File Number XXX-XXXXX
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM S-6
REGISTRATION STATEMENT UNDER THE SECURITIES ACT OF 1933
MINNESOTA LIFE VARIABLE LIFE ACCOUNT
------------------------------------
(Name of Trust)
Minnesota Life Insurance Company
--------------------------------
(Depositor)
400 Robert Street North, St. Paul, Minnesota 55101-2098
--------------------------------------------------------
(Depositor's Principal Executive Offices)
Dennis E. Prohofsky
Senior Vice President, General Counsel and Secretary
Minnesota Life Insurance Company
400 Robert Street North
St. Paul, Minnesota 55101-2098
-------------------------------
(Agent for Service)
Copy to:
J. Sumner Jones, Esq.
Jones & Blouch L.L.P.
1025 Thomas Jefferson Street, N.W., Suite 410 East
Washington, D.C. 20007
TITLE OF SECURITIES BEING REGISTERED:
Variable Adjustable Life Insurance Policies
Approximate Date of Proposed Public Offering: As soon as practicable after the
Registration Statement becomes effective.
The Registrant hereby amends this Registration Statement on such date or dates
as may be necessary to delay its effective date until Registrant shall file a
further amendment which specifically states that this Registration Statement
shall thereafter become effective in accordance with Section 8(a) of the
Securities Act of 1933 or until the Registration Statement shall become
effective on such date as the Commission, acting pursuant to said Section 8(a),
may determine.
MINNESOTA LIFE
VARIABLE LIFE ACCOUNT
OF
MINNESOTA LIFE INSURANCE COMPANY
CROSS REFERENCE TO ITEMS
REQUIRED BY FORM N-8B-2
N-8B-2 Item Caption in Prospectus
- ----------- ---------------------
1. Cover Page
2. Cover Page; General Descriptions, Minnesota Life Insurance
Company, Variable Life Account
3. Not Applicable
4. Distribution of Policies
5. General Descriptions, Variable Life Account
6. General Descriptions, Variable Life Account
7. Not Applicable
8. Not Applicable
9. Legal Proceedings
10. Summary; Detailed Information About the Variable Adjustable Life
Insurance Policy; Policy Charges; Voting Rights
11. Summary; Detailed Information About the Variable Adjustable Life
Insurance Policy; General Descriptions, Advantus Series Fund,
Inc.
12. Summary; Detailed Information About the Variable Adjustable Life
Insurance Policy; General Descriptions, Advantus Series Fund,
Inc.
13. Detailed Information About the Variable Adjustable Life Insurance
Policy; Policy Charges
14. Detailed Information About the Variable Adjustable Life Insurance
Policy, Adjustable Life Insurance; Applications and Policy Issue
15. Detailed Information About the Variable Adjustable Life Insurance
Policy, Policy Premiums
16. Not Applicable
17. Summary; Detailed Information About the Variable Adjustable Life
Insurance Policy
18. Advantus Series Fund, Inc. and Class 2 of the Templeton
Developing Markets Fund
19. Voting Rights
20. Not Applicable
21. Not Applicable
22. Not Applicable
23. Not Applicable
24. Not Applicable
25. General Descriptions, Minnesota Life Insurance Company
26. Not Applicable
27. General Descriptions, Minnesota Life Insurance Company
28. Directors and Principal Officers of Minnesota Life
29. General Descriptions, Minnesota Life Insurance Company
30. Not Applicable
31. Not Applicable
32. Not Applicable
33. Not Applicable
34. Not Applicable
35. General Descriptions, Minnesota Life Insurance Company
36. Not Applicable
37. Not Applicable
38. Distribution of Policies
39. Distribution of Policies
40. Not Applicable
41. Distribution of Policies
42. Not Applicable
43. Not Applicable
44. Detailed Information About the Variable Adjustable Life Insurance
Policy, Policy Values
45. Not Applicable
46. Detailed Information About the Variable Adjustable Life Insurance
Policy, Policy Loans, Surrender
47. Not Applicable
48. Not Applicable
49. Not Applicable
50. General Descriptions, Variable Life Account
51. Summary; Detailed Information About the Variable Adjustable Life
Insurance Policy, Policy Charges
52. Summary; General Descriptions, Variable Life Account; Advantus
Series Fund, Inc.
53. Federal Tax Status
54. Not Applicable
55. Not Applicable
56. Not Applicable
57. Not Applicable
58. Not Applicable
59. Financial Statements
PART I
INFORMATION REQUIRED IN PROSPECTUS
Prospectus
Variable Adjustable Life
Insurance Policy
[LOGO APPEARS HERE]
This prospectus describes a Variable Adjustable Life Insurance Policy issued
by Minnesota Life Insurance Company ("Minnesota Life").
The Policy may be adjusted, within described limits, as to face amount,
premium amount and the plan of insurance.
Variable Adjustable Life policy values may be invested in our separate account
called the Variable Life Account. Policy values may also be invested in a
general account option. The actual cash value of each Policy will vary with
the investment experience of these options.
The Variable Life Account invests its assets in shares of Advantus Series
Fund, Inc. and Class 2 of the Templeton Developing Markets Fund, a series of
Templeton Variable Products Series Fund (the "Funds"). The Portfolios of the
Funds available to the Variable Life Account are:
. Growth . Value Stock
. Bond . Small Company Value
. Money Market . Global Bond
. Asset Allocation . Index 400 Mid-Cap
. Mortgage Securities . Macro-Cap Value
. Index 500 . Micro-Cap Growth
. Capital Appreciation . Real Estate Securities
. International Stock . Templeton Developing Markets Fund
. Small Company Growth
This prospectus must be accompanied by the current prospectuses of the Funds.
You should read the prospectus carefully and retain it for future reference.
The Policy has not been approved or disapproved by the SEC. Neither the SEC
nor any state has determined whether this prospectus is truthful or complete.
Any representation to the contrary is a criminal offense.
Minnesota Life Insurance Company
400 Robert Street North
St. Paul, Minnesota 55101-2098
Ph 651/665-3500
http://www.minnesotamutual.com
Dated:
Table of Contents
Page
Summary.................................................................... 1
Condensed Financial Information............................................ 6
General Descriptions
Minnesota Life Insurance Company......................................... 8
Variable Life Account.................................................... 8
Advantus Series Fund, Inc................................................ 8
Templeton Variable Products Series Fund.................................. 9
Additions, Deletions or Substitutions.................................... 9
Selection of Sub-Accounts................................................ 10
The Guaranteed Principal Account......................................... 10
Detailed Information about the Variable Adjustable Life Insurance Policy
Adjustable Life Insurance................................................ 11
Policy Adjustments....................................................... 12
Restrictions on Adjustments.............................................. 13
Applications and Policy Issue............................................ 14
Policy Premiums.......................................................... 15
Actual Cash Value........................................................ 18
Death Benefit Options.................................................... 20
Policy Loans............................................................. 21
Surrender................................................................ 22
Free Look................................................................ 23
Policy Charges........................................................... 23
Other Policy Provisions.................................................. 25
Additional Benefits...................................................... 27
Other Matters
Federal Tax Status....................................................... 28
Directors and Principal Officers of Minnesota Life....................... 31
Voting Rights............................................................ 31
Distribution of Policies................................................. 32
Legal Matters............................................................ 33
Legal Proceedings........................................................ 33
Experts.................................................................. 33
Registration Statement................................................... 33
Special Terms.............................................................. 34
Financial Statements of Minnesota Life Variable Life Account...............
Financial Statements of Minnesota Life Insurance Company...................
Appendix A--Illustrations of Policy Values, Death Benefits and Premiums.... A-1
Appendix B--How Premium Becomes Cash Value................................. B-1
Appendix C--Illustration of Death Benefit Calculation...................... C-1
Appendix D--Example of Sales Charge and Additional Face Amount Charge
Computation............................................................... D-1
Appendix E--Average Annual Returns......................................... E-1
Appendix F--S&P 500 Performance History.................................... F-1
Appendix G--Range of Returns............................................... G-1
Summary
The following summary is designed to answer certain general questions
concerning the Policy and to give you a brief overview of the more significant
Policy features. This is not a comprehensive summary. You should review the
information contained elsewhere in this prospectus. You should also refer to
the "Special Terms" section for the definition of unfamiliar terms.
What is a Variable Adjustable Life Insurance Policy?
The Variable Adjustable Life Insurance Policy (the "Policy") described in
this prospectus combines a guaranteed plan of insurance, flexible
administrative procedures and significant and useful market sensitive
investment features. The Policy is called VAL Horizon.
What is the guaranteed plan of insurance?
For any given level of premium, face amount and death benefit option, we
guarantee a specific plan of insurance. The plan of insurance is the period
during which insurance coverage is guaranteed and the period during which you
must pay premiums to maintain that guarantee. These two periods are not always
the same. For example, the Policy could have guaranteed insurance coverage for
40 years, with premiums payable for 7 years; or insurance coverage for life,
with premiums payable for 30 years.
What makes the Policy "Adjustable"?
The Policy is termed "Adjustable" because it allows you the flexibility to
tailor the Policy to your needs at issue and thereafter to change or "adjust"
your Policy as your insurance needs change.
Within very broad limits, including those designed to assure that the Policy
qualifies as life insurance for tax purposes, you may choose the level of
premium you wish to pay, the face amount and the death benefit option that you
need. Based on these three factors, we will calculate the guaranteed plan of
insurance.
The maximum plan of insurance available is one where the Policy becomes
paid-up after the payment of five annual premiums. A Policy becomes paid-up
when its policy value is such that no further premiums are required to
guarantee the face amount and the death benefit option for the life of the
insured, provided there is no policy indebtedness.
The minimum plan of insurance that we offer at original issue is a plan that
provides guaranteed insurance coverage for ten years with premiums payable for
ten years. If the insured's age at original issue is over 45, the minimum plan
of insurance will be less than ten years, as described in the table below:
Minimum Plan
Issue Age (in years)
--------- ------------
46 9
47 8
48 7
49 6
50 5
51 4
52 or greater 3
A protection plan of insurance guarantees insurance coverage and a scheduled
premium level, for a specified number of years, always less than for whole
life. A protection plan requires the lowest initial level of premiums and
offers the most insurance protection with the lowest investment element.
At high premium levels, the period of premium payments may be limited to
satisfy the requirements of the Internal Revenue Code to qualify as life
insurance. The result will be a protection plan that guarantees coverage beyond
the premium paying period.
A protection plan of insurance may reach the end of the period of guaranteed
insurance coverage before the Policy becomes paid up. At that time, we will
calculate a new plan of insurance, using the policy value along with the
current premium, face amount and death benefit option. If these factors are not
sufficient to guarantee coverage for a least one year, you may adjust the
Policy to ensure that coverage continues.
For any given face amount and death benefit option, you may select a premium
that results in a plan that falls anywhere between the minimum protection plan
and
1
the maximum whole life plan. In general, the higher the premium you pay, the
greater will be your cash value accumulation at any given time and therefore,
for whole life plans, the shorter the period during which you need to pay
premiums before your Policy becomes paid-up.
The flexibility described above with respect to designing your Policy to
suit your needs at issue continues throughout the time the Policy remains in
force by virtue of its adjustability features. As your needs and personal
circumstances change over the years, you may change, subject to the
limitations described herein, the premium, face amount and death benefit
option, and thus the plan of insurance.
Some limitations do apply to policy adjustments, and these limitations are
more fully described in this prospectus. See the heading "Policy Adjustments"
in this prospectus on page 12.
What makes the Policy "Variable"?
Traditional whole life and universal life contracts provide for
accumulations of contract values at fixed rates determined by the insurance
company. Variable Adjustable Life policy values may be invested at your
direction in a separate account of ours called the Minnesota Life Variable
Life Account ("Variable Life Account") or in a Minnesota Life general account
option. The sub-accounts of the Variable Life Account invest in corresponding
Portfolios of the Advantus Series Fund, Inc. or in Class 2 of the Templeton
Developing Markets Fund (the "Funds"). Such investment enables you to obtain
market rates of return.
The actual cash value of the Policy, to the extent invested in sub-accounts
of the Variable Life Account, will vary with the investment experience of the
sub-accounts you select. These have no guaranteed minimum value. Therefore,
you bear the risk that adverse investment performance may depreciate your
investment in the Policy. At the same time, the Policy offers you the
opportunity to have your actual cash value appreciate more rapidly than it
would under comparable fixed benefit contracts by virtue of favorable
investment performance. In addition, under some Policies, the death benefit
will also increase and decrease (but not below the guaranteed face amount)
with investment experience.
Those seeking the traditional insurance protections where the cash value is
guaranteed may allocate premiums to the guaranteed principal account. The
guaranteed principal account is a general account option with a guaranteed
accumulation at a fixed rate of interest. While it is more fully described in
the Policy, additional information on this option may be found under the
heading "The Guaranteed Principal Account" in this prospectus on page 10.
What variable investment options are available?
The Variable Life Account invests in Portfolios of the Funds. These offer
policy owners the opportunity to invest in stocks, bonds, mortgage securities
and money market instruments. The available Portfolios are:
. Growth
. Bond
. Money Market
. Asset Allocation
. Mortgage Securities
. Index 500
. Capital Appreciation
. International Stock
. Small Company Growth
. Value Stock
. Small Company Value
. Global Bond
. Index 400 Mid-Cap
. Macro-Cap Value
. Micro-Cap Growth
. Real Estate Securities Portfolios
. Templeton Developing Markets Fund, Class 2
The Portfolios have different investment objectives and different levels of
risk. There is no assurance that any Portfolio will meet its objectives.
Additional information concerning the investment objectives, policies and
risks of the Portfolios can be found in the current prospectuses for the
Funds, which are attached to this prospectus.
How do you allocate your net premiums?
In your initial policy application, you indicate how you want your net
premiums allocated among the guaranteed principal account and the sub-accounts
of the Variable Life Account. All future net premiums will be allocated in the
same proportion until we receive your request to change the allocation. You
may also request to transfer amounts from one sub-account to another.
2
What death benefit options are offered under the Policy?
The Policy provides two death benefit options: the Cash Option and the
Protection Option. Your choice will depend on which option best fits your need.
The Cash Option provides a fixed death benefit equal to the guaranteed face
amount. Favorable non-guaranteed elements, including investment returns, will
be reflected in increased actual cash values. The death benefit will vary only
if necessary to satisfy the definition of life insurance.
The Protection Option provides a variable death benefit equal to the
guaranteed face amount plus the policy value. Favorable non-guaranteed
elements, including investment returns, will be reflected both in increased
life insurance coverage and increased actual cash values.
What charges are associated with the Policy?
We assess certain charges from each premium payment, from policy values and
from the amounts held in the Variable Life Account. All of these charges, which
are largely designed to cover our expenses in providing insurance protection
and in distributing and administering the Policies, are fully described under
the heading "Policy Charges" in this prospectus on page 23. Because of the
significance of these charges in early policy years, prospective purchasers
should purchase a Policy only if they intend to and have the financial capacity
to keep it in force for a substantial period.
Charges for substandard risks and charges for additional benefits are
deducted from the premium to calculate the base premium. Charges for
substandard risks include both table ratings and cash extra charges. Charges
for substandard risks compensate us for providing the death benefit for
policies whose mortality risks exceed the standard.
Against first year base premiums we deduct a Sales Charge of up to 44
percent and an Additional Face Amount Charge of up to $5 per $1,000 of face
amount. We also deduct from each base premium a Premium Charge of 6 percent.
Non-repeating premiums are currently subject only to a Premium Charge of 3
percent.
Against the actual cash value of a Policy we deduct a Monthly Policy Charge
of $8 plus $.02 per $1,000 of face amount, a transaction charge for each Policy
adjustment and a Monthly Cost of Insurance Charge.
Against the assets held in the Variable Life Account we deduct Mortality and
Expense Risk charges at an annual rate of .50%.
Advisory fees and other fund expenses are deducted from the Funds as shown
in the chart below; the 1998 respective advisory fee and fund expense are a
percent of average daily net assets for each portfolio.
Advisory Other Net Fund
Portfolio Name Fee Expenses* Total
-------------- -------- -------------- -----
Advantus Series Fund, Inc.:
Growth 0.50% 0.03% 0.53%
Bond 0.50 0.05 0.55
Money Market 0.50 0.08 0.58
Asset Allocation 0.50 0.03 0.53
Mortgage Securities 0.50 0.07 0.57
Index 500 0.40 0.04 0.44
Capital Appreciation 0.75 0.03 0.78
International Stock 0.70 0.24 0.94
Small Company Growth 0.75 0.04 0.79
Value Stock 0.75 0.04 0.79
Small Company Value 0.75 0.15 0.90
Global Bond 0.60 0.53 1.13
Index 400 Mid-Cap 0.40 0.15 0.55
Macro-Cap Value 0.70 0.15 0.85
Micro-Cap Growth 1.10 0.15 1.25
Real Estate Securities 0.75 0.15 0.90
Templeton Variable Product Series:
Developing Markets Fund 1.25 0.66 1.91
Class 2
Average 0.67 0.15 0.82
(*) Minnesota Life voluntarily absorbed certain expenses of the Small Company
Value, Index 400 Mid-Cap, Macro-Cap Value, Micro-Cap Growth, and Real
Estate Securities Portfolios for the period ended December 31, 1998. If
these Portfolios had been charged for expenses, the ratio of expenses to
average daily net assets would have been 1.83%, 1.36%, 2.53%, 2.10%, and
1.90%, respectively. For these Portfolios, it is Minnesota Life's
intention to waive fund expenses during the current fiscal year which
exceed, as a percentage of average daily net assets, .15%. Minnesota Life
also reserves the option to reduce the level of other expenses which it
will voluntarily absorb.
3
Advantus Capital Management, Inc., one of our subsidiaries, acts as the
investment adviser to Advantus Series Fund. The advisory fee of the fund
manager and the other fund expenses are reflected in the value of the fund
shares held in the corresponding sub-account of the Variable Life Account. For
more information, see the prospectus of Advantus Series Fund, Inc. which is
attached to this prospectus.
The Templeton Developing Markets Fund pays the following annual fees and
expenses:
. investment adviser management fees -- 1.25 percent
. Rule 12b-1 plan fees -- .25 percent
. other fund expenses -- .41 percent
For more information, see the Templeton Fund's prospectus.
SUMMARY OF POLICY CHARGES
Rate Charged Against
---- ---------------
Base Premium
Premium Charge 6.0% All base premiums
Sales Charge up to 44% First-year base premiums
Additional Face Amount Charge up to $5/$1000 First-year base premiums
Non-Repeating Premium
Premium Charge 3.0% All non-repeating Premiums
Actual Cash Value Charges
Monthly Policy Charge $8.00 + $0.02/$1000 Actual cash value
Cost Of Insurance Charge varies by policy Actual cash value
Transaction Charge up to $25.00 Actual cash value
Separate Account Charges
Mortality & Expense Risk Charge 0.50% annual rate Average daily net assets
Fund Charges
Advisory Fee varies by fund Average daily net assets
Other Fund Fees varies by fund Average daily net assets
Are the benefits under a Policy subject to Federal income tax?
With respect to a Policy issued on the basis of a standard premium class, we
believe that it should qualify as a life insurance contract for Federal income
tax purposes. With respect to a Policy issued on a substandard basis, it is
not clear whether or not such a Policy would qualify as a life insurance
contract for Federal tax purposes. Assuming that a Policy qualifies as a life
insurance contract for Federal income tax purposes, the benefits under
Policies described in this prospectus should receive the same tax treatment
under the Internal Revenue Code of 1986 as benefits under traditional fixed
benefit life insurance policies. Thus, death proceeds payable under variable
life insurance policies should be excludable from the beneficiary's gross
income for Federal income tax purposes. We also believe that you should not be
in constructive receipt of the cash values of your Policy until actual
distribution. See the heading "Federal Tax Status" in this prospectus on page
28.
You should note, however, that the tax treatment described above relating to
distributions is available only for policies not described as "modified
endowment contracts." Policies described as modified endowment contracts are
treated as life insurance with respect to the tax treatment of death proceeds
and the tax-free inside build-up of yearly cash value increases. However, any
amounts you receive, such as loans and amounts received from partial or total
surrender of the contract will be subject to the same tax treatment as amounts
received under an annuity. Annuity tax treatment includes the ten percent
additional income tax imposed on the portion of any distribution that is
included in income, except where the distribution or loan is made on or after
the policy owner attains age 59 1/2, is attributable to the policy owner
becoming disabled, or is part of a series of substantially equal periodic
payments for the life of the policy owner or the joint lives of the policy
owner and beneficiary.
4
To determine whether a policy is a modified endowment contract and subject
to this special tax treatment requires an examination of the premium paid in
relation to the death benefit of the policy. A modified endowment contract
results if the cumulative premiums during the first seven contract years exceed
the sum of the net level premiums which would be paid under a seven-pay life
policy. In addition, a policy which is subject to a material change will be
treated as a new policy on the date that such a material change takes effect.
At that time we determine whether such a policy meets the seven-pay standard by
taking into account the previously existing cash surrender value. We will
monitor your Policy to determine whether it may become a modified endowment
contract.
How do you purchase a Policy?
To be eligible to purchase a Policy the insured must be no more than age 90
and satisfy our underwriting standards. To purchase a Policy you must complete
an application, provide us with evidence of insurability satisfactory to us and
pay your first scheduled premium. See the heading "Applications and Policy
Issue" in this prospectus on page 14.
For a limited time after your Policy is delivered, you may return the Policy
for a refund of all premium payments within the terms of its "free look"
provision. See the heading "Free Look" in this prospectus on page 23.
Do you have access to your policy values?
Yes. Your actual cash value is available to you during the insured's
lifetime. You may use the actual cash value to provide retirement income, as
collateral for a loan, to continue some insurance protection if you do not wish
to continue paying premiums or to obtain cash by surrendering your Policy in
full or in part.
You may also borrow up to 90 percent of your policy value as a policy loan.
These alternatives may be subject to conditions described in the Policy or in
this prospectus under the heading "Actual Cash Value" on page 18 and certain
transactions may have tax consequences as described under the heading "Federal
Tax Status" on page 28.
5
Condensed Financial Information
The financial statements of Minnesota Life Insurance Company and of
Minnesota Life Variable Life Account may be found elsewhere in this
prospectus.
The table below gives per unit information about the financial history of
each sub-account from the inception of each to December 31, 1998. This
information should be read in conjunction with the financial statements and
related notes of Minnesota Life Variable Life Account included in this
prospectus.
Year Ended December 31,
-------------------------------------------------------------------------------------------------------
1998 1997 1996 1995 1994 1993 1992 1991 1990 1989
---------- ---------- ---------- ---------- ---------- ---------- --------- --------- --------- -------
Growth Sub-Ac-
count:
Unit value at
beginning of
year $3.43 $2.59 $2.22 $1.79 $1.79 $1.72 $1.65 $1.23 $1.24 $0.99
Unit value at
end of year $4.60 $3.43 $2.59 $2.22 $1.79 $1.79 $1.72 $1.65 $1.23 $1.24
Number of units
outstanding at
end of year 22,653,190 19,284,419 16,176,371 12,822,494 9,964,217 6,671,352 3,703,167 1,251,845 511,276 257,995
Bond Sub-Ac-
count:
Unit value at
beginning of
year $2.17 $1.99 $1.95 $1.63 $1.72 $1.57 $1.48 $1.26 $1.18 $1.06
Unit value at
end of year $2.29 $2.17 $1.99 $1.95 $1.63 $1.72 $1.57 $1.48 $1.26 $1.18
Number of units
outstanding at
end of year 13,380,650 9,679,443 7,366,222 5,340,539 3,659,230 2,240,344 1,281,711 654,954 484,684 247,525
Money Market
Sub-Account:
Unit value at
beginning of
year $1.66 $1.58 $1.52 $1.45 $1.40 $1.37 $1.34 $1.27 $1.19 $1.10
Unit value at
end of year $1.73 $1.66 $1.58 $1.52 $1.45 $1.40 $1.37 $1.34 $1.27 $1.19
Number of units
outstanding at
end of year 5,915,721 4,323,601 4,082,791 3,509,791 2,920,337 1,849,721 1,167,590 536,680 341,717 141,494
Asset Allocation
Sub-
Account:
Unit value at
beginning of
year $2.96 $2.50 $2.23 $1.79 $1.83 $1.73 $1.62 $1.26 $1.22 $1.02
Unit value at
end of year $3.64 $2.96 $2.50 $2.23 $1.79 $1.83 $1.73 $1.62 $1.26 $1.22
Number of units
outstanding at
end of year 38,273,621 34,942,517 32,104,595 27,633,273 23,769,797 18,341,417 8,943,507 2,587,520 1,202,183 408,152
Mortgage Securi-
ties
Sub-Account:
Unit value at
beginning of
year $2.31 $2.13 $2.03 $1.73 $1.80 $1.66 $1.56 $1.35 $1.24 $1.10
Unit value at
end of year $2.45 $2.31 $2.13 $2.03 $1.73 $1.80 $1.66 $1.56 $1.35 $1.24
Number of units
outstanding at
end of year 5,351,168 4,464,617 4,175,648 3,616,256 3,250,971 2,419,453 1,471,984 555,964 241,631 95,633
Index 500 Sub-
Account:
Unit value at
beginning of
year $3.86 $2.93 $2.42 $1.78 $1.77 $1.62 $1.51 $1.17 $1.23 $0.95
Unit value at
end of year $4.92 $3.86 $2.93 $2.42 $1.78 $1.77 $1.62 $1.51 $1.17 $1.23
Number of units
outstanding at
end of year 28,132,934 22,433,487 17,250,529 11,917,281 8,997,722 6,074,831 4,026,796 1,307,951 658,612 237,854
Capital Appreci-
ation
Sub-Account:
Unit value at
beginning of
year $3.82 $3.00 $2.56 $2.10 $2.06 $1.87 $1.79 $1.27 $1.30 $0.95
Unit value at
end of year $4.98 $3.82 $3.00 $2.56 $2.10 $2.06 $1.87 $1.79 $1.27 $1.30
Number of units
outstanding at
end of year 24,802,737 22,986,605 19,778,274 16,587,673 12,929,134 9,082,661 5,053,453 1,689,614 802,456 181,898
6
Year Ended December 31,
-----------------------------------------------------------------------------------------------------
1998 1997 1996 1995 1994 1993 1992 1991 1990 1989
---------- ---------- ---------- ---------- ---------- --------- --------- ---- ---- ----
International Stock Sub-
Account:
Unit value at beginning
of
year $1.99 $1.79 $1.50 $1.32 $1.33 $0.93 $1.00(a)
Unit value at end of
year $2.11 $1.99 $1.79 $1.50 $1.32 $1.33 $0.93
Number of units out-
standing at end of year 42,958,209 35,764,833 28,056,128 20,883,317 15,062,750 6,244,750 1,615,754
Small Company Growth
Sub-
Account:
Unit value at beginning
of
year $1.81 $1.69 $1.59 $1.21 $1.15 $1.00(b)
Unit value at end of
year $1.82 $1.81 $1.69 $1.59 $1.21 $1.15
Number of units out-
standing at end of year 33,912,334 27,207,371 19,918,050 13,089,758 7,074,933 1,261,521
Value Stock Sub-Account:
Unit value at beginning
of
year $2.15 $1.78 $1.37 $1.04 $1.00(c)
Unit value at end of
year $2.18 $2.15 $1.78 $1.37 $1.04
Number of units out-
standing at end of year 23,718,362 17,273,210 9,648,331 3,864,294 971,938
Small Company Value Sub-
Account:
Unit value at beginning
of
year $1.00(d)
Unit value at end of
year $0.86
Number of units out-
standing at end of year 894,678
Global Bond Sub-Account:
Unit value at beginning
of
year $1.00(d)
Unit value at end of
year $1.12
Number of units out-
standing at end of year 293,075
Index 400 Mid-Cap Sub-
Account:
Unit value at beginning
of
year $1.00(d)
Unit value at end of
year $1.05
Number of units out-
standing at end of year 1,020,446
Macro-Cap Value Sub-Ac-
count:
Unit value at beginning
of
year $1.00(d)
Unit value at end of
year $1.06
Number of units out-
standing at end of year 823,503
Micro-Cap Growth Sub-Ac-
count:
Unit value at beginning
of
year $1.00(d)
Unit value at end of
year $1.03
Number of units out-
standing at end of year 733,049
Real Estate Securities
Sub-Account:
Unit value at beginning
of
year $1.00(d)
Unit value at end of
year $0.87
Number of units out-
standing at end of year 284,627
Templeton Development
Markets Sub-Account:
Unit value at beginning
of
year $1.00(d)
Unit value at end of
year $0.86
Number of units out-
standing at end of year 778,238
(a) The information for the sub-account is shown for the period May 1, 1992 to
December 31, 1992. May 1, 1992 was the effective date of the 1933 Act
Registration.
(b) The information for the sub-account is shown for the period May 3, 1993 to
December 31, 1993. May 3, 1993 was the effective date of the 1933 Act
Registration.
(c) The information for the sub-account is shown for the period May 2, 1994 to
December 31, 1994. May 2, 1994 was the effective date of the 1933 Act
Registration.
(d) The information for the sub-account is shown for the period May 19, 1998,
commencement of operations, to December 31, 1998.
7
General Descriptions
Minnesota Life Insurance Company
We are Minnesota Life Insurance Company ("Minnesota Life"), a life insurance
company organized under the laws of Minnesota. Minnesota Life was formerly
known as The Minnesota Mutual Life Insurance Company ("Minnesota Mutual"), a
mutual life insurance company organized in 1880 under the laws of Minnesota.
On October 1, 1998, a plan of reorganization created a mutual insurance
holding company named Minnesota Mutual Companies, Inc. Minnesota Mutual
reorganized as a stock insurance company subsidiary of the new holding company
and took the new name Minnesota Life. Our home office is at 400 Robert Street
North, St. Paul, Minnesota 55101-2098, telephone: (651) 665-3500. We are
licensed to conduct life insurance business in all states of the United States
(except New York where we are an authorized reinsurer), the District of
Columbia, Canada, Puerto Rico and Guam.
Variable Life Account
On October 21, 1985, our Board of Trustees established a separate account,
called the Minnesota Life Variable Life Account, in accordance with certain
provisions of the Minnesota insurance law. The separate account is registered
as a "unit investment trust" with the Securities and Exchange Commission
("SEC") under the Investment Company Act of 1940 ("1940 Act"). Registration
under the Act does not signify that the SEC supervises the management, or the
investment practices or policies, of the Variable Life Account. The separate
account meets the definition of a "separate account" under the federal
securities laws.
We are the legal owner of the assets in the Variable Life Account. The
obligations to policy owners and beneficiaries arising under the Policies are
general corporate obligations of Minnesota Life and thus our general assets
back the Policies. The Minnesota law under which the Variable Life Account was
established provides that the assets of the Variable Life Account shall not be
chargeable with liabilities arising out of any other business which we may
conduct, but shall be held and applied exclusively to the benefit of the
holders of those variable life insurance policies for which the separate
account was established. The investment performance of the Variable Life
Account is entirely independent of both the investment performance of our
General Account and of any other separate account which we may have
established or may later establish.
The Variable Life Account currently has seventeen sub-accounts to which you
may allocate premiums. Each sub-account invests in shares of a corresponding
Portfolio of the Funds.
Advantus Series Fund, Inc.
The Variable Life Account currently invests in Advantus Series Fund, Inc., a
mutual fund of the series type. Prior to May 1, 1997, the name of the Fund was
"MIMLIC Series Fund, Inc." Advantus Series Fund is registered with the SEC as
a diversified, open-end management investment company. Such registration does
not signify that the SEC supervises the management, or the investment
practices or policies, of the Fund. The Fund issues its shares, continually
and without sales charge, only to us and certain of our separate accounts
including the Variable Life Account. Shares are sold and redeemed at net asset
value.
Advantus Series Fund's investment adviser is Advantus Capital Management,
Inc. ("Advantus Capital"). Advantus Capital is a wholly-owned subsidiary of
Minnesota Life.
While Advantus Capital acts as investment adviser to the Fund and its
Portfolios, it has obtained an order from the SEC permitting it to act as a
"manager of managers". Pursuant to the order, Advantus Capital may, for any
portfolio, select one or more sub-advisers and adopt or amend an investment
sub-advisory agreement without approval of the shareholders of the affected
portfolio. In accordance with the order, Advantus Capital has retained the
following sub-advisers:
. Winslow Capital Management, Inc. for the Capital Appreciation Portfolio,
. Templeton Investment Counsel, Inc. for the International Stock Portfolio,
8
. J.P. Morgan Investment Management Inc. for the Macro-Cap Value Portfolio,
. Wall Street Associates for the Micro-Cap Growth Portfolio, and
. Julius Baer Investment Management Inc. for the Global Bond Portfolio
The Fund currently has nineteen investment Portfolios, sixteen of which are
available to the Variable Life Account. A series of the Fund's common stock is
issued for each Portfolio. The assets of each Portfolio are separate from the
others and each has different investment objectives and policies. Therefore,
each Portfolio operates as a separate investment fund and the investment
performance of one has no effect on the investment performance of any other
Portfolio.
All dividends and capital gains distributions from the Portfolios are
automatically reinvested in shares of that Portfolio at net asset value.
For more information on the Fund and its Portfolios, see "Summary--What
investment options are available?" in this prospectus and the prospectus of the
Advantus Series Fund, Inc. which is attached to this prospectus.
Templeton Variable Products Series Fund
In addition to the investments in Advantus Series Fund, the Variable Life
Account invests in the Templeton Developing Markets Fund, Class 2, a
diversified portfolio of the Templeton Variable Products Series Fund, a mutual
fund of the series type.
Class 2 of the Templeton Developing Markets Fund pays 0.25 percent of the
average daily net assets annually under a distribution plan adopted under Rule
12b-1 under the 1940 Act. Amounts paid under the 12b-1 plan to us may be used
for certain contract owner services or distribution activities.
The investment adviser of Templeton Developing Markets Fund is Templeton
Asset Management Ltd., a Singapore corporation. It is an indirect wholly-owned
subsidiary of Franklin Resources, Inc. ("Franklin"). Through its subsidiaries,
Franklin is engaged in the financial services industry. The Templeton
organization has been investing globally since 1940 and, with its affiliates,
provides investment management and advisory services to a worldwide client
base. The investment adviser and its affiliates have offices worldwide.
Additions, Deletions or Substitutions
We reserve the right to add, combine or remove any sub-accounts of the
Variable Life Account when permitted by law. Each additional sub-account will
purchase shares in a new portfolio or mutual fund. Such sub-accounts may be
established when, in our sole discretion, marketing, tax, investment or other
conditions warrant such action. We will use similar considerations should there
be a determination to eliminate one or more of the sub-accounts of the Variable
Life Account. The addition of any investment option will be made available to
existing policy owners on such basis as may be determined by us.
We retain the right, subject to any applicable law, to make substitutions
with respect to the investments of the sub-accounts of the Variable Life
Account. If investment in a Fund Portfolio should no longer be possible or if
we determine it becomes inappropriate for Policies of this class, we may
substitute another mutual fund or portfolio for a sub-account. Substitution may
be made with respect to existing policy values and future premium payments. A
substitution may be made only with any necessary approval of the SEC.
We reserve the right to transfer assets of the Variable Life Account as
determined by us to be associated with the Policies to another separate
account. A transfer of this kind may require the approvals of state regulatory
authorities and of the SEC.
We also reserve the right, when permitted by law, to de-register the
Variable Life Account under the 1940 Act, to restrict or eliminate any voting
rights of the policy owners, and to combine the Variable Life Account with one
or more of our other separate accounts.
Shares of the Portfolios of the Funds are also sold to other of our separate
accounts, which are used to receive and invest premiums paid under our variable
annuity contracts and variable life insurance policies. It is conceivable that
in the future it may be disadvantageous for variable life insurance separate
accounts and variable annuity separate accounts to invest in the Funds
9
simultaneously. Although neither we nor the Funds currently foresee any such
disadvantages either to variable life insurance policy owners or to variable
annuity contract owners, the Funds' Boards of Directors intend to monitor
events in order to identify any material conflicts between such policy owners
and contract owners and to determine what action, if any, should be taken in
response thereto.
Such action could include the sale of Fund shares by one or more of the
separate accounts, which could have adverse consequences. Material conflicts
could result from, for example:
. changes in state insurance laws,
. changes in Federal income tax laws,
. changes in the investment management of any of the Portfolios of the Funds,
or
. differences in voting instructions between those given by policy owners and
those given by contract owners.
Selection of Sub-accounts
You must make a choice as to how your net premiums are allocated among the
various sub-accounts. In choosing, you should consider how willing you might be
to accept investment risks and the manner in which your other assets are
invested. The sub-accounts represent a broad range of investments available in
the marketplace.
The common stock sub-accounts differ depending on the types of stocks that
make up the sub-account. The focus of each sub-account varies by the size of
company, growth or value style, and U.S. versus international markets.
Historically, for investments held over relatively long periods, the investment
performance of common stocks has generally been superior to that of long-term
or short-term debt securities, even though common stocks have been subject to
more dramatic changes in value over short periods of time. Accordingly, the
common stock sub-accounts may be more desirable options for policy owners who
are willing to accept such short-term risks. These risks tend to be magnified
in the sub-accounts investing in more aggressive stocks, smaller company stocks
and international stocks. As an alternative to the actively managed sub-
accounts, index sub-accounts are available which tend to match the risks and
performance of those common stocks included in the underlying index.
Some policy owners, who desire the greatest safety of principal may prefer
the money market sub-account, recognizing that the level of short-term rates
may change rather rapidly. Some policy owners may wish to rely on Advantus
Capital's judgment for an appropriate asset mix by choosing the asset
allocation sub-account.
The Guaranteed Principal Account
The guaranteed principal account is a general account option. You may
allocate net premiums and may transfer your actual cash value subject to Policy
limitations to the guaranteed principal account which is part of our general
account.
Because of exemptive and exclusionary provisions, interests in our general
account have not been registered under the Securities Act of 1933, and the
general account has not been registered as an investment company under the 1940
Act. Therefore, neither the guaranteed principal account nor any interest
therein is subject to the provisions of these Acts, and we have been advised
that the staff of the SEC does not review disclosures relating to the
guaranteed principal account. Disclosures regarding the guaranteed principal
account may, however, be subject to certain generally applicable provisions of
the Federal Securities Laws relating to the accuracy and completeness of
statements made in prospectuses.
This prospectus describes a Variable Adjustable Life insurance policy and is
generally intended to serve as a disclosure document only for the aspects of
the Policy relating to the sub-accounts of the Variable Life Account. For
complete details regarding the guaranteed principal account, please see the
Variable Adjustable Life Policy.
General Account Description Our general account consists of all assets owned by
us other than those in the Variable Life Account and any other separate
accounts which we may establish. The guaranteed principal account is that
portion of our general assets which is attributable to this Policy and policies
of this class, exclusive of policy loans. The description is for accounting
purposes only and does not represent a division of the general account assets
for the specific benefit
10
Detailed Information about the
Variable Adjustable Life Insurance Policy
of contracts of this class. Allocations to the guaranteed principal account
become part of our general assets and are used to support insurance and annuity
obligations. Subject to applicable law, we have sole discretion over the
investment of assets of the general account. Policy owners do not share in the
actual investment experience of the assets in the general account.
You may allocate or transfer a portion or all of the net premiums to
accumulate at a fixed rate of interest in the guaranteed principal account. We
guarantee such amounts as to principal and a minimum rate of interest.
Transfers from the guaranteed principal account to the sub-accounts of the
Variable Life Account are subject to certain limitations with respect to timing
and amount.
General Account Value We bear the full investment risk for amounts allocated to
the guaranteed principal account. We guarantee that interest credited to each
policy owner's actual cash value in the guaranteed principal account will not
be less than an annual rate of 4 percent without regard to the actual
investment experience of the general account.
We may, at our sole discretion, credit a higher rate of interest, "excess
interest," although we are not obligated to credit interest in excess of 4
percent per year, and may not do so. Any interest credited on the Policy's
actual cash value in the guaranteed principal account in excess of the
guaranteed minimum rate per year will be determined at our sole discretion. You
assume the risk that interest credited may not exceed the guaranteed minimum
rate.
Even if excess interest is credited to your actual cash value in the
guaranteed principal account, we will not credit excess interest to that
portion of the policy value which is in the loan account in the general
account. However, such loan account will be credited interest at a rate which
is not less than the policy loan interest rate minus 2 percent per year.
Adjustable Life Insurance
This Policy is similar to our conventional life insurance product known as
"adjustable life". This Policy, like conventional adjustable life insurance,
permits you to determine the amount of life insurance protection you need and
the amount of money you can afford to pay. Based on your selection of the
premium, face amount and death benefit option, we will calculate the guaranteed
plan of insurance. Thus, adjustable life allows you the flexibility to
customize a Policy to meet your needs. Theoretically, each Policy can be unique
because of the different combinations of age, amount of life insurance
protection and premium. In addition, adjustable life is designed to adapt to
your changing needs and objectives by allowing you to change your Policy after
issue. You may adjust the face amount and premium level, and thus the plan of
insurance, subject to the limitations described herein, so long as the Policy
remains in force.
Flexibility at Issue Subject to certain minimums, maximums and our underwriting
standards, you may choose any level of premium or death benefit that you wish.
This flexibility results in a broad range of plans of insurance. Generally
speaking, a plan of insurance refers to the period during which insurance is
guaranteed and the period during which you will have to pay premiums.
Whole life insurance plans provide life insurance in an amount at least
equal to the face amount at the death of the insured whenever that occurs.
Premiums may be payable for a specified number of years or for the life of the
insured.
Protection insurance plans provide life insurance in an amount at least
equal to the face amount for a specified period, with premiums payable for a
specified period. These two periods may not be the same.
At high premium levels, the period of premium payments may be limited to
satisfy the requirements of the Internal Revenue Code to qualify as life
insurance. The result will be a protection plan that guarantees coverage beyond
the premium paying period.
The larger the premium you pay, the larger the policy values you may expect
to be available for investment in the Fund Portfolios. Under the Policy, the
highest
11
premium permitted at the time of issue, for a specific death benefit, is one
which will provide a fully paid-up Policy after the payment of five annual
premium payments. A Policy becomes paid-up when its policy value is such that
no further premiums are required to provide the death benefit until the death
of the insured, provided there is no policy indebtedness.
Examples of whole life plans include Policies which become paid-up upon the
payment of a designated number of annual premiums, such as ten pay life or
twenty pay life. If you select a premium level for a specific face amount
which would cause the Policy to become paid-up at other than a policy
anniversary, you will be required to pay scheduled premiums until the policy
anniversary immediately following the date the Policy is scheduled to become
paid-up.
The lowest annual base premium allowed for any plan of insurance is $300;
for insureds age 0 to 15, the minimum is $150. Subject to this limitation, the
lowest premium you may choose for any specific amount of life insurance
protection is a premium which will provide a death benefit for a period of ten
years from the policy date. If the insured's age at original issue is over age
45, the minimum plan of protection will be less than ten years, as described
in the table below:
Minimum Plan
Issue Age (in years)
--------- ------------
46 9
47 8
48 7
49 6
50 5
51 4
52 or greater 3
This is the minimum plan of insurance for any given face amount. The minimum
initial face amount on a Policy is $25,000; if the insured is age 0 to 15, the
minimum face amount is $10,000.
Policy Adjustments
Adjustable life insurance policies allow you to change the premium, face
amount or the death benefit option of the Policy after it is issued. Subject
to the limitations described more fully below, you can at any time change the
face amount, the death benefit option or your scheduled premium. Any of those
changes will usually result in a change in the plan of insurance.
Depending upon the change you request, the premium paying period or the
guaranteed period of coverage may be lengthened or shortened.
Changes in premium, face amount or the death benefit option are referred to
as policy adjustments. They may be made singly or in combination with one
another.
A partial surrender of a Policy's cash value, an adjustment so that there
are no further scheduled base premiums, a change in underwriting
classification or any change requiring evidence of insurability are also
policy adjustments.
When a Policy is adjusted, we compute the new plan of insurance, face amount
or premium amount. If your Policy has the Cash Option and a partial surrender
of actual cash value is made, the Policy will be automatically adjusted to a
new face amount which will be equal to the old face amount less the amount of
the partial surrender. An adjustment providing for no further scheduled base
premium, regardless of whether the Policy is paid-up, is also referred to as a
"stop premium" mode and is described under the caption "Avoiding Lapse" on
page 17 of this prospectus. Certain adjustments may cause a Policy to become a
modified endowment contract. See "Federal Tax Status" for a description of the
federal tax treatment of modified endowment contracts.
In computing a new plan of insurance as a result of an adjustment, we will
make the calculation on the basis of the higher of the Policy's "tabular
value" or 75 percent of the Policy's "policy value" at the time of the change.
The "policy value" is the actual cash value of the Policy plus the amount of
any policy loan, while the "tabular value" is the value underlying the
guaranteed plan of insurance. If 75 percent of the policy value is higher than
the tabular value, a policy adjustment will translate the excess value into an
improved plan of insurance. If 75 percent of the policy value is less than the
tabular value, using the tabular value ensures that the Policy's guarantee of
a minimum death benefit is not impaired by the adjustment.
Any adjustment will result in a redetermination of a Policy's tabular value.
After adjustment, the tabular value shall be equal to the greater of 75
percent of the policy value or the tabular value prior to that adjustment,
plus any non-repeating premium
12
paid at the time of the adjustment and minus the amount of any partial
surrender made at the time of the adjustment.
On adjustment, you may request a new Policy face amount. In the absence of
your instructions, we will calculate the face amount after adjustment depending
on the Policy's death benefit option and the type of adjustment. If the Policy
has the Cash Option, we will reduce the face amount by the amount of any
partial surrender. With the Protection Option, we will not reduce the face
amount, but the death benefit will be reduced by the amount of the partial
surrender.
All of these changes may be accomplished under a single Policy. There is no
need to surrender the Policy or purchase a new one simply because of a change
in your insurance needs. Whenever adjustments are made, new policy information
pages will be provided. These pages state the new face amount, death benefit
option, scheduled premium, plan of insurance and attained age.
Adjustments can be made on any monthly anniversary of the policy date. You
may request a policy adjustment by completing an application for adjustment.
Any adjustment will be effective on the date that it is approved by us and
recorded at our home office.
Restrictions on Adjustments
An adjustment must satisfy certain limitations on premiums, face amount and
plan of insurance. Limitations are also designed to ensure that the Policy
qualifies as life insurance for federal tax purposes. Other limitations on
adjustments and combinations of adjustments may also apply. The current limits
on adjustments are those described here. We reserve the right to change these
limitations from time to time.
(1) Any adjustment for a change of premium must result in a change of the
annual premium of at least $100. Currently, we will waive this limitation
for changes in premium which are the result of a face amount change under
the Inflation Agreement.
(2) Any Policy adjustment, other than a change to a stop premium, must result
in a Policy with an annual base premium of at least $300; if the insured is
age 0 to 15, the minimum is $150.
(3) Any adjustment for a change of the face amount must result in a change of
the face amount of at least $5,000, except for face amount changes which
are the result of an Inflation Agreement change or a partial surrender.
(4) An adjustment may not result in more than a paid-up whole life plan for the
current face amount.
(5) Any adjustment involving an increase in premium may not result in a whole
life plan of insurance requiring the payment of premiums for less than five
years or to age 100, if less.
(6) After an adjustment involving a face amount or premium increase, the Policy
must provide insurance to the next policy anniversary at or after ten years
from the date of adjustment. If the insured's age at adjustment is over age
45, the minimum plan of protection will be less than ten years from the
date of adjustment, as described in the table below.
Adjustment Age Number of Years
- -------------- ---------------
46 9
47 8
48 7
49 6
50 5
51 4
52 or greater 3
(7) An adjustment to stop premium requires that a Policy have an actual cash
value at the time of the adjustment sufficient to keep the Policy in force
until the next policy anniversary.
(8) After any adjustment, other than those described in (6) and (7), the Policy
must provide insurance to the next policy anniversary at or after one year
from the date of adjustment.
(9) No adjustments may be made during the first policy year.
Proof of Insurability We require proof of insurability for all adjustments
resulting in an increase in death benefit, except for increases made pursuant
to an additional benefit agreement. In addition, except for partial surrenders
to pay substandard risk premiums, we require proof of insurability for partial
surrenders where, at the request of the policy owner, no reduction is made in
the Policy's death benefit. Decreases in face amount or premium and increases
in premium not resulting in any increase in death benefit do not require
evidence of
13
insurability. We may require evidence of insurability when a non-repeating
premium is paid if the death benefit of your Policy increases as a result of
the payment of a non-repeating premium.
We may also require evidence of insurability to change underwriting
classification or to add additional agreements.
Charges in Connection with Policy Adjustments In connection with a policy
adjustment, we will make a special $25 charge to cover the administrative
costs associated with processing the adjustment. If, however, the only policy
adjustment is a partial surrender, the transaction charge shall be the lesser
of $25 or 2 percent of the amount surrendered. In addition, because of the
underwriting and selling expenses anticipated for any change resulting in an
increase in premium, we will assess a Sales Charge on any increase in premium
on adjustment. We will also assess an Additional Face Amount Charge on any
increase in face amount. See, for a further description of these charges, the
section "Policy Charges" in this prospectus on page 23. Limiting the Sales
Charge and the Additional Face Amount Charge to the increased premium or face
amount is in substance the equivalent of issuing a new Policy for the
increase.
The chart below illustrates the effect of certain policy adjustments:
Decrease the face amount
and keep premiums the same
The guaranteed period of
OR coverage will generally be
longer
Keep the face amount the
same and increase premiums
OR
OR The premium paying period
will generally be shorter
Keep the face amount and
premiums the same, and
switch from the Protection
Option to the Cash Option
- -------------------------------------------------------------------------------
Increase the face amount
and keep premiums the same
The guaranteed period of
coverage will generally be
OR shorter
Keep the face amount the OR
same and decrease premiums
The premium payment period
OR will generally be longer
Keep the face amount and
premiums the same, and
switch from the Cash Option
to the Protection Option
Applications and Policy Issue
Persons wishing to purchase a Policy must send a completed application to us
at our home office. The minimum face amount we will issue on a Policy is
$25,000 and we require an annual base premium on each Policy of at least $300.
If the insured is age 0 to 15, the minimum face amount is $10,000 and the
minimum premium is $150. The minimum plan of insurance at policy issue is a
protection plan which has a level death benefit for a period of ten years. If
the insured's age at original issue is over age 45, the minimum plan of
protection will be less than ten years from the Policy date, as described on
page 12. The Policy must be issued on an insured no more than age 90. Before
issuing any Policy, we require evidence of insurability satisfactory to us,
which in some cases will require a medical examination. Persons who present a
lower mortality risk are offered the most favorable premium rates, while a
higher premium is charged to persons with a greater mortality risk. Acceptance
of an application is subject to our underwriting rules and we reserve the
right to reject an application for any reason.
If we accept an application, accompanied by a check for all or at least one-
twelfth of the annual premium, the policy date will be the issue date, which
is the date the decision to accept the application and issue the Policy is
14
made. We will use the policy date to determine subsequent policy anniversaries
and premium due dates.
If we accept an application not accompanied by a check for the initial
premium, a Policy will be issued with a policy date which is 15 days after the
issue date. We have determined 15 days to be the normal time during which
delivery of the Policy is expected to occur. We or our agent must receive the
initial premium within 60 days after the issue date. No life insurance coverage
is provided until the initial premium is paid. If the initial premium is paid
after the policy date (and the policy date is not changed as described below),
you will have paid for insurance coverage during a period when no coverage was
in force. Therefore, in such circumstance you should consider requesting a
current policy date, i.e., the date on which our home office receives the
premium. You will be sent updated policy pages to reflect the change in policy
date. This request should be made at or prior to the time you pay the initial
premium.
In certain circumstances it may be to your advantage to have the policy date
be the same as the issue date in order to preserve an issue age on which
premium rates are based. In that case, all premiums due between the issue date
and the date of delivery of the Policy must be paid on delivery.
When the Policy is issued, the face amount, premium, and a listing of any
additional agreements are stated on the policy information pages of the policy
form, page 1.
Policy Premiums
The Policies have a level premium payable for a specified period or until
the Policy becomes paid-up. We guarantee that we will not increase the amount
of premiums for a Policy in force. Subject to the limitations discussed under
the heading "Restrictions on Adjustments" in this prospectus on page 13, you
may choose to adjust the Policy at any time and alter the amount of future
premiums.
The premium required for a Policy will depend on the Policy's initial face
amount, the death benefit option, the plan of insurance, the insured's age at
issue, gender, risk classification, tobacco use and the additional benefits
associated with the Policy.
The first premium is due as of the policy date and must be paid on or before
the date your Policy is delivered. Between the date we receive an initial
premium for the Policy, either a full first premium or a partial premium, and
the date insurance coverage commences under the Policy, the life of the insured
may be covered under the terms of a conditional insurance agreement. All
scheduled premiums after the first premium are payable on or before the date
they are due and must be mailed to us at our home office. In some cases, you
may elect to have premiums paid under our automatic payment plan through pre-
authorized transfers from a bank checking account or such other account as your
bank approves.
Scheduled premiums on the Policy are payable for a specified period on an
annual, semi-annual or quarterly basis on the due dates set forth in the
Policy. You may also pay scheduled premiums monthly if you make arrangements
for payments through an automatic payment plan established through your bank or
if you meet the requirements to establish a payroll deduction plan through your
employer. A scheduled premium may be paid no earlier than twenty days prior to
the date that it is due. For premiums paid after the due date, see the
paragraph following the heading "Lapse" in this section of the prospectus.
Charges for additional benefits and for substandard risks are deducted from
premiums to calculate base premiums. From base premiums we deduct charges
assessed against premiums and non-repeating premiums to calculate net premiums.
Net premiums are allocated to the guaranteed principal account or sub-
accounts of the Variable Life Account which, in turn, invest in Fund shares.
You make your selection on your application for the Policy. You may change
your allocation instructions for future premiums by giving us a written request
or by calling us at 1-800-277-9244 between the hours of 8:00 a.m. and 4:30
p.m., Central time, our regular business hours. The allocation to the
guaranteed principal account or to any sub-account of the Variable Life Account
must be in multiples of 5 percent of the net premium. We reserve the right to
delay the allocation of net premiums to named sub-accounts for a period of up
to
15
30 days after Policy issue or an adjustment. In no event will any delay extend
beyond the free look period applied to the Policy in the state in which it is
issued. If we exercise this right, we will allocate net premiums to the Money
Market sub-account until the end of that period. This right, which has not
been implemented to date, will be exercised by us only when we believe
economic conditions make such an allocation necessary to reduce market risk
during the free look period.
We reserve the right to restrict the allocation of premiums to the
guaranteed principal account. If we do so, no more than 50 percent of the net
premium may be allocated to the guaranteed principal account. Currently, we do
not exercise such a restriction.
Non-repeating Premiums The Policy also allows a policy owner to pay a premium
called a non-repeating premium. This payment of premium is in addition to the
scheduled premiums. The payment of a non-repeating premium will increase the
policy values you have available for investment in the Fund. The maximum non-
repeating premium we will accept is the amount sufficient to change your
Policy to a paid-up whole life policy for the face amount. The minimum non-
repeating premium is $500.
We will bill annually, semi-annually or quarterly for non-repeating premiums
if a Policy has a base annual premium of at least $2,400 and if the total
annual amount billed for non-repeating premiums is at least $600. You may also
arrange for monthly payments through an automatic payment plan established
through your bank; in this situation, your base annual premium must be at
least $2,400 and each non-repeating premium must be at least $50.
We may impose additional restrictions or refuse to permit non-repeating
premiums at our discretion.
The payment of a non-repeating premium may have Federal income tax
consequences. See the heading "Federal Tax Status" in this prospectus on page
28.
Paid-Up Policies A Policy is paid-up when no additional premiums are required
to provide the face amount of insurance for the life of the insured. We may or
may not accept additional premiums. However, the actual cash value of a paid-
up Policy will continue to vary daily to reflect the investment experience of
the Variable Life Account and any interest credited as a result of a policy
loan. Once a Policy becomes paid-up, it will always retain its paid-up status
regardless of any subsequent decrease in its policy value. However, on a paid-
up Policy with indebtedness, where the actual cash value decreases to zero, a
loan repayment may be required to keep the Policy in force. See the discussion
in this prospectus under the heading "Policy Loans," below.
We will make a determination on each policy anniversary as to whether a
Policy is paid-up. When a Policy becomes paid-up, we will send you a notice.
Lapse Your Policy may lapse in one of two ways: (1) if a scheduled premium is
not paid; or (2) if there is no actual cash value when there is a policy loan.
As a scheduled premium policy, your Policy will lapse if a premium is not
paid on or before the date it is due or within the 31-day grace period
provided by the Policy. You may pay that premium during the 31-day period
immediately following the premium due date. Your premium payment, however,
must be received in our home office within the 31-day grace period. The
insured's life will continue to be insured during this 31-day period.
If a Policy covers an insured in a substandard risk class, you must continue
to pay the portion of the scheduled premium equal to the charge for such risk
even if the Policy is on stop premium. As with any scheduled premium, failure
to pay the premium for the substandard risk within the grace period will cause
the Policy to lapse.
If scheduled premiums are paid on or before the dates they are due or within
the grace period, absent any policy loans, the Policy will remain in force
even if the investment results of the sub-accounts have been so unfavorable
that the actual cash value has decreased to zero. However, should the actual
cash value decrease to zero while there is an outstanding policy loan the
Policy will lapse, even if the Policy was paid-up and all scheduled premiums
had been paid.
If the Policy lapses because not all scheduled premiums have been paid or if
a Policy with a policy loan has no actual cash
16
value, we will send you a notice of default that will indicate the payment
required to keep the Policy in force on a premium paying basis. If we do not
receive the payment within 31 days after the date of mailing the notice of
default, the Policy will terminate or the nonforfeiture benefits will apply.
For more information on lapse, see "Avoiding Lapse" below.
If at the time of any lapse a Policy has a surrender value, that is, an
amount remaining after subtracting from the actual cash value all unpaid policy
charges, we will use it to purchase extended term insurance. The extended term
benefit is a fixed life insurance benefit calculated on the 1980 Commissioners
Standard Ordinary Mortality Tables with 4 percent interest. As an alternative
to the extended term insurance, you may have the surrender value paid to you in
a single sum payment, thereby terminating the Policy. Unless you request a
single sum payment of your surrender value within 62 days of the date of the
first unpaid premium, we will apply it to purchase extended term insurance on
the insured's life.
We determine the duration of the extended term benefit by applying the
surrender value of your Policy as of the end of the grace period as a premium
to buy fixed benefit term insurance. The extended term benefit is not provided
through the Variable Life Account and the death benefit will not vary during
the extended term insurance period. The amount of this insurance will be equal
to the face amount of your Policy, less the amount of any policy loans at the
date of lapse. During the extended term period a Policy has a surrender value
equal to the reserve for the insurance coverage for the remaining extended term
period. At the end of the extended term period all insurance provided by your
Policy will terminate and the Policy will have no further value.
You may arrange for automatic premium loans to keep the Policy in force in
the event that a scheduled premium payment is not made. For more information on
this option, please see the heading "Policy Loans" in this prospectus on page
21.
Reinstatement At any time within three years from the date of lapse you may ask
us to restore your Policy to a premium paying status unless the Policy
terminated because the surrender value has been paid. We will require:
(1) your written request to reinstate the Policy;
(2) that you submit to us at our home office during the insured's lifetime
evidence satisfactory to us of the insured's insurability so that we may
have time to act on the evidence during the insured's lifetime; and
(3) at our option a premium payment which is equal to all overdue premiums with
interest at a rate not to exceed 6 percent per year compounded annually and
any policy loan in effect at the end of the grace period following the date
of default with interest at a rate not exceeding 5 percent per year
compounded annually. At the present time we do not require the payment of
all overdue premiums, or the payment of interest on reinstated loans.
Avoiding Lapse If your Policy has sufficient loan value, you can avoid a lapse
due to the failure to pay a scheduled premium with an automatic premium loan.
The effect of a policy loan on policy values and the restrictions applicable
thereto are described under the caption "Policy Loans" on page 21 of this
prospectus. An automatic premium loan is particularly advantageous for a policy
owner who contemplates early repayment of the amount loaned, since it permits
the policy owner to restore policy values without additional policy charges.
Automatic premium loans for the long term are generally not advantageous.
You may also avoid a lapse by adjusting your Policy to a zero base premium.
We call this the stop premium mode. We will determine a new plan of insurance
based on the face amount and death benefit option and the assumption that no
further premiums will be paid.
The insurance coverage resulting from an adjustment to a stop premium mode
is similar to the coverage available under the extended term option. Under
both, the coverage is provided only for a limited period of time. There are,
however, fundamental differences between the two. Extended term coverage is a
fixed benefit with fixed cash values providing a guaranteed period of coverage.
The stop premium mode provides variable insurance with an actual cash value
17
and, under the Protection Option, a death benefit that will vary with the
actual cash value. Because the actual cash value continues to exist, we will
continue to assess policy charges against the actual cash value while the
Policy is on stop premium. Moreover, if a Policy covers an insured in a
substandard risk class, the portion of the scheduled premium equal to the
charge for such risk will continue to be payable.
There are also other differences which you should consider. In general, if
you contemplate resuming premium payments at a future date, the stop premium
mode may be more desirable in that you may resume premium payments at any time
without evidence of insurability. The reinstatement option available during
the extended term period requires proof of insurability and must be exercised
within three years following the date of lapse.
If you do not contemplate resuming premium payments, your choice between
permitting your Policy to lapse and adjusting it to a stop premium mode is
more complicated since the period of guaranteed coverage under the extended
term option will be different from that under the stop premium mode. When you
are making this decision you should ask us what these periods are.
Actual Cash Value
The Policy has an actual cash value which varies with the investment
experience of the guaranteed principal account and the sub-accounts of the
Variable Life Account. The actual cash value equals the value of the
guaranteed principal account and the value of the sub-accounts of the Variable
Life Account. It is determined separately for your guaranteed principal
account actual cash value and for your separate account actual cash value. The
separate account actual cash value will include all sub-accounts of the
Variable Life Account.
Unlike a traditional fixed benefit life insurance policy, a Policy's actual
cash value cannot be determined in advance, even if scheduled premiums are
paid when required, because the separate account actual cash value varies
daily with the investment performance of the sub-accounts. Even if you
continue to pay scheduled premiums when due, the separate account actual cash
value of a Policy could decline to zero because of unfavorable investment
experience and the assessment of charges.
Upon request, we will tell you the actual cash value of your Policy. We will
also send you a report each year on the policy anniversary advising you of
your Policy's actual cash values, the face amount and the death benefit as of
the date of the report. It will also summarize Policy transactions during the
year. The information will be current as of a date within two months of its
mailing.
The guaranteed principal account actual cash value is the sum of all net
premium payments allocated to the guaranteed principal account. This amount
will be increased by any interest, asset credits, loan repayments, policy loan
interest credits and transfers into the guaranteed principal account. This
amount will be reduced by any policy loans, unpaid policy loan interest,
partial surrenders, transfers into the sub-accounts of the Variable Life
Account and charges assessed against your guaranteed principal account actual
cash value. We credit interest on the guaranteed principal account actual cash
value of your Policy daily at a rate of not less than 4 percent per year,
compounded annually. We guarantee this minimum rate for the life of the Policy
without regard to the actual experience of the general account. As conditions
permit, we will credit additional amounts of interest to the guaranteed
principal account actual cash value. Your guaranteed principal account actual
cash value is guaranteed by us. It cannot be reduced by any investment
experience of the general account.
We determine each portion of a Policy's separate account actual cash value
separately. The separate account actual cash value is not guaranteed. We
determine the separate account actual cash value made by multiplying the
current number of sub-account units credited to a Policy by the current sub-
account unit value. A unit is a measure of your Policy's interest in a sub-
account. The number of units credited with respect to each net premium payment
is determined by dividing the portion of the net premium payment allocated to
each sub-account by the then current unit value for that sub-account. The
number of units credited is determined as of the end of the valuation period
during which we receive your premium at our home office.
18
Once determined, the number of units credited to your 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, non-repeating premiums,
asset credits, loan repayments, loan interest credits and transfers to that
sub-account. The number of units will be decreased by policy charges to the
sub-account, policy loans and loan interest, transfers from that sub-account
and partial surrenders from that sub-account. The number of units will decrease
to zero when the policy is surrendered or extended term insurance is purchased.
The unit value of a sub-account will be determined on each valuation date.
The amount of any increase or decrease will depend on the net investment
experience of that sub-account. The value of a unit for each sub-account was
originally set at $1.00 on the first valuation date. For any subsequent
valuation date, its value is equal to its value on the preceding valuation date
multiplied by the net investment factor for that sub-account for the valuation
period ending on the subsequent valuation date.
The net investment factor for a valuation period is: the gross investment
rate for such valuation period, less a deduction for the mortality and expense
risk charge under this Policy which is assessed at an annual rate of .50
percent against the average daily net assets of each sub-account of the
Variable Life Account. The gross investment rate is equal to:
(1) the net asset value per share of a Fund share held in the sub-account of
the Variable Life Account determined at the end of the current valuation
period; plus
(2) the per share amount of any dividend or capital gain distributions by the
Funds if the "ex-dividend" date occurs during the current valuation period;
with the sum divided by
(3) the net asset value per share of that Fund share held in the sub-account
determined at the end of the preceding valuation period.
We determine the value of the units in each sub-account on each day on which
the Portfolios of the Funds are valued. The net asset value of the Funds'
shares is computed once daily, and, in the case of the Money Market Portfolio,
after the declaration of the daily dividend, as of the primary closing time for
business on the New York Stock Exchange (as of the date hereof the primary
close of trading is 3:00 p.m. (Central time), but this time may be changed) on
each day, Monday through Friday, except:
(1) days on which changes in the value of the Funds' portfolio securities will
not materially affect the current net asset value of the Funds' shares,
(2) days during which no Funds' shares are tendered for redemption and no
order to purchase or sell the Funds' shares is received by the Funds and
(3) customary national business holidays on which the New York Stock Exchange
is closed for trading.
Although the actual cash value for each Policy is determinable on a daily
basis, we update our records to reflect that value on each monthly anniversary.
We also make policy value determinations on the date of the insured's death and
on a policy adjustment, surrender, and lapse. When the policy value is
determined, we will assess and update to the date of the transaction those
charges made against and credits to your actual cash value, namely the Monthly
Policy 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 Policy
Values, Death Benefits and Premiums," found on page A-1 of this prospectus. For
additional information about the Policy's cash value, please see Appendix B,
"How Premium Becomes Cash Value," found on page B-1 of this prospectus.
Transfers The Policy allows for transfers of the actual cash value between the
guaranteed principal account and the Variable Life Account or among the sub-
accounts of the Variable Life Account. You may request a transfer at any time
while the Policy remains in force or you may arrange in advance for systematic
transfers; systematic transfers are transfers of specified dollar or unit value
amounts to be made periodically among the sub-accounts and the guaranteed
principal
19
account. The amount to be transferred to or from a sub-account or the
guaranteed principal account must be at least $250. If the actual cash value
in an account is less than $250, the entire actual cash value attributable to
that sub-account or the guaranteed principal account must be transferred. If a
transfer would reduce the actual cash value in the sub-account from which the
transfer is to be made to less than $250, we reserve the right to include that
remaining sub-account actual cash value in the amount transferred. We will
make the transfer on the basis of sub-account unit values as of the end of the
valuation period during which your written or telephone request is received at
our home office. A transfer is subject to a transaction charge, not to exceed
$10, for each transfer of actual cash value among the sub-accounts and the
guaranteed principal account. Currently, there is a charge only for non-
systematic transfers in excess of four per year.
Your instructions for transfer may be made in writing or you, or your agent
if authorized by you, may make such changes by telephone. To do so, you may
call us at 1-800-277-9244 between the hours of 8:00 a.m. and 4:30 p.m.,
Central time, our regular business hours. Policy owners may also submit their
requests for transfer, surrender or other transactions to us by facsimile
(FAX) transmission. Our FAX number is (651) 665-4194.
Transfers made pursuant to a telephone call are subject to the same
conditions and procedures as would apply to written transfer requests. During
periods of marked economic or market changes, policy owners may experience
difficulty in implementing a telephone transfer due to a heavy volume of
telephone calls. In such a circumstance, policy owners should consider
submitting a written transfer request while continuing to attempt a telephone
redemption. We reserve the right to restrict the frequency of, or otherwise
modify, condition, terminate or impose charges upon, telephone transfer
privileges. For more information on telephone transfers, contact us.
With all telephone transactions, we will employ reasonable procedures to
satisfy ourselves that instructions received from policy owners are genuine
and, to the extent that we do not, we may be liable for any losses due to
unauthorized or fraudulent instructions. We require policy owners to identify
themselves in those telephone conversations through policy numbers, social
security numbers and such other information
we deem reasonable. We record telephone transfer instruction conversations and
we provide the policy owners with a written confirmation of the telephone
transfer.
The maximum amount of actual cash value to be transferred out of the
guaranteed principal account to the sub-accounts of the Variable Life Account
may be limited to 20 percent of the guaranteed principal account balance.
Transfers to or from the guaranteed principal account may be limited to one
such transfer per policy year.
Transfers from the guaranteed principal account must be made by a written or
telephone request. It must be received by us or postmarked in the 30-day
period before or after the last day of the policy year. Currently we do not
impose this time restriction. Written requests for transfers which meet these
conditions will be effective after we approve and record them at our home
office.
The Funds may restrict the amounts or frequency of transfers to or from the
sub-accounts of the separate account in order to protect fund shareholders.
In the case of a transfer, the charge is assessed against the amount
transferred.
Death Benefit Options
The death benefit provided by the Policy depends upon the death benefit
option you choose. You may choose one of two available death benefit options--
the Cash Option or the Protection Option. If you fail to make an election, the
Cash Option will be in effect. At no time will the death benefit be less than
the minimum death benefit required so that the Policy qualifies as a life
insurance policy under the guideline premium test of Section 7702 of the
Internal Revenue Code.
Cash Option Under the Cash Option, the death benefit will be the larger of:
(a) the face amount at the time of the insured's death; or
(b) the minimum death benefit required to qualify under Section 7702.
The death benefit will not vary unless the death benefit is the minimum
death benefit required under Section 7702.
20
Protection Option Under the Protection Option, the death benefit will be the
larger of:
(a) the face amount, plus the policy value, at the time of the insured's death;
or
(b) the minimum death benefit required to qualify under Section 7702.
The death benefit provided by the Protection Option will vary depending on
the investment experience of the allocation options you select.
The Protection Option is only available until the policy anniversary nearest
the insured's age 100; at that time we will convert the death benefit option to
the Cash Option.
Choosing the Death Benefit Option The different death benefit options meet
different needs and objectives. If you are satisfied with the amount of your
insurance coverage and wish to have any favorable policy performance reflected
to the maximum extent in increasing actual cash values, you should choose the
Cash Option. The Protection Option results primarily in an increased death
benefit. In addition, there are other distinctions between the two options
which may influence your selection. Given the same face amount and premium the
Cash Option will provide guaranteed coverage for a longer period than the
Protection Option. This is because of larger cost of insurance charges under
the Protection Option resulting from the additional amount of death benefit.
But under the Cash Option, favorable policy performance does not generally
increase the death benefit, and the beneficiary will not benefit from any
larger actual cash value which exists at the time of the insured's death
because of the favorable policy performance.
You may change the death benefit option while the Policy is in force through
a policy adjustment. We may require that you provide us with satisfactory
evidence of the insured's insurability before we make a change to the
Protection Option. The change will take effect when we approve and record it in
our home office. A change in death benefit option may have Federal income tax
consequences. See the heading "Federal Tax Status" in this prospectus on page
28.
For an illustration of the calculation of the death benefit under the Policy
options, please see Appendix C, "Illustration of Death Benefit Calculation," on
page C-1 of this prospectus.
Policy Loans
You may borrow from us using only your Policy as the security for the loan.
The total amount of your loan may not exceed 90 percent of your policy value. A
loan taken from, or secured by a Policy, may have Federal income tax
consequences. See the heading "Federal Tax Status" in this prospectus on page
28.
The policy value is the actual cash value of your Policy plus any policy
loan. Any policy loan paid to you in cash must be in an amount of at least
$100. Policy loans in smaller amounts are allowed under the automatic premium
loan provision. We will deduct interest on the loan in arrears. You may obtain
a policy loan with a written request or by calling us at 1-800-277-9244 between
the hours of 8:00 a.m. and 4:30 p.m., Central time, our regular business hours.
If you call us you will be asked, for security purposes, for your personal
identification and policy number. The Policy will be the only security required
for your loan. We will determine your policy value as of the date we receive
your request at our home office.
When you take a loan, we will reduce the actual cash value by the amount you
borrow and any unpaid interest. Unless you direct us otherwise, we will take
the policy loan from your guaranteed principal account actual cash value and
separate account actual cash value on a pro-rata basis and, from each sub-
account in the separate account on a pro-rata basis. The number of units to be
sold will be based upon the value of the units as of the end of the valuation
period during which we receive your loan request at our home office. This
amount shall be transferred to the loan account. The loan account continues to
be part of the Policy in the general account. A policy loan has no immediate
effect on policy value since at the time of the loan the policy value is the
sum of your actual cash value and any policy loan.
The actual cash value of your Policy may decrease between premium due dates.
Unfavorable investment experience and the assessment of charges could cause
your separate account actual cash value to decline to zero. If your Policy has
indebtedness and no actual cash value, the Policy will lapse and there may be
adverse tax consequences; see the Federal Tax Status
21
section on page 28. In this event, to keep your Policy in force, you will have
to make a loan repayment. We will give you notice of our intent to terminate
the Policy and the loan repayment required to keep it in force. The time for
repayment will be within 31 days after our mailing of the notice.
Policy Loan Interest The interest rate on a policy loan will not be more than
the rate shown on page 1 of your Policy. The interest rate charged on a policy
loan will not be more than that permitted in the state in which the Policy is
delivered.
Policy loan interest is due:
.on the date of the death of the insured
.on a policy adjustment, surrender, lapse, a policy loan transaction
.on each policy anniversary.
If you do not pay the interest on your loan in cash, your policy loan will be
increased and your actual cash value will be reduced by the amount of the
unpaid interest. The new loan will be subject to the same rate of interest as
the loan in effect.
We will also credit interest to your Policy when there is a policy loan.
Interest credits on a policy loan shall be at a rate which is not less than
your policy loan interest rate minus 1 percent per year. We allocate policy
loan interest credits to your actual cash value as of the date of the death of
the insured, on a policy adjustment, surrender, lapse, a policy loan
transaction and on each policy anniversary. We allocate interest credits to the
guaranteed principal account and separate account following your instructions
for the allocation of net premiums.
Currently, the loan account credits interest, as described above, at a rate
which is not less than your policy loan interest rate minus 1 percent per year.
However, if the Policy has been in force for ten years or more, we will credit
your loan at a rate which is equal to the policy loan rate minus .5 percent per
year.
Policy loans may also be used as automatic premium loans to keep your Policy
in force if a premium is unpaid at the end of the grace period. We will make
automatic premium loans unless you have requested us not to. Interest on such a
policy loan is charged from the date the premium was due. However, in order for
an automatic premium loan to occur, the amount available for a loan must be
enough to pay at least a quarterly premium. If the loan value is not enough to
pay at least a quarterly premium, your Policy will lapse.
Policy Loan Repayments If your Policy is in force, you may repay your loan in
part or in full at any time before the insured's death. Your loan may also be
repaid within 60 days after the date of the insured's death, if we have not
paid any of the benefits under the Policy. Any loan repayment must be at least
$100 unless the balance due is less than $100. We will waive this minimum loan
repayment provision for loan repayments made under our automatic payment plan
where loan repayments are in an amount of at least $25.
We allocate loan repayments to the guaranteed principal account until all
loans from the guaranteed principal account have been repaid. Thereafter we
allocate loan repayments to the guaranteed principal account or the sub-
accounts of the Variable Life Account as you direct. In the absence of your
instructions, we will allocate loan repayments to the guaranteed principal
account actual cash value and separate account actual cash value on a pro-rata
basis, and to each sub-account in the separate account on a pro-rata basis.
Loan repayments reduce your loan account by the amount of the loan repayment.
A policy loan, whether or not it is repaid, will have a permanent effect on
the policy value because the investment results of the sub-accounts will apply
only to the amount remaining in the sub-accounts. The effect could be either
positive or negative. If net investment results of the sub-accounts are greater
than the amount being credited on the loan, the policy value will not increase
as rapidly as it would have if no loan had been made. If investment results of
the sub-accounts are less than the amount being credited on the loan, the
policy value will be greater than if no loan had been made.
Surrender
You may request a surrender or partial surrender of your Policy at any time
while the insured is living. The surrender value of the Policy is the actual
cash value plus asset credits and minus unpaid policy charges which are
assessed against actual cash value. We determine the surrender value as
22
of the end of the valuation period during which we receive your surrender
request at our home office. You may surrender the Policy by sending us the
Policy and a written request for its surrender. You may request that the
surrender value be paid to you in cash or, alternatively, applied on a
settlement option or to provide extended term insurance on the life of the
insured.
We also permit a partial surrender of the actual cash value of the Policy in
any amount of $500 or more. The maximum partial surrender is the amount
available as a policy loan. The death benefit of the Policy will be reduced by
the amount of the partial surrender. With any partial surrender, we will adjust
the Policy to reflect the new face amount and actual cash value and, unless
otherwise instructed, the existing level of premium payments.
We are currently waiving the restriction requiring a minimum amount for a
partial surrender where a partial surrender from a Policy, which is on stop
premium, is being used to pay premiums for substandard risks or premiums on any
benefits and riders issued as part of the Policy. Transaction fees otherwise
applicable to such a partial surrender are also waived.
On a partial surrender, you may tell us from which Variable Life Account
sub-accounts a partial surrender is to be taken or whether it is to be taken in
whole or in part from the guaranteed principal account. If you do not, we will
deduct partial surrenders from your guaranteed principal account actual cash
value and separate account actual cash value on a pro-rata basis and, from each
sub-account of the separate account on a pro-rata basis. We will tell you, on
request, what amounts are available for a partial surrender under your Policy.
We will pay a surrender or partial surrender as soon as possible, but not
later than seven days after we receive your written request for surrender.
However, if any portion of the actual cash value to be surrendered is
attributable to a premium or non-repeating premium payment made by non-
guaranteed funds such as a personal check, we will delay mailing that portion
of the surrender proceeds until we have reasonable assurance that the payment
has cleared and that good payment has been collected. The amount you receive on
surrender may be more or less than the total premiums paid for your Policy.
Free Look
It is important to us that you are satisfied with this Policy after it is
issued. If you are not satisfied with it, you may return the Policy
to us or your agent within ten days after you receive it.
If you return the Policy, you will receive within seven days of the date we
receive your notice of cancellation a full refund of the premiums you have
paid.
If the Policy is adjusted, as described under the heading "Policy
Adjustments" in this prospectus on page 12, and if the adjustment results in an
increased premium, you will again have a right to examine the Policy and you
may return the Policy within ten days after you receive it. If you return the
Policy, the requested premium adjustment will be cancelled. You will receive a
refund of the additional premiums paid within seven days of the date we receive
your notice of cancellation for that adjustment.
Policy Charges
Premium Charges Premium charges vary depending on whether the premium is a
scheduled premium or a non-repeating premium. Generally, the word "premium"
when used in this prospectus means a scheduled premium only. Charges for
substandard risks and charges for additional benefits are deducted from the
premium to calculate the base premium. Charges for substandard risks include
both table ratings and cash extra charges.
From base premiums we deduct a Sales Charge, an Additional Face Amount
Charge and a Premium Charge.
(1) The Sales Charge consists of a deduction from each premium of up to 44
percent. The Sales Charge applies only to base premiums, scheduled to be
paid in the 12 month period following the policy date, or any policy
adjustment involving an increase in base premium or any policy adjustment
occurring during a period when a Sales Charge is being assessed. It will
also apply only to that portion of an annual base premium necessary for an
original issue whole life plan of insurance under the Cash Option. In other
words, the amount of any base premium in excess of this amount will not be
subject to the Sales Charge.
23
Only adjustments that involve an increase in base premium will result in an
additional Sales Charge being assessed on that increase in premium. If any
adjustment occurs during a period when a Sales Charge is being collected and
the adjustment results in an increase in base premium, an additional Sales
Charge, not to exceed 44 percent of the increase in base premium, will be
added to the uncollected portion of the Sales Charge that was being
collected prior to the adjustment. This total amount of Sales Charge will
then be collected during the 12 month period following the adjustment.
If any adjustment occurs during the 12 month period when a Sales Charge is
being collected and the adjustment does not result in an increase in base
premium, a portion or all of the remaining Sales Charge will be collected
during the 12 month period following the adjustment.
For examples of how we compute the Sales Charge and the Additional Face
Amount Charge, see Appendix D in this prospectus on page D-1.
The Sales Charge is designed to compensate us for distribution expenses
incurred with respect to the Policies. 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 including profits from
the Mortality and Expense Risk Charge.
(2) The Additional Face Amount Charge is an amount not to exceed $5 per $1,000
of face amount of insurance. This amount may vary by the age of the
insured and the premium level for a given amount of insurance. This charge
is made ratably from premiums scheduled to be paid during the first policy
year and during the twelve months following certain policy adjustments.
The Additional Face Amount Charge is designed to compensate us for the
administrative costs associated with issuance or adjustment of the
Policies, including the cost of processing applications, conducting
medical exams, classifying risks, determining insurability and risk class
and establishing policy records.
(3) The Premium Charge of 6 percent is deducted from each base premium. This
charge is designed to cover the expenses related to premiums, including
but not limited to administration, commissions and taxes.
Non-repeating Premiums Non-repeating premiums are currently subject to a
Premium Charge of 3 percent. We do not assess a Sales Charge or an Additional
Face Amount Charge against non-repeating premiums.
Actual Cash Value Charges In addition to deductions from premiums and non-
repeating premiums, we assess from the actual cash value of a Policy a Monthly
Policy Charge, the Cost of Insurance Charge and transaction charges. These
charges are as follows:
(1) The Monthly Policy Charge is designed to cover certain of our
administrative expenses, including those attributable to the records we
create and maintain for your Policy. The Monthly Policy Charge is $8 plus
$.02 per $1,000 of face amount. We can increase this charge, but it will
never exceed $10 plus $.03 per $1,000 of face amount.
(2) The Cost of Insurance Charge compensates us for providing the death
benefit under a Policy. The charge is calculated by multiplying the net
amount at risk under your Policy by a rate which varies with the insured's
age, gender, risk class, the level of scheduled premiums for a given
amount of insurance, duration of the Policy and the tobacco use of the
insured. The rate is guaranteed not to exceed the maximum charges for
mortality derived from the 1980 Commissioners Standard Ordinary Mortality
Tables. The net amount at risk is the death benefit under your Policy less
your policy value. Where circumstances require, we will base our rates on
"unisex," rather than sex-based, mortality tables.
(3) The transaction charges are for expenses associated with processing
transactions. There is a charge of $25 for each policy adjustment.
If the only policy adjustment is a partial surrender, the transaction charge
shall
24
be the lesser of $25 or 2 percent of the amount surrendered. We also
reserve the right to make a charge, not to exceed $25, for each transfer of
actual cash value among the guaranteed principal account and the sub-
accounts of the Variable Life Account. Currently there is a $10 charge only
for non-systematic transfers in excess of four per year.
We may also make a charge, not to exceed $25, for each returned check.
We assess the Monthly Policy Charge and Cost of Insurance Charge against
your actual cash value on the monthly policy anniversary. In addition, we
assess such charges on the occurrence of the death of the insured, policy
surrender, lapse or a policy adjustment.
We assess transaction charges against your actual cash value at the time of
a policy adjustment, when a transfer is made, or when a check is returned. In
the case of a transfer, the charge is assessed against the amount transferred.
We assess charges against your guaranteed principal account actual cash
value and separate account actual cash value on a pro-rata basis and from each
sub-account in the separate account on a pro-rata basis.
Separate Account Charges We assess a Mortality and Expense Risk charge directly
against the assets held in the Variable Life Account. The Mortality and Expense
Risk charge compensates us for assuming the risks that cost of insurance
charges will be insufficient to cover actual mortality experience and that the
other charges will not cover our expenses in connection with the Policy. We
deduct the Mortality and Expense Risk charge from Variable Life Account assets
on each valuation date at an annual rate of .50 percent of the average daily
net assets of the Variable Life Account.
We reserve the right to charge or make provision for any taxes payable by us
with respect to the Variable Life Account or the Policies by a charge or
adjustment to such assets. No such charge or provision is made at the present
time.
Other Policy Provisions
Beneficiary When we receive proof satisfactory to us of the insured's death, we
will pay the death proceeds of a Policy to the beneficiary or beneficiaries
named in the application for the Policy unless the owner has changed the
beneficiary. In that event, we will pay the death proceeds to the beneficiary
named in the last change of beneficiary request.
If a beneficiary dies before the insured, that beneficiary's interest in the
Policy ends with that beneficiary's death. Only beneficiaries who survive the
insured will be eligible to share in the death proceeds. If no beneficiary
survives the insured we will pay the death proceeds of this Policy to the
owner, if living, otherwise to the owner's estate, or, if the owner is a
corporation, to it or its successor.
You may change the beneficiary designated to receive the proceeds. If you
have reserved the right to change the beneficiary, you can file a written
request with us to change the beneficiary. If you have not reserved the right
to change the beneficiary, the written consent of the irrevocable beneficiary
will be required.
Your written request will not be effective until it is recorded in our home
office. After it has been so recorded, it will take effect as of the date you
signed the request. However, if the insured dies before the request has been so
recorded, the request will not be effective as to those death proceeds we have
paid before your request was recorded in our home office records.
Payment of Proceeds The amount payable as death proceeds upon the insured's
death will be the death benefit provided by the Policy, plus any additional
insurance on the insured's life provided by an additional benefit agreement, if
any, minus any policy charges and minus any policy loans. In addition, if the
Cash Option is in effect at the insured's death, we will pay to the beneficiary
any part of a paid premium that covers the period from the end of the policy
month in which the insured died to the date to which premiums are paid.
Normally, we will pay any policy proceeds within seven days after our receipt
of all the documents required for such a payment. Other than the death
proceeds, which are determined as of the date of death of the insured, we will
determine the amount of payment as of the end of the valuation period during
which a request is received at our home office.
25
We reserve the right to defer policy payments, including policy loans, for
up to six months from the date of your request, if such payments are based
upon policy values which do not depend on the investment performance of the
Variable Life Account. In that case, if we postpone a payment other than a
policy loan payment for more than 31 days, we will pay you interest at 3
percent per year for the period beyond that time that payment is postponed.
For payments based on policy values which do depend on the investment
performance of the Variable Life Account, we may defer payment only:
(1) for any period during which the New York Stock Exchange is closed for
trading (except for normal holiday closing); or
(2) when the SEC has determined that a state of emergency exists which may
make such payment impractical.
Settlement Options The proceeds of a Policy will be payable if the Policy is
surrendered, or we receive proof satisfactory to us of the insured's death.
These events must occur while the Policy is in force. We will pay the proceeds
at our home office and in a single sum unless a settlement option has been
selected. We will deduct any indebtedness and unpaid charges from the
proceeds. Proof of any claim under this Policy must be submitted in writing to
our home office.
We will pay interest on single sum death proceeds from the date of the
insured's death until the date of payment. Interest will be at an annual rate
determined by us, but never less than 3 percent.
The proceeds of a Policy may be paid in other than a single sum and you may,
during the lifetime of the insured, request that we pay the proceeds under one
of the Policy's settlement options. We may also use any other method of
payment that is agreeable to both you and us. A settlement option may be
selected only if the payments are to be made to a natural person in that
person's own right, and if the periodic installment or interest payment is at
least $20.
Each settlement option is payable in fixed amounts as described below. The
payments do not vary with the investment performance of the Variable Life
Account.
Option 1--Interest Payments
We will pay interest on the proceeds at such times and for a period that is
agreeable to you and us. Withdrawals of proceeds may be made in amounts of at
least $500. At the end of the period, any remaining proceeds will be paid in
either a single sum or under any other method we approve.
Option 2--Payments for a Specified Period
We will make payments for a specified number of years.
Option 3--Life Income
We will make payments monthly during the lifetime of the person who is to
receive the income, terminating with the last monthly payment immediately
preceding that person's death. We may require proof of the age and gender of
the annuitant.
Option 4--Payments of a Specified Amount
We will pay a specified amount until the proceeds and interest are fully
paid.
If you request a settlement option, you will be asked to sign an agreement
covering the election which will state the terms and conditions of the
payments. Unless you elect otherwise, a beneficiary may select a settlement
option after the insured's death.
The minimum amount of interest we will pay under any settlement option is 3
percent per year. Additional interest earnings, if any, on deposits under a
settlement option will be payable as we determine.
Assignment The Policy may be assigned. The assignment must be in writing and
filed at our home office. We assume no responsibility for the validity or
effect of any assignment of the Policy or of any interest in it. Any proceeds
which become payable to an assignee will be payable in a single sum. Any claim
made by an assignee will be subject to proof of the assignee's interest and
the extent of the assignment.
Misstatement of Age or Gender If the insured's age or gender has been
misstated, we will adjust the amount of proceeds payable under the Policy to
reflect cost of insurance charges based upon the insured's correct age or
gender.
Incontestability After a Policy has been in force during the insured's
lifetime for two years from the original policy date, we may not contest the
Policy, except for fraud or for nonpayment of premium. However, if there has
been a policy adjustment, reinstatement or any other policy change for which
we required evidence of insurability, we may
26
contest that policy adjustment, reinstatement or change for two years with
respect to information provided at that time, during the lifetime of the
insured, from the effective date of the policy adjustment, reinstatement or
change.
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 policy adjustment, reinstatement or any other policy change for which we
required evidence of insurability, and if the insured dies by suicide within
two years from the effective date of the policy adjustment, reinstatement or
change our liability with respect to the policy adjustment, reinstatement or
change will be limited to an amount equal to the premiums paid for the policy
adjustment, reinstatement or change.
Reports At least once each year we will send you a report. This report will
include the actual cash value, the face amount and the variable death benefit
as of the date of the report. It will also show the premiums paid during the
policy year, policy loan activity and the policy value. We will send the report
to you without cost. The information in the report will be current as of a date
within two months of its mailing.
Additional Benefits
Additional Benefits You may be able to obtain additional policy benefits,
subject to underwriting approval. We will provide these benefits by a rider to
the Policy, which may require the payment of additional premium.
Waiver of Premium Agreement The Waiver of Premium Agreement requires an
additional premium and provides for the payment of policy premium in the event
of the insured's disability.
Inflation Agreement The Inflation Agreement requires an additional premium and
provides for a face amount increase equal to twice the percentage increase in
the consumer price index during the previous three years, subject to a maximum
of $100,000.
Business Continuation Agreement The Business Continuation Agreement requires an
additional premium and allows you to purchase a specified amount of additional
insurance, without evidence of insurability, at the death of another person
previously designated by you.
Family Term Rider The Family Term Rider requires an additional premium and
provides a fixed amount of term insurance on children of an insured.
Exchange of Insureds Agreement The Exchange of Insureds Agreement requires no
additional premium and allows for the transfer of existing insurance coverage
to another insured within a business setting. Because the exchange is generally
a taxable event, you should consult a tax advisor about the tax consequences
before making such an exchange.
Accelerated Benefits Agreement The Accelerated Benefits Agreement is issued
without additional premium. It allows you to receive a significant portion of
your Policy's death benefit, if the insured develops a terminal condition due
to sickness or injury.
Early Values Agreement The Early Values Agreement requires an additional
premium, payable for ten years, and waives a portion of policy charges in the
first policy year.
27
Other Matters
Federal Tax Status
The discussion of federal taxes is general in nature and is not intended as
tax advice. Each person concerned should consult a tax adviser. This
discussion is based on our understanding of federal income tax laws as they
are currently interpreted. We have not considered any applicable state or
other tax laws. No representation is made regarding the likelihood of
continuation of current income tax laws or the current interpretations of the
Internal Revenue Service (the "IRS").
We are taxed as a "life insurance company" under the Internal Revenue Code
(the "Code"). The operations of the Variable Life Account form a part of, and
are taxed with, our other business activities. Currently, we pay no federal
income tax on income dividends received by the Variable Life Account or on
capital gains arising from the Variable Life Account's activities. The
Variable Life Account is not taxed as a "regulated investment company" under
the Code and it does not anticipate any change in that tax status.
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. 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 on a standard
risk should meet the statutory definition of a life insurance contract under
Section 7702. However, it remains unclear whether a substandard risk Policy
will meet the statutory life insurance contract definition.
Section 817(h) of the Code authorizes the Treasury to set standards by
regulation or otherwise for the investments of the Variable Life Account to be
"adequately diversified" in order for the Policy to be treated as a life
insurance contract for Federal tax purposes. The Variable Life Account,
through the Funds, intends to comply with the diversification requirements
prescribed in Regulations Section 1.817-5, which affect how the Funds' assets
may be invested. Although the investment adviser of Advantus Series Fund is an
affiliate of Minnesota Life, we do not have control over the Funds or their
investments. Nonetheless, we believe that each Portfolio of the Funds in which
the Variable Life Account owns shares will be operated in compliance with the
requirements prescribed by the Treasury.
In certain circumstances, owners of variable life policies have been
considered the owners, for federal income tax purposes, of the assets of the
separate account supporting their policies 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 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 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, we believe that the death benefit provided by
the Policies will be excludable from the gross income of the beneficiary under
Section 101(a) of the Code. If you receive an accelerated benefit, that
benefit may be taxable and you should seek assistance from a tax adviser.
You are not currently taxed on any part of your interest until you actually
receive cash
28
from the Policy. However, taxability may also be determined by your
contributions to the Policy and prior Policy activity. Depending on the
circumstances, the exchange of a Policy, the receipt of a Policy in an
exchange, a change in the Policy's death benefit option (e.g., a change from
Cash Option to Protection Option), a policy loan, a partial surrender, a
surrender, a change in ownership, a change of insured, an adjustment of the
face amount, or an assignment of the Policy may have federal income tax
consequences. If you are considering any such transactions, you should consult
a tax adviser before effecting the transaction.
We also believe that policy loans will be treated as indebtedness and will
not be currently taxable as income to you unless your policy is a modified
endowment contract, as described below. However, whether a modified endowment
contract or not, the interest paid on policy loans will generally not be tax
deductible. There may be adverse tax consequences when a Policy with a policy
loan is lapsed or surrendered.
A surrender or partial surrender of the actual cash values of a Policy may
have tax consequences. On surrender, you will not be taxed on values received
except to the extent that they exceed the gross premiums paid under the Policy.
An exception to this general rule occurs in the case of a partial withdrawal, a
decrease in the face amount, or any other change that reduces benefits under
the Policy in the first 15 years after the Policy is issued and that results in
a cash distribution to you in order for the Policy to continue complying with
the Section 7702 definitional limits. In that case, such distribution will be
taxed in whole or in part as ordinary income (to the extent of any gain in the
Policy) under rules prescribed in Section 7702. Premiums for additional
benefits are not used in the calculation for computing the tax on actual cash
values. Finally, upon a complete surrender or lapse of a Policy or when
benefits are paid at a Policy's maturity date, if the amount received plus the
amount of any policy loan exceeds the total investment in the Policy, the
excess will generally be treated as ordinary income, subject to tax.
It should be noted, however, that under the Code the tax treatment described
above is not available for policies characterized as modified endowment
contracts. In general, policies with a high premium in relation to the death
benefit may be considered modified endowment contracts. The Code requires that
the cumulative premiums paid on a life insurance policy during the first seven
contract years not exceed the sum of the net level premiums which would be paid
under a 7-pay life policy. If those cumulative premiums exceed the 7-pay life
premiums, the policy is a modified endowment contract.
Modified endowment contracts would still be treated as life insurance with
respect to the tax treatment of death proceeds and to the extent that the
inside build-up of cash value would not be taxed on a yearly basis. However,
any amounts you received, such as dividends, loans and amounts received from
partial or total surrender of the contract would be subject to the same tax
treatment as the same amounts received under an annuity. This annuity tax
treatment includes the 10 percent additional income tax which would be imposed
on the portion of any distribution that is included in income except where the
distribution or loan is made on or after the date you attain age 59 1/2, or is
attributable to your becoming disabled, or as part of a series of substantially
equal periodic payments for your life or the joint lives of you and your
beneficiary.
The modified endowment contract provisions of the Code apply to all policies
entered into on or after June 21, 1988. It should be noted, in addition, that a
policy which is subject to a "material change" shall be treated as newly
entered into on the date on which such material change takes effect.
Appropriate adjustment shall be made in determining whether such a policy meets
the 7-pay test by taking into account the previously existing cash surrender
value. While certain adjustments described herein may result in a material
change, the law provides that any cost of living increase described in the
regulations and based upon an established broad-based index will not be treated
as a material change if any increase is funded ratably over the remaining
period during which premiums are required to be paid under the policy. To date,
no regulations under this provision have been issued.
If a Policy becomes a modified endowment contract, distributions that occur
during the policy year it becomes a modified
29
endowment contract and any subsequent policy year will be taxed as
distributions from a modified endowment contract. Distributions from a Policy
within two years before it becomes a modified endowment contract will be taxed
in this manner. This means that a distribution made from a Policy that is not
a modified endowment contract could later become taxable as a distribution
from a modified endowment contract.
Due to the Policy's flexibility, classification of a Policy as a modified
endowment contract will depend upon the circumstances of each Policy.
Accordingly, a prospective policy owner should contact a tax adviser before
purchasing a policy to determine the circumstances under which the Policy
would be a modified endowment contract. You should also contact a tax adviser
before paying any non-repeating premiums or making any other change to,
including an exchange of, a Policy to determine whether such premium or change
would cause the Policy (or the new Policy in the case of an exchange) to be
treated as a modified endowment contract.
Under the Code, all modified endowment contracts, issued by us (or an
affiliated company) to the same policy owner during any calendar year will be
treated as one modified endowment contract for purposes of determining the
amount includable in gross income under Section 72(e) of the Code. Additional
rules may be promulgated under this provision to prevent avoidance of its
effects through serial contracts or otherwise. A life insurance policy
received in exchange for a modified endowment contract will also be treated as
a modified endowment contract.
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 tax adviser should be
consulted for further information.
The Policies may be used in various arrangements, including nonqualified
deferred compensation or salary continuance plans, split dollar insurance
plans, executive bonus plans, retiree medical benefit plans and others. The
tax consequences of such plans may vary depending on the particular facts and
circumstances of each individual arrangement. Therefore, if you are
contemplating the use of such Policies in any arrangement the value of which
depends in part on its tax consequences, you should be sure to consult a tax
adviser regarding the tax attributes of the particular arrangement. Moreover,
in recent years, Congress has adopted new rules relating to corporate owned
life insurance. Any business contemplating the purchase of a new life
insurance contract or a change in an existing contract should consult a tax
adviser.
It should be understood that the foregoing description of the federal income
tax consequences under the Policies is not exhaustive and that special rules
are provided 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, a person contemplating the purchase of a
variable life insurance policy or exercising elections under such a policy
should consult a tax adviser.
At the present time, we make no charge to the Variable Life Account for any
Federal, state or local taxes that we incur that may be attributable to such
Account or to the Policies. We, however, reserve the right in the future to
make a charge for any such tax or other economic burden resulting from the
application of the tax laws that we determine to be properly attributable to
the Variable Life Account or the Policies.
30
Directors and Principal Management Officers of Minnesota Life
Directors Principal Occupation
--------- --------------------
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 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)
Principal Officers (other than Directors)
Name Position
---- --------
John F. Bruder Senior Vice President
Keith M. Campbell Senior Vice President
James E. Johnson Senior Vice President and Actuary
Name Position
---- --------
Gregory S. Strong Senior Vice President and Chief Financial Officer
Terrence M. Sullivan Senior Vice President
Randy F. Wallake Senior Vice President
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 Fund shares held in the various sub-accounts of the
Variable Life Account at regular and special shareholder meetings of the Funds
in accordance with your instructions. If, however, the 1940 Act or any
regulation thereunder should change and we determine that it is permissible to
vote the Fund shares in our own right, we may elect to do so. The number of
votes as to which you have the right to instruct will be determined by dividing
your Policy's actual cash value in a sub-account by the net asset value per
share of the corresponding Fund portfolio.
31
Fractional shares will be counted. The number of votes as to which you have
the right to instruct will be determined as of the date coincident with the
date established by the Funds for determining shareholders eligible to vote at
the meeting of the Funds. Voting instructions will be solicited in writing
prior to such meeting in accordance with procedures established by the Funds.
We will vote Fund shares held by the Variable Life Account as to which no
instructions are received in proportion to the voting instructions which are
received from policy owners with respect to all Policies participating in the
Variable Life Account. Each policy owner having a voting interest will receive
proxy material, reports and other material relating to the Funds.
We may, when required by state insurance regulatory authorities, disregard
voting instructions if the instructions require that shares be voted so as to
cause a change in subclassification or investment policies of the Funds or
approve or disapprove an investment advisory contract of the Funds. In
addition, we may disregard voting instructions in favor of changes in the
investment policies or the investment advisers of the Funds if we reasonably
disapprove of such changes. A change would be disapproved only
. if the proposed change is contrary to state law or disapproved by state
regulatory authorities on a determination that the change would be
detrimental to the interests of policy owners or
. if we determined that the change would be inconsistent with the investment
objectives of the Funds or would result in the purchase of securities for
the Funds which vary from the general quality and nature of investments and
investment techniques utilized by other separate accounts created by us or
any of our affiliates which have similar investment objectives.
In the event that we disregard voting instructions, a summary of that action
and the reason for such action will be included in your next semi-annual
report.
Distribution of Policies
The Policies will be sold by our state licensed life insurance agents who
are also registered representatives of Ascend Financial Services, Inc.
("Ascend Financial") or of other broker-dealers who have entered into selling
agreements with Ascend Financial. Ascend Financial acts as principal
underwriter for the Policies. Ascend Financial is a wholly-owned subsidiary of
Advantus Capital Management, Inc., which in turn is a wholly-owned subsidiary
of Minnesota Life.
Ascend Financial, whose address is 400 Robert Street North, St. Paul,
Minnesota 55101-2098, is a registered broker-dealer under the Securities
Exchange Act of 1934 and a member of the National Association of Securities
Dealers, Inc. Ascend Financial was incorporated in 1984 under the laws of the
State of Minnesota. The Policies are sold in the states where their sale is
lawful. The insurance underwriting and the determination of a proposed
insured's risk classification and whether to accept or reject an application
for a Policy are done in accordance with our rules and standards.
Except for the Early Values Agreement, commissions to registered
representatives on the sale of Policies include: up to 50 percent of gross
premium in the first policy year; up to 6 percent of the gross premium in
policy years two through ten; up to 2 percent in policy years thereafter; and
0 percent of non-repeating premiums. These are the maximum commissions payable
under the Policy. The maximum commission will apply to the portion of the
annual base premium necessary for an original issue whole life plan of
insurance under the Cash Option. On premiums received in excess of that amount
we will pay commissions at a rate of 4 percent in the first policy year, 6
percent in policy years two through ten and 2 percent thereafter. For the
Early Values Agreement, commissions will be 60 percent of the premium for that
agreement for all years.
In addition, Ascend Financial or we will pay, based uniformly on the sales
of insurance policies by registered representatives, credits which allow
registered representatives (Agents) who are responsible for sales of the
Policies to attend conventions and other meetings sponsored by us or our
affiliates for the purpose of promoting the sale of insurance and/or
investment products offered by us and our affiliates. Such credits may cover
the registered representatives' transportation, hotel accommodations, meals,
registration fees and the like. We may also pay registered representatives
additional amounts based upon their production and the
32
persistency of life insurance and annuity business placed with us.
Legal Matters
Legal matters in connection with federal securities laws applicable to the
issue and sale of the Variable Adjustable Life Policies have been passed upon
by Jones & Blouch L.L.P., 1025 Thomas Jefferson Street, N.W., Washington, D.C.
20007. All other legal matters, including the right to issue such Policies
under Minnesota law and applicable regulations thereunder, have been passed
upon by Donald F. Gruber, Esquire, 400 Robert Street North, St. Paul, Minnesota
55101.
Legal Proceedings
As an insurance company, we are ordinarily involved in litigation. We are of
the opinion that such litigation is not material with respect to the Policies
or the Variable Life Account.
Experts
Our financial statements and those of the Variable Life Account 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 appears elsewhere herein, and have been so included in reliance
upon the report of KPMG LLP and upon the authority of said firm as experts in
accounting and auditing.
Actuarial matters included in this prospectus have been examined by Robert
J. Ehren, F.S.A., Director and Actuary of Minnesota Life, as stated in his
opinion filed as an exhibit to the Registration Statement.
Registration Statement
We have filed with the Securities and Exchange Commission a Registration
Statement under the Securities Act of 1933, as amended, with respect to the
Policies offered hereby. This prospectus does not contain all the information
set forth in the registration statement and amendments thereto and the exhibits
filed as a part thereof, to all of which reference is hereby made for further
information concerning the Variable Life Account, Minnesota Life, and the
Policies. Statements contained in this prospectus as to the contents of
Policies and other legal instruments are summaries, and reference is made to
such instruments as filed.
33
Special Terms
As used in this prospectus, the following terms have the indicated meanings:
Actual Cash Value: the value of your interest in the Variable Life Account
and the value of your interest in the guaranteed principal account under a
Policy. Each is valued separately. Actual cash value does not include the loan
account.
Asset Credit: a monthly amount, based on the actual cash value, credited to
your actual cash value.
Base Premium: the premium less any amount deducted from the premium for
additional benefits and for substandard risks.
Code: the Internal Revenue Code of 1986, as amended.
Funds: the mutual funds or separate investment portfolios within series
mutual funds which we have designated as an eligible investment for the
Variable Life Account, currently, Advantus Series Fund, Inc., its Portfolios
and the Templeton Developing Markets Fund, Class 2.
General Account: all of our assets other than those in the Variable Life
Account or in other separate accounts established by us.
Guaranteed Principal Account: the portion of the general account of
Minnesota Life which is attributable to Policies of this class, exclusive of
policy loans. It is not a separate account or a division of the general
account.
Loan Account: the portion of the general account attributable to policy
loans under Policies of this type. The loan account balance is the sum of all
outstanding loans under this Policy.
Non-repeating Premium: a payment made to this Policy in addition to its
scheduled payments.
Paid-up: the status of the Policy when its policy value is such that no
further premiums are required to provide the death benefit.
Policy Owner: the owner of a Policy.
Policy Value: the actual cash value of a Policy plus any policy loan.
Policy Year: a period of one year beginning with the policy date or a policy
anniversary.
Premium: a scheduled payment required for this Policy.
Unit: the measure of the interest of a Policy in the sub-accounts of the
Variable Life Account.
Valuation Date: each date on which a Fund Portfolio is valued.
Valuation Period: the period between successive valuation dates measured
from the time of one determination to the next.
Variable Life Account: a separate investment account called the Minnesota
Life Variable Life Account, composed of sub-accounts. The investment
experience of its assets is kept separate from our other assets.
We, Our, Us: Minnesota Life Insurance Company.
You, Your: the policy owner.
34
Appendix A
Illustrations of Policy Values, Death Benefits and Premiums
The Appendix A illustrations beginning on page A-2, are provided for a
standard non-tobacco risk male age 40. The illustrations show the projected
actual cash values, death benefits and premiums for the various scenarios. Both
death benefit options, the Cash Option and the Protection Option, are shown.
The plan of insurance for each Cash Option illustration is a whole life plan,
with an initial face amount of $500,000. The Protection Option illustrations
use the same premium as the Cash Option illustrations. We show all
illustrations based on both guaranteed maximum and current charges, and we
include all charges.
Guaranteed maximum cost of insurance charges will vary by age, sex, risk
class, and policy form. We use the male, female and unisex smoker-distinct 1980
Commissioners Standard Ordinary Mortality Tables ("1980 CSO"), as appropriate.
The unisex tables are used in circumstances where legal considerations require
the elimination of sex-based distinctions in the calculation of mortality
costs. Our maximum cost of insurance charges are based on an assumption of
mortality not greater than the mortality rates reflected in 1980 CSO Tables.
In most cases we intend to impose cost of insurance charges which are
substantially lower than the maximum charges determined as described above. In
addition to the factors governing maximum cost of insurance charges, actual
charges will vary depending on the level of scheduled premiums for a given
amount of insurance, the duration of the Policy and the tobacco-use habits of
the insured. Current cost of insurance charges reflect our current practices
with respect to mortality charges for this class of Policies. Similarly, we
impose a current monthly policy charge which is less than the guaranteed
contractual charge. We expect that these current charges will compensate us for
the actual costs of administration. If the actual costs change, this charge may
increase or decrease as necessary, although it may not exceed the maximum
stated in the Policy.
The illustrations show how actual cash values and death benefits would vary
over time if the return on the assets held in the Variable Life Account equaled
a gross annual rate after tax, of 0 percent, 6 percent and 12 percent. The
actual cash values and death benefits would be different from those shown if
the returns averaged 0 percent, 6 percent and 12 percent but fluctuated over
the life of the Policy. The illustrations assume scheduled premiums are paid
when due.
The amounts shown for the hypothetical actual cash value and death benefit
as of each policy year reflect the fact that the net investment return on the
assets held in the sub-accounts is lower than the gross, after-tax return. This
is because a daily investment management fee assessed against the net assets of
the Fund and a daily mortality and expense risk charge assessed against the net
assets of the Variable Life Account are deducted from the gross return. The
mortality and expense risk charge reflected in the illustrations is at an
annual rate of .50 percent. The investment management fee illustrated is .67
percent and represents an average of the annual fee charged for all portfolios
of the Funds. In addition to the deduction for the investment management fee,
the illustrations also reflect a deduction for those Fund costs and expenses
borne by the Funds. Fund expenses illustrated are .15 percent, representing an
average of the 1998 expense ratios of the portfolios of the Funds. Minnesota
Life voluntarily absorbed certain expenses for certain portfolios of the Funds,
as detailed in the footnote to the expense table on page 3. We do not
anticipate any change to the voluntary absorption of expenses policy during the
current fiscal year. Therefore, gross annual rates of return of 0 percent, 6
percent and 12 percent correspond to approximate net annual rates of return of
- -1.32 percent, 4.68 percent and 10.68 percent.
The tables reflect the fact that no charges for federal, state or local
income taxes are currently made against the Variable Life Account. If such a
charge is made in the future, it will take a higher gross rate of return to
produce after-tax returns of 0 percent, 6 percent and 12 percent than it does
now.
Upon request, we will furnish a comparable illustration based upon a
proposed insured's age, sex and risk classification, and on the face amount,
premium, death benefit option, plan of insurance and gross annual rate of
return requested. Those illustrations may be materially different from the
sample illustrations included in this prospectus, depending upon the proposed
insured's actual situation. For example, illustrations for females, tobacco
users or individuals who are rated substandard will differ materially in
premium amount and illustrated values, even though the proposed insured may be
the same age as the proposed insured in our sample illustrations.
A-1
VAL HORIZON
DEATH BENEFIT OPTION--CASH OPTION
MALE ISSUE AGE 40
STANDARD NON-TOBACCO
INITIAL DEATH BENEFIT--$500,000(1)
$7,625.00 INITIAL SCHEDULED PREMIUM(2)
USING CURRENT MORTALITY CHARGES
-ASSUMING HYPOTHETICAL INVESTMENT RETURNS OF-
0% GROSS(3) 6.00% GROSS(3) 12.00% GROSS(3)
INITIAL (-1.32% NET) (4.68% NET) (10.68% NET)
POL ATT BASE POLICY DEATH POLICY DEATH POLICY DEATH
YR AGE PREMIUM VALUE BENEFIT VALUE BENEFIT VALUE BENEFIT
- --- --- ------- ------ ------- ------ ------- ------ -------
1 41 $7,625 $ 14 $500,000 $ 60 $500,000 $ 107 $ 500,000
2 42 7,625 5,685 500,000 6,127 500,000 6,576 500,000
3 43 7,625 11,229 500,000 12,429 500,000 13,691 500,000
4 44 7,625 16,635 500,000 18,966 500,000 21,512 500,000
5 45 7,625 21,907 500,000 25,754 500,000 30,124 500,000
6 46 7,625 27,030 500,000 32,791 500,000 39,602 500,000
7 47 7,625 32,273 500,000 40,347 500,000 50,283 500,000
8 48 7,625 37,645 500,000 48,841 500,000 62,366 500,000
9 49 7,625 43,038 500,000 57,114 500,000 75,894 500,000
10 50 7,625 48,396 500,000 66,214 500,000 90,972 500,000
15 55 7,625 73,844 500,000 118,802 500,000 195,734 500,000
20 60 7,625 94,899 500,000 183,795 500,000 373,649 500,000
25 65 7,625 110,402 500,000 265,049 500,000 676,839 735,708
30 70 7,625 118,088 500,000 369,006 500,000 1,184,942 1,231,319
(1) The insurance is guaranteed for life with premiums to age 100.
(2) If premiums are paid more frequently than annually, the payments would be
$3,812.50 semi-annually, $1,906.25 quarterly, or $635.42 monthly. The death
benefits and policy values would be slightly different for a policy with
more frequent premium payments.
(3) Assumes no policy loan has been made.
The hypothetical investment rates of return shown above and elsewhere in this
prospectus are illustrative only and should not be deemed a representation of
past or future investment rates of return. Actual rates of return may be more
or less than those shown and will depend on a number of factors, including the
investment allocations made by an owner, and prevailing interest rates. The
death benefits and policy values for a Policy would be different from those
shown if the actual rates of return averaged 0%, 6%, and 12% over a period of
years but also fluctuated above or below those averages for individual policy
years. No representations can be made by Minnesota Life or the Funds that these
hypothetical rates of return can be achieved for any one year or sustained over
any period of time.
A-2
VAL HORIZON
DEATH BENEFIT OPTION--CASH OPTION
MALE ISSUE AGE 40
STANDARD NON-TOBACCO
INITIAL DEATH BENEFIT--$500,000(1)
$7,625.00 INITIAL SCHEDULED PREMIUM(2)
USING MAXIMUM CONTRACTUAL MORTALITY CHARGES
-ASSUMING HYPOTHETICAL INVESTMENT RETURNS OF-
0% GROSS(3) 6.00% GROSS(3) 12.00% GROSS(3)
INITIAL (-1.32% NET) (4.68% NET) (10.68% NET)
POL ATT BASE POLICY DEATH POLICY DEATH POLICY DEATH
YR AGE PREMIUM VALUE BENEFIT VALUE BENEFIT VALUE BENEFIT
- --- --- ------- ------ ------- ------ ------- ------ -------
1 41 $7,625 $ 0 $500,000 $ 32 $500,000 $ 78 $ 500,000
2 42 7,625 5,621 500,000 6,046 500,000 6,490 500,000
3 43 7,625 11,094 500,000 12,266 500,000 13,512 500,000
4 44 7,625 16,408 500,000 18,691 500,000 21,199 500,000
5 45 7,625 21,567 500,000 25,334 500,000 29,627 500,000
6 46 7,625 26,555 500,000 32,190 500,000 38,862 500,000
7 47 7,625 31,368 500,000 39,262 500,000 48,989 500,000
8 48 7,625 36,000 500,000 46,557 500,000 60,103 500,000
9 49 7,625 40,447 500,000 54,082 500,000 72,311 500,000
10 50 7,625 44,694 500,000 61,834 500,000 85,726 500,000
15 55 7,625 62,362 500,000 103,916 500,000 175,952 500,000
20 60 7,625 71,659 500,000 150,790 500,000 324,364 500,000
25 65 7,625 67,802 500,000 201,472 500,000 575,440 628,237
30 70 7,625 40,182 500,000 253,871 500,000 981,870 1,026,020
(1) The insurance is guaranteed for life with premiums to age 100.
(2) If premiums are paid more frequently than annually, the payments would be
$3,812.50 semi-annually, $1,906.25 quarterly, or $635.42 monthly. The death
benefits and policy values would be slightly different for a policy with
more frequent premium payments.
(3) Assumes no policy loan has been made.
The hypothetical investment rates of return shown above and elsewhere in this
prospectus are illustrative only and should not be deemed a representation of
past or future investment rates of return. Actual rates of return may be more
or less than those shown and will depend on a number of factors, including the
investment allocations made by an owner, and prevailing interest rates. The
death benefits and policy values for a Policy would be different from those
shown if the actual rates of return averaged 0%, 6%, and 12% over a period of
years but also fluctuated above or below those averages for individual policy
years. No representations can be made by Minnesota Life or the Funds that these
hypothetical rates of return can be achieved for any one year or sustained over
any period of time.
A-3
VAL HORIZON
DEATH BENEFIT OPTION--PROTECTION OPTION
MALE ISSUE AGE 40
STANDARD NON-TOBACCO
INITIAL DEATH BENEFIT--$500,000(1)
$7,625.00 INITIAL SCHEDULED PREMIUM(2)
USING CURRENT MORTALITY CHARGES
-ASSUMING HYPOTHETICAL INVESTMENT RETURNS OF-
0% GROSS(3) 6.00% GROSS(3) 12.00% GROSS(3)
INITIAL (-1.32% NET) (4.68% NET) (10.68% NET)
POL ATT BASE POLICY DEATH POLICY DEATH POLICY DEATH
YR AGE PREMIUM VALUE BENEFIT VALUE BENEFIT VALUE BENEFIT
- --- --- ------- ------ ------- ------ ------- ------ -------
1 41 $7,625 $ 12 $500,000 $ 58 $500,000 $ 105 $ 500,000
2 42 7,625 5,667 500,012 6,108 500,058 6,556 500,105
3 43 7,625 11,180 505,667 12,374 506,108 13,360 506,556
4 44 7,625 16,536 511,180 18,852 512,374 21,381 513,360
5 45 7,625 21,738 516,536 25,552 518,852 29,882 521,381
6 46 7,625 26,804 521,738 32,501 525,552 39,234 529,882
7 47 7,625 32,049 526,804 40,038 532,501 49,865 539,234
8 48 7,625 37,377 532,049 48,095 540,038 61,818 549,865
9 49 7,625 42,692 537,377 56,600 548,095 75,139 561,818
10 50 7,625 47,947 542,692 65,527 556,600 89,931 575,139
15 55 7,625 72,503 567,938 116,391 605,442 191,371 666,859
20 60 7,625 91,576 588,298 176,633 663,835 357,581 817,473
25 65 7,625 103,405 601,706 246,538 731,771 630,767 1,064,693
30 70 7,625 104,808 605,736 324,885 808,848 1,080,776 1,472,113
(1) The insurance coverage is guaranteed to age 84 with premiums to age 84.
(2) If premiums are paid more frequently than annually, the payments would be
$3,812.50 semi-annually, $1,906.25 quarterly, or $635.42 monthly. The death
benefits and policy values would be slightly different for a policy with
more frequent premium payments.
(3) Assumes no policy loan has been made.
The hypothetical investment rates of return shown above and elsewhere in this
prospectus are illustrative only and should not be deemed a representation of
past or future investment rates of return. Actual rates of return may be more
or less than those shown and will depend on a number of factors, including the
investment allocations made by an owner, and prevailing interest rates. The
death benefits and policy values for a Policy would be different from those
shown if the actual rates of return averaged 0%, 6%, and 12% over a period of
years but also fluctuated above or below those averages for individual policy
years. No representations can be made by Minnesota Life or the Funds that these
hypothetical rates of return can be achieved for any one year or sustained over
any period of time.
A-4
VAL HORIZON
DEATH BENEFIT OPTION--PROTECTION OPTION
MALE ISSUE AGE 40
STANDARD NON-TOBACCO
INITIAL DEATH BENEFIT--$500,000(1)
$7,625.00 INITIAL SCHEDULED PREMIUM(2)
USING MAXIMUM CONTRACTUAL MORTALITY CHARGES
-ASSUMING HYPOTHETICAL INVESTMENT RETURNS OF-
0% GROSS(3) 6.00% GROSS(3) 12.00% GROSS(3)
INITIAL (-1.32% NET) (4.68% NET) (10.68% NET)
POL ATT BASE POLICY DEATH POLICY DEATH POLICY DEATH
YR AGE PREMIUM VALUE BENEFIT VALUE BENEFIT VALUE BENEFIT
- --- --- ------- ------ ------- ------ ------- ------ -------
1 41 $7,625 $ 0 $500,000 $ 31 $500,000 $ 76 $ 500,000
2 42 7,625 5,605 500,000 6,027 500,031 6,470 500,076
3 43 7,625 11,047 505,605 12,212 500,627 13,452 506,470
4 44 7,625 16,132 511,047 18,578 512,212 21,069 513,452
5 45 7,625 21,402 516,132 25,135 518,578 29,389 521,069
6 46 7,625 26,301 521,402 31,871 525,135 38,466 529,389
7 47 7,625 31,001 526,301 38,784 531,871 48,371 538,466
8 48 7,625 35,494 531,001 45,871 538,748 59,181 548,371
9 49 7,625 39,773 535,494 53,132 545,871 70,982 559,181
10 50 7,625 43,820 539,773 60,552 553,132 83,860 570,982
15 55 7,625 59,856 557,315 99,425 591,519 167,889 648,118
20 60 7,625 65,957 565,726 138,094 630,617 295,798 765,779
25 65 7,625 56,748 560,260 169,649 664,506 488,770 943,765
30 70 7,625 22,234 531,684 179,647 680,255 775,331 1,208,691
(1) The insurance coverage is guaranteed to age 84 with premiums to age 84.
(2) If premiums are paid more frequently than annually, the payments would be
$3,812.50 semi-annually, $1,906.25 quarterly, or $635.42 monthly. The death
benefits and policy values would be slightly different for a policy with
more frequent premium payments.
(3) Assumes no policy loan has been made.
The hypothetical investment rates of return shown above and elsewhere in this
prospectus are illustrative only and should not be deemed a representation of
past or future investment rates of return. Actual rates of return may be more
or less than those shown and will depend on a number of factors, including the
investment allocations made by an owner, and prevailing interest rates. The
death benefits and policy values for a Policy would be different from those
shown if the actual rates of return averaged 0%, 6%, and 12% over a period of
years but also fluctuated above or below those averages for individual policy
years. No representations can be made by Minnesota Life or the Funds that these
hypothetical rates of return can be achieved for any one year or sustained over
any period of time.
A-5
Appendix B
[GRAPH APPEARS HERE - UNDERSTANDING HOW PREMIUM BECOMES CASH VALUE]
This appendix shows a pictorial of how the money from a premium payment is
reduced by premium charges and becomes a part of the policy value. It also
illustrates where non-premium charges are taken from the policy value.
B-1
Appendix C
Illustration of Death Benefit Calculation
As an example of the calculation of the death benefit under the Policy,
assume a Policy and an insured with the following characteristics: The insured
is a male, age 60. The Policy has a face amount of $250,000 and policy value of
$85,000.
If the Cash Option is in effect, the death benefit will equal the face
amount, $250,000. If the Protection Option is in effect, the death benefit will
equal the face amount plus the policy value, $335,000.
In order for the death benefit to qualify as life insurance under the
requirements of the Internal Revenue Code, the death benefit must be at least
as large as the policy value ($85,000) multiplied by an age specified factor.
The factors by age are shown in the table below. In our example, the factor
(1.30) would require a minimum death benefit of $110,500, and would have no
affect on the death benefit provided the Policy.
Age Factor Age Factor Age Factor
--- ------ --- ------ ----- ------
(less than or =)40 2.50 55 1.50 70 1.15
41 2.43 56 1.46 71 1.13
42 2.36 57 1.42 72 1.11
43 2.29 58 1.38 73 1.09
44 2.22 59 1.34 74 1.07
45 2.15 60 1.30 75-90 1.05
46 2.09 61 1.28 91 1.04
47 2.03 62 1.26 92 1.03
48 1.97 63 1.24 93 1.02
49 1.91 64 1.22 94 1.01
50 1.85 65 1.20 95+ 1.00
51 1.78 66 1.19
52 1.71 67 1.18
53 1.64 68 1.17
54 1.57 69 1.16
C-1
Appendix D
Example of Sales Charge and Additional Face Amount Charge Computation
As an example of the method we use to compute Sales Charge and Additional
Face Amount Charge, assume a protection plan of insurance guaranteeing coverage
for 20 years. This plan results from an annual base premium of $2,000, a face
amount of $100,000 and the Cash Option. As base premiums are paid in the first
year, we assess the Sales Charge of 44 percent or $880. In addition, we assess
a Additional Face Amount Charge of $5 per thousand of face amount or $500.
Using the example above, the Sales Charge each month is $73.33. After nine
months, we have collected $660 and the uncollected Sales Charge is $220.
Suppose that there is an adjustment at this point that increases the premium
from $2,000 to $3,000. The increased premium will be assessed a Sales Charge of
44 percent, or $440. This will be added to the uncollected Sales Charge of
$220. The total Sales Charge of $660 will be collected in the 12 months
following the adjustment, at $55 per month.
Alternatively, suppose that the adjustment after nine months decreases the
premium from $2,000 to $1,000. The uncollected Sales Charge of $220 will be
reduced in the same proportion as the base premium, 50 percent, to $110, and
this Sales Charge will be collected in the 12 months following the adjustment
at $27.50 per month.
The Additional Face Amount Charge will also be recalculated if an adjustment
occurs during a period in which it is being collected. Again, using our
example, suppose there is an adjustment after nine months; the uncollected
Additional Face Amount Charge is $125. If the adjustment results in a face
amount increase of $100,000, the new Additional Face Amount Charge of $500 will
be added to the uncollected charge of $125, and the total of $625 will be
collected in the 12 months following the adjustment. If the adjustment results
in a decrease in face amount, no reduction in the uncollected portion of the
Additional Face Amount Charge is made. So the remaining $125 will be collected
in the 12 months following the adjustment at $10.42 per month.
D-1
Appendix E
Average Annual Returns
Twenty-Year Holding Periods
[BAR GRAPH APPEARS HERE]
Type 1957 1962 1967 1972 1977 1982 1987 1992 1997 1998
- ---- ------ ------ ------ ------ ----- ----- ----- ------ ------ ------
U.S. Treasury 0.912 1.496 2.378 3.387 4.439 6.513 7.444 7.700 7.289 7.171
Inflation 3.454 2.978 1.866 2.350 3.984 6.010 6.314 6.214 4.886 4.527
Bonds 2.516 2.484 2.011 2.948 3.988 4.471 7.885 9.541 10.288 10.857
Stocks 12.976 15.251 14.628 11.674 8.119 8.295 9.269 11.334 16.646 17.747
Ending periods from 1957-1998
Source: Stocks, Bonds, Bills and Inflation (SBBI), Analyzer Software, Ibbotson
Associates, Inc., Chicago, All rights reserved.
The above information contains the average annual rate of return over
twenty-year holding periods for common stocks (S&P 500), high grade corporate
bonds, 30-day U.S. Treasury bills, and inflation (example: 1938-1957, 1943-
1962, etc.). These average rates assume reinvestment of capital gains,
dividends and interest. This is a retrospective view of performance and should
in no way be construed as a projection of future trends.
This graph shows that even though stock investments tend to be more volatile
in short time intervals historically, they have generated rates of return that
have consistently been higher than inflation. Bonds and U.S. Treasury bills
have not always kept up with inflation. The figures do not take into account
the charges associated with a Variable Adjustable Life policy, but do indicate
the potential gain of holding the assets illustrated.
Some additional statistics on the performance of stocks in relation to high
grade, long-term corporate bonds and U.S. Treasury bills over the 54 twenty-
year periods beginning in 1926 and ending in 1998 include:
The average annual return of stocks was higher than that of bonds in 51
of the 54 periods.
The average annual return of stocks was higher than that of U.S.
Treasury bills in all of the 54 periods.
The average annual return of stocks was higher than inflation in all of
the 54 periods.
In the 44 thirty-year periods beginning in 1926 and ending in 1998, the
average annual return of stocks was higher than that of bonds, U.S. Treasury
bills and inflation in all 44 time periods.
From 1926 through 1998, the average annual return for this 73 year period
was:
11.2% for common stocks
5.80% for high grade, long-term corporate bonds
3.77% for U.S. Treasury bills
E-1
Appendix F
S&P 500
PERFORMANCE HISTORY 1926-1998
[BAR GRAPH APPEARS HERE]
Yr. ANNUAL TOTAL RETURN
26 11.62
37.5
43.6
-8.4
-24.9
-43.3
-8.2
54
-1.4
47.7
33.9
-35
31.1
0
40 -9.8
11.6
20.3
25.9
19.8
36.4
-8.1
5.7
5.5
18.8
50 31.7
24
18.4
-0.01
52.6
31.6
6.6
-10.8
43.4
12
60 0
26.9
-8.7
22.8
16.5
12.5
-10.1
24
11.1
-8.5
70 4
14.3
19
-14.7
-26.5
37.2
23.8
-7.2
6.6
18.4
80 32.4
-4.9
21.4
22.5
6.3
32.2
18.5
5.2
16.8
31.5
-3.2
30.4
7.67
9.99
1.31
95 37.43
96 23.07
97 33.36
98 28.58
Source: Stocks, Bonds, Bills and Inflation (SBBI), Analyzer Software, Ibbotson
Associates, Inc., Chicago. All rights reserved.
The above chart illustrates that, in any calendar year, the rate of return
for stocks can be positive or negative. However, when viewed over the entire
period of 73 years, stocks have had a positive return in more than two out of
every three years. For the person with a long term view, the results of this
pattern have been very rewarding.
F-1
Appendix G
RANGE OF RETURNS
Rolling Period Returns Using Ibbotson Asset Class Information*
(1960 through 1998)
[BAR GRAPH APPEARS HERE]
1 YEAR HIGH % LOW % MEAN %
ROLLING PERIOD RETURN RETURN RETURN
- -------------- ------ ------ ------
Small Cap 83.569 -30.904 16.476
Large Cap Stocks (S&P 500) 37.430 -26.468 13.267
Corporate Bonds 42.562 -8.090 8.176
Government Bonds 29.097 -5.144 7.545
United States T-bills 14.709 2.127 5.672
5 YEAR HIGH % LOW % MEAN %
ROLLING PERIOD RETURN RETURN RETURN
- -------------- ------ ------ ------
Small Cap 39.804 -12.252 14.504
Large Cap Stocks (S&P 500) 24.057 -2.356 10.984
Corporate Bonds 22.513 -2.222 7.445
Government Bonds 16.978 2.080 7.366
United States T-bills 11.115 2.834 5.974
10 YEAR HIGH % LOW % MEAN %
ROLLING PERIOD RETURN RETURN RETURN
- -------------- ------ ------ ------
Small Cap 30.381 3.199 13.111
Large Cap Stocks (S&P 500) 19.185 1.238 10.277
Corporate Bonds 16.319 1.677 7.470
Government Bonds 13.126 3.484 7.584
United States T-bills 9.174 3.878 6.222
15 YEAR HIGH % LOW % MEAN %
ROLLING PERIOD RETURN RETURN RETURN
- -------------- ------ ------ ------
Small Cap 23.326 5.872 14.081
Large Cap Stocks (S&P 500) 17.904 4.307 10.333
Corporate Bonds 13.659 3.077 7.601
Government Bonds 11.272 4.755 7.864
United States T-bills 8.323 4.556 6.593
20 YEAR HIGH % LOW % MEAN %
ROLLING PERIOD RETURN RETURN RETURN
- -------------- ------ ------ ------
Small Cap 20.344 11.472 14.250
Large Cap Stocks (S&P 500) 17.747 6.761 9.732
Corporate Bonds 10.857 3.028 7.006
Government Bonds 9.851 4.836 7.451
United States T-bills 7.718 5.087 6.428
30 YEAR HIGH % LOW % MEAN %
ROLLING PERIOD RETURN RETURN RETURN
- -------------- ------ ------ ------
Small Cap 15.099 12.052 12.642
Large Cap Stocks (S&P 500) 12.668 9.946 9.900
Corporate Bonds 9.142 6.801 7.086
Government Bonds 8.714 7.338 7.283
United States T-bills 6.770 6.339 6.010
Source: Ibbotson & Associates.
* Past performance is no guarantee of future results.
The above chart illustrates the volatility in the rate of return for stocks,
represented by Small Cap Stocks, Large Cap Stocks (S&P 500), Corporate Bonds,
Government Bonds, and U.S. T-Bills for progressively longer holding periods.
The volatility is reduced as the holding period is increased from one year to
just five years. For holding periods of 10 years or longer, volatility of
return is reduced even more. These longer holding periods have produced returns
that are quite consistent, and are very attractive when compared with the
returns from U.S. Treasury bills and high-grade, long-term corporate bonds.
The strategy of reducing the year-to-year volatility in the rate of return
for stocks by lengthening the holding period can work to the advantage of a
person who buys a cash value life insurance policy like Variable Adjustable
Life, and utilizes stock sub-accounts. That's because the holding period for
such a policy typically can be extremely long--at least 10 years, and possibly
20, 30 or more years.
G-1
CONTENTS OF REGISTRATION STATEMENT
This registration statement comprises the following papers and documents:
The Facing Sheet.
Cross Reference Sheet.
Part I
The prospectus consisting of 45 pages.
Part II
Undertakings - Indemnification; previously filed.
Representation of Insurer Pursuant to (S)26 of the Investment
Company Act of 1940.
Minnesota Life Insurance Company ("Company") hereby represents that
the fees and charges deducted under the policies issued pursuant to
this Registration Statement, in the aggregate, are reasonable in
relation to services rendered, the expenses expected to be incurred,
and the risks assumed by the Company.
The Signatures.
Written consents of the following persons:
Donald F. Gruber, Esq.
KPMG LLP, to be supplied by subsequent amendment
Robert J. Ehren, F.S.A.
Jones & Blouch L.L.P.
The following Exhibits:
A. Exhibits described in Item IX(A) of Form N-8B-2.
(1) The indenture or agreement under the terms of which the trust was
organized or issued securities.
Resolution of the Board of Trustees of The Minnesota Mutual Life
Insurance Company dated October 21, 1985.
(2) The indenture or agreement pursuant to which the proceeds of
payments of securities are held by the custodian or trustee, if such
indenture or agreement is not the same as the indenture or agreement
referred to immediately above.
None.
(3) Distributing Policies:
(a) Agreements between the trust and principal underwriter or
between the depositor and principal underwriter.
Distribution Agreement.
(b) Specimen of typical agreements between principal underwriter and
dealers, managers, sales supervisors and salesmen.
Agent and General Agent Sales Agreements.
(c) Schedules of sales commissions referred to in Item 38(c).
Combined with the Exhibit listed under A.(3)(b) above.
(4) Any agreement between the depositor, principal underwriter and the
custodian or trustee other than indentures or agreements set forth
above as paragraphs (1), (2) and (3) with respect to the trust or its
securities.
None.
(5) The form of each type of security.
(a) Variable Adjustable Life Insurance Policy, form 99-680.
(b) Family Term Agreement-Children, form 99-904.
(c) Exchange of Insureds Agreement, form 99-914.
(d) Inflation Agreement, form 99-916.
(e) Waiver of Premium Agreement, form 99-917.
(f) Business Continuation Agreement, form 99-929.
(g) Accelerated Benefit Agreement, form 99-931.
(h) Early Values Agreement, form 99-939.
(i) Short Term Agreement, form 99-324.
(6) The certificate of incorporation or other instrument of
organization and bylaws of the depositor.
(a) Restated Certificate of Incorporation of the Depositor.
(b) Bylaws of the Depositor.
(7) Any insurance policy under a contract between the trust and the
insurance company or between the depositor and the insurance company,
together with the table of insurance premiums.
None.
(8) Any agreement between the trust or the depositor concerning the
trust with the issuer, depositor, principal underwriter or investment
adviser of any underlying investment company or any affiliated person
of such persons.
None.
(9) All other material contracts not entered into in the ordinary
course of business of the trust or of the depositor concerning the
trust.
None.
(10) Form of application for a periodic payment plan certificate.
(a) New Issue Application - Part 1, form F. MHC-3198 Rev. 9-1999.
(b) Application - Part 3 - Authorization New Issue; form MHC-42663
Rev. 10-1998.
(c) Policy Change Application - Part 1, form F. MHC-44096 Rev. 9-
1999.
(d) Policy Change Application - Part 3, form MHC-44098 Rev. 10-
1998.
(e) Variable Suitability Application - New Issue, form F. MHC-48653
1-2000.
(f) Variable Suitability Application - Policy Change, form F. MHC-
48654 Rev. 9-1999.
(11) Code of Ethics.
B. A Specimen or Copy of Each Security Being Registered.
See Exhibits Listed under A.(5).
C. An opinion of counsel as to the legality of the securities being
registered.
Opinion and Consent of Donald F. Gruber, Esq.
D. Consent of KPMG LLP, to be supplied by subsequent amendment.
E. Opinion and Consent of Mr. Robert J. Ehren, F.S.A.
F. Consent of Jones & Blouch L.L.P.
G. Adjustment Computation Required by Rule 6e-2(b)(13)(v)(B).
Combined with the Exhibit listed under H below.
H. Memorandum on Administrative Procedures with Respect to Issuance, Transfer
and Redemption, Required by Rule 6e-2(b)(12)(ii).
Combined with the Exhibit listed under G above.
I. Notice of Withdrawal Right and Statement of Charges Required by Rule 6e-
2(b)(13)(viii)(c).
(1) Notice of Withdrawal Right and Request for Cancellation of Policy.
(2) Notice of Withdrawal Right and Request for Cancellation of Policy
Adjustment.
J. Minnesota Life Insurance Company - Power of Attorney to Sign Registration
Statements.
SIGNATURES
Pursuant to the requirements of the Securities Act of 1933, the Registrant,
Minnesota Life Variable Life Account, has duly caused this Registration
Statement to be signed on its behalf by the Undersigned, thereunto duly
authorized, in the City of St. Paul, and State of Minnesota, on the 8th day of
February, 2000.
MINNESOTA LIFE VARIABLE LIFE ACCOUNT
(Registrant)
By: MINNESOTA LIFE INSURANCE COMPANY
(Depositor)
By /s/ Robert L. Senkler
------------------------------------------
Robert L. Senkler
and Chief Executive Officer
Chairman of the Board, President
Pursuant to the requirements of the Securities Act of 1933, the Registrant,
Minnesota Life Variable Life Account, has duly caused this Registration
Statement to be signed on its behalf by the Undersigned, thereunto duly
authorized, in the City of St. Paul, and State of Minnesota, on the 8th day of
February, 2000.
MINNESOTA LIFE INSURANCE COMPANY
By /s/ Robert L. Senkler
------------------------------------------
Robert L. Senkler
Chairman of the Board, President
and Chief Executive Officer
Pursuant to the requirements of the Securities Act of 1933, the Registration
Statement has been signed below by the following persons in their capacities
with the Depositor and on the date indicated.
Signature Title Date
--------- ----- ----
/s/ Robert L. Senkler Chairman, President and February 8, 2000
- -------------------------- Chief Executive Officer
Robert L. Senkler
*
- -------------------------- Director
Anthony L. Andersen
- -------------------------- Director
Leslie S. Biller
Signature Title Date
--------- ----- ----
*
- -------------------------- Director
John F. Grundhofer
*
- -------------------------- Director
Robert E. Hunstad
*
- -------------------------- Director
Dennis E. Prohofsky
- -------------------------- Director
Michael E. Shannon
*
- -------------------------- Director
William N. Westhoff
*
- -------------------------- Director
Frederick T. Weyerhaeuser
/s/ Gregory S. Strong Senior Vice President February 8, 2000
- -------------------------- (chief financial officer)
Gregory S. Strong
/s/ William N. Westhoff Director and Senior February 8, 2000
- ---------------------- Vice President (treasurer)
William N. Westhoff
/s/ Dennis E. Prohofsky Director and Attorney-in-Fact February 8, 2000
- ---------------------- Director and Attorney-in-Fact
Dennis E. Prohofsky
* Pursuant to power of attorney dated December 13, 1999, filed as Exhibit J to
this Registration Statement.
EXHIBIT INDEX
Exhibit Number Description of Exhibit
- ---------------- ------------------------
A.(1) Resolution of the Board of Trustees of The Minnesota Mutual Life
Insurance Company dated October 21, 1985.
A.(3)(a) Distribution Agreement.
A.(3)(b) Agent and General Agent Sales Agreements.
A.(5)(a) Variable Adjustable Life Insurance Policy, form 99-680.
A.(5)(b) Family Term Agreement-Children, form 99-904.
A.(5)(c) Exchange of Insureds Agreement, form 99-914.
A.(5)(d) Inflation Agreement, form 99-916.
A.(5)(e) Waiver of Premium Agreement, form 99-917.
A.(5)(f) Business Continuation Agreement, form 99-929.
A.(5)(g) Accelerated Benefit Agreement, form 99-931.
A.(5)(h) Early Values Agreement, form 99-939.
A.(5)(i) Short Term Agreement, form 99-324.
A.(6)(a) Restated Certificate of Incorporation of the Depositor.
A.(6)(b) Bylaws of the Depositor.
A.(10)(a) New Issue Application - Part 1, form F. MHC-3198 Rev. 9-1999.
A.(10)(b) Application - Part 3 - Authorization New Issue; form MHC-42663 Rev.
10-1998.
A.(10)(c) Policy Change Application - Part 1, form F. MHC-44096 Rev. 9-1999.
A.(10)(d) Policy Change Application - Part 3, form MHC-44098 Rev. 10-1998.
A.(10)(e) Variable Suitability Application - New Issue, form F. MHC-48653 1-
2000.
A.(10)(f) Variable Suitability Application - Policy Change, form F. MHC-48654
Rev. 9-1999.
A.(11) Code of Ethics.
C. Opinion and Consent of Donald F. Gruber, Esq.
E. Opinion and Consent of Mr. Robert J. Ehren, F.S.A.
F. Consent of Jones & Blouch L.L.P.
H. Memorandum on Administrative Procedures with Respect to Issuance,
Transfer and Redemption, Required by Rule 6e-2(b)(12)(ii).
I.(1) Notice of Withdrawal Right and Request for Cancellation of Policy.
I.(2) Notice of Withdrawal Right and Request for Cancellation of Policy
Adjustment.
J. Minnesota Life Insurance Company - Power of Attorney to Sign
Registration Statements.