding valuation
date multiplied by the net investment factor for that sub-account for the
valuation period ending on the subsequent valuation date.
The net investment factor for a valuation period is: the gross investment
rate for such valuation period, less a deduction for the mortality and expense
risk charge under this Policy which is assessed at an annual rate of .50
percent against the average daily net assets of each sub-account of the
Variable Life Account. The gross investment rate is equal to:
(1) the net asset value per share of a Fund share held in the sub-account of
the Variable Life Account determined at the end of the current valuation
period; plus
(2) the per share amount of any dividend or capital gain distributions by the
Fund if the "ex-dividend" date occurs during the current valuation period;
with the sum divided by
(3) the net asset value per share of that Fund share held in the sub-account
determined at the end of the preceding valuation period.
We determine the value of the units in each sub-account on each day on which
the Portfolios of the Fund are valued. The net asset value of the Fund's
shares is computed once daily, and, in the case of the Money Market Portfolio,
after the declaration of the daily dividend, as of the primary closing time
for business on the New York Stock Exchange (as of the date hereof the primary
close of trading is 3:00 p.m. (Central Time), but this time may be changed) on
each day, Monday through Friday, except (i) days on which changes in the value
of the Fund's portfolio securities will not materially affect the current net
asset value of the Fund's shares, (ii) days during which no Fund's shares are
tendered for redemption and no order to purchase or sell the Fund's shares is
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<PAGE>
received by the Fund and (iii) customary national business holidays on which
the New York Stock Exchange is closed for trading (as of the date hereof, New
Year's Day, Presidents' Day, Good Friday, Memorial Day, Independence Day,
Labor Day, Thanksgiving Day and Christmas Day).
Although the actual cash value for each Policy is determinable on a daily
basis, we update our records to reflect that value on each monthly
anniversary. We also make policy value determinations on the date of the
insured's death and on a policy adjustment, surrender, and lapse. When the
policy value is determined, we will assess and update to the date of the
transaction those charges made against your actual cash value, namely the
administration charge of $60 per year and the cost of insurance charge (and,
for VAL '87 any charge for sub-standard risks). Increases or decreases in
policy values will not be uniform for all Policies but will be affected by
policy transaction activity, cost of insurance charges, (charges for sub-
standard risks for VAL '87) and the existence of policy loans.
To illustrate the operation of the Policy under various assumptions, we have
prepared several tables, along with additional explanatory text, that may be
of assistance. For these tables, please see Appendix I, "Illustrations of
Policy Values, Death Benefits and Premiums," found on page 81 of this
prospectus. For additional materials and tables, including values after policy
charges, please see Appendix II, Summary of Policy Charges, found on page 90
of this prospectus.
DEATH BENEFIT OPTIONS
The death benefit provided by the Policy depends upon the death benefit
option you choose. You may choose one of two available death benefit options--
the Cash Option or the Protection Option. If you fail to make an election, the
Cash Option will be in effect. The scheduled premium for a Policy is the same
no matter which death benefit option is chosen.
Under the Cash Option, the death benefit will be the current face amount at
the time of the insured's death. The death benefit will not vary unless the
policy value exceeds the net single premium for the then current face amount.
Under the Protection Option of VAL '87, if at the date of the insured's
death the tabular value is greater than the policy value, the death benefit
will be the then current face amount. If at the date of the insured's death,
the policy value is greater than the tabular cash value, the death benefit
shall be an
amount which is equal to the then current face amount, plus an additional
amount of insurance which is equal to that which could be purchased using the
difference between the policy value and the tabular cash value as the net
single premium for that coverage, based upon the policy assumptions and the
insured's then attained age.
Under the Protection Option of VAL '95, the death benefit will be the policy
value, plus the larger of:
(a) the then current face amount; and
(b) the amount of insurance which could be purchased using the policy value as
a net single premium.
The Protection Option is only available until the policy anniversary nearest
the insured's age 70. At the policy anniversary nearest the insured's age 70,
the Protection Option death benefit is automatically converted to the Cash
Option death benefit. At that time, we will automatically adjust your Policy
and adjust the face amount to equal the death benefit immediately preceding
the adjustment.
The different death benefit options meet different needs and objectives. The
Protection Option results primarily in an increased death benefit. If you are
satisfied with the amount of your insurance coverage and wish to have any
favorable investment results reflected to the maximum extent in increasing
actual cash values, you should choose the Cash Option. In addition, there are
other distinctions between the two options which may influence your selection.
In the event of a superior investment performance, the Cash Option will result
in a Policy becoming paid-up more rapidly than the Protection Option. This is
because of larger cost of insurance charges under the Protection Option
resulting from the additional amount of death benefit provided under that
option. But under the Cash Option favorable investment experience does not
increase the death benefit unless the policy value exceeds the net single
premium for the then current face amount, and the beneficiary will not benefit
from any larger actual cash value which exists at the time of the insured's
death because of the favorable investment experience.
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You may elect to have the death benefit option changed while the Policy is
in force by filing a written request with us at our home office. We may
require that you provide us
with satisfactory evidence of the insured's
insurability before we make a change to the Protection Option. The change will
take effect when we approve and record it in our home office. A change in
death benefit option may have Federal income tax consequences. See the heading
"Federal Tax Status" in this prospectus on page 37.
The amount payable as death proceeds upon the insured's death will be the
death benefit provided by the Policy, plus any additional insurance on the
insured's life provided by an additional benefit agreement, if any, minus any
policy charges and minus any policy loans. In addition, if the Cash Option
death benefit is in effect at the insured's death, we will pay to the
beneficiary any part of a paid premium that covers the period from the end of
the policy month in which the insured died to the date to which premiums are
paid.
VARIATIONS IN DEATH BENEFIT
PROTECTION OPTION The death benefit provided by the Protection Option will
vary with the investment experience of the allocation options selected by the
policy owner, any interest credited as a result of a policy loan and the
extent to which we assess
lower insurance charges than those maximums
derived from the 1980 Commissioners Standard Ordinary Mortality Tables.
With VAL '87, the amount of the death benefit is equal to the current face
amount or,
if the policy value is greater than the tabular cash value at the date of the
insured's death, the current face amount plus an additional amount of
insurance which could be purchased by using that difference between values as
a net single premium. When a Policy becomes paid-up, the death benefit under
the Protection Option is the greater of the face amount of the Policy when it
became paid-up or the amount of insurance which could be purchased at the date
of the insured's death by using the policy value as a net single premium based
upon the policy assumptions as defined in the Policy and the insured's
attained age.
With VAL '95, the amount of the death benefit is equal to the policy value,
plus the larger of:
(a) the then current face amount; and
(b) the amount of insurance which could be purchased using the policy value as
a net single premium.
CASH OPTION As noted, the death benefit under the Cash Option does not vary
from the Policy's face amount until the policy value exceeds the net single
premium for the current face amount. At this point, the death benefit under
the Cash Option is the greater of the face amount of the Policy when it became
paid-up or the amount of insurance which could be purchased at the date of the
insured's death by using the policy value as a net single premium based upon
the policy assumptions as defined in your Policy and the insured's attained
age. The policy value of a Policy will never exceed the net single premium for
a death benefit payable on the insured's death.
A Policy is paid-up when no additional premiums are required to provide the
face amount of insurance for the life of the insured. We may or may not accept
additional premiums. When a Policy becomes paid-up, the policy value will then
equal or exceed the net single premium needed to purchase an amount of
insurance equal to the face amount of the Policy at the insured's then
attained age. However, its actual cash value will continue to vary daily to
reflect the investment experience of the Variable Life Account and any
interest credited as a result of a policy loan. Once a Policy becomes paid-up,
it will always retain its paid-up status regardless of any subsequent decrease
in
its policy value. However, on a paid-up
Policy with indebtedness, where the actual
cash value decreases to zero, a loan repayment may be required to keep the
Policy in force. See the discussion in this prospectus under the heading
"Policy Loans," below.
We will make a determination on each policy anniversary as to whether a
Policy is paid-up. When a Policy becomes paid-up, we will send you a notice.
For an illustration of the calculation of the death benefit under the Policy
options, please see Appendix III, "Illustration of Death Benefit Calculation,"
on page 95 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
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Federal income tax consequences. See the heading "Federal Tax Status" in this
prospectus on page 37.
The policy value is the actual cash value of your Policy plus any policy
loan. Any policy loan paid to you in cash must be in an amount of at least
$100. Policy loans in smaller amounts are allowed under the automatic premium
loan provision. We will deduct interest on the loan in arrears. At your
request, we will send you a loan request form for your signature. You may also
obtain a policy loan by calling Minnesota Mutual at 1-800-277-9244 between the
hours of 8:00 a.m. and 4:30 p.m., Central Time, our regular business hours.
Should you make a telephone call to us you will be asked, for security
purposes, for your personal identification and policy number. The Policy will
be the only security required for your loan. Your policy value will be
determined as of the date we receive your written request at our home office.
When you take a loan, we will reduce the actual cash value. It will be
reduced by the amount you borrow and any unpaid interest. Unless you direct us
otherwise, the policy loan will be taken from your guaranteed principal
account actual cash value and separate account actual cash value in the same
proportion that those values bear to each other and, as to the actual cash
value in the separate account, from each sub-account in the proportion that
the actual cash value in such sub-account bears to your actual cash value in
all of the sub-accounts. The number of units to be cancelled will be based
upon the value of the units as of the end of the valuation period during which
we receive your loan request at our home office. This amount shall be
transferred to the loan account. The loan account continues to be part of the
Policy in the general account. A policy loan has no immediate effect on policy
value since at the time of the loan the policy value is the sum of your actual
cash value and any policy loan.
The actual cash value of your Policy may decrease between premium due dates.
If your Policy has indebtedness and no actual cash value, the Policy will
lapse. In this event, to keep your Policy in force, you will have to make a
loan repayment. We will give you notice of our intent to terminate the Policy
and the loan repayment required to keep it in force. The time for repayment
will be within 31 days after our mailing of the notice.
POLICY LOAN INTEREST The interest rate on a policy loan will not be more than
the rate shown on page 1 of your Policy. The interest rate charged on a policy
loan will not be more than that permitted in the state in which the Policy is
delivered.
Policy loan interest is due on the date
of the death of the insured, on a policy
adjustment, surrender, lapse, a policy loan transaction and on each policy
anniversary. If you do not pay the interest on your loan in cash, your policy
loan will be increased and your actual cash value will be reduced by the
amount of the unpaid interest. The new loan will be subject to the same rate
of interest as the loan in effect.
Interest is also credited to your Policy when there is a policy loan.
Interest credits on a policy loan shall be at a rate which is not less than
your policy loan interest rate minus 2 percent per annum. Policy loan interest
credits are allocated to your actual cash value as of the date of the death of
the insured, on a policy adjustment, surrender, lapse, a policy loan
transaction and on each policy anniversary. Interest credits are allocated to
the guaranteed principal account and separate account following your
instructions to us. We will use your instructions for the allocation of net
premiums. In the absence of such instructions, this amount will be allocated
to the guaranteed principal account actual cash value and separate account
actual cash value in the same proportion that those values bear to each other
and, as to the actual cash value in the separate account, to each sub-account
in the proportion that the actual cash value in such sub-account bears to your
actual cash value in all of the sub-accounts.
Currently, the loan account credits interest, as described above, at a rate
which is not less than your policy loan interest rate minus 2 percent per
annum. However, depending on the insured's age and the period of time that the
Policy has been in force, we may credit the Policy with interest at a more
favorable rate. Under our current procedures, if all the conditions are met
then your loan will be credited at a rate which is equal to the policy loan
rate minus .75 percent per annum. The conditions which must be met have to do
with your age and the duration of the Policy. To begin, the insured's age must
be greater than or equal to age 55 as of the last policy anniversary.
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The duration of the Policy, which is the number of years during which the
Policy has been in force as a Variable Adjustable Life Policy, must be greater
than or equal to 10.
Policy loans may also be used as automatic premium loans to keep your Policy
in force. If you asked for this service in your
application, or if you write us and ask for this service after your Policy has
been issued, we
will make automatic premium loans. You can also write to us at any time and
tell us you do not want this service. If you have this service and you have
not paid the premium that is due before the end of the grace period, we will
make a policy loan to pay the premium. Interest on such a policy loan is
charged from the date the premium was due. However, in order for an automatic
premium loan to occur, the amount available for a loan must be enough to pay
at least a quarterly premium. If the loan value is not enough to pay at least
a quarterly premium, your Policy will lapse.
POLICY LOAN REPAYMENTS If your Policy is in force, your loan can be repaid in
part or in full at any time before the insured's death. Your loan may also be
repaid within 60 days after the date of the insured's death, if we have not
paid any of the benefits under the Policy. Any loan repayment must be at least
$100 unless the balance due is less than $100. When implemented, we will waive
this minimum loan repayment provision for loan repayments made under our
automatic payment plan where loan repayments are in an amount of at least $25.
Loan repayments are allocated to the guaranteed principal account until all
loans from the guaranteed principal account have been repaid, thereafter, loan
repayments are allocated to the guaranteed principal account or the sub-
accounts of the Variable Life Account as you direct. In the absence of your
instructions, loan repayments will be allocated to the guaranteed principal
account actual cash value and separate account actual cash value in the same
proportion that those values bear to each other and, as to the actual cash
value in the separate account, to each sub-account in the proportion that the
actual cash value in such sub-account bears to your actual cash value in all
of the sub-accounts.
Loan repayments reduce your loan account by the amount of the loan
repayment.
A policy loan, whether or not it is repaid, will have a permanent effect on
the policy value because the investment results of the sub-accounts will apply
only to the amount remaining in the sub-accounts. The effect could be either
positive or negative. If net investment results of the sub-accounts are
greater than the amount being credited on the loan, the policy value will not
increase as rapidly as it would have if no loan had been made. If investment
results of the sub-accounts are less than the amount being credited on the
loan, the policy value will be greater than if no loan had been made. For an
example of the effect of a policy loan on a Policy and its death benefit,
please see Appendix IV, "Policy Loan Example," in this prospectus on page 96.
SURRENDER
You may request a surrender or partial surrender of your Policy at any time
while the insured is living. On surrender, the surrender value of the Policy
is the actual cash value minus unpaid policy charges which are assessed
against actual cash value. The determination of the surrender value is made as
of the end of the valuation period during which we receive your surrender
request at our home office. You may surrender the Policy by sending us the
Policy and a written request for its surrender. You may request that the
surrender value be paid to you in cash or, as an alternative, you may request
that the surrender value be applied on a settlement option or to provide
extended protection insurance on the life of the insured.
A partial surrender of the actual cash value of the Policy is also permitted
in any amount of $500 or more. However, a partial surrender will not be
permitted, if immediately after the partial surrender, it would reduce the
actual cash value to an amount which is less than 10 percent of the policy
value immediately after the partial surrender. If a Policy is not paid-up, the
death benefit of the Policy will be reduced by the amount of the partial
surrender. If the Policy is paid-up, the death benefit will be reduced so as
to retain the same ratio between the policy value and the death benefit of the
Policy as existed prior to the partial surrender. With any partial surrender,
the Policy will be adjusted to reflect the new face amount and actual cash
value and, unless otherwise instructed, the existing level of premium
payments.
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We are currently waiving these restrictions requiring a minimum amount for a
partial surrender where a partial withdrawal from a Policy, which is on stop
premium, is being used to pay premiums for sub-standard risks or premiums on
any benefits and riders issued as part of the Policy. Transaction fees
otherwise applicable to such a partial withdrawal are also waived.
On a partial surrender, you may tell us which Variable Life Account sub-
accounts
from which a partial surrender is to be taken or whether it is to be taken in
whole or in part
from the guaranteed principal account. If you do not, partial surrenders will
be deducted from your guaranteed principal account actual cash value and
separate account actual cash value in the same proportion that those values
bear to each other and, as to the actual cash value in the separate account,
from each sub-account in the proportion that the actual cash value in such
sub-account bears to your actual cash value in all of the sub-accounts. We
will tell you, on request, what amounts are available for a partial surrender
under your Policy.
Payment of a surrender or partial surrender will be made as soon as
possible, but not later than seven days after our receipt of your written
request for surrender. However, an exception to this is that if any portion of
the actual cash value to be surrendered is attributable to a premium or
nonrepeating premium payment made by non-guaranteed funds such as a personal
check, we will delay mailing that portion of the surrender proceeds until we
have reasonable assurance that the payment has cleared and that good payment
has been collected. The amount you receive on surrender may be more or less
than the total premiums paid to your Policy.
FREE LOOK
It is important to us that you are satisfied with this Policy after it is
issued. If you are not satisfied with it, you may return the Policy to us or
your agent by the later of: (a) ten days after you receive it; (b) 45 days
after you have signed the application; or (c) ten days after we mail to you a
notice of your right of withdrawal. If you return the Policy, you will receive
within seven days of the date we receive your notice of cancellation a full
refund of the premiums you have paid.
If the Policy is adjusted, as described under the heading "Policy
Adjustments" in this prospectus on page 15, and if the adjustment results in
an increased premium, you will again have a right to examine the Policy and
you may return the Policy within the time periods stated in the immediately
preceding paragraph. If you return the Policy, the requested premium
adjustment will be cancelled. You will receive a refund of the additional
premiums paid within seven days of the date we receive your notice of
cancellation for that adjustment.
CONVERSION
So long as your Policy is in force and all scheduled premiums have been duly
paid, you may convert the Policy to an adjustable life policy, with a fixed
death benefit and cash values, which we may then offer. This right is in
addition to your right to make described policy adjustments. For VAL '95, this
conversion privilege is only available during the first 24 months from the
original policy date, but comparable fixed insurance coverage can be obtained
after 24 months from the original policy date by transferring all of the
policy value to the guaranteed principal account and thereafter allocating all
premiums to that account.
The converted Policy shall have the same face amount as is currently
provided by your Policy and premiums based upon the same issue age and risk
classification of the insured as stated in your Policy. The premiums and
actual cash values provided by the converted Policy may be different as a
result of an equitable adjustment made to reflect any variances in the
premiums and cash values under the Policy and the new Policy.
POLICY CHARGES
PREMIUM CHARGES Premium charges vary depending on whether the premium is a
scheduled premium or a nonrepeating premium. Generally, the word "premium"
when used in this prospectus means a scheduled premium only. With VAL '87,
charges for sub-standard risks are assessed against the actual cash values.
With VAL '95, charges for sub-standard risks are deducted from the premium, to
calculate the base premium. Charges for sub-standard risks include both table
ratings and cash extra charges. With both VAL '87 and VAL '95, charges for
additional benefits are deducted from the premium to calculate the base
premium.
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From base premiums we deduct a sales load, an underwriting charge, a premium
tax charge and a face amount guarantee charge. The base premium excludes any
charge deducted from the premium to provide for any additional benefits
provided by rider and, in the case of VAL '95, any charge deducted for sub-
standard risks. With VAL '87, any charge for sub-standard risk is deducted
from the Policy's actual cash value.
(1) The SALES LOAD consists of a deduction from each premium of 7 percent and
it may also include a first year sales load deduction not to exceed 23
percent. The first year sales load will apply only to base premiums,
scheduled to be paid in the twelve month period following the policy date,
or any policy adjustment involving an increase in base premium or any
policy adjustment occurring during a period when a first year sales load
is being assessed. It will also apply only to that portion of an annual
base premium necessary for an original issue whole life plan of insurance.
In other words, for base premiums greater than this whole life premium,
the amount of the base premium in excess of such whole life base premium
will be subject only to the 7 percent basic sales load.
Only adjustments that involve an increase in base premium will result in
additional first year sales load being assessed on that increase in
premium. If any adjustment occurs during a period when a first year sales
load is being collected and the adjustment results in an increase in base
premium, an additional first year sales load, not to exceed 23 percent of
the increase in base premium, will be added to the uncollected portion of
the first year sales load that was being collected prior to the adjustment.
This total amount of first year sales load will then be collected during
the 12 month period following the adjustment.
If any adjustment occurs during the 12 month period when a first year
sales load is being collected and the adjustment does not result in an
increase in base premium, the first year sales load percentage not to
exceed 23 percent, that was in effect prior to the adjustment is multiplied
by the base premium in effect after the adjustment; this number is then
multiplied by a fraction equal to the number of months remaining in the
previous 12 month period divided by 12. This amount of first year sales
load will then be collected during the 12 month period following the
adjustment.
All of the sales load charges are designed to average not more than 9
percent of the base premiums (in the case of a VAL '87 Policy, the base
premium less any charge for sub-standard risks) over the lesser of: the
life expectancy of the insured at policy issue or adjustment; or 15 years
from the policy issue or adjustment; or the premium paying period.
Compliance with the 9 percent ceiling will be achieved by reducing the
amount of the first year sales load, if necessary. For examples of how we
compute sales load charges, see the heading "Examples of Sales Load
Computations" in this prospectus on page 33.
The sales load is designed to compensate us for distribution expenses
incurred with respect to the Policies. The amount of the sales load in any
policy year cannot be specifically related to sales expenses for that year.
To the extent that sales expenses are not recovered from the sales load, we
will recover them from our other assets or surplus including profits from
mortality and expense risk charges.
(2) The UNDERWRITING CHARGE currently is an amount not to exceed $5 per $1,000
of face amount of insurance. This amount may vary by the age of the
insured and the premium level for a given amount of insurance. This charge
is made ratably from premiums scheduled to be made during the first policy
year and during the twelve months following certain policy adjustments.
The underwriting charge is designed to compensate us for the
administrative costs associated with issuance or adjustment of the
Policies, including the cost of processing applications, conducting
medical exams, classifying risks, determining insurability and risk class
and establishing policy records. This charge is not guaranteed, so that on
a policy adjustment the then current underwriting charge will apply to any
increase in face amount which requires new evidence of insurability. In
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the event of a policy adjustment which results in a face amount increase and
no premium, you must then remit the then current underwriting charge to us
prior to the effective date of the adjustment or we will assess the charge
against your actual cash value as a transaction charge on adjustment.
(3) The PREMIUM TAX CHARGE of 2.5 percent is deducted from each base premium.
This charge is designed to cover the aggregate premium taxes we pay to
state and local governments for this class of policies. This charge is not
guaranteed and may be increased in the future, but only as necessary to
cover our premium tax expenses.
(4) The FACE AMOUNT GUARANTEE CHARGE of 1.5 percent is deducted from each base
premium. This charge is designed to compensate us for our guarantee that
the death benefit will always be at least equal to the current face amount
in effect at the time of death regardless of the investment performance of
the sub-accounts in which net premiums have been invested. The face amount
of a Policy at issue or adjustment and the appropriate premium therefor
reflect a "tabular cash value" (defined on page 16 above) based upon an
assumed annual rate of return of 4 percent. If the policy value is less
than the tabular cash value at the time of death, it will not be
sufficient to support the face amount of the Policy under the actuarial
assumptions made in designing the Policy. The face amount guarantee is a
guarantee that the face amount will be available as a death benefit
notwithstanding the failure of the Policy to perform in accordance with
the assumptions made in its design. Thus, even if the policy value should
be less than the amount needed to pay the deductions to be made from the
actual cash value on the next monthly policy anniversary, see discussion
below, the Policy's guaranteed death benefit will remain in effect and the
Policy will remain in force. We guarantee not to increase this charge.
NONREPEATING PREMIUMS Nonrepeating premiums are currently subject to the 2.5
percent premium tax charge but not to a sales load charge. No face amount
guarantee charge or underwriting charge is assessed against nonrepeating
premiums.
CHARGES TAKEN FROM
PREMIUM
PLUS, IN THE
- -------------- FIRST YEAR
-------------
7.00% Sales Additional
Load Sales Load
1.50% Face (up to 23%)
Amount Underwriting
Guarantee Charge (up
2.50% to $5/$1000
Premium of Insurance
Tax Coverage)
- --------------
11.00% Total
ACTUAL CASH VALUE CHARGES In addition to deductions from premiums and
nonrepeating premiums, we assess from the actual cash value of a Policy an
administration charge, certain transaction charges and the cost of insurance
charge, (and in the case of a VAL
'87 Policy, any charge for sub-standard risks). These charges are as follows:
(1) The ADMINISTRATION CHARGE is designed to cover certain of our
administrative expenses, including those attributable to the records
maintained for your Policy. The administration charge is $60 for each
policy year.
(2) The TRANSACTION CHARGES are for expenses associated with processing
transactions. There is a charge of $25 for each policy adjustment.
If the only policy adjustment is a partial surrender, the transaction charge
shall be the lesser of $25 or 2 percent of the amount surrendered. We also
reserve the right to make a charge, not to exceed $10, for each transfer of
actual cash value among the guaranteed principal account and the sub-
accounts of the Variable Life Account. Currently there is a $10 charge only
for non-systematic transfers in excess of four per year.
(3) The COST OF INSURANCE CHARGE compensates us for providing the death
benefit under a Policy. The charge is calculated by multiplying the net
amount at risk under your Policy by a rate which varies with the insured's
age, sex, risk class, the level of scheduled premiums for a given amount
of insurance, duration of the Policy and the smoking habits of the
insured. The rate is guaranteed not to exceed the maximum charges for
mortality derived from the 1980 Commissioners Standard Ordinary
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Mortality Tables. The net amount at risk is the death benefit under your
Policy less your policy value. Where circumstances require, we will base
our rates on "unisex," rather than sex-based, mortality tables.
Administration and cost of insurance (and for a VAL '87 Policy, sub-standard
risk charges, if any,) are assessed against your actual cash value on the
monthly policy anniversary. In addition, such charges are assessed on the
occurrence of the death of the insured, policy surrender, lapse or a policy
adjustment. Transaction charges are assessed against your actual cash value at
the time of a policy adjustment or when a transfer is made. In the case of a
transfer, the charge is assessed against the amount transferred. Charges will
be assessed against your guaranteed principal account actual cash value and
separate account actual cash value in the same proportion that those values
bear to each other and, as to the actual cash value in the separate account,
from each sub-account in the proportion that the actual cash value in such
sub-account bears to your actual cash value in all of the sub-accounts.
CHARGES TAKEN FROM ACTUAL CASH VALUE
. Administration Charge ($60/year)
. Cost of Insurance Charge
.If Applicable: Transaction Charge and Charge for Sub-Standard Risks
SEPARATE ACCOUNT CHARGES We assess a mortality and expense risk charge
directly against the assets held in the Variable Life Account. The mortality
and expense risk charge compensates us for assuming the risks that cost of
insurance charges will be insufficient to cover actual mortality experience
and that the other charges will not cover our expenses in connection with the
Policy. The mortality and expense risk charge is deducted from Variable Life
Account assets on each valuation date at an annual rate of .50 percent of the
average daily net assets of the Variable Life Account.
We reserve the right to charge or make provision for any taxes payable by us
with respect to the Variable Life Account or the Policies by a charge or
adjustment to such assets. No such charge or provision is made at the present
time.
CHARGES TAKEN FROM SEPARATE ACCOUNT
. .50% Mortality and Expense Risk Charge
EXAMPLES OF SALES LOAD COMPUTATIONS
As noted previously, all sales load charges are designed to average not more
than 9 percent of base premiums (in the case of a VAL '87 Policy, the base
premium less any charge for sub-standard risks) over the lesser of: the life
expectancy of the insured at policy issue or adjustment, or 15 years from the
policy issue or adjustment; or the premium paying period. A number of examples
of sales load computations are included in Appendix V, Example of Sales Load
Computation, in this prospectus on page 97.
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 increases and
decreases in premiums should be avoided.
POLICIES ISSUED IN EXCHANGE Certain charges assessed against base premiums as
described above will be waived or modified in situations where existing
Minnesota Mutual life insurance policy owners wish to exchange their policies
for the Policies described herein. Those policy owners may do so, subject to
their application for this Policy and our approval of the exchange. Under
certain circumstances, we will require evidence of insurability for an
exchange. A $100 administrative charge is currently required for the exchange.
In those situations where a Policy is issued in exchange for a current
policy issued by us, we will not assess any charges, except for the
administrative charge, to the existing cash values at the time they are
transferred to the Policy. Subsequent premium payments, absent adjustment and
unless the exchanged policy was not in force for at least one year, will not
be subject to a first year sales load or underwriting charge (unless evidence
of insurability has been required for the exchange) at the established face
amount and the level of premiums of the exchanged policy. All other charges
will apply to the Policy and premiums paid under it thereafter.
OTHER POLICY PROVISIONS
BENEFICIARY When we receive proof satisfactory to us of the insured's death,
we
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will pay the death proceeds of a Policy to the beneficiary or beneficiaries
named in the application for the Policy unless the owner has changed the
beneficiary. In that event, we will pay the death proceeds to the beneficiary
named in the last change of beneficiary request as provided below.
If a beneficiary dies before the insured, that beneficiary's interest in the
Policy ends with that beneficiary's death. Only those beneficiaries who
survive the insured will be eligible to share in the death proceeds. If no
beneficiary survives the insured we will pay the death proceeds of this Policy
to the owner, if living, otherwise to the owner's estate, or, if the owner is
a corporation, to it or its successor.
You may change the beneficiary designated to receive the proceeds. If you
have reserved the right to change the beneficiary, you can file a written
request with us to change the beneficiary. If you have not reserved the right
to change the beneficiary, the written consent of the irrevocable beneficiary
will be required.
Your written request will not be effective until it is recorded in our home
office. After it has been so recorded, it will take effect as of the date you
signed the request. However, if the insured dies before the request has been
so recorded, the request will not be effective as to those death proceeds we
have paid before your request was recorded in our home office records.
ASSIGNMENT The Policy may be assigned. The assignment must be in writing and
filed at our home office in St. Paul, Minnesota. We assume no responsibility
for the validity or effect of any assignment of the Policy or of any interest
in it. Any proceeds which become payable to an assignee will be payable in a
single sum. Any claim made by an assignee will be subject to proof of the
assignee's interest and the extent of the assignment.
SETTLEMENT OPTIONS The proceeds of a Policy will be payable if the Policy is
surrendered, or we receive proof satisfactory to us of the insured's death.
These events must occur while the Policy is in force. The proceeds will be
paid at our home office and in a single sum unless a settlement option has
been selected. We will deduct any indebtedness and unpaid charges from the
proceeds. Proof of any claim under this Policy must be submitted in writing to
our home office.
We will pay interest on single sum death proceeds from the date of the
insured's death until the date of payment. Interest will be at an annual rate
determined by us, but never less than 3 percent (4 percent for VAL '87).
The proceeds of a Policy may be paid in other than a single sum and you may,
during the lifetime of the insured, request that we pay the proceeds under one
of the Policy's settlement options. We may also use any other method of
payment that is agreeable between you and us. A settlement option may be
selected only if the payments are to be made to a natural person in that
person's own right.
Each settlement option is payable in fixed amounts as described below. The
payments do not vary with the investment performance of the Variable Life
Account.
OPTION 1--INTEREST PAYMENTS
This is an annuity based upon the payment of interest on the proceeds at
such times and for a period that is agreeable to you and us. Withdrawals of
proceeds may be made in amounts of at least $500. At the end of the period,
any remaining proceeds will be paid in either a single sum or under any other
method we approve.
OPTION 2--PAYMENTS FOR A SPECIFIED PERIOD
This is an annuity payable for a specified number of years. The amount of
guaranteed payments for each $1,000 of proceeds applied is as shown in the
Policy. Monthly payments for periods not shown and current rates are available
from us at your request.
OPTION 3--LIFE INCOME
This is an annuity payable monthly during the lifetime of the person who is
to receive the income and terminating with the last monthly payment
immediately preceding that person's death. We may require proof of the age and
sex of the annuitant. The amount of guaranteed payments for each $1,000 of
proceeds applied is as shown in the Policy. Monthly payments for ages not
shown and current rates are available from us at your request. It would be
possible under this option for the annuitant to receive only one annuity
payment if death occurred prior to the due date of the second annuity payment,
two if death occurred before the due date of the third annuity payment, etc.
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OPTION 4--PAYMENTS OF A SPECIFIED AMOUNT
This is an annuity payable in a specified amount until the proceeds and
interest are fully paid.
If you request a settlement option, you will be asked to sign an agreement
covering the election which will state the terms and conditions of the
payments. Unless you elect otherwise, a beneficiary may select a settlement
option after the insured's death.
The minimum amount of interest we will pay under any settlement option is 3
percent per annum (4 percent for a VAL '87 Policy). Additional interest
earnings, if any, on deposits under a settlement option will be payable as
determined by us.
MISSTATEMENT OF AGE If the insured's age has been misstated, the amount of
proceeds payable under the Policy will be adjusted to reflect cost of
insurance charges based upon the insured's correct age.
INCONTESTABILITY After a Policy has been in force during the insured's
lifetime for two years from the original policy date, we cannot contest the
Policy, except for fraud or for nonpayment of premium. However, if there has
been a face amount increase for which we required evidence of insurability,
that increase will be contestable for two years with respect to information
provided at that time, during the lifetime of the insured, from the effective
date of the increase.
SUICIDE If the insured, whether sane or insane, dies by suicide, within two
years of the original policy date, our liability will be limited to an amount
equal to the premiums paid for the Policy. If there has been a face amount
increase for which we required evidence of insurability, and if the insured
dies by suicide within two years from the effective date of the increase, our
liability with respect to the increase will be limited to an amount equal to
the premiums paid for such increase.
DIVIDENDS The Policies are participating policies. Each year we will determine
if this class of Policies and your Policy will share in our divisible surplus.
We call your share of this participation a dividend. We do not anticipate that
dividends will be declared with respect to these Policies.
Dividends, if received, may be added to your actual cash value or, if you so
elect, they may be paid in cash.
A dividend applied to actual cash value will be allocated to the guaranteed
principal account or to the sub-accounts of the separate account in accordance
with your instructions for new premiums. In the absence of instruction,
dividends will be allocated to the guaranteed principal account actual cash
value and separate account actual cash value in the same proportion that those
actual cash values bear to each other and, as to the actual cash value in the
separate account, to each sub-account in the proportion that the actual cash
value in such sub-account bears to your actual cash value in all of the sub-
accounts.
REPORTS At least once each year we will send you a report. This report will
include the actual cash value, the tabular cash value, the face amount and the
variable death benefit as of the date of the report. It will also show the
premiums paid during the policy year, policy loan activity and the policy
value. The report will be sent to you without cost. The report will be as of a
date within two months of its mailing.
PAYMENT OF PROCEEDS Normally, we will pay any policy proceeds within seven
days after our receipt of all the documents required for such a payment. Other
than the death proceeds, which are determined as of the date of death of the
insured, the amount of payment will be determined as of the end of the
valuation period during which a request is received at our home office.
However, we reserve the right to defer policy payments, including policy
loans, for up to six months from the date of your request, if such payments
are based upon policy values which do not depend on the investment performance
of the Variable Life Account. In that case, if we postpone a payment other
than a policy loan payment for more than 31 days, we will pay you interest at
3 percent per annum (4 percent for a VAL '87 Policy) for the period beyond
that time that payment is postponed. For payments based on policy values which
do depend on the investment performance of the Variable Life Account, we may
defer payment only: (a) for any period during which the New York Stock
Exchange is closed for trading (except for normal holiday closing); or (b)
when the Securities and Exchange Commission has determined that a state of
emergency exists which may make such payment impractical.
ADDITIONAL BENEFITS
ADDITIONAL BENEFITS When a Policy is issued, you may be able to obtain
additional
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policy benefits. Subject to underwriting approval, these benefits will be
provided by a rider to the Policy, which may require the payment of additional
premium.
WAIVER OF PREMIUM AGREEMENT The Waiver of Premium Agreement requires an
additional premium and provides for the payment of policy premium in the event
of the insured's disability. Waiver of premium coverage is provided on most
Policies, unless you elect not to have it.
POLICY ENHANCEMENT AGREEMENT AND COST OF LIVING AGREEMENT Both the Policy
Enhancement Agreement and the Cost of Living Agreement provide for increases
in the face amount, without evidence of insurability and help you maintain the
purchasing power of the protection provided by the Policy. The Policy
Enhancement Agreement requires an additional premium, but none is required for
the Cost of Living Agreement. Your Policy may not contain both of these
agreements.
The Policy Enhancement Agreement provides for an increase in the face amount
on each policy anniversary. The face amount will be increased by a specified
percent, between 3 percent and 10 percent, which you choose when you apply for
this benefit; the base premium will also be increased by the same percent. If
you reject an increase, the agreement will terminate.
Unless you choose the Policy Enhancement Agreement, we will issue most
Policies with a Cost of Living Agreement. The Cost of Living Agreement
provides for a face amount increase equal to the percentage increase in the
consumer price index during the previous three years, provided that you have
not made a face amount adjustment during that time. Unless we agree otherwise,
the cost of living increase may not exceed 20 percent of the Policy's face
amount before the increase or $100,000. The increase in premiums and face
amount is treated as a policy adjustment described elsewhere in this
prospectus. Prior to the effective date of the increased coverage we will
notify you of the offered increase in face amount and the required premium
increase for the new face amount. You may elect to accept the increase in face
amount and premium. If you fail to accept the cost of living face amount
increase, no further increases will generally be offered when the insured is
over the age of 21.
FACE AMOUNT INCREASE AGREEMENT The Face Amount Increase Agreement also
provides for increases in the face amount, without evidence of insurability.
The agreement requires an additional premium and allows increases for Policies
issued between an insured's age 0 and 37.
SURVIVORSHIP LIFE AGREEMENT The Survivorship Life Agreement requires an
additional premium and allows you to purchase a specified amount of additional
insurance, without evidence of insurability, at the death of another person
previously designated by you. This right extends for a period of 90 days after
the death of that other person. Typically, the person you designate will also
purchase a similar right to buy additional life insurance in the event of your
death. In the event you and the previously designated life die simultaneously,
we will pay your beneficiary one-half of the specified amount of this
agreement in addition to the death benefit due on your Policy.
FAMILY TERM RIDER The Family Term Rider requires an additional premium and
provides a fixed amount of protection insurance on children of an insured.
EXCHANGE OF INSURANCE AGREEMENT The Exchange of Insurance requires no
additional premium and allows for the transfer of existing insurance coverage
to another insured within a business setting.
ACCELERATED BENEFITS AGREEMENT The Accelerated Benefits Agreement is issued
without additional premium on all Policies issued to individual insureds. It
allows you to receive a significant portion of your Policy's death benefit,
which for this purpose is essentially defined as the face amount less any
policy loan, while the insured is still living. Subject to certain conditions,
you may apply to receive a loan in excess of the Policy's maximum loan amount
if the insured develops a terminal condition due to sickness or injury. The
maximum accelerated benefit we will pay is the lesser of $1,000,000 or 75
percent of the death benefit. The minimum accelerated benefit we will pay is
$10,000.
The accelerated benefit will be treated as a loan, apart from the policy
loan provisions described elsewhere. Amounts received as a loan under the
Accelerated Benefit Agreement will be charged interest. Once the accelerated
benefit is paid, the interest rate
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OTHER MATTERS
will not change. Upon the death of the insured, the accrued loan balance will
be deducted prior to the payment of the Policy's proceeds. A receipt of amounts
under the agreement may be taxable. You should seek assistance from your
personal tax adviser.
SHORT TERM AGREEMENT The Short Term Agreement requires an additional premium
and provides temporary protection insurance, on a fixed death benefit basis
only, issued for a period of time less than a year. It is issued to provide
temporary life insurance coverage until the later issue date of the insured's
Policy. It may be used in situations where specific policy dating is required,
yet insurance coverage is needed immediately. The Short Term Agreement
terminates on the policy issue date of the Policy.
FEDERAL TAX STATUS
The discussion contained herein is general in nature and is not intended as
tax advice. Each person concerned should consult a competent tax adviser. No
attempt is made to consider any applicable state or other tax laws. In
addition, this discussion is based on our understanding of federal income tax
laws as they are currently interpreted. No representation is made regarding the
likelihood of continuation of current income tax laws or the current
interpretations of the Internal Revenue Service.
We are taxed as a "life insurance company" under the Internal Revenue Code.
The operations of the Variable Life Account form a part of, and are taxed with,
our other business activities. Currently, no federal income tax is payable by
us on income dividends received by the Variable Life Account or on capital
gains arising from the Variable Life Account's activities. The Variable Life
Account is not taxed as a "regulated investment company" under the Code and it
does not anticipate any change in that tax status.
Under Section 7702 of the Code, life insurance contracts such as the Policies
will be treated as life insurance under the Code if certain tests are met.
Guidance on how these tests are to be applied is limited. However, the Internal
Revenue Service has issued proposed regulations that would specify what will be
considered reasonable mortality charges under Section 7702. In light of these
proposed regulations and the other available guidance on the application of the
tests under Section 7702, we generally believe that a Policy issued in respect
of a standard risk should meet the statutory definition of a life insurance
contract under Section 7702. However, it remains unclear whether a substandard
risk Policy will meet the statutory life insurance contract definition.
Section 817(h) of the Code authorizes the Treasury to set standards by
regulation or otherwise for the investments of the Variable Life Account to be
"adequately diversified" in
order for the Policy to be treated as a life
insurance contract for Federal tax purposes. The Variable Life Account, through
the Fund, intends to comply with the diversification requirements prescribed in
Regulations Section 1.817-5, which affect how the Fund's assets may be
invested. Although the investment adviser is an affiliate of Minnesota Mutual,
Minnesota Mutual does not have control over the Fund or its investments.
Nonetheless, Minnesota Mutual believes that each Portfolio of the Fund in which
the Variable Life Account owns shares will be operated in compliance with the
requirements prescribed by the Treasury.
In certain circumstances, owners of variable life policies may be considered
the owners, for federal income tax purposes, of the assets of the separate
account used to support their policies. In those circumstances, income and
gains from the separate account assets would be includible in the variable life
policy owner's gross income. The IRS has stated in published rulings that a
variable policy owner will be considered the owner of separate account assets
if the policy owner possesses incidents of ownership in those assets, such as
the ability to exercise the investment control over the assets. The Treasury
Department has also announced, in connection with the issuance of regulations
concerning investment diversification, that those regulations "do not provide
guidance
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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.
On the death of the insured, we believe that the death benefit provided by
the Policies will be excludable from the gross income of the beneficiary under
Section 101(a) of the Internal Revenue Code. If the policy owner receives an
accelerated benefit, that benefit may be taxable and the policy owner should
seek assistance from a tax adviser.
The policy owner is not currently taxed on any part of his interest until
the policy owner actually receives cash from the Policy. However, taxability
may also be determined by the individual's contributions to the Policy and
prior Policy activity. We also believe that policy loans will be treated as
indebtedness and will not be currently taxable as income to the policy owner.
However, a surrender or partial surrender of the actual cash values of a
Policy may have tax consequences. On surrender, a policy owner will not be
taxed on values received except to the extent that they exceed the gross
premiums paid under the Policy. An exception to this general rule occurs in
the case of a partial withdrawal, a decrease in the face amount, or any other
change that reduces benefits under the Policy in the first 15 years after the
Policy is issued and that results in a cash distribution to the policy owner
in order for the Policy to continue complying with the Section 7702
definitional limits. In that case, such distribution will be taxed in whole or
in part as ordinary income (to the extent of any gain in the Policy) under
rules prescribed in Section 7702. Premiums for additional benefits are not
used in the calculation for computing the tax on actual cash values.
It should be noted, however, that under the Internal Revenue Code the tax
treatment described above is available only for policies not described as
modified endowment contracts. In general, the tests used in the Code to make
such a determination will have an impact on policies which have a high premium
in relation to the death benefit. Thus, the Code requires that the cumulative
premiums paid on a life insurance policy during the first seven contract years
not exceed the sum of the net level premiums which would be paid under a 7-pay
life policy. If the cumulative premiums during the first seven contract years
exceed the 7-pay life premiums, the policy is a modified endowment contract.
Modified endowment contracts would still be treated as life insurance with
respect to the tax treatment of death proceeds and to the extent that the
inside build-up of cash value would not be taxed on a yearly basis. 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
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substantially equal periodic payments for the life of the policy owner or the
joint lives of the policy owner and beneficiary.
The modified endowment contract provisions of the Code apply to all policies
entered into on or after June 21, 1988. It should be noted, in addition, that
a policy which is subject to a "material change" shall be treated as newly
entered into on the date on which such material change takes effect.
Appropriate adjustment shall be made in determining whether such a policy
meets the 7-pay test by taking into account the previously existing cash
surrender value. The addition of the guaranteed principal account to an
outstanding Policy may have Federal income tax implications, e.g., whether the
addition of such account causes a "material change." While certain adjustments
described herein may result in a material change, the law provides that any
cost of living increase described in the regulations and based upon an
established broad-based index will not be treated as a material change if any
increase is funded ratably over the remaining period during which premiums are
required to be paid under the policy. To date, no regulations under this
provision have been issued.
Due to the Policy's flexibility, classification of a Policy as a modified
endowment contract will depend upon the circumstances of each Policy.
Accordingly, a prospective policy owner should contact a competent tax adviser
before purchasing a policy to determine the circumstances under which the
Policy would be a modified endowment contract. In addition, a policy owner
should contact a competent tax adviser before paying any nonrepeating premiums
or making any other change to, including an exchange of, a Policy to determine
whether such premium or change would cause the Policy (or the new Policy in
the case of an exchange) to be treated as a modified endowment contract.
Under the Code, all modified endowment contracts, issued by us (or an
affiliated company) to the same policy owner during any calendar year will be
treated as one modified endowment contract for purposes of determining the
amount includable in gross income under Section 72(e) of the Code. Additional
rules may be promulgated under this provision to prevent avoidance of its
effects through serial contracts or otherwise. For further information on
current aggregation rules under this provision, see your own tax adviser. A
life insurance policy received in exchange for a modified endowment contract
will also be treated as a modified endowment contract. Accordingly, a policy
owner should consult a tax adviser before effecting an exchange of any life
insurance policy.
Federal estate and state and local estate, inheritance, and other tax
consequences of ownership or receipt of Policy proceeds depend upon the
circumstances of each policy owner or beneficiary. A competent tax adviser
should be consulted for further information.
The Policies may be used in various arrangements, including nonqualified
deferred
compensation or salary continuance plans, split dollar insurance plans,
executive bonus
plans, retiree medical benefit plans and others. The tax consequences of such
plans may vary depending on the particular facts and circumstances of each
individual arrangement. Therefore, if you are contemplating the use of such
Policies in any arrangement the value of which depends in part on its tax
consequences, you should be sure to consult a qualified tax adviser regarding
the tax attributes of the particular arrangement.
It should be understood that the foregoing description of the federal income
tax consequences under the Policies is not exhaustive and that special rules
are provided with respect to situations not discussed. Statutory changes in
the Internal Revenue Code, with varying effective dates, and regulations
adopted thereunder may also alter the tax consequences of specific factual
situations. Due to the complexity of the applicable laws, tax advice may be
needed by a person contemplating the purchase of a variable life insurance
policy or exercising elections under such a policy. For further information, a
qualified tax adviser should be consulted.
At the present time, we make no charge to the Variable Life Account for any
Federal, state or local taxes that we incur that may be attributable to such
Account or to the Policies. We, however, reserve the right in the future to
make a charge for any such tax or other economic burden resulting from the
application of the tax laws that we determine to be properly attributable to
the Variable Life Account or the Policies.
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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 Administrative
Services, Minnesota Mining and Manufacturing
Company, Maplewood, Minnesota
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 Chairman of the Board, President 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)
David S. Kidwell, Ph.D. Dean and Professor of Finance, The Curtis L.
Carlson School of Management, University of
Minnesota
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 Tinson Saario, Ph.D. Prior to March 1996, and 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, 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>
Principal Officers (other than Trustees)
<TABLE>
<CAPTION>
NAME POSITION
---- --------
<C> <S>
John F. Bruder Senior Vice President
Keith M. Campbell Vice President
Paul H. Gooding Vice President and Treasurer
Robert E. Hunstad Executive Vice President
James E. Johnson Senior Vice President and Actuary
Richard D. Lee Vice President
</TABLE>
<TABLE>
<CAPTION>
NAME POSITION
---- --------
<C> <S>
Joel W. Mahle Vice President
Dennis E. Prohofsky Senior Vice President, General Counsel and Secretary
Gregory S. Strong Vice President and Actuary
Terrence M. Sullivan Senior Vice President
Randy F. Wallake Senior Vice President
</TABLE>
40
<PAGE>
All Trustees who are not also officers of Minnesota Mutual have had the
principal occupation (or employers) shown for at least 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 Corporation,
which in turn is a wholly-owned subsidiary of Minnesota Mutual. MIMLIC
Corporation is also the sole owner of the shares of Advantus Capital, a
registered investment adviser and the investment adviser to the Fund.
MIMLIC Sales Corporation, whose address is 400 Robert Street North, St.
Paul, Minnesota 55101-2098, is a registered broker-dealer under the Securities
Exchange Act of 1934 and a member of the National Association of Securities
Dealers, Inc. The Policies are sold in the states where their sale is lawful.
The insurance underwriting and the determination of a proposed insured's risk
classification and whether to accept or reject an application for a Policy is
done in accordance with our rules and standards.
Commissions to registered representatives on the sale of Policies include:
up to 50 percent of gross premium in the first policy year; 6 percent of the
gross premium in policy years two through ten; 2 percent in policy years
thereafter; and 0 percent of nonrepeating premiums. This description of
commissions shows the maximum amount of commissions payable under the Variable
Adjustable Life Insurance Policy for plans of insurance described as
protection and whole life insurance plans. The commissions payable on premiums
received for plans described as greater than whole life plans will differ from
the percentages shown above, as a first year commission will be paid only on
such amounts as we may classify as a first year premium, based upon a whole
life premium per $1,000 of face amount and a Policy face amount of $100,000.
The
41
<PAGE>
premiums received in excess of that amount will pay commissions at a rate of 4
percent.
In addition, MIMLIC Sales Corporation or Minnesota Mutual will pay, based
uniformly on the sales of Variable Adjustable Life Insurance Policies by
registered representatives, credits which allow registered
representatives (Agents) who are responsible for sales of the Policies to
attend conventions and other meetings sponsored by us or our affiliates for
the purpose of promoting the sale of insurance and/or investment products
offered by us and our affiliates. Such credits may cover the registered
representatives' transportation, hotel accommodations, meals, registration
fees and the like. We may also pay registered representatives additional
amounts based upon their production and the persistency of life insurance and
annuity business placed with us.
LEGAL MATTERS
Legal matters in connection with federal securities laws applicable to the
issue and sale of the Variable Adjustable Life Policies have been passed upon
by Jones & Blouch L.L.P., 1025 Thomas Jefferson Street, N.W., Washington, D.C.
20007. All other legal matters, including the right to issue such Policies
under Minnesota law and applicable regulations thereunder, have been passed
upon by Donald F. Gruber, Esquire, 400 Robert Street North, St. Paul,
Minnesota 55101.
LEGAL PROCEEDINGS
As an insurance company, we are ordinarily involved in litigation. We are of
the opinion that such litigation is not material with
respect to the Policies or the Variable Life Account.
EXPERTS
The financial statements of Minnesota Mutual and the Variable Life Account
included in this prospectus have been audited by KPMG Peat Marwick LLP,
independent auditors, 4200 Norwest Center, 90 South Seventh Street,
Minneapolis, Minnesota 55402, whose reports thereon appears elsewhere herein,
and have been so included in reliance upon the report of KPMG Peat Marwick LLP
and upon the authority of said firm as experts in accounting and auditing.
Actuarial matters included in this prospectus have been examined by Jaymes
G. Hubbell, F.S.A., Second Vice President and Actuary of Minnesota Mutual, as
stated in his opinion filed as an exhibit to the Registration Statement.
REGISTRATION STATEMENT
We have filed with the Securities and Exchange Commission a Registration
Statement under the Securities Act of 1933, as amended, with respect to the
Policies offered hereby. This prospectus does not contain all the information
set forth in the registration statement and amendments thereto and the
exhibits filed as a part thereof, to all of which reference is hereby made for
further information concerning the Variable Life Account, Minnesota Mutual,
and the Policies. Statements contained in this prospectus as to the contents
of Policies and other legal instruments are summaries, and reference is made
to such instruments as filed.
42
<PAGE>
SPECIAL TERMS
As used in this prospectus, the following terms have the indicated meanings:
ACTUAL CASH VALUE: the value of your Variable Life Account and guaranteed
principal account interest under a Policy. It is composed of a Policy's
interest in the guaranteed principal account and in one or more sub-accounts of
the Variable Life Account. The interest in each is valued separately. For each
Variable Life Account sub-account, the value is determined by multiplying the
current number of sub-account units credited to a Policy by the current sub-
account unit value. Actual cash value does not include the loan account.
BASE PREMIUM: the premium less any amount deducted from the premium for
additional benefits and, for VAL '95, for sub-standard risks.
CODE: the Internal Revenue Code of 1986, as amended.
FUND: the mutual fund or separate investment portfolio within a series mutual
fund which we have designated as an eligible investment for the Variable Life
Account, currently, Advantus Series Fund, Inc. and its Portfolios.
GENERAL ACCOUNT: all of our assets other than those in the Variable Life
Account or in other separate accounts established by us.
GUARANTEED PRINCIPAL ACCOUNT: the portion of the general account of Minnesota
Mutual which is attributable to Policies of this class, exclusive of policy
loans. It is not a separate account or a division of the general account.
LOAN ACCOUNT: the portion of the general account attributable to policy loans
under Policies of this type. The loan account balance is the sum of all
outstanding loans under this Policy.
NET SINGLE PREMIUM: the amount of money necessary, at the insured's attained
age, to pay for all future guaranteed cost of insurance charges for the entire
lifetime of the insured, or for the coverage period in the case of extended
term insurance, without the payment of additional premium. This determination
shall assume that the current face amount of the Policy will remain constant
and that the Policy will perform at its assumed rate of return.
NONREPEATING PREMIUM: a payment made to this Policy in addition to its
scheduled payments.
POLICY OWNER: the owner of a Policy.
POLICY VALUE: the actual cash value of a Policy plus any policy loan.
POLICY YEAR: a period of one year beginning with the policy date or a policy
anniversary.
PREMIUM: a scheduled payment required for this Policy.
UNIT: an accounting device used to determine the interest of a Policy in the
sub-accounts of the Variable Life Account.
VALUATION DATE: each date on which a Fund Portfolio is valued.
VALUATION PERIOD: the period between successive valuation dates measured from
the time of one determination to the next.
VARIABLE LIFE ACCOUNT: a separate investment account called the Minnesota
Mutual Variable Life Account, where the investment experience of its assets is
kept separate from our other assets.
WE, OUR, US: The Minnesota Mutual Life Insurance Company.
YOU, YOUR: the policy owner.
43
<PAGE>
INDEPENDENT AUDITORS' REPORT
The Board of Trustees of The Minnesota Mutual Life Insurance Company
and Contract 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 (the
Account) as of December 31, 1996 and the related statements of operations and
changes in net assets for each of the years in the three-year period ended
December 31, 1996 (years ended December 31, 1996 and 1995 and the period from
May 2, 1994 to December 31, 1994 for the Value Stock Segregated Sub-Account)
and the financial highlights for periods in footnote (6). 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, 1996 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 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, 1996
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 14, 1997
44
<PAGE>
MINNESOTA MUTUAL VARIABLE LIFE ACCOUNT
STATEMENTS OF ASSETS AND LIABILITIES
DECEMBER 31, 1996
<TABLE>
<CAPTION>
SEGREGATED SUB-ACCOUNTS
-------------------------------- ---------------------------------------------
MONEY ASSET MORTGAGE CAPITAL
ASSETS GROWTH BOND MARKET ALLOCATION SECURITIES INDEX 500 APPRECIATION
------ ----------- ---------- --------- ---------- ---------- ---------- ------------
<S> <C> <C> <C> <C> <C> <C> <C>
Investments in
shares of MIMLIC
Series Fund, Inc.:
Growth Portfolio,
17,843,664 shares
at net asset
value of $2.343
per share (cost
$36,799,248)..... $41,812,703 -- -- -- -- -- --
Bond Portfolio,
11,447,356 shares
at net asset
value of $1.283
per share (cost
$14,228,679)..... -- 14,690,192 -- -- -- -- --
Money Market
Portfolio,
6,472,735 shares
at net asset
value of $1.000
per share (cost
$6,472,735)...... -- -- 6,472,735 -- -- -- --
Asset Allocation
Portfolio,
42,990,825 shares
at net asset
value of $1.865
per share (cost
$71,092,231)..... -- -- -- 80,173,829 -- -- --
Mortgage Securi-
ties Portfolio,
7,488,503 shares
at net asset
value of $1.187
per share (cost
$8,578,929)...... -- -- -- -- 8,885,876 -- --
Index 500 Portfo-
lio, 20,986,596
shares at net as-
set value of
$2.409 per share
(cost
$40,143,423)..... -- -- -- -- -- 50,550,629 --
Capital Apprecia-
tion Portfolio,
23,969,997 shares
at net asset
value of $2.471
per share (cost
$48,530,230)..... -- -- -- -- -- -- 59,240,353
International
Stock Portfolio,
31,440,193 shares
at net asset
value of $1.597
per share (cost
$43,229,837)..... -- -- -- -- -- -- --
Small Company
Portfolio,
21,911,074 shares
at net asset
value of $1.535
per share (cost
$32,846,806)..... -- -- -- -- -- -- --
Value Stock Port-
folio, 10,821,665
shares at net as-
set value of
$1.591 per share
(cost
$15,551,266)..... -- -- -- -- -- -- --
----------- ---------- --------- ---------- --------- ---------- ----------
41,812,703 14,690,192 6,472,735 80,173,829 8,885,876 50,550,629 59,240,353
Receivable from
Minnesota Mutual
for policy pur-
chase payments.... 132,168 83,752 22,782 166,949 9,346 239,801 148,568
Receivable from
MIMLIC Series
Fund, Inc. for in-
vestments sold.... 43,141 12,120 9,326 70,299 7,501 32,094 46,564
Dividends receiv-
able from MIMLIC
Series Fund, Inc.. -- -- 1 -- -- -- --
----------- ---------- --------- ---------- --------- ---------- ----------
Total assets.... 41,988,012 14,786,064 6,504,844 80,411,077 8,902,723 50,822,524 59,435,485
----------- ---------- --------- ---------- --------- ---------- ----------
<CAPTION>
LIABILITIES
-----------
<S> <C> <C> <C> <C> <C> <C> <C>
Payable to MIMLIC
Series Fund, Inc.
for investments
purchased......... 132,168 83,752 22,782 166,949 9,346 239,801 148,568
Payable to Minne-
sota Mutual for
policy termina-
tions and mortal-
ity and expense
charges........... 43,141 12,120 9,326 70,299 7,501 32,094 46,564
----------- ---------- --------- ---------- --------- ---------- ----------
Total liabili-
ties............ 175,309 95,872 32,108 237,248 16,847 271,895 195,132
----------- ---------- --------- ---------- --------- ---------- ----------
NET ASSETS APPLI-
CABLE TO POLICY
OWNERS............ $41,812,703 14,690,192 6,472,736 80,173,829 8,885,876 50,550,629 59,240,353
=========== ========== ========= ========== ========= ========== ==========
UNITS OUTSTANDING. 16,176,371 7,366,222 4,082,791 32,104,595 4,175,648 17,250,529 19,778,274
=========== ========== ========= ========== ========= ========== ==========
NET ASSET VALUE
PER UNIT.......... $ 2.586 1.994 1.585 2.497 2.128 2.930 2.995
=========== ========== ========= ========== ========= ========== ==========
<CAPTION>
-----------------------------------
INTERNATIONAL SMALL VALUE
ASSETS STOCK COMPANY STOCK
------ ------------- ---------- ----------
<S> <C> <C> <C>
Investments in
shares of MIMLIC
Series Fund, Inc.:
Growth Portfolio,
17,843,664 shares
at net asset
value of $2.343
per share (cost
$36,799,248)..... -- -- --
Bond Portfolio,
11,447,356 shares
at net asset
value of $1.283
per share (cost
$14,228,679)..... -- -- --
Money Market
Portfolio,
6,472,735 shares
at net asset
value of $1.000
per share (cost
$6,472,735)...... -- -- --
Asset Allocation
Portfolio,
42,990,825 shares
at net asset
value of $1.865
per share (cost
$71,092,231)..... -- -- --
Mortgage Securi-
ties Portfolio,
7,488,503 shares
at net asset
value of $1.187
per share (cost
$8,578,929)...... -- -- --
Index 500 Portfo-
lio, 20,986,596
shares at net as-
set value of
$2.409 per share
(cost
$40,143,423)..... -- -- --
Capital Apprecia-
tion Portfolio,
23,969,997 shares
at net asset
value of $2.471
per share (cost
$48,530,230)..... -- -- --
International
Stock Portfolio,
31,440,193 shares
at net asset
value of $1.597
per share (cost
$43,229,837)..... 50,217,042 -- --
Small Company
Portfolio,
21,911,074 shares
at net asset
value of $1.535
per share (cost
$32,846,806)..... -- 33,630,035 --
Value Stock Port-
folio, 10,821,665
shares at net as-
set value of
$1.591 per share
(cost
$15,551,266)..... -- -- 17,213,125
------------- ---------- ----------
50,217,042 33,630,035 17,213,125
Receivable from
Minnesota Mutual
for policy pur-
chase payments.... 175,980 166,189 142,419
Receivable from
MIMLIC Series
Fund, Inc. for in-
vestments sold.... 30,393 26,572 10,398
Dividends receiv-
able from MIMLIC
Series Fund, Inc.. -- -- --
------------- ---------- ----------
Total assets.... 50,423,415 33,822,796 17,365,942
------------- ---------- ----------
<CAPTION>
LIABILITIES
-----------
<S> <C> <C> <C>
Payable to MIMLIC
Series Fund, Inc.
for investments
purchased......... 175,980 166,189 142,419
Payable to Minne-
sota Mutual for
policy termina-
tions and mortal-
ity and expense
charges........... 30,393 26,572 10,398
------------- ---------- ----------
Total liabili-
ties............ 206,373 192,761 152,817
------------- ---------- ----------
NET ASSETS APPLI-
CABLE TO POLICY
OWNERS............ 50,217,042 33,630,035 17,213,125
============= ========== ==========
UNITS OUTSTANDING. 28,056,128 19,918,050 9,648,331
============= ========== ==========
NET ASSET VALUE
PER UNIT.......... 1.790 1.689 1.784
============= ========== ==========
</TABLE>
See accompanying notes to financial statements.
45
<PAGE>
MINNESOTA MUTUAL VARIABLE LIFE ACCOUNT
STATEMENTS OF OPERATIONS
YEAR ENDED DECEMBER 31, 1996
<TABLE>
<CAPTION>
SEGREGATED SUB-ACCOUNTS
------------------------------------ --------------------------------------------------
MONEY ASSET MORTGAGE CAPITAL
GROWTH BOND MARKET ALLOCATION SECURITIES INDEX 500 APPRECIATION
----------- ---------- ----------- ----------- ---------- ----------- ------------
<S> <C> <C> <C> <C> <C> <C> <C>
Investment income
(loss):
Investment income
distributions from
underlying mutual
fund (note 4)...... $ 278,451 603,154 294,271 2,095,397 499,341 476,493 --
Mortality and
expense charges
(note 3)........... (173,630) (60,937) (30,589) (350,927) (39,632) (195,010) (255,630)
----------- ---------- ----------- ----------- ---------- ----------- -----------
Investment
income (loss)--
net............ 104,821 542,217 263,682 1,744,470 459,709 281,483 (255,630)
----------- ---------- ----------- ----------- ---------- ----------- -----------
Realized and
unrealized gains
(losses) on
investments--net:
Realized gain dis-
tributions from
underlying mutual
fund
(note 4)........... 2,616,611 108,728 -- 3,836,599 -- 246,659 1,271,186
----------- ---------- ----------- ----------- ---------- ----------- -----------
Realized gains on
sales of
investments:
Proceeds from
sales ........... 10,268,042 4,634,557 11,833,538 17,461,424 2,268,982 12,438,876 13,655,575
Cost of invest-
ments sold....... (9,164,050) (4,546,166) (11,833,538) (15,718,684) (2,242,472) (10,121,928) (11,287,215)
----------- ---------- ----------- ----------- ---------- ----------- -----------
1,103,992 88,391 -- 1,742,740 26,510 2,316,948 2,368,360
----------- ---------- ----------- ----------- ---------- ----------- -----------
Net realized
gains on
investments.... 3,720,603 197,119 -- 5,579,339 26,510 2,563,607 3,639,546
----------- ---------- ----------- ----------- ---------- ----------- -----------
Net change in
unrealized
appreciation or
depreciation of
investments........ 1,398,787 (343,676) -- 682,688 (107,111) 4,756,817 4,331,602
----------- ---------- ----------- ----------- ---------- ----------- -----------
Net gains
(losses) on
investments.... 5,119,390 (146,557) -- 6,262,027 (80,601) 7,320,424 7,971,148
----------- ---------- ----------- ----------- ---------- ----------- -----------
Net increase in
net assets
resulting from
operations..... $ 5,224,211 395,660 263,682 8,006,497 379,108 7,601,907 7,715,518
=========== ========== =========== =========== ========== =========== ===========
<CAPTION>
-------------------------------------
INTERNATIONAL SMALL VALUE
STOCK COMPANY STOCK
------------- ----------- -----------
<S> <C> <C> <C>
Investment income
(loss):
Investment income
distributions from
underlying mutual
fund (note 4)...... 928,852 70,099 134,162
Mortality and
expense charges
(note 3)........... (199,522) (136,946) (51,183)
------------- ----------- -----------
Investment
income (loss)--
net............ 729,330 (66,847) 82,979
------------- ----------- -----------
Realized and
unrealized gains
(losses) on
investments--net:
Realized gain dis-
tributions from
underlying mutual
fund
(note 4)........... 1,016,871 3,093,113 1,024,043
------------- ----------- -----------
Realized gains on
sales of
investments:
Proceeds from
sales ........... 11,921,319 8,855,781 3,885,317
Cost of invest-
ments sold....... (10,844,232) (7,746,510) (3,415,633)
------------- ----------- -----------
1,077,087 1,109,271 469,684
------------- ----------- -----------
Net realized
gains on
investments.... 2,093,958 4,202,384 1,493,727
------------- ----------- -----------
Net change in
unrealized
appreciation or
depreciation of
investments........ 4,335,633 (2,840,532) 1,239,111
------------- ----------- -----------
Net gains
(losses) on
investments.... 6,429,591 1,361,852 2,732,838
------------- ----------- -----------
Net increase in
net assets
resulting from
operations..... 7,158,921 1,295,005 2,815,817
============= =========== ===========
</TABLE>
See accompanying notes to financial statements.
46
<PAGE>
MINNESOTA MUTUAL VARIABLE LIFE ACCOUNT
STATEMENTS OF OPERATIONS (CONTINUED)
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>
Investment income
(loss):
Investment income
distributions from
underlying mutual
fund (note 4)...... $ 199,832 261,591 208,114 1,419,229 418,709 345,109 --
Mortality and
expense charges
(note 3)........... (115,565) (40,308) (19,640) (258,919) (32,719) (108,911) (178,191)
---------- ---------- ---------- ----------- ---------- ---------- ----------
Investment in-
come (loss)--
net............ 84,267 221,283 188,474 1,160,310 385,990 236,198 (178,191)
---------- ---------- ---------- ----------- ---------- ---------- ----------
Realized and
unrealized gains on
investments--net:
Realized gain
distributions from
underlying mutual
fund (note 4)...... 752,601 -- -- 518,544 -- 136,462 820,112
---------- ---------- ---------- ----------- ---------- ---------- ----------
Realized gains on
sales of
investments:
Proceeds from
sales............ 6,707,133 3,668,871 5,767,756 15,788,909 2,440,457 6,976,079 10,629,551
Cost of
investments sold. (6,150,138) (3,547,747) (5,767,756) (14,667,948) (2,419,084) (5,975,182) (9,193,408)
---------- ---------- ---------- ----------- ---------- ---------- ----------
556,995 121,124 -- 1,120,961 21,373 1,000,897 1,436,143
---------- ---------- ---------- ----------- ---------- ---------- ----------
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 gains on
investments.... 4,668,000 1,161,764 -- 9,988,982 644,960 6,298,037 6,868,203
---------- ---------- ---------- ----------- ---------- ---------- ----------
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
========== ========== ========== =========== ========== ========== ==========
<CAPTION>
-------------------------------------
INTERNATIONAL SMALL VALUE
STOCK COMPANY STOCK
------------- ----------- -----------
<S> <C> <C> <C>
Investment income
(loss):
Investment income
distributions from
underlying mutual
fund (note 4)...... -- 23,415 38,421
Mortality and
expense charges
(note 3)........... (125,629) (72,140) (14,473)
------------- ----------- -----------
Investment in-
come (loss)--
net............ (125,629) (48,725) 23,948
------------- ----------- -----------
Realized and
unrealized gains on
investments--net:
Realized gain
distributions from
underlying mutual
fund (note 4)...... -- 203,581 220,693
------------- ----------- -----------
Realized gains on
sales of
investments:
Proceeds from
sales............ 9,110,210 4,928,714 1,202,928
Cost of
investments sold. (8,713,211) (4,259,828) (1,092,357)
------------- ----------- -----------
396,999 668,886 110,571
------------- ----------- -----------
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 gains on
investments.... 3,350,005 4,041,165 760,767
------------- ----------- -----------
Net increase in
net assets
resulting from
operations.. 3,224,376 3,992,440 784,715
============= =========== ===========
</TABLE>
See accompanying notes to financial statements.
47
<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
GROWTH BOND MARKET ALLOCATION SECURITIES 500 APPRECIATION
----------- ---------- ---------- ----------- ---------- ---------- ------------
<S> <C> <C> <C> <C> <C> <C> <C>
Investment income
(loss):
Investment income
distributions from
underlying mutual
fund (note 4) ..... $ 137,686 176,495 116,862 750,369 209,882 199,386 17,564
Mortality and
expense charges
(note 3) .......... (74,204) (23,955) (15,521) (189,661) (25,132) (66,230) (111,166)
----------- ---------- ---------- ----------- ---------- ---------- ----------
Investment
income (loss)--
net ........... 63,482 152,540 101,341 560,708 184,750 133,156 (93,602)
----------- ---------- ---------- ----------- ---------- ---------- ----------
Realized and
unrealized gains
(losses) on
investments--net:
Realized gain
distributions from
underlying mutual
fund (note 4) ..... 283,186 110,137 -- 218,666 99,701 40,363 298,807
----------- ---------- ---------- ----------- ---------- ---------- ----------
Realized gains on
sales of
investments:
Proceeds from
sales ........... 5,517,029 2,347,048 5,451,482 15,550,866 2,436,609 4,825,884 9,432,639
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)
----------- ---------- ---------- ----------- ---------- ---------- ----------
80,108 (98,576) -- (18,354) (93,373) 157,780 490,763
----------- ---------- ---------- ----------- ---------- ---------- ----------
Net realized
gains on
investments ... 363,294 11,561 -- 200,312 6,328 198,143 789,570
----------- ---------- ---------- ----------- ---------- ---------- ----------
Net change in
unrealized
appreciation or
depreciation of
investments ........ (346,307) (384,138) -- (1,400,184) (369,942) (229,615) (85,694)
----------- ---------- ---------- ----------- ---------- ---------- ----------
Net gains
(losses) on
investments ... 16,987 (372,577) -- (1,199,872) (363,614) (31,472) 703,876
----------- ---------- ---------- ----------- ---------- ---------- ----------
Net increase
(decrease) in
net assets
resulting from
operations .... $ 80,469 (220,037) 101,341 (639,164) (178,864) 101,684 610,274
=========== ========== ========== =========== ========== ========== ==========
<CAPTION>
----------------------------------
INTERNATIONAL SMALL VALUE
STOCK COMPANY STOCK
------------- ----------- --------
<S> <C> <C> <C>
Investment income
(loss):
Investment income
distributions from
underlying mutual
fund (note 4) ..... 351,737 11,999 7,337
Mortality and
expense charges
(note 3) .......... (70,069) (22,967) (1,056)
------------- ----------- --------
Investment
income (loss)--
net ........... 281,668 (10,968) 6,281
------------- ----------- --------
Realized and
unrealized gains
(losses) on
investments--net:
Realized gain
distributions from
underlying mutual
fund (note 4) ..... 577,998 -- 2,954
------------- ----------- --------
Realized gains on
sales of
investments:
Proceeds from
sales ........... 5,232,132 2,297,893 75,011
Cost of
investments sold
................. (4,886,541) (2,270,554) (75,414)
------------- ----------- --------
345,591 27,339 (403)
------------- ----------- --------
Net realized
gains on
investments ... 923,589 27,339 2,551
------------- ----------- --------
Net change in
unrealized
appreciation or
depreciation of
investments ........ (1,491,123) 391,884 (6,755)
------------- ----------- --------
Net gains
(losses) on
investments ... (567,534) 419,223 (4,204)
------------- ----------- --------
Net increase
(decrease) in
net assets
resulting from
operations .... (285,866) 408,255 2,077
============= =========== ========
</TABLE>
See accompanying notes to financial statements.
48
<PAGE>
MINNESOTA MUTUAL VARIABLE LIFE ACCOUNT
STATEMENTS OF CHANGES IN NET ASSETS
YEAR ENDED DECEMBER 31, 1996
<TABLE>
<CAPTION>
SEGREGATED SUB-ACCOUNTS
------------------------------------------------- ----------------------------------------------------
MONEY ASSET MORTGAGE INDEX CAPITAL INTERNATIONAL
GROWTH BOND MARKET ALLOCATION SECURITIES 500 APPRECIATION STOCK
----------- ---------- ----------- ----------- ---------- ----------- ------------ -------------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Operations:
Investment
income (loss)--
net............ $ 104,821 542,217 263,682 1,744,470 459,709 281,483 (255,630) 729,330
Net realized
gains on
investments.... 3,720,603 197,119 -- 5,579,339 26,510 2,563,607 3,639,546 2,093,958
Net change in
unrealized
appreciation or
depreciation of
investments.... 1,398,787 (343,676) -- 682,688 (107,111) 4,756,817 4,331,602 4,335,633
----------- ---------- ----------- ----------- ---------- ----------- ----------- -----------
Net increase in
net assets
resulting from
operations...... 5,224,211 395,660 263,682 8,006,497 397,108 7,601,907 7,715,518 7,158,921
----------- ---------- ----------- ----------- ---------- ----------- ----------- -----------
Policy
transactions
(notes 3, 4 and
5):
Policy purchase
payments....... 18,240,045 8,476,494 12,682,354 27,630,678 3,385,663 26,341,081 22,471,971 23,422,864
Policy
withdrawals and
charges........ (10,094,412) (4,573,620) (11,802,949) (17,110,497) (2,229,350) (12,243,866) (13,399,945) (11,721,797)
----------- ---------- ----------- ----------- ---------- ----------- ----------- -----------
Increase in net
assets from
policy
transactions.... 8,145,633 3,902,874 879,405 10,520,181 1,156,313 14,097,215 9,072,026 11,701,067
----------- ---------- ----------- ----------- ---------- ----------- ----------- -----------
Increase in net
assets.......... 13,369,844 4,298,534 1,143,087 18,526,678 1,535,421 21,699,122 16,787,544 18,859,988
Net assets at the
beginning of
year............ 28,442,859 10,391,658 5,329,649 61,647,151 7,350,455 28,851,507 42,452,809 31,357,054
----------- ---------- ----------- ----------- ---------- ----------- ----------- -----------
Net assets at the
end of year..... $41,812,703 14,690,192 6,472,736 80,173,829 8,885,876 50,550,629 59,240,353 50,217,042
=========== ========== =========== =========== ========== =========== =========== ===========
<CAPTION>
---------------------------
SMALL VALUE
COMPANY STOCK
----------- -----------
<S> <C> <C> <C>
Operations:
Investment
income (loss)--
net............ (66,847) 82,979
Net realized
gains on
investments.... 4,202,384 1,493,727
Net change in
unrealized
appreciation or
depreciation of
investments.... (2,840,532) 1,239,111
----------- -----------
Net increase in
net assets
resulting from
operations...... 1,295,005 2,815,817
----------- -----------
Policy
transactions
(notes 3, 4 and
5):
Policy purchase
payments....... 20,175,123 12,940,411
Policy
withdrawals and
charges........ (8,718,835) (3,834,134)
----------- -----------
Increase in net
assets from
policy
transactions.... 11,456,288 9,106,277
----------- -----------
Increase in net
assets.......... 12,751,293 11,922,094
Net assets at the
beginning of
year............ 20,878,742 5,291,031
----------- -----------
Net assets at the
end of year..... 33,630,035 17,213,125
=========== ===========
</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, 1995
<TABLE>
<CAPTION>
SEGREGATED SUB-ACCOUNTS
----------------------------------- -------------------------------------------------
MONEY ASSET MORTGAGE CAPITAL
GROWTH BOND MARKET ALLOCATION SECURITIES INDEX 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, 4 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
=========== ========== ========== =========== ========== ========== ===========
<CAPTION>
-------------------------------------
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, 4 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.
50
<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 INDEX CAPITAL
GROWTH BOND MARKET ALLOCATION SECURITIES 500 APPRECIATION
----------- ---------- ---------- ----------- ---------- ---------- ------------
<S> <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)
Net realized
gains on
investments.... 363,294 11,561 -- 200,312 6,328 198,143 789,570
Net change in
unrealized
appreciation or
depreciation of
investments.... (346,307) (384,138) -- (1,400,184) (369,942) (229,615) (85,694)
----------- ---------- ---------- ----------- ---------- ---------- ----------
Net increase
(decrease) in
net assets
resulting from
operations...... 80,469 (220,037) 101,341 (639,164) (178,864) 101,684 610,274
----------- ---------- ---------- ----------- ---------- ---------- ----------
Policy
transactions
(notes 3, 4 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
Policy withdraw-
als and
charges........ (5,442,825) (2,323,093) (5,435,960) (15,361,205) (2,411,477) (4,759,654) (9,321,473)
----------- ---------- ---------- ----------- ---------- ---------- ----------
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
----------- ---------- ---------- ----------- ---------- ---------- ----------
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
Net assets at the
beginning of pe-
riod............ 11,929,506 3,852,823 2,594,459 33,525,229 4,354,725 10,728,517 18,701,436
----------- ---------- ---------- ----------- ---------- ---------- ----------
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
=========== ========== ========== =========== ========== ========== ==========
<CAPTION>
------------------------------------
INTERNATIONAL SMALL VALUE
STOCK COMPANY STOCK
------------- ----------- ----------
<S> <C> <C> <C>
Operations:
Investment
income (loss)--
net............ 281,668 (10,968) 6,281
Net realized
gains on
investments.... 923,589 27,339 2,551
Net change in
unrealized
appreciation or
depreciation of
investments.... (1,491,123) 391,884 (6,755)
------------- ----------- ----------
Net increase
(decrease) in
net assets
resulting from
operations...... (285,866) 408,255 2,077
------------- ----------- ----------
Policy
transactions
(notes 3, 4 and
5):
Policy purchase
payments....... 17,030,883 9,002,013 1,077,789
Policy withdraw-
als and
charges........ (5,162,063) (2,274,926) (73,955)
------------- ----------- ----------
Increase in net
assets from
policy
transactions.... 11,868,820 6,727,087 1,003,834
------------- ----------- ----------
Increase in net
assets.......... 11,582,954 7,135,342 1,005,911
Net assets at the
beginning of pe-
riod............ 8,319,138 1,449,062 --
------------- ----------- ----------
Net assets at the
end of period... 19,902,092 8,584,404 1,005,911
============= =========== ==========
</TABLE>
See accompanying notes to financial statements.
51
<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).
There are currently two types of variable life policies each consisting has ten
segregated sub-accounts to which policy owners may allocate their purchase
payments. The financial statements presented herein include both types of
variable life policies. Variable Adjustable Life and Variable Adjustable Life
Second Death, offered by 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 increases and decreases in net assets resulting 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.
52
<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, 1996, 1995 and 1994 amounted to $13,357,161, $11,373,694
and $10,312,243, 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, 1996, 1995 and 1994 amounted to $6,155,712,
$4,549,011 and $4,826,308, 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, 1996, 1995 and 1994 amounted to
$3,465,457, $2,687,472 and $2,147,159, respectively.
A face amount guarantee charge of 1.5 percent is deducted from each
Variable Adjustable Life policy 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, 1996, 1995 and 1994 amounted
to $1,794,822, $1,411,514 and $1,125,385, respectively.
Beginning in 1996, a federal tax charge of 1.25 percent is deducted
from each Variable Adjustable Life Second Death policy premium payment.
The federal tax charge is paid to offset additional corporate federal
income taxes incurred by Minnesota Mutual under the Omnibus Budget
Reconciliation Act of 1990. Total federal tax charges for the year ended
December 31, 1996 amounted to $14,298.
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.
In addition, a face amount guarantee charge is assessed from the actual cash
value of each Variable Adjustable Second Death 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 for Variable Adjustable Life
policies and $120 for each policy year for Variable Adjustable Life Second
Death policies. 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 face
amount guarantee charge is guaranteed not to exceed 3 cents per thousand
dollars of face amount per month.
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.
53
<PAGE>
MINNESOTA MUTUAL VARIABLE LIFE ACCOUNT
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
(3) MORTALITY AND EXPENSE AND OTHER POLICY CHARGES (CONTINUED)
The total of cash value charges for the years ended December 31, 1996, 1995
and 1994 for each segregated sub-account (years ended December 31, 1996 and
1995 and period from May 3, 1994 to December 31, 1994 for Value Stock) are as
follows:
<TABLE>
<CAPTION>
1996 1995 1994
---------- ---------- ----------
<S> <C> <C> <C>
Growth $3,958,312 $3,235,518 $2,691,861
Bond 1,780,681 1,359,743 968,023
Money Market 741,727 624,184 406,353
Asset Allocation 7,673,171 7,306,035 7,226,753
Mortgage Securities 859,703 881,050 914,930
Index 500 4,389,029 2,752,710 2,186,930
Capital Appreciation 5,701,873 4,809,954 4,034,243
International Stock 5,145,385 3,938,698 2,670,738
Small Company 3,921,958 2,514,829 1,114,925
Value Stock 1,802,043 619,624 45,146
</TABLE>
(4) INVESTMENT TRANSACTIONS
The Account's purchases of Fund shares, including reinvestment of dividend
distributions, were as follows during the years ended December 31, 1996, 1995
and 1994 (years ended December 31, 1996 and 1995 and period from May 2, 1994 to
December 31, 1994 for Value Stock):
<TABLE>
<CAPTION>
1996 1995 1994
----------- ----------- -----------
<S> <C> <C> <C>
Growth Portfolio $21,135,107 $13,360,915 $11,727,400
Bond Portfolio 9,188,376 6,921,232 4,954,472
Money Market Portfolio 12,978,090 6,869,537 7,083,425
Asset Allocation Portfolio 33,562,674 25,334,675 26,075,122
Mortgage Securities Portfolio 3,885,004 3,519,157 4,171,994
Index 500 Portfolio 27,064,233 13,666,694 10,168,519
Capital Appreciation Portfolio 23,743,157 19,948,250 17,412,153
International Stock Portfolio 25,368,587 17,215,167 17,960,618
Small Company Portfolio 23,338,335 13,385,468 9,014,012
Value Stock Portfolio 14,098,616 4,947,974 1,088,077
</TABLE>
54
<PAGE>
MINNESOTA MUTUAL VARIABLE LIFE ACCOUNT
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
(5) UNIT ACTIVITY FROM POLICY TRANSACTIONS
Transactions in units for each segregated sub-account for the years ended
December 31, 1996, 1995 and 1994 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, 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
Policy purchase pay-
ments 7,527,990 4,397,925 8,165,940 11,761,903 1,651,580
Deductions for policy
withdrawals and
charges (4,174,113) (2,372,242) (7,592,940) (7,290,581) (1,092,188)
---------- ---------- ---------- ---------- ----------
Units outstanding at
December 31, 1996 16,176,371 7,366,222 4,082,791 32,104,595 4,175,648
========== ========== ========== ========== ==========
</TABLE>
<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, 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
Policy purchase pay-
ments 9,927,022 7,957,386 14,398,443 12,096,257 8,210,018
Deductions for policy
withdrawals and
charges (4,593,774) (4,766,785) (7,225,632) (5,267,965) (2,425,981)
---------- ---------- ---------- ---------- ----------
Units outstanding at
December 31, 1996 17,250,529 19,778,274 28,056,128 19,918,050 9,648,331
========== ========== ========== ========== ==========
</TABLE>
55
<PAGE>
MINNESOTA MUTUAL VARIABLE LIFE ACCOUNT
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
(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,
-------------------------------
1996 1995 1994 1993 1992
------ ----- ----- ----- -----
<S> <C> <C> <C> <C> <C>
Unit value, beginning of year $2.218 1.794 1.788 1.718 1.647
------ ----- ----- ----- -----
Income from investment operations:
Net investment income .007 .008 .008 .010 .009
Net gains or losses on securities (both real-
ized and unrealized) .361 .416 (.002) .060 .062
------ ----- ----- ----- -----
Total from investment operations .368 .424 .006 .070 .071
------ ----- ----- ----- -----
Unit value, end of year $2.586 2.218 1.794 1.788 1.718
====== ===== ===== ===== =====
</TABLE>
BOND
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31,
--------------------------------
1996 1995 1994 1993 1992
------ ----- ----- ----- -----
<S> <C> <C> <C> <C> <C>
Unit value, beginning of year $1.946 1.634 1.720 1.567 1.477
------ ----- ----- ----- -----
Income (loss) from investment operations:
Net investment income .085 .050 .054 .048 .055
Net gains or losses on securities (both real-
ized and unrealized) (.037) .262 (.140) .105 .035
------ ----- ----- ----- -----
Total from investment operations .048 .312 (.086) .153 .090
------ ----- ----- ----- -----
Unit value, end of year $1.994 1.946 1.634 1.720 1.567
====== ===== ===== ===== =====
</TABLE>
MONEY MARKET
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31,
------------------------------
1996 1995 1994 1993 1992
------ ----- ----- ----- -----
<S> <C> <C> <C> <C> <C>
Unit value, beginning of year $1.518 1.447 1.403 1.373 1.337
------ ----- ----- ----- -----
Income from investment operations:
Net investment income .067 .071 .044 .030 .036
------ ----- ----- ----- -----
Total from investment operations .067 .071 .044 .030 .036
------ ----- ----- ----- -----
Unit value, end of year $1.585 1.518 1.447 1.403 1.373
====== ===== ===== ===== =====
</TABLE>
ASSET ALLOCATION
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31,
-------------------------------
1996 1995 1994 1993 1992
------ ----- ----- ----- -----
<S> <C> <C> <C> <C> <C>
Unit value, beginning of year $2.231 1.793 1.828 1.726 1.617
------ ----- ----- ----- -----
Income (loss) from investment operations:
Net investment income .058 .045 .027 .021 .016
Net gains or losses on securities (both real-
ized and unrealized) .208 .393 (.062) .081 .093
------ ----- ----- ----- -----
Total from investment operations .266 .438 (.035) .102 .109
------ ----- ----- ----- -----
Unit value, end of year $2.497 2.231 1.793 1.828 1.726
====== ===== ===== ===== =====
</TABLE>
56
<PAGE>
MINNESOTA MUTUAL VARIABLE LIFE ACCOUNT
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
(6) FINANCIAL HIGHLIGHTS (CONTINUED)
MORTGAGE SECURITIES
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31,
--------------------------------
1996 1995 1994 1993 1992
------ ----- ----- ----- -----
<S> <C> <C> <C> <C> <C>
Unit value, beginning of year $2.032 1.731 1.800 1.656 1.564
------ ----- ----- ----- -----
Income (loss) from investment operations:
Net investment income .119 .112 .064 .054 .044
Net gains or losses on securities (both real-
ized and unrealized) (.023) .189 (.133) .090 .048
------ ----- ----- ----- -----
Total from investment operations .096 .301 (.069) .144 .092
------ ----- ----- ----- -----
Unit value, end of year $2.128 2.032 1.731 1.800 1.656
====== ===== ===== ===== =====
</TABLE>
INDEX 500
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31,
-------------------------------
1996 1995 1994 1993 1992
------ ----- ----- ----- -----
<S> <C> <C> <C> <C> <C>
Unit value, beginning of year $2.421 1.778 1.766 1.617 1.514
------ ----- ----- ----- -----
Income from investment operations:
Net investment income .019 .023 .018 .017 .013
Net gains or losses on securities (both real-
ized and unrealized) .490 .620 (.006) .132 .090
------ ----- ----- ----- -----
Total from investment operations .509 .643 .012 .149 .103
------ ----- ----- ----- -----
Unit value, end of year $2.930 2.421 1.778 1.766 1.617
====== ===== ===== ===== =====
</TABLE>
CAPITAL APPRECIATION
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31,
----------------------------------
1996 1995 1994 1993 1992
------ ----- ----- ----- -----
<S> <C> <C> <C> <C> <C>
Unit value, beginning of year $2.559 2.095 2.059 1.874 1.793
------ ----- ----- ----- -----
Income from investment operations:
Net investment loss (.014) (.012) (.009) (.005) (.003)
Net gains or losses on securities (both
realized and unrealized) .450 .476 .045 .190 .084
------ ----- ----- ----- -----
Total from investment operations .436 .464 .036 .185 .081
------ ----- ----- ----- -----
Unit value, end of year $2.995 2.559 2.095 2.059 1.874
====== ===== ===== ===== =====
</TABLE>
INTERNATIONAL STOCK
<TABLE>
<CAPTION>
PERIOD FROM
MAY 1,
YEAR ENDED DECEMBER 31, 1992* TO
-------------------------- DECEMBER
1996 1995 1994 1993 31, 1992
------ ----- ----- ----- -----------
<S> <C> <C> <C> <C> <C>
Unit value, beginning of period $1.502 1.321 1.332 .929 1.000
------ ----- ----- ----- -----
Income (loss) from investment operations:
Net investment income (loss) .030 (.007) .027 .007 .025
Net gains or losses on securities (both
realized and unrealized) .258 .188 (.038) .396 (.096)
------ ----- ----- ----- -----
Total from investment operations .288 .181 (.011) .403 (.071)
------ ----- ----- ----- -----
Unit value, end of period $1.790 1.502 1.321 1.332 .929
====== ===== ===== ===== =====
</TABLE>
57
<PAGE>
MINNESOTA MUTUAL VARIABLE LIFE ACCOUNT
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
(6) FINANCIAL HIGHLIGHTS (CONTINUED)
SMALL COMPANY
<TABLE>
<CAPTION>
PERIOD FROM
YEAR ENDED MAY 3,
DECEMBER 31, 1993* TO
-------------------- DECEMBER
1996 1995 1994 31, 1993
------ ----- ----- -----------
<S> <C> <C> <C> <C>
Unit value, beginning of period $1.594 1.213 1.149 1.000
------ ----- ----- -----
Income from investment operations:
Net investment loss (.004) (.005) (.003) (.004)
Net gains or losses on securities (both re-
alized and unrealized) .099 .386 .067 .153
------ ----- ----- -----
Total from investment operations .095 .381 .064 .149
------ ----- ----- -----
Unit value, end of period $1.689 1.594 1.213 1.149
====== ===== ===== =====
</TABLE>
VALUE STOCK
<TABLE>
<CAPTION>
PERIOD FROM
YEAR ENDED MAY 2,
DECEMBER 31, 1994* TO
------------ DECEMBER
1996 1995 31, 1994
------ ----- -----------
<S> <C> <C> <C>
Unit value, beginning of period $1.369 1.035 1.000
------ ----- -----
Income from investment operations:
Net investment income .013 .010 .019
Net gains on securities (both realized and
unrealized) .402 .324 .016
------ ----- -----
Total from investment operations .415 .334 .035
------ ----- -----
Unit value, end of period $1.784 1.369 1.035
====== ===== =====
</TABLE>
- -------
*Commencement of the segregated sub-account's operations.
58
<PAGE>
INDEPENDENT AUDITORS' REPORT
The Board of Trustees
The Minnesota Mutual Life Insurance Company
We have audited the accompanying consolidated balance sheets of The Minnesota
Mutual Life Insurance Company and subsidiaries as of December 31, 1996 and
1995, and the related consolidated statements of operations and policyowners'
surplus and cash flows for each of the years in the three-year period ended
December 31, 1996. These consolidated financial statements are the
responsibility of the Company's management. Our responsibility is to express an
opinion on these consolidated financial statements based on our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audits 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 consolidated financial statements referred to above
present fairly, in all material respects, the financial position of The
Minnesota Mutual Life Insurance Company and subsidiaries as of December 31,
1996 and 1995, and the results of their operations and their cash flows for
each of the years in the three-year period ended December 31, 1996 in
conformity with generally accepted accounting principles. As discussed in Note
2 to the consolidated financial statements, the Company adopted Statement of
Financial Accounting Standards No. 120, "Accounting and Reporting by Mutual
Life Insurance Enterprises and by Insurance Enterprises for Certain Long-
Duration Participating Contracts," in 1996.
Our audits were made for the purpose of forming an opinion on the basic
financial statements taken as a whole. The supplementary information included
in the accompanying schedules is presented for purposes of additional analysis
and is not a required part of the basic financial statements. Such information
has been subjected to the auditing procedures applied in the audits of the
basic financial statements and, in our opinion, is fairly stated in all
material respects in relation to the basic financial statements taken as a
whole.
KPMG Peat Marwick LLP
Minneapolis, Minnesota
February 10, 1997
53
<PAGE>
THE MINNESOTA MUTUAL LIFE INSURANCE COMPANY AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
DECEMBER 31, 1996 AND 1995
ASSETS
<TABLE>
<CAPTION>
1996 1995
----------- -----------
(IN THOUSANDS)
<S> <C> <C>
Fixed maturity securities:
Available-for-sale, at fair value (amortized cost
$4,558,975 and $4,525,352) $ 4,674,082 $ 4,761,561
Held-to-maturity, at amortized cost (fair value
$1,179,112 and $1,281,523) 1,125,638 1,180,654
Equity securities, at fair value (cost $429,509 and
$277,554) 549,797 384,882
Mortgage loans, net 608,808 608,537
Real estate, net 43,082 47,256
Policy loans 204,178 198,716
Short-term investments 122,772 72,841
Other invested assets 98,247 91,530
----------- -----------
Total investments 7,426,604 7,345,977
Cash 57,140 48,358
Finance receivables, net 259,192 226,720
Deferred policy acquisition costs 589,517 539,732
Accrued investment income 90,996 98,373
Premiums receivable 77,140 85,247
Property and equipment, net 55,050 50,809
Reinsurance recoverables 126,629 102,198
Other assets 54,798 46,530
Separate account assets 3,706,256 2,609,460
----------- -----------
Total assets $12,443,322 $11,153,404
=========== ===========
LIABILITIES AND POLICYOWNERS' SURPLUS
Liabilities:
Policy and contract account balances $ 4,310,015 $ 4,287,083
Future policy and contract benefits 1,638,720 1,554,898
Pending policy and contract claims 70,577 55,812
Other policyowner funds 396,848 371,537
Policyowner dividends payable 49,899 50,450
Unearned premiums and fees 207,111 210,494
Federal income tax liability:
Current 25,643 39,516
Deferred 149,665 173,905
Other liabilities 286,042 320,607
Notes payable 319,000 279,967
Separate account liabilities 3,691,374 2,596,285
----------- -----------
Total liabilities 11,144,894 9,940,554
Policyowners' surplus:
Unassigned surplus 1,190,116 1,059,598
Net unrealized investment gains 108,312 153,252
----------- -----------
Total policyowners' surplus 1,298,428 1,212,850
----------- -----------
Total liabilities and policyowners' surplus $12,443,322 $11,153,404
=========== ===========
</TABLE>
See accompanying notes to consolidated financial statements.
54
<PAGE>
THE MINNESOTA MUTUAL LIFE INSURANCE COMPANY AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF OPERATIONS AND POLICYOWNERS' SURPLUS
YEARS ENDED DECEMBER 31, 1996, 1995 AND 1994
STATEMENTS OF OPERATIONS
<TABLE>
<CAPTION>
1996 1995 1994
---------- ---------- ---------
(IN THOUSANDS)
<S> <C> <C> <C>
Revenues:
Premiums $ 612,359 $ 603,770 $ 562,018
Policy and contract fees 245,966 214,203 188,115
Net investment income 530,987 515,047 486,101
Net realized investment gains 59,546 66,643 25,769
Finance charge income 46,932 39,937 34,258
Other income 51,630 40,250 30,106
---------- ---------- ---------
Total revenues 1,547,420 1,479,850 1,326,367
---------- ---------- ---------
Benefits and expenses:
Policyowner benefits 541,520 517,771 498,424
Interest credited to policies and con-
tracts 288,967 297,145 283,626
General operating expenses 302,618 273,425 253,317
Commissions 103,370 93,465 87,631
Administrative and sponsorship fees 79,360 76,223 71,143
Dividends to policyowners 24,804 27,282 26,672
Interest on notes payable 22,798 11,128 7,295
Increase in deferred policy acquisition
costs (15,312) (29,822) (43,974)
---------- ---------- ---------
Total benefits and expenses 1,348,125 1,266,617 1,184,134
---------- ---------- ---------
Income from operations before taxes 199,295 213,233 142,233
Federal income tax expense:
Current 68,033 71,379 63,641
Deferred 744 11,995 (1,511)
---------- ---------- ---------
Total federal income tax expense 68,777 83,374 62,130
Net income $ 130,518 $ 129,859 $ 80,103
========== ========== =========
STATEMENTS OF POLICYOWNERS' SURPLUS
Policyowners' surplus, beginning of year $1,212,850 $ 874,577 $ 892,510
Net income 130,518 129,859 80,103
Change in net unrealized investment
gains and losses (44,940) 208,414 (98,036)
---------- ---------- ---------
Policyowners' surplus, end of year $1,298,428 $1,212,850 $ 874,577
========== ========== =========
</TABLE>
See accompanying notes to consolidated financial statements.
55
<PAGE>
THE MINNESOTA MUTUAL LIFE INSURANCE COMPANY AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
YEARS ENDED DECEMBER 31, 1996, 1995 AND 1994
<TABLE>
<CAPTION>
1996 1995 1994
---------- ---------- ----------
(IN THOUSANDS)
<S> <C> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES
Net income $ 130,518 $ 129,859 $ 80,103
Adjustments to reconcile net income to net
cash provided by operating activities:
Interest credited to annuity and insur-
ance contracts 275,968 288,218 277,863
Fees deducted from policy and contract
balances (206,780) (201,575) (188,226)
Change in future policy benefits 84,389 100,025 63,328
Change in other policyowner liabilities 16,099 (4,762) (16,794)
Change in deferred policy acquisition
costs (15,312) (29,822) (43,974)
Change in premiums due and other receiv-
ables (26,142) (18,039) 38,166
Change in federal income tax liabilities (12,055) 18,376 17,854
Net realized investment gains (59,546) (66,643) (25,769)
Other, net 29,987 36,561 28,958
---------- ---------- ----------
Net cash provided by operating activi-
ties 217,126 252,198 231,509
---------- ---------- ----------
CASH FLOWS FROM INVESTING ACTIVITIES
Proceeds from sales of:
Fixed maturity securities, available-
for-sale 877,682 1,349,348 653,498
Equity securities 352,901 203,493 88,645
Mortgage loans 15,567 4,315 20,912
Real estate 11,678 15,948 17,571
Other invested assets 12,280 10,775 28,305
Proceeds from maturities and repayments
of:
Fixed maturity securities, available-
for-sale 329,550 253,576 327,337
Fixed maturity securities, held-to-matu-
rity 114,222 127,617 75,648
Mortgage loans 94,703 104,730 126,134
Cost of purchases of:
Fixed maturity securities, available-
for-sale (1,228,048) (1,975,130) (1,123,125)
Fixed maturity securities, held-to-matu-
rity (60,612) (140,763) (131,820)
Equity securities (446,599) (212,142) (131,483)
Mortgage loans (108,691) (209,399) (145,964)
Real estate (3,786) (16,554) (10,985)
Other invested assets (29,271) (20,517) (12,732)
Finance receivable originations or pur-
chases (175,876) (167,298) (134,867)
Finance receivable principal payments 142,723 123,515 104,539
Other, net (43,662) (19,292) 15,309
---------- ---------- ----------
Net cash used for investing activities (145,239) (567,778) (233,078)
---------- ---------- ----------
CASH FLOWS FROM FINANCING ACTIVITIES
Deposits credited to annuity and insurance
contracts 657,405 710,525 647,237
Withdrawals from annuity and insurance
contracts (702,681) (563,569) (645,969)
Proceeds from issuance of surplus notes -- 124,967 --
Proceeds from issuance of debt by subsidi-
ary 60,000 50,000 30,000
Payments on debt by subsidiary (21,000) (10,000) (9,100)
Other, net (6,898) (3,801) (5,940)
---------- ---------- ----------
Net cash provided by (used for) fi-
nancing activities (13,174) 308,122 16,228
---------- ---------- ----------
Net increase (decrease) in cash and short-
term investments 58,713 (7,458) 14,659
Cash and short-term investments, beginning
of year 121,199 128,657 113,998
---------- ---------- ----------
Cash and short-term investments, end of
year $ 179,912 $ 121,199 $ 128,657
========== ========== ==========
</TABLE>
See accompanying notes to consolidated financial statements.
56
<PAGE>
THE MINNESOTA MUTUAL LIFE INSURANCE COMPANY AND SUBSIDIARIES
NOTES TO CONSOLIDATED 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 reported in 1996 by these business units were
$780,250,000, $279,554,000, $213,461,000 and $104,059,000, respectively.
Additional revenues of $170,096,000 were reported by the Company's
subsidiaries.
At December 31, 1996, the Company was one of the 11 largest mutual life
insurance company groups in the United States, as measured by total assets. The
Company serves nearly seven million people through more than 4,000 associates
located at its St. Paul headquarters and in 81 general agencies and 43 regional
offices throughout the United States.
(2) SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
Basis of Presentation
The accompanying consolidated financial statements have been prepared in
accordance with generally accepted accounting principles (GAAP), which vary in
certain respects from accounting practices prescribed or permitted by state
insurance regulatory authorities. The consolidated financial statements include
the accounts of The Minnesota Mutual Life Insurance Company and its
subsidiaries (collectively, "the Company"). All material intercompany
transactions and balances have been eliminated.
The preparation of financial statements in conformity with GAAP requires
management to make certain estimates and assumptions that affect reported
assets and liabilities, including reporting or disclosure of contingent assets
and liabilities as of the balance sheet date and the reported amounts of
revenues and expenses during the reporting period. Actual results could vary
from management's estimates.
New Accounting Principles
In 1995 and prior years, the Company prepared its financial statements
according to statutory accounting practices prescribed or permitted by the
Commerce Department of the State of Minnesota (Department of Commerce), and
these accounting practices were considered GAAP for mutual life insurance
companies.
In April 1993, the Financial Accounting Standards Board (FASB) issued
Interpretation No. 40 (the Interpretation), "Applicability of Generally
Accepted Accounting Principles to Mutual Life Insurance and Other Enterprises."
The Interpretation was supposed to become effective for fiscal years beginning
after December 15, 1994 and stated that financial statements prepared in
accordance with statutory accounting practices would no longer be considered to
be in conformity with GAAP. The Interpretation requires all mutual life
insurance companies that report their financial statements in conformity with
GAAP to apply all applicable authoritative GAAP pronouncements, with the
exception of Statements of Financial Accounting Standards (SFAS) No. 60,
"Accounting and Reporting by Insurance Enterprises," No. 97, "Accounting and
Reporting by Insurance Enterprises for Certain Long Duration Contracts and
Realized Gains and Losses from the Sale of Investments," and No. 113,
"Accounting for Reinsurance of Short-Duration and Long-Duration Contracts."
In January 1995, the FASB issued SFAS 120, "Accounting and Reporting by
Mutual Life Insurance Enterprises and by Insurance Enterprises for Certain Long
Duration Participating Contracts." This statement deferred the implementation
of the Interpretation to fiscal years beginning after December 15, 1995 and
extended the requirements of SFAS Nos. 60, 97 and 113 to mutual life insurance
enterprises.
SFAS No. 120 also requires mutual life insurance enterprises to adopt
Statement of Position 95-1, "Accounting for Certain Insurance Activities of
Mutual Life Insurance Enterprises," which was issued by the American Institute
of Certified Public Accountants.
57
<PAGE>
THE MINNESOTA MUTUAL LIFE INSURANCE COMPANY AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
(2) SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)
The Company adopted SFAS No. 120 on January 1, 1996, and the accompanying
1994 and 1995 financial statements and related notes have been restated to
conform with the presentation of the 1996 GAAP financial statements.
The Company will continue to prepare financial statements according to
statutory accounting practices prescribed or permitted by the Department of
Commerce for purposes of filing with the Department of Commerce, the National
Association of Insurance Commissioners and states in which the Company is
licensed to do business. The significant differences between statutory and GAAP
financial results are presented in Note 12.
Insurance Revenues and Expenses
Premiums on traditional life products, which include individual whole life and
term insurance and immediate annuities, are credited to revenue when due. For
accident and health and group life products, premiums are credited to revenue
over the contract period as earned. Benefits and expenses are recognized in
relation to premiums over the contract period via a provision for future policy
benefits and the amortization of deferred policy acquisition costs.
Nontraditional life products include individual adjustable and variable life
insurance and group universal and variable life insurance. Revenue from
nontraditional life products and deferred annuities is comprised of policy and
contract fees charged for the cost of insurance, policy administration and
surrenders. Expenses include the portion of claims not covered by and interest
credited to the related policy and contract account balances. Policy
acquisition costs are amortized relative to gross margins.
Deferred Policy Acquisition Costs
The costs of acquiring new and renewal business, which vary with and are
primarily related to the production of new and renewal business, are generally
deferred to the extent recoverable from future premiums or expected gross
profits. Deferrable costs include commissions, underwriting expenses and
certain other selling and issue costs.
For traditional life, accident and health and group life products, deferred
acquisition costs are amortized over the premium paying period in proportion to
the ratio of annual premium revenues to ultimate anticipated premium revenues.
The ultimate premium revenues are estimated based upon the same assumptions
used to calculate the future policy benefits.
For nontraditional life products and deferred annuities, deferred acquisition
costs are amortized over the estimated lives of the contracts in relation to
the present value of estimated gross profits from surrender charges and
investment, mortality and expense margins.
Deferred acquisition costs amortized were $125,978,000, $104,940,000 and
$86,477,000 for the years ended December 31, 1996, 1995 and 1994, respectively.
Finance Charge Income and Receivables
Finance charge income represents fees and interest charged on consumer loans.
The Company uses the interest (actuarial) method of accounting for finance
charges and interest on finance receivables. Accrual of finance charges and
interest is suspended when a loan is contractually delinquent for more than 60
days and is subsequently recognized when received. Accrual is resumed when the
loan is contractually less than 60 days past due. An allowance for
uncollectible amounts is maintained by direct charges to operations at an
amount which management believes, based upon historical losses and economic
conditions, is adequate to absorb probable losses on existing receivables that
may become uncollectible. The reported receivables are net of this allowance.
Valuation of Investments
Fixed maturity securities (bonds) which the Company has the positive intent and
ability to hold to maturity are classified as held-to-maturity and are carried
at amortized cost, net of write-downs for other than temporary declines in
value. Premiums and discounts are amortized or accreted over the estimated
lives of the securities based on the interest yield method. Fixed maturity
securities which may be sold prior to maturity are classified as available-for-
sale and carried at fair value.
58
<PAGE>
THE MINNESOTA MUTUAL LIFE INSURANCE COMPANY AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
(2) SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)
Equity securities (common stocks and preferred stocks) are carried at fair
value. Equity securities also include initial contributions to affiliated
registered investment funds that are managed by a subsidiary of the Company.
These contributions are carried at the market value of the underlying net
assets of the funds.
Mortgage loans are carried at amortized cost less an allowance for
uncollectible amounts. Premiums and discounts are amortized or accreted over
the terms of the mortgage loans based on the interest yield method. A mortgage
loan is considered impaired if it is probable that contractual amounts due will
not be collected. Impaired mortgage loans are valued at the fair value of the
underlying collateral. Interest income on impaired mortgage loans is recorded
on an accrual basis. However, when the likelihood of collection is doubtful,
interest income is recognized when received.
Fair values of fixed maturity securities and equity securities 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. Fair values of mortgage loans are based upon discounted
cash flows, quoted market prices and matrix pricing.
Real estate is carried at cost less accumulated depreciation and an allowance
for estimated losses. Accumulated depreciation on real estate at December 31,
1996 and 1995, was $5,968,000 and $8,342,000, respectively.
Policy loans are carried at the unpaid principal balance.
Derivative Financial Instruments
The Company entered into equity swaps in 1996 as part of an overall risk
management strategy. The swaps are used to hedge exposure to market risk on
$400,000,000 of the Company's common stock portfolio. The swaps are based upon
certain stock indices, and settlement with the counterparties will take place
in January 1998. If, at the time of settlement for a particular swap, the
designated stock index has fallen below a specified level, the counterparty
will pay the Company an amount based upon the decline in the index and the
stock portfolio value protected by the swap. If, at the time of settlement, the
designated stock index has risen, the Company will pay the counterparty an
amount based upon the increase in the index and 25% of the stock portfolio
value protected by the swap.
The basic types of risks associated with derivatives are market risk (that
the value of the derivative will be adversely affected by changes in the
market) and credit risk (that the counterparty will not perform according to
the contract terms). To reduce credit risk, the swap contracts require that the
counterparties maintain sufficient credit ratings and provide collateral under
certain circumstances.
The swaps are carried at fair value, which is based upon dealer quotes.
Changes in fair value are recorded directly in policyowners' surplus. Upon
settlement of the swaps, gains or losses are recognized in income.
Capital Gains and Losses
Realized and unrealized capital gains and losses are determined on the specific
identification method. Write-downs of held-to-maturity securities and the
provision for credit losses on mortgage loans and real estate are recorded as
realized losses.
Changes in the fair value of fixed maturity securities available-for-sale and
equity securities are recorded as a separate component of policyowners'
surplus, net of taxes and related adjustments to deferred policy acquisition
costs and unearned policy and contract fees.
Property and Equipment
Property and equipment are carried at cost, net of accumulated depreciation of
$81,962,000 and $75,507,000 at December 31, 1996 and 1995, respectively.
Buildings are depreciated over 40 years and equipment is generally depreciated
over 5 to 10 years. Depreciation expense for the years ended December 31, 1996,
1995 and 1994, was $6,454,000, $5,941,000 and $8,136,000, respectively.
59
<PAGE>
THE MINNESOTA MUTUAL LIFE INSURANCE COMPANY AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
(2) SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)
Separate Accounts
Separate account assets and liabilities represent segregated funds administered
and invested by the Company for the exclusive benefit of certain policyowners
and contractholders. The Company receives administrative and investment
advisory fees for services rendered on behalf of these funds. Separate account
assets and liabilities are carried at fair value, based upon the market value
of the investments held in the segregated funds.
The Company periodically invests money in its separate accounts. The market
value of such investments is included with separate account assets and amounted
to $14,882,000 and $13,175,000 as of December 31, 1996 and 1995, respectively.
Policyowner Liabilities
Policy and contract account balances represent the net accumulation of funds
associated with nontraditional life products and deferred annuities. Additions
to the account balances include premiums, deposits and interest credited by the
Company. Decreases in the account balances include surrenders, withdrawals,
benefit payments, and charges assessed for the cost of insurance, policy
administration and surrenders.
Future policy and contract benefits are comprised of reserves for traditional
life, group life, and accident and health products. The reserves were
calculated using the net level premium method based upon assumptions regarding
investment yield, mortality, morbidity, and withdrawal rates determined at the
date of issue, commensurate with the Company's experience. Provision has been
made in certain cases for adverse deviations from these assumptions.
Other policyowner funds are comprised of dividend accumulations, premium
deposit funds and supplementary contracts without life contingencies.
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 recognized as expenses consistent with the
recognition of premiums.
Income Taxes
Current income taxes are charged to operations based upon amounts estimated to
be payable as a result of taxable operations for the current year. Deferred
income tax assets and liabilities are recognized for the future tax
consequences attributable to the differences between financial statement
carrying amounts and income tax bases of assets and liabilities.
Reinsurance Recoverables
Insurance liabilities are reported before the effects of ceded reinsurance.
Reinsurance recoverables represent amounts due from reinsurers for paid and
unpaid benefits, expense reimbursements, prepaid premiums and future policy
benefits.
60
<PAGE>
THE MINNESOTA MUTUAL LIFE INSURANCE COMPANY AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
(3) INVESTMENTS
Net investment income for the years ended December 31 was as follows:
<TABLE>
<CAPTION>
1996 1995 1994
-------- -------- --------
(IN THOUSANDS)
<S> <C> <C> <C>
Fixed maturity securities $433,985 $426,114 $417,698
Equity securities 14,275 8,883 4,485
Mortgage loans 63,865 58,943 49,676
Real estate (475) 497 648
Policy loans 13,828 12,821 11,800
Short-term investments 6,535 6,716 4,262
Other invested assets 4,901 5,168 3,212
-------- -------- --------
Gross investment income 536,914 519,142 491,781
Investment expenses (5,927) (4,095) (5,680)
-------- -------- --------
Total $530,987 $515,047 $486,101
======== ======== ========
</TABLE>
Net realized capital gains (losses) for the years ended December 31 were as
follows:
<TABLE>
<CAPTION>
1996 1995 1994
------- ------- -------
(IN THOUSANDS)
<S> <C> <C> <C>
Fixed maturity securities $(6,536) $24,025 $(2,528)
Equity securities 57,770 36,374 11,268
Mortgage loans (721) (207) (82)
Real estate 7,088 2,436 3,915
Other invested assets 1,945 4,015 13,196
------- ------- -------
Total $59,546 $66,643 $25,769
======= ======= =======
</TABLE>
Gross realized gains (losses) on the sales of fixed maturity securities and
equity securities for the years ended December 31 were as follows:
<TABLE>
<CAPTION>
1996 1995 1994
-------- -------- --------
(IN THOUSANDS)
<S> <C> <C> <C>
Fixed maturity securities, available-for-sale:
Gross realized gains $ 19,750 $ 34,898 $ 13,375
Gross realized losses (26,286) (10,873) (15,903)
Equity securities:
Gross realized gains 79,982 52,670 21,538
Gross realized losses (22,212) (16,296) (10,270)
</TABLE>
Net unrealized gains (losses) included in policyowners' surplus at December
31 were as follows:
<TABLE>
<CAPTION>
1996 1995
-------- --------
(IN THOUSANDS)
<S> <C> <C>
Gross unrealized gains $314,576 $358,877
Gross unrealized losses (77,337) (13,713)
Adjustment to deferred policy acquisition costs (65,260) (99,732)
Adjustment to unearned policy and contract fees (8,192) (11,665)
Deferred federal income taxes (55,475) (80,515)
-------- --------
Net unrealized gains $108,312 $153,252
======== ========
</TABLE>
61
<PAGE>
THE MINNESOTA MUTUAL LIFE INSURANCE COMPANY AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
(3)INVESTMENTS (CONTINUED)
The amortized cost and fair value of investments in marketable securities by
type of investment were as follows:
<TABLE>
<CAPTION>
GROSS UNREALIZED
AMORTIZED ---------------- FAIR
COST GAINS LOSSES VALUE
---------- -------- ------- ----------
(IN THOUSANDS)
<S> <C> <C> <C> <C>
DECEMBER 31, 1996
Available-for-sale:
United States government and gov-
ernment agencies and authorities $ 302,820 $ 2,397 $ 6,756 $ 298,461
States, municipalities, and polit-
ical subdivisions 11,296 759 -- 12,055
Foreign governments 1,926 -- 54 1,872
Corporate securities 2,450,126 115,846 19,554 2,546,418
Mortgage-backed securities 1,792,807 64,834 42,365 1,815,276
---------- -------- ------- ----------
Total fixed maturities 4,558,975 183,836 68,729 4,674,082
Equity securities--unaffiliated 353,983 107,172 5,168 455,987
Equity securities--affiliated 75,526 18,284 -- 93,810
---------- -------- ------- ----------
Total equity securities 429,509 125,456 5,168 549,797
---------- -------- ------- ----------
Total available-for-sale 4,988,484 309,292 73,897 5,223,879
Held-to-maturity:
Corporate securities 904,994 50,187 3,130 952,051
Mortgage-backed securities 220,644 7,833 1,416 227,061
---------- -------- ------- ----------
Total held-to-maturity 1,125,638 58,020 4,546 1,179,112
---------- -------- ------- ----------
Total $6,114,122 $367,312 $78,443 $6,402,991
========== ======== ======= ==========
DECEMBER 31, 1995
Available-for-sale:
United States government and gov-
ernment agencies and authorities $ 261,669 $ 10,911 $ 440 $ 272,140
States, municipalities, and polit-
ical subdivisions 26,317 3,262 -- 29,579
Foreign governments 1,704 223 -- 1,927
Corporate securities 2,523,889 169,329 6,098 2,687,120
Mortgage-backed securities 1,711,773 62,510 3,488 1,770,795
---------- -------- ------- ----------
Total fixed maturities 4,525,352 246,235 10,026 4,761,561
Equity securities--unaffiliated 196,355 91,269 1,590 286,034
Equity securities--affiliated 81,199 17,649 -- 98,848
---------- -------- ------- ----------
Total equity securities 277,554 108,918 1,590 384,882
---------- -------- ------- ----------
Total available-for-sale 4,802,906 355,153 11,616 5,146,443
Held-to-maturity:
United States government and gov-
ernment agencies and authorities 250 3 -- 253
States, municipalities, and polit-
ical subdivisions 525 6 -- 531
Corporate securities 953,511 89,962 525 1,042,948
Mortgage-backed securities 226,368 11,540 117 237,791
---------- -------- ------- ----------
Total held-to-maturity 1,180,654 101,511 642 1,281,523
---------- -------- ------- ----------
Total $5,983,560 $456,664 $12,258 $6,427,966
========== ======== ======= ==========
</TABLE>
62
<PAGE>
THE MINNESOTA MUTUAL LIFE INSURANCE COMPANY AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
(3)INVESTMENTS (CONTINUED)
The amortized cost and estimated fair value of fixed maturity securities at
December 31, 1996, 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>
AVAILABLE-FOR-SALE HELD-TO-MATURITY
--------------------- ---------------------
AMORTIZED FAIR AMORTIZED FAIR
COST VALUE COST VALUE
---------- ---------- ---------- ----------
(IN THOUSANDS)
<S> <C> <C> <C> <C>
Due in one year or less $ 33,390 $ 33,429 $ 4,889 $ 4,948
Due after one year through five
years 435,040 459,870 163,206 168,527
Due after five years through ten
years 1,383,954 1,429,460 223,848 235,754
Due after ten years 913,784 936,047 513,051 542,822
---------- ---------- ---------- ----------
2,766,168 2,858,806 904,994 952,051
Mortgage-backed securities 1,792,807 1,815,276 220,644 227,061
---------- ---------- ---------- ----------
Total $4,558,975 $4,674,082 $1,125,638 $1,179,112
========== ========== ========== ==========
</TABLE>
At December 31, 1996 and 1995, bonds and certificates of deposit with a
carrying value of $12,934,000 and $15,296,000, respectively, were on deposit
with various regulatory authorities as required by law.
Allowances for credit losses on investments are reflected on the consolidated
balance sheets as a reduction of the related assets and were as follows:
<TABLE>
<CAPTION>
1996 1995
------- -------
(IN THOUSANDS)
<S> <C> <C>
Mortgage loans $ 1,895 $ 1,711
Foreclosed real estate 535 400
Investment real estate 2,529 2,565
------- -------
Total $ 4,959 $ 4,676
======= =======
</TABLE>
At December 31, 1996, the recorded investment in mortgage loans that were
considered to be impaired was $6,518,000 before allowance for credit losses.
Included in this amount is $2,225,000 of impaired loans, for which the related
allowance for credit losses is $395,000, and $4,293,000 of impaired loans that,
as a result of adequate fair market value of underlying collateral, do not have
an allowance for credit losses.
At December 31, 1995, the recorded investment in mortgage loans that were
considered to be impaired was $12,232,000 before allowance for credit losses.
Included in this amount is $3,256,000 of impaired loans, for which the related
allowance for credit losses is $211,000, and $8,976,000 of impaired loans that,
as a result of adequate fair market value of underlying collateral, do not have
an allowance for credit losses.
In addition to the allowance for credit losses on impaired mortgage loans, a
general allowance for credit losses was established for potential impairments
in the remainder of the mortgage loan portfolio. The general allowance was
$1,500,000 at December 31, 1996, 1995 and 1994.
Changes in the allowance for credit losses on mortgage loans were as follows:
<TABLE>
<CAPTION>
1996 1995 1994
------ ------ ------
(IN THOUSANDS)
<S> <C> <C> <C>
Balance at beginning of year $1,711 $2,449 $2,412
Provision for credit losses 381 127 622
Charge-offs (197) (865) (585)
------ ------ ------
Balance at end of year $1,895 $1,711 $2,449
====== ====== ======
</TABLE>
63
<PAGE>
THE MINNESOTA MUTUAL LIFE INSURANCE COMPANY AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
(3)INVESTMENTS (CONTINUED)
Below is a summary of interest income on impaired mortgage loans.
<TABLE>
<CAPTION>
1996 1995 1994
------ ------- -------
(IN THOUSANDS)
<S> <C> <C> <C>
Average impaired mortgage loans $9,375 $15,845 $20,236
Interest income on impaired mortgage loans--contractual 1,796 1,590 2,103
Interest income on impaired mortgage loans--collected 1,742 1,515 1,963
</TABLE>
(4) NET FINANCE RECEIVABLES
Finance receivables as of December 31 were as follows:
<TABLE>
<CAPTION>
1996 1995
-------- --------
(IN THOUSANDS)
<S> <C> <C>
Direct installment loans $204,038 $178,262
Retail installment notes 30,843 32,345
Retail revolving credit 24,863 14,864
Credit card receivables 3,541 4,479
Accrued interest 3,404 3,147
-------- --------
Gross receivables 266,689 233,097
Allowance for uncollectible amounts (7,497) (6,377)
-------- --------
Finance receivables, net $259,192 $226,720
======== ========
</TABLE>
Direct installment loans at December 31, 1996 consisted of $93,127,000 of
discount basis loans (net of unearned finance charges) and $110,911,000 of
interest-bearing loans. As of December 31, 1995, discount basis loans amounted
to $92,351,000 and interest-bearing loans amounted to $85,911,000. Direct
installment loans generally have a maximum term of 84 months. Retail
installment notes are principally discount basis, arise from the sale of
household appliances, furniture, and sundry services, and generally have a
maximum term of 48 months. Experience has shown that a substantial portion of
finance receivables will be renewed, converted or paid in full prior to
maturity.
Principal cash collections of direct installment loans amounted to
$92,438,000, $75,865,000 and $70,941,000, and the percentage of these cash
collections to average net balances was 48%, 47% and 55% for the years ended
December 31, 1996, 1995 and 1994, respectively.
Changes in the allowance for uncollectible amounts for the years ended
December 31 were as follows:
<TABLE>
<CAPTION>
1996 1995 1994
------- ------ ------
(IN THOUSANDS)
<S> <C> <C> <C>
Balance at beginning of year $ 6,377 $5,360 $4,801
Provision for credit losses 10,086 6,140 4,652
Charge-offs (11,036) (6,585) (5,305)
Recoveries 2,070 1,462 1,212
------- ------ ------
Balance at end of year $ 7,497 $6,377 $5,360
======= ====== ======
</TABLE>
64
<PAGE>
THE MINNESOTA MUTUAL LIFE INSURANCE COMPANY AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
(5) INCOME TAXES
Income tax expense varies from the amount computed by applying the federal
income tax rate of 35% to income from operations before taxes. The significant
components of this difference were as follows:
<TABLE>
<CAPTION>
1996 1995 1994
------- ------- -------
(IN THOUSANDS)
<S> <C> <C> <C>
Computed tax expense $69,753 $74,631 $49,781
Differences between
computed and actual tax
expense:
Dividends received
deduction (2,534) (1,710) (1,293)
Special tax on mutual
life insurance
companies 2,760 10,134 9,880
Tax credits (3,475) (1,840) (1,150)
Expense adjustments and
other 2,273 2,159 4,912
------- ------- -------
Total tax expense $68,777 $83,374 $62,130
======= ======= =======
</TABLE>
The tax effects of temporary differences that give rise to the Company's net
deferred federal tax liability were as follows:
<TABLE>
<CAPTION>
1996 1995
-------- --------
(IN THOUSANDS)
<S> <C> <C> <C>
Deferred tax assets:
Policyowner liabilities $ 15,854 $ 22,151
Unearned fee income 43,232 43,576
Pension and post-retirement benefits 21,815 20,187
Tax deferred policy acquisition costs 58,732 47,228
Net realized capital losses 8,275 7,881
Other 19,229 17,997
-------- --------
Gross deferred tax assets 167,137 159,020
Deferred tax liabilities:
Deferred policy acquisition costs 206,331 188,906
Real estate and property and equipment depreciation 10,089 9,049
Basis difference on investments 8,605 7,402
Net unrealized capital gains 81,339 119,604
Other 10,438 7,964
-------- --------
Gross deferred tax liabilities 316,802 332,925
-------- --------
Net deferred tax liability $149,665 $173,905
======== ========
</TABLE>
A valuation allowance for deferred tax assets was not considered necessary as
of December 31, 1996 and 1995, because the Company believes that it is more
likely than not that the deferred tax assets will be realized through future
reversals of existing taxable temporary differences and future taxable income.
Income taxes paid for the years ended December 31, 1996, 1995 and 1994, were
$79,026,000, $64,390,000 and $45,268,000, respectively.
65
<PAGE>
THE MINNESOTA MUTUAL LIFE INSURANCE COMPANY AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
(6) 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 is summarized as follows:
<TABLE>
<CAPTION>
1996 1995 1994
-------- -------- --------
(IN THOUSANDS)
<S> <C> <C> <C>
Balance at January 1 $377,302 $349,311 $323,304
Less: reinsurance recoverable 80,333 61,624 51,549
-------- -------- --------
Net balance at January 1 296,969 287,687 271,755
-------- -------- --------
Incurred related to:
Current year 134,727 129,896 129,028
Prior years 4,821 (4,014) 860
-------- -------- --------
Total incurred 139,548 125,882 129,888
-------- -------- --------
Paid related to:
Current year 51,695 47,620 46,270
Prior years 70,073 68,980 67,686
-------- -------- --------
Total paid 121,768 116,600 113,956
-------- -------- --------
Net balance at December 31 314,749 296,969 287,687
Plus: reinsurance recoverable 102,161 80,333 61,624
-------- -------- --------
Balance at December 31 $416,910 $377,302 $349,311
======== ======== ========
</TABLE>
The liability for unpaid accident and health claims and claim adjustment
expenses is included in future policy and contract benefits and pending policy
and contract claims on the consolidated balance sheets.
Incurred claims related to prior years are due to the differences between
actual and estimated claims incurred as of the end of the prior year and
interest credited to future policy and contract benefits.
(7) EMPLOYEE BENEFIT PLANS
Pension Plans
The Company has noncontributory defined benefit retirement plans covering
substantially all employees and certain agents. Benefits are based upon years
of participation and the employee's average monthly compensation or the agent's
adjusted annual compensation. Plan assets are comprised of mostly stocks and
bonds which are held in the general and separate accounts of the Company and
administered under group annuity contracts issued by the Company. The Company's
funding policy is to contribute annually the minimum amount required by
applicable regulations. The Company also has an unfunded noncontributory
defined benefit retirement plan which provides certain employees with benefits
in excess of limits for qualified retirement plans.
Net periodic pension cost for the years ended December 31 included the
following components:
<TABLE>
<CAPTION>
1996 1995 1994
-------- -------- -------
(IN THOUSANDS)
<S> <C> <C> <C>
Service cost--benefits earned during the period $ 6,019 $ 5,294 $ 4,880
Interest accrued on projected benefit obligation 8,541 7,935 7,382
Actual return on plan assets (12,619) (18,061) (1,331)
Net amortization and deferral 4,698 11,811 (5,094)
-------- -------- -------
Net periodic pension cost $ 6,639 $ 6,979 $ 5,837
======== ======== =======
</TABLE>
66
<PAGE>
THE MINNESOTA MUTUAL LIFE INSURANCE COMPANY AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
(7) EMPLOYEE BENEFIT PLANS (CONTINUED)
The funded status for the Company's plans as of December 31 was calculated as
follows:
<TABLE>
<CAPTION>
FUNDED PLANS UNFUNDED PLAN
------------------ ----------------
1996 1995 1996 1995
-------- -------- ------- -------
(IN THOUSANDS)
<S> <C> <C> <C> <C>
Actuarial present value of benefit ob-
ligations:
Vested benefit obligation $ 61,328 $ 56,428 $ -- $ --
Non-vested benefit obligation 19,119 16,599 5,912 4,539
-------- -------- ------- -------
Accumulated benefit obligation $ 80,447 $ 73,027 $ 5,912 $ 4,539
======== ======== ======= =======
Pension liability included in other li-
abilities:
Projected benefit obligation $117,836 $105,180 $12,576 $10,430
Plan assets at fair value 115,107 102,594 -- --
-------- -------- ------- -------
Plan assets less than projected bene-
fit obligation 2,729 2,586 12,576 10,430
Unrecognized net gain (loss) 3,633 2,095 (2,332) (1,187)
Unrecognized prior service cost (364) (213) -- --
Unamortized transition asset (obliga-
tion) 2,422 2,643 (8,451) (9,219)
Additional minimum liability -- -- 4,119 4,515
-------- -------- ------- -------
Net pension liability $ 8,420 $ 7,111 $ 5,912 $ 4,539
======== ======== ======= =======
</TABLE>
A weighted average discount rate of 7.5% and a weighted average rate of
increase in future compensation levels of 5.8% were used in determining the
actuarial present value of the projected benefit obligation at December 31,
1996 and 1995. The assumed long-term rate of return on plan assets was either
7.5% or 8.5%, depending on the plan.
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
1996, 1995 and 1994 of $6,092,000, $6,595,000 and $6,866,000, respectively.
Participants may elect to receive a portion of their contributions in cash.
Postretirement Benefits Other than Pensions
The Company also has unfunded postretirement plans that provide certain health
care and life insurance benefits to substantially all retired employees and
agents. Eligibility is determined by age at retirement and years of service
after age 30. Health care premiums are shared with retirees, and other cost-
sharing features include deductibles and co-payments.
Components of net periodic postretirement benefit cost for the years ended
December 31 were as follows:
<TABLE>
<CAPTION>
1996 1995 1994
------ ------ ------
(IN THOUSANDS)
<S> <C> <C> <C>
Service cost--benefits earned during the period $1,011 $1,276 $1,760
Interest accrued on projected benefit obligation 2,041 2,452 2,298
Amortization of prior service cost (513) (513) (223)
Amortization of net gain (177) -- --
------ ------ ------
Net periodic postretirement benefit cost $2,362 $3,215 $3,835
====== ====== ======
</TABLE>
67
<PAGE>
THE MINNESOTA MUTUAL LIFE INSURANCE COMPANY AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
(7) EMPLOYEE BENEFIT PLANS (CONTINUED)
The accumulated postretirement benefit obligation and the accrued
postretirement benefit liability for the years ended December 31 were as
follows:
<TABLE>
<CAPTION>
1996 1995
------- -------
(IN THOUSANDS)
<S> <C> <C>
Accumulated postretirement benefit obligation:
Retirees $10,238 $11,875
Other fully eligible plan participants 4,594 5,535
Other active plan participants 9,514 9,809
------- -------
Total accumulated postretirement benefit obligation 24,346 27,219
Unrecognized prior service cost 4,107 4,620
Unrecognized net gain 9,880 4,743
------- -------
Accrued postretirement benefit liability $38,333 $36,582
======= =======
</TABLE>
The discount rate used in determining the accumulated postretirement benefit
obligation for 1996 and 1995 was 7.5%. The 1996 net health care cost trend rate
was 9.0%, graded to 5.5% over 7 years, and the 1995 rate was 11.0%, graded to
5.5% over 11 years.
The assumptions presented herein are based on pertinent information available
to management as of December 31, 1996 and 1995. 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, 1996 by
$4,262,000 and the estimated eligibility cost and interest cost components of
net periodic postretirement benefit costs for 1996 by $583,000.
(8) REINSURANCE
In the normal course of business, the Company seeks to limit its exposure to
loss on any single insured and to recover a portion of benefits paid by ceding
reinsurance to other insurance companies. To the extent that a reinsurer is
unable to meet its obligations under the reinsurance agreement, the Company
remains liable. The Company evaluates the financial condition of its reinsurers
and monitors concentrations of credit risk to minimize its exposure to
significant losses from reinsurer insolvencies.
Reinsurance is accounted for over the life of the underlying reinsured
policies using assumptions consistent with those used to account for the
underlying policies.
The effect of reinsurance on premiums for the years ended December 31 was as
follows:
<TABLE>
<CAPTION>
1996 1995 1994
-------- -------- --------
(IN THOUSANDS)
<S> <C> <C> <C>
Direct premiums $615,098 $600,841 $558,066
Reinsurance assumed 64,489 64,792 60,939
Reinsurance ceded (67,228) (61,863) (56,987)
-------- -------- --------
Net premiums $612,359 $603,770 $562,018
======== ======== ========
</TABLE>
Reinsurance recoveries on ceded reinsurance contracts were $72,330,000,
$58,338,000 and $60,970,000 during 1996, 1995 and 1994, respectively.
68
<PAGE>
THE MINNESOTA MUTUAL LIFE INSURANCE COMPANY AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
(9) FAIR VALUE OF FINANCIAL INSTRUMENTS
The estimated fair value of the Company's financial instruments has been
determined using available market information as of December 31, 1996 and 1995.
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. Therefore, estimates of fair value subsequent to the
valuation dates may differ significantly from the amounts presented herein.
Considerable judgment is required to interpret market data to develop the
estimates of fair value. The use of different market assumptions and/or
estimation methodologies may have a material effect on the estimated fair value
amounts.
Please refer to Note 2 for additional fair value disclosures concerning fixed
maturity securities, equity securities, mortgages and derivatives. The carrying
amounts for policy loans, cash, short term investments and finance receivables
approximate the assets' fair values.
The interest rates on the finance receivables outstanding as of December 31,
1996 and 1995, are consistent with the rates at which loans would currently be
made to borrowers of similar credit quality and for the same maturity; as such,
the carrying value of the finance receivables outstanding as of December 31,
1996 and 1995, approximate the fair value for those respective dates.
The fair values of deferred annuities, annuity certain contracts, and other
fund deposits, which have guaranteed interest rates and surrender charges, are
estimated to be the amount payable on demand as of December 31, 1996 and 1995.
The amount payable on demand equates to the account balance less applicable
surrender charges. Contracts without guaranteed interest rates and surrender
charges have fair values equal to their accumulation values plus applicable
market value adjustments. The fair values of guaranteed investment contracts
and supplementary contracts without life contingencies are calculated using
discounted cash flows, based on interest rates currently offered for similar
products with maturities consistent with those remaining for the contracts
being valued.
Rates currently available to the Company for debt with similar terms and
remaining maturities are used to estimate the fair value of notes payable.
The carrying amounts and fair values of the Company's financial instruments
which were classified as assets as of December 31 were as follows:
<TABLE>
<CAPTION>
1996 1995
--------------------- ---------------------
CARRYING FAIR CARRYING FAIR
AMOUNT VALUE AMOUNT VALUE
---------- ---------- ---------- ----------
(IN THOUSANDS)
<S> <C> <C> <C> <C>
Fixed maturity securities:
Available-for-sale $4,674,082 $4,674,082 $4,761,561 $4,761,561
Held-to-maturity 1,125,638 1,179,112 1,180,654 1,281,523
Equity securities 549,797 549,797 384,882 384,882
Mortgage loans:
Commercial 432,198 445,976 373,897 391,089
Residential 176,610 180,736 234,640 239,723
Policy loans 204,178 204,178 198,716 198,716
Short-term investments 122,772 122,772 72,841 72,841
Cash 57,140 57,140 48,358 48,358
Finance receivables, net 259,192 259,192 226,720 226,720
Derivatives 1,197 1,197 -- --
---------- ---------- ---------- ----------
Total financial assets $7,602,804 $7,674,182 $7,482,269 $7,605,413
========== ========== ========== ==========
</TABLE>
69
<PAGE>
THE MINNESOTA MUTUAL LIFE INSURANCE COMPANY AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
(9) FAIR VALUE OF FINANCIAL INSTRUMENTS (CONTINUED)
The carrying amounts and fair values of the Company's financial instruments
which were classified as liabilities as of December 31 were as follows:
<TABLE>
<CAPTION>
1996 1995
--------------------- ---------------------
CARRYING FAIR CARRYING FAIR
AMOUNT VALUE AMOUNT VALUE
---------- ---------- ---------- ----------
(IN THOUSANDS)
<S> <C> <C> <C> <C>
Deferred annuities $2,178,355 $2,152,636 $2,178,223 $2,156,886
Annuity certain contracts 52,636 53,962 48,492 50,732
Other fund deposits 808,592 805,709 856,535 847,975
Guaranteed investment contracts 18,770 18,866 47,426 47,987
Supplementary contracts without
life contingencies 47,966 47,536 41,431 39,962
Notes payable 319,000 325,974 279,967 294,103
---------- ---------- ---------- ----------
Total financial liabilities $3,425,319 $3,404,683 $3,452,074 $3,437,645
========== ========== ========== ==========
</TABLE>
(10) NOTES PAYABLE
In September 1995, the Company issued surplus notes with a face value of
$125,000,000, at 8.25%, due in 2025. The surplus notes are subordinate to all
current and future 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 approved accrued interest
was $3,008,000 as of December 31, 1996 and 1995. The issuance costs of
$1,403,000 are deferred and amortized over 30 years on a straight-line basis.
Notes payable as of December 31 were as follows:
<TABLE>
<CAPTION>
1996 1995
-------- --------
(IN THOUSANDS)
<S> <C> <C>
Corporate--surplus notes, 8.25%, 2025 $125,000 $124,967
Consumer finance subsidiary--senior, 6.53%--8.77%, through
2003 194,000 155,000
-------- --------
Total notes payable $319,000 $279,967
======== ========
</TABLE>
At December 31, 1996, the aggregate minimum annual notes payable maturities
for the next five years were as follows: 1997, $21,000,000; 1998, $31,000,000;
1999, $49,000,000; 2000, $33,000,000; 2001, $26,000,000.
Long-term borrowing agreements involving the consumer finance subsidiary
include provisions with respect to borrowing limitations, payment of cash
dividends on or purchases of common stock, and maintenance of liquid net worth.
As of December 31, 1996, the consumer finance subsidiary was required to have a
minimum liquid net worth of $41,354,000. Liquid net worth at that date was
$51,803,000.
Interest paid on debt for the years ended December 31, 1996, 1995 and 1994,
was $21,849,000, $6,504,000 and $5,378,000, respectively.
(11) COMMITMENTS AND CONTINGENCIES
The Company is involved in various pending or threatened legal proceedings
arising out of the normal course of business. In the opinion of management, the
ultimate resolution of such litigation will not have a material adverse effect
on operations or the financial position of the Company.
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
70
<PAGE>
THE MINNESOTA MUTUAL LIFE INSURANCE COMPANY AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
(11) COMMITMENTS AND CONTINGENCIES (CONTINUED)
$328,346,000 as of December 31, 1996. To the extent the joint contract issuer
is unable to meet its obligation under the agreement, the Company remains
liable.
The Company has long-term commitments to fund venture capital and real estate
investments totaling $142,469,000 as of December 31, 1996. The Company
estimates that $35,000,000 of these commitments will be invested in 1997, with
the remaining $107,469,000 invested over the next four years.
As of December 31, 1996, the Company had committed to purchase bonds and
mortgage loans totaling $74,123,000 but had not completed the purchase
transactions.
At December 31, 1996, the Company had guaranteed the payment of $68,700,000
in policyowner dividends and discretionary amounts payable in 1997. The Company
has pledged bonds, valued at $70,336,000, to secure this guarantee.
The Company is contingently liable under state regulatory requirements for
possible assessments pertaining to future insolvencies and impairments of
unaffiliated insurance companies. The Company records a liability for future
guaranty fund assessments based upon known insolvencies, according to data
received from the National Organization of Life and Health Insurance Guaranty
Associations. An asset is held for the amount of guaranty fund assessments paid
which can be recovered through future premium tax credits.
(12) STATUTORY FINANCIAL DATA
Statutory accounting is primarily focused on solvency and surplus adequacy.
Therefore, fundamental differences exist between statutory and GAAP accounting,
and their effects on income and policyowners' surplus are illustrated below:
<TABLE>
<CAPTION>
POLICYOWNERS' SURPLUS NET INCOME
---------------------- ----------------------------
1996 1995 1996 1995 1994
---------- ---------- -------- -------- --------
(IN THOUSANDS)
<S> <C> <C> <C> <C> <C>
Statutory basis $ 682,886 $ 601,565 $115,797 $ 88,706 $ 65,123
Adjustments:
Deferred policy acquisi-
tion costs 589,517 539,732 15,312 29,822 43,974
Net unrealized invest-
ment gains 111,575 235,143 -- -- --
Statutory asset valua-
tion reserve 240,474 201,721 -- -- --
Statutory interest main-
tenance reserve 24,707 32,899 (8,192) 12,976 (4,426)
Premiums and fees de-
ferred or receivable (75,716) (77,444) 1,587 497 (2,310)
Change in reserve basis 98,406 77,464 20,114 12,382 (1,444)
Separate accounts (40,755) (36,010) (6,304) (854) (5,837)
Unearned policy and con-
tract fees (121,843) (122,786) (2,530) (4,410) (10,406)
Surplus notes (125,000) (124,967) -- -- --
Net deferred taxes (149,665) (173,905) 744 (11,995) 1,511
Nonadmitted assets 31,531 28,211 -- -- --
Policyowner dividends 57,765 57,263 502 4,660 2,446
Other (25,454) (26,036) (6,512) (1,925) (8,528)
---------- ---------- -------- -------- --------
As reported in the
accompanying
consolidated
financial statements $1,298,428 $1,212,850 $130,518 $129,859 $ 80,103
========== ========== ======== ======== ========
</TABLE>
71
<PAGE>
THE MINNESOTA MUTUAL LIFE INSURANCE COMPANY AND SUBSIDIARIES
SCHEDULE I
SUMMARY OF INVESTMENTS--OTHER THAN INVESTMENTS IN RELATED PARTIES
DECEMBER 31, 1996
<TABLE>
<CAPTION>
AS SHOWN
MARKET ON THE BALANCE
TYPE OF INVESTMENT COST(3) VALUE SHEET(1)
- ------------------ ---------- ---------- --------------
(IN THOUSANDS)
<S> <C> <C> <C>
Bonds:
United States government and government
agencies and authorities $ 302,820 $ 298,461 $ 298,461
States, municipalities and political
subdivisions 11,296 12,055 12,055
Foreign governments 1,926 1,872 1,872
Public utilities 547,228 590,445 573,030
Mortgage-backed securities 2,013,451 2,042,337 2,035,920
All other corporate bonds 2,807,892 2,908,024 2,878,382
---------- ---------- ----------
Total bonds 5,684,613 5,853,194 5,799,720
---------- ---------- ----------
Equity securities:
Common stocks:
Public utilities 510 611 611
Banks, trusts and insurance companies 12,824 21,484 21,484
Industrial, miscellaneous and all
other 329,792 422,401 422,401
Nonredeemable preferred stocks 10,857 11,491 11,491
---------- ---------- ----------
Total equity securities 353,983 455,987 455,987
---------- ---------- ----------
Mortgage loans on real estate 608,808 xxxxxx 608,808
Real estate (2) 43,082 xxxxxx 43,082
Policy loans 204,178 xxxxxx 204,178
Other long-term investments 98,247 xxxxxx 98,247
Short-term investments 122,772 xxxxxx 122,772
---------- ----------
Total $1,077,087 xxxxxx $1,077,087
---------- ----------
Total investments $7,115,683 xxxxxx $7,332,794
========== ==========
</TABLE>
- -------
(1) Amortized cost for bonds classified as held-to-maturity and fair value for
common stocks and bonds classified as available-for-sale.
(2) The carrying value of real estate acquired in satisfaction of indebtedness
is $1,810,000.
(3) 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.
72
<PAGE>
THE MINNESOTA MUTUAL LIFE INSURANCE COMPANY AND SUBSIDIARIES
SCHEDULE III
SUPPLEMENTARY INSURANCE INFORMATION
(IN THOUSANDS)
<TABLE>
<CAPTION>
AS OF DECEMBER 31, FOR THE YEARS ENDED DECEMBER 31,
--------------------------------------------------- ------------------------------------------------------------
FUTURE POLICY AMORTIZATION
DEFERRED BENEFITS OTHER POLICY BENEFITS, OF DEFERRED
POLICY LOSSES, CLAIMS CLAIMS AND NET CLAIMS, LOSSES POLICY OTHER
ACQUISITION AND SETTLEMENT UNEARNED BENEFITS PREMIUM INVESTMENT AND SETTLEMENT ACQUISITION OPERATING
SEGMENT COSTS EXPENSES(1) PREMIUMS(2) PAYABLE REVENUE(3) INCOME EXPENSES COSTS EXPENSES
- ------- ----------- -------------- ----------- ------------ ---------- ---------- -------------- ------------ ----------
(IN THOUSANDS)
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C>
1996:
Life insurance $456,461 $2,123,148 $149,152 $51,772 $568,874 $223,762 $478,228 $ 97,386 $290,525
Accident and
health insurance 62,407 437,118 33,770 18,774 160,097 34,202 96,743 14,017 87,222
Annuity 70,649 3,360,614 -- 31 79,245 267,473 243,387 14,575 111,366
Property and
liability
insurance -- 27,855 24,189 -- 50,109 5,550 36,933 -- 19,033
-------- ---------- -------- ------- -------- -------- -------- -------- --------
$589,517 $5,948,735 $207,111 $70,577 $858,325 $530,987 $855,291 $125,978 $508,146
======== ========== ======== ======= ======== ======== ======== ======== ========
1995:
Life insurance $430,829 $2,009,154 $151,864 $41,212 $540,353 $203,487 $454,299 $ 80,896 $266,090
Accident and
health insurance 55,888 400,950 34,847 14,567 153,505 33,358 93,482 11,448 83,345
Annuity 53,015 3,401,760 -- 33 74,899 272,499 260,854 12,596 86,716
Property and
liability
insurance -- 30,117 23,783 -- 49,216 5,703 33,563 -- 18,090
-------- ---------- -------- ------- -------- -------- -------- -------- --------
$539,732 $5,841,981 $210,494 $55,812 $817,973 $515,047 $842,198 $104,940 $454,241
======== ========== ======== ======= ======== ======== ======== ======== ========
1994:
Life insurance $510,117 $1,867,170 $133,221 $47,099 $505,300 $192,141 $443,233 $ 59,351 $245,791
Accident and
health insurance 46,506 352,955 36,529 17,142 136,619 30,119 93,359 12,401 75,380
Annuity 92,664 3,263,042 -- 12 60,479 258,196 238,301 14,725 79,498
Property and
liability
insurance -- 32,807 21,865 -- 47,735 5,645 33,829 -- 18,717
-------- ---------- -------- ------- -------- -------- -------- -------- --------
$649,287 $5,515,974 $191,615 $64,253 $750,133 $486,101 $808,722 $ 86,477 $419,386
======== ========== ======== ======= ======== ======== ======== ======== ========
<CAPTION>
FOR THE YEARS ENDED DECEMBER 31,
--------------------------------
PREMIUMS
SEGMENT WRITTEN(4)
- ------- ----------
(IN THOUSANDS)
<S> <C>
1996:
Life insurance
Accident and
health insurance
Annuity
Property and
liability
insurance 50,515
-------
$50,515
=======
1995:
Life insurance
Accident and
health insurance
Annuity
Property and
liability
insurance 51,133
-------
$51,133
=======
1994:
Life insurance
Accident and
health insurance
Annuity
Property and
liability
insurance 47,073
-------
$47,073
=======
</TABLE>
- -----
(1) Includes policy and contract account balances
(2) Includes unearned policy and contract fees
(3) Includes policy and contract fees
(4) Applies only to property and liability insurance
73
<PAGE>
THE MINNESOTA MUTUAL LIFE INSURANCE COMPANY AND SUBSIDIARIES
SCHEDULE IV
REINSURANCE
FOR THE YEARS ENDED DECEMBER 31, 1996, 1995 AND 1994
<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>
1996:
Life insurance in force $116,445,975 $15,164,764 $22,957,287 $124,238,498 18.5%
============ =========== =========== ============
Premiums:
Life insurance $ 347,056 $ 45,988 $ 63,044 $ 364,112 17.3%
Accident and health
insurance 174,219 15,511 1,389 160,097 0.9%
Annuity 38,041 -- -- 38,041 --
Property and liability
insurance 55,782 5,729 56 50,109 0.1%
------------ ----------- ----------- ------------
Total premiums $ 615,098 $ 67,228 $ 64,489 $ 612,359 10.5%
============ =========== =========== ============
1995:
Life insurance in force $106,228,277 $15,620,303 $24,289,241 $114,897,215 21.1%
============ =========== =========== ============
Premiums:
Life insurance $ 342,433 $ 44,778 $ 62,169 $ 359,824 17.3%
Accident and health
insurance 163,412 12,296 2,389 153,505 1.6%
Annuity 41,225 -- -- 41,225 --
Property and liability
insurance 53,771 4,789 234 49,216 0.5%
------------ ----------- ----------- ------------
Total premiums $ 600,841 $ 61,863 $ 64,792 $ 603,770 10.7%
============ =========== =========== ============
1994:
Life insurance in force $ 99,220,067 $13,570,369 $23,520,616 $109,170,314 21.5%
============ =========== =========== ============
Premiums:
Life insurance $ 322,799 $ 38,088 $ 59,064 $ 343,775 17.2%
Accident and health
insurance 145,333 10,007 1,293 136,619 0.9%
Annuity 33,889 -- -- 33,889 --
Property and liability
insurance 56,045 8,892 582 47,735 1.2%
------------ ----------- ----------- ------------
Total premiums $ 558,066 $ 56,987 $ 60,939 $ 562,018 10.8%
============ =========== =========== ============
</TABLE>
74
<PAGE>
APPENDIX I
ILLUSTRATIONS OF POLICY VALUES, DEATH BENEFITS AND PREMIUMS
The Appendix I illustrations beginning on page 82, are provided for a non-
smoking male age 40. The illustrations show the projected actual cash values,
death benefits and premiums for the various scenarios. The plan of insurance
for each illustration is a whole life plan, each with an initial face amount of
$250,000. Both death benefit options--the Cash Option and the Protection
Option--are shown. We show all illustrations based on both guaranteed maximum
and current mortality charges. Finally illustrations for both VAL '87 and VAL
'95 are included.
Guaranteed maximum cost of insurance charges will vary by age, sex, risk
class, and policy form. We use the male, female and unisex 1980 Commissioners
Standard Ordinary Mortality Tables ("1980 CSO"), as appropriate. The unisex
tables are used in circumstances where legal considerations require the
elimination of sex-based distinctions in the calculation of mortality costs.
Our maximum cost of insurance charges are based on an assumption of mortality
not greater than the mortality rates reflected in 1980 CSO Tables.
In most cases we intend to impose cost of insurance charges which are
substantially lower than the maximum charges determined as described above. In
addition to the factors governing maximum cost of insurance charges, actual
charges will vary depending on the level of scheduled premiums for a given
amount of insurance, the duration of the Policy and the smoking habits of the
insured. We illustrate current cost of insurance charges since they represent
our current practices with respect to mortality charges for this class of
Policies. Accordingly, the illustrations based upon the guaranteed maximum
mortality charges are provided primarily to show, by comparison with the other
tables, the consequences of our charging less than the full 1980 CSO based
charges.
The illustrations show how actual cash values and death benefits would vary
over time if the return on the assets held in the Variable Life Account equaled
a gross annual rate after tax, of 0 percent, 6 percent and 12 percent. The
actual cash values and death benefits would be different from those shown if
the returns averaged 0 percent, 6 percent and 12 percent but fluctuated over
the life of the Policy. The illustrations assume scheduled premiums are paid
when due.
The amounts shown for the hypothetical actual cash value and death benefit as
of each policy year reflect the fact that the net investment return on the
assets held in the sub-accounts is lower than the gross, after-tax return. This
is because a daily investment management fee assessed against the net assets of
the Fund and a daily mortality and expense risk charge assessed against the net
assets of the Variable Life Account are deducted from the gross return. The
mortality and expense risk charge reflected in the illustrations are at an
annual rate of .50 percent. The investment management fee illustrated is .59%
and represents an average of the annual fee charged for all ten Fund
Portfolios. 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. Fund expenses illustrated are .10%, representing
an average of the 1996 expense ratios of the ten Fund portfolios. 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 Advantus Series Fund, Inc.)
The tables reflect the fact that no charges for federal, state or local
income taxes are currently made against the Variable Life Account. If such a
charge is made in the future, it will take a higher gross rate of return to
produce after-tax returns of 0 percent, 6 percent and 12 percent than it does
now.
Upon request, we will furnish a comparable illustration based upon a proposed
insured's age, sex and risk classification, and on the face amount, premium,
plan of insurance and gross annual rate of return requested. It should be
remembered that actual illustrations may be materially different from those
illustrated, depending upon the proposed insured's actual situation. For
example, illustrations for females, smokers or individuals who are rated sub-
standard will differ materially in premium amount and illustrated values, even
though the proposed insured may be the same age as the proposed insured in our
sample illustration.
81
<PAGE>
VARIABLE ADJUSTABLE LIFE INSURANCE
VAL '95
DEATH BENEFIT OPTION--CASH OPTION
MALE ISSUE AGE 40 FOR NON-SMOKERS
INITIAL DEATH BENEFIT--$250,000(1)
$4,205.30 INITIAL SCHEDULED PREMIUM(2)
USING CURRENT MORTALITY CHARGES
<TABLE>
<CAPTION>
-ASSUMING HYPOTHETICAL INVESTMENT RETURNS OF-
0% GROSS(3) 6% GROSS(3) 12% GROSS(3)
INITIAL (-1.19% NET) (4.81% NET) (10.81% NET)
POL ATT BASE POLICY DEATH POLICY DEATH POLICY DEATH
YR AGE PREMIUM VALUE BENEFIT VALUE BENEFIT VALUE BENEFIT
--- --- ------- ------ ------- ------ ------- ------ -------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
1 41 $4,205 $ 902 $250,000 $ 977 $250,000 $ 1,052 $250,000
2 42 4,205 3,948 250,000 4,288 250,000 4,638 250,000
3 43 4,205 6,924 250,000 7,725 250,000 8578 250,000
4 44 4,205 9,824 250,000 11,287 250,000 12,905 250,000
5 45 4,205 12,649 250,000 14,982 250,000 17,663 250,000
6 46 4,205 15,394 250,000 18,810 250,000 22,895 250,000
7 47 4,205 18,057 250,000 22,780 250,000 28,659 250,000
8 48 4,205 20,753 250,000 27,021 250,000 35,149 250,000
9 49 4,205 23,499 250,000 31,561 250,000 42,451 250,000
10 50 4,205 26,269 250,000 36,388 250,000 50,631 250,000
15 55 4,205 39,949 250,000 64,880 250,000 108,148 250,000
20 60 4,205 52,011 250,000 101,030 250,000 206,635 372,455
25 65 4,205 60,582 250,000 146,254 250,000 367,998 586,150
30 70 4,205 64,138 250,000 203,987 302,254 629,031 893,791
</TABLE>
(1) The initial death benefit is guaranteed to age 100.
(2) If premiums are paid more frequently than annually, the payments would be
$2,102.65 semi-annually, $1,051.33 quarterly, or $350.45 monthly. The death
benefits and policy values would be slightly different for a policy with
more frequent premium payments.
(3) Assumes no policy loan has been made.
THE HYPOTHETICAL INVESTMENT RATES OF RETURN SHOWN ABOVE AND ELSEWHERE IN THIS
PROSPECTUS ARE ILLUSTRATIVE ONLY AND SHOULD NOT BE DEEMED A REPRESENTATION OF
PAST OR FUTURE INVESTMENT RATES OF RETURN. ACTUAL RATES OF RETURN MAY BE MORE
OR LESS THAN THOSE SHOWN AND WILL DEPEND ON A NUMBER OF FACTORS, INCLUDING THE
INVESTMENT ALLOCATIONS MADE BY AN OWNER, AND PREVAILING INTEREST RATES. THE
DEATH BENEFITS AND POLICY VALUES FOR A POLICY WOULD BE DIFFERENT FROM THOSE
SHOWN IF THE ACTUAL RATES OF RETURN AVERAGED 0%, 6%, AND 12% OVER A PERIOD OF
YEARS BUT ALSO FLUCTUATED ABOVE OR BELOW THOSE AVERAGES FOR INDIVIDUAL POLICY
YEARS. NO REPRESENTATIONS CAN BE MADE BY MINNESOTA MUTUAL OR THE FUND THAT
THESE HYPOTHETICAL RATES OF RETURN CAN BE ACHIEVED FOR ANY ONE YEAR OR
SUSTAINED OVER ANY PERIOD OF TIME.
82
<PAGE>
VARIABLE ADJUSTABLE LIFE INSURANCE (CONTINUED)
VAL '95
DEATH BENEFIT OPTION--CASH OPTION
MALE ISSUE AGE 40 FOR NON-SMOKERS
INITIAL DEATH BENEFIT--$250,000(1)
$4,205.30 INITIAL SCHEDULED PREMIUM(2)
USING MAXIMUM CONTRACTUAL MORTALITY CHARGES
<TABLE>
<CAPTION>
-ASSUMING HYPOTHETICAL INVESTMENT RETURNS OF-
0% GROSS(3) 6% GROSS(3) 12% GROSS(3)
INITIAL (-1.19% NET) (4.81% NET) (10.81% NET)
POL ATT BASE POLICY DEATH POLICY DEATH POLICY DEATH
YR AGE PREMIUM VALUE BENEFIT VALUE BENEFIT VALUE BENEFIT
--- --- ------- ------ ------- ------ ------- ------ -------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
1 41 $4,205 $ 902 $250,000 $ 977 $250,000 $ 1,052 $250,000
2 42 4,205 3,948 250,000 4,288 250,000 4,638 250,000
3 43 4,205 6,924 250,000 7,725 250,000 8,578 250,000
4 44 4,205 9,824 250,000 11,287 250,000 12,905 250,000
5 45 4,205 12,649 250,000 14,982 250,000 17,663 250,000
6 46 4,205 15,394 250,000 18,810 250,000 22,895 250,000
7 47 4,205 18,054 250,000 22,775 250,000 28,650 250,000
8 48 4,205 20,629 250,000 26,881 250,000 34,988 250,000
9 49 4,205 23,116 250,000 31,135 250,000 41,972 250,000
10 50 4,205 25,508 250,000 35,538 250,000 49,671 250,000
15 55 4,205 35,779 250,000 59,864 250,000 102,043 250,000
20 60 4,205 42,116 250,000 88,126 250,000 188,500 342,199
25 65 4,205 42,322 250,000 120,900 250,000 322,956 518,640
30 70 4,205 31,478 250,000 159,554 250,000 526,835 756,296
</TABLE>
(1) The initial death benefit is guaranteed to age 100.
(2) If premiums are paid more frequently than annually, the payments would be
$2,102.65 semi-annually, $1,051.33 quarterly, or $350.45 monthly. The death
benefits and policy values would be slightly different for a policy with
more frequent premium payments.
(3) Assumes no policy loan has been made.
THE HYPOTHETICAL INVESTMENT RATES OF RETURN SHOWN ABOVE AND ELSEWHERE IN THIS
PROSPECTUS ARE ILLUSTRATIVE ONLY AND SHOULD NOT BE DEEMED A REPRESENTATION OF
PAST OR FUTURE INVESTMENT RATES OF RETURN. ACTUAL RATES OF RETURN MAY BE MORE
OR LESS THAN THOSE SHOWN AND WILL DEPEND ON A NUMBER OF FACTORS, INCLUDING THE
INVESTMENT ALLOCATIONS MADE BY AN OWNER, AND PREVAILING INTEREST RATES. THE
DEATH BENEFITS AND POLICY VALUES FOR A POLICY WOULD BE DIFFERENT FROM THOSE
SHOWN IF THE ACTUAL RATES OF RETURN AVERAGED 0%, 6%, AND 12% OVER A PERIOD OF
YEARS BUT ALSO FLUCTUATED ABOVE OR BELOW THOSE AVERAGES FOR INDIVIDUAL POLICY
YEARS. NO REPRESENTATIONS CAN BE MADE BY MINNESOTA MUTUAL OR THE FUND THAT
THESE HYPOTHETICAL RATES OF RETURN CAN BE ACHIEVED FOR ANY ONE YEAR OR
SUSTAINED OVER ANY PERIOD OF TIME.
83
<PAGE>
VARIABLE ADJUSTABLE LIFE INSURANCE (CONTINUED)
VAL '95
DEATH BENEFIT OPTION--PROTECTION OPTION
MALE ISSUE AGE 40 FOR NON-SMOKERS
INITIAL DEATH BENEFIT--$250,000(1)
$4,205.30 INITIAL SCHEDULED PREMIUM(2)
USING CURRENT MORTALITY CHARGES
<TABLE>
<CAPTION>
-ASSUMING HYPOTHETICAL INVESTMENT RETURNS OF-
0% GROSS(3) 6% GROSS(3) 12% GROSS(3)
INITIAL (-1.19% NET) (4.81% NET) (10.81% NET)
POL ATT BASE POLICY DEATH POLICY DEATH POLICY DEATH
YR AGE PREMIUM VALUE BENEFIT VALUE BENEFIT VALUE BENEFIT
--- --- ------- ------ ------- ------ ------- ------ -------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
1 41 $4,205 $ 899 $250,000 $ 974 $250,000 $ 1,049 $ 250,000
2 42 4,205 3,935 250,899 4,274 250,974 4,623 251,049
3 43 4,205 6,891 253,935 7,688 254,274 8,537 254,623
4 44 4,205 9,762 256,891 11,215 257,688 12,821 258,537
5 45 4,205 12,548 259,762 14,859 261,215 17,515 262,821
6 46 4,205 15,241 262,548 18,617 264,859 22,653 267,515
7 47 4,205 17,867 265,241 22,535 268,617 28,347 272,653
8 48 4,205 20,552 267,867 26,743 272,535 34,769 278,347
9 49 4,205 23,273 270,552 31,229 276,743 41,971 284,769
10 50 4,205 26,004 273,273 35,979 281,229 50,011 291,971
15 55 4,205 39,278 286,709 63,637 307,575 105,850 342,239
20 60 4,205 50,342 298,431 97,374 340,200 198,713 536,443
25 65 4,205 56,652 305,915 135,885 377,902 341,325 856,979
30 70 4,205 55,993 306,695 178,076 436,871 547,189 1,289,501
</TABLE>
(1) The initial death benefit is guaranteed to age 100.
(2) If premiums are paid more frequently than annually, the payments would be
$2,102.65 semi-annually, $1,051.33 quarterly, or $350.45 monthly. The death
benefits and policy values would be slightly different for a policy with
more frequent premium payments.
(3)Assumes no policy loan has been made.
THE HYPOTHETICAL INVESTMENT RATES OF RETURN SHOWN ABOVE AND ELSEWHERE IN THIS
PROSPECTUS ARE ILLUSTRATIVE ONLY AND SHOULD NOT BE DEEMED A REPRESENTATION OF
PAST OR FUTURE INVESTMENT RATES OF RETURN. ACTUAL RATES OF RETURN MAY BE MORE
OR LESS THAN THOSE SHOWN AND WILL DEPEND ON A NUMBER OF FACTORS, INCLUDING THE
INVESTMENT ALLOCATIONS MADE BY AN OWNER, AND PREVAILING INTEREST RATES. THE
DEATH BENEFITS AND POLICY VALUES FOR A POLICY WOULD BE DIFFERENT FROM THOSE
SHOWN IF THE ACTUAL RATES OF RETURN AVERAGED 0%, 6%, AND 12% OVER A PERIOD OF
YEARS BUT ALSO FLUCTUATED ABOVE OR BELOW THOSE AVERAGES FOR INDIVIDUAL POLICY
YEARS. NO REPRESENTATIONS CAN BE MADE BY MINNESOTA MUTUAL OR THE FUND THAT
THESE HYPOTHETICAL RATES OF RETURN CAN BE ACHIEVED FOR ANY ONE YEAR OR
SUSTAINED OVER ANY PERIOD OF TIME.
84
<PAGE>
VARIABLE ADJUSTABLE LIFE INSURANCE (CONTINUED)
VAL '95
DEATH BENEFIT OPTION--PROTECTION OPTION
MALE ISSUE AGE 40 FOR NON-SMOKERS
INITIAL DEATH BENEFIT--$250,000(1)
$4,205.30 INITIAL SCHEDULED PREMIUM(2)
USING MAXIMUM CONTRACTUAL MORTALITY CHARGES
<TABLE>
<CAPTION>
-ASSUMING HYPOTHETICAL INVESTMENT RETURNS OF-
0% GROSS(3) 6% GROSS(3) 12% GROSS(3)
INITIAL (-1.19% NET) (4.81% NET) (10.81% NET)
POL ATT BASE POLICY DEATH POLICY DEATH POLICY DEATH
YR AGE PREMIUM VALUE BENEFIT VALUE BENEFIT VALUE BENEFIT
- --- --- ------- ------ ------- ------ ------- ------ -------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
1 41 $4,205 $ 899 $250,000 $ 974 $250,000 $ 1,049 $250,000
2 42 4,205 3,935 250,899 4,274 250,974 4,623 251,049
3 43 4,205 6,891 253,935 7,688 254,274 8,537 254,623
4 44 4,205 9,762 256,891 11,215 257,688 12,821 258,537
5 45 4,205 12,548 259,762 14,859 261,215 17,515 262,821
6 46 4,205 15,241 262,548 18,617 264,859 22,653 267,515
7 47 4,205 17,837 265,241 22,489 268,617 28,278 272,653
8 48 4,205 20,332 267,837 26,475 272,489 34,437 278,278
9 49 4,205 22,722 270,332 30,577 276,475 41,184 284,437
10 50 4,205 25,000 272,722 34,788 280,577 48,571 291,184
15 55 4,205 34,336 282,794 57,261 302,623 97,335 335,778
20 60 4,205 38,804 288,396 80,734 326,064 172,305 470,787
25 65 4,205 35,733 287,172 102,103 348,277 275,498 702,967
30 70 4,205 20,105 274,503 114,545 363,196 397,666 960,900
</TABLE>
(1) The initial death benefit is guaranteed to age 100.
(2) If premiums are paid more frequently than annually, the payments would be
$2,102.65 semi-annually, $1,051.33 quarterly, or $350.45 monthly. The death
benefits and policy values would be slightly different for a policy with
more frequent premium payments.
(3) Assumes no policy loan has been made.
THE HYPOTHETICAL INVESTMENT RATES OF RETURN SHOWN ABOVE AND ELSEWHERE IN THIS
PROSPECTUS ARE ILLUSTRATIVE ONLY AND SHOULD NOT BE DEEMED A REPRESENTATION OF
PAST OR FUTURE INVESTMENT RATES OF RETURN. ACTUAL RATES OF RETURN MAY BE MORE
OR LESS THAN THOSE SHOWN AND WILL DEPEND ON A NUMBER OF FACTORS, INCLUDING THE
INVESTMENT ALLOCATIONS MADE BY AN OWNER, AND PREVAILING INTEREST RATES. THE
DEATH BENEFITS AND POLICY VALUES FOR A POLICY WOULD BE DIFFERENT FROM THOSE
SHOWN IF THE ACTUAL RATES OF RETURN AVERAGED 0%, 6%, AND 12% OVER A PERIOD OF
YEARS BUT ALSO FLUCTUATED ABOVE OR BELOW THOSE AVERAGES FOR INDIVIDUAL POLICY
YEARS. NO REPRESENTATIONS CAN BE MADE BY MINNESOTA MUTUAL OR THE FUND THAT
THESE HYPOTHETICAL RATES OF RETURN CAN BE ACHIEVED FOR ANY ONE YEAR OR
SUSTAINED OVER ANY PERIOD OF TIME.
85
<PAGE>
VARIABLE ADJUSTABLE LIFE INSURANCE (CONTINUED)
VAL '87
DEATH BENEFIT OPTION--CASH OPTION
MALE ISSUE AGE 40 FOR NON-SMOKERS
INITIAL DEATH BENEFIT--$250,000(1)
$4,641.31 INITIAL SCHEDULED PREMIUM(2)
USING CURRENT MORTALITY CHARGES
<TABLE>
<CAPTION>
-ASSUMING HYPOTHETICAL INVESTMENT RETURNS OF-
0% GROSS(3) 6% GROSS(3) 12% GROSS(3)
INITIAL (-1.19% NET) (4.81% NET) (10.81% NET)
POL ATT BASE POLICY DEATH POLICY DEATH POLICY DEATH
YR AGE PREMIUM VALUE BENEFIT VALUE BENEFIT VALUE BENEFIT
--- --- ------- ------ ------- ------ ------- ------ -------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
1 41 $4,641 $ 1,012 $250,000 $ 1,100 $250,000 $ 1,188 $250,000
2 42 4,641 4,248 250,000 4,627 250,000 5,016 250,000
3 43 4,641 7,394 250,000 8,271 250,000 9,207 250,000
4 44 4,641 10,442 250,000 12,031 250,000 13,793 250,000
5 45 4,641 13,394 250,000 15,916 250,000 18,822 250,000
6 46 4,641 16,412 250,000 20,097 250,000 24,514 250,000
7 47 4,641 19,524 250,000 24,621 250,000 30,977 250,000
8 48 4,641 22,688 250,000 29,461 250,000 38,253 250,000
9 49 4,641 25,876 250,000 34,609 250,000 46,408 250,000
10 50 4,641 29,069 250,000 40,062 250,000 55,525 250,000
15 55 4,641 44,696 250,000 72,092 250,000 119,348 250,000
20 60 4,641 58,608 250,000 112,843 250,000 228,779 396,688
25 65 4,641 69,110 250,000 164,902 265,511 408,242 632,078
30 70 4,641 74,879 250,000 229,988 334,469 699,274 974,840
</TABLE>
(1) The initial death benefit is guaranteed to age 100.
(2) If premiums are paid more frequently than annually, the payments would be
$2,320.66 semi-annually, $1,160.33 quarterly, or $386.78 monthly. The death
benefits and policy values would be slightly different for a policy with
more frequent premium payments.
(3)Assumes no policy loan has been made.
THE HYPOTHETICAL INVESTMENT RATES OF RETURN SHOWN ABOVE AND ELSEWHERE IN THIS
PROSPECTUS ARE ILLUSTRATIVE ONLY AND SHOULD NOT BE DEEMED A REPRESENTATION OF
PAST OR FUTURE INVESTMENT RATES OF RETURN. ACTUAL RATES OF RETURN MAY BE MORE
OR LESS THAN THOSE SHOWN AND WILL DEPEND ON A NUMBER OF FACTORS, INCLUDING THE
INVESTMENT ALLOCATIONS MADE BY AN OWNER, AND PREVAILING INTEREST RATES. THE
DEATH BENEFITS AND POLICY VALUES FOR A POLICY WOULD BE DIFFERENT FROM THOSE
SHOWN IF THE ACTUAL RATES OF RETURN AVERAGED 0%, 6%, AND 12% OVER A PERIOD OF
YEARS BUT ALSO FLUCTUATED ABOVE OR BELOW THOSE AVERAGES FOR INDIVIDUAL POLICY
YEARS. NO REPRESENTATIONS CAN BE MADE BY MINNESOTA MUTUAL OR THE FUND THAT
THESE HYPOTHETICAL RATES OF RETURN CAN BE ACHIEVED FOR ANY ONE YEAR OR
SUSTAINED OVER ANY PERIOD OF TIME.
86
<PAGE>
VARIABLE ADJUSTABLE LIFE INSURANCE (CONTINUED)
VAL '87
DEATH BENEFIT OPTION--CASH OPTION
MALE ISSUE AGE 40 FOR NON-SMOKERS
INITIAL DEATH BENEFIT--$250,000(1)
$4,641.31 INITIAL SCHEDULED PREMIUM(2)
USING MAXIMUM CONTRACTUAL MORTALITY CHARGES
<TABLE>
<CAPTION>
-ASSUMING HYPOTHETICAL INVESTMENT RETURNS OF-
0% GROSS(3) 6% GROSS(3) 12% GROSS(3)
INITIAL (-1.19% NET) (4.81% NET) (10.81% NET)
POL ATT BASE POLICY DEATH POLICY DEATH POLICY DEATH
YR AGE PREMIUM VALUE BENEFIT VALUE BENEFIT VALUE BENEFIT
--- --- ------- ------ ------- ------ ------- ------ -------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
1 41 $4,641 $ 1,012 $250,000 $ 1,100 $250,000 $ 1,188 $250,000
2 42 4,641 4,248 250,000 4,627 250,000 5,016 250,000
3 43 4,641 7,394 250,000 8,271 250,000 9,207 250,000
4 44 4,641 10,442 250,000 12,031 250,000 13,793 250,000
5 45 4,641 13,392 250,000 15,914 250,000 18,819 250,000
6 46 4,641 16,239 250,000 19,918 250,000 24,329 250,000
7 47 4,641 18,982 250,000 24,052 250,000 30,379 250,000
8 48 4,641 21,619 250,000 28,317 250,000 37,030 250,000
9 49 4,641 24,147 250,000 32,722 250,000 44,351 250,000
10 50 4,641 26,558 250,000 37,266 250,000 52,415 250,000
15 55 4,641 36,518 250,000 62,099 250,000 107,230 250,000
20 60 4,641 41,754 250,000 90,556 250,000 197,519 345,348
25 65 4,641 40,027 250,000 123,574 250,000 336,705 526,394
30 70 4,641 25,916 250,000 163,061 250,000 546,303 770,528
</TABLE>
(1) The initial death benefit is guaranteed to age 100.
(2) If premiums are paid more frequently than annually, the payments would be
$2,320.66 semi-annually, $1,160.33 quarterly, or $386.78 monthly. The death
benefits and policy values would be slightly different for a policy with
more frequent premium payments.
(3)Assumes no policy loan has been made.
THE HYPOTHETICAL INVESTMENT RATES OF RETURN SHOWN ABOVE AND ELSEWHERE IN THIS
PROSPECTUS ARE ILLUSTRATIVE ONLY AND SHOULD NOT BE DEEMED A REPRESENTATION OF
PAST OR FUTURE INVESTMENT RATES OF RETURN. ACTUAL RATES OF RETURN MAY BE MORE
OR LESS THAN THOSE SHOWN AND WILL DEPEND ON A NUMBER OF FACTORS, INCLUDING THE
INVESTMENT ALLOCATIONS MADE BY AN OWNER, AND PREVAILING INTEREST RATES. THE
DEATH BENEFITS AND POLICY VALUES FOR A POLICY WOULD BE DIFFERENT FROM THOSE
SHOWN IF THE ACTUAL RATES OF RETURN AVERAGED 0%, 6%, AND 12% OVER A PERIOD OF
YEARS BUT ALSO FLUCTUATED ABOVE OR BELOW THOSE AVERAGES FOR INDIVIDUAL POLICY
YEARS. NO REPRESENTATIONS CAN BE MADE BY MINNESOTA MUTUAL OR THE FUND THAT
THESE HYPOTHETICAL RATES OF RETURN CAN BE ACHIEVED FOR ANY ONE YEAR OR
SUSTAINED OVER ANY PERIOD OF TIME.
87
<PAGE>
VARIABLE ADJUSTABLE LIFE INSURANCE (CONTINUED)
VAL '87
DEATH BENEFIT OPTION--PROTECTION OPTION
MALE ISSUE AGE 40 FOR NON-SMOKERS
INITIAL DEATH BENEFIT--$250,000(1)
$4,641.31 INITIAL SCHEDULED PREMIUM(2)
USING CURRENT MORTALITY CHARGES
<TABLE>
<CAPTION>
-ASSUMING HYPOTHETICAL INVESTMENT RETURNS OF-
0% GROSS(3) 6% GROSS(3) 12% GROSS(3)
INITIAL (-1.19% NET) (4.81% NET) (10.81% NET)
POL ATT BASE POLICY DEATH POLICY DEATH POLICY DEATH
YR AGE PREMIUM VALUE BENEFIT VALUE BENEFIT VALUE BENEFIT
--- --- ------- ------ ------- ------ ------- ------ -------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
1 41 $4,641 $ 1,012 $250,000 $ 1,099 $250,000 $ 1,186 $250,000
2 42 4,641 4,248 250,000 4,624 250,091 5,011 250,382
3 43 4,641 7,393 250,000 8,266 250,271 9,191 251,517
4 44 4,641 10,441 250,000 12,023 250,537 13,754 253,426
5 45 4,641 13,394 250,000 15,903 250,887 18,753 256,130
6 46 4,641 16,411 250,000 20,082 251,330 24,429 259,697
7 47 4,641 19,524 250,000 24,601 252,364 30,859 264,735
8 48 4,641 22,687 250,000 29,432 254,035 38,082 271,309
9 49 4,641 25,875 250,000 34,565 256,211 46,156 279,373
10 50 4,641 29,068 250,000 39,994 258,810 55,152 288,925
15 55 4,641 44,695 250,000 71,694 277,006 117,386 361,272
20 60 4,641 58,608 250,000 111,202 302,907 217,932 482,293
25 65 4,641 69,110 250,000 158,536 334,328 369,738 656,728
30 70 4,641 74,879 250,000 211,558 368,562 584,421 887,832
</TABLE>
(1) The initial death benefit is guaranteed to age 100.
(2) If premiums are paid more frequently than annually, the payments would be
$2,320.66 semi-annually, $1,160.33 quarterly, or $386.78 monthly. The death
benefits and policy values would be slightly different for a policy with
more frequent premium payments.
(3)Assumes no policy loan has been made.
THE HYPOTHETICAL INVESTMENT RATES OF RETURN SHOWN ABOVE AND ELSEWHERE IN THIS
PROSPECTUS ARE ILLUSTRATIVE ONLY AND SHOULD NOT BE DEEMED A REPRESENTATION OF
PAST OR FUTURE INVESTMENT RATES OF RETURN. ACTUAL RATES OF RETURN MAY BE MORE
OR LESS THAN THOSE SHOWN AND WILL DEPEND ON A NUMBER OF FACTORS, INCLUDING THE
INVESTMENT ALLOCATIONS MADE BY AN OWNER, AND PREVAILING INTEREST RATES. THE
DEATH BENEFITS AND POLICY VALUES FOR A POLICY WOULD BE DIFFERENT FROM THOSE
SHOWN IF THE ACTUAL RATES OF RETURN AVERAGED 0%, 6%, AND 12% OVER A PERIOD OF
YEARS BUT ALSO FLUCTUATED ABOVE OR BELOW THOSE AVERAGES FOR INDIVIDUAL POLICY
YEARS. NO REPRESENTATIONS CAN BE MADE BY MINNESOTA MUTUAL OR THE FUND THAT
THESE HYPOTHETICAL RATES OF RETURN CAN BE ACHIEVED FOR ANY ONE YEAR OR
SUSTAINED OVER ANY PERIOD OF TIME.
88
<PAGE>
VARIABLE ADJUSTABLE LIFE INSURANCE (CONTINUED)
VAL '87
DEATH BENEFIT OPTION--PROTECTION OPTION
MALE ISSUE AGE 40 FOR NON-SMOKERS
INITIAL DEATH BENEFIT--$250,000(1)
$4,641.31 INITIAL SCHEDULED PREMIUM(2)
USING MAXIMUM CONTRACTUAL MORTALITY CHARGES
<TABLE>
<CAPTION>
-ASSUMING HYPOTHETICAL INVESTMENT RETURNS OF-
0% GROSS(3) 6% GROSS(3) 12% GROSS(3)
INITIAL (-1.19% NET) (4.81% NET) (10.81% NET)
POL ATT BASE POLICY DEATH POLICY DEATH POLICY DEATH
YR AGE PREMIUM VALUE BENEFIT VALUE BENEFIT VALUE BENEFIT
--- --- ------- ------ ------- ------ ------- ------ -------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
1 41 $4,641 $ 1,012 $250,000 $ 1,099 $250,000 $ 1,186 $250,000
2 42 4,641 4,248 250,000 4,624 250,091 5,011 250,382
3 43 4,641 7,393 250,000 8,266 250,271 9,191 251,517
4 44 4,641 10,441 250,000 12,023 250,537 13,754 253,426
5 45 4,641 13,392 250,000 15,899 250,887 18,740 256,130
6 46 4,641 16,238 250,000 19,894 251,319 24,183 259,658
7 47 4,641 18,982 250,000 24,014 251,829 30,130 264,036
8 48 4,641 21,619 250,000 28,262 252,417 36,626 269,296
9 49 4,641 24,147 250,000 32,642 253,079 43,723 275,473
10 50 4,641 26,558 250,000 37,153 253,814 51,473 282,605
15 55 4,641 36,518 250,000 61,613 258,518 102,062 334,141
20 60 4,641 41,753 250,000 88,938 264,790 176,301 414,503
25 65 4,641 40,027 250,000 118,946 272,430 272,637 513,347
30 70 4,641 25,915 250,000 150,684 281,256 380,474 613,767
</TABLE>
(1) The initial death benefit is guaranteed to age 100.
(2) If premiums are paid more frequently than annually, the payments would be
$2,320.66 semi-annually, $1,160.33 quarterly, or $386.78 monthly. The death
benefits and policy values would be slightly different for a policy with
more frequent premium payments.
(3)Assumes no policy loan has been made.
THE HYPOTHETICAL INVESTMENT RATES OF RETURN SHOWN ABOVE AND ELSEWHERE IN THIS
PROSPECTUS ARE ILLUSTRATIVE ONLY AND SHOULD NOT BE DEEMED A REPRESENTATION OF
PAST OR FUTURE INVESTMENT RATES OF RETURN. ACTUAL RATES OF RETURN MAY BE MORE
OR LESS THAN THOSE SHOWN AND WILL DEPEND ON A NUMBER OF FACTORS, INCLUDING THE
INVESTMENT ALLOCATIONS MADE BY AN OWNER, AND PREVAILING INTEREST RATES. THE
DEATH BENEFITS AND POLICY VALUES FOR A POLICY WOULD BE DIFFERENT FROM THOSE
SHOWN IF THE ACTUAL RATES OF RETURN AVERAGED 0%, 6%, AND 12% OVER A PERIOD OF
YEARS BUT ALSO FLUCTUATED ABOVE OR BELOW THOSE AVERAGES FOR INDIVIDUAL POLICY
YEARS. NO REPRESENTATIONS CAN BE MADE BY MINNESOTA MUTUAL OR THE FUND THAT
THESE HYPOTHETICAL RATES OF RETURN CAN BE ACHIEVED FOR ANY ONE YEAR OR
SUSTAINED OVER ANY PERIOD OF TIME.
89
<PAGE>
APPENDIX II
SUMMARY OF POLICY CHARGES
What sets cash value life insurance apart from other types of savings and
investment vehicles? It is the only product creating immediate and substantial
dollars in the form of a death benefit plus offering an accumulation component.
This is unlike other vehicles that can only create dollars over time as
contributions are made.
All life insurance policies have basically the same charges, although the
charges may be taken in different ways or at different points in time. VAL has
two distinct ways to recover expenses from a standard policy:
I. CHARGES TAKEN FROM THE BASE PREMIUM:
As we receive premium contributions each year, we take a certain percentage
to partially cover expenses. A sales load is taken to pay commissions to the
agent. Two charges are also taken as a percentage of the premium to cover the
state premium tax and provide a guaranteed death benefit.
Also, in the first year of any life insurance policy, two things are
different than in ongoing years: a larger commission is paid, and the policy
must be underwritten. To begin to cover these costs, an additional sales load
and an underwriting charge are taken from the premium in just the first year.
These two charges may be assessed on future increases in premium and face
amount adjustments.
<TABLE>
<CAPTION>
CHARGES TAKEN FROM PREMIUM: PLUS, IN THE FIRST YEAR:
----------------------------------------------------------------------------------------
<S> <C>
7.00% Sales load Additional sales load (up to 23%)
Underwriting charge (up to $5/$1,000 of
1.50% Face amount guarantee insurance coverage)
2.50% State premium tax
-----------------------
11.00% TOTAL
</TABLE>
II. CHARGES TAKEN FROM THE ACTUAL CASH VALUE:
After the above charges are taken from the premium, the remaining amount is
the net premium. The net premium is then invested in the guaranteed principal
account and/or in the Advantus Series Fund portfolio(s) you have selected which
is referred to as the Variable Life Account. For a VAL insurance policy, the
value in the Variable Life Account is determined by the number or units in each
of your portfolios and their current value.
There are two sets of charges that affect your actual cash value. One set is
a direct charge and the other set is an indirect charge. The direct set is the
cost of insurance and an administration charge which is taken from the policy
actual cash value on a monthly basis. (Refer to Table A.) The cost of insurance
charge goes to cover the risk of death while the administration charge covers
the cost of maintaining each policy. Transaction charges are also taken from
the actual cash value as transactions occur.
TABLE A
DIRECT CHARGES TAKEN FROM ACTUAL CASH VALUE:
--------------------------------------------------------------
.Administration charge ($60/year)
.Cost of insurance charge
.If applicable: Transaction Charges
In addition to the charges described above, there are additional charges for
sub-standard risk policies. These charges are taken directly from the premium
in the case of VAL '95 policies and as charges against the policy value on VAL
'87 policies.
90
<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 Advantus Series Fund). The Mortality and Expense Risk charge protects the
insurance company from the risk that total policy charges may not be adequate
to cover actual company expenses. The Series Fund charges cover the advisory
fee of the fund manager and portfolio expense for each of VAL's portfolios.
For illustration purposes, we use an average of the actual Mortality and
Expense Risk Charge, Advisory Fee and Fund Expense which is 1.19%. These are
listed for each portfolio in Table B.
Your actual cash value is determined daily, net of the charges associated
with the portfolios you have selected, so they do not appear as a direct
expense. This is reflected illustratively by an assumed net rate of return.
Consider this example: assumed gross rate of 9.00%--Average of actual expenses
total in Table B of 1.19% = assumed net rate of return of 7.81%.
TABLE B -- INDIRECT CHARGES
ACTUAL VARIABLE LIFE SEPARATE ACCOUNT EXPENSES AND SERIES FUND FEES
<TABLE>
<CAPTION>
MORTALITY & ADVSY FUND
PORTFOLIO NAME EXP RISK FEE + EXP = TOTAL
-----------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
Index 500 .50 .40 + .05 = .95
Asset Allocation .50 .50 + .04 = 1.04
Bond .50 .50 + .06 = 1.06
Growth .50 .50 + .09 = 1.09
Money Market .50 .50 + .10 = 1.10
Mortgage Securities .50 .50 + .08 = 1.08
Capital Appreciation .50 .75 + .10 = 1.35
Value Stock .50 .75 + .08 = 1.33
Small Company .50 .75 + .06 = 1.31
International Stock .50 .74 + .32 = 1.56
--- ---- ---- ----
AVERAGE .50 .589 + .098 = 1.19
</TABLE>
(The average of the maximum Variable Life Separate Account and Series Fund Fees
and Expenses is 1.35%.)
91
<PAGE>
LOGO
The chart illustrates how, during the first four policy years, charges are taken
from the premium and the resulting net premium becomes part of the actual cash
value.
YOUR VAL PREMIUM AT WORK
------------------------
<TABLE>
<CAPTION>
YEAR 1 YEAR 2 YEAR 3 YEAR 4
$4,205 $4,205 $4,205 $4,205
<S> <C> <C> <C> <C>
Variable Adjustable LIfe Charges From Charges From Charges From
------------------------ Premium Premium Premium
. Male, Age 40, Non-smoker Charges
. $250,000 Insurance Benefit From
. Cash Death Benefit Option Premium
Net Net Net
Premium Premium Premium
Net
Premium
| | | |
| | | |
+ Net Rate x Actual Cash Value
__________________________________________________
__________________________________ To Actual Cash Value
9.00% Gross Rate __________________________________________________
-1.24% Charges from Variable Life
------ Account & Series Fund
7.76% Net Rate
__________________________________
- Charges from Actual Cash Value
__________________________
Administration Fee
Cost of Insurance Charge
__________________________
= VAL Policy Values $1,014 $4,459 $8,138 $12,062
</TABLE>
[_] Charges taken annually from the $4,205 premium: sales load (7%), premium
tax (2.5%) and death benefit guarantee (1.5%).
Charges taken from the $4,205 premium in the first year only: sales load
(23%) and underwriting charge (up to $5 per $1,000).
+ Net Rate reflects the Mortality & Expense Risk Charge of 0.50% is taken
from the Variable Life Account with the Advisory Fee and Fund Expenses
taken from the Series Fund. This rate is for illustrative purposes and is
not an indication of future results.
- Administration fee is $60 a year. Cost of insurance charge is the cost of
providing the death benefit which varies based on age, gender, health,
premium level and duration.
92
<PAGE>
VARIABLE ADJUSTABLE LIFE INSURANCE (CONTINUED)
VAL '95
DEATH BENEFIT OPTION--CASH OPTION
MALE ISSUE AGE 40 FOR NON-SMOKERS
INITIAL DEATH BENEFIT--$250,000(1)
$4,205.30 INITIAL SCHEDULED PREMIUM(2)
USING CURRENT MORTALITY CHARGES
<TABLE>
<CAPTION>
-ASSUMING HYPOTHETICAL INVESTMENT RETURNS OF-
0% GROSS(3) 9% GROSS(3) 12% GROSS(3)
INITIAL (-1.19% NET) (7.81% NET) (10.81% NET)
POL ATT BASE POLICY DEATH POLICY DEATH POLICY DEATH
YR AGE PREMIUM VALUE BENEFIT VALUE BENEFIT VALUE BENEFIT
--- --- ------- ------ ------- ------ ------- ------ -------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
1 41 $4,205 $ 902 $250,000 $ 1,014 $250,000 $ 1,052 $250,000
2 42 4,205 3,948 250,000 4,462 250,000 4,638 250,000
3 43 4,205 6,924 250,000 8,145 250,000 8,578 250,000
4 44 4,205 9,824 250,000 12,076 250,000 12,905 250,000
5 45 4,205 12,649 250,000 16,277 250,000 17,663 250,000
6 46 4,205 15,394 250,000 20,762 250,000 22,895 250,000
7 47 4,205 18,057 250,000 25,560 250,000 28,659 250,000
8 48 4,205 20,753 250,000 30,824 250,000 35,149 250,000
9 49 4,205 23,499 250,000 36,600 250,000 42,451 250,000
10 50 4,205 26,269 250,000 42,905 250,000 50,631 250,000
15 55 4,205 39,949 250,000 83,543 250,000 108,148 250,000
20 60 4,205 52,011 250,000 143,998 264,451 206,635 372,455
25 65 4,205 60,582 250,000 232,045 377,361 367,998 586,150
30 70 4,205 64,138 250,000 355,811 516,977 629,031 893,791
</TABLE>
(1) The initial death benefit is guaranteed to age 100.
(2) If premiums are paid more frequently than annually, the payments would be
$2,102.65 semi-annually, $1,051.33 quarterly, or $350.45 monthly. The death
benefits and policy values would be slightly different for a policy with
more frequent premium payments.
(3)Assumes no policy loan has been made.
THE HYPOTHETICAL INVESTMENT RATES OF RETURN SHOWN ABOVE AND ELSEWHERE IN THIS
PROSPECTUS ARE ILLUSTRATIVE ONLY AND SHOULD NOT BE DEEMED A REPRESENTATION OF
PAST OR FUTURE INVESTMENT RATES OF RETURN. ACTUAL RATES OF RETURN MAY BE MORE
OR LESS THAN THOSE SHOWN AND WILL DEPEND ON A NUMBER OF FACTORS, INCLUDING THE
INVESTMENT ALLOCATIONS MADE BY AN OWNER, AND PREVAILING INTEREST RATES. THE
DEATH BENEFITS AND POLICY VALUES FOR A POLICY WOULD BE DIFFERENT FROM THOSE
SHOWN IF THE ACTUAL RATES OF RETURN AVERAGED 0%, 9%, AND 12% OVER A PERIOD OF
YEARS BUT ALSO FLUCTUATED ABOVE OR BELOW THOSE AVERAGES FOR INDIVIDUAL POLICY
YEARS. NO REPRESENTATIONS CAN BE MADE BY MINNESOTA MUTUAL OR THE FUND THAT
THESE HYPOTHETICAL RATES OF RETURN CAN BE ACHIEVED FOR ANY ONE YEAR OR
SUSTAINED OVER ANY PERIOD OF TIME.
93
<PAGE>
VARIABLE ADJUSTABLE LIFE INSURANCE (CONTINUED)
VAL '95
DEATH BENEFIT OPTION--CASH OPTION
MALE ISSUE AGE 40 FOR NON-SMOKERS
INITIAL DEATH BENEFIT--$250,000(1)
$4,205.30 INITIAL SCHEDULED PREMIUM(2)
USING MAXIMUM CONTRACTUAL MORTALITY CHARGES
<TABLE>
<CAPTION>
-ASSUMING HYPOTHETICAL INVESTMENT RETURNS OF-
0% GROSS(3) 9% GROSS(3) 12% GROSS(3)
INITIAL (-1.19% NET) (7.81% NET) (10.81% NET)
POL ATT BASE POLICY DEATH POLICY DEATH POLICY DEATH
YR AGE PREMIUM VALUE BENEFIT VALUE BENEFIT VALUE BENEFIT
--- --- ------- ------ ------- ------ ------- ------ -------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
1 41 $4,205 $ 902 $250,000 $ 1,014 $250,000 $ 1,052 $250,000
2 42 4,205 3,948 250,000 4,462 250,000 4,638 250,000
3 43 4,205 6,924 250,000 8,145 250,000 8,578 250,000
4 44 4,205 9,824 250,000 12,076 250,000 12,905 250,000
5 45 4,205 12,649 250,000 16,277 250,000 17,663 250,000
6 46 4,205 15,394 250,000 20,762 250,000 22,895 250,000
7 47 4,205 18,054 250,000 25,553 250,000 28,650 250,000
8 48 4,205 20,629 250,000 30,674 250,000 34,988 250,000
9 49 4,205 23,116 250,000 36,149 250,000 41,972 250,000
10 50 4,205 25,508 250,000 42,003 250,000 49,671 250,000
15 55 4,205 35,779 250,000 78,016 250,000 102,043 250,000
20 60 4,205 42,116 250,000 128,986 250,000 188,500 342,199
25 65 4,205 42,322 250,000 201,195 329,511 322,956 518,640
30 70 4,205 31,478 250,000 295,991 434,046 526,835 756,296
</TABLE>
(1) The initial death benefit is guaranteed to age 100.
(2) If premiums are paid more frequently than annually, the payments would be
$2,102.65 semi-annually, $1,051.33 quarterly, or $350.45 monthly. The death
benefits and policy values would be slightly different for a policy with
more frequent premium payments.
(3)Assumes no policy loan has been made.
THE HYPOTHETICAL INVESTMENT RATES OF RETURN SHOWN ABOVE AND ELSEWHERE IN THIS
PROSPECTUS ARE ILLUSTRATIVE ONLY AND SHOULD NOT BE DEEMED A REPRESENTATION OF
PAST OR FUTURE INVESTMENT RATES OF RETURN. ACTUAL RATES OF RETURN MAY BE MORE
OR LESS THAN THOSE SHOWN AND WILL DEPEND ON A NUMBER OF FACTORS, INCLUDING THE
INVESTMENT ALLOCATIONS MADE BY AN OWNER, AND PREVAILING INTEREST RATES. THE
DEATH BENEFITS AND POLICY VALUES FOR A POLICY WOULD BE DIFFERENT FROM THOSE
SHOWN IF THE ACTUAL RATES OF RETURN AVERAGED 0%, 9%, AND 12% OVER A PERIOD OF
YEARS BUT ALSO FLUCTUATED ABOVE OR BELOW THOSE AVERAGES FOR INDIVIDUAL POLICY
YEARS. NO REPRESENTATIONS CAN BE MADE BY MINNESOTA MUTUAL OR THE FUND THAT
THESE HYPOTHETICAL RATES OF RETURN CAN BE ACHIEVED FOR ANY ONE YEAR OR
SUSTAINED OVER ANY PERIOD OF TIME.
94
<PAGE>
APPENDIX III
ILLUSTRATION OF DEATH BENEFIT CALCULATION
As an example of the calculation of the death benefit under the Policy,
assume a Policy and an insured with the following characteristics: The insured
is a male, age 40 at Policy issue, and a non-smoker. The Variable Adjustable
Life Insurance Policy has a face amount of $250,000, with a level face amount
and premiums for the life of the insured and the Protection Option has been
chosen as the form of the death benefit. Further, assume that 100 percent of
net premiums are invested in the Variable Life Account sub-accounts, that the
gross investment rate in the Variable Life Account was 12 percent each year and
that Minnesota Mutual deducted current mortality charges. This situation is
shown in Appendix I, "Illustrations of Policy Values, Death Benefits and
Premiums," on page 81 of this prospectus.
Now, further assume that the insured dies at age 50, after the Policy has
been in force for a period of ten years and during which time all of the
premiums have been paid. No policy loans or withdrawals have been made under
the Policy.
Given these assumptions, the policy value of a VAL '95 Policy (the actual
cash value plus any policy loan) on the date of the insured's death--composed
of the Policy's interest in one or more of the sub-accounts of the Variable
Life Account--is equal to $50,011. Under the Protection Option the death
benefit will be $300,011.
Given these assumptions, the policy value of a VAL '87 Policy (the actual
cash value plus any policy loan) on the date of the insured's death--composed
of the Policy's interest in one or more of the sub-accounts of the Variable
Life Account--is equal to $55,152. Under the Protection Option the death
benefit will be $300,010.
The total proceeds payable under either Policy would be adjusted to include
any additional insurance provided by an additional benefit agreement and the
amount payable would be reduced by any unpaid policy charges or any policy
loan.
As an alternative, consider the same example, except that the owner elected
the Cash Option death benefit. This situation is shown in Appendix I,
"Illustrations of Policy Values, Death Benefits and Premiums," on page 81 of
this prospectus.
The death benefit under the Cash Option does not vary from the Policy's face
amount until the Policy becomes paid-up. In this example, again assuming timely
payment of premiums, no withdrawals and no policy loan activity, the policy
value on the date of the insured's death would be $50,631 in the case of a VAL
'95 Policy and $55,525 for a VAL '87 Policy. These are higher values than those
under the Protection Option, reflecting lower mortality costs charged to the
Policy because of the level death benefit. Here, the death benefit is the
current face amount or $250,000.
In determining the total proceeds payable under the Policy, the same
adjustments are made to the death benefit as described under the Protection
Option. However, under the Cash Option any premium paid beyond the end of the
policy month in which the insured died is also included as part of the Policy
proceeds.
95
<PAGE>
APPENDIX IV
POLICY LOAN EXAMPLE
As an example of the effect of a policy loan upon the Policy and upon the
death benefit, assume a VAL '95 Policy and an insured with the following
characteristics: The insured is a male, age 40 at Policy issue, and a non-
smoker. The Variable Adjustable Life Insurance Policy has a face amount of
$250,000, with a level face amount and premiums for the life of the insured and
the Protection Option has been chosen as the form of the death benefit.
Further, assume that 100 percent of net premiums are invested in the sub-
accounts of the Variable Life Account, that the gross investment rate in the
Variable Life Account was 12 percent each year and that Minnesota Mutual
deducted current mortality charges. This situation is shown in Appendix I,
"Illustrations of Policy Values, Death Benefits and Premiums," on page 81 of
this prospectus.
Now assume that the insured, who is also the owner of the Policy, takes a
policy loan in the amount of $5,000 at the end of the fourth policy year and
after all premiums have been paid for that year.
When a loan is taken, the actual cash value invested in the Variable Life
Account is reduced by the amount borrowed and any unpaid interest. The amount
is then transferred to the loan account. Interest is charged on the policy loan
as described in the Policy, but for purposes of this example, assume a policy
loan interest rate of 8 percent per annum. Interest is also credited to a
Policy when there is a policy loan. Interest credits on a policy loan are at a
rate which is not less than the policy loan interest rate less 2 percent per
annum. The interest credit in this example would then be 6 percent.
The following table shows the effect on the year five values, namely those
values at the end of that year, if a policy loan of $5,000 is made at the end
of the fourth year.
<TABLE>
<CAPTION>
Policy Value
With Loan Without Loan
- --------- ------------
<S> <C>
$17,275 $17,515
</TABLE>
<TABLE>
<CAPTION>
End of Year
Total Death Benefit
With Loan Without Loan
--------- ------------
<S> <C>
$267,275 $267,515
</TABLE>
Note that the difference in policy values here represents the difference
between the actual Policy performance in the sub-accounts of the Variable Life
Account and the interest credited on the principal amount of the policy loan.
If interest credited on a policy loan exceeds the Policy performance, then a
Policy with a loan will have a greater value than a Policy with no loan
activity. Where Policy performance exceeds the interest credited on a policy
loan, the resulting policy value will be lower than it would have been if the
loan were not made.
Now consider an identical situation to that above except that the owner has
elected the Cash Option death benefit. The following table shows the effect on
the same year five values if a policy loan of $5,000 is made at the end of the
fourth year.
<TABLE>
<CAPTION>
Policy Value
With Loan Without Loan
- --------- ------------
<S> <C>
$17,422 $17,663
</TABLE>
<TABLE>
<CAPTION>
End of Year
Total Death Benefit
With Loan Without Loan
--------- ------------
<S> <C>
$250,000 $250,000
</TABLE>
The values above under the "With Loan" headings are policy values, which is
the actual cash value of a Policy plus any policy loan. If the owner were to
surrender the Policy at the end of the fifth year, he would receive only the
actual cash value in the sub-accounts of the Variable Life Account.
Similarly, if the insured were to die at the end of the fifth year we would
pay out the death benefit listed under the "With Loan" heading less the amount
of the policy loan.
96
<PAGE>
APPENDIX V
EXAMPLE OF SALES LOAD COMPUTATION
As an example of the method we use to compute sales load, assume a protection
type plan where the annual base premium is $1,000 and where the premium paying
period, prior to any reduction in face amount, is 20 years. The insured is a
male, age 35 with a life expectancy of 38 years. As premiums are paid in each
year, we will assess a basic sales load of 7 percent or $70 in each year. Also,
as premiums are paid in the first year, we will assess a first year sales load
of 23 percent or $230. Therefore, in the first year the sales load charges will
total $300 or 30 percent ($300 / $1,000), and over the 15 year period from
policy issue sales load charges will total $1,280 or 8.54 percent ($1,280 /
$15,000).
Compliance with the 9 percent limitation will be achieved by reducing the
first year sales load, if necessary. For example, consider a Policy with a
protection type plan where the annual base premium is $1,000 and where the
premium paying period prior to any reduction in face amount is 20 years.
Further assume that the insured is a male, age 72 at issue, with a life
expectancy of 9 years. In this case, the first year sales load must be reduced
so that the total sales load will not exceed 9 percent over the life expectancy
of the insured. As premiums are paid in each year we will assess the basic
sales load of 7 percent, or $70, but the first year sales load applicable to
premiums paid in the first year will be reduced from 23 percent to 18 percent,
or $180. Therefore, in the first year the sales load charges will total $250 or
25 percent ($250 / $1,000), and over the period of the insured's life
expectancy sales load charges will total $810 or 9 percent ($810 / $9,000).
As an example of the method we use to assess sales load when an adjustment
occurs during a period in which a first year sales load is being collected,
consider a Policy where an adjustment is made after one-half of the first
annual premium is paid. Assume that the premium is $1,000 annually as in the
example above and further assume that the premiums are being paid on a monthly
basis, $83.33 per month. As premiums are paid in each year we will assess a
basic sales load of 7 percent of premiums received or $70 in that year. A first
year sales load, taken in addition to the basic sales load, would also be
assessed in a total amount of $230. Now assume an adjustment is made, after the
payment of six monthly premiums, and that the premium is increased from $1,000
to $1,200. Both before and after the adjustment we will continue to assess a
basic sales load of 7 percent of the premiums received. However, since only
one-half of the first year sales load of $230 has been collected, a first year
sales load of $115 remains to be collected. The $200 increase in premium will
also be assessed a first year sales load of 23 percent, or $46. Both are added
together and will be collected in the 12 months following the adjustment.
Therefore, after the adjustment of the premium to a $1,200 amount, and assuming
that premiums continue to be paid on a monthly basis, each monthly premium of
$100 will be subjected to a total sales load amount of $20.42, consisting of $7
of basic sales load, and $13.42 of first year sales load.
97
<PAGE>
APPENDIX VI
AVERAGE ANNUAL RETURNS
TWENTY-YEAR HOLDING PERIODS
[GRAPH APPEARS HERE]
<TABLE>
<CAPTION>
Stocks Bonds U.S. Treas. Inflation
------ ----- ----------- ---------
<S> <C> <C> <C> <C>
1955 12.48 2.92 0.66 3.37
1960 14.76 2.12 1.27 3.82
1965 13.84 2.23 1.97 2.84
1970 12.10 2.09 3.13 2.35
1975 7.10 3.08 4.21 3.70
1980 8.31 3.34 5.51 5.46
1985 8.66 6.67 7.31 6.36
1990 11.15 9.01 7.66 6.26
1995 14.59 10.54 7.28 5.23
1996 14.55 9.71 7.28 5.15
</TABLE>
Ending periods from 1955-1996
Source: Stocks, Bonds, Bills and Inflation (SBBI), Encorr Software, 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: 1936-1955, 1941-1960,
etc.). These average rates assume reinvestment of capital gains, dividends and
interest. This is a retrospective view of performance and should in no way be
construed as a projection of future trends.
This graph shows that even though stock investments tend to be more volatile
in short time intervals historically, they have generated rates of return that
have consistently been higher than inflation. Bonds and U.S. Treasury bills
have not always kept up with inflation. The figures do not take into account
the charges associated with a Variable Adjustable Life policy, but do indicate
the potential gain of holding the assets illustrated.
Some additional concepts on the performance of stocks in relation to high
grade, long-term corporate bonds and U.S. Treasury bills over the 52 twenty-
year periods beginning in 1926 and ending in 1996 include:
The average annual return of stocks was higher than that of bonds in 49
of the 52 periods.
The average annual return of stocks was higher than that of U.S. Treasury
bills in all of the 52 periods.
The average annual return of stocks was higher than inflation in all of
the 52 periods.
In the 42 thirty-year periods beginning in 1926 and ending in 1996, the
average annual return of stocks was higher than that of bonds, U.S. Treasury
bills and inflation in all 42 time periods.
From 1926 through 1996, the average annual return for this 71 year period
was:
10.7% for common stocks
5.6% for high grade, long-term corporate bonds
3.7% for U.S. Treasury bills
98
<PAGE>
APPENDIX VII
S&P 500
PERFORMANCE HISTORY 1926-1996
[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
96 23.07
Source: Stocks, Bonds, Bills and Inflation (SBBI), EnCorr Software, Ibbotson
Associates, Inc., Chicago. All rights reserved.
The above chart illustrates that, in any calendar year, the rate of return
for stocks can be positive or negative. However, when viewed over the entire
period of 71 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.
99
<PAGE>
APPENDIX VIII
RANGE OF RETURNS
ROLLING PERIOD RETURNS USING IBBOTSON ASSET CLASS INFORMATION*
(1960 THROUGH 1996)
[GRAPH APPEARS HERE]
1 Yr Period
High Low Mean
Small Stocks 83.57 -30.9 18.5
Lg Cap Stock 37.43 -26.47 11
Corp Bonds 42.56 -8.09 7.56
Govt Bonds 29.1 -5.14 8.1
T-Bills 14.71 2.13 7.6
5 Yr Period
High Low Mean
Small Stocks 39.8 -12.25 15.09
Lg Cap Stock 20.4 -2.36 10.66
Corp Bonds 22.51 -2.22 7.44
Govt Bonds 16.98 2.08 7.88
T-Bills 11.12 2.83 6.34
10 Yr Period
High Low Mean
Small Stocks 30.38 3.2 14.27
Lg Cap Stock 17.59 1.24 10.33
Corp Bonds 16.32 1.68 7.57
Govt Bonds 13.13 3.48 8.03
T-Bills 9.17 3.88 6.8
15 Yr Period
High Low Mean
Small Stocks 23.33 5.87 14.99
Lg Cap Stock 16.61 4.31 10.02
Corp Bonds 13.46 3.08 7.38
Govt Bonds 11.27 4.75 8.04
T-Bills 8.32 4.56 7.03
20 Yr Period
High Low Mean
Small Stocks 20.33 11.47 15.59
Lg Cap Stock 14.59 6.76 10.1
Corp Bonds 10.58 3.03 7.26
Govt Bonds 9.85 4.84 7.95
T-Bills 7.72 5.09 7.03
30 Yr Period
High Low Mean
Small Stocks 15.1 13.47 14.3
Lg Cap Stock 10.87 9.95 10.38
Corp Bonds 8.2 6.8 7.36
Govt Bonds 8.36 7.34 7.82
T-Bills 6.72 6.34 6.6
Source: Ibbotson & Associates.
* Past performance is no guarantee of future results.
The above chart illustrates the volatility in the rate of return for stocks,
represented by Small Cap Stocks, Large Cap Stocks (S&P 500), Corporate Bonds,
Gov't Bonds, and U.S. T-Bills for progressively longer holding periods. The
volatility is reduced as the holding period is increased from one year to just
five years. For holding periods of 10 years or longer, volatility of return is
reduced even more. These longer holding periods have produced returns that are
quite consistent, and are very attractive when compared with the returns from
U.S. Treasury bills and high-grade, long-term corporate bonds.
The strategy of reducing the year-to-year volatility in the rate of return
for stocks by lengthening the holding period can work to the advantage of a
person who buys a cash value life insurance policy like Variable Adjustable
Life, and utilizes stock sub-accounts. That's because the holding period for
such a policy typically can be extremely long--at least 10 years, and possibly
20, 30 or more years.
100
