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PROSPECTUS
MINNESOTA MUTUAL VARIABLE
UNIVERSAL LIFE ACCOUNT
LOGO
Variable Universal Life Insurance Policy
This prospectus describes Variable Universal Life Insurance Policies issued by
The Minnesota Mutual Life Insurance Company ("Minnesota Mutual") which are
designed for use in group-sponsored insurance programs. In circumstances where
a group contract is issued, certificates setting forth or summarizing the
rights of the owners and/or insureds will be issued under the group contract.
Individual policies can also be issued in connection with group-sponsored
insurance programs in circumstances where a group contract is not issued. The
terms of the certificate issued under a group contract and the individual
policy are substantially the same and are collectively referred to in this
prospectus as "policy" or "policies." If rights of an owner of an individual
policy differ from those of an owner of a certificate issued under a group
contract, those rights will be disclosed separately.
The policies are designed to provide life insurance protection to age 95 and
at the same time provide flexibility to vary premium payments under the
policies. This flexibility allows the owner to provide for changing insurance
needs under a single insurance policy. An owner also has the opportunity to
allocate net premiums among several investment portfolios with different
investment objectives.
The policy provides for (1) a net cash value that can be obtained by
surrendering the policy; (2) policy loans; and (3) a death benefit payable at
the insured's death. As long as a policy remains in force and there are no
outstanding policy loans, the death benefit payable on the insured's death
will not be less than the current face amount of the policy. The insurance
under a policy will remain in force so long as its net cash value is
sufficient to pay certain monthly charges imposed in connection with the
policy. All charges assessed under the policy are fully described under the
heading "Charges" on page 22 of this prospectus. The policy also contains a
cancellation right which is fully described under the heading "Free Look" on
page 21 of this prospectus.
The owner may allocate net premiums to one or more of the sub-accounts of a
separate account of Minnesota Mutual called the Variable Universal Life
Account (herein "separate account"). Net premiums may also be allocated to a
guaranteed account of Minnesota Mutual. To the extent of the investment of a
policy in the separate account, the account value will vary with the
investment experience of the sub-accounts of the separate account. There is no
guaranteed minimum value associated with the separate account and its sub-
accounts.
The separate account, through its sub-accounts, invests its assets in shares
of MIMLIC Series Fund, Inc., Fidelity's Variable Insurance Products Fund, and
Fidelity's Variable Insurance Products Fund II (the "Funds"). The MIMLIC
Series Fund, Inc. has fourteen Portfolios which are available to the Variable
Universal Life Account. They are: the Growth Portfolio, the Bond Portfolio,
the Money Market Portfolio, the Asset Allocation Portfolio, the Mortgage
Securities Portfolio, the Index 500 Portfolio, the Capital Appreciation
Portfolio, the International Stock Portfolio, the Small Company Portfolio, the
Value Stock Portfolio, and the Maturing Government Bond Portfolios (of which
four are available).
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Fidelity's Variable Insurance Products Fund has two Portfolios which are
available to the Variable Universal Life Account. They are the High Income
Portfolio and the Equity-Income Portfolio. Fidelity's Variable Insurance
Products Fund II has one Portfolio which is available to the Variable
Universal Life Account. It is the Contrafund Portfolio. There is no guaranteed
minimum value associated with the separate account and its sub-accounts.
It may not be advantageous to purchase a policy as a replacement for another
type of life insurance or as a means to obtain additional insurance protection
if the purchaser already owns another flexible premium variable life insurance
policy.
THIS PROSPECTUS IS NOT VALID UNLESS ATTACHED TO A CURRENT PROSPECTUS OF MIMLIC
SERIES FUND, INC., AND UNLESS ACCOMPANIED OR PRECEDED BY THE CURRENT
PROSPECTUS FOR FIDELITY'S VARIABLE INSURANCE PRODUCTS FUNDS. THIS PROSPECTUS
SHOULD BE READ CAREFULLY AND RETAINED FOR FUTURE REFERENCE.
THESE SECURITIES HAVE NOT BEEN APPROVED OR DISAPPROVED BY THE SECURITIES AND
EXCHANGE COMMISSION, NOR HAS THE COMMISSION PASSED UPON THE ACCURACY OR
ADEQUACY OF THIS PROSPECTUS. ANY REPRESENTATION TO THE CONTRARY IS A CRIMINAL
OFFENSE.
The Minnesota Mutual Life Insurance Company
400 Robert Street North
St. Paul, MN 55101-2098
Ph 612/298-3500
http://www.minnesotamutual.com
Dated: May 1, 1996
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TABLE OF CONTENTS
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Page
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Special Terms.............................................................. 2
Summary.................................................................... 3
Condensed Financial Information............................................ 9
General Descriptions....................................................... 9
The Minnesota Mutual Life Insurance Company.............................. 9
Variable Universal Life Account.......................................... 9
MIMLIC Series Fund, Inc.................................................. 10
Fidelity Variable Insurance Products Funds............................... 10
Additions, Deletions or Substitutions.................................... 11
Selection of Sub-Accounts................................................ 11
The Guaranteed Account................................................... 12
General Description.................................................... 12
Guaranteed Account Value............................................... 12
Information About the Policy............................................... 13
Applications and Policy Issue............................................ 13
Policy Premiums.......................................................... 13
Death Benefit............................................................ 14
Change in Face Amount.................................................... 15
Payment of Death Benefit Proceeds........................................ 16
Account Values........................................................... 16
Policy Loans............................................................. 18
Surrender and Partial Surrender.......................................... 19
Transfers................................................................ 20
Dollar Cost Averaging.................................................... 21
Free Look................................................................ 21
Conversion Right to an Individual Policy................................. 22
Continuation of Group Coverage........................................... 22
Charges.................................................................. 22
Premium Expense Charges................................................ 22
Monthly Deduction...................................................... 24
Partial Surrender Transaction Charge................................... 25
Separate Account Charges............................................... 25
Additional Benefits...................................................... 25
General Matters Relating to the Policy................................... 26
General Provisions of the Group Contract................................. 29
Other Matters.............................................................. 30
Federal Tax Status....................................................... 30
Trustees and Principal Officers of Minnesota Mutual...................... 33
Voting Rights............................................................ 34
Distribution of Policies................................................. 34
Legal Matters............................................................ 35
Legal Proceedings........................................................ 35
Experts.................................................................. 35
Registration Statement................................................... 35
Financial Statements of Minnesota Mutual Variable Universal Life Account... 36
Financial Statements of The Minnesota Mutual Life Insurance Company........ 43
Appendix I -Illustrations of Account Values and Death Benefits............. 61
Appendix II -Policy Loan Example........................................... 70
Appendix III-Advisory Fees and Portfolio Expenses.......................... 71
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SPECIAL TERMS
As used in this prospectus, the following terms have the indicated meanings:
ACCOUNT VALUE: The sum of the separate account value, guaranteed account value
and loan account value.
ATTAINED AGE: The issue age of the insured plus the number of completed policy
years.
BENEFICIARY: The person(s) named in an application for insurance or by later
designation to receive policy proceeds in the event of the insured's death. A
beneficiary may be changed as set forth in the policy and this prospectus.
CERTIFICATE: A document issued to the owner of a policy issued under a group
contract setting forth or summarizing the owner's rights and benefits.
CODE: The Internal Revenue Code of 1986, as amended.
CONTRACTHOLDER: The entity that is issued a group contract.
ELIGIBLE MEMBER: A member of the group seeking insurance who meets the
requirements stated on the specification pages of the group contract or policy
to be an owner and/or insured of a policy under the group-sponsored program.
FACE AMOUNT: The minimum amount of death benefit proceeds paid upon the death
of the insured, so long as the policy remains in force and there are no
outstanding policy loans. The face amount is shown on the specifications page
attached to the policy.
FUNDS: The mutual fund or separate investment portfolio within a series mutual
fund which we have designated as an eligible investment for the Variable
Universal Life Account, currently, MIMLIC Series Fund, Inc. and its
Portfolios, Fidelity's Variable Insurance Products Fund and its Portfolios,
and Fidelity's Variable Insurance Products Fund II and its Portfolio.
GENERAL ACCOUNT: All of our assets other than those in the Variable Universal
Life Account or in other separate accounts established by us.
GROUP CONTRACT: A Variable Universal Life Insurance Policy issued to the
contractholder.
GROUP SPONSOR: The employer, association or organization that is sponsoring a
program of insurance for the group members.
GUARANTEED ACCOUNT: Assets other than the loan account value that are
attributable to a policy and held in our general account.
GUARANTEED ACCOUNT VALUE: The sum of all net premiums and transfers allocated
to the guaranteed account and interest and dividends declared thereon, minus
amounts transferred to the separate account or removed in connection with a
partial surrender or policy loan and minus charges assessed against the
guaranteed account value.
INDIVIDUAL INSURANCE: Insurance provided under a group contract or under an
individual policy issued in connection with a group-sponsored insurance
program on a group member or a member's spouse.
INSURED: The person whose life is covered by life insurance under a policy.
This term may include a group member and a member's spouse.
ISSUE AGE: The insured's age at his or her last birthday as of the issue date.
ISSUE DATE: The effective date of an insured's coverage under a policy.
LOAN ACCOUNT: The portion of the general account attributable to policy loans
under policies of this type.
LOAN ACCOUNT VALUE: Assets held in our general account as collateral for
outstanding policy loans under a policy, together with accrued interest.
MATURITY DATE: The 95th birthday of the insured.
MEMBER: An individual belonging to the group seeking insurance.
MONTHLY ANNIVERSARY: The first day of each calendar month on, or following,
the issue date.
NET CASH VALUE: The account value of a policy less any outstanding policy
loans and accrued policy loan interest charged and less any charges due. It is
the amount an owner may obtain through surrender of the policy.
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SUMMARY
OWNER: The owner of a policy, as designated in the application or as
subsequently changed. An owner may be changed as set forth in the policy and
this prospectus.
POLICY: Either the certificate or the individual policy offered by us and
described in this prospectus.
POLICY ANNIVERSARY: The same day and month in each succeeding year as the
policy date, or the same day and month in each succeeding year as the date
agreed to between the contractholder and us. The policy anniversary is shown on
the specifications page attached to the policy.
POLICY DATE: The first day of the calendar month on, or following, the issue
date. This is the date from which policy years and policy months are measured.
POLICY MONTH: A calendar month.
POLICY YEAR: A period of one year measured from the policy date and from each
successive policy anniversary.
SEPARATE ACCOUNT: The Minnesota Mutual Variable Universal Life Account, a
separate investment account with seventeen "sub-accounts" (each investing in a
different Portfolio of the Funds), the investment experience of each of which
is separate from that of our general account and our other assets.
SEPARATE ACCOUNT VALUE: The sum of all sub-account values.
SERIES FUND: The MIMLIC Series Fund, Inc., a mutual fund of the series type
which is an investment alternative for the Variable Universal Life Account.
SUB-ACCOUNT VALUE: The number of units of a sub-account credited to a policy
times the current unit value for that sub-account.
UNIT: An accounting device used to determine the interest of a policy in a sub-
account of the Variable Universal 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.
VIP: Fidelity's Variable Insurance Products Fund, a mutual fund of the series
type which is an investment alternative of the Variable Universal Life Account.
VIP II: Fidelity's Variable Insurance Products Fund II, a mutual fund of the
series type which is an investment alternative of the Variable Universal Life
Account.
WE, OUR, US: The Minnesota Mutual Life Insurance Company.
The following summary is designed to answer certain general questions
concerning the policy and to give a brief overview of the more significant
policy features. This summary is not comprehensive and is qualified in its
entirety by the more specific information contained elsewhere in this
prospectus. Definitions of unfamiliar terms are provided on the preceding pages
under the heading "Special Terms".
WHAT IS A UNIVERSAL LIFE INSURANCE POLICY?
A universal life insurance policy is an adjustable benefit life insurance
policy which allows for the accumulation of cash values while the policy's life
insurance coverage remains in force and which permits the flexible payment of
premiums. An adjustable benefit policy has a stated face amount of insurance
payable in the event of the death of the insured, which is supported by the
deduction of specified monthly charges from the cash values. However, this
amount of insurance may be increased or decreased by the owner of the policy,
without the necessity of issuing a new policy for that owner. There are
limitations to these changes and we may require evidence of insurability before
requested increases go into effect. In addition, the coverage for an insured is
provided without specifying the frequency and amount of each premium payment
(as is the practice for scheduled premium life insurance policies). The time
and amount of the payment of premium may be determined by the owner and the
life insurance coverage will remain in force for an insured so long as monthly
charges may be deducted from the existing balance in the policy's net cash
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values. Subject to restrictions described herein, an owner may also make
payments in excess of that minimum amount required to keep a policy in force.
If cash values are insufficient for the payment of the required monthly
charges, then a premium payment is required or the life insurance coverage
provided to the owner by the policy will lapse.
A universal life insurance policy is intended for the use of persons who
wish to combine both life insurance and the accumulation of cash values. Such
a policy may be inappropriate for individuals seeking life insurance
protection which is the equivalent of term-type coverage.
WHAT MAKES THE POLICY "VARIABLE"?
The policy is termed "variable" because unlike a universal life policy which
provides for the accumulation of policy values at fixed rates determined by
the insurance company, variable universal life insurance policy values may be
invested in a separate account of ours called the Minnesota Mutual Variable
Universal Life Account ("separate account"), the sub-accounts of which invest
in corresponding Portfolios of the Funds. Thus, the owner's account value, to
the extent invested in the sub-account of the separate account, will vary with
the positive or negative investment experience of the corresponding Portfolios
of the Funds.
The account values of the policies, to the extent invested in sub-accounts
of the separate account, have no guaranteed minimum account value. Therefore,
the owner bears the risk that adverse investment performance may depreciate
the owner's investment in the policy. At the same time, the policy offers the
owner the opportunity to have the account value appreciate more rapidly than
it would under comparable fixed benefit policies 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.
Owners seeking the traditional insurance protections of a guaranteed account
value may allocate net premiums to the policy's guaranteed account option
which provides for guaranteed accumulation at a fixed rate of interest.
Additional information on this option may be found under the heading "The
Guaranteed Account" on page 12 of this prospectus.
WHAT VARIABLE INVESTMENT OPTIONS ARE AVAILABLE?
The separate account invests in seventeen Portfolios of the Funds. These
offer owners the opportunity to invest in stocks, bonds, mortgage securities
and money market instruments. Owners who wish to actively manage the
investment of their account values may direct their funds to the Growth, Bond,
Money Market, Mortgage Securities, Index 500, Capital Appreciation,
International Stock, Small Company, Value Stock, and Maturing Government Bond
(of which there are four) Portfolios of the Series Fund, the High Income and
Equity-Income Portfolios of VIP, and the Contrafund Portfolio of VIP II. The
Asset Allocation Portfolio of the Series Fund offers owners the opportunity to
have the Series Fund's investment adviser make all decisions concerning the
percentages of assets that should be invested in different types of securities
at any given time.
The investment objectives and certain policies of the Portfolios of the
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
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reflect fluctuations in short-term interest rates.
The ASSET ALLOCATION PORTFOLIO seeks as high a level of long-term total
rate of return as is consistent with prudent investment risk. The Asset
Allocation Portfolio will invest in common stocks and other equity
securities, bonds and money market instruments. The Asset Allocation
Portfolio involves the risks inherent in stocks and debt securities of
varying maturities and the risk that the Portfolio may invest too much or too
little of its assets in each type of security at any particular time.
The MORTGAGE SECURITIES PORTFOLIO seeks a high level of current income
consistent with prudent investment risk. In pursuit of this objective the
Mortgage Securities Portfolio will follow a policy of investment primarily in
mortgage-related securities. Prices of mortgage-related securities will tend
to rise and fall inversely with the rise and fall of the general level of
interest rates.
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. The Portfolio
will invest principally in equity securities (common stocks, securities
convertible into common stocks or rights or warrants to subscribe for or
purchase common stocks). Investments will be made based upon their potential
for capital appreciation. Therefore, current income will be incidental to the
objective of capital growth. Because of the market risks inherent in any
equity investment, the selection of securities on the basis of their
appreciation possibilities cannot ensure against possible loss in value.
The INTERNATIONAL STOCK PORTFOLIO seeks long-term capital growth. In
pursuit of this objective the International Stock Portfolio will follow a
policy of investing in stocks issued by companies, large and small, and debt
obligations of companies and governments outside the United States. Current
income will be incidental to the objective of capital growth. The Portfolio
is designed for persons seeking international diversification. Investors
should consider carefully the substantial risks involved in investing in
securities issued by companies and governments of foreign nations, which are
in addition to the usual risks inherent in domestic investments.
The SMALL COMPANY PORTFOLIO seeks long-term accumulation of capital. In
pursuit of this objective, the Small Company Portfolio will follow a policy
of investing primarily in common and preferred stocks issued by small
companies, defined in 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 the 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 MATURING GOVERNMENT BOND PORTFOLIOS seeks to provide as high an
investment return as is consistent with prudent investment risk for a
specified period of time ending on a specified liquidation date. In pursuit
of this objective, each of the four Maturing Government Bond Portfolios seek
to return a reasonably assured targeted dollar amount, predicable at the time
of investment, on a specific target date in the future through investment
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in a Portfolio composed primarily of zero coupon securities. These are
securities that pay no cash income and are sold at a discount from their par
value at maturity. The current target dates for the maturities of these
Portfolios are 1998, 2002, 2006, and 2010, respectively. On maturity the
Portfolio will be converted to cash and reinvested at the direction of the
contractholder. In the absence of instructions, liquidation proceeds will be
allocated to the Money Market Portfolio.
The investment objectives and certain policies of the Portfolios available
under VIP are as follows:
The VIP HIGH INCOME PORTFOLIO seeks a high level of current income by
investing primarily in high yielding, lower-quality, fixed-income securities,
while also considering growth of capital. Normally at least 65 percent of the
Portfolio's total assets will be in these securities. The Portfolio may also
invest up to 20 percent in common stocks and other equity securities
consistent with the Portfolio's primary objective, or when acquired as part
of a unit combining fixed-income and equity securities.
The VIP EQUITY-INCOME PORTFOLIO seeks reasonable income by investing
primarily in income-producing equity securities. Normally at least 65 percent
of the Portfolio's total assets are in these securities. The remainder of the
Portfolio's assets will tend to be invested in debt obligations, many of
which are expected to be convertible into common stock. The Portfolio seeks
to achieve a yield that beats the Standard & Poor's Corporation 500 Composite
Stock Price Index (the "Index"). The adviser of the Portfolio may also
consider the potential for capital appreciation when choosing the Portfolio's
investments.
The investment objectives and certain policies of the Portfolio available
under VIP II are as follows:
The VIP II CONTRAFUND PORTFOLIO seeks capital appreciation by investing
mainly in equity securities of companies that the adviser believes to be
under-valued due to overly pessimistic appraisal by the public. In pursuit of
the Portfolio's goal the adviser looks for companies with the following
characteristics: unpopular currently, but improvement seems possible due to
developments such as a change in management, product line or balance sheet
improvements; recently popular, but temporarily out of favor companies due to
short-term or one-time factors; or companies which are undervalued compared
to other investments in the same industry. This strategy can lead to
investments in domestic or foreign companies, many of which may not be well
known.
There is no assurance that any Portfolio will meet its objectives. Additional
information
concerning the investment objectives, policies and risks of the Portfolios can
be found in the current prospectus for the MIMLIC Series Fund, Inc., which is
attached to this prospectus, and in the Prospectus for Fidelity's Variable
Insurance Products Fund and Variable Insurance Products Fund II.
HOW CAN NET PREMIUMS BE ALLOCATED?
In the initial application for life insurance, the owner may indicate the
desired allocation of net premiums among the guaranteed account and the sub-
accounts of the separate account. All future net premiums will be allocated in
the same proportion until the owner sends us a written request to change the
allocation. Similarly, the owner 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?
We offer two death benefit options under the policy. Under "Option A", a
level death benefit, the death benefit is the face amount of the policy. Under
"Option B", a variable death benefit, the death benefit is the face amount of
the policy plus the net cash value. So long as a policy remains in force and
there are no policy loans, the minimum death benefit under either option will
be at least equal to the current face amount. The death benefit proceeds will
be adjusted by the amount of any charges due or overpaid and any outstanding
policy loans and accrued policy loan interest charged determined as of the date
of death. The group sponsor will select one death benefit option of the two we
offer for all policies in a single group-sponsored program. Once selected, a
death benefit option under a policy shall remain unchanged.
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There is a minimum initial face amount for the policy which is stated on the
specification pages of the policy. The owner may generally change the face
amount, but evidence of insurability of the insured may be required for
certain face amount increases.
TO WHOM DO WE PAY DEATH BENEFITS?
Death benefit proceeds are payable to the named beneficiary when the insured
under a policy dies. Benefits under the policy may be paid in a single sum or
under an elected settlement option.
DOES THE OWNER HAVE ACCESS TO THE ACCOUNT VALUES?
Yes. The net cash value, subject to the limitations in the policy, is
available to the owner during the insured's lifetime. The net cash value may
be used to provide retirement income, as collateral for a policy loan, to
continue some amount of insurance protection without payment of premiums or to
obtain cash by surrendering the policy in full or in part.
The owner may borrow, as a policy loan, an amount up to 90 percent of the
owner's account value less any loan account value. Each alternative for
accessing the owner's account value may be subject to conditions described in
the policy or under the heading "Account Values" on page 16 of this prospectus
and certain transactions may have tax consequences, as described under the
heading "Federal Tax Status" on page 30.
WHAT CHARGES ARE ASSOCIATED WITH THE POLICY?
We assess certain charges from each premium payment, from account values and
from the amounts held in the separate 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 "Charges" on page 22 of this prospectus and the specific charges are
shown on the specification pages of the policy.
Against premiums paid, we deduct a percentage of premium for a sales load,
not to exceed 5 percent, and 2 percent for premium taxes. If a policy is
considered an individual policy under the Omnibus Budget Reconciliation Act,
as amended, ("OBRA") we will also assess 1.25 percent of each premium to cover
the additional federal tax required under that statute and, if the policy is
considered to be a group contract under OBRA, that charge will be .25 percent
of premium to cover that expense.
Each month, we deduct from a policy's account value an administration
charge, a cost of insurance charge and any applicable transaction charges. The
amount of the administration charge depends upon the number of persons insured
in a group-sponsored program. The maximum charge is $4.00 per month and the
minimum charge is
$1.00 per month. Additional information is provided under the heading "Monthly
Deduction" on page 24 of this prospectus.
We assess a daily mortality and expense risk charge against the separate
account assets. The annual rate is stated on the specification pages of the
policy and will not exceed .50 percent of the average daily assets of the
separate account. This annual rate is based on the actuarial risk associated
with the group that the cost of insurance and other charges will be
insufficient to cover the actual mortality experience and other charges in
connection with the policies.
MIMLIC Asset Management Company, one of our subsidiaries, acts as the
investment adviser to the Series Fund and deducts from the asset value of each
Portfolio of the Series Fund a fee for its services which are provided under
an investment advisory agreement. The investment advisory agreement provides
that the fee shall be computed at the annual rate not to exceed .40 percent of
the Index 500 Portfolio, .75 percent of the Capital Appreciation, Small
Company and Value Stock Portfolios, 1.00 percent of the International Stock
Portfolio and .50 percent of each of the remaining Portfolios' average daily
net assets. For more information about the Series Fund, see the prospectus of
MIMLIC Series Fund, Inc. which is attached to this prospectus.
The Fidelity High Income Portfolio, Equity-Income Portfolio and Contrafund
Portfolio each has as its adviser Fidelity Management & Research Company
("FMR"), a subsidiary of FMR Corp. The management fee paid to FMR is
calculated by adding a group fee to an individual fund fee rate and
multiplying the result by each fund or Portfolio's average net assets. The
aggregated fund fee rate cannot rise above .52 percent and it decreases as
total assets under management increases. As of
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December 31, 1995, the group fee rate was .1482 percent for the High Income
Portfolio and .3097 percent for the Equity-Income and Contrafund Portfolios.
The resulting management fee representing the combination of the fee rate and
the group fee rate for the same period was as follows: The High Income
Portfolio, .60 percent; the Equity-Income Portfolio, .51 percent; and the
Contrafund Portfolio, .61 percent. For more information about the VIP and the
VIP II, see the prospectus of the Variable Insurance Products Funds.
ARE THE BENEFITS UNDER A POLICY SUBJECT TO FEDERAL INCOME TAX?
We believe that the owner's policy should qualify as a life insurance
contract for federal income tax purposes. Assuming that a policy qualifies as
a life insurance contract for federal income tax purposes, the benefits under
policies described in this prospectus should receive the same tax treatment
under the Code as benefits under traditional fixed benefit life insurance
policies. Thus, death proceeds payable under variable life insurance policies
should be excludable from the beneficiary's gross income for federal income
tax purposes. The owner should not be in constructive receipt of the net cash
values of the policy until actual distribution. Additional information is
provided under the heading "Federal Tax Status" on page 30 of this prospectus.
It should be noted, however, that under recent legislation the tax treatment
described above relating to distributions is available only for policies not
described as "modified endowment contracts." Policies described as modified
endowment contracts are treated as life insurance with respect to the tax
treatment of death proceeds and the tax-free inside buildup of yearly account
value increases. However, any amounts received by the owner, such as
dividends, loans and amounts received from partial or total surrender of the
policy will be subject to the same tax treatment as amounts received under an
annuity during the accumulation period. Annuity tax treatment includes the 10
percent additional income tax imposed on the portion of any distribution that
is included in income, except where the distribution or loan is made on or
after the owner attains age 59 1/2, is attributable to the owner becoming
disabled, or is part of a series of substantially equal periodic payments for
the life of the owner or the joint lives of the owner and beneficiary.
A determination as to whether a policy is a modified endowment contract and
subject to this special tax treatment will require an examination of the
premium paid in relation to the death benefit of the policy. A policy would be
a modified endowment contract if the cumulative premiums during the first
seven
contract years exceed the sum of the net level premiums which would be paid
under a seven-pay life policy. In addition, a policy which is subject to a
material change will be treated as a new policy on the date that such a
material change takes effect. A determination must be made at that time to
test whether such a policy meets the seven-pay standard by taking into account
the previously existing account value. Additional information on this subject
is provided under
the heading "Federal Tax Status" on page 30 of this prospectus.
CAN THE OWNER RETURN THE POLICY?
For a limited time after the application for the policy and its delivery,
the policy may be returned for a refund of all premium payments within the
terms of its "free look" or right of cancellation provision. See the heading
"Free Look" in this prospectus on page 21.
8
<PAGE>
CONDENSED FINANCIAL INFORMATION
GENERAL DESCRIPTIONS
The financial statements of The Minnesota Mutual Life Insurance Company and
Minnesota Mutual Variable Universal Life Account may be found in this
prospectus.
The table below gives per unit information about each sub-account for the
period from March 8, 1995, commencement of operations, to December 31, 1995.
This information should be read in conjunction with the financial statements
and related notes of Minnesota Mutual Variable Universal Life Account included
in this prospectus.
<TABLE>
<S> <C>
Growth Sub-Account:
Unit value at beginning of period ..................................... $1.000
Unit value at end of period ........................................... $1.103
Number of units outstanding at end of period .......................... 5,717
Bond Sub-Account:
Unit value at beginning of period ..................................... $1.000
Unit value at end of period ........................................... $1.067
Number of units outstanding at end of period .......................... 1,708
Money Market Sub-Account:
Unit value at beginning of period ..................................... $1.000
Unit value at end of period ........................................... $1.027
Number of units outstanding at end of period .......................... 1,163
Asset Allocation Sub-Account:
Unit value at beginning of period ..................................... $1.000
Unit value at end of period ........................................... $1.107
Number of units outstanding at end of period .......................... 2,487
</TABLE>
<TABLE>
<S> <C>
Mortgage Securities Sub-Account:
Unit value at beginning of period .................................... $1.000
Unit value at end of period .......................................... $1.053
Number of units outstanding at end of period ......................... 1,116
Index 500 Sub-Account:
Unit value at beginning of period .................................... $1.000
Unit value at end of period .......................................... $1.164
Number of units outstanding at end of period ......................... 457,639
Capital Appreciation Sub-Account:
Unit value at beginning of period .................................... $1.000
Unit value at end of period .......................................... $1.127
Number of units outstanding at end of period ......................... 5,583
International Stock Sub-Account:
Unit value at beginning of period .................................... $1.000
Unit value at end of period .......................................... $1.046
Number of units outstanding at end of period ......................... 3,688
Small Company Sub-Account:
Unit value at beginning of period .................................... $1.000
Unit value at end of period .......................................... $1.210
Number of units outstanding at end of period ......................... 34,825
Value Stock Sub-Account:
Unit value at beginning of period .................................... $1.000
Unit value at end of period .......................................... $1.161
Number of units outstanding at end of period ......................... 4,016
</TABLE>
THE MINNESOTA MUTUAL LIFE INSURANCE COMPANY
We are a mutual life insurance company organized in 1880 under the laws of
Minnesota. Our home office is at 400 Robert Street North, St. Paul, Minnesota
55101-2098, telephone: (612) 298-3500. We are licensed to do a life insurance
business in all states of the United States (except New York where we are an
authorized reinsurer), the District of Columbia, Canada and Puerto Rico.
VARIABLE UNIVERSAL LIFE ACCOUNT
The separate account was established on August 8, 1994, by our Board of
Trustees in accordance with certain provisions of the Minnesota insurance law.
The separate account is registered as a "unit investment trust" with the
Securities and Exchange Commission under the Investment Company Act of 1940,
but such registration does not signify that the Securities and Exchange
Commission supervises the management, or the investment practices or policies,
of the separate 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 separate account. The obligations
to policy owners and beneficiaries arising under the policies are general
corporate obligations of Minnesota Mutual and thus our general assets back the
policies. The Minnesota law under which the separate account was
9
<PAGE>
established provides that the assets of the separate 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 separate account is
entirely independent of both the investment performance of our guaranteed
account and of any other separate account which we may have established or may
later establish.
The separate account currently has seventeen sub-accounts to which policy
owners may allocate premiums. Each sub-
account invests in shares of a corresponding Portfolio of the Funds.
MIMLIC SERIES FUND, INC.
The separate account currently invests in the MIMLIC Series Fund, Inc.,
Fidelity's Variable Insurance Products Fund, and Fidelity's Variable Insurance
Products Fund II. The Series Fund is a mutual fund of the series type which is
registered with the Securities and Exchange Commission as a diversified, open-
end management investment company. Such registration does not signify that the
Commission supervises the management, or the investment practices or policies,
of the Series Fund. The Series Fund issues its shares, continually and without
sales charge, only to us and certain of our separate accounts, including the
Variable Universal Life Account. Shares of the Series Fund are sold and
redeemed at net asset value.
The Series Fund's investment adviser is MIMLIC Asset Management Company
("MIMLIC Management"). It acts as an investment adviser to the Series Fund
pursuant to an advisory agreement. MIMLIC Management is a wholly-owned
subsidiary of Minnesota Mutual.
While MIMLIC Management acts as investment adviser for the Series Fund and
its Portfolios, Winslow Capital Management, Inc., a Minnesota corporation with
principal offices in Minneapolis, Minnesota, has been retained under an
investment sub-advisory agreement to provide investment advice to the Capital
Appreciation Portfolio. Similarly, Templeton Investment Counsel, Inc., a
Florida corporation with principal offices in Fort Lauderdale, Florida, has
been retained under an investment sub-advisory agreement to provide investment
advice to the International Stock Portfolio.
The Series Fund currently has fourteen investment Portfolios, all of which
are available to the separate account. A series of the Series 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 affect on the
investment performance of any other Portfolio.
All dividends and capital gains distributions from each Portfolio are
automatically reinvested in shares of that Portfolio at net asset value.
For more information about the Series Fund and its Portfolios, see the
"Summary" sections in this prospectus and the prospectus of the MIMLIC Series
Fund, Inc., which is attached to this prospectus.
FIDELITY VARIABLE INSURANCE PRODUCTS FUNDS
The policy also provides for sub-accounts of the Variable Universal Life
Account which invests in shares of other registered investment companies. VIP
has two Portfolios which are available to the Variable Universal Life Account.
They are the High Income Portfolio and the Equity-Income Portfolio. VIP II has
one Portfolio which is available to the Variable Universal Life Account. It is
the Contrafund Portfolio. There is no guaranteed minimum value associated with
the separate account and its sub-accounts. Both VIP and VIP II issue their
shares, continually and without sales charge, only to us and to separate
accounts of other insurance companies, both affiliated and unaffiliated with
the investment adviser of VIP and VIP II.
The investment adviser of VIP and VIP II is Fidelity Management & Research
Company ("FMR"), 82 Devonshire Street, Boston, Massachusetts. FMR handles the
business affairs and, with the assistance of affiliates for certain
Portfolios, chooses the investments for VIP and VIP II. Fidelity Management &
Research (U.K.) Inc., in London, England, and Fidelity Management & Research
(Far East) Inc., in Tokyo, Japan, both serve as sub-advisers for the High
Income and Contrafund Portfolios. The ultimate parent company of all of these
entities is FMR Corp.
The assets of each Portfolio are separate from the others and each has
different
10
<PAGE>
investment objectives and policies. Therefore, each Portfolio operates as a
separate investment fund and the investment performance of one has no affect
on the investment performance of any other Portfolio. All dividends and
capital gains distributions from each Portfolio are automatically reinvested
in shares of that Portfolio at net asset value.
For more information about VIP and VIP II and the Portfolios, see the
"Summary"
section in this prospectus, and the prospectus for Fidelity's Variable
Insurance Products Fund and Variable Insurance Products Fund II.
ADDITIONS, DELETIONS OR SUBSTITUTIONS
We reserve the right to add, combine or remove any sub-accounts of the
Variable Universal Life Account when permitted by law. Each additional sub-
account will purchase shares in a new portfolio or mutual fund. New 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 separate account. Any new investment option will be made
available to existing owners on whatever basis we may determine.
We retain the right, subject to any applicable law, to make substitutions
with respect to the investments of the sub-accounts of the separate account.
If investment in a Portfolio of the Funds should no longer be possible or if
we determine it becomes inappropriate for policies of this class, we may
substitute another mutual fund or portfolio for a sub-account. Substitution
may be made with respect to existing account values and future premium
payments. A substitution may be made only with any necessary approval of the
Securities and Exchange Commission.
We reserve the right to transfer assets of the separate account as
determined by us to be associated with the policies to another separate
account. A transfer of this kind may require the approval of state regulatory
authorities and of the Securities and Exchange Commission.
We also reserve the right, when permitted by law, to restrict or eliminate
any voting right of owners or other persons who have voting rights as to the
separate account, and to combine the separate account with one or more other
separate accounts, and to de-register the separate account under the
Investment Company Act of 1940.
Shares of the Portfolios of the Series Fund are also sold to other of our
separate accounts, which are used to receive and invest premiums paid under
other variable annuity contracts and variable life policies issued by us.
Shares of VIP and VIP II are
sold to other life insurance companies' separate accounts for the purpose of
funding other variable annuity and variable life insurance contracts. 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.
SELECTION OF SUB-ACCOUNTS
Although the purpose of the policy is primarily to provide lifetime life
insurance protection, a central objective is to provide benefits that will
increase in value if favorable investment results are achieved. Historically,
for investments held over relatively long periods, the investment performance
of common stocks has generally been superior to that of long-term or short-
term debt securities, even though common stocks have been subject to more
dramatic changes in value over short periods of time. Accordingly, the common
stock sub-account may be the more desirable option for owners who are willing
to accept such short-term risks. The selection of other common stock options,
such as the Growth Sub-Account and the Small Company Sub-Account will tend to
magnify such risks, as will the International Stock Sub-Account, while the
selection of the Index Sub-Account will tend to match those risks with the
performance of those common stocks included in the underlying Index. The
Contrafund Sub-Account seeks investments currently out of favor with these
same market factors.
Some 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, while others may wish to invest in the Maturing
Government Bond Sub-Accounts, which seek to provide an investment return
consistent with a specified liquidation date in the future. The High Income
Sub-Account seeks high yields in the fixed income markets by investing in
lower quality instruments
11
<PAGE>
which provide high risks for investors. Some owners may wish to divide their
funds among two or more sub-accounts. Some may wish to rely on MIMLIC
Management's judgment for an appropriate asset mix by choosing the Asset
Allocation Sub-Account. The owner must make a choice, taking into account how
willing he or she might be to accept
investment risks and the manner in which his or her other assets are invested.
THE GUARANTEED ACCOUNT
The owner may allocate net premiums and may transfer net cash values in the
policy, subject to policy limitations, to our guaranteed account.
Because of exemptive and exclusionary provisions, interests in Minnesota
Mutual's guaranteed account have not been registered under the Securities Act
of 1933, and the guaranteed account has not been registered as an investment
company under the Investment Company Act of 1940. Therefore, neither the
guaranteed account nor any interest therein is subject to the provisions of
these Acts, and Minnesota Mutual has been advised that the staff of the SEC
does not review disclosures relating to it. Disclosures regarding the
guaranteed account may, however, be subject to certain generally applicable
provisions of the federal securities laws relating to the accuracy and
completeness of statements made in prospectuses.
This prospectus describes a Variable Universal Life Insurance Policy and is
generally intended to serve as a disclosure document only for the aspects of
the policy relating to the sub-accounts of the separate account. For more
information about the guaranteed account, please see the policy and the
summary information provided immediately below.
GENERAL DESCRIPTION Minnesota Mutual's general account consists of all assets
owned by Minnesota Mutual other than those in the separate account and any
other separate accounts which we may establish. The guaranteed account is that
portion of the general assets of Minnesota Mutual, exclusive of policy loans,
which is attributable to the policy described herein and others of its class.
The description is for accounting purposes only and does not represent a
division of the general account assets for the specific benefit of policies of
this class. Allocations to the guaranteed account become part of the general
assets of Minnesota Mutual and are used to support insurance and annuity
obligations and are subject to the claims of our creditors. Subject to
applicable law, we have sole discretion over the investment of assets of the
guaranteed account. Owners do not share in the actual investment experience of
the assets in the guaranteed account.
A portion or all the net premiums may be allocated or transferred to
accumulate at a fixed rate of interest in the guaranteed account, though we
reserve the right to restrict the allocation of premium into the guaranteed
account. If we do so, no more than 50 percent of the net premium may be
allocated to the guaranteed account. Such amounts are guaranteed by us as to
principal and a minimum rate of interest. Transfers from the guaranteed
account to the sub-accounts of the separate account may be subject to certain
limitations with respect to timing and amount. Currently, no such restrictions
are in effect.
GUARANTEED ACCOUNT VALUE Minnesota Mutual bears the full investment risk for
amounts allocated to the guaranteed account and guarantees that interest
credited to each owner's account value in the guaranteed account will not be
less than an annual rate of 4 percent without regard to the actual investment
experience of the guaranteed account. We may, at our sole discretion, credit a
higher rate of interest ("excess interest") although we are not obligated to
do so. Any interest credited on the policy's account value in the guaranteed
account in excess of the guaranteed minimum rate per year will be determined
at our sole discretion. The owner assumes the risk that interest credited may
not exceed the guaranteed minimum rate.
Even if excess interest is credited to the guaranteed account value, no
excess interest will be credited to the loan account value in the guaranteed
account. However, the loan account value will be credited interest at a rate
which is not less than 6 percent per annum.
12
<PAGE>
INFORMATION ABOUT THE POLICY
APPLICATIONS AND POLICY ISSUE
We will generally issue a group contract to a group, as defined and permitted
by state law. For example, a group contract may be issued to an employer, whose
employees and/or their spouses may become insured thereunder so long as the
person is within a class of members eligible to be included in the group
contract. The class(es) of members eligible to be insured by a policy under the
group contract are set forth in that group contract's specification pages. The
group contract will be issued upon receipt of an application for the group
contract signed by a duly authorized officer of the group wishing to enter into
a group contract and the acceptance of that application by a duly authorized
officer of Minnesota Mutual at its home office. Individuals wishing to purchase
a policy insuring an eligible member under a group-sponsored program must
complete the appropriate application for life insurance and submit it to our
home office. If the policy is approved, we will issue to the group sponsor
either a certificate or an individual policy to give to the owner. The issue of
a group contract or individual policy and their associated forms is always
subject to the approval of those documents for use by state insurance regulatory
authorities.
Individuals who satisfy the eligibility requirements under a particular group
contract may be required to submit to a simplified underwriting procedure which
requires satisfactory responses to certain health questions in the application
and to provide, in some cases, medical information. Acceptance of an
application is subject to our underwriting rules, and we reserve the right to
reject an application for any reason.
A policy will not take effect until the owner signs the appropriate
application for insurance, the initial premium has been paid prior to the
insured's death, the insured is eligible, and we approve the completed
application. The date on which the last event occurs shall be the effective
date of coverage ("issue date").
POLICY PREMIUMS
A premium must be paid to put a policy in force, and may be remitted to us by
the group sponsor on behalf of the owner. The initial premium for a policy must
cover the premium expense charges and the first month's deductions. A premium
must also be paid when there is insufficient net cash value
to pay the monthly deduction necessary to keep the policy in force.
When the policy is established, the policy's specification pages may show
premium payments scheduled and the amounts of those payments. However, under
the policy, the owner may elect to omit making those premium payments. Failure
to pay one or more premium payments will not cause the policy to lapse until
such time as the net cash value is insufficient to cover the next monthly
deduction. Moreover, as mentioned above, the owner may also skip premium
payments scheduled. Therefore, unlike traditional insurance policies, a policy
does not obligate the owner to pay premiums in accordance with a rigid and
inflexible premium schedule.
Failure of a group sponsor to remit the authorized premium payments may cause
the group contract to terminate. Nonetheless, provided that there is sufficient
net cash value to prevent the certificate from lapsing, the owner's insurance
can be converted to an individual policy of life insurance in the event of such
termination. (See "Conversion Right to an Individual Policy," page 22.) The
owner's insurance can also continue if the insured's eligibility under the
group-sponsored insurance program terminates because the insured is no longer a
part of the group or otherwise fails to satisfy the eligibility requirements
set forth in the specifications page to the group contract or individual
policy. (See "Continuation of Group Coverage," page 22.)
PREMIUM LIMITATIONS After the payment of the initial premium, premiums may be
paid at any time in any amount while the insurance is in force under the
policy. Since the policy permits flexible premium payments, it may become a
modified endowment contract (See "Federal Tax Status" on page 30). When we
receive the application, our systems will test the owner's elected premium
schedule to determine, if it is paid as scheduled and if there is no change
made to the owner's policy, whether it will result in the owner's
13
<PAGE>
policy being classified as a modified endowment contract for federal income tax
purposes. Our systems will continue to test the owner's policy with each
premium payment to determine whether the policy has attained this tax status.
If we determine that the policy has attained the status of a modified endowment
contract, we will mail the owner a notice. The owner will be given a limited
amount of time, subject to the restrictions under the Code, to request that the
policy maintain the modified endowment contract status. If the owner does not
request to have this tax status maintained, the excess premium amounts paid that
caused this tax status will be returned with interest at the end of the policy
year to avoid the policy being classified as a modified endowment contract. The
owner may request an immediate refund if it is desired earlier.
ALLOCATION OF NET PREMIUMS AND ACCOUNT VALUE Net premiums, which are premiums
after the deduction of the charges assessed against premiums, are allocated to
the guaranteed account or sub-accounts of the separate account which, in turn,
invest in shares of the Funds.
The owner makes the selection of the sub-accounts and/or the general account
on the application for the policy. The owner may change the allocation
instructions for future premiums by giving us a written request. The allocation
to the guaranteed account or to any sub-account of the separate account must be
at least 10 percent of the net premium. We reserve the right to delay the
allocation of net premiums to named sub-accounts for a period of 30 days after
policy issue or policy change. 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. If we exercise this right, net premiums will be allocated to the Money
Market Sub-Account until the end of that period.
We reserve the right to restrict the allocation of net premiums to the
guaranteed account. If we do so, no more than 50 percent of the net premium may
be allocated to the guaranteed account. Currently, no such restriction applies.
LAPSE Unlike traditional life insurance policies, the failure to make a premium
payment following the payment of the premium which puts the policy into force
will not itself cause a policy to lapse. Lapse will occur only when the net
cash value is insufficient to cover the monthly deduction, and the subsequent
grace period expires without sufficient payment being made.
The grace period is 61 days. The grace period will start on the day we mail
the owner a notice that the policy will lapse if the premium amount specified
in the notice is not paid by the end of the grace period. We will
mail this notice on any policy's monthly anniversary when the net cash value is
insufficient to pay for the monthly deduction for the insured. The notice will
specify the amount of premium required to keep the policy in force and the date
the premium is due. If we do not receive the required amount within the grace
period, the policy will lapse and terminate. The grace period does not apply to
the first premium payment.
REINSTATEMENT A lapsed policy may be reinstated, any time within three years
from the date of lapse, provided the insured is living and subject to the
limitations described below. Reinstatement is made by payment of an amount
that, after the deduction of premium expense charges, is large enough to cover
all monthly deductions which have accrued on the policy up to the effective
date of reinstatement, plus the monthly deductions for the two months following
the effective date of reinstatement. If any policy loans and policy loan
interest charged is not repaid, this indebtedness will be reinstated along with
the insurance. No evidence of the insured's insurability will be required
during the first 31 days following lapse, but will be required from the 32nd
day to three years from the date of lapse.
The amount of account value on the date of reinstatement will be equal to the
amount of any policy loans and policy loan interest charged reinstated
increased by the net premiums paid at the time of reinstatement.
The effective date of reinstatement will be the date we approve the
application for reinstatement. There will be a full monthly deduction for the
policy month that includes that date.
DEATH BENEFIT
If the policy is in force at the time of the insured's death, upon receipt of
due proof of death, we will pay the death benefit proceeds of the policy based
on the death benefit option elected by the contractholder.
14
<PAGE>
The group sponsor may choose one of two death benefit options for all
participants under the group-sponsored program. Once elected, the death
benefit option under a policy shall remain unchanged. There is a level death
benefit ("Option A") and a variable death benefit ("Option B"). The death
benefit under either option will never be less than the current face amount of
the policy as long as the policy remains in force and there are no policy
loans. The face amount elected must be at least the minimum stated on the
specification pages of the policy.
OPTION A Under Option A, the death benefit will be determined as follows:
(1) The face amount of insurance on the insured's date of death while the
policy is in force; plus
(2) the amount of the cost of insurance for the portion of the policy month
from the date of death to the end of the policy month; less
(3) any outstanding policy loans and accrued policy loan interest charged;
less
(4) any unpaid monthly deductions determined as of the date of the insured's
death.
OPTION B Under Option B, the death benefit will be determined as follows:
(1) The face amount of insurance on the insured's date of death while the
policy is in force; plus
(2) the amount of the owner's account value as of the date we receive due
proof of death satisfactory to us; plus
(3) the amount of the cost of insurance for the portion of the policy month
from the date of death to the end of the policy month; plus
(4) any monthly deductions taken under the certificate since the date of
death; less
(5) any outstanding policy loans and accrued policy loan interest charged;
less
(6) any unpaid monthly deductions determined as of the date of the insured's
death.
At issue, the group sponsor may choose between two tests that may be used to
determine if a policy qualifies as defined by Section 7702 of the Code. Once a
test is selected for a policy, it shall remain unchanged for that policy. The
two tests are the Guideline Premium Test and the Cash Value Accumulation Test.
The test selected will determine how the death benefit is calculated in the
event the account value or the premiums paid exceed certain limits established
under Section 7702.
Under either test, the death benefit at any point must be greater than the
account value times a specified percentage. Under the Guideline Premium Test
those percentages are prescribed and vary only by the age of
the insured. Under the Cash Value Accumulation Test, the percentages vary by
the age and underwriting class of the insured. If at any point the death
benefit is not greater than the applicable percentage, the death benefit will
be increased to the amount necessary to satisfy the test.
The prescribed percentages for the Guideline Premium Test are indicated in
the following table:
<TABLE>
<CAPTION>
APPLI- APPLI- APPLI-
CABLE CABLE CABLE
ATTAINED PERCENT- ATTAINED PERCENT- ATTAINED PERCENT-
AGE AGE AGE AGE AGE AGE
- ---------- -------- -------- -------- -------- --------
<S> <C> <C> <C> <C> <C>
40 & below 250% 54 157% 68 117%
41 243 55 150 69 116
42 236 56 146 70 115
43 229 57 142 71 113
44 222 58 138 72 111
45 215 59 134 73 109
46 209 60 130 74 107
47 203 61 128 75-90 105
48 197 62 126 91 104
49 191 63 124 92 103
50 185 64 122 93 102
51 178 65 120 94 101
52 171 66 119 95 0
53 164 67 118
</TABLE>
The following table contains illustrative applicable percentages under the
Cash Value Accumulation Test for an insured classified as a non-smoker:
<TABLE>
<CAPTION>
ATTAINED APPLICABLE
AGE PERCENTAGE
-------- ----------
<S> <C>
35 441%
45 316
55 231
65 175
75 140
</TABLE>
The Guideline Premium Test also limits the amount of premium that may be
paid into the policy. If premiums paid exceed the limits for the current death
benefit amount, the death benefit will be automatically increased to an amount
for which the prescribed premium limits exceed the premiums paid.
CHANGE IN FACE AMOUNT
Subject to certain limitations set forth below, an owner may increase or
decrease the face amount of a policy. A written request
15
<PAGE>
must be sent directly to us for a change in the face amount. A change in the
face amount will affect the net amount at risk which affects the cost of
insurance charge. (See "Charges," page 22.) In addition, a change in the face
amount of a policy may result in a material change in the policy that may
cause it to become a modified endowment contract. More information on this
subject and possible federal income tax consequences of this result is
provided under the heading "Federal Tax Status" on page 30 of this prospectus.
INCREASES If an increase in the current face amount is applied for, we reserve
the right to require evidence of insurability from the insured. The increase
will become effective on the monthly anniversary on or following approval of
the change or on any other date mutually agreed upon between the owner and us.
Although an increase need not necessarily be accompanied by an additional
premium (unless it is required to meet the next monthly deduction), the net
cash value in effect immediately after the increase must be sufficient to
cover the next monthly deduction.
With respect to premiums allocated to an increase, the owner will have the
same "free look," conversion, and refund rights with respect to an increase as
with the initial purchase of the owner's policy. (See "Free Look," page 21.)
DECREASES Any decrease in the face amount will become effective on the monthly
anniversary on or following our receipt of the written request. However, the
amount of insurance on any insured may not be reduced to less than the minimum
face amount indicated on the specification page which is attached to the
owner's policy. Generally, this amount will be at least $10,000. If, following
a decrease in face amount, the policy would not comply with the maximum
premium limitations required by federal tax law (see "Federal Tax Status,"
page 30), the decrease may be limited or the account value may be returned to
the owner (at the owner's election), to the extent necessary to meet these
requirements.
PAYMENT OF DEATH BENEFIT PROCEEDS
The amount payable as death proceeds upon the insured's death will be the
death benefit under the option elected by the group sponsor. The death benefit
proceeds will also include any amounts payable under any riders.
If a rider permitting the accelerated payment of death benefit proceeds has
been added to the policy, the death benefit may be paid in a single lump sum
prior to the death of the insured and may be less than
otherwise would be paid upon death of the insured. (See "Additional Benefits,"
page 25.)
Death benefit proceeds will ordinarily be paid within seven days after we
receive all information required for such payment, including due proof of the
insured's death. Payment may, however, be postponed in certain circumstances.
(See "Postponement of Payments," page 26.) Under Option A death benefit,
interest will be paid on the death benefit from the date of the insured's
death until the date of payment. Under Option B death benefit, interest will
be paid on the face amount of insurance from the date of the insured's death
until the date of payment. The account value will remain as invested in the
guaranteed account and/or separate account until the date of payment;
therefore, the account value may increase or decrease in value from the date
of the insured's death to the date of the payment of death benefit proceeds.
Interest will also be paid on any charges taken under the policy since the
date of death, from the date the charge was taken until the date of payment.
Interest will be at an annual rate determined by us but never less than 4
percent per year, compounded annually, or the minimum required by state law.
Death benefit proceeds will be paid to the surviving beneficiary specified
on the application or as subsequently changed. The owner may arrange for death
benefit proceeds to be paid in a single lump sum or under one of the optional
methods of settlement described below.
When no election for an optional method of settlement is in force at the
death of the insured, the beneficiary may select one or more of the optional
methods of settlement at any time before death benefit proceeds are paid. (See
"Settlement Options," page 27.)
An election or change of method of settlement must be in writing. A change in
beneficiary revokes any previous settlement election.
ACCOUNT VALUES
The policy provides the owner certain account value benefits. Subject to
certain
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limitations, the owner may obtain access to the net cash value portion of the
account value of the policy. The owner may borrow against the policy's loan
value and may surrender the policy in whole or in part. The owner may also
transfer the net cash value between the guaranteed account and the sub-
accounts of the separate account or among the sub-accounts of the separate
account.
We will send the owner a report each year as of the policy anniversary
advising the owner of the policy's account values, the face amount and the
death benefit as of the date of the report. It will also summarize policy
transactions during the year, including premiums paid and their allocation,
policy charges, policy loan activity and the net cash value. It will be as of
a date within two months of its mailing. We will also, upon the owner's
request, send the owner an additional statement of past transactions at any
time for a $15 fee, which will be deducted from the portion of account value
that the owner specifies.
Also, upon request made to us at our home office, we will provide
information on the account value of a policy to the owner. Such requests may
be in writing, by telephone or by facsimile transmission, using the numbers
and procedures for providing telephone or facsimile transfer instructions.
(See "Transfers," page 20.)
DETERMINATION OF THE GUARANTEED ACCOUNT VALUE The guaranteed account value is
the sum of all net premium payments allocated to the guaranteed account. This
amount will be increased by any interest, dividends, loan repayments, policy
loan interest credits and transfers into the guaranteed account. This amount
will be reduced by any policy loans, loan interest charged, partial
surrenders, transfers into the sub-accounts of the separate account and
charges assessed against the owner's guaranteed account value. Interest is
credited on the guaranteed account value of the policy 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
guaranteed account. As conditions permit, we may credit additional amounts of
interest to the guaranteed account value. The owner's guaranteed account value
is guaranteed by us. It cannot be reduced by any investment experience of the
guaranteed account.
DETERMINATION OF THE SEPARATE ACCOUNT VALUE The policy's separate account
value is determined separately. The separate account value is not guaranteed.
The determination of the separate account value
is made by multiplying the current number of sub-account units credited to a
policy by the current sub-account unit value. A unit is a measure of a
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 the owner's premium at our
home office.
Once determined, the number of units credited to the owner's policy will not
be affected by changes in the unit value. However, the number of units will be
increased by the allocation of subsequent net premiums, lump sum net premiums,
dividends, loan repayments, loan interest credits and transfers to that sub-
account. The number of additional units credited is determined by dividing the
net premiums, policy dividends, loan repayments, loan interest credits and
transfers to that sub-account by the then current unit value for that sub-
account. The number of units of each sub-account credited to the owner's
policy will be decreased by policy charges to the sub-account, policy loans
and loan interest charged, transfers from that sub-account and partial
surrenders from that sub-account. The reduction in the number of units
credited is determined by dividing the deductions to that sub-account, policy
loans and loan interest charged, transfers from that sub-account and partial
surrenders from that sub-account by the then current unit value for that sub-
account. The number of sub-account units will decrease to zero on a policy
surrender.
UNIT VALUE The unit value of a sub-account will be determined on each
valuation date. The amount of any increase or decrease will depend on the net
investment experience of that sub-account. The value of a unit for each sub-
account was originally set at $1.00 on the first valuation date. For any
subsequent valuation date, its value is equal to its value on the preceding
valuation date multiplied by the net investment factor for that sub-account
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<PAGE>
for the valuation period ending on the subsequent valuation date.
NET INVESTMENT FACTOR 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 the annual rate stated on the
specification pages of the policy against the average daily net assets of each
sub-account of the separate account. The gross investment rate is equal to:
(1) the net asset value per share of a share held by the Funds 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 gains distribution 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 the share of the Funds held in the sub-
account determined at the end of the preceding valuation period.
DAILY VALUES We determine the value of the units in each sub-account on each
day on which the Portfolios of the Funds are valued. The net asset value of
the Funds' shares is computed once daily, and, in the case of the Money Market
Portfolio, after the declaration of the daily dividend, as of the primary
closing time for business on the New York Stock Exchange (as of the date
hereof the primary close of trading is 3:00 p.m. Central Time, but this time
may be changed) on each day, Monday through Friday, except (i) days on which
changes in the value of a Fund's Portfolio securities will not materially
affect the current net asset value of such Fund's shares, (ii) days during
which no shares of a Fund are tendered for redemption and no order to purchase
or sell such Fund's shares is received by such Fund and (iii) customary
national business holidays on which the New York Stock Exchange is closed for
trading (as of the date hereof, New Year's Day, Presidents' Day, Good Friday,
Memorial Day, Independence Day, Labor Day, Thanksgiving Day and Christmas
Day).
Although the account 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 as of the date of the insured's death
and on a policy adjustment, surrender, and lapse. When the policy value is
determined, we will assess and update to the date of the transaction those
charges made against the owner's account value, namely the administration
charge 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
Account Values and Death Benefits," page 61 of this prospectus.
POLICY LOANS
The owner may borrow from us using only the policy as the security for the
loan. The owner may borrow up to an amount equal to (a) less (b), where (a) is
90 percent of the owner's account value and (b) is any outstanding policy
loans plus accrued policy loan interest charged. A loan taken from, or secured
by a policy, may have federal income tax consequences. (See "Federal Tax
Status," page 30.) The maximum loan amount is determined as of the date we
receive the owner's request for a loan.
Any policy loan paid to the owner in cash must be in an amount of at least
$100. We will charge interest on the loan in arrears. At the owner's request,
we will send the owner a loan request form for his or her signature. The owner
may also obtain a policy loan by calling us during our normal business hours
of 8:00 a.m. to 4:45 p.m., Central Time. Should the owner make a telephone
call to us, he or she will be asked for personal identification and policy
number. More information on the procedures to make telephone calls to us is
provided under the heading "Transfers" on page 20 of this prospectus.
When the owner takes a loan, we will reduce the net cash value by the amount
borrowed. This determination will be made as of the end of the valuation
period during which the loan request is received at our home office. Unless
the owner directs us otherwise, the policy loan will be taken from the
guaranteed account value and separate account value in the same proportion
that
18
<PAGE>
those values bear to each other and, as to the separate account value, from
each sub-account in the proportion that the sub-account value of each such
sub-account bears to the owner's separate account value. The number of units
to be canceled will be based upon the value of the units as of the end of the
valuation period during which we receive the owner's loan request at our home
office. The amount borrowed continues to be part of the account value, as the
amount borrowed becomes part of the loan account value where it will accrue
loan interest credits and will be held in our general account. A policy loan
has no immediate effect on the owner's account value since at the time of the
loan the account value is the sum of the guaranteed account value, separate
account value and the loan account value. When a loan is to come from the
guaranteed account value, we have the right to postpone a loan payment for up
to six months.
If a policy enters a grace period when there is an outstanding loan balance,
the owner will have to make a loan repayment to keep the policy in force. We
will give the owner 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 be 8 percent per
year. Interest charged will be based on a daily rate, which if compounded for
the number of calendar days in the year will equal 8 percent annually, and
compounded for the number of days since loan interest charges were last
updated.
The outstanding loan balance will increase as the interest charged on the
policy loan accrues. The net cash value will decrease as the outstanding loan
balance increases. Interest is due at the end of the policy month. If the
owner does not pay in cash the interest accrued at the end of the policy
month, this unpaid interest will be added to the amount of the policy loan.
The new loan will be subject to the same rate of interest as the loan in
effect.
Interest is also credited to the amount of the policy loan in the loan
account value. Interest credits on a policy loan shall be at a rate which is
not less than 6 percent per year. Interest credited will be based on a daily
rate, which if compounded for the number of calendar days in the year will be
at least 6 percent annually, and compounded for the number of days since loan
interest charges were last updated.
POLICY LOAN REPAYMENTS If the owner's policy is in force, the owner's loan can
be repaid in part or in full at any time before the insured's death. The
owner's loan may also be repaid within 60 days after the date of the insured's
death, if we have not paid any of the benefits under the policy. Any loan
repayment must be at least $100 unless the balance due is less than $100.
Loan repayments may only be allocated to the guaranteed account. The owner
may reallocate amounts in the guaranteed account among the sub-accounts of the
separate accounts, subject to the limitations in this prospectus and the
policy on such transfers. Loan repayments reduce the owner's outstanding loan
balance by the amount of the loan repayment. Loan repayments will be applied
first to interest accrued since the end of the prior policy month. Any
remaining portion of the repayment will then reduce the loan. The net cash
value will increase by the amount of the loan repayment.
A policy loan, whether or not it is repaid, will have a permanent effect on
the account 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 rate credited on the loan, the account 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 rate credited on the loan, the
account 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 II, "Policy Loan Example" on page 70 of this prospectus.
SURRENDER AND PARTIAL SURRENDER
The owner may also request a surrender or a partial surrender of the policy
at any time while the insured is living. To make a surrender, the owner sends
us the policy and a written request for its surrender. The owner is then paid
the net cash value of the policy, computed as of the end of the valuation
period during which we receive the surrender request at our home office. That
payment can be in cash or, at the option of the owner, can
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<PAGE>
be applied on a settlement option. A surrender or partial surrender may have
federal income tax consequences. (See "Federal Tax Status," page 30.)
A partial surrender of the net cash value of the policy is also permitted in
any amount of at least $500, but not more than would
cause the net cash value after the partial surrender to be less than 10 percent
of the account value immediately prior to the partial surrender. We reserve the
right to limit the number of partial surrenders to one per policy month. A
partial surrender will cause a decrease in the face amount equal to the amount
surrendered if the policy has a level death benefit (Option A). A partial
surrender has no effect on the face amount of an Option B death benefit.
However, since the account value is reduced by the amount of the partial
surrender, the death benefit is reduced by the same amount, as the account
value represents a portion of the death benefit proceeds.
On a partial surrender, the owner may designate the sub-accounts of the
separate account from which a partial surrender is to be taken or whether it is
to be taken in whole or in part from the guaranteed account. Otherwise, partial
surrenders will be deducted from the guaranteed account value and separate
account value in the same proportion that those values bear to each other and,
as to the separate account value, from each sub-account in the proportion that
the sub-account value of each such sub-account bears to the separate account
value. We will tell the owner, on request, what amounts are available for a
partial surrender under the policy.
A transaction charge will be assessed against the net cash value in
connection with a partial surrender. The amount of the charge is the lesser of
$25 or 2 percent of the amount withdrawn. The charge will be allocated to the
guaranteed account value and the separate account value in the same proportion
as those values bear to each other and, as to the separate account value, from
each sub-account in the same proportion that the sub-account value of each such
sub-account bears to the separate account value.
Payment of a surrender or partial surrender will be made as soon as possible,
but not later than seven days after our receipt of the owner's written request
for surrender. However, if any portion of the net cash value to be surrendered
is attributable to a premium payment made by non-guaranteed funds such as a
personal check, we will delay mailing that portion of the surrender proceeds
until we have reasonable assurance that the payment has cleared and that good
payment has been collected. The amount the owner receives on surrender may be
more or less than the total premiums paid under the policy.
TRANSFERS
The policy allows for transfers, a reallocation of the net cash value between
the guaranteed account and the separate account or among the sub-accounts of
the separate account.
There are restrictions to such transfers. The amount to be transferred to or
from a sub-account or the guaranteed account must be at least $250. If the
balance is less than $250, the entire sub-account value or the guaranteed
account value must be transferred. If a transfer would reduce the sub-account
value from which the transfer is to be made to less than $250, we reserve the
right to include that remaining sub-account value in the amount transferred. We
also reserve the right to limit the number of transfers to one per policy
month.
For transfers from the sub-accounts of the separate account, we will credit
and cancel units on the basis of sub-account unit values as of the end of the
valuation period during which the owner's written or telephone request is
received at our home office. Transfers from the guaranteed account will be
dollar amounts deducted at the end of the day on which the transfer request is
received at our home office. A transfer is subject to a transaction charge.
Currently, no such charge is imposed on a transfer, but a charge, up to a
maximum of $10, may be imposed in the future.
The owner's instructions for transfer may be made in writing or the owner, or
a person authorized by the owner, may make such changes by telephone. To do so,
the owner may call us at (800) 843-8358 during our normal business hours of
8:00 a.m. to 4:45 p.m., Central Time. Owners may also submit their requests for
transfer, surrender or other transactions to us by facsimile (FAX)
transmission. Our FAX number is (612) 228-4827.
Transfers made pursuant to a telephone call are subject to the same
conditions and procedures as would apply to written transfer
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<PAGE>
requests. During periods of marked economic or market changes, owners may
experience difficulty in implementing a telephone transfer due to a heavy
volume of telephone calls. In such a circumstance, 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.
We will make this telephone transfer service 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 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
transfers.
The maximum amount of net cash value to be transferred out of the guaranteed
account to the sub-accounts of the separate account may be limited to 20
percent (or $250 if greater) of the guaranteed account balance. Transfers to
or from the guaranteed account may be limited to one such transfer per policy
year. We may further restrict transfers from the guaranteed account by
requiring that the request is received by us postmarked in the 30-day period
before or after the last day of the policy anniversary. Requests for such
transfers which meet these conditions would be effective after we approve them
at our home office. Currently, no such restrictions are imposed.
Although we currently intend to continue to permit transfers in the
foreseeable future, the policy provides that we may modify the transfer
privilege, by changing the minimum amount transferable, by altering the
frequency of transfers, by imposing a transfer charge, by prohibiting
transfers, or in such other manner as we may determine at our discretion.
DOLLAR COST AVERAGING
We currently offer a dollar cost averaging option enabling the owner to
preauthorize automatic monthly or quarterly transfers from the Money Market
Sub-Account to any of the other sub-accounts. The transfers will occur on
monthly anniversaries. Dollar cost averaging is a systematic method of
investing in which securities are purchased at regular intervals in fixed
dollar amounts so that the cost of the securities is averaged over time and
possibly over various market values. Since the value of the units will vary
over time, the amounts allocated to a sub-account will result in the crediting
of a greater number of units when the unit value is low and a lesser number of
units when the unit value is high. Dollar cost averaging does not guarantee
profits, nor does it assure that a policy will not have losses.
To elect dollar cost averaging the owner must have at least $3,000 in the
Money Market Sub-Account. The automatic transfer amount from the Money Market
Sub-Account must be at least $250. The minimum amount that may be transferred
to any one of the other sub-accounts is $50. Currently, there is no charge for
this service. We reserve the right to discontinue, modify or suspend the
dollar cost averaging program at any time.
A dollar cost averaging request form is available to the owner upon request.
On the form the owner will designate the specific dollar amount to be
transferred, the sub-accounts to which the transfer is to be made, the desired
frequency of the transfer and the total number of transfers to be made. If at
any time while the dollar cost averaging option is in effect, the amount in
the Money Market Sub-Account is insufficient to cover the amount designated to
be transferred the current election in effect will terminate.
An owner may instruct us at any time to terminate the dollar cost averaging
election by a written or telephone request to our home office. The amount from
which transfers were being made will remain in the Money Market Sub-Account
unless a transfer request is made.
FREE LOOK
It is important to us that the owner is satisfied with the policy after it
is issued. If the owner is not satisfied with it, the owner may return the
policy to us within 10 days after the owner receives it. If the policy is
returned, the owner will receive within seven days of the date we receive the
notice of cancellation a full refund of the premiums paid.
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A request for an increase in face amount also may be canceled. The request
for cancellation must be made within the 10 days, or that period required by
applicable state law, after the owner receives the new policy specification
pages for the increase.
Upon cancellation of an increase, the owner may request that we refund the
amount of the additional charges deducted in connection with the increase.
This will equal the amount by which the monthly deductions since the increase
went into effect exceeded the monthly deductions which would have been made
without the increase. If no request is made, we will increase the policy's
account value by the amount of these additional charges. This amount will be
allocated among the sub-accounts of the separate account and guaranteed
account in the same manner as it was deducted.
CONVERSION RIGHT TO AN INDIVIDUAL POLICY
If life insurance provided under the group contract is not continued upon
termination of the insured's eligibility under the group contract, or if the
group contract terminates or is amended so as to terminate the insurance, the
owner may convert the insurance under the group contract to an individual
policy of life insurance with us subject to the following:
(1) The owner's written application to convert to an individual policy and the
first premium for the individual policy must be received in our home
office within 31 days of the date the owner's insurance terminates under
the group contract.
(2) The owner may convert all or a part of the group insurance in effect on
the date that the owner's coverage terminated to any individual life
insurance policy we offer, except a policy of term insurance. We will
issue the individual policy on the policy forms we then use for the plan
of insurance the owner has requested. The premium charge for this
insurance will be based upon the insured's age as of his or her nearest
birthday.
(3) If the insured should die within 31 days of the date that the group
contract terminates, the full amount of insurance that could have been
converted under this policy will be paid.
In the case of the termination of the group contract, we may require that an
insured under a certificate issued under the group contract be so insured for
at least five years prior to the termination date in order to qualify for the
above conversion privilege.
CONTINUATION OF GROUP COVERAGE
If the insured's eligibility under a group contract ends, the owner's current
group coverage may continue unless the certificate is no longer in force or the
limitations below are true as of the date eligibility ends:
(1) The group contract has terminated; or
(2) The owner has less than $10 in his or her net cash value after deduction
of charges for the month in which eligibility ends.
The insurance amount will not change unless the owner requests a change. We
reserve the right to alter the monthly administration fee, not to exceed the
maximum $4 charge, and the monthly cost of insurance charge, up to the maximum
in Table A as shown in the policy, if the insurance is continued.
Termination of the group contract by the contractholder or us will not
terminate the insurance then in force under the terms of the continuation
provision. The group contract will be deemed to remain in force solely for the
purpose of continuing such insurance, but without further obligation of the
contractholder.
CHARGES
Charges will be deducted in connection with the policies to compensate us
for providing the insurance benefits set forth in the policies, administering
the policies, incurring expenses in distributing the policies and assuming
certain risks in connection with the policies. The charges are shown on the
specification page of the certificate or individual policy.
PREMIUM EXPENSE CHARGES
PREMIUM TAX CHARGE We will deduct a charge of 2 percent of each premium
received for premium taxes. This charge is to compensate us for our payment of
premium taxes that are imposed by various states and local jurisdictions.
Currently, the range of premium taxes imposed by the states varies from 0.75
percent to 3.5 percent. A state in which a policy is issued may impose a tax
that is higher or lower than the charge deducted under the policy.
Accordingly, the 2 percent
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charge may be higher or lower than the premium tax actually imposed on the
policy.
FEDERAL TAX CHARGE Due to a 1990 federal tax law change under the Omnibus
Budget Reconciliation Act of 1990 ("OBRA"), as amended, insurance companies
are generally required to capitalize and amortize certain policy acquisition
expenses rather than currently deducting such expenses. This has resulted in
an additional corporate income tax liability for insurance companies. For
policies deemed to be group policies for purposes of OBRA, we make a charge of
0.25 percent of each premium payment to compensate us for the additional
corporate taxes we pay for these policies. OBRA imposes a higher policy
acquisition expense to be capitalized on policies deemed to be individual
contracts under OBRA which results in significantly higher corporate income
tax liability for those deemed individual contracts. Thus, under policies
deemed to be individual contracts under OBRA, we make a charge of 1.25 percent
of each premium payment. This additional charge is treated as a sales load for
purposes of determining compliance with the limitations on sales loads imposed
by the Investment Company Act of 1940 and applicable regulations thereunder.
SALES CHARGE We will deduct a sales charge from each premium paid under the
policy. The maximum sales charge will be 5 percent of each premium paid. The
sales charge for all policies under a group-sponsored program is partially
based on the enrollment procedures selected by the group sponsor. Varying
enrollment procedures require varying amount of effort and may be carried out
by either the distributors of the policies, by us or by the group sponsor. The
scope of the enrollment process, the level of services provided and how it is
carried out will be determined by the group sponsor, and will be considered in
determining a possible reduction in the 5 percent sales charge accordingly.
Other elements of a group-sponsored program which affect our sales expenses
will also be considered in determining a possible reduction in the 5 percent
sales charge imposed on premium payments for policies. The reduction will be
determined by us by weighing the following elements.
(1) The size and type of group to which the sales of the policies are made
will be considered. Generally, sales expenses for a larger group of
insureds are lower than for a small group because of our ability to
implement a large number of sales per sales contact.
(2) The total amount of premium payments to be received will be considered as
affecting per dollar sales expenses. Per dollar sales expenses are likely
to be less on larger premium amounts received than on small premium
amounts.
(3) Any prior existing relationship with us may affect sales expenses.
Generally, sales expenses are likely to be less where there is a prior
existing relationship because of the likelihood of implementing more sales
per sales contact.
(4) The level of commissions paid to agents and brokers and their affiliated
broker-dealers will be considered in the determination of the sales charge
imposed on premium payments. Some broker-dealers may offer policies in
connection with programs presented on a fee-for-service basis and may
thereby elect to receive lower or no commissions for the sales of the
policies thereby reducing our sales expense which can be reflected in a
reduced sales charge.
(5) There may be other circumstances, of which we are not presently aware,
which could result in reduced sales expenses.
If, after a consideration of the foregoing factors, it is determined that
there will be a reduction in sales expenses, we will provide a reduction in
the imposition of the sales charge. In no event will reduction or elimination
of the sales charge be permitted where that reduction or elimination would be
unfairly discriminatory to any person or class of persons.
In no event will the total sales charges on premiums paid exceed 5 percent.
The sales charges will not change in the event that an owner is no longer
eligible under a group-sponsored program and elects to exercise the
continuation provision provided under the policy.
The amount of 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, which may include profits from the mortality and expense risk charge
or the cost of insurance charge.
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MONTHLY DEDUCTION
As of the policy date and each subsequent monthly anniversary, we will
deduct an amount from the net cash value of the owner's policy to cover
certain charges and expenses incurred in connection with the policy. The
monthly deduction consists of (1) an administration charge, (2) the cost of
insurance charge and (3) the cost of any additional insurance benefits
provided by rider. The monthly deduction will be assessed against the
guaranteed account value and the separate account value in the same proportion
that those values bear to each other and, as to the separate account, from
each sub-account in the proportion that the sub-account value in such sub-
account bears to the separate account value of the policy.
MONTHLY ADMINISTRATION CHARGE The amount of the monthly administration charge
is shown on the specification pages of the policy and depends on the number of
eligible members in a group-sponsored program at issue. The following table
indicates the range of monthly charges under the policy:
<TABLE>
<CAPTION>
ELIGIBLE
MEMBERS CHARGE
-------- ------
<S> <C>
250-499 $2.50
500-999 $2.00
1000+ $1.00
</TABLE>
For group-sponsored programs with fewer than 250 eligible members or
additional administrative costs the monthly administrative charge may be
higher, but will not exceed $4.00 per month.
These charges are guaranteed not to increase over the life of the owner's
policy while the insured is eligible under the group-sponsored program. We
reserve the right to alter the administration fee upon the exercise of the
continuation provision under the policy, though it shall not exceed the
maximum $4.00 charge. This charge is not designed to produce a profit. In
addition, where we believe that lower administrative costs will be incurred in
connection with a particular group-sponsored program due to the number of
eligible members or administrative support provided by the group sponsor, we
may modify the above schedule for that group. The amount of the administration
charge applicable to a particular group-sponsored program will be shown on the
specification pages of the policy.
COST OF INSURANCE The cost of insurance is deducted on the policy date and on
each succeeding monthly anniversary. Because the cost of insurance depends
upon a number of variables, the cost will vary for each policy month. We will
determine the monthly cost of insurance charge by multiplying the applicable
cost of insurance rate by the net amount at risk for each policy month. The
net amount at risk for a policy month is the difference between the death
benefit and the account value. The net amount at risk may be affected by
changes in the account value or changes in the face amount of the policy.
The cost of insurance rates are determined at the beginning of each policy
year. The current cost of insurance rates will be determined based on
expectations as to future mortality experience and expenses associated with
providing the insurance coverage to the extent these expenses are not covered
by the other policy charges. We currently issue policies on guaranteed issue
or simplified underwriting bases without regard to the insured's gender. We
also reserve the right to issue policies on another basis which we determine
to be appropriate for the group.
The current cost of insurance rates will be based on the attained age of the
insured, the rate class of the insured and the gender mix (i.e., the
proportion of men and women covered under a particular group-sponsored
program). The cost of insurance rates generally increase as the insured's
attained age increases. An insured's rate class is generally based on the
expected number of potential insureds as well as other factors that may affect
the mortality risks we assume in connection with a particular group-sponsored
program. All other factors being equal, the cost of insurance rates generally
decrease with a rate class as the expected number of potential insureds in the
rate class increases. We reserve the right to change criteria on which a rate
class will be based in the future.
We will estimate the gender mix of the pool of insureds under a group-
sponsored program upon issuance of the group contract or the individual
policies. Each year on the anniversary of such issuance, we may adjust the
rate to reflect the actual gender mix for the particular group. In the event
that the insured's eligibility under a group-sponsored program ceases, the
cost of insurance rate will continue to reflect the gender mix of the pool of
insureds at the time the insured's eligibility ceased. However, we reserve the
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right at some time in the future to base the gender mix and rate class on the
group consisting of those insureds who are no longer under a group-sponsored
program.
The current cost of insurance rates will not be greater than the guaranteed
cost of insurance rates set forth in the policy. These guaranteed rates are
125 percent of the maximum rates that could be charged based on the 1980
Commissioners Standard Ordinary Mortality Table ("1980 CSO Table"). The
guaranteed rates are higher than 100 percent of the maximum rates in the 1980
CSO Table because we use simplified underwriting procedures whereby the
insured may not be required to submit to a medical or paramedical examination.
The current cost of insurance rates are generally lower than 100 percent of
the 1980 CSO Table. Any change in the current cost of insurance rates, except
those changes made to adjust for changes in the gender mix of the pool of
insureds under a particular group-sponsored program, will apply to all persons
of the same attained age and rate class. (For purposes of computing net single
premiums under Section 7702 of the Internal Revenue Code of 1986, as amended,
we will use 100 percent of the 1980 CSO Table.)
PARTIAL SURRENDER TRANSACTION CHARGE
A transaction charge will be assessed against the net cash value for each
partial surrender to cover the administrative costs incurred in processing the
partial surrender. The amount of the charge is the lesser of $25 or 2 percent
of the amount withdrawn. This charge will be assessed in the same manner as
the monthly deduction. This charge is not designed to produce a profit.
SEPARATE ACCOUNT CHARGES
We assess a mortality and expense risk charge directly against the assets
held in the separate 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 actual expenses in connection with the policies. The annual
rate assessed against the average daily assets of the separate account is
stated on the specification pages of the policy. This charge will never exceed
.50 percent annually of the average net assets of the separate account.
We reserve the right to deduct a charge against the separate account assets,
or make other provisions for, any additional tax liability we may incur with
respect to the separate account or the policies, to the extent that those
liabilities exceed the amounts recovered through the deduction from premiums
for state premium taxes and federal taxes. No such charge or provision is made
at the present time.
ADDITIONAL BENEFITS
Subject to certain requirements, one or more of the following additional
insurance benefits may be added to the policy by rider. However, some group
contracts may not offer each of the additional benefits described below.
Certain riders may not be available in all states. The descriptions below are
intended to be general; the terms of the policy riders providing the
additional benefits may vary from state to state, and the policy should be
consulted. The cost of any additional insurance benefits will be deducted as
part of the monthly deduction.
ACCELERATED BENEFITS AGREEMENT All policies, where allowed by state law, will
be issued with the Accelerated Benefits Agreement. Eligibility requirements
and conditions for payment of accelerated benefits are described in the
agreement. The agreement provides for an accelerated payment of all or a
portion of the death benefit proceeds in a single sum or any other mutually
acceptable manner if the insured is terminally ill as defined in the
agreement, provided the policy has not been assigned and it does not have an
irrevocable beneficiary. All accelerated benefits will be paid to the insured
unless the insured validly assigns them otherwise. If the insured dies before
all payments have been made, we will pay the remainder to the beneficiary
under the policy in one lump sum.
The amount of accelerated benefit available will be the death benefit
multiplied by the accelerated benefit factor. The accelerated benefit factor
will be calculated using the following considerations: the insured's age,
gender, and option applied for; and certain assumptions including, but not
limited to, expected future premiums, future dividends at the scale in effect
when making the calculation, and the insured's life expectancy. We will
subtract a processing charge of up to $150 before paying the
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benefit. This charge is not designed to produce a profit.
The addition of an Accelerated Benefits Agreement and/or the receipt of
amounts under such an Agreement may have tax consequences. The insured should
seek assistance from a personal tax adviser.
WAIVER AGREEMENT Provides for the waiver of the monthly deductions while the
insured is totally disabled, subject to certain limitations described in the
rider agreement. The insured must have become disabled before the age of 60.
ACCIDENTAL DEATH AND DISMEMBERMENT Provides additional insurance if the
insured dies or becomes dismembered as a result of an accidental bodily
injury, as defined in the rider. Under the terms of the rider, the additional
benefits provided in the policy will be paid upon receipt of proof by us that
the death or dismemberment resulted directly from accidental injury and
independently of all other causes. The death or dismemberment must occur
within 180 days after the date of the injury and before the insured's 70th
birthday.
CHILDREN'S RIDER Provides for term insurance on the insured's children, as
specified in the rider. To be eligible for the insurance, the child must be of
eligible age as indicated in the rider and be dependent upon the insured for
financial support. Under terms of the rider, the death benefit will be payable
to the person insured by the policy to which the rider is attached.
SPOUSE AND CHILD RIDER Provides for term insurance on the insured's spouse and
children, as specified in the rider. To be eligible for the insurance, spouse
and children must meet the eligibility requirements indicated in the rider.
Under terms of the rider, the death benefit will be payable to the person
insured by the policy to which the rider is attached.
POLICYHOLDER CONTRIBUTION RIDER Allows the contractholder to pay for all or a
portion of the monthly charges under the policy without affecting the account
value which may accumulate due to employee-paid net premiums. The portion of
the net premium paid by the contractholder will be allocated to the guaranteed
account. On the same day such premium is allocated, the charges the
contractholder intends to cover will be deducted from the guaranteed account
value.
GENERAL MATTERS RELATING TO THE POLICY
POSTPONEMENT OF PAYMENTS Normally, we will pay any policy proceeds within
seven days after our receipt of all the documents required for such a payment.
Other than the death proceeds, which are determined as of
the date of death of the insured, the amount of payment will be determined as
of the end of the valuation period during which a request is received at our
home office. However, we reserve the right to defer policy payments, including
policy loans, for up to six months from the date of the owner's 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 a
payment other than a policy loan payment for more than 31 days, we will pay
the owner interest at the greater of 4 percent per year or the minimum rate
required by state law 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 separate account, we may defer payment only: (a)
for any period during which the New York Stock Exchange is closed for trading
(except for normal holiday closing); or (b) when the Securities and Exchange
Commission has determined that a state of emergency exists which may make such
payment impractical.
THE POLICY The policy, the attached application, endorsements, any application
for an increase in face amount and any application for reinstatement
constitute the entire contract between the owner and us. Apart from the rights
and benefits described in the policy and incorporated by reference into the
group contract, the owner has no rights under the group contract. All
statements made by the owner or insured in the application are considered
representations and not warranties, except in the case of fraud. Only
statements in the application and any supplemental applications can be used to
contest a claim or the validity of the policy. Any change to the policy must
be approved in writing by the President, a Vice President or Secretary of
Minnesota Mutual. No agent has the authority to alter or modify any of the
terms, conditions or agreements of the policy or to waive any of its
provisions.
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CONTROL OF POLICY The insured will be considered the owner of the policy
unless another person is shown as the owner in the application. Ownership may
be changed, however, by assigning the policy as described below. The owner is
entitled to all rights provided by the policy, prior to its maturity date.
After the maturity date, the owner
cannot change the payee nor the mode of payment, unless otherwise provided in
the policy. Any person whose rights of ownership depend upon some future event
will not possess any present rights of ownership. If there is more than one
owner at a given time, all must exercise the rights of ownership. If the owner
should die, and the owner is not the insured, the owner's interest will go to
his or her estate unless otherwise provided.
BENEFICIARY The owner may name one or more beneficiaries on the application to
receive the death benefit. The owner may choose to name a beneficiary that the
owner cannot change without the beneficiary's consent. This is called an
irrevocable beneficiary. If the owner has not named an irrevocable
beneficiary, the owner has reserved the right to change the beneficiary by
filing a subsequent written request with us. In that event, we will pay the
death benefit to the beneficiary named in the most recent change of
beneficiary request as provided for in the policy.
If a beneficiary dies before the insured, that beneficiary's interest in the
policy ends with that beneficiary's death. Only those beneficiaries who
survive the insured will be eligible to share in the proceeds. If no
beneficiary survives the insured we will pay the proceeds according to the
following order of priority:
(1) The insured's lawful spouse, if living; otherwise
(2) The personal representative of the insured's estate.
CHANGE OF BENEFICIARY If the owner has reserved the right to change the
beneficiary, the owner can file a written request with us to change the
beneficiary. If the owner has named an irrevocable beneficiary, the written
consent of the irrevocable beneficiary will be required. The owner's written
request will not be effective until it is recorded in our home office records.
After it has been so recorded, it will take effect as of the date the owner
signed the request.
However, if the insured dies before the request has been so recorded, the
request will not be effective as to those proceeds we have paid before the
owner's request was so recorded.
SETTLEMENT OPTIONS The death benefit proceeds of a policy will be payable if
we receive due proof satisfactory to us of the
insured's death while it is in force. The proceeds will be paid from our home
office and in a single sum unless a settlement option has been selected.
We will pay interest on the face amount of single sum death proceeds from
the date of the insured's death until the date of payment at any annual rate
to be determined by us, but never less than 4 percent per year, compounded
annually, or the minimum rate required by state law. Death benefits proceeds
arising from the account value, as under Option B, will continue to reflect
the separate account experience until the time of payment of those amounts.
The proceeds of a policy may be paid in other than a single sum and the
owner may, during the lifetime of the insured, request that we pay the
proceeds under one of the policy's settlement options. We may also use any
other method of payment acceptable to both the owner and us. Unless the owner
elects otherwise, a beneficiary may select a settlement option after the
insured's death. 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. A
person electing a settlement option will be asked to sign an agreement
covering the election which will state the terms and conditions of the
payments. The payments do not vary with the investment performance of the
separate account.
(1) INTEREST PAYMENTS This option will provide payment of interest on the
proceeds at such times and for a period that is agreeable to the person
electing the settlement option 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.
(2) FIXED PERIOD ANNUITY This is an annuity payable in monthly installments
for a specified number of years, from one
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to twenty years. The amount of guaranteed payments for each $1,000 of
proceeds applied would be shown on the settlement option agreement.
(3) LIFE ANNUITY This is an annuity payable monthly during the lifetime of the
person who is to receive the income and terminating with the last monthly
payment immediately preceding that person's death. We may require proof of
the age and gender of the annuitant. The amount of guaranteed payments for
each $1,000 of proceeds applied would be shown in the settlement option
agreement. It would be possible under this option for the annuitant to
receive only one annuity payment if he or she died prior to the due date
of the second annuity payment, two if he or she died before the due date
of the third annuity payment, etc.
(4) PAYMENTS OF A SPECIFIED AMOUNT This is an annuity payable in a specified
amount until the proceeds and interest are fully paid.
The minimum amount of interest we will pay under any settlement option is 4
percent per year, compounded annually, or the minimum rate required by state
law. Additional interest earnings, if any, on deposits under a settlement
option will be payable as determined by us.
POLICY CHANGES We reserve the right to limit the number of policy changes to
one per policy year and to restrict such changes in the first policy year. For
this purpose, changes include increases or decreases in face amount. No change
will be permitted that would result in the death benefit under a policy being
included in gross income due to not satisfying the requirements of Section
7702 of the Internal Revenue Code or any applicable successor provision.
CONFORMITY WITH STATUTES If any provision in a policy is in conflict with the
laws of the state governing the policy, the provision will be deemed to be
amended to conform to such laws.
CLAIMS OF CREDITORS To the extent permitted by law, neither the policy nor any
payment thereunder will be subject to the claims of creditors or to any legal
process.
INCONTESTABILITY After a policy has been in force during the insured's
lifetime for two years from the policy date, we cannot contest the insurance
for any loss that is incurred more than two years after the policy date,
unless the net cash value has dropped below the amount necessary to pay the
insured's cost of insurance on the insured's life. However, if there has been
an increase in the amount of insurance for which we required evidence of
insurability, then, to the extent of the increase, any loss which occurs
within two years of the effective date of the increase will be contestable.
ASSIGNMENT The policy may be assigned. However, we will not be bound by any
assignment unless it is in writing and filed at our home office in St. Paul,
Minnesota, and we send the owner an acknowledged copy. We assume no
responsibility for the validity or effect of any assignment of the policy or
of any interest in it. Any claim made by an assignee will be subject to proof
of the assignee's interest and the extent of the assignment. A valid
assignment will take precedence over any claim of a beneficiary.
SUICIDE If the insured, whether sane or insane, dies by suicide, within two
years of the original policy date, our liability will be limited to an amount
equal to the premiums paid for the policy. If there has been a face amount
increase for which we required evidence of insurability, and if the insured
dies by suicide within two years from the effective date of the increase, our
liability with respect to the increase will be limited to an amount equal to
the premiums paid for that increase.
If the insured is a Missouri citizen when the policy is issued, this
provision does not apply on the issue date of the policy, or on the effective
date of any increase in face amount, unless the insured intended suicide when
the policy, or any increase in face amount, was applied for.
If the insured is a citizen of Colorado or North Dakota, the duration of
this suicide provision is for one year instead of two.
MISSTATEMENT OF AGE If the age of the insured has been misstated, the death
benefit and account value will be adjusted. The adjustment will be the
difference between two amounts accumulated with interest. These two amounts
are:
(1) the monthly cost of insurance charges that were paid; and
(2) the monthly cost of insurance charges that should have been paid based on
the insured's correct age.
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The interest rates used are the rates that were used in accumulating
guaranteed account values for that time period.
DIVIDENDS The policies are participating policies. Each year we will determine
if this class of policies and this policy will share in our divisible surplus.
We call a share of this participation a dividend. We do not anticipate that
dividends will be declared with respect to these policies.
Dividends, if received, may be added to the owner's account value or, if the
owner elects, they may be paid in cash.
A dividend applied to account value will be allocated to the guaranteed
account or to the sub-accounts of the separate account in accordance with the
owner's current instructions for the allocation of net premiums. In the
absence of instruction, dividends will be allocated to the guaranteed account
value and separate account value in the same proportion that those account
values bear to each other and, as to the account value in the separate
account, to each sub-account in the proportion that the sub-account value
bears to the separate account value.
REPORTS Each year we will send the owner a report. This report will show the
policy's status on the policy anniversary. It will include the account value,
the face amount and the variable death benefit as of the date of the report.
It will also show the premiums paid during the year, policy loan activity and
the policy value. The report will be sent to the owner without cost. The
report will be as of a date within two months of its mailing.
GENERAL PROVISIONS OF THE GROUP CONTRACT
ISSUANCE The group contract will be issued upon receipt of an application for
group insurance signed by a duly authorized officer of the group sponsor and
acceptance by a duly authorized officer of Minnesota Mutual at our home
office.
TERMINATION The contractholder may terminate this group contract by giving us
31 days prior written notice of the intent to terminate. In addition, we may
terminate a group contract or any of its provisions on 61 days' notice. No
individual may become insured under the group contract after the effective
date of a notice of termination. However, if the group contract terminates,
policies may be allowed to convert to individual coverage as described under
the heading "Conversion Right to an Individual Policy" on page 22.
Termination of the group contract by the contractholder or us will not
terminate the insurance then in force under the terms of the continuation
provision. The group contract will be deemed to remain in force solely for the
purpose of continuing such insurance, but without further obligation of the
contractholder.
RIGHT TO EXAMINE GROUP CONTRACT The contractholder may terminate the group
contract within 10 days, or that period required by law, after receiving it.
To cancel the group contract, the contractholder should mail or deliver the
group contract to us.
ENTIRE GROUP CONTRACT The group contract, the attached copy of the
contractholder's application and any additional agreements constitute the
entire contract between the contractholder and us. All statements made by the
contractholder, any owner or any insured will be deemed representations and
not warranties. A misstatement will not be used in any contest or to reduce
claim under the group contract, unless it is in writing. A
copy of the application containing such misstatement must have been given to
the contractholder or to the insured or to his or her beneficiary, if any.
OWNERSHIP OF GROUP CONTRACT The contractholder owns the group contract. The
group contract may be changed or amended by agreement between us and the
contractholder without the consent of, or notice to, any person claiming
rights or benefits under the group contract. However, unless the
contractholder owns all of the certificates issued under the group contract,
the contractholder does not have any ownership interest in the certificates
issued under the group contract. The rights and benefits under the
certificates of the owners, insureds and beneficiaries are as set forth in
this prospectus and in the certificates.
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OTHER MATTERS
FEDERAL TAX STATUS
The discussion contained herein is general in nature and is not intended as
tax advice. Each person concerned should consult a competent tax adviser. No
attempt is made to consider any applicable state or other tax laws. In
addition, this discussion is based on our understanding of federal income tax
laws as they are currently interpreted. No representation is made regarding
the likelihood of continuation of current income tax laws or the current
interpretations of the Internal Revenue Service.
We are taxed as a "life insurance company" under the Internal Revenue Code.
The operations of the separate account form a part of, and are taxed with, our
other business activities. Currently, no federal income tax is payable by us
on income dividends received by the separate account or on capital gains
arising from the separate account's activities. The separate account is not
taxed as a "regulated investment company" under the Code and it does not
anticipate any change in that tax status.
On the death of the insured, the death benefit provided by the policies will
be excludable from the gross income of the beneficiary under Section 101(a) of
the Internal Revenue Code. Under Section 7702 of the Code, life insurance
contracts such as the policies will be treated as life insurance under the
Code if certain tests are met. Guidance on how these tests are to be applied
is limited.
However, the Internal Revenue Service has issued proposed regulations that
would specify what will be considered reasonable mortality charges under
Section 7702. In light of these proposed regulations and the other available
guidance on the application of the tests under Section 7702, we generally
believe that a policy issued in respect of a standard risk should meet the
statutory definition of a life insurance contract under Section 7702. With
respect to a policy issued on a substandard basis (i.e., a premium class
involving higher than standard mortality risk), there is insufficient guidance
to determine if such a policy would satisfy the Section 7702 definition of 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
necessary to attempt to cause such a policy to comply with Section 7702.
Section 817(h) of the Code authorizes the Treasury to set standards by
regulation or otherwise for the investments of the separate account to be
"adequately diversified" in order for the policy to be treated as a life
insurance contract for federal tax purposes. The separate 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 the Series Fund is an affiliate
of Minnesota Mutual, Minnesota Mutual does not have control over the Fund or
its investments. Nonetheless, Minnesota Mutual believes that each Portfolio of
the Series Fund in which the separate 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 a 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 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
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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 owner of a policy has the choice of one or more sub-accounts in
which to allocate net purchase payments and policy values, and may be able to
transfer among sub-accounts more frequently than in such rulings. These
differences could result in a policy owner being treated as the owner of the
assets of the separate account. In addition, Minnesota Mutual does not know
what standards will be set forth, if any, in the regulations or rulings which
the Treasury Department has stated it expects to issue. Minnesota Mutual
therefore reserves 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 separate account.
The following discussion assumes that the policy will qualify as a life
insurance contract for federal income tax purposes.
The owner is not currently taxed on any part of his or her interest until
the owner actually receives cash from the policy. However, taxability may also
be determined by the individual's contributions to the policy and prior policy
activity. We also believe that policy loans will be treated as indebtedness
and will not be currently taxable as income to the policy owner. However, a
surrender or partial surrender may have tax consequences. On surrender, an
owner will generally 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 surrender, a decrease in the face
amount, or any other change that reduces benefits under the policy in the
first 15 years after the policy is issued and that results in a cash
distribution to the owner in order for the policy to continue complying with
the Section 7702 definitional limits. In that case, such distribution may 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 account
values.
It should be noted, however, that the tax treatment described above is
available only for policies not described as a modified endowment contract. In
general, the tests to make such a determination will have an impact on
policies which have a high premium in relation to the death benefit. Thus,
under these tests, generally the cumulative premiums paid on a life insurance
policy during the first seven contract years cannot exceed the sum of the net
level premiums which would be paid under a seven-pay life policy. If the
cumulative premiums during the first seven contract years exceed the seven-pay
life premiums, the policy is a modified endowment contract.
Modified endowment contracts would still be treated as life insurance with
respect to the tax treatment of death proceeds and to the extent that the
inside build-up of account value would not be taxed on a yearly basis.
However, any amounts received by the owner, such as 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 (i.e., such
distributions are generally treated as taxable income to the extent that the
account value immediately before the distribution exceeds the investment in
the policy). 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 owner attains age 59 1/2, or is attributable to the policy owner becoming
disabled, or as part of a series of substantially equal periodic payments for
the life of the policy owner or the joint lives of the policy owner and
beneficiary.
The modified endowment contract rules apply to all policies entered into on
or after June 21, 1988. It should be noted, in addition, that a policy which
is subject to a "material change" shall be treated as newly entered into on
the date on which such material change takes effect. Appropriate adjustment
shall be made in determining whether such a policy meets the seven-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
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index will not be treated as a material change if any increase is funded
ratably over the remaining period during which premiums are required to be
paid under the policy. To date, no regulations under this provision have been
issued.
Due to the policy's flexibility, classification of a policy as a modified
endowment contract will depend upon the circumstances of each policy.
Accordingly, a prospective policy owner should contact a competent tax adviser
before purchasing a policy to determine the circumstances under which the
policy would be a modified endowment contract. In addition, an owner should
contact a competent tax adviser before paying any lump sum premiums or making
any other change to, including an exchange of, a policy to determine whether
that 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.
All modified endowment contracts issued by us (or an affiliated company) to
the same 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, an owner should consult a tax
adviser before effecting an exchange of any life insurance policy.
Generally, interest paid on any loan under a life insurance contract which
is owned by an individual is not deductible. Interest on any loan under a life
insurance contract owned by a taxpayer may or may not be deductible. An owner
should consult a competent tax adviser before deducting any loan interest.
The policy may be used in various arrangements, including non-qualified
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 a policy in any arrangement the value of which
depends in part on its tax consequences, you should be sure to consult a
qualified tax adviser regarding the tax attributes of the particular
arrangement.
Federal estate and state and local estate, inheritance, and other tax
consequences of ownership or receipt of policy proceeds depend upon the
circumstances of each policy owner or beneficiary. A competent tax adviser
should be consulted for further information.
It should be understood that the foregoing description of the federal income
tax consequences under the policies is not exhaustive and that special rules
are provided with respect to situations not discussed. Statutory changes in
the Internal Revenue Code, with varying effective dates, and regulations
adopted thereunder may also alter the tax consequences of specific factual
situations. Due to the complexity of the applicable laws, tax advice may be
needed by a person contemplating the purchase of a variable life insurance
policy or exercising elections under such a policy. For further information, a
qualified tax adviser should be consulted.
At the present time, we make no charge to the separate account or from
premium payments for any federal, state or local taxes (other than state
premium taxes and federal taxes under OBRA) 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 separate account or the policies.
32
<PAGE>
TRUSTEES AND PRINCIPAL OFFICERS OF MINNESOTA MUTUAL
<TABLE>
<CAPTION>
Trustees Principal Occupation
-------- --------------------
<C> <S>
Giulio Agostini Senior Vice President, Finance and Office
Administration, Minnesota Mining and Manufacturing
Company, Maplewood, Minnesota since July 1991, prior
thereto for more than five years Director, Finance
and Administration, Minnesota Mining and
Manufacturing--Italy
Anthony L. Andersen Chair-Board of Directors, H. B. Fuller Company, St.
Paul, Minnesota (Adhesive Products) since June 1995,
prior thereto for more than five years President and
Chief Executive Officer, H. B. Fuller Company
John F. Grundhofer President, Chairman and Chief Executive Officer,
First Bank System, Inc., Minneapolis, Minnesota
(Banking)
Harold V. Haverty Retired since May 1995, prior thereto, for more than
five years Chairman of the Board, President and
Chief Executive Officer, Deluxe Corporation,
Shoreview, Minnesota (Check Printing)
Lloyd P. Johnson Retired since May 1995, prior thereto, for more than
five years Chairman of the Board, Norwest
Corporation, Minneapolis, Minnesota (Banking)
David S. Kidwell, Ph.D. Dean and Professor of Finance, The Curtis L. Carlson
School of Management, University of Minnesota, since
August 1991; prior thereto, Dean of the School and
Professor, University of Connecticut, School of
Business Administration from 1988 to July 1991
Reatha C. King, Ph.D. President and Executive Director, General Mills
Foundation, Minneapolis, Minnesota
Thomas E. Rohricht Member, Doherty, Rumble & Butler Professional
Association, St. Paul, Minnesota (Attorneys)
Terry N. Saario, Ph.D. President, Northwest Area Foundation, St. Paul,
Minnesota (Private Regional Foundation)
Robert L. Senkler Chairman of the Board, President and Chief Executive
Officer, The Minnesota Mutual Life Insurance Company
since August 1995; prior thereto for more than five
years Vice President and Actuary, The Minnesota
Mutual Life Insurance Company
Michael E. Shannon Chairman and Chief Financial and Administrative
Officer, Ecolab Inc., St. Paul, Minnesota, since
August 1992, prior thereto President, Residential
Services Group, Ecolab Inc., St. Paul, Minnesota
from October 1990 to July 1992 (Develops and Markets
Cleaning and Sanitizing Products)
Frederick T. Weyerhaeuser Chairman, Clearwater Management Company, St. Paul,
Minnesota (Financial Management)
Principal Officers (other than Trustees)
Name Position
---- --------
John F. Bruder Senior Vice President
Keith M. Campbell Vice President
Paul H. Gooding Vice President and Treasurer
Robert E. Hunstad Executive Vice President
James E. Johnson Senior Vice President and Actuary
Richard D. Lee Vice President
Joel W. Mahle Vice President
Dennis E. Prohofsky Senior Vice President, General Counsel and Secretary
Gregory S. Strong Vice President and Actuary
Terrence M. Sullivan Senior Vice President
Randy F. Wallake Senior Vice President
</TABLE>
33
<PAGE>
All Trustees who are not also officers of Minnesota Mutual have had the
principal occupation (or employers) shown for at least five years with the
exception of Messrs. Agostini, Andersen and Shannon and Dr. Kidwell, whose
prior employment is as indicated above. All officers of Minnesota Mutual have
been employed by Minnesota Mutual for at least five years.
VOTING RIGHTS
We will vote the shares of the Funds held in the various sub-accounts of the
Variable Universal Life Account at regular and special shareholder meetings of
the Funds in accordance with the owner's instructions. If, however, the
Investment Company Act of 1940, as amended, or any regulation thereunder
should change and we determine that it is permissible to vote the shares of
the Funds in our own right, we may elect to do so. The number of votes as to
which the owner has the right to instruct will be determined by dividing his
or her sub-account value by the net asset value per share of the corresponding
Portfolio of the Funds. Fractional shares will be counted. The number of votes
as to which the owner has 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 the meeting in accordance with procedures
established by the Funds. We will vote shares of the Funds held by the separate
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 separate account. Each 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 sub-classification 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 adviser of one or more 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 determine 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 the owner's
next semi-annual report.
DISTRIBUTION OF POLICIES
The policies will be sold by state licensed life insurance producers who are
also registered representatives of MIMLIC Sales Corporation ("MIMLIC Sales")
or of other broker-dealers who have entered into selling agreements with
MIMLIC Sales. MIMLIC Sales acts as principal underwriter for the policies.
MIMLIC Sales is a wholly-owned subsidiary of MIMLIC Asset Management Company,
which in turn is a wholly-owned subsidiary of Minnesota Mutual. MIMLIC Asset
Management Company is a registered investment adviser and the investment
adviser to the MIMLIC Series Fund, Inc.
MIMLIC Sales Corporation, whose address is 400 Robert Street North, St.
Paul, Minnesota 55101-2098, is a registered broker-dealer under the Securities
Exchange Act of 1934 and a member of the National Association of Securities
Dealers, Inc. The policies are sold in the states where their sale is lawful.
The insurance underwriting and the determination of a proposed insured's risk
classification and whether to accept or reject an application for a policy is
done in accordance with our rules and standards.
Commissions to registered representatives on the sale of policies include a
payment of 40 percent on the portion of all premiums paid in the initial year
to cover the cost of insurance and 4 percent of all premiums paid in the
initial year in excess of the amount to cover the cost of insurance. On all
premiums paid to the policy after the initial year, the commission paid is
equal to 4 percent of those premiums. The payment of commissions at that level
will be in those case situations where full service is required by the
registered representative, the group of insureds is relatively small, there is
a relative
34
<PAGE>
lack of client sophistication with respect to the policy, individual
enrollment is required, premium payments are relatively small and the group
sponsor or group contractholder has no prior relationship with us. In those
circumstances, the commission payments will be as described, and whether
payments are made at the time of sale or as part of an asset-based commission
schedule, the total commission paid will be the equivalent or less than that
described.
In other situations where agent involvement in the sale is either reduced or
supported by home office activities, the commission schedule may be reduced to
reflect this lessened sales activity. In addition, other circumstances may
affect the level of commissions or other sales expenses. These considerations
include the type of policy sold, the size of the group, the sophistication of
the client, the total amount of premium payments made under the policy or
group arrangement, the level of sales support provided and the presence of any
prior existing relationship with the group sponsor or group contractholder. In
addition, there may be other circumstances of which we are not presently aware
which could result in reduced sales expenses and the imposition of reduced
charges.
In addition, MIMLIC Sales or Minnesota Mutual will pay, based uniformly on
the sales of the 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 Minnesota
Mutual or its affiliates for the purpose of promoting the sale of insurance
and/or investment products offered by Minnesota Mutual and its affiliates.
Such credits may cover the registered representatives' transportation, hotel
accommodations, meals, registration fees, etc.
LEGAL MATTERS
Legal matters in connection with federal securities laws applicable to the
issue and sale of the policies have been passed upon by Jones & Blouch L.L.P.,
1025 Thomas Jefferson Street, N.W., Suite 405 West, 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, Senior Counsel of Minnesota Mutual.
LEGAL PROCEEDINGS
As an insurance company, we are ordinarily involved in litigation. Minnesota
Mutual is of the opinion that such litigation is not material with respect to
the policies or the separate account.
EXPERTS
The separate financial statements of Minnesota Mutual Variable Universal
Life Account and Minnesota Mutual 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
appear elsewhere herein, and have been so included in reliance upon the
authority of said firm as experts in accounting and auditing.
Actuarial matters included in this prospectus have been examined by Robert
M. Olafson, F.S.A., Second Vice President and Actuary of Minnesota Mutual, as
stated in his opinion filed as an exhibit to the Registration Statement.
REGISTRATION STATEMENT
We have filed a Registration Statement under the Securities Act of 1933, as
amended, with the Securities and Exchange Commission 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 separate account, Minnesota Mutual, and the
policies. Statements contained in this prospectus as to the contents of
policies and other legal instruments are summaries, and reference is made to
such instruments as filed.
35
<PAGE>
INDEPENDENT AUDITORS' REPORT
The Board of Trustees of The Minnesota Mutual Life Insurance Company
and Policy Owners of Minnesota Mutual Variable Universal Life Account:
We have audited the accompanying statements of assets and liabilities of the
Growth, Bond, Money Market, Asset Allocation, Mortgage Securities, Index 500,
Capital Appreciation, International Stock, Small Company and Value Stock
Segregated Sub-Accounts of Minnesota Mutual Variable Universal Life Account as
of December 31, 1995 and the related statements of operations, statements of
changes in net assets and financial highlights for the period from March 8,
1995, commencement of operations, to December 31, 1995. 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 audit.
We conducted our audit in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements and the financial
highlights are free of material misstatement. An audit includes examining, on a
test basis, evidence supporting the amounts and disclosures in the financial
statements. Investments owned at December 31, 1995 were verified by examination
of the underlying portfolios of MIMLIC Series Fund, Inc. An audit also includes
assessing the accounting principles used and significant estimates made by
management, as well as evaluating the overall financial statement presentation.
We believe that our audit provides a reasonable basis for our opinion.
In our opinion, the financial statements and the financial highlights
referred to above present fairly, in all material respects, the financial
position of the Growth, Bond, Money Market, Asset Allocation, Mortgage
Securities, Index 500, Capital Appreciation, International Stock, Small Company
and Value Stock Segregated Sub-Accounts of Minnesota Mutual Variable Universal
Life Account at December 31, 1995 and the results of their operations, changes
in their net assets, and the financial highlights for the period stated in the
first paragraph above, in conformity with generally accepted accounting
principles.
KPMG Peat Marwick LLP
Minneapolis, Minnesota
February 16, 1996
36
<PAGE>
MINNESOTA MUTUAL VARIABLE UNIVERSAL LIFE ACCOUNT
STATEMENTS OF ASSETS AND LIABILITIES
DECEMBER 31, 1995
<TABLE>
<CAPTION>
SEGREGATED SUB-ACCOUNTS
------------------------------------------------------------------------------------------
MONEY ASSET MORTGAGE INDEX CAPITAL INTERNATIONAL SMALL VALUE
ASSETS GROWTH BOND MARKET ALLOCATION SECURITIES 500 APPRECIATION STOCK COMPANY STOCK
------ ------ ----- ------ ---------- ---------- ------- ------------ ------------- ------- -----
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
Investments in shares of
MIMLIC Series Fund,
Inc.:
Growth Portfolio, 2,855
shares at net asset
value of $2.210 per
share (cost $6,029) $6,308 -- -- -- -- -- -- -- -- --
Bond Portfolio, 1,368
shares at net asset
value of $1.332 per
share (cost $1,718) -- 1,822 -- -- -- -- -- -- -- --
Money Market Portfolio,
1,194 shares at net as-
set value of $1.000 per
share (cost $1,194) -- -- 1,194 -- -- -- -- -- -- --
Asset Allocation Port-
folio, 1,508 shares at
net asset value of
$1.826 per share (cost
$2,637) -- -- -- 2,754 -- -- -- -- -- --
Mortgage Securities
Portfolio, 974 shares
at net asset value of
$1.207 per share (cost
$1,117) -- -- -- -- 1,175 -- -- -- -- --
Index 500 Portfolio,
263,279 shares at net
asset value of $2.023
per share (cost
$505,011) -- -- -- -- -- 532,725 -- -- -- --
Capital Appreciation
Portfolio, 2,912 shares
at net asset value of
$2.160 per share (cost
$6,268) -- -- -- -- -- -- 6,292 -- -- --
International Stock
Portfolio, 2,735 shares
at net asset value of
$1.410 per share (cost
$3,753) -- -- -- -- -- -- -- 3,858 -- --
Small Company Portfo-
lio, 26,310 shares at
net asset value of
$1.602 per share (cost
$39,609) -- -- -- -- -- -- -- -- 42,161 --
Value Stock Portfolio,
3,555 shares at net as-
set value of $1.312 per
share (cost $4,628) -- -- -- -- -- -- -- -- -- 4,664
------ ----- ----- ----- ----- ------- ----- ----- ------ -----
6,308 1,822 1,194 2,754 1,175 532,725 6,292 3,858 42,161 4,664
Receivable from Minne-
sota Mutual for contract
purchase payments 183 38 143 190 -- 349 396 132 127 302
Receivable from MIMLIC
Series Fund, Inc. for
investments sold 101 10 1 34 18 7,997 53 13 373 41
Dividends receivable
from MIMLIC Series Fund,
Inc. -- -- 1 -- -- -- -- -- -- --
------ ----- ----- ----- ----- ------- ----- ----- ------ -----
Total assets 6,592 1,870 1,339 2,978 1,193 541,071 6,741 4,003 42,661 5,007
------ ----- ----- ----- ----- ------- ----- ----- ------ -----
<CAPTION>
LIABILITIES
-----------
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
Payable to MIMLIC Series
Fund, Inc. for
investments purchased 183 38 143 190 -- 349 396 132 127 302
Payable to Minnesota Mu-
tual for contract termi-
nations and mortality
and expense charges 101 10 1 34 18 7,997 53 13 373 41
------ ----- ----- ----- ----- ------- ----- ----- ------ -----
Total liabilities 284 48 144 224 18 8,346 449 145 500 343
------ ----- ----- ----- ----- ------- ----- ----- ------ -----
NET ASSETS APPLICABLE TO
POLICY OWNERS $6,308 1,822 1,195 2,754 1,175 532,725 6,292 3,858 42,161 4,664
====== ===== ===== ===== ===== ======= ===== ===== ====== =====
UNITS OUTSTANDING 5,717 1,708 1,163 2,487 1,116 457,639 5,583 3,688 34,825 4,016
====== ===== ===== ===== ===== ======= ===== ===== ====== =====
NET ASSET VALUE PER UNIT $1.103 1.067 1.027 1.107 1.053 1.164 1.127 1.046 1.210 1.161
====== ===== ===== ===== ===== ======= ===== ===== ====== =====
</TABLE>
See accompanying notes to financial statements.
37
<PAGE>
MINNESOTA MUTUAL VARIABLE UNIVERSAL LIFE ACCOUNT
STATEMENTS OF OPERATIONS
FOR THE PERIOD FROM MARCH 8, 1995, COMMENCEMENT OF OPERATIONS, TO DECEMBER 31,
1995
<TABLE>
<CAPTION>
SEGREGATED SUB-ACCOUNTS
---------------------------------------------------------------------------------------------
MONEY ASSET MORTGAGE INDEX CAPITAL INTERNATIONAL SMALL VALUE
GROWTH BOND MARKET ALLOCATION SECURITIES 500 APPRECIATION STOCK COMPANY STOCK
------ ---- ------ ---------- ---------- ------- ------------ ------------- ------- ------
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
Investment income
(loss):
Investment income dis-
tributions from under-
lying mutual funds $ -- -- 31 -- -- -- -- -- 48 32
Mortality and expense
charges (note 3) (9) (4) (3) (5) (3) (599) (10) (6) (74) (7)
---- --- --- ----- ---- ------- ------ ---- ------ ------
Investment income
(loss)--net (9) (4) 28 (5) (3) (599) (10) (6) (26) 25
---- --- --- ----- ---- ------- ------ ---- ------ ------
Realized and unrealized
gains on investments--
net:
Realized gain distri-
butions from under-
lying mutual fund -- -- -- -- -- -- -- -- 417 174
---- --- --- ----- ---- ------- ------ ---- ------ ------
Realized gains on
sales of investments
(note 4):
Proceeds from sales 630 57 10 1,041 111 48,401 1,760 107 3,715 1,706
Cost of investments
sold (611) (55) (10) (982) (109) (47,208) (1,645) (105) (3,506) (1,568)
---- --- --- ----- ---- ------- ------ ---- ------ ------
19 2 -- 59 2 1,193 115 2 209 138
---- --- --- ----- ---- ------- ------ ---- ------ ------
Net realized gains
on investments 19 2 -- 59 2 1,193 115 2 626 312
---- --- --- ----- ---- ------- ------ ---- ------ ------
Net change in unrealized
appreciation or
depreciation of
investments 279 104 -- 117 58 27,714 24 105 2,552 36
---- --- --- ----- ---- ------- ------ ---- ------ ------
Net gains on in-
vestments 298 106 -- 176 60 28,907 139 107 3,178 348
---- --- --- ----- ---- ------- ------ ---- ------ ------
Net increase in net
assets resulting
from operations $289 102 28 171 57 28,308 129 101 3,152 373
==== === === ===== ==== ======= ====== ==== ====== ======
</TABLE>
See accompanying notes to financial statements.
38
<PAGE>
MINNESOTA MUTUAL VARIABLE UNIVERSAL LIFE ACCOUNT
STATEMENTS OF CHANGES IN NET ASSETS
FOR THE PERIOD FROM MARCH 8, 1995, COMMENCEMENT OF OPERATIONS, TO DECEMBER 31,
1995
<TABLE>
<CAPTION>
SEGREGATED SUB-ACCOUNTS
------------------------------------------------------------------------------------------------
MONEY ASSET MORTGAGE INDEX CAPITAL INTERNATIONAL SMALL VALUE
GROWTH BOND MARKET ALLOCATION SECURITIES 500 APPRECIATION STOCK COMPANY STOCK
------ ----- ------ ---------- ---------- ------- ------------ ------------- ------- ------
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
Operations:
Investment income
(loss)--net $ (9) (4) 28 (5) (3) (599) (10) (6) (26) 25
Net realized gains on
investments 19 2 -- 59 2 1,193 115 2 626 312
Net change in
unrealized apprecia-
tion or depreciation
of investments 279 104 -- 117 58 27,714 24 105 2,552 36
------ ----- ----- ------ ----- ------- ------ ----- ------ ------
Net increase in net as-
sets resulting from op-
erations 289 102 28 171 57 28,308 129 101 3,152 373
------ ----- ----- ------ ----- ------- ------ ----- ------ ------
Policy transactions
(notes 3 and 5):
Policy purchase pay-
ments 6,640 1,773 1,174 3,619 1,226 552,219 7,913 3,858 42,650 5,990
Policy withdrawals and
charges (621) (53) (7) (1,036) (108) (47,802) (1,750) (101) (3,641) (1,699)
------ ----- ----- ------ ----- ------- ------ ----- ------ ------
Increase in net assets
from policy transac-
tions 6,019 1,720 1,167 2,583 1,118 504,417 6,163 3,757 39,009 4,291
------ ----- ----- ------ ----- ------- ------ ----- ------ ------
Increase in net assets 6,308 1,822 1,195 2,754 1,175 532,725 6,292 3,858 42,161 4,664
Net assets at the be-
ginning of period -- -- -- -- -- -- -- -- -- --
------ ----- ----- ------ ----- ------- ------ ----- ------ ------
Net assets at the end
of period $6,308 1,822 1,195 2,754 1,175 532,725 6,292 3,858 42,161 4,664
====== ===== ===== ====== ===== ======= ====== ===== ====== ======
</TABLE>
See accompanying notes to financial statements.
39
<PAGE>
MINNESOTA MUTUAL VARIABLE UNIVERSAL LIFE ACCOUNT
NOTES TO FINANCIAL STATEMENTS
(1)ORGANIZATION
The Minnesota Mutual Variable Universal Life Account (the Account) was
established on August 8, 1994 as a segregated asset account of The Minnesota
Mutual Life Insurance Company (Minnesota Mutual) under Minnesota law and is
registered as a unit investment trust under the Investment Company Act of 1940
(as amended). The account commenced operations on March 8, 1995. The Account
currently has ten segregated sub-accounts to which policy owners may allocate
their purchase payments.
The assets of each segregated sub-account are held for the exclusive benefit
of the group-sponsored variable universal life insurance policy owners and are
not chargeable with liabilities arising out of the business conducted by any
other account or by Minnesota Mutual. Variable universal life policy owners
allocate their purchase payments to one or more of the ten segregated sub-
accounts. Such payments are then invested in shares of MIMLIC Series Fund, Inc.
(the Fund) which was organized by Minnesota Mutual as the investment vehicle
for its variable life insurance policies and variable annuity contracts. The
Fund is registered under the Investment Company Act of 1940 (as amended) as a
diversified, open-end management investment company. Payments allocated to the
Growth, Bond, Money Market, Asset Allocation, Mortgage Securities, Index 500,
Capital Appreciation, International Stock, Small Company and Value Stock
segregated sub-accounts are invested in shares of the Growth, Bond, Money
Market, Asset Allocation, Mortgage Securities, Index 500, Capital Appreciation,
International Stock, Small Company and Value Stock Portfolios of the Fund,
respectively.
MIMLIC Sales Corporation acts as the underwriter for the Account. MIMLIC
Asset Management Company acts as the investment adviser for the Fund. MIMLIC
Sales Corporation is a wholly-owned subsidiary of MIMLIC Asset Management
Company. MIMLIC Asset Management Company is a wholly-owned subsidiary of
Minnesota Mutual.
(2)SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
Use of estimates
The preparation of financial statements in conformity with generally accepted
accounting principles requires management to make estimates and assumptions
that affect the reported amounts of assets and liabilities and disclosure of
contingent assets and liabilities at the date of the financial statements and
the reported amounts of increase and decrease in net assets from operations
during the period. Actual results could differ from those estimates.
Investments in MIMLIC Series Fund, Inc.
Investments in shares of the Fund portfolios are stated at market value which
is the net asset value per share as determined daily by the Fund. Investment
transactions are accounted for on the date the shares are purchased or sold.
The cost of investments sold is determined on the average cost method. All
dividend distributions received from the Fund are reinvested in additional
shares of the Fund and are recorded by the sub-accounts on the ex-dividend
date.
Federal Income Taxes
The Account is treated as part of Minnesota Mutual for federal income tax
purposes. Under current interpretations of existing federal income tax law, no
income taxes are payable on investment income or capital gain distributions
received by the Account from the Fund.
(3)MORTALITY AND EXPENSE AND OTHER POLICY CHARGES
The mortality and expense charge paid to Minnesota Mutual is computed daily and
is equal, on an annual basis, to .50% of the average daily net assets of the
Account. This charge is an expense of the Account and is deducted daily from
net assets of the Account.
40
<PAGE>
MINNESOTA MUTUAL VARIABLE UNIVERSAL LIFE ACCOUNT
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
(3)MORTALITY AND EXPENSE AND OTHER POLICY CHARGES (CONTINUED)
Policy purchase payments are reflected net of the following charges paid to
Minnesota Mutual:
A sales load of up to 5 percent is deducted from each premium payment.
Total sales charges deducted from premium payments for the period from
March 8, 1995 to December 31, 1995 amounted to $311.
A premium tax charge in the amount of 2 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 period
from March 8, 1995 to December 31, 1995 amounted to $827.
A federal tax charge of .25 percent for group-sponsored policies and 1.25
percent for an individual policy is deducted from each premium payment. The
federal tax charge is paid to offset additional corporate federal income
taxes incurred by Minnesota Mutual under the Omnibus Budget Reconciliation
Act of 1990. Total federal tax charges for the period from March 8, 1995 to
December 31, 1995 amounted to $103.
In addition to deductions from premium payments, an administration charge, a
partial surrender charge, a cost of insurance charge and a charge for
additional benefits provided by rider, if any, are assessed from the actual
cash value of each policy. These charges are paid by redeeming units of the
Account held by the policy owner. The administration charge varies based upon
the number of eligible members in a group-sponsored program and ranges from $1
to $4 per month. The partial surrender charge is to cover administrative costs
incurred by Minnesota Mutual. The amount of the partial surrender charge is the
lesser of $25 or 2 percent of the amount withdrawn.
The cost of insurance charge varies with the amount of insurance, the
insured's age, rate class of the insured and gender mix of the group-sponsored
contract.
The total of cash value charges for the period from March 8, 1995 to December
31, 1995 for each segregated sub-account are as follows:
<TABLE>
<S> <C>
Growth $ 516
Bond 53
Money Market 7
Asset Allocation 151
Mortgage Securities 108
Index 500 47,802
Capital Appreciation 253
International Stock 68
Small Company 2,093
Value Stock 157
</TABLE>
(4)INVESTMENT TRANSACTIONS
The Account's purchases of Fund shares, including reinvestment of dividend
distributions, were as follows during the period from March 8, 1995 to December
31, 1995:
<TABLE>
<S> <C>
Growth Portfolio $ 6,640
Bond Portfolio 1,773
Money Market Portfolio 1,204
Asset Allocation Portfolio 3,619
Mortgage Securities Portfolio 1,226
Index 500 Portfolio 552,219
Capital Appreciation Portfolio 7,913
International Stock Portfolio 3,858
Small Company Portfolio 43,115
Value Stock Portfolio 6,196
</TABLE>
41
<PAGE>
MINNESOTA MUTUAL VARIABLE UNIVERSAL LIFE ACCOUNT
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
(5)UNIT ACTIVITY FROM POLICY TRANSACTIONS
Transactions in units for each segregated sub-account for the period from March
8, 1995 to December 31, 1995 were as follows:
<TABLE>
<CAPTION>
SEGREGATED SUB-ACCOUNTS
---------------------------------------------------------
ASSET MORTGAGE
GROWTH BOND MONEY MARKET ALLOCATION SECURITIES
------- ------------ ------------- ---------- ----------
<S> <C> <C> <C> <C> <C>
Units outstanding at
December 31, 1994 -- -- -- -- --
Policy purchase pay-
ments 6,300 1,759 1,170 3,444 1,222
Deductions for policy
withdrawals and
charges (583) (51) (7) (957) (106)
------- ------ ----- ------ ------
Units outstanding at
December 31, 1995 5,717 1,708 1,163 2,487 1,116
======= ====== ===== ====== ======
<CAPTION>
SEGREGATED SUB-ACCOUNTS
---------------------------------------------------------
INDEX CAPITAL INTERNATIONAL SMALL VALUE
500 APPRECIATION STOCK COMPANY STOCK
------- ------------ ------------- ---------- ----------
<S> <C> <C> <C> <C> <C>
Units outstanding at
December 31, 1994 -- -- -- -- --
Policy purchase pay-
ments 500,879 7,072 3,786 37,910 5,499
Deductions for policy
withdrawals and
charges (43,240) (1,489) (98) (3,085) (1,483)
------- ------ ----- ------ ------
Units outstanding at
December 31, 1995 457,639 5,583 3,688 34,825 4,016
======= ====== ===== ====== ======
</TABLE>
(6)FINANCIAL HIGHLIGHTS
The following table for each segregated sub-account shows certain data for an
accumulation unit outstanding during the period from March 8, 1995,
commencement of operations, to December 31, 1995
<TABLE>
<CAPTION>
ASSET MORTGAGE
GROWTH BOND MONEY MARKET ALLOCATION SECURITIES
------ ------------ ------------- ---------- ----------
<S> <C> <C> <C> <C> <C>
Unit value, beginning of
period $1.000 1.000 1.000 1.000 1.000
------ ----- ----- ----- -----
Income from investment
operations:
Net investment income
(loss) (.003) (.003) .027 (.003) (.003)
Net gains or losses on
securities (both real-
ized and unrealized) .106 .070 -- .110 .056
------ ----- ----- ----- -----
Total from investment
operations .103 .067 .027 .107 .053
------ ----- ----- ----- -----
Unit value, end of period $1.103 1.067 1.027 1.107 1.053
====== ===== ===== ===== =====
<CAPTION>
INDEX CAPITAL INTERNATIONAL SMALL VALUE
500 APPRECIATION STOCK COMPANY STOCK
------ ------------ ------------- ---------- ----------
<S> <C> <C> <C> <C> <C>
Unit value, beginning of
period $1.000 1.000 1.000 1.000 1.000
------ ----- ----- ----- -----
Income from investment
operations:
Net investment income
(loss) (.003) (.003) (.003) (.001) .012
Net gains or losses on
securities (both real-
ized and unrealized) .167 .130 .049 .211 .149
------ ----- ----- ----- -----
Total from investment
operations .164 .127 .046 .210 .161
------ ----- ----- ----- -----
Unit value, end of period $1.164 1.127 1.046 1.210 1.161
====== ===== ===== ===== =====
</TABLE>
42
<PAGE>
INDEX TO FINANCIAL STATEMENTS AND FINANCIAL STATEMENT SCHEDULES
THE MINNESOTA MUTUAL LIFE INSURANCE COMPANY
<TABLE>
<CAPTION>
Page
<S> <C>
Independent Auditors' Report............................................... 1
Balance Sheets............................................................. 2
Statements of Operations and Policyowners' Surplus......................... 3
Statements of Cash Flows................................................... 4
Notes to Financial Statements.............................................. 5
Financial Statement Schedules:
I. Summary of Investments--Other than Investments in Related Parties..... 15
V. Supplementary Insurance Information................................... 16
VI. Reinsurance.......................................................... 17
</TABLE>
I
<PAGE>
INDEPENDENT AUDITORS' REPORT
The Board of Trustees
The Minnesota Mutual Life Insurance Company:
We have audited the accompanying balance sheets of The Minnesota Mutual Life
Insurance Company as of December 31, 1995 and 1994 and the related statements
of operations and policyowners' surplus and cash flows for each of the years in
the three-year period ended December 31, 1995. In connection with our audits of
the financial statements, we also have audited the financial statement
schedules as listed in the accompanying index. These financial statements and
financial statement schedules are the responsibility of the Company's
management. Our responsibility is to express an opinion on these financial
statements and financial statement schedules based on our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements are free of
material misstatement. An audit includes examining, on a test basis, evidence
supporting the amounts and disclosures in the financial statements. An audit
also includes assessing the accounting principles used and significant
estimates made by management, as well as evaluating the overall financial
statement presentation. We believe that our audits provide a reasonable basis
for our opinion.
In our opinion, the financial statements referred to above present fairly, in
all material respects, the financial position of The Minnesota Mutual Life
Insurance Company as of December 31, 1995 and 1994, and the results of its
operations and its cash flows for each of the years in the three-year period
ended December 31, 1995, in conformity with generally accepted accounting
principles (notes 2 and 11). Also in our opinion, the related financial
statement schedules, when considered in relation to the basic financial
statements taken as a whole, present fairly, in all material respects, the
information set forth therein.
KPMG Peat Marwick LLP
Minneapolis, Minnesota
February 7, 1996
1
<PAGE>
THE MINNESOTA MUTUAL LIFE INSURANCE COMPANY
BALANCE SHEETS
DECEMBER 31, 1995 AND 1994
ASSETS
<TABLE>
<CAPTION>
1995 1994
----------- ----------
(IN THOUSANDS)
<S> <C> <C>
Bonds $ 5,488,876 $5,134,554
Common stocks 279,353 209,958
Mortgage loans 754,501 598,186
Real estate, including Home Office property 76,639 76,346
Other invested assets 90,264 60,604
Policy loans 197,555 185,599
Investments in subsidiary companies 197,413 155,404
Cash and short-term securities 99,031 112,869
Premiums deferred and uncollected 116,878 125,422
Other assets 147,155 134,594
----------- ----------
Total assets, excluding separate accounts 7,447,665 6,793,536
Separate account assets 2,609,396 1,750,680
----------- ----------
Total assets $10,057,061 $8,544,216
=========== ==========
LIABILITIES AND POLICYOWNERS' SURPLUS
Liabilities:
Policy reserves:
Life insurance $ 2,129,336 $1,981,469
Annuities and other fund deposits 3,322,866 3,179,279
Accident and health 369,273 343,241
Policy claims in process of settlement 50,512 53,670
Dividends payable to policyowners 107,366 100,287
Other policy liabilities 403,683 388,538
Asset valuation reserve 201,721 165,341
Interest maintenance reserve 32,899 19,922
Federal income taxes 40,195 35,050
Other liabilities 237,434 186,575
----------- ----------
Total liabilities, excluding separate accounts 6,895,285 6,453,372
Separate account liabilities 2,560,211 1,708,529
----------- ----------
Total liabilities 9,455,496 8,161,901
Policyowners' surplus
Surplus notes 124,967 --
Unassigned funds 476,598 382,315
----------- ----------
Total policyowners' surplus 601,565 382,315
Total liabilities and policyowners' surplus $10,057,061 $8,544,216
=========== ==========
</TABLE>
See accompanying notes to financial statements.
2
<PAGE>
THE MINNESOTA MUTUAL LIFE INSURANCE COMPANY
STATEMENTS OF OPERATIONS AND POLICYOWNERS' SURPLUS
YEARS ENDED DECEMBER 31, 1995, 1994, AND 1993
STATEMENTS OF OPERATIONS
<TABLE>
<CAPTION>
1995 1994 1993
---------- ---------- ----------
(IN THOUSANDS)
<S> <C> <C> <C>
Revenues:
Premiums, annuity considerations and fund
deposits $1,473,666 $1,424,352 $1,289,954
Net investment income 524,671 488,813 493,011
---------- ---------- ----------
Total revenues 1,998,337 1,913,165 1,782,965
---------- ---------- ----------
Benefits and expenses:
Policyowner benefits 1,138,723 1,259,685 1,131,638
Increase in policy reserves 260,482 94,116 122,280
General insurance expenses and taxes 299,348 279,022 268,041
Commissions 78,642 75,443 70,899
Federal income taxes 46,135 49,626 36,656
---------- ---------- ----------
Total benefits and expenses 1,823,330 1,757,892 1,629,514
---------- ---------- ----------
Gain from operations before net realized
capital gains and dividends 175,007 155,273 153,451
Realized capital gains, net of tax 29,358 18,559 2,907
---------- ---------- ----------
Gain from operations before dividends 204,365 173,832 156,358
Dividends to policyowners 115,659 108,709 97,937
---------- ---------- ----------
Net income $ 88,706 $ 65,123 $ 58,421
========== ========== ==========
STATEMENTS OF POLICYOWNERS' SURPLUS
Policyowners' surplus, beginning of year $ 382,315 $ 347,900 $ 264,542
Surplus notes 124,967 -- --
Net income 88,706 65,123 58,421
Net change in unrealized capital gains
and losses 49,761 (317) 3,286
Change in asset valuation reserve (36,380) (29,405) (17,002)
Change in policy reserve bases (10,828) 1,463 --
Change in separate account surplus 7,579 (3,764) 5,623
Guaranty fund certificate redemption -- -- 19,171
Business combination -- -- 16,684
Other, net (4,555) 1,315 (2,825)
---------- ---------- ----------
Policyowners' surplus, end of year $ 601,565 $ 382,315 $ 347,900
========== ========== ==========
</TABLE>
See accompanying notes to financial statements.
3
<PAGE>
THE MINNESOTA MUTUAL LIFE INSURANCE COMPANY
STATEMENTS OF CASH FLOWS
YEARS ENDED DECEMBER 31, 1995, 1994, AND 1993
<TABLE>
<CAPTION>
CASH PROVIDED: 1995 1994 1993
- -------------- ---------- ---------- ----------
(IN THOUSANDS)
<S> <C> <C> <C>
From operations:
Revenues:
Premiums, annuity considerations and fund
deposits $1,480,303 $1,474,471 $1,252,183
Net investment income 496,421 468,927 473,487
---------- ---------- ----------
Total receipts 1,976,724 1,943,398 1,725,670
---------- ---------- ----------
Benefits and expenses paid:
Policyowner benefits 1,139,133 1,301,060 1,069,090
Dividends to policyowners 109,249 103,634 97,697
Commissions and expenses 392,337 360,150 348,397
Federal income taxes 61,245 40,482 50,994
---------- ---------- ----------
Total payments 1,701,964 1,805,326 1,566,178
---------- ---------- ----------
Cash provided from operations 274,760 138,072 159,492
Proceeds from investments sold, matured or
repaid:
Bonds 1,713,579 1,031,279 1,631,215
Common stocks 205,757 113,228 113,945
Mortgage loans 112,954 152,418 265,356
Real estate 15,948 17,571 10,100
Other invested assets 10,618 16,831 17,266
Surplus notes 124,967 -- --
Separate account redemption 2,041 14,519 --
Business combination -- -- 24,628
Other sources, net 77,772 58,072 53,531
---------- ---------- ----------
Total cash provided 2,538,396 1,541,990 2,275,533
---------- ---------- ----------
<CAPTION>
CASH APPLIED:
- -------------
<S> <C> <C> <C>
Cost of investments acquired:
Bonds 2,026,116 1,146,117 1,966,653
Common stocks 222,491 132,301 123,185
Mortgage loans 266,401 203,803 109,559
Real estate 16,596 11,904 16,572
Other invested assets 20,515 12,732 9,800
Separate account investment 115 12,530 3,365
---------- ---------- ----------
Total cash applied 2,552,234 1,519,387 2,229,134
---------- ---------- ----------
Net change in cash and short-term securi-
ties (13,838) 22,603 46,399
Cash and short-term securities, beginning of
year 112,869 90,266 43,867
---------- ---------- ----------
Cash and short-term securities, end of year $ 99,031 $ 112,869 $ 90,266
========== ========== ==========
</TABLE>
See accompanying notes to financial statements.
4
<PAGE>
THE MINNESOTA MUTUAL LIFE INSURANCE COMPANY
NOTES TO FINANCIAL STATEMENTS
(1)NATURE OF OPERATIONS
The Minnesota Mutual Life Insurance Company (the Company), both directly and
through its subsidiaries, provides a diversified array of insurance and
financial products and services designed principally to protect and enhance the
long-term financial well-being of individuals and families.
The Company's strategy is to be successful in carefully selected niche
markets, primarily in the United States, while focusing on the retention of
existing business and the maintenance of profitability. To achieve this
objective, the Company has divided its businesses into four strategic business
units, which focus on various markets: Individual, Financial Services, Group,
and Pension. Revenues in 1995 for these business units were $1,051,749,000,
$268,004,000, $205,926,000, and $472,658,000, respectively.
At December 31, 1994 the Company was one of the 15 largest mutual life
insurance companies in the United States, as measured by total assets. The
Company employs over 2,100 persons throughout the United States; in addition,
the Company maintains an independent sales force of approximately 100 general
agents and 1,850 agents. The Company insures or provides other financial
services to nearly seven million people.
(2)SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
The accompanying financial statements of the Company have been prepared in
accordance with accounting practices prescribed or permitted by the Commerce
Department of the State of Minnesota (Department of Commerce), which are
currently considered generally accepted accounting principles for mutual life
insurance companies (note 11). The significant accounting policies follow:
Revenues and Expenses
Premiums are credited to revenue over the premium paying period of the
policies. Annuity considerations and fund deposits are recognized as revenue
when received. Expenses, including acquisition costs related to acquiring new
business, are charged to operations as incurred. Investment income is
recognized as earned, net of related investment expenses.
Valuation of Investments
Bonds and stocks are valued as prescribed by the National Association of
Insurance Commissioners (NAIC).
Bonds are generally carried at cost, adjusted for the amortization of
premiums and discounts, and common stocks at market value. Premiums and
discounts are amortized over the estimated lives of the bonds based on the
interest yield method.
Mortgage loans are generally stated at the outstanding principal balances,
net of unamortized premiums and discounts. Premiums and discounts are amortized
over the terms of the related mortgage loans based on the interest yield
method.
Real estate, exclusive of properties acquired through foreclosure, is
generally carried at cost less accumulated depreciation of $35,323,535 and
$35,954,239 at December 31, 1995 and 1994, respectively. Depreciation is
computed principally on a straight-line basis. Properties acquired through
foreclosure are carried at the lower of cost or market.
Policy loans are carried at the unpaid principal balance.
Investments in subsidiary companies are accounted for using the equity
method. The Company records its equity in the earnings of its subsidiaries as
investment income and its equity in other changes in its subsidiaries' surplus
as credits (charges) to policyowners' surplus. These investments include
$95,373,000 and $74,154,000 at December 31, 1995 and 1994, respectively, of
initial contributions to affiliated registered investment funds managed by a
subsidiary of the Company which are carried at the market value of the
underlying net assets. All significant subsidiaries are wholly-owned.
Short-term securities at December 31, 1995 and 1994 amounted to $61,561,000
and $103,203,000, respectively, and are included in the caption cash and short-
term securities.
5
<PAGE>
THE MINNESOTA MUTUAL LIFE INSURANCE COMPANY
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
(2)SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)
The Asset Valuation Reserve (AVR) is a formula reserve for possible losses
on bonds, stocks, mortgage loans, real estate, and other invested assets.
Changes in the reserve are reflected as direct charges or credits to
policyowners' surplus and are included in the change in asset valuation
reserve line.
Interest Maintenance Reserve
The Company separates realized capital gains and losses, net of tax, on fixed
income investments between those due to changes in interest rates and those
due to changes in credit quality. Realized capital gains and losses due to
interest rate changes are transferred to the Interest Maintenance Reserve
(IMR) and amortized into investment income over the original remaining life of
the related bond or mortgage sold.
Capital Gains and Losses
Realized capital gains and losses, net of related taxes and amounts
transferred to the IMR, if any, are reflected as a component of net income.
The Company reduces the carrying value of its assets for credit risk and
records a realized capital loss only if the underlying asset has been
converted to another asset of lesser value. Unrealized capital gains and
losses are accounted for as a direct increase or decrease to policyowners'
surplus. Both realized and unrealized capital gains and losses are determined
using the specific identification method.
Separate Account Business
Separate account business represents funds administered and invested by the
Company for the exclusive benefit of certain pension and variable life policy
and annuity contract holders. The Company receives administrative and
investment advisory fees for services rendered on behalf of these funds.
Separate account assets are carried at market value.
The Company periodically invests money in its separate accounts. The
appreciation or depreciation on the investment is reflected as a direct charge
or credit to policyowners' surplus. A realized capital gain of $603,995 and
$3,018,248 was recognized in 1995 and 1994, respectively, on the separate
accounts. No gain was realized in 1993.
Policy Reserves
Policy reserves for life insurance and annuities are based on mortality and
interest assumptions without consideration for lapses and withdrawals.
Mortality assumptions for life insurance and annuities are based on various
mortality tables including American Experience, 1941 Commissioners Standard
Ordinary (CSO), 1958 CSO, 1980 CSO, Progressive Annuity and 1960 Commissioners
Standard Group. Interest assumptions range from 2.0% to 6.0% for individual
life insurance policy reserves and from 2.25% to 12.0% for group policy and
annuity reserves.
Approximately 15% of the individual life and group life reserves are
calculated on a net level reserve basis and 85% on a modified reserve basis.
The use of a modified reserve basis partially offsets the effect of
immediately expensing acquisition costs by providing a policy reserve increase
in the first policy year which is less than the reserve increase in renewal
years.
Policy reserves for individual deferred annuities are generally equal to the
total contract holders' account balance, less applicable surrender charges,
calculated according to the Commissioners Annuity Reserve Valuation Method.
Policy reserves for immediate annuities and supplementary contracts are equal
to the present value of future benefit payments based on the purchase interest
rate and the Progressive Annuity tables. Group annuity reserves are equal to
the account value plus expected interest strengthening.
Policy reserves for individual accident and health contracts include
reserves for active lives based on the 1964 Commissioners Disability Table
(CDT) and the 1985 Commissioners Disability Table B (CIDB), modified for
company experience and discounted at various interest rates. Disabled life
reserves on individual policies are equal to the present value of future
benefits using the 1964 CDT and the 1985 CIDB, discounted at various interest
rates. Disabled life reserves for group mortgage disability policies are equal
to the present value of future benefits using the 1964 CDT, modified for
Company experience and discounted at various interest rates.
6
<PAGE>
THE MINNESOTA MUTUAL LIFE INSURANCE COMPANY
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
(2)SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)
Group employer-employee long term disability reserves are equal to the present
value of future benefits at 3%
interest and the 1964 CDT modified for Company experience. Disabled life
reserves for credit disability are computed using a lag factor method based on
Company experience, discounted at 4% interest.
The Company issues certain life and annuity products which are considered
financial instruments. The estimated fair value of these liabilities as of the
respective years ended December 31 are as follows:
<TABLE>
<CAPTION>
1995 1994
--------------------- ---------------------
CARRYING CARRYING
VALUE FAIR VALUE VALUE FAIR VALUE
---------- ---------- ---------- ----------
(IN THOUSANDS)
<S> <C> <C> <C> <C>
Deferred annuities $2,147,662 $2,156,885 $2,042,383 $2,042,060
Annuity certain contracts 49,113 50,732 41,934 41,828
Other fund deposits 836,149 847,975 798,509 791,732
Guaranteed investment contracts 47,426 47,987 68,568 69,353
Supplementary contracts without
life contingencies 41,431 39,962 43,205 42,433
---------- ---------- ---------- ----------
Total financial liabilities $3,121,781 $3,143,541 $2,994,599 $2,987,406
========== ========== ========== ==========
</TABLE>
The fair value of deferred annuities, annuity certain contracts, and other
fund deposits, which have guaranteed interest rates and surrender charges, were
calculated using Commissioners Annuity Reserve Valuation Method calculation
procedures and current market interest rates. Contracts without guaranteed
interest rates and surrender charges have fair values equal to their
accumulation values plus applicable market value adjustments. The fair value of
guaranteed investment contracts and supplementary contracts without life
contingencies were calculated using discounted cash flows, based on interest
rates currently offered for similar products with maturities consistent with
those remaining for the contracts being valued. The use of different market
assumptions and/or estimation methodologies may have a material effect on the
estimated fair value amounts.
The fair value estimates presented herein are based on pertinent information
available to management as of December 31, 1995 and 1994. Although management
is not aware of any factors that would significantly affect the estimated fair
values, such amounts have not been comprehensively revalued since those dates
and therefore, estimates of fair value subsequent to the valuation dates may
differ significantly from the amounts presented herein.
Non-admitted Assets
Certain assets, designated as "non-admitted assets" (principally furniture,
equipment and certain receivables), amounting to $27,022,000 and $26,123,000 at
December 31, 1995 and 1994, respectively, have been charged to policyowners'
surplus.
Participating Business
Substantially all of the Company's premium revenues are derived from
participating policies. Dividends and other discretionary payments are declared
by the Board of Trustees based upon actuarial determinations which take into
consideration current mortality, interest earnings, expense factors, and
federal income taxes. Dividends are generally recognized as expenses consistent
with the recognition of premiums and contract considerations.
Federal Income Taxes
Federal income taxes are based on income that is currently taxable. Deferred
federal income taxes are not provided for differences between financial
statement and taxable income.
7
<PAGE>
THE MINNESOTA MUTUAL LIFE INSURANCE COMPANY
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
Reclassifications
Certain prior year financial statement balances have been reclassified to
conform with the 1995 presentation.
(3)INVESTMENTS
Net investment income for the respective years ended December 31, is as
follows:
<TABLE>
<CAPTION>
1995 1994 1993
-------- -------- --------
(IN THOUSANDS)
<S> <C> <C> <C>
Bonds $422,242 $412,873 $404,353
Common stocks--unaffiliated 3,465 3,188 3,390
Common stocks--affiliated 16,555 8,526 9,562
Mortgage loans 58,946 49,882 63,881
Real estate, including Home Office property 11,440 11,337 11,554
Policy loans 12,821 11,800 10,866
Short-term securities 6,183 4,026 2,067
Other, net 4,994 1,717 2,868
-------- -------- --------
536,646 503,349 508,541
Amortization of interest maintenance reserve 4,527 3,741 3,458
Investment expenses (16,502) (18,277) (18,988)
-------- -------- --------
Total $524,671 $488,813 $493,011
======== ======== ========
Changes in unrealized capital gains (losses) for the respective years ended
December 31, are as follows:
<CAPTION>
1995 1994 1993
-------- -------- --------
(IN THOUSANDS)
<S> <C> <C> <C>
Bonds $ 2,332 $ 4,039 $(3,753)
Common stocks--unaffiliated 39,013 (5,465) 2,854
Common stocks--affiliated 9,863 (997) (1,305)
Mortgage loans 447 (71) 1,361
Real estate (1,481) 2,270 4,211
Other, net (413) (93) (82)
-------- -------- --------
Total $ 49,761 $ (317) $ 3,286
======== ======== ========
The cost and gross unrealized gains (losses) on unaffiliated common stocks at
December 31, are as follows:
<CAPTION>
1995 1994 1993
-------- -------- --------
(IN THOUSANDS)
<S> <C> <C> <C>
Cost $189,893 $159,511 $155,881
Gross unrealized gains 91,050 56,813 58,440
Gross unrealized losses (1,590) (6,366) (2,529)
-------- -------- --------
Admitted asset value $279,353 $209,958 $211,792
======== ======== ========
</TABLE>
8
<PAGE>
THE MINNESOTA MUTUAL LIFE INSURANCE COMPANY
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
(3)INVESTMENTS (CONTINUED)
Net realized capital gains (losses) for the respective years ended December
31 are as follows:
<TABLE>
<CAPTION>
1995 1994 1993
------- ------- -------
(IN THOUSANDS)
<S> <C> <C> <C>
Bonds $22,411 $(3,511) $31,234
Common stocks--unaffiliated 33,432 11,268 9,651
Mortgage loans (945) (46) (741)
Real estate 3,787 2,041 (8,496)
Other 7,288 15,872 7,837
------- ------- -------
65,973 25,624 39,485
Less: Amount transferred to the interest mainte-
nance reserve, net of taxes 17,503 (685) 20,336
Income tax expense 19,112 7,750 16,242
------- ------- -------
Total $29,358 $18,559 $ 2,907
======= ======= =======
</TABLE>
Gross realized gains (losses) on sales of bonds for the respective years
ended December 31, are as follows:
<TABLE>
<CAPTION>
1995 1994 1993
-------- -------- -------
(IN THOUSANDS)
<S> <C> <C> <C>
Gross realized gains $ 34,898 $ 13,249 $38,443
Gross realized losses (12,487) (16,760) (7,209)
</TABLE>
Proceeds from the sale of bonds amounted to $1,338,481,000, $638,420,000, and
$1,058,684,000 for the years ended December 31, 1995, 1994, and 1993,
respectively.
Bonds and mortgage loans held at December 31, 1995 and 1994 for which no
income was recorded for the previous twelve months totaled $20,852 and $88,000,
respectively.
At December 31, 1995 and 1994, bonds with a carrying value of $2,740,000 and
$2,748,000, respectively, were on deposit with various regulatory authorities
as required by law.
The estimated fair value of the Company's financial instruments has been
determined using available market information as of December 31, 1995 and 1994
and appropriate valuation methodologies. Considerable judgment, however, is
required to interpret market data to develop the estimates of fair value.
Accordingly, the estimates presented herein are not necessarily indicative of
the amounts the Company could realize in a current market exchange. The use of
different market assumptions and/or estimation methodologies may have a
material effect on the estimated fair value amounts. The admitted asset value
for bonds, commercial mortgages, and residential mortgages are $5,488,876,
$501,439, and $253,062 in 1995 and $5,134,554, $342,205, and $255,981 in 1994,
respectively. The estimated fair value for these financial instruments are
$5,821,024, $523,129, and $258,966 in 1995 and $4,919,495, $341,195, and
$255,449 in 1994, respectively.
Fair values for bonds and commercial and residential mortgages are based on
quoted market prices, where available. If quoted market prices are not
available, fair values are estimated using values obtained from independent
pricing services which specialize in matrix pricing and modeling techniques for
estimating fair values. The admitted asset value approximates fair value for
common stock, policy loans, cash and short-term securities, and other assets.
The fair value estimates presented herein are based on pertinent information
available to management as of December 31, 1995 and 1994. Although management
is not aware of any factors that would significantly affect the estimated fair
value amounts, such amounts have not been comprehensively revalued for purposes
of the financial statements since the original valuation dates and therefore,
subsequent estimates of fair value may differ significantly from the amounts
presented herein.
9
<PAGE>
THE MINNESOTA MUTUAL LIFE INSURANCE COMPANY
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
(3)INVESTMENTS (CONTINUED)
The admitted asset value, gross unrealized appreciation and depreciation, and
estimated fair value of investments in bonds are as follows:
<TABLE>
<CAPTION>
GROSS UNREALIZED
ADMITTED ------------------------- FAIR
DECEMBER 31, 1995 ASSET VALUE APPRECIATION DEPRECIATION VALUE
- ----------------- ----------- ------------ ------------ ----------
(IN THOUSANDS)
<S> <C> <C> <C> <C>
Federal government $ 241,228 $ 10,914 $ 440 $ 251,702
State and local government 26,337 3,268 0 29,605
Foreign government 861 79 0 940
Corporate bonds 3,494,386 262,214 6,542 3,750,058
Mortgage-backed securities 1,726,064 66,260 3,605 1,788,719
---------- -------- -------- ----------
Total $5,488,876 $342,735 $ 10,587 $5,821,024
========== ======== ======== ==========
<CAPTION>
GROSS UNREALIZED
ADMITTED ------------------------- FAIR
DECEMBER 31, 1994 ASSET VALUE APPRECIATION DEPRECIATION VALUE
- ----------------- ----------- ------------ ------------ ----------
(IN THOUSANDS)
<S> <C> <C> <C> <C>
Federal government $ 210,335 $ 19 $ 9,983 $ 200,371
State and local government 26,493 10 1,171 25,332
Foreign government 17,691 413 20 18,084
Corporate bonds 3,325,331 41,167 167,404 3,199,094
Mortgage-backed securities 1,554,704 11,110 89,200 1,476,614
---------- -------- -------- ----------
Total $5,134,554 $ 52,719 $267,778 $4,919,495
========== ======== ======== ==========
</TABLE>
The amortized cost and estimated fair value of bonds at December 31, 1995, by
contractual maturity, are shown below. Expected maturities will differ from
contractual maturities because borrowers may have the right to call or prepay
obligations with or without call or prepayment penalties.
<TABLE>
<CAPTION>
ADMITTED FAIR
ASSET VALUE VALUE
----------- ----------
(IN THOUSANDS)
<S> <C> <C>
Due in one year or less $ 39,108 $ 39,811
Due after one year through five years 764,085 803,817
Due after five years through ten years 1,677,321 1,778,549
Due after ten years 1,282,298 1,410,128
---------- ----------
3,762,812 4,032,305
Mortgage-backed securities 1,726,064 1,788,719
---------- ----------
Total $5,488,876 $5,821,024
========== ==========
</TABLE>
10
<PAGE>
THE MINNESOTA MUTUAL LIFE INSURANCE COMPANY
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
(4)FEDERAL INCOME TAXES
The federal income tax expense varies from amounts computed by applying the
federal income tax rate of 35% to the gain from operations after dividends to
policyowners and before federal income taxes and realized capital gains. The
reasons for this difference, and the tax effects thereof, are as follows:
<TABLE>
<CAPTION>
1995 1994 1993
------- ------- -------
(IN THOUSANDS)
<S> <C> <C> <C>
Computed tax expense $36,918 $33,666 $32,260
Difference between statutory and tax basis:
Investment income (9,284) (5,853) (7,204)
Policy reserves (81) (767) (2,079)
Dividends to policyowners 1,043 593 (1,907)
Acquisition expense 7,508 9,013 8,393
Other expenses 453 2,137 3,739
Special tax on mutual life insurance companies 8,201 15,466 3,396
Other, net 1,377 (4,629) 58
------- ------- -------
Tax expense $46,135 $49,626 $36,656
======= ======= =======
</TABLE>
The Company's tax returns for 1993 through 1994 are under examination by the
Internal Revenue Service. The Company believes additional taxes, if any,
assessed as a result of these examinations will not have a material effect on
its financial position.
(5)LIABILITY FOR UNPAID ACCIDENT AND HEALTH CLAIMS AND CLAIM ADJUSTMENT
EXPENSES
Activity in the liability for unpaid accident and health claims and claim
adjustment expenses, exclusive of $96,728,000, $89,540,000, and $81,990,000,
respectively, for active life reserves, is summarized as follows:
<TABLE>
<CAPTION>
1995 1994 1993
-------- -------- --------
(IN THOUSANDS)
<S> <C> <C> <C>
Balance at January 1 $301,352 $274,253 $246,777
Less: reinsurance recoverable 47,651 38,418 29,622
-------- -------- --------
Net balance at January 1 253,701 235,835 217,155
-------- -------- --------
Incurred related to:
Current year 95,392 91,573 85,112
Prior years 1,367 (308) 7,121
-------- -------- --------
Total incurred 96,759 91,265 92,233
-------- -------- --------
Paid related to:
Current year 26,291 23,019 22,002
Prior years 51,624 50,380 51,551
-------- -------- --------
Total paid 77,915 73,399 73,553
-------- -------- --------
Net Balance at December 31 272,545 253,701 235,835
Plus: reinsurance recoverable 72,617 47,651 38,418
-------- -------- --------
Balance at December 31 $345,162 $301,352 $274,253
======== ======== ========
</TABLE>
Incurred claims related to prior years are due to the difference between
actual and estimated claims incurred as of the prior year end.
11
<PAGE>
THE MINNESOTA MUTUAL LIFE INSURANCE COMPANY
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
(6)BUSINESS COMBINATION
On July 1, 1993, the Company entered into an "Agreement and Plan of
Reorganization" that combined all of the assets, liabilities, and surplus of
Ministers Life--A Mutual Life Insurance Company (Ministers Life) into the
Company. Ministers Life sold life and health insurance products to religious
professionals in the continental United States. The business combination
increased the Company's assets by $272,649,000, liabilities by $255,965,000 and
policyowners' surplus by $16,684,000.
(7)RELATED PARTY TRANSACTIONS
In 1993, the Company received 2,375,000 shares of common stock of the Minnesota
Fire and Casualty Company (the Casualty Company) in return for the surrender of
outstanding guaranty fund certificates totalling $21,800,000 which had
previously been charged to surplus. The surrender of the certificates and
concurrent issuance of stock were part of the Casualty Company's
"Demutualization and Stock Conversion Plan" (the Plan) approved by the
Department of Commerce. Pursuant to the Plan, the Casualty Company became a
subsidiary of the Company on December 31, 1993. The effect of the transaction
was an increase to investments in subsidiary companies and an increase to
policyowners' surplus as of December 31, 1993 of $19,171,000.
(8)PENSION PLANS AND OTHER RETIREMENT PLANS
Pension Plans
The Company has self-insured, noncontributory, defined benefit retirement plans
covering substantially all employees. The Company's funding policy is to
contribute annually the maximum amount that may be deducted for federal income
tax purposes. The Company expenses amounts as contributed. The Company made
contributions of $3,003,400 and $1,714,200 in 1995 and 1994, respectively. No
contributions were made in 1993. Information for these plans as of the
beginning of the plan year is as follows:
<TABLE>
<CAPTION>
1995 1994 1993
------- ------- -------
(IN THOUSANDS)
<S> <C> <C> <C>
Actuarial present value of accumulated benefits:
Vested $47,271 $42,849 $36,281
Nonvested 14,588 12,033 12,996
------- ------- -------
Total $61,859 $54,882 $49,277
======= ======= =======
Net assets available for benefits $85,348 $85,651 $78,952
======= ======= =======
</TABLE>
In determining the actuarial present value of accumulated benefits, the
Company used a weighted average assumed rate of return of 8.3% in 1995 and 8.4%
in 1994 and 1993.
Profit Sharing Plans
The Company also has profit sharing plans covering substantially all employees
and agents. The Company's contribution rate to the employee plan is determined
annually by the Trustees of the Company and is applied to each participant's
prior year earnings. The Company's contribution to the agent plan is made as a
certain percentage, based upon years of service, applied to each agent's total
annual compensation. The Company recognized contributions to the plans during
1995, 1994, and 1993 of $6,595,000, $6,866,000 and $6,753,000, respectively.
Participants may elect to receive a portion of their contributions in cash.
Postretirement Benefits Other than Pensions
The Company also has postretirement plans that provide certain health care and
life insurance benefits ("postretirement benefits") to substantially all
retired employees and agents. These plans are unfunded.
In 1993, the Company changed its method of accounting for the costs of its
postretirement benefit plans to the accrual method, and elected to amortize its
transition obligation for retirees and fully eligible employees and
12
<PAGE>
THE MINNESOTA MUTUAL LIFE INSURANCE COMPANY
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
(8)PENSION PLANS AND OTHER RETIREMENT PLANS (CONTINUED)
agents over 20 years. The unamortized transition obligation was $11,203,000 and
$13,000,000 at December 31, 1995 and 1994, respectively.
The net postretirement benefit cost for the years ended December 31, 1995,
1994, and 1993, was $3,163,000, $3,202,000 and $3,832,000, respectively. This
amount includes the expected cost of such benefits for newly eligible
employees, interest cost, and amortization of the transition obligation. The
Company made payments under the plans of $575,000, $526,000, and $555,000 in
1995, 1994, and 1993, respectively, as claims were incurred.
At December 31, 1995 and 1994, the postretirement benefit obligation for
retirees and other fully eligible participants was $17,410,000 and $19,635,000,
respectively. The estimated cost of the benefit obligation for active employees
and agents who are not yet fully eligible was $9,808,000 and $13,065,000 for
1995 and 1994, respectively. The discount rate used in determining the
accumulated postretirement benefit obligation for 1995 and 1994 was 7.5%. The
1995 net health care cost trend rate was 11.0% graded to 5.5% over 11 years,
and the 1994 net health care cost rate was 11.5%, graded to 5.5% over 12 years.
The assumptions presented herein are based on pertinent information available
to management as of December 31, 1995 and 1994. Actual results could differ
from those estimates and assumptions. For example, increasing the assumed
health care cost trend rates by one percentage point in each year would
increase the postretirement benefit obligation as of December 31, 1995 by
$1,874,000 and the estimated eligibility cost and interest cost components of
net periodic postretirement benefit costs for 1995 by $290,889.
(9)COMMITMENTS AND CONTINGENCIES
The Company reinsures certain individual and group business. At December 31,
1995 and 1994, policy reserves in the accompanying balance sheet are reflected
net of reinsurance ceded of $97,854,000 and $68,289,000, respectively. To the
extent that an assuming reinsurer is unable to meet its obligation under its
agreement, the Company remains liable.
The Company has issued certain participating group annuity and life insurance
contracts jointly with another life insurance company. The joint contract
issuer has liabilities related to these contracts of $378,475,000 as of
December 31, 1995. To the extent the joint contract issuer is unable to meet
its obligation under the agreement, the Company remains liable.
The Company has long-term commitments to fund venture capital and real estate
investments totalling $76,461,000 as of December 31, 1995. The Company
estimates that $11,650,000 of these commitments will be invested in 1996 with
the remaining $64,811,000 invested over the next five years.
At December 31, 1995, the Company had guaranteed the payment of $64,100,000
in policyowner dividends payable in 1996. The Company has pledged bonds, valued
at $66,906,000, to secure this guarantee.
The Company is contingently liable under state regulatory requirements for
possible assessment pertaining to future insolvencies and impairments of
unaffiliated companies.
(10) SURPLUS NOTES
In September 1995, the Company issued surplus notes with a face value of
$125,000,000, at 8.25%, due in 2025. The surplus notes are reported in the
Company's surplus at a statement value of $124,966,578, which represents the
face value of the notes less unamortized discount. The surplus notes are
subordinate to all current and future policyowners' interests, including
claims, and indebtedness of the Company. All payments of
interest and principal on the notes are subject to the approval of the
Department of Commerce. The unapproved accrued interest at December 31, 1995,
is $3,007,800. The issuance costs of $1,403,400 are deferred and treated as a
non-admitted asset. The deferred expense is amortized over 30 years on a
straight-line basis. Interest, discount amortization, and deferred expense
amortization are included in general insurance expenses in the statement of
operations. The Company's method of accounting for its surplus notes has been
approved by the Department of Commerce.
13
<PAGE>
THE MINNESOTA MUTUAL LIFE INSURANCE COMPANY
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
(11) MUTUAL LIFE INSURANCE COMPANY ACCOUNTING POLICIES
In April 1993 the Financial Accounting Standards Board (FASB) issued
Interpretation No. 40, "Applicability of Generally Accepted Accounting
Principles to Mutual Life Insurance and Other Enterprises." In January 1995 the
FASB issued the statement, "Accounting and Reporting by Mutual Life Insurance
Enterprises and by Insurance Enterprises for Certain Long-Duration
Participating Contracts" and, jointly with the American Institute of Certified
Public Accountants, issued a Statement of Position (SOP), "Accounting for
Certain Insurance Activities of Mutual Insurance Enterprises." Under
Interpretation No. 40, the statement and SOP (collectively "the statements"),
mutual life insurance companies that report their financial statements in
conformity with generally accepted accounting principles will be required to
apply the statements and all related authoritative GAAP pronouncements.
The statements apply to years beginning after December 15, 1995 and will
require restatement of prior year balances. The Company plans to prepare such
financial statements as of and for the year-ended December 31, 1996 with
restatement of the then prior year financial statements. Applying the
provisions of the statements will likely result in policyholders' surplus and
net income amounts differing from the amounts included in the accompanying
financial statements. Management is in the process of determining the impact of
the adoption of GAAP.
The Company will also continue to prepare its financial statements in
accordance with statutory accounting practices prescribed or permitted by the
Department of Commerce, which will no longer be considered generally accepted
accounting principles.
14
<PAGE>
THE MINNESOTA MUTUAL LIFE INSURANCE COMPANY
SCHEDULE I
SUMMARY OF INVESTMENTS--OTHER THAN INVESTMENTS IN RELATED PARTIES
DECEMBER 31, 1995
<TABLE>
<CAPTION>
AMOUNT AT
WHICH SHOWN
MARKET IN THE BALANCE
TYPE OF INVESTMENT COST(4) VALUE SHEET(1)(3)
- ------------------ ---------- ---------- --------------
(IN THOUSANDS)
<S> <C> <C> <C>
Bonds:
United States government and government
agencies and authorities $ 241,228 $ 251,702 $ 241,228
States, municipalities and political
subdivisions 26,337 29,605 26,337
Foreign governments 861 940 861
Public utilities 547,229 590,445 547,229
Mortgage-backed securities 1,726,064 1,788,719 1,726,064
All other corporate bonds 2,909,767 3,116,990 2,907,107
---------- ---------- ----------
Total bonds 5,451,486 5,778,401 5,448,826
---------- ---------- ----------
Equity securities:
Common stocks:
Public utilities 17,500 23,333 23,333
Banks, trusts and insurance companies 11,950 22,358 22,358
Industrial, miscellaneous and all
other 160,443 233,662 233,662
---------- ---------- ----------
Total equity securities 189,893 279,353 279,353
---------- ---------- ----------
Mortgage loans on real estate 755,997 xxxxxx 754,501
Real estate (2) 86,646 xxxxxx 76,639
Policy loans 197,555 xxxxxx 197,555
Other long-term investments 96,080 xxxxxx 90,264
Short-term investments 51,904 xxxxxx 51,816
---------- ----------
Total $1,188,182 xxxxxx $1,170,775
---------- ----------
Total investments $6,829,561 xxxxxx $6,898,954
========== ==========
</TABLE>
- -------
(1) Debt securities are carried at amortized cost or investment values pre-
scribed by the National Association of Insurance Commissioners.
(2) The carrying value of real estate acquired in satisfaction of indebtedness
is $1,999. Real estate includes property occupied by the Company.
(3) Differences between cost and amounts shown in the balance sheet for invest-
ments, other than equity securities and bonds, represent non-admitted in-
vestments.
(4) Original cost for equity securities and original cost reduced by repayments
and adjusted for amortization of premiums or accrual of discounts for bonds
and other investments.
15
<PAGE>
THE MINNESOTA MUTUAL LIFE INSURANCE COMPANY
SCHEDULE V
SUPPLEMENTARY INSURANCE INFORMATION
<TABLE>
<CAPTION>
AS OF DECEMBER 31,
---------------------------------------------------
FUTURE POLICY
DEFERRED BENEFITS OTHER POLICY
POLICY LOSSES, CLAIMS CLAIMS AND
ACQUISITION AND SETTLEMENT UNEARNED BENEFITS
SEGMENT COSTS(1) EXPENSES(3) PREMIUMS(3) PAYABLE
- ------- ----------- -------------- ----------- ------------
<S> <C> <C> <C> <C>
1995:
Life insurance $2,129,336 $37,784
Accident and
health insurance 369,273 12,724
Annuity consid-
erations 3,322,866 4
------- ---------- ------- -------
Total -- 5,821,475 -- 50,512
======= ========== ======= =======
1994:
Life insurance $1,981,469 $37,909
Accident and
health insurance 343,241 15,754
Annuity consid-
erations 3,179,279 7
------- ---------- ------- -------
Total -- 5,503,989 -- 53,670
======= ========== ======= =======
1993:
Life insurance $1,875,570 $83,365
Accident and
health insurance 317,825 14,979
Annuity consid-
erations 3,166,944 7
------- ---------- ------- -------
Total -- $5,360,339 -- $98,351
======= ========== ======= =======
</TABLE>
<TABLE>
<CAPTION>
FOR THE YEARS ENDED DECEMBER 31,
------------------------------------------------------------------------
AMORTIZATION
PREMIUMS, BENEFITS, OF DEFERRED
ANNUITY, AND NET CLAIMS, LOSSES POLICY OTHER
OTHER FUND INVESTMENT AND SETTLEMENT ACQUISITION OPERATING PREMIUMS
SEGMENT DEPOSITS INCOME EXPENSES COSTS(1) EXPENSES WRITTEN(2)
- ------- ------------ ---------- -------------- ------------ --------- ----------
(IN THOUSANDS)
<S> <C> <C> <C> <C> <C> <C>
1995:
Life insurance $ 789,350 $212,641 $591,775 $243,379
Accident and
health insurance 154,358 35,894 94,164 79,491
Annuity consid-
erations 529,958 276,136 713,266 55,120
---------- -------- ---------- ------- -------- -------
Total 1,473,666 524,671 1,399,205 -- 377,990 --
========== ======== ========== ======= ======== =======
1994:
Life insurance $ 802,265 $196,877 $ 608,091 $230,327 --
Accident and
health insurance 142,032 32,724 93,634 71,958
Annuity consid-
erations 480,055 259,212 652,076 52,180
---------- -------- ---------- ------- -------- -------
Total 1,424,352 488,813 1,353,801 -- 354,465 --
========== ======== ========== ======= ======== =======
1993:
Life insurance $ 718,232 $193,724 $ 538,880 $220,861
Accident and
health insurance 138,690 31,452 88,857 72,616
Annuity consid-
erations 433,032 267,835 626,181 45,463
---------- -------- ---------- ------- -------- -------
Total $1,289,954 $493,011 $1,253,918 -- $338,940 --
========== ======== ========== ======= ======== =======
</TABLE>
- -----
(1) Does not apply to financial statements of mutual life insurance companies
which are prepared on a statutory basis.
(2) Does not apply to life insurance.
(3) Unearned premiums and other deposit funds are included in future policy
benefits, losses, claims and settlement expenses.
16
<PAGE>
THE MINNESOTA MUTUAL LIFE INSURANCE COMPANY
SCHEDULE VI
REINSURANCE
FOR THE YEARS ENDED DECEMBER 31, 1995, 1994, AND 1993
<TABLE>
<CAPTION>
PERCENTAGE
CEDED TO ASSUMED OF AMOUNT
OTHER FROM OTHER NET ASSUMED TO
GROSS AMOUNT COMPANIES COMPANIES AMOUNT NET
------------ ----------- ----------- ------------ ----------
(IN THOUSANDS)
<S> <C> <C> <C> <C> <C>
1995:
Life insurance in
force $104,059,399 $15,291,357 $21,129,067 $109,897,109 19.2%
============ =========== =========== ============ ====
Premiums, annuity con-
siderations and fund
deposits:
Life insurance $ 782,558 $ 55,362 $ 62,154 $ 789,350 7.9%
Accident and health
insurance 164,683 12,724 2,399 154,358 1.6%
Annuity 529,958 -- -- 529,958 --
------------ ----------- ----------- ------------ ----
Total premiums*,
annuity considera-
tions and fund
deposits $ 1,477,199 $ 68,086 $ 64,553 $ 1,473,666 4.4%
============ =========== =========== ============ ====
1994:
Life insurance in
force $ 97,181,118 $13,314,267 $20,555,910 $104,422,761 19.7%
============ =========== =========== ============ ====
Premiums, annuity con-
siderations and fund
deposits:
Life insurance $ 792,087 $ 48,773 $ 58,951 $ 802,265 7.3%
Accident and health
insurance 150,876 10,145 1,301 142,032 0.9%
Annuity 480,055 -- -- 480,055 --
------------ ----------- ----------- ------------ ----
Total premiums*,
annuity considera-
tions and fund
deposits $ 1,423,018 $ 58,918 $ 60,252 $ 1,424,352 4.2%
============ =========== =========== ============ ====
1993:
Life insurance in
force $ 93,206,579 $11,674,202 $19,758,935 $101,291,312 19.5%
============ =========== =========== ============ ====
Premiums, annuity con-
siderations and fund
deposits:
Life insurance $ 704,172 $ 43,313 $ 57,373 $ 718,232 8.0%
Accident and health
insurance 147,229 9,699 1,160 138,690 0.8%
Annuity 433,032 -- -- 433,032 --
------------ ----------- ----------- ------------ ----
Total premiums*,
annuity considera-
tions and fund de-
posits $ 1,284,433 $ 53,012 $ 58,533 $ 1,289,954 4.5%
============ =========== =========== ============ ====
</TABLE>
- -------
* There are no premiums related to either property and liability or title
insurance.
17
<PAGE>
APPENDIX I
ILLUSTRATIONS OF ACCOUNT VALUES AND DEATH BENEFITS
The following tables illustrate how the account value and death benefit of a
policy change with the investment experience of the sub-accounts of the
separate account. The tables show how the account values and death benefit of a
policy issued to an insured of a given age and at a given premium would vary
over time if the investment return on the assets held in each sub-account of
the separate account were a uniform, gross, after-tax rate of 0 percent, 6
percent or 12 percent. In addition, the account values and death benefits would
be different from those shown if the gross annual investment rates of return
averaged 0 percent, 6 percent and 12 percent over a period of years, but
fluctuated above and below those averages for individual policy years.
The tables illustrate both a policy issued to an insured, age 45, and to an
insured, age 55, in a small group-sponsored program issued a group contract.
This assumes a $4.00 monthly administration charge and a 3 percent sales load
charge. If a particular policy has different sales or administration charges or
if a particular group is larger or smaller or has a different gender mix, the
account values and death benefits would vary from those shown in the tables.
The account value column in the tables with the heading "Using Maximum
Mortality Charges" shows the accumulated value of the premiums paid reflecting
deduction of the charges described above and monthly charges for the cost of
insurance based on the guaranteed maximum rate when there has been simplified
underwriting, which is 125 percent of the maximum allowed under the 1980
Commissioners Standard Ordinary ("CSO") Mortality Table. The account value
column in the table with the heading "Using Current Mortality Charges" shows
the accumulated value of premiums paid reflecting deduction of the charges
described above and the monthly charges for the cost of insurance at the
current level which is substantially less than the guaranteed rate. The
illustrations of the death benefits also vary between tables depending upon
whether the level or variable type death benefits are illustrated.
The amounts shown for the hypothetical account 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 expenses of the Fund and a daily mortality and expense risk charge
assessed against the net assets of the Variable Universal Life Account are
deducted from the gross return. The mortality and expense risk charge reflected
in the illustrations is at an annual rate of .50 percent. The investment
expenses illustrated represent an average of the investment advisory fee
charged for all seventeen Portfolios of the Funds. The investment advisory fee
for each Portfolio for the last fiscal year is shown in Appendix III. In
addition to the deduction for the investment advisory fee, the illustrations
also reflect a deduction for Portfolio costs and expenses for the last fiscal
year, as illustrated in Appendix III. Therefore, gross annual rates of return
of 0 percent, 6 percent and 12 percent correspond to approximate net annual
rates of return of -1.09 percent, 4.91 percent and 10.91 percent.
The tables reflect the fact that no charges for federal, state or local
income taxes are currently made against the Variable Universal 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 which produce the account values and death benefits illustrated.
Additionally, the hypothetical values shown in the tables assume that the
policy for which values are illustrated is not deemed an individual policy
under OBRA, and therefore the values do not reflect the additional 1 percent of
premium expense charge to cover Minnesota Mutual's increased federal tax
expense in that situation.
The tables illustrate the policy values that would result based upon the
investment rates of return if the premiums are paid on a monthly basis, and if
no policy loans have been made. The tables are also based on the assumptions
that no partial surrenders have been made, that no transfer charges were
incurred and that no optional riders have been requested. The policy values in
the tables also may reflect an increase in the face amount of insurance to the
minimum amount necessary to maintain the policy's qualification as life
insurance under Section 7702 of the Code. Further, the tables may show a
decrease in the face amount to a level that the account value immediately prior
to the decrease plus the additional illustrated premiums with interest can
provide.
Upon request, we will provide a comparable illustration based on the proposed
insured's age, the face amount of insurance, premium amount and frequency of
payment, the group size and gender mix among other characteristics of the group
and the insurance program.
61
<PAGE>
VARIABLE UNIVERSAL LIFE
DEATH BENEFIT OPTION A
ISSUE AGE 45
FACE AMOUNT OF INSURANCE--$100,000
ANNUAL PREMIUM--$1,800
(MONTHLY PREMIUM--$150)(1)
USING CURRENT MORTALITY CHARGES
<TABLE>
<CAPTION>
-ASSUMING HYPOTHETICAL INVESTMENT RETURNS OF-
0% GROSS(2) 6% GROSS(2) 12% GROSS(2)
(-1.09% NET) (4.91% NET) (10.91% NET)
END OF
POL ATT ANNUAL ACCOUNT DEATH ACCOUNT DEATH ACCOUNT DEATH
YR AGE PREMIUM VALUE BENEFIT VALUE BENEFIT VALUE BENEFIT
- ------ --- ------- ------- -------- ------- -------- -------- --------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
1 46 $1,800 $ 1,393 $100,000 $ 1,485 $100,000 $ 1,578 $100,000
2 47 1,800 2,750 100,000 3,024 100,000 3,309 100,000
3 48 1,800 4,074 100,000 4,619 100,000 5,209 100,000
4 49 1,800 5,364 100,000 6,274 100,000 7,300 100,000
5 50 1,800 6,612 100,000 7,982 100,000 9,591 100,000
6 51 1,800 7,828 100,000 9,757 100,000 12,119 100,000
7 52 1,800 8,992 100,000 11,584 100,000 14,890 100,000
8 53 1,800 10,116 100,000 13,476 100,000 17,945 100,000
9 54 1,800 11,191 100,000 15,429 100,000 21,309 100,000
10 55 1,800 12,208 100,000 17,437 100,000 25,011 100,000
15 60 1,800 16,411 100,000 28,472 100,000 50,299 100,000
20 65 1,800 18,606 100,000 41,290 100,000 93,355 112,951
25 70 1,800 17,080 100,000 55,957 100,000 165,000 189,829
30 75 1,800 7,948 100,000 73,217 100,000 282,603 299,874
</TABLE>
(1)A premium payment of $150 is assumed to be paid monthly at the beginning of
each policy month.
(2)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 ACCOUNT VALUES FOR A POLICY WOULD BE DIFFERENT FROM THOSE
SHOWN IF THE ACTUAL RATES OF RETURN AVERAGED 0%, 6%, AND 12% OVER A PERIOD OF
YEARS BUT ALSO FLUCTUATED ABOVE OR BELOW THOSE AVERAGES FOR INDIVIDUAL POLICY
YEARS. NO REPRESENTATIONS CAN BE MADE BY MINNESOTA MUTUAL OR THE FUND THAT
THESE HYPOTHETICAL RATES OF RETURN CAN BE ACHIEVED FOR ANY ONE YEAR OR
SUSTAINED OVER ANY PERIOD OF TIME.
62
<PAGE>
VARIABLE UNIVERSAL LIFE (CONTINUED)
DEATH BENEFIT OPTION A
ISSUE AGE 45
FACE AMOUNT OF INSURANCE--$100,000
ANNUAL PREMIUM--$1,800
(MONTHLY PREMIUM--$150)(1)
USING MAXIMUM MORTALITY CHARGES
<TABLE>
<CAPTION>
-ASSUMING HYPOTHETICAL INVESTMENT RETURNS OF-
0% GROSS(2) 6% GROSS(2) 12% GROSS(2)
(-1.09% NET) (4.91% NET) (10.91% NET)
END OF
POL ATT ANNUAL ACCOUNT DEATH ACCOUNT DEATH ACCOUNT DEATH
YR AGE PREMIUM VALUE BENEFIT VALUE BENEFIT VALUE BENEFIT
- ------ --- ------- ------- -------- ------- -------- -------- --------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
1 46 $1,800 $1,056 $100,000 $ 1,137 $100,000 $ 1,219 $100,000
2 47 1,800 2,064 100,000 2,293 100,000 2,532 100,000
3 48 1,800 3,021 100,000 3,466 100,000 3,950 100,000
4 49 1,800 3,926 100,000 4,655 100,000 5,482 100,000
5 50 1,800 4,775 100,000 5,858 100,000 7,139 100,000
6 51 1,800 5,563 100,000 7,070 100,000 8,930 100,000
7 52 1,800 6,283 100,000 8,286 100,000 10,867 100,000
8 53 1,800 6,929 100,000 9,499 100,000 12,961 100,000
9 54 1,800 7,493 100,000 10,703 100,000 15,225 100,000
10 55 1,800 7,967 100,000 11,891 100,000 17,677 100,000
15 60 1,800 8,824 100,000 17,444 100,000 33,702 100,000
20 65 1,800 6,071 100,000 21,419 100,000 59,851 100,000
25 70 1,800 0 0 21,064 100,000 106,254 122,269
30 75 1,800 0 0 9,927 100,000 184,034 195,308
</TABLE>
(1) A premium payment of $150 is assumed to be paid monthly at the beginning of
each policy month.
(2) 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 ACCOUNT VALUES FOR A POLICY WOULD BE DIFFERENT FROM THOSE
SHOWN IF THE ACTUAL RATES OF RETURN AVERAGED 0%, 6%, AND 12% OVER A PERIOD OF
YEARS BUT ALSO FLUCTUATED ABOVE OR BELOW THOSE AVERAGES FOR INDIVIDUAL POLICY
YEARS. NO REPRESENTATIONS CAN BE MADE BY MINNESOTA MUTUAL OR THE FUND THAT
THESE HYPOTHETICAL RATES OF RETURN CAN BE ACHIEVED FOR ANY ONE YEAR OR
SUSTAINED OVER ANY PERIOD OF TIME.
63
<PAGE>
VARIABLE UNIVERSAL LIFE (CONTINUED)
DEATH BENEFIT OPTION B
ISSUE AGE 45
FACE AMOUNT OF INSURANCE--$50,000
ANNUAL PREMIUM--$1,800
(MONTHLY PREMIUM--$150)(1)
USING CURRENT MORTALITY CHARGES
<TABLE>
<CAPTION>
-ASSUMING HYPOTHETICAL INVESTMENT RETURNS OF-
0% GROSS(2) 6% GROSS(2) 12% GROSS(2)
(-1.09% NET) (4.91% NET) (10.91% NET)
END OF
POL ATT ANNUAL ACCOUNT DEATH ACCOUNT DEATH ACCOUNT DEATH
YR AGE PREMIUM VALUE BENEFIT VALUE BENEFIT VALUE BENEFIT
- ------ --- ------- ------- ------- ------- -------- -------- --------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
1 46 $1,800 $ 1,514 $51,514 $ 1,611 $ 51,611 $ 1,707 $ 51,707
2 47 1,800 2,999 52,999 3,288 53,288 3,588 53,588
3 48 1,800 4,457 54,457 5,036 55,036 5,662 55,662
4 49 1,800 5,886 55,886 6,856 56,856 7,949 57,949
5 50 1,800 7,283 57,283 8,748 58,748 10,467 60,467
6 51 1,800 8,651 58,651 10,721 60,721 13,246 63,246
7 52 1,800 9,982 59,982 12,765 62,765 16,304 66,304
8 53 1,800 11,279 61,279 14,892 64,892 19,675 69,675
9 54 1,800 12,539 62,539 17,098 67,098 23,390 73,390
10 55 1,800 13,755 63,755 19,382 69,382 27,478 77,478
15 60 1,800 19,170 69,170 32,074 82,074 55,079 105,079
20 65 1,800 23,125 73,125 46,861 96,861 99,864 149,864
25 70 1,800 24,634 74,634 63,089 113,089 172,089 222,089
30 75 1,800 21,939 71,939 78,966 128,966 287,844 337,844
</TABLE>
(1) A premium payment of $150 is assumed to be paid monthly at the beginning of
each policy month.
(2) 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 ACCOUNT VALUES FOR A POLICY WOULD BE DIFFERENT FROM THOSE
SHOWN IF THE ACTUAL RATES OF RETURN AVERAGED 0%, 6%, AND 12% OVER A PERIOD OF
YEARS BUT ALSO FLUCTUATED ABOVE OR BELOW THOSE AVERAGES FOR INDIVIDUAL POLICY
YEARS. NO REPRESENTATIONS CAN BE MADE BY MINNESOTA MUTUAL OR THE FUND THAT
THESE HYPOTHETICAL RATES OF RETURN CAN BE ACHIEVED FOR ANY ONE YEAR OR
SUSTAINED OVER ANY PERIOD OF TIME.
64
<PAGE>
VARIABLE UNIVERSAL LIFE (CONTINUED)
DEATH BENEFIT OPTION B
ISSUE AGE 45
FACE AMOUNT OF INSURANCE--$50,000
ANNUAL PREMIUM--$1,800
(MONTHLY PREMIUM--$150)(1)
USING MAXIMUM MORTALITY CHARGES
<TABLE>
<CAPTION>
-ASSUMING HYPOTHETICAL INVESTMENT RETURNS OF-
0% GROSS(2) 6% GROSS(2) 12% GROSS(2)
(-1.09% NET) (4.91% NET) (10.91% NET)
END OF
POL ATT ANNUAL ACCOUNT DEATH ACCOUNT DEATH ACCOUNT DEATH
YR AGE PREMIUM VALUE BENEFIT VALUE BENEFIT VALUE BENEFIT
- ------ --- ------- ------- ------- ------- -------- -------- --------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
1 46 $1,800 $ 1,326 $51,326 $ 1,416 $ 51,416 $ 1,506 $ 51,506
2 47 1,800 2,616 52,616 2,878 52,878 3,152 53,152
3 48 1,800 3,868 53,868 4,389 54,389 4,953 54,953
4 49 1,800 5,082 55,082 5,947 55,947 6,924 56,924
5 50 1,800 6,255 56,255 7,554 57,554 9,081 59,081
6 51 1,800 7,384 57,384 9,208 59,208 11,441 61,441
7 52 1,800 8,467 58,467 10,907 60,907 14,020 64,020
8 53 1,800 9,498 59,498 12,649 62,649 16,840 66,840
9 54 1,800 10,474 60,474 14,431 64,431 19,920 69,920
10 55 1,800 11,390 61,390 16,251 66,251 23,284 73,284
15 60 1,800 15,005 65,005 25,863 75,863 45,461 95,461
20 65 1,800 16,517 66,517 35,884 85,884 80,160 130,160
25 70 1,800 14,788 64,788 44,973 94,973 134,194 184,194
30 75 1,800 8,058 58,058 50,680 100,680 218,177 268,177
</TABLE>
(1) A premium payment of $150 is assumed to be paid monthly at the beginning of
each policy month.
(2) 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 ACCOUNT VALUES FOR A POLICY WOULD BE DIFFERENT FROM THOSE
SHOWN IF THE ACTUAL RATES OF RETURN AVERAGED 0%, 6%, AND 12% OVER A PERIOD OF
YEARS BUT ALSO FLUCTUATED ABOVE OR BELOW THOSE AVERAGES FOR INDIVIDUAL POLICY
YEARS. NO REPRESENTATIONS CAN BE MADE BY MINNESOTA MUTUAL OR THE FUND THAT
THESE HYPOTHETICAL RATES OF RETURN CAN BE ACHIEVED FOR ANY ONE YEAR OR
SUSTAINED OVER ANY PERIOD OF TIME.
65
<PAGE>
VARIABLE UNIVERSAL LIFE (CONTINUED)
DEATH BENEFIT OPTION A
ISSUE AGE 55
FACE AMOUNT OF INSURANCE--$100,000
ANNUAL PREMIUM--$3,000
(MONTHLY PREMIUM--$250)(1)
USING CURRENT MORTALITY CHARGES
<TABLE>
<CAPTION>
-ASSUMING HYPOTHETICAL INVESTMENT RETURNS OF-
0% GROSS(2) 6% GROSS(2) 12% GROSS(2)
(-1.09% NET) (4.91% NET) (10.91% NET)
END OF
POL ATT ANNUAL ACCOUNT DEATH ACCOUNT DEATH ACCOUNT DEATH
YR AGE PREMIUM VALUE BENEFIT VALUE BENEFIT VALUE BENEFIT
- ------ --- ------- ------- -------- -------- -------- -------- --------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
1 56 $3,000 $ 2,147 $100,000 $ 2,297 $100,000 $ 2,446 $100,000
2 57 3,000 4,227 100,000 4,663 100,000 5,117 100,000
3 58 3,000 6,243 100,000 7,105 100,000 8,040 100,000
4 59 3,000 8,176 100,000 9,608 100,000 11,228 100,000
5 60 3,000 10,039 100,000 12,191 100,000 14,727 100,000
6 61 3,000 11,825 100,000 14,852 100,000 18,571 100,000
7 62 3,000 13,517 100,000 17,580 100,000 22,787 100,000
8 63 3,000 15,098 100,000 20,365 100,000 27,412 100,000
9 64 3,000 16,571 100,000 23,219 100,000 32,508 100,000
10 65 3,000 17,912 100,000 26,125 100,000 38,124 100,000
15 70 3,000 22,248 100,000 41,553 100,000 77,318 100,000
20 75 3,000 20,116 100,000 58,497 100,000 146,026 154,952
25 80 3,000 7,437 100,000 80,233 100,000 260,506 273,532
30 85 3,000 0 0 114,273 119,986 446,944 469,291
</TABLE>
(1) A premium payment of $250 is assumed to be paid monthly at the beginning of
each policy month.
(2) 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 ACCOUNT VALUES FOR A POLICY WOULD BE DIFFERENT FROM THOSE
SHOWN IF THE ACTUAL RATES OF RETURN AVERAGED 0%, 6%, AND 12% OVER A PERIOD OF
YEARS BUT ALSO FLUCTUATED ABOVE OR BELOW THOSE AVERAGES FOR INDIVIDUAL POLICY
YEARS. NO REPRESENTATIONS CAN BE MADE BY MINNESOTA MUTUAL OR THE FUND THAT
THESE HYPOTHETICAL RATES OF RETURN CAN BE ACHIEVED FOR ANY ONE YEAR OR
SUSTAINED OVER ANY PERIOD OF TIME.
66
<PAGE>
VARIABLE UNIVERSAL LIFE (CONTINUED)
DEATH BENEFIT OPTION A
ISSUE AGE 55
FACE AMOUNT OF INSURANCE--$100,000
ANNUAL PREMIUM--$3,000
(MONTHLY PREMIUM--$250)(1)
USING MAXIMUM MORTALITY CHARGES
<TABLE>
<CAPTION>
-ASSUMING HYPOTHETICAL INVESTMENT RETURNS OF-
0% GROSS(2) 6% GROSS(2) 12% GROSS(2)
(-1.09% NET) (4.91% NET) (10.91% NET)
END OF
POL ATT ANNUAL ACCOUNT DEATH ACCOUNT DEATH ACCOUNT DEATH
YR AGE PREMIUM VALUE BENEFIT VALUE BENEFIT VALUE BENEFIT
- ------ --- ------- ------- -------- ------- -------- -------- --------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
1 56 $3,000 $1,481 $100,000 $ 1,608 $100,000 $ 1,735 $100,000
2 57 3,000 2,860 100,000 3,208 100,000 3,572 100,000
3 58 3,000 4,132 100,000 4,796 100,000 5,523 100,000
4 59 3,000 5,296 100,000 6,372 100,000 7,600 100,000
5 60 3,000 6,344 100,000 7,927 100,000 9,814 100,000
6 61 3,000 7,260 100,000 9,448 100,000 12,173 100,000
7 62 3,000 8,030 100,000 10,918 100,000 14,685 100,000
8 63 3,000 8,630 100,000 12,317 100,000 17,357 100,000
8 64 3,000 9,037 100,000 13,622 100,000 20,198 100,000
10 65 3,000 9,229 100,000 14,809 100,000 23,226 100,000
15 70 3,000 6,225 100,000 18,266 100,000 42,438 100,000
20 75 3,000 0 0 12,989 100,000 74,753 100,000
25 80 3,000 0 0 0 0 138,867 145,811
30 85 3,000 0 0 0 0 243,385 255,554
</TABLE>
(1) A premium payment of $250 is assumed to be paid monthly at the beginning of
each policy month.
(2) 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 ACCOUNT VALUES FOR A POLICY WOULD BE DIFFERENT FROM THOSE
SHOWN IF THE ACTUAL RATES OF RETURN AVERAGED 0%, 6%, AND 12% OVER A PERIOD OF
YEARS BUT ALSO FLUCTUATED ABOVE OR BELOW THOSE AVERAGES FOR INDIVIDUAL POLICY
YEARS. NO REPRESENTATIONS CAN BE MADE BY MINNESOTA MUTUAL OR THE FUND THAT
THESE HYPOTHETICAL RATES OF RETURN CAN BE ACHIEVED FOR ANY ONE YEAR OR
SUSTAINED OVER ANY PERIOD OF TIME.
67
<PAGE>
VARIABLE UNIVERSAL LIFE (CONTINUED)
DEATH BENEFIT OPTION B
ISSUE AGE 55
FACE AMOUNT OF INSURANCE--$50,000
ANNUAL PREMIUM--$3,000
(MONTHLY PREMIUM--$250)(1)
USING CURRENT MORTALITY CHARGES
<TABLE>
<CAPTION>
-ASSUMING HYPOTHETICAL INVESTMENT RETURNS OF-
0% GROSS(2) 6% GROSS(2) 12% GROSS(2)
(-1.09% NET) (4.91% NET) (10.91% NET)
END OF
POL ATT ANNUAL ACCOUNT DEATH ACCOUNT DEATH ACCOUNT DEATH
YR AGE PREMIUM VALUE BENEFIT VALUE BENEFIT VALUE BENEFIT
- ------ --- ------- ------- ------- ------- -------- -------- --------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
1 56 $3,000 $ 2,448 $52,448 $ 2,606 $ 52,606 $ 2,765 $ 52,765
2 57 3,000 4,839 54,839 5,310 55,310 5,801 55,801
3 58 3,000 7,174 57,174 8,116 58,116 9,135 59,135
4 59 3,000 9,442 59,442 11,016 61,016 12,789 62,789
5 60 3,000 1,650 61,650 14,021 64,021 16,804 66,804
6 61 3,000 13,792 63,792 17,131 67,131 21,212 71,212
7 62 3,000 15,856 65,856 20,339 70,339 26,044 76,044
8 63 3,000 17,833 67,833 23,636 73,636 31,333 81,333
9 64 3,000 19,722 69,722 27,027 77,027 37,130 87,130
10 65 3,000 21,508 71,508 30,499 80,499 43,470 93,470
15 70 3,000 28,604 78,604 48,875 98,875 85,285 135,285
20 75 3,000 31,200 81,200 67,482 117,482 150,006 200,006
25 80 3,000 28,176 78,176 84,756 134,756 251,226 301,226
30 85 3,000 19,190 69,190 99,661 149,661 412,999 462,999
</TABLE>
(1) A premium payment of $250 is assumed to be paid monthly at the beginning of
each policy month.
(2) 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 ACCOUNT VALUES FOR A POLICY WOULD BE DIFFERENT FROM THOSE
SHOWN IF THE ACTUAL RATES OF RETURN AVERAGED 0%, 6%, AND 12% OVER A PERIOD OF
YEARS BUT ALSO FLUCTUATED ABOVE OR BELOW THOSE AVERAGES FOR INDIVIDUAL POLICY
YEARS. NO REPRESENTATIONS CAN BE MADE BY MINNESOTA MUTUAL OR THE FUND THAT
THESE HYPOTHETICAL RATES OF RETURN CAN BE ACHIEVED FOR ANY ONE YEAR OR
SUSTAINED OVER ANY PERIOD OF TIME.
68
<PAGE>
VARIABLE UNIVERSAL LIFE (CONTINUED)
DEATH BENEFIT OPTION B
ISSUE AGE 55
FACE AMOUNT OF INSURANCE--$50,000
ANNUAL PREMIUM--$3,000
(MONTHLY PREMIUM--$250)(1)
USING MAXIMUM MORTALITY CHARGES
<TABLE>
<CAPTION>
-ASSUMING HYPOTHETICAL INVESTMENT RETURNS OF-
0% GROSS(2) 6% GROSS(2) 12% GROSS(2)
(-1.09% NET) (4.91% NET) (10.91% NET)
END OF
POL ATT ANNUAL ACCOUNT DEATH ACCOUNT DEATH ACCOUNT DEATH
YR AGE PREMIUM VALUE BENEFIT VALUE BENEFIT VALUE BENEFIT
- ------ --- ------- ------- ------- ------- ------- -------- --------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
1 56 $3,000 $ 2,080 $52,080 $ 2,225 $52,225 $ 2,371 $ 52,371
2 57 3,000 4,083 54,083 4,503 54,503 4,942 54,942
3 58 3,000 6,007 56,007 6,834 56,834 7,733 57,733
4 59 3,000 7,850 57,850 9,218 59,218 10,765 60,765
5 60 3,000 9,608 59,608 11,651 61,651 14,058 64,058
6 61 3,000 11,272 61,272 14,128 64,128 17,631 67,631
7 62 3,000 12,835 62,835 16,639 66,639 21,505 71,505
8 63 3,000 14,283 64,283 19,173 69,173 25,699 75,699
9 64 3,000 15,606 65,606 21,719 71,719 30,233 80,233
10 65 3,000 16,793 66,793 24,264 74,264 35,132 85,132
15 70 3,000 20,435 70,435 36,647 86,647 66,301 116,301
20 75 3,000 18,789 68,789 46,539 96,539 111,910 161,910
25 80 3,000 8,698 58,698 49,260 99,260 177,101 227,101
30 85 3,000 0 0 38,196 88,196 269,815 319,815
</TABLE>
(1) A premium payment of $250 is assumed to be paid monthly at the beginning of
each policy month.
(2) 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 ACCOUNT VALUES FOR A POLICY WOULD BE DIFFERENT FROM THOSE
SHOWN IF THE ACTUAL RATES OF RETURN AVERAGED 0%, 6%, AND 12% OVER A PERIOD OF
YEARS BUT ALSO FLUCTUATED ABOVE OR BELOW THOSE AVERAGES FOR INDIVIDUAL POLICY
YEARS. NO REPRESENTATIONS CAN BE MADE BY MINNESOTA MUTUAL OR THE FUND THAT
THESE HYPOTHETICAL RATES OF RETURN CAN BE ACHIEVED FOR ANY ONE YEAR OR
SUSTAINED OVER ANY PERIOD OF TIME.
69
<PAGE>
APPENDIX II
POLICY LOAN EXAMPLE
As an example of the effect of a policy loan upon the policy account value and
the death benefit, assume a policy of an insured age 45 with the following
characteristics: The Variable Universal Life Policy has an Option B death
benefit with a level face amount of $50,000. Further, assume that 100 percent
of net premiums are invested in the sub-accounts of the Variable Universal Life
Account, that the gross investment rate in the Variable Universal Life Account
was 12 percent each year and that Minnesota Mutual deducted current mortality
charges. This situation is shown in Appendix I, "Illustrations of Account
Values and Death Benefits" on page 61 of this prospectus.
Now assume that the insured, who is also the owner of the policy, takes a
policy loan in the amount of $5,000 at the end of the fourth policy year.
When a policy loan is taken, the net cash value is reduced by the amount
borrowed and any accrued interest subsequently charged. The amount borrowed
continues to be a part of the account value, as the amount borrowed becomes
part of the loan account value where it will accrue loan interest credits and
will be held in our general account. Interest is charged on the policy loan at
a policy loan interest rate of 8 percent per year. Interest is also credited to
a policy when there is a policy loan. Interest credits on the policy loan are
at a rate which is not less than the policy loan interest rate less 2 percent
per year. Assume the interest credits in this example will be at 6 percent per
year.
The following table shows the effect on the end of fifth year account value
and death benefit, if a policy loan of $5,000 is made at the end of the fourth
year.
<TABLE>
<CAPTION>
End of Year End of Year
Account Value Death Benefit
With Loan Without Loan With Loan Without Loan
--------- ------------ --------- ------------
<S> <C> <C> <C>
$9,437 $9,673 $59,437 $59,673
</TABLE>
Note that the difference in the account values here represents the difference
between the actual policy performance in the sub-accounts of the Variable
Universal 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 death
benefit is under Option A with a face amount of insurance of $100,000. This
situation is also shown in Appendix I, "Illustrations of Account Values and
Death Benefits" on page 61 of this prospectus. The following table shows the
effect on the same fifth year values if a policy loan of $5,000 is made at the
end of the fourth year.
<TABLE>
<CAPTION>
End of Year End of Year
Account Value Death Benefit
With Loan Without Loan With Loan Without Loan
--------- ------------ --------- ------------
<S> <C> <C> <C>
$8,569 $8,806 $100,000 $100,000
</TABLE>
The account values above under the "With Loan" headings include the loan
account value, that is, the amount of the loan plus accrued interest
subsequently charged. If the insured were to surrender the policy at the end of
the fifth year, he or she would receive only the net cash value in the sub-
accounts of the Variable Universal Life Account. The net cash value equals the
account value less the loan account value since there are no charges due.
Similarly, if the insured were to die at the end of the fifth year we would
pay out the death benefit listed under the "With Loan" heading less the loan
account value.
70
<PAGE>
APPENDIX III
ADVISORY FEES AND PORTFOLIO EXPENSES
The chart below shows the advisory fees and portfolio expense fees for the
Funds as of December 31, 1995.
The advisory fees for the Series Fund are a contractual agreement between the
Series Fund and MIMLIC Asset Management Company. The advisory fees for VIP and
VIP II are a contractual agreement between VIP and VIP II and Fidelity
Management & Research Company. Advisory fees could change only by shareholder
vote.
The Series Fund portfolio expense fees reflect the actual expenses incurred
by each portfolio unless the actual expenses exceed the cap. The portfolio
expense fee is capped at 0.15 percent for all Series Fund portfolios except the
International Stock Portfolio, which is capped at 1.00 percent. Any Series Fund
portfolio expenses incurred in excess of the cap are voluntarily absorbed by
Minnesota Mutual. For a description of the arrangement whereby Minnesota Mutual
voluntarily absorbs certain expenses of the Series Fund, see "Investment
Adviser" in the attached prospectus for MIMLIC Series Fund, Inc. The portfolio
expense fees shown are not expected to increase but rather decrease as the
amount of assets in the portfolios increases.
<TABLE>
<CAPTION>
Investment Portfolio Expense
Fund / Portfolio Name Advisory Fee Actual or Cap Total
- --------------------- ------------ ----------------- -----
<S> <C> <C> <C>
SERIES FUND
Growth 0.50 0.05 0.55
Bond 0.50 0.08 0.58
Money Market 0.50 0.14 0.64
Asset Allocation 0.50 0.05 0.55
Mortgage Securities 0.50 0.08 0.58
Index 500 0.40 0.07 0.47
Capital Appreciation 0.75 0.05 0.80
International Stock 0.78* 0.26 1.04
Small Company 0.75 0.09 0.84
Value Stock 0.75 0.14 0.89
Maturing Government Bond 1998 0.05 0.15 0.20
Maturing Government Bond 2002 0.05 0.15 0.20
Maturing Government Bond 2006 0.25 0.15 0.40
Maturing Government Bond 2010 0.25 0.15 0.40
VIP
VIP Equity Income 0.51 0.10 0.61
VIP High Income 0.60 0.11 0.71
VIP II
VIP II Contrafund 0.61 0.11 0.72
AVERAGE 0.48 0.11 0.59
</TABLE>
* The advisory fee for this portfolio is a variable fee based upon a decreasing
fee with increased asset size. This figure represents the actual 1995 average.
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