Document/Exhibit Description Pages Size
1: 485BPOS Post-Effective Amendment 307 1.58M
2: EX-99.26(H)(8) Miscellaneous Exhibit 25 99K
3: EX-99.26(K) Miscellaneous Exhibit 2± 9K
4: EX-99.26(L) Miscellaneous Exhibit 1 9K
5: EX-99.26(N) Miscellaneous Exhibit 1 7K
6: EX-99.26(R) Miscellaneous Exhibit 2 16K
File Numbers 33-85496
811-8830
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM N-6
REGISTRATION STATEMENT UNDER THE SECURITIES ACT OF 1933
Pre-Effective Amendment Number
Post-Effective Amendment Number 23 X
and/or
REGISTRATION STATEMENT UNDER THE INVESTMENT COMPANY ACT OF 1940
Amendment Number 14 X
MINNESOTA LIFE VARIABLE UNIVERSAL LIFE ACCOUNT
(Exact Name of Registrant)
Minnesota Life Insurance Company
(formerly The Minnesota Mutual Life Insurance Company)
(Name of Depositor)
400 Robert Street North
St. Paul, Minnesota 55101-2098
(Address of Depositor's Principal Executive Offices)
1-651-665-3500
(Depositor's Telephone Number, including Area Code)
Dwayne C. Radel, Esq.
Senior Vice President and General Counsel
Minnesota Life Insurance Company
400 Robert Street North
St. Paul, Minnesota 55101-2098
(Name and Address of Agent for Service)
Copy to:
Stephen E. Roth, Esq.
Sutherland, Asbill & Brennan LLP
1275 Pennsylvania Avenue, NW
Washington, D.C. 20004-2415
It is proposed that this filing will become effective (check appropriate box):
immediately upon filing pursuant to paragraph (b) of Rule 485
---
X on September 1, 2010 pursuant to paragraph (b) of Rule 485
---
60 days after filing pursuant to paragraph (a)(1) of Rule 485
---
on (date) pursuant to paragraph (a)(1) of Rule 485
---
If appropriate, check the following:
this post-effective amendment designates a new effective date for a
---
previously filed post-effective amendment.
Title of Securities Being Registered: Group Variable Universal Life Insurance
Contracts and Certificates.
PART A: INFORMATION REQUIRED IN A PROSPECTUS
[Download Table]
Item Number Caption in Prospectus
1. Front and Back Cover Pages
2. Benefit Summary: Benefits and Risks
3. Risk/Benefit Summary: Fee Table
4. General Description of Minnesota Life Variable Universal Life
Account, Minnesota Life Insurance Company, Advantus Series Fund,
Inc., Fidelity(R) Variable Insurance Products Funds, Janus Aspen
Series, Ivy Funds Variable Insurance Portfolios, Lord Abbett
Series Fund, Inc., MFS(R) Variable Insurance Trust, Oppenheimer
Variable Account Funds, Pioneer Variable Contracts Trust and Van
Eck VIP Trust.
5. Charges
6. General Description of Contracts
7. Premiums
8. Death Benefits and Contract Values
9. Surrenders, Partial Surrenders, and Partial Withdrawals
10. Loans
11. Lapse and Reinstatement
12. Taxes
13. Legal Proceedings
14. Financial Statements
SUPPLEMENT DATED SEPTEMBER 1, 2010 TO THE MINNESOTA LIFE VARIABLE UNIVERSAL LIFE
ACCOUNT
PROSPECTUS DATED APRIL 30, 2010.
The purpose of this supplement is to add three new portfolios as investment
options.
The prospectus is supplemented by adding the following information immediately
below the section captioned "Van Eck VIP Trust" on the inside cover page of the
prospectus:
MFS(R) VARIABLE INSURANCE TRUST
- MFS(R)Research Bond Series -- Initial Class Shares
OPPENHEIMER VARIABLE ACCOUNT FUNDS
- Oppenheimer Global Securities Fund/VA -- Non-Service Shares
PIONEER VARIABLE CONTRACTS TRUST
- Pioneer Mid Cap Value VCT Portfolio -- Class I Shares
The prospectus is supplemented by adding the following information immediately
below the sub section captioned "Van Eck VIP Trust" in the section captioned
"What variable investment options are available?" on page 4 of the prospectus:
MFS(R) Variable Insurance Trust
MFS(R)Research Bond Series -- Initial Class Shares
Oppenheimer Variable Account Funds
Oppenheimer Global Securities Fund/VA -- Non-Service Shares
Pioneer Variable Contracts Trust
Pioneer Mid Cap Value VCT Portfolio -- Class I Shares
The prospectus is supplemented by adding the following to the table on page 10:
[Enlarge/Download Table]
FUND/PORTFOLIO INVESTMENT ADVISER INVESTMENT SUB-ADVISER
-------------- ------------------ ----------------------
MFS(R)Variable Insurance Trust Massachusetts Financial
MFS(R)Research Bond Series -- Services Company
Initial Class Shares
(Seeks total return with an emphasis
on current income but also
considering capital appreciation.)
Oppenheimer Variable Account
Funds OppenheimerFunds, Inc.
Oppenheimer Global Securities
Fund/VA -- Non-Service Shares
(Seeks long-term capital appreciation
by investing a substantial portion of
its assets in securities of foreign
issuers, "growth-type" companies,
cyclical industries and special
situations that are considered to
have appreciation possibilities.)
Pioneer Variable Contracts Trust Pioneer Investment
Pioneer Mid Cap Value VCT Management, Inc.
Portfolio -- Class I Shares
(Seeks capital appreciation by
investing in a diversified portfolio
of securities consisting primarily of
common stocks.)
Please retain this supplement for future reference.
F73084 9-2010
MINNESOTA LIFE VARIABLE
UNIVERSAL LIFE ACCOUNT
MINNESOTA LIFE INSURANCE COMPANY
VARIABLE UNIVERSAL LIFE INSURANCE POLICY
This prospectus describes Variable Universal Life Insurance policies and
certificates issued by Minnesota Life Insurance Company ("Minnesota Life", "we",
"us" or "our").
The policies are designed for use in group-sponsored insurance programs to
provide life insurance protection to individuals (each an "insured") and the
flexibility to vary premium payments. Certificates are documents, generally held
by individuals ("certificate owner", "owner" or "you"), setting forth or
summarizing the rights of the owners and/or insureds and will be issued under
the group contract. A group contract or group policy is the Minnesota Life
Variable Group Universal Life Insurance Policy issued to an employer,
association or organization that is sponsoring a program of insurance ("group
sponsor" or "contractholder") for eligible participants. Individual policies can
also be issued in connection with group-sponsored insurance programs in
circumstances where a group contract is not issued. All references to a
certificate in this prospectus shall include individual policies issued in this
manner, as well as certificates issued under a group contract.
Subject to the limitations in this prospectus, the owner may allocate net
premiums to one or more of the sub-accounts of a separate account of Minnesota
Life called the Minnesota Life Variable Universal Life Account ("separate
account"). The owner is the owner of the certificate as designated in the signed
application or as subsequently changed as set forth in the certificate and this
prospectus. The value of your investment in the separate account will vary with
the investment experience of the selected sub-accounts of the separate account.
There is no guaranteed minimum value associated with your investment in the
separate account and its sub-accounts. Subject to the limitations in the group
policy, the certificate and this prospectus, net premiums may also be allocated
to a guaranteed account of Minnesota Life.
The separate account, through its sub-accounts, invests its assets in shares or
Advantus Series Fund, Inc. (the "Series Fund"), Fidelity(R) Variable Insurance
Products Funds ("Fidelity(R) VIP" or "VIP"), Ivy Funds Variable Insurance
Portfolios ("Ivy Funds VIP") and Janus Aspen Series (collectively the "Funds").
The Funds offer their shares exclusively to variable insurance products and
certain qualified plans and have 20 portfolios which are available for contracts
offered under this prospectus (the "Portfolios"). They are:
ADVANTUS SERIES FUND, INC.
- Bond Portfolio--Class 2 Shares
- Index 400 Mid-Cap Portfolio--Class 2 Shares
- Index 500 Portfolio--Class 2 Shares
- International Bond Portfolio--Class 2 Shares
- Money Market Portfolio
- Mortgage Securities Portfolio--Class 2 Shares
- Real Estate Securities Portfolio--Class 2 Shares
FIDELITY(R) VARIABLE INSURANCE PRODUCTS FUNDS
- VIP Contrafund(R) Portfolio: Initial Class Shares
- VIP Equity-Income Portfolio: Initial Class Shares
- VIP High Income Portfolio: Initial Class Shares
IVY FUNDS VARIABLE INSURANCE PORTFOLIOS
- Ivy Funds VIP Balanced
- Ivy Funds VIP Core Equity
- Ivy Funds VIP Growth
- Ivy Funds VIP International Core Equity
- Ivy Funds VIP Micro Cap Growth
- Ivy Funds VIP Small Cap Growth
- Ivy Funds VIP Small Cap Value
- Ivy Funds VIP Value
JANUS ASPEN SERIES
- Janus Aspen Series Forty Portfolio--Service Shares
- Janus Aspen Series Overseas Portfolio--Service Shares
PLEASE NOTE THAT THE POLICY, CERTIFICATES AND THE PORTFOLIOS:
are not guaranteed to achieve their goals;
are not federally insured;
are not endorsed by any bank or government agency; and
are subject to risks, including loss of the amount invested.
A prospectus for each of the Portfolios available through the separate account
must accompany this prospectus. Please read these documents carefully before
investing and save them for future reference.
The Securities and Exchange Commission has not approved the policy, the
certificates, the guaranteed account or determined that this prospectus is
accurate or complete. Any representation to the contrary is a criminal offense.
THE POLICY AND CERTIFICATES ARE NOT AVAILABLE IN ALL STATES. THIS PROSPECTUS
DOES NOT OFFER THE POLICIES OR CERTIFICATES IN ANY JURISDICTION WHERE THEY
CANNOT BE LAWFULLY SOLD. YOU SHOULD RELY ONLY ON THE INFORMATION CONTAINED IN
THIS PROSPECTUS, SALES MATERIALS WE HAVE APPROVED OR THAT WE HAVE REFERRED YOU
TO. WE HAVE NOT AUTHORIZED ANYONE TO PROVIDE YOU WITH INFORMATION THAT IS
DIFFERENT.
The date of this prospectus and the statement of additional information is April
30, 2010.
Minnesota Life Insurance Company
400 Robert Street North
St. Paul, Minnesota 55101-2098
[MINNESOTA LIFE LOGO]
TABLE OF CONTENTS
[Enlarge/Download Table]
PAGE
Questions and Answers about the Variable Group Universal Life Insurance Contract 2
Summary of Benefits and Risks 2
Risks of Owning a Variable Universal Life Insurance Certificate 2
Fee Tables 7
General Descriptions 10
Minnesota Life Insurance Company 10
Minnesota Life Variable Universal Life Account 10
Additions, Deletions or Substitutions 12
Voting Rights 13
The Guaranteed Account 14
Summary Information 14
Guaranteed Account Value 14
Charges 15
Premium Expense Charges 15
Sales Charge 15
Premium Tax Charge 15
OBRA Expense Charge 16
Account Value Charges 16
Monthly Deduction 16
Partial Surrender Charge 17
Transfer Charge 17
Additional Benefits Charges 17
Separate Account Charges 18
Fund Charges 18
Guarantee of Certain Charges 18
Information about the Group Policy and Certificates 18
Applications and Issuance 18
Dollar Cost Averaging 19
Free Look 19
Continuation of Group Coverage 20
Conversion Right to an Individual Policy 20
General Provisions of the Group Contract 20
Issuance 20
Termination 20
Right to Examine Group Contract 21
Entire Group Contract 21
Ownership of Group Contract and Group Contract Changes 21
Certificate Premiums 21
Premium Limitations 22
Allocation of Net Premiums and Account Value 22
Death Benefit and Account Values 23
Option A -- Level Death Benefit 23
Option B -- Increasing Death Benefit 23
Change in Face Amount 23
Increases 23
Decreases 24
Payment of Death Benefit Proceeds 24
Account Values 24
Determination of the Guaranteed Account Value 25
Determination of the Separate Account Value 25
Unit Value 25
Net Investment Factor 26
Daily Values 26
i
[Download Table]
PAGE
Surrenders, Partial Surrenders and Transfers 26
Transfers 27
Market Timing 27
Guaranteed Account Transfer Restrictions 28
Other Transfer Information 29
Loans 30
Loan Interest 30
Loan Repayments 31
Lapse and Reinstatement 31
Lapse 31
Reinstatement 32
Additional Benefits 32
Accelerated Benefits Rider 32
Waiver of Premium Rider 32
Accidental Death and Dismemberment Rider 32
Child Rider 32
Spouse Rider 32
Policyholder Contribution Rider 32
General Matters Relating to the Certificate 33
Postponement of Payments 33
The Certificate 33
Control of Certificate 33
Maturity 34
Beneficiary 34
Change of Beneficiary 34
Settlement Options 34
Federal Tax Status 35
Introduction 35
Taxation of Minnesota Life and the Variable Universal Life Account 35
Tax Status of Certificates 36
Diversification of Investments 36
Owner Control 36
Tax Treatment of Policy Benefits 37
Modified Endowment Contracts 37
Multiple Policies 38
Withholding 39
Continuation of Policy Beyond Age 100 39
Business Uses of Policy 39
Other Taxes 39
Employer-owned Life Insurance Contracts 39
Life Insurance Purchases by Residents of Puerto Rico 39
Life Insurance Purchases by Nonresident Aliens and Foreign Corporations 39
Non-Individual Owners and Business Beneficiaries of Policies 40
Split-Dollar Arrangements 40
Alternative Minimum Tax 40
Estate, Gift and Generation-Skipping Transfer Taxes 40
Economic Growth and Tax Relief Reconciliation Act of 2001 40
Distribution of Certificates 41
Payments Made by Underlying Mutual Funds 42
Other Matters 43
Legal Proceedings 43
Registration Statement 43
Financial Statements 43
Statement of Additional Information 44
ii
QUESTIONS AND ANSWERS ABOUT THE VARIABLE GROUP UNIVERSAL LIFE INSURANCE CONTRACT
SUMMARY OF BENEFITS AND RISKS
All of the benefits and risks summarized below are subject to the terms,
conditions and restrictions of the group-sponsored insurance program, the
certificate and this prospectus.
A variable universal life insurance certificate is an adjustable benefit
life insurance contract that allows accumulation of cash value, while the life
insurance coverage remains in force, and permits flexible payment of premiums.
The cash value of the certificate will fluctuate with the performance of the
sub-accounts of the separate account. The choice of available investment options
("sub-accounts") and the guaranteed account is determined under the
group-sponsored insurance program. Values may be transferred among the available
investment options. An owner may make a partial surrender from his/her
certificate, surrender all of his/her certificate or take certificate loans.
Each certificate has a minimum Face Amount of death benefit coverage. The death
benefit of a certificate may be greater than its Face Amount, as further
described in this prospectus. If a certificate is in force upon the insured's
death, the death benefit will be paid to the designated beneficiary.
We offer six Riders that provide supplemental benefits under the policy:
the Accelerated Benefits Rider, Waiver of Premium Rider, Accidental Death and
Dismemberment Rider, Child Rider, Spouse Rider and Policyholder Contribution
Rider. There is no charge for the Accelerated Benefits Rider and Policyholder
Contribution Rider. These Riders may not be available in all states or in all
group-sponsored insurance programs.
There are several ways of receiving proceeds under the death benefit of a
certificate, other than in a lump sum. More detailed information concerning
these settlement options is set forth later in this prospectus.
RISKS OF OWNING A VARIABLE UNIVERSAL LIFE INSURANCE CERTIFICATE
The account values of a certificate, to the extent invested in sub-accounts
of the separate account, have no guaranteed minimum account value. Therefore,
the owner bears the risk that adverse investment performance may depreciate the
owner's account value and, in some cases, may increase the cost of insurance.
Additional information concerning investment objectives and policies of the
Portfolios (including a comprehensive discussion of the risks of each Portfolio)
may be found in the current prospectuses for each Fund which accompany this
prospectus. You should carefully review each Fund prospectus before purchasing
the certificate.
A universal life insurance certificate is intended for the use of persons
who wish to combine both life insurance and the accumulation of cash values.
Because of this it is unsuitable as a short-term investment vehicle.
There is a risk that a certificate will lapse. As described in the "Lapse
and Reinstatement" section of this prospectus, lapse will occur only when the
net cash value is insufficient to cover the monthly deduction, and the
subsequent grace period expires without sufficient payment being made. You may
reinstate a lapsed certificate, subject to certain conditions.
Certificate loans may increase the risk of certificate lapse, may have a
negative effect on a certificate's cash value and may reduce a certificate's
death benefit.
In some circumstances, experience credits, loans and amounts received from
a partial surrender or surrender of the certificate will be subject to federal
income taxation and an additional 10 percent income tax could be imposed. For
additional information regarding federal income taxes see the "Federal Tax
Status" section of this prospectus. Withdrawals may also be assessed a
processing charge of 2% of the amount withdrawn not to exceed $25.
2
Consistent with the group-sponsored insurance program, the group policy,
the certificate and this prospectus, we reserve the right to limit the size,
number and frequency of transfers, limit the amount of a certificate loan, and
restrict certificate withdrawals and surrenders.
WHAT IS A UNIVERSAL LIFE INSURANCE CERTIFICATE?
A universal life insurance certificate is an adjustable benefit life
insurance contract issued pursuant to a group policy. Unlike term life
insurance, universal life insurance coverage allows you to accumulate cash
value, while the life insurance coverage remains in force, and permits flexible
payment of premiums (which means premium payments may be increased or decreased
as allowed for by the certificate and this prospectus).
A universal life insurance certificate has a stated face amount of
insurance payable in the event of the death of the insured, which is paid for by
the deduction of specified monthly charges from the account values. The face
amount is the minimum amount of death benefit proceeds paid upon the death of
the insured, so long as the certificate remains in force and there are no
outstanding loans. We will also deduct from the face amount any unpaid monthly
deduction. The face amount is shown on the specifications page attached to the
certificate. The insured is the person whose life is covered by life insurance
under a certificate. Unlike term life insurance, universal life insurance
coverage may be adjusted by the owner of the certificate, without the necessity
of issuing a new certificate for that owner. There are limitations to these
adjustments and we may require evidence of insurability before requested
increases take effect.
Universal life insurance coverage is provided without specifying the
frequency and amount of each premium payment (as is the practice for scheduled
premium life insurance). The time and amount of the payment of premium may be
determined by the owner. The life insurance coverage will remain in force for an
insured so long as the certificate's net cash value is sufficient to cover
monthly charges when due. The net cash value is the account value of a
certificate less any outstanding certificate loans and accrued certificate loan
interest charged (plus any accrued loan interest credits) and less any charges
due. It is the amount an owner may obtain through surrender of the certificate.
Subject to restrictions described herein, an owner may make payments in
excess of that minimum amount required to keep a certificate in force, take full
or partial surrenders of cash values and take out certificate loans. If cash
values are insufficient for the payment of the required monthly charges, then a
premium payment is required or the life insurance coverage provided to the owner
will lapse.
A universal life insurance certificate may be inappropriate for individuals
seeking life insurance protection which is the equivalent of term-type coverage.
Term coverage is usually for a fixed period of time for a fixed premium.
WHAT MAKES THE CERTIFICATE "VARIABLE"?
The certificate is termed "variable" because unlike a universal life
certificate which provides for the accumulation of certificate values at fixed
rates determined by the insurance company, variable universal life insurance
certificate values may be invested in variable investment options. The separate
account we use for our group contracts is called the Minnesota Life Variable
Universal Life Account and is composed of variable investment options or
sub-accounts. The separate account keeps its assets separate from the other
assets of Minnesota Life. Each sub-account invests in a corresponding Portfolio
of a Fund. Thus, the owner's account value, to the extent invested in the
variable investment options (sub-accounts), will vary with the positive or
negative investment experience of the corresponding Portfolios of the Funds.
The account value of a certificate is the sum of the separate account
value, guaranteed account value and loan account value. The separate account
value is the sum of all current sub-account values. The guaranteed account value
is the sum of all net premiums and transfers allocated to the guaranteed account
and interest declared thereon and experience credits, if any, minus amounts
transferred to the separate account or removed in connection with a partial
surrender or loan and minus charges assessed against the guaranteed account
value. The loan account value is the portion of the general account attributable
to loans under a certificate together with accrued interest.
3
IS THERE AN INVESTMENT PERFORMANCE RISK?
Yes. The account value of a certificate, to the extent invested in
sub-accounts of the separate account, has no guaranteed minimum account value.
Therefore, the owner bears the risk that adverse investment performance may
reduce the owner's account value. The owner is also subject to the risk that the
investment performance of the selected sub-accounts may be less favorable than
that of other sub-accounts, and in order to keep the certificate in force the
owner may be required to pay more premiums than originally planned. The
certificate also offers the owner the opportunity to have the account value
increase more rapidly than it would under comparable fixed benefit certificates
by virtue of favorable investment performance. In addition, under some
certificates, the death benefit will also increase and decrease with investment
experience.
Subject to the limitations in the group policy, the certificate and this
prospectus, owners seeking the traditional insurance protections of a guaranteed
account value may allocate net premiums to the certificate's guaranteed account
option which provides for guaranteed accumulation at a fixed rate of interest.
Additional information on this option may be found under "The Guaranteed
Account" and the "Death Benefit and Account Values" sections of this prospectus.
If the owner allocates net premiums or account value to the guaranteed account,
then we credit the owner's account value in the guaranteed account with a
declared rate of interest, but the owner assumes the risk that the rates may
decrease, although it will never be lower than a minimum guaranteed annual rate
of 3 percent.
WHAT VARIABLE INVESTMENT OPTIONS ARE AVAILABLE?
The separate account currently invests in each of the 20 Portfolios listed
below. However, your group sponsor insurance program may limit the Portfolios,
and in turn the sub-accounts, available for investment under your certificate.
As such, you should consult your group sponsor to determine if restrictions
apply to your investment in any of sub-accounts funded by the Portfolios listed
below.
Series Fund Portfolios include (except for Money Market, all are Class 2
Shares):
Bond Portfolio
Index 400 Mid-Cap Portfolio
Index 500 Portfolio
International Bond Portfolio
Money Market Portfolio
Mortgage Securities Portfolio
Real Estate Securities Portfolio
Fidelity(R) VIP Portfolios include (all are Initial Class Shares):
Fidelity(R) VIP Contrafund(R) Portfolio
Fidelity(R) VIP Equity-Income Portfolio
Fidelity(R) VIP High Income Portfolio
Ivy Funds VIP Portfolios include:
Ivy Funds VIP Balanced
Ivy Funds VIP Core Equity
Ivy Funds VIP Growth
Ivy Funds VIP International Core Equity
Ivy Funds VIP Micro Cap Growth
Ivy Funds VIP Small Cap Growth
Ivy Funds VIP Small Cap Value
Ivy Funds VIP Value
Janus Aspen Series Portfolios include (all are Service Shares):
Janus Aspen Series Forty Portfolio
Janus Aspen Series Overseas Portfolio
There is no assurance that any Portfolio will meet its objectives.
Additional information concerning investment objectives and policies of the
Portfolios (including a comprehensive discussion of the risks of each Portfolio)
may be found in the current prospectuses for each Fund which accompany this
prospectus. We reserve the right to add, combine or remove eligible Funds and
Portfolios.
HOW CAN NET PREMIUMS BE ALLOCATED?
In the initial signed application for life insurance, the owner may
indicate the desired allocation of net premiums among the guaranteed account and
the available sub-accounts of the separate account, subject to the limitations
in the certificate and this prospectus. All future net premiums will be
allocated in the same proportion until the owner requests a change in the
allocation. Similarly, the owner may request a transfer of
4
amounts between sub-accounts or between the sub-accounts and the guaranteed
account, subject to the limitations in the certificate and this prospectus.
WHAT DEATH BENEFIT OPTIONS ARE OFFERED UNDER THE CERTIFICATE?
We offer two death benefit options under the certificate. Under "Option A",
a level death benefit, the death benefit is the face amount of the certificate.
Under "Option B", a variable death benefit, the death benefit is the face amount
of the certificate plus the net cash value. So long as a certificate remains in
force and there are no certificate loans, the minimum death benefit under either
option will be at least equal to the current face amount (less any unpaid
monthly deduction). The death benefit proceeds will be adjusted by the amount of
any charges due or overpaid and any outstanding certificate loans and
certificate loan interest due determined as of the date of death.
Only the group sponsor may choose one of the two death benefit options
under a group-sponsored program. The death benefit option so chosen shall be the
same for all participants under the program. Once elected, the death benefit
option chosen by the group sponsor shall remain unchanged.
There is a minimum initial face amount for the certificate which is stated
on the specifications page of the certificate. The owner may generally change
the face amount, but evidence of insurability of the insured may be required for
certain face amount increases.
ARE THE BENEFITS UNDER A CERTIFICATE SUBJECT TO FEDERAL INCOME TAX?
Although guidance is limited, we believe that the owner's certificate
should qualify as a life insurance contract for federal income tax purposes.
Assuming that a certificate qualifies as a life insurance contract for federal
income tax purposes, the benefits under certificates described in this
prospectus should receive the same tax treatment under the Code as benefits
under traditional fixed benefit life insurance certificates. Therefore, death
proceeds payable under variable life insurance certificates should be excludable
from the beneficiary's gross income for federal income tax purposes. The owner's
net cash value should grow tax-deferred until such cash value is actually
distributed to the owner.
Unless a certificate is classified as a "modified endowment contract,"
distributions, including partial and complete surrenders and experience credits
paid in cash, will not be taxed except to the extent that they exceed the
owner's "investment in the contract" (i.e., gross premiums paid under the
certificate reduced by any previously received amounts that were excludable from
income), and loans will generally not be treated as taxable distributions. For
federal income tax purposes, certificates classified as modified endowment
contracts are treated as life insurance only with respect to the tax treatment
of death proceeds and the tax-free inside buildup of yearly account value
increases. However, amounts received by the owner of a modified endowment
contract, such as experience credits paid in cash, loans and amounts received
from a partial surrender or from a surrender of the certificate will be subject
to the same tax treatment as amounts received under an annuity during the
accumulation period. Annuity tax treatment includes the 10 percent additional
income tax imposed on the portion of any distribution that is included in
income, except where the distribution or loan:
- is made on or after the owner attains age 59 1/2,
- is attributable to the owner becoming disabled, or
- is part of a series of substantially equal periodic payments for the life
of the owner or the joint lives of the owner and beneficiary.
Determining whether a certificate is a modified endowment contract requires
an examination of the premium paid in relation to the death benefit of the
certificate. A certificate would be a modified endowment contract if the total
premiums during the first seven contract years exceed the total sum of the net
level premiums which would be paid under a seven-pay life certificate. A
certificate which is subject to a material change will be treated as a new
certificate on the date that the material change takes effect, to determine
whether it is a modified endowment contract. The account value on the material
change date will be taken into account in determining whether the seven-pay
standard is met.
For additional information regarding federal income taxes see the "Federal
Tax Status" section of this prospectus.
5
DOES THE OWNER HAVE ACCESS TO THE ACCOUNT VALUES?
Yes. The net cash value, subject to the limitations in the certificate and
this prospectus, is available to the owner during the insured's lifetime. The
net cash value may be used:
- to provide retirement income,
- as collateral for a loan,
- to continue some amount of insurance protection without payment of
premiums, or
- to obtain cash by surrendering the certificate in full or in part.
The owner may borrow, as a certificate loan, an amount up to 90 percent of
the owner's account value less any existing loan account value. The loan account
is the portion of the general account attributable to loans under a certificate.
Each alternative for accessing the owner's account value may be subject to
conditions described in the certificate or under the "Death Benefit and Account
Values", "Surrenders, Partial Surrenders and Transfers" and "Loans" sections of
this prospectus.
In general, the owner may request a surrender of or a partial surrender
from the certificate at any time while the insured is living. A surrender or
partial surrender may have federal income tax consequences. (See "Federal Tax
Status".) Partial surrenders may also be assessed a processing charge of 2% of
the amount withdrawn not to exceed $25.
A surrender or partial surrender of the net cash value of the certificate
is permitted in any amount equal to at least the minimum established for
certificates under the group-sponsored insurance program. The minimum will never
exceed $500. The maximum partial surrender amount cannot exceed the maximum
established for certificates under the group-sponsored insurance program. We
reserve the right to limit the number of partial surrenders to one per
certificate month, change the minimum amount for partial surrenders, limit the
frequency of partial surrenders, or restrict or prohibit partial surrenders from
the guaranteed account.
WHAT CHARGES ARE ASSOCIATED WITH THE CERTIFICATE?
We assess certain charges against each premium payment and the account
values under each certificate and against the asset value of the separate
account. These charges, which are largely designed to cover our expenses in
providing insurance protection and in distributing and administering the
certificates are described under the "Charges" section of this prospectus. The
specific charges are shown on the specifications page of the certificate. There
are also advisory fees and expenses which are assessed against the asset value
of each of the Portfolios of the Funds. We also reserve the right to charge
against the separate account assets, or make other provisions, for additional
tax liability we may incur with respect to the separate account or the
certificates.
6
FEE TABLES
The following tables describe the fees and expenses that are payable when
buying, owning and surrendering the certificate. The first table describes the
fees and expenses that are payable at the time that the owner buys the
certificate, surrenders the certificate, or transfers cash value between
available investment options.
TRANSACTION FEES
[Enlarge/Download Table]
CHARGE WHEN CHARGE IS DEDUCTED AMOUNT DEDUCTED
------ --------------------------- --------------------------
Maximum Sales Charge Imposed on Premiums From Each Premium Payment* 5 percent of Premium+
Maximum Premium Tax Charge From Each Premium Payment* 4 percent of Premium+
Maximum OBRA Expense Charge** From Each Premium Payment* 1.25 percent of Premium++
Maximum Deferred Sales Charge None N/A
Maximum Partial Surrender Fee From Each Partial Surrender Lesser of $25 or 2 percent
of the amount withdrawn
Maximum Transfer Fee Upon Each Transfer+++ $10+++
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* The charge may be waived in some group sponsored insurance programs for
premiums received in conjunction with an Internal Revenue Code Section 1035
exchange.
** The OBRA expense charge is to reimburse the Company for extra costs
associated with a recent federal law that increases corporate tax owed by
certain insurance companies. For a further discussion of the OBRA expense
charge see the "OBRA Expense Charge" section of this prospectus.
+ The actual fee may vary depending upon the group-sponsored insurance
program under which the certificate is issued, but will not exceed the fee
stated in the table.
++ For a certificate considered to be an individual certificate under the
Omnibus Budget Reconciliation Act of 1990 ("OBRA") the charge will not
exceed 1.25 percent of each premium payment. If a certificate is considered
to be a group certificate under OBRA, the charge will not exceed 0.25
percent of each premium payment for group-sponsored programs implemented
prior to April 1, 2000 or 0.35 percent of each premium payment for
group-sponsored programs implemented on or after April 1, 2000.
+++ There is currently no fee assessed for transfers. A charge, not to exceed
$10 per transfer, may be imposed in the future.
7
The next table describes the fees and expenses that an owner will pay
periodically during the time that the owner owns the certificate, not including
fund operating expenses. The table also includes rider charges that will apply
if the owner purchases any rider(s) identified below.
PERIODIC CHARGES OTHER THAN FUND OPERATING EXPENSES
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CHARGE WHEN CHARGE IS DEDUCTED AMOUNT DEDUCTED
------ -------------------------------- -------------------------------
COST OF INSURANCE CHARGE(1)(6)
MAXIMUM & MINIMUM
CHARGE(7) On the Certificate Date and Each Maximum: $41.36 Per Month Per
Subsequent Monthly Anniversary $1,000 of Net Amount at Risk
Minimum: $0.03 Per Month Per
$1,000 of Net Amount at Risk
MAXIMUM & MINIMUM CHARGE FOR
CERTIFICATES ISSUED PRIOR TO
JANUARY 1, 2009 AND ALL FACE
AMOUNT INCREASES ON SUCH
CERTIFICATES On the Certificate Date and Maximum: $32.01 Per Month Per
Each Subsequent Monthly $1,000 of Net Amount at Risk
Anniversary
Minimum: $0.03 Per Month Per
$1,000 of Net Amount at Risk
CHARGE FOR A 45 YEAR OLD
NON-SMOKING CERTIFICATEHOLDER(8) On the Certificate Date and Each $0.11 Per Month Per $1,000
Subsequent Monthly Anniversary of Net Amount at Risk
MORTALITY AND EXPENSE RISK CHARGE(2) Each Valuation Date Maximum: 0.50 percent of
average daily assets of the
separate account per year
MONTHLY ADMINISTRATION CHARGE(3) On the Certificate Date and Each Maximum: $4 Per Month
Subsequent Monthly Anniversary
LOAN INTEREST SPREAD(4) Each Monthly Anniversary 2 percent of Policy Loan Per
Year
ACCIDENTAL DEATH AND
DISMEMBERMENT CHARGE(5) On the Certificate Date and Each Maximum: $0.10 Per Month Per
Subsequent Monthly Anniversary $1,000 of Net Amount at Risk
WAIVER OF PREMIUM CHARGE(5) On the Certificate Date and Each Maximum: 50 percent of the Cost
Subsequent Monthly Anniversary of Insurance Charge
CHILD RIDER CHARGE(5) On the Certificate Date and Each Maximum: $0.35 Per Month Per
Subsequent Monthly Anniversary $1,000 of Net Amount at Risk
SPOUSE RIDER CHARGE(1)(5)
MAXIMUM & MINIMUM CHARGE(7) On the Certificate Date and Each Maximum: $41.36 Per Month Per
Subsequent Monthly Anniversary $1,000 of Net Amount at Risk
Minimum: $0.03 Per Month Per
$1,000 of Net Amount at Risk
MAXIMUM & MINIMUM CHARGE
FOR CERTIFICATES ISSUED PRIOR TO
JANUARY 1, 2009 AND ALL FACE
AMOUNT INCREASES ON SUCH
CERTIFICATES On the Certificate Date and Maximum: $32.01 Per Month Per
Each Subsequent Monthly $1,000 of Net Amount at Risk
Anniversary
Minimum: $0.03 Per Month Per
$1,000 of Net Amount at Risk
CHARGE FOR A 45 YEAR OLD
NON-SMOKING CERTIFICATEHOLDER(8) On the Certificate Date and Each $0.11 Per Month Per $1,000
Subsequent Monthly Anniversary of Net Amount at Risk
8
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(1) The cost of insurance charge will vary depending upon the insured's
attained age, rate class and the group sponsored insurance program. The
charges noted may not be representative of the charges that you would pay.
For information regarding the specific cost of insurance rate that will
apply to your certificate please contact Minnesota Life at 1-800-843-8358,
during normal business hours of 8:00 a.m. to 4:45 p.m., Central Time.
(2) The mortality and expense risk charge will vary based on the
group-sponsored insurance program under which the certificate is issued.
Differences in the mortality and expense risk charge rates applicable to
different group-sponsored insurance programs will be determined by us based
on differences in the levels of mortality and expense risk under those
policies.
(3) The monthly administration charge depends on the number of certificate
owners under the group sponsored insurance program, the administrative
services provided, the expected average face amount as well as other
certificate features.
(4) The Loan Interest Spread is the difference between the amount of interest
we charge you for a loan (guaranteed not to exceed 8% annually) and the
amount of interest we credit to the amount of the certificate loan in the
loan account value (guaranteed not to be less than 6% annually). While a
certificate loan is outstanding, loan interest is due and payable in
arrears at the end of each certificate month or for the duration of the
certificate, if shorter. For a complete discussion of loan interest charges
and credits see the "Loan Interest" section of this prospectus.
(5) The availability of additional insurance benefit riders will depend upon
the particular group sponsored insurance program. You should check with
your group sponsor to determine which additional insurance benefit riders
are available under your program. Charges for additional insurance benefit
riders may vary among group sponsored insurance programs.
(6) The net amount at risk for a certificate month is the difference between
the death benefit and the account value.
(7) The maximum charge in this row applies to certificates issued on or after
January 1, 2009.
(8) For certificates issued both before and after January 1, 2009.
For information concerning compensation paid for the sale of the group
contract and certificates, see the "Distribution of Certificates" section of the
prospectus.
The next table describes the range of total annual Portfolio operating
expenses that an owner will pay while he or she owns the certificate. Expenses
of the Portfolios may be higher or lower in the future. The table shows the
lowest and highest expenses (as a percentage of Portfolio assets) charged by any
of the Funds for its Portfolios for the fiscal year ended December 31, 2009.
More detail concerning a particular Fund and its Portfolios' fees and expenses
is contained in the prospectus for that Fund.
RANGE OF ANNUAL PORTFOLIO OPERATING EXPENSES
(EXPENSES THAT ARE DEDUCTED FROM PORTFOLIO ASSETS INCLUDING MANAGEMENT FEES,
DISTRIBUTION (12b-1) FEES AND OTHER EXPENSES)*
[Download Table]
FEE DESCRIPTION MINIMUM MAXIMUM
--------------- ------- -------
Total Annual Portfolio Operating Expenses 0.49% 1.42%
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* The range of Total Annual Portfolio Operating Expenses presented in this
table does not reflect any fee waivers or expense reductions. Under certain
circumstances the Funds may charge a redemption fee for certain market
timing or frequent trading activity. For more detailed information about
the fee and expense charges, fee waivers (if applicable), redemption fee
(if applicable) and expense reductions (if applicable) for a particular
Fund Portfolio please see that Fund's prospectus.
9
GENERAL DESCRIPTIONS
MINNESOTA LIFE INSURANCE COMPANY
We are Minnesota Life Insurance Company ("Minnesota Life"), a life
insurance company organized under the laws of Minnesota. Our home office is at
400 Robert Street North, St. Paul, Minnesota 55101-2098, telephone: (651)
665-3500. We are licensed to do a life insurance business in all states of the
United States (except New York where we are an authorized reinsurer), the
District of Columbia, Canada, Puerto Rico and Guam. Any benefits due and owing
pursuant to a certificate are obligations of Minnesota Life.
MINNESOTA LIFE VARIABLE UNIVERSAL LIFE ACCOUNT
On August 8, 1994, the separate account was established in accordance with
Minnesota insurance law. The separate account is registered as a "unit
investment trust" with the Securities and Exchange Commission under the
Investment Company Act of 1940. The separate account meets the definition of a
"separate account" under the federal securities laws.
We are the legal owner of the assets in the separate account. The
obligations to group contract and certificate owners and beneficiaries arising
under the group contracts and certificates are general corporate obligations of
Minnesota Life. Our general assets back these obligations. The Minnesota law
under which the separate account was established provides that the assets of the
separate account shall not be chargeable with liabilities arising out of any
other business which we may conduct, but shall be held and applied exclusively
to the benefit of the holders of those variable life insurance certificates for
which the separate account was established. The income gains and losses credited
to or charged against the separate account reflect the account's own investment
experience and are entirely independent of both the investment performance of
our guaranteed account and of any other separate account which we may have
established or may later establish.
The separate account is divided into sub-accounts, each of which currently
invests in one of the 20 Fund Portfolios shown on the cover page of this
prospectus. Your group sponsor insurance program, however, may limit the
Portfolios, and in turn the sub-accounts, available for investment under your
certificate. As such, you should consult your group sponsor to determine if
restrictions apply to your investment in any of sub-accounts funded by the
Portfolios.
The separate account currently invests in Portfolios of the Series Fund,
Fidelity VIP, Ivy Funds VIP and Janus Aspen Series. The Fund Portfolio
prospectuses accompany this prospectus. For additional copies please call us at
1-800-843-8358. You should read each prospectus carefully before investing in
the certificate.
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 the other Portfolios.
All dividends and capital gains distributions from each Portfolio are
automatically reinvested in shares of that Portfolio at net asset value.
10
Below is a list of the Portfolios and their adviser and sub-adviser, if
applicable.
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FUND/PORTFOLIO INVESTMENT ADVISER INVESTMENT SUB-ADVISER
-------------- --------------------- -------------------------------------
SERIES FUND:
Bond Portfolio--Class 2 Shares Advantus Capital
Management, Inc.
Index 400 Mid-Cap Advantus Capital
Portfolio--Class 2 Shares Management, Inc.
Index 500 Portfolio--Class 2 Shares Advantus Capital
Management, Inc.
International Bond Advantus Capital Franklin Advisers, Inc.
Portfolio--Class 2 Shares Management, Inc.
Money Market Portfolio* Advantus Capital
Management, Inc.
Mortgage Securities Advantus Capital
Portfolio--Class 2 Shares Management, Inc.
Real Estate Securities Advantus Capital
Portfolio--Class 2 Shares Management, Inc.
FIDELITY(R) VIP:
Contrafund(R) Portfolio:
Initial Class Shares Fidelity Management & FMR Co., Inc., Fidelity
(Seeks long-term capital appreciation.) Research Company Management & Research (U.K.)
Inc., Fidelity Research & Analysis
Company, Fidelity Investments
Japan Limited, Fidelity International
Investment Advisors, Fidelity
International Investment Advisors
(U.K.) Limited
Equity-Income Portfolio:
Initial Class Shares Fidelity Management & FMR Co., Inc., Fidelity
(Seeks reasonable income. The fund will also consider Research Company Management & Research (U.K.)
the potential for capital appreciation. The fund's Inc., Fidelity Research & Analysis
goal is to achieve a yield which exceeds the Company, Fidelity Investments
composite yield on the securities comprising the Japan Limited, Fidelity International
Standard & Poor's 500(SM) Index (S&P 500(R)).) Investment Advisors, Fidelity
International Investment Advisors
(U.K.) Limited
High Income Portfolio:
Initial Class Shares Fidelity Management & FMR Co., Inc., Fidelity Research &
(Seeks a high level of current income, while also Research Company Analysis Company, Fidelity
considering growth of capital.) Investments Japan Limited, Fidelity
International Investment Advisors,
Fidelity International Investment
Advisors (U.K.) Limited
IVY FUNDS VARIABLE INSURANCE PORTFOLIOS:
Ivy Funds VIP Balanced Waddell & Reed
(Seeks, as a primary objective, to provide current Investment
income to the extent that, in the opinion of Waddell Management Company
& Reed Investment Management Company, the Fund's
investment manager, market and economic conditions
permit. As a secondary objective, the Portfolio seeks
long-term appreciation of capital.)
11
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FUND/PORTFOLIO INVESTMENT ADVISER INVESTMENT SUB-ADVISER
-------------- --------------------- -------------------------------------
Ivy Funds VIP Core Equity Waddell & Reed
(Seeks capital growth and income.) Investment
Management Company
Ivy Funds VIP Growth Waddell & Reed
(Seeks capital growth, with current Investment
income as a secondary objective.) Management Company
Ivy Funds VIP International Core Equity Waddell & Reed
Investment
Management Company
Ivy Funds VIP Micro Cap Growth Waddell & Reed Wall Street Associates
Investment
Management Company
Ivy Funds VIP Small Cap Growth Waddell & Reed
Investment
Management Company
Ivy Funds VIP Small Cap Value Waddell & Reed
Investment
Management Company
Ivy Funds VIP Value Waddell & Reed
(Seeks long-term capital appreciation.) Investment
Management Company
JANUS ASPEN SERIES:
Forty Portfolio--Service Shares Janus Capital
(Seeks long-term growth of capital.) Management LLC
Overseas Portfolio--Service Shares Janus Capital
(Seeks long-term growth of capital.) Management LLC
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* Although the Money Market Portfolio seeks to preserve a stable net asset
value per share, it is possible to lose money by investing in the Money
Market Portfolio. An investment in a money market portfolio is neither
insured nor guaranteed by the Federal Deposit Insurance Corporation or any
government agency. In addition, because of expenses incurred by
sub-accounts in the separate account, during extended periods of low
interest rates, the yield of the sub-account that invests in the Money
Market Portfolio may also become extremely low and possibly negative.
The above Portfolios were selected based on several criteria, including asset
class coverage, the strength of the investment adviser's reputation and tenure,
brand recognition, performance, and the capability and qualification of each
investment firm. Another factor we considered during the selection process was
whether the Portfolio's investment adviser or an affiliate will make payments to
us or our affiliates. For additional information on these arrangements, see
"Payments Made by Underlying Mutual Funds."
WE DO NOT PROVIDE ANY INVESTMENT ADVICE AND DO NOT RECOMMEND OR ENDORSE ANY
PARTICULAR PORTFOLIO. YOU BEAR THE RISK OF ANY DECLINE IN THE CERTIFICATE CASH
VALUE OF YOUR CERTIFICATE RESULTING FROM THE PERFORMANCE OF THE PORTFOLIO YOU
HAVE CHOSEN.
ADDITIONS, DELETIONS OR SUBSTITUTIONS
We reserve the right to add, combine or remove any sub-accounts of the
Variable Universal Life Account when permitted by law. Each additional
sub-account will purchase shares in a new portfolio or mutual fund. New
sub-accounts may be established when, in our sole discretion, marketing, tax,
investment or other conditions warrant such action. We will use similar
considerations should there be a determination to eliminate one or more of the
sub-accounts of the separate account. Any new investment option will be made
available to existing owners on whatever basis we may determine.
We retain the right, subject to any applicable law, to make substitutions
with
12
respect to the investments of the sub-accounts of the separate account. If
investment in a Portfolio of the Funds should no longer be possible or if we
determine it becomes inappropriate for certificates of this class, we may
substitute another mutual fund or portfolio for a sub-account. Substitution may
be made with respect to existing account values and future premium payments. A
substitution may be made only with any necessary approval of the Securities and
Exchange Commission.
We reserve the right to transfer assets of the separate account as
determined by us to be associated with the certificates to another separate
account. A transfer of this kind may require the approval of state regulatory
authorities and of the Securities and Exchange Commission.
We also reserve the right, when permitted by law, to restrict or eliminate
any voting right of owners or other persons who have voting rights as to the
separate account, and to combine the separate account with one or more other
separate accounts, and to deregister the separate account under the Investment
Company Act of 1940.
The Funds serve as the underlying investment medium for amounts invested in
life insurance company separate accounts funding both variable life insurance
policies and variable annuity contracts, as the investment medium for such
policies and contracts issued by Minnesota Life and other affiliated and
unaffiliated life insurance companies, and as the investment medium when used by
both a life insurance company to fund its policies or contracts and a
participating qualified plan to fund plan benefits. It is possible that there
may be circumstances where it is disadvantageous for either: (i) the owners of
variable life insurance policies and variable annuity contracts to invest in one
of the Funds at the same time, or (ii) the owners of such policies and contracts
issued by different life insurance companies to invest in one of the Funds at
the same time or (iii) participating qualified plans to invest in shares of one
of the Funds at the same time as one or more life insurance companies. Neither
the Funds nor Minnesota Life currently foresees any disadvantage, but if one of
the Funds determines that there is any such disadvantage due to a material
conflict of interest between such policy owners and contract owners, or between
different life insurance companies, or between participating qualified plans and
one or more life insurance companies, or for any other reason, one of the Funds'
Board of Directors will notify the life insurance companies and participating
qualified plans of such conflict of interest or other applicable event. In that
event, the life insurance companies or participating qualified plans may be
required to sell the applicable Funds' shares with respect to certain groups of
policy owners or contract owners, or certain participants in participating
qualified plans, in order to resolve any conflict. The life insurance companies
and participating qualified plans will bear the entire cost of resolving any
material conflict of interest.
VOTING RIGHTS
We will vote the shares of the Funds held in the various sub-accounts of
the Variable Universal Life Account at regular and special shareholder meetings
of the Funds in accordance with the owner's instructions. If, however, the
Investment Company Act of 1940, as amended, or any regulation thereunder should
change and we determine that it is permissible to vote the shares of the Funds
in our own right, we may elect to do so. The number of votes as to which the
owner has the right to instruct will be determined by dividing his or her
sub-account value by the net asset value per share of the corresponding
Portfolio of the Funds. The sub-account value is the number of units of a
sub-account credited to a certificate multiplied by the current unit value for
that sub-account. Fractional shares will be counted. The number of votes as to
which the owner has the right to instruct will be determined as of the date
coincident with the date established by the Funds for determining shareholders
eligible to vote at the meeting of the Funds. Voting instructions will be
solicited prior to the meeting in accordance with procedures established by the
Funds. We will vote shares of the Funds held by the separate account as to which
no instructions are received in proportion to the voting instructions which are
received from certificate owners with respect to all certificates participating
in the separate account. Proportional voting may result in a small number of
certificate owners determining the outcome of a vote.
We may, when required by state insurance regulatory authorities, disregard
voting instructions if the instructions require that
13
shares be voted so as to cause a change in sub-classification or investment
policies of the Funds or approve or disapprove an investment advisory contract
of the Funds. In addition, we may disregard voting instructions in favor of
changes in the investment policies or the investment adviser of one or more of
the Funds if we reasonably disapprove of such changes. A change would be
disapproved only if the proposed change is contrary to state law or disapproved
by state regulatory authorities on a determination that the change would be
detrimental to the interests of certificate owners or if we determine that the
change would be inconsistent with the investment objectives of the Funds or
would result in the purchase of securities for the Funds which vary from the
general quality and nature of investments and investment techniques utilized by
other separate accounts created by us or any of our affiliates which have
similar investment objectives. In the event that we disregard voting
instructions, a summary of that action and the reason for such action will be
included in the owner's next semi-annual report.
THE GUARANTEED ACCOUNT
The guaranteed account is part of our general account. The owner may
allocate net premiums and may transfer net cash values of the certificate,
subject to the limitations in the certificate and this prospectus, to our
guaranteed account.
Because of exemptive and exclusionary provisions, interests in Minnesota
Life's guaranteed account have not been registered under the Securities Act of
1933, and the guaranteed account has not been registered as an investment
company under the Investment Company Act of 1940. Therefore, neither the
guaranteed account nor any interest therein is subject to the provisions of
these Acts, and Minnesota Life has been advised that the staff of the SEC does
not review disclosures relating to it. Disclosures regarding the guaranteed
account may, however, be subject to certain generally applicable provisions of
the federal securities laws relating to the accuracy and completeness of
statements made in prospectuses.
This prospectus describes a Variable Universal Life Insurance group
contract and certificate and is generally intended to serve as a disclosure
document only for the aspects of the group contract and certificate relating to
the sub-accounts of the separate account. For more information about the
guaranteed account, please see the certificate and the summary information
provided immediately below.
SUMMARY INFORMATION
Minnesota Life's general account consists of all assets owned by Minnesota
Life other than those in the separate account and any other separate accounts
which we may establish. The guaranteed account is that portion of the general
assets of Minnesota Life, exclusive of loans, which is attributable to the group
contract and certificate described herein and others of their class. The
description is for accounting purposes only and does not represent a division of
the general account assets for the specific benefit of group contracts and
certificates of this class. Allocations to the guaranteed account become part of
the general assets of Minnesota Life and are used to support insurance and
annuity obligations and are subject to the claims of our creditors. Subject to
applicable law, we have sole discretion over the investment of assets of the
guaranteed account. Owners do not share in the actual investment experience of
the assets in the guaranteed account.
A portion or all the net premiums may be allocated or transferred to
accumulate at a fixed rate of interest in the guaranteed account, though we
reserve the right to restrict the allocation of premium into the guaranteed
account. Transfers from the guaranteed account to the sub-accounts of the
separate account are subject to certain limitations with respect to timing and
amount. These restrictions are described under the "Transfers" section of this
prospectus. Amounts allocated or transferred to the guaranteed account are
guaranteed by us as to principal and a minimum rate of interest.
GUARANTEED ACCOUNT VALUE Minnesota Life bears the full investment risk for
amounts allocated to the guaranteed account and guarantees that interest
credited to each owner's account value in the guaranteed account will not be
less than the minimum guaranteed annual rate without regard to the actual
investment experience of the
14
guaranteed account. For group-sponsored programs implemented prior to May 1,
2001, the minimum guaranteed annual rate is 4 percent. For group-sponsored
programs implemented on or after May 1, 2001 the minimum guaranteed annual rate
is 3 percent. We may, at our sole discretion, credit a higher rate of interest
("excess interest") although we are not obligated to do so. Any interest
credited on the certificate's account value in the guaranteed account in excess
of the guaranteed minimum rate per year will be determined at our sole
discretion. The owner assumes the risk that interest credited may not exceed the
guaranteed minimum rate.
Even if excess interest is credited to the guaranteed account value, no
excess interest will be credited to the loan account value.
CHARGES
Premium expense and account value charges will be deducted in connection
with the certificates and paid to us, to compensate us for providing the
insurance benefits set forth in the certificates, administering the
certificates, incurring expenses in distributing the certificates and assuming
certain risks in connection with the certificates. These charges will vary based
on the group-sponsored insurance program under which the certificate is issued.
We will determine the charges pursuant to our established actuarial procedures,
and in doing so we will not discriminate unreasonably or unfairly against any
person or class of persons. The charges for certificates under a group-sponsored
insurance program are shown on the specifications page of the certificate.
There are also advisory fees and expenses which are assessed against the
asset value of each of the Portfolios of the Funds.
PREMIUM EXPENSE CHARGES
The premium expense charges described below will be deducted from each
premium payment we receive. The remaining amount, or net premium, will be
allocated to the guaranteed account and/or sub-accounts of the separate account,
as directed by the owner, and become part of the certificate's net cash value.
SALES CHARGE We may deduct a sales charge from each premium paid under the
certificate. Sales charges vary based on the group-sponsored insurance program
under which the certificate is issued. The charge will never exceed 5 percent of
each premium paid. The sales charge will be determined based on a variety of
factors, including enrollment procedures, the size and type of the group, the
total amount of premium payments to be received, any prior existing relationship
with the group sponsor, the level of commissions paid to agents and brokers and
their affiliated broker-dealers, and other circumstances of which we are not
presently aware. We may waive the sales charge for premiums received as a result
of Internal Revenue Code section 1035 exchanges from another contract or
certificate. In addition, we may waive the sales charge for premiums paid by
designated payors under a group-sponsored insurance program (for example,
insureds versus the group sponsor).
The amount of the sales charge in any certificate year may not be
specifically related to sales expenses for that year. To the extent that sales
expenses are not recovered from the sales charge, we will recover them from our
other assets or surplus, which may include profits from the mortality and
expense risk charge, the cost of insurance charge or the administration charge.
PREMIUM TAX CHARGE We will deduct a percentage of premium charge, not to exceed
4 percent of each premium received for premium taxes. Premium tax charges vary
based on the group-sponsored insurance program under which the certificate is
issued. This charge is to compensate us for our payment of premium taxes that
are imposed by various states and local jurisdictions, and such other charges or
expenses as we may
15
incur with respect to the certificates, including guaranty fund assessments. The
state and/or jurisdiction in which a group policy is issued may impose taxes
that are higher or lower than the premium taxes actually imposed on the group
policy. This charge will be between 0 percent and 4 percent of each premium
payment. We may waive the premium tax charge for premiums received as a result
of Internal Revenue Code section 1035 exchanges from another contract or
certificate.
OBRA EXPENSE CHARGE Due to a 1990 federal tax law change under the Omnibus
Budget Reconciliation Act of 1990 ("OBRA"), as amended, insurance companies are
generally required to capitalize and amortize certain acquisition expenses
rather than currently deducting such expenses. Due to this capitalization and
amortization, the corporate income tax burden on insurance companies has been
affected. For certificates deemed to be group certificates for purposes of OBRA,
we make a charge against each premium payment to compensate us for corporate
taxes. The charge will not exceed 0.35 percent of premium. Under certificates
deemed to be individual contracts under OBRA, we make a charge of up to 1.25
percent of each premium payment. We may waive the OBRA expense charge for
premiums received as a result of Internal Revenue Code section 1035 exchanges
from another contract or certificate.
ACCOUNT VALUE CHARGES
The account value charges described below will be deducted from the net
cash value. If the net cash value is insufficient to cover the account value
charges, the certificate will lapse unless sufficient payment is received within
the grace period.
MONTHLY DEDUCTION The charges deducted as part of the monthly deduction vary
based on the group-sponsored insurance program under which the certificate is
issued. As of the certificate date and each subsequent monthly anniversary, we
will deduct an amount from the net cash value of the owner's certificate to
cover certain charges and expenses incurred in connection with the certificate.
The monthly deduction will be the sum of the following applicable items: (1) an
administration charge; (2) a cost of insurance charge; and (3) the cost of any
additional insurance benefits provided by rider. The monthly anniversary is the
first day of each calendar month on, or following, the issue date. The monthly
deduction will be deducted from the guaranteed account value and the separate
account value in the same proportion that those values bear to the net cash
value and, as to the separate account, from each sub-account in the proportion
that the sub-account value in such sub-account bears to the separate account
value of the certificate.
We may deduct an ADMINISTRATION CHARGE from the net cash value of the
certificate each month. The administration charge will never exceed $4 per
month. This charge is to compensate us for expenses incurred in the
administration of the certificates. These expenses include the costs of
processing enrollments, determining insurability, and establishing and
maintaining certificate records. Differences in the administration charge
applicable to specific group-sponsored insurance programs will be determined
based on expected differences in the administrative costs for the certificates
or in the amount of revenues that we expect to derive from the charge. Such
differences may result, for example, from the number of eligible members in the
group, the type and scope of administrative support provided by the group
sponsor, face amount and account value, and the features to be included in
certificates under the group-sponsored insurance program. An eligible member is
a member of the group seeking insurance who meets the requirements stated on the
specifications page of the group contract. This charge is not designed to
produce a profit.
The monthly COST OF INSURANCE will be calculated by multiplying the
applicable cost of insurance rate based on the insured's attained age and rate
class by the net amount at risk for each certificate month. The attained age is
the issue age of the insured plus the number of completed certificate years. The
net amount at risk for a certificate month is the difference between the death
benefit and the account value. The net amount at risk may be affected by changes
in the face amount of the certificate or by changes in the account value.
Account value, to the extent invested in sub-accounts of the separate account,
will vary depending upon the investment performance of the sub-accounts.
16
Cost of insurance rates for each group-sponsored insurance program are
determined based on a variety of factors related to group mortality including
gender mix, average amount of insurance, age distribution, occupations,
industry, geographic location, participation, level of medical underwriting
required, degree of stability in the charges sought by the group sponsor, prior
mortality experience of the group, number of actual or anticipated owners
electing the continuation option, and other factors which may affect expected
mortality experience. In addition, cost of insurance rates may be intended to
cover expenses to the extent they are not covered by the other certificate
charges. Changes in the current cost of insurance rates may be made based on any
factor which affects the actual or expected mortality or expenses of the group.
Changes to the cost of insurance rates are generally effective on the
anniversary of the issuance of the group policy, although changes may be made at
other times if warranted due to a change in the underlying characteristics of
the group, changes in benefits included in certificates under the group
contract, experience of the group, changes in the expense structure, or a
combination of these factors.
Any changes in the current cost of insurance rates will apply to all
persons of the same attained age and rate class under the group-sponsored
insurance program. We and the group contractholder will agree to the number of
classes and characteristics of each rate class. The classes may vary by tobacco
users and non-tobacco users, active and retired status, owners of coverage
continued under the continuation provision and other owners, and/or any other
nondiscriminatory classes agreed to by the group sponsor.
The current cost of insurance rates will not be greater than the guaranteed
cost of insurance rates set forth in the certificate. For policies and
certificates issued prior to or on December 31, 2008, and all face amount
increases on such policies and certificates, the guaranteed rates are 125
percent of the maximum rates that could be charged based on 1980 Commissioners
Standard Ordinary Mortality Tables ("1980 CSO Table") (a maximum charge of
$32.01 per month per $1,000 of net amount at risk). The guaranteed rates are
higher than 100 percent of the 1980 CSO Table because we may use a simplified
underwriting approach and may issue certificates that do not require medical
evidence of insurability. The current cost of insurance rates are generally
lower than 100 percent of the 1980 CSO Table. (For purposes of premiums under
Section 7702 of the Internal Revenue Code of 1986, as amended, we will use 100
percent of the 1980 CSO Table.)
For group policies and certificates issued on and after January 1, 2009,
the guaranteed rates are 200 percent of the maximum rates that could be charged
based on 2001 Commissioners Standard Ordinary Mortality Tables ("2001 CSO
Table") (a maximum charge of $37.62 per month per $1,000 of net amount at risk).
The guaranteed rates are higher than 100 percent of the 2001 CSO Table because
we may use a simplified underwriting approach and may issue certificates that do
not require medical evidence of insurability. The current cost of insurance
rates are generally lower than 100 percent of the 2001 CSO Table. (For purposes
of premiums under Section 7702 of the Internal Revenue Code of 1986, as amended,
we will use 100 percent of the 2001 CSO Table.)
PARTIAL SURRENDER CHARGE For certificates under some group-sponsored insurance
programs, a transaction charge will be assessed against the net cash value for
each partial surrender to cover the administrative costs incurred in processing
the partial surrender. The charge will not exceed the lesser of $25 or 2 percent
of the amount withdrawn. This charge will be assessed in the same manner as the
monthly deduction. This charge is not designed to produce a profit.
TRANSFER CHARGE There is currently no charge assessed on transfers of net cash
value between the guaranteed account and the separate account or among the
sub-accounts of the separate account. A charge, not to exceed $10 per transfer,
may be imposed in the future.
ADDITIONAL BENEFITS CHARGES Additional benefits may be included with the
certificate by rider, subject to the limitations of the group policy and this
prospectus. Some of these additional benefits will have charges associated with
them. For a complete
17
discussion of additional benefits see the "Additional Benefits" section of this
prospectus.
SEPARATE ACCOUNT CHARGES
We assess a MORTALITY AND EXPENSE RISK CHARGE directly against the separate
account assets. This charge will vary based on the group-sponsored insurance
program under which the certificate is issued. The annual rate will not exceed
..50 percent of the average daily assets of the separate account. The mortality
and expense risk charge compensates us for assuming the risk that the cost of
insurance and other charges will be insufficient to cover the actual mortality
experience and other costs in connection with the policies.
Differences in the mortality and expense risk charge rates applicable to
different group-sponsored insurance programs will be determined by us based on
differences in the levels of mortality and expense risk under those contracts.
Differences in mortality and expense risk arise principally from the fact that:
(1) the factors used to determine cost of insurance and administration charges
are more uncertain for some group-sponsored insurance programs than for others;
and (2) our ability to recover any unexpected mortality and administration costs
will also vary from group-sponsored insurance program to group-sponsored
insurance program, depending on the charges established for policies issued
under the group-sponsored insurance program, and on other financial factors.
We reserve the right to deduct a charge against the separate account
assets, or make other provisions for, any additional tax liability we may incur
with respect to the separate account, the group contract or the certificates, to
the extent that those liabilities exceed the amounts recovered through the
deduction from premiums for premium taxes and OBRA related expenses. No such
charge or provision is made at the present time.
FUND CHARGES
Shares of the Funds are purchased for the separate account at their net
asset value, which reflects advisory fees and portfolio expense fees which are
assessed against the net asset value of each of the Portfolios of the Funds.
Advisory fees and portfolio expense fees of the Fund are described in each
Fund's prospectus.
GUARANTEE OF CERTAIN CHARGES
We will not increase the following charges for group policies: (1) the
maximum sales charge; (2) the maximum premium tax charge; (3) the OBRA expense
charge (unless there is a change in the law regarding the federal income tax
treatment of deferred acquisition costs); (4) the maximum cost of insurance
charge; (5) the maximum administration charge; (6) the maximum partial surrender
transaction charge; (7) the maximum transfer charge; and (8) the maximum
separate account charge for mortality and expense risk.
INFORMATION ABOUT THE GROUP POLICY AND CERTIFICATES
APPLICATIONS AND ISSUANCE
We will generally issue a group contract to a group, as defined and
permitted by state law. For example, a group contract may be issued to an
employer, whose employees and/or their spouses may become insured thereunder so
long as the person is within a class of members eligible to be included in the
group contract. The class(es) of members eligible to be insured by a certificate
under the group contract are set forth in that group contract's specifications
page. The group contract will be issued upon receipt of a signed application for
the group contract signed by a duly authorized officer of the group wishing to
enter into a group contract and the acceptance of that signed application by a
duly authorized officer of Minnesota Life at its home office. Individuals
wishing to purchase a certificate insuring an eligible member under a
group-sponsored insurance program must complete the appropriate application for
life insurance and
18
submit it to our home office. If the application is approved, we will issue
either a certificate or an individual policy to give to the owner. The issuance
of a group contract or an individual policy and their associated forms is always
subject to the approval of those documents by state insurance regulatory
authorities for use.
Individuals who satisfy the eligibility requirements under a particular
group contract may be required to submit to an underwriting procedure which
requires satisfactory responses to certain health questions in the application
and to provide, in some cases, medical information. Acceptance of an application
is subject to our underwriting rules, and we reserve the right to reject an
application for any reason.
A certificate will not take effect until the owner signs the appropriate
application for insurance, the initial premium has been paid prior to the
insured's death, the insured is eligible, and we approve the completed signed
application. The date on which the last event occurs shall be the effective date
of coverage ("issue date").
DOLLAR COST AVERAGING
We currently offer a dollar cost averaging option enabling the owner to
preauthorize automatic monthly or quarterly transfers from the Series Fund Money
Market Sub-Account to any of the other sub-accounts. There is no charge for this
option. The transfers will occur on monthly anniversaries. Dollar cost averaging
is a systematic method of investing in which securities are purchased at regular
intervals in fixed dollar amounts so that the cost of the securities is averaged
over time and possibly over various market values. Since the value of the units
will vary over time, the amounts allocated to a sub-account will result in the
crediting of a greater number of units when the unit value is low and a lesser
number of units when the unit value is high.
Dollar cost averaging does not guarantee profits, nor does it assure that a
certificate will not have losses.
To elect dollar cost averaging the owner must have at least $3,000 in the
Series Fund Money Market Sub-Account. The automatic transfer amount from the
Series Fund Money Market Sub-Account must be at least $250. The minimum amount
that may be transferred to any one of the other sub-accounts is $50. We reserve
the right to discontinue, modify or suspend the dollar cost averaging program at
any time.
A dollar cost averaging request form is available to the owner upon
request. On the form the owner will designate the specific dollar amount to be
transferred, the sub-accounts to which the transfer is to be made, the desired
frequency of the transfer and the total number of transfers to be made. If at
any time while the dollar cost averaging option is in effect, the amount in the
Series Fund Money Market Sub-Account is insufficient to cover the amount
designated to be transferred the current election in effect will terminate.
An owner may instruct us at any time to terminate the dollar cost averaging
election by giving us a request in writing or through any other method made
available by us under the group-sponsored insurance program. The amount from
which transfers were being made will remain in the Series Fund Money Market
Sub-Account unless a transfer request is made. Transfers made pursuant to the
dollar cost averaging option will not be subject to any transfer charges, in the
event such charges are imposed.
FREE LOOK
It is important to us that the owner is satisfied with the certificate
after it is issued. If the owner is not satisfied with it, the owner may return
the certificate to us within 10 days after the owner receives it. If the
certificate is returned, the owner will receive within seven days of the date we
receive the notice of cancellation a full refund of the premiums paid or the net
cash value of the certificate, if greater.
A request for an increase in face amount also may be canceled. The request
for cancellation must be made within the 10 days, or that period required by
applicable state law, after the owner receives the new certificate
specifications page for the increase.
Upon cancellation of an increase, the owner may request that we refund the
amount of the additional charges deducted in connection with the increase. This
will equal the amount by which the monthly deductions since the increase went
into effect exceeded the monthly deductions which would have been made without
the increase. If no request is made for a refund, we will increase the
certificate's account value by the amount of these additional charges. This
amount will be
19
allocated among the sub-accounts of the separate account and guaranteed account
in the same manner as it was deducted.
CONTINUATION OF GROUP COVERAGE
If the insured's eligibility under a group contract ends, the owner's
current group coverage may continue unless the certificate is no longer in force
or the limitations below apply as of the date eligibility ends:
- The group contract has terminated; or
- The owner has less than the required minimum in his or her net cash value
after deduction of charges for the month in which eligibility ends. The
required minimum will vary based on the group-sponsored program under which
the certificate is issued. The required minimum will never be higher than
$250.
The insurance amount will not change unless the owner requests a change. We
reserve the right to alter all charges not to exceed the maximums. These charges
may be higher than those applicable to policies under the group contract that
have not been continued under this provision.
Termination of the group contract by the contractholder or us will not
terminate the insurance then in force under the terms of the continuation
provision. The group contract will be deemed to remain in force solely for the
purpose of continuing such insurance, but without further obligation of the
contractholder.
CONVERSION RIGHT TO AN INDIVIDUAL POLICY
If life insurance provided under the group contract is not continued upon
termination of the insured's eligibility under the group contract, or if the
group contract terminates or is amended so as to terminate the insurance, the
owner may convert the insurance under the group certificate to an individual
policy of life insurance with us subject to the following:
- The owner's written application to convert to an individual policy and the
first premium for the individual policy must be received in our home office
within 31 days of the date the owner's insurance terminates under the group
contract.
- The owner may convert all or a part of the group insurance in effect on the
date that the owner's coverage terminated to any individual life insurance
policy we offer, except a policy of term insurance. We will issue the
individual policy on the policy forms we then use for the plan of insurance
the owner has requested, and the owner may choose any death benefit option
offered by such policy forms. The premium charge for this insurance will be
based upon the insured's age as of his or her nearest birthday.
- If the insured should die within 31 days of the date that the group
contract terminates, the full amount of insurance that could have been
converted under this policy will be paid.
In the case of the termination of the group contract, we may require that
an insured under a certificate issued under the group contract be so insured for
at least five years prior to the termination date in order to qualify for the
above conversion privilege.
GENERAL PROVISIONS OF THE GROUP CONTRACT
ISSUANCE The group contract will be issued upon receipt of an application for
group insurance signed by a duly authorized officer of the group sponsor and
acceptance by a duly authorized officer of Minnesota Life at our home office.
TERMINATION The contractholder may terminate a group contract by giving us 31
days prior written notice of the intent to terminate. In addition, we may
terminate a group contract or any of its provisions on 61 days' notice. We may
elect to limit the situations in which we may exercise our right to terminate
the group contract to situations such as the non-payment of premiums or where,
during any twelve month period, the aggregate specified face amount for all
certificates under the group contract or the number of certificates under a
group contract decreases by certain amounts or below the minimum permissible
levels we establish for the group contract. No individual may become insured
under the group contract after the effective date of a notice of termination.
However, if the group contract terminates, certificates may be allowed to
convert to individual coverage as described under the "Conversion Right to an
Individual Policy" section of this prospectus.
Upon termination of a group contract, we reserve the right to complete the
distribution
20
of account values attributable to the guaranteed account over a period of time
determined by us, but not more than six months. This delayed distribution does
not in any way continue or extend any insurance that has otherwise terminated
due to termination of a group contract.
Termination of the group contract by the contractholder or us will not
terminate the insurance then in force under the terms of the continuation
provision. The group contract will be deemed to remain in force solely for the
purpose of continuing such insurance, but without further obligation of the
contractholder.
RIGHT TO EXAMINE GROUP CONTRACT The contractholder may terminate the group
contract within 10 days, or that period required by law, after receiving it. To
cancel the group contract, the contractholder should mail or deliver the group
contract to us.
ENTIRE GROUP CONTRACT The group contract, the attached copy of the
contractholder's signed application and any additional agreements constitute the
entire contract between the contractholder and us. All statements made by the
contractholder, any owner or any insured will be deemed representations and not
warranties. A misstatement will not be used in any contest or to reduce claim
under the group contract, unless it is in writing. A copy of the signed
application containing such misstatement must have been given to the
contractholder or to the insured or to his or her beneficiary, if any.
OWNERSHIP OF GROUP CONTRACT AND GROUP CONTRACT CHANGES The contractholder owns
the group contract. THE GROUP CONTRACT MAY BE CHANGED OR AMENDED BY AGREEMENT
BETWEEN US AND THE CONTRACTHOLDER WITHOUT THE CONSENT OF ANY PERSON CLAIMING
RIGHTS OR BENEFITS UNDER THE GROUP CONTRACT. ANY SUCH CHANGES MADE, THAT ARE NOT
MATERIAL TO THE INFORMATION PRESENTED IN THIS REGISTRATION STATEMENT, MAY BE
MADE WITHOUT NOTICE TO OR CONSENT OF THE CERTIFICATE OWNERS. However, unless the
contractholder owns all of the certificates issued under the group contract, the
contractholder does not have any ownership interest in the certificates issued
under the group contract. The rights and benefits under the certificates of the
owners, insureds and beneficiaries are as set forth in this prospectus and in
the certificates. Certificate owners have no rights or obligations under the
group contract other than those described in the group contract.
CERTIFICATE PREMIUMS
A premium must be paid to put a certificate in force, and may be remitted
to us by the group contractholder on behalf of the owner. The initial premium
for a certificate must cover the premium expense charges and the first monthly
deduction. Premiums paid after the initial premium may be in any amount. A
premium must be paid when there is insufficient net cash value to pay the
monthly deduction necessary to keep the certificate in force.
When the certificate is established, the certificate's specifications page
may show premium payments scheduled and the amounts of those payments. However,
under the certificate, the owner may elect to omit making those premium
payments. Failure to pay one or more premium payments will not cause the
certificate to lapse until such time as the net cash value is insufficient to
cover the next monthly deduction. Therefore, unlike traditional insurance
certificates, a certificate does not obligate the owner to pay premiums in
accordance with a rigid and inflexible premium schedule.
Failure of a group contractholder to remit the authorized premium payments
may cause the group contract to terminate. Nonetheless, provided that there is
sufficient net cash value to prevent the certificate from lapsing, the owner's
insurance can be converted to an individual policy of life insurance in the
event of such termination. (See "Conversion Right to an Individual Policy".) The
owner's
21
insurance can continue if the insured's eligibility under the group-sponsored
insurance program terminates because the insured is no longer a part of the
group or otherwise fails to satisfy the eligibility requirements set forth in
the specifications page to the group contract or certificate. (See "Continuation
of Group Coverage".)
PREMIUM LIMITATIONS
After the payment of the initial premium, and subject to the limitations
described in this prospectus, premiums may be paid at any time in any amount
while the insurance is in force under the certificate. Since the certificate
permits flexible premium payments, it may become a modified endowment contract.
(See "Federal Tax Status".) When we receive the signed application, our systems
will test the owner's elected premium schedule to determine, if it is paid as
scheduled and if there is no change made to the certificate, whether it will
result in the certificate being classified as a modified endowment contract for
federal income tax purposes. Our systems will continue to test the certificate
with each premium payment to determine whether the certificate has attained this
tax status. If we determine that the certificate has attained the status of a
modified endowment contract, we will mail the owner a notice. The owner will be
given a limited amount of time, subject to the restrictions under the Code, to
request that the certificate maintain the modified endowment contract status. If
the owner does not request to have this tax status maintained, the excess
premium amounts paid that caused this tax status will be returned with interest
at the end of the certificate year to avoid the certificate being classified as
a modified endowment contract. The owner may request an immediate refund if it
is desired earlier.
ALLOCATION OF NET PREMIUMS AND ACCOUNT VALUE
Net premiums, which are premiums after the deduction of the charges
assessed against premiums, are allocated to the guaranteed account and/or
sub-accounts of the separate account which, in turn, invest in shares of the
Funds. Net premiums are valued as of the end of the valuation period in which
they are received. For a discussion of valuation periods see the "Unit Value"
section of this prospectus.
The owner makes the selection of the sub-accounts and/or the guaranteed
account on the signed application for the certificate. The owner may change the
allocation instructions for future premiums by giving us a request in writing or
through any other method made available by us under the group-sponsored
insurance program. The allocation to the guaranteed account or to any
sub-account of the separate account must be at least 10 percent of the net
premium.
Where the contractholder owns all the certificates and in certain other
circumstances (for example, for split-dollar insurance programs), we will delay
the allocation of net premiums to sub-accounts or the guaranteed account for a
period of 10 days after certificate issue to reduce market risk during this
"free look" period. Net premiums will be allocated to the Money Market
Sub-Account until the end of the period. We reserve the right to similarly delay
the allocation of net premiums to sub-accounts for other group-sponsored
insurance programs for a period of 10 days after certificate issue or
certificate change. This right will be exercised by us only when we believe
economic conditions make it necessary to reduce market risk during the "free
look" period. If we exercise this right, net premiums will be allocated to the
Money Market Sub-Account until the end of the period.
We reserve the right to restrict the allocation of net premiums to the
guaranteed account for certificates under some group-sponsored insurance
programs. For these certificates, the maximum allocation of net premiums to the
guaranteed account will range from 0 percent to 50 percent of the net premium.
Under certain group-sponsored insurance programs we have exercised this right by
prohibiting allocations to the guaranteed account. Any such prohibitions will be
identified in the certificates.
If mandated by applicable law, we may be required to reject a premium
payment until instructions are received from appropriate regulators. We also may
be required to provide additional information about you and your account to
government regulators.
22
DEATH BENEFIT AND ACCOUNT VALUES
If the certificate is in force at the time of the insured's death, upon
receipt of due proof of death, we will pay the death benefit proceeds of the
certificate based on the death benefit option elected by the contractholder.
Only the group sponsor may choose one of two death benefit options. The
death benefit option so chosen shall be the same for all participants under the
group-sponsored program. Once elected, the death benefit option chosen by the
group-sponsor shall remain unchanged. There is a level death benefit ("Option
A") and a variable death benefit ("Option B"). The death benefit under either
option will never be less than the current face amount of the certificate (less
any unpaid monthly deductions) as long as the certificate remains in force and
there are no loans. The face amount elected must be at least the minimum stated
on the specifications page of the certificate.
OPTION A -- LEVEL DEATH BENEFIT
The amount of the death benefit for Option A is determined as follows:
- the face amount of insurance on the insured's date of death while the
certificate is in force; plus
- the amount of the cost of insurance for the portion of the certificate
month from the date of death to the end of the certificate month; less
- any outstanding certificate loans and accrued loan interest charged; less
- any unpaid monthly deductions determined as of the date of the insured's
death.
OPTION B -- INCREASING DEATH BENEFIT
The amount of the death benefit for Option B is determined as follows:
- the face amount of insurance on the insured's date of death while the
certificate is in force; plus
- the amount of the owner's account value as of the date we receive due proof
of death satisfactory to us; plus
- the amount of the cost of insurance for the portion of the certificate
month from the date of death to the end of the certificate month; plus
- any monthly deductions taken under the certificate since the date of death;
less
- any outstanding certificate loans and accrued loan interest charged; less
- any unpaid monthly deductions determined as of the date of the insured's
death.
At issue, the group sponsor may choose between two tests that may be used
to determine if a certificate qualifies as life insurance as defined by Section
7702 of the Code. Once a test is selected for a certificate, it shall remain
unchanged for that certificate. The group sponsor must select the same test for
all certificates. The two tests are the Guideline Premium/Cash Value Corridor
Test and the Cash Value Accumulation Test. The test selected will determine how
the death benefit is calculated in the event the account value or the premiums
paid exceed certain limits established under Section 7702. For a more detailed
discussion of these two tests, please see the Statement of Additional
Information.
CHANGE IN FACE AMOUNT
Subject to certain limitations set forth below, an owner may increase or
decrease the face amount of a certificate. A written request must be sent
directly to us for a change in the face amount. A change in the face amount will
affect the net amount at risk which affects the cost of insurance charge. (See
"Charges".) In addition, a change in the face amount of a certificate may result
in a material change in the certificate that may cause it to become a modified
endowment contract or may have other adverse federal income tax consequences.
More information on this subject and possible federal income tax consequences of
this result is provided under the "Federal Tax Status" section. You should
consult a tax adviser before changing the face amount of a certificate.
INCREASES If an increase in the current face amount is applied for, we reserve
the right to require evidence of insurability from the
23
insured. The increase will become effective on the monthly anniversary on or
following approval of the change or on any other date mutually agreed upon
between the owner and us. Although an increase need not necessarily be
accompanied by an additional premium (unless it is required to meet the next
monthly deduction), the net cash value in effect immediately after the increase
must be sufficient to cover the next monthly deduction.
With respect to premiums allocated to an increase, the owner will have the
same "free look," conversion, and refund rights with respect to an increase as
with the initial purchase of the owner's certificate. (See "Free Look".)
DECREASES Any decrease in the face amount will become effective on the monthly
anniversary on or following our receipt of the written request. However, the
amount of insurance on any insured may not be reduced to less than the minimum
face amount indicated on the specifications page which is attached to the
owner's certificate. Generally, this amount will be at least $10,000. If,
following a decrease in face amount, the certificate would not comply with the
maximum premium limitations required by federal tax law (see "Federal Tax
Status"), the decrease may be limited or the account value may be returned to
the owner (at the owner's election), to the extent necessary to meet these
requirements.
PAYMENT OF DEATH BENEFIT PROCEEDS
The amount payable as death proceeds upon the insured's death will be
determined according to the death benefit under the option elected. The death
benefit proceeds will also include any amounts payable under any riders.
If a rider permitting the accelerated payment of death benefit proceeds has
been added to the certificate, the death benefit may be paid in a single lump
sum prior to the death of the insured and may be less than otherwise would be
paid upon the death of the insured. (See "Additional Benefits".)
Death benefit proceeds will ordinarily be paid within seven days after we
receive all information required for such payment, including due proof of the
insured's death. Payment may, however, be postponed in certain circumstances.
Under Option A death benefit, interest will be paid on the death benefit from
the date of the insured's death until the date of payment. Under Option B death
benefit, interest will be paid on the face amount of insurance from the date of
the insured's death until the date of payment. The account value will remain as
invested in the guaranteed account and/or separate account until the date of
payment; therefore, the account value may increase or decrease in value from the
date of the insured's death to the date of the payment of the death proceeds.
Interest will also be paid on any charges taken under the certificate since the
date of death, from the date the charge was taken until the date of payment.
Interest will be at an annual rate determined by us, but never less than the
minimum guaranteed rate, compounded annually, or the minimum rate required by
state law. For group-sponsored programs implemented prior to May 1, 2001, the
minimum guaranteed annual rate is 4 percent. For group-sponsored programs
implemented on or after May 1, 2001 but prior to May 1, 2010, the minimum
guaranteed annual rate is 3 percent. For group-sponsored programs implemented on
or after May 1, 2010, the minimum guaranteed annual rate is the minimum rate
required by state law.
Death benefit proceeds will be paid to the surviving beneficiary specified
on the signed application or as subsequently changed. The owner may arrange for
death benefit proceeds to be paid in a single lump sum or under one of the
optional methods of settlement (See "Settlement Options").
When no election for an optional method of settlement is in force at the
death of the insured, the beneficiary may select one or more of the optional
methods of settlement at any time before death benefit proceeds are paid. (See
"Settlement Options").
An election or change of method of settlement must be in writing. A change
in beneficiary revokes any previous settlement election.
ACCOUNT VALUES
The certificate provides the owner certain account value benefits. Subject
to certain limitations, the owner may obtain access to the net cash value
portion of the account value of the certificate. The owner may borrow against
the certificate's loan value and may surrender the certificate in whole or in
part. The owner may also transfer the net cash value between the guaranteed
account and the sub-accounts
24
of the separate account or among the sub-accounts of the separate account.
We will send the owner a report each year advising the owner of the
certificate's account value, the face amount and the death benefit as of the
date of the report. It will also summarize certificate transactions during the
year, including premiums paid and their allocation, certificate charges, loan
activity and the net cash value. It will be as of a date within two months of
its mailing. We will also, upon the owner's request, send the owner an
additional statement of past transactions at any time for a $15 fee, which will
be deducted from the portion of account value that the owner specifies.
Also, upon request made to us at our home office, we will provide
information on the account value of a certificate to the owner. Such requests
may be in writing, by telephone, by facsimile transmission or any other method
made available by us under the group-sponsored insurance program. More
information on the procedures to make requests by telephone call or other
electronic means is provided under the "Transfers" section of this prospectus.
DETERMINATION OF THE GUARANTEED ACCOUNT VALUE The guaranteed account value is
the sum of all net premium payments allocated to the guaranteed account. This
amount will be increased by any interest, experience credits (see the Statement
of Additional Information for a detailed discussion), loan repayments, loan
interest credits and transfers into the guaranteed account. This amount will be
reduced by any certificate loans, loan interest charged, partial surrenders,
transfers into the sub-accounts of the separate account and charges assessed
against the owner's guaranteed account value. Interest is credited on the
guaranteed account value of the certificate at a rate of not less than the
minimum guaranteed annual rate, compounded annually. For group-sponsored
programs implemented prior to May 1, 2001, the minimum guaranteed annual rate is
4 percent. For group-sponsored programs implemented on or after May 1, 2001, the
minimum guaranteed annual rate is 3 percent. We guarantee the minimum rate for
the life of the certificate without regard to the actual experience of the
guaranteed account. As conditions permit, we may credit additional amounts of
interest to the guaranteed account value. The owner's guaranteed account value
is guaranteed by us. It cannot be reduced by any investment experience of the
separate account.
DETERMINATION OF THE SEPARATE ACCOUNT VALUE The certificate's separate account
value is determined separately. The separate account value is not guaranteed.
The determination of the separate account value is made by multiplying the
current number of sub-account units credited to a certificate by the current
sub-account unit value, for each sub-account in which the owner is invested. A
unit is an accounting device used to measure a certificate's interest in a
sub-account. The number of units credited with respect to each net premium
payment is determined by dividing the portion of the net premium payment
allocated to each sub-account by the then current unit value for that
sub-account. The number of units so credited is determined as of the end of the
valuation period during which we receive the owner's premium at our home office.
Once determined, the number of units credited to the owner's certificate
will not be affected by changes in the unit value. However, the number of units
will be increased by the allocation of subsequent periodic or lump sum net
premiums, experience credits, loan interest credits and transfers to that
sub-account. The number of additional units credited is determined by dividing
the net premiums, experience credits and transfers to that sub-account by the
then current unit value for that sub-account. The number of units of each
sub-account credited to the owner's certificate will be decreased by certificate
charges to the sub-account, loans and loan interest charges, transfers from that
sub-account and withdrawals from that sub-account. The reduction in the number
of units credited is determined by dividing the deductions to that sub-account,
loans and loan interest charges, transfers from that sub-account and withdrawals
from that sub-account by the then current unit value for that sub-account. The
number of sub-account units will decrease to zero on a certificate surrender.
UNIT VALUE The unit value of a sub-account will be determined on each valuation
date. A valuation date is each date on which a Fund Portfolio is valued. A
valuation period is the period between successive valuation dates measured from
the time of one determination to the next. The amount of any increase or
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decrease will depend on the net investment experience of that sub-account. The
value of a unit for each sub-account was originally set at $1.00 on the first
valuation date. For any subsequent valuation date, its value is equal to its
value on the preceding valuation date multiplied by the net investment factor
for that sub-account for the valuation period ending on the subsequent valuation
date.
NET INVESTMENT FACTOR The net investment factor for a valuation period is the
gross investment rate for such valuation period, less a deduction for the
mortality and expense risk charge under this certificate which is assessed at
the annual rate stated on the specifications page of the certificate against the
average daily net assets of each sub-account of the separate account. The gross
investment rate is equal to:
- the net asset value of a Portfolio share held in the sub-account of the
separate account determined at the end of the current valuation period;
plus
- the per share amount of any dividend or capital gains distribution by the
Portfolio if the "ex-dividend" date occurs during the current valuation
period; with the sum divided by
- the net asset value of the Portfolio share held in the sub-account
determined at the end of the preceding valuation period.
We reserve the right to deduct a charge against the separate account
assets, or make other provisions for, any additional tax liability we may incur
with respect to the separate account or the certificates, to the extent that
those liabilities exceed the amounts recovered through the deduction from
premiums for premium taxes and federal taxes.
DAILY VALUES We determine the value of the units in each sub-account on each day
on which the Portfolios of the Funds are valued. The net asset value of the
Funds' shares is computed once daily, and, in the case of the Money Market
Portfolio, after the declaration of the daily dividend, as of the primary
closing time for business on the New York Stock Exchange (as of the date hereof
the primary close of trading is 3:00 p.m. Central Time, but this time may be
changed) on each day, Monday through Friday, except (i) days on which changes in
the value of a Funds' portfolio securities will not materially affect the
current net asset value of such Funds' shares, (ii) days during which no shares
of a Fund are tendered for redemption and no order to purchase or sell such
Funds' shares is received by such Fund and (iii) customary national business
holidays on which the New York Stock Exchange is closed for trading.
SURRENDERS, PARTIAL SURRENDERS AND TRANSFERS
The owner may request a surrender of or a partial surrender from the
certificate at any time while the insured is living. To make a surrender or
partial surrender, the owner must send us a written request at our home office.
The owner will be paid a net cash value, computed as of the end of the valuation
period during which we receive the request at our home office. Surrender and
partial surrender requests received before the New York Stock Exchange closes
for regular trading receive same-day pricing. If we receive a surrender or
partial surrender request at or after the New York Stock Exchange closes
(usually 3:00 p.m. Central Time) for regular trading, we will process the order
using the unit values for the sub-accounts determined at the close of the next
regular trading session of the New York Stock Exchange. In the case of a
surrender, the payment can be in cash or, at the option of the owner, can be
applied to a settlement option. A surrender or partial surrender may have
federal income tax consequences. (See "Federal Tax Status".)
A partial surrender of the net cash value of the certificate is permitted
in any amount equal to at least the minimum established for certificates under
the group sponsored
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insurance program. The minimum will never exceed $500. The maximum amount cannot
exceed the maximum established for certificates under the group-sponsored
insurance program. The maximum will be either:
- (a) minus (b), where (a) is 90 percent of the account value and (b) is any
outstanding certificate loans plus accrued certificate loan interest
charged; or
- 100 percent of the net cash value. The maximum will be identified in the
certificate.
We reserve the right to limit the number of partial surrenders to one per
certificate month, change the minimum amount for partial surrenders, limit the
frequency of partial surrenders, or restrict or prohibit partial surrenders from
the guaranteed account. A partial surrender will cause a decrease in the face
amount equal to the amount withdrawn if the current death benefit option for the
certificate is Option A (level death benefit). A partial surrender has no effect
on the face amount if the current death benefit option for the certificate is
Option B (variable death benefit). However, since the account value is reduced
by the amount of the partial surrender, the death benefit is reduced by the same
amount, as the account value represents a portion of the death benefit proceeds.
On a partial surrender, the owner may designate the sub-accounts of the
separate account from which a partial surrender is to be taken or whether it is
to be taken in whole or in part from the guaranteed account. Otherwise, partial
surrenders will be deducted from the guaranteed account value and separate
account value in the same proportion that those values bear to the net cash
value and, as to the separate account value, from each sub-account in the
proportion that the sub-account value of each such sub-account bears to the
separate account value. We reserve the right to restrict or prohibit withdrawals
from the guaranteed account. We will tell the owner, on request, what amounts
are available for a partial surrender under the certificate.
A transaction charge will be deducted from the net cash value in connection
with a partial surrender for certificates under some group contracts. The amount
of the charge will never exceed the lesser of $25 or 2 percent of the amount
withdrawn. The charge will be allocated to the guaranteed account value and the
separate account value in the same proportion as those values bear to the net
cash value and, as to the separate account value, from each sub-account in the
same proportion that the sub-account value of each such sub-account bears to the
separate account value.
TRANSFERS
The certificate allows for transfers of the net cash value among the
available sub-accounts of the separate account, and from the guaranteed account
to the sub-accounts. Transfers of the net cash value from the sub-accounts to
the guaranteed account are available for certificates that allow for premium
allocations to the guaranteed account. Transfers may be made in writing, by
telephone or through any other method made available by us under the
group-sponsored insurance program.
There are restrictions to such transfers. The amount to be transferred to
or from a sub-account of the separate account or the guaranteed account must be
at least $250. If the balance in the guaranteed account or in the sub-account
from which the transfer is to be made is less than $250, the entire account
value attributable to that sub-account or the guaranteed account must be
transferred. If a transfer would reduce the account 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 amount in the sub-account with the amount transferred. We
also reserve the right to limit the number of transfers to one per certificate
month.
MARKET TIMING This policy is not designed to be used as a vehicle for frequent
trading (i.e., transfers) in response to short-term fluctuations in the
securities markets, often referred to generally as "market timing." Market
timing activity and frequent trading in your certificate can disrupt the
efficient management of the underlying portfolios an their investment
strategies, dilute the value of portfolio shares held by long-term shareholders,
and increase portfolio expenses (including brokerage or other trading costs) for
all portfolio shareholders, including long-term certificate owners invested in
affected portfolios who do not generate such expenses. It is the policy of
Minnesota Life to discourage market timing and frequent transfer activity, and,
when Minnesota Life becomes aware of such activity, to take
27
steps to attempt to minimize the effect of frequent trading activity in affected
portfolios. You should not purchase this certificate if you intend to engage in
market timing or frequent transfer activity.
We have developed policies and procedures to detect and deter market timing
and other frequent transfers, and we will not knowingly accommodate or create
exceptions for certificate owners engaging in such activity. We employ various
means to attempt to detect and deter market timing or other abusive transfers.
However, our monitoring may be unable to detect all harmful trading nor can we
ensure that the underlying portfolios will not suffer disruptions or increased
expenses attributable to market timing or abusive transfers resulting from other
insurance carriers which invest in the same portfolios. In addition, because
market timing can only be detected after it has occurred to some extent, our
policies to stop market timing activity do not go into effect until after we
have identified such activity.
We reserve the right to restrict the frequency of--or otherwise modify,
condition or terminate--any transfer method(s). Your transfer privilege is also
subject to modification if we determine, in our sole discretion, that the
exercise of the transfer privilege by you or other certificate owners is or
would be to the disadvantage of other certificate owners. Any new restriction
that we would impose will apply to your certificate without regard to when you
purchased it. We also reserve the right to implement and administer restrictions
and charge you for any fees, including redemption fees, that may be imposed by
an underlying portfolio attributable to transfers in your certificate and,
promptly upon request from an underlying portfolio, to provide certain
information to the portfolio or its designee about your trading activities. You
should read the Portfolio prospectuses for more details. The following factors
will be considered in determining whether to implement and administer any
restrictions and in assessing any fees:
- the dollar amount of the transfer(s);
- whether the transfers are part of a pattern of transfers that appear
designed to take advantage of market inefficiencies;
- whether an underlying portfolio has requested that we look into identified
unusual or frequent activity in a portfolio;
- the number of transfers in the previous calendar quarter;
- whether the transfers during a quarter constitute more than two "round
trips" in a particular portfolio. A round trip is a purchase into a
portfolio and a subsequent redemption out of the portfolio, without regard
to order.
In the event your transfer activity is identified as disruptive or
otherwise constitutes a pattern of market timing, you will be notified in
writing that your transfer privileges will be restricted in the future if the
activity continues. Upon detection of any further prohibited activity, you will
be notified in writing that your transfer privileges are limited to transfer
requests delivered via regular U.S. mail only. No fax, voice, internet, courier
or express delivery requests will be accepted. The limitations for the transfer
privileges in your certificate will be permanent.
In addition to our market timing procedures, the underlying portfolios may
have their own market timing policies and restrictions. While we reserve the
right to enforce the portfolios' policies and procedures, certificate owners and
other persons with interests under the certificates should be aware that we may
not have the contractual authority or the operational capacity to apply the
market timing policies and procedures of the portfolios, except that, under SEC
rules, we are required to: (1) enter into a written agreement with each
portfolio or its principal underwriter that obligates us to provide the
portfolio promptly upon request certain information about the trading activity
of individual certificate owners, and (2) execute instructions from the
portfolio to restrict or prohibit further purchases or transfers by specific
certificate owners who violate the market timing policies established by the
portfolios.
None of these limitations apply to transfers under systematic transfer
programs such as Dollar Cost Averaging.
In our sole discretion, we may revise our policies and procedures to detect
and deter market timing and other frequent transfer activity at any time without
prior notice.
GUARANTEED ACCOUNT TRANSFER RESTRICTIONS
There are additional restrictions to transfers involving the guaranteed account.
For group-sponsored insurance programs where the certificates do not allow for
premium allocations to the guaranteed account, the owner may not transfer
amounts into the guaranteed account.
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The following restrictions apply to group-sponsored insurance programs
where the guaranteed account is available for premium allocations, to
group-sponsored insurance programs where the contractholder owns all the
policies and in certain other circumstances (for example, for split-dollar
insurance programs). The maximum amount of net cash value to be transferred out
of the guaranteed account to the sub-accounts of the separate account at any one
time may be limited to 20 percent (or $250 if greater) of the guaranteed account
value. Transfers to or from the guaranteed account may be limited to one such
transfer per certificate year. We may further restrict transfers from the
guaranteed account by requiring that the request is received by us or postmarked
in the 30-day period before or after the last day of the certificate
anniversary. The certificate anniversary is the same day and month in each
succeeding year as the certificate date, or the same day and month in each
succeeding year as the date agreed to between the contractholder and us. The
certificate anniversary is shown on the specifications page attached to the
certificate. The certificate date is the first day of the calendar month on, or
following, the issue date. This is the date from which certificate years and
certificate months are measured. A certificate month is equal to a calendar
month. A certificate year is a period of one year measured from the certificate
date and from each successive certificate anniversary. Requests for transfers
which meet these conditions would be effective after we approve and record them
at our home office.
OTHER TRANSFER INFORMATION For transfers out of the separate account or among
the sub-accounts of the separate account, we will credit and cancel units based
on the sub-account unit values as of the end of the valuation period during
which the owner's request is received at our home office. Transfer requests
received before the New York Stock Exchange closes for regular trading receive
same-day pricing. If we receive a transfer request at or after the New York
Stock Exchange closes (usually 3:00 p.m. Central Time) for regular trading, we
will process the order using the unit values for the sub-accounts determined at
the close of the next regular trading session of the New York Stock Exchange.
Transfers from the guaranteed account will be dollar amounts deducted at the end
of the day on which the transfer request is approved at our home office.
A transfer is subject to a transaction charge. Currently, no such charge is
imposed on a transfer, but a charge, up to a maximum of $10 per transfer, may be
imposed in the future.
The owner's instructions for transfer may be made in writing or the owner,
or a person authorized by the owner, may make such changes by telephone. To do
so, the owner may call us at 1-800-843-8358 during our normal business hours of
8:00 a.m. to 4:45 p.m., Central Standard Time. Owners may also submit their
requests for transfer, surrender or other transactions to us by facsimile (FAX)
transmission. Our FAX number is 1-651-665-4827.
We may make other electronic transfer capabilities available to certificate
owners under some group-sponsored insurance programs. We will employ reasonable
procedures to satisfy ourselves that instructions received from certificate
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 certificate
owners to identify themselves in electronic transactions through certificate
numbers or such other information as we may deem to be reasonable. We record
electronic transfer instructions and we provide the certificate owners with a
written confirmation of the electronic transfers.
Transfers made pursuant to a telephone call or other electronic means are
subject to the same conditions and procedures as would apply to written transfer
requests. During periods of marked economic or market changes, owners may
experience difficulty in implementing a telephone or other electronic transfer
due to a heavy volume of network usage. In such a circumstance, owners should
consider submitting a written transfer request while continuing to attempt an
electronic redemption. For more information on electronic transfers, contact us.
Although we currently intend to continue to permit transfers in the
foreseeable future, the certificate provides that we may modify the transfer
privilege by changing the minimum amount transferable, by altering the frequency
of transfers, by imposing a transfer charge, by prohibiting transfers, or in
such other manner as we may determine at our discretion. For more information on
transactions related to your policy, you may contact us at 1-800-843-8358.
29
LOANS
The owner may borrow from us using only the certificate as the security for
the loan. The owner may borrow up to an amount equal to (a) less (b), where (a)
is 90 percent of the owner's account value and (b) is any outstanding
certificate loans plus accrued loan interest charged. A loan taken from or
secured by a certificate may have federal income tax consequences. (See "Federal
Tax Status".) The maximum loan amount is determined as of the date we receive
the owner's request for a loan.
Any loan paid to the owner in cash must be in an amount of at least $100.
We will charge interest on the loan in arrears. At the owner's request, we will
send the owner a loan request form for his or her signature. Loans may be
requested in writing, by telephone, by facsimile transmission, or by any other
method made available by us under the group-sponsored insurance program. More
information on the procedures to make requests by telephone call or other
electronic means is provided under the "Transfers" section of this prospectus.
When the owner takes a loan, we will reduce the net cash value by the
amount borrowed. This determination will be made as of the end of the valuation
period during which the loan request is received at our home office. Unless the
owner directs us otherwise, the loan will be taken from the guaranteed account
value and separate account value in the same proportion that those values bear
to the net cash value and, as to the separate account value, from each
sub-account in the proportion that the sub-account value of each such
sub-account bears to the owner's separate account value. The number of units to
be canceled will be based upon the value of the units as of the end of the
valuation period during which we receive the owner's loan request at our home
office. The amount borrowed continues to be part of the account value, as the
amount borrowed becomes part of the loan account value where it will accrue loan
interest credits and will be held in our general account. A loan has no
immediate effect on the owner's account value since at the time of the loan the
account value is the sum of the guaranteed account value, separate account value
and the loan account value. However, a certificate loan may have long term
impact on the account value as the amount borrowed no longer participates in the
investment experience of a sub-account. When a loan is to come from the
guaranteed account value, we have the right to postpone a loan payment for up to
six months.
If a certificate enters a grace period and if the net cash value is
insufficient to cover the monthly deduction and the loan repayment, the owner
will have to make a loan repayment to keep the certificate in force. We will
give the owner notice of our intent to terminate the certificate and the loan
repayment required to keep it in force. The time for repayment will be within 61
days after our mailing of the notice. There could be adverse tax consequences if
the certificate lapses or is surrendered when a loan is outstanding.
Outstanding loans and accrued interest will reduce surrender value and
death benefits payable.
LOAN INTEREST
The interest rate charged on a certificate loan will be 8 percent per year.
Interest charged will be based on a daily rate which if compounded for the
number of calendar days in the year will equal 8 percent annually, and
compounded for the number of days since loan interest charges were last updated.
The outstanding loan balance will increase as the interest charged on the
certificate loan accrues. The net cash value will decrease as the outstanding
loan balance increases. Loan interest charges are due at the end of the
certificate month. If the owner does not pay in cash the interest accrued at the
end of the certificate month, this unpaid interest will be added to the
outstanding loan balance. The new loan will be subject to the same rate of
interest as the loan in effect.
Interest is also credited to the amount of the certificate loan in the loan
account value. Interest credits on a certificate loan shall be at a rate which
is not less than 6 percent per year. Interest credited will be based on a daily
rate, which if compounded for the number of calendar days in the year will be at
least 6 percent annually, and compounded for the
30
number of days since loan interest charges were last updated.
Loan interest charges and loan interest credits are allocated monthly, at
loan repayment, at certificate surrender and at death. Loan interest charges and
loan interest credits are allocated to a certificate's guaranteed account value
and separate account value in the same proportion that those values bear to the
net cash value and, as to the separate account value, to each sub-account in the
proportion that the sub-account value of each such sub-account bears to the
separate account value.
LOAN REPAYMENTS
If the certificate is in force, the loan can be repaid in part or in full
at any time before the insured's death. The 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 certificate. Any loan repayment must be at least $100 unless
the balance due is less than $100. We currently accept loan repayment checks at
our home office.
Loan repayments are allocated to the guaranteed account. The owner may
reallocate amounts in the guaranteed account among the sub-accounts of the
separate accounts, subject to the limitations in this prospectus and the
certificate on such transfers. For a discussion of the transfer restrictions
applicable to the guaranteed account please see the "Transfers" section of this
prospectus. Loan repayments reduce the owner's outstanding loan balance by the
amount of the loan repayment. Loan repayments will be applied first to interest
accrued since the end of the prior certificate month. Any remaining portion of
the repayment will then reduce the loan. The net cash value will increase by the
amount of the loan repayment.
A loan, whether or not it is repaid, will have a permanent effect on the
account value and the death benefit because the investment results of the
sub-accounts will apply only to the amount remaining in the sub-accounts. The
effect could be either positive or negative. If net investment results of the
sub-accounts are greater than the rate credited on the loan, the account value
will not increase as rapidly as it would have if no loan had been made. If
investment results of the sub-accounts are less than the rate credited on the
loan, the account value will be greater than if no loan had been made.
LAPSE AND REINSTATEMENT
LAPSE
Unlike traditional life insurance certificates, the failure to make a
premium payment following the payment of the premium which puts the certificate
into force will not itself cause a certificate to lapse. Lapse will occur only
when the net cash value is insufficient to cover the monthly deduction, and the
subsequent grace period expires without sufficient payment being made.
The grace period is 61 days. The grace period will start on the day we mail
the owner a notice that the certificate will lapse if the premium amount
specified in the notice is not paid by the end of the grace period. We will mail
this notice on any certificate's monthly anniversary when the net cash value is
insufficient to pay for the monthly deduction for the insured. The notice will
specify the amount of premium required to keep the certificate in force and the
date the premium is due. If we do not receive the required amount within the
grace period, the certificate will lapse and terminate without account value.
Upon lapse, any outstanding loans and accrued interest is extinguished and any
collateral in the loan account returned to us. If you die during the grace
period an otherwise valid claim will not be denied on the grounds that coverage
has lapsed. We reserve the right to deduct any outstanding premium due from the
death benefit. The death benefit amount under the death benefit option in
effect, at the time of the insured's death, will be paid if death occurs during
the grace period.
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REINSTATEMENT
A lapsed certificate may be reinstated, any time within three years from
the date of lapse, provided the insured is living and subject to the limitations
described below. Reinstatement is made by payment of an amount that, after the
deduction of premium expense charges, is large enough to cover all monthly
deductions which have accrued on the certificate up to the effective date of
reinstatement, plus the monthly deductions for the two months following the
effective date of reinstatement. If any loans and loan interest charges are not
repaid, this indebtedness will be reinstated along with the insurance. No
evidence of the insured's insurability will be required during the first 31 days
following lapse, but will be required from the 32nd day to three years from the
date of lapse.
The amount of account value on the date of reinstatement will be equal to
the amount of any loans and loan interest charges reinstated increased by the
net premiums paid at the time of reinstatement.
The effective date of reinstatement will be the date we approve the signed
application for reinstatement. There will be a full monthly deduction for the
certificate month that includes that date.
ADDITIONAL BENEFITS
Subject to certain requirements, one or more of the following additional
insurance benefits may be added to the certificate by rider. However, some group
contracts may not offer each of the additional benefits described below. Certain
riders may not be available in all states. The descriptions below are intended
to be general; the terms of the certificate riders providing the additional
benefits may vary from state to state, and the certificate should be consulted.
New benefit riders which are subsequently developed may also be offered under
some group-sponsored insurance programs, and the terms of the riders will be
identified in the certificate. The cost of any additional insurance benefits
will be deducted as part of the monthly deduction.
ACCELERATED BENEFITS RIDER Provides for the accelerated payment of all or a
portion of the death benefit proceeds if the insured is terminally ill, subject
to the minimums and maximums specified in the rider. Eligibility requirements
and conditions for payment of accelerated benefits are also described in the
rider. The amount of accelerated benefits payable is calculated by multiplying
the death benefit by an accelerated benefit factor defined in the rider.
Accelerated benefits will be paid to the owner unless the owner validly assigns
them otherwise. The receipt of benefits under the rider may have tax
consequences and the owner should seek assistance from a qualified tax adviser.
There is no charge for this rider.
WAIVER OF PREMIUM RIDER Provides for the waiver of the monthly deduction while
the insured is totally disabled (as defined in the rider), subject to certain
limitations described in the rider. The insured must have become disabled before
the age specified in the rider.
ACCIDENTAL DEATH AND DISMEMBERMENT RIDER Provides additional insurance if the
insured dies or becomes dismembered as a result of an accidental bodily injury,
as defined in the rider. Under the terms of the rider, the additional benefits
provided in the certificate will be paid upon receipt of proof by us that the
death or dismemberment resulted directly from accidental injury and
independently of all other causes. The death or dismemberment must occur within
the timeframes specified in the rider.
CHILD RIDER Provides for term insurance on the insured's children, as specified
in the rider. To be eligible for the insurance, a child must be of eligible age
as indicated in the rider and be dependent upon the insured for financial
support. Under terms of the rider, the death benefit will be payable to the
owner of the certificate to which the rider is attached.
SPOUSE RIDER Provides for term insurance on the insured's spouse and children,
as specified in the rider. To be eligible for the insurance, spouse and children
must meet the eligibility requirements indicated in the rider. Under terms of
the rider, the death benefit will be payable to the owner of the certificate to
which the rider is attached.
POLICYHOLDER CONTRIBUTION RIDER Allows the contractholder to pay for all or a
portion of the monthly charges under the certificate without affecting the
account value which may accumulate due to employee-paid net premiums. The
portion of the net premium paid by the contractholder will be allocated to the
guaranteed account. On the same day such premium is allocated, the charges the
32
contractholder intends to cover will be deducted from the guaranteed account
value. There is no charge for this rider.
GENERAL MATTERS RELATING TO THE CERTIFICATE
POSTPONEMENT OF PAYMENTS Normally, we will pay any certificate proceeds within
seven days after our receipt of all the documents required for such a payment.
Other than the death proceeds for a certificate with an Option B death benefit,
for which the account value portion of the death benefit is determined as of the
date of payment, the amount of payment will be determined as of the end of the
valuation period during which a request is received at our home office. However,
we reserve the right to defer certificate payments, including loans, for up to
six months from the date of the owner's request, if such payments are based upon
certificate values which do not depend on the investment performance of the
separate account. In that case, if we postpone a payment other than a loan
payment for more than 31 days, we will pay the owner interest for the period
that payment is postponed at the greater of the minimum guaranteed annual rate
or the minimum rate required by state law. For group-sponsored programs
implemented prior to May 1, 2001, the minimum guaranteed annual rate is 4
percent. For group-sponsored programs implemented on or after May 1, 2001 but
prior to May 1, 2010, the minimum guaranteed annual rate is 3 percent. For
group-sponsored programs implemented on or after May 1, 2010, the minimum
guaranteed annual rate is the minimum rate required by state law. For payments
based on certificate values which do depend on the investment performance of the
separate account, we may defer payment: (a) for any period during which the New
York Stock Exchange is closed for trading (except for normal holiday closing);
or (b) when the Securities and Exchange Commission has determined that a state
of emergency exists which may make such payment impractical.
Payment of a surrender or partial surrender will be made as soon as
possible, but not later than seven days after our receipt of the owner's written
request for surrender or partial surrender. However, if any portion of the net
cash value to be surrendered is attributable to a premium payment made by
non-guaranteed funds such as a personal check, we will delay mailing that
portion of the surrender proceeds until we have reasonable assurance that the
payment has cleared and that good payment has been collected. The amount the
owner receives on surrender may be more or less than the total premiums paid
under the certificate.
If mandated by applicable law, we may be required to block an owner's
account and thereby refuse to pay any request for transfer, partial surrender,
surrender, loan or death benefit proceeds until instructions are received from
the appropriate regulator. We also may be required to provide additional
information about you and your account to government regulators.
THE CERTIFICATE The certificate, the attached signed application, endorsements,
any signed application for an increase in face amount and any signed application
for reinstatement constitute the entire contract between the owner and us. Apart
from the rights and benefits described in the certificate and incorporated by
reference into the group contract, the owner has no rights under the group
contract. All statements made by the owner or insured in the signed application
are considered representations and not warranties, except in the case of fraud.
Only statements in the application and any supplemental applications can be used
to contest a claim or the validity of the certificate. Any change to the
certificate must be approved in writing by the President, a Vice President,
Secretary or an Assistant Secretary of Minnesota Life. No agent has the
authority to alter or modify any of the terms, conditions or agreements of the
group policy or certificate or to waive any of its provisions.
CONTROL OF CERTIFICATE The insured will be considered the owner of the
certificate unless another person is shown as the owner in the signed
application. Ownership may be changed, however, by assigning the certificate as
described below. The owner is entitled to all rights provided by the
certificate, prior to its maturity date. After the maturity date, the owner
cannot change the payee nor the mode of payment, unless otherwise provided in
the certificate. Any person whose rights of ownership depend upon some future
event will not possess any present rights of ownership. If there is more than
one owner at a given time, all must exercise the rights of ownership. If the
owner should die, and the owner is not the insured, the owner's interest will go
to his or her estate unless otherwise provided.
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MATURITY A certificate of insurance under the group contract matures in an
amount equal to the certificate's net cash value upon the insured's 95th
birthday.
BENEFICIARY The beneficiary is the person(s) named in a signed application for
insurance or by later designation to receive certificate proceeds in the event
of the insured's death. The owner may name one or more beneficiaries on the
signed application to receive the death benefit. The owner may choose to name a
beneficiary that the owner cannot change without the beneficiary's consent. This
is called an irrevocable beneficiary. If the owner has not named an irrevocable
beneficiary, the owner has reserved the right to change the beneficiary by
filing a subsequent written request with us. In that event, we will pay the
death benefit to the beneficiary named in the most recent change of beneficiary
request as provided for in the certificate.
If a beneficiary dies before the insured, that beneficiary's interest in
the certificate ends with that beneficiary's death. Only those beneficiaries who
survive the insured will be eligible to share in the proceeds. If no beneficiary
survives the insured we will pay the proceeds according to the order of priority
identified in the group contract.
CHANGE OF BENEFICIARY If the owner has reserved the right to change the
beneficiary, the owner can file a written request with us to change the
beneficiary. If the owner has named an irrevocable beneficiary, the written
consent of the irrevocable beneficiary will be required. The owner's written
request will not be effective until it is recorded in our home office records.
After it has been so recorded, it will take effect as of the date the owner
signed the request.
However, if the insured dies before the request has been so recorded, the
request will not be effective as to those proceeds we have paid before the
owner's request was so recorded.
SETTLEMENT OPTIONS The death benefit proceeds of a certificate will be payable
if we receive due proof satisfactory to us of the insured's death while it is in
force. The proceeds will be paid from our home office and in a single sum unless
a settlement option has been selected.
We will pay interest on the face amount of single sum death proceeds from
the date of the insured's death until the date of payment at any annual rate to
be determined by us, but never less than the minimum guaranteed rate, compounded
annually, or the minimum rate required by state law. For group-sponsored
programs implemented prior to May 1, 2001, the minimum guaranteed annual rate is
4 percent. For group-sponsored programs implemented on or after May 1, 2001 but
prior to May 1, 2010, the minimum guaranteed annual rate is 3 percent. For
group-sponsored programs implemented on or after May 1, 2010, the minimum
guaranteed annual rate is the minimum rate required by state law. Death benefits
proceeds arising from the account value, as under Option B, will continue to
reflect the separate account experience until the time of payment of those
amounts.
The proceeds of a certificate may be paid in other than a single sum and
the owner may, during the lifetime of the insured, request that we pay the
proceeds under one of the certificate's settlement options. We may also use any
other method of payment acceptable to both the owner and us. Unless the owner
elects otherwise, a beneficiary may select a settlement option after the
insured's death. A settlement option may be selected only if the payments are to
be made to a natural person in that person's own right.
You may also choose to place the proceeds in a Minnesota Life Benefit
Account until you elect a single sum payment or a settlement option. The Benefit
Account is an interest-bearing account. Account information, along with a book
of drafts (which will function like a checkbook), will be sent to you, and you
will have access to funds in the account simply by writing a draft for all or
part of the amount of the available balance, and depositing or using the draft
as desired. When the draft is paid through the bank that administers the account
for Minnesota Life, the bank will receive the amount you request as a transfer
from our general account. The Benefit Account is not a bank account, and it is
not insured by the FDIC or any other government agency. As part of our general
account, the Benefit Account is backed by the financial strength of Minnesota
Life, although it is subject to the claims of our creditors.
Each settlement option is payable in fixed amounts as described below. A
person electing a settlement option will be asked to sign an agreement covering
the election which will state the terms and conditions of the payments. The
payments do not vary with the
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investment performance of the separate account.
- INTEREST PAYMENTS This option will provide payment of interest on the
proceeds at such times and for a period that is agreeable to the person
electing the settlement option and us. Withdrawal of proceeds may be made
in amounts of at least $500. At the end of the period, any remaining
proceeds will be paid in either a single sum or under any other method we
approve.
- FIXED PERIOD ANNUITY This is an annuity payable in monthly installments for
a specified number of years, from one to twenty years. The amount of
guaranteed payments for each $1,000 of proceeds applied would be shown on
the settlement option agreement.
- LIFE ANNUITY This is an annuity payable monthly during the lifetime of the
person who is to receive the income and terminating with the last monthly
payment immediately preceding that person's death. We may require proof of
the age and gender of the annuitant. The amount of guaranteed payments for
each $1,000 of proceeds applied would be shown in the settlement option
agreement. It would be possible under this option for the annuitant to
receive only one annuity payment if he or she died prior to the due date of
the second annuity payment, two if he or she died before the due date of
the third annuity payment, etc.
- PAYMENTS OF A SPECIFIED AMOUNT This is an annuity payable in a specified
amount until the proceeds and interest are fully paid.
The minimum amount of interest we will pay under any settlement option will
never be less than the minimum guaranteed annual rate, compounded annually, or
the minimum rate required by state law. For group-sponsored programs implemented
prior to May 1, 2001, the minimum guaranteed annual rate is 4 percent. For
group-sponsored programs implemented on or after May 1, 2001 but prior to May 1,
2010, the minimum guaranteed annual rate is 3 percent. For group-sponsored
programs implemented on or after May 1, 2010, the minimum guaranteed annual rate
is the minimum rate required by state law.
Additional interest earnings, if any, on deposits under a settlement option
will be payable as determined by us.
Even if the death benefit under a certificate is excludible from income,
payments under settlement options may not be excludible in full. This is because
earnings on the death benefit after the death of the insured are taxable and
payments under the settlement options generally include such earnings. You
should consult a tax adviser as to the tax treatment of payments under
settlement options.
FEDERAL TAX STATUS
INTRODUCTION
This discussion of federal income 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. No representation is made regarding the likelihood of
continuation of current income tax laws or the current interpretations of the
Internal Revenue Service ("IRS"). We have not attempted to consider any
applicable state or other tax laws.
TAXATION OF MINNESOTA LIFE AND THE VARIABLE UNIVERSAL LIFE ACCOUNT
We are taxed as a "life insurance company" under the Internal Revenue Code.
The operations of the separate account form a part of, and are taxed with, our
other business activities. Currently, no federal income tax is payable by us on
income dividends received by the separate account or on capital gains arising
from the separate account's activities. The separate account is not taxed as a
"regulated investment company" under the Code and it does not anticipate any
change in that tax status.
35
At the present time, we make no charge to the separate account or from
premium payments for any federal, state or local taxes (other than state premium
taxes and federal taxes under OBRA) that we incur that may be attributable to
such account or to the policies. We, however, reserve the right in the future to
make a charge for any such tax or other economic burden resulting from the
application of the tax laws that we determine to be properly attributable to the
separate account or the policies.
In calculating our corporation income tax liability, we derive certain
corporate income tax benefits associated with the investment of company assets,
including separate account assets that are treated as company assets under
applicable income tax law. These benefits, which reduce our overall corporate
income tax liability may include dividends received deductions and foreign tax
credits which can be material. We do not pass these benefits through to the
separate accounts, principally because: (i) the majority of the benefits results
from the dividends received deduction, which involves no reduction in the dollar
amount of dividends that the separate account receives; and (ii) under
applicable income tax law, for the purposes of both the dividends received
deductions and the foreign tax credits, contract owners are not the owners of
the assets generating those benefits.
TAX STATUS OF CERTIFICATES
Under Section 7702 of the Code, life insurance contracts such as the
certificates will be treated as life insurance for federal tax purposes 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 believe that a certificate issued in respect
of a standard risk should meet the statutory definition of a life insurance
contract under Section 7702. With respect to a certificate issued on a
substandard basis (i.e., a premium class involving higher than standard
mortality risk), there is insufficient guidance to determine if such a
certificate would satisfy the Section 7702 definition of a life insurance
contract. If it is subsequently determined that a certificate does not satisfy
Section 7702, we may take whatever steps are appropriate and necessary to
attempt to cause such a certificate to comply with Section 7702.
DIVERSIFICATION OF INVESTMENTS
Section 817(h) of the Code authorizes the Treasury Department to set
standards by regulation or otherwise for the investments of the Variable
Universal Life Account to be "adequately diversified" in order for the
certificate to be treated as a life insurance contract for federal income tax
purposes. The Variable Universal Life Account, through the fund portfolios,
intends to comply with the diversification requirements prescribed in
Regulations Section 1.817-5, which affect how the portfolio's assets may be
invested. Although the investment adviser of the Advantus Series Fund is an
affiliate of ours, we do not control the Advantus Series Fund or the investments
of its portfolios. Nonetheless, we believe that each portfolio of the Advantus
Series Fund in which the Variable Universal Life Account owns shares will be
operated in compliance with the requirements prescribed by the Treasury
Department. Contract owners bear the risk that the entire certificate could be
disqualified as a life insurance contract under the Code due to the failure of
the Variable Universal Life Account to be deemed to be "adequately diversified."
OWNER CONTROL
In some circumstances, owners of variable life insurance contracts who
retain excessive control over the investment of the underlying separate account
assets may be treated as the owners of those assets and may be subject to
current tax on income produced by those assets. Although published guidance in
this area does not address certain aspects of the policies, we believe that the
owner of a policy should not be treated as the owner of the separate account
assets.
In certain circumstances, owners of variable life policies may be
considered the owners, for federal income tax purposes, of the assets of the
separate account supporting their policies due to their ability to exercise
control over those assets. Where this is the case, the contract owners will be
currently taxed on income and gains attributable to the separate account assets.
In Revenue Ruling 2003-91, the IRS described
36
the circumstances under which the owner of a variable contract will not possess
sufficient control over the assets underlying the contract to be treated as the
owner of those assets for federal income tax purposes. Under the contracts in
Rev. Rul. 2003-91, there was no arrangement, plan, contract or agreement between
the policy owner and the insurance company regarding the availability of a
particular investment option and other than the policy owner's right to allocate
premiums and transfer funds among the available sub-accounts, all investment
decisions concerning the sub-accounts were made by the insurance company or an
advisor in its sole and absolute discretion.
The Internal Revenue Service has further amplified and clarified its
position in Rev. Rul. 2003-91 by issuing new regulations in 2005 and additional
Revenue Rulings. We believe that the regulations and additional rulings are
meant to clarify the IRS position in Rev. Rul. 2003-91 and that the ownership
rights of a certificate owner will not result in any certificate owner being
treated as the owner of the assets of the Variable Universal Life Account.
However, we do not know whether the IRS will issue additional guidance that will
place restrictions on such ownership rights. Therefore, we reserve the right to
modify the policy or certificate as necessary to attempt to prevent a
certificate owner from being considered the owner of a pro rata share of the
assets of the Variable Universal Life Account.
The following discussion assumes that the certificate will qualify as a
life insurance contract for federal income tax purposes.
TAX TREATMENT OF POLICY BENEFITS
On the death of the insured, the death benefit provided by a certificate
will be excludable from the gross income of the beneficiary under Section 101(a)
of the Code. The owner is not currently taxed on any part of the inside build-up
of cash value until the owner actually receives cash from the certificate.
However, taxability may also be affected by the individual's contributions to
the certificate and prior certificate activity. We also believe that certificate
loans will be treated as indebtedness and will not be currently taxable as
income to the certificate owner so long as your certificate is not a modified
endowment contract as described below. However, the tax consequences associated
with loans are less clear where the spread between the interest rate charged on
the loan and the interest rate credited under the certificate is very small. A
tax adviser should be consulted about such loans. Whether a modified endowment
contract or not, the interest paid on certificate loans will generally not be
tax deductible. An owner should consult a competent tax adviser before deducting
any loan interest. In addition, default of any loan under the certificate may
result in taxable income and/or tax penalties.
There may also be adverse tax consequences when a certificate with a
certificate loan is lapsed or surrendered. If you receive an accelerated
benefit, that benefit may be taxable and you should seek assistance from a tax
adviser.
A complete surrender or partial surrender may have tax consequences. On
surrender, an owner will generally not be taxed on values received except to the
extent that they exceed the gross premiums paid under the certificate, reduced
by any previously received excludable amounts ("investment in the certificate").
An exception to this general rule occurs in the case of a partial surrender, a
decrease in the face amount, or any other change that reduces benefits under the
certificate in the first 15 years after the certificate is issued and that
results in a cash distribution to the owner in order for the certificate to
continue to comply with the Section 7702 definitional limits. In that case, such
distribution may be taxed in whole or in part as ordinary income (to the extent
of any gain in the certificate) under rules prescribed in Section 7702. Finally,
upon a complete surrender or lapse of a certificate or when benefits are paid at
a certificate's maturity date, if the amount received plus the amount of any
certificate loan exceeds the total investment in the certificate, the excess
will generally be treated as ordinary income, subject to tax.
MODIFIED ENDOWMENT CONTRACTS
It should be noted, however, that the tax treatment described above is not
available for certificates characterized as a modified endowment contract. In
general, certificates with high premium in relation to the death benefit may be
considered modified endowment contracts. The Code requires that cumulative
premiums paid on a life insurance certificate during the first seven contract
years
37
cannot exceed the sum of the net level premiums which would be paid under a
seven-pay life certificate. If those cumulative premiums exceed the seven-pay
life premiums, the certificate is a modified endowment contract.
Modified endowment contracts are treated as life insurance contracts with
respect to the tax treatment of death proceeds and to the extent that the inside
build-up of account value is not taxed on a yearly basis. However, any amounts
received by the owner, such as loans and amounts received from partial or total
surrender of the contract are subject to the same tax treatment as distributions
under an annuity (i.e., such distributions are generally treated as taxable
income to the extent that the account value immediately before the distribution
exceeds the investment in the certificate). This tax treatment includes a 10
percent penalty tax which is imposed on the portion of any distribution that is
included in income, except where the distribution or loan is made on or after
the owner attains age 59 1/2, or is attributable to the certificate owner
becoming disabled, or is part of a series of substantially equal periodic
payments for the life of the certificate owner or the joint lives of the
certificate owner and beneficiary.
The modified endowment contract rules apply to all contracts entered into
on or after June 21, 1988 that fail to meet the 7-pay test described above and
to a certificate that is received in exchange for a modified endowment contract.
It should be noted, in addition, that a certificate which is subject to a
"material change" shall be treated as newly entered into on the date on which
such material change takes effect. When a material change occurs, appropriate
adjustments shall be made in determining whether such a certificate meets the
seven-pay test by taking into account the previously existing cash surrender
value. A material change can occur, for example, when there is an increase in
the death benefit which is due to the payment of an unnecessary premium.
Unnecessary premiums are premiums paid into a certificate which are not needed
in order to provide a death benefit equal to the lowest death benefit that was
payable in the first seven certificate years. If there is a reduction in the
benefits under the certificate during the first seven certificate years at any
time, for example, as a result of a partial withdrawal, the 7-pay test will have
to be reapplied as if the certificate had originally been issued at the reduced
face amount.
To prevent your certificate from becoming a modified endowment contract, it
may be necessary to limit premium payments or to limit reductions in benefits.
In rare circumstances, if we receive and allocate your premium before its
due date, your certificate will become a modified endowment contract. To prevent
your certificate from becoming a modified endowment contract, we will hold your
premium in a non-interest bearing account until its due date, at which time we
will allocate your premium to the guaranteed account or sub-accounts of the
Variable Universal Life Account.
If a certificate becomes a modified endowment contract, distributions that
occur during the certificate year it becomes a modified endowment contract and
any subsequent certificate year will be taxed as distributions from a modified
endowment contract. Distributions from a certificate within two years before it
becomes a modified endowment contract will also be taxed in this manner. This
means that a distribution made from a certificate that is not a modified
endowment contract could later become taxable as a distribution from a modified
endowment contract.
Due to the certificate's flexibility, classification of a certificate as a
modified endowment contract will depend upon the circumstances of each
certificate. Accordingly, a prospective certificate owner should contact a tax
adviser before purchasing a certificate to determine the circumstances under
which the certificate would be a modified endowment contract. An owner should
also contact a tax adviser before paying any lump sum premiums or making any
other change to, including an exchange of, a certificate to determine whether
that premium or change would cause the certificate (or the new certificate in
the case of an exchange) to be treated as a modified endowment contract.
MULTIPLE POLICIES
All modified endowment contracts issued by us (or an affiliated company) to
the same owner during any calendar year will be treated as one modified
endowment contract for purposes of determining the amount
38
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 certificate received in exchange
for a modified endowment contract will also be treated as a modified endowment
contract.
WITHHOLDING
To the extent that certificate distributions are taxable, they are
generally subject to income tax withholding. Recipients can generally elect
however, not to have tax withheld from distributions.
CONTINUATION OF POLICY BEYOND AGE 100
While we intend for the certificate to remain in force without age
limitations, the tax consequences associated with a certificate remaining in
force after the insured's 100th birthday are unclear. You should consult a tax
adviser in all these circumstances.
BUSINESS USES OF POLICY
The certificate may be used in various arrangements, including
non-qualified deferred compensation or salary continuance plans, split dollar
insurance plans, executive bonus plans, tax exempt and nonexempt welfare benefit
plans, retiree medical benefit plans and others. The tax consequences of such
plans may vary depending on the particular facts and circumstances of each
individual arrangement. Therefore, if you are contemplating the use of a
certificate 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.
OTHER TAXES
Federal estate and state and local estate, inheritance, and other tax
consequences of ownership or receipt of certificate proceeds depend upon the
circumstances of each certificate owner or beneficiary.
EMPLOYER-OWNED LIFE INSURANCE CONTRACTS
The Pension Protection Act of 2006 added new section 101(j) of the Code
which provides that unless certain eligibility, notice and consent requirements
are satisfied and either (1) certain rules relating to the insured employee's
status are satisfied or (2) certain rules relating to the payment of the "amount
received under the contract" to, or for the benefit of, certain beneficiaries or
successors of the insured employee are satisfied, the amount excludible as a
death benefit payment under an employer-owned life insurance contract will
generally be limited to the premiums paid for such contract (although certain
exceptions may apply in specific circumstances). An employer-owned life
insurance contract is a life insurance contract (or certificate) owned by an
employer that insures an employee of the employer and where the employer is a
direct or indirect beneficiary under such contact. The new rules apply to life
insurance contracts owned by corporations (including S corporations), individual
sole proprietors, estates and trusts and partnerships that are engaged in a
trade or business. It is the employer's responsibility to verify the eligibility
of the intended insured under employer-owned life insurance contracts and to
provide the notices and obtain the consents required by section 101(j). These
requirements generally apply to employer-owned life insurance contracts issued
or materially modified after August 17, 2006. A tax adviser should be consulted
by anyone considering the purchase or modification of an employer-owned life
insurance contract.
LIFE INSURANCE PURCHASES BY RESIDENTS OF PUERTO RICO
In Rev. Rul. 2004-75, 2004-31 I.R.B. 109, the Internal Revenue Service
announced that income received by residents of Puerto Rico under life insurance
contracts (or certificates) issued by a Puerto Rico branch of a United States
life insurance company is U.S.-source income that is generally subject to United
States Federal income tax.
LIFE INSURANCE PURCHASES BY NONRESIDENT ALIENS AND FOREIGN CORPORATIONS
Purchasers that are not U.S. citizens or residents will generally be
subject to U.S. federal withholding tax on taxable distributions from life
insurance policies at a 30% rate, unless a lower treaty rate applies. In
addition, purchasers may be subject to state and/or municipal taxes and taxes
that may be imposed by the purchaser's country of citizenship or residence.
Prospective purchasers that are not U.S. citizens or residents are advised to
consult with a qualified
39
tax adviser regarding U.S. and foreign taxation with respect to a life insurance
policy purchase.
NON-INDIVIDUAL OWNERS AND BUSINESS BENEFICIARIES OF POLICIES
If a certificate is owned or held by a corporation, trust or other
non-natural person, this could jeopardize some (or all) of such entity's
interest deduction under Code Section 264, even where such entity's indebtedness
is in no way connected to the certificate. In addition, under Section 264(f)(5),
if a business (other than a sole proprietorship) is directly or indirectly a
beneficiary of a certificate, this certificate could be treated as held by the
business for purposes of the Section 264(f) entity-holder rules. Therefore, it
would be advisable to consult with a qualified tax adviser before any
non-natural person is made an owner or holder of a certificate, or before a
business (other than a sole proprietorship) is made a beneficiary of a
certificate.
SPLIT-DOLLAR ARRANGEMENTS
The IRS and the Treasury Department have issued guidance that substantially
affects split-dollar arrangements. Consult a qualified tax adviser before
entering into or paying additional premiums with respect to such arrangements.
Additionally, the Sarbanes-Oxley Act of 2002 (the "Act") prohibits, with
limited exceptions, publicly-traded companies, including non-U.S. companies that
have securities listed on exchanges in the United States, from extending,
directly or through a subsidiary, many types of personal loans to their
directors or executive officers. It is possible that this prohibition may be
interpreted as applying to split-dollar life insurance policies for director and
executive officers of such companies, since such insurance arguably can be
viewed as involving a loan from the employer for at least some purposes.
Although the prohibition on loans is generally effective as of July 30,
2002, there is an exception for loans outstanding as of that date, so long as
there is no material modification to the loan terms and the loan is not renewed
after July 30, 2002. Any affected business contemplating the payment of a
premium on an existing certificate, or the purchase of a new certificate, in
connection with a split-dollar life insurance arrangement should consult legal
counsel.
ALTERNATIVE MINIMUM TAX
There may also be an indirect tax upon the income in a certificate or the
proceeds of a certificate under the federal corporate alternative minimum tax,
if the owner is subject to that tax.
ESTATE, GIFT AND GENERATION-SKIPPING TRANSFER TAXES The transfer of the
certificate or designation of a beneficiary may have federal, state, and/or
local transfer and inheritance tax consequences, including the imposition of
gift, estate, and generation-skipping transfer taxes. There may also be an
indirect tax upon the income in a certificate or the proceeds of a certificate
under the federal corporate alternative minimum tax, if the owner is subject to
that tax.
For example, when the insured dies, the death proceeds will generally be
includable in the certificate owner's estate for purposes of federal estate tax
if the insured owned the certificate. If the certificate owner was not the
insured, the fair market value of the certificate would be included in the
certificate owner's estate upon the owner's death. The certificate would not be
includable in the insured's estate if the insured neither retained incidents of
ownership at death nor had given up ownership within three years before death.
Moreover, under certain circumstances, the Code may impose a "generation
skipping transfer tax" when all or part of a life insurance certificate is
transferred to, or a death benefit is paid to, an individual two or more
generations younger than the certificate owner. Regulations issued under the
Code may require us to deduct the tax from your certificate, or from any
applicable payment, and pay it directly to the IRS. A competent tax adviser
should be consulted for further information.
ECONOMIC GROWTH AND TAX RELIEF RECONCILIATION ACT OF 2001 The Economic Growth
and Tax Relief Reconciliation Act of 2001 ("EGTRRA") repeals the federal estate
tax and replaces it with a carryover basis income tax regime effective for
estates of decedents dying after December 31, 2009. EGTRRA also repeals the
generation skipping transfer tax, but not the gift tax, for transfers made after
December 31, 2009. EGTRRA
40
contains a sunset provision, which essentially returns the federal estate, gift
and generation-skipping transfer taxes to their pre-EGTRRA form, beginning in
2011. Congress may or may not enact permanent repeal between now and then.
During the period prior to 2010, EGTRRA provides for periodic decreases in
the maximum estate tax rate coupled with periodic increases in the estate tax
exemption. For 2009, the maximum estate tax rate is 45% and the estate tax
exemption is $3,500,000.
The complexity of the new tax law, along with uncertainty as to how it
might be modified in coming years, underscores the importance of seeking
guidance from a qualified adviser to help ensure that your estate plan
adequately addresses your needs and that of your beneficiaries under all
possible scenarios.
It should be understood that the foregoing description of the federal
income tax, gift and estate 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, gift and estate tax
consequences of specific factual situations. Due to the complexity of the
applicable laws, any person contemplating the purchase of a variable life
insurance certificate or exercising elections under such a certificate may want
to consult a tax adviser.
DISTRIBUTION OF CERTIFICATES
The group contract and certificates will be sold by state licensed life
insurance producers who are also registered representatives of Securian
Financial Services, Inc. ("Securian Financial") or of other broker-dealers who
have entered into selling agreements with Securian Financial ("Selling Firms").
Securian 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 Financial Industry Regulatory
Authority. Securian Financial was incorporated in 1984 under the laws of the
State of Minnesota and acts as principal underwriter for the policies. Securian
Financial is a wholly-owned subsidiary of Securian Financial Group, Inc., which
is a second-tier subsidiary of a mutual insurance holding company called
Minnesota Mutual Companies, Inc.
The amount of commission received by an individual registered
representative in connection with the sale of a group contract or certificate is
determined by his or her broker-dealer. In the case of a group contract or
certificate sold by registered representatives of Securian Financial,
commissions are paid, if at all, directly to such registered representatives by
Minnesota Life as agent for Securian Financial. Compensation based on such sales
may also be paid to general agents of Minnesota Life who are also Securian
Financial registered representatives. In the case of a group contract or
certificate sold by a registered representative of a Selling Firm, commissions
are paid directly to the Selling Firm. The commissions and compensation
described in this section, and the payments to broker-dealers described below,
do not result in charges against the group contract or certificates that are in
addition to the charges described elsewhere in this prospectus.
Commissions to any registered representatives, whether such registered
representatives are registered with Selling Firms or Securian Financial on the
sale of certificates will be premium-based, asset-based or a fixed amount.
Commissions under a group-sponsored insurance program will not exceed the
equivalent of 50 percent of the portion of all premiums paid in the initial year
to cover the cost of insurance, 7 percent of all premiums paid in the initial
year in excess of the amount to cover the cost of insurance, and 7 percent of
all premiums paid after the initial year. In addition to commission payments to
registered representatives of Securian Financial Services, Minnesota Life may
also
41
make certain retirement and other benefit plans (including deferred
compensation, group health and life insurance and liability insurance programs)
available to its employees or full-time life insurance agents.
The commission schedule for a group-sponsored insurance program will be
determined based on a variety of factors, including enrollment procedures, the
size and type of the group, the total amount of premium payments to be received,
any prior existing relationship with the group sponsor, the sophistication of
the group sponsor, and other circumstances of which we are not presently aware.
All of the compensation described here, and other compensation or benefits
provided by Minnesota Life or our affiliates, may be more or less than the
overall compensation on similar or other products. The amount and/or structure
of the compensation may influence your registered representative, broker-dealer
or selling institution to present the policies described in this prospectus over
other investment alternatives. However, the differences in compensation may also
reflect differences in sales effort or ongoing customer services expected of the
registered representative or the broker-dealer.
PAYMENTS MADE BY UNDERLYING MUTUAL FUNDS
Minnesota Life pays the costs of selling the group contract and
certificates, some of which are described in more detail elsewhere in this
prospectus, which benefits the underlying mutual funds by providing increased
distribution of the shares of such funds. The underlying mutual funds, or their
investment advisers or principal underwriters, may pay Minnesota Life (or
Minnesota Life affiliates) a fee for the purpose of reimbursing Minnesota Life
for the costs of certain distribution or operational services that Minnesota
Life provides and that benefit the funds. Payments from an underlying fund that
relate to distribution services are made pursuant to the fund's 12b-1 plan,
under which the payments are deducted from the fund's assets and described in
the fee table included in the fund's prospectus. 12b-1 payments from underlying
funds range in amount from 0% to 0.25% of fund assets held in the Separate
Account. These payments decrease a fund's investment return.
In addition, payments may be made pursuant to service/administration
agreements between Minnesota Life (or Minnesota Life affiliates) and the
underlying mutual fund's investment adviser (or its affiliates), in which case
payments are typically made from assets of that firm and not from the assets of
the fund. These payments, which are sometimes known as revenue sharing, are in
addition to the 12b-1 fees and those other fees and expenses incurred by a fund
and disclosed in its prospectus fee table. Service and administrative payments
are paid to Minnesota Life or its affiliates for such things as Minnesota Life's
aggregation of all certificate owner purchase, redemption, and transfer requests
within the Sub-Accounts of the Separate Account each business day and the
submission of one net purchase/ redemption request to each underlying mutual
fund. When the Separate Account aggregates such transactions through the
Separate Account's omnibus account with an underlying mutual fund, the fund
avoids the expenses associated with processing individual transactions. Because
funds selected for inclusion in the group contract may also benefit from
expanded marketing opportunities as a result of such inclusion, a fund's
investment adviser (or its affiliates) may have an incentive to make such
payments regardless of other benefits the fund may derive from services
performed by Minnesota Life. Service and administrative payments received by
Minnesota Life or its affiliates range in amount from 0% to 0.35% of fund assets
held in the Separate Account.
Owners, through their indirect investment in the funds, bear the costs of
the investment advisory fees that mutual funds pay to their respective
investment advisers. As described above, an investment adviser of a fund, or its
affiliates, may make payments to Minnesota Life and/or certain of our
affiliates. These payments may be derived, in whole or in part, from the
advisory fee deducted from fund assets.
Minnesota Life took into consideration anticipated payments from underlying
mutual funds and their investment advisers (or the advisers' affiliates) when it
determined the charges that are assessed under the group contract and
certificates. Without these payments, certain group contract and certificate
charges would likely be higher than
42
they are currently. All of the underlying mutual funds offered in the group
contract and certificates currently pay 12b-1 fees to Minnesota Life, and some
but not all of such funds' investment advisers (or the advisers' affiliates)
currently pay service or administrative fees to Minnesota Life.
Minnesota Life considers profitability when determining the charges in
these group contract and certificates. In early contract years, Minnesota Life
does not anticipate earning a profit, since that is a time when administrative
and distribution expenses are typically higher. Minnesota Life does, however,
anticipate earning a profit in later contract years. In general, Minnesota
Life's profit will be greater the longer a certificate is held and the greater a
certificate's investment return.
OTHER MATTERS
LEGAL PROCEEDINGS
Minnesota Life, like other life insurance companies, is ordinarily involved
in litigation. Although the outcome of any litigation cannot be predicted with
certainty, we believe that, as of the date of this prospectus, there are no
pending or threatened lawsuits that will have a materially adverse impact on:
the separate account; Securian Financial to perform its underwriting contract
with the separate account; or the ability of Minnesota Life to meet its
obligations under the Policy.
REGISTRATION STATEMENT
We have filed a Registration Statement under the Securities Act of 1933, as
amended, with the Securities and Exchange Commission with respect to the group
contracts and certificates offered hereby. This prospectus does not contain all
the information set forth in the registration statement and amendments thereto
and the exhibits filed as a part thereof, to all of which reference is hereby
made for further information concerning the separate account, Minnesota Life,
the group contracts and certificates. Statements contained in this prospectus as
to the contents of group contracts and certificates and other legal instruments
are summaries, and reference is made to such instruments as filed.
FINANCIAL STATEMENTS
The complete financial statements of the separate account and Minnesota
Life can be found in the Statement of Additional Information. The Statement of
Additional Information is available from us at your request.
To request a Statement of Additional Information call us at 1-800-843-8358
or write to us at: Minnesota Life Insurance Company at 400 Robert Street North,
Saint Paul, Minnesota 55101.
43
STATEMENT OF ADDITIONAL INFORMATION
A Statement of Additional Information, with the same date, containing
further information about Minnesota Life Variable Universal Life Account, the
group contract and the certificates is available without charge from us at your
request. It has been filed with the SEC and is incorporated by reference into
this prospectus. In addition, you may order a personalized illustration of death
benefits, cash surrender values, and cash values, without charge, from us.
To request a free copy of the Statement of Additional Information, a
personalized illustration or any information about your certificate call us at
1-800-843-8358 or write to us at: Minnesota Life Insurance Company at 400 Robert
Street North, Saint Paul, Minnesota 55101.
Information about Minnesota Life Variable Universal Life Account (including
the Statement of Additional Information) can be reviewed and copied at the
Securities and Exchange Commission's Public Reference Room in Washington, DC
(information on the operation of the Public Reference Room may be obtained by
calling the SEC at 1-202-551-8090) or at the SEC's website, http://www.sec.gov.
Copies of this information may be obtained, upon payment of a duplicating fee,
by writing the Public Reference Section of the Commission, 100 F Street, NE,
Washington, DC, 20549-0102. You can also call the SEC at 1-202-551-8090.
The table of contents for the Statement of Additional Information is as
follows:
General Information and History
Premiums
Additional Information About Operation of
Contracts and Registrant
Underwriters
Illustrations
Financial Statements
RULE 12-h7 REPRESENTATIONS
Minnesota Life, as depositor of the Minnesota Life Variable Universal Life
Account, is relying upon the requirements set forth in Rule 12h-7 under the
Securities Exchange Act of 1934 (the "Securities Exchange Act") to the extent
necessary to avoid being subject to periodic reporting obligations under the
Securities Exchange Act.
Investment Company Act Number 811-8830
44
MINNESOTA LIFE VARIABLE
UNIVERSAL LIFE ACCOUNT
MINNESOTA LIFE INSURANCE COMPANY
VARIABLE UNIVERSAL LIFE INSURANCE POLICY
This prospectus describes Variable Universal Life Insurance policies and
certificates issued by Minnesota Life Insurance Company ("Minnesota Life", "we",
"us" or "our").
The policies are designed for use in group-sponsored insurance programs to
provide life insurance protection to individuals (each an "insured") and the
flexibility to vary premium payments. Certificates are documents, generally held
by individuals ("certificate owner", "owner" or "you"), setting forth or
summarizing the rights of the owners and/or insureds and will be issued under
the group contract. A group contract or group policy is the Minnesota Life
Variable Group Universal Life Insurance Policy issued to an employer,
association or organization that is sponsoring a program of insurance ("group
sponsor" or "contractholder") for eligible participants. Individual policies can
also be issued in connection with group-sponsored insurance programs in
circumstances where a group contract is not issued. All references to a
certificate in this prospectus shall include individual policies issued in this
manner as well as certificates issued under a group contract.
Subject to the limitations in this prospectus, the owner may allocate net
premiums to one or more of the sub-accounts of a separate account of Minnesota
Life called the Minnesota Life Variable Universal Life Account ("separate
account"). The owner is the owner of the certificate as designated in the signed
application or as subsequently changed as set forth in the certificate and this
prospectus. The value of your investment in the separate account will vary with
the investment experience of the selected sub-accounts of the separate account.
There is no guaranteed minimum value associated with your investment in the
separate account and its sub-accounts. Subject to the limitations in the group
policy, the certificate and this prospectus, net premiums may also be allocated
to a guaranteed account of Minnesota Life.
The separate account, through its sub-accounts, invests its assets in shares of
Fidelity(R) Variable Insurance Products Funds ("Fidelity(R) VIP" or "VIP"). The
Fund offer its shares exclusively to variable insurance products and certain
qualified plans and has 40 portfolios which are available for contracts offered
under this prospectus (the "Portfolios"). They are:
FIDELITY(R) VARIABLE INSURANCE PRODUCTS FUNDS
- VIP Asset Manager(SM) Portfolio: Initial Class Shares
- VIP Asset Manager: Growth(R) Portfolio: Initial Class Shares
- VIP Balanced Portfolio: Initial Class Shares
- VIP Contrafund(R) Portfolio: Initial Class Shares
- VIP Disciplined Small Cap Portfolio: Initial Class Shares
- VIP Dynamic Capital Appreciation Portfolio: Initial Class Shares
- VIP Emerging Markets Portfolio: Initial Class Shares
- VIP Equity-Income Portfolio: Initial Class Shares
- VIP Freedom Income Portfolio: Initial Class Shares
- VIP Freedom 2010 Portfolio: Initial Class Shares
- VIP Freedom 2015 Portfolio: Initial Class Shares
- VIP Freedom 2020 Portfolio: Initial Class Shares
- VIP Freedom 2025 Portfolio: Initial Class Shares
- VIP Freedom 2030 Portfolio: Initial Class Shares
- VIP Freedom 2035 Portfolio: Initial Class Shares
- VIP Freedom 2040 Portfolio: Initial Class Shares
- VIP Freedom 2045 Portfolio: Initial Class Shares
- VIP Freedom 2050 Portfolio: Initial Class Shares
- VIP FundsManager(R) 20% Portfolio: Service Class Shares
- VIP FundsManager(R) 50% Portfolio: Service Class Shares
- VIP FundsManager(R) 60% Portfolio: Service Class Shares
- VIP FundsManager(R) 70% Portfolio: Service Class Shares
- VIP FundsManager(R) 85% Portfolio: Service Class Shares
- VIP Growth Portfolio: Initial Class Shares
- VIP Growth & Income Portfolio: Initial Class Shares
- VIP Growth Opportunities Portfolio: Initial Class Shares
- VIP Growth Stock Portfolio: Initial Class Shares
- VIP Growth Strategies Portfolio: Initial Class Shares
- VIP High Income Portfolio: Initial Class Shares
- VIP Index 500 Portfolio: Initial Class Shares
- VIP International Capital Appreciation Portfolio: Initial Class Shares
- VIP Investment Grade Bond Portfolio: Initial Class Shares
- VIP Mid Cap Portfolio: Initial Class Shares
- VIP Money Market Portfolio: Initial Class Shares
- VIP Overseas Portfolio: Initial Class Shares
- VIP Real Estate Portfolio: Initial Class Shares
- VIP Strategic Income Portfolio: Initial Class Shares
- VIP Value Portfolio: Initial Class Shares
- VIP Value Leaders Portfolio: Initial Class Shares
- VIP Value Strategies Portfolio: Initial Class Shares
PLEASE NOTE THAT THE POLICY, CERTIFICATES AND THE PORTFOLIOS:
are not guaranteed to achieve their goals;
are not federally insured;
are not endorsed by any bank or government agency; and are subject to
risks, including loss of the amount invested.
A prospectus for each of the Portfolios available through the separate account
must accompany this prospectus. Please read these documents carefully before
investing and save them for future reference.
The Securities and Exchange Commission has not approved the policy, the
certificates, the guaranteed account or determined that this prospectus is
accurate or complete. Any representation to the contrary is a criminal offense.
THE POLICY AND CERTIFICATES ARE NOT AVAILABLE IN ALL STATES. THIS PROSPECTUS
DOES NOT OFFER THE POLICIES OR CERTIFICATES IN ANY JURISDICTION WHERE THEY
CANNOT BE LAWFULLY SOLD. YOU SHOULD RELY ONLY ON THE INFORMATION CONTAINED IN
THIS PROSPECTUS, SALES MATERIALS WE HAVE APPROVED OR THAT WE HAVE REFERRED YOU
TO. WE HAVE NOT AUTHORIZED ANYONE TO PROVIDE YOU WITH INFORMATION THAT IS
DIFFERENT.
The date of this prospectus and the statement of additional information is April
30, 2010.
Minnesota Life Insurance Company
400 Robert Street North
St. Paul, Minnesota 55101-2098
[MINNESOTA LIFE LOGO]
TABLE OF CONTENTS
[Enlarge/Download Table]
PAGE
Questions and Answers about the Variable Group Universal Life Insurance Contract 2
Summary of Benefits and Risks 2
Risks of Owning a Variable Universal Life Insurance Certificate 2
Fee Tables 7
General Descriptions 10
Minnesota Life Insurance Company 10
Minnesota Life Variable Universal Life Account 10
Additions, Deletions or Substitutions 14
Voting Rights 15
The Guaranteed Account 15
Summary Information 15
Guaranteed Account Value 16
Charges 16
Premium Expense Charges 16
Sales Charge 16
Premium Tax Charge 17
OBRA Expense Charge 17
Account Value Charges 17
Monthly Deduction 17
Partial Surrender Charge 19
Transfer Charge 19
Additional Benefits Charges 19
Separate Account Charges 19
Fund Charges 19
Guarantee of Certain Charges 19
Information about the Group Policy and Certificates 20
Applications and Issuance 20
Dollar Cost Averaging 20
Free Look 21
Continuation of Group Coverage 21
Conversion Right to an Individual Policy 21
General Provisions of the Group Contract 22
Issuance 22
Termination 22
Right to Examine Group Contract 22
Entire Group Contract 22
Ownership of Group Contract and Group Contract Changes 22
Certificate Premiums 23
Premium Limitations 23
Allocation of Net Premiums and Account Value 23
Death Benefit and Account Values 24
Option A -- Level Death Benefit 24
Option B -- Increasing Death Benefit 24
Change in Face Amount 25
Increases 25
Decreases 25
Payment of Death Benefit Proceeds 25
Account Values 26
Determination of the Guaranteed Account Value 26
Determination of the Separate Account Value 26
Unit Value 27
Net Investment Factor 27
Daily Values 27
i
[Download Table]
PAGE
Surrenders, Partial Surrenders and Transfers 28
Transfers 28
Market Timing 29
Guaranteed Account Transfer Restrictions 30
Other Transfer Information 30
Loans 31
Loan Interest 32
Loan Repayments 32
Lapse and Reinstatement 33
Lapse 33
Reinstatement 33
Additional Benefits 33
Accelerated Benefits Rider 33
Waiver of Premium Rider 34
Accidental Death and Dismemberment Rider 34
Child Rider 34
Spouse Rider 34
Policyholder Contribution Rider 34
General Matters Relating to the Certificate 34
Postponement of Payments 34
The Certificate 35
Control of Certificate 35
Maturity 35
Beneficiary 35
Change of Beneficiary 35
Settlement Options 35
Federal Tax Status 37
Introduction 37
Taxation of Minnesota Life and the Variable Universal Life Account 37
Tax Status of Certificates 37
Diversification of Investments 37
Owner Control 38
Tax Treatment of Policy Benefits 38
Modified Endowment Contracts 39
Multiple Policies 40
Withholding 40
Continuation of Policy Beyond Age 100 40
Business Uses of Policy 40
Other Taxes 40
Employer-owned Life Insurance Contracts 40
Life Insurance Purchases by Residents of Puerto Rico 41
Life Insurance Purchases by Nonresident Aliens and Foreign Corporations 41
Non-Individual Owners and Business Beneficiaries of Policies 41
Split-Dollar Arrangements 41
Alternative Minimum Tax 41
Estate, Gift and Generation-Skipping Transfer Taxes 41
Economic Growth and Tax Relief Reconciliation Act of 2001 42
Distribution of Certificates 42
Payments Made by Underlying Mutual Funds 43
Other Matters 44
Legal Proceedings 44
Registration Statement 44
Financial Statements 44
Statement of Additional Information 45
ii
QUESTIONS AND ANSWERS ABOUT THE VARIABLE GROUP UNIVERSAL LIFE INSURANCE CONTRACT
SUMMARY OF BENEFITS AND RISKS
All of the benefits and risks summarized below are subject to the terms,
conditions and restrictions of the group-sponsored insurance program, the
certificate and this prospectus.
A variable universal life insurance certificate is an adjustable benefit
life insurance contract that allows accumulation of cash value, while the life
insurance coverage remains in force, and permits flexible payment of premiums.
The cash value of the certificate will fluctuate with the performance of the
sub-accounts of the separate account. The choice of available investment options
("sub-accounts") and the guaranteed account is determined under the
group-sponsored insurance program. Values may be transferred among the available
investment options. An owner may make a partial surrender from his/her
certificate, surrender all of his/her certificate or take certificate loans.
Each certificate has a minimum Face Amount of death benefit coverage. The death
benefit of a certificate may be greater than its Face Amount, as further
described in this prospectus. If a certificate is in force upon the insured's
death, the death benefit will be paid to the designated beneficiary.
We offer six Riders that provide supplemental benefits under the policy:
the Accelerated Benefits Rider, Waiver of Premium Rider, Accidental Death and
Dismemberment Rider, Child Rider, Spouse Rider and Policyholder Contribution
Rider. There is no charge for the Accelerated Benefits Rider and Policyholder
Contribution Rider. These Riders may not be available in all states or in all
group-sponsored insurance programs.
There are several ways of receiving proceeds under the death benefit of a
certificate, other than in a lump sum. More detailed information concerning
these settlement options is set forth later in this prospectus.
RISKS OF OWNING A VARIABLE UNIVERSAL LIFE INSURANCE CERTIFICATE
The account values of a certificate, to the extent invested in sub-accounts
of the separate account, have no guaranteed minimum account value. Therefore,
the owner bears the risk that adverse investment performance may depreciate the
owner's account value and, in some cases, may increase the cost of insurance.
Additional information concerning investment objectives and policies of the
Portfolios (including a comprehensive discussion of the risks of each Portfolio)
may be found in the current prospectus for the Fund which accompanies this
prospectus. You should carefully review the Fund prospectus before purchasing
the certificate.
A universal life insurance certificate is intended for the use of persons
who wish to combine both life insurance and the accumulation of cash values.
Because of this it is unsuitable as a short-term investment vehicle.
There is a risk that a certificate will lapse. As described in the "Lapse
and Reinstatement" section of this prospectus, lapse will occur only when the
net cash value is insufficient to cover the monthly deduction, and the
subsequent grace period expires without sufficient payment being made. You may
reinstate a lapsed certificate, subject to certain conditions.
Certificate loans may increase the risk of certificate lapse, may have a
negative effect on a certificate's cash value and may reduce a certificate's
death benefit.
In some circumstances, experience credits, loans and amounts received from
a partial surrender or surrender of the certificate will be subject to federal
income taxation and an additional 10 percent income tax could be imposed. For
additional information regarding federal income taxes see the "Federal Tax
Status" section of this prospectus. Withdrawals may also be assessed a
processing charge of 2% of the amount withdrawn not to exceed $25.
2
Consistent with the group-sponsored insurance program, the group policy,
the certificate and this prospectus, we reserve the right to limit the size,
number and frequency of transfers, limit the amount of a certificate loan, and
restrict certificate withdrawals and surrenders.
WHAT IS A UNIVERSAL LIFE INSURANCE CERTIFICATE?
A universal life insurance certificate is an adjustable benefit life
insurance contract issued pursuant to a group policy. Unlike term life
insurance, universal life insurance coverage allows you to accumulate cash
value, while the life insurance coverage remains in force, and permits flexible
payment of premiums (which means premium payments may be increased or decreased
as allowed for by the certificate and this prospectus).
A universal life insurance certificate has a stated face amount of
insurance payable in the event of the death of the insured, which is paid for by
the deduction of specified monthly charges from the account values. The face
amount is the minimum amount of death benefit proceeds paid upon the death of
the insured, so long as the certificate remains in force and there are no
outstanding loans. We will also deduct from the face amount any unpaid monthly
deduction. The face amount is shown on the specifications page attached to the
certificate. The insured is the person whose life is covered by life insurance
under a certificate. Unlike term life insurance, universal life insurance
coverage may be adjusted by the owner of the certificate, without the necessity
of issuing a new certificate for that owner. There are limitations to these
adjustments and we may require evidence of insurability before requested
increases take effect.
Universal life insurance coverage is provided without specifying the
frequency and amount of each premium payment (as is the practice for scheduled
premium life insurance). The time and amount of the payment of premium may be
determined by the owner. The life insurance coverage will remain in force for an
insured so long as the certificate's net cash value is sufficient to cover
monthly charges when due. The net cash value is the account value of a
certificate less any outstanding certificate loans and accrued certificate loan
interest charged (plus any accrued loan interest credits) and less any charges
due. It is the amount an owner may obtain through surrender of the certificate.
Subject to restrictions described herein, an owner may make payments in
excess of that minimum amount required to keep a certificate in force, take full
or partial surrenders of cash values and take out certificate loans. If cash
values are insufficient for the payment of the required monthly charges, then a
premium payment is required or the life insurance coverage provided to the owner
will lapse.
A universal life insurance certificate may be inappropriate for individuals
seeking life insurance protection which is the equivalent of term-type coverage.
Term coverage is usually for a fixed period of time for a fixed premium.
WHAT MAKES THE CERTIFICATE "VARIABLE"?
The certificate is termed "variable" because unlike a universal life
certificate which provides for the accumulation of certificate values at fixed
rates determined by the insurance company, variable universal life insurance
certificate values may be invested in variable investment options. The separate
account we use for our group contracts is called the Minnesota Life Variable
Universal Life Account and is composed of variable investment options or
sub-accounts. The separate account keeps its assets separate from the other
assets of Minnesota Life. Each sub-account invests in a corresponding Portfolio
of the Fund. Thus, the owner's account value, to the extent invested in the
variable investment options (sub-accounts), will vary with the positive or
negative investment experience of the corresponding Portfolios of the Fund.
The account value of a certificate is the sum of the separate account
value, guaranteed account value and loan account value. The separate account
value is the sum of all current sub-account values. The guaranteed account value
is the sum of all net premiums and transfers allocated to the guaranteed account
and interest declared thereon and experience credits, if any, minus amounts
transferred to the separate account or removed in connection with a partial
surrender or loan and minus charges assessed against the guaranteed account
value. The loan account value is the portion of
3
the general account attributable to loans under a certificate together with
accrued interest.
IS THERE AN INVESTMENT PERFORMANCE RISK?
Yes. The account value of a certificate, to the extent invested in
sub-accounts of the separate account, has no guaranteed minimum account value.
Therefore, the owner bears the risk that adverse investment performance may
reduce the owner's account value. The owner is also subject to the risk that the
investment performance of the selected sub-accounts may be less favorable than
that of other sub-accounts, and in order to keep the certificate in force the
owner may be required to pay more premiums than originally planned. The
certificate also offers the owner the opportunity to have the account value
increase more rapidly than it would under comparable fixed benefit certificates
by virtue of favorable investment performance. In addition, under some
certificates, the death benefit will also increase and decrease with investment
experience.
Subject to the limitations in the group policy, the certificate and this
prospectus, owners seeking the traditional insurance protections of a guaranteed
account value may allocate net premiums to the certificate's guaranteed account
option which provides for guaranteed accumulation at a fixed rate of interest.
Additional information on this option may be found under "The Guaranteed
Account" "The Guaranteed Account" and the "Death Benefit and Account Values"
sections of this prospectus. If the owner allocates net premiums or account
value to the guaranteed account, then we credit the owner's account value in the
guaranteed account with a declared rate of interest, but the owner assumes the
risk that the rates may decrease, although it will never be lower than a minimum
guaranteed annual rate of 3 percent.
WHAT VARIABLE INVESTMENT OPTIONS ARE AVAILABLE?
The separate account currently invests in each of the 40 Portfolios listed
below. However, your group sponsor insurance program may limit the Portfolios,
and in turn the sub-accounts, available for investment under your certificate.
As such, you should consult your group sponsor to determine if restrictions
apply to your investment in any of sub-accounts funded by the Portfolios listed
below.
Fidelity(R) VIP Portfolios include (all are Initial Class Shares unless
otherwise noted):
VIP Asset Manager(SM) Portfolio
VIP Asset Manager: Growth(R) Portfolio
VIP Balanced Portfolio
VIP Contrafund(R) Portfolio
VIP Disciplined Small Cap Portfolio
VIP Dynamic Capital Appreciation Portfolio
VIP Emerging Markets Portfolio
VIP Equity-Income Portfolio
VIP Freedom Income Portfolio
VIP Freedom 2010 Portfolio
VIP Freedom 2015 Portfolio
VIP Freedom 2020 Portfolio
VIP Freedom 2025 Portfolio
VIP Freedom 2030 Portfolio
VIP Freedom 2035 Portfolio
VIP Freedom 2040 Portfolio
VIP Freedom 2045 Portfolio
VIP Freedom 2050 Portfolio
VIP FundsManager(R) 20% Portfolio: Service Class Shares
VIP FundsManager(R) 50% Portfolio: Service Class Shares
VIP FundsManager(R) 60% Portfolio: Service Class Shares
VIP FundsManager(R) 70% Portfolio: Service Class Shares
VIP FundsManager(R) 85% Portfolio: Service Class Shares
VIP Growth Portfolio
VIP Growth & Income Portfolio
VIP Growth Opportunities Portfolio
VIP Growth Stock Portfolio
VIP Growth Strategies Portfolio
VIP High Income Portfolio
VIP Index 500 Portfolio
VIP International Capital Appreciation Portfolio
VIP Investment Grade Bond Portfolio
VIP Mid Cap Portfolio
VIP Money Market Portfolio
VIP Overseas Portfolio
VIP Real Estate Portfolio
VIP Strategic Income Portfolio
VIP Value Portfolio
VIP Value Leaders Portfolio
VIP Value Strategies Portfolio
There is no assurance that any Portfolio will meet its objectives.
Additional information concerning investment objectives and policies of the
Portfolios (including a comprehensive
4
discussion of the risks of each Portfolio) may be found in the current
prospectus for the Fund which accompany this prospectus.
We reserve the right to add, combine or remove eligible Funds and
Portfolios.
HOW CAN NET PREMIUMS BE ALLOCATED?
In the initial signed application for life insurance, the owner may
indicate the desired allocation of net premiums among the guaranteed account and
the available sub-accounts of the separate account, subject to the limitations
in the certificate and this prospectus. All future net premiums will be
allocated in the same proportion until the owner requests a change in the
allocation. Similarly, the owner may request a transfer of amounts between
sub-accounts or between the sub-accounts and the guaranteed account, subject to
the limitations in the certificate and this prospectus.
WHAT DEATH BENEFIT OPTIONS ARE OFFERED UNDER THE CERTIFICATE?
We offer two death benefit options under the certificate. Under "Option A",
a level death benefit, the death benefit is the face amount of the certificate.
Under "Option B", a variable death benefit, the death benefit is the face amount
of the certificate plus the net cash value. So long as a certificate remains in
force and there are no certificate loans, the minimum death benefit under either
option will be at least equal to the current face amount (less any unpaid
monthly deduction). The death benefit proceeds will be adjusted by the amount of
any charges due or overpaid and any outstanding certificate loans and
certificate loan interest due determined as of the date of death.
Only the group sponsor may choose one of the two death benefit options
under a group-sponsored program. The death benefit option so chosen shall be the
same for all participants under the program. Once elected, the death benefit
option chosen by the group sponsor shall remain unchanged.
There is a minimum initial face amount for the certificate which is stated
on the specifications page of the certificate. The owner may generally change
the face amount, but evidence of insurability of the insured may be required for
certain face amount increases.
ARE THE BENEFITS UNDER A CERTIFICATE SUBJECT TO FEDERAL INCOME TAX?
Although guidance is limited, we believe that the owner's certificate
should qualify as a life insurance contract for federal income tax purposes.
Assuming that a certificate qualifies as a life insurance contract for federal
income tax purposes, the benefits under certificates described in this
prospectus should receive the same tax treatment under the Code as benefits
under traditional fixed benefit life insurance certificates. Therefore, death
proceeds payable under variable life insurance certificates should be excludable
from the beneficiary's gross income for federal income tax purposes. The owner's
net cash value should grow tax-deferred until such cash value is actually
distributed to the owner.
Unless a certificate is classified as a "modified endowment contract,"
distributions, including partial and complete surrenders and experience credits
paid in cash, will not be taxed except to the extent that they exceed the
owner's "investment in the contract" (i.e., gross premiums paid under the
certificate reduced by any previously received amounts that were excludable from
income), and loans will generally not be treated as taxable distributions. For
federal income tax purposes, certificates classified as modified endowment
contracts are treated as life insurance only with respect to the tax treatment
of death proceeds and the tax-free inside buildup of yearly account value
increases. However, amounts received by the owner of a modified endowment
contract, such as experience credits paid in cash, loans and amounts received
from a partial surrender or from a surrender of the certificate will be subject
to the same tax treatment as amounts received under an annuity during the
accumulation period. Annuity tax treatment includes the 10 percent additional
income tax imposed on the portion of any distribution that is included in
income, except where the distribution or loan:
- is made on or after the owner attains age 59 1/2,
- is attributable to the owner becoming disabled, or
- is part of a series of substantially equal periodic payments for the life
of the owner or the joint lives of the owner and beneficiary.
Determining whether a certificate is a modified endowment contract requires
an
5
examination of the premium paid in relation to the death benefit of the
certificate. A certificate would be a modified endowment contract if the total
premiums during the first seven contract years exceed the total sum of the net
level premiums which would be paid under a seven-pay life certificate. A
certificate which is subject to a material change will be treated as a new
certificate on the date that the material change takes effect, to determine
whether it is a modified endowment contract. The account value on the material
change date will be taken into account in determining whether the seven-pay
standard is met.
For additional information regarding federal income taxes see the "Federal
Tax Status" section of this prospectus.
DOES THE OWNER HAVE ACCESS TO THE ACCOUNT VALUES?
Yes. The net cash value, subject to the limitations in the certificate and
this prospectus, is available to the owner during the insured's lifetime. The
net cash value may be used:
- to provide retirement income,
- as collateral for a loan,
- to continue some amount of insurance protection without payment of
premiums, or
- to obtain cash by surrendering the certificate in full or in part.
The owner may borrow, as a certificate loan, an amount up to 90 percent of
the owner's account value less any existing loan account value. The loan account
is the portion of the general account attributable to loans under a certificate.
Each alternative for accessing the owner's account value may be subject to
conditions described in the certificate or under the "Death Benefit and Account
Values", "Surrenders, Partial Surrenders and Transfers" and "Loans" sections of
this prospectus.
In general, the owner may request a surrender of or a partial surrender
from the certificate at any time while the insured is living. A surrender or
partial surrender may have federal income tax consequences. (See "Federal Tax
Status".) Partial surrenders may also be assessed a processing charge of 2% of
the amount withdrawn not to exceed $25.
A surrender or partial surrender of the net cash value of the certificate
is permitted in any amount equal to at least the minimum established for
certificates under the group-sponsored insurance program. The minimum will never
exceed $500. The maximum partial surrender amount cannot exceed the maximum
established for certificates under the group-sponsored insurance program. We
reserve the right to limit the number of partial surrenders to one per
certificate month, change the minimum amount for partial surrenders, limit the
frequency of partial surrenders, or restrict or prohibit partial surrenders from
the guaranteed account.
WHAT CHARGES ARE ASSOCIATED WITH THE CERTIFICATE?
We assess certain charges against each premium payment and the account
values under each certificate and against the asset value of the separate
account. These charges, which are largely designed to cover our expenses in
providing insurance protection and in distributing and administering the
certificates are described under the "Charges" section of this prospectus. The
specific charges are shown on the specifications page of the certificate. There
are also advisory fees and expenses which are assessed against the asset value
of each of the Portfolios of the Fund. We also reserve the right to charge
against the separate account assets, or make other provisions, for additional
tax liability we may incur with respect to the separate account or the
certificates.
6
FEE TABLES
The following tables describe the fees and expenses that are payable when
buying, owning and surrendering the certificate. The first table describes the
fees and expenses that are payable at the time that the owner buys the
certificate, surrenders the certificate, or transfers cash value between
available investment options.
TRANSACTION FEES
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CHARGE WHEN CHARGE IS DEDUCTED AMOUNT DEDUCTED
------ --------------------------- --------------------------
Maximum Sales Charge Imposed on Premiums From Each Premium Payment* 5 percent of Premium+
Maximum Premium Tax Charge From Each Premium Payment* 4 percent of Premium+
Maximum OBRA Expense Charge** From Each Premium Payment* 1.25 percent of Premium++
Maximum Deferred Sales Charge None N/A
Maximum Partial Surrender Fee From Each Partial Surrender Lesser of $25 or 2 percent
of the amount withdrawn+
Maximum Transfer Fee Upon Each Transfer+++ $10+++
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* The charge may be waived in some group sponsored insurance programs for
premiums received in conjunction with an Internal Revenue Code Section 1035
exchange.
** The OBRA expense charge is to reimburse the Company for extra costs
associated with a recent federal law that increases corporate tax owed by
certain insurance companies. For a further discussion of the OBRA expense
charge see the "OBRA Expense Charge" section of this prospectus.
+ The actual fee may vary depending upon the group-sponsored insurance
program under which the certificate is issued, but will not exceed the fee
stated in the table.
++ For a certificate considered to be an individual certificate under the
Omnibus Budget Reconciliation Act of 1990 ("OBRA") the charge will not
exceed 1.25 percent of each premium payment. If a certificate is considered
to be a group certificate under OBRA, the charge will not exceed 0.25
percent of each premium payment for group-sponsored programs implemented
prior to April 1, 2000 or 0.35 percent of each premium payment for
group-sponsored programs implemented on or after April 1, 2000.
+++ There is currently no fee assessed for transfers. A charge, not to exceed
$10 per transfer, may be imposed in the future.
7
The next table describes the fees and expenses that an owner will pay
periodically during the time that the owner owns the certificate, not including
fund operating expenses. The table also includes rider charges that will apply
if the owner purchases any rider(s) identified below.
PERIODIC CHARGES OTHER THAN FUND OPERATING EXPENSES
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CHARGE WHEN CHARGE IS DEDUCTED AMOUNT DEDUCTED
------ -------------------------------- -------------------------------
COST OF INSURANCE CHARGE(1)(6)
MAXIMUM & MINIMUM CHARGE(7) On the Certificate Date and Each Maximum: $41.36 Per Month Per
Subsequent Monthly Anniversary $1,000 of Net Amount at Risk
Minimum: $0.03 Per Month Per
$1,000 of Net Amount at Risk
MAXIMUM & MINIMUM CHARGE FOR
CERTIFICATES ISSUED PRIOR TO
JANUARY 1, 2009 AND ALL FACE
AMOUNT INCREASES ON SUCH
CERTIFICATES On the Certificate Date and Maximum: $32.01 Per Month Per
Each Subsequent Monthly $1,000 of Net Amount at Risk
Anniversary
Minimum: $0.03 Per Month Per
$1,000 of Net Amount at Risk
CHARGE FOR A 45 YEAR OLD
NON-SMOKING CERTIFICATEHOLDER(8) On the Certificate Date and Each $0.11 Per Month Per $1,000
Subsequent Monthly Anniversary of Net Amount at Risk
MORTALITY AND EXPENSE RISK CHARGE(2) Each Valuation Date Maximum: 0.50 percent of
average daily assets of the
separate account per year
MONTHLY ADMINISTRATION CHARGE(3) On the Certificate Date and Each Maximum: $4 Per Month
Subsequent Monthly Anniversary
LOAN INTEREST SPREAD(4) Each Monthly Anniversary 2 percent of Policy Loan Per
Year
ACCIDENTAL DEATH AND
DISMEMBERMENT CHARGE(5) On the Certificate Date and Each Maximum: $0.10 Per Month Per
Subsequent Monthly Anniversary $1,000 of Net Amount at Risk
WAIVER OF PREMIUM CHARGE(5) On the Certificate Date and Each Maximum: 50 percent of the Cost
Subsequent Monthly Anniversary of Insurance Charge
CHILD RIDER CHARGE(5) On the Certificate Date and Each Maximum: $0.35 Per Month Per
Subsequent Monthly Anniversary $1,000 of Net Amount at Risk
SPOUSE RIDER CHARGE(1)(5) MAXIMUM &
MINIMUM CHARGE(7) On the Certificate Date and Each Maximum: $41.36 Per Month Per
Subsequent Monthly Anniversary $1,000 of Net Amount at Risk
Minimum: $0.03 Per Month Per
$1000 of Net Amount at Risk
MAXIMUM & MINIMUM CHARGE
FOR CERTIFICATES ISSUED PRIOR TO
JANUARY 1, 2009 AND ALL FACE
AMOUNT INCREASES ON SUCH
CERTIFICATES On the Certificate Date and Maximum: $32.01 Per Month Per
Each Subsequent Monthly $1,000 of Net Amount at Risk
Anniversary
Minimum: $0.03 Per Month Per
$1,000 of Net Amount at Risk
CHARGE FOR A 45 YEAR OLD
NON-SMOKING CERTIFICATEHOLDER(8) On the Certificate Date and Each $0.11 Per Month Per $1,000
Subsequent Monthly Anniversary of Net Amount at Risk
8
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(1) The cost of insurance charge will vary depending upon the insured's
attained age, rate class and the group sponsored insurance program. The
charges noted may not be representative of the charges that you would pay.
For information regarding the specific cost of insurance rate that will
apply to your certificate please contact Minnesota Life at 1-800-843-8358,
during normal business hours of 8:00 a.m. to 4:45 p.m., Central Time.
(2) The mortality and expense risk charge will vary based on the
group-sponsored insurance program under which the certificate is issued.
Differences in the mortality and expense risk charge rates applicable to
different group-sponsored insurance programs will be determined by us based
on differences in the levels of mortality and expense risk under those
policies.
(3) The monthly administration charge depends on the number of certificate
owners under the group sponsored insurance program, the administrative
services provided, the expected average face amount as well as other
certificate features.
(4) The Loan Interest Spread is the difference between the amount of interest
we charge you for a loan (guaranteed not to exceed 8% annually) and the
amount of interest we credit to the amount of the certificate loan in the
loan account value (guaranteed not to be less than 6% annually). While a
certificate loan is outstanding, loan interest is due and payable in
arrears at the end of each certificate month or for the duration of the
certificate, if shorter. For a complete discussion of loan interest charges
and credits see the "Loan Interest" section of this prospectus.
(5) The availability of additional insurance benefit riders will depend upon
the particular group sponsored insurance program. You should check with
your group sponsor to determine which additional insurance benefit riders
are available under your program. Charges for additional insurance benefit
riders may vary among group sponsored insurance programs.
(6) The net amount at risk for a certificate month is the difference between
the death benefit and the account value.
(7) The maximum charge in this row applies to certificates issued on or after
January 1, 2009.
(8) For certificates issued both before and after January 1, 2009.
For information concerning compensation paid for the sale of the group
contract and certificates, see "Distribution of Certificates" section of the
prospectus.
The next table describes the range of total annual Portfolio operating
expenses that an owner will pay while he or she owns the certificate. Expenses
of the Portfolios may be higher or lower in the future. The table shows the
lowest and highest expenses (as a percentage of Portfolio assets) charged the
Fund for its Portfolios for the fiscal year ended December 31, 2009. More detail
concerning the Fund and its Portfolios' fees and expenses is contained in the
prospectus for the Fund.
RANGE OF ANNUAL PORTFOLIO OPERATING EXPENSES
(EXPENSES THAT ARE DEDUCTED FROM PORTFOLIO ASSETS INCLUDING MANAGEMENT FEES,
DISTRIBUTION (12b-1) FEES AND OTHER EXPENSES)*
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FEE DESCRIPTION MINIMUM MAXIMUM
--------------- ------- -------
Total Annual Portfolio Operating Expenses 0.10% 2.85%
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* The range of Total Annual Portfolio Operating Expenses presented in this
table does not reflect any fee waivers or expense reductions. Under certain
circumstances the Funds may charge a redemption fee for certain market
timing or frequent trading activity. For more detailed information about
the fee and expense charges, fee waivers (if applicable), redemption fee
(if applicable) and expense reductions (if applicable) for the Fund
Portfolios please see the Fund's prospectus.
9
GENERAL DESCRIPTIONS
MINNESOTA LIFE INSURANCE COMPANY
We are Minnesota Life Insurance Company ("Minnesota Life"), a life
insurance company organized under the laws of Minnesota. Our home office is at
400 Robert Street North, St. Paul, Minnesota 55101-2098, telephone: (651)
665-3500. We are licensed to do a life insurance business in all states of the
United States (except New York where we are an authorized reinsurer), the
District of Columbia, Canada, Puerto Rico and Guam. Any benefits due and owing
pursuant to a certificate are obligations of Minnesota Life.
MINNESOTA LIFE VARIABLE UNIVERSAL LIFE ACCOUNT
On August 8, 1994, the separate account was established in accordance with
Minnesota insurance law. The separate account is registered as a "unit
investment trust" with the Securities and Exchange Commission under the
Investment Company Act of 1940. The separate account meets the definition of a
"separate account" under the federal securities laws.
We are the legal owner of the assets in the separate account. The
obligations to group contract and certificate owners and beneficiaries arising
under the group contracts and certificates are general corporate obligations of
Minnesota Life. Our general assets back these obligations. The Minnesota law
under which the separate account was established provides that the assets of the
separate account shall not be chargeable with liabilities arising out of any
other business which we may conduct, but shall be held and applied exclusively
to the benefit of the holders of those variable life insurance certificates for
which the separate account was established. The income gains and losses credited
to or charged against the separate account reflect the account's own investment
experience and are entirely independent of both the investment performance of
our guaranteed account and of any other separate account which we may have
established or may later establish.
The separate account is divided into sub-accounts, each of which currently
invests in one of the 40 Fund Portfolios shown on the cover page of this
prospectus. Your group sponsor insurance program, however, may limit the
Portfolios, and in turn the sub-accounts, available for investment under your
certificate. As such, you should consult your group sponsor to determine if
restrictions apply to your investment in any of sub-accounts funded by the
Portfolios.
The separate account currently invests in the Portfolios of Fidelity(R)
VIP. The Fund prospectus accompanies this prospectus. For additional copies
please call us at 1-800-843-8358. You should read the prospectus carefully
before investing in the certificate.
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 the other Portfolios.
All dividends and capital gains distributions from each Portfolio are
automatically reinvested in shares of that Portfolio at net asset value.
10
The Fidelity Management and Research Company ("FMR"), a subsidiary of FMR
Corp., is adviser to Fidelity(R) VIP. For more information about Fidelity(R)
VIP, see the prospectuses of the Variable Insurance Products Funds which
accompany this prospectus.
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FUND/PORTFOLIO INVESTMENT ADVISER* INVESTMENT SUB-ADVISER*
-------------- ------------------- -----------------------
FIDELITY(R) VARIABLE INSURANCE PRODUCTS FUNDS:
Asset Manager(SM) Portfolio:
Initial Class Shares FMR FMR U.K., FRAC, FIIA,
(Seeks to obtain high total return with reduced risk over FIIA(U.K.)L, FIJ, FMRC,
the long term by allocating its assets among stocks, FIMM
bonds, and short-term instruments.)
Asset Manager: Growth(R) Portfolio:
Initial Class Shares FMR FMR U.K., FRAC, FIIA,
(Seeks to maximize total return by allocating its assets FIIA(U.K.)L, FIJ, FMRC,
among stocks, bonds, short-term instruments, and other FIMM
investments.)
Balanced Portfolio:
Initial Class Shares FMR FMR U.K., FRAC, FIIA,
(Seeks income and capital growth consistent with FIIA(U.K.)L, FIJ, FMRC,
reasonable risk.) FIMM
Contrafund(R) Portfolio:
Initial Class Shares FMR FMR U.K., FRAC, FIIA,
(Seeks long-term capital appreciation.) FIIA(U.K.)L, FIJ, FMRC
Disciplined Small Cap Portfolio:
Initial Class Shares FMR FMRC, Geode
(Seeks capital appreciation.)
Dynamic Capital Appreciation Portfolio:
Initial Class Shares FMR FMR U.K., FRAC, FIIA,
(Seeks capital appreciation.) FIIA(U.K.)L, FIJ, FMRC
Emerging Markets Portfolio:
Initial Class Shares FMR FMRC, FRAC, FMR U.K.,
(Seeks capital appreciation.) FIIA, FIIA(U.K.)L, FIJ
Equity-Income Portfolio:
Initial Class Shares FMR FMR U.K., FRAC, FIIA,
(Seeks reasonable income. The fund will also consider the potential FIIA(U.K.)L, FIJ, FMRC
for capital appreciation. The fund's goal is to achieve a yield which
exceeds the composite yield on the securities comprising the Standard
& Poor's 500(SM) Index (S&P 500(R)).)
Freedom Income Portfolio:
Initial Class Shares Strategic Advisers
(Seeks high total return with a secondary objective of principal
preservation.)
Freedom 2010 Portfolio:
Initial Class Shares Strategic Advisers
(Seeks high total return with a secondary objective of principal
preservation as the fund approaches its target date and beyond.)
Freedom 2015 Portfolio:
Initial Class Shares Strategic Advisers
(Seeks high total return with a secondary objective of principal
preservation as the fund approaches its target date and beyond.)
Freedom 2020 Portfolio:
Initial Class Shares Strategic Advisers
(Seeks high total return with a secondary objective of principal
preservation as the fund approaches its target date and beyond.)
11
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FUND/PORTFOLIO INVESTMENT ADVISER* INVESTMENT SUB-ADVISER*
-------------- ------------------- -----------------------
Freedom 2025 Portfolio:
Initial Class Shares Strategic Advisers
(Seeks high total return with a secondary objective of principal
preservation as the fund approaches its target date and beyond.)
Freedom 2030 Portfolio:
Initial Class Shares Strategic Advisers
(Seeks high total return with a secondary objective of principal
preservation as the fund approaches its target date and beyond.)
VIP Freedom 2035 Portfolio:
Initial Class Shares Strategic Advisers
(Seeks high total return with a secondary objective of principal
preservation as the fund approaches its target date and beyond.)
VIP Freedom 2040 Portfolio:
Initial Class Shares Strategic Advisers
(Seeks high total return with a secondary objective of principal
preservation as the fund approaches its target date and beyond.)
VIP Freedom 2045 Portfolio:
Initial Class Shares Strategic Advisers
(Seeks high total return with a secondary objective of principal
preservation as the fund approaches its target date and beyond.)
VIP Freedom 2050 Portfolio:
Initial Class Shares Strategic Advisers
(Seeks high total return with a secondary objective of principal
preservation as the fund approaches its target date and beyond.)
VIP FundsManager(R) 20% Portfolio:
Service Class Shares FMR, Strategic
(Seeks high current income and, as a secondary objective, Advisers
capital appreciation.)
VIP FundsManager(R) 50% Portfolio:
Service Class Shares FMR, Strategic
(Seeks high total return.) Advisers
VIP FundsManager(R) 60% Portfolio:
Service Class Shares FMR, Strategic
(Seeks high total return.) Advisers
VIP FundsManager(R) 70% Portfolio:
Service Class Shares FMR, Strategic
(Seeks high total return.) Advisers
VIP FundsManager(R) 85% Portfolio:
Service Class Shares FMR, Strategic
(Seeks high total return.) Advisers
Growth Portfolio:
Initial Class Shares FMR FMR U.K., FRAC, FIIA,
(Seeks to achieve capital appreciation.) FIIA(U.K.)L, FIJ, FMRC
Growth & Income Portfolio:
Initial Class Shares FMR FMR U.K., FRAC, FIIA,
(Seeks high total return through a combination of FIIA(U.K.)L, FIJ, FMRC
current income and capital appreciation.)
Growth Opportunities Portfolio:
Initial Class Shares FMR FMR U.K., FRAC, FIIA,
(Seeks to provide capital growth.) FIIA(U.K.)L, FIJ, FMRC
Growth Stock Portfolio:
Initial Class Shares FMR FMR U.K., FRAC, FIIA,
(Seeks capital appreciation.) FIIA(U.K.)L, FIJ, FMRC
12
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FUND/PORTFOLIO INVESTMENT ADVISER* INVESTMENT SUB-ADVISER*
-------------- ------------------- -----------------------
Growth Strategies Portfolio:
Initial Class Shares FMR FMR U.K., FRAC, FIIA,
(Seeks capital appreciation.) FIIA(U.K.)L, FIJ, FMRC
High Income Portfolio:
Initial Class Shares FMR FRAC, FIIA, FIIA(U.K.)L,
(Seeks a high level of current income, while also FIJ, FMRC
considering growth of capital.)
Index 500 Portfolio:
Initial Class Shares FMR FMRC, Geode
(Seeks investment results that correspond to the total return of
common stocks publicly traded in the United States, as represented by
the S&P 500.)
International Capital
Appreciation Portfolio:
Initial Class Shares FMR FMRC, FRAC, FMR U.K.,
(Seeks capital appreciation.) FIIA, FIAA(U.K.)L, FIJ
Investment Grade Bond
Portfolio:
Initial Class Shares FMR FRAC, FIIA, FIIA(U.K.)L,
(Seeks as high a level of current income as is consistent with the FIMM
preservation of capital.)
Mid Cap Portfolio:
Initial Class Shares FMR FMR U.K., FRAC, FIIA,
(Seeks long-term growth of capital.) FIIA(U.K.)L, FIJ, FMRC,
Money Market Portfolio:
Initial Class Shares FMR FRAC, FIIA, FIIA(U.K.)L,
(Seeks as high a level of current income as is consistent with FIMM, FMR U.K.
preservation of capital and liquidity.)
Overseas Portfolio:
Initial Class Shares FMR FMR U.K., FRAC, FIIA,
(Seeks long-term growth of capital.) FIIA(U.K.)L, FIJ, FMRC
Real Estate Portfolio:
Initial Class Shares FMR FMR U.K., FRAC, FIIA,
(Seeks above-average income and long-term capital growth, consistent FIIA(U.K.)L, FIJ, FMRC
with reasonable investment risk. The fund seeks to provide a yield
that exceeds the composite yield of the S&P 500.)
Strategic Income Portfolio:
Initial Class Portfolio FMR FMR U.K., FRAC, FIIA,
(Seeks a high level of current income. The fund may also seek capital FIIA(U.K.)L, FIJ, FMRC,
appreciation.) FIMM
Value Portfolio:
Initial Class Shares FMR FMR U.K., FRAC, FIIA,
(Seeks capital appreciation.) FIIA(U.K.)L, FIJ, FMRC
Value Leaders Portfolio:
Initial Class Shares FMR FMRC, FRAC, FMR U.K.,
(Seeks capital appreciation.) FIIA, FIIA(U.K.)L, FIJ
Value Strategies Portfolio:
Initial Class Shares FMR FMR U.K., FRAC, FIIA,
(Seeks capital appreciation.) FIIA(U.K.)L, FIJ, FMRC
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* Fidelity Management & Research Company, Boston, Massachusetts ("FMR");
Fidelity Management & Research (U.K.) Inc., London, England ("FMR U.K.");
Fidelity Research & Analysis Company, Tokyo, Japan ("FRAC"); Fidelity
International Investment Advisors, Pembroke, Bermuda ("FIIA"); Fidelity
International Investment Advisors (U.K.) Limited, London, England
("FIIA(U.K.)L"); Fidelity Investments Japan Limited, Tokyo, Japan ("FIJ");
FMR Co. Inc., Boston, Massachusetts ("FMRC"); Geode Capital Management,
LLC, Boston, Massachusetts ("Geode"); Fidelity Investments Money
Management, Inc., Merrimack, New Hampshire ("FIMM"); Strategic Advisers(R),
Inc., Boston, Massachusetts ("Strategic Advisers")
13
The above Portfolios were selected based on several criteria, including asset
class coverage, the strength of the investment adviser's reputation and tenure,
brand recognition, performance, and the capability and qualification of each
investment firm. Another factor we considered during the selection process was
whether the Portfolio's investment adviser or an affiliate will make payments to
us or our affiliates. For additional information on these arrangements, see
"Payments Made by Underlying Mutual Funds."
WE DO NOT PROVIDE ANY INVESTMENT ADVICE AND DO NOT RECOMMEND OR ENDORSE ANY
PARTICULAR PORTFOLIO. YOU BEAR THE RISK OF ANY DECLINE IN THE CERTIFICATE CASH
VALUE OF YOUR CERTIFICATE RESULTING FROM THE PERFORMANCE OF THE PORTFOLIO YOU
HAVE CHOSEN.
ADDITIONS, DELETIONS OR SUBSTITUTIONS
We reserve the right to add, combine or remove any sub-accounts of the
Variable Universal Life Account when permitted by law. Each additional
sub-account will purchase shares in a new portfolio or mutual fund. New
sub-accounts may be established when, in our sole discretion, marketing, tax,
investment or other conditions warrant such action. We will use similar
considerations should there be a determination to eliminate one or more of the
sub-accounts of the separate account. Any new investment option will be made
available to existing owners on whatever basis we may determine.
We retain the right, subject to any applicable law, to make substitutions
with respect to the investments of the sub-accounts of the separate account. If
investment in a Portfolio of the Fund should no longer be possible or if we
determine it becomes inappropriate for certificates of this class, we may
substitute another mutual fund or portfolio for a sub-account. Substitution may
be made with respect to existing account values and future premium payments. A
substitution may be made only with any necessary approval of the Securities and
Exchange Commission.
We reserve the right to transfer assets of the separate account as
determined by us to be associated with the certificates to another separate
account. A transfer of this kind may require the approval of state regulatory
authorities and of the Securities and Exchange Commission.
We also reserve the right, when permitted by law, to restrict or eliminate
any voting right of owners or other persons who have voting rights as to the
separate account, and to combine the separate account with one or more other
separate accounts, and to deregister the separate account under the Investment
Company Act of 1940.
The Fund serves as the underlying investment medium for amounts invested in
life insurance company separate accounts funding both variable life insurance
policies and variable annuity contracts, as the investment medium for such
policies and contracts issued by Minnesota Life and other affiliated and
unaffiliated life insurance companies, and as the investment medium when used by
both a life insurance company to fund its policies or contracts and a
participating qualified plan to fund plan benefits. It is possible that there
may be circumstances where it is disadvantageous for either: (i) the owners of
variable life insurance policies and variable annuity contracts to invest in the
Fund at the same time, or (ii) the owners of such policies and contracts issued
by different life insurance companies to invest in the Fund at the same time or
(iii) participating qualified plans to invest in shares of the Fund at the same
time as one or more life insurance companies. Neither the Fund nor Minnesota
Life currently foresees any disadvantage, but if the Fund determines that there
is any such disadvantage due to a material conflict of interest between such
policy owners and contract owners, or between different life insurance
companies, or between participating qualified plans and one or more life
insurance companies, or for any other reason, the Fund's Board of Directors will
notify the life insurance companies and participating qualified plans of such
conflict of interest or other applicable event. In that event, the life
insurance companies or participating qualified plans may be required to sell the
applicable Fund's shares with respect to certain groups of policy owners or
contract owners, or certain participants in participating qualified plans, in
order to resolve any conflict. The life insurance companies and participating
qualified plans will bear the entire cost of resolving any material conflict of
interest.
14
VOTING RIGHTS
We will vote the shares of the Fund held in the various sub-accounts of the
Variable Universal Life Account at regular and special shareholder meetings of
the Fund in accordance with the owner's instructions. If, however, the
Investment Company Act of 1940, as amended, or any regulation thereunder should
change and we determine that it is permissible to vote the shares of the Fund in
our own right, we may elect to do so. The number of votes as to which the owner
has the right to instruct will be determined by dividing his or her sub-account
value by the net asset value per share of the corresponding Portfolio of the
Fund. The sub-account value is the number of units of a sub-account credited to
a certificate multiplied by the current unit value for that sub-account.
Fractional shares will be counted. The number of votes as to which the owner has
the right to instruct will be determined as of the date coincident with the date
established by the Fund for determining shareholders eligible to vote at the
meeting of the Fund. Voting instructions will be solicited prior to the meeting
in accordance with procedures established by the Fund. We will vote shares of
the Fund held by the separate account as to which no instructions are received
in proportion to the voting instructions which are received from certificate
owners with respect to all certificates participating in the separate account.
Proportional voting may result in a small number of certificate owners
determining the outcome of a vote.
We may, when required by state insurance regulatory authorities, disregard
voting instructions if the instructions require that shares be voted so as to
cause a change in sub-classification or investment policies of the Fund or
approve or disapprove an investment advisory contract of the Fund. In addition,
we may disregard voting instructions in favor of changes in the investment
policies or the investment adviser of one or more of the Fund 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
certificate owners or if we determine that the change would be inconsistent with
the investment objectives of the Fund or would result in the purchase of
securities for the Fund which vary from the general quality and nature of
investments and investment techniques utilized by other separate accounts
created by us or any of our affiliates which have similar investment objectives.
In the event that we disregard voting instructions, a summary of that action and
the reason for such action will be included in the owner's next semi-annual
report.
THE GUARANTEED ACCOUNT
The guaranteed account is part of our general account. The owner may
allocate net premiums and may transfer net cash values of the certificate,
subject to the limitations in the certificate and this prospectus, to our
guaranteed account.
Because of exemptive and exclusionary provisions, interests in Minnesota
Life's guaranteed account have not been registered under the Securities Act of
1933, and the guaranteed account has not been registered as an investment
company under the Investment Company Act of 1940. Therefore, neither the
guaranteed account nor any interest therein is subject to the provisions of
these Acts, and Minnesota Life has been advised that the staff of the SEC does
not review disclosures relating to it. Disclosures regarding the guaranteed
account may, however, be subject to certain generally applicable provisions of
the federal securities laws relating to the accuracy and completeness of
statements made in prospectuses.
This prospectus describes a Variable Universal Life Insurance group
contract and certificate and is generally intended to serve as a disclosure
document only for the aspects of the group contract and certificate relating to
the sub-accounts of the separate account. For more information about the
guaranteed account, please see the certificate and the summary information
provided immediately below.
SUMMARY INFORMATION
Minnesota Life's general account consists of all assets owned by Minnesota
Life other than those in the separate account and any other separate accounts
which we may establish. The guaranteed account is that portion of the general
assets of Minnesota Life, exclusive of loans, which is attributable to the group
contract and certificate described
15
herein and others of their class. The description is for accounting purposes
only and does not represent a division of the general account assets for the
specific benefit of group contracts and certificates of this class. Allocations
to the guaranteed account become part of the general assets of Minnesota Life
and are used to support insurance and annuity obligations and are subject to the
claims of our creditors. Subject to applicable law, we have sole discretion over
the investment of assets of the guaranteed account. Owners do not share in the
actual investment experience of the assets in the guaranteed account.
A portion or all the net premiums may be allocated or transferred to
accumulate at a fixed rate of interest in the guaranteed account, though we
reserve the right to restrict the allocation of premium into the guaranteed
account. Transfers from the guaranteed account to the sub-accounts of the
separate account are subject to certain limitations with respect to timing and
amount. These restrictions are described under the "Transfers" section of this
prospectus. Amounts allocated or transferred to the guaranteed account are
guaranteed by us as to principal and a minimum rate of interest.
GUARANTEED ACCOUNT VALUE Minnesota Life bears the full investment risk for
amounts allocated to the guaranteed account and guarantees that interest
credited to each owner's account value in the guaranteed account will not be
less than the minimum guaranteed annual rate without regard to the actual
investment experience of the guaranteed account. For group-sponsored programs
implemented prior to May 1, 2001, the minimum guaranteed annual rate is 4
percent. For group-sponsored programs implemented on or after May 1, 2001 the
minimum guaranteed annual rate is 3 percent. We may, at our sole discretion,
credit a higher rate of interest ("excess interest") although we are not
obligated to do so. Any interest credited on the certificate's account value in
the guaranteed account in excess of the guaranteed minimum rate per year will be
determined at our sole discretion. The owner assumes the risk that interest
credited may not exceed the guaranteed minimum rate.
Even if excess interest is credited to the guaranteed account value, no
excess interest will be credited to the loan account value.
CHARGES
Premium expense and account value charges will be deducted in connection
with the certificates and paid to us, to compensate us for providing the
insurance benefits set forth in the certificates, administering the
certificates, incurring expenses in distributing the certificates and assuming
certain risks in connection with the certificates. These charges will vary based
on the group-sponsored insurance program under which the certificate is issued.
We will determine the charges pursuant to our established actuarial procedures,
and in doing so we will not discriminate unreasonably or unfairly against any
person or class of persons. The charges for certificates under a group-sponsored
insurance program are shown on the specifications page of the certificate.
There are also advisory fees and expenses which are assessed against the
asset value of each of the Portfolios of the Fund.
PREMIUM EXPENSE CHARGES
The premium expense charges described below will be deducted from each
premium payment we receive. The remaining amount, or net premium, will be
allocated to the guaranteed account and/or sub-accounts of the separate account,
as directed by the owner, and become part of the certificate's net cash value.
SALES CHARGE We may deduct a sales charge from each premium paid under the
certificate. Sales charges vary based on the group-sponsored insurance program
under which the certificate is issued. The charge will never
16
exceed 5 percent of each premium paid. The sales charge will be determined based
on a variety of factors, including enrollment procedures, the size and type of
the group, the total amount of premium payments to be received, any prior
existing relationship with the group sponsor, the level of commissions paid to
agents and brokers and their affiliated broker-dealers, and other circumstances
of which we are not presently aware. We may waive the sales charge for premiums
received as a result of Internal Revenue Code section 1035 exchanges from
another contract or certificate. In addition, we may waive the sales charge for
premiums paid by designated payors under a group-sponsored insurance program
(for example, insureds versus the group sponsor).
The amount of the sales charge in any certificate year may not be
specifically related to sales expenses for that year. To the extent that sales
expenses are not recovered from the sales charge, we will recover them from our
other assets or surplus, which may include profits from the mortality and
expense risk charge, the cost of insurance charge or the administration charge.
PREMIUM TAX CHARGE We will deduct a percentage of premium charge, not to exceed
4 percent of each premium received for premium taxes. Premium tax charges vary
based on the group-sponsored insurance program under which the certificate is
issued. This charge is to compensate us for our payment of premium taxes that
are imposed by various states and local jurisdictions, and such other charges or
expenses as we may incur with respect to the certificates, including guaranty
fund assessments. The state and/or jurisdiction in which a group policy is
issued may impose taxes that are higher or lower than the premium taxes actually
imposed on the group policy. This charge will be between 0 percent and 4 percent
of each premium payment. We may waive the premium tax charge for premiums
received as a result of Internal Revenue Code section 1035 exchanges from
another contract or certificate.
OBRA EXPENSE CHARGE Due to a 1990 federal tax law change under the Omnibus
Budget Reconciliation Act of 1990 ("OBRA"), as amended, insurance companies are
generally required to capitalize and amortize certain acquisition expenses
rather than currently deducting such expenses. Due to this capitalization and
amortization, the corporate income tax burden on insurance companies has been
affected. For certificates deemed to be group certificates for purposes of OBRA,
we make a charge against each premium payment to compensate us for corporate
taxes. The charge will not exceed 0.35 percent of premium. Under certificates
deemed to be individual contracts under OBRA, we make a charge of up to 1.25
percent of each premium payment. We may waive the OBRA expense charge for
premiums received as a result of Internal Revenue Code section 1035 exchanges
from another contract or certificate.
ACCOUNT VALUE CHARGES
The account value charges described below will be deducted from the net
cash value. If the net cash value is insufficient to cover the account value
charges, the certificate will lapse unless sufficient payment is received within
the grace period.
MONTHLY DEDUCTION The charges deducted as part of the monthly deduction vary
based on the group-sponsored insurance program under which the certificate is
issued. As of the certificate date and each subsequent monthly anniversary, we
will deduct an amount from the net cash value of the owner's certificate to
cover certain charges and expenses incurred in connection with the certificate.
The monthly deduction will be the sum of the following applicable items: (1) an
administration charge; (2) a cost of insurance charge; and (3) the cost of any
additional insurance benefits provided by rider. The monthly anniversary is the
first day of each calendar month on, or following, the issue date. The monthly
deduction will be deducted from the guaranteed account value and the separate
account value in the same proportion that those values bear to the net cash
value and, as to the separate account, from each sub-account in the proportion
that the sub-account value in such sub-account bears to the separate account
value of the certificate.
We may deduct an ADMINISTRATION CHARGE from the net cash value of the
certificate each month. The administration charge will never exceed $4 per
month. This charge is to compensate us for expenses incurred in the
administration of the certificates. These expenses include the costs of
processing enrollments, determining insurability, and
17
establishing and maintaining certificate records. Differences in the
administration charge applicable to specific group-sponsored insurance programs
will be determined based on expected differences in the administrative costs for
the certificates or in the amount of revenues that we expect to derive from the
charge. Such differences may result, for example, from the number of eligible
members in the group, the type and scope of administrative support provided by
the group sponsor, face amount and account value, and the features to be
included in certificates under the group-sponsored insurance program. An
eligible member is a member of the group seeking insurance who meets the
requirements stated on the specifications page of the group contract. This
charge is not designed to produce a profit.
The monthly COST OF INSURANCE will be calculated by multiplying the
applicable cost of insurance rate based on the insured's attained age and rate
class by the net amount at risk for each certificate month. The attained age is
the issue age of the insured plus the number of completed certificate years. The
net amount at risk for a certificate month is the difference between the death
benefit and the account value. The net amount at risk may be affected by changes
in the face amount of the certificate or by changes in the account value.
Account value, to the extent invested in sub-accounts of the separate account,
will vary depending upon the investment performance of the sub-accounts.
Cost of insurance rates for each group-sponsored insurance program are
determined based on a variety of factors related to group mortality including
gender mix, average amount of insurance, age distribution, occupations,
industry, geographic location, participation, level of medical underwriting
required, degree of stability in the charges sought by the group sponsor, prior
mortality experience of the group, number of actual or anticipated owners
electing the continuation option, and other factors which may affect expected
mortality experience. In addition, cost of insurance rates may be intended to
cover expenses to the extent they are not covered by the other certificate
charges. Changes in the current cost of insurance rates may be made based on any
factor which affects the actual or expected mortality or expenses of the group.
Changes to the cost of insurance rates are generally effective on the
anniversary of the issuance of the group policy, although changes may be made at
other times if warranted due to a change in the underlying characteristics of
the group, changes in benefits included in certificates under the group
contract, experience of the group, changes in the expense structure, or a
combination of these factors.
Any changes in the current cost of insurance rates will apply to all
persons of the same attained age and rate class under the group-sponsored
insurance program. We and the group contractholder will agree to the number of
classes and characteristics of each rate class. The classes may vary by tobacco
users and non-tobacco users, active and retired status, owners of coverage
continued under the continuation provision and other owners, and/or any other
nondiscriminatory classes agreed to by the group sponsor.
The current cost of insurance rates will not be greater than the guaranteed
cost of insurance rates set forth in the certificate. For policies and
certificates issued prior to or on December 31, 2008, and all face amount
increases on such policies and certificates, the guaranteed rates are 125
percent of the maximum rates that could be charged based on 1980 Commissioners
Standard Ordinary Mortality Tables ("1980 CSO Table") (a maximum charge of
$32.01 per month per $1,000 of net amount at risk). The guaranteed rates are
higher than 100 percent of the 1980 CSO Table because we may use a simplified
underwriting approach and may issue certificates that do not require medical
evidence of insurability. The current cost of insurance rates are generally
lower than 100 percent of the 1980 CSO Table. (For purposes of premiums under
Section 7702 of the Internal Revenue Code of 1986, as amended, we will use 100
percent of the 1980 CSO Table.)
For group policies and certificates issued on and after January 1, 2009,
the guaranteed rates are 200 percent of the maximum rates that could be charged
based on 2001 Commissioners Standard Ordinary Mortality Tables ("2001 CSO
Table") (a maximum charge of $37.62 per month per $1,000 of net amount at risk).
The guaranteed rates are higher than 100 percent of the 2001 CSO Table because
we may use a simplified underwriting approach and may issue certificates that do
not require medical evidence of insurability. The current cost of insurance
rates are generally lower than 100 percent of the 2001 CSO Table. (For
18
purposes of premiums under Section 7702 of the Internal Revenue Code of 1986, as
amended, we will use 100 percent of the 2001 CSO Table.)
PARTIAL SURRENDER CHARGE For certificates under some group-sponsored insurance
programs, a transaction charge will be assessed against the net cash value for
each partial surrender to cover the administrative costs incurred in processing
the partial surrender. The charge will not exceed the lesser of $25 or 2 percent
of the amount withdrawn. This charge will be assessed in the same manner as the
monthly deduction. This charge is not designed to produce a profit.
TRANSFER CHARGE There is currently no charge assessed on transfers of net cash
value between the guaranteed account and the separate account or among the
sub-accounts of the separate account. A charge, not to exceed $10 per transfer,
may be imposed in the future.
ADDITIONAL BENEFITS CHARGES Additional benefits may be included with the
certificate by rider, subject to the limitations of the group policy and this
prospectus. Some of these additional benefits will have charges associated with
them. For a complete discussion of additional benefits see the "Additional
Benefits" section of this prospectus.
SEPARATE ACCOUNT CHARGES
We assess a MORTALITY AND EXPENSE RISK CHARGE directly against the separate
account assets. This charge will vary based on the group-sponsored insurance
program under which the certificate is issued. The annual rate will not exceed
..50 percent of the average daily assets of the separate account. The mortality
and expense risk charge compensates us for assuming the risk that the cost of
insurance and other charges will be insufficient to cover the actual mortality
experience and other costs in connection with the policies.
Differences in the mortality and expense risk charge rates applicable to
different group-sponsored insurance programs will be determined by us based on
differences in the levels of mortality and expense risk under those contracts.
Differences in mortality and expense risk arise principally from the fact that:
(1) the factors used to determine cost of insurance and administration charges
are more uncertain for some group-sponsored insurance programs than for others;
and (2) our ability to recover any unexpected mortality and administration costs
will also vary from group-sponsored insurance program to group-sponsored
insurance program, depending on the charges established for policies issued
under the group-sponsored insurance program, and on other financial factors.
We reserve the right to deduct a charge against the separate account
assets, or make other provisions for, any additional tax liability we may incur
with respect to the separate account, the group contract or the certificates, to
the extent that those liabilities exceed the amounts recovered through the
deduction from premiums for premium taxes and OBRA related expenses. No such
charge or provision is made at the present time.
FUND CHARGES
Shares of the Fund are purchased for the separate account at their net
asset value, which reflects advisory fees and portfolio expense fees which are
assessed against the net asset value of each of the Portfolios of the Fund.
Advisory fees and portfolio expense fees of the Fund are described in each
Fund's prospectus.
FMR, a subsidiary of FMR Corp., is adviser to each of the Portfolios. The
advisory fees for VIP are made pursuant to a contractual agreement between VIP
and FMR. For more information about these Funds, see the prospectus of the
Variable Insurance Products Funds which accompany this prospectus.
GUARANTEE OF CERTAIN CHARGES
We will not increase the following charges for group policies: (1) the
maximum sales charge; (2) the maximum premium tax charge; (3) the OBRA expense
charge (unless there is a change in the law regarding the federal income tax
treatment of deferred acquisition costs); (4) the maximum cost of insurance
charge; (5) the maximum administration charge; (6) the maximum partial surrender
transaction charge; (7) the maximum transfer charge; and (8) the maximum
separate account charge for mortality and expense risk.
19
INFORMATION ABOUT THE GROUP POLICY AND CERTIFICATES
APPLICATIONS AND ISSUANCE
We will generally issue a group contract to a group, as defined and
permitted by state law. For example, a group contract may be issued to an
employer, whose employees and/or their spouses may become insured thereunder so
long as the person is within a class of members eligible to be included in the
group contract. The class(es) of members eligible to be insured by a certificate
under the group contract are set forth in that group contract's specifications
page. The group contract will be issued upon receipt of a signed application for
the group contract signed by a duly authorized officer of the group wishing to
enter into a group contract and the acceptance of that signed application by a
duly authorized officer of Minnesota Life at its home office. Individuals
wishing to purchase a certificate insuring an eligible member under a
group-sponsored insurance program must complete the appropriate application for
life insurance and submit it to our home office. If the application is approved,
we will issue either a certificate or an individual policy to give to the owner.
The issuance of a group contract or an individual policy and their associated
forms is always subject to the approval of those documents by state insurance
regulatory authorities for use.
Individuals who satisfy the eligibility requirements under a particular
group contract may be required to submit to an underwriting procedure which
requires satisfactory responses to certain health questions in the application
and to provide, in some cases, medical information. Acceptance of an application
is subject to our underwriting rules, and we reserve the right to reject an
application for any reason.
A certificate will not take effect until the owner signs the appropriate
application for insurance, the initial premium has been paid prior to the
insured's death, the insured is eligible, and we approve the completed signed
application. The date on which the last event occurs shall be the effective date
of coverage ("issue date").
DOLLAR COST AVERAGING
We currently offer a dollar cost averaging option enabling the owner to
preauthorize automatic monthly or quarterly transfers from the Money Market
Sub-Account to any of the other sub-accounts. There is no charge for this
option. The transfers will occur on monthly anniversaries. Dollar cost averaging
is a systematic method of investing in which securities are purchased at regular
intervals in fixed dollar amounts so that the cost of the securities is averaged
over time and possibly over various market values. Since the value of the units
will vary over time, the amounts allocated to a sub-account will result in the
crediting of a greater number of units when the unit value is low and a lesser
number of units when the unit value is high.
Dollar cost averaging does not guarantee profits, nor does it assure that a
certificate will not have losses.
To elect dollar cost averaging the owner must have at least $3,000 in the
Money Market Sub-Account. The automatic transfer amount from the Money Market
Sub-Account must be at least $250. The minimum amount that may be transferred to
any one of the other sub-accounts is $50. We reserve the right to discontinue,
modify or suspend the dollar cost averaging program at any time.
A dollar cost averaging request form is available to the owner upon
request. On the form the owner will designate the specific dollar amount to be
transferred, the sub-accounts to which the transfer is to be made, the desired
frequency of the transfer and the total number of transfers to be made. If at
any time while the dollar cost averaging option is in effect, the amount in the
Money Market Sub-Account is insufficient to cover the amount designated to be
transferred the current election in effect will terminate.
An owner may instruct us at any time to terminate the dollar cost averaging
election by giving us a request in writing or through any other method made
available by us under the group-sponsored insurance program. The
20
amount from which transfers were being made will remain in the Money Market
Sub-Account unless a transfer request is made. Transfers made pursuant to the
dollar cost averaging option will not be subject to any transfer charges, in the
event such charges are imposed.
FREE LOOK
It is important to us that the owner is satisfied with the certificate
after it is issued. If the owner is not satisfied with it, the owner may return
the certificate to us within 10 days after the owner receives it. If the
certificate is returned, the owner will receive within seven days of the date we
receive the notice of cancellation a full refund of the premiums paid or the net
cash value of the certificate, if greater.
A request for an increase in face amount also may be canceled. The request
for cancellation must be made within the 10 days, or that period required by
applicable state law, after the owner receives the new certificate
specifications page for the increase.
Upon cancellation of an increase, the owner may request that we refund the
amount of the additional charges deducted in connection with the increase. This
will equal the amount by which the monthly deductions since the increase went
into effect exceeded the monthly deductions which would have been made without
the increase. If no request is made for a refund, we will increase the
certificate's account value by the amount of these additional charges. This
amount will be allocated among the sub-accounts of the separate account and
guaranteed account in the same manner as it was deducted.
CONTINUATION OF GROUP COVERAGE
If the insured's eligibility under a group contract ends, the owner's
current group coverage may continue unless the certificate is no longer in force
or the limitations below apply as of the date eligibility ends:
- The group contract has terminated; or
- The owner has less than the required minimum in his or her net cash value
after deduction of charges for the month in which eligibility ends. The
required minimum will vary based on the group-sponsored program under which
the certificate is issued. The required minimum will never be higher than
$250.
The insurance amount will not change unless the owner requests a change. We
reserve the right to alter all charges not to exceed the maximums. These charges
may be higher than those applicable to policies under the group contract that
have not been continued under this provision.
Termination of the group contract by the contractholder or us will not
terminate the insurance then in force under the terms of the continuation
provision. The group contract will be deemed to remain in force solely for the
purpose of continuing such insurance, but without further obligation of the
contractholder.
CONVERSION RIGHT TO AN INDIVIDUAL POLICY
If life insurance provided under the group contract is not continued upon
termination of the insured's eligibility under the group contract, or if the
group contract terminates or is amended so as to terminate the insurance, the
owner may convert the insurance under the group certificate to an individual
policy of life insurance with us subject to the following:
- The owner's written application to convert to an individual policy and the
first premium for the individual policy must be received in our home office
within 31 days of the date the owner's insurance terminates under the group
contract.
- The owner may convert all or a part of the group insurance in effect on the
date that the owner's coverage terminated to any individual life insurance
policy we offer, except a policy of term insurance. We will issue the
individual policy on the policy forms we then use for the plan of insurance
the owner has requested, and the owner may choose any death benefit option
offered by such policy forms. The premium charge for this insurance will be
based upon the insured's age as of his or her nearest birthday.
- If the insured should die within 31 days of the date that the group
contract terminates, the full amount of insurance that could have been
converted under this policy will be paid.
In the case of the termination of the group contract, we may require that
an insured under a certificate issued under the group contract be so insured for
at least five years prior to the termination date in order to qualify for the
above conversion privilege.
21
GENERAL PROVISIONS OF THE GROUP CONTRACT
ISSUANCE The group contract will be issued upon receipt of an application for
group insurance signed by a duly authorized officer of the group sponsor and
acceptance by a duly authorized officer of Minnesota Life at our home office.
TERMINATION The contractholder may terminate a group contract by giving us 31
days prior written notice of the intent to terminate. In addition, we may
terminate a group contract or any of its provisions on 61 days' notice. We may
elect to limit the situations in which we may exercise our right to terminate
the group contract to situations such as the non-payment of premiums or where,
during any twelve month period, the aggregate specified face amount for all
certificates under the group contract or the number of certificates under a
group contract decreases by certain amounts or below the minimum permissible
levels we establish for the group contract. No individual may become insured
under the group contract after the effective date of a notice of termination.
However, if the group contract terminates, certificates may be allowed to
convert to individual coverage as described under the "Conversion Right to an
Individual Policy" section of this prospectus.
Upon termination of a group contract, we reserve the right to complete the
distribution of account values attributable to the guaranteed account over a
period of time determined by us, but not more than six months. This delayed
distribution does not in any way continue or extend any insurance that has
otherwise terminated due to termination of a group contract.
Termination of the group contract by the contractholder or us will not
terminate the insurance then in force under the terms of the continuation
provision. The group contract will be deemed to remain in force solely for the
purpose of continuing such insurance, but without further obligation of the
contractholder.
RIGHT TO EXAMINE GROUP CONTRACT The contractholder may terminate the group
contract within 10 days, or that period required by law, after receiving it. To
cancel the group contract, the contractholder should mail or deliver the group
contract to us.
ENTIRE GROUP CONTRACT The group contract, the attached copy of the
contractholder's signed application and any additional agreements constitute the
entire contract between the contractholder and us. All statements made by the
contractholder, any owner or any insured will be deemed representations and not
warranties. A misstatement will not be used in any contest or to reduce claim
under the group contract, unless it is in writing. A copy of the signed
application containing such misstatement must have been given to the
contractholder or to the insured or to his or her beneficiary, if any.
OWNERSHIP OF GROUP CONTRACT AND GROUP CONTRACT CHANGES The contractholder owns
the group contract. THE GROUP CONTRACT MAY BE CHANGED OR AMENDED BY AGREEMENT
BETWEEN US AND THE CONTRACTHOLDER WITHOUT THE CONSENT OF ANY PERSON CLAIMING
RIGHTS OR BENEFITS UNDER THE GROUP CONTRACT. ANY SUCH CHANGES MADE, THAT ARE NOT
MATERIAL TO THE INFORMATION PRESENTED IN THIS REGISTRATION STATEMENT, MAY BE
MADE WITHOUT NOTICE TO OR CONSENT OF THE CERTIFICATE OWNERS. However, unless the
contractholder owns all of the certificates issued under the group contract, the
contractholder does not have any ownership interest in the certificates issued
under the group contract. The rights and benefits under the certificates of the
owners, insureds and beneficiaries are as set forth in this prospectus and in
the certificates. Certificate owners have no rights or obligations under the
group contract other than those described in the group contract.
22
CERTIFICATE PREMIUMS
A premium must be paid to put a certificate in force, and may be remitted
to us by the group contractholder on behalf of the owner. The initial premium
for a certificate must cover the premium expense charges and the first monthly
deduction. Premiums paid after the initial premium may be in any amount. A
premium must be paid when there is insufficient net cash value to pay the
monthly deduction necessary to keep the certificate in force.
When the certificate is established, the certificate's specifications page
may show premium payments scheduled and the amounts of those payments. However,
under the certificate, the owner may elect to omit making those premium
payments. Failure to pay one or more premium payments will not cause the
certificate to lapse until such time as the net cash value is insufficient to
cover the next monthly deduction. Therefore, unlike traditional insurance
certificates, a certificate does not obligate the owner to pay premiums in
accordance with a rigid and inflexible premium schedule.
Failure of a group contractholder to remit the authorized premium payments
may cause the group contract to terminate. Nonetheless, provided that there is
sufficient net cash value to prevent the certificate from lapsing, the owner's
insurance can be converted to an individual policy of life insurance in the
event of such termination. (See "Conversion Right to an Individual Policy".) The
owner's insurance can continue if the insured's eligibility under the
group-sponsored insurance program terminates because the insured is no longer a
part of the group or otherwise fails to satisfy the eligibility requirements set
forth in the specifications page to the group contract or certificate. (See
"Continuation of Group Coverage".)
PREMIUM LIMITATIONS
After the payment of the initial premium, and subject to the limitations
described in this prospectus, premiums may be paid at any time in any amount
while the insurance is in force under the certificate. Since the certificate
permits flexible premium payments, it may become a modified endowment contract.
(See "Federal Tax Status".) When we receive the signed application, our systems
will test the owner's elected premium schedule to determine, if it is paid as
scheduled and if there is no change made to the certificate, whether it will
result in the certificate being classified as a modified endowment contract for
federal income tax purposes. Our systems will continue to test the certificate
with each premium payment to determine whether the certificate has attained this
tax status. If we determine that the certificate has attained the status of a
modified endowment contract, we will mail the owner a notice. The owner will be
given a limited amount of time, subject to the restrictions under the Code, to
request that the certificate maintain the modified endowment contract status. If
the owner does not request to have this tax status maintained, the excess
premium amounts paid that caused this tax status will be returned with interest
at the end of the certificate year to avoid the certificate being classified as
a modified endowment contract. The owner may request an immediate refund if it
is desired earlier.
ALLOCATION OF NET PREMIUMS AND ACCOUNT VALUE
Net premiums, which are premiums after the deduction of the charges
assessed against premiums, are allocated to the guaranteed account and/or
sub-accounts of the separate account which, in turn, invest in shares of the
Fund. Net premiums are valued as of the end of the valuation period in which
they are received. For a discussion of valuation periods see the "Unit Value"
section of this prospectus.
The owner makes the selection of the sub-accounts and/or the guaranteed
account on the signed application for the certificate. The owner may change the
allocation instructions for future premiums by giving us a request in writing or
through any other method made available by us under the group-sponsored
insurance program. The allocation to the guaranteed account or to any
sub-account of the separate account must be at least 10 percent of the net
premium.
Where the contractholder owns all the certificates and in certain other
circumstances
23
(for example, for split-dollar insurance programs), we will delay the allocation
of net premiums to sub-accounts or the guaranteed account for a period of 10
days after certificate issue to reduce market risk during this "free look"
period. Net premiums will be allocated to the Money Market Sub-Account until the
end of the period. We reserve the right to similarly delay the allocation of net
premiums to sub-accounts for other group-sponsored insurance programs for a
period of 10 days after certificate issue or certificate change. This right will
be exercised by us only when we believe economic conditions make it necessary to
reduce market risk during the "free look" period. If we exercise this right, net
premiums will be allocated to the Money Market Sub-Account until the end of the
period.
We reserve the right to restrict the allocation of net premiums to the
guaranteed account for certificates under some group-sponsored insurance
programs. For these certificates, the maximum allocation of net premiums to the
guaranteed account will range from 0 percent to 50 percent of the net premium.
Under certain group-sponsored insurance programs we have exercised this right by
prohibiting allocations to the guaranteed account. Any such prohibitions will be
identified in the certificates.
If mandated by applicable law, we may be required to reject a premium
payment until instructions are received from appropriate regulators. We also may
be required to provide additional information about you and your account to
government regulators.
DEATH BENEFIT AND ACCOUNT VALUES
If the certificate is in force at the time of the insured's death, upon
receipt of due proof of death, we will pay the death benefit proceeds of the
certificate based on the death benefit option elected by the contractholder.
Only the group sponsor may choose one of two death benefit options. The
death benefit option so chosen shall be the same for all participants under the
group-sponsored program. Once elected, the death benefit option chosen by the
group-sponsor shall remain unchanged. There is a level death benefit ("Option
A") and a variable death benefit ("Option B"). The death benefit under either
option will never be less than the current face amount of the certificate (less
any unpaid monthly deductions) as long as the certificate remains in force and
there are no loans. The face amount elected must be at least the minimum stated
on the specifications page of the certificate.
OPTION A -- LEVEL DEATH BENEFIT
The amount of the death benefit for Option A is determined as follows:
- the face amount of insurance on the insured's date of death while the
certificate is in force; plus
- the amount of the cost of insurance for the portion of the certificate
month from the date of death to the end of the certificate month; less
- any outstanding certificate loans and accrued loan interest charged; less
- any unpaid monthly deductions determined as of the date of the insured's
death.
OPTION B -- INCREASING DEATH BENEFIT
The amount of the death benefit for Option B is determined as follows:
- the face amount of insurance on the insured's date of death while the
certificate is in force; plus
- the amount of the owner's account value as of the date we receive due proof
of death satisfactory to us; plus
- the amount of the cost of insurance for the portion of the certificate
month from the date of death to the end of the certificate month; plus
- any monthly deductions taken under the certificate since the date of death;
less
- any outstanding certificate loans and accrued loan interest charged; less
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- any unpaid monthly deductions determined as of the date of the insured's
death.
At issue, the group sponsor may choose between two tests that may be used
to determine if a certificate qualifies as life insurance as defined by Section
7702 of the Code. Once a test is selected for a certificate, it shall remain
unchanged for that certificate. The group sponsor must select the same test for
all certificates. The two tests are the Guideline Premium/Cash Value Corridor
Test and the Cash Value Accumulation Test. The test selected will determine how
the death benefit is calculated in the event the account value or the premiums
paid exceed certain limits established under Section 7702. For a more detailed
discussion of these two tests, please see the Statement of Additional
Information.
CHANGE IN FACE AMOUNT
Subject to certain limitations set forth below, an owner may increase or
decrease the face amount of a certificate. A written request must be sent
directly to us for a change in the face amount. A change in the face amount will
affect the net amount at risk which affects the cost of insurance charge. (See
"Charges".) In addition, a change in the face amount of a certificate may result
in a material change in the certificate that may cause it to become a modified
endowment contract or may have other adverse federal income tax consequences.
More information on this subject and possible federal income tax consequences of
this result is provided under the "Federal Tax Status" section. You should
consult a tax adviser before changing the face amount of a certificate.
INCREASES If an increase in the current face amount is applied for, we reserve
the right to require evidence of insurability from the insured. The increase
will become effective on the monthly anniversary on or following approval of the
change or on any other date mutually agreed upon between the owner and us.
Although an increase need not necessarily be accompanied by an additional
premium (unless it is required to meet the next monthly deduction), the net cash
value in effect immediately after the increase must be sufficient to cover the
next monthly deduction.
With respect to premiums allocated to an increase, the owner will have the
same "free look," conversion, and refund rights with respect to an increase as
with the initial purchase of the owner's certificate. (See "Free Look".)
DECREASES Any decrease in the face amount will become effective on the monthly
anniversary on or following our receipt of the written request. However, the
amount of insurance on any insured may not be reduced to less than the minimum
face amount indicated on the specifications page which is attached to the
owner's certificate. Generally, this amount will be at least $10,000. If,
following a decrease in face amount, the certificate would not comply with the
maximum premium limitations required by federal tax law (see "Federal Tax
Status"), the decrease may be limited or the account value may be returned to
the owner (at the owner's election), to the extent necessary to meet these
requirements.
PAYMENT OF DEATH BENEFIT PROCEEDS
The amount payable as death proceeds upon the insured's death will be
determined according to the death benefit under the option elected. The death
benefit proceeds will also include any amounts payable under any riders.
If a rider permitting the accelerated payment of death benefit proceeds has
been added to the certificate, the death benefit may be paid in a single lump
sum prior to the death of the insured and may be less than otherwise would be
paid upon the death of the insured. (See "Additional Benefits".)
Death benefit proceeds will ordinarily be paid within seven days after we
receive all information required for such payment, including due proof of the
insured's death. Payment may, however, be postponed in certain circumstances.
Under Option A death benefit, interest will be paid on the death benefit from
the date of the insured's death until the date of payment. Under Option B death
benefit, interest will be paid on the face amount of insurance from the date of
the insured's death until the date of payment. The account value will remain as
invested in the guaranteed account and/or separate account until the date of
payment; therefore, the account value may increase or decrease in value from the
date of the insured's death to the date of the payment of the death proceeds.
Interest will also be paid on any charges taken under the certificate since the
date of death, from the date the charge was
25
taken until the date of payment. Interest will be at an annual rate determined
by us, but never less than the minimum guaranteed rate, compounded annually, or
the minimum rate required by state law. For group-sponsored programs implemented
prior to May 1, 2001, the minimum guaranteed annual rate is 4 percent. For
group-sponsored programs implemented on or after May 1, 2001, the minimum
guaranteed annual rate is 3 percent.
Death benefit proceeds will be paid to the surviving beneficiary specified
on the signed application or as subsequently changed. The owner may arrange for
death benefit proceeds to be paid in a single lump sum or under one of the
optional methods of settlement (See "Settlement Options").
When no election for an optional method of settlement is in force at the
death of the insured, the beneficiary may select one or more of the optional
methods of settlement at any time before death benefit proceeds are paid. (See
"Settlement Options").
An election or change of method of settlement must be in writing. A change
in beneficiary revokes any previous settlement election.
ACCOUNT VALUES
The certificate provides the owner certain account value benefits. Subject
to certain limitations, the owner may obtain access to the net cash value
portion of the account value of the certificate. The owner may borrow against
the certificate's loan value and may surrender the certificate in whole or in
part. The owner may also transfer the net cash value between the guaranteed
account and the sub-accounts of the separate account or among the sub-accounts
of the separate account.
We will send the owner a report each year advising the owner of the
certificate's account value, the face amount and the death benefit as of the
date of the report. It will also summarize certificate transactions during the
year, including premiums paid and their allocation, certificate charges, loan
activity and the net cash value. It will be as of a date within two months of
its mailing. We will also, upon the owner's request, send the owner an
additional statement of past transactions at any time for a $15 fee, which will
be deducted from the portion of account value that the owner specifies.
Also, upon request made to us at our home office, we will provide
information on the account value of a certificate to the owner. Such requests
may be in writing, by telephone, by facsimile transmission or any other method
made available by us under the group-sponsored insurance program. More
information on the procedures to make requests by telephone call or other
electronic means is provided under the "Transfers" section of this prospectus.
DETERMINATION OF THE GUARANTEED ACCOUNT VALUE The guaranteed account value is
the sum of all net premium payments allocated to the guaranteed account. This
amount will be increased by any interest, experience credits (see the Statement
of Additional Information for a detailed discussion), loan repayments, loan
interest credits and transfers into the guaranteed account. This amount will be
reduced by any certificate loans, loan interest charged, partial surrenders,
transfers into the sub-accounts of the separate account and charges assessed
against the owner's guaranteed account value. Interest is credited on the
guaranteed account value of the certificate at a rate of not less than the
minimum guaranteed annual rate, compounded annually. For group-sponsored
programs implemented prior to May 1, 2001, the minimum guaranteed annual rate is
4 percent. For group-sponsored programs implemented on or after May 1, 2001, the
minimum guaranteed annual rate is 3 percent. We guarantee the minimum rate for
the life of the certificate without regard to the actual experience of the
guaranteed account. As conditions permit, we may credit additional amounts of
interest to the guaranteed account value. The owner's guaranteed account value
is guaranteed by us. It cannot be reduced by any investment experience of the
separate account.
DETERMINATION OF THE SEPARATE ACCOUNT VALUE The certificate's separate account
value is determined separately. The separate account value is not guaranteed.
The determination of the separate account value is made by multiplying the
current number of sub-account units credited to a certificate by the current
sub-account unit value, for each sub-account in which the owner is invested. A
unit is an accounting device used to measure a certificate's interest in a
sub-account. The
26
number of units credited with respect to each net premium payment is determined
by dividing the portion of the net premium payment allocated to each sub-account
by the then current unit value for that sub-account. The number of units so
credited is determined as of the end of the valuation period during which we
receive the owner's premium at our home office.
Once determined, the number of units credited to the owner's certificate
will not be affected by changes in the unit value. However, the number of units
will be increased by the allocation of subsequent periodic or lump sum net
premiums, experience credits, loan interest credits and transfers to that
sub-account. The number of additional units credited is determined by dividing
the net premiums, experience credits and transfers to that sub-account by the
then current unit value for that sub-account. The number of units of each
sub-account credited to the owner's certificate will be decreased by certificate
charges to the sub-account, loans and loan interest charges, transfers from that
sub-account and withdrawals from that sub-account. The reduction in the number
of units credited is determined by dividing the deductions to that sub-account,
loans and loan interest charges, transfers from that sub-account and withdrawals
from that sub-account by the then current unit value for that sub-account. The
number of sub-account units will decrease to zero on a certificate surrender.
UNIT VALUE The unit value of a sub-account will be determined on each valuation
date. A valuation date is each date on which a Fund Portfolio is valued. A
valuation period is the period between successive valuation dates measured from
the time of one determination to the next. The amount of any increase or
decrease will depend on the net investment experience of that sub-account. The
value of a unit for each sub-account was originally set at $1.00 on the first
valuation date. For any subsequent valuation date, its value is equal to its
value on the preceding valuation date multiplied by the net investment factor
for that sub-account for the valuation period ending on the subsequent valuation
date.
NET INVESTMENT FACTOR The net investment factor for a valuation period is the
gross investment rate for such valuation period, less a deduction for the
mortality and expense risk charge under this certificate which is assessed at
the annual rate stated on the specifications page of the certificate against the
average daily net assets of each sub-account of the separate account. The gross
investment rate is equal to:
- the net asset value of a Portfolio share held in the sub-account of the
separate account determined at the end of the current valuation period;
plus
- the per share amount of any dividend or capital gains distribution by the
Portfolio if the "ex-dividend" date occurs during the current valuation
period; with the sum divided by
- the net asset value of the Portfolio share held in the sub-account
determined at the end of the preceding valuation period.
We reserve the right to deduct a charge against the separate account
assets, or make other provisions for, any additional tax liability we may incur
with respect to the separate account or the certificates, to the extent that
those liabilities exceed the amounts recovered through the deduction from
premiums for premium taxes and federal taxes.
DAILY VALUES We determine the value of the units in each sub-account on each day
on which the Portfolios of the Fund are valued. The net asset value of the
Fund's shares is computed once daily, and, in the case of the Money Market
Portfolio, after the declaration of the daily dividend, as of the primary
closing time for business on the New York Stock Exchange (as of the date hereof
the primary close of trading is 3:00 p.m. Central time, but this time may be
changed) on each day, Monday through Friday, except (i) days on which changes in
the value of a Fund's portfolio securities will not materially affect the
current net asset value of such Fund's shares, (ii) days during which no shares
of a Fund are tendered for redemption and no order to purchase or sell such
Fund's shares is received by such Fund and (iii) customary national business
holidays on which the New York Stock Exchange is closed for trading.
27
SURRENDERS, PARTIAL SURRENDERS AND TRANSFERS
The owner may request a surrender of or a partial surrender from the
certificate at any time while the insured is living. To make a surrender or
partial surrender, the owner must send us a written request at our home office.
The owner will be paid a net cash value, computed as of the end of the valuation
period during which we receive the request at our home office. Surrender and
partial surrender requests received before the New York Stock Exchange closes
for regular trading receive same-day pricing. If we receive a surrender or
partial surrender request at or after the New York Stock Exchange closes
(usually 3:00 p.m. Central Time) for regular trading, we will process the order
using the unit values for the sub-accounts determined at the close of the next
regular trading session of the New York Stock Exchange. In the case of a
surrender, the payment can be in cash or the option of the owner, can be applied
to a settlement option. A surrender or partial surrender may have federal income
tax consequences. (See "Federal Tax Status".)
A partial surrender of the net cash value of the certificate is permitted
in any amount equal to at least the minimum established for certificates under
the group sponsored insurance program. The minimum will never exceed $500. The
maximum amount cannot exceed the maximum established for certificates under the
group-sponsored insurance program. The maximum will be either:
- (a) minus (b), where (a) is 90 percent of the account value and (b) is any
outstanding certificate loans plus accrued certificate loan interest
charged; or
- 100 percent of the net cash value.
The maximum will be identified in the certificate.
We reserve the right to limit the number of partial surrenders to one per
certificate month, change the minimum amount for partial surrenders, limit the
frequency of partial surrenders, or restrict or prohibit partial surrenders from
the guaranteed account. A partial surrender will cause a decrease in the face
amount equal to the amount withdrawn if the current death benefit option for the
certificate is Option A (level death benefit). A partial surrender has no effect
on the face amount if the current death benefit option for the certificate is
Option B (variable death benefit). However, since the account value is reduced
by the amount of the partial surrender, the death benefit is reduced by the same
amount, as the account value represents a portion of the death benefit proceeds.
On a partial surrender, the owner may designate the sub-accounts of the
separate account from which a partial surrender is to be taken or whether it is
to be taken in whole or in part from the guaranteed account. Otherwise, partial
surrenders will be deducted from the guaranteed account value and separate
account value in the same proportion that those values bear to the net cash
value and, as to the separate account value, from each sub-account in the
proportion that the sub-account value of each such sub-account bears to the
separate account value. We reserve the right to restrict or prohibit withdrawals
from the guaranteed account. We will tell the owner, on request, what amounts
are available for a partial surrender under the certificate.
A transaction charge will be deducted from the net cash value in connection
with a partial surrender for certificates under some group contracts. The amount
of the charge will never exceed the lesser of $25 or 2 percent of the amount
withdrawn. The charge will be allocated to the guaranteed account value and the
separate account value in the same proportion as those values bear to the net
cash value and, as to the separate account value, from each sub-account in the
same proportion that the sub-account value of each such sub-account bears to the
separate account value.
TRANSFERS
The certificate allows for transfers of the net cash value among the
available sub-accounts of the separate account, and from the guaranteed account
to the sub-accounts.
28
Transfers of the net cash value from the sub-accounts to the guaranteed account
are available for certificates that allow for premium allocations to the
guaranteed account. Transfers may be made in writing, by telephone or through
any other method made available by us under the group-sponsored insurance
program.
There are restrictions to such transfers. The amount to be transferred to
or from a sub-account of the separate account or the guaranteed account must be
at least $250. If the balance in the guaranteed account or in the sub-account
from which the transfer is to be made is less than $250, the entire account
value attributable to that sub-account or the guaranteed account must be
transferred. If a transfer would reduce the account 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 amount in the sub-account with the amount transferred. We
also reserve the right to limit the number of transfers to one per certificate
month.
MARKET TIMING This policy is not designed to be used as a vehicle for frequent
trading (i.e., transfers) in response to short-term fluctuations in the
securities markets, often referred to generally as "market timing." Market
timing activity and frequent trading in your certificate can disrupt the
efficient management of the underlying portfolios and their investment
strategies, dilute the value of portfolio shares held by long-term shareholders,
and increase portfolio expenses (including brokerage or other trading costs) for
all portfolio shareholders, including long-term certificate owners invested in
affected portfolios who do not generate such expenses. It is the policy of
Minnesota Life to discourage market timing and frequent transfer activity, and,
when Minnesota Life becomes aware of such activity, to take steps to attempt to
minimize the effect of frequent trading activity in affected portfolios. You
should not purchase this certificate if you intend to engage in market timing or
frequent transfer activity.
We have developed policies and procedures to detect and deter market timing
and other frequent transfers, and we will not knowingly accommodate or create
exceptions for certificate owners engaging in such activity. We employ various
means to attempt to detect and deter market timing or other abusive transfers.
However, our monitoring may be unable to detect all harmful trading nor can we
ensure that the underlying portfolios will not suffer disruptions or increased
expenses attributable to market timing or abusive transfers resulting from other
insurance carriers which invest in the same portfolios. In addition, because
market timing can only be detected after it has occurred to some extent, our
policies to stop market timing activity do not go into effect until after we
have identified such activity.
We reserve the right to restrict the frequency of--or otherwise modify,
condition or terminate--any transfer method(s). Your transfer privilege is also
subject to modification if we determine, in our sole discretion, that the
exercise of the transfer privilege by you or other certificate owners is or
would be to the disadvantage of other certificate owners. Any new restriction
that we would impose will apply to your certificate without regard to when you
purchased it. We also reserve the right to implement and administer restrictions
and charge you for any fees, including redemption fees, that may be imposed by
an underlying portfolio attributable to transfers in your certificate and,
promptly upon request from an underlying portfolio, to provide certain
information to the portfolio or its designee about your trading activities. You
should read the Portfolio prospectus for more details. The following factors
will be considered in determining whether to implement and administer any
restrictions and in assessing any fees:
- the dollar amount of the transfer(s);
- whether the transfers are part of a pattern of transfers that appear
designed to take advantage of market inefficiencies;
- whether an underlying portfolio has requested that we look into identified
unusual or frequent activity in a portfolio;
- the number of transfers in the previous calendar quarter;
- whether the transfers during a quarter constitute more than two "round
trips" in a particular portfolio. A round trip is a purchase into a
portfolio and a subsequent redemption out of the portfolio, without regard
to order.
In the event your transfer activity is identified as disruptive or
otherwise constitutes a pattern of market timing, you will be notified in
writing that your transfer privileges will be
29
restricted in the future if the activity continues. Upon detection of any
further prohibited activity, you will be notified in writing that your transfer
privileges are limited to transfer requests delivered via regular U.S. mail
only. No fax, voice, internet, courier or express delivery requests will be
accepted. The limitations for the transfer privileges in your certificate will
be permanent.
In addition to our market timing procedures, the underlying portfolios may
have their own market timing policies and restrictions. While we reserve the
right to enforce the portfolios' policies and procedures, certificate owners and
other persons with interests under the certificates should be aware that we may
not have the contractual authority or the operational capacity to apply the
market timing policies and procedures of the portfolios, except that, under SEC
rules, we are required to: (1) enter into a written agreement with each
portfolio or its principal underwriter that obligates us to provide the
portfolio promptly upon request certain information about the trading activity
of individual certificate owners, and (2) execute instructions from the
portfolio to restrict or prohibit further purchases or transfers by specific
certificate owners who violate the market timing policies established by the
portfolios.
None of these limitations apply to transfers under systematic transfer
programs such as Dollar Cost Averaging.
In our sole discretion, we may revise our policies and procedures to detect
and deter market timing and other frequent transfer activity at any time without
prior notice.
GUARANTEED ACCOUNT TRANSFER RESTRICTIONS
There are additional restrictions to transfers involving the guaranteed account.
For group-sponsored insurance programs where the certificates do not allow for
premium allocations to the guaranteed account, the owner may not transfer
amounts into the guaranteed account.
The following restrictions apply to group-sponsored insurance programs
where the guaranteed account is available for premium allocations, to
group-sponsored insurance programs where the contractholder owns all the
policies and in certain other circumstances (for example, for split-dollar
insurance programs). The maximum amount of net cash value to be transferred out
of the guaranteed account to the sub-accounts of the separate account at any one
time may be limited to 20 percent (or $250 if greater) of the guaranteed account
value. Transfers to or from the guaranteed account may be limited to one such
transfer per certificate year. We may further restrict transfers from the
guaranteed account by requiring that the request is received by us or postmarked
in the 30-day period before or after the last day of the certificate
anniversary. The certificate anniversary is the same day and month in each
succeeding year as the certificate date, or the same day and month in each
succeeding year as the date agreed to between the contractholder and us. The
certificate anniversary is shown on the specifications page attached to the
certificate. The certificate date is the first day of the calendar month on, or
following, the issue date. This is the date from which certificate years and
certificate months are measured. A certificate month is equal to a calendar
month. A certificate year is a period of one year measured from the certificate
date and from each successive certificate anniversary. Requests for transfers
which meet these conditions would be effective after we approve and record them
at our home office.
OTHER TRANSFER INFORMATION For transfers out of the separate account or among
the sub-accounts of the separate account, we will credit and cancel units based
on the sub-account unit values as of the end of the valuation period during
which the owner's request is received at our home office. Transfer requests
received before the New York Stock Exchange closes for regular trading receive
same-day pricing. If we receive a transfer request at or after the New York
Stock Exchange closes (usually 3:00 p.m. Central Time) for regular trading, we
will process the order using the unit values for the sub-accounts determined at
the close of the next regular trading session of the New York Stock Exchange.
Transfers from the guaranteed account will be dollar amounts deducted at the end
of the day on which the transfer request is approved at our home office.
A transfer is subject to a transaction charge. Currently, no such charge is
imposed on a transfer, but a charge, up to a maximum of $10 per transfer, may be
imposed in the future.
30
The owner's instructions for transfer may be made in writing or the owner,
or a person authorized by the owner, may make such changes by telephone. To do
so, the owner may call us at 1-800-843-8358 during our normal business hours of
8:00 a.m. to 4:45 p.m., Central Standard Time. Owners may also submit their
requests for transfer, surrender or other transactions to us by facsimile (FAX)
transmission. Our FAX number is 1-651-665-4827.
We may make other electronic transfer capabilities available to certificate
owners under some group-sponsored insurance programs. We will employ reasonable
procedures to satisfy ourselves that instructions received from certificate
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 certificate
owners to identify themselves in electronic transactions through certificate
numbers or such other information as we may deem to be reasonable. We record
electronic transfer instructions and we provide the certificate owners with a
written confirmation of the electronic transfers.
Transfers made pursuant to a telephone call or other electronic means are
subject to the same conditions and procedures as would apply to written transfer
requests. During periods of marked economic or market changes, owners may
experience difficulty in implementing a telephone or other electronic transfer
due to a heavy volume of network usage. In such a circumstance, owners should
consider submitting a written transfer request while continuing to attempt an
electronic redemption. For more information on electronic transfers, contact us.
Although we currently intend to continue to permit transfers in the
foreseeable future, the certificate provides that we may modify the transfer
privilege by changing the minimum amount transferable, by altering the frequency
of transfers, by imposing a transfer charge, by prohibiting transfers, or in
such other manner as we may determine at our discretion. For more information on
transactions related to your policy, you may contact us at 1-800-843-8358.
LOANS
The owner may borrow from us using only the certificate as the security for
the loan. The owner may borrow up to an amount equal to (a) less (b), where (a)
is 90 percent of the owner's account value and (b) is any outstanding
certificate loans plus accrued loan interest charged. A loan taken from or
secured by a certificate may have federal income tax consequences. (See "Federal
Tax Status".) The maximum loan amount is determined as of the date we receive
the owner's request for a loan.
Any loan paid to the owner in cash must be in an amount of at least $100.
We will charge interest on the loan in arrears. At the owner's request, we will
send the owner a loan request form for his or her signature. Loans may be
requested in writing, by telephone, by facsimile transmission, or by any other
method made available by us under the group-sponsored insurance program. More
information on the procedures to make requests by telephone call or other
electronic means is provided under the "Transfers" section of this prospectus.
When the owner takes a loan, we will reduce the net cash value by the
amount borrowed. This determination will be made as of the end of the valuation
period during which the loan request is received at our home office. Unless the
owner directs us otherwise, the loan will be taken from the guaranteed account
value and separate account value in the same proportion that those values bear
to the net cash value and, as to the separate account value, from each
sub-account in the proportion that the sub-account value of each such
sub-account bears to the owner's separate account value. The number of units to
be canceled will be based upon the value of the units as of the end of the
valuation period during which we receive the owner's loan request at our home
office. The amount borrowed continues to be part of the account
31
value, as the amount borrowed becomes part of the loan account value where it
will accrue loan interest credits and will be held in our general account. A
loan has no immediate effect on the owner's account value since at the time of
the loan the account value is the sum of the guaranteed account value, separate
account value and the loan account value. However, a certificate loan may have
long term impact on the account value as the amount borrowed no longer
participates in the investment experience of a sub-account. When a loan is to
come from the guaranteed account value, we have the right to postpone a loan
payment for up to six months.
If a certificate enters a grace period and if the net cash value is
insufficient to cover the monthly deduction and the loan repayment, the owner
will have to make a loan repayment to keep the certificate in force. We will
give the owner notice of our intent to terminate the certificate and the loan
repayment required to keep it in force. The time for repayment will be within 61
days after our mailing of the notice. There could be adverse tax consequences if
the certificate lapses or is surrendered when a loan is outstanding.
Outstanding loans and accrued interest will reduce surrender value and
death benefits payable.
LOAN INTEREST
The interest rate charged on a certificate loan will be 8 percent per year.
Interest charged will be based on a daily rate which if compounded for the
number of calendar days in the year will equal 8 percent annually, and
compounded for the number of days since loan interest charges were last updated.
The outstanding loan balance will increase as the interest charged on the
certificate loan accrues. The net cash value will decrease as the outstanding
loan balance increases. Loan interest charges are due at the end of the
certificate month. If the owner does not pay in cash the interest accrued at the
end of the certificate month, this unpaid interest will be added to the
outstanding loan balance. The new loan will be subject to the same rate of
interest as the loan in effect.
Interest is also credited to the amount of the certificate loan in the loan
account value. Interest credits on a certificate loan shall be at a rate which
is not less than 6 percent per year. Interest credited will be based on a daily
rate, which if compounded for the number of calendar days in the year will be at
least 6 percent annually, and compounded for the number of days since loan
interest charges were last updated.
Loan interest charges and loan interest credits are allocated monthly, at
loan repayment, at certificate surrender and at death. Loan interest charges and
loan interest credits are allocated to a certificate's guaranteed account value
and separate account value in the same proportion that those values bear to the
net cash value and, as to the separate account value, to each sub-account in the
proportion that the sub-account value of each such sub-account bears to the
separate account value.
LOAN REPAYMENTS
If the certificate is in force, the loan can be repaid in part or in full
at any time before the insured's death. The 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 certificate. Any loan repayment must be at least $100 unless
the balance due is less than $100. We currently accept loan repayment checks at
our home office.
Loan repayments are allocated to the guaranteed account. The owner may
reallocate amounts in the guaranteed account among the sub-accounts of the
separate accounts, subject to the limitations in this prospectus and the
certificate on such transfers. For a discussion of the transfer restrictions
applicable to the guaranteed account please see the "Transfers" section of this
prospectus. Loan repayments reduce the owner's outstanding loan balance by the
amount of the loan repayment. Loan repayments will be applied first to interest
accrued since the end of the prior certificate month. Any remaining portion of
the repayment will then reduce the loan. The net cash value will increase by the
amount of the loan repayment.
A loan, whether or not it is repaid, will have a permanent effect on the
account value and the death benefit because the investment results of the
sub-accounts will apply only to the amount remaining in the sub-accounts. The
effect could be either positive or negative. If net investment results of the
sub-accounts are greater than the rate credited on the loan, the account value
will not increase as rapidly as it would have if no loan had been made. If
investment results of the sub-accounts are less than the rate credited on the
loan, the account value will be greater than if no loan had been made.
32
LAPSE AND REINSTATEMENT
LAPSE
Unlike traditional life insurance certificates, the failure to make a
premium payment following the payment of the premium which puts the certificate
into force will not itself cause a certificate to lapse. Lapse will occur only
when the net cash value is insufficient to cover the monthly deduction, and the
subsequent grace period expires without sufficient payment being made.
The grace period is 61 days. The grace period will start on the day we mail
the owner a notice that the certificate will lapse if the premium amount
specified in the notice is not paid by the end of the grace period. We will mail
this notice on any certificate's monthly anniversary when the net cash value is
insufficient to pay for the monthly deduction for the insured. The notice will
specify the amount of premium required to keep the certificate in force and the
date the premium is due. If we do not receive the required amount within the
grace period, the certificate will lapse and terminate without account value.
Upon lapse, any outstanding loans and accrued interest is extinguished and any
collateral in the loan account returned to us. If you die during the grace
period an otherwise valid claim will not be denied on the grounds that coverage
has lapsed. We reserve the right to deduct any outstanding premium due from the
death benefit. The death benefit amount under the death benefit option in
effect, at the time of the insured's death, will be paid if death occurs during
the grace period.
REINSTATEMENT
A lapsed certificate may be reinstated, any time within three years from
the date of lapse, provided the insured is living and subject to the limitations
described below. Reinstatement is made by payment of an amount that, after the
deduction of premium expense charges, is large enough to cover all monthly
deductions which have accrued on the certificate up to the effective date of
reinstatement, plus the monthly deductions for the two months following the
effective date of reinstatement. If any loans and loan interest charges are not
repaid, this indebtedness will be reinstated along with the insurance. No
evidence of the insured's insurability will be required during the first 31 days
following lapse, but will be required from the 32nd day to three years from the
date of lapse.
The amount of account value on the date of reinstatement will be equal to
the amount of any loans and loan interest charges reinstated increased by the
net premiums paid at the time of reinstatement.
The effective date of reinstatement will be the date we approve the signed
application for reinstatement. There will be a full monthly deduction for the
certificate month that includes that date.
ADDITIONAL BENEFITS
Subject to certain requirements, one or more of the following additional
insurance benefits may be added to the certificate by rider. However, some group
contracts may not offer each of the additional benefits described below. Certain
riders may not be available in all states. The descriptions below are intended
to be general; the terms of the certificate riders providing the additional
benefits may vary from state to state, and the certificate should be consulted.
New benefit riders which are subsequently developed may also be offered under
some group-sponsored insurance programs, and the terms of the riders will be
identified in the certificate. The cost of any additional insurance benefits
will be deducted as part of the monthly deduction.
ACCELERATED BENEFITS RIDER Provides for the accelerated payment of all or a
portion of the death benefit proceeds if the insured is terminally ill, subject
to the minimums and maximums specified in the rider. Eligibility requirements
and conditions for payment of accelerated benefits are also described in the
rider. The amount of accelerated benefits payable is calculated by multiplying
the death benefit by an accelerated benefit factor defined in the rider.
Accelerated benefits will be paid to the owner unless the owner validly assigns
them otherwise. The receipt of benefits under the rider may have tax
consequences and the owner should seek assistance from a qualified tax adviser.
There is no charge for this rider.
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WAIVER OF PREMIUM RIDER Provides for the waiver of the monthly deduction while
the insured is totally disabled (as defined in the rider), subject to certain
limitations described in the rider. The insured must have become disabled before
the age specified in the rider.
ACCIDENTAL DEATH AND DISMEMBERMENT RIDER Provides additional insurance if the
insured dies or becomes dismembered as a result of an accidental bodily injury,
as defined in the rider. Under the terms of the rider, the additional benefits
provided in the certificate will be paid upon receipt of proof by us that the
death or dismemberment resulted directly from accidental injury and
independently of all other causes. The death or dismemberment must occur within
the timeframes specified in the rider.
CHILD RIDER Provides for term insurance on the insured's children, as specified
in the rider. To be eligible for the insurance, a child must be of eligible age
as indicated in the rider and be dependent upon the insured for financial
support. Under terms of the rider, the death benefit will be payable to the
owner of the certificate to which the rider is attached.
SPOUSE RIDER Provides for term insurance on the insured's spouse and children,
as specified in the rider. To be eligible for the insurance, spouse and children
must meet the eligibility requirements indicated in the rider. Under terms of
the rider, the death benefit will be payable to the owner of the certificate to
which the rider is attached.
POLICYHOLDER CONTRIBUTION RIDER Allows the contractholder to pay for all or a
portion of the monthly charges under the certificate without affecting the
account value which may accumulate due to employee-paid net premiums. The
portion of the net premium paid by the contractholder will be allocated to the
guaranteed account. On the same day such premium is allocated, the charges the
contractholder intends to cover will be deducted from the guaranteed account
value. There is no charge for this rider.
GENERAL MATTERS RELATING TO THE CERTIFICATE
POSTPONEMENT OF PAYMENTS Normally, we will pay any certificate proceeds within
seven days after our receipt of all the documents required for such a payment.
Other than the death proceeds for a certificate with an Option B death benefit,
for which the account value portion of the death benefit is determined as of the
date of payment, the amount of payment will be determined as of the end of the
valuation period during which a request is received at our home office. However,
we reserve the right to defer certificate payments, including loans, for up to
six months from the date of the owner's request, if such payments are based upon
certificate values which do not depend on the investment performance of the
separate account. In that case, if we postpone a payment other than a loan
payment for more than 31 days, we will pay the owner interest for the period
that payment is postponed at the greater of the minimum guaranteed annual rate
or the minimum rate required by state law. For group-sponsored programs
implemented prior to May 1, 2001, the minimum guaranteed annual rate is 4
percent. For group-sponsored programs implemented on or after May 1, 2001, the
minimum guaranteed annual rate is 3 percent.
For payments based on certificate values which do depend on the investment
performance of the separate account, we may defer payment: (a) for any period
during which the New York Stock Exchange is closed for trading (except for
normal holiday closing); or (b) when the Securities and Exchange Commission has
determined that a state of emergency exists which may make such payment
impractical.
Payment of a surrender or partial surrender will be made as soon as
possible, but not later than seven days after our receipt of the owner's written
request for surrender or partial surrender. However, if any portion of the net
cash value to be surrendered is attributable to a premium payment made by
non-guaranteed funds such as a personal check, we will delay mailing that
portion of the surrender proceeds until we have reasonable assurance that the
payment has cleared and that good payment has been collected. The amount the
owner receives on surrender may be more or less than the total premiums paid
under the certificate.
If mandated by applicable law, we may be required to block an owner's
account and thereby refuse to pay any request for transfer, partial surrender,
surrender, loan or death benefit proceeds until instructions are received
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from the appropriate regulator. We also may be required to provide additional
information about you and your account to government regulators.
THE CERTIFICATE The certificate, the attached signed application, endorsements,
any signed application for an increase in face amount and any signed application
for reinstatement constitute the entire contract between the owner and us. Apart
from the rights and benefits described in the certificate and incorporated by
reference into the group contract, the owner has no rights under the group
contract. All statements made by the owner or insured in the signed application
are considered representations and not warranties, except in the case of fraud.
Only statements in the application and any supplemental applications can be used
to contest a claim or the validity of the certificate. Any change to the
certificate must be approved in writing by the President, a Vice President,
Secretary or an Assistant Secretary of Minnesota Life. No agent has the
authority to alter or modify any of the terms, conditions or agreements of the
group policy or certificate or to waive any of its provisions.
CONTROL OF CERTIFICATE The insured will be considered the owner of the
certificate unless another person is shown as the owner in the signed
application. Ownership may be changed, however, by assigning the certificate as
described below. The owner is entitled to all rights provided by the
certificate, prior to its maturity date. After the maturity date, the owner
cannot change the payee nor the mode of payment, unless otherwise provided in
the certificate. Any person whose rights of ownership depend upon some future
event will not possess any present rights of ownership. If there is more than
one owner at a given time, all must exercise the rights of ownership. If the
owner should die, and the owner is not the insured, the owner's interest will go
to his or her estate unless otherwise provided.
MATURITY A certificate of insurance under the group contract matures in an
amount equal to the certificate's net cash value upon the insured's 95th
birthday.
BENEFICIARY The beneficiary is the person(s) named in a signed application for
insurance or by later designation to receive certificate proceeds in the event
of the insured's death. The owner may name one or more beneficiaries on the
signed application to receive the death benefit. The owner may choose to name a
beneficiary that the owner cannot change without the beneficiary's consent. This
is called an irrevocable beneficiary. If the owner has not named an irrevocable
beneficiary, the owner has reserved the right to change the beneficiary by
filing a subsequent written request with us. In that event, we will pay the
death benefit to the beneficiary named in the most recent change of beneficiary
request as provided for in the certificate.
If a beneficiary dies before the insured, that beneficiary's interest in
the certificate ends with that beneficiary's death. Only those beneficiaries who
survive the insured will be eligible to share in the proceeds. If no beneficiary
survives the insured we will pay the proceeds according to the order of priority
identified in the group contract.
CHANGE OF BENEFICIARY If the owner has reserved the right to change the
beneficiary, the owner can file a written request with us to change the
beneficiary. If the owner has named an irrevocable beneficiary, the written
consent of the irrevocable beneficiary will be required. The owner's written
request will not be effective until it is recorded in our home office records.
After it has been so recorded, it will take effect as of the date the owner
signed the request.
However, if the insured dies before the request has been so recorded, the
request will not be effective as to those proceeds we have paid before the
owner's request was so recorded.
SETTLEMENT OPTIONS The death benefit proceeds of a certificate will be payable
if we receive due proof satisfactory to us of the insured's death while it is in
force. The proceeds will be paid from our home office and in a single sum unless
a settlement option has been selected.
We will pay interest on the face amount of single sum death proceeds from
the date of the insured's death until the date of payment at any annual rate to
be determined by us, but never less than the minimum guaranteed rate, compounded
annually, or the minimum rate required by state law. For group-sponsored
programs implemented prior to May 1, 2001, the minimum guaranteed annual rate is
4 percent. For group-sponsored programs
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implemented on or after May 1, 2001, the minimum guaranteed annual rate is 3
percent. Death benefits proceeds arising from the account value, as under Option
B, will continue to reflect the separate account experience until the time of
payment of those amounts.
The proceeds of a certificate may be paid in other than a single sum and
the owner may, during the lifetime of the insured, request that we pay the
proceeds under one of the certificate's settlement options. We may also use any
other method of payment acceptable to both the owner and us. Unless the owner
elects otherwise, a beneficiary may select a settlement option after the
insured's death. A settlement option may be selected only if the payments are to
be made to a natural person in that person's own right.
You may also choose to place the proceeds in a Minnesota Life Benefit
Account until you elect a single sum payment or a settlement option. The Benefit
Account is an interest-bearing account. Account information, along with a book
of drafts (which will function like a checkbook), will be sent to you, and you
will have access to funds in the account simply by writing a draft for all or
part of the amount of the available balance, and depositing or using the draft
as desired. When the draft is paid through the bank that administers the account
for Minnesota Life, the bank will receive the amount you request as a transfer
from our general account. The Benefit Account is not a bank account, and it is
not insured by the FDIC or any other government agency. As part of our general
account, the Benefit Account is backed by the financial strength of Minnesota
Life, although it is subject to the claims of our creditors.
Each settlement option is payable in fixed amounts as described below. A
person electing a settlement option will be asked to sign an agreement covering
the election which will state the terms and conditions of the payments. The
payments do not vary with the investment performance of the separate account.
- INTEREST PAYMENTS This option will provide payment of interest on the
proceeds at such times and for a period that is agreeable to the person
electing the settlement option and us. Withdrawal of proceeds may be made
in amounts of at least $500. At the end of the period, any remaining
proceeds will be paid in either a single sum or under any other method we
approve.
- FIXED PERIOD ANNUITY This is an annuity payable in monthly installments for
a specified number of years, from one to twenty years. The amount of
guaranteed payments for each $1,000 of proceeds applied would be shown on
the settlement option agreement.
- LIFE ANNUITY This is an annuity payable monthly during the lifetime of the
person who is to receive the income and terminating with the last monthly
payment immediately preceding that person's death. We may require proof of
the age and gender of the annuitant. The amount of guaranteed payments for
each $1,000 of proceeds applied would be shown in the settlement option
agreement. It would be possible under this option for the annuitant to
receive only one annuity payment if he or she died prior to the due date of
the second annuity payment, two if he or she died before the due date of
the third annuity payment, etc.
- PAYMENTS OF A SPECIFIED AMOUNT This is an annuity payable in a specified
amount until the proceeds and interest are fully paid.
The minimum amount of interest we will pay under any settlement option will
never be less than the minimum guaranteed annual rate, compounded annually, or
the minimum rate required by state law. For group-sponsored programs implemented
prior to May 1, 2001, the minimum guaranteed annual rate is 4 percent. For
group-sponsored programs implemented on or after May 1, 2001, the minimum
guaranteed annual rate is 3 percent.
Additional interest earnings, if any, on deposits under a settlement option
will be payable as determined by us.
Even if the death benefit under a certificate is excludible from income,
payments under settlement options may not be excludible in full. This is because
earnings on the death benefit after the death of the insured are taxable and
payments under the settlement options generally include such earnings. You
should consult a tax adviser as to the tax treatment of payments under
settlement options.
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FEDERAL TAX STATUS
INTRODUCTION
This discussion of federal income 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. No representation is made regarding the likelihood of
continuation of current income tax laws or the current interpretations of the
Internal Revenue Service ("IRS"). We have not attempted to consider any
applicable state or other tax laws.
TAXATION OF MINNESOTA LIFE AND THE VARIABLE UNIVERSAL LIFE ACCOUNT
We are taxed as a "life insurance company" under the Internal Revenue Code.
The operations of the separate account form a part of, and are taxed with, our
other business activities. Currently, no federal income tax is payable by us on
income dividends received by the separate account or on capital gains arising
from the separate account's activities. The separate account is not taxed as a
"regulated investment company" under the Code and it does not anticipate any
change in that tax status.
At the present time, we make no charge to the separate account or from
premium payments for any federal, state or local taxes (other than state premium
taxes and federal taxes under OBRA) that we incur that may be attributable to
such account or to the policies. We, however, reserve the right in the future to
make a charge for any such tax or other economic burden resulting from the
application of the tax laws that we determine to be properly attributable to the
separate account or the policies.
In calculating our corporation income tax liability, we derive certain
corporate income tax benefits associated with the investment of company assets,
including separate account assets that are treated as company assets under
applicable income tax law. These benefits, which reduce our overall corporate
income tax liability may include dividends received deductions and foreign tax
credits which can be material. We do not pass these benefits through to the
separate accounts, principally because: (i) the majority of the benefits results
from the dividends received deduction, which involves no reduction in the dollar
amount of dividends that the separate account receives; and (ii) under
applicable income tax law, for the purposes of both the dividends received
deductions and the foreign tax credits, contract owners are not the owners of
the assets generating those benefits.
TAX STATUS OF CERTIFICATES
Under Section 7702 of the Code, life insurance contracts such as the
certificates will be treated as life insurance for federal tax purposes 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 believe that a certificate issued in respect
of a standard risk should meet the statutory definition of a life insurance
contract under Section 7702. With respect to a certificate issued on a
substandard basis (i.e., a premium class involving higher than standard
mortality risk), there is insufficient guidance to determine if such a
certificate would satisfy the Section 7702 definition of a life insurance
contract. If it is subsequently determined that a certificate does not satisfy
Section 7702, we may take whatever steps are appropriate and necessary to
attempt to cause such a certificate to comply with Section 7702.
DIVERSIFICATION OF INVESTMENTS
Section 817(h) of the Code authorizes the Treasury Department to set
standards by regulation or otherwise for the investments of the Variable
Universal Life Account to be "adequately diversified" in order for the
certificate to be treated as a life insurance contract for federal income tax
purposes. The Variable Universal Life Account, through the fund portfolios,
intends to comply with the diversification requirements prescribed in
Regulations Section 1.817-5, which affect how
37
the portfolio's assets may be invested. We believe that each portfolio in which
the Variable Universal Life Account owns shares will be operated in compliance
with the requirements prescribed by the Treasury Department. Contract owners
bear the risk that the entire certificate could be disqualified as a life
insurance contract under the Code due to the failure of the Variable Universal
Life Account to be deemed to be "adequately diversified."
OWNER CONTROL
In some circumstances, owners of variable life insurance contracts who
retain excessive control over the investment of the underlying separate account
assets may be treated as the owners of those assets and may be subject to
current tax on income produced by those assets. Although published guidance in
this area does not address certain aspects of the policies, we believe that the
owner of a policy should not be treated as the owner of the separate account
assets.
In certain circumstances, owners of variable life policies may be
considered the owners, for federal income tax purposes, of the assets of the
separate account supporting their policies due to their ability to exercise
control over those assets. Where this is the case, the contract owners will be
currently taxed on income and gains attributable to the separate account assets.
In Revenue Ruling 2003-91, the IRS described the circumstances under which the
owner of a variable contract will not possess sufficient control over the assets
underlying the contract to be treated as the owner of those assets for federal
income tax purposes. Under the contracts in Rev. Rul. 2003-91, there was no
arrangement, plan, contract or agreement between the policy owner and the
insurance company regarding the availability of a particular investment option
and other than the policy owner's right to allocate premiums and transfer funds
among the available sub-accounts, all investment decisions concerning the
sub-accounts were made by the insurance company or an advisor in its sole and
absolute discretion.
The Internal Revenue Service has further amplified and clarified its
position in Rev. Rul. 2003-91 by issuing new regulations in 2005 and additional
Revenue Rulings. We believe that the regulations and additional rulings are
meant to clarify the IRS position in Rev. Rul. 2003-91 and that the ownership
rights of a certificate owner will not result in any certificate owner being
treated as the owner of the assets of the Variable Universal Life Account.
However, we do not know whether the IRS will issue additional guidance that will
place restrictions on such ownership rights. Therefore, we reserve the right to
modify the policy or certificate as necessary to attempt to prevent a
certificate owner from being considered the owner of a pro rata share of the
assets of the Variable Universal Life Account.
The following discussion assumes that the certificate will qualify as a
life insurance contract for federal income tax purposes.
TAX TREATMENT OF POLICY BENEFITS
On the death of the insured, the death benefit provided by a certificate
will be excludable from the gross income of the beneficiary under Section 101(a)
of the Code. The owner is not currently taxed on any part of the inside build-up
of cash value until the owner actually receives cash from the certificate.
However, taxability may also be affected by the individual's contributions to
the certificate and prior certificate activity. We also believe that certificate
loans will be treated as indebtedness and will not be currently taxable as
income to the certificate owner so long as your certificate is not a modified
endowment contract as described below. However, the tax consequences associated
with loans are less clear where the spread between the interest rate charged on
the loan and the interest rate credited under the certificate is very small. A
tax adviser should be consulted about such loans. Whether a modified endowment
contract or not, the interest paid on certificate loans will generally not be
tax deductible. An owner should consult a competent tax adviser before deducting
any loan interest. In addition, default of any loan under the certificate may
result in taxable income and/or tax penalties.
There may also be adverse tax consequences when a certificate with a
certificate loan is lapsed or surrendered. If you receive an accelerated
benefit, that benefit may be taxable and you should seek assistance from a tax
adviser.
A complete surrender or partial surrender may have tax consequences. On
surrender, an owner will generally not be taxed on values received except to the
extent that they exceed the gross premiums paid under the certificate,
38
reduced by any previously received excludable amounts ("investment in the
certificate"). An exception to this general rule occurs in the case of a partial
surrender, a decrease in the face amount, or any other change that reduces
benefits under the certificate in the first 15 years after the certificate is
issued and that results in a cash distribution to the owner in order for the
certificate to continue to comply with the Section 7702 definitional limits. In
that case, such distribution may be taxed in whole or in part as ordinary income
(to the extent of any gain in the certificate) under rules prescribed in Section
7702. Finally, upon a complete surrender or lapse of a certificate or when
benefits are paid at a certificate's maturity date, if the amount received plus
the amount of any certificate loan exceeds the total investment in the
certificate, the excess will generally be treated as ordinary income, subject to
tax.
MODIFIED ENDOWMENT CONTRACTS
It should be noted, however, that the tax treatment described above is not
available for certificates characterized as a modified endowment contract. In
general, certificates with high premium in relation to the death benefit may be
considered modified endowment contracts. The Code requires that cumulative
premiums paid on a life insurance certificate during the first seven contract
years cannot exceed the sum of the net level premiums which would be paid under
a seven-pay life certificate. If those cumulative premiums exceed the seven-pay
life premiums, the certificate is a modified endowment contract.
Modified endowment contracts are treated as life insurance contracts with
respect to the tax treatment of death proceeds and to the extent that the inside
build-up of account value is not taxed on a yearly basis. However, any amounts
received by the owner, such as loans and amounts received from partial or total
surrender of the contract are subject to the same tax treatment as distributions
under an annuity (i.e., such distributions are generally treated as taxable
income to the extent that the account value immediately before the distribution
exceeds the investment in the certificate). This tax treatment includes a 10
percent penalty tax which is imposed on the portion of any distribution that is
included in income, except where the distribution or loan is made on or after
the owner attains age 59 1/2, or is attributable to the certificate owner
becoming disabled, or is part of a series of substantially equal periodic
payments for the life of the certificate owner or the joint lives of the
certificate owner and beneficiary.
The modified endowment contract rules apply to all contracts entered into
on or after June 21, 1988 that fail to meet the 7-pay test described above and
to a certificate that is received in exchange for a modified endowment contract.
It should be noted, in addition, that a certificate which is subject to a
"material change" shall be treated as newly entered into on the date on which
such material change takes effect. When a material change occurs, appropriate
adjustments shall be made in determining whether such a certificate meets the
seven-pay test by taking into account the previously existing cash surrender
value. A material change can occur, for example, when there is an increase in
the death benefit which is due to the payment of an unnecessary premium.
Unnecessary premiums are premiums paid into a certificate which are not needed
in order to provide a death benefit equal to the lowest death benefit that was
payable in the first seven certificate years. If there is a reduction in the
benefits under the certificate during the first seven certificate years at any
time, for example, as a result of a partial withdrawal, the 7-pay test will have
to be reapplied as if the certificate had originally been issued at the reduced
face amount.
To prevent your certificate from becoming a modified endowment contract, it
may be necessary to limit premium payments or to limit reductions in benefits.
In rare circumstances, if we receive and allocate your premium before its
due date, your certificate will become a modified endowment contract. To prevent
your certificate from becoming a modified endowment contract, we will hold your
premium in a non-interest bearing account until its due date, at which time we
will allocate your premium to the guaranteed account or sub-accounts of the
Variable Universal Life Account.
If a certificate becomes a modified endowment contract, distributions that
occur during the certificate year it becomes a modified endowment contract and
any subsequent certificate year will be taxed as
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distributions from a modified endowment contract. Distributions from a
certificate within two years before it becomes a modified endowment contract
will also be taxed in this manner. This means that a distribution made from a
certificate that is not a modified endowment contract could later become taxable
as a distribution from a modified endowment contract.
Due to the certificate's flexibility, classification of a certificate as a
modified endowment contract will depend upon the circumstances of each
certificate. Accordingly, a prospective certificate owner should contact a tax
adviser before purchasing a certificate to determine the circumstances under
which the certificate would be a modified endowment contract. An owner should
also contact a tax adviser before paying any lump sum premiums or making any
other change to, including an exchange of, a certificate to determine whether
that premium or change would cause the certificate (or the new certificate in
the case of an exchange) to be treated as a modified endowment contract.
MULTIPLE POLICIES
All modified endowment contracts issued by us (or an affiliated company) to
the same 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 certificate received in exchange for a
modified endowment contract will also be treated as a modified endowment
contract.
WITHHOLDING
To the extent that certificate distributions are taxable, they are
generally subject to income tax withholding. Recipients can generally elect
however, not to have tax withheld from distributions.
CONTINUATION OF POLICY BEYOND AGE 100
While we intend for the certificate to remain in force without age
limitations, the tax consequences associated with a certificate remaining in
force after the insured's 100th birthday are unclear. You should consult a tax
adviser in all these circumstances.
BUSINESS USES OF POLICY
The certificate may be used in various arrangements, including
non-qualified deferred compensation or salary continuance plans, split dollar
insurance plans, executive bonus plans, tax exempt and nonexempt welfare benefit
plans, retiree medical benefit plans and others. The tax consequences of such
plans may vary depending on the particular facts and circumstances of each
individual arrangement. Therefore, if you are contemplating the use of a
certificate 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.
OTHER TAXES
Federal estate and state and local estate, inheritance, and other tax
consequences of ownership or receipt of certificate proceeds depend upon the
circumstances of each certificate owner or beneficiary.
EMPLOYER-OWNED LIFE INSURANCE CONTRACTS
The Pension Protection Act of 2006 added new section 101(j) of the Code
which provides that unless certain eligibility, notice and consent requirements
are satisfied and either (1) certain rules relating to the insured employee's
status are satisfied or (2) certain rules relating to the payment of the "amount
received under the contract" to, or for the benefit of, certain beneficiaries or
successors of the insured employee are satisfied, the amount excludible as a
death benefit payment under an employer-owned life insurance contract will
generally be limited to the premiums paid for such contract (although certain
exceptions may apply in specific circumstances). An employer-owned life
insurance contract is a life insurance contract (or certificate) owned by an
employer that insures an employee of the employer and where the employer is a
direct or indirect beneficiary under such contact. The new rules apply to life
insurance contracts owned by corporations (including S corporations), individual
sole proprietors, estates and trusts and partnerships that are engaged in a
trade or business. It is the employer's responsibility to verify the eligibility
of the intended insured under employer-owned life insurance contracts and to
provide the notices and obtain the consents required by section 101(j). These
40
requirements generally apply to employer-owned life insurance contracts issued
or materially modified after August 17, 2006. A tax adviser should be consulted
by anyone considering the purchase or modification of an employer-owned life
insurance contract.
LIFE INSURANCE PURCHASES BY RESIDENTS OF PUERTO RICO
In Rev. Rul. 2004-75, 2004-31 I.R.B. 109, the Internal Revenue Service
announced that income received by residents of Puerto Rico under life insurance
contracts (or certificates) issued by a Puerto Rico branch of a United States
life insurance company is U.S.-source income that is generally subject to United
States Federal income tax.
LIFE INSURANCE PURCHASES BY NONRESIDENT ALIENS AND FOREIGN CORPORATIONS
Purchasers that are not U.S. citizens or residents will generally be
subject to U.S. federal withholding tax on taxable distributions from life
insurance policies at a 30% rate, unless a lower treaty rate applies. In
addition, purchasers may be subject to state and/or municipal taxes and taxes
that may be imposed by the purchaser's country of citizenship or residence.
Prospective purchasers that are not U.S. citizens or residents are advised to
consult with a qualified tax adviser regarding U.S. and foreign taxation with
respect to a life insurance policy purchase.
NON-INDIVIDUAL OWNERS AND BUSINESS BENEFICIARIES OF POLICIES
If a certificate is owned or held by a corporation, trust or other
non-natural person, this could jeopardize some (or all) of such entity's
interest deduction under Code Section 264, even where such entity's indebtedness
is in no way connected to the certificate. In addition, under Section 264(f)(5),
if a business (other than a sole proprietorship) is directly or indirectly a
beneficiary of a certificate, this certificate could be treated as held by the
business for purposes of the Section 264(f) entity-holder rules. Therefore, it
would be advisable to consult with a qualified tax adviser before any
non-natural person is made an owner or holder of a certificate, or before a
business (other than a sole proprietorship) is made a beneficiary of a
certificate.
SPLIT-DOLLAR ARRANGEMENTS
The IRS and the Treasury Department have issued guidance that substantially
affects split-dollar arrangements. Consult a qualified tax adviser before
entering into or paying additional premiums with respect to such arrangements.
Additionally, the Sarbanes-Oxley Act of 2002 (the "Act") prohibits, with
limited exceptions, publicly-traded companies, including non-U.S. companies that
have securities listed on exchanges in the United States, from extending,
directly or through a subsidiary, many types of personal loans to their
directors or executive officers. It is possible that this prohibition may be
interpreted as applying to split-dollar life insurance policies for director and
executive officers of such companies, since such insurance arguably can be
viewed as involving a loan from the employer for at least some purposes.
Although the prohibition on loans is generally effective as of July 30,
2002, there is an exception for loans outstanding as of that date, so long as
there is no material modification to the loan terms and the loan is not renewed
after July 30, 2002. Any affected business contemplating the payment of a
premium on an existing certificate, or the purchase of a new certificate, in
connection with a split-dollar life insurance arrangement should consult legal
counsel.
ALTERNATIVE MINIMUM TAX
There may also be an indirect tax upon the income in a certificate or the
proceeds of a certificate under the federal corporate alternative minimum tax,
if the owner is subject to that tax.
ESTATE, GIFT AND GENERATION-SKIPPING TRANSFER TAXES The transfer of the
certificate or designation of a beneficiary may have federal, state, and/or
local transfer and inheritance tax consequences, including the imposition of
gift, estate, and generation-skipping transfer taxes. For example, when the
insured dies, the death proceeds will generally be includable in the certificate
owner's estate for purposes of federal estate tax if the insured owned the
certificate. If the certificate owner was not the insured, the fair market value
of the certificate would be included in the certificate owner's estate upon the
owner's death. The certificate would not be includable in the insured's estate
if the insured neither
41
retained incidents of ownership at death nor had given up ownership within three
years before death.
Moreover, under certain circumstances, the Code may impose a "generation
skipping transfer tax" when all or part of a life insurance certificate is
transferred to, or a death benefit is paid to, an individual two or more
generations younger than the certificate owner. Regulations issued under the
Code may require us to deduct the tax from your certificate, or from any
applicable payment, and pay it directly to the IRS. A competent tax adviser
should be consulted for further information.
ECONOMIC GROWTH AND TAX RELIEF RECONCILIATION ACT OF 2001 The Economic Growth
and Tax Relief Reconciliation Act of 2001 ("EGTRRA") repeals the federal estate
tax and replaces it with a carryover basis income tax regime effective for
estates of decedents dying after December 31, 2009. EGTRRA also repeals the
generation skipping transfer tax, but not the gift tax, for transfers made after
December 31, 2009. EGTRRA contains a sunset provision, which essentially returns
the federal estate, gift and generation-skipping transfer taxes to their
pre-EGTRRA form, beginning in 2011. Congress may or may not enact permanent
repeal between now and then.
During the period prior to 2010, EGTRRA provides for periodic decreases in
the maximum estate tax rate coupled with periodic increases in the estate tax
exemption. For 2009, the maximum estate tax rate is 45% and the estate tax
exemption is $3,500,000.
The complexity of the new tax law, along with uncertainty as to how it
might be modified in coming years, underscores the importance of seeking
guidance from a qualified adviser to help ensure that your estate plan
adequately addresses your needs and that of your beneficiaries under all
possible scenarios.
It should be understood that the foregoing description of the federal
income tax, gift and estate tax consequences under the policies is not
exhaustive and that special rules are provided with respect to situations not
discussed. Statutory changes in the Code, with varying effective dates, and
regulations adopted thereunder may also alter the tax consequences of specific
factual situations. Due to the complexity of the applicable laws, any person
contemplating the purchase of a variable life insurance certificate or
exercising elections under such a certificate may want to consult a tax adviser.
DISTRIBUTION OF CERTIFICATES
The group contract and certificates will be sold by state licensed life
insurance producers who are also registered representatives of Securian
Financial Services, Inc. ("Securian Financial") or of other broker-dealers who
have entered into selling agreements with Securian Financial ("Selling Firms").
Securian 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 Financial Industry Regulatory
Authority. Securian Financial was incorporated in 1984 under the laws of the
State of Minnesota and acts as principal underwriter for the policies. Securian
Financial is a wholly-owned subsidiary of Securian Financial Group, Inc., which
is a second-tier subsidiary of a mutual insurance holding company called
Minnesota Mutual Companies, Inc.
The amount of commission received by an individual registered
representative in connection with the sale of a group contract or certificate is
determined by his or her broker-dealer. In the case of a group contract or
certificate sold by registered representatives of Securian Financial,
commissions are paid, if at all, directly to such registered representatives by
Minnesota Life as agent for Securian Financial. Compensation based on such sales
may also be paid to general agents of Minnesota Life who are also Securian
Financial registered representatives. In the case of a group contract or
certificate sold by a registered representative of a Selling Firm, commissions
are paid directly to the Selling Firm. The commissions and compensation
42
described in this section, and the payments to broker-dealers described below,
do not result in charges against the group contract or certificates that are in
addition to the charges described elsewhere in this prospectus.
Commissions to any registered representatives, whether such registered
representatives are registered with Selling Firms or Securian Financial on the
sale of certificates will be premium-based, asset-based or a fixed amount.
Commissions under a group-sponsored insurance program will not exceed the
equivalent of 50 percent of the portion of all premiums paid in the initial year
to cover the cost of insurance, 7 percent of all premiums paid in the initial
year in excess of the amount to cover the cost of insurance, and 7 percent of
all premiums paid after the initial year. In addition to commission payments to
registered representatives of Securian Financial Services, Minnesota Life may
also make certain retirement and other benefit plans (including deferred
compensation, group health and life insurance and liability insurance programs)
available to its employees or full-time life insurance agents.
The commission schedule for a group-sponsored insurance program will be
determined based on a variety of factors, including enrollment procedures, the
size and type of the group, the total amount of premium payments to be received,
any prior existing relationship with the group sponsor, the sophistication of
the group sponsor, and other circumstances of which we are not presently aware.
All of the compensation described here, and other compensation or benefits
provided by Minnesota Life or our affiliates, may be more or less than the
overall compensation on similar or other products. The amount and/or structure
of the compensation may influence your registered representative, broker-dealer
or selling institution to present the policies described in this prospectus over
other investment alternatives. However, the differences in compensation may also
reflect differences in sales effort or ongoing customer services expected of the
registered representative or the broker-dealer.
PAYMENTS MADE BY UNDERLYING MUTUAL FUNDS
Minnesota Life pays the costs of selling the group contract and
certificates, some of which are described in more detail elsewhere in this
prospectus, which benefits the underlying mutual funds by providing increased
distribution of the shares of such funds. The underlying mutual funds, or their
investment advisers or principal underwriters, may pay Minnesota Life (or
Minnesota Life affiliates) a fee for the purpose of reimbursing Minnesota Life
for the costs of certain distribution or operational services that Minnesota
Life provides and that benefit the funds. Payments from an underlying fund that
relate to distribution services are made pursuant to the fund's 12b-1 plan,
under which the payments are deducted from the fund's assets and described in
the fee table included in the fund's prospectus. 12b-1 payments from underlying
funds range in amount from 0% to 0.25% of fund assets held in the Separate
Account. These payments decrease a fund's investment return.
In addition, payments may be made pursuant to service/administration
agreements between Minnesota Life (or Minnesota Life affiliates) and the
underlying mutual fund's investment adviser (or its affiliates), in which case
payments are typically made from assets of that firm and not from the assets of
the fund. These payments, which are sometimes known as revenue sharing, are in
addition to the 12b-1 fees and those other fees and expenses incurred by a fund
and disclosed in its prospectus fee table. Service and administrative payments
are paid to Minnesota Life or its affiliates for such things as Minnesota Life's
aggregation of all certificate owner purchase, redemption, and transfer requests
within the Sub-Accounts of the Separate Account each business day and the
submission of one net purchase/redemption request to each underlying mutual
fund. When the Separate Account aggregates such transactions through the
Separate Account's omnibus account with an underlying mutual fund, the fund
avoids the expenses associated with processing individual transactions. Because
funds selected for inclusion in the group contract may also benefit from
expanded marketing opportunities as a result of such inclusion, a fund's
investment adviser (or its affiliates) may have an incentive to make such
payments regardless of other benefits the fund may derive from services
performed by Minnesota Life. Service and administrative payments received by
Minnesota Life or its affiliates range in amount from 0% to 0.35% of fund assets
held in the Separate Account.
43
Minnesota Life took into consideration anticipated payments from underlying
mutual funds and their investment advisers (or the advisers' affiliates) when it
determined the charges that are assessed under the group contract and
certificates. Without these payments, certain group contract and certificate
charges would likely be higher than they are currently. All of the underlying
mutual funds offered in the group contract and certificates currently pay 12b-1
fees to Minnesota Life, and some but not all of such funds' investment advisers
(or the advisers' affiliates) currently pay service or administrative fees to
Minnesota Life.
Owners, through their indirect investment in the funds, bear the costs of
the investment advisory fees that mutual funds pay to their respective
investment advisers. As described above, an investment adviser of a fund, or its
affiliates, may make payments to Minnesota Life and/or certain of our
affiliates. These payments may be derived, in whole or in part, from the
advisory fee deducted from fund assets.
Minnesota Life considers profitability when determining the charges in
these group contract and certificates. In early contract years, Minnesota Life
does not anticipate earning a profit, since that is a time when administrative
and distribution expenses are typically higher. Minnesota Life does, however,
anticipate earning a profit in later contract years. In general, Minnesota
Life's profit will be greater the longer a certificate is held and the greater a
certificate's investment return.
OTHER MATTERS
LEGAL PROCEEDINGS
Minnesota Life, like other life insurance companies, is ordinarily involved
in litigation. Although the outcome of any litigation cannot be predicted with
certainty, we believe that, as of the date of this prospectus, there are no
pending or threatened lawsuits that will have a materially adverse impact on:
the separate account; Securian Financial to perform its underwriting contract
with the separate account; or the ability of Minnesota Life to meet its
obligations under the Policy.
REGISTRATION STATEMENT
We have filed a Registration Statement under the Securities Act of 1933, as
amended, with the Securities and Exchange Commission with respect to the group
contracts and certificates offered hereby. This prospectus does not contain all
the information set forth in the registration statement and amendments thereto
and the exhibits filed as a part thereof, to all of which reference is hereby
made for further information concerning the separate account, Minnesota Life,
the group contracts and certificates. Statements contained in this prospectus as
to the contents of group contracts and certificates and other legal instruments
are summaries, and reference is made to such instruments as filed.
FINANCIAL STATEMENTS
The complete financial statements of the separate account and Minnesota
Life can be found in the Statement of Additional Information. The Statement of
Additional Information is available from us at your request.
To request a Statement of Additional Information call us at 1-800-843-8358
or write to us at: Minnesota Life Insurance Company at 400 Robert Street North,
Saint Paul, Minnesota 55101.
44
STATEMENT OF ADDITIONAL INFORMATION
A Statement of Additional Information, with the same date, containing
further information about Minnesota Life Variable Universal Life Account, the
group contract and the certificates is available without charge from us at your
request. It has been filed with the SEC and is incorporated by reference into
this prospectus. In addition, you may order a personalized illustration of death
benefits, cash surrender values, and cash values, without charge, from us.
To request a free copy of the Statement of Additional Information, a
personalized illustration or any information about your certificate call us at
1-800-843-8358 or write to us at: Minnesota Life Insurance Company at 400 Robert
Street North, Saint Paul, Minnesota 55101.
Information about Minnesota Life Variable Universal Life Account (including
the Statement of Additional Information) can be reviewed and copied at the
Securities and Exchange Commission's Public Reference Room in Washington, DC
(information on the operation of the Public Reference Room may be obtained by
calling the SEC at 1-202-551-8090) or at the SEC's website, http://www.sec.gov.
Copies of this information may be obtained, upon payment of a duplicating fee,
by writing the Public Reference Section of the Commission, 100 F Street, NE,
Washington, DC, 20549-0102. You can also call the SEC at 1-202-551-8090.
The table of contents for the Statement of Additional Information is as
follows:
General Information and History
Premiums
Additional Information About Operation of
Contracts and Registrant
Underwriters
Illustrations
Financial Statements
RULE 12h-7 REPRESENTATIONS
Minnesota Life, as depositor of the Minnesota Life Variable Universal Life
Account, is relying upon the requirements set forth in Rule 12h-7 under the
Securities Exchange Act of 1934 (the "Securities Exchange Act") to the extent
necessary to avoid being subject to periodic reporting obligations under the
Securities Exchange Act.
Investment Company Act Number 811-8830
45
MINNESOTA LIFE VARIABLE
UNIVERSAL LIFE ACCOUNT
MINNESOTA LIFE INSURANCE COMPANY
VARIABLE UNIVERSAL LIFE INSURANCE POLICY
This prospectus describes Variable Universal Life Insurance policies and
certificates issued by Minnesota Life Insurance Company ("Minnesota Life", "we",
"us" or "our").
The policies are designed for use in group-sponsored insurance programs to
provide life insurance protection to individuals (each an "insured") and the
flexibility to vary premium payments. Certificates are documents, generally held
by individuals ("certificate owner", "owner" or "you"), setting forth or
summarizing the rights of the owners and/or insureds and will be issued under
the group contract. A group contract or group policy is the Minnesota Life
Variable Group Universal Life Insurance Policy issued to an employer,
association or organization that is sponsoring a program of insurance ("group
sponsor" or "contractholder") for eligible participants. Individual policies can
also be issued in connection with group-sponsored insurance programs in
circumstances where a group contract is not issued. All references to a
certificate in this prospectus shall include individual policies issued in this
manner as well as certificates issued under a group contract.
Subject to the limitations in this prospectus, the owner may allocate net
premiums to one or more of the sub-accounts of a separate account of Minnesota
Life called the Minnesota Life Variable Universal Life Account ("separate
account"). The owner is the owner of the certificate as designated in the signed
application or as subsequently changed as set forth in the certificate and this
prospectus. The value of your investment in the separate account will vary with
the investment experience of the selected sub-accounts of the separate account.
There is no guaranteed minimum value associated with your investment in the
separate account and its sub-accounts. Subject to the limitations in the group
policy, the certificate and this prospectus, net premiums may also be allocated
to a guaranteed account of Minnesota Life.
The separate account, through its sub-accounts, invests its assets in shares of
Advantus Series Fund, Inc. (the "Series Fund"), Ivy Funds Variable Insurance
Portfolios, ("Ivy Funds VIP"), Lord Abbett Series Fund, Inc. ("Lord Abbett") and
Van Eck VIP Trust ("Van Eck") (collectively the "Funds"). The Funds offer their
shares exclusively to variable insurance products and have 10 portfolios which
are available for contracts offered under this prospectus (the "Portfolios").
They are:
ADVANTUS SERIES FUND, INC.
- Bond Portfolio--Class 2 Shares
- Index 400 Mid-Cap Portfolio--Class 2 Shares
- Index 500 Portfolio--Class 2 Shares
- Money Market Portfolio
- Mortgage Securities Portfolio--Class 2 Shares
- Real Estate Securities Portfolio--Class 2 Shares
IVY FUNDS VARIABLE INSURANCE PORTFOLIOS
- Ivy Funds VIP International Core Equity
- Ivy Funds VIP Science and Technology
LORD ABBETT SERIES FUND, INC.
- Mid Cap Value Portfolio
VAN ECK VIP TRUST
- Van Eck VIP Global Hard Assets Fund--Initial Class
PLEASE NOTE THAT THE POLICY, CERTIFICATES AND THE PORTFOLIOS:
are not guaranteed to achieve their goals;
are not federally insured;
are not endorsed by any bank or government agency; and
are subject to risks, including loss of the amount invested.
A prospectus for each of the Portfolios available through the separate account
must accompany this prospectus. Please read these documents carefully before
investing and save them for future reference.
The Securities and Exchange Commission has not approved the policy, the
certificates, the guaranteed account or determined that this prospectus is
accurate or complete. Any representation to the contrary is a criminal offense.
THE POLICY AND CERTIFICATES ARE NOT AVAILABLE IN ALL STATES. THIS PROSPECTUS
DOES NOT OFFER THE POLICIES OR CERTIFICATES IN ANY JURISDICTION WHERE THEY
CANNOT BE LAWFULLY SOLD. YOU SHOULD RELY ONLY ON THE INFORMATION CONTAINED IN
THIS PROSPECTUS, SALES MATERIALS WE HAVE APPROVED OR THAT WE HAVE REFERRED YOU
TO. WE HAVE NOT AUTHORIZED ANYONE TO PROVIDE YOU WITH INFORMATION THAT IS
DIFFERENT.
The date of this prospectus and the statement of additional information is April
30, 2010.
Minnesota Life Insurance Company
400 Robert Street North
St. Paul, Minnesota 55101-2098
[MINNESOTA LIFE LOGO]
TABLE OF CONTENTS
[Enlarge/Download Table]
PAGE
Questions and Answers about the Variable Group Universal Life Insurance Contract 2
Summary of Benefits and Risks 2
Risks of Owning a Variable Universal Life Insurance Certificate 2
Fee Tables 6
General Descriptions 9
Minnesota Life Insurance Company 9
Minnesota Life Variable Universal Life Account 9
Additions, Deletions or Substitutions 10
Voting Rights 11
The Guaranteed Account 12
Summary Information 12
Guaranteed Account Value 13
Charges 13
Premium Expense Charges 13
Sales Charge 13
Premium Tax Charge 14
OBRA Expense Charge 14
Account Value Charges 14
Monthly Deduction 14
Partial Surrender Charge 15
Transfer Charge 15
Additional Benefits Charges 16
Separate Account Charges 16
Fund Charges 16
Guarantee of Certain Charges 16
Information about the Group Policy and Certificates 16
Applications and Issuance 16
Dollar Cost Averaging 17
Free Look 17
Continuation of Group Coverage 18
Conversion Right to an Individual Policy 18
General Provisions of the Group Contract 18
Issuance 18
Termination 18
Right to Examine Group Contract 19
Entire Group Contract 19
Ownership of Group Contract and Group Contract Changes 19
Certificate Premiums 19
Premium Limitations 20
Allocation of Net Premiums and Account Value 20
Death Benefit and Account Values 21
Option A -- Level Death Benefit 21
Option B -- Increasing Death Benefit 21
Change in Face Amount 21
Increases 21
Decreases 22
Payment of Death Benefit Proceeds 22
Account Values 22
Determination of the Guaranteed Account Value 23
Determination of the Separate Account Value 23
Unit Value 23
Net Investment Factor 24
Daily Values 24
i
[Download Table]
PAGE
Surrenders, Partial Surrenders and Transfers 24
Transfers 25
Market Timing 25
Guaranteed Account Transfer Restrictions 26
Other Transfer Information 27
Loans 28
Loan Interest 28
Loan Repayments 29
Lapse and Reinstatement 29
Lapse 29
Reinstatement 30
Additional Benefits 30
Accelerated Benefits Rider 30
Waiver of Premium Rider 30
Accidental Death and Dismemberment Rider 30
Child Rider 30
Spouse Rider 30
Policyholder Contribution Rider 30
General Matters Relating to the Certificate 31
Postponement of Payments 31
The Certificate 31
Control of Certificate 31
Maturity 32
Beneficiary 32
Change of Beneficiary 32
Settlement Options 32
Federal Tax Status 33
Introduction 33
Taxation of Minnesota Life and the Variable Universal Life Account 33
Tax Status of Certificates 34
Diversification of Investments 34
Owner Control 34
Tax Treatment of Policy Benefits 35
Modified Endowment Contracts 35
Multiple Policies 36
Withholding 37
Continuation of Policy Beyond Age 100 37
Business Uses of Policy 37
Other Taxes 37
Employer-owned Life Insurance Contracts 37
Life Insurance Purchases by Residents of Puerto Rico 37
Life Insurance Purchases by Nonresident Aliens and Foreign Corporations 37
Non-Individual Owners and Business Beneficiaries of Policies 38
Split-Dollar Arrangements 38
Alternative Minimum Tax 38
Estate, Gift and Generation-Skipping Transfer Taxes 38
Economic Growth and Tax Relief Reconciliation Act of 2001 38
Distribution of Certificates 39
Payments Made by Underlying Mutual Funds 40
Other Matters 41
Legal Proceedings 41
Registration Statement 41
Financial Statements 41
Statement of Additional Information 42
ii
QUESTIONS AND ANSWERS ABOUT THE VARIABLE GROUP UNIVERSAL LIFE INSURANCE CONTRACT
SUMMARY OF BENEFITS AND RISKS
All of the benefits and risks summarized below are subject to the terms,
conditions and restrictions of the group-sponsored insurance program, the
certificate and this prospectus.
A variable universal life insurance certificate is an adjustable benefit
life insurance contract that allows accumulation of cash value, while the life
insurance coverage remains in force, and permits flexible payment of premiums.
The cash value of the certificate will fluctuate with the performance of the
sub-accounts of the separate account. The choice of available investment options
("sub-accounts") and the guaranteed account is determined under the
group-sponsored insurance program. Values may be transferred among the available
investment options. An owner may make a partial surrender from his/her
certificate, surrender all of his/her certificate or take certificate loans.
Each certificate has a minimum Face Amount of death benefit coverage. The death
benefit of a certificate may be greater than its Face Amount, as further
described in this prospectus. If a certificate is in force upon the insured's
death, the death benefit will be paid to the designated beneficiary.
We offer six Riders that provide supplemental benefits under the policy:
the Accelerated Benefits Rider, Waiver of Premium Rider, Accidental Death and
Dismemberment Rider, Child Rider, Spouse Rider and Policyholder Contribution
Rider. There is no charge for the Accelerated Benefits Rider and Policyholder
Contribution Rider. These Riders may not be available in all states or in all
group-sponsored insurance programs.
There are several ways of receiving proceeds under the death benefit of a
certificate, other than in a lump sum. More detailed information concerning
these settlement options is set forth later in this prospectus.
RISKS OF OWNING A VARIABLE UNIVERSAL LIFE INSURANCE CERTIFICATE
The account values of a certificate, to the extent invested in sub-accounts
of the separate account, have no guaranteed minimum account value. Therefore,
the owner bears the risk that adverse investment performance may depreciate the
owner's account value and, in some cases, may increase the cost of insurance.
Additional information concerning investment objectives and policies of the
Portfolios (including a comprehensive discussion of the risks of each Portfolio)
may be found in the current prospectuses for each Fund which accompany this
prospectus. You should carefully review each Fund prospectus before purchasing
the certificate.
A universal life insurance certificate is intended for the use of persons
who wish to combine both life insurance and the accumulation of cash values.
Because of this it is unsuitable as a short-term investment vehicle.
There is a risk that a certificate will lapse. As described in the "Lapse
and Reinstatement" section of this prospectus, lapse will occur only when the
net cash value is insufficient to cover the monthly deduction, and the
subsequent grace period expires without sufficient payment being made. You may
reinstate a lapsed certificate, subject to certain conditions.
Certificate loans may increase the risk of certificate lapse, may have a
negative effect on a certificate's cash value and may reduce a certificate's
death benefit.
In some circumstances, experience credits, loans and amounts received from
a partial surrender or surrender of the certificate will be subject to federal
income taxation and an additional 10 percent income tax could be imposed. For
additional information regarding federal income taxes see the "Federal Tax
Status" section of this prospectus. Withdrawals may also be assessed a
processing charge of 2% of the amount withdrawn not to exceed $25.
Consistent with the group-sponsored insurance program, the group policy,
the certificate and this prospectus, we reserve the right to limit the size,
number and frequency of transfers, limit the amount of a certificate loan, and
restrict certificate withdrawals and surrenders.
2
WHAT IS A UNIVERSAL LIFE INSURANCE CERTIFICATE?
A universal life insurance certificate is an adjustable benefit life
insurance contract issued pursuant to a group policy. Unlike term life
insurance, universal life insurance coverage allows you to accumulate cash
value, while the life insurance coverage remains in force, and permits flexible
payment of premiums (which means premium payments may be increased or decreased
as allowed for by the certificate and this prospectus).
A universal life insurance certificate has a stated face amount of
insurance payable in the event of the death of the insured, which is paid for by
the deduction of specified monthly charges from the account values. The face
amount is the minimum amount of death benefit proceeds paid upon the death of
the insured, so long as the certificate remains in force and there are no
outstanding loans. We will also deduct from the face amount any unpaid monthly
deduction. The face amount is shown on the specifications page attached to the
certificate. The insured is the person whose life is covered by life insurance
under a certificate. Unlike term life insurance, universal life insurance
coverage may be adjusted by the owner of the certificate, without the necessity
of issuing a new certificate for that owner. There are limitations to these
adjustments and we may require evidence of insurability before requested
increases take effect.
Universal life insurance coverage is provided without specifying the
frequency and amount of each premium payment (as is the practice for scheduled
premium life insurance). The time and amount of the payment of premium may be
determined by the owner. The life insurance coverage will remain in force for an
insured so long as the certificate's net cash value is sufficient to cover
monthly charges when due. The net cash value is the account value of a
certificate less any outstanding certificate loans and accrued certificate loan
interest charged (plus any accrued loan interest credits) and less any charges
due. It is the amount an owner may obtain through surrender of the certificate.
Subject to restrictions described herein, an owner may make payments in
excess of that minimum amount required to keep a certificate in force, take full
or partial surrenders of cash values and take out certificate loans. If cash
values are insufficient for the payment of the required monthly charges, then a
premium payment is required or the life insurance coverage provided to the owner
will lapse.
A universal life insurance certificate may be inappropriate for individuals
seeking life insurance protection which is the equivalent of term-type coverage.
Term coverage is usually for a fixed period of time for a fixed premium.
WHAT MAKES THE CERTIFICATE "VARIABLE"?
The certificate is termed "variable" because unlike a universal life
certificate which provides for the accumulation of certificate values at fixed
rates determined by the insurance company, variable universal life insurance
certificate values may be invested in variable investment options. The separate
account we use for our group contracts is called the Minnesota Life Variable
Universal Life Account and is composed of variable investment options or
sub-accounts. The separate account keeps its assets separate from the other
assets of Minnesota Life. Each sub-account invests in a corresponding Portfolio
of a Fund. Thus, the owner's account value, to the extent invested in the
variable investment options (sub-accounts), will vary with the positive or
negative investment experience of the corresponding Portfolios of the Funds.
The account value of a certificate is the sum of the separate account
value, guaranteed account value and loan account value. The separate account
value is the sum of all current sub-account values. The guaranteed account value
is the sum of all net premiums and transfers allocated to the guaranteed account
and interest declared thereon and experience credits, if any, minus amounts
transferred to the separate account or removed in connection with a partial
surrender or loan and minus charges assessed against the guaranteed account
value. The loan account value is the portion of the general account attributable
to loans under a certificate together with accrued interest.
IS THERE AN INVESTMENT PERFORMANCE RISK?
Yes. The account value of a certificate, to the extent invested in
sub-accounts of the separate account, has no guaranteed minimum account value.
Therefore, the owner bears the risk that adverse investment performance may
reduce the owner's account value. The owner is also subject to the risk that the
investment performance of the selected sub-accounts may
3
be less favorable than that of other sub-accounts, and in order to keep the
certificate in force the owner may be required to pay more premiums than
originally planned. The certificate also offers the owner the opportunity to
have the account value increase more rapidly than it would under comparable
fixed benefit certificates by virtue of favorable investment performance. In
addition, under some certificates, the death benefit will also increase and
decrease with investment experience.
Subject to the limitations in the group policy, certificate and this
prospectus, owners seeking the traditional insurance protections of a guaranteed
account value may allocate net premiums to the certificate's guaranteed account
option which provides for guaranteed accumulation at a fixed rate of interest.
Additional information on this option may be found under "The Guaranteed
Account" and the "Death Benefit and Account Values" sections of this prospectus.
If the owner allocates net premiums or account value to the guaranteed account,
then we credit the owner's account value in the guaranteed account with a
declared rate of interest, but the owner assumes the risk that the rates may
decrease, although it will never be lower than a minimum guaranteed annual rate
of 3 percent.
WHAT VARIABLE INVESTMENT OPTIONS ARE AVAILABLE?
The separate account currently invests in each of the 10 Portfolios listed
below. However, your group sponsor insurance program may limit the Portfolios,
and in turn the sub-accounts, available for investment under your certificate.
As such, you should consult your group sponsor to determine if restrictions
apply to your investment in any of sub-accounts funded by the Portfolios listed
below.
Series Fund Portfolios include (except for Money Market, all are Class 2
Shares):
Bond Portfolio
Index 400 Mid-Cap Portfolio
Index 500 Portfolio
Money Market Portfolio
Mortgage Securities Portfolio
Real Estate Securities Portfolio
Additional Fund Portfolios include:
Ivy Funds Variable Insurance Portfolios
Ivy Funds VIP International Core Equity
Ivy Funds VIP Science and Technology
Lord Abbett Series Fund, Inc.
Mid Cap Value Portfolio
Van Eck VIP Trust
Van Eck VIP Global Hard Assets Fund--Initial Class
There is no assurance that any Portfolio will meet its objectives.
Additional information concerning investment objectives and policies of the
Portfolios (including a comprehensive discussion of the risks of each Portfolio)
may be found in the current prospectuses for each Fund which accompany this
prospectus.
We reserve the right to add, combine or remove eligible Funds and
Portfolios.
HOW CAN NET PREMIUMS BE ALLOCATED?
In the initial signed application for life insurance, the owner may
indicate the desired allocation of net premiums among the guaranteed account and
the available sub-accounts of the separate account, subject to the limitations
in the certificate and this prospectus. All future net premiums will be
allocated in the same proportion until the owner requests a change in the
allocation. Similarly, the owner may request a transfer of amounts between
sub-accounts or between the sub-accounts and the guaranteed account, subject to
the limitations in the certificate and this prospectus.
WHAT DEATH BENEFIT OPTIONS ARE OFFERED UNDER THE CERTIFICATE?
We offer two death benefit options under the certificate. Under "Option A",
a level death benefit, the death benefit is the face amount of the certificate.
Under "Option B", a variable death benefit, the death benefit is the face amount
of the certificate plus the net cash value. So long as a certificate remains in
force and there are no certificate loans, the minimum death benefit under either
option will be at least equal to the current face amount (less any unpaid
monthly deduction). The death benefit proceeds will be adjusted by the amount of
any charges due or overpaid and any outstanding certificate loans and
certificate loan interest due determined as of the date of death.
Only the group sponsor may choose one of the two death benefit options
under a group-sponsored program. The death benefit option so chosen shall be the
same for all participants under the program. Once elected, the death benefit
option chosen by the group sponsor shall remain unchanged.
There is a minimum initial face amount for the certificate which is stated
on the specifications page of the certificate. The owner may generally change
the face amount,
4
but evidence of insurability of the insured may be required for certain face
amount increases.
ARE THE BENEFITS UNDER A CERTIFICATE SUBJECT TO FEDERAL INCOME TAX?
Although guidance is limited, we believe that the owner's certificate
should qualify as a life insurance contract for federal income tax purposes.
Assuming that a certificate qualifies as a life insurance contract for federal
income tax purposes, the benefits under certificates described in this
prospectus should receive the same tax treatment under the Code as benefits
under traditional fixed benefit life insurance certificates. Therefore, death
proceeds payable under variable life insurance certificates should be excludable
from the beneficiary's gross income for federal income tax purposes. The owner's
net cash value should grow tax-deferred until such cash value is actually
distributed to the owner.
Unless a certificate is classified as a "modified endowment contract,"
distributions, including partial and complete surrenders and experience credits
paid in cash, will not be taxed except to the extent that they exceed the
owner's "investment in the contract" (i.e., gross premiums paid under the
certificate reduced by any previously received amounts that were excludable from
income), and loans will generally not be treated as taxable distributions. For
federal income tax purposes, certificates classified as modified endowment
contracts are treated as life insurance only with respect to the tax treatment
of death proceeds and the tax-free inside buildup of yearly account value
increases. However, amounts received by the owner of a modified endowment
contract, such as experience credits paid in cash, loans and amounts received
from a partial surrender or from a surrender of the certificate will be subject
to the same tax treatment as amounts received under an annuity during the
accumulation period. Annuity tax treatment includes the 10 percent additional
income tax imposed on the portion of any distribution that is included in
income, except where the distribution or loan:
- is made on or after the owner attains age 59 1/2,
- is attributable to the owner becoming disabled, or
- is part of a series of substantially equal periodic payments for the life
of the owner or the joint lives of the owner and beneficiary.
Determining whether a certificate is a modified endowment contract requires
an examination of the premium paid in relation to the death benefit of the
certificate. A certificate would be a modified endowment contract if the total
premiums during the first seven contract years exceed the total sum of the net
level premiums which would be paid under a seven-pay life certificate. A
certificate which is subject to a material change will be treated as a new
certificate on the date that the material change takes effect, to determine
whether it is a modified endowment contract. The account value on the material
change date will be taken into account in determining whether the seven-pay
standard is met.
For additional information regarding federal income taxes see the "Federal
Tax Status" section of this prospectus.
DOES THE OWNER HAVE ACCESS TO THE ACCOUNT VALUES?
Yes. The net cash value, subject to the limitations in the certificate and
this prospectus, is available to the owner during the insured's lifetime. The
net cash value may be used:
- to provide retirement income,
- as collateral for a loan,
- to continue some amount of insurance protection without payment of
premiums, or
- to obtain cash by surrendering the certificate in full or in part.
The owner may borrow, as a certificate loan, an amount up to 90 percent of
the owner's account value less any existing loan account value. The loan account
is the portion of the general account attributable to loans under a certificate.
Each alternative for accessing the owner's account value may be subject to
conditions described in the certificate or under the "Death Benefit and Account
Values", "Surrenders, Partial Surrenders and Transfers" and "Loans" sections of
this prospectus.
In general, the owner may request a surrender of or a partial surrender
from the certificate at any time while the insured is living. A surrender or
partial surrender may have federal income tax consequences. (See "Federal Tax
Status".) Partial surrenders may
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also be assessed a processing charge of 2% of the amount withdrawn not to exceed
$25.
A surrender or partial surrender of the net cash value of the certificate
is permitted in any amount equal to at least the minimum established for
certificates under the group-sponsored insurance program. The minimum will never
exceed $500. The maximum partial surrender amount cannot exceed the maximum
established for certificates under the group-sponsored insurance program. We
reserve the right to limit the number of partial surrenders to one per
certificate month, change the minimum amount for partial surrenders, limit the
frequency of partial surrenders, or restrict or prohibit partial surrenders from
the guaranteed account.
WHAT CHARGES ARE ASSOCIATED WITH THE CERTIFICATE?
We assess certain charges against each premium payment and the account
values under each certificate and against the asset value of the separate
account. These charges, which are largely designed to cover our expenses in
providing insurance protection and in distributing and administering the
certificates are described under the "Charges" section of this prospectus. The
specific charges are shown on the specifications page of the certificate. There
are also advisory fees and expenses which are assessed against the asset value
of each of the Portfolios of the Funds. We also reserve the right to charge
against the separate account assets, or make other provisions, for additional
tax liability we may incur with respect to the separate account or the
certificates.
FEE TABLES
The following tables describe the fees and expenses that are payable when
buying, owning and surrendering the certificate. The first table describes the
fees and expenses that are payable at the time that the owner buys the
certificate, surrenders the certificate, or transfers cash value between
available investment options.
TRANSACTION FEES
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CHARGE WHEN CHARGE IS DEDUCTED AMOUNT DEDUCTED
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Maximum Sales Charge Imposed on Premiums From Each Premium Payment* 5 percent of Premium+
Maximum Premium Tax Charge From Each Premium Payment* 4 percent of Premium+
Maximum OBRA Expense Charge** From Each Premium Payment* 1.25 percent of Premium++
Maximum Deferred Sales Charge None N/A
Maximum Partial Surrender Fee From Each Partial Surrender Lesser of $25 or 2 percent
of the amount withdrawn+
Maximum Transfer Fee Upon Each Transfer+++ $10+++
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* The charge may be waived in some group sponsored insurance programs for
premiums received in conjunction with an Internal Revenue Code Section 1035
exchange.
** The OBRA expense charge is to reimburse the Company for extra costs
associated with a recent federal law that increases corporate tax owed by
certain insurance companies. For a further discussion of the OBRA expense
charge see the "OBRA Expense Charge" section of this prospectus.
+ The actual fee may vary depending upon the group-sponsored insurance
program under which the certificate is issued, but will not exceed the fee
stated in the table.
++ For a certificate considered to be an individual certificate under the
Omnibus Budget Reconciliation Act of 1990 ("OBRA") the charge will not
exceed 1.25 percent of each premium payment. If a certificate is considered
to be a group certificate under OBRA, the charge will not exceed 0.25
percent of each premium payment for group-sponsored programs implemented
prior to April 1, 2000 or 0.35 percent of each premium payment for
group-sponsored programs implemented on or after April 1, 2000.
+++ There is currently no fee assessed for transfers. A charge, not to exceed
$10 per transfer, may be imposed in the future.
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The next table describes the fees and expenses that an owner will pay
periodically during the time that the owner owns the certificate, not including
fund operating expenses. The table also includes rider charges that will apply
if the owner purchases any rider(s) identified below.
PERIODIC CHARGES OTHER THAN FUND OPERATING EXPENSES
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CHARGE WHEN CHARGE IS DEDUCTED AMOUNT DEDUCTED
------ ------------------------------ --------------------------------
COST OF INSURANCE CHARGE(1)(6)
MAXIMUM & MINIMUM CHARGE(7) On the Certificate Date Maximum: $41.36 per month per
and Each Subsequent Monthly $1,000 of net amount at risk
Anniversary
Minimum: $0.03 per month per
$1,000 of net amount at risk
MAXIMUM & MINIMUM CHARGE
FOR CERTIFICATES ISSUED PRIOR TO
JANUARY 1, 2009 AND ALL FACE
AMOUNT INCREASES ON SUCH
CERTIFICATES On the Certificate Date and Maximum: $32.01 per month per
Each Subsequent Monthly $1,000 of net amount at risk
Anniversary
Minimum: $0.03 per month per
$1,000 of net amount at risk
CHARGE FOR A 45 YEAR OLD
NON-SMOKING CERTIFICATEHOLDER(8) On the Certificate Date and $0.11 per month per $1,000 of
Each Subsequent Monthly net amount at risk
Anniversary
MORTALITY AND EXPENSE RISK CHARGE(2) Each Valuation Date Maximum: 0.50 percent of average
daily assets of the separate
account per year
MONTHLY ADMINISTRATION CHARGE(3) On the Certificate Date and Maximum: $4 per month
Each Subsequent Monthly
Anniversary
LOAN INTEREST SPREAD(4) Each Monthly Anniversary 2 percent of Policy Loan per year
ACCIDENTAL DEATH AND DISMEMBERMENT
CHARGE(5) On the Certificate Date and Maximum: $0.10 per month per
Each Subsequent Monthly $1,000 of net amount at risk
Anniversary
WAIVER OF PREMIUM CHARGE(5) On the Certificate Date and Maximum: 50 percent of the cost
Each Subsequent Monthly of insurance Charge
Anniversary
CHILD RIDER CHARGE(5) On the Certificate Date and Maximum: $0.35 per month per
Each Subsequent Monthly $1,000 of net amount at risk
Anniversary
SPOUSE RIDER CHARGE(1)(5) MAXIMUM &
MINIMUM CHARGE(7) On the Certificate Date Maximum: $41.36 per month per
and Each Subsequent Monthly $1,000 of net amount at risk
Anniversary
Minimum: $0.03 per month per
$1000 of net amount at risk
MAXIMUM & MINIMUM CHARGE
FOR CERTIFICATES ISSUED PRIOR TO
JANUARY 1, 2009 AND ALL FACE
AMOUNT INCREASES ON SUCH
CERTIFICATES On the Certificate Date and Maximum: $32.01 per month per
Each Subsequent Monthly $1,000 of net amount at risk
Anniversary
Minimum: $0.03 per month per
$1,000 of net amount at risk
CHARGE FOR A 45 YEAR OLD
NON-SMOKING CERTIFICATEHOLDER(8) On the Certificate Date and $0.11 per month per $1,000 of
Each Subsequent Monthly net amount at risk
Anniversary
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(1) The cost of insurance charge will vary depending upon the insured's
attained age, rate class and the group sponsored insurance program. The
charges noted may not be representative of the charges that you would pay.
For information regarding the specific cost of insurance rate that will
apply to your certificate please contact Minnesota Life at 1-800-843-8358,
during normal business hours of 8:00 a.m. to 4:45 p.m., Central Time.
(2) The mortality and expense risk charge will vary based on the
group-sponsored insurance program under which the certificate is issued.
Differences in the mortality and expense risk charge rates applicable to
different group-sponsored insurance programs will be determined by us based
on differences in the levels of mortality and expense risk under those
policies.
(3) The monthly administration charge depends on the number of certificate
owners under the group sponsored insurance program, the administrative
services provided, the expected average face amount as well as other
certificate features.
(4) The Loan Interest Spread is the difference between the amount of interest
we charge you for a loan (guaranteed not to exceed 8% annually) and the
amount of interest we credit to the amount of the certificate loan in the
loan account value (guaranteed not to be less than 6% annually). While a
certificate loan is outstanding, loan interest is due and payable in
arrears at the end of each certificate month or for the duration of the
certificate, if shorter. For a complete discussion of loan interest charges
and credits see the "Loan Interest" section of this prospectus.
(5) The availability of additional insurance benefit riders will depend upon
the particular group sponsored insurance program. You should check with
your group sponsor to determine which additional insurance benefit riders
are available under your program. Charges for additional insurance benefit
riders may vary among group sponsored insurance programs.
(6) The net amount at risk for a certificate month is the difference between
the death benefit and the account value.
(7) The maximum charge in this row applies to certificates issued on or after
January 1, 2009.
(8) For certificates issued both before and after January 1, 2009.
For information concerning compensation paid for the sale of the group
contract and certificates, see the "Distribution of Certificates" section of the
prospectus.
The next table describes the range of total annual Portfolio operating
expenses that an owner will pay while he or she owns the certificate. Expenses
of the Portfolios may be higher or lower in the future. The table shows the
lowest and highest expenses (as a percentage of Portfolio assets) charged by any
of the Funds for its Portfolios for the fiscal year ended December 31, 2009.
More detail concerning a particular Fund and its Portfolios' fees and expenses
is contained in the prospectus for that Fund.
RANGE OF ANNUAL PORTFOLIO OPERATING EXPENSES
(EXPENSES THAT ARE DEDUCTED FROM PORTFOLIO ASSETS INCLUDING MANAGEMENT FEES,
DISTRIBUTION (12b-1) FEES AND OTHER EXPENSES)*
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FEE DESCRIPTION MINIMUM MAXIMUM
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Total Annual Portfolio Operating Expenses 0.49% 1.26%
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* The range of Total Annual Portfolio Operating Expenses presented in this
table does not reflect any fee waivers or expense reductions. Under certain
circumstances the Funds may charge a redemption fee for certain market
timing or frequent trading activity. For more detailed information about
the fee and expense charges, fee waivers (if applicable), redemption fee
(if applicable) and expense reductions (if applicable) for a particular
Fund Portfolio please see that Fund's prospectus.
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GENERAL DESCRIPTIONS
MINNESOTA LIFE INSURANCE COMPANY
We are Minnesota Life Insurance Company ("Minnesota Life"), a life
insurance company organized under the laws of Minnesota. Our home office is at
400 Robert Street North, St. Paul, Minnesota 55101-2098, telephone: (651)
665-3500. We are licensed to do a life insurance business in all states of the
United States (except New York where we are an authorized reinsurer), the
District of Columbia, Canada, Puerto Rico and Guam. Any benefits due and owing
pursuant to a certificate are obligations of Minnesota Life.
MINNESOTA LIFE VARIABLE UNIVERSAL LIFE ACCOUNT
On August 8, 1994, the separate account was established in accordance with
Minnesota insurance law. The separate account is registered as a "unit
investment trust" with the Securities and Exchange Commission under the
Investment Company Act of 1940. The separate account meets the definition of a
"separate account" under the federal securities laws.
We are the legal owner of the assets in the separate account. The
obligations to group contract and certificate owners and beneficiaries arising
under the group contracts and certificates are general corporate obligations of
Minnesota Life. Our general assets back these obligations. The Minnesota law
under which the separate account was established provides that the assets of the
separate account shall not be chargeable with liabilities arising out of any
other business which we may conduct, but shall be held and applied exclusively
to the benefit of the holders of those variable life insurance certificates for
which the separate account was established. The income gains and losses credited
to or charged against the separate account reflect the account's own investment
experience and are entirely independent of both the investment performance of
our guaranteed account and of any other separate account which we may have
established or may later establish.
The separate account is divided into sub-accounts, each of which currently
invests in one of the 10 Fund Portfolios shown on the cover page of this
prospectus. Your group sponsor insurance program, however, may limit the
Portfolios, and in turn the sub-accounts, available for investment under your
certificate. As such, you should consult your group sponsor to determine if
restrictions apply to your investment in any of sub-accounts funded by the
Portfolios.
The separate account currently invests in the Portfolios of Series Fund,
BlackRock Variable Series Funds, Inc., Lord Abbett Series Fund, Inc., Van Eck
Worldwide Insurance Trust and W&R Target Funds, Inc. The Fund Portfolio
prospectuses accompany this prospectus. For additional copies please call us at
1-800-843-8358. You should read each prospectus carefully before investing in
the certificate.
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 the other Portfolios.
All dividends and capital gains distributions from each Portfolio are
automatically reinvested in shares of that Portfolio at net asset value.
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Below is a list of the Portfolios and their adviser and sub-adviser, if
applicable.
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FUND/PORTFOLIO INVESTMENT ADVISER INVESTMENT SUB-ADVISER
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SERIES FUND:
Bond Portfolio--Class 2 Shares Advantus Capital Management, Inc.
Index 400 Mid-Cap Portfolio--Class 2 Advantus Capital Management, Inc.
Shares
Index 500 Portfolio--Class 2 Shares Advantus Capital Management, Inc.
Money Market Portfolio* Advantus Capital Management, Inc.
Mortgage Securities Portfolio--Class 2 Advantus Capital Management, Inc.
Shares
Real Estate Securities Portfolio--Class 2 Advantus Capital Management, Inc.
Shares
IVY FUNDS VARIABLE INSURANCE PORTFOLIOS:
Ivy Funds VIP International Waddell & Reed Investment
Core Equity Management Company
(Seeks long-term capital growth.)
Ivy Funds VIP Science and Technology Waddell & Reed Investment
(Seeks long-term capital growth.) Management Company
LORD ABBETT SERIES FUND, INC.:
Mid Cap Value Portfolio Lord, Abbett & Co. LLC
(Seeks capital appreciation through
investments, primarily in equity
securities, which are believed to be
undervalued in the marketplace.)
VAN ECK VIP TRUST:
Van Eck VIP Global Hard Assets Fund-- Van Eck Associates Corporation
Initial Class
(Seeks long-term capital appreciation
by investing primarily in "hard
assets" securities.)
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* Although the Money Market Portfolio seeks to preserve a stable net asset
value per share, it is possible to lose money by investing in the Money
Market Portfolio. An investment in a money market portfolio is neither
insured nor guaranteed by the Federal Deposit Insurance Corporation or any
government agency. In addition, because of expenses incurred by
sub-accounts in the separate account, during extended periods of low
interest rates, the yield of the sub-account that invests in the Money
Market Portfolio may also become extremely low and possibly negative. The
Money Market Portfolio participates in Treasury's Temporary Guarantee
Program for Money Market Funds. See the Money Market Portfolio prospectus
for additional information.
The above Portfolios were selected based on several criteria, including
asset class coverage, the strength of the investment adviser's reputation and
tenure, brand recognition, performance, and the capability and qualification of
each investment firm. Another factor we considered during the selection process
was whether the Portfolio's investment adviser or an affiliate will make
payments to us or our affiliates. For additional information on these
arrangements, see "Payments Made by Underlying Mutual Funds."
WE DO NOT PROVIDE ANY INVESTMENT ADVICE AND DO NOT RECOMMEND OR ENDORSE ANY
PARTICULAR PORTFOLIO. YOU BEAR THE RISK OF ANY DECLINE IN THE CERTIFICATE CASH
VALUE OF YOUR CERTIFICATE RESULTING FROM THE PERFORMANCE OF THE PORTFOLIO YOU
HAVE CHOSEN.
ADDITIONS, DELETIONS OR SUBSTITUTIONS
We reserve the right to add, combine or remove any sub-accounts of the
Variable Universal Life Account when permitted by law.
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Each additional sub-account will purchase shares in a new portfolio or mutual
fund. New sub-accounts may be established when, in our sole discretion,
marketing, tax, investment or other conditions warrant such action. We will use
similar considerations should there be a determination to eliminate one or more
of the sub-accounts of the separate account. Any new investment option will be
made available to existing owners on whatever basis we may determine.
We retain the right, subject to any applicable law, to make substitutions
with respect to the investments of the sub-accounts of the separate account. If
investment in a Portfolio of the Funds should no longer be possible or if we
determine it becomes inappropriate for certificates of this class, we may
substitute another mutual fund or portfolio for a sub-account. Substitution may
be made with respect to existing account values and future premium payments. A
substitution may be made only with any necessary approval of the Securities and
Exchange Commission.
We reserve the right to transfer assets of the separate account as
determined by us to be associated with the certificates to another separate
account. A transfer of this kind may require the approval of state regulatory
authorities and of the Securities and Exchange Commission.
We also reserve the right, when permitted by law, to restrict or eliminate
any voting right of owners or other persons who have voting rights as to the
separate account, and to combine the separate account with one or more other
separate accounts, and to deregister the separate account under the Investment
Company Act of 1940.
The Funds serve as the underlying investment medium for amounts invested in
life insurance company separate accounts funding both variable life insurance
policies and variable annuity contracts, as the investment medium for such
policies and contracts issued by Minnesota Life and other affiliated and
unaffiliated life insurance companies, and as the investment medium when used by
both a life insurance company to fund its policies or contracts and a
participating qualified plan to fund plan benefits. It is possible that there
may be circumstances where it is disadvantageous for either: (i) the owners of
variable life insurance policies and variable annuity contracts to invest in one
of the Funds at the same time, or (ii) the owners of such policies and contracts
issued by different life insurance companies to invest in one of the Funds at
the same time or (iii) participating qualified plans to invest in shares of one
of the Funds at the same time as one or more life insurance companies. Neither
the Funds nor Minnesota Life currently foresees any disadvantage, but if one of
the Funds determines that there is any such disadvantage due to a material
conflict of interest between such policy owners and contract owners, or between
different life insurance companies, or between participating qualified plans and
one or more life insurance companies, or for any other reason, one of the Funds'
Board of Directors will notify the life insurance companies and participating
qualified plans of such conflict of interest or other applicable event. In that
event, the life insurance companies or participating qualified plans may be
required to sell the applicable Funds' shares with respect to certain groups of
policy owners or contract owners, or certain participants in participating
qualified plans, in order to resolve any conflict. The life insurance companies
and participating qualified plans will bear the entire cost of resolving any
material conflict of interest.
VOTING RIGHTS
We will vote the shares of the Funds held in the various sub-accounts of
the Variable Universal Life Account at regular and special shareholder meetings
of the Funds in accordance with the owner's instructions. If, however, the
Investment Company Act of 1940, as amended, or any regulation thereunder should
change and we determine that it is permissible to vote the shares of the Funds
in our own right, we may elect to do so. The number of votes as to which the
owner has the right to instruct will be determined by dividing his or her
sub-account value by the net asset value per share of the corresponding
Portfolio of the Funds. The sub-account value is the number of units of a
sub-account credited to a certificate multiplied by the current unit value for
that sub-account. Fractional shares will be counted. The number of votes as to
which the owner has the right to instruct will be determined as of the date
coincident with the date established by the Funds for determining shareholders
eligible to vote at the meeting of the Funds. Voting instructions will be
solicited prior to the
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meeting in accordance with procedures established by the Funds. We will vote
shares of the Funds held by the separate account as to which no instructions are
received in proportion to the voting instructions which are received from
certificate owners with respect to all certificates participating in the
separate account. Proportional voting may result in a small number of
certificate owners determining the outcome of a vote.
We may, when required by state insurance regulatory authorities, disregard
voting instructions if the instructions require that shares be voted so as to
cause a change in sub-classification or investment policies of the Funds or
approve or disapprove an investment advisory contract of the Funds. In addition,
we may disregard voting instructions in favor of changes in the investment
policies or the investment adviser of one or more of the Funds if we reasonably
disapprove of such changes. A change would be disapproved only if the proposed
change is contrary to state law or disapproved by state regulatory authorities
on a determination that the change would be detrimental to the interests of
certificate owners or if we determine that the change would be inconsistent with
the investment objectives of the Funds or would result in the purchase of
securities for the Funds which vary from the general quality and nature of
investments and investment techniques utilized by other separate accounts
created by us or any of our affiliates which have similar investment objectives.
In the event that we disregard voting instructions, a summary of that action and
the reason for such action will be included in the owner's next semi-annual
report.
THE GUARANTEED ACCOUNT
The guaranteed account is part of our general account. The owner may
allocate net premiums and may transfer net cash values of the certificate,
subject to the limitations in the certificate and this prospectus, to our
guaranteed account.
Because of exemptive and exclusionary provisions, interests in Minnesota
Life's guaranteed account have not been registered under the Securities Act of
1933, and the guaranteed account has not been registered as an investment
company under the Investment Company Act of 1940. Therefore, neither the
guaranteed account nor any interest therein is subject to the provisions of
these Acts, and Minnesota Life has been advised that the staff of the SEC does
not review disclosures relating to it. Disclosures regarding the guaranteed
account may, however, be subject to certain generally applicable provisions of
the federal securities laws relating to the accuracy and completeness of
statements made in prospectuses.
This prospectus describes a Variable Universal Life Insurance group
contract and certificate and is generally intended to serve as a disclosure
document only for the aspects of the group contract and certificate relating to
the sub-accounts of the separate account. For more information about the
guaranteed account, please see the certificate and the summary information
provided immediately below.
SUMMARY INFORMATION
Minnesota Life's general account consists of all assets owned by Minnesota
Life other than those in the separate account and any other separate accounts
which we may establish. The guaranteed account is that portion of the general
assets of Minnesota Life, exclusive of loans, which is attributable to the group
contract and certificate described herein and others of their class. The
description is for accounting purposes only and does not represent a division of
the general account assets for the specific benefit of group contracts and
certificates of this class. Allocations to the guaranteed account become part of
the general assets of Minnesota Life and are used to support insurance and
annuity obligations and are subject to the claims of our creditors. Subject to
applicable law, we have sole discretion over the investment of assets of the
guaranteed account. Owners do not share in the actual investment experience of
the assets in the guaranteed account.
A portion or all the net premiums may be allocated or transferred to
accumulate at a fixed rate of interest in the guaranteed account, though we
reserve the right to restrict the allocation of premium into the guaranteed
account. Transfers from the guaranteed account to the sub-accounts of the
separate account are subject to certain limitations with respect to timing and
amount. These restrictions are described under the "Transfers" section of this
prospectus. Amounts allocated or transferred to
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the guaranteed account are guaranteed by us as to principal and a minimum rate
of interest.
GUARANTEED ACCOUNT VALUE Minnesota Life bears the full investment risk for
amounts allocated to the guaranteed account and guarantees that interest
credited to each owner's account value in the guaranteed account will not be
less than the minimum guaranteed annual rate without regard to the actual
investment experience of the guaranteed account. For group-sponsored programs
implemented prior to May 1, 2001, the minimum guaranteed annual rate is 4
percent. For group-sponsored programs implemented on or after May 1, 2001 the
minimum guaranteed annual rate is 3 percent. We may, at our sole discretion,
credit a higher rate of interest ("excess interest") although we are not
obligated to do so. Any interest credited on the certificate's account value in
the guaranteed account in excess of the guaranteed minimum rate per year will be
determined at our sole discretion. The owner assumes the risk that interest
credited may not exceed the guaranteed minimum rate.
Even if excess interest is credited to the guaranteed account value, no
excess interest will be credited to the loan account value.
CHARGES
Premium expense and account value charges will be deducted in connection
with the certificates and paid to us, to compensate us for providing the
insurance benefits set forth in the certificates, administering the
certificates, incurring expenses in distributing the certificates and assuming
certain risks in connection with the certificates. These charges will vary based
on the group-sponsored insurance program under which the certificate is issued.
We will determine the charges pursuant to our established actuarial procedures,
and in doing so we will not discriminate unreasonably or unfairly against any
person or class of persons. The charges for certificates under a group-sponsored
insurance program are shown on the specifications page of the certificate.
There are also advisory fees and expenses which are assessed against the
asset value of each of the Portfolios of the Funds.
PREMIUM EXPENSE CHARGES
The premium expense charges described below will be deducted from each
premium payment we receive. The remaining amount, or net premium, will be
allocated to the guaranteed account and/or sub-accounts of the separate account,
as directed by the owner, and become part of the certificate's net cash value.
SALES CHARGE We may deduct a sales charge from each premium paid under the
certificate. Sales charges vary based on the group-sponsored insurance program
under which the certificate is issued. The charge will never exceed 5 percent of
each premium paid. The sales charge will be determined based on a variety of
factors, including enrollment procedures, the size and type of the group, the
total amount of premium payments to be received, any prior existing relationship
with the group sponsor, the level of commissions paid to agents and brokers and
their affiliated broker-dealers, and other circumstances of which we are not
presently aware. We may waive the sales charge for premiums received as a result
of Internal Revenue Code section 1035 exchanges from another contract or
certificate. In addition, we may waive the sales charge for premiums paid by
designated payors under a group-sponsored insurance program (for example,
insureds versus the group sponsor).
The amount of the sales charge in any certificate year may not be
specifically related to sales expenses for that year. To the extent that sales
expenses are not recovered from the sales charge, we will recover them from our
other assets or surplus, which may include profits from the mortality and
expense risk charge, the cost of insurance charge or the administration charge.
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PREMIUM TAX CHARGE We will deduct a percentage of premium charge, not to exceed
4 percent of each premium received for premium taxes. Premium tax charges vary
based on the group-sponsored insurance program under which the certificate is
issued. This charge is to compensate us for our payment of premium taxes that
are imposed by various states and local jurisdictions, and such other charges or
expenses as we may incur with respect to the certificates, including guaranty
fund assessments. The state and/or jurisdiction in which a group policy is
issued may impose taxes that are higher or lower than the premium taxes actually
imposed on the group policy. This charge will be between 0 percent and 4 percent
of each premium payment. We may waive the premium tax charge for premiums
received as a result of Internal Revenue Code section 1035 exchanges from
another contract or certificate.
OBRA EXPENSE CHARGE Due to a 1990 federal tax law change under the Omnibus
Budget Reconciliation Act of 1990 ("OBRA"), as amended, insurance companies are
generally required to capitalize and amortize certain acquisition expenses
rather than currently deducting such expenses. Due to this capitalization and
amortization, the corporate income tax burden on insurance companies has been
affected. For certificates deemed to be group certificates for purposes of OBRA,
we make a charge against each premium payment to compensate us for corporate
taxes. The charge will not exceed 0.35 percent of premium. Under certificates
deemed to be individual contracts under OBRA, we make a charge of up to 1.25
percent of each premium payment. We may waive the OBRA expense charge for
premiums received as a result of Internal Revenue Code section 1035 exchanges
from another contract or certificate.
ACCOUNT VALUE CHARGES
The account value charges described below will be deducted from the net
cash value. If the net cash value is insufficient to cover the account value
charges, the certificate will lapse unless sufficient payment is received within
the grace period.
MONTHLY DEDUCTION The charges deducted as part of the monthly deduction vary
based on the group-sponsored insurance program under which the certificate is
issued. As of the certificate date and each subsequent monthly anniversary, we
will deduct an amount from the net cash value of the owner's certificate to
cover certain charges and expenses incurred in connection with the certificate.
The monthly deduction will be the sum of the following applicable items: (1) an
administration charge; (2) a cost of insurance charge; and (3) the cost of any
additional insurance benefits provided by rider. The monthly anniversary is the
first day of each calendar month on, or following, the issue date. The monthly
deduction will be deducted from the guaranteed account value and the separate
account value in the same proportion that those values bear to the net cash
value and, as to the separate account, from each sub-account in the proportion
that the sub-account value in such sub-account bears to the separate account
value of the certificate.
We may deduct an ADMINISTRATION CHARGE from the net cash value of the
certificate each month. The administration charge will never exceed $4 per
month. This charge is to compensate us for expenses incurred in the
administration of the certificates. These expenses include the costs of
processing enrollments, determining insurability, and establishing and
maintaining certificate records. Differences in the administration charge
applicable to specific group-sponsored insurance programs will be determined
based on expected differences in the administrative costs for the certificates
or in the amount of revenues that we expect to derive from the charge. Such
differences may result, for example, from the number of eligible members in the
group, the type and scope of administrative support provided by the group
sponsor, face amount and account value, and the features to be included in
certificates under the group-sponsored insurance program. An eligible member is
a member of the group seeking insurance who meets the requirements stated on the
specifications page of the group contract. This charge is not designed to
produce a profit.
The monthly COST OF INSURANCE will be calculated by multiplying the
applicable cost of insurance rate based on the insured's attained age and rate
class by the net amount at risk for each certificate month. The attained age is
the issue age of the insured plus the number of completed certificate years. The
net amount at risk for a certificate month is the difference
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between the death benefit and the account value. The net amount at risk may be
affected by changes in the face amount of the certificate or by changes in the
account value. Account value, to the extent invested in sub-accounts of the
separate account, will vary depending upon the investment performance of the
sub-accounts.
Cost of insurance rates for each group-sponsored insurance program are
determined based on a variety of factors related to group mortality including
gender mix, average amount of insurance, age distribution, occupations,
industry, geographic location, participation, level of medical underwriting
required, degree of stability in the charges sought by the group sponsor, prior
mortality experience of the group, number of actual or anticipated owners
electing the continuation option, and other factors which may affect expected
mortality experience. In addition, cost of insurance rates may be intended to
cover expenses to the extent they are not covered by the other certificate
charges. Changes in the current cost of insurance rates may be made based on any
factor which affects the actual or expected mortality or expenses of the group.
Changes to the cost of insurance rates are generally effective on the
anniversary of the issuance of the group policy, although changes may be made at
other times if warranted due to a change in the underlying characteristics of
the group, changes in benefits included in certificates under the group
contract, experience of the group, changes in the expense structure, or a
combination of these factors.
Any changes in the current cost of insurance rates will apply to all
persons of the same attained age and rate class under the group-sponsored
insurance program. We and the group contractholder will agree to the number of
classes and characteristics of each rate class. The classes may vary by tobacco
users and non-tobacco users, active and retired status, owners of coverage
continued under the continuation provision and other owners, and/or any other
nondiscriminatory classes agreed to by the group sponsor.
The current cost of insurance rates will not be greater than the guaranteed
cost of insurance rates set forth in the certificate. For policies and
certificates issued prior to or on December 31, 2008, and all face amount
increases on such policies and certificates, the guaranteed rates are 125
percent of the maximum rates that could be charged based on 1980 Commissioners
Standard Ordinary Mortality Tables ("1980 CSO Table") (a maximum charge of
$32.01 per month per $1,000 of net amount at risk). The guaranteed rates are
higher than 100 percent of the 1980 CSO Table because we may use a simplified
underwriting approach and may issue certificates that do not require medical
evidence of insurability. The current cost of insurance rates are generally
lower than 100 percent of the 1980 CSO Table. (For purposes of premiums under
Section 7702 of the Internal Revenue Code of 1986, as amended, we will use 100
percent of the 1980 CSO Table.)
For group policies and certificates issued on and after January 1, 2009,
the guaranteed rates are 200 percent of the maximum rates that could be charged
based on 2001 Commissioners Standard Ordinary Mortality Tables ("2001 CSO
Table") (a maximum charge of $37.62 per month per $1,000 of net amount at risk).
The guaranteed rates are higher than 100 percent of the 2001 CSO Table because
we may use a simplified underwriting approach and may issue certificates that do
not require medical evidence of insurability. The current cost of insurance
rates are generally lower than 100 percent of the 2001 CSO Table. (For purposes
of premiums under Section 7702 of the Internal Revenue Code of 1986, as amended,
we will use 100 percent of the 2001 CSO Table.)
PARTIAL SURRENDER CHARGE For certificates under some group-sponsored insurance
programs, a transaction charge will be assessed against the net cash value for
each partial surrender to cover the administrative costs incurred in processing
the partial surrender. The charge will not exceed the lesser of $25 or 2 percent
of the amount withdrawn. This charge will be assessed in the same manner as the
monthly deduction. This charge is not designed to produce a profit.
TRANSFER CHARGE There is currently no charge assessed on transfers of net cash
value between the guaranteed account and the separate account or among the
sub-accounts of the separate account. A charge, not to exceed $10 per transfer,
may be imposed in the future.
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ADDITIONAL BENEFITS CHARGES Additional benefits may be included with the
certificate by rider, subject to the limitations of the group policy and this
prospectus. Some of these additional benefits will have charges associated with
them. For a complete discussion of additional benefits see the "Additional
Benefits" section of this prospectus.
SEPARATE ACCOUNT CHARGES
We assess a MORTALITY AND EXPENSE RISK CHARGE directly against the separate
account assets. This charge will vary based on the group-sponsored insurance
program under which the certificate is issued. The annual rate will not exceed
..50 percent of the average daily assets of the separate account. The mortality
and expense risk charge compensates us for assuming the risk that the cost of
insurance and other charges will be insufficient to cover the actual mortality
experience and other costs in connection with the policies.
Differences in the mortality and expense risk charge rates applicable to
different group-sponsored insurance programs will be determined by us based on
differences in the levels of mortality and expense risk under those contracts.
Differences in mortality and expense risk arise principally from the fact that:
(1) the factors used to determine cost of insurance and administration charges
are more uncertain for some group-sponsored insurance programs than for others;
and (2) our ability to recover any unexpected mortality and administration costs
will also vary from group-sponsored insurance program to group-sponsored
insurance program, depending on the charges established for policies issued
under the group-sponsored insurance program, and on other financial factors.
We reserve the right to deduct a charge against the separate account
assets, or make other provisions for, any additional tax liability we may incur
with respect to the separate account, the group contract or the certificates, to
the extent that those liabilities exceed the amounts recovered through the
deduction from premiums for premium taxes and OBRA related expenses. No such
charge or provision is made at the present time.
FUND CHARGES
Shares of the Funds are purchased for the separate account at their net
asset value, which reflects advisory fees and portfolio expense fees which are
assessed against the net asset value of each of the Portfolios of the Fund.
Advisory fees and portfolio expense fees of the Fund are described in each
Fund's prospectus.
GUARANTEE OF CERTAIN CHARGES
We will not increase the following charges for group policies: (1) the
maximum sales charge; (2) the maximum premium tax charge; (3) the OBRA expense
charge (unless there is a change in the law regarding the federal income tax
treatment of deferred acquisition costs); (4) the maximum cost of insurance
charge; (5) the maximum administration charge; (6) the maximum partial surrender
transaction charge; (7) the maximum transfer charge; and (8) the maximum
separate account charge for mortality and expense risk.
INFORMATION ABOUT THE GROUP POLICY AND CERTIFICATES
APPLICATIONS AND ISSUANCE
We will generally issue a group contract to a group, as defined and
permitted by state law. For example, a group contract may be issued to an
employer, whose employees and/or their spouses may become insured thereunder so
long as the person is within a class of members eligible to be included in the
group contract. The class(es) of members eligible to be insured by a certificate
under the group contract are set forth in that group contract's specifications
page. The group contract will be issued upon receipt of a signed application for
the group contract signed by a duly authorized officer of the group wishing to
enter into a group contract and the acceptance of that signed application by a
duly authorized officer of Minnesota Life at its home office. Individuals
wishing to purchase a certificate insuring an eligible member under a
group-sponsored
16
insurance program must complete the appropriate application for life insurance
and submit it to our home office. If the application is approved, we will issue
either a certificate or an individual policy to give to the owner. The issuance
of a group contract or an individual policy and their associated forms is always
subject to the approval of those documents by state insurance regulatory
authorities for use.
Individuals who satisfy the eligibility requirements under a particular
group contract may be required to submit to an underwriting procedure which
requires satisfactory responses to certain health questions in the application
and to provide, in some cases, medical information. Acceptance of an application
is subject to our underwriting rules, and we reserve the right to reject an
application for any reason.
A certificate will not take effect until the owner signs the appropriate
application for insurance, the initial premium has been paid prior to the
insured's death, the insured is eligible, and we approve the completed signed
application. The date on which the last event occurs shall be the effective date
of coverage ("issue date").
DOLLAR COST AVERAGING
We currently offer a dollar cost averaging option enabling the owner to
preauthorize automatic monthly or quarterly transfers from the Series Fund Money
Market Sub-Account to any of the other sub-accounts. There is no charge for this
option. The transfers will occur on monthly anniversaries. Dollar cost averaging
is a systematic method of investing in which securities are purchased at regular
intervals in fixed dollar amounts so that the cost of the securities is averaged
over time and possibly over various market values. Since the value of the units
will vary over time, the amounts allocated to a sub-account will result in the
crediting of a greater number of units when the unit value is low and a lesser
number of units when the unit value is high.
Dollar cost averaging does not guarantee profits, nor does it assure that a
certificate will not have losses.
To elect dollar cost averaging the owner must have at least $3,000 in the
Series Fund Money Market Sub-Account. The automatic transfer amount from the
Series Fund Money Market Sub-Account must be at least $250. The minimum amount
that may be transferred to any one of the other sub-accounts is $50. We reserve
the right to discontinue, modify or suspend the dollar cost averaging program at
any time.
A dollar cost averaging request form is available to the owner upon
request. On the form the owner will designate the specific dollar amount to be
transferred, the sub-accounts to which the transfer is to be made, the desired
frequency of the transfer and the total number of transfers to be made. If at
any time while the dollar cost averaging option is in effect, the amount in the
Series Fund Money Market Sub-Account is insufficient to cover the amount
designated to be transferred the current election in effect will terminate.
An owner may instruct us at any time to terminate the dollar cost averaging
election by giving us a request in writing or through any other method made
available by us under the group-sponsored insurance program. The amount from
which transfers were being made will remain in the Series Fund Money Market
Sub-Account unless a transfer request is made. Transfers made pursuant to the
dollar cost averaging option will not be subject to any transfer charges, in the
event such charges are imposed.
FREE LOOK
It is important to us that the owner is satisfied with the certificate
after it is issued. If the owner is not satisfied with it, the owner may return
the certificate to us within 10 days after the owner receives it. If the
certificate is returned, the owner will receive within seven days of the date we
receive the notice of cancellation a full refund of the premiums paid or the net
cash value of the certificate, if greater.
A request for an increase in face amount also may be canceled. The request
for cancellation must be made within the 10 days, or that period required by
applicable state law, after the owner receives the new certificate
specifications page for the increase.
Upon cancellation of an increase, the owner may request that we refund the
amount of the additional charges deducted in connection with the increase. This
will equal the amount by which the monthly deductions since the increase went
into effect exceeded the monthly deductions which would have been made without
the increase. If no request is made for a refund, we will increase the
17
certificate's account value by the amount of these additional charges. This
amount will be allocated among the sub-accounts of the separate account and
guaranteed account in the same manner as it was deducted.
CONTINUATION OF GROUP COVERAGE
If the insured's eligibility under a group contract ends, the owner's
current group coverage may continue unless the certificate is no longer in force
or the limitations below apply as of the date eligibility ends:
- The group contract has terminated; or
- The owner has less than the required minimum in his or her net cash value
after deduction of charges for the month in which eligibility ends. The
required minimum will vary based on the group-sponsored program under which
the certificate is issued. The required minimum will never be higher than
$250.
The insurance amount will not change unless the owner requests a change. We
reserve the right to alter all charges not to exceed the maximums. These charges
may be higher than those applicable to policies under the group contract that
have not been continued under this provision.
Termination of the group contract by the contractholder or us will not
terminate the insurance then in force under the terms of the continuation
provision. The group contract will be deemed to remain in force solely for the
purpose of continuing such insurance, but without further obligation of the
contractholder.
CONVERSION RIGHT TO AN INDIVIDUAL POLICY
If life insurance provided under the group contract is not continued upon
termination of the insured's eligibility under the group contract, or if the
group contract terminates or is amended so as to terminate the insurance, the
owner may convert the insurance under the group certificate to an individual
policy of life insurance with us subject to the following:
- The owner's written application to convert to an individual policy and the
first premium for the individual policy must be received in our home office
within 31 days of the date the owner's insurance terminates under the group
contract.
- The owner may convert all or a part of the group insurance in effect on the
date that the owner's coverage terminated to any individual life insurance
policy we offer, except a policy of term insurance. We will issue the
individual policy on the policy forms we then use for the plan of insurance
the owner has requested, and the owner may choose any death benefit option
offered by such policy forms. The premium charge for this insurance will be
based upon the insured's age as of his or her nearest birthday.
- If the insured should die within 31 days of the date that the group
contract terminates, the full amount of insurance that could have been
converted under this policy will be paid.
In the case of the termination of the group contract, we may require that
an insured under a certificate issued under the group contract be so insured for
at least five years prior to the termination date in order to qualify for the
above conversion privilege.
GENERAL PROVISIONS OF THE GROUP CONTRACT
ISSUANCE The group contract will be issued upon receipt of an application for
group insurance signed by a duly authorized officer of the group sponsor and
acceptance by a duly authorized officer of Minnesota Life at our home office.
TERMINATION The contractholder may terminate a group contract by giving us 31
days prior written notice of the intent to terminate. In addition, we may
terminate a group contract or any of its provisions on 61 days' notice. We may
elect to limit the situations in which we may exercise our right to terminate
the group contract to situations such as the non-payment of premiums or where,
during any twelve month period, the aggregate specified face amount for all
certificates under the group contract or the number of certificates under a
group contract decreases by certain amounts or below the minimum permissible
levels we establish for the group contract. No individual may become insured
under the group contract after the effective date of a notice of termination.
However, if the group contract terminates, certificates may be allowed to
convert to individual coverage as described under the "Conversion Right to an
Individual Policy" section of this prospectus.
18
Upon termination of a group contract, we reserve the right to complete the
distribution of account values attributable to the guaranteed account over a
period of time determined by us, but not more than six months. This delayed
distribution does not in any way continue or extend any insurance that has
otherwise terminated due to termination of a group contract.
Termination of the group contract by the contractholder or us will not
terminate the insurance then in force under the terms of the continuation
provision. The group contract will be deemed to remain in force solely for the
purpose of continuing such insurance, but without further obligation of the
contractholder.
RIGHT TO EXAMINE GROUP CONTRACT The contractholder may terminate the group
contract within 10 days, or that period required by law, after receiving it. To
cancel the group contract, the contractholder should mail or deliver the group
contract to us.
ENTIRE GROUP CONTRACT The group contract, the attached copy of the
contractholder's signed application and any additional agreements constitute the
entire contract between the contractholder and us. All statements made by the
contractholder, any owner or any insured will be deemed representations and not
warranties. A misstatement will not be used in any contest or to reduce claim
under the group contract, unless it is in writing. A copy of the signed
application containing such misstatement must have been given to the
contractholder or to the insured or to his or her beneficiary, if any.
OWNERSHIP OF GROUP CONTRACT AND GROUP CONTRACT CHANGES The contractholder owns
the group contract. THE GROUP CONTRACT MAY BE CHANGED OR AMENDED BY AGREEMENT
BETWEEN US AND THE CONTRACTHOLDER WITHOUT THE CONSENT OF ANY PERSON CLAIMING
RIGHTS OR BENEFITS UNDER THE GROUP CONTRACT. ANY SUCH CHANGES MADE, THAT ARE NOT
MATERIAL TO THE INFORMATION PRESENTED IN THIS REGISTRATION STATEMENT, MAY BE
MADE WITHOUT NOTICE TO OR CONSENT OF THE CERTIFICATE OWNERS.
However, unless the contractholder owns all of the certificates issued under the
group contract, the contractholder does not have any ownership interest in the
certificates issued under the group contract. The rights and benefits under the
certificates of the owners, insureds and beneficiaries are as set forth in this
prospectus and in the certificates. Certificate owners have no rights or
obligations under the group contract other than those described in the group
contract.
CERTIFICATE PREMIUMS
A premium must be paid to put a certificate in force, and may be remitted
to us by the group contractholder on behalf of the owner. The initial premium
for a certificate must cover the premium expense charges and the first monthly
deduction. Premiums paid after the initial premium may be in any amount. A
premium must be paid when there is insufficient net cash value to pay the
monthly deduction necessary to keep the certificate in force.
When the certificate is established, the certificate's specifications page
may show premium payments scheduled and the amounts of those payments. However,
under the certificate, the owner may elect to omit making those premium
payments. Failure to pay one or more premium payments will not cause the
certificate to lapse until such time as the net cash value is insufficient to
cover the next monthly deduction. Therefore, unlike traditional insurance
certificates, a certificate does not obligate the owner to pay premiums in
accordance with a rigid and inflexible premium schedule.
Failure of a group contractholder to remit the authorized premium payments
may cause the group contract to terminate. Nonetheless, provided that there is
sufficient net cash value to prevent the certificate from lapsing, the owner's
insurance can be converted to an individual policy of life insurance in the
event of such termination. (See "Conversion Right to an
19
Individual Policy".) The owner's insurance can continue if the insured's
eligibility under the group-sponsored insurance program terminates because the
insured is no longer a part of the group or otherwise fails to satisfy the
eligibility requirements set forth in the specifications page to the group
contract or certificate. (See "Continuation of Group Coverage".)
PREMIUM LIMITATIONS
After the payment of the initial premium, and subject to the limitations
described in this prospectus, premiums may be paid at any time in any amount
while the insurance is in force under the certificate. Since the certificate
permits flexible premium payments, it may become a modified endowment contract.
(See "Federal Tax Status".) When we receive the signed application, our systems
will test the owner's elected premium schedule to determine, if it is paid as
scheduled and if there is no change made to the certificate, whether it will
result in the certificate being classified as a modified endowment contract for
federal income tax purposes. Our systems will continue to test the certificate
with each premium payment to determine whether the certificate has attained this
tax status. If we determine that the certificate has attained the status of a
modified endowment contract, we will mail the owner a notice. The owner will be
given a limited amount of time, subject to the restrictions under the Code, to
request that the certificate maintain the modified endowment contract status. If
the owner does not request to have this tax status maintained, the excess
premium amounts paid that caused this tax status will be returned with interest
at the end of the certificate year to avoid the certificate being classified as
a modified endowment contract. The owner may request an immediate refund if it
is desired earlier.
ALLOCATION OF NET PREMIUMS AND ACCOUNT VALUE
Net premiums, which are premiums after the deduction of the charges
assessed against premiums, are allocated to the guaranteed account and/or
sub-accounts of the separate account which, in turn, invest in shares of the
Funds. Net premiums are valued as of the end of the valuation period in which
they are received. For a discussion of valuation periods see the "Unit Value"
section of this prospectus.
The owner makes the selection of the sub-accounts and/or the guaranteed
account on the signed application for the certificate. The owner may change the
allocation instructions for future premiums by giving us a request in writing or
through any other method made available by us under the group-sponsored
insurance program. The allocation to the guaranteed account or to any
sub-account of the separate account must be at least 10 percent of the net
premium.
Where the contractholder owns all the certificates and in certain other
circumstances (for example, for split-dollar insurance programs), we will delay
the allocation of net premiums to sub-accounts or the guaranteed account for a
period of 10 days after certificate issue to reduce market risk during this
"free look" period. Net premiums will be allocated to the Money Market
Sub-Account until the end of the period. We reserve the right to similarly delay
the allocation of net premiums to sub-accounts for other group-sponsored
insurance programs for a period of 10 days after certificate issue or
certificate change. This right will be exercised by us only when we believe
economic conditions make it necessary to reduce market risk during the "free
look" period. If we exercise this right, net premiums will be allocated to the
Money Market Sub-Account until the end of the period.
We reserve the right to restrict the allocation of net premiums to the
guaranteed account for certificates under some group-sponsored insurance
programs. For these certificates, the maximum allocation of net premiums to the
guaranteed account will range from 0 percent to 50 percent of the net premium.
Under certain group-sponsored insurance programs we have exercised this right by
prohibiting allocations to the guaranteed account. Any such prohibitions will be
identified in the certificates.
If mandated by applicable law, we may be required to reject a premium
payment until instructions are received from appropriate regulators. We also may
be required to provide additional information about you and your account to
government regulators.
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DEATH BENEFIT AND ACCOUNT VALUES
If the certificate is in force at the time of the insured's death, upon
receipt of due proof of death, we will pay the death benefit proceeds of the
certificate based on the death benefit option elected by the contractholder.
Only the group sponsor may choose one of two death benefit options. The
death benefit option so chosen shall be the same for all participants under the
group-sponsored program. Once elected, the death benefit option chosen by the
group-sponsor shall remain unchanged. There is a level death benefit ("Option
A") and a variable death benefit ("Option B"). The death benefit under either
option will never be less than the current face amount of the certificate (less
any unpaid monthly deductions) as long as the certificate remains in force and
there are no loans. The face amount elected must be at least the minimum stated
on the specifications page of the certificate.
OPTION A -- LEVEL DEATH BENEFIT
The amount of the death benefit for Option A is determined as follows:
- the face amount of insurance on the insured's date of death while the
certificate is in force; plus
- the amount of the cost of insurance for the portion of the certificate
month from the date of death to the end of the certificate month; less
- any outstanding certificate loans and accrued loan interest charged; less
- any unpaid monthly deductions determined as of the date of the insured's
death.
OPTION B -- INCREASING DEATH BENEFIT
The amount of the death benefit for Option B is determined as follows:
- the face amount of insurance on the insured's date of death while the
certificate is in force; plus
- the amount of the owner's account value as of the date we receive due proof
of death satisfactory to us; plus
- the amount of the cost of insurance for the portion of the certificate
month from the date of death to the end of the certificate month; plus
- any monthly deductions taken under the certificate since the date of death;
less
- any outstanding certificate loans and accrued loan interest charged; less
- any unpaid monthly deductions determined as of the date of the insured's
death.
At issue, the group sponsor may choose between two tests that may be used
to determine if a certificate qualifies as life insurance as defined by Section
7702 of the Code. Once a test is selected for a certificate, it shall remain
unchanged for that certificate. The group sponsor must select the same test for
all certificates. The two tests are the Guideline Premium/Cash Value Corridor
Test and the Cash Value Accumulation Test. The test selected will determine how
the death benefit is calculated in the event the account value or the premiums
paid exceed certain limits established under Section 7702. For a more detailed
discussion of these two tests, please see the Statement of Additional
Information.
CHANGE IN FACE AMOUNT
Subject to certain limitations set forth below, an owner may increase or
decrease the face amount of a certificate. A written request must be sent
directly to us for a change in the face amount. A change in the face amount will
affect the net amount at risk which affects the cost of insurance charge. (See
"Charges".) In addition, a change in the face amount of a certificate may result
in a material change in the certificate that may cause it to become a modified
endowment contract or may have other adverse federal income tax consequences.
More information on this subject and possible federal income tax consequences of
this result is provided under the "Federal Tax Status" section. You should
consult a tax adviser before changing the face amount of a certificate.
INCREASES If an increase in the current face amount is applied for, we reserve
the right to require evidence of insurability from the
21
insured. The increase will become effective on the monthly anniversary on or
following approval of the change or on any other date mutually agreed upon
between the owner and us. Although an increase need not necessarily be
accompanied by an additional premium (unless it is required to meet the next
monthly deduction), the net cash value in effect immediately after the increase
must be sufficient to cover the next monthly deduction.
With respect to premiums allocated to an increase, the owner will have the
same "free look," conversion, and refund rights with respect to an increase as
with the initial purchase of the owner's certificate. (See "Free Look".)
DECREASES Any decrease in the face amount will become effective on the monthly
anniversary on or following our receipt of the written request. However, the
amount of insurance on any insured may not be reduced to less than the minimum
face amount indicated on the specifications page which is attached to the
owner's certificate. Generally, this amount will be at least $10,000. If,
following a decrease in face amount, the certificate would not comply with the
maximum premium limitations required by federal tax law (see "Federal Tax
Status"), the decrease may be limited or the account value may be returned to
the owner (at the owner's election), to the extent necessary to meet these
requirements.
PAYMENT OF DEATH BENEFIT PROCEEDS
The amount payable as death proceeds upon the insured's death will be
determined according to the death benefit under the option elected. The death
benefit proceeds will also include any amounts payable under any riders.
If a rider permitting the accelerated payment of death benefit proceeds has
been added to the certificate, the death benefit may be paid in a single lump
sum prior to the death of the insured and may be less than otherwise would be
paid upon the death of the insured. (See "Additional Benefits".)
Death benefit proceeds will ordinarily be paid within seven days after we
receive all information required for such payment, including due proof of the
insured's death. Payment may, however, be postponed in certain circumstances.
Under Option A death benefit, interest will be paid on the death benefit from
the date of the insured's death until the date of payment. Under Option B death
benefit, interest will be paid on the face amount of insurance from the date of
the insured's death until the date of payment. The account value will remain as
invested in the guaranteed account and/or separate account until the date of
payment; therefore, the account value may increase or decrease in value from the
date of the insured's death to the date of the payment of the death proceeds.
Interest will also be paid on any charges taken under the certificate since the
date of death, from the date the charge was taken until the date of payment.
Interest will be at an annual rate determined by us, but never less than the
minimum guaranteed rate, compounded annually, or the minimum rate required by
state law. For group-sponsored programs implemented prior to May 1, 2001, the
minimum guaranteed annual rate is 4 percent. For group-sponsored programs
implemented on or after May 1, 2001, the minimum guaranteed annual rate is 3
percent.
Death benefit proceeds will be paid to the surviving beneficiary specified
on the signed application or as subsequently changed. The owner may arrange for
death benefit proceeds to be paid in a single lump sum or under one of the
optional methods of settlement (See "Settlement Options").
When no election for an optional method of settlement is in force at the
death of the insured, the beneficiary may select one or more of the optional
methods of settlement at any time before death benefit proceeds are paid. (See
"Settlement Options").
An election or change of method of settlement must be in writing. A change
in beneficiary revokes any previous settlement election.
ACCOUNT VALUES
The certificate provides the owner certain account value benefits. Subject
to certain limitations, the owner may obtain access to the net cash value
portion of the account value of the certificate. The owner may borrow against
the certificate's loan value and may surrender the certificate in whole or in
part. The owner may also transfer the net cash value between the guaranteed
account and the sub-accounts of the separate account or among the sub-accounts
of the separate account.
We will send the owner a report each year advising the owner of the
certificate's account
22
value, the face amount and the death benefit as of the date of the report. It
will also summarize certificate transactions during the year, including premiums
paid and their allocation, certificate charges, loan activity and the net cash
value. It will be as of a date within two months of its mailing. We will also,
upon the owner's request, send the owner an additional statement of past
transactions at any time for a $15 fee, which will be deducted from the portion
of account value that the owner specifies.
Also, upon request made to us at our home office, we will provide
information on the account value of a certificate to the owner. Such requests
may be in writing, by telephone, by facsimile transmission or any other method
made available by us under the group-sponsored insurance program. More
information on the procedures to make requests by telephone call or other
electronic means is provided under the "Transfers" section of this prospectus.
DETERMINATION OF THE GUARANTEED ACCOUNT VALUE The guaranteed account value is
the sum of all net premium payments allocated to the guaranteed account. This
amount will be increased by any interest, experience credits (see the Statement
of Additional Information for a detailed discussion), loan repayments, loan
interest credits and transfers into the guaranteed account. This amount will be
reduced by any certificate loans, loan interest charged, partial surrenders,
transfers into the sub-accounts of the separate account and charges assessed
against the owner's guaranteed account value. Interest is credited on the
guaranteed account value of the certificate at a rate of not less than the
minimum guaranteed annual rate, compounded annually. For group-sponsored
programs implemented prior to May 1, 2001, the minimum guaranteed annual rate is
4 percent. For group-sponsored programs implemented on or after May 1, 2001, the
minimum guaranteed annual rate is 3 percent. We guarantee the minimum rate for
the life of the certificate without regard to the actual experience of the
guaranteed account. As conditions permit, we may credit additional amounts of
interest to the guaranteed account value. The owner's guaranteed account value
is guaranteed by us. It cannot be reduced by any investment experience of the
separate account.
DETERMINATION OF THE SEPARATE ACCOUNT VALUE The certificate's separate account
value is determined separately. The separate account value is not guaranteed.
The determination of the separate account value is made by multiplying the
current number of sub-account units credited to a certificate by the current
sub-account unit value, for each sub-account in which the owner is invested. A
unit is an accounting device used to measure a certificate's interest in a
sub-account. The number of units credited with respect to each net premium
payment is determined by dividing the portion of the net premium payment
allocated to each sub-account by the then current unit value for that
sub-account. The number of units so credited is determined as of the end of the
valuation period during which we receive the owner's premium at our home office.
Once determined, the number of units credited to the owner's certificate
will not be affected by changes in the unit value. However, the number of units
will be increased by the allocation of subsequent periodic or lump sum net
premiums, experience credits, loan interest credits and transfers to that
sub-account. The number of additional units credited is determined by dividing
the net premiums, experience credits and transfers to that sub-account by the
then current unit value for that sub-account. The number of units of each
sub-account credited to the owner's certificate will be decreased by certificate
charges to the sub-account, loans and loan interest charges, transfers from that
sub-account and withdrawals from that sub-account. The reduction in the number
of units credited is determined by dividing the deductions to that sub-account,
loans and loan interest charges, transfers from that sub-account and withdrawals
from that sub-account by the then current unit value for that sub-account. The
number of sub-account units will decrease to zero on a certificate surrender.
UNIT VALUE The unit value of a sub-account will be determined on each valuation
date. A valuation date is each date on which a Fund Portfolio is valued. A
valuation period is the period between successive valuation dates measured from
the time of one determination to the next. The amount of any increase or
23
decrease will depend on the net investment experience of that sub-account. The
value of a unit for each sub-account was originally set at $1.00 on the first
valuation date. For any subsequent valuation date, its value is equal to its
value on the preceding valuation date multiplied by the net investment factor
for that sub-account for the valuation period ending on the subsequent valuation
date.
NET INVESTMENT FACTOR The net investment factor for a valuation period is the
gross investment rate for such valuation period, less a deduction for the
mortality and expense risk charge under this certificate which is assessed at
the annual rate stated on the specifications page of the certificate against the
average daily net assets of each sub-account of the separate account. The gross
investment rate is equal to:
- the net asset value of a Portfolio share held in the sub-account of the
separate account determined at the end of the current valuation period;
plus
- the per share amount of any dividend or capital gains distribution by the
Portfolio if the "ex-dividend" date occurs during the current valuation
period; with the sum divided by
- the net asset value of the Portfolio share held in the sub-account
determined at the end of the preceding valuation period.
We reserve the right to deduct a charge against the separate account
assets, or make other provisions for, any additional tax liability we may incur
with respect to the separate account or the certificates, to the extent that
those liabilities exceed the amounts recovered through the deduction from
premiums for premium taxes and federal taxes.
DAILY VALUES We determine the value of the units in each sub-account on each day
on which the Portfolios of the Funds are valued. The net asset value of the
Funds' shares is computed once daily, and, in the case of the Money Market
Portfolio, after the declaration of the daily dividend, as of the primary
closing time for business on the New York Stock Exchange (as of the date hereof
the primary close of trading is 3:00 p.m. Central time, but this time may be
changed) on each day, Monday through Friday, except (i) days on which changes in
the value of a Funds' portfolio securities will not materially affect the
current net asset value of such Funds' shares, (ii) days during which no shares
of a Fund are tendered for redemption and no order to purchase or sell such
Funds' shares is received by such Fund and (iii) customary national business
holidays on which the New York Stock Exchange is closed for trading.
SURRENDERS, PARTIAL SURRENDERS AND TRANSFERS
The owner may request a surrender of or a partial surrender from the
certificate at any time while the insured is living. To make a surrender or
partial surrender, the owner must send us a written request at our home office.
The owner will be paid a net cash value, computed as of the end of the valuation
period during which we receive the request at our home office. Surrender and
partial surrender requests received before the New York Stock Exchange closes
for regular trading receive same-day pricing. If we receive a surrender or
partial surrender request at or after the New York Stock Exchange closes
(usually 3:00 p.m. Central Time) for regular trading, we will process the order
using the unit values for the sub-accounts determined at the close of the next
regular trading session of the New York Stock Exchange. In the case of a
surrender, the payment can be in cash or, at the option of the owner, can be
applied to a settlement option. A surrender or partial surrender may have
federal income tax consequences. (See "Federal Tax Status".)
A partial surrender of the net cash value of the certificate is permitted
in any amount equal to at least the minimum established for certificates under
the group sponsored insurance program. The minimum will never exceed $500. The
maximum amount cannot exceed the maximum established for certificates under the
group-sponsored
24
insurance program. The maximum will be either:
- (a) minus (b), where (a) is 90 percent of the account value and (b) is any
outstanding certificate loans plus accrued certificate loan interest
charged; or
- 100 percent of the net cash value.
The maximum will be identified in the certificate.
We reserve the right to limit the number of partial surrenders to one per
certificate month, change the minimum amount for partial surrenders, limit the
frequency of partial surrenders, or restrict or prohibit partial surrenders from
the guaranteed account. A partial surrender will cause a decrease in the face
amount equal to the amount withdrawn if the current death benefit option for the
certificate is Option A (level death benefit). A partial surrender has no effect
on the face amount if the current death benefit option for the certificate is
Option B (variable death benefit). However, since the account value is reduced
by the amount of the partial surrender, the death benefit is reduced by the same
amount, as the account value represents a portion of the death benefit proceeds.
On a partial surrender, the owner may designate the sub-accounts of the
separate account from which a partial surrender is to be taken or whether it is
to be taken in whole or in part from the guaranteed account. Otherwise, partial
surrenders will be deducted from the guaranteed account value and separate
account value in the same proportion that those values bear to the net cash
value and, as to the separate account value, from each sub-account in the
proportion that the sub-account value of each such sub-account bears to the
separate account value. We reserve the right to restrict or prohibit withdrawals
from the guaranteed account. We will tell the owner, on request, what amounts
are available for a partial surrender under the certificate.
A transaction charge will be deducted from the net cash value in connection
with a partial surrender for certificates under some group contracts. The amount
of the charge will never exceed the lesser of $25 or 2 percent of the amount
withdrawn. The charge will be allocated to the guaranteed account value and the
separate account value in the same proportion as those values bear to the net
cash value and, as to the separate account value, from each sub-account in the
same proportion that the sub-account value of each such sub-account bears to the
separate account value.
TRANSFERS
The certificate allows for transfers of the net cash value among the
available sub-accounts of the separate account, and from the guaranteed account
to the sub-accounts. Transfers of the net cash value from the sub-accounts to
the guaranteed account are available for certificates that allow for premium
allocations to the guaranteed account. Transfers may be made in writing, by
telephone or through any other method made available by us under the
group-sponsored insurance program.
There are restrictions to such transfers. The amount to be transferred to
or from a sub-account of the separate account or the guaranteed account must be
at least $250. If the balance in the guaranteed account or in the sub-account
from which the transfer is to be made is less than $250, the entire account
value attributable to that sub-account or the guaranteed account must be
transferred. If a transfer would reduce the account 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 amount in the sub-account with the amount transferred. We
also reserve the right to limit the number of transfers to one per certificate
month.
MARKET TIMING This policy is not designed to be used as a vehicle for frequent
trading (i.e., transfers) in response to short-term fluctuations in the
securities markets, often referred to generally as "market timing." Market
timing activity and frequent trading in your certificate can disrupt the
efficient management of the underlying portfolios and their investment
strategies, dilute the value of portfolio shares held by long-term shareholders,
and increase portfolio expenses (including brokerage or other trading costs) for
all portfolio shareholders, including long-term certificate owners invested in
affected portfolios who do not generate such expenses. It is the policy of
Minnesota Life to discourage market timing and frequent transfer activity, and,
when Minnesota Life becomes aware of such activity, to take steps to attempt to
minimize the effect of frequent trading activity in affected portfolios. You
should not purchase
25
this certificate if you intend to engage in market timing or frequent transfer
activity.
We have developed policies and procedures to detect and deter market timing
and other frequent transfers, and we will not knowingly accommodate or create
exceptions for certificate owners engaging in such activity. We employ various
means to attempt to detect and deter market timing or other abusive transfers.
However, our monitoring may be unable to detect all harmful trading nor can we
ensure that the underlying portfolios will not suffer disruptions or increased
expenses attributable to market timing or abusive transfers resulting from other
insurance carriers which invest in the same portfolios. In addition, because
market timing can only be detected after it has occurred to some extent, our
policies to stop market timing activity do not go into effect until after we
have identified such activity.
We reserve the right to restrict the frequency of--or otherwise modify,
condition or terminate--any transfer method(s). Your transfer privilege is also
subject to modification if we determine, in our sole discretion, that the
exercise of the transfer privilege by you or other certificate owners is or
would be to the disadvantage of other certificate owners. Any new restriction
that we would impose will apply to your certificate without regard to when you
purchased it. We also reserve the right to implement and administer restrictions
and charge you for any fees, including redemption fees, that may be imposed by
an underlying portfolio attributable to transfers in your certificate and,
promptly upon request from an underlying portfolio, to provide certain
information to the portfolio or its designee about your trading activities. You
should read the Portfolio prospectuses for more details. The following factors
will be considered in determining whether to implement and administer any
restrictions and in assessing any fees:
- the dollar amount of the transfer(s);
- whether the transfers are part of a pattern of transfers that appear
designed to take advantage of market inefficiencies;
- whether an underlying portfolio has requested that we look into identified
unusual or frequent activity in a portfolio;
- the number of transfers in the previous calendar quarter;
- whether the transfers during a quarter constitute more than two "round
trips" in a particular portfolio. A round trip is a purchase into a
portfolio and a subsequent redemption out of the portfolio, without regard
to order.
In the event your transfer activity is identified as disruptive or
otherwise constitutes a pattern of market timing, you will be notified in
writing that your transfer privileges will be restricted in the future if the
activity continues. Upon detection of any further prohibited activity, you will
be notified in writing that your transfer privileges are limited to transfer
requests delivered via regular U.S. mail only. No fax, voice, internet, courier
or express delivery requests will be accepted. The limitations for the transfer
privileges in your certificate will be permanent.
In addition to our market timing procedures, the underlying portfolios may
have their own market timing policies and restrictions. While we reserve the
right to enforce the portfolios' policies and procedures, certificate owners and
other persons with interests under the certificates should be aware that we may
not have the contractual authority or the operational capacity to apply the
market timing policies and procedures of the portfolios, except that, under SEC
rules, we are required to: (1) enter into a written agreement with each
portfolio or its principal underwriter that obligates us to provide the
portfolio promptly upon request certain information about the trading activity
of individual certificate owners, and (2) execute instructions from the
portfolio to restrict or prohibit further purchases or transfers by specific
certificate owners who violate the market timing policies established by the
portfolios.
None of these limitations apply to transfers under systematic transfer
programs such as Dollar Cost Averaging.
In our sole discretion, we may revise our policies and procedures to detect
and deter market timing and other frequent transfer activity at any time without
prior notice.
GUARANTEED ACCOUNT TRANSFER RESTRICTIONS
There are additional restrictions to transfers involving the guaranteed account.
For group-sponsored insurance programs where the certificates do not allow for
premium allocations to the guaranteed account, the owner may not transfer
amounts into the guaranteed account.
The following restrictions apply to group-sponsored insurance programs
where the
26
guaranteed account is available for premium allocations, to group-sponsored
insurance programs where the contractholder owns all the policies and in certain
other circumstances (for example, for split-dollar insurance programs). The
maximum amount of net cash value to be transferred out of the guaranteed account
to the sub-accounts of the separate account at any one time may be limited to 20
percent (or $250 if greater) of the guaranteed account value. Transfers to or
from the guaranteed account may be limited to one such transfer per certificate
year. We may further restrict transfers from the guaranteed account by requiring
that the request is received by us or postmarked in the 30-day period before or
after the last day of the certificate anniversary. The certificate anniversary
is the same day and month in each succeeding year as the certificate date, or
the same day and month in each succeeding year as the date agreed to between the
contractholder and us. The certificate anniversary is shown on the
specifications page attached to the certificate. The certificate date is the
first day of the calendar month on, or following, the issue date. This is the
date from which certificate years and certificate months are measured. A
certificate month is equal to a calendar month. A certificate year is a period
of one year measured from the certificate date and from each successive
certificate anniversary. Requests for transfers which meet these conditions
would be effective after we approve and record them at our home office.
OTHER TRANSFER INFORMATION For transfers out of the separate account or among
the sub-accounts of the separate account, we will credit and cancel units based
on the sub-account unit values as of the end of the valuation period during
which the owner's request is received at our home office. Transfer requests
received before the New York Stock Exchange closes for regular trading receive
same-day pricing. If we receive a transfer request at or after the New York
Stock Exchange closes (usually 3:00 p.m. Central Time) for regular trading, we
will process the order using the unit values for the sub-accounts determined at
the close of the next regular trading session of the New York Stock Exchange.
Transfers from the guaranteed account will be dollar amounts deducted at the end
of the day on which the transfer request is approved at our home office.
A transfer is subject to a transaction charge. Currently, no such charge is
imposed on a transfer, but a charge, up to a maximum of $10 per transfer, may be
imposed in the future.
The owner's instructions for transfer may be made in writing or the owner,
or a person authorized by the owner, may make such changes by telephone. To do
so, the owner may call us at 1-800-843-8358 during our normal business hours of
8:00 a.m. to 4:45 p.m., Central Standard Time. Owners may also submit their
requests for transfer, surrender or other transactions to us by facsimile (FAX)
transmission. Our FAX number is 1-651-665-4827.
We may make other electronic transfer capabilities available to certificate
owners under some group-sponsored insurance programs. We will employ reasonable
procedures to satisfy ourselves that instructions received from certificate
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 certificate
owners to identify themselves in electronic transactions through certificate
numbers or such other information as we may deem to be reasonable. We record
electronic transfer instructions and we provide the certificate owners with a
written confirmation of the electronic transfers.
Transfers made pursuant to a telephone call or other electronic means are
subject to the same conditions and procedures as would apply to written transfer
requests. During periods of marked economic or market changes, owners may
experience difficulty in implementing a telephone or other electronic transfer
due to a heavy volume of network usage. In such a circumstance, owners should
consider submitting a written transfer request while continuing to attempt an
electronic redemption. For more information on electronic transfers, contact us.
Although we currently intend to continue to permit transfers in the
foreseeable future, the certificate provides that we may modify the transfer
privilege by changing the minimum amount transferable, by altering the frequency
of transfers, by imposing a transfer charge, by prohibiting transfers, or in
such other manner as we may determine at our discretion. For more information on
transactions related to your policy, you may contact us at 1-800-843-8358.
27
LOANS
The owner may borrow from us using only the certificate as the security for
the loan. The owner may borrow up to an amount equal to (a) less (b), where (a)
is 90 percent of the owner's account value and (b) is any outstanding
certificate loans plus accrued loan interest charged. A loan taken from or
secured by a certificate may have federal income tax consequences. (See "Federal
Tax Status".) The maximum loan amount is determined as of the date we receive
the owner's request for a loan.
Any loan paid to the owner in cash must be in an amount of at least $100.
We will charge interest on the loan in arrears. At the owner's request, we will
send the owner a loan request form for his or her signature. Loans may be
requested in writing, by telephone, by facsimile transmission, or by any other
method made available by us under the group-sponsored insurance program. More
information on the procedures to make requests by telephone call or other
electronic means is provided under the "Transfers" section of this prospectus.
When the owner takes a loan, we will reduce the net cash value by the
amount borrowed. This determination will be made as of the end of the valuation
period during which the loan request is received at our home office. Unless the
owner directs us otherwise, the loan will be taken from the guaranteed account
value and separate account value in the same proportion that those values bear
to the net cash value and, as to the separate account value, from each
sub-account in the proportion that the sub-account value of each such
sub-account bears to the owner's separate account value. The number of units to
be canceled will be based upon the value of the units as of the end of the
valuation period during which we receive the owner's loan request at our home
office. The amount borrowed continues to be part of the account value, as the
amount borrowed becomes part of the loan account value where it will accrue loan
interest credits and will be held in our general account. A loan has no
immediate effect on the owner's account value since at the time of the loan the
account value is the sum of the guaranteed account value, separate account value
and the loan account value. However, a certificate loan may have long term
impact on the account value as the amount borrowed no longer participates in the
investment experience of a sub-account. When a loan is to come from the
guaranteed account value, we have the right to postpone a loan payment for up to
six months.
If a certificate enters a grace period and if the net cash value is
insufficient to cover the monthly deduction and the loan repayment, the owner
will have to make a loan repayment to keep the certificate in force. We will
give the owner notice of our intent to terminate the certificate and the loan
repayment required to keep it in force. The time for repayment will be within 61
days after our mailing of the notice. There could be adverse tax consequences if
the certificate lapses or is surrendered when a loan is outstanding.
Outstanding loans and accrued interest will reduce surrender value and
death benefits payable.
LOAN INTEREST
The interest rate charged on a certificate loan will be 8 percent per year.
Interest charged will be based on a daily rate which if compounded for the
number of calendar days in the year will equal 8 percent annually, and
compounded for the number of days since loan interest charges were last updated.
The outstanding loan balance will increase as the interest charged on the
certificate loan accrues. The net cash value will decrease as the outstanding
loan balance increases. Loan interest charges are due at the end of the
certificate month. If the owner does not pay in cash the interest accrued at the
end of the certificate month, this unpaid interest will be added to the
outstanding loan balance. The new loan will be subject to the same rate of
interest as the loan in effect.
Interest is also credited to the amount of the certificate loan in the loan
account value. Interest credits on a certificate loan shall be at a rate which
is not less than 6 percent per year. Interest credited will be based on a daily
rate, which if compounded for the number of calendar days in the year will be at
least
28
6 percent annually, and compounded for the number of days since loan interest
charges were last updated.
Loan interest charges and loan interest credits are allocated monthly, at
loan repayment, at certificate surrender and at death. Loan interest charges and
loan interest credits are allocated to a certificate's guaranteed account value
and separate account value in the same proportion that those values bear to the
net cash value and, as to the separate account value, to each sub-account in the
proportion that the sub-account value of each such sub-account bears to the
separate account value.
LOAN REPAYMENTS
If the certificate is in force, the loan can be repaid in part or in full
at any time before the insured's death. The 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 certificate. Any loan repayment must be at least $100 unless
the balance due is less than $100. We currently accept loan repayment checks at
our home office.
Loan repayments are allocated to the guaranteed account. The owner may
reallocate amounts in the guaranteed account among the sub-accounts of the
separate accounts, subject to the limitations in this prospectus and the
certificate on such transfers. For a discussion of the transfer restrictions
applicable to the guaranteed account please see the "Transfers" section of this
prospectus. Loan repayments reduce the owner's outstanding loan balance by the
amount of the loan repayment. Loan repayments will be applied first to interest
accrued since the end of the prior certificate month. Any remaining portion of
the repayment will then reduce the loan. The net cash value will increase by the
amount of the loan repayment.
A loan, whether or not it is repaid, will have a permanent effect on the
account value and the death benefit because the investment results of the
sub-accounts will apply only to the amount remaining in the sub-accounts. The
effect could be either positive or negative. If net investment results of the
sub-accounts are greater than the rate credited on the loan, the account value
will not increase as rapidly as it would have if no loan had been made. If
investment results of the sub-accounts are less than the rate credited on the
loan, the account value will be greater than if no loan had been made.
LAPSE AND REINSTATEMENT
LAPSE
Unlike traditional life insurance certificates, the failure to make a
premium payment following the payment of the premium which puts the certificate
into force will not itself cause a certificate to lapse. Lapse will occur only
when the net cash value is insufficient to cover the monthly deduction, and the
subsequent grace period expires without sufficient payment being made.
The grace period is 61 days. The grace period will start on the day we mail
the owner a notice that the certificate will lapse if the premium amount
specified in the notice is not paid by the end of the grace period. We will mail
this notice on any certificate's monthly anniversary when the net cash value is
insufficient to pay for the monthly deduction for the insured. The notice will
specify the amount of premium required to keep the certificate in force and the
date the premium is due. If we do not receive the required amount within the
grace period, the certificate will lapse and terminate without account value.
Upon lapse, any outstanding loans and accrued interest is extinguished and any
collateral in the loan account returned to us. If you die during the grace
period an otherwise valid claim will not be denied on the grounds that coverage
has lapsed. We reserve the right to deduct any outstanding premium due from the
death benefit. The death benefit amount under the death benefit option in
effect, at the time of the insured's death, will be paid if death occurs during
the grace period.
29
REINSTATEMENT
A lapsed certificate may be reinstated, any time within three years from
the date of lapse, provided the insured is living and subject to the limitations
described below. Reinstatement is made by payment of an amount that, after the
deduction of premium expense charges, is large enough to cover all monthly
deductions which have accrued on the certificate up to the effective date of
reinstatement, plus the monthly deductions for the two months following the
effective date of reinstatement. If any loans and loan interest charges are not
repaid, this indebtedness will be reinstated along with the insurance. No
evidence of the insured's insurability will be required during the first 31 days
following lapse, but will be required from the 32nd day to three years from the
date of lapse.
The amount of account value on the date of reinstatement will be equal to
the amount of any loans and loan interest charges reinstated increased by the
net premiums paid at the time of reinstatement.
The effective date of reinstatement will be the date we approve the signed
application for reinstatement. There will be a full monthly deduction for the
certificate month that includes that date.
ADDITIONAL BENEFITS
Subject to certain requirements, one or more of the following additional
insurance benefits may be added to the certificate by rider. However, some group
contracts may not offer each of the additional benefits described below. Certain
riders may not be available in all states. The descriptions below are intended
to be general; the terms of the certificate riders providing the additional
benefits may vary from state to state, and the certificate should be consulted.
New benefit riders which are subsequently developed may also be offered under
some group-sponsored insurance programs, and the terms of the riders will be
identified in the certificate. The cost of any additional insurance benefits
will be deducted as part of the monthly deduction.
ACCELERATED BENEFITS RIDER Provides for the accelerated payment of all or a
portion of the death benefit proceeds if the insured is terminally ill, subject
to the minimums and maximums specified in the rider. Eligibility requirements
and conditions for payment of accelerated benefits are also described in the
rider. The amount of accelerated benefits payable is calculated by multiplying
the death benefit by an accelerated benefit factor defined in the rider.
Accelerated benefits will be paid to the owner unless the owner validly assigns
them otherwise. The receipt of benefits under the rider may have tax
consequences and the owner should seek assistance from a qualified tax adviser.
There is no charge for this rider.
WAIVER OF PREMIUM RIDER Provides for the waiver of the monthly deduction while
the insured is totally disabled (as defined in the rider), subject to certain
limitations described in the rider. The insured must have become disabled before
the age specified in the rider.
ACCIDENTAL DEATH AND DISMEMBERMENT RIDER Provides additional insurance if the
insured dies or becomes dismembered as a result of an accidental bodily injury,
as defined in the rider. Under the terms of the rider, the additional benefits
provided in the certificate will be paid upon receipt of proof by us that the
death or dismemberment resulted directly from accidental injury and
independently of all other causes. The death or dismemberment must occur within
the timeframes specified in the rider.
CHILD RIDER Provides for term insurance on the insured's children, as specified
in the rider. To be eligible for the insurance, a child must be of eligible age
as indicated in the rider and be dependent upon the insured for financial
support. Under terms of the rider, the death benefit will be payable to the
owner of the certificate to which the rider is attached.
SPOUSE RIDER Provides for term insurance on the insured's spouse and children,
as specified in the rider. To be eligible for the insurance, spouse and children
must meet the eligibility requirements indicated in the rider. Under terms of
the rider, the death benefit will be payable to the owner of the certificate to
which the rider is attached.
POLICYHOLDER CONTRIBUTION RIDER Allows the contractholder to pay for all or a
portion of the monthly charges under the certificate without affecting the
account value which may accumulate due to employee-paid net premiums. The
portion of the net premium paid by the contractholder will be allocated to the
guaranteed account. On the same day such premium is allocated, the charges the
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contractholder intends to cover will be deducted from the guaranteed account
value. There is no charge for this rider.
GENERAL MATTERS RELATING TO THE CERTIFICATE
POSTPONEMENT OF PAYMENTS Normally, we will pay any certificate proceeds within
seven days after our receipt of all the documents required for such a payment.
Other than the death proceeds for a certificate with an Option B death benefit,
for which the account value portion of the death benefit is determined as of the
date of payment, the amount of payment will be determined as of the end of the
valuation period during which a request is received at our home office. However,
we reserve the right to defer certificate payments, including loans, for up to
six months from the date of the owner's request, if such payments are based upon
certificate values which do not depend on the investment performance of the
separate account. In that case, if we postpone a payment other than a loan
payment for more than 31 days, we will pay the owner interest for the period
that payment is postponed at the greater of the minimum guaranteed annual rate
or the minimum rate required by state law. For group-sponsored programs
implemented prior to May 1, 2001, the minimum guaranteed annual rate is 4
percent. For group-sponsored programs implemented on or after May 1, 2001, the
minimum guaranteed annual rate is 3 percent.
For payments based on certificate values which do depend on the investment
performance of the separate account, we may defer payment: (a) for any period
during which the New York Stock Exchange is closed for trading (except for
normal holiday closing); or (b) when the Securities and Exchange Commission has
determined that a state of emergency exists which may make such payment
impractical.
Payment of a surrender or partial surrender will be made as soon as
possible, but not later than seven days after our receipt of the owner's written
request for surrender or partial surrender. However, if any portion of the net
cash value to be surrendered is attributable to a premium payment made by
non-guaranteed funds such as a personal check, we will delay mailing that
portion of the surrender proceeds until we have reasonable assurance that the
payment has cleared and that good payment has been collected. The amount the
owner receives on surrender may be more or less than the total premiums paid
under the certificate.
If mandated by applicable law, we may be required to block an owner's
account and thereby refuse to pay any request for transfer, partial surrender,
surrender, loan or death benefit proceeds until instructions are received from
the appropriate regulator. We also may be required to provide additional
information about you and your account to government regulators.
THE CERTIFICATE The certificate, the attached signed application, endorsements,
any signed application for an increase in face amount and any signed application
for reinstatement constitute the entire contract between the owner and us. Apart
from the rights and benefits described in the certificate and incorporated by
reference into the group contract, the owner has no rights under the group
contract. All statements made by the owner or insured in the signed application
are considered representations and not warranties, except in the case of fraud.
Only statements in the application and any supplemental applications can be used
to contest a claim or the validity of the certificate. Any change to the
certificate must be approved in writing by the President, a Vice President,
Secretary or an Assistant Secretary of Minnesota Life. No agent has the
authority to alter or modify any of the terms, conditions or agreements of the
group policy or certificate or to waive any of its provisions.
CONTROL OF CERTIFICATE The insured will be considered the owner of the
certificate unless another person is shown as the owner in the signed
application. Ownership may be changed, however, by assigning the certificate as
described below. The owner is entitled to all rights provided by the
certificate, prior to its maturity date. After the maturity date, the owner
cannot change the payee nor the mode of payment, unless otherwise provided in
the certificate. Any person whose rights of ownership depend upon some future
event will not possess any present rights of ownership. If there is more than
one owner at a given time, all must exercise the rights of ownership. If the
owner should die, and the owner is not the insured, the owner's interest will go
to his or her estate unless otherwise provided.
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MATURITY A certificate of insurance under the group contract matures in an
amount equal to the certificate's net cash value upon the insured's 95th
birthday.
BENEFICIARY The beneficiary is the person(s) named in a signed application for
insurance or by later designation to receive certificate proceeds in the event
of the insured's death. The owner may name one or more beneficiaries on the
signed application to receive the death benefit. The owner may choose to name a
beneficiary that the owner cannot change without the beneficiary's consent. This
is called an irrevocable beneficiary. If the owner has not named an irrevocable
beneficiary, the owner has reserved the right to change the beneficiary by
filing a subsequent written request with us. In that event, we will pay the
death benefit to the beneficiary named in the most recent change of beneficiary
request as provided for in the certificate.
If a beneficiary dies before the insured, that beneficiary's interest in
the certificate ends with that beneficiary's death. Only those beneficiaries who
survive the insured will be eligible to share in the proceeds. If no beneficiary
survives the insured we will pay the proceeds according to the order of priority
identified in the group contract.
CHANGE OF BENEFICIARY If the owner has reserved the right to change the
beneficiary, the owner can file a written request with us to change the
beneficiary. If the owner has named an irrevocable beneficiary, the written
consent of the irrevocable beneficiary will be required. The owner's written
request will not be effective until it is recorded in our home office records.
After it has been so recorded, it will take effect as of the date the owner
signed the request.
However, if the insured dies before the request has been so recorded, the
request will not be effective as to those proceeds we have paid before the
owner's request was so recorded.
SETTLEMENT OPTIONS The death benefit proceeds of a certificate will be payable
if we receive due proof satisfactory to us of the insured's death while it is in
force. The proceeds will be paid from our home office and in a single sum unless
a settlement option has been selected.
We will pay interest on the face amount of single sum death proceeds from
the date of the insured's death until the date of payment at any annual rate to
be determined by us, but never less than the minimum guaranteed rate, compounded
annually, or the minimum rate required by state law. For group-sponsored
programs implemented prior to May 1, 2001, the minimum guaranteed annual rate is
4 percent. For group-sponsored programs implemented on or after May 1, 2001, the
minimum guaranteed annual rate is 3 percent. Death benefits proceeds arising
from the account value, as under Option B, will continue to reflect the separate
account experience until the time of payment of those amounts.
The proceeds of a certificate may be paid in other than a single sum and
the owner may, during the lifetime of the insured, request that we pay the
proceeds under one of the certificate's settlement options. We may also use any
other method of payment acceptable to both the owner and us. Unless the owner
elects otherwise, a beneficiary may select a settlement option after the
insured's death. A settlement option may be selected only if the payments are to
be made to a natural person in that person's own right.
You may also choose to place the proceeds in a Minnesota Life Benefit
Account until you elect a single sum payment or a settlement option. The Benefit
Account is an interest-bearing account. Account information, along with a book
of drafts (which will function like a checkbook), will be sent to you, and you
will have access to funds in the account simply by writing a draft for all or
part of the amount of the available balance, and depositing or using the draft
as desired. When the draft is paid through the bank that administers the account
for Minnesota Life, the bank will receive the amount you request as a transfer
from our general account. The Benefit Account is not a bank account, and it is
not insured by the FDIC or any other government agency. As part of our general
account, the Benefit Account is backed by the financial strength of Minnesota
Life, although it is subject to the claims of our creditors.
Each settlement option is payable in fixed amounts as described below. A
person electing a settlement option will be asked to sign an agreement covering
the election which will state the terms and conditions of the payments. The
payments do not vary with the
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investment performance of the separate account.
- INTEREST PAYMENTS This option will provide payment of interest on the
proceeds at such times and for a period that is agreeable to the person
electing the settlement option and us. Withdrawal of proceeds may be made
in amounts of at least $500. At the end of the period, any remaining
proceeds will be paid in either a single sum or under any other method we
approve.
- FIXED PERIOD ANNUITY This is an annuity payable in monthly installments for
a specified number of years, from one to twenty years. The amount of
guaranteed payments for each $1,000 of proceeds applied would be shown on
the settlement option agreement.
- LIFE ANNUITY This is an annuity payable monthly during the lifetime of the
person who is to receive the income and terminating with the last monthly
payment immediately preceding that person's death. We may require proof of
the age and gender of the annuitant. The amount of guaranteed payments for
each $1,000 of proceeds applied would be shown in the settlement option
agreement. It would be possible under this option for the annuitant to
receive only one annuity payment if he or she died prior to the due date of
the second annuity payment, two if he or she died before the due date of
the third annuity payment, etc.
- PAYMENTS OF A SPECIFIED AMOUNT This is an annuity payable in a specified
amount until the proceeds and interest are fully paid.
The minimum amount of interest we will pay under any settlement option will
never be less than the minimum guaranteed annual rate, compounded annually, or
the minimum rate required by state law. For group-sponsored programs implemented
prior to May 1, 2001, the minimum guaranteed annual rate is 4 percent. For
group-sponsored programs implemented on or after May 1, 2001, the minimum
guaranteed annual rate is 3 percent.
Additional interest earnings, if any, on deposits under a settlement option
will be payable as determined by us.
Even if the death benefit under a certificate is excludible from income,
payments under settlement options may not be excludible in full. This is because
earnings on the death benefit after the death of the insured are taxable and
payments under the settlement options generally include such earnings. You
should consult a tax adviser as to the tax treatment of payments under
settlement options.
FEDERAL TAX STATUS
INTRODUCTION
This discussion of federal income 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. No representation is made regarding the likelihood of
continuation of current income tax laws or the current interpretations of the
Internal Revenue Service ("IRS"). We have not attempted to consider any
applicable state or other tax laws.
TAXATION OF MINNESOTA LIFE AND THE VARIABLE UNIVERSAL LIFE ACCOUNT
We are taxed as a "life insurance company" under the Internal Revenue Code.
The operations of the separate account form a part of, and are taxed with, our
other business activities. Currently, no federal income tax is payable by us on
income dividends received by the separate account or on capital gains arising
from the separate account's activities. The separate account is not taxed as a
"regulated investment company" under the Code and it does not anticipate any
change in that tax status.
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At the present time, we make no charge to the separate account or from
premium payments for any federal, state or local taxes (other than state premium
taxes and federal taxes under OBRA) that we incur that may be attributable to
such account or to the policies. We, however, reserve the right in the future to
make a charge for any such tax or other economic burden resulting from the
application of the tax laws that we determine to be properly attributable to the
separate account or the policies.
In calculating our corporation income tax liability, we derive certain
corporate income tax benefits associated with the investment of company assets,
including separate account assets that are treated as company assets under
applicable income tax law. These benefits, which reduce our overall corporate
income tax liability may include dividends received deductions and foreign tax
credits which can be material. We do not pass these benefits through to the
separate accounts, principally because: (i) the majority of the benefits results
from the dividends received deduction, which involves no reduction in the dollar
amount of dividends that the separate account receives; and (ii) under
applicable income tax law, for the purposes of both the dividends received
deductions and the foreign tax credits, contract owners are not the owners of
the assets generating those benefits.
TAX STATUS OF CERTIFICATES
Under Section 7702 of the Code, life insurance contracts such as the
certificates will be treated as life insurance for federal tax purposes 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 believe that a certificate issued in respect
of a standard risk should meet the statutory definition of a life insurance
contract under Section 7702. With respect to a certificate issued on a
substandard basis (i.e., a premium class involving higher than standard
mortality risk), there is insufficient guidance to determine if such a
certificate would satisfy the Section 7702 definition of a life insurance
contract. If it is subsequently determined that a certificate does not satisfy
Section 7702, we may take whatever steps are appropriate and necessary to
attempt to cause such a certificate to comply with Section 7702.
DIVERSIFICATION OF INVESTMENTS
Section 817(h) of the Code authorizes the Treasury Department to set
standards by regulation or otherwise for the investments of the Variable
Universal Life Account to be "adequately diversified" in order for the
certificate to be treated as a life insurance contract for federal income tax
purposes. The Variable Universal Life Account, through the fund portfolios,
intends to comply with the diversification requirements prescribed in
Regulations Section 1.817-5, which affect how the portfolio's assets may be
invested. Although the investment adviser of the Advantus Series Fund is an
affiliate of ours, we do not control the Advantus Series Fund or the investments
of its portfolios. Nonetheless, we believe that each portfolio of the Advantus
Series Fund in which the Variable Universal Life Account owns shares will be
operated in compliance with the requirements prescribed by the Treasury
Department. Contract owners bear the risk that the entire certificate could be
disqualified as a life insurance contract under the Code due to the failure of
the Variable Universal Life Account to be deemed to be "adequately diversified."
OWNER CONTROL
In some circumstances, owners of variable life insurance contracts who
retain excessive control over the investment of the underlying separate account
assets may be treated as the owners of those assets and may be subject to
current tax on income produced by those assets. Although published guidance in
this area does not address certain aspects of the policies, we believe that the
owner of a policy should not be treated as the owner of the separate account
assets.
In certain circumstances, owners of variable life policies may be
considered the owners, for federal income tax purposes, of the assets of the
separate account supporting their policies due to their ability to exercise
control over those assets. Where this is the case, the contract owners will be
currently taxed on income and gains attributable to the separate account assets.
In Revenue Ruling 2003-91, the IRS described the circumstances
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under which the owner of a variable contract will not possess sufficient control
over the assets underlying the contract to be treated as the owner of those
assets for federal income tax purposes. Under the contracts in Rev. Rul.
2003-91, there was no arrangement, plan, contract or agreement between the
policy owner and the insurance company regarding the availability of a
particular investment option and other than the policy owner's right to allocate
premiums and transfer funds among the available sub-accounts, all investment
decisions concerning the sub-accounts were made by the insurance company or an
advisor in its sole and absolute discretion.
The Internal Revenue Service has further amplified and clarified its
position in Rev. Rul. 2003-91 by issuing new regulations in 2005 and additional
Revenue Rulings. We believe that the regulations and additional rulings are
meant to clarify the IRS position in Rev. Rul. 2003-91 and that the ownership
rights of a certificate owner will not result in any certificate owner being
treated as the owner of the assets of the Variable Universal Life Account.
However, we do not know whether the IRS will issue additional guidance that will
place restrictions on such ownership rights. Therefore, we reserve the right to
modify the policy or certificate as necessary to attempt to prevent a
certificate owner from being considered the owner of a pro rata share of the
assets of the Variable Universal Life Account.
The following discussion assumes that the certificate will qualify as a
life insurance contract for federal income tax purposes.
TAX TREATMENT OF POLICY BENEFITS
On the death of the insured, the death benefit provided by a certificate
will be excludable from the gross income of the beneficiary under Section 101(a)
of the Code. The owner is not currently taxed on any part of the inside build-up
of cash value until the owner actually receives cash from the certificate.
However, taxability may also be affected by the individual's contributions to
the certificate and prior certificate activity. We also believe that certificate
loans will be treated as indebtedness and will not be currently taxable as
income to the certificate owner so long as your certificate is not a modified
endowment contract as described below. However, the tax consequences associated
with loans are less clear where the spread between the interest rate charged on
the loan and the interest rate credited under the certificate is very small. A
tax adviser should be consulted about such loans. Whether a modified endowment
contract or not, the interest paid on certificate loans will generally not be
tax deductible. An owner should consult a competent tax adviser before deducting
any loan interest. In addition, default of any loan under the certificate may
result in taxable income and/or tax penalties.
There may also be adverse tax consequences when a certificate with a
certificate loan is lapsed or surrendered. If you receive an accelerated
benefit, that benefit may be taxable and you should seek assistance from a tax
adviser.
A complete surrender or partial surrender may have tax consequences. On
surrender, an owner will generally not be taxed on values received except to the
extent that they exceed the gross premiums paid under the certificate, reduced
by any previously received excludable amounts ("investment in the certificate").
An exception to this general rule occurs in the case of a partial surrender, a
decrease in the face amount, or any other change that reduces benefits under the
certificate in the first 15 years after the certificate is issued and that
results in a cash distribution to the owner in order for the certificate to
continue to comply with the Section 7702 definitional limits. In that case, such
distribution may be taxed in whole or in part as ordinary income (to the extent
of any gain in the certificate) under rules prescribed in Section 7702. Finally,
upon a complete surrender or lapse of a certificate or when benefits are paid at
a certificate's maturity date, if the amount received plus the amount of any
certificate loan exceeds the total investment in the certificate, the excess
will generally be treated as ordinary income, subject to tax.
MODIFIED ENDOWMENT CONTRACTS
It should be noted, however, that the tax treatment described above is not
available for certificates characterized as a modified endowment contract. In
general, certificates with high premium in relation to the death benefit may be
considered modified endowment contracts. The Code requires that cumulative
premiums paid on a life insurance certificate during the first seven contract
years cannot exceed the sum of the net level
35
premiums which would be paid under a seven-pay life certificate. If those
cumulative premiums exceed the seven-pay life premiums, the certificate is a
modified endowment contract.
Modified endowment contracts are treated as life insurance contracts with
respect to the tax treatment of death proceeds and to the extent that the inside
build-up of account value is not taxed on a yearly basis. However, any amounts
received by the owner, such as loans and amounts received from partial or total
surrender of the contract are subject to the same tax treatment as distributions
under an annuity (i.e., such distributions are generally treated as taxable
income to the extent that the account value immediately before the distribution
exceeds the investment in the certificate). This tax treatment includes a 10
percent penalty tax which is imposed on the portion of any distribution that is
included in income, except where the distribution or loan is made on or after
the owner attains age 59 1/2, or is attributable to the certificate owner
becoming disabled, or is part of a series of substantially equal periodic
payments for the life of the certificate owner or the joint lives of the
certificate owner and beneficiary.
The modified endowment contract rules apply to all contracts entered into
on or after June 21, 1988 that fail to meet the 7-pay test described above and
to a certificate that is received in exchange for a modified endowment contract.
It should be noted, in addition, that a certificate which is subject to a
"material change" shall be treated as newly entered into on the date on which
such material change takes effect. When a material change occurs, appropriate
adjustments shall be made in determining whether such a certificate meets the
seven-pay test by taking into account the previously existing cash surrender
value. A material change can occur, for example, when there is an increase in
the death benefit which is due to the payment of an unnecessary premium.
Unnecessary premiums are premiums paid into a certificate which are not needed
in order to provide a death benefit equal to the lowest death benefit that was
payable in the first seven certificate years. If there is a reduction in the
benefits under the certificate during the first seven certificate years at any
time, for example, as a result of a partial withdrawal, the 7-pay test will have
to be reapplied as if the certificate had originally been issued at the reduced
face amount.
To prevent your certificate from becoming a modified endowment contract, it
may be necessary to limit premium payments or to limit reductions in benefits.
In rare circumstances, if we receive and allocate your premium before its
due date, your certificate will become a modified endowment contract. To prevent
your certificate from becoming a modified endowment contract, we will hold your
premium in a non-interest bearing account until its due date, at which time we
will allocate your premium to the guaranteed account or sub-accounts of the
Variable Universal Life Account.
If a certificate becomes a modified endowment contract, distributions that
occur during the certificate year it becomes a modified endowment contract and
any subsequent certificate year will be taxed as distributions from a modified
endowment contract. Distributions from a certificate within two years before it
becomes a modified endowment contract will also be taxed in this manner. This
means that a distribution made from a certificate that is not a modified
endowment contract could later become taxable as a distribution from a modified
endowment contract.
Due to the certificate's flexibility, classification of a certificate as a
modified endowment contract will depend upon the circumstances of each
certificate. Accordingly, a prospective certificate owner should contact a tax
adviser before purchasing a certificate to determine the circumstances under
which the certificate would be a modified endowment contract. An owner should
also contact a tax adviser before paying any lump sum premiums or making any
other change to, including an exchange of, a certificate to determine whether
that premium or change would cause the certificate (or the new certificate in
the case of an exchange) to be treated as a modified endowment contract.
MULTIPLE POLICIES
All modified endowment contracts issued by us (or an affiliated company) to
the same owner during any calendar year will be treated as one modified
endowment contract for purposes of determining the amount includable in gross
income under
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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 certificate received in exchange for a modified
endowment contract will also be treated as a modified endowment contract.
WITHHOLDING
To the extent that certificate distributions are taxable, they are
generally subject to income tax withholding. Recipients can generally elect
however, not to have tax withheld from distributions.
CONTINUATION OF POLICY BEYOND AGE 100
While we intend for the certificate to remain in force without age
limitations, the tax consequences associated with a certificate remaining in
force after the insured's 100th birthday are unclear. You should consult a tax
adviser in all these circumstances.
BUSINESS USES OF POLICY
The certificate may be used in various arrangements, including
non-qualified deferred compensation or salary continuance plans, split dollar
insurance plans, executive bonus plans, tax exempt and nonexempt welfare benefit
plans, retiree medical benefit plans and others. The tax consequences of such
plans may vary depending on the particular facts and circumstances of each
individual arrangement. Therefore, if you are contemplating the use of a
certificate 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.
OTHER TAXES
Federal estate and state and local estate, inheritance, and other tax
consequences of ownership or receipt of certificate proceeds depend upon the
circumstances of each certificate owner or beneficiary.
EMPLOYER-OWNED LIFE INSURANCE CONTRACTS
The Pension Protection Act of 2006 added new section 101(j) of the Code
which provides that unless certain eligibility, notice and consent requirements
are satisfied and either (1) certain rules relating to the insured employee's
status are satisfied or (2) certain rules relating to the payment of the "amount
received under the contract" to, or for the benefit of, certain beneficiaries or
successors of the insured employee are satisfied, the amount excludible as a
death benefit payment under an employer-owned life insurance contract will
generally be limited to the premiums paid for such contract (although certain
exceptions may apply in specific circumstances). An employer-owned life
insurance contract is a life insurance contract (or certificate) owned by an
employer that insures an employee of the employer and where the employer is a
direct or indirect beneficiary under such contact. The new rules apply to life
insurance contracts owned by corporations (including S corporations), individual
sole proprietors, estates and trusts and partnerships that are engaged in a
trade or business. It is the employer's responsibility to verify the eligibility
of the intended insured under employer-owned life insurance contracts and to
provide the notices and obtain the consents required by section 101(j). These
requirements generally apply to employer-owned life insurance contracts issued
or materially modified after August 17, 2006. A tax adviser should be consulted
by anyone considering the purchase or modification of an employer-owned life
insurance contract.
LIFE INSURANCE PURCHASES BY RESIDENTS OF PUERTO RICO
In Rev. Rul. 2004-75, 2004-31 I.R.B. 109, the Internal Revenue Service
announced that income received by residents of Puerto Rico under life insurance
contracts (or certificates) issued by a Puerto Rico branch of a United States
life insurance company is U.S.-source income that is generally subject to United
States Federal income tax.
LIFE INSURANCE PURCHASES BY NONRESIDENT ALIENS AND FOREIGN CORPORATIONS
Purchasers that are not U.S. citizens or residents will generally be
subject to U.S. federal withholding tax on taxable distributions from life
insurance policies at a 30% rate, unless a lower treaty rate applies. In
addition, purchasers may be subject to state and/or municipal taxes and taxes
that may be imposed by the purchaser's country of citizenship or residence.
Prospective purchasers that are not U.S. citizens or
37
residents are advised to consult with a qualified tax adviser regarding U.S. and
foreign taxation with respect to a life insurance policy purchase.
NON-INDIVIDUAL OWNERS AND BUSINESS BENEFICIARIES OF POLICIES
If a certificate is owned or held by a corporation, trust or other
non-natural person, this could jeopardize some (or all) of such entity's
interest deduction under Code Section 264, even where such entity's indebtedness
is in no way connected to the certificate. In addition, under Section 264(f)(5),
if a business (other than a sole proprietorship) is directly or indirectly a
beneficiary of a certificate, this certificate could be treated as held by the
business for purposes of the Section 264(f) entity-holder rules. Therefore, it
would be advisable to consult with a qualified tax adviser before any
non-natural person is made an owner or holder of a certificate, or before a
business (other than a sole proprietorship) is made a beneficiary of a
certificate.
SPLIT-DOLLAR ARRANGEMENTS
The IRS and the Treasury Department have issued guidance that substantially
affects split-dollar arrangements. Consult a qualified tax adviser before
entering into or paying additional premiums with respect to such arrangements.
Additionally, the Sarbanes-Oxley Act of 2002 (the "Act") prohibits, with
limited exceptions, publicly-traded companies, including non-U.S. companies that
have securities listed on exchanges in the United States, from extending,
directly or through a subsidiary, many types of personal loans to their
directors or executive officers. It is possible that this prohibition may be
interpreted as applying to split-dollar life insurance policies for director and
executive officers of such companies, since such insurance arguably can be
viewed as involving a loan from the employer for at least some purposes.
Although the prohibition on loans is generally effective as of July 30,
2002, there is an exception for loans outstanding as of that date, so long as
there is no material modification to the loan terms and the loan is not renewed
after July 30, 2002. Any affected business contemplating the payment of a
premium on an existing certificate, or the purchase of a new certificate, in
connection with a split-dollar life insurance arrangement should consult legal
counsel.
ALTERNATIVE MINIMUM TAX
There may also be an indirect tax upon the income in a certificate or the
proceeds of a certificate under the federal corporate alternative minimum tax,
if the owner is subject to that tax.
ESTATE, GIFT AND GENERATION-SKIPPING TRANSFER TAXES The transfer of the
certificate or designation of a beneficiary may have federal, state, and/or
local transfer and inheritance tax consequences, including the imposition of
gift, estate, and generation-skipping transfer taxes. For example, when the
insured dies, the death proceeds will generally be includable in the certificate
owner's estate for purposes of federal estate tax if the insured owned the
certificate. If the certificate owner was not the insured, the fair market value
of the certificate would be included in the certificate owner's estate upon the
owner's death. The certificate would not be includable in the insured's estate
if the insured neither retained incidents of ownership at death nor had given up
ownership within three years before death.
Moreover, under certain circumstances, the Code may impose a "generation
skipping transfer tax" when all or part of a life insurance certificate is
transferred to, or a death benefit is paid to, an individual two or more
generations younger than the certificate owner. Regulations issued under the
Code may require us to deduct the tax from your certificate, or from any
applicable payment, and pay it directly to the IRS. A competent tax adviser
should be consulted for further information.
ECONOMIC GROWTH AND TAX RELIEF RECONCILIATION ACT OF 2001 The Economic Growth
and Tax Relief Reconciliation Act of 2001 ("EGTRRA") repeals the federal estate
tax and replaces it with a carryover basis income tax regime effective for
estates of decedents dying after December 31, 2009. EGTRRA also repeals the
generation skipping transfer tax, but not the gift tax, for transfers made after
December 31, 2009. EGTRRA contains a sunset provision, which essentially returns
the federal estate, gift and generation-skipping transfer taxes to their
pre-EGTRRA form,
38
beginning in 2011. Congress may or may not enact permanent repeal between now
and then.
During the period prior to 2010, EGTRRA provides for periodic decreases in
the maximum estate tax rate coupled with periodic increases in the estate tax
exemption. For 2009, the maximum estate tax rate is 45% and the estate tax
exemption is $3,500,000.
The complexity of the new tax law, along with uncertainty as to how it
might be modified in coming years, underscores the importance of seeking
guidance from a qualified adviser to help ensure that your estate plan
adequately addresses your needs and that of your beneficiaries under all
possible scenarios.
It should be understood that the foregoing description of the federal
income tax, gift and estate tax consequences under the policies is not
exhaustive and that special rules are provided with respect to situations not
discussed. Statutory changes in the Code, with varying effective dates, and
regulations adopted thereunder may also alter the tax consequences of specific
factual situations. Due to the complexity of the applicable laws, any person
contemplating the purchase of a variable life insurance certificate or
exercising elections under such a certificate may want to consult a tax adviser.
DISTRIBUTION OF CERTIFICATES
The group contract and certificates will be sold by state licensed life
insurance producers who are also registered representatives of Securian
Financial Services, Inc. ("Securian Financial") or of other broker-dealers who
have entered into selling agreements with Securian Financial ("Selling Firms").
Securian 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 Financial Industry Regulatory
Authority. Securian Financial was incorporated in 1984 under the laws of the
State of Minnesota and acts as principal underwriter for the policies. Securian
Financial is a wholly-owned subsidiary of Securian Financial Group, Inc., which
is a second-tier subsidiary of a mutual insurance holding company called
Minnesota Mutual Companies, Inc.
The amount of commission received by an individual registered
representative in connection with the sale of a group contract or certificate is
determined by his or her broker-dealer. In the case of a group contract or
certificate sold by registered representatives of Securian Financial,
commissions are paid, if at all, directly to such registered representatives by
Minnesota Life as agent for Securian Financial. Compensation based on such sales
may also be paid to general agents of Minnesota Life who are also Securian
Financial registered representatives. In the case of a group contract or
certificate sold by a registered representative of a Selling Firm, commissions
are paid directly to the Selling Firm. The commissions and compensation
described in this section, and the payments to broker-dealers described below,
do not result in charges against the group contract or certificates that are in
addition to the charges described elsewhere in this prospectus.
Commissions to any registered representatives, whether such registered
representatives are registered with Selling Firms or Securian Financial on the
sale of certificates will be premium-based, asset-based or a fixed amount.
Commissions under a group-sponsored insurance program will not exceed the
equivalent of 50 percent of the portion of all premiums paid in the initial year
to cover the cost of insurance, 7 percent of all premiums paid in the initial
year in excess of the amount to cover the cost of insurance, and 7 percent of
all premiums paid after the initial year. In addition to commission payments to
registered representatives of Securian Financial Services, Minnesota Life may
also make certain retirement and other benefit plans (including deferred
compensation, group health and life insurance and liability insurance programs)
available to its employees or full-time life insurance agents.
The commission schedule for a group-sponsored insurance program will be
determined based on a variety of factors, including enrollment procedures, the
size and type of the group, the total amount of premium
39
payments to be received, any prior existing relationship with the group sponsor,
the sophistication of the group sponsor, and other circumstances of which we are
not presently aware.
All of the compensation described here, and other compensation or benefits
provided by Minnesota Life or our affiliates, may be more or less than the
overall compensation on similar or other products. The amount and/or structure
of the compensation may influence your registered representative, broker-dealer
or selling institution to present the policies described in this prospectus over
other investment alternatives. However, the differences in compensation may also
reflect differences in sales effort or ongoing customer services expected of the
registered representative or the broker-dealer.
PAYMENTS MADE BY UNDERLYING MUTUAL FUNDS
Minnesota Life pays the costs of selling the group contract and
certificates, some of which are described in more detail elsewhere in this
prospectus, which benefits the underlying mutual funds by providing increased
distribution of the shares of such funds. The underlying mutual funds, or their
investment advisers or principal underwriters, may pay Minnesota Life (or
Minnesota Life affiliates) a fee for the purpose of reimbursing Minnesota Life
for the costs of certain distribution or operational services that Minnesota
Life provides and that benefit the funds. Payments from an underlying fund that
relate to distribution services are made pursuant to the fund's 12b-1 plan,
under which the payments are deducted from the fund's assets and described in
the fee table included in the fund's prospectus. 12b-1 payments from underlying
funds range in amount from 0% to 0.25% of fund assets held in the Separate
Account. These payments decrease a fund's investment return.
In addition, payments may be made pursuant to service/administration
agreements between Minnesota Life (or Minnesota Life affiliates) and the
underlying mutual fund's investment adviser (or its affiliates), in which case
payments are typically made from assets of that firm and not from the assets of
the fund. These payments, which are sometimes known as revenue sharing, are in
addition to the 12b-1 fees and those other fees and expenses incurred by a fund
and disclosed in its prospectus fee table. Service and administrative payments
are paid to Minnesota Life or its affiliates for such things as Minnesota Life's
aggregation of all certificate owner purchase, redemption, and transfer requests
within the Sub-Accounts of the Separate Account each business day and the
submission of one net purchase/redemption request to each underlying mutual
fund. When the Separate Account aggregates such transactions through the
Separate Account's omnibus account with an underlying mutual fund, the fund
avoids the expenses associated with processing individual transactions. Because
funds selected for inclusion in the group contract may also benefit from
expanded marketing opportunities as a result of such inclusion, a fund's
investment adviser (or its affiliates) may have an incentive to make such
payments regardless of other benefits the fund may derive from services
performed by Minnesota Life. Service and administrative payments received by
Minnesota Life or its affiliates range in amount from 0% to 0.35% of fund assets
held in the Separate Account.
Owners, through their indirect investment in the funds, bear the costs of
the investment advisory fees that mutual funds pay to their respective
investment advisers. As described above, an investment adviser of a fund, or its
affiliates, may make payments to Minnesota Life and/or certain of our
affiliates. These payments may be derived, in whole or in part, from the
advisory fee deducted from fund assets.
Minnesota Life took into consideration anticipated payments from underlying
mutual funds and their investment advisers (or the advisers' affiliates) when it
determined the charges that are assessed under the group contract and
certificates. Without these payments, certain group contract and certificate
charges would likely be higher than they are currently. All of the underlying
mutual funds offered in the group contract and certificates currently pay 12b-1
fees to Minnesota Life, and some but not all of such funds' investment advisers
(or the advisers' affiliates) currently pay service or administrative fees to
Minnesota Life.
Minnesota Life considers profitability when determining the charges in
these group contract and certificates. In early contract
40
years, Minnesota Life does not anticipate earning a profit, since that is a time
when administrative and distribution expenses are typically higher. Minnesota
Life does, however, anticipate earning a profit in later contract years. In
general, Minnesota Life's profit will be greater the longer a certificate is
held and the greater a certificate's investment return.
OTHER MATTERS
LEGAL PROCEEDINGS
Minnesota Life, like other life insurance companies, is ordinarily involved
in litigation. Although the outcome of any litigation cannot be predicted with
certainty, we believe that, as of the date of this prospectus, there are no
pending or threatened lawsuits that will have a materially adverse impact on:
the separate account; Securian Financial to perform its underwriting contract
with the separate account; or the ability of Minnesota Life to meet its
obligations under the Policy.
REGISTRATION STATEMENT
We have filed a Registration Statement under the Securities Act of 1933, as
amended, with the Securities and Exchange Commission with respect to the group
contracts and certificates offered hereby. This prospectus does not contain all
the information set forth in the registration statement and amendments thereto
and the exhibits filed as a part thereof, to all of which reference is hereby
made for further information concerning the separate account, Minnesota Life,
the group contracts and certificates. Statements contained in this prospectus as
to the contents of group contracts and certificates and other legal instruments
are summaries, and reference is made to such instruments as filed.
FINANCIAL STATEMENTS
The complete financial statements of the separate account and Minnesota
Life can be found in the Statement of Additional Information. The Statement of
Additional Information is available from us at your request.
To request a Statement of Additional Information call us at 1-800-843-8358
or write to us at: Minnesota Life Insurance Company at 400 Robert Street North,
Saint Paul, Minnesota 55101.
41
STATEMENT OF ADDITIONAL INFORMATION
A Statement of Additional Information, with the same date, containing
further information about Minnesota Life Variable Universal Life Account, the
group contract and the certificates is available without charge from us at your
request. It has been filed with the SEC and is incorporated by reference into
this prospectus. In addition, you may order a personalized illustration of death
benefits, cash surrender values, and cash values, without charge, from us. To
request a free copy of the Statement of Additional Information, a personalized
illustration or any information about your certificate call us at 1-800-843-8358
or write to us at: Minnesota Life Insurance Company at 400 Robert Street North,
Saint Paul, Minnesota 55101.
Information about Minnesota Life Variable Universal Life Account (including
the Statement of Additional Information) can be reviewed and copied at the
Securities and Exchange Commission's Public Reference Room in Washington, DC
(information on the operation of the Public Reference Room may be obtained by
calling the SEC at 1-202-551-8090) or at the SEC's website, http://www.sec.gov.
Copies of this information may be obtained, upon payment of a duplicating fee,
by writing the Public Reference Section of the Commission, 100 F Street, NE,
Washington, DC, 20549-0102. You can also call the SEC at 1-202-551-8090.
The table of contents for the Statement of Additional Information is as
follows:
General Information and History
Premiums
Additional Information About Operation of
Contracts and Registrant
Underwriters
Illustrations
Financial Statements
RULE 12-h7 REPRESENTATIONS
Minnesota Life, as depositor of the Minnesota Life Variable Universal Life
Account, is relying upon the requirements set forth in Rule 12h-7 under the
Securities Exchange Act of 1934 (the "Securities Exchange Act") to the extent
necessary to avoid being subject to periodic reporting obligations under the
Securities Exchange Act.
Investment Company Act Number 811-8830
42
PART B: INFORMATION REQUIRED IN A STATEMENT OF ADDITIONAL INFORMATION
[Download Table]
Item Number Caption in Statement of Additional Information
15. Cover Page and Table of Contents
16. General Information and History
17. Services
18. Premiums
19. Additional Information About Operation of Contracts and Minnesota
Life Variable Universal Life Account
20. Underwriters
21. Additional Information About Charges
22. Lapse and Reinstatement
23. Loans
24. Financial Statements
25. Illustrations
MINNESOTA LIFE VARIABLE UNIVERSAL LIFE ACCOUNT
(Exact Name of Registrant)
Minnesota Life Insurance Company
(Name of Depositor)
400 Robert Street North
Saint Paul, Minnesota 55101
(Address of Depositor's Principal Executive Offices)
1-651-665-3500
(Depositor's Telephone Number, including Area Code)
STATEMENT OF ADDITIONAL INFORMATION
THE DATE OF THIS DOCUMENT AND THE PROSPECTUS IS: APRIL 30, 2010
This Statement of Additional Information is not a prospectus. Much of the
information contained in this Statement of Additional Information expands upon
subjects discussed in the prospectus. Therefore, this Statement should be read
in conjunction with the current prospectus, bearing the same date, which may be
obtained by calling Minnesota Life Insurance Company at 1-800-843-8358, or
writing to Minnesota Life at 400 Robert Street North, Saint Paul, Minnesota
55101. Defined terms as used in the prospectus, group contract and certificates
are incorporated into this Statement of Additional Information by reference.
Table of Contents
General Information and History
Premiums
Additional Information About Operation of Contracts and Registrant
Underwriters
Illustrations
Financial Statements
GENERAL INFORMATION AND HISTORY
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. Effective
October 1, 1998, Minnesota Mutual reorganized by forming a mutual insurance
holding company named "Minnesota Mutual Companies, Inc." Minnesota Mutual
continued its corporate existence following conversion to a Minnesota stock life
insurance company named "Minnesota Life Insurance Company." All of the shares of
the voting stock of Minnesota Life are owned by a second tier intermediate stock
holding company named "Securian Financial Group, Inc.", which in turn is a
wholly-owned subsidiary of a first tier intermediate stock holding company named
"Securian Holding Company", which in turn is a wholly-owned subsidiary of the
ultimate parent, Minnesota Mutual Companies, Inc. Our home office is at 400
Robert Street North, St. Paul, Minnesota 55101-2098, telephone: (651) 665-3500.
We are licensed to do a life insurance business in all states of the United
States (except New York where we are an authorized reinsurer), the District of
Columbia, Canada, Puerto Rico and Guam.
On August 8, 1994, the separate account was established in accordance with
Minnesota insurance law. The separate account is registered as a "unit
investment trust" with the Securities and Exchange Commission under the
Investment Company Act of 1940. The separate account meets the definition of
a "separate account" under the federal securities laws.
We are the legal owner of the assets in the separate account. The obligations to
policy and certificate owners and beneficiaries arising under the group
contracts and certificates are general corporate obligations of Minnesota Life.
Our general assets back these obligations. The Minnesota law under which the
separate account was established provides that the assets of the separate
account shall not be chargeable with liabilities arising out of any other
business which we may conduct, but shall be held and applied exclusively to the
benefit of the holders of those variable life insurance policies for which the
separate account was established. The income gains and losses credited to or
charged against the separate account reflect the account's own investment
experience and are entirely independent of both the investment performance of
our guaranteed account and of any other separate account which we may have
established or may later establish.
The separate account currently invests in the Advantus Series Fund, Inc.,
Fidelity(R) Variable Insurance Products Funds, Ivy Funds Variable Insurance
Portfolios, Janus Aspen Series, Van Eck VIP Trust and Lord Abbett Series
Fund, Inc.
PREMIUMS
Premiums for the certificates will not be the same for all owners. Charges will
vary based on the group-sponsored insurance program under which the certificate
is issued. We will determine charges pursuant to our established actuarial
procedures, and in doing so we will not discriminate unreasonably or unfairly
against any person or class of persons. The charges (other than cost of
insurance rates) for certificates under a group-sponsored insurance program are
shown on the specifications page of the certificate.
A premium must be paid to put a certificate in force, and may be remitted to us
by the group contractholder on behalf of the owner. Generally, premium payments
for certificates under group-sponsored insurance programs are regularly deducted
by an employer from the certificate owner's paycheck. If an owner's insurance is
continued following loss of the insured's eligibility under the group-sponsored
insurance program (requirements for continuation are described in the
certificate and prospectus), we will accept direct premium payments from the
owner by check or electronic funds transfer from a checking or savings account.
If an owner in such a situation elects to remit premiums by check, we will send
a premium notice for the premium due to the owner's address on record. If an
owner elects to remit premiums by electronic funds transfer, we will deduct the
premium due from the checking or savings account monthly on the date specified
by the owner.
ADDITIONAL INFORMATION ABOUT OPERATION OF CONTRACTS AND REGISTRANT
Minnesota Life provides accounting oversight, financial reporting, legal and
other administrative services. Prior to April 1, 2003, Minnesota Life provided
additional accounting and administrative services which are now performed by
State Street Bank and Trust Company. However, Minnesota Life continues to
oversee State Street's performance of these services.
CERTIFICATE CHANGES We reserve the right to limit the number of certificate
changes to one per certificate year and to restrict such changes in the first
certificate year. For this purpose, changes include increases or decreases in
face amount. No change will be permitted that would result in the death benefit
under a certificate being included in gross income due to not satisfying the
requirements of Section 7702 of the Internal Revenue Code or any applicable
successor provision.
CONFORMITY WITH STATUTES If any provision in a certificate is in conflict with
the laws of the state governing the certificate, the provision will be deemed to
be amended to conform to such laws.
CLAIMS OF CREDITORS Except as provided by law, neither the certificate nor any
payment thereunder will be subject to the claims of creditors or to any legal
process.
INCONTESTABILITY After a certificate has been in force during the insured's
lifetime for two years from the certificate date, we cannot contest the
insurance for any loss that is incurred more than two years after the
certificate date, unless the net cash value has dropped below the amount
necessary to pay the insured's cost of insurance on the insured's life. However,
if there has been an increase in the amount of insurance for which we required
evidence of insurability, then, to the extent of the increase, any loss which
occurs within two years of the effective date of the increase will be
contestable. We may elect to waive our right to contest the insurance for any
loss that is incurred within two years after the certificate issue date where
the certificate replaces existing coverage.
ASSIGNMENT The certificate may be assigned. However, we will not be bound by any
assignment unless it is in writing and filed at our home office in St. Paul,
Minnesota, and we send the owner an acknowledged copy. We assume no
responsibility for the validity or effect of any assignment of the certificate
or of any interest in it. Any claim made by an assignee will be subject to proof
of the assignee's interest and the extent of the assignment. A valid assignment
will take precedence over any claim of a beneficiary.
SUICIDE If the insured, whether sane or insane, dies by suicide within two years
of the original certificate date, our liability will be limited to an amount
equal to the premiums paid for the certificate. If there has been a face amount
increase for which we required evidence of insurability, and if the insured dies
by suicide within two years from the effective date of the increase, our
liability with respect to the increase will be limited to an amount equal to the
premiums paid for that increase.
If the insured is a Missouri citizen when the certificate is issued, this
provision does not apply on the issue date of the certificate, or on the
effective date of any increase in face amount, unless the insured intended
suicide when the certificate, or any increase in face amount, was applied for.
If the insured is a citizen of Colorado or North Dakota, the duration of this
suicide provision is for one year instead of two.
MISSTATEMENT OF AGE If the age of the insured has been misstated, the death
benefit and account value will be adjusted. The adjustment will be the
difference between two amounts accumulated with interest. These two amounts are:
o the monthly cost of insurance charges that were paid; and
o the monthly cost of insurance charges that should have been paid based
on the insured's correct age.
The interest rates used are the rates that were used in accumulating guaranteed
account values for that time period.
EXPERIENCE CREDITS Each year we will determine if the certificate will receive
an experience credit. Experience credits, if received, may be added to the
owner's account value or, if the owner elects, they may be paid in cash.
Experience credits will vary based on the terms, claims experience and cost of
insurance for the group-sponsored insurance program under which the group
contract is issued. We will determine experience credits pursuant to our
established actuarial procedures. We do not expect any experience credits will
be declared.
An experience credit applied to the account value will be allocated to the
guaranteed account or to the sub-accounts of the separate account in accordance
with the owner's current instructions for the allocation of net premiums. In the
absence of such instructions, experience credits will be allocated to the
guaranteed account value and separate account value in the same proportion that
those account values bear to the net cash value and, as to the account value in
the separate account, to each sub-account in the proportion that the sub-account
value bears to the separate account value.
REPORTS Each year we will send the owner a report. At a minimum, the report will
include the account value, the face amount, and the death benefit as of the date
of the report, the premiums paid during the year, loan activity and the
certificate value. The report will be sent to the owner without cost. The report
will be as of a date within two months of its mailing.
DEATH BENEFIT The Cash Value Accumulation Test requires that the death benefit
be greater than the account value times a specified percentage. The Guideline
Premium/Cash Value Corridor Test limits the amount of premiums which may be paid
in addition to requiring that the death benefit be greater than the account
value times a specified percentage. Each certificate will be tested when
premiums are paid, at the end of each month and at death for compliance to the
test chosen for that certificate. Under either test, if the death benefit is not
greater than the applicable percentage of the account value, we will increase
the face amount or return premium with interest to maintain compliance with IRC
Section 7702.
For the Cash Value Accumulation Test, the applicable percentage by which to
multiply the account value to determine the minimum death benefit requirement
varies by the age and underwriting class of the insured. The following table
contains illustrative applicable percentages for this test for the non-tobacco
underwriting class:
[Download Table]
Applicable Percentage Applicable Percentage
Attained for certificates issued for certificates issued on
Age before January 1, 2009 or after January 1, 2009
35 432.4% 512.3%
45 310.2 369.0
55 226.9 375.6
65 171.8 215.9
75 137.5 178.9
For the Guideline Premium/Cash Value Corridor Test, the applicable percentage by
which to multiply the account value to determine the minimum death benefit
requirement varies only by the age of the insured. The following table contains
the applicable percentages for the account value portion of this test:
[Download Table]
Attained Applicable Attained Applicable Attained Applicable
Age Percentage Age Percentage Age Percentage
40 & below 250% 54 157% 68 117%
41 243 55 150 69 116
42 236 56 146 70 115
43 229 57 142 71 113
44 222 58 138 72 111
45 215 59 134 73 109
46 209 60 130 74 107
47 203 61 128 75-90 105
48 197 62 126 91 104
49 191 63 124 92 103
50 185 64 122 93 102
51 178 65 120 94 101
52 171 66 119 95 100
53 164 67 118
Several factors that may influence the premium limit under the Guideline
Premium/Cash Value Corridor Test include: the current and past face amounts
of the certificate, the certificate year, the age at certificate issue, the
age at any face amount change, and the underwriting class of the insured as
well as the charges under the certificate. You may call us at (800) 843-8358,
during our normal business hours of 8:00 a.m. to 4:45 p.m., Central time, if
you would like us to calculate the maximum premium you may pay under your
certificate for this test. As you increase the amount of premium you pay, you
may cause your certificate to become a modified endowment contract.
(See "Federal Tax Status".)
UNDERWRITERS
The group contracts and certificates are a continuous offering and will be sold
by state licensed life insurance producers who are also registered
representatives of Securian Financial Services, Inc. ("Securian Financial") or
of other broker-dealers who have entered into selling agreements with Securian
Financial. Securian Financial acts as principal underwriter for the policies.
Securian Financial is a wholly-owned subsidiary of Securian Financial Group,
Inc., which is a second-tier subsidiary of a mutual insurance holding company
called Minnesota Mutual Companies, Inc.
Securian 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 Financial Industry Regulatory
Authority. Securian Financial was incorporated in 1984 under the laws of the
State of Minnesota. The contracts and certificates 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 certificate is done in accordance with our rules and
standards.
Commissions to registered representatives on the sale of certificates will be
premium-based, asset-based or a fixed amount. Commissions under a
group-sponsored insurance program will not exceed the equivalent of 50 percent
of the portion of all premiums paid in the initial year to cover the cost of
insurance, 7 percent of all premiums paid in the initial year in excess of the
amount to cover the cost of insurance, and 7 percent of all premiums paid after
the initial year.
The commission schedule for a group-sponsored insurance program will be
determined based on a variety of factors, including enrollment procedures,
the size and type of the group, the total amount of premium payments to be
received, any prior existing relationship with the group sponsor, the
sophistication of the group sponsor, and other circumstances of which we are
not presently aware. Amounts paid by Minnesota Life to the underwriter for
2009, 2008 and 2007 were $465,264, $593,608, and $493,824, respectively.
While Securian Financial does not receive any direct compensation from
Minnesota Life when selling a Minnesota Life variable product, it is
reimbursed by Minnesota Life for compliance related costs resulting from
Securian's sales of Minnesota Life variable products. Securian Financial may
also receive amounts from the Funds for services provided under a 12b-1 plan
of distribution. For providing these distribution services, Securian
Financial may receive a fee of 0.25 percent of the average daily net assets
of those Portfolios of the Funds which have a 12b-1 fee.
UNDERWRITING The group contracts will be offered and sold pursuant to our
underwriting procedures, in accordance with state insurance laws. Individuals
who satisfy the eligibility requirements under a particular group contract may
be required to submit to an underwriting procedure which requires satisfaction
of underwriting requirements.
When we receive a completed application or request for an increase in face
amount we may require medical evidence of insurability to determine whether the
applicant is insurable. If so, we will follow certain insurance underwriting
(risk evaluation) procedures. This process may involve such verification
procedures as medical examinations and may require that further information be
provided by the proposed insured before a determination can be made. We may also
issue certificates that do not require medical evidence of insurability.
Schedules for evidence of insurability requirements may be determined for each
group-sponsored insurance program and are based on a variety of factors related
to the group. In determining these schedules we will not discriminate
unreasonably or unfairly against any person or class of persons.
ILLUSTRATIONS
To illustrate the operation of the certificate under various assumptions, we
have prepared several tables along with additional explanatory text, that may be
of assistance.
The following tables illustrate how the account value and death benefit of a
certificate change with the investment experience of the sub-accounts of the
separate account. The tables show how the account values and death benefit of a
certificate issued to an insured of a given age and at a given premium would
vary over time if the investment return on the assets held in each sub-account
of the separate account were a uniform, gross, after-tax rate of 0 percent, 6
percent or 12 percent. The account values and death benefits would be different
from those shown if the gross annual investment rates of return averaged 0
percent, 6 percent and 12 percent over a period of years, but fluctuated above
and below those averages for individual certificate years.
The tables illustrate both a certificate issued to an insured, age 45 and to an
insured, age 55, in a group-sponsored program. This assumes a $4.00 monthly
administration charge, a 3 percent sales charge, a 2 percent premium tax charge,
a 0.50 percent mortality and expense charge and a 0.25 percent OBRA expense
charge. Cost of insurance charges used in the tables are either the guaranteed
maximums or assumed levels as described in the following paragraph. If a
particular certificate has different administration, mortality and expense risk
charge, sales, tax, or cost of insurance charges, the account values and death
benefits would vary from those shown in the tables. The account values and death
benefits would also vary if premiums were paid in other amounts or at other than
annual intervals, or account values were allocated differently among individual
sub-accounts with varying rates of return. The illustrations of death benefits
also vary between tables depending upon whether the level or variable type death
benefits are illustrated.
The account value column in the tables with the heading "Using Maximum Cost
of Insurance Charges - - 1980 CSO" shows the accumulated value of premiums
paid reflecting deduction of the charges described above and monthly charges
for the cost of insurance based on the guaranteed maximum rate, which is 125
percent of the maximum allowed under the 1980 Commissioners Standard Ordinary
("1980 CSO") Mortality Table. The account value column in the tables with
the heading "Using Maximum Cost of Insurance Charges - - 2001 CSO" shows the
accumulated value of premiums paid reflecting deduction of the charges
described above and monthly charges for the cost of insurance based on the
guaranteed maximum rate, which is 200 percent of the maximum allowed under
the 2001 Commissioners Standard Ordinary ("2001 CSO") Mortality Table. A
maximum sales charge of 5 percent is also used. The account value column in
the tables with the heading "Using Assumed Cost of Insurance Charges" shows
the accumulated value of premiums paid reflecting deduction of the charges
described above and monthly charges for the cost of insurance at an assumed
level which is substantially less than the guaranteed rate. Actual cost of
insurance charges for a certificate depend on a variety of factors as
described in "Account Value Charges" section of the prospectus.
The amounts shown for the hypothetical account value and death benefit as of
each certificate year reflect the fact that the net investment return on the
assets held in the sub-accounts is lower than the gross, after-tax return. This
is because expenses of the Fund and a daily mortality and expense risk charge
assessed against the net assets of the Variable Universal Life Account are
deducted from the gross return. The mortality and expense risk charge reflected
in the illustrations is at an annual rate of .50 percent. The investment
expenses illustrated represent an average of the investment advisory fee charged
for all Funds covered under the prospectus. The investment advisory fee for each
Portfolio for the last fiscal year is shown under the heading "Fund Charges" in
the prospectus. In addition to the deduction for the investment advisory fee,
the illustrations also reflect a deduction for Portfolio costs and expenses for
the last fiscal year, as illustrated under the heading "Fund Charges" in the
prospectus. The average annual expense number used in the illustrations (0.95
percent) does not include waivers, reductions, and reimbursements. Gross annual
rates of return of 0 percent, 6 percent and 12 percent
correspond to approximate net annual rates of return of -1.44 percent, 4.47
percent and 10.39 percent.
The tables reflect the fact that no charges for federal, state or local income
taxes are currently made against the Variable Universal Life Account. If such a
charge is made in the future, it will take a higher gross rate of return to
produce after-tax returns of 0 percent, 6 percent and 12 percent than it does
now. To produce the account values and death benefits illustrated. Additionally,
the hypothetical values shown in the tables assume that the policy for which
values are illustrated is not deemed an individual policy under the Omnibus
Budget Reconciliation Act of 1990 ("OBRA") and therefore the values do not
reflect the additional premium expense charge to cover Minnesota Life's
increased OBRA related expenses in that situation (as described in "OBRA Expense
Charge").
The tables illustrate the certificate values that would result based upon the
investment rates of return if the premiums are paid on a monthly basis, and if
no certificate loans have been made. The tables are also based on the
assumptions that no partial surrenders have been made, that no transfer charges
were incurred, that no optional riders have been requested and that no
allocations have been made to the guaranteed account. The certificate values in
the tables also may reflect an increase in the face amount of insurance to the
minimum amount necessary to maintain the certificate's qualification as life
insurance under Section 7702 of the Code.
Upon request, we will provide an illustration based on a proposed insured's age,
face amount of insurance, premium amount and frequency of payment, and using the
charges for the group-sponsored insurance program under which the individual
would be insured. To request a personalized illustration or any information
about your certificate call us at 1-800-843-8358 or write to us at: Minnesota
Life Insurance Company at 400 Robert Street North, Saint Paul, Minnesota 55101.
DEATH BENEFIT OPTION A
ISSUE AGE 45
UNISEX
NONTOBACCO
FACE AMOUNT OF INSURANCE - $600,000
ANNUAL PREMIUM - $10,800
(MONTHLY PREMIUM - $900)(1)
USING CURRENT COST OF INSURANCE CHARGES*
[Enlarge/Download Table]
-Assuming Hypothetical Investment Returns Of -
0% Gross(2) 6% Gross(2) 12% Gross(2)
(-1.44% Net)(3) (4.47% Net)(3) (10.39% Net)(3)
End of Att Annual Account Death Account Death Account Death
Pol Yr Age Premium Value(4) Benefit Value(4) Benefit Value(4) Benefit
------ --- ------- --------- ------- --------- --------- --------- ----------
1 46 10,800 8,759 600,000 9,041 600,000 9,317 600,000
2 47 10,800 17,342 600,000 18,435 600,000 19,552 600,000
3 48 10,800 25,683 600,000 28,131 600,000 30,731 600,000
4 49 10,800 33,858 600,000 38,219 600,000 43,032 600,000
5 50 10,800 41,871 600,000 48,718 600,000 56,579 600,000
6 51 10,800 49,659 600,000 59,585 600,000 71,441 600,000
7 52 10,800 57,164 600,000 70,776 600,000 87,699 600,000
8 53 10,800 64,393 600,000 82,314 600,000 105,518 600,000
9 54 10,800 71,293 600,000 94,164 600,000 125,016 600,000
10 55 10,800 77,808 600,000 106,289 600,000 146,339 600,000
15 60 10,800 103,042 600,000 170,182 600,000 287,559 600,000
20 65 10,800 114,212 600,000 240,427 600,000 520,125 624,150
25 70 10,800 108,249 600,000 320,786 600,000 903,070 1,038,530
30 75 10,800 47,522 600,000 403,892 600,000 1,515,044 1,590,796
35 80 10,800 0 600,000 494,568 600,000 2,501,242 2,626,304
40 85 10,800 0 600,000 631,715 663,301 4,021,798 4,222,888
45 90 10,800 0 600,000 800,395 840,415 6,303,303 6,618,468
50 95 10,800 0 600,000 1,007,906 1,017,985 9,923,392 10,022,626
(1) A premium payment of $900 is assumed to be paid monthly at the beginning
of each certificate month.
(2) Assumes that no certificate loans have been made, no withdrawals have
been made, that no transfer charges were incurred and that no optional riders
have been requested.
(3) The amounts shown for the hypothetical account value and death benefit as
of each certificate year reflect the fact that the net investment return on
the assets held in the sub-accounts is lower than the gross, after-tax
return. This is because expenses of the Fund are assessed against the net
assets of the Variable Universal Life Account and deducted from the gross
return.
(4) Based upon the assumptions made in the illustrations, the account value
is equal to the certificate surrender value.
*This illustration uses assumed cost of insurance charges for a
group-sponsored program. The actual cost of insurance charges of a
certificate depend on a variety of factors as described in the prospectus.
The initial assumed monthly cost of insurance (COI) rate per $1,000 of
insurance, for an attained age of 45, used for the purposes of this
illustration is $0.190. The cost of insurance charge will increase as the
insured ages.
IT IS EMPHASIZED THAT THE HYPOTHETICAL GROSS ANNUAL RATES OF RETURN SHOWN
ABOVE ARE ILLUSTRATIVE ONLY AND SHOULD NOT BE DEEMED A REPRESENTATION OF PAST
OR FUTURE GROSS ANNUAL RATES OF RETURN. ACTUAL GROSS 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 A CERTIFICATE OWNER, THE
FREQUENCY OF PREMIUM PAYMENTS CHOSEN BY A CERTIFICATE OWNER, AND THE
INVESTMENT EXPERIENCE OF THE CERTIFICATE'S SUB-ACCOUNTS. THE DEATH BENEFIT,
ACCOUNT VALUE AND CASH SURRENDER VALUE FOR A CERTIFICATE WOULD BE DIFFERENT
FROM THOSE SHOWN IF THE ACTUAL GROSS ANNUAL RATES OF RETURN AVERAGED 0%, 6%,
AND 12% OVER A PERIOD OF YEARS, BUT VARIED ABOVE OR BELOW THAT AVERAGE DURING
THE PERIOD. THEY WOULD ALSO BE DIFFERENT IF ANY CERTIFICATE LOAN WERE MADE
DURING THE PERIOD. NO REPRESENTATIONS CAN BE MADE BY MINNESOTA LIFE OR THE
FUNDS THAT THOSE HYPOTHETICAL RATES OF RETURN CAN BE ACHIEVED FOR ANY ONE
YEAR OR SUSTAINED OVER ANY PERIOD OF TIME.
DEATH BENEFIT OPTION A
ISSUE AGE 45
UNISEX
NONTOBACCO
FACE AMOUNT OF INSURANCE - $600,000
ANNUAL PREMIUM - $10,800
(MONTHLY PREMIUM - $900)(1)
USING MAXIMUM COST OF INSURANCE CHARGES - 1980 CSO
[Enlarge/Download Table]
-Assuming Hypothetical Investment Returns Of -
0% Gross(2) 6% Gross(2) 12% Gross(2)
(-1.44% Net)(3) (4.47% Net)(3) (10.39% Net)(3)
End of Att Annual Account Death Account Death Account Death
Pol Yr Age Premium Value(4) Benefit Value(4) Benefit Value(4) Benefit
------ --- ------- --------- ------- -------- ------- ---------- ---------
1 46 10,800 7,408 600,000 7,646 600,000 7,880 600,000
2 47 10,800 14,550 600,000 15,472 600,000 16,414 600,000
3 48 10,800 21,412 600,000 23,470 600,000 25,656 600,000
4 49 10,800 27,990 600,000 31,642 600,000 35,677 600,000
5 50 10,800 34,269 600,000 39,982 600,000 46,550 600,000
6 51 10,800 40,225 600,000 48,470 600,000 58,341 600,000
7 52 10,800 45,832 600,000 57,089 600,000 71,132 600,000
8 53 10,800 51,053 600,000 65,809 600,000 85,002 600,000
9 54 10,800 55,845 600,000 74,594 600,000 100,038 600,000
10 55 10,800 60,185 600,000 83,429 600,000 116,362 600,000
15 60 10,800 74,023 600,000 127,586 600,000 222,987 600,000
20 65 10,800 69,093 600,000 167,618 600,000 394,429 600,000
25 70 10,800 29,920 600,000 192,334 600,000 686,803 789,824
30 75 10,800 0 600,000 177,858 600,000 1,159,533 1,217,510
35 80 10,800 0 600,000 49,248 600,000 1,924,155 2,020,362
40 85 10,800 0 600,000 0 600,000 3,109,186 3,264,645
45 90 10,800 0 600,000 0 600,000 4,883,653 5,127,836
50 95 10,800 0 600,000 0 600,000 7,701,484 7,778,498
(1) A premium payment of $900 is assumed to be paid monthly at the beginning
of each certificate month.
(2) Assumes that no certificate loans have been made, no withdrawals have
been made, that no transfer charges were incurred and that no optional riders
have been requested.
(3) The amounts shown for the hypothetical account value and death benefit as
of each certificate year reflect the fact that the net investment return on
the assets held in the sub-accounts is lower than the gross, after-tax
return. This is because expenses of the Fund are assessed against the net
assets of the Variable Universal Life Account and deducted from the gross
return.
(4) Based upon the assumptions made in the illustrations, the account value
is equal to the certificate surrender value.
IT IS EMPHASIZED THAT THE HYPOTHETICAL GROSS ANNUAL RATES OF RETURN SHOWN
ABOVE ARE ILLUSTRATIVE ONLY AND SHOULD NOT BE DEEMED A REPRESENTATION OF PAST
OR FUTURE GROSS ANNUAL RATES OF RETURN. ACTUAL GROSS 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 A CERTIFICATE OWNER, THE
FREQUENCY OF PREMIUM PAYMENTS CHOSEN BY A CERTIFICATE OWNER, AND THE
INVESTMENT EXPERIENCE OF THE CERTIFICATE'S SUB-ACCOUNTS. THE DEATH BENEFIT,
ACCOUNT VALUE AND CASH SURRENDER VALUE FOR A CERTIFICATE WOULD BE DIFFERENT
FROM THOSE SHOWN IF THE ACTUAL GROSS ANNUAL RATES OF RETURN AVERAGED 0%, 6%,
AND 12% OVER A PERIOD OF YEARS, BUT VARIED ABOVE OR BELOW THAT AVERAGE DURING
THE PERIOD. THEY WOULD ALSO BE DIFFERENT IF ANY CERTIFICATE LOAN WERE MADE
DURING THE PERIOD. NO REPRESENTATIONS CAN BE MADE BY MINNESOTA LIFE OR THE
FUNDS THAT THOSE HYPOTHETICAL RATES OF RETURN CAN BE ACHIEVED FOR ANY ONE
YEAR OR SUSTAINED OVER ANY PERIOD OF TIME.
DEATH BENEFIT OPTION A
ISSUE AGE 45
UNISEX
NONTOBACCO
FACE AMOUNT OF INSURANCE - $600,000
ANNUAL PREMIUM - $10,800
(MONTHLY PREMIUM - $900)(1)
USING MAXIMUM COST OF INSURANCE CHARGES - 2001 CSO
[Enlarge/Download Table]
-Assuming Hypothetical Investment Returns Of -
0% Gross(2) 6% Gross(2) 12% Gross(2)
(-1.44% Net)(3) (4.47% Net)(3) (10.39% Net)(3)
End of Att Annual Account Death Account Death Account Death
Pol Yr Age Premium Value(4) Benefit Value(4) Benefit Value(4) Benefit
------ --- ------- --------- ------- -------- ------- ---------- ---------
1 46 10,800 7,159 600,000 7,389 600,000 7,615 600,000
2 47 10,800 13,987 600,000 14,876 600,000 15,784 600,000
3 48 10,800 20,535 600,000 22,515 600,000 24,619 600,000
4 49 10,800 26,825 600,000 30,335 600,000 34,215 600,000
5 50 10,800 32,822 600,000 38,308 600,000 44,620 600,000
6 51 10,800 38,480 600,000 46,395 600,000 55,876 600,000
7 52 10,800 43,740 600,000 54,541 600,000 68,023 600,000
8 53 10,800 48,539 600,000 62,686 600,000 81,103 600,000
9 54 10,800 52,828 600,000 70,785 600,000 95,185 600,000
10 55 10,800 56,507 600,000 78,740 600,000 110,299 600,000
15 60 10,800 64,726 600,000 115,321 600,000 206,264 600,000
20 65 10,800 48,719 600,000 140,012 600,000 355,723 600,000
25 70 10,800 0 600,000 136,589 600,000 613,383 705,391
30 75 10,800 0 600,000 65,765 600,000 1,038,589 1,090,518
35 80 10,800 0 600,000 0 600,000 1,725,814 1,812,105
40 85 10,800 0 600,000 0 600,000 2,778,868 2,917,812
45 90 10,800 0 600,000 0 600,000 4,321,139 4,537,196
50 95 10,800 0 600,000 0 600,000 6,752,068 6,819,588
(1) A premium payment of $900 is assumed to be paid monthly at the beginning
of each certificate month.
(2) Assumes that no certificate loans have been made, no withdrawals have
been made, that no transfer charges were incurred and that no optional riders
have been requested.
(3) The amounts shown for the hypothetical account value and death benefit as
of each certificate year reflect the fact that the net investment return on
the assets held in the sub-accounts is lower than the gross, after-tax
return. This is because expenses of the Fund are assessed against the net
assets of the Variable Universal Life Account and deducted from the gross
return.
(4) Based upon the assumptions made in the illustrations, the account value
is equal to the certificate surrender value.
IT IS EMPHASIZED THAT THE HYPOTHETICAL GROSS ANNUAL RATES OF RETURN SHOWN
ABOVE ARE ILLUSTRATIVE ONLY AND SHOULD NOT BE DEEMED A REPRESENTATION OF PAST
OR FUTURE GROSS ANNUAL RATES OF RETURN. ACTUAL GROSS 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 A CERTIFICATE OWNER, THE
FREQUENCY OF PREMIUM PAYMENTS CHOSEN BY A CERTIFICATE OWNER, AND THE
INVESTMENT EXPERIENCE OF THE CERTIFICATE'S SUB-ACCOUNTS. THE DEATH BENEFIT,
ACCOUNT VALUE AND CASH SURRENDER VALUE FOR A CERTIFICATE WOULD BE DIFFERENT
FROM THOSE SHOWN IF THE ACTUAL GROSS ANNUAL RATES OF RETURN AVERAGED 0%, 6%,
AND 12% OVER A PERIOD OF YEARS, BUT VARIED ABOVE OR BELOW THAT AVERAGE DURING
THE PERIOD. THEY WOULD ALSO BE DIFFERENT IF ANY CERTIFICATE LOAN WERE MADE
DURING THE PERIOD. NO REPRESENTATIONS CAN BE MADE BY MINNESOTA LIFE OR THE
FUNDS THAT THOSE HYPOTHETICAL RATES OF RETURN CAN BE ACHIEVED FOR ANY ONE
YEAR OR SUSTAINED OVER ANY PERIOD OF TIME.
DEATH BENEFIT OPTION B
ISSUE AGE 45
UNISEX
NONTOBACCO
FACE AMOUNT OF INSURANCE - $600,000
ANNUAL PREMIUM - $10,800
(MONTHLY PREMIUM - $900)(1)
USING CURRENT COST OF INSURANCE CHARGES*
[Enlarge/Download Table]
-Assuming Hypothetical Investment Returns Of -
0% Gross(2) 6% Gross(2) 12% Gross(2)
(-1.44% Net)(3) (4.47% Net)(3) (10.39% Net)(3)
End of Att Annual Account Death Account Death Account Death
Pol Yr Age Premium Value(4) Benefit Value(4) Benefit Value(4) Benefit
------ --- ------- --------- -------- -------- -------- ---------- ---------
1 46 10,800 8,748 608,748 9,029 609,029 9,306 609,306
2 47 10,800 17,299 617,299 18,389 618,389 19,502 619,502
3 48 10,800 25,584 625,584 28,020 628,020 30,606 630,606
4 49 10,800 33,678 633,678 38,008 638,008 42,787 642,787
5 50 10,800 41,584 641,584 48,369 648,369 56,157 656,157
6 51 10,800 49,233 649,233 59,046 659,046 70,764 670,764
7 52 10,800 56,558 656,558 69,980 669,980 86,661 686,661
8 53 10,800 63,563 663,563 81,182 681,182 103,982 703,982
9 54 10,800 70,182 670,182 92,590 692,590 122,797 722,797
10 55 10,800 76,348 676,348 104,140 704,140 143,187 743,187
15 60 10,800 98,297 698,297 161,689 761,689 272,297 872,297
20 65 10,800 102,862 702,862 215,014 815,014 462,816 1,062,816
25 70 10,800 86,798 686,798 257,988 857,988 748,177 1,348,177
30 75 10,800 11,656 611,656 243,586 843,586 1,139,417 1,739,417
35 80 10,800 0 600,000 102,431 702,431 1,638,241 2,238,241
40 85 10,800 0 600,000 0 600,000 2,214,860 2,814,860
45 90 10,800 0 600,000 0 600,000 2,863,847 3,463,847
50 95 10,800 0 600,000 0 600,000 3,520,286 4,120,286
(1) A premium payment of $900 is assumed to be paid monthly at the beginning
of each certificate month.
(2) Assumes that no certificate loans have been made, no withdrawals have
been made, that no transfer charges were incurred and that no optional riders
have been requested.
(3) The amounts shown for the hypothetical account value and death benefit as
of each certificate year reflect the fact that the net investment return on
the assets held in the sub-accounts is lower than the gross, after-tax
return. This is because expenses of the Fund are assessed against the net
assets of the Variable Universal Life Account and deducted from the gross
return.
(4) Based upon the assumptions made in the illustrations, the account value
is equal to the certificate surrender value.
*This illustration uses assumed cost of insurance charges for a
group-sponsored program. The actual cost of insurance charges of a
certificate depend on a variety of factors as described in the prospectus.
The initial assumed monthly cost of insurance (COI) rate per $1,000 of
insurance, for an attained age of 45, used for the purposes of this
illustration is $0.190. The cost of insurance charge will increase as the
insured ages.
IT IS EMPHASIZED THAT THE HYPOTHETICAL GROSS ANNUAL RATES OF RETURN SHOWN
ABOVE ARE ILLUSTRATIVE ONLY AND SHOULD NOT BE DEEMED A REPRESENTATION OF PAST
OR FUTURE GROSS ANNUAL RATES OF RETURN. ACTUAL GROSS 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 A CERTIFICATE OWNER, THE
FREQUENCY OF PREMIUM PAYMENTS CHOSEN BY A CERTIFICATE OWNER, AND THE
INVESTMENT EXPERIENCE OF THE CERTIFICATE'S SUB-ACCOUNTS. THE DEATH BENEFIT,
ACCOUNT VALUE AND CASH SURRENDER VALUE FOR A CERTIFICATE WOULD BE DIFFERENT
FROM THOSE SHOWN IF THE ACTUAL GROSS ANNUAL RATES OF RETURN AVERAGED 0%, 6%,
AND 12% OVER A PERIOD OF YEARS, BUT VARIED ABOVE OR BELOW THAT AVERAGE DURING
THE PERIOD. THEY WOULD ALSO BE DIFFERENT IF ANY CERTIFICATE LOAN WERE MADE
DURING THE PERIOD. NO REPRESENTATIONS CAN BE MADE BY MINNESOTA LIFE OR THE
FUNDS THAT THOSE HYPOTHETICAL RATES OF RETURN CAN BE ACHIEVED FOR ANY ONE
YEAR OR SUSTAINED OVER ANY PERIOD OF TIME.
DEATH BENEFIT OPTION B
ISSUE AGE 45
UNISEX
NONTOBACCO
FACE AMOUNT OF INSURANCE - $600,000
ANNUAL PREMIUM - $10,800
(MONTHLY PREMIUM - $900)(1)
USING MAXIMUM COST OF INSURANCE CHARGES - 1980 CSO
[Enlarge/Download Table]
-Assuming Hypothetical Investment Returns Of -
0% Gross(2) 6% Gross(2) 12% Gross(2)
(-1.44% Net)(3) (4.47% Net)(3) (10.39% Net)(3)
End of Att Annual Account Death Account Death Account Death
Pol Yr Age Premium Value(4) Benefit Value(4) Benefit Value(4) Benefit
------ --- ------- --------- -------- -------- -------- ---------- ----------
1 46 10,800 7,391 607,391 7,628 607,628 7,862 607,862
2 47 10,800 14,482 614,482 15,399 615,399 16,335 616,335
3 48 10,800 21,257 621,257 23,296 623,296 25,461 625,461
4 49 10,800 27,706 627,706 31,310 631,310 35,291 635,291
5 50 10,800 33,813 633,813 39,425 639,425 45,877 645,877
6 51 10,800 39,545 639,545 47,608 647,608 57,258 657,258
7 52 10,800 44,873 644,873 55,826 655,826 69,480 669,480
8 53 10,800 49,754 649,754 64,028 664,028 82,576 682,576
9 54 10,800 54,135 654,135 72,154 672,154 96,577 696,577
10 55 10,800 57,989 657,989 80,164 680,164 111,538 711,538
15 60 10,800 68,082 668,082 116,619 716,619 202,798 802,798
20 65 10,800 56,906 656,906 138,444 738,444 325,442 925,442
25 70 10,800 10,926 610,926 124,686 724,686 479,473 1,079,473
30 75 10,800 0 600,000 39,672 639,672 654,304 1,254,304
35 80 10,800 0 600,000 0 600,000 807,348 1,407,348
40 85 10,800 0 600,000 0 600,000 857,292 1,457,292
45 90 10,800 0 600,000 0 600,000 630,549 1,230,549
50 95 10,800 0 600,000 0 600,000 0 600,000
(1) A premium payment of $900 is assumed to be paid monthly at the beginning
of each certificate month.
(2) Assumes that no certificate loans have been made, no withdrawals have
been made, that no transfer charges were incurred and that no optional riders
have been requested.
(3) The amounts shown for the hypothetical account value and death benefit as
of each certificate year reflect the fact that the net investment return on
the assets held in the sub-accounts is lower than the gross, after-tax
return. This is because expenses of the Fund are assessed against the net
assets of the Variable Universal Life Account and deducted from the gross
return.
(4) Based upon the assumptions made in the illustrations, the account value
is equal to the certificate surrender value.
IT IS EMPHASIZED THAT THE HYPOTHETICAL GROSS ANNUAL RATES OF RETURN SHOWN
ABOVE ARE ILLUSTRATIVE ONLY AND SHOULD NOT BE DEEMED A REPRESENTATION OF PAST
OR FUTURE GROSS ANNUAL RATES OF RETURN. ACTUAL GROSS 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 A CERTIFICATE OWNER, THE
FREQUENCY OF PREMIUM PAYMENTS CHOSEN BY A CERTIFICATE OWNER, AND THE
INVESTMENT EXPERIENCE OF THE CERTIFICATE'S SUB-ACCOUNTS. THE DEATH BENEFIT,
ACCOUNT VALUE AND CASH SURRENDER VALUE FOR A CERTIFICATE WOULD BE DIFFERENT
FROM THOSE SHOWN IF THE ACTUAL GROSS ANNUAL RATES OF RETURN AVERAGED 0%, 6%,
AND 12% OVER A PERIOD OF YEARS, BUT VARIED ABOVE OR BELOW THAT AVERAGE DURING
THE PERIOD. THEY WOULD ALSO BE DIFFERENT IF ANY CERTIFICATE LOAN WERE MADE
DURING THE PERIOD. NO REPRESENTATIONS CAN BE MADE BY MINNESOTA LIFE OR THE
FUNDS THAT THOSE HYPOTHETICAL RATES OF RETURN CAN BE ACHIEVED FOR ANY ONE
YEAR OR SUSTAINED OVER ANY PERIOD OF TIME.
DEATH BENEFIT OPTION B
ISSUE AGE 45
UNISEX
NONTOBACCO
FACE AMOUNT OF INSURANCE - $600,000
ANNUAL PREMIUM - $10,800
(MONTHLY PREMIUM - $900)(1)
USING MAXIMUM COST OF INSURANCE CHARGES - 2001 CSO
[Enlarge/Download Table]
-Assuming Hypothetical Investment Returns Of -
0% Gross(2) 6% Gross(2) 12% Gross(2)
(-1.44% Net)(3) (4.47% Net)(3) (10.39% Net)(3)
End of Att Annual Account Death Account Death Account Death
Pol Yr Age Premium Value(4) Benefit Value(4) Benefit Value(4) Benefit
------ --- ------- --------- ------- -------- -------- --------- ---------
1 46 10,800 7,141 607,141 7,370 607,370 7,596 607,596
2 47 10,800 13,914 613,914 14,797 614,797 15,700 615,700
3 48 10,800 20,369 620,369 22,328 622,328 24,410 624,410
4 49 10,800 26,524 626,524 29,983 629,983 33,804 633,804
5 50 10,800 32,340 632,340 37,721 637,721 43,909 643,909
6 51 10,800 37,765 637,765 45,489 645,489 54,736 654,736
7 52 10,800 42,733 642,733 53,213 653,213 66,285 666,285
8 53 10,800 47,173 647,173 60,811 660,811 78,548 678,548
9 54 10,800 51,027 651,027 68,211 668,211 91,530 691,530
10 55 10,800 54,183 654,183 75,279 675,279 105,177 705,177
15 60 10,800 58,392 658,392 103,489 703,489 184,299 784,299
20 65 10,800 36,392 636,392 108,937 708,937 280,071 880,071
25 70 10,800 0 600,000 69,264 669,264 383,497 983,497
30 75 10,800 0 600,000 0 600,000 469,726 1,069,726
35 80 10,800 0 600,000 0 600,000 466,353 1,066,353
40 85 10,800 0 600,000 0 600,000 209,383 809,383
45 90 10,800 0 600,000 0 600,000 0 600,000
50 95 10,800 0 600,000 0 600,000 0 600,000
(1) A premium payment of $900 is assumed to be paid monthly at the beginning
of each certificate month.
(2) Assumes that no certificate loans have been made, no withdrawals have
been made, that no transfer charges were incurred and that no optional riders
have been requested.
(3) The amounts shown for the hypothetical account value and death benefit as
of each certificate year reflect the fact that the net investment return on
the assets held in the sub-accounts is lower than the gross, after-tax
return. This is because expenses of the Fund are assessed against the net
assets of the Variable Universal Life Account and deducted from the gross
return.
(4) Based upon the assumptions made in the illustrations, the account value
is equal to the certificate surrender value.
IT IS EMPHASIZED THAT THE HYPOTHETICAL GROSS ANNUAL RATES OF RETURN SHOWN
ABOVE ARE ILLUSTRATIVE ONLY AND SHOULD NOT BE DEEMED A REPRESENTATION OF PAST
OR FUTURE GROSS ANNUAL RATES OF RETURN. ACTUAL GROSS 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 A CERTIFICATE OWNER, THE
FREQUENCY OF PREMIUM PAYMENTS CHOSEN BY A CERTIFICATE OWNER, AND THE
INVESTMENT EXPERIENCE OF THE CERTIFICATE'S SUB-ACCOUNTS. THE DEATH BENEFIT,
ACCOUNT VALUE AND CASH SURRENDER VALUE FOR A CERTIFICATE WOULD BE DIFFERENT
FROM THOSE SHOWN IF THE ACTUAL GROSS ANNUAL RATES OF RETURN AVERAGED 0%, 6%,
AND 12% OVER A PERIOD OF YEARS, BUT VARIED ABOVE OR BELOW THAT AVERAGE DURING
THE PERIOD. THEY WOULD ALSO BE DIFFERENT IF ANY CERTIFICATE LOAN WERE MADE
DURING THE PERIOD. NO REPRESENTATIONS CAN BE MADE BY MINNESOTA LIFE OR THE
FUNDS THAT THOSE HYPOTHETICAL RATES OF RETURN CAN BE ACHIEVED FOR ANY ONE
YEAR OR SUSTAINED OVER ANY PERIOD OF TIME.
DEATH BENEFIT OPTION A
ISSUE AGE 55
UNISEX
NONTOBACCO
FACE AMOUNT OF INSURANCE - $600,000
ANNUAL PREMIUM - $18,000
(MONTHLY PREMIUM - $1,500)(1)
USING CURRENT COST OF INSURANCE CHARGES*
[Enlarge/Download Table]
-Assuming Hypothetical Investment Returns Of -
0% Gross(2) 6% Gross(2) 12% Gross(2)
(-1.44% Net)(3) (4.47% Net)(3) (10.39% Net)(3)
End of Att Annual Account Death Account Death Account Death
Pol Yr Age Premium Value(4) Benefit Value(4) Benefit Value(4) Benefit
------ --- ------- --------- ------- -------- ------- --------- ---------
1 56 18,000 13,558 600,000 13,994 600,000 14,423 600,000
2 57 18,000 26,442 600,000 28,126 600,000 29,847 600,000
3 58 18,000 38,752 600,000 42,501 600,000 46,486 600,000
4 59 18,000 50,444 600,000 57,089 600,000 64,436 600,000
5 60 18,000 61,480 600,000 71,863 600,000 83,817 600,000
6 61 18,000 71,886 600,000 86,867 600,000 104,834 600,000
7 62 18,000 81,626 600,000 102,084 600,000 127,665 600,000
8 63 18,000 90,725 600,000 117,564 600,000 152,579 600,000
9 64 18,000 99,204 600,000 133,361 600,000 179,885 600,000
10 65 18,000 107,025 600,000 149,474 600,000 209,889 600,000
15 70 18,000 135,573 600,000 236,092 600,000 416,417 600,000
20 75 18,000 115,675 600,000 317,860 600,000 772,414 811,035
25 80 18,000 0 600,000 384,582 600,000 1,351,554 1,419,131
30 85 18,000 0 600,000 423,270 600,000 2,247,218 2,359,579
35 90 18,000 0 600,000 404,297 600,000 3,594,568 3,774,296
40 95 18,000 0 600,000 6,442 600,000 5,732,213 5,789,535
(1) A premium payment of $1,500 is assumed to be paid monthly at the beginning
of each certificate month.
(2) Assumes that no certificate loans have been made, no withdrawals have
been made, that no transfer charges were incurred and that no optional riders
have been requested.
(3) The amounts shown for the hypothetical account value and death benefit as
of each certificate year reflect the fact that the net investment return on
the assets held in the sub-accounts is lower than the gross, after-tax
return. This is because expenses of the Fund are assessed against the net
assets of the Variable Universal Life Account and deducted from the gross
return.
(4) Based upon the assumptions made in the illustrations, the account value
is equal to the certificate surrender value.
*This illustration uses assumed cost of insurance charges for a
group-sponsored program. The actual cost of insurance charges of a
certificate depend on a variety of factors as described in the prospectus.
The initial assumed monthly cost of insurance (COI) rate per $1,000 of
insurance, for an attained age of 55, used for the purposes of this
illustration is $0.470. The cost of insurance charge will increase as the
insured ages.
IT IS EMPHASIZED THAT THE HYPOTHETICAL GROSS ANNUAL RATES OF RETURN SHOWN
ABOVE ARE ILLUSTRATIVE ONLY AND SHOULD NOT BE DEEMED A REPRESENTATION OF PAST
OR FUTURE GROSS ANNUAL RATES OF RETURN. ACTUAL GROSS 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 A CERTIFICATE OWNER, THE
FREQUENCY OF PREMIUM PAYMENTS CHOSEN BY A CERTIFICATE OWNER, AND THE
INVESTMENT EXPERIENCE OF THE CERTIFICATE'S SUB-ACCOUNTS. THE DEATH BENEFIT,
ACCOUNT VALUE AND CASH SURRENDER VALUE FOR A CERTIFICATE WOULD BE DIFFERENT
FROM THOSE SHOWN IF THE ACTUAL GROSS ANNUAL RATES OF RETURN AVERAGED 0%, 6%,
AND 12% OVER A PERIOD OF YEARS, BUT VARIED ABOVE OR BELOW THAT AVERAGE DURING
THE PERIOD. THEY WOULD ALSO BE DIFFERENT IF ANY CERTIFICATE LOAN WERE MADE
DURING THE PERIOD. NO REPRESENTATIONS CAN BE MADE BY MINNESOTA LIFE OR THE
FUNDS THAT THOSE HYPOTHETICAL RATES OF RETURN CAN BE ACHIEVED FOR ANY ONE
YEAR OR SUSTAINED OVER ANY PERIOD OF TIME.
DEATH BENEFIT OPTION A
ISSUE AGE 55
UNISEX
NONTOBACCO
FACE AMOUNT OF INSURANCE - $600,000
ANNUAL PREMIUM - $18,000
(MONTHLY PREMIUM - $1,500)(1)
USING MAXIMUM COST OF INSURANCE CHARGES - 1980 CSO
[Enlarge/Download Table]
-Assuming Hypothetical Investment Returns Of -
0% Gross(2) 6% Gross(2) 12% Gross(2)
(-1.44% Net)(3) (4.47% Net)(3) (10.39% Net)(3)
End of Att Annual Account Death Account Death Account Death
Pol Yr Age Premium Value(4) Benefit Value(4) Benefit Value(4) Benefit
------ --- ------- --------- ------- -------- ------- --------- ---------
1 56 18,000 10,801 600,000 11,149 600,000 11,491 600,000
2 57 18,000 21,013 600,000 22,356 600,000 23,728 600,000
3 58 18,000 30,622 600,000 33,610 600,000 36,786 600,000
4 59 18,000 39,601 600,000 44,887 600,000 50,737 600,000
5 60 18,000 47,897 600,000 56,140 600,000 65,643 600,000
6 61 18,000 55,453 600,000 67,314 600,000 81,574 600,000
7 62 18,000 62,189 600,000 78,338 600,000 98,603 600,000
8 63 18,000 67,983 600,000 89,096 600,000 116,780 600,000
9 64 18,000 72,718 600,000 99,478 600,000 136,189 600,000
10 65 18,000 76,287 600,000 109,386 600,000 156,961 600,000
15 70 18,000 72,783 600,000 148,531 600,000 289,685 600,000
20 75 18,000 9,730 600,000 150,721 600,000 513,976 600,000
25 80 18,000 0 600,000 45,281 600,000 928,625 975,056
30 85 18,000 0 600,000 0 600,000 1,576,734 1,655,571
35 90 18,000 0 600,000 0 600,000 2,550,879 2,678,422
40 95 18,000 0 600,000 0 600,000 4,097,519 4,138,495
(1) A premium payment of $1,500 is assumed to be paid monthly at the beginning
of each certificate month.
(2) Assumes that no certificate loans have been made, no withdrawals have
been made, that no transfer charges were incurred and that no optional riders
have been requested.
(3) The amounts shown for the hypothetical account value and death benefit as
of each certificate year reflect the fact that the net investment return on
the assets held in the sub-accounts is lower than the gross, after-tax
return. This is because expenses of the Fund are assessed against the net
assets of the Variable Universal Life Account and deducted from the gross
return.
(4) Based upon the assumptions made in the illustrations, the account value
is equal to the certificate surrender value.
IT IS EMPHASIZED THAT THE HYPOTHETICAL GROSS ANNUAL RATES OF RETURN SHOWN
ABOVE ARE ILLUSTRATIVE ONLY AND SHOULD NOT BE DEEMED A REPRESENTATION OF PAST
OR FUTURE GROSS ANNUAL RATES OF RETURN. ACTUAL GROSS 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 A CERTIFICATE OWNER, THE
FREQUENCY OF PREMIUM PAYMENTS CHOSEN BY A CERTIFICATE OWNER, AND THE
INVESTMENT EXPERIENCE OF THE CERTIFICATE'S SUB-ACCOUNTS. THE DEATH BENEFIT,
ACCOUNT VALUE AND CASH SURRENDER VALUE FOR A CERTIFICATE WOULD BE DIFFERENT
FROM THOSE SHOWN IF THE ACTUAL GROSS ANNUAL RATES OF RETURN AVERAGED 0%, 6%,
AND 12% OVER A PERIOD OF YEARS, BUT VARIED ABOVE OR BELOW THAT AVERAGE DURING
THE PERIOD. THEY WOULD ALSO BE DIFFERENT IF ANY CERTIFICATE LOAN WERE MADE
DURING THE PERIOD. NO REPRESENTATIONS CAN BE MADE BY MINNESOTA LIFE OR THE
FUNDS THAT THOSE HYPOTHETICAL RATES OF RETURN CAN BE ACHIEVED FOR ANY ONE
YEAR OR SUSTAINED OVER ANY PERIOD OF TIME.
DEATH BENEFIT OPTION A
ISSUE AGE 55
UNISEX
NONTOBACCO
FACE AMOUNT OF INSURANCE - $600,000
ANNUAL PREMIUM - $18,000
(MONTHLY PREMIUM - $1,500)(1)
USING MAXIMUM COST OF INSURANCE CHARGES - 2001 CSO
[Enlarge/Download Table]
-Assuming Hypothetical Investment Returns Of -
0% Gross(2) 6% Gross(2) 12% Gross(2)
(-1.44% Net)(3) (4.47% Net)(3) (10.39% Net)(3)
End of Att Annual Account Death Account Death Account Death
Pol Yr Age Premium Value(4) Benefit Value(4) Benefit Value(4) Benefit
------ --- ------- --------- ------- -------- ------- --------- ---------
1 56 18,000 9,862 600,000 10,179 600,000 10,491 600,000
2 57 18,000 18,956 600,000 20,176 600,000 21,423 600,000
3 58 18,000 27,320 600,000 30,019 600,000 32,890 600,000
4 59 18,000 34,970 600,000 39,718 600,000 44,979 600,000
5 60 18,000 41,828 600,000 49,192 600,000 57,699 600,000
6 61 18,000 47,754 600,000 58,293 600,000 71,001 600,000
7 62 18,000 52,577 600,000 66,842 600,000 84,818 600,000
8 63 18,000 56,142 600,000 74,666 600,000 99,104 600,000
9 64 18,000 58,349 600,000 81,650 600,000 113,892 600,000
10 65 18,000 59,122 600,000 87,700 600,000 129,259 600,000
15 70 18,000 38,103 600,000 99,871 600,000 219,600 600,000
20 75 18,000 0 600,000 48,791 600,000 348,005 600,000
25 80 18,000 0 600,000 0 600,000 585,714 615,000
30 85 18,000 0 600,000 0 600,000 1,028,362 1,079,780
35 90 18,000 0 600,000 0 600,000 1,681,868 1,765,962
40 95 18,000 0 600,000 0 600,000 2,711,635 2,738,751
(1) A premium payment of $1,500 is assumed to be paid monthly at the beginning
of each certificate month.
(2) Assumes that no certificate loans have been made, no withdrawals have
been made, that no transfer charges were incurred and that no optional riders
have been requested.
(3) The amounts shown for the hypothetical account value and death benefit as
of each certificate year reflect the fact that the net investment return on
the assets held in the sub-accounts is lower than the gross, after-tax
return. This is because expenses of the Fund are assessed against the net
assets of the Variable Universal Life Account and deducted from the gross
return.
(4) Based upon the assumptions made in the illustrations, the account value
is equal to the certificate surrender value.
IT IS EMPHASIZED THAT THE HYPOTHETICAL GROSS ANNUAL RATES OF RETURN SHOWN
ABOVE ARE ILLUSTRATIVE ONLY AND SHOULD NOT BE DEEMED A REPRESENTATION OF PAST
OR FUTURE GROSS ANNUAL RATES OF RETURN. ACTUAL GROSS 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 A CERTIFICATE OWNER, THE
FREQUENCY OF PREMIUM PAYMENTS CHOSEN BY A CERTIFICATE OWNER, AND THE
INVESTMENT EXPERIENCE OF THE CERTIFICATE'S SUB-ACCOUNTS. THE DEATH BENEFIT,
ACCOUNT VALUE AND CASH SURRENDER VALUE FOR A CERTIFICATE WOULD BE DIFFERENT
FROM THOSE SHOWN IF THE ACTUAL GROSS ANNUAL RATES OF RETURN AVERAGED 0%, 6%,
AND 12% OVER A PERIOD OF YEARS, BUT VARIED ABOVE OR BELOW THAT AVERAGE DURING
THE PERIOD. THEY WOULD ALSO BE DIFFERENT IF ANY CERTIFICATE LOAN WERE MADE
DURING THE PERIOD. NO REPRESENTATIONS CAN BE MADE BY MINNESOTA LIFE OR THE
FUNDS THAT THOSE HYPOTHETICAL RATES OF RETURN CAN BE ACHIEVED FOR ANY ONE
YEAR OR SUSTAINED OVER ANY PERIOD OF TIME.
DEATH BENEFIT OPTION B
ISSUE AGE 55
UNISEX
NONTOBACCO
FACE AMOUNT OF INSURANCE - $600,000
ANNUAL PREMIUM - $18,000
(MONTHLY PREMIUM - $1,500)(1)
USING CURRENT COST OF INSURANCE CHARGES*
[Enlarge/Download Table]
-Assuming Hypothetical Investment Returns Of -
0% Gross(2) 6% Gross(2) 12% Gross(2)
(-1.44% Net)(3) (4.47% Net)(3) (10.39% Net)(3)
End of Att Annual Account Death Account Death Account Death
Pol Yr Age Premium Value(4) Benefit Value(4) Benefit Value(4) Benefit
------ --- ------- --------- ------- -------- ------- --------- ---------
1 56 18,000 13,517 613,517 13,951 613,951 14,378 614,378
2 57 18,000 26,267 626,267 27,936 627,936 29,642 629,642
3 58 18,000 38,334 638,334 42,031 642,031 45,959 645,959
4 59 18,000 49,655 649,655 56,167 656,167 63,364 663,364
5 60 18,000 60,171 660,171 70,271 670,271 81,892 681,892
6 61 18,000 69,893 669,893 84,343 684,343 101,662 701,662
7 62 18,000 78,760 678,760 98,308 698,308 122,725 722,725
8 63 18,000 86,785 686,785 112,160 712,160 145,216 745,216
9 64 18,000 93,980 693,980 125,894 725,894 169,284 769,284
10 65 18,000 100,286 700,286 139,432 739,432 195,017 795,017
15 70 18,000 117,285 717,285 202,114 802,114 353,517 953,517
20 75 18,000 72,894 672,894 212,242 812,242 536,818 1,136,818
25 80 18,000 0 600,000 101,619 701,619 694,801 1,294,801
30 85 18,000 0 600,000 0 600,000 712,740 1,312,740
35 90 18,000 0 600,000 0 600,000 445,978 1,045,978
40 95 18,000 0 600,000 0 600,000 0 600,000
(1) A premium payment of $1,500 is assumed to be paid monthly at the beginning
of each certificate month.
(2) Assumes that no certificate loans have been made, no withdrawals have
been made, that no transfer charges were incurred and that no optional riders
have been requested.
(3) The amounts shown for the hypothetical account value and death benefit as
of each certificate year reflect the fact that the net investment return on
the assets held in the sub-accounts is lower than the gross, after-tax
return. This is because expenses of the Fund are assessed against the net
assets of the Variable Universal Life Account and deducted from the gross
return.
(4) Based upon the assumptions made in the illustrations, the account value
is equal to the certificate surrender value.
*This illustration uses assumed cost of insurance charges for a
group-sponsored program. The actual cost of insurance charges of a
certificate depend on a variety of factors as described in the prospectus.
The initial assumed monthly cost of insurance (COI) rate per $1,000 of
insurance, for an attained age of 55, used for the purposes of this
illustration is $0.470. The cost of insurance charge will increase as the
insured ages.
IT IS EMPHASIZED THAT THE HYPOTHETICAL GROSS ANNUAL RATES OF RETURN SHOWN
ABOVE ARE ILLUSTRATIVE ONLY AND SHOULD NOT BE DEEMED A REPRESENTATION OF PAST
OR FUTURE GROSS ANNUAL RATES OF RETURN. ACTUAL GROSS 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 A CERTIFICATE OWNER, THE
FREQUENCY OF PREMIUM PAYMENTS CHOSEN BY A CERTIFICATE OWNER, AND THE
INVESTMENT EXPERIENCE OF THE CERTIFICATE'S SUB-ACCOUNTS. THE DEATH BENEFIT,
ACCOUNT VALUE AND CASH SURRENDER VALUE FOR A CERTIFICATE WOULD BE DIFFERENT
FROM THOSE SHOWN IF THE ACTUAL GROSS ANNUAL RATES OF RETURN AVERAGED 0%, 6%,
AND 12% OVER A PERIOD OF YEARS, BUT VARIED ABOVE OR BELOW THAT AVERAGE DURING
THE PERIOD. THEY WOULD ALSO BE DIFFERENT IF ANY CERTIFICATE LOAN WERE MADE
DURING THE PERIOD. NO REPRESENTATIONS CAN BE MADE BY MINNESOTA LIFE OR THE
FUNDS THAT THOSE HYPOTHETICAL RATES OF RETURN CAN BE ACHIEVED FOR ANY ONE
YEAR OR SUSTAINED OVER ANY PERIOD OF TIME.
DEATH BENEFIT OPTION B
ISSUE AGE 55
UNISEX
NONTOBACCO
FACE AMOUNT OF INSURANCE - $600,000
ANNUAL PREMIUM - $18,000
(MONTHLY PREMIUM - $1,500)(1)
USING MAXIMUM COST OF INSURANCE CHARGES - 1980 CSO
[Enlarge/Download Table]
-Assuming Hypothetical Investment Returns Of -
0% Gross(2) 6% Gross(2) 12% Gross(2)
(-1.44% Net)(3) (4.47% Net)(3) (10.39% Net)(3)
End of Att Annual Account Death Account Death Account Death
Pol Yr Age Premium Value(4) Benefit Value(4) Benefit Value(4) Benefit
------ --- ------- --------- ------- -------- ------- --------- ---------
1 56 18,000 10,745 610,745 11,090 611,090 11,430 611,430
2 57 18,000 20,785 620,785 22,109 622,109 23,461 623,461
3 58 18,000 30,094 630,094 33,016 633,016 36,120 636,120
4 59 18,000 38,634 638,634 43,754 643,754 49,417 649,417
5 60 18,000 46,337 646,337 54,236 654,236 63,336 663,336
6 61 18,000 53,129 653,129 64,361 664,361 77,849 677,849
7 62 18,000 58,915 658,915 74,003 674,003 92,905 692,905
8 63 18,000 63,554 663,554 82,977 682,977 108,393 708,393
9 64 18,000 66,912 666,912 91,100 691,100 124,198 724,198
10 65 18,000 68,871 668,871 98,192 698,192 140,208 740,208
15 70 18,000 54,243 654,243 111,981 711,981 219,215 819,215
20 75 18,000 0 600,000 61,252 661,252 271,071 871,071
25 80 18,000 0 600,000 0 600,000 222,543 822,543
30 85 18,000 0 600,000 0 600,000 0 600,000
35 90 18,000 0 600,000 0 600,000 0 600,000
40 95 18,000 0 600,000 0 600,000 0 600,000
(1) A premium payment of $1,500 is assumed to be paid monthly at the beginning
of each certificate month.
(2) Assumes that no certificate loans have been made, no withdrawals have
been made, that no transfer charges were incurred and that no optional riders
have been requested.
(3) The amounts shown for the hypothetical account value and death benefit as
of each certificate year reflect the fact that the net investment return on
the assets held in the sub-accounts is lower than the gross, after-tax
return. This is because expenses of the Fund are assessed against the net
assets of the Variable Universal Life Account and deducted from the gross
return.
(4) Based upon the assumptions made in the illustrations, the account value
is equal to the certificate surrender value.
IT IS EMPHASIZED THAT THE HYPOTHETICAL GROSS ANNUAL RATES OF RETURN SHOWN
ABOVE ARE ILLUSTRATIVE ONLY AND SHOULD NOT BE DEEMED A REPRESENTATION OF PAST
OR FUTURE GROSS ANNUAL RATES OF RETURN. ACTUAL GROSS 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 A CERTIFICATE OWNER, THE
FREQUENCY OF PREMIUM PAYMENTS CHOSEN BY A CERTIFICATE OWNER, AND THE
INVESTMENT EXPERIENCE OF THE CERTIFICATE'S SUB-ACCOUNTS. THE DEATH BENEFIT,
ACCOUNT VALUE AND CASH SURRENDER VALUE FOR A CERTIFICATE WOULD BE DIFFERENT
FROM THOSE SHOWN IF THE ACTUAL GROSS ANNUAL RATES OF RETURN AVERAGED 0%, 6%,
AND 12% OVER A PERIOD OF YEARS, BUT VARIED ABOVE OR BELOW THAT AVERAGE DURING
THE PERIOD. THEY WOULD ALSO BE DIFFERENT IF ANY CERTIFICATE LOAN WERE MADE
DURING THE PERIOD. NO REPRESENTATIONS CAN BE MADE BY MINNESOTA LIFE OR THE
FUNDS THAT THOSE HYPOTHETICAL RATES OF RETURN CAN BE ACHIEVED FOR ANY ONE
YEAR OR SUSTAINED OVER ANY PERIOD OF TIME.
DEATH BENEFIT OPTION B
ISSUE AGE 55
UNISEX
NONTOBACCO
FACE AMOUNT OF INSURANCE - $600,000
ANNUAL PREMIUM - $18,000
(MONTHLY PREMIUM - $1,500)(1)
USING MAXIMUM COST OF INSURANCE CHARGES - 2001 CSO
[Enlarge/Download Table]
-Assuming Hypothetical Investment Returns Of -
0% Gross(2) 6% Gross(2) 12% Gross(2)
(-1.44% Net)(3) (4.47% Net)(3) (10.39% Net)(3)
End of Att Annual Account Death Account Death Account Death
Pol Yr Age Premium Value(4) Benefit Value(4) Benefit Value(4) Benefit
------ --- ------- --------- ------- -------- ------- --------- ---------
1 56 18,000 9,802 609,802 10,117 610,117 10,426 610,426
2 57 18,000 18,712 618,712 19,912 619,912 21,138 621,138
3 58 18,000 26,759 626,759 29,386 629,386 32,180 632,180
4 59 18,000 33,947 633,947 38,517 638,517 43,578 643,578
5 60 18,000 40,188 640,188 47,187 647,187 55,264 655,264
6 61 18,000 45,325 645,325 55,198 655,198 67,085 667,085
7 62 18,000 49,174 649,174 62,313 662,313 78,842 678,842
8 63 18,000 51,567 651,567 68,302 668,302 90,331 690,331
9 64 18,000 52,411 652,411 72,995 672,995 101,402 701,402
10 65 18,000 51,650 651,650 76,255 676,255 111,929 711,929
15 70 18,000 22,074 622,074 65,980 665,980 151,255 751,255
20 75 18,000 0 600,000 0 600,000 132,415 732,415
25 80 18,000 0 600,000 0 600,000 0 600,000
30 85 18,000 0 600,000 0 600,000 0 600,000
35 90 18,000 0 600,000 0 600,000 0 600,000
40 95 18,000 0 600,000 0 600,000 0 600,000
(1) A premium payment of $1,500 is assumed to be paid monthly at the beginning
of each certificate month.
(2) Assumes that no certificate loans have been made, no withdrawals have
been made, that no transfer charges were incurred and that no optional riders
have been requested.
(3) The amounts shown for the hypothetical account value and death benefit as
of each certificate year reflect the fact that the net investment return on
the assets held in the sub-accounts is lower than the gross, after-tax
return. This is because expenses of the Fund are assessed against the net
assets of the Variable Universal Life Account and deducted from the gross
return.
(4) Based upon the assumptions made in the illustrations, the account value
is equal to the certificate surrender value.
IT IS EMPHASIZED THAT THE HYPOTHETICAL GROSS ANNUAL RATES OF RETURN SHOWN
ABOVE ARE ILLUSTRATIVE ONLY AND SHOULD NOT BE DEEMED A REPRESENTATION OF PAST
OR FUTURE GROSS ANNUAL RATES OF RETURN. ACTUAL GROSS 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 A CERTIFICATE OWNER, THE
FREQUENCY OF PREMIUM PAYMENTS CHOSEN BY A CERTIFICATE OWNER, AND THE
INVESTMENT EXPERIENCE OF THE CERTIFICATE'S SUB-ACCOUNTS. THE DEATH BENEFIT,
ACCOUNT VALUE AND CASH SURRENDER VALUE FOR A CERTIFICATE WOULD BE DIFFERENT
FROM THOSE SHOWN IF THE ACTUAL GROSS ANNUAL RATES OF RETURN AVERAGED 0%, 6%,
AND 12% OVER A PERIOD OF YEARS, BUT VARIED ABOVE OR BELOW THAT AVERAGE DURING
THE PERIOD. THEY WOULD ALSO BE DIFFERENT IF ANY CERTIFICATE LOAN WERE MADE
DURING THE PERIOD. NO REPRESENTATIONS CAN BE MADE BY MINNESOTA LIFE OR THE
FUNDS THAT THOSE HYPOTHETICAL RATES OF RETURN CAN BE ACHIEVED FOR ANY ONE
YEAR OR SUSTAINED OVER ANY PERIOD OF TIME.
FINANCIAL STATEMENTS
The consolidated financial statements and supplementary schedules of
Minnesota Life Insurance Company (the Company) and subsidiaries and the
financial statements of the Minnesota Life Variable Universal Life Account
included herein have been audited by our independent registered public
accounting firm, KPMG LLP, 4200 Wells Fargo Center, 90 South Seventh Street,
Minneapolis, Minnesota 55402, whose reports thereon appear elsewhere herein,
and have been so included in reliance upon the reports of KPMG LLP and upon
the authority of said firm as experts in accounting and auditing.
The audit report covering the December 31, 2009 consolidated financial
statements and supplementary schedules of the Company refers to a change in
the method of accounting for other-than temporary impairments of fixed
maturity investment securities.
REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM
The Board of Directors of Minnesota Life Insurance Company and Policy Owners
of Minnesota Life Variable Universal Life Account:
We have audited the accompanying statements of assets and liabilities of the
sub-accounts of Minnesota Life Variable Universal Life Account (the Variable
Account) as of December 31, 2009, and the related statements of operations
for the year or period then ended, the statements of changes in net assets
for each of the years or periods in the two-year period then ended, and the
financial highlights for each of the years or periods in the five-year period
then ended. These financial statements and financial highlights are the
responsibility of the Variable Account's management. Our responsibility is
to express an opinion on these financial statements and financial highlights
based on our audits.
We conducted our audits in accordance with the standards of the Public
Company Accounting Oversight Board (United States). Those standards require
that we plan and perform the audit to obtain reasonable assurance about
whether the financial statements and financial highlights are free of
material misstatement. An audit includes examining, on a test basis,
evidence supporting the amounts and disclosures in the financial statements.
Investments owned at December 31, 2009 were confirmed to us by the respective
sub-account mutual fund, or for Advantus Series Fund, Inc., verified by
examination of the underlying portfolios. An audit also includes assessing
the accounting principles used and significant estimates made by management,
as well as evaluating the overall financial statement presentation. We
believe that our audits provide a reasonable basis for our opinion.
In our opinion, the financial statements and financial highlights referred to
above present fairly, in all material respects, the assets and liabilities of
the sub-accounts of Minnesota Life Variable Universal Life Account as of
December 31, 2009, the results of its operations for the year or period then
ended, the changes in its net assets for each of the years or periods in the
two-year period then ended, and the financial highlights for each of the
years or periods in the five-year period then ended, in conformity with U.S.
generally accepted accounting principles.
/s/ KPMG LLP
Minneapolis, Minnesota
April 9, 2010
MINNESOTA LIFE VARIABLE UNIVERSAL LIFE ACCOUNT
STATEMENTS OF ASSETS AND LIABILITIES
DECEMBER 31, 2009
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SEGREGATED SUB-ACCOUNTS
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ADVANTUS ADVANTUS ADVANTUS ADVANTUS ADVANTUS
ADVANTUS ADVANTUS INDEX MORTGAGE INTERNATIONAL INDEX 400 REAL ESTATE
BOND MONEY 500 SECURITIES BOND MID-CAP SECURITIES
CLASS 2 MARKET CLASS 2 CLASS 2 CLASS 2 CLASS 2 CLASS 2
---------- --------- ---------- ---------- ------------- ---------- -----------
ASSETS
Investments in shares of Advantus Series
Fund, Inc.:
Bond Portfolio Class 2, 5,732,065 shares
at net asset value of $1.58 per share
(cost $8,748,295) $9,049,447 -- -- -- -- -- --
Money Market Portfolio, 5,114,271 shares
at net asset value of $1.00 per share
(cost $5,114,103) -- 5,114,103 -- -- -- -- --
Index 500 Portfolio Class 2, 18,029,473
shares at net asset value of $3.82 per
share (cost $69,249,093) -- -- 68,668,819 -- -- -- --
Mortgage Securities Portfolio Class 2,
388,368 shares at net asset value
of $1.48 per share (cost $576,064) -- -- -- 574,284 -- -- --
International Bond Portfolio Class 2,
572,354 shares at net asset value
of $1.85 per share (cost $900,221) -- -- -- -- 1,057,787 -- --
Index 400 Mid-Cap Portfolio Class 2,
12,337,719 shares at net asset value
of $1.72 per share (cost $20,756,323) -- -- -- -- -- 21,137,548 --
Real Estate Securities Portfolio Class 2,
773,778 shares at net asset value
of $1.92 per share (cost $1,471,494) -- -- -- -- -- -- 1,482,118
---------- --------- ---------- ------- --------- ---------- ---------
9,049,447 5,114,103 68,668,819 574,284 1,057,787 21,137,548 1,482,118
Receivable from Minnesota Life for Policy
purchase payments 79,549 21,317 71,812 3,376 -- 114,179 22,896
Receivable for investments sold -- -- -- -- 1,370 -- --
---------- --------- ---------- ------- --------- ---------- ---------
Total assets 9,128,996 5,135,420 68,740,631 577,660 1,059,157 21,251,727 1,505,014
---------- --------- ---------- ------- --------- ---------- ---------
LIABILITIES
Payable to Minnesota Life for Policy
terminations, withdrawal payments and
mortality and expense charges -- -- -- -- 1,370 -- --
Payable for investments purchased 79,549 21,317 71,812 3,376 -- 114,179 22,896
---------- --------- ---------- ------- --------- ---------- ---------
Total liabilities 79,549 21,317 71,812 3,376 1,370 114,179 22,896
---------- --------- ---------- ------- --------- ---------- ---------
Net assets applicable to Policy
owners $9,049,447 5,114,103 68,668,819 574,284 1,057,787 21,137,548 1,482,118
========== ========= ========== ======= ========= ========== =========
POLICY OWNERS' EQUITY
Total Policy Owners' equity
(notes 6 and 7) $9,049,447 5,114,103 68,668,819 574,284 1,057,787 21,137,548 1,482,118
========== ========= ========== ======= ========= ========== =========
See accompanying notes to financial statements.
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SEGREGATED SUB-ACCOUNTS
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FIDELITY
BLACK ROCK FIDELITY VIP FIDELITY VIP FIDELITY VIP VIP ASSET
GLOBAL FIDELITY VIP GROWTH & EQUITY- FIDELITY VIP ASSET MANAGER
GROWTH V.I. CONTRAFUND INCOME INCOME HIGH INCOME MANAGER GROWTH
----------- ------------ ------------ ------------ ------------ ------------ ----------
ASSETS
Investments in shares of Black Rock.:
Global Growth V.I. Fund, shares at net
asset value of $0.00 per share
(cost $0) $-- -- -- -- -- -- --
Investments in shares of the Fidelity
Variable Insurance Products Fund:
Contrafund Portfolio, 234,606 shares at
net asset value of $20.62 per share
(cost $5,038,846) -- 4,837,579 -- -- -- -- --
Growth & Income Portfolio, 73,331 shares
at net asset value of $11.07 per share
(cost $755,751) -- -- 811,773 -- -- -- --
Equity-Income Portfolio, 133,385 shares
at net asset value of $16.81 per share
(cost $3,055,271) -- -- -- 2,242,203 -- -- --
High Income Portfolio, 203,674 shares at
net asset value of $5.29 per share
(cost $1,092,026) -- -- -- -- 1,077,434 -- --
Asset Manager Portfolio, 25,827 shares at
net asset value of $13.00 per share
(cost $315,289) -- -- -- -- -- 335,748 --
Asset Manager Growth Portfolio, 64,571
shares at net asset value of $12.66
per share (cost $805,156) -- -- -- -- -- -- 817,465
--- --------- ------- --------- --------- ------- -------
-- 4,837,579 811,773 2,242,203 1,077,434 335,748 817,465
Receivable from Minnesota Life for Policy
purchase payments -- -- 794 -- -- 56 531
Receivable for investments sold -- 17,907 -- 23,838 490 -- --
--- --------- ------- --------- --------- ------- -------
Total assets -- 4,855,486 812,567 2,266,041 1,077,924 335,804 817,996
--- --------- ------- --------- --------- ------- -------
LIABILITIES
Payable to Minnesota Life for Policy
terminations, withdrawal payments and
mortality and expense charges -- 17,907 -- 23,838 490 -- --
Payable for investments purchased -- -- 794 -- -- 56 531
--- --------- ------- --------- --------- ------- -------
Total liabilities -- 17,907 794 23,838 490 56 531
--- --------- ------- --------- --------- ------- -------
Net assets applicable to Policy
owners $-- 4,837,579 811,773 2,242,203 1,077,434 335,748 817,465
=== ========= ======= ========= ========= ======= =======
POLICY OWNERS' EQUITY
Total Policy Owners' equity
(notes 6 and 7) $-- 4,837,579 811,773 2,242,203 1,077,434 335,748 817,465
=== ========= ======= ========= ========= ======= =======
See accompanying notes to financial statements.
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FIDELITY VIP FIDELITY VIP FIDELITY FIDELITY
FIDELITY VIP FIDELITY VIP GROWTH FIDELITY VIP INVESTMENT VIP VIP MONEY
BALANCED GROWTH OPPORTUNITIES INDEX 500 GRADE BOND MID-CAP MARKET
------------ ------------ ------------- ------------ ------------ --------- ---------
ASSETS
Investments in shares of the Fidelity
Variable Insurance Products Fund:
Balanced Portfolio, 23,903 shares at net
asset value of $13.41 per share
(cost $264,427) $320,535 -- -- -- -- -- --
Growth Portfolio, 120,943 shares at net
asset value of $30.04 per share
(cost $3,914,023) -- 3,633,138 -- -- -- -- --
Growth Opportunities Portfolio, 63,449
shares at net asset value of $14.51
per share (cost $808,199) -- -- 920,651 -- -- -- --
Index 500 Portfolio, 14,246 shares at net
asset value of $119.62 per share
(cost $1,635,351) -- -- -- 1,704,135 -- -- --
Investment Grade Bond Portfolio, 47,642
shares at net asset value of $12.48
per share (cost $582,233) -- -- -- -- 594,574 -- --
Mid-Cap Fund, 170,557 shares at net asset
value of $25.54 per share
(cost $4,668,986) -- -- -- -- -- 4,356,023 --
Money Market Portfolio, 1,049,757 shares
at net asset value of $1.00 per share
(cost $1,049,757) -- -- -- -- -- -- 1,049,757
-------- --------- ------- --------- ------- --------- ---------
320,535 3,633,138 920,651 1,704,135 594,574 4,356,023 1,049,757
Receivable from Minnesota Life for Policy
purchase payments 191 -- 538 308 117 -- 2,605
Receivable for investments sold -- 1,114 -- -- -- 1,793 --
-------- --------- ------- --------- ------- --------- ---------
Total assets 320,726 3,634,252 921,189 1,704,443 594,691 4,357,816 1,052,362
-------- --------- ------- --------- ------- --------- ---------
LIABILITIES
Payable to Minnesota Life for Policy
terminations, withdrawal payments and
mortality and expense charges -- 1,114 -- -- -- 1,793 --
Payable for investments purchased 191 -- 538 308 117 -- 2,605
-------- --------- ------- --------- ------- --------- ---------
Total liabilities 191 1,114 538 308 117 1,793 2,605
-------- --------- ------- --------- ------- --------- ---------
Net assets applicable to Policy
owners $320,535 3,633,138 920,651 1,704,135 594,574 4,356,023 1,049,757
======== ========= ======= ========= ======= ========= =========
POLICY OWNERS' EQUITY
Total Policy Owners' equity
(notes 6 and 7) $320,535 3,633,138 920,651 1,704,135 594,574 4,356,023 1,049,757
======== ========= ======= ========= ======= ========= =========
See accompanying notes to financial statements.
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SEGREGATED SUB-ACCOUNTS
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FIDELITY VIP FIDELITY VIP FIDELITY VIP FIDELITY FIDELITY
FIDELITY VIP AGGRESSIVE DYNAMIC CAPITAL FIDELITY VIP VALUE VIP GROWTH VIP REAL
OVERSEAS GROWTH APPRECIATION VALUE STRATEGY STOCK ESTATE
------------ ------------ --------------- ------------ ------------ ---------- --------
ASSETS
Investments in shares of the Fidelity
Variable Insurance Products Fund:
Overseas Portfolio, 176,070 shares at
net asset value of $15.05 per share
(cost $3,216,884) $2,649,847 -- -- -- -- -- --
Aggressive Growth Portfolio, 22,473
shares at net asset value of $7.21
per share (cost $128,704) -- 162,032 -- -- -- -- --
Dynamic Capital Appreciation Portfolio,
27,296 shares at net asset value of
$7.17 per share (cost $204,647) -- -- 195,710 -- -- -- --
Value Portfolio, 8,156 shares at net
asset value of $9.47 per share
(cost $58,754) -- -- -- 77,237 -- -- --
Value Strategy Portfolio, 18,410 shares
at net asset value of $7.73 per share
(cost $131,472) -- -- -- -- 142,312 -- --
Growth Stock Portfolio, 3,600 shares at
net asset value of $11.27 per share
(cost $32,285) -- -- -- -- -- 40,576 --
Real Estate Portfolio, 13,703 shares at
net asset value of $10.93 per share
(cost $107,482) -- -- -- -- -- -- 149,775
---------- ------- ------- ------ ------- ------ -------
2,649,847 162,032 195,710 77,237 142,312 40,576 149,775
Receivable from Minnesota Life for Policy
purchase payments -- 89 -- 5 -- -- --
Receivable for investments sold 2,808 -- 1 -- 1 -- 1
---------- ------- ------- ------ ------- ------ -------
Total assets 2,652,655 162,121 195,711 77,242 142,313 40,576 149,776
---------- ------- ------- ------ ------- ------ -------
LIABILITIES
Payable to Minnesota Life for Policy
terminations, withdrawal payments and
mortality and expense charges 2,808 -- 1 -- 1 -- 1
Payable for investments purchased -- 89 -- 5 -- -- --
---------- ------- ------- ------ ------- ------ -------
Total liabilities 2,808 89 1 5 1 -- 1
---------- ------- ------- ------ ------- ------ -------
Net assets applicable to Policy
owners $2,649,847 162,032 195,710 77,237 142,312 40,576 149,775
========== ======= ======= ====== ======= ====== =======
POLICY OWNERS' EQUITY
Total Policy Owners' equity
(notes 6 and 7) $2,649,847 162,032 195,710 77,237 142,312 40,576 149,775
========== ======= ======= ====== ======= ====== =======
See accompanying notes to financial statements.
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SEGREGATED SUB-ACCOUNTS
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FIDELITY VIP FIDELITY VIP FIDELITY
STRATEGIC INTL CAPITAL VIP VALUE FIDELITY VIP FIDELITY VIP FIDELITY VIP FIDELITY VIP
INCOME APPRECIATION LEADERS FREEDOM 2010 FREEDOM 2015 FREEDOM 2020 FREEDOM 2025
------------ ------------ --------- ------------ ------------ ------------ ------------
ASSETS
Investments in shares of the Fidelity
Variable Insurance Products Fund:
Strategic Income Portfolio, 9,748 shares
at net asset value of $11.11 per share
(cost $99,045) $108,298 -- -- -- -- -- --
Intl Capital Appreciation Portfolio,
18,543 shares at net asset value of
$8.60 per share (cost $132,181) -- 159,471 -- -- -- -- --
Value Leaders Portfolio, 1,207 shares at
net asset value of $9.42 per share
(cost $8,777) -- -- 11,366 -- -- -- --
Freedom 2010 Portfolio, 1,009 shares at
net asset value of $9.77 per share
(cost $9,049) -- -- -- 9,860 -- -- --
Freedom 2015 Portfolio, 668 shares at net
asset value of $9.78 per share
(cost $5,747) -- -- -- -- 6,534 -- --
Freedom 2020 Portfolio, 1,974 shares at
net asset value of $9.52 per share
(cost $16,704) -- -- -- -- -- 18,794 --
Freedom 2025 Portfolio, 1,740 shares at
net asset value of $9.30 per share
(cost $14,381) -- -- -- -- -- -- 16,182
-------- ------- ------ ----- ----- ------ ------
108,298 159,471 11,366 9,860 6,534 18,794 16,182
Receivable from Minnesota Life for Policy
purchase payments -- -- -- -- -- -- --
Receivable for investments sold 1 1 -- -- -- -- --
-------- ------- ------ ----- ----- ------ ------
Total assets 108,299 159,472 11,366 9,860 6,534 18,794 16,182
-------- ------- ------ ----- ----- ------ ------
LIABILITIES
Payable to Minnesota Life for Policy
terminations, withdrawal payments and
mortality and expense charges 1 1 -- -- -- -- --
Payable for investments purchased -- -- -- -- -- -- --
-------- ------- ------ ----- ----- ------ ------
Total liabilities 1 1 -- -- -- -- --
-------- ------- ------ ----- ----- ------ ------
Net assets applicable to Policy
owners $108,298 159,471 11,366 9,860 6,534 18,794 16,182
======== ======= ====== ===== ===== ====== ======
POLICY OWNERS' EQUITY
Total Policy Owners' equity
(notes 6 and 7) $108,298 159,471 11,366 9,860 6,534 18,794 16,182
======== ======= ====== ===== ===== ====== ======
See accompanying notes to financial statements.
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SEGREGATED SUB-ACCOUNTS
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FIDELITY
VIP FIDELITY VIP FIDELITY VIP
FIDELITY VIP FREEDOM DISCIPLINED EMERGING FIDELITY VIP FIDELITY VIP FIDELITY VIP
FREEDOM 2030 INCOME SMALL CAP MARKETS FREEDOM 2035 FREEDOM 2040 FREEDOM 2045
------------ -------- ------------ ------------ ------------ ------------ ------------
ASSETS
Investments in shares of the Fidelity
Variable Insurance Products Fund:
Freedom 2030 Portfolio, 10,463 shares at
net asset value of $9.03 per share
(cost $78,723) $94,483 -- -- -- -- -- --
Freedom Income Portfolio, 1,013 shares at
net asset value of $10.00 per share
(cost $9,645) -- 10,131 -- -- -- -- --
Disciplined Small Cap Portfolio, 5,528
shares at net asset value of $8.91 per
share (cost $42,625) -- -- 49,255 -- -- -- --
Emerging Markets, 16,285 shares at net
asset value of $8.51 per share
(cost $117,396) -- -- -- 138,585 -- -- --
Freedom 2035 Portfolio, 303 shares at net
asset value of $13.74 per share
(cost $3,306) -- -- -- -- 4,160 -- --
Freedom 2040 Portfolio, 302 shares at net
asset value of $13.82 per share
(cost $3,360) -- -- -- -- -- 4,170 --
Freedom 2045 Portfolio, 287 shares at net
asset value of $13.86 per share
(cost $3,090) -- -- -- -- -- -- 3,973
------- ------ ------ ------- ----- ----- -----
94,483 10,131 49,255 138,585 4,160 4,170 3,973
Receivable from Minnesota Life for Policy
purchase payments -- -- -- 365 -- -- --
Receivable for investments sold 1 -- -- -- -- -- --
------- ------ ------ ------- ----- ----- -----
Total assets 94,484 10,131 49,255 138,950 4,160 4,170 3,973
------- ------ ------ ------- ----- ----- -----
LIABILITIES
Payable to Minnesota Life for Policy
terminations, withdrawal payments and
mortality and expense charges 1 -- -- -- -- -- --
Payable for investments purchased -- -- -- 365 -- -- --
------- ------ ------ ------- ----- ----- -----
Total liabilities 1 -- -- 365 -- -- --
------- ------ ------ ------- ----- ----- -----
Net assets applicable to Policy
owners $94,483 10,131 49,255 138,585 4,160 4,170 3,973
======= ====== ====== ======= ===== ===== =====
POLICY OWNERS' EQUITY
Total Policy Owners' equity
(notes 6 and 7) $94,483 10,131 49,255 138,585 4,160 4,170 3,973
======= ====== ====== ======= ===== ===== =====
See accompanying notes to financial statements.
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FIDELITY VIP FIDELITY VIP FIDELITY VIP FIDELITY VIP FIDELITY VIP JANUS
FIDELITY VIP FUNDS FUNDS FUNDS FUNDS FUNDS ASPEN
FREEDOM 2050 MANAGER 20% MANAGER 50% MANAGER 60% MANAGER 70% MANAGER 85% FORTY
------------ ------------ ------------ ------------ ------------ ------------ ------
ASSETS
Investments in shares of the Fidelity
Variable Insurance Products Fund:
Freedom 2050 Portfolio, 1,156 shares at
net asset value of $14.01 per share
(cost $14,208) $16,200 -- -- -- -- -- --
Funds Manager 20% Portfolio, 386 shares
at net asset value of $10.07 per share
(cost $3,823) -- 3,889 -- -- -- -- --
Funds Manager 50% Portfolio, 409 shares
at net asset value of $9.11 per share
(cost $3,287) -- -- 3,729 -- -- -- --
Funds Manager 60% Portfolio, 461 shares
at net asset value of $8.83 per share
(cost $3,489) -- -- -- 4,075 -- -- --
Funds Manager 70% Portfolio, 2,075 shares
at net asset value of $8.42 per share
(cost $16,847) -- -- -- -- 17,469 -- --
Funds Manager 85% Portfolio, 10,828
shares at net asset value of $8.02 per
share (cost $71,531) -- -- -- -- -- 86,844 --
Investments in shares of the Janus Aspen
Series:
Forty Portfolio, 4,346 shares at net
asset value of $33.17 per share
(cost $128,784) -- -- -- -- -- -- 144,173
------- ----- ----- ----- ------ ------ -------
16,200 3,889 3,729 4,075 17,469 86,844 144,173
Receivable from Minnesota Life for Policy
purchase payments -- -- -- -- -- -- --
Receivable for investments sold -- -- -- -- -- 1 2,252
------- ----- ----- ----- ------ ------ -------
Total assets 16,200 3,889 3,729 4,075 17,469 86,845 146,425
------- ----- ----- ----- ------ ------ -------
LIABILITIES
Payable to Minnesota Life for Policy
terminations, withdrawal payments and
mortality and expense charges -- -- -- -- -- 1 2,252
Payable for investments purchased -- -- -- -- -- -- --
------- ----- ----- ----- ------ ------ -------
Total liabilities -- -- -- -- -- 1 2,252
------- ----- ----- ----- ------ ------ -------
Net assets applicable to Policy
owners $16,200 3,889 3,729 4,075 17,469 86,844 144,173
======= ===== ===== ===== ====== ====== =======
POLICY OWNERS' EQUITY
Total Policy Owners' equity
(notes 6 and 7) $16,200 3,889 3,729 4,075 17,469 86,844 144,173
======= ===== ===== ===== ====== ====== =======
See accompanying notes to financial statements.
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SEGREGATED SUB-ACCOUNTS
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LORD ABBETT IVY FUNDS VIP IVY FUNDS VIP
JANUS ASPEN MID-CAP IVY FUNDS VIP IVY FUNDS INTERNATIONAL SMALL CAP IVY FUNDS
OVERSEAS VALUE BALANCED VIP GROWTH VALUE GROWTH VIP VALUE
----------- ----------- ------------- ---------- ------------- ------------- ---------
ASSETS
Investments in shares of the Janus Aspen
Series:
Overseas Portfolio, 72,614 shares at net
asset value of $45.08 per share
(cost $2,986,731) $3,273,423 -- -- -- -- -- --
Investments in shares of the Lord Abbett
Funds, Inc.:
Mid-Cap Value Portfolio, 139,427 shares
at net asset value of $13.25 per share
(cost $2,169,590) -- 1,847,413 -- -- -- -- --
Investments in shares of the Ivy Funds VIP
Target Funds, Inc.:
Balanced Portfolio, 147,882 shares at net
asset value of $8.48 per share
(cost $1,112,447) -- -- 1,253,775 -- -- -- --
Growth Portfolio, 180,393 shares at net
asset value of $9.28 per share
(cost $2,353,039) -- -- -- 1,673,705 -- -- --
International Value Portfolio, 146,883
shares at net asset value of $15.38
per share (cost $2,334,634) -- -- -- -- 2,259,146 -- --
Small Cap Growth Portfolio, 22,877 shares
at net asset value of $8.17 per share
(cost $183,208) -- -- -- -- -- 186,968 --
Value Portfolio, 35,086 shares at net
asset value of $5.14 per share
(cost $189,894) -- -- -- -- -- -- 180,504
---------- --------- --------- --------- --------- ------- -------
3,273,423 1,847,413 1,253,775 1,673,705 2,259,146 186,968 180,504
Receivable from Minnesota Life for Policy
purchase payments -- 29,282 -- -- 14,690 -- --
Receivable for investments sold 11,510 -- 30,935 33,115 -- 24,189 2,829
---------- --------- --------- --------- --------- ------- -------
Total assets 3,284,933 1,876,695 1,284,710 1,706,820 2,273,836 211,157 183,333
---------- --------- --------- --------- --------- ------- -------
LIABILITIES
Payable to Minnesota Life for Policy
terminations, withdrawal payments and
mortality and expense charges 11,510 -- 30,935 33,115 -- 24,189 2,829
Payable for investments purchased -- 29,282 -- -- 14,690 -- --
---------- --------- --------- --------- --------- ------- -------
Total liabilities 11,510 29,282 30,935 33,115 14,690 24,189 2,829
---------- --------- --------- --------- --------- ------- -------
Net assets applicable to Policy
owners $3,273,423 1,847,413 1,253,775 1,673,705 2,259,146 186,968 180,504
========== ========= ========= ========= ========= ======= =======
POLICY OWNERS' EQUITY
Total Policy Owners' equity
(notes 6 and 7) $3,273,423 1,847,413 1,253,775 1,673,705 2,259,146 186,968 180,504
========== ========= ========= ========= ========= ======= =======
See accompanying notes to financial statements.
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SEGREGATED SUB-ACCOUNTS
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IVY FUNDS VIP IVY FUNDS VIP IVY FUNDS VIP VAN ECK
MICRO-CAP SMALL CAP IVY FUNDS VIP SCIENCE & GLOBAL
GROWTH VALUE CORE EQUITY TECHNOLOGY HARD ASSETS TOTAL
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ASSETS
Investments in shares of the Ivy Funds VIP
Target Funds, Inc.:
Micro-Cap Growth Portfolio, 7,173 shares
at net asset value of $15.70 per share
(cost $111,745) $112,616 -- -- -- --
Small Cap Value Portfolio, 8,450 shares
at net asset value of $13.28 per share
(cost $109,373) -- 112,253 -- -- --
Core Equity Portfolio, 5,865 shares at
net asset value of $9.95 per share
(cost $62,366) -- -- 58,363 -- --
Science & Technology Portfolio, 129,537
shares at net asset value of $15.30
per share (cost $1,801,798) -- -- -- 1,981,444 --
Investments in shares of the Van Eck Funds,
Inc.:
Global Hard Assets Portfolio, 91,188
shares at net asset value of $29.26
per share (cost $2,708,040) -- -- -- -- 2,668,174
-------- ------- ------ --------- --------- -----------
112,616 112,253 58,363 1,981,444 2,668,174 149,722,035
Receivable from Minnesota Life for Policy
purchase payments -- -- -- 32,531 38,684 433,915
Receivable for investments sold 939 1,562 368 -- -- 157,026
-------- ------- ------ --------- --------- -----------
Total assets 113,555 113,815 58,731 2,013,975 2,706,858 150,312,976
-------- ------- ------ --------- --------- -----------
LIABILITIES
Payable to Minnesota Life for Policy
terminations, withdrawal payments and
mortality and expense charges 939 1,562 368 -- -- 157,026
Payable for investments purchased -- -- -- 32,531 38,684 433,915
-------- ------- ------ --------- --------- -----------
Total liabilities 939 1,562 368 32,531 38,684 590,941
-------- ------- ------ --------- --------- -----------
Net assets applicable to Policy
owners $112,616 112,253 58,363 1,981,444 2,668,174 149,722,035
======== ======= ====== ========= ========= ===========
POLICY OWNERS' EQUITY
Total Policy Owners' equity
(notes 6 and 7) $112,616 112,253 58,363 1,981,444 2,668,174 149,722,035
======== ======= ====== ========= ========= ===========
See accompanying notes to financial statements.
STATEMENTS OF OPERATIONS
YEAR ENDED DECEMBER 31, 2009
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SEGREGATED SUB-ACCOUNTS
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ADVANTUS ADVANTUS ADVANTUS ADVANTUS ADVANTUS
ADVANTUS ADVANTUS INDEX MORTGAGE INTERNATIONAL INDEX 400 REAL ESTATE
BOND MONEY 500 SECURITIES BOND MID-CAP SECURITIES
CLASS 2 MARKET CLASS 2 CLASS 2 CLASS 2 CLASS 2 CLASS 2
------------ ---------- ---------- ---------- ------------- ---------- -----------
Investment income (loss):
Investment income distributions
from underlying mutual fund $ -- 11,864 -- -- -- -- --
Mortality, expense charges and
administrative charges (note 3) (6,071) (2,088) (52,711) (536) (2,436) (1,897) (301)
------------ ---------- ---------- ------- ------- ---------- ----------
Investment income (loss) - net (6,071) 9,776 (52,711) (536) (2,436) (1,897) (301)
------------ ---------- ---------- ------- ------- ---------- ----------
Realized and unrealized gains
(losses) on investments - net:
Realized gain distributions from
underlying mutual fund -- -- -- -- -- -- --
------------ ---------- ---------- ------- ------- ---------- ----------
Realized gains (losses) on sales
of investments:
Proceeds from sales 23,041,368 2,359,989 5,780,791 70,701 22,222 5,265,424 942,084
Cost of investments sold (19,468,459) (2,359,989) (6,734,775) (72,882) (20,311) (6,551,075) (1,860,319)
------------ ---------- ---------- ------- ------- ---------- ----------
3,572,909 -- (953,984) (2,181) 1,911 (1,285,651) (918,235)
------------ ---------- ---------- ------- ------- ---------- ----------
Net realized gains (losses) on
investments 3,572,909 -- (953,984) (2,181) 1,911 (1,285,651) (918,235)
------------ ---------- ---------- ------- ------- ---------- ----------
Net change in unrealized
appreciation or depreciation
of investments 70,676 -- 10,957,442 37,138 156,006 5,008,431 1,151,406
------------ ---------- ---------- ------- ------- ---------- ----------
Net gains (losses) on
investments 3,643,585 -- 10,003,458 34,957 157,917 3,722,780 233,171
------------ ---------- ---------- ------- ------- ---------- ----------
Net increase (decrease) in net
assets resulting from
operations $ 3,637,514 9,776 9,950,747 34,421 155,481 3,720,883 232,870
============ ========== ========== ======= ======= ========== ==========
See accompanying notes to financial statements.
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SEGREGATED SUB-ACCOUNTS
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FIDELITY
BLACK ROCK FIDELITY VIP FIDELITY VIP VIP ASSET
GLOBAL FIDELITY VIP GROWTH & FIDELITY VIP FIDELITY VIP ASSET MANAGER
GROWTH V.I. CONTRAFUND INCOME EQUITY-INCOME HIGH INCOME MANAGER GROWTH
----------- ------------ ------------ ------------- ------------ ------------ ---------
Investment income (loss):
Investment income distributions
from underlying mutual fund $ 573 58,225 7,785 45,130 76,830 7,119 (22,451)
Mortality, expense charges and
administrative charges (note 3) (31) (10,751) (1,784) (7,883) (2,531) (773) (1,763)
--------- ---------- -------- ---------- -------- -------- --------
Investment income (loss) - net 542 47,474 6,001 37,247 74,299 6,346 (24,214)
--------- ---------- -------- ---------- -------- -------- --------
Realized and unrealized gains
(losses) on investments - net:
Realized gain distributions from
underlying mutual fund -- 1,162 -- -- -- 498 35,102
--------- ---------- -------- ---------- -------- -------- --------
Realized gains (losses) on sales
of investments:
Proceeds from sales 602,596 1,612,394 487,702 585,823 265,235 185,448 336,184
Cost of investments sold (553,069) (3,168,861) (848,941) (1,144,189) (362,505) (255,757) (433,376)
--------- ---------- -------- ---------- -------- -------- --------
49,527 (1,556,467) (361,239) (558,366) (97,270) (70,309) (97,192)
--------- ---------- -------- ---------- -------- -------- --------
Net realized gains (losses) on
investments 49,527 (1,555,305) (361,239) (558,366) (97,270) (69,811) (62,090)
--------- ---------- -------- ---------- -------- -------- --------
Net change in unrealized
appreciation or depreciation
of investments 58,841 2,771,724 518,673 1,043,469 351,795 142,179 283,291
--------- ---------- -------- ---------- -------- -------- --------
Net gains (losses) on
investments 108,368 1,216,419 157,434 485,103 254,525 72,368 221,201
--------- ---------- -------- ---------- -------- -------- --------
Net increase (decrease) in net
assets resulting from
operations $ 108,910 1,263,893 163,435 522,350 328,824 78,714 196,987
========= ========== ======== ========== ======== ======== ========
See accompanying notes to financial statements.
[Enlarge/Download Table]
SEGREGATED SUB-ACCOUNTS
-------------------------------------------------------------------------------------------
FIDELITY VIP FIDELITY VIP
FIDELITY VIP FIDELITY VIP GROWTH FIDELITY VIP INVESTMENT FIDELITY VIP FIDELITY VIP
BALANCED GROWTH OPPORTUNITIES INDEX 500 GRADE BOND MID-CAP MONEY MARKET
------------ ------------ ------------- ------------ ------------ ------------ ------------
Investment income (loss):
Investment income distributions
from underlying mutual fund $ 5,151 14,132 3,696 70,236 43,993 25,980 7,984
Mortality, expense charges and
administrative charges (note 3) (656) (7,778) (1,898) (3,667) (1,223) (9,406) (2,695)
--------- ---------- -------- ---------- -------- ---------- --------
Investment income (loss) - net 4,495 6,354 1,798 66,569 42,770 16,574 5,289
--------- ---------- -------- ---------- -------- ---------- --------
Realized and unrealized gains
(losses) on investments - net:
Realized gain distributions from
underlying mutual fund 816 2,770 -- -- 581 19,360 --
--------- ---------- -------- ---------- -------- ---------- --------
Realized gains (losses) on sales
of investments:
Proceeds from sales 183,657 1,453,209 484,931 765,877 257,048 1,367,219 837,800
Cost of investments sold (251,860) (2,105,827) (837,387) (1,225,356) (263,045) (2,228,159) (837,800)
--------- ---------- -------- ---------- -------- ---------- --------
(68,203) (652,618) (352,456) (459,479) (5,997) (860,940) --
--------- ---------- -------- ---------- -------- ---------- --------
Net realized gains (losses) on
investments (67,387) (649,848) (352,456) (459,479) (5,416) (841,580) --
--------- ---------- -------- ---------- -------- ---------- --------
Net change in unrealized
appreciation or depreciation
of investments 147,818 1,430,885 638,355 751,885 30,012 2,078,005 --
--------- ---------- -------- ---------- -------- ---------- --------
Net gains (losses) on
investments 80,431 781,037 285,899 292,406 24,596 1,236,425 --
--------- ---------- -------- ---------- -------- ---------- --------
Net increase (decrease) in net
assets resulting from
operations $ 84,926 787,391 287,697 358,975 67,366 1,252,999 5,289
========= ========== ======== ========== ======== ========== ========
See accompanying notes to financial statements.
[Enlarge/Download Table]
SEGREGATED SUB-ACCOUNTS
---------------------------------------------------------------------------------------------
FIDELITY VIP FIDELITY VIP FIDELITY VIP FIDELITY VIP
FIDELITY VIP AGGRESSIVE DYNAMIC CAPITAL FIDELITY VIP VALUE GROWTH FIDELITY VIP
OVERSEAS GROWTH APPRECIATION VALUE STRATEGY STOCK REAL ESTATE
------------ ------------ --------------- ------------ ------------ ------------ ------------
Investment income (loss):
Investment income distributions
from underlying mutual fund $ 50,025 -- 436 578 677 142 3,245
Mortality, expense charges and
administrative charges (note 3) (5,699) (327) (436) (152) (276) (80) (283)
----------- -------- -------- ------- -------- ------- --------
Investment income (loss) - net 44,326 (327) -- 426 401 62 2,962
----------- -------- -------- ------- -------- ------- --------
Realized and unrealized gains
(losses) on investments - net:
Realized gain distributions from
underlying mutual fund 7,436 -- -- -- -- -- --
----------- -------- -------- ------- -------- ------- --------
Realized gains (losses) on sales
of investments:
Proceeds from sales 792,775 86,178 72,154 43,954 49,160 22,100 108,389
Cost of investments sold (1,290,101) (151,698) (120,362) (79,980) (120,688) (34,202) (210,872)
----------- -------- -------- ------- -------- ------- --------
(497,326) (65,520) (48,208) (36,026) (71,528) (12,102) (102,483)
----------- -------- -------- ------- -------- ------- --------
Net realized gains (losses) on
investments (489,890) (65,520) (48,208) (36,026) (71,528) (12,102) (102,483)
----------- -------- -------- ------- -------- ------- --------
Net change in unrealized
appreciation or depreciation
of investments 985,551 110,828 101,575 58,349 120,104 24,070 141,213
----------- -------- -------- ------- -------- ------- --------
Net gains (losses) on
investments 495,661 45,308 53,367 22,323 48,576 11,968 38,730
----------- -------- -------- ------- -------- ------- --------
Net increase (decrease) in net
assets resulting from
operations $ 539,987 44,981 53,367 22,749 48,977 12,030 41,692
=========== ======== ======== ======= ======== ======= ========
See accompanying notes to financial statements.
[Enlarge/Download Table]
SEGREGATED SUB-ACCOUNTS
------------------------------------------------------------------------------------------
FIDELITY VIP FIDELITY VIP FIDELITY VIP
STRATEGIC INTL CAPITAL VALUE FIDELITY VIP FIDELITY VIP FIDELITY VIP FIDELITY VIP
INCOME APPRECIATION LEADERS FREEDOM 2010 FREEDOM 2015 FREEDOM 2020 FREEDOM 2025
------------ ------------ ------------ ------------ ------------ ------------ ------------
Investment income (loss):
Investment income distributions
from underlying mutual fund $ 4,773 1,077 192 358 217 557 467
Mortality, expense charges and
administrative charges (note 3) (206) (294) (28) (25) (16) (36) (30)
-------- -------- ------- ------- ------- ------- -------
Investment income (loss) - net 4,567 783 164 333 201 521 437
-------- -------- ------- ------- ------- ------- -------
Realized and unrealized gains
(losses) on investments - net:
Realized gain distributions from
underlying mutual fund -- 1,616 -- 89 110 179 161
-------- -------- ------- ------- ------- ------- -------
Realized gains (losses) on sales
of investments:
Proceeds from sales 43,221 60,267 15,657 14,793 7,842 13,142 13,838
Cost of investments sold (44,134) (112,196) (21,264) (16,409) (10,783) (14,996) (16,526)
-------- -------- ------- ------- ------- ------- -------
(913) (51,929) (5,607) (1,616) (2,941) (1,854) (2,688)
-------- -------- ------- ------- ------- ------- -------
Net realized gains (losses) on
investments (913) (50,313) (5,607) (1,527) (2,831) (1,675) (2,527)
-------- -------- ------- ------- ------- ------- -------
Net change in unrealized
appreciation or depreciation
of investments 17,927 100,436 7,796 3,358 3,505 5,031 5,265
-------- -------- ------- ------- ------- ------- -------
Net gains (losses) on
investments 17,014 50,123 2,189 1,831 674 3,356 2,738
-------- -------- ------- ------- ------- ------- -------
Net increase (decrease) in net
assets resulting from
operations $ 21,581 50,906 2,353 2,164 875 3,877 3,175
======== ======== ======= ======= ======= ======= =======
See accompanying notes to financial statements.
[Enlarge/Download Table]
SEGREGATED SUB-ACCOUNTS
---------------------------------------------------------------------------------------------
FIDELITY VIP FIDELITY VIP FIDELITY VIP
FIDELITY VIP FREEDOM DISCIPLINED EMERGING FIDELITY VIP FIDELITY VIP FIDELITY VIP
FREEDOM 2030 INCOME SMALL CAP MARKETS FREEDOM 2035* FREEDOM 2040* FREEDOM 2045*
------------ ------------ ------------ ------------ ------------- ------------- -------------
Investment income (loss):
Investment income distributions
from underlying mutual fund $ 1,847 337 222 322 75 76 73
Mortality, expense charges and
administrative charges (note 3) (173) (22) (93) (149) (6) (7) (6)
-------- ------ ------- ------- --- ----- ---
Investment income (loss) - net 1,674 315 129 173 69 69 67
-------- ------ ------- ------- --- ----- ---
Realized and unrealized gains
(losses) on investments - net:
Realized gain distributions from
underlying mutual fund 833 115 -- 409 4 4 3
-------- ------ ------- ------- --- ----- ---
Realized gains (losses) on sales
of investments:
Proceeds from sales 44,726 3,257 19,185 31,929 53 784 24
Cost of investments sold (56,561) (3,542) (28,712) (36,051) (49) (632) (26)
-------- ------ ------- ------- --- ----- ---
(11,835) (285) (9,527) (4,122) 4 152 (2)
-------- ------ ------- ------- --- ----- ---
Net realized gains (losses) on
investments (11,002) (170) (9,527) (3,713) 8 156 1
-------- ------ ------- ------- --- ----- ---
Net change in unrealized
appreciation or depreciation
of investments 30,454 1,156 18,670 32,730 854 810 883
-------- ------ ------- ------- --- ----- ---
Net gains (losses) on
investments 19,452 986 9,143 29,017 862 966 884
-------- ------ ------- ------- --- ----- ---
Net increase (decrease) in net
assets resulting from
operations $ 21,126 1,301 9,272 29,190 931 1,035 951
======== ====== ======= ======= === ===== ===
* For the period from April 24, 2009 through December 31, 2009.
See accompanying notes to financial statements.
[Enlarge/Download Table]
SEGREGATED SUB-ACCOUNTS
--------------------------------------------------------------------------------------------
FIDELITY VIP FIDELITY VIP FIDELITY VIP FIDELITY VIP FIDELITY VIP JANUS
FIDELITY VIP FUNDS FUNDS FUNDS FUNDS FUNDS ASPEN
FREEDOM 2050* MANAGER 20%* MANAGER 50%* MANAGER 60%* MANAGER 70%* MANAGER 85%* FORTY
------------- ------------ ------------ ------------ ------------ ------------ -------
Investment income (loss):
Investment income distributions
from underlying mutual fund $ 284 61 60 61 245 1,015 15
Mortality, expense charges and
administrative charges (note 3) (17) (10) (6) (6) (9) (96) (464)
------ ------ ---- ---- --- ------ -------
Investment income (loss) - net 267 51 54 55 236 919 (449)
------ ------ ---- ---- --- ------ -------
Realized and unrealized gains
(losses) on investments - net:
Realized gain distributions from
underlying mutual fund 14 2 4 5 20 118 --
------ ------ ---- ---- --- ------ -------
Realized gains (losses) on sales
of investments:
Proceeds from sales 127 6,032 472 207 18 919 36,687
Cost of investments sold (106) (5,621) (404) (179) (19) (752) (41,116)
------ ------ ---- ---- --- ------ -------
21 411 68 28 (1) 167 (4,429)
------ ------ ---- ---- --- ------ -------
Net realized gains (losses) on
investments 35 413 72 33 19 285 (4,429)
------ ------ ---- ---- --- ------ -------
Net change in unrealized
appreciation or depreciation
of investments 1,992 66 442 586 622 15,313 49,451
------ ------ ---- ---- --- ------ -------
Net gains (losses) on
investments 2,027 479 514 619 641 15,598 45,022
------ ------ ---- ---- --- ------ -------
Net increase (decrease) in net
assets resulting from
operations $2,294 530 568 674 877 16,517 44,573
====== ====== ==== ==== === ====== =======
* For the period from April 24, 2009 through December 31, 2009.
See accompanying notes to financial statements.
[Enlarge/Download Table]
SEGREGATED SUB-ACCOUNTS
---------------------------------------------------------------------------------------------
LORD ABBETT IVY FUNDS VIP IVY FUNDS VIP
JANUS ASPEN MID-CAP IVY FUNDS VIP IVY FUNDS VIP INTERNATIONAL SMALL CAP IVY FUNDS VIP
OVERSEAS VALUE BALANCED GROWTH VALUE GROWTH VALUE
----------- ----------- ------------- ------------- ------------- ------------- -------------
Investment income (loss):
Investment income distributions
from underlying mutual fund $ 10,622 7,892 168,484 5,624 40,355 684 3,191
Mortality, expense charges and
administrative charges (note 3) (4,049) (78) (5,947) (1,762) (1,264) (740) (667)
---------- -------- ---------- ---------- ---------- -------- -------
Investment income (loss) - net 6,573 7,814 162,537 3,862 39,091 (56) 2,524
---------- -------- ---------- ---------- ---------- -------- -------
Realized and unrealized gains
(losses) on investments - net:
Realized gain distributions from
underlying mutual fund 72,950 -- 48,501 41,563 64,907 -- --
---------- -------- ---------- ---------- ---------- -------- -------
Realized gains (losses) on sales
of investments:
Proceeds from sales 544,649 384,123 8,192,325 790,593 1,201,439 70,890 56,619
Cost of investments sold (786,326) (804,098) (8,219,848) (1,472,576) (2,143,729) (104,927) (81,119)
---------- -------- ---------- ---------- ---------- -------- -------
(241,677) (419,975) (27,523) (681,983) (942,290) (34,037) (24,500)
---------- -------- ---------- ---------- ---------- -------- -------
Net realized gains (losses) on
investments (168,727) (419,975) 20,978 (640,420) (877,383) (34,037) (24,500)
---------- -------- ---------- ---------- ---------- -------- -------
Net change in unrealized
appreciation or depreciation
of investments 1,525,001 781,218 802,547 987,692 1,222,549 85,754 61,013
---------- -------- ---------- ---------- ---------- -------- -------
Net gains (losses) on
investments 1,356,274 361,243 823,525 347,272 345,166 51,717 36,513
---------- -------- ---------- ---------- ---------- -------- -------
Net increase (decrease) in net
assets resulting from
operations $1,362,847 369,057 986,062 351,134 384,257 51,661 39,037
========== ======== ========== ========== ========== ======== =======
See accompanying notes to financial statements.
[Enlarge/Download Table]
SEGREGATED SUB-ACCOUNTS
------------------------------------------------------------------------------------
IVY FUNDS VIP IVY FUNDS VIP IVY FUNDS VIP VAN ECK
MICRO-CAP SMALL CAP IVY FUNDS VIP SCIENCE & GLOBAL
GROWTH VALUE CORE EQUITY TECHNOLOGY HARD ASSETS TOTAL
------------- ------------- ------------- ------------- ----------- -----------
Investment income (loss):
Investment income distributions
from underlying mutual fund $ -- -- 656 -- 3,701 664,893
Mortality, expense charges and
administrative charges (note 3) (379) (376) (176) (10) (9) (143,288)
-------- ------- ------- -------- -------- -----------
Investment income (loss) - net (379) (376) 480 (10) 3,692 521,605
-------- ------- ------- -------- -------- -----------
Realized and unrealized gains
(losses) on investments - net:
Realized gain distributions from
underlying mutual fund -- -- -- 83,764 7,340 390,436
-------- ------- ------- -------- -------- -----------
Realized gains (losses) on sales
of investments:
Proceeds from sales 23,918 24,881 30,900 402,234 418,958 60,537,121
Cost of investments sold (32,623) (34,213) (42,753) (621,878) (636,671) (68,982,684)
-------- ------- ------- -------- -------- -----------
(8,705) (9,332) (11,853) (219,644) (217,713) (8,445,563)
-------- ------- ------- -------- -------- -----------
Net realized gains (losses) on
investments (8,705) (9,332) (11,853) (135,880) (210,373) (8,055,127)
-------- ------- ------- -------- -------- -----------
Net change in unrealized
appreciation or depreciation
of investments 39,105 34,846 24,202 668,231 988,794 36,688,020
-------- ------- ------- -------- -------- -----------
Net gains (losses) on
investments 30,400 25,514 12,349 532,351 778,421 28,632,893
-------- ------- ------- -------- -------- -----------
Net increase (decrease) in net
assets resulting from
operations $ 30,021 25,138 12,829 532,341 782,113 29,154,498
======== ======= ======= ======== ======== ===========
See accompanying notes to financial statements.
STATEMENTS OF CHANGES IN NET ASSETS
YEAR ENDED DECEMBER 31, 2009
[Enlarge/Download Table]
SEGREGATED SUB-ACCOUNTS
----------------------------------------------------------------------------------------
ADVANTUS ADVANTUS ADVANTUS ADVANTUS ADVANTUS
ADVANTUS ADVANTUS INDEX MORTGAGE INTERNATIONAL INDEX 400 REAL ESTATE
BOND MONEY 500 SECURITIES BOND MID-CAP SECURITIES
CLASS 2 MARKET CLASS 2 CLASS 2 CLASS 2 CLASS 2 CLASS 2
------------ ---------- ---------- ---------- ------------- ---------- -----------
Operations:
Investment income (loss) - net $ (6,071) 9,776 (52,711) (536) (2,436) (1,897) (301)
Net realized gains (losses) on
investments 3,572,909 -- (953,984) (2,181) 1,911 (1,285,651) (918,235)
Net change in unrealized
appreciation or depreciation
of investments 70,676 -- 10,957,442 37,138 156,006 5,008,431 1,151,406
------------ --------- ---------- ------- --------- ---------- ---------
Net increase (decrease) in net
assets resulting from operations 3,637,514 9,776 9,950,747 34,421 155,481 3,720,883 232,870
------------ --------- ---------- ------- --------- ---------- ---------
Policy transactions (notes 3 and 6):
Policy purchase payments 1,584,953 3,197,941 26,969,322 206,796 19,898 9,124,816 621,612
Policy terminations, withdrawal
payments and charges (23,039,669) (2,359,375) (5,761,723) (70,342) (20,462) (5,264,968) (941,906)
------------ --------- ---------- ------- --------- ---------- ---------
Increase (decrease) in net assets
from Policy transactions (21,454,716) 838,566 21,207,599 136,454 (564) 3,859,848 (320,294)
------------ --------- ---------- ------- --------- ---------- ---------
Increase (decrease) in net assets (17,817,202) 848,342 31,158,346 170,875 154,917 7,580,731 (87,424)
Net assets at the beginning of year 26,866,649 4,265,761 37,510,473 403,409 902,870 13,556,817 1,569,542
------------ --------- ---------- ------- --------- ---------- ---------
Net assets at the end of year $ 9,049,447 5,114,103 68,668,819 574,284 1,057,787 21,137,548 1,482,118
============ ========= ========== ======= ========= ========== =========
See accompanying notes to financial statements.
[Enlarge/Download Table]
SEGREGATED SUB-ACCOUNTS
----------------------------------------------------------------------------------------------
BLACK ROCK FIDELITY VIP FIDELITY FIDELITY VIP
GLOBAL FIDELITY VIP GROWTH & FIDELITY VIP FIDELITY VIP VIP ASSET ASSET MANAGER
GROWTH V.I. CONTRAFUND INCOME EQUITY-INCOME HIGH INCOME MANAGER GROWTH
----------- ------------ ------------ ------------- ------------ --------- -------------
Operations:
Investment income (loss) - net $ 542 47,474 6,001 37,247 74,299 6,346 (24,214)
Net realized gains (losses) on
investments 49,527 (1,555,305) (361,239) (558,366) (97,270) (69,811) (62,090)
Net change in unrealized
appreciation or depreciation
of investments 58,841 2,771,724 518,673 1,043,469 351,795 142,179 283,291
--------- ---------- -------- --------- --------- -------- --------
Net increase (decrease) in net
assets resulting from operations 108,910 1,263,893 163,435 522,350 328,824 78,714 196,987
--------- ---------- -------- --------- --------- -------- --------
Policy transactions (notes 3 and 6):
Policy purchase payments 293,438 1,404,526 382,060 313,153 295,196 138,503 260,299
Policy terminations, withdrawal
payments and charges (602,565) (1,608,485) (487,304) (582,693) (264,336) (185,284) (335,805)
--------- ---------- -------- --------- --------- -------- --------
Increase (decrease) in net assets
from Policy transactions (309,127) (203,959) (105,244) (269,540) 30,860 (46,781) (75,506)
--------- ---------- -------- --------- --------- -------- --------
Increase (decrease) in net assets (200,217) 1,059,934 58,191 252,810 359,684 31,933 121,481
Net assets at the beginning of year 200,217 3,777,645 753,582 1,989,393 717,750 303,815 695,984
--------- ---------- -------- --------- --------- -------- --------
Net assets at the end of year $ -- 4,837,579 811,773 2,242,203 1,077,434 335,748 817,465
========= ========== ======== ========= ========= ======== ========
See accompanying notes to financial statements.
[Enlarge/Download Table]
SEGREGATED SUB-ACCOUNTS
----------------------------------------------------------------------------------------------
FIDELITY VIP FIDELITY VIP FIDELITY
FIDELITY VIP FIDELITY VIP GROWTH FIDELITY VIP INVESTMENT FIDELITY VIP VIP MONEY
BALANCED GROWTH OPPORTUNITIES INDEX 500 GRADE BOND MID-CAP MARKET
------------ ------------ ------------- ------------ ------------ ------------ ----------
Operations:
Investment income (loss) - net $ 4,495 6,354 1,798 66,569 42,770 16,574 5,289
Net realized gains (losses) on
investments (67,387) (649,848) (352,456) (459,479) (5,416) (841,580) --
Net change in unrealized
appreciation or depreciation
of investments 147,818 1,430,885 638,355 751,885 30,012 2,078,005 --
--------- ---------- -------- --------- -------- ---------- ---------
Net increase (decrease) in net
assets resulting from operations 84,926 787,391 287,697 358,975 67,366 1,252,999 5,289
--------- ---------- -------- --------- -------- ---------- ---------
Policy transactions (notes 3 and 6):
Policy purchase payments 177,840 1,240,381 419,891 650,982 342,700 817,192 748,873
Policy terminations, withdrawal
payments and charges (183,549) (1,451,029) (484,575) (764,826) (256,652) (1,364,150) (837,074)
--------- ---------- -------- --------- -------- ---------- ---------
Increase (decrease) in net assets
from Policy transactions (5,709) (210,648) (64,684) (113,844) 86,048 (546,958) (88,201)
--------- ---------- -------- --------- -------- ---------- ---------
Increase (decrease) in net assets 79,217 576,743 223,013 245,131 153,414 706,041 (82,912)
Net assets at the beginning of year 241,318 3,056,395 697,638 1,459,004 441,160 3,649,982 1,132,669
--------- ---------- -------- --------- -------- ---------- ---------
Net assets at the end of year $ 320,535 3,633,138 920,651 1,704,135 594,574 4,356,023 1,049,757
========= ========== ======== ========= ======== ========== =========
See accompanying notes to financial statements.
[Enlarge/Download Table]
SEGREGATED SUB-ACCOUNTS
---------------------------------------------------------------------------------------------
FIDELITY VIP FIDELITY VIP FIDELITY VIP FIDELITY VIP
FIDELITY VIP AGGRESSIVE DYNAMIC CAPITAL FIDELITY VIP VALUE GROWTH FIDELITY VIP
OVERSEAS GROWTH APPRECIATION VALUE STRATEGY STOCK REAL ESTATE
------------ ------------ --------------- ------------ ------------ ------------ ------------
Operations:
Investment income (loss) - net $ 44,326 (327) -- 426 401 62 2,962
Net realized gains (losses) on
investments (489,890) (65,520) (48,208) (36,026) (71,528) (12,102) (102,483)
Net change in unrealized
appreciation or depreciation
of investments 985,551 110,828 101,575 58,349 120,104 24,070 141,213
---------- ------- ------- ------- ------- ------- --------
Net increase (decrease) in net
assets resulting from operations 539,987 44,981 53,367 22,749 48,977 12,030 41,692
---------- ------- ------- ------- ------- ------- --------
Policy transactions (notes 3 and 6):
Policy purchase payments 587,666 88,528 39,879 47,915 45,802 22,130 92,177
Policy terminations, withdrawal
payments and charges (790,728) (86,100) (71,928) (43,888) (49,035) (22,069) (108,301)
---------- ------- ------- ------- ------- ------- --------
Increase (decrease) in net assets
from Policy transactions (203,062) 2,428 (32,049) 4,027 (3,233) 61 (16,124)
---------- ------- ------- ------- ------- ------- --------
Increase (decrease) in net assets 336,925 47,409 21,318 26,776 45,744 12,091 25,568
Net assets at the beginning of year 2,312,922 114,623 174,392 50,461 96,568 28,485 124,207
---------- ------- ------- ------- ------- ------- --------
Net assets at the end of year $2,649,847 162,032 195,710 77,237 142,312 40,576 149,775
========== ======= ======= ======= ======= ======= ========
See accompanying notes to financial statements.
[Enlarge/Download Table]
SEGREGATED SUB-ACCOUNTS
------------------------------------------------------------------------------------------
FIDELITY VIP FIDELITY VIP FIDELITY VIP
STRATEGIC INTL CAPITAL VALUE FIDELITY VIP FIDELITY VIP FIDELITY VIP FIDELITY VIP
INCOME APPRECIATION LEADERS FREEDOM 2010 FREEDOM 2015 FREEDOM 2020 FREEDOM 2025
------------ ------------ ------------ ------------ ------------ ------------ ------------
Operations:
Investment income (loss) - net $ 4,567 783 164 333 201 521 437
Net realized gains (losses) on
investments (913) (50,313) (5,607) (1,527) (2,831) (1,675) (2,527)
Net change in unrealized
appreciation or depreciation
of investments 17,927 100,436 7,796 3,358 3,505 5,031 5,265
-------- ------- ------- ------- ------ ------- -------
Net increase (decrease) in net
assets resulting from operations 21,581 50,906 2,353 2,164 875 3,877 3,175
-------- ------- ------- ------- ------ ------- -------
Policy transactions (notes 3 and 6):
Policy purchase payments 83,340 74,875 12,697 12,173 3,902 18,431 14,955
Policy terminations, withdrawal
payments and charges (43,090) (60,142) (15,633) (14,773) (7,830) (13,115) (13,814)
-------- ------- ------- ------- ------ ------- -------
Increase (decrease) in net assets
from Policy transactions 40,250 14,733 (2,936) (2,600) (3,928) 5,316 1,141
-------- ------- ------- ------- ------ ------- -------
Increase (decrease) in net assets 61,831 65,639 (583) (436) (3,053) 9,193 4,316
Net assets at the beginning of year 46,467 93,832 11,949 10,296 9,587 9,601 11,866
-------- ------- ------- ------- ------ ------- -------
Net assets at the end of year $108,298 159,471 11,366 9,860 6,534 18,794 16,182
======== ======= ======= ======= ====== ======= =======
See accompanying notes to financial statements.
[Enlarge/Download Table]
SEGREGATED SUB-ACCOUNTS
---------------------------------------------------------------------------------------------
FIDELITY VIP FIDELITY VIP FIDELITY VIP
FIDELITY VIP FREEDOM DISCIPLINED EMERGING FIDELITY VIP FIDELITY VIP FIDELITY VIP
FREEDOM 2030 INCOME SMALL CAP MARKETS FREEDOM 2035* FREEDOM 2040* FREEDOM 2045*
------------ ------------ ------------ ------------ ------------- ------------- -------------
Operations:
Investment income (loss) - net $ 1,674 315 129 173 69 69 67
Net realized gains (losses) on
investments (11,002) (170) (9,527) (3,713) 8 156 1
Net change in unrealized
appreciation or depreciation
of investments 30,454 1,156 18,670 32,730 854 810 883
-------- ------ ------- ------- ----- ----- -----
Net increase (decrease) in net
assets resulting from operations 21,126 1,301 9,272 29,190 931 1,035 951
-------- ------ ------- ------- ----- ----- -----
Policy transactions (notes 3 and 6):
Policy purchase payments 67,267 6,379 28,158 120,071 3,276 3,913 3,041
Policy terminations, withdrawal
payments and charges (44,642) (3,240) (19,129) (31,836) (47) (778) (19)
-------- ------ ------- ------- ----- ----- -----
Increase (decrease) in net assets
from Policy transactions 22,625 3,139 9,029 88,235 3,229 3,135 3,022
-------- ------ ------- ------- ----- ----- -----
Increase (decrease) in net assets 43,751 4,440 18,301 117,425 4,160 4,170 3,973
Net assets at the beginning of year 50,732 5,691 30,954 21,160 -- -- --
-------- ------ ------- ------- ----- ----- -----
Net assets at the end of year $ 94,483 10,131 49,255 138,585 4,160 4,170 3,973
======== ====== ======= ======= ===== ===== =====
* For the period from April 24, 2009 through December 31, 2009.
See accompanying notes to financial statements.
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SEGREGATED SUB-ACCOUNTS
---------------------------------------------------------------------------------------------
FIDELITY VIP FIDELITY VIP FIDELITY VIP FIDELITY VIP FIDELITY VIP JANUS
FIDELITY VIP FUNDS FUNDS FUNDS FUNDS FUNDS ASPEN
FREEDOM 2050* MANAGER 20%* MANAGER 50%* MANAGER 60%* MANAGER 70%* MANAGER 85%* FORTY
------------- ------------ ------------ ------------ ------------ ------------ --------
Operations:
Investment income (loss) - net $ 267 51 54 55 236 919 (449)
Net realized gains (losses) on
investments 35 413 72 33 19 285 (4,429)
Net change in unrealized
appreciation or depreciation
of investments 1,992 66 442 586 622 15,313 49,451
------- ------ ----- ----- ------ ------ -------
Net increase (decrease) in net
assets resulting from operations 2,294 530 568 674 877 16,517 44,573
------- ------ ----- ----- ------ ------ -------
Policy transactions (notes 3 and 6):
Policy purchase payments 14,019 9,382 3,627 3,601 16,601 71,154 52,663
Policy terminations, withdrawal
payments and charges (113) (6,023) (466) (200) (9) (827) (36,403)
------- ------ ----- ----- ------ ------ -------
Increase (decrease) in net assets
from Policy transactions 13,906 3,359 3,161 3,401 16,592 70,327 16,260
------- ------ ----- ----- ------ ------ -------
Increase (decrease) in net assets 16,200 3,889 3,729 4,075 17,469 86,844 60,833
Net assets at the beginning of year -- -- -- -- -- -- 83,340
------- ------ ----- ----- ------ ------ -------
Net assets at the end of year $16,200 3,889 3,729 4,075 17,469 86,844 144,173
======= ====== ===== ===== ====== ====== =======
* For the period from April 24, 2009 through December 31, 2009.
See accompanying notes to financial statements.
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SEGREGATED SUB-ACCOUNTS
--------------------------------------------------------------------------------------------
LORD ABBETT IVY FUNDS IVY FUNDS VIP IVY FUNDS VIP
JANUS ASPEN MID-CAP VIP IVY FUNDS VIP INTERNATIONAL SMALL CAP IVY FUNDS
OVERSEAS VALUE BALANCED GROWTH VALUE GROWTH VIP VALUE
----------- ----------- --------- ------------- ------------- ------------- ---------
Operations:
Investment income (loss) - net $ 6,573 7,814 162,537 3,862 39,091 (56) 2,524
Net realized gains (losses) on
investments (168,727) (419,975) 20,978 (640,420) (877,383) (34,037) (24,500)
Net change in unrealized
appreciation or depreciation
of investments 1,525,001 781,218 802,547 987,692 1,222,549 85,754 61,013
---------- --------- ---------- --------- ---------- ------- -------
Net increase (decrease) in net
assets resulting from operations 1,362,847 369,057 986,062 351,134 384,257 51,661 39,037
---------- --------- ---------- --------- ---------- ------- -------
Policy transactions (notes 3 and 6):
Policy purchase payments 683,558 505,336 1,025,597 100,175 1,114,264 65,823 50,410
Policy terminations, withdrawal
payments and charges (542,482) (384,049) (8,189,641) (790,060) (1,200,840) (70,553) (56,353)
---------- --------- ---------- --------- ---------- ------- -------
Increase (decrease) in net assets
from Policy transactions 141,076 121,287 (7,164,044) (689,885) (86,576) (4,730) (5,943)
---------- --------- ---------- --------- ---------- ------- -------
Increase (decrease) in net assets 1,503,923 490,344 (6,177,982) (338,751) 297,681 46,931 33,094
Net assets at the beginning of year 1,769,500 1,357,069 7,431,757 2,012,456 1,961,465 140,037 147,410
---------- --------- ---------- --------- ---------- ------- -------
Net assets at the end of year $3,273,423 1,847,413 1,253,775 1,673,705 2,259,146 186,968 180,504
========== ========= ========== ========= ========== ======= =======
See accompanying notes to financial statements.
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SEGREGATED SUB-ACCOUNTS
------------------------------------------------------------------------------------
IVY FUNDS VIP IVY FUNDS VIP IVY FUNDS VIP VAN ECK
MICRO-CAP SMALL CAP IVY FUNDS VIP SCIENCE & GLOBAL
GROWTH VALUE CORE EQUITY TECHNOLOGY HARD ASSETS TOTAL
------------- ------------- ------------- ------------- ----------- -----------
Operations:
Investment income (loss) - net $ (379) (376) 480 (10) 3,692 521,605
Net realized gains (losses) on
investments (8,705) (9,332) (11,853) (135,880) (210,373) (8,055,127)
Net change in unrealized
appreciation or depreciation
of investments 39,105 34,846 24,202 668,231 988,794 36,688,020
-------- ------- ------- --------- --------- -----------
Net increase (decrease) in net
assets resulting from operations 30,021 25,138 12,829 532,341 782,113 29,154,498
-------- ------- ------- --------- --------- -----------
Policy transactions (notes 3 and 6):
Policy purchase payments 28,152 34,613 17,331 897,399 1,105,449 56,386,101
Policy terminations, withdrawal
payments and charges (23,702) (24,698) (30,781) (402,223) (418,950) (60,485,282)
-------- ------- ------- --------- --------- -----------
Increase (decrease) in net assets
from Policy transactions 4,450 9,915 (13,450) 495,176 686,499 (4,099,181)
-------- ------- ------- --------- --------- -----------
Increase (decrease) in net assets 34,471 35,053 (621) 1,027,517 1,468,612 25,055,317
Net assets at the beginning of year 78,145 77,200 58,984 953,927 1,199,562 124,666,718
-------- ------- ------- --------- --------- -----------
Net assets at the end of year $112,616 112,253 58,363 1,981,444 2,668,174 149,722,035
======== ======= ======= ========= ========= ===========
See accompanying notes to financial statements.
YEAR OR PERIOD ENDED DECEMBER 31, 2008
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SEGREGATED SUB-ACCOUNTS
----------------------------------------------------------------------------------------
ADVANTUS ADVANTUS ADVANTUS ADVANTUS ADVANTUS
ADVANTUS ADVANTUS INDEX MORTGAGE INTERNATIONAL INDEX 400 REAL ESTATE
BOND MONEY 500 SECURITIES BOND MID-CAP SECURITIES
CLASS 2 MARKET CLASS 2 CLASS 2 CLASS 2 CLASS 2 CLASS 2
----------- ---------- ----------- ---------- ------------- ---------- -----------
Operations:
Investment income (loss) - net $ (7,320) 92,133 (65,589) (533) (1,809) (2,373) (2,105)
Net realized gains (losses) on
investments 434,581 -- 551,531 6,630 2,106 453,852 (35,554)
Net change in unrealized
appreciation or depreciation
of investments (4,678,404) -- (22,224,777) (62,012) (758) (8,153,075) (830,171)
----------- ---------- ----------- ------- ------- ---------- ---------
Net increase (decrease) in net
assets resulting from operations (4,251,143) 92,133 (21,738,835) (55,915) (461) (7,701,596) (867,830)
----------- ---------- ----------- ------- ------- ---------- ---------
Policy transactions
(notes 3 and 6):
Policy purchase payments 3,019,533 3,071,940 6,530,287 119,249 892,329 2,406,616 493,269
Policy terminations, withdrawal
payments and charges (2,586,195) (4,564,166) (4,902,410) (79,339) (14,387) (2,461,347) (251,118)
----------- ---------- ----------- ------- ------- ---------- ---------
Increase (decrease) in net assets
from Policy transactions 433,338 (1,492,226) 1,627,877 39,910 877,942 (54,731) 242,151
----------- ---------- ----------- ------- ------- ---------- ---------
Increase (decrease) in net assets (3,817,805) (1,400,093) (20,110,958) (16,005) 877,481 (7,756,327) (625,679)
Net assets at the beginning of year 30,684,454 5,665,854 57,621,431 419,414 25,389 21,313,144 2,195,221
----------- ---------- ----------- ------- ------- ---------- ---------
Net assets at the end of year $26,866,649 4,265,761 37,510,473 403,409 902,870 13,556,817 1,569,542
=========== ========== =========== ======= ======= ========== =========
See accompanying notes to financial statements.
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SEGREGATED SUB-ACCOUNTS
-------------------------------------------------------------------------------------------
BLACK ROCK FIDELITY VIP FIDELITY VIP FIDELITY VIP
GLOBAL FIDELITY VIP GROWTH & FIDELITY VIP FIDELITY VIP ASSET ASSET
GROWTH V.I.* CONTRAFUND INCOME EQUITY-INCOME HIGH INCOME MANAGER MANAGER
------------ ------------ ------------ ------------- ------------ ------------ ------------
Operations:
Investment income (loss) - net $ 1,041 40,286 10,550 61,849 78,187 9,099 15,778
Net realized gains (losses) on
investments (2,744) (382,116) 61,754 (216,805) (30,238) 18,059 47,704
Net change in unrealized
appreciation or depreciation
of investments (58,841) (2,477,680) (594,153) (1,417,929) (282,467) (160,423) (449,857)
-------- ---------- --------- ---------- -------- -------- ---------
Net increase (decrease) in net
assets resulting from operations (60,544) (2,819,510) (521,849) (1,572,885) (234,518) (133,265) (386,375)
-------- ---------- --------- ---------- -------- -------- ---------
Policy transactions
(notes 3 and 6):
Policy purchase payments 268,268 1,602,006 442,627 421,414 226,331 169,481 324,283
Policy terminations, withdrawal
payments and charges (7,507) (1,924,680) (479,597) (757,028) (180,940) (196,170) (435,299)
-------- ---------- --------- ---------- -------- -------- ---------
Increase (decrease) in net assets
from Policy transactions 260,761 (322,674) (36,970) (335,614) 45,391 (26,689) (111,016)
-------- ---------- --------- ---------- -------- -------- ---------
Increase (decrease) in net assets 200,217 (3,142,184) (558,819) (1,908,499) (189,127) (159,954) (497,391)
Net assets at the beginning of year -- 6,919,829 1,312,401 3,897,892 906,877 463,769 1,193,375
-------- ---------- --------- ---------- -------- -------- ---------
Net assets at the end of year $200,217 3,777,645 753,582 1,989,393 717,750 303,815 695,984
======== ========== ========= ========== ======== ======== =========
* For the period from April 28, 2008 through December 31, 2008
See accompanying notes to financial statements.
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SEGREGATED SUB-ACCOUNTS
-------------------------------------------------------------------------------------------
FIDELITY VIP FIDELITY VIP
FIDELITY VIP FIDELITY VIP GROWTH FIDELITY VIP INVESTMENT FIDELITY VIP FIDELITY VIP
BALANCED GROWTH OPPORTUNITIES INDEX 500 GRADE BOND MID-CAP MONEY MARKET
------------ ------------ ------------- ------------ ------------ ------------ ------------
Operations:
Investment income (loss) - net $ 4,772 26,153 2,101 38,514 16,593 10,587 25,415
Net realized gains (losses) on
investments (33,544) 275,038 (426) 3,064 (1,989) 905,096 --
Net change in unrealized
appreciation or depreciation
of investments (101,085) (3,140,298) (841,493) (861,222) (29,540) (3,423,207) --
--------- ---------- --------- --------- -------- ---------- ---------
Net increase (decrease) in net
assets resulting from operations (129,857) (2,839,107) (839,818) (819,644) (14,936) (2,507,524) 25,415
--------- ---------- --------- --------- -------- ---------- ---------
Policy transactions
(notes 3 and 6):
Policy purchase payments 253,054 1,452,704 513,410 781,107 216,446 1,084,828 948,723
Policy terminations, withdrawal
payments and charges (214,906) (2,256,045) (608,613) (766,245) (194,508) (2,457,717) (718,142)
--------- ---------- --------- --------- -------- ---------- ---------
Increase (decrease) in net assets
from Policy transactions 38,148 (803,341) (95,203) 14,862 21,938 (1,372,889) 230,581
--------- ---------- --------- --------- -------- ---------- ---------
Increase (decrease) in net assets (91,709) (3,642,448) (935,021) (804,782) 7,002 (3,880,413) 255,996
Net assets at the beginning of year 333,027 6,698,843 1,632,659 2,263,786 434,158 7,530,396 876,673
--------- ---------- --------- --------- -------- ---------- ---------
Net assets at the end of year $ 241,318 3,056,395 697,638 1,459,004 441,160 3,649,983 1,132,669
========= ========== ========= ========= ======== ========== =========
See accompanying notes to financial statements.
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SEGREGATED SUB-ACCOUNTS
---------------------------------------------------------------------------------------------
FIDELITY VIP FIDELITY VIP FIDELITY VIP FIDELITY VIP
FIDELITY VIP AGGRESSIVE DYNAMIC CAPITAL FIDELITY VIP VALUE GROWTH FIDELITY VIP
OVERSEAS GROWTH APPRECIATION VALUE STRATEGY STOCK REAL ESTATE
------------ ------------ --------------- ------------ ------------ ------------ ------------
Operations:
Investment income (loss) - net $ 80,915 (390) 1,188 526 881 (20) 4,681
Net realized gains (losses) on
investments 564,829 (29,328) (12,971) (19,222) (7,518) (4,483) (53,927)
Net change in unrealized
appreciation or depreciation
of investments (2,504,123) (70,045) (99,634) (30,100) (100,259) (15,187) (23,443)
----------- -------- -------- -------- -------- ------- -------
Net increase (decrease) in net
assets resulting from operations (1,858,379) (99,763) (111,417) (48,796) (106,896) (19,690) (72,689)
----------- -------- -------- -------- -------- ------- -------
Policy transactions
(notes 3 and 6):
Policy purchase payments 754,190 96,601 82,173 32,705 54,296 29,169 92,161
Policy terminations, withdrawal
payments and charges (1,030,518) (116,821) (69,408) (90,730) (70,774) (18,162) (72,131)
----------- -------- -------- -------- -------- ------- -------
Increase (decrease) in net assets
from Policy transactions (276,328) (20,220) 12,765 (58,025) (16,478) 11,007 20,030
----------- -------- -------- -------- -------- ------- -------
Increase (decrease) in net assets (2,134,707) (119,983) (98,652) (106,821) (123,374) (8,683) (52,659)
Net assets at the beginning of year 4,447,629 234,606 273,044 157,282 219,942 37,168 176,866
----------- -------- -------- -------- -------- ------- -------
Net assets at the end of year $ 2,312,922 114,623 174,392 50,461 96,568 28,485 124,207
=========== ======== ======== ======== ======== ======= =======
See accompanying notes to financial statements.
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SEGREGATED SUB-ACCOUNTS
------------------------------------------------------------------------------------------
FIDELITY VIP FIDELITY VIP FIDELITY VIP
STRATEGIC INTL CAPITAL VALUE FIDELITY VIP FIDELITY VIP FIDELITY VIP FIDELITY VIP
INCOME APPRECIATION LEADERS FREEDOM 2010 FREEDOM 2015 FREEDOM 2020 FREEDOM 2025
------------ ------------ ------------ ------------ ------------ ------------ ------------
Operations:
Investment income (loss) - net $ 2,543 (323) 259 332 312 297 371
Net realized gains (losses) on
investments (342) (33,492) (3,107) (1,218) (213) (1,092) (669)
Net change in unrealized
appreciation or depreciation
of investments (7,216) (49,833) (3,755) (2,356) (2,765) (2,797) (3,432)
-------- ------- ------- ------ ------ ------ ------
Net increase (decrease) in net
assets resulting from operations (5,015) (83,648) (6,603) (3,242) (2,666) (3,592) (3,730)
-------- ------- ------- ------ ------ ------ ------
Policy transactions
(notes 3 and 6):
Policy purchase payments 15,826 101,124 16,637 14,365 14,140 13,776 13,298
Policy terminations, withdrawal
payments and charges (19,304) (57,869) (12,228) (9,087) (5,764) (7,851) (6,266)
-------- ------- ------- ------ ------ ------ ------
Increase (decrease) in net assets
from Policy transactions (3,478) 43,255 4,409 5,278 8,376 5,925 7,032
-------- ------- ------- ------ ------ ------ ------
Increase (decrease) in net assets (8,493) (40,393) (2,194) 2,036 5,710 2,333 3,302
Net assets at the beginning of year 54,960 134,225 14,143 8,260 3,877 7,268 8,564
-------- ------- ------- ------ ------ ------ ------
Net assets at the end of year $ 46,467 93,832 11,949 10,296 9,587 9,601 11,866
======== ======= ======= ====== ====== ====== ======
See accompanying notes to financial statements.
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SEGREGATED SUB-ACCOUNTS
--------------------------------------------------------------------------------------
FIDELITY VIP FIDELITY VIP FIDELITY VIP JANUS JANUS ASPEN LORD ABBETT
FIDELITY VIP FREEDOM DISCIPLINED EMERGING ASPEN INTERNATIONAL MID-CAP
FREEDOM 2030 INCOME SMALL CAP MARKETS* FORTY GROWTH VALUE
------------ ------------ ------------ ------------ ------- ------------- -----------
Operations:
Investment income (loss) - net $ 1,490 185 243 321 (465) 29,159 23,657
Net realized gains (losses) on
investments (3,026) (1,642) (3,091) (13,698) 3,637 465,332 (180,803)
Net change in unrealized
appreciation or depreciation
of investments (14,094) (637) (10,208) (11,541) (68,234) (2,424,465) (732,301)
-------- ------- ------- ------- ------- ---------- ---------
Net increase (decrease) in net
assets resulting from operations (15,630) (2,094) (13,056) (24,918) (65,062) (1,929,974) (889,447)
-------- ------- ------- ------- ------- ---------- ---------
Policy transactions
(notes 3 and 6):
Policy purchase payments 70,422 17,036 27,606 68,499 52,451 182,293 580,683
Policy terminations, withdrawal
payments and charges (31,093) (13,316) (17,227) (22,421) (12,528) (91,837) (578,862)
-------- ------- ------- ------- ------- ---------- ---------
Increase (decrease) in net assets
from Policy transactions 39,329 3,720 10,379 46,078 39,923 90,456 1,821
-------- ------- ------- ------- ------- ---------- ---------
Increase (decrease) in net assets 23,699 1,626 (2,677) 21,160 (25,139) (1,839,518) (887,626)
Net assets at the beginning of year 27,033 4,065 33,631 -- 108,479 3,609,018 2,244,695
-------- ------- ------- ------- ------- ---------- ---------
Net assets at the end of year $ 50,732 5,691 30,954 21,160 83,340 1,769,500 1,357,069
======== ======= ======= ======= ======= ========== =========
* For the period from April 28, 2008 through December 31, 2008
See accompanying notes to financial statements.
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SEGREGATED SUB-ACCOUNTS
------------------------------------------------------------------------------------------------
IVY FUNDS
IVY FUNDS VIP IVY FUNDS VIP IVY FUNDS VIP VIP
IVY FUNDS VIP IVY FUNDS VIP INTERNATIONAL SMALL CAP IVY FUNDS VIP MICRO-CAP SMALL CAP
BALANCED GROWTH VALUE GROWTH VALUE GROWTH VALUE
------------- ------------- ------------- ------------- ------------- ------------- ------------
Operations:
Investment income (loss) - net $ 5,693 (2,558) 10,170 (954) (239) (472) (464)
Net realized gains (losses) on
investments 56,512 44,993 (61,803) (8,813) (283) 1,136 (36,096)
Net change in unrealized
appreciation or depreciation
of investments (2,124,233) (1,222,640) (1,399,568) (89,056) (71,383) (70,791) (10,049)
----------- ---------- ---------- -------- ------- ------- --------
Net increase (decrease) in net
assets resulting from operations (2,062,028) (1,180,205) (1,451,201) (98,823) (71,905) (70,127) (46,609)
----------- ---------- ---------- -------- ------- ------- --------
Policy transactions
(notes 3 and 6):
Policy purchase payments 388,684 102,141 294,173 48,699 55,535 18,717 21,703
Policy terminations, withdrawal
payments and charges (818,168) (288,437) (960,684) (94,188) (42,934) (11,673) (153,228)
----------- ---------- ---------- -------- ------- ------- --------
Increase (decrease) in net assets
from Policy transactions (429,484) (186,296) (666,511) (45,489) 12,601 7,044 (131,525)
----------- ---------- ---------- -------- ------- ------- --------
Increase (decrease) in net assets (2,491,512) (1,366,501) (2,117,712) (144,312) (59,304) (63,083) (178,134)
Net assets at the beginning of year 9,923,269 3,378,957 4,079,177 284,349 206,714 141,228 255,334
----------- ---------- ---------- -------- ------- ------- --------
Net assets at the end of year $ 7,431,757 2,012,456 1,961,465 140,037 147,410 78,145 77,200
=========== ========== ========== ======== ======= ======= ========
See accompanying notes to financial statements.
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SEGREGATED SUB-ACCOUNTS
---------------------------------------------------
IVY FUNDS VIP VAN ECK
IVY FUNDS VIP SCIENCE & GLOBAL
CORE EQUITY TECHNOLOGY HARD ASSETS TOTAL
------------- ------------- ----------- -----------
Operations:
Investment income (loss) - net $ (91) (11) 4,628 515,193
Net realized gains (losses) on
investments 2,505 8,522 113,342 2,839,970
Net change in unrealized
appreciation or depreciation
of investments (33,839) (388,775) (1,152,816) (62,526,967)
-------- -------- ---------- -----------
Net increase (decrease) in net
assets resulting from operations (31,425) (380,264) (1,034,846) (59,171,804)
-------- -------- ---------- -----------
Policy transactions
(notes 3 and 6):
Policy purchase payments 17,042 733,264 1,179,728 30,427,042
Policy terminations, withdrawal
payments and charges (13,106) (69,345) (398,255) (31,260,574)
-------- -------- ---------- -----------
Increase (decrease) in net assets
from Policy transactions 3,936 663,919 781,473 (833,532)
-------- -------- ---------- -----------
Increase (decrease) in net assets (27,489) 283,655 (253,373) (60,005,336)
Net assets at the beginning of year 86,473 670,272 1,452,935 184,672,055
-------- -------- ---------- -----------
Net assets at the end of year $ 58,984 953,927 1,199,562 124,666,719
======== ======== ========== ===========
See accompanying notes to financial statements.
1
NOTES TO FINANCIAL STATEMENTS
DECEMBER 31, 2009 AND 2008
(1) ORGANIZATION AND BASIS OF PRESENTATION
The Minnesota Life Variable Universal Life Account (the Account), was
established on August 8, 1994 as a segregated asset account of Minnesota Life
Insurance Company (Minnesota Life) under Minnesota law and is registered as a
unit investment trust under the Investment Company Act of 1940 (as amended). The
Account commenced operations on March 8, 1995. The Account currently offers four
types of policies, herein referred to as Option 1, 2, 3 and 4, consisting of
sixty-one segregated sub-accounts to which policy owners may allocate their
purchase payments and each having a different mortality and expense charge and
unit value. The Account charges a mortality and expense risk charge, which
varies based on the group-sponsored insurance program under which the policy is
issued. The differentiating features of the policies are described in note 3
below.
The assets of each segregated sub-account are held for the exclusive benefit of
the group-sponsored variable universal life insurance policy owners and are not
chargeable with liabilities arising out of the business conducted by any other
account or by Minnesota Life. Variable universal life policy owners allocate
their purchase payments to one or more of the sixty-one segregated sub-accounts.
Such payments are then invested in shares of the Advantus Series Fund, Inc.,
Black Rock Funds, Inc., Fidelity Variable Insurance Products Fund, Janus Aspen
Series, Lord Abbett Funds, Inc., Ivy Funds VIP, Inc., or Van Eck Funds, Inc.
(collectively, the Underlying Funds). Each of the Underlying Funds is registered
under the Investment Company Act of 1940 (as amended) as a diversified (except
Advantus International Bond Portfolio which is non-diversified), open-end
management investment company.
Securian Financial Services, Inc. (Securian) acts as the underwriter for the
Account. Advantus Capital Management, (Advantus) acts as the investment advisor
for the Advantus Series Funds, Inc. Both Securian and Advantus are affiliate
companies of Minnesota Life.
(2) SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
USE OF ESTIMATES
The preparation of financial statements in conformity with U.S. generally
accepted accounting principles requires management to make estimates and
assumptions that affect the reported amounts in the financial statements and
disclosure of contingent assets and liabilities. Actual results could differ
from those estimates.
INVESTMENTS IN UNDERLYING FUNDS
Investments in shares of the Underlying Funds are stated at fair value which is
the net asset value per share as determined daily by each Underlying Fund.
Investment transactions are recorded on a trade date basis. The cost of
investments sold is determined on the first-in first-out basis.
All dividend distributions received from the Underlying Funds are reinvested in
additional shares of the Underlying Funds and are recorded by the sub-accounts
on the ex-dividend date. The Advantus Series Fund, Inc. Portfolios and other
non-affiliated funds may utilize consent dividends to effectively distribute
income for income tax purposes. The Account "consents" to treat these amounts as
dividend income for tax purposes although they are not paid by the Underlying
Funds. Therefore, no investment income is recorded in the statements of
operations related to such consent dividends.
FEDERAL INCOME TAXES
The Account is treated as part of Minnesota Life for federal income tax
purposes. Under current interpretation of existing federal income tax law, no
income taxes are payable on investment income or capital gain distributions
received by the Account from the Underlying Funds. Any applicable taxes will be
the responsibility of the policy owners or beneficiaries upon termination or
withdrawal.
2
INVESTMENTS
During the year ended December 31, 2008, several portfolios merged. The
portfolio names and effective date of the mergers are summarized in the
following table.
[Enlarge/Download Table]
CLOSED PORTFOLIO RECEIVING PORTFOLIO DATE MERGED
----------------------------------- --------------------------------- -------------
Waddell & Reed Balanced Ivy Funds VIP Balanced July 31, 2008
Waddell & Reed Growth Ivy Funds VIP Growth July 31, 2008
Waddell & Reed International Value Ivy Funds VIP International Value July 31, 2008
Waddell & Reed Small Cap Growth Ivy Funds VIP Small Cap Growth July 31, 2008
Waddell & Reed Value Ivy Funds VIP Value July 31, 2008
Waddell & Reed Micro-Cap Growth Ivy Funds VIP Micro-Cap Growth July 31, 2008
Waddell & Reed Small Cap Value Ivy Funds VIP Small Cap Value July 31, 2008
Waddell & Reed Core Equity Ivy Funds VIP Core Equity July 31, 2008
(3) EXPENSES AND RELATED PARTY TRANSACTIONS
OPTION 1:
The mortality and expense charge paid to Minnesota Life is computed daily and is
equal, on an annual basis, to 0.50 percent of the average daily net assets of
the Account. This charge is an expense of the Account and is deducted daily from
net assets of the Account. This is charged through the daily unit value
calculation.
Policy purchase payments are reflected net of the following charges paid to
Minnesota Life:
A sales load of up to 5.00 percent is deducted from each premium payment.
The total sales charges deducted from premium payments for the years ended
December 31, 2009 and 2008 amounted to $37,232 and $50,091, respectively.
A premium tax charge in the amount of 0.75 to 4.00 percent is deducted from
each premium payment. Premium taxes are paid to state and local
governments. Total premium tax charges deducted from premium payments for
the years ended December 31, 2009 and 2008 amounted to $52,854 and $54,528,
respectively.
A federal tax charge of up to 0.35 percent for group-sponsored policies and
up to 1.25 percent for an individual policy is deducted from each premium
payment. The federal tax charge is paid to offset additional corporate
federal income taxes incurred by Minnesota Life under the Omnibus Budget
Reconciliation Act of 1990. Total federal tax charges for the years ended
December 31, 2009 and 2008 amounted to $6,690 and $8,465, respectively.
In addition to deductions from premium payments, an administration charge, a
partial surrender charge, a cost of insurance charge and a charge for additional
benefits provided by rider, which is an optional benefit available for
additional cost, subject to age and contract, if any, are assessed from the
actual cash value of each policy. These charges are paid by redeeming units of
the Account held by the policy owner. The administration charge varies based
upon the number of eligible members in a group-sponsored program and ranges from
$1 to $4 per month. The partial surrender charge is to cover administrative
costs incurred by Minnesota Life. The amount of the partial surrender charge is
the lesser of $25 or two percent of the amount withdrawn. The cost of insurance
charge varies with the amount of insurance, the insured's age, rate class of the
insured and gender mix of the group-sponsored contract. See the table below for
these charges.
3
The total cash value charges for the years ended December 31, 2009 and 2008 for
each applicable segregated sub-account are as follows:
[Download Table]
2009 2008
-------- --------
Advantus Bond Class 2 $ 6,455 $ 5,778
Advantus Money Market 55,585 50,266
Advantus Index 500 Class 2 288,700 286,955
Advantus Mortgage Securities Class 2 5,237 4,700
Advantus International Bond Class 2 1,248 1,517
Advantus Index 400 Mid-Cap Class 2 12,193 12,019
Advantus Real Estate Securities Class 2 4,882 3,876
Fidelity VIP Contrafund 24,665 20,186
Fidelity VIP Equity-Income 241,828 203,222
Fidelity VIP High Income 4,076 2,990
Janus Aspen Forty 9,899 9,596
Janus Aspen International Growth 10,506 8,218
Ivy Funds VIP Balanced 47,197 42,385
Ivy Funds VIP Growth 45,526 47,257
Ivy Funds VIP International Value 16,234 16,019
Ivy Funds VIP Small Cap Growth 27,461 25,901
Ivy Funds VIP Value 26,078 19,635
Ivy Funds VIP Micro-Cap Growth 5,526 4,259
Ivy Funds VIP Small Cap Value 9,035 7,356
Ivy Funds VIP Core Equity 1,579 3,884
To the extent the Account invests in the Advantus Series Fund, Inc., the Account
indirectly incurs management fees that are payable to Advantus. The advisory fee
agreement provides for payments ranging from 0.15 percent to 0.70 percent of
average daily net assets. In addition, the Advantus Series Fund, Inc. has
adopted a Rule 12b-1 distribution plan covering all its portfolios. Under the
plan, the Advantus Series Fund, Inc. pays distribution fees equal to 0.25
percent of average daily net assets to Securian. The Advantus Series Fund, Inc.
also pays an administrative services fee to Minnesota Life. In addition, each
Portfolio pays an annual fee ranging from 0.02 percent to 1.19 percent of net
assets to State Street, Inc. for daily fund accounting services.
To the extent the Account invests in non-affiliated funds, the Account will also
indirectly incur fees.
OPTION 2:
The mortality and expense charge paid to Minnesota Life is computed daily and is
equal, on an annual basis, to 0.25 percent of the average daily net assets of
the Account. This charge is an expense of the Account and is deducted daily from
net assets of the Account. This is charged through the daily unit value
calculation.
Policy purchase payments are reflected net of the following charges paid to
Minnesota Life:
A sales load of up to 5.00 percent is deducted from each premium payment.
The total sales charges deducted from premium payments for the years ended
December 31, 2009 and 2008 amounted to $44,775 and $35,928, respectively.
A premium tax charge in the amount of 0.75 to 4.00 percent is deducted from
each premium payment. Premium taxes are paid to state and local
governments. Total premium tax charges deducted from premium payments for
the years ended December 31, 2009 and 2008 amounted to $455,722 and
$416,207, respectively.
4
A federal tax charge of up to 0.35 percent for group-sponsored policies and
up to 1.25 percent for an individual policy is deducted from each premium
payment. The federal tax charge is paid to offset additional corporate
federal income taxes incurred by Minnesota Life under the Omnibus Budget
Reconciliation Act of 1990. Total federal tax charges for the years ended
December 31, 2009 and 2008 amounted to $56,999 and $72,063, respectively.
In addition to deductions from premium payments, an administration charge, a
partial surrender charge, a cost of insurance charge and a charge for additional
benefits provided by rider, which is an optional benefit available for
additional cost, subject to age and contract, if any, are assessed from the
actual cash value of each policy. These charges are paid by redeeming units of
the Account held by the policy owner. The administration charge varies based
upon the number of eligible members in a group-sponsored program and ranges from
$1 to $4 per month. The partial surrender charge is to cover administrative
costs incurred by Minnesota Life. The amount of the partial surrender charge is
the lesser of $25 or two percent of the amount withdrawn. The cost of insurance
charge varies with the amount of insurance, the insured's age, rate class of the
insured and gender mix of the group-sponsored contract. See the table below for
these charges.
The total cash value charges for the years ended December 31, 2009 and 2008 for
each applicable segregated sub-account are as follows:
[Download Table]
2009 2008
---------- ----------
Advantus Bond Class 2 $ 183,842 $ 169,038
Advantus Money Market 628,896 321,701
Advantus Index 500 Class 2 383,567 347,549
Advantus Mortgage Securities Class 2 3,956 3,050
Advantus International Bond Class 2 19,512 10,527
Advantus Index 400 Mid-Cap Class 2 193,946 186,554
Advantus Real Estate Securities Class 2 15,402 22,644
Black Rock Global Growth V.I 2,533 230
Fidelity VIP Contrafund 1,252,194 1,255,619
Fidelity VIP Growth & Income 398,989 422,895
Fidelity VIP Equity-Income 257,220 257,262
Fidelity VIP High Income 170,225 168,264
Fidelity VIP Asset Manager 145,363 126,496
Fidelity VIP Asset Manager Growth 276,802 283,902
Fidelity VIP Balanced 161,435 153,874
Fidelity VIP Growth 1,259,768 1,348,315
Fidelity VIP Growth Opportunities 423,923 442,114
Fidelity VIP Index 500 602,391 618,486
Fidelity VIP Investment Grade Bond 142,382 118,470
Fidelity VIP Mid-Cap 893,890 892,922
Fidelity VIP Money Market 463,714 404,220
Fidelity VIP Overseas 548,840 582,763
Fidelity VIP Aggressive Growth 77,195 64,881
Fidelity VIP Dynamic Capital Appreciation 27,286 24,066
Fidelity VIP Value 27,244 20,912
Fidelity VIP Value Strategy 27,804 28,851
Fidelity VIP Growth Stock 20,450 16,378
Fidelity VIP Real Estate 46,668 49,386
Fidelity VIP Strategic Income 10,238 5,958
Fidelity VIP International Capital Appreciation 42,982 26,956
Fidelity VIP Value Leaders 5,203 4,128
5
[Download Table]
2009 2008
------- -------
Fidelity VIP Freedom 2010 $ 7,004 $ 6,871
Fidelity VIP Freedom 2015 3,139 3,995
Fidelity VIP Freedom 2020 12,267 7,468
Fidelity VIP Freedom 2025 10,461 5,528
Fidelity VIP Freedom 2030 37,727 26,239
Fidelity VIP Freedom Income 1,996 1,648
Fidelity VIP Disciplined Small Cap 10,698 7,404
Fidelity VIP Emerging Markets 7,709 1,890
Janus Aspen Forty 15,025 3,503
Janus Aspen International Growth 52,414 25,467
Lord Abbett Mid-Cap Value 4,638 4,479
Ivy Funds VIP Balanced 27,136 16,840
Ivy Funds VIP Growth 26,227 18,135
Ivy Funds VIP International Value 24,161 19,169
Ivy Funds VIP Small Cap Growth 20,307 11,322
Ivy Funds VIP Value 12,508 10,785
Ivy Funds VIP Micro-Cap Growth 5,191 3,961
Ivy Funds VIP Small Cap Value 10,371 7,257
Ivy Funds VIP Core Equity 6,184 4,348
Ivy Funds VIP Science & Technology 78 99
Van Eck Global Hard Assets 69 108
To the extent the Account invests in the Advantus Series Fund, Inc., the Account
indirectly incurs management fees that are payable to Advantus. The advisory fee
agreement provides for payments ranging from 0.15 percent to 0.70 percent of
average daily net assets. In addition, the Advantus Series Fund, Inc. has
adopted a Rule 12b-1 distribution plan covering all its portfolios. Under the
plan, the Advantus Series Fund, Inc. pays distribution fees equal to 0.25
percent of average daily net assets to Securian. The Advantus Series Fund, Inc.
also pays an administrative services fee to Minnesota Life. In addition, each
Portfolio pays an annual fee ranging from 0.02 percent to 1.19 percent of net
assets to State Street, Inc. for daily fund accounting services.
To the extent the Account invests in non- affiliated funds, the Account will
also indirectly incur fees.
OPTION 3:
There is no mortality and expense charge on Option 3 policies.
Policy purchase payments are reflected net of the following charges paid to
Minnesota Life:
A sales load of up to 5.00 percent is deducted from each premium payment.
The total sales charges deducted from premium payments for the years ended
December 31, 2009 and 2008 amounted to $11,065 and $1,937, respectively.
A premium tax charge in the amount of 0.75 to 4.00 percent is deducted
from each premium payment. Premium taxes are paid to state and local
governments. Total premium tax charges deducted from premium payments for
the years ended December 31, 2009 and 2008 amounted to $14,405 and $2,442,
respectively.
A federal tax charge of up to 0.35 percent for group-sponsored policies and up
to 1.25 percent for an individual policy is deducted from each premium payment.
The federal tax charge is paid to offset additional corporate federal income
taxes incurred by Minnesota Life under the Omnibus 6
6
Budget Reconciliation Act of 1990. Total federal tax charges for the years
ended December 31, 2009 and 2008 amounted to $8,829 and $1,456,
respectively.
In addition to deductions from premium payments, an administration charge, a
partial surrender charge, a cost of insurance charge and a charge for additional
benefits provided by rider, which is an optional benefit available for
additional cost, subject to age and contract, if any, are assessed from the
actual cash value of each policy. These charges are paid by redeeming units of
the Account held by the policy owner. The administration charge varies based
upon the number of eligible members in a group-sponsored program and ranges from
$1 to $4 per month. The partial surrender charge is to cover administrative
costs incurred by Minnesota Life. The amount of the partial surrender charge is
the lesser of $25 or two percent of the amount withdrawn. The cost of insurance
charge varies with the amount of insurance, the insured's age, rate class of the
insured and gender mix of the group-sponsored contract. See the table below for
these charges.
The total cash value charges for the years ended December 31, 2009 and 2008, for
each applicable segregated sub-accounts are as follows:
[Download Table]
2009 2008
---------- ----------
Advantus Bond Class 2 $1,089,865 $1,057,608
Advantus Money Market 660,522 539,198
Advantus Index 500 Class 2 1,872,656 1,599,685
Advantus Index 400 Mid-Cap Class 2 1,185,476 1,153,377
Advantus Real Estate Securities Class 2 51,486 45,668
Ivy Funds VIP Balanced 122,107 155,023
Ivy Funds VIP Growth 78,378 63,464
To the extent the Account invests in the Advantus Series Fund, Inc., the Account
indirectly incurs management fees that are payable to Advantus. The advisory fee
agreement provides for payments ranging from 0.15 percent to 0.70 percent of
average daily net assets. In addition, the Advantus Series Fund, Inc. has
adopted a Rule 12b-1 distribution plan covering all its portfolios. Under the
plan, the Advantus Series Fund, Inc. pays distribution fees equal to 0.25
percent of average daily net assets to Securian. The Advantus Series Fund, Inc.
also pays an administrative services fee to Minnesota Life. In addition, each
Portfolio pays an annual fee ranging from 0.02 percent to 1.19 percent of net
assets to State Street, Inc. for daily fund accounting services.
To the extent the Account invests in non-affiliated funds, the Account will also
indirectly incur fees.
OPTION 4:
There is no mortality and expense charge on Option 4 policies; however, there is
a 0.10 percent administrative charge.
Policy purchase payments are reflected net of the following charges paid to
Minnesota Life:
A premium tax charge in the amount of 0.75 to 4.00 percent is deducted from
each premium payment. Premium taxes are paid to state and local
governments. There were no premium tax charges deducted from premium
payments for the years ended December 31, 2009 and 2008.
A federal tax charge of up to 0.35 percent for group-sponsored policies and
up to 1.25 percent for an individual policy is deducted from each premium
payment. The federal tax charge is paid to offset additional corporate
federal income taxes incurred by Minnesota Life under the Omnibus Budget
Reconciliation Act of 1990. There were no federal tax charges for the years
ended December 31, 2009 and 2008.
7
In addition to deductions from premium payments, an administration charge, a
partial surrender charge, a cost of insurance charge and a charge for additional
benefits provided by rider, which is an optional benefit available for
additional cost, subject to age and contract, if any, are assessed from the
actual cash value of each policy. These charges are paid by redeeming units of
the Account held by the policy owner. The administration charge varies based
upon the number of eligible members in a group-sponsored program and ranges from
$1 to $4 per month. The partial surrender charge is to cover administrative
costs incurred by Minnesota Life. The amount of the partial surrender charge is
the lesser of $25 or two percent of the amount withdrawn. The cost of insurance
charge varies with the amount of insurance, the insured's age, rate class of the
insured and gender mix of the group-sponsored contract. There were no cash value
charges for the years ended December 31, 2009 and 2008.
To the extent the Account invests in the Advantus Series Fund, Inc., the Account
indirectly incurs management fees that are payable to Advantus. The advisory fee
agreement provides for payments ranging from 0.15 percent to 0.70 percent of
average daily net assets. In addition, the Advantus Series Fund, Inc. has
adopted a Rule 12b-1 distribution plan covering all its portfolios. Under the
plan, the Advantus Series Fund, Inc. pays distribution fees equal to 0.25
percent of average daily net assets to Securian. The Advantus Series Fund, Inc.
also pays an administrative services fee to Minnesota Life. In addition, each
Portfolio pays an annual fee ranging from 0.02 percent to 1.19 percent of net
assets to State Street, Inc. for daily fund accounting services.
To the extent the Account invests in non-affiliated funds, the Account will also
indirectly incur fees.
(4) FAIR VALUE MEASUREMENTS
The Account has established a three-tier hierarchy to maximize the use of
observable market data and minimize the use of unobservable inputs and to
establish classification of fair value measurements for disclosure purposes.
Inputs refer broadly to the assumptions that market participants would use in
pricing the asset or liability, including assumptions about risk, for example,
the risk inherent in a particular valuation technique used to measure fair value
including such a pricing model and/or the risk inherent in the inputs to the
valuation technique. Inputs may be observable or unobservable. Observable inputs
are inputs that reflect the assumptions market participants would use in pricing
the asset or liability based on market data obtained from sources independent of
the reporting entity. Unobservable inputs are inputs that reflect the reporting
entity's own assumptions about the assumptions market participants would use in
pricing the asset or liability based on the best information available in the
circumstances.
The three-tier hierarchy of inputs is summarized below.
Level 1 - quoted prices in active markets for identical investments.
Level 2 - other significant observable inputs (including quoted prices for
similar investments, interest rates, prepayment speeds, credit risk, etc.).
Level 3 - significant unobservable inputs (including the Account's own
assumptions in determining the fair value of investments).
The valuation techniques used by the Account to measure fair value during the
year ended December 31, 2009 maximized the use of observable inputs and
minimized the use of unobservable inputs.
For the year ended December 31, 2009, all investments in the Account were valued
using Level 1 inputs. There were no Level 2 or Level 3 inputs used to value the
investments during the period.
8
NOTES TO FINANCIAL STATEMENTS
DECEMBER 31, 2009 AND 2008
(5) INVESTMENT TRANSACTIONS
The Account's purchases of Underlying Funds shares, including reinvestment
of dividend distributions, were as follows during the period ended December
31, 2009:
[Download Table]
Advantus Bond Class 2 $ 1,580,581
Advantus Money Market 3,208,331
Advantus Index 500 Class 2 26,935,679
Advantus Mortgage Securities Class 2 206,619
Advantus International Bond Class 2 19,222
Advantus Index 400 Mid-Cap Class 2 9,123,375
Advantus Real Estate Securities Class 2 621,489
Black Rock Global Growth V.I. 294,011
Fidelity VIP Contrafund 1,457,071
Fidelity VIP Growth & Income 388,459
Fidelity VIP Equity-Income 353,530
Fidelity VIP High Income 370,394
Fidelity VIP Asset Manager 145,511
Fidelity VIP Asset Manager Growth 271,566
Fidelity VIP Balanced 183,259
Fidelity VIP Growth 1,251,685
Fidelity VIP Growth Opportunities 422,045
Fidelity VIP Index 500 718,602
Fidelity VIP Investment Grade Bond 386,447
Fidelity VIP Mid-Cap 856,194
Fidelity VIP Money Market 754,888
Fidelity VIP Overseas 641,475
Fidelity VIP Aggressive Growth 88,279
Fidelity VIP Dynamic Capital Appreciation 40,105
Fidelity VIP Value 48,407
Fidelity VIP Value Strategy 46,328
Fidelity VIP Growth Stock 22,223
Fidelity VIP Real Estate 95,227
Fidelity VIP Strategic Income 88,038
Fidelity VIP Intl Capital Appreciation 77,399
Fidelity VIP Value Leaders 12,885
Fidelity VIP Freedom 2010 12,615
Fidelity VIP Freedom 2015 4,225
Fidelity VIP Freedom 2020 19,158
Fidelity VIP Freedom 2025 15,577
Fidelity VIP Freedom 2030 69,858
Fidelity VIP Freedom Income 6,826
Fidelity VIP Disciplined Small Cap 28,343
Fidelity VIP Emerging Markets 120,746
Fidelity VIP Freedom 2035 3,355
Fidelity VIP Freedom 2040 3,992
Fidelity VIP Freedom 2045 3,116
Fidelity VIP Freedom 2050 14,314
9
[Download Table]
Fidelity VIP Funds Manager 20% $ 9,444
Fidelity VIP Funds Manager 50% 3,691
Fidelity VIP Funds Manager 60% 3,668
Fidelity VIP Funds Manager 70% 16,866
Fidelity VIP Funds Manager 85% 72,283
Janus Aspen Forty 52,498
Janus Aspen Overseas 765,248
Lord Abbett Mid-Cap Growth 513,223
Ivy Funds VIP Balanced 1,239,319
Ivy Funds VIP Growth 146,133
Ivy Funds VIP International Value 1,218,861
Ivy Funds VIP Small Cap Growth 66,104
Ivy Funds VIP Value 53,200
Ivy Funds VIP Micro-Cap Growth 27,989
Ivy Funds VIP Small Cap Value 34,420
Ivy Funds VIP Core Equity 17,930
Ivy Funds VIP Science & Technology 981,164
Van Eck Global Hard Assets 1,116,489
10
(6) UNIT ACTIVITY FROM CONTRACT TRANSACTIONS
Transactions in units for each segregated sub-account for the years ended
December 31, 2009 and 2008 were as follows:
[Enlarge/Download Table]
SEGREGATED SUB-ACCOUNTS
---------------------------------------------------------------------
ADVANTUS ADVANTUS ADVANTUS
ADVANTUS ADVANTUS INDEX MORTGAGE INTERNATIONAL
BOND MONEY 500 SECURITIES BOND
CLASS 2 MARKET CLASS 2 CLASS 2 CLASS 2
----------- ----------- ----------- ----------- -------------
Units outstanding at
December 31, 2007 21,254,138 4,084,922 27,142,223 336,619 16,386
Contract purchase payments 1,899,163 2,228,021 3,742,366 101,784 507,308
Contract terminations, withdrawal
payments and charges (1,873,709) (3,269,086) (2,766,201) (67,525) (8,370)
----------- ---------- ---------- ------- -------
Units outstanding at
December 31, 2008 21,279,592 3,043,857 28,118,388 370,878 515,324
Contract purchase payments 1,152,653 2,279,932 17,906,703 196,811 10,588
Contract terminations, withdrawal
payments and charges (16,379,047) (1,669,569) (4,087,696) (64,675) (10,940)
----------- ---------- ---------- ------- -------
Units outstanding at
December 31, 2009 6,053,198 3,654,220 41,937,395 503,014 514,972
=========== ========== ========== ======= =======
[Enlarge/Download Table]
SEGREGATED SUB-ACCOUNTS
--------------------------------------------------------------------
ADVANTUS ADVANTUS
INDEX 400 REAL ESTATE BLACK ROCK FIDELITY VIP
MID-CAP SECURITIES GLOBAL FIDELITY VIP GROWTH &
CLASS 2 CLASS 2 GROWTH V.I. CONTRAFUND INCOME
----------- ----------- ----------- ------------ ------------
Units outstanding at
December 31, 2007 9,425,702 988,763 -- 2,133,286 956,528
Contract purchase payments 1,252,099 246,657 356,838 628,264 409,675
Contract terminations, withdrawal
payments and charges (1,227,759) (125,062) (10,931) (731,561) (421,745)
---------- --------- -------- --------- --------
Units outstanding at
December 31, 2008 9,450,042 1,110,358 345,907 2,029,989 944,458
Contract purchase payments 5,026,541 446,028 456,757 701,106 451,189
Contract terminations, withdrawal
payments and charges (3,665,065) (719,362) (802,664) (811,586) (593,838)
---------- --------- -------- --------- --------
Units outstanding at
December 31, 2009 10,811,518 837,024 -- 1,919,509 801,809
========== ========= ======== ========= ========
11
[Enlarge/Download Table]
SEGREGATED SUB-ACCOUNTS
------------------------------------------------------------------------
FIDELITY VIP FIDELITY VIP
FIDELITY VIP FIDELITY VIP ASSET ASSET FIDELITY VIP
EQUITY-INCOME HIGH INCOME MANAGER MANAGER GROWTH BALANCED
------------- ------------- ------------ -------------- ------------
Units outstanding at
December 31, 2007 1,623,499 665,142 343,454 987,645 237,996
Contract purchase payments 224,951 180,114 141,304 315,703 211,075
Contract terminations, withdrawal
payments and charges (396,086) (141,435) (168,324) (403,758) (187,290)
--------- -------- -------- -------- --------
Units outstanding at
December 31, 2008 1,452,364 703,821 316,434 899,590 261,781
Contract purchase payments 224,614 246,297 131,090 307,236 170,776
Contract terminations, withdrawal
payments and charges (412,570) (214,161) (176,005) (409,841) (181,049)
--------- -------- -------- -------- --------
Units outstanding at
December 31, 2009 1,264,408 735,957 271,519 796,985 251,508
========= ======== ======== ======== ========
[Enlarge/Download Table]
SEGREGATED SUB-ACCOUNTS
------------------------------------------------------------------------
FIDELITY VIP FIDELITY VIP
FIDELITY VIP GROWTH FIDELITY VIP INVESTMENT FIDELITY VIP
GROWTH OPPORTUNITIES INDEX 500 GRADE BOND MID-CAP
------------- ------------- ------------ -------------- ------------
Units outstanding at
December 31, 2007 6,707,809 1,401,041 1,977,961 274,299 2,760,890
Contract purchase payments 1,904,393 639,943 852,954 138,827 487,078
Contract terminations, withdrawal
payments and charges (2,804,945) (706,772) (802,472) (124,320) (1,032,621)
---------- --------- ---------- -------- ----------
Units outstanding at
December 31, 2008 5,807,257 1,334,212 2,028,443 288,806 2,215,347
Contract purchase payments 2,222,364 698,366 884,567 204,220 439,527
Contract terminations, withdrawal
payments and charges (2,635,170) (822,352) (1,036,983) (155,828) (762,832)
---------- --------- ---------- -------- ----------
Units outstanding at
December 31, 2009 5,394,451 1,210,226 1,876,027 337,198 1,892,042
========== ========= ========== ======== ==========
12
[Enlarge/Download Table]
SEGREGATED SUB-ACCOUNTS
-----------------------------------------------------------------------
FIDELITY VIP FIDELITY VIP
FIDELITY VIP FIDELITY VIP AGGRESSIVE DYNAMIC CAPITAL FIDELITY VIP
MONEY MARKET OVERSEAS GROWTH APPRECIATION VALUE
------------ ------------ ------------ --------------- ------------
Units outstanding at
December 31, 2007 696,339 3,109,554 190,430 199,090 102,938
Contract purchase payments 740,932 678,663 112,609 77,382 27,559
Contract terminations, withdrawal
payments and charges (561,831) (903,432) (120,965) (59,554) (68,567)
-------- --------- -------- ------- -------
Units outstanding at
December 31, 2008 875,440 2,884,785 182,074 216,918 61,930
Contract purchase payments 576,755 711,872 126,423 46,982 54,843
Contract terminations, withdrawal
payments and charges (644,622) (978,081) (123,836) (84,592) (50,162)
-------- --------- -------- ------- -------
Units outstanding at
December 31, 2009 807,573 2,618,576 184,661 179,308 66,611
======== ========= ======== ======= =======
[Enlarge/Download Table]
SEGREGATED SUB-ACCOUNTS
-----------------------------------------------------------------------
FIDELITY VIP FIDELITY VIP FIDELITY VIP FIDELITY VIP
VALUE GROWTH FIDELITY VIP STRATEGIC INTL CAPITAL
STRATEGY STOCK REAL ESTATE INCOME APPRECIATION
------------ ------------ ------------ -------------- -------------
Units outstanding at
December 31, 2007 130,496 22,366 81,542 47,734 115,687
Contract purchase payments 43,961 22,464 50,911 14,242 114,064
Contract terminations, withdrawal
payments and charges (56,850) (13,771) (36,979) (16,922) (65,337)
------- ------- ------- ------- -------
Units outstanding at
December 31, 2008 117,607 31,059 95,474 45,054 164,414
Contract purchase payments 46,216 21,046 73,993 70,894 110,327
Contract terminations, withdrawal
payments and charges (53,566) (21,486) (85,649) (34,982) (95,205)
------- ------- ------- ------- -------
Units outstanding at
December 31, 2009 110,257 30,619 83,818 80,966 179,536
======= ======= ======= ======= =======
13
[Enlarge/Download Table]
SEGREGATED SUB-ACCOUNTS
--------------------------------------------------------------------
FIDELITY VIP
VALUE FIDELITY VIP FIDELITY VIP FIDELITY VIP FIDELITY VIP
LEADERS FREEDOM 2010 FREEDOM 2015 FREEDOM 2020 FREEDOM 2025
------------ ------------ ------------ ------------ ------------
Units outstanding at
December 31, 2007 12,561 7,296 3,390 6,264 7,347
Contract purchase payments 18,974 14,192 13,748 14,017 14,592
Contract terminations, withdrawal
payments and charges (12,328) (9,322) (5,626) (7,973) (6,437)
------- ------- ------ ------- -------
Units outstanding at
December 31, 2008 19,207 12,166 11,512 12,308 15,502
Contract purchase payments 20,748 13,720 4,392 21,840 17,756
Contract terminations, withdrawal
payments and charges (25,634) (16,483) (9,620) (15,426) (16,962)
------- ------- ------ ------- -------
Units outstanding at
December 31, 2009 14,321 9,403 6,284 18,722 16,296
======= ======= ====== ======= =======
[Enlarge/Download Table]
SEGREGATED SUB-ACCOUNTS
---------------------------------------------------------------------
FIDELITY VIP FIDELITY VIP FIDELITY VIP
FIDELITY VIP FREEDOM DISCIPLINED EMERGING FIDELITY VIP
FREEDOM 2030 INCOME SMALL CAP MARKETS FREEDOM 2035*
------------ ------------ ------------ ------------ -------------
Units outstanding at
December 31, 2007 22,865 3,751 31,841 -- --
Contract purchase payments 77,946 16,100 30,770 82,452 --
Contract terminations, withdrawal
payments and charges (31,379) (13,975) (18,246) (35,100) --
------- ------- ------- ------- -----
Units outstanding at
December 31, 2008 69,432 5,876 44,365 47,352 --
Contract purchase payments 85,575 6,348 40,854 185,269 3,216
Contract terminations, withdrawal
payments and charges (56,548) (3,099) (27,343) (55,371) (36)
------- ------- ------- ------- -----
Units outstanding at
December 31, 2009 98,459 9,125 57,876 177,250 3,180
======= ======= ======= ======= =====
* Period from April 24, 2009 (commencement of operations) to December 31,
2009.
14
[Enlarge/Download Table]
SEGREGATED SUB-ACCOUNTS
-----------------------------------------------------------------------
FIDELITY VIP FIDELITY VIP
FIDELITY VIP FIDELITY VIP FIDELITY VIP FUNDS FUNDS
FREEDOM 2040* FREEDOM 2045* FREEDOM 2050* MANAGER 20%* MANAGER 50%*
------------- ------------- ------------- ------------ ------------
Units outstanding at
December 31, 2008 -- -- -- -- --
Contract purchase payments 3,794 3,032 12,273 9,132 3,535
Contract terminations, withdrawal
payments and charges (622) (14) (89) (5,577) (394)
----- ----- ------ ------ -----
Units outstanding at
December 31, 2009 3,172 3,018 12,184 3,555 3,141
===== ===== ====== ====== =====
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SEGREGATED SUB-ACCOUNTS
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FIDELITY VIP FIDELITY VIP FIDELITY VIP JANUS
FUNDS FUNDS FUNDS ASPEN JANUS ASPEN
MANAGER 60%* MANAGER 70%* MANAGER 85%* FORTY OVERSEAS
------------- ------------- ------------- ------------ ------------
Units outstanding at
December 31, 2007 96,474 2,171,720
Contract purchase payments 49,860 140,569
Contract terminations, withdrawal
payments and charges (14,207) (76,321)
----- ------ ------ ------- ---------
Units outstanding at
December 31, 2008 -- -- -- 132,127 2,235,968
Contract purchase payments 3,503 13,971 67,164 69,714 742,382
Contract terminations, withdrawal
payments and charges (170) (8) (679) (45,352) (635,420)
----- ------ ------ ------- ---------
Units outstanding at
December 31, 2009 3,333 13,963 66,485 156,489 2,342,930
===== ====== ====== ======= =========
* Period from April 24, 2009 (commencement of operations) to December 31,
2009.
15
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SEGREGATED SUB-ACCOUNTS
-------------------------------------------------------------------------
LORD ABBETT IVY FUNDS VIP IVY FUNDS VIP
MID-CAP IVY FUNDS VIP IVY FUNDS VIP INTERNATIONAL SMALL CAP
VALUE BALANCED GROWTH VALUE GROWTH
------------- ------------- ------------- ------------- -------------
Units outstanding at
December 31, 2007 1,878,489 6,819,183 3,036,214 2,123,896 131,380
Contract purchase payments 604,742 166,728 56,050 225,747 30,033
Contract terminations, withdrawal
payments and charges (611,333) (616,581) (196,231) (376,881) (53,232)
--------- ---------- ---------- ---------- -------
Units outstanding at
December 31, 2008 1,871,898 6,369,330 2,896,033 1,972,762 108,181
Contract purchase payments 653,794 560,550 70,207 1,135,199 48,387
Contract terminations, withdrawal
payments and charges (514,928) (6,331,818) (1,162,831) (1,120,479) (47,039)
--------- ---------- ---------- ---------- -------
Units outstanding at
December 31, 2009 2,010,764 598,062 1,803,409 1,987,482 109,529
========= ========== ========== ========== =======
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SEGREGATED SUB-ACCOUNTS
-------------------------------------------------------------------------
IVY FUNDS VIP IVY FUNDS VIP IVY FUNDS VIP
IVY FUNDS VIP MICRO-CAP SMALL CAP IVY FUNDS VIP SCIENCE &
VALUE GROWTH VALUE CORE EQUITY TECHNOLOGY
------------- ------------- ------------- ------------- -------------
Units outstanding at
December 31, 2007 102,995 60,789 124,946 69,575 605,914
Contract purchase payments 31,940 10,722 12,432 16,097 774,076
Contract terminations, withdrawal
payments and charges (25,658) (6,584) (83,780) (12,479) (75,617)
------- ------- ------- ------- ---------
Units outstanding at
December 31, 2008 109,277 64,927 53,598 73,193 1,304,373
Contract purchase payments 35,772 19,406 22,039 20,940 1,019,963
Contract terminations, withdrawal
payments and charges (37,051) (17,929) (15,529) (35,471) (440,736)
------- ------- ------- ------- ---------
Units outstanding at
December 31, 2009 107,998 66,404 60,108 58,662 1,883,600
======= ======= ======= ======= =========
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SEGREGATED SUB-ACCOUNTS
-----------------------
VAN ECK
GLOBAL
HARD ASSETS
-----------
Units outstanding at
December 31, 2007 1,221,726
Contract purchase payments 1,091,292
Contract terminations, withdrawal
payments and charges (441,062)
---------
Units outstanding at
December 31, 2008 1,871,956
Contract purchase payments 1,247,483
Contract terminations, withdrawal
payments and charges (476,565)
---------
Units outstanding at
December 31, 2009 2,642,874
=========
16
(7) FINANCIAL HIGHLIGHTS
A summary of units outstanding, unit values, net assets, ratios, and total
return for variable annuity contracts for the years ended December 31,
2009, 2008, 2007, 2006, and 2005 is as follows:
[Enlarge/Download Table]
AT DECEMBER 31 FOR THE YEARS ENDED DECEMBER 31
------------------------------------------ --------------------------------------------------------
UNITS UNIT FAIR VALUE INVESTMENT EXPENSE RATIO TOTAL RETURN
OUTSTANDING LOWEST TO HIGHEST NET ASSETS INCOME RATIO* LOWEST TO HIGHEST** LOWEST TO HIGHEST***
------------------------------------------ --------------------------------------------------------
Advantus Bond Class 2
2009 6,053,198 1.43 to 1.85 9,049,447 0.00% 0.00% to 0.50% 14.99% to 15.57%
2008 21,279,593 1.24 to 1.61 26,866,649 0.00% 0.00% to 0.50% -13.95% to -13.52%
2007 21,254,137 1.43 to 1.87 30,684,454 0.00% 0.00% to 0.50% 1.78% to 2.30%
2006 22,050,551 1.40 to 1.83 30,960,731 0.00% 0.00% to 0.50% 4.14% to 4.66%
2005 22,371,776 1.34 to 1.76 30,011,118 0.00% 0.00% to 0.50% 1.93% to 2.44%
Advantus Money Market
2009 3,654,220 1.39 to 1.50 5,114,103 0.26% 0.00% to 0.50% -.23% to .27%
2008 3,043,857 1.00 to 1.50 4,265,762 2.07% 0.00% to 0.50% .00% to 2.06%
2007 4,084,922 1.00 to 1.48 5,665,854 4.51% 0.00% to 0.50% .00% to 4.64%
2006 3,625,375 1.30 to 1.42 4,928,696 4.30% 0.00% to 0.50% 3.87% to 4.39%
2005 3,493,963 1.00 to 1.37 4,581,386 2.42% 0.00% to 0.50% .00% to 2.45%
Advantus Index 500 Class 2
2009 41,937,395 1.57 to 2.35 68,668,819 0.00% 0.00% to 0.50% 25.24% to 25.87%
2008 28,118,389 1.25 to 1.87 37,510,473 0.00% 0.00% to 0.50% -37.52% to -37.21%
2007 27,142,222 1.99 to 3.00 57,621,431 0.00% 0.00% to 0.50% 4.50% to 5.02%
2006 29,304,465 1.89 to 2.87 59,145,716 0.00% 0.00% to 0.50% 14.66% to 15.23%
2005 27,724,750 1.64 to 2.50 48,830,915 0.00% 0.00% to 0.50% 3.91% to 4.43%
Advantus Mortgage Securities
Class 2
2009 503,014 1.03 to 1.88 574,284 0.00% 0.00% to 0.50% 7.51% to 8.05%
2008 370,878 0.95 to 1.75 403,409 0.00% 0.00% to 0.50% -13.40% to -12.97%
2007 336,620 1.09 to 2.02 419,413 0.00% 0.00% to 0.50% 2.68% to 3.19%
2006 236,894 1.06 to 1.97 295,881 0.00% 0.00% to 0.50% 4.82% to 5.34%
2005 208,546 1.00 to 1.88 247,320 0.00% 0.00% to 0.50% .36% to 2.62%
Advantus International Bond
Class 2
2009 514,972 1.31 to 2.06 1,057,787 0.00% 0.00% to 0.50% 16.97% to 17.55%
2008 515,324 1.12 to 1.76 902,870 0.00% 0.00% to 0.50% 3.70% to 4.23%
2007 16,386 1.07 to 1.69 25,389 0.00% 0.00% to 0.50% 7.29% to 9.16%
2006 12,235 1.47 to 1.55 18,566 0.00% 0.25% to 0.50% 3.47% to 3.73%
2005 10,689 1.42 to 1.49 15,624 0.00% 0.25% to 0.50% -9.36% to -9.14%
Advantus Index 400 Mid-Cap
Class 2
2009 10,811,518 1.94 to 2.32 21,137,548 0.00% 0.00% to 0.50% 35.75% to 36.43%
2008 9,450,042 1.42 to 1.70 13,556,816 0.00% 0.00% to 0.50% -36.86% to -36.54%
2007 9,425,701 2.24 to 2.69 21,313,144 0.00% 0.00% to 0.50% 6.90% to 7.44%
2006 9,152,236 2.09 to 2.51 19,262,739 0.00% 0.00% to 0.50% 9.24% to 9.78%
2005 8,205,934 1.90 to 2.29 15,754,573 0.00% 0.00% to 0.50% 11.40% to 11.96%
Advantus Real Estate
Securities Class 2
2009 837,024 1.71 to 1.77 1,482,118 0.00% 0.00% to 0.50% 23.97% to 24.59%
2008 1,110,357 1.38 to 1.42 1,569,543 0.00% 0.00% to 0.50% -36.59% to -36.27%
2007 988,762 2.17 to 2.23 2,195,222 0.00% 0.00% to 0.50% -16.18% to -15.76%
2006 772,111 2.59 to 2.65 2,043,342 0.00% 0.00% to 0.50% 29.98% to 30.63%
2005 529,540 1.99 to 2.03 1,073,027 0.00% 0.00% to 0.50% 10.53% to 11.08%
Black Rock Global Growth V.I.
2009 -- -- -- 0.22% 0.00% to 0.25% 0.00%
2008 345,907 0.58 to 0.58 200,217 0.95% 0.00% to 0.25% 10.48% to 13.45%
Fidelity VIP Contrafund
2009 1,919,509 0.83 to 2.76 4,837,579 1.44% 0.00% to 0.50% 35.03% to 35.71%
2008 2,029,989 0.61 to 2.05 3,777,644 1.00% 0.00% to 0.50% -42.80% to .00%
2007 2,133,286 1.00 to 3.58 6,919,829 0.96% 0.00% to 0.50% .00% to 17.30%
2006 2,151,750 2.75 to 3.06 5,955,412 1.34% 0.25% to 0.50% 11.16% to 11.44%
2005 2,187,509 1.00 to 2.75 5,431,971 0.28% 0.00% to 0.50% .00% to 16.65%
17
[Enlarge/Download Table]
AT DECEMBER 31 FOR THE YEARS ENDED DECEMBER 31
------------------------------------------ --------------------------------------------------------
UNITS UNIT FAIR VALUE INVESTMENT EXPENSE RATIO TOTAL RETURN
OUTSTANDING LOWEST TO HIGHEST NET ASSETS INCOME RATIO* LOWEST TO HIGHEST** LOWEST TO HIGHEST***
------------------------------------------ --------------------------------------------------------
Fidelity VIP Growth & Income
2009 801,809 1.01 811,773 1.09% 0.25% 26.89%
2008 944,458 0.80 753,582 1.26% 0.25% -41.85%
2007 956,528 1.37 1,312,401 4.45% 0.25% 11.84%
2006 969,139 1.23 1,188,896 0.88% 0.25% 12.90%
2005 1,020,627 1.09 1,109,044 1.48% 0.25% 7.37%
Fidelity VIP Equity-Income
2009 1,264,408 0.71 to 1.82 2,242,203 2.26% 0.00% to 0.50% 29.56% to 30.21%
2008 1,452,364 0.54 to 1.40 1,989,393 2.43% 0.00% to 0.50% -42.94% to .00%
2007 1,623,499 0.95 to 2.46 3,897,892 3.02% 0.00% to 0.50% -5.04% to 1.28%
2006 811,539 2.29 to 2.43 1,876,792 3.83% 0.25% to 0.50% 19.60% to 19.89%
2005 827,363 1.00 to 2.04 1,596,529 1.52% 0.00% to 0.50% .00% to 5.60%
Fidelity VIP High Income
2009 735,957 1.10 to 1.52 1,077,434 8.27% 0.00% to 0.50% 43.24% to 43.96%
2008 703,821 0.77 to 1.06 717,749 9.32% 0.00% to 0.50% -25.36% to .00%
2007 665,142 1.00 to 1.43 906,877 6.56% 0.00% to 0.50% .00% to 2.53%
2006 629,339 1.32 to 1.39 839,036 7.99% 0.25% to 0.50% 10.68% to 10.96%
2005 749,232 1.00 to 1.26 899,382 14.55% 0.00% to 0.50% .00% to 2.45%
Fidelity VIP Asset Manager
2009 271,519 1.24 335,748 2.30% 0.25% 28.79%
2008 316,434 0.96 303,815 2.42% 0.25% -28.90%
2007 343,454 1.35 463,769 6.21% 0.25% 15.21%
2006 346,941 1.17 406,614 2.63% 0.25% 7.05%
2005 382,665 1.09 418,944 2.75% 0.25% 3.79%
Fidelity VIP Asset Manager
Growth
2009 796,985 1.03 817,465 -3.18% 0.25% 32.57%
2008 899,590 0.77 695,984 1.86% 0.25% -35.97%
2007 987,645 1.21 1,193,375 4.22% 0.25% 18.67%
2006 987,682 1.02 1,005,677 1.96% 0.25% 6.72%
2005 994,254 0.95 948,614 2.33% 0.25% 3.63%
Fidelity VIP Balanced
2009 251,508 1.27 320,535 1.96% 0.25% 38.25%
2008 261,781 0.92 241,318 1.74% 0.25% -34.12%
2007 237,996 1.40 333,027 5.71% 0.25% 8.77%
2006 223,691 1.29 287,765 2.59% 0.25% 11.43%
2005 314,932 1.15 363,589 2.51% 0.25% 5.50%
Fidelity VIP Growth
2009 5,394,451 0.67 3,633,138 0.45% 0.25% 27.97%
2008 5,807,257 0.53 3,056,395 0.77% 0.25% -47.30%
2007 6,707,809 1.00 6,698,843 0.80% 0.25% 26.65%
2006 6,483,002 0.79 5,112,159 0.38% 0.25% 6.58%
2005 6,628,947 0.74 4,904,344 0.48% 0.25% 5.53%
Fidelity VIP Growth
Opportunities
2009 1,210,226 0.76 920,651 0.49% 0.25% 45.49%
2008 1,334,212 0.52 697,638 0.43% 0.25% -55.13%
2007 1,401,041 1.17 1,632,659 0.00% 0.25% 22.87%
2006 1,376,978 0.95 1,305,909 0.67% 0.25% 5.19%
2005 1,410,738 0.90 1,271,882 0.89% 0.25% 8.62%
Fidelity VIP Index 500
2009 1,876,027 0.91 1,704,135 4.79% 0.25% 26.29%
2008 2,028,443 0.72 1,459,004 2.29% 0.25% -37.16%
2007 1,977,961 1.14 2,263,786 3.54% 0.25% 5.17%
2006 2,093,960 1.09 2,278,611 1.70% 0.25% 15.44%
2005 2,262,626 0.94 2,132,821 1.69% 0.25% 4.56%
18
[Enlarge/Download Table]
AT DECEMBER 31 FOR THE YEARS ENDED DECEMBER 31
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UNITS UNIT FAIR VALUE INVESTMENT EXPENSE RATIO TOTAL RETURN
OUTSTANDING LOWEST TO HIGHEST NET ASSETS INCOME RATIO* LOWEST TO HIGHEST** LOWEST TO HIGHEST***
------------------------------------------ --------------------------------------------------------
Fidelity VIP Investment
Grade Bond
2009 337,198 1.76 594,574 8.99% 0.25% 15.43%
2008 288,806 1.53 441,160 4.26% 0.25% -3.49%
2007 274,299 1.58 434,158 4.38% 0.25% 4.08%
2006 330,026 1.52 501,857 3.77% 0.25% 4.09%
2005 398,219 1.46 581,764 3.64% 0.25% 1.94%
Fidelity VIP Mid-Cap
2009 1,892,042 2.30 4,356,023 0.69% 0.25% 39.74%
2008 2,215,347 1.65 3,649,982 0.43% 0.25% -39.59%
2007 2,760,890 2.73 7,530,396 0.55% 0.25% 15.34%
2006 2,980,899 2.36 7,049,337 0.34% 0.25% 12.42%
2005 2,906,533 2.10 6,114,165 0.00% 0.25% 18.01%
Fidelity VIP Money Market
2009 807,573 1.30 1,049,757 0.74% 0.25% 0.47%
2008 875,440 1.29 1,132,669 2.95% 0.25% 2.77%
2007 696,339 1.26 876,673 5.08% 0.25% 4.96%
2006 621,727 1.20 745,838 4.78% 0.25% 4.62%
2005 460,968 1.15 528,594 3.01% 0.25% 2.78%
Fidelity VIP Overseas
2009 2,618,576 1.01 2,649,847 2.19% 0.25% 26.21%
2008 2,884,784 0.80 2,312,922 2.60% 0.25% -43.95%
2007 3,109,554 1.43 4,447,628 3.34% 0.25% 17.02%
2006 3,243,032 1.22 3,963,969 0.87% 0.25% 17.79%
2005 3,399,583 1.04 3,527,868 0.64% 0.25% 18.75%
Fidelity VIP Aggressive
Growth
2009 184,661 0.88 162,032 0.00% 0.25% 39.38%
2008 182,074 0.63 114,623 0.00% 0.25% -48.90%
2007 190,430 1.23 234,606 0.42% 0.25% 17.23%
2006 327,779 1.05 344,479 2.26% 0.25% 8.26%
2005 144,512 0.97 140,287 0.00% 0.25% 7.84%
Fidelity VIP Dynamic Capital
Appreciation
2009 179,308 1.09 195,710 0.25% 0.25% 35.76%
2008 216,918 0.80 174,392 0.80% 0.25% -41.38%
2007 199,090 1.37 273,044 0.92% 0.25% 6.85%
2006 224,956 1.28 288,740 0.59% 0.25% 13.69%
2005 125,478 1.13 141,663 0.00% 0.25% 20.84%
Fidelity VIP Value
2009 66,611 1.16 77,237 0.95% 0.25% 42.31%
2008 61,930 0.81 50,461 0.84% 0.25% -46.67%
2007 102,938 1.53 157,282 6.25% 0.25% 1.84%
2006 117,799 1.50 176,740 1.16% 0.25% 14.47%
2005 132,832 1.31 174,108 0.60% 0.25% 5.82%
Fidelity VIP Value Strategy
2009 110,257 1.29 142,312 0.61% 0.25% 57.19%
2008 117,607 0.82 96,568 0.78% 0.25% -51.28%
2007 130,496 1.69 219,942 7.94% 0.25% 5.46%
2006 119,580 1.60 191,112 0.54% 0.25% 16.04%
2005 118,710 1.38 163,490 0.00% 0.25% 2.41%
Fidelity VIP Growth Stock
2009 30,619 1.33 40,576 0.44% 0.25% 44.49%
2008 31,059 0.92 28,485 0.19% 0.25% -44.81%
2007 22,366 1.66 37,168 0.00% 0.25% 22.36%
2006 15,596 1.36 21,184 0.05% 0.25% 0.87%
2005 42,969 1.35 57,843 0.03% 0.25% 7.30%
19
[Enlarge/Download Table]
AT DECEMBER 31 FOR THE YEARS ENDED DECEMBER 31
------------------------------------------ --------------------------------------------------------
UNITS UNIT FAIR VALUE INVESTMENT EXPENSE RATIO TOTAL RETURN
OUTSTANDING LOWEST TO HIGHEST NET ASSETS INCOME RATIO* LOWEST TO HIGHEST** LOWEST TO HIGHEST***
------------------------------------------ --------------------------------------------------------
Fidelity VIP Real Estate
2009 83,818 1.79 149,775 2.86% 0.25% 37.35%
2008 95,474 1.30 124,207 3.15% 0.25% -40.02%
2007 81,542 2.17 176,866 1.97% 0.25% -17.93%
2006 116,528 2.64 307,951 5.05% 0.25% 36.37%
2005 111,680 1.94 216,420 2.75% 0.25% 14.84%
Fidelity VIP Strategic Income
2009 80,966 1.34 108,298 5.77% 0.25% 29.69%
2008 45,054 1.03 46,467 5.27% 0.25% -10.43%
2007 47,734 1.15 54,960 3.86% 0.25% 5.32%
2006 37,565 1.09 41,055 6.18% 0.25% 7.60%
2005 (b) 19,199 1.02 19,498 7.21% 0.25% 1.60%
Fidelity VIP Intl Capital
Appreciation
2009 179,536 0.89 159,471 0.92% 0.25% 55.65%
2008 164,414 0.57 93,832 0.00% 0.25% -50.81%
2007 115,687 1.16 134,225 1.54% 0.25% 4.91%
2006 (d) 5,596 1.11 6,189 2.47% 0.25% 10.60%
Fidelity VIP Value Leaders
2009 14,321 0.79 11,366 1.72% 0.25% 27.59%
2008 19,207 0.62 11,949 2.52% 0.25% -44.75%
2007 12,561 1.13 14,143 1.71% 0.25% 4.30%
2006 (d) 7,932 1.08 8,565 1.69% 0.25% 8.00%
Fidelity VIP Freedom 2010
2009 9,403 1.05 9,860 3.51% 0.25% 23.96%
2008 12,166 0.85 10,296 3.21% 0.25% -25.24%
2007 7,296 1.13 8,260 4.34% 0.25% 8.44%
2006 (d) 3,016 1.04 3,148 1.80% 0.25% 4.43%
Fidelity VIP Freedom 2015
2009 6,284 1.04 6,534 3.42% 0.25% 24.97%
2008 11,512 0.83 9,587 5.41% 0.25% -27.21%
2007 3,390 1.14 3,877 3.04% 0.25% 9.06%
2006 (d) 3,020 1.05 3,168 1.34% 0.25% 4.93%
Fidelity VIP Freedom 2020
2009 18,722 1.00 18,794 3.89% 0.25% 28.65%
2008 12,308 0.78 9,601 3.52% 0.25% -32.77%
2007 6,264 1.16 7,268 3.27% 0.25% 9.96%
2006 (d) 3,071 1.06 3,242 1.71% 0.25% 5.59%
Fidelity VIP Freedom 2025
2009 16,296 0.99 16,182 3.85% 0.25% 29.72%
2008 15,502 0.77 11,866 4.02% 0.25% -34.33%
2007 7,347 1.17 8,564 3.17% 0.25% 10.23%
2006 (d) 3,065 1.06 3,242 1.93% 0.25% 5.79%
Fidelity VIP Freedom 2030
2009 98,459 0.96 94,483 2.66% 0.25% 31.33%
2008 69,432 0.73 50,732 4.78% 0.25% -38.20%
2007 22,865 1.18 27,033 3.28% 0.25% 11.09%
2006 (d) 3,156 1.06 3,358 1.80% 0.25% 6.42%
20
[Enlarge/Download Table]
AT DECEMBER 31 FOR THE YEARS ENDED DECEMBER 31
------------------------------------------ --------------------------------------------------------
UNITS UNIT FAIR VALUE INVESTMENT EXPENSE RATIO TOTAL RETURN
OUTSTANDING LOWEST TO HIGHEST NET ASSETS INCOME RATIO* LOWEST TO HIGHEST** LOWEST TO HIGHEST***
------------------------------------------ --------------------------------------------------------
Fidelity VIP Freedom Income
2009 9,125 1.11 10,131 3.84% 0.25% 14.67%
2008 5,876 0.97 5,691 1.67% 0.25% -10.67%
2007 3,751 1.08 4,065 4.59% 0.25% 5.94%
2006 (d) 3,000 1.02 3,070 2.95% 0.25% 2.37%
Fidelity VIP Disciplined
Small Cap
2009 57,876 0.85 49,255 0.59% 0.25% 21.97%
2008 44,365 0.70 30,954 1.00% 0.25% -33.95%
2007 31,841 1.06 33,631 0.66% 0.25% -2.49%
2006 (d) 12,269 1.08 13,290 0.18% 0.25% 8.32%
Fidelity VIP Emerging Markets
2009 177,250 0.78 138,585 0.54% 0.25% 74.97%
2008 47,352 0.45 21,160 1.31% 0.25% -50.57%
Fidelity VIP Freedom 2035
2009 (a) 3,180 1.31 4,160 2.09% 0.25% 31.15%
Fidelity VIP Freedom 2040
2009 (a) 3,172 1.31 4,170 1.96% 0.25% 31.69%
Fidelity VIP Freedom 2045
2009 (a) 3,018 1.32 3,973 2.04% 0.25% 31.93%
Fidelity VIP Freedom 2050
2009 (a) 12,184 1.33 16,200 2.88% 0.25% 33.01%
Fidelity VIP Funds Manager 20%
2009 (a) 3,555 1.09 3,889 1.10% 0.25% 9.53%
Fidelity VIP Funds Manager 50%
2009 (a) 3,141 1.19 3,729 1.73% 0.25% 18.92%
Fidelity VIP Funds Manager 60%
2009 (a) 3,333 1.22 4,075 1.74% 0.25% 22.40%
Fidelity VIP Funds Manager 70%
2009 (a) 13,963 1.25 17,469 4.96% 0.25% 25.14%
Fidelity VIP Funds Manager 85%
2009 (a) 66,485 1.31 86,844 1.78% 0.25% 30.62%
Janus Aspen Forty
2009 156,489 0.89 to 0.96 144,173 0.01% 0.00% to 0.50% 45.29% to 46.02%
2008 132,126 0.62 to 1.00 83,341 0.01% 0.00% to 0.50% -44.59% to .00%
2007 96,474 1.00 to 1.20 108,479 0.18% 0.00% to 0.50% .00% to 36.29%
2006 90,332 0.82 to 0.88 74,519 0.14% 0.25% to 0.50% 8.57% to 8.84%
2005 89,821 0.75 to 1.00 67,895 0.01% 0.00% to 0.50% .00% to 12.27%
Janus Aspen Overseas
2009 2,342,930 1.25 to 1.45 3,273,423 0.43% 0.00% to 0.50% 78.18% to 79.07%
2008 2,235,968 0.70 to 1.00 1,769,499 1.10% 0.00% to 0.50% -52.47% to .00%
2007 2,171,720 1.00 to 1.69 3,609,018 0.47% 0.00% to 0.50% .00% to 28.02%
2006 1,541,086 1.16 to 1.32 2,022,184 1.82% 0.00% to 0.50% 32.16% to 46.26%
2005 95,321 0.79 to 1.00 77,774 1.12% 0.00% to 0.50% .00% to 31.61%
Lord Abbett Mid-Cap Value
2009 2,010,764 0.92 to 1.06 1,847,413 0.55% 0.00% to 0.25% 26.30% to 26.61%
2008 1,871,898 0.72 to 0.84 1,357,069 1.32% 0.00% to 0.25% -39.51% to -39.36%
2007 1,878,489 1.19 to 1.39 2,244,694 0.39% 0.00% to 0.25% .33% to .58%
2006 2,086,427 1.18 to 1.38 2,474,538 1.22% 0.00% to 0.25% 11.95% to 12.23%
2005 1,989,522 1.06 to 1.24 2,101,096 0.42% 0.00% to 0.25% 5.58% to 7.95%
21
[Enlarge/Download Table]
AT DECEMBER 31 FOR THE YEARS ENDED DECEMBER 31
------------------------------------------ --------------------------------------------------------
UNITS UNIT FAIR VALUE INVESTMENT EXPENSE RATIO TOTAL RETURN
OUTSTANDING LOWEST TO HIGHEST NET ASSETS INCOME RATIO* LOWEST TO HIGHEST** LOWEST TO HIGHEST***
------------------------------------------ --------------------------------------------------------
Ivy Funds VIP Balanced
2009 598,062 1.27 to 2.15 1,253,775 2.55% 0.00% to 0.50% 12.66% to 13.23%
2008 6,369,330 1.00 to 1.91 7,431,756 0.10% 0.00% to 0.50% -21.39% to .00%
2007 6,819,183 1.00 to 2.43 9,923,269 1.37% 0.00% to 0.50% .00% to 13.67%
2006 7,387,628 1.25 to 2.15 9,344,688 1.43% 0.00% to 0.50% 10.66% to 11.21%
2005 7,517,902 1.00 to 1.94 8,538,274 1.28% 0.00% to 0.50% .00% to 5.01%
Ivy Funds VIP Growth
2009 1,803,409 0.80 to 1.84 1,673,705 0.37% 0.00% to 0.50% 26.44% to 27.07%
2008 2,896,033 0.63 to 1.46 2,012,457 0.00% 0.00% to 0.50% -36.59% to -36.27%
2007 3,036,214 0.99 to 2.30 3,378,957 0.00% 0.00% to 0.50% 25.18% to 25.81%
2006 3,077,914 0.79 to 1.83 2,704,287 0.00% 0.00% to 0.50% 4.52% to 5.04%
2005 3,114,714 0.75 to 1.75 2,574,981 0.00% 0.00% to 0.50% 10.68% to 11.23%
Ivy Funds VIP International
Value
2009 1,987,482 1.06 to 2.81 2,259,146 2.59% 0.00% to 0.50% 40.58% to 36.97%
2008 1,972,762 0.78 to 2.06 1,961,465 0.51% 0.00% to 0.50% -42.55% to .00%
2007 2,123,895 1.00 to 3.59 4,079,177 1.84% 0.00% to 0.50% .00% to 9.88%
2006 1,535,453 1.22 to 3.28 2,095,384 2.40% 0.00% to 0.50% 22.22% to 29.29%
2005 109,926 1.00 to 2.54 264,530 1.96% 0.00% to 0.50% .00% to 10.89%
Ivy Funds VIP Small Cap Growth
2009 109,529 0.84 to 1.84 186,968 0.41% 0.00% to 0.50% 34.05% to 34.72%
2008 108,182 0.62 to 1.37 140,037 0.00% 0.00% to 0.50% -39.48% to -39.18%
2007 131,380 1.02 to 2.27 284,349 0.00% 0.00% to 0.50% .00% to 13.23%
2006 131,020 1.62 to 2.01 254,060 0.00% 0.25% to 0.50% 4.53% to 4.79%
2005 123,687 1.55 to 1.92 231,871 0.00% 0.25% to 0.50% 12.32% to 12.60%
Ivy Funds VIP Value
2009 107,998 0.81 to 1.99 180,504 2.01% 0.00% to 0.50% 26.01% to 26.64%
2008 109,277 0.64 to 1.58 147,410 0.28% 0.00% to 0.50% -34.15% to .00%
2007 102,995 0.96 to 2.39 206,715 0.79% 0.00% to 0.50% -3.52% to 1.64%
2006 138,803 1.54 to 2.36 259,640 1.78% 0.00% to 0.50% 16.30% to 16.59%
2005 143,240 1.00 to 2.03 226,058 1.44% 0.00% to 0.50% .00% to 4.16%
Ivy Funds VIP Micro-Cap Growth
2009 66,404 0.73 to 1.84 112,616 0.00% 0.00% to 0.50% 40.58% to 41.29%
2008 64,927 0.52 to 1.31 78,145 0.00% 0.00% to 0.50% -48.30% to -48.03%
2007 60,789 1.00 to 2.52 141,229 0.00% 0.00% to 0.50% -.22% to 6.22%
2006 57,626 2.22 to 2.37 129,986 0.00% 0.25% to 0.50% 11.71% to 11.98%
2005 49,572 1.99 to 2.12 99,611 0.00% 0.25% to 0.50% 20.27% to 20.57%
Ivy Funds VIP Small Cap Value
2009 60,108 0.93 to 2.05 112,253 0.00% 0.00% to 0.50% 28.50% to 29.15%
2008 53,598 0.72 to 1.59 77,200 0.11% 0.00% to 0.50% -26.50% to .00%
2007 124,946 0.97 to 2.16 255,334 0.01% 0.00% to 0.50% -4.61% to .00%
2006 119,523 2.07 to 2.25 259,246 5.55% 0.25% to 0.50% 16.26% to 16.55%
2005 118,241 1.78 to 1.93 220,305 0.00% 0.25% to 0.50% 3.63% to 3.89%
Ivy Funds VIP Core Equity
2009 58,662 0.84 to 1.07 58,363 1.12% 0.00% to 0.50% 23.40% to 24.02%
2008 73,193 0.68 to 1.00 58,984 0.19% 0.00% to 0.50% -35.10% to .00%
2007 69,575 1.00 to 1.34 86,473 0.70% 0.00% to 0.50% .00% to 13.74%
2006 56,495 1.07 to 1.18 62,505 0.99% 0.25% to 0.50% 16.40% to 16.70%
2005 30,126 0.92 to 1.01 29,344 0.39% 0.00% to 0.50% .00% to 8.73%
Ivy Funds VIP Science &
Technology
2009 1,883,600 1.04 to 1.05 1,981,444 0.00% 0.00% to 0.25% 43.48% to 43.84%
2008 1,304,373 0.73 to 0.73 953,926 0.00% 0.00% to 0.25% -34.06% to -33.89%
2007 (e) 605,914 1.10 to 1.11 670,272 0.00% 0.00% to 0.25% 10.46% to 10.62%
Van Eck Global Hard Assets
2009 2,642,874 1.00 to 1.01 2,668,174 0.21% 0.00% to 0.25% 57.14% to 57.54%
2008 1,871,956 0.64 to 0.64 1,199,562 0.25% 0.00% to 0.25% -46.26% to -46.12%
2007 (e) 1,221,726 1.19 to 1.19 1,452,936 0.00% 0.00% to 0.25% 18.80% to 18.98%
22
* These amounts represent the dividends, excluding distributions of capital
gains, received by the sub-account from the underlying mutual fund, net of
expenses assessed by the fund, divided by the average net assets. These
ratios exclude those expenses , such as mortality and expense charges and
adminstrative charges, that result in direct reduction in the unit values.
The recognition of investment income by the sub-account is affected by the
timing of the declaration of dividend by the underlying fund in which the
sub-account invests and, to the extent the underlying fund utilizes consent
dividend rather than paying dividends in cash or reinvested shares, the
Account does not record investment income.
** This ratio represents the annualized policy expenses of the separate
account, consisting primarily of mortality and expense charges and
adminstrative charges. The ratios include only those expenses that result
in a direct reduction to unit values. Charges made directly to policy owner
account through the redemption of units and expenses of the underlying fund
are excluded. Investment options with a date notation indicate the
effective date of that investment option in the variable account. For
periods less than onr year, the ratios have been annualized.
*** These amounts represent the total return for the period indicated,
including changes in the value of the underlying fund, and reflect
deductions for all items included in the expense ratio. The total return
does not include any expenses assessed through the redemption for units.
Inclusion of these expenses in the calculation would result in a reduction
in the total return presented. Investment options with a date notation
indicate the effective date of that investment option in the variable
account. The total return is calculated from the period indicated or from
the effective date through the end of the reporting period. As the total
return is presented as a range of minimum to maximum values, based on the
product grouping representing the minimum and maximum expense ratio
amounts, some individual contract total returns may not be within the
ranges presented depending on the timing of when new products, if any,
become available during the year.
(a) Period from April 24, 2009 (commencement of operations) to December 31,
2009.
(b) Period from October 18, 2005 (commencement of operations) to December 31,
2005.
(d) Period from October 2, 2006 (commencement of operations) to December 31,
2006.
(e) Period from May 21, 2007 (commencement of operations) to December 31, 2007.
MINNESOTA LIFE INSURANCE COMPANY
AND SUBSIDIARIES
CONSOLIDATED FINANCIAL STATEMENTS
AND SUPPLEMENTARY SCHEDULES
DECEMBER 31, 2009, 2008 AND 2007
REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM
The Board of Directors and Stockholder
Minnesota Life Insurance Company:
We have audited the accompanying consolidated balance sheets of Minnesota Life
Insurance Company and subsidiaries (collectively, the Company) as of December
31, 2009 and 2008, and the related consolidated statements of operations,
changes in stockholder's equity and cash flows for each of the years in the
three-year period ended December 31, 2009. These consolidated financial
statements are the responsibility of the Company's management. Our
responsibility is to express an opinion on these consolidated financial
statements based on our audits.
We conducted our audits in accordance with the standards of the Public Company
Accounting Oversight Board (United States). Those standards require that we plan
and perform the audit to obtain reasonable assurance about whether the financial
statements are free of material misstatement. An audit includes examining, on a
test basis, evidence supporting the amounts and disclosures in the financial
statements. An audit also includes assessing the accounting principles used and
significant estimates made by management, as well as evaluating the overall
financial statement presentation. We believe that our audits provide a
reasonable basis for our opinion.
In our opinion, the consolidated financial statements referred to above present
fairly, in all material respects, the financial position of Minnesota Life
Insurance Company and subsidiaries as of December 31, 2009 and 2008, and the
results of their operations and their cash flows for each of the years in the
three-year period ended December 31, 2009, in conformity with U.S. generally
accepted accounting principles.
Our audits were made for the purpose of forming an opinion on the basic
consolidated financial statements taken as a whole. The supplementary
information included in the accompanying schedules is presented for purposes of
additional analysis and is not a required part of the basic consolidated
financial statements. Such information has been subjected to the auditing
procedures applied in the audits of the basic consolidated financial statements
and, in our opinion, is fairly stated in all material respects in relation to
the basic consolidated financial statements taken as a whole.
As discussed in note 4 to the consolidated financial statements, the Company
changed its method of accounting for other-than-temporary impairments of fixed
maturity investment securities due to the adoption of Financial Accounting
Standards Board (FASB) Staff Position No. FAS 115-2 and FAS 124-2, "Recognition
and Presentation of Other-Than-Temporary Impairments," (included in FASB ASC
Topic 320, "Investments-Debt and Equity Securities"), as of January 1, 2009.
/s/ KPMG
March 8, 2010
MINNESOTA LIFE INSURANCE COMPANY AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
DECEMBER 31, 2009 AND 2008
(In thousands)
[Enlarge/Download Table]
2009 2008
----------- -----------
ASSETS
Fixed maturity securities:
Available-for-sale, at fair value (amortized cost $7,886,327 and $6,476,721) $ 7,965,268 $ 5,848,958
Equity securities, at fair value (cost $242,238 and $348,897) 283,105 350,561
Mortgage loans, net 1,263,581 1,250,198
Finance receivables, net 190,925 185,317
Policy loans 340,362 334,986
Alternative investments (cost $445,213 and $436,365) 470,424 475,016
Fixed maturity securities on loan, at fair value
(amortized cost $58,530 and $194,767) 58,891 216,753
Equity securities on loan, at fair value (cost $15,563 and $35,039) 19,362 36,950
Derivative instruments 47,469 57,413
Other invested assets 54,816 27,045
----------- -----------
Total investments 10,694,203 8,783,197
Cash and cash equivalents 325,482 576,899
Securities held as collateral 40,170 214,604
Deferred policy acquisition costs 892,801 1,025,970
Accrued investment income 97,172 87,187
Premiums and fees receivable 169,966 182,769
Property and equipment, net 79,013 85,608
Income tax recoverable:
Current 5,472 73,289
Deferred -- 157,570
Reinsurance recoverables 865,206 849,609
Goodwill and intangible assets, net 44,916 38,552
Other assets 75,685 60,471
Separate account assets 11,447,608 9,239,747
----------- -----------
Total assets $24,737,694 $21,375,472
=========== ===========
LIABILITIES AND STOCKHOLDER'S EQUITY
Liabilities:
Policy and contract account balances $ 6,108,503 $ 5,405,450
Future policy and contract benefits 2,606,628 2,543,458
Pending policy and contract claims 313,027 290,344
Other policyholder funds 734,756 719,001
Policyholder dividends payable 41,481 44,363
Unearned premiums and fees 239,918 282,016
Pension and other postretirement benefits 146,985 215,236
Income tax liability:
Deferred 69,931 --
Other liabilities 428,774 422,944
Notes payable 125,000 125,000
Securities lending collateral 80,750 271,667
Separate account liabilities 11,447,608 9,239,747
----------- -----------
Total liabilities 22,343,361 19,559,226
----------- -----------
Stockholder's equity:
Common stock, $1 par value, 5,000,000 shares authorized,
issued and outstanding 5,000 5,000
Additional paid in capital 179,522 179,522
Accumulated other comprehensive income (loss) (34,306) (420,447)
Retained earnings 2,244,117 2,052,171
----------- -----------
Total stockholder's equity 2,394,333 1,816,246
----------- -----------
Total liabilities and stockholder's equity $24,737,694 $21,375,472
=========== ===========
See accompanying notes to consolidated financial statements.
2
MINNESOTA LIFE INSURANCE COMPANY AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF OPERATIONS
YEARS ENDED DECEMBER 31, 2009, 2008 AND 2007
(In thousands)
[Enlarge/Download Table]
2009 2008 2007
---------- ---------- ----------
Revenues:
Premiums $1,681,089 $1,862,276 $1,467,991
Policy and contract fees 510,440 503,990 486,956
Net investment income 543,115 529,216 522,370
Net realized investment gains (losses)
Other-than-temporary-impairments on fixed maturity securities (87,795) (212,751) (37,500)
Other-than-temporary-impairments on fixed maturity securities
transferred to other comprehensive income (loss) 42,987 -- --
Other net realized investment gains (losses) 74,825 (271,120) 85,755
---------- ---------- ----------
Total net realized investment gains (losses) 30,017 (483,871) 48,255
Finance charge income 53,777 53,286 49,755
Commission income 78,400 73,623 69,602
Other income 28,744 27,759 18,938
---------- ---------- ----------
Total revenues 2,925,582 2,566,279 2,663,867
---------- ---------- ----------
Benefits and expenses:
Policyholder benefits 1,725,209 1,853,322 1,441,876
Interest credited to policies and contracts 324,514 289,189 279,325
General operating expenses 497,204 482,556 464,573
Commissions 183,753 176,009 158,927
Administrative and sponsorship fees 58,407 64,400 62,043
Dividends to policyholders 10,898 10,891 10,412
Interest on notes payable 10,236 10,419 10,301
Amortization of deferred policy acquisition costs 197,505 237,581 176,183
Capitalization of policy acquisition costs (245,976) (218,047) (216,730)
---------- ---------- ----------
Total benefits and expenses 2,761,750 2,906,320 2,386,910
---------- ---------- ----------
Income (loss) from operations before taxes 163,832 (340,041) 276,957
Income tax expense (benefit):
Current 28,736 (71,898) 70,600
Deferred 22,833 (19,638) 10,544
---------- ---------- ----------
Total income tax expense (benefit) 51,569 (91,536) 81,144
---------- ---------- ----------
Net income (loss) $ 112,263 $ (248,505) $ 195,813
========== ========== ==========
See accompanying notes to consolidated financial statements.
3
MINNESOTA LIFE INSURANCE COMPANY AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CHANGES IN STOCKHOLDER'S EQUITY
YEARS ENDED DECEMBER 31, 2009, 2008 AND 2007
(In thousands)
[Enlarge/Download Table]
ACCUMULATED
ADDITIONAL OTHER TOTAL
COMMON PAID IN COMPREHENSIVE RETAINED STOCKHOLDER'S
STOCK CAPITAL INCOME (LOSS) EARNINGS EQUITY
--------- ---------- ------------- ---------- -------------
2007:
Balance, beginning of year $ 5,000 $ 81,632 $ 158,231 $2,201,185 $2,446,048
Comprehensive income:
Net income -- -- -- 195,813 195,813
Other comprehensive loss -- -- (19,076) -- (19,076)
----------
Total comprehensive income 176,737
Changes in accounting principle -- -- (22,582) (4,645) (27,227)
Dividends to stockholder -- -- -- (15,900) (15,900)
Contributions to additional paid in capital -- 14,000 -- -- 14,000
--------- -------- --------- ---------- ----------
Balance, end of year $ 5,000 $ 95,632 $ 116,573 $2,376,453 $2,593,658
========= ======== ========= ========== ==========
2008:
Balance, beginning of year $ 5,000 $ 95,632 $ 116,573 $2,376,453 $2,593,658
Comprehensive loss:
Net loss -- -- -- (248,505) (248,505)
Other comprehensive loss -- -- (537,109) -- (537,109)
----------
Total comprehensive loss (785,614)
Changes in accounting principle -- -- 89 (1,277) (1,188)
Dividends to stockholder -- -- -- (74,500) (74,500)
Contributions to additional paid in capital -- 83,890 -- -- 83,890
--------- -------- --------- ---------- ----------
Balance, end of year $ 5,000 $179,522 $(420,447) $2,052,171 $1,816,246
========= ======== ========= ========== ==========
2009:
Balance, beginning of year $ 5,000 $179,522 $(420,447) $2,052,171 $1,816,246
Comprehensive income:
Net income -- -- -- 112,263 112,263
Other comprehensive income -- -- 442,924 -- 442,924
----------
Total comprehensive income 555,187
Changes in accounting principle -- -- (56,783) 87,683 30,900
Dividends to stockholder -- -- -- (8,000) (8,000)
--------- -------- --------- ---------- ----------
Balance, end of year $ 5,000 $179,522 $ (34,306) $2,244,117 $2,394,333
========= ======== ========= ========== ==========
See accompanying notes to consolidated financial statements.
4
MINNESOTA LIFE INSURANCE COMPANY AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
YEARS ENDED DECEMBER 31, 2009, 2008 AND 2007
(In thousands)
[Enlarge/Download Table]
2009 2008 2007
----------- ----------- -----------
CASH FLOWS FROM OPERATING ACTIVITIES
Net income (loss) $ 112,263 $ (248,505) $ 195,813
Adjustments to reconcile net income (loss) to net cash
provided by (used for) operating activities:
Interest credited to annuity and insurance contracts 281,163 258,007 247,577
Fees deducted from policy and contract balances (364,474) (338,399) (425,291)
Change in future policy benefits 88,865 295,464 22,616
Change in other policyholder liabilities, net 14,198 13,718 45,024
Amortization of deferred policy acquisition costs 197,505 237,581 176,183
Capitalization of policy acquisition costs (245,976) (218,047) (216,730)
Change in premiums and fees receivable 12,803 (10,990) (17,239)
Deferred tax provision 22,833 (19,638) 10,447
Change in income tax assets / liabilities - current 67,817 (91,547) (5,073)
Net realized investment losses (gains) (30,017) 483,871 (48,255)
Change in reinsurance recoverables (15,597) (29,498) (32,104)
Other, net 6,147 (12,060) (9,348)
----------- ----------- -----------
Net cash provided by (used for) operating activities 147,530 319,957 (56,380)
----------- ----------- -----------
CASH FLOWS FROM INVESTING ACTIVITIES
Proceeds from sales of:
Fixed maturity securities 1,624,832 1,530,573 945,590
Equity securities 329,379 379,806 604,148
Alternative investments 19,365 26,065 72,265
Derivative instruments 139,037 120,445 1,438
Other invested assets 668 901 552
Proceeds from maturities and repayments of:
Fixed maturity securities 737,631 570,415 774,909
Mortgage loans 96,375 109,559 76,606
Purchases and originations of:
Fixed maturity securities (3,554,931) (2,434,610) (1,811,777)
Equity securities (156,242) (265,118) (438,236)
Mortgage loans (109,810) (112,527) (189,938)
Alternative investments (43,612) (110,756) (93,322)
Derivative instruments (172,338) (127,450) (1,908)
Other invested assets (862) (79) (1,206)
Finance receivable originations or purchases (131,521) (131,565) (138,901)
Finance receivable principal payments 115,880 116,363 116,286
Securities in transit (16,582) 38,598 3,041
Other, net (44,455) (40,981) (62,202)
----------- ----------- -----------
Net cash used for investing activities (1,167,186) (330,361) (142,655)
----------- ----------- -----------
CASH FLOWS FROM FINANCING ACTIVITIES
Deposits credited to annuity and insurance contracts 2,742,147 2,551,249 2,342,490
Withdrawals from annuity and insurance contracts (1,977,430) (2,171,046) (2,116,797)
Change in amounts drawn in excess of cash balances 10,296 (1,834) 55,452
Contributed capital -- 11,307 14,000
Dividends paid to stockholder (8,000) (74,500) (10,500)
Other, net 1,226 6,206 15,236
----------- ----------- -----------
Net cash provided by financing activities 768,239 321,382 299,881
----------- ----------- -----------
Net increase (decrease) in cash and cash equivalents (251,417) 310,978 100,846
Cash and cash equivalents, beginning of year 576,899 265,921 165,075
----------- ----------- -----------
Cash and cash equivalents, end of year $ 325,482 $ 576,899 $ 265,921
=========== =========== ===========
See accompanying notes to consolidated financial statements.
5
MINNESOTA LIFE INSURANCE COMPANY AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
DECEMBER 31, 2009, 2008 AND 2007
(1) NATURE OF OPERATIONS
ORGANIZATION AND DESCRIPTION OF BUSINESS
The accompanying consolidated financial statements include the accounts of
Minnesota Life Insurance Company (a wholly-owned subsidiary of Securian
Financial Group, Inc.) and its wholly-owned subsidiaries, Personal Finance
Company LLC, Enterprise Holding Corporation, Securian Life Insurance
Company (Securian Life), and Allied Solutions, LLC. Minnesota Life
Insurance Company, both directly and through its subsidiaries
(collectively, the Company), provides a diversified array of insurance and
financial products and services designed principally to protect and enhance
the long-term financial well-being of individuals and families.
The Company, which primarily operates in the United States, has divided its
businesses into four strategic business units, which focus on various
markets: Individual Financial Security, Financial Institution Group, Group
Insurance, and Retirement. Revenues, including net realized investment
gains and losses, for these strategic business units and revenues reported
by the Company's subsidiaries and corporate product line, for the years
ended December 31 were as follows:
IN THOUSANDS 2009 2008 2007
------------ ---------- ---------- ----------
Individual Financial Security $ 500,785 $ 427,726 $ 465,296
Financial Institution Group 301,743 294,932 295,030
Group Insurance 1,513,190 1,424,342 1,327,203
Retirement 460,047 447,154 331,408
---------- ---------- ----------
Total strategic business units 2,775,765 2,594,154 2,418,937
Subsidiaries and corporate product line 149,817 (27,875) 244,930
---------- ---------- ----------
Total $2,925,582 $2,566,279 $2,663,867
========== ========== ==========
The Company serves nearly nine million people through more than 5,000 home
office associates and field representatives located at its St. Paul,
Minnesota headquarters and in sales offices nationwide.
The Company sold its wholly-owned subsidiary, Northstar Life Insurance
Company (Northstar), a New York domiciled life insurance company, to an
unaffiliated insurance company on July 1, 2007. Prior to the sale
transaction, a majority of the Northstar policies and contracts were
transferred to Securian Life via an assumption reinsurance transaction
effective June 30, 2007. The remaining policies and contracts within
Northstar after the sale were 100% reinsured to Securian Life via a
coinsurance agreement with an effective date of July, 1 2007. Northstar had
total revenues of $3,605,000 included in the consolidated statements of
operations for the year ended December 31, 2007. The sale of Northstar did
not have a material impact on the consolidated results of operations or
financial position of the Company.
(2) SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
BASIS OF PRESENTATION
The accompanying consolidated financial statements have been prepared in
accordance with U.S. generally accepted accounting principles (GAAP). The
consolidated financial statements include the accounts of Minnesota Life
Insurance Company and its subsidiaries. All material intercompany
transactions and balances have been eliminated.
6
The preparation of consolidated financial statements in conformity with
GAAP requires management to make certain estimates and assumptions that
affect reported assets and liabilities, including reporting or disclosure
of contingent assets and liabilities as of the balance sheet date and the
reported amounts of revenues and expenses during the reporting period.
Future events, including but not limited to, changes in mortality,
morbidity, interest rates and asset valuations, could cause actual results
to differ from the estimates used in the consolidated financial statements,
and such changes in estimates are generally recorded on the consolidated
statements of operations in the period in which they are made.
The most significant estimates include those used in determining the
balance and amortization of deferred policy acquisition costs for
traditional and nontraditional insurance products, policyholder
liabilities, valuation of and impairment losses on investments, valuation
allowances or impairments for mortgage loans on real estate, income taxes,
goodwill, intangible assets, and pension and other postretirement employee
benefits. Although some variability is inherent in these estimates, the
recorded amounts reflect management's best estimates based on facts and
circumstances as of the balance sheet date. Management believes the amounts
provided are appropriate.
INSURANCE REVENUES AND EXPENSES
Premiums on traditional life insurance products, which include individual
whole life and term insurance and immediate annuities, are recognized as
revenue when due. For accident and health and group life insurance
products, premiums are recognized as revenue over the contract period when
earned. To the extent that this revenue is unearned, it is reported as part
of unearned premiums and fees on the consolidated balance sheets. Benefits
and expenses are recognized in relation to premiums over the contract
period via a provision for future policyholder benefits and the
amortization of deferred policy acquisition costs.
Nontraditional life insurance products include individual adjustable life,
universal life and variable life insurance and group universal and variable
universal life insurance. Revenue from nontraditional life insurance
products and deferred annuities is comprised of policy and contract fees
charged for the cost of insurance, policy administration and surrenders and
is assessed on a daily or monthly basis and recognized as revenue when
assessed and earned. Expenses include both the portion of claims not
covered by and the interest credited to the related policy and contract
account balances. Deferred policy acquisition costs are amortized relative
to the emergence of estimated gross profits.
Any premiums on both traditional and nontraditional products due as of the
date of the consolidated financial statements that have not yet been
received and posted are included in premiums and fees receivable on the
consolidated balance sheets.
Certain nontraditional life insurance products, specifically individual
adjustable and variable life insurance, require payment of fees in advance
for services that will be rendered over the estimated lives of the
policies. These payments are established as unearned revenue reserves upon
receipt and are included in unearned premiums and fees on the consolidated
balance sheets. These unearned revenue reserves are amortized over the
estimated lives of these policies and contracts in relation to the
emergence of estimated gross profits.
7
COMMISSION INCOME
Commission income on insurance products is recognized as earned, net of the
amount required to be remitted to the various underwriters responsible for
providing the policy. Commissions are refunded on cancelled policies based
on the unearned portion of the premium payments.
Commission income on investment related products is recognized on the date
of sale. Related commission expense due to agents on such sales is also
recognized on the date of sale.
ADMINISTRATIVE AND SPONSORSHIP FEES
The Company pays administrative fees to financial institutions for
administrative duties performed including, but not limited to, collection
and remittance of premium, assistance with premium billing, communication
with loan customers and other additional clerical functions. The expense is
estimated and accrued on a quarterly basis based on recent historical
experience and is trued up at each profit sharing year-end which occur
throughout the year. The Company also pays certain financial institutions
sponsorship fees which are primarily based on the loss experience of the
business placed by the financial institution with the Company.
VALUATION OF INVESTMENTS AND NET INVESTMENT INCOME
Fixed maturity securities, which may be sold prior to maturity and include
fixed maturities on loan, are classified as available-for-sale and are
carried at fair value. Premiums and discounts are amortized or accreted
using the interest yield method. The Company recognizes the excess of all
cash flows over the initial investment attributable to its beneficial
interest in asset-backed securities estimated at the
acquisition/transaction date as interest income over the life of the
Company's beneficial interest using the effective interest yield method.
The Company does not accrete the discount for fixed maturity securities
that are in default.
The Company uses book value as cost for applying the retrospective
adjustment method to loan-backed fixed maturity securities purchased.
Prepayment assumptions for single class and multi-class mortgage-backed
securities were obtained using a commercial software application or
internal estimates.
Marketable equity securities are generally classified as available-for-sale
and are carried at fair value. Mutual funds and exchange-traded fund (ETF)
investments in select asset classes that are sub-advised are carried at
fair value, which generally are quoted market prices of the funds' net
asset value (NAV). The Company also invests in non-marketable equity
securities that are not classified as available-for-sale and are carried at
cost, which approximates fair value. As of December 31, 2009 and 2008, the
Company had $10,000,000 of non-marketable equity securities.
Available-for-sale securities are stated at fair value, with the unrealized
gains and losses, net of adjustments to deferred policy acquisition costs,
reserves and deferred income tax, reported as a separate component of
accumulated other comprehensive income (loss) in stockholder's equity.
Mortgage loans are carried at amortized cost less any valuation allowances.
Premiums and discounts are amortized or accreted over the terms of the
mortgage loans based on the effective interest yield method.
8
Alternative investments include private equity funds, mezzanine debt funds
and hedge funds investing in limited partnerships. These investments are
carried on the consolidated balance sheets at the amount invested, adjusted
to recognize the Company's ownership share of the earnings or losses of the
investee after the date of the acquisition, and adjusted for any
distributions received (equity method accounting). In-kind distributions
are recorded as a return of capital for the cost basis of the stock
received. Any adjustments recorded directly to the stockholders' equity of
the investee are recorded, based on the Company's ownership share, as
unrealized gains or losses. The valuation of alternative investments is
recorded based on the partnership financial statements from the previous
quarter plus contributions and distributions during the fourth quarter. The
Company believes this valuation represents the best available estimate,
however, to the extent that market conditions fluctuate significantly, any
change in the following quarter partnership financial statements could be
material to the Company's unrealized gains or losses included in
stockholder's equity. The Company evaluates partnership financial
statements received subsequent to December 31 up to the financial
statements issue date for material fluctuations in order to determine if an
adjustment should be recorded as of December 31.
Fair values of fixed maturity and marketable equity securities are based on
quoted market prices obtained from third party pricing services when
available.
For fixed maturity securities where quoted market prices are not available,
generally private placement securities, securities that do not trade
regularly, and embedded derivatives included in such securities, an
internally developed pricing model using a commercial software application
is most often used. The matrix pricing model is developed by obtaining
spreads versus the U.S. Treasury yield for corporate securities with
varying weighted average lives and bond ratings. The weighted average life
and bond rating of a particular fixed maturity security to be priced are
important inputs into the model and are used to determine a corresponding
spread that is added to the U.S. Treasury yield to create an estimated
market yield for that security. The estimated market yield, liquidity
premium, any adjustments for known credit risk, and other relevant factors
are then used to estimate the fair value of the particular fixed maturity
security.
As of December 31, 2009, 87.7% of fixed maturity fair values were obtained
from third party pricing services and 12.3% from the internal methods
described above. As of December 31, 2008, 85.3% of fixed maturity fair
values were obtained from quoted market prices, 14.0% from the internal
methods described above and 0.7% from other sources, primarily broker bids.
Due to extreme volatility in the fixed maturity markets beginning in late
2007 and throughout 2008 and 2009, the Company performed additional
procedures to ensure fair values obtained as of December 31, 2009 and 2008
were appropriate. The additional procedures were primarily performed on
fixed maturities where the fair value obtained was less than 90% of par
value which supplemented the Company's routine review of the securities
valued between 90% and par. For these securities, the additional procedures
performed included: review of price history and ratings, comparison of
original projected returns to actual returns, analysis of underlying
collateral, and documentation supporting the valuation used.
Real estate, included in other invested assets on the consolidated balance
sheets, is carried at cost less accumulated depreciation.
For non-structured fixed maturity securities, the Company recognizes
interest income using the interest method without anticipating the impact
of prepayments. The Company recognizes dividend income on equity securities
upon the declaration of the dividend.
9
For structured fixed maturity securities, excluding interest-only
securities, the Company recognizes income using a constant effective yield
method based on prepayment assumptions obtained from outside service
providers or upon analyst review of the underlying collateral and the
estimated economic life of the securities. When estimated prepayments
differ from the anticipated prepayments, the effective yield is
recalculated to reflect actual prepayments to date and anticipated future
payments. Any resulting adjustment is included in net investment income.
Policy loans are carried at the unpaid principal balance.
Cash and cash equivalents are carried at cost, which approximates fair
value. The Company considers all money market funds and commercial paper
with original maturity dates of less than three months to be cash
equivalents. The Company places its cash and cash equivalents with high
quality financial institutions and, at times, these balances may be in
excess of the Federal Deposit Insurance Corporation (FDIC) insurance limit.
A portion of the funds collected by the Company from its financial
institution customers is restricted in its use because the Company is
acting as an agent on behalf of certain insurance underwriters. As an
agent, the Company has a fiduciary responsibility to remit the appropriate
percentage of monies collected to the corresponding insurance underwriters.
This sum of money is defined as unremitted premiums payable and is recorded
in other liabilities on the consolidated balance sheets as discussed in
detail in note 15. The use of restricted funds is limited to the
satisfaction of the unremitted premiums payable owed to the underwriter.
The amount of restricted cash reported in cash and cash equivalents on the
consolidated balance sheets is $19,593,000 and $19,792,000 at December 31,
2009 and 2008, respectively.
Finance receivables that management has the intent and ability to hold for
the foreseeable future or until maturity or payoff are reported at their
outstanding unpaid principal balances reduced by any charge-offs. The
interest rates on the receivables outstanding at December 31, 2009 and 2008
are consistent with the rates at which loans would currently be made to
borrowers of similar credit quality and for the same maturities and
security; as such, the carrying value of the receivables outstanding at
December 31, 2009 and 2008 approximate the fair value at that date.
DERIVATIVE FINANCIAL INSTRUMENTS
The Company uses a variety of derivatives, including swaps, forwards,
futures and option contracts, to manage the risks associated with cash
flows or changes in estimated fair values related to the Company's
financial instruments. The Company currently enters into derivative
transactions that do not qualify for hedge accounting or in certain cases,
elects not to utilize hedge accounting.
Derivative instruments are carried at fair value, with changes in fair
value of derivative instruments and hedged items recorded in net realized
investment gains (losses) or, in the case of certain life insurance product
hedging, in policyholder benefits on the consolidated statements of
operations. Derivative instrument fair values are based on quoted market
prices or dealer quotes. If a quoted market price is not available, fair
value is estimated using current market assumptions and modeling
techniques, which are then compared with quotes from counterparties.
Interest income generated by derivative instruments is reported in net
realized investment gains (losses) on the consolidated statements of
operations.
10
The significant inputs to the pricing models for most over-the-counter
derivatives are inputs that are observable in the market or can be derived
principally from or corroborated by observable market data. Significant
inputs that are observable generally include: interest rates, foreign
currency exchange rates, interest rate curves, credit curves and
volatility. However, certain over-the-counter derivatives may rely on
inputs that are significant to the estimated fair value that are not
observable in the market or cannot be derived principally from or
corroborated by observable market data. Significant inputs that are
unobservable generally include: independent broker quotes and inputs that
are outside the observable portion of the interest rate curve, credit
curve, volatility or other relevant market measure. These unobservable
inputs may involve significant management judgment or estimation. In
general, all over-the-counter derivatives are compared to an outside broker
quote when available and are reviewed in detail through the Company's
valuation oversight group.
The credit risk of both the counterparty and the Company are considered in
determining the estimated fair value for all over-the-counter derivatives
after taking into account the effects of netting agreements and collateral
arrangements. Counterparty credit risk of the derivative instruments are
monitored closely by the Company along with concentration of similar
counterparty credit risks in other assets of the investment portfolio.
Several life insurance and annuity products in the Company's liability
portfolio contain investment guarantees which are deemed to be embedded
derivatives. These guarantees take the form of guaranteed withdrawal
benefits on variable annuities, a guaranteed payout floor on a variable
payout annuity, and equity linked interest credits on both fixed annuity
and fixed universal life products. The embedded derivative is bifurcated
from the host insurance contract and accounted for as a freestanding
derivative. Embedded derivatives are carried on the consolidated balance
sheets at estimated fair value and are included within policy and contract
account balances and future policy and contract benefits on the
consolidated balance sheets. Changes in estimated fair value are reported
in net realized investment gains (losses) or in policyholder benefits on
the consolidated statements of operations. The fair value for embedded
derivatives is estimated using the present value of future benefits less
the present value of future fees over the expected lives of the contracts
using various capital market and actuarial assumptions. The cash flows are
projected under multiple capital market scenarios using observable risk
free rates. The valuation of these embedded derivatives includes an
adjustment for the Company's own credit risk and other non-capital market
inputs. The Company's own credit adjustment is determined taking into
consideration publicly available information relating to peer companies'
debt ratings and the Company's own claims paying ability. The Company uses
economic hedges including futures contracts, interest rate swaps and
exchange traded options, in its efforts to minimize the financial risk
associated with these product guarantees.
The Company holds "To-Be-Announced" (TBA) Government National Mortgage
Association forward contracts that require the Company to take delivery of
a mortgage-backed security at a settlement date in the future. A majority
of the TBAs are settled at the first available period allowed under the
contract. However, the deliveries of some of the Company's TBA securities
happen at a later date, thus extending the forward contract date. These
securities are reported at fair value as derivative instruments with the
changes in fair value reported in net realized investment gains (losses).
REALIZED AND UNREALIZED GAINS AND LOSSES
Realized and unrealized gains and losses are determined using the specific
security identification method. The Company regularly reviews each
investment in its various asset classes to evaluate the necessity of
recording impairment losses for other-than-temporary declines in fair
value. During these reviews, the Company evaluates many factors, including,
but not limited to, the length of time and the extent to which the current
fair value has been below the cost of the security, specific credit issues
such as collateral, financial prospects related to the issuer, the
Company's intent to hold or sell the security, and current economic
conditions.
11
Prior to 2009, the Company recognized in earnings an other-than-temporary
impairment (OTTI) for a fixed maturity security in an unrealized loss
position unless it could assert that it had both the intent and ability to
hold the fixed maturity security for a period of time sufficient to allow
for a recovery of fair value to the security's amortized cost basis. Also
prior to 2009, the entire difference between the fixed maturity security's
amortized cost basis and its fair value was recognized in earnings if it
was determined to have an OTTI.
In 2009, the Financial Accounting Standards Board (FASB) issued new
guidance on the recognition and presentation of other-than-temporary
impairments. This new guidance amends the previously used methodology for
determining whether an OTTI exists for fixed maturity securities. It
requires that an OTTI be recognized in earnings for a fixed maturity
security in an unrealized loss position when it is anticipated that the
amortized cost will not be recovered. In such situations, the OTTI
recognized in earnings is the entire difference between the fixed maturity
security's amortized cost and its fair value only when either the Company
has the intent to sell the fixed maturity security or it is more likely
than not that the Company will be required to sell the fixed maturity
security before recovery of the decline in the fair value below amortized
cost. If neither of these two conditions exists, the difference between the
amortized cost basis of the fixed maturity security and the present value
of the projected future cash flows expected to be collected is recognized
as an OTTI in earnings (credit loss). If the fair value is less than the
present value of projected future cash flows expected to be collected, this
portion of the OTTI related to other-than credit factors (noncredit loss)
is recorded as an other comprehensive loss. When an unrealized loss on a
fixed maturity security is considered temporary, the Company continues to
record the unrealized loss in accumulated other comprehensive income (loss)
and not in earnings. The application of this pronouncement was effective
January 1, 2009 and the Company adopted the guidance on a prospective basis
as required.
For non-structured fixed maturity securities, an OTTI is recorded when the
Company does not expect to recover the entire amortized cost basis of the
security. The Company estimates the credit component of the loss based on a
number of various liquidation scenarios that it uses to assess the revised
expected cash flows from the security.
For structured fixed maturity securities, an OTTI is recorded when the
Company believes that based on expected discounted cash flows, the Company
will not recover all amounts due under the contractual terms of the
security. The credit loss component considers inputs from outside sources,
including but not limited to, default rates, delinquency rates, loan to
collateral ratios, third-party guarantees, current levels of subordination,
vintage, geographic concentration, credit ratings and other information
that management deems relevant in forming its assessment.
The Company utilizes an accretable yield which is the equivalent of book
yield at purchase date as the factor to discount the cash flows. The book
yield is also analyzed to see if it warrants any changes due to prepayment
assumptions.
For equity securities, an OTTI is recorded when the Company does not have
the ability and intent to hold the security until forecasted recovery, or
if the forecasted recovery is not within a reasonable period. When an OTTI
has occurred, the entire difference between the equity security's cost and
its fair value is charged to earnings. Equity securities that have been in
an unrealized loss position of greater than 20% for longer than six months
are reviewed specifically using available third party information based on
the investee's current financial condition, liquidity, near-term recovery
prospects, and other factors. In addition, all equity securities that have
an unrealized loss position greater than $100,000 are reviewed based on the
individual characteristics of the security. For all such equity security
considerations, the Company further considers the likelihood of recovery
within a reasonable period of time, as well as the intent and ability to
hold such securities.
12
Alternative investments that have been in an unrealized loss position of
greater than 20% for longer than two years are analyzed on a fund by fund
basis using current and forecasted expectations for future fund
performance, the age of the fund, general partner commentary and underlying
investments within the fund. If facts and circumstances indicate that the
value of the investment will not recover in a reasonable time period, the
cost of the investment is written down and an OTTI is recorded in net
realized investment gains (losses) on the consolidated statements of
operations.
All other material unrealized losses are reviewed for any unusual event
that may trigger an OTTI. Determination of the status of each analyzed
investment as other-than-temporarily impaired or not is made based on these
evaluations with documentation of the rationale for the decision.
The Company may, from time to time, sell invested assets subsequent to the
balance sheet date that were considered temporarily impaired at the balance
sheet date for several reasons. The rationale for the change in the
Company's intent to sell generally focuses on unforeseen changes in the
economic facts and circumstances related to the invested asset subsequent
to the balance sheet date, significant unforeseen changes in the Company's
liquidity needs, or changes in tax laws or the regulatory environment. The
Company had no material sales of invested assets subsequent to the balance
sheet dates for either December 31, 2009 or 2008.
The Company provides valuation allowances for impairments of mortgage loans
on a specific identification basis. Mortgage loans are considered to be
impaired when, based on current information and events, it is probable that
the Company will be unable to collect all amounts due according to the
contractual terms of the loan agreement. When the Company determines that a
loan is impaired, a provision for loss is established equal to the
difference between the carrying value and the present value of expected
future cash flows or the fair value of the collateral, if the loan is
collateral dependent. Changes in the valuation allowance are recorded in
net realized investment gains (losses) on the consolidated statements of
operations.
SECURITIES LENDING
The Company, through an agent, lends certain portfolio holdings and in turn
receives cash collateral to be invested pursuant to the terms of an
agreement with the lending agent. When these loan transactions occur, the
lending broker provides cash equivalent collateral equal to 102% to 105% of
the fair value of the loaned securities.
The Company accounts for its securities lending transactions as secured
borrowings, in which the collateral received and the related obligation to
return the collateral are recorded on the consolidated balance sheets as
securities held as collateral and securities lending collateral,
respectively. Securities on loan remain on the Company's consolidated
balance sheets and interest and dividend income earned by the Company on
loaned securities is recognized in net investment income on the
consolidated statements of operations.
Securities lending income is recorded in net investment income and was
$199,000, $1,285,000, and $1,335,000 for the years ended December 31, 2009,
2008, and 2007, respectively. Securities, consisting of equity securities
and fixed maturity securities, were loaned to other financial institutions.
Amounts loaned as of December 31, 2009 and 2008 were $78,253,000 and
$253,703,000, respectively. As of December 31, 2009 and 2008, the fair
value of the collateral associated with securities lending was $80,750,000
and $214,604,000, respectively.
13
As a result of deteriorating collateral asset quality the Company
recognized other-than-temporary impairments of $0, $47,019,000 and
$10,044,000 for the years ended December 31, 2009, 2008 and 2007,
respectively, on defaulted or distressed fixed income securities contained
within its securities lending portfolio. These impairments are included in
net realized investment gains (losses) on the consolidated statements of
operations. As of December 31, 2009, the Company recognized unrealized
gains of $12,016,000 due to the recovery in fair value of certain
securities lending collateral assets that were previously impaired in 2008
and 2007. The Company also recorded net realized investment gains of
$4,276,000 in 2009 due to the subsequent sale of securities lending
collateral assets that were previously impaired in 2008 and 2007.
SEPARATE ACCOUNTS
Separate account assets and liabilities represent segregated funds
administered by an unaffiliated asset management firm. These segregated
funds are invested by both an unaffiliated asset management firm and an
affiliate of the Company for the exclusive benefit of the Company's
pension, variable annuity and variable life insurance policyholders and
contractholders. Assets consist principally of marketable securities and
are reported at the fair value of the investments held in the segregated
funds. Investment income and gains and losses accrue directly to the
policyholders and contractholders. The activity of the separate accounts is
not reflected on the consolidated statements of operations except for the
fees the Company received, which are assessed on a daily or monthly basis
and recognized as revenue when assessed and earned, and the activity
related to guaranteed minimum death and withdrawal benefits.
The Company periodically invests money in its separate accounts. At
December 31, 2009 and 2008, the fair value of these investments included
within equity securities on the consolidated balance sheets was $25,769,000
and $21,041,000, respectively.
FINANCE CHARGE INCOME AND RECEIVABLES
Finance charge income, arising from the Company's consumer finance
operations, includes finance charges, interest, and fees on finance
receivables which are recorded as earned. Accrued and uncollected finance
charges, interest and fees are included in finance receivables on the
consolidated balance sheets. The Company uses the interest (actuarial)
method of accounting for unearned finance charges and interest on finance
receivables. Finance receivables are reported net of unearned finance
charges. Accrual of finance charges and interest on smaller balance,
homogeneous finance receivables is suspended when a loan is contractually
delinquent for more than 60 days and is subsequently recognized when
received. Accrual of finance charges is resumed when the loan is
contractually less than 60 days past due. Late charges are accrued only if
two or fewer late charges are due and unpaid. Accrual of finance charges
and interest is suspended on other receivables at the earlier of when they
are contractually past due for more than 60 days or they are considered by
management to be impaired.
A loan is treated as impaired when, based upon current information and
events, it is probable that the Company will be unable to collect all
amounts due according to the contractual terms of the loan agreement.
Impaired loans are generally larger real estate secured loans that are 60
days past due. Loan impairment is measured based on the present value of
expected future cash flows discounted at the loan's effective interest
rate, or as a practical expedient, at the observable market price of the
loan or the fair value of the collateral if the loan is collateral
dependent. Large groups of homogenous installment receivables are
collectively evaluated for impairment. When a loan is identified as
impaired, interest accrued in the current year is reversed. Interest
payments received on impaired loans are generally applied to principal
unless the remaining principal balance has been determined to be fully
collectible.
14
An allowance for losses is maintained by direct charges to operations at an
amount, which in management's judgment, based on a specific review of
larger individual loans, the overall risk characteristics of the portfolio,
changes in the character or size of the portfolio, the level of
non-performing assets, historical losses and economic conditions, is
adequate to absorb probable losses on existing receivables. The Company's
general policy is to charge off accounts (net of unearned finance charges)
when they are deemed uncollectible and in any event on which no collections
were received during the preceding six months, except for certain accounts
which have been individually reviewed by management and are deemed to
warrant further collection effort.
The adequacy of the allowance for losses is highly dependent upon
management's estimates of variables affecting valuation, appraisals of
collateral, evaluations of performance and status, and the amounts and
timing of future cash flows expected to be received on impaired loans. Such
estimates, appraisals, evaluations and cash flows may be subject to
frequent adjustments due to changing economic prospects of borrowers or
properties. These estimates are reviewed periodically and adjustments, if
necessary, are recorded in the provision for credit losses in the periods
in which they become known.
DEFERRED POLICY ACQUISITION COSTS
The costs of acquiring new and renewal business, after the effects of
reinsurance, which vary with and are primarily related to the production of
new and renewal business, are generally deferred to the extent recoverable
from future premiums or expected gross profits. Deferrable costs include
commissions, underwriting expenses and certain other selling and issue
costs. Deferred policy acquisition costs (DAC) are subject to loss
recognition and recoverability testing at least annually.
For traditional life insurance, accident and health and group life
insurance products, DAC are amortized with interest over the premium paying
period in proportion to the ratio of annual premium revenues to ultimate
premium revenues. The ultimate premium revenues are estimated based upon
the same assumptions used to calculate the future policy benefits.
For nontraditional life insurance products and deferred annuities, DAC are
amortized with interest over the expected life of the contracts in relation
to the present value of estimated gross profits from investment, mortality
and expense, and lapse margins. The Company reviews actuarial assumptions
used to project estimated gross profits, such as mortality, persistency,
expenses, investment returns and separate account returns, periodically
throughout the year. These assumptions reflect the Company's best estimate
of future experience.
For future separate account returns, the Company utilizes a mean reversion
process. The Company determines an initial starting date (anchor date) to
which a long-term separate account return assumption is applied in order to
project an estimated mean return. The Company's future long-term separate
account return assumption was 8% at December 31, 2009 and 2008. Factors
regarding economic outlook, as reviewed by a third-party, and management's
current view of the capital markets along with a historical analysis of
long-term investment returns were considered in developing the Company's
long-term separate account return assumption. If the actual separate
account return varies from the long-term assumption, a modified yield
assumption is projected over the next five years such that the mean return
equals the long-term assumption. The modified yield assumption is not
permitted to be negative or in excess of 15% during the five-year reversion
period.
As a result of the overall poor market performance in 2008, the Company
determined that the anchor date used in the mean reversion process should
be reset to December 31, 2008 to better reflect current market conditions
and the Company's best estimate of DAC. Resetting the anchor date resulted
in an additional net loss of $15,280,000 in 2008.
15
Changes in assumptions can have a significant impact on the amount of DAC
reported for nontraditional life insurance products and deferred annuities,
and the related amortization patterns. In the event actual experience
differs from expected experience or future assumptions are revised to
reflect management's new best estimate, the Company records an increase or
decrease in DAC amortization expense, which could be significant. Any
resulting impact to financial results from a change in an assumption is
included in amortization of DAC on the consolidated statements of
operations.
DAC are adjusted to reflect the impact of unrealized gains and losses on
fixed maturity securities available-for-sale as disclosed in note 20. The
adjustment represents the changes in amortization that would have been
recorded had such unrealized amounts been realized. This adjustment is
recorded through accumulated other comprehensive income (loss) on the
consolidated balance sheets.
The Company assesses internal replacements on insurance contracts to
determine whether such modifications significantly change the contract
terms. An internal replacement represents a modification in product
benefits, features, rights or coverages that occurs by the exchange of an
insurance contract for a new insurance contract, or by amendment,
endorsement or rider to a contract, or by the election of a feature or
coverage within a contract. If the modification substantially changes the
contract, the remaining DAC on the original contract are immediately
expensed and any new DAC on the replacement contract are deferred. If the
contract modification does not substantially change the contract, DAC
amortization on the original contract continues and any new acquisition
costs associated with the modification are immediately expensed.
SALES INDUCEMENTS
The Company defers sales inducements and amortizes them over the life of
the policy utilizing the same methodology and assumptions used to amortize
DAC. Deferred sales inducements are included in other assets on the
consolidated balance sheets. The Company offers sales inducements for
individual annuity products that credits the policyholder with a higher
interest rate than the normal general account interest rate for the first
year of the deposit and another sales inducement that offers an upfront
bonus on variable annuities. Changes in deferred sales inducements for the
periods ended December 31 were as follows:
IN THOUSANDS 2009 2008
------------ ------- ------
Balance at beginning of year $ 9,726 $2,952
Capitalization 3,467 4,950
Amortization and interest (715) 201
Adjustment for unrealized gains (losses) (2,186) 1,623
------- ------
Balance at end of year $10,292 $9,726
======= ======
16
GOODWILL AND OTHER INTANGIBLE ASSETS
In connection with acquisitions of operating entities, the Company
recognizes the excess of the purchase price over the fair value of net
assets acquired as goodwill. Goodwill is not amortized, and is tested for
impairment, at the reporting unit level, at least annually and between
annual evaluations if events occur or circumstances change that would more
likely than not reduce the fair value of the reporting unit below its
carrying amount. Such circumstances could include, but are not limited to:
(1) a significant adverse change in legal factors or in business climate,
(2) unanticipated competition, or (3) an adverse action or assessment by a
regulator. When evaluating whether goodwill is impaired, the Company
compares the fair value of the reporting unit to which the goodwill is
assigned to the reporting unit's carrying amount, including goodwill. The
fair value of the reporting unit is estimated using a combination of the
income or discounted cash flows approach and the market approach, which
utilizes comparable companies' data, when available. If the carrying amount
of a reporting unit exceeds its fair value, then the amount of the
impairment loss must be measured. The impairment loss would be calculated
by comparing the implied fair value of reporting unit goodwill to its
carrying amount. In calculating the implied fair value of reporting unit
goodwill, the fair value of the reporting unit is allocated to all of the
other assets and liabilities of that unit based on their fair values. The
excess of the fair value of a reporting unit over the amount assigned to
its other assets and liabilities is the implied fair value of goodwill. An
impairment loss would be recognized when the carrying amount of goodwill
exceeds its implied fair value.
The Company also evaluates the recoverability of other intangible assets
with finite useful lives whenever events or changes in circumstances
indicate that an intangible asset's carrying amount may not be recoverable.
Such circumstances could include, but are not limited to: (1) a significant
decrease in the fair value of an asset, (2) a significant adverse change in
the extent or manner in which an asset is used, or (3) an accumulation of
costs significantly in excess of the amount originally expected for the
acquisition of an asset. The Company measures the carrying amount of the
asset against the estimated undiscounted future cash flows associated with
it. Should the sum of the expected future net cash flows be less than the
carrying value of the asset being evaluated, an impairment loss would be
recognized. The impairment loss would be determined as the amount by which
the carrying value of the asset exceeds its fair value. The fair value is
measured based on quoted market prices, if available. If quoted market
prices are not available, the estimate of fair value is based on various
valuation techniques, including the discounted value of estimated future
cash flows. The evaluation of asset impairment requires the Company to make
assumptions about future cash flows over the life of the asset being
evaluated. These assumptions require significant judgment and actual
results may differ from assumed and estimated amounts.
SOFTWARE
Computer software costs incurred for internal use are capitalized and
amortized over a three to five-year period. Computer software costs include
application software, purchased software packages and significant upgrades
to software and are included in property and equipment, net on the
consolidated balance sheets. The Company had unamortized software costs of
$36,612,000 and $37,896,000 as of December 31, 2009 and 2008, respectively,
and amortized software expense of $14,167,000, $13,714,000 and $12,710,000
for the years ended December 31, 2009, 2008 and 2007, respectively.
PROPERTY AND EQUIPMENT
Property and equipment are carried at cost, net of accumulated depreciation
of $118,940,000 and $114,081,000 at December 31, 2009 and 2008,
respectively. Buildings are depreciated over 40 years and equipment is
generally depreciated over 5 to 10 years. Depreciation expense for the
years ended December 31, 2009, 2008 and 2007, was $11,715,000, $12,136,000,
and $11,787,000, respectively.
17
REINSURANCE
Insurance liabilities are reported before the effects of ceded reinsurance.
Reinsurance recoverables represent amounts due from reinsurers for paid and
unpaid benefits, expense reimbursements, prepaid premiums and future policy
benefits. Amounts recoverable from reinsurers are estimated in a manner
consistent with the claim liability associated with the reinsured business.
Reinsurance premiums ceded and recoveries on benefits and claims incurred
are deducted from the respective income and expense accounts.
POLICYHOLDER LIABILITIES
Policy and contract account balances represent the net accumulation of
funds associated with nontraditional life insurance products and deferred
annuities. Additions to account balances include premiums, deposits and
interest credited by the Company. Deductions to account balances include
surrenders, withdrawals, benefit payments and charges assessed for the cost
of insurance, policy administration and surrenders.
Future policy and contract benefits are comprised of reserves for
traditional life insurance, group life insurance, accident and health
products, and guarantees on certain deferred annuity contracts. The
reserves were calculated using the net level premium method based upon
assumptions regarding investment yield, mortality, morbidity and withdrawal
rates determined at the date of issue, commensurate with the Company's
experience. Provision has been made in certain cases for adverse deviations
from these assumptions. When estimating the expected gross margins for
traditional life insurance products as of December 31, 2009, the Company
has assumed an average rate of investment yields ranging from 4.65% to
5.24%.
Future policy and contract benefits are adjusted to reflect the impact of
unrealized gains and losses on securities as disclosed in note 20. The
adjustment to future policy benefits and claims represents the increase in
policy reserves from using a required discount rate if the funds were
reinvested at then current market interest rates instead of the then
current effective portfolio rate implicit in the policy reserves.
Pending policy and contract claims primarily represent amounts estimated
for claims incurred but not reported and claims that have been reported but
not settled. Such liabilities are estimated based upon the Company's
historical experience and other actuarial assumptions that consider current
developments and anticipated trends.
Other policyholder funds are comprised of dividend accumulations, premium
deposit funds and supplementary contracts without life contingencies.
PARTICIPATING BUSINESS
Dividends on participating policies and other discretionary payments are
declared by the Board of Directors based upon actuarial determinations,
which take into consideration current mortality, interest earnings, expense
factors and federal income taxes. Dividends are recognized as expenses
consistent with the recognition of premiums. At December 31, 2009 and 2008,
the total participating business in force was $1,918,937,000 and
$1,719,000,000, respectively. As a percentage of total life insurance in
force, participating business in force represents 0.4% and 0.3% at December
31, 2009 and 2008, respectively.
18
INCOME TAXES
The Company files a life/non-life consolidated federal income tax return
with Minnesota Mutual Companies, Inc., the Company's ultimate parent. The
Company utilizes a consolidated approach to the allocation of current
taxes, whereby, the tax benefits resulting from any losses by the Company,
which would be realized by Minnesota Mutual Companies, Inc. on a
consolidated return, go to the benefit of the Company. Intercompany tax
balances are settled annually when the tax return is filed with the
Internal Revenue Service (IRS).
Inherent in the provision for federal income taxes are estimates regarding
the deductibility of certain items and the realization of certain tax
credits. In the event the ultimate deductibility of certain items or the
realization of certain tax credits differs from estimates, the Company may
be required to significantly change the provision for federal income taxes
recorded on the consolidated financial statements. Any such change could
significantly affect the amounts reported on the consolidated statements of
operations. Management has used best estimates to establish reserves based
on current facts and circumstances regarding tax exposure items where the
ultimate deductibility is open to interpretation. Management evaluates the
appropriateness of such reserves based on any new developments specific to
their fact patterns. Information considered includes results of completed
tax examinations, Technical Advice Memorandums and other rulings issued by
the IRS or the tax courts.
The Company utilizes the asset and liability method of accounting for
income tax. Under this method, deferred tax assets and liabilities are
recognized for the future tax consequences attributable to differences
between the financial statement carrying amounts of existing assets and
liabilities and their respective tax bases and operating loss and tax
credit carryforwards. Deferred tax assets and liabilities are measured
using enacted tax rates expected to apply to taxable income in the years in
which those temporary differences are expected to be recovered or settled.
Under this method, the effect on deferred tax assets and liabilities of a
change in tax rates is recognized in income in the period that includes the
enactment date. Valuation allowances are established when it is determined
that it is more likely than not that the deferred tax asset will not be
fully realized. Current income taxes are charged to operations based upon
amounts estimated to be payable as a result of taxable operations for the
current year.
RECLASSIFICATION
Certain 2008 and 2007 financial statement balances have been reclassified
to conform to the 2009 presentation.
(3) RISKS
The following is a description of the significant risks facing the Company:
CREDIT AND CASH FLOW ASSUMPTION RISK:
Credit and cash flow assumption risk is the risk that issuers of investment
securities, mortgagees on mortgage loans or other parties, including
reinsurers and derivatives counterparties, default on their contractual
obligations or experience adverse changes to the contractual cash flow
streams. The Company attempts to minimize the adverse impact of this risk
by monitoring portfolio diversification by asset class, creditor, industry,
and by complying with investment limitations governed by state insurance
laws and regulations as applicable. The Company also considers relevant
objective information available in estimating the cash flows related to
structured securities. The Company monitors and manages exposures,
determines whether securities are impaired or loans are deemed
uncollectible, and takes charges in the period such assessments are made.
19
Following below is discussion regarding particular asset class
concentration of credit risk:
CONCENTRATION OF CREDIT RISK:
CASH AND CASH EQUIVALENTS:
Certain financial instruments, consisting primarily of cash and cash
equivalents, potentially subject the Company to concentration of
credit risk. The Company places its cash and cash equivalents in
investment grade securities and limits the amount of credit exposure
with any one institution.
FINANCIAL INSTRUMENTS:
Management attempts to limit the concentration of credit risk with
respect to mortgages, fixed maturity securities, and other invested
assets by diversifying the geographic base and industries of the
underlying issuers. This diversity is an integral component of the
portfolio management process.
Management attempts to achieve equity security diversification through
the use of style diversification and through limiting exposure to a
single issuer. Alternative investment diversification is sought by
dividing the portfolio between direct venture company funds, mezzanine
debt funds and hedge and other types of alternative instruments. In
addition, this portfolio is managed by diversifying industry sectors
to limit exposure to any one type of fund.
DERIVATIVES:
The Company executes derivative transactions with ongoing counterparty
exposure exclusively with highly rated counterparties. Should the
rating of a derivative counterparty drop, the Company may require the
counterparty to post collateral. The aggregate counterparty exposure
for a single non-qualified counterparty is limited to 1% of admitted
assets. The aggregate counterparty exposure to all non-qualified
counterparties is limited to 3% of admitted assets. Admitted assets in
this context are defined as the Company's admitted assets as defined
by Statutory Accounting guidance authored by the National Association
of Insurance Commissioners (NAIC).
To date, the Company has not required receipt of collateral from its
interest rate swap counterparties. The Company does not anticipate
nonperformance by any of its derivative instrument counterparties. The
Company is required to pledge collateral in order to trade in futures
contracts. This requirement is satisfied by deposit of a U.S. Treasury
security. The Company maintains ownership of pledged securities at all
times.
The Company attempts to minimize the adverse impact of any exposure to
potential loss in the event of credit default by the Company's futures
contracts by the fact that the futures contracts are exchange-traded
instruments and if the broker could not perform its intermediary
obligations concerning the Company's futures contracts, these
contracts could be transferred to a new broker with little or no
financial impact to the Company.
20
EQUITY MARKET RISK:
Equity market risk is the risk that significant adverse fluctuations in the
equity market can affect financial results. Risks may include, but are not
limited to, potential impairments to equity security holdings, changes in
the amount of fee revenue a company may be able to realize from its
separate account assets, impacting estimations of future profit streams
from variable products or increasing potential claims under certain
contracts with guaranteed minimum benefit features and, as discussed in
credit risk above, investing in equity securities as a part of the
insurance company investment portfolio.
As of December 31, 2009, approximately 90.6% of separate account assets
were invested in equity investments across the Company's variable product
offerings. The Company attempts to minimize the adverse impact of this risk
with its product offerings in traditional insurance products, which do not
expose fee revenue to equity market risk and by collecting fee revenue on a
transactional or annual basis rather than an asset-based basis.
The Company holds derivative instruments in its efforts to minimize the
adverse impact of equity market risks embedded within certain individual
annuity and life products.
As discussed above, the Company monitors its overall exposure to the equity
market and attempts to maintain a diversified investment portfolio limiting
its exposure to any single issuer.
FOREIGN CURRENCY RISK:
Foreign currency risk is the risk that the price of foreign currency
denominated contracts may change significantly prior to the completion of
investment transactions. The Company utilizes short-duration spot forward
contracts in its efforts to minimize the adverse impact of foreign currency
exchange rate risk inherent in the elapsed time between trade processing
and trade settlement in its international equity portfolios.
INTEREST RATE RISK:
Interest rate risk is the risk that interest rates will change and cause a
decrease in the value of an insurer's investments relative to the value of
its liabilities. The Company attempts to minimize the adverse impact of
this risk by maintaining a diversified portfolio of investments and
monitoring cash flow patterns in order to approximately match the expected
maturity of its liabilities, by employing disciplined new product
development procedures and by offering a wide range of products and by
operating throughout the United States.
LEGAL/REGULATORY RISK:
Legal or regulatory risk is the risk that changes in the legal or
regulatory environment in which an insurer operates will result in
increased competition, reduced demand for a company's products, or
additional unanticipated expenses in the pricing of a company's products.
The Company attempts to minimize the adverse impact of this risk by
offering a wide range of products and by operating throughout the United
States. The Company specifically monitors its risk toward any one
particular product or particular jurisdictions. The Company employs
compliance practices that identify and assist in minimizing the adverse
impact of this risk.
MORTALITY RISK:
Mortality risk is the risk that overall life expectancy assumptions used by
the Company in the pricing of its life insurance and annuity products prove
to be too aggressive. This situation could occur, for example, as a result
of pandemics, terrorism, natural disasters, or acts of war. The Company's
main strategy to reduce this risk is to limit the concentration of
mortality risk through geographical diversification and the purchase of
reinsurance.
21
RATINGS RISK:
Ratings risk is the risk that rating agencies change their outlook or
rating of the Company or a subsidiary of the Company, where such change or
changes in the Company's underlying business or a combination of both could
negatively impact the Company. The Company employs a strategic planning
process, disciplined new product procedures, monitors its risk based
capital and other capital ratios for adequacy and maintains regular
communications with the rating agencies in its efforts to minimize the
adverse impact of this risk.
REINSURANCE RISK:
Reinsurance risk is the risk that reinsurance companies, where a company
has ceded a portion of its underwriting risk, may default on their
obligation. The Company has entered into certain reinsurance contracts to
cede a portion of its life and health business. The Company established a
trust agreement when assets connected to the ceding of its Individual
Disability line of business were sold. The assets in the trust are actively
monitored for potential credit risk and are replaced as necessary. The
Company also monitors the ratings of reinsurance companies it chooses to
cede risk to and follows up on any outstanding balances with reinsurance
companies.
(4) NEW ACCOUNTING PRONOUNCEMENTS
In September 2009, the FASB issued Accounting Standards Update 12 (ASU
2009-12), Fair Value Measurements and Disclosures (Topic 820): Investments
in Certain Entities That Calculate Net Asset Value per Share (or Its
Equivalent), which provides guidance on measuring the fair value of
investments in certain entities that calculate net asset value per share,
how investments within its scope would be classified in the fair value
hierarchy and enhances disclosure requirements about the nature and risks
of investments measured at fair value on a recurring and non-recurring
basis for periods ending after December 15, 2009. The Company had no
material impact to its consolidated results of operations or financial
position due to the adoption of ASU 2009-12.
In August 2009, the FASB issued Accounting Standards Update 5 (ASU 2009-5),
Fair Value Measurements and Disclosures (Topic 820): Measuring Liabilities
at Fair Value, which provides clarification for measuring the fair value in
circumstances in which a quoted price in an active market for the identical
liability is not available for periods beginning January 1, 2010. The
Company is currently evaluating the impact to its consolidated results of
operations and financial position due to the adoption of ASU 2009-5.
In June 2009, the FASB issued FASB Accounting Standards Codification
(Codification) as the single source of authoritative accounting guidance
used in the preparation of financial statements in conformity with GAAP for
all non-governmental agencies. Codification, which changed the referencing
and organization of accounting guidance without modification of existing
GAAP, is effective for periods ending after September 15, 2009. Since it
did not modify GAAP, Codification did not have a material impact on the
consolidated results of operations or financial position of the Company.
In June 2009, the FASB issued guidance relating to special purpose entities
changing the determination of the primary beneficiary of a variable
interest entity (VIE) from a quantitative model to a qualitative model.
Under the new qualitative model, the primary beneficiary must have both the
ability to direct the activities of the VIE and the obligation to absorb
either losses or gains that could be significant to the VIE. The guidance
also changes when reassessment is needed, as well as requires enhanced
disclosures, including the Company's involvement with VIEs on its financial
statements for periods beginning after November 15, 2009. The Company is
currently evaluating the impact of this new guidance to its consolidated
results of operations and financial position.
22
In June 2009, the FASB issued guidance relating to the accounting for
transfers of financial assets. This guidance eliminates the concept of a
qualifying special purpose entity, eliminates the guaranteed mortgage
securitization exception, changes the criteria for achieving sale
accounting when transferring a financial asset and changes the initial
recognition of retained beneficial interest. The guidance also requires
additional disclosures about a transferor's financial assets that have been
accounted for as sales, the risks inherent in the transferred financial
assets that have been retained, and the nature and financial effect of
restrictions on the transferor's assets that continue to be reported on the
consolidated balance sheets for periods beginning after November 15, 2009.
The Company is currently evaluating the impact of this new guidance to its
consolidated results of operations and financial position.
In May 2009, the FASB issued guidance establishing general standards of
accounting for and disclosure of events that occur after the balance sheet
date but before the financial statements are issued or available to be
issued. It also requires disclosure of the date through which management
has evaluated subsequent events and the basis for that date. This guidance
is effective for periods ending after June 15, 2009. The Company had no
material impact to its consolidated results of operations or financial
position due to the adoption of this new guidance and has provided the
required disclosures in note 24.
In April 2009, the FASB issued new guidance on the recognition and
presentation of other-than-temporary impairments (OTTI Guidance) as
discussed in note 2. This OTTI Guidance amends the previously used
methodology for determining whether an OTTI exists for fixed maturity
securities, changes the presentation of OTTI for fixed maturity securities
and requires additional disclosures for OTTI on fixed maturity and equity
securities in annual financial statements.
The Company's net cumulative effect adjustment of adopting the OTTI
Guidance effective January 1, 2009, was an increase to retained earnings of
$87,683,000 and a decrease to accumulated other comprehensive income (AOCI)
of $56,783,000. This cumulative effect adjustment to retained earnings was
comprised of an increase to the amortized cost basis of fixed maturity
securities of $89,593,000, net of policyholder related amounts of
$2,388,000 and net of deferred income tax benefits of $478,000. The
difference between the impact of the cumulative effect adjustment to
retained earnings and AOCI of $30,900,000 is almost entirely due to a
decrease in the tax valuation allowance as a result of the reclassification
of non-credit losses to AOCI. The enhanced financial statement presentation
of the total OTTI loss and the offset for the portion of noncredit OTTI
loss transferred to, and recognized in, other comprehensive income (loss)
is presented on the consolidated statements of operations.
In January 2009, the FASB issued guidance which removed the exclusive
reliance on market participant estimates of future cash flows and allows
management to apply reasonable judgment in assessing whether an OTTI has
occurred. The Company adopted the provisions of this new guidance on a
prospective basis effective October 1, 2008.
In April 2009, the FASB issued guidance on estimating the fair value of an
asset or liability if there was a significant decrease in the volume and
level of trading activity for these assets or liabilities and identifying
transactions that are not orderly. This guidance is effective for periods
ending after June 15, 2009. The Company had no material impact to its
consolidated results of operations or financial position due to the
adoption of this new guidance.
In December 2008, the FASB issued guidance requiring employers to make
additional disclosures about plan assets for defined benefit and other
postretirement benefit plans for periods ending after December 15, 2009.
The Company has provided all of the material required disclosures in note
11.
23
In April 2008, the FASB issued guidance addressing renewal and extension
assumptions used to determine the useful life of recognized intangible
assets. This guidance is effective for fiscal years beginning after
December 15, 2008 and is applicable for intangible assets acquired after
the effective date. The Company had no material impact to its consolidated
results of operations or financial position due to the adoption of this new
guidance.
In March 2008, the FASB issued guidance effective for fiscal years
beginning after November 15, 2008, enhancing required disclosures that
should enable financial statement users to understand how and why a company
uses derivative instruments, how derivative instruments and related hedged
items are accounted for and how derivative instruments and related hedging
items affect a company's financial position, financial performance and cash
flows. The Company has provided all of the material required disclosures in
note 7.
In December 2007, FASB issued guidance establishing accounting and
reporting standards for the non-controlling interest in a subsidiary and
for the deconsolidation of a subsidiary. The adoption of this new guidance
on January 1, 2009 had no material impact on the Company's consolidated
results of operations or financial position.
In December 2007, the FASB issued and subsequently modified in April 2009,
guidance relating to business combinations. This new guidance improves the
relevance, representational faithfulness, and comparability of the
information that a reporting entity provides about a business combination
and its effects. The adoption of this new guidance on January 1, 2009 had
no material impact on the Company's consolidated results of operations or
financial position.
In February 2007, the FASB issued guidance permitting entities to choose to
measure many financial instruments and certain other items at fair value
that are not currently required to be measured at fair value. The objective
is to improve financial reporting by providing entities with the
opportunity to mitigate volatility in reported earnings caused by measuring
related assets and liabilities differently without having to apply complex
hedge accounting provisions. The application of this new guidance is
required for fiscal years beginning after November 15, 2007. The adoption
did not impact the Company's consolidated financial statements as no items
were elected for measurement at fair value upon initial adoption. The
Company will continue to evaluate eligible financial assets and liabilities
on their election dates. Any future elections will be disclosed in
accordance with the provision outlined within the guidance.
In September 2006, the FASB issued guidance that requires an employer to
recognize the funded status of a defined benefit pension and other
postretirement plan as an asset or liability on its consolidated balance
sheets and to recognize changes in funded status in the year in which the
changes occur through other comprehensive income (loss). In addition, this
new guidance requires an employer to measure the funded status of a plan as
of the date of its year-end financial statements. For employers without
publicly traded equity securities, recognition of the funded status of a
benefit plan was required to be adopted for fiscal years ending after June
15, 2007. The requirement to measure the funded status of a plan as of the
date of its year-end financial statements was required for fiscal years
ending after December 15, 2008. The Company adopted the requirement to
recognize the funded status of its benefit plans as of December 31, 2007,
which resulted in a $22,562,000 decrease to accumulated other comprehensive
income (loss), net of taxes. The Company adopted the requirement to measure
the funded status as of the date of its year-end financial statements on
December 31, 2008, which resulted in a $1,277,000 decrease to retained
earnings, net of taxes, and a $89,000 increase to accumulated other
comprehensive income (loss), net of taxes.
24
In September 2006, the FASB issued guidance which establishes an
authoritative definition of fair value, sets out a framework for measuring
fair value, and requires additional disclosures regarding fair value
measurements. The application of this new guidance was initially required
for fiscal years beginning after November 15, 2007. During February 2008,
the FASB issued guidance which delayed the effective date until fiscal
years beginning after November 15, 2008 for nonfinancial assets and
nonfinancial liabilities, except for items that are recognized or disclosed
at fair value in the financial statements on a recurring basis. During
October 2008, the FASB issued additional guidance effective upon issuance
which clarified the application of the fair value guidance in an inactive
market, including: how internal assumptions should be considered when
measuring fair value, how observable market information that is not active
should be considered and how the use of market quotes should be used when
assessing observable and unobservable data. There was no material impact to
the Company's financial statements, other than disclosures, as a result of
the adoption of this new guidance.
In June 2006, the FASB issued guidance which clarifies the accounting for
uncertainty in income taxes recognized in an enterprise's financial
statements. This new guidance prescribes a recognition threshold and
measurement attribute for the financial statement recognition and
measurement of a tax position taken or expected to be taken in a tax
return. Additional guidance is provided on derecognition, classification,
interest and penalties, disclosure and transition. The application of this
new guidance was required for fiscal years beginning after December 15,
2006. The Company adopted the new guidance effective January 1, 2007, which
resulted in a cumulative effect adjustment to increase retained earnings
$1,681,000, net of taxes.
In September 2005, guidance was issued by the AcSEC of the AICPA on
accounting for DAC on internal replacements and certain investment
contracts. This guidance was effective for internal replacements occurring
in fiscal years beginning after December 15, 2006. The Company adopted this
new guidance effective January 1, 2007, which resulted in a cumulative
effect adjustment to decrease retained earnings $6,326,000, net of taxes,
and decrease accumulated other comprehensive income $20,000, net of taxes.
(5) FAIR VALUE OF FINANCIAL INSTRUMENTS
The fair value of the Company's financial assets and financial liabilities
has been determined using available market information as of December 31,
2009 and 2008. Although the Company is not aware of any factors that would
significantly affect the fair value of financial assets and financial
liabilities, such amounts have not been comprehensively revalued since
those dates. Therefore, estimates of fair value subsequent to the valuation
dates may differ significantly from the amounts presented herein.
Considerable judgment is required to interpret market data to develop the
estimates of fair value. The use of different market assumptions and/or
estimation methodologies may have a material effect on the estimated fair
value amounts.
FINANCIAL ASSETS AND FINANCIAL LIABILITIES REPORTED AT FAIR VALUE
Effective January 1, 2008, the Company prospectively adopted the provisions
of fair value measurement guidance for its financial assets and financial
liabilities that are measured at fair value. Fair value is defined as the
price that would be received to sell an asset or paid to transfer a
liability (exit price) in an orderly transaction between market
participants at the measurement date. In determining fair value, the
Company primarily uses the market approach which utilizes process and other
relevant information generated by market transactions involving identical
or comparable assets or liabilities. To a lesser extent, the Company also
uses the income approach which uses discounted cash flows to determine fair
value. When applying either approach, the Company maximizes the use of
observable inputs and minimizes the use of unobservable inputs.
25
Observable inputs reflect the assumptions market participants would use in
valuing a financial instrument based on market data obtained from sources
independent of the Company. Unobservable inputs reflect the Company's
estimates about the assumptions market participants would use in valuing
financial assets and financial liabilities based on the best information
available in the circumstances.
The Company is required to categorize its financial assets and financial
liabilities recorded on the consolidated balance sheets according to a
three-level hierarchy. A level is assigned to each financial asset and
financial liability based on the lowest level input that is significant to
the fair value measurement in its entirety. The levels of fair value
hierarchy are as follows:
Level 1 - Unadjusted quoted prices for identical assets or liabilities in
an active market. The types of assets and liabilities utilizing Level 1
valuations generally include U.S. Treasury securities, money-market funds,
actively-traded U.S. and international equities, investments in mutual
funds with quoted market prices, certain separate account assets, and
listed derivatives.
Level 2 - Prices or valuations based on observable inputs other than quoted
prices in active markets for identical assets and liabilities. The types of
assets and liabilities utilizing Level 2 valuations generally include U.S.
Government securities not backed by the full faith of the government,
publicly traded corporate fixed maturity securities, structured notes,
municipal fixed maturity securities, certain mortgage and asset-backed
securities, certain separate account assets, and certain derivatives.
Level 3 - Prices or valuations that require significant unobservable
inputs. The types of assets and liabilities utilizing Level 3 valuations
generally include certain mortgage and asset backed securities, certain
privately placed corporate fixed maturity securities and certain
derivatives, including embedded derivatives associated with living benefit
guarantees and equity-indexed features on certain life and annuity
contracts.
The Company uses prices and inputs that are current as of the measurement
date. In periods of market disruption, the ability to observe prices and
inputs may be reduced, which could cause an asset or liability to be
reclassified to a lower level.
Refer to note 2 for additional information on techniques used to measure
fair value and any changes in those techniques during 2009.
26
The following tables summarize the Company's financial assets and financial
liabilities measured at fair value on a recurring basis:
[Enlarge/Download Table]
DECEMBER 31, 2009
-------------------------------------------------
IN THOUSANDS LEVEL 1 LEVEL 2 LEVEL 3 TOTAL
------------ ----------- ---------- -------- -----------
Fixed maturity securities, available-for-sale:
U.S. government securities $ 131,127 $ -- $ -- $ 131,127
Agencies not backed by the full faith and credit of
the U.S. government -- 46,382 -- 46,382
Foreign government securities -- 23,683 -- 23,683
Corporate securities -- 3,794,977 922,579 4,717,556
Asset-backed securities -- 184,946 33,661 218,607
Commercial mortgage-backed securities -- 844,537 89 844,626
Residential mortgage-backed securities -- 1,978,612 4,675 1,983,287
----------- ---------- -------- -----------
Total fixed maturity securities, available-for-sale 131,127 6,873,137 961,004 7,965,268
Equity securities, available-for-sale 273,096 -- 9 273,105
Fixed maturity securities on loan:
U.S. government securities 38,691 -- -- 38,691
Foreign government securities -- 690 -- 690
Corporate securities -- 19,510 -- 19,510
----------- ---------- -------- -----------
Total fixed maturity securities on loan 38,691 20,200 -- 58,891
Equity securities on loan 19,362 -- -- 19,362
Derivative instruments 6 47,463 -- 47,469
----------- ---------- -------- -----------
Total investments 462,282 6,940,800 961,013 8,364,095
Cash equivalents 273,221 9,493 -- 282,714
Securities held as collateral 6,876 33,294 -- 40,170
Separate account assets (1) 11,030,739 416,869 -- 11,447,608
----------- ---------- -------- -----------
Total financial assets $11,773,118 $7,400,456 $961,013 $20,134,587
=========== ========== ======== ===========
Policy and contract account balances (2) $ -- $ -- $ 12,579 $ 12,579
Future policy and contract benefits (2) -- -- 30,999 30,999
Derivative instruments -- 673 -- 673
Securities lending collateral 6,876 73,874 -- 80,750
----------- ---------- -------- -----------
Total financial liabilities $ 6,876 $ 74,547 $ 43,578 $ 125,001
=========== ========== ======== ===========
(1) Separate account liabilities are set equal to the fair value of separate
account assets as prescribed by GAAP accounting guidance.
(2) Policy and contract account balances and future policy and contract
benefits balances reported in this table relate to embedded derivatives
associated with living benefit guarantees and equity-indexed features on
certain annuity and life insurance products. The Company's guaranteed
minimum withdrawal benefits, guaranteed annuity payout floor, and
equity-indexed annuity and life products are considered embedded
derivatives under current accounting guidance, resulting in the related
liabilities being separated from the host contract and recognized at fair
value.
27
[Enlarge/Download Table]
DECEMBER 31, 2008
------------------------------------------------
IN THOUSANDS LEVEL 1 LEVEL 2 LEVEL 3 TOTAL
------------ ---------- ---------- -------- -----------
Fixed maturity securities, available-for-sale
U.S. government securities $ 34,592 $ 9,767 $ -- $ 44,359
Agencies not backed by the full faith and
credit of the U.S. government -- 34,632 2,797 37,429
Foreign government securities -- 4,659 -- 4,659
Corporate securities -- 2,403,473 843,528 3,247,001
Asset-backed securities -- 183,003 26,851 209,854
Commercial mortgage-backed securities -- 754,176 12,623 766,799
Residential mortgage-backed securities -- 1,522,474 16,383 1,538,857
---------- ---------- -------- -----------
Total fixed maturity securities, available-
for-sale 34,592 4,912,184 902,182 5,848,958
Equity securities, available-for-sale 340,235 -- 326 340,561
Fixed maturity securities on loan:
U.S. government securities 109,172 3,500 -- 112,672
Agencies not backed by the full faith and
credit of the U.S. government -- 37,117 -- 37,117
Corporate securities -- 13,942 -- 13,942
Residential mortgage-backed securities -- 53,022 -- 53,022
---------- ---------- -------- -----------
Total fixed maturity securities on loan 109,172 107,581 -- 216,753
Equity securities on loan 36,950 -- -- 36,950
Derivative instruments 9 57,404 -- 57,413
---------- ---------- -------- -----------
Total investments 520,958 5,077,169 902,508 6,500,635
Cash equivalents 463,326 33,425 -- 496,751
Securities held as collateral 13,528 201,076 -- 214,604
Separate account assets (1) 8,977,964 259,683 2,100 9,239,747
---------- ---------- -------- -----------
Total financial assets $9,975,776 $5,571,353 $904,608 $16,451,737
========== ========== ======== ===========
Policy and contract account balances (2) $ -- $ -- $ 2,398 $ 2,398
Future policy and contract benefits (2) -- -- 107,175 107,175
Securities lending collateral 13,528 258,139 -- 271,667
---------- ---------- -------- -----------
Total financial liabilities $ 13,528 $ 258,139 $109,573 $ 381,240
========== ========== ======== ===========
(1) Separate account liabilities are set equal to the fair value of separate
account assets as prescribed by GAAP accounting guidance.
(2) Policy and contract account balances and future policy and contract
benefits balances reported in this table relate to embedded derivatives
associated with living benefit guarantees and equity-indexed features on
certain annuity and life insurance products. The Company's guaranteed
minimum withdrawal benefits, guaranteed annuity payout floor, and
equity-indexed annuity and life products are considered embedded
derivatives under current accounting guidance, resulting in the related
liabilities being separated from the host contract and recognized at fair
value.
28
The following tables provide a summary of changes in fair value of Level 3
financial assets held at fair value on a recurring basis during the year
ended December 31, 2009:
[Enlarge/Download Table]
TOTAL REALIZED AND
UNREALIZED GAINS (LOSSES)
INCLUDED IN:
--------------------------
PURCHASES, NET
BALANCE AT OTHER SALES AND TRANSFERS
BEGINNING NET COMPREHENSIVE SETTLEMENTS, IN (OUT) OF BALANCE AT
IN THOUSANDS OF YEAR INCOME (1) INCOME NET LEVEL 3 END OF YEAR
------------ ---------- ---------- ------------- ------------ ----------- -----------
Agencies not backed by the
full faith and credit of the
U.S. government $ 2,797 $ -- $ -- $ -- $ (2,797) $ --
Corporate securities 843,528 (6,000) 118,005 (19,135) (13,819) 922,579
Asset-backed securities 26,851 -- (450) 23,682 (16,422) 33,661
Commercial mortgage-backed
securities 12,623 -- 15 (32) (12,517) 89
Residential mortgage-backed
securities 16,383 (1,227) 2,220 (12,176) (525) 4,675
-------- ------- -------- -------- -------- --------
Total fixed maturities,
available-for-sale 902,182 (7,227) 119,790 (7,661) (46,080) 961,004
Equity securities, available-
for-sale 326 -- 213 (415) (115) 9
Separate account assets (2) 2,100 (1,200) -- (900) -- --
-------- ------- -------- -------- -------- --------
Total financial assets $904,608 $(8,427) $120,003 $ (8,976) $(46,195) $961,013
======== ======= ======== ======== ======== ========
(1) The amounts included in this column are reported in net realized investment
gains (losses) on the consolidated statements of operations.
(2) The net realized gain (loss) on separate account assets is attributable to
policy and contract holders and, therefore, is not included in the
Company's net income.
29
The following tables provide a summary of changes in fair value of Level 3
financial assets held at fair value on a recurring basis during the year
ended December 31, 2008:
[Enlarge/Download Table]
TOTAL REALIZED AND
UNREALIZED GAINS (LOSSES)
INCLUDED IN:
--------------------------
PURCHASES, NET
BALANCE AT OTHER SALES AND TRANSFERS
BEGINNING NET COMPREHENSIVE SETTLEMENTS, IN (OUT) OF BALANCE AT
IN THOUSANDS OF YEAR LOSS (1) LOSS NET LEVEL 3 END OF YEAR
------------ ---------- -------- ------------- ------------ ----------- -----------
Agencies not backed by the
full faith and credit of the
U.S. government $ 3,979 $ -- $ (1,182) $ -- $ -- $ 2,797
Corporate securities 1,001,721 (5,346) (141,261) (16,608) 5,022 843,528
Asset-backed securities 15,939 (1,339) (1,972) (2,257) 16,480 26,851
Commercial mortgage-backed
securities 29,743 (10,979) (2,607) 2,724 (6,258) 12,623
Residential mortgage-
backed securities 8,424 (1,365) (4,733) 13,405 652 16,383
---------- -------- --------- -------- ------- --------
Total fixed maturities,
available-for-sale 1,059,806 (19,029) (151,755) (2,736) 15,896 902,182
Equity securities, available-
for-sale 2,369 (428) 89 (1,819) 115 326
Separate account assets (2) 10,061 (2,516) -- (52) (5,393) 2,100
---------- -------- --------- -------- ------- --------
Total financial assets $1,072,236 $(21,973) $(151,666) $ (4,607) $10,618 $904,608
========== ======== ========= ======== ======= ========
(1) The amounts included in this column are reported in net realized investment
gains (losses) on the consolidated statements of operations.
(2) The net realized gain (loss) on separate account assets is attributable to
policy and contract holders and, therefore, is not included in the
Company's net loss.
There were no changes in unrealized gains (losses) included in net income
(loss) related to assets held as of December 31, 2009 and 2008.
The following tables provide a summary of changes in fair value of Level 3
financial liabilities held at fair value on a recurring basis during the
year ended December 31, 2009:
[Enlarge/Download Table]
TOTAL REALIZED AND
UNREALIZED GAINS (LOSSES)
INCLUDED IN:
--------------------------
SALES
ISSUANCES NET
BALANCE AT OTHER AND TRANSFERS
BEGINNING NET COMPREHENSIVE SETTLEMENTS, IN (OUT) OF BALANCE AT
IN THOUSANDS OF YEAR INCOME (1) GAIN NET LEVEL 3 END OF YEAR
------------ ---------- ---------- ------------- ------------ ----------- -----------
Policy and contract account
balances $ 2,398 $ 10,181 $-- $ -- $-- $12,579
Future policy and contract
benefits 107,175 (75,090) -- (1,086) -- 30,999
-------- -------- --- ------- --- -------
Total financial liabilities $109,573 $(64,909) $-- $(1,086) $-- $43,578
======== ======== === ======= === =======
(1) The amounts included in this column are reported in net realized investment
gains (losses) on the consolidated statements of operations.
30
The following tables provide a summary of changes in fair value of Level 3
financial liabilities held at fair value on a recurring basis during the
year ended December 31, 2008:
[Enlarge/Download Table]
TOTAL REALIZED AND
UNREALIZED GAINS (LOSSES)
INCLUDED IN:
--------------------------
SALES,
ISSUANCES NET
BALANCE AT OTHER AND TRANSFERS
BEGINNING NET COMPREHENSIVE SETTLEMENTS, IN (OUT) OF BALANCE AT
IN THOUSANDS OF YEAR LOSS (1) LOSS NET LEVEL 3 END OF YEAR
------------ ---------- -------- ------------- ------------ ----------- -----------
Policy and contract account
balances $ 1,727 $ 671 $-- $ -- $-- $ 2,398
Future policy and contract
benefits 12,986 94,599 -- (410) -- 107,175
------- ------- --- ----- --- --------
Total financial liabilities $14,713 $95,270 $-- $(410) $-- $109,573
======= ======= === ===== === ========
(1) The amounts in the column are reported in net realized investment gains
(losses) on the consolidated statements of operations for the amounts
related to future policy and contract benefits and in policyholder benefits
for the amounts related to the policy and contract account balances.
The change in unrealized (gains) losses included in net income (loss) related to
liabilities held as of December 31, 2009 was $(60,698,000), of which
$(70,908,000) was included in net realized investment gains (losses) and
$10,210,000 was included in policyholder benefits on the consolidated statements
of operations. The change in unrealized (gains) losses included in net income
(loss) related to liabilities held as of December 31, 2008 was $95,463,000, of
which $94,792,000 was included in net realized investment gains (losses) and
$671,000 was included in policyholder benefits on the consolidated statements of
operations.
The Company did not have any assets or liabilities reported at fair value on a
nonrecurring basis.
FINANCIAL ASSETS AND FINANCIAL LIABILITIES REPORTED AT OTHER THAN FAIR VALUE
The Company uses various methods and assumptions to estimate the fair value of
financial assets and financial liabilities that are not carried at fair value on
the consolidated balance sheets.
Fair values of mortgage loans are based upon matrix pricing and discounted cash
flows which may not necessarily equal the exit price a market participant would
pay for the loan. The carrying amounts for finance receivables, policy loans,
and alternative investments approximate the assets' fair values.
The interest rates on finance receivables outstanding as of December 31, 2009
and 2008 are consistent with the rates at which loans would currently be made to
borrowers of similar credit quality and for the same maturities and security.
The fair values of deferred annuities and other fund deposits, which have
guaranteed interest rates and surrender charges, are estimated to be the amount
payable on demand as of December 31, 2009 and 2008 as those investment contracts
have no defined maturity, are similar to a deposit liability and are based on
the current interest rate environment relative to the guaranteed interest rates.
The amount payable on demand equates to the account balance less applicable
surrender charges. Contracts without guaranteed interest rates and surrender
charges have fair values equal to their accumulation values plus applicable
market value adjustments.
31
The fair values of supplementary contracts without life contingencies and
annuity certain contracts are calculated using discounted cash flows, based
on interest rates currently offered for similar products with maturities
consistent with those remaining for the contracts being valued.
The fair value of notes payable is estimated using rates currently
available to the Company for debt with similar terms and remaining
maturities.
The carrying amounts and fair values of the Company's financial
instruments, which were classified as assets as of December 31, were as
follows:
2009 2008
----------------------- -----------------------
CARRYING FAIR CARRYING FAIR
IN THOUSANDS AMOUNT VALUE AMOUNT VALUE
------------ ---------- ---------- ---------- ----------
Mortgage loans, net $1,263,581 $1,231,777 $1,250,198 $1,181,272
Finance receivables, net 190,925 190,925 185,317 185,317
Policy loans 340,362 340,362 334,986 334,986
Alternative investments 470,424 470,424 475,016 475,016
The carrying amounts and fair values of the Company's financial
instruments, which were classified as liabilities as of December 31, were
as follows:
2009 2008
----------------------- -----------------------
CARRYING FAIR CARRYING FAIR
IN THOUSANDS AMOUNT VALUE AMOUNT VALUE
------------ ---------- ---------- ---------- ----------
Deferred annuities $2,420,139 $2,532,103 $2,005,003 $1,991,314
Annuity certain contracts 72,789 76,544 56,112 54,981
Other fund deposits 1,560,268 1,558,257 1,403,133 1,419,365
Supplementary contracts
without life
contingencies 56,407 56,407 52,524 52,524
Notes payable 125,000 127,226 125,000 127,179
(6) INVESTMENTS
FIXED MATURITY AND EQUITY SECURITIES
The Company's fixed maturity portfolio consists primarily of public and
private corporate fixed maturity securities, mortgage and other asset
backed securities, and U.S. Treasury and agency obligations.
The carrying value of the Company's fixed maturity portfolio totaled
$8,024,159,000 and $6,065,711,000 at December 31, 2009 and 2008,
respectively. Fixed maturity securities represent 75.0% and 69.1% of total
invested assets at December 31, 2009 and 2008, respectively. At December
31, 2009 and 2008 publicly traded fixed maturity securities comprised 80.2%
and 78.0%, respectively, of the total fixed maturity portfolio.
32
The Company invests in private placement fixed maturity securities to
enhance the overall value of its portfolio, increase diversification and
obtain higher yields than are possible with comparable publicly traded
securities. Generally, private placement fixed maturity securities provide
broader access to management information, strengthened negotiated
protective covenants, call protection features and, frequently, improved
seniority of collateral protection. Private placement securities generally
are only tradable subject to restrictions by federal and state securities
laws and are, therefore, less liquid than publicly traded fixed maturity
securities.
The Company's mortgage-backed securities investment portfolio consists of
pass-through securities, which are pools of mortgage loans collateralized
by single-family residences and primarily issued by government sponsored
entities (E.G., GNMA, FNMA and FHLMC), and structured pass-through
securities, such as collateralized mortgage obligations, that may have
specific prepayment and maturity profiles and may be issued by either
government sponsored entities or "private label" issuers.
The Company holds commercial mortgage-backed securities (CMBS) that may be
originated by single or multiple issuers, which are collateralized by
mortgage loans secured by income producing commercial properties such as
office buildings, multi-family dwellings, industrial, retail, hotels and
other property types.
The Company's residential mortgage-backed securities (RMBS) portfolio
primarily contains prime residential mortgages with loans made to borrowers
with strong credit histories. The Company's portfolio consisted of
$1,671,586,000 and $1,180,361,000 agency backed RMBS and $311,701,000 and
$358,496,000 non-agency backed RMBS as of December 31, 2009 and 2008,
respectively. The Company's RMBS portfolio also includes Alt-A mortgage
loans to customers who have good credit ratings but have limited
documentation for their source of income or some other standards used to
underwrite the mortgage loan, and subprime residential loans to customers
with weak credit profiles, including mortgages originated using relaxed
mortgage-underwriting standards. The fair value of the Company's subprime
securities as of December 31, 2009 was $52,396,000 with unrealized losses
totaling $15,369,000.
The Company's asset-backed securities investment portfolio consists of
securities collateralized by the cash flows of receivables relating to
credit cards, automobiles, manufactured housing and other asset class
loans.
The equity securities portfolio is managed with the objective of capturing
long-term capital gains with a moderate level of current income. The
carrying value of the Company's equity security portfolio totaled
$302,467,000 and $387,511,000 as of December 31, 2009 and 2008,
respectively.
33
The amortized cost, gross unrealized gains and losses, OTTI recognized in
accumulated other comprehensive loss (AOCL) and fair value of fixed
maturity and equity securities by type of investment were as follows:
[Enlarge/Download Table]
GROSS GROSS
IN THOUSANDS AMORTIZED UNREALIZED UNREALIZED OTTI IN
DECEMBER 31, 2009 COST GAINS LOSSES AOCL (1) FAIR VALUE
----------------- ---------- ---------- ---------- -------- ----------
U.S. government securities $ 119,502 $ 12,129 $ 504 $ -- $ 131,127
Agencies not backed by the full faith
and credit of the U.S. government 44,957 2,573 1,148 -- 46,382
Foreign government securities 22,481 1,507 305 -- 23,683
Corporate securities 4,496,306 246,359 25,833 (724) 4,717,556
Asset-backed securities 218,992 5,810 4,287 1,908 218,607
CMBS 948,939 11,085 68,964 46,434 844,626
RMBS 2,035,150 66,246 38,191 79,918 1,983,287
---------- -------- -------- -------- ----------
Total fixed maturities 7,886,327 345,709 139,232 127,536 7,965,268
Equity securities - unaffiliated 242,238 43,195 2,328 -- 283,105
---------- -------- -------- -------- ----------
Total $8,128,565 $388,904 $141,560 $127,536 $8,248,373
========== ======== ======== ======== ==========
(1) Amounts include unrealized gains and losses on impaired securities
subsequent to the impairment measurement date.
The amortized cost, gross unrealized gains and losses and fair value of fixed
maturity and equity securities by type of investment were as follows:
[Enlarge/Download Table]
GROSS GROSS
IN THOUSANDS AMORTIZED UNREALIZED UNREALIZED
DECEMBER 31, 2008 COST GAINS LOSSES FAIR VALUE
----------------- ---------- ---------- ---------- ----------
U.S. government securities $ 36,673 $ 7,819 $ 133 $ 44,359
Agencies not backed by the full faith
and credit of the U.S. government 34,250 4,530 1,351 37,429
Foreign government securities 4,196 463 -- 4,659
Corporate securities 3,556,936 35,167 345,102 3,247,001
Asset-backed securities 243,704 2,131 35,981 209,854
CMBS 990,635 2,988 226,824 766,799
RMBS 1,610,327 53,574 125,044 1,538,857
---------- -------- -------- ----------
Total fixed maturities 6,476,721 106,672 734,435 5,848,958
Equity securities - unaffiliated 348,897 26,175 24,511 350,561
---------- -------- -------- ----------
Total $6,825,618 $132,847 $758,946 $6,199,519
========== ======== ======== ==========
34
The amortized cost, gross unrealized gains and losses, OTTI recognized in
AOCL and fair value of fixed maturity and equity securities on loan by type
of investment were as follows:
[Enlarge/Download Table]
GROSS GROSS
IN THOUSANDS AMORTIZED UNREALIZED UNREALIZED
DECEMBER 31, 2009 COST GAINS LOSSES OTTI IN AOCL FAIR VALUE
----------------- --------- ---------- ---------- ------------ ----------
U.S. government securities $39,325 $ 820 $1,454 $-- $38,691
Foreign government securities 703 8 21 -- 690
Corporate securities 18,502 1,063 55 -- 19,510
------- ------ ------ --- -------
Total fixed maturities 58,530 1,891 1,530 -- 58,891
Equity securities - unaffiliated 15,563 3,870 71 -- 19,362
------- ------ ------ --- -------
Total $74,093 $5,761 $1,601 $-- $78,253
======= ====== ====== === =======
The amortized cost, gross unrealized gains and losses and fair value of
fixed maturity and equity securities on loan by type of investment were as
follows:
[Download Table]
GROSS GROSS
IN THOUSANDS AMORTIZED UNREALIZED UNREALIZED
DECEMBER 31, 2008 COST GAINS LOSSES FAIR VALUE
----------------- --------- ---------- ---------- ----------
U.S. government securities $ 94,122 $18,559 $ 9 $112,672
Agencies not backed by the full faith
and credit of the U.S. government 35,841 1,276 -- 37,117
Corporate securities 14,330 372 760 13,942
RMBS 50,474 2,568 20 53,022
-------- ------- ------ --------
Total fixed maturities 194,767 22,775 789 216,753
Equity securities - unaffiliated 35,039 3,038 1,127 36,950
-------- ------- ------ --------
Total $229,806 $25,813 $1,916 $253,703
======== ======= ====== ========
The amortized cost and fair value of fixed maturity securities at December
31, 2009, by contractual maturity, are shown below. Expected maturities
will differ from contractual maturities because borrowers may have the
right to call or prepay obligations with or without call or prepayment
penalties.
[Download Table]
AVAILABLE-FOR-SALE
AVAILABLE-FOR-SALE SECURITIES ON LOAN
----------------------- -------------------
AMORTIZED FAIR AMORTIZED FAIR
IN THOUSANDS COST VALUE COST VALUE
------------ ---------- ---------- --------- -------
Due in one year or less $ 198,111 $ 202,638 $ 706 $ 706
Due after one year through five years 2,056,555 2,166,403 6,203 6,524
Due after five years through ten years 2,124,227 2,234,199 27,754 27,788
Due after ten years 304,353 315,508 23,867 23,873
---------- ---------- ------- -------
4,683,246 4,918,748 58,530 58,891
Asset-backed and mortgage-backed
securities 3,203,081 3,046,520 -- --
---------- ---------- ------- -------
Total $7,886,327 $7,965,268 $58,530 $58,891
========== ========== ======= =======
35
The Company had certain investments with a reported fair value lower than
the cost of the investments as follows:
[Enlarge/Download Table]
DECEMBER 31, 2009
-----------------------------------------------------------------------------
LESS THAN 12 MONTHS 12 MONTHS OR GREATER
------------------------------------- -------------------------------------
UNREALIZED UNREALIZED
AMORTIZED LOSSES AND AMORTIZED LOSSES AND
IN THOUSANDS FAIR VALUE COST OTTI IN AOCL FAIR VALUE COST OTTI IN AOCL
------------ ---------- --------- ------------ ---------- --------- ------------
U.S. government securities $ 33,883 $ 34,387 $ 504 $ -- $ -- $ --
Agencies not backed by the full
faith and credit of the U.S.
government 19,506 20,626 1,120 635 663 28
Foreign government securities 7,163 7,468 305 -- -- --
Corporate securities 318,623 323,588 4,965 305,452 325,596 20,144
Asset-backed securities 74,258 76,891 2,633 21,784 25,346 3,562
CMBS 125,319 137,089 11,770 366,573 470,201 103,628
RMBS 444,270 475,153 30,883 222,061 309,287 87,226
Equity securities - unaffiliated 11,640 12,299 659 75,036 76,705 1,669
[Enlarge/Download Table]
DECEMBER 31, 2008
-----------------------------------------------------------------------------
LESS THAN 12 MONTHS 12 MONTHS OR GREATER
-------------------------------------- ------------------------------------
AMORTIZED UNREALIZED AMORTIZED UNREALIZED
IN THOUSANDS FAIR VALUE COST LOSSES FAIR VALUE COST LOSSES
------------ ---------- ---------- ------------ ---------- --------- -----------
U.S. government securities $ 343 $ 476 $ 133 $ -- $ -- $ --
Agencies not backed by the full
faith and credit of the U.S.
government 2,797 4,000 1,203 952 1,100 148
Corporate securities 1,810,209 2,019,010 208,801 429,023 565,324 136,301
Asset-backed securities 168,685 199,477 30,792 5,731 10,920 5,189
CMBS 533,448 696,486 163,038 90,065 153,851 63,786
RMBS 223,403 295,487 72,084 83,058 136,018 52,960
Equity securities - unaffiliated 78,202 96,686 18,484 29,192 35,219 6,027
36
The Company had certain investments on loan with a reported fair value
lower than the cost of the investments as follows:
[Enlarge/Download Table]
DECEMBER 31, 2009
-----------------------------------------------------------------
LESS THAN 12 MONTHS 12 MONTHS OR GREATER
-------------------------------- ------------------------------
UNREALIZED UNREALIZED
LOSSES AND LOSSES AND
FAIR AMORTIZED OTTI IN FAIR AMORTIZED OTTI IN
IN THOUSANDS VALUE COST AOCL VALUE COST AOCL
------------ ------- --------- ---------- ----- --------- ----------
U.S. government securities $32,071 $33,525 $1,454 $ -- $ -- $--
Foreign government securities 497 518 21 -- -- --
Corporate securities 5,310 5,364 54 424 425 1
Equity securities - unaffiliated 1,249 1,320 71 -- -- --
[Enlarge/Download Table]
DECEMBER 31, 2008
-----------------------------------------------------------------
LESS THAN 12 MONTHS 12 MONTHS OR GREATER
-------------------------------- ------------------------------
FAIR AMORTIZED UNREALIZED FAIR AMORTIZED UNREALIZED
IN THOUSANDS VALUE COST LOSSES VALUE COST LOSSES
------------ ------- --------- ---------- ------ --------- ----------
U.S. government securities $4,751 $4,760 $ 9 $ -- $ -- $ --
Corporate securities 6,862 7,242 380 2,749 3,129 380
RMBS 2,299 2,319 20 -- -- --
Equity securities - unaffiliated 5,520 6,629 1,109 106 124 18
U.S. government securities by their nature are impaired due to current
interest rates and not credit-related reasons. The Company expects to
collect all principal and interest and did not have an intent to sell these
securities at December 31, 2009.
Agencies not backed by the full faith and credit of the U.S. government are
also normally impaired due to interest rates and not credit-related
reasons. Although not backed by the full faith and credit of the U.S.
government, these securities generally trade as if they are. The Company
expects to collect all principal and interest and did not have an intent to
sell these securities at December 31, 2009.
Foreign governments are similar in nature to U.S. government and agency
securities in that the primary impact to valuation is due to changes in
interest rates. These securities are also impacted by foreign currency
rates and the Company attempts to invest only in stable, top tier global
markets. The Company expects to collect all principal and interest and did
not have an intent to sell these securities at December 31, 2009.
Corporate security valuations are impacted by both interest rates and
credit industry specific issues. The Company impairs securities due to
credit issues if the Company feels the security will not recover in a
reasonable period of time. Unrealized losses are primarily due to the
interest rate environment and credit spreads. The Company expects to
collect all principal and interest and did not have an intent to sell these
securities at December 31, 2009.
37
CMBS and RMBS are impacted by both interest rates and the value of the
underlying collateral. The Company utilizes discounted cash flow models
using outside assumptions to determine if an OTTI is warranted.
The Company's RMBS portfolio primarily consists of prime residential
mortgages with loans made to customers with strong credit histories. The
slowdown in the U.S. housing market has impacted the valuations across the
entire asset class. As of December 31, 2009, 84.3% of the RMBS portfolio
was invested in agency pass-through securities. At December 31, 2009, the
Company had RMBS securities that were in an unrealized loss position for
twelve months or longer. The fair values of these securities were 79.8%
investment grade (BBB or better) and 69.3% of the unrealized losses were
recognized as OTTI noncredit losses. Credit support for the RMBS holdings
remains high.
The Company's CMBS portfolio had initial ratings of AA or higher and are
diversified by property type and geographic location. The Company's CMBS
portfolio is primarily super senior and senior securities as opposed to
mezzanine or below. Weaknesses in commercial real estate fundamentals have
impacted most of the asset class and the Company has recognized OTTI when
warranted. At December 31, 2009, the Company had CMBS securities that had
been in an unrealized loss position for twelve months or longer. The fair
values of these securities were 94.2% investment grade and 35.7% of the
unrealized losses were recognized as OTTI noncredit loss. Based on the
results of discounted cash flow analysis, the Company expects to collect
all principal and interest and did not have an intent to sell these
securities at December 31, 2009.
Equity securities with unrealized losses at December 31, 2009 primarily
represent highly diversified mutual funds that have positive outlooks for
near-term future recovery.
At December 31, 2009 and 2008, fixed maturity securities and cash
equivalents with a carrying value of $18,862,000 and $17,609,000,
respectively, were on deposit with various regulatory authorities as
required by law.
MORTGAGE LOANS
The Company underwrites commercial mortgages on general purpose income
producing properties including office buildings, retail facilities,
apartments/other, industrial and hotel properties. Geographic and property
type diversification is also considered in analyzing investment
opportunities, as well as property valuation and cash flow. The mortgage
loan portfolio totaled $1,263,581,000 and $1,250,198,000 at December 31,
2009 and 2008, respectively.
All of the Company's commercial mortgage loan investments are owned by
Minnesota Life Insurance Company and are managed and serviced directly by
an affiliate, Advantus Capital Management, Inc. (Advantus). The Company
currently does not hold any condominium commercial mortgage loan,
construction, mezzanine or land loan investments.
If information is obtained on commercial mortgage loans that indicate a
potential problem (likelihood of the borrower not being able to comply with
the present loan repayment terms), the loan is placed on an internal
surveillance list, which is routinely monitored by the Company. Among the
criteria that would indicate a potential problem are: borrower
bankruptcies, major tenant bankruptcies, loan relief/restructuring
requests, delinquent tax payments, late payments, and vacancy rates.
Real estate acquired in satisfaction of debt is accounted for at the lower
of the property's fair value less expected selling costs or the loan
balance. The Company had no foreclosed loans or real estate owned as of
December 31, 2009 or 2008.
38
Realized losses on mortgage loans are the result of foreclosures, sales of
loans and write-down in anticipation of losses. The Company did not
recognize any realized capital losses on commercial mortgage loans for the
years ended December 31, 2009, 2008 and 2007. The valuation allowance held
for mortgage loans was $100,000 and $0 as of December 31, 2009 and 2008.
The change in valuation allowance was $100,000 for the year ending December
31, 2009 and $0 for the years ending December 31, 2008 and 2007.
ALTERNATIVE INVESTMENTS
Alternative investments primarily consist of venture capital funds, middle
market leveraged buyout funds, distressed debt funds, mezzanine debt funds,
hedge funds and other miscellaneous equity investments. Alternative
investments are attempted to be diversified by type, general partner,
vintage year, and geographic location - both domestic and international.
The Company's composition of alternative investments by type were as
follows:
DECEMBER 31, 2009 DECEMBER 31, 2008
------------------- -------------------
CARRYING PERCENT CARRYING PERCENT
IN THOUSANDS VALUE OF TOTAL VALUE OF TOTAL
------------ -------- -------- -------- --------
Alternative Investments
Private equity funds $244,590 52.0% $247,282 52.1%
Mezzanine debt funds 156,180 33.2% 160,294 33.7%
Hedge funds 69,654 14.8% 67,440 14.2%
-------- ----- -------- -----
Total alternative investments $470,424 100.0% $475,016 100.0%
======== ===== ======== =====
NET INVESTMENT INCOME
Net investment income for the years ended December 31 was as follows:
IN THOUSANDS 2009 2008 2007
------------ -------- -------- --------
Fixed maturity securities $437,786 $406,958 $401,629
Equity securities 12,371 20,886 23,593
Mortgage loans 77,362 80,917 76,246
Policy loans 24,515 24,040 22,522
Cash equivalents 1,510 4,921 10,312
Alternative investments 3,930 5,266 2,577
Derivative instruments (85) (101) 53
Other invested assets 1,362 3,005 2,459
-------- -------- --------
Gross investment income 558,751 545,892 539,391
Investment expenses (15,636) (16,676) (17,021)
-------- -------- --------
Total $543,115 $529,216 $522,370
======== ======== ========
39
NET REALIZED INVESTMENT GAINS (LOSSES)
Net realized investment gains (losses) for the years ended December 31 were
as follows:
IN THOUSANDS 2009 2008 2007
------------ -------- --------- --------
Fixed maturity securities $(27,840) $(290,059) $(50,010)
Equity securities 47,486 (93,986) 83,580
Mortgage loans (74) -- --
Alternative investments (15,267) (2,070) 32,516
Derivative instruments 21,434 (50,844) (7,921)
Other invested assets 2 107 134
Securities held as collateral 4,276 (47,019) (10,044)
-------- --------- --------
Total $ 30,017 $(483,871) $ 48,255
======== ========= ========
Gross realized gains (losses) on the sales of fixed maturity securities,
equity securities and alternative investments for the years ended December
31 were as follows:
IN THOUSANDS 2009 2008 2007
------------ -------- -------- --------
Fixed maturity securities,
available for sale:
Gross realized gains $102,423 $ 15,997 $ 22,237
Gross realized losses (85,455) (93,306) (34,747)
Equity securities:
Gross realized gains 79,699 49,028 108,727
Gross realized losses (27,963) (66,223) (17,547)
Alternative investments:
Gross realized gains 5,085 10,173 38,064
Gross realized losses (21) (70) (78)
Other-than-temporary impairments by asset type recognized in net realized
investment gains (losses) for the years ended December 31 were as follows:
IN THOUSANDS 2009 2008 2007
------------ ------- -------- -------
Fixed maturity securities
Corporate securities $14,107 $ 46,580 $ 7,035
Asset-backed securities -- 14,400 931
CMBS 1,141 29,363 4,723
RMBS 29,560 122,408 24,811
Equity securities 4,250 76,792 7,600
Alternative investments 20,331 12,173 5,470
Securities held as collateral -- 47,019 10,044
------- -------- -------
Total other-than-temporary
impairments $69,388 $348,735 $60,614
======= ======== =======
40
The cumulative credit loss component of other-than-temporary impairments on
fixed maturity securities still held by the Company at December 31, 2009,
for which a portion of the other-than-temporary impairment loss was
recognized in other comprehensive income, was as follows:
IN THOUSANDS 2009
------------ --------
Balance at beginning of year $ --
Credit loss component of OTTI loss not reclassified to
other comprehensive loss in the cumulative effect
transition adjustment 87,767
Additions:
Initial impairments - credit loss OTTI recognized on
securities not previously impaired 33,415
Additional impairments - credit loss OTTI recognized
on securities previously impaired 11,393
--------
Balance at end of year $132,575
========
(7) DERIVATIVE INSTRUMENTS
Derivatives are financial instruments whose values are derived from
interest rates, foreign currency exchange rates, or other financial
indices. Derivatives may be exchange-traded or contracted in the
over-the-counter market. The Company currently enters into derivative
transactions that do not qualify for hedge accounting, or in certain cases,
elects not to utilize hedge accounting. The Company does not enter into
speculative positions. Although certain transactions do not qualify for
hedge accounting or the Company chooses not to utilize hedge accounting,
they provide the Company with an assumed economic hedge, which is used as
part of its strategy for certain identifiable and anticipated transactions.
The Company uses a variety of derivatives including swaps, forwards,
futures and option contracts to manage the risk associated with changes in
estimated fair values related to the Company's financial assets and
liabilities, to utilize replication strategies and manage other risks due
to the variable nature of the Company's cash flows. The Company also issues
certain insurance policies that have embedded derivatives.
Freestanding derivatives are carried on the Company's consolidated balance
sheet either as assets within derivative instruments or as liabilities
within other liabilities at estimated fair value as determined through the
use of quoted market prices for exchange-traded derivatives and interest
rate forwards or through the use of pricing models for over-the-counter
derivatives. Derivative valuations can be affected by changes in interest
rates, foreign currency exchange rates, financial indices, credit spreads,
default risk (including the counterparties to the contract), volatility,
liquidity and changes in estimates and assumptions used in the pricing
models.
41
The Company is exposed to various risks relating to its ongoing business
operations, including interest rate risk, foreign currency risk and equity
market risk. The Company uses a variety of strategies to attempt to manage
these risks. The following table presents the notional amount, estimated
fair value, and primary underlying risk exposure of the Company's
derivative financial instruments, excluding embedded derivatives held at:
[Enlarge/Download Table]
DECEMBER 31, 2009 DECEMBER 31, 2008
-------------------------------- --------------------------------
IN THOUSANDS FAIR VALUE FAIR VALUE
--------------------- ---------------------
PRELIMINARY
UNDERLYING RISK NOTIONAL LIABILITIES NOTIONAL LIABILITIES
EXPOSURE INSTRUMENT TYPE AMOUNT ASSETS (1) AMOUNT ASSETS (1)
-------------------- ------------------------- -------- ------- ----------- -------- ------- -----------
Interest rate Interest rate swaps $101,500 $ 3,287 $ -- $101,500 $26,551 $--
Interest rate futures 162,100 5 -- 514,100 7 --
TBAs 39,361 41,056 -- 30,125 30,906 --
Foreign currency Foreign currency forwards 6 -- -- 621 (54) --
Equity market Equity futures 89,320 2 -- 94,390 3 --
Equity options 61,160 3,119 673 -- -- --
-------- ------- ---- -------- ------- ---
Total derivatives $453,447 $47,469 $673 $740,736 $57,413 $--
======== ======= ==== ======== ======= ===
(1) The estimated fair value of all derivatives in a liability position is
reported within other liabilities on the consolidated balance sheets.
The majority of the freestanding derivatives utilized by the Company are for
specific hedging programs related to various annuity and insurance product
liabilities that have market risk. The trading activity for these programs is
influenced by two major factors - the sales growth of products and the
volatility in the interest and equity markets. The volume and frequency of
trading increased during the volatile equity markets in late 2008 and early
2009. For most of 2008 and 2009 the trading volume and frequency was at expected
levels.
The Company uses interest rate futures to manage duration in certain portfolios
within the general account of the Company. The trading volume and frequency was
stable in these portfolios during 2009 and 2008. In addition, the Company
utilized a total return strategy in 2007 and 2008 that replicated the S&P 500 by
investing in corporate bonds and total rate of return swaps. The swaps were
unwound in 2008. The remaining use of derivatives is immaterial to the Company's
results.
Interest rate swaps are used by the Company primarily to reduce market risks
from changes in interest rates and to alter interest rate exposure arising from
mismatches between assets and liabilities (duration mismatches). In an interest
rate swap, the Company agrees with another party to exchange, at specified
intervals, the difference between fixed rate and floating rate interest amounts
as calculated by reference to an agreed notional principal amount. These
transactions are entered into pursuant to master agreements that provide for a
single net payment to be made by the counterparty at each due date.
42
In exchange traded interest rate futures transactions, the Company agrees
to purchase or sell a specified number of contracts, the value of which is
determined by the different classes of interest rate securities, and to
post variation margin on a daily basis in an amount equal to the difference
in the daily fair market values of those contracts. The Company enters into
exchange-traded futures with regulated futures commission merchants that
are members of the exchange. Exchange-traded interest rate futures are used
primarily to hedge mismatches between the duration of the assets in a
portfolio and the duration of liabilities supported by those assets, to
hedge against changes in value of securities the Company owns or
anticipates acquiring, and to hedge against changes in interest rates on
anticipated liability issuances. The value of interest rate futures is
substantially impacted by changes in interest rates and they can be used to
modify or hedge existing interest rate risk.
Foreign currency forwards are used by the Company to reduce the risk from
fluctuations in foreign currency exchange rates associated with its assets
and liabilities denominated in foreign currencies. In a foreign currency
forward transaction, the Company agrees with another party to deliver a
specified amount of an identified currency at a specified future date. The
price is agreed upon at the time of the contract and payment for such a
contract is made in a different currency in the specified future date.
In exchange-traded equity futures transactions, the Company agrees to
purchase or sell a specified number of contracts, the value of which is
determined by the different classes of equity securities, and to post
variation margin on a daily basis in an amount equal to the difference in
the daily fair market values of those contracts. The Company enters into
exchange-traded futures with regulated futures commission merchants that
are members of the exchange. Exchange-traded equity futures are used
primarily to hedge liabilities embedded in certain variable annuity
products offered by the Company.
Equity index options are used by the Company primarily to hedge minimum
guarantees embedded in certain variable annuity products offered by the
Company. To hedge against adverse changes in equity indices, the Company
enters into contracts to sell the equity index within a limited time at a
contracted price. The contracts will be net settled in cash based on
differentials in the indices at the time of exercise and the strike price.
In certain instances, the Company may enter into a combination of
transactions to hedge adverse changes in equity indices within a
pre-determined range through the purchase and sale of options.
Total rate of return swaps (TRRs) are swaps whereby the Company agrees with
another party to exchange, at specified intervals, the difference between
the economic risk and reward of an asset or a market index and LIBOR,
calculated by reference to an agreed notional principal amount. No cash is
exchanged at the outset of the contract. Cash is paid and received over the
life of the contract based on the terms of the swap. These transactions are
entered into pursuant to master agreements that provide for a single net
payment to be made by the counterparty at each due date. The Company uses
TRRs to synthetically create investments. There were no TRRs at December
31, 2009 or December 31, 2008.
The Company also holds certain mortgage backed TBA instruments that have
not settled at their first available date to settle.
43
The following tables present the amount and location of gains (losses)
recognized in income from derivatives:
[Download Table]
DECEMBER 31, 2009
------------------------------------------------
NET REALIZED
INVESTMENT GAINS NET INVESTMENT POLICYHOLDER
IN THOUSANDS (LOSSES) INCOME BENEFITS
------------ ---------------- -------------- ------------
Interest rate swaps $(19,339) $(83) $3,414
Interest rate futures (12,010) -- --
TBAs 1,075 -- --
Foreign currency forwards 53 (2) --
Equity futures (24,521) -- --
Equity options -- -- 768
-------- ---- ------
Total gains (losses) recognized in
income from derivatives $(54,742) $(85) $4,182
======== ==== ======
[Download Table]
DECEMBER 31, 2008
------------------------------------------------
NET REALIZED
INVESTMENT GAINS NET INVESTMENT POLICYHOLDER
IN THOUSANDS (LOSSES) INCOME BENEFITS
------------ ---------------- -------------- ------------
Interest rate swaps $24,115 $ (23) $141
Interest rate futures 15,946 -- --
TBAs 1,065 -- --
Foreign currency forwards 26 (78) --
Equity futures 5,025 -- --
Equity options (65) -- --
Total return swaps (2,767) -- --
------- ----- ----
Total gains (losses) recognized in
income from derivatives $43,345 $(101) $141
======= ===== ====
[Download Table]
DECEMBER 31, 2007
------------------------------------------------
NET REALIZED
INVESTMENT GAINS NET INVESTMENT POLICYHOLDER
IN THOUSANDS (LOSSES) INCOME BENEFITS
------------ ---------------- -------------- ------------
Interest rate swaps $ 121 $-- $(87)
Interest rate futures (543) -- --
TBAs 25 -- --
Foreign currency forwards (327) 53 --
Equity futures (1,586) -- --
Equity options 2,474 -- --
Total return swaps (340) -- --
------- --- ----
Total gains (losses) recognized in
income from derivatives $ (176) $53 $(87)
======= === ====
The Company may be exposed to credit-related losses in the event of
nonperformance by counterparties to derivative financial instruments.
Generally, the current credit exposure of the Company's derivative
contracts is limited to the positive estimated fair value of derivative
contracts at the reporting date after taking into consideration the
existence of netting agreements and any collateral received pursuant to
credit support annexes.
44
The Company manages its credit risk related to over-the-counter derivatives
by entering into transactions with highly rated counterparties, maintaining
collateral arrangements and through the use of master agreements that
provide for a single net payment to be made by one counterparty to another
at each due date and upon termination. Because exchange traded futures are
purchased through regulated exchanges, and positions are settled on a daily
basis, the Company has minimal exposure to credit-related losses in the
event of nonperformance by counterparties to such derivative instruments.
The Company enters into various collateral arrangements, which require both
the pledging and accepting of collateral in connection with its derivative
instruments. The Company was not obligated to receive any cash collateral
at either December 31, 2009 or December 31, 2008.
The Company's collateral arrangements for its over-the-counter derivatives
generally require the counterparty in a net liability position, after
considering the effect of netting agreements, to pledge collateral when the
fair value of that counterparty's derivatives reaches a pre-determined
threshold. The Company does not have any over-the-counter derivatives that
are in a net liability position, after considering the effect of netting
arrangements, as of December 31, 2009 and therefore, was not required to
pledge collateral.
EMBEDDED DERIVATIVES
The Company has certain embedded derivatives that are required to be
separated from their host contracts and accounted for as derivatives. These
embedded derivatives take the form of guaranteed withdrawal benefits on
variable annuities, a guaranteed payout floor on a variable payout annuity,
and equity linked interest credits on both fixed annuity and fixed
universal life products.
The following table presents the fair value of the Company's embedded
derivatives at December 31:
IN THOUSANDS 2009 2008
------------ -------- --------
Embedded derivatives within annuity products:
Guaranteed withdrawal benefits $(17,176) $(83,252)
Guaranteed payout floors (13,823) (23,923)
Other (2,954) (1,652)
Embedded derivatives within life insurance products:
Equity-linked index credits $ (9,625) $ (746)
The following table presents the changes in fair value related to embedded
derivatives for the years ended December 31:
[Download Table]
IN THOUSANDS 2009 2008 2007
------------ -------- -------- --------
Embedded derivatives within annuity products:
Net investment gains (losses) $76,176 $(94,189) $(7,745)
Policyholder benefits (1,302) (464) (912)
Embedded derivatives within life insurance products:
Policyholder benefits $(8,879) $ (207) $ (12)
45
At December 31, 2009 and 2008, fixed maturity securities with a carrying
value of $29,989,000 and $15,804,000, respectively, were pledged as
collateral to a regulatory authority as part of the Company's derivative
program.
(8) VARIABLE INTEREST ENTITIES
An entity is considered a variable interest entity (VIE) if it has (1)
equity that is insufficient to permit the entity to finance its activities
without additional subordinated financial support from other parties, or
(2) equity investors that cannot make significant decisions about the
entity's operations, or that do not absorb the expected losses or receive
the expected returns of the entity. A VIE is consolidated by its primary
beneficiary, which is the party involved with the VIE that absorbs a
majority of the expected losses, receives a majority of the expected
residual returns or both.
The Company has reviewed all investments and relationships for potential
VIEs. As of December 31, 2009 and 2008, the Company had identified one VIE
for which it was the primary beneficiary. The Company held an investment in
a trust for which it was the primary beneficiary and where results were
consolidated in the Company's financial results. The assets held under this
VIE as of December 31, 2009 and 2008 were $4,746,000 and $4,972,000,
respectively and are included in other invested assets on the consolidated
balance sheets.
The Company has identified VIE arrangements in which it holds significant
variable interests, but is not the primary beneficiary and for which
results have not been consolidated, as detailed below:
MAXIMUM
IN THOUSANDS TOTAL EXPOSURE
DECEMBER 31, 2009 ASSETS TO LOSS
----------------- ------- --------
Alternative investments $31,614 $24,852
Other invested assets 2,286 2,286
MAXIMUM
IN THOUSANDS TOTAL EXPOSURE
DECEMBER 31, 2008 ASSETS TO LOSS
----------------- ------- --------
Alternative investments $28,008 $25,080
Other invested assets 2,286 2,286
(9) NET FINANCE RECEIVABLES
Finance receivables as of December 31 were as follows:
IN THOUSANDS 2009 2008
------------ --------- ---------
Direct installment loans $ 227,107 $ 223,889
Retail installment notes 38,301 30,633
Accrued interest 4,458 4,289
--------- ---------
Gross receivables 269,866 258,811
Unearned finance charges (68,177) (63,125)
Allowance for losses (10,764) (10,369)
--------- ---------
Finance receivables, net $ 190,925 $ 185,317
========= =========
Direct installment loans, at December 31, 2009 and 2008, consisted of
$156,309,000 and $153,144,000, respectively, of discount basis loans, net
of unearned finance charges and unearned other charges, and $11,276,000 and
$13,329,000, respectively, of interest-bearing loans and generally have a
maximum term of 84 months. The retail installment notes are principally
discount basis, arise from borrowers purchasing household appliances,
furniture, and sundry services, and generally have a maximum term of 48
months.
46
Total finance receivables, net of unearned finance charges, by date of
final maturity at December 31, 2009 were as follows:
IN THOUSANDS
------------
2010 $ 23,991
2011 64,736
2012 92,536
2013 18,080
2014 543
2015 and thereafter 1,803
--------
Total finance receivables, net
of unearned finance charges 201,689
Allowance for losses (10,764)
--------
Finance receivables, net $190,925
========
During the years ended December 31, 2009, 2008 and 2007, principal cash
collections of direct installment loans were $74,312,000, $74,441,000 and
$74,751,000, respectively, and the percentages of these cash collections to
average net balances were 46%, 47% and 51%, respectively. Retail
installment notes' principal cash collections were $37,770,000, $38,200,000
and $37,987,000, respectively, and the percentages of these cash
collections to average net balances were 148%, 149% and 146% for the years
ended December 31, 2009, 2008 and 2007, respectively.
The ratio of the allowance for losses to total finance receivables, net of
unearned finance charges, at both December 31, 2009 and 2008 was 5.3%.
Changes in the allowance for losses for the years ended December 31 were as
follows:
IN THOUSANDS 2009 2008 2007
------------ -------- -------- -------
Balance at beginning of year $ 10,369 $ 10,067 $ 9,227
Provision for credit losses 10,116 8,487 7,018
Charge-offs (13,553) (11,907) (9,741)
Recoveries 3,832 3,722 3,549
Allowance on bulk purchases -- -- 14
-------- -------- -------
Balance at end of year $ 10,764 $ 10,369 $10,067
======== ======== =======
At December 31, 2009 and 2008, the recorded investments in certain direct
installment loans were considered to be impaired. The balances of such
loans at December 31, 2009 and 2008 and the related allowance for losses
were as follows:
INSTALLMENT
IN THOUSANDS LOANS
------------ -----------
Balances at December 31, 2009 $77
Related allowance for losses $63
Balances at December 31, 2008 $97
Related allowance for losses $63
47
All loans deemed to be impaired are placed on non-accrual status. Interest
income on impaired loans is recognized on a cash basis. The average balance
of impaired loans during the years ended December 31, 2009 and 2008 was
$86,000 and $128,000, respectively.
There were no commitments to lend additional funds to customers whose loans
were classified as impaired at December 31, 2009 or 2008.
The net investment in receivables on which the accrual of finance charges
and interest was suspended at and which are being accounted for on a cash
basis at December 31, 2009 and 2008 was $23,168,000 and $22,654,000,
respectively. There was no investment in receivables past due more than 60
days that were accounted for on an accrual basis at December 31, 2009 and
2008.
(10) INCOME TAXES
Income tax expense (benefit) varies from the amount computed by applying
the federal income tax rate of 35% to income (loss) from operations before
taxes. The significant components of this difference were as follows:
IN THOUSANDS 2009 2008 2007
------------ ------- --------- --------
Computed tax expense (benefit) $57,341 $(119,014) $ 96,935
Difference between computed and
actual tax expense:
Dividends received deduction (7,394) (7,278) (10,734)
Tax credits (927) (5,257) (6,532)
Change in valuation allowance (1) 36,995 6
Expense adjustments and other 2,550 3,018 1,469
------- --------- --------
Total tax expense (benefit) $51,569 $ (91,536) $ 81,144
======= ========= ========
48
The tax effects of temporary differences that give rise to the Company's
net deferred federal tax asset (liability) at December 31 were as follows:
[Download Table]
IN THOUSANDS 2009 2008
------------ -------- --------
Deferred tax assets:
Policyholder liabilities $ 16,602 $ --
Pension, postretirement and other benefits 66,858 86,330
Tax deferred policy acquisition costs 124,938 120,119
Deferred gain on individual disability coinsurance 9,320 10,746
Net realized capital losses 63,970 141,493
Net unrealized capital losses -- 201,650
Ceding commissions and goodwill 2,603 4,327
Other 7,329 8,031
-------- --------
Gross deferred tax assets 291,620 572,696
Less valuation allowance -- (37,001)
-------- --------
Deferred tax assets, net of valuation allowance 291,620 535,695
Deferred tax liabilities:
Policyholder liabilities -- 28,538
Deferred policy acquisition costs 251,577 286,772
Premiums 23,547 31,048
Real estate and property and equipment depreciation 6,655 7,398
Basis difference on investments 6,805 7,008
Net unrealized capital gains 56,242 --
Other 16,725 17,361
-------- --------
Gross deferred tax liabilities 361,551 378,125
-------- --------
Net deferred tax asset (liability) $(69,931) $157,570
======== ========
As of December 31, 2008, the Company recorded a $37,001,000 valuation
allowance related to capital losses and tax benefits of certain state
operating loss carryforwards. The valuation allowance reflected
management's assessment, based on available information at the time, that
it was more likely than not that the deferred income tax asset for certain
capital losses and certain state operating loss carryforwards would not be
realized. The entire change in valuation allowance was recognized as income
tax expense in 2008 on the consolidated statements of operations.
As of December 31, 2009, management determined that a valuation allowance
was not required for these deferred tax asset items based on management's
assessment that it is more likely than not that these deferred tax assets
will be realized through future reversals of existing taxable temporary
differences and future taxable income. The net cumulative effect adjustment
of adopting the OTTI Guidance effective January 1, 2009, resulted in a
$31,000,000 reduction of the valuation allowance. Of the remaining
$6,001,000 of valuation allowance, $6,000,000 was released as an increase
to other comprehensive income and $1,000 was released as a decrease to
income tax expense on the consolidated statements of operations.
The increase (decrease) in deferred tax asset valuation allowance for the
years ended December 31, 2009, 2008, and 2007, was $(37,001,000),
$36,995,000 and $6,000, respectively.
49
At December 31, 2009, state net operating loss carryforwards were $655,000,
the majority of which will expire beginning in 2017.
Income taxes (refunded) paid for the years ended December 31, 2009, 2008,
and 2007, were $(41,920,000), $17,073,000 and $76,551,000, respectively.
A reconciliation of the beginning and ending balance amount of unrecognized
tax benefits is as follows:
[Download Table]
IN THOUSANDS 2009 2008
------------ ------- -------
Balance at beginning of year $24,716 $20,191
Additions based on tax positions related to current year 2,179 881
Additions for tax positions of prior years 5,071 5,206
Reductions for tax positions of prior years (8,132) (1,562)
------- -------
Balance at end of year $23,834 $24,716
======= =======
Included in the balance of unrecognized tax benefits at December 31, 2009
are potential benefits of $7,699,000 that, if recognized, would affect the
effective tax rate on income from operations.
As of December 31, 2009, accrued interest and penalties of $1,198,000 are
recorded as current income tax recoverable on the consolidated balance
sheets and $1,176,000 is recognized as a current income tax benefit on the
consolidated statements of operations.
At December 31, 2009, there were no positions for which it is reasonably
possible that the total amounts of unrecognized tax benefits will
significantly increase or decrease within 12 months of the reporting date.
In December 2009, the IRS completed their audit of the consolidated federal
income tax returns for Minnesota Mutual Companies, Inc. and Subsidiaries
for the years 2005 through 2007. Two Revenue Agent Reports were received
upon the close of the audit, one for the agreed audit issues and one for
the disagreed audit issues. The Company accrued for its applicable share of
the taxes assessed on the agreed audit issues. For the disagreed issues,
the Company made a Section 6603 deposit and is currently appealing those
issues to the IRS Office of Appeals. In addition, the Company is still in
Appeals for an issue arising from the audit of its tax returns for the
years 2003 and 2004. The Company believes that any additional taxes
refunded or assessed as a result of Appeals will not have a material effect
on its accounting position.
(11) EMPLOYEE BENEFIT PLANS
PENSION AND OTHER POSTRETIREMENT PLANS
The Company has non-contributory defined benefit retirement plans covering
substantially all employees and certain agents. Benefits are based upon
years of participation and the employee's average monthly compensation or
the agent's adjusted annual compensation. In 2010, the Company expects to
contribute the amounts necessary to meet the minimum funding requirements
to its non-contributory defined benefit plans. In addition, it may
contribute additional tax deductible amounts.
The Company has an unfunded non-contributory defined benefit retirement
plan, which provides certain employees with benefits in excess of limits
for qualified retirement plans, and a non-contributory defined benefit plan
which provides certain agents with benefits.
50
The Company also has other postretirement plans that provide certain health
care and life insurance benefits to substantially all retired employees and
agents. Eligibility is determined by age at retirement and years of
service. Health care premiums are shared with retirees, and other
cost-sharing features include deductibles and co-payments. In 2009, for
substantially all of its employees, the Company adopted an amendment to
reduce the premium subsidy. The Company has a 401(h) account through its
non-contributory defined benefit plan to partially fund retiree medical
costs for non-key employees. The Company expects to contribute $0 to the
401(h) account in 2010, and may contribute additional tax deductible
amounts.
As described in note 4, effective December 31, 2007 the Company adopted the
requirement for the recognition of the funded status of pension and other
postretirement plans on the consolidated balance sheets and eliminated the
requirement to recognize a minimum pension liability as a component of
accumulated other comprehensive income. Upon adoption of the new guidance,
the Company eliminated the additional minimum pension liability and
recognized as an adjustment to accumulated other comprehensive income, net
of income tax, those amounts of net actuarial losses, prior service costs
and the remaining amount of net transition obligation that had not yet been
included in net periodic benefit cost. The following table summarizes the
adjustments to the December 31, 2007 consolidated balance sheet as a result
of adopting the new guidance issued by FASB:
[Enlarge/Download Table]
BEFORE ADOPTION ADOPTION OF AFTER ADOPTION
IN THOUSANDS OF NEW GUIDANCE NEW GUIDANCE OF NEW GUIDANCE
------------ --------------- ------------ ---------------
Other assets:
Prepaid pension asset $ 46,708 $(23,882) $ 22,826
Intangible asset 27 (27) --
Pension and other postretirement benefits
- pension (44,430) (14,822) (59,252)
Pension and other postretirement benefits
- other postretirement plans (58,751) 4,021 (54,730)
Accumulated other comprehensive income (4,563) (34,710) (39,273)
As described in note 4, effective December 31, 2008 the Company adopted the
requirement to measure the funded status for its pension and other
postretirement plans as of the date of its year-end financial statements.
Prior to implementation of this change, the measurement date for the
majority of the Company's pension and other postretirement plans was
December 1. Upon adoption of the change in measurement date, the Company
recorded a decrease to retained earnings of $1,277,000, net of taxes, and
an increase to accumulated other comprehensive income (loss) of $89,000,
net of tax.
51
The change in the benefit obligation and plan assets for the Company's
plans as of December 31 was calculated as follows:
[Enlarge/Download Table]
PENSION BENEFITS OTHER BENEFITS
--------------------- -------------------
IN THOUSANDS 2009 2008 2009 2008
------------ --------- --------- -------- --------
Change in benefit obligation:
Benefit obligation at beginning of year $ 506,456 $ 449,373 $ 86,468 $ 62,057
Measurement date change -- 4,083 -- 526
Service cost 20,913 17,659 2,709 2,208
Interest cost 29,498 28,675 4,623 4,106
Amendments -- -- (16,819) --
Actuarial (gain) loss (5,786) 17,877 (18,870) 19,916
Benefits paid (9,813) (11,209) (1,691) (2,345)
--------- --------- -------- --------
Benefit obligation at end of year $ 541,268 $ 506,456 $ 56,420 $ 86,468
========= ========= ======== ========
Change in plan assets:
Fair value of plan assets at beginning
of year $ 369,328 $ 392,947 $ 8,642 $ 7,327
Measurement date change -- 2,731 -- 49
Actual return on plan assets 54,044 (85,350) 2,340 (2,983)
Employer contribution 22,396 70,209 5,457 6,594
Benefits paid (9,813) (11,209) (1,691) (2,345)
--------- --------- -------- --------
Fair value of plan assets at end of year $ 435,955 $ 369,328 $ 14,748 $ 8,642
========= ========= ======== ========
Net amount recognized:
Funded status $(105,313) $(137,128) $(41,672) $(77,826)
Amounts recognized on the consolidated
balance sheets:
Prepaid benefit cost $ -- $ 282 $ -- $ --
Accrued benefit cost (105,313) (137,410) (41,672) (77,826)
--------- --------- -------- --------
Net amount recognized $(105,313) $(137,128) $(41,672) $(77,826)
========= ========= ======== ========
Amounts recognized in accumulated
other comprehensive income (loss):
Prior service benefit $ 2,689 $ 3,133 $ 26,334 $ 10,654
Net actuarial loss (146,017) (177,738) (9,381) (30,900)
--------- --------- -------- --------
Accumulated other comprehensive income
(loss) at end of year $(143,328) $(174,605) $ 16,953 $(20,246)
========= ========= ======== ========
52
[Enlarge/Download Table]
PENSION BENEFITS OTHER BENEFITS
-------------------- ------------------
IN THOUSANDS 2009 2008 2009 2008
------------ -------- --------- ------- --------
Accumulated benefit obligation $388,705 $ 362,352 $56,420 $ 86,467
Plans with accumulated benefit obligation
in excess of plan assets:
Projected benefit obligation $101,613 $ 70,622
Accumulated benefit obligation 80,007 49,455
Fair value of plan assets 33,176 12,055
Weighted average assumptions used to
determine benefit obligations:
Discount rate 6.05% 5.78% 5.98% 5.77%
Rate of compensation increase 5.73% 5.72% -- --
Components of net periodic benefit cost:
Service cost $ 20,913 $ 17,659 $ 2,709 $ 2,208
Interest cost 29,498 28,675 4,623 4,106
Expected return on plan assets (33,782) (30,649) (726) (590)
Prior service benefit amortization (444) (443) (1,139) (1,139)
Recognized net actuarial loss 5,673 2,810 1,035 420
-------- --------- ------- --------
Net periodic benefit cost $ 21,858 $ 18,052 $ 6,502 $ 5,005
======== ========= ======= ========
Other changes in plan assets and benefit
obligations recognized in other
comprehensive income (loss):
Prior service credit (cost) $ -- $ -- $16,819 $ --
Net gain (loss) 26,048 (133,876) 20,484 (23,488)
Amortization of prior service benefit (444) (443) (1,139) (1,139)
Amortization of net loss 5,673 2,810 1,035 420
-------- --------- ------- --------
Total recognized in other comprehensive
income (loss) $ 31,277 $(131,509) $37,199 $(24,207)
======== ========= ======= ========
Prepaid benefit costs are included in other assets on the consolidated
balance sheets. Accrued benefit costs are included in pension and other
postretirement benefits on the consolidated balance sheets.
The estimated prior service benefit and net actuarial loss for pension
plans that will be amortized from accumulated other comprehensive income
(loss) into net periodic benefit cost in 2010 are $456,000 and $5,007,000,
respectively. The estimated prior service benefit and net actuarial loss
for other postretirement plans that will be amortized from accumulated
other comprehensive income (loss) into net periodic benefit cost in 2010
are $2,190,000 and $550,000, respectively.
53
PENSION OTHER
BENEFITS BENEFITS
----------- -----------
2009 2008 2009 2008
---- ---- ---- ----
Weighted average assumptions used to
determine net periodic benefit costs:
Discount rate 5.78% 6.40% 5.77% 6.37%
Expected long-term return on plan assets 7.75% 7.77% 7.00% 7.00%
Rate of compensation increase 5.72% 5.71% -- --
Estimated future benefit payments for pension and other postretirement
plans:
PENSION OTHER MEDICARE
IN THOUSANDS BENEFITS BENEFITS SUBSIDY
------------ -------- -------- --------
2010 $ 12,710 $ 2,107 $ 87
2011 14,247 2,266 98
2012 15,723 2,341 113
2013 18,749 2,511 126
2014 19,369 2,697 137
2015 - 2019 132,163 16,163 875
For measurement purposes, a 8.0% and 8.5% annual rate of increase in the
per capita cost of covered health care benefits was assumed for 2009 and
2008, respectively. The rate was assumed to decrease gradually to 5.5% for
2015 and remain at that level thereafter.
The assumptions presented herein are based on pertinent information
available to management as of December 31, 2009 and 2008. Actual results
could differ from those estimates and assumptions. For example, increasing
the assumed health care cost trend rates by one percentage point would
increase the postretirement benefit obligation as of December 31, 2009 by
$6,946,000 and the estimated eligibility cost and interest cost components
of net periodic benefit costs for 2009 by $953,000. Decreasing the assumed
health care cost trend rates by one percentage point would decrease the
postretirement benefit obligation as of December 31, 2009 by $5,769,000 and
the estimated eligibility cost and interest cost components of net periodic
postretirement benefit costs for 2009 by $790,000.
To determine the discount rate for each plan, the present value of expected
future benefit payments is calculated using returns on a theoretical yield
curve consisting of AA rated corporate fixed maturity securities and
Treasury par curve data. The discount rate for each plan is the single rate
which results in the same present value of benefits as that obtained using
the yield curve.
Historical rates of return for individual asset classes and future
estimated returns are used to develop expected rates of return. These rates
of return are applied to the plan's investment policy to determine a range
of expected returns. The expected long-term rate of return on plan assets
is selected from this range.
54
Generally, the investment objective of the non-contributory defined benefit
plans is to pursue high returns but to limit the volatility of returns to
levels deemed tolerable, which will mitigate (1) the liquidation of
depressed assets for benefit payments, (2) the increase in contributions
and pension expense due to investment losses, and (3) the decline in the
funded ratios due to investment losses. This objective is achieved by
strategically allocating assets among equities, fixed maturity securities
and other investments. The majority of plans' assets are invested in equity
securities, as equity portfolios have historically provided higher average
returns than other asset classes over extended periods and are expected to
do so in the future. The higher levels of risk entailed in equity
securities is balanced by investing a significant portion of the plans'
assets in high quality fixed maturity securities and the insurance company
general account.
The target asset allocation as of December 31, 2009, for each of the broad
investment categories, weighted for all plans combined is as follows:
Equity securities 50% to 69%
Fixed maturity securities 23% to 41%
Insurance company general account 8% to 11%
Other 0% to 2%
The Company's non-contributory defined benefit plans weighted average asset
allocations by asset category at December 31 are as follows:
2009 2008
---- ----
Equity securities 57% 41%
Fixed maturity securities 36% 50%
Insurance company general account 7% 9%
Equity securities, as classified in the above table, include direct
investments in common stocks, mutual funds and pooled separate accounts.
Fixed maturity securities include investments in pooled separate accounts.
Pooled separate accounts are under either an immediate participation
guaranteed contract or a group annuity contract with Minnesota Life
Insurance Company and represent segregated funds administered by an
unaffiliated asset management firm and consist principally of marketable
fixed maturity and equity securities.
The insurance company general account, as classified in the above table,
represents assets held within the general account of Minnesota Life
Insurance Company. These assets principally consist of fixed maturity
securities, commercial mortgage loans and equity securities.
At times, investments may be made in nontraditional asset classes with the
approval of the Company's non-contributory defined benefit plan trustees.
Current investments include private equity limited partnerships which are
classified as equity securities for asset allocation purposes.
The Company's investment policy includes various guidelines and procedures
designed to ensure that the plans' assets can reasonably be expected to
achieve the objective of the policy. The investment policy is periodically
reviewed by the plans' respective trustees.
The primary investment objective of the postretirement plans is to balance
capital appreciation and preservation. These plan assets are currently
allocated to 52% equity securities and 48% fixed maturity securities. The
target asset allocation as of December 31, 2009 is 50% equity securities
and 50% fixed maturity securities.
55
The fair value of the Company's pension and other postretirement plans
financial assets and financial liabilities has been determined using
available market information as of December 31, 2009. Although the Company
is not aware of any factors that would significantly affect the fair value
of the pension and other postretirement plans financial assets and
financial liabilities, such amounts have not been comprehensively revalued
since those dates. Therefore, estimates of fair value subsequent to the
valuation dates may differ significantly from the amounts presented herein.
Considerable judgment is required to interpret market data to develop the
estimates of fair value. The use of different market assumptions and/or
estimation methodologies may have a material effect on the estimated fair
value amounts.
Effective January 1, 2009, the Company prospectively adopted the provisions
of fair value measurement guidance for its pension and other postretirement
plans financial assets and financial liabilities that are measured at fair
value. Fair value is defined as the price that would be received to sell an
asset or paid to transfer a liability (exit price) in an orderly
transaction between market participants at the measurement date. In
determining fair value, the Company primarily uses the market approach
which utilizes process and other relevant information generated by market
transactions involving identical or comparable assets or liabilities. To a
lesser extent, the Company also uses the income approach which uses
discounted cash flows to determine fair value. When applying either
approach, the Company maximizes the use of observable inputs and minimizes
the use of unobservable inputs.
Observable inputs reflect the assumptions market participants would use in
valuing a financial instrument based on market data obtained from sources
independent of the Company. Unobservable inputs reflect the Company's
estimates about the assumptions market participants would use in valuing
financial assets and financial liabilities based on the best information
available in the circumstances.
Investments in pooled separate accounts are stated at the corresponding
unit value of the pooled separate account. The underlying fair value of the
separate account investments consist primarily of marketable equity and
fixed maturity securities and are generally based on observable valuation
inputs. Underlying investments in pooled separate accounts can also include
securities that require unobservable valuation inputs, such as private
placement fixed maturity securities. Deposits in the insurance company
general account are stated at cost plus accrued interest, which represents
fair value.
The Company is required to categorize its financial assets and financial
liabilities recorded on the consolidated balance sheets according to a
three-level hierarchy. A level is assigned to each financial asset and
financial liability based on the lowest level input that is significant to
the fair value measurement in its entirety. The levels of fair value
hierarchy are as follows:
Level 1 - Unadjusted quoted prices for identical assets or liabilities in
an active market. The types of assets and liabilities utilizing Level 1
valuations generally include cash, money-market funds, actively-traded
equity securities, investments in mutual funds with quoted market prices
and certain investments in pooled separate accounts.
Level 2 - Prices or valuations based on observable inputs other than quoted
prices in active markets for identical assets and liabilities. The types of
assets and liabilities utilizing Level 2 valuations generally include
certain investments in pooled separate accounts.
56
Level 3 - Prices or valuations that require significant unobservable
inputs. The types of assets and liabilities utilizing Level 3 valuations
generally include private equity investments, certain investments in pooled
separate accounts which invest in privately placed fixed maturities and
investments in an insurance company general account.
The Company uses prices and inputs that are current as of the measurement
date. In periods of market disruption, the ability to observe prices and
inputs may be reduced, which could cause an asset or liability to be
reclassified to a lower level.
The following table summarizes the Company's pension benefit plans'
financial assets measured at fair value on a recurring basis:
IN THOUSANDS
DECEMBER 31, 2009 LEVEL 1 LEVEL 2 LEVEL 3 TOTAL
----------------- -------- -------- ------- --------
Equity securities:
Intermediate-term bond $ 92,222 $ -- $ -- $ 92,222
U.S. large-cap 83,218 -- -- 83,218
Global bond 36,035 -- -- 36,035
Emerging market stocks 31,902 -- -- 31,902
International large value 18,306 -- -- 18,306
Domestic real estate 8,734 -- -- 8,734
-------- ------ ------- --------
Total equity securities 270,417 270,417
Investment in pooled separate
accounts 100,718 2,704 -- 103,422
Insurance company general
account -- -- 33,176 33,176
Private equity funds -- -- 27,309 27,309
Cash and cash equivalents 471 -- -- 471
-------- ------ ------- --------
Total investments 371,606 2,704 60,485 434,795
-------- ------ ------- --------
Total financial assets $371,606 $2,704 $60,485 $434,795
======== ====== ======= ========
The following table provides a summary of changes in fair value of the
Company's pension benefit plans' Level 3 financial assets held at fair
value on a recurring basis during the year ended December 31, 2009:
[Enlarge/Download Table]
TOTAL PURCHASES,
BALANCE AT APPRECIATION SALES AND BALANCE
BEGINNING (DEPRECIATION) SETTLEMENTS, AT END OF
IN THOUSANDS OF YEAR IN FAIR VALUE NET YEAR
------------ ---------- -------------- ------------ ---------
Investment in pooled separate accounts $ 219 $ (125) $ (94) $ --
Insurance company general account 31,487 1,689 -- 33,176
Private equity funds 23,717 (1,060) 4,652 27,309
------- ------- ------ -------
Total financial assets $55,423 $ 504 $4,558 $60,485
======= ======= ====== =======
57
The following table summarizes the Company's other postretirement benefit
plans' financial assets measured at fair value on a recurring basis:
IN THOUSANDS
DECEMBER 31, 2009 LEVEL 1 LEVEL 2 LEVEL 3 TOTAL
----------------- ------- ------- ------- -------
Investment in pooled separate accounts $ 7,724 $-- $-- $ 7,724
Equity securities:
Intermediate-term bond 7,001 -- -- 7,001
------- --- --- -------
Total investments 14,725 -- -- 14,725
------- --- --- -------
Total financial assets $14,725 $-- $-- $14,725
======= === === =======
The following table provides a summary of changes in fair value of Level 3
financial assets held at fair value on a recurring basis during the year
ended December 31, 2009:
[Enlarge/Download Table]
TOTAL PURCHASES,
BALANCE AT APPRECIATION SALES AND BALANCE
BEGINNING (DEPRECIATION) SETTLEMENTS, AT END OF
IN THOUSANDS OF YEAR IN FAIR VALUE NET YEAR
------------ ---------- -------------- ------------ ---------
Investment in pooled separate accounts $49,521 $(28,288) $(21,233) $--
------- -------- -------- ---
Total financial assets $49,521 $(28,288) $(21,233) $--
======= ======== ======== ===
The Plans did not have any assets or liabilities reported at fair value on
a nonrecurring basis.
PROFIT SHARING PLANS
The Company also has profit sharing plans covering substantially all
employees and agents. The Company's contribution rate to the employee plan
is determined annually by the directors of the Company and is applied to
each participant's prior year earnings. The Company's contribution to the
agent plan is made as a certain percentage, based upon years of service,
applied to each agent's total annual compensation. The Company recognized
contributions to the plans during 2009, 2008 and 2007 of $6,341,000,
$10,087,000 and $11,603,000, respectively. Participants may elect to
receive a portion of their contributions in cash.
58
(12) LIABILITY FOR UNPAID ACCIDENT AND HEALTH CLAIMS, AND CLAIM AND LOSS
ADJUSTMENT EXPENSES
Activity in the liability for unpaid accident and health claims, and claim
and loss adjustment expenses is summarized as follows:
IN THOUSANDS 2009 2008 2007
------------ -------- -------- --------
Balance at January 1 $607,080 $602,622 $599,610
Less: reinsurance recoverable 539,315 530,178 523,490
-------- -------- --------
Net balance at January 1 67,765 72,444 76,120
-------- -------- --------
Incurred related to:
Current year 77,046 74,163 72,665
Prior years (3,798) (2,145) (1,467)
-------- -------- --------
Total incurred 73,248 72,018 71,198
-------- -------- --------
Paid related to:
Current year 50,401 45,694 42,755
Prior years 24,214 31,003 31,619
-------- -------- --------
Total paid 74,615 76,697 74,374
-------- -------- --------
Disposition of subsidiary -- -- (500)
-------- -------- --------
Net balance at December 31 66,398 67,765 72,444
Plus: reinsurance recoverable 528,862 539,315 530,178
-------- -------- --------
Balance at December 31 $595,260 $607,080 $602,622
======== ======== ========
In addition to pending policy and contract claims, this table reflects
disabled life reserves that are included in future policy and contract
benefits on the consolidated balance sheets.
As a result of changes in estimates of claims incurred in prior years, the
accident and health claims, and claim and loss adjustment expenses incurred
decreased by $3,798,000, $2,145,000 and $1,467,000 in 2009, 2008 and 2007,
respectively. The remaining changes in amounts are the result of normal
reserve development inherent in the uncertainty of establishing the
liability for unpaid accident and health claims, and claim and loss
adjustment expenses.
(13) REINSURANCE
In the normal course of business, the Company seeks to limit its exposure
to loss on any single insured and to recover a portion of benefits paid by
ceding reinsurance to other insurance companies. To the extent that a
reinsurer is unable to meet its obligation under the reinsurance agreement,
the Company remains liable. The Company evaluates the financial condition
of its reinsurers and monitors concentrations of credit risk to minimize
its exposure to significant losses from reinsurer insolvencies. Allowances
are established for amounts deemed to be uncollectible.
The Company's consolidated financial statements reflect the effects of
assumed and ceded reinsurance transactions. Assumed reinsurance refers to
the acceptance of certain insurance risks that other insurance companies
have underwritten. Ceded reinsurance involves transferring certain
insurance risks, along with the related written and earned premiums, the
Company has underwritten to other insurance companies who agree to share
these risks. The primary purpose of ceded reinsurance is to protect the
Company from potential losses in excess of the amount it is prepared to
accept.
Reinsurance is accounted for over the lives of the underlying reinsured
policies using assumptions consistent with those used to account for the
underlying policies.
59
The effect of reinsurance on premiums for the years ended December 31 was
as follows:
IN THOUSANDS 2009 2008 2007
------------ ---------- ---------- ----------
Direct premiums $1,576,012 $1,619,867 $1,226,867
Reinsurance assumed 301,268 429,597 419,933
Reinsurance ceded (196,191) (187,188) (178,809)
---------- ---------- ----------
Net premiums $1,681,089 $1,862,276 $1,467,991
========== ========== ==========
Reinsurance recoveries on ceded reinsurance contracts included in
policyholder benefits on the consolidated statements of operations were
$192,994,000, $166,794,000 and $164,063,000 during 2009, 2008, and 2007,
respectively.
The Company terminated its coinsurance participation in the Servicemembers
Group Life Insurance (SGLI) and Federal Employees Group Life Insurance
(FEGLI) reinsurance programs effective July 1, 2009 and October 1, 2009,
respectively. The Company recognized total revenues of $274,909,000,
$398,401,000 and $384,911,000 in 2009, 2008 and 2007, respectively, related
to the SGLI and FEGLI programs. Total assumed reserves recognized by the
Company related to the SGLI and FEGLI programs were $0 and $22,037,000 as
of December 31, 2009 and 2008, respectively. The impact of the SGLI and
FEGLI programs on the Company's 2009, 2008 and 2007 net income (loss) was
immaterial.
(14) CERTAIN NONTRADITIONAL LONG-DURATION CONTRACTS AND SEPARATE ACCOUNTS
The Company issues certain nontraditional long-duration contracts including
universal life, variable life and deferred annuities that contain either
certain guarantees or sales inducements.
The Company issues variable contracts through its separate accounts for
which investment income and investment gains and losses accrue directly to,
and investment risk is borne by, the contractholder. The Company also
issues variable annuity contracts through separate accounts where the
Company contractually guarantees to the contractholder either (a) return of
no less than total deposits made to the contract adjusted for partial
withdrawals, (b) total deposits made to the contract adjusted for partial
withdrawals plus a minimum return, (c) the highest contract value on a
specified anniversary date adjusted for withdrawals following the contract
anniversary, or (d) a minimum payment on a variable immediate annuity.
These guarantees include benefits that are payable in the event of death,
withdrawal or annuitization based upon the specific contract selected. The
Company also issues universal life and variable life contracts where the
Company provides to the contractholder a no-lapse guarantee.
The assets supporting the variable portion of the traditional variable
annuities, variable contracts with guarantees, universal life and variable
life contracts are carried at fair value and reported as summary total
separate account assets with an equivalent summary total reported for
liabilities. For variable annuity contracts, amounts assessed against the
contractholders for mortality, administrative, and other services are
included in policy and contract fees, changes in liabilities for minimum
guarantees on deferred annuities are included in policyholder benefits, and
changes in liabilities for the minimum guaranteed payments on variable
immediate annuities are included in net realized investment gains on the
consolidated statements of operations. For universal life and variable life
contracts, the amounts assessed against the contractholders for mortality,
administrative, and other services are included in policy and contract fees
and changes in liabilities for guaranteed benefits are included in
policyholder benefits on the consolidated statements of operations. For
variable annuity, universal life and variable life contracts, separate
account net investment income, net investment gains and losses and the
related liability changes are offset within the same line item on the
consolidated statements of operations. There were no investment gains or
losses on transfers of assets from the general account to the separate
account during 2009, 2008 or 2007.
60
The Company's variable annuity contracts with guarantees may offer more
than one type of guarantee in each contract; therefore, the amounts listed
are not mutually exclusive. For guarantees of amounts in the event of
death, the net amount at risk is defined as the current guaranteed minimum
death benefit in excess of the current account balance at the balance sheet
date. For guaranteed withdrawal amounts, the net amount at risk is defined
as the guaranteed minimum withdrawal benefit base in excess of the current
account balance at the balance sheet date. For guarantees of amounts at
annuitization, the net amount at risk is defined as the present value of
the minimum guaranteed annuity payments available to the contractholder,
determined in accordance with the terms of the contract, in excess of the
current account balance. For the guaranteed payout annuity floor, the net
amount at risk is defined as the guaranteed benefit in excess of the
current benefit payable measured as a monthly amount. For universal life
and variable life contracts the net amount at risk is defined as the
current death benefit in excess of the current balance, excluding
reinsurance.
At December 31, the Company had the following variable annuity contracts
with guarantees:
IN THOUSANDS 2009 2008
------------ ---------- ----------
Return of net deposits:
In the event of death
Account value $1,787,289 $1,362,207
Net amount at risk $ 60,682 $ 246,130
Average attained age of contractholders 57.1 56.1
As withdrawals are taken
Account value $ 627,129 $ 358,692
Net amount at risk $ 43,415 $ 103,740
Average attained age of contractholders 62.7 62.3
Return of net deposits plus a minimum return:
In the event of death
Account value $ 126,118 $ 93,251
Net amount at risk $ 26,754 $ 47,165
Average attained age of contractholders 66.7 66.2
At annuitization
Account value $ 312,231 $ 210,615
Net amount at risk $ -- $ --
Weighted average period remaining until expected
annuitization (in years) 6.5 6.9
Highest specified anniversary account value:
In the event of death
Account value $ 530,450 $ 418,762
Net amount at risk $ 72,685 $ 184,013
Average attained age of contractholders 57.5 56.6
Guaranteed payout annuity floor:
Account value $ 47,078 $ 41,879
Net amount at risk $ 46 $ 97
Average attained age of contractholders 69.8 69.2
61
At December 31, the Company had the following universal life and variable
life contracts with guarantees:
IN THOUSANDS 2009 2008
------------ ----------- -----------
Account value (general and separate accounts) $ 2,443,848 $ 1,912,286
Net amount at risk $38,079,563 $37,989,548
Average attained age of policyholders 51.0 48.0
Liabilities for guarantees on universal life and variable contracts
reflected in the general account as of December 31, 2009 are:
[Enlarge/Download Table]
MINIMUM
GUARANTEED DEATH MINIMUM
AND INCOME GUARANTEED PAYOUT GUARANTEED UNIVERSAL LIFE AND
IN THOUSANDS BENEFITS ANNUITY FLOOR WITHDRAWAL BENEFIT VARIABLE LIFE
------------ ---------------- ----------------- ------------------ ------------------
Balance at beginning of year $ 5,961 $23,923 $ 83,252 $16,247
Change in accounting 154 -- -- --
principle
Incurred guarantee benefits (889) (9,014) (66,076) 11,284
Paid guaranteed benefits (2,687) (1,086) -- (8,043)
------- ------- -------- -------
Balance at end of year $ 2,539 $13,823 $ 17,176 $19,488
======= ======= ======== =======
Liabilities for guarantees on universal life and variable contracts
reflected in the general account as of December 31, 2008 are:
[Enlarge/Download Table]
MINIMUM
GUARANTEED DEATH MINIMUM
AND INCOME GUARANTEED PAYOUT GUARANTEED UNIVERSAL LIFE AND
IN THOUSANDS BENEFITS ANNUITY FLOOR WITHDRAWAL BENEFIT VARIABLE LIFE
------------ ---------------- ----------------- ------------------ ------------------
Balance at beginning of year $ 1,501 $ 7,957 $ 5,029 $12,066
Incurred guarantee benefits 5,717 16,376 78,223 11,874
Paid guaranteed benefits (1,257) (410) -- (7,693)
------- ------- ------- -------
Balance at end of year $ 5,961 $23,923 $83,252 $16,247
======= ======= ======= =======
The minimum guaranteed death benefit liability and the guaranteed minimum
income liability is determined each period end by estimating the expected
value of death benefits in excess of the projected account balance and
recognizing the excess ratably over the accumulation period based on total
expected assessments. The guaranteed payout annuity floor and minimum
guaranteed withdrawal benefits are considered to be derivatives and are
recognized at fair value through earnings. The universal life and variable
life liabilities are determined by estimating the expected value of death
benefits in excess of projected account balances and recognizing the excess
ratably over the accumulation period based on total expected assessments.
For variable annuity, universal life and variable life contracts with
guarantees, the Company regularly evaluates estimates used and adjusts the
additional liability balance, with a related charge or credit to benefit
expense, if actual experience or other evidence suggests that earlier
assumptions should be revised.
62
The following assumptions and methodology were used to determine the
minimum guaranteed death and income benefit liability on variable annuities
at December 31, 2009 and 2008 (except where noted otherwise):
- For 2009 and 2008, data was compiled from 1,000 stochastically
generated investment performance scenarios. These were ranked by
wealth factors and put into 100 groups of 10 sequentially. The
mid-point of each group was chosen to run the projections used.
- Mean investment performance was 6.38% and 7.96% for 2009 and 2008,
respectively, and is consistent with DAC projections over a 10 year
period.
- Annualized monthly standard deviation was 15.28% for 2009 and 2008.
- Assumed mortality was 100% of the 1983a table.
- Lapse rates varied by contract type and policy duration, ranging from
1% to 25%, with an average of 9%.
- Discount rates varied by contract type and policy duration and were
consistent with discount rates used in DAC models.
The following assumptions and methodology, which are consistent with those
used for DAC models, were used to determine the universal life and variable
life liability at December 31, 2009 and 2008 (except where noted
otherwise):
- Separate account investment performance assumption was 8%.
- Assumed mortality was 100% of pricing levels.
- Lapse rates varied by policy duration, ranging from 2% to 9%.
- General account discount rate was 5.0% for 2009 and 2008.
- Separate account discount rate was 7.73% for 2009 and 2008.
Account balances for contracts with guarantees were invested in variable
separate accounts by mutual fund grouping as follows at December 31:
VARIABLE ANNUITY VARIABLE LIFE
CONTRACTS CONTRACTS
----------------------- -----------------------
IN THOUSANDS 2009 2008 2009 2009
------------ ---------- ---------- ---------- ----------
Equity $1,465,394 $1,150,572 $1,372,254 $1,084,011
Bond 347,370 276,207 140,177 120,114
Balanced 425,486 264,336 208,002 125,477
Money market 68,093 92,373 33,272 52,999
Mortgage 79,920 84,874 47,052 49,325
Real estate 57,595 47,737 37,967 29,192
---------- ---------- ---------- ----------
Total $2,443,858 $1,916,099 $1,838,724 $1,461,118
========== ========== ========== ==========
63
(15) UNREMITTED PREMIUMS PAYABLE
The Company acts as an agent of certain insurance underwriters and has a
fiduciary responsibility to remit the appropriate percentage of monies
collected from each financial institution customer to the corresponding
insurance underwriters. The remittance is equal to the premiums collected
from the financial institution customer, less any commissions earned by the
Company. The Company recognizes a liability equal to the amount of the
premiums that have not yet been remitted to the insurance underwriters. At
December 31, 2009 and 2008, the liability associated with unremitted
premiums payable was $19,593,000 and $19,792,000, respectively and is
reported as part of other liabilities on the consolidated balance sheets.
As described in note 2, as of December 31, 2009 and 2008, the Company had
restricted the use of $19,593,000 and $19,792,000, respectively, of its
cash and cash equivalents to satisfy these premium remittance payables.
(16) NOTES PAYABLE
In September 1995, the Company issued surplus notes with a face value of
$125,000,000, at 8.25%, due in 2025. The surplus notes are subordinate to
all current and future policyholders interests, including claims, and
indebtedness of the Company. All payments of interest and principal on the
notes are subject to the approval of the Minnesota Department of Commerce
(Department of Commerce). As of December 31, 2009 and 2008, the approved
accrued interest was $3,008,000. At December 31, 2009 and 2008, the balance
of the surplus notes was $125,000,000. The issuance costs of $1,421,000 are
deferred and amortized over 30 years on a straight-line basis. At December
31, 2009 and 2008, accumulated amortization was $640,000 and $592,000,
respectively.
At December 31, 2009, the aggregate minimum annual notes payable maturities
for the next five years are as follows: 2010, $0; 2011, $0; 2012, $0; 2013,
$0; 2014, $0; thereafter $125,000,000.
Interest paid on the notes for the years ended December 31, 2009, 2008 and
2007, was $10,236,000, $10,419,000 and $10,301,000, respectively.
(17) BUSINESS COMBINATIONS
During 2009, the Company acquired certain insurance related agencies. The
aggregate purchase price of $5,750,000 was allocated to various assets and
liabilities including $3,701,000 to finite-lived intangible assets and
$3,500,000 to goodwill. These acquisitions include potential future
additional consideration based on attaining thresholds through 2012. The
maximum potential additional consideration related to the acquisitions is
$1,750,000, of which $1,500,000 was accrued in 2009. The Company also
recorded additional minimum consideration it paid or expects to pay in
relation to 2008 and 2006 acquisitions of $1,770,000 and $203,000,
respectively, all of which was recorded as goodwill. During 2009, the
Company completed the final fair value evaluation of assets acquired
related to 2008 business combinations, which resulted in a decrease to
goodwill of $201,000.
During 2008, the Company acquired certain insurance related agencies. The
aggregate cash purchase price of $5,300,000 was allocated to various assets
and liabilities including $3,872,000 to finite-lived intangible assets and
$1,810,000 to goodwill.
The amount of acquisition-related additional cash consideration the Company
may have to pay in 2010 and future years if certain thresholds are attained
is $5,665,000 of which $3,584,000 was accrued at December 31, 2009.
All acquisitions have been accounted for using the purchase method of
accounting, which requires that assets purchased and liabilities assumed be
valued at fair value. The effects of the acquisitions are immaterial to the
Company's consolidated statements of operations and financial position.
64
(18) GOODWILL AND INTANGIBLE ASSETS
The amount of goodwill included on the consolidated balance sheets in
goodwill and intangible assets, net, as of December 31, was as follows:
IN THOUSANDS 2009 2008
------------ ------- -------
Balance at beginning of year $32,781 $30,671
Additions 5,473 2,110
Adjustments to prior year acquistitions (201) --
------- -------
Balance at end of year $38,053 $32,781
======= =======
Annual impairment testing of goodwill was completed in 2009. The Company
uses appropriate measures on a case by case basis when testing goodwill
impairment. Methods may include, but are not limited to, historical and
future projected financial performance, discounted future cash flows and
reviews of various pricing multiples. The Company's evaluation of goodwill
completed during 2009 resulted in no impairment losses.
The amount of intangible assets, excluding the value of business acquired
assets (VOBA), included on the consolidated balance sheets in goodwill and
intangible assets, net, as of December 31, was as follows:
IN THOUSANDS 2009 2008
------------ ------- -------
Balance at beginning of year $ 5,771 $ 4,861
Acquisitions 3,721 3,872
Amortization (2,629) (2,962)
------- -------
Balance at end of year $ 6,863 $ 5,771
======= =======
The Company has intangible assets resulting from business and asset
acquisitions. Intangible assets acquired during 2009 include non-compete
agreements amortizable on a straight-line basis over three to ten years and
customer lists amortized over their assigned economic useful lives.
Intangible assets acquired during 2008 include non-compete agreements
amortizable on a straight-line basis over three years and customer lists
and agent relationships amortizable over their assigned economic useful
lives. The remaining intangible assets consist of customer/client
contracts, lists or relationships. These intangible assets are amortized on
a straight-line basis over their estimated useful lives based on the
related life of the underlying customer/client contract, list or
relationship purchased, which vary in length between three to ten years.
The appropriate estimated useful life for each intangible asset class is
reviewed annually. A change in expected useful life could potentially
indicate impairment of these assets. The Company completes annual
impairment testing of all intangible assets. The annual review did not
result in any changes to expected useful life and no intangible impairments
were recorded in 2009, 2008 or 2007.
Intangible asset amortization expense for 2009, 2008 and 2007 in the amount
of $2,629,000, $2,962,000 and $2,420,000, respectively, is included in
general operating expenses. Projected amortization expense for the next
five years is as follows: 2010, $2,018,000; 2011, $1,598,000; 2012,
$1,233,000; 2013, $950,000; 2014, $523,000.
(19) RELATED PARTY TRANSACTIONS
The Company has investment advisory agreements with an affiliate, Advantus.
Under these agreements, the Company pays quarterly investment management
fees based on total assets managed. Investment management fees paid by the
Company were $12,168,000, $13,099,000 and $13,608,000 during 2009, 2008 and
2007, respectively. As of December 31, 2009 and 2008, the amount due to
Advantus under these agreements was $4,450,000 and $3,958,000,
respectively.
65
The Company also has an agreement with an affiliate, Securian Financial
Services, Inc. (SFS). Under this agreement, SFS is the distributor of the
Company's variable annuity and variable life products. Fees paid by the
Company for the performance of compliance functions for these variable
products totaled $2,440,000, $2,689,000 and $4,329,000 for the years ended
December 31, 2009, 2008 and 2007, respectively.
Under an assignment agreement with SFS, 12(b)-1 fees from the Advantus
Series Fund Portfolios and the Waddell & Reed Target Portfolios are
transferred to the Company. For the years ended December 31, 2009, 2008 and
2007, the amounts transferred were $9,097,000, $12,103,000, and
$14,775,000, respectively.
The Company has agreements with its affiliates for expenses including
allocations for occupancy costs, data processing, compensation, advertising
and promotion, and other administrative expenses, which the Company incurs
on behalf of its affiliates and is reimbursed. At December 31, 2009 and
2008, the amount payable to the Company was $13,521,000 and $11,930,000,
respectively. The amount of expenses incurred by and reimbursed to the
Company for the years ended December 31, 2009, 2008, and 2007 were
$55,227,000, $54,587,000 and $52,352,000, respectively.
In 2002, the Company sold a group variable universal life policy to
Securian Financial Group, Inc. The Company received premiums of $0,
$2,000,000, $2,000,000 in 2009, 2008 and 2007, respectively, for this
policy and paid claims totaling $1,850,000 in 2007. No claims were paid
during 2009 and 2008. As of December 31, 2009 and 2008, reserves held under
this policy were $16,151,000 and $12,904,000, respectively.
The Company is a distributor of its affiliates' insurance and other
products. Product offerings include credit life and disability, accidental
death, collateral protection insurance, guarantee auto protection and debt
cancellation. The Company earned $12,991,000, $4,166,000 and $1,052,000 in
commission revenues related to the sales and servicing of these products
for the years ended December 31, 2009, 2008 and 2007, respectively. As of
December 31, 2009 and 2008, commission revenue due to the Company from its
affiliates was $1,499,000 and $349,000, respectively.
(20) OTHER COMPREHENSIVE INCOME (LOSS)
Comprehensive income (loss) is defined as any change in stockholder's
equity originating from non-owner transactions. The Company has identified
those changes as being comprised of net income (loss), adjustments to
pension and other postretirement plans, unrealized gains (losses) on
securities and related adjustments.
66
The components of comprehensive income (loss) and related tax effects,
other than net income (loss) are illustrated below:
[Enlarge/Download Table]
IN THOUSANDS 2009 2008 2007
------------ --------- ----------- --------
Other comprehensive income (loss), before tax:
Unrealized gains (losses) on securities $ 856,760 $(1,194,199) $ 36,661
Reclassification adjustment for
(gains) losses included in net income (loss) (4,380) 386,114 (66,086)
Unrealized losses on securities - OTTI (37,943) -- --
Adjustment to deferred policy acquisition costs (181,638) 151,153 (2,410)
Adjustment to reserves (52,512) 11,007 (2,673)
Adjustment to unearned policy and contract fees 29,884 (31,074) 754
Adjustment to pension and other postretirement plans 68,476 (155,716) 1,389
--------- ----------- --------
678,647 (832,715) (32,365)
Income tax (expense) benefit related to items of
other comprehensive income (loss) (235,723) 295,606 13,289
--------- ----------- --------
Other comprehensive income (loss), net of tax $ 442,924 $ (537,109) $(19,076)
========= =========== ========
The components of accumulated other comprehensive income (loss) and related
tax effects at December 31 were as follows:
IN THOUSANDS 2009 2008
------------ --------- ---------
Gross unrealized gains $ 457,750 $ 217,692
Gross unrealized losses (168,924) (781,247)
Gross unrealized losses - OTTI (127,536) --
Adjustment to deferred policy acquisition costs (36,931) 141,340
Adjustment to reserves (59,203) (6,706)
Adjustment to unearned policy and contract fees (244) (28,978)
Adjustment to pension and other postretirement plans (126,375) (194,852)
--------- ---------
(61,463) (652,751)
Deferred federal income tax benefits 27,157 232,304
--------- ---------
Net accumulated other comprehensive income (loss) $ (34,306) $(420,447)
========= =========
(21) STOCK DIVIDENDS AND CAPITAL CONTRIBUTIONS
The Company declared and paid dividends to Securian Financial Group, Inc.
for the years ended December 31 as follows:
IN THOUSANDS 2009 2008 2007
------------ ------ ------- -------
Equity securities $ -- $ -- $ 5,400
Cash 8,000 74,500 10,500
------ ------- -------
Total $8,000 $74,500 $15,900
====== ======= =======
67
Dividend payments by Minnesota Life Insurance Company to its parent cannot
exceed the greater of 10% of statutory capital and surplus or the statutory
net gain from operations as of the preceding year-end, as well as the
timing and amount of dividends paid in the preceding 12 months, without
prior approval from the Department of Commerce. Based on these limitations
and 2009 statutory results, the maximum amount available for the payment of
dividends during 2010 by Minnesota Life Insurance Company without prior
regulatory approval is $174,162,000.
For the years ended December 31, Securian Financial Group, Inc. contributed
capital to the Company as follows:
IN THOUSANDS 2009 2008 2007
------------ ---- ------- -------
Fixed maturity securities $-- $ 7,452 $ --
Equity securities -- 47,850 --
Alternative investments -- 15,482 --
Cash -- 11,307 14,000
Deferred tax asset -- 1,799 --
--- ------- -------
Total $-- $83,890 $14,000
=== ======= =======
(22) COMMITMENTS AND CONTINGENCIES
The Company is involved in various pending or threatened legal proceedings
arising out of the normal course of business. In the opinion of management,
the ultimate resolution of such litigation will likely not have a material
adverse effect on consolidated operations or the financial position of the
Company.
In the normal course of business, the Company seeks to limit its exposure
to loss on any single insured and to recover a portion of benefits paid by
ceding reinsurance to other insurance companies (reinsurers). To the extent
that a reinsurer is unable to meet its obligations under the reinsurance
agreement, the Company remains liable. The Company evaluates the financial
condition of its reinsurers and monitors concentrations of credit risk to
minimize its exposure to significant losses from reinsurer insolvencies.
Allowances are established for amounts deemed uncollectible.
The Company holds TBA securities with extended forward contract dates which
represent a future commitment. As of December 31, 2009 and 2008, these
securities were reported at fair value of $41,056,000 and $30,906,000,
respectively.
The Company has long-term commitments to fund alternative investments and
real estate investments totaling $212,472,000 as of December 31, 2009. The
Company estimates that $85,000,000 of these commitments will be invested in
2010, with the remaining $127,472,000 invested over the next four years.
As of December 31, 2009, the Company had committed to purchase mortgage
loans totaling $10,400,000 but had not completed the purchase transactions.
As of December 31, 2009, the Company had committed to purchase corporate
fixed maturity securities totaling $6,000,000 but had not completed the
purchase transactions.
68
The Company has a long-term lease agreement with an affiliated company,
Capitol City Property Management, Inc, for rental space in downtown St.
Paul. Minimum gross rental commitments under the lease are as follows:
2010, $11,267,000; 2011, $11,267,000; 2012, $11,267,000; 2013, $11,267,000;
2014, $11,267,000. The Company sub-leases space in downtown St. Paul.
Commitments to the Company from these agreements are as follows: 2010,
$618,000; 2011, $430,000; 2012, $404,000; 2013, $397,000; 2014, $355,000.
Lease expense, net of sub-lease income, for the years ended December 31,
2009, 2008 and 2007 was $8,613,000, $8,502,000, and $8,670,000,
respectively. The Company also has long-term lease agreements with
unaffiliated companies for office facilities and equipment. Minimum gross
rental commitments under these leases are as follows: 2010, $2,480,000;
2011, $1,803,000; 2012, $1,456,000; 2013, $1,434,000; 2014, $1,381,000.
At December 31, 2009, the Company had guaranteed the payment of $68,200,000
of policyholder dividends and discretionary amounts payable in 2010. The
Company has pledged fixed maturity securities, valued at $91,250,000 to
secure this guarantee. Pursuant to the Escrow Trust Account Agreement dated
December 13, 1991 between Minnesota Life Insurance Company and Wells Fargo
Bank, N.A., the Company pays irrevocable dividends to certain policyholders
of the Company. Policyholders may choose the form in which the irrevocable
dividend is applied, which include the cash payment of the dividend to the
policyholder, using the dividend to purchase additional coverage or to
increase the cash value of the policy. The policyholders covered by the
Escrow Trust Account Agreement primarily includes owners of certain
individual life insurance policies issued by the Company, but does not
include all of the dividend-paying insurance policies issued by the
Company.
The Company has a 100% coinsurance agreement for its individual disability
line within its Individual Financial Security business unit. Under the
terms of this agreement, assets supporting the reserves transferred to the
reinsurer are held under a trust agreement for the benefit of the Company
in the event that the reinsurer is unable to perform its obligations. At
December 31, 2009 and 2008, the assets held in trust were $587,656,000 and
$642,731,000, respectively. These assets are not reflected on the
accompanying consolidated balance sheets.
Occasionally, the Company will enter into arrangements whereby certain
lease obligations related to general agents' office space are guaranteed.
Additionally, the Company will occasionally enter into loan guarantees for
general agents. Management does not consider an accrual necessary relating
to these guarantees.
In connection with the dissolution of MIMLIC Life Insurance Company, the
Company has agreed to guarantee all obligations and liabilities of MIMLIC
Life Insurance Company that arise in the normal course of business.
Management does not consider an accrual necessary relating to this
guarantee.
In connection with the sale of a subsidiary company in 1997, the Company
has guaranteed the adequacy of claim reserves transferred under the
agreement for a period of 10 years subsequent to the date of transfer. To
the extent that these reserves were over or under provided for, an exchange
of the difference is required by the agreement. In 2008, the Company
amended the agreement to extend the reserve guarantee by an additional 10
years to December 31, 2017, at which point a settlement payment/receipt
will be determined. The Company expects the settlement of this agreement to
be immaterial to its consolidated financial position.
The Company has minimum compensation agreements with certain sales and
employee groups, the terms of which expire at various times through 2010.
Such agreements, which have been revised from time to time, provide for
minimum compensation for these groups. The aggregate future minimum
commitment under these agreements at December 31, 2009 and 2008 was
approximately $2,780,000, and $3,041,000, respectively.
69
The Company has guaranteed the payment of benefits under certain of its
affiliates' non-qualified pension plans in the event that the affiliate is
unable to make such payment. This guarantee is unfunded, unsecured and may
be amended, modified or waived with written consent by the parties to the
agreement. Management does not consider an accrual necessary relating to
these guarantees.
The Company is contingently liable under state regulatory requirements for
possible assessments pertaining to future insolvencies and impairments of
unaffiliated insurance companies. The Company records a liability for
future guaranty fund assessments based upon known insolvencies, according
to data received from the National Organization of Life and Health
Insurance Guaranty Association. At December 31, 2009 and 2008 the amount
was immaterial to the consolidated financial statements. An asset is
recorded for the amount of guaranty fund assessments paid, which can be
recovered through future premium tax credits. This asset was $2,111,000 and
$1,794,000 as of December 31, 2009 and 2008, respectively. These assets are
being amortized over a five-year period.
(23) STATUTORY ACCOUNTING PRACTICES
The Company's insurance operations, domiciled in Minnesota, prepare
statutory financial statements in accordance with the accounting practices
prescribed or permitted by the Department of Commerce of the states of
domicile. Prescribed statutory accounting practices are those practices
that are incorporated directly or by reference in state laws, regulations
and general administrative rules applicable to all insurance enterprises
domiciled in a particular state. Permitted statutory accounting practices
include practices not prescribed by the domiciliary state, but allowed by
the domiciliary state regulatory authority. The Company's insurance
operations have no material statutory accounting practices that differ from
those of the state of domicile or the NAIC accounting practices. See note
21 for discussion of statutory dividend limitations.
The Company and its insurance company subsidiary are required to meet
certain minimum risk-based capital (RBC) requirements, which are imposed by
the respective state of domicile. The formulas within the RBC calculation
were developed by the NAIC. The RBC requirements were designed to monitor
capital adequacy and to raise the level of protection for policyholders.
Companies that have an RBC ratio below certain trigger points are required
to take specified corrective action. The Company and its insurance company
subsidiary exceeded the minimum RBC requirements for the years ended
December 31, 2009, 2008 and 2007.
The Company's insurance operations are required to file financial
statements with state and foreign regulatory authorities. The accounting
principles used to prepare these statutory financial statements follow
prescribed and permitted accounting principles, which differ from GAAP. On
a statutory accounting basis, the Company reported net income (loss) of
$64,636,000, $(232,266,000), and $186,648,000 in 2009, 2008 and 2007,
respectively. Combined statutory surplus of these operations was
$1,741,622,000 and $1,431,990,000 as of December 31, 2009 and 2008,
respectively.
(24) SUBSEQUENT EVENTS
Through March 8, 2010, the date these financial statements were issued,
there were no material subsequent events that required recognition or
additional disclosure in the Company's financial statements.
70
MINNESOTA LIFE INSURANCE COMPANY AND SUBSIDIARIES
SCHEDULE I - SUMMARY OF INVESTMENTS - OTHER THAN INVESTMENTS IN RELATED PARTIES
DECEMBER 31, 2009
(In thousands)
[Enlarge/Download Table]
AS SHOWN
ON THE
MARKET CONSOLIDATED
TYPE OF INVESTMENT COST (3) VALUE BALANCE SHEET (1)
----------- ---------- -----------------
Fixed maturity securities
U.S. government $ 119,502 $ 131,127 $ 131,127
Agencies not backed by the full faith and
credit of the U.S. government 44,957 46,382 46,382
Foreign governments 22,481 23,683 23,683
Public utilities 785,024 829,309 829,309
Asset-backed securities 218,992 218,607 218,607
Mortgage-backed securities 2,984,089 2,827,913 2,827,913
All other corporate fixed maturity securities 3,711,282 3,888,247 3,888,247
----------- ---------- -----------
Total fixed maturity securities 7,886,327 7,965,268 7,965,268
----------- ---------- -----------
Equity securities:
Common stocks:
Public utilities 2,285 2,712 2,712
Banks, trusts and insurance companies 50,314 57,806 57,806
Industrial, miscellaneous and all other 187,720 220,342 220,342
Nonredeemable preferred stocks 1,919 2,245 2,245
----------- ---------- -----------
Total equity securities 242,238 283,105 283,105
----------- ---------- -----------
Mortgage loans on real estate 1,263,581 xxxxxx 1,263,581
Real estate (2) -- xxxxxx --
Policy loans 340,362 xxxxxx 340,362
Other investments 245,741 xxxxxx 245,741
Alternative investments 445,213 xxxxxx 470,424
Derivative investments 47,469 xxxxxx 47,469
Fixed maturity securities on loan 58,530 xxxxxx 58,891
Equity securities on loan 15,563 xxxxxx 19,362
----------- -----------
Total 2,416,459 xxxxxx 2,445,830
----------- -----------
Total investments $10,545,024 xxxxxx $10,694,203
=========== ===========
(1) Fair value for common stocks and fixed maturity securities classified as
available-for-sale.
(2) The carrying value of real estate acquired in satisfaction of indebtedness
is $ -0-.
(3) Original cost reduced by impairment write-downs for equity securities and
original cost reduced by repayments and impairment write-downs and adjusted
for amortization of premiums and accrual of discounts for fixed maturity
securities and other investments.
See accompanying report of independent registered public accounting firm.
71
MINNESOTA LIFE INSURANCE COMPANY AND SUBSIDIARIES
SCHEDULE III - SUPPLEMENTARY INSURANCE INFORMATION
(In thousands)
[Enlarge/Download Table]
AS OF DECEMBER 31,
----------------------------------------------------------
FUTURE POLICY
DEFERRED BENEFITS, OTHER POLICY
POLICY LOSSES, CLAIMS CLAIMS AND
ACQUISITION AND SETTLEMENT UNEARNED BENEFITS
SEGMENT COSTS EXPENSES (1) PREMIUMS (2) PAYABLE
------------------- ----------- -------------- ------------ ------------
2009:
Life insurance $ 648,832 $3,262,946 $205,739 $ 281,255
Accident and
health insurance 69,298 719,327 34,163 31,754
Annuity 174,671 4,732,858 16 18
---------- ---------- -------- ----------
$ 892,801 $8,715,131 $239,918 $ 313,027
========== ========== ======== ==========
2008:
Life insurance $ 725,980 $3,081,751 $243,388 $ 259,668
Accident and
health insurance 67,384 735,159 38,549 30,629
Annuity 232,606 4,131,998 79 47
---------- ---------- -------- ----------
$1,025,970 $7,948,908 $282,016 $ 290,344
========== ========== ======== ==========
2007:
Life insurance $ 640,808 $2,992,361 $222,637 $ 232,343
Accident and
health insurance 66,883 727,728 42,345 30,588
Annuity 186,659 3,558,481 76 78
---------- ---------- -------- ----------
$ 894,350 $7,278,570 $265,058 $ 263,009
========== ========== ======== ==========
FOR THE YEARS ENDED DECEMBER 31,
----------------------------------------------------------------------------------
AMORTIZATION
BENEFITS, OF DEFERRED
NET CLAIMS, LOSSES POLICY OTHER
PREMIUM INVESTMENT AND SETTLEMENT ACQUISITION OPERATING PREMIUMS
SEGMENT REVENUE (3) INCOME EXPENSES (5) COSTS EXPENSES WRITTEN (4)
------------------- ----------- ---------- -------------- ------------ --------- -----------
2009:
Life insurance $1,832,341 $ 282,139 $1,669,636 $144,115 $510,582
Accident and
health insurance 156,588 11,438 71,853 21,302 93,189
Annuity 202,600 249,538 319,132 32,088 145,829
---------- ---------- ---------- -------- -------- ---
$2,191,529 $ 543,115 $2,060,621 $197,505 $749,600 $--
========== ========== ========== ======== ======== ===
2008:
Life insurance $1,810,444 $ 307,256 $1,626,544 $173,942 $487,257
Accident and
health insurance 154,952 12,113 65,372 19,657 91,635
Annuity 400,870 209,847 461,486 43,982 154,492
---------- ---------- ---------- -------- -------- ---
$2,366,266 $ 529,216 $2,153,402 $237,581 $733,384 $--
========== ========== ========== ======== ======== ===
2007:
Life insurance $1,646,726 $ 302,117 $1,466,062 $128,940 $466,858 $--
Accident and
health insurance 161,060 12,477 71,695 18,032 91,293 --
Annuity 147,161 207,776 193,856 29,211 137,693 --
---------- ---------- ---------- -------- -------- ---
$1,954,947 $ 522,370 $1,731,613 $176,183 $695,844 $--
========== ========== ========== ======== ======== ===
(1) Includes policy and contract account balances
(2) Includes unearned policy and contract fees
(3) Includes policy and contract fees
(4) Applies only to property and liability insurance
(5) Includes policyholder dividends
See accompanying report of independent registered public accounting firm.
72
MINNESOTA LIFE INSURANCE COMPANY AND SUBSIDIARIES
SCHEDULE IV - REINSURANCE
YEARS ENDED DECEMBER 31, 2009, 2008 AND 2007
(In thousands)
[Enlarge/Download Table]
PERCENTAGE
CEDED TO ASSUMED FROM OF AMOUNT
GROSS OTHER OTHER NET ASSUMED
AMOUNT COMPANIES COMPANIES AMOUNT TO NET
------------ ------------ ------------ ------------ ----------
2009:
Life insurance in force $607,044,078 $113,263,709 $ 1,284,703 $495,065,072 0.3%
============ ============ ============ ============
Premiums:
Life insurance $ 1,236,455 $ 113,070 $ 293,552 $ 1,416,937 20.7%
Accident and health insurance 231,993 83,121 7,716 156,588 4.9%
Annuity 107,564 -- -- 107,564 0.0%
------------ ------------ ------------ ------------
Total premiums $ 1,576,012 $ 196,191 $ 301,268 $ 1,681,089 17.9%
============ ============ ============ ============
2008:
Life insurance in force $551,339,006 $ 87,113,914 $179,254,141 $643,479,233 27.9%
============ ============ ============ ============
Premiums:
Life insurance $ 1,099,198 $ 101,695 $ 416,489 $ 1,413,992 29.5%
Accident and health insurance 227,337 85,493 13,108 154,952 8.5%
Annuity 293,332 -- -- 293,332 0.0%
------------ ------------ ------------ ------------
Total premiums $ 1,619,867 $ 187,188 $ 429,597 $ 1,862,276 23.1%
============ ============ ============ ============
2007:
Life insurance in force $475,804,865 $ 75,404,207 $158,001,860 $558,402,518 28.3%
============ ============ ============ ============
Premiums:
Life insurance $ 965,515 $ 93,133 $ 405,267 $ 1,277,649 31.7%
Accident and health insurance 232,066 85,676 14,666 161,056 9.1%
Annuity 29,286 -- -- 29,286 0.0%
------------ ------------ ------------ ------------
Total premiums $ 1,226,867 $ 178,809 $ 419,933 $ 1,467,991 28.6%
============ ============ ============ ============
See accompanying report of independent registered public accounting firm.
73
PART C: OTHER INFORMATION
[Download Table]
Item Number Caption in Part C
26. Exhibits
27. Directors and Officers of the Minnesota Life Insurance Company
28. Persons Controlled by or Under Common Control with Minnesota Life
Insurance Company or Minnesota Life Variable Universal Life
Account
29. Indemnification
30. Principal Underwriters
31. Location of Accounts and Records
32. Management Services
33. Fee Representation
PART C: OTHER INFORMATION
Item 26. Exhibits
The exhibits to this Registration Statement are listed in the Exhibit Index
hereto and are incorporated herein by reference.
Item 27. Directors and Officers of the Minnesota Life Insurance Company
[Download Table]
Name and Principal Position and Offices
Business Address with Minnesota Life
------------------ --------------------
Brian C. Anderson Second Vice President
Minnesota Life Insurance Company
400 Robert Street North
St. Paul, MN 55101
Eric J. Bentley Second Vice President
Minnesota Life Insurance Company
400 Robert Street North
St. Paul, MN 55101
Mary K. Brainerd Director
HealthPartners
8170 33rd Avenue South
Bloomington, MN 55425
John W. Castro Director
Merrill Corporation
One Merrill Circle
St. Paul, MN 55108
Susan L. Ebertz Vice President -- Group Insurance
Minnesota Life Insurance Company Services
400 Robert Street North
St. Paul, MN 55101
Robert J. Ehren Senior Vice President - Life
Minnesota Life Insurance Company Product Manufacturing
400 Robert Street North
St. Paul, MN 55101
Julio A. Fesser Second Vice President
Minnesota Life Insurance Company
400 Robert Street North
St. Paul, MN 55101
Craig J. Frisvold Vice President - Life
Minnesota Life Insurance Company New Business
400 Robert Street North
St. Paul, MN 55101
Sara H. Gavin Director
Weber Shandwick Minneapolis
8000 Norman Center Drive
Suite 400
Bloomington, MN 55437
John F. Grundhofer Director
U.S. Bancorp
800 Nicollet Mall
Suite 2870
Minneapolis, MN 55402
Thomas A. Gustafson Second Vice President
Minnesota Life Insurance Company
400 Robert Street North
St. Paul, MN 55101
Mark B. Hier Second Vice President
Minnesota Life Insurance Company
400 Robert Street North
St. Paul, MN 55101
Christopher M. Hilger Executive Vice President
Minnesota Life Insurance Company
400 Robert Street North
St. Paul, MN 55101
John H. Hooley Director
4623 McDonald Drive Overlook
Stillwater, MN 55082
[Enlarge/Download Table]
Name and Principal Position and Offices
Business Address with Minnesota Life
------------------ --------------------
Cheryl M. Johnsen Second Vice President
Minnesota Life Insurance Company
400 Robert Street North
St. Paul, MN 55101
Daniel H. Kruse Second Vice President and Actuary
Minnesota Life Insurance Company
400 Robert Street North
St. Paul, NM 55101
David J. LePlavy Vice President, Treasurer and Controller
Minnesota Life Insurance Company
400 Robert Street North
St. Paul, MN 55101
Richard L. Manke Vice President
Minnesota Life Insurance Company
400 Robert Street North
St. Paul, MN 55101
Jean Delaney Nelson Senior Vice President
Minnesota Life Insurance Company
400 Robert Street North
St. Paul, MN 55101
Maria H. O'Phelan Second Vice President
Minnesota Life Insurance Company
400 Robert Street North
St. Paul, MN 55101
Robert M. Olafson Senior Vice President
Minnesota Life Insurance Company
400 Robert Street North
St. Paul, MN 55101
Kathleen L. Pinkett Vice President
Minnesota Life Insurance Company
400 Robert Street North
St. Paul, MN 55101
Dennis E. Prohofsky Director and Secretary
Minnesota Life Insurance Company
400 Robert Street North
St. Paul, MN 55101
Dwayne C. Radel Director, Senior Vice President and General Counsel
Minnesota Life Insurance Company
400 Robert Street North
St. Paul, MN 55101
Trudy A. Rautio Director
Carlson
701 Carlson Parkway
Minnetonka, MN 55305-8215
Robert L. Senkler Chairman, President and Chief
Minnesota Life Insurance Company Executive Officer
400 Robert Street North
St. Paul, MN 55101
Bruce P. Shay Executive Vice President
Minnesota Life Insurance Company
400 Robert Street North
St. Paul, MN 55101
Nancy R. Swanson Second Vice President
Minnesota Life Insurance Company
400 Robert Street North
St. Paul, MN 55101
Stephen R. Thor Second Vice President
Minnesota Life Insurance Company
400 Robert Street North
St. Paul, MN 55101
Randy F. Wallake Director, Executive Vice President
Minnesota Life Insurance Company & Vice Chair
400 Robert Street North
St. Paul, MN 55101
Loyall E. Wilson Second Vice President
Minnesota Life Insurance Company
400 Robert Street North
St. Paul, MN 55101
Nancy L. Winter Second Vice President
Minnesota Life Insurance Company
400 Robert Street North
St. Paul, MN 55101
Warren J. Zaccaro Director, Executive Vice President
Minnesota Life Insurance Company and Chief Financial Officer
400 Robert Street North
St. Paul, MN 55101
Item 28. Persons Controlled by or Under Common Control with Minnesota Life
Insurance Company or Minnesota Life Variable Universal Life Account
Wholly-owned subsidiary of Minnesota Mutual Companies, Inc.:
Securian Holding Company (Delaware)
Wholly-owned subsidiaries of Securian Holding Company:
Securian Financial Group, Inc. (Delaware)
Capitol City Property Management, Inc.
Robert Street Property Management, Inc.
Wholly-owned subsidiaries of Securian Financial Group, Inc.:
Minnesota Life Insurance Company
Securian Financial Network, Inc.
Securian Ventures, Inc.
Advantus Capital Management, Inc.
Securian Financial Services, Inc.
Securian Casualty Company
CNL Financial Corporation (Georgia)
Capital Financial Group, Inc. (Maryland)
H. Beck, Inc. (Maryland)
CFG Insurance Services, Inc. (Maryland)
Ochs, Inc.
Wholly-owned subsidiaries of Minnesota Life Insurance Company:
Personal Finance Company LLC (Delaware)
Enterprise Holding Corporation
Allied Solutions, LLC (Indiana)
Securian Life Insurance Company
Marketview Properties, LLC
Marketview Properties II, Inc.
Wholly-owned subsidiaries of Enterprise Holding Corporation:
Financial Ink Corporation
Oakleaf Service Corporation
Lafayette Litho, Inc.
MIMLIC Funding, Inc.
MCM Funding 1997-1, Inc.
MCM Funding 1998-1, Inc.
Wholly-owned subsidiaries of CNL Financial Corporation:
Cherokee National Life Insurance Company (Georgia)
CNL/Insurance America, Inc. (Georgia)
CNL/Resource Marketing Corporation (Georgia)
Open-end registered investment company offering shares to separate
accounts of Minnesota Life Insurance Company and Securian Life Insurance
Company:
Advantus Series Fund, Inc.
Majority-owned subsidiary of Securian Financial Group, Inc.:
Securian Trust Company, N.A.
Fifty percent-owned subsidiary of Enterprise Holding Corporation:
CRI Securities, LLC
Unless indicated otherwise parenthetically, each of the above corporations is a
Minnesota corporation.
Item 29. Indemnification
The State of Minnesota has an indemnification statute (Minnesota Statutes
300.083), as amended, effective January 1, 1984, which requires indemnification
of individuals only under the circumstances described by the statute. Expenses
incurred in the defense of any action, including attorneys' fees, may be
advanced to the individual after written request by the board of directors upon
receiving an undertaking from the individual to repay any amount advanced unless
it is ultimately determined that he or she is entitled to be indemnified by the
corporation as authorized by the statute and after a determination that the
facts then known to those making the determination would not preclude
indemnification.
Indemnification is required for persons made a part to a proceeding by reason of
their official capacity so long as they acted in good faith, received no
improper personal benefit and have not been indemnified by another organization.
In the case of a criminal proceeding, they must also have had no reasonable
cause to believe the conduct was unlawful. In respect to other acts arising out
of official capacity: (1) where the person is acting directly for the
corporation there must be a reasonable belief by the person that his or her
conduct was in the best interests of the corporation or, (2) where the person is
serving another organization or plan at the request of the corporation, the
person must have reasonably believed that his or her conduct was not opposed to
the best interests of the corporation. In the case of persons not directors,
officers or policy-making employees, determination of eligibility for
indemnification may be made by a board-appointed committee of which a director
is a member. For other employees, directors and officers, the determination of
eligibility is made by the Board or a committee of the Board, special legal
counsel, the shareholder of the corporation or pursuant to a judicial
proceeding.
Insofar as indemnification for liability arising under the Securities Act of
1933 may be permitted to directors, officers and controlling persons of
Minnesota Life Insurance Company and Minnesota Life Variable Universal Life
Account pursuant to the foregoing provisions, or otherwise, Minnesota Life
Insurance Company and Minnesota Life Variable Universal Life Account have been
advised that in the opinion of the Securities and Exchange Commission such
indemnification is against public policy as expressed in the Act and is,
therefore, unenforceable. In the event that a claim for indemnification against
such liabilities (other than the payment by Minnesota Life Insurance Company and
Minnesota Life Variable Universal Life Account of expenses incurred or paid by a
director, officer or controlling person of Minnesota Life Insurance Company and
Minnesota Life Variable Universal Life Account in the successful defense of any
action, suit or proceeding) is asserted by such director, officer of controlling
person in connection with the securities being registered, Minnesota Life
Insurance Company and Minnesota Life Variable Life will, unless in the opinion
of its counsel the matter has been settled by controlling precedent, submit to a
court of appropriate jurisdiction the question whether such indemnification by
it is against public policy as
expressed in the Act and will be governed by the final adjudication of such
issue.
Item 30. Principal Underwriters
(a) Securian Financial Services, Inc. currently acts as a principal
underwriter for the following investment companies:
Variable Fund D
Variable Annuity Account
Minnesota Life Variable Life Account
Minnesota Life Variable Universal Life Account
Securian Life Variable Universal Life Account
Minnesota Life Individual Variable Universal Life Account
(b) Directors and officers of Securian Financial Services, Inc.:
[Download Table]
Positions and
Name and Principal Offices
Business Address with Underwriter
------------------ ----------------
George I. Connolly President, Chief
Securian Financial Services, Inc. Executive Officer and
400 Robert Street North Director
St. Paul, Minnesota 55101
Warren J. Zaccaro Director
Minnesota Life
Insurance Company
400 Robert Street North
St. Paul, Minnesota 55101
Dwayne C. Radel Director
Minnesota Life
Insurance Company
400 Robert Street North
St. Paul, Minnesota 55101
Richard A. Diehl Vice President and
Securian Financial Services, Inc. Chief Investment Officer
400 Robert Street North
St. Paul, Minnesota 55101
Scott C. Thorson Vice President - Business Operations
Securian Financial Services, Inc. and Treasurer
400 Robert Street North
St. Paul, Minnesota 55101
[Download Table]
Positions and
Name and Principal Offices
Business Address with Underwriter
------------------ ----------------
Loyall E. Wilson Senior Vice President, Chief
Securian Financial Services, Inc. Compliance Officer and
400 Robert Street North Secretary
St. Paul, Minnesota 55101
Suzanne M. Chochrek Vice President - Business
Securian Financial Services, Inc. and Market Development
400 Robert Street North
St. Paul, Minnesota 55101
(c) All commissions and other compensation received by each principal
underwriter, directly or indirectly, from the Registrant during the Registrant's
last fiscal year:
[Download Table]
Name of Net Underwriting Compensation on
Principal Discounts and Redemption or Brokerage Other
Underwriter Commissions Annuitization Commissions Compensation
----------- ---------------- --------------- ----------- ------------
Securian Financial,
Services Inc. $ 465,264 -- -- --
Item 31. Location of Accounts and Records
The accounts, books and other documents required to be maintained by Section
31(a) of the 1940 Act and the Rules promulgated thereunder are in the physical
possession of Minnesota Life Insurance Company, St. Paul, Minnesota 55101.
Item 32. Management Services
None.
Item 33. Fee Representation
Minnesota Life Insurance Company hereby represents that, as to the variable life
insurance policies which are the subject of this Registration Statement, File
No. 33-85496, the fees and charges deducted under the Policy, in the
aggregate, are reasonable in relation to the services rendered, the expenses
expected to be incurred and the risks assumed by Minnesota Life Insurance
Company.
SIGNATURES
Pursuant to the requirements of the Securities Act of 1933 and the Investment
Company Act of 1940, the Registrant, Minnesota Life Variable Universal Life
Account, certifies that it meets all of the requirements for effectiveness of
this Registration Statement pursuant to Rule 485(b) under the Securities Act
of 1933 and has duly caused this Post-Effective Amendment to the Registration
Statement to be signed on its behalf by the undersigned, thereunto duly
authorized, in the City of Saint Paul, and State of Minnesota, on the 26th day
of August, 2010.
MINNESOTA LIFE VARIABLE UNIVERSAL LIFE ACCOUNT
(Registrant)
By: MINNESOTA LIFE INSURANCE COMPANY
(Depositor)
By /s/ Robert L. Senkler
-------------------------------------------
Robert L. Senkler
Chairman of the Board,
President and Chief Executive Officer
Pursuant to the requirements of the Securities Act of 1933, the Registration
Statement has been signed below by the following persons in their capacities
with the Depositor and on the date indicated.
[Download Table]
Signature Title Date
--------- ----- ----
/s/ Robert L. Senkler August 26, 2010
---------------------------
Robert L. Senkler Chairman, President and
Chief Executive Officer
* Director
---------------------------
Mary K. Brainerd
* Director
---------------------------
John W. Castro
[Download Table]
Signature Title Date
--------- ----- ----
*
--------------------------- Director
Sara H. Gavin
* Director
---------------------------
John F. Grundhofer
* Director
---------------------------
John H. Hooley
* Director
---------------------------
Dennis E. Prohofsky
* Director
---------------------------
Dwayne C. Radel
* Director
---------------------------
Trudy A. Rautio
* Director
---------------------------
Randy F. Wallake
* Director
---------------------------
Warren J. Zaccaro
/s/ Warren J. Zaccaro
--------------------------- Executive Vice President August 26, 2010
Warren J. Zaccaro and Chief Financial Officer
(chief financial officer)
/s/ Warren J. Zaccaro
--------------------------- Executive Vice President August 26, 2010
Warren J. Zaccaro and Chief Financial Officer
(chief accounting officer)
/s/ David J. LePlavy
--------------------------- Vice President, Treasurer August 26, 2010
David J. LePlavy and Controller (treasurer)
/s/ Dwayne C. Radel
--------------------------- Attorney-in-Fact August 26, 2010
Dwayne C. Radel
* Pursuant to power of attorney dated April 12, 2010, a copy of which is
filed herewith.
EXHIBIT INDEX
[Download Table]
Exhibit Number Description of Exhibit
-------------- ----------------------
26(a) Resolution of the Board of Trustees of The Minnesota Mutual
Life Insurance Company dated August 8, 1994, filed on
March 3, 1997 as Exhibit A(1) to the Registrant's Form S-6,
File Number 33-85496, Post-Effective Amendment Number 2, is
hereby incorporated by reference.
26(b) Not Applicable.
26(c)(1) The Amended and Restated Distribution Agreement between
Minnesota Life Insurance Company and Securian Financial
Services, Inc., filed on April 27, 2009, as Exhibit
24(c)(3) to Variable Annuity Account's Form N-4, File
Number 2-97564, Post-Effective Amendment Number 28, is
hereby incorporated by reference.
26(c)(2) Agent Sales Agreement, filed on March 3, 1997 as
Exhibit A(3)(b) to the Registrant's Form S-6, File Number
33-85496, Post-Effective Amendment Number 2, is hereby
incorporated by reference.
26(d)(1) Group Variable Universal Life Policy, form MHC-94-18660 Rev.
5-2001, filed on April 24, 2002 as Exhibit A(5)(a) to the
Registrant's Form S-6, File Number 33-85496, Post-Effective
Amendment Number 9, is hereby incorporated by reference.
26(d)(2) Group Variable Universal Life Policy Certificate, Level
Death Benefit, form MHC-94-18661 Rev. 5-2001, filed
on April 24, 2002 as Exhibit A(5)(b) to the Registrant's
Form S-6, File Number 33-85496, Post-Effective Amendment
Number 9, is hereby incorporated by reference.
26(d)(3) Group Variable Universal Life Policy Certificate, Variable
Death Benefit, form MHC-94-18662 Rev. 5-2001, filed on
April 27, 2009 as Exhibit 26(d)(3) to the Registrant's
Form S-6, File Number 33-85496, Post-Effective Amendment
Number 20, is hereby incorporated by reference.
26(d)(4) Special Rider for use with Group Policy, form MHC-94-18672
Rev. 1-95, filed on March 4, 1999 as Exhibit A(5)(d) to the
Registrant's Form S-6, File Number 33-85496, Post-Effective
Amendment Number 4, is hereby incorporated by reference.
26(d)(5) Spouse Coverage for use with Group Policy Certificate, Level
Death Benefit, form MHC-94-18670 Rev. 5-2001, filed
on April 24, 2002 as Exhibit A(5)(e) to the Registrant's
Form S-6, File Number 33-85496, Post-Effective Amendment
Number 9, is hereby incorporated by reference.
26(d)(6) Spouse Coverage for use with Group Policy Certificate,
Variable Death Benefit, form MHC-94-18671 Rev. 5-2001, filed
on April 24, 2002 as Exhibit A(5)(f) to the Registrant's
Form S-6, File Number 33-85496, Post-Effective Amendment
Number 9, is hereby incorporated by reference.
26(d)(7) Waiver Agreement, Certificate Supplement, for use with Group
Policy, form MHC-94-18676 filed on March 4, 1999 as
Exhibit A(5)(g) to
[Download Table]
Exhibit Number Description of Exhibit
-------------- ----------------------
Registrant's Form S-6, File Number 33-85496, Post-Effective
Amendment Number 4, is hereby incorporated by reference.
26(d)(8) Children's Rider, Certificate Supplement, for use with Group
Policy, form MHC-94-18679 filed on March 4, 1999 as
Exhibit A(5)(h)to Registrant's Form S-6, File Number
33-85496, Post-Effective Amendment Number 4, is hereby
incorporated by reference.
26(d)(9) Accidental Death and Dismemberment Rider, Certificate
Supplement, for use with Group Policy, form MHC-94-18680
filed on March 4, 1999 as Exhibit A(5)(i) to Registrant's
Form S-6, File Number 33-85496, Post-Effective Amendment
Number 4, is hereby incorporated by reference.
26(d)(10) Accelerated Benefits Agreement, for use with Group Policy,
form MHC-94-18677 filed on March 13, 2000 as Exhibit A(5)(j)
to Registrant's Form S-6, File Number 33-85496,
Post-Effective Amendment Number 6, is hereby incorporated by
reference.
26(d)(11) Accelerated Benefits, Certificate Supplement, for use with
Group Policy, form MHC-94-18678 filed on March 13, 2000 as
Exhibit A(5)(k) to Registrant's Form S-6, File Number
33-85496, Post-Effective Amendment Number 6, is hereby
incorporated by reference.
26(d)(12) Policy Rider - Children's Benefit, for use with Group
Policy, form MHC-94-18681 filed on March 4, 1999 as
Exhibit A(5)(l) to Registrant's Form S-6, File Number
33-85496, Post-Effective Amendment Number 4, is hereby
incorporated by reference.
26(d)(13) Policy Rider - Accidental Death and Dismemberment, for use
with Group Policy, form MHC-94-18682 filed on March 4, 1999
as Exhibit A(5)(m) to Registrant's Form S-6, File Number
33-85496, Post-Effective Amendment Number 4, is hereby
incorporated by reference.
26(d)(14) Policy Rider - Waiver of Premium, for use with Group Policy,
form MHC-94-18683 filed on March 13, 2000 as Exhibit A(5)(n)
to Registrant's Form S-6, File Number 33-85496,
Post-Effective Amendment Number 6, is hereby incorporated by
reference.
26(d)(15) Individual Variable Universal Life Policy, Level Death
Benefit, form MHC-94-18665 Rev. 5-2001, filed on April 24,
2002 as Exhibit A(5)(o) to the Registrant's Form S-6, File
Number 33-85496, Post-Effective Amendment Number 9, is
hereby incorporated by reference.
26(d)(16) Individual Variable Universal Life Policy, Variable Death
Benefit, form MHC-94-18673 Rev. 5-2001, filed on April 24,
2002 as Exhibit A(5)(p) to the Registrant's Form S-6, File
Number 33-85496, Post-Effective Amendment Number 9, is
hereby incorporated by reference.
26(d)(17) Individual Policy Rider - Accelerated Benefits Agreement,
for use with the Individual Policy, form MHC-94-18686 filed
on March 4, 1999 as Exhibit A(5)(q) to Registrant's Form
S-6, File Number 33-85496, Post-Effective Amendment Number
4, is hereby incorporated by reference.
26(d)(18) Individual Policy Rider - Accidental Death and Dismemberment
Benefit, for use with the Individual Policy, form
MHC-94-18687 filed on March 4, 1999 as Exhibit A(5)(r) to
Registrant's Form S-6, File
[Download Table]
Exhibit Number Description of Exhibit
-------------- ----------------------
Number 33-85496, Post-Effective Amendment Number 4, is
hereby incorporated by reference.
26(d)(19) Individual Policy Rider - Waiver Agreement, for use with the
Individual Policy, form MHC-94-18688 filed on March 4, 1999
as Exhibit A(5)(s) to Registrant's Form S-6, File Number
33-85496, Post-Effective Amendment Number 4, is hereby
incorporated by reference.
26(d)(20) Individual Policy Rider - Children's Benefit, for use with
the Individual Policy, form MHC-94-18689 filed on March 4,
1999 as Exhibit A(5)(t) to Registrant's Form S-6, File
Number 33-85496, Post-Effective Amendment Number 4, is
hereby incorporated by reference.
26(d)(21) Policyholder Contribution Rider, for use with the Group
Policy, form MHC-96-18701 filed on March 4, 1999 as
Exhibit A(5)(u) to Registrant's Form S-6, File Number
33-85496, Post-Effective Amendment Number 4, is hereby
incorporated by reference.
26(d)(22) Policyholder Contribution Certificate Supplement, for use
with the Group Policy, form MHC-96-18702 filed on March 4,
1999 as Exhibit A(5)(v) to Registrant's Form S-6, File
Number 33-85496, Post-Effective Amendment Number 4, is
hereby incorporated by reference.
26(d)(23) Spouse and Child Term Life Insurance Policy Rider, for use
with the Group Policy, form MHC-96-18703 filed on March 4,
1999 as Exhibit A(5)(w) to Registrant's Form S-6, File
Number 33-85496, Post-Effective Amendment Number 4, is
hereby incorporated by reference.
26(d)(24) Spouse and Child Term Life Insurance Certificate Supplement,
for use with the Group Policy, form MHC-96-18704 filed
on March 4, 1999 as Exhibit A(5)(x) to Registrant's Form
S-6, File Number 33-85496, Post-Effective Amendment Number
4, is hereby incorporated by reference.
26(d)(25) Group Variable Universal Life Guaranteed Account Amendment,
for use with the Group Policy, form 00-30133 filed
on February 27, 2001 as Exhibit A(5)(y) to Registrant's Form
S-6, File Number 33-85496, Post-Effective Amendment Number
7, is hereby incorporated by reference.
26(d)(26) Group Variable Universal Life Guaranteed Account
Endorsement, for use with the Group Policy, form 00-30134
filed on February 27, 2001 as Exhibit A(5)(z) to
Registrant's Form S-6, File Number 33-85496, Post-Effective
Amendment Number 7, is hereby incorporated by reference.
26(d)(27) Group Variable Universal Life Partial Surrender Amendment,
for use with the Group Policy, form 00-30158 filed on
February 27, 2001 as Exhibit A(5)(aa) to Registrant's Form
S-6, File Number 33-85496, Post-Effective Amendment Number
7, is hereby incorporated by reference.
26(d)(28) Group Variable Universal Life Partial Surrender Endorsement,
for use with the Group Policy, form 00-30159 filed on
February 27, 2001 as Exhibit A(5)(bb) to Registrant's Form
S-6, File Number 33-85496, Post-Effective Amendment Number
7, is hereby incorporated by reference.
[Enlarge/Download Table]
Exhibit Number Description of Exhibit
-------------- ----------------------
26(d)(29) Variable Universal Life Guaranteed Account Amendment, form
01-30390, filed on April 24, 2002 as Exhibit A(5)(cc) to the
Registrant's Form S-6, File Number 33-85496, Post-Effective
Amendment Number 9, is hereby incorporated by reference.
26(d)(30) Variable Universal Life Partial Surrender Amendment, form
01-30391, filed on April 24, 2002 as Exhibit A(5)(dd) to the
Registrant's Form S-6, File Number 33-85496, Post-Effective
Amendment Number 9, is hereby incorporated by reference.
26(d)(31) Spouse/Domestic Partner Coverage Rider, form 07-30969, filed
on February 29, 2008 as Exhibit 26(d)(31) to the
Registrant's Form N-6, File Number 33-85496, Post-Effective
Amendment Number 18, is hereby incorporated by reference.
26(d)(32) Certificate of Insurance Spouse/Domestic Partner Coverage,
form 07-30970, filed on February 29, 2008 as Exhibit
26(d)(32) to the Registrant's Form N-6, File Number
33-85496, Post-Effective Amendment Number 18, is hereby
incorporated by reference.
26(d)(33) Policy Rider Waiver Agreement, form 07-30971, filed on
February 29, 2008 as Exhibit 26(d)(33) to the Registrant's
Form N-6, File Number 33-85496, Post-Effective Amendment
Number 18, is hereby incorporated by reference.
26(d)(34) Certificate Supplement - Waiver Agreement, form 07-30972,
filed on February 29, 2008 as Exhibit 26(d)(34) to the
Registrant's Form N-6, File Number 33-85496, Post-Effective
Amendment Number 18, is hereby incorporated by reference.
26(d)(35) Spouse and Child Term Life Insurance Policy Rider, form
07-30960, filed on February 29, 2008 as Exhibit 26(d)(35)
to the Registrant's Form N-6, File Number 33-85496,
Post-Effective Amendment Number 18, is hereby incorporated
by reference.
26(d)(36) Spouse and Child Term Life Insurance Certificate Supplement,
form 07-30961, filed on February 29, 2008 as Exhibit
26(d)(36) to the Registrant's Form N-6, File Number
33-85496, Post-Effective Amendment Number 18, is hereby
incorporated by reference.
26(d)(37) Policy Rider Accidental Death and Dismemberment Benefit,
form 07-30962, filed on February 29, 2008 as Exhibit
26(d)(37) to the Registrant's Form N-6, File Number
33-85496, Post-Effective Amendment Number 18, is hereby
incorporated by reference.
26(d)(38) Certificate Supplement Accidental Death and Dismemberment
Benefit, form 07-30963, filed on February 29, 2008 as
Exhibit 26(d)(38) to the Registrant's Form N-6, File
Number 33-85496, Post-Effective Amendment Number 18, is
hereby incorporated by reference.
26(d)(39) Group Policy Amendment, form 08-31041, filed on April 27,
2009 as Exhibit 26(d)(39) to the Registrant's Form S-6,
File Number 33-85496, Post-Effective Amendment Number 20,
is hereby incorporated by reference.
26(d)(40) Certificate Endorsement, form 08-31042, filed on April 27,
2009 as Exhibit 26(d)(40) to the Registrant's Form S-6,
File Number 33-85496, Post-Effective Amendment Number 20,
is hereby incorporated by reference.
26(d)(41) 2001 CSO Tables, form 08-31049, filed on April 27, 2009 as
Exhibit 26(d)(41) to the Registrant's Form S-6, File Number
33-85496, Post-Effective Amendment Number 20, is hereby
incorporated by reference.
26(d)(42) Group Insurance Policy, form 08-31055, filed on April 27,
2009 as Exhibit 26(d)(42) to the Registrant's Form S-6, File
Number 33-85496, Post-Effective Amendment Number 20, is hereby
incorporated by reference.
26(d)(43) Certificate of Insurance - Level Death Benefit, form 08-31056,
filed on April 27, 2009 as Exhibit 26(d)(43) to the Registrant's
Form S-6, File Number 33-85496, Post-Effective Amendment
Number 20, is hereby incorporated by reference.
26(d)(44) Certificate of Insurance - Variable Death Benefit, form 08-31057,
filed on April 27, 2009 as Exhibit 26(d)(44) to the Registrant's
Form S-6, File Number 33-85496, Post-Effective Amendment Number
20, is hereby incorporated by reference.
26(d)(45) Certificate of Insurance [Spouse] Coverage - Level Death Benefit,
form 08-31058, filed on April 27, 2009 as Exhibit 26(d)(45) to the
Registrant's Form S-6, File Number 33-85496, Post-Effective
Amendment Number 20, is hereby incorporated by reference.
26(d)(46) Certificate of Insurance [Spouse] Coverage - Variable Death Benefit,
form 08-31059, filed on April 27, 2009 as Exhibit 26(d)(46) to the
Registrant's Form S-6, File Number 33-85496, Post-Effective Amendment
Number 20, is hereby incorporated by reference.
26(d)(47) Group Insurance Policy, form 08-31065, filed on April 27, 2009 as
Exhibit 26(d)(47) to the Registrant's Form S-6, File Number
33-85496, Post-Effective Amendment Number 20, is hereby incorporated
by reference.
26(d)(48) Certificate of Insurance - Level Death Benefit, form 08-31066, filed
on April 27, 2009 as Exhibit 26(d)(48) to the Registrant's Form S-6,
File Number 33-85496, Post-Effective Amendment Number 20, is hereby
incorporated by reference.
26(d)(49) Certificate of Insurance - Variable Death Benefit, form 08-31067,
filed on April 27, 2009 as Exhibit 26(d)(49) to the Registrant's
Form S-6, File Number 33-85496, Post-Effective Amendment Number 20,
is hereby incorporated by reference.
26(d)(50) Certificate of Insurance [Spouse] Coverage - Level Death Benefit, form
08-31068, filed on April 27, 2009 as Exhibit 26(d)(50) to the
Registrant's Form S-6, File Number 33-85496, Post-Effective Amendment
Number 20, is hereby incorporated by reference.
26(d)(51) Certificate of Insurance [Spouse] Coverage - Variable Death Benefit,
form 08-31069, filed on April 27, 2009 as Exhibit 26(d)(51) to the
Registrant's Form S-6, File Number 33-85496, Post-Effective Amendment
Number 20, is hereby incorporated by reference.
26(d)(52) Group Policy Amendment, form 08-31017, filed on April 27, 2009 as
Exhibit 26(d)(52) to the Registrant's Form S-6, File Number 33-85496,
Post-Effective Amendment Number 20, is hereby incorporated by reference.
26(d)(53) Certificate Endorsement, form 08-31018, filed on April 27, 2009 as
Exhibit 26(d)(53) to the Registrant's Form S-6, File Number 33-85496,
Post-Effective Amendment Number 20, is hereby incorporated by reference.
26(d)(54) Group Life Insurance Evidence of Insurability, form 03-30567, filed on
April 27, 2009 as Exhibit 26(d)(54) to the Registrant's Form S-6, File
Number 33-85496, Post-Effective Amendment Number 20, is hereby
incorporated by reference.
26(e)(1) Group Variable Universal Life Policy Application, form
MHC-94-18663 Rev. 2-96, filed on March 4, 1999 as
Exhibit A(10)(a)(i) to Registrant's Form S-6, File Number
33-85496, Post-Effective Amendment Number 4, is hereby
incorporated by reference.
26(e)(2) Group Variable Universal Life Policy, Individual Enrollment,
form 00-30198, filed on February 27, 2001 as Exhibit
A(10)(a)(ii)to Registrant's Form S-6, File Number 33-85496,
Post-Effective Amendment Number 7, is hereby incorporated by
reference.
26(e)(3) Group Variable Universal Life Policy, Evidence of
Insurability form, form MHC-94-18669, filed on March 4, 1999
as Exhibit A(10)(a)(v) to Registrant's Form S-6, File Number
33-85496, Post-Effective Amendment Number 4, is hereby
incorporated by reference.
26(e)(4) Group Variable Universal Life Policy, Spouse Enrollment,
form 00-30242, filed on February 27, 2001 as Exhibit
A(10)(a)(iv)to Registrant's Form S-6, File Number 33-85496,
Post-Effective Amendment Number 7, is hereby incorporated by
reference.
26(e)(5) Variable Universal Life Employee Application, form 01-30392,
filed on April 24, 2002 as Exhibit A(10)(a)(v)to
Registrant's Form S-6, File Number 33-85496, Post-Effective
Amendment Number 9, is hereby incorporated by reference.
26(e)(6) Variable Universal Life Spouse Application, form 01-30393,
filed on April 24, 2002 as Exhibit A(10)(a)(vi)to
Registrant's Form S-6, File Number 33-85496, Post-Effective
Amendment Number 9, is hereby incorporated by reference.
26(e)(7) Variable Group Universal Life Employee Application, form
08-31007, filed on April 27, 2009 as Exhibit 26(e)(7) to
the Registrant's Form S-6, File Number 33-85496, Post-Effective
Amendment Number 20, is hereby incorporated by reference.
26(e)(8) Variable Group Universal Life Spouse Application, form
08-31008, filed on April 27, 2009 as Exhibit 26(e)(8) to
the Registrant's Form S-6, File Number 33-85496, Post-Effective
Amendment Number 20, is hereby incorporated by reference.
26(f)(1) Restated Certificate of Incorporation of the Depositor filed
on March 4, 1999 as Exhibit A(6)(a) to Registrant's Form
S-6, File Number 33-85496, Post-Effective Amendment Number
4, is hereby incorporated by reference.
26(f)(2) Bylaws of the Depositor filed on November 23, 2004 as
Exhibit 26(f)(2) to Minnesota Life Variable Life Account's
Form N-6, File Number 333-120704, Initial Registration
Statement, is hereby incorporated by reference.
26(g) Automatic Reinsurance Agreement between Minnesota Life
Insurance Company and Swiss Re Life & Health America Inc.
filed on September 9, 2003 as Exhibit 27(g) to Registrant's
Form N-6, File Number 33-85496, Post-Effective Amendment
Number 12, is hereby incorporated by reference.
26(h)(1)(i) Participation Agreement among Advantus Series Fund, Inc.,
Advantus Capital Management, Inc. and Minnesota Life
Insurance Company, filed on September 7, 2007 as Exhibit
23(h)(3) to Advantus Series Fund, Inc.'s Form N-1A, File Number
2-96990, Post-Effective Amendment Number 35, is hereby
incorporated by reference.
[Download Table]
Exhibit Number Description of Exhibit
-------------- ----------------------
26(h)(1)(ii) Shareholder Information Agreement between Advantus Series
Fund, Inc. and Minnesota Life Insurance Company, filed on
April 20, 2007 as Exhibit 26(h)(1)(iv) to Registrant's Form N-6,
File Number 33-85496. Post-Effective Amendment Number 17, is hereby
incorporated by reference.
26(h)(2)(i) Fund Participation Agreement between Janus Aspen Series,
Janus Distributors, Inc. and Minnesota Life Insurance
Company, filed on February 27, 2003 as Exhibit 27(h)(2)(i)
to Registrant's Form N-6, File Number 33-85496,
Post-Effective Amendment Number 10, is hereby incorporated
by reference.
26(h)(2)(ii) Addendum Dated May 1, 2000 to Fund Participation Agreement
between Janus Aspen Series, Janus Distributors, Inc. and
Minnesota Life Insurance Company, filed on February 27, 2003
as Exhibit 27(h)(2)(ii) to Registrant's Form N-6, File
Number 33-85496, Post-Effective Amendment Number 10, is
hereby incorporated by reference.
26(h)(2)(iii) Amendment to Fund Participation Agreement between Janus
Aspen Series, Janus Distributors, Inc. and Minnesota Life
Insurance Company, filed on February 27, 2003 as Exhibit
27(h)(2)(iii) to Registrant's Form N-6, File Number
33-85496, Post-Effective Amendment Number 10, is hereby
incorporated by reference.
26(h)(2)(iv) Amendment Dated December 1, 2002 to Fund Participation
Agreement between Janus Aspen Series, Janus Distributors,
Inc. and Minnesota Life Insurance Company, filed on February
27, 2003 as Exhibit 27(h)(2)(iv) to Registrant's Form N-6,
File Number 33-85496, Post-Effective Amendment Number 10, is
hereby incorporated by reference.
26(h)(2)(v) Amendment Dated March 1, 2004 to Fund Participation
Agreement between Janus Aspen Series, Janus Distributors LLC
and Minnesota Life Insurance Company, filed on April 22,
2005 as Exhibit 26(h)(2)(v) to Registrant's Form N-6, File
Number 33-85496, Post-Effective Amendment Number 14, is
hereby incorporated by reference.
26(h)(2)(vi) Amendment dated May 1, 2005 to the Fund Participation
Agreement between Janus Aspen Series, Janus Distributors LLC
and Minnesota Life Insurance Company, previously filed as
Exhibit 26(h)(2)(vi) to Minnesota Life Variable Life
Account's Form N-6, File Number 33-64395, Post-Effective
Amendment Number 13, on April 21, 2006, is hereby
incorporated by reference.
26(h)(2)(vii) Amendment Number Two to the Fund Participation Agreement
between Janus Aspen Series, Janus Distributors LLC and
Minnesota Life Insurance Company, filed on December 20, 2006
as Exhibit 24(c)(d)(vi) to Variable Annuity Account's Form
N-4, File Number 333-136242, Pre-Effective Amendment Number
2, is hereby incorporated by reference.
26(h)(2)(viii) Rule 22c-2 Shareholder Information Agreement between Janus
Capital Management, LLC, Janus Services LLC, Janus
Distributors LLC, Janus Aspen Series and Minnesota Life
Insurance Company, filed on April 20, 2007 as Exhibit
26(h)(2)(viii) to Registrant's Form N-6, File Number
33-85496, Post-Effective Amendment Number 17, is hereby
incorporated by reference.
26(h)(3)(i) Amended and Restated Participation Agreement among Variable
Insurance Products Fund, Fidelity Distributors Corporation
and Minnesota Life Insurance Company, filed on April 20, 2007 as
Exhibit 26(h)(3) to Registrant's Form N-6, File Number 33-85496,
Post-Effective Amendment Number 17, is hereby incorporated by
reference.
26(h)(3)(ii) First Amendement to Amended and Restated Participation
Agreement among Minnesota Life Insurance Company, Fidelity
Distributors Corporation, Variable Insurance Products Fund,
Variable Insurance Products Fund II, Variable Insurance Products
Fund III and Variable Insurance Products Fund IV, previously filed
on December 14, 2007 as exhibit 26(h)(4)(ii) to Minnesota Life
Individual Variable Universal Life Account's Form N-6, File Number
333-144604, Pre-Effective Amendment Number 1, is hereby incorporated
by reference.
[Download Table]
Exhibit Number Description of Exhibit
-------------- ----------------------
26(h)(4) Fund Shareholder Services Agreement between Minnesota Life
Insurance Company and Ascend Financial Services, Inc.,
filed on February 27, 2003 as Exhibit 27(h)(6) to
Registrant's Form N-6, File Number 33-85496, Post-Effective
Amendment Number 10, is hereby incorporated by reference.
26(h)(5)(i) Waddell & Reed Target Funds, Inc. Participation Agreement,
previously filed on February 19, 2004 as exhibit 27(h)(15)
to Minnesota Life Variable Life Account's Form N-6, File
Number 333-109853, Pre-Effective Amendment Number 1, is
hereby incorporated by reference.
26(h)(5)(ii) Amendment Number One to the Target Funds Participation
Agreement among Minnesota Life Insurance Company, Waddell &
Reed, Inc. and W&R Target Funds, Inc., previously filed as
Exhibit 26(h)(15)(ii) to Minnesota Life Variable Life
Account's Form N-6, File Number 33-64395, Post-Effective
Amendment Number 13, on April 21, 2006, is hereby
incorporated by reference.
26(h)(5)(iii) Shareholder Information Agreement among Ivy Funds
Distributor, Inc., Waddell & Reed, Inc. and Minnesota Life
Insurance Company, filed on April 20, 2007 as Exhibit
26(h)(5)(iii) to Registrant's Form N-6, File Number 33-85496,
Post-Effective Amendment Number 17, is hereby incorporated by
reference.
26(h)(5)(iv) Second Amendment to the Target Funds Participation
Agreement among Minnesota Life Insurance Company,
Waddell & Reed, Inc. and W&R Target Funds, Inc., filed
on February 27, 2009 as Exhibit 24(c)(8)(n)(ii) to
Variable Annuity Account's Form N-4, File Number
333-136242, Post-Effective Amendment Number 6, is hereby
incorporated by reference.
26(h)(6)(i) Participation Agreement between Lord Abbett Distributor
LLC and Minnesota Life Insurance Company filed on April 27,
2004 as Exhibit 27(h)(8) to Registrant's Form N-6, File
Number 33-85496, Post-Effective Amendment Number 13, is
hereby incorporated by reference.
26(h)(6)(ii) Rule 22c-2 Agreement between Lord Abbett Distributor LLC and
Minnesota Life Insurance Company, filed on April 20, 2007 as Exhibit
26(h)(6)(ii) to Registrant's Form N-6, File Number 33-85496,
Post-Effective Amendment Number 17, is hereby incorporated by
reference.
26(h)(7)(i) Participation Agreement among Van Eck Worldwide Insurance
Trust, Van Eck Securities Corporation, Van Eck
Associations Corporation and Minnesota Life Insurance
Company, filed on February 29, 2008 as Exhibit 26(h)(7)(i)
to the Registrant's Form N-6, File Number 33-85496,
Post-Effective Amendment Number 18, is hereby incorporated
by reference.
26(h)(7)(ii) Van Eck Shareholder Information Agreement between Minnesota
Life Insurance Company and Van Eck Securities Corporation, filed
on April 20, 2007 as Exhibit 26(h)(7)(ii) to Registrant's Form
N-6, File Number 33-85496, Post-Effective Amendment Number 17,
is hereby incorporated by reference.
26(h)(8) Participation Agreement among Pioneer Variable Contracts Trust,
Minnesota Life Insurance Company, Pioneer Investment Management,
Inc. and Pioneer Funds Distributor, Inc.
26(i)(1) Investment Accounting Agreement between Securian Financial
Group, Inc. and State Street Bank and Trust Company,
previously filed on February 26, 2003 as Exhibit 24(c)8(q)
to Variable Annuity Account's Form N-4, File Number
333-91784, Post-Effective Amendment Number 1, is hereby
incorporated by reference.
26(i)(2) Administration Agreement between Securian Financial Group,
Inc. and State Street Bank and Trust Company, previously
filed on February 26, 2003 as Exhibit 24(c)8(r) to Variable
Annuity Account's Form N-4, File Number 333-91784,
Post-Effective Amendment Number 1, is hereby incorporated by
reference.
26(j) Not Applicable.
26(k) Opinion and consent of Ted Schmelzle, Esq.
26(l) Actuarial opinion of Brian C. Anderson, FSA.
26(m) Calculations, filed on April 28, 2010 as Exhibit 26(l) to
Registrant's Form N-6, File Number 33-85496, Post-Effective
Number 21, is hereby incorporated by reference.
26(n) Consent of KPMG LLP.
26(o) Not Applicable.
26(p) Not Applicable.
26(q) Redeemability exemption, filed on April 20, 2007 as Exhibit
26(q) to Registrant's Form N-6, File Number 33-85496,
Post-Effective Amendment Number 17, is hereby incorporated by
reference.
26(r) Minnesota Life Insurance Company - Power of Attorney to Sign
Registration Statements.
Dates Referenced Herein and Documents Incorporated by Reference
5 Subsequent Filings that Reference this Filing
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