<PAGE>
File Number 33-64395
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM S-6
POST-EFFECTIVE AMENDMENT NUMBER 4
REGISTRATION STATEMENT UNDER THE SECURITIES ACT OF 1933
MINNESOTA LIFE VARIABLE LIFE ACCOUNT
(formerly Minnesota Mutual Variable Life Account)
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(Name of Trust)
Minnesota Life Insurance Company
(formerly 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
Minnesota 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
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X on May 3, 1999 pursuant to paragraph (b) of Rule 485
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60 days after filing pursuant to paragraph (a)(i) of Rule 485
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on (date) pursuant to paragraph (a)(i) of Rule 485
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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 LIFE
VARIABLE LIFE ACCOUNT
OF
MINNESOTA 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, Minnesota 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, Minnesota Life Insurance Company
26. Not Applicable
27. General Descriptions, Minnesota Life Insurance Company
28. Directors and Principal Officers of Minnesota Life
29. General Descriptions, Minnesota Life Insurance Company
30. Not Applicable
31. Not Applicable
32. Not Applicable
33. Not Applicable
34. Not Applicable
35. General Descriptions, Minnesota 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
<PAGE>
PART I
INFORMATION REQUIRED IN PROSPECTUS
<PAGE>
Prospectus
Variable Adjustable Life
Second Death Insurance
Policy
This prospectus describes a Variable Adjustable Life Second Death Insurance
Policy ("VAL-SD") issued by Minnesota Life Insurance Company ("Minnesota
Life"). 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 Policy may be adjusted, within described limits, as to face amount, premium
amount and the plan of insurance.
VAL-SD policy values may be invested in our separate account called the
Variable Life Account. Policy values may also be invested in a 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, a series of
Templeton Variable Products Series Fund (the "Funds"). The Funds have seventeen
Portfolios which are available to the Variable Life Account. They are:
.Growth Portfolio .Value Stock Portfolio
.Bond Portfolio .Small Company Value Portfolio
.Money Market Portfolio .Global Bond Portfolio
.Asset Allocation Portfolio
.Index 400 Mid-Cap Portfolio
.Mortgage Securities Portfolio
.Macro-Cap Value Portfolio
.Index 500 Portfolio .Micro-Cap Growth Portfolio
.Capital Appreciation Portfolio
.Real Estate Securities Portfolio
.International Stock Portfolio
. Templeton Developing Markets Fund
.Small Company Growth Portfolio
This prospectus must be accompanied by the current prospectuses of the Funds.
This prospectus should be read carefully and retained for future reference.
The policies have not been approved or disapproved by the SEC. Neither the SEC
nor any state has determined whether this prospectus is truthful or complete.
Any representation to the contrary is a criminal offense.
Minnesota Life Insurance Company
400 Robert Street North
St. Paul, MN 55101-2098
651.665.3500 Tel
www.minnesotamutual.com
Dated: May 3, 1999
<PAGE>
Table of Contents
<TABLE>
<CAPTION>
Page
<S> <C>
Summary.................................................................. 1
Condensed Financial Information.......................................... 8
General Descriptions
Minnesota Life Insurance Company....................................... 11
Variable Life Account.................................................. 11
Advantus Series Fund, Inc.............................................. 11
Templeton Variable Products Series Fund................................ 12
Additions, Deletions or Substitutions.................................. 12
Selection of Sub-Accounts.............................................. 13
The Guaranteed Principal Account....................................... 13
Detailed Information about the Variable Adjustable Life Second Death In-
surance Policy
Adjustable Life Insurance.............................................. 14
Policy Adjustments..................................................... 16
Applications and Policy Issue.......................................... 20
Policy Premiums........................................................ 20
Policy Values.......................................................... 24
Death Benefit Options.................................................. 26
Policy Loans........................................................... 27
Surrender.............................................................. 29
Free Look.............................................................. 30
Conversion............................................................. 30
Policy Exchange........................................................ 30
Policy Charges......................................................... 30
Other Policy Provisions................................................ 33
Other Matters
Federal Tax Status..................................................... 36
Tax Treatment of Policy Benefits....................................... 37
Multiple Policies...................................................... 39
Directors and Principal Management Officers of Minnesota Life.......... 40
Voting Rights.......................................................... 41
Distribution of Policies............................................... 41
Legal Matters.......................................................... 42
Legal Proceedings...................................................... 42
Year 2000 Computer Problem............................................. 42
Experts................................................................ 42
Registration Statement................................................. 42
Special Terms............................................................ 43
Financial Statements of Minnesota Life Variable Life Account............. 44
Financial Statements of Minnesota Life Insurance Company................. 65
Appendix I-Illustrations of Policy Values, Death Benefits and Premiums... 92
Appendix II-Summary of Policy Charges.................................... 98
Appendix III-Illustration of Death Benefit Calculation................... 103
Appendix IV-Policy Loan Example.......................................... 104
Appendix V-Example of Sales Load Computation............................. 105
Appendix VI-Average Annual Returns....................................... 106
Appendix VII-S&P 500 Performance History................................. 107
Appendix VIII-Range of Returns........................................... 108
</TABLE>
<PAGE>
Summary
The following summary is designed to answer certain general questions
concerning the Policy and to give you a brief overview of the more significant
Policy features. This summary is not comprehensive. You should review the
information contained elsewhere in this prospectus. You should also refer to
the heading "Special Terms" for the definition 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, 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 Life 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 this 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 components in designing your
Policy are the level of premiums you wish to pay, the level of death benefit
protection you need and the appropriate "plan" of insurance for you. You may
choose any two of the three components--premium, face amount and plan--and we
will calculate the third component.
Within very broad limits, including those designed to assure that the Policy
qualifies as life insurance for tax purposes, you may choose any level of
premium or death benefit that you wish. In addition, we offer a broad range of
"plans" of insurance. Generally speaking, a plan refers to the level of cash
value accumulation assumed in the design of the Policy and, for whole life
plans, the period of time over which you will have to pay premiums. The greater
your plan of insurance, the larger the policy values you may expect to be
available for investment in the Policy's actual cash value, loans or partial
surrenders and, for whole life plans, the shorter the period of time for which
you will have to pay premiums.
The maximum plan of insurance available is one where the Policy becomes paid-
up after the payment of ten annual premiums. A paid-up Policy is one for which
no additional premiums are required to guarantee the face amount of insurance
until the second death, provided there is no policy indebtedness. Whole life
plans may be suitable for individuals who wish to ensure lifetime coverage,
without any scheduled reduction in face amount as described below, by the
payment of relatively higher premiums and, in certain cases, for a lesser
period of time, or who wish to accumulate substantial cash values by utilizing
the investment features of the Policy.
The minimum plan that we offer at original issue is a ten year protection
Policy.
1
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If the younger insured's age at original issue is over 70, the minimum plan of
protection will be less than ten years, as described in the table below:
<TABLE>
<CAPTION>
Younger Insured's Minimum Plan
Issue Age (In Years)
- ----------------- ------------
<S> <C>
71 9
72 8
73 7
74 6
75 or greater 5
</TABLE>
A protection Policy provides only a term plan of insurance. There is a
stated face amount and a scheduled premium level, providing the stated face
amount for a specified number of years, always less than for whole life. At
the end of the specified number of years, a protection Policy provides a lower
face amount, with a whole life plan of insurance, based on continued payment
of your scheduled premiums. Relative to a whole life plan, a protection plan
requires a lower initial level of premiums and offers more insurance
protection with a lower 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 whole life plan.
The higher the premium you pay, the greater will be your cash value
accumulation at any given time and therefore, for whole life plans, the
shorter the period during which you need to pay premiums before your Policy
becomes paid-up. For example, the table below shows the premium required for
various plans for two insureds, one female age 40 and one male age 40, both
standard nonsmokers for a $1,000,000 face amount VAL-SD Policy.
<TABLE>
<CAPTION>
Annual
Plan of Insurance Premium
- ----------------- -------
<S> <C>
Minimum--10 year protection plan $ 712
20 year protection plan $ 1,019
Whole life plan $10,805
25 pay life plan $13,396
Maximum--10 pay life plan $26,265
</TABLE>
The flexibility described above with respect to designing your Policy to
suit your needs at issue continues throughout the time the Policy remains in
force by virtue of its adjustability features. As your insurance needs and
personal circumstances change over the years, you may change, subject to the
limitations described herein, the premium and face amount and thus the plan.
Some limitations do apply to policy adjustments, and these limitations are
more fully described in this prospectus. See the heading "Policy Adjustments"
in this prospectus on page 15. 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. 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>
These face amount requirements do not apply in the following situations:
(1) When there is an automatic adjustment when the face amount is scheduled to
decrease;
(2) When there is an automatic adjustment at the younger insured's age 70;
(3) When the base premium is reduced to zero.
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 Life 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.
The actual cash value of the Policies, to the extent invested in sub-
accounts of the
2
<PAGE>
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 12.
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 Growth
.Value Stock
.Small Company Value
.Global Bond
.Index 400 Mid-Cap
.Macro-Cap Value
.Micro-Cap Growth
.Real Estate Securities Portfolios
.Templeton Developing Markets Fund, Class 2
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
3
<PAGE>
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 jwith 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 Growth Portfolio seeks long-term accumulation of capital.
In pursuit of this objective, the Small Company Growth 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.
4
<PAGE>
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 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, Class 2, 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 emerging market equity
securities. Countries generally considered to have emerging markets are all
countries that are considered to be 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 emerging.
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
Funds, which are 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
5
<PAGE>
which will, on whole life plans, shorten the premium paying period. Only if and
when the policy value exceeds the net single premium, as defined on page 43,
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 35.
What charges are associated with the Policy?
We assess certain charges from each premium payment, from policy values and
from the amounts held in the Variable Life Account. All of these charges, which
are largely designed to cover our expenses in providing insurance protection
and in distributing and administering the Policies, are fully described under
the heading "Policy Charges" in this prospectus on page 29. Because of the
significance of these charges in early policy years, prospective purchasers
should purchase a Policy only if they intend to and have the financial capacity
to keep it in force for a substantial period.
Against premiums we deduct sub-standard risk charges and premiums for
additional benefits. Sub-standard risk charges compensate us for providing the
death benefit for policies whose mortality risks exceed the standard.
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 monthly 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 date on which a fund portfolio is valued 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 Fund the
advisory fee of the fund manager and the fund expense for the portfolio expense
for each of VAL-SD's portfolios. The respective advisory fee and fund expense
as a percent of average daily net assets for each portfolio were as follows:
<TABLE>
<CAPTION>
Fund Expense
Advisory (after expense
Portfolio Fee reimbursement) Total
- --------- -------- -------------- -----
<S> <C> <C> <C>
Growth .50% .03% .53%
Bond .50 .05 .55
Money Market .50 .08 .58
Asset Allocation .50 .03 .53
Mortgage Securities .50 .07 .57
Index 500 .40 .04 .44
Capital Appreciation .75 .03 .78
International Stock .70 .24 .94
Small Company Growth .75 .04 .79
Value Stock .75 .04 .79
Small Company Value(1) .75 .15 .90
Global Bond .60 .53 1.13
Index 400 Mid-Cap(1) .40 .15 .55
Macro-Cap Value(1) .70 .15 .85
Micro-Cap Growth(1) 1.10 .15 1.25
Real Estate Securities(1) .75 .15 .90
</TABLE>
- -------
(1) Minnesota Life voluntarily absorbed certain expenses of the Small Company
Value, Index 400 Mid-Cap, Macro-Cap Value, Micro-Cap Growth, and Real
Estate Securities Portfolios for the period ended December 31, 1998. If
these Portfolios had been charged for expenses, the ratio of expenses to
average daily net assets would have been 1.83%, 1.36%, 2.53%, 2.10%, and
1.90%, respectively. For these Portfolios, it is Minnesota Life's intention
to waive other fund expenses during the current fiscal year which exceed,
as a percentage of average daily net assets, .15%. Minnesota Life also
reserves the option to reduce the level of other expenses which it will
voluntarily absorb.
6
<PAGE>
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 the following annual fees and
expenses:
. investment adviser management fees--1.25 percent
. other fund expenses--.66 percent.
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, 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 or becomes 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.
We will monitor your Policy to determine whether it may become a modified
endowment contract.
For a discussion of the tax issues associated with this Policy, see "Federal
Tax Status" in this prospectus on page 35.
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 19.
For a limited time after your application for the Policy and delivery of it,
you may return the Policy for a refund of all premium payments within the
terms of its "free look" provision. See the heading "Free Look" in this
prospectus on page 29. 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 Minnesota Life Insurance Company and of
Minnesota Life 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, 1998. This
information should be read in conjunction with the financial statements and
related notes of Minnesota Life Variable Life Account included in this
prospectus.
<TABLE>
<CAPTION>
Year Ended December 31,
-------------------------------------------------------------------------------------------------------
1998 1997 1996 1995 1994 1993 1992 1991 1990 1989
---------- ---------- ---------- ---------- ---------- ---------- --------- --------- --------- -------
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
Growth Sub-
Account:
Unit value at
beginning of
year $3.43 $2.59 $2.22 $1.79 $1.79 $1.72 $1.65 $1.23 $1.24 $0.99
Unit value at
end of year $4.60 $3.43 $2.59 $2.22 $1.79 $1.79 $1.72 $1.65 $1.23 $1.24
Number of units
outstanding at
end of year 22,653,190 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
Bond Sub-
Account:
Unit value at
beginning of
year $2.17 $1.99 $1.95 $1.63 $1.72 $1.57 $1.48 $1.26 $1.18 $1.06
Unit value at
end of year $2.29 $2.17 $1.99 $1.95 $1.63 $1.72 $1.57 $1.48 $1.26 $1.18
Number of units
outstanding at
end of year 13,380,650 9,679,443 7,366,222 5,340,539 3,659,230 2,240,344 1,281,711 654,954 484,684 247,525
Money Market
Sub-Account:
Unit value at
beginning of
year $1.66 $1.58 $1.52 $1.45 $1.40 $1.37 $1.34 $1.27 $1.19 $1.10
Unit value at
end of year $1.73 $1.66 $1.58 $1.52 $1.45 $1.40 $1.37 $1.34 $1.27 $1.19
Number of units
outstanding at
end of year 5,915,721 4,323,601 4,082,791 3,509,791 2,920,337 1,849,721 1,167,590 536,680 341,717 141,494
Asset Allocation
Sub-Account:
Unit value at
beginning of
year $2.96 $2.50 $2.23 $1.79 $1.83 $1.73 $1.62 $1.26 $1.22 $1.02
Unit value at
end of year $3.64 $2.96 $2.50 $2.23 $1.79 $1.83 $1.73 $1.62 $1.26 $1.22
Number of units
outstanding at
end of year 38,273,621 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
Mortgage
Securities
Sub-Account:
Unit value at
beginning of
year $2.31 $2.13 $2.03 $1.73 $1.80 $1.66 $1.56 $1.35 $1.24 $1.10
Unit value at
end of year $2.45 $2.31 $2.13 $2.03 $1.73 $1.80 $1.66 $1.56 $1.35 $1.24
Number of units
outstanding at
end of year 5,351,168 4,464,617 4,175,648 3,616,256 3,250,971 2,419,453 1,471,984 555,964 241,631 95,633
Index 500 Sub-
Account:
Unit value at
beginning of
year $3.86 $2.93 $2.42 $1.78 $1.77 $1.62 $1.51 $1.17 $1.23 $0.95
Unit value at
end of year $4.92 $3.86 $2.93 $2.42 $1.78 $1.77 $1.62 $1.51 $1.17 $1.23
Number of units
outstanding at
end of year 28,132,934 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
</TABLE>
8
<PAGE>
<TABLE>
<CAPTION>
Year Ended December 31,
--------------------------------------------------------------------------------------------------------
1998 1997 1996 1995 1994 1993 1992 1991 1990
---------- ---------- ---------- ---------- ---------- --------- --------- --------- -------
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C>
Capital
Appreciation
Sub-Account:
Unit value at
beginning of
year $3.82 $3.00 $2.56 $2.10 $2.06 $1.87 $1.79 $1.27 $1.30
Unit value at
end of
year $4.98 $3.82 $3.00 $2.56 $2.10 $2.06 $1.87 $1.79 $1.27
Number of units
outstanding at
end
of year 24,802,737 22,986,605 19,778,274 16,587,673 12,929,134 9,082,661 5,053,453 1,689,614 802,456
International
Stock Sub-
Account:
Unit value at
beginning of
period $1.99 $1.79 $1.50 $1.32 $1.33 $0.93 $1.00(a)
Unit value at
end of period $2.11 $1.99 $1.79 $1.50 $1.32 $1.33 $0.93
Number of units
outstanding at
end of period 42,958,209 35,764,833 28,056,128 20,883,317 15,062,750 6,244,750 1,615,754
Small Company
Growth Sub-
Account:
Unit value at
beginning of
period $1.81 $1.90 $1.59 $1.21 $1.15 $1.00(b)
Unit value at
end of period $1.82 $1.81 $1.90 $1.59 $1.21 $1.15
Number of units
outstanding at
end of period 33,912,334 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 $2.15 $1.78 $1.37 $1.04 $1.00(c)
Unit value at
end of period $2.18 $2.15 $1.78 $1.37 $1.04
Number of units
outstanding at
end of period 23,718,362 17,273,210 9,648,331 3,864,294 971,938
Small Company
Value Sub-
Account:
Unit value at
beginning of
year $1.00(d)
Unit value at
end of year $0.86
Number of units
outstanding at
end of year 894,678
Global Bond Sub-
Account:
Unit value at
beginning of
year $1.00(d)
Unit value at
end of year $1.12
Number of units
outstanding at
end of year 293,075
Index 400 Mid-
Cap Sub-Account:
Unit value at
beginning of
year $1.00(d)
Unit value at
end of year $1.05
Number of units
outstanding at
<CAPTION>end of year 1,020,446
1989
-------
<S> <C>
Capital
Appreciation
Sub-Account:
Unit value at
beginning of
year $0.95
Unit value at
end of
year $1.30
Number of units
outstanding at
end
of year 181,898
International
Stock Sub-
Account:
Unit value at
beginning of
period
Unit value at
end of period
Number of units
outstanding at
end of period
Small Company
Growth Sub-
Account:
Unit value at
beginning of
period
Unit value at
end of period
Number of units
outstanding at
end of period
Value Stock Sub-
Account:
Unit value at
beginning of
period
Unit value at
end of period
Number of units
outstanding at
end of period
Small Company
Value Sub-
Account:
Unit value at
beginning of
year
Unit value at
end of year
Number of units
outstanding at
end of year
Global Bond Sub-
Account:
Unit value at
beginning of
year
Unit value at
end of year
Number of units
outstanding at
end of year
Index 400 Mid-
Cap Sub-Account:
Unit value at
beginning of
year
Unit value at
end of year
Number of units
outstanding at
end of year
</TABLE>
9
<PAGE>
<TABLE>
<CAPTION>
Year Ended December 31,
------------------------------------------------------------------------------------------------------------
1998 1997 1996 1995 1994 1993 1992 1991 1990 1989
---------- ---------- ---------- ---------- ---------- ---------- --------- --------- --------- ---------
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
Macro-Cap Value
Sub-Account:
Unit value at
beginning of
year $1.00(d)
Unit value at
end of year $1.06
Number of units
outstanding at
end of year 823,503
Micro-Cap Growth
Sub-Account:
Unit value at
beginning of
year $1.00(d)
Unit value at
end of year $1.03
Number of units
outstanding at
end of year 733,049
Real Estate
Securities Sub-
Account:
Unit value at
beginning of
year $1.00(d)
Unit value at
end of year $0.87
Number of units
outstanding at
end of year 284,627
Templeton
Developing
Markets Sub-
Account:
Unit value at
beginning of
year $1.00(d)
Unit value at
end of year $0.86
Number of units
outstanding at
end of year 778,238
</TABLE>
(a) 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.
(b) 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.
(c) 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.
(d) The information for the sub-account is shown for the period May 19, 1998,
commencement of operations to December 31, 1998.
10
<PAGE>
General Descriptions
Minnesota Life Insurance Company
We are Minnesota Life Insurance Company ("Minnesota Life"), a life insurance
company organized under the laws of Minnesota. Minnesota Life was formerly
known as The Minnesota Mutual Life Insurance Company ("Minnesota Mutual"), a
mutual life insurance company organized in 1880 under the laws of Minnesota. On
October 1, 1998, a plan of reorganization created a mutual insurance holding
company named Minnesota Mutual Companies, Inc. Minnesota Mutual reorganized as
a stock insurance company subsidiary of the new holding company and took the
new name Minnesota Life. Our home office is at 400 Robert Street North, St.
Paul, Minnesota 55101-2098, telephone: (651) 665-3500. We are licensed to
conduct 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 Life 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 ("SEC") under the Investment Company Act of 1940. Registration under
the Act does not signify that the SEC 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 Life 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 you
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 SEC as a
diversified, open-end management investment company. Such registration does not
signify that the SEC 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
Minnesota Life.
While Advantus Capital acts as investment adviser to the Fund and its
Portfolios, it has obtained an order from the SEC permitting it to act as a
"manager of managers". Pursuant to the order, Advantus Capital may, for any
portfolio, select one or more sub-advisers and adopt or amend an investment
sub-advisory agreement without approval of the shareholders of the affected
portfolio. In accordance with the order, Advantus Capital has retained the
following sub-advisers:
. Winslow Capital Management, Inc. for the Capital Appreciation Portfolio,
. Templeton Investment Counsel, Inc. for the International Stock Portfolio,
. J.P. Morgan Investment Management Inc. for the Macro-Cap Value Portfolio,
. Wall Street Associates for the Micro-Cap Growth Portfolio, and
. Julius Baer Investment Management Inc. for the Global Bond Portfolio
11
<PAGE>
The Fund currently has nineteen 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, Class 2, 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 SEC.
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 SEC.
We also reserve the right, when permitted by law, to de-register the
Variable Life Account under the Investment Company Act of 1940, to restrict or
eliminate any voting rights of the policy owners, and to combine the Variable
Life Account with one or more of our other separate accounts.
Shares of the Portfolios of the 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.
12
<PAGE>
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:
. changes in state insurance laws,
. changes in Federal income tax laws,
. changes in the investment management of any of the Portfolios of the Funds,
or
. 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 has 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 the guaranteed principal account. Disclosures regarding the
guaranteed principal account may, however, be subject to certain generally
applicable provisions of the Federal Securities Laws relating to the accuracy
and completeness of statements made in prospectuses.
This prospectus describes a VAL-SD insurance policy and is generally
intended to serve as a disclosure document only for the aspects of the Policy
relating to the sub-accounts of the Variable Life Account. For complete
details regarding the guaranteed principal account, please see the VAL-SD
Policy.
General Account 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
13
<PAGE>
Detailed Information about the Variable
Adjustable Life Second Death Insurance Policy
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.
You may allocate or transfer a portion or all of the net premiums 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 we are not obligated to credit interest in excess of 4
percent per year, and may 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.
You assume the risk that interest credited may not exceed the guaranteed
minimum rate.
Even if excess interest is credited to your actual cash value in the
guaranteed principal account, we will not credit excess interest to that
portion of the policy value which is in the loan account in the general
account. However, such loan account will be credited interest at a rate which
is not less than the policy loan interest rate minus 2 percent per annum.
Adjustable Life Insurance
Variable Adjustable Life Second Death This Policy, like joint survivor life
insurance, pays a death benefit at the death of the second to die of two named
insureds. Additionally this Policy, like adjustable life insurance, permits
you to determine the amount of life insurance protection you need and the
amount of money you can afford to pay. Based on your selection of any two of
the three components of a Policy--face amount, premium and plan--we will then
calculate the third. Thus, adjustable life allows you the flexibility to
custom-design a Policy to meet your needs. Theoretically, each Policy can be
unique because of the different combinations of ages, amount of life insurance
protection and premium. In addition, adjustable life is designed to adapt to
your changing needs and objectives by allowing you to change your Policy after
issue. The face amount and premium level, and thus the plan of insurance, may
be adjusted by you, subject to the limitations described herein, so long as
the Policy remains in force.
Flexibility at Issue The Policy offered by this prospectus provides the same
type of flexibility found in conventional adjustable life. Subject to certain
minimums, maximums and our underwriting standards, you may choose any level of
premium or face amount that you wish. This flexibility results in a broad
range of plans of insurance. Generally speaking, a plan, when used with
respect to the Policy, refers to the level of cash value accumulation assumed
in the design of the Policy and, for whole life plans, the period of coverage
during 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 tabular cash
value is described on page 16 and is shown
14
<PAGE>
in your Policy. 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.
After the initial protection period, there is insurance coverage in a reduced
amount until the second death. 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 the reduced amount of insurance
coverage at the end of the initial protection period.
The "greater" your plan of insurance, the larger the policy values you may
expect to be available for investment in the Fund Portfolios, and, for whole
life plans of insurance, the shorter the period of time during 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 60 and a female age 60 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.
15
<PAGE>
The table below shows the tabular cash values and guaranteed death benefits
for the Policy described in the above example, and the scheduled reduction
which occurs twenty years after issue.
Scheduled Reduction
<TABLE>
<CAPTION>
Guaranteed
Tabular Minimum
Value Death
Policy Annual End of Benefit at
Year Premium Year Issue
- ------ ------- ------- ----------
<S> <C> <C> <C>
5 $11,300 $38,443 $1,000,000
10 11,300 80,437 1,000,000
15 11,300 91,878 1,000,000
20 11,300 590 1,000,000
21 11,300 6,289 95,615
25 11,300 26,742 95,615
</TABLE>
At the policy anniversary when the scheduled reduction is to occur, we will
attempt to make a policy adjustment to maintain the face amount of $1,000,000
and the annual premium of $11,300. If the actual cash value with the annual
premium is sufficient to provide at least one year of protection at the then
current face amount, we will adjust your Policy, keeping your face amount and
annual premium constant, either eliminating the scheduled reduction in the
face amount or providing that reduction at a later policy anniversary.
If we cannot make the adjustment to maintain the current face amount, the
scheduled reduction in face amount will occur as scheduled; the resulting face
amount will not be less than that guaranteed.
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
16
<PAGE>
premium amount, if any. If a partial surrender of actual cash value is made,
the Policy will be automatically adjusted to a new face amount which will be
equal to the old face amount less the amount of the partial surrender, unless
a different face amount is requested or required to satisfy the restrictions
on adjustability described below. An adjustment providing for no further
scheduled base premium payments, regardless of whether the Policy is paid-up,
is also referred to as a "stop premium" mode and is described under the
caption "Avoiding Lapse" on page 21 of this prospectus. At the point when the
face amount is scheduled to decrease, an adjustment may be made to maintain
the current face amount and premium of the Policy, as described on page 15.
Certain adjustments may cause a Policy to become a modified endowment
contract. See "Federal Tax Status" in this prospectus on page 35 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 section "Policy Values" in this
prospectus on page 22. 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 ensures 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. 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
17
<PAGE>
to permit nonrepeating premiums at our discretion.
Restrictions of Adjustments Adjustments can be made on any monthly anniversary
of the policy date. You may request a policy adjustment by completing an
application for adjustment. Adjustments will not apply to any additional
benefit agreements which are attached to your Policy. Any adjustment will be
effective on the date that it is approved by us and recorded at our home
office.
An adjustment must satisfy certain limitations on premiums, face amount and
plan. Other limitations on adjustments and combinations of adjustments may also
apply. The current limits on adjustments are those described here. We reserve
the right to change these limitations from time to time.
(1) An adjustment may not result in more than a paid-up whole life plan for the
then current face amount.
(2) If either insured is over age 85, increases in face amount requiring
evidence of insurability will not be allowed.
(3) Any adjustment for a change of premium must result in a change of the
annual premium of at least $300.
(4) 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.
(5) Any adjustment, other than a change to a stop premium, must result in a
Policy with an annual base premium of at least $600.
(6) 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.
(7) 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 15.
(8) 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.
(9) 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 We require proof of insurability for all adjustments
resulting in an increase in face amount, except for increases made pursuant to
an additional benefit agreement. In addition, except for partial surrenders to
pay substandard risk premiums, we require proof of insurability 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 29. Limiting the first year sales load and underwriting charge to the
18
<PAGE>
increased premium or face amount is in substance the equivalent of issuing a
new Policy for the increase. A policy adjustment will always be more favorable
than the purchase of a second Policy for the increased amount since there is
no duplication of administrative charges.
The chart below illustrates the kinds of changes that may be made as a
policy adjustment and the effect of each.
IF YOU MAKE THIS IT WILL DO THIS:
KIND OF
ADJUSTMENT,
If you . . .
<TABLE>
<S> <C> <C>
Decrease the current then: a scheduled decrease
face amount.......... while the premium remains in the current face amount,
or the same................... if any, will take place at
Retain the current 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.
19
<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 15. 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 16, you may choose to
adjust the Policy at any time and alter the amount of future premiums.
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 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 under our automatic payment 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 or quarterly basis on the due dates set forth in the
Policy.You may also pay scheduled premiums monthly if you make arrangements
for payments through an automatic payment plan established through your bank
or if you meet the requirements to establish a payroll deduction plan through
your employer. A scheduled premium may be
20
<PAGE>
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.
In addition to scheduled premiums, you may pay 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 bill annually, semi-annually
or quarterly for nonrepeating premiums if a Policy has a base annual premium
of at least $2,400 and if the total annual amount billed for nonrepeating
premiums is at least $600. You may also arrange for monthly payments through
an automatic payment plan established through your bank; in this situation,
your base annual premium must be at least $2,400 and each nonrepeating premium
must be at least $50. 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
35.
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 up to 30 days after Policy issue or an
adjustment. In no event will the delay extend beyond the free look period
applied to the Policy in the state in which it is issued. 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
21
<PAGE>
31-day grace period from the death proceeds.
If a Policy covers an insured in a sub-standard risk class, the portion of
the scheduled premium equal to the charge for such risk will continue to be
payable notwithstanding the adjustment to a stop premium mode. As with any
scheduled premium, failure to pay the premium for the sub-standard risk within
the grace period provided will cause the Policy to lapse.
If scheduled premiums are paid on or before the dates they are due or within
the grace period, absent any policy loans, the Policy will remain in force
even if the investment results of the sub-accounts have been so unfavorable
that the actual cash value has decreased to zero. However, should the actual
cash value decrease to zero while there is an outstanding policy loan the
Policy will lapse, even if the Policy was paid-up and all scheduled premiums
had been paid.
If the Policy lapses because not all scheduled premiums have been paid or if
a Policy with a policy loan has no actual cash value, we will send you a
notice of default that will indicate the payment required to keep the Policy
in force on a premium paying basis. If the payment is not received within 31
days after the date of mailing the notice of default, the Policy will
terminate or the nonforfeiture benefits will apply. For more information on
lapse, see "Avoiding Lapse" below.
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, we will use it 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.
We determine the duration of the extended term benefit 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 16.
Avoiding Lapse If your Policy has sufficient loan value, you can avoid a lapse
due to the
22
<PAGE>
failure to pay a scheduled premium by arranging for an automatic premium loan.
The effect of a policy loan on policy values and the restrictions applicable
thereto are described under the caption "Policy Loans" on page 26 of this
prospectus. An automatic premium loan is particularly advantageous for a
policy owner who contemplates early repayment of the amount loaned, since it
permits the policy owner to restore policy values without additional sales and
underwriting charges. Automatic premium loans for the long term are generally
not advantageous.
You may also avoid a lapse by adjusting your Policy to a zero base premium.
We call this the stop premium mode. We will use the greater of your policy
value or tabular cash value 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 end of the protection period, because no
further premiums will be payable. If at that time the Policy has a surrender
value, we will use it to purchase extended term coverage or we will pay it 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. Under
both, the coverage is available only for a limited period of time. There are,
however, fundamental differences between the two. 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, we will continue to
assess policy charges against the actual cash value 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.
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Policy Values
The Policy has an actual cash value which varies with the investment
experience of the guaranteed principal account and the sub-accounts of the
Variable Life Account. Depending upon the death benefit selected, the death
benefit may also vary although it will never be less than the then current
face amount. Net premiums, namely premiums after the deduction of all charges,
will be allocated to the guaranteed principal account or sub-accounts of the
Variable Life Account selected by you on your application for the Policy.
The value of the Policy's interest in the guaranteed principal account and
the sub-accounts of the Variable Life Account is known as its actual cash
value. It is determined separately for your guaranteed principal account
actual cash value and for your separate account actual cash value. The
separate account actual cash value will include all sub-accounts of the
Variable Life Account. Unlike a traditional fixed benefit life insurance
policy, a Policy's actual cash value cannot be determined in advance, even if
scheduled premiums are made when required, because the separate account actual
cash value varies daily with the investment performance of the sub-accounts of
the Variable Life Account in which the Policy participates. Even if you
continue 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.
We determine each portion of a Policy's separate account actual cash value
separately. The separate account actual cash value is not guaranteed. We
determine the separate account actual cash value 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
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valuation date, its value is equal to its value on the preceding valuation
date multiplied by the net investment factor for that sub-account for the
valuation period ending on the subsequent valuation date.
The net investment factor for a valuation period is: the gross investment
rate for such valuation period, less a deduction for the mortality and expense
risk charge under this Policy which is assessed at an annual rate of .50
percent against the average daily net assets of each sub-account of the
Variable Life Account. The gross investment rate is equal to:
(1) the net asset value per share of a Fund share held in the sub-account of
the Variable Life Account determined at the end of the current valuation
period; plus
(2) the per share amount of any dividend or capital gain distributions by the
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
(1) 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,
(2) 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
(3) customary national business holidays on which the New York Stock Exchange
is closed for trading.
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 83 of this
prospectus. For additional materials and tables, including values after policy
charges, please see Appendix II, "Summary of Policy Charges," found on page 89
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; systematic transfers
are 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
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non-systematic transfers in excess of four per year. Establishing a systematic
transfer program will be deemed to be a non-systematic transfer for purposes
of determining the transfer charge. None of these requirements will apply when
you are transferring all of the policy value to the guaranteed principal
account as a conversion privilege.
Your instructions for transfer may be made in writing by you, or a person
authorized by you, may make such changes by telephone. To do so, you may call
us at 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 (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.
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Before the policy anniversary nearest the younger insured's age 70, and with
both the Protection Option and the Amended 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 94 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. We will determine your policy value 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, we will take the policy loan 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
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value in all of the sub-accounts. The number of units to be cancelled will be
based upon the value of the units as of the end of the valuation period during
which we receive your loan request at our home office. This amount shall be
transferred to the loan account. The loan account continues to be part of the
Policy in the general account. A policy loan has no immediate effect on policy
value since at the time of the loan the policy value is the sum of your actual
cash value and any policy loan.
The actual cash value of your Policy may decrease between premium due dates.
If your Policy has indebtedness and no actual cash value, the Policy will
lapse, and there may be adverse tax consequences; see the Indent Tax Status
section on page 35. Unfavorable investment experience and the assessment of
charges could cause your separate account actual cash value to decline to
zero. 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
.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.
We will also credit interest 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. We allocate policy
loan interest credits 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. We allocate interest credits 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, we will allocate interest credits 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,
we will credit your loan 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
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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.
We allocate loan repayments to the guaranteed principal account until all
loans from the guaranteed principal account have been repaid. Thereafter, we
allocate loan repayments to the guaranteed principal account or the sub-
accounts of the Variable Life Account as you direct. In the absence of your
instructions, we will allocate loan repayments 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 95.
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. We determine the surrender value 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.
We will also permit a partial surrender of the actual cash value of the
Policy 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 will be reduced so as to retain
the same ratio between the policy value and the death benefit of the Policy as
existed prior to the partial surrender.
With 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 will be reduced by the amount of
the partial surrender; if the Policy is paid-up, the death benefit of the
Policy will be 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, we will deduct partial surrenders 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.
We will pay a surrender or partial surrender as soon as possible, but not
later
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than seven days after our receipt of your written request for surrender.
However, an exception to this is that if any portion of the actual cash value
to be surrendered is attributable to a premium or nonrepeating premium payment
made by non-guaranteed funds such as a personal check, we will delay mailing
that portion of the surrender proceeds until we have reasonable assurance that
the payment has cleared and that good payment has been collected. The amount
you receive on surrender may be more or less than the total premiums paid to
your Policy.
Free Look
It is important to us that you are satisfied with this Policy after it is
issued. If you are not satisfied with it, you may return the Policy to us or
your agent by the later of:
(1) ten days after you receive it;
(2) 45 days after you have signed the application; or
(3) ten days after we mail to you a notice of your right of withdrawal.
If you return the Policy, you will receive within seven days of the date we
receive your notice of cancellation a full refund of the premiums you have
paid.
If the Policy is adjusted, as described under the heading "Policy
Adjustments" in this prospectus on page 15, and if the adjustment results in
an increased premium, you will again have a right to examine the Policy and
you may return the Policy within the time periods stated in the immediately
preceding paragraph. If you return the Policy, the requested premium
adjustment will be cancelled. You will receive a refund of the additional
premiums paid within seven days of the date we receive your notice of
cancellation for that adjustment.
Conversion
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 12 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
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adjustment does not result in an increase in base premium, the first year
sales load percentage, not to exceed 23 percent, that was in effect prior
to the adjustment is multiplied by the base premium in effect after the
adjustment; this number is then multiplied by a fraction equal to the
number of months remaining in the previous 12 month period divided by 12.
This amount of first year sales load will then be collected during the 12
month period following the adjustment.
All of the sales load charges are designed to average not more than 9
percent of the base premiums over the lesser of: the joint life expectancy
of the insureds at policy issue or adjustment; or 15 years from the policy
issue or adjustment; or the premium paying period. Compliance with the 9
percent ceiling will be achieved by reducing the amount of the first year
sales load, if necessary. For examples of how we compute sales load
charges, see the heading "Examples of Sales Load Computations" in this
prospectus on page 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 remit the underwriting charge attributable
to the policy adjustment to us prior to the effective date of the
adjustment. Otherwise 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. Currently premium
taxes imposed by the states vary from .75 percent to 3.5 percent. We do
not guarantee this charge and it may be increased in the future, but only
as necessary to cover our premium tax expenses.
(4) The federal tax charge of 1.25 percent is deducted from each base premium.
This charge is designed to cover a federal tax related to premium
payments. This charge is not guaranteed and may be increased in the
future, but only as necessary to cover the federal tax related to premium
payments.
Carges Taken Fromh
Base Premium
Plus, in the
- --------------- First Year
---------------
7.00% Sales Additional
Load Sales Load (up
1.25% Federal to 23%)
Tax Underwriting
2.50% Premium Charge (up to
Tax $10/$1000 of
- --------------- Insurance
10.75% Total Coverage)
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. We do not assess an underwriting charge 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:
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(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
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.
We assess administration, face amount guarantee and cost of insurance
charges against your actual cash value on the monthly policy anniversary. In
addition, we assess such charges on the occurrence of the second death, policy
surrender, lapse or a policy adjustment.
We assess transaction charges 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.
We assess charges 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
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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. We deduct the mortality and expense risk charge
from Variable Life Account assets on each valuation date at an annual rate of
.50 percent of the average daily net assets of the Variable Life Account.
We reserve the right to charge or make provision for any taxes payable by us
with respect to the Variable Life Account or the Policies by a charge or
adjustment to such assets. No such charge or provision is made at the present
time.
Charges Taken From Separate Account
..50% Mortality and Expense Risk Charge
Examples of Sales Load Computations As noted previously, all sales load
charges are designed to average not more than 9 percent of base premiums over
the lesser of: the joint life expectancy of the insureds at policy issue or
adjustment, or 15 years from the policy issue or adjustment; or the premium
paying period. A number of examples of sales load computations are included in
Appendix V, "Example of Sales Load Computation," in this prospectus on page
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 We will modify or waive certain charges assessed
against base premiums as described above in situations where policy owners of
our existing 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. We will provide these benefits 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 an insurance 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
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subsequently to change the ownership to a trust.
The Short Term Agreement is temporary protection insurance, on a fixed death
benefit basis only, issued for a period of time less than a year. It is issued
to provide temporary life insurance coverage until the later issue date of the
Policy. It may be used in situations where specific policy dating is required,
yet insurance coverage is needed immediately. The Short Term Agreement
terminates on the policy issue date of the Policy.
Beneficiary When we receive proof satisfactory to us of the second death, we
will pay the death proceeds of a Policy to the beneficiary or beneficiaries
named in the application for the Policy unless the owner has changed the
beneficiary. In that event, we will pay the death proceeds to the beneficiary
named in the last change of beneficiary request as provided below. You must
give us proof of the first death as soon as is reasonably possible, even
though no death benefit is payable at the first death.
If a beneficiary dies before the second death, that beneficiary's interest
in the Policy ends with that beneficiary's death. Only those beneficiaries who
are living at the second death will be eligible to share in the death
proceeds. If no beneficiary is living at the second death we will pay the
death proceeds of this Policy to the owner, if living, otherwise to the
owner's estate, or, if the owner is a corporation, to it or its successor.
If both insureds die under circumstances which make it impossible to
determine the order of their deaths, we will assume that the older insured
died first.
You may change the beneficiary designated to receive the proceeds. If you
have reserved the right to change the beneficiary, you can file a written
request with us to change the beneficiary. If you have not reserved the right
to change the beneficiary, the written consent of the irrevocable beneficiary
will be required.
Your written request will not be effective until it is recorded in our home
office. After it has been so recorded, it will take effect as of the date you
signed the request. However, if the second death occurs before the request has
been so recorded, the request will not be effective as to those death proceeds
we have paid before your request was recorded in our home office records.
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, we will
determine the amount of payment 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:
(1) for any period during which the New York Stock Exchange is closed for
trading (except for normal holiday closing); or
(2) when the SEC 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. We will pay the proceeds 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
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<PAGE>
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.
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. 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,
we will adjust the amount of proceeds payable under the Policy 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, we may contest that increase or the reinstatement 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.
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Other Matters
Dividends, if received, may be added to your actual cash value or, if you so
elect, they may be paid in cash.
We will allocate any dividend applied to actual cash value 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, we
will allocate dividends to the guaranteed principal account actual cash value
and separate account actual cash value in the same proportion that those
actual cash values bear to each other and, as to the actual cash value in the
separate account, to each sub-account in the proportion that the actual cash
value in such sub-account bears to your actual cash value in all of the sub-
accounts.
Reports At least once each year we will send you a report. This report will
include the J 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. We will
send the report to you without cost. The report will be as of a date within
two months of its mailing.
Federal Tax Status
Introduction
The discussion of federal taxes is general in nature and is not intended as
tax advice. Each person concerned should consult a tax adviser. This
discussion is based on our understanding of federal income tax laws as they
are currently interpreted. We have not considered any applicable state or
other tax laws. No representation is made regarding the likelihood of
continuation of current income tax laws or the current interpretations of the
Internal Revenue Service (the "IRS").
We are taxed as a "life insurance company" under the Internal Revenue Code
(the "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.
Tax Status of Policies
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 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, that 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 that 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 Life, we do not have control over the Funds or their
investments. Nonetheless, we believe
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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 includable 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, if any,
will be set forth 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, whether a modified
endowment contract or not, the interest paid on policy loans will generally
not be tax deductible. There may be adverse tax consequences when a Policy
with a policy loan is lapsed or surrendered.
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
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of any policy loan exceeds the total investment in the Policy, the excess will
generally be treated as ordinary income subject to tax.
It should be noted, however, that under the Code the tax treatment described
above is not available for policies described as modified endowment contracts.
In general, policies with a high premium in relation to the death benefit may
be considered modified endowment contracts. 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 those cumulative premiums
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 the date
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. Distributions from a Policy within two years before it
becomes a modified endowment contract will also 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 tax adviser before
purchasing a policy to determine the circumstances under which the Policy
would be a modified endowment contract. You should also contact a tax adviser
before paying any nonrepeating premiums or making any other change to,
including an exchange of, a Policy to
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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. You may split a Policy into two other individual
contracts when certain events occur. 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 a 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. That situation will also 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. You should
consult a tax adviser in all these 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.
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 consult a 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.
It should be understood that the foregoing description of the federal income
tax consequences under the Policies is not exhaustive and that special rules
are provided with respect to situations not discussed. Statutory changes in
the 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, any person or business contemplating the
purchase of a variable life insurance policy or
39
<PAGE>
exercising elections under such a policy should consult a tax adviser.
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.
Directors and Principal Management Officers of Minnesota Life
<TABLE>
<CAPTION>
Directors Principal Occupation
--------- --------------------
<C> <S>
Giulio Agostini Senior Vice President, Finance and Administrative
Services, 3M, St. Paul, 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 Vice Chairman and Chief Operating Officer, Wells Fargo &
Company, San Francisco, California (Banking)
John F. Grundhofer President, Chairman and Chief Executive Officer, U.S.
Bancorp, Minneapolis, Minnesota (Banking)
David S. Kidwell, Ph.D. Dean and Professor of Finance, The Curtis L. Carlson
School of Management, University of Minnesota,
Minneapolis, Minnesota
Reatha C. King, Ph.D. President and Executive Director, General Mills
Foundation, Minneapolis, Minnesota
Thomas E. Rohricht Of Counsel, Doherty, Rumble & Butler Professional
Association, St. Paul, Minnesota (Attorneys)
Robert L. Senkler Chairman of the Board, President and Chief Executive
Officer, Minnesota Life Insurance Company since August
1995; prior thereto for more than five years Vice
President and Actuary, Minnesota 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 Retired since April 1998, prior thereto Chairman and
Treasurer, Clearwater Investment Trust since May 1996,
prior thereto for more than five years, Chairman,
Clearwater Management Company, St. Paul, Minnesota
(Financial Management)
Principal Officers (other than Directors)
<CAPTION>
Name Position
---- --------
<C> <S>
John F. Bruder Senior Vice President
Keith M. Campbell Senior Vice President
Robert E. Hunstad Executive Vice President
James E. Johnson Senior Vice President and Actuary
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
William N. Westhoff Senior Vice President and Treasurer
</TABLE>
40
<PAGE>
All Directors who are not also officers of Minnesota Life have had the
principal occupation (or employers) shown for the last five years. All
officers of Minnesota Life have been employed by us for at least five years
with the exception of Mr. Westhoff. Mr. Westhoff has been employed by
Minnesota Life since April 1998. Prior thereto, Mr. Westhoff was employed by
American Express Financial Corporation, Minneapolis, Minnesota, from August
1994 to October 1997 as Senior Vice President, Global Investments and from
November 1989 to July 1994 as Senior Vice President, Fixed Income Management.
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
Advantus Capital Management, Inc., which in turn is a wholly-owned subsidiary
of Minnesota Life.
Ascend Financial, 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. Ascend Financial was incorporated in 1984 under the laws of the
State of Minnesota. 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
41
<PAGE>
payable on premiums received for plans described as greater than whole life
plans will differ from the percentages shown above, as a first year commission
will be paid only on such amounts as we may classify as a first year premium,
based upon a whole life premium per $1,000 of face amount. On premiums
received in excess of that amount we will pay commissions at a rate of 2
percent.
In addition, Ascend Financial or we 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 the Separate Account and 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 that dates are encoded, stored and calculated. That failure
could have a negative impact on our ability and that of Advantus Capital to
provide services to 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 of complete success, we believe that we will be able to
resolve these issues on a timely basis and that there will be no material
adverse impact on our ability to provide services to the Separate Account.
In addition, our operations could be impacted by our service providers' or
suppliers' year 2000 efforts. We have undertaken an initiative to assess the
efforts of organizations where there is a significant business relationship;
however there is no assurance that we will not be affected by year 2000
problems of other organizations.
Experts
Our financial statements and those of the Minnesota Life 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 Life, 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 Life, 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, Class 2.
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
Life 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
Life Variable Life Account, where the investment experience of its assets is
kept separate from our other assets.
We, Our, Us: Minnesota Life Insurance Company.
You, Your: the policy owner.
43
<PAGE>
Independent Auditors' Report
The Board of Trustees of Minnesota Life Insurance Company
and Policy Owners of Minnesota Life 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, Value Stock, Small
Company Value, Global Bond, Index 400 Mid-Cap, Macro-Cap Value, Micro-Cap
Growth, Real Estate Securities and Templeton Development Markets Segregated
Sub-Accounts of Minnesota Life Variable Life Account (the Account), formerly
Minnesota Mutual Variable Life Account, as of December 31, 1998 and the related
statements of operations, changes in net assets and the financial highlights
for the periods presented. 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, 1998 were confirmed to us by the
respective Sub-Account mutual fund, or for Advantus Series Fund, Inc., verified
by examination of the underlying portfolios. 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, Value Stock, Small Company Value, Global
Bond, Index 400 Mid-Cap, Macro-Cap Value, Micro-Cap Growth, Real Estate
Securities and Templeton Development Markets Segregated Sub-Accounts of
Minnesota Life Variable Life Account at December 31, 1998 and the results of
their operations, changes in their net assets and the financial highlights for
the periods presented, in conformity with generally accepted accounting
principles.
KPMG Peat Marwick LLP
Minneapolis, Minnesota
February 26, 1999
44
<PAGE>
Minnesota Life Variable Life Account
Statements of Assets and Liabilities
December 31, 1998
<TABLE>
<CAPTION>
Segregated Sub-Accounts
-----------------------------------------------------------------------------------------------------------
Money Asset Mortgage Index Capital International Small
Assets Growth Bond Market Allocation Securities 500 Appreciation Stock Company
------ ------------ ---------- ---------- ----------- ---------- ----------- ------------ ------------- ----------
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C>
Investments in
shares of Advantus
Series Fund, Inc.:
Growth Portfolio,
38,074,136 shares
at net asset
value of $2.74
per share (cost
$84,713,621)..... $104,243,139 -- -- -- -- -- -- -- --
Bond Portfolio,
23,441,918 shares
at net asset
value of $1.31
per share (cost
$29,891,334)..... -- 30,657,462 -- -- -- -- -- -- --
Money Market
Portfolio,
10,248,099 shares
at net asset
value of $1.00
per share
(cost $10,248,099). -- -- 10,248,099 -- -- -- -- -- --
Asset Allocation
Portfolio,
61,085,540 shares
at net asset
value of $2.28
per share
(cost $111,865,358). -- -- -- 139,205,176 -- -- -- -- --
Mortgage Securi-
ties Portfolio,
10,771,049 shares
at net asset
value of $1.22
per share
(cost $12,636,193). -- -- -- -- 13,116,021 -- -- -- --
Index 500
Portfolio,
35,339,747 shares
at net asset
value of $3.91
per share
(cost $97,451,656). -- -- -- -- -- 138,175,797 -- -- --
Capital Apprecia-
tion Portfolio,
34,870,222 shares
at net asset
value of $3.54
per share
(cost $86,158,823). -- -- -- -- -- -- 123,311,563 -- --
International
Stock Portfolio,
52,547,586 shares
at net asset
value of $1.73
per share
(cost $84,422,558). -- -- -- -- -- -- -- 90,894,552 --
Small Company
Portfolio,
36,935,246 shares
at net asset
value of $1.68
per share
(cost $57,668,940). -- -- -- -- -- -- -- -- 61,877,291
------------ ---------- ---------- ----------- ---------- ----------- ----------- ---------- ----------
104,243,139 30,657,462 10,248,099 139,205,176 13,116,021 138,175,797 123,311,563 90,894,552 61,877,291
Receivable from
Minnesota Life for
policy purchase
payments.......... 175,141 79,233 49,273 206,498 55,860 646,823 213,548 180,455 233,235
Receivable for in-
vestments sold.... 129,299 55,057 188,830 189,625 5,873 115,259 83,604 64,140 43,026
------------ ---------- ---------- ----------- ---------- ----------- ----------- ---------- ----------
Total assets.... 104,547,579 30,791,752 10,486,202 139,601,299 13,177,754 138,937,879 123,608,715 91,139,147 62,153,552
------------ ---------- ---------- ----------- ---------- ----------- ----------- ---------- ----------
<CAPTION>
Liabilities
-----------
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C>
Payable for in-
vestments pur-
chased............ 175,141 79,233 49,273 206,498 55,860 646,823 213,548 180,455 233,235
Payable to Minne-
sota Life for pol-
icy terminations
and mortality and
expense charges... 129,299 55,057 188,830 189,625 5,873 115,259 83,604 64,140 43,026
------------ ---------- ---------- ----------- ---------- ----------- ----------- ---------- ----------
Total liabili-
ties............ 304,440 134,290 238,103 396,123 61,733 762,082 297,152 244,595 276,261
------------ ---------- ---------- ----------- ---------- ----------- ----------- ---------- ----------
NET ASSETS
APPLICABLE TO
POLICY OWNERS..... $104,243,139 30,657,462 10,248,099 139,205,176 13,116,021 138,175,797 123,311,563 90,894,552 61,877,291
============ ========== ========== =========== ========== =========== =========== ========== ==========
UNITS OUTSTANDING. 22,653,190 13,380,650 5,915,721 38,273,621 5,351,168 28,132,934 24,802,737 42,958,209 33,912,334
============ ========== ========== =========== ========== =========== =========== ========== ==========
NET ASSET VALUE
PER UNIT.......... $ 4.60 2.29 1.73 3.64 2.45 4.92 4.98 2.11 1.82
============ ========== ========== =========== ========== =========== =========== ========== ==========
</TABLE>
See accompanying notes to financial statements.
45
<PAGE>
Minnesota Life Variable Life Account
Statements of Assets and Liabilities (Continued)
December 31, 1998
<TABLE>
<CAPTION>
Segregated Sub-Accounts
----------------------------------------------------------------------------
Small Macro- Micro- Templeton
Value Company Global Index 400 Cap Cap Real Estate Developing
Assets Stock Value Bond Mid-Cap Value Growth Securities Markets
------ ----------- ------- ------- --------- ------- ------- ----------- ----------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Investments in shares of
Advantus Series Fund,
Inc.:
Value Stock Portfolio,
29,362,368 shares at
net asset value of
$1.76 per share (cost
$49,655,353)........... $51,663,668 -- -- -- -- -- -- --
Small Company Value
Portfolio, 816,134
shares at net asset
value of $.95 per share
(cost $757,506)........ -- 773,935 -- -- -- -- -- --
Global Bond Portfolio,
311,723 shares at net
asset value of $1.05
per share (cost
$340,096).............. -- -- 326,879 -- -- -- -- --
Index 400 Mid-Cap Port-
folio, 943,258 shares
at net asset value of
$1.15 per share (cost
$971,924).............. -- -- -- 1,084,202 -- -- -- --
Macro-Cap Value Portfo-
lio, 767,512 shares at
net asset value of
$1.14 per share (cost
$811,590).............. -- -- -- -- 874,651 -- -- --
Micro-Cap Growth Port-
folio, 749,528 shares
at net asset value of
$1.01 per share (cost
$653,059).............. -- -- -- -- -- 755,995 -- --
Real Estate Securities
Portfolio, 296,443
shares at net asset
value of $.83 per share
(cost $256,192)........ -- -- -- -- -- -- 246,595 --
Investment in Templeton
Variable Products Series
Fund:
Templeton Developing
Markets Fund--Class 2,
130,608 shares at net
asset value of $5.12
per share (cost
$608,489).............. -- -- -- -- -- -- -- 668,711
----------- ------- ------- --------- ------- ------- ------- -------
51,663,668 773,935 326,879 1,084,202 874,651 755,995 246,595 668,711
Receivable from Minne-
sota Life for policy
purchase payments....... 104,295 6,295 6,972 29,330 24,862 9,253 7,346 4,405
Receivable for invest-
ments sold.............. 38,753 312 61 555 515 763 23 223
----------- ------- ------- --------- ------- ------- ------- -------
Total assets.......... 51,806,716 780,542 333,912 1,114,087 900,028 766,011 253,964 673,339
----------- ------- ------- --------- ------- ------- ------- -------
<CAPTION>
Liabilities
-----------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Payable for investments
purchased............... 104,295 6,295 6,972 29,330 24,862 9,253 7,346 4,405
Payable to Minnesota
Life for policy termina-
tions and mortality and
expense charges......... 38,753 312 61 555 515 763 23 223
----------- ------- ------- --------- ------- ------- ------- -------
Total liabilities..... 143,048 6,607 7,033 29,885 25,377 10,016 7,369 4,628
----------- ------- ------- --------- ------- ------- ------- -------
NET ASSETS APPLICABLE TO
POLICY OWNERS........... $51,663,668 773,935 326,879 1,084,202 874,651 755,995 246,595 668,711
=========== ======= ======= ========= ======= ======= ======= =======
UNITS OUTSTANDING....... 23,718,362 894,678 293,075 1,020,446 823,503 733,049 284,627 778,238
=========== ======= ======= ========= ======= ======= ======= =======
NET ASSET VALUE PER
UNIT.................... $ 2.18 0.86 1.12 1.05 1.06 1.03 0.87 0.86
=========== ======= ======= ========= ======= ======= ======= =======
</TABLE>
See accompanying notes to financial statements.
46
<PAGE>
Minnesota Life Variable Life Account
Statements of Operations
Year ended December 31, 1998
<TABLE>
<CAPTION>
Segregated Sub-Accounts
---------------------------------------------------------------------------------------------------------
Money Asset Mortgage Index Capital International
Growth Bond Market Allocation Securities 500 Appreciation Stock
------------ ----------- ----------- ----------- ---------- ----------- ------------ -------------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Investment income
(loss):
Investment income
distributions
from underlying
mutual fund
(note 4)......... $ 698,525 1,338,221 449,098 2,922,443 604,913 911,517 -- 2,121,828
Mortality and
expense charges
(note 3)......... (404,953) (129,237) (46,453) (587,038) (58,011) (547,730) (503,496) (418,056)
------------ ----------- ----------- ----------- ---------- ----------- ----------- -----------
Investment
income (loss)--
net............ 293,572 1,208,984 402,645 2,335,405 546,902 363,787 (503,496) 1,703,772
------------ ----------- ----------- ----------- ---------- ----------- ----------- -----------
Realized and
unrealized gains
(losses) on
investments--
net:
Realized gain
distributions
from underlying
mutual fund
(note 4)....... 11,109,561 281,896 -- 7,426,667 -- 571,352 5,324,035 2,088,998
------------ ----------- ----------- ----------- ---------- ----------- ----------- -----------
Realized gains on
sales of
investments:
Proceeds from
sales.......... 7,003,108 10,067,912 19,969,206 26,184,761 3,771,554 31,615,282 26,513,720 25,063,915
Cost of
investments
sold........... (24,628,270) (9,893,680) (19,969,206) (22,795,505) (3,652,500) (23,425,350) (20,848,774) (22,654,514)
------------ ----------- ----------- ----------- ---------- ----------- ----------- -----------
2,374,838 174,232 -- 3,389,256 119,054 8,189,932 5,664,946 2,409,401
------------ ----------- ----------- ----------- ---------- ----------- ----------- -----------
Net realized
gains on
investments.... 13,484,399 456,128 -- 10,815,923 119,054 8,761,284 10,988,981 4,498,399
------------ ----------- ----------- ----------- ---------- ----------- ----------- -----------
Net change in
unrealized appre-
ciation or depre-
ciation of invest-
ments............. 11,101,163 (256,619) -- 11,996,966 3,276 17,656,536 17,334,011 (1,715,008)
------------ ----------- ----------- ----------- ---------- ----------- ----------- -----------
Net gains on
investments.... 24,585,562 199,509 -- 22,812,889 122,330 26,417,820 28,322,992 2,783,391
------------ ----------- ----------- ----------- ---------- ----------- ----------- -----------
Net increase in
net assets
resulting from
operations..... $ 24,879,134 1,408,493 402,645 25,148,294 669,232 26,781,607 27,819,496 4,487,163
============ =========== =========== =========== ========== =========== =========== ===========
<CAPTION>
Small
Company
------------
<S> <C>
Investment income
(loss):
Investment income
distributions
from underlying
mutual fund
(note 4)......... --
Mortality and
expense charges
(note 3)......... (265,824)
------------
Investment
income (loss)--
net............ (265,824)
------------
Realized and
unrealized gains
(losses) on
investments--
net:
Realized gain
distributions
from underlying
mutual fund
(note 4)....... --
------------
Realized gains on
sales of
investments:
Proceeds from
sales.......... 17,975,194
Cost of
investments
sold........... (17,656,969)
------------
318,225
------------
Net realized
gains on
investments.... 318,225
------------
Net change in
unrealized appre-
ciation or depre-
ciation of invest-
ments............. 876,621
------------
Net gains on
investments.... 1,194,846
------------
Net increase in
net assets
resulting from
operations..... 929,022
============
</TABLE>
See accompanying notes to financial statements.
47
<PAGE>
Minnesota Life Variable Life Account
Statements of Operations (Continued)
Year ended December 31, 1998
<TABLE>
<CAPTION>
Segregated Sub-Accounts
-----------------------------------------------------------------------------------------
Small Templeton
Value Company Global Index 400 Macro-Cap Micro-Cap Real Estate Developing
Stock Value(a) Bond(a) Mid-Cap(a) Value(a) Growth(a) Securities(a) Markets(a)
------------ -------- ------- ---------- --------- --------- ------------- ----------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Investment income
(loss):
Investment income
distributions from
underlying mutual
fund (note 4)......... $ -- 8,491 15,866 5,286 3,488 -- 9,387 --
Mortality and expense
charges (note 3)...... (221,650) (961) (331) (1,123) (1,064) (1,067) (719) (900)
------------ ------- ------- -------- ------- -------- ------- -------
Investment income
(loss)--net......... (221,650) 7,530 15,535 4,163 2,424 (1,067) 8,668 (900)
------------ ------- ------- -------- ------- -------- ------- -------
Realized and
unrealized gains
(losses) on
investments--net:
Realized gain
distributions from
underlying mutual
fund (note 4)......... 67,256 -- 8,113 18,418 33,791 -- -- --
------------ ------- ------- -------- ------- -------- ------- -------
Realized gains on
sales of investments:
Proceeds from sales.. 14,868,851 93,721 27,025 293,103 102,220 103,427 37,726 16,519
Cost of investments
sold................ (14,819,476) (97,433) (26,487) (291,094) (98,709) (103,574) (39,357) (16,278)
------------ ------- ------- -------- ------- -------- ------- -------
49,375 (3,712) 538 2,009 3,511 (147) (1,631) 241
------------ ------- ------- -------- ------- -------- ------- -------
Net realized gains
(losses) on
investments......... 116,631 (3,712) 8,651 20,427 37,302 (147) (1,631) 241
------------ ------- ------- -------- ------- -------- ------- -------
Net change in
unrealized
appreciation or
depreciation of
investments........... 863,403 16,429 (13,217) 112,278 63,061 102,936 (9,597) 60,222
------------ ------- ------- -------- ------- -------- ------- -------
Net gains (losses) on
investments......... 980,034 12,717 (4,566) 132,705 100,363 102,789 (11,228) 60,463
------------ ------- ------- -------- ------- -------- ------- -------
Net increase
(decrease) in net
assets resulting
from operations..... $ 758,385 20,247 10,969 136,868 102,787 101,722 (2,560) 59,563
============ ======= ======= ======== ======= ======== ======= =======
</TABLE>
- ------
(a) For the period from May 19, 1998, commencement of operations, to December
31, 1998.
See accompanying notes to financial statements.
48
<PAGE>
Minnesota Life Variable Life Account
Statements of Operations (Continued)
Year ended December 31, 1997
<TABLE>
<CAPTION>
Segregated Sub-Accounts
-------------------------------------------------------------------------------------------------------
Money Asset Mortgage Index Capital International
Growth Bond Market Allocation Securities 500 Appreciation Stock
------------ ---------- ---------- ----------- ---------- ----------- ------------ -------------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
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 -- 1,700,559
Mortality and
expense charges
(note 3)......... (263,066) (88,316) (33,136) (450,565) (47,250) (345,963) (359,192) (315,047)
------------ ---------- ---------- ----------- ---------- ----------- ----------- -----------
Investment
income (loss)--
net............ 139,162 782,118 298,553 1,843,987 537,768 367,987 (359,192) 1,385,512
------------ ---------- ---------- ----------- ---------- ----------- ----------- -----------
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 6,002,097 848,376
------------ ---------- ---------- ----------- ---------- ----------- ----------- -----------
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 17,240,951
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) (14,680,146)
------------ ---------- ---------- ----------- ---------- ----------- ----------- -----------
1,049,122 180,703 -- 2,477,863 83,513 4,210,757 3,076,895 2,560,805
------------ ---------- ---------- ----------- ---------- ----------- ----------- -----------
Net realized
gains on in-
vestments...... 11,442,485 180,703 -- 7,241,556 83,513 5,112,763 9,078,992 3,409,181
------------ ---------- ---------- ----------- ---------- ----------- ----------- -----------
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 1,199,797
------------ ---------- ---------- ----------- ---------- ----------- ----------- -----------
Net gains on
investments.... 14,857,385 741,937 -- 13,502,810 253,118 17,773,162 18,187,598 4,608,978
------------ ---------- ---------- ----------- ---------- ----------- ----------- -----------
Net increase in
net assets re-
sulting from
operations..... $ 14,996,547 1,524,055 298,553 15,346,797 790,886 18,141,149 17,828,406 5,994,490
============ ========== ========== =========== ========== =========== =========== ===========
<CAPTION>
Small Value
Company Stock
------------ -----------
<S> <C> <C>
Investment income
(loss):
Investment income
distributions
from underlying
mutual fund
(note 4)......... 579 402,534
Mortality and
expense charges
(note 3)......... (204,439) (138,510)
------------ -----------
Investment
income (loss)--
net............ (203,860) 264,024
------------ -----------
Realized and
unrealized gains
(losses) on
investments--net:
Realized gain
distributions
from underlying
mutual fund
(note 4)......... -- 3,195,383
------------ -----------
Realized gains on
sales of
investments:
Proceeds from
sales.......... 12,901,283 10,061,048
Cost of
investments
sold........... (12,333,703) (8,568,072)
------------ -----------
567,580 1,492,976
------------ -----------
Net realized
gains on in-
vestments...... 567,580 4,688,359
------------ -----------
Net change in
unrealized
appreciation or
depreciation of
investments....... 2,548,501 (516,947)
------------ -----------
Net gains on
investments.... 3,116,081 4,171,412
------------ -----------
Net increase in
net assets re-
sulting from
operations..... 2,912,221 4,435,436
============ ===========
</TABLE>
See accompanying notes to financial statements.
49
<PAGE>
Minnesota Life Variable Life Account
Statements of Operations (continued)
Year ended December 31, 1996
<TABLE>
<CAPTION>
Segregated Sub-Accounts
-------------------------------------------------------------------------------------------------------
Money Asset Mortgage Index Capital International
Growth Bond Market Allocation Securities 500 Appreciation Stock
----------- ---------- ----------- ----------- ---------- ----------- ------------ -------------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
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 -- 928,852
Mortality and
expense charges
(note 3)......... (173,630) (60,937) (30,589) (350,927) (39,632) (195,010) (255,630) (199,522)
----------- ---------- ----------- ----------- ---------- ----------- ----------- -----------
Investment
income (loss)--
net............. 104,821 542,217 263,682 1,744,470 459,709 281,483 (255,630) 729,330
----------- ---------- ----------- ----------- ---------- ----------- ----------- -----------
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 1,016,871
----------- ---------- ----------- ----------- ---------- ----------- ----------- -----------
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 11,921,319
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) (10,844,232)
----------- ---------- ----------- ----------- ---------- ----------- ----------- -----------
1,103,992 88,391 -- 1,742,740 26,510 2,316,948 2,368,360 1,077,087
----------- ---------- ----------- ----------- ---------- ----------- ----------- -----------
Net realized
gains on
investments..... 3,720,603 197,119 -- 5,579,339 26,510 2,563,607 3,639,546 2,093,958
----------- ---------- ----------- ----------- ---------- ----------- ----------- -----------
Net change in
unrealized
appreciation or
depreciation of
investments....... 1,398,787 (343,676) -- 682,688 (107,111) 4,756,817 4,331,602 4,335,633
----------- ---------- ----------- ----------- ---------- ----------- ----------- -----------
Net gains
(losses) on
investments..... 5,119,390 (146,557) -- 6,262,027 (80,601) 7,320,424 7,971,148 6,429,591
----------- ---------- ----------- ----------- ---------- ----------- ----------- -----------
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 7,158,921
=========== ========== =========== =========== ========== =========== =========== ===========
<CAPTION>
Small Value
Company Stock
----------- -----------
<S> <C> <C>
Investment income
(loss):
Investment income
distributions
from underlying
mutual fund
(note 4)......... 70,099 134,162
Mortality and
expense charges
(note 3)......... (136,946) (51,183)
----------- -----------
Investment
income (loss)--
net............. (66,847) 82,979
----------- -----------
Realized and
unrealized gains
(losses) on
investments--net:
Realized gain
distributions
from underlying
mutual fund
(note 4)......... 3,093,113 1,024,043
----------- -----------
Realized gains on
sales of
investments:
Proceeds from
sales.......... 8,855,781 3,885,317
Cost of
investments
sold........... (7,746,510) (3,415,633)
----------- -----------
1,109,271 469,684
----------- -----------
Net realized
gains on
investments..... 4,202,384 1,493,727
----------- -----------
Net change in
unrealized
appreciation or
depreciation of
investments....... (2,840,532) 1,239,111
----------- -----------
Net gains
(losses) on
investments..... 1,361,852 2,732,838
----------- -----------
Net increase in net
assets resulting
from operations... 1,295,005 2,815,817
=========== ===========
</TABLE>
See accompanying notes to financial statements.
50
<PAGE>
Minnesota Life Variable Life Account
Statements of Changes in Net Assets
Year ended December 31, 1998
<TABLE>
<CAPTION>
Segregated Sub-Accounts
--------------------------------------------------------------------------------------------------------
Money Asset Mortgage Index Capital International
Growth Bond Market Allocation Securities 500 Appreciation Stock
------------ ---------- ----------- ----------- ---------- ----------- ------------ -------------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Operations:
Investment
income (loss)--
net............ $ 293,572 1,208,984 402,645 2,335,405 546,902 363,787 (503,496) 1,703,772
Net realized
gains on
investments.... 13,484,399 456,128 -- 10,815,923 119,054 8,761,284 10,988,981 4,498,399
Net change in
unrealized
appreciation or
depreciation of
investments.... 11,101,163 (256,619) -- 11,996,966 3,276 17,656,536 17,334,011 (1,715,008)
------------ ---------- ----------- ----------- ---------- ----------- ----------- -----------
Net increase in
net assets
resulting from
operations...... 24,879,134 1,408,493 402,645 25,148,294 669,232 26,781,607 27,819,496 4,487,163
------------ ---------- ----------- ----------- ---------- ----------- ----------- -----------
Policy
transactions
(notes 3, 4 and
5):
Policy purchase
payments....... 39,789,274 18,197,885 22,597,674 36,353,193 5,839,283 55,781,942 33,631,794 39,752,735
Policy
withdrawals and
charges........ (26,598,154) (9,938,676) (19,922,753) (25,597,723) (3,713,544) (31,067,552) (26,010,224) (24,645,860)
------------ ---------- ----------- ----------- ---------- ----------- ----------- -----------
Increase in net
assets from
policy
transactions.... 13,191,120 8,259,209 2,674,921 10,755,470 2,125,739 24,714,390 7,621,570 15,106,875
------------ ---------- ----------- ----------- ---------- ----------- ----------- -----------
Increase in net
assets.......... 38,070,254 9,667,702 3,077,566 35,903,764 2,794,971 51,495,997 35,441,066 19,594,038
Net assets at the
beginning of
year............ 66,172,885 20,989,760 7,170,533 103,301,412 10,321,050 86,679,800 87,870,497 71,300,514
------------ ---------- ----------- ----------- ---------- ----------- ----------- -----------
Net assets at the
end of year..... $104,243,139 30,657,462 10,248,099 139,205,176 13,116,021 138,175,797 123,311,563 90,894,552
============ ========== =========== =========== ========== =========== =========== ===========
<CAPTION>
Small
Company
------------
<S> <C>
Operations:
Investment
income (loss)--
net............ (265,824)
Net realized
gains on
investments.... 318,225
Net change in
unrealized
appreciation or
depreciation of
investments.... 876,621
------------
Net increase in
net assets
resulting from
operations...... 929,022
------------
Policy
transactions
(notes 3, 4 and
5):
Policy purchase
payments....... 29,383,489
Policy
withdrawals and
charges........ (17,709,370)
------------
Increase in net
assets from
policy
transactions.... 11,674,119
------------
Increase in net
assets.......... 12,603,141
Net assets at the
beginning of
year............ 49,274,150
------------
Net assets at the
end of year..... 61,877,291
============
</TABLE>
See accompanying notes to financial statements.
51
<PAGE>
Minnesota Life Variable Life Account
Statements of Changes in Net Assets (Continued)
Year ended December 31, 1998
<TABLE>
<CAPTION>
Segregated Sub-Accounts
-------------------------------------------------------------------------------------------
Small Templeton
Value Company Global Index 400 Macro-Cap Micro-Cap Real Estate Developing
Stock Value(a) Bond(a) Mid-Cap(a) Value(a) Growth(a) Securities(a) Markets(a)
------------ -------- ------- ---------- --------- --------- ------------- ----------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Operations:
Investment income
(loss)--net........... $ (221,650) 7,530 15,535 4,163 2,424 (1,067) 8,668 (900)
Net realized gains
(losses) on
investments........... 116,631 (3,712) 8,652 20,427 37,302 (147) (1,631) 241
Net change in
unrealized
appreciation or
depreciation of
investments........... 863,403 16,429 (13,217) 112,278 63,061 102,936 (9,597) 60,222
------------ ------- ------- --------- -------- -------- ------- -------
Net increase (decrease)
in net assets resulting
from
operations............. 758,385 20,247 10,970 136,868 102,787 101,722 (2,560) 59,563
------------ ------- ------- --------- -------- -------- ------- -------
Policy transactions
(notes 3, 4 and 5):
Policy purchase
payments.............. 28,395,796 846,448 342,604 1,239,314 873,020 756,634 286,162 676,668
Policy withdrawals and
charges............... (14,647,201) (92,760) (26,694) (291,980) (101,156) (102,360) (37,007) (67,520)
------------ ------- ------- --------- -------- -------- ------- -------
Increase in net assets
from policy
transactions........... 13,748,593 753,688 315,910 947,334 771,864 654,274 249,155 609,148
------------ ------- ------- --------- -------- -------- ------- -------
Increase in net assets.. 14,506,978 773,935 326,880 1,084,202 874,651 755,995 246,595 668,711
Net assets at the
beginning of year...... 37,156,690 -- -- -- -- -- -- --
------------ ------- ------- --------- -------- -------- ------- -------
Net assets at the end of
year................... $ 51,663,668 773,935 326,880 1,084,202 874,651 755,995 246,595 668,711
============ ======= ======= ========= ======== ======== ======= =======
</TABLE>
- ------
(a) For the period from May 19, 1998, commencement of operations, to December
31, 1998.
See accompanying notes to financial statements.
52
<PAGE>
Minnesota Life Variable Life Account
Statements of Changes in Net Assets (Continued)
Year ended December 31, 1997
<TABLE>
<CAPTION>
Segregated Sub-Accounts
-------------------------------------------------------------------------------------------------------
Money Asset Mortgage Index Capital International
Growth Bond Market Allocation Securities 500 Appreciation Stock
------------ ---------- ---------- ----------- ---------- ----------- ------------ -------------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Operations:
Investment
income (loss)--
net............ $ 139,162 782,118 298,553 1,843,987 537,768 367,987 (359,192) 1,385,512
Net realized
gains on
investments.... 11,442,485 180,703 -- 7,241,556 83,513 5,112,763 9,078,992 3,409,181
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 1,199,797
------------ ---------- ---------- ----------- ---------- ----------- ----------- -----------
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 5,994,490
------------ ---------- ---------- ----------- ---------- ----------- ----------- -----------
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 32,014,886
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) (16,925,904)
------------ ---------- ---------- ----------- ---------- ----------- ----------- -----------
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 15,088,982
------------ ---------- ---------- ----------- ---------- ----------- ----------- -----------
Increase in net
assets.......... 24,360,182 6,299,568 697,797 23,127,583 1,435,174 36,129,171 28,630,144 21,083,472
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 50,217,042
------------ ---------- ---------- ----------- ---------- ----------- ----------- -----------
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 71,300,514
============ ========== ========== =========== ========== =========== =========== ===========
<CAPTION>
Small Value
Company Stock
------------ -----------
<S> <C> <C>
Operations:
Investment
income (loss)--
net............ (203,860) 264,024
Net realized
gains on
investments.... 567,580 4,688,359
Net change in
unrealized
appreciation or
depreciation of
investments.... 2,548,501 (516,947)
------------ -----------
Net increase in
net assets
resulting from
operations...... 2,912,221 4,435,436
------------ -----------
Policy
transactions
(notes 3, 4 and
5):
Policy purchase
payments....... 25,428,738 25,430,667
Policy
withdrawals and
charges........ (12,696,844) (9,922,538)
------------ -----------
Increase in net
assets from
policy
transactions.... 12,731,894 15,508,129
------------ -----------
Increase in net
assets.......... 15,644,115 19,943,565
Net assets at the
beginning of
year............ 33,630,035 17,213,125
------------ -----------
Net assets at the
end of year..... 49,274,150 37,156,690
============ ===========
</TABLE>
See accompanying notes to financial statements.
53
<PAGE>
Minnesota Life Variable Life Account
Statements of Changes in Net Assets (Continued)
Year ended December 31, 1996
<TABLE>
<CAPTION>
Segregated Sub-Accounts
--------------------------------------------------------------------------------------------------------
Money Asset Mortgage Index Capital International
Growth Bond Market Allocation Securities 500 Appreciation Stock
------------ ---------- ----------- ----------- ---------- ----------- ------------ -------------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Operations:
Investment
income (loss)--
net............ $ 104,821 542,217 263,682 1,744,470 459,709 281,483 (255,630) 729,330
Net realized
gains on
investments.... 3,720,603 197,119 -- 5,579,339 26,510 2,563,607 3,639,546 2,093,958
Net change in
unrealized
appreciation or
depreciation of
investments.... 1,398,787 (343,676) -- 682,688 (107,111) 4,756,817 4,331,602 4,335,633
------------ ---------- ----------- ----------- ---------- ----------- ----------- -----------
Net increase in
net assets
resulting from
operations...... 5,224,211 395,660 263,682 8,006,497 379,108 7,601,907 7,715,518 7,158,921
------------ ---------- ----------- ----------- ---------- ----------- ----------- -----------
Policy
transactions
(notes 3, 4 and
5):
Policy purchase
payments....... 18,240,045 8,476,494 12,682,354 27,630,678 3,385,663 26,341,081 22,471,971 23,422,864
Policy
withdrawals and
charges........ (10,094,412) (4,573,620) (11,802,949) (17,110,497) (2,229,350) (12,243,866) (13,399,945) (11,721,797)
------------ ---------- ----------- ----------- ---------- ----------- ----------- -----------
Increase in net
assets from
policy
transactions.... 8,145,633 3,902,874 879,405 10,520,181 1,156,313 14,097,215 9,072,026 11,701,067
------------ ---------- ----------- ----------- ---------- ----------- ----------- -----------
Increase in net
assets.......... 13,369,844 4,298,534 1,143,087 18,526,678 1,535,421 21,699,122 16,787,544 18,859,988
Net assets at the
beginning of
year............ 28,442,859 10,391,658 5,329,649 61,647,151 7,350,455 28,851,507 42,452,809 31,357,054
------------ ---------- ----------- ----------- ---------- ----------- ----------- -----------
Net assets at the
end of year..... $ 41,812,703 14,690,192 6,472,736 80,173,829 8,885,876 50,550,629 59,240,353 50,217,042
============ ========== =========== =========== ========== =========== =========== ===========
<CAPTION>
Small Value
Company Stock
----------- -----------
<S> <C> <C>
Operations:
Investment
income (loss)--
net............ (66,847) 82,979
Net realized
gains on
investments.... 4,202,384 1,493,727
Net change in
unrealized
appreciation or
depreciation of
investments.... (2,840,532) 1,239,111
----------- -----------
Net increase in
net assets
resulting from
operations...... 1,295,005 2,815,817
----------- -----------
Policy
transactions
(notes 3, 4 and
5):
Policy purchase
payments....... 20,175,123 12,940,411
Policy
withdrawals and
charges........ (8,718,835) (3,834,134)
----------- -----------
Increase in net
assets from
policy
transactions.... 11,456,288 9,106,277
----------- -----------
Increase in net
assets.......... 12,751,293 11,922,094
Net assets at the
beginning of
year............ 20,878,742 5,291,031
----------- -----------
Net assets at the
end of year..... 33,630,035 17,213,125
=========== ===========
</TABLE>
See accompanying notes to financial statements.
54
<PAGE>
Minnesota Life Variable Life Account
Notes to Financial Statements
(1) Organization
The Minnesota Life Variable Life Account (the Account), formerly Minnesota
Mutual Variable Life Account, was established on October 21, 1985 as a
segregated asset account of Minnesota Life Insurance Company (Minnesota Life),
formerly The Minnesota Mutual Life Insurance Company, under Minnesota law and
is registered as a unit investment trust under the Investment Company Act of
1940 (as amended). There are currently two types of variable life policies each
consisting of seventeen 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
Life. Variable life policy owners allocate their purchase payments to one or
more of the seventeen segregated sub-accounts. Such payments are then invested
in shares of Advantus Series Fund, Inc. (the Fund) and Templeton Variable
Products Series Fund (Underlying Funds). The Advantus Series Fund, Inc. was
organized by Minnesota Life as the investment vehicle for its variable life
insurance policies and variable annuity contracts. Each of the Underling Funds
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, Value Stock, Small Company Value, Global Bond, Index 400 Mid-
Cap, Macro-Cap Value, Micro-Cap Growth, Real Estate Securities and Templeton
Development Markets 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, Value Stock, Small
Company Value, Global Bond, Index 400 Mid-Cap, Macro-Cap Value, Micro-Cap
Growth, Real Estate Securities and Templeton Development Markets Portfolios of
the Fund, respectively.
Ascend Financial Services, Inc. acts as the underwriter for the Account.
Advantus Capital Management, Inc. acts as the investment adviser for the Fund.
Ascend Financial Services, Inc. is a wholly-owned subsidiary of Advantus
Capital Management, Inc. and Advantus Capital Management, Inc. is a wholly-
owned subsidiary of Minnesota Life.
(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 in the financial statements. 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 Life 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.
55
<PAGE>
Minnesota Life Variable Life Account
Notes to Financial Statements (continued)
(3) Mortality and Expense and Other Policy Charges
The mortality and expense charge paid to Minnesota Life 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 Life:
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, 1998, 1997 and 1996 amounted to $23,671,583, $19,600,016 and
$13,357,161, 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, 1998, 1997 and 1996 amounted to $11,866,348, $10,756,148 and
$6,155,712, 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, 1998, 1997 and 1996 amounted to $5,549,756, $4,479,422
and $3,465,457, 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, 1998, 1997 and 1996 amounted to $2,625,973,
$2,188,497 and $1,794,822, 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 Life under the Omnibus Budget Reconciliation
Act of 1990. Total federal tax charges for the years ended December 31,
1998, 1997 and 1996 amounted to $293,094, $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
Life 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.
56
<PAGE>
Minnesota Life 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, 1998, 1997
and 1996 for each segregated sub-account are as follows:
<TABLE>
<CAPTION>
1998 1997 1996
---------- ---------- ----------
<S> <C> <C> <C>
Growth $6,634,203 $4,939,701 $3,958,312
Bond 2,823,226 2,200,814 1,780,681
Money Market 887,191 777,111 741,727
Asset Allocation 8,357,447 7,770,546 7,673,171
Mortgage Securities 1,109,636 925,967 859,703
Index 500 9,049,753 6,357,141 4,389,029
Capital Appreciation 7,338,162 6,374,197 5,701,873
International Stock 7,798,999 6,665,104 5,145,385
Small Company 5,816,447 5,041,725 3,921,958
Value Stock 5,414,078 3,775,010 1,802,043
Small Company Value 30,916 -- --
Global Bond 11,215 -- --
Index 400 Mid-Cap 28,011 -- --
Macro-Cap Value 31,069 -- --
Micro-Cap Growth 28,588 -- --
Real Estate Securities 9,868 -- --
Templeton Developing Markets 22,325 -- --
</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>
1998 1997 1996
----------- ----------- -----------
<S> <C> <C> <C>
Growth Portfolio $51,597,361 $35,581,049 $21,135,107
Bond Portfolio 19,818,000 12,580,930 9,188,376
Money Market Portfolio 23,046,773 10,482,839 12,978,090
Asset Allocation Portfolio 46,702,304 37,651,827 33,562,674
Mortgage Securities Portfolio 6,444,196 4,632,812 3,885,004
Index 500 Portfolio 57,264,811 35,768,419 27,064,233
Capital Appreciation Portfolio 38,955,829 34,192,337 23,743,157
International Stock Portfolio 43,963,560 34,563,821 25,368,587
Small Company Portfolio 29,383,488 25,429,317 23,338,335
Value Stock Portfolio 28,463,051 29,028,584 14,098,616
Small Company Value Portfolio 854,939 -- --
Global Bond Portfolio 366,583 -- --
Index 400 Mid-Cap Portfolio 1,263,018 -- --
Macro-Cap Value Portfolio 910,298 -- --
Micro-Cap Growth Portfolio 756,633 -- --
Real Estate Securities Portfolio 295,549 -- --
Templeton Developing Markets Portfolio 624,766 -- --
</TABLE>
57
<PAGE>
Minnesota Life 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, 1998, 1997 and 1996 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, 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
Policy purchase
payments 10,210,991 8,153,555 13,291,240 11,321,429 2,442,614
Deductions for policy
withdrawals and
charges (6,842,220) (4,452,348) (11,699,120) (7,990,325) (1,556,063)
---------- ---------- ----------- ----------- ----------
Units outstanding at
December 31, 1998 22,653,190 13,380,650 5,915,721 38,273,621 5,351,168
========== ========== =========== =========== ==========
<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, 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
Policy purchase
payments 12,909,414 8,023,992 18,838,978 16,824,546 13,385,774
Deductions for policy
withdrawals and
charges (7,209,967) (6,207,860) (11,645,602) (10,119,583) (6,940,622)
---------- ---------- ----------- ----------- ----------
Units outstanding at
December 31, 1998 28,132,934 24,802,737 42,958,209 33,912,334 23,718,362
========== ========== =========== =========== ==========
</TABLE>
58
<PAGE>
Minnesota Life Variable Life Account
Notes to Financial Statements (continued)
(5) Unit Activity from Contract Transactions (continued)
<TABLE>
<CAPTION>
Segregated Sub-Accounts
------------------------------------------------------
Macro- Micro-
Small Company Global Index 400 Cap Cap
Value Bond Mid-Cap Value Growth
------------- ---------- --------- -------- --------
<S> <C> <C> <C> <C> <C>
Units outstanding at
December 31, 1997 -- -- -- -- --
Policy purchase
payments 1,006,556 318,188 1,315,286 927,227 847,841
Deductions for policy
withdrawals and
charges (111,878) (25,113) (294,840) (103,724) (114,792)
--------- ------- --------- -------- --------
Units outstanding at
December 31, 1998 894,678 293,075 1,020,446 823,503 733,049
========= ======= ========= ======== ========
<CAPTION>
Segregated Sub-Accounts
------------------------
Templeton
Real Estate Developing
Securities Markets
------------- ----------
<S> <C> <C> <C> <C> <C>
Units outstanding at
December 31, 1997 -- --
Policy purchase
payments 327,276 877,028
Deductions for policy
withdrawals and
charges (42,649) (98,790)
--------- -------
Units outstanding at
December 31, 1998 284,627 778,238
========= =======
</TABLE>
59
<PAGE>
Minnesota Life 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,
--------------------------
1998 1997 1996 1995 1994
----- ---- ---- ---- ----
<S> <C> <C> <C> <C> <C>
Unit value, beginning of year $3.43 2.59 2.22 1.79 1.79
----- ---- ---- ---- ----
Income from investment operations:
Net investment income .01 .01 .01 .01 .01
Net gains or losses on securities (both realized
and unrealized) 1.16 .83 .36 .42 (.01)
----- ---- ---- ---- ----
Total from investment operations 1.17 .84 .37 .43 --
----- ---- ---- ---- ----
Unit value, end of year $4.60 3.43 2.59 2.22 1.79
===== ==== ==== ==== ====
Bond
<CAPTION>
Year ended December 31,
--------------------------
1998 1997 1996 1995 1994
----- ---- ---- ---- ----
<S> <C> <C> <C> <C> <C>
Unit value, beginning of year $2.17 1.99 1.95 1.63 1.72
----- ---- ---- ---- ----
Income (loss) from investment operations:
Net investment income .10 .09 .08 .05 .05
Net gains or losses on securities (both realized
and unrealized) .02 .09 (.04) .27 (.14)
----- ---- ---- ---- ----
Total from investment operations .12 .18 .04 .32 (.09)
----- ---- ---- ---- ----
Unit value, end of year $2.29 2.17 1.99 1.95 1.63
===== ==== ==== ==== ====
Money Market
<CAPTION>
Year ended December 31,
--------------------------
1998 1997 1996 1995 1994
----- ---- ---- ---- ----
<S> <C> <C> <C> <C> <C>
Unit value, beginning of year $1.66 1.58 1.52 1.45 1.40
----- ---- ---- ---- ----
Income from investment operations:
Net investment income .07 .08 .06 .07 .05
----- ---- ---- ---- ----
Total from investment operations .07 .08 .06 .07 .05
----- ---- ---- ---- ----
Unit value, end of year $1.73 1.66 1.58 1.52 1.45
===== ==== ==== ==== ====
Asset Allocation
<CAPTION>
Year ended December 31,
--------------------------
1998 1997 1996 1995 1994
----- ---- ---- ---- ----
<S> <C> <C> <C> <C> <C>
Unit value, beginning of year $2.96 2.50 2.23 1.79 1.83
----- ---- ---- ---- ----
Income (loss) from investment operations:
Net investment income .06 .06 .06 .05 .03
Net gains or losses on securities (both realized
and unrealized) .62 .40 .21 .39 (.07)
----- ---- ---- ---- ----
Total from investment operations .68 .46 .27 .44 (.04)
----- ---- ---- ---- ----
Unit value, end of year $3.64 2.96 2.50 2.23 1.79
===== ==== ==== ==== ====
</TABLE>
60
<PAGE>
Minnesota Life Variable Life Account
Notes to Financial Statements (continued)
(6) Financial Highlights (continued)
Mortgage Securities
<TABLE>
<CAPTION>
Year ended December 31,
-----------------------------
1998 1997 1996 1995 1994
----- ---- ---- ---- ----
<S> <C> <C> <C> <C> <C>
Unit value, beginning of year $2.31 2.13 2.03 1.73 1.80
----- ---- ---- ---- ----
Income (loss) from investment operations:
Net investment income .11 .13 .12 .11 .06
Net gains or losses on securities (both real-
ized and unrealized) .03 .05 (.02) .19 (.14)
----- ---- ---- ---- ----
Total from investment operations .14 .18 .10 .30 (.07)
----- ---- ---- ---- ----
Unit value, end of year $2.45 2.31 2.13 2.03 1.73
===== ==== ==== ==== ====
Index 500
<CAPTION>
Year ended December 31,
-----------------------------
1998 1997 1996 1995 1994
----- ---- ---- ---- ----
<S> <C> <C> <C> <C> <C>
Unit value, beginning of year $3.86 2.93 2.42 1.78 1.77
----- ---- ---- ---- ----
Income from investment operations:
Net investment income .01 .02 .02 .02 .02
Net gains or losses on securities (both real-
ized and unrealized) 1.05 .91 .49 .62 (.01)
----- ---- ---- ---- ----
Total from investment operations 1.06 .93 .51 .64 .01
----- ---- ---- ---- ----
Unit value, end of year $4.92 3.86 2.93 2.42 1.78
===== ==== ==== ==== ====
Capital Appreciation
<CAPTION>
Year ended December 31,
-----------------------------
1998 1997 1996 1995 1994
----- ---- ---- ---- ----
<S> <C> <C> <C> <C> <C>
Unit value, beginning of year $3.82 3.00 2.56 2.10 2.06
----- ---- ---- ---- ----
Income from investment operations:
Net investment income (loss) (.02) (.02) (.01) (.01) (.01)
Net gains or losses on securities (both real-
ized and unrealized) 1.18 .84 .45 .47 .05
----- ---- ---- ---- ----
Total from investment operations 1.16 .82 .44 .46 .04
----- ---- ---- ---- ----
Unit value, end of year $4.98 3.82 3.00 2.56 2.10
===== ==== ==== ==== ====
International Stock
<CAPTION>
Year ended December 31,
-----------------------------
1998 1997 1996 1995 1994
----- ---- ---- ---- ----
<S> <C> <C> <C> <C> <C>
Unit value, beginning of year $1.99 1.79 1.50 1.32 1.33
----- ---- ---- ---- ----
Income (loss) from investment operations:
Net investment income (loss) .04 .04 .03 (.01) .03
Net gains or losses on securities (both real-
ized and unrealized) .08 .16 .26 .19 (.04)
----- ---- ---- ---- ----
Total from investment operations .12 .20 .29 .18 (.01)
----- ---- ---- ---- ----
Unit value, end of year $2.11 1.99 1.79 1.50 1.32
===== ==== ==== ==== ====
</TABLE>
61
<PAGE>
Minnesota Life Variable Life Account
Notes to Financial Statements (continued)
(6) Financial Highlights (continued)
Small Company
<TABLE>
<CAPTION>
Year ended December 31,
----------------------------
1998 1997 1996 1995 1994
----- ---- ---- ---- ----
<S> <C> <C> <C> <C> <C>
Unit value, beginning of period $1.81 1.69 1.59 1.21 1.15
----- ---- ---- ---- ----
Income from investment operations:
Net investment income (loss) (.01) (.01) -- (.01) --
Net gains or losses on securities (both realized
and unrealized) .02 .13 .10 .39 .06
----- ---- ---- ---- ----
Total from investment operations .01 .12 .10 .38 .06
----- ---- ---- ---- ----
Unit value, end of period $1.82 1.81 1.69 1.59 1.21
===== ==== ==== ==== ====
</TABLE>
Value Stock
<TABLE>
<CAPTION>
Year ended December
31,
---------------------
Period from
May 2, 1994*
to December
1998 1997 1996 1995 31, 1994
----- ---- ---- ---- ------------
<S> <C> <C> <C> <C> <C>
Unit value, beginning of period $2.15 1.78 1.37 1.04 1.00
----- ---- ---- ---- ----
Income from investment operations:
Net investment income (loss) (.01) .02 .01 .01 .02
Net gains or losses on securities (both re-
alized and unrealized) .04 .35 .40 .32 .02
----- ---- ---- ---- ----
Total from investment operations .03 .37 .41 .33 .04
----- ---- ---- ---- ----
Unit value, end of period $2.18 2.15 1.78 1.37 1.04
===== ==== ==== ==== ====
</TABLE>
Small Company Value
<TABLE>
<CAPTION>
Period from
May 19, 1998*
to December
31, 1998
-------------
<S> <C>
Unit value, beginning of
period $1.00
-----
Income (loss) from in-
vestment operations:
Net investment income .02
Net gains or losses on
securities (both real-
ized and unrealized) (.16)
-----
Total from investment
operations (.14)
-----
Unit value, end of period $ .86
=====
</TABLE>
* Commencement of the segregated sub-account's operations.
62
<PAGE>
Minnesota Life Variable Life Account
Notes to Financial Statements (continued)
(6) Financial Highlights (continued)
Global Bond
<TABLE>
<CAPTION>
Period from
May 19, 1998*
to December
31, 1998
-------------
<S> <C>
Unit value, beginning of
period $1.00
-----
Income from investment
operations:
Net investment income .16
Net gains or losses on
securities (both
realized and
unrealized) (.04)
-----
Total from investment
operations .12
-----
Unit value, end of period $1.12
=====
Index 400 Mid-Cap
<CAPTION>
Period from
May 19, 1998*
to December
31, 1998
-------------
<S> <C>
Unit value, beginning of
period $1.00
-----
Income from investment
operations:
Net investment income .01
Net gains or losses on
securities (both
realized and
unrealized) .04
-----
Total from investment
operations .05
-----
Unit value, end of period $1.05
=====
<CAPTION>
Period from
May 19, 1998*
to December
31, 1998
-------------
<S> <C>
Unit value, beginning of
period $1.00
-----
Income from investment
operations:
Net investment income .01
Net gains or losses on
securities (both
realized and
unrealized) .05
-----
Total from investment
operations .06
-----
Unit value, end of period $1.06
=====
</TABLE>
Macro-Cap Value
*Commencement of the segregated sub-account's operations.
63
<PAGE>
Minnesota Life Variable Life Account
Notes to Financial Statements (continued)
(6) Financial Highlights (continued)
Micro-Cap Growth
<TABLE>
<CAPTION>
Period from
May 19, 1998*
to December
31, 1998
-------------
<S> <C>
Unit value, beginning of
period $1.00
-----
Income from investment
operations:
Net investment income --
Net gains or losses on
securities (both
realized and
unrealized) .03
-----
Total from investment
operations .03
-----
Unit value, end of period $1.03
=====
Real Estate Securities
<CAPTION>
Period from
May 19, 1998*
to December
31, 1998
-------------
<S> <C>
Unit value, beginning of
period $1.00
-----
Income (loss) from
investment operations:
Net investment income .07
Net gains or losses on
securities (both
realized and
unrealized) (.20)
-----
Total from investment
operations (.13)
-----
Unit value, end of period $ .87
=====
<CAPTION>
Period from
May 19, 1998*
to December
31, 1998
-------------
<S> <C>
Unit value, beginning of
period $1.00
-----
Income (loss) from
investment operations:
Net investment income --
Net gains or losses on
securities (both
realized and
unrealized) (.14)
-----
Total from investment
operations (.14)
-----
Unit value, end of period $ .86
=====
</TABLE>
Templeton Developing Markets
*Commencement of the segregated sub-account's operations.
64
<PAGE>
Independent Auditors' Report
The Board of Directors
Minnesota Life Insurance Company
We have audited the accompanying consolidated balance sheets of the Minnesota
Life Insurance Company and subsidiaries as of December 31, 1998 and 1997, and
the related consolidated statements of operations and comprehensive income,
changes in stockholder's equity and cash flows for each of the years in the
three-year period ended December 31, 1998. 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 audit to obtain
reasonable assurance about whether the financial statements are free of
material misstatement. An audit includes examining, on a test basis, evidence
supporting the amounts and disclosures in the financial statements. An audit
also includes assessing the accounting principles used and significant
estimates made by management, as well as evaluating the overall financial
statement presentation. We believe that our audits provide a reasonable basis
for our opinion.
In our opinion, the consolidated financial statements referred to above
present fairly, in all material respects, the financial position of the
Minnesota Life Insurance Company and subsidiaries as of December 31, 1998 and
1997, and the results of their operations and their cash flows for each of the
years in the three-year period ended December 31, 1998, in conformity with
generally accepted accounting principles.
Our audits were made for the purpose of forming an opinion on the basic
consolidated 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 consolidated
financial statements. Such information has been subjected to the auditing
procedures applied in the audits of the basic consolidated financial statements
and, in our opinion, is fairly stated in all material respects in relation to
the basic consolidated financial statements taken as a whole.
Minneapolis, Minnesota
February 8, 1999
66
<PAGE>
Minnesota Life Insurance Company and Subsidiaries
Consolidated Balance Sheets
December 31, 1998 and 1997
Assets
<TABLE>
<CAPTION>
1998 1997
----------- -----------
(In thousands)
<S> <C> <C>
Fixed maturity securities:
Available-for-sale, at fair value (amortized cost
$4,667,688 and $4,518,807) $ 4,914,012 $ 4,719,801
Held-to-maturity, at amortized cost (fair value
$1,161,784 and $1,158,227) 1,086,548 1,088,312
Equity securities, at fair value (cost $579,546 and
$537,441) 749,800 686,638
Mortgage loans, net 681,219 661,337
Real estate, net 38,530 39,964
Policy loans 226,409 213,488
Short-term investments 136,435 112,352
Other invested assets 261,625 216,838
----------- -----------
Total investments 8,094,578 7,738,730
Cash 175,660 96,179
Finance receivables, net 163,411 211,794
Deferred policy acquisition costs 564,382 576,030
Accrued investment income 86,974 83,439
Premiums receivable, net 62,609 68,030
Property and equipment, net 67,448 58,123
Reinsurance recoverables 162,553 150,126
Other assets 61,183 52,852
Separate account assets 6,994,752 5,366,810
----------- -----------
Total assets $16,433,550 $14,402,113
=========== ===========
Liabilities and Stockholder's Equity
Liabilities:
Policy and contract account balances $ 4,242,802 $ 4,275,221
Future policy and contract benefits 1,744,245 1,687,529
Pending policy and contract claims 70,564 64,356
Other policyholders' funds 438,595 416,752
Policyholders' dividends payable 53,957 55,321
Stockholder dividend payable 24,700 --
Unearned premiums and fees 180,191 202,070
Federal income tax liability:
Current 53,039 45,300
Deferred 173,907 166,057
Other liabilities 514,468 334,305
Notes payable 267,000 298,000
Separate account liabilities 6,947,806 5,320,517
----------- -----------
Total liabilities 14,711,274 12,865,428
----------- -----------
Stockholder's equity:
Common stock, $1 par value, 5,000,000 shares
authorized, issued and outstanding 5,000 --
Retained earnings 1,513,661 1,380,012
Accumulated other comprehensive income 203,615 156,673
----------- -----------
Total stockholder's equity 1,722,276 1,536,685
----------- -----------
Total liabilities and stockholder's equity $16,433,550 $14,402,113
=========== ===========
</TABLE>
See accompanying notes to consolidated financial statements.
67
<PAGE>
Minnesota Life Insurance Company and Subsidiaries
Consolidated Statements of Operations and Comprehensive Income
Years ended December 31, 1998, 1997, and 1996
Statements of Operations
<TABLE>
<CAPTION>
1998 1997 1996
---------- ---------- ----------
(In thousands)
<S> <C> <C> <C>
Revenues:
Premiums $ 577,693 $ 615,253 $ 612,359
Policy and contract fees 300,361 272,037 245,966
Net investment income 531,081 553,773 530,987
Net realized investment gains 114,652 114,367 55,574
Finance charge income 35,880 43,650 46,932
Other income 73,498 71,707 51,630
---------- ---------- ----------
Total revenues 1,633,165 1,670,787 1,543,448
---------- ---------- ----------
Benefits and expenses:
Policyholders' benefits 519,926 515,873 541,520
Interest credited to policies and con-
tracts 290,870 298,033 288,967
General operating expenses 360,916 369,961 302,618
Commissions 110,211 114,404 103,370
Administrative and sponsorship fees 80,183 81,750 79,360
Dividends to policyholders 25,159 26,776 24,804
Interest on notes payable 22,360 24,192 22,798
Increase in deferred policy acquisition
costs (18,042) (26,878) (19,284)
---------- ---------- ----------
Total benefits and expenses 1,391,583 1,404,111 1,344,153
---------- ---------- ----------
Income from operations before taxes 241,582 266,676 199,295
Federal income tax expense (benefit):
Current 93,584 84,612 68,033
Deferred (15,351) (7,832) 744
---------- ---------- ----------
Total federal income tax expense 78,233 76,780 68,777
---------- ---------- ----------
Net income $ 163,349 $ 189,896 $ 130,518
========== ========== ==========
Other comprehensive income, after tax:
Foreign currency translation adjust-
ments $ (947) $ 947 $ --
Unrealized gains (losses) on securities 47,889 47,414 (44,940)
---------- ---------- ----------
Other comprehensive income, net of tax 46,942 48,361 (44,940)
---------- ---------- ----------
Comprehensive income $ 210,291 $ 238,257 $ 85,578
========== ========== ==========
</TABLE>
See accompanying notes to consolidated financial statements.
68
<PAGE>
Minnesota Life Insurance Company and Subsidiaries
Consolidated Statements of Changes in Stockholder's Equity
Years ended December 31, 1998, 1997, and 1996
<TABLE>
<CAPTION>
1998 1997 1996
---------- ---------- ----------
(In thousands)
<S> <C> <C> <C>
Common stock:
Issued during the year $ 5,000 $ -- $ --
---------- ---------- ----------
Total common stock $ 5,000 $ -- $ --
========== ========== ==========
Retained earnings:
Beginning balance $1,380,012 $1,190,116 $1,059,598
Net income 163,349 189,896 130,518
Retained earnings transfer for common
stock issued (5,000) -- --
Dividends to stockholder (24,700) -- --
---------- ---------- ----------
Total retained earnings $1,513,661 $1,380,012 $1,190,116
========== ========== ==========
Accumulated other comprehensive income:
Beginning balance $ 156,673 $ 108,312 $ 153,252
Change in unrealized appreciation (de-
preciation) of investments 47,889 47,414 (44,940)
Change in unrealized gain on foreign
currency translation (947) 947 --
---------- ---------- ----------
Total accumulated other comprehensive
income $ 203,615 $ 156,673 $ 108,312
========== ========== ==========
Total stockholder's equity $1,722,276 $1,536,685 $1,298,428
========== ========== ==========
</TABLE>
See accompanying notes to consolidated financial statements.
69
<PAGE>
Minnesota Life Insurance Company and Subsidiaries
Consolidated Statements of Cash Flows
Years ended December 31, 1998, 1997, and 1996
<TABLE>
<CAPTION>
1998 1997 1996
----------- ----------- -----------
(In thousands)
<S> <C> <C> <C>
Cash Flows from Operating Activities
Net income $ 163,349 $ 189,896 $ 130,518
Adjustments to reconcile net income to
net cash provided by operating activi-
ties:
Interest credited to annuity and in-
surance contracts 265,841 276,719 275,968
Fees deducted from policy and con-
tract balances (212,901) (214,803) (206,780)
Change in future policy benefits 56,716 76,358 84,389
Change in other policyholders' lia-
bilities (20,802) 7,597 16,099
Change in deferred policy acquisition
costs (18,042) (26,878) (19,284)
Change in premiums due and other re-
ceivables 5,421 (9,280) (26,142)
Change in federal income tax liabili-
ties 15,589 36,049 (38,113)
Net realized investment gains (114,652) (114,367) (55,574)
Other, net 32,380 (23,213) 56,045
----------- ----------- -----------
Net cash provided by operating ac-
tivities 172,899 198,078 217,126
----------- ----------- -----------
Cash Flows from Investing Activities
Proceeds from sales of:
Fixed maturity securities, available-
for-sale 1,835,726 1,099,114 877,682
Equity securities 523,617 601,936 352,901
Mortgage loans -- -- 15,567
Real estate 7,800 9,279 11,678
Other invested assets 21,682 26,877 12,280
Proceeds from maturities and repayments
of:
Fixed maturity securities, available-
for-sale 414,726 403,829 329,550
Fixed maturity securities, held-to-
maturity 148,848 139,394 114,222
Mortgage loans 126,066 109,246 94,703
Purchases of:
Fixed maturity securities, available-
for-sale (2,384,720) (1,498,048) (1,228,048)
Fixed maturity securities, held-to-
maturity (99,530) (82,835) (60,612)
Equity securities (516,907) (585,349) (446,599)
Mortgage loans (141,008) (157,247) (108,691)
Real estate (5,612) (3,908) (3,786)
Other invested assets (75,682) (55,988) (29,271)
Finance receivable originations or pur-
chases (77,141) (115,248) (175,876)
Finance receivable principal payments 109,277 133,762 142,723
Other, net 141,768 (88,626) (40,062)
----------- ----------- -----------
Net cash provided by (used for) in-
vesting activities 28,910 (63,812) (141,639)
----------- ----------- -----------
Cash Flows from Financing Activities
Deposits credited to annuity and insur-
ance contracts 952,622 928,696 657,405
Withdrawals from annuity and insurance
contracts (1,053,844) (1,013,588) (702,681)
Proceeds from issuance of debt 40,000 -- 60,000
Payments on debt (31,000) (21,000) (21,000)
Other, net (6,023) (3,355) (6,898)
----------- ----------- -----------
Net cash used for financing activi-
ties (98,245) (109,247) (13,174)
----------- ----------- -----------
Net increase in cash and short-term in-
vestments 103,564 25,019 62,313
Cash and short-term investments, begin-
ning of year 208,531 183,512 121,199
----------- ----------- -----------
Cash and short-term investments, end of
year $ 312,095 $ 208,531 $ 183,512
=========== =========== ===========
</TABLE>
See accompanying notes to consolidated financial statements.
70
<PAGE>
Minnesota Life Insurance Company and Subsidiaries
Notes to Consolidated Financial Statements
(1) Nature of Operations
Conversion to a Mutual Holding Company Structure
Consent was given from the Minnesota Department of Commerce (Department of
Commerce) allowing The Minnesota Mutual Life Insurance Company to implement a
conversion to a mutual holding company. The Minnesota Mutual Life Insurance
Company enacted this privilege effective October 1, 1998. The conversion
created Minnesota Mutual Companies, Inc., a mutual holding company, Securian
Holding Company and Securian Financial Group, Inc., which are intermediate
stock holding companies. The Minnesota Mutual Life Insurance Company was
converted into a stock life insurance company and renamed Minnesota Life
Insurance Company. Minnesota Mutual Companies, Inc. will at all times, in
accordance with the conversion plan and as required by the Mutual Insurance
Holding Company Act, directly or indirectly control Minnesota Life Insurance
Company through the ownership of at least a majority of the voting power of the
voting shares of the capital stock of Minnesota Life Insurance Company. Annuity
contract and life insurance policyholders of Minnesota Life Insurance Company
have certain membership interests consisting primarily of the right to vote on
certain matters involving Minnesota Mutual Companies, Inc. and the right to
receive distributions of surplus in the event of demutualization, dissolution
or liquidation of Minnesota Mutual Companies, Inc.
Description of Business
Minnesota Life Insurance Company, both directly and through its subsidiaries
(collectively, the Company), 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 five strategic business
units which focus on various markets: Individual Insurance, Financial Services,
Group Insurance, Pension and Asset Management. Revenues in 1998 for these
business units were $862,240,000, $273,511,000, $258,928,000, $102,061,000 and
$20,723,000, respectively. Additional revenues of $115,702,000 were reported by
the Company's subsidiaries.
The Company serves over six million people through more than 4,000 associates
located at its St. Paul, Minnesota headquarters and in 75 general agencies and
45 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 Life Insurance Company and its subsidiaries. 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.
71
<PAGE>
Minnesota Life Insurance Company and Subsidiaries
Notes to Consolidated Financial Statements (continued)
(2) Summary of Significant Accounting Policies (continued)
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
policy acquisition costs are amortized over the premium paying period in
proportion to the ratio of annual premium revenues to ultimate anticipated
premium revenues. The ultimate premium revenues are estimated based upon the
same assumptions used to calculate the future policy benefits.
For nontraditional life products and deferred annuities, deferred policy
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 policy acquisition costs amortized were $148,098,000, $128,176,000
and $125,978,000 for the years ended December 31, 1998, 1997 and 1996,
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
72
<PAGE>
Minnesota Life Insurance Company and Subsidiaries
Notes to Consolidated Financial Statements (continued)
(2) Summary of Significant Accounting Policies (continued)
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.
Venture capital limited partnerships are carried at cost, net of write-downs
for other than temporary declines in value and allowances for temporary
declines in value. Cash distributions are recorded as a return of capital
and/or income as appropriate. In-kind distributions are recorded as a return of
capital for the cost basis of the stock received.
Real estate is carried at cost less accumulated depreciation and an allowance
for estimated losses. Accumulated depreciation on real estate at December 31,
1998 and 1997, was $6,713,000 and $6,269,000, respectively.
Policy loans are carried at the unpaid principal balance.
Derivative Financial Instruments
The Company entered into equity swaps in 1996 as part of an overall risk
management strategy. The swaps 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 1997. The swaps were carried at fair value, which were
based upon dealer quotes. Changes in fair value were recorded directly in
stockholder's equity. Upon settlement of the swaps, gains or losses were
recognized in income, and the Company realized a loss of approximately
$31,000,000 in 1997, upon settlement of these equity swaps.
The Company began investing in international bonds denominated in foreign
currencies in 1997. Unrealized gains or losses are recorded on foreign
denominated securities due to the fluctuation in foreign currency exchange
rates and/or related payables and receivables and interest on foreign
securities. 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.
Realized and unrealized gains and losses on these forward foreign exchange
contracts are recorded in income as incurred. In addition, these contracts are
generally short-term in nature and there is no material exposure to the Company
at December 31, 1998. Notional amounts for the years ended December 31, 1998
and 1997, were $115,194,000 and $80,997,000, respectively.
73
<PAGE>
Minnesota Life Insurance Company and Subsidiaries
Notes to Consolidated Financial Statements (continued)
(2) Summary of Significant Accounting Policies (continued)
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 stockholder's equity,
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
$101,692,000 and $90,926,000 at December 31, 1998 and 1997, 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,
1998, 1997 and 1996, were $10,765,000, $8,965,000 and $6,454,000, 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 policyholders 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, included with separate account assets, amounted to
$46,945,000 and $46,293,000 at December 31, 1998 and 1997, respectively.
Policyholders' 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 policyholders' funds are comprised of dividend accumulations, premium
deposit funds and supplementary contracts without life contingencies.
Participating Business
Dividends on participating policies and other discretionary payments are
declared by the Board of Directors 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.
74
<PAGE>
Minnesota Life Insurance Company and Subsidiaries
Notes to Consolidated Financial Statements (continued)
(2) Summary of Significant Account Policies (continued)
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 1997 and 1996 consolidated financial statement balances have been
reclassified to conform to the 1998 presentation.
(3) Investments
Net investment income for the years ended December 31 was as follows:
<TABLE>
<CAPTION>
1998 1997 1996
-------- -------- --------
(In thousands)
<S> <C> <C> <C>
Fixed maturity securities $445,220 $457,391 $433,985
Equity securities 12,183 16,182 14,275
Mortgage loans 54,785 55,929 63,865
Real estate (236) (407) (475)
Policy loans 15,502 15,231 13,828
Short-term investments 6,147 6,995 6,535
Other invested assets 3,826 3,871 4,901
-------- -------- --------
Gross investment income 537,427 555,192 536,914
Investment expenses (6,346) (1,419) (5,927)
-------- -------- --------
Total $531,081 $553,773 $530,987
======== ======== ========
Net realized investment gains (losses) for the years ended December 31 were
as follows:
<CAPTION>
1998 1997 1996
-------- -------- --------
(In thousands)
<S> <C> <C> <C>
Fixed maturity securities $ 43,244 $ 3,711 $ (6,536)
Equity securities 47,526 92,765 57,770
Mortgage loans 3,399 2,011 (721)
Real estate 7,809 1,598 7,088
Other invested assets 12,674 14,282 (2,027)
-------- -------- --------
Total $114,652 $114,367 $ 55,574
======== ======== ========
Gross realized gains (losses) on the sales of fixed maturity securities and
equity securities for the years ended December 31 were as follows:
<CAPTION>
1998 1997 1996
-------- -------- --------
(In thousands)
<S> <C> <C> <C>
Fixed maturity securities, available-for-sale:
Gross realized gains $ 56,428 $ 18,804 $ 19,750
Gross realized losses (13,184) (15,093) (26,286)
Equity securities:
Gross realized gains 107,342 120,437 79,982
Gross realized losses (59,816) (27,672) (22,212)
</TABLE>
75
<PAGE>
Minnesota Life Insurance Company and Subsidiaries
Notes to Consolidated Financial Statements (continued)
(3)Investments (continued)
Net unrealized gains (losses) included in stockholder's equity at December 31
were as follows:
<TABLE>
<CAPTION>
1998 1997
--------- ---------
(In thousands)
<S> <C> <C>
Gross unrealized gains $ 487,479 $ 472,671
Gross unrealized losses (73,440) (118,863)
Adjustment to deferred acquisition costs (119,542) (100,299)
Adjustment to unearned policy and contract fees 15,912 (13,087)
Deferred federal income taxes (106,794) (83,749)
--------- ---------
Net unrealized gains $ 203,615 $ 156,673
========= =========
</TABLE>
76
<PAGE>
Minnesota 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, 1998
Available-for-sale:
United States government and
government agencies and
authorities $ 195,650 $ 17,389 $ 201 $ 212,838
Foreign governments 784 -- 311 473
Corporate securities 2,357,861 204,277 30,648 2,531,490
International bond securities 188,448 22,636 1,298 209,786
Mortgage-backed securities 1,924,945 52,580 18,100 1,959,425
---------- -------- -------- ----------
Total fixed maturities 4,667,688 296,882 50,558 4,914,012
Equity securities-unaffiliated 463,777 157,585 15,057 606,305
Equity securities-affiliated
mutual funds 115,769 27,726 -- 143,495
---------- -------- -------- ----------
Total equity securities 579,546 185,311 15,057 749,800
---------- -------- -------- ----------
Total available-for-sale 5,247,234 482,193 65,615 5,663,812
Held-to maturity:
Corporate securities 894,064 67,496 235 961,325
Mortgage-backed securities 192,484 9,030 1,055 200,459
---------- -------- -------- ----------
Total held-to-maturity 1,086,548 76,526 1,290 1,161,784
---------- -------- -------- ----------
Total $6,333,782 $558,719 $ 66,905 $6,825,596
========== ======== ======== ==========
<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
government agencies and authori-
ties $ 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 mu-
tual funds 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
========== ======== ======== ==========
</TABLE>
77
<PAGE>
Minnesota 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, 1998, 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 $ 38,375 $ 35,299 $ 11,109 $ 11,346
Due after one year through five
years 529,019 616,064 128,658 133,657
Due after five years through ten
years 1,251,763 1,316,512 373,294 403,159
Due after ten years 923,586 986,712 381,003 413,163
---------- ---------- ---------- ----------
2,742,743 2,954,587 894,064 961,325
Mortgage-backed securities 1,924,945 1,959,425 192,484 200,459
---------- ---------- ---------- ----------
Total $4,667,688 $4,914,012 $1,086,548 $1,161,784
========== ========== ========== ==========
</TABLE>
At December 31, 1998 and 1997, fixed maturity securities and short-term
investments with a carrying value of $6,361,000 and $8,000,000, respectively,
were on deposit with various regulatory authorities as required by law.
Allowances for credit losses on investments are reflected on the consolidated
balance sheets as a reduction of the related assets and were as follows:
<TABLE>
<CAPTION>
1998 1997
------- -------
(In thousands)
<S> <C> <C>
Mortgage loans $ 1,500 $ 1,500
Investment real estate 841 2,248
------- -------
Total $ 2,341 $ 3,748
======= =======
</TABLE>
At December 31, 1998, the recorded investment in mortgage loans that were
considered to be impaired was $8,798 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, 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.
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, 1998 and 1997.
Changes in the allowance for credit losses on mortgage loans were as follows:
<TABLE>
<CAPTION>
1998 1997 1996
------ ------ ------
(In thousands)
<S> <C> <C> <C>
Balance at beginning of year $1,500 $1,895 $1,711
Provision for credit losses -- -- 381
Charge-offs -- (395) (197)
------ ------ ------
Balance at end of year $1,500 $1,500 $1,895
====== ====== ======
</TABLE>
78
<PAGE>
Minnesota 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>
1998 1997 1996
---- ------ ------
(In thousands)
<S> <C> <C> <C>
Average impaired mortgage loans $14 $3,268 $9,375
Interest income on impaired mortgage loans--contractual 18 556 1,796
Interest income on impaired mortgage loans--collected 17 554 1,742
</TABLE>
(4) Notes Receivable
In connection with the Company's planned construction of an additional home
office facility in St. Paul, Minnesota, the Company entered into a loan
contingency agreement with the Housing and Redevelopment Authority of the City
of St. 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, 1998, HRA has
drawn $9,669,128 on this loan contingency agreement and accrued interest of
$673,435.
(5) Net Finance Receivables
Finance receivables as of December 31 were as follows:
<TABLE>
<CAPTION>
1998 1997
-------- --------
(In thousands)
<S> <C> <C>
Direct installment loans $147,425 $183,424
Retail installment notes 12,209 20,373
Retail revolving credit 17,170 25,426
Accrued interest 2,683 3,116
-------- --------
Gross receivables 179,487 232,339
Allowance for uncollectible amounts (16,076) (20,545)
-------- --------
Finance receivables, net $163,411 $211,794
======== ========
</TABLE>
Direct installment loans at December 31, 1998, consisted of $81,066,000 of
discount basis loans (net of unearned finance charges) and $66,359,000 of
interest-bearing loans. Direct installment loans at December 31, 1997,
consisted of $83,836,000 of discount basis loans (net of unearned finance
charges) and $99,588,000 of interest-bearing loans. 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 $44,000,000 and $65,000,000 of
real estate secured loans at December 31, 1998 and 1997, respectively.
Revolving credit loans included approximately $16,000,000 and $24,000,000 of
real estate secured loans at December 31, 1998 and 1997, 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
$75,011,000, $90,940,000 and $92,438,000 and the percentage of these cash
collections to the average net balances were 47%, 47% and 48% for the years
ended December 31, 1998, 1997 and 1996, respectively.
79
<PAGE>
Minnesota 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>
1998 1997 1996
------- ------- -------
(In thousands)
<S> <C> <C> <C>
Balance at beginning of year $20,545 $ 7,497 $ 6,377
Provision for credit losses 10,712 28,206 10,086
Charge-offs (18,440) (17,869) (11,036)
Recoveries 3,259 2,711 2,070
------- ------- -------
Balance at end of year $16,076 $20,545 $ 7,497
======= ======= =======
</TABLE>
At December 31, 1998, 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, 1998 and the related allowance for
credit losses were as follows:
<TABLE>
<CAPTION>
Installment Revolving
Loans Credit Total
----------- --------- -------
(In thousands)
<S> <C> <C> <C>
Balances at December 31, 1998 $7,546 11,190 $18,736
Related allowance for credit losses $3,033 5,486 $ 8,519
</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 1998. The
average quarterly balances of impaired loans during the year ended December 31,
1998 and 1997, was $6,354,000 and $7,397,000, respectively, for installment
basis loans and $12,471,000 and $12,793,000, respectively for 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, 1998.
(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>
1998 1997 1996
------- ------- -------
(In thousands)
<S> <C> <C> <C>
Computed tax expense $84,553 $93,337 $69,753
Difference between computed and actual tax ex-
pense:
Dividends received deduction (1,730) (5,573) (2,534)
Special tax on mutual life insurance companies (3,455) 3,341 2,760
Sale of subsidiary -- (4,408) --
Foundation gain -- (4,042) (1,260)
Tax credits (4,416) (3,600) (3,475)
Expense adjustments and other 3,281 (2,275) 3,533
------- ------- -------
Total tax expense $78,233 $76,780 $68,777
======= ======= =======
</TABLE>
80
<PAGE>
Minnesota 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>
1998 1997
-------- --------
(In thousands)
<S> <C> <C>
Deferred tax assets:
Policyholders' liabilities $ 16,999 $ 14,374
Pension and post retirement benefits 27,003 23,434
Tax deferred policy acquisition costs 82,940 73,134
Net realized capital losses 8,221 9,609
Other 18,487 20,524
-------- --------
Gross deferred tax assets 153,650 141,075
-------- --------
Deferred tax liabilities:
Deferred policy acquisition costs 155,655 152,337
Real estate and property and equipment depreciation 10,275 11,165
Basis difference on investments 10,798 11,061
Net unrealized capital gains 143,354 122,876
Other 7,475 9,693
-------- --------
Gross deferred tax liabilities 327,557 307,132
-------- --------
Net deferred tax liability $173,907 $166,057
======== ========
</TABLE>
A valuation allowance for deferred tax assets was not considered necessary as
of December 31, 1998 and 1997, 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, 1998, 1997 and 1996, were
$91,259,000, $71,108,000 and $79,026,000, respectively.
The Company's tax returns for 1997, 1996 and 1995 are under examination by
the Internal Revenue Service. The Company believes additional taxes, if any,
assessed as a result of these examinations, will not have a material effect on
its financial position.
81
<PAGE>
Minnesota Life Insurance Company and Subsidiaries
Notes to Consolidated Financial Statements (continued)
(7) Liability for Unpaid Accident and Health Claims, Reserve for Losses, and
Claim and Loss Adjustment Expenses
Activity in the liability for unpaid accident and health claims, reserve for
losses and claim and loss adjustment expenses is summarized as follows:
<TABLE>
<CAPTION>
1998 1997 1996
-------- -------- --------
(In thousands)
<S> <C> <C> <C>
Balance at January 1 $409,249 $416,910 $377,302
Less: reinsurance recoverable 104,741 102,161 80,333
-------- -------- --------
Net balance at January 1 304,508 314,749 296,969
-------- -------- --------
Incurred related to:
Current year 92,793 121,153 134,727
Prior years 14,644 7,809 4,821
-------- -------- --------
Total incurred 107,437 128,962 139,548
-------- -------- --------
Paid related to:
Current year 27,660 51,275 51,695
Prior years 58,124 57,475 70,073
-------- -------- --------
Total paid 85,784 108,750 121,768
-------- -------- --------
Decrease in liabilities due to sale of subsidiary -- 30,453 --
-------- -------- --------
Net balance at December 31 326,161 304,508 314,749
Plus: reinsurance recoverable 108,918 104,741 102,161
-------- -------- --------
Balance at December 31 $435,079 $409,249 $416,910
======== ======== ========
</TABLE>
The liability for unpaid accident and health claims, reserve for losses and
claim and loss 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, reserve for losses and claim and loss adjustment
expenses incurred increased by $14,644,000, $7,809,000 and $4,821,000 in 1998,
1997 and 1996, respectively. These amounts are the result of normal reserve
development inherent in the uncertainty of establishing the liability for
unpaid accident and health claims, reserve for losses and claim and loss
adjustment expenses.
(8) Employee Benefit Plans
Pension Plans and Post Retirement Plans Other than Pensions
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.
The Company also has unfunded post retirement 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.
82
<PAGE>
Minnesota Life Insurance Company and Subsidiaries
Notes to Consolidated Financial Statements (continued)
(8) Employee Benefit Plans (continued)
The change in the benefit obligation and plan assets for the Company's plans
as of December 31 was calculated as follows:
<TABLE>
<CAPTION>
Pension Benefits Other Benefits
------------------ ------------------
1998 1997 1998 1997
-------- -------- -------- --------
(In thousands)
<S> <C> <C> <C> <C>
Change in benefit obligation:
Benefit obligation at beginning of
year $151,509 $134,959 $ 24,467 $ 24,836
Service cost 8,402 6,847 1,375 1,047
Interest cost 10,436 9,956 1,713 1,872
Amendments 6 -- -- (99)
Actuarial gain 16,298 3,816 4,542 (1,930)
Benefits paid (5,212) (4,069) (861) (1,259)
-------- -------- -------- --------
Benefit obligation at end of year $181,439 $151,509 $ 31,236 $ 24,467
======== ======== ======== ========
Change in plan assets:
Fair value of plan assets at the
beginning of the year $133,505 $118,963 $ -- $ --
Actual return on plan assets 13,068 13,670 -- --
Employer contribution 5,349 4,940 861 1,259
Benefits paid (5,212) (4,069) (861) (1,259)
-------- -------- -------- --------
Fair value of plan assets at the
end of year $146,710 $133,504 $ -- $ --
======== ======== ======== ========
Funded status $(34,729) $(18,005) $(31,236) $(24,467)
Unrecognized net actuarial loss
(gain) 12,283 (1,735) (6,251) (11,353)
Unrecognized prior service cost
(benefit) 5,293 5,865 (2,986) (3,499)
-------- -------- -------- --------
Net amount recognized $(17,153) $(13,875) $(40,473) $(39,319)
======== ======== ======== ========
Amounts recognized in the balance
sheet statement consist of:
Accrued benefit cost $(23,242) $(18,059) $(40,473) $(39,319)
Intangible asset 6,089 4,184 -- --
-------- -------- -------- --------
Net amount recognized $(17,153) $(13,875) $(40,473) $(39,319)
======== ======== ======== ========
</TABLE>
<TABLE>
<CAPTION>
Pension Other
Benefits Benefits
----------- -----------
1998 1997 1998 1997
----- ----- ----- -----
<S> <C> <C> <C> <C>
Weighted average assumptions as of December 31
Discount rate 7.00% 7.48% 7.00% 7.50%
Expected return on plan assets 8.27% 8.32% -- --
Rate of compensation increase 5.32% 5.29% -- --
</TABLE>
83
<PAGE>
Minnesota Life Insurance Company and Subsidiaries
Notes to Consolidated Financial Statements (continued)
(8) Employee Benefit Plans (continued)
For measurement purposes, an 8 percent annual rate of increase in the per
capita cost of covered health care benefits was assumed for 1999. The rate was
assumed to decrease gradually to 5.5 percent for 2003 and remain at that level
thereafter.
<TABLE>
<CAPTION>
Pension Benefits Other Benefits
----------------------- ----------------------
1998 1997 1996 1998 1997 1996
------- ------ ------ ------ ------ ------
(In thousands)
<S> <C> <C> <C> <C> <C> <C>
Components of net periodic
benefit cost
Service cost $ 8,402 $6,847 $6,315 $1,375 $1,047 $1,041
Interest cost 10,436 9,956 8,852 1,713 1,872 2,074
Expected return on plan as-
sets (10,978) (9,859) (8,751) -- -- --
Amortization of prior serv-
ice cost (benefits) 578 578 578 (513) (510) (501)
Recognized net actuarial
loss (gain) 190 77 10 (559) (480) (177)
------- ------ ------ ------ ------ ------
Net periodic benefit cost $ 8,628 $7,599 $7,004 $2,016 $1,929 $2,437
======= ====== ====== ====== ====== ======
</TABLE>
The projected benefit obligation, accumulated benefit obligation, and fair
vale of plan assets for the pension plan with accumulated benefit obligations
in excess of plan assets were $39,470,000, $31,546,000 and $17,334,000 as of
December 31, 1998, respectively, and $32,622,000, $24,894,000 and $16,703,000
respectively, as of December 31, 1997.
The assumptions presented herein are based on pertinent information available
to management as of December 31, 1998 and 1997. 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 post retirement benefit obligation as of December 31, 1998 by
$5,875,000 and the estimated eligibility cost and interest cost components of
net periodic benefit costs for 1998 by $788,000. Decreasing the assumed health
care cost trend rates by one percentage point in each year would decrease the
post retirement benefit obligation as of December 31, 1998 by $4,618,000 and
the estimated eligibility cost and interest cost components of net periodic
post retirement benefit costs for 1998 by $598,000.
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 directors 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
1998, 1997 and 1996 of $8,395,000, $7,173,000 and $6,092,000, respectively.
Participants may elect to receive a portion of their contributions in cash.
(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.
84
<PAGE>
Minnesota Life Insurance Company and Subsidiaries
Notes to Consolidated Financial Statements (continued)
(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.
The effect of reinsurance on premiums for the years ended December 31 was as
follows:
<TABLE>
<CAPTION>
1998 1997 1996
-------- -------- --------
(In thousands)
<S> <C> <C> <C>
Direct premiums $553,408 $595,686 $615,098
Reinsurance assumed 91,548 78,097 64,489
Reinsurance ceded (67,263) (58,530) (67,228)
-------- -------- --------
Net premiums $577,693 $615,253 $612,359
======== ======== ========
</TABLE>
Reinsurance recoveries on ceded reinsurance contracts were $54,174,000,
$58,072,000 and $72,330,000 during 1998, 1997 and 1996, 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, 1998 and 1997.
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,
1998 and 1997, 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,
1998 and 1997, 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, 1998 and 1997
as those investment 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.
85
<PAGE>
Minnesota 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>
1998 1997
--------------------- ---------------------
Carrying Fair Carrying Fair
Amount Value Amount Value
---------- ---------- ---------- ----------
(In thousands)
<S> <C> <C> <C> <C>
Fixed maturity securities:
Available-for-sale $4,914,012 $4,914,012 $4,719,801 $4,719,801
Held-to-maturity 1,086,548 1,161,784 1,088,312 1,158,227
Equity securities 749,800 749,800 686,638 686,638
Mortgage loans:
Commercial 579,890 603,173 506,860 527,994
Residential 101,329 104,315 154,477 158,334
Policy loans 226,409 226,409 213,488 213,488
Short-term investments 136,435 136,435 112,352 112,352
Cash 175,660 175,660 96,179 96,179
Finance receivables, net 163,411 163,411 211,794 211,794
Venture capital 160,958 164,332 115,856 122,742
Foreign currency exchange con-
tract 1,594 1,594 1,457 1,457
---------- ---------- ---------- ----------
Total financial assets $8,296,046 $8,400,925 $7,907,214 $8,009,006
========== ========== ========== ==========
</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>
1998 1997
--------------------- ---------------------
Carrying Fair Carrying Fair
Amount Value Amount Value
---------- ---------- ---------- ----------
(In thousands)
<S> <C> <C> <C> <C>
Deferred annuities $2,085,408 $2,075,738 $2,131,806 $2,112,301
Annuity certain contracts 57,528 60,766 55,431 57,017
Other fund deposits 722,321 731,122 754,960 753,905
Guaranteed investment contracts 862 862 8,188 8,187
Supplementary contracts without
life contingencies 44,696 44,251 46,700 45,223
Notes payable 267,000 272,834 298,000 302,000
---------- ---------- ---------- ----------
Total financial liabilities $3,177,815 $3,185,573 $3,295,085 $3,278,633
========== ========== ========== ==========
</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 policyholders' interests, including claims, and indebtedness
of the Company. All payments of interest and principal on the notes are subject
to the approval of the Department of Commerce. The approved accrued interest
was $3,008,000 as of December 31, 1998 and 1997. The issuance costs of
$1,421,000 are deferred and amortized over 30 years on straight-line basis.
86
<PAGE>
Minnesota 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>
1998 1997
-------- --------
(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 142,000 173,000
-------- --------
Total notes payable $267,000 $298,000
======== ========
</TABLE>
At December 31, 1998, the aggregate minimum annual notes payable maturities
for the next five years were as follows: 1999, $49,000,000; 2000, $33,000,000;
2001, $26,000,000; 2002, $22,000,000; 2003, $12,000,000; thereafter
$125,000,000.
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 $44,070,000. The consumer finance subsidiary was in compliance with all such
provisions at December 31, 1998.
Interest paid on debt for the years ended December 31, 1998, 1997 and 1996,
was $25,008,000, $18,197,000 and $21,849,000, respectively.
(13) Other Comprehensive Income
Effective December 31, 1998, the Company adopted the provisions of SFAS No.
130, "Reporting Comprehensive Income." Comprehensive income is defined as any
change in stockholder's equity originating from non-owner transactions. The
Company had identified those changes as being comprised of net income,
unrealized appreciation (depreciation) on securities, and unrealized foreign
currency translation adjustments. The components of comprehensive income, other
than net income are illustrated below:
<TABLE>
<CAPTION>
1998 1997 1996
------- ------- --------
(In thousands)
<S> <C> <C> <C>
Other comprehensive income, before tax:
Foreign currency translation adjustment $ -- $ 1,457 $ --
Less: reclassification adjustment for gains in-
cluded in net income (1,457) -- --
------- ------- --------
(1,457) 1,457 --
Unrealized gains (loss) on securities 162,214 171,654 (18,746)
Less: reclassification adjustment for gains in-
cluded in net income (90,770) (96,476) (51,234)
------- ------- --------
71,444 75,178 (69,980)
Income tax expense related to items of other com-
prehensive income (23,045) (28,274) 25,040
------- ------- --------
Other comprehensive income, net of tax $46,942 $48,361 $(44,940)
======= ======= ========
</TABLE>
(14) Stock Dividends
On December 14, 1998, the Company declared and accrued a dividend to Securian
Financial Group, Inc. in the amount of $24,700,000 to be paid in 1999.
Dividend payments by Minnesota Life Insurance Company to its parent cannot
exceed the greater of 10% of statutory capital and surplus as of the preceding
year end or the statutory net gain from operations for the current calendar
year, without prior approval from the Department of Commerce. Based on this
limitation and 1997 statutory results, Minnesota Life Insurance Company could
have paid $87,069,000 in dividends in 1998 without prior approval.
87
<PAGE>
Minnesota Life Insurance Company and Subsidiaries
Notes to Consolidated Financial Statements (continued)
(15) Year 2000 (Unaudited)
The Company's business units utilize products and systems in the normal course
of business. Some of the Company's products and systems will have been replaced
or modified in order to process dates including the year 2000 and beyond.
The Company began preparing for the new millennium in the early 1980s by
designing systems with the year 2000 in mind. The Company began a comprehensive
Year 2000 project in 1995 to prepare all components of its business to function
properly before, during and after the year 2000.
The Company's goal is to have all computer systems and data prepared for the
year 2000. While the Company has taken extensive steps to renovate, upgrade and
replace applications, it is impossible to guarantee there will be no problems
associated with the year 2000 date change. The Company is currently developing
contingency and continuity plans to help minimize any impact of problems that
do arise.
(16) 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 $41,010,000 as of
December 31, 1998. 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 $165,191,000 as of December 31, 1998. The Company
estimates that $60,000,000 of these commitments will be invested in 1999, with
the remaining $105,191,000 invested over the next four years.
As of December 31, 1998, the Company had committed to purchase bonds and
mortgage loans totaling $198,907,000 but had not completed the purchase
transactions.
At December 31, 1998, the Company had guaranteed the payment of $75,100,000
in policyholders' dividends and discretionary amounts payable in 1999. The
Company has pledged bonds, valued at $76,596,000 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.
88
<PAGE>
Minnesota Life Insurance Company and Subsidiaries
Notes to Consolidated Financial Statements (continued)
(17) 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. The significant differences that exist between statutory and
GAAP accounting, and their effects are illustrated below:
<TABLE>
<CAPTION>
Year ended December
----------------------
1998 1997
---------- ----------
(In thousands)
<S> <C> <C>
Statutory capital and surplus $ 947,885 $ 870,688
Adjustments:
Deferred policy acquisition costs 564,382 576,030
Net unrealized investment gains 281,226 213,026
Statutory asset valuation reserve 239,455 242,100
Statutory interest maintenance reserve 49,915 24,169
Premiums and fees deferred or receivable (73,312) (74,025)
Change in reserve basis 117,806 101,415
Separate accounts (56,816) (51,172)
Unearned policy and contract fees (134,373) (126,477)
Surplus notes (125,000) (125,000)
Net deferred income taxes (173,907) (166,057)
Non-admitted assets 36,764 32,611
Policyholders' dividends 60,648 60,036
Other (12,397) (40,659)
---------- ----------
Stockholder's equity as reported in the accompanying
consolidated financial statements $1,722,276 $1,536,685
========== ==========
</TABLE>
<TABLE>
<CAPTION>
As of December 31
----------------------------
1998 1997 1996
-------- -------- --------
(In thousands)
<S> <C> <C> <C>
Statutory net income $104,609 $167,078 $115,797
Adjustments:
Deferred policy acquisition costs 18,042 26,878 19,284
Statutory interest maintenance reserve 25,746 (538) (8,192)
Premiums and fees deferred or receivable 708 2,175 1,587
Change in reserve basis 3,011 9,699 20,114
Separate accounts (5,644) (6,272) (6,304)
Unearned policy and contract fees (7,896) (12,825) (2,530)
Net deferred income taxes 15,351 7,832 (744)
Policyholders' dividends 1,194 2,708 502
Other 8,228 (6,839) (8,996)
-------- -------- --------
Net income as reported in the accompanying
consolidated financial statements $163,349 $189,896 $130,518
======== ======== ========
</TABLE>
89
<PAGE>
Minnesota Life Insurance Company and Subsidiaries
Schedule I
Summary of Investments--Other than Investments in Related Parties
December 31, 1998
<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 $ 195,650 $ 212,838 $ 212,838
Foreign governments 784 473 473
Public utilities 343,230 368,246 357,795
Mortgage-backed securities 2,117,429 2,159,884 2,151,909
All other corporate bonds 3,097,143 3,334,355 3,277,545
---------- ---------- ----------
Total bonds 5,754,236 6,075,796 6,000,560
---------- ---------- ----------
Equity securities:
Common stocks:
Public utilities 14,403 18,472 18,472
Banks, trusts and insurance companies 42,538 43,615 43,615
Industrial, miscellaneous and all
other 495,635 659,177 659,177
Nonredeemable preferred stocks 26,970 28,536 28,536
---------- ---------- ----------
Total equity securities 579,546 749,800 749,800
---------- ---------- ----------
Mortgage loans on real estate 681,219 XXXXXX 681,219
Real estate (2) 38,530 XXXXXX 38,530
Policy loans 226,409 XXXXXX 226,409
Other long-term investments 261,625 XXXXXX 261,625
Short-term investments 136,435 XXXXXX 136,435
---------- ---------- ----------
Total 1,344,218 -- 1,344,218
---------- ---------- ----------
Total investments $7,678,000 $6,825,596 $8,094,578
========== ========== ==========
</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
See independent auditors' report.
90
<PAGE>
Minnesota Life Insurance Company and Subsidiaries
Schedule III
Supplementary Insurance Information
(In thousands)
<TABLE>
<CAPTION>
As of December 31 For the years ended December 31
--------------------------------------------------- -----------------------------------------------------------
Future policy Amortization
Deferred benefits Other policy Benefits, of deferred
policy losses, claims claims and Net claims, losses policy Other
acquisition and settlement Unearned benefits Premium investment and settlement acquisition operating
Segment costs expenses(1) premiums(2) payable revenue(3) income expenses costs expenses
- ------- ----------- -------------- ----------- ------------ ---------- ---------- -------------- ------------ ---------
(In thousands)
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C>
1998:
Life insurance $421,057 $2,303,580 $146,042 $51,798 $615,856 $246,303 $502,767 $114,589 $342,080
Accident and
health insurance 74,606 496,839 33,568 18,342 167,544 35,822 105,336 12,261 93,876
Annuity 68,719 3,186,148 25 424 93,992 247,970 225,004 21,248 136,527
Property and li-
ability insur-
ance -- 480 556 -- 662 986 2,848 -- 1,187
-------- ---------- -------- ------- -------- -------- -------- -------- --------
$564,382 $5,987,047 $180,191 $70,564 $878,054 $531,081 $835,955 $148,098 $573,670
======== ========== ======== ======= ======== ======== ======== ======== ========
1997:
Life insurance $434,012 $2,229,396 $166,704 $42,627 $576,468 $247,267 $476,747 $102,473 $345,938
Accident and
health insurance 70,593 466,109 34,250 17,153 205,869 40,343 87,424 9,451 101,960
Annuity 71,425 3,266,965 -- 4,576 64,637 261,768 242,738 16,252 129,263
Property and li-
ability insur-
ance -- 280 1,116 -- 40,316 4,395 33,773 -- 13,146
-------- ---------- -------- ------- -------- -------- -------- -------- --------
$576,030 $5,962,750 $202,070 $64,356 $887,290 $553,773 $840,682 $128,176 $590,307
======== ========== ======== ======= ======== ======== ======== ======== ========
1996:
Life insurance $456,461 $2,123,148 $149,152 $51,772 $568,874 $223,762 $478,228 $ 97,386 $290,525
Accident and
health insurance 62,407 437,118 33,770 18,774 160,097 34,202 96,743 14,017 87,222
Annuity 70,649 3,360,614 -- 31 79,245 267,473 243,387 14,575 111,366
Property and li-
ability insur-
ance -- 27,855 24,189 -- 50,109 5,550 36,933 -- 19,033
-------- ---------- -------- ------- -------- -------- -------- -------- --------
$589,517 $5,948,735 $207,111 $70,577 $858,325 $530,987 $855,291 $125,978 $508,146
======== ========== ======== ======= ======== ======== ======== ======== ========
<CAPTION>
Premiums
Segment written(4)
- ------- ----------
<S> <C>
1998:
Life insurance
Accident and
health insurance
Annuity
Property and li-
ability insur-
ance 103
----------
$ 103
==========
1997:
Life insurance
Accident and
health insurance
Annuity
Property and li-
ability insur-
ance 43,376
----------
$43,376
==========
1996:
Life insurance
Accident and
health insurance
Annuity
Property and li-
ability insur-
ance 50,515
----------
$50,515
==========
</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
See independent auditors' report.
91
<PAGE>
Minnesota Life Insurance Company and Subsidiaries
Schedule IV
Reinsurance
For the years ended December 31, 1998, 1997 and 1996
<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>
1998:
Life insurance in
force $158,229,143 $18,656,917 $28,559,482 $168,131,708 17.0%
============ =========== =========== ============
Premiums:
Life insurance $ 338,909 $ 30,532 $ 71,198 $ 379,575 18.8%
Accident and health
insurance 180,081 17,894 1,432 163,619 0.9%
Annuity 33,837 -- -- 33,837 --
Property and liabil-
ity insurance 581 18,837 18,918 662 2857.7%
------------ ----------- ----------- ------------
Total premiums $ 553,408 $ 67,263 $ 91,548 $ 577,693 15.8%
============ =========== =========== ============
1997:
Life insurance in
force $122,120,394 $14,813,351 $25,566,734 $132,873,777 19.2%
============ =========== =========== ============
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 liabil-
ity 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 liabil-
ity insurance 55,782 5,729 56 50,109 0.1%
------------ ----------- ----------- ------------
Total premiums $ 615,098 $ 67,228 $ 64,489 $ 612,359 10.5%
============ =========== =========== ============
</TABLE>
See independent auditors' report.
92
<PAGE>
Appendix I
Illustrations of Policy Values, Death Benefits and Premiums
The Appendix I illustrations beginning on page 85 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, and we include all 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 illustration 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 .15 percent, representing an
average of the 1998 expense ratios of the portfolios of the Funds. Minnesota
Life voluntarily absorbed certain expenses for certain portfolios of the Funds,
as detailed in the footnote to the expense table on page 6. We do not
anticipate any change to the voluntary absorption of expenses policy during the
current fiscal year. Therefore, gross annual rates of return of 0 percent, 6
percent and 12 percent correspond to approximate net annual rates of return of
- -1.32 percent, 4.68 percent and 10.68 percent.
92
<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.
93
<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 (-1.32% NET) (4.68% NET) (10.68% NET)
POL BASE POLICY DEATH POLICY DEATH POLICY DEATH
YR PREMIUM VALUE BENEFIT VALUE BENEFIT VALUE BENEFIT
- --- ------- -------- ---------- -------- ---------- ---------- ----------
<S> <C> <C> <C> <C> <C> <C> <C>
1 $10,806 $ 176 $1,000,000 $ 198 $1,000,000 $ 221 $1,000,000
2 10,806 9,313 1,000,000 9,916 1,000,000 10,522 1,000,000
3 10,806 18,322 1,000,000 20,079 1,000,000 21,913 1,000,000
4 10,806 27,193 1,000,000 30,699 1,000,000 34,501 1,000,000
5 10,806 35,928 1,000,000 41,798 1,000,000 48,416 1,000,000
6 10,806 44,531 1,000,000 53,399 1,000,000 63,799 1,000,000
7 10,806 52,995 1,000,000 65,516 1,000,000 80,799 1,000,000
8 10,806 61,320 1,000,000 78,175 1,000,000 99,589 1,000,000
9 10,806 69,502 1,000,000 91,392 1,000,000 120,353 1,000,000
10 10,806 77,541 1,000,000 105,196 1,000,000 143,432 1,000,000
15 10,806 116,659 1,000,000 185,368 1,000,000 301,743 1,000,000
20 10,806 153,303 1,000,000 285,952 1,000,000 568,295 1,318,557
25 10,806 186,991 1,000,000 411,912 1,000,000 1,011,153 1,975,534
30 10,806 215,997 1,000,000 569,431 1,000,000 1,743,417 2,890,270
</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 Life or the Funds that these
hypothetical rates of return can be achieved for any one year or sustained over
any period of time.
9 4
<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 (-1.32% NET) (4.68% NET) (10.68% 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 8,961 1,000,000 9,540 1,000,000 10,124 1,000,000
3 10,806 17,795 1,000,000 19,501 1,000,000 21,284 1,000,000
4 10,806 26,494 1,000,000 29,911 1,000,000 33,617 1,000,000
5 10,806 35,060 1,000,000 40,789 1,000,000 47,249 1,000,000
6 10,806 43,496 1,000,000 52,158 1,000,000 62,318 1,000,000
7 10,806 51,794 1,000,000 64,033 1,000,000 78,971 1,000,000
8 10,806 59,956 1,000,000 76,439 1,000,000 97,376 1,000,000
9 10,806 67,976 1,000,000 89,391 1,000,000 117,716 1,000,000
10 10,806 75,857 1,000,000 102,916 1,000,000 140,196 1,000,000
15 10,806 112,831 1,000,000 179,750 1,000,000 293,333 1,000,000
20 10,806 144,666 1,000,000 273,699 1,000,000 547,506 1,272,530
25 10,806 168,310 1,000,000 386,882 1,000,000 961,430 1,884,721
30 10,806 175,482 1,000,000 520,070 1,000,000 1,618,360 2,698,572
</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 Life or the Funds that these
hypothetical rates of return can be achieved for any one year or sustained over
any period of time.
95
<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 (-1.32% NET) (4.68% NET) (10.68% NET)
POL BASE POLICY DEATH POLICY DEATH POLICY DEATH
YR PREMIUM VALUE BENEFIT VALUE BENEFIT VALUE BENEFIT
- --- ------- -------- ---------- -------- ---------- ---------- ----------
<S> <C> <C> <C> <C> <C> <C> <C>
1 $10,806 $ 176 $1,000,000 $ 198 $1,000,000 $ 221 $1,000,000
2 10,806 9,313 1,000,176 9,916 1,000,198 10,521 1,000,221
3 10,806 18,321 1,009,313 20,078 1,009,916 21,912 1,010,521
4 10,806 27,191 1,018,321 30,697 1,020,078 34,499 1,021,912
5 10,806 35,924 1,027,191 41,793 1,030,697 48,410 1,034,499
6 10,806 44,523 1,035,924 53,389 1,041,793 63,786 1,048,410
7 10,806 52,980 1,044,523 65,497 1,053,389 80,775 1,063,786
8 10,806 61,296 1,052,980 78,143 1,065,497 99,547 1,080,775
9 10,806 69,465 1,061,296 91,342 1,078,143 120,285 1,099,547
10 10,806 77,487 1,069,465 105,123 1,091,342 143,350 1,120,285
15 10,806 116,576 1,108,916 185,238 1,167,724 301,543 1,263,201
20 10,806 153,144 1,146,065 285,632 1,263,718 567,648 1,820,252
25 10,806 186,602 1,180,191 410,961 1,383,658 1,008,709 2,873,516
30 10,806 213,748 1,209,146 566,370 1,532,622 1,733,585 4,435,261
</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 Life or the Funds that these
hypothetical rates of return can be achieved for any one year or sustained over
any period of time.
96
<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 (-1.32% NET) (4.68% NET) (10.68% 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 8,961 1,000,000 9,540 1,000,014 10,124 1,000,032
3 10,806 17,795 1,008,961 19,501 1,009,540 21,283 1,010,124
4 10,806 26,492 1,017,795 29,909 1,019,501 33,615 1,021,283
5 10,806 35,056 1,026,492 40,784 1,029,909 47,242 1,033,615
6 10,806 43,488 1,035,056 52,148 1,040,784 62,306 1,047,242
7 10,806 51,779 1,043,488 64,015 1,052,148 78,947 1,062,306
8 10,806 59,933 1,051,779 76,408 1,064,015 97,336 1,078,947
9 10,806 67,940 1,059,933 89,341 1,076,408 117,648 1,097,336
10 10,806 75,804 1,067,940 102,841 1,089,341 140,090 1,117,648
15 10,806 112,556 1,105,592 179,285 1,162,762 292,535 1,255,767
20 10,806 143,641 1,138,005 271,613 1,251,846 543,162 1,747,065
25 10,806 165,130 1,161,991 379,048 1,356,620 941,465 2,699,896
30 10,806 166,609 1,168,631 492,913 1,470,373 1,534,174 3,979,510
</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 Life or the Funds that these
hypothetical rates of return can be achieved for any one year or sustained over
any period of time.
97
<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
98
<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 1.32 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 1.32 percent = assumed net rate of return of 7.68 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% + 0.03% = 1.03%
Bond........................ 0.50% 0.50% + 0.05% = 1.05%
Money Market................ 0.50% 0.50% + 0.08% = 1.08%
Asset Allocation............ 0.50% 0.50% + 0.03% = 1.03%
Mortgage Securities......... 0.50% 0.50% + 0.07% = 1.07%
Index 500................... 0.50% 0.40% + 0.04% = 0.94%
Capital Appreciation........ 0.50% 0.75% + 0.03% = 1.28%
International Stock......... 0.50% 0.70% + 0.24% = 1.44%
Small Company Growth........ 0.50% 0.75% + 0.04% = 1.29%
Value Stock................. 0.50% 0.75% + 0.04% = 1.29%
Small Company Value*........ 0.50% 0.75% + 0.15% = 1.40%
Global Bond................. 0.50% 0.60% + 0.53% = 1.63%
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% + 0.66% = 2.41%
---- ---- ---- ----
Average................... 0.50% 0.67% + 0.15% = 1.32%
</TABLE>
* We voluntarily absorbed certain expenses for these portfolios, as
described in the footnote to the expense table on page 6.
99
<PAGE>
[Flow Chart Appears Here]
YOUR VAL-SD PREMIUM AT WORK
---------------------------
- ---------------------------------------------
Variable Adjustable Life Second Death
. Male and Female, both Age 40, Non-smoker
. $1,000,000 Insurance Benefit
. Cash Death Benefit Option
- ---------------------------------------------
+ Net Rate X Actual Cash Value
- ---------------------------------------------
9.00% Gross Rate
-1.32% Charges from Variable Life
------ Account & Series Fund
7.68% Net Rate
- ---------------------------------------------
- - Charges from Actual Cash Value
- -----------------------------------
Administration Fee
Face of Guarantee Charge
Cost of Insurance Charge
- -----------------------------------
= VAL-SD Policy Values
[_] 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 reflect 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 if insurance charge is the cost of providing the
death benefit which varies based on age, gender, health, premium level and
duration.
YEAR 1 YEAR 2 YEAR 3 YEAR 4
$10,806 $10,806 $10,806 $10,806
- -------- ------------ ------------ ------------
Charges Charges From Charges From Charges From
From Premium Premium Premium
Premium ------------ ------------ ------------
- --------
------------ ------------ ------------
- -------- Net Net Net
Net Premium Premium Premium
Premium
- -------- ------------ ------------ ------------
To Actual Cash Value
$32,563
-------
$20,986
-------
$10,218
-------
$209
- ----
100
<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 (-1.32% NET) (7.68% NET) (10.68% NET)
POL BASE POLICY DEATH POLICY DEATH POLICY DEATH
YR PREMIUM VALUE BENEFIT VALUE BENEFIT VALUE BENEFIT
- --- ------- -------- ---------- -------- ---------- ---------- ----------
<S> <C> <C> <C> <C> <C> <C> <C>
1 $10,806 $ 176 $1,000,000 $ 209 $1,000,000 $ 221 $1,000,000
2 10,806 9,313 1,000,000 10,218 1,000,000 10,522 1,000,000
3 10,806 18,322 1,000,000 20,986 1,000,000 21,913 1,000,000
4 10,806 27,193 1,000,000 32,563 1,000,000 34,501 1,000,000
5 10,806 35,928 1,000,000 45,009 1,000,000 48,416 1,000,000
6 10,806 44,531 1,000,000 58,394 1,000,000 63,799 1,000,000
7 10,806 52,995 1,000,000 72,781 1,000,000 80,799 1,000,000
8 10,806 61,320 1,000,000 88,247 1,000,000 99,589 1,000,000
9 10,806 69,502 1,000,000 104,868 1,000,000 120,353 1,000,000
10 10,806 77,541 1,000,000 122,774 1,000,000 143,432 1,000,000
15 10,806 116,659 1,000,000 235,898 1,000,000 301,743 1,000,000
20 10,806 153,303 1,000,000 399,438 1,000,000 568,295 1,318,557
25 10,806 186,991 1,000,000 640,351 1,278,274 1,011,153 1,975,534
30 10,806 215,997 1,000,000 987,378 1,674,752 1,743,417 2,890,270
</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 Life or the Funds that these
hypothetical rates of return can be achieved for any one year or sustained over
any period of time.
101
<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 (-1.32% NET) (7.68% NET) (10.68% 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 8,961 1,000,000 9,832 1,000,000 10,124 1,000,000
3 10,806 17,795 1,000,000 20,384 1,000,000 21,284 1,000,000
4 10,806 26,494 1,000,000 31,727 1,000,000 33,617 1,000,000
5 10,806 35,060 1,000,000 43,924 1,000,000 47,249 1,000,000
6 10,806 43,496 1,000,000 57,039 1,000,000 62,318 1,000,000
7 10,806 51,794 1,000,000 71,135 1,000,000 78,971 1,000,000
8 10,806 59,956 1,000,000 86,288 1,000,000 97,376 1,000,000
9 10,806 67,976 1,000,000 102,572 1,000,000 117,716 1,000,000
10 10,806 75,857 1,000,000 120,074 1,000,000 140,196 1,000,000
15 10,806 112,831 1,000,000 229,055 1,000,000 293,333 1,000,000
20 10,806 144,666 1,000,000 384,472 1,000,000 547,506 1,272,530
25 10,806 168,310 1,000,000 607,726 1,216,988 961,430 1,884,721
30 10,806 175,482 1,000,000 915,873 1,562,135 1,618,360 2,698,572
</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 Life or the Funds that these
hypothetical rates of return can be achieved for any one year or sustained over
any period of time.
102
<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 Life deducted current charges. This situation is shown
in Appendix I, "Illustrations of Policy Values, Death Benefits and Premiums,"
on page 83 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
$143,350. Under the Protection Option the death benefit will be $1,143,350.
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 83 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 $143,432. 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.
103
<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 Life deducted current charges. This situation is shown
in Appendix I, "Illustrations of Policy Values, Death Benefits and Premiums,"
on page 83 of this prospectus.
Now assume that the owner of the Policy takes a policy loan in the amount of
$5,000 at the end of the fourth policy year and after all premiums have been
paid for that year.
When a loan is taken, the actual cash value invested in the Variable Life
Account is reduced by the amount borrowed and any unpaid interest. The amount
is then transferred to the loan account. Interest is charged on the policy loan
as described in the Policy, but for purposes of this example, assume a policy
loan interest rate of 8 percent per annum. Interest is also credited to a
Policy when there is a policy loan. Interest credits on a policy loan are at a
rate which is not less than the policy loan interest rate less 2 percent per
annum. The interest credit in this example would then be 6 percent.
The following table shows the effect on the year five values, namely those
values at the end of that year, if a policy loan of $5,000 is made at the end
of the fourth year.
<TABLE>
<CAPTION>
Policy Value
With Loan Without Loan
- --------- ------------
<S> <C>
$48,176 $48,410
</TABLE>
<TABLE>
<CAPTION>
End of Year
Total Death Benefit
With Loan Without Loan
--------- ------------
<S> <C>
$1,048,176 $1,048,410
</TABLE>
Note that the difference in policy values here represents the difference
between the actual Policy performance in the sub-accounts of the Variable Life
Account and the interest credited on the principal amount of the policy loan.
If interest credited on a policy loan exceeds the Policy performance, then a
Policy with a loan will have a greater value than a Policy with no loan
activity. Where Policy performance exceeds the interest credited on a policy
loan, the resulting policy value will be lower than it would have been if the
loan were not made.
Now consider an identical situation to that above except that the Cash Option
death benefit was elected. The following table shows the effect on the same
year five values if a policy loan of $5,000 is made at the end of the fourth
year.
<TABLE>
<CAPTION>
Policy Value
With Loan Without Loan
- --------- ------------
<S> <C>
$48,179 $48,416
</TABLE>
<TABLE>
<CAPTION>
End of Year
Total Death Benefit
With Loan Without Loan
--------- ------------
<S> <C>
$1,000,000 $1,000,000
</TABLE>
The values above under the "With Loan" headings are policy values, which is
the actual cash value of a Policy plus any policy loan. If the owner were to
surrender the Policy at the end of the fifth year, the owner would receive only
the actual cash value in the sub-accounts of the Variable Life Account.
Similarly, if the second death were to occur at the end of the fifth year we
would pay out the death benefit listed under the "With Loan" heading less the
amount of the policy loan.
104
<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.
105
<PAGE>
Appendix VI
Average Annual Returns
Twenty-Year Holding Periods
[BAR CHART APPEARS HERE]
<TABLE>
<CAPTION>
Type 1957 1962 1967 1972 1977 1982 1987 1992 1997 1998
- ---- ------ ------ ------ ------ ----- ----- ----- ------ ------ ------
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
U.S. Treasury 0.912 1.496 2.378 3.387 4.439 6.513 7.444 7.700 7.289 7.171
Inflation 3.454 2.978 1.866 2.350 3.984 6.010 6.314 6.214 4.886 4.527
Bonds 2.516 2.484 2.011 2.948 3.988 4.471 7.885 9.541 10.288 10.857
Stocks 12.976 15.251 14.628 11.674 8.119 8.295 9.269 11.334 16.646 17.747
</TABLE>
Ending periods from 1957-1998
Source: Stocks, Bonds, Bills and Inflation (SBBI), Analyzer 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: 1938-1957, 1943-1962,
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 54 twenty-
year periods beginning in 1926 and ending in 1998 include:
The average annual return of stocks was higher than that of bonds in 51
of the 54 periods.
The average annual return of stocks was higher than that of U.S. Treasury
bills in all of the 54 periods.
The average annual return of stocks was higher than inflation in all of
the 54 periods.
In the 44 thirty-year periods beginning in 1926 and ending in 1998, the
average annual return of stocks was higher than that of bonds, U.S. Treasury
bills and inflation in all 44 time periods.
From 1926 through 1998, the average annual return for this 73 year period
was:
11.2% for common stocks
5.80% for high grade, long-term corporate bonds
3.77% for U.S. Treasury bills
106
<PAGE>
Appendix VII
S&P 500
PERFORMANCE HISTORY 1926-1998
[BAR 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
98 28.58
Source: Stocks, Bonds, Bills and Inflation (SBBI), Analyzer 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 73 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.
107
<PAGE>
Appendix VIII
RANGE OF RETURNS
Rolling Period Returns Using Ibbotson Asset Class Information*
(1960 through 1998)
[BAR CHART APPEARS HERE]
1 YEAR HIGH % LOW % MEAN %
ROLLING PERIOD RETURN RETURN RETURN
- -------------- ------ ------ ------
Small Cap 83.569 -30.904 16.476
Large Cap Stocks (S&P 500) 37.430 -26.468 13.267
Corporate Bonds 42.562 -8.090 8.176
Government Bonds 29.097 -5.144 7.545
United States T-bills 14.709 2.127 5.672
5 YEAR HIGH % LOW % MEAN %
ROLLING PERIOD RETURN RETURN RETURN
- -------------- ------ ------ ------
Small Cap 39.804 -12.252 14.504
Large Cap Stocks (S&P 500) 24.057 -2.356 10.984
Corporate Bonds 22.513 -2.222 7.445
Government Bonds 16.978 2.080 7.366
United States T-bills 11.115 2.834 5.974
10 YEAR HIGH % LOW % MEAN %
ROLLING PERIOD RETURN RETURN RETURN
- -------------- ------ ------ ------
Small Cap 30.381 3.199 13.111
Large Cap Stocks (S&P 500) 19.185 1.238 10.277
Corporate Bonds 16.319 1.677 7.470
Government Bonds 13.126 3.484 7.584
United States T-bills 9.174 3.878 6.222
15 YEAR HIGH % LOW % MEAN %
ROLLING PERIOD RETURN RETURN RETURN
- -------------- ------ ------ ------
Small Cap 23.326 5.872 14.081
Large Cap Stocks (S&P 500) 17.904 4.307 10.333
Corporate Bonds 13.659 3.077 7.601
Government Bonds 11.272 4.755 7.864
United States T-bills 8.323 4.556 6.593
20 YEAR HIGH % LOW % MEAN %
ROLLING PERIOD RETURN RETURN RETURN
- -------------- ------ ------ ------
Small Cap 20.344 11.472 14.250
Large Cap Stocks (S&P 500) 17.747 6.761 9.732
Corporate Bonds 10.857 3.028 7.006
Government Bonds 9.851 4.836 7.451
United States T-bills 7.718 5.087 6.428
30 YEAR HIGH % LOW % MEAN %
ROLLING PERIOD RETURN RETURN RETURN
- -------------- ------ ------ ------
Small Cap 15.099 12.052 12.642
Large Cap Stocks (S&P 500) 12.668 9.946 9.900
Corporate Bonds 9.142 6.801 7.086
Government Bonds 8.714 7.338 7.283
United States T-bills 6.770 6.339 6.010
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,
Government 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.
108
<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 107 pages.
Part II
Undertakings - Indemnification; previously filed.
Representation of Insurer Pursuant to (S)26 of the Investment Company
Act of 1940.
Minnesota 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 MHC-98-690.
(b) Waiver of Premium Agreement, form MHC-98-917.
(c) Estate Preservation Agreement, form MHC-95-943.
(d) Single Life Term Insurance Agreement, form MHC-95-944.
(e) Short Term Agreement, form MHC-E324.1 10-1998.
(f) Protection Option Amendment, form MHC-98-946.
(g) Variable Early Value Agreement, form MHC-98-940.
(6) The certificate of incorporation or other instrument of organization
and bylaws of the depositor.
(a) The Restated Certificate of Incorporation of the Depositor,
previously filed as Exhibit A(6)(a) to Registrant's Form S-6,
File Number 33-64395, Post-Effective Amendment Number 3, is
hereby incorporated by reference.
(b) Bylaws of the Depositor, previously filed as Exhibit A(6)(b) to
Registrant's Form S-6, File Number 33-64395, Post-Effective
Amendment Number 3, 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. MHC-3198 10-1998.
(b) Supplement to Application - Part 1, form F. MHC-43186V 10-1998.
(c) Application - Part 3 - Authorization New Issue, form F.
MHC-42663 10-1998.
(d) Policy Change Application - Part 1, form F. MHC-44096 Rev.
10-1998.
(e) Policy Change Application - Part 3, form F. MHC-44098 Rev.
10-1998.
(f) Variable Suitability Application - New Issue, form F. MHC-48653
10-1998.
(g) Variable Suitability Application - Policy Change, form F.
MHC-48654 Rev. 10-1998.
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, Post-Effective Amendment Number 3, 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, Post-Effective Amendment Number 3, is hereby
incorporated by reference.
J. Minnesota 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 Life Variable Life Account, certifies that it meets all of the
requirements for effectiveness of this Registration Statement pursuant to Rule
485(b) under the Securities Act of 1933 and 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 29th day of April, 1999.
MINNESOTA LIFE VARIABLE LIFE ACCOUNT
(Registrant)
By: MINNESOTA 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,
Minnesota 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 29th
day of April, 1999.
MINNESOTA 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, April 29, 1999
- -------------------------- President and Chief
Robert L. Senkler Executive Officer
* Director
- --------------------------
Giulio Agostini
<PAGE>
Signature Title Date
--------- ----- ----
* Director
- ---------------------------
Anthony L. Andersen
* Director
- ---------------------------
John F. Grundhofer
* Director
- ---------------------------
David S. Kidwell, Ph.D.
* Director
- ---------------------------
Reatha C. King, Ph.D.
* Director
- ---------------------------
Thomas E. Rohricht
* Director
- ---------------------------
Michael E. Shannon
Director
- ---------------------------
Frederick T. Weyerhaeuser
/s/ Gregory S. Strong Senior Vice President April 29, 1999
- --------------------------- (chief financial officer)
Gregory S. Strong
/s/ Gregory S. Strong Senior Vice President April 29, 1999
- --------------------------- (chief accounting officer)
Gregory S. Strong
/s/ Dennis E. Prohofsky Attorney-in-Fact April 29, 1999
- ---------------------------
*By Dennis E. Prohofsky
* Pursuant to power of attorney dated April 12, 1999, a copy of which is
filed herewith.
<PAGE>
EXHIBIT INDEX
Exhibit Number Description of Exhibit
- -------------- ----------------------
A(5)(a) Variable Adjustable Life Insurance Policy, form MHC-98-690.
A(5)(b) Waiver of Premium Agreement, form MHC-98-917.
A(5)(c) Estate Preservation Agreement, form MHC-95-943.
A(5)(d) Single Life Term Insurance Agreement, form MHC-95-944.
A(5)(e) Short Term Agreement, form MHC-E324.1 10-1998.
A(5)(f) Protection Option Amendment, form MHC-98-946.
A(5)(g) Variable Early Value Agreement, form MHC-98-940.
A(10)(a) New Issue Application - Part 1, form F.MHC-3198 Rev. 10-1998.
A(10)(b) Supplement to Application - Part 1, form F.MHC-43186V 10-1998.
A(10)(c) Application - Part 3 - Authorization New Issue, form F.
MHC-42663 10-1998.
A(10)(d) Policy Change Application - Part 1, form F. MHC-44096 Rev.
10-1998.
A(10)(e) Policy Change Application - Part 3, form F. MHC-44098 Rev.
10-1998.
A(10)(f) Variable Suitability Application - New Issue, form F. MHC-48653
10-1998.
A(10)(g) Variable Suitability Application - Policy Change, form F.
MHC-48654 Rev. 10-1998.
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.
J Minnesota Life Insurance Company - Power of Attorney to Sign
Registration Statements.
<PAGE>
Exhibit 99-A(5)(a)
VARIABLE ADJUSTABLE LIFE SECOND DEATH POLICY
Variable Benefits.
Premiums as stated on the Policy Information Page.
Face Amount and Premium may be adjusted by the owner.
Nonparticipating
THE INITIAL DEATH BENEFIT OF THIS POLICY WILL EQUAL THE FACE AMOUNT SHOWN ON
PAGE 1. THE DEATH BENEFIT MAY INCREASE OR DECREASE, AS DESCRIBED ON PAGE 2,
DEPENDING ON THE OPTION ELECTED AND ON SEPARATE ACCOUNT INVESTMENT EXPERIENCE.
HOWEVER, THE DEATH BENEFIT SHALL NEVER BE LESS THAN THE CURRENT FACE AMOUNT
SHOWN ON PAGE 1.
THE ACTUAL CASH VALUE OF THIS POLICY WILL VARY FROM DAY TO DAY. IT MAY INCREASE
OR DECREASE DEPENDING UPON SEPARATE ACCOUNT INVESTMENT EXPERIENCE. THERE IS NO
GUARANTEED MINIMUM CASH VALUE.
READ YOUR POLICY CAREFULLY
THIS IS A LEGAL CONTRACT
We promise to pay to the beneficiary, subject to the provisions of this policy,
the death proceeds when we receive proof satisfactory to us of the second death.
This policy, including any adjustment of it, is issued in consideration of the
application for this policy and the payment of the premiums.
The owner and the beneficiary are as named in the initial application unless
they are changed as provided in this policy.
Signed for Minnesota Life Insurance Company at St. Paul, Minnesota, on the
policy date.
President
Secretary
Registrar
NOTICE OF YOUR RIGHT TO EXAMINE THIS POLICY
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) 10 DAYS AFTER YOU RECEIVE IT; (B) 45 DAYS AFTER
YOU SIGNED THE APPLICATION; OR (C) 10 DAYS AFTER WE MAIL THE NOTICE OF YOUR
RIGHT OF WITHDRAWAL. IF YOU RETURN THE POLICY, YOU WILL RECEIVE A FULL REFUND OF
ANY PREMIUMS YOU HAVE PAID WITHIN 7 DAYS OF THE DATE WE RECEIVE YOUR NOTICE OF
CANCELLATION. IF YOU ADJUST YOUR POLICY AND THE ADJUSTMENT RESULTS IN AN
INCREASED PREMIUM, YOU WILL AGAIN HAVE A RIGHT TO EXAMINE THE POLICY. IF YOU ARE
NOT THEN SATISFIED, YOU MAY RETURN THE POLICY WITHIN THE TIMES GIVEN ABOVE AND
THE REQUESTED ADJUSTMENT WILL BE CANCELLED. YOU WILL RECEIVE A REFUND OF ANY
ADDITIONAL PREMIUM PAID WITHIN 7 DAYS OF THE DATE WE RECEIVE YOUR NOTICE OF
CANCELLATION.
Minnesota Life
Minnesota Life Insurance Company
400 Robert Street North
St. Paul, MN 55101-2098
MHC-98-690
<PAGE>
INDEX
Additional Information 14
Assignment 14
Beneficiary 13
Death Benefit 5
Definitions 2
General Information 3
Grace Period 7
Incontestability 14
Lapse (Premiums) 7
Nonrepeating Premium 7
Ownership 3
Payment of Proceeds 12
Policy Adjustments 10
Policy Charges 4
Policy Exchange Option 15
Policy Loans 13
Premiums 6
Reinstatement (Premiums) 7
Separate Account 7
Settlement Options 12
Suicide Exclusion 14
Surrender 9
Value 9
<PAGE>
YOUR POLICY INFORMATION
SMOKING STATUS: NONSMOKER INSURED: ELLIOTT A EXAMPLE
AGE & GENDER: 60 - MALE
SMOKING STATUS: NONSMOKER INSURED: ELAINE B EXAMPLE
AGE & GENDER: 60 - FEMALE
PREMIUM CLASS: STANDARD
TOTAL PREMIUMS:
*CURRENT FACE AMOUNT: $1,000,000
ANNUAL - $12,354.50
POLICY NUMBER: 1-000-001V
SEMI-ANNUAL - $6,177.25
ORIGINAL POLICY DATE: MAY 15 1995
QUARTERLY - $3,088.63
DEATH BENEFIT OPTION ON POLICY DATE - * * * * * * * * * * * *
CASH * *
* VARIABLE ADJUSTABLE LIFE *
* SECOND DEATH POLICY *
* *
* PROCEEDS PAYABLE AT SECOND *
* DEATH OR SURRENDER *
* *
* FACE AMOUNT AND PREMIUM MAY *
* BE ADJUSTED BY THE OWNER. *
* *
* NONPARTICIPATING *
* *
* * * * * * * * * * * *
FACE PREMIUMS ANNUAL
TYPE OF COVERAGE AMOUNT PAYABLE PREMIUM
BASIC POLICY THROUGH
WHOLE LIFE INSURANCE $1,000,000 MAY 14 2015 $11,300.00
PAYABLE AT THE SECOND DEATH
WITH SCHEDULED CHANGE THROUGH
IN FACE AMOUNT $95,615 MAY 14 2035 $11,300.00
*THE CURRENT FACE AMOUNT IS GUARANTEED TO MAY 14 2015. IN ADDITION, A
WHOLE LIFE INSURANCE FACE AMOUNT OF $95,615 IS GUARANTEED THEREAFTER FOR
LIFE.
CONTINUED ON PAGE 1B
MHC-98-690 1A
<PAGE>
YOUR POLICY INFORMATION
INSURED: ELLIOTT A EXAMPLE POLICY NUMBER: 1-000-001V
INSURED: ELAINE B EXAMPLE
ADDITIONAL AGREEMENTS - CONTINUED FROM PAGE 1A
FACE PREMIUMS ANNUAL
TYPE OF COVERAGE AMOUNT PAYABLE PREMIUM
SINGLE LIFE TERM $250,000 THROUGH $932.50
INSURANCE AGREEMENT MAY 14 1996
INSURED: ELAINE B EXAMPLE
SEE FOLLOWING PAGES FOR
RENEWAL PREMIUMS THROUGH MAY 14, 2029
ESTATE PRESERVATION AGREEMENT THROUGH $122.00
DESIGNATED INSURED: ELAINE B EXAMPLE MAY 14, 2005
OTHER INSURED: ELLIOTT A EXAMPLE
AGREEMENT TERMINATES ON MAY 14, 2005
TOTAL ANNUAL PREMIUM ON POLICY DATE $12,354.50
THE ADMINISTRATIVE CHARGE ON THIS POLICY IS $15 PER MONTH.
THERE WILL BE NO CHARGE FOR SURRENDERING YOUR POLICY.
MHC-98-690 1B
<PAGE>
YOUR POLICY INFORMATION
TABLE OF POLICY VALUES - VARIABLE ADJUSTABLE LIFE - POLICY NUMBER
1-000-001V
THESE VALUES DO NOT INCLUDE DIVIDENDS AND ARE SUBJECT TO THE POLICY
VALUES SECTION IN THIS POLICY.
POLICY TABULAR EXTENDED
ANNIVERSARY CASH TERM
MAY 15 VALUE* INSURANCE
YEARS DAYS
1996 0 0 0
1997 9,571 5 264
1998 19,223 7 33
1999 28,880 7 250
2000 38,443 7 338
2001 47,804 7 334
2002 56,832 7 268
2003 65,388 7 160
2004 73,315 7 26
2005 80,437 6 223
2006 86,502 6 41
2007 91,118 5 202
2008 93,981 4 355
2009 94,464 4 122
2010 91,878 3 247
2011 85,452 3 0
2012 74,275 2 102
2013 57,308 1 198
2014 33,295 0 287
2015 590 0 4
YEAR 25 26,742 2 286
YEAR 30 46,384 3 53
ANNUAL POLICY LOAN INTEREST RATE: 8% PAYABLE IN ARREARS
ANNUAL POLICY REINSTATEMENT INTEREST RATE: 6%
*THE TABULAR CASH VALUE MAY BE MORE OR LESS THAN THE SURRENDER PROCEEDS.
INSURED AGE FACE AMOUNT
ELLIOTT A EXAMPLE 60 $1,000,000 FOR 20 YEARS
ELAINE B EXAMPLE 60 $95,615 THEREAFTER
MHC-98-690 1C
<PAGE>
YOUR POLICY INFORMATION
NOTICE
THIS CONTRACT HAS AN ANNUAL ADMINISTRATIVE CHARGE AND CHARGES WHICH ARE
ASSESSED AGAINST PREMIUMS, BASE PREMIUMS, NONREPEATING PREMIUMS, YOUR ACTUAL
CASH VALUE AND THE SEPARATE ACCOUNT ASSETS. CHARGES ASSESSED AGAINST PREMIUM
INCLUDE, AMONG OTHERS, A BASIC AND FIRST YEAR SALES LOAD CHARGE. THE BASIC SALES
LOAD CHARGE, APPLIED TO BASE PREMIUMS, WILL NOT EXCEED 7 PERCENT. IN ADDITION, A
FIRST YEAR SALES LOAD MAY ALSO BE APPLIED. THE FIRST YEAR SALES LOAD WILL NOT
EXCEED 23 PERCENT.
A COMPLETE DESCRIPTION OF THESE CONTRACT CHARGES AND THEIR APPLICATION CAN
BE FOUND UNDER THE "POLICY CHARGES" SECTIONS OF THE POLICY.
MHC-98-690 1D
<PAGE>
YOUR POLICY INFORMATION
SINGLE LIFE TERM INSURANCE AGREEMENT POLICY 1-0000-001V
GUARANTEED RENEWAL PREMIUMS
COVERED INSURED: ELLIOTT A EXAMPLE
RENEWAL DATE
MAY 15 ANNUAL PREMIUM
1996 $ 4,745.00
1997 $ 5,210.00
1998 $ 5,735.00
1999 $ 6,320.00
2000 $ 6,970.00
2001 $ 7,710.00
2002 $ 8,555.00
2003 $ 9,510.00
2004 $ 10,565.00
2005 $ 11,700.00
2006 $ 12,930.00
2007 $ 14,250.00
2008 $ 15,690.00
2009 $ 17,315.00
2010 $ 19,455.00
2011 $ 21,280.00
2012 $ 23,720.00
2013 $ 26,460.00
2014 $ 29,400.00
2015 $ 32,530.00
2016 $ 35,820.00
2017 $ 39,235.00
2018 $ 42,860 00
2019 $ 46,835.00
2020 $ 51,260.00
2021 $ 56,260 00
2022 $ 61,895.00
2023 $ 68,055.00
2024 $ 74,600.00
2025 $ 81,400.00
2026 $ 88,395.00
2027 $ 95,445.00
2028 $ 102,645.00
2029 $ 110,095.00
MHC-98-690 1E
<PAGE>
SINGLE LIFE TERM INSURANCE AGREEMENT POLICY 1-000-001V
CURRENT RENEWAL PREMIUMS
COVERED INSURED: ELLIOTT A EXAMPLE
RENEWAL DATE
MAY 15 ANNUAL PREMIUM
1996 $ 1,140.00
1997 $ 1,397.50
1998 $ 1,685.00
1999 $ 1,982.50
2000 $ 2,395.00
2001 $ 2,927.50
2002 $ 3,387.50
2003 $ 3,742.50
2004 $ 4,175.00
2005 $ 4,637.50
2006 $ 5,155.00
2007 $ 5,732.50
2008 $ 6,372.50
2009 $ 7,085.00
2010 $ 7,877.50
2011 $ 8,757.50
2012 $ 9,735.00
2013 $ 10,822.50
2014 $ 11,885.00
2015 $ 13,050.00
2016 $ 14,332.50
2017 $ 15,737.50
2018 $ 17,282.50
2019 $ 18,977.50
2020 $ 20,840.00
2021 $ 22,885.00
2022 $ 25,130.00
2023 $ 27,597.50
2024 $ 30,305.00
2025 $ 33,280.00
2026 $ 36,545.00
2027 $ 40,132.00
2028 $ 44,070.00
2029 $ 60,760.00
MHC-98-690 1F
<PAGE>
SUMMARY OF POLICY FEATURES
VARIABILITY
The net premiums paid for this policy are placed in the separate account; actual
cash values will reflect investment experience. Actual cash values are not
guaranteed and may be more or less than the tabular cash values shown on page 1.
The face amount of this policy is guaranteed as a death benefit payable at the
second death; investment experience may, depending on the death benefit option
selected, increase the amount of the death benefit. The policy may provide for a
scheduled reduction in face amount at a future policy anniversary as shown on
page 1.
ADJUSTABILITY (SEE PAGE 10)
The face amount and annual premium of your policy are shown on page 1. Subject
to the limitations described in this policy, you may at any time adjust:
-- the face amount, except for increases requiring evidence of
insurability if either insured is over 85.
-- the base premium to any amount from zero to an amount sufficient
to provide a policy which will become paid-up after the payment
of ten annual premiums.
ACTUAL CASH VALUE
Your policy has an actual cash value which is available to you during the
lifetime of either insured. You may use the actual cash value:
-- to provide retirement income (see page 12).
-- as collateral for a loan or as a policy loan (see page 13).
-- to continue some insurance protection if you cannot or do not
wish to continue paying premiums (see page 9).
-- to obtain cash by surrendering your policy, in full or in part
(see page 9).
DEATH PROCEEDS
The amount payable to the beneficiary at the second death is the total of the
following amounts:
-- The death benefit, which is the greater of the face amount of
this policy (see page 1), or the death benefit provided by the
variable features of this policy (see page 5).
PLUS -- Any additional insurance payable at the second death provided by
an additional benefit agreement (see page 1).
MHC-98-690 Minnesota Life
<PAGE>
PLUS -- Under the Cash Option death benefit, any premium paid beyond the
end of the policy month in which the second death occurs (see
page 5).
MINUS -- Any unpaid policy charges which we assess against actual cash
value (see page 4).
MINUS -- Any policy loan (see page 13).
SURRENDER PROCEEDS
The amount payable to the owner on the surrender of the policy is the surrender
value which is:
-- The actual cash value of the policy.
MINUS -- Any unpaid policy charges which we assess against actual cash
value (see page 4).
ADDITIONAL BENEFITS
The additional benefits, if any, listed on page 1 are described more fully in
the additional benefit agreements.
MHC-98-690 Minnesota Life
<PAGE>
DEFINITIONS
When we use the following words, this is what we mean:
THE INSUREDS
The two persons named on page 1.
YOU, YOUR
The owner of this policy as shown in the application, unless changed as provided
in this policy. The owner may be someone other than the insureds.
WE, OUR, US
Minnesota Life Insurance Company.
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.
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.
POLICY DATE
The effective date of coverage under this policy and the date from which policy
anniversaries, policy years, policy months and premium due dates are determined.
POLICY ANNIVERSARY
The same day and month as your policy date for each succeeding year your policy
remains in force. A monthly policy anniversary is the same day as your policy
date for each succeeding month your policy remains in force.
WRITTEN REQUEST
A request in writing signed by you. We also may require that your policy be sent
in with your written request.
PREMIUM
A scheduled payment required for this policy. The premium amounts are shown on
page 1.
MHC-98-690 Minnesota Life 2
<PAGE>
NONREPEATING PREMIUM
A payment made to this policy in addition to its scheduled payments.
BASE PREMIUM
The premium less any amount charged for additional benefits and for substandard
risks (see page 4).
NET PREMIUM
The base premium or nonrepeating premium less policy charges assessed against
the premium. The net premium is the amount or amounts which are allocated to the
guaranteed principal account or the separate account.
PROCEEDS
The amount we will pay under the terms of this policy when your policy is
surrendered or on the second death.
FACE AMOUNT
The minimum amount of insurance provided at the second death , subject to the
conditions of this policy. The face amount is shown on page 1. Under some
schedules of premium and premium paying periods, the face amount of insurance
may be scheduled to decrease at some future policy anniversary. In those
circumstances, that face amount and the date of the decrease are also shown on
page 1.
CURRENT FACE AMOUNT
The face amount of this policy at any time when the policy is valued.
SEPARATE ACCOUNT
The separate investment account titled "Variable Life Account." We established
this separate account under Minnesota law. The separate account is composed of
several sub-accounts. We own the assets of the separate account. However, those
assets not in excess of separate account liabilities are not subject to claims
arising out of any other business in which we engage.
GUARANTEED PRINCIPAL ACCOUNT
The portion of the general account of Minnesota Life which is attributable to
this policy and other variable policies, exclusive of policy loans. The
description is for accounting purposes
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only. It does not represent a separate account. It does not represent any
division of the general account for the specific benefit of variable policies.
FUND
The mutual fund or separate investment portfolio within a series mutual fund
which we designate as an eligible investment for the separate account and its
sub-accounts.
GENERAL ACCOUNT
All assets of Minnesota Life Insurance Company other than those in the separate
account or in other separate accounts established by us.
LOAN ACCOUNT
The portion of the general account of Minnesota Life which is attributable to
policy loans under this policy and other variable policies. The loan account
balance is the sum of all outstanding loans under this policy.
VALUATION DATE
Any date on which a fund is valued.
VALUATION PERIOD
The period between successive valuation dates measured from the time of one
determination to the next.
UNIT
A measure of your interest in a sub-account of the separate account.
1940 ACT
The Investment Company Act of 1940, as amended, or any similar successor federal
act.
NET SINGLE PREMIUM
The amount of money that is 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.
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ACTUAL CASH VALUE
The sum of the values under this policy in the separate account and the
guaranteed principal account. The interest in each is valued separately. They
are identified as the separate account actual cash value and the guaranteed
principal account actual cash value, respectively. Actual cash value does not
include the loan account.
The separate account actual cash value is composed of your interest in one or
more sub-accounts of the separate account. For each sub-account, the value is
determined by multiplying the current number of sub-account units credited to
this policy by the current sub-account unit value. The total of these values
will be the separate account actual cash value.
TABULAR CASH VALUE
The amount which would be equal to the actual cash value of this policy at any
time if: all scheduled premiums are paid when due assuming that premiums are
paid annually; there is no policy adjustment; there are no policy loans; any
percentage increase in the actual cash value matches the policy's assumed rate
of return; the net investment experience for each sub-account and/or the
interest credited to the guaranteed principal account matches the policy's
assumed rate of return; we deduct maximum cost of insurance charges, on the
assumption that they are taken once at the end of the policy year and we deduct
all other charges as set forth in this policy.
POLICY VALUE
The actual cash value of this policy, plus any policy loan.
LAPSE
The lives of both insureds are no longer insured except as may be provided in
the Values section of this policy.
TERMINATE
The lives of both insureds are no longer insured under any of the terms of the
policy.
INTEREST CREDITS
The amount of credit we add to the actual cash value of your policy as the
result of a policy loan.
AGE
The age of each insured at his or her nearest birthday.
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POLICY ASSUMPTIONS
The assumed rate of return is 4 percent and the assumed mortality rates are
equal to those in the 1980 CSO Tables.
1980 CSO TABLES
The 1980 Commissioners Standard Ordinary Mortality Tables, gender-distinct,
smoker-distinct, and age nearest birthday.
GENERAL INFORMATION
WHAT IS YOUR AGREEMENT WITH US?
Your policy, or any adjustment of it, contains the entire contract between you
and us. This includes the initial application and all subsequent applications to
adjust your policy. Any statements made either by you or by either insured, in
the initial application or in any application for adjustment will, in the
absence of fraud, be considered representations and not warranties. Also, any
statement made either by you or by either insured will not be used to void your
policy nor defend against a claim under your policy unless the statement is
contained in the initial application or in any application for adjustment of
this policy.
No change or waiver of any of the provisions of this policy will be valid unless
made in writing by us and signed by our president, a vice president, our
secretary or an assistant secretary. No agent or other person has the authority
to change or waive any provisions of your policy.
Any additional benefit agreement attached to this policy will become a part of
this policy and will be subject to all the terms and conditions of this policy
unless we state otherwise in the agreement.
HOW DO YOU EXERCISE YOUR RIGHTS UNDER THE POLICY?
You can exercise all the rights under this policy during the lifetime of either
insured by making a written request to us. This includes the right to change the
ownership. If your policy is assigned, we will also require the written consent
of the assignee. If you have designated an irrevocable beneficiary, the written
consent of that beneficiary will also be required.
POLICY CHARGES
WHAT TYPES OF CHARGES ARE THERE UNDER THIS POLICY?
Charges under this policy are those which we assess against your premiums, base
premiums, nonrepeating premiums, your actual cash value and the separate account
assets.
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WHAT CHARGES ARE ASSESSED AGAINST PREMIUMS?
Against premiums, we assess charges for additional benefits and for substandard
risks. The charges for additional benefits compensate us for additional benefits
which you may choose to make a part of this policy. The charge for substandard
risks is for providing the death benefit for policies whose mortality risks
exceed the standard.
WHAT CHARGES ARE ASSESSED AGAINST BASE PREMIUMS?
Against base premiums, we assess: (1) the basic and first year sales load; (2)
the underwriting charge; (3) the premium tax charge; and (4) the federal tax
charge.
(1) The sales load is for distribution expenses for this class of policies. The
basic sales load charge described herein applies to base premiums. The
basic sales load will not exceed 7 percent.
In addition to the basic sales load, a first year sales load may also be
applied. The first year sales load applies to base premiums, scheduled to
be paid in the twelve month period following the policy date and the date
of any policy adjustment. The first year sales load will not exceed 23
percent.
If any adjustment involving an increase in base premium occurs, a first
year sales load will be assessed on that increase in premium.
If any adjustment occurs during a period when a first year sales load is
being collected, an additional sales load will be collected over the next
twelve months. In that case, that additional first year sales load shall be
calculated using a percentage, not to exceed 23 percent, which shall be
equal to the first year sales load in effect prior to that adjustment. This
percentage shall be applied to the premium amount, determined on the basis
of the lesser of the base premium in effect prior to or following the
adjustment, to be received during the time from the current adjustment to
the end of the period over which the prior first year sales load was being
collected. This additional first year sales load will be collected during
the twelve month period following the adjustment together with the sales
load applicable to the adjustment.
All of the sales load charges are designed to average not more than 9
percent of the base premiums, over the lesser of:
(a) the joint life expectancy of the insureds at policy issue or
adjustment; or
(b) 15 years from policy issue or adjustment; or
(c) the premium paying period shown on page 1.
(2) The underwriting charge is for our underwriting costs, which include
medical exams, classifying risks and determining insurable interests. The
charge shall not exceed $10 per
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$1,000 of face amount of insurance at issue. We can increase this charge in
the future. This charge will be deducted ratably from your payments of the
first year base premium. Our then current underwriting charge will also
apply to increases in face amount which require new evidence of
insurability. In the event of a policy adjustment which results in a face
amount increase and no premium, you must remit the then current base
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 is for the average premium tax we pay to state and
local governments for this class of policies. The charge is currently 2.5
percent of each base premium. We can increase this charge in the future.
(4) The federal tax charge is for a federal tax related to premium payments for
this class of policies. The charge is currently 1.25 percent of each base
premium. We can increase this charge in the future.
WHAT CHARGES ARE ASSESSED AGAINST NONREPEATING PREMIUMS?
Against nonrepeating premiums, we assess: (1) a basic sales load; (2)
the premium tax charge; and (3) the federal tax charge.
(1) The basic sales load is for distribution expenses for this class of
policies. The basic sales load will not exceed 7 percent of each
nonrepeating premium.
(2) The premium tax charge is for the average premium tax we pay to state and
local governments for this class of policies. The charge is currently 2.5
percent of each nonrepeating premium. We can increase this charge in the
future.
(3) The federal tax charge is for a federal tax related to premium payments for
this class of policies. The charge is currently 1.25 percent of each
nonrepeating premium. We can increase this charge in the future.
WHAT CHARGES ARE ASSESSED AGAINST YOUR ACTUAL CASH VALUE?
Against your actual cash value, we assess: (1) the administration charge; (2)
the face amount guarantee charge; (3) transaction charges; and (4) the cost of
insurance charge.
(1) The administration charge is for our administrative expenses, including
those attributable to the records we create and maintain for your policy.
The administration charge will not exceed $15 per contract month.
(2) The face amount guarantee charge is for providing the minimum death benefit
under the policy. The charge is guaranteed not to exceed 3 cents per
thousand dollars of face amount per month.
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(3) The transaction charges are for expenses associated with processing
transactions. We make a charge of $95 for each policy adjustment. We may
also make a charge, not to exceed $25, for each transfer of actual cash
value among the guaranteed principal account and sub-accounts of the
separate account.
(4) The cost of insurance charge is for providing the death benefit under this
policy. The charge is calculated by multiplying the net amount at risk
under your policy by a rate which is guaranteed not to exceed rates
determined on the basis of the 1980 CSO Tables. The rate varies with policy
characteristics such as the gender, age and risk class of each insured. The
net amount at risk is the death benefit under your policy less your policy
value.
WHEN ARE CHARGES ASSESSED AGAINST YOUR ACTUAL CASH VALUE?
Administration, face amount guarantee and cost of insurance charges are assessed
against your actual cash value. This is done monthly 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 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.
WHAT CHARGES ARE ASSESSED AGAINST SEPARATE ACCOUNT ASSETS?
We assess a mortality and expense risk charge against separate account assets.
We also reserve the right to charge or make provision for income taxes payable
by us based on separate account assets.
WHAT IS THE MORTALITY AND EXPENSE RISK CHARGE?
This charge is for assuming the risks that the cost of insurance charge 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 separate account assets on each valuation
date at an annual rate of .50 percent of separate account assets.
DEATH BENEFIT
WHAT PROCEEDS ARE PAYABLE AT THE SECOND DEATH?
The amount payable at the second death shall be the death benefit provided by
this policy:
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- -- plus any additional insurance payable at the second death provided by an
additional benefit agreement;
- -- plus under the Cash Option, any premium paid beyond the end of the policy
month in which the second death occurs;
- -- minus any unpaid policy charges; and
- -- minus any policy loan.
WHAT ARE THE DEATH BENEFIT OPTIONS?
The death benefit options are:
(1) the Cash Option; or
(2) the Protection Option.
The Protection Option is only available until the policy anniversary nearest the
younger insured's age 70. At the policy anniversary nearest the younger
insured's age 70, the death benefit option will be changed to the Cash Option.
At that time, we will automatically adjust your policy and adjust the face
amount to equal the death benefit immediately preceding the adjustment.
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. 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.
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WHEN IS THE DEATH BENEFIT DETERMINED?
The death benefit is determined on each monthly policy anniversary and as of the
date of the second death. The death benefit amount as of any other date is
available from us on written request.
HOW IS THE DEATH BENEFIT OPTION ELECTED?
You elect a death benefit option on your policy application.
If you fail to make an election, the Cash Option will be in effect.
MAY THE DEATH BENEFIT OPTION BE CHANGED?
Yes. You may apply to have the death benefit option changed while this policy is
in force by filing a written request with us at our home office. We may require
evidence satisfactory to us of the insurability of both insureds before we allow
the change. The change will take effect when we approve and record it in our
home office.
WHAT HAPPENS WHEN THE POLICY IS PAID-UP?
When the policy is paid-up, we need no additional scheduled premiums in order to
provide a death benefit equal to the then current face amount until the second
death.
After the policy is paid-up, we may continue to accept scheduled premiums and
nonrepeating premiums. The payment of any premium after the policy is paid-up
may increase the face amount. We may require you to provide us with evidence
satisfactory to us of the insurability of both insureds before accepting any
premium after the policy is paid-up. The policy value of your policy will never
exceed the net single premium for the death benefit payable at the second death.
HOW WILL YOU KNOW WHEN THE POLICY BECOMES PAID-UP?
Each policy anniversary we will determine if your policy has become paid-up.
When your policy becomes paid-up, we will send you a new page 1.
WILL A PAID-UP POLICY HAVE A NEW FACE AMOUNT?
Yes. A new face amount will be determined when it becomes paid-up. The new face
amount will not be less than the face amount of the policy when it became
paid-up.
WILL POLICY CHARGES CONTINUE TO APPLY TO A PAID-UP POLICY?
Yes.
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PREMIUMS
WHEN AND WHERE DO YOU PAY YOUR PREMIUMS?
Your first premium is due as of the policy date and must be paid when your
policy is delivered. All 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 or such
other place as we may direct.
If you would like a receipt for a premium payment, we will give you one upon
request.
HOW OFTEN DO YOU PAY PREMIUMS?
You may pay your premiums once a year, twice a year, or four times a year. These
premiums are shown on page 1 as the annual, semi-annual and quarterly premiums.
If you decide to pay premiums once a year, your annual premium will be due on
the policy anniversary.
If you decide to pay premiums more than once a year, your semi-annual premiums
will be due every six months and your quarterly premiums will be due every three
months. In each year, one of the premium due dates must fall on the policy
anniversary.
ARE THERE OTHER METHODS OF PAYING PREMIUMS?
Yes. It may be possible for you to make arrangements with your employer to pay
your premiums by payroll deduction. Also, with the consent of your financial
institution, you may request that your premiums be automatically withdrawn from
your account at that institution and paid directly to us. If for any reason your
employer or financial institution fails to pay a premium when it is due or if
this premium payment arrangement is ended, you must pay an annual, semi- annual
or quarterly premium directly to us at our home office before the end of the
grace period to keep your policy in force on a premium-paying basis.
CAN YOU STOP PAYING BASE PREMIUMS?
Yes. You may adjust the policy to stop paying base premiums. A stop premium
adjustment is one where, after the adjustment, no further base premium is
required. You may request a stop premium adjustment at any time your policy has
sufficient actual cash value at the date of the request to keep the policy in
force until your next policy anniversary. The policy will be adjusted on the
basis of no additional scheduled base premium and, unless instructed otherwise,
the face amount in effect at the time of the adjustment. On a stop premium
policy, any scheduled decrease in face amount shall be to zero and the policy
will lapse at that time.
CAN YOU PAY A NONREPEATING PREMIUM?
Yes. In addition to premiums shown on page 1, you may request to pay a
nonrepeating premium. However, we may at any time refuse to accept a
nonrepeating premium. If the death benefit of
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your policy increases as a result of the payment of a nonrepeating premium, we
may require you to provide us with evidence satisfactory to us of the
insurability of both insureds.
CAN YOU PAY A PREMIUM AFTER THE DATE IT IS DUE?
Yes. Your policy has a 31-day grace period. This means that if a premium is not
paid on or before the date it is due, you may pay that premium during the 31-day
period immediately following the due date. Your 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 this period, we will deduct a premium for the
31-day grace period from the death proceeds.
This 31-day grace period does not apply to the first premium payment. The first
premium must be paid on or before the date your policy is delivered.
WHAT HAPPENS IF A PREMIUM IS NOT PAID BEFORE THE END OF THE GRACE PERIOD?
If a premium is not paid before the end of the 31-day grace period, your policy
will lapse and no further premium payments may be made. However, even if your
policy lapses, the values, if any, provided for in the Values section of this
policy on page 9 will be available to you.
CAN YOU REINSTATE YOUR POLICY AFTER IT HAS LAPSED?
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 this 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 indebtedness 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.
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.
IS THERE A PREMIUM REFUND AT THE SECOND DEATH?
Yes. 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. However, if your policy
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contains a Waiver of Premium Agreement and the last premium was waived by us
under that agreement, we will not refund that premium. Also, we will not refund
a nonrepeating premium.
SEPARATE ACCOUNT
HOW WAS THE SEPARATE ACCOUNT ESTABLISHED?
We established the separate account under Minnesota law. It is registered as a
unit investment trust under the 1940 Act.
WHAT IS THE PURPOSE OF THE SEPARATE ACCOUNT?
Net premiums allocated to the separate account support the operation of this
policy (except extended term coverage, policy loans and settlement options) and
other variable policies. Assets may also be allocated for other purposes, but
not for the operation or support of policies other than variable life policies.
ARE SUB-ACCOUNTS AVAILABLE UNDER THE SEPARATE ACCOUNT?
Yes. The separate account is divided into sub-accounts. Net premiums will be
allocated to one or more of the sub-accounts you have chosen for such
allocation. We reserve the right to add, combine or remove any sub-account of
the separate account.
WHAT ARE THE INVESTMENTS OF THE SEPARATE ACCOUNT?
For each sub-account, there is a fund for the investment of that sub-account's
assets. The assets of the sub-accounts are invested in the funds at net asset
value. If investment in a fund should no longer be possible or if we determine
it becomes inappropriate for variable policies, we may substitute another fund.
Substitution may be with respect to both existing policy values and future
premiums. The investment policy of the separate account may not be changed,
however, without the approval of the regulatory authorities of the state of
Minnesota. If required, that approval process will be on file with the
regulatory authorities of the state in which this policy is delivered.
WHAT CHANGES MAY WE MAKE TO THE SEPARATE ACCOUNT?
We reserve the right, when permitted by law, to transfer assets of the separate
account which we determine to be associated with the class of policies to which
this policy belongs, to another separate account. If such a transfer is made,
the term "separate account," as used in this policy, shall then mean the
separate account to which the assets are transferred. A transfer of this kind
may require the advance approval of state regulatory authorities.
We reserve the right, when permitted by law, to:
(1) de-register the separate account under the 1940 Act;
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(2) restrict or eliminate any voting right of policy owners or other persons
who have voting rights as to the separate account; and
(3) combine the separate account with one or more other separate accounts.
HOW ARE NET PREMIUMS ALLOCATED?
They are allocated either to the guaranteed principal account or to the separate
account and its sub-accounts. Initially, you indicate your allocation in the
application. You may change your allocation for future premiums. You may do this
by giving us a written request. A change will not take effect until it is
recorded by us in our home office.
Allocations must be expressed in whole percentages. The allocation to any
alternative must be at least 10 percent of the net premium. We reserve the right
to restrict the allocation of premium. If we do so, no more than 50 percent of
the net premium may be allocated to the guaranteed principal account.
We 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 a policy adjustment. If we exercise this right, net premiums will be
allocated to the money market sub-account until the end of that period.
WHAT IS A TRANSFER?
A transfer is a reallocation of the actual cash value between the guaranteed
principal account and the separate account or among the sub-accounts of the
separate account.
MAY YOU MAKE TRANSFERS OF AMOUNTS UNDER THIS POLICY?
Yes. Transfers may be made by your written request. For transfers out of the
separate account or among the sub-accounts of the separate account, 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 request is received at our home
office. For transfers out of the guaranteed principal account, the transfer will
be made on the basis of your guaranteed principal account actual cash value at
the time of transfer.
ARE THERE LIMITATIONS ON TRANSFERS?
Yes. 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.
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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.
Transfers from the guaranteed principal account must be made by a written
request. It must be received by us or postmarked in the 30-day period before or
after the last day of the policy year. Written requests for transfers which meet
these conditions will be effective after we approve and record them at our home
office.
HOW ARE UNITS DETERMINED?
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. This
determination is made as of the end of the valuation period during which your
premium is received at our home office. Once determined, the number of
accumulation units will not be affected by changes in the unit value.
HOW ARE UNITS INCREASED OR DECREASED?
The number of units of each sub-account credited to your policy will be
increased by the allocation of subsequent net premiums, policy loan repayments,
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 unpaid loan interest, transfers from that
sub-account and partial surrenders from that sub-account. The number of
sub-account units will decrease to zero on a policy surrender, lapse or
termination.
HOW IS A UNIT VALUED?
The unit value will increase or decrease on each valuation date. The assets of
the separate account shall be valued at least as often as any policy benefits
vary but not less often than once a month. The amount of any increase or
decrease will depend on the net investment experience of the sub-accounts of the
separate 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.
WHAT IS THE NET INVESTMENT FACTOR FOR EACH SUB-ACCOUNT?
The net investment factor is a measure of the net investment experience of a
sub-account.
The net investment factor for a valuation period is: the gross investment rate
for such valuation period, less a deduction for the charges under this policy
which are assessed against separate account assets.
The gross investment rate is equal to:
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(1) the net asset value per share of a fund share held in the sub-account of
the separate account determined at the end of the current valuation period;
plus
(2) the per-share amount of any dividend or capital gain distributions by the
fund if the "ex-dividend" date occurs during the current valuation period;
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.
VALUES
DOES THIS POLICY HAVE CASH VALUES?
Yes. This policy has two types of cash values. They are the actual cash value
and the tabular cash value.
HOW IS YOUR ACTUAL CASH VALUE DETERMINED?
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 separate account.
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, 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 separate account and charges assessed against your
guaranteed principal account actual cash value.
The separate account actual cash value is the sum of units of each sub-account
multiplied by the accumulation unit value for that sub-account. The number of
units will be increased by any loan repayments, policy loan interest credits and
transfers into a sub-account of the separate account. The number of units will
be reduced by any policy loans, unpaid policy loan interest, partial surrenders,
transfers into the guaranteed principal account, and charges assessed against
your separate account actual cash value.
IS THE ACTUAL CASH VALUE GUARANTEED?
No. Your separate account actual cash value is not guaranteed.
Your guaranteed principal account actual cash value is guaranteed by us. It
cannot be reduced by any investment experience of the general account.
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WHAT IS THE TABULAR CASH VALUE OF YOUR POLICY?
A table of tabular cash values is shown on page 1. At your request, we will tell
you what the tabular cash values are for any date not shown.
HOW IS THE TABULAR CASH VALUE DETERMINED?
The methods and factors used to calculate your tabular cash values, reserves and
net single premiums are based upon the policy assumptions which your state
requires us to use.
We have filed the method used to calculate these values with the insurance
department in the state in which your policy is delivered. The method we use
provides tabular cash values at least as great as those provided by the
Commissioners Reserve Valuation Method. These tabular cash values and reserves
will be greater than, or equal to, the values required by law. The tabular cash
values are calculated on the assumption that there is no indebtedness on your
policy, premiums are paid annually, deaths occur at the end of the year, and all
charges have been assessed at the maximum amount. Also, the calculation of the
tabular cash values will be made with an allowance for the passage of time and
the payment of those premiums paid beyond the last policy anniversary. All
tabular values represent the values at the end of the policy year.
IS INTEREST CREDITED ON THE GUARANTEED PRINCIPAL ACCOUNT ACTUAL CASH VALUE?
Yes. Interest is credited on the guaranteed principal account actual cash value
of this 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.
MAY ADDITIONAL INTEREST BE CREDITED ON THE GUARANTEED PRINCIPAL ACCOUNT?
Yes. As conditions permit, we will credit additional amounts of interest to the
guaranteed principal account actual cash value.
MAY THE POLICY BE SURRENDERED?
Yes. You may request the surrender of the policy at any time until the second
death.
WHAT IS THE SURRENDER VALUE OF YOUR POLICY?
The surrender value is the actual cash value, minus unpaid policy charges which
are assessed against actual cash value.
However, if your policy is being used to provide extended term, your surrender
value at any time will be the reserve on that insurance. The surrender value of
any extended term insurance which is surrendered within 30 days after a policy
anniversary will be at least equal to that anniversary value.
MHC-98-690 Minnesota Life 18
<PAGE>
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.
HOW DO YOU SURRENDER YOUR POLICY?
Send your policy and a written request for surrender to us at our home office.
Instead of payment in a single sum, you may request that your surrender value be
used to provide extended term insurance .
IS A PARTIAL SURRENDER PERMITTED?
Yes. You may make a partial surrender of your actual cash value. The amount of a
partial surrender must be $500 or more and it cannot exceed the amount available
as a policy loan. This is a policy adjustment as described on page 10. If the
policy is not paid-up, a partial surrender will cause a decrease in the death
benefit equal to the amount surrendered.
MAY YOU DIRECT US AS TO HOW PARTIAL SURRENDERS WILL BE TAKEN FROM ACTUAL CASH
VALUE?
Yes. You may tell us the 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.
WHAT HAPPENS IF THE PREMIUM DUE ON YOUR POLICY IS NOT PAID?
Your policy will lapse if the premium due is not paid before the end of the
grace period. If your policy has no actual cash value, it will terminate. If
your policy has a surrender value, it will be used to provide either:
(1) a single sum payment of that value to you, thereby terminating this policy;
or
(2) extended term insurance.
Unless, within 62 days of the date of the first unpaid premium, you request a
single sum payment of your surrender value as of the end of the grace period, we
will apply it to purchase extended term insurance . This insurance will be
effective as of the due date of the last unpaid premium and no further premiums
will be due. You may reinstate your policy as described in the Premiums section
on page 6.
MAY AUTOMATIC PREMIUM LOANS BE USED TO KEEP THE POLICY IN FORCE?
Yes. Please see the section on policy loans (see page 13).
MHC-98-690 Minnesota Life 19
<PAGE>
WHAT IS EXTENDED TERM INSURANCE?
It is term insurance that is purchased by applying the surrender value of your
policy as a net single premium to buy term insurance for the maximum period.
This extended term coverage has fixed benefits. Extended term benefits are not
provided by the separate account and they 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 loan at the date of lapse. At the
end of the extended term period, all insurance under this policy will terminate
and this policy will have no further value.
MAY POLICY PAYMENTS BE DEFERRED?
Yes. We reserve the right to defer policy payments for up to six months from the
date of your written request, if such payments are based upon policy values
which do not depend on the investment performance of the separate account. In
that case, if we postpone our payment for more than 31 days, we will pay you
interest at 3 percent per annum for the period during which payment is
postponed. Otherwise, this right of deferral will be: (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.
HOW WILL YOU KNOW THE STATUS OF YOUR POLICY?
Each year, we will send you a report. This report will show your policy's
status. It 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 year, policy loan activity and the policy value. The report will be
sent without cost to you. The report will be as of a date within two months of
its mailing.
POLICY ADJUSTMENTS
WHAT TYPES OF ADJUSTMENTS CAN BE MADE TO THIS POLICY?
Except while the policy is on extended term, you may ask us to make any of the
four following policy adjustments:
(1) increase or decrease the current face amount;
(2) increase or decrease the premium;
(3) make a partial surrender;
(4) adjust the base premium to zero ("stop premium").
MHC-98-690 Minnesota Life 20
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You may request a policy adjustment by completing an application for adjustment.
Adjustments will not apply to any additional benefit agreements attached to your
policy.
ARE THERE ANY ADJUSTMENT LIMITATIONS?
Yes. An adjustment must satisfy certain limits on premiums, face amount and the
attained ages of both insureds at which an adjusted policy may provide for a
scheduled reduction in face amount. Other limitations on adjustments and on
combinations of adjustments may apply. Our approval on any adjustment is
required. The current limits on adjustments are those described here.
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 or older, no increases
requiring evidence of insurability will be allowed.
Any adjustment for a change of premium must result in a change of the annual
premium of at least $300.
An adjustment with an increase in premium must result in a policy which is
scheduled to become paid-up only after the payment of ten annual premiums or to
the younger insured's age 100, if less. In addition, any policy must have a
minimum 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 face amount changes which are the
result of an additional benefit agreement , or a partial surrender under the
policy, or unless a small change in face amount is required to avoid a violation
of the limitations pertaining to plans of insurance.
After adjustment, other than an adjustment to stop premium or the automatic
adjustment at the point when the face amount is scheduled to decrease, the
policy must provide a level face amount of insurance for a period of time to be
determined by us. An adjustment to stop premium or the automatic adjustment at
the point when the face amount is scheduled to decrease requires that the policy
have an actual cash value sufficient to keep the policy in force until the next
policy anniversary.
WHAT EFFECT WILL AN ADJUSTMENT HAVE ON THE POLICY'S TABULAR CASH VALUES?
After adjustment, the tabular cash value shall be equal to:
(1) the greater of the policy value, and the tabular cash value prior to that
adjustment,
(2) plus any nonrepeating premium credit,
(3) less the amount of any partial surrender made at the time of the
adjustment.
MHC-98-690 Minnesota Life 21
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MAY EVIDENCE OF INSURABILITY BE REQUIRED?
Yes. We will require evidence satisfactory to us of the continued insurability
of both insureds. We will need this evidence for adjustments which increase the
current face amount or for adjustments which retain the face amount while also
making a partial surrender. All other adjustments may be made without evidence
of insurability.
IS AN ADJUSTMENT ALLOWED IF PREMIUMS ARE BEING WAIVED?
No. If this policy contains a Waiver of Premium Agreement and if you are
receiving, or are entitled to receive, the waiver of premium benefit, no
adjustments under this provision will be allowed, except as provided in the
Waiver of Premium Agreement.
WHAT WILL BE THE EFFECT OF THE POLICY ADJUSTMENTS?
The effects of policy adjustments are shown below.
<TABLE>
<CAPTION>
IF YOU MAKE THIS KIND
OF ADJUSTMENT, UNDER THIS CONDITION, IT WILL DO THIS:
<S> <C> <C>
Decrease the current face while the premium remains the any scheduled decrease in the
amount... same... current face amount will take
Retain the current face while the premium increases... place at a later policy amount...
anniversary; a scheduled
decrease in the face amount will
be eliminated; or the premium
paying period will be shortened.
Increase the current face with no increase in premium... any scheduled decrease in the
amount... current face amount will take
Retain the current face while the premium decreases... place at an earlier policy
amount... anniversary; a scheduled
If you make a partial while the premium and face decrease in the face amount will
surrender... amount remain the same... occur; or the premium paying period
will be lengthened.
Stop premium... while the face amount remains any scheduled decrease in the
the same... current face amount will take
place at an earlier policy
anniversary or, a scheduled
decrease in the face amount will
occur; and no insurance will be
provided after the decrease.
</TABLE>
You may request a description of the effect of other types or combinations of
adjustments from us.
MHC-98-690 Minnesota Life 22
<PAGE>
WHEN WILL AN ADJUSTMENT BE EFFECTIVE?
Any adjustment you request will not become effective until after we approve and
record it at our home office.
When we approve your written request for an adjustment, we will send you a new
page 1. A copy of your adjustment application will be attached to that new page
1. We may require that you return your policy to our home office for attachment
of the new page 1 or we may simply mail it to you at your last known address and
ask you to attach it to your policy. In either event, the new page 1 and its
application will become part of this policy.
WHAT HAPPENS IF THE CURRENT FACE AMOUNT IS SCHEDULED TO DECREASE?
At the time when the current face amount is scheduled to decrease, we will
automatically adjust your policy, retaining both the current face amount and the
premium. This adjustment will result in a scheduled decrease in the current face
amount at a later policy anniversary, or the elimination of the scheduled
decrease in the face amount, or the shortening of the premium paying period.
This automatic adjustment will be subject to all the adjustment limitations
described in this section.
MHC-98-690 Minnesota Life 23
<PAGE>
PAYMENT OF PROCEEDS
WHEN WILL THE POLICY PROCEEDS BE PAYABLE?
The proceeds of this policy will be payable if the policy is surrendered while
it is in force or if 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 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.
CAN PROCEEDS BE PAID IN OTHER THAN A SINGLE SUM?
Yes. You may, before the second death, request that we pay the proceeds under
one of the following settlement options. We may also use any other method of
payment that is agreeable to 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.
The following settlement options are all payable in fixed amounts as are
described below. These payments do not vary with the investment performance of
the separate account.
OPTION 1 -- INTEREST PAYMENTS
Payment of interest on the proceeds at such times and for a period that is
agreeable to you and us. Withdrawal 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
Monthly payments for a specified number of years. The amount of each
monthly payment for each $1,000 of proceeds applied under this option is
shown in the following table. The monthly payments for any period not shown
will be furnished upon request.
NUMBER OF YEARS MONTHLY PAYMENTS
5 $17.91
10 9.61
15 6.87
20 5.51
25 4.71
OPTION 3 -- LIFE INCOME
Monthly payments for the life of the person who is to receive the income.
We will require satisfactory proof of the person's age and gender. Payments
can be guaranteed for 5, 10, or 20 years. The amount of each monthly
payment for each $1,000 of proceeds applied under
MHC-98-690 Minnesota Life 24
<PAGE>
this option is shown in the following table. The monthly payments for any
ages not shown will be furnished upon request.
AGE LIFE INCOME WITH PAYMENTS
-------------- LIFE GUARANTEED FOR
MALE FEMALE INCOME 5 YEARS 10 YEARS 20 YEARS
---- ------ ------ ------- -------- --------
50 55 $4.37 $4.36 $4.33 $4.18
55 60 4.87 4.85 4.79 4.51
60 65 5.56 5.52 5.39 4.85
65 70 6.51 6.41 6.13 5.16
70 75 7.86 7.64 7.03 5.38
OPTION 4 -- PAYMENTS OF A SPECIFIED AMOUNT
Monthly payments of a specified amount until the proceeds and interest are
fully paid.
If you request a settlement option, we will prepare an agreement for you to
sign, which will state the terms and conditions under which the payments will be
made.
CAN A BENEFICIARY REQUEST PAYMENT UNDER A SETTLEMENT OPTION?
Yes. A beneficiary may select a settlement option only after the second death.
However, you may provide that the beneficiary will not be permitted to change
the settlement option you have selected.
ARE THE PROCEEDS EXEMPT FROM CLAIMS OF CREDITORS?
To the extent permitted by law, no payment of proceeds or interest we make will
be subject to the claims of any creditors.
Also, if you provide that the option selected cannot be changed after the second
death, the payments will not be subject to the debts or contracts of the person
receiving the payments. If garnishment or any other attachment of the payments
is attempted, we will make those payments to a trustee we name. The trustee will
apply those payments for the maintenance and support of the person you named to
receive the payments.
WHAT IS THE GUARANTEED INTEREST RATE ON SETTLEMENT OPTIONS?
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.
MHC-98-690 Minnesota Life 25
<PAGE>
BENEFICIARY
TO WHOM WILL WE PAY THE DEATH PROCEEDS?
When we receive proof satisfactory to us of the second death, we will pay the
death proceeds of this policy to the beneficiary or beneficiaries named in the
application for this policy unless you have changed the beneficiary. In that
event, we will pay the death proceeds to the beneficiary named in your last
change of beneficiary request as provided below.
WHAT HAPPENS IF ONE OR ALL OF THE BENEFICIARIES DIES BEFORE THE SECOND 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 you, if living, otherwise, to your estate, or to your successor
if you are a corporation no longer in existence.
WHAT IF BOTH INSUREDS DIE SIMULTANEOUSLY?
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.
CAN YOU CHANGE THE BENEFICIARY?
Yes. 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 we record it in our home
office. After we record it, the change 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 so recorded.
POLICY LOANS
CAN YOU BORROW MONEY ON YOUR POLICY?
Yes. You may borrow up to the maximum loan amount. This amount is determined as
of the date we receive your request for a loan. We will require your written
request for a policy loan. We will charge interest on the loan in arrears.
At your request, we will send you a loan agreement for your signature. The
policy will be the only security required for your loan.
MHC-98-690 Minnesota Life 26
<PAGE>
When the policy loan is to come from your guaranteed principal account actual
cash value, we have the right to postpone your loan for up to six months. We
cannot do so if the loan is to be used to pay premiums on any policies you have
with us.
WHAT IS THE TOTAL AMOUNT AVAILABLE FOR POLICY LOANS?
The total amount available for loans under your policy is 90 percent of the
policy value (see page 3). Your policy value will be determined as of the date
we receive your written request for a loan at our home office.
WHAT IS THE EFFECT OF A POLICY LOAN?
When you take a loan, we will reduce the actual cash value of the policy. It
will be reduced by the amount you borrow. This determination will be made as of
the end of the valuation period during which your loan agreement is received at
our home office.
HOW DOES A POLICY LOAN REDUCE ACTUAL CASH VALUE?
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.
Policy loans shall be transferred to the loan account. The loan account
continues to be a part of the policy in the general account.
The policy value of your policy may decrease between premium due dates. If your
policy has a policy loan and no actual cash value, the policy will lapse.
WHAT RATE OF INTEREST DO YOU HAVE TO PAY?
The interest rate on indebtedness will be the rate shown on page 1 of this
policy. Interest accrues daily at this annual interest rate.
WHEN IS POLICY LOAN INTEREST DUE AND PAYABLE?
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 by an additional policy loan in the amount of the unpaid interest. It
will then be charged the same rate of interest as your loan. Your actual cash
value will be reduced by the amount of the policy loan and unpaid policy loan
interest when it is due.
MHC-98-690 Minnesota Life 27
<PAGE>
HOW AND WHEN CAN YOU REPAY YOUR LOAN?
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 this
policy. Any loan repayment must be at least $100 unless the balance due is less
than $100.
HOW ARE LOAN REPAYMENTS ALLOCATED?
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 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 the 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.
WHAT IS THE RATE OF INTEREST CREDITED TO A POLICY AS A RESULT OF A POLICY LOAN?
Interest credits shall be at a rate which is not less than your policy loan
interest rate minus 2 percent per annum.
WHEN ARE INTEREST CREDITS ON A POLICY LOAN ALLOCATED TO YOUR ACTUAL CASH VALUE?
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.
HOW ARE POLICY LOAN INTEREST CREDITS ALLOCATED?
Policy loan 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.
MHC-98-690 Minnesota Life 28
<PAGE>
WHAT HAPPENS IF YOU DO NOT REPAY YOUR LOAN?
If your policy has indebtedness, your policy will remain in force so long as it
has actual cash value. If it does not, your 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.
CAN YOU ARRANGE FOR AUTOMATIC PREMIUM LOANS TO KEEP YOUR POLICY IN FORCE?
Yes. If you asked for this option in your application, or if you write us and
ask for this option 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 option. If you have this option 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. However, in order for this 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.
IS THERE A MINIMUM POLICY LOAN?
Yes. Any policy loan we pay in cash must be in an amount of at least $100. A
policy loan may be in a lesser amount if it is used to pay a premium under the
automatic premium loan provision.
ADDITIONAL INFORMATION
CAN YOU ASSIGN YOUR POLICY?
Yes. Your policy may be assigned. The assignment must be in writing and filed
with us at our home office. We assume no responsibility for the validity or
effect of any assignment of this policy or of any interest in it. Any proceeds
which become payable to the 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 that interest.
WHAT IF THE DATE OF BIRTH OF EITHER INSURED IS MISSTATED?
If the date of birth of either insured has been misstated, the amount of
proceeds will be adjusted to reflect the cost of insurance charges based upon
the correct date of birth.
WHEN DOES YOUR POLICY BECOME INCONTESTABLE?
After this policy has been in force during the lifetimes of both insureds for
two years from the original policy date, we cannot contest this policy, except
for fraud or the nonpayment of premiums. However, if there has been a face
amount increase or a reinstatement for which we required evidence of
insurability, that increase will be contestable for two years, during the
lifetimes of both insureds, from the effective date of the increase or the
reinstatement.
MHC-98-690 Minnesota Life 29
<PAGE>
IS THERE A SUICIDE EXCLUSION?
Yes. 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 this 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 that increase will be limited to an amount equal to
the premiums paid for such increase.
POLICY EXCHANGE OPTION
CAN YOU EXCHANGE THIS POLICY FOR TWO SEPARATE POLICIES?
Yes. As long as both insureds are alive, you may ask to exchange this policy for
two individual policies, insuring each of the insureds separately.
WILL EVIDENCE OF INSURABILITY BE REQUIRED?
Yes. We will ask you for evidence of insurability, satisfactory to us, on the
lives of both insureds, before we will permit a policy exchange.
WHAT POLICY FORM WILL BE AVAILABLE?
The new policies will be issued on the variable or fixed policy form we are
using on the date of exchange.
WHAT WILL BE THE DEATH BENEFIT OF THE NEW POLICIES?
The death benefit of each of the two new policies will be 50% of the death
benefit of this policy.
WHAT VALUES WILL THE NEW POLICIES HAVE?
The cash value and loan of each new policy will be one-half of the cash value
and loan of this policy.
WHAT WILL BE THE PREMIUM RATE FOR THE NEW POLICIES?
Premiums will be based on the age, gender and class of each insured on the date
of exchange.
WHEN WILL THE EXCHANGE BE EFFECTIVE?
The exchange will be effective when all premiums for the new policies are paid
while both insureds are still living.
MHC-98-690 Minnesota Life 30
<PAGE>
WHAT WILL BE THE POLICY DATE OF THE NEW POLICIES?
The policy date of the new policies will be the date of the exchange.
MHC-98-690 Minnesota Life 31
<PAGE>
VARIABLE ADJUSTABLE LIFE SECOND DEATH POLICY
Variable Benefits.
Premiums as stated on the Policy Information Page.
Face Amount and Premium may be adjusted by the owner.
NONPARTICIPATING
Minnesota Life Insurance Company is a subsidiary of Minnesota Mutual Companies,
Inc., a mutual insurance holding company. You are a member of the Minnesota
Mutual Companies, Inc., which holds its annual meetings on the first Tuesday in
March of each year at 3 p.m. local time. The meetings are held at 400 Robert
Street North, St. Paul, Minnesota 55101-2098.
MINNESOTA LIFE
<PAGE>
Exhibit 99-A(5)(b)
WAIVER OF PREMIUM AGREEMENT
WHAT DOES THIS AGREEMENT PROVIDE?
This agreement provides for the waiver of premiums on this policy if the covered
insured shown on page 1 becomes totally and permanently disabled. This means
that you will not be required to pay any premium that falls due during the
period of total and permanent disability. To qualify for this benefit, you must
give us timely notice of the covered insured's disability. You must also furnish
evidence satisfactory to us that the total disability:
(1) commenced while this policy and agreement were in force; and
(2) commenced after the policy anniversary nearest the covered insured's age 5
but before the policy anniversary nearest the covered insured's age 60; and
(3) was continuous for six months or more; and
(4) did not result directly from any act of war.
WHAT IS "TOTAL" DISABILITY?
Total disability is a disability resulting from an accidental injury or a
disease that requires the care of a licensed physician and continuously prevents
the covered insured from engaging in an occupation. During the first 24 months
of total disability, "occupation" means the covered insured's regular
occupation. After 24 months, it means any occupation for which the covered
insured is reasonably fitted by education, training or experience.
Also, the covered insured's total and irrecoverable loss of:
(1) the sight of both eyes, or
(2) the use of both hands, or
(3) the use of both feet, or
(4) the use of one hand and one foot, or
(5) hearing or speech
will be considered total disability even if the covered insured engages in an
occupation.
WHAT IS "PERMANENT" DISABILITY?
Total disability will be considered permanent only after it has existed
continuously for at least six months.
MHC-98-917 Waiver of Premium Agreement Minnesota Life 1
<PAGE>
ON WHAT BASIS WILL PREMIUMS BE WAIVED OR REFUNDED?
We will waive or refund premiums according to the frequency of premium payment
that was in effect on this policy on the date the total disability commenced.
We will refund all scheduled premiums paid from the date total disability
commenced to the date the claim is approved. We will not refund any nonrepeating
premiums. After the claim is approved, we will waive premiums under this
agreement as if your policy were on a plan with premiums payable to the younger
insured's age 100 and no scheduled decrease in the face amount. If your policy
is not on this plan, we will automatically increase or decrease your annual
premium so that your policy is on this plan. In that event, we will issue a new
page 1 which will be subject to the Policy Adjustments provision of your policy.
In addition, we will waive the premium for any additional benefit agreement that
is attached to your policy.
WHAT IF THE COVERED INSURED RECOVERS FROM THE DISABILITY?
We will no longer waive any premiums on this policy due after the covered
insured recovers. In addition, we will, upon your request, restore your policy
to the premium level that was in effect before the disability commenced, subject
to the Policy Adjustments provision of your policy.
ARE THERE ANY LIMITATIONS?
No premium will be waived or refunded if the total disability results directly
from an act of war while the covered insured is serving in the military, naval
or air forces of any country at war, declared or undeclared.
WHEN MUST WE BE NOTIFIED?
We must receive written notice of total disability at our home office:
(1) while the covered insured is living and totally disabled, and
(2) not later than one year after the termination of this agreement, and
(3) within one year after the due date of the premium that you request us to
waive or refund.
However, the failure to give this notice within the time provided will not
invalidate the claim if it is shown that notice was given as soon as reasonably
possible.
WHAT IS THE COST?
The annual premium for this agreement is shown on page 1 of this policy. If this
agreement terminates, the total annual premium for this policy will be reduced
by the amount shown.
MHC-98-917 Waiver of Premium Agreement Minnesota Life 2
<PAGE>
WHAT PROOF WILL BE REQUIRED?
You must furnish proof satisfactory to us that the covered insured is totally
and permanently disabled as defined in this agreement before any premiums will
be waived or refunded. We will from time to time also require additional proof
satisfactory to us of the continuation of total and permanent disability. We may
also require the covered insured to submit to one or more physical examinations
at our expense. However, we will not require a physical examination more
frequently than once a year if the total disability has continued for two years.
WHAT IF THIS POLICY LAPSES?
If this policy is lapsed for nonpayment of premium before notice of total
disability is received at our home office, premiums will be waived or refunded
only if the notice is received within one year after the due date of the first
unpaid premium. Also, the total disability must have commenced prior to the due
date of the unpaid premium or during the grace period allowed for the payment of
that premium.
WHEN IS THIS AGREEMENT INCONTESTABLE?
This agreement is subject to the incontestability provision in this policy.
However, the contestable period for this agreement will be measured from the
effective date of this agreement.
WILL THIS AGREEMENT INCREASE YOUR POLICY VALUES?
No. This agreement will not increase the policy values of this policy.
WHEN WILL THIS AGREEMENT TERMINATE?
This agreement will terminate on:
(1) the date any premium due for this policy remains unpaid at the end of the
grace period; or
(2) the date the policy becomes paid-up; or
(3) the date this policy is continued as extended term insurance; or
(4) the date this policy is surrendered or terminated; or
(5) the date we receive your written request to cancel this agreement;
or
(6) the date when the covered insured dies; or
(7) the policy anniversary nearest the covered insured's 60th birthday.
MHC-98-917 Waiver of Premium Agreement Minnesota Life 3
<PAGE>
This agreement is effective as of the original policy date of this policy unless
a different effective date is shown here.
President
Secretary
MHC-98-917 Waiver of Premium Agreement Minnesota Life 4
<PAGE>
Exhibit 99-A(5)(c)
ESTATE PRESERVATION AGREEMENT
This agreement is a part of the policy to which it is attached; it is subject to
all the terms and conditions of the policy.
WHAT DOES THIS AGREEMENT PROVIDE?
This agreement gives you the right to purchase four-year level term insurance,
without evidence of insurability, at the death of the designated insured. This
insurance is payable at the second death.
WHO ARE THE DESIGNATED INSURED AND THE OTHER INSURED?
The designated insured and the other insured are named on page 1. Neither the
designated insured nor the other insured may be changed.
WHAT WILL BE THE MAXIMUM AMOUNT OF THE ADDITIONAL TERM INSURANCE?
The maximum amount of the additional term insurance which you may purchase is
shown on page 1.
WHEN MAY THIS RIGHT BE EXERCISED?
At the death of the designated insured, you may exercise the right to purchase
additional term insurance, within ninety days immediately following the death of
the designated insured. This period ends at the earlier of 90 days after the
death of the designated insured and the date the additional term insurance is
purchased, and is called the Option Period.
HOW DO YOU EXERCISE THIS RIGHT?
You must notify us in writing that you are exercising the right to purchase
additional term insurance. You must also provide us with:
(1) proof satisfactory to us of the death of the designated insured; and
(2) the amount of additional term insurance you wish to purchase; and
(3) the increased premium due for this agreement.
WHEN WILL THE ADDITIONAL TERM INSURANCE BE EFFECTIVE?
If you exercise the right to purchase additional term insurance, that insurance
will be effective at the beginning of the Option Period. The additional term
insurance will remain in effect for four years from the policy anniversary next
following the death of the designated insured.
MHC-95-943 Estate Preservation Agreement Minnesota Life 1
<PAGE>
WHEN WILL THE ADDITIONAL TERM INSURANCE BE PAYABLE?
We will pay the additional term insurance at the second death, to the
beneficiary of this policy.
CAN YOU RENEW OR CONVERT THE ADDITIONAL TERM INSURANCE PROVIDED BY THIS
AGREEMENT?
No. The additional term insurance provided by this agreement may not be renewed
or converted.
WHAT WILL THE PREMIUM BE FOR THIS AGREEMENT?
The annual premium for this agreement is shown on page 1. If this agreement
terminates, the total annual premium for this policy will be reduced by the
amount shown for this agreement. If you exercise the right to purchase
additional term insurance, we will reissue the policy and send you a new page 1.
The reissued policy will have an increased premium for the term insurance
purchased under this agreement, which will be based on the age of the other
insured of this policy at the time of the exercise and the same premium class
applicable to the other insured at the time this policy was issued.
WHAT IF THE SECOND DEATH OCCURS WITHIN THE OPTION PERIOD?
If the second death occurs within the Option Period, but not simultaneously with
the death of the designated insured, we will pay the maximum amount of
additional term insurance shown on page 1 to the beneficiary of this policy.
WILL WE PAY THE ADDITIONAL TERM INSURANCE IF THE SECOND DEATH AND THE DEATH OF
THE DESIGNATED INSURED OCCUR SIMULTANEOUSLY?
No. If the second death and the death of the designated insured occur
simultaneously or under circumstances which make it impossible to determine the
order of their deaths, we will not pay the additional term insurance under this
agreement.
ARE THIS AGREEMENT AND THE ADDITIONAL TERM INSURANCE SUBJECT TO THE
INCONTESTABILITY AND SUICIDE PROVISIONS OF THE POLICY?
Yes. Those provisions apply. The contestable and suicide periods will be
measured from the date of this agreement.
WHEN WILL THIS AGREEMENT TERMINATE?
This agreement will terminate on the earliest of:
(1) the date any premium due for this policy remains unpaid at the end of the
grace period; or
(2) the date this policy is surrendered or terminates; or
(3) the date this policy is continued as extended term insurance; or
MHC-95-943 Estate Preservation Agreement Minnesota Life 2
<PAGE>
(4) the date we receive your written request to cancel this agreement; or
(5) the end of the Option Period, if you do not exercise your right to purchase
additional term insurance within the Option Period; or
(6) four years after the policy anniversary next following the death of the
designated insured, if you exercise your right to purchase additional term
insurance within the Option Period; or
(7) the termination date for this agreement shown on page 1; or
(8) the date of the death of the other insured.
This agreement is effective as of the policy date of this policy.
President
Secretary
MHC-95-943 Estate Preservation Agreement Minnesota Life 3
<PAGE>
Exhibit 99-A(5)(d)
SINGLE LIFE TERM INSURANCE AGREEMENT
This agreement is a part of the policy to which it is attached; it is subject to
all its terms and conditions.
WHAT DOES THIS AGREEMENT PROVIDE?
This agreement provides level one-year term insurance on the life of the person
insured under this agreement and named on page 1.
WHAT IS THE AMOUNT OF THE INSURANCE?
The amount of insurance is the face amount shown on page 1.
WHAT IS THE PREMIUM FOR THIS AGREEMENT?
The annual premiums for this policy are shown on page 1. The premiums for this
agreement will increase each year as described by the schedule on page 1. If
this agreement terminates, the total annual premium for this policy will be
reduced by the premium for this agreement.
There are two tables of premiums for this agreement. The first table shows
premiums based on our experience at the time this agreement was issued. As long
as our experience on insurance of this type remains the same, these are the
premiums we will bill you. If our experience changes, the premiums we bill you
may be higher or lower. However, we will never bill you for a premium higher
than those shown in the second table. Those premiums are called guaranteed
premiums.
WHEN AND TO WHOM WILL WE PAY THE DEATH BENEFIT FOR THIS AGREEMENT?
We will pay the death benefit for this agreement if we receive proof
satisfactory to us that the insured died while this agreement is in effect. We
will pay the death benefit to the beneficiary designated for this agreement, if
living at the time of the insured's death. If the designated beneficiary is not
living, the proceeds will be paid to you, if living, or to your estate.
CAN THIS AGREEMENT BE RENEWED?
Yes. You may renew this agreement for additional one-year term periods,
provided;
(1) the insured's age on the date of renewal is not greater than age 94; and
(2) we receive payment in our home office of the amount shown in the table of
Renewal Premiums on page 1 for the date of renewal. We must receive the
renewal premium in our home office within 31 days from the date the
insurance provided by this agreement terminates.
MHC-95-944 Single Life Term Insurance Agreement Minnesota Life 1
<PAGE>
CAN YOU CONVERT THE TERM INSURANCE PROVIDED BY THIS AGREEMENT?
The term insurance provided by this agreement may be converted to a new policy.
As long as the insured's age is not greater than age 65, and as long as we are
not waiving premiums for this policy under a Waiver of Premium Agreement, you
may convert this insurance at any time.
We will require evidence of insurability on the insured satisfactory to us only
if the new policy is to contain an additional benefit agreement.
The new policy must be a Whole Life policy on the policy form we are then
issuing and must be within the issue and amount limits for that policy form. The
face amount of the new policy cannot exceed the amount of the insurance provided
by this agreement as shown on page 1 of this policy. The new policy will be
issued as of the date of the termination of this agreement and will be on a form
and at a premium rate then used for the insured's age on that date. If this
policy contains a Waiver of Premium Agreement, a Waiver of Premium Agreement on
a form we are then issuing may be included in the new policy without evidence of
insurability. The new policy will not cover any disability commencing before the
date of conversion.
Application for the new policy and payment of the first premium must be received
at our home office within 31 days after the insurance provided by this agreement
terminates.
IS THIS AGREEMENT SUBJECT TO THE INCONTESTABILITY AND SUICIDE PROVISION OF THE
POLICY?
Yes. Those provisions apply to this agreement. The contestable and suicide
periods will be measured from the effective date of this agreement.
WILL THIS AGREEMENT INCREASE YOUR POLICY VALUES?
This agreement will not increase the policy values of this policy.
WHEN WILL THIS AGREEMENT TERMINATE?
This agreement will terminate on the earliest of:
(1) the date any premium due for this policy remains unpaid at the end of the
grace period; or
(2) the date this policy is surrendered or terminates; or
(3) the date this policy is continued as extended term insurance; or
(4) the date when this agreement can no longer be renewed; or
(5) the date all or a portion of the insurance provided by this agreement is
converted to a new policy; or
(6) the date we receive your written request to cancel this agreement, or
MHC-95-944 Single Life Term Insurance Agreement Minnesota Life 2
<PAGE>
(7) the policy anniversary nearest the insured's 95th birthday.
This agreement is effective as of the original policy date unless a different
effective date is shown here.
President
Secretary
MHC-95-944 Single Life Term Insurance Agreement Minnesota Life 3
<PAGE>
Exhibit 99-A(5)(e)
- --------------------------------------------------------------------------------
MINNESOTA LIFE SHORT TERM AGREEMENT
- --------------------------------------------------------------------------------
AGREEMENT DATE APPLICABLE COVERAGE SHORT TERM PREMIUM
Entire Policy
- --------------------------------------------------------------------------------
GENERAL
In consideration of the payment of the Short Term Premium shown above, the
Company hereby agrees to pay the death benefit provided by this agreement upon
receipt of due proof that an Insured Person has died while this agreement is in
effect.
APPLICABLE COVERAGE
This short term agreement provides temporary protection preceding another
coverage which shall be known as the Applicable Coverage. If the Applicable
Coverage is a policy, it shall be identified by the words "Entire Policy" in the
space above. If the Applicable Coverage is an agreement being added to a policy
already in force, it shall be identified by its form number in the space above.
INSURED PERSON
An Insured Person shall be that person or those persons to be insured under the
Applicable Coverage.
SHORT TERM PERIOD
This agreement shall take effect at the same time and subject to the same
conditions as those stated in the application for the Applicable Coverage,
provided that wherever the words "first premium" appear therein, the words
"Short Term Premium" are substituted. This agreement shall terminate on the day
preceding the date of issue of the Applicable Coverage. However, a grace period
of 31 days will be allowed for payment of the first regular premium required
under the Applicable Coverage. This agreement shall continue in force during the
grace period. If death occurs during the grace period, the unpaid premium shall
be deducted from the amount otherwise payable.
DEATH BENEFIT
This agreement applies to the life coverage on the lives of all Insured Persons.
The death benefit provided by this agreement shall be those benefits which would
have been payable under the Applicable Coverage had death taken place on its
date of issue, except that if an infant Insured dies before attaining the age of
32 days, the amount shall be reduced to one-fourth the amount otherwise payable.
DISABILITY
Any total and permanent disability benefits provided under the Applicable
Coverage shall be included under this agreement.
CONTESTABLE AND SUICIDE PERIODS
The contestable and suicide periods for the Applicable Coverage shall be
measured from the date of this agreement.
This agreement is not in force unless countersigned by a Registrar.
/s/ Robert L. Senkler
President
/s/ Dennis E. Prohofsky
Secretary
Registrar
GA/SA:
MHC-E324.1 10-1998 OP-ID:
<PAGE>
Exhibit 5(f)
================================================================================
MINNESOTA LIFE PROTECTION OPTION AMENDMENT
- --------------------------------------------------------------------------------
[LETTERHEAD OF MINNESOTA LIFE 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
MHC-98-946 Protection Option Amendment
<PAGE>
===============================================================================
MINNESOTA LIFE VARIABLE EARLY VALUE AGREEMENT
- -------------------------------------------------------------------------------
Minnesota Life Insurance Company -
400 Robert Street North - St. Paul, Minnesota 55101-2098
- -------------------------------------------------------------------------------
This agreement is a part of the policy to which it is attached; it is subject to
all its terms and conditions. This agreement is effective as of the policy date
of this policy.
WHAT DOES THIS AGREEMENT PROVIDE?
We will waive a portion of the first-year sales load and the underwriting charge
which we assess against the base premium in effect when this policy is issued.
The waived amount of the first-year sales load and the underwriting charge are
shown on page 1. Any first-year sales loads or underwriting charges assessed
when you adjust the policy will not be waived.
IS THERE A PREMIUM FOR THIS AGREEMENT?
Yes. The annual premium for this agreement is shown on page 1. This premium will
be payable for the period shown on page 1.
WHAT EFFECT WILL THE WAIVED CHARGES HAVE ON YOUR NET PREMIUMS?
This agreement will increase the net premiums allocated to either the guaranteed
principal account or to the separate account in the first policy year.
WHEN DOES/WILL THIS AGREEMENT TERMINATE?
This agreement will terminate on the earliest of:
(1) the date any premiums due for this policy remain unpaid at the end
of the grace period; or
(2) the date the policy is continued as extended term insurance; or
(3) the date this policy matures, is surrendered, or otherwise terminates.
/s/ Dennis E. Prohofsky /s/ Robert L. Senkler
- ----------------------------------- -----------------------------------
Secretary President
MHC-98-940 Variable Early Value Agreement
<PAGE>
Exhibit 10(a)
================================================================================
MINNESOTA LIFE APPLICATION PART 1
- --------------------------------------------------------------------------------
Minnesota 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 U.S.)
- --------------------------------------------------------------------------------
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, 8:00 a.m. to
8:30 p.m. 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 $2,400.00 minimum annual base premium.)
DIVIDEND INFORMATION:
Dividend Option
--------------------------------
Unless otherwise requested, dividends will be used to purchase: paid-up
additions on permanent plans, policy or plan improvement on Adjustable Life, and
accumulations on term plans.
F.MHC-3198 10-1998
<PAGE>
ADDITIONAL BENEFITS AND AGREEMENTS:
<TABLE>
<S> <C>
[_] Additional Insured Agreement (Complete Family Term Agreement).............................$_________________
[_] 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.MHC-44244)
[_] Omit Cost of Living Agreement (if available)
[_] Adjustable Survivorship Life $___________________ Designated Insured _____________________________________________
Automatic Election Option: [_] Yes [_] No
[_] Other _____________________________________________________________________________________________________________
</TABLE>
REPLACEMENT:
Will this policy replace any existing life insurance or annuity(ies), or has
there been, or will there be a lapse, surrender, loan withdrawal or other
changes 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).
<TABLE>
<CAPTION>
- ----------------------------------------------------------------------------------------------------------------------
Coverage Amount Benefit Period Waiting Period
- ----------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
Base $
- ----------------------------------------------------------------------------------------------------------------------
ADMIA $
- ----------------------------------------------------------------------------------------------------------------------
ADMIA $
- ----------------------------------------------------------------------------------------------------------------------
Supplementary Income Benefit $ [_] to 365 days
- ----------------------------------------------------------------------------------------------------------------------
Social Security Agreement $ //////////////////////////////// 365 days
- ----------------------------------------------------------------------------------------------------------------------
</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% $_____________ of aggregate monthly
benefit.
OCCUPATION
A. Class [_]*P [_]1* [_]*S [_]1 [_]2 [_]3
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). ------------- -------------- --------------
6. 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
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>
<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
do not 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(ies) and city(ies) 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.MHC-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.MHC-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.MHC-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 LIFE.
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
Life, and sent directly to the Home Office.
Amount paid for: Life Insurance $______
Disability or Overhead Expense Insurance $______
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 Life 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 in 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 Life. Not to be used in CA (for Disability
only), IA, IL, KS, KY, MD, MI, MN, MO, NH, NJ, OR, PA, TX, WI or WV for change
in age, amount, classification, plan or benefits unless agreed to in writing.
<PAGE>
Exhibit 99-A(10)(b)
<TABLE>
<CAPTION>
<S><C>
- ---------------------------------------------------------------------------------------------------------------------------------
MINNESOTA LIFE SUPPLEMENT TO APPLICATION PART 1
VARIABLE ADJUSTABLE LIFE SECOND DEATH
- ---------------------------------------------------------------------------------------------------------------------------------
Minnesota Life Insurance Company - Individual Policy Issues - 400 Robert Street North - St. Paul, Minnesota 55101-2098
- ---------------------------------------------------------------------------------------------------------------------------------
TO BE COMPLETED ONLY IF APPLYING FOR ADDITIONAL BENEFITS AND AGREEMENTS.
Supplement to the Application Part 1 dated:
----------------------------
First Insured's Name (Last, First, Middle Initial) Date of Birth (Mo., Day, Yr.)
-- -- --
- ---------------------------------------------------------------------------------------------------------------------------------
Second Insured's Name (Last, First, Middle Initial) Date of Birth (Mo., Day, Yr.)
-- -- --
- ---------------------------------------------------------------------------------------------------------------------------------
ADDITIONAL BENEFITS AND AGREEMENTS
/ / Estate Preservation Agreement
Designated Life...................................................................................
-----------------------
Face Amount (cannot exceed 122% of base amount).......................................................$
-------------------
/ / Waiver of Premium Agreement (available on either insured or both)....................../ / First Insured / / Second Insured
/ / Single Life Term Insurance Agreement (available on either insured or both)............./ / First Insured / / Second Insured
Face Amount for First Insured.........................................................................$
-------------------
Face Amount for Second Insured........................................................................$
-------------------
SINGLE LIFE TERM INSURANCE AGREEMENT BENEFICIARY
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.
Beneficiary for first insured
- ---------------------------------------------------------------------------------------------------------------------------------
CLASS PRINT GIVEN NAME, MIDDLE INITIAL AND SURNAME (IF CORPORATE RELATIONSHIP TO
BENEFICIARY, GIVE FULL NAME AND STATE OF INCORPORATION.) INSURED
- ---------------------------------------------------------------------------------------------------------------------------------
- ---------------------------------------------------------------------------------------------------------------------------------
- ---------------------------------------------------------------------------------------------------------------------------------
Beneficiary for second insured
- ---------------------------------------------------------------------------------------------------------------------------------
CLASS PRINT GIVEN NAME, MIDDLE INITIAL AND SURNAME (IF CORPORATE RELATIONSHIP TO
BENEFICIARY, GIVE FULL NAME AND STATE OF INCORPORATION.) INSURED
- ---------------------------------------------------------------------------------------------------------------------------------
- ---------------------------------------------------------------------------------------------------------------------------------
- ---------------------------------------------------------------------------------------------------------------------------------
Correspondence should be sent to (may be different than premium payor.)
-------------------------------------------------
(Name of joint owner to receive correspondence.)
Additional information may be provided in the additional remarks section of the Application Part 1 (page 2) or in a cover memo.
</TABLE>
F MHC-43186V 10-1998
<PAGE>
Exhibit 10(c)
- --------------------------------------------------------------------------------
MINNESOTA LIFE APPLICATION PART 3
AGREEMENTS, CERTIFICATION AND AUTHORIZATION
- --------------------------------------------------------------------------------
Minnesota 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 any 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 Life, 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 Life 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 Life 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 Life. I authorize Minnesota Life 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 Life 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
- --------------------------------------------------------------------------------
F.MHC-42663 10-1998
<PAGE>
<TABLE>
<CAPTION>
Exhibit 10(d)
====================================================================================================================================
<S> <C>
MINNESOTA LIFE POLICY CHANGE APPLICATION PART 1
UNDERWRITING REQUIRED
- ------------------------------------------------------------------------------------------------------------------------------------
Minnesota 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 U.S.)
- ------------------------------------------------------------------------------------------------------------------------------------
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 LIFE 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 a.m. to 8:30 p.m. 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.MHC-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>
F.MHC-44096 10-1998
<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 where 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(s) 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%
Monthly Income Benefit Escalator.............................. [_] [_] 4% [_] 6% [_] 8% [_] 10%
OVERHEAD EXPENSE POLICIES ONLY:...............................
Base.......................................................... [_] $___________ __________ __________
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 (365)............................ [_] [_] [_] $________ ________
Social Security Agreement..................................... [_] [_] [_] $________ ________
Inflation Protection Agreement................................ [_] [_] [_] [_] 4% [_] 6%
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?
Paid To Policy Benefit Elimination --------- Will it be
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).
---------- ---------- ----------
6. 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(ies) and city(ies) 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.MHC-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.MHC-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.MHC-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 of a felony? [_] 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 LIFE POLICY CHANGE APPLICATION PART 3
AGREEMENTS, CERTIFICATION AND AUTHORIZATION
- --------------------------------------------------------------------------------
Minnesota 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 Life, 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 Life 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 Life 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 Life. I authorize Minnesota Life 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 Life'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>
F.MHC-44098 10-1998
<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 5% - 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
_____ ____% Index 500 _____ ____% Macro-Cap Value
_____ ____% Capital Appreciation _____ ____% Micro-Cap Growth
____% Real Estate Securities
_____ ____% Guaranteed Principal Account _____ ____% Templeton Dev. Mkt.
_____ ____% International Stock _____ ____% Other _________________
_____ ____% Small Company
</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_____
Index 500 $______to_____ Macro-Cap Value $______to_____
Capital Appreciation $______to_____ Micro-Cap Growth $______to_____
Guaranteed Principal Account $______to_____ Real Estate Securities $______to_____
International Stock $______to_____ Templeton Dev. Mkt. $______to_____
Small Company $______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 1%, Minimum is 1% - 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
_____ ____% Index 500 _____ ____% Macro-Cap Value
_____ ____% Capital Appreciation _____ ____% Micro-Cap Growth
_____ ____% Guaranteed Principal Account _____ ____% Real Estate Securities
_____ ____% International Stock _____ ____% Templeton Dev. Mkt.
_____ ____% Small Company _____ ____% Other_________________
</TABLE>
F.MHC-48653 10-1998
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 Life or a subsidiary? [_] Yes [_] No
3. Are you a spouse or dependent child of an employee of
Minnesota Life 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
Funds Prospectuses? [_] Yes [_] No
14. Would you like us to send you a Statement of Additional
Information referred to in the Variable Adjustable Life
and Fund Prospectuses? [_] 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 5% - 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
____ ____ ____% Index 500 ____ ____ ____% Macro-Cap Value
____ ____ ____% Capital Appreciation ____ ____ ____% Micro-Cap Growth
____ ____ ____% Guaranteed Principal ____ ____ ____% Real Estate
Account Securities
____ ____ ____% International Stock ____ ____ ____% Templeton Dev. Mkt.
____ ____ ____% Small Company ____ ____ ____% 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_____
Index 500 $_____to_____ Macro-Cap Value $_____to_____
Capital Appreciation $_____to_____ Micro-Cap Growth $_____to_____
Guaranteed Principal Account $_____to_____ Real Estate Securities $_____to_____
International Stock $_____to_____ Templeton Dev. Mkt. $_____to_____
Small Company $_____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 1%, Minimum is 1% - 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
____ ____% Index 500 ____ ____% Macro-Cap Value
____ ____% Capital Appreciation ____ ____% Micro-Cap Growth
____ ____% Guaranteed Principal Account ____ ____% Real Estate Securities
____ ____% International Stock ____ ____% Templeton Dev. Mkt.
____ ____% Small Company ____ ____% Other________________
F.MHC-48654 10-1998
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 Life or a subsidiary? [_] Yes [_] No
3. Are you a spouse or dependent child of an employee of
Minnesota Life 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
Funds Prospectuses? [_] Yes [_] No
14. Would you like us to send you a Statement of Additional
Information referred to in the Variable Adjustable Life
and the Funds Prospectuses? [_] Yes [_] No
================================================================================
Suitability Accepted by Registered Principal ___________________ Date __________
<PAGE>
Exhibit 99-C
April 23, 1999
Minnesota Life Insurance Company
Minnesota Mutual Life Center
400 Robert Street North
St. Paul, Minnesota 55101
Re: File Number 33-64395
Post-Effective Amendment Number 4
Gentlepersons:
In my capacity as counsel for Minnesota Life Insurance Company (the "Company"),
I have reviewed certain legal matters relating to the Company's Separate Account
entitled Minnesota Life Variable Life Account (the "Account") in connection with
Post-Effective Amendment Number 4 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
Minnesota Life Insurance Company and
Policy Owners of Minnesota Life Variable Life Account:
We consent to the use of our reports included herein and to the reference to our
Firm under the heading "EXPERTS" in Part I of the Registration Statement.
KPMG Peat Marwick LLP
Minneapolis, Minnesota
April 29, 1999
<PAGE>
Exhibit 99-E
[Letterhead of Minnesota Life Insurance Company]
April 23, 1999
Minnesota 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 4 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 Minnesota Life Insurance Company. The prospectus
included in the Registration Statement describes policies which will be offered
by Minnesota Life, 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>
Minnesota Life Insurance Company
April 23, 1999
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]
April 27, 1999
Minnesota 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. 4 to the
registration statement on Form S-6 of Minnesota Life Variable Life Account,
File No. 33-64395, to be filed with the Securities and Exchange Commission.
Very truly yours,
/s/ Jones & Blouch L.L.P.
Jones & Blouch L.L.P.
<PAGE>
EXHIBIT 99.J
Minnesota Life Insurance Company
Power of Attorney
To Sign Registration Statements
WHEREAS, Minnesota Life Insurance Company ("Minnesota Life") has
established certain separate accounts to fund certain variable annuity and
variable life insurance contracts, and
WHEREAS, Variable Fund D ("Fund D") is a separate account of Minnesota
Life 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, Variable Annuity Account ("Variable Annuity Account") is a
separate account of Minnesota Life 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 Life Variable Life Account ("Variable Life Account")
is a separate account of Minnesota Life 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, Group Variable Annuity Account ("Group Variable Annuity
Account") is a separate account of Minnesota Life 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 Life Variable Universal Life Account ("Variable
Universal Life Account") is a separate account of Minnesota Life 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 Directors and Officers of Minnesota
Life, 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 Directors of Minnesota Life 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 Life 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, April 12, 1999
- ------------------------------- President and Chief
Robert L. Senkler Executive Officer
<PAGE>
Signature Title Date
--------- ----- ----
/s/Giulio Agostini Director April 12, 1999
- ------------------------------
Giulio Agostini
/s/Anthony L. Andersen Director April 12, 1999
- ------------------------------
Anthony L. Andersen
/s/Leslie S. Biller Director April 12, 1999
- ------------------------------
Leslie S. Biller
/s/John F. Grundhofer Director April 12, 1999
- ------------------------------
John F. Grundhofer
/s/David S. Kidwell, Ph.D. Director April 12, 1999
- ------------------------------
David S. Kidwell, Ph.D.
/s/Reatha C. King, Ph.D. Director April 12, 1999
- ------------------------------
Reatha C. King, Ph.D.
/s/Thomas E. Rohricht Director April 12, 1999
- ------------------------------
Thomas E. Rohricht
/s/Michael E. Shannon Director April 12, 1999
- ------------------------------
Michael E. Shannon
Director
- ------------------------------
Frederick T. Weyerhaeuser
