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Variable Universal Life Insurance Policy
This prospectus describes Variable Universal Life Insurance Policies issued by
Minnesota Life Insurance Company ("Minnesota Life"). The policies are designed
for use in group-sponsored insurance programs to provide life insurance
protection and the flexibility to vary premium payments. 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.
Subject to the limitations in the policy, the owner may allocate net premiums to
one or more of the sub-accounts of a separate account of Minnesota Life called
the Minnesota Life Variable Universal Life Account (herein "separate account").
Subject to the limitations in the policy and this prospectus, net premiums may
also be allocated to a guaranteed account of Minnesota Life. 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 invests its assets in shares of Advantus Series Fund, Inc.,
Fidelity's Variable Insurance Products Funds and Janus Aspen Series (the
"Funds"). The Funds have 21 portfolios which are available for contracts offered
under this prospectus. They are:
- - Growth Portfolio
- - Bond Portfolio
- - Money Market Portfolio
- - Asset Allocation Portfolio
- - Mortgage Securities Portfolio
- - Index 500 Portfolio
- - Capital Appreciation Portfolio
- - International Stock Portfolio
- - Small Company Growth Portfolio
- - Maturing Government Bond Portfolio (target maturity of 2010)
- - Value Stock Portfolio
- - Small Company Value Portfolio
- - Global Bond Portfolio
- - Index 400 Mid-Cap Portfolio
- - Macro-Cap Value Portfolio
- - Micro-Cap Growth Portfolio
- - VIP Equity-Income Portfolio: Initial Class Shares
- - VIP High Income Portfolio: Initial Class Shares
- - VIP Contrafund(R) Portfolio: Initial Class Shares
- - Janus Aspen Series Capital Appreciation Portfolio--Service Shares
- - Janus Aspen Series International Growth Portfolio--Service Shares
Although the Maturing Government Bond Portfolio with a target maturity of 2002
is included in this prospectus, it is not available for premium allocations or
transfers.
This prospectus must be accompanied by the current prospectuses of the Funds.
This prospectus should be read carefully and retained for future reference.
The policies have not been approved or disapproved by the Securities and
Exchange Commission ("SEC"). Neither the SEC nor any state has determined
whether this prospectus is truthful or complete. Any representation to the
contrary is a criminal offense.
Minnesota Life Insurance Company
400 Robert Street North
St. Paul, MN 55101-2098
651.665.3500 Tel
www.minnesotamutual.com
Dated: March 13, 2000
PROSPECTUS
MINNESOTA LIFE
VARIABLE UNIVERSAL
LIFE ACCOUNT
[MINNESOTA LIFE LOGO]
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TABLE OF CONTENTS
<TABLE>
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Page
<S> <C>
Special Terms............................................... 1
Summary..................................................... 2
Condensed Financial Information............................. 8
General Descriptions........................................ 13
Minnesota Life Insurance Company....................... 13
Variable Universal Life Account........................ 13
Advantus Series Fund, Inc.............................. 13
Fidelity Variable Insurance Products Funds............. 14
Janus Aspen Series..................................... 15
Additions, Deletions or Substitutions.................. 15
The Guaranteed Account................................. 16
General Description............................... 16
Guaranteed Account Value.......................... 16
Information About the Policy................................ 17
Applications and Policy Issue.......................... 17
Policy Premiums........................................ 17
Death Benefit.......................................... 19
Change in Face Amount.................................. 20
Payment of Death Benefit Proceeds...................... 20
Account Values......................................... 21
Policy Loans........................................... 23
Surrender and Partial Surrender........................ 24
Transfers.............................................. 25
Dollar Cost Averaging.................................. 26
Free Look.............................................. 27
Conversion Right to an Individual Policy............... 27
Continuation of Group Coverage......................... 28
Charges................................................ 28
Premium Expense Charges........................... 28
Account Value Charges............................. 29
Separate Account Charges.......................... 30
Fund Charges...................................... 31
Guarantee of Certain Charges........................... 31
Additional Benefits.................................... 31
General Matters Relating to the Policy................. 32
General Provisions of the Group Contract............... 35
Other Matters............................................... 36
Federal Tax Status..................................... 36
Directors and Principal Officers of Minnesota Life..... 39
Voting Rights.......................................... 39
Distribution of Policies............................... 40
Legal Matters.......................................... 40
Legal Proceedings...................................... 41
Experts................................................ 41
Registration Statement................................. 41
Financial Statements of Minnesota Life Variable Universal
Life Account.............................................. SA-1
Financial Statements of Minnesota Life Insurance Company and
Subsidiaries.............................................. ML-1
Appendix A-Illustrations of Account Values and Death
Benefits.................................................. A-1
Appendix B-Policy Loan Example.............................. B-1
</TABLE>
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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 specifications page 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 for contracts offered under this prospectus, currently,
Advantus Series Fund, Inc. and its portfolios, Fidelity's Variable Insurance
Products Funds and their portfolios and Janus Aspen Series and its portfolios.
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 declared thereon and experience credits,
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.
JANUS ASPEN SERIES: Janus Aspen Series, a mutual fund of the series type which
is an investment alternative for the Variable Universal Life Account.
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 or a later birthday which is
established for policies issued under the group-sponsored insurance program.
MEMBER: An individual belonging to the group seeking insurance.
MONTHLY ANNIVERSARY: The first day of each calendar month on, or following, the
issue date.
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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.
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: Minnesota Life Variable Universal Life Account, a separate
investment account, the investment experience 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 Advantus 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 Funds, are account options which
are investment alternatives of the Variable Universal Life Account.
WE, OUR, US: Minnesota Life Insurance Company.
SUMMARY
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. You should review the
information contained elsewhere in this prospectus.
WHAT IS A UNIVERSAL LIFE INSURANCE POLICY?
A universal life insurance policy is an adjustable benefit life insurance
policy. It allows for the accumulation of cash values while the policy's life
insurance coverage remains in force and 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. 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. 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 values. Subject to
restrictions described herein, an owner may
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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 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 Life Variable
Universal Life Account ("separate account"). The sub-accounts of the separate
account 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. The policy also 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.
Subject to the limitations in the policy and this prospectus, 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."
WHAT VARIABLE INVESTMENT OPTIONS ARE AVAILABLE?
Premiums under the contracts offered by this prospectus may be invested in
21 portfolios of the Funds. Not all of the portfolios of the Funds may be made
available for investment by the separate account. The group sponsor may select
which sub-accounts that invest in portfolios of the Funds will be made available
to owners under its insurance program. The Maturing Government Bond Portfolio
with a maturity of 2002 is included in this prospectus, but it is not available
for premium allocations or transfers. Owners may direct their funds to the
following Series Fund Portfolios:
Growth Portfolio
Bond Portfolio
Money Market Portfolio
Asset Allocation Portfolio
Mortgage Securities Portfolio
Index 500 Portfolio
Capital Appreciation Portfolio
International Stock Portfolio
Small Company Growth Portfolio
Maturing Government Bond Portfolio--2010
Value Stock Portfolio
Small Company Value Portfolio
Global Bond Portfolio
Index 400 Mid-Cap Portfolio
Macro-Cap Value Portfolio
Micro-Cap Growth Portfolio
Owners may also direct their funds to the following additional Portfolios:
VIP Equity-Income Portfolio:
Initial Class Shares
VIP High Income Portfolio:
Initial Class Shares
VIP Contrafund Portfolio:
Initial Class Shares
Janus Aspen Series Capital Appreciation
Portfolio -- Service Shares
Janus Aspen Series International Growth
Portfolio -- Service Shares
There is no assurance that any portfolio will meet its objectives. Additional
information concerning investment objectives may be found in the accompanying
prospectuses of the Funds.
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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
available sub-accounts of the separate account, subject to the limitations in
the policy and this prospectus. All future net premiums will be allocated in the
same proportion until the owner requests a change in the allocation. Similarly,
the owner may request a transfer of amounts between sub-accounts and the
guaranteed account, subject to the limitations in the policy and this
prospectus.
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.
There is a minimum initial face amount for the policy which is stated on
the specifications page 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 will be paid 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 and this
prospectus, 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" of this prospectus.
WHAT CHARGES ARE ASSOCIATED WITH THE POLICY?
We assess certain charges against each premium payment and the account
values under each policy and against the asset value of the separate account.
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" of this prospectus. The specific
charges are shown on the specifications page of the policy. There are also
advisory fees and expenses which are assessed against the asset value of each of
the portfolios of the Funds.
PREMIUM EXPENSE CHARGES
Premium expense charges vary based on the group-sponsored insurance program
under which the policy is issued. We may deduct from premium paid, a percentage
of premium for a SALES CHARGE, not to exceed 5 percent, and a percentage of
premium for a PREMIUM TAX CHARGE, not to exceed 4 percent. We will also deduct a
percentage of premium as a FEDERAL TAX CHARGE to recover a portion of our
estimated cost for the federal income tax treatment of deferred acquisition
costs. If a policy is considered an individual policy under the Omnibus Budget
Reconciliation Act, as amended, ("OBRA") the charge will not exceed 1.25 percent
of premium. If a policy is considered to be a group policy under OBRA, the
charge will not exceed 0.25 percent of premium (for group-sponsored programs
implemented prior to April 1, 2000) or 0.35 percent of
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premium (for group-sponsored programs implemented on or after April 1, 2000).
ACCOUNT VALUE CHARGES
The charges deducted as part of the MONTHLY DEDUCTION vary based on the
group-sponsored insurance program under which the policy is issued. Each month,
we may deduct from a policy's account value the sum of the following applicable
items:
- - an administration charge;
- - a cost of insurance charge; and
- - the cost of any additional insurance benefits provided by rider.
The administration charge will never exceed $4 per month. Additional
information is provided under the heading "Monthly Deduction."
For policies under some group-sponsored insurance programs, a PARTIAL
SURRENDER TRANSACTION CHARGE will be assessed against the net cash value to
cover administrative processing costs. The charge will not exceed the lesser of
$25 or 2 percent of the amount withdrawn.
There is currently no TRANSFER CHARGE assessed on transfers of net cash
value between the guaranteed account and the separate account or among the
sub-accounts of the separate account. A charge, not to exceed $10 per transfer,
may be imposed in the future.
SEPARATE ACCOUNT CHARGES
We assess a MORTALITY AND EXPENSE RISK CHARGE against the separate account
assets on a daily basis. This charge will vary based on the group-sponsored
insurance program under which the policy is issued. The annual rate 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 costs in connection with the policies.
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
premium taxes and federal taxes. No such charge or provision is made at the
present time.
FUND CHARGES
Shares of the Funds are purchased for the separate account at their net
asset value, which reflects ADVISORY FEES (ALSO KNOWN AS MANAGEMENT FEES) AND
EXPENSES which are assessed against the net asset value of each of the
portfolios of the Funds.
Advantus Capital Management, Inc. ("Advantus Capital") acts as the
investment adviser to the Series Fund. Advantus Capital is a wholly-owned
subsidiary of Minnesota Life. For more information about the Series Fund, see
the prospectus of Advantus Series Fund, Inc. which accompanies this prospectus.
The Fidelity Management and Research Company (FMR), a subsidiary of FMR
Corp., is adviser to VIP. For more information about VIP, see the prospectuses
of the Variable Insurance Products Funds which accompany this prospectus.
Janus Capital is the adviser to Janus Aspen Series. For information about
Janus Aspen Series and its portfolios, see the prospectuses for Janus Aspen
Series which accompany this prospectus.
In addition to the investment advisory fees, other direct expenses are
charged against the assets of the Funds.
The chart below shows the ADVISORY FEES AND OTHER EXPENSE FEES as a percent
of average daily net assets for the Funds as of December 31, 1999.
The advisory fees for the Series Fund are made pursuant to a contractual
agreement between the Series Fund and Advantus Capital Management, Inc.
The advisory fees for VIP are made pursuant to a contractual agreement
between VIP and Fidelity Management & Research Company ("FMR").
The advisory fees for Janus Aspen Series are made pursuant to a contractual
agreement between Janus Aspen Series and Janus Capital.
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<TABLE>
<CAPTION>
Total Total
Annual Annual
Fund Fund
Operating Operating
Expenses Total Expenses
Distribution Without Waivers With
Advisory Other (12b-1) Waivers or and Waivers or
Fee Expenses Fees Reductions Reductions Reductions
-------- -------- ------------ ---------- ---------- ----------
<S> <C> <C> <C> <C> <C> <C>
SERIES FUND(1)
Growth................................. 0.50% 0.03% -- 0.53% -- 0.53%
Bond................................... 0.50% 0.06% -- 0.56% -- 0.56%
Money Market........................... 0.50% 0.06% -- 0.56% -- 0.56%
Asset Allocation....................... 0.50% 0.03% -- 0.53% -- 0.53%
Mortgage Securities.................... 0.50% 0.07% -- 0.57% -- 0.57%
Index 500.............................. 0.40% 0.05% -- 0.45% -- 0.45%
Capital Appreciation................... 0.75% 0.04% -- 0.79% -- 0.79%
International Stock(2)................. 0.70% 0.20% -- 0.90% -- 0.90%
Small Company Growth................... 0.75% 0.05% -- 0.80% -- 0.80%
Maturing Government Bond 2010.......... 0.25% 1.18% -- 1.43% 1.03% 0.40%
Value Stock............................ 0.75% 0.05% -- 0.80% -- 0.80%
Small Company Value.................... 0.75% 0.81% -- 1.56% 0.66% 0.90%
Global Bond............................ 0.60% 0.34% -- 0.94% -- 0.94%
Index 400 Mid-Cap...................... 0.40% 0.60% -- 1.00% 0.45% 0.55%
Macro-Cap Value........................ 0.70% 0.78% -- 1.48% 0.63% 0.85%
Micro-Cap Growth....................... 1.10% 0.47% -- 1.57% 0.32% 1.25%
VIP(3)
VIP Equity-Income: Initial Class
Shares(4)............................ 0.48% 0.09% -- 0.57% 0.01% 0.56%
VIP High Income: Initial Class
Shares(4)............................ 0.58% 0.11% -- 0.69% -- 0.69%
VIP Contrafund: Initial Class
Shares(4)............................ 0.58% 0.09% -- 0.67% 0.02% 0.65%
JANUS ASPEN SERIES(5)
Capital Appreciation -- Service
Shares(6)............................ 0.65% 0.04% 0.25% 0.94% -- 0.94%
International Growth -- Service
Shares(6)............................ 0.65% 0.11% 0.25% 1.01% -- 1.01%
AVERAGE.................................. 0.60% 0.25% -- 0.87% -- 0.73%
</TABLE>
(1) Certain expenses for portfolios of the Series Fund have been voluntarily
absorbed by Advantus Capital. The Series Fund other expense fees reflect the
actual expenses incurred by each portfolio unless the actual expenses exceed the
cap. The other expense fee is capped at 0.15 percent for all Series Fund
portfolios except the International Stock and Global Bond Portfolios, which are
capped at 1.00 percent. Any Series Fund other expenses incurred in excess of the
cap are voluntarily absorbed by Advantus Capital. If these portfolios had been
charged for expenses, the ratio of expenses to average daily net assets would
have been 1.18% for Maturing Government Bond 2010, 0.81% for Small Company
Value, 0.60% for Index 400 Mid-Cap, 0.78% for Micro-Cap Value, and 0.47% for
Micro-Cap Growth. The other expense fees shown are expected to decrease as the
amount of assets in the portfolios increases. This arrangement is described in
the Series Fund prospectus.
(2) The advisory fee for this portfolio is a variable fee decreasing with
increased asset size. This figure represents the actual 1999 average.
(3) A portion of the brokerage commissions that certain funds pay was used to
reduce fund expenses. In addition, through arrangements with certain funds', or
FMR on behalf of certain funds', custodian, credits realized as a result of
uninvested cash balances were used to reduce a portion of each applicable fund's
expenses. Without these reductions, the total operating expenses presented in
the table would have been .57% for Equity-Income Portfolio, and .67% for
Contrafund Portfolio. These arrangements are described in the VIP prospectuses.
(4) The advisory fee for each of these portfolios is calculated by adding a
group fee rate to an individual fund fee rate and multiplying the result by each
fund's or portfolio's average net assets. These figures represent the actual
1999 averages.
(5) Certain expenses for the Janus Aspen Series portfolios have been voluntarily
absorbed by Janus Capital. This arrangement is described in the Janus Aspen
Series - Service Shares prospectus.
(6) These portfolios have a distribution and service plan adopted in accordance
with Rule 12b-1 under the Investment Company Act of 1940. The distribution and
service plan allows for an annual fee of up to 0.25% of the average daily net
assets of the shares of the portfolio. Expenses are based on the estimated
expenses that the new Service Shares Class of each portfolio expects to incur in
its initial fiscal year. All expenses are shown without the effect of expense
offset arrangements.
Although the Maturing Government Bond Portfolio with a target maturity of
2002 is included in this prospectus, it is not available for premium allocations
or transfers. The investment advisory fee for this portfolio is .25 percent and
the other expense fee is .15 percent.
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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. Therefore, 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.
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. Any amounts received by the owner, such as
experience credits, 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.
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.
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CONDENSED FINANCIAL INFORMATION
The financial statements of Minnesota Life Insurance Company and of the
Minnesota Life Variable Universal Life Account sub-accounts that are available
to contracts offered under this prospectus may be found in this prospectus. No
financial information is shown for the following sub-accounts as they were not
available until after December 31, 1999: Janus Aspen Series Capital
Appreciation - Service Shares and Janus Aspen Series International Growth -
Service Shares.
The table below gives per unit information about each sub-account where the
mortality and expense risk charge amounts to .50 percent on an annual basis for
the periods indicated. This information should be read in conjunction with the
financial statements and related notes of Minnesota Life Variable Universal Life
Account (where the mortality and expense risk charge amounts to .50 percent on
an annual basis) included in this prospectus.
<TABLE>
<CAPTION>
1999 1998 1997 1996 1995
--------- --------- --------- ------- -------
<S> <C> <C> <C> <C> <C>
Growth Sub-Account(k):
Unit value at beginning of period... $2.29 $1.71 $1.29 $1.10 $1.00
Unit value at end of period......... $2.86 $2.29 $1.71 $1.29 $1.10
Number of units outstanding at end
of period........................ 419,544 366,983 297,099 10,583 5,717
Bond Sub-Account(k):
Unit value at beginning of period... $1.26 $1.19 $1.09 $1.07 $1.00
Unit value at end of period......... $1.22 $1.26 $1.19 $1.09 $1.07
Number of units outstanding at end
of period........................ 53,498 27,533 3,719 2,462 1,708
Money Market Sub-Account(k):
Unit value at beginning of period... $1.17 $1.12 $1.07 $1.03 $1.00
Unit value at end of period......... $1.22 $1.17 $1.12 $1.07 $1.03
Number of units outstanding at end
of period........................ 3,633 6,909 4,453 2,822 1,163
Asset Allocation Sub-Account(k):
Unit value at beginning of period... $1.81 $1.47 $1.24 $1.11 $1.00
Unit value at end of period......... $2.07 $1.81 $1.47 $1.24 $1.11
Number of units outstanding at end
of period........................ 174,020 192,826 187,443 5,376 2,487
Mortgage Securities Sub-Account(k):
Unit value at beginning of period... $1.27 $1.20 $1.10 $1.05 $1.00
Unit value at end of period......... $1.29 $1.27 $1.20 $1.10 $1.05
Number of units outstanding at end
of period........................ 87,428 44,278 1,743 1,353 1,116
Index 500 Sub-Account(k):
Unit value at beginning of period... $2.36 $1.86 $1.41 $1.16 $1.00
Unit value at end of period......... $2.83 $2.36 $1.86 $1.41 $1.16
Number of units outstanding at end
of period........................ 1,954,472 1,538,294 1,231,985 902,194 457,639
Capital Appreciation Sub-Account(k):
Unit value at beginning of period... $2.19 $1.68 $1.32 $1.13 $1.00
Unit value at end of period......... $2.65 $2.19 $1.68 $1.32 $1.13
Number of units outstanding at end
of period........................ 30,530 20,065 11,926 8,725 5,583
</TABLE>
8
<PAGE> 11
<TABLE>
<CAPTION>
1999 1998 1997 1996 1995
--------- --------- --------- ------- -------
<S> <C> <C> <C> <C> <C>
International Stock Sub-Account(k):
Unit value at beginning of period... $1.47 $1.39 $1.25 $1.05 $1.00
Unit value at end of period......... $1.78 $1.47 $1.39 $1.25 $1.05
Number of units outstanding at end
of period........................ 68,074 43,902 7,857 4,601 3,688
Small Company Growth Sub-Account(k):
Unit value at beginning of period... $1.38 $1.37 $1.28 $1.21 $1.00
Unit value at end of period......... $2.01 $1.38 $1.37 $1.28 $1.21
Number of units outstanding at end
of period........................ 65,093 61,821 64,545 41,743 34,825
Maturing Government Bond 2002
Sub-Account(k):
Unit value at beginning of period... $1.25 $1.14 $1.06 $1.00(a)
Unit value at end of period......... $1.24 $1.25 $1.14 $1.06
Number of units outstanding at end
of period........................ 1,000 1,000 1,000 1,000
Maturing Government Bond 2006
Sub-Account(k):
Unit value at beginning of period... $1.38 $1.21 $1.08 $1.00(a)
Unit value at end of period......... $1.26 $1.38 $1.21 $1.08
Number of units outstanding at end
of period........................ 1,000 1,000 1,000 1,000
Maturing Government Bond 2010
Sub-Account(k):
Unit value at beginning of period... $1.46 $1.29 $1.10 $1.00(a)
Unit value at end of period......... $1.29 $1.46 $1.29 $1.10
Number of units outstanding at end
of period........................ 2,286 1,317 1,012 1,000
Value Stock Sub-Account(k):
Unit value at beginning of period... $1.85 $1.83 $1.51 $1.16 $1.00
Unit value at end of period......... $1.84 $1.85 $1.83 $1.51 $1.16
Number of units outstanding at end
of period........................ 43,517 37,797 10,536 5,585 4,016
Small Company Value Sub-Account(k):
Unit value at beginning of period... $0.90 $1.00(b)
Unit value at end of period......... $0.86 $0.90
Number of units outstanding at end
of period........................ 29,122 16,611
Global Bond Sub-Account(k):
Unit value at beginning of period... $1.11 $1.00(b)
Unit value at end of period......... $1.02 $1.11
Number of units outstanding at end
of period........................ 693 1,536
Index 400 Mid-Cap Sub-Account(k):
Unit value at beginning of period... $1.05 $1.00(b)
Unit value at end of period......... $1.20 $1.05
Number of units outstanding at end
of period........................ 71,195 41,729
</TABLE>
9
<PAGE> 12
<TABLE>
<CAPTION>
1999 1998 1997 1996 1995
--------- --------- --------- ------- -------
<S> <C> <C> <C> <C> <C>
Macro-Cap Value Sub-Account(k):
Unit value at beginning of period... $1.10 $1.00(b)
Unit value at end of period......... $1.17 $1.10
Number of units outstanding at end
of period........................ 5,984 3,110
Micro-Cap Growth Sub-Account(k):
Unit value at beginning of period... $1.02 $1.00(b)
Unit value at end of period......... $2.53 $1.02
Number of units outstanding at end
of period........................ 33,252 12,020
Contrafund Sub-Account(l):
Unit value at beginning of period... $1.78 $1.37 $1.11 $1.00(a)
Unit value at end of period......... $2.20 $1.78 $1.37 $1.11
Number of units outstanding at end
of period........................ 58,764 45,878 31,208 30,361
High Income Sub-Account(l):
Unit value at beginning of period... $1.19 $1.25 $1.07 $1.00(a)
Unit value at end of period......... $1.28 $1.19 $1.25 $1.07
Number of units outstanding at end
of period........................ 51,158 39,421 31,854 29,956
Equity-Income Sub-Account(l):
Unit value at beginning of period... $1.51 $1.36 $1.06 $1.00(a)
Unit value at end of period......... $1.59 $1.51 $1.36 $1.06
Number of units outstanding at end
of period........................ 60,829 43,536 33,024 30,306
</TABLE>
The table below gives per unit information about each sub-account where the
mortality and expense risk charge is zero on an annual basis for the periods
indicated. This information should be read in conjunction with the financial
statements and related notes of Minnesota Life Variable Universal Life Account
(where the mortality and expense risk charge is zero on an annual basis)
included in this prospectus.
<TABLE>
<CAPTION>
1999 1998 1997
---------- ---------- ----------
<S> <C> <C> <C>
Growth Sub-Account(k):
Unit value at beginning of period............. $1.00(c)
Unit value at end of period................... $1.19
Number of units outstanding at end of
period..................................... 3,033,044
Money Market Sub-Account(k):
Unit value at beginning of period............. $1.03 $1.00(d)
Unit value at end of period................... $1.08 $1.03
Number of units outstanding at end of
period..................................... 37,663,704 41,948,958
Index 500 Sub-Account(k):
Unit value at beginning of period............. $1.50 $1.17 $1.00(e)
Unit value at end of period................... $1.80 $1.50 $1.17
Number of units outstanding at end of
period..................................... 1,371,057 1,029,398 27,829,987
Index 400 Mid-Cap Sub-Account(k):
Unit value at beginning of period............. $1.00(c)
Unit value at end of period................... $1.12
Number of units outstanding at end of
period..................................... 3,033,044
</TABLE>
The table below gives per unit information about each sub-account where the
mortality and expense risk charge amounts to .25 percent on an annual basis for
the period indicated. This information should be read in conjunction with the
10
<PAGE> 13
financial statements and related notes of Minnesota Life Variable Universal Life
Account (where the mortality and expense risk charge amounts to .25 percent on
an annual basis) included in this prospectus.
<TABLE>
<CAPTION>
1999 1998 1997
------- ------- -------
<S> <C> <C> <C>
Growth Sub-Account(k):
Unit value at beginning of period...................... $1.77 $1.31 $1.00(f)
Unit value at end of period............................ $2.21 $1.77 $1.31
Number of units outstanding at end of period........... 163,678 130,186 92,564
Bond Sub-Account(k):
Unit value at beginning of period...................... $1.16 $1.10 $1.00(f)
Unit value at end of period............................ $1.12 $1.16 $1.10
Number of units outstanding at end of period........... 83,616 72,918 48,295
Money Market Sub-Account(k):
Unit value at beginning of period...................... $1.09 $1.05 $1.00(f)
Unit value at end of period............................ $1.14 $1.09 $1.05
Number of units outstanding at end of period........... 143,702 257,062 95,600
Asset Allocation Sub-Account(k):
Unit value at beginning of period...................... $1.45 $1.18 $1.00(f)
Unit value at end of period............................ $1.66 $1.45 $1.18
Number of units outstanding at end of period........... 193,359 114,829 52,163
Mortgage Securities Sub-Account(k):
Unit value at beginning of period...................... $1.16 $1.09 $1.00(f)
Unit value at end of period............................ $1.18 $1.16 $1.09
Number of units outstanding at end of period........... 5,664 2,405 10,899
Index 500 Sub-Account(k):
Unit value at beginning of period...................... $1.62 $1.27 $1.00(g)
Unit value at end of period............................ $1.94 $1.62 $1.27
Number of units outstanding at end of period........... 567,236 375,754 236,786
Capital Appreciation Sub-Account(k):
Unit value at beginning of period...................... $1.66 $1.27 $1.00(f)
Unit value at end of period............................ $2.01 $1.66 $1.27
Number of units outstanding at end of period........... 117,340 76,078 73,554
International Stock Sub-Account(k):
Unit value at beginning of period...................... $1.18 $1.11 $1.00(f)
Unit value at end of period............................ $1.43 $1.18 $1.11
Number of units outstanding at end of period........... 134,651 98,077 55,984
Small Company Growth Sub-Account(k):
Unit value at beginning of period...................... $1.10 $1.09 $1.00(g)
Unit value at end of period............................ $1.59 $1.10 $1.09
Number of units outstanding at end of period........... 158,245 134,879 91,750
Maturing Government Bond 2002 Sub-Account(k):
Unit value at beginning of period...................... $1.20 $1.10 $1.00(h)
Unit value at end of period............................ $1.19 $1.20 $1.10
Number of units outstanding at end of period........... 4 5 19,858
Maturing Government Bond 2010 Sub-Account(k):
Unit value at beginning of period...................... $1.12 $1.00(i)
Unit value at end of period............................ $0.98 $1.12
Number of units outstanding at end of period........... 1,536 1,433
Value Stock Sub-Account(k):
Unit value at beginning of period...................... $1.18 $1.16 $1.00(g)
Unit value at end of period............................ $1.18 $1.18 $1.16
Number of units outstanding at end of period........... 75,509 57,226 43,594
</TABLE>
11
<PAGE> 14
<TABLE>
<CAPTION>
1999 1998 1997
------- ------- -------
<S> <C> <C> <C>
Small Company Value Sub-Account(k):
Unit value at beginning of period...................... $0.96 $1.00(i)
Unit value at end of period............................ $0.93 $0.96
Number of units outstanding at end of period........... 12,947 6,152
Global Bond Sub-Account(k):
Unit value at beginning of period...................... $1.14 $1.00(i)
Unit value at end of period............................ $1.05 $1.14
Number of units outstanding at end of period........... 1,075 201
Index 400 Mid-Cap Sub-Account(k):
Unit value at beginning of period...................... $1.19 $1.00(i)
Unit value at end of period............................ $1.37 $1.19
Number of units outstanding at end of period........... 42,217 20,595
Macro-Cap Value Sub-Account(k):
Unit value at beginning of period...................... $1.00(j)
Unit value at end of period............................ $1.04
Number of units outstanding at end of period........... 29
Micro-Cap Growth Sub-Account(k):
Unit value at beginning of period...................... $1.07 $1.00(i)
Unit value at end of period............................ $2.65 $1.07
Number of units outstanding at end of period........... 31,187 22,912
Contrafund Sub-Account(l):
Unit value at beginning of period...................... $1.57 $1.21 $1.00(f)
Unit value at end of period............................ $1.95 $1.57 $1.21
Number of units outstanding at end of period........... 159,230 121,035 81,894
High Income Sub-Account(l):
Unit value at beginning of period...................... $1.11 $1.16 $1.00(f)
Unit value at end of period............................ $1.20 $1.11 $1.16
Number of units outstanding at end of period........... 80,294 30,421 23,732
Equity-Income Sub-Account(l):
Unit value at beginning of period...................... $1.39 $1.25 $1.00(f)
Unit value at end of period............................ $1.47 $1.39 $1.25
Number of units outstanding at end of period........... 212,788 188,227 156,865
</TABLE>
- ------------
(a) Period from May 1, 1996 to December 31, 1996.
(b) Period from May 1, 1998, commencement of operations, to December 31, 1998.
(c) Period from September 2, 1999, commencement of operations, to December 31,
1999.
(d) Period from May 29, 1998, commencement of operations, to December 31, 1998.
(e) Period from June 24, 1997, commencement of operations, to December 31, 1997.
(f) Period from January 29, 1997, commencement of operations, to December 31,
1997.
(g) Period from January 24, 1997, commencement of operations, to December 31,
1997.
(h) Period from April 2, 1997, commencement of operations, to December 31, 1997.
(i) Period from January 22, 1998, commencement of operations, to December 31,
1998.
(j) Period from May 24, 1999, commencement of operations, to December 31, 1999.
(k) Invests in the corresponding portfolio of the Series Fund.
(l) Invests in the corresponding portfolio of VIP.
12
<PAGE> 15
GENERAL DESCRIPTIONS
MINNESOTA LIFE INSURANCE COMPANY
We are Minnesota Life Insurance Company ("Minnesota Life"), a life
insurance company organized under the laws of Minnesota. Minnesota Life was
formerly known as The Minnesota Mutual Life Insurance Company ("Minnesota
Mutual"), a mutual life insurance company organized in 1880 under the laws of
Minnesota. On October 1, 1998, a plan of reorganization created a mutual
insurance holding company named Minnesota Mutual Companies, Inc. Minnesota
Mutual reorganized as a stock insurance company subsidiary of the new holding
company and took the new name Minnesota Life. Our home office is at 400 Robert
Street North, St. Paul, Minnesota 55101-2098, telephone: (651) 665-3500. We are
licensed to do a life insurance business in all states of the United States
(except New York where we are an authorized reinsurer), the District of
Columbia, Canada, Puerto Rico and Guam.
VARIABLE UNIVERSAL LIFE ACCOUNT
On August 8, 1994, the separate account was established in accordance with
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. 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 Life and thus our general assets back
the policies. The Minnesota law under which the separate account was 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 has 21 sub-accounts which are available under the
contracts offered by this prospectus. Each sub-account invests in shares of a
corresponding portfolio of the Funds. Not all of the portfolios of the Funds may
be available for investment by the separate account. Although the Maturing
Government Bond Portfolio with a maturity of 2002 is included in this
prospectus, it is not available for premium allocations or transfers.
The separate account currently invests in the Advantus Series Fund, Inc.,
Fidelity's Variable Insurance Products Funds and Janus Aspen Series.
ADVANTUS SERIES FUND, INC. 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 (except for Global Bond
Portfolio which is operated as a non-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.
Currently, 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. The Series Fund may be used in the future as the
underlying investment medium for separate accounts of the Northstar Life
Insurance Company, our wholly-owned life insurance subsidiary domiciled in the
state of New York. Shares of the Series Fund are sold and redeemed at net asset
value.
The Series Fund's investment adviser is Advantus Capital Management, Inc.
("Advantus Capital"). It acts as an investment adviser to the Series Fund
pursuant to an advisory agreement. Advantus Capital is a wholly-owned subsidiary
of Minnesota Life.
13
<PAGE> 16
While Advantus Capital 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. Advantus Capital has entered into a
sub-advisory agreement with Credit Suisse Asset Management, L.L.C. ("Credit
Suisse") with primary offices in New York, New York under which Credit Suisse
provides advisory services to the Small Company Growth Portfolio. Advantus
Capital has entered into a sub-advisory agreement with State Street Research &
Management Company ("State Street Research"), with primary offices in Boston,
Massachusetts under which State Street Research provides advisory services to
the Small Company Value Portfolio. Advantus Capital has entered into a
sub-advisory agreement with Julius Baer Investment Management Inc. ("Julius
Baer"), a Delaware corporation with primary offices in New York, New York, under
which Julius Baer provides advisory services to the Global Bond Portfolio.
Advantus Capital has entered into a sub-advisory agreement with J.P. Morgan
Investment Management Inc. ("Morgan Investment"), a Delaware corporation with
primary offices in New York, New York, under which Morgan Investment provides
advisory services to the Macro-Cap Value Portfolio. Advantus Capital has entered
into a sub-advisory agreement with Wall Street Associates ("Wall Street"), a
California corporation with primary offices in La Jolla, California, under which
Wall Street provides advisory services to the Micro-Cap Growth Portfolio.
The Series Fund currently has nineteen investment portfolios, sixteen of
which are available to policy owners for the allocation of premiums or for
transfers. 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 effect 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
accompanying Advantus Series Fund, Inc. 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 three portfolios which are available to the Variable Universal Life Account.
They are Equity-Income Portfolio, High Income Portfolio and Contrafund
Portfolio. There is no guaranteed minimum value associated with the separate
account and its sub-accounts. VIP issues its initial class 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.
The investment adviser of VIP 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. Fidelity Management & Research ("U.K.") Inc., in
London, England serves as a sub-adviser for Contrafund and High Income. Fidelity
Management Research Far East, Inc., in Tokyo, Japan serves as a sub-adviser for
Contrafund and High Income. Fidelity Investments Japan Limited ("FIJ"), in
Tokyo, Japan, serves as a sub-adviser for Contrafund and High Income. Currently,
FIJ provides investment research and advice on issuers based outside the United
States for each fund.
The assets of each portfolio are separate from the others and each has
different investment objectives and policies. Therefore, each portfolio operates
as a separate investment fund and the investment performance of one has no
effect on the investment performance of any other portfolio. All dividends and
capital gains distributions from each portfolio are automatically reinvested in
shares of that portfolio at net asset value.
14
<PAGE> 17
For more information about VIP and the portfolios, see the prospectuses for
Fidelity's Variable Insurance Products Funds.
JANUS ASPEN SERIES
The policy also provides for sub-accounts of the Variable Universal Life
Account which invests in shares of other registered investment companies. Janus
Aspen Series has two portfolios which are available to the Variable Universal
Life Account. They are the Capital Appreciation Portfolio - Service Shares, and
International Growth Portfolio - Service Shares. There is no guaranteed minimum
value associated with the separate account and its sub-accounts. Janus Aspen
Series issues its 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 Janus Aspen Series, as well as to
certain qualified retirement plans.
Janus Capital, 100 Fillmore Street, Denver, Colorado 80206-4928 is the
investment adviser to each of the portfolios and is responsible for the
day-to-day management of the investment portfolios and other business affairs of
the portfolios.
The assets of each portfolio are separate from the others and each has
different investment objectives and policies. Therefore, each portfolio operates
as a separate investment fund and the investment performance of one has no
effect on the investment performance of any other portfolio. All dividends and
capital gains distributions from each portfolio are automatically reinvested in
shares of that portfolio at net asset value. For more information about Janus
Aspen Series and its portfolios, see the prospectuses for Janus Aspen Series.
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 are sold to other life insurance companies' separate accounts for the
purpose of funding other variable annuity and variable life insurance contracts.
Shares of the portfolios of Janus Aspen Series are sold to other life
insurance companies' separate accounts for the purpose of funding variable life
contracts and variable annuity contracts, and are also available under certain
qualified retirement plans.
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.
15
<PAGE> 18
THE GUARANTEED ACCOUNT
The owner may allocate net premiums and may transfer net cash values in the
policy, subject to the limitations in the policy and this prospectus, to our
guaranteed account.
Because of exemptive and exclusionary provisions, interests in Minnesota
Life'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 Life 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 Life's general account consists of all assets
owned by Minnesota Life 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 Life, 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 Life 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. Amounts allocated to or transferred to the guaranteed account 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 are subject
to certain limitations with respect to timing and amount. These restrictions are
described under the heading "Transfers."
GUARANTEED ACCOUNT VALUE Minnesota Life 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 the minimum guaranteed annual rate without regard to the actual
investment experience of the guaranteed account. For group-sponsored programs
implemented prior to May 3, 1999, the minimum guaranteed annual rate is 4
percent. For group-sponsored programs implemented on or after May 3, 1999, the
minimum guaranteed annual rate is 3 percent. 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.
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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 specifications
page. 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 Life 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 an 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.
Premiums paid after the initial premium may be in any amount. 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 specifications page 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.
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 policy 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.") The
owner's insurance can 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 policy. (See
"Continuation of Group Coverage.")
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.") 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
17
<PAGE> 20
policy, whether it will result in the owner's 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 and/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 guaranteed
account on the application for the policy. The owner may change the allocation
instructions for future premiums by giving us a request in writing or through
any other method made available by us under the group-sponsored insurance
program. 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.
For group-sponsored insurance programs where the contractholder owns all
the policies and in certain other circumstances (for example, for split-dollar
insurance programs), we will delay the allocation of net premiums to
sub-accounts for a period of ten days after policy issue or policy change to
reduce market risk during the "free look" period. Net premiums will be allocated
to the Series Fund Money Market sub-account until the end of the period. We
reserve the right to similarly delay the allocation of net premiums to sub-
accounts for other group-sponsored insurance programs for a period of ten days
after policy issue or policy change. This right will be exercised by us only
when we believe economic conditions make it 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 the period.
We reserve the right to restrict the allocation of net premiums to the
guaranteed account for policies under some group-sponsored programs. For these
policies, the maximum allocation of net premiums to the guaranteed account will
range from 0 percent to 50 percent.
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.
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<PAGE> 21
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.
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 specifications page 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 life insurance 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.
The Cash Value Accumulation Test requires that the death benefit must be
greater than the account value times a specified percentage. The Guideline
Premium/Cash Value Corridor Test limits the amount of premiums which may be paid
given the current death benefit of the policy in addition to requiring that the
death benefit must be greater than the account value times a specified
percentage. Each policy will be tested at the end of each month for compliance
to the test chosen for that policy. Under either test, if the death benefit is
not greater than the applicable percentage of the account value, or for the
Guideline Premium/ Cash Value Corridor Test, the premiums paid exceed the limit
for the current death benefit, we will increase the face amount or return
premium with interest to maintain compliance with IRC Section 7702.
For the Cash Value Accumulation Test, the applicable percentage by which to
multiply the account value to determine the minimum death benefit requirement
varies by the age and underwriting class of the insured. The following table
contains illustrative
19
<PAGE> 22
applicable percentages for this test for the non-tobacco underwriting class:
<TABLE>
<CAPTION>
ATTAINED APPLICABLE
AGE PERCENTAGE
- -------- ----------
<S> <C>
35 441%
45 316
55 231
65 175
75 140
</TABLE>
For the Guideline Premium/Cash Value Corridor Test, the applicable
percentage by which to multiply the account value to determine the minimum death
benefit requirement varies only by the age of the insured. The following table
contains the applicable percentages for the account value portion of this test:
<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 premium limit under the Guideline Premium/Cash Value Corridor Test
varies by the amount of the death benefit, the policy year, age and underwriting
class of the insured as well as the charges under policy. You may call us at
(800) 843-8358, during our normal business hours of 8:00 a.m. to 4:45 p.m.,
Central time, if you would like us to calculate the maximum premium you may pay
under your policy for this test. If you pay up to the maximum premium amount
your policy may be qualified as a modified endowment contract. (See "Federal Tax
Status.")
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 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.")
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."
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.")
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"), 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
20
<PAGE> 23
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.")
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.") 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 the minimum guaranteed rate, compounded annually, or
the minimum rate required by state law. For group-sponsored programs implemented
prior to May 3, 1999, the minimum guaranteed annual rate is 4 percent. For
group-sponsored programs implemented on or after May 3, 1999, the minimum
guaranteed annual rate is 3 percent.
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.")
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 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, by facsimile transmission or any other method made
available by us under the group-sponsored insurance program. More information on
the procedures to make requests by telephone or other electronic means is
provided under the heading "Transfers".
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, experience credits (see "General
Matters Relating to the Policy" for a detailed discussion), 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 the
minimum
21
<PAGE> 24
guaranteed annual rate, compounded annually. For group-sponsored programs
implemented prior to May 3, 1999, the minimum guaranteed annual rate is 4
percent. For group-sponsored programs implemented on or after May 3, 1999, the
minimum guaranteed annual rate is 3 percent. We guarantee the 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 separate
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,
experience credits and transfers to that sub-account. The number of additional
units credited is determined by dividing the net premiums, policy experience
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 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 specifications page 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
22
<PAGE> 25
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.
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, or 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 A, "Illustrations of
Account Values and Death Benefits."
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.")
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. Loans may be
requested in writing, by telephone, by facsimile transmission or any other
method made available by us under the group-sponsored insurance program. More
information on the procedures to make requests by telephone or other electronic
means is provided under the heading "Transfers".
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 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 and if the net cash value is insufficient
to cover the monthly deduction and the loan repayment, 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
23
<PAGE> 26
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 B, "Policy
Loan Example."
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
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 be applied on a settlement option. A
surrender or partial surrender may have federal income tax consequences. (See
"Federal Tax Status.")
A partial surrender of the net cash value of the policy is also permitted
in any amount equal to at least the minimum established for policies under the
group-sponsored insurance program. The minimum will never exceed $500. The
maximum partial surrender is equal to an amount that would cause the net cash
value after the partial surrender to be 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
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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 for policies under some group-sponsored
insurance programs. The amount of the charge will never exceed 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 available
sub-accounts of the separate account. Transfers may be requested in writing, by
telephone or through any other method made available by us under the
group-sponsored insurance program.
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.
There are additional restrictions to transfers involving the guaranteed
account. The following restrictions apply to group-sponsored insurance programs
where the guaranteed account is available for premium allocations, to
group-sponsored insurance programs where the contractholder owns all the
policies and in certain other circumstances (for example, for split-dollar
insurance programs). The maximum amount of net cash value to be transferred out
of the guaranteed account to the sub-accounts is limited to 20 percent (or $250
if greater) of the guaranteed account balance. Transfers to or from the
guaranteed account are 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.
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 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 approved at our home office.
From time to time the separate account may receive a transfer request that
Minnesota Life regards as disruptive to the efficient management of the
sub-accounts of the separate account. This could be because of the timing of the
request and the availability of settlement proceeds in federal funds in the
underlying portfolio of the fund, the size of the transfer amount involved or
the trading history of the investor.
A transfer or exchange from one sub-account to another is generally treated
as a simultaneous sale of units currently held and the purchase of units where a
new investment is desired. In the event that cumulative redemptions from a
sub-account on a given day equal or exceed $5,000,000, and if the investment
adviser of the underlying portfolio of the fund determines that selling
securities to satisfy the redemptions could be harmful to the fund, some
requested transfers or exchanges may be denied. In addition, any transfer
request or requests affecting a particular sub-account
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which, individually or collectively with other transfer requests submitted by
the owner of multiple individual policies or by the owners of certificates under
a single group contract for that sub-account on a given day, equal or exceed
$5,000,000 may be denied unless all such transfer requests are received by 12:00
p.m. Central time. In these events, the order of such redemptions from the fund
will be as follows: all automatic exchanges (for example, dollar cost
averaging), written transfer and exchange requests, faxed transfer and exchange
requests, and electronic transfer and exchange requests (including telephone
requests). Transfer and exchange requests will be processed in the order of
receipt within their respective category. In no event will there be any
limitation on redemptions in connection with surrenders, partial surrenders or
loans. The owner will be notified when these limitations are imposed on a
transfer request.
In the event of disruptive circumstances which don't result in the denial
of a request as outlined above, the size or timing of the transfer may make it
impossible for the exchange to occur on the same day. In that event, the request
for exchange will be treated as a request for a transfer of units on the date of
the receipt of the request. The price of the new units will also be calculated
on that day and that determination will be used as the basis for determining the
number of units outstanding in the sub-account. However, the transfer of the
redemption proceeds and the purchase of units, and shares in the new portfolio,
will be accomplished only when federal funds are received from the sale to allow
the purchase and sale without disruption. Should the transfer not be completed
because of non-payment, Minnesota Life will reimburse the separate account for
any decline in the price of the units to the time of the cancellation.
Similarly, any fees or disbursements resulting from any legal action because of
the non-payment will similarly be the liability of Minnesota Life. The owner
will be notified when this limitation is imposed on a transfer request.
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 (651) 665-4827. We may make other electronic transfer
capabilities available to policy owners under some group-sponsored programs. 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 electronic transactions through
policy numbers or such other information as we may deem to be reasonable. We
record electronic transfer instructions and we provide the policy owners with a
written confirmation of the electronic transfers.
Transfers made pursuant to a telephone call or other electronic means are
subject to the same conditions and procedures as would apply to written transfer
requests. During periods of marked economic or market changes, owners may
experience difficulty in implementing a telephone or other electronic transfer
due to a heavy volume of network usage. In such a circumstance, owners should
consider submitting a written transfer request while continuing to attempt an
electronic redemption. We reserve the right to restrict the frequency of - or
otherwise modify, condition, terminate or impose charges upon - electronic
transfer privileges. For more information on electronic transfers, contact us.
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 Series Fund Money
Market sub-account
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to any of the other sub-accounts. There is no charge for this option. 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
Series Fund Money Market sub-account. The automatic transfer amount from the
Series Fund 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. 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
Series Fund 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 giving us a request in writing or through any other method made
available by us under the group-sponsored insurance program. The amount from
which transfers were being made will remain in the Series Fund 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.
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 specifications
page 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
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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 the required minimum in his or her net cash value
after deduction of charges for the month in which eligibility ends. The
required minimum will vary based on the group-sponsored program under which
the policy is issued. The minimum will never be higher than $250.
The insurance amount will not change unless the owner requests a change. We
reserve the right to alter all charges not to exceed the maximums. These charges
may be higher than those applicable to policies under the group contract that
have not been continued under this provision.
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. Charges will vary based on the
group-sponsored insurance program under which the policy is issued. We will
determine charges pursuant to our established actuarial procedures, and in doing
so we will not discriminate unreasonably or unfairly against any person or class
of persons. These charges for policies under a group-sponsored insurance program
are shown on the specifications page of the policy. There are also advisory fees
and expenses which are assessed against the asset value of each of the
portfolios of the Funds.
PREMIUM EXPENSE CHARGES
The premium expense charges described below will be deducted from each
premium payment we receive. The remaining amount, or net premium, will be
allocated to the guaranteed account and/or sub-accounts of the separate account,
as directed by the owner, and become part of the policy's net cash value.
SALES CHARGE We may deduct a sales charge from each premium paid under the
policy. Sales charges vary based on the group-sponsored insurance program under
which the policy is issued. The charge will never exceed 5 percent of each
premium paid. The sales charge will be determined based on a variety of factors,
including enrollment procedures, the size and type of the group, the total
amount of premium payments to be received, any prior existing relationship with
the group sponsor, the level of commissions paid to agents and brokers and their
affiliated broker-dealers, and other circumstances of which we are not presently
aware. We may waive the sales charge for premiums received as a result of
Internal Revenue Code section 1035 exchanges from another policy. In addition,
we may waive the sales charge for premiums paid by designated payors under a
group-sponsored insurance program (for example, insureds versus the group
sponsor).
The amount of the sales charge 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 charge, 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.
PREMIUM TAX CHARGE We will deduct a percentage of premium charge, not to exceed
4 percent of each premium received for premium taxes. Premium tax charges vary
based on the group-sponsored insurance program under which the policy is issued.
This charge is to compensate us for our payment of premium taxes that are
imposed by various states and local jurisdictions. The
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state and/or jurisdiction in which a policy is issued may impose taxes that are
higher or lower than the charge deducted under the policy. Accordingly, the
charge for the policy may be higher or lower than the premium taxes actually
imposed on the policy. We may waive the premium tax charge for premiums received
as a result of Internal Revenue Code section 1035 exchanges from another 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 against each
premium payment to compensate us for the additional corporate taxes we pay for
these policies. For group-sponsored programs implemented prior to April 1, 2000,
the charge will not exceed 0.25 percent of premium. For group-sponsored programs
implemented on or after April 1, 2000, the charge will not exceed 0.35 percent
of premium. 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 up to 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. We may waive the federal tax charge for
premiums received as a result of Internal Revenue Code section 1035 exchanges
from another policy.
ACCOUNT VALUE CHARGES
The premium expense charges described above will be deducted from each
premium payment we receive. The remaining amount, or net premium, will be
allocated to the guaranteed account and/or sub-accounts of the separate account,
as directed by the owner, and become part of the policy's net cash value. The
account value charges described below will be deducted from the net cash value.
If the net cash value is insufficient to cover the account value charges, the
policy will lapse unless sufficient payment is received within the grace period.
MONTHLY DEDUCTION The charges deducted as part of the monthly deduction vary
based on the group-sponsored insurance program under which the policy is issued.
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 will
be the sum of the applicable items: (1) an administration charge; (2) a 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.
We may deduct an ADMINISTRATION CHARGE from the net cash value of the
policy each month. The administration charge will never exceed $4 per month.
This charge is to compensate us for expenses incurred in the administration of
the policies. These expenses include the costs of processing enrollments,
determining insurability, and establishing and maintaining policy records.
Differences in the administration charge applicable to specific group-sponsored
insurance programs will be determined based on expected differences in the
administrative costs for the policies or in the amount of revenues that we
expect to derive from the charge. Such differences may result, for example, from
the number of eligible members in the group, the type and scope of
administrative support provided by the group sponsor, the expected average
policy size, and the features to be included in policies under the
group-sponsored insurance program. This charge is not designed to produce a
profit.
The monthly COST OF INSURANCE will be calculated by multiplying the
applicable cost of insurance rate based on the insured's attained age and rate
class by the net
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<PAGE> 32
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 face amount of the policy or by
changes in the account value.
The cost of insurance rates are generally determined at the beginning of
each policy year, although changes may be made at other times if warranted due
to a change in the underlying characteristics of the group, changes in benefits
included in policies under the group-sponsored insurance program, experience of
the group, changes in the expense structure, or a combination of these factors.
Cost of insurance rates for each group-sponsored insurance program are
determined based on a variety of factors related to group mortality including
gender mix, average amount of insurance, age distribution, occupations,
industry, geographic location, participation, level of medical underwriting
required, degree of stability in the charges sought by the group sponsor, prior
mortality experience of the group, number of actual or anticipated owners
electing the continuation option, and other factors which may affect expected
mortality experience. In addition, cost of insurance rates may be intended to
cover expenses to the extent they are not covered by the other policy charges.
Changes in the current cost of insurance rates may be made based on any factor
which affects the actual or expected mortality or expenses of the group.
Any changes in the current cost of insurance rates will apply to all
persons of the same attained age and rate class under the group-sponsored
insurance program. We and the group sponsor will agree to the number of classes
and characteristics of each rate class. The classes may vary by tobacco users
and non-tobacco users, active and retired status, owners of coverage continued
under the continuation provision and other owners, and/or any other
nondiscriminatory classes agreed to by the group sponsor.
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 1980 Commissioners
Standard Ordinary Mortality Tables ("1980 CSO Table"). The guaranteed rates are
higher than 100 percent of the 1980 CSO Table because we may use a simplified
underwriting approach and may issue policies that do not require medical
evidence of insurability. The current cost of insurance rates are generally
lower than 100 percent of the 1980 CSO Table. (For purposes of 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 For policies under some group-sponsored
insurance programs, 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 charge will not exceed 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.
TRANSFER CHARGE There is currently no charge assessed on transfers of net cash
value between the guaranteed account and the separate account or among the sub-
accounts of the separate account. A charge, not to exceed $10 per transfer, may
be imposed in the future.
SEPARATE ACCOUNT CHARGES
We assess a MORTALITY AND EXPENSE RISK CHARGE directly against the separate
account assets. This charge will vary based on the group-sponsored insurance
program under which the policy is issued. The annual rate will not exceed .50
percent of the average daily assets of the separate account. The mortality and
expense risk charge compensates us for assuming the risk that the cost of
insurance and other charges will be insufficient to cover the actual mortality
experience and other costs in connection with the policies.
Differences in the mortality and expense risk charge rates applicable to
different group-sponsored insurance programs will be determined by us based on
differences in the levels of mortality and expense risk under those contracts.
Differences in mortality and expense risk arise principally from the fact that:
(1) the factors used to determine cost of insurance and administration charges
are
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more uncertain for some group-sponsored insurance programs than for others; and
(2) our ability to recover any unexpected mortality and administration costs
will also vary from group-sponsored insurance program to group-sponsored
insurance program, depending on the charges established for policies issued
under the group-sponsored insurance program, and on other financial factors.
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.
FUND CHARGES
Shares of the Funds are purchased for the separate account at their net
asset value, which reflects advisory fees (also known as management fees) and
expenses which are assessed against the net asset value of each of the
portfolios of the Funds.
Advantus Capital Management, Inc. ("Advantus Capital"), acts as the
investment adviser to the Series Fund. Advantus Capital is a wholly-owned
subsidiary of Minnesota Life. For more information about the Series Fund, see
the prospectus of Advantus Series Fund, Inc. which accompanies this prospectus.
The Fidelity Management and Research Company (FMR), a subsidiary of FMR
Corp., is adviser to VIP. For more information about VIP, see the prospectuses
of the Variable Insurance Products Funds which accompany this prospectus.
Janus Capital is adviser to Janus Aspen Series. For more information, see
the prospectuses of the Janus Aspen Series which accompanies this prospectus.
GUARANTEE OF CERTAIN CHARGES
We guarantee and will not increase the following charges for policies under
a group-sponsored insurance program: (1) the maximum sales charge; (2) the
maximum premium tax charge; (3) the federal tax charge (unless there is a change
in the law regarding the federal income tax treatment of deferred acquisition
cost); (4) the maximum cost of insurance charge; (5) the maximum administration
charge; (6) the maximum partial surrender transaction charge; (7) the maximum
transfer charge; and (8) the maximum separate account charge for mortality and
expense risk.
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. New benefit
riders which are subsequently developed may be offered under some
group-sponsored programs, and the terms of the riders will be identified in the
policy. The cost of any additional insurance benefits will be deducted as part
of the monthly deduction.
ACCELERATED BENEFITS AGREEMENT Provides for the accelerated payment of all or a
portion of the death benefit proceeds if the insured is terminally ill, subject
to the minimums and maximums specified in the agreement. Eligibility
requirements and conditions for payment of accelerated benefits are also
described in the agreement. The amount of accelerated benefits payable is
calculated by multiplying the death benefit by an accelerated benefit factor
defined in the Agreement. Accelerated benefits will be paid to the owner unless
the owner validly assigns them otherwise. The receipt of benefits under the
agreement may have tax consequences and the owner should seek assistance from a
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 specified
in the rider.
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
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all other causes. The death or dismemberment must occur within the timeframes
specified in the rider.
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 owner of 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 owner of 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 for a policy with an Option B death benefit, for which
the account value portion of the death benefit is determined as of the date of
payment, 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 loan payment for
more than 31 days, we will pay the owner interest for the period that payment is
postponed at the greater of the minimum guaranteed annual rate or the minimum
rate required by state law. For group-sponsored programs implemented prior to
May 3, 1999, the minimum guaranteed annual rate is 4 percent. For
group-sponsored programs implemented on or after May 3, 1999, the minimum
guaranteed annual rate is 3 percent. 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, Secretary or an Assistant Secretary of Minnesota
Life. 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.
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
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<PAGE> 35
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 the minimum guaranteed rate, compounded
annually, or the minimum rate required by state law. For group-sponsored
programs implemented prior to May 3, 1999, the minimum guaranteed annual rate is
4 percent. For group-sponsored programs implemented on or after May 3, 1999, the
minimum guaranteed annual rate is 3 percent. 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 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
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<PAGE> 36
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 will
never be less than the minimum guaranteed annual rate, compounded annually, or
the minimum rate required by state law. For group-sponsored programs implemented
prior to May 3, 1999, the minimum guaranteed annual rate is 4 percent. For
group-sponsored programs implemented on or after May 3, 1999, the minimum
guaranteed annual rate is 3 percent. 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. We may elect to waive our right to
contest the insurance for any loss that is incurred within two years after the
policy issue date where the policy replaces existing coverage.
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
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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.
The interest rates used are the rates that were used in accumulating
guaranteed account values for that time period.
EXPERIENCE CREDITS Each year we will determine if this policy will receive an
experience credit. Experience credits, if received, may be added to the owner's
account value or, if the owner elects, they may be paid in cash. Experience
credits will vary based on the group-sponsored insurance program under which the
policy is issued. We will determine experience credits pursuant to our
established actuarial procedures. We do not expect any experience credits will
be declared.
An experience credit applied to the 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 such instructions, experience credits 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 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 Life at our home office.
TERMINATION The contractholder may terminate a 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. We may
elect to limit the situations in which we may exercise our right to terminate
the group contract to situations where, in the absence of fraud or the
non-payment of premiums, during any twelve month period, the aggregate specified
face amount for all policies under the group contract or the number of policies
under a group contract decrease by certain amounts or below the minimum
permissible levels we establish for the group contract. 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."
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
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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.
OTHER MATTERS
FEDERAL TAX STATUS
The discussion of federal income taxes is general in nature and is not
intended as tax advice. Each person concerned should consult a tax adviser. We
have not attempted to consider any applicable state or other tax laws. 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 "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.
Under Section 7702 of the Code, life insurance contracts such as the
policies will be treated as life insurance if certain tests are met. There is
limited guidance on how these tests are to be applied is limited.
However, the IRS 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.
In certain circumstances, owners of variable life insurance contracts have
been considered for federal income tax purposes to be the owners of the assets
of the separate account supporting their contracts due to their ability to
exercise control over those assets. Where this is the case, the contract owners
have been currently taxed on income and gains attributable to the separate
account assets. There is little guidance in this area, and some features of the
policies, such as the flexibility to allocate premiums and policy account
values, have not been explicitly addressed in published rulings. While we
believe that the policy does not give you investment control over the separate
account assets, we reserve the right to modify the policy as necessary to
prevent you from being treated as the owner of the separate account assets
supporting the policy.
In addition, the Code requires that the investments of the Variable
Universal Life Account be "adequately diversified" in order to treat the policy
as a life insurance contract for federal income tax purposes. We intend that the
Variable Universal Life Account, through the Funds and the portfolios, will
satisfy these diversification requirements.
The following discussion assumes that the policy will qualify as a life
insurance contract for federal income tax purposes.
On the death of the insured, the death benefit provided by the policies
will be excludable from the gross income of the beneficiary under Section 101(a)
of the Code. The owner is not currently taxed on any part
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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 so long as your policy is not a modified endowment contract as
described below. 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 not
available for policies characterized as a modified endowment contract. In
general, policies with high premium in relation to the death benefit may be
considered modified endowment contracts. The Code requires that 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 those cumulative premiums 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 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. Certain reductions in benefits may also cause a
policy to become a modified endowment contract.
Due to the policy's flexibility, classification of a policy as a modified
endowment contract will depend upon the circumstances of each policy.
Accordingly, a prospective policy owner should contact a tax adviser before
purchasing a policy to determine the circumstances under which the policy would
be a modified endowment contract. An owner should contact a 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
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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. A life
insurance policy received in exchange for a modified endowment contract will
also be treated as a modified endowment contract.
Generally, interest paid on any loan under a life insurance contract is not
deductible. An owner should consult a competent tax adviser before deducting any
loan interest. In addition, default of any loan under the policy may result in
taxable income and/or tax penalties.
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 tax adviser
regarding the tax attributes of the particular arrangement. Moreover, in recent
years, Congress has adopted new rules relating to corporate owned life
insurance. Any business contemplating the purchase of a new life insurance
contract or a change in an existing contract should consult a tax adviser.
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 Code, with varying effective dates, and regulations adopted thereunder
may also alter the tax consequences of specific factual situations. Due to the
complexity of the applicable laws, any person contemplating the purchase of a
variable life insurance policy or exercising elections under such a policy may
want to consult a tax adviser.
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.
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DIRECTORS AND PRINCIPAL OFFICERS OF MINNESOTA LIFE
<TABLE>
<CAPTION>
Directors Principal Occupation
--------- --------------------
<S> <C>
Anthony L. Andersen Chair-Board of Directors, H. B. Fuller Company, St. Paul,
Minnesota (Adhesive Products) since June 1995, prior thereto
for more than five years President and Chief Executive
Officer, H. B. Fuller Company
Leslie S. Biller Vice Chairman and Chief Operating Officer, Wells Fargo &
Company, San Francisco, California (Banking)
John F. Grundhofer President, Chairman and Chief Executive Officer, U.S.
Bancorp, Minneapolis, Minnesota (Banking)
Robert E. Hunstad Executive Vice President, Minnesota Life Insurance Company
Dennis E. Prohofsky Senior Vice President, General Counsel and Secretary,
Minnesota Life Insurance Company
Robert L. Senkler Chairman of the Board, President and Chief Executive
Officer, Minnesota Life Insurance Company since August 1995;
prior thereto for more than five years Vice President and
Actuary, Minnesota Life Insurance Company
Michael E. Shannon Retired since December 1999, prior thereto for more than
five years Chairman, Chief Financial and Administrative
Officer, Ecolab Inc., St. Paul, Minnesota (Develops and
Markets Cleaning and Sanitizing Products)
William N. Westhoff Senior Vice President and Treasurer, Minnesota Life
Insurance Company since April 1998, prior thereto from
August 1994 to October 1997, Senior Vice President, Global
Investments, American Express Financial Corporation,
Minneapolis, Minnesota
Frederick T. Weyerhaeuser Retired since April 1998, prior thereto Chairman and
Treasurer, Clearwater Investment Trust since May 1996, prior
thereto for more than five years Chairman, Clearwater
Management Company, St. Paul, Minnesota (Financial
Management)
</TABLE>
Principal Officers (other than Directors)
<TABLE>
<CAPTION>
Name Position
---- --------
<S> <C>
John F. Bruder Senior Vice President
Keith M. Campbell Senior Vice President
James E. Johnson Senior Vice President
Gregory S. Strong Senior Vice President and Chief Financial Officer
Terrence M. Sullivan Senior Vice President
Randy F. Wallake Senior Vice President
</TABLE>
All Directors who are not also officers of Minnesota Life have had the
principal occupation (or employers) shown for at least five years. All officers
of Minnesota Life have been employed by us 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
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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 Ascend Financial Services, Inc. ("Ascend
Financial") or of other broker-dealers who have entered into selling agreements
with Ascend Financial. Ascend Financial acts as principal underwriter for the
policies. Ascend Financial is a wholly-owned subsidiary of Advantus Capital
Management, Inc. Advantus Capital Management, Inc. is a registered investment
adviser.
Ascend Financial Services, Inc., whose address is 400 Robert Street North,
St. Paul, Minnesota 55101-2098, is a registered broker-dealer under the
Securities Exchange Act of 1934 and a member of the National Association of
Securities Dealers, Inc. Ascend Financial was incorporated in 1984 under the
laws of the State of Minnesota. The policies are sold in the states where their
sale is lawful. The insurance underwriting and the determination of 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 will be
premium-based, asset-based or a fixed amount. Commissions for policies under a
group-sponsored insurance program will not exceed the equivalent of 50 percent
of the portion of all premiums paid in the initial year to cover the cost of
insurance, 7 percent of all premiums paid in the initial year in excess of the
amount to cover the cost of insurance, and 7 percent of all premiums paid after
the initial year.
The commission schedule for a group-sponsored insurance program will be
determined based on a variety of factors, including enrollment procedures, the
size and type of the group, the total amount of premium payments to be received,
any prior existing relationship with the group sponsor, the sophistication of
the group sponsor, and other circumstances of which we are not presently aware.
In addition, Ascend Financial or Minnesota Life 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 Life or
its affiliates for the purpose of promoting the sale of insurance and/or
investment products offered by Minnesota Life 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 410 East, Washington, D.C. 20007-0805.
All other legal matters, including the right to issue such
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<PAGE> 43
policies under Minnesota law and applicable regulations thereunder, have been
passed upon by Donald F. Gruber, Assistant General Counsel of Minnesota Life.
LEGAL PROCEEDINGS
As an insurance company, we are ordinarily involved in litigation.
Minnesota Life 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 Life Variable Universal Life
Account and the consolidated financial statements of Minnesota Life included in
this prospectus have been audited by KPMG 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 Brian
C. Anderson, FSA, Associate Actuary of Minnesota Life, 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 Life, and the policies.
Statements contained in this prospectus as to the contents of policies and other
legal instruments are summaries, and reference is made to such instruments as
filed.
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INDEPENDENT AUDITORS' REPORT
The Board of Trustees of Minnesota Life Insurance Company
and Policy Owners of Minnesota Life 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 Growth, Maturing
Government Bond 2002, Maturing Government Bond 2006, Maturing Government Bond
2010, Value Stock, Small Company Value, Global Bond, Index 400 Mid-Cap,
Macro-Cap Value, Micro-Cap Growth, Contrafund, High-Income and Equity-Income
Segregated Sub-Accounts of Minnesota Life Variable Universal Life Account as of
December 31, 1999 and the related statements of operations, the statements of
changes in net assets and the financial highlights for the periods presented.
These financial statements and the financial highlights are the responsibility
of the Account's management. Our responsibility is to express an opinion on
these financial statements and the financial highlights based on our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements and the financial
highlights are free of material misstatement. An audit includes examining, on a
test basis, evidence supporting the amounts and disclosures in the financial
statements. Investments owned at December 31, 1999 were confirmed to us by the
respective sub-account mutual fund group, or for Advantus Series Fund, Inc.,
verified by examination of the underlying portfolios. An audit also includes
assessing the accounting principles used and significant estimates made by
management as well as evaluating the overall financial statement presentation.
We believe that our audits provide a reasonable basis for our opinion.
In our opinion, the financial statements referred to above present fairly,
in all material respects, the financial position of the Growth, Bond, Money
Market, Asset Allocation, Mortgage Securities, Index 500, Capital Appreciation,
International Stock, Small Company Growth, Maturing Government Bond 2002,
Maturing Government Bond 2006, Maturing Government Bond 2010, Value Stock, Small
Company Value, Global Bond, Index 400 Mid-Cap, Macro-Cap Value, Micro-Cap
Growth, Contrafund, High-Income and Equity-Income Segregated Sub-Accounts of
Minnesota Life Variable Universal Life Account at December 31, 1999 and the
results of their operations, changes in their net assets and the financial
highlights for the periods presented, in conformity with generally accepted
accounting principles.
KPMG LLP
Minneapolis, Minnesota
February 4, 2000
SA-1
<PAGE> 45
MINNESOTA LIFE VARIABLE UNIVERSAL LIFE ACCOUNT
STATEMENTS OF ASSETS AND LIABILITIES
DECEMBER 31, 1999
<TABLE>
<CAPTION>
SEGREGATED SUB-ACCOUNTS
--------------------------------------------------------------------------------------------
MONEY ASSET MORTGAGE INDEX CAPITAL
ASSETS GROWTH BOND MARKET ALLOCATION SECURITIES 500 APPRECIATION
------ ---------- ------- ---------- ---------- ---------- --------- ------------
<S> <C> <C> <C> <C> <C> <C> <C>
Investments in shares of Advantus
Series Fund, Inc.:
Growth Portfolio, 1,547,968
shares at net asset value
of $3.33 per share (cost
$4,157,858) $5,159,010 -- -- -- -- -- --
Bond Portfolio, 134,922
shares at net asset value
of $1.18 per share (cost
$168,040) -- 159,157 -- -- -- -- --
Money Market Portfolio,
40,743,318 shares at net
asset value of $1.00 per
share (cost $40,743,318) -- -- 40,743,318 -- -- -- --
Asset Allocation Portfolio,
285,806 shares at net asset
value of $2.39 per share
(cost $585,187) -- -- -- 682,065 -- -- --
Mortgage Securities
Portfolio, 102,214 shares
at net asset value of $1.17
per share (cost $119,676) -- -- -- -- 119,448 -- --
Index 500 Portfolio,
1,994,325 shares at net
asset value of $4.56 per
share (cost $6,408,694) -- -- -- -- -- 9,101,753 --
Capital Appreciation
Portfolio, 85,430 shares at
net asset value of $3.70
per share (cost $245,135) -- -- -- -- -- -- 316,451
---------- ------- ---------- ------- ------- --------- -------
5,159,010 159,157 40,743,318 682,065 119,448 9,101,753 316,451
Receivable from Minnesota Life
for policy purchase payments 21 -- 5,771 12 -- 46 19
Receivable for investments sold 12,629 6,630 17,344 3,969 13,064 42,407 1,922
---------- ------- ---------- ------- ------- --------- -------
Total assets 5,171,660 165,787 40,766,433 686,046 132,512 9,144,206 318,392
---------- ------- ---------- ------- ------- --------- -------
LIABILITIES
- ---------------------------------
Payable to Minnesota Life for
policy terminations and
mortality and expense charges 12,629 6,630 17,344 3,969 13,064 42,407 1,922
Payable for investments purchased 21 -- 5,771 12 -- 46 19
---------- ------- ---------- ------- ------- --------- -------
Total liabilities 12,650 6,630 23,115 3,981 13,064 42,453 1,941
---------- ------- ---------- ------- ------- --------- -------
NET ASSETS APPLICABLE TO POLICY
OWNERS $5,159,010 159,157 40,743,318 682,065 119,448 9,101,753 316,451
========== ======= ========== ======= ======= ========= =======
POLICY OWNERS' EQUITY
- ---------------------------------
Option 1 $1,200,421 65,095 4,435 360,140 112,768 5,526,332 80,867
Option 2 362,279 94,062 164,233 321,925 6,680 1,102,835 235,584
Option 3 3,596,310 -- 40,574,650 -- -- 2,472,586 --
---------- ------- ---------- ------- ------- --------- -------
Total Policy Owners'
Equity $5,159,010 159,157 40,743,318 682,065 119,448 9,101,753 316,451
========== ======= ========== ======= ======= ========= =======
UNITS OUTSTANDING (Option 1) 419,544 53,498 3,633 174,020 87,428 1,954,472 30,530
========== ======= ========== ======= ======= ========= =======
UNITS OUTSTANDING (Option 2) 163,678 83,616 143,702 193,359 5,664 567,236 117,340
========== ======= ========== ======= ======= ========= =======
UNITS OUTSTANDING (Option 3) 3,033,044 -- 37,663,704 -- -- 1,371,057 --
========== ======= ========== ======= ======= ========= =======
NET ASSET VALUE PER UNIT (Option
1) $ 2.86 1.22 1.22 2.07 1.29 2.83 2.65
========== ======= ========== ======= ======= ========= =======
NET ASSET VALUE PER UNIT (Option
2) $ 2.21 1.12 1.14 1.66 1.18 1.94 2.01
========== ======= ========== ======= ======= ========= =======
NET ASSET VALUE PER UNIT (Option
3) $ 1.19 -- 1.08 -- -- 1.80 --
========== ======= ========== ======= ======= ========= =======
</TABLE>
See accompanying notes to financial statements.
SA-2
<PAGE> 46
MINNESOTA LIFE VARIABLE UNIVERSAL LIFE ACCOUNT
STATEMENTS OF ASSETS AND LIABILITIES
DECEMBER 31, 1999
<TABLE>
<CAPTION>
SEGREGATED SUB-ACCOUNTS
----------------------------------------------------------------------------------------
SMALL MATURING MATURING MATURING SMALL
INTERNATIONAL COMPANY GOVERNMENT GOVERNMENT GOVERNMENT VALUE COMPANY
ASSETS STOCK GROWTH BOND 2002 BOND 2006 BOND 2010 STOCK VALUE
------ ------------- ------- ---------- ---------- ---------- ------- -------
<S> <C> <C> <C> <C> <C> <C> <C>
Investments in shares of Advantus
Series Fund, Inc.:
International Stock Portfolio,
161,545 shares at net asset
value of $1.94 per share (cost
$276,067) $313,309 -- -- -- -- -- --
Small Company Growth Portfolio,
156,898 shares at net asset
value of $2.44 per share (cost
$249,665) -- 382,735 -- -- -- -- --
Maturing Government Bond 2002
Portfolio, 1,175 shares at net
asset value of $1.05 per share
(cost $1,233) -- -- 1,240 -- -- -- --
Maturing Government Bond 2006
Portfolio, 1,162 shares at net
asset value of $1.09 per share
(cost $1,259) -- -- -- 1,262 -- -- --
Maturing Government Bond 2010
Portfolio, 3,743 shares at net
asset value of $1.19 per share
(cost $4,658) -- -- -- -- 4,457 -- --
Value Stock Portfolio, 98,909
shares at net asset value of
$1.71 per share (cost $171,270) -- -- -- -- -- 169,384 --
Small Company Value Portfolio,
40,947 shares at net asset
value of $0.91 per share (cost
$38,048) -- -- -- -- -- -- 37,174
-------- ------- ----- ----- ----- ------- ------
313,309 382,735 1,240 1,262 4,457 169,384 37,174
Receivable from Minnesota Life for
policy purchase payments 16 16 -- -- -- 3 5
Receivable for investments sold 9,328 1,945 -- -- 73 5,921 479
-------- ------- ----- ----- ----- ------- ------
Total assets 322,654 384,696 1,240 1,262 4,530 175,308 37,658
-------- ------- ----- ----- ----- ------- ------
LIABILITIES
- -------------------------------------
Payable to Minnesota Life for policy
terminations and mortality and
expense charges 9,328 1,945 -- -- 73 5,921 479
Payable for investments purchased 16 16 -- -- -- 3 5
-------- ------- ----- ----- ----- ------- ------
Total liabilities 9,345 1,961 -- -- 73 5,924 484
-------- ------- ----- ----- ----- ------- ------
Net Assets applicable to
policy owners $313,309 382,735 1,240 1,262 4,457 169,384 37,174
======== ======= ===== ===== ===== ======= ======
POLICY OWNER'S EQUITY
- -------------------------------------
Option 1 $121,163 130,609 1,235 1,262 2,946 80,173 25,187
Option 2 192,146 252,126 5 -- 1,511 89,211 11,987
Option 3 -- -- -- -- -- -- --
-------- ------- ----- ----- ----- ------- ------
Total Policy Owners' Equity $313,309 382,735 1,240 1,262 4,457 169,384 37,174
======== ======= ===== ===== ===== ======= ======
UNITS OUTSTANDING (Option 1) 68,074 65,093 1,000 1,000 2,286 43,517 29,122
======== ======= ===== ===== ===== ======= ======
UNITS OUTSTANDING (Option 2) 134,651 158,245 4 -- 1,536 75,509 12,947
======== ======= ===== ===== ===== ======= ======
UNITS OUTSTANDING (Option 3) -- -- -- -- -- -- --
======== ======= ===== ===== ===== ======= ======
NET ASSET VALUE PER UNIT (Option 1) $ 1.78 2.01 1.24 1.26 1.29 1.84 0.86
======== ======= ===== ===== ===== ======= ======
NET ASSET VALUE PER UNIT (Option 2) $ 1.43 1.59 1.19 -- 0.98 1.18 0.93
======== ======= ===== ===== ===== ======= ======
NET ASSET VALUE PER UNIT (Option 3) $ -- -- -- -- -- -- --
======== ======= ===== ===== ===== ======= ======
</TABLE>
See accompanying notes to financial statements.
SA-3
<PAGE> 47
MINNESOTA LIFE VARIABLE UNIVERSAL LIFE ACCOUNT
STATEMENTS OF ASSETS AND LIABILITIES
DECEMBER 31, 1999
<TABLE>
<CAPTION>
SEGREGATED SUB-ACCOUNTS
------------------------------------------------------------------------------
GLOBAL INDEX 400 MACRO-CAP MICRO-CAP CONTRA- HIGH- EQUITY-
ASSETS BOND MID-CAP VALUE GROWTH FUND INCOME INCOME
------ ------ --------- --------- --------- ------- ------- -------
<S> <C> <C> <C> <C> <C> <C> <C>
Investments in shares of Advantus Series Fund,
Inc.:
Global Bond Portfolio, 1,965 shares at net
asset value of $0.94 per share (cost
$1,933) $1,838 -- -- -- -- -- --
Index 400 Mid-Cap Portfolio, 2,987,425
shares at net asset value of $1.18 per
share (cost $3,306,326) -- 3,535,730 -- -- -- -- --
Macro-Cap Value Portfolio, 6,045 shares at
net asset value of $1.16 per share (cost
$6,771) -- -- 7,033 -- -- -- --
Micro-Cap Growth Portfolio, 66,485 shares
at net asset value of $2.51 per share
(cost $79,923) -- -- -- 166,792 -- -- --
Investments in shares of Fidelity Variable
Insurance Products Fund II:
Contrafund Portfolio, 15,072 shares at net
asset value of $29.15 per share (cost
$309,551) -- -- -- -- 439,324 -- --
Investments in shares of Fidelity Variable
Insurance Products Fund:
High Income Portfolio, 14,275 shares at net
asset value of $11.31 per share (cost
$165,231) -- -- -- -- -- 161,454 --
Equity-Income Portfolio, 15,957 shares at
net asset value of $25.71 per share (cost
$382,470) -- -- -- -- -- -- 410,246
------ --------- ----- ------- ------- ------- -------
1,838 3,535,730 7,033 166,792 439,324 161,454 410,246
Receivable from Minnesota Life for policy
purchase payments -- 14 -- -- -- -- --
Receivable for investments sold 82 16,571 180 1,023 1,544 343 1,390
------ --------- ----- ------- ------- ------- -------
Total assets 1,920 3,552,315 7,213 167,815 440,868 161,797 411,636
------ --------- ----- ------- ------- ------- -------
LIABILITIES
- -----------------------------------------------
Payable to Minnesota Life for policy
terminations and mortality and expense
charges 82 16,571 180 1,023 1,544 343 1,390
Payable for investments purchased -- 14 -- -- -- -- --
------ --------- ----- ------- ------- ------- -------
Total liabilities 82 16,585 180 1,023 1,544 343 1,390
------ --------- ----- ------- ------- ------- -------
NET ASSETS APPLICABLE TO POLICY OWNERS $1,838 3,535,730 7,033 166,792 439,324 161,454 410,246
====== ========= ===== ======= ======= ======= =======
POLICY OWNER'S EQUITY
- -----------------------------------------------
Option 1 $ 705 85,335 7,002 84,010 129,328 65,476 96,898
Option 2 1,133 57,802 31 82,782 309,996 95,978 313,348
Option 3 -- 3,392,593 -- -- -- -- --
------ --------- ----- ------- ------- ------- -------
Total Policy Owners' Equity $1,838 3,535,730 7,033 166,792 439,324 161,454 410,246
====== ========= ===== ======= ======= ======= =======
UNITS OUTSTANDING (Option 1) 693 71,195 5,984 33,252 58,764 51,158 60,829
====== ========= ===== ======= ======= ======= =======
UNITS OUTSTANDING (Option 2) 1,075 42,217 29 31,187 159,230 80,294 212,788
====== ========= ===== ======= ======= ======= =======
UNITS OUTSTANDING (Option 3) -- 3,033,044 -- -- -- -- --
====== ========= ===== ======= ======= ======= =======
NET ASSET VALUE PER UNIT (Option 1) $ 1.02 1.20 1.17 2.53 2.20 1.28 1.59
====== ========= ===== ======= ======= ======= =======
NET ASSET VALUE PER UNIT (Option 2) $ 1.05 1.37 1.04 2.65 1.95 1.20 1.47
====== ========= ===== ======= ======= ======= =======
NET ASSET VALUE PER UNIT (Option 3) $ -- 1.12 -- -- -- -- --
====== ========= ===== ======= ======= ======= =======
</TABLE>
See accompanying notes to financial statements.
SA-4
<PAGE> 48
MINNESOTA LIFE VARIABLE UNIVERSAL LIFE ACCOUNT
STATEMENTS OF OPERATIONS
YEAR ENDED DECEMBER 31, 1999
<TABLE>
<CAPTION>
SEGREGATED SUB-ACCOUNTS
---------------------------------------------------------------------------------------------
MONEY ASSET MORTGAGE INDEX CAPITAL
GROWTH BOND MARKET ALLOCATION SECURITIES 500 APPRECIATION
---------- -------- ---------- ---------- ---------- --------- ------------
<S> <C> <C> <C> <C> <C> <C> <C>
Investment income (loss):
Investment income
distributions from
underlying mutual fund
(note 4) $ 8,642 6,190 1,991,668 26,089 3,467 123,881 --
Mortality and expense
charges (Option 1) (note
3) (4,344) (289) (24) (1,656) (477) (22,206) (264)
Mortality and expense
charges (Option 2) (note
3) (687) (51) (173) (135) (2) (407) (75)
Mortality and expense
charges (Option 3) (note
3) -- -- -- -- -- -- --
---------- -------- ---------- -------- ------- --------- -------
Investment income
(loss)--net 3,611 5,850 1,991,471 24,298 2,988 101,268 (339)
---------- -------- ---------- -------- ------- --------- -------
Realized and unrealized gains
(losses) on investments--net:
Realized gain distributions
from underlying mutual
fund (note 4) 28,722 2,491 -- 29,593 -- 87,329 23,572
---------- -------- ---------- -------- ------- --------- -------
Realized gains (losses) on
sales of investments:
Proceeds from sales 171,093 34,097 6,574,756 190,105 41,294 617,442 25,771
Cost of investments sold (144,242) (35,448) (6,574,756) (170,602) (41,637) (450,370) (23,876)
---------- -------- ---------- -------- ------- --------- -------
26,851 (1,351) -- 19,503 (343) 167,072 1,895
---------- -------- ---------- -------- ------- --------- -------
Net realized gains
(losses) on
investments 55,573 1,140 -- 49,096 (343) 254,401 25,467
---------- -------- ---------- -------- ------- --------- -------
Net change in unrealized
appreciation or
depreciation of
investments 810,737 (10,301) -- 28,219 (697) 1,004,728 34,116
---------- -------- ---------- -------- ------- --------- -------
Net gains (losses) on
investments 866,310 (9,161) -- 77,315 (1,040) 1,259,129 59,583
---------- -------- ---------- -------- ------- --------- -------
Net increase (decrease) in net
assets resulting from
operations $ 869,921 (3,311) 1,991,471 101,613 1,948 1,360,397 59,244
========== ======== ========== ======== ======= ========= =======
</TABLE>
See accompanying notes to financial statements.
SA-5
<PAGE> 49
MINNESOTA LIFE VARIABLE UNIVERSAL LIFE ACCOUNT
STATEMENTS OF OPERATIONS
YEAR ENDED DECEMBER 31, 1999
<TABLE>
<CAPTION>
SEGREGATED SUB-ACCOUNTS
----------------------------------------------------------------------------------------
MATURING MATURING MATURING
SMALL GOVERNMENT GOVERNMENT GOVERNMENT SMALL
INTERNATIONAL COMPANY BOND BOND BOND VALUE COMPANY
STOCK GROWTH 2002 2006 2010 STOCK VALUE
------------- ------- ---------- ---------- ---------- ------- -------
<S> <C> <C> <C> <C> <C> <C> <C>
Investment income (loss):
Investment income distributions
from underlying mutual fund
(note 4) $ 5,308 -- 51 75 154 4,600 449
Mortality and expense charges
(Option 1) (note 3) (475) (475) (6) (7) (12) (389) (94)
Mortality and expense charges
(Option 2) (note 3) (78) (88) -- -- (1) (42) (3)
Mortality and expense charges
(Option 3) (note 3) -- -- -- -- -- -- --
-------- ------- --- ---- ---- ------- -------
Investment income (loss)--net 4,755 (563) 45 68 141 4,169 352
-------- ------- --- ---- ---- ------- -------
Realized and unrealized gains
(losses) on investments--net:
Realized gain distributions from
underlying mutual fund (note 4) 10,311 -- -- -- 7 -- --
-------- ------- --- ---- ---- ------- -------
Realized gains (losses) on sales
of investments:
Proceeds from sales 48,974 41,343 7 7 684 65,312 10,759
Cost of investments sold (46,168) (36,363) (6) (6) (674) (63,480) (11,495)
-------- ------- --- ---- ---- ------- -------
2,806 4,980 1 1 10 1,832 (736)
-------- ------- --- ---- ---- ------- -------
Net realized gains (losses)
on investments 13,117 4,980 1 1 17 1,832 (736)
-------- ------- --- ---- ---- ------- -------
Net change in unrealized
appreciation or depreciation of
investments 30,731 116,534 (57) (183) (626) (7,667) (96)
-------- ------- --- ---- ---- ------- -------
Net gains (losses) on
investments 43,848 121,514 (56) (182) (609) (5,835) (832)
-------- ------- --- ---- ---- ------- -------
Net increase (decrease) in net assets
resulting from operations $ 48,603 120,951 (11) (114) (468) (1,666) (480)
======== ======= === ==== ==== ======= =======
</TABLE>
See accompanying notes to financial statements.
SA-6
<PAGE> 50
MINNESOTA LIFE VARIABLE UNIVERSAL LIFE ACCOUNT
STATEMENTS OF OPERATIONS
YEAR ENDED DECEMBER 31, 1999
<TABLE>
<CAPTION>
SEGREGATED SUB-ACCOUNTS
--------------------------------------------------------------------------------
GLOBAL INDEX 400 MACRO-CAP MICRO-CAP CONTRA- HIGH EQUITY-
BOND MID-CAP VALUE GROWTH FUND INCOME INCOME
-------- --------- --------- --------- ------- ------- -------
<S> <C> <C> <C> <C> <C> <C> <C>
Investment income (loss):
Investment income distributions from
underlying mutual fund (note 4) $ 58 14,417 31 -- 1,398 9,765 4,938
Mortality and expense charges (Option 1)
(note 3) (6) (335) (25) (55) (508) (291) (433)
Mortality and expense charges (Option 2)
(note 3) -- (17) -- -- (634) (196) (683)
Mortality and expense charges (Option 3)
(note 3) -- -- -- -- -- -- --
-------- ------- ------ ------ ------- ------- -------
Investment income (loss) -- net 52 14,065 6 (55) 256 9,278 3,822
-------- ------- ------ ------ ------- ------- -------
Realized and unrealized gains (losses) on
investments -- net:
Realized gain distributions from
underlying mutual fund (note 4) 13 143,077 265 -- 10,254 365 10,916
-------- ------- ------ ------ ------- ------- -------
Realized gains (losses) on sales of
investments:
Proceeds from sales 3,272 63,809 2,033 8,689 31,116 16,795 109,529
Cost of investments sold (3,494) (59,696) (1,874) (6,076) (23,947) (19,244) (99,336)
-------- ------- ------ ------ ------- ------- -------
(222) 4,113 159 2,613 7,169 (2,449) 10,193
-------- ------- ------ ------ ------- ------- -------
Net realized gains (losses) on
investments (209) 147,190 424 2,613 17,423 (2,084) 21,109
-------- ------- ------ ------ ------- ------- -------
Net change in unrealized appreciation or
depreciation of investments (17) 217,745 (11) 83,696 61,447 (33) (7,027)
-------- ------- ------ ------ ------- ------- -------
Net gains (losses) on investments (226) 364,935 413 86,309 78,870 (2,117) 14,082
-------- ------- ------ ------ ------- ------- -------
Net increase (decrease) in net assets
resulting from operations $ (174) 379,000 419 86,254 79,126 7,161 17,904
======== ======= ====== ====== ======= ======= =======
</TABLE>
See accompanying notes to financial statements.
SA-7
<PAGE> 51
MINNESOTA LIFE VARIABLE UNIVERSAL LIFE ACCOUNT
STATEMENTS OF OPERATIONS
YEAR ENDED DECEMBER 31, 1998
<TABLE>
<CAPTION>
SEGREGATED SUB-ACCOUNTS
--------------------------------------------------------------------------------------------
MONEY ASSET MORTGAGE INDEX CAPITAL
GROWTH BOND MARKET ALLOCATION SECURITIES 500 APPRECIATION
-------- -------- --------- ---------- ---------- ----------- ------------
<S> <C> <C> <C> <C> <C> <C> <C>
Investment income (loss):
Investment income
distributions from
underlying mutual fund
(note 4) $ 7,144 4,850 254,530 9,346 842 341,812 --
Mortality and expense charges
(Option 1) (note 3) (3,239) (65) (33) (1,922) (81) (13,580) (154)
Mortality and expense charges
(Option 2) (note 3) (471) (209) (530) (377) (27) (1,252) (392)
Mortality and expense charges
(Option 3) (note 3) -- -- -- -- -- -- --
-------- -------- --------- -------- ------- ----------- -------
Investment income
(loss)--net 3,434 4,576 253,967 7,047 734 326,980 (546)
-------- -------- --------- -------- ------- ----------- -------
Realized and unrealized gains
(losses) on investments--net:
Realized gain distributions
from underlying mutual fund
(note 4) 113,623 1,022 -- 23,752 -- 214,253 9,128
-------- -------- --------- -------- ------- ----------- -------
Realized gains (losses) on
sales of investments:
Proceeds from sales 89,762 22,758 232,756 403,901 21,880 39,387,179 90,181
Cost of investments sold (84,295) (22,736) (232,756) (409,005) (21,414) (30,832,842) (93,361)
-------- -------- --------- -------- ------- ----------- -------
5,467 22 -- (5,104) 466 8,554,337 (3,180)
-------- -------- --------- -------- ------- ----------- -------
Net realized gains on
investments 119,090 1,044 -- 18,648 466 8,768,590 5,948
-------- -------- --------- -------- ------- ----------- -------
Net change in unrealized
appreciation or
depreciation of investments 143,041 (718) -- 48,639 62 (1,811,375) 22,897
-------- -------- --------- -------- ------- ----------- -------
Net gains (losses) on
investments 262,131 326 -- 67,287 528 6,957,215 28,845
-------- -------- --------- -------- ------- ----------- -------
Net increase in net assets
resulting from operations $265,565 4,902 253,967 74,334 1,262 7,284,195 28,299
======== ======== ========= ======== ======= =========== =======
</TABLE>
See accompanying notes to financial statements.
SA-8
<PAGE> 52
MINNESOTA LIFE VARIABLE UNIVERSAL LIFE ACCOUNT
STATEMENTS OF OPERATIONS
YEAR ENDED DECEMBER 31, 1998
<TABLE>
<CAPTION>
SEGREGATED SUB-ACCOUNTS
-----------------------------------------------------------------------------
MATURING MATURING MATURING
SMALL GOVERNMENT GOVERNMENT GOVERNMENT
INTERNATIONAL COMPANY BOND BOND BOND VALUE
STOCK GROWTH 2002 2006 2010 STOCK
------------- ------- ---------- ---------- ---------- -------
<S> <C> <C> <C> <C> <C> <C>
Investment income (loss):
Investment income distributions from
underlying mutual fund (note 4) $ 2,382 -- 214 68 136 --
Mortality and expense charges (Option 1)
(note 3) (155) (490) (6) (6) (8) (178)
Mortality and expense charges (Option 2)
(note 3) (211) (307) (54) -- (3) (144)
Mortality and expense charges (Option 3)
(note 3) -- -- -- -- -- --
-------- ------- ------- --- ---- -------
Investment income (loss)--net 2,016 (797) 154 62 125 (322)
-------- ------- ------- --- ---- -------
Realized and unrealized gains (losses) on
investments--net:
Realized gain distributions from underlying
mutual fund (note 4) 2,345 -- 78 5 2 139
-------- ------- ------- --- ---- -------
Realized gains (losses) on sales of
investments:
Proceeds from sales 22,354 56,320 24,535 6 269 49,902
Cost of investments sold (21,344) (57,517) (21,610) (6) (229) (49,745)
-------- ------- ------- --- ---- -------
1,010 (1,197) 2,925 -- 40 157
-------- ------- ------- --- ---- -------
Net realized gains (losses) on
investments 3,355 (1,197) 3,003 5 42 296
-------- ------- ------- --- ---- -------
Net change in unrealized appreciation or
depreciation of investments 2,975 1,092 (865) 99 199 7,607
-------- ------- ------- --- ---- -------
Net gains (losses) on investments 6,330 (105) 2,138 104 241 7,903
-------- ------- ------- --- ---- -------
Net increase (decrease) in net assets resulting
from operations $ 8,346 (902) 2,292 166 366 7,581
======== ======= ======= === ==== =======
</TABLE>
See accompanying notes to financial statements.
SA-9
<PAGE> 53
MINNESOTA LIFE VARIABLE UNIVERSAL LIFE ACCOUNT
STATEMENTS OF OPERATIONS
YEAR ENDED DECEMBER 31, 1998
<TABLE>
<CAPTION>
SEGREGATED SUB-ACCOUNTS
---------------------------------------------------------------------------------------------
SMALL
COMPANY GLOBAL INDEX 400 MACRO-CAP MICRO-CAP CONTRA- HIGH- EQUITY-
VALUE(a) BOND(a) MID-CAP(a) VALUE(b) GROWTH(a) FUND INCOME INCOME
-------- ------- ---------- --------- --------- ------- ------- --------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Investment income (loss):
Investment income
distributions from
underlying mutual fund
(note 4) $ 252 145 388 14 -- 1,055 4,894 3,861
Mortality and expense
charges (Option 1) (note
3) (40) (2) (56) (8) (28) (296) (207) (281)
Mortality and expense
charges (Option 2) (note
3) (11) (13) (47) -- -- (474) (22) (1,272)
Mortality and expense
charges (Option 3) (note ) -- -- -- -- -- -- -- --
-------- ------- ------- ------ ------ ------- ------- --------
Investment income
(loss)--net 201 130 285 6 (28) 285 4,665 2,308
-------- ------- ------- ------ ------ ------- ------- --------
Realized and unrealized gains
(losses) on investments--net:
Realized gain distributions
from underlying mutual
fund (note 4) -- 53 1,232 139 -- 7,736 3,129 13,689
-------- ------- ------- ------ ------ ------- ------- --------
Realized gains (losses) on
sales of investments:
Proceeds from sales 9,407 7,484 20,160 1,904 5,184 26,364 22,060 104,406
Cost of investments sold (9,922) (6,875) (18,061) (1,862) (5,357) (22,202) (24,204) (109,357)
-------- ------- ------- ------ ------ ------- ------- --------
(515) 609 2,099 42 (173) 4,162 (2,144) (4,951)
-------- ------- ------- ------ ------ ------- ------- --------
Net realized gains
(losses) on
investments (515) 662 3,331 181 (173) 11,898 985 8,738
-------- ------- ------- ------ ------ ------- ------- --------
Net change in unrealized
appreciation or
depreciation of
investments (778) (78) 11,659 273 3,173 43,633 (11,163) 7,632
-------- ------- ------- ------ ------ ------- ------- --------
Net gains (losses) on
investments (1,293) 584 14,990 454 3,000 55,531 (10,178) 16,370
-------- ------- ------- ------ ------ ------- ------- --------
Net increase (decrease) in net
assets resulting from
operations $(1,092) 714 15,275 460 2,972 55,816 (5,513) 18,678
======== ======= ======= ====== ====== ======= ======= ========
</TABLE>
- ------------
(a) Period from January 22, 1998, commencement of operations, to December 31,
1998.
(b) Period from May 1, 1998, commencement of operations, to December 31, 1998.
See accompanying notes to financial statements.
SA-10
<PAGE> 54
MINNESOTA LIFE VARIABLE UNIVERSAL LIFE ACCOUNT
STATEMENTS OF OPERATIONS
YEAR ENDED DECEMBER 31, 1997
<TABLE>
<CAPTION>
SEGREGATED SUB-ACCOUNTS
-----------------------------------------------------------------------
MONEY ASSET MORTGAGE INDEX
GROWTH BOND MARKET ALLOCATION SECURITIES 500
-------- ------- ------- ---------- ---------- ---------
<S> <C> <C> <C> <C> <C> <C>
Investment income (loss):
Investment income distributions from
underlying mutual fund (note 4) $ 794 3,687 5,247 1,715 721 20,306
Mortality and expense charges (Option 1)
(note 3) (418) (18) (20) (314) (9) (8,779)
Mortality and expense charges (Option 2)
(note 3) (217) (105) (249) (122) (24) (541)
Mortality and expense charges (Option 3)
(note 3) -- -- -- -- -- --
-------- ------- ------- -------- ----- ---------
Investment income (loss)--net 159 3,564 4,978 1,279 688 10,986
-------- ------- ------- -------- ----- ---------
Realized and unrealized gains (losses) on
investments--net:
Realized gain distributions from
underlying mutual fund (note 4) 20,527 -- -- 3,559 -- 25,654
-------- ------- ------- -------- ----- ---------
Realized gains (losses) on sales of
investments:
Proceeds from sales 14,388 20,887 52,560 204,672 420 282,193
Cost of investments sold (14,269) (21,974) (52,560) (199,984) (413) (239,751)
-------- ------- ------- -------- ----- ---------
119 (1,087) -- 4,688 7 42,442
-------- ------- ------- -------- ----- ---------
Net realized gains (losses) on
investments 20,646 (1,087) -- 8,247 7 68,096
-------- ------- ------- -------- ----- ---------
Net change in unrealized appreciation or
depreciation of investments 46,366 2,072 -- 19,667 358 3,334,839
-------- ------- ------- -------- ----- ---------
Net gains (losses) on investments 67,012 985 -- 27,914 365 3,402,935
-------- ------- ------- -------- ----- ---------
Net increase in net assets resulting from
operations $ 67,171 4,549 4,978 29,193 1,053 3,413,921
======== ======= ======= ======== ===== =========
<CAPTION>
SEGREGATED SUB-ACCOUNTS
----------------------------------------
SMALL
CAPITAL INTERNATIONAL COMPANY
APPRECIATION STOCK GROWTH
------------ ------------- -------
<S> <C> <C> <C>
Investment income (loss):
Investment income distributions from
underlying mutual fund (note 4) -- 1,513 2
Mortality and expense charges (Option 1)
(note 3) (77) (45) (357)
Mortality and expense charges (Option 2)
(note 3) (165) (118) (194)
Mortality and expense charges (Option 3)
(note 3) -- -- --
------- ------ -------
Investment income (loss)--net (242) 1,350 (549)
------- ------ -------
Realized and unrealized gains (losses) on
investments--net:
Realized gain distributions from
underlying mutual fund (note 4) 10,987 755 --
------- ------ -------
Realized gains (losses) on sales of
investments:
Proceeds from sales 65,409 2,835 15,424
Cost of investments sold (73,407) (2,654) (14,866)
------- ------ -------
(7,998) 181 558
------- ------ -------
Net realized gains (losses) on
investments 2,989 936 558
------- ------ -------
Net change in unrealized appreciation or
depreciation of investments 13,212 2,878 15,656
------- ------ -------
Net gains (losses) on investments 16,201 3,814 16,214
------- ------ -------
Net increase in net assets resulting from
operations 15,959 5,164 15,665
======= ====== =======
</TABLE>
See accompanying notes to financial statements.
SA-11
<PAGE> 55
MINNESOTA LIFE VARIABLE UNIVERSAL LIFE ACCOUNT
STATEMENTS OF OPERATIONS
YEAR ENDED DECEMBER 31, 1997
<TABLE>
<CAPTION>
SEGREGATED SUB-ACCOUNTS
--------------------------------------------------------------------------------
MATURING MATURING MATURING
GOVERNMENT GOVERNMENT GOVERNMENT
BOND BOND BOND VALUE CONTRA- HIGH- EQUITY-
2002 2006 2010 STOCK FUND INCOME INCOME
---------- ---------- ---------- ------ ------- ------ -------
<S> <C> <C> <C> <C> <C> <C> <C>
Investment income (loss):
Investment income distributions from
underlying mutual fund (note 4) $1,117 55 51 766 747 3,611 2,916
Mortality and expense charges (Option 1)
(note 3) (5) (6) (6) (78) (192) (181) (169)
Mortality and expense charges (Option 2)
(note 3) (40) -- -- (58) (149) (54) (274)
Mortality and expense charges (Option 3)
(note 3) -- -- -- -- -- -- --
------ --- --- ------ ------ ------ -------
Investment income (loss)--net 1,072 49 45 630 406 3,376 2,473
------ --- --- ------ ------ ------ -------
Realized and unrealized gains (losses) on
investments--net:
Realized gain distributions from
underlying mutual fund (note 4) 8 16 10 5,868 1,974 446 14,659
------ --- --- ------ ------ ------ -------
Realized gains (losses) on sales of
investments:
Proceeds from sales 432 5 6 4,250 5,894 3,447 69,454
Cost of investments sold (412) (5) (6) (3,894) (5,245) (3,347) (75,469)
------ --- --- ------ ------ ------ -------
20 -- -- 356 649 100 (6,015)
------ --- --- ------ ------ ------ -------
Net realized gains on investments 28 16 10 6,224 2,623 546 8,644
------ --- --- ------ ------ ------ -------
Net change in unrealized appreciation or
depreciation of investments 925 65 125 (2,869) 21,165 5,276 25,183
------ --- --- ------ ------ ------ -------
Net gains on investments 953 81 135 3,355 23,788 5,822 33,827
------ --- --- ------ ------ ------ -------
Net increase in net assets resulting from
operations $2,025 130 180 3,985 24,194 9,198 36,300
====== === === ====== ====== ====== =======
</TABLE>
See accompanying notes to financial statements.
SA-12
<PAGE> 56
MINNESOTA LIFE VARIABLE UNIVERSAL LIFE ACCOUNT
STATEMENTS OF CHANGES IN NET ASSETS
YEAR ENDED DECEMBER 31, 1999
<TABLE>
<CAPTION>
SEGREGATED SUB-ACCOUNTS
--------------------------------------------------------------------------------------------
MONEY ASSET MORTGAGE INDEX CAPITAL
GROWTH BOND MARKET ALLOCATION SECURITIES 500 APPRECIATION
---------- ------- ---------- ---------- ---------- --------- ------------
<S> <C> <C> <C> <C> <C> <C> <C>
Operations:
Investment income (loss)--net $ 3,611 5,850 1,991,471 24,298 2,988 101,268 (339)
Net realized gains (losses)
on investments 55,573 1,140 -- 49,096 (343) 254,401 25,467
Net change in unrealized
appreciation or
depreciation of investments 810,737 (10,301) -- 28,219 (697) 1,004,728 34,116
---------- ------- ---------- -------- ------- --------- -------
Net increase (decrease) in net
assets resulting from
operations 869,921 (3,311) 1,991,471 101,613 1,948 1,360,397 59,244
---------- ------- ---------- -------- ------- --------- -------
Policy transactions (notes 3, 4
and 5):
Policy purchase payments:
Option 1 244,186 57,681 5,400 102,901 94,681 1,476,494 37,256
Option 2 81,327 19,442 19,989 151,303 4,590 458,544 75,533
Option 3 3,059,804 -- 1,851,322 -- -- 615,211 --
Policy withdrawals and
charges:
Option 1 (118,860) (26,285) (9,256) (150,566) (40,031) (407,987) (14,782)
Option 2 (18,887) (7,472) (148,062) (37,748) (785) (125,434) (10,651)
Option 3 (28,314) -- (6,417,242) -- -- (61,408) --
---------- ------- ---------- -------- ------- --------- -------
Increase (decrease) in net assets
from policy transactions 3,219,256 43,366 (4,697,849) 65,890 58,455 1,955,420 87,356
---------- ------- ---------- -------- ------- --------- -------
Increase (decrease) in net assets 4,089,177 40,055 (2,706,378) 167,503 60,403 3,315,817 146,600
Net assets at the beginning of
year 1,069,833 119,102 43,449,696 514,562 59,045 5,785,936 169,851
---------- ------- ---------- -------- ------- --------- -------
Net assets at the end of year $5,159,010 159,157 40,743,318 682,065 119,448 9,101,753 316,451
========== ======= ========== ======== ======= ========= =======
</TABLE>
See accompanying notes to financial statements.
SA-13
<PAGE> 57
MINNESOTA LIFE VARIABLE UNIVERSAL LIFE ACCOUNT
STATEMENTS OF CHANGES IN NET ASSETS
YEAR ENDED DECEMBER 31, 1999
<TABLE>
<CAPTION>
SEGREGATED SUB-ACCOUNTS
----------------------------------------------------------------------------------------
SMALL MATURING MATURING MATURING SMALL
INTERNATIONAL COMPANY GOVERNMENT GOVERNMENT GOVERNMENT VALUE COMPANY
STOCK GROWTH BOND 2002 BOND 2006 BOND 2010 STOCK VALUE
------------- ------- ---------- ---------- ---------- ------- -------
<S> <C> <C> <C> <C> <C> <C> <C>
Operations:
Investment income (loss)--net $ 4,755 (563) 45 68 141 4,169 352
Net realized gains (losses) on
investments 13,117 4,980 1 1 17 1,832 (736)
Net change in unrealized
appreciation or depreciation of
investments 30,731 116,534 (57) (183) (626) (7,667) (96)
-------- ------- ----- ----- ----- ------- ------
Net increase (decrease) in net assets
resulting from operations 48,603 120,951 (11) (114) (468) (1,666) (480)
-------- ------- ----- ----- ----- ------- ------
Policy transactions (notes 3, 4 and
5):
Policy purchase payments:
Option 1 75,613 33,794 -- -- 1,870 64,625 19,990
Option 2 57,202 35,199 -- -- 200 33,838 7,534
Option 3 -- -- -- -- -- -- --
Policy withdrawals and charges:
Option 1 (37,098) (30,739) -- -- (572) (52,565) (9,268)
Option 2 (11,323) (10,041) (2) -- (100) (12,317) (1,393)
Option 3 -- -- -- -- -- -- --
-------- ------- ----- ----- ----- ------- ------
Increase (decrease) in net assets
from policy transactions 84,394 28,213 (2) -- 1,398 33,581 16,863
-------- ------- ----- ----- ----- ------- ------
Increase (decrease) in net assets 132,997 149,164 (13) (114) 930 31,915 16,383
Net assets at the beginning of year 180,312 233,571 1,253 1,376 3,527 137,469 20,791
-------- ------- ----- ----- ----- ------- ------
Net assets at the end of year $313,309 382,735 1,240 1,262 4,457 169,384 37,174
======== ======= ===== ===== ===== ======= ======
</TABLE>
See accompanying notes to financial statements.
SA-14
<PAGE> 58
MINNESOTA LIFE VARIABLE UNIVERSAL LIFE ACCOUNT
STATEMENTS OF CHANGES IN NET ASSETS
YEAR ENDED DECEMBER 31, 1999
<TABLE>
<CAPTION>
-------------------------------------------------------------------------------
GLOBAL INDEX 400 MACRO-CAP MICRO-CAP CONTRA- HIGH- EQUITY-
BOND MID-CAP VALUE GROWTH FUND INCOME INCOME
------- --------- --------- --------- ------- ------- -------
<S> <C> <C> <C> <C> <C> <C> <C>
Operations:
Investment income (loss)--net $ 52 14,065 6 (55) 256 9,278 3,822
Net realized gains (losses) on investments (209) 147,190 424 2,613 17,423 (2,084) 21,109
Net change in unrealized appreciation or
depreciation of investments (17) 217,745 (11) 83,696 61,447 (33) (7,027)
------- --------- ------ ------- ------- ------- -------
Net increase (decrease) in net assets
resulting from operations (174) 379,000 419 86,254 79,126 7,161 17,904
------- --------- ------ ------- ------- ------- -------
Policy transactions (notes 3, 4 and 5):
Policy purchase payments:
Option 1 1,988 60,906 5,112 36,674 36,773 16,910 38,015
Option 2 1,358 31,214 49 15,714 80,655 71,198 126,505
Option 3 -- 3,059,795 -- -- -- -- --
Policy withdrawals and charges:
Option 1 (2,844) (29,229) (1,939) (5,564) (12,063) (2,182) (10,754)
Option 2 (422) (6,618) (20) (3,070) (16,951) (12,222) (88,306)
Option 3 -- (27,610) -- -- -- -- --
------- --------- ------ ------- ------- ------- -------
Increase in net assets from policy
transactions 80 3,088,458 3,202 43,754 88,415 73,704 65,460
------- --------- ------ ------- ------- ------- -------
Increase (decrease) in net assets (94) 3,467,458 3,621 130,008 167,541 80,865 83,364
Net assets at the beginning of year 1,932 68,272 3,412 36,784 271,783 80,589 326,882
------- --------- ------ ------- ------- ------- -------
Net assets at the end of year $ 1,838 3,535,730 7,033 166,792 439,324 161,454 410,246
======= ========= ====== ======= ======= ======= =======
</TABLE>
See accompanying notes to financial statements.
SA-15
<PAGE> 59
MINNESOTA LIFE VARIABLE UNIVERSAL LIFE ACCOUNT
STATEMENTS OF CHANGES IN NET ASSETS
YEAR ENDED DECEMBER 31, 1998
<TABLE>
<CAPTION>
SEGREGATED SUB-ACCOUNTS
----------------------------------------------------------------------------------------------
MONEY ASSET MORTGAGE INDEX CAPITAL
GROWTH BOND MARKET ALLOCATION SECURITIES 500 APPRECIATION
---------- ------- ---------- ---------- ---------- ----------- ------------
<S> <C> <C> <C> <C> <C> <C> <C>
Operations:
Investment income
(loss)--net $ 3,434 4,576 253,967 7,047 734 326,980 (546)
Net realized gains on
investments 119,090 1,044 -- 18,648 466 8,768,590 5,948
Net change in unrealized
appreciation or
depreciation of
investments 143,041 (718) -- 48,639 62 (1,811,375) 22,897
---------- ------- ---------- -------- ------- ----------- -------
Net increase (decrease) in net
assets resulting from
operations 265,565 4,902 253,967 74,334 1,262 7,284,195 28,299
---------- ------- ---------- -------- ------- ----------- -------
Policy transactions (notes 3, 4
and 5):
Policy purchase payments:
Option 1 175,275 35,490 3,039 397,307 60,977 950,784 22,452
Option 2 86,380 43,931 274,087 108,084 4,607 268,165 95,285
Option 3 -- -- 43,045,902 -- -- 1,414,567 --
Policy withdrawals and
charges:
Option 1 (52,090) (5,588) (224) (369,756) (7,231) (278,586) (7,061)
Option 2 (33,962) (16,895) (102,351) (31,846) (14,542) (78,116) (82,574)
Option 3 -- -- (129,618) -- -- (39,015,646) --
---------- ------- ---------- -------- ------- ----------- -------
Increase in net assets from
policy transactions 175,603 56,938 43,090,835 103,789 43,811 (36,738,832) 28,102
---------- ------- ---------- -------- ------- ----------- -------
Increase in net assets 441,168 61,840 43,344,802 178,123 45,073 (29,454,637) 56,401
Net assets at the beginning of
year 628,665 57,262 104,894 336,439 13,972 35,240,573 113,450
---------- ------- ---------- -------- ------- ----------- -------
Net assets at the end of year $1,069,833 119,102 43,449,696 514,562 59,045 5,785,936 169,851
========== ======= ========== ======== ======= =========== =======
</TABLE>
See accompanying notes to financial statements.
SA-16
<PAGE> 60
MINNESOTA LIFE VARIABLE UNIVERSAL LIFE ACCOUNT
STATEMENTS OF CHANGES IN NET ASSETS
YEAR ENDED DECEMBER 31, 1998
<TABLE>
<CAPTION>
SEGREGATED SUB-ACCOUNTS
-----------------------------------------------------------------------------
MATURING MATURING MATURING
SMALL GOVERNMENT GOVERNMENT GOVERNMENT
INTERNATIONAL COMPANY BOND BOND BOND VALUE
STOCK GROWTH 2002 2006 2010 STOCK
------------- ------- ---------- ---------- ---------- -------
<S> <C> <C> <C> <C> <C> <C>
Operations:
Investment income (loss)--net $ 2,016 (797) 154 62 125 (322)
Net realized gains (losses) on investments 3,355 (1,197) 3,003 5 42 296
Net change in unrealized appreciation or
depreciation of investments 2,975 1,092 (865) 99 199 7,607
-------- ------- ------- ----- ----- -------
Net increase (decrease) in net assets resulting
from operations 8,346 (902) 2,292 166 366 7,581
-------- ------- ------- ----- ----- -------
Policy transactions (notes 3, 4 and 5):
Policy purchase payments:
Option 1 61,080 46,416 -- -- 644 59,641
Option 2 59,942 55,208 514 -- 1,481 49,847
Option 3 -- -- -- -- -- --
Policy withdrawals and charges:
Option 1 (12,326) (47,816) -- 1 (218) (13,619)
Option 2 (9,662) (7,706) (24,476) -- (40) (35,961)
Option 3 -- -- -- -- -- --
-------- ------- ------- ----- ----- -------
Increase (decrease) in net assets from policy
transactions 99,034 46,102 (23,962) 1 1,867 59,908
-------- ------- ------- ----- ----- -------
Increase (decrease) in net assets 107,380 45,200 (21,670) 167 2,233 67,489
Net assets at the beginning of year 72,932 188,371 22,923 1,209 1,294 69,980
-------- ------- ------- ----- ----- -------
Net assets at the end of year $180,312 233,571 1,253 1,376 3,527 137,469
======== ======= ======= ===== ===== =======
</TABLE>
See accompanying notes to financial statements.
SA-17
<PAGE> 61
MINNESOTA LIFE VARIABLE UNIVERSAL LIFE ACCOUNT
STATEMENTS OF CHANGES IN NET ASSETS
YEAR ENDED DECEMBER 31, 1998
<TABLE>
<CAPTION>
SEGREGATED SUB-ACCOUNTS
---------------------------------------------------------------------------------------------
SMALL
COMPANY GLOBAL INDEX 400 MACRO-CAP MICRO-CAP CONTRA- HIGH- EQUITY-
VALUE(a) BOND(a) MID-CAP(a) VALUE(b) GROWTH(a) FUND INCOME INCOME
-------- ------- ---------- --------- --------- ------- ------- --------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Operations:
Investment income
(loss)--net $ 201 130 285 6 (28) 285 4,665 2,308
Net realized gains on
investments (515) 662 3,331 181 (173) 11,898 985 8,738
Net change in unrealized
appreciation or
depreciation of
investments (778) (78) 11,659 273 3,173 43,633 (11,163) 7,632
------- ------ ------- ------ ------ ------- ------- --------
Net increase (decrease) in net
assets resulting from
operations (1,092) 714 15,275 460 2,972 55,816 (5,513) 18,678
------- ------ ------- ------ ------ ------- ------- --------
Policy transactions (notes 3, 4
and 5):
Policy purchase payments:
Option 1 23,624 2,410 40,705 4,847 14,947 29,130 14,679 22,562
Option 2 7,615 6,278 32,349 -- 24,021 64,191 24,541 154,931
Option 3 -- -- -- -- -- -- -- --
Policy withdrawals and
charges:
Option 1 (7,902) (770) (8,423) (1,895) (3,920) (6,679) (5,480) (7,129)
Option 2 (1,454) (6,700) (11,634) -- (1,236) (12,843) (14,987) (102,946)
Option 3 -- -- -- -- -- -- -- --
------- ------ ------- ------ ------ ------- ------- --------
Increase in net assets from
policy transactions 21,883 1,218 52,997 2,952 33,812 73,799 18,753 67,418
------- ------ ------- ------ ------ ------- ------- --------
Increase in net assets 20,791 1,932 68,272 3,412 36,784 129,615 13,240 86,096
Net assets at the beginning of
year -- -- -- -- -- 142,168 67,349 240,786
------- ------ ------- ------ ------ ------- ------- --------
Net assets at the end of year $20,791 1,932 68,272 3,412 36,784 271,783 80,589 326,882
======= ====== ======= ====== ====== ======= ======= ========
</TABLE>
- ------------
(a) Period from January 22, 1998, commencement of operations, to December 31,
1998.
(b) Period from May 1, 1998, commencement of operations, to December 31, 1998.
See accompanying notes to financial statements.
SA-18
<PAGE> 62
MINNESOTA LIFE VARIABLE UNIVERSAL LIFE ACCOUNT
STATEMENTS OF CHANGES IN NET ASSETS
YEAR ENDED DECEMBER 31, 1997
<TABLE>
<CAPTION>
SEGREGATED SUB-ACCOUNTS
----------------------------------------------------------------------------------------
MONEY ASSET MORTGAGE INDEX CAPITAL
GROWTH BOND MARKET ALLOCATION SECURITIES 500 APPRECIATION
-------- ------- ------- ---------- ---------- ---------- ------------
<S> <C> <C> <C> <C> <C> <C> <C>
Operations:
Investment income (loss)--net $ 159 3,564 4,978 1,279 688 10,986 (242)
Net realized gains (losses) on
investments 20,646 (1,087) -- 8,247 7 68,096 2,989
Net change in unrealized
appreciation or depreciation of
investments 46,366 2,072 -- 19,667 358 3,334,839 13,212
-------- ------- ------- -------- ------ ---------- -------
Net increase in net assets resulting
from operations 67,171 4,549 4,978 29,193 1,053 3,413,921 15,959
-------- ------- ------- -------- ------ ---------- -------
Policy transactions (notes 3, 4 and 5):
Policy purchase payments:
Option 1 462,867 1,683 2,214 423,813 767 706,336 6,855
Option 2 98,775 69,099 146,967 81,004 11,046 280,210 144,295
Option 3 -- -- -- -- -- 29,841,774 --
Policy withdrawals and charges:
Option 1 (10,943) (260) (426) (176,099) (321) (150,168) (2,139)
Option 2 (2,810) (20,502) (51,865) (28,137) (66) (36,500) (63,028)
Option 3 -- -- -- -- -- (86,205) --
-------- ------- ------- -------- ------ ---------- -------
Increase in net assets from policy
transactions 547,889 50,020 96,890 300,581 11,426 30,555,447 85,983
-------- ------- ------- -------- ------ ---------- -------
Increase in net assets 615,060 54,569 101,868 329,774 12,479 33,969,368 101,942
Net assets at the beginning of year 13,605 2,693 3,026 6,665 1,493 1,271,205 11,508
-------- ------- ------- -------- ------ ---------- -------
Net assets at the end of year $628,665 57,262 104,894 336,439 13,972 35,240,573 113,450
======== ======= ======= ======== ====== ========== =======
<CAPTION>
SEGREGATED SUB-ACCOUNTS
------------------------
SMALL
INTERNATIONAL COMPANY
STOCK GROWTH
------------- -------
<S> <C> <C>
Operations:
Investment income (loss)--net 1,350 (549)
Net realized gains (losses) on
investments 936 558
Net change in unrealized
appreciation or depreciation of
investments 2,878 15,656
------ -------
Net increase in net assets resulting
from operations 5,164 15,665
------ -------
Policy transactions (notes 3, 4 and 5):
Policy purchase payments:
Option 1 5,510 41,540
Option 2 59,194 92,544
Option 3 -- --
Policy withdrawals and charges:
Option 1 (1,115) (11,971)
Option 2 (1,557) (2,902)
Option 3 -- --
------ -------
Increase in net assets from policy
transactions 62,032 119,211
------ -------
Increase in net assets 67,196 134,876
Net assets at the beginning of year 5,736 53,495
------ -------
Net assets at the end of year 72,932 188,371
====== =======
</TABLE>
See accompanying notes to financial statements.
SA-19
<PAGE> 63
MINNESOTA LIFE VARIABLE UNIVERSAL LIFE ACCOUNT
STATEMENTS OF CHANGES IN NET ASSETS
YEAR ENDED DECEMBER 31, 1997
<TABLE>
<CAPTION>
SEGREGATED SUB-ACCOUNTS
--------------------------------------------------------------------------------
MATURING MATURING MATURING
GOVERNMENT GOVERNMENT GOVERNMENT
BOND BOND BOND VALUE CONTRA- HIGH- EQUITY-
2002 2006 2010 STOCK FUND INCOME INCOME
---------- ---------- ---------- ------ ------- ------ -------
<S> <C> <C> <C> <C> <C> <C> <C>
Operations:
Investment income (loss)--net $ 1,072 49 45 630 406 3,376 2,473
Net realized gains on investments 28 16 10 6,224 2,623 546 8,644
Net change in unrealized appreciation or
depreciation of investments 925 65 125 (2,869) 21,165 5,276 25,183
------- ----- ----- ------ ------- ------ -------
Net increase in net assets resulting from
operations 2,025 130 180 3,985 24,194 9,198 36,300
------- ----- ----- ------ ------- ------ -------
Policy transactions (notes 3, 4 and 5):
Policy purchase payments:
Option 1 -- -- 16 10,010 1,127 2,245 3,715
Option 2 20,226 -- -- 51,647 87,544 26,845 238,885
Option 3 -- -- -- -- -- -- --
Policy withdrawals and charges:
Option 1 -- -- -- (1,724) (66) (120) (523)
Option 2 (387) -- -- (2,389) (4,462) (2,784) (69,820)
Option 3 -- -- -- -- -- -- --
------- ----- ----- ------ ------- ------ -------
Increase in net assets from policy
transactions 19,839 -- 16 57,544 84,143 26,186 172,257
------- ----- ----- ------ ------- ------ -------
Increase in net assets 21,864 130 196 61,529 108,337 35,384 208,557
Net assets at the beginning of year 1,059 1,079 1,098 8,451 33,831 31,965 32,229
------- ----- ----- ------ ------- ------ -------
Net assets at the end of year $22,923 1,209 1,294 69,980 142,168 67,349 240,786
======= ===== ===== ====== ======= ====== =======
</TABLE>
See accompanying notes to financial statements.
SA-20
<PAGE> 64
MINNESOTA LIFE VARIABLE UNIVERSAL LIFE ACCOUNT
NOTES TO FINANCIAL STATEMENTS
(1) ORGANIZATION
The Minnesota Life Variable Universal Life Account (the Account), was
established on August 8, 1994 as a segregated asset account of Minnesota Life
Insurance Company (Minnesota Life) 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 offers
three types of policies, each consisting of twenty-one segregated sub-accounts
to which policy owners may allocate their purchase payments. The Account charges
a mortality and expense risk charge, which varies based on the group-sponsored
insurance program under which the policy is issued. The differentiating features
of the policies are described in notes 2 and 3 below.
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 Life. Variable universal life policy owners
allocate their purchase payments to one or more of the twenty-one segregated
sub-accounts. Such payments are then invested in shares of Advantus Series Fund,
Inc., Fidelity Variable Insurance Products Fund II or Fidelity Variable
Insurance Products Fund (the Underlying Funds). Each of the Underlying Funds is
registered under the Investment Company Act of 1940 (as amended) as a
diversified (except Global Bond Portfolio which is non-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 Growth, Maturing Government Bond 2002,
Maturing Government Bond 2006, Maturing Government Bond 2010, Value Stock, Small
Company Value, Global Bond, Index 400 Mid-Cap, Macro-Cap Value, Micro-Cap
Growth, Contrafund, High Income and Equity-Income 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
Growth, Maturing Government Bond 2002, Maturing Government Bond 2006, Maturing
Government Bond 2010, Value Stock, Small Company Value, Global Bond, Index 400
Mid-Cap, Macro-Cap Value and Micro-Cap Growth Portfolios of the Advantus Series
Fund, Inc., Contrafund Portfolio of the Fidelity Variable Insurance Products
Fund II and High Income and Equity-Income Portfolios of the Fidelity Variable
Insurance Products Fund, respectively.
Ascend Financial Services, Inc. acts as the underwriter for the Account.
Advantus Capital Management, Inc. acts as the investment adviser for the
Advantus Series Fund, Inc. Ascend Financial Services, Inc. is a wholly-owned
subsidiary of Advantus Capital Management, Inc. and Advantus Capital Management,
Inc. is a wholly-owned subsidiary of Minnesota Life.
(2) SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
Use of Estimates
The preparation of financial statements in conformity with generally accepted
accounting principles requires management to make estimates and assumptions that
affect the reported amounts of assets and liabilities and disclosure of
contingent assets and liabilities at the date of the financial statements and
the reported amounts of increases and decreases in net assets resulting from
operations during the period. Actual results could differ from those estimates.
Investments in Underlying Funds
Investments in shares of the Underlying Funds are stated at market value which
is the net asset value per share as determined daily by each of the Underlying
Funds. 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 Underlying Funds are
reinvested in additional shares of the Underlying Funds and are recorded by the
sub-accounts on the ex-dividend date.
SA-21
<PAGE> 65
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
MINNESOTA LIFE VARIABLE UNIVERSAL LIFE ACCOUNT
(2) SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)
Federal Income Taxes
The Account is treated as part of Minnesota Life for federal income tax
purposes. Under current interpretations of existing federal income tax law, no
income taxes are payable on investment income or capital gain distributions
received by the Account from the Underlying Funds.
(3) MORTALITY AND EXPENSE AND OTHER POLICY CHARGES
Mortality and Expense and Other Policy Charges--Option 1:
The mortality and expense charge paid to Minnesota Life is computed daily and is
equal, on an annual basis, to .50 percent of the average daily net assets of the
Account. This charge is an expense of the Account and is deducted daily from net
assets of the Account.
Policy purchase payments are reflected net of the following charges paid to
Minnesota Life:
A sales load of up to 5 percent is deducted from each premium payment.
Total sales charges deducted from premium payments for the years ended
December 31, 1999, 1998 and 1997 amounted to $79,715, $62,873 and $59,103,
respectively.
A premium tax charge in the amount of .75 to 3.50 percent is deducted from
each premium payment. Premium taxes are paid to state and local
governments. Total premium tax charges deducted from premium payments for
the years ended December 31, 1999, 1998 and 1997 amounted to $60,515,
$46,958 and $40,561, respectively.
A federal tax charge of up to .25 percent for group-sponsored policies and
up to 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 Life under the Omnibus Budget
Reconciliation Act of 1990. Total federal tax charges for the years ended
December 31, 1999, 1998 and 1997 amounted to $14,400, $11,463 and $13,345,
respectively.
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 Life. The amount of the partial surrender charge is the lesser of $25
or two 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.
SA-22
<PAGE> 66
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
MINNESOTA LIFE VARIABLE UNIVERSAL LIFE ACCOUNT
(3) MORTALITY AND EXPENSE AND OTHER POLICY CHARGES (CONTINUED)
Mortality and Expense and Other Policy Charges--Option 1: continued
The total of cash value charges for the periods ended December 31, 1999,
1998 and 1997 for each segregated sub-account are as follows:
<TABLE>
<CAPTION>
1999 1998 1997
-------- -------- --------
<S> <C> <C> <C>
Growth $ 46,085 $ 40,949 $ 10,042
Bond 13,919 4,248 262
Money Market 2,463 137 426
Asset Allocation 46,380 71,457 16,920
Mortgage Securities 24,938 6,313 321
Index 500 300,102 216,911 123,551
Capital Appreciation 10,820 4,161 1,238
International Stock 22,057 9,357 957
Small Company Growth 14,500 15,317 11,647
Maturing Government Bond 2002 -- -- --
Maturing Government Bond 2006 -- -- --
Maturing Government Bond 2010 572 218 1
Value Stock 19,640 10,797 1,724
Small Company Value 5,102 4,286 --
Global Bond 920 769 --
Index 400 Mid-Cap 18,297 5,847 --
Macro-Cap Value 1,721 975 --
Micro-Cap Growth 3,745 1,705 --
Contrafund 8,167 5,031 66
High-Income 1,754 2,774 116
Equity-Income 8,441 5,003 523
</TABLE>
Mortality and Expense and Other Policy Charges--Option 2:
The mortality and expense charge paid to Minnesota Life is computed daily and is
equal, on an annual basis, to .25 percent of the average daily net assets of the
Account. This charge is an expense of the Account and is deducted daily from net
assets of the Account.
Policy purchase payments are reflected net of the following charges paid to
Minnesota Life:
A premium tax charge ranging in the amount of .75 to 3.50 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 year ended December 31, 1999, 1998 and for the period from January
24, 1997, commencement of operations, to December 31, 1997 amounted to
$15,342, $13,119 and $7,439, respectively.
A federal tax charge of up to .25 percent for group-sponsored policies and
up to 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 Life under the Omnibus Budget
Reconciliation Act of 1990. Total federal tax charges for the year ended
December 31, 1999, 1998 and for the period from January 24, 1997,
commencement of operations, to December 31, 1997 amounted to $1,918, $1,640
and $931, respectively.
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
SA-23
<PAGE> 67
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
MINNESOTA LIFE VARIABLE UNIVERSAL LIFE ACCOUNT
(3) MORTALITY AND EXPENSE AND OTHER POLICY CHARGES (CONTINUED)
Mortality and Expense and Other Policy Charges--Option 2: continued
program and ranges from $1 to $4 per month. The partial surrender charge is to
cover administrative costs incurred by Minnesota Life. 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 each segregated sub-account for the
periods ended December 31, 1999, 1998 and 1997 are as follows:
<TABLE>
<CAPTION>
1999 1998 1997
------- ------- ------
<S> <C> <C> <C>
Growth $12,531 $ 7,085 $2,078
Bond 2,268 2,156 614
Money Market 3,238 2,792 864
Asset Allocation 6,926 5,964 3,121
Mortgage Securities 492 268 66
Index 500 33,830 19,388 9,012
Capital Appreciation 6,097 4,813 1,713
International Stock 4,200 3,007 932
Small Company Growth 4,752 3,685 2,293
Maturing Government Bond 2002 -- 367 387
Maturing Government Bond 2006 -- -- --
Maturing Government Bond 2010 51 40 --
Value Stock 4,531 4,673 1,744
Small Company Value 681 408 --
Global Bond 420 246 --
Index 400 Mid-Cap 2,052 1,705 --
Macro-Cap Value 20 -- --
Micro-Cap Growth 2,188 1,054 --
Contrafund 7,425 6,440 3,024
High-Income 2,155 1,358 590
Equity-Income 9,036 10,365 5,217
</TABLE>
Mortality and Expense and Other Policy Charges--Option 3:
Policy purchase payments are reflected net of the following charges paid to
Minnesota Life:
A premium tax charge in the amount of .75 to 3.50 percent is deducted from
each premium payment. Premium taxes are paid to state and local
governments. Total premium tax charges deducted from premium payments for
the years ended December 31, 1999, 1998 and for the period from June 24,
1997, commencement of operations, to December 31, 1997 amounted to $51,194,
$116,661 and $612,208, respectively.
A federal tax charge of up to .25 percent for group-sponsored policies and
up to 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 Life under the Omnibus Budget
Reconciliation Act of 1990. Total federal tax charges for the years ended
December 31, 1999, 1998 and for the period from June 24, 1997, commencement
of operations, to December 31, 1997 amounted to $31,996, $72,913 and
$382,630, respectively.
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
SA-24
<PAGE> 68
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
MINNESOTA LIFE VARIABLE UNIVERSAL LIFE ACCOUNT
(3) MORTALITY AND EXPENSE AND OTHER POLICY CHARGES (CONTINUED)
Mortality and Expense and Other Policy Charges--Option 3: continued
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
Life. 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 periods ended December 31, 1999,
1998 and 1997 for the segregated sub-accounts are as follows:
<TABLE>
<CAPTION>
1999 1998 1997
-------- -------- -------
<S> <C> <C> <C>
Growth $ 28,314 $ -- $ --
Money Market 297,515 129,618 --
Index 500 59,691 193,356 86,194
Index 400 Mid-Cap 27,478 -- --
</TABLE>
(4) INVESTMENT TRANSACTIONS
The Account's purchases of Underlying Fund shares, including reinvestment of
dividend distributions, were as follows during the periods ended December 31,
1999, 1998 and 1997:
<TABLE>
<CAPTION>
1999 1998 1997
---------- ----------- -----------
<S> <C> <C> <C>
Growth $3,422,682 $ 382,423 $ 582,963
Bond 85,804 85,293 74,471
Money Market 3,868,378 43,577,559 154,428
Asset Allocation 309,886 538,489 510,091
Mortgage Securities 102,737 66,426 12,534
Index 500 2,761,459 3,189,579 30,874,280
Capital Appreciation 136,360 126,865 162,137
International Stock 148,434 125,749 66,972
Small Company Growth 68,993 101,623 134,086
Maturing Government Bond 2002 50 805 21,351
Maturing Government Bond 2006 75 74 70
Maturing Government Bond 2010 2,230 2,264 76
Value Stock 103,062 109,627 68,291
Small Company Value 27,974 31,492 --
Global Bond 3,417 8,885 --
Index 400 Mid-Cap 3,309,409 74,673 --
Macro-Cap Value 5,456 5,000 --
Micro-Cap Growth 52,388 38,968 --
Contrafund 130,041 108,184 92,417
High-Income 100,143 50,898 33,456
Equity-Income 189,727 187,823 258,843
</TABLE>
SA-25
<PAGE> 69
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
MINNESOTA LIFE VARIABLE UNIVERSAL LIFE ACCOUNT
(5) UNIT ACTIVITY FROM POLICY TRANSACTIONS:
Unit Activity from Policy Transactions--Option 1:
Transactions in units for each segregated sub-account for the periods ended
December 31, 1999, 1998 and 1997 were as follows:
<TABLE>
<CAPTION>
SEGREGATED SUB-ACCOUNTS
---------------------------------------------------------------------
MONEY ASSET MORTGAGE
GROWTH BOND MARKET ALLOCATION SECURITIES INDEX 500
------- ------- ------ ---------- ---------- ---------
<S> <C> <C> <C> <C> <C> <C>
Units outstanding at December 31, 1996 10,583 2,462 2,822 5,376 1,353 902,194
Policy purchase payments 335,871 1,499 2,028 309,527 673 435,584
Deductions for policy withdrawals and
charges (49,355) (242) (397) (127,460) (283) (105,793)
------- ------- ------ -------- ------- ---------
Units outstanding at December 31, 1997 297,099 3,719 4,453 187,443 1,743 1,231,985
Policy purchase payments 96,463 28,311 2,651 250,311 48,273 441,674
Deductions for policy withdrawals and
charges (26,579) (4,497) (195) (244,928) (5,738) (135,365)
------- ------- ------ -------- ------- ---------
Units outstanding at December 31, 1998 366,983 27,533 6,909 192,826 44,278 1,538,294
Policy purchase payments 103,089 47,364 4,499 60,720 74,272 574,671
Deductions for policy withdrawals and
charges (50,528) (21,399) (7,775) (79,526) (31,122) (158,493)
------- ------- ------ -------- ------- ---------
Units outstanding at December 31, 1999 419,544 53,498 3,633 174,020 87,428 1,954,472
======= ======= ====== ======== ======= =========
</TABLE>
<TABLE>
<CAPTION>
SEGREGATED SUB-ACCOUNTS
--------------------------------------------------------------------
SMALL MATURING GOVERNMENT
CAPITAL INTERNATIONAL COMPANY GOVERNMENT MATURING
APPRECIATION STOCK GROWTH BOND 2002 BOND 2006
------------ ------------- ------- ---------- ----------
<S> <C> <C> <C> <C> <C>
Units outstanding at December 31, 1996 8,725 4,601 41,743 1,000 1,000
Policy purchase payments 4,705 4,088 32,876 -- --
Deductions for policy withdrawals and
charges (1,504) (832) (10,074) -- --
------ ------- ------- ----- -----
Units outstanding at December 31, 1997 11,926 7,857 64,545 1,000 1,000
Policy purchase payments 12,007 44,437 35,516 -- --
Deductions for policy withdrawals and
charges (3,869) (8,392) (38,240) -- --
------ ------- ------- ----- -----
Units outstanding at December 31, 1998 20,064 43,902 61,821 1,000 1,000
Policy purchase payments 17,319 47,109 23,997 -- --
Deductions for policy withdrawals and
charges (6,853) (22,937) (20,725) -- --
------ ------- ------- ----- -----
Units outstanding at December 31, 1999 30,530 68,074 65,093 1,000 1,000
====== ======= ======= ===== =====
</TABLE>
SA-26
<PAGE> 70
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
MINNESOTA LIFE VARIABLE UNIVERSAL LIFE ACCOUNT
(5) UNIT ACTIVITY FROM POLICY TRANSACTIONS (CONTINUED)
Unit Activity from Policy Transactions--Option 1: continued
<TABLE>
<CAPTION>
SEGREGATED SUB-ACCOUNTS
-----------------------------------------------------
MATURING SMALL INDEX
GOVERNMENT VALUE COMPANY GLOBAL 400
BOND 2010 STOCK VALUE BOND MID-CAP
---------- ------- ------- ------ -------
<S> <C> <C> <C> <C> <C>
Units outstanding at December 31, 1996 1,000 5,585 -- -- --
Policy purchase payments 12 5,958 -- -- --
Deductions for policy withdrawals and charges -- (1,007) -- -- --
----- ------- ------- ------ -------
Units outstanding at December 31, 1997 1,012 10,536 -- -- --
Policy purchase payments 458 34,961 25,192 2,266 50,672
Deductions for policy withdrawals and charges (153) (7,700) (8,581) (730) (8,943)
----- ------- ------- ------ -------
Units outstanding at December 31, 1998 1,317 37,797 16,611 1,536 41,729
Policy purchase payments 1,397 34,214 23,637 1,860 56,106
Deductions for policy withdrawals and charges (428) (28,494) (11,126) (2,703) (26,640)
----- ------- ------- ------ -------
Units outstanding at December 31, 1999 2,286 43,517 29,122 693 71,195
===== ======= ======= ====== =======
</TABLE>
<TABLE>
<CAPTION>
SEGREGATED SUB-ACCOUNTS
-----------------------------------------------------
MACRO-CAP MICRO-CAP CONTRA- HIGH EQUITY
VALUE GROWTH FUND INCOME INCOME
--------- --------- ------- ------ ------
<S> <C> <C> <C> <C> <C>
Units outstanding at December 31, 1996 -- -- 30,361 29,956 30,306
Policy purchase payments -- -- 899 2,022 3,161
Deductions for policy withdrawals and charges -- -- (52) (124) (443)
------ ------ ------ ------ ------
Units outstanding at December 31, 1997 -- -- 31,208 31,854 33,024
Policy purchase payments 5,016 16,249 19,012 12,031 15,666
Deductions for policy withdrawals and charges (1,906) (4,229) (4,342) (4,464) (5,154)
------ ------ ------ ------ ------
Units outstanding at December 31, 1998 3,110 12,020 45,878 39,421 43,536
Policy purchase payments 4,591 25,098 19,138 13,483 23,986
Deductions for policy withdrawals and charges (1,717) (3,866) (6,252) (1,746) (6,693)
------ ------ ------ ------ ------
Units outstanding at December 31, 1999 5,984 33,252 58,764 51,158 60,829
====== ====== ====== ====== ======
</TABLE>
SA-27
<PAGE> 71
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
MINNESOTA LIFE VARIABLE UNIVERSAL LIFE ACCOUNT
(5) UNIT ACTIVITY FROM POLICY TRANSACTIONS (CONTINUED)
Unit Activity from Policy Transactions--Option 2:
Transactions in units for each segregated sub-account for the periods ended
December 31, 1999, 1998 and 1997 were as follows:
<TABLE>
<CAPTION>
SEGREGATED SUB-ACCOUNTS
-------------------------------------------------------------------------------
MONEY ASSET MORTGAGE INDEX CAPITAL
GROWTH BOND MARKET ALLOCATION SECURITIES 500 APPRECIATION
------- ------- -------- ---------- ---------- ------- ------------
<S> <C> <C> <C> <C> <C> <C> <C>
Units outstanding at December 31, 1996 -- -- -- -- -- -- --
Policy purchase payments 95,561 98,245 145,825 79,600 11,046 327,703 140,211
Deductions for policy withdrawals and charges (2,997) (49,950) (50,225) (27,437) (147) (90,917) (66,657)
------- ------- -------- ------- ------- ------- -------
Units outstanding at December 31, 1997 92,564 48,295 95,600 52,163 10,899 236,786 73,554
Policy purchase payments 59,637 39,490 257,171 87,742 4,053 192,364 69,526
Deductions for policy withdrawals and charges (22,015) (14,867) (95,709) (25,076) (12,547) (53,396) (67,002)
------- ------- -------- ------- ------- ------- -------
Units outstanding at December 31, 1998 130,186 72,918 257,062 114,829 2,405 375,754 76,078
Policy purchase payments 43,464 17,057 18,011 103,218 3,920 261,431 47,528
Deductions for policy withdrawals and charges (9,972) (6,359) (131,371) (24,688) (661) (69,949) (6,266)
------- ------- -------- ------- ------- ------- -------
Units outstanding at December 31, 1999 163,678 83,616 143,702 193,359 5,664 567,236 117,340
======= ======= ======== ======= ======= ======= =======
</TABLE>
<TABLE>
<CAPTION>
SEGREGATED SUB-ACCOUNTS
---------------------------------------------------------------------
SMALL MATURING MATURING SMALL
INTERNATIONAL COMPANY GOVERNMENT GOVERNMENT VALUE COMPANY
STOCK GROWTH BOND 2002 BOND 2010 STOCK VALUE
------------- ------- ---------- ---------- ------- -------
<S> <C> <C> <C> <C> <C> <C>
Units outstanding at December 31, 1996 -- -- -- -- -- --
Policy purchase payments 87,295 124,772 20,227 46,627
Deductions for policy withdrawals and charges (31,311) (33,022) (369) -- (3,033) --
------- ------- ------- ----- ------- ------
Units outstanding at December 31, 1997 55,984 91,750 19,858 -- 43,594 --
Policy purchase payments 49,950 50,188 457 1,471 43,327 7,544
Deductions for policy withdrawals and charges (7,857) (7,059) (20,310) (38) (29,695) (1,392)
------- ------- ------- ----- ------- ------
Units outstanding at December 31, 1998 98,077 134,879 5 1,433 57,226 6,152
Policy purchase payments 45,128 31,756 -- 198 28,563 8,329
Deductions for policy withdrawals and charges (8,554) (8,390) (1) (95) (10,280) (1,534)
------- ------- ------- ----- ------- ------
Units outstanding at December 31, 1999 134,651 158,245 4 1,536 75,509 12,947
======= ======= ======= ===== ======= ======
</TABLE>
SA-28
<PAGE> 72
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
MINNESOTA LIFE VARIABLE UNIVERSAL LIFE ACCOUNT
(5) UNIT ACTIVITY FROM POLICY TRANSACTIONS (CONTINUED)
Unit Activity from Policy Transactions--Option 2: continued
<TABLE>
<CAPTION>
SEGREGATED SUB-ACCOUNTS
------------------------------------------------------------------------
GLOBAL INDEX 400 MACRO-CAP MICRO-CAP CONTRA- HIGH EQUITY
BOND MID-CAP VALUE GROWTH FUND INCOME INCOME
------ --------- --------- --------- ------- ------- -------
<S> <C> <C> <C> <C> <C> <C> <C>
Units outstanding at December 31,
1996 -- -- -- -- -- -- --
Policy purchase payments -- -- -- -- 86,803 26,593 228,062
Deductions for policy withdrawals
and charges -- -- -- -- (4,909) (2,861) (71,197)
------ ------- --- ------ ------- ------- -------
Units outstanding at December 31,
1997 -- -- -- -- 81,894 23,732 156,865
Policy purchase payments 6,237 30,899 -- 24,167 48,607 20,833 117,650
Deductions for policy withdrawals
and charges (6,036) (10,304) -- (1,255) (9,466) (14,144) (86,288)
------ ------- --- ------ ------- ------- -------
Units outstanding at December 31,
1998 201 20,595 -- 22,912 121,035 30,421 188,227
Policy purchase payments 1,266 26,984 48 10,056 48,240 60,273 85,229
Deductions for policy withdrawals
and charges (392) (5,362) (19) (1,781) (10,045) (10,400) (60,668)
------ ------- --- ------ ------- ------- -------
Units outstanding at December 31,
1999 1,075 42,217 29 31,187 159,230 80,294 212,788
====== ======= === ====== ======= ======= =======
</TABLE>
Unit Activity from Policy Transactions--Option 3:
Transactions in units for each segregated sub-account for the periods ended
December 31, 1999, 1998 and 1997 were as follows:
<TABLE>
<CAPTION>
MONEY
GROWTH MARKET
--------- ----------
<S> <C> <C>
Units outstanding December 31, 1997 -- --
Policy purchase payments -- 42,064,010
Deductions for policy withdrawals and charges -- (115,052)
--------- ----------
Units outstanding December 31, 1998 -- 41,948,958
Policy purchase payments 3,059,683 1,772,223
Deductions for policy withdrawals and charges (26,639) (6,057,477)
--------- ----------
Units outstanding December 31, 1999 3,033,043 37,663,704
========= ==========
</TABLE>
<TABLE>
<CAPTION>
INDEX 400
INDEX 500 MID-CAP
----------- ---------
<S> <C> <C>
Units outstanding December 31, 1996 -- --
Policy purchase payments 29,932,879 --
Deductions for policy withdrawals and charges (2,102,892) --
----------- ---------
Units outstanding December 31, 1997 27,829,987 --
Policy purchase payments 1,011,961 --
Deductions for policy withdrawals and charges (27,812,550) --
----------- ---------
Units outstanding December 31, 1998 1,029,398 --
Policy purchase payments 378,324 3,059,683
Deductions for policy withdrawals and charges (36,665) (26,639)
----------- ---------
Units outstanding December 31, 1999 1,371,057 3,033,044
=========== =========
</TABLE>
SA-29
<PAGE> 73
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
MINNESOTA LIFE VARIABLE UNIVERSAL LIFE ACCOUNT
(6) FINANCIAL HIGHLIGHTS
Financial Highlights--Option 1:
The following tables for each segregated sub-account show certain data for an
accumulation unit outstanding during the periods indicated:
<TABLE>
<CAPTION>
GROWTH BOND
---------------------------------------- ---------------------------------------
1999 1998 1997 1996 1995(a) 1999 1998 1997 1996 1995(a)
----- ---- ---- ---- ------- ---- ---- ---- ---- -------
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
Unit value, beginning of period $2.29 1.71 1.29 1.10 1.00 1.26 1.19 1.09 1.07 1.00
----- ---- ---- ---- ----- ---- ---- ---- ---- -----
Income from investment operations:
Net investment income (loss) -- .01 (.01) -- (.01) .03 .02 .05 .05 --
Net gains or losses on
securities (both realized and
unrealized) .57 57 .43 .19 .11 (.07) .05 .05 (.03) .07
----- ---- ---- ---- ----- ---- ---- ---- ---- -----
Total from investment
operations .57 58 .42 .19 .10 (.04) .07 .10 .02 .07
----- ---- ---- ---- ----- ---- ---- ---- ---- -----
Unit value, end of period $2.86 2.29 1.71 1.29 1.10 1.22 1.26 1.19 1.09 1.07
===== ==== ==== ==== ===== ==== ==== ==== ==== =====
</TABLE>
<TABLE>
<CAPTION>
MONEY MARKET ASSET ALLOCATION
---------------------------------------- ---------------------------------------
1999 1998 1997 1996 1995(a) 1999 1998 1997 1996 1995(a)
----- ---- ---- ---- ------- ---- ---- ---- ---- -------
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
Unit value, beginning of period $1.17 1.12 1.07 1.03 1.00 1.81 1.47 1.24 1.11 1.00
----- ---- ---- ---- ----- ---- ---- ---- ---- -----
Income from investment operations:
Net investment income .05 .05 .05 .04 .03 .06 .02 -- .02 --
Net gains or losses on
securities (both realized and
unrealized) -- -- -- -- -- .20 .32 .23 .11 .11
----- ---- ---- ---- ----- ---- ---- ---- ---- -----
Total from investment
operations .05 .05 .05 .04 .03 .26 .34 .23 .13 .11
----- ---- ---- ---- ----- ---- ---- ---- ---- -----
Unit value, end of period $1.22 1.17 1.12 1.07 1.03 2.07 1.81 1.47 1.24 1.11
===== ==== ==== ==== ===== ==== ==== ==== ==== =====
</TABLE>
<TABLE>
<CAPTION>
MORTGAGE SECURITIES INDEX 500
---------------------------------------- ---------------------------------------
1999 1998 1997 1996 1995(a) 1999 1998 1997 1996 1995(a)
----- ---- ---- ---- ------- ---- ---- ---- ---- -------
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
Unit value, beginning of period $1.27 1.20 1.10 1.05 1.00 2.36 1.86 1.41 1.16 1.00
----- ---- ---- ---- ----- ---- ---- ---- ---- -----
Income from investment operations:
Net investment income (loss) .04 -- .06 .06 (.01) .04 .01 .01 .01 (.01)
Net gains or losses on
securities (both realized and
unrealized) (.02) .07 .04 (.01) .06 .43 .49 .44 .24 .17
----- ---- ---- ---- ----- ---- ---- ---- ---- -----
Total from investment
operations .02 .07 .10 .05 .05 .47 .50 .45 .25 .16
----- ---- ---- ---- ----- ---- ---- ---- ---- -----
Unit value, end of period $1.29 1.27 1.20 1.10 1.05 2.83 2.36 1.86 1.41 1.16
===== ==== ==== ==== ===== ==== ==== ==== ==== =====
</TABLE>
- ------------
(a) Period from March 8, 1995, commencement of operations, to December 31, 1995.
SA-30
<PAGE> 74
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
MINNESOTA LIFE VARIABLE UNIVERSAL LIFE ACCOUNT
(6) FINANCIAL HIGHLIGHTS (CONTINUED)
Financial Highlights--Option 1: continued
<TABLE>
<CAPTION>
CAPITAL APPRECIATION INTERNATIONAL STOCK
---------------------------------------- ---------------------------------------
1999 1998 1997 1996 1995(a) 1999 1998 1997 1996 1995(a)
----- ---- ---- ---- ------- ---- ---- ---- ---- -------
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
Unit value, beginning of period $2.19 1.68 1.32 1.13 1.00 1.47 1.39 1.25 1.05 1.00
----- ---- ---- ---- ---- ---- ---- ---- ---- ----
Income from investment operations:
Net investment income (loss) (.01) (.01) (.01) (.01) -- .03 -- .03 .02 --
Net gains or losses on securities
(both realized and unrealized) .47 .52 .37 .20 .13 .28 .08 .11 .18 .05
----- ---- ---- ---- ---- ---- ---- ---- ---- ----
Total from investment operations .46 .51 .36 .19 .13 .31 .08 .14 .20 .05
----- ---- ---- ---- ---- ---- ---- ---- ---- ----
Unit value, end of period $2.65 2.19 1.68 1.32 1.13 1.78 1.47 1.39 1.25 1.05
===== ==== ==== ==== ==== ==== ==== ==== ==== ====
</TABLE>
<TABLE>
<CAPTION>
MATURING GOVERNMENT
SMALL COMPANY GROWTH BOND 2002
---------------------------------------- -------------------------------
1999 1998 1997 1996 1995(a) 1999 1998 1997 1996(b)
----- ---- ---- ---- ------- ---- ---- ---- -------
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C>
Unit value, beginning of period $1.38 1.37 1.28 1.21 1.00 1.25 1.14 1.06 1.00
----- ---- ---- ---- ---- ---- ---- ---- ----
Income from investment operations:
Net investment income (loss) -- -- (.01) (.01) -- .04 .06 .05 .06
Net gains or losses on securities
(both realized and unrealized) .63 .01 .10 .08 .21 (.05) .05 .03 --
----- ---- ---- ---- ---- ---- ---- ---- ----
Total from investment operations .63 .01 .09 .07 .21 (.01) .11 .08 .06
----- ---- ---- ---- ---- ---- ---- ---- ----
Unit value, end of period $2.01 1.38 1.37 1.28 1.21 1.24 1.25 1.14 1.06
===== ==== ==== ==== ==== ==== ==== ==== ====
</TABLE>
<TABLE>
<CAPTION>
MATURING GOVERNMENT BOND
2006
-------------------------------
1999 1998 1997 1996(b)
----- ---- ---- -------
<S> <C> <C> <C> <C>
Unit value, beginning of period $1.38 1.21 1.08 1.00
----- ---- ---- ----
Income from investment operations:
Net investment income (loss) .06 .06 .05 .06
Net gains or losses on securities (both realized and
unrealized) (.18) .11 .08 .02
----- ---- ---- ----
Total from investment operations (.12) .17 .13 .08
----- ---- ---- ----
Unit value, end of period $1.26 1.38 1.21 1.08
===== ==== ==== ====
</TABLE>
- ------------
(a) Period from March 8, 1995, commencement of operations, to December 31, 1995.
(b) Period from May 1, 1996, commencement of operations, to December 31, 1996.
SA-31
<PAGE> 75
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
MINNESOTA LIFE VARIABLE UNIVERSAL LIFE ACCOUNT
(6) FINANCIAL HIGHLIGHTS (CONTINUED)
Financial Highlights--Option 1: continued
<TABLE>
<CAPTION>
MATURING GOVERNMENT
BOND 2010 VALUE STOCK
-------------------------------- ---------------------------------------
1999 1998 1997 1996(b) 1999 1998 1997 1996 1995(a)
----- ---- ---- ------- ---- ---- ---- ---- -------
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C>
Unit value, beginning of period $1.46 1.29 1.10 1.00 1.85 1.83 1.51 1.16 1.00
----- ---- ---- ---- ---- ---- ---- ---- ----
Income from investment operations:
Net investment income (loss) .05 .05 .05 -- .04 -- .02 .01 .01
Net gains or losses on securities (both
realized and unrealized) (.22) .12 .14 .10 (.05) .02 .30 .34 .15
----- ---- ---- ---- ---- ---- ---- ---- ----
Total from investment operations (.17) .17 .19 .10 (.01) .02 .32 .35 .16
----- ---- ---- ---- ---- ---- ---- ---- ----
Unit value, end of period $1.29 1.46 1.29 1.10 1.84 1.85 1.83 1.51 1.16
===== ==== ==== ==== ==== ==== ==== ==== ====
</TABLE>
<TABLE>
<CAPTION>
SMALL COMPANY GLOBAL INDEX 400 MACRO-CAP MICRO-CAP
VALUE BOND MID-CAP VALUE GROWTH
---------------- --------------- --------------- --------------- ---------------
1999 1998(c) 1999 1998(c) 1999 1998(c) 1999 1998(c) 1999 1998(c)
----- ------- ---- ------- ---- ------- ---- ------- ---- -------
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
Unit value, beginning of period $.90 1.00 1.11 1.00 1.05 1.00 1.10 1.00 1.02 1.00
----- ---- ---- ---- ---- ---- ---- ---- ---- ----
Income from investment
operations:
Net investment income (loss) -- -- .03 -- -- .01 -- -- -- --
Net gains or losses on
securities (both realized
and unrealized) (.04) (.10) (.12) .11 .15 .04 .07 .10 1.51 .02
----- ---- ---- ---- ---- ---- ---- ---- ---- ----
Total from investment
operations (.04) (.10) (.09) .11 .15 .05 .07 .10 1.51 .02
----- ---- ---- ---- ---- ---- ---- ---- ---- ----
Unit value, end of period $.86 .90 1.02 1.11 1.20 1.05 1.17 1.10 2.53 1.02
===== ==== ==== ==== ==== ==== ==== ==== ==== ====
</TABLE>
<TABLE>
<CAPTION>
CONTRAFUND HIGH-INCOME
-------------------------------- -------------------------------
1999 1998 1997 1996(b) 1999 1998 1997 1996(b)
----- ---- ---- ------- ---- ---- ---- -------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Unit value, beginning of period $1.78 1.37 1.11 1.00 1.19 1.25 1.07 1.00
----- ---- ---- ---- ---- ---- ---- ----
Income from investment operations:
Net investment income (loss) -- -- -- (.01) .09 -- .07 --
Net gains or losses on securities (both realized and
unrealized) .42 .41 .26 .12 -- (.06) .11 .07
----- ---- ---- ---- ---- ---- ---- ----
Total from investment operations .42 .41 .26 .11 .09 (.06) .18 .07
----- ---- ---- ---- ---- ---- ---- ----
Unit value, end of period $2.20 1.78 1.37 1.11 1.28 1.19 1.25 1.07
===== ==== ==== ==== ==== ==== ==== ====
</TABLE>
<TABLE>
<CAPTION>
EQUITY-INCOME
--------------------------------
1999 1998 1997 1996(b)
----- ---- ---- -------
<S> <C> <C> <C> <C>
Unit value, beginning of period $1.51 1.36 1.06 1.00
----- ---- ---- ----
Income from investment operations:
Net investment income (loss) -- -- .01 --
Net gains or losses on securities (both realized and
unrealized) .08 .15 .29 .06
----- ---- ---- ----
Total from investment operations .08 .15 .30 .06
----- ---- ---- ----
Unit value, end of period $1.59 1.51 1.36 1.06
===== ==== ==== ====
</TABLE>
- ------------
(a) Period from March 8, 1995, commencement of operations, to December 31, 1995.
(b) Period from May 1, 1996, commencement of operations, to December 31, 1996.
(c) Period from May 1, 1998, commencement of operations, to December 31, 1998.
SA-32
<PAGE> 76
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
MINNESOTA LIFE VARIABLE UNIVERSAL LIFE ACCOUNT
(6) FINANCIAL HIGHLIGHTS (CONTINUED)
Financial Highlights--Option 2:
The following tables for each segregated sub-account show certain data for an
accumulation unit outstanding during the periods indicated:
<TABLE>
<CAPTION>
GROWTH BOND
------------------------ -----------------------
1999 1998 1997(b) 1999 1998 1997(b)
----- ---- ------- ---- ---- -------
<S> <C> <C> <C> <C> <C> <C>
Unit value, beginning of period $1.77 1.31 1.00 1.16 1.10 1.00
----- ---- ---- ---- ---- ----
Income from investment operations:
Net investment income -- .01 .01 .05 .06 .08
Net gains or losses on securities (both realized and
unrealized) .44 .45 .30 (.09) -- .02
----- ---- ---- ---- ---- ----
Total from investment operations .44 .46 .31 (.04) .06 .10
----- ---- ---- ---- ---- ----
Unit value, end of period $2.21 1.77 1.31 1.12 1.16 1.10
===== ==== ==== ==== ==== ====
</TABLE>
<TABLE>
<CAPTION>
MONEY MARKET ASSET ALLOCATION
------------------------ -----------------------
1999 1998 1997(b) 1999 1998 1997(b)
----- ---- ------- ---- ---- -------
<S> <C> <C> <C> <C> <C> <C>
Unit value, beginning of period $1.09 1.05 1.00 1.45 1.18 1.00
----- ---- ---- ---- ---- ----
Income from investment operations:
Net investment income .05 .04 .05 .06 .03 .02
Net gains or losses on securities (both realized and
unrealized) -- -- -- .15 .24 .16
----- ---- ---- ---- ---- ----
Total from investment operations .05 .04 .05 .21 .27 .18
----- ---- ---- ---- ---- ----
Unit value, end of period $1.14 1.09 1.05 1.66 1.45 1.18
===== ==== ==== ==== ==== ====
</TABLE>
<TABLE>
<CAPTION>
MORTGAGE SECURITIES INDEX 500
------------------------ -----------------------
1999 1998 1997(b) 1999 1998 1997(a)
----- ---- ------- ---- ---- -------
<S> <C> <C> <C> <C> <C> <C>
Unit value, beginning of period $1.16 1.09 1.00 1.62 1.27 1.00
----- ---- ---- ---- ---- ----
Income from investment operations:
Net investment income .05 .07 .06 .03 .01 .01
Net gains or losses on securities (both realized and
unrealized) (.03) -- .03 .29 .34 .26
----- ---- ---- ---- ---- ----
Total from investment operations .02 .07 .09 .32 .35 .27
----- ---- ---- ---- ---- ----
Unit value, end of period $1.18 1.16 1.09 1.94 1.62 1.27
===== ==== ==== ==== ==== ====
</TABLE>
- ------------
(a) Period from January 24, 1997, commencement of operations, to December 31,
1997.
(b) Period from January 29, 1997, commencement of operations, to December 31,
1997.
SA-33
<PAGE> 77
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
MINNESOTA LIFE VARIABLE UNIVERSAL LIFE ACCOUNT
(6) FINANCIAL HIGHLIGHTS (CONTINUED)
Financial Highlights--Option 2: continued
<TABLE>
<CAPTION>
CAPITAL APPRECIATION INTERNATIONAL STOCK
------------------------ -----------------------
1999 1998 1997(b) 1999 1998 1997(b)
----- ---- ------- ---- ---- -------
<S> <C> <C> <C> <C> <C> <C>
Unit value, beginning of period $1.66 1.27 1.00 1.18 1.11 1.00
----- ---- ---- ---- ---- ----
Income from investment operations:
Net investment income -- -- -- .03 .02 .03
Net gains or losses on securities (both realized and
unrealized) 35 .39 .27 22 .05 .08
----- ---- ---- ---- ---- ----
Total from investment operations .35 .39 .27 25 .07 .11
----- ---- ---- ---- ---- ----
Unit value, end of period $2.01 1.66 1.27 1.43 1.18 1.11
===== ==== ==== ==== ==== ====
</TABLE>
<TABLE>
<CAPTION>
MATURING GOVERNMENT
SMALL COMPANY GROWTH BOND 2002
------------------------ -----------------------
1999 1998 1997(a) 1999 1998 1997(c)
----- ---- ------- ---- ---- -------
<S> <C> <C> <C> <C> <C> <C>
Unit value, beginning of period $1.10 1.09 1.00 1.20 1.10 1.00
----- ---- ---- ---- ---- ----
Income from investment operations:
Net investment income -- -- -- .04 -- .05
Net gains or losses on securities (both realized and
unrealized) .49 .01 .09 (.05) .10 .05
----- ---- ---- ---- ---- ----
Total from investment operations .49 .01 .09 (.01) .10 .10
----- ---- ---- ---- ---- ----
Unit value, end of period $1.59 1.10 1.09 1.19 1.20 1.10
===== ==== ==== ==== ==== ====
</TABLE>
<TABLE>
<CAPTION>
MATURING
GOVERNMENT
BOND 2010 VALUE STOCK
---------------- -----------------------
1999 1998(d) 1999 1998 1997(a)
----- ------- ---- ---- -------
<S> <C> <C> <C> <C> <C>
Unit value, beginning of period $1.12 1.00 1.18 1.16 1.00
----- ---- ---- ---- ----
Income from investment operations:
Net investment income .04 .01 .03 -- .02
Net gains or losses on securities (both realized and
unrealized) (.18) .11 (.03) .02 .14
----- ---- ---- ---- ----
Total from investment operations (.14) .12 -- .02 .16
----- ---- ---- ---- ----
Unit value, end of period $ .98 1.12 1.18 1.18 1.16
===== ==== ==== ==== ====
</TABLE>
- ------------
(a) Period from January 24, 1997, commencement of operations, to December 31,
1997.
(b) Period from January 29, 1997, commencement of operations, to December 31,
1997.
(c) Period from April 2, 1997, commencement of operations, to December 31, 1997.
(d) Period from January 22, 1998, commencement of operations, to December 31,
1998.
SA-34
<PAGE> 78
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
MINNESOTA LIFE VARIABLE UNIVERSAL LIFE ACCOUNT
(6) FINANCIAL HIGHLIGHTS (CONTINUED)
Financial Highlights--Option 2: continued
<TABLE>
<CAPTION>
SMALL INDEX 400
COMPANY VALUE GLOBAL BOND MID-CAP
---------------- --------------- ---------------
1999 1998(b) 1999 1998(b) 1999 1998(b)
----- ------- ---- ------- ---- -------
<S> <C> <C> <C> <C> <C> <C>
Unit value, beginning of period $.96 1.00 1.14 1.00 1.19 1.00
----- ---- ---- ---- ---- ----
Income from investment operations:
Net investment income .02 .01 .04 .01 -- .01
Net gains or losses on securities (both realized and
unrealized) (.05) (.05) (.13) .13 .18 .18
----- ---- ---- ---- ---- ----
Total from investment operations (.03) (.04) (.09) .14 .18 .19
----- ---- ---- ---- ---- ----
Unit value, end of period $.93 .96 1.05 1.14 1.37 1.19
===== ==== ==== ==== ==== ====
</TABLE>
<TABLE>
<CAPTION>
MACRO- MICRO-CAP
CAP GROWTH CONTRAFUND
VALUE --------------- -----------------------
1999(c) 1999 1998(b) 1999 1998 1997(a)
------- ---- ------- ---- ---- -------
<S> <C> <C> <C> <C> <C> <C>
Unit value, beginning of period $1.00 1.07 1.00 1.57 1.21 1.00
----- ---- ---- ---- ---- ----
Income from investment operations:
Net investment income .01 -- -- -- -- --
Net gains or losses on securities (both realized and
unrealized) .03 1.58 .07 .38 .36 .21
----- ---- ---- ---- ---- ----
Total from investment operations .04 1.58 .07 .38 .36 .21
----- ---- ---- ---- ---- ----
Unit value, end of period $1.04 2.65 1.07 1.95 1.57 1.21
===== ==== ==== ==== ==== ====
</TABLE>
<TABLE>
<CAPTION>
HIGH-INCOME EQUITY-INCOME
------------------------ -----------------------
1999 1998 1997(a) 1999 1998 1997(a)
----- ---- ------- ---- ---- -------
<S> <C> <C> <C> <C> <C> <C>
Unit value, beginning of period $1.11 1.16 1.00 1.39 1.25 1.00
----- ---- ---- ---- ---- ----
Income from investment operations:
Net investment income .08 .06 .06 .01 .01 .02
Net gains or losses on securities (both realized and
unrealized) .01 (.11) .10 .07... .13 .23
----- ---- ---- ---- ---- ----
Total from investment operations .09 (.05) .16 .08 .14 .25
----- ---- ---- ---- ---- ----
Unit value, end of period $1.20 1.11 1.16 1.47 1.39 1.25
===== ==== ==== ==== ==== ====
</TABLE>
- ------------
(a) Period from January 29, 1997, commencement of operations, to December 31,
1997.
(b) Period from January 22, 1998, commencement of operations, to December 31,
1998.
(c) Period from May 24, 1999, commencement of operations, to December 31, 1999.
SA-35
<PAGE> 79
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
MINNESOTA LIFE VARIABLE UNIVERSAL LIFE ACCOUNT
(6) FINANCIAL HIGHLIGHTS (CONTINUED)
Financial Highlights--Option 3:
The following table for each segregated sub-account shows certain data for an
accumulation unit outstanding during the periods indicated:
<TABLE>
<CAPTION>
GROWTH MONEY MARKET
------- ---------------
1999(c) 1999 1998(b)
------- ---- -------
<S> <C> <C> <C>
Unit value, beginning of period $1.00 1.03 1.00
----- ---- ----
Income from investment operations:
Net investment income (loss) .01 .05 .03
Net gains or losses on securities (both realized and
unrealized) .18 -- --
----- ---- ----
Total from investment operations .19 .05 .03
----- ---- ----
Unit value, end of period $1.19 1.08 1.03
===== ==== ====
</TABLE>
<TABLE>
<CAPTION>
INDEX 400
INDEX 500 MID-CAP
------------------------ ----------
1999 1998 1997(a) 1999(c)
----- ---- ------- ----------
<S> <C> <C> <C> <C>
Unit value, beginning of period $1.50 1.17 1.00 1.00
----- ---- ---- ----
Income from investment operations:
Net investment income (loss) .02 .01 -- .01
Net gains or losses on securities (both realized and
unrealized) .28 .32 .17 .11
----- ---- ---- ----
Total from investment operations .30 .33 .17 .12
----- ---- ---- ----
Unit value, end of period $1.80 1.50 1.17 1.12
===== ==== ==== ====
</TABLE>
- ------------
(a) Period from June 24, 1997, commencement of operations, to December 31, 1997.
(b) Period from May 29, 1998, commencement of operations, to December 31, 1998.
(c) Period from September 2, 1999, commencement of operations, to December 31,
1999.
SA-36
<PAGE> 80
<PAGE>
Independent Auditors' Report
The Board of Directors
Minnesota Life Insurance Company:
We have audited the accompanying consolidated balance sheets of the
Minnesota Life Insurance Company and subsidiaries as of December 31, 1999 and
1998, and the related consolidated statements of operations and comprehensive
income, changes in stockholder's equity and cash flows for each of the years in
the three-year period ended December 31, 1999. These consolidated financial
statements are the responsibility of the Company's management. Our
responsibility is to express an opinion on these consolidated financial
statements based on our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements are free of
material misstatement. An audit includes examining, on a test basis, evidence
supporting the amounts and disclosures in the financial statements. An audit
also includes assessing the accounting principles used and significant
estimates made by management, as well as evaluating the overall financial
statement presentation. We believe that our audits provide a reasonable basis
for our opinion.
In our opinion, the consolidated financial statements referred to above
present fairly, in all material respects, the financial position of the
Minnesota Life Insurance Company and subsidiaries as of December 31, 1999 and
1998, and the results of their operations and their cash flows for each of the
years in the three-year period ended December 31, 1999 in conformity with
generally accepted accounting principles.
Our audits were made for the purpose of forming an opinion on the basic
consolidated financial statements taken as a whole. The supplementary
information included in the accompanying schedules is presented for purpose of
additional analysis and is not a required part of the basic consolidated
financial statements. Such information has been subjected to the auditing
procedures applied in the audits of the basic consolidated financial statements
and, in our opinion, is fairly stated in all material respects in relation to
the basic consolidated financial statements taken as a whole.
Minneapolis, Minnesota
February 11, 2000
ML-1
<PAGE>
Minnesota Life Insurance Company and Subsidiaries
Consolidated Balance Sheets
December 31, 1999 and 1998
Assets
<TABLE>
<CAPTION>
1999 1998
----------- -----------
(In thousands)
<S> <C> <C>
Fixed maturity securities:
Available-for-sale, at fair value (amortized cost
$4,868,584 and $4,667,688) $ 4,803,568 $ 4,914,012
Held-to-maturity, at amortized cost (fair value
$968,852 and $1,161,784) 974,814 1,086,548
Equity securities, at fair value (cost $587,014 and
$579,546) 770,269 749,800
Mortgage loans, net 696,672 681,219
Real estate, net 36,793 38,530
Finance receivables, net 134,812 163,411
Policy loans 237,335 226,409
Short-term investments 93,993 136,435
Private equities 284,797 160,958
Other invested assets 53,919 100,667
----------- -----------
Total investments 8,086,972 8,257,989
Cash 116,803 175,660
Deferred policy acquisition costs 713,217 564,382
Accrued investment income 93,385 86,974
Premiums receivable, net 94,171 62,609
Property and equipment, net 59,223 67,448
Reinsurance recoverables 194,940 176,683
Other assets 64,256 61,183
Separate account assets 8,931,456 6,994,752
----------- -----------
Total assets $18,354,423 $16,447,680
=========== ===========
Liabilities and Stockholder's Equity
Liabilities:
Policy and contract account balances $ 4,234,183 $ 4,242,802
Future policy and contract benefits 1,826,953 1,758,375
Pending policy and contract claims 90,762 70,564
Other policyholders funds 451,056 438,595
Policyholders dividends payable 51,749 53,957
Stockholder dividend payable -- 24,700
Unearned premiums and fees 208,013 180,191
Federal income tax liability:
Current 68,320 53,039
Deferred 125,094 173,907
Other liabilities 442,369 514,468
Notes payable 218,000 267,000
Separate account liabilities 8,882,060 6,947,806
----------- -----------
Total liabilities 16,598,559 14,725,404
----------- -----------
Stockholder's equity:
Common stock, $1 par value, 5,000,000 shares autho-
rized, issued and outstanding 5,000 5,000
Additional paid in capital 3,000 --
Retained earnings 1,629,787 1,513,661
Accumulated other comprehensive income 118,077 203,615
----------- -----------
Total stockholder's equity 1,755,864 1,722,276
----------- -----------
Total liabilities and stockholder's equity $18,354,423 $16,447,680
=========== ===========
</TABLE>
See accompanying notes to consolidated financial statements.
ML-2
<PAGE>
Minnesota Life Insurance Company and Subsidiaries
Consolidated Statements of Operations and Comprehensive Income
Years ended December 31, 1999, 1998 and 1997
<TABLE>
<CAPTION>
1999 1998 1997
---------- ---------- ----------
(In thousands)
<S> <C> <C> <C>
Revenues:
Premiums $ 697,799 $ 577,693 $ 615,253
Policy and contract fees 331,110 300,361 272,037
Net investment income 540,056 531,081 553,773
Net realized investment gains 79,615 114,652 114,367
Finance charge income 31,969 35,880 43,650
Other income 81,135 73,498 71,707
---------- ---------- ----------
Total revenues 1,761,684 1,633,165 1,670,787
---------- ---------- ----------
Benefits and expenses:
Policyholders benefits 667,207 519,926 515,873
Interest credited to policies and con-
tracts 282,627 290,870 298,033
General operating expenses 358,387 360,916 369,961
Commissions 110,645 110,211 114,404
Administrative and sponsorship fees 79,787 80,183 81,750
Dividends to policyholders 18,928 25,159 26,776
Interest on notes payable 24,282 22,360 24,192
Amortization of deferred policy acqui-
sition costs 123,455 148,098 128,176
Capitalization of policy acquisition
costs (152,602) (166,140) (155,054)
---------- ---------- ----------
Total benefits and expenses 1,512,716 1,391,583 1,404,111
---------- ---------- ----------
Income from operations before taxes 248,968 241,582 266,676
Federal income tax expense (benefit):
Current 75,172 93,584 84,612
Deferred (1,439) (15,351) (7,832)
---------- ---------- ----------
Total federal income tax expense 73,733 78,233 76,780
---------- ---------- ----------
Net income $ 175,235 $ 163,349 $ 189,896
========== ========== ==========
Other comprehensive income (loss), after
tax:
Foreign currency translation adjust-
ments $ -- $ (947) $ 947
Unrealized gains (losses) on securities (85,538) 47,889 47,414
---------- ---------- ----------
Other comprehensive income (loss), net
of tax (85,538) 46,942 48,361
---------- ---------- ----------
Comprehensive income $ 89,697 $ 210,291 $ 238,257
========== ========== ==========
</TABLE>
See accompanying notes to consolidated financial statements.
ML-3
<PAGE>
Minnesota Life Insurance Company and Subsidiaries
Consolidated Statements of Changes in Stockholder's Equity
Years ended December 31, 1999, 1998 and 1997
<TABLE>
<CAPTION>
1999 1998 1997
---------- ---------- ----------
(In thousands)
<S> <C> <C> <C>
Common stock:
Beginning balance $ 5,000 $ -- $ --
Issued during the year -- 5,000 --
---------- ---------- ----------
Total common stock $ 5,000 $ 5,000 $ --
========== ========== ==========
Additional paid in capital:
Beginning balance $ -- $ -- $ --
Contribution 3,000 -- --
---------- ---------- ----------
Total additional paid in capital $ 3,000 $ -- $ --
========== ========== ==========
Retained earnings:
Beginning balance $1,513,661 $1,380,012 $1,190,116
Net income 175,235 163,349 189,896
Retained earnings transfer for common
stock issued -- (5,000) --
Dividends to stockholder (59,109) (24,700) --
---------- ---------- ----------
Total retained earnings $1,629,787 $1,513,661 $1,380,012
========== ========== ==========
Accumulated other comprehensive income:
Beginning balance $ 203,615 $ 156,673 $ 108,312
Change in unrealized appreciation of
investments (85,538) 47,889 47,414
Change in unrealized gain on foreign
currency translation -- (947) 947
---------- ---------- ----------
Total accumulated other comprehensive
income $ 118,077 $ 203,615 $ 156,673
========== ========== ==========
Total stockholder's equity $1,755,864 $1,722,276 $1,536,685
========== ========== ==========
</TABLE>
See accompanying notes to consolidated financial statements.
ML-4
<PAGE>
Minnesota Life Insurance Company and Subsidiaries
Consolidated Statements of Cash Flows
Years ended December 31, 1999, 1998 and 1997
<TABLE>
<CAPTION>
1999 1998 1997
----------- ----------- -----------
(In thousands)
<S> <C> <C> <C>
Cash Flows from Operating Activities
Net income $ 175,235 $ 163,349 $ 189,896
Adjustments to reconcile net income to
net cash
provided by operating activities:
Interest credited to annuity and in-
surance contracts 282,627 290,870 298,033
Fees deducted from policy and con-
tract balances (217,941) (212,901) (214,803)
Change in future policy benefits 68,578 56,716 76,358
Change in other policyholders lia-
bilities 29,426 11,965 7,597
Amortization of deferred policy ac-
quisition costs 123,455 148,098 128,176
Capitalization of policy acquisition
costs (152,602) (166,140) (155,054)
Change in premiums receivable (31,562) 5,421 (9,280)
Change in federal income tax liabil-
ities 14,598 (7,455) 36,049
Net realized investment gains (79,615) (114,652) (114,367)
Other, net (27,314) 30,524 (44,527)
----------- ----------- -----------
Net cash provided by operating ac-
tivities 184,885 205,795 198,078
----------- ----------- -----------
Cash Flows from Investing Activities
Proceeds from sales of:
Fixed maturity securities, avail-
able-for-sale 1,856,757 1,835,955 1,099,114
Equity securities 705,050 621,125 601,936
Real estate 7,341 7,800 9,279
Private equities 28,128 20,025 19,817
Other invested assets 5,731 822 7,060
Proceeds from maturities and repay-
ments of:
Fixed maturity securities, avail-
able-for-sale 345,677 414,726 403,829
Fixed maturity securities, held-to-
maturity 122,704 148,848 139,394
Mortgage loans 116,785 126,066 109,246
Purchases of:
Fixed maturity securities, avail-
able-for-sale (2,432,049) (2,384,720) (1,498,048)
Fixed maturity securities, held-to-
maturity (8,446) (99,989) (82,835)
Equity securities (613,596) (610,553) (585,349)
Mortgage loans (130,013) (141,008) (157,247)
Real estate (1,016) (5,612) (3,908)
Private equities (79,584) (64,811) (48,778)
Other invested assets (11,435) (10,871) (7,210)
Finance receivable originations or
purchases (74,989) (77,141) (115,248)
Finance receivable principal payments 88,697 109,277 133,762
Other, net (91,346) 104,519 (88,626)
----------- ----------- -----------
Net cash used for investing activi-
ties (165,604) (5,542) (63,812)
----------- ----------- -----------
Cash Flows from Financing Activities
Deposits credited to annuity and in-
surance contracts 448,012 952,622 928,696
Withdrawals from annuity and insurance
contracts (478,775) (1,053,844) (1,013,588)
Proceeds from issuance of debt 50,000 40,000 --
Payments on debt (49,000) (31,000) (21,000)
Dividends paid to stockholder (83,809) -- --
Other, net (7,008) (4,467) (3,355)
----------- ----------- -----------
Net cash used for financing activi-
ties (120,580) (96,689) (109,247)
----------- ----------- -----------
Net increase (decrease) in cash and
short-term investments (101,299) 103,564 25,019
Cash and short-term investments, be-
ginning of year 312,095 208,531 183,512
----------- ----------- -----------
Cash and short-term investments, end
of year $ 210,796 $ 312,095 $ 208,531
=========== =========== ===========
</TABLE>
See accompanying notes to consolidated financial statements.
ML-5
<PAGE>
Minnesota Life Insurance Company and Subsidiaries
Notes to Consolidated Financial Statements
(1) Nature of Operations
Description of Business
Minnesota Life Insurance Company, both directly and through its subsidiaries
(collectively, the Company), provides a diversified array of insurance and
financial products and services designed principally to protect and enhance the
long-term financial well-being of individuals and families.
The Company's strategy is to be successful in carefully selected niche
markets, primarily in the United States, while focusing on the retention of
existing business and the maintenance of profitability. To achieve this
objective, the Company has divided its businesses into five strategic business
units, which focus on various markets: Individual Insurance, Financial
Services, Group Insurance, Pension and Asset Management. Revenues in 1999 for
these business units were $703,473,000, $263,418,000, $388,792,000,
$164,774,000, and $66,594,000, respectively. Additional revenues of
$174,633,000 were reported by the Company's subsidiaries and corporate product
line.
The Company serves over six million people through more than 4,000
associates located at its St. Paul, Minnesota headquarters and in sales offices
nationwide.
Conversion to a Mutual Holding Company Structure
Consent was given from the Minnesota Department of Commerce (Department of
Commerce) allowing The Minnesota Mutual Life Insurance Company to implement a
conversion to a mutual holding company. The Minnesota Mutual Life Insurance
Company enacted this privilege effective October 1, 1998. The conversion
created Minnesota Mutual Companies, Inc., a mutual holding company, Securian
Holding Company, and Securian Financial Group, Inc., which are intermediate
stock holding companies. The Minnesota Mutual Life Insurance Company was
converted into a stock life insurance company and renamed Minnesota Life
Insurance Company. Minnesota Mutual Companies, Inc. will at all times, in
accordance with the conversion plan and as required by the Mutual Insurance
Holding Company Act, directly or indirectly control Minnesota Life Insurance
Company through the ownership of at least a majority of the voting power of the
voting shares of the capital stock of Minnesota Life Insurance Company. Annuity
contract and life insurance policyholders of Minnesota Life Insurance Company
have certain membership interests consisting primarily of the right to vote on
certain matters involving Minnesota Mutual Companies, Inc. and the right to
receive distributions of surplus in the event of demutualization, dissolution
or liquidation of Minnesota Mutual Companies, Inc.
(2) Summary of Significant Accounting Policies
Basis of Presentation
The accompanying consolidated financial statements have been prepared in
accordance with generally accepted accounting principles (GAAP). The
consolidated financial statements include the accounts of the Minnesota Life
Insurance Company and its subsidiaries. All material intercompany transactions
and balances have been eliminated.
The preparation of financial statements in conformity with GAAP requires
management to make certain estimates and assumptions that affect reported
assets and liabilities, including reporting or disclosure of contingent assets
and liabilities as of the balance sheet date and the reported amounts of
revenues and expenses during the reporting period. Future events, including
changes in mortality, morbidity, interest rates and asset valuations, could
cause actual results to differ from the estimates used in the consolidated
financial statements.
Insurance Revenues and Expenses
Premiums on traditional life products, which include individual whole life and
term insurance and immediate annuities, are credited to revenue when due. For
accident and health and group life products, premiums are credited to revenue
over the contract period as earned. Benefits and expenses are recognized in
relation to premiums over the contract period via a provision for future policy
benefits and the amortization of deferred policy acquisition costs.
ML-6
<PAGE>
Minnesota Life Insurance Company and Subsidiaries
Notes to Consolidated Financial Statements (continued)
(2) Summary of Significant Accounting Policies (continued)
Nontraditional life products include individual adjustable and variable life
insurance and group universal and variable life insurance. Revenue from
nontraditional life products and deferred annuities is comprised of policy and
contract fees charged for the cost of insurance, policy administration and
surrenders. Expenses include both the portion of claims not covered by and
interest credited to the related policy and contract account balances. Policy
acquisition costs are amortized relative to estimated gross profits or margins.
Deferred Policy Acquisition Costs
The costs of acquiring new and renewal business, which vary with and are
primarily related to the production of new and renewal business, are generally
deferred to the extent recoverable from future premiums or expected gross
profits. Deferrable costs include commissions, underwriting expenses and
certain other selling and issue costs.
For traditional life, accident and health and group life products, deferred
policy acquisition costs are amortized over the premium paying period in
proportion to the ratio of annual premium revenues to ultimate anticipated
premium revenues. The ultimate premium revenues are estimated based upon the
same assumptions used to calculate the future policy benefits.
For nontraditional life products and deferred annuities, deferred policy
acquisition costs are amortized over the estimated lives of the contracts in
relation to the present value of estimated gross profits from surrender charges
and investment, mortality and expense margins.
Deferred policy acquisition costs amortized were $123,455,000, $148,098,000
and $128,176,000 for the years ended December 31, 1999, 1998 and 1997,
respectively.
Software Capitalization
The Accounting Standards Executive Committee issued Statement of Position 98-1,
Accounting for Costs of Computer Software for Internal Use, effective for
fiscal years beginning after December 15, 1998. The Company has adopted the
capitalization of software cost beginning in 1999. At December 1999, the
Company had unamortized cost of $7,459,000 and amortized software expense of
$1,643,000. Costs are amortized over a three-year period.
Finance Charge Income and Receivables
Finance charge income represents fees and interest charged on consumer loans.
The Company uses the interest (actuarial) method of accounting for finance
charges and interest on finance receivables. Accrual of finance charges and
interest on the smaller balance homogeneous finance receivables is suspended
when a loan is contractually delinquent for more than 60 days and is
subsequently recognized when received. Accrual is resumed when the loan is
contractually less than 60 days past due. Finance charges and interest is
suspended when a loan is considered by management to be impaired. Loan
impairment is measured based on the present value of expected future cash flows
discounted at the loan's effective interest rate, or as a practical expedient,
at the observable market price of the loan or the fair value of the collateral
if the loan is collateral dependent. When a loan is identified as impaired,
interest previously accrued in the current year is reversed. Interest payments
received on impaired loans are generally applied to principal unless the
remaining principal balance has been determined to be fully collectible. An
allowance for uncollectible amounts is maintained by direct charges to
operations at an amount which management believes, based upon historical losses
and economic conditions, is adequate to absorb probable losses on existing
receivables that may become uncollectible. The reported receivables are net of
this allowance.
Valuation of Investments
Fixed maturity securities (bonds) which the Company has the positive intent and
ability to hold to maturity are classified as held-to-maturity and are carried
at amortized cost, net of write-downs for other than temporary declines in
value. Premiums and discounts are amortized or accreted over the estimated
lives of the securities based on the interest yield method. Fixed maturity
securities, which may be sold prior to maturity, are classified as available-
for-sale and are carried at fair value.
ML-7
<PAGE>
Minnesota Life Insurance Company and Subsidiaries
Notes to Consolidated Financial Statements (continued)
(2) Summary of Significant Accounting Policies (continued)
Equity securities (common stocks and preferred stocks) are carried at fair
value. Equity securities also include initial contributions to affiliated
registered investment funds that are managed by a subsidiary of the Company.
These contributions are carried at the market value of the underlying net
assets of the funds.
Mortgage loans are carried at amortized cost less an allowance for
uncollectible amounts. Premiums and discounts are amortized or accreted over
the terms of the mortgage loans based on the interest yield method. A mortgage
loan is considered impaired if it is probable that contractual amounts due will
not be collected. Impaired mortgage loans are valued at the fair value of the
underlying collateral. Interest income on impaired mortgage loans is recorded
on an accrual basis. However, when the likelihood of collection is doubtful,
interest income is recognized when received.
On January 1, 1999, the Company converted to the equity method of accounting
for its private equity investments. Prior to 1999 the Company accounted for
these investments using the cost method. The change to this method of
accounting was not material to prior year amounts. Private equity investments
are now carried at our equity in the estimated fair value of the underlying
investments of these limited partnerships. In-kind distributions are recorded
as a return of capital for the cost basis of the stock received. Changes in
fair value are recorded directly in stockholder's equity.
Fair values of fixed maturity securities, equity securities and private
equities are based on quoted market prices, where available. If quoted market
prices are not available, fair values are estimated using values obtained from
independent pricing services which specialize in matrix pricing and modeling
techniques for estimating fair values. Fair values of mortgage loans are based
upon discounted cash flows, quoted market prices and matrix pricing.
Real estate is carried at cost less accumulated depreciation and an
allowance for estimated losses. Accumulated depreciation on real estate at
December 31, 1999 and 1998, was $7,101,000 and $6,713,000, respectively.
Policy loans are carried at the unpaid principal balance.
Derivative Financial Instruments
The Company entered into equity swaps in 1996 as part of an overall risk
management strategy. The swaps were used to hedge exposure to market risk on
$400,000,000 of the Company's common stock portfolio. The swaps were based upon
certain stock indices. If, at the time of settlement for a particular swap, the
designated stock index had fallen below a specified level, the counterparty
would pay the Company an amount based upon the decline in the index and the
stock portfolio value protected by the swap. If, at the time of settlement, the
designated stock index had risen, the Company would pay the counterparty an
amount based upon the increase in the index and 25% of the stock portfolio
value protected by the swap. The equity swaps were settled with the
counterparties in August 1997. The swaps were carried at fair value, which were
based upon dealer quotes. Changes in fair value were recorded directly in
stockholder's equity. Upon settlement of the swaps, gains or losses were
recognized in income, and the Company realized a loss of approximately
$31,000,000 in 1997, upon settlement of these equity swaps.
The Company began investing in international bonds denominated in foreign
currencies in 1997. Unrealized gains or losses are recorded on foreign
denominated securities due to the fluctuation in foreign currency exchange
rates and/or related payables and receivables and interest on foreign
securities. The Company uses forward foreign exchange currency contracts as
part of its risk management strategy for international investments. The forward
foreign exchange currency contracts are used to reduce market risks from
changes in foreign exchange rates. These forward foreign exchange currency
contracts are agreements to purchase a specified amount of one currency in
exchange for a specified amount of another currency at a future point in time
at a foreign exchange currency rate agreed upon on the contract open date. No
cash is exchanged at the outset of the contract and no payments are made by
either party until the contract close date. On the contract
ML-8
<PAGE>
Minnesota Life Insurance Company and Subsidiaries
Notes to Consolidated Financial Statements (continued)
(2) Summary of Significant Accounting Policies (continued)
close date the contracted amount of the purchased currency is received from the
counterparty and the contracted amount of the sold currency is sent to the
counterparty. Realized and unrealized gains and losses on these forward foreign
exchange contracts are recorded in income as incurred. Notional amounts for the
years ended December 31, 1999 and 1998, were $98,606,000 and $115,194,000,
respectively.
Capital Gains and Losses
Realized and unrealized capital gains and losses are determined on the specific
identification method. Write-downs of held-to-maturity securities and the
provision for credit losses on mortgage loans and real estate are recorded as
realized losses.
Changes in the fair value of fixed maturity securities available-for-sale,
equity securities and private equity investments in limited partnerships are
recorded as a separate component of stockholder's equity, net of taxes and
related adjustments to deferred policy acquisition costs and unearned policy
and contract fees.
Property and Equipment
Property and equipment are carried at cost, net of accumulated depreciation of
$113,441,000 and $101,692,000 at December 31, 1999 and 1998, respectively.
Buildings are depreciated over 40 years and equipment is generally depreciated
over 5 to 10 years. Depreciation expenses for the years ended December 31,
1999, 1998 and 1997, were $11,749,000, $10,765,000 and $8,965,000,
respectively.
Separate Accounts
Separate account assets and liabilities represent segregated funds administered
and invested by the Company for the exclusive benefit of pension, variable
annuity and variable life insurance policyholders and contractholders. Assets
consist principally of marketable securities and both assets and liabilities
are reported at fair value, based upon the market value of the investments held
in the segregated funds. The Company receives administrative and investment
advisory fees for services rendered on behalf of these accounts.
The Company periodically invests money in its separate accounts. The market
value of such investments, included with separate account assets, amounted to
$49,396,000 and $46,946,000 at December 31, 1999 and 1998, respectively.
Policyholders Liabilities
Policy and contract account balances represent the net accumulation of funds
associated with nontraditional life products and deferred annuities. Additions
to the account balances include premiums, deposits and interest credited by the
Company. Decreases in the account balances include surrenders, withdrawals,
benefit payments, and charges assessed for the cost of insurance, policy
administration and surrenders.
Future policy and contract benefits are comprised of reserves for
traditional life, group life, and accident and health products. The reserves
were calculated using the net level premium method based upon assumptions
regarding investment yield, mortality, morbidity, and withdrawal rates
determined at the date of issue, commensurate with the Company's experience.
Provision has been made in certain cases for adverse deviations from these
assumptions.
Other policyholders funds are comprised of dividend accumulations, premium
deposit funds and supplementary contracts without life contingencies.
Participating Business
Dividends on participating policies and other discretionary payments are
declared by the Board of Directors based upon actuarial determinations, which
take into consideration current mortality, interest earnings, expense factors
and federal income taxes. Dividends are recognized as expenses consistent with
the recognition of premiums. At December 31, 1999 and 1998, the total
participating business in force was $50,305,164,000 and $55,683,649,000,
respectively.
ML-9
<PAGE>
Minnesota Life Insurance Company and Subsidiaries
Notes to Consolidated Financial Statements (continued)
(2) Summary of Significant Accounting Policies (continued)
Income Taxes
Current income taxes are charged to operations based upon amounts estimated to
be payable as a result of taxable operations for the current year. Deferred
income tax assets and liabilities are recognized for the future tax
consequences attributable to the differences between financial statement
carrying amounts and income tax bases of assets and liabilities.
Reinsurance Recoverables
Insurance liabilities are reported before the effects of ceded reinsurance.
Reinsurance recoverables represent amounts due from reinsurers for paid and
unpaid benefits, expense reimbursements, prepaid premiums and future policy
benefits.
Reclassifications
Certain 1998 and 1997 consolidated financial statement balances have been
reclassified to conform to the 1999 presentation.
(3) Investments
Net investment income for the years ended December 31 was as follows:
<TABLE>
<CAPTION>
1999 1998 1997
-------- -------- --------
(In thousands)
<S> <C> <C> <C>
Fixed maturity securities $428,286 $445,220 $457,391
Equity securities 29,282 12,183 16,182
Mortgage loans 54,596 54,785 55,929
Real estate 11 (236) (407)
Policy loans 16,016 15,502 15,231
Short-term investments 5,829 6,147 6,995
Private equities 4,114 1,908 2,081
Other invested assets 6,278 1,918 1,790
-------- -------- --------
Gross investment income 544,412 537,427 555,192
Investment expenses (4,356) (6,346) (1,419)
-------- -------- --------
Total $540,056 $531,081 $553,773
======== ======== ========
Net realized investment gains (losses) for the years ended December 31 were
as follows:
<CAPTION>
1999 1998 1997
-------- -------- --------
(In thousands)
<S> <C> <C> <C>
Fixed maturity securities $(31,404) $ 43,244 $ 3,711
Equity securities 91,591 47,526 92,765
Mortgage loans 1,344 3,399 2,011
Real estate 4,806 7,809 1,598
Private equities 13,983 6,336 8,431
Other invested assets (705) 6,338 5,851
-------- -------- --------
Total $ 79,615 $114,652 $114,367
======== ======== ========
</TABLE>
ML-10
<PAGE>
Minnesota Life Insurance Company and Subsidiaries
Notes to Consolidated Financial Statements (continued)
(3) Investments (continued)
Gross realized gains (losses) on the sales of fixed maturity securities and
equity securities for the years ended December 31 were as follows:
<TABLE>
<CAPTION>
1999 1998 1997
-------- -------- --------
(In thousands)
<S> <C> <C> <C>
Fixed maturity securities, available-for-sale:
Gross realized gains $ 28,619 $ 56,428 $ 18,804
Gross realized losses (60,023) (13,184) (15,093)
Equity securities:
Gross realized gains 143,180 107,342 120,437
Gross realized losses (51,589) (59,816) (27,672)
Private equities:
Gross realized gains 14,558 13,563 10,515
Gross realized losses (575) (7,227) (2,084)
</TABLE>
Net unrealized gains (losses) included in stockholder's equity at December
31 were as follows:
<TABLE>
<CAPTION>
1999 1998
--------- ---------
(In thousands)
<S> <C> <C>
Gross unrealized gains $ 361,895 $ 487,479
Gross unrealized losses (184,268) (73,440)
Adjustment to deferred acquisition costs (414) (119,542)
Adjustment to unearned policy and contract fees (473) 15,912
Deferred federal income taxes (58,663) (106,794)
--------- ---------
Net unrealized gains $ 118,077 $ 203,615
========= =========
</TABLE>
ML-11
<PAGE>
Minnesota Life Insurance Company and Subsidiaries
Notes to Consolidated Financial Statements (continued)
(3) Investments (continued)
The amortized cost and fair value of investments in marketable securities by
type of investment were as follows:
<TABLE>
<CAPTION>
Gross Unrealized
-----------------
Amortized Fair
Cost Gains Losses Value
---------- -------- -------- ----------
(In thousands)
<S> <C> <C> <C> <C>
December 31, 1999
Available-for-sale:
United States government and gov-
ernment
agencies and authorities $ 151,864 $ 32 $ 8,299 $ 143,597
Foreign governments 122,505 678 7,913 115,270
Corporate securities 3,088,999 108,203 117,543 3,079,659
International bond securities 28,979 -- 2,633 26,346
Mortgage-backed securities 1,476,237 4,867 42,408 1,438,696
---------- -------- -------- ----------
Total fixed maturities 4,868,584 113,780 178,796 4,803,568
Equity securities-unaffiliated 463,089 142,583 2,745 602,927
Equity securities-affiliated mu-
tual funds 123,925 44,014 597 167,342
---------- -------- -------- ----------
Total equity securities 587,014 186,597 3,342 770,269
---------- -------- -------- ----------
Total available-for-sale 5,455,598 300,377 182,138 5,573,837
Held-to maturity:
Corporate securities 848,689 15,965 21,492 843,162
Mortgage-backed securities 126,125 2,584 3,019 125,690
---------- -------- -------- ----------
Total held-to-maturity 974,814 18,549 24,511 968,852
---------- -------- -------- ----------
Total $6,430,412 $318,926 $206,649 $6,542,689
========== ======== ======== ==========
</TABLE>
<TABLE>
<CAPTION>
Gross Unrealized
----------------
Amortized Fair
Cost Gains Losses Value
---------- -------- ------- ----------
(In thousands)
<S> <C> <C> <C> <C>
December 31, 1998
Available-for-sale:
United States government and gov-
ernment
agencies and authorities $ 195,650 $ 17,389 $ 201 $ 212,838
Foreign governments 784 -- 311 473
Corporate securities 2,357,861 204,277 30,648 2,531,490
International bond securities 188,448 22,636 1,298 209,786
Mortgage-backed securities 1,924,945 52,580 18,100 1,959,425
---------- -------- ------- ----------
Total fixed maturities 4,667,688 296,882 50,558 4,914,012
Equity securities-unaffiliated 463,777 157,585 15,057 606,305
Equity securities-affiliated mu-
tual funds 115,769 27,726 -- 143,495
---------- -------- ------- ----------
Total equity securities 579,546 185,311 15,057 749,800
---------- -------- ------- ----------
Total available-for-sale 5,247,234 482,193 65,615 5,663,812
Held-to maturity:
Corporate securities 894,064 67,496 235 961,325
Mortgage-backed securities 192,484 9,030 1,055 200,459
---------- -------- ------- ----------
Total held-to-maturity 1,086,548 76,526 1,290 1,161,784
---------- -------- ------- ----------
Total $6,333,782 $558,719 $66,905 $6,825,596
========== ======== ======= ==========
</TABLE>
ML-12
<PAGE>
Minnesota Life Insurance Company and Subsidiaries
Notes to Consolidated Financial Statements (continued)
(3) Investments (continued)
The amortized cost and estimated fair value of fixed maturity securities at
December 31, 1999, by contractual maturity, are shown below. Expected
maturities will differ from contractual maturities because borrowers may have
the right to call or prepay obligations with or without call or prepayment
penalties.
<TABLE>
<CAPTION>
Available-for-Sale Held-to-Maturity
--------------------- ------------------
Amortized Fair Amortized Fair
Cost Value Cost Value
---------- ---------- --------- --------
(In thousands)
<S> <C> <C> <C> <C>
Due in one year or less $ 39,213 $ 39,542 $ 5,628 $ 5,589
Due after one year through five years 1,065,644 1,125,653 175,672 176,672
Due after five years through ten
years 1,305,697 1,271,316 376,752 375,480
Due after ten years 981,793 928,361 290,637 285,421
---------- ---------- -------- --------
3,392,347 3,364,872 848,689 843,162
Mortgage-backed securities 1,476,237 1,438,696 126,125 125,690
---------- ---------- -------- --------
Total $4,868,584 $4,803,568 $974,814 $968,852
========== ========== ======== ========
</TABLE>
At December 31, 1999 and 1998, fixed maturity securities and short-term
investments with a carrying value of $13,945,000 and $6,361,000, respectively,
were on deposit with various regulatory authorities as required by law.
Allowances for credit losses on investments are reflected on the
consolidated balance sheets as a reduction of the related assets and were as
follows:
<TABLE>
<CAPTION>
1999 1998
------- -------
(In thousands)
<S> <C> <C>
Mortgage loans $ 1,500 $ 1,500
Investment real estate -- 841
------- -------
Total $ 1,500 $ 2,341
======= =======
</TABLE>
At December 31, 1999, no mortgage loans were considered impaired. At
December 31, 1998, the recorded investment in mortgage loans that were
considered to be impaired was $8,798, before the allowance for credit losses.
These impaired loans, due to adequate fair market value of underlying
collateral, do not have an allowance for credit losses.
A general allowance for credit losses was established for potential
impairments in the remainder of the mortgage loan portfolio. The general
allowance was $1,500,000 at December 31, 1999 and 1998.
Changes in the allowance for credit losses on mortgage loans were as
follows:
<TABLE>
<CAPTION>
1999 1998 1997
------ ------ ------
(In thousands)
<S> <C> <C> <C>
Balance at beginning of year $1,500 $1,500 $1,895
Provision for credit losses -- -- --
Charge-offs -- -- (395)
------ ------ ------
Balance at end of year $1,500 $1,500 $1,500
====== ====== ======
Below is a summary of interest income on impaired mortgage loans.
<CAPTION>
1999 1998 1997
------ ------ ------
(In thousands)
<S> <C> <C> <C>
Average impaired mortgage loans $ 4 $ 14 $3,268
Interest income on impaired mortgage loans--contractual 4 18 556
Interest income on impaired mortgage loans--collected 4 17 554
</TABLE>
ML-13
<PAGE>
Minnesota Life Insurance Company and Subsidiaries
Notes to Consolidated Financial Statements (continued)
(4) Notes Receivable
In connection with the Company's construction of an additional home office
facility in St. Paul, Minnesota, the Company entered into a loan contingency
agreement with the Housing and Redevelopment Authority of the City of St. Paul,
Minnesota (HRA) in November 1997. A maximum of $15 million in funds is
available under this loan for condemnation and demolition of the Company's
proposed building site. The note bears interest at a rate of 8.625%, with
principal payments commencing February 2004 and a maturity date of August 2025.
Interest payments are accrued and are payable February and August of each year
commencing February 2001. All principal and interest payments are due only to
the extent of available tax increments. As of December 31, 1999 and 1998, HRA
has drawn $13,574,000 and $9,669,000 on this loan contingency agreement and
accrued interest of $1,795,000 and $673,000, respectively.
(5) Net Finance Receivables
Finance receivables as of December 31 were as follows:
<TABLE>
<CAPTION>
1999 1998
-------- --------
(In thousands)
<S> <C> <C>
Direct installment loans $127,379 $147,425
Retail installment notes 9,199 12,209
Retail revolving credit 3,457 17,170
Accrued interest 2,505 2,683
-------- --------
Gross receivables 142,540 179,487
Allowance for uncollectible amounts (7,728) (16,076)
-------- --------
Finance receivables, net $134,812 $163,411
======== ========
</TABLE>
The direct installment loans, at December 31, 1999 and 1998, consisted of
$83,376,000 and $81,066,000, respectively, of discount basis loans (net of
unearned finance charges) and $44,003,000 and $66,359,000, respectively, of
interest-bearing loans and generally have a maximum term of 84 months; the
retail installment notes are principally discount basis, arise from the sale of
household appliances, furniture, and sundry services, and generally have a
maximum term of 48 months. Direct installment loans included approximately $29
million and $44 million of real estate secured loans at December 31, 1999 and
1998, respectively. Revolving credit loans included approximately $3 million
and $16 million of real estate secured loans at December 31, 1999 and 1998,
respectively. Contractual maturities of the finance receivables by year, as
required by the industry audit guide for finance companies, were not readily
available at December 31, 1999 and 1998, but experience has shown that such
information is not significant in that a substantial portion of receivables
will be renewed, converted, or paid in full prior to maturity.
During the years ended December 31, 1999 and 1998, principal cash
collections of direct installment loans were $57,665,000 and $75,011,000,
respectively, and the percentages of these cash collections to average net
balances were 43% and 47%, respectively. Retail installment notes' principal
cash collections to average net balances were $12,180,000 and $15,990,000,
respectively, and the percentages of these cash collections to average net
balances were 121% and 101%, respectively.
ML-14
<PAGE>
Minnesota Life Insurance Company and Subsidiaries
Notes to Consolidated Financial Statements (continued)
(5) Net Finance Receivables (continued)
The ratio for the allowance for losses to net outstanding receivables
balances at December 31, 1999 and 1998 was 5.4% and 9.0%, respectively. Changes
in the allowance for losses for the periods ended December 31, 1999 and 1998
were as follows:
<TABLE>
<CAPTION>
1999 1998 1997
-------- -------- --------
(In thousands)
<S> <C> <C> <C>
Balance at beginning of year $ 16,076 $ 20,545 $ 7,497
Provision for credit losses 5,434 10,712 28,206
Allowance applicable to bulk purchase 125 -- --
Charge-offs (16,712) (18,440) (17,869)
Recoveries 2,805 3,259 2,711
-------- -------- --------
Balance at end of year $ 7,728 $ 16,076 $ 20,545
======== ======== ========
</TABLE>
At December 31, 1999, the recorded investment in certain direct installment
loans and direct revolving credit loans were considered to be impaired. The
balances of such loans at December 31, 1999 and the related allowance for
credit losses were as follows:
<TABLE>
<CAPTION>
Installment Revolving
Loans Credit Total
----------- --------- ------
(In thousands)
<S> <C> <C> <C>
Balances at December 31, 1999 $5,539 692 $6,231
Related allowance for credit losses $1,478 330 $1,808
</TABLE>
All loans deemed to be impaired are placed on a non-accrual status. No
accrued or unpaid interest was recognized on impaired loans during 1999. The
average quarterly balance of impaired loans during the year ended December 31,
1999 and 1998, was $5,758,000 and $6,354,000 for installment basis loans and
$6,214,000 and $12,471,000 for revolving credit loans, respectively.
There were no material commitments to lend additional funds to customers
whose loans were classified as impaired at December 31, 1999.
(6) Income Taxes
Income tax expense varies from the amount computed by applying the federal
income tax rate of 35% to income from operations before taxes. The significant
components of this difference were as follows:
<TABLE>
<CAPTION>
1999 1998 1997
------- ------- -------
(In thousands)
<S> <C> <C> <C>
Computed tax expense $87,139 $84,553 $93,337
Difference between computed and actual tax ex-
pense:
Dividends received deduction (3,127) (1,730) (5,573)
Special tax on mutual life insurance companies (9,568) (3,455) 3,341
Sale of subsidiary -- -- (4,408)
Foundation gain (538) -- (4,042)
Tax credits (4,500) (4,416) (3,600)
Expense adjustments and other 4,327 3,281 (2,275)
------- ------- -------
Total tax expense $73,733 $78,233 $76,780
======= ======= =======
</TABLE>
ML-15
<PAGE>
Minnesota Life Insurance Company and Subsidiaries
Notes to Consolidated Financial Statements (continued)
(6) Income Taxes (continued)
The tax effects of temporary differences that give rise to the Company's net
deferred federal tax liability were as follows:
<TABLE>
<CAPTION>
1999 1998
-------- --------
(In thousands)
<S> <C> <C>
Deferred tax assets:
Policyholders liabilities $ 17,461 $ 16,999
Pension and post retirement benefits 30,151 27,003
Tax deferred policy acquisition costs 91,976 82,940
Net realized capital losses 6,709 8,221
Other 16,612 18,487
-------- --------
Gross deferred tax assets 162,909 153,650
-------- --------
Deferred tax liabilities:
Deferred policy acquisition costs $198,501 $155,655
Real estate and property and equipment depreciation 14,642 10,275
Basis difference on investments 8,092 10,798
Net unrealized capital gains 59,411 143,354
Other 7,357 7,475
-------- --------
Gross deferred tax liabilities 288,003 327,557
-------- --------
Net deferred tax liability $125,094 $173,907
======== ========
</TABLE>
A valuation allowance for deferred tax assets was not considered necessary
as of December 31, 1999 and 1998 because the Company believes that it is more
likely than not that the deferred tax assets will be realized through future
reversals of existing taxable temporary differences and future taxable income.
Income taxes paid for the years ended December 31, 1999, 1998 and 1997, were
$59,905,000, $91,259,000 and $71,108,000, respectively.
The Company's tax returns for 1995, 1996, and 1997 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.
ML-16
<PAGE>
Minnesota Life Insurance Company and Subsidiaries
Notes to Consolidated Financial Statements (continued)
(7) Liability for Unpaid Accident and Health Claims, Reserve for Losses, and
Claim and Loss Adjustment Expenses
Activity in the liability for unpaid accident and health claims, reserve for
losses and claim and loss adjustment expenses is summarized as follows:
<TABLE>
<CAPTION>
1999 1998 1997
-------- -------- --------
(In thousands)
<S> <C> <C> <C>
Balance at January 1 $435,079 $409,249 $416,910
Less: reinsurance recoverable 108,918 104,741 102,161
-------- -------- --------
Net balance at January 1 326,161 304,508 314,749
-------- -------- --------
Incurred related to:
Current year 92,421 92,793 121,153
Prior years 19,435 14,644 7,809
-------- -------- --------
Total incurred 111,856 107,437 128,962
-------- -------- --------
Paid related to:
Current year 25,084 27,660 51,275
Prior years 63,827 58,124 57,475
-------- -------- --------
Total paid 88,911 85,784 108,750
-------- -------- --------
Decrease in liabilities due to sale of subsidiary -- -- 30,453
-------- -------- --------
Net balance at December 31 349,106 326,161 304,508
Plus: reinsurance recoverable 121,395 108,918 104,741
-------- -------- --------
Balance at December 31 $470,501 $435,079 $409,249
======== ======== ========
</TABLE>
The liability for unpaid accident and health claims, reserve for losses and
claim and loss adjustment expenses is included in future policy and contract
benefits and pending policy and contract claims on the consolidated balance
sheets.
As a result of changes in estimates of claims incurred in prior years, the
accident and health claims, reserve for losses and claim and loss adjustment
expenses incurred increased by $19,435,000, $14,644,000 and $7,809,000 in 1999,
1998 and 1997, respectively which includes the amortization of discount on
individual accident and health claim reserves of $13,918,000, $14,256,000,
$11,522,000 in 1999, 1998 and 1997, respectively. The remaining changes in
amounts are the result of normal reserve development inherent in the
uncertainty of establishing the liability for unpaid accident and health
claims, reserve for losses and claim and loss adjustment expenses.
(8) Employee Benefit Plans
Pension Plans and Post Retirement Plans Other than Pensions
The Company has noncontributory defined benefit retirement plans covering
substantially all employees and certain agents. Benefits are based upon years
of participation and the employee's average monthly compensation or the agent's
adjusted annual compensation. Plan assets are comprised of mostly stocks and
bonds, which are held in the general and separate accounts of the Company and
administered under group annuity contracts issued by the Company. The Company's
funding policy is to contribute annually the minimum amount required by
applicable regulations. The Company also has an unfunded noncontributory
defined benefit retirement plan, which provides certain employees with benefits
in excess of limits for qualified retirement plans.
The Company also has unfunded postretirement plans that provide certain
health care and life insurance benefits to substantially all retired employees
and agents. Eligibility is determined by age at retirement and years of service
after age 30. Health care premiums are shared with retirees, and other cost-
sharing features include deductibles and co-payments.
ML-17
<PAGE>
Minnesota Life Insurance Company and Subsidiaries
Notes to Consolidated Financial Statements (continued)
(8) Employee Benefit Plans (continued)
The change in the benefit obligation and plan assets for the Company's plans
as of December 31 was calculated as follows:
<TABLE>
<CAPTION>
Pension Benefits Other Benefits
------------------ ------------------
1999 1998 1999 1998
-------- -------- -------- --------
(In thousands)
<S> <C> <C> <C> <C>
Change in benefit obligation:
Benefit obligation at beginning of
year $181,439 $151,509 $ 31,236 $ 24,467
Service cost 8,272 8,402 1,419 1,375
Interest cost 13,132 10,436 2,340 1,713
Amendments 4,385 6 -- --
Actuarial gain (4,143) 16,298 (33) 4,542
Benefits paid (6,060) (5,212) (1,242) (861)
-------- -------- -------- --------
Benefit obligation at end of year $197,025 $181,439 $ 33,720 $ 31,236
======== ======== ======== ========
Change in plan assets:
Fair value of plan assets at the
beginning of the year $146,710 $133,505 $ -- $ --
Actual return on plan assets 12,948 13,068 -- --
Employer contribution 6,096 5,349 1,242 861
Benefits paid (6,060) (5,212) (1,242) (861)
-------- -------- -------- --------
Fair value of plan assets at the
end of year $159,694 $146,710 $ -- $ --
======== ======== ======== ========
Funded status $(37,330) $(34,729) $(33,720) $(31,236)
Unrecognized net actuarial loss
(gain) 6,812 12,283 (6,089) (6,251)
Unrecognized prior service cost
(benefit) 8,723 5,293 (2,472) (2,986)
-------- -------- -------- --------
Net amount recognized $(21,795) $(17,153) $(42,281) $(40,473)
======== ======== ======== ========
Amounts recognized in the balance
sheet statement consist of:
Accrued benefit cost $(27,980) $(23,242) $(42,395) $(40,473)
Intangible asset 6,185 6,089 114 --
-------- -------- -------- --------
Net amount recognized $(21,795) $(17,153) $(42,281) $(40,473)
======== ======== ======== ========
Weighted average assumptions as of
December 31
Discount rate 7.50% 7.00% 7.50% 7.00%
Expected return on plan assets 8.27% 8.27% -- --
Rate of compensation increase 5.32% 5.32% -- --
</TABLE>
ML-18
<PAGE>
Minnesota Life Insurance Company and Subsidiaries
Notes to Consolidated Financial Statements (continued)
(8) Employee Benefit Plans (continued)
For measurement purposes, an 8.5 percent annual rate of increase in the per
capita cost of covered health care benefits was assumed for 2000. The rate was
assumed to decrease gradually to 5.5 percent for 2005 and remain at that level
thereafter.
<TABLE>
<CAPTION>
Pension Benefits Other Benefits
--------------------------- ----------------------
1999 1998 1997 1999 1998 1997
-------- -------- ------- ------ ------ ------
(In thousands)
<S> <C> <C> <C> <C> <C> <C>
Components of net periodic
benefit cost
Service cost $ 8,272 $ 8,402 $ 6,847 $1,419 $1,375 $1,047
Interest cost 13,132 10,436 9,956 2,340 1,713 1,872
Expected return on plan
assets (12,080) (10,978) (9,859) -- -- --
Amortization of prior
service cost (benefits) 954 578 578 (513) (513) (510)
Recognized net actuarial
loss (gain) 459 190 77 (195) (559) (480)
-------- -------- ------- ------ ------ ------
Net periodic benefit
cost $ 10,737 $ 8,628 $ 7,599 $3,051 $2,016 $1,929
======== ======== ======= ====== ====== ======
</TABLE>
The projected benefit obligation, accumulated benefit obligation, and fair
value of plan assets for the pension plan with accumulated benefit obligations
in excess of plan assets were $45,610,000, $36,376,000 and $18,500,000,
respectively, as of December 31, 1999, and $39,470,000, $31,546,000 and
$17,334,000, respectively, as of December 31, 1998.
The assumptions presented herein are based on pertinent information
available to management as of December 31, 1999 and 1998. 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, 1999 by
$6,164,000 and the estimated eligibility cost and interest cost components of
net periodic benefit costs for 1999 by $831,000. Decreasing the assumed health
care cost trend rates by one percentage point in each year would decrease the
postretirement benefit obligation as of December 31, 1999 by $4,879,000 and the
estimated eligibility cost and interest cost components of net periodic
postretirement benefit costs for 1999 by $637,000.
Profit Sharing Plans
The Company also has profit sharing plans covering substantially all employees
and agents. The Company's contribution rate to the employee plan is determined
annually by the directors of the Company and is applied to each participant's
prior year earnings. The Company's contribution to the agent plan is made as a
certain percentage, based upon years of service, applied to each agent's total
annual compensation. The Company recognized contributions to the plans during
1999, 1998 and 1997 of $6,003,000, $7,145,000 and $7,173,000, respectively.
Participants may elect to receive a portion of their contributions in cash.
(9) Sale of Subsidiary
On October 1, 1997, the Company sold Minnesota Fire and Casualty Company (MFC),
a wholly owned subsidiary, to Harleysville Group, Inc. The Company received net
cash proceeds of approximately $33.5 million from the sale, and realized a gain
of approximately $14.5 million. HomePlus Insurance Company (HomePlus), a
previously wholly owned subsidiary of MFC, was excluded from the sale of
assets. In accordance with the agreement, prior to September 30, 1997, MFC made
a distribution of private placement bonds to the Company with an amortized cost
of approximately $4.3 million and transferred all issued and outstanding shares
of HomePlus to the Company. The carrying value of the transferred shares was
approximately $5.8 million. Under an administrative services agreement with
MFC, the Company has retained MFC to provide financial and other services for
HomePlus.
ML-19
<PAGE>
Minnesota Life Insurance Company and Subsidiaries
Notes to Consolidated Financial Statements (continued)
(10) Reinsurance
In the normal course of business, the Company seeks to limit its exposure to
loss on any single insured and to recover a portion of benefits paid by ceding
reinsurance to other insurance companies. To the extent that a reinsurer is
unable to meet its obligation under the reinsurance agreement, the Company
remains liable. The Company evaluates the financial condition of its reinsurers
and monitors concentrations of credit risk to minimize its exposure to
significant losses from reinsurer insolvencies. Allowances are established for
amounts deemed to be uncollectible.
Reinsurance is accounted for over the lives of the underlying reinsured
policies using assumptions consistent with those used to account for the
underlying policies.
The effect of reinsurance on premiums for the years ended December 31 was as
follows:
<TABLE>
<CAPTION>
1999 1998 1997
-------- -------- --------
(In thousands)
<S> <C> <C> <C>
Direct premiums $662,775 $553,408 $595,686
Reinsurance assumed 102,154 91,548 78,097
Reinsurance ceded (67,130) (67,263) (58,530)
-------- -------- --------
Net premiums $697,799 $577,693 $615,253
======== ======== ========
</TABLE>
Reinsurance recoveries on ceded reinsurance contracts were $71,922,000,
$64,174,000 and $58,072,000 during 1999, 1998 and 1997, respectively.
On January 1, 1999, the Company entered into an agreement to sell its
assumed individual life reinsurance business representing $1,982,509,000 of in
force to RGA Reinsurance Company. The Company received cash of $1,284,000 from
the sale and recognized miscellaneous income of approximately $4,139,000,
representing the gain on the sale.
On October 1, 1999, the Company entered into an assumption reinsurance
agreement with Fort Dearborn Life Insurance Company. The agreement transfers
401(k) accounts with associated fixed and variable assets of approximately
$260,000,000.
(11) Fair Value of Financial Instruments
The estimated fair value of the Company's financial instruments has been
determined using available market information as of December 31, 1999 and 1998.
Although management is not aware of any factors that would significantly affect
the estimated fair value, such amounts have not been comprehensively revalued
since those dates. Therefore, estimates of fair value subsequent to the
valuation dates may differ significantly from the amounts presented herein.
Considerable judgement is required to interpret market data to develop the
estimates of fair value. The use of different market assumptions and/or
estimation methodologies may have a material effect on the estimated fair value
amounts.
Please refer to Note 2 for additional fair value disclosures concerning
fixed maturity securities, equity securities, mortgages, private equities and
derivatives. The carrying amounts for policy loans, cash, short-term
investments and finance receivables approximate the assets' fair values.
The interest rates on the finance receivables outstanding as of December 31,
1999 and 1998, are consistent with the rates at which loans would currently be
made to borrowers of similar credit quality and for the same maturity; as such,
the carrying value of the finance receivables outstanding as of December 31,
1999 and 1998, approximate the fair value for those respective dates.
The fair values of deferred annuities, annuity certain contracts and other
fund deposits, which have guaranteed interest rates and surrender charges are
estimated to be the amount payable on demand as of December 31, 1999 and 1998
as those investment contracts have no defined maturity and are similar to a
deposit liability. The amount payable on demand equates to the account balance
less applicable surrender charges. Contracts without guaranteed interest rates
and surrender charges have fair values equal to their accumulation values plus
applicable market value adjustments.
ML-20
<PAGE>
Minnesota Life Insurance Company and Subsidiaries
Notes to Consolidated Financial Statements (continued)
(11) Fair Value of Financial Instruments (continued)
The fair values of guaranteed investment contracts and supplementary
contracts without life contingencies are calculated using discounted cash
flows, based on interest rates currently offered for similar products with
maturities consistent with those remaining for the contracts being valued.
Rates currently available to the Company for debt with similar terms and
remaining maturities are used to estimate the fair value of notes payable.
The carrying amounts and fair values of the Company's financial instruments,
which were classified as assets as of December 31, were as follows:
<TABLE>
<CAPTION>
1999 1998
--------------------- ---------------------
Carrying Fair Carrying Fair
Amount Value Amount Value
---------- ---------- ---------- ----------
(In thousands)
<S> <C> <C> <C> <C>
Fixed maturity securities:
Available-for-sale $4,803,568 $4,803,568 $4,914,012 $4,914,012
Held-to-maturity 974,814 968,852 1,086,548 1,161,784
Equity securities 770,269 770,269 749,800 749,800
Mortgage loans:
Commercial 625,196 605,112 579,890 603,173
Residential 71,476 73,293 101,329 104,315
Policy loans 237,335 237,335 226,409 226,409
Short-term investments 93,993 93,993 136,435 136,435
Cash 116,803 116,803 175,660 175,660
Finance receivables, net 134,812 134,812 163,411 163,411
Private equities 284,797 284,797 160,958 164,332
Foreign currency exchange con-
tract 655 655 1,594 1,594
---------- ---------- ---------- ----------
Total financial assets $8,113,718 $8,089,489 $8,296,046 $8,400,925
========== ========== ========== ==========
</TABLE>
The carrying amounts and fair values of the Company's financial instruments,
which were classified as liabilities as of December 31, were as follows:
<TABLE>
<CAPTION>
1999 1998
--------------------- ---------------------
Carrying Fair Carrying Fair
Amount Value Amount Value
---------- ---------- ---------- ----------
(In thousands)
<S> <C> <C> <C> <C>
Deferred annuities $1,822,302 $1,810,820 $2,085,408 $2,075,738
Annuity certain contracts 39,513 39,421 57,528 60,766
Other fund deposits 945,575 936,590 722,321 731,122
Guaranteed investment contracts 116 116 862 862
Supplementary contracts without
life contingencies 43,050 43,126 44,696 44,251
Notes payable 218,000 221,233 267,000 272,834
---------- ---------- ---------- ----------
Total financial liabilities $3,068,556 $3,051,306 $3,177,815 $3,185,573
========== ========== ========== ==========
</TABLE>
(12) Notes Payable
In September 1995, the Company issued surplus notes with a face value of
$125,000,000, at 8.25%, due in 2025. The surplus notes are subordinate to all
current and future policyholders interests, including claims, and indebtedness
of the Company. All payments of interest and principal on the notes are subject
to the approval of the Department of Commerce. The approved accrued interest
was $3,008,000 as of December 31, 1999 and 1998. The issuance costs of
$1,421,000 are deferred and amortized over 30 years on straight-line basis.
ML-21
<PAGE>
Minnesota Life Insurance Company and Subsidiaries
Notes to Consolidated Financial Statements (continued)
(12) Notes Payable (continued)
Notes payable as of December 31 were as follows:
<TABLE>
<CAPTION>
1999 1998
-------- --------
(In thousands)
<S> <C> <C>
Corporate-surplus notes, 8.25%, 2025 $125,000 $125,000
Consumer finance subsidiary-senior, 6.53%-8.77%, through
2003 93,000 142,000
-------- --------
Total notes payable $218,000 $267,000
======== ========
</TABLE>
At December 31, 1999, the aggregate minimum annual notes payable maturities
for the next four years were as follows: 2000, $33,000,000; 2001, $26,000,000;
2002, $22,000,000; 2003, $12,000,000; thereafter $125,000,000.
Long-term borrowing agreements involving the consumer finance subsidiary
include provisions with respect to borrowing limitations, payment of cash
dividends on or purchases of common stock, and maintenance of liquid net worth
of $41,354,000. The consumer finance subsidiary was in compliance with all such
provisions at December 31, 1999.
The Company maintains a line of credit, which is drawn down periodically
throughout the year. As of December 1999 and 1998, the outstanding balance of
this line of credit was $90,000,000 and $40,000,000, respectively.
Interest paid on debt for the years ended December 31, 1999, 1998 and 1997,
was $24,120,000, $25,008,000 and $18,197,000, respectively.
(13) Other Comprehensive Income
Comprehensive income is defined as any change in stockholder's equity
originating from non-owner transactions. The Company had identified those
changes as being comprised of net income, unrealized appreciation
(depreciation) on securities, and unrealized foreign currency translation
adjustments.
The components of comprehensive income (loss), other than net income are
illustrated below:
<TABLE>
<CAPTION>
1999 1998 1997
---------- -------- --------
(In thousands)
<S> <C> <C> <C>
Other comprehensive income (loss), before tax:
Foreign currency translation adjustment $ -- $ -- $ 1,457
Less: reclassification adjustment for gains
included in net income -- (1,457) --
---------- -------- --------
-- (1,457) 1,457
Unrealized gains (loss) on securities (59,499) 162,214 171,654
Less: reclassification adjustment for gains
included in net income (74,170) (90,770) (96,476)
---------- -------- --------
(133,669) 71,444 75,178
Income tax expense related to items of other
comprehensive income 48,131 (23,045) (28,274)
---------- -------- --------
Other comprehensive income (loss), net of tax $ (85,538) $ 46,942 $ 48,361
========== ======== ========
</TABLE>
(14) Stock Dividends
During 1999, the Company declared and paid dividends to Securian Financial
Group, Inc. totaling $59,109,000. These dividends were in the form of cash,
common stock and the affiliated stock of Capitol City Property Management and
HomePlus Insurance Agency, Inc. On December 14, 1998, the Company declared and
accrued a dividend to Securian Financial Group, Inc. in the amount of
$24,700,000, which was paid in 1999.
ML-22
<PAGE>
Minnesota Life Insurance Company and Subsidiaries
Notes to Consolidated Financial Statements (continued)
(14) Stock Dividends (continued)
Dividend payments by Minnesota Life Insurance Company to its parent cannot
exceed the greater of 10% of statutory capital and surplus as of the preceding
year-end or the statutory net gain from operations for the current calendar
year, without prior approval from the Department of Commerce. Based on this
limitation and 1998 statutory results, Minnesota Life Insurance Company could
have paid $168,076,000 in dividends in 1999 without prior approval.
(15) Commitments and Contingencies
The Company is involved in various pending or threatened legal proceedings
arising out of the normal course of business. In the opinion of management, the
ultimate resolution of such litigation will not have a material adverse effect
on operations or the financial position of the Company.
In the normal course of business, the Company seeks to limit its exposure to
loss on any single insured and to recover a portion of benefits paid by ceding
reinsurance to other insurance companies. To the extent that a reinsurer is
unable to meet its obligations under the reinsurance agreement, the Company
remains liable. The Company evaluates the financial condition of its reinsurers
and monitors concentrations of credit risk to minimize its exposure to
significant losses from reinsurer insolvencies. Allowances are established for
amounts deemed uncollectible.
The Company has issued certain participating group annuity and group life
insurance contracts jointly with another life insurance company. The joint
contract issuer has liabilities related to these contracts of $183,200,000 as
of December 31, 1999. 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 private equities and real
estate investments totaling $147,652,000 as of December 31, 1999. The Company
estimates that $60,000,000 of these commitments will be invested in 2000, with
the remaining $87,652,000 invested over the next four years.
As of December 31, 1999, the Company had committed to purchase bonds and
mortgage loans totaling $54,130,000 but had not completed the purchase
transactions.
The Company has a long-term lease agreement for rental space in downtown St.
Paul and other locations. Minimum rental commitments under such leases are as
follows: 2000, $2,400,000; 2001, $2,227,000; 2002, $2,092,000; 2003,
$2,108,000; 2004, $1,261,000; 2005, $22,000.
At December 31, 1999, the Company had guaranteed the payment of $76,600,000
in policyholders dividends and discretionary amounts payable in 2000. The
Company has pledged bonds, valued at $79,333,000 to secure this guarantee.
The Company is contingently liable under state regulatory requirements for
possible assessments pertaining to future insolvencies and impairments of
unaffiliated insurance companies. The Company records a liability for future
guaranty fund assessments based upon known insolvencies, according to data
received from the National Organization of Life and Health Insurance Guaranty
Association. At December 31, 1999 and 1998 the liability was ($352,000) and
$1,105,000, respectively. An asset is recorded for the amount of guaranty fund
assessments paid, which can be recovered through future premium tax credits.
This asset was $5,485,000 and $7,282,000 for the periods ending December 31,
1999 and 1998, respectively. These assets are being amortized over a five-year
period.
At December 1999, the Company has guaranteed the payment of approximately
$125,000,000 of senior notes issued by Capitol City Properties Management,
Inc., an affiliated company through the expiration date of the notes June 1,
2021 or by mutual agreement of the parties. These notes were issued in
conjunction with the financing of the Company's additional home office space.
ML-23
<PAGE>
Minnesota Life Insurance Company and Subsidiaries
Notes to Consolidated Financial Statements (continued)
(16) Statutory Financial Data
The Company also prepares financial statements according to statutory
accounting practices prescribed or permitted by the Department of Commerce for
purposes of filing with the Department of Commerce, the National Association of
Insurance Commissioners and states in which the Company is licensed to do
business. Statutory accounting practices focus primarily on solvency and
surplus adequacy. The significant differences that exist between statutory and
GAAP accounting, and their effects are illustrated below:
<TABLE>
<CAPTION>
Year ended December
----------------------
1999 1998
---------- ----------
(In thousands)
<S> <C> <C>
Statutory capital and surplus $1,089,474 $ 947,885
Adjustments:
Deferred policy acquisition costs 712,532 564,382
Net unrealized investment gains (losses) (49,572) 279,885
Statutory asset valuation reserve 310,626 239,455
Statutory interest maintenance reserve 30,984 49,915
Premiums and fees deferred or receivable (69,618) (73,312)
Change in reserve basis 115,718 113,648
Separate accounts (64,860) (56,816)
Unearned policy and contract fees (144,157) (118,459)
Surplus notes (125,000) (125,000)
Net deferred income taxes (125,094) (173,907)
Non-admitted assets 36,205 39,525
Policyholders dividends 62,268 60,648
Other (23,642) (25,573)
---------- ----------
Stockholder's equity as reported in the accompanying
consolidated financial statements $1,755,864 $1,722,276
========== ==========
</TABLE>
<TABLE>
<CAPTION>
As of December 31
--------------------------------
1999 1998 1997
-------- ---------- ----------
(In thousands)
<S> <C> <C> <C>
Statutory net income $167,957 $ 104,609 $ 167,078
Adjustments:
Deferred policy acquisition costs 29,164 18,042 26,878
Statutory interest maintenance reserve (18,931) 25,746 (538)
Premiums and fees deferred or receivable 3,686 708 2,175
Change in reserve basis 2,555 3,011 9,699
Separate accounts (8,044) (5,644) (6,272)
Unearned policy and contract fees (8,696) (7,896) (12,825)
Net deferred income taxes 1,439 15,351 7,832
Policyholders dividends 1,620 1,194 2,708
Other 4,485 8,228 (6,839)
-------- ---------- ----------
Net income as reported in the accompanying
consolidated financial statements $175,235 $ 163,349 $ 189,896
======== ========== ==========
</TABLE>
ML-24
<PAGE>
Minnesota Life Insurance Company and Subsidiaries
Schedule I
Summary of Investments--Other than Investments in Related Parties
December 31, 1999
<TABLE>
<CAPTION>
As Shown
on the
Market consolidated
Type of investment Cost(3) Value balance sheet(1)
- ------------------ ---------- ---------- ----------------
(In thousands)
<S> <C> <C> <C>
Bonds:
United States government and
government agencies and authorities $ 151,864 $ 143,597 $ 143,597
Foreign governments 122,505 115,270 115,270
Public utilities 287,970 276,558 276,558
Mortgage-backed securities 1,602,362 1,564,386 1,564,386
All other corporate bonds 3,678,697 3,672,609 3,678,571
---------- ---------- ----------
Total bonds 5,843,398 5,772,420 5,778,382
---------- ---------- ----------
Equity securities:
Common stocks:
Public utilities 7,475 9,072 9,072
Banks, trusts and insurance compa-
nies 25,959 25,399 25,399
Industrial, miscellaneous and all
other 525,152 708,848 708,848
Nonredeemable preferred stocks 28,428 26,950 26,950
---------- ---------- ----------
Total equity securities 587,014 770,269 770,269
---------- ---------- ----------
Mortgage loans on real estate 696,672 XXXXXX 696,672
Real estate (2) 36,793 XXXXXX 36,793
Policy loans 237,335 XXXXXX 237,335
Other long-term investments 473,528 XXXXXX 473,528
Short-term investments 93,993 XXXXXX 93,993
---------- ---------- ----------
Total 1,538,321 -- 1,538,321
---------- ---------- ----------
Total investments $7,968,733 $6,542,689 $8,086,972
========== ========== ==========
</TABLE>
- -------
(1) Amortized cost for bonds classified as held-to-maturity and fair value for
common stocks and bonds classified as available-for-sale
(2) The carrying value of real estate acquired in satisfaction of indebtedness
is $ -0-
(3) Original cost for equity securities and original cost reduced by
repayments and adjusted for amortization of premiums or accrual of
discounts for bonds and other investments
See independent auditors' report.
ML-25
<PAGE>
Minnesota Life Insurance Company and Subsidiaries
Schedule III
Supplementary Insurance Information
(In thousands)
<TABLE>
<CAPTION>
As of December 31,
---------------------------------------------------
Future policy
Deferred benefits Other policy
policy losses, claims claims and
acquisition and settlement Unearned benefits
Segment costs expenses(1) premiums(2) payable
- ------- ----------- -------------- ----------- ------------
<S> <C> <C> <C> <C>
1999:
Life insurance $535,709 $2,388,867 $172,430 $73,670
Accident and
health insur-
ance 80,371 552,833 35,558 16,858
Annuity 97,137 3,118,995 25 234
Property and li-
ability insur-
ance -- 441
-------- ---------- -------- -------
$713,217 $6,061,136 $208,013 $90,762
======== ========== ======== =======
1998:
Life insurance $421,057 $2,303,580 $146,042 $51,798
Accident and
health insur-
ance 74,606 510,969 33,568 18,342
Annuity 68,719 3,186,148 25 424
Property and li-
ability insur-
ance -- 480 556 --
-------- ---------- -------- -------
$564,382 $6,001,177 $180,191 $70,564
======== ========== ======== =======
1997:
Life insurance $434,012 $2,229,396 $166,704 $42,627
Accident and
health insur-
ance 70,593 466,109 34,250 17,153
Annuity 71,425 3,266,965 -- 4,576
Property and li-
ability insur-
ance -- 280 1,116 --
-------- ---------- -------- -------
$576,030 $5,962,750 $202,070 $64,356
======== ========== ======== =======
<CAPTION>
For the years ended December 31,
-----------------------------------------------------------------------
Amortization
Benefits, of deferred
Net claims, losses policy Other
Premium investment and settlement acquisition operating Premiums
Segment revenue(3) income expenses costs expenses written(4)
- ------- ----------- ---------- -------------- ------------ --------- ----------
<S> <C> <C> <C> <C> <C> <C>
1999:
Life insurance $ 762,745 $258,483 $645,695 $ 88,731 $391,454
Accident and
health insur-
ance 170,988 37,922 108,283 11,779 101,021
Annuity 95,190 243,160 214,461 22,945 79,883
Property and li-
ability insur-
ance (14) 491 323 743 (570)
----------- ---------- -------------- ------------ --------- ----------
$1,028,909 $540,056 $968,762 $123,455 $573,101 $ (570)
=========== ========== ============== ============ ========= ==========
1998:
Life insurance $ 615,856 $246,303 $502,767 $114,589 $342,080
Accident and
health insur-
ance 167,544 35,822 105,336 12,261 93,876
Annuity 93,992 247,970 225,004 21,248 136,527
Property and li-
ability insur-
ance 662 986 2,848 -- 1,187 103
----------- ---------- -------------- ------------ --------- ----------
$ 878,054 $531,081 $835,955 $148,098 $573,670 $ 103
=========== ========== ============== ============ ========= ==========
1997:
Life insurance $ 576,468 $247,267 $476,747 $102,473 $345,938
Accident and
health insur-
ance 205,869 40,343 87,424 9,451 101,960
Annuity 64,637 261,768 242,738 16,252 129,263
Property and li-
ability insur-
ance 40,316 4,395 33,773 -- 13,146 43,376
----------- ---------- -------------- ------------ --------- ----------
$ 887,290 $553,773 $840,682 $128,176 $590,307 $43,376
=========== ========== ============== ============ ========= ==========
</TABLE>
- ------
(1) Includes policy and contract account balances
(2) Includes unearned policy and contract fees
(3) Includes policy and contract fees
(4) Applies only to property and liability insurance
See independent auditors' report.
ML-26
<PAGE>
Minnesota Life Insurance Company and Subsidiaries
Schedule IV
Reinsurance
For the years ended December 31, 1998, 1997 and 1996
<TABLE>
<CAPTION>
Percentage
Ceded to Assumed of amount
Gross other from other Net assumed to
amount companies companies amount net
------------ ----------- ----------- ------------ ----------
(In thousands)
<S> <C> <C> <C> <C> <C>
1999:
Life insurance in force $175,297,217 $21,279,606 $37,337,340 $191,354,951 19.5%
============ =========== =========== ============
Premiums:
Life insurance $ 455,857 $ 30,557 $ 83,681 $ 508,981 16.4%
Accident and health
insurance 183,765 18,776 1,281 166,270 0.8%
Annuity 22,562 -- -- 22,562 --
Property and liability
insurance 591 17,797 17,192 (14) n/a
------------ ----------- ----------- ------------
Total premiums $ 662,775 $ 67,130 $ 102,154 $ 697,799 14.6%
============ =========== =========== ============
1998:
Life insurance in force $158,229,143 $18,656,917 $28,559,482 $168,131,708 17.0%
============ =========== =========== ============
Premiums:
Life insurance $ 338,909 $ 30,532 $ 71,198 $ 379,575 18.8%
Accident and health
insurance 180,081 17,894 1,432 163,619 0.9%
Annuity 33,837 -- -- 33,837 --
Property and liability
insurance 581 18,837 18,918 662 2857.7%
------------ ----------- ----------- ------------
Total premiums $ 553,408 $ 67,263 $ 91,548 $ 577,693 15.8%
============ =========== =========== ============
1997:
Life insurance in force $122,120,394 $14,813,351 $25,566,734 $132,873,777 19.2%
============ =========== =========== ============
Premiums:
Life insurance $ 340,984 $ 30,547 $ 63,815 $ 374,252 17.1%
Accident and health
insurance 175,647 16,332 1,310 160,625 0.8%
Annuity 40,060 -- -- 40,060 --
Property and liability
insurance 38,995 11,651 12,972 40,316 32.2%
------------ ----------- ----------- ------------
Total premiums $ 595,686 $ 58,530 $ 78,097 $ 615,253 12.7%
============ =========== =========== ============
</TABLE>
See independent auditors' report.
ML-27
<PAGE> 81
APPENDIX A
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 group-sponsored program issued a group contract. This
assumes a $4.00 monthly administration charge, a 3 percent sales charge, a 2
percent premium tax charge, and a .25 percent federal tax charge. Cost of
insurance charges used in the tables are either the guaranteed maximums or
assumed levels as described in the following paragraph. If a particular policy
has different administration, sales, tax, or cost of insurance charges, the
account values and death benefits would vary from those shown in the tables. The
illustrations of death benefits also vary between tables depending upon whether
the level or variable type death benefits are illustrated.
The account value column in the tables with the heading "Using Maximum
Mortality Charges" shows the accumulated value of 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 monthly charges for the cost of insurance at an assumed level which is
substantially less than the guaranteed rate. Actual cost of insurance charges
for a policy depend on a variety of factors as described in "Account Value
Charges."
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 Funds covered under this prospectus. The investment advisory fee for
each Portfolio for the last fiscal year is shown under the heading "Fund
Charges" in this prospectus. 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 under the heading "What
charges are associated with the policy?--Fund Charges" in this prospectus. The
illustration reflects certain fees and expenses that were waived or voluntarily
absorbed, as detailed in the footnote to the expense table. We do not expect any
changes to the voluntary absorption of expenses policy in the current year.
Therefore, gross annual rates of return of 0 percent, 6 percent and 12 percent
correspond to approximate net annual rates of return of -1.23 percent, 4.77
percent and 10.77 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 premium expense charge to
cover Minnesota Life's increased federal tax expense in that situation (as
described in "Federal Tax Charge").
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.
A-1
<PAGE> 82
DEATH BENEFIT OPTION A
ISSUE AGE 45
FACE AMOUNT OF INSURANCE--$100,000
ANNUAL PREMIUM--$1,800
(MONTHLY PREMIUM--$150)(1)
USING ASSUMED MORTALITY CHARGES*
<TABLE>
<CAPTION>
--ASSUMING HYPOTHETICAL INVESTMENT RETURNS OF--
-------------------------------------------------------------
0% GROSS(2) 6% GROSS(2) 12% GROSS(2)
(-1.23% NET) (4.77% NET) (10.77% NET)
------------------ ------------------ -------------------
END OF ATT ANNUAL ACCOUNT DEATH ACCOUNT DEATH ACCOUNT DEATH
POL YR AGE PREMIUM VALUE BENEFIT VALUE BENEFIT VALUE BENEFIT
- ------ --- ------- ------- -------- ------- -------- -------- --------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
1 46 $1,800 $ 1,457 $100,000 $ 1,505 $100,000 $ 1,551 $100,000
2 47 1,800 2,888 100,000 3,072 100,000 3,260 100,000
3 48 1,800 4,280 100,000 4,694 100,000 5,133 100,000
4 49 1,800 5,648 100,000 6,385 100,000 7,201 100,000
5 50 1,800 7,001 100,000 8,162 100,000 9,496 100,000
6 51 1,800 8,320 100,000 10,005 100,000 12,022 100,000
7 52 1,800 9,593 100,000 11,908 100,000 14,795 100,000
8 53 1,800 10,832 100,000 13,887 100,000 17,854 100,000
9 54 1,800 12,018 100,000 15,924 100,000 21,213 100,000
10 55 1,800 13,152 100,000 18,026 100,000 24,908 100,000
15 60 1,800 17,776 100,000 29,388 100,000 49,801 100,000
20 65 1,800 20,420 100,000 42,497 100,000 91,606 110,669
25 70 1,800 20,703 100,000 58,276 100,000 161,262 185,451
30 75 1,800 13,642 100,000 76,795 100,000 274,923 291,602
</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 Life or the Funds that these
hypothetical rates of return can be achieved for any one year or sustained over
any period of time.
* This illustration uses assumed mortality charges for a group-sponsored program
issued a group contract. Actual cost of insurance charges for a policy depend
on a variety of factors as described in "Account Value Charges."
A-2
<PAGE> 83
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)
(-1.23% NET) (4.77% NET) (10.77% NET)
------------------ ------------------ -------------------
END OF ATT ANNUAL ACCOUNT DEATH ACCOUNT DEATH ACCOUNT DEATH
POL YR AGE PREMIUM VALUE BENEFIT VALUE BENEFIT VALUE BENEFIT
- ------ --- ------- ------- -------- ------- -------- -------- --------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
1 46 $1,800 $1,060 $100,000 $ 1,094 $100,000 $ 1,128 $100,000
2 47 1,800 2,068 100,000 2,202 100,000 2,338 100,000
3 48 1,800 3,025 100,000 3,323 100,000 3,639 100,000
4 49 1,800 3,928 100,000 4,455 100,000 5,037 100,000
5 50 1,800 4,774 100,000 5,595 100,000 6,542 100,000
6 51 1,800 5,556 100,000 6,739 100,000 8,161 100,000
7 52 1,800 6,270 100,000 7,880 100,000 9,901 100,000
8 53 1,800 6,908 100,000 9,012 100,000 11,770 100,000
9 54 1,800 7,461 100,000 10,127 100,000 13,779 100,000
10 55 1,800 7,924 100,000 11,217 100,000 15,940 100,000
15 60 1,800 8,703 100,000 16,129 100,000 29,743 100,000
20 65 1,800 5,840 100,000 19,074 100,000 51,376 100,000
25 70 1,800 0 0 16,942 100,000 88,852 102,180
30 75 1,800 0 0 2,331 100,000 154,267 163,585
</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 Life or the Funds that these
hypothetical rates of return can be achieved for any one year or sustained over
any period of time.
A-3
<PAGE> 84
DEATH BENEFIT OPTION B
ISSUE AGE 45
FACE AMOUNT OF INSURANCE--$50,000
ANNUAL PREMIUM--$1,800
(MONTHLY PREMIUM--$150)(1)
USING ASSUMED MORTALITY CHARGES*
<TABLE>
<CAPTION>
--ASSUMING HYPOTHETICAL INVESTMENT RETURNS OF--
------------------------------------------------------------
0% GROSS(2) 6% GROSS(2) 12% GROSS(2)
(-1.23% NET) (4.77% NET) (10.77% NET)
----------------- ------------------ -------------------
END OF ATT ANNUAL ACCOUNT DEATH ACCOUNT DEATH ACCOUNT DEATH
POL YR AGE PREMIUM VALUE BENEFIT VALUE BENEFIT VALUE BENEFIT
- ------ --- ------- ------- ------- ------- -------- -------- --------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
1 46 $1,800 $ 1,551 $51,551 $ 1,602 $ 51,602 $ 1,651 $ 51,651
2 47 1,800 3,077 53,077 3,273 53,273 3,474 53,474
3 48 1,800 4,572 54,572 5,012 55,012 5,480 55,480
4 49 1,800 6,043 56,043 6,828 56,828 7,696 57,696
5 50 1,800 7,496 57,496 8,731 58,731 10,150 60,150
6 51 1,800 8,919 58,919 10,712 60,712 12,857 62,857
7 52 1,800 10,307 60,307 12,769 62,769 15,835 65,835
8 53 1,800 11,665 61,665 14,912 64,912 19,122 69,122
9 54 1,800 12,984 62,984 17,132 67,132 22,737 72,737
10 55 1,800 14,262 64,262 19,434 69,434 26,717 76,717
15 60 1,800 19,880 69,880 32,097 82,097 53,373 103,373
20 65 1,800 24,038 74,038 46,782 96,782 96,325 146,325
25 70 1,800 26,507 76,507 63,658 113,658 166,039 216,039
30 75 1,800 24,540 74,540 80,116 130,116 276,829 326,829
</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 Life or the Funds that these
hypothetical rates of return can be achieved for any one year or sustained over
any period of time.
* This illustration uses assumed mortality charges for a group-sponsored program
issued a group contract. Actual cost of insurance charges for a policy depend
on a variety of factors as described in "Account Value Charges."
A-4
<PAGE> 85
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)
(-1.23% NET) (4.77% NET) (10.77% NET)
----------------- ----------------- -------------------
END OF ATT ANNUAL ACCOUNT DEATH ACCOUNT DEATH ACCOUNT DEATH
POL YR AGE PREMIUM VALUE BENEFIT VALUE BENEFIT VALUE BENEFIT
- ------ --- ------- ------- ------- ------- ------- -------- --------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
1 46 $1,800 $1,333 $51,333 $ 1,377 $51,377 $ 1,420 $ 51,420
2 47 1,800 2,629 52,629 2,797 52,797 2,968 52,968
3 48 1,800 3,884 53,884 4,260 54,260 4,659 54,659
4 49 1,800 5,100 55,100 5,768 55,768 6,506 56,506
5 50 1,800 6,273 56,273 7,319 57,319 8,522 58,522
6 51 1,800 7,400 57,400 8,912 58,912 10,722 60,722
7 52 1,800 8,479 58,479 10,545 60,545 13,123 63,123
8 53 1,800 9,506 59,506 12,216 62,216 15,740 65,740
9 54 1,800 10,476 60,476 13,921 63,921 18,592 68,592
10 55 1,800 11,385 61,385 15,657 65,657 21,700 71,700
15 60 1,800 14,949 64,949 24,748 74,748 42,022 92,022
20 65 1,800 16,395 66,395 34,037 84,037 73,403 123,403
25 70 1,800 14,603 64,603 42,129 92,129 121,549 171,549
30 75 1,800 7,843 57,843 46,520 96,520 195,165 245,165
</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 Life or the Funds that these
hypothetical rates of return can be achieved for any one year or sustained over
any period of time.
A-5
<PAGE> 86
DEATH BENEFIT OPTION A
ISSUE AGE 55
FACE AMOUNT OF INSURANCE--$100,000
ANNUAL PREMIUM--$3,000
(MONTHLY PREMIUM--$250)(1)
USING ASSUMED MORTALITY CHARGES
<TABLE>
<CAPTION>
--ASSUMING HYPOTHETICAL INVESTMENT RETURNS OF--
--------------------------------------------------------------
0% GROSS(2) 6% GROSS(2) 12% GROSS(2)
(-1.23% NET) (4.77% NET) (10.77% NET)
------------------ ------------------- -------------------
END OF ATT ANNUAL ACCOUNT DEATH ACCOUNT DEATH ACCOUNT DEATH
POL YR AGE PREMIUM VALUE BENEFIT VALUE BENEFIT VALUE BENEFIT
- ------ --- ------- ------- -------- -------- -------- -------- --------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
1 56 $3,000 $ 2,305 $100,000 $ 2,380 $100,000 $ 2,454 $100,000
2 57 3,000 4,512 100,000 4,802 100,000 5,099 100,000
3 58 3,000 6,636 100,000 7,285 100,000 7,975 100,000
4 59 3,000 8,671 100,000 9,824 100,000 11,100 100,000
5 60 3,000 10,619 100,000 12,426 100,000 14,509 100,000
6 61 3,000 12,474 100,000 15,089 100,000 18,230 100,000
7 62 3,000 14,240 100,000 17,822 100,000 22,308 100,000
8 63 3,000 15,910 100,000 20,623 100,000 26,783 100,000
9 64 3,000 17,499 100,000 23,514 100,000 31,723 100,000
10 65 3,000 18,988 100,000 26,487 100,000 37,178 100,000
15 70 3,000 25,006 100,000 43,004 100,000 75,294 100,000
20 75 3,000 24,542 100,000 60,994 100,000 141,208 149,601
25 80 3,000 10,447 100,000 82,240 100,000 249,858 262,351
30 85 3,000 0 0 114,447 120,170 422,444 443,566
</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 Life or the Funds that these
hypothetical rates of return can be achieved for any one year or sustained over
any period of time.
* This illustration uses assumed mortality charges for a group-sponsored program
issued a group contract. Actual cost of insurance charges for a policy depend
on a variety of factors as described in "Account Value Charges."
A-6
<PAGE> 87
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)
(-1.23% NET) (4.77% NET) (10.77% NET)
------------------ ------------------ -------------------
END OF ATT ANNUAL ACCOUNT DEATH ACCOUNT DEATH ACCOUNT DEATH
POL YR AGE PREMIUM VALUE BENEFIT VALUE BENEFIT VALUE BENEFIT
- ------ --- ------- ------- -------- ------- -------- -------- --------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
1 56 $3,000 $1,478 $100,000 $ 1,526 $100,000 $ 1,574 $100,000
2 57 3,000 2,850 100,000 3,036 100,000 3,226 100,000
3 58 3,000 4,112 100,000 4,524 100,000 4,963 100,000
4 59 3,000 5,263 100,000 5,990 100,000 6,795 100,000
5 60 3,000 6,294 100,000 7,422 100,000 8,728 100,000
6 61 3,000 7,190 100,000 8,808 100,000 10,763 100,000
7 62 3,000 7,936 100,000 10,128 100,000 12,901 100,000
8 63 3,000 8,508 100,000 11,361 100,000 15,139 100,000
9 64 3,000 8,884 100,000 12,479 100,000 17,476 100,000
10 65 3,000 9,040 100,000 13,459 100,000 19,916 100,000
15 70 3,000 5,780 100,000 15,418 100,000 34,244 100,000
20 75 3,000 0 0 7,175 100,000 54,468 100,000
25 80 3,000 0 0 0 0 90,908 100,000
30 85 3,000 0 0 0 0 163,762 171,950
</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 Life or the Funds that these
hypothetical rates of return can be achieved for any one year or sustained over
any period of time.
A-7
<PAGE> 88
DEATH BENEFIT OPTION B
ISSUE AGE 55
FACE AMOUNT OF INSURANCE--$50,000
ANNUAL PREMIUM--$3,000
(MONTHLY PREMIUM--$250)(1)
USING ASSUMED MORTALITY CHARGES*
<TABLE>
<CAPTION>
--ASSUMING HYPOTHETICAL INVESTMENT RETURNS OF--
------------------------------------------------------------
0% GROSS(2) 6% GROSS(2) 12% GROSS(2)
(-1.23% NET) (4.77% NET) (10.77% NET)
----------------- ------------------ -------------------
END OF ATT ANNUAL ACCOUNT DEATH ACCOUNT DEATH ACCOUNT DEATH
POL YR AGE PREMIUM VALUE BENEFIT VALUE BENEFIT VALUE BENEFIT
- ------ --- ------- ------- ------- ------- -------- -------- --------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
1 56 $3,000 $ 2,537 $52,537 $ 2,620 $ 52,620 $ 2,701 $ 52,701
2 57 3,000 5,002 55,002 5,322 55,322 5,649 55,649
3 58 3,000 7,400 57,400 8,116 58,116 8,876 58,876
4 59 3,000 9,727 59,727 11,000 61,000 12,406 62,406
5 60 3,000 11,984 61,984 13,978 63,978 16,272 66,272
6 61 3,000 14,166 64,166 17,050 67,050 20,503 70,503
7 62 3,000 16,272 66,272 20,218 70,218 25,140 75,140
8 63 3,000 18,300 68,300 23,483 73,483 30,219 80,219
9 64 3,000 20,255 70,255 26,853 76,853 35,794 85,794
10 65 3,000 22,126 72,126 30,324 80,324 41,906 91,906
15 70 3,000 30,220 80,220 49,296 99,296 82,739 132,739
20 75 3,000 33,539 83,539 68,400 118,400 145,365 195,365
25 80 3,000 29,082 79,082 83,727 133,727 239,622 289,622
30 85 3,000 11,786 61,786 88,039 138,039 379,588 429,588
</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 Life or the Funds that these
hypothetical rates of return can be achieved for any one year or sustained over
any period of time.
* This illustration uses assumed mortality charges for a group-sponsored program
issued a group contract. Actual cost of insurance charges for a policy depend
on a variety of factors as described in "Account Value Charges."
A-8
<PAGE> 89
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)
(-1.23% NET) (4.77% NET) (10.77% NET)
----------------- ----------------- -------------------
END OF ATT ANNUAL ACCOUNT DEATH ACCOUNT DEATH ACCOUNT DEATH
POL YR AGE PREMIUM VALUE BENEFIT VALUE BENEFIT VALUE BENEFIT
- ------ --- ------- ------- ------- ------- ------- -------- --------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
1 56 $3,000 $ 2,092 $52,092 $ 2,160 $52,160 $ 2,227 $ 52,227
2 57 3,000 4,104 54,104 4,368 54,368 4,637 54,637
3 58 3,000 6,035 56,035 6,621 56,621 7,244 57,244
4 59 3,000 7,882 57,882 8,921 58,921 10,070 60,070
5 60 3,000 9,640 59,640 11,262 61,262 13,130 63,130
6 61 3,000 11,303 61,303 13,639 63,639 16,440 66,440
7 62 3,000 12,862 62,862 16,042 66,042 20,018 70,018
8 63 3,000 14,305 64,305 18,461 68,461 23,878 73,878
9 64 3,000 15,620 65,620 20,881 70,881 28,038 78,038
10 65 3,000 16,798 66,798 23,292 73,292 32,516 82,516
15 70 3,000 20,376 70,376 34,844 84,844 60,659 110,659
20 75 3,000 18,663 68,663 43,602 93,602 100,916 150,916
25 80 3,000 8,548 58,548 44,840 94,840 156,736 206,736
30 85 3,000 0 0 31,928 81,928 233,188 283,188
</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 Life or the Funds that these
hypothetical rates of return can be achieved for any one year or sustained over
any period of time.
A-9
<PAGE> 90
APPENDIX B
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 Life deducted assumed mortality
charges. This situation is shown in Appendix A, "Illustrations of Account Values
and Death Benefits."
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>
$9,910 $10,150 $59,910 $60,150
</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 A, "Illustrations of Account Values and
Death Benefits." 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>
$9,255 $9,496 $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 credited. 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.
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.
B-1
