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File Number 33-64395
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM S-6
POST-EFFECTIVE AMENDMENT NUMBER 2
REGISTRATION STATEMENT UNDER THE SECURITIES ACT OF 1933
MINNESOTA MUTUAL VARIABLE LIFE ACCOUNT
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(Name of Trust)
The Minnesota Mutual Life Insurance Company
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(Depositor)
400 Robert Street North, St. Paul, Minnesota 55101-2098
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(Depositor's Principal Executive Offices)
Dennis E. Prohofsky
Senior Vice President, General Counsel and Secretary
The Minnesota Mutual Life Insurance Company
400 Robert Street North
St. Paul, Minnesota 55101-2098
-------------------------------
(Agent for Service)
Copy to:
J. Sumner Jones, Esq.
Jones & Blouch L.L.P.
1025 Thomas Jefferson Street, N.W.
Washington, D.C. 20007
It is proposed that this filing will become effective (check appropriate box):
immediately upon filing pursuant to paragraph (b) of Rule 485
- ---
on (date) pursuant to paragraph (b) of Rule 485
- ---
60 days after filing pursuant to paragraph (a)(i) of Rule 485
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X on May 1, 1998 pursuant to paragraph (a)(i) of Rule 485
- ---
this post-effective amendment designates a new effective date for a
- --- previously filed post-effective amendment
Title of Securities being registered:
Variable Adjustable Life-Second Death Insurance Policies
<PAGE>
MINNESOTA MUTUAL
VARIABLE LIFE ACCOUNT
OF
THE MINNESOTA MUTUAL LIFE INSURANCE COMPANY
CROSS REFERENCE TO ITEMS
REQUIRED BY FORM N-8B-2
N-8B-2 Item Caption in Prospectus
- ----------- ---------------------
1. Cover Page
2. Cover Page; General Descriptions, The Minnesota Mutual Life
Insurance Company, Variable Life Account
3. Not Applicable
4. Distribution of Policies
5. General Descriptions, Variable Life Account
6. General Descriptions, Variable Life Account
7. Not Applicable
8. Not Applicable
9. Legal Proceedings
10. Summary; Detailed Information About the Variable Adjustable Life
Insurance Policy; Policy Charges; Voting Rights
11. Summary; Detailed Information About the Variable Adjustable Life
Insurance Policy; General Descriptions, Advantus Series Fund,
Inc.
12. Summary; Detailed Information About the Variable Adjustable Life
Insurance Policy; General Descriptions, Advantus Series Fund,
Inc.
13. Detailed Information About the Variable Adjustable Life Insurance
Policy; Policy Charges
14. Detailed Information About the Variable Adjustable Life Insurance
Policy, Adjustable Life Insurance; Applications and Policy Issue
15. Detailed Information About the Variable Adjustable Life Insurance
Policy, Policy Premiums
16. Not Applicable
17. Summary; Detailed Information About the Variable Adjustable Life
Insurance Policy
18. Advantus Series Fund, Inc. and Class 2 of the Templeton
Developing Markets Fund
19. Voting Rights
<PAGE>
20. Not Applicable
21. Not Applicable
22. Not Applicable
23. Not Applicable
24. Not Applicable
25. General Descriptions, The Minnesota Mutual Life Insurance Company
26. Not Applicable
27. General Descriptions, The Minnesota Mutual Life Insurance Company
28. Trustees and Principal Officers of Minnesota Mutual
29. General Descriptions, The Minnesota Mutual Life Insurance Company
30. Not Applicable
31. Not Applicable
32. Not Applicable
33. Not Applicable
34. Not Applicable
35. General Descriptions, The Minnesota Mutual Life Insurance Company
36. Not Applicable
37. Not Applicable
38. Distribution of Policies
39. Distribution of Policies
40. Not Applicable
41. Distribution of Policies
42. Not Applicable
43. Not Applicable
44. Detailed Information About the Variable Adjustable Life Insurance
Policy, Policy Values
45. Not Applicable
46. Detailed Information About the Variable Adjustable Life Insurance
Policy, Policy Loans, Surrender
47. Not Applicable
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48. Not Applicable
49. Not Applicable
50. General Descriptions, Variable Life Account
51. Summary; Detailed Information About the Variable Adjustable Life
Insurance Policy, Policy Charges
52. Summary; General Descriptions, Variable Life Account; Advantus
Series Fund, Inc.
53. Federal Tax Status
54. Not Applicable
55. Not Applicable
56. Not Applicable
57. Not Applicable
58. Not Applicable
59. Financial Statements
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PART I
INFORMATION REQUIRED IN PROSPECTUS
<PAGE>
This prospectus describes a Variable Adjustable Life Second Death Insurance
Policy ("VAL-SD") issued by The Minnesota Mutual Life Insurance Company
("Minnesota Mutual"). It provides life insurance protection payable at the
death of the second insured to die ("second death") so long as scheduled
premiums are paid. Under some plans of insurance, the face amount of insurance
may decrease or terminate during the life of the insureds. The lowest annual
base premium allowed for any plan of insurance is $600. The minimum face amount
on a Policy is $200,000.
The Policy may be adjusted, within described limits, as to face amount, premium
amount and the plan of insurance.
We assess certain charges under the Policy and these are fully described under
the heading "Policy Charges" in this prospectus on page 28. The Policy also
contains a cancellation right which is fully described under the heading "Free
Look" in this prospectus on page 28.
VAL-SD policy values may be invested in a separate account of Minnesota Mutual
called the Variable Life Account. Policy values may also be invested in a
Minnesota Mutual general account option. The actual cash value of all Policies
will vary with the investment experience of these options. The Variable Life
Account invests its assets in shares of Advantus Series Fund, Inc. and Class 2
of the Templeton Developing Markets Fund (the "Funds"). The Funds have
seventeen 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; the Value Stock Portfolio; the Small
Company Value Portfolio; the Global Bond Portfolio; the Index 400 Mid-Cap
Portfolio; the Macro-Cap Value Portfolio; the Micro-Cap Growth Portfolio; the
Real Estate Securities Portfolio and the Templeton Developing Markets Fund.
There is no minimum cash value associated with these variable sub-accounts.
VAL-SD provides two death benefit options: the Cash Option and the Protection
Option. The Cash Option provides a guaranteed death benefit equal to the
current face amount. Favorable investment returns, if any, will be reflected
only in increased actual cash values, unless the policy value exceeds the net
single premium for the then current face amount, at which time the death
benefit will increase. The Protection Option provides a variable death benefit
guaranteed to be at least equal to the current face amount. Favorable
investment returns, if any, will be reflected primarily in increased life
insurance coverage as well as increased actual cash values.
Replacing existing insurance with a Policy described in this prospectus may not
be to your advantage.
THIS PROSPECTUS IS NOT VALID UNLESS ATTACHED TO CURRENT PROSPECTUSES OF
ADVANTUS SERIES FUND, INC. AND OF THE TEMPLETON DEVELOPING MARKETS FUND, A
SERIES OF TEMPLETON VARIABLE PRODUCTS SERIES FUND. 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 (Ph 651/665-3500 after July 1, 1998)
http:/www.minnesotamutual.com
Dated: May 1, 1998
PROSPECTUS
VARIABLE ADJUSTABLE
LIFE SECOND DEATH
INSURANCE POLICY
[LOGO OF MINNESOTA MUTUAL APPEARS HERE]
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TABLE OF CONTENTS
<TABLE>
<CAPTION>
Page
<S> <C>
Summary.................................................................. 1
Condensed Financial Information.......................................... 8
General Descriptions
The Minnesota Mutual Life Insurance Company............................ 10
Variable Life Account.................................................. 10
Advantus Series Fund, Inc.............................................. 10
Templeton Variable Products Series Fund................................ 11
Additions, Deletions or Substitutions.................................. 11
Selection of Sub-Accounts.............................................. 12
The Guaranteed Principal Account....................................... 12
Detailed Information about the Variable Adjustable Life Second Death In-
surance Policy
Adjustable Life Insurance.............................................. 13
Policy Adjustments..................................................... 15
Applications and Policy Issue.......................................... 19
Policy Premiums........................................................ 19
Policy Values.......................................................... 22
Death Benefit Options.................................................. 25
Policy Loans........................................................... 26
Surrender.............................................................. 28
Free Look.............................................................. 29
Conversion............................................................. 29
Policy Exchange........................................................ 29
Policy Charges......................................................... 29
Other Policy Provisions................................................ 32
Other Matters
Federal Tax Status..................................................... 35
Tax Treatment of Policy Benefits....................................... 36
Multiple Policies...................................................... 38
Trustees and Principal Management Officers of Minnesota Mutual......... 40
Voting Rights.......................................................... 41
Distribution of Policies............................................... 41
Legal Matters.......................................................... 42
Legal Proceedings...................................................... 42
Year 2000 Computer Problem.............................................
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... 83
Appendix II-Summary of Policy Charges.................................... 89
Appendix III-Illustration of Death Benefit Calculation................... 94
Appendix IV-Policy Loan Example.......................................... 95
Appendix V-Example of Sales Load Computation............................. 96
Appendix VI-Average Annual Returns....................................... 97
Appendix VII-S&P 500 Performance History................................. 98
Appendix VIII-Range of Returns........................................... 99
</TABLE>
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SUMMARY
The following summary is designed to answer certain general questions
concerning the Policy and to give you a brief overview of the more significant
Policy features. This summary is not comprehensive and is qualified in its
entirety by the more specific information contained elsewhere in this
prospectus. Reference should be made to the heading "Special Terms" for the
definitions of unfamiliar terms.
WHAT IS A VARIABLE ADJUSTABLE LIFE SECOND DEATH INSURANCE POLICY?
The Variable Adjustable Life Insurance Policy (the "Policy") described in
this prospectus combines traditional insurance provisions, flexible
administrative procedures and significant and useful market sensitive
investment features. First and foremost, the Policy provides a guaranteed death
benefit payable at the second death so long as scheduled premiums are paid. In
this respect, the Policy is similar to conventional survivorship life policies.
In addition, however, the Policy contains adjustment features which give you
the flexibility to tailor the Policy to your individual requirements at issue
and to adjust the Policy thereafter as your insurance needs change. Policy
values are invested at your direction in the several portfolios of Advantus
Series Fund, Inc., in Class 2 of the Templeton Developing Markets Fund (the
"Funds") or in a Minnesota Mutual general account option. Such investment
enables you to obtain market rates of return on your investment in the Policy
in combination with guaranteed insurance protection.
WHAT IS THE GUARANTEED DEATH BENEFIT?
We guarantee that the face amount of insurance shown on the policy
specification page will be paid at the second death so long as you do not have
policy indebtedness and all scheduled premiums have been paid. Some Policies
will have a scheduled decrease in such guaranteed face amount at the end of the
initial policy protection period. In such case, the time and amount of the
decrease are also shown on the policy specification page. The importance of the
guarantee is that adverse investment performance may never reduce your life
insurance protection below the guaranteed amount. We impose a charge not to
exceed 3 cents per thousand dollars of face amount per month for providing this
guarantee.
WHAT MAKES THE POLICY "ADJUSTABLE"?
The Policy is termed "Adjustable" because it allows you the flexibility to
custom-design your Policy at issue and thereafter to change or "adjust" your
Policy as your insurance needs change. The three major components in designing
your Policy are the level of premiums you wish to pay, the level of death
benefit protection you need and the appropriate "plan" of insurance for you.
You may choose any two of the three components--premium, face amount and plan--
and we will calculate the third component.
Within very broad limits, including those designed to assure that the Policy
qualifies as life insurance for tax purposes, you may choose any level of
premium or death benefit that you wish. In addition, we offer a broad range of
"plans" of insurance. Generally speaking, a plan refers to the level of cash
value accumulation assumed in the design of the Policy and, for whole life
plans, the period of time over which you will have to pay premiums. The greater
your plan of insurance, the larger the policy values you may expect to be
available for investment in the Policy's actual cash value, loans or partial
surrenders and, for whole life plans, the shorter the period of time for which
you will have to pay premiums.
The maximum plan of insurance available is one where the Policy becomes paid-
up after the payment of ten annual premiums. A paid-up Policy is one for which
no additional premiums are required to guarantee the face amount of insurance
until the second death, provided there is no policy indebtedness. Whole life
plans may be suitable for individuals who wish to ensure lifetime coverage,
without any scheduled reduction in face amount as described below, by the
payment of relatively higher premiums and, in certain cases, for a lesser
period of time, or who wish to accumulate substantial cash values by utilizing
the investment features of the Policy.
The minimum plan that we offer at original issue is a ten year protection
Policy.
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If the younger insured's age at original issue is over 70, the minimum plan of
protection will be less than ten years, as described in the table below:
<TABLE>
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YOUNGER INSURED'S MINIMUM PLAN
ISSUE AGE (IN YEARS)
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71 9
72 8
73 7
74 6
75 or greater 5
</TABLE>
As used herein a protection Policy is one which provides only a term plan of
insurance, namely one with a stated face amount and premium level, providing
an illustrated face amount for a specified number of years, always less than
for whole life. A protection plan of insurance is designed to accumulate cash
value at the end of the time during which the initial face amount is in force
only to the extent that investment returns exceed the assumed rate of return
indicated in your Policy as the tabular cash value. Absent an adjustment to a
new plan, at the end of the initial protection period you would have a whole
life plan of insurance for a lower face amount, based on continued payment of
your scheduled premiums. A protection plan requires the lowest initial level
of premiums and offers the most insurance protection with the lowest
investment element. The protection plan may be a suitable starting point for
young policy owners who have not reached their peak earning years but who have
substantial life insurance needs.
For any given face amount of insurance, you may select a plan that falls
anywhere between the minimum protection plan and the maximum ten premium
payment whole life plan. The higher the premium you pay, the greater will be
your cash value accumulation at any given time and therefore, for whole life
plans, the shorter the period during which you need to pay premiums before
your Policy becomes paid-up. For example, the table below shows the premium
required for various plans for two insureds, one female age 40 and one male
age 40, both standard nonsmokers for a $1,000,000 face amount VAL-SD Policy.
<TABLE>
<CAPTION>
ANNUAL
PLAN OF INSURANCE PREMIUM
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Minimum--10 year protection plan $ 712
20 year protection plan $ 1,019
Whole life plan $10,805
25 pay life plan $13,396
Maximum--10 pay life plan $26,265
</TABLE>
The flexibility described above with respect to designing your Policy to
suit your needs at issue continues throughout the time the Policy remains in
force by virtue of its adjustability features. As your insurance needs and
personal circumstances change over the years, you may change, subject to the
limitations described herein, the premium and face amount and thus the plan.
Some limitations do apply to policy adjustments, and these limitations are
more fully described in this prospectus. See the heading "Policy Adjustments"
in this prospectus on page 14. Any policy adjustment for a change in premium
must result in a change of the annual premium of at least $300 and any
adjustment to a Policy's face amount generally must result in a change of the
face amount of at least $50,000. Other than an automatic adjustment at the
point when the face amount is scheduled to decrease, an automatic adjustment
at the younger insured's age 70, or an adjustment to a zero or stop premium,
an adjusted Policy must provide a level face amount of insurance to the next
policy anniversary after the later of: (a) five years from the date of
adjustment; or (b) ten years from the date of policy issue. If the younger
insured's age at original issue is over 70, the adjusted Policy must provide a
level face amount of insurance to the next policy anniversary after the later
of: (a) five years from the date of adjustment; or (b) a certain number of
years from the date of policy issue, based on the table below:
<TABLE>
<CAPTION>
YOUNGER INSURED'S MINIMUM PLAN
ISSUE AGE (IN YEARS)
- ----------------- ------------
<S> <C>
71 9
72 8
73 7
74 6
75 or greater 5
</TABLE>
WHAT MAKES THE POLICY "VARIABLE"?
The Policy is termed "Variable" because unlike traditional whole life and
universal life contracts which provide for accumulations of contract values at
fixed rates determined by the insurance company, VAL-SD Policy values may be
invested in a separate account of ours called the Minnesota Mutual Variable
Life Account ("Variable Life Account"), the sub-accounts of which invest in
corresponding Portfolios of the Funds. Thus, your policy values invested in
these sub-accounts will reflect market rates of return.
2
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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 seventeen Portfolios of the Funds.
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, Value Stock, Small Company
Value, Global Bond, Index 400 Mid-Cap, Macro-Cap Value, Micro-Cap Growth, Real
Estate Securities Portfolios and the Templeton Developing Markets Fund. 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
Funds' investment advisers 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
Advantus Series Fund are as follows:
The GROWTH PORTFOLIO seeks the long-term accumulation of capital. Current
income, while a factor in portfolio selection, is a secondary objective. The
Growth Portfolio will invest primarily in common stocks and other equity
securities. Common stocks are more volatile than debt securities and involve
greater investment risk.
The BOND PORTFOLIO seeks as high a level of long-term total rate of return
as is consistent with prudent investment risk. A secondary objective is to
seek preservation of capital. The Bond Portfolio will invest primarily in
long-term, fixed-income, high-quality debt instruments. The value of debt
securities will tend to rise and fall inversely with the rise and fall of
interest rates.
The MONEY MARKET PORTFOLIO seeks maximum current income to the extent
consistent with liquidity and the preservation of capital. The Money Market
Portfolio will invest in money market instruments and other debt securities
with maturities not exceeding one year. The return produced by these
securities will reflect fluctuations in short-term interest rates.
An investment in the Money Market Portfolio is neither insured nor
guaranteed by the U.S. Government and there can be no assurance that the
Portfolio will be able to maintain a stable net asset value of $1.00 per
share.
The ASSET ALLOCATION PORTFOLIO seeks as high a level of long-term total
rate of return as is consistent with prudent investment risk. The Asset
Allocation Portfolio will invest in common stocks and other equity
securities, bonds and money market instruments. The Asset Allocation
Portfolio involves the risks inherent in stocks and debt securities of
varying maturities and the risk that the Portfolio may invest too much or too
little of its assets in each type of security at any particular time.
The MORTGAGE SECURITIES PORTFOLIO seeks a high level of current income
consistent with prudent investment risk. In pursuit of this objective the
Mortgage Securities Portfolio will follow a policy of investment primarily in
mortgage-related securities. Prices of mortgage-related securities will tend
to rise and fall inversely
3
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with the rise and fall of the general level of interest rates.
The INDEX 500 PORTFOLIO seeks investment results that correspond generally
to the price and yield performance of the common stocks included in the
Standard & Poor's Corporation 500 Composite Stock Price Index (the "Index").
It is designed to provide an economical and convenient means of maintaining a
broad position in the equity market as part of an overall investment
strategy. All common stocks, including those in the Index, involve greater
investment risk than debt securities. The fact that a stock has been included
in the Index affords no assurance against declines in the price or yield
performance of that stock.
The CAPITAL APPRECIATION PORTFOLIO seeks growth of capital. Investments
will be made based upon their potential for capital appreciation. Therefore,
current income will be incidental to the objective of capital growth. Because
of the market risks inherent in any equity investment, the selection of
securities on the basis of their appreciation possibilities cannot ensure
against possible loss in value.
The INTERNATIONAL STOCK PORTFOLIO seeks long-term capital growth. In
pursuit of this objective the International Stock Portfolio will follow a
policy of investing in stocks issued by companies, large and small, and debt
obligations of companies and governments outside the United States. Current
income will be incidental to the objective of capital growth. The Portfolio
is designed for persons seeking international diversification. Investors
should consider carefully the substantial risks involved in investing in
securities issued by companies and governments of foreign nations, which are
in addition to the usual risks inherent in domestic investments.
The SMALL COMPANY PORTFOLIO seeks long-term accumulation of capital. In
pursuit of this objective, the Small Company Portfolio will follow a policy
of investing primarily in common and preferred stocks issued by small
companies, defined in the terms of either market capitalization or gross
revenues. Investments in small companies usually involve greater investment
risks than fixed income securities or corporate equity securities generally.
Small companies will typically have a market capitalization of less than $1.5
billion or annual gross revenues of less than $1.5 billion.
The VALUE STOCK PORTFOLIO seeks long-term accumulation of capital. The
production of income through the holding of dividend paying stocks will be a
secondary objective of the Portfolio. The Value Stock Portfolio will invest
primarily in equity securities of companies which, in the opinion of the
Portfolio's investment adviser, have market values which appear low relative
to their underlying value or future earnings and growth potential.
The SMALL COMPANY VALUE PORTFOLIO seeks the long-term accumulation of
capital. The Portfolio will follow a policy of investing primarily in the
equity securities of small companies, defined in terms of market
capitalization and which appear to have market values which are low relative
to their underlying value or future earnings and growth potential. Dividend
income will be incidental to the investment objective for this Portfolio.
The GLOBAL BOND PORTFOLIO seeks to maximize current income consistent with
protection of principal. The Portfolio pursues its objective by investing
primarily in debt securities issued by issuers located anywhere in the world.
Prior to May 1, 1998, the Global Bond Portfolio was known as the
International Bond Portfolio and pursued its objective by investing primarily
in a managed portfolio of non-U.S. dollar debt securities issued by foreign
governments, companies and supranational entities. Effective May 1, 1998
pursuant to a change in the investment practices of the Portfolio approved by
the Board of Directors, the Portfolio will seek to achieve its investment
objective by investing primarily in debt securities issued anywhere in the
world. The investment objective of the Portfolio remains unchanged.
The INDEX 400 MID-CAP PORTFOLIO seeks to provide investment results
generally corresponding to the aggregate price and dividend performance of
publicly traded common stocks that comprise the Standard & Poor's 400 MidCap
Index. The Portfolio pursues its investment objective by investing primarily
in the 400 common stocks that comprise the Index, issued by medium-sized
domestic companies with
4
<PAGE>
market capitalizations that generally range from $200 million to $5 billion.
It is designed to provide an economical and convenient means of maintaining a
diversified portfolio in this equity security area as part of an over-all
investment strategy. The inclusion of a stock in the Index in no way implies
an opinion by Standard & Poor's as to its attractiveness as an investment,
nor is it a sponsor or in any way affiliated with the Portfolio.
The MACRO-CAP VALUE PORTFOLIO seeks to provide high total return. It
pursues this objective by investing in equity securities that the sub-adviser
believes, through the use of dividend discount models, to be undervalued
relative to their long-term earnings power, creating a diversified portfolio
of equity securities which typically will have a price/earnings ratio and a
price to book ratio that reflects a value orientation. The Portfolio seeks to
enhance its total return relative to that of a universe of large-sized U.S.
companies.
The MICRO-CAP GROWTH PORTFOLIO seeks long-term capital appreciation. It
pursues its objective by investing primarily in equity securities of smaller
companies which the sub-adviser believes are in an early stage or
transitional point in their development and have demonstrated or have the
potential for above average revenue growth. It will invest primarily in
common stocks and stock equivalents of micro-cap companies, that is,
companies with a market capitalization of less than $300 million.
The REAL ESTATE SECURITIES PORTFOLIO seeks above-average income and long-
term growth of capital. It will pursue its objective by investing primarily
in equity securities of companies in the real estate industry. The Portfolio
seeks to provide a yield in excess of the yield of the Standard & Poor's 500
Composite Index.
In addition to the investments in the Advantus Series Fund, the Variable
Life Account invests in the Templeton Developing Markets Fund, a diversified
portfolio with two classes of shares of the Templeton Variable Products Series
Fund, a mutual fund of the series type.
The investment objectives and certain policies of the Templeton Developing
Markets Fund available under the Policy are as follows:
THE TEMPLETON DEVELOPING MARKETS FUND seeks long-term capital appreciation.
It pursues this objective by investing primarily in equity securities of
issuers in countries having developing markets. Countries generally
considered to have developing markets are all countries that are considered
to be developing or emerging countries by the International Bank for
Reconstruction and Development (more commonly referred to as the World Bank)
or the International Finance Corporation, as well as countries that are
classified by the United Nations or otherwise regarded by their authorities
as developing.
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 prospectuses 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 us.
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
5
<PAGE>
for the then current face amount will the death benefit vary.
The Protection Option provides a variable death benefit from the issue date
as well as variable actual cash values. Favorable investment returns will be
reflected both in increased life insurance coverage and increased cash value
accumulations, although any increases in actual cash values under the
Protection Option will not be as great as under the Cash Option.
DO YOU HAVE ACCESS TO YOUR POLICY VALUES?
Yes. Your actual cash value is available to you until the second death. You
may use the actual cash value to provide retirement income, as collateral for
a loan, to continue some insurance protection if you do not wish to continue
paying premiums or to obtain cash by surrendering your Policy in full or in
part.
You may also borrow up to 90 percent of your policy value as a policy loan.
Each alternative may be subject to conditions described in the Policy or in
this prospectus under the heading "Policy Values" on page 22 and certain
transactions may have tax consequences as described under the heading "Federal
Tax Status" on page 34.
WHAT CHARGES ARE ASSOCIATED WITH THE POLICY?
We assess certain charges from each premium payment, from policy values and
from the amounts held in the Variable Life Account. All of these charges,
which are largely designed to cover our expenses in providing insurance
protection and in distributing and administering the Policies, are fully
described under the heading "Policy Charges" in this prospectus on page 28.
Because of the significance of these charges in early policy years,
prospective purchasers should purchase a Policy only if they intend to and
have the financial capacity to keep it in force for a substantial period.
Against premiums we deduct sub-standard risk charges and premiums for
additional benefits.
Against base premiums we deduct a basic sales load of 7 percent and we may
also deduct a first year sales load not to exceed 23 percent. We also deduct
from premiums an underwriting charge, a premium tax charge of 2.5 percent and
a federal tax charge of 1.25 percent. Nonrepeating premiums are currently
subject to the premium tax charge and the federal tax charge.
Against the actual cash value of a Policy we deduct an administration charge
not to exceed $15 per month, a face amount guarantee charge not to exceed 3
cents per thousand dollars of face amount per month, a transaction charge for
each Policy adjustment or transfer, and a cost of insurance charge.
Against the assets held in the Variable Life Account we assess a mortality
and expense risk charge which is deducted from the Variable Life Account
assets on each valuation date at an annual rate of .50 percent of the Variable
Life Account average daily net assets.
Advantus Capital Management, Inc., one of our subsidiaries, acts as the
investment adviser to Advantus Series 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 and Index 400 Mid-Cap Portfolios, .75 percent of the Capital
Appreciation, Small Company, Value Stock and Small Company Value Portfolios,
1.0 percent of the International Stock Portfolio, .6 percent of the Global
Bond Portfolio, .7 percent of the Macro-Cap Value Portfolio, 1.1 percent of
the Micro-Cap Growth Portfolio and .5 percent of each of the remaining
Portfolios' average daily net assets.
For more information about the Fund, see the prospectus of Advantus Series
Fund, Inc. which is attached to this prospectus.
The Templeton Developing Markets Fund pays its investment adviser management
fees at an annual rate of 1.25 percent of the Fund's average daily net assets.
In addition, Class 2 of the Templeton Developing Markets Fund has a Rule 12b-1
plan and may pay up to 0.25 percent annually of the average daily net assets
for distribution. For more information, see the Templeton Fund's prospectus.
ARE THE BENEFITS UNDER A POLICY SUBJECT TO FEDERAL INCOME TAX?
Under current federal tax law, life insurance policies receive tax-favored
treatment. The death benefit is generally excludable from the beneficiary's
gross income for federal income tax purposes,
6
<PAGE>
according to Section 101(a)(1) of the Internal Revenue Code. Owners of a life
insurance policy are not taxed on any increase in the cash value while the
policy remains in force.
If a Policy is a modified endowment policy under federal tax law, certain
distributions made during either insured's lifetime, such as loans and partial
withdrawals from, and collateral assignments of, the Policy are includable in
gross income on an income-first basis. A 10 percent penalty tax may also be
imposed on distributions made before the policy owner attains age 59 1/2.
Policies that are not modified endowment policies under federal tax law
receive preferential tax treatment with respect to certain distributions.
For a discussion of the tax issues associated with this Policy, see "Federal
Tax Status" in this prospectus on page 34.
HOW DO YOU PURCHASE A POLICY?
To be eligible to purchase a Policy both insureds must be between age 20 and
age 85 inclusive, satisfy our underwriting standards and the Policy must have
a face amount of at least $200,000. The procedure to purchase a Policy is to
complete an application, provide us with evidence of insurability satisfactory
to us and pay your first scheduled premium. See the heading "Applications and
Policy Issue" in this prospectus on page 18.
For a limited time after your application for the Policy and delivery of it,
the Policy may be returned for a refund of all premium payments within the
terms of its "free look" provision. See the heading "Free Look" in this
prospectus on page 28. As a conversion privilege you can obtain comparable
fixed insurance coverage by transferring all of the policy value to the
guaranteed principal account and thereafter allocating all premiums to that
account.
7
<PAGE>
CONDENSED FINANCIAL INFORMATION
The financial statements of The Minnesota Mutual Life Insurance Company and
of Minnesota Mutual Variable Life Account may be found elsewhere in this
prospectus.
The table below gives per unit information about the financial history of
each sub-account from the inception of each to December 31, 1997. 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>
YEAR ENDED DECEMBER 31,
----------------------------------------------------------------------------------------------------
1997 1996 1995 1994 1993 1992 1991 1990 1989 1988
---------- ---------- ---------- ---------- ---------- --------- --------- --------- ------- -------
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
Growth Sub-
Account:
Unit value at
beginning of
year $2.59 $2.22 $1.79 $1.79 $1.72 $1.65 $1.23 $1.24 $0.99 $0.86
Unit value at
end of year $3.43 $2.59 $2.22 $1.79 $1.79 $1.72 $1.65 $1.23 $1.24 $0.99
Number of units
outstanding at
end of year 19,284,419 16,176,371 12,822,494 9,964,217 6,671,352 3,703,167 1,251,845 511,276 257,995 98,047
Bond Sub-
Account:
Unit value at
beginning of
year $1.99 $1.95 $1.63 $1.72 $1.57 $1.48 $1.26 $1.18 $1.06 $0.99
Unit value at
end of year $2.17 $1.99 $1.95 $1.63 $1.72 $1.57 $1.48 $1.26 $1.18 $1.06
Number of units
outstanding at
end of year 9,679,443 7,366,222 5,340,539 3,659,230 2,240,344 1,281,711 654,954 484,684 247,525 93,351
Money Market
Sub-Account:
Unit value at
beginning of
year $1.58 $1.52 $1.45 $1.40 $1.37 $1.34 $1.27 $1.19 $1.10 $1.04
Unit value at
end of year $1.66 $1.58 $1.52 $1.45 $1.40 $1.37 $1.34 $1.27 $1.19 $1.10
Number of units
outstanding at
end of year 4,323,601 4,082,791 3,509,791 2,920,337 1,849,721 1,167,590 536,680 341,717 141,494 41,617
Asset Allocation
Sub-Account:
Unit value at
beginning of
year $2.50 $2.23 $1.79 $1.83 $1.73 $1.62 $1.26 $1.22 $1.02 $0.93
Unit value at
end of year $2.96 $2.50 $2.23 $1.79 $1.83 $1.73 $1.62 $1.26 $1.22 $1.02
Number of units
outstanding at
end of year 34,942,517 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
Mortgage
Securities
Sub-Account:
Unit value at
beginning of
year $2.13 $2.03 $1.73 $1.80 $1.66 $1.56 $1.35 $1.24 $1.10 $1.00
Unit value at
end of year $2.31 $2.13 $2.03 $1.73 $1.80 $1.66 $1.56 $1.35 $1.24 $1.10
Number of units
outstanding at
end of year 4,464,617 4,175,648 3,616,256 3,250,971 2,419,453 1,471,984 555,964 241,631 95,633 32,351
Index 500 Sub-
Account:
Unit value at
beginning of
year $2.93 $2.42 $1.78 $1.77 $1.62 $1.51 $1.17 $1.23 $0.95 $0.82
Unit value at
end of year $3.86 $2.93 $2.42 $1.78 $1.77 $1.62 $1.51 $1.17 $1.23 $0.95
Number of units
outstanding at
end of year 22,433,487 17,250,529 11,917,281 8,997,722 6,074,831 4,026,796 1,307,951 658,612 237,854 37,484
</TABLE>
8
<PAGE>
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31,
------------------------------------------------------------------------------------------------------
1997 1996 1995 1994 1993 1992 1991 1990 1989 1988
---------- ---------- ---------- ---------- --------- --------- --------- ------- ------- ------
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
Capital Appreciation
Sub-Account:
Unit value at
beginning of year $3.00 $2.56 $2.10 $2.06 $1.87 $1.79 $1.27 $1.30 $0.95 $0.89
Unit value at end
of year $3.82 $3.00 $2.56 $2.10 $2.06 $1.87 $1.79 $1.27 $1.30 $0.95
Number of units
outstanding at end
of year 22,986,605 19,778,274 16,587,673 12,929,134 9,082,661 5,053,453 1,689,614 802,456 181,898 74,444
International Stock
Sub-Account:
Unit value at
beginning of period $1.79 $1.50 $1.32 $1.33 $0.93 $1.00*
Unit value at end
of period $1.99 $1.79 $1.50 $1.32 $1.33 $0.93
Number of units
outstanding at end
of period 35,764,833 28,056,128 20,883,317 15,062,750 6,244,750 1,615,754
Small Company Sub-
Account:
Unit value at
beginning of period $1.90 $1.59 $1.21 $1.15 $1.00**
Unit value at end
of period $1.81 $1.90 $1.59 $1.21 $1.15
Number of units
outstanding at end
of period 27,207,371 19,918,050 13,089,758 7,074,933 1,261,521
Value Stock Sub-
Account:
Unit value at
beginning of period $1.78 $1.37 $1.04 $1.00***
Unit value at end
of period $2.15 $1.78 $1.37 $1.04
Number of units
outstanding at end
of period 17,273,210 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.
9
<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 (651-665-3500 after July 1, 1998). 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 seventeen sub-accounts to which
policy owners may allocate premiums. Each sub-account invests in shares of a
corresponding Portfolio of the Funds.
ADVANTUS SERIES FUND, INC.
The Variable Life Account currently invests in Advantus Series Fund, Inc., a
mutual fund of the series type. Prior to May 1, 1997, the name of the Fund was
"MIMLIC Series Fund, Inc." Advantus Series 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.
Advantus Series 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.
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,
Florida, has been retained under an investment sub-advisory agreement to
provide investment advice to the International Stock Portfolio of the Fund.
J.P. Morgan Investment Management Inc., a Delaware corporation with principal
10
<PAGE>
offices in New York, New York, has been retained under an investment sub-
advisory agreement to provide investment advice for the Macro-Cap Value
Portfolio of the Fund. Wall Street Associates, a California corporation with
principal offices in La Jolla, California, has been retained under an
investment sub-advisory agreement to provide investment advice for the Micro-
Cap Growth Portfolio of the Fund. Julius Baer Investment Management Inc., a
Delaware corporation with principal offices in New York, New York, has been
retrained under an investment sub-advisory agreement to provide investment
advice for the Global Bond Portfolio of the Fund.
The Fund currently has twenty investment Portfolios, sixteen 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.
TEMPLETON VARIABLE PRODUCTS SERIES FUND
In addition to the investments in Advantus Series Fund, the Variable Life
Account invests in the Templeton Developing Markets Fund, a diversified
portfolio of the Templeton Variable Products Series Fund, a mutual fund of the
series type.
Class 2 of the Templeton Developing Markets Fund pays 0.25 percent of the
average daily net assets annually under a distribution plan adopted under Rule
12b-1 of the Investment Company Act of 1940. Amounts paid under the 12b-1 plan
to us may be used for certain policy owner services or distribution
activities.
The investment adviser of Templeton Developing Markets Fund is Templeton
Asset Management Ltd., a Singapore corporation. It is an indirect wholly-owned
subsidiary of Franklin Resources, Inc. ("Franklin"). Through its subsidiaries,
Franklin is engaged in the financial services industry. The Templeton
organization has been investing globally since 1940 and, with its affiliates,
provides investment management and advisory services to a worldwide client
base. The investment adviser and its affiliates have offices-worldwide.
ADDITIONS, DELETIONS OR SUBSTITUTIONS
We reserve the right to add, combine or remove any sub-accounts of the
Variable Life Account when permitted by law. Each additional sub-account will
purchase shares in a new portfolio or mutual fund. Such sub-accounts may be
established when, in our sole discretion, marketing, tax, investment or other
conditions warrant such action. We will use similar considerations should
there be a determination to eliminate one or more of the sub-accounts of the
Variable Life Account. The addition of any investment option will be made
available to existing policy owners on such basis as may be determined by us.
We retain the right, subject to any applicable law, to make substitutions
with respect to the investments of the sub-accounts of the Variable Life
Account. If investment in a Fund Portfolio should no longer be possible or if
we determine it
becomes inappropriate for variable policies, we may substitute another mutual
fund or portfolio for a sub-account. Substitution may be made with respect to
existing policy values and future premium payments. A substitution may be made
only with any necessary approval of the Securities and Exchange Commission.
We reserve the right to transfer assets of the Variable Life Account as
determined by us to be associated with the Policies to another separate
account. A transfer of this kind may require the approvals of state regulatory
authorities and of the Securities and Exchange Commission.
We also reserve the right, when permitted by law, to de-register the
Variable Life Account under the Investment Company Act of 1940, to restrict or
eliminate any voting rights of the policy owners, and to combine the Variable
Life Account with one or more of our other separate accounts.
11
<PAGE>
Shares of the Portfolios of the Funds 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 Funds simultaneously. Although neither we nor the Funds currently
foresee any such disadvantages either to variable life insurance policy owners
or to variable annuity contract owners, the Funds' Boards of Directors intend
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 Funds, or (4)
differences in voting instructions between those given by policy owners and
those given by contract owners.
SELECTION OF SUB-ACCOUNTS
You must make a choice as to how your net premiums are allocated among the
various sub-accounts. In choosing, you should consider how willing you might
be to accept investment risks and the manner in which your other assets are
invested. The sub-accounts represent a broad range of investments available in
the marketplace.
The common stock sub-accounts differ depending on the types of stocks that
make up the account. The focus of each account varies by the size of company,
growth or value style, and U.S. versus international markets. 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 may be more desirable options for policy owners who are
willing to accept such short-term risks. These risks tend to be magnified in
the sub-accounts investing in more aggressive stocks, smaller company stocks
and international stocks. As an alternative to the actively managed sub-
accounts, index sub-accounts are available which tend to match the risks and
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 were, for a time, at a historically high level and for some
period the prices of a diversified portfolio of equity securities were
declining during a period when the cost of living was rising. The value of
long-term bonds and mortgage securities have fallen and risen to a 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
rely on Advantus Capital's judgment for an appropriate asset mix by choosing
the asset allocation sub-account.
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 our
general account.
Because of exemptive and exclusionary provisions, interests in our general
account have not been registered under the Securities Act of 1933, and the
general account has not been registered as an investment company under the
Investment Company Act of 1940. Therefore, neither the guaranteed principal
account nor any interest therein is subject to the provisions of these Acts,
and we have been advised that the staff of the SEC does not review disclosures
relating to it. Disclosures regarding the guaranteed principal account may,
however, be subject to certain generally applicable provisions of the Federal
Securities Laws relating to the accuracy and completeness of statements made
in prospectuses.
This prospectus describes a VAL-SD insurance policy and is generally
intended to serve as a disclosure document only for the aspects of the Policy
relating to the sub-accounts of the Variable Life Account. For complete
details regarding the guaranteed principal account, please see the VAL-SD
Policy.
12
<PAGE>
GENERAL DESCRIPTION Our general account consists of all assets owned by us
other than those in the Variable Life Account and any other separate accounts
which we may establish. The guaranteed principal account is that portion of our
general assets which is attributable to this Policy and other variable
policies, exclusive of policy loans. The description is for accounting purposes
only and does not represent a division of the general account assets for the
specific benefit of variable life policies. Allocations to the guaranteed
principal account become part of our general assets and are used to support
insurance and annuity obligations. Subject to applicable law, we have 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. We
guaranteed such amounts as to principal and a minimum rate of interest.
Transfers from the guaranteed principal account to the sub-accounts of the
Variable Life Account are subject to certain limitations with respect to timing
and amount.
GENERAL ACCOUNT VALUE We bear 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. We may, at our 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
our sole discretion. 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.
DETAILED INFORMATION ABOUT THE VARIABLE
ADJUSTABLE LIFE SECOND DEATH INSURANCE POLICY
ADJUSTABLE LIFE INSURANCE
VARIABLE ADJUSTABLE LIFE SECOND DEATH This Policy is similar both to our
product known as "adjustable life" and to our product known as "joint survivor
life". This Policy, like joint survivor life insurance, pays a death benefit at
the death of the second to die of two named insureds. This Policy, like
adjustable life insurance, permits you to determine the amount of life
insurance protection you need and the amount of money you can afford to pay.
Based on your selection of any two of the three components of a Policy--face
amount, premium and plan--we will then calculate the third. Thus, adjustable
life allows you the flexibility to custom-design a Policy to meet your needs.
Theoretically, each Policy can be unique because of the different combinations
of ages, amount of life insurance protection and premium. In addition,
adjustable life is designed to adapt to your changing needs and objectives by
allowing you to change your Policy after issue. The face amount and premium
level, and thus the plan of insurance, may be adjusted by you, subject to the
limitations described herein, so long as the Policy remains in force.
FLEXIBILITY AT ISSUE The Policy offered by this prospectus provides the same
type of flexibility found in conventional adjustable life. Subject to certain
minimums, maximums and our underwriting standards, you may choose any level of
premium or face amount that you wish. This flexibility results in a broad range
of plans of insurance. Generally speaking, a plan, when used with respect to
the Policy, refers to the level of cash value accumulation
13
<PAGE>
assumed in the design of the Policy and, for whole life plans, the period of
coverage over which you will have to pay premiums.
Whole life insurance plans provide life insurance in an amount at least
equal to the initial face amount at the second death whenever that occurs.
Premiums may be payable for a specified number of years or until the second
death. Whole life insurance plans contemplate an eventual tabular cash value
accumulation, at or before the younger insured's age 100, equal to the net
single premium required for that face amount of insurance. The net single
premium for a whole life insurance plan is the amount of money that is
necessary, on any given date, to pay for all future guaranteed cost of
insurance charges for the entire lifetime of both insureds without the payment
of additional premium. This determination assumes that the current face amount
of the Policy will be constant and that the Policy will perform at its assumed
rate of return.
Protection insurance plans provide life insurance in an amount at least
equal to the initial face amount at the second death for a specified period.
Protection plans of
insurance assume an eventual exhaustion of the tabular cash value at the end
of that period, except for the cash value associated with a residual amount of
insurance coverage at the end of the initial protection period. Under this
Policy, after that initial protection period, insurance coverage in a reduced
amount is available until the second death.
The "greater" your plan of insurance, the larger the policy values you may
expect to be available for investment in the Fund Portfolios, loans or partial
surrenders and, for whole life plans of insurance, the shorter the period of
time for which you will have to pay premiums. Under the Policy, the highest
premium amount permitted at the time of issue, or the maximum plan of
insurance, for a specific face amount is one which will provide a fully paid-
up Policy after the payment of ten annual premium payments. A Policy is paid-
up when its policy value is such that no further premiums are required to
provide the face amount of insurance until the second death, provided there is
no policy indebtedness.
Examples of such whole life plans include Policies which become paid-up upon
the payment of a designated number of annual premiums, such as ten pay life or
twenty pay life. If you select a premium level for a specific face amount
which would cause the Policy to become paid-up at other than a policy
anniversary, you will be required to pay scheduled premiums until the policy
anniversary immediately following the date
the Policy is scheduled to become paid-up.
The Policy will be issued with a scheduled increase in face amount to reflect
the fact that
the scheduled premiums were in excess of the premiums required to have a paid-
up Policy for the initial face amount of coverage.
If you select a premium amount which is less than the premium required for a
whole life plan or, in other words, if you select a protection plan of
insurance, the guaranteed face amount of insurance provided by the Policy will
not be level during the lifetimes of both insureds. The initial face amount
will be in effect until the Policy's tabular cash value, i.e., the cash value
which is assumed in designing the Policy and which would be guaranteed in a
conventional fixed-benefit policy, is exhausted. At that time a lower amount
of insurance will become effective. This is called the scheduled reduction in
face amount. The reduced face amount is calculated on the basis of the
continued payment of the scheduled premiums and a whole life plan of
insurance. The result is that the Policy, on issue, will have an initial
guaranteed death benefit extending to a stated date; after that date, a lower
death benefit is guaranteed until the second death.
At the time of scheduled reduction in face amount, we will adjust your
Policy as described in the policy adjustment section of this prospectus. If
the policy value (the actual cash value plus the amount of any loan) is
greater than the tabular cash value, the adjustment will result in either a
smaller reduction in the face amount or a scheduled reduction in face amount
occurring at a later date.
For example, if a standard risk VAL-SD Policy were issued with a face amount
of $1,000,000 and an annual premium of $11,300, the plan of insurance for a
male age 40 and a female age 40 at issue, both nonsmokers, would be full
coverage for twenty years at which time the face amount would be reduced to
$95,615 guaranteed until the second death.
The table below shows the tabular cash values and guaranteed death benefits
for the Policy described in the above example, and the scheduled reduction
which occurs twenty years after issue.
14
<PAGE>
SCHEDULED REDUCTION
<TABLE>
<CAPTION>
GUARANTEED
TABULAR MINIMUM
VALUE DEATH
POLICY ANNUAL END OF BENEFIT AT
YEAR PREMIUM YEAR ISSUE
- ------ ------- ------- ----------
<S> <C> <C> <C>
5 $11,300 $38,443 $1,000,000
10 11,300 80,437 1,000,000
15 11,300 91,878 1,000,000
20 11,300 590 1,000,000
21 11,300 6,289 95,615
25 11,300 26,742 95,615
</TABLE>
At the policy anniversary when the scheduled reduction is to occur, we will
attempt to make a policy adjustment to maintain the face amount of $1,000,000
and the annual premium of $11,300. If the actual cash value with the annual
premium is sufficient to provide at least one year of protection at the then
current face amount, we will adjust your Policy, keeping your face amount and
annual premium constant, either eliminating the scheduled reduction in the
face amount or providing that reduction at a later policy anniversary.
If we cannot make the adjustment to maintain the current face amount, the
scheduled reduction in face amount will occur as scheduled; the resulting face
amount will not be less than that guaranteed.
The lowest annual base premium allowed for any plan of insurance is $600.
Subject to this limitation, the lowest premium you may choose for any specific
amount of life insurance protection is a premium which will provide a level
death benefit for a period which shall be the longer of ten years from the
policy issue date or five years from the date of a policy adjustment. If the
younger insured's age at original issue is over age 70, the minimum plan of
protection will be less than ten years, as described in the table below:
<TABLE>
<CAPTION>
YOUNGER INSURED'S MINIMUM PLAN
ISSUE AGE (IN YEARS)
- ----------------- ------------
<S> <C>
71 9
72 8
73 7
74 6
75 or greater 5
</TABLE>
This is the minimum plan of insurance for any given face amount. The minimum
initial face amount on a Policy is $200,000.
POLICY ADJUSTMENTS
Adjustable life insurance policies allow an owner to change the premium,
face amount or the plan of insurance of the Policy after it is issued. Subject
to the limitations described more fully below, you can at any time change the
face amount of your Policy or your scheduled premium. A change in scheduled
premium or face amount will usually result in a change in the plan of
insurance. Depending upon the change you request, the premium paying period
may be lengthened or shortened for whole life plans or the plan may be
converted from a whole life plan to a protection type plan which provides for
a scheduled reduction in face amount at a future date. For Policies having a
protection type plan, a change in face amount or premium may convert the
Policy to a whole life plan by eliminating the scheduled decrease in face
amount or it may change the time at which the decrease is scheduled to occur.
Changes in premium, face amount or the plan of insurance are referred to as
policy adjustments. They may be made singly or in combination with one
another. There are also four other types of policy adjustments: (1) a partial
surrender of a Policy's cash value; (2) an adjustment so that there are no
further scheduled base premiums; (3) an automatic adjustment at the point when
the face amount is scheduled to decrease; and (4) an automatic adjustment at
the policy anniversary nearest the younger insured's age 70. When a Policy is
adjusted, we compute a new plan of insurance, face amount or premium amount,
if any. If a partial surrender of actual cash value is made, the Policy will
be automatically adjusted to a new face amount which will be equal to the old
face amount less the amount of the partial surrender, unless a different face
amount is requested or required to satisfy the restrictions on adjustability
described below. An adjustment providing for no further scheduled base premium
payments, regardless of whether the Policy is paid-up, is
15
<PAGE>
also referred to as a "stop premium" mode and is described under the caption
"Avoiding Lapse" on page 21 of this prospectus. At the point when the face
amount is scheduled to decrease, an adjustment may be made to maintain the
current face amount and premium of the Policy, as described on page 15.
Certain adjustments may cause a Policy to become a modified endowment
contract. See "Federal Tax Status" in this prospectus on page 34 for a
description of the federal tax treatment of modified endowment contracts.
In computing either a new face amount or new plan of insurance as a result
of an adjustment, we will make the calculation on the basis of the higher of
the Policy's "policy value" or its "tabular cash value" at the time of the
change. The "policy value" is the actual cash value of the Policy plus the
amount of any policy loan, while the "tabular cash value" is what the actual
cash value of the Policy would have been if all scheduled premiums were paid
annually on the premium due date, there were no policy adjustments or policy
loans, any percentage increase in the actual cash value matched the Policy's
assumed rate of return, the net investment experience of the sub-accounts
selected by the owner or the interest credited to the guaranteed principal
account matched the policy's assumed rate of return, the maximum cost of
insurance charges were deducted once at the end of the policy year and other
charges provided for in the Policy were deducted at the maximum amount. See,
for a further description of these values, the sections "Policy Values" and
"Variations in Death Benefit" in this prospectus on pages 22 and 25. If the
policy value is higher than the tabular cash value, a policy adjustment will
translate the excess value into enhanced insurance coverage, as either a
higher face amount or an improved plan of insurance. If the policy value is
less than the tabular cash value, use of the tabular cash value insures that
the Policy's guarantee of a minimum death benefit is not impaired by the
adjustment.
Any adjustment will result in a redetermination of a Policy's tabular cash
value. For a further discussion of the tabular cash value, see the heading
"Variations in Death Benefit" in this prospectus on page 25. After adjustment,
the tabular cash value shall be equal to the greater of the policy value or
the tabular cash value prior to that adjustment, plus any nonrepeating premium
paid at the time of the adjustment and minus the amount of any partial
surrender made at the time of the adjustment.
On adjustment, you may request a new Policy face amount. In the absence of
instructions to the contrary, we will calculate the face amount after
adjustment depending on the Policy's death benefit option and the type of
adjustment. If the Policy has the Cash Option death benefit the new face
amount will be equal to the face amount of the Policy less the amount of any
partial surrender made as part of the adjustment. With the Protection Option
death benefit before age 70, the face amount after adjustment will be equal to
the face amount of the Policy immediately prior to the adjustment. With the
Protection Option death benefit after age 70, the face amount after adjustment
will equal the death benefit immediately prior to the adjustment less the
amount of any partial surrender made as part of the adjustment.
All of these changes may be accomplished under a single Policy. There is no
need to surrender the Policy or purchase a new one simply because of a change
in your insurance needs. Whenever adjustments are made, new policy information
pages will be provided. These pages state the new face amount, scheduled
premium, plan of insurance, attained ages and tabular cash value.
NONREPEATING PREMIUMS The Policy also allows a policy owner to pay a premium
called a nonrepeating premium. This payment of premium is in addition to the
scheduled premium payments called for by the terms of the Policy. While the
payment of a nonrepeating premium does not cause an adjustment to the Policy,
any such payment will be reflected in the tabular cash value of the Policy at
issue or upon any later adjustment. The payment of a nonrepeating premium will
increase the policy values you have available for investment in the Fund. We
may impose additional restrictions or refuse to permit nonrepeating premiums
at our discretion.
RESTRICTIONS OF ADJUSTMENTS Adjustments can be made on any monthly anniversary
of the policy date. You may request a policy adjustment by completing an
application for adjustment. Adjustments will not apply to any additional
benefit agreements which are attached to your Policy. Any adjustment will
16
<PAGE>
be effective on the date that it is approved by us and recorded at our home
office.
An adjustment must satisfy certain limitations on premiums, face amount and
plan. Other limitations on adjustments and combinations of adjustments may
also apply. The current limits on adjustments are those described here. We
reserve the right to change these limitations from time to time.
An adjustment may not result in more than a paid-up whole life plan for the
then current face amount. If either insured is over age 85, increases in face
amount requiring evidence of insurability will not be allowed.
Any adjustment for a change of premium must result in a change of the annual
premium of at least $300. Any adjustment involving an increase in premium may
not result in a whole life plan of insurance requiring the payment of premiums
for less than ten years or to the younger insured's age 100, if less. In
addition, any Policy adjustment, other than a change to a stop premium, must
result in a Policy with an annual base premium of at least $600.
Any adjustment for a change of the face amount must result in a change of
the face amount of at least $50,000, except for a partial surrender under the
Policy or face amount changes which are required to satisfy limitations
pertaining to plans of insurance. The face amount requested must be at least
$200,000, except in the case of a reduction in face amount equal to the amount
of a partial surrender.
After adjustment, other than an automatic adjustment at the point when the
face amount is scheduled to decrease, an automatic adjustment made at the
younger insured's age 70, or adjustment to stop premium, the Policy must
provide a level face amount of insurance to the next policy anniversary after
the later of: (a) five years from the date of adjustment; or (b) ten years
from the date of issue. If the younger insured's age at original issue is over
age 70, the minimum plan of protection will be less than ten years from the
policy issue date, as described on page 14. An automatic adjustment at the
point when the face amount is scheduled to decrease or an adjustment to stop
premium requires that a Policy have an actual cash value at the time of the
adjustment as would be sufficient to keep the Policy in force until the next
policy anniversary.
If you are disabled and receiving, or are entitled to receive, waiver of
premium benefits under a Waiver of Premium Agreement attached to this Policy,
no adjustments will be permitted, except as provided in the Waiver of Premium
Agreement.
PROOF OF INSURABILITY All adjustments resulting in an increase in face amount
require proof of insurability on both insureds, except for increases made
pursuant to an additional benefit agreement. In addition, except for partial
surrenders to pay substandard risk premiums, proof of insurability is required
for partial surrenders where, at the request of the policy owner, no reduction
is made in the Policy's death benefit. Decreases in face amount or premium and
increases in premium not resulting in any increase in death benefit do not
require evidence of insurability. We may require evidence of insurability when
a nonrepeating premium is paid if the death benefit of your Policy increases
as a result of the payment of a nonrepeating premium.
CHARGES IN CONNECTION WITH POLICY ADJUSTMENTS In connection with a policy
adjustment, we will make a special $95 charge to cover the administrative
costs associated with processing the adjustment. If, however, the only policy
adjustment is a partial surrender, the transaction charge shall be the lesser
of $95 or 2 percent of the amount surrendered. In addition, because of the
underwriting and selling expenses anticipated for any change resulting in an
increase in premium, we will assess a new first year sales load on any
increase in premium on adjustment. We will also assess an underwriting charge
on any increase in face amount requiring evidence of insurability. See, for a
further description of these charges, the section "Policy Charges" in this
prospectus on page 28. Limiting the first year sales load and underwriting
charge to the increased premium or face amount is in substance the equivalent
of issuing a new Policy for the increase. A policy adjustment will always be
more favorable than the purchase of a second Policy for the increased amount
since there is no duplication of administrative charges.
17
<PAGE>
The chart below illustrates the kinds of changes that may be made as a
policy adjustment and the effect of each.
IF YOU MAKE THIS IT WILL DO THIS:
KIND OF
ADJUSTMENT,
<TABLE>
<S> <C> <C>
----------------------------------------------------------------------------------------
If
you . . .
Decrease the current then: a scheduled decrease
face amount.......... while the premium remains in the current face amount,
or the same................... if any, will take place at
Retain the current a later policy anniversary; a
face amount.......... while the premium increases scheduled decrease in the face
amount will be eliminated; or the
premium paying period will
be shortened.
----------------------------------------------------------------------------------------
If you . . .
Increase the current then: a scheduled decrease
face amount.......... with no increase in premium in the current face amount,
or if any, will take place at an
Retain the current earlier policy anniversary;
face amount.......... while the premium a scheduled decrease in
or decreases.................. the face amount will occur;
Make a partial or the premium paying
surrender............ while the premium and face period will be
amount remain the same..... lengthened.
----------------------------------------------------------------------------------------
If you . . .
Stop base premium.... while the face amount then: a scheduled decrease
remains the same........... in the current face amount, if
any, will take place at an
earlier policy anniversary and
no insurance will be provided
after the decrease; or, a
scheduled decrease in the face
amount will occur. However, you
must continue to pay the charge
for a sub-standard risk, or
your Policy will lapse.
----------------------------------------------------------------------------------------
</TABLE>
You may request a description of the effect of other types or combinations
of adjustments from us.
18
<PAGE>
APPLICATIONS AND POLICY ISSUE
Persons wishing to purchase a Policy must send a completed application to us
at our home office. The minimum face amount we will issue on a Policy is
$200,000 and we require an annual base premium on each Policy of at least
$600. The minimum plan of insurance at policy issue is a protection plan which
has a level death benefit for a period of ten years. If the younger insured's
age at original issue is over age 70, the minimum plan of protection will be
less than ten years from the Policy issue date, as described on page 14. Both
insureds must be between age 20 and age 85 inclusive when the Policy is
issued. Before issuing any Policy, we require evidence of insurability
satisfactory to us on both insureds. In some cases we will require a medical
examination. Persons whom we evaluate as good mortality risks are offered the
most favorable premium rates, while a higher premium is charged to persons
with a greater mortality risk. Acceptance of an application is subject to our
underwriting rules and we reserve the right to reject an application for any
reason.
If we accept an application, accompanied by a check for all or at least one-
twelfth of the annual premium, the policy date will be the issue date, which
is the date the decision to accept the application and issue the Policy is
made. The policy date will be used to determine subsequent policy
anniversaries and premium due dates.
If we accept an application not accompanied by a check for the initial
premium, a Policy will be issued with a policy date which is 15 days after the
issue date. The 15 day period has been determined to be the normal time during
which delivery of the Policy to the policy owner is expected to occur. We or
our agent must receive the initial premium within 60 days after the issue
date. No life insurance coverage is provided until the initial premium is
paid. If the initial premium is paid after the policy date (and the policy
date is not changed as described below), you will have paid for insurance
coverage during a period when no coverage was in force. Therefore, in such
circumstance you should consider requesting a current policy date, i.e., the
date on which our home office receives the premium. You will be sent updated
policy pages to reflect the change in policy date. This request should be made
at or prior to the time you pay the initial premium.
In certain circumstances it may be to your advantage to have the policy date
be the same as the issue date in order to preserve an issue age on which
premium rates are based. In that case, all premiums due between the issue date
and the date of delivery of the Policy must be paid on delivery.
When the Policy is issued, the face amount, premium, tabular cash values and
a listing of any supplemental agreements are stated on the policy information
pages of the policy form, page 1.
POLICY PREMIUMS
The Policy has a level premium until the second death or until the Policy
becomes paid-up. We guarantee that we will not increase the amount of premiums
for a Policy in force. Subject to the limitations discussed under the heading
"Restrictions on Adjustments" in this prospectus on page 15, you may choose to
adjust the Policy at any time and alter the amount of future premiums.
In addition to scheduled premiums, you may pay a nonrepeating premium. We
may refuse to accept a nonrepeating premium. The maximum nonrepeating premium
we will accept is the amount sufficient to change your Policy to a paid-up
whole life policy for the then current face amount. The minimum nonrepeating
premium is $500. We will waive this minimum amount for nonrepeating premiums
if you make arrangements for the payment of a nonrepeating premium through an
automatic bank check plan and the amount of each such payment under that plan
is an amount of at least $200. We will bill for nonrepeating premiums in
connection with Policies having a minimum base premium of at least $2,400. The
minimum nonrepeating premium in those circumstances remains at $500. We may
impose additional restrictions or refuse to permit nonrepeating premiums at
our discretion.
The payment of a nonrepeating premium may have federal income tax
consequences. See the heading "Federal Tax Status" in this prospectus on page
34.
The amount of premium required for a Policy will depend on the Policy's
initial face amount; the plan of insurance; the insureds' ages at issue; sex,
risk classification and smoking status of each insured and the additional
benefits associated with the Policy.
The first premium is due as of the policy date and must be paid on or before
the date
19
<PAGE>
your Policy is delivered. Between the date we receive an initial premium for
the Policy, either a full first premium or a partial premium, and the date
insurance coverage commences under the Policy, insurance may be in effect
under the terms of a conditional insurance agreement. All scheduled premiums
after the first premium are payable on or before the date they are due and
must be mailed to us at our home office. In some cases, you may elect to have
premiums paid automatically under our automatic bank check plan through pre-
authorized transfers from a bank checking account or such other account as may
be approved by your bank.
Scheduled premiums on the Policy are payable until the second death on an
annual, semi-annual, quarterly or monthly basis on the due dates set forth in
the Policy. For this purpose, a scheduled premium may be paid no earlier than
twenty days prior to the date that it is due. For premiums paid after the due
date, see the paragraph following the heading "Lapse" in this section of the
prospectus.
Charges for additional benefits and for sub-standard risks are deducted from
premiums to calculate base premiums. From base premiums we deduct charges
assessed against premiums and nonrepeating premiums to calculate net premiums.
Net premiums, namely premiums after the deduction of the charges assessed
against premiums and nonrepeating premiums, are allocated to the guaranteed
principal account or sub-accounts of the Variable Life Account which, in turn,
invest in Fund shares.
You make your selection on your application for the Policy. You may change
your allocation instructions for future premiums by giving us a written
request. The allocation to the guaranteed principal account or to any sub-
account of the Variable Life Account must be at least 10 percent of the net
premium. We reserve the right to delay the allocation of net premiums to named
sub-accounts for a period of 30 days after Policy issue or an adjustment. If
we exercise this right, net premiums will be allocated to the Money Market
sub-account until the end of that period. This right, which has not been
implemented to date, will be exercised by us only when we believe economic
conditions make such an allocation necessary to reduce market risk during the
free look period.
We reserve the right to restrict the allocation of premiums to the
guaranteed principal account. If we do so, no more than 50 percent of the net
premium may be allocated to the guaranteed principal account. Currently, we do
not exercise such a restriction, and this restriction is not applicable when
you are allocating all of your premiums to the guaranteed principal account as
a conversion privilege.
PAID-UP POLICIES A Policy is paid-up when no additional premiums are required
to provide the face amount of insurance. We may or may not accept additional
premiums. When a Policy becomes paid-up, the policy value will then equal or
exceed the net single premium needed to purchase an amount of insurance equal
to the face amount of the Policy. However, its actual cash value will continue
to vary daily to reflect the investment experience of the Variable Life
Account and any interest credited as a result of a policy loan. Once a Policy
becomes paid-up, it will always retain its paid-up status regardless of any
subsequent decrease in its policy value. However, on a paid-up Policy with
indebtedness, where the actual cash value decreases to zero, a loan repayment
may be required to keep the Policy in force. See the discussion in this
prospectus under the heading "Policy Loans," below.
We will make a determination on each policy anniversary as to whether a
Policy is paid-up. When a Policy becomes paid-up, we will send you a new page
1.
LAPSE Your Policy may lapse in one of two ways: (1) if a scheduled premium is
not paid; or (2) if there is no actual cash value when there is a policy loan.
As a scheduled premium policy, your Policy will lapse if a premium is not
paid on or before the date it is due or within the 31-day grace period
provided by the Policy. You may pay that premium during the 31-day period
immediately following the premium due date. Your premium payment, however,
must be received in our home office within the 31-day grace period. The
insurance provided by this Policy will continue during this 31-day period. If
the second death occurs during the 31-day grace period, we will deduct a
premium for the 31-day grace period from the death proceeds.
If a Policy covers an insured in a sub-standard risk class, the portion of
the scheduled premium equal to the charge for
20
<PAGE>
such risk will continue to be payable notwithstanding the adjustment to a stop
premium mode. As with any scheduled premium, failure to pay the premium for
the sub-standard risk within the grace period provided will cause the Policy
to lapse.
If scheduled premiums are paid on or before the dates they are due or within
the grace period, absent any policy loans, the Policy will remain in force
even if the investment results of the sub-accounts have been so unfavorable
that the actual cash value has decreased to zero. However, should the actual
cash value decrease to zero while there is an outstanding policy loan the
Policy will lapse, even if the Policy was paid-up and all scheduled premiums
had been paid.
If the Policy lapses because not all scheduled premiums have been paid or if
a Policy with a policy loan has no actual cash value, we will send you a
notice of default that will indicate the payment required to keep the Policy
in force on a premium paying basis. If the payment is not received within 31
days after the date of mailing the notice of default, the Policy will
terminate or the nonforfeiture benefits will apply. For more information on
lapse, see "Avoiding Lapse" on page 21.
If at the time of any lapse a Policy has a surrender value, that is, an
amount remaining after subtracting from the actual cash value all unpaid
policy charges, it will be used to purchase extended term insurance. The
extended term benefit is a fixed life insurance benefit calculated on the 1980
Commissioners Standard Ordinary Mortality Tables with 4 percent interest. As
an alternative to the extended term insurance, you may have the surrender
value paid to you in a single sum payment, thereby terminating the Policy.
Unless you request a single sum payment of your surrender value within 62 days
of the date of the first unpaid premium, we will apply it to purchase extended
term insurance, payable at the second death.
The duration of the extended term benefit is determined by applying the
surrender value of your Policy as of the end of the grace period as a net
single premium to buy fixed benefit term insurance. The extended term benefit
is not provided through the Variable Life Account and the death benefit will
not vary during the extended term insurance period. The amount of this
insurance will be equal to the face amount of your Policy, less the amount of
any policy loans at the date of lapse. During the extended term period a
Policy has a surrender value equal to the reserve for the insurance coverage
for the remaining extended term period. At the end of the extended term period
all insurance provided by your Policy will terminate and the Policy will have
no further value.
You may arrange for automatic premium loans to keep the Policy in force in
the event that a scheduled premium payment is not made. For more information
on this option, please see the heading "Policy Loans" in this prospectus on
page 26.
REINSTATEMENT At any time within three years from the date of lapse you may
ask us to restore your Policy to a premium paying status. We will require:
(1) your written request to reinstate the Policy;
(2) that you submit to us at our home office during the lifetime of both
insureds evidence satisfactory to us of the insurability of both insureds
so that we may have time to act on the evidence during the lifetime of
both insureds; and
(3) at our option a premium payment which is equal to all overdue premiums
with interest at a rate not to exceed 6 percent per annum compounded
annually and any policy loan in effect at the end of the grace period
following the date of default with interest at a rate not exceeding 8
percent per annum compounded annually. At the present time we do not
require the payment of all overdue premiums, or the payment of interest on
reinstated loans.
If your Policy is reinstated, it will be contestable for two years from the
date of reinstatement as to representations contained in your request to
reinstate.
After a lapse and reinstatement, the reinstated Policy may be adjusted. The
standard minimum requirements for adjustments will continue to apply, as
described under the section "Restrictions on Adjustments" in this prospectus
on page 15.
AVOIDING LAPSE If your Policy has sufficient loan value, you can avoid a lapse
due to the failure to pay a scheduled premium by arranging for an automatic
premium loan. The effect of a policy loan on policy values and the
restrictions applicable thereto are
21
<PAGE>
described under the caption "Policy Loans" on page 25 of this prospectus. An
automatic premium loan is particularly advantageous for a policy owner who
contemplates early repayment of the amount loaned, since it permits the policy
owner to restore policy values without additional sales and underwriting
charges. Automatic premium loans for the long term are generally not
advantageous.
You may also avoid a lapse due to the failure to pay a scheduled premium by
adjusting your Policy to a stop premium mode. The greater of your policy value
or tabular cash value will be used to determine a new plan of insurance based
on the greater of the then current face amount or death benefit of the Policy
and the assumption that no further base premiums will be paid. The new plan
may be a term or protection plan, but unlike other term plans there will be no
reduced face amount of coverage at the time the tabular cash value is
scheduled to expire because no further premiums will be payable. If at that
time the Policy has a surrender value, it will be used either to purchase
extended term coverage or it will be paid to you in a single sum thereby
terminating the Policy.
The insurance coverage resulting from an adjustment to a stop premium mode
is similar to the coverage available under the extended term option in that
under both, the coverage is available only for a limited period of time. The
arrangements are, however, fundamentally different. Extended term coverage is
a fixed benefit with fixed cash values providing a longer guaranteed period of
coverage than the same amount applied as a stop premium. The stop premium mode
provides variable insurance with an actual cash value and, under the
Protection Option, a death benefit that will vary to reflect any investment
experience of selected sub-accounts and the deduction of smaller cost of
insurance charges than the maximum charges derived from the 1980 CSO mortality
tables. Because the actual cash value continues to exist, policy charges
assessed to the actual cash value will continue to be made while the Policy is
on stop premium. For example, if a Policy covers an insured in a sub-standard
risk class, the portion of the scheduled premium equal to the charge for such
risk will continue to be payable.
There are also other differences which should be considered. In general, if
you contemplate resuming premium payments at a future date, the stop premium
mode may be more desirable in that you may resume premium payments at any time
without evidence of insurability, while the reinstatement option available
during the extended term period requires proof of insurability and must be
exercised within three years following the date of lapse.
If you do not contemplate resuming premium payments, your choice between
permitting your Policy to lapse and adjusting it to a stop premium mode should
depend on, first, whether the surrender value of your Policy at that time
exceeds its tabular cash value and, second, whether you expect your Policy's
policy value to exceed its tabular cash value in the future. If at the time of
possible lapse your Policy's surrender value is less than its tabular cash
value, you should consider adjusting to a stop premium mode because the period
of insurance coverage will be based on the higher tabular cash value while the
period of extended term coverage upon lapse would be computed on the basis of
the lower surrender value. If the two values are the same, the period of
guaranteed coverage under the extended term option will be longer than under
the stop premium mode. Thus, you should be sure that the benefit of using the
higher tabular cash value is not offset by the shorter period of guaranteed
insurance coverage usually resulting from the stop premium mode.
On the other hand, if the surrender value of your Policy exceeds its tabular
cash value, you should evaluate the benefit of a guaranteed longer period of
insurance coverage under the extended term option against the possibility of
longer coverage under the stop premium mode. With the stop premium mode there
may be an available policy value at the end of the plan which could be used to
continue the face amount of the Policy to a later time than provided under the
extended term option. In considering this possibility, you should keep in mind
that a Policy with the Cash Option death benefit is more likely to have a
higher policy value than a comparable Policy with the Protection Option death
benefit.
POLICY VALUES
The Policy has an actual cash value which varies with the investment
experience of the guaranteed principal account and the sub-accounts of the
Variable Life Account.
22
<PAGE>
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 cash
value, the face amount and the death benefit as of the date of the report. It
will also summarize Policy transactions during the year. It will be as of a
date within two months of its mailing.
The guaranteed principal account actual cash value is the sum of all net
premium payments allocated to the guaranteed principal account. This amount
will be increased by any interest, dividends, loan repayments, policy loan
interest credits and transfers into the guaranteed principal account. This
amount will be reduced by any policy loans, unpaid policy loan interest,
partial surrenders, transfers into the sub-accounts of the Variable Life
Account and charges assessed against your guaranteed principal account actual
cash value. Interest is credited on the guaranteed principal account actual
cash value of your Policy. Interest is credited daily at a rate of not less
than 4 percent per year, compounded annually. We guarantee this minimum rate
for the life of the Policy without regard to the actual experience of the
general account. As conditions permit, we will credit additional amounts of
interest to the guaranteed principal account actual cash value. Your
guaranteed principal account actual cash value is guaranteed by us. It cannot
be reduced by any investment experience of the general account.
The portion of a Policy's separate account actual cash value is determined
separately. The separate account actual cash value is not guaranteed. The
determination of the separate account actual cash value is made by multiplying
the current number of sub-account units credited to a Policy by the current
sub-account unit value. A unit is a measure of your Policy's interest in a
sub- account. The number of units credited with respect to each net premium
payment is determined by dividing the portion of the net premium payment
allocated to each sub-account by the then current unit value for that sub-
account. The number of units so credited is determined as of the end of the
valuation period during which we receive your premium at our home office.
Once determined, the number of units credited to your Policy will not be
affected by changes in the unit value. However, the number will be increased
by the allocation of subsequent net premiums, nonrepeating premiums,
dividends, loan repayments, loan interest credits and transfers to that sub-
account. The number of units of each sub-account credited to your Policy will
be decreased by policy charges to the sub-account, policy loans and loan
interest, transfers from that sub-account and partial surrenders from that
sub-account. Such number of sub-account units will decrease to zero on a
policy surrender, the purchase of extended term insurance or termination.
The unit value of a sub-account will be determined on each valuation date.
The amount of any increase or decrease will depend on the net investment
experience of that sub-account. The value of a unit for each sub-account was
originally set at $1.00 on the first valuation date. For any subsequent
valuation date, its value is equal to its value on the preceding valuation
date multiplied by the net investment factor for that sub-account for the
valuation period ending on the subsequent valuation date.
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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
Funds 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 Funds are valued. The net asset value of the Funds'
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 Funds' portfolio securities will not materially affect the current net
asset value of the Funds' shares, (ii) days during which no Funds' shares are
tendered for redemption and no order to purchase or sell the Funds' shares is
received by the Funds and (iii) customary national business holidays on which
the New York Stock Exchange is closed for trading (as of the date hereof, New
Year's Day, Presidents' Day, Good Friday, Memorial Day, Independence Day, Labor
Day, Thanksgiving Day and Christmas Day).
Although the actual cash value for each Policy is determinable on a daily
basis, we update our records to reflect that value on each monthly anniversary.
We also make policy value determinations on the date of the second death and on
a policy adjustment, surrender, and lapse. When the policy value is determined,
we will assess and update to the date of the transaction those charges made
against your actual cash value, namely the administration charge not to exceed
$15 per month, the face amount guarantee charge not to exceed 3 cents per
thousand of face amount per month, and the cost of insurance charge. Increases
or decreases in policy values will not be uniform for all Policies but will be
affected by policy transaction activity, cost of insurance charges and the
existence of policy loans.
To illustrate the operation of the Policy under various assumptions, we have
prepared several tables, along with additional explanatory text, that may be of
assistance. For these tables, please see Appendix I, "Illustrations of Policy
Values, Death Benefits and Premiums," found on page 80 of this prospectus. For
additional materials and tables, including values after policy charges, please
see Appendix II, "Summary of Policy Charges," found on page 86 of this
prospectus.
TRANSFERS The Policy allows for transfers of the actual cash value between the
guaranteed principal account and the Variable Life Account or among the sub-
accounts of the Variable Life Account. You may request a transfer at any time
or you may arrange in advance for systematic transfers: transfers of specified
dollar or unit value amounts to be made periodically among the sub-accounts and
the guaranteed principal account. The amount to be transferred to or from a
sub-account or the guaranteed principal account must be at least $250. If the
balance is less than $250, the entire actual cash value attributable to that
sub-account or the guaranteed principal account must be transferred. If a
transfer would reduce the actual cash value in the sub-account from which the
transfer is to be made to less than $250, we reserve the right to include that
remaining sub-account actual cash value in the amount transferred. We will make
the transfer on the basis of sub-account unit values as of the end of the
valuation period during which your written or telephone request is received at
our home office. A transfer is subject to a transaction charge, not to exceed
$25, for each transfer of actual cash value among the sub-accounts and the
guaranteed principal account. Currently, there is a charge of $10 only for non-
systematic transfers in excess of four per year. Establishing a systematic
transfer program will be deemed to be a non-systematic
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transfer for purposes of determining the transfer charge. None of these
requirements will apply when you are transferring all of the policy value to
the guaranteed principal account as a conversion privilege.
Your instructions for transfer may be made in writing by you, or a person
authorized by you, may make such changes by telephone. To do so, you may call
us at 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 until July 1, 1998; after
that date the number will be (651) 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 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.
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 you choose. At no time will the death
benefit be less than the larger of the then current face amount or the amount
of insurance that could be purchased using the policy value as a net single
premium.
CASH OPTION Under the Cash Option, the death benefit will be the current face
amount at the time of the second death. The death benefit will not vary unless
the policy value exceeds the net single premium for the then current face
amount.
At that time, the death benefit will be the greater of the face amount of
the Policy or the amount of insurance which could be purchased at the date of
the second death by using the policy value as a net single premium.
PROTECTION OPTION The death benefit provided by the Protection Option will
vary with the investment experience of the allocation options you select, 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.
Before the policy anniversary nearest the younger insured's age 70, and with
both the Protection Option and the Amended
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Protection Option, if you have chosen that Option, 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.
At the policy anniversary nearest the younger insured's age 70, we will
automatically adjust the face amount of your Policy to equal the death benefit
immediately preceding the adjustment. The Protection Option is only available
until the policy anniversary nearest the younger insured's age 70; at that
time we will convert the death benefit option to the Cash Option. With the
Amended Protection Option, after the policy anniversary nearest the younger
insured's age 70, 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 second 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.
CHOOSING THE DEATH BENEFIT OPTION The different death benefit options meet
different needs and objectives. 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. The Protection Option results primarily in an increased death
benefit. In addition, there are other distinctions between the two options
which may influence your selection. In the event of a superior investment
performance, the Cash Option will result in a Policy becoming paid-up more
rapidly than the Protection Option. This is because of larger cost of
insurance charges under the Protection Option resulting from the additional
amount of death benefit provided under that option. But under the Cash Option
favorable investment experience does not increase the death benefit unless the
policy value exceeds the net single premium for the then current face amount,
and the beneficiary will not benefit from any larger actual cash value which
exists at the time of the second death because of the favorable investment
experience.
You may elect to have the death benefit option changed while the Policy is
in force by filing a written request with us at our home office. We may
require that you provide us with satisfactory evidence of the insurability of
both insureds before we make a change to the Protection Option. The change
will take effect when we approve and record it in our home office. A change in
death benefit option may have federal income tax consequences. See the heading
"Federal Tax Status" in this prospectus on page 35.
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 92 of this prospectus.
POLICY LOANS
You may borrow from us using only your Policy as the security for the loan.
The total amount of your loan may not exceed 90 percent of your policy value.
A loan taken from, or secured by a Policy, may have federal income tax
consequences. See the heading "Federal Tax Status" in this prospectus on page
35.
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 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. 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
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valuation period during which we receive your loan request at our home office.
This amount shall be transferred to the loan account. The loan account
continues to be part of the Policy in the general account. A policy loan has
no immediate effect on policy value since at the time of the loan the policy
value is the sum of your actual cash value and any policy loan.
The actual cash value of your Policy may decrease between premium due dates.
If your Policy has indebtedness and no actual cash value, the Policy will
lapse. In this event, to keep your Policy in force, you will have to make a
loan repayment. We will give you notice of our intent to terminate the Policy
and the loan repayment required to keep it in force. The time for repayment
will be within 31 days after our mailing of the notice.
POLICY LOAN INTEREST The interest rate on a policy loan will not be more than
the rate shown on page 1 of your Policy. The interest rate charged on a policy
loan will not be more than that permitted in the state in which the Policy is
delivered.
Policy loan interest is due on the date of the second death, on a policy
adjustment, surrender, lapse, a policy loan transaction and on each policy
anniversary. If you do not pay the interest on your loan in cash, your policy
loan will be increased and your actual cash value will be reduced by the
amount of the unpaid interest. The new loan will be subject to the same rate
of interest as the loan in effect.
Interest is also credited to your Policy when there is a policy loan.
Interest credits on a policy loan shall be at a rate which is not less than
your policy loan interest rate minus 2 percent per annum. Policy loan interest
credits are allocated to your actual cash value as of the date of the second
death, on a policy adjustment, surrender, lapse, a policy loan transaction and
on each policy anniversary. Interest credits are allocated to the guaranteed
principal account and separate account following your instructions to us. We
will use your instructions for the allocation of net premiums. In the absence
of such instructions, this amount will be allocated to the guaranteed
principal account actual cash value and separate account actual cash value in
the same proportion that those values bear to each other and, as to the actual
cash value in the separate account, to each sub-account in the proportion that
the actual cash value in such sub-account bears to your actual cash value in
all of the sub-accounts.
Currently, the loan account credits interest, as described above, at a rate
which is not less than your policy loan interest rate minus 2 percent per
annum. However, depending on the insured's age and the period of time that the
Policy has been in force, we may credit the Policy with interest at a more
favorable rate. Under our current procedures, if all the conditions are met
then your loan will be credited at a rate which is equal to the policy loan
rate minus .75 percent per annum. The conditions which must be met are: (a)
the age of either insured must be age 55 or older as of the last policy
anniversary; and (b) the number of years during which the Policy has been in
force as a VAL-SD Policy, must be greater than or equal to 10.
Policy loans may also be used as automatic premium loans to keep your Policy
in force. If you asked for this service in your application, or if you write
us and ask for this service after your Policy has been issued, we will make
automatic premium loans. You can also write to us at any time and tell us you
do not want this service. If you have this service and you have not paid the
premium that is due before the end of the grace period, we will make a policy
loan to pay the premium. Interest on such a policy loan is charged from the
date the premium was due. However, in order for an automatic premium loan to
occur, the amount available for a loan must be enough to pay at least a
quarterly premium. If the loan value is not enough to pay at least a quarterly
premium, your Policy will lapse.
POLICY LOAN REPAYMENTS If your Policy is in force, your loan can be repaid in
part or in full at any time before the second death. Your loan may also be
repaid within 60 days after the date of the second death, if we have not paid
any of the benefits under the Policy. Any loan repayment must be at least $100
unless the balance due is less than $100. When implemented, we will waive this
minimum loan repayment provision for loan repayments made under our automatic
payment plan where loan repayments are in an amount of at least $25.
Loan repayments are allocated to the guaranteed principal account until all
loans from the guaranteed principal account have been repaid, thereafter, loan
repayments are
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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 92.
SURRENDER
You may request a surrender or partial surrender of your Policy at any time
while either insured is living. On surrender, the surrender value of the
Policy is the actual cash value minus unpaid policy charges which are assessed
against actual cash value. The determination of the surrender value is made as
of the end of the valuation period during which we receive your surrender
request at our home office. You may surrender the Policy by sending us the
Policy and a written request for its surrender. You may request that the
surrender value be paid to you in cash or, as an alternative, you may request
that the surrender value be applied on a settlement option or to provide
extended term insurance.
A partial surrender of the actual cash value of the Policy is also permitted
in any amount of $500 or more. In addition, the amount of a partial surrender
may not exceed the amount available as a policy loan.
With the Cash Option death benefit, if the Policy is not paid-up, the face
amount of the Policy will be reduced by the amount of the partial surrender.
If the Policy is paid-up, the death benefit is reduced so as to retain the
same ratio between the policy value and the death benefit of the Policy as
existed prior to the partial surrender.
With the Protection Option death benefit, the face amount of the Policy is
not changed by the amount of the partial surrender. However, if the Policy is
not paid-up, the death benefit of the Policy is reduced by the amount of the
partial surrender; if the Policy is paid-up, the death benefit of the Policy
is reduced so as to retain the ratio between the policy value and the death
benefit of the Policy as existed prior to the partial surrender.
We are currently waiving these restrictions requiring a minimum amount for a
partial surrender where a partial withdrawal from a Policy, which is on stop
premium, is being used to pay premiums for sub-standard risks or premiums on
any benefits and riders issued as part of the Policy. Transaction fees
otherwise applicable to such a partial surrender are also waived.
On a partial surrender, you may tell us which Variable Life Account sub-
accounts from which a partial surrender is to be taken or whether it is to be
taken in whole or in part 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
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check, we will delay mailing that portion of the surrender proceeds until we
have reasonable assurance that the payment has cleared and that good payment
has been collected. The amount you receive on surrender may be more or less
than the total premiums paid to your Policy.
FREE LOOK
It is important to us that you are satisfied with this Policy after it is
issued. If you are not satisfied with it, you may return the Policy to us or
your agent by the later of: (a) ten days after you receive it; (b) 45 days
after you have signed the application; or (c) ten days after we mail to you a
notice of your right of withdrawal. If you return the Policy, you will receive
within seven days of the date we receive your notice of cancellation a full
refund of the premiums you have paid.
If the Policy is adjusted, as described under the heading "Policy
Adjustments" in this prospectus on page 14, and if the adjustment results in
an increased premium, you will again have a right to examine the Policy and
you may return the Policy within the time periods stated in the immediately
preceding paragraph. If you return the Policy, the requested premium
adjustment will be cancelled. You will receive a refund of the additional
premiums paid within seven days of the date we receive your notice of
cancellation for that adjustment.
CONVERSION
As a conversion privilege, you can obtain fixed insurance coverage by
transferring all of the policy value to the guaranteed principal account and
thereafter allocating all premiums to that account.
POLICY EXCHANGE
So long as both insureds are alive, you may ask us to exchange this Policy
for two individual policies, insuring each of the insureds separately. We will
require evidence of insurability to make the exchange. The two new policies
will be issued on the variable or fixed policy form we are using on the date
of the exchange; each new policy will have one-half the death benefit, cash
value, loan and dividends of this Policy.
POLICY CHARGES
PREMIUM CHARGES Premium charges vary depending on whether the premium is a
scheduled premium or a nonrepeating premium. Generally, the word "premium"
when used in this prospectus means a scheduled premium only. Charges for sub-
standard risks and for additional benefits are deducted from the premium, to
calculate the base premium.
From base premiums we deduct a sales load, an underwriting charge, a premium
tax charge and a federal tax charge.
(1) The SALES LOAD consists of a deduction from each premium of 7 percent and
it may also include a first year sales load deduction not to exceed 23
percent. The first year sales load will apply only to base premiums,
scheduled to be paid in the twelve month period following either the
policy date, or any policy adjustment involving an increase in base
premium or any policy adjustment occurring during a period when a first
year sales load is being assessed. It will also apply only to that portion
of an annual base premium necessary for an original issue whole life plan
of insurance. In other words, for base premiums greater than this whole
life premium, the amount of the base premium in excess of such whole life
base premium will be subject only to the 7 percent basic sales load.
Only adjustments that involve an increase in base premium will result in
additional first year sales load being assessed on that increase in
premium. If 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
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number of months remaining in the previous 12 month period divided by 12.
This amount of first year sales load will then be collected during the 12
month period following the adjustment.
All of the sales load charges are designed to average not more than 9
percent of the base premiums over the lesser of: the joint life expectancy
of the insureds at policy issue or adjustment; or 15 years from the policy
issue or adjustment; or the premium paying period. Compliance with the 9
percent ceiling will be achieved by reducing the amount of the first year
sales load, if necessary. For examples of how we compute sales load charges,
see the heading "Examples of Sales Load Computations" in this prospectus on
page 32.
The sales load is designed to compensate us for distribution expenses
incurred with respect to the Policies. The amount of the sales load in any
policy year cannot be specifically related to sales expenses for that year.
To the extent that sales expenses are not recovered from the sales load, we
will recover them from our other assets or surplus including profits from
mortality and expense risk charges.
(2) The UNDERWRITING CHARGE currently is an amount not to exceed $10 per
$1,000 of face amount of insurance. This amount may vary by the age of the
insureds and the premium level for a given amount of insurance. This
charge is made ratably from premiums scheduled to be made during the first
policy year and during the twelve months following certain policy
adjustments. The underwriting charge is designed to compensate us for the
administrative costs associated with issuance or adjustment of the
Policies, including the cost of processing applications, conducting
medical exams, classifying risks, determining insurability and risk class
and establishing policy records. This charge is not guaranteed, so that on
a policy adjustment the then current underwriting charge will apply to any
increase in face amount which requires new evidence of insurability. In
the event of a policy adjustment which results in a face amount increase
and no base premium, you must then remit the then current underwriting
charge to us prior to the effective date of the adjustment or we will
assess the charge against your actual cash value as a transaction charge
on adjustment.
(3) The PREMIUM TAX CHARGE of 2.5 percent is deducted from each base premium.
This charge is designed to cover the aggregate premium taxes we pay to
state and local governments for this class of policies. This charge is not
guaranteed and may be increased in the future, but only as necessary to
cover our premium tax expenses.
(4) The FEDERAL TAX CHARGE of 1.25 percent is deducted from each base premium.
This charge is designed to cover a federal tax related to premium
payments. This charge is not guaranteed and may be increased in the
future, but only as necessary to cover the federal tax related to premium
payments.
CHARGES TAKEN FROM
BASE PREMIUM PLUS, IN THE FIRST YEAR
- -------------- -----------------------
7.00% Sales Load AdditionalSales
1.25% Federal Tax Load (up to 23%)
2.50% Premium Tax Underwriting Charge
- -------------- (up to $10/$1000
10.75% Total of Insurance
Coverage)
NONREPEATING PREMIUMS Nonrepeating premiums are currently subject to the 2.5
percent premium tax charge and the 1.25 percent federal tax charge, but not to
a sales load charge. No underwriting charge is assessed against nonrepeating
premiums.
ACTUAL CASH VALUE CHARGES In addition to deductions from premiums and
nonrepeating premiums, we assess from the actual cash value of a Policy an
administration charge, the face amount guarantee charge, certain transaction
charges and the cost of insurance charge. These charges are as follows:
(1) The ADMINISTRATION CHARGE is designed to cover certain of our
administrative expenses, including those attributable to the records
maintained for your Policy. The administration charge is guaranteed not to
exceed $15 per month. Currently we charge $10 per month.
(2) The FACE AMOUNT GUARANTEE CHARGE is guaranteed not to exceed 3 cents per
thousand dollars of face amount per month. Currently we charge 2 cents per
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thousand dollars. This charge is designed to compensate us for our
guarantee that the death benefit will always be at least equal to the
current face amount in effect at the time of the second death regardless of
the investment performance of the sub-accounts in which net premiums have
been invested. The face amount of a Policy at issue or adjustment and the
appropriate premium therefor reflect a "tabular cash value" (defined on
page 14 above) based upon an assumed annual rate of return of 4 percent. If
the policy value is less than the tabular cash value at the time of the
second death, it will not be sufficient to support the face amount of the
Policy under the actuarial assumptions made in designing the Policy. The
face amount guarantee is a guarantee that the face amount will be available
as a death benefit notwithstanding the failure of the Policy to perform in
accordance with the assumptions made in its design. Thus, even if the
policy value should be less than the amount needed to pay the deductions to
be made from the actual cash value on the next monthly policy anniversary,
see discussion below, the Policy's guaranteed death benefit will remain in
effect and the Policy will remain in force.
(3) The COST OF INSURANCE CHARGE compensates us for providing the death
benefit under a Policy. The charge is calculated by multiplying the net
amount at risk under your Policy by a rate which is based on the age,
gender, risk class, and the smoking habits of each insured. The rate also
reflects the plan of insurance and any policy adjustments since issue. The
rate is guaranteed not to exceed the maximum charges for mortality derived
from the 1980 Commissioners Standard Ordinary Mortality Tables. The net
amount at risk is the death benefit under your Policy less your policy
value. Where circumstances require, we will base our rates on "unisex,"
rather than sex-based, mortality tables.
(4) The TRANSACTION CHARGES are for expenses associated with processing
transactions. There is a charge of $95 for each policy adjustment. We also
reserve the right to make a charge, not to exceed $25, for each transfer
of actual cash value among the guaranteed principal account and the sub-
accounts of the Variable Life Account. Currently we charge $10 only for
non-systematic transfers in excess of four per year. Establishing a
systematic transfer program will be deemed to be a non-systematic transfer
for purposes of determining the transfer charge. If the only policy
adjustment is a partial surrender, the transaction charge shall be the
lesser of $95 or 2 percent of the amount surrendered.
Administration, face amount guarantee and cost of insurance charges are
assessed against your actual cash value on the monthly policy anniversary. In
addition, such charges are assessed on the occurrence of the second death,
policy surrender, lapse or a policy adjustment. Transaction charges are
assessed against your actual cash value at the time of a policy adjustment or
when a transfer is made. In the case of a transfer, the charge is assessed
against the amount transferred. Charges will be assessed against your
guaranteed principal account actual cash value and separate account actual
cash value in the same proportion that those values bear to each other and, as
to the actual cash value in the separate account, from each sub-account in the
proportion that the actual cash value in such sub-account bears to your actual
cash value in all of the sub-accounts.
CHARGES TAKEN FROM ACTUAL CASH VALUE
.Administration Charge
.Face Amount Guarantee Charge
.Cost of Insurance Charge
.Transaction Charge
SEPARATE ACCOUNT CHARGES We assess a mortality and expense risk charge
directly against the assets held in the Variable Life Account. The mortality
and expense risk charge compensates us for assuming the risks that cost of
insurance charges will be insufficient to cover actual mortality experience
and that the other charges will not cover our expenses in connection with the
Policy. The mortality and expense risk charge is deducted from Variable Life
Account assets on each valuation date at an annual rate of .50 percent of the
average daily net assets of the Variable Life Account.
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We reserve the right to charge or make provision for any taxes payable by us
with respect to the Variable Life Account or the Policies by a charge or
adjustment to such assets. No such charge or provision is made at the present
time.
CHARGES TAKEN FROM SEPARATE ACCOUNT
..50% Mortality and Expense Risk Charge
EXAMPLES OF SALES LOAD COMPUTATIONS As noted previously, all sales load
charges are designed to average not more than 9 percent of base premiums over
the lesser of: the joint life expectancy of the insureds at policy issue or
adjustment, or 15 years from the policy issue or adjustment; or the premium
paying period. A number of examples of sales load computations are included in
Appendix V, "Example of Sales Load Computation," in this prospectus on page
96.
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
premium should be avoided.
POLICIES ISSUED IN EXCHANGE Certain charges assessed against base premiums as
described above will be waived or modified in situations where policy owners
of existing Minnesota Mutual joint life policies wish to exchange their
policies for the Policies described herein. These policy owners may do so,
subject to their application for this Policy and our approval of the exchange.
An administrative charge of $250 is currently required for the exchange.
In those situations where a Policy is issued in exchange for a current
policy issued by us, we will not assess any charges, except for the
administrative charge, to the existing cash values at the time they are
transferred to the Policy. Subsequent premium payments, absent adjustment and
unless the exchanged policy was not in force for at least one year, will not
be subject to a first year sales load or underwriting charge at the
established face amount and the level of premiums of the exchanged policy. All
other charges will apply to the Policy and premiums paid under it thereafter.
OTHER POLICY PROVISIONS
ADDITIONAL BENEFITS When a Policy is issued, you may be able to obtain
additional policy benefits. These benefits will be provided by a rider to the
Policy, which will require the payment of additional premium. The Waiver of
Premium Agreement provides for the payment of policy premium in the event of a
covered insured's disability. You may add the Waiver of Premium coverage on
either or both insureds.
The Single Life Term Insurance Agreement, which has an extra cost, allows
you to purchase a specified amount of additional insurance, on one, specific,
named insured. The insurance provided is term insurance, renewable to age 90
and convertible to any whole life or adjustable life policy form we are then
offering. The premiums are indeterminate, which means that there is a table of
renewal premiums that we currently charge, along with a table of guaranteed
renewal premiums which are the maximums which we can charge. This agreement is
most useful in situations where there is also a need at the death of the first
insured.
The Estate Preservation Agreement permits you to purchase additional four-
year term insurance on the death of the designated insured, without evidence
of insurability. This right extends for a period of 90 days after the death of
that person. Typically, the person you designate will be the younger of the
two persons insured under this Policy. In the event that both insureds under
this Policy die simultaneously, we will pay nothing under this Agreement. The
Estate Preservation Agreement is useful if there is a need to have the Policy
owned initially by one or both of the insureds and subsequently to change the
ownership to a trust.
The Short Term Agreement is temporary protection insurance, on a fixed death
benefit basis only, issued for a period of time less than a year. It is issued
to provide temporary life insurance coverage until the later issue date of the
Policy. It may be used in situations where specific policy dating is required,
yet insurance coverage is needed immediately. The Short Term Agreement
terminates on the policy issue date of the Policy.
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BENEFICIARY When we receive proof satisfactory to us of the second death, we
will pay the death proceeds of a Policy to the beneficiary or beneficiaries
named in the application for the Policy unless the owner has changed the
beneficiary. In that event, we will pay the death proceeds to the beneficiary
named in the last change of beneficiary request as provided below. You must
give us proof of the first death as soon as is reasonably possible, even
though no death benefit is payable at the first death.
If a beneficiary dies before the second death, that beneficiary's interest
in the Policy ends with that beneficiary's death. Only those beneficiaries who
are living at the second death will be eligible to share in the death
proceeds. If no beneficiary is living at the second death we will pay the
death proceeds of this Policy to the owner, if living, otherwise to the
owner's estate, or, if the owner is a corporation, to it or its successor.
If both insureds die under circumstances which make it impossible to
determine the order of their deaths, we will assume that the older insured
died first.
You may change the beneficiary designated to receive the proceeds. If you
have reserved the right to change the beneficiary, you can file a written
request with us to change the beneficiary. If you have not reserved the right
to change the beneficiary, the written consent of the irrevocable beneficiary
will be required.
Your written request will not be effective until it is recorded in our home
office. After it has been so recorded, it will take effect as of the date you
signed the request. However, if the second death occurs before the request has
been so recorded, the request will not be effective as to those death proceeds
we have paid before your request was recorded in our home office records.
PAYMENT OF PROCEEDS The amount payable as death proceeds upon the second death
will be the death benefit provided by the Policy, plus any additional
insurance provided by an additional benefit agreement, if any, minus any
policy charges and minus any policy loans. In addition, if the Cash Option
death benefit is in effect at the second death, we will pay to the beneficiary
any part of a paid premium that covers the period from the end of the policy
month in which the second death occurred to the date to which premiums are
paid. Normally, we will pay any policy proceeds within seven days after our
receipt of all the documents required for such a payment. Other than the death
proceeds, which are determined as of the date of the second death, the amount
of payment will be determined as of the end of the valuation period during
which a request is received at our home office.
We reserve the right to defer policy payments, including policy loans, for
up to six months from the date of your request, if such payments are based
upon policy values which do not depend on the investment performance of the
Variable Life Account. In that case, if we postpone a payment other than a
policy loan payment for more than 31 days, we will pay you interest at 3
percent per annum for the period beyond that time that payment is postponed.
For payments based on policy values which do depend on the investment
performance of the Variable Life Account, we may defer payment only: (a) for
any period during which the New York Stock Exchange is closed for trading
(except for normal holiday closing); or (b) when the Securities and Exchange
Commission has determined that a state of emergency exists which may make such
payment impractical.
SETTLEMENT OPTIONS The proceeds of a Policy will be payable if the Policy is
surrendered, or we receive proof satisfactory to us of the second death. These
events must occur while the Policy is in force. The proceeds will be paid at
our home office and in a single sum unless a settlement option has been
selected. We will deduct any indebtedness and unpaid charges from the
proceeds. Proof of any claim under this Policy must be submitted in writing to
our home office.
We will pay interest on single sum death proceeds from the date of the
second death until the date of payment. Interest will be at an annual rate
determined by us, but never less than 3 percent.
The proceeds of a Policy may be paid in other than a single sum and you may,
before the second death, request that we pay the proceeds under one of the
Policy's settlement options. We may also use any other method of payment that
is agreeable between you and us. A settlement option may be selected only if
the payments are to be made to a natural person in that person's own right.
Each settlement option is payable in fixed amounts as described below. The
payments do not vary with the investment performance of the Variable Life
Account.
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OPTION 1--INTEREST PAYMENTS
This is an annuity based upon the payment of interest on the proceeds at
such times and for a period that is agreeable to you and us. Withdrawals of
proceeds may be made in amounts of at least $500. At the end of the period,
any remaining proceeds will be paid in either a single sum or under any other
method we approve.
OPTION 2--PAYMENTS FOR A SPECIFIED PERIOD
This is an annuity payable for a specified number of years. The amount of
guaranteed payments for each $1,000 of proceeds applied is as shown in the
Policy. Monthly payments for periods not shown and current rates are available
from us at your request.
OPTION 3--LIFE INCOME
This is an annuity payable monthly during the lifetime of the person who is
to receive the income and terminating with the last monthly payment
immediately preceding that person's death. We may require proof of the gender
and sex of the annuitant. The amount of guaranteed payments for each $1,000 of
proceeds applied is as shown in the Policy. Monthly payments for ages not
shown and current rates are available from us at your request. It would be
possible under this option for the annuitant to receive only one annuity
payment if he died prior to the due date of the second annuity payment, two if
he died before the due date of the third annuity payment, etc.
OPTION 4--PAYMENTS OF A SPECIFIED AMOUNT
This is an annuity payable in a specified amount until the proceeds and
interest are fully paid.
If you request a settlement option, you will be asked to sign an agreement
covering the election which will state the terms and conditions of the
payments. Unless you elect otherwise, a beneficiary may select a settlement
option after the second death.
The minimum amount of interest we will pay under any settlement option is 3
percent per annum. Additional interest earnings, if any, on deposits under a
settlement option will be payable as determined by us.
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.
MISSTATEMENT OF AGE If the date of birth of either insured has been misstated,
the amount of proceeds payable under the Policy will be adjusted to reflect
cost of insurance charges based upon the insured's correct date of birth.
INCONTESTABILITY After a Policy has been in force during the lifetimes of both
insureds for two years from the original policy date, we cannot contest the
Policy, except for fraud or for nonpayment of premium. However, if there has
been a face amount increase or a reinstatement for which we required evidence
of insurability, that increase or the reinstatement will be contestable for
two years with respect to information provided at that time, during the
lifetimes of both insureds, from the effective date of the increase or the
reinstatement.
SUICIDE If either insured, whether sane or insane, dies by suicide, within two
years of the original policy date, our liability will be limited to an amount
equal to the premiums paid for the Policy. If there has been a face amount
increase for which we required evidence of insurability, and if either insured
dies by suicide within two years from the effective date of the increase, our
liability with respect to the increase will be limited to an amount equal to
the premiums paid for such increase.
DIVIDENDS The Policies are participating policies. Each year we will determine
if this class of Policies and your Policy will share in our divisible surplus.
We call your share of this participation a dividend. We do not anticipate that
dividends will be declared with respect to these Policies.
Dividends, if received, may be added to your actual cash value or, if you so
elect, they may be paid in cash.
A dividend applied to actual cash value will be allocated to the guaranteed
principal account or to the sub-accounts of the separate account in accordance
with your instructions for new premiums. In the absence of instruction,
dividends will be allocated to the guaranteed principal account actual cash
value and separate account actual cash value in the same proportion that those
actual cash values bear to each other
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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 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.
OTHER MATTERS
FEDERAL TAX STATUS
INTRODUCTION
The discussion contained herein is general in nature and is not intended as
tax advice. Each person concerned should consult a competent tax adviser. No
attempt is made to consider any applicable state or other tax laws. In
addition, this discussion is based on our understanding of federal income tax
laws as they are currently interpreted. No representation is made regarding the
likelihood of continuation of current income tax laws or the current
interpretations of the Internal Revenue Service.
We are taxed as a "life insurance company" under the Internal Revenue Code.
The operations of the Variable Life Account form a part of, and are taxed with,
our other business activities. Currently, we pay no federal income tax on
income dividends received by the Variable Life Account or on capital gains
arising from the Variable Life Account's activities. The Variable Life Account
is not taxed as a "regulated investment company" under the Code and it does not
anticipate any change in that tax status.
In order to qualify as a life insurance contract for federal tax purposes,
the Policy must meet the definition of a life insurance contract which is set
forth in Section 7702 of the Internal Revenue Code of 1986, as amended (the
"Code"). The manner in which Section 7702 should be applied to certain features
of the Policy offered in this prospectus is not directly addressed by Section
7702 or any guidance issued to date under Section 7702. Nevertheless, we
believe it is reasonable to conclude that the Policy will meet the Section 7702
definition of a life insurance contract. In the absence of final regulations or
other pertinent interpretations of Section 7702, however, there is necessarily
some uncertainty as to whether a Policy will meet the statutory life insurance
contract definition, particularly if it insures a substandard risk. If a Policy
were determined not to be a life insurance contract for purposes of Section
7702, such Policy would not provide most of the tax advantages normally
provided by a life insurance contract.
If it is subsequently determined that a Policy does not satisfy Section 7702,
we may take whatever steps are appropriate and reasonable to attempt to cause
such a Policy to comply with Section 7702. For these reasons, we reserve the
right to restrict Policy transactions as necessary to attempt to qualify it as
a life insurance contract under Section 7702.
Section 817(h) of the Code authorizes the Treasury to set standards by
regulation or otherwise for the investments of the Variable Life Account to be
"adequately diversified" in order for the Policy to be treated as a life
insurance contract for federal tax purposes. The Variable Life Account, through
the Funds, intends to comply with the diversification requirements prescribed
in Regulations Section 1.817-5, which affect how the Funds' assets may be
invested. Although the investment adviser of Advantus Series Fund is an
affiliate of Minnesota Mutual, we do not have control over the Funds or their
investments. Nonetheless, we
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believe that each Portfolio of the Funds in which the Variable Life Account
owns shares will be operated in compliance with the requirements prescribed by
the Treasury.
In certain circumstances, owners of variable life policies may be considered
the owners, for federal income tax purposes, of the assets of the separate
account used to support their policies. In those circumstances, income and
gains from the separate account assets would be includible in the variable
life policy owner's gross income. The IRS has stated in published rulings that
a variable policy owner will be considered the owner of separate account
assets if the policy owner possesses incidents of ownership in those assets,
such as the ability to exercise the investment control over the assets. The
Treasury Department has also announced, in connection with the issuance of
regulations concerning investment diversification, that those regulations "do
not provide guidance concerning the circumstances in which investor control of
the investments of a segregated asset account may cause the investor (i.e.,
the contract owner), rather than the insurance company, to be treated as the
owner of the assets in the account." This announcement also states that
guidance would be issued by way of regulations or rulings on the "extent to
which policyholders may direct their investments to particular subaccounts
without being treated as owners of the underlying assets."
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 policy owner has the choice of more sub-accounts to which to
allocate net purchase payments and policy values, and may be able to transfer
among sub-accounts more frequently than in such rulings. These differences
could result in a policy owner being treated as the owner of the assets of the
Variable Life Account. In addition, we do not know what standards will be set
forth, if any, in the regulations or rulings which the Treasury Department has
stated it expects to issue. We therefore reserve the right to modify the
Policy as necessary to attempt to prevent a policy owner from being considered
the owner of a pro rata share of the assets of the Variable Life Account.
The following discussion assumes that the Policy will qualify as a life
insurance contract for federal income tax purposes.
TAX TREATMENT OF POLICY BENEFITS
In general you are not currently taxed on any part of your interest until
you actually receive cash from the Policy. As discussed below, taxability is
determined by your contributions to the Policy and prior Policy activity. The
death benefit under a Policy should, however, be excludable from the gross
income of the beneficiary under Section 101(a)(1) of the Code.
Depending on the circumstances, the exchange of a Policy, the receipt of a
Policy in an exchange, a change in the Policy's Death Benefit Option (e.g., a
change from Cash Option to Protection Option), a policy loan, a partial
surrender, a surrender, a change in ownership, a change of insured, an
adjustment of face amount, or an assignment of the Policy may have federal
income tax consequences. If you are considering any such transaction, you
should consult a tax adviser before effecting the transaction.
We also believe that policy loans will be treated as indebtedness and will
not be currently taxable as income to you. However, if there is any borrowing
against the Policy, whether a modified endowment contract or not, the interest
paid on loans will generally not be tax deductible.
A surrender or partial surrender of the actual cash values of a Policy may
have tax consequences. On surrender, you generally will not be taxed on values
received except to the extent that they exceed the gross premiums paid under
the Policy. An exception to this general rule occurs in the case of a partial
withdrawal, a decrease in the face amount, or any other change that reduces
benefits under the Policy in the first 15 years after the Policy is issued and
that results in a cash distribution to you in order for the Policy to continue
complying with the Section 7702 definitional limits. In that case, such
distribution will be taxed in whole or in part as ordinary income (to the
extent of any gain in the Policy) under rules prescribed in Section 7702.
Premiums for additional benefits are not used in the calculation for computing
the tax on actual cash values. Finally, upon a complete surrender or lapse of
a Policy or when benefits are paid at a Policy's maturity date, if the amount
received plus the amount of indebtedness exceeds the total investment
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in the Policy, the excess will generally be treated as ordinary income subject
to tax.
It should be noted, however, that under the Internal Revenue Code the tax
treatment described above is available only for policies not described as
modified endowment contracts. In general, the tests used in the Code to make
such a determination will have an impact on policies which have a high premium
in relation to the death benefit. Thus, the Code requires that the cumulative
premiums paid on a life insurance policy during the first seven contract years
not exceed the sum of the net level premiums which would be paid under a 7-pay
life policy ("7-pay test"). If the cumulative premiums during the first seven
contract years exceed the 7-pay test, the policy is a modified endowment
contract.
Modified endowment contracts would still be treated as life insurance with
respect to the tax treatment of death proceeds and to the extent that the
inside build-up of cash value would not be taxed on a yearly basis. However,
any amounts you received, 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 you attain
age 59 1/2, or is attributable to your becoming disabled, or as part of a
series of substantially equal periodic payments for your life or the joint
lives of you and your beneficiary.
Compliance with the 7-pay test does not imply or guarantee that only seven
payments will be required for the initial death benefit to be guaranteed for
life. Making additional payments or reducing the benefits (for example,
through a partial withdrawal, a change in death benefit option, or a scheduled
reduction) may either violate the 7-pay test or reduce the amount that may be
paid in the future under the 7-pay test. Further, reducing the death benefit
at any time will require retroactive retesting and could result in a failure
of the 7-pay test regardless of any of our efforts to provide a payment
schedule that will not violate the 7-pay test.
Any Policy received in an exchange for a modified endowment contract will be
considered a modified endowment contract and will be subject to the tax
treatment accorded to modified endowment contracts. A Policy that is not
originally classified as a modified endowment contract can become so
classified if there is a reduction in benefits at any time or if a material
change is made in the contract at any time. A material change includes, but is
not limited to, a change in the benefits that was not reflected in a prior 7-
pay test computation.
A policy which is subject to a "material change" shall be treated as newly
entered into on the date on which such material change takes effect.
Appropriate adjustment shall be made in determining whether such a policy
meets the 7-pay test by taking into account the previously existing cash
surrender value. While certain adjustments described herein may result in a
material change, the law provides that any cost of living increase described
in the regulations and based upon an established broad-based index will not be
treated as a material change if any increase is funded ratably over the
remaining period during which premiums are required to be paid under the
policy. To date, no regulations under this provision have been issued.
If a Policy becomes a modified endowment contract, distributions that occur
during the Policy year it becomes a modified endowment contract and any
subsequent Policy year will be taxed as distributions from a modified
endowment contract. In addition, distributions from a Policy within two years
before it becomes a modified endowment contract will be taxed in this manner.
This means that a distribution made from a Policy that is not a modified
endowment contract could later become taxable as a distribution from a
modified endowment contract.
Due to the Policy's flexibility, classification of a Policy as a modified
endowment contract will depend upon the circumstances of each Policy.
Accordingly, a prospective policy owner should contact a competent tax adviser
before purchasing a policy to determine the circumstances under which the
Policy would be a modified endowment contract. In addition, you should contact
a competent tax adviser before paying any nonrepeating premiums or making any
other change to, including an exchange
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of, a Policy to determine whether such premium or change would cause the
Policy (or the new Policy in the case of an exchange) to be treated as a
modified endowment contract.
MULTIPLE POLICIES
All modified endowment contracts, issued by us (or an affiliated company) to
the same policy owner during any calendar year will be treated as one modified
endowment contract for purposes of determining the amount includable in gross
income under Section 72(e) of the Code. Additional rules may be promulgated
under this provision to prevent avoidance of its effects through serial
contracts or otherwise. For further information on current aggregation rules
under this provision, see your own tax adviser. A life insurance policy
received in exchange for a modified endowment contract will also be treated as
a modified endowment contract. Accordingly, you should consult a tax adviser
before effecting an exchange of any life insurance policy.
TAXATION OF POLICY SPLIT. A Policy may be split into two other individual
contracts upon the occurrence of certain events. A policy split could have
adverse tax consequences; for example, it is not clear whether a policy split
will be treated as a nontaxable exchange under Section 1031 through 1043 of
the Code. If a policy split is not treated as a nontaxable exchange, a split
could result in the recognition of taxable income in an amount up to any gain
in the Policy at the time of the split. Before you exercise rights provided by
the policy split provision, it is important that you consult with a competent
tax adviser regarding the possible consequences of a policy split.
OTHER TAX CONSIDERATIONS. The transfer of the Policy or the designation of a
beneficiary may have federal, state, and/or local transfer and inheritance tax
consequences, including the imposition of gift, estate and generation-skipping
transfer taxes. For example, the transfer of the Policy to, or the designation
as beneficiary of, or the payment of proceeds to, a person who is assigned to
a generation which is two or more generations below the generation assignment
of the policy owner, may have Generation-Skipping Transfer tax considerations
under Section 2601 of the Code.
The individual situation of each policy owner or beneficiary will determine
the extent, if any, to which federal, state and local transfer taxes may be
imposed. Consult with your tax adviser for specific information in connection
with these taxes.
The particular situation of each policy owner or beneficiary will determine
how ownership or receipt of policy proceeds will be treated for purposes of
federal, state and local estate, inheritance, generation skipping transfer and
other taxes.
In addition, the tax consequences associated with a Policy remaining in
force after the younger insured's 100th birthday are unclear. A tax adviser
should be consulted in such circumstances.
OTHER TRANSACTIONS. Changing the policy owner may have tax consequences.
Exchanging this Policy for another involving the same insureds should have no
federal income tax consequences if there is no debt and no cash or other
property is received, according to Section 1035(a)(1) of the Code. The new
policy would have to satisfy the 7-pay test from the date of the exchange to
avoid characterization as a modified endowment contract. An exchange of a life
insurance contract for a new life insurance contract may, however, result in a
loss of grandfathering status for statutory changes made after the old policy
was issued. A tax adviser should be consulted before effecting an exchange.
The Policies may be used in various arrangements, including nonqualified
deferred compensation or salary continuance plans, split dollar insurance
plans, executive bonus plans, retiree medical benefit plans and 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. Moreover, in recent years, Congress has adopted new rules
relating to corporate owned life insurance. Any business contemplating the
purchase of a new life insurance contract or a change in an existing contract
should consult a tax adviser.
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
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with respect to situations not discussed. Statutory changes in the Internal
Revenue Code, with varying effective dates, and regulations adopted thereunder
may also alter the tax consequences of specific factual situations. Due to the
complexity of the applicable laws, tax advice may be needed by a person
contemplating the purchase of a variable life insurance policy or exercising
elections under such a policy. For further information, a qualified tax
adviser should be consulted.
At the present time, we make no charge to the Variable Life Account for any
federal, state or local taxes (other than state premium taxes) that we incur
that may be attributable to such Account or to the Policies. We, however,
reserve the right in the future to make a charge for any such tax or other
economic burden resulting from the application of the tax laws that we
determine to be properly attributable to the Variable Life Account or the
Policies.
39
<PAGE>
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
Leslie S. Biller President and Chief Operating Officer, Norwest
Corporation, Minneapolis, Minnesota (Banking)
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 (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 Senior Vice President
Frederick P.
Feuerherm Vice President
Robert E. Hunstad Executive Vice President
James E. Johnson Senior Vice President and Actuary
Michael T. Kellett Vice President
Richard D. Lee Vice President
Robert M. Olafson Vice President
Dennis E. Prohofsky Senior Vice President, General Counsel and Secretary
Gregory S. Strong Senior Vice President and Chief Financial Officer
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 the last five years. All
officers of Minnesota Mutual have been employed by us 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 Funds
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 Funds
for determining shareholders eligible to vote at the meeting of the Funds.
Voting instructions will be solicited in writing prior to such meeting in
accordance with procedures established by the Funds. 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 Funds.
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 Funds or
approve or disapprove an investment advisory contract of the Funds. In
addition, we may disregard voting instructions in favor of changes in the
investment policies or the investment advisers of the Funds 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 Funds or would result in the purchase of
securities for the Funds 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 Ascend Financial Services, Inc.
("Ascend Financial") or of other broker-dealers who have entered into selling
agreements with Ascend Financial. Ascend Financial acts as principal
underwriter for the Policies. Ascend Financial is a wholly-owned subsidiary of
MIMLIC Asset Management Company, which in turn is a wholly-owned subsidiary of
Minnesota Mutual. MIMLIC Asset Management Company is also the sole owner of
the shares of Advantus Capital, which is a registered investment adviser and
the investment adviser to the Advantus Series Fund.
Ascend Financial Services, Inc., 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 each proposed insured's risk classification and whether to accept or reject
an application for a Policy is done in accordance with our rules and
standards.
Commissions to registered representatives on the sale of Policies include:
up to 40 percent of gross premium in the first policy year; 3 percent of the
gross premium in policy years two through ten; 2 percent in policy years
thereafter; and 0 percent of nonrepeating premiums. This description of
commissions shows the maximum amount of commissions payable under the VAL-SD
Insurance Policy for plans of insurance described as protection and whole life
insurance plans. The commissions payable on premiums received for plans
described as greater than whole life plans will differ from the percentages
shown above, as a first year commission will be paid only on such amounts as
we may classify as a first year premium, based upon a whole life
41
<PAGE>
premium per $1,000 of face amount. The premiums received in excess of that
amount will pay commissions at a rate of 2 percent.
In addition, Ascend Financial Services, Inc. or Minnesota Mutual will pay,
based uniformly on the sales of insurance policies by registered
representatives, credits which allow registered representatives (Agents) who
are responsible for sales of the Policies to attend conventions and other
meetings sponsored by us or our affiliates for the purpose of promoting the
sale of insurance and/or investment products offered by us and our affiliates.
Such credits may cover the registered representatives' transportation, hotel
accommodations, meals, registration fees and the like. We may also pay
registered representatives additional amounts based upon their production and
the persistency of life insurance and annuity business placed with us.
LEGAL MATTERS
Legal matters in connection with federal securities laws applicable to the
issue and sale of the VAL-SD Policies have been
passed upon by Jones & Blouch L.L.P., 1025
Thomas Jefferson Street, N.W., Washington, D.C. 20007. All other legal
matters, including the right to issue such Policies under Minnesota law and
applicable regulations thereunder, have been passed upon by Donald F. Gruber,
Esquire, 400 Robert Street North, St. Paul, Minnesota 55101.
LEGAL PROCEEDINGS
As an insurance company, we are ordinarily involved in litigation. We are of
the opinion that such litigation is not material with respect to the Policies
or the Variable Life Account.
YEAR 2000 COMPUTER PROBLEM
The services we provide to our policy owners depend on the smooth functioning
of our computer systems. Many computer software systems in use today cannot
distinguish the year 2000 from the year 1900 because of the way dates are
encoded, stored and calculated. That failure could have a negative impact on
our ability to provide service to our policy owners. We have been actively
working on necessary changes to our computer systems to deal with the year
2000. Although there can be no assurance or complete success, Advantus Capital
believes that it will be able to resolve these issues on a timely basis and
that there will be no material adverse impact on its ability to provide
services to the Minnesota Mutual Variable Life Account.
EXPERTS
The financial statements of Minnesota Mutual and Minnesota Mutual Variable
Life Account included in this prospectus have been audited by KPMG Peat
Marwick LLP, independent auditors, 4200 Norwest Center, 90 South Seventh
Street, Minneapolis, Minnesota 55402, whose reports thereon appears elsewhere
herein, and have been so included in reliance upon the report of KPMG Peat
Marwick LLP and upon the authority of said firm as experts in accounting and
auditing.
Actuarial matters included in this prospectus have been examined by Jaymes
G. Hubbell, F.S.A., Second Vice President and Actuary of Minnesota Mutual, as
stated in his opinion filed as an exhibit to the Registration Statement.
REGISTRATION STATEMENT
We have filed with the Securities and Exchange Commission a Registration
Statement under the Securities Act of 1933, as amended, with respect to the
Policies offered hereby. This prospectus does not contain all the information
set forth in the registration statement and amendments thereto and the
exhibits filed as a part thereof, to all of which reference is hereby made for
further information concerning the Variable Life Account, Minnesota Mutual,
and the Policies. Statements contained in this prospectus as to the contents
of Policies and other legal instruments are summaries, and reference is made
to such instruments as filed.
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 sub-standard risks.
CODE: the Internal Revenue Code of 1986, as amended.
FIRST DEATH: the death of the first insured to die. You must give us proof of
the first death as soon as is reasonably possible.
FUNDS: the mutual funds or separate investment portfolios within series
mutual funds which we have designated as an eligible investment for the
Variable Life Account, currently, Advantus Series Fund, Inc., its Portfolios
and the Templeton Developing Markets Fund.
GENERAL ACCOUNT: all of our assets other than those in the Variable Life
Account or in other separate accounts established by us.
GUARANTEED PRINCIPAL ACCOUNT: the portion of the general account of Minnesota
Mutual which is attributable to variable policies, exclusive of policy loans.
It is not a separate account or a division of the general account.
LOAN ACCOUNT: the portion of the general account attributable to policy loans
under Policies of this type. The loan account balance is the sum of all
outstanding loans under this Policy.
NET SINGLE PREMIUM: the amount of money necessary, at any given date, to pay
for all future guaranteed cost of insurance charges for the entire lifetime of
both insureds, or for the coverage period in the case of extended term
insurance, without the payment of additional premium. We will determine the net
single premium using the policy assumptions and the assumption that the current
face amount of the Policy will remain constant.
NONREPEATING PREMIUM: a payment made to this Policy in addition to its
scheduled payments.
POLICY OWNER: the owner of a Policy.
POLICY VALUE: the actual cash value of a Policy plus any policy loan.
POLICY YEAR: a period of one year beginning with the policy date or a policy
anniversary.
PREMIUM: a scheduled payment required for this Policy.
SECOND DEATH: the death of the second insured to die. We will pay the death
proceeds when we receive due proof of the second death.
UNIT: an accounting device used to determine the interest of a Policy in the
sub-accounts of the Variable Life Account.
VALUATION DATE: each date on which a Fund Portfolio is valued.
VALUATION PERIOD: the period between successive valuation dates measured from
the time of one determination to the next.
VARIABLE LIFE ACCOUNT: a separate investment account called the Minnesota
Mutual Variable Life Account, where the investment experience of its assets is
kept separate from our other assets.
WE, OUR, US: The Minnesota Mutual Life Insurance Company.
YOU, YOUR: the policy owner.
43
<PAGE>
INDEPENDENT AUDITORS' REPORT
The Board of Trustees of The Minnesota Mutual Life Insurance Companyand Policy
Owners of Minnesota Mutual Variable Life Account:
We have audited the accompanying statements of assets and liabilities of the
Growth, Bond, Money Market, Asset Allocation, Mortgage Securities, Index 500,
Capital Appreciation, International Stock, Small Company and Value Stock
Segregated Sub-Accounts of Minnesota Mutual Variable Life Account (the Account)
as of December 31, 1997 and the related statements of operations and changes in
net assets for each of the years in the three-year period ended December 31,
1997 and the financial highlights for the periods presented 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, 1997 were verified by examination
of the underlying portfolios of Advantus Series Fund, Inc. (formerly 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, 1997 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 20, 1998
44
<PAGE>
MINNESOTA MUTUAL VARIABLE LIFE ACCOUNT
STATEMENTS OF ASSETS AND LIABILITIES
DECEMBER 31, 1997
<TABLE>
<CAPTION>
SEGREGATED SUB-ACCOUNTS
-------------------------------- ----------------------------------------------
MONEY ASSET MORTGAGE INDEX CAPITAL
ASSETS GROWTH BOND MARKET ALLOCATION SECURITIES 500 APPRECIATION
------ ----------- ---------- --------- ----------- ---------- ---------- ------------
<S> <C> <C> <C> <C> <C> <C> <C>
Investments in
shares of Advantus
Series Fund, Inc.:
Growth Portfolio,
27,574,279 shares
at net asset
value of $2.40
per share (cost
$57,744,530)..... $66,172,885 -- -- -- -- -- --
Bond Portfolio,
15,834,447 shares
at net asset
value of $1.33
per share (cost
$19,967,013)..... -- 20,989,760 -- -- -- -- --
Money Market
Portfolio,
7,170,533 shares
at net asset
value of $1.00
per share (cost
$7,170,533)...... -- -- 7,170,533 -- -- -- --
Asset Allocation
Portfolio,
50,925,738 shares
at net asset
value of $2.03
per share (cost
$87,958,560)..... -- -- -- 103,301,412 -- -- --
Mortgage Securi-
ties Portfolio,
8,521,819 shares
at net asset
value of $1.21
per share (cost
$9,844,498)...... -- -- -- -- 10,321,050 -- --
Index 500 Portfo-
lio, 27,928,008
shares at net as-
set value of
$3.10 per share
(cost
$63,612,195)..... -- -- -- -- -- 86,679,800 --
Capital Apprecia-
tion Portfolio,
30,811,784 shares
at net asset
value of $2.85
per share (cost
$68,051,768)..... -- -- -- -- -- -- 87,870,497
International
Stock Portfolio,
41,806,654 shares
at net asset
value of $1.71
per share (cost
$63,113,512)..... -- -- -- -- -- -- --
Small Company
Portfolio,
29,781,047 shares
at net asset
value of $1.65
per share (cost
$45,942,420)..... -- -- -- -- -- -- --
Value Stock Port-
folio, 21,459,139
shares at net as-
set value of
$1.73 per share
(cost
$36,011,778)..... -- -- -- -- -- -- --
----------- ---------- --------- ----------- ---------- ---------- ----------
66,172,885 20,989,760 7,170,533 103,301,412 10,321,050 86,679,800 87,870,497
Receivable from
Minnesota Mutual
for policy
purchase payments. 146,377 100,998 56,230 113,242 8,533 321,747 131,581
Receivable from
Advantus Series
Fund, Inc. for in-
vestments sold.... 68,693 20,910 26,296 138,650 25,558 66,147 112,115
----------- ---------- --------- ----------- ---------- ---------- ----------
Total assets.... 66,387,955 21,111,668 7,253,059 103,553,304 10,355,141 87,067,694 88,114,193
----------- ---------- --------- ----------- ---------- ---------- ----------
<CAPTION>
LIABILITIES
-----------
<S> <C> <C> <C> <C> <C> <C> <C>
Payable to
Advantus Series
Fund, Inc. for in-
vestments pur-
chased............ 146,377 100,998 56,230 113,242 8,533 321,747 131,581
Payable to
Minnesota Mutual
for policy
terminations and
mortality and
expense charges... 68,693 20,910 26,296 138,650 25,558 66,147 112,115
----------- ---------- --------- ----------- ---------- ---------- ----------
Total liabili-
ties............ 215,070 121,908 82,526 251,892 34,091 387,894 243,696
----------- ---------- --------- ----------- ---------- ---------- ----------
NET ASSETS APPLI-
CABLE TO POLICY
OWNERS............ $66,172,885 20,989,760 7,170,533 103,301,412 10,321,050 86,679,800 87,870,497
=========== ========== ========= =========== ========== ========== ==========
UNITS OUTSTANDING. 19,284,419 9,679,443 4,323,601 34,942,517 4,464,617 22,433,487 22,986,605
=========== ========== ========= =========== ========== ========== ==========
NET ASSET VALUE
PER UNIT.......... $ 3.43 2.17 1.66 2.96 2.31 3.86 3.82
=========== ========== ========= =========== ========== ========== ==========
<CAPTION>
-----------------------------------
INTERNATIONAL SMALL VALUE
ASSETS STOCK COMPANY STOCK
------ ------------- ---------- ----------
<S> <C> <C> <C>
Investments in
shares of Advantus
Series Fund, Inc.:
Growth Portfolio,
27,574,279 shares
at net asset
value of $2.40
per share (cost
$57,744,530)..... -- -- --
Bond Portfolio,
15,834,447 shares
at net asset
value of $1.33
per share (cost
$19,967,013)..... -- -- --
Money Market
Portfolio,
7,170,533 shares
at net asset
value of $1.00
per share (cost
$7,170,533)...... -- -- --
Asset Allocation
Portfolio,
50,925,738 shares
at net asset
value of $2.03
per share (cost
$87,958,560)..... -- -- --
Mortgage Securi-
ties Portfolio,
8,521,819 shares
at net asset
value of $1.21
per share (cost
$9,844,498)...... -- -- --
Index 500 Portfo-
lio, 27,928,008
shares at net as-
set value of
$3.10 per share
(cost
$63,612,195)..... -- -- --
Capital Apprecia-
tion Portfolio,
30,811,784 shares
at net asset
value of $2.85
per share (cost
$68,051,768)..... -- -- --
International
Stock Portfolio,
41,806,654 shares
at net asset
value of $1.71
per share (cost
$63,113,512)..... 71,300,514 -- --
Small Company
Portfolio,
29,781,047 shares
at net asset
value of $1.65
per share (cost
$45,942,420)..... -- 49,274,150 --
Value Stock Port-
folio, 21,459,139
shares at net as-
set value of
$1.73 per share
(cost
$36,011,778)..... -- -- 37,156,690
------------- ---------- ----------
71,300,514 49,274,150 37,156,690
Receivable from
Minnesota Mutual
for policy
purchase payments. 134,149 171,917 193,176
Receivable from
Advantus Series
Fund, Inc. for in-
vestments sold.... 145,630 56,754 53,486
------------- ---------- ----------
Total assets.... 71,580,293 49,502,821 37,403,352
------------- ---------- ----------
<CAPTION>
LIABILITIES
-----------
<S> <C> <C> <C>
Payable to
Advantus Series
Fund, Inc. for in-
vestments pur-
chased............ 134,149 171,917 193,176
Payable to
Minnesota Mutual
for policy
terminations and
mortality and
expense charges... 145,630 56,754 53,486
------------- ---------- ----------
Total liabili-
ties............ 279,779 228,671 246,662
------------- ---------- ----------
NET ASSETS APPLI-
CABLE TO POLICY
OWNERS............ 71,300,514 49,274,150 37,156,690
============= ========== ==========
UNITS OUTSTANDING. 35,764,833 27,207,371 17,273,210
============= ========== ==========
NET ASSET VALUE
PER UNIT.......... 1.99 1.81 2.15
============= ========== ==========
</TABLE>
See accompanying notes to financial statements.
45
<PAGE>
MINNESOTA MUTUAL VARIABLE LIFE ACCOUNT
STATEMENTS OF OPERATIONS
YEAR ENDED DECEMBER 31, 1997
<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)......... $ 402,228 870,434 331,689 2,294,552 585,018 713,950 --
Mortality and
expense charges
(note 3)......... (263,066) (88,316) (33,136) (450,565) (47,250) (345,963) (359,192)
------------ ---------- ---------- ----------- ---------- ----------- -----------
Investment
income
(loss)--net.... 139,162 782,118 298,553 1,843,987 537,768 367,987 (359,192)
------------ ---------- ---------- ----------- ---------- ----------- -----------
Realized and
unrealized gains
(losses) on
investments--net:
Realized gain
distributions
from underlying
mutual fund
(note 4)......... 10,393,363 -- -- 4,763,693 -- 902,006 6,002,097
------------ ---------- ---------- ----------- ---------- ----------- -----------
Realized gains on
sales of
investments:
Proceeds from
sales.......... 15,684,889 7,023,299 9,785,041 23,263,361 3,450,756 16,510,404 17,747,694
Cost of
investments
sold........... (14,635,767) (6,842,596) (9,785,041) (20,785,498) (3,367,243) (12,299,647) (14,670,799)
------------ ---------- ---------- ----------- ---------- ----------- -----------
1,049,122 180,703 -- 2,477,863 83,513 4,210,757 3,076,895
------------ ---------- ---------- ----------- ---------- ----------- -----------
Net realized
gains on
investments.... 11,442,485 180,703 -- 7,241,556 83,513 5,112,763 9,078,992
------------ ---------- ---------- ----------- ---------- ----------- -----------
Net change in
unrealized
appreciation or
depreciation of
investments....... 3,414,900 561,234 -- 6,261,254 169,605 12,660,399 9,108,606
------------ ---------- ---------- ----------- ---------- ----------- -----------
Net gains on
investments.... 14,857,385 741,937 -- 13,502,810 253,118 17,773,162 18,187,598
------------ ---------- ---------- ----------- ---------- ----------- -----------
Net increase in
net assets
resulting from
operations..... $ 14,996,547 1,524,055 298,553 15,346,797 790,886 18,141,149 17,828,406
============ ========== ========== =========== ========== =========== ===========
<CAPTION>
--------------------------------------
INTERNATIONAL SMALL VALUE
STOCK COMPANY STOCK
------------- ------------ -----------
<S> <C> <C> <C>
Investment income
(loss):
Investment income
distributions
from underlying
mutual fund
(note 4)......... 1,700,559 579 402,534
Mortality and
expense charges
(note 3)......... (315,047) (204,439) (138,510)
------------- ------------ -----------
Investment
income
(loss)--net.... 1,385,512 (203,860) 264,024
------------- ------------ -----------
Realized and
unrealized gains
(losses) on
investments--net:
Realized gain
distributions
from underlying
mutual fund
(note 4)......... 848,376 -- 3,195,383
------------- ------------ -----------
Realized gains on
sales of
investments:
Proceeds from
sales.......... 17,240,951 12,901,283 10,061,048
Cost of
investments
sold........... (14,680,146) (12,333,703) (8,568,072)
------------- ------------ -----------
2,560,805 567,580 1,492,976
------------- ------------ -----------
Net realized
gains on
investments.... 3,409,181 567,580 4,688,359
------------- ------------ -----------
Net change in
unrealized
appreciation or
depreciation of
investments....... 1,199,797 2,548,501 (516,947)
------------- ------------ -----------
Net gains on
investments.... 4,608,978 3,116,081 4,171,412
------------- ------------ -----------
Net increase in
net assets
resulting from
operations..... 5,994,490 2,912,221 4,435,436
============= ============ ===========
</TABLE>
See accompanying notes to financial statements.
46
<PAGE>
MINNESOTA MUTUAL VARIABLE LIFE ACCOUNT
STATEMENTS OF OPERATIONS (CONTINUED)
YEAR ENDED DECEMBER 31, 1996
<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)......... $ 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 in-
come (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
distributions
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
investments
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 in-
come (loss)--
net............ 729,330 (66,847) 82,979
------------- ----------- -----------
Realized and
unrealized gains
(losses) on
investments--net:
Realized gain
distributions
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
investments
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.
47
<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
income (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
income (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.
48
<PAGE>
MINNESOTA MUTUAL VARIABLE LIFE ACCOUNT
STATEMENTS OF CHANGES IN NET ASSETS
YEAR ENDED DECEMBER 31, 1997
<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............ $ 139,162 782,118 298,553 1,843,987 537,768 367,987 (359,192)
Net realized
gains on
investments.... 11,442,485 180,703 -- 7,241,556 83,513 5,112,763 9,078,992
Net change in
unrealized
appreciation or
depreciation of
investments.... 3,414,900 561,234 -- 6,261,254 169,605 12,660,399 9,108,606
----------- ---------- ---------- ----------- ---------- ----------- -----------
Net increase in
net assets
resulting from
operations...... 14,996,547 1,524,055 298,553 15,346,797 790,886 18,141,149 17,828,406
----------- ---------- ---------- ----------- ---------- ----------- -----------
Policy
transactions
(notes 3, 4 and
5):
Policy purchase
payments....... 24,785,458 11,710,496 10,151,149 30,593,582 4,047,794 34,152,463 28,190,241
Policy
withdrawals and
charges........ (15,421,823) (6,934,983) (9,751,905) (22,812,796) (3,403,506) (16,164,441) (17,388,503)
----------- ---------- ---------- ----------- ---------- ----------- -----------
Increase in net
assets from
policy
transactions.... 9,363,635 4,775,513 399,244 7,780,786 644,288 17,988,022 10,801,738
----------- ---------- ---------- ----------- ---------- ----------- -----------
Increase in net
assets.......... 24,360,182 6,299,568 697,797 23,127,583 1,435,174 36,129,171 28,630,144
Net assets at the
beginning of
year............ 41,812,703 14,690,192 6,472,736 80,173,829 8,885,876 50,550,629 59,240,353
----------- ---------- ---------- ----------- ---------- ----------- -----------
Net assets at the
end of year..... $66,172,885 20,989,760 7,170,533 103,301,412 10,321,050 86,679,800 87,870,497
=========== ========== ========== =========== ========== =========== ===========
<CAPTION>
--------------------------------------
INTERNATIONAL SMALL VALUE
STOCK COMPANY STOCK
------------- ------------ -----------
<S> <C> <C> <C>
Operations:
Investment
income (loss)--
net............ 1,385,512 (203,860) 264,024
Net realized
gains on
investments.... 3,409,181 567,580 4,688,359
Net change in
unrealized
appreciation or
depreciation of
investments.... 1,199,797 2,548,501 (516,947)
------------- ------------ -----------
Net increase in
net assets
resulting from
operations...... 5,994,490 2,912,221 4,435,436
------------- ------------ -----------
Policy
transactions
(notes 3, 4 and
5):
Policy purchase
payments....... 32,014,886 25,428,738 25,430,667
Policy
withdrawals and
charges........ (16,925,904) (12,696,844) (9,922,538)
------------- ------------ -----------
Increase in net
assets from
policy
transactions.... 15,088,982 12,731,894 15,508,129
------------- ------------ -----------
Increase in net
assets.......... 21,083,472 15,644,115 19,943,565
Net assets at the
beginning of
year............ 50,217,042 33,630,035 17,213,125
------------- ------------ -----------
Net assets at the
end of year..... 71,300,514 49,274,150 37,156,690
============= ============ ===========
</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, 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>
Operations:
Investment in-
come (loss)--
net............ $ 104,821 542,217 263,682 1,744,470 459,709 281,483 (255,630)
Net realized
gains on in-
vestments...... 3,720,603 197,119 -- 5,579,339 26,510 2,563,607 3,639,546
Net change in
unrealized ap-
preciation or
depreciation of
investments.... 1,398,787 (343,676) -- 682,688 (107,111) 4,756,817 4,331,602
----------- ---------- ----------- ----------- ---------- ----------- -----------
Net increase in
net assets re-
sulting from op-
erations........ 5,224,211 395,660 263,682 8,006,497 379,108 7,601,907 7,715,518
----------- ---------- ----------- ----------- ---------- ----------- -----------
Policy transac-
tions (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
Policy withdraw-
als and
charges........ (10,094,412) (4,573,620) (11,802,949) (17,110,497) (2,229,350) (12,243,866) (13,399,945)
----------- ---------- ----------- ----------- ---------- ----------- -----------
Increase in net
assets from pol-
icy transac-
tions........... 8,145,633 3,902,874 879,405 10,520,181 1,156,313 14,097,215 9,072,026
----------- ---------- ----------- ----------- ---------- ----------- -----------
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
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
----------- ---------- ----------- ----------- ---------- ----------- -----------
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
=========== ========== =========== =========== ========== =========== ===========
<CAPTION>
-------------------------------------
INTERNATIONAL SMALL VALUE
STOCK COMPANY STOCK
------------- ----------- -----------
<S> <C> <C> <C>
Operations:
Investment in-
come (loss)--
net............ 729,330 (66,847) 82,979
Net realized
gains on in-
vestments...... 2,093,958 4,202,384 1,493,727
Net change in
unrealized ap-
preciation or
depreciation of
investments.... 4,335,633 (2,840,532) 1,239,111
------------- ----------- -----------
Net increase in
net assets re-
sulting from op-
erations........ 7,158,921 1,295,005 2,815,817
------------- ----------- -----------
Policy transac-
tions (notes 3,
4 and 5):
Policy purchase
payments....... 23,422,864 20,175,123 12,940,411
Policy withdraw-
als and
charges........ (11,721,797) (8,718,835) (3,834,134)
------------- ----------- -----------
Increase in net
assets from pol-
icy transac-
tions........... 11,701,067 11,456,288 9,106,277
------------- ----------- -----------
Increase in net
assets.......... 18,859,988 12,751,293 11,922,094
Net assets at the
beginning of
year............ 31,357,054 20,878,742 5,291,031
------------- ----------- -----------
Net assets at the
end of year..... 50,217,042 33,630,035 17,213,125
============= =========== ===========
</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, 1995
<TABLE>
<CAPTION>
SEGREGATED SUB-ACCOUNTS
----------------------------------- -------------------------------------------------
MONEY ASSET MORTGAGE INDEX CAPITAL
GROWTH BOND MARKET ALLOCATION SECURITIES 500 APPRECIATION
----------- ---------- ---------- ----------- ---------- ---------- ------------
<S> <C> <C> <C> <C> <C> <C> <C>
Operations:
Investment
income (loss)--
net............ $ 84,267 221,283 188,474 1,160,310 385,990 236,198 (178,191)
Net realized
gains on
investments.... 1,309,596 121,124 -- 1,639,505 21,373 1,137,359 2,256,255
Net change in
unrealized
appreciation or
depreciation of
investments.... 3,358,404 1,040,640 -- 8,349,477 623,587 5,160,678 4,611,948
----------- ---------- ---------- ----------- ---------- ---------- -----------
Net increase in
net assets
resulting from
operations...... 4,752,267 1,383,047 188,474 11,149,292 1,030,950 6,534,235 6,690,012
----------- ---------- ---------- ----------- ---------- ---------- -----------
Policy
transactions
(notes 3, 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 withdraw-
als 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 withdraw-
als 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.
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 of 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.
The assets of each segregated sub-account are held for the exclusive benefit
of the variable life policy owners and are not chargeable with liabilities
arising out of the business conducted by any other account or by Minnesota
Mutual. Variable 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 Advantus Series Fund, Inc. (the Fund), formerly MIMLIC Series Fund,
Inc., 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.
Ascend Financial Services, Inc., formerly MIMLIC Sales Corporation, acts as
the underwriter for the Account. Advantus Capital Management, Inc. acts as the
investment adviser for the Fund. Ascend Financial Services, Inc. and Advantus
Capital Management, Inc. are wholly-owned subsidiaries 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 Advantus 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.
52
<PAGE>
MINNESOTA MUTUAL VARIABLE LIFE ACCOUNT
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
(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 percent of the average daily net
assets of the Account. This charge is an expense of the Account and is deducted
daily from net assets of the Account.
Policy purchase payments are reflected net of the following charges paid to
Minnesota Mutual:
A basic sales load of 7 percent is deducted from each premium payment. A
first year sales load not to exceed 23 percent may also be deducted. Total
sales charges deducted from premium payments for the years ended December
31, 1997, 1996 and 1995 amounted to $19,600,016, $13,357,161 and
$11,373,694, 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, 1997, 1996 and 1995 amounted to $10,756,148, $6,155,712 and
$4,549,011, 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, 1997, 1996 and 1995 amounted to $4,479,422, $3,465,457
and $2,687,472, 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, 1997, 1996 and 1995 amounted to $2,188,497,
$1,794,822 and $1,411,514, 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 years ended December 31,
1997 and 1996 amounted to $158,590 and $14,298, respectively.
In addition to deductions from premium payments, an administration charge,
certain transaction charges, a cost of insurance charge and a charge for sub-
standard risks, if any, are assessed from the actual cash value of each policy.
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.
53
<PAGE>
MINNESOTA MUTUAL VARIABLE LIFE ACCOUNT
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
(3) MORTALITY AND EXPENSE AND OTHER POLICY CHARGES (CONTINUED)
The cost of insurance charge varies with the amount of insurance, the
insured's age, sex, risk class, level of scheduled premium and duration of the
policy. The charge for substandard risks is for providing death benefits for
policies which have mortality risks in excess of the standard.
The total of cash value charges for the years ended December 31, 1997, 1996
and 1995 for each segregated sub-account are as follows:
<TABLE>
<CAPTION>
1997 1996 1995
---------- ---------- ----------
<S> <C> <C> <C>
Growth $4,939,701 $3,958,312 $3,235,518
Bond 2,200,814 1,780,681 1,359,743
Money Market 777,111 741,727 624,184
Asset Allocation 7,770,546 7,673,171 7,306,035
Mortgage Securities 925,967 859,703 881,050
Index 500 6,357,141 4,389,029 2,752,710
Capital Appreciation 6,374,197 5,701,873 4,809,954
International Stock 6,665,104 5,145,385 3,938,698
Small Company 5,041,725 3,921,958 2,514,829
Value Stock 3,775,010 1,802,043 619,624
</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, 1997, 1996
and 1995:
<TABLE>
<CAPTION>
1997 1996 1995
----------- ----------- -----------
<S> <C> <C> <C>
Growth Portfolio $35,581,049 $21,135,107 $13,360,915
Bond Portfolio 12,580,930 9,188,376 6,921,232
Money Market Portfolio 10,482,839 12,978,090 6,869,537
Asset Allocation Portfolio 37,651,827 33,562,674 25,334,675
Mortgage Securities Portfolio 4,632,812 3,885,004 3,519,157
Index 500 Portfolio 35,768,419 27,064,233 13,666,694
Capital Appreciation Portfolio 34,192,337 23,743,157 19,948,250
International Stock Portfolio 34,563,821 25,368,587 17,215,167
Small Company Portfolio 25,429,317 23,338,335 13,385,468
Value Stock Portfolio 29,028,584 14,098,616 4,947,974
</TABLE>
54
<PAGE>
MINNESOTA MUTUAL VARIABLE LIFE ACCOUNT
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
(5) UNIT ACTIVITY FROM CONTRACT TRANSACTIONS
Transactions in units for each segregated sub-account for the years ended
December 31, 1997, 1996 and 1995 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, 1994 9,964,217 3,659,230 2,920,337 23,769,797 3,250,971
Policy purchase
payments 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
payments 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
Policy purchase
payments 8,261,616 5,661,131 6,242,859 11,295,279 1,827,938
Deductions for policy
withdrawals and
charges (5,153,568) (3,347,910) (6,002,049) (8,457,357) (1,538,969)
---------- ---------- ---------- ---------- ----------
Units outstanding at
December 31, 1997 19,284,419 9,679,443 4,323,601 34,942,517 4,464,617
========== ========== ========== ========== ==========
<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, 1994 8,997,722 12,929,134 15,062,750 7,074,933 971,938
Policy purchase
payments 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
payments 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
Policy purchase
payments 9,815,943 8,385,341 16,284,208 14,622,555 12,392,543
Deductions for policy
withdrawals and
charges (4,632,985) (5,177,010) (8,575,503) (7,333,234) (4,767,664)
---------- ---------- ---------- ---------- ----------
Units outstanding at
December 31, 1997 22,433,487 22,986,605 35,764,833 27,207,371 17,273,210
========== ========== ========== ========== ==========
</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,
---------------------------
1997 1996 1995 1994 1993
----- ---- ---- ---- ----
<S> <C> <C> <C> <C> <C>
Unit value, beginning of year $2.59 2.22 1.79 1.79 1.72
----- ---- ---- ---- ----
Income from investment operations:
Net investment income .01 .01 .01 .01 .01
Net gains or losses on securities (both realized
and unrealized) .83 .36 .42 (.01) .06
----- ---- ---- ---- ----
Total from investment operations .84 .37 .43 -- .07
----- ---- ---- ---- ----
Unit value, end of year $3.43 2.59 2.22 1.79 1.79
===== ==== ==== ==== ====
BOND
<CAPTION>
YEAR ENDED DECEMBER 31,
---------------------------
1997 1996 1995 1994 1993
----- ---- ---- ---- ----
<S> <C> <C> <C> <C> <C>
Unit value, beginning of year $1.99 1.95 1.63 1.72 1.57
----- ---- ---- ---- ----
Income (loss) from investment operations:
Net investment income .09 .08 .05 .05 .05
Net gains or losses on securities (both realized
and unrealized) .09 (.04) .27 (.14) .10
----- ---- ---- ---- ----
Total from investment operations .18 .04 .32 (.09) .15
----- ---- ---- ---- ----
Unit value, end of year $2.17 1.99 1.95 1.63 1.72
===== ==== ==== ==== ====
MONEY MARKET
<CAPTION>
YEAR ENDED DECEMBER 31,
---------------------------
1997 1996 1995 1994 1993
----- ---- ---- ---- ----
<S> <C> <C> <C> <C> <C>
Unit value, beginning of year $1.58 1.52 1.45 1.40 1.37
----- ---- ---- ---- ----
Income from investment operations:
Net investment income .08 .06 .07 .05 .03
----- ---- ---- ---- ----
Total from investment operations .08 .06 .07 .05 .03
----- ---- ---- ---- ----
Unit value, end of year $1.66 1.58 1.52 1.45 1.40
===== ==== ==== ==== ====
ASSET ALLOCATION
<CAPTION>
YEAR ENDED DECEMBER 31,
---------------------------
1997 1996 1995 1994 1993
----- ---- ---- ---- ----
<S> <C> <C> <C> <C> <C>
Unit value, beginning of year $2.50 2.23 1.79 1.83 1.73
----- ---- ---- ---- ----
Income (loss) from investment operations:
Net investment income .06 .06 .05 .03 .02
Net gains or losses on securities (both realized
and unrealized) .40 .21 .39 (.07) .08
----- ---- ---- ---- ----
Total from investment operations .46 .27 .44 (.04) .10
----- ---- ---- ---- ----
Unit value, end of year $2.96 2.50 2.23 1.79 1.83
===== ==== ==== ==== ====
</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,
-----------------------------
1997 1996 1995 1994 1993
----- ---- ---- ---- ----
<S> <C> <C> <C> <C> <C>
Unit value, beginning of year $2.13 2.03 1.73 1.80 1.66
----- ---- ---- ---- ----
Income (loss) from investment operations:
Net investment income .13 .12 .11 .06 .05
Net gains or losses on securities (both realized
and unrealized) .05 (.02) .19 (.14) .09
----- ---- ---- ---- ----
Total from investment operations .18 .10 .30 (.07) .14
----- ---- ---- ---- ----
Unit value, end of year $2.31 2.13 2.03 1.73 1.80
===== ==== ==== ==== ====
INDEX 500
<CAPTION>
YEAR ENDED DECEMBER 31,
-----------------------------
1997 1996 1995 1994 1993
----- ---- ---- ---- ----
<S> <C> <C> <C> <C> <C>
Unit value, beginning of year $2.93 2.42 1.78 1.77 1.62
----- ---- ---- ---- ----
Income from investment operations:
Net investment income .02 .02 .02 .02 .02
Net gains or losses on securities (both realized
and unrealized) .91 .49 .62 (.01) .13
----- ---- ---- ---- ----
Total from investment operations .93 .51 .64 .01 .15
----- ---- ---- ---- ----
Unit value, end of year $3.86 2.93 2.42 1.78 1.77
===== ==== ==== ==== ====
CAPITAL APPRECIATION
<CAPTION>
YEAR ENDED DECEMBER 31,
-----------------------------
1997 1996 1995 1994 1993
----- ---- ---- ---- ----
<S> <C> <C> <C> <C> <C>
Unit value, beginning of year $3.00 2.56 2.10 2.06 1.87
----- ---- ---- ---- ----
Income from investment operations:
Net investment income (loss) (.02) (.01) (.01) (.01) --
Net gains or losses on securities (both realized
and unrealized) .84 .45 .47 .05 .19
----- ---- ---- ---- ----
Total from investment operations .82 .44 .46 .04 .19
----- ---- ---- ---- ----
Unit value, end of year $3.82 3.00 2.56 2.10 2.06
===== ==== ==== ==== ====
INTERNATIONAL STOCK
<CAPTION>
YEAR ENDED DECEMBER 31,
-----------------------------
1997 1996 1995 1994 1993
----- ---- ---- ---- ----
<S> <C> <C> <C> <C> <C>
Unit value, beginning of year $1.79 1.50 1.32 1.33 .93
----- ---- ---- ---- ----
Income (loss) from investment operations:
Net investment income (loss) .04 .03 (.01) .03 .01
Net gains or losses on securities (both realized
and unrealized) .16 .26 .19 (.04) .39
----- ---- ---- ---- ----
Total from investment operations .20 .29 .18 (.01) .40
----- ---- ---- ---- ----
Unit value, end of year $1.99 1.79 1.50 1.32 1.33
===== ==== ==== ==== ====
</TABLE>
57
<PAGE>
MINNESOTA MUTUAL VARIABLE LIFE ACCOUNT
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
(6) FINANCIAL HIGHLIGHTS (CONTINUED)
<TABLE> SMALL COMPANY
<CAPTION>
YEAR ENDED DECEMBER 31,
--------------------------
PERIOD FROM
MAY 3, 1993*
TO DECEMBER
1997 1996 1995 1994 31, 1993
------ ----- ----- ----- ------------
<S> <C> <C> <C> <C> <C>
Unit value, beginning of period........ $ 1.69 1.59 1.21 1.15 1.00
------ ----- ----- ----- ----
Income from investment operations:
Net investment income (loss)......... (.01) -- (.01) -- --
Net gains or losses on securities
(both realized and unrealized)...... .13 .10 .39 .06 .15
------ ----- ----- ----- ----
Total from investment operations... .12 .10 .38 .06 .15
------ ----- ----- ----- ----
Unit value, end of period.............. $ 1.81 1.69 1.59 1.21 1.15
====== ===== ===== ===== ====
</TABLE>
- -------
*Commencement of the segregated sub-account's operations.
VALUE STOCK
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31,
------------------------
PERIOD FROM
MAY 2, 1994*
TO DECEMBER
1997 1996 1995 31, 1994
-------- ------- ------- ------------
<S> <C> <C> <C> <C>
Unit value, beginning of period.......... $ 1.78 1.37 1.04 1.00
-------- ------- ------- ----
Income from investment operations:
Net investment income.................. .02 .01 .01 .02
Net gains on securities (both realized
and unrealized)....................... .35 .40 .32 .02
-------- ------- ------- ----
Total from investment operations..... .37 .41 .33 .04
-------- ------- ------- ----
Unit value, end of period................ $ 2.15 1.78 1.37 1.04
======== ======= ======= ====
</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, 1997 and
1996, 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, 1997. 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,
1997 and 1996, and the results of their operations and their cash flows for
each of the years in the three-year period ending December 31, 1997 in
conformity with generally accepted accounting principles.
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 purpose 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 9, 1998
60
<PAGE>
THE MINNESOTA MUTUAL LIFE INSURANCE COMPANY AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
DECEMBER 31, 1997 AND 1996
ASSETS
<TABLE>
<CAPTION>
1997 1996
----------- -----------
(IN THOUSANDS)
<S> <C> <C>
Fixed maturity securities:
Available-for-sale, at fair value (amortized cost
$4,518,807 and $4,558,975) $ 4,719,801 $ 4,674,082
Held-to-maturity, at amortized cost (fair value
$1,158,227 and $1,179,112) 1,088,312 1,125,638
Equity securities, at fair value (cost $537,441 and
$429,509) 686,638 549,797
Mortgage loans, net 661,337 608,808
Real estate, net 39,964 43,082
Policy loans 213,488 204,178
Short-term investments 112,352 126,372
Other invested assets 216,838 94,647
----------- -----------
Total investments 7,738,730 7,426,604
Cash 96,179 57,140
Finance receivables, net 211,794 259,192
Deferred policy acquisition costs 576,030 589,517
Accrued investment income 83,439 90,996
Premiums receivable 68,030 77,140
Property and equipment, net 58,123 55,050
Reinsurance recoverables 150,126 126,629
Other assets 52,852 54,798
Separate account assets 5,366,810 3,706,256
----------- -----------
Total assets $14,402,113 $12,443,322
=========== ===========
LIABILITIES AND POLICYOWNERS' SURPLUS
Liabilities:
Policy and contract account balances $ 4,275,221 $ 4,310,015
Future policy and contract benefits 1,687,529 1,638,720
Pending policy and contract claims 64,356 70,577
Other policyowner funds 416,752 396,848
Policyowner dividends payable 55,321 49,899
Unearned premiums and fees 202,070 207,111
Federal income tax liability:
Current 45,300 25,643
Deferred 166,057 149,665
Other liabilities 334,305 286,042
Notes payable 298,000 319,000
Separate account liabilities 5,320,517 3,691,374
----------- -----------
Total liabilities $12,865,428 $11,144,894
=========== ===========
Policyowners' surplus:
Unassigned surplus 1,380,012 1,190,116
Net unrealized investment gains 156,673 108,312
----------- -----------
Total policyowners' surplus 1,536,685 1,298,428
----------- -----------
Total liabilities and policyowners' surplus $14,402,113 $12,443,322
=========== ===========
</TABLE>
See accompanying notes to consolidated financial statements.
61
<PAGE>
THE MINNESOTA MUTUAL LIFE INSURANCE COMPANY AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF OPERATIONS AND POLICYOWNERS' SURPLUS
YEARS ENDED DECEMBER 31, 1997, 1996, AND 1995
STATEMENTS OF OPERATIONS
<TABLE>
<CAPTION>
1997 1996 1995
---------- ---------- ----------
(IN THOUSANDS)
<S> <C> <C> <C>
Revenues:
Premiums $ 615,253 $ 612,359 $ 603,770
Policy and contract fees 272,037 245,966 214,203
Net investment income 553,773 530,987 515,047
Net realized investment gains 114,367 55,574 62,292
Finance charge income 43,650 46,932 39,937
Other income 71,707 51,630 40,250
---------- ---------- ----------
Total revenues 1,670,787 1,543,448 1,475,499
---------- ---------- ----------
Benefits and expenses:
Policyowner benefits 515,873 541,520 517,771
Interest credited to policies and con-
tracts 298,033 288,967 297,145
General operating expenses 369,961 302,618 273,425
Commissions 114,404 103,370 93,465
Administrative and sponsorship fees 81,750 79,360 76,223
Dividends to policyowners 26,776 24,804 27,282
Interest on notes payable 24,192 22,798 11,128
Increase in deferred policy acquisi-
tion costs (26,878) (19,284) (34,173)
---------- ---------- ----------
Total benefits and expenses 1,404,111 1,344,153 1,262,266
---------- ---------- ----------
Income from operations before taxes 266,676 199,295 213,233
Federal income tax expense (benefit):
Current 84,612 68,033 71,379
Deferred (7,832) 744 11,995
---------- ---------- ----------
Total federal income tax expense 76,780 68,777 83,374
Net income $ 189,896 $ 130,518 $ 129,859
========== ========== ==========
STATEMENTS OF POLICYOWNERS' SURPLUS
Policyowners' surplus, beginning of year $1,298,428 $1,212,850 $ 874,577
Net income 189,896 130,518 129,859
Change in net unrealized investment
gains and losses 48,361 (44,940) 208,414
---------- ---------- ----------
Policyowners' surplus, end of year $1,536,685 $1,298,428 $1,212,850
========== ========== ==========
</TABLE>
See accompanying notes to consolidated financial statements.
62
<PAGE>
THE MINNESOTA MUTUAL LIFE INSURANCE COMPANY AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
YEARS ENDED DECEMBER 31, 1997, 1996, AND 1995
<TABLE>
<CAPTION>
1997 1996 1995
----------- ----------- -----------
(IN THOUSANDS)
<S> <C> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES
Net Income $ 189,896 $ 130,518 $ 129,859
Adjustments to reconcile net income to
net cash provided by operating activi-
ties:
Interest credited to annuity and in-
surance contracts 276,719 275,968 288,218
Fees deducted from policy and con-
tract balances (214,803) (206,780) (201,575)
Change in future policy benefits 76,358 84,389 100,025
Change in other policyowner liabili-
ties 7,597 16,099 (4,762)
Change in deferred policy acquisition
costs (19,430) (15,312) (29,822)
Change in premiums due and other re-
ceivables (9,280) (26,142) (18,039)
Change in federal income tax liabili-
ties 5,277 (12,055) 18,376
Net realized investment gains (123,016) (59,546) (66,643)
Other, net 8,760 29,987 36,561
----------- ----------- -----------
Net cash provided by operating ac-
tivities 198,078 217,126 252,198
----------- ----------- -----------
CASH FLOWS FROM INVESTING ACTIVITIES
Proceeds from sales of:
Fixed maturity securities, available-
for-sale 1,099,114 877,682 1,349,348
Equity securities 601,936 352,901 203,493
Mortgage loans -- 15,567 4,315
Real estate 9,279 11,678 15,948
Other invested assets 26,877 12,280 10,775
Proceeds from maturities and repayments
of:
Fixed maturity securities, available-
for-sale 403,829 329,550 253,576
Fixed maturity securities, held-to-
maturity 139,394 114,222 127,617
Mortgage loans 109,246 94,703 104,730
Purchases of:
Fixed maturity securities, available-
for-sale (1,498,048) (1,228,048) (1,975,130)
Fixed maturity securities, held-to-
maturity (82,835) (60,612) (140,763)
Equity securities (585,349) (446,599) (212,142)
Mortgage loans (157,247) (108,691) (209,399)
Real estate (3,908) (3,786) (16,554)
Other invested assets (55,988) (29,271) (20,517)
Finance receivable originations or pur-
chases (115,248) (175,876) (167,298)
Finance receivable principal payments 133,762 142,723 123,515
Other, net (88,626) (40,062) (19,292)
----------- ----------- -----------
Net cash used for investing activi-
ties (63,812) (141,639) (567,778)
----------- ----------- -----------
CASH FLOWS FROM FINANCING ACTIVITIES
Deposits credited to annuity and insur-
ance contracts 928,696 657,405 710,525
Withdrawals from annuity and insurance
contracts (1,013,588) (702,681) (563,569)
Proceeds from issuance of surplus notes -- -- 124,967
Proceeds from issuance of debt by sub-
sidiary -- 60,000 50,000
Payments on debt by subsidiary (21,000) (21,000) (10,000)
Other, net (3,355) (6,898) (3,801)
----------- ----------- -----------
Net cash provided by (used for) fi-
nancing activities (109,247) (13,174) 308,122
----------- ----------- -----------
Net increase (decrease) in cash and
short-term investments 25,019 62,313 (7,458)
Cash and short-term investments, begin-
ning of year 183,512 121,199 128,657
----------- ----------- -----------
Cash and short-term investments, end of
year $ 208,531 $ 183,512 $ 121,199
=========== =========== ===========
</TABLE>
See accompanying notes to consolidated financial statements.
63
<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 in 1997 for these business units were $854,192,000,
$284,222,000, $232,619,000 and $114,324,000, respectively. Additional revenues
of $185,430,000, were reported by the Company's subsidiaries.
At December 31, 1997, the Company was one of the 12 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. Future events, including
changes in mortality, morbidity, interest rates, and asset valuations, could
cause actual results to differ from the estimates used in the financial
statements.
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 estimated gross profits or 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
64
<PAGE>
THE MINNESOTA MUTUAL LIFE INSURANCE COMPANY AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
(2) SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)
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 $128,176,000, $125,978,000 and
$104,940,000 for the years ended December 31, 1997, 1996 and 1995,
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 on the smaller balance homogeneous finance receivables 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. Finance charges and interest is
suspended when a loan is considered by management to be impaired. Loan
impairment is measured based on the present value of expected future cash flows
discounted at the loan's effective interest rate, or as a practical expedient,
at the observable market price of the loan or the fair value of the collateral
if the loan is collateral dependent. When a loan is identified as impaired,
interest previously accrued in the current year is reversed. Interest payments
received on impaired loans are generally applied to principal unless the
remaining principal balance has been determined to be fully collectible. 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 are carried at fair value.
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,
1997 and 1996, was $6,269,000 and $5,968,000, respectively.
Policy loans are carried at the unpaid principal balance.
65
<PAGE>
THE MINNESOTA MUTUAL LIFE INSURANCE COMPANY AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
(2) SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)
Derivative Financial Instruments
The Company entered into equity swaps in 1996 as part of an overall risk
management strategy. The swaps were used to hedge exposure to market risk on
$400,000,000 of the Company's common stock portfolio. The swaps were based upon
certain stock indices. If, at the time of settlement for a particular swap, the
designated stock index had fallen below a specified level, the counterparty
would 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 had risen, the Company would pay the counterparty an
amount based upon the increase in the index and 25% of the stock portfolio
value protected by the swap. The equity swaps were settled with the
counterparties in August of 1997.
The swaps were carried at fair value, which were based upon dealer quotes.
Changes in fair value were recorded directly in policyowners' surplus. Upon
settlement of the swaps, gains or losses were recognized in income. The Company
realized a loss of approximately $31 million in 1997, upon settlement of these
equity swaps.
The Company began investing in international bonds denominated in foreign
currencies in 1997. The Company uses forward foreign exchange currency
contracts as part of its risk management strategy for international
investments. The forward foreign exchange currency contracts are used to reduce
market risks from changes in foreign exchange rates. These forward foreign
exchange currency contracts are agreements to purchase a specified amount of
one currency in exchange for a specified amount of another currency at a future
point in time at a foreign exchange currency rate agreed upon on the contract
open date. No cash is exchanged at the outset of the contract and no payments
are made by either party until the contract close date. On the contract close
date the contracted amount of the purchased currency is received from the
counterparty and the contracted amount of the sold currency is sent to the
counterparty. These contracts are generally short-term in nature and there is
no material exposure to the Company at December 31, 1997.
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
$90,926,000 and $81,962,000 at December 31, 1997 and 1996, respectively.
Buildings are depreciated over 40 years and equipment is generally depreciated
over 5 to 10 years. Depreciation expenses for the years ended December 31,
1997, 1996 and 1995, were $8,965,000, $6,454,000 and $5,941,000, respectively.
Separate Accounts
Separate account assets and liabilities represent segregated funds administered
and invested by the Company for the exclusive benefit of pension, variable
annuity and variable life insurance policyowners and contractholders. Assets
consist principally of marketable securities and both assets and liabilities
are reported at fair value, based upon the market value of the investments held
in the segregated funds. The Company receives administrative and investment
advisory fees for services rendered on behalf of these accounts.
The Company periodically invests money in its separate accounts. The market
value of such investments is included with separate account assets and amounted
to $46,293,000 and $14,882,000 as of December 31, 1997 and 1996, respectively.
66
<PAGE>
THE MINNESOTA MUTUAL LIFE INSURANCE COMPANY AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
(2) SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)
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.
Reclassifications
Certain 1996 and 1995 financial statement balances have been reclassified to
conform with the 1997 presentation.
(3) INVESTMENTS
Net investment income for the years ended December 31 was as follows:
<TABLE>
<CAPTION>
1997 1996 1995
-------- -------- --------
(IN THOUSANDS)
<S> <C> <C> <C>
Fixed maturity securities $457,391 $433,985 $426,114
Equity securities 16,182 14,275 8,883
Mortgage loans 55,929 63,865 58,943
Real estate (407) (475) 497
Policy loans 15,231 13,828 12,821
Short-term investments 6,995 6,535 6,716
Other invested assets 3,871 4,901 5,168
-------- -------- --------
Gross investment income 555,192 536,914 519,142
Investment expenses (1,419) (5,927) (4,095)
-------- -------- --------
Total $553,773 $530,987 $515,047
======== ======== ========
</TABLE>
67
<PAGE>
THE MINNESOTA MUTUAL LIFE INSURANCE COMPANY AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
(3) INVESTMENTS (CONTINUED)
Net realized capital gains (losses) for the years ended December 31 were as
follows:
<TABLE>
<CAPTION>
1997 1996 1995
-------- ------- -------
(IN THOUSANDS)
<S> <C> <C> <C>
Fixed maturity securities $ 3,711 $(6,536) $24,025
Equity securities 92,765 57,770 36,374
Mortgage loans 2,011 (721) (207)
Real estate 1,598 7,088 2,436
Other invested assets 14,282 (2,027) (336)
-------- ------- -------
Total $114,367 $55,574 $62,292
======== ======= =======
</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>
1997 1996 1995
-------- -------- --------
(IN THOUSANDS)
<S> <C> <C> <C>
Fixed maturity securities, available-for-sale:
Gross realized gains $ 18,804 $ 19,750 $ 34,898
Gross realized losses (15,093) (26,286) (10,873)
Equity securities:
Gross realized gains 151,200 79,982 52,670
Gross realized losses (27,672) (22,212) (16,296)
</TABLE>
Net unrealized gains (losses) included in policyowners' surplus at December
31 were as follows:
<TABLE>
<CAPTION>
1997 1996
--------- --------
(IN THOUSANDS)
<S> <C> <C>
Gross unrealized gains $ 472,671 $314,576
Gross unrealized losses (118,863) (77,337)
Adjustment to deferred acquisition costs (100,299) (65,260)
Adjustment to unearned policy and contract fees (13,087) (8,192)
Deferred federal income taxes (83,749) (55,475)
--------- --------
Net unrealized gains $ 156,673 $108,312
========= ========
</TABLE>
68
<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, 1997
Available-for-sale:
United States government and gov-
ernment agencies and authorities $ 239,613 $ 18,627 $ -- $ 258,240
Foreign governments 1,044 -- 29 1,015
Corporate securities 2,273,474 216,056 70,484 2,419,046
International bond securities 150,157 2,565 23,530 129,192
Mortgage-backed securities 1,854,519 66,934 9,145 1,912,308
---------- -------- -------- ----------
Total fixed maturities 4,518,807 304,182 103,188 4,719,801
Equity securities--unaffiliated 421,672 134,558 14,575 541,655
Equity securities--affiliated 115,769 29,214 -- 144,983
---------- -------- -------- ----------
Total equity securities 537,441 163,772 14,575 686,638
---------- -------- -------- ----------
Total available-for-sale 5,056,248 467,954 117,763 5,406,439
Held-to maturity:
Corporate securities 893,407 59,850 752 952,505
Mortgage-backed securities 194,905 10,817 -- 205,722
---------- -------- -------- ----------
Total held-to-maturity 1,088,312 70,667 752 1,158,227
---------- -------- -------- ----------
Total $6,144,560 $538,621 $118,515 $6,564,666
========== ======== ======== ==========
DECEMBER 31, 1996
Available-for-sale:
United States government and gov-
ernment agencies and authorities $ 302,820 $ 2,397 $ 6,756 $ 298,461
State, 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
========== ======== ======== ==========
</TABLE>
69
<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, 1997 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 $ 47,387 $ 44,198 $ 2,982 $ 3,004
Due after one year through five
years 335,383 354,936 120,846 124,461
Due after five years through ten
years 1,355,665 1,416,149 317,689 337,322
Due after ten years 925,853 992,210 451,890 487,718
---------- ---------- ---------- ----------
2,664,288 2,807,493 893,407 952,505
Mortgage-backed securities 1,854,519 1,912,308 194,905 205,722
---------- ---------- ---------- ----------
Total $4,518,807 $4,719,801 $1,088,312 $1,158,227
========== ========== ========== ==========
</TABLE>
At December 31, 1997 and 1996, bonds and certificates of deposit with a
carrying value of $8,000,000 and $12,934,000, respectively, were on deposit
with various regulatory authorities as required by law.
Allowances for credit losses on investment are reflected on the consolidated
balance sheets as a reduction of the related assets and were as follows:
<TABLE>
<CAPTION>
1997 1996
------- -------
(IN THOUSANDS)
<S> <C> <C>
Mortgage loans $ 1,500 $ 1,895
Foreclosed real estate -- 535
Investment real estate 2,248 2,529
------- -------
Total $ 3,748 $ 4,959
======= =======
</TABLE>
At December 31, 1997, the recorded investment in mortgage loans that were
considered to be impaired was $18,400 before allowance for credit losses. These
impaired loans, due to adequate fair market value of underlying collateral, do
not have an allowance for credit losses.
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.
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, 1997 and 1996.
Changes in the allowance for credit losses on mortgage loans were as follows:
<TABLE>
<CAPTION>
1997 1996 1995
------ ------ ------
(IN THOUSANDS)
<S> <C> <C> <C>
Balance at beginning of year $1,895 $1,711 $2,449
Provision for credit losses -- 381 127
Charge-offs (395) (197) (865)
------ ------ ------
Balance at end of year $1,500 $1,895 $1,711
====== ====== ======
</TABLE>
70
<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>
1997 1996 1995
------ ------ -------
(IN THOUSANDS)
<S> <C> <C> <C>
Average impaired mortgage loans $3,268 $9,375 $15,845
Interest income on impaired mortgage loans--contractual 556 1,796 1,590
Interest income on impaired mortgage loans--collected 554 1,742 1,515
</TABLE>
(4) NOTES RECEIVABLE
In connection with the Company's planned construction of an additional home
office facility in St. Paul, the Company entered into a loan contingency
agreement with the Housing and Redevelopment Authority of the City of Saint
Paul, Minnesota (HRA) in November, 1997. A maximum of $15 million in funds is
available under this loan for condemnation and demolition of the Company's
proposed building site. The note bears interest at a rate of 8.625%, with
principal payments commencing February 2004 and a maturity date of August 2025.
Interest payments are accrued and are payable February and August of each year
commencing February 2001. All principal and interest payments are due only to
the extent of available tax increments. As of December 31, 1997 HRA has drawn
$286,775 on this loan contingency agreement and accrued interest of $1,374.
(5) NET FINANCE RECEIVABLES
Finance receivables as of December 31 were as follows:
<TABLE>
<CAPTION>
1997 1996
-------- --------
(IN THOUSANDS)
<S> <C> <C>
Direct installment loans $183,424 $204,038
Retail installment notes 20,373 30,843
Retail revolving credit 25,426 24,863
Credit card receivables -- 3,541
Accrued interest 3,116 3,404
-------- --------
Gross receivables $232,339 $266,689
Allowance for uncollectible amounts (20,545) (7,497)
-------- --------
Finance receivables, net $211,794 $259,192
======== ========
</TABLE>
Direct installment loans at December 31, 1997 consisted of $83,836,000 of
discount basis loans (net of unearned finance charges) and $99,588,00 of
interest-bearing loans. As of December 31, 1996, discount basis loans amounted
to $93,127,000 and interest-bearing loans amounted to $110,911,000. 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. Direct installment loans included approximately $65
million and $69 million of real estate secured loans at December 31, 1997 and
1996, respectively. Revolving credit loans included approximately $24 million
and $23 million of real estate secured loans at December 31, 1997 and 1996,
respectively. 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
$90,940,000, $92,438,000 and $75,865,000 and the percentage of these cash
collections to the average net balances were 47%, 48%, and 47% for the years
ended December 31, 1997, 1996 and 1995, respectively.
71
<PAGE>
THE MINNESOTA MUTUAL LIFE INSURANCE COMPANY AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
(5) NET FINANCE RECEIVABLES (CONTINUED)
Changes in the allowance for uncollectible amounts for the years ended
December 31 were as follows:
<TABLE>
<CAPTION>
1997 1996 1995
-------- -------- -------
(IN THOUSANDS)
<S> <C> <C> <C>
Balance at beginning of year $ 7,497 $ 6,377 $ 5,360
Provision for credit losses 28,206 10,086 6,140
Charge-offs (17,869) (11,036) (6,585)
Recoveries 2,711 2,070 1,462
-------- -------- -------
Balance at end of year $ 20,545 $ 7,497 $ 6,377
======== ======== =======
</TABLE>
At December 31, 1997, the recorded investment in certain direct installment
loans and direct revolving credit loans were considered to be impaired. The
balances of such loans at December 31, 1997 and the related allowance for
credit losses was as follows:
<TABLE>
<CAPTION>
INSTALLMENT REVOLVING
LOANS CREDIT TOTAL
----------- --------- ------
(IN THOUSANDS)
<S> <C> <C> <C>
Balances at December 31, 1997 $7,723 14,492 22,215
Related allowance for credit losses $4,200 7,772 11,972
</TABLE>
All loans deemed to be impaired are placed on a non-accrual status. No
accrued or unpaid interest was recognized on impaired loans during 1997. The
average balances of impaired loans during the year ended December 31, 1997 was
$7,397,000 and $12,793,000, respectively, for installment basis and revolving
credit direct loans.
There were no material commitments to lend additional funds to customers
whose loans were classified as non-accrual at December 31, 1997.
(6) 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>
1997 1996 1995
------- ------- -------
(IN THOUSANDS)
<S> <C> <C> <C>
Computed tax expense $93,337 $69,753 $74,631
Difference between computed and actual tax ex-
pense:
Dividends received deduction (5,573) (2,534) (1,710)
Special tax on mutual life insurance companies 3,341 2,760 10,134
MF&C sale (4,408) -- --
Foundation gain (4,042) (1,260) (540)
Tax credits (3,600) (3,475) (1,840)
Expense adjustments and other (2,275) 3,533 2,699
------- ------- -------
Total tax expense $76,780 $68,777 $83,374
======= ======= =======
</TABLE>
72
<PAGE>
THE MINNESOTA MUTUAL LIFE INSURANCE COMPANY AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
(6) INCOME TAXES (CONTINUED)
The tax effects of temporary differences that give rise to the Company's net
deferred federal tax liability were as follows:
<TABLE>
<CAPTION>
1997 1996
-------- --------
(IN THOUSANDS)
<S> <C> <C>
Deferred tax assets:
Policyowner liabilities $ 14,374 $ 15,854
Unearned fee income 49,274 43,232
Pension and post-retirement benefits 23,434 21,815
Tax deferred policy acquisition costs 73,134 58,732
Net realized capital losses 9,609 8,275
Other 20,524 19,229
-------- --------
Gross deferred tax assets 190,349 167,137
Deferred tax liabilities:
Deferred policy acquisition costs 201,611 206,331
Real estate and property and equipment depreciation 11,165 10,089
Basis difference on investments 11,061 8,605
Net unrealized capital gains 122,876 81,339
Other 9,693 10,438
-------- --------
Gross deferred tax liabilities 356,406 316,802
-------- --------
Net deferred tax liability $166,057 $149,665
======== ========
</TABLE>
A valuation allowance for deferred tax assets was not considered necessary as
of December 31, 1997 and 1996, 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, 1997, 1996 and 1995, were
$97,721,000, $79,026,000 and $64,390,000, respectively.
73
<PAGE>
THE MINNESOTA MUTUAL LIFE INSURANCE COMPANY AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
(7) 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>
1997 1996 1995
-------- -------- --------
(IN THOUSANDS)
<S> <C> <C> <C>
Balance at January 1 $416,910 $377,302 $349,311
Less: reinsurance recoverable 102,161 80,333 61,624
-------- -------- --------
Net balance at January 1 314,749 296,969 287,687
-------- -------- --------
Incurred related to:
Current year 121,153 134,727 129,896
Prior years 7,809 4,821 (4,014)
-------- -------- --------
Total incurred 128,962 139,548 125,882
-------- -------- --------
Paid related to:
Current year 51,275 51,695 47,620
Prior years 57,475 70,073 68,980
-------- -------- --------
Total paid 108,750 121,768 116,600
-------- -------- --------
Net balance at December 31 334,961 314,749 296,969
Plus: reinsurance recoverable 104,716 102,161 80,333
-------- -------- --------
Balance at December 31 $439,677 $416,910 $377,302
======== ======== ========
</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.
As a result of changes in estimates of claims incurred in prior years, the
accident and health claims and claim adjustment expenses incurred increased
(decreased) by $7,809, $4,821 and ($4,014) in 1997, 1996 and 1995,
respectively. These amounts are the result of normal reserve development
inherent in the uncertainty of establishing the liability for unpaid accident
and health claims and claim adjustment expenses.
(8) 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>
1997 1996 1995
------- -------- --------
(IN THOUSANDS)
<S> <C> <C> <C>
Service cost-benefits earned during the period $ 6,462 $ 6,019 $ 5,294
Interest accrued on projected benefit obligation 9,640 8,541 7,935
Actual return on plan assets (9,575) (12,619) (18,061)
Net amortization and deferral 656 4,698 11,811
------- -------- --------
Net periodic pension cost $ 7,183 $ 6,639 $ 6,979
======= ======== ========
</TABLE>
74
<PAGE>
THE MINNESOTA MUTUAL LIFE INSURANCE COMPANY AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
(8) 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 PLANS
------------------ ----------------
1997 1996 1997 1996
-------- -------- ------- -------
(IN THOUSANDS)
<S> <C> <C> <C> <C>
Actuarial present value of benefit ob-
ligations:
Vested benefit obligation $ 70,638 $ 61,328 $ -- $ --
Non-vested benefit obligation 21,252 19,119 8,017 5,912
-------- -------- ------- -------
Accumulated benefit obligation $ 91,890 $ 80,447 $ 8,017 $ 5,912
======== ======== ======= =======
Pension liability included in other li-
abilities:
Projected benefit obligation $130,144 $117,836 $15,744 $12,576
Plan assets at fair value 128,970 115,107 -- --
-------- -------- ------- -------
Plan assets less then projected bene-
fit obligation 1,174 2,729 15,744 12,576
Unrecognized net gain (loss) 6,061 3,633 (4,229) (2,332)
Unrecognized prior service cost (334) (364) -- --
Unamortized transition asset (obliga-
tion) 2,202 2,422 (7,682) (8,451)
Additional minimum liability -- -- 4,184 4,119
-------- -------- ------- -------
Net pension liability $ 9,103 $ 8,420 $ 8,017 $ 5,912
======== ======== ======= =======
</TABLE>
A weighted average discount rate of 7.5% and a weighted average rate of
increase in future compensation levels of 5.3% were used in determining the
actuarial present value of the projected benefit obligation at December 31,
1997 and 1996. The assumed long-term rate of return on plan assets was either
8.5% or 7.5%, 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
1997, 1996 and 1995 of $7,173,000, $6,092,000 and $6,595,000, 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>
1997 1996 1995
------ ------ ------
(IN THOUSANDS)
<S> <C> <C> <C>
Service cost-benefits earned during the period $1,008 $1,011 $1,276
Interest accrued on projected benefit obligation 1,826 2,041 2,452
Amortization of prior service cost (526) (513) (513)
Amortization of net gain (480) (177) --
------ ------ ------
Net periodic postretirement benefit cost $1,828 $2,362 $3,215
====== ====== ======
</TABLE>
75
<PAGE>
THE MINNESOTA MUTUAL LIFE INSURANCE COMPANY AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
(8) 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>
1997 1996
------- -------
(IN THOUSANDS)
<S> <C> <C>
Accumulated postretirement benefit obligation
Retirees $ 9,333 $10,238
Other fully eligible plan participants 4,861 4,594
Other active plan participants 9,738 9,514
------- -------
Total accumulated postretirement benefit obligation 23,932 24,346
Unrecognized prior service cost 3,680 4,107
Unrecognized net gain 11,290 9,880
------- -------
Accrued postretirement benefit liability $38,902 $38,333
======= =======
</TABLE>
The discount rate used in determining the accumulated postretirement benefit
obligation for 1997 and 1996 was 7.5%. The 1997 net health care cost trend rate
was 8.5%, graded to 5.5% over 6 years, and the 1996 rate was 9.0%, graded to
5.5% over 7 years.
The assumptions presented herein are based on pertinent information available
to management as of December 31, 1997 and 1996. 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 31,1997 by
$4,323,000 and the estimated eligibility cost and interest cost components of
net periodic postretirement benefit costs for 1997 by $588,000.
(9) SALE OF SUBSIDIARY
On October 1, 1997, the Company sold Minnesota Fire and Casualty Company (MFC),
a wholly owned subsidiary to Harleysville Group, Inc. The Company received net
cash proceeds of approximately $33.5 million from the sale, and realized a gain
of approximately $14.5 million. HomePlus Insurance Company (HomePlus), a
previously wholly owned subsidiary of MFC, was excluded from the sale of
assets. In accordance with the agreement, prior to September 30,1997, MFC made
a distribution of private placement bonds to the Company with an amortized cost
of approximately $4.3 million and transferred all issued and outstanding shares
of HomePlus to the Company. The carrying value of the transferred shares was
approximately $5.8 million. Under an administrative services agreement with
MFC, the Company has retained MFC to provide financial and other services for
HomePlus.
(10) 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 obligation 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. Allowances are established for
amounts deemed to be uncollectible.
Reinsurance is accounted for over the life of the underlying reinsured
policies using assumptions consistent with those used to account for the
underlying policies.
76
<PAGE>
THE MINNESOTA MUTUAL LIFE INSURANCE COMPANY AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
(10) REINSURANCE (CONTINUED)
The effect of reinsurance on premiums for the years ended December 31 was as
follows:
<TABLE>
<CAPTION>
1997 1996 1995
-------- -------- --------
(IN THOUSANDS)
<S> <C> <C> <C>
Direct premiums $595,686 $615,098 $600,841
Reinsurance assumed 78,097 64,489 64,792
Reinsurance ceded (58,530) (67,228) (61,863)
-------- -------- --------
Net premiums $615,253 $612,359 $603,770
======== ======== ========
</TABLE>
Reinsurance recoveries on ceded reinsurance contracts were $58,072,000,
$72,330,000 and $58,338,000 during 1997, 1996 and 1995 respectively.
(11) 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, 1997 and 1996.
Although management is not aware of any factors that would significantly affect
the estimated fair value, 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 judgement 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,
1997 and 1996, 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,
1997 and 1996, 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, 1997 and 1996
as those investments contracts have no defined maturity and are similar to a
deposit liability. 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.
77
<PAGE>
THE MINNESOTA MUTUAL LIFE INSURANCE COMPANY AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
(11) FAIR VALUE OF FINANCIAL INSTRUMENTS (CONTINUED)
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>
1997 1996
--------------------- ---------------------
CARRYING FAIR CARRYING FAIR
AMOUNT VALUE AMOUNT VALUE
---------- ---------- ---------- ----------
(IN THOUSANDS)
<S> <C> <C> <C> <C>
Fixed maturity securities:
Available-for-sale $4,719,801 $4,719,801 $4,674,082 $4,674,082
Held-to-maturity 1,088,312 1,158,227 1,125,638 1,179,112
Equity securities 686,638 686,638 549,797 549,797
Mortgage loans:
Commercial 506,860 527,994 432,198 445,976
Residential 154,477 158,334 176,610 180,736
Policy loans 213,488 213,488 204,178 204,178
Short-term investments 112,352 112,352 126,372 126,372
Cash 96,179 96,179 57,140 57,140
Finance receivables, net 211,794 211,794 259,192 259,192
Derivatives 1,457 1,457 1,197 1,197
---------- ---------- ---------- ----------
Total financial assets $7,791,358 $7,886,264 $7,606,404 $7,677,782
========== ========== ========== ==========
</TABLE>
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>
1997 1996
--------------------- ---------------------
CARRYING FAIR CARRYING FAIR
AMOUNT VALUE AMOUNT VALUE
---------- ---------- ---------- ----------
(IN THOUSANDS)
<S> <C> <C> <C> <C>
Deferred annuities $2,131,806 $2,112,301 $2,178,355 $2,152,636
Annuity certain contracts 55,431 57,017 52,636 53,962
Other fund deposits 754,960 753,905 808,592 805,709
Guaranteed investment contracts 8,188 8,187 18,770 18,866
Supplementary contracts without
life contingencies 46,700 45,223 47,966 47,536
Notes payable 298,000 302,000 319,000 325,974
---------- ---------- ---------- ----------
Total financial liabilities $3,295,085 $3,278,633 $3,425,319 $3,404,683
========== ========== ========== ==========
</TABLE>
(12) 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 of the State of Minnesota. The
approved accrued interest was $3,008,000 as of December 31, 1997 and 1996. The
issuance costs of $1,357,000 are deferred and amortized over 30 years on
straight-line basis.
78
<PAGE>
THE MINNESOTA MUTUAL LIFE INSURANCE COMPANY AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
(12) NOTES PAYABLE (CONTINUED)
Notes payable as of December 31 were as follows:
<TABLE>
<CAPTION>
1997 1996
-------- --------
(IN THOUSANDS)
<S> <C> <C>
Corporate-surplus notes, 8.25%, 2025 $125,000 $125,000
Consumer finance subsidiary-senior, 6.53%-8.77%, through
2003 173,000 194,000
-------- --------
Total notes payable $298,000 $319,000
======== ========
</TABLE>
At December 31, 1997, the aggregate minimum annual notes payable maturities
for the next five years were as follows: 1998, $31,000,000; 1999 $49,000,000;
2000 $33,000,000; 2001 $26,000,000; 2002 $22,000,000.
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
of $41,354,000. The consumer finance subsidiary was in compliance with all such
provisions at December 31, 1997.
Interest paid on debt for the years ended December 31, 1997, 1996 and 1995,
was $18,197,000, $21,849,000 and $6,504,000, respectively.
(13) 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.
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. Allowances are established for
amounts deemed uncollectible.
The Company has issued certain participating group annuity and group life
insurance contracts jointly with another life insurance company. The joint
contract issuer has liabilities related to these contracts of $279,978,000 as
of December 31, 1997. 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 $139,774,000 as of December 31, 1997. The Company
estimates that $51,300,000 of these commitments will be invested in 1998, with
the remaining $88,474,000 invested over the next four years.
As of December 31, 1997, the Company had committed to purchase bonds and
mortgage loans totaling $109,362,000 but had not completed the purchase
transactions.
At December 31, 1997, the Company had guaranteed the payment of $73,100,000
in policyowner dividends and discretionary amounts payable in 1998. The Company
has pledged bonds, valued at $75,774,000 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
Association. An asset is recorded for the amount of guaranty fund assessments
paid which can be recovered through future premium tax credits.
79
<PAGE>
THE MINNESOTA MUTUAL LIFE INSURANCE COMPANY AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
(14) STATUTORY FINANCIAL DATA
The Company also prepares 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. Statutory accounting practices focus primarily 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
---------------------- ----------------------------
1997 1996 1997 1996 1995
---------- ---------- -------- -------- --------
(IN THOUSANDS)
<S> <C> <C> <C> <C> <C>
Statutory basis $ 870,688 $ 682,886 $167,078 $115,797 $ 88,706
Adjustments:
Deferred policy acquisi-
tion costs 576,030 589,517 19,430 15,312 29,822
Net unrealized invest-
ment gains 199,637 111,575 -- -- --
Statutory asset valua-
tion reserve 242,100 240,474 -- -- --
Statutory interest main-
tenance reserve 24,169 24,707 (538) (8,192) 12,976
Premiums and fees de-
ferred or receivable (74,025) (75,716) 2,175 1,587 497
Change in reserve basis 108,105 98,406 9,699 20,114 12,382
Separate accounts (51,172) (40,755) (6,272) (6,304) (854)
Unearned policy and con-
tract fees (126,477) (121,843) (12,825) (2,530) (4,410)
Surplus notes (125,000) (125,000) -- -- --
Net deferred taxes (166,057) (149,665) 7,832 (744) (11,995)
Nonadmitted assets 32,611 31,531 -- -- --
Policyowner dividends 60,036 57,765 2,708 502 4,660
Other (33,960) (25,454) 609 (5,024) (1,925)
---------- ---------- -------- -------- --------
As reported in the
accompanying
consolidated
financial statements $1,536,685 $1,298,428 $189,896 $130,518 $129,859
========== ========== ======== ======== ========
</TABLE>
80
<PAGE>
THE MINNESOTA MUTUAL LIFE INSURANCE COMPANY AND SUBSIDIARIES
SCHEDULE I
SUMMARY OF INVESTMENTS--OTHER THAN INVESTMENTS IN RELATED PARTIES
DECEMBER 31, 1997
<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 $ 239,613 $ 258,240 $ 258,240
Foreign governments 1,044 1,015 1,015
Public utilities 385,228 406,920 398,887
Mortgage-backed securities 2,049,424 2,118,030 2,107,213
All other corporate bonds 2,931,810 3,093,823 3,042,758
---------- ---------- ----------
Total bonds 5,607,119 5,878,028 5,808,113
---------- ---------- ----------
Equity securities:
Common stocks:
Public utilities 7,732 10,090 10,090
Banks, trusts and insurance companies 37,217 47,120 47,120
Industrial, miscellaneous and all
other 354,317 460,170 460,170
Nonredeemable preferred stocks 22,406 24,275 24,275
---------- ---------- ----------
Total equity securities 421,672 541,655 541,655
---------- ---------- ----------
Mortgage loans on real estate 661,337 xxxxxx 661,337
Real estate(2) 39,964 xxxxxx 39,964
Policy loans 213,488 xxxxxx 213,488
Other long-term investments 216,838 xxxxxx 216,838
Short-term investments 112,352 xxxxxx 112,352
---------- ---------- ----------
Total 1,243,979 -- $1,243,979
---------- ---------- ----------
Total investments $7,272,770 $6,419,683 $7,593,747
========== ========== ==========
</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 $-0-.
(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.
81
<PAGE>
THE MINNESOTA MUTUAL LIFE INSURANCE COMPANY AND SUBSIDIARIES
SCHEDULE III
SUPPLEMENTARY INSURANCE INFORMATION
(IN THOUSANDS)
<TABLE>
<CAPTION>
AS OF DECEMBER 31,
----------------------------------------------------
FUTURE POLICY
DEFERRED BENEFITS OTHER POLICY
POLICY LOSSES, CLAIMS CLAIMS AND
ACQUISITION AND SETTLEMENT UNEARNED BENEFITS
SEGMENT COSTS EXPENSES(1) PREMIUMS(2) PAYABLE
- ------- ----------- -------------- ----------- -------------
(IN THOUSANDS)
<S> <C> <C> <C> <C>
1997:
Life insurance $434,012 $2,229,396 $166,704 $42,627
Accident and
health insurance 70,593 466,109 34,250 17,153
Annuity 71,425 3,266,965 -- 4,576
Property and
liability
insurance -- 280 1,116 --
-------- ---------- -------- -------
$576,030 $5,962,750 $202,070 $64,356
======== ========== ======== =======
1996:
Life insurance $456,461 $2,123,148 $149,152 $51,772
Accident and
health insurance 62,407 437,118 33,770 18,774
Annuity 70,649 3,360,614 -- 31
Property and
liability
insurance -- 27,855 24,189 --
-------- ---------- -------- -------
$589,517 $5,948,735 $207,111 $70,577
======== ========== ======== =======
1995:
Life insurance $430,829 $2,009,154 $151,864 $41,212
Accident and
health insurance 55,888 400,950 34,847 14,567
Annuity 53,015 3,401,760 -- 33
Property and
liability
insurance -- 30,117 23,783 --
-------- ---------- -------- -------
$539,732 $5,841,981 $210,494 $55,812
======== ========== ======== =======
</TABLE>
<TABLE>
<CAPTION>
FOR THE YEARS ENDED DECEMBER 31,
----------------------------------------------------------------------
AMORTIZATION
BENEFITS, OF DEFERRED
NET CLAIMS, LOSSES POLICY OTHER
PREMIUM INVESTMENT AND SETTLEMENT ACQUISITION OPERATING PREMIUMS
SEGMENT REVENUE(3) INCOME EXPENSES COSTS EXPENSES WRITTEN(4)
- ------- ---------- ---------- -------------- ------------ --------- ----------
(IN THOUSANDS)
<S> <C> <C> <C> <C> <C> <C>
1997:
Life insurance $576,468 $247,267 $476,747 $102,473 $345,938
Accident and
health insurance 205,869 40,343 87,424 9,451 101,960
Annuity 64,637 261,768 242,738 16,252 129,263
Property and
liability
insurance 40,316 4,395 33,773 -- 13,146 43,376
-------- -------- -------- -------- -------- -------
$887,290 $553,773 $840,682 $128,176 $590,307 $43,376
======== ======== ======== ======== ======== =======
1996:
Life insurance $568,874 $223,762 $478,228 $ 97,386 $290,525
Accident and
health insurance 160,097 34,202 96,743 14,017 87,222
Annuity 79,245 267,473 243,387 14,575 111,366
Property and
liability
insurance 50,109 5,550 36,933 -- 19,033 50,515
-------- -------- -------- -------- -------- -------
$858,325 $530,987 $855,291 $125,978 $508,146 $50,515
======== ======== ======== ======== ======== =======
1995:
Life insurance $540,353 $203,487 $454,299 $ 80,896 $266,090
Accident and
health insurance 153,505 33,358 93,482 11,448 83,345
Annuity 74,899 272,499 260,854 12,596 86,716
Property and
liability
insurance 49,216 5,703 33,563 -- 18,090 51,133
-------- -------- -------- -------- -------- -------
$817,973 $515,047 $842,198 $104,940 $454,241 $51,133
======== ======== ======== ======== ======== =======
</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
82
<PAGE>
THE MINNESOTA MUTUAL LIFE INSURANCE COMPANY AND SUBSIDIARIES
SCHEDULE IV
REINSURANCE
FOR THE YEARS ENDED DECEMBER 31, 1997, 1996 AND 1995
<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>
1997:
Life insurance in force $118,345,796 $14,813,351 $29,341,332 $132,873,777 22.1%
============ =========== =========== ============
Premiums:
Life insurance $ 340,984 $ 30,547 $ 63,815 $ 374,252 17.1%
Accident and health
insurance 175,647 16,332 1,310 160,625 0.8%
Annuity 40,060 -- -- 40,060 --
Property and liability
insurance 38,995 11,651 12,972 40,316 32.2%
------------ ----------- ----------- ------------
Total premiums $ 595,686 $ 58,530 $ 78,097 $ 615,253 12.7%
============ =========== =========== ============
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%
============ =========== =========== ============
</TABLE>
83
<PAGE>
APPENDIX I
ILLUSTRATIONS OF POLICY VALUES, DEATH BENEFITS AND PREMIUMS
The Appendix I illustrations beginning on page 82 show the projected actual
cash values and death benefits for various combinations of age, premium level,
face amount of insurance, death benefit option and level of cost of insurance
charges. The illustrations assume that 100 percent of net premiums are invested
in the sub-accounts of the Variable Life Account. Illustrations are provided
for a male and female, both non-smokers and both aged 40. The plan of insurance
for each illustration is a whole life plan, each with an initial face amount of
$1,000,000. Both death benefit options--the Cash Option and the Protection
Option are shown. We show all illustrations based on both guaranteed maximum
and current charges.
Guaranteed maximum cost of insurance charges will vary by age, sex, and risk
class. We use the male, female and unisex 1980 Commissioners Standard Ordinary
Mortality Tables ("1980 CSO"), as appropriate. The unisex tables are used in
circumstances where legal considerations require the elimination of sex-based
distinctions in the calculation of mortality costs. Our maximum cost of
insurance charges are based on an assumption of mortality not greater than the
mortality rates reflected in 1980 CSO Tables.
In most cases we intend to impose cost of insurance charges which are
substantially lower than the maximum charges determined as described above. In
addition to the factors governing maximum cost of insurance charges, actual
charges will vary depending on the level of scheduled premiums for a given
amount of insurance, the duration of the Policy and the smoking habits of both
insureds. We illustrate current cost of insurance charges since they represent
our current practices with respect to mortality charges for this class of
Policies.
Similarly, we impose a current administration charge and a current face
amount guarantee charge which are less than the guaranteed contractual. These
current charges are expected to compensate us for the actual costs of
administration and for guaranteeing the face amount. If the actual costs
change, these charges may increase or decrease, as necessary although they may
not exceed the maximum stated in the Policy.
The illustrations labeled "Using Current Charges" show actual cash values and
death benefits resulting from charging the Policy for cost of insurance,
administration and the face amount guarantee at the current level. The
illustrations labeled "Using Guaranteed Maximum Charges" shows actual cash
values and death benefits when cost of insurance, administration and the face
amount guarantee charges are deducted from the Policy at the maximum level as
stated in the Policy. These two ledger formats can be compared to demonstrate
the result of our charging less than the maximum charges.
The illustrations show how actual cash values and death benefits would vary
over time if the return on the assets held in the Variable Life Account equaled
a gross annual rate after tax, of 0 percent, 6 percent and 12 percent. The
actual cash values and death benefits would be different from those shown if
the returns averaged 0 percent, 6 percent and 12 percent but fluctuated over
the life of the Policy. The illustrations assume scheduled premiums are paid
when due.
The amounts shown for the hypothetical actual cash value and death benefit as
of each policy year reflect the fact that the net investment return on the
assets held in the sub-accounts is lower than the gross, after-tax return. This
is because a daily investment management fee assessed against the net assets of
the Funds 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 .67
percent and represents an average of the annual fee charged for all portfolios
of the Funds. In addition to the deduction for the investment management fee,
the illustrations also reflect a deduction for those Fund costs and expenses
borne by the Funds. Fund expenses illustrated are .19 percent, representing an
average of the 1997 expense ratios of the portfolios of the Funds. Therefore,
gross annual rates of return of 0 percent, 6 percent and 12 percent correspond
to approximate net annual rates of return of -1.36 percent, 4.64 percent and
10.64 percent.
83
<PAGE>
The tables reflect the fact that no charges for federal, state or local
income taxes are currently made against the Variable Life Account. If such a
charge is made in the future, it will take a higher gross rate of return to
produce after-tax returns of 0 percent, 6 percent and 12 percent than it does
now.
Upon request, we will furnish a comparable illustration based upon the age,
sex and risk classification of each insured, and on the face amount, premium,
plan of insurance and gross annual rate of return requested. It should be
remembered that actual illustrations may be materially different from those
illustrated, depending upon the actual situation. For example, illustrations
for smokers or individuals who are rated sub-standard will differ materially in
premium amount and illustrated values, even though the insureds may be the same
ages as the insureds in our sample illustration.
84
<PAGE>
VAL-SD
DEATH BENEFIT OPTION--CASH OPTION
MALE NONSMOKER ISSUE AGE 40
FEMALE NONSMOKER ISSUE AGE 40
INITIAL DEATH BENEFIT--$1,000,000(1)
$10,806 INITIAL SCHEDULED PREMIUM(2)
USING CURRENT CHARGES
<TABLE>
<CAPTION>
-ASSUMING HYPOTHETICAL INVESTMENT RETURNS OF-
0% GROSS(3) 6.00% GROSS(3) 12.00% GROSS(3)
INITIAL (-1.36% NET) (4.64% NET) (10.64% NET)
POL BASE POLICY DEATH POLICY DEATH POLICY DEATH
YR PREMIUM VALUE BENEFIT VALUE BENEFIT VALUE BENEFIT
- --- ------- -------- ---------- -------- ---------- --------- ----------
<S> <C> <C> <C> <C> <C> <C> <C>
1 $10,806 $ 175 $1,000,000 $ 198 $1,000,000 $ 221 $1,000,000
2 10,806 9,309 1,000,000 9,912 1,000,000 10,517 1,000,000
3 10,806 18,310 1,000,000 20,067 1,000,000 21,900 1,000,000
4 10,806 27,170 1,000,000 30,675 1,000,000 34,475 1,000,000
5 10,806 35,892 1,000,000 41,757 1,000,000 48,369 1,000,000
6 10,806 44,477 1,000,000 53,335 1,000,000 63,724 1,000,000
7 10,806 52,919 1,000,000 65,424 1,000,000 80,686 1,000,000
8 10,806 61,221 1,000,000 78,048 1,000,000 99,429 1,000,000
9 10,806 69,375 1,000,000 91,225 1,000,000 120,132 1,000,000
10 10,806 77,385 1,000,000 104,980 1,000,000 143,112 1,000,000
15 10,806 116,271 1,000,000 184,749 1,000,000 300,708 1,000,000
20 10,806 152,665 1,000,000 284,666 1,000,000 565,599 1,312,661
25 10,806 186,050 1,000,000 409,548 1,000,000 1,004,909 1,963,917
30 10,806 214,686 1,000,000 565,409 1,000,000 1,729,991 2,868,913
</TABLE>
(1) The initial death benefit is guaranteed to age 100.
(2) If premiums are paid more frequently than annually, the payments would be
$5,403.00 semi-annually, $2,701.50 quarterly, or $900.50 monthly. The death
benefits and policy values would be slightly different for a policy with
more frequent premium payments.
(3) Assumes no policy loan has been made.
THE HYPOTHETICAL INVESTMENT RATES OF RETURN SHOWN ABOVE AND ELSEWHERE IN THIS
PROSPECTUS ARE ILLUSTRATIVE ONLY AND SHOULD NOT BE DEEMED A REPRESENTATION OF
PAST OR FUTURE INVESTMENT RATES OF RETURN. ACTUAL RATES OF RETURN MAY BE MORE
OR LESS THAN THOSE SHOWN AND WILL DEPEND ON A NUMBER OF FACTORS, INCLUDING THE
INVESTMENT ALLOCATIONS MADE BY AN OWNER, AND PREVAILING INTEREST RATES. THE
DEATH BENEFITS AND POLICY VALUES FOR A POLICY WOULD BE DIFFERENT FROM THOSE
SHOWN IF THE ACTUAL RATES OF RETURN AVERAGED 0%, 6%, AND 12% OVER A PERIOD OF
YEARS BUT ALSO FLUCTUATED ABOVE OR BELOW THOSE AVERAGES FOR INDIVIDUAL POLICY
YEARS. NO REPRESENTATIONS CAN BE MADE BY MINNESOTA MUTUAL OR THE FUNDS THAT
THESE HYPOTHETICAL RATES OF RETURN CAN BE ACHIEVED FOR ANY ONE YEAR OR
SUSTAINED OVER ANY PERIOD OF TIME.
85
<PAGE>
VAL-SD
DEATH BENEFIT OPTION--CASH OPTION
MALE NONSMOKER ISSUE AGE 40
FEMALE NONSMOKER ISSUE AGE 40
INITIAL DEATH BENEFIT--$1,000,000(1)
$10,806 INITIAL SCHEDULED PREMIUM(2)
USING GUARANTEED MAXIMUM CHARGES
<TABLE>
<CAPTION>
-ASSUMING HYPOTHETICAL INVESTMENT RETURNS OF-
0% GROSS(3) 6.00% GROSS(3) 12.00% GROSS(3)
INITIAL (-1.36% NET) (4.64% NET) (10.64% NET)
POL BASE POLICY DEATH POLICY DEATH POLICY DEATH
YR PREMIUM VALUE BENEFIT VALUE BENEFIT VALUE BENEFIT
- --- ------- -------- ---------- -------- ---------- ---------- ----------
<S> <C> <C> <C> <C> <C> <C> <C>
1 $10,806 $ 0 $1,000,000 $ 14 $1,000,000 $ 32 $1,000,000
2 10,806 8,958 1,000,000 9,536 1,000,000 10,120 1,000,000
3 10,806 17,784 1,000,000 19,490 1,000,000 21,272 1,000,000
4 10,806 26,472 1,000,000 29,887 1,000,000 33,591 1,000,000
5 10,806 35,025 1,000,000 40,748 1,000,000 47,203 1,000,000
6 10,806 43,443 1,000,000 52,096 1,000,000 62,245 1,000,000
7 10,806 51,720 1,000,000 63,943 1,000,000 78,861 1,000,000
8 10,806 59,859 1,000,000 76,315 1,000,000 97,220 1,000,000
9 10,806 67,853 1,000,000 89,227 1,000,000 117,500 1,000,000
10 10,806 75,704 1,000,000 102,705 1,000,000 139,907 1,000,000
15 10,806 112,492 1,000,000 179,177 1,000,000 292,359 1,000,000
20 10,806 144,085 1,000,000 272,484 1,000,000 544,956 1,266,951
25 10,806 167,438 1,000,000 384,620 1,000,000 955,579 1,873,805
30 10,806 174,283 1,000,000 516,142 1,000,000 1,606,053 2,678,886
</TABLE>
(1) The initial death benefit is guaranteed to age 100.
(2) If premiums are paid more frequently than annually, the payments would be
$5,403.00 semi-annually, $2,701.50 quarterly, or $900.50 monthly. The death
benefits and policy values would be slightly different for a policy with
more frequent premium payments.
(3) Assumes no policy loan has been made.
THE HYPOTHETICAL INVESTMENT RATES OF RETURN SHOWN ABOVE AND ELSEWHERE IN THIS
PROSPECTUS ARE ILLUSTRATIVE ONLY AND SHOULD NOT BE DEEMED A REPRESENTATION OF
PAST OR FUTURE INVESTMENT RATES OF RETURN. ACTUAL RATES OF RETURN MAY BE MORE
OR LESS THAN THOSE SHOWN AND WILL DEPEND ON A NUMBER OF FACTORS, INCLUDING THE
INVESTMENT ALLOCATIONS MADE BY AN OWNER, AND PREVAILING INTEREST RATES. THE
DEATH BENEFITS AND POLICY VALUES FOR A POLICY WOULD BE DIFFERENT FROM THOSE
SHOWN IF THE ACTUAL RATES OF RETURN AVERAGED 0%, 6%, AND 12% OVER A PERIOD OF
YEARS BUT ALSO FLUCTUATED ABOVE OR BELOW THOSE AVERAGES FOR INDIVIDUAL POLICY
YEARS. NO REPRESENTATIONS CAN BE MADE BY MINNESOTA MUTUAL OR THE FUNDS THAT
THESE HYPOTHETICAL RATES OF RETURN CAN BE ACHIEVED FOR ANY ONE YEAR OR
SUSTAINED OVER ANY PERIOD OF TIME.
86
<PAGE>
VAL-SD
DEATH BENEFIT OPTION--PROTECTION OPTION
MALE NONSMOKER ISSUE AGE 40
FEMALE NONSMOKER ISSUE AGE 40
INITIAL DEATH BENEFIT--$1,000,000(1)
$10,806 INITIAL SCHEDULED PREMIUM(2)
USING CURRENT CHARGES
<TABLE>
<CAPTION>
-ASSUMING HYPOTHETICAL INVESTMENT RETURNS OF-
0% GROSS(3) 6.00% GROSS(3) 12.00% GROSS(3)
INITIAL (-1.36% NET) (4.64% NET) (10.64% NET)
POL BASE POLICY DEATH POLICY DEATH POLICY DEATH
YR PREMIUM VALUE BENEFIT VALUE BENEFIT VALUE BENEFIT
- --- ------- -------- ---------- -------- ---------- ---------- ----------
<S> <C> <C> <C> <C> <C> <C> <C>
1 $10,806 $ 175 $1,000,000 $ 198 $1,000,000 $ 221 $1,000,000
2 10,806 9,309 1,000,175 9,912 1,000,198 10,517 1,000,221
3 10,806 18,310 1,009,309 20,067 1,009,912 21,900 1,010,517
4 10,806 27,168 1,018,310 30,673 1,020,067 34,472 1,021,900
5 10,806 35,887 1,027,168 41,751 1,030,673 48,363 1,034,472
6 10,806 44,469 1,035,887 53,325 1,041,751 63,712 1,048,363
7 10,806 52,905 1,044,469 65,405 1,053,325 80,663 1,063,712
8 10,806 61,197 1,052,905 78,017 1,065,405 99,387 1,080,663
9 10,806 69,339 1,061,197 91,175 1,078,017 120,064 1,099,387
10 10,806 77,331 1,069,339 104,904 1,091,175 143,029 1,120,064
15 10,806 116,182 1,108,566 184,615 1,167,197 300,507 1,262,364
20 10,806 152,502 1,145,477 284,343 1,262,591 564,952 1,812,104
25 10,806 185,659 1,179,313 408,596 1,381,548 1,002,476 2,856,607
30 10,806 212,443 1,207,916 562,361 1,528,994 1,720,230 4,402,473
</TABLE>
(1) The initial death benefit is guaranteed to age 100.
(2) If premiums are paid more frequently than annually, the payments would be
$5,403.00 semi-annually, $2,701.50 quarterly, or $900.50 monthly. The death
benefits and policy values would be slightly different for a policy with
more frequent premium payments.
(3) Assumes no policy loan has been made.
THE HYPOTHETICAL INVESTMENT RATES OF RETURN SHOWN ABOVE AND ELSEWHERE IN THIS
PROSPECTUS ARE ILLUSTRATIVE ONLY AND SHOULD NOT BE DEEMED A REPRESENTATION OF
PAST OR FUTURE INVESTMENT RATES OF RETURN. ACTUAL RATES OF RETURN MAY BE MORE
OR LESS THAN THOSE SHOWN AND WILL DEPEND ON A NUMBER OF FACTORS, INCLUDING THE
INVESTMENT ALLOCATIONS MADE BY AN OWNER, AND PREVAILING INTEREST RATES. THE
DEATH BENEFITS AND POLICY VALUES FOR A POLICY WOULD BE DIFFERENT FROM THOSE
SHOWN IF THE ACTUAL RATES OF RETURN AVERAGED 0%, 6%, AND 12% OVER A PERIOD OF
YEARS BUT ALSO FLUCTUATED ABOVE OR BELOW THOSE AVERAGES FOR INDIVIDUAL POLICY
YEARS. NO REPRESENTATIONS CAN BE MADE BY MINNESOTA MUTUAL OR THE FUNDS THAT
THESE HYPOTHETICAL RATES OF RETURN CAN BE ACHIEVED FOR ANY ONE YEAR OR
SUSTAINED OVER ANY PERIOD OF TIME.
87
<PAGE>
VAL-SD
DEATH BENEFIT OPTION--PROTECTION OPTION
MALE NONSMOKER ISSUE AGE 40
FEMALE NONSMOKER ISSUE AGE 40
INITIAL DEATH BENEFIT--$1,000,000(1)
$10,806 INITIAL SCHEDULED PREMIUM(2)
USING GUARANTEED MAXIMUM CHARGES
<TABLE>
<CAPTION>
-ASSUMING HYPOTHETICAL INVESTMENT RETURNS OF-
0% GROSS(3) 6.00% GROSS(3) 12.00% GROSS(3)
INITIAL (-1.36% NET) (4.64% NET) (10.64% NET)
POL BASE POLICY DEATH POLICY DEATH POLICY DEATH
YR PREMIUM VALUE BENEFIT VALUE BENEFIT VALUE BENEFIT
- --- ------- -------- ---------- -------- ---------- ---------- ----------
<S> <C> <C> <C> <C> <C> <C> <C>
1 $10,806 $ 0 $1,000,000 $ 14 $1,000,000 $ 32 $1,000,000
2 10,806 8,957 1,000,000 9,536 1,000,014 10,120 1,000,032
3 10,806 17,784 1,008,957 19,489 1,009,536 21,271 1,010,120
4 10,806 26,470 1,017,784 29,885 1,019,489 33,589 1,021,271
5 10,806 35,020 1,026,470 40,743 1,029,885 47,197 1,033,589
6 10,806 43,434 1,035,020 52,086 1,040,743 62,233 1,047,197
7 10,806 51,706 1,043,434 63,925 1,052,086 78,838 1,062,233
8 10,806 59,836 1,051,706 76,284 1,063,925 97,180 1,078,838
9 10,806 67,817 1,059,836 89,178 1,076,284 117,433 1,097,180
10 10,806 75,651 1,067,817 102,630 1,089,178 139,800 1,117,433
15 10,806 112,219 1,105,296 178,713 1,162,282 291,564 1,254,985
20 10,806 143,064 1,137,479 270,409 1,250,795 540,634 1,739,410
25 10,806 164,276 1,161,195 376,835 1,354,644 935,742 2,684,274
30 10,806 165,472 1,167,550 489,195 1,467,002 1,522,529 3,950,528
</TABLE>
(1) The initial death benefit is guaranteed to age 100.
(2) If premiums are paid more frequently than annually, the payments would be
$5,403.00 semi-annually, $2,701.50 quarterly, or $900.50 monthly. The death
benefits and policy values would be slightly different for a policy with
more frequent premium payments.
(3) Assumes no policy loan has been made.
THE HYPOTHETICAL INVESTMENT RATES OF RETURN SHOWN ABOVE AND ELSEWHERE IN THIS
PROSPECTUS ARE ILLUSTRATIVE ONLY AND SHOULD NOT BE DEEMED A REPRESENTATION OF
PAST OR FUTURE INVESTMENT RATES OF RETURN. ACTUAL RATES OF RETURN MAY BE MORE
OR LESS THAN THOSE SHOWN AND WILL DEPEND ON A NUMBER OF FACTORS, INCLUDING THE
INVESTMENT ALLOCATIONS MADE BY AN OWNER, AND PREVAILING INTEREST RATES. THE
DEATH BENEFITS AND POLICY VALUES FOR A POLICY WOULD BE DIFFERENT FROM THOSE
SHOWN IF THE ACTUAL RATES OF RETURN AVERAGED 0%, 6%, AND 12% OVER A PERIOD OF
YEARS BUT ALSO FLUCTUATED ABOVE OR BELOW THOSE AVERAGES FOR INDIVIDUAL POLICY
YEARS. NO REPRESENTATIONS CAN BE MADE BY MINNESOTA MUTUAL OR THE FUNDS THAT
THESE HYPOTHETICAL RATES OF RETURN CAN BE ACHIEVED FOR ANY ONE YEAR OR
SUSTAINED OVER ANY PERIOD OF TIME.
88
<PAGE>
APPENDIX II
SUMMARY OF POLICY CHARGES
What sets cash value life insurance apart from other types of savings and
investment vehicles? It is the only product creating immediate and substantial
dollars in the form of a death benefit plus offering an accumulation component.
This is unlike other vehicles that can only create dollars over time as
contributions are made.
All life insurance policies have basically the same charges, although the
charges may be taken in different ways or at different points in time. VAL-SD
has two distinct ways to recover expenses from a standard policy:
I. CHARGES TAKEN FROM THE BASE PREMIUM:
As 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 a federal tax related to premiums.
Also, in the first year of any life insurance policy, two things are
different than in ongoing years: a larger commission is paid, and the policy
must be underwritten. To begin to cover these costs, an additional sales load
and an underwriting charge are taken from the premium in just the first year.
These two charges may be assessed on future increases in premium and face
amount adjustments.
<TABLE>
<CAPTION>
-----------------------------------------------------------------------------------------
CHARGES TAKEN FROM PREMIUM: PLUS, IN FIRST YEAR:
-----------------------------------------------------------------------------------------
<S> <C>
7.00% Sales Load Additional sales load (up to 23%)
1.25% Federal Tax Underwriting charge (up to $10/$1,000 of
insurance coverage)
2.50% Premium Tax
-----------------
10.75% TOTAL
-----------------------------------------------------------------------------------------
</TABLE>
In addition to the charges described above, there are additional charges for
substandard risk policies. These charges are taken directly from the premium.
II. CHARGES TAKEN FROM THE ACTUAL CASH VALUE:
After the above charges are taken from the premium, the remaining amount is
the net premium. The net premium is then invested in the guaranteed principal
account and/or in the portfolios of the Funds you have selected which is
referred to as the Variable Life Account. For a VAL-SD insurance policy, the
value in the Variable Life Account is determined by the number of units in each
of your portfolios and their current value.
There are two sets of charges that affect your actual cash value. One set is
a direct charge and the other set is an indirect charge. The direct set is the
cost of insurance, the face amount guarantee charge and an administration
charge which is taken from the policy actual cash value on a monthly basis.
(Refer to Table A.) The cost of insurance charge goes to cover the risk of
death while the administration charge covers the cost of maintaining each
policy. The face amount guarantee charge compensates the company for
guaranteeing the face amount of the policy. In addition, transaction charges
are also taken from the actual cash value as transactions occur.
TABLE A
--------------------------------------------------------------
DIRECT CHARGES TAKEN FROM ACTUAL CASH VALUE:
--------------------------------------------------------------
.Administration charge (currently $10/month)
.Face amount guarantee charge (currently 2c/1,000/month
.Cost of insurance charge
.If applicable: Transaction Charges
--------------------------------------------------------------
89
<PAGE>
The indirect set of charges include the Mortality and Expense Risk charge
taken from the Variable Life Account plus the Advisory Fee and Fund Expense
taken from the Funds. 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 Fund charges cover the advisory fee of
the fund manager and portfolio expense for each of the portfolios.
For illustration purposes, we use an average of the actual Mortality and
Expense Risk Charge, Advisory Fee and Fund Expense which is 1.36 percent. 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 1.36 percent = assumed net rate of return of 7.64 percent.
TABLE B -- INDIRECT CHARGES
ACTUAL VARIABLE LIFE SEPARATE ACCOUNT EXPENSES AND FUND FEES
<TABLE>
<CAPTION>
-------------------------------------------------------------------------
MORTALITY OTHER
AND EXPENSE ADVISORY FUND
PORTFOLIO NAME RISK FEE + EXPENSES = TOTAL
-------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
ADVANTUS SERIES FUND, INC.:
Growth...................... 0.50% 0.50% + 0.05% = 1.05%
Bond........................ 0.50% 0.50% + 0.07% = 1.07%
Money Market................ 0.50% 0.50% + 0.09% = 1.09%
Asset Allocation............ 0.50% 0.50% + 0.05% = 1.05%
Mortgage Securities......... 0.50% 0.50% + 0.09% = 1.09%
Index 500................... 0.50% 0.40% + 0.05% = 0.95%
Capital Appreciation........ 0.50% 0.75% + 0.05% = 1.30%
International Stock......... 0.50% 0.71% + 0.26% = 1.47%
Small Company............... 0.50% 0.75% + 0.07% = 1.32%
Value Stock................. 0.50% 0.75% + 0.05% = 1.30%
Small Company Value......... 0.50% 0.75% + 0.15% = 1.40%
Global Bond................. 0.50% 0.60% + 1.00% = 2.10%
Index 400 Mid-Cap........... 0.50% 0.40% + 0.15% = 1.05%
Macro-Cap Value............. 0.50% 0.70% + 0.15% = 1.35%
Micro-Cap Growth............ 0.50% 1.10% + 0.15% = 1.75%
Real Estate Securities...... 0.50% 0.75% + 0.15% = 1.40%
TEMPLETON VARIABLE PRODUCT
SERIES:
Developing Markets Fund
Class 2.................... 0.50% 1.25% + 0.58% = 2.33%
---- ---- ---- ----
AVERAGE................... 0.50% 0.67% + 0.19% = 1.36%
-------------------------------------------------------------------------
</TABLE>
90
<PAGE>
YOUR VAL-SD PREMIUM AT WORK
---------------------------
<TABLE>
<CAPTION>
YEAR 1 YEAR 2 YEAR 3 YEAR 4
$10,806 $10,806 $10,806 $10,806
<S> <C> <C> <C> <C>
Variable Adjustable Life Second Death
------------------------------------- Charges Charges From Charges From Charges From
. Male and Female, both Age 40, From Premium Premium Premium
Non-smokers Premium
. $1,000,000 Insurance Benefit Net Net Net
Premium Premium Premium
. Cash Death Benefit Option Net
Premium
| | | |
| | | |
+ Net Rate X Actual Cash Value
------------------------------------------------------
To Actual Cash Value
------------------------------------------------------
- -------------------------------------
9.00% Gross Rate
-1.36% Charges from Variable Life
______ Account & Series Fund
7.64% Net Rate
- -------------------------------------
- - Charges from Actual Cash Value
- ----------------------------
Administration Fee
Face Guarantee Charge
Cost of Insurance Charge
- ----------------------------
= VAL-SD Policy Values $209 $10,214 $20,974 $32,537
</TABLE>
[_] Charges taken annually from the $10,806 premium: sales load (7%), premium
tax (2.5%) and federal tax (1.25%). Charges taken from the $10,806 premium
in the first year only: sales load (23%) and underwriting charge (up to $10
per $1,000).
+ Net Rate reflects the Mortality & Expense Risk Charge of 0.50% is taken from
the Variable Life Account with the Advisory Fee and Fund Expenses taken from
the Funds. This rate is for illustrative purposes and is not an indication
of future results.
- Administrative fee is $10 a month and face guarantee charge of 2 cents per
thousand per month. Cost of insurance charge is the cost of providing the
death benefit which varies based on age, gender, health, premium level and
duration.
91
<PAGE>
VAL-SD
DEATH BENEFIT OPTION--CASH OPTION
MALE NONSMOKER ISSUE AGE 40
FEMALE NONSMOKER ISSUE AGE 40
INITIAL DEATH BENEFIT--$1,000,000(1)
$10,806 INITIAL SCHEDULED PREMIUM(2)
USING CURRENT CHARGES
<TABLE>
<CAPTION>
-ASSUMING HYPOTHETICAL INVESTMENT RETURNS OF-
0% GROSS(3) 9.00% GROSS(3) 12.00% GROSS(3)
INITIAL (-1.36% NET) (7.64% NET) (10.64% NET)
POL BASE POLICY DEATH POLICY DEATH POLICY DEATH
YR PREMIUM VALUE BENEFIT VALUE BENEFIT VALUE BENEFIT
- --- ------- -------- ---------- -------- ---------- ---------- ----------
<S> <C> <C> <C> <C> <C> <C> <C>
1 $10,806 $ 175 $1,000,000 $ 209 $1,000,000 $ 221 $1,000,000
2 10,806 9,309 1,000,000 10,214 1,000,000 10,517 1,000,000
3 10,806 18,310 1,000,000 20,974 1,000,000 21,900 1,000,000
4 10,806 27,170 1,000,000 32,537 1,000,000 34,475 1,000,000
5 10,806 35,892 1,000,000 44,965 1,000,000 48,369 1,000,000
6 10,806 44,477 1,000,000 58,325 1,000,000 63,724 1,000,000
7 10,806 52,919 1,000,000 72,679 1,000,000 80,686 1,000,000
8 10,806 61,221 1,000,000 88,105 1,000,000 99,429 1,000,000
9 10,806 69,375 1,000,000 104,676 1,000,000 120,132 1,000,000
10 10,806 77,385 1,000,000 122,504 1,000,000 143,112 1,000,000
15 10,806 116,271 1,000,000 235,100 1,000,000 300,708 1,000,000
20 10,806 152,665 1,000,000 397,584 1,000,000 565,599 1,312,661
25 10,806 186,050 1,000,000 636,529 1,270,995 1,004,909 1,963,917
30 10,806 214,686 1,000,000 980,082 1,662,865 1,729,991 2,868,913
</TABLE>
(1) The initial death benefit is guaranteed to age 100.
(2) If premiums are paid more frequently than annually, the payments would be
$5,403.00 semi-annually, $2,701.50 quarterly, or $900.50 monthly. The death
benefits and policy values would be slightly different for a policy with
more frequent premium payments.
(3) Assumes no policy loan has been made.
THE HYPOTHETICAL INVESTMENT RATES OF RETURN SHOWN ABOVE AND ELSEWHERE IN THIS
PROSPECTUS ARE ILLUSTRATIVE ONLY AND SHOULD NOT BE DEEMED A REPRESENTATION OF
PAST OR FUTURE INVESTMENT RATES OF RETURN. ACTUAL RATES OF RETURN MAY BE MORE
OR LESS THAN THOSE SHOWN AND WILL DEPEND ON A NUMBER OF FACTORS, INCLUDING THE
INVESTMENT ALLOCATIONS MADE BY AN OWNER, AND PREVAILING INTEREST RATES. THE
DEATH BENEFITS AND POLICY VALUES FOR A POLICY WOULD BE DIFFERENT FROM THOSE
SHOWN IF THE ACTUAL RATES OF RETURN AVERAGED 0%, 9%, AND 12% OVER A PERIOD OF
YEARS BUT ALSO FLUCTUATED ABOVE OR BELOW THOSE AVERAGES FOR INDIVIDUAL POLICY
YEARS. NO REPRESENTATIONS CAN BE MADE BY MINNESOTA MUTUAL OR THE FUNDS THAT
THESE HYPOTHETICAL RATES OF RETURN CAN BE ACHIEVED FOR ANY ONE YEAR OR
SUSTAINED OVER ANY PERIOD OF TIME.
92
<PAGE>
VAL-SD
DEATH BENEFIT OPTION--CASH OPTION
MALE NONSMOKER ISSUE AGE 40
FEMALE NONSMOKER ISSUE AGE 40
INITIAL DEATH BENEFIT--$1,000,000(1)
$10,806 INITIAL SCHEDULED PREMIUM(2)
USING GUARANTEED MAXIMUM CHARGES
<TABLE>
<CAPTION>
-ASSUMING HYPOTHETICAL INVESTMENT RETURNS OF-
0% GROSS(3) 9.00% GROSS(3) 12.00% GROSS(3)
INITIAL (-1.36% NET) (7.64% NET) (10.64% NET)
POL BASE POLICY DEATH POLICY DEATH POLICY DEATH
YR PREMIUM VALUE BENEFIT VALUE BENEFIT VALUE BENEFIT
- --- ------- -------- ---------- -------- ---------- ---------- ----------
<S> <C> <C> <C> <C> <C> <C> <C>
1 $10,806 $ 0 $1,000,000 $ 23 $1,000,000 $ 32 $1,000,000
2 10,806 8,958 1,000,000 9,828 1,000,000 10,120 1,000,000
3 10,806 17,784 1,000,000 20,372 1,000,000 21,272 1,000,000
4 10,806 26,472 1,000,000 31,703 1,000,000 33,591 1,000,000
5 10,806 35,025 1,000,000 43,881 1,000,000 47,203 1,000,000
6 10,806 43,443 1,000,000 56,971 1,000,000 62,245 1,000,000
7 10,806 51,720 1,000,000 71,035 1,000,000 78,861 1,000,000
8 10,806 59,859 1,000,000 86,149 1,000,000 97,220 1,000,000
9 10,806 67,853 1,000,000 102,384 1,000,000 117,500 1,000,000
10 10,806 75,704 1,000,000 119,827 1,000,000 139,907 1,000,000
15 10,806 112,492 1,000,000 228,308 1,000,000 292,359 1,000,000
20 10,806 144,085 1,000,000 382,705 1,000,000 544,956 1,266,951
25 10,806 167,438 1,000,000 604,125 1,210,107 955,579 1,873,805
30 10,806 174,283 1,000,000 909,157 1,551,131 1,606,053 2,678,886
</TABLE>
(1) The initial death benefit is guaranteed to age 100.
(2) If premiums are paid more frequently than annually, the payments would be
$5,403.00 semi-annually, $2,701.50 quarterly, or $900.50 monthly. The death
benefits and policy values would be slightly different for a policy with
more frequent premium payments.
(3) Assumes no policy loan has been made.
THE HYPOTHETICAL INVESTMENT RATES OF RETURN SHOWN ABOVE AND ELSEWHERE IN THIS
PROSPECTUS ARE ILLUSTRATIVE ONLY AND SHOULD NOT BE DEEMED A REPRESENTATION OF
PAST OR FUTURE INVESTMENT RATES OF RETURN. ACTUAL RATES OF RETURN MAY BE MORE
OR LESS THAN THOSE SHOWN AND WILL DEPEND ON A NUMBER OF FACTORS, INCLUDING THE
INVESTMENT ALLOCATIONS MADE BY AN OWNER, AND PREVAILING INTEREST RATES. THE
DEATH BENEFITS AND POLICY VALUES FOR A POLICY WOULD BE DIFFERENT FROM THOSE
SHOWN IF THE ACTUAL RATES OF RETURN AVERAGED 0%, 9%, AND 12% OVER A PERIOD OF
YEARS BUT ALSO FLUCTUATED ABOVE OR BELOW THOSE AVERAGES FOR INDIVIDUAL POLICY
YEARS. NO REPRESENTATIONS CAN BE MADE BY MINNESOTA MUTUAL OR THE FUNDS THAT
THESE HYPOTHETICAL RATES OF RETURN CAN BE ACHIEVED FOR ANY ONE YEAR OR
SUSTAINED OVER ANY PERIOD OF TIME.
93
<PAGE>
APPENDIX III
ILLUSTRATION OF DEATH BENEFIT CALCULATION
As an example of the calculation of the death benefit under the Policy,
assume a Policy and insureds with the following characteristics: The insureds
are a male and a female, both non-smokers and both age 40 at Policy issue. The
VAL-SD Insurance Policy has a face amount of $1,000,000, with a level face
amount and a whole life plan of insurance. The Protection Option has been
chosen as the form of the death benefit option. Further, assume that 100
percent of net premiums are invested in the Variable Life Account sub-accounts,
that the gross investment rate in the Variable Life Account was 12 percent each
year and that Minnesota Mutual deducted current charges. This situation is
shown in Appendix I, "Illustrations of Policy Values, Death Benefits and
Premiums," on page 80 of this prospectus.
Now, further assume that the second death occurs at the end of the tenth
policy year, during which time all of the premiums have been paid. No policy
loans or withdrawals have been made under the Policy.
Given these assumptions, the policy value (the actual cash value plus any
policy loan) on the date of the second death--composed of the Policy's interest
in one or more of the sub-accounts of the Variable Life Account--is equal to
$143,029. Under the Protection Option the death benefit will be $1,143,029.
The total proceeds would be adjusted to include any additional insurance
provided by an additional benefit agreement and the amount payable would be
reduced by any unpaid policy charges or any policy loan.
As an alternative, consider the same example, except that the Cash Option
death benefit was elected. This situation is shown in Appendix I,
"Illustrations of Policy Values, Death Benefits and Premiums," on page 80 of
this prospectus.
The death benefit under the Cash Option does not vary from the Policy's face
amount until the policy value exceeds the net single premium for the then
current face amount. In this example, again assuming timely payment of
premiums, no withdrawals and no policy loan activity, the policy value on the
date of the second death would be $143,112. This is a higher value than under
the Protection Option, reflecting lower mortality costs charged to the Policy
because of the level death benefit. Here, the death benefit is the current face
amount or $1,000,000.
In determining the total proceeds payable under the Policy, the same
adjustments are made to the death benefit as described under the Protection
Option. However, under the Cash Option any premium paid beyond the end of the
policy month in which the second death occurs is also included as part of the
Policy proceeds.
94
<PAGE>
APPENDIX IV
POLICY LOAN EXAMPLE
As an example of the effect of a policy loan upon the Policy and upon the
death benefit, assume a Policy with the following characteristics: The insureds
are a male and a female, both non-smokers and both age 40 at Policy issue. The
VAL-SD Insurance Policy has a face amount of $1,000,000, with a level face
amount and a whole life plan of insurance. The Protection Option has been
chosen as the form of the death benefit. Further, assume that 100 percent of
net premiums are invested in the sub-accounts of the Variable Life Account,
that the gross investment rate in the Variable Life Account was 12 percent each
year and that Minnesota Mutual deducted current charges. This situation is
shown in Appendix I, "Illustrations of Policy Values, Death Benefits and
Premiums," on page 80 of this prospectus.
Now assume that the owner of the Policy takes a policy loan in the amount of
$5,000 at the end of the fourth policy year and after all premiums have been
paid for that year.
When a loan is taken, the actual cash value invested in the Variable Life
Account is reduced by the amount borrowed and any unpaid interest. The amount
is then transferred to the loan account. Interest is charged on the policy loan
as described in the Policy, but for purposes of this example, assume a policy
loan interest rate of 8 percent per annum. Interest is also credited to a
Policy when there is a policy loan. Interest credits on a policy loan are at a
rate which is not less than the policy loan interest rate less 2 percent per
annum. The interest credit in this example would then be 6 percent.
The following table shows the effect on the year five values, namely those
values at the end of that year, if a policy loan of $5,000 is made at the end
of the fourth year.
End of Year
Policy Value Total Death Benefit
With Loan Without Loan With Loan Without Loan
--------- ------------ --------- ------------
$48,131 $48,363 $1,048,131 $1,048,363
Note that the difference in policy values here represents the difference
between the actual Policy performance in the sub-accounts of the Variable Life
Account and the interest credited on the principal amount of the policy loan.
If interest credited on a policy loan exceeds the Policy performance, then a
Policy with a loan will have a greater value than a Policy with no loan
activity. Where Policy performance exceeds the interest credited on a policy
loan, the resulting policy value will be lower than it would have been if the
loan were not made.
Now consider an identical situation to that above except that the Cash Option
death benefit was elected. The following table shows the effect on the same
year five values if a policy loan of $5,000 is made at the end of the fourth
year.
End of Year
Policy Value Total Death Benefit
With Loan Without Loan With Loan Without Loan
--------- ------------ --------- ------------
$48,137 $48,369 $1,000,000 $1,000,000
The values above under the "With Loan" headings are policy values, which is
the actual cash value of a Policy plus any policy loan. If the owner were to
surrender the Policy at the end of the fifth year, the owner would receive only
the actual cash value in the sub-accounts of the Variable Life Account.
Similarly, if the second death were to occur at the end of the fifth year we
would pay out the death benefit listed under the "With Loan" heading less the
amount of the policy loan.
95
<PAGE>
APPENDIX V
EXAMPLE OF SALES LOAD COMPUTATION
As an example of the method we use to compute sales load, assume a protection
type plan where the annual base premium is $10,000 and where the premium paying
period, prior to any reduction in face amount, is 20 years. The insureds are a
male and a female, both non-smokers and both age 60 at Policy issue, with a
joint life expectancy of 25 years. As premiums are paid in each year, we will
assess a basic sales load of 7 percent or $700 in each year. Also, as premiums
are paid in the first year, we will assess a first year sales load of 23
percent or $2,300. Therefore, in the first year the sales load charges will
total $3,000 or 30 percent ($3,000 / $10,000), and over the 15 year period from
policy issue sales load charges will total $12,800 or 8.54 percent ($12,800 /
$150,000).
Compliance with the 9 percent limitation will be achieved by reducing the
first year sales load, if necessary. For example, consider a Policy with a
protection type plan where the annual base premium is $10,000 and where the
premium paying period prior to any reduction in face amount is 20 years.
Further assume that the insureds are a male and a female, both non-smokers and
both age 80 at Policy issue, with a joint life expectancy of 9 years. In this
case, the first year sales load must be reduced so that the total sales load
will not exceed 9 percent over the joint life expectancy of the insureds. As
premiums are paid in each year we will assess the basic sales load of 7
percent, or $700, but the first year sales load applicable to premiums paid in
the first year will be reduced from 23 percent to 18 percent, or $1,800.
Therefore, in the first year the sales load charges will total $2,500 or 25
percent ($2,500 / $10,000), and over the period of the joint life expectancy of
the insureds sales load charges will total $8,100 or 9 percent ($8,100 /
$90,000).
As an example of the method we use to assess sales load when an adjustment
occurs during a period in which a first year sales load is being collected,
consider a Policy where an adjustment is made after one-half of the first
annual premium is paid. Assume that the premium is $10,000 annually as in the
example above and further assume that the premiums are being paid on a monthly
basis, $833.33 per month. As premiums are paid in each year we will assess a
basic sales load of 7 percent of premiums received or $700 in that year. A
first year sales load, taken in addition to the basic sales load, would also be
assessed in a total amount of $2,300. Now assume an adjustment is made, after
the payment of six monthly premiums, and that the premium is increased from
$10,000 to $12,000. Both before and after the adjustment we will continue to
assess a basic sales load of 7 percent of the premiums received. However, since
only one-half of the first year sales load of $2,300 has been collected, a
first year sales load of $1,150 remains to be collected. The $2,000 increase in
premium will also be assessed a first year sales load of 23 percent, or $460.
Both are added together and will be collected in the 12 months following the
adjustment. Therefore, after the adjustment of the premium to a $12,000 amount,
and assuming that premiums continue to be paid on a monthly basis, each monthly
premium of $1,000 will be subjected to a total sales load amount of $204.17,
consisting of $70 of basic sales load, and $134.17 of first year sales load.
96
<PAGE>
APPENDIX VI
AVERAGE ANNUAL RETURNS
TWENTY-YEAR HOLDING PERIODS
[CHART APPEARS HERE]
Type 1956 1961 1966 1971 1976 1981 1986 1991 1996 1997
- ----- ---- ---- ---- ---- ---- ---- ---- ---- ---- ----
U.S. Treasury .77 1.37 2.19 3.28 4.34 5.93 7.38 7.72 7.28 3.76
Inflation 3.46 3.37 2.15 2.22 3.80 5.62 6.24 6.24 5.19 3.10
Bonds 2.23 2.22 2.15 2.77 4.34 3.11 7.63 9.43 9.71 5.73
Stocks 11.20 16.86 13.72 11.65 7.91 7.64 10.17 11.89 14.55 11.00
Ending periods from 1955-1997
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: 1937-1956, 1942-1961,
etc.). These average rates assume reinvestment of capital gains, dividends and
interest. This is a retrospective view of performance and should in no way be
construed as a projection of future trends.
This graph shows that even though stock investments tend to be more volatile
in short time intervals historically, they have generated rates of return that
have consistently been higher than inflation. Bonds and U.S. Treasury bills
have not always kept up with inflation. The figures do not take into account
the charges associated with a Variable Adjustable Life policy, but do indicate
the potential gain of holding the assets illustrated.
Some additional statistics on the performance of stocks in relation to high
grade, long-term corporate bonds and U.S. Treasury bills over the 53 twenty-
year periods beginning in 1926 and ending in 1996 include:
The average annual return of stocks was higher than that of bonds in 50
of the 53 periods.
The average annual return of stocks was higher than that of U.S. Treasury
bills in all of the 53 periods.
The average annual return of stocks was higher than inflation in all of
the 53 periods.
In the 43 thirty-year periods beginning in 1926 and ending in 1997, the
average annual return of stocks was higher than that of bonds, U.S. Treasury
bills and inflation in all 43 time periods.
From 1926 through 1997, the average annual return for this 72 year period
was:
11.0% for common stocks
5.73% for high grade, long-term corporate bonds
3.76% for U.S. Treasury bills
97
<PAGE>
APPENDIX VII
S&P 500
PERFORMANCE HISTORY 1926-1997
[CHART 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
97 33.36
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 72 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.
98
<PAGE>
APPENDIX VIII
RANGE OF RETURNS
ROLLING PERIOD RETURNS USING IBBOTSON ASSET CLASS INFORMATION*
(1960 THROUGH 1997)
1 YEAR HIGH % LOW % MEAN %
ROLLING PERIOD RETURN RETURN RETURN
- ----------------------- ------ ------ --------
Small Cap 83.57 -30.9 17.46763
Large Cap Stocks (S&P 500) 37.43 -26.47 12.73526
Corporate Bonds 42.56 -8.09 8.075263
Government Bonds 29.1 -5.14 7.723947
United States T-Bills 14.71 2.13 6.081842
5 YEAR HIGH % LOW % MEAN %
ROLLING PERIOD RETURN RETURN RETURN
- ----------------------- ------ ------ -------
Small Cap 39.8 -12.25 15.4994
Large Cap Stocks (S&P 500) 20.4 -2.36 11.1074
Corporate Bonds 22.51 -2.22 7.60882
Government Bonds 16.98 2.08 7.70706
United States T-Bills 11.12 2.83 6.33029
10 YEAR HIGH % LOW % MEAN %
ROLLING PERIOD RETURN RETURN RETURN
- ----------------------- ------ ------ --------
Small Cap 30.38 3.2 14.187241
Large Cap Stocks (S&P 500) 18.05 1.24 10.7228
Corporate Bonds 16.32 1.68 7.68966
Government Bonds 13.13 3.48 7.91207
United States T-Bills 9.17 3.88 6.57034
15 YEAR HIGH % LOW % MEAN %
ROLLING PERIOD RETURN RETURN RETURN
- ----------------------- ------ ------ ----------
Small Cap 23.33 5.87 14.92916667
Large Cap Stocks (S&P 500) 17.52 4.31 10.61416667
Corporate Bonds 13.66 3.08 7.829583333
Government Bonds 11.27 4.75 8.21125
United States T-Bills 8.32 4.56 6.970416667
20 YEAR HIGH % LOW % MEAN %
ROLLING PERIOD RETURN RETURN RETURN
- ----------------------- ------ ------ ----------
Small Cap 20.33 11.47 15.217368
Large Cap Stocks (S&P 500) 16.65 6.76 10.326316
Corporate Bonds 10.58 3.03 7.3921053
Government Bonds 9.85 4.84 7.8436842
United States T-Bills 7.72 5.09 6.7889474
30 YEAR HIGH % LOW % MEAN %
ROLLING PERIOD RETURN RETURN RETURN
- ----------------------- ------ ------ ----------
Small Cap 15.1 13.47 14.2944444
Large Cap Stocks (S&P 500) 12.12 9.95 10.7366667
Corporate Bonds 8.86 6.8 7.62111111
Government Bonds 8.52 7.34 7.94777778
United States T-Bills 6.77 6.34 6.63
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.
99
<PAGE>
PART II
OTHER INFORMATION
<PAGE>
CONTENTS OF REGISTRATION STATEMENT
This registration statement comprises the following papers and documents:
The Facing Sheet.
Cross Reference Sheet.
Part I
The prospectus consisting of 99 pages.
Part II
Undertakings - Indemnification; previously filed.
Representation of Insurer Pursuant to (S)26 of the Investment Company
Act of 1940.
The Minnesota Mutual Life Insurance Company ("Company") hereby
represents that the fees and charges deducted under the policies issued
pursuant to this Registration Statement, in the aggregate, are
reasonable in relation to services rendered, the expenses expected to be
incurred, and the risks assumed by the Company.
The Signatures.
Written consents of the following persons:
Donald F. Gruber, Esq.
KPMG Peat Marwick LLP
Jaymes G. Hubbell, F.S.A.
Jones & Blouch L.L.P.
The following Exhibits:
A. Exhibits described in Item IX(A) of Form N-8B-2.
(1) The indenture or agreement under the terms of which the trust was
organized or issued securities.
Resolution of the Board of Trustees of The Minnesota Mutual Life
Insurance Company dated October 21, 1985; previously filed as
Exhibit A(1) to Registrant's Form S-6, File Number 33-64395, is
hereby incorporated by reference.
(2) The indenture or agreement pursuant to which the proceeds of payments
of securities are held by the custodian or trustee, if such indenture
or agreement is not the same as the indenture or agreement referred to
immediately above.
None.
(3) Distributing Policies:
(a) Agreements between the trust and principal underwriter or between
the depositor and principal underwriter.
Distribution Agreement; previously filed as Exhibit A(3)(a)
to Registrant's Form S-6, File Number 33-64395, is hereby
incorporated by reference.
(b) Specimen of typical agreements between principal underwriter and
dealers, managers, sales supervisors and salesmen.
Agent and General Agent Sales Agreements; previously filed as
Exhibit A(3)(b) to Registrant's Form S-6, File Number
33-64395, is hereby incorporated by reference.
(c) Schedules of sales commissions referred to in Item 38(c).
Combined with the Exhibit listed under A.(3)(b) above.
(4) Any agreement between the depositor, principal underwriter and the
custodian or trustee other than indentures or agreements set forth
above as paragraphs (1), (2) and (3) with respect to the trust or its
securities.
None.
(5) The form of each type of security.
(a) Variable Adjustable Life Insurance Policy, form 95-690; previously
filed as Exhibit A(5)(a) to Registrant's Form S-6, File Number
33-64395, is hereby incorporated by reference.
(b) Waiver of Premium Agreement, form 95-917; previously filed as
Exhibit A(5)(b) to Registrant's Form S-6, File Number 33-64395, is
hereby incorporated by reference.
(c) Estate Preservation Agreement, form 95-943; previously filed as
Exhibit A(5)(c) to Registrant's Form S-6, File Number 33-64395, is
hereby incorporated by reference.
(d) Single Life Term Insurance Agreement, form 95-944; previously
filed as Exhibit A(5)(d) to Registrant's Form S-6, File Number
33-64395, is hereby incorporated by reference.
(e) Short Term Agreement, form F. E324.1 3-65; previously filed as
Exhibit A(5)(a) to Registrant's Form S-6, File Number 33-64395, is
hereby incorporated by reference.
(f) Protection Option Amendment, form 98-946.
(6) The certificate of incorporation or other instrument of organization
and bylaws of the depositor.
(a) Charter of the Depositor; previously filed on August 25, 1995, as
this Exhibit 6(a) to Form N-4, file Number 33-62147, is hereby
incorporated by reference.
(b) Bylaws of the Depositor, previously filed on August 25, 1995, as
this Exhibit 6(b) to Form N-4, File Number 33-62147, is hereby
incorporated by reference.
(7) Any insurance policy under a contract between the trust and the
insurance company or between the depositor and the insurance company,
together with the table of insurance premiums.
None.
(8) Any agreement between the trust or the depositor concerning the trust
with the issuer, depositor, principal underwriter or investment
adviser of any underlying investment company or any affiliated person
of such persons.
None.
(9) All other material contracts not entered into in the ordinary course
of business of the trust or of the depositor concerning the trust.
None.
(10) Form of application for a periodic payment plan certificate.
(a) New Issue Application - Part 1, form F. 3198 Rev. 10-1997.
(b) Supplement to Application - Part 1, form F. 43186V 7-95;
previously filed as Exhibit A(10)(b) to Registrant's Form S-6,
File Number 33-64395, is hereby incorporated by reference.
(c) Application - Part 3 - Authorization New Issue, form F. 42663
Rev. 10-1997.
(d) Policy Change Application - Part 1, form F. 44096 Rev. 10-1997.
(e) Policy Change Application - Part 3, form F. 44098 Rev. 10-1997.
(f) Variable Suitability Application - New Issue, form F. 48653
2-1998.
(g) Variable Suitability Application - Policy Change, form F. 48654
Rev. 2-1998.
B. A Specimen or Copy of Each Security Being Registered.
See Exhibits Listed under A.(5).
C. An opinion of counsel as to the legality of the securities being registered.
Opinion and Consent of Donald F. Gruber, Esq.
D. Consent of KPMG Peat Marwick LLP.
E. Opinion and Consent of Mr. Jaymes G. Hubbell, F.S.A.
F. Consent of Jones & Blouch L.L.P.
G. Adjustment Computation Required by Rule 6e-2(b)(13)(v)(B).
None.
H. Memorandum on Administrative Procedures with Respect to Issuance, Transfer
and Redemption, Required by Rule 6e-2(b)(12)(ii).
I. Notice of Withdrawal Right and Statement of Charges Required by Rule 6e-
2(b)(13)(viii)(c).
(1) Notice of Withdrawal Right and Request for Cancellation of Policy;
previously filed as Exhibit I(1) to Registrant's Form S-6, File Number
33-64395, is hereby incorporated by reference.
(2) Notice of Withdrawal Right and Request for Cancellation of Policy
Adjustment; previously filed as Exhibit I(2) to Registrant's Form S-6,
File Number 33-64395, is hereby incorporated by reference.
J. Financial Data Schedule
(1) Growth Sub-Account.
(2) Bond Sub-Account.
(3) Money Market Sub-Account.
(4) Asset Allocation Sub-Account.
(5) Mortgage Securities Sub-Account.
(6) Index 500 Sub-Account.
(7) Capital Appreciation Sub-Account.
(8) International Stock Sub-Account.
(9) Small Company Sub-Account.
(10) Value Stock Sub-Account.
K. The Minnesota Mutual Life Insurance Company - Power of Attorney to Sign
Registration Statements.
<PAGE>
SIGNATURES
Pursuant to the requirements of the Securities Act of 1933, the Registrant,
Minnesota Mutual Variable Life Account, has duly caused this Amendment to the
Registration Statement to be signed on its behalf by the Undersigned, thereunto
duly authorized, in the City of Saint Paul, and State of Minnesota, on the 27th
day of February, 1998.
MINNESOTA MUTUAL VARIABLE LIFE ACCOUNT
(Registrant)
By: THE MINNESOTA MUTUAL LIFE INSURANCE COMPANY
(Depositor)
By /s/ Robert L. Senkler
---------------------------------------------
Robert L. Senkler
Chairman of the Board, President
and Chief Executive Officer
Pursuant to the requirements of the Securities Act of 1933, the Depositor, The
Minnesota Mutual Life Insurance Company, has duly caused this Amendment to the
Registration Statement to be signed on its behalf by the Undersigned, thereunto
duly authorized, in the City of Saint Paul, and State of Minnesota, on the 27th
day of February, 1998.
THE MINNESOTA MUTUAL LIFE INSURANCE COMPANY
By /s/ Robert L. Senkler
---------------------------------------------
Robert L. Senkler
Chairman of the Board, President
and Chief Executive Officer
Pursuant to the requirements of the Securities Act of 1933, this Amendment to
the Registration Statement has been signed below by the following persons in
their capacities with the Depositor and on the date indicated.
Signature Title Date
--------- ----- ----
* Chairman of the Board,
- -------------------------- President and Chief
Robert L. Senkler Executive Officer
* Trustee
- --------------------------
Giulio Agostini
<PAGE>
Signature Title Date
--------- ----- ----
* Trustee
- ---------------------------
Anthony L. Andersen
Trustee
- ---------------------------
John F. Grundhofer
* Trustee
- ---------------------------
Harold V. Haverty
* Trustee
- ---------------------------
David S. Kidwell, Ph.D.
* Trustee
- ---------------------------
Reatha C. King, Ph.D.
* Trustee
- ---------------------------
Thomas E. Rohricht
* Trustee
- ---------------------------
Terry N. Saario, Ph.D.
* Trustee
- ---------------------------
Michael E. Shannon
* Trustee
- ---------------------------
Frederick T. Weyerhaeuser
/s/ Gregory S. Strong Vice President February 27, 1998
- --------------------------- (chief financial officer)
Gregory S. Strong
/s/ Gregory S. Strong Vice President February 27, 1998
- --------------------------- (chief accounting officer)
Gregory S. Strong
/s/ Dennis E. Prohofsky Attorney-in-Fact February 27, 1998
- ---------------------------
*By Dennis E. Prohofsky
* Pursuant to power of attorney dated February 9, 1998, filed as Exhibit K to
this Registration Statement.
<PAGE>
EXHIBIT INDEX
Exhibit Number Description of Exhibit
- -------------- ----------------------
A(5)(f) Protection Option Amendment, form 98-946.
A(10)(a) New Issue Application - Part 1, form F. 3198 Rev. 10-1997.
A(10)(c) Application - Part 3 - Authorization New Issue, form F. 42663
10-1997.
A(10)(d) Policy Change Application - Part 1, form F. 44096 Rev. 10-1997.
A(10)(e) Policy Change Application - Part 3, form F. 44098 Rev. 10-1997.
A(10)(f) Variable Suitability Application - New Issue, form F. 48653
2-1998.
A(10)(g) Variable Suitability Application - Policy Change, form F. 48654
Rev. 2-1998.
C. Opinion and Consent of Donald F. Gruber, Esq.
D. Consent of KPMG Peat Marwick LLP
E. Opinion and Consent of Mr. Jaymes G. Hubbell, F.S.A.
F. Consent of Jones & Blouch L.L.P.
H. Memorandum on Administrative Procedures with Respect to
Issuance, Transfer and Redemption, Required by Rule
6e-2(b)(12)(ii).
J(1) Financial Data Schedule - Growth Sub-Account
J(2) Financial Data Schedule - Bond Sub-Account
J(3) Financial Data Schedule - Money Market Sub-Account
J(4) Financial Data Schedule - Asset Allocation Sub-Account
J(5) Financial Data Schedule - Mortgage Securities Sub-Account
J(6) Financial Data Schedule - Index 500 Sub-Account
J(7) Financial Data Schedule - Capital Appreciation Sub-Account
J(8) Financial Data Schedule - International Stock Sub-Account
J(9) Financial Data Schedule - Small Company Sub-Account
J(10) Financial Data Schedule - Value Stock Sub-Account
K. The Minnesota Mutual Life Insurance Company - Power of Attorney
to Sign Registration Statement.
<PAGE>
Exhibit 5(f)
================================================================================
MINNESOTA MUTUAL PROTECTION OPTION AMENDMENT
- --------------------------------------------------------------------------------
[LETTERHEAD OF MINNESOTA MUTUAL APPEARS HERE]
- --------------------------------------------------------------------------------
The "Death Benefit" section of your policy beginning on page 5 has been amended
as follows:
What are the death benefit options?
The death benefit options are:
(1) the Cash Option; or
(2) the Protection Option.
At no time will the death benefit be less that the larger of the then current
face amount or the amount of insurance that could be purchased using the policy
value as a net single premium.
What is the Cash Option?
Under the Cash Option, the death benefit will be the then current face amount.
The death benefit will not vary with the investment results of the sub-accounts
of the separate account you have elected unless the policy value exceeds the net
single premium for the then current face amount.
If the policy value exceeds the net single premium for the then current face
amount, the death benefit will be that amount of insurance which could be
purchased for the insureds using the policy value as the net single premium.
What is the Protection Option?
Under the Protection Option, the death benefit will vary with the investment
results of the sub-accounts of the separate account you have elected.
Before the anniversary nearest the younger insured's age 70, the death benefit
will be the policy value, plus the larger of:
(1) the then current face amount; or
(2) the amount of insurance which could be purchased using the policy value as
a net single premium.
At the anniversary nearest the younger insured's age 70, we will automatically
adjust the policy's face amount to equal the death benefit immediately preceding
the adjustment.
After the anniversary nearest the younger insured's age 70, the death benefit
will be:
(1) the then current face amount; plus
(2) an amount of insurance which could be purchased by the excess, if any, of
the policy value over the tabular cash value applied as a net single
premium for that insurance.
/s/ Dennis E. Prohofsky /s/ Robert L. Senkler
Secretary President
<PAGE>
Exhibit 10(a)
================================================================================
MINNESOTA MUTUAL APPLICATION PART 1
- --------------------------------------------------------------------------------
The Minnesota Mutual Life Insurance Company . Individual Policy Issues .
400 Robert Street North . St. Paul, Minnesota 55101-2098
- --------------------------------------------------------------------------------
ALL APPLICATIONS
PERSONAL INFORMATION
Proposed Insured's Name (Last, First Middle Name) Date of Birth (Mo., Day, Yr.)
- -
- --------------------------------------------------------------------------------
[_] Check if new address and you want
our records to reflect this.
Street address or RFD route
- --------------------------------------------------------------------------------
City or Town County State Zip Code
- --------------------------------------------------------------------------------
Social Security Number Birthplace (State or Country if outside US)
- --------------------------------------------------------------------------------
Sex [_] Male [_] Female Home Telephone ( ) Business Telephone ( )
- --------------------------------------------------------------------------------
Driver's License Number Indicate here for special dating
- --------------------------------------------------------------------------------
Employer's name
- --------------------------------------------------------------------------------
[_] Check box if mail to be
Business address sent to business address.
- --------------------------------------------------------------------------------
City or Town County State Zip Code
- --------------------------------------------------------------------------------
PERSONAL HISTORY INTERVIEW
Please indicate the best day of week and time of day to reach you for your
interview. Interviewers are available Monday through Friday, 8:00am to 8:30pm
central standard time.
Day: Time: Call Preference: [_] Home [_] Business
--------------- --------------
Special Instructions
------------------------------------------------------------
LIFE INSURANCE
Occupational title Years in occupation Income $
- --------------------------------------------------------------------------------
BASE POLICY INFORMATION
Basic Face amount $ Product Total annual premium or plan
- --------------------------------------------------------------------------------
PREMIUMS PAYABLE: [_] Automatic Payment Plan # PREMIUMS PAID BY:
--------
[_] Annual [_] Direct Monthly [_] Proposed Insured
[_] Semi-annual [_] List Bill # [_] Employer
-----------
[_] Quarterly [_] Payroll Deduction # [_] Other (indicate name
---------- and address in
Additional Remarks,
pg. 2.)
Non-Repeating Premium
Amount? Include at issue
-------------------------- --------------------------
($500.00 Minimum required)
If billable: Amount Frequency
------------------- ---------------------------
($200.00 Minimum per billing with a $2,400.00 minimum annual base premium.)
DIVIDEND INFORMATION
Dividend Option
--------------------------------
Unless otherwise requested, dividends will be used to purchase: paid-up
additions on permanent plans, policy or plan improvement on Adjustable Life, and
accumulations on term plans.
<PAGE>
ADDITIONAL BENEFITS AND AGREEMENTS
<TABLE>
<S> <C>
[_] Additional Insured Agreement (Complete Family Term Agreement).............................$_________________
[_] Family Term - Children's Agreement (Complete Family Term Agreement).......................$_________________
[_] Accidental Death Benefit..................................................................$_________________
[_] Face Amount Increase Agreement............................................................$_________________
[_] Additional Term Protection (Automatically includes FX Dividend option)....................$_________________
[_] Policy Enhancement Rider (if available) _____________% (Indicate a whole number between three & ten percent)
[_] Omit Automatic Premium Loan (if available)
[_] Guaranteed Protection Waiver (if available)
[_] Waiver of Premium Agreement (if available)
[_] Accelerated Benefits Agreement (Complete Outline of Coverage F.44244)
[_] Omit Cost of Living Agreement (if available)
[_] Adjustable Survivorship Life $___________________ Designated Insured _____________________________________________
Automatic Election Option: [_] Yes [_] No
[_] Other _____________________________________________________________________________________________________________
</TABLE>
REPLACEMENT
Has there been, or will there be a lapse, surrender, loan withdrawal or other
change to any existing life insurance or annuity as a result of, or in
anticipation of this application? [_] Yes [_] No
If yes, please indicate which coverage will be replaced in the box and submit
replacement forms where required.
LIFE INSURANCE IN FORCE AND PENDING. Life insurance on Proposed Insured: (If
none, insert, "None").
<TABLE>
<CAPTION>
- -----------------------------------------------------------------------------------------------------------------------
Year Policy Business/ Pending? Will it be
Issued Amount Type of Coverage Full Company Name Number Personal Yes No Replaced?
- -----------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
- -----------------------------------------------------------------------------------------------------------------------
- -----------------------------------------------------------------------------------------------------------------------
- -----------------------------------------------------------------------------------------------------------------------
</TABLE>
BENEFICIARIES
Beneficiaries: Beneficiaries may be labeled class 1, 2, or 3; the class
determines the order in which death proceeds should be paid. If there is more
than one surviving Beneficiary in the same class, they will share benefits
equally, unless we are told otherwise. The Owner may change any Beneficiary
unless designated "Irrevocable" below. All of this is subject to the complete
Beneficiary provisions in the policy. If the Beneficiary is a Trust, please
indicate the date it was established and give its complete name.
<TABLE>
<CAPTION>
- -----------------------------------------------------------------------------------------------------------------------
Print Given Name, Middle Initial and Surname (If Corporate Relationship to
Class Beneficiary, give full name and State of incorporation) Insured
- -----------------------------------------------------------------------------------------------------------------------
<S> <C> <C>
- -----------------------------------------------------------------------------------------------------------------------
- -----------------------------------------------------------------------------------------------------------------------
- -----------------------------------------------------------------------------------------------------------------------
- -----------------------------------------------------------------------------------------------------------------------
</TABLE>
ADDITIONAL REMARKS FOR POLICY ISSUES OR UNDERWRITING:
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
<PAGE>
DISABILITY AND OVERHEAD EXPENSE INSURANCE
POLICY TYPE AND INFORMATION
[_] Level Disability. [_] Annual Renewable Disability Income (ARDI).
[_] Business Overhead Expense (be certain to itemize the Overhead Expenses in
the Overhead Expense section.)
<TABLE>
<CAPTION>
- ----------------------------------------------------------------------------------------------------------------------
Coverage Amount Benefit Period Waiting Period
- ----------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
Base $
- ----------------------------------------------------------------------------------------------------------------------
ADMIA $
- ----------------------------------------------------------------------------------------------------------------------
ADMIA $
- ----------------------------------------------------------------------------------------------------------------------
Supplementary Income Benefit $ [_] to 180 days [_] to 365 days
- ----------------------------------------------------------------------------------------------------------------------
Social Security Agreement $ //////////////////////////////// 365 days
- ----------------------------------------------------------------------------------------------------------------------
Business Overhead Expense $ [_] 15 months [_] 25 months [_] 30 [_] 60 [_] 90
- ----------------------------------------------------------------------------------------------------------------------
</TABLE>
PLAN OF COVERAGE: (Complete one section - A or B)
A. [_] Disability Income B. [_] Disability Income
Insurance Policy Insurance Policy Plus
(all occupation classes) (class *P, 1*, *S, 1 only)
OPTIONAL AGREEMENTS
[_] Inflation Protection Agreement: [_] Future Income Protection Agreement:
[_] 4% [_] 6% [_] 8% $_____________ of aggregate monthly
benefit
[_] OMIT Guaranteed Increase Agreement [_] Transitional Disability Benefit
Agreement (Overhead Expense only)
[_] Guaranteed Increase Agreement Plus [_] Replacement Expense Agreement
(Overhead Expense only)
[_] Omit Cost of Living Agreement
(Overhead Expense only)
OCCUPATION
A. Class [_]*P [_]1* [_]*S [_]1 [_]2 [_]3 Specialty
-------------------------
B. Occupational title and/or professional designation
--------------------------
Nature of business
-----------------------------------------------------------
OCCUPATIONAL DETAILS (Provide description of daily job activities and percentage
of time spent on each)
- --------------------------------------------------------------------------------
Duties % Duties %
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
A. How many years have you been employed by your current employer?
--------------
B. How many hours do you work per week on average?
------------------------------
C. How many full-time employees report to you?
----------------------------------
D. Do you have any part-time or other full-time jobs?
---------------------------
- --------------------------------------------------------------------------------
PREVIOUS EMPLOYMENT
Please list your other jobs within the past ten years.
- --------------------------------------------------------------------------------
Employer Dates Employed
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
================================================================================
<PAGE>
INCOME - Fill in amounts that are (or will be) shown on the Proposed Insured's
individual and/or business income tax forms and supporting schedules. Note: Do
not list income that is not reported to the IRS. Explain any significant
fluctuations between years in Remarks. Ask for third party income verification
on all disability applications.
(Complete Sections A - G)
<TABLE>
<CAPTION>
Current Year Last Calendar Two Calendar
A. EARNED INCOME (Fill in all which apply.) 19__ Year 19__ Years ago 19__
<S> <C> <C> <C>
1. Non-owner Employee's salary, bonus, and
profit sharing (Form W-2) ------------- -------------- --------------
2. a. Owner of Regular or S Corporation's
salary and bonus (Form W-2). ------------- -------------- --------------
b. Owner's share of after tax corporate
profits or losses (after expenses)
provided the Proposed Insured has
significant ownership and is active in
the corporation (Form 1120 or 1120S).
If losses, indicate with parentheses. ------------- -------------- --------------
c. Pension plan or other contributions
that would cease if the Proposed
Insured became disabled. ------------- -------------- --------------
3. Sole Proprietor net income, after
expenses (Form 1040 Schedule C). ------------- -------------- --------------
4. Share of partnership net income, after
expenses (Proposed Insured's Schedule
K-1 of Form 1040 Schedule E.) ------------- -------------- --------------
5. Other earned income (described in Remarks) ------------- -------------- --------------
Total earned income ------------- -------------- --------------
B. UNEARNED INCOME - This includes capital gains,
interest, dividends, tax exempt unearned
income, income from other investments, net
rental income, pensions, annuities, and alimony.
Itemize in Remarks if exceeding 15% of earned
income of $125,000. ------------- -------------- --------------
</TABLE>
<TABLE>
<S> <C> <C>
C. NET WORTH - Is the Proposed Insured's net worth, exclusive of primary
residence, greater than $4,000,000? [_] Yes [_] No
If yes, itemize the Net Worth in the Remarks.
D. Premiums will be paid by: [_] Proposed Insured
[_] Employer - Will any portion of the premium be
included in your taxable income? [_] Yes [_] No
If yes, provide details in Remarks.
[_] Other (indicate name and address in Remarks)
(Note: Individual paid Issue and Participation limits should be used for
those Proposed Insureds who are owners in a Sole Proprietorship, Partnership,
or S Corporation. Employer paid issue and Participation Limits can be used
for Owners of a Regular Corporation when the Corporation is paying the
premium and for Non-Owner Employees when the employer is paying the premium.)
E. Is the Proposed Insured self-employed, including any partial ownership? [_] Yes [_] No
(If yes, answer questions F and G.)
F. For tax purposes the Proposed Insured's business is set up as a/an:
[_] Sole Proprietorship [_] Partnership [_] Regular Corporation [_] S Corporation
</TABLE>
G. What is the Proposed Insured's ownership? ____%
REMARKS:
------------------------------------------------------------------------
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
NOTE: If this application is an exercise for guaranteed coverage (such as GFIA,
AMIO or FIPA) on an existing policy, indicate policy number and type of
exercise.
----------------------------------------------------------------
-------------------------------------------------------------------------
<PAGE>
REPLACEMENT
A. Will you drop any existing disability, overhead expense, or any other
accident and sickness insurance when this policy is issued? [_] Yes [_] No
B. If yes, I agree upon accepting this policy to drop the coverage indicated
below. NOTE: Please submit replacement forms where required.
DISABILITY AND OVERHEAD EXPENSE IN FORCE OR PENDING (If none, insert "None").
List Disability with all Companies including Group, Pension or Retirement Plans,
Salary Continuation Plans, Associate Plans, Credit Insurance Plans, Overhead
Expense Plans, and any other Disability or Health Coverage. Also include
coverage for which the Proposed Insured will become eligible in the next five
years after a qualifying period of employment has been met.
<TABLE>
<CAPTION>
- -------------------------------------------------------------------------------------------------------------------
Pending?
Paid To Policy Benefit Elimination -------- Will It Be
Date Amount Type Company Number Period Period Yes No Replaced?
- -------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
- -------------------------------------------------------------------------------------------------------------------
- -------------------------------------------------------------------------------------------------------------------
- -------------------------------------------------------------------------------------------------------------------
- -------------------------------------------------------------------------------------------------------------------
</TABLE>
DIVIDENDS: Dividends paid in cash unless otherwise requested below.
[_] Reduce (not available on Automatic Payment Plan) [_] Accumulate
<TABLE>
<CAPTION>
<S> <C>
PREMIUM PAYABLE: DISCOUNTS (Choose one selection from A):
[_] Annual [_] Direct Monthly A. [_] Association Discount #
----------------------------
[_] Semi-annual [_] List Bill #
--------- [_] Employer/Employee Discount # (include F. 37443)
[_] Quarterly [_] Payroll Deduction # ------------
----------
[_] Automatic Payment Plan # [_] Professional Group Discount #
-------------------- ---------------------
B. [_] Income Documentation Discount (Complete page 8
and submit appropriate income documentation.)
</TABLE>
OVERHEAD EXPENSES: (Complete for Business Overhead Expense.)
A. Are your expenses shared with anyone else? [_] Yes [_] No
B. If yes, what is your percentage share of the total business expense? %
------
C. List YOUR SHARE of the current average monthly expenses:
----------
Rent or mortgage payment $
----------------------
Property Taxes $
----------------------
Utilities $
----------------------
Laundry, security, janitorial and
maintenance services $
----------------------
Equipment and furniture
leasing costs or installment
payments $
----------------------
Malpractice, liability, and/or
property insurance premiums $
----------------------
Accounting, billing, and
collection services $
----------------------
Professional and trade dues
and subscriptions $
----------------------
*Employee life, disability and
health insurance premiums $
----------------------
*Payroll taxes for employees $
----------------------
*Employee wages and
salaries $
----------------------
Replacement expense $
(Salary paid to the ----------------------
replacement person minus the
gross business income earned
by replacement. For
Replacement Expense
Agreement only.)
Itemization of other eligible overhead expenses (give description and amount of
the expense):
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
*DO NOT INCLUDE amounts for you or for any other member of your profession
working for or with you. I understand and agree that the policy applied for
covers only actual incurred expenses (as described in the policy).
<PAGE>
ALL APPLICATIONS
SPECIAL ACTIVITIES AND OTHER INSURANCE ACTIVITY: (Provide details in Additional
Remarks.)
<TABLE>
<CAPTION>
<S> <C>
A. Do you plan to change jobs within the next 12 months? (if yes, please advise [_] Yes [_] No
the industry, company and location that you are planning to go to. If you
don't know the specifics yet but are contemplating such a change, please
provide as many details as you can.)
-----------------------------------------------------------------------------
B. Do you plan to travel or reside outside of the U.S. in the next three years? [_] Yes [_] No
If yes, please provide the country(s) and city(s) you will be visiting or
moving to and whether this is for business or pleasure.
---------------------
How long will you be there?_______How frequently will you be visiting if more
than once?
-----------------
C. Have you, within the last five years, or do you plan in the next six months, [_] Yes [_] No
to pilot a plane? (If yes, complete the Aviation Statement form F. 4883.)
D. Have you, within the last five years, or do you plan in the next six months, [_] Yes [_] No
to engage in sky diving, organized vehicle racing, mountain/rock climbing,
hang gliding, underwater diving, bungee jumping, or other activity requiring
special equipment and/or training? (If yes, complete Avocation Statement F.
13393.)
E. Have you, within the last five years, been declined, modified, rated or been [_] Yes [_] No
issued a rider for life or disability insurance?
F. Within the last year, have you missed any work due to illness or injury? [_] Yes [_] No
G. Are you in the Armed Forces, National Guard, or Reserves? (If yes, complete [_] Yes [_] No
Military Statement F. 4883.)
H. Have you applied elsewhere for insurance within the last six months? [_] Yes [_] No
DRIVING AND CONVICTION HISTORY: (Provide details in Additional Remarks.)
A. In the last five years, have you been charged with a driving while [_] Yes [_] No
intoxicated violation, had your driver's license restricted or revoked, or
been cited with a moving violation?
B. Except for traffic violations, have you ever been convicted? [_] Yes [_] No
PREPAYMENT: MAKE CHECKS PAYABLE TO MINNESOTA MUTUAL
A. Have you paid money to the agent, or has the Payroll Deduction Authorization [_] Yes [_] No
or Government Allotment been completed?
</TABLE>
NOTE: Money should not be taken by the agent if there is a history of heart
----------
disease, stroke, cancer, or diabetes or if the Proposed Insured has been
rated or declined for insurance in the past. If money is taken on these or
other impaired risks, it will be returned to the client, until
underwriting is completed. Checks or money orders collected for Variable
Adjustable Life must be issued by the Client, made payable to Minnesota
Mutual, and sent directly to the Home Office.
Amount paid for: Life Insurance $______ Disability or Overhead Expense $______
B. Have you received a receipt? [_] Yes [_] No
ADDITIONAL REMARKS:
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
OWNER
The Proposed Insured will be the Owner of any policy issued on this application,
unless requested otherwise below. The Owner has every benefit, right or
privilege given the Insured by policy terms. Policy transactions between
Minnesota Mutual and the Owner do not require the Insured's notice or consent.
<TABLE>
- ------------------------------------------------------------------------------------------------------------------------------------
<S> <C>
POLICYOWNER NAME (last, first, middle name) DATE OF BIRTH MONTH - DAY - YEAR (if other than Proposed Insured)
- ------------------------------------------------------------------------------------------------------------------------------------
RELATIONSHIP TO PROPOSED INSURED TAX I.D. NUMBER OR SOCIAL SECURITY NUMBER
- ------------------------------------------------------------------------------------------------------------------------------------
POLICYOWNER'S ADDRESS STREET OR RFD ROUTE
- ------------------------------------------------------------------------------------------------------------------------------------
CITY STATE ZIP CODE
- ------------------------------------------------------------------------------------------------------------------------------------
(if a Corporation, give the state which it is incorporated.)
</TABLE>
FOR HOME OFFICE USE ONLY
Home Office Corrections or Additions - Acceptance of the policy shall ratify
changes entered here by Minnesota Mutual. Not to be used in CA (for Disability
only), IA, IL, KS, KY, MD, MI, MN, NH, NJ, OR, PA, TX, WI or WV for change in
age, amount, classification, plan or benefits unless agreed to in writing.
<PAGE>
Exhibit 10(c)
- --------------------------------------------------------------------------------
MINNESOTA MUTUAL APPLICATION PART 3
AGREEMENTS, CERTIFICATION AND AUTHORIZATION
- --------------------------------------------------------------------------------
The Minnesota Mutual Life Insurance Company . Individual Policy Issues
. 400 Robert Street North . St. Paul, Minnesota 55101-2098
- --------------------------------------------------------------------------------
Proposed Insured's Name (Last, First, Middle Name)
[_][_][_][_][_][_][_][_][_][_][_][_][_][_][_][_][_][_][_][_][_][_][_][_][_][_]
AGREEMENTS/CERTIFICATION: I have read, or had read to me the statements and
answers recorded on Part 1 and Part 2 of my application. They are given to
obtain this insurance and are, to the best of my knowledge and belief, true and
complete and correctly recorded. I understand that any false statement or
misrepresentation on this application may result in loss of coverage under this
policy subject to the Time Limit on Certain Defenses, incontestability
provision, and legal proceedings. I agree that they will become part of this
application and policy issued on it. The insurance applied for will not take
effect unless the policy is issued and delivered and the full first premium is
paid while the health of the Proposed Insured remains as stated in Part 1 and
Part 2 of the application. If such conditions are met the insurance will take
effect as of the Policy Date specified in the policy; the only exception to this
is provided in the Receipt and Temporary Life Insurance Agreement, and the
Conditional Health Receipt, issued if the premium is paid in advance. No deposit
has been made nor any premium paid on the policy applied for, either in cash or
by extension of credit, except as stated on this application.
VARIABLE ADJUSTABLE LIFE: I also agree that if this application is for a
Variable Adjustable Life policy, that Minnesota Mutual, if it is unable for any
reason to collect funds for units which have been allocated to a sub-account
under the policy applied for, may redeem for itself the full value of such
units. If such units are no longer available, it may recover that value from any
other units of equal value available under the policy.
I UNDERSTAND THAT THE AMOUNT OR THE DURATION OF THE DEATH BENEFIT (OR BOTH) OF
THE POLICY APPLIED FOR MAY INCREASE OR DECREASE DEPENDING ON THE INVESTMENT
RESULTS OF THE SUB-ACCOUNTS OF THE SEPARATE ACCOUNT. I UNDERSTAND THAT THE
ACTUAL CASH VALUE OF THE POLICY APPLIED FOR INCREASES AND DECREASES DEPENDING ON
INVESTMENT RESULTS. THERE IS NO MINIMUM ACTUAL CASH VALUE FOR POLICY VALUES
INVESTED IN THESE SUB-ACCOUNTS.
AUTHORIZATION: I authorize any physician, medical practitioner, hospital, clinic
or other health care provider, insurance or reinsuring company, consumer
reporting agency, the Medical Information Bureau, Inc. (MIB), or employer which
has any records or knowledge of the physical or mental health of me or my minor
children, to give all such information and any other nonmedical information
relating to such persons to Minnesota Mutual or its reinsurers. This shall
include ALL INFORMATION at to any medical history, consultations, diagnoses,
prognoses, prescriptions or treatments and tests, including information
regarding alcohol or drug abuse, sickle cell disease and AIDS or AIDS-related
conditions. To facilitate rapid submission of such information, I authorize all
said sources, except MIB, to give such records or knowledge to any agency
employed by Minnesota Mutual to collect and transmit such information.
I understand this information is to be used for the purpose of determining
eligibility for insurance and may be used for determining eligibility for
benefits. I understand this information may be made available to Underwriting,
Claims and support staff of Minnesota Mutual. I authorize Minnesota Mutual or
its reinsurers to release any such information to reinsuring companies, the MIB,
or other persons or organizations performing business or legal services in
connection with my application, claim or as may be otherwise lawfully required
or as I may further authorize.
I agree this authorization shall be valid for twenty-six months from the date it
is signed.
I understand that I have the right to request and receive a copy of this
authorization and that a photocopy of this authorization shall be as valid as
the original.
I acknowledge that I have been given the Minnesota Mutual Consumer Privacy
Notice. (Notice Regarding Consumer Reports and Notice Regarding Medical
Information Bureau, Inc.)
Any person who, with intent to defraud or knowing that he or she is facilitating
a fraud against an insurer, submits an application or files a claim containing a
false or deceptive statement is guilty of insurance fraud.
- --------------------------------------------------------------------------------
PROPOSED INSURED DATE SIGNED CITY STATE
X
- --------------------------------------------------------------------------------
SIGNATURE OF APPLICANT (if other DATE SIGNED CITY STATE
than Proposed Insured) Give title
if signed on behalf of a business.
X
- --------------------------------------------------------------------------------
WITNESS/REGISTERED REPRESENTATIVE (licensed resident agent)
- --------------------------------------------------------------------------------
SIGNATURE OF PARENT, CONSERVATOR, OR GUARDIAN APPLICANTS TELEPHONE NUMBER
(on juvenile applications) (if other than Proposed Insured)
X
- --------------------------------------------------------------------------------
<PAGE>
<TABLE>
<CAPTION>
Exhibit 10(d)
====================================================================================================================================
<S> <C>
MINNESOTA MUTUAL POLICY CHANGE APPLICATION PART 1
UNDERWRITING REQUIRED
- ------------------------------------------------------------------------------------------------------------------------------------
The Minnesota Mutual Life Insurance Company . Individual Policyowner Services . 400 Robert Street North . St. Paul, Minnesota
55101-2098
- ------------------------------------------------------------------------------------------------------------------------------------
ALL APPLICATIONS
PERSONAL INFORMATION
- ------------------------------------------------------------------------------------------------------------------------------------
POLICY NUMBER(S) INSURED'S BIRTHPLACE (State or Country if outside US)
- ------------------------------------------------------------------------------------------------------------------------------------
INSURED'S NAME INSURED'S SOCIAL SECURITY NUMBER
- ------------------------------------------------------------------------------------------------------------------------------------
INSURED'S OCCUPATION INSURED'S INCOME
- ------------------------------------------------------------------------------------------------------------------------------------
OWNER'S NAME OWNER'S SOCIAL SECURITY/TAX I.D. NUMBER
- ------------------------------------------------------------------------------------------------------------------------------------
OWNER'S ADDRESS (Street, City, State, Zip)
[_] Check if new address and you
want our records to reflect this.
- ------------------------------------------------------------------------------------------------------------------------------------
EFFECTIVE DATE [_] Current AMOUNT SUBMITTED: MAKE CHECKS PAYABLE TO MINNESOTA MUTUAL POLICY SENT
OF CHANGE [_] Other (indicate month and reason $ [_] Receipt given [_] Yes [_] No
- ------------------------------------------------------------------------------------------------------------------------------------
PERSONAL HISTORY INTERVIEW
Please indicate the best day of week and time of day to reach you for your interview. Interviewers are available Monday
through Friday, 8:00 am to 8:30 pm central standard time.
Day:____________________ Time:_______________________ Call Preference: [_] Home [_] Business
- ------------------------------------------------------------------------------------------------------------------------------------
LIFE INSURANCE (ALL PRODUCTS)
FACE/PREMIUM ADJUSTMENTS PRODUCT ADJUSTMENTS (Policy required - if policy
lost, see page 10)
[_] Change face amount to $_____________________________________
[_] Change annual premium amount to $___________________________ Automatic Premium Loan Provision (APL), is
Premiums payable automatically added at rollover or conversion
[_] Annual [_] Semi-annual unless indicated here. [_] Omit APL
[_] Quarterly [_] Direct Monthly [_] Convert term insurance at attained age to:
[_] APP/LIST BILL/PRD #_____________________________________ [_] Adjustable Life [_] Variable Adjusted Life
[_] Change plan of insurance to ________________________________ [_] Partial conversion:
[_] Credit a Non-Repeating Premium of $_________________________ [_] Retain balance [_] Surrender balance
[_] Increase face by Non-Repeating Premium amount [_] Conversion of term agreement:
[_] Do not increase face by Non-Repeating Premium Name______________________________________________
amount [_] Rollover at attained age to:
[_] All or part of the Non-Repeating Premium is the [_] Adjustable Life [_] Variable Adjustable Life
result of surrendering or borrowing the cash value of (loans will be eliminated)
another policy(ies) Please note: Waiver will be a separate premium
(Complete Replacement Section, page 2) charge. Loan interest rate will be 8%.
Amount $________________________________ [_] Combine policies and rollover at attained age to:
($500.00 Minimum required) [_] Adjustable Life [_] Variable Adjustable Life
(loans will be eliminated)
If billable: Frequency_______________________________ Please note: Waiver will be a separate premium
($200.00 Minimum per billing with a charge. Loan interest rate will be 8%.
$2,400.00 minimum annual base Policies must have same beneficiary
premium.) and owner. Complete F. 17092-2a, page
15 if needed.
[_] Partial Surrender of $ _____________________________________ [_] Eliminate policy loan
(Complete Withholding Election on page 2) (Complete Withholding Election on page 2)
[_] Maintain same face amount [_] Maintain same face amount
[_] Reduce face amount [_] Reduce face amount
Send check direct to client [_] Yes [_] No Please note: Dividend additions and
accumulations will be surrendered
first.
</TABLE>
<PAGE>
LIFE INSURANCE (CONTINUED)
BENEFIT AND AGREEMENT ADJUSTMENTS
[_]Maintain same total annual premium [_]Change total annual premium accordingly
<TABLE>
<CAPTION>
Change New
Add Remove Amount Amount
<S> <C> <C> <C> <C> <C>
Accidental Death Benefit................ [_] [_] [_] $__________
Additional Insured Rider................ [_] [_] [_] $__________ (Complete Family Term Agreement)
Automatic Premium Loan.................. [_] [_]
Adjustable Survivorship Life Rider...... [_] [_] [_] $__________ Designated Life_________________
(To add, please complete
application for Designated Life)
Additional Term Protection.............. [_]
Cost of Living Agreement................ [_] [_]
Face Amount Increase Agreement.......... [_] [_] [_] $__________
Family Term-Children's Rider............ [_] [_] [_] $__________ (Complete Family Term Agreement)
Family Term-Spouse Rider................ [_] [_] [_] $__________ (Complete Family Term Agreement)
Guaranteed Protection Waiver............ [_] [_]
Policy Enhancement Rider..(if available) [_] [_] [_] ______% (Indicate whole number
between 3 - 10%)
Waiver of Premium Agreement............. [_] [_]
Other................................... [_] [_] [_] $__________
</TABLE>
OTHER ADJUSTMENTS
[_] Remove/reconsider rating
[_] Maintain same total annual premium [_] Reduce total annual premium
accordingly
[_] Change dividend option to _____________
[_] Reinstate
I understand that this application may be attached to and considered part of
the policy to which it applies. Also, I understand that this policy will be
contestable, as to representations in this application, from the date of
reinstatement for the time period stated in the incontestable provision of
the policy.
WITHHOLDING FOR TAX PURPOSES - Required information for all partial surrenders
and loan eliminations.
Social Security Number or Tax I.D. of owner:_____________________________
(If a correct number is not provided, the IRS requires us to withhold 31% of
any gain, irrespective of the withholding election)
Withholding election if reissue results in a taxable gain (Withholding is
automatic if no election is made):
[_] Yes, I elect withholding [_] No, I do not elect withholding
REPLACEMENT
Has there been, or will there be a lapse, surrender, loan withdrawal or other
change to any existing life insurance or annuity as a result of, or in
anticipation of this application? [_] Yes [_] No
If yes, please indicate which coverage will be replaced in the box below and
submit replacement forms were required.
LIFE INSURANCE IN FORCE AND PENDING (Complete for face increase and/or
replacement requests.)
Do you have any life insurance in force or pending? [_] Yes [_] No
<TABLE>
<CAPTION>
- --------------------------------------------------------------------------------------------------------
Year Policy Business/ Pending? Will it be
Issued Amount Type of Coverage Full Company Name Number Personal Yes No Replaced?
- --------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
- --------------------------------------------------------------------------------------------------------
- --------------------------------------------------------------------------------------------------------
- --------------------------------------------------------------------------------------------------------
</TABLE>
<PAGE>
DISABILITY AND OVERHEAD EXPENSE INSURANCE
PRE-DI '90 SERIES ADJUSTMENTS
NOTE: . Any increases to pre-DI' 90 policies must be done as an exchange to the
DI' 90 series by completing the lower half of this page.
. GFIA and AMIO exercises must be added to an existing DI' 90 series
policy or submitted as a new application.
<TABLE>
<CAPTION>
Decrease New Benefit Waiting
Risk Remove Amount Period Period
<S> <C> <C> <C> <C> <C>
Base.......................................................... [_] $___________ __________ __________
Additional Disability Monthly Income Agreement................ [_] [_] $___________ __________ __________
Additional Disability Monthly Income Agreement................ [_] [_] $___________ __________ __________
Additional Disability Monthly Income Agreement................ [_] [_] $___________ __________ __________
Guaranteed Future Insurability Agreement...................... [_] [_] RETAIN
Supplementary Income Benefit.................................. [_] [_] $___________
Social Security Agreement..................................... [_] [_]
Proportionate Benefit Agreement............................... [_]
Additional Monthly Income Option.............................. [_]
Monthly Income Benefit Escalator.............................. [_] [_] [_] 4% [_] 6% [_] 8% [_] 10%
OVERHEAD EXPENSE POLICIES ONLY:............................... Add Remove
Cost of Living Agreement...................................... [_] [_]
Replacement Expense Agreement................................. [_] [_]
Transitional Disability Benefit Agreement..................... [_] [_]
DI'90 SERIES
PRODUCT ADJUSTMENTS (Policy required--if policy lost, see page 10)
[_] Exchange pre-DI' 90 Level Rate policy(ies) to DI-' 90 Level Rate (Indicated Plan of Coverage below)
[_] Exchange pre-DI' 90 Step Rate policy(ies) to DI' 90 Annual Renewable Disability Income (ARDI)
(Indicate Plan of Coverage below)
[_] Change Pre-DI' 90 Step Rate of DI'90 ARDI policy(ies) to DI' 90 Level Rate Policy. (Indicate Plan of Coverage below)
Premiums will be calculated at attained age.
[_] Change DI' 90 Series policy Plan of Coverage (Indicate Plan of Coverage below)
PLAN OF COVERAGE (Indicate one section--A or B)
A. [_] Disability Income B. [_] Disability Income
Insurance Policy Insurance Policy Plus
(all occupation classes) (class *P, 1*, *S, 1 only)
BENEFIT AND AGREEMENT ADJUSTMENTS
New Benefit Waiting
Add Change Renew Remove Amount Period Period
Base.......................................................... [_] $________ ________ ________
Additional Disability Monthly Income Agreement*............... [_] [_] [_] $________ ________ ________
Additional Disability Monthly Income Agreement*............... [_] [_] [_] $________ ________ ________
Additional Disability Monthly Income Agreement*............... [_] [_] [_] $________ ________ ________
Supplementary Income Benefit.................................. [_] [_] [_] $________ ________ ________
Social Security Agreement..................................... [_] [_] [_] $________ ________ ________
Inflation Protection Agreement................................ [_] [_] [_] [_] 4% [_] 6% [_] 8%
Guaranteed Increase Agreement................................. [_] [_] [_]
Guaranteed Increase Agreement Plus............................ [_] [_] [_]
Future Income Protection Agreement............................ [_] [_](increase [_] $__________ aggregate
only)
* [_] Check here if this is a GFIA/FIPA/AMIO exercise. From policy #___________________________________________
</TABLE>
<PAGE>
DISABILITY AND OVERHEAD EXPENSE INSURANCE (CONTINUED)
ADJUSTMENTS - ALL SERIES
[_] Remove/Reconsider
[_] Rating [_] Exclusion Rider
[_] Add Discount (choose one selection from A, and/or select B)
<TABLE>
<S> <C>
A. [_] Association Discount # B. [_] Income Documentation Discount
-------------------- (For 1994 Rates only. Complete income
[_] Employer/Employee Discount # (Include F. 37443) section on page 9 and submit
--------------- appropriate income documentation.)
[_] Professional Group Discount #
-------------
</TABLE>
[_] Reinstate
I understand that this application may be attached to and considered part of
the policy to which it applies. Also I understand that this policy will be
contestable, as to representations in this application, from the date of
reinstatement for the time period stated in the incontestable provision of
the policy.
[_] Change contract to level rate
[_] Change dividend option to: [_] Reduce premiums [_] Accumulate [_] Cash
[_] Change premium payment frequency to:
<TABLE>
<S> <C>
[_] Annual [_] Semi-annual [_] Quarterly [_] Direct Monthly (must meet requirements)
[_] Automatic Payment Plan # [_] Payroll Deduction/List Bill #
-------------- -----------------
</TABLE>
REPLACEMENT - COMPLETE FOR ALL INCREASES IN RISK
Will you drop any existing disability, overhead expense, or any other accident
and sickness insurance when this coverage is issued? [_] Yes [_] No
If yes, I agree upon accepting this policy to drop the coverage indicated below.
Note: please submit replacement forms where required.
DISABILITY AND OVERHEAD EXPENSE IN FORCE OR PENDING (If none, insert "None")
Do you have any disability insurance in force or pending? [_] Yes [_] No
If yes, complete below.
List Disability with all Companies including Group, Pension or Retirement Plans,
Salary Continuation Plans, Association Plans, Credit Insurance Plans, Overhead
Expense Plans, and any other Disability or Health Coverage. Also include
coverage for which the Insured will become eligible in the next five years after
a qualifying period of employment has been met.
<TABLE>
- -----------------------------------------------------------------------------------------------
Pending? Will it be
Paid To Policy Benefit Elimination ---------
Date Amount Type Company Number(s) Period Period Yes No Replaced?
- -----------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C>
- -----------------------------------------------------------------------------------------------
- -----------------------------------------------------------------------------------------------
- -----------------------------------------------------------------------------------------------
</TABLE>
OCCUPATION
A. Change Occupational Class to [_] *P [_] 1* [_] *S [_] 1 [_] 2 [_] 3
Specialty
-------------------------------------------------------------------
B. Occupational title and/or professional designation
-------------------------
Nature of business
-------------------------------------------------------------
OCCUPATIONAL DETAIL (Provide description of daily job activities and percentage
spent on each)
- --------------------------------------------------------------------------------
Duties Percentage
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
A. Number of years employed by current employer?
--------------------------------
B. How many hours do you work per week on an average?
---------------------------
C. How many full-time employees report to Insured?
------------------------------
D. Does Insured have any part-time or full-time jobs other than the above?
[_] Yes [_] No
---------------------------------------------------------------
If yes, provide full details
----------------------------------------------------
<PAGE>
DISABILITY AND OVERHEAD EXPENSE INSURANCE (CONTINUED)
INCOME
Fill in amounts that are (or will be) shown on the Insured's individual and/or
business income tax forms and supporting schedules. Note: Do not list income
that is not reported to the IRS. Explain any significant fluctuations between
years in Remarks. Ask for third party income verification on all disability
applications. Complete sections A-G:
<TABLE>
<CAPTION>
Two
Current Last Calendar
Year Calendar Years
19__ Year 19__ ago 19__
<S> <C> <C> <C>
A. EARNED INCOME (Fill in all which apply.)
1. Non-owner Employee's salary, bonus, and profit sharing
(Form W-2)
---------- ---------- ----------
2. a. Owner of Regular or S Corporation's salary and bonus
(Form W-2).
---------- ---------- ----------
b. Owner's share of after tax corporate profits or losses
(after expenses) provided the insured has significant
ownership and is active in the corporation (Form 1120
or 1120S). If losses, indicate with parentheses.
---------- ---------- ----------
c. Pension plan or other contributions that would cease
if the insured became disabled.
---------- ---------- ----------
3. Sole Proprietor net income, after expenses (Form 1040
Schedule C).
---------- ---------- ----------
4. Share of partnership net income, after expenses
(Insured's Schedule K-1 or Form 1040 Schedule E).
---------- ---------- ----------
5. Other earned income (describe in Remarks)
---------- ---------- ----------
Total earned income
---------- ---------- ----------
B. UNEARNED INCOME - This includes capital gains, interest,
dividends, tax exempt unearned income, income from other
investments, net rental income, pensions, annuities, and
alimony. Itemize in Remarks if exceeding 15% of earned
income or $125,000.
---------- ---------- ----------
C. NET WORTH is the Insured's net worth, exclusive of primary residence,
greater than $4,000,000? [_] Yes [_] No
If yes, itemize the Net Worth in Remarks.
D. Premiums will be paid by: [_] Insured
[_] Employer - Will any portion of the premium be
included in your taxable income? [_] Yes [_] No
If yes, provide details in Remarks
[_] Other (Indicate name and address in Remarks)
(NOTE: Individual paid Issue and Participation limits should be used for those insureds who are
owners in a Sole Proprietorship, Partnership, or S Corporation. Employer paid Issue and
Participation Limits can be used for Owners of a Regular Corporation when the Corporation is
paying the premium and for Non-Owner Employees when the employer is paying the premium.)
E. Is the Insured self-employed, including any partial ownership? [_] Yes [_] No
(If yes, answer questions F and G.)
F. For tax purposes the Insured's business is set up as a/an:
[_] Sole Proprietorship [_] Partnership [_] Regular Corporation [_] S Corporation
G. what is the Insured's ownership? ____%
</TABLE>
REMARKS:
------------------------------------------------------------------------
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
<PAGE>
ALL PRODUCTS (Complete for all requests)
SPECIAL ACTIVITIES AND OTHER INSURANCE ACTIVITY: (Provide details in space
provided to all yes answers)
<TABLE>
<S> <C>
A. Do you plan to change jobs within the next 12 months? (If yes, please advise the industry, [_] Yes [_] No
company and location that you are planning to go to. If you don't know the specifics yet but
are contemplating such a change, please provide as many details as you can.)_______________________
--------------------------------------------------------------------------------------------------- [_] Yes [_] No
B. Do you plan to travel or reside outside the U.S. in the next three years? If yes, please
provide the country(s) and city(s) you will be visiting or moving to and whether this is for
business or pleasure. _____________________________________________________________________________
How long will you be there? _________How frequently will you be visiting if more than once?________
C. Have you, within the last five years, or do you plan in the next six months, to pilot a plane? [_] Yes [_] No
(If yes, complete the Aviation Statement form F. 4883.)
D. Have you, within the last five years, or do you plan in the next six months, to engage in sky [_] Yes [_] No
diving, organized vehicle racing, mountain/rock climbing, hang gliding, underwater diving,
bungee jumping, or other activity requiring special equipment and/or training? (If yes,
complete Avocation Statement F. 11393.)
E. Have you, within the last five years, been declined, modified, rated or been issued [_] Yes [_] No
a rider for life or disability insurance?
F. Within the last year, have you missed any work due to illness or injury? [_] Yes [_] No
G. Are you in the Armed Forces, National Guard, or Reserves? [_] Yes [_] No
(If yes, complete Military Statement F. 4883.)
H. Have you applied elsewhere for insurance within the last six months? [_] Yes [_] No
DRIVING AND CONVICTION HISTORY: (Provide details in Additional Information)
A. In the last five years, have you been charged with a driving while intoxicated violation, had [_] Yes [_] No
your driver's license restricted or revoked, or been cited with a moving violation?
B. Except for traffic violations, have you ever been convicted? [_] Yes [_] No
</TABLE>
NON-SMOKER STATEMENT
[_] Add non-smoker designation
I do not currently smoke any cigarettes, nor have I smoked cigarettes for
the past 12 months. (If tobacco other than cigarettes is used, list type
_________________________ and frequency____________________.) I understand
that a material misrepresentation, including but not limited to statements
regarding my smoking status, may result in the cancellation of insurance and
nonpayment of any claim.
LOST POLICY DECLARATION
[_] I am not able to find the policy(ies) listed on page 1. I agree that when
the duplicate policy(ies) is issued, the original policy(ies) will be void.
I also agree that if the original policy(ies) is found, it will be returned
to the Company immediately.
<TABLE>
<S> <C> <C>
[_] Issue duplicate policy [_] Issue certificate [_] Rollover/conversion/exchange - Issue new policy
</TABLE>
If rollover/conversion/exchange or duplicate requested:
<TABLE>
<S> <C>
[_] Lost policy fee is attached [_] See "Additional Information" for instructions on payment of lost policy fee
</TABLE>
ADDITIONAL INFORMATION
HOME OFFICE ENDORSEMENTS
Home Office Corrections or Additions - Acceptance of the policy shall ratify
changes entered here by the Company. Not to be used in CA (for disability
insurance only), IA, IL, KS, KY, MD, MI, MN, MO, NH, NJ, OR, PA, TX, WI, or WV
for changes unless agreed to in writing.
<PAGE>
Exhibit 10(e)
================================================================================
MINNESOTA MUTUAL POLICY CHANGE APPLICATION PART 3
AGREEMENTS, CERTIFICATION AND AUTHORIZATION
- --------------------------------------------------------------------------------
The Minnesota Mutual Life Insurance Company . Individual Policyowner Services
.400 Robert Street North . St. Paul, Minnesota 55101-2098
- --------------------------------------------------------------------------------
Insured's Name (Last, First, Middle Name)
- --------------------------------------------------------------------------------
AGREEMENTS/CERTIFICATION:
I have read, or had read to me the statements and answers recorded on Part 1
and Part 2 of my application. They are given to obtain this insurance and are,
to the best of my knowledge and belief, true and complete and correctly
recorded. I agree that they will become part of this application and any
coverage issued on it. I understand that the policy will be contestable, as to
representations in this application, from the date of reinstatement or reissue,
for the time period stated in the incontestable provision of the policy. The
insurance applied for will not take effect unless and until the policy is
reissued and delivered and the full first premium is paid while the health of
the Insured remains as stated in Part 1 and Part 2 of the Policy Change
Application, as provided in the Receipt and Temporary Life Insurance Agreement
and the Conditional Health Receipt.
VARIABLE ADJUSTABLE LIFE:
I also agree that if this application is for a Variable Adjustable Life Policy,
that Minnesota Mutual, if it is unable for any reason to collect funds for units
which have been allocated to a sub-account under the policy applied for, may
redeem for itself the full value of such units. If such units are no longer
available, it may recover that value from any other units of equal value
available under the policy.
I UNDERSTAND THAT THE AMOUNT OR THE DURATION OF THE DEATH BENEFIT (OR BOTH) OF
THE REISSUED POLICY APPLIED FOR MAY INCREASE OR DECREASE DEPENDING ON THE
INVESTMENT RESULTS OF THE SUB-ACCOUNTS OF THE SEPARATE ACCOUNT. I UNDERSTAND
THAT THE ACTUAL CASH VALUE OF THE REISSUED POLICY APPLIED FOR INCREASES AND
DECREASES DEPENDING ON INVESTMENT RESULTS. THERE IS NO MINIMUM ACTUAL CASH VALUE
FOR POLICY VALUES INVESTED IN THESE SUB-ACCOUNTS.
AUTHORIZATION:
I authorize any physician, medical practitioner, hospital, clinic or other
health care provider, insurance or reinsuring company, consumer reporting
agency, the Medical Information Bureau, Inc., (MIB), or employer which has any
records or knowledge of the physical or mental health of me or my minor
children, to give all such information and any other nonmedical information
relating to such persons to Minnesota Mutual or its reinsurers. This shall
include ALL INFORMATION as to any medical history, consultations, diagnoses,
prognoses, prescriptions or treatments and tests, including information
regarding alcohol or drug abuse, sickle cell disease, AIDS or AIDS-related
conditions. To facilitate rapid submission of such information, I authorize all
said sources, except MIB, to give such records or knowledge to any agency
employed by Minnesota Mutual to collect and transmit such information.
I understand this information is to be used for the purpose of determining
eligibility for insurance and may be used for determining eligibility for
benefits. I understand this information may be made available to Underwriting,
Claims and support staff of Minnesota Mutual. I authorize Minnesota Mutual or
its reinsurers to release any such information to reinsuring companies, the
Medical Information Bureau, Inc., or other persons or organizations performing
business or legal services in connection with my application, claim or as may be
otherwise lawfully required or as I may further authorize.
I agree this authorization shall be valid for twenty-six months from the date it
is signed.
I understand that I have the right to request and receive a copy of this
Authorization and that a photocopy of this authorization shall be as valid as
the original.
I acknowledge that I have been given Minnesota Mutual's Consumer Privacy Notice.
(Notice Regarding Consumer Reports and Notice Regarding Medical Information
Bureau, Inc.)
Any person who, with intent to defraud or knowing that he or she is facilitating
a fraud against an insurer, submits an application or files a claim containing a
false or deceptive statement is guilty of insurance fraud.
<TABLE>
- -------------------------------------------------------------------------------------------------------------------------------
<S> <C>
DATE SIGNED CITY STATE [_] CHANGE SERVICE AGENT (Print name/code only if policy(ies) is being reassigned
AGENT CODE
- -------------------------------------------------------------------------------------------------------------------------------
INSURED AGENCY CODE
X
- -------------------------------------------------------------------------------------------------------------------------------
OWNER (If other than insured, list title if signed on behalf of corporation) OWNER'S TELEPHONE NUMBER
X ( ) -
- --------------------------------------------------------------------------------------------------------------------------------
ASSIGNEE (List title if signed on behalf of corporation) WITNESS/REGISTERED REPRESENTATIVE (Licensed
agent where required) CODE %
X X
- -------------------------------------------------------------------------------------------------------------------------------
IRREVOCABLE BENEFICIARY AGENT CODE %
X X
- -------------------------------------------------------------------------------------------------------------------------------
PARENT/CONSERVATOR/GUARDIAN AGENT CODE %
X X
- -------------------------------------------------------------------------------------------------------------------------------
</TABLE>
<PAGE>
EXHIBIT 10(F)
VARIABLE ADJUSTABLE LIFE (ONLY)
DEATH BENEFIT OPTION SELECTION
[_] Change Death Benefit Option to: [_] Protection [_] Cash (Default to
cash if none selected)
INVESTMENT ALLOCATIONS
[_] Select Sub-Account or Guaranteed Principal Account allocation as follows:
(Increments of 5%, Minimum is 10% - must total 100%. This applies to the
investment allocation only. Complete "Separate Account Transfer" section to
transfer existing value between sub-accounts.)
(Allocations must total 100%. Minimum of 10% in any sub-account, allocations
must be in increments of 5%.)
<TABLE>
<CAPTION>
Premium NRP Premium NRP
<C> <C> <S> <C> <C> <C>
$_____ ____% Growth $_____ ____% Value Stock Portfolio
_____ ____% Bond _____ ____% Small Company Value
_____ ____% Money Market _____ ____% Global Bond
_____ ____% Asset Allocation _____ ____% Index 400 Mid-Cap
_____ ____% Mortgage Securities _____ ____% Micro-Cap Value
_____ ____% Index 500 _____ ____% Macro-Cap Value
_____ ____% Capital Appreciation _____ ____% Micro-Cap Growth
_____ ____% Guaranteed Principal Amount _____ ____% Other_________________
_____ ____% International Stock _____ ____% Other_________________
_____ ____% Small Company Fund _____ ____% Other_________________
</TABLE>
SEPARATE ACCOUNT TRANSFERS (Minimum transfer lesser of $250 of the account
balance)
<TABLE>
<S> <C> <C> <C>
Growth $______to_____ Value Stock Portfolio $______to_____
Bond $______to_____ Small Company Value $______to_____
Money Market $______to_____ Global Bond $______to_____
Asset Allocation $______to_____ Index 400 Mid-Cap $______to_____
Mortgage Securities $______to_____ Micro-Cap Value $______to_____
Index 500 $______to_____ Micro-Cap Growth $______to_____
Capital Appreciation $______to_____ Micro-Cap Growth $______to_____
Guarantee Principal Account $______to_____ Other_________________ $______to_____
International Stock $______to_____ Other_________________ $______to_____
Small Company Fund $______to_____ Other_________________ $______to_____
</TABLE>
SYSTEMATIC TRANSFER (DOLLAR COST AVERAGING)
If you wish to begin a systematic transfer of funds, please complete the
following section.
PART A: Transfer Option (Minimum transfer lesser of $250 of the account balance)
I wish to transfer: (Select one of the following)
[_]_________units from the __________________Account. (Units must be a positive
whole number)
[_]$________from the_________________________Account. (Must be a positive whole
number)
PART B: Transfer Allocation (Increments of 5%, Minimum is 10% - must total 100%)
Indicate dollar amounts only if transferring a dollar amount from Part A.
I wish the amount transferred to be allocated as follows:
<TABLE>
<CAPTION>
DOLLAR AMOUNT OR PERCENT DOLLAR AMOUNT OR PERCENT
<S> <C> <C> <C>
$_____ ____% Growth $_____ ____% Value Stock Portfolio
_____ ____% Bond _____ ____% Small Company Value
_____ ____% Money Market _____ ____% Global Bond
_____ ____% Asset Allocation _____ ____% Index 400 Mid-Cap
_____ ____% Mortgage Securities _____ ____% Micro-Cap Value
_____ ____% Index 500 _____ ____% Macro-Cap Value
_____ ____% Capital Appreciation _____ ____% Micro-Cap Growth
_____ ____% Guaranteed Principal Amount _____ ____% Other_________________
_____ ____% International Stock _____ ____% Other_________________
_____ ____% Small Company Fund _____ ____% Other_________________
</TABLE>
PART C: FREQUENCY
I wish the transfer to occur:
[_] Monthly [_] Quarterly [_] Semi-annually [_] Annually
PART D: TRANSFER DATE (10th or 20th only)
[_] 10th [_] 20th Starting (Month and Year)
----------------
Ending (Month and Year)
----------------
<PAGE>
INVESTMENT SUITABILITY -- TO BE COMPLETED BY POLICYOWNER
NASD rules require inquiry concerning the financial condition of individuals
applying for variable policies. The proposed Policyowner must supply such
information so that an informed judgment may be made as to the suitability of
the investment for the Policyowner.
(Note: If the proposed Policyowner and the proposed insured are not the same,
the proposed Policyowner must complete questions 11-13 also.)
1. Employer ____________________ Address ______________________________________
Occupation ____________________________________ Years Employed _____________
2. Are you an employee of Minnesota Mutual or a subsidiary? [_] Yes [_] No
3. Are you a spouse or dependent child of an employee of
Minnesota Mutual or a subsidiary? [_] Yes [_] No
4. Are you an employee of a NASD firm? [_] Yes [_] No
5. Are you of legal age in the state of your mailing address? [_] Yes [_] No
6. Dependents: [_] Spouse [_] Children How many? _______ Ages ______________
7. Approximate: Annual Income $____ Assets $_____ Debt $____ Tax Bracket______%
Please indicate spouse's income if it should be considered in determining
suitability. $___________________
8. Who will be primarily responsible for paying the premium? __________________
9. Face amount of life insurance in force? $____________________
10. Asset Breakdown:
Savings $___________ Balanced/Total Return Funds $__________
Insurance Cash Values $___________ Stock Funds $__________
Real Estate $___________ Bond Funds $__________
Business Interests $___________ Individual Stock $__________
Retirement Funds $___________ Individual Bonds $__________
Other _______________ $___________
11. Ranking of Investment Objectives (Rank 1-5, in order of importance):
______Capital Preservation/Conservation Growth _______Growth
______Current Income _______Aggressive Growth
______Total Return/Conservation Growth
12. Risk Tolerance (Check one):
[_] Low Risk [_] Moderate Risk [_] High Risk
13. Did you receive the current Variable Adjustable Life and
Fund Prospectus? [_] Yes [_] No
14. Would you like us to send you a Statement of Additional
Information referred to in the Variable Adjustable Life
and Fund Prospectus? [_] Yes [_] No
================================================================================
Suitability accepted by Registered Principal ___________________ Date __________
<PAGE>
Exhibit 10(g)
VARIABLE ADJUSTABLE LIFE ONLY
DEATH BENEFIT OPTION SELECTION
[_] Change Death Benefit option to: [_] Protection [_] Cash (Default to cash if
none selected)
INVESTMENT ALLOCATIONS
[_] Change Sub-Account or Guaranteed Principal Account allocation as follows:
(Increments of 5%, Minimum is 10% - must total 100%. This applies to the
investment allocation only. Complete "Separate" Account Transfer" section
to transfer existing value between sub-accounts.)
<TABLE>
<CAPTION>
Premium NRP Partial Surrender Premium NRP Partial Surrender
<S> <C> <C> <C> <C> <C>
$____ ____ ____% Growth $____ ____ ____% Value Stock Portfolio
____ ____ ____% Bond ____ ____ ____% Small Company Value
____ ____ ____% Money Market ____ ____ ____% Global Bond
____ ____ ____% Asset Allocation ____ ____ ____% Index 400 Mid-Cap
____ ____ ____% Mortgage Securities ____ ____ ____% Micro-Cap Value
____ ____ ____% Index 500 ____ ____ ____% Macro-Cap Value
____ ____ ____% Capital Appreciation ____ ____ ____% Micro-Cap Value
____ ____ ____% Guaranteed Principal ____ ____ ____% Other______________
Account
____ ____ ____% International Stock ____ ____ ____% Other______________
____ ____ ____% Small Company Fund ____ ____ ____% Other______________
</TABLE>
SEPARATE ACCOUNT TRANSFERS
(Minimum Transfer lesser of $250 or the account balance)
Growth $_____to_____ Value Stock Portfolio $_____to_____
Bond $_____to_____ Small Company Value $_____to_____
Money Market $_____to_____ Global Bond $_____to_____
Asset Allocation $_____to_____ Index 400 Mid-Cap $_____to_____
Mortgage Securities $_____to_____ Micro-Cap Value $_____to_____
Index 500 $_____to_____ Macro-Cap Value $_____to_____
Capital Appreciation $_____to_____ Micro_Cap Value $_____to_____
Guaranteed Principal Account $_____to_____ Other________________ $_____to_____
International Stock $_____to_____ Other________________ $_____to_____
Small Company Fund $_____to_____ Other________________ $_____to_____
SYSTEMATIC TRANSFER (DOLLAR COST AVERAGING)
REQUEST TYPE (CHECK BOX) COMPLETE
I wish to: [_] start a systematic transfer of funds......(Part A, B, C, D)
[_] change the transfer amount................(Part A, B)
[_] change the frequency......................(Part C)
[_] change the distribution date..............(Part D)
[_] cancel the systematic transfer
PART A: Transfer Option (Minimum transfer lesser of $250 or the account balance)
I wish to transfer: (Select one of the following)
[_]_______ units from the _____________________ Account. (Units must be a
positive whole number)
[_]$______ from the ___________________________ Account. (Must be a positive
whole number)
PART B: Transfer Allocation (Increments of 5%, Minimum is 10% - must total 100%)
Indicate dollar amounts only if transferring a dollar amount from Part A
I wish the amount transferred to be allocated as follows:
DOLLAR AMOUNT OR PERCENT DOLLAR AMOUNT OR PERCENT
$____ ____% Growth $____ ____% Value Stock Portfolio
____ ____% Bond ____ ____% Small Company Value
____ ____% Money Market ____ ____% Global Bond
____ ____% Asset Allocation ____ ____% Index 400 Mid-Cap
____ ____% Mortgage Securities ____ ____% Micro-Cap Value
____ ____% Index 500 ____ ____% Macro-Cap Value
____ ____% Capital Appreciation ____ ____% Micro-Cap Growth
____ ____% Guaranteed Principal Account ____ ____% Other________________
____ ____% International Stock ____ ____% Other________________
____ ____% Small Company Fund ____ ____% Other________________
PART C: FREQUENCY
I wish the transfer to occur:
[_] Monthly [_] Quarterly [_] Semi-annually [_] Annually
PART D: TRANSFER DATE (10th or 20th only)
[_] 10th [_] 20th Starting ______________ (Month and Year)
Ending ________________ (Month and Year)
<PAGE>
INVESTMENT SUITABILITY - TO BE COMPLETED BY POLICYOWNER
NASD rules require inquiry concerning the financial condition of individuals
applying for variable policies. The Policyowner must supply such information so
that an informed judgment may be made as to the suitability of the investment
for the Policyowner.
1. Employer ____________________ Address ______________________________________
Occupation ____________________________________ Years Employed _____________
2. Are you an employee of Minnesota Mutual or a subsidiary? [_] Yes [_] No
3. Are you a spouse or dependent child of an employee of
Minnesota Mutual or a subsidiary? [_] Yes [_] No
4. Are you an employee of a NASD firm? [_] Yes [_] No
5. Are you of legal age in the state of your mailing address? [_] Yes [_] No
6. Dependents: [_] Spouse [_] Children How many? _______ Ages ______________
7. Approximate: Annual Income $____ Assets $_____ Debt $____ Tax Bracket _____%
Please indicate spouse's income if it should be considered in determining
suitability. $______________________________
8. Who will be primarily responsible for paying the premium? __________________
9. Face amount of life insurance in force? $____________________
10. Asset Breakdown:
Savings $___________ Balanced/Total Return Funds $__________
Insurance Cash Values $___________ Stock Funds $__________
Real Estate $___________ Bond Funds $__________
Business Interests $___________ Individual Stocks $__________
Retirement Funds $___________ Individual Bonds $__________
Other _______________ $___________
11. Ranking of Investment Objectives (Rank 1-5, in order of importance):
______ Capital Preservation/Conservation Income _______ Growth
______ Current Income _______ Aggressive Growth
______ Total Return/Conservative Growth
12. Risk Tolerance (Check one):
[_] Low Risk [_] Moderate Risk [_] High Risk
13. Did you receive the current Variable Adjustable Life and
Fund Prospectus? [_] Yes [_] No
14. Would you like us to send you a Statement of Additional
Information referred to in the Variable Adjustable Life
and Fund Prospectus? [_] Yes [_] No
================================================================================
Suitability Accepted by Registered Principal ___________________ Date __________
<PAGE>
Exhibit 99-C
February 27, 1998
The Minnesota Mutual Life Insurance Company
Minnesota Mutual Life Center
400 Robert Street North
St. Paul, Minnesota 55101
Re: File Number 33-64395
Post-Effective Amendment Number 2
Gentlepersons:
In my capacity as counsel for The Minnesota Mutual Life Insurance Company (the
"Company"), I have reviewed certain legal matters relating to the Company's
Separate Account entitled Minnesota Mutual Variable Life Account (the "Account")
in connection with Post-Effective Amendment Number 2 to its Registration
Statement on Form S-6. This Registration Statement is to be filed by the
Company and the Account with the Securities and Exchange Commission under the
Securities Act of 1933, as amended, with respect to certain variable life
insurance policies.
Based upon that review, I am of the following opinion:
1. The Account is a separate account of the Company duly created and
validly existing pursuant to the laws of the State of Minnesota; and
2. The issuance and sale of the variable life insurance policies funded
by the Account have been duly authorized by the Company and such
policies, when issued in accordance with and as described in the
current Prospectus contained in the Registration Statement, and upon
compliance with applicable local and federal laws, will be legal and
binding obligations of the Company in accordance with their terms.
I hereby consent to the filing of this opinion as an exhibit to the Registration
Statement.
Sincerely,
/s/ Donald F. Gruber
Donald F. Gruber
Assistant General Counsel
<PAGE>
KPMG Peat Marwick LLP Letterhead
Independent Auditors' Consent
-----------------------------
The Board of Directors
The Minnesota Mutual Life Insurance Company and
Policy Owners of Minnesota Mutual Variable Life Account:
We consent to the use of our reports included herein and to the reference to our
Firm under the heading "EXPERTS" in Part I of the Registration Statement.
KPMG Peat Marwick LLP
Minneapolis, Minnesota
February 27, 1998
<PAGE>
Exhibit 99-E
[Letterhead of The Minnesota Mutual Life Insurance Company]
February 23, 1998
The Minnesota Mutual Life Insurance Company
400 Robert Street North
St. Paul, Minnesota 55101
Re: Variable Adjustable Life - Second Death Policy
Form Number 95-690
Dear Sir or Madam:
This opinion is furnished in connection with the filing of the Post-Effective
Amendment Number 2 to its Registration Statement on Form S-6 ("Registration
Statement"), which covers premiums expected to be received under Variable
Adjustable Life - Second Death Insurance Policies ("Policies") on the form
referenced above offered by The Minnesota Mutual Life Insurance Company. The
prospectus included in the Registration Statement describes policies which will
be offered by Minnesota Mutual, after the Amendment to the Registration
Statement is declared effective, in each state where they have been approved by
appropriate state insurance authorities. The policy form was prepared under my
direction, and I am familiar with the Registration Statement and Exhibits
thereto. In my opinion:
(1) The illustrations of death benefits, policy values and accumulated premiums
for the Policy described under the headings "Policy Values," "Death Benefit
Options" and "Variations in Death Benefit," and fully illustrated in
Appendix I of the prospectus entitled "Illustrations of Policy Values,
Death Benefits and Premiums" and in Appendix II of the prospectus entitled
"Summary of Policy Charges" and included in the Registration Statement
("Prospectus"), based upon the assumptions stated, are consistent with the
provisions of the Policies. The rate structure of the Policies has not been
designed so as to make the relationship between premiums and benefits, as
shown in Appendix I, appear to be correspondingly more favorable to the
prospective purchaser of a Policy for a male and a female, both age 40 than
to prospective purchasers of Policies for a male and a female at other
ages.
(2) The table shown under the heading "Summary," illustrating the
representative for maximum and minimum plans of insurance, is consistent
with the provisions of the Policies.
<PAGE>
The Minnesota Mutual Life Insurance Company
February 23, 1998
Page 2
(3) The description under the heading "Policy Adjustments," describing the
effects of a Policy adjustment on an illustrated standard risk Policy, and
illustrating adjustments on a hypothetical policy, is consistent with the
provisions of the Policies.
(4) The description under the subheading "Restrictions on Adjustments,"
describing the effects of restrictions on Policy adjustments in illustrated
situations, is consistent with the provisions of the Policies.
(5) The description under the heading "Policy Charges," describing sales load
computations in illustrated situations in Appendix V, is consistent with
the provisions of the Policies.
(6) The information with respect to the Policy contained in Appendix III,
entitled "Illustration of Death Benefit Calculation," based upon the
assumptions stated therein, is consistent with the provision of the
Policies.
(7) The information with respect to the Policy contained in Appendix IV,
entitled "Policy Loan Example," based upon the assumptions stated therein,
is consistent with the provisions of the Policies.
I hereby consent to the use of this opinion as an exhibit to the Registration
Statement and to the reference to my name under the heading "Experts" in the
Prospectus.
Very truly yours,
/s/ Jaymes G. Hubbell, F.S.A.
Jaymes G. Hubbell, F.S.A.
Second Vice President
and Actuary
JGH:pjh
<PAGE>
Exhibit 99-F
[LETTERHEAD OF JONES & BLOUCH L.L.P. APPEARS HERE]
February 27, 1998
The Minnesota Mutual Life
Insurance Company
400 Robert Street North
St. Paul, MN 55101
Ladies and Gentlemen:
We hereby consent to the reference to this firm under the caption "Legal
Matters" in the prospectus contained in Post-Effective Amendment No. 2 to the
registration statement on Form S-6 of Minnesota Mutual Variable Life Account,
File No. 33-64395, to be filed with the Securities and Exchange Commission.
Very truly yours,
/s/ Jones & Blouch L.L.P.
Jones & Blouch L.L.P.
<PAGE>
Exhibit 99.H
May 1998
DESCRIPTION OF THE MINNESOTA MUTUAL LIFE
INSURANCE COMPANY'S ISSUANCE, TRANSFER
AND REDEMPTION PROCEDURES FOR POLICIES
PURSUANT TO RULE 6e-2(b)(12)(ii)
This document sets forth the administrative procedures established by The
Minnesota Mutual Life Insurance Company ("we", "us", "our") in connection with
the issuance of its Variable Adjustable Life Second Death insurance policy
("policy"), the transfer of assets held thereunder, and the redemption by owners
of their interests in those policies.
I. Procedures Relating to Issuance and Purchase of the Policies
------------------------------------------------------------
Persons wishing to purchase a policy must send a completed application to
us at our home office. The minimum face amount we will issue on a policy
is $200,000; the annual base premium on each policy must be at least
$600. The minimum plan of insurance at policy issue is a protection plan
which has a level death benefit for a period of ten years. If the younger
insured's age at original issue is over age 70, the minimum plan of
protection will be less than ten years, as described in the table below:
<TABLE>
<CAPTION>
Younger Insured's Minimum Plan
Issue Age (in years)
----------------- ------------
<S> <C>
71 9
72 8
73 7
74 6
75 or greater 5
</TABLE>
Both insureds must be between age 20 and age 85 inclusive when the policy
is issued. Before issuing any policy, we will require evidence of
insurability satisfactory to us on both insureds, which in some cases
will require a medical examination. Persons whom we
-1-
<PAGE>
evaluate as good mortality risks are offered the most favorable premium
rates, while a higher premium is charged to persons with a greater
mortality risk. Acceptance of an application is subject to our underwriting
rules and we reserve the right to reject an application for any reason.
Guaranteed maximum cost of insurance charges will vary by the gender, age
and risk class and smoking habits of each insured. 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 gender-based distinctions
in the calculation of mortality costs. Maximum cost of insurance charges
are based on an assumption of mortality not greater than the mortality
rates reflected in 1980 CSO Tables.
In most cases, 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 plan of insurance and any policy
adjustments since issue.
When the policy is issued, the face amount, premium, tabular cash values
and a listing of any supplemental agreements are stated on the policy
information pages of the policy form, page 1.
A. Premium Schedules and Underwriting Standards
--------------------------------------------
Premiums for the policies will not be the same for all owners.
Insurance is based on the principle of pooling and distribution of
mortality risks, which assumes that each owner pays a premium
commensurate with the insureds' mortality risk as actuarially
-2-
<PAGE>
determined, utilizing factors such as age, gender, health and
occupation. A uniform premium for all insureds would discriminate
unfairly in favor of those insureds representing greater risk.
Although there will be no uniform premium for all insureds, there will
be a single price for all insureds in a given risk classification.
The policies will be offered and sold pursuant to established premium
schedules and underwriting schedules in accordance with state
insurance laws. The prospectus specifies premiums for specified
illustrative ages. In addition, the premiums to be paid by the owner
of a policy will be specified in the policy.
B. Application and Initial Premium Processing
------------------------------------------
When we receive a completed application, we will follow certain
insurance underwriting (risk evaluation) procedures designed to
determine whether the applicants are insurable. This process may
involve such verification procedures as medical examinations and may
require that further information be provided by the proposed insureds
before a determination can be made. A policy cannot be issued, i.e.,
physically issued through our computerized issue system, until this
underwriting procedure has been completed.
These processing procedures are designed to provide immediate benefits
to the prospective owner in connection with payment of the initial
premium and will not dilute any benefit payable to any existing owner.
Although a policy cannot be issued until after the underwriting
process has been completed, the proposed insureds may receive
immediate insurance coverage, if they prove to be insurable and have
paid the first premium and are covered under the terms of a
conditional insurance agreement. In accordance with industry practice,
we will establish procedures to handle errors in
-3-
<PAGE>
initial and subsequent premium payments to refund overpayments and
collect underpayments, except for de minimis amounts. If an
application is accompanied by a check for all or at least one-twelfth
of the annual premium and we accept the application, the policy date
will be the date the underwriting decision is made. The policy date is
the date used to determine subsequent policy anniversaries and premium
due dates. The issuance will take effect as of the policy date
specified in the policy, except as altered by another agreement, e.g.,
the receipt and temporary life insurance agreement. If the application
is accompanied by a check for all or at least one-twelfth of the
annual premium, the insureds may be covered under the terms of a
conditional insurance agreement until the policy date. If we accept an
application which is not accompanied by a check for the initial
premium, the policy will be issued with a policy date which will
normally be fifteen days after the date our underwriters approve
issuance of the policy. The initial plan premium must be received
within 60 days after the issue date. If the premium is not paid or if
the application is rejected, the policy will be cancelled and any
partial premiums paid will be returned to the applicant. In a case
where there is no paid premium, there will be no life insurance
coverage provided. On delivery of the policy within the 60 day period
following issue, the applicant may obtain a policy which has a policy
date of the date when we receive the initial plan premium. In that
case the applicant has to indicate to us his or her intention to
obtain such a policy. This should be done on or before the payment of
the first premium. As a result of a requested change, policy pages
with updated policy information and a policy date that reflects the
date the first premium was received will be sent to the agent for
delivery to the applicant. Under certain circumstances a policy may be
issued where the applicant wishes to retain the original policy issue
date. In such cases all premiums due between the issue date and the
date of delivery must be paid on delivery in order for the original
policy issue date to be retained.
-4-
<PAGE>
The policy date, assuming the payment of the first premium, marks the
date on which benefits begin to vary in accordance with the investment
performance of any selected sub-accounts of the Variable Life Account.
Premium payments may also be allocated to the guaranteed principal
account. The policy date is also the date as of which the insurance
ages of the proposed insureds are determined. It represents the first
day of the policy year and therefore determines the policy anniversary
and also the monthly dates. It also represents the commencement of the
suicide and contestable periods for purposes of the policy.
The owner of the policy must pay the initial premium within 60 days of
the date of the policy. The first net premiums, namely premiums after
the deduction of the charges assessed against premiums and
nonrepeating premiums, are allocated to the guaranteed principal
account or any sub-accounts of the Variable Life Account which will,
in turn, invest in shares of the Portfolios of the Advantus Series
Fund, Inc. and Class 2 of the Templeton Developing Markets Fund.
Net premiums are allocated to the guaranteed principal account or any
one or more of the sub-accounts as selected by the owner on the
application for the policy. The owner may change the allocation
instructions for future premiums by giving a written request. A change
will not take effect until it is recorded in our home office. The
allocation to the guaranteed principal account or any sub-account,
expressed in whole percentages, must be at least 10 percent of the net
premium and preferably, in increments of 5 percent. We reserve the
right to restrict the allocation of premium. In that case, no more
than 50 percent of the net premium may be allocated to the guaranteed
principal account. This restriction will not apply when all of the
premiums are being allocated to the guaranteed principal account as a
conversion privilege.
-5-
<PAGE>
We also reserve the right to delay the allocation of net premiums to
named sub-accounts. Such a delay will be for a period of 30 days after
issuance of a policy or policy adjustment. If this right is exercised,
net premiums will be allocated to the money market sub-account of the
separate account until the end of that period.
C. Premium Processing
------------------
Twenty days before the premium due date, we will send a premium notice
for the premium due to the owner's address on record. The amount of
the net premium will depend upon such factors as the initial face
amount, the plan of insurance, the age at issue, gender, risk
classification and smoking status of each insured, and the additional
benefits associated with the policy.
D. Reinstatement
-------------
At any time within three years from the date of lapse, the owner may
restore the policy to a premium paying status. We will require:
(1) the owner's written request to reinstate the policy;
(2) that the owner submits to us at our home office during the
lifetime of both insureds, evidence satisfactory to us of the
insurability of both insureds so that we may have time to act on
the evidence during the lifetime of both insureds; and
-6-
<PAGE>
(3) at our option, a premium payment which is equal to all overdue
premiums with interest at a rate not to exceed 6 percent per annum
compounded annually and any policy loan in effect at the end of the
grace period following the date of default with interest at a rate
not exceeding 8 percent per annum compounded annually.
This reinstatement provision is designed to comply with the insurance
laws of a number of states.
In order to assist an owner of a lapsed policy in making a considered
judgment as to whether to reinstate, we may calculate the amount payable
upon reinstatement and "freeze" the amount for up to 15 days.
The reinstatement will take effect as of the date we receive the
required proof of insurability and the payment of the reinstatement
amount at our home office.
We will allocate the net premiums, namely premiums after the deduction
of the charges assessed against premiums and nonrepeating premiums, to
the guaranteed principal account or the sub-accounts of the Variable
Life Account which, in turn, invest in Fund shares. The amount submitted
by the owner is required to support the reinstated benefits.
E. Repayment of a Policy Loan
--------------------------
If the policy is in force, a policy loan can be repaid in part or in
full at any time before the second death. The loan may also be repaid
within 60 days after the date of the second death, if we have not paid
any of the benefits under the policy. Any loan
-7-
<PAGE>
repayment must be at least $100 unless the balance due is less than
$100. Currently, we will waive this Minimum Loan Repayment Provision for
loan repayments made under an automatic bank check plan if the loan
repayment is 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 separate account as the owner may
direct.
In the absence of instructions from the owner, 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 the actual cash value in all of
the owner's sub-accounts.
Loan repayments reduce the loan account by the amount of the loan
repayment.
II. Transfer Among Sub-Accounts
---------------------------
A separate account called the Minnesota Mutual Variable Life Account was
established on October 21, 1985, by the Board of Trustees of Minnesota
Mutual in accordance with certain provisions of the Minnesota insurance
law. The Variable Life Account currently has seventeen sub-accounts to
which owners may allocate premiums. Each sub-account invests in shares of a
corresponding Portfolio of the Advantus Series Fund, Inc. or the Templeton
Developing Markets Fund.
-8-
<PAGE>
The amount of actual cash value to be transferred to or from a sub-account
of the separate account or the guaranteed principal account must be at
least $250. If the balance is less than $250, the entire actual cash value
attributable to that sub-account or the guaranteed principal account must
be transferred. If a transfer would reduce the actual cash value in the
sub-account from which the transfer is to be made to less than $250 we
reserve the right to include that remaining sub-account actual cash value
in the amount transferred.
The maximum amount of actual cash value to be transferred out of the
guaranteed principal account to the sub-accounts of the separate account
may be limited to 20 percent of the guaranteed principal account balance.
Transfers to or from the guaranteed principal account may be limited to one
such transfer per policy year.
None of the foregoing restrictions will apply when all of the policy value
is being transferred and when all of the premiums are being allocated to
the guaranteed principal account as a conversion privilege.
Transfers from the guaranteed principal account must be made by a written
request. It must be received by us or postmarked in the 30-day period
before or after the last day of the policy year. Written requests for
transfers which meet these conditions will be effective after they are
approved and recorded at our home office. Currently, these restrictions are
being waived.
-9-
<PAGE>
III. "Redemption" Procedures:
------------------------
Surrender and Related Transactions
----------------------------------
A. Request for Surrender Value
---------------------------
Until the second death, we will pay the surrender value of the policy to
the owner upon written request. On surrender, the surrender value of the
policy is the actual cash value minus unpaid policy charges which are
assessed against the actual cash value. The determination of the
surrender value is made as of the end of the valuation period during
which the surrender request is received at our home office. The policy
may be surrendered by sending the policy and a written request for its
surrender to us. The owner may request that the surrender value be paid
in cash or, as an alternative, the owner may request that the surrender
value be applied on a settlement option as described in the policy or to
provide extended term insurance.
A partial surrender of the actual cash value of the policy is also
permitted in any amount of $500 or more. In addition, the amount of a
partial surrender may not exceed the amount available as a policy loan.
With the Cash Option death benefit, if the Policy is not paid-up, the
face amount of the policy will be reduced by the amount of the partial
surrender. If the Policy is paid-up, the death benefit is reduced so as
to retain the same ratio between the policy value and the death benefit
of the Policy as existed prior to the partial surrender. With the
Protection Option death benefit, the face amount of the Policy is not
changed by the amount of the partial surrender. However, if the Policy
is not paid-up, the death benefit of the Policy is reduced by the amount
of the partial surrender; if the Policy is paid-up, the death benefit of
the
-10-
<PAGE>
Policy is reduced so as to retain the ratio between the policy value
and the death benefit of the Policy as existed prior to the partial
surrender.
On a partial surrender, the owner may tell us which sub-accounts of the
actual cash value of the policy should be reduced or whether it is to be
taken in whole or in part from the guaranteed principal account. If the
owner does not, partial surrenders will be deducted from the guaranteed
principal account actual cash value and separate account actual cash
value in the same proportion that those values bear to each other and,
as to the actual cash value in the separate account, from each sub-
account in the proportion that the actual cash value in such sub-account
bears to the actual cash value in all of the sub-accounts.
Payment of a surrender or a partial surrender will be made as soon as
possible, but not later than seven days after we receive a completed
written request for surrender. However, if any portion of the actual
cash value to be surrendered is attributable to a premium or
nonrepeating premium payment made by non-guaranteed funds such as a
personal check, we will delay mailing that portion of the surrender
proceeds until we have reasonable assurance that the payment has cleared
and that good payment has been collected. The amount the owner receives
on the surrender may be more or less than the total of premiums paid to
the policy.
B. Death Claims
------------
We will pay a death benefit to the beneficiary within seven days after
receipt at our home office of due proof of the second death and on
completion of all other requirements necessary to make payment. In
addition, payment of the death benefit is subject to the provisions of
the policy regarding suicide and incontestability.
-11-
<PAGE>
The death benefit provided by the policy depends upon the death benefit
option chosen by the owner. The owner may choose one of two available
death benefit options -- the Cash Option or the Protection Option. If
the owner fails to make an election, the Cash Option will be in effect.
The scheduled premium for a policy is the same no matter which death
benefit option you choose.
Under the Cash Option, the death benefit will be the current face amount
at the time of the second death. The death benefit will not vary unless
the policy value exceeds the net single premium for the current face
amount.
Before the policy anniversary nearest the younger insured's age 70, and
with both the Protection and the Amended Protection Option, the death
benefit will vary and will be the policy value, plus the larger of:
(1) the then current face amount; and
(2) the amount of insurance which could be purchased using the policy
value as a net single premium.
At the policy anniversary nearest the younger insured's age 70, we will
automatically adjust the face amount to equal the death benefit
immediately preceding the adjustment. The Protection Option is only
available until the policy anniversary nearest the younger insured's age
70; at that time we will convert the death benefit option to the Cash
Option. With the Amended Protection Option, after the policy anniversary
nearest the younger insured's age 70, 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 second 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.
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
-12-
<PAGE>
amount. Once paid-up, the death benefit under the Cash Option is the
greater of the face amount of the policy when it became paid-up or the
amount of insurance which could be purchased at the date of the second
death by using the policy value as a net single premium based upon the
policy assumptions. The two assumptions we use in computing the
additional amount of insurance are an interest rate assumption of 4
percent per year and an assumption of mortality based upon the 1980
Commissioners Standard Ordinary Mortality Tables.
A policy is paid-up when no additional premiums are required to provide
the face amount of insurance. We may or may not accept additional
premiums. When a policy becomes paid-up, the policy value will then
equal or exceed the net single premium needed to purchase an amount of
insurance equal to the face amount of the policy. However, its actual
cash value will continue to vary daily to reflect the investment
experience of the Variable Life Account and any interest credited as a
result of a policy loan. Once a policy becomes paid-up, it will always
retain its paid-up status regardless of any subsequent decrease in its
policy value. However, on a paid-up policy with indebtedness, where the
actual cash value decreases to zero, a loan repayment may be required to
keep the policy in force.
The owner may elect to have the death benefit option changed while the
policy is in force by filing a written request at our home office. We
may require that the owner provide satisfactory evidence of the
insurability of both insureds before a change to the Protection Option
is made. The change will take effect when it is approved and recorded
in our home office.
The amount payable as death proceeds upon the second death will be the
death benefit provided by the policy, plus any additional insurance
provided by an
-13-
<PAGE>
additional benefit agreement, if any, minus any policy charges and minus
any policy loans. In addition, if the Cash Option death benefit is in
effect at the second death we will pay to the beneficiary any part of a
paid premium that covers the period from the end of the policy month in
which the second death occurs to the date to which premiums are paid.
The death benefit is determined on each monthly policy anniversary and
as of the date of the second death.
Interest on single sum death proceeds will be paid from the date of the
second death until the date of payment. Interest will be at an annual
rate we determine, but never less than 3 percent.
Proceeds of the policy may be paid in other than a single sum. The
owner, before the second death, may request that the proceeds be paid
under one of the policy settlement options as described in the policy.
We may also use any other method of payment that is agreeable both to
the owner and it. A settlement option may be selected only if the
payments are to be made to a natural person in that person's own right.
Each settlement option is payable in fixed amounts as described in the
policy. The payments do not vary with the investment performance of the
Variable Life Account.
C. Default and Options on Lapse
----------------------------
A policy may lapse in one of two ways: (1) if a scheduled premium is
not paid, or (2) if there is no actual cash value when there is a policy
loan.
-14-
<PAGE>
As a scheduled premium policy, the policy will lapse if a premium is not
paid on or before the date it is due or within the 31-day grace period
provided by the policy. The owner may pay that premium during the 31-day
period immediately following the premium due date. The premium payment,
however, must be received in our home office within the 31-day grace
period. The insurance will continue during this 31-day period. If the
second death occurs during the 31-day grace period, we will deduct a
premium for the 31-day grace period from the death proceeds.
If a policy covers an insured in a sub-standard risk class, the portion
of the scheduled premium equal to the charge for such risk will continue
to be payable notwithstanding the adjustment to a stop premium mode. As
with any scheduled premium, failure to pay the premium for the sub-
standard risk within the grace period provided will cause the policy to
lapse.
If scheduled premiums are paid on or before the dates they are due or
within the grace period, absent any policy loans, the policy will remain
in force even if the investment results of the sub-accounts have been so
unfavorable that the actual cash value has decreased to zero. However,
should the actual cash value decrease to zero while there is an
outstanding policy loan the policy will lapse, even if the policy was
paid-up and all scheduled premiums have been paid.
If the policy lapses because not all scheduled premiums have been paid
or if a policy with a policy loan has no actual cash value, we will send
the owner a notice of default 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.
-15-
<PAGE>
If at the time of any lapse a policy has a surrender value, that is, an
amount remaining after subtracting from the actual cash value all unpaid
policy charges, it will be used to purchase extended term insurance. As
an alternative to the extended term insurance, the owner may have the
surrender value paid to the owner in a single sum payment, thereby
terminating the policy. Unless the owner requests a single sum payment
of the surrender value within 62 days of the date of the first unpaid
premium, it will be applied to purchase extended term insurance payable
at the second death.
The duration of the extended term benefit is determined by applying the
surrender value of the policy as of the end of the grace period as a net
single premium to buy fixed benefit term insurance. The extended term
benefit is not provided through the Variable Life Account and the death
benefit will not vary during the extended term insurance period. The
amount of this insurance will be equal to the face amount of the policy,
less the amount of any policy loans at the date of lapse. During the
extended term period a policy has a surrender value equal to the reserve
for the insurance coverage for the remaining extended term period. At
the end of the extended term period all insurance provided by the policy
will terminate and the policy will have no further value.
D. Loans
-----
The policy provides that an owner may make a loan at anytime a loan
value is available. The owner may borrow from us using only the policy
as the security for the loan. The total amount of the loan may not
exceed 90 percent of the policy value. The policy value is the actual
cash value of the policy plus any policy loan. Any policy loan paid to
the owner in cash must be in an amount of at least $100.
-16-
<PAGE>
Policy loans in smaller amounts are allowed under the automatic premium
loan provision. Interest will be charged on the loan in arrears. At the
owner's request we will send a loan request form for the signature of
the owner. The policy value will be determined as of the date the
owner's written request is received at our home office.
When a loan is taken, the actual cash value will be reduced by the
amount borrowed and any unpaid interest. Unless the owner directs
otherwise, the policy loan will be taken from a policy's guaranteed
principal account actual cash value and separate account actual cash
value in the same proportion that those values bear to each other and,
as to the actual cash value in the separate account, from each sub-
account in the proportion that the actual cash value in such sub-account
bears to the policy's actual cash value in all of the sub-accounts.
The number of units to be cancelled will be based upon the value of the
units as of the end of the valuation period during which we receive the
loan request at our home office. This amount shall be transferred to our
general account. It will continue to be part of the policy in the
general account.
The actual cash value of a policy may decrease between premium due
dates. If a policy has indebtedness and no actual cash value, the policy
will lapse. In this event, to keep a policy in force, the owner will
have to make a loan repayment. We will give the owner notice of our
intent to terminate the policy and notice of the amount of the loan
repayment required to keep the policy in force. The time for repayment
will be within 31 days after our mailing of the notice.
-17-
<PAGE>
The interest rate on a policy loan will not be more than the rate shown
on page 1 of the policy. The interest rate charged on a policy loan will
not be more than that permitted in the state in which the policy is
delivered.
Policy loan interest is due on the date of the second death, on a policy
adjustment, surrender, lapse, a policy loan transaction and on each
policy anniversary. If the owner does not pay the interest on the loan
in cash, the policy loan will be increased and the actual cash value
will be reduced by the amount of the unpaid interest. The new loan will
be subject to the same rate of interest as the loan in effect.
Interest is also credited to the policy when there is a policy loan.
Interest credits on a policy loan shall be at a rate which is not less
than the policy loan interest rate minus 2 percent per annum. Policy
loan interest credits are allocated to the actual cash value as of the
date of the second death, on a policy adjustment, surrender, lapse, a
policy loan transaction and on each policy anniversary. Policy loan
interest credits are allocated to the guaranteed principal account and
separate account following the owner's instructions. We will use the
instructions for the allocation of net premiums. In the absence of such
instructions, this amount will be allocated to the guaranteed principal
account actual cash value and separate account actual cash value in the
same proportion that those values bear to each other and, as to the
actual cash value in the separate account, to each sub-account in the
proportion that the actual cash value in such sub-account bears to the
policy's actual cash value in all of the sub-accounts.
Policy loans may also be used as automatic premium loans to keep a
policy in force. If the owner has asked for this service in the
application, or if the owner writes and asks for this service after the
policy has been issued, we will make automatic
-18-
<PAGE>
premium loans. The owner can also write at any time and ask to delete
this service. If the owner has this service and has not paid the premium
due that is due before the end of the grace period, a policy loan will
be made 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, the policy will lapse.
A policy loan has no immediate effect on policy value since at the time
of the loan the policy value is the sum of the actual cash value and any
policy loan.
A policy loan, whether or not it is repaid, will have a permanent effect
on the policy value because the investment results of the sub-accounts
of the Variable Life Account will apply only to the amount remaining in
the sub-accounts. The effect could be either positive or negative. If
net investment results of the sub-accounts of the Variable Life Account
are greater than the amount being credited on the loan, the policy value
will not increase as rapidly as it would have if no loan had been made.
If investment results of the sub-accounts are less than the amount being
credited on the loan, the policy value will be greater than if no loan
had been made.
The guaranteed minimum death benefit is not affected by a policy loan if
premiums are duly paid. However, on settlement, the amount of any policy
loan is subtracted from the insurance amount.
-19-
<TABLE> <S> <C>
<PAGE>
<ARTICLE> 6
<SERIES>
<NUMBER> 2
<NAME> ADVANTUS GROWTH SUB-ACCOUNT
<MULTIPLIER> 1
<CURRENCY> US
<S> <C>
<PERIOD-TYPE> 12-MOS
<FISCAL-YEAR-END> DEC-31-1997
<PERIOD-START> JAN-01-1997
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<INVESTMENTS-AT-VALUE> 66,172,885
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<AVERAGE-NET-ASSETS> 52,690,150
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</TABLE>
<TABLE> <S> <C>
<PAGE>
<ARTICLE> 6
<RESTATED>
<SERIES>
<NUMBER> 3
<NAME> ADVANTUS BOND SUB-ACCOUNT
<MULTIPLIER> 1
<CURRENCY> US
<S> <C>
<PERIOD-TYPE> 12-MOS
<FISCAL-YEAR-END> DEC-31-1997
<PERIOD-START> JAN-01-1997
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<NUMBER-OF-SHARES-SOLD> 5,661,131
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<GROSS-EXPENSE> 88,316
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</TABLE>
<TABLE> <S> <C>
<PAGE>
<ARTICLE> 6
<RESTATED>
<SERIES>
<NUMBER> 1
<NAME> ADVANTUS MONEY MARKET SUB-ACCOUNT
<MULTIPLIER> 1
<CURRENCY> US
<S> <C>
<PERIOD-TYPE> 12-MOS
<FISCAL-YEAR-END> DEC-31-1997
<PERIOD-START> JAN-01-1997
<PERIOD-END> DEC-31-1997
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<OVERDISTRIBUTION-GAINS> 0
<ACCUM-APPREC-OR-DEPREC> 0
<NET-ASSETS> 7,170,533
<DIVIDEND-INCOME> 331,689
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<NET-INVESTMENT-INCOME> 298,553
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<NET-CHANGE-FROM-OPS> 298,553
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<DISTRIBUTIONS-OF-GAINS> 0
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<NUMBER-OF-SHARES-REDEEMED> 6,002,049
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<NET-CHANGE-IN-ASSETS> 697,797
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<AVERAGE-NET-ASSETS> 6,627,994
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</TABLE>
<TABLE> <S> <C>
<PAGE>
<ARTICLE> 6
<RESTATED>
<SERIES>
<NUMBER> 4
<NAME> ADVANTUS ASSET ALLOCATION SUB-ACCOUNT
<MULTIPLIER> 1
<CURRENCY> US
<S> <C>
<PERIOD-TYPE> 12-MOS
<FISCAL-YEAR-END> DEC-31-1997
<PERIOD-START> JAN-01-1997
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</TABLE>
<TABLE> <S> <C>
<PAGE>
<ARTICLE> 6
<RESTATED>
<SERIES>
<NUMBER> 5
<NAME> ADVANTUS MORTGAGE SECURITIES SUB-ACCOUNT
<MULTIPLIER> 1
<CURRENCY> US
<S> <C>
<PERIOD-TYPE> 12-MOS
<FISCAL-YEAR-END> DEC-31-1997
<PERIOD-START> JAN-01-1997
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<OVERDIST-NET-GAINS-PRIOR> 0
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<GROSS-EXPENSE> 47,250
<AVERAGE-NET-ASSETS> 9,458,309
<PER-SHARE-NAV-BEGIN> 2.13
<PER-SHARE-NII> 0.13
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</TABLE>
<TABLE> <S> <C>
<PAGE>
<ARTICLE> 6
<RESTATED>
<SERIES>
<NUMBER> 6
<NAME> ADVANTUS INDEX 500 SUB-ACCOUNT
<MULTIPLIER> 1
<CURRENCY> US
<S> <C>
<PERIOD-TYPE> 12-MOS
<FISCAL-YEAR-END> DEC-31-1997
<PERIOD-START> JAN-01-1997
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<OVERDISTRIBUTION-GAINS> 0
<ACCUM-APPREC-OR-DEPREC> 0
<NET-ASSETS> 86,679,800
<DIVIDEND-INCOME> 713,950
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<OTHER-INCOME> 0
<EXPENSES-NET> 345,963
<NET-INVESTMENT-INCOME> 367,987
<REALIZED-GAINS-CURRENT> 5,112,763
<APPREC-INCREASE-CURRENT> 12,660,399
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<DISTRIBUTIONS-OF-GAINS> 0
<DISTRIBUTIONS-OTHER> 0
<NUMBER-OF-SHARES-SOLD> 9,815,943
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<ACCUMULATED-NII-PRIOR> 0
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<OVERDISTRIB-NII-PRIOR> 0
<OVERDIST-NET-GAINS-PRIOR> 0
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<INTEREST-EXPENSE> 0
<GROSS-EXPENSE> 345,963
<AVERAGE-NET-ASSETS> 69,008,388
<PER-SHARE-NAV-BEGIN> 2.93
<PER-SHARE-NII> 0.02
<PER-SHARE-GAIN-APPREC> 0.91
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<PER-SHARE-NAV-END> 3.86
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</TABLE>
<TABLE> <S> <C>
<PAGE>
<ARTICLE> 6
<RESTATED>
<SERIES>
<NUMBER> 7
<NAME> ADVANTUS CAPITAL APPRECIATION SUB-ACCOUNT
<MULTIPLIER> 1
<CURRENCY> US
<S> <C>
<PERIOD-TYPE> 12-MOS
<FISCAL-YEAR-END> DEC-31-1997
<PERIOD-START> JAN-01-1997
<PERIOD-END> DEC-31-1997
<EXCHANGE-RATE> 1
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<INVESTMENTS-AT-VALUE> 87,870,497
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<OTHER-ITEMS-LIABILITIES> 112,115
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<PAID-IN-CAPITAL-COMMON> 0
<SHARES-COMMON-STOCK> 22,986,605
<SHARES-COMMON-PRIOR> 19,778,274
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<OVERDISTRIBUTION-GAINS> 0
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<NAME> ADVANTUS INTERNATIONAL STOCK SUB-ACCOUNT
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<PAGE>
Exhibit K poa.doc
The Minnesota Mutual Life Insurance Company
Power of Attorney
To Sign Registration Statements
WHEREAS, The Minnesota Mutual Life Insurance Company ("Minnesota Mutual")
has established certain separate accounts to fund certain variable annuity and
variable life insurance contracts, and
WHEREAS, Minnesota Mutual Variable Fund D ("Fund D") is a separate account
of Minnesota Mutual registered as a unit investment trust under the Investment
Company Act of 1940 offering variable annuity contracts registered under the
Securities Act of 1933, and
WHEREAS, Minnesota Mutual Variable Annuity Account ("Variable Annuity
Account") is a separate account of Minnesota Mutual registered as a unit
investment trust under the Investment Company Act of 1940 offering variable
annuity contracts registered under the Securities Act of 1933, and
WHEREAS, Minnesota Mutual Variable Life Account ("Variable Life Account")
is a separate account of Minnesota Mutual registered as a unit investment trust
under the Investment Company Act of 1940 offering variable adjustable life
insurance policies registered under the Securities Act of 1933,
WHEREAS, Minnesota Mutual Group Variable Annuity Account ("Group Variable
Annuity Account") is a separate account of Minnesota Mutual which has been
established for the purpose of issuing group annuity contracts on a variable
basis and which is to be registered as a unit investment trust under the
Investment Company Act of 1940 offering group variable annuity contracts and
certificates to be registered under the Securities Act of 1933;
WHEREAS, Minnesota Mutual Variable Universal Life Account ("Variable
Universal Life Account") is a separate account of Minnesota Mutual which has
been established for the purpose of issuing group and individual variable
universal life insurance policies on a variable basis and which is to be
registered as a unit investment trust under the Investment Company Act of 1940
offering group and individual variable universal life insurance policies to be
registered under the Securities Act of 1933;
NOW THEREFORE, We, the undersigned Trustees of Minnesota Mutual, do hereby
appoint Dennis E. Prohofsky and Garold M. Felland, and each of them
individually, as attorney in fact for the purpose of signing in their names and
on their behalf as Trustees of Minnesota Mutual and filing with the Securities
and Exchange Commission Registration Statements, or any amendment thereto, for
the purpose of: a) registering contracts and policies of Fund D, the Variable
Annuity Account, the Variable Life Account, the Group Variable Annuity Account
and the Variable Universal Life Account for sale by those entities and Minnesota
Mutual under the Securities Act of 1933; and b) registering Fund D, the Variable
Annuity Account, the Variable Life Account, the Group Variable Annuity Account
and the Variable Universal Life Account as unit investment trusts under the
Investment Company Act of 1940.
Signature Title Date
--------- ----- ----
/s/ Robert L. Senkler Chairman of the Board, February 9, 1998
----------------------- President and Chief
Robert L. Senkler Executive Officer
<PAGE>
Signature Title Date
--------- ----- ----
/s/ Giulio Agostini Trustee February 9, 1998
- -------------------------------
Giulio Agostini
/s/ Anthony L. Andersen Trustee February 9, 1998
- -------------------------------
Anthony L. Andersen
/s/ Leslie S. Biller Trustee February 9, 1998
- -------------------------------
Leslie S. Biller
Trustee
- -------------------------------
John F. Grundhofer
/s/ Harold V. Haverty Trustee February 9, 1998
- -------------------------------
Harold V. Haverty
/s/ David S. Kidwell, Ph.D. Trustee February 9, 1998
- -------------------------------
David S. Kidwell, Ph.D.
/s/ Reatha C. King, Ph.D. Trustee February 9, 1998
- -------------------------------
Reatha C. King, Ph.D.
/s/ Thomas E. Rohricht Trustee February 9, 1998
- -------------------------------
Thomas E. Rohricht
/s/ Terry Tinson Saario, Ph.D. Trustee February 9, 1998
- -------------------------------
Terry Tinson Saario, Ph.D.
/s/ Michael E. Shannon Trustee February 9, 1998
- -------------------------------
Michael E. Shannon
/s/ Frederick T. Weyerhaeuser Trustee February 9, 1998
- -------------------------------
Frederick T. Weyerhaeuser
