Document/Exhibit Description Pages Size
1: 485BPOS Post-Effective Amendment to Registration Statement 268 1.51M
2: EX-99.26(H)(1)(IV) Shareholder Information Agreement 6 30K
3: EX-99.26(H)(2)(VIII) Rule 22C-2 Shareholder Information 5 26K
Agreement
4: EX-99.26(H)(3) Amended and Restated Participation Agreement 34 139K
5: EX-99.26(H)(5)(III) Shareholder Information 6 29K
6: EX-99.26(H)(6)(II) Rule 22C-2 Agreement 3 18K
7: EX-99.26(H)(7)(II) Van Eck Shareholder Information Agreement 5 26K
8: EX-99.26(K) Opinion and Consent of Donald F. Gruber, Esq. 2± 11K
9: EX-99.26(L) Actuarial Opinion of Brian C. Anderson, Fsa 1 10K
10: EX-99.26(M) Calculation 2 10K
11: EX-99.26(N) Consent of Kpmg LLP 1 7K
12: EX-99.26(Q) Redeemability Exemption 16 60K
13: EX-99.26(R) Power of Attorney 2 16K
485BPOS — Post-Effective Amendment to Registration Statement
Document Table of Contents
File Number 33-85496
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 17 X
and/or
REGISTRATION STATEMENT UNDER THE INVESTMENT COMPANY ACT OF 1940
Amendment Number 8 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
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 May 1, 2007 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, W&R Target Funds, Inc., Lord Abbett Series Fund, Inc.
and Van Eck Worldwide Insurance 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
PROSPECTUS
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.
Subject to the limitations in the group policy, the certificate and 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 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"), Janus Aspen Series and W&R Target
Funds, Inc. (collectively the "Funds"). The Funds offer their shares exclusively
to variable insurance products and certain qualified plans and have 21
portfolios which are available for contracts offered under this prospectus (the
"Portfolios"). They are:
[Download Table]
SERIES FUND JANUS ASPEN SERIES
- Bond Portfolio - Janus Aspen Series Forty
- Index 400 Mid-Cap Portfolio Portfolio--Service Shares
- Index 500 Portfolio - Janus Aspen Series International
- International Bond Portfolio Growth Portfolio--Service Shares
- Maturing Government Bond 2010 W&R TARGET FUNDS, INC.
Portfolio (target maturity of 2010) - W&R Balanced Portfolio
- Money Market Portfolio - W&R Core Equity Portfolio
- Mortgage Securities Portfolio - W&R Growth Portfolio
- Real Estate Securities Portfolio - W&R International Value Portfolio
FIDELITY(R) VIP - W&R Micro Cap Growth Portfolio
- VIP Contrafund(R) Portfolio: Initial - W&R Small Cap Growth Portfolio
Class Shares - W&R Small Cap Value Portfolio
- VIP Equity-Income Portfolio: Initial - W&R Value Portfolio
Class Shares
- VIP High Income 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 May
1, 2007.
[Download Table]
Minnesota Life Insurance Company
400 Robert Street North (Minnesota Life Logo)
St. Paul, Minnesota 55101-2098
TABLE OF CONTENTS
[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......................... 13
Voting Rights................................................. 13
The Guaranteed Account........................................ 14
Summary Information........................................... 14
Guaranteed Account Value................................. 15
Charges............................................................ 15
Premium Expense Charges....................................... 15
Sales Charge............................................. 15
Premium Tax Charge....................................... 16
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................ 19
Applications and Issuance..................................... 19
Dollar Cost Averaging......................................... 19
Free Look..................................................... 20
Continuation of Group Coverage................................ 20
Conversion Right to an Individual Policy...................... 20
General Provisions of the Group Contract...................... 21
Issuance................................................. 21
Termination.............................................. 21
Right to Examine Group Contract.......................... 21
Entire Group Contract.................................... 21
Ownership of Group Contract and Group Contract Changes... 21
Certificate Premiums............................................... 22
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......................................... 24
Increases................................................ 24
Decreases................................................ 24
Payment of Death Benefit Proceeds............................. 24
Account Values................................................ 25
Determination of the Guaranteed Account Value............ 25
Determination of the Separate Account Value.............. 25
Unit Value............................................... 26
Net Investment Factor.................................... 26
Daily Values............................................. 26
i
[Download Table]
Page
Surrenders, Partial Surrenders and Transfers....................... 27
Transfers..................................................... 27
Market Timing............................................ 28
Guaranteed Account Transfer Restrictions................. 29
Other Transfer Information............................... 29
Loans.............................................................. 30
Loan Interest................................................. 31
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.............................................. 33
Spouse Rider............................................. 33
Policyholder Contribution Rider.......................... 33
General Matters Relating to the Certificate................... 33
Postponement of Payments................................. 33
The Certificate.......................................... 33
Control of Certificate................................... 34
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
Owner Control................................................. 36
Diversification of Investments................................ 37
Tax Treatment of Policy Benefits.............................. 37
Modified Endowment Contracts.................................. 37
Multiple Policies............................................. 38
Withholding................................................... 38
Other Transactions............................................ 39
Other Taxes................................................... 39
Non-Individual Owners and Business Beneficiaries of
Policies............................................... 39
Split-Dollar Arrangements..................................... 39
Alternative Minimum Tax....................................... 39
Economic Growth and Tax Relief Reconciliation Act of
2001................................................... 40
Distribution of Certificates....................................... 41
Payments Made by Underlying Mutual Funds...................... 41
Other Matters...................................................... 42
Legal Proceedings............................................. 42
Registration Statement........................................ 42
Financial Statements.......................................... 43
Statement of Additional Information................................ 43
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 and
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 assess 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).
An adjustable benefit 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 variable
investment options invest in a separate account. The separate account we use for
our group contracts is called the Minnesota Life Variable Universal Life
Account. The separate account keeps its assets separate from the other assets of
Minnesota Life. The separate account has sub-accounts, each of which invests in
corresponding Portfolios 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
3
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 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 twenty-one 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:
Bond Portfolio
Index 400 Mid-Cap Portfolio
Index 500 Portfolio
International Bond Portfolio
Maturing Government Bond 2010
Portfolio
Money Market Portfolio
Mortgage Securities Portfolio
Real Estate Securities Portfolio
Fidelity(R) VIP Portfolios include:
Fidelity(R) VIP Contrafund Portfolio: Initial
Class Shares
Fidelity(R) VIP Equity-Income Portfolio:
Initial Class Shares
Fidelity(R) VIP High Income Portfolio:
Initial Class Shares
Janus Aspen Series Portfolios include:
Janus Aspen Series Forty
Portfolio--Service Shares
Janus Aspen Series International Growth
Portfolio--Service Shares
W&R Target Funds Portfolios include:
W&R Target Funds, Inc.--Balanced
Portfolio
W&R Target Funds, Inc.--Core
Equity Portfolio
W&R Target Funds, Inc.--Growth
Portfolio
W&R Target Funds, Inc.--
International Value Portfolio
W&R Target Funds, Inc.--Micro
Cap Growth Portfolio
W&R Target Funds, Inc.--Small
Cap Growth Portfolio
W&R Target Funds, Inc.--Small
Cap Value Portfolio
W&R Target Funds, Inc.--Value
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.
4
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. 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 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?
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.
The tax treatment described above relating to distributions is available
only for certificates not described as "modified endowment contracts." For
federal income tax purposes, certificates described 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, 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
5
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 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 an owner will pay
when buying, owning and surrendering the certificate. The first table describes
the fees and expenses that the owner will pay at the time that he or she 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 Partial
Surrender Amount+
Maximum Transfer Fee................ Upon Each Transfer+++ $10+++
-------
* 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 reflects the cost to Minnesota Life of amortizing
certain acquisition expenses rather than deducting such expenses on a
current basis. 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.
++ For certificates considered to be individual 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 transfer fee. 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
[Enlarge/Download Table]
Charge When Charge is Deducted Amount Deducted
------ ----------------------------- -----------------------------
COST OF INSURANCE CHARGE(1)
MAXIMUM & MINIMUM CHARGE... On the Certificate Date and Maximum: $32.01 Per Month Per
Each Subsequent Monthly $1,000 of Coverage
Anniversary
Minimum: $0.03 Per Month Per
$1,000 of Coverage
CHARGE FOR A 45 YEAR OLD
NON-SMOKING
CERTIFICATEHOLDER.......... On the Certificate Date and Representative $0.11 Per
Each Subsequent Monthly Month Per $1,000 of Coverage
Anniversary
MORTALITY AND EXPENSE RISK
CHARGE(2).................. Each day a sub-account is Maximum: 0.50 percent of
priced average daily assets of the
separate account per year
MONTHLY ADMINISTRATION
CHARGE..................... On the Certificate Date and Maximum: $4 Per Month(3)
Each Subsequent Monthly
Anniversary
LOAN INTEREST SPREAD......... Each Monthly Anniversary 2 percent of Policy Loan Per
Year(4)
ACCIDENTAL DEATH AND
DISMEMBERMENT CHARGE(5)...... On the Certificate Date and Maximum: $0.10 Per Month Per
Each Subsequent Monthly $1,000 of Coverage
Anniversary
WAIVER OF PREMIUM CHARGE(5).. On the Certificate Date and Maximum: 50 percent of the
Each Subsequent Monthly Cost 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 Coverage
Anniversary
SPOUSE RIDER CHARGE(1)(5)
MAXIMUM & MINIMUM CHARGE... On the Certificate Date and Maximum: $32.01 Per Month Per
Each Subsequent Monthly $1,000 of Coverage
Anniversary
Minimum: $0.03 Per Month Per
$1,000 of Coverage
CHARGE FOR A 45 YEAR OLD
NON-SMOKING
CERTIFICATEHOLDER.......... On the Certificate Date and Representative: $0.11 Per
Each Subsequent Monthly Month Per $1,000 of Coverage
Anniversary
-------
(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 contracts.
(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.
8
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, 2006.
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% 2.88%
-------
* The Range of Total Annual Portfolio Operating Expenses presented in this table
does not reflect any fee waivers or expense reductions. For more detailed
information about the fee and expense charges, fee waivers (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. Such registration does not signify that the
Securities and Exchange Commission supervises the management, or the investment
practices or policies, of the separate account. The separate account meets the
definition of a "separate account" under the federal securities laws.
We are the legal owner of the assets in the separate account. The
obligations to 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 twenty-one 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(R) VIP, Janus Aspen Series 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.
10
Below is a list of the Portfolios and their
adviser or sub-adviser.
[Download Table]
Investment
Fund/Portfolio Investment Adviser Sub-Adviser
-------------- ------------------------------ --------------
SERIES FUND:
Bond Portfolio............. Advantus Capital Management,
Inc.
Index 400 Mid-Cap Advantus Capital Management,
Portfolio................ Inc.
Index 500 Portfolio........ Advantus Capital Management,
Inc.
International Bond Advantus Capital Management, Augustus Asset
Portfolio................ Inc. Managers
Limited
Maturing Government Bond Advantus Capital Management,
2010 Portfolio........... Inc.
Money Market Portfolio..... Advantus Capital Management,
Inc.
Mortgage Securities Advantus Capital Management,
Portfolio................ Inc.
Real Estate Securities Advantus Capital Management,
Portfolio................ Inc.
FIDELITY(R) VIP:
Contrafund(R) Portfolio:
Initial Class Shares..... Fidelity Management & Research FMR Co., Inc.,
(Seeks long-term Company Fidelity
capital appreciation.) 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 & Research FMR Co., Inc.,
(Seeks reasonable Company Fidelity
income. The fund will Management &
also consider the Research
potential for capital (U.K.) Inc.,
appreciation. The Fidelity
fund's goal is to Research &
achieve a yield which Analysis
exceeds the composite Company,
yield on the Fidelity
securities comprising Investments
the Standard & Poor's Japan Limited,
500(SM) Index (S&P Fidelity
500(R)).) International
Investment
Advisors,
Fidelity
International
Investment
Advisors
(U.K.) Limited
High Income Portfolio:
Initial Class Shares..... Fidelity Management & Research FMR Co., Inc.,
(Seeks a high level of Company Fidelity
current income, Management &
while also considering Research
growth of capital.) (U.K.) Inc.,
Fidelity
Research &
Analysis
Company,
Fidelity
Investments
Japan Limited,
Fidelity
International
Investment
Advisors,
Fidelity
International
Investment
Advisors
(U.K.) Limited
JANUS ASPEN SERIES:
Forty Portfolio--Service Janus Capital Management LLC
Shares...................
(Seeks long-term
growth of capital.)
International Growth
Portfolio-- Service Janus Capital Management LLC
Shares...................
(Seeks long-term
growth of capital.)
11
[Download Table]
Investment
Fund/Portfolio Investment Adviser Sub-Adviser
-------------- ------------------------------ --------------
W&R TARGET FUNDS, INC.:
W&R Balanced Portfolio..... Waddell & Reed Investment
(Seeks, as a primary Management Company
objective, to
provide current income
to the extent
that, in the opinion
of Waddell & 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.)
W&R Core Equity Portfolio.. Waddell & Reed Investment
(Seeks capital growth Management Company
and income.)
W&R Growth Portfolio....... Waddell & Reed Investment
(Seeks capital growth, Management Company
with current
income as a secondary
objective.)
W&R International Value Waddell & Reed Investment Templeton
Portfolio................ Management Company Investment
Counsel, LLC
W&R Micro Cap Growth Waddell & Reed Investment Wall Street
Portfolio................ Management Company Associates
W&R Small Cap Growth Waddell & Reed Investment
Portfolio................ Management Company
W&R Small Cap Value Waddell & Reed Investment BlackRock
Portfolio................ Management Company Capital
Management,
Inc.
W&R Value Portfolio........ Waddell & Reed Investment
(Seeks long-term Management Company
capital appreciation.)
12
ADDITIONS, DELETIONS OR SUBSTITUTIONS
We reserve the right to add, combine or remove any sub-accounts of the
Variable Universal Life Account when permitted by law. Each additional sub-
account will purchase shares in a new portfolio or mutual fund. New sub-accounts
may be established when, in our sole discretion, marketing, tax, investment or
other conditions warrant such action. We will use similar considerations should
there be a determination to eliminate one or more of the sub-accounts of the
separate account. Any new investment option will be made available to existing
owners on whatever basis we may determine.
We retain the right, subject to any applicable law, to make substitutions
with respect to the investments of the sub-accounts of the separate account. If
investment in a Portfolio of the Funds should no longer be possible or if we
determine it becomes inappropriate for 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 de-register 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
13
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 in
writing prior to the meeting in accordance with procedures established by the
Funds. We will vote shares of the Funds held by the separate account as to which
no instructions are received in proportion to the voting instructions which are
received from certificate owners with respect to all certificates participating
in the separate account. Each owner having a voting interest will receive proxy
material, reports and other material relating to the Funds.
We may, when required by state insurance regulatory authorities, disregard
voting instructions if the instructions require that shares be voted so as to
cause a change in sub-classification or investment policies of the Funds or
approve or disapprove an investment advisory contract of the Funds. In addition,
we may disregard voting instructions in favor of changes in the investment
policies or the investment adviser of one or more of the Funds if we reasonably
disapprove of such changes. A change would be disapproved only if the proposed
change is contrary to state law or disapproved by state regulatory authorities
on a determination that the change would be detrimental to the interests of
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
14
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 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).
15
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 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
16
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. These guaranteed rates are
125 percent of the maximum rates that could be charged based on 1980
Commissioners Standard Ordinary Mortality Tables ("1980 CSO Table"). The
guaranteed rates are higher than 100 percent of the 1980 CSO Table because we
may use a simplified underwriting approach and may issue 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.)
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
17
"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. However, no charges shall be
assessed other than those described in the fee tables herein.
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.
18
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 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
19
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.
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, 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 are true 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 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. 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.
20
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.
21
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 month's
deductions. 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 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.
22
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. 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
23
- 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.
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
24
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 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 "General
Matters Relating to the Certificate" 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
25
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
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 per share of a share held by the Funds in the sub-
account of the separate account determined at the end of the current
valuation period; plus
- the per share amount of any dividend or capital gains distribution by the
Funds if the "ex-dividend" date occurs during the current valuation period;
with the sum divided by
- the net asset value per share of the share of the Funds held in the sub-
account determined at the end of the preceding valuation period.
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. Any such charges will be subject
to the maximums described in this prospectus.
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.
26
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 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 on a settlement
option. A surrender or partial surrender may have federal income tax
consequences. (See "Federal Tax Status".)
A partial surrender of the net cash value of the 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 a 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-
27
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 contract 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 contract 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 contract 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 contract 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 contract 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 one or more contract owners is or would be
to the disadvantage of other contract owners. Any new restriction that we would
impose will apply to your contract 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 contract. 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
28
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 contract will be permanent.
None of these limitations apply to transfers under systematic transfer
programs such as Dollar Cost Averaging.
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 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 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, 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.
29
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 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.
30
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.
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.
31
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.
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
32
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 only: (a) for any period during which the New York Stock
Exchange is closed for trading (except for normal holiday closing); or (b) when
the Securities and Exchange Commission has determined that a state of emergency
exists which may make such payment impractical.
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
33
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 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.
34
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.
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.
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
35
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.
OWNER CONTROL
In certain circumstances, owners of variable life insurance contracts may
be considered for federal income tax purposes to be the owners of the assets of
the separate account supporting their contracts due to their ability to exercise
control over those assets. Where this is the case, the contract owners 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 Revenue Ruling 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 adviser in its sole and
absolute discretion.
The Internal Revenue Service has further amplified and clarified its
position in Revenue Ruling 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 Revenue Ruling 2003-91 and that
the ownership rights of a certificate owner under the policy 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.
36
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.
DIVERSIFICATION OF INVESTMENTS
In addition, the Code requires that the investments of the Variable
Universal Life Account be "adequately diversified" in order to treat the
certificate as a life insurance contract for federal income tax purposes. We
intend that the Variable Universal Life Account, through the Funds and the
Portfolios, will satisfy these diversification requirements.
The following discussion assumes that the 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 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
37
account value immediately before the distribution exceeds the investment in the
certificate). This tax treatment includes a 10 percent additional income 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.
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 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.
38
OTHER TRANSACTIONS
The certificate may be used in various arrangements, including non-
qualified deferred compensation or salary continuance plans, split dollar
insurance plans, executive bonus plans, retiree medical benefit plans and
others. The tax consequences of such plans may vary depending on the particular
facts and circumstances of each individual arrangement. Therefore, if you are
contemplating the use of a 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. Moreover, in
recent years, Congress has adopted new rules relating to corporate owned life
insurance. The Pension Protection Act of 2006 added a new section to the Code
that denies the tax-free treatment of death benefits payable under an employer-
owned life insurance contract unless certain notice and consent requirements are
met 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 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. Any business contemplating the purchase of a policy on the
life of an employee should consult with its legal and tax advisors regarding the
applicability of the new legislation to the proposed purchase.
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.
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.
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
39
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, 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 2007, the maximum estate tax rate is 45% and the estate tax
exemption is $2,000,000.
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.
40
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 National Association of Securities
Dealers, Inc. 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 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
41
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.
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.
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 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
42
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.
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, NW,
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
Investment Company Act Number 811-8830
43
PROSPECTUS
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.
Subject to the limitations in the group policy, the certificate and 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 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 30 portfolios which are available for contracts offered
under this prospectus (the "Portfolios"). They are:
[Download Table]
FIDELITY(R) VIP - VIP Growth & Income Portfolio:
- VIP Aggressive Growth Portfolio: Initial Class Shares
Initial Class Shares - VIP Growth Opportunities Portfolio:
- VIP Asset Manager(SM) Portfolio: Initial Class Shares
Initial Class Shares - VIP Growth Stock Portfolio: Initial
- VIP Asset Manager: Growth(R) Class Shares
Portfolio: Initial Class Shares - VIP High Income Portfolio: Initial
- VIP Balanced Portfolio: Initial Class Class Shares
Shares - VIP Index 500 Portfolio: Initial
- VIP Contrafund(R) Portfolio: Initial Class Shares
Class Shares - VIP International Capital
- VIP Disciplined Small Cap Portfolio: Appreciation Portfolio: Initial Class
Initial Class Shares Shares
- VIP Dynamic Capital Appreciation - VIP Investment Grade Bond Portfolio:
Portfolio: Initial Class Shares Initial Class Shares
- VIP Equity-Income Portfolio: Initial - VIP Mid Cap Portfolio: Initial Class
Class Shares Shares
- VIP Freedom Income Portfolio: Initial - VIP Money Market Portfolio: Initial
Class Shares Class Shares
- VIP Freedom 2010 Portfolio: Initial - VIP Overseas Portfolio: Initial Class
Class Shares Shares
- VIP Freedom 2015 Portfolio: Initial - VIP Real Estate Portfolio: Initial
Class Shares Class Shares
- VIP Freedom 2020 Portfolio: Initial - VIP Strategic Income Portfolio:
Class Shares Initial Class Shares
- VIP Freedom 2025 Portfolio: Initial - VIP Value Portfolio: Initial Class
Class Shares Shares
- VIP Freedom 2030 Portfolio: Initial - VIP Value Leaders Portfolio: Initial
Class Shares Class Shares
- VIP Growth Portfolio: Initial Class - VIP Value Strategies Portfolio:
Shares 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 May
1, 2007.
[Download Table]
Minnesota Life Insurance Company
400 Robert Street North
St. Paul, Minnesota 55101-2098 [MINNESOTA LIFE LOGO]
TABLE OF CONTENTS
[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......................... 13
Voting Rights................................................. 14
The Guaranteed Account........................................ 14
Summary Information........................................... 15
Guaranteed Account Value................................. 15
Charges............................................................ 16
Premium Expense Charges....................................... 16
Sales Charge............................................. 16
Premium Tax Charge....................................... 16
OBRA Expense Charge...................................... 16
Account Value Charges......................................... 17
Monthly Deduction........................................ 17
Partial Surrender Charge................................. 18
Transfer Charge.......................................... 18
Additional Benefits Charges.............................. 18
Separate Account Charges...................................... 18
Fund Charges.................................................. 19
Guarantee of Certain Charges.................................. 19
Information about the Group Policy and Certificates................ 19
Applications and Issuance..................................... 19
Dollar Cost Averaging......................................... 19
Free Look..................................................... 20
Continuation of Group Coverage................................ 20
Conversion Right to an Individual Policy...................... 21
General Provisions of the Group Contract...................... 21
Issuance................................................. 21
Termination.............................................. 21
Right to Examine Group Contract.......................... 21
Entire Group Contract.................................... 21
Ownership of Group Contract and Group Contract Changes... 22
Certificate Premiums............................................... 22
Premium Limitations........................................... 22
Allocation of Net Premiums and Account Value.................. 23
Death Benefit and Account Values................................... 23
Option A -- Level Death Benefit............................... 24
Option B -- Increasing Death Benefit.......................... 24
Change in Face Amount......................................... 24
Increases................................................ 24
Decreases................................................ 24
Payment of Death Benefit Proceeds............................. 24
Account Values................................................ 25
Determination of the Guaranteed Account Value............ 25
Determination of the Separate Account Value.............. 26
Unit Value............................................... 26
Net Investment Factor.................................... 26
Daily Values............................................. 27
i
[Download Table]
Page
Surrenders, Partial Surrenders and Transfers....................... 27
Transfers..................................................... 28
Market Timing............................................ 28
Guaranteed Account Transfer Restrictions................. 29
Other Transfer Information............................... 29
Loans.............................................................. 30
Loan Interest................................................. 31
Loan Repayments............................................... 31
Lapse and Reinstatement............................................ 32
Lapse......................................................... 32
Reinstatement................................................. 32
Additional Benefits........................................... 32
Accelerated Benefits Rider............................... 33
Waiver of Premium Rider.................................. 33
Accidental Death and Dismemberment Rider................. 33
Child Rider.............................................. 33
Spouse Rider............................................. 33
Policyholder Contribution Rider.......................... 33
General Matters Relating to the Certificate................... 33
Postponement of Payments................................. 33
The Certificate.......................................... 34
Control of Certificate................................... 34
Maturity................................................. 34
Beneficiary.............................................. 34
Change of Beneficiary.................................... 34
Settlement Options....................................... 35
Federal Tax Status................................................. 36
Introduction.................................................. 36
Taxation of Minnesota Life and the Variable Universal Life
Account..................................................... 36
Tax Status of Certificates.................................... 36
Owner Control................................................. 36
Diversification of Investments................................ 37
Tax Treatment of Policy Benefits.............................. 37
Modified Endowment Contracts.................................. 38
Multiple Policies............................................. 39
Withholding................................................... 39
Other Transactions............................................ 39
Other Taxes................................................... 39
Non-Individual Owners and Business Beneficiaries of
Policies............................................... 39
Split-Dollar Arrangements..................................... 39
Alternative Minimum Tax....................................... 40
Economic Growth and Tax Relief Reconciliation Act of
2001................................................... 40
Distribution of Certificates....................................... 41
Payments Made by Underlying Mutual Funds...................... 41
Other Matters...................................................... 42
Legal Proceedings............................................. 42
Registration Statement........................................ 42
Financial Statements.......................................... 43
Statement of Additional Information................................ 43
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 and
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 assess 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).
An adjustable benefit 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 variable
investment options invest in a separate account. The separate account we use for
our group contracts is called the Minnesota Life Variable Universal Life
Account. The separate account keeps its assets separate from the other assets of
Minnesota Life. The separate account has sub-accounts, each of which invests in
corresponding Portfolios 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
3
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 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 30 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:
VIP Aggressive Growth Portfolio: Initial
Class Shares
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 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 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 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
4
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
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 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. 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 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?
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.
Tax treatment described above relating to distributions is available only
for certificates not described as "modified endowment contracts." For federal
income tax purposes, certificates described 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, 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.
5
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 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 an owner will pay
when buying, owning and surrendering the certificate. The first table describes
the fees and expenses that the owner will pay at the time that he or she 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 Partial
Surrender Amount+
Maximum Transfer Fee............. Upon Each Transfer+++ $10+++
-------
* 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 reflects the cost to Minnesota Life of amortizing
certain acquisition expenses rather than deducting such expenses on a
current basis. 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.
++ For certificates considered to be individual 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 transfer fee. 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
[Enlarge/Download Table]
Charge When Charge is Deducted Amount Deducted
------ ----------------------------- -----------------------------
COST OF INSURANCE CHARGE(1)
MAXIMUM & MINIMUM CHARGE... On the Certificate Date and Maximum: $32.01 Per Month Per
Each Subsequent Monthly $1,000 of Coverage
Anniversary
Minimum: $0.03 Per Month Per
$1,000 of Coverage
CHARGE FOR A 45 YEAR OLD Representative $0.11 Per
NON-SMOKING Month Per $1,000 of Coverage
CERTIFICATEHOLDER.......... On the Certificate Date and
Each Subsequent Monthly
Anniversary
MORTALITY AND EXPENSE RISK Maximum: 0.50 percent of
CHARGE(2).................. Each day a sub-account is average daily assets of the
priced separate account per year
MONTHLY ADMINISTRATION Maximum: $4 Per Month(3)
CHARGE..................... On the Certificate Date and
Each Subsequent Monthly
Anniversary
LOAN INTEREST SPREAD......... Each Monthly Anniversary 2 percent of Policy Loan Per
Year(4)
ACCIDENTAL DEATH AND Maximum: $0.10 Per Month Per
DISMEMBERMENT CHARGE(5)...... On the Certificate Date and $1,000 of Coverage
Each Subsequent Monthly
Anniversary
WAIVER OF PREMIUM CHARGE(5).. On the Certificate Date and Maximum: 50 percent of the
Each Subsequent Monthly Cost 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 Coverage
Anniversary
SPOUSE RIDER CHARGE(1)(5)
MAXIMUM & MINIMUM CHARGE... On the Certificate Date and Maximum: $32.01 Per Month Per
Each Subsequent Monthly $1,000 of Coverage
Anniversary
Minimum: $0.03 Per Month Per
$1000 of Coverage
CHARGE FOR A 45 YEAR OLD Representative: $0.11 Per
NON-SMOKING Month Per $1,000 of Coverage
CERTIFICATEHOLDER.......... On the Certificate Date and
Each Subsequent Monthly
Anniversary
-------
(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 contracts.
(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.
8
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, 2006. 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)*
[Download Table]
Fee Description Minimum Maximum
--------------- ------- -------
Total Annual Portfolio Operating Expenses................. 0.10% 1.00%
-------
* The Range of Total Annual Portfolio Operating Expenses presented in this table
does not reflect any fee waivers or expense reductions. For more detailed
information about the fee and expense charges, fee waivers (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. Such registration does not signify that the
Securities and Exchange Commission supervises the management, or the investment
practices or policies, of the separate account. The separate account meets the
definition of a "separate account" under the federal securities laws.
We are the legal owner of the assets in the separate account. The
obligations to 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 30 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.
[Download Table]
Investment Investment Sub-
Fund/Portfolio Adviser* Adviser*
-------------- ---------------- ---------------
FIDELITY(R) VARIABLE INSURANCE PRODUCTS
FUNDS:
Aggressive Growth Portfolio: Initial
Class Shares......................... FMR FMR U.K., FRAC,
FIIA,
(Seeks capital appreciation.) FIIA(U.K.)L,
FIJ, FMRC
Asset Manager(SM) Portfolio: Initial FMR
Class Shares......................... FMR U.K., FRAC,
FIIA,
(Seeks to obtain high total return
with reduced FIIA(U.K.)L,
FIJ, FMRC,
risk over the long term by
allocating its assets FIMM
among stocks, bonds, and short-
term instruments.)
Asset Manager: Growth(R)Portfolio: FMR
Initial Class Shares................. FMR U.K., FRAC,
FIIA,
(Seeks to maximize total return by
allocating its FIIA(U.K.)L,
FIJ, FMRC,
assets among stocks, bonds, short-
term FIMM
instruments, and other
investments.)
Balanced Portfolio: Initial Class FMR
Shares............................... 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 FMR
Shares............................... FMR U.K., FRAC,
FIIA,
(Seeks long-term capital
appreciation.) FIIA(U.K.)L,
FIJ, FMRC
Disciplined Small Cap Portfolio: FMR
Initial Class Shares................. FMRC, Geode
(Seeks capital appreciation.)
Dynamic Capital Appreciation Portfolio: FMR
Initial Class Shares................. FMR U.K., FRAC,
FIIA,
(Seeks capital appreciation.) FIIA(U.K.)L,
FIJ, FMRC
Equity-Income Portfolio: Initial Class FMR
Shares............................... FMR U.K., FRAC,
FIIA,
(Seeks reasonable income. The fund
will also FIIA(U.K.)L,
FIJ, FMRC
consider the potential 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 FMR, Strategic
Shares............................... Advisers
(Seeks high total return with a
secondary objective of principal
preservation.)
Freedom 2010 Portfolio: Initial Class
Shares............................... FMR, 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............................... FMR, 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............................... FMR, Strategic
Advisers
(Seeks high total return with a
secondary objective of principal
preservation as the fund
approaches its target date and
beyond.)
11
[Download Table]
Investment Investment Sub-
Fund/Portfolio Adviser* Adviser*
-------------- ---------------- ---------------
Freedom 2025 Portfolio: Initial Class
Shares............................... FMR, 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............................... FMR, Strategic
Advisers
(Seeks high total return with a
secondary objective of principal
preservation as the fund
approaches its target date and
beyond.)
Growth Portfolio: Initial Class FMR
Shares............................... FMR U.K., FRAC,
FIIA,
(Seeks to achieve capital
appreciation.) FIIA(U.K.)L,
FIJ, FMRC
Growth & Income Portfolio: Initial FMR
Class Shares......................... 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 FMR
Class Shares......................... FMR U.K., FRAC,
FIIA,
(Seeks to provide capital growth.) FIIA(U.K.)L,
FIJ, FMRC
Growth Stock Portfolio: Initial Class FMR
Shares............................... FMR U.K., FRAC,
FIIA,
(Seeks capital appreciation.) FIIA(U.K.)L,
FIJ, FMRC
High Income Portfolio: Initial Class FMR
Shares............................... FMR U.K., FRAC,
FIIA,
(Seeks a high level of current
income, while also FIIA(U.K.)L,
FIJ, FMRC,
considering growth of capital.)
Index 500 Portfolio: Initial Class FMR
Shares............................... FMRC, Geode
International Capital Appreciation
Portfolio: Initial Class Shares...... FMR FMRC, FRAC, FMR
(Seeks capital appreciation.) U.K., FIIA,
FIAA(U.K.)L,
FIJ
Investment Grade Bond Portfolio: FMR
Initial Class Shares................. FRAC, FIIA,
FIIA(U.K.)L,
FIMM
Mid Cap Portfolio: Initial Class
Shares............................... FMR FMR U.K., FRAC,
FIIA,
FIIA(U.K.)L,
FIJ, FMRC,
Money Market Portfolio: Initial Class
Shares............................... FMR FRAC, FIIA,
FIIA(U.K.)L,
FIMM
Overseas Portfolio: Initial Class
Shares............................... FMR FMR U.K., FRAC,
FIIA,
FIIA(U.K.)L,
FIJ, FMRC
Real Estate Portfolio: Initial Class
Shares............................... FMR FMR U.K., FRAC,
FIIA,
FIIA(U.K.)L,
FIJ, FMRC
Strategic Income Portfolio: Initial
Class Portfolio...................... FMR FMR U.K., FRAC,
FIIA,
(Seeks a high level of current
income. The fund FIIA(U.K.)L,
FIJ, FMRC,
may also seek capital
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
(Seeks capital appreciation.) U.K., 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
-------
* 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
12
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")
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 de-register 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.
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
13
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 in writing 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. Each owner having a voting interest will receive proxy
material, reports and other material relating to the Fund.
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 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.
14
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.
15
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 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
16
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.
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
17
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. These guaranteed rates are
125 percent of the maximum rates that could be charged based on 1980
Commissioners Standard Ordinary Mortality Tables ("1980 CSO Table"). The
guaranteed rates are higher than 100 percent of the 1980 CSO Table because we
may use a simplified underwriting approach and may issue policies that do not
require medical evidence of insurability. The current cost of insurance rates
are generally lower than 100 percent of the 1980 CSO Table. (For purposes of
premiums under Section 7702 of the Internal Revenue Code of 1986, as amended, we
will use 100 percent of the 1980 CSO Table.)
PARTIAL SURRENDER 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. However, no charges shall be
assessed other than those described in the fee tables herein.
18
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.
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
19
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 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.
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, 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 are true 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 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.
20
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. 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 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.
21
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 month's
deductions. 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
22
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 (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. 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.
23
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.
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
24
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 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 "General
Matters Relating to the Certificate" 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
25
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
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 per share of a share held by the Fund 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
Fund if the "ex-dividend" date occurs during the current valuation period;
with the sum divided by
- the net asset value per share of the share of the Fund 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
26
premiums for premium taxes and federal taxes. Any such charges will be subject
to the maximums described in this prospectus.
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.
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 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 on a settlement
option. A surrender or partial surrender may have federal income tax
consequences. (See "Federal Tax Status".)
A partial surrender of the net cash value of the 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 a 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
27
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 contract 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 contract 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 contract 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 contract 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 contract 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 one or more contract owners is or would be
to the disadvantage of other contract owners. Any new restriction that we would
impose will apply to your contract
28
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 contract. 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 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 contract will be permanent.
None of these limitations apply to transfers under systematic transfer
programs such as Dollar Cost Averaging.
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 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 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.
29
A transfer is subject to a transaction charge. Currently, no such charge is
imposed on a transfer, but a charge, up to a maximum of $10, may be imposed in
the future.
The owner's instructions for transfer may be made in writing or the owner,
or a person authorized by the owner, may make such changes by telephone. To do
so, the owner may call us at 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
30
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 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
31
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.
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
32
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
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 only: (a) for any
period during which the New York Stock Exchange is closed for trading (except
for normal holiday closing); or (b) when the Securities and Exchange Commission
has determined
33
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.
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,
34
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.
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.
35
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.
OWNER CONTROL
In certain circumstances, owners of variable life insurance contracts may
be considered for federal income tax purposes to be the owners of the assets of
the separate account supporting their contracts due to their ability to exercise
control over those assets. Where this is the case, the contract owners 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
36
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 Revenue Ruling 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 adviser in its sole and
absolute discretion.
The Internal Revenue Service has further amplified and clarified its
position in Revenue Ruling 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 Revenue Ruling 2003-91 and that
the ownership rights of a certificate owner under the policy 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.
DIVERSIFICATION OF INVESTMENTS
In addition, the Code requires that the investments of the Variable
Universal Life Account be "adequately diversified" in order to treat the
certificate as a life insurance contract for federal income tax purposes. We
intend that the Variable Universal Life Account, through the Funds and the
Portfolios, will satisfy these diversification requirements.
The following discussion assumes that the 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
37
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 additional income 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.
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
38
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.
OTHER TRANSACTIONS
The certificate may be used in various arrangements, including non-
qualified deferred compensation or salary continuance plans, split dollar
insurance plans, executive bonus plans, retiree medical benefit plans and
others. The tax consequences of such plans may vary depending on the particular
facts and circumstances of each individual arrangement. Therefore, if you are
contemplating the use of a 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. Moreover, in
recent years, Congress has adopted new rules relating to corporate owned life
insurance. The Pension Protection Act of 2006 added a new section to the Code
that denies the tax-free treatment of death benefits payable under an employer-
owned life insurance contract unless certain notice and consent requirements are
met 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 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. Any business contemplating the purchase of a policy on the
life of an employee should consult with its legal and tax advisors regarding the
applicability of the new legislation to the proposed purchase.
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.
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
39
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.
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, 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 2007, the maximum estate tax rate is 45% and the estate tax
exemption is $2,000,000.
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.
40
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 National Association of Securities
Dealers, Inc. 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 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
41
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.
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.
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 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
42
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.
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
Investment Company Act Number 811-8830
43
PROSPECTUS
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.
Subject to the limitations in the group policy, the certificate and 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 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"), Lord Abbett Series Fund, Inc.
("Lord Abbett"), Van Eck Worldwide Insurance Trust ("Van Eck") and W&R Target
Funds, Inc. (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:
[Download Table]
SERIES FUND LORD ABBETT
- Bond Portfolio - Mid-Cap Value Portfolio
- Index 400 Mid-Cap Portfolio
- Index 500 Portfolio VAN ECK
- Maturing Government Bond 2010 - Worldwide Hard Assets
Portfolio (target maturity of 2010) Portfolio--Initial Class (available
- Money Market Portfolio July 1, 2007)
- Mortgage Securities Portfolio
- Real Estate Securities Portfolio W&R TARGET FUNDS, INC.
- Science and Technology Portfolio
(available July 1, 2007)
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 May
1, 2007.
Minnesota Life Insurance Company
400 Robert Street North
St. Paul, Minnesota 55101-2098
(Minnesota Life Logo)
TABLE OF CONTENTS
[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............................................... 8
Minnesota Life Insurance Company.............................. 8
Minnesota Life Variable Universal Life Account................ 8
Additions, Deletions or Substitutions......................... 9
Voting Rights................................................. 10
The Guaranteed Account........................................ 11
Summary Information........................................... 11
Guaranteed Account Value................................. 11
Charges............................................................ 12
Premium Expense Charges....................................... 12
Sales Charge............................................. 12
Premium Tax Charge....................................... 12
OBRA Expense Charge...................................... 12
Account Value Charges......................................... 13
Monthly Deduction........................................ 13
Partial Surrender Charge................................. 14
Transfer Charge.......................................... 14
Additional Benefits Charges.............................. 14
Separate Account Charges...................................... 14
Fund Charges.................................................. 14
Guarantee of Certain Charges.................................. 15
Information about the Group Policy and Certificates................ 15
Applications and Issuance..................................... 15
Dollar Cost Averaging......................................... 15
Free Look..................................................... 16
Continuation of Group Coverage................................ 16
Conversion Right to an Individual Policy...................... 16
General Provisions of the Group Contract...................... 17
Issuance................................................. 17
Termination.............................................. 17
Right to Examine Group Contract.......................... 17
Entire Group Contract.................................... 17
Ownership of Group Contract and Group Contract Changes... 17
Certificate Premiums............................................... 18
Premium Limitations........................................... 18
Allocation of Net Premiums and Account Value.................. 18
Death Benefit and Account Values................................... 19
Option A -- Level Death Benefit............................... 19
Option B -- Increasing Death Benefit.......................... 19
Change in Face Amount......................................... 20
Increases................................................ 20
Decreases................................................ 20
Payment of Death Benefit Proceeds............................. 20
Account Values................................................ 21
Determination of the Guaranteed Account Value............ 21
Determination of the Separate Account Value.............. 21
Unit Value............................................... 22
Net Investment Factor.................................... 22
Daily Values............................................. 22
i
[Download Table]
Page
Surrenders, Partial Surrenders and Transfers....................... 23
Transfers..................................................... 23
Market Timing............................................ 24
Guaranteed Account Transfer Restrictions................. 25
Other Transfer Information............................... 25
Loans.............................................................. 26
Loan Interest................................................. 27
Loan Repayments............................................... 27
Lapse and Reinstatement............................................ 27
Lapse......................................................... 27
Reinstatement................................................. 28
Additional Benefits........................................... 28
Accelerated Benefits Rider............................... 28
Waiver of Premium Rider.................................. 28
Accidental Death and Dismemberment Rider................. 28
Child Rider.............................................. 29
Spouse Rider............................................. 29
Policyholder Contribution Rider.......................... 29
General Matters Relating to the Certificate................... 29
Postponement of Payments................................. 29
The Certificate.......................................... 29
Control of Certificate................................... 30
Maturity................................................. 30
Beneficiary.............................................. 30
Change of Beneficiary.................................... 30
Settlement Options....................................... 30
Federal Tax Status................................................. 31
Introduction.................................................. 31
Taxation of Minnesota Life and the Variable Universal Life
Account..................................................... 31
Tax Status of Certificates.................................... 32
Owner Control................................................. 32
Diversification of Investments................................ 32
Tax Treatment of Policy Benefits.............................. 32
Modified Endowment Contracts.................................. 33
Multiple Policies............................................. 34
Withholding................................................... 34
Other Transactions............................................ 34
Other Taxes................................................... 35
Non-Individual Owners and Business Beneficiaries of
Policies............................................... 35
Split-Dollar Arrangements..................................... 35
Alternative Minimum Tax....................................... 35
Economic Growth and Tax Relief Reconciliation Act of
2001................................................... 36
Distribution of Certificates....................................... 37
Payments Made by Underlying Mutual Funds...................... 37
Other Matters...................................................... 38
Legal Proceedings............................................. 38
Registration Statement........................................ 38
Financial Statements.......................................... 39
Statement of Additional Information................................ 39
ii.1
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 and
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 assess 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).
An adjustable benefit 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 variable
investment options invest in a separate account. The separate account we use for
our group contracts is called the Minnesota Life Variable Universal Life
Account. The separate account keeps its assets separate from the other assets of
Minnesota Life. The separate account has sub-accounts, each of which invests in
corresponding Portfolios 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
3
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 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:
Bond Portfolio
Index 400 Mid-Cap Portfolio
Index 500 Portfolio
Maturing Government Bond 2010 Portfolio
Money Market Portfolio
Mortgage Securities Portfolio
Real Estate Securities Portfolio
An additional Fund Portfolio includes:
Lord Abbett Series Fund, Inc.--Mid-Cap Value Portfolio
Portfolios available July 1, 2007 include:
Van Eck
Worldwide Hard Assets Portfolio--Initial Class
W&R Target Funds, Inc.
Science and Technology 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 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
4
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. 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 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?
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.
Tax treatment described above relating to distributions is available only
for certificates not described as "modified endowment contracts." For federal
income tax purposes, certificates described 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, 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
5
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.
FEE TABLES
The following tables describe the fees and expenses that an owner will pay
when buying, owning and surrendering the certificate. The first table describes
the fees and expenses that the owner will pay at the time that he or she 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 Partial
Surrender Amount+
Maximum Transfer Fee............. Upon Each Transfer+++ $10+++
-------
* 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 reflects the cost to Minnesota Life of amortizing
certain acquisition expenses rather than deducting such expenses on a
current basis. 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.
++ For certificates considered to be individual 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 transfer fee. A charge, not to exceed $10 per
transfer, may be imposed in the future.
6
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
[Enlarge/Download Table]
Charge When Charge is Deducted Amount Deducted
------ ----------------------------- -----------------------------
COST OF INSURANCE CHARGE(1)
MAXIMUM & MINIMUM CHARGE... On the Certificate Date and Maximum: $32.01 per month per
Each Subsequent Monthly $1,000 of coverage
Anniversary Minimum: $0.03 per month per
$1,000 of coverage
CHARGE FOR A 45 YEAR OLD
NON-SMOKING
CERTIFICATEHOLDER.......... On the Certificate Date and Representative $0.11 per
Each Subsequent Monthly month per $1,000 of coverage
Anniversary
MORTALITY AND EXPENSE RISK
CHARGE(2).................. Each day a sub-account is Maximum: 0.50 percent of
priced average daily assets of the
separate account per year
MONTHLY ADMINISTRATION
CHARGE..................... On the Certificate Date and Maximum: $4 per month(3)
Each Subsequent Monthly
Anniversary
LOAN INTEREST SPREAD......... Each Monthly Anniversary 2 percent of Policy Loan per
year(4)
ACCIDENTAL DEATH AND
DISMEMBERMENT CHARGE(5)...... On the Certificate Date and Maximum: $0.10 per month per
Each Subsequent Monthly $1,000 of coverage
Anniversary
WAIVER OF PREMIUM CHARGE(5).. On the Certificate Date and Maximum: 50 percent of the
Each Subsequent Monthly cost 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 coverage
Anniversary
SPOUSE RIDER CHARGE(1)(5)
MAXIMUM & MINIMUM CHARGE... On the Certificate Date and Maximum: $32.01 per month per
Each Subsequent Monthly $1,000 of coverage
Anniversary Minimum: $0.03 per month per
$1000 of coverage
CHARGE FOR A 45 YEAR OLD
NON-SMOKING
CERTIFICATEHOLDER.......... On the Certificate Date and Representative: $0.11 per
Each Subsequent Monthly month per $1,000 of coverage
Anniversary
-------
(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 contracts.
(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.
7
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, 2006.
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% 2.88%
--------
* The Range of Total Annual Portfolio Operating Expenses presented in this table
does not reflect any fee waivers or expense reductions. For more detailed
information about the fee and expense charges, fee waivers (if applicable) and
expense reductions (if applicable) for a particular Fund Portfolio please see
that Fund's prospectus.
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. Such registration does not signify that the
Securities and Exchange Commission supervises the management, or the investment
practices or policies, of the separate account. The separate account meets the
definition of a "separate account" under the federal securities laws.
We are the legal owner of the assets in the separate account. The
obligations to 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
8
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 and
Lord Abbett Series Fund, 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.
Below is a list of the Portfolios and their adviser.
[Enlarge/Download Table]
Fund/Portfolio Investment Adviser
-------------- --------------------------------------------
SERIES FUND:
Bond Portfolio.......................... Advantus Capital Management, Inc.
Index 400 Mid-Cap Portfolio............. Advantus Capital Management, Inc.
Index 500 Portfolio..................... Advantus Capital Management, Inc.
Maturing Government Bond 2010
Portfolio............................. Advantus Capital Management, Inc.
Money Market Portfolio.................. Advantus Capital Management, Inc.
Mortgage Securities Portfolio........... Advantus Capital Management, Inc.
Real Estate Securities Portfolio........ Advantus Capital Management, Inc.
LORD ABBETT SERIES FUND, INC.:
Mid-Cap Value Portfolio................. Lord, Abbett & Co. LLC
VAN ECK:
Worldwide Hard Assets Portfolio--Initial
Class
(Seeks long-term capital appreciation
by investing primarily in "hard asset"
securities.).......................... Van Eck Associates Corporation
W&R TARGET FUNDS, INC.:
Science and Technology Portfolio
(Seeks long-term capital growth.)..... Waddell & Reed Investment Management Company
ADDITIONS, DELETIONS OR SUBSTITUTIONS
We reserve the right to add, combine or remove any sub-accounts of the
Variable Universal Life Account when permitted by law. Each additional sub-
account will purchase shares in a new portfolio or mutual fund. New sub-accounts
may be established when, in our sole discretion, marketing, tax, investment or
other conditions warrant such action. We will use similar considerations should
there be a determination to eliminate one or more of the sub-accounts of the
separate account. Any new investment option will be made available to existing
owners on whatever basis we may determine.
We retain the right, subject to any applicable law, to make substitutions
with respect to the investments of the sub-accounts of the separate account. If
investment in a Portfolio of the Funds should no longer be possible or if we
determine it becomes inappropriate for 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
9
de-register 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 in
writing prior to the meeting in accordance with procedures established by the
Funds. We will vote shares of the Funds held by the separate account as to which
no instructions are received in proportion to the voting instructions which are
received from certificate owners with respect to all certificates participating
in the separate account. Each owner having a voting interest will receive proxy
material, reports and other material relating to the Funds.
We may, when required by state insurance regulatory authorities, disregard
voting instructions if the instructions require that shares be voted so as to
cause a change in sub-classification or investment policies of the Funds or
approve or disapprove an investment advisory contract of the Funds. In addition,
we may disregard voting instructions in favor of changes in the investment
policies or the investment adviser of one or more of the Funds if we reasonably
disapprove of such changes. A change would be disapproved only if the proposed
change is contrary to state law or disapproved by state regulatory authorities
on a determination that the change would be detrimental to the interests of
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
10
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 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.
11
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 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
12
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.
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,
13
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. These guaranteed rates are
125 percent of the maximum rates that could be charged based on 1980
Commissioners Standard Ordinary Mortality Tables ("1980 CSO Table"). The
guaranteed rates are higher than 100 percent of the 1980 CSO Table because we
may use a simplified underwriting approach and may issue policies that do not
require medical evidence of insurability. The current cost of insurance rates
are generally lower than 100 percent of the 1980 CSO Table. (For purposes of
premiums under Section 7702 of the Internal Revenue Code of 1986, as amended, we
will use 100 percent of the 1980 CSO Table.)
PARTIAL SURRENDER 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. However, no charges shall be
assessed other than those described in the fee tables herein.
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.
14
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 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
15
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.
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, 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 are true 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 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.
16
We will issue the individual policy on the policy forms we then use for the
plan of insurance the owner has requested. The premium charge for this
insurance will be based upon the insured's age as of his or her nearest
birthday.
- 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 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.
17
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 month's
deductions. 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 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
18
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. 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
- any unpaid monthly deductions determined as of the date of the insured's
death.
19
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.
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 taken until the date of payment.
Interest will be at an annual rate determined by us, but never less than the
minimum guaranteed
20
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 "General
Matters Relating to the Certificate" 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
21
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 per share of a share held by the Funds in the sub-
account of the separate account determined at the end of the current
valuation period; plus
- the per share amount of any dividend or capital gains distribution by the
Funds if the "ex-dividend" date occurs during the current valuation period;
with the sum divided by
- the net asset value per share of the share of the Funds held in the sub-
account determined at the end of the preceding valuation period.
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. Any such charges will be subject
to the maximum described in this prospectus.
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.
22
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 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 on a settlement
option. A surrender or partial surrender may have federal income tax
consequences. (See "Federal Tax Status".)
A partial surrender of the net cash value of the 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 a 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
23
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 contract 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 contract 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 contract 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 contract 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 contract 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 one or more contract owners is or would be
to the disadvantage of other contract owners. Any new restriction that we would
impose will apply to your contract 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 contract. 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
24
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 contract will be permanent.
None of these limitations apply to transfers under systematic transfer
programs such as Dollar Cost Averaging.
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 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 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, 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
25
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 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.
26
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.
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
27
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.
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
28
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 only: (a) for any
period during which the New York Stock Exchange is closed for trading (except
for normal holiday closing); or (b) when the Securities and Exchange Commission
has determined that a state of emergency exists which may make such payment
impractical.
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
29
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 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
30
the owner elects otherwise, a beneficiary may select a settlement option after
the insured's death. A settlement option may be selected only if the payments
are to be made to a natural person in that person's own right.
Each settlement option is payable in fixed amounts as described below. A
person electing a settlement option will be asked to sign an agreement covering
the election which will state the terms and conditions of the payments. The
payments do not vary with the investment performance of the separate account.
- 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.
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.
31
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.
OWNER CONTROL
In certain circumstances, owners of variable life insurance contracts may
be considered for federal income tax purposes to be the owners of the assets of
the separate account supporting their contracts due to their ability to exercise
control over those assets. Where this is the case, the contract owners 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 Revenue Ruling 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 adviser in its sole and
absolute discretion.
The Internal Revenue Service has further amplified and clarified its
position in Revenue Ruling 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 Revenue Ruling 2003-91 and that
the ownership rights of a certificate owner under the policy 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.
32
DIVERSIFICATION OF INVESTMENTS
In addition, the Code requires that the investments of the Variable
Universal Life Account be "adequately diversified" in order to treat the
certificate as a life insurance contract for federal income tax purposes. We
intend that the Variable Universal Life Account, through the Funds and the
Portfolios, will satisfy these diversification requirements.
The following discussion assumes that the 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 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 additional income tax which is imposed on the portion of any
distribution that is included in income, except where the
33
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.
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 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.
OTHER TRANSACTIONS
The certificate may be used in various arrangements, including non-
qualified deferred compensation or salary continuance plans, split dollar
insurance plans, executive bonus plans, retiree medical benefit plans and
others. The tax consequences of such plans may vary depending on the particular
34
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. Moreover, in
recent years, Congress has adopted new rules relating to corporate owned life
insurance. The Pension Protection Act of 2006 added a new section to the Code
that denies the tax-free treatment of death benefits payable under an employer-
owned life insurance contract unless certain notice and consent requirements are
met 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 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. Any business contemplating the purchase of a policy on the
life of an employee should consult with its legal and tax advisors regarding the
applicability of the new legislation to the proposed purchase.
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.
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.
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.
35
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 2007, the maximum estate tax rate is 45% and the estate tax
exemption is $2,000,000.
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.
36
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 National Association of Securities
Dealers, Inc. 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 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
37
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.
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.
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 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
38
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.
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, NW,
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
Investment Company Act Number 811-8830
39
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: MAY 1, 2007
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. Such registration does not signify that the
Securities and Exchange Commission supervises the management, or the investment
practices or policies, of the separate account. The separate account meets the
definition of a "separate account" under the federal securities laws.
We are the legal owner of the assets in the separate account. The obligations to
policy 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 Series Fund, Fidelity(R) VIP,
Janus Aspen Series, Van Eck Worldwide Insurance Trust, W&R Target Funds, Inc.
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]
Attained Applicable
Age Percentage
35 432.4%
45 310.2
55 226.9
65 171.8
75 137.5
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. If you pay up to the maximum premium amount your certificate may 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 National Association of Securities
Dealers, Inc. 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 2006, 2005 and 2004 were
$231,246, $227,813 and $428,169, respectively.
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" 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 ("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 (1.01
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 -1.50 percent, 4.41
percent and 10.32 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 401 Robert Street North, Saint Paul, Minnesota 55101.
DEATH BENEFIT OPTION A
ISSUE AGE 45
UNISEX
UNITOBACCO
FACE AMOUNT OF INSURANCE - $100,000
ANNUAL PREMIUM - $1,800
(MONTHLY PREMIUM - $150)(1)
USING CURRENT COST OF INSURANCE CHARGES*
[Enlarge/Download Table]
- Assuming Hypothetical Investment Returns Of -
0% Gross(2) 6% Gross(2) 12% Gross(2)
(-1.50% Net)(3) (4.41% Net)(3) (10.32% 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 1,800 1,455 100,000 1,502 100,000 1,548 100,000
2 47 1,800 2,879 100,000 3,061 100,000 3,246 100,000
3 48 1,800 4,262 100,000 4,668 100,000 5,100 100,000
4 49 1,800 5,616 100,000 6,339 100,000 7,137 100,000
5 50 1,800 6,953 100,000 8,088 100,000 9,390 100,000
6 51 1,800 8,251 100,000 9,895 100,000 11,859 100,000
7 52 1,800 9,500 100,000 11,755 100,000 14,557 100,000
8 53 1,800 10,713 100,000 13,681 100,000 17,521 100,000
9 54 1,800 11,870 100,000 15,656 100,000 20,760 100,000
10 55 1,800 12,971 100,000 17,685 100,000 24,308 100,000
15 60 1,800 17,393 100,000 28,496 100,000 47,848 100,000
20 65 1,800 19,785 100,000 40,627 100,000 86,478 103,773
25 70 1,800 19,776 100,000 54,754 100,000 149,870 172,351
30 75 1,800 12,356 100,000 70,186 100,000 251,254 263,817
35 80 1,800 0 100,000 88,792 100,000 414,566 435,295
40 85 1,800 0 100,000 115,559 121,337 667,967 701,366
45 90 1,800 0 100,000 146,019 153,320 1,052,310 1,104,926
50 95 1,800 0 100,000 183,282 185,114 1,661,710 1,678,327
(1) A premium payment of $150 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 $0.160. 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
UNITOBACCO
FACE AMOUNT OF INSURANCE - $100,000
ANNUAL PREMIUM - $3,000
(MONTHLY PREMIUM - $250)(1)
USING CURRENT COST OF INSURANCE CHARGES*
[Enlarge/Download Table]
- Assuming Hypothetical Investment Returns Of -
0% Gross(2) 6% Gross(2) 12% Gross(2)
(-1.50% Net)(3) (4.41% Net)(3) (10.32% 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 3,000 2,302 100,000 2,376 100,000 2,448 100,000
2 57 3,000 4,499 100,000 4,785 100,000 5,077 100,000
3 58 3,000 6,608 100,000 7,245 100,000 7,922 100,000
4 59 3,000 8,622 100,000 9,752 100,000 11,000 100,000
5 60 3,000 10,544 100,000 12,311 100,000 14,343 100,000
6 61 3,000 12,368 100,000 14,919 100,000 17,975 100,000
7 62 3,000 14,098 100,000 17,584 100,000 21,937 100,000
8 63 3,000 15,728 100,000 20,305 100,000 26,265 100,000
9 64 3,000 17,271 100,000 23,100 100,000 31,019 100,000
10 65 3,000 18,711 100,000 25,960 100,000 36,243 100,000
15 70 3,000 24,421 100,000 41,609 100,000 72,183 100,000
20 75 3,000 23,525 100,000 57,846 100,000 133,329 139,996
25 80 3,000 8,837 100,000 75,193 100,000 232,355 243,973
30 85 3,000 0 100,000 100,060 105,063 386,383 405,702
35 90 3,000 0 100,000 133,959 140,657 620,475 651,499
40 95 3,000 0 100,000 175,31 177,071 991,648 1,001,564
(1) A premium payment of $250 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 $0.400. 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
UNITOBACCO
FACE AMOUNT OF INSURANCE - $100,000
ANNUAL PREMIUM - $1,800
(MONTHLY PREMIUM - $150)(1)
USING MAXIMUM COST OF INSURANCE CHARGES
[Enlarge/Download Table]
- Assuming Hypothetical Investment Returns Of -
0% Gross(2) 6% Gross(2) 12% Gross(2)
(-1.50% Net)(3) (4.41% Net)(3) (10.32% 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 1,800 1,058 100,000 1,092 100,000 1,125 100,000
2 47 1,800 2,062 100,000 2,194 100,000 2,328 100,000
3 48 1,800 3,012 100,000 3,304 100,000 3,614 100,000
4 49 1,800 3,906 100,000 4,422 100,000 4,992 100,000
5 50 1,800 4,740 100,000 5,543 100,000 6,467 100,000
6 51 1,800 5,508 100,000 6,662 100,000 8,045 100,000
7 52 1,800 6,206 100,000 7,773 100,000 9,734 100,000
8 53 1,800 6,826 100,000 8,870 100,000 11,538 100,000
9 54 1,800 7,360 100,000 9,942 100,000 13,465 100,000
10 55 1,800 7,803 100,000 10,985 100,000 15,526 100,000
15 60 1,800 8,466 100,000 15,547 100,000 28,421 100,000
20 65 1,800 5,486 100,000 17,903 100,000 47,878 100,000
25 70 1,800 0 100,000 14,813 100,000 80,110 100,000
30 75 1,800 0 100,000 0 100,000 137,193 144,052
35 80 1,800 0 100,000 0 100,000 229,539 241,016
40 85 1,800 0 100,000 0 100,000 372,162 390,770
45 90 1,800 0 100,000 0 100,000 585,166 614,425
50 95 1,800 0 100,000 0 100,000 922,707 931,934
(1) A premium payment of $150 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
UNITOBACCO
FACE AMOUNT OF INSURANCE - $100,000
ANNUAL PREMIUM - $3,000
(MONTHLY PREMIUM - $250)(1)
USING MAXIMUM COST OF INSURANCE CHARGES
[Enlarge/Download Table]
- Assuming Hypothetical Investment Returns Of -
0% Gross(2) 6% Gross(2) 12% Gross(2)
(-1.50% Net)(3) (4.41% Net)(3) (10.32% 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 3,000 1,476 100,000 1,524 100,000 1,570 100,000
2 57 3,000 2,842 100,000 3,024 100,000 3,211 100,000
3 58 3,000 4,094 100,000 4,499 100,000 4,929 100,000
4 59 3,000 5,232 100,000 5,944 100,000 6,732 100,000
5 60 3,000 6,247 100,000 7,350 100,000 8,624 100,000
6 61 3,000 7,125 100,000 8,702 100,000 10,605 100,000
7 62 3,000 7,849 100,000 9,982 100,000 12,671 100,000
8 63 3,000 8,399 100,000 11,166 100,000 14,819 100,000
9 64 3,000 8,749 100,000 12,229 100,000 17,045 100,000
10 65 3,000 8,879 100,000 13,144 100,000 19,347 100,000
15 70 3,000 5,487 100,000 14,639 100,000 32,379 100,000
20 75 3,000 0 100,000 5,603 100,000 49,114 100,000
25 80 3,000 0 100,000 0 100,000 74,735 100,000
30 85 3,000 0 100,000 0 100,000 130,394 136,914
35 90 3,000 0 100,000 0 100,000 218,881 229,825
40 95 3,000 0 100,000 0 100,000 359,030 362,621
(1) A premium payment of $250 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
UNITOBACCO
FACE AMOUNT OF INSURANCE - $50,000
ANNUAL PREMIUM - $1,800
(MONTHLY PREMIUM - $150)(1)
USING CURRENT COST OF INSURANCE CHARGES*
[Enlarge/Download Table]
- Assuming Hypothetical Investment Returns Of -
0% Gross(2) 6% Gross(2) 12% Gross(2)
(-1.50% Net)(3) (4.41% Net)(3) (10.32% 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 1,800 1,549 51,549 1,599 51,599 1,647 51,647
2 47 1,800 3,068 53,068 3,261 53,261 3,459 53,459
3 48 1,800 4,553 54,553 4,985 54,985 5,444 55,444
4 49 1,800 6,010 56,010 6,779 56,779 7,628 57,628
5 50 1,800 7,445 57,445 8,652 58,652 10,038 60,038
6 51 1,800 8,846 58,846 10,596 60,596 12,683 62,683
7 52 1,800 10,209 60,209 12,606 62,606 15,583 65,583
8 53 1,800 11,539 61,539 14,693 64,693 18,769 68,769
9 54 1,800 12,826 62,826 16,848 66,848 22,259 72,259
10 55 1,800 14,069 64,069 19,073 69,073 26,083 76,083
15 60 1,800 19,475 69,475 31,163 81,163 51,345 101,345
20 65 1,800 23,372 73,372 44,876 94,876 91,141 141,141
25 70 1,800 25,555 75,555 60,246 110,246 154,281 204,281
30 75 1,800 23,314 73,314 74,507 124,507 252,044 302,044
35 80 1,800 13,710 63,710 83,493 133,493 401,739 451,739
40 85 1,800 0 50,000 79,730 129,730 629,322 679,322
45 90 1,800 0 50,000 57,013 107,013 980,303 1,030,303
50 95 1,800 0 50,000 1,291 51,291 1,522,048 1,572,048
(1) A premium payment of $150 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 $0.160. 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
UNITOBACCO
FACE AMOUNT OF INSURANCE - $50,000
ANNUAL PREMIUM - $3,000
(MONTHLY PREMIUM - $250)(1)
USING CURRENT COST OF INSURANCE CHARGES*
[Enlarge/Download Table]
- Assuming Hypothetical Investment Returns Of -
0% Gross(2) 6% Gross(2) 12% Gross(2)
(-1.50% Net)(3) (4.41% Net)(3) (10.32% 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 3,000 2,534 52,534 2,615 52,615 2,695 52,695
2 57 3,000 4,988 54,988 5,303 55,303 5,624 55,624
3 58 3,000 7,369 57,369 8,072 58,072 8,817 58,817
4 59 3,000 9,673 59,673 10,920 60,920 12,296 62,296
5 60 3,000 11,901 61,901 13,851 63,851 16,089 66,089
6 61 3,000 14,048 64,048 16,862 66,862 20,224 70,224
7 62 3,000 16,116 66,116 19,957 69,957 24,734 74,734
8 63 3,000 18,098 68,098 23,133 73,133 29,653 79,653
9 64 3,000 20,004 70,004 26,400 76,400 35,029 85,029
10 65 3,000 21,821 71,821 29,750 79,750 40,897 90,897
15 70 3,000 29,589 79,589 47,832 97,832 79,543 129,543
20 75 3,000 32,527 82,527 65,460 115,460 137,276 187,276
25 80 3,000 27,725 77,725 78,623 128,623 221,554 271,554
30 85 3,000 10,247 60,247 80,043 130,043 342,231 392,231
35 90 3,000 0 50,000 63,758 113,758 518,503 568,503
40 95 3,000 0 50,000 16,018 66,018 775,130 825,130
(1) A premium payment of $250 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 $0.400. 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
UNITOBACCO
FACE AMOUNT OF INSURANCE - $50,000
ANNUAL PREMIUM - $1,800
(MONTHLY PREMIUM - $150)(1)
USING MAXIMUM COST OF INSURANCE CHARGES
[Enlarge/Download Table]
- Assuming Hypothetical Investment Returns Of -
0% Gross(2) 6% Gross(2) 12% Gross(2)
(-1.50% Net)(3) (4.41% Net)(3) (10.32% 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 1,800 1,332 51,332 1,374 51,374 1,416 51,416
2 47 1,800 2,621 52,621 2,787 52,787 2,956 52,956
3 48 1,800 3,868 53,868 4,237 54,237 4,629 54,629
4 49 1,800 5,071 55,071 5,726 55,726 6,448 56,448
5 50 1,800 6,229 56,229 7,252 57,252 8,426 58,426
6 51 1,800 7,339 57,339 8,814 58,814 10,576 60,576
7 52 1,800 8,397 58,397 10,408 60,408 12,910 62,910
8 53 1,800 9,401 59,401 12,033 62,033 15,444 65,444
9 54 1,800 10,345 60,345 13,684 63,684 18,193 68,193
10 55 1,800 11,227 61,227 15,358 65,358 21,173 71,173
15 60 1,800 14,627 64,627 23,994 73,994 40,368 90,368
20 65 1,800 15,887 65,887 32,542 82,542 69,252 119,252
25 70 1,800 13,925 63,925 39,546 89,546 112,311 162,311
30 75 1,800 7,062 57,062 42,460 92,460 176,071 226,071
35 80 1,800 0 50,000 36,341 86,341 269,071 319,071
40 85 1,800 0 50,000 14,394 64,394 404,588 454,588
45 90 1,800 0 50,000 0 50,000 600,972 650,972
50 95 1,800 0 50,000 0 50,000 889,106 939,106
(1) A premium payment of $150 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
UNITOBACCO
FACE AMOUNT OF INSURANCE - $50,000
ANNUAL PREMIUM - $3,000
(MONTHLY PREMIUM - $250)(1)
USING MAXIMUM COST OF INSURANCE CHARGES
[Enlarge/Download Table]
- Assuming Hypothetical Investment Returns Of -
0% Gross(2) 6% Gross(2) 12% Gross(2)
(-1.50% Net)(3) (4.41% Net)(3) (10.32% 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 3,000 2,089 52,089 2,156 52,156 2,222 52,222
2 57 3,000 4,093 54,093 4,352 54,352 4,616 54,616
3 58 3,000 6,009 56,009 6,585 56,585 7,197 57,197
4 59 3,000 7,837 57,837 8,856 58,856 9,980 59,980
5 60 3,000 9,573 59,573 11,159 61,159 12,981 62,981
6 61 3,000 11,208 61,208 13,487 63,487 16,213 66,213
7 62 3,000 12,736 62,736 15,832 65,832 19,690 69,690
8 63 3,000 14,143 64,143 18,180 68,180 23,423 73,423
9 64 3,000 15,421 65,421 20,519 70,519 27,425 77,425
10 65 3,000 16,557 66,557 22,836 72,836 31,711 81,711
15 70 3,000 19,904 69,904 33,724 83,724 58,177 108,177
20 75 3,000 17,962 67,962 41,458 91,458 94,818 144,818
25 80 3,000 7,711 57,711 41,321 91,321 143,502 193,502
30 85 3,000 0 50,000 26,797 76,797 206,595 256,595
35 90 3,000 0 50,000 0 50,000 284,624 334,624
40 95 3,000 0 50,000 0 50,000 379,339 429,339
(1) A premium payment of $250 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 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.
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, 2006, 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, 2006
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, 2006, the results of their operations for the year or period then
ended, the changes in their 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.
Minneapolis, Minnesota
March 23, 2007
MINNESOTA LIFE VARIABLE UNIVERSAL LIFE ACCOUNT
STATEMENTS OF ASSETS AND LIABILITIES
DECEMBER 31, 2006
[Enlarge/Download Table]
SEGREGATED SUB-ACCOUNTS
-------------------------------------------------------------------------------------------
ADVANTUS ADVANTUS
ADVANTUS ADVANTUS ADVANTUS MATURING MATURING ADVANTUS
ADVANTUS MONEY INDEX MORTGAGE GOVERNMENT GOVERNMENT INTERNATIONAL
BOND MARKET 500 SECURITIES BOND 2006 BOND 2010 BOND
----------- --------- ---------- ---------- ---------- ---------- -------------
ASSETS
Investments in shares of Advantus
Series Fund, Inc.:
Bond Portfolio, 20,049,430 shares
at net asset value of $1.54 per
share (cost $25,713,899) ...... $30,960,731 -- -- -- -- -- --
Money Market Portfolio, 4,928,696
shares at net asset value of
$1.00 per share
(cost $4,928,696) ............. -- 4,928,696 -- -- -- -- --
Index 500 Portfolio, 12,890,520
shares at net asset value of
$4.59 per share
(cost $47,852,566) ............ -- -- 59,145,716 -- -- -- --
Mortgage Securities Portfolio,
194,175 shares at net asset
value of $1.52 per share
(cost $276,690) ............... -- -- -- 295,881 -- -- --
Maturing Government Bond 2006
Portfolio, shares at net asset
value of $.0 per share
(cost $) ...................... -- -- -- -- -- -- --
Maturing Government Bond 2010
Portfolio, 120,380 shares at
net asset value of $1.61 per
share (cost $194,093) ......... -- -- -- -- -- 193,594 --
International Bond Portfolio,
13,469 shares at net asset
value of $1.38 per share
(cost $18,017) ................ -- -- -- -- -- -- 18,566
----------- --------- ---------- ------- --- ------- ------
30,960,731 4,928,696 59,145,716 295,881 -- 193,594 18,566
Receivable from Minnesota Life for
Policy purchase payments ......... 34,379 17,191 140,635 3,476 -- 3,867 --
Receivable for investments sold ..... -- -- -- -- -- -- 232
----------- --------- ---------- ------- --- ------- ------
Total assets .................. 30,995,110 4,945,887 59,286,351 299,357 -- 197,461 18,798
----------- --------- ---------- ------- --- ------- ------
LIABILITIES
Payable to Minnesota Life for Policy
terminations, withdrawal payments
and mortality and expense
charges .......................... -- -- -- -- -- -- 232
Payable for investments purchased ... 34,379 17,191 140,635 3,476 -- 3,867 --
----------- --------- ---------- ------- --- ------- ------
Total liabilities ............. 34,379 17,191 140,635 3,476 -- 3,867 232
----------- --------- ---------- ------- --- ------- ------
Net assets applicable to Policy
owners ..................... $30,960,731 4,928,696 59,145,716 295,881 -- 193,594 18,566
=========== ========= ========== ======= === ======= ======
POLICY OWNERS' EQUITY
Total Policy Owners' equity
(notes 5 and 6) ............ $30,960,731 4,928,696 59,145,716 295,881 -- 193,594 18,566
=========== ========= ========== ======= === ======= ======
See accompanying notes to financial statements.
MINNESOTA LIFE VARIABLE UNIVERSAL LIFE ACCOUNT
STATEMENTS OF ASSETS AND LIABILITIES
DECEMBER 31, 2006
[Enlarge/Download Table]
SEGREGATED SUB-ACCOUNTS
------------------------------------------------------------------------------------
FIDELITY FIDELITY FIDELITY FIDELITY
ADVANTUS ADVANTUS FIDELITY VIP VIP VIP VIP
INDEX 400 REAL ESTATE VIP GROWTH & EQUITY- HIGH ASSET
MID-CAP SECURITIES CONTRAFUND INCOME INCOME INCOME MANAGER
----------- ----------- ---------- --------- --------- -------- --------
ASSETS
Investments in shares of Advantus
Series Fund, Inc.:
Index 400 Mid-Cap Portfolio,
10,459,057 shares at net asset
value of $1.84 per share
(cost $16,131,848) ............ $19,262,739 -- -- -- -- -- --
Real Estate Securities Portfolio,
713,527 shares at net asset
value of $2.86 per share
(cost $1,646,634) ............. -- 2,043,342 -- -- -- -- --
Investments in shares of the Fidelity
Variable Insurance Products Fund:
Contrafund Portfolio, 189,241
shares at net asset value of
$31.47 per share
(cost $5,246,507) ............. -- -- 5,955,411 -- -- -- --
Growth & Income Portfolio, 73,753
shares at net asset value of
$16.12 per share
(cost $1,045,022) ............. -- -- -- 1,188,896 -- -- --
Equity-Income Portfolio, 71,633
shares at net asset value of
$26.20 per share
(cost $1,692,864) ............. -- -- -- -- 1,876,792 -- --
High Income Portfolio, 132,132
shares at net asset value of
$6.35 per share
(cost $872,400) ............... -- -- -- -- -- 839,036 --
Asset Manager Portfolio, 25,882
shares at net asset value of
$15.71 per share
(cost $377,799) ............... -- -- -- -- -- -- 406,614
----------- --------- --------- --------- --------- ------- -------
19,262,739 2,043,342 5,955,411 1,188,896 1,876,792 839,036 406,614
Receivable from Minnesota Life for
Policy purchase payments ......... 134,329 22,545 -- -- -- -- --
Receivable for investments sold ..... -- -- 6,779 4,506 3,419 2,533 1,251
----------- --------- --------- --------- --------- ------- -------
Total assets .................. 19,397,068 2,065,887 5,962,190 1,193,402 1,880,211 841,569 407,865
----------- --------- --------- --------- --------- ------- -------
LIABILITIES
Payable to Minnesota Life for Policy
terminations, withdrawal payments
and mortality and expense
charges .......................... -- -- 6,779 4,506 3,419 2,533 1,251
Payable for investments purchased ... 134,329 22,545 -- -- -- -- --
----------- --------- --------- --------- --------- ------- -------
Total liabilities ................ 134,329 22,545 6,779 4,506 3,419 2,533 1,251
----------- --------- --------- --------- --------- ------- -------
Net assets applicable to Policy
owners ........................ $19,262,739 2,043,342 5,955,411 1,188,896 1,876,792 839,036 406,614
=========== ========= ========= ========= ========= ======= =======
POLICY OWNERS' EQUITY
Total Policy Owners' equity
(notes 5 and 6) ............... $19,262,739 2,043,342 5,955,411 1,188,896 1,876,792 839,036 406,614
=========== ========= ========= ========= ========= ======= =======
See accompanying notes to financial statements.
MINNESOTA LIFE VARIABLE UNIVERSAL LIFE ACCOUNT
STATEMENTS OF ASSETS AND LIABILITIES
DECEMBER 31, 2006
[Enlarge/Download Table]
SEGREGATED SUB-ACCOUNTS
-----------------------------------------------------------------------------------
FIDELITY FIDELITY
VIP ASSET FIDELITY FIDELITY FIDELITY VIP FIDELITY VIP
MANAGER VIP VIP GROWTH VIP INVESTMENT FIDELITY VIP
GROWTH BALANCED GROWTH OPPORTUNITIES INDEX 500 GRADE BOND MID-CAP
---------- -------- --------- ------------- --------- ---------- ------------
ASSETS
Investments in shares of the Fidelity Variable
Insurance Products Fund:
Asset Manager Growth Portfolio, 73,947
shares at net asset value of $13.60 per
share (cost $915,356) ................... $1,005,677 -- -- -- -- -- --
Balanced Portfolio, 18,411 shares at net
asset value of $15.63 per share
(cost $267,242) ......................... -- 287,765 -- -- -- -- --
Growth Portfolio, 142,519 shares at net
asset value of $35.87 per share
(cost $4,600,103) ....................... -- -- 5,112,159 -- -- -- --
Growth Opportunities Portfolio, 71,911
shares at net asset value of $18.16 per
share (cost $1,168,140) ................. -- -- -- 1,305,909 -- -- --
Index 500 Portfolio, 14,121 shares at net
asset value of $161.36 per share
(cost $1,954,917) ....................... -- -- -- -- 2,278,611 -- --
Investment Grade Bond Portfolio, 39,331
shares at net asset value of $12.76 per
share (cost $494,988) ................... -- -- -- -- -- 501,857 --
Mid-Cap Fund, 202,742 shares at net asset
value of $34.77 per share
(cost $5,486,993) ....................... -- -- -- -- -- -- 7,049,337
---------- ------- --------- --------- --------- ------- ---------
1,005,677 287,765 5,112,159 1,305,909 2,278,611 501,857 7,049,337
Receivable from Minnesota Life for Policy
purchase payments .......................... 177 -- -- -- -- -- --
Receivable for investments sold ............... -- 354 2,661 1,001 903 3 503
---------- ------- --------- --------- --------- ------- ---------
Total assets ............................ 1,005,854 288,119 5,114,820 1,306,910 2,279,514 501,860 7,049,840
---------- ------- --------- --------- --------- ------- ---------
LIABILITIES
Payable to Minnesota Life for Policy
terminations, withdrawal payments and
mortality and expense charges .............. -- 354 2,661 1,001 903 3 503
Payable for investments purchased ............. 177 -- -- -- -- -- --
---------- ------- --------- --------- --------- ------- ---------
Total liabilities ....................... 177 354 2,661 1,001 903 3 503
---------- ------- --------- --------- --------- ------- ---------
Net assets applicable to Policy owners .. $1,005,677 287,765 5,112,159 1,305,909 2,278,611 501,857 7,049,337
========== ======= ========= ========= ========= ======= =========
POLICY OWNERS' EQUITY
Total Policy Owners' equity
(notes 5 and 6) ...................... $1,005,677 287,765 5,112,159 1,305,909 2,278,611 501,857 7,049,337
========== ======= ========= ========= ========= ======= =========
See accompanying notes to financial statements.
MINNESOTA LIFE VARIABLE UNIVERSAL LIFE ACCOUNT
STATEMENTS OF ASSETS AND LIABILITIES
DECEMBER 31, 2006
[Enlarge/Download Table]
SEGREGATED SUB-ACCOUNTS
---------------------------------------------------------------------------
FIDELITY FIDELITY FIDELITY VIP FIDELITY FIDELITY
VIP FIDELITY VIP DYNAMIC FIDELITY VIP VIP
MONEY VIP AGGRESSIVE CAPITAL VIP VALUE GROWTH
MARKET OVERSEAS GROWTH APPRECIATION VALUE STRATEGY STOCK
-------- --------- ---------- ------------ -------- -------- --------
ASSETS
Investments in shares of the Fidelity Variable
Insurance Products Fund:
Money Market Portfolio, 745,838 shares at
net asset value of $1.00 per share
(cost $745,838) ......................... $745,838 -- -- -- -- -- --
Overseas Portfolio, 165,372 shares at net
asset value of $23.97 per share
(cost $2,889,106) ....................... -- 3,963,969 -- -- -- -- --
Aggressive Growth Portfolio, 36,491 shares
at net asset value of $9.44 per share
(cost $342,534) ......................... -- -- 344,479 -- -- -- --
Dynamic Capital Appreciation Portfolio,
30,046 shares at net asset value of $9.61
per share (cost $272,180) ............... -- -- -- 288,740 -- -- --
Value Portfolio, 12,377 shares at net asset
value of $14.28 per share
(cost $155,422) ......................... -- -- -- -- 176,740 -- --
Value Strategy Portfolio, 14,188 shares at
net asset value of $13.47 per share
(cost $179,163) ......................... -- -- -- -- -- 191,112 --
Growth Stock Portfolio, 1,755 shares at net
asset value of $12.07 per share
(cost $20,603) .......................... -- -- -- -- -- -- 21,184
-------- --------- ------- ------- ------- ------- ------
745,838 3,963,969 344,479 288,740 176,740 191,112 21,184
Receivable from Minnesota Life for Policy
purchase payments .......................... 124 -- -- 79 -- -- --
Receivable for investments sold ............... -- 256 2 -- 1 1 --
-------- --------- ------- ------- ------- ------- ------
Total assets ............................ 745,962 3,964,225 344,481 288,819 176,741 191,113 21,184
-------- --------- ------- ------- ------- ------- ------
LIABILITIES
Payable to Minnesota Life for Policy
terminations, withdrawal payments and
mortality and expense charges .............. -- 256 2 -- 1 1 --
Payable for investments purchased ............. 124 -- -- 79 -- -- --
-------- --------- ------- ------- ------- ------- ------
Total liabilities ....................... 124 256 2 79 1 1 --
-------- --------- ------- ------- ------- ------- ------
Net assets applicable to Policy owners .. $745,838 3,963,969 344,479 288,740 176,740 191,112 21,184
======== ========= ======= ======= ======= ======= ======
POLICY OWNERS' EQUITY
Total Policy Owners' equity
(notes 5 and 6) ...................... $745,838 3,963,969 344,479 288,740 176,740 191,112 21,184
======== ========= ======= ======= ======= ======= ======
See accompanying notes to financial statements.
MINNESOTA LIFE VARIABLE UNIVERSAL LIFE ACCOUNT
STATEMENTS OF ASSETS AND LIABILITIES
DECEMBER 31, 2006
[Enlarge/Download Table]
SEGREGATED SUB-ACCOUNTS
-------------------------------------------------------------------------
FIDELITY
FIDELITY FIDELITY VIP FIDELITY FIDELITY FIDELITY FIDELITY
VIP VIP INTL VIP VIP VIP VIP
REAL STRATEGIC CAPITAL VALUE FREEDOM FREEDOM FREEDOM
ESTATE INCOME APPRECIATION LEADERS 2010 2015 2020
-------- --------- ------------ -------- -------- -------- --------
ASSETS
Investments in shares of the Fidelity
Variable Insurance Products Fund:
Real Estate Portfolio, 13,542
shares at net asset value
of $22.74 per share
(cost $268,287) ............... $307,951 -- -- -- -- -- --
Strategic Income Portfolio, 3,837
shares at net asset value
of $10.70 per share
(cost $41,112) ................ -- 41,055 -- -- -- -- --
Intl Capital Appreciation
Portfolio, 488 shares at net
asset value of $12.68 per share
(cost $6,005) ................. -- -- 6,189 -- -- -- --
Value Leaders Portfolio, 578
shares at net asset value of
$14.82 per share
(cost $8,442) ................. -- -- -- 8,565 -- -- --
Freedom 2010 Portfolio, 272 shares
at net asset value of $11.59
per share (cost $3,081) ....... -- -- -- -- 3,148 -- --
Freedom 2015 Portfolio, 266 shares
at net asset value of $11.93
per share (cost $3,080) ....... -- -- -- -- -- 3,168 --
Freedom 2020 Portfolio, 268 shares
at net asset value of $12.10
per share (cost $3,151) ....... -- -- -- -- -- -- 3,242
-------- ------ ----- ----- ----- ----- -----
307,951 41,055 6,189 8,565 3,148 3,168 3,242
Receivable from Minnesota Life for
Policy purchase payments ......... 39 -- -- -- -- -- --
Receivable for investments sold ..... -- 1,647 -- -- -- -- --
-------- ------ ----- ----- ----- ----- -----
Total assets ............... 307,990 42,702 6,189 8,565 3,148 3,168 3,242
-------- ------ ----- ----- ----- ----- -----
LIABILITIES
Payable to Minnesota Life for Policy
terminations, withdrawal payments
and mortality and expense charges -- 1,647 -- -- -- -- --
Payable for investments purchased ... 39 -- -- -- -- -- --
-------- ------ ----- ----- ----- ----- -----
Total liabilities ............. 39 1,647 -- -- -- -- --
-------- ------ ----- ----- ----- ----- -----
Net assets applicable to Policy
owners ..................... $307,951 41,055 6,189 8,565 3,148 3,168 3,242
======== ====== ===== ===== ===== ===== =====
POLICY OWNERS' EQUITY
Total Policy Owners' equity
(notes 5 and 6) ............ $307,951 41,055 6,189 8,565 3,148 3,168 3,242
======== ====== ===== ===== ===== ===== =====
See accompanying notes to financial statements.
MINNESOTA LIFE VARIABLE UNIVERSAL LIFE ACCOUNT
STATEMENTS OF ASSETS AND LIABILITIES
DECEMBER 31, 2006
[Enlarge/Download Table]
SEGREGATED SUB-ACCOUNTS
--------------------------------------------------------------------------------
FIDELITY FIDELITY FIDELITY FIDELITY JANUS
VIP VIP VIP VIP JANUS ASPEN LORD ABBETT
FREEDOM FREEDOM FREEDOM DISCIPLINED ASPEN INTERNATIONAL MID CAP
2025 2030 INCOME SMALL CAP FORTY GROWTH VALUE
-------- -------- -------- ----------- --------- ------------- -----------
ASSETS
Investments in shares of the Fidelity
Variable Insurance Products Fund:
Freedom 2025 Portfolio, 266 shares
at net asset value of $12.18
per share (cost $3,163) ....... $3,242 -- -- -- -- -- --
Freedom 2030 Portfolio, 270 shares
at net asset value of $12.44
per share (cost $3,250) ....... -- 3,358 -- -- -- -- --
Freedom Income Portfolio, 287
shares at net asset value of
$10.70 per share
(cost $3,098) ................. -- -- 3,070 -- -- -- --
Disciplined Small Cap
Portfolio, 1,150 shares at net
asset value of $11.56 per share
(cost $12,797) ................ -- -- -- 13,290 -- -- --
Investments in shares of the Janus
Aspen Series:
Forty Portfolio, 2,491 shares at
net asset value of $29.91 per
share (cost $61,193) .......... -- -- -- -- 74,519 -- --
International Growth
Portfolio, 39,956 shares at
net asset value of $50.61 per
share (cost $1,541,864) ....... -- -- -- -- -- 2,022,184 --
Investments in shares of the Lord
Abbett Funds, Inc.:
Mid Cap Value Portfolio, 113,615
shares at net asset value of
$21.78 per share
(cost $2,454,067) ............. -- -- -- -- -- -- 2,474,538
------ ----- ------ ------ ------ --------- ---------
3,242 3,358 3,070 13,290 74,519 2,022,184 2,474,538
Receivable from Minnesota Life for
Policy purchase payments ......... -- -- -- -- -- -- 30,703
Receivable for investments sold ..... -- -- -- -- 335 4,973 --
------ ----- ------ ------ ------ --------- ---------
Total assets .................. 3,242 3,358 3,070 13,290 74,854 2,027,157 2,505,241
------ ----- ------ ------ ------ --------- ---------
LIABILITIES
Payable to Minnesota Life for Policy
terminations, withdrawal payments
and mortality and expense
charges .......................... -- -- -- -- 335 4,973 --
Payable for investments purchased ... -- -- -- -- -- -- 30,703
------ ----- ------ ------ ------ --------- ---------
Total liabilities ............. -- -- -- -- 335 4,973 30,703
------ ----- ------ ------ ------ --------- ---------
Net assets applicable to Policy
owners ..................... $3,242 3,358 3,070 13,290 74,519 2,022,184 2,474,538
====== ===== ====== ====== ====== ========= =========
POLICY OWNERS' EQUITY
Total Policy Owners' equity
(notes 5 and 6) ............ $3,242 3,358 3,070 13,290 74,519 2,022,184 2,474,538
====== ===== ====== ====== ====== ========= =========
See accompanying notes to financial statements.
MINNESOTA LIFE VARIABLE UNIVERSAL LIFE ACCOUNT
STATEMENTS OF ASSETS AND LIABILITIES
DECEMBER 31, 2006
[Enlarge/Download Table]
SEGREGATED SUB-ACCOUNTS
-----------------------------------------------------------------------------------------
WADDELL WADDELL
WADDELL WADDELL & REED & REED WADDELL WADDELL & REED & REED
& REED WADDELL & REED INTERNATIONAL SMALL CAP & REED MICRO-CAP SMALL CAP
BALANCED GROWTH VALUE GROWTH VALUE GROWTH VALUE
---------- -------------- -------------- --------- ------- -------------- ---------
ASSETS
Investments in shares of the Waddell
& Reed Target Funds, Inc.:
Balanced Portfolio, 1,073,423
shares at net asset value of
$8.71 per share
(cost $8,828,105) ............. $9,344,688 -- -- -- -- -- --
Growth Portfolio, 276,461 shares
at net asset value of $9.78 per
share (cost $3,765,020) ....... -- 2,704,287 -- -- -- -- --
International Value Portfolio,
91,981 shares at net asset
value of $22.78 per share
(cost $1,858,057) ............. -- -- 2,095,384 -- -- -- --
Small Cap Growth Portfolio, 25,469
shares at net asset value of
$9.98 per share
(cost $242,968) ............... -- -- -- 254,060 -- -- --
Value Portfolio, 38,506 shares at
net asset value of $6.74 per
share (cost $225,692) ......... -- -- -- -- 259,640 -- --
Micro-Cap Growth Portfolio, 6,473
shares at net asset value of
$20.08 per share
(cost $96,789) ................ -- -- -- -- -- 129,986 --
Small Cap Value Portfolio, 16,524
shares at net asset value of
$15.69 per share
(cost $254,316) ............... -- -- -- -- -- -- 259,246
---------- --------- --------- ------- ------- ------- -------
9,344,688 2,704,287 2,095,384 254,060 259,640 129,986 259,246
Receivable from Minnesota Life for
Policy purchase payments ......... -- -- -- -- -- -- --
Receivable for investments sold ..... 17,103 8,063 5,267 1,925 1,966 760 1,059
---------- --------- --------- ------- ------- ------- -------
Total assets .................. 9,361,791 2,712,350 2,100,651 255,985 261,606 130,746 260,305
---------- --------- --------- ------- ------- ------- -------
LIABILITIES
Payable to Minnesota Life for
Policy terminations, withdrawal
payments and mortality and expense
charges .......................... 17,103 8,063 5,267 1,925 1,966 760 1,059
Payable for investments purchased ... -- -- -- -- -- -- --
---------- --------- --------- ------- ------- ------- -------
Total liabilities ............. 17,103 8,063 5,267 1,925 1,966 760 1,059
---------- --------- --------- ------- ------- ------- -------
Net assets applicable to Policy
owners ..................... $9,344,688 2,704,287 2,095,384 254,060 259,640 129,986 259,246
========== ========= ========= ======= ======= ======= =======
POLICY OWNERS' EQUITY
Total Policy Owners' equity
(notes 5 and 6) ............ $9,344,688 2,704,287 2,095,384 254,060 259,640 129,986 259,246
========== ========= ========= ======= ======= ======= =======
See accompanying notes to financial statements.
MINNESOTA LIFE VARIABLE UNIVERSAL LIFE ACCOUNT
STATEMENTS OF ASSETS AND LIABILITIES
DECEMBER 31, 2006
[Download Table]
SEGREGATED SUB-ACCOUNTS
WADDELL & REED
CORE EQUITY
-----------------------
ASSETS
Investments in shares of the
Waddell & Reed Target Funds, Inc.:
Core Equity Portfolio, 4,981
shares at net asset value of
$12.55 per share
(cost $54,853) ................ $62,505
Receivable from Minnesota Life for
Policy purchase payments ......... --
Receivable for investments sold ..... 451
-------
Total assets .................. 62,956
-------
LIABILITIES
Payable to Minnesota Life for Policy
terminations, withdrawal payments
and mortality and expense
charges .......................... 451
Payable for investments purchased ... --
-------
Total liabilities ............. 451
-------
Net assets applicable to Policy
owners ..................... $62,505
=======
POLICY OWNERS' EQUITY
Total Policy Owners' equity
(notes 5 and 6) ............ $62,505
=======
See accompanying notes to financial statements.
MINNESOTA LIFE VARIABLE UNIVERSAL LIFE ACCOUNT
STATEMENTS OF OPERATIONS
YEAR OR PERIOD ENDED DECEMBER 31, 2006
[Enlarge/Download Table]
SEGREGATED SUB-ACCOUNTS
--------------------------------------------------------------------------------------------
ADVANTUS
MATURING ADVANTUS
ADVANTUS ADVANTUS ADVANTUS GOVERNMENT MATURING ADVANTUS
ADVANTUS MONEY INDEX MORTGAGE BOND GOVERNMENT INTERNATIONAL
BOND MARKET 500 SECURITIES 2006 (A) BOND 2010 BOND
----------- ---------- ---------- ---------- ---------- ---------- -------------
Investment income (loss):
Investment income distributions
from underlying mutual fund ... $ -- 208,813 -- -- -- -- --
Mortality, expense charges and
administrative charges
(note 3) ...................... (1,468) (12,819) (71,787) (402) (8) (53) (62)
----------- ---------- ---------- ------- ------ -------- ------
Investment income (loss) -
net ........................ (1,468) 195,994 (71,787) (402) (8) (53) (62)
----------- ---------- ---------- ------- ------ -------- ------
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 ........... 1,261,702 2,083,554 4,047,510 58,629 2,741 369,568 4,445
Cost of investments sold ...... (1,056,677) (2,083,554) (3,466,254) (55,550) (2,372) (371,693) (3,807)
----------- ---------- ---------- ------- ------ -------- ------
205,025 -- 581,256 3,079 369 (2,125) 638
----------- ---------- ---------- ------- ------ -------- ------
Net realized gains (losses) on
investments ................ 205,025 -- 581,256 3,079 369 (2,125) 638
----------- ---------- ---------- ------- ------ -------- ------
Net change in unrealized
appreciation or depreciation of
investments ................... 1,174,878 -- 7,054,509 11,702 (358) 734 (13)
----------- ---------- ---------- ------- ------ -------- ------
Net gains (losses) on
investments ................ 1,379,903 -- 7,635,765 14,781 11 (1,391) 625
----------- ---------- ---------- ------- ------ -------- ------
Net increase (decrease) in net
assets resulting from
operations ................. $ 1,378,435 195,994 7,563,978 14,379 3 (1,444) 563
=========== ========== ========== ======= ====== ======== ======
(a) For the period January 1, 2006 to September 15, 2006. Pursuant to the terms
of the prospectus, the Maturing Government Bond 2006 sub-account made a
liquidating distribution and ceased operations on September 15, 2006.
See accompanying notes to financial statements.
MINNESOTA LIFE VARIABLE UNIVERSAL LIFE ACCOUNT
STATEMENTS OF OPERATIONS
YEAR OR PERIOD ENDED DECEMBER 31, 2006
[Enlarge/Download Table]
SEGREGATED SUB-ACCOUNTS
-------------------------------------------------------------------------------------
ADVANTUS FIDELITY FIDELITY FIDELITY
ADVANTUS REAL FIDELITY VIP VIP VIP FIDELITY VIP
INDEX 400 ESTATE VIP GROWTH & EQUITY- HIGH ASSET
MID-CAP SECURITIES CONTRAFUND INCOME INCOME INCOME MANAGER
----------- ---------- ---------- -------- -------- -------- ------------
Investment income (loss):
Investment income distributions
from underlying mutual fund ... $ -- -- 75,394 9,869 64,514 62,576 10,389
Mortality, expense charges and
administrative charges
(note 3) ...................... (2,329) (390) (14,725) (2,790) (4,877) (2,199) (985)
----------- -------- ---------- -------- -------- -------- --------
Investment income (loss) -
net ........................ (2,329) (390) 60,669 7,079 59,637 60,377 9,404
----------- -------- ---------- -------- -------- -------- --------
Realized and unrealized gains
(losses) on investments - net:
Realized gain distributions from
underlying mutual fund ........ -- -- 471,841 27,574 198,540 -- --
----------- -------- ---------- -------- -------- -------- --------
Realized gains (losses) on sales
of investments:
Proceeds from sales ........... 2,276,048 173,846 1,661,194 466,337 406,333 378,257 161,547
Cost of investments sold ...... (1,513,017) (152,145) (1,070,315) (388,094) (331,456) (367,333) (150,493)
----------- -------- ---------- -------- -------- -------- --------
763,031 21,701 590,879 78,243 74,877 10,924 11,054
----------- -------- ---------- -------- -------- -------- --------
Net realized gains (losses) on
investments ................ 763,031 21,701 1,062,720 105,817 273,417 10,924 11,054
----------- -------- ---------- -------- -------- -------- --------
Net change in unrealized
appreciation or depreciation
of investments ................ 938,706 348,673 (502,011) 25,720 (21,642) 11,495 6,750
----------- -------- ---------- -------- -------- -------- --------
Net gains (losses) on
investments ................ 1,701,737 370,374 560,709 131,537 251,775 22,419 17,804
----------- -------- ---------- -------- -------- -------- --------
Net increase (decrease) in net
assets resulting from
operations ................. $ 1,699,408 369,984 621,378 138,616 311,412 82,796 27,208
=========== ======== ========== ======== ======== ======== ========
See accompanying notes to financial statements.
MINNESOTA LIFE VARIABLE UNIVERSAL LIFE ACCOUNT
STATEMENTS OF OPERATIONS
YEAR OR PERIOD ENDED DECEMBER 31, 2006
[Enlarge/Download Table]
SEGREGATED SUB-ACCOUNTS
-----------------------------------------------------------------------------------
FIDELITY
FIDELITY FIDELITY FIDELITY FIDELITY VIP FIDELITY VIP
VIP ASSET VIP VIP GROWTH VIP INVESTMENT FIDELITY VIP
MANAGER BALANCED GROWTH OPPORTUNITIES INDEX 500 GRADE BOND MID-CAP
--------- -------- ---------- ------------- --------- ---------- ------------
Investment income (loss):
Investment income distributions from
underlying mutual fund .................. $ 18,699 7,381 18,583 8,203 35,542 22,168 22,240
Mortality, expense charges and
administrative charges (note 3) ......... (2,383) (713) (12,172) (3,053) (5,226) (1,468) (16,523)
--------- ------- --------- ------- ------- ------- ---------
Investment income (loss) - net .......... 16,316 6,668 6,411 5,150 30,316 20,700 5,717
--------- ------- --------- ------- ------- ------- ---------
Realized and unrealized gains (losses) on
investments - net:
Realized gain distributions from underlying
mutual fund ............................. -- 12,061 -- -- -- 1,327 753,043
--------- ------- --------- ------- ------- ------- ---------
Realized gains (losses) on sales of
investments:
Proceeds from sales ..................... 268,065 268,113 1,529,025 502,388 803,651 328,260 1,393,206
Cost of investments sold ................ (239,885) (246,256) (1,411,522) (418,221) (660,132) (339,542) (791,603)
--------- -------- ---------- ------- -------- -------- ---------
28,180 21,857 117,503 84,167 143,519 (11,282) 601,603
--------- -------- ---------- ------- -------- -------- ---------
Net realized gains (losses) on
investments .......................... 28,180 33,918 117,503 84,167 143,519 (9,955) 1,354,646
--------- -------- ---------- ------- -------- -------- ---------
Net change in unrealized appreciation or
depreciation of investments ............. 19,703 (7,029) 197,064 (22,117) 134,487 15,286 (562,200)
--------- -------- ---------- ------- -------- -------- ---------
Net gains (losses) on investments ....... 47,883 26,889 314,567 62,050 278,006 5,331 792,446
--------- -------- ---------- ------- -------- -------- ---------
Net increase (decrease) in net assets
resulting from operations ............ $ 64,199 33,557 320,978 67,200 308,322 26,031 798,163
========= ======== ========== ======= ======== ======== =========
See accompanying notes to financial statements.
MINNESOTA LIFE VARIABLE UNIVERSAL LIFE ACCOUNT
STATEMENTS OF OPERATIONS
YEAR OR PERIOD ENDED DECEMBER 31, 2006
[Enlarge/Download Table]
SEGREGATED SUB-ACCOUNTS
---------------------------------------------------------------------------
FIDELITY
FIDELITY FIDELITY VIP FIDELITY FIDELITY
VIP FIDELITY VIP DYNAMIC FIDELITY VIP VIP
MONEY VIP AGGRESSIVE CAPITAL VIP VALUE GROWTH
MARKET OVERSEAS GROWTH APPRECIATION VALUE STRATEGY STOCK
--------- -------- ---------- ------------ -------- -------- --------
Investment income (loss):
Investment income distributions from
underlying mutual fund .................. $ 31,639 32,140 6,958 1,466 1,862 995 19
Mortality, expense charges and
administrative charges (note 3) ......... (1,646) (9,195) (764) (617) (401) (458) (88)
--------- -------- ------- ------- ------- ------- -------
Investment income (loss) - net .......... 29,993 22,945 6,194 849 1,461 537 (69)
--------- -------- ------- ------- ------- ------- -------
Realized and unrealized gains (losses) on
investments - net:
Realized gain distributions from underlying
mutual fund ............................. -- 22,343 10,058 7,560 732 28,912 --
--------- ------- ------- ------- ------- ------- -------
Realized gains (losses) on sales of
investments:
Proceeds from sales ..................... 534,183 967,448 78,737 86,291 88,180 92,154 51,821
Cost of investments sold ................ (534,183) (692,659) (68,871) (74,251) (70,885) (94,655) (48,597)
--------- -------- ------- ------- ------- ------- -------
-- 274,789 9,866 12,040 17,295 (2,501) 3,224
--------- -------- ------- ------- ------- ------- -------
Net realized gains (losses) on
investments .......................... -- 297,132 19,924 19,600 18,027 26,411 3,224
--------- -------- ------- ------- ------- ------- -------
Net change in unrealized appreciation or
depreciation of investments ............. -- 276,283 (9,362) 6,021 2,835 (1,876) (1,920)
--------- -------- ------- ------- ------- ------- -------
Net gains (losses) on investments ....... -- 573,415 10,562 25,621 20,862 24,535 1,304
--------- -------- ------- ------- ------- ------- -------
Net increase (decrease) in net assets
resulting from operations ............ $ 29,993 596,360 16,756 26,470 22,323 25,072 1,235
========= ======== ======= ======= ======= ======= =======
See accompanying notes to financial statements.
MINNESOTA LIFE VARIABLE UNIVERSAL LIFE ACCOUNT
STATEMENTS OF OPERATIONS
YEAR OR PERIOD ENDED DECEMBER 31, 2006
[Enlarge/Download Table]
SEGREGATED SUB-ACCOUNTS
---------------------------------------------------------------------------------
FIDELITY VIP FIDELITY FIDELITY FIDELITY FIDELITY
FIDELITY VIP INTERNATIONAL VIP VIP VIP VIP
FIDELITY VIP STRATEGIC CAPITAL VALUE FREEDOM FREEDOM FREEDOM
REAL ESTATE INCOME APPRECIATION* LEADERS* 2010* 2015* 2020*
------------ ------------ ------------- -------- -------- -------- --------
Investment income (loss):
Investment income distributions
from underlying mutual fund ... $ 12,805 1,910 92 100 56 41 53
Mortality, expense charges and
administrative charges
(note 3) ...................... (632) (77) (2) (4) (2) (2) (2)
-------- ------- --- --- --- --- ---
Investment income (loss)
- net ...................... 12,173 1,833 90 96 54 39 51
-------- ------- --- --- --- --- ---
Realized and unrealized gains
(losses) on investments - net:
Realized gain distributions from
underlying mutual fund ........ 16,047 57 90 162 11 18 24
-------- ------- --- --- --- --- ---
Realized gains (losses) on sales
of investments:
Proceeds from sales ........... 87,337 18,002 34 73 34 45 34
Cost of investments sold ...... (68,215) (18,068) (32) (70) (34) (44) (33)
-------- ------- --- --- --- --- ---
19,122 (66) 2 3 -- 1 1
-------- ------- --- --- --- --- ---
Net realized gains (losses) on
investments ................ 35,169 (9) 92 165 11 19 25
-------- ------- --- --- --- --- ---
Net change in unrealized
appreciation or depreciation
of investments ................ 30,815 620 184 123 67 88 91
-------- ------- --- --- --- --- ---
Net gains (losses) on
investments ................ 65,984 611 276 288 78 107 116
-------- ------- --- --- --- --- ---
Net increase (decrease) in net
assets resulting from
operations ................. $ 78,157 2,444 366 384 132 146 167
======== ======= === === === === ===
* For the period from October 2, 2006 (commencement of operations) to
December 31, 2006.
See accompanying notes to financial statements.
MINNESOTA LIFE VARIABLE UNIVERSAL LIFE ACCOUNT
STATEMENTS OF OPERATIONS
YEAR OR PERIOD ENDED DECEMBER 31, 2006
[Enlarge/Download Table]
SEGREGATED SUB-ACCOUNTS
----------------------------------------------------------------------------
FIDELITY FIDELITY FIDELITY FIDELITY JANUS LORD
VIP VIP VIP VIP JANUS ASPEN ABBETT
FREEDOM FREEDOM FREEDOM DISCIPLINED ASPEN INTERNATIONAL MID CAP
2025* 2030* INCOME* SMALL CAP* FORTY GROWTH VALUE
-------- -------- -------- ----------- ------- ------------- --------
Investment income (loss):
Investment income distributions
from underlying mutual fund ... $ 61 57 90 18 99 31,719 27,604
Mortality, expense charges and
administrative charges (note 3) (2) (2) (2) (6) (316) (449) (19)
---- --- --- --- ------- ------- --------
Investment income (loss)
- net ...................... 59 55 88 12 (217) 31,270 27,585
---- --- --- --- ------- ------- --------
Realized and unrealized gains
(losses) on investments - net:
Realized gain distributions from
underlying mutual fund ........ 36 26 11 -- -- -- 173,369
---- --- --- --- ------- ------- --------
Realized gains (losses) on sales
of investments:
Proceeds from sales ........... 6 93 2 32 18,073 45,307 654,771
Cost of investments sold ...... (7) (90) (3) (30) (13,771) (32,637) (646,031)
---- --- --- --- ------- ------- --------
(1) 3 (1) 2 4,302 12,670 8,740
---- --- --- --- ------- ------- --------
Net realized gains (losses) on
investments ................ 35 29 10 2 4,302 12,670 182,109
---- --- --- --- ------- ------- --------
Net change in unrealized
appreciation or depreciation
of investments ................ 79 108 (28) 493 1,640 456,878 51,015
---- --- --- --- ------- ------- --------
Net gains (losses) on
investments ................ 114 137 (18) 495 5,942 469,548 233,124
---- --- --- --- ------- ------- --------
Net increase (decrease) in net
assets resulting from
operations ................. $173 192 70 507 5,725 500,818 260,709
==== === === === ======= ======= ========
* For the period from October 2, 2006 (commencement of operations) to
December 31, 2006.
See accompanying notes to financial statements.
MINNESOTA LIFE VARIABLE UNIVERSAL LIFE ACCOUNT
STATEMENTS OF OPERATIONS
YEAR OR PERIOD ENDED DECEMBER 31, 2006
[Enlarge/Download Table]
SEGREGATED SUB-ACCOUNTS
------------------------------------------------------------------------
WADDELL WADDELL
WADDELL & & REED WADDELL & & REED
WADDELL & WADDELL REED SMALL WADDELL REED SMALL
REED & REED INTERNATIONAL CAP & REED MICRO-CAP CAP
BALANCED GROWTH VALUE GROWTH VALUE GROWTH VALUE
--------- -------- ------------- ------- ------- --------- -------
Investment income (loss):
Investment income distributions from
underlying mutual fund................... $ 127,596 -- 45,216 -- 4,279 -- 13,257
Mortality, expense charges and
administrative charges (note 3).......... (861) (2,221) (1,312) (1,138) (890) (509) (854)
--------- -------- ------- ------- ------- ------ -------
Investment income (loss) - net .......... 126,735 (2,221) 43,904 (1,138) 3,389 (509) 12,403
--------- -------- ------- ------- ------- ------ -------
Realized and unrealized gains (losses) on
investments - net:
Realized gain distributions from underlying
mutual fund.............................. 31,291 -- 129,653 24,202 8,704 -- 7,368
--------- -------- ------- ------- ------- ------ -------
Realized gains (losses) on sales of
investments:
Proceeds from sales...................... 226,435 109,342 72,519 43,600 50,016 12,090 18,796
Cost of investments sold ................ (215,652) (130,489) (55,674) (35,976) (41,862) (8,425) (15,445)
--------- -------- ------- ------- ------- ------ -------
10,783 (21,147) 16,845 7,624 8,154 3,665 3,351
--------- -------- ------- ------- ------- ------ -------
Net realized gains (losses) on
investments .......................... 42,074 (21,147) 146,498 31,826 16,858 3,665 10,719
--------- -------- ------- ------- ------- ------ -------
Net change in unrealized appreciation or
depreciation of investments ............. 780,831 151,304 206,655 (19,148) 16,287 10,110 13,083
--------- -------- ------- ------- ------- ------ -------
Net gains (losses) on investments ....... 822,905 130,157 353,153 12,678 33,145 13,775 23,802
--------- -------- ------- ------- ------- ------ -------
Net increase (decrease) in net assets
resulting from operations............. $ 949,640 127,936 397,057 11,540 36,534 13,266 36,205
========= ======== ======= ======= ======= ====== =======
See accompanying notes to financial statements.
MINNESOTA LIFE VARIABLE UNIVERSAL LIFE ACCOUNT
STATEMENTS OF OPERATIONS
YEAR OR PERIOD ENDED DECEMBER 31, 2006
[Download Table]
SEGREGATED
SUB-ACCOUNTS
WADDELL & REED
CORE EQUITY
--------------
Investment income (loss):
Investment income distributions from
underlying mutual fund................... $ 529
Mortality, expense charges and
administrative charges (note 3).......... (183)
-------
Investment income (loss) - net .......... 346
-------
Realized and unrealized gains (losses) on
investments - net:
Realized gain distributions from underlying
mutual fund.............................. 1,709
-------
Realized gains (losses) on sales of
investments:
Proceeds from sales...................... 5,175
Cost of investments sold ................ (3,966)
-------
1,209
-------
Net realized gains (losses) on
investments .......................... 2,918
-------
Net change in unrealized appreciation or
depreciation of investments ............. 4,342
-------
Net gains (losses) on investments ....... 7,260
-------
Net increase (decrease) in net assets
resulting from operations............. $ 7,606
=======
See accompanying notes to financial statements.
MINNESOTA LIFE VARIABLE UNIVERSAL LIFE ACCOUNT
STATEMENTS OF CHANGES IN NET ASSETS
YEAR OR PERIOD ENDED DECEMBER 31, 2006
[Enlarge/Download Table]
SEGREGATED SUB-ACCOUNTS
-----------------------------------------------------------------------------------------
ADVANTUS ADVANTUS
ADVANTUS ADVANTUS ADVANTUS MATURING MATURING ADVANTUS
ADVANTUS MONEY INDEX MORTGAGE GOVERNMENT GOVERNMENT INTERNATIONAL
BOND MARKET 500 SECURITIES BOND 2006 (a) BOND 2010 BOND
----------- ---------- ---------- ---------- ------------- ---------- -------------
Operations:
Investment income (loss) - net ... $ (1,468) 195,994 (71,787) (402) (8) (53) (62)
Net realized gains (losses) on
investments ................... 205,025 -- 581,256 3,079 369 (2,125) 638
Net change in unrealized
appreciation or depreciation of
investments ................... 1,174,878 -- 7,054,509 11,702 (358) 734 (13)
----------- ---------- ---------- ------- ------ -------- ------
Net increase (decrease) in net assets
resulting from operations ........ 1,378,435 195,994 7,563,978 14,379 3 (1,444) 563
----------- ---------- ---------- ------- ------ -------- ------
Policy transactions
(notes 2, 3 and 5):
Policy purchase payments: ........ 832,425 2,227,977 6,768,805 92,530 -- 421,583 6,777
Policy terminations, withdrawal
payments and charges: ......... (1,261,247) (2,076,661) (4,017,983) (58,348) (2,733) (369,528) (4,397)
----------- ---------- ---------- ------- ------ -------- ------
Increase (decrease) in net assets
from Policy transactions ......... (428,822) 151,316 2,750,822 34,182 (2,733) 52,055 2,380
----------- ---------- ---------- ------- ------ -------- ------
Increase (decrease) in net assets ... 949,613 347,310 10,314,800 48,561 (2,730) 50,611 2,943
Net assets at the beginning of
year ............................. 30,011,118 4,581,386 48,830,916 247,320 2,730 142,983 15,623
----------- ---------- ---------- ------- ------ -------- ------
Net assets at the end of year ....... $30,960,731 4,928,696 59,145,716 295,881 -- 193,594 18,566
=========== ========== ========== ======= ====== ======== ======
(a) For the period January 1, 2006 to September 15, 2006. Pursuant to the terms
of the prospectus, the Maturing Government Bond 2006 sub-account made a
liquidating distribution and ceased operations on September 15, 2006.
See accompanying notes to financial statements.
MINNESOTA LIFE VARIABLE UNIVERSAL LIFE ACCOUNT
STATEMENTS OF CHANGES IN NET ASSETS
YEAR OR PERIOD ENDED DECEMBER 31, 2006
[Enlarge/Download Table]
SEGREGATED SUB-ACCOUNTS
--------------------------------------------------------------------------------------------
FIDELITY
ADVANTUS ADVANTUS VIP FIDELITY VIP
INDEX 400 REAL ESTATE FIDELITY VIP GROWTH & FIDELITY VIP FIDELITY VIP ASSET
MID-CAP SECURITIES CONTRAFUND INCOME EQUITY-INCOME HIGH INCOME MANAGER
----------- ----------- ------------ --------- ------------- ------------ ------------
Operations:
Investment income (loss) - net ... $ (2,329) (390) 60,669 7,079 59,637 60,377 9,404
Net realized gains (losses) on
investments ................... 763,031 21,701 1,062,720 105,817 273,417 10,924 11,054
Net change in unrealized
appreciation or depreciation
of investments ................ 938,706 348,673 (502,011) 25,720 (21,642) 11,495 6,750
----------- --------- ---------- --------- --------- -------- --------
Net increase (decrease) in net
assets resulting from
operations ....................... 1,699,408 369,984 621,378 138,616 311,412 82,796 27,208
----------- --------- ---------- --------- --------- -------- --------
Policy transactions
(notes 2, 3 and 5):
Policy purchase payments: ........ 4,084,106 773,884 1,557,179 406,723 373,535 234,212 121,721
Policy terminations, withdrawal
payments and charges: ......... (2,275,348) (173,553) (1,655,117) (465,487) (404,684) (377,354) (161,259)
----------- --------- ---------- --------- --------- -------- --------
Increase (decrease) in net assets
from Policy transactions ......... 1,808,758 600,331 (97,938) (58,764) (31,149) (143,142) (39,538)
----------- --------- ---------- --------- --------- -------- --------
Increase (decrease) in net assets ... 3,508,166 970,315 523,440 79,852 280,263 (60,346) (12,330)
Net assets at the beginning of
year ............................. 15,754,573 1,073,027 5,431,971 1,109,044 1,596,529 899,382 418,944
----------- --------- ---------- --------- --------- -------- --------
Net assets at the end of year ....... $19,262,739 2,043,342 5,955,411 1,188,896 1,876,792 839,036 406,614
=========== ========= ========== ========= ========= ======== ========
See accompanying notes to financial statements.
MINNESOTA LIFE VARIABLE UNIVERSAL LIFE ACCOUNT
STATEMENTS OF CHANGES IN NET ASSETS
YEAR OR PERIOD ENDED DECEMBER 31, 2006
[Enlarge/Download Table]
SEGREGATED SUB-ACCOUNTS
----------------------------------------------------------------------------------
FIDELITY
VIP FIDELITY
ASSET FIDELITY FIDELITY FIDELITY VIP FIDELITY VIP FIDELITY
MANAGER VIP VIP GROWTH VIP INVESTMENT VIP
GROWTH BALANCED GROWTH OPPORTUNITIES INDEX 500 GRADE BOND MID-CAP
---------- -------- ---------- ------------- --------- ---------- ----------
Operations:
Investment income (loss) - net.............. $ 16,316 6,668 6,411 5,150 30,316 20,700 5,717
Net realized gains (losses) on investments.. 28,180 33,918 117,503 84,167 143,519 (9,955) 1,354,646
Net change in unrealized appreciation or
depreciation of investments.............. 19,703 (7,029) 197,064 (22,117) 134,487 15,286 (562,200)
---------- -------- ---------- --------- --------- -------- ----------
Net increase (decrease) in net assets resulting
from operations............................. 64,199 33,557 320,978 67,200 308,322 26,031 798,163
---------- -------- ---------- --------- --------- -------- ----------
Policy transactions (notes 2, 3 and 5):
Policy purchase payments:................... 260,354 158,542 1,411,621 468,384 639,291 221,867 1,523,411
Policy terminations, withdrawal payments and
charges:................................. (267,490) (267,923) (1,524,784) (501,557) (801,823) (327,805) (1,386,402)
---------- -------- ---------- --------- --------- -------- ----------
Increase (decrease) in net assets from Policy
transactions................................ (7,136) (109,381) (113,163) (33,173) (162,532) (105,938) 137,009
---------- -------- ---------- --------- --------- -------- ----------
Increase (decrease) in net assets.............. 57,063 (75,824) 207,815 34,027 145,790 (79,907) 935,172
Net assets at the beginning of year............ 948,614 363,589 4,904,344 1,271,882 2,132,821 581,764 6,114,165
---------- -------- ---------- --------- --------- -------- ----------
Net assets at the end of year.................. $1,005,677 287,765 5,112,159 1,305,909 2,278,611 501,857 7,049,337
========== ======== ========== ========= ========= ======== ==========
See accompanying notes to financial statements.
MINNESOTA LIFE VARIABLE UNIVERSAL LIFE ACCOUNT
STATEMENTS OF CHANGES IN NET ASSETS
YEAR OR PERIOD ENDED DECEMBER 31, 2006
[Enlarge/Download Table]
SEGREGATED SUB-ACCOUNTS
----------------------------------------------------------------------------
FIDELITY
FIDELITY FIDELITY VIP FIDELITY FIDELITY
VIP FIDELITY VIP DYNAMIC FIDELITY VIP VIP
MONEY VIP AGGRESSIVE CAPITAL VIP VALUE GROWTH
MARKET OVERSEAS GROWTH APPRECIATION VALUE STRATEGY STOCK
--------- --------- ---------- ------------ -------- -------- --------
Operations:
Investment income (loss) - net.............. $ 29,993 22,945 6,194 849 1,461 537 (69)
Net realized gains (losses) on investments.. -- 297,132 19,924 19,600 18,027 26,411 3,224
Net change in unrealized appreciation or
depreciation of investments.............. -- 276,283 (9,362) 6,021 2,835 (1,876) (1,920)
--------- --------- ------- ------- ------- ------- -------
Net increase (decrease) in net assets resulting
from operations............................. 29,993 596,360 16,756 26,470 22,323 25,072 1,235
--------- --------- ------- ------- ------- ------- -------
Policy transactions (notes 2, 3 and 5):
Policy purchase payments:................... 720,972 803,682 265,821 206,516 68,248 94,434 13,870
Policy terminations, withdrawal payments and
charges:................................. (533,721) (963,941) (78,385) (85,909) (87,939) (91,884) (51,764)
--------- --------- ------- ------- ------- ------- -------
Increase (decrease) in net assets from Policy
transactions................................ 187,251 (160,259) 187,436 120,607 (19,691) 2,550 (37,894)
--------- --------- ------- ------- ------- ------- -------
Increase (decrease) in net assets.............. 217,244 436,101 204,192 147,077 2,632 27,622 (36,659)
Net assets at the beginning of year............ 528,594 3,527,868 140,287 141,663 174,108 163,490 57,843
--------- --------- ------- ------- ------- ------- -------
Net assets at the end of year.................. $ 745,838 3,963,969 344,479 288,740 176,740 191,112 21,184
========= ========= ======= ======= ======= ======= =======
See accompanying notes to financial statements.
MINNESOTA LIFE VARIABLE UNIVERSAL LIFE ACCOUNT
STATEMENTS OF CHANGES IN NET ASSETS
YEAR OR PERIOD ENDED DECEMBER 31, 2006
[Enlarge/Download Table]
SEGREGATED SUB-ACCOUNTS
--------------------------------------------------------------------------
FIDELITY
FIDELITY FIDELITY VIP FIDELITY FIDELITY FIDELITY FIDELITY
VIP VIP INTERNATIONAL VIP VIP VIP VIP
REAL STRATEGIC CAPITAL VALUE FREEDOM FREEDOM FREEDOM
ESTATE INCOME APPRECIATION* LEADERS* 2010* 2015* 2020*
-------- --------- ------------- -------- -------- -------- --------
Operations:
Investment income (loss) - net.............. $ 12,173 1,833 90 96 54 39 51
Net realized gains (losses) on investments.. 35,169 (9) 92 165 11 19 25
Net change in unrealized appreciation or
depreciation of investments.............. 30,815 620 184 123 67 88 91
-------- ------- ----- ----- ----- ----- -----
Net increase (decrease) in net assets resulting
from operations............................. 78,157 2,444 366 384 132 146 167
-------- ------- ----- ----- ----- ----- -----
Policy transactions (notes 2, 3 and 5):
Policy purchase payments:................... 100,418 37,054 5,855 8,251 3,049 3,066 3,108
Policy terminations, withdrawal payments and
charges:................................. (87,044) (17,941) (32) (70) (33) (44) (33)
-------- ------- ----- ----- ----- ----- -----
Increase (decrease) in net assets from Policy
transactions................................ 13,374 19,113 5,823 8,181 3,016 3,022 3,075
-------- ------- ----- ----- ----- ----- -----
Increase (decrease) in net assets.............. 91,531 21,557 6,189 8,565 3,148 3,168 3,242
Net assets at the beginning of period.......... 216,420 19,498 -- -- -- -- --
-------- ------- ----- ----- ----- ----- -----
Net assets at the end of period................ $307,951 41,055 6,189 8,565 3,148 3,168 3,242
======== ======= ===== ===== ===== ===== =====
* For the period from October 2, 2006 (commencement of operations) to
December 31, 2006.
See accompanying notes to financial statements.
MINNESOTA LIFE VARIABLE UNIVERSAL LIFE ACCOUNT
STATEMENTS OF CHANGES IN NET ASSETS
YEAR OR PERIOD ENDED DECEMBER 31, 2006
[Enlarge/Download Table]
SEGREGATED SUB-ACCOUNTS
----------------------------------------------------------------------------
FIDELITY LORD
FIDELITY FIDELITY FIDELITY VIP JANUS ABBETT
VIP VIP VIP DISCIPLINED JANUS ASPEN MID
FREEDOM FREEDOM FREEDOM SMALL ASPEN INTERNATIONAL CAP
2025* 2030* INCOME* CAP* FORTY GROWTH VALUE
-------- -------- -------- ----------- ------- ------------- ---------
Operations:
Investment income (loss) - net.............. $ 59 55 88 12 (217) 31,270 27,585
Net realized gains (losses) on investments.. 35 29 10 2 4,302 12,670 182,109
Net change in unrealized appreciation or
depreciation of investments.............. 79 108 (28) 493 1,640 456,878 51,015
------ ----- ----- ------ ------- --------- ---------
Net increase (decrease) in net assets resulting
from operations............................. 173 192 70 507 5,725 500,818 260,709
------ ----- ----- ------ ------- --------- ---------
Policy transactions (notes 2, 3 and 5):
Policy purchase payments:................... 3,073 3,258 3,000 12,810 18,762 1,488,593 767,486
Policy terminations, withdrawal payments
and charges:............................. (4) (92) -- (27) (17,863) (45,001) (654,752)
------ ----- ----- ------ ------- --------- ---------
Increase (decrease) in net assets from Policy
transactions................................ 3,069 3,166 3,000 12,783 899 1,443,592 112,734
------ ----- ----- ------ ------- --------- ---------
Increase (decrease) in net assets.............. 3,242 3,358 3,070 13,290 6,624 1,944,410 373,443
Net assets at the beginning of period.......... -- -- -- -- 67,895 77,774 2,101,095
------ ----- ----- ------ ------- --------- ---------
Net assets at the end of period................ $3,242 3,358 3,070 13,290 74,519 2,022,184 2,474,538
====== ===== ===== ====== ======= ========= =========
* For the period from October 2, 2006 (commencement of operations) to
December 31, 2006.
See accompanying notes to financial statements.
MINNESOTA LIFE VARIABLE UNIVERSAL LIFE ACCOUNT
STATEMENTS OF CHANGES IN NET ASSETS
YEAR OR PERIOD ENDED DECEMBER 31, 2006
[Enlarge/Download Table]
SEGREGATED SUB-ACCOUNTS
--------------------------------------------------------------------------------
WADDELL & WADDELL & WADDELL & WADDELL
WADDELL & WADDELL & REED REED WADDELL & REED & REED
REED REED INTERNATIONAL SMALL CAP REED MICRO-CAP SMALL CAP
BALANCED GROWTH II GROWTH VALUE GROWTH VALUE
---------- --------- ------------- --------- --------- --------- ---------
Operations:
Investment income (loss) - net ............. $ 126,735 (2,221) 43,904 (1,138) 3,389 (509) 12,403
Net realized gains (losses) on investments.. 42,074 (21,147) 146,498 31,826 16,858 3,665 10,719
Net change in unrealized appreciation or
depreciation of investments ............. 780,831 151,304 206,655 (19,148) 16,287 10,110 13,083
---------- --------- --------- ------- ------- ------- -------
Net increase (decrease) in net assets resulting
from operations ............................ 949,640 127,936 397,057 11,540 36,534 13,266 36,205
---------- --------- --------- ------- ------- ------- -------
Policy transactions (notes 2, 3 and 5):
Policy purchase payments: .................. 82,693 110,051 1,505,724 53,714 46,608 28,909 21,013
Policy terminations, withdrawal payments and
charges: ................................... (225,919) (108,681) (71,927) (43,066) (49,560) (11,801) (18,277)
---------- --------- --------- ------- ------- ------- -------
Increase (decrease) in net assets from Policy
transactions ............................... (143,226) 1,370 1,433,797 10,648 (2,952) 17,108 2,736
---------- --------- --------- ------- ------- ------- -------
Increase (decrease) in net assets ............. 806,414 129,306 1,830,854 22,188 33,582 30,374 38,941
Net assets at the beginning of year ........... 8,538,274 2,574,981 264,530 231,872 226,058 99,612 220,305
---------- --------- --------- ------- ------- ------- -------
Net assets at the end of year ................. $9,344,688 2,704,287 2,095,384 254,060 259,640 129,986 259,246
========== ========= ========= ======= ======= ======= =======
See accompanying notes to financial statements.
MINNESOTA LIFE VARIABLE UNIVERSAL LIFE ACCOUNT
STATEMENTS OF CHANGES IN NET ASSETS
YEAR OR PERIOD ENDED DECEMBER 31, 2006
[Download Table]
SEGREGATED
SUB-ACCOUNTS
WADDELL & REED
CORE EQUITY
--------------
Operations:
Investment income (loss) - net ............. $ 346
Net realized gains (losses) on investments.. 2,918
Net change in unrealized appreciation or
depreciation of investments ............. 4,342
-------
Net increase (decrease) in net assets resulting
from operations ............................ 7,606
-------
Policy transactions (notes 2, 3 and 5):
Policy purchase payments: .................. 30,596
Policy terminations, withdrawal payments and
charges: ................................... (5,041)
-------
Increase (decrease) in net assets from Policy
transactions ............................... 25,555
-------
Increase (decrease) in net assets ............. 33,161
Net assets at the beginning of year ........... 29,344
-------
Net assets at the end of year ................. $62,505
=======
See accompanying notes to financial statements.
MINNESOTA LIFE VARIABLE UNIVERSAL LIFE ACCOUNT
STATEMENTS OF CHANGES IN NET ASSETS
YEAR ENDED DECEMBER 31, 2005
[Enlarge/Download Table]
SEGREGATED SUB-ACCOUNTS
---------------------------------------------------------------------------------------
ADVANTUS ADVANTUS
ADVANTUS ADVANTUS ADVANTUS MATURING MATURING ADVANTUS
ADVANTUS MONEY INDEX MORTGAGE GOVERNMENT GOVERNMENT INTERNATIONAL
BOND MARKET 500 SECURITIES BOND 2006 BOND 2010 BOND
----------- ---------- ----------- ---------- ---------- ---------- -------------
Operations:
Investment income (loss) - net ......... $ (7,037) 96,293 (72,641) (508) (11) (126) (71)
Net realized gains (losses) on
investments ......................... 688,692 -- 2,673,125 5,165 3 2,619 2,870
Net change in unrealized appreciation or
depreciation of investments ......... 28,550 -- (664,439) 820 (24) (2,116) (4,518)
----------- ---------- ----------- -------- ----- -------- -------
Net increase (decrease) in net assets
resulting from operations .............. 710,205 96,293 1,936,045 5,477 (32) 377 (1,719)
----------- ---------- ----------- -------- ----- -------- -------
Policy transactions (notes 2, 3, 4 and 5):
Policy purchase payments: .............. 5,886,437 3,476,501 16,757,503 268,430 -- 437,854 5,387
Policy terminations, withdrawal payments
and charges: ........................ (6,198,775) (3,587,872) (11,851,410) (213,259) -- (346,536) (13,168)
----------- ---------- ----------- -------- ----- -------- -------
Increase (decrease) in net assets from
Policy transactions .................... (312,338) (111,371) 4,906,093 55,171 -- 91,318 (7,781)
----------- ---------- ----------- -------- ----- -------- -------
Increase (decrease) in net assets ......... 397,867 (15,078) 6,842,138 60,648 (32) 91,695 (9,500)
Net assets at the beginning of year ....... 29,613,251 4,596,464 41,988,778 186,672 2,762 51,288 25,123
----------- ---------- ----------- -------- ----- -------- -------
Net assets at the end of year ............. $30,011,118 4,581,386 48,830,916 247,320 2,730 142,983 15,623
=========== ========== =========== ======== ===== ======== =======
See accompanying notes to financial statements.
MINNESOTA LIFE VARIABLE UNIVERSAL LIFE ACCOUNT
STATEMENTS OF CHANGES IN NET ASSETS
YEAR ENDED DECEMBER 31, 2005
[Enlarge/Download Table]
SEGREGATED SUB-ACCOUNTS
------------------------------------------------------------------------------------
FIDELITY FIDELITY FIDELITY
ADVANTUS ADVANTUS FIDELITY VIP VIP VIP VIP
INDEX 400 REAL ESTATE FIDELITY VIP GROWTH & EQUITY- HIGH ASSET
MID-CAP SECURITIES CONTRAFUND INCOME INCOME INCOME MANAGER
------------ ----------- ------------ ------------ --------- -------- --------
Operations:
Investment income (loss) - net ......... $ (11,587) (676) 711 12,880 18,607 127,845 10,535
Net realized gains (losses) on
investments ......................... 2,521,908 65,823 434,032 42,057 91,990 23,265 5,248
Net change in unrealized appreciation or
depreciation of investments ......... (904,911) 12,715 326,243 20,462 (22,219) (129,398) (1,096)
------------ --------- ---------- --------- --------- ------- --------
Net increase (decrease) in net assets
resulting from operations .............. 1,605,410 77,862 760,986 75,399 88,378 21,712 14,687
------------ --------- ---------- --------- --------- ------- --------
Policy transactions (notes 2, 3, 4 and 5):
Policy purchase payments: .............. 11,074,304 1,420,175 1,845,031 404,247 390,020 260,097 121,408
Policy terminations, withdrawal payments
and charges: ........................ (10,129,368) (730,190) (1,647,473) (449,264) (287,556) (359,574) (166,058)
------------ --------- ---------- --------- --------- ------- --------
Increase (decrease) in net assets from
Policy transactions .................... 944,936 689,985 197,558 (45,017) 102,464 (99,477) (44,650)
------------ --------- ---------- --------- --------- ------- --------
Increase (decrease) in net assets ......... 2,550,346 767,847 958,544 30,382 190,842 (77,765) (29,963)
Net assets at the beginning of year ....... 13,204,227 305,180 4,473,427 1,078,662 1,405,687 977,147 448,907
------------ --------- ---------- --------- --------- ------- --------
Net assets at the end of year ............. $ 15,754,573 1,073,027 5,431,971 1,109,044 1,596,529 899,382 418,944
============ ========= ========== ========= ========= ======= ========
See accompanying notes to financial statements.
MINNESOTA LIFE VARIABLE UNIVERSAL LIFE ACCOUNT
STATEMENTS OF CHANGES IN NET ASSETS
YEAR ENDED DECEMBER 31, 2005
[Enlarge/Download Table]
SEGREGATED SUB-ACCOUNTS
---------------------------------------------------------------------------------------------
FIDELITY VIP FIDELITY FIDELITY FIDELITY VIP FIDELITY VIP
ASSET VIP VIP GROWTH FIDELITY VIP INVESTMENT FIDELITY VIP
MANAGER GROWTH BALANCED GROWTH OPPORTUNITIES INDEX 500 GRADE BOND MID-CAP
-------------- -------- ---------- ------------- ------------ ------------ ------------
Operations:
Investment income (loss) - net ... $ 18,966 7,687 10,563 7,623 28,268 19,160 (14,196)
Net realized gains (losses) on
investments ................... 17,135 9,105 (3,179) 57,857 96,745 6,966 705,371
Net change in unrealized
appreciation or depreciation
of investments ................ (4,208) 2,472 250,114 35,179 (31,678) (15,113) 263,970
--------- -------- ---------- --------- --------- ------- ---------
Net increase (decrease) in net
assets resulting from
operations ....................... 31,893 19,264 257,498 100,659 93,335 11,013 955,145
--------- -------- ---------- --------- --------- ------- ---------
Policy transactions (notes 2, 3, 4
and 5):
Policy purchase payments: ........ 271,658 140,853 1,524,485 483,466 957,089 172,120 1,181,851
Policy terminations, withdrawal
payments and charges: ......... (289,029) (131,771) (1,602,053) (503,636) (862,409) (172,286) (1,583,129)
--------- -------- ---------- --------- --------- -------- ----------
Increase (decrease) in net assets
from Policy transactions ......... (17,371) 9,082 (77,568) (20,170) 94,680 (166) (401,278)
--------- -------- ---------- --------- --------- -------- ----------
Increase (decrease) in net assets ... 14,522 28,346 179,930 80,489 188,015 10,847 553,867
Net assets at the beginning of
year ............................. 934,092 335,243 4,724,414 1,191,393 1,944,806 570,917 5,560,298
--------- -------- ---------- --------- --------- -------- ----------
Net assets at the end of year ....... $ 948,614 363,589 4,904,344 1,271,882 2,132,821 581,764 6,114,165
========= ======== ========== ========= ========= ======== ==========
See accompanying notes to financial statements.
MINNESOTA LIFE VARIABLE UNIVERSAL LIFE ACCOUNT
STATEMENTS OF CHANGES IN NET ASSETS
YEAR ENDED DECEMBER 31, 2005
[Enlarge/Download Table]
SEGREGATED SUB-ACCOUNTS
--------------------------------------------------------------------------------------------
FIDELITY FIDELITY VIP FIDELITY VIP FIDELITY FIDELITY VIP FIDELITY VIP
FIDELITY VIP VIP AGGRESSIVE DYNAMIC CAPITAL VIP VALUE GROWTH
MONEY MARKET OVERSEAS GROWTH APPRECIATION VALUE STRATEGY STOCK
------------ --------- ------------ --------------- -------- ------------ ------------
Operations:
Investment income (loss) - net ... $ 13,833 11,913 (333) (268) 550 (399) (58)
Net realized gains (losses) on
investments ................... -- 119,642 12,795 11,448 5,507 7,889 (408)
Net change in unrealized
appreciation or depreciation
of investments ................ -- 420,993 (2,560) 9,675 4,286 (3,299) 3,358
----------- --------- ------- -------- ------- ------- ------
Net increase (decrease) in net assets
resulting from operations ........ 13,833 552,548 9,902 20,855 10,343 4,191 2,892
----------- --------- ------- -------- ------- ------- ------
Policy transactions (notes 2, 3, 4
and 5):
Policy purchase payments: ........ 1,269,792 720,356 66,109 232,934 73,552 87,555 43,285
Policy terminations, withdrawal
payments and charges: ......... (1,205,920) (748,891) (82,793) (223,755) (25,715) (93,114) (8,776)
----------- --------- ------- -------- ------- ------- ------
Increase (decrease) in net assets
from Policy transactions ......... 63,872 (28,535) (16,684) 9,179 47,837 (5,559) 34,509
----------- --------- ------- -------- ------- ------- ------
Increase (decrease) in net assets ... 77,705 524,013 (6,782) 30,034 58,180 (1,368) 37,401
Net assets at the beginning of
year ............................. 450,889 3,003,855 147,069 111,629 115,928 164,858 20,442
----------- --------- ------- -------- ------- ------- ------
Net assets at the end of year ....... $ 528,594 3,527,868 140,287 141,663 174,108 163,490 57,843
=========== ========= ======= ======== ======= ======= ======
See accompanying notes to financial statements.
MINNESOTA LIFE VARIABLE UNIVERSAL LIFE ACCOUNT
STATEMENTS OF CHANGES IN NET ASSETS
YEAR ENDED DECEMBER 31, 2005
[Enlarge/Download Table]
SEGREGATED SUB-ACCOUNTS
-----------------------------------------------------------------------------
FIDELITY FIDELITY JANUS LORD
VIP VIP JANUS ASPEN ABBETT WADDELL WADDELL
REAL STRATEGIC ASPEN INTERNATIONAL MID CAP & REED & REED
ESTATE INCOME* FORTY GROWTH VALUE BALANCED GROWTH
--------- --------- ------ ------------- ---------- --------- ---------
Operations:
Investment income (loss) - net ... $ 4,834 1,091 (264) 408 7,155 105,543 (1,776)
Net realized gains (losses) on
investments ................... 29,354 (144) 920 1,612 193,752 (2,619) (58,226)
Net change in unrealized
appreciation or depreciation
of investments ................ (8,180) (677) 5,821 15,689 (64,169) 306,020 319,069
--------- ------ ------ ------ ---------- --------- ---------
Net increase (decrease) in net
assets resulting from
operations ....................... 26,008 270 6,477 17,709 136,738 408,944 259,067
--------- ------ ------ ------ ---------- --------- ---------
Policy transactions (notes 2, 3,
4 and 5):
Policy purchase payments: ........ 220,416 27,701 20,403 16,610 2,828,723 47,746 90,988
Policy terminations, withdrawal
payments and charges: ......... (177,256) (8,473) (6,232) (6,009) (1,436,520) (204,365) (129,634)
--------- ------ ------ ------ ---------- --------- ---------
Increase (decrease) in net assets
from Policy transactions ......... 43,160 19,228 14,171 10,601 1,392,203 (156,619) (38,646)
--------- ------ ------ ------ ---------- --------- ---------
Increase (decrease) in net assets ... 69,168 19,498 20,648 28,310 1,528,941 252,325 220,421
Net assets at the beginning of
period ........................... 147,252 -- 47,247 49,464 572,154 8,285,949 2,354,560
--------- ------ ------ ------ ---------- --------- ---------
Net assets at the end of period ..... $ 216,420 19,498 67,895 77,774 2,101,095 8,538,274 2,574,981
========= ====== ====== ====== ========== ========= =========
* For the period from October 17, 2005 to December 31, 2005.
See accompanying notes to financial statements.
MINNESOTA LIFE VARIABLE UNIVERSAL LIFE ACCOUNT
STATEMENTS OF CHANGES IN NET ASSETS
YEAR ENDED DECEMBER 31, 2005
[Enlarge/Download Table]
SEGREGATED SUB-ACCOUNTS
----------------------------------------------------------------
WADDELL WADDELL WADDELL WADDELL WADDELL
& REED & REED WADDELL & REED & REED & REED
INTERNATIONAL SMALL CAP & REED MICRO-CAP SMALL CAP CORE
VALUE GROWTH VALUE GROWTH VALUE EQUITY
------------- --------- ------- --------- --------- -------
Operations:
Investment income (loss) - net ... $ 4,133 (1,035) 2,389 (398) (693) (7)
Net realized gains (losses) on
investments ................... 47,613 14,762 18,658 3,281 42,956 515
Net change in unrealized
appreciation or depreciation
of investments ................ (22,411) 11,766 (11,899) 14,022 (34,588) 1,720
--------- ------- ------- ------- ------- ------
Net increase (decrease) in net assets
resulting from operations ........ 29,335 25,493 9,148 16,905 7,675 2,228
--------- ------- ------- ------- ------- ------
Policy transactions (notes 2, 3,
4 and 5):
Policy purchase payments: ........ 81,942 38,746 46,977 18,864 75,078 10,591
Policy terminations, withdrawal
payments and charges: ......... (109,543) (43,546) (42,358) (17,473) (36,164) (4,340)
--------- ------- ------- ------- ------- ------
Increase (decrease) in net assets
from Policy transactions ......... (27,601) (4,800) 4,619 1,391 38,914 6,251
--------- ------- ------- ------- ------- ------
Increase (decrease) in net assets ... 1,734 20,693 13,767 18,296 46,589 8,479
Net assets at the beginning of
year ............................. 262,796 211,179 212,291 81,316 173,716 20,865
--------- ------- ------- ------- ------- ------
Net assets at the end of year ....... $ 264,530 231,872 226,058 99,612 220,305 29,344
========= ======= ======= ======= ======= ======
See accompanying notes to financial statements.
1
MINNESOTA LIFE VARIABLE UNIVERSAL LIFE ACCOUNT
NOTES TO FINANCIAL STATEMENTS
DECEMBER 31, 2006 AND 2005
(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
forty-nine 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 forty-nine segregated
sub-accounts. Such payments are then invested in shares of the portfolios or
funds (as individually listed in the accompanying financial statements) of
Advantus Series Fund, Inc., Fidelity Variable Insurance Products Funds, Janus
Aspen Series, Lord Abbett Funds, Inc. or Waddell & Reed Target 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 market 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 FIFO 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 contract holders or beneficiaries upon termination or
withdrawal.
2
MINNESOTA LIFE VARIABLE UNIVERSAL LIFE ACCOUNT
NOTES TO FINANCIAL STATEMENTS
DECEMBER 31, 2006 AND 2005
(2) SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES - CONTINUED
RECENT ACCOUNTING PRONOUNCEMENTS
On September 20, 2006, the Financial Accounting Standards Board (FASB) released
Statement of Financial Accounting Standards No. 157, "Fair Value Measurements"
(SFAS 157). SFAS 157 establishes an authoritative definition of fair value, sets
out a framework for measuring fair value, and requires additional disclosures
about fair-value measurements. The application of SFAS 157 is required for
fiscal years beginning after November 15, 2007 and interim periods within those
fiscal years. The impact of SFAS 157 on the Account's financial statements is
being evaluated.
INVESTMENTS
For the year ended December 31, 2005, several Portfolios changed their name as
summarized in the following table:
[Enlarge/Download Table]
CURRENT PORTFOLIO PRIOR PORTFOLIO NAME
----------------- --------------------
Janus Aspen Forty Portfolio Janus Aspen Capital Appreciation Portfolio
Waddell & Reed International Value Portfolio Waddell & Reed International II Portfolio
(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, 2006 and 2005 amounted to $40,573 and $38,890, 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, 2006 and 2005 amounted to $45,364 and $42,305,
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, 2006 and 2005 amounted to $6,925 and $5,389, 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. See the table below
for these charges.
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.
3
MINNESOTA LIFE VARIABLE UNIVERSAL LIFE ACCOUNT
NOTES TO FINANCIAL STATEMENTS
DECEMBER 31, 2006 AND 2005
(3) EXPENSES AND RELATED PARTY TRANSACTIONS - CONTINUED
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% to 0.60% of average daily net
assets. In addition, the Advantus Series Fund, Inc. has adopted a Rule 12b-1
distribution plan covering all its portfolios except the Maturing Government
Bond Portfolios. Under the plan, the Advantus Series Fund, Inc. pays
distribution fees equal to 0.25% 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 equal to 0.02% 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.
The total cash value charges for the years ended December 31, 2006 and 2005 for
each segregated sub-account are as follows:
[Download Table]
2006 2005
-------- --------
Advantus Bond ........................... $ 3,520 $ 3,592
Advantus Money Market ................... 189,567 164,624
Advantus Index 500 ...................... 196,883 193,530
Advantus Mortgage Securities ............ 5,132 4,851
Advantus Maturing Government Bond 2010 .. 1,582 1,624
Advantus International Bond ............. 1,284 1,496
Advantus Index 400 Mid-Cap .............. 9,498 9,919
Advantus Real Estate Securities ......... 3,964 3,570
Fidelity VIP Contrafund ................. 16,089 15,150
Fidelity VIP Equity-Income .............. 24,123 22,537
Fidelity VIP High Income ................ 2,674 2,762
Janus Aspen Forty ....................... 5,580 4,881
Janus International Growth .............. 4,821 3,620
Waddell & Reed Balanced ................. 31,479 31,006
Waddell & Reed Growth ................... 38,044 36,950
Waddell & Reed International Value ...... 14,645 14,703
Waddell & Reed Small Cap Growth ......... 18,400 18,864
Waddell & Reed Value .................... 14,989 15,155
Waddell & Reed Micro-Cap Growth ......... 5,432 5,559
Waddell & Reed Small Cap Value .......... 6,636 7,796
Waddell & Reed Core Equity .............. 3,460 3,170
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 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, 2006 and 2005 amounted to $341,462 and
$367,990, respectively.
4
MINNESOTA LIFE VARIABLE UNIVERSAL LIFE ACCOUNT
NOTES TO FINANCIAL STATEMENTS
DECEMBER 31, 2006 AND 2005
(3) EXPENSES AND RELATED PARTY TRANSACTIONS - CONTINUED
OPTION 2 - CONTINUED:
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, 2006 and 2005 amounted to $62,730 and $66,055, 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. See the table on the
following page for these charges.
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.
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% to 0.60% of average daily net
assets. In addition, the Advantus Series Fund, Inc. has adopted a Rule 12b-1
distribution plan covering all its portfolios except the Maturing Government
Bond Portfolios. Under the plan, the Advantus Series Fund, Inc. pays
distribution fees equal to 0.25% 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 equal to 0.02% 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.
The total cash value charges for the years ended December 31, 2006 and 2005 for
each segregated sub-account are as follows:
[Download Table]
2006 2005
---------- ----------
Advantus Bond ........................... $ 128,953 $ 424,739
Advantus Money Market ................... 173,468 272,634
Advantus Index 500 ...................... 347,985 868,465
Advantus Mortgage Securities ............ 1,668 3,291
Advantus Maturing Government Bond 2010 .. 2,784 2,547
Advantus International Bond ............. 1,507 982
Advantus Index 400 Mid-Cap .............. 172,193 603,195
Advantus Real Estate Securities ......... 16,368 19,516
Fidelity VIP Contrafund ................. 1,048,977 986,345
Fidelity VIP Growth & Income ............ 384,673 364,558
Fidelity VIP Equity-Income .............. 219,190 202,789
Fidelity VIP High Income ................ 144,216 147,974
Fidelity VIP Asset Manager .............. 104,271 102,757
Fidelity VIP Asset Manager Growth ....... 233,964 233,945
Fidelity VIP Balanced ................... 122,605 108,238
Fidelity VIP Growth ..................... 1,193,528 1,183,646
Fidelity VIP Growth Opportunities ....... 384,673 384,198
Fidelity VIP Index 500 .................. 537,216 519,671
Fidelity VIP Investment Grade Bond ...... 102,588 99,192
Fidelity VIP Mid-Cap .................... 835,933 798,905
Fidelity VIP Money Market ............... 318,449 293,933
Fidelity VIP Overseas ................... 490,316 462,762
5
MINNESOTA LIFE VARIABLE UNIVERSAL LIFE ACCOUNT
NOTES TO FINANCIAL STATEMENTS
DECEMBER 31, 2006 AND 2005
(3) EXPENSES AND RELATED PARTY TRANSACTIONS - CONTINUED
OPTION 2 - CONTINUED:
Total cash value charges continued:
[Download Table]
2006 2005
------- -------
Fidelity VIP Aggressive Growth ................... $43,037 $30,626
Fidelity VIP Dynamic Capital Appreciation ........ 19,054 11,256
Fidelity VIP Value ............................... 16,789 14,216
Fidelity VIP Value Strategy ...................... 22,831 20,125
Fidelity VIP Growth Stock ........................ 8,248 6,813
Fidelity VIP Real Estate ......................... 36,876 27,405
Fidelity VIP International Capital Appreciation .. 35 --
Fidelity VIP Value Leaders ....................... 70 --
Fidelity VIP Freedom 2020 ........................ 30 --
Fidelity VIP Freedom 2025 ........................ 4 --
Fidelity VIP Freedom 2030 ........................ 92 --
Fidelity VIP Disciplined Small Cap ............... 45 --
Janus Aspen Forty ................................ 1,397 443
Janus Aspen International Growth ................. 10,578 2,222
Waddell & Reed Balanced .......................... 8,957 6,645
Waddell & Reed Growth ............................ 12,184 4,750
Waddell & Reed International Value ............... 7,586 5,014
Waddell & Reed Small Cap Growth .................. 5,125 2,550
Waddell & Reed Value ............................. 8,172 7,101
Waddell & Reed Micro-Cap Growth .................. 3,449 1,873
Waddell & Reed Small Cap Value ................... 4,898 3,321
Waddell & Reed Core Equity ....................... 1,687 784
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 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, 2006 and 2005 amounted to $92,229 and $29,777,
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, 2006 and 2005 amounted to $57,643 and $18,611, 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. See the table below
for these charges.
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.
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% to 0.60% of average daily net
assets. In addition, the Advantus Series Fund, Inc. has adopted a Rule 12b-1
distribution plan
6
MINNESOTA LIFE VARIABLE UNIVERSAL LIFE ACCOUNT
NOTES TO FINANCIAL STATEMENTS
DECEMBER 31, 2006 AND 2005
(3) EXPENSES AND RELATED PARTY TRANSACTIONS - CONTINUED
OPTION 3 - CONTINUED:
covering all its portfolios except the Maturing Government Bond Portfolios.
Under the plan, the Advantus Series Fund, Inc. pays distribution fees equal to
0.25% 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 equal to 0.02% 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.
The total cash value charges for the years ended December 31, 2006 and 2005, for
the segregated sub-accounts are as follows:
[Download Table]
2006 2005
---------- --------
Advantus Bond .................... $ 998,255 $680,026
Advantus Money Market ............ 379,995 199,303
Advantus Index 500 ............... 1,405,526 819,111
Advantus Index 400 Mid-Cap ....... 983,707 523,939
Advantus Real Estate Securities .. 32,740 10,282
Waddell & Reed Balanced .......... 161,573 141,783
Waddell & Reed Growth ............ 53,418 60,916
OPTION 4:
There is no mortality and expense charge on Option 4 policies; however, there is
a .10% 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, 2006 and 2005.
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, 2006 and 2005.
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.
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% to 0.60% of average daily net
assets. In addition, the Advantus Series Fund, Inc. has adopted a Rule 12b-1
distribution plan covering all its portfolios except the Maturing Government
Bond Portfolios. Under the plan, the Advantus Series Fund, Inc. pays
distribution fees equal to 0.25% 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 equal to 0.02% 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.
There were no cash value charges for the years ended December 31, 2006 and 2005.
7
MINNESOTA LIFE VARIABLE UNIVERSAL LIFE ACCOUNT
NOTES TO FINANCIAL STATEMENTS
DECEMBER 31, 2006 AND 2005
(4) The Account's purchases of the Underlying Funds' shares, including
reinvestment of dividend distributions, were as follows during the period
ended December 31, 2006:
[Download Table]
Advantus Bond $ 831,412
Advantus Money Market 2,430,864
Advantus Index 500 6,726,545
Advantus Mortgage Securities 92,409
Advantus Maturing Government Bond 2006 --
Advantus Maturing Government Bond 2010 421,570
Advantus International Bond 6,763
Advantus Index 400 Mid-Cap 4,082,477
Advantus Real Estate Securities 773,787
Fidelity VIP Contrafund 2,095,766
Fidelity VIP Growth & Income 442,226
Fidelity VIP Equity-Income 633,361
Fidelity VIP High Income 295,492
Fidelity VIP Asset Manager 131,413
Fidelity VIP Asset Manager Growth 277,245
Fidelity VIP Balanced 177,461
Fidelity VIP Growth 1,422,273
Fidelity VIP Growth Opportunities 474,365
Fidelity VIP Index 500 671,435
Fidelity VIP Investment Grade Bond 244,349
Fidelity VIP Mid-Cap 2,288,975
Fidelity VIP Money Market 751,427
Fidelity VIP Overseas 852,477
Fidelity VIP Aggressive Growth 282,425
Fidelity VIP Dynamic Capital Appreciation 215,307
Fidelity VIP Value 70,682
Fidelity VIP Value Strategy 124,153
Fidelity VIP Growth Stock 13,858
Fidelity VIP Real Estate 128,931
Fidelity VIP Strategic Income 39,005
Fidelity VIP Intl Capital Appreciation 6,037
Fidelity VIP Value Leaders 8,512
Fidelity VIP Freedom 2010 3,115
Fidelity VIP Freedom 2015 3,124
Fidelity VIP Freedom 2020 3,184
Fidelity VIP Freedom 2025 3,170
Fidelity VIP Freedom 2030 3,340
Fidelity VIP Freedom Income 3,101
Fidelity VIP Disciplined Small Cap 12,827
Janus Aspen Forty 18,755
Janus Aspen International Growth 1,520,169
Lord Abbett Mid Cap Value 968,459
Waddell & Reed Balanced 241,235
Waddell & Reed Growth 108,491
Waddell & Reed International Value 1,679,873
Waddell & Reed Small Cap Growth 77,312
Waddell & Reed Value 59,157
Waddell & Reed Micro-Cap Growth 28,689
Waddell & Reed Small Cap Value 41,303
Waddell & Reed Core Equity 32,785
8
MINNESOTA LIFE VARIABLE UNIVERSAL LIFE ACCOUNT
NOTES TO FINANCIAL STATEMENTS
DECEMBER 31, 2006 AND 2005
(5) UNIT ACTIVITY FROM CONTRACT TRANSACTIONS
Transactions in units for each segregated sub-account for the years ended
December 31, 2006 and 2005 were as follows:
[Enlarge/Download Table]
SEGREGATED SUB-ACCOUNTS
---------------------------------------------------------------------
ADVANTUS
ADVANTUS ADVANTUS ADVANTUS MATURING
ADVANTUS MONEY INDEX MORTGAGE GOVERNMENT
BOND MARKET 500 SECURITIES BOND 2006
---------- ------------- ----------- ----------- ------------
Units outstanding at
December 31, 2004 ................ 21,957,311 3,512,805 24,519,564 107,476 1,584
Contract purchase payments ....... 4,309,299 2,800,594 10,322,457 256,093 --
Contract terminations, withdrawal
payments and charges .......... (3,894,833) (2,819,436) (7,117,271) (155,023) --
---------- ---------- ---------- -------- ------
Units outstanding at
December 31, 2005 ................ 22,371,777 3,493,963 27,724,750 208,546 1,584
Contract purchase payments ....... 591,001 1,735,558 3,677,547 80,696 --
Contract terminations, withdrawal
payments and charges .......... (912,227) (1,604,147) (2,097,832) (52,349) (1,584)
---------- ---------- ---------- -------- ------
Units outstanding at December 31,
2006 ............................. 22,050,551 3,625,374 29,304,465 236,893 --
========== ========== ========== ======== ======
[Enlarge/Download Table]
SEGREGATED SUB-ACCOUNTS
---------------------------------------------------------------------
ADVANTUS
MATURING ADVANTUS ADVANTUS ADVANTUS
GOVERNMENT INTERNATIONAL INDEX 400 REAL ESTATE FIDELITY VIP
BOND 2010 BOND MID-CAP SECURITIES CONTRAFUND
---------- ------------- ----------- ----------- ------------
Units outstanding at
December 31, 2004 ................ 32,011 15,770 6,944,682 168,294 2,100,734
Contract purchase payments ....... 331,142 3,565 6,088,826 743,853 821,421
Contract terminations, withdrawal
payments and charges .......... (222,344) (8,646) (4,827,575) (382,607) (734,647)
-------- ------ ---------- -------- ---------
Units outstanding at
December 31, 2005 ................ 140,809 10,689 8,205,933 529,540 2,187,508
Contract purchase payments ....... 423,833 4,497 2,058,922 321,822 600,909
Contract terminations, withdrawal
payments and charges .......... (375,192) (2,951) (1,112,619) (79,251) (636,667)
-------- ------ ---------- -------- ---------
Units outstanding at
December 31, 2006 ............... 189,450 12,235 9,152,236 772,111 2,151,750
======== ====== ========== ======== =========
9
MINNESOTA LIFE VARIABLE UNIVERSAL LIFE ACCOUNT
NOTES TO FINANCIAL STATEMENTS
DECEMBER 31, 2006 AND 2005
(5) UNIT ACTIVITY FROM CONTRACT TRANSACTIONS - CONTINUED
[Enlarge/Download Table]
SEGREGATED SUB-ACCOUNTS
---------------------------------------------------------------------------
FIDELITY VIP FIDELITY VIP FIDELITY VIP
GROWTH & FIDELITY VIP FIDELITY VIP ASSET ASSET
INCOME EQUITY-INCOME HIGH INCOME MANAGER MANAGER GROWTH
------------ ------------- ------------ ------------ --------------
Units outstanding at December 31,
2004 ........................... 1,065,788 768,905 833,462 425,553 1,014,583
Contract purchase payments ..... 397,769 215,519 223,718 114,943 296,732
Contract terminations,
withdrawal payments and
charges ..................... (442,930) (157,061) (307,948) (157,831) (317,061)
--------- -------- -------- -------- ---------
Units outstanding at December 31,
2005 ........................... 1,020,627 827,363 749,232 382,665 994,254
Contract purchase payments ..... 356,856 180,560 188,216 108,594 267,632
Contract terminations,
withdrawal payments and
charges ..................... (408,344) (196,384) (308,109) (144,318) (274,204)
--------- -------- -------- -------- ---------
Units outstanding at December 31,
2006 ........................... 969,139 811,539 629,339 346,941 987,682
========= ======== ======== ======== =========
[Enlarge/Download Table]
SEGREGATED SUB-ACCOUNTS
----------------------------------------------------------------------------
FIDELITY VIP FIDELITY VIP
FIDELITY VIP FIDELITY VIP GROWTH FIDELITY VIP INVESTMENT
BALANCED GROWTH OPPORTUNITIES INDEX 500 GRADE BOND
------------ ------------- ------------- ------------ --------------
Units outstanding at December 31,
2004 ........................... 306,357 6,739,200 1,435,366 2,157,302 398,365
Contract purchase payments ..... 128,727 2,182,916 578,753 1,061,930 119,064
Contract terminations,
withdrawal payments and
charges ..................... (120,152) (2,293,169) (603,381) (956,606) (119,210)
-------- ---------- --------- --------- --------
Units outstanding at December 31,
2005 ........................... 314,932 6,628,947 1,410,738 2,262,626 398,219
Contract purchase payments ..... 130,725 1,861,509 527,188 641,018 150,168
Contract terminations,
withdrawal payments and
charges ..................... (221,966) (2,007,454) (560,948) (809,684) (218,361)
-------- ---------- --------- --------- --------
Units outstanding at December 31,
2006 ........................... 223,691 6,483,002 1,376,978 2,093,960 330,026
======== ========== ========= ========= ========
10
MINNESOTA LIFE VARIABLE UNIVERSAL LIFE ACCOUNT
NOTES TO FINANCIAL STATEMENTS
DECEMBER 31, 2006 AND 2005
(5) UNIT ACTIVITY FROM CONTRACT TRANSACTIONS - CONTINUED
[Enlarge/Download Table]
SEGREGATED SUB-ACCOUNTS
---------------------------------------------------------------------------
FIDELITY VIP FIDELITY VIP
FIDELITY VIP FIDELITY VIP FIDELITY VIP AGGRESSIVE DYNAMIC CAPITAL
MID-CAP MONEY MARKET OVERSEAS GROWTH APPRECIATION
------------ ------------ ------------ ------------ ---------------
Units outstanding at
December 31, 2004 .............. 3,119,269 404,124 3,437,349 163,380 119,481
Contract purchase payments ..... 635,702 1,124,179 801,843 73,787 231,678
Contract terminations,
withdrawal payments and
charges ..................... (848,438) (1,067,335) (839,609) (92,655) (225,681)
--------- ---------- --------- ------- --------
Units outstanding at December 31,
2005 ........................... 2,906,533 460,968 3,399,583 144,512 125,478
Contract purchase payments ..... 685,851 615,892 730,375 262,519 172,378
Contract terminations,
withdrawal payments and
charges ..................... (611,485) (455,133) (886,926) (79,252) (72,900)
--------- ---------- --------- ------- --------
Units outstanding at December 31,
2006 ........................... 2,980,899 621,727 3,243,032 327,779 224,956
========= ========== ========= ======= ========
[Enlarge/Download Table]
SEGREGATED SUB-ACCOUNTS
------------------------------------------------------------------------
FIDELITY VIP FIDELITY VIP FIDELITY VIP
FIDELITY VIP VALUE GROWTH FIDELITY VIP STRATEGIC
VALUE STRATEGY STOCK REAL ESTATE INCOME
------------ ------------ ------------ ------------ ------------
Units outstanding at December 31,
2004 ........................... 93,594 122,585 16,294 87,256 --
Contract purchase payments ..... 59,696 68,042 33,552 129,288 27,548
Contract terminations,
withdrawal payments and
charges ..................... (20,458) (71,917) (6,877) (104,864) (8,349)
------- ------- ------- -------- -------
Units outstanding at December 31,
2005 ........................... 132,832 118,710 42,969 111,680 19,199
Contract purchase payments ..... 48,783 64,416 10,427 43,259 35,417
Contract terminations,
withdrawal payments and
charges ..................... (63,816) (63,546) (37,800) (38,411) (17,051)
------- ------- ------- -------- -------
Units outstanding at December 31,
2006 ........................... 117,799 119,580 15,596 116,528 37,565
======= ======= ======= ======== =======
11
MINNESOTA LIFE VARIABLE UNIVERSAL LIFE ACCOUNT
NOTES TO FINANCIAL STATEMENTS
DECEMBER 31, 2006 AND 2005
(5) UNIT ACTIVITY FROM CONTRACT TRANSACTIONS - CONTINUED
[Enlarge/Download Table]
SEGREGATED SUB-ACCOUNTS
------------------------------------------------------------------------
FIDELITY VIP FIDELITY VIP
INTL CAPITAL VALUE FIDELITY VIP FIDELITY VIP FIDELITY VIP
APPRECIATION LEADERS FREEDOM 2010 FREEDOM 2015 FREEDOM 2020
------------ ------------ ------------ ------------ ------------
Units outstanding at December 31,
2004 ........................... -- -- -- -- --
Contract purchase payments ..... -- -- -- -- --
Contract terminations,
withdrawal payments and
charges ..................... -- -- -- -- --
----- ----- ----- ----- -----
Units outstanding at December 31,
2005 ........................... -- -- -- -- --
Contract purchase payments ..... 5,626 7,998 3,047 3,061 3,102
Contract terminations,
withdrawal payments and
charges ..................... (30) (66) (31) (41) (31)
----- ----- ----- ----- -----
Units outstanding at December 31,
2006 ........................... 5,596 7,932 3,016 3,020 3,071
===== ===== ===== ===== =====
[Enlarge/Download Table]
SEGREGATED SUB-ACCOUNTS
-------------------------------------------------------------------
FIDELITY VIP FIDELITY VIP JANUS
FIDELITY VIP FIDELITY VIP FREEDOM DISCIPLINED ASPEN
FREEDOM 2025 FREEDOM 2030 INCOME SMALL CAP FORTY
------------ ------------ ------------ ------------ -------
Units outstanding at December 31,
2004 ........................... -- -- -- -- 70,037
Contract purchase payments ..... -- -- -- -- 28,777
Contract terminations,
withdrawal payments and
charges ..................... -- -- -- -- (8,993)
----- ----- ----- ------ -------
Units outstanding at December 31,
2005 ........................... -- -- -- -- 89,821
Contract purchase payments ..... 3,069 3,244 3,000 12,294 24,161
Contract terminations,
withdrawal payments and
charges ..................... (4) (88) -- (25) (23,650)
----- ----- ----- ------ -------
Units outstanding at December 31,
2006 ........................... 3,065 3,156 3,000 12,269 90,332
===== ===== ===== ====== =======
12
MINNESOTA LIFE VARIABLE UNIVERSAL LIFE ACCOUNT
NOTES TO FINANCIAL STATEMENTS
DECEMBER 31, 2006 AND 2005
(5) UNIT ACTIVITY FROM CONTRACT TRANSACTIONS - CONTINUED
[Enlarge/Download Table]
SEGREGATED SUB-ACCOUNTS
------------------------------------------------------------------------------
JANUS
ASPEN LORD ABBETT WADDELL & REED
INTERNATIONAL MID CAP WADDELL & REED WADDELL & REED INTERNATIONAL
GROWTH VALUE BALANCED GROWTH VALUE
------------- ----------- -------------- -------------- --------------
Units outstanding at
December 31, 2004 .............. 79,930 500,048 7,662,561 3,188,542 120,809
Contract purchase payments ..... 24,149 2,735,732 26,503 57,851 39,634
Contract terminations,
withdrawal payments and
charges ..................... (8,758) (1,246,258) (171,162) (131,680) (50,517)
--------- ---------- --------- --------- ---------
Units outstanding at
December 31, 2005 .............. 95,321 1,989,522 7,517,902 3,114,713 109,926
Contract purchase payments ..... 1,488,140 696,591 45,517 66,004 1,463,844
Contract terminations,
withdrawal payments and
charges ..................... (42,375) (599,686) (175,791) (102,802) (38,318)
--------- ---------- --------- --------- ---------
Units outstanding at December 31,
2006 ........................... 1,541,086 2,086,427 7,387,628 3,077,915 1,535,452
========= ========== ========= ========= =========
[Enlarge/Download Table]
SEGREGATED SUB-ACCOUNTS
---------------------------------------------------------------------------
WADDELL & REED WADDELL WADDELL & REED WADDELL & REED
SMALL CAP & REED MICRO-CAP SMALL CAP WADDELL & REED
GROWTH VALUE GROWTH VALUE CORE EQUITY
-------------- ------- -------------- -------------- --------------
Units outstanding at
December 31, 2004 .............. 126,156 139,897 48,741 97,992 23,012
Contract purchase payments ..... 22,216 29,878 10,639 40,923 11,705
Contract terminations,
withdrawal payments and
charges ..................... (24,685) (26,536) (9,808) (20,674) (4,591)
------- ------- ------ ------- ------
Units outstanding at
December 31, 2005 .............. 123,687 143,239 49,572 118,241 30,126
Contract purchase payments ..... 29,419 26,554 13,477 10,818 31,013
Contract terminations,
withdrawal payments and
charges ..................... (22,086) (30,990) (5,424) (9,536) (4,643)
------- ------- ------ ------- ------
Units outstanding at December 31,
2006 ........................... 131,020 138,803 57,625 119,523 56,496
======= ======= ====== ======= ======
13
MINNESOTA LIFE VARIABLE UNIVERSAL LIFE ACCOUNT
(6) FINANCIAL HIGHLIGHTS
A summary of units outstanding, unit values, net assets, ratios, and total
return for variable universal life policies for the years ended December 31,
2006, 2005, 2004, 2003, and 2002 is as follows:
[Enlarge/Download Table]
At December 31 For the years ended December 31
------------------------------------- -------------------------------------------------
Unit Fair Expense Ratio Total Return
Units Value lowest Investment lowest lowest
Outstanding to highest Net Assets Income Ratio * to highest** to highest***
----------- ------------ ---------- -------------- ------------- -----------------
Advantus Bond
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 22,371,777 1.34 to 1.76 30,011,118 0.00% 0.00% to 0.50% 1.93% to 2.44%
2004 21,957,311 1.30 to 1.73 29,613,251 0.00% 0.00% to 0.50% 4.45% to 4.98%
2003 21,962,902 1.24 to 1.65 28,126,839 0.00% 0.00% to 0.50% 4.82% to 5.35%
2002 22,430,376 1.18 to 1.58 27,238,896 0.00% 0.00% to 0.50% 9.95% to 10.50%
Advantus Money Market
2006 3,625,374 1.30 to 1.42 4,928,696 4.30% 0.00% to 0.50% 3.87% to 4.39%
2005 3,493,963 1.25 to 1.37 4,581,386 2.42% 0.00% to 0.50% 1.94% to 2.45%
2004 3,512,805 1.22 to 1.34 4,596,464 0.75% 0.00% to 0.50% 0.25% to 0.75%
2003 3,573,071 1.21 to 1.34 4,661,417 1.72% 0.00% to 0.50% 0.11% to 0.61%
2002 3,610,749 1.26 to 1.34 4,701,321 1.25% 0.25% to 0.50% 0.77% to 1.03%
Advantus Index 500
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 48,830,916 0.00% 0.00% to 0.50% 3.91% to 4.43%
2004 24,519,564 1.57 to 2.41 41,988,778 0.00% 0.00% to 0.50% 9.84% to 10.39%
2003 21,585,879 1.43 to 2.19 33,803,250 0.00% 0.00% to 0.50% 27.41% to 28.05%
2002 18,888,798 1.11 to 1.72 23,166,231 0.00% 0.00% to 0.50% -22.75% to -22.36%
Advantus Mortgage Securities
2006 236,893 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% 0.36% to 2.62%
2004 107,476 1.70 to 1.83 186,672 0.00% 0.25% to 0.50% 4.29% to 4.55%
2003 29,214 1.62 to 1.76 50,994 0.00% 0.25% to 0.50% 3.64% to 3.89%
2002 23,705 1.56 to 1.70 40,043 0.00% 0.25% to 0.50% 9.11% to 9.39%
Advantus Maturing Government Bond 2006
2006(f) -- 0.00 -- 0.00% 0.25% to 0.50% -0.10% to 0.07%
2005 1,584 1.67 to 1.75 2,730 0.00% 0.25% to 0.50% -1.27% to -1.03%
2004 1,584 1.69 to 1.77 2,762 0.00% 0.25% to 0.50% -.38% to -.13%
2003 1,584 1.69 to 1.78 2,770 0.00% 0.25% to 0.50% 1.44% to 69.39%
2002 1,000 1.76 1,756 0.00% 0.50% 12.43%
Advantus Maturing Government Bond 2010
2006 189,450 0.98 to 2.01 193,594 0.00% 0.00% to 0.50% -0.05% to 0.45%
2005 140,809 0.98 to 2.01 142,983 0.00% 0.00% to 0.50% -2.04% to -.27%
2004 32,011 1.56 to 2.02 51,288 0.00% 0.25% to 0.50% 2.80% to 3.05%
2003 3,954 1.51 to 1.97 7,183 0.00% 0.25% to 0.50% 2.24% to 2.50%
2002 2,324 1.92 4,467 0.07% 0.50% 18.26%
Advantus International Bond
2006 12,235 1.47 to 1.55 18,566 0.00% 0.00% to 0.50% 3.47% to 3.73%
2005 10,689 1.42 to 1.49 15,623 0.00% .25% to .50% -9.36% to -9.14%
2004 15,770 1.57 to 1.64 25,123 0.00% .25% to .50% 10.88% to 11.15%
2003 13,254 1.41 to 1.48 18,997 0.00% .25% to .50% 19.65% to 19.95%
2002 6,516 1.18 7,688 0.26% 0.50% 17.36%
Advantus Index 400 Mid-Cap
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 8,205,933 1.90 to 2.29 15,754,573 0.00% 0.00% to 0.50% 11.40% to 11.96%
2004 6,944,682 1.70 to 2.05 13,204,227 0.00% 0.00% to 0.50% 15.15% to 15.73%
2003 6,594,098 1.47 to 1.78 10,771,947 0.00% 0.00% to 0.50% 33.92% to 34.59%
2002 6,337,050 1.09 to 1.33 7,643,102 0.00% 0.00% to 0.50% -15.46% to -15.03%
Advantus Real Estate Securities
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%
2004 168,294 1.80 to 1.83 305,180 0.00% 0.00% to 0.50% 34.85% to 35.52%
2003 6,490 1.34 to 1.35 8,706 0.00% 0.00% to 0.50% 41.50% to 42.21%
2002 6,821 0.94 to 0.95 6,444 0.00% 0.00% to 0.50% -5.58% to -5.27%
14
MINNESOTA LIFE VARIABLE UNIVERSAL LIFE ACCOUNT
NOTES TO FINANCIAL STATEMENTS
(6) FINANCIAL HIGHLIGHTS - CONTINUED
[Enlarge/Download Table]
At December 31 For the years ended December 31
------------------------------------- -------------------------------------------------
Unit Fair Expense Ratio Total Return
Units Value lowest Investment lowest lowest
Outstanding to highest Net Assets Income Ratio * to highest** to highest***
----------- ------------ ---------- -------------- ------------- -----------------
Fidelity VIP Contrafund
2006 2,151,750 2.75 to 3.06 5,955,411 1.34% 0.25% to 0.50% 11.16% to 11.44%
2005 2,187,508 2.47 to 2.75 5,431,971 0.28% 0.25% to 0.50% 16.36% to 16.65%
2004 2,100,734 2.12 to 2.37 4,473,427 0.33% 0.25% to 0.50% 14.90% to 15.19%
2003 2,161,705 1.84 to 2.06 3,995,908 0.89% 0.25% to 0.50% 27.82% to 28.14%
2002 2,074,921 1.44 to 1.61 2,993,688 0.80% 0.25% to 0.50% -9.80% to -9.58%
Fidelity VIP Growth & Income
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%
2004 1,065,788 1.01 1,078,662 0.86% 0.25% 5.53%
2003 1,083,212 0.96 1,038,819 1.11% 0.25% 23.47%
2002 994,261 0.78 772,293 1.31% 0.25% -16.82%
Fidelity VIP Equity-Income
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 1.91 to 2.04 1,596,529 1.52% 0.25% to 0.50% 5.34% to 5.60%
2004 768,905 1.81 to 1.93 1,405,687 1.40% 0.25% to 0.50% 10.97% to 11.25%
2003 714,841 1.63 to 1.74 1,175,502 3.43% 0.25% to 0.50% 29.68% to 30.01%
2002 714,705 1.25 to 1.34 903,353 3.84% 0.25% to 0.50% -17.36% to -17.15%
Fidelity VIP High Income
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 1.19 to 1.26 899,382 14.55% 0.25% to 0.50% 2.19% to 2.45%
2004 833,462 1.17 to 1.23 977,147 8.44% 0.25% to 0.50% 9.05% to 9.32%
2003 837,271 1.07 to 1.13 897,929 13.34% 0.25% to 0.50% 26.63% to 26.95%
2002 672,853 0.84 to 0.89 569,238 10.02% 0.25% to 0.50% 2.93% to 3.19%
Fidelity VIP Asset Manager
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%
2004 425,553 1.05 448,907 2.85% 0.25% 5.20%
2003 433,054 1.00 434,213 3.41% 0.25% 17.68%
2002 420,813 0.85 358,542 3.81% 0.25% -8.96%
Fidelity VIP Asset Manager Growth
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%
2004 1,014,583 0.92 934,092 2.20% 0.25% 5.72%
2003 983,582 0.87 856,568 2.93% 0.25% 23.03%
2002 1,027,843 0.71 727,561 3.81% 0.25% -15.74%
Fidelity VIP Balanced
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%
2004 306,357 1.09 335,243 1.91% 0.25% 5.21%
2003 280,595 1.04 291,849 2.59% 0.25% 17.43%
2002 228,755 0.89 202,612 2.80% 0.25% -8.95%
Fidelity VIP Growth
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%
2004 6,739,200 0.70 4,724,414 0.26% 0.25% 3.12%
2003 6,876,195 0.68 4,674,595 0.26% 0.25% 32.52%
2002 6,918,697 0.51 3,549,340 0.24% 0.25% -30.28%
Fidelity VIP Growth Opportunities
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%
2004 1,435,366 0.83 1,191,393 0.52% 0.25% 6.92%
2003 1,455,931 0.78 1,130,211 0.73% 0.25% 29.55%
2002 1,422,271 0.60 852,256 1.03% 0.25% -22.04%
Fidelity VIP Index 500
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%
2004 2,157,302 0.90 1,944,806 1.26% 0.25% 10.34%
2003 2,118,305 0.82 1,730,719 1.41% 0.25% 28.09%
2002 2,052,758 0.64 1,309,384 1.24% 0.25% -22.44%
15
MINNESOTA LIFE VARIABLE UNIVERSAL LIFE ACCOUNT
NOTES TO FINANCIAL STATEMENTS
(6) FINANCIAL HIGHLIGHTS - CONTINUED
[Enlarge/Download Table]
At December 31 For the years ended December 31
------------------------------------- ------------------------------------------------
Unit Fair Investment Expense Ratio
Units Value lowest Income lowest to Total Return
Outstanding to highest Net Assets Ratio * highest** lowest to highest***
----------- ------------ ---------- ---------- -------------- --------------------
Fidelity VIP Investment Grade Bond
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%
2004 398,365 1.43 570,917 4.11% 0.25% 4.19%
2003 405,238 1.38 557,387 3.65% 0.25% 4.94%
2002 432,760 1.31 567,215 3.05% 0.25% 10.07%
Fidelity VIP Mid-Cap
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%
2004 3,119,269 1.78 5,560,298 0.00% 0.25% 24.61%
2003 3,134,526 1.43 4,484,146 0.41% 0.25% 38.29%
2002 3,192,834 1.03 3,302,866 0.95% 0.25% -10.05%
Fidelity VIP Money Market
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%
2004 404,124 1.12 450,889 1.19% 0.25% 0.96%
2003 416,294 1.11 460,061 0.99% 0.25% 0.75%
2002 410,733 1.10 450,561 1.72% 0.25% 1.47%
Fidelity VIP Overseas
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%
2004 3,437,349 0.87 3,003,855 1.10% 0.25% 13.35%
2003 3,265,344 0.77 2,517,406 0.81% 0.25% 43.01%
2002 3,391,848 0.54 1,828,491 0.75% 0.25% -20.48%
Fidelity VIP Aggressive Growth
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%
2004 163,380 0.90 147,069 0.00% 0.25% 9.98%
2003 130,106 0.82 106,491 0.00% 0.25% 30.25%
2002 119,950 0.63 75,374 0.00% 0.25% -26.58%
Fidelity VIP Dynamic Capital Appreciation
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%
2004 119,481 0.93 111,629 0.00% 0.25% 1.16%
2003 48,875 0.92 45,141 0.00% 0.25% 24.95%
2002 39,527 0.74 29,217 0.25% 0.25% -7.28%
Fidelity VIP Value
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%
2004 93,594 1.24 115,928 1.05% 0.25% 10.96%
2003 75,935 1.12 84,767 0.65% 0.25% 33.82%
2002 (a) 20,399 0.83 17,016 0.21% 0.25% -16.58%
Fidelity VIP Value Strategy
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%
2004 122,585 1.34 164,858 0.00% 0.25% 13.84%
2003 79,012 1.18 93,309 0.00% 0.25% 57.51%
2002 (a) 6,843 0.75 5,132 0.00% 0.25% -25.01%
Fidelity VIP Growth Stock
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%
2004 16,294 1.25 20,442 0.20% 0.25% 2.05%
2003 (b) 9,719 1.23 11,949 0.00% 0.25% 22.92%
Fidelity VIP Real Estate
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%
2004 87,256 1.69 147,252 2.71% 0.25% 33.81%
2003 (b) 41,812 1.26 52,745 1.26% 0.25% 26.09%
16
MINNESOTA LIFE VARIABLE UNIVERSAL LIFE ACCOUNT
NOTES TO FINANCIAL STATEMENTS
(6) FINANCIAL HIGHLIGHTS - CONTINUED
[Enlarge/Download Table]
At December 31 For the years ended December 31
------------------------------------- ------------------------------------------------
Unit Fair Investment Expense Ratio
Units Value lowest Income lowest to Total Return
Outstanding to highest Net Assets Ratio * highest** lowest to highest***
----------- ------------ ---------- ---------- -------------- --------------------
Fidelity VIP Strategic Income
2006 37,565 1.09 41,055 6.18% 0.25% 7.60%
2005 (d) 19,199 1.02 19,498 7.21% 0.25% 1.60%
Fidelity VIP Intl Capital Appreciation
2006 (e) 5,596 1.11 6,189 2.47% 0.25% 10.60%
Fidelity VIP Value Leaders
2006 (e) 7,932 1.08 8,565 1.69% 0.25% 8.00%
Fidelity VIP Freedom 2010
2006 (e) 3,016 1.04 3,148 1.80% 0.25% 4.43%
Fidelity VIP Freedom 2015
2006 (e) 3,020 1.05 3,168 1.34% 0.25% 4.93%
Fidelity VIP Freedom 2020
2006 (e) 3,071 1.06 3,242 1.71% 0.25% 5.59%
Fidelity VIP Freedom 2025
2006 (e) 3,065 1.06 3,242 1.93% 0.25% 5.79%
Fidelity VIP Freedom 2030
2006 (e) 3,156 1.06 3,358 1.80% 0.25% 6.42%
Fidelity VIP Freedom Income
2006 (e) 3,000 1.02 3,070 2.95% 0.25% 2.37%
Fidelity VIP Disciplined Small Cap
2006 (e) 12,269 1.08 13,290 0.18% 0.25% 8.32%
Janus Aspen Forty
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 0.80 67,895 0.01% 0.25% to 0.50% 12.00% to 12.27%
2004 70,037 0.67 to 0.72 47,247 0.02% 0.25% to 0.50% 17.38% to 17.67%
2003 79,995 0.57 to 0.61 45,883 0.51% 0.25% to 0.50% 19.63% to 19.93%
2002 59,299 0.48 to 0.51 28,435 0.30% 0.25% to 0.50% -16.35% to -16.14%
Janus Aspen International Growth
2006 1,541,086 1.16 to 1.32 2,022,184 1.82% 0.25% to 0.50% 32.16% to 46.26%
2005 95,321 0.79 to 0.87 77,774 1.12% 0.25% to 0.50% 31.28% to 31.61%
2004 79,930 0.61 to 0.66 49,464 0.93% 0.25% to 0.50% 18.0% to 18.39%
2003 64,807 0.51 to 0.56 33,525 1.70% 0.25% to 0.50% 33.86% to 34.20%
2002 39,733 0.38 to 0.42 15,218 0.48% 0.25% to 0.50% -26.13% to -25.94%
Lord Abbett Mid Cap Value
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 2,101,095 0.42% 0.00% to 0.25% 7.95% to 8.22%
2004 (c) 500,048 1.14 572,154 0.68% 0.25% 14.42%
17
MINNESOTA LIFE VARIABLE UNIVERSAL LIFE ACCOUNT
NOTES TO FINANCIAL STATEMENTS
(6) FINANCIAL HIGHLIGHTS - CONTINUED
[Enlarge/Download Table]
At December 31 For the years ended December 31
------------------------------------- ------------------------------------------------
Unit Fair Investment Expense Ratio
Units Value lowest Income lowest to Total Return
Outstanding to highest Net Assets Ratio * highest** lowest to highest***
----------- ------------ ---------- ---------- -------------- --------------------
Waddell & Reed Balanced
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 1.13 to 1.94 8,538,274 1.28% 0.00% to 0.50% 4.49% to 5.01%
2004 7,662,561 1.07 to 1.86 8,285,949 1.50% 0.00% to 0.50% 8.39% to 8.94%
2003 7,746,971 0.98 to 1.71 7,667,145 1.80% 0.00% to 0.50% 20.45% to 21.05%
2002 7,983,640 0.81 to 1.42 6,532,940 0.00% 0.00% to 0.50% -9.44% to -8.98%
Waddell & Reed Growth
2006 3,077,915 0.79 to 1.83 2,704,287 0.00% 0.00% to 0.50% 4.52% to 5.04%
2005 3,114,713 0.75 to 1.75 2,574,981 0.00% 0.00% to 0.50% 10.68% to 11.23%
2004 3,188,542 0.67 to 1.59 2,354,560 0.28% 0.00% to 0.50% 2.79% to 3.31%
2003 3,254,268 0.65 to 1.54 2,290,385 0.00% 0.00% to 0.50% 24.82% to 25.45%
2002 3,367,912 0.52 to 1.24 1,774,566 0.00% 0.00% to 0.50% -25.44% to -25.81%
Waddell & Reed International Value
2006 1,535,452 1.22 to 3.28 2,095,384 2.40% 0.00% to 0.50% 22.22% to 28.97%
2005 109,926 2.07 to 2.54 264,530 1.96% 0.25% to 0.50% 10.61% to 10.89%
2004 120,809 1.87 to 2.30 262,796 1.21% 0.25% to 0.50% 22.07% to 22.37%
2003 87,003 1.53 to 1.88 159,694 3.58% 0.25% to 0.50% 46.12% to 46.48%
2002 79,427 1.04 to 1.29 98,010 0.00% 0.25% to 0.50% -18.23% to -18.05%
Waddell & Reed Small Cap Growth
2006 131,020 1.62 to 2.01 254,060 0.00% 0.00% to 0.50% 4.53% to 4.79%
2005 123,687 1.55 to 1.92 231,872 0.00% 0.25% to 0.50% 12.32% to 12.60%
2004 126,156 1.37 to 1.71 211,179 0.00% 0.25% to 0.50% 13.72% to 14.01%
2003 111,431 1.20 to 1.50 164,738 0.00% 0.25% to 0.50% 47.24% to 47.61%
2002 96,702 0.82 to 1.02 97,135 0.00% 0.25% to 0.50% -32.14% to -31.97%
Waddell & Reed Value
2006 138,803 1.54 to 2.36 259,640 1.78% 0.00% to 0.50% 16.30% to 16.59%
2005 143,239 1.32 to 2.03 226,058 1.44% 0.25% to 0.50% 3.90% to 4.16%
2004 139,897 1.27 to 1.95 212,291 1.21% 0.25% to 0.50% 14.13% to 14.42%
2003 101,233 1.11 to 1.71 139,181 1.28% 0.25% to 0.50% 26.42% to 26.74%
2002 81,398 0.88 to 1.35 89,255 0.00% 0.25% to 0.50% -15.74% to -15.53%
Waddell & Reed Micro-Cap Growth
2006 57,625 2.22 to 2.37 129,986 0.00% 0.00% to 0.50% 11.71% to 11.98%
2005 49,572 1.99 to 2.12 99,612 0.00% 0.25% to 0.50% 20.27% to 20.57%
2004 48,741 1.65 to 1.76 81,316 0.00% 0.25% to 0.50% 9.50% to 9.78%
2003 44,001 1.51 to 1.60 66,781 0.00% 0.25% to 0.50% 53.64% to 54.02%
2002 34,697 0.98 to 1.04 34,177 0.00% 0.25% to 0.50% -43.93% to -43.78%
Waddell & Reed Small Cap Value
2006 119,523 2.07 to 2.25 259,246 5.55% 0.00% 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%
2004 97,992 1.72 to 1.86 173,716 0.00% 0.25% to 0.50% 14.65% to 14.73%
2003 47,514 1.50 to 1.62 71,447 0.00% 0.25% to 0.50% 48.75% to 49.10%
2002 44,415 1.01 to 1.09 44,873 0.00% 0.25% to 0.50% -20.38% to -20.18%
Waddell & Reed Core Equity
2006 56,496 1.07 to 1.18 62,505 0.99% 0.00% to 0.50% 16.40% to 16.70%
2005 30,126 0.92 to 1.01 29,344 0.39% 0.25% to 0.50% 8.46% to 8.73%
2004 23,012 0.84 to 0.94 20,865 0.74% 0.25% to 0.50% 9.02% to 9.30%
2003 18,365 0.77 to 0.86 15,500 2.14% 0.25% to 0.50% 20.73% to 21.03%
2002 11,738 0.71 8,341 0.00% 0.50% -28.50%
18
MINNESOTA LIFE VARIABLE UNIVERSAL LIFE ACCOUNT
NOTES TO FINANCIAL STATEMENTS
(6) FINANCIAL HIGHLIGHTS - CONTINUED
* 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
administrative 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 dividends 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.
** These ratios represent the annualized policy expenses of the separate
account, consisting primarily of mortality and expense charges and
administrative charges. The ratios include only those expenses that result
in a direct reduction to unit values. Charges made directly to policy owner
accounts 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 one 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 of 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 policy total returns are not within the ranges
presensented.
(a) Period from May 1, 2002 (commencement of operations) to December 31, 2002.
(b) Period from September 22, 2003 (commencement of operations) to December 31,
2003.
(c) Period from July 2, 2004 (commencement of operations) to December 31, 2004.
(d) Period from October 18, 2005 (commencement of operations) to December 31,
2005.
(e) Period from October 2, 2006 (commencement of operations) to December 31,
2006.
(f) Pursuant to the terms of the prospectus, the Maturing Government Bond 2006
sub-account made a liquidating distribution and ceased operations on
September 15, 2006.
MINNESOTA LIFE INSURANCE COMPANY
AND SUBSIDIARIES
CONSOLIDATED FINANCIAL STATEMENTS
AND SUPPLEMENTARY SCHEDULES
DECEMBER 31, 2006, 2005 AND 2004
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, 2006 and 2005, 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, 2006. 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, 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, 2006 and 2005, and the
results of their operations and their cash flows for each of the years in the
three-year period ended December 31, 2006, 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.
/s/ KPMG LLP
------------------------------------
March 12, 2007
MINNESOTA LIFE INSURANCE COMPANY AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
DECEMBER 31, 2006 AND 2005
(In thousands)
[Enlarge/Download Table]
2006 2005
----------- -----------
ASSETS
Fixed maturity securities:
Available-for-sale, at fair value
(amortized cost $5,263,368 and $5,095,516) $ 5,326,567 $ 5,190,234
Equity securities, at fair value (cost $576,887 and $577,658) 725,807 683,290
Mortgage loans, net 1,133,784 1,020,427
Real estate, net 755 2,261
Finance receivables, net 162,991 146,408
Policy loans 297,312 279,699
Private equity investments (cost $286,700 and $244,458) 325,619 268,535
Fixed maturity securities on loan, at fair value
(amortized cost $1,308,071 and $1,275,628) 1,306,167 1,278,941
Equity securities on loan, at fair value (cost $54,495 and $89,165) 79,215 119,087
Other invested assets 42,859 23,574
----------- -----------
Total investments 9,401,076 9,012,456
Cash and cash equivalents 165,075 284,283
Securities held as collateral 1,430,984 1,439,254
Deferred policy acquisition costs 872,581 823,757
Accrued investment income 83,005 81,129
Premiums and fees receivable 154,548 143,573
Property and equipment, net 80,513 76,921
Reinsurance recoverables 788,006 744,458
Goodwill and intangible assets, net 32,452 21,052
Other assets 90,852 62,362
Separate account assets 12,272,433 10,600,016
----------- -----------
Total assets $25,371,525 $23,289,261
=========== ===========
LIABILITIES AND STOCKHOLDER'S EQUITY
Liabilities:
Policy and contract account balances $ 5,073,270 $ 5,006,386
Future policy and contract benefits 2,124,904 2,073,846
Pending policy and contract claims 225,503 205,557
Other policyholder funds 675,161 636,441
Policyholder dividends payable 42,877 43,438
Unearned premiums and fees 266,139 227,684
Income tax liability:
Current 19,349 16,662
Deferred 184,513 174,136
Other liabilities 485,344 422,723
Notes payable 125,000 125,000
Securities lending collateral 1,430,984 1,439,254
Separate account liabilities 12,272,433 10,600,016
----------- -----------
Total liabilities 22,925,477 20,971,143
----------- -----------
Stockholder's equity:
Common stock, $1 par value, 5,000,000 shares authorized,
issued and outstanding 5,000 5,000
Additional paid in capital 81,632 81,632
Accumulated other comprehensive income 158,231 140,106
Retained earnings 2,201,185 2,091,380
----------- -----------
Total stockholder's equity 2,446,048 2,318,118
----------- -----------
Total liabilities and stockholder's equity $25,371,525 $23,289,261
=========== ===========
See accompanying notes to consolidated financial statements.
MINNESOTA LIFE INSURANCE COMPANY AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF OPERATIONS
YEARS ENDED DECEMBER 31, 2006, 2005 AND 2004
(In thousands)
[Enlarge/Download Table]
2006 2005 2004
---------- ---------- ----------
Revenues:
Premiums $1,308,939 $1,183,836 $1,078,586
Policy and contract fees 454,153 399,676 382,048
Net investment income 500,400 487,013 459,612
Net realized investment gains 53,403 64,955 73,862
Finance charge income 44,792 40,130 37,694
Commission income 55,885 62,110 40,589
Other income 32,648 30,820 21,273
---------- ---------- ----------
Total revenues 2,450,220 2,268,540 2,093,664
---------- ---------- ----------
Benefits and expenses:
Policyholder benefits 1,314,341 1,142,724 1,027,760
Interest credited to policies and contracts 275,787 274,511 280,618
General operating expenses 413,174 409,664 389,924
Commissions 159,545 144,787 143,633
Administrative and sponsorship fees 59,279 60,193 63,057
Dividends to policyholders 10,154 9,010 15,331
Interest on notes payable 10,318 10,290 10,391
Amortization of deferred policy acquisition costs 184,632 162,510 169,888
Capitalization of policy acquisition costs (224,272) (218,071) (206,061)
---------- ---------- ----------
Total benefits and expenses 2,202,958 1,995,618 1,894,541
---------- ---------- ----------
Income from operations before taxes 247,262 272,922 199,123
Income tax expense (benefit):
Current 72,736 67,572 17,445
Deferred (1,084) 20,073 42,821
---------- ---------- ----------
Total income tax expense 71,652 87,645 60,266
---------- ---------- ----------
Net income $ 175,610 $ 185,277 $ 138,857
========== ========== ==========
See accompanying notes to consolidated financial statements.
MINNESOTA LIFE INSURANCE COMPANY AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CHANGES IN STOCKHOLDER'S EQUITY
YEARS ENDED DECEMBER 31, 2006, 2005 AND 2004
(In thousands)
[Enlarge/Download Table]
ACCUMULATED
ADDITIONAL OTHER TOTAL
COMMON PAID IN COMPREHENSIVE RETAINED STOCKHOLDER'S
STOCK CAPITAL INCOME EARNINGS EQUITY
-------- ---------- ------------- ---------- -------------
2004:
Balance, beginning of year $ 5,000 $ 3,000 $213,667 $1,795,285 $2,016,952
Comprehensive income:
Net income -- -- -- 138,857 138,857
Other comprehensive income -- -- 9,354 -- 9,354
----------
Total comprehensive income 148,211
Dividends to stockholder -- -- -- (15,539) (15,539)
Contributions to additional paid in capital -- 58,164 -- -- 58,164
-------- ------- -------- ---------- ----------
Balance, end of year $ 5,000 $61,164 $223,021 $1,918,603 $2,207,788
======== ======= ======== ========== ==========
2005:
Balance, beginning of year $ 5,000 $61,164 $223,021 $1,918,603 $2,207,788
Comprehensive income:
Net income -- -- -- 185,277 185,277
Other comprehensive loss -- -- (82,915) -- (82,915)
----------
Total comprehensive income 102,362
Dividends to stockholder -- -- -- (12,500) (12,500)
Contributions to additional paid in capital -- 20,468 -- -- 20,468
-------- ------- -------- ---------- ----------
Balance, end of year $ 5,000 $81,632 $140,106 $2,091,380 $2,318,118
======== ======= ======== ========== ==========
2006:
Balance, beginning of year $ 5,000 $81,632 $140,106 $2,091,380 $2,318,118
Comprehensive income:
Net income -- -- -- 175,610 175,610
Other comprehensive income -- -- 18,125 -- 18,125
----------
Total comprehensive income 193,735
Dividends to stockholder -- -- -- (65,805) (65,805)
-------- ------- -------- ---------- ----------
Balance, end of year $ 5,000 $81,632 $158,231 $2,201,185 $2,446,048
======== ======= ======== ========== ==========
See accompanying notes to consolidated financial statements.
MINNESOTA LIFE INSURANCE COMPANY AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
YEARS ENDED DECEMBER 31, 2006, 2005 AND 2004
(In thousands)
[Enlarge/Download Table]
2006 2005 2004
----------- ----------- -----------
CASH FLOWS FROM OPERATING ACTIVITIES
Net income $ 175,610 $ 185,277 $ 138,857
Adjustments to reconcile net income to net cash
provided by operating activities:
Interest credited to annuity and insurance contracts 247,040 245,990 248,103
Fees deducted from policy and contract balances (415,193) (362,149) (352,028)
Change in future policy benefits 59,662 31,532 40,541
Change in other policyholder liabilities, net 55,994 38,420 9,006
Amortization of deferred policy acquisition costs 184,632 162,510 169,888
Capitalization of policy acquisition costs (224,272) (218,071) (206,061)
Change in premiums and fees receivable (10,975) (5,995) 375
Deferred tax provision (1,084) 20,073 42,821
Change in income tax liabilities - current 2,687 (7,795) (7,972)
Net realized investment gains (53,403) (64,955) (73,862)
Change in reinsurance recoverables (43,548) (17,308) (50,027)
Other, net 42,974 51,442 90,532
----------- ----------- -----------
Net cash provided by operating activities 20,124 58,971 50,173
----------- ----------- -----------
CASH FLOWS FROM INVESTING ACTIVITIES
Proceeds from sales of:
Fixed maturity securities 988,202 1,215,098 1,538,904
Equity securities 558,248 453,427 537,399
Mortgage loans -- 5,134 3,239
Real estate 1,265 960 1,276
Private equity investments 50,154 56,320 63,623
Other invested assets 1,302 10,875 23,619
Proceeds from maturities and repayments of:
Fixed maturity securities 918,091 2,269,649 1,262,636
Mortgage loans 91,063 126,754 79,356
Purchases and originations of:
Fixed maturity securities (2,164,474) (3,541,554) (3,077,269)
Equity securities (446,201) (378,814) (477,434)
Mortgage loans (204,361) (341,115) (119,806)
Real estate -- (1,451) (1,324)
Private equity investments (75,117) (61,273) (51,265)
Other invested assets (286) (10,815) (21,779)
Finance receivable originations or purchases (129,808) (116,758) (109,989)
Finance receivable principal payments 107,796 102,356 89,283
Securities in transit 15,637 (4,271) (109,734)
Other, net (44,085) (31,452) (23,196)
----------- ----------- -----------
Net cash used for investing activities (332,574) (246,930) (392,461)
----------- ----------- -----------
CASH FLOWS FROM FINANCING ACTIVITIES
Deposits credited to annuity and insurance contracts 2,172,597 1,898,405 1,814,146
Withdrawals from annuity and insurance contracts (1,932,688) (1,625,017) (1,546,611)
Contributed capital -- 6,900 55,000
Dividends paid to stockholder (65,000) (12,500) --
Other, net 18,333 7,946 (6,268)
----------- ----------- -----------
Net cash provided by financing activities 193,242 275,734 316,267
----------- ----------- -----------
Net (decrease) increase in cash and cash equivalents (119,208) 87,775 (26,021)
Cash and cash equivalents, beginning of year 284,283 196,508 222,529
----------- ----------- -----------
Cash and cash equivalents, end of year $ 165,075 $ 284,283 $ 196,508
=========== =========== ===========
See accompanying notes to consolidated financial statements.
MINNESOTA LIFE INSURANCE COMPANY AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
DECEMBER 31, 2006, 2005 AND 2004
(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, Northstar Life Insurance
Company, Securian Life Insurance Company, 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's strategy is to be successful in carefully selected niche
markets, primarily in the United States, while focusing on the retention of
existing business and the maintenance of profitability. The Company has
divided its businesses into four strategic business units, which focus on
various markets: Individual Financial Security, Financial Services, 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:
[Download Table]
IN THOUSANDS 2006 2005 2004
------------ ---------- ---------- ----------
Individual Financial Security $ 456,898 $ 444,513 $ 452,807
Financial Services 288,028 294,034 270,687
Group Insurance 1,166,882 1,011,920 888,030
Retirement 335,327 339,253 343,311
Subsidiaries and corporate product line 203,085 178,820 138,829
---------- ---------- ----------
Total $2,450,220 $2,268,540 $2,093,664
========== ========== ==========
The Company serves over eight 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.
Effective December 30, 2005, ownership of Securian Life Insurance Company
was transferred to the Company from Securian Financial Group, Inc, in the
form of a capital contribution. See note 19 for additional description of
this transaction.
During 2004, the Company's majority-owned subsidiary, MIMLIC Life Insurance
Company, was dissolved.
On June 1, 2004, the Company purchased Allied Solutions, LLC and
Subsidiaries (Allied). See note 15 for additional description of this
transaction.
(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. Prior to 2005, Allied's results
were reported on a one month lag. Beginning in 2005, this lag in reporting
has been eliminated. Neither the effect of the month lag in 2004, nor
eliminating it in 2005 had a material affect on the consolidated results of
operations or financial position of the Company. All material intercompany
transactions and balances have been eliminated.
6
(2) SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)
BASIS OF PRESENTATION (CONTINUED)
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 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 recorded in 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 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 products, which include individual whole life
and term insurance and immediate annuities, are credited to revenue when
due. For accident and health and group life products, premiums are credited
to revenue over the contract period as earned. 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
policy benefits and the amortization of deferred policy acquisition costs.
Nontraditional life products include individual adjustable and variable
life insurance and group universal and variable life insurance. Revenue
from nontraditional life products and deferred annuities is comprised of
policy and contract fees charged for the cost of insurance, policy
administration and surrenders 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 estimated gross profits or margins.
Any premiums on both traditional and nontraditional products due as of the
date of the consolidated financial statements that are not yet paid are
included in premiums and fees receivable on the consolidated balance
sheets.
Certain nontraditional life products, specifically individual adjustable
and variable life insurance policies, 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 to operations
over the estimated lives of these policies and contracts in relation to the
emergence of estimated gross profit margins.
COMMISSION REVENUE
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. Refunds of commissions for cancelled policies are
issued based on the unearned portion of the premium payments.
7
(2) SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)
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
over the estimated lives of the securities based on 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, including all interest-only strips and asset-backed securities
not of high credit quality, estimated at the acquisition/transaction date
as interest income over the life of the Company's beneficial interest using
the effective yield method.
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 from broker/dealer survey values or internal
estimates.
Marketable equity securities are 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 the
fair value of the underlying net assets of the funds.
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 in stockholder's equity. The
adjustment to deferred policy acquisition costs represents the change in
amortization of deferred policy acquisition costs that would have been
required as a charge or credit to operations had such unrealized amounts
been realized. The adjustment to reserves represents the increase in policy
reserves from using a discount rate that would have been required if such
unrealized gains had been realized and the proceeds reinvested at then
current market interest rates, which were lower than the current effective
portfolio rate.
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. Impairments
are determined by specific identification. A mortgage loan is considered
impaired if it is probable that amounts due for principal and interest will
not be collected in accordance with the contractual terms. Impaired
mortgage loans are valued at the present value of expected future cash
flows discounted at the loan's effective interest rate, or the fair value
of the underlying collateral, if the loan is collateral dependent.
Private equity investments in limited partnerships 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, 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 stockholders' equity of the investee are recorded,
based on the Company's ownership share, as an adjustment to the amount
invested and as unrealized gains or losses. The valuation of private equity
investments is recorded based on the partnership financial statements from
the previous 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.
8
(2) SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)
VALUATION OF INVESTMENTS AND NET INVESTMENT INCOME (CONTINUED)
Fair values of fixed maturity securities are based on quoted market prices
where available. Fair values of marketable equity securities are based on
quoted market prices. Fair values of private equity investments are
obtained from the financial statement valuations of the underlying fund or
independent broker bids. For fixed maturity securities not based on quoted
market prices, generally private placement securities, securities that do
not trade regularly, and embedded derivatives, an internally developed
pricing model using a commercial software application is most often used.
The internally developed 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. For
securities for which quoted market prices are not available and the
internally developed pricing model is not suitable for estimating fair
values, qualified company representatives determine the fair value using
discounted cash flows and pricing information obtained from the
administrator from whom cash flows are distributed for these certain
structured securities. As of December 31, 2006, 82.5% of the fair values of
fixed maturity securities were obtained from quoted market prices, 17.1%
from the internal methods described above and 0.4% from other sources,
primarily broker bids.
Real estate is carried at cost less accumulated depreciation and an
allowance for estimated losses.
The Company's derivative instrument holdings are carried at fair value. All
derivatives are recorded as non-hedge transactions. 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.
The Company recognizes interest income as earned and recognizes dividend
income on equity securities upon the declaration of the dividend.
For mortgage-backed securities of high credit quality, excluding
interest-only securities, the Company recognizes income using a constant
effective yield method based on prepayment assumptions obtained from an
outside service provider 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. All other investment income is recorded using the
interest method without anticipating the impact of prepayments.
For interest-only securities and mortgage-backed securities not of high
credit quality, the Company recognizes the excess of all cash flows,
including estimated prepayments, attributable to the security estimated at
the acquisition date over the initial investment using the effective yield
method with adjustments made as a result of subsequent cash flow
information recorded prospectively. If the fair value of the security has
declined below its carrying amount, the Company will write the security
down to fair value if the decline is deemed other-than-temporary.
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.
9
(2) SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)
VALUATION OF INVESTMENTS AND NET INVESTMENT INCOME (CONTINUED)
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 12. The use of the 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 $12,888,000 and $15,109,000 at December 31,
2006 and 2005, respectively.
Finance receivables that management has the intent and ability to hold for
the foreseeable future or until maturity or payoffs are reported at their
outstanding unpaid principal balances reduced by any charge-offs. The
interest rates on the receivables outstanding at December 31, 2006 and 2005
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, 2006 and 2005 approximate the fair value at that date.
DERIVATIVE 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. The Company does not enter into speculative positions.
Although these transactions do not qualify for hedge accounting or the
Company chooses not to elect hedge accounting, they provide the Company
with an economic hedge, which is used as part of its strategy for certain
identifiable and anticipated transactions. In general, these derivative
instruments are used in the Company's efforts to manage risks relating to
the variability of future earnings and cash flows caused by movements in
foreign currency exchange rates and changes in the capital market and
interest rates. For economic hedges, the Company documents all its
risk-management objectives and strategy for entering into various hedge
transactions. Derivative instruments are carried at fair value, with
changes in fair value of derivative instruments and hedged items recorded
in net realized investment gains and losses on the consolidated statements
of operations. Interest income generated by derivative instruments is
reported in net investment income on the consolidated statements of
operations. Derivative instruments had an immaterial impact on the
Company's 2006, 2005 and 2004 consolidated statements of operations.
The Company offers a variable payout annuity product with periodic payments
that are guaranteed to never fall below an amount that is established at
contract inception. This amount is referred to as the guaranteed minimum
payment. All deposits, net of expenses, are allocated to a single
investment option based upon the S&P 500 index and the periodic payment is
adjusted at the beginning of each period based upon investment performance.
In the event that the new payment amount falls below the guaranteed minimum
payment, the Company will make up the difference. In 2006, the Company
began offering an indexed life product which has an investment option based
upon the performance of the S&P 500. For this investment option, the S&P
500 is used as the basis for crediting interest, with a cap and floor.
These guarantees expose the Company to equity market risk, which represents
an embedded derivative in the case of the annuity product and market
exposure in the life product. The Company is using an economic hedge in its
efforts to minimize the financial risk associated with the product's
guaranteed payment. The Company holds both interest rate swaps and futures
contracts which are used to economically hedge the change in fair value of
periodic guaranteed minimum payments owed to policyholders.
The Company entered into certain interest rate futures contracts to manage
duration within certain total return managed portfolios within the general
account. These contracts could qualify for hedge accounting, but due to the
immateriality of the derivatives, the Company chose not to elect hedge
accounting.
10
(2) SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)
DERIVATIVE FINANCIAL INSTRUMENTS (CONTINUED)
The Company also enters into certain foreign currency derivative
instruments that do not meet hedge accounting criteria. The primary purpose
of the Company's foreign currency economic hedging activities is to manage
the foreign exchange risk inherent in the elapsed time between trade
processing and trade settlement in its international equity portfolios. The
Company uses short-duration spot contracts in its efforts to mitigate this
risk.
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. Most 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 and losses on the
consolidated statements of operations. As of December 31, 2006 and 2005,
the Company reported $24,646,000 and $7,419,000, respectively, as
derivative instruments, which is included in other invested assets on the
consolidated balance sheets. In 2006, 2005, and 2004, the change in fair
value of these securities included in realized capital gains was $90,000,
$45,000 and $1,013,000, respectively. For cash flow presentation, the
proceeds and purchases from certain mortgage dollar roll securities are
included in fixed maturity securities and equity securities.
REALIZED AND UNREALIZED GAINS AND LOSSES
Realized and unrealized gains and losses are determined on the specific
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 the fair value of the
investments. When the Company determines that an invested asset is
other-than-temporarily impaired, the invested asset is written down to fair
value and the amount of the impairment is included in realized gains and
losses on the statements of operations. The fair value then becomes the new
cost basis of the investment and any subsequent recoveries in fair value
are recognized at disposition.
Under the Company's accounting policy for debt and equity securities that
can be contractually prepaid or otherwise settled in a way that may limit
the Company's ability to fully recover cost, an impairment is deemed to be
other-than-temporary unless the Company has both the ability and intent to
hold the investment for a reasonable period of time. For debt securities,
the Company estimates cash flows over the life of purchased beneficial
interests in securitized financial assets. If the Company estimates that
the fair value of its beneficial interests is not greater than or equal to
its carrying value based on current information and events, and if there
has been an adverse change in estimated cash flows since the last revised
estimate, considering both timing and amount, then the Company recognizes
an other-than-temporary impairment and writes down the purchased beneficial
interest to fair value.
For other debt and equity securities, an other-than-temporary impairment is
taken when the Company does not have the ability and intent to hold the
security until the forecasted recovery or if it is no longer probable that
the Company will recover all amounts due under the contractual terms of the
debt security or the remaining cost basis of the equity security. Many
criteria are considered during this process including but not limited to,
the length of time and the extent to which the current fair value has been
below the amortized cost of the security, specific credit issues such as
collateral, financial prospects related to the issuer, the Company's intent
to hold or dispose of the security, and current economic conditions.
11
(2) SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)
REALIZED AND UNREALIZED GAINS AND LOSSES (CONTINUED)
Available-for-sale equity securities which 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, and the manager's intent and ability to hold
the security. Mutual funds and ETF investments are reviewed by analyzing
the characteristics of the underlying investments and the long-term outlook
for the asset class along with the intent to hold the investment. All other
available-for-sale equity securities with significant unrealized losses are
also reviewed on the same basis for impairment. Private equity securities
which 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. All other material unrealized losses are reviewed for any unusual
event that may trigger an other-than-temporary impairment. Determination of
the status of each analyzed investment as other-than-temporary 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 ability and intent generally focuses on 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.
Total other-than-temporary impairments for fixed maturity securities were
$31,356,000 for the year ended December 31, 2006, of which $30,328,000 was
interest rate related and $1,028,000 was credit related. For the years
ended December 31, 2005 and 2004, other-than-temporary impairments for
fixed maturity securities were $6,683,000 and $6,684,000, respectively, all
of which were credit related.
Total other-than-temporary impairments for equity securities for the years
ended December 31, 2006, 2005 and 2004 were $0, $1,212,000 and $1,728,000
respectively.
Total other-than-temporary impairments for private equity investments for
the years ended December 31, 2006, 2005 and 2004 were $10,868,000,
$9,088,000 and $13,863,000, respectively.
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 discounted at the loan's effective interest rate, or the
fair value of the collateral, if the loan is collateral dependent. Changes
in the valuation allowance are recorded in net realized gains and losses on
the consolidated statements of operations. No valuation allowances for
mortgage loans were necessary as of December 31, 2006 and 2005.
Impairment losses are recorded on investments in real estate and other
long-lived assets used in operations when indicators of impairment are
present, using undiscounted cash flows if available or independent market
appraisals.
12
(2) SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)
SECURITIES LENDING
The Company engages in securities lending whereby certain investments are
loaned to other financial institutions for short periods of time. When
these loan transactions occur, the lending broker provides cash collateral
equivalent to 102% to 105% of the fair value of the loaned securities. This
collateral is deposited with a lending agent who invests the collateral on
behalf of the Company.
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.
The income from these investments is recorded in net investment income and
was $1,253,000, $1,232,000, and $1,762,000 for the years ended December 31,
2006, 2005, and 2004, respectively. Securities, consisting of equity
securities and fixed maturity securities, were loaned to other financial
institutions. Amounts loaned as of December 31, 2006 and 2005 were
$1,385,382,000 and $1,398,028,000, respectively. As of December 31, 2006
and 2005, the collateral associated with securities lending was
$1,430,984,000 and $1,439,254,000, respectively.
SEPARATE ACCOUNTS
Separate account assets and liabilities represent segregated funds
administered by an unaffiliated asset management firm. These assets and
liabilities 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
both assets and liabilities are reported at fair value, based upon the fair
value of the investments held in the segregated funds. The investment
income and gains and losses of these accounts 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, 2006 and 2005, the fair value of these investments included
with equity securities as required by Statement of Position 03-1,
ACCOUNTING AND REPORTING BY INSURANCE ENTERPRISES FOR CERTAIN
NONTRADITIONAL LONG-DURATION CONTRACTS AND FOR SEPARATE ACCOUNTS (SOP
03-1), was $27,085,000 and $40,431,000, respectively.
RISKS
The following is a description of the most significant risks facing the
Company:
CREDIT RISK:
Credit risk is the risk that issuers of securities, mortgagees on mortgage
loans or other parties, including reinsurers and derivatives
counterparties, default on their contractual obligations. The Company
attempts to minimize the adverse impact of this risk by monitoring
portfolio diversification by asset class, creditor and industry and by
complying with investment limitations governed by state insurance laws and
regulations as applicable. The Company actively monitors and manages
exposures, determines whether securities are impaired or loans are deemed
uncollectible, and takes charges in the period such assessments are made.
Following below is discussion regarding particular asset class
concentration of credit risk:
13
(2) SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)
RISKS (CONTINUED)
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 with
high quality financial institutions and limits the amount of credit
exposure with any one institution.
FINANCIAL INSTRUMENTS:
Concentration of credit risk with respect to mortgages, fixed maturity
securities, and other invested assets are limited because of the
diverse geographic base and industries of the underlying issuers. This
diversity is an integral component of the portfolio management
process.
Equity security diversification is obtained through the use of style
diversification and through limiting exposure to a single issuer.
Private equity investment diversification is achieved by dividing the
portfolio between direct venture company funds, mezzanine debt funds
and hedge and other types of private equity 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 and is entitled to receive from the borrower any payments for
interest on such securities during the period it is pledged as
collateral.
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.
14
(2) SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)
RISKS (CONTINUED)
CONCENTRATION OF CREDIT RISK (CONTINUED):
SECURITIES LENDING:
The Company participates in a securities lending program where it
receives collateral assets in exchange for loaned securities. As
collateral assets, the Company receives shares in an Enhanced Yield
Trust, a Collateral Investment Term Trust, certain Lehman Brothers
investments and various other assets. The Company has a concentrated
credit risk in that its collateral investment in the Enhanced Yield
Trust was $1,075,173,000 and $801,191,000 as of December 31, 2006 and
2005, respectively. Additionally, concentrated credit risk exists in
its Collateral Investment Term Trust, which totaled $336,953,000 and
$0 as of December 31, 2006 and 2005, respectively.
Although the Company's securities lending program involves certain
credit risk and specific concentrated credit risk, the Company
believes the high quality of the collateral received and the Company's
monitoring policies and procedures assists in minimizing the
likelihood of material losses under these arrangements.
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.
FOREIGN CURRENCY RISK:
Foreign currency risk is the risk that the price of foreign currency
dominated 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.
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.
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.
15
(2) SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)
RISKS (CONTINUED)
EQUITY MARKET RISK:
Equity market risk is the risk that significant adverse fluctuations in the
equity market can affect the Company's financial results. Risks may
include, but are not limited to, 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, 2006, approximately 97% 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 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 held a limited number of derivative instruments in its efforts
to minimize the adverse impact of equity market risks embedded within
certain annuity products.
As discussed above, the Company monitors its overall exposure to the equity
market and maintains a diversified investment portfolio limiting its
exposure to any single issuer.
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 sale 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.
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 recoded 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 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.
16
(2) SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)
FINANCE CHARGE INCOME AND RECEIVABLES (CONTINUED)
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 all of the contractual terms of the loan
agreement. Impaired loans are generally larger real estate secured loans
that are both 60 days past due with collateral that is deemed inadequate.
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.
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. It is the
Company's general policy 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, accident and health and group life products, DAC are
amortized with interest over the premium paying period in proportion to the
ratio of annual premium revenues to ultimate anticipated premium revenues.
The ultimate premium revenues are estimated based upon the same assumptions
used to calculate the future policy benefits.
17
(2) SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)
DEFERRED POLICY ACQUISITION COSTS (CONTINUED)
For nontraditional life products and deferred annuities, DAC are amortized
with interest over the expected lives 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 performance, periodically
throughout the year. These assumptions reflect the Company's best estimate
of future experience. For future separate account performance, the Company
utilizes a mean reversion process. The Company's future long-term yield
assumption is 8% at December 31, 2006. Factors regarding economic outlook,
as reviewed by a third party and internal investment experts, and
management's current view of the capital markets were considered in
developing management's best estimate of the long-term assumption. The
Company's policy regarding the reversion to the mean process assumes a
five-year reversion period during which a modified yield assumption is
projected for the next five years after the valuation date. This modified
yield assumption is calculated such that, when combined with the actual
yields from January 1, 2001 through the valuation date, the total yield
from January 1, 2001 through the end of the five-year reversion period is
equal to that produced using the historical long-term assumptions. The
effects of this modified yield assumption are reflected annually in the
consolidated statements of operations. This modified yield assumption is
not permitted to be negative or in excess of 15%, per annum, during the
five-year reversion period.
Changes in actuarial assumptions can have a significant impact on the
amount of DAC reported for nontraditional life and deferred annuities, and
the related amortization patterns. In the event actual experience differs
from assumptions or assumptions are revised to reflect management's 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 actuarial
assumption is included in amortization of deferred policy acquisition costs
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 18. The adjustment represents the
changes in amortization that would have been recorded had such unrealized
amounts been realized.
SALES INDUCEMENTS
The Company defers sales inducements and amortizes them over the life of
the policy using the same methodology and assumptions used to amortize DAC.
Deferred sales inducements are included in other assets on the consolidated
balance sheets. The Company's sales inducement credits the policyholder
with a higher interest rate than the normal general account interest rate
for the first year of the deposit. Changes in deferred sales inducements
for the period ended December 31 were as follows:
IN THOUSANDS 2006 2005
------------ ------ ------
Balance at beginning of year $1,162 $ 250
Capitalization 487 938
Amortization and interest 2 (26)
------ ------
Balance at end of year $1,651 $1,162
====== ======
18
(2) SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)
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 market 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. Intangible assets
with a finite useful life are amortized over their useful lives on a
straight-line basis.
SOFTWARE CAPITALIZATION
Computer software costs incurred for internal use are capitalized and
amortized over a three or 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 costs of
$31,712,000 and $28,082,000 as of December 31, 2006 and 2005, respectively,
and amortized software expense of $11,510,000, $10,192,000 and $8,373,000
for the years ended December 31, 2006, 2005 and 2004, respectively.
PROPERTY AND EQUIPMENT
Property and equipment are carried at cost, net of accumulated depreciation
of $100,932,000 and $190,728,000 at December 31, 2006 and 2005,
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, 2006, 2005, and 2004, was $11,514,000,
$12,047,000, and $12,410,000, respectively.
19
(2) SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)
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 products and deferred annuities.
Additions to the account balances include premiums, deposits and interest
credited by the Company. Decreases to the account balances include
surrenders, withdrawals, benefit payments and charges assessed for the cost
of insurance, policy administration and surrenders.
Future policy and contract benefits are comprised of reserves for
traditional life, group life and accident and health products. The reserves
were calculated using the net level premium method based upon assumptions
regarding investment yield, mortality, morbidity and withdrawal rates
determined at the date of issue, commensurate with the Company's
experience. Provision has been made in certain cases for adverse deviations
from these assumptions. Certain traditional life products are accounted for
under AICPA Statement of Position 95-1, ACCOUNTING FOR CERTAIN INSURANCE
ACTIVITIES OF MUTUAL LIFE INSURANCE ENTITIES. When estimating the expected
gross margins for traditional life products as of December 31, 2006, the
Company has assumed an average rate of investment yields ranging from 5.56%
to 5.62%.
Future policy and contract benefits are adjusted to reflect the impact of
unrealized gains and losses on securities as disclosed in note 18. The
adjustment to future policy benefits and claims represents the increase in
policy reserves from using a required discount rate if invested 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, 2006 and 2005,
the total participating business in force was $1,594,804,000 and
$1,357,490,000, respectively. As a percentage of total life insurance in
force, participating business in force represents 0.3% at December 31, 2006
and 2005.
20
(2) SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)
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).
The Company provides for federal income taxes based on amounts the Company
believes it ultimately will owe. 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.
NEW PRONOUNCEMENTS
In September 2006, the Financial Accounting Standards Board (FASB) released
Statement of Financial Accounting Standards No. 158 (FAS 158), EMPLOYERS'
ACCOUNTING FOR DEFINED BENEFIT PENSION AND OTHER POSTRETIREMENT PLANS, AN
AMENDMENT OF FASB STATEMENTS NO. 87, 88, 106, AND 132(R). FAS 158 requires
an employer to recognize the funded status of a defined benefit pension and
other postretirement plan as an asset or liability in its consolidated
balance sheets and to recognize changes in funded status in the year in
which the changes occur through other comprehensive income. In addition,
FAS 158 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 is 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 is required for fiscal years
ending after December 15, 2008. The Company will adopt the recognition of
the funded status of its benefit plans as of December 31, 2007 and will
adopt the requirement to measure the funded status as of the date of its
year-end financial statements as of December 31, 2008. The Company is
currently evaluating the effect of this statement on its consolidated
results of operations and financial position.
21
(2) SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)
NEW PRONOUNCEMENTS (CONTINUED)
In September 2006, the FASB released Statement of Financial Accounting
Standards No. 157 (FAS 157), FAIR VALUE MEASUREMENTS. FAS 157 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 FAS 157 is required for fiscal years
beginning after November 15, 2007. The Company is currently evaluating the
effect of this statement on its consolidated results of operations or
financial position.
In September 2006, the U.S. Securities and Exchange Commission (SEC) issued
Staff Accounting Bulletin (SAB) No. 108 (SAB 108), CONSIDERING THE EFFECTS
OF PRIOR YEAR MISSTATEMENTS WHEN QUANTIFYING MISSTATEMENTS IN CURRENT YEAR
FINANCIAL STATEMENTS. SAB 108 addresses quantifying the financial statement
effects of misstatements, specifically, how the effects of prior year
uncorrected errors must be considered in quantifying misstatements in the
current year financial statements. SAB 108 does not change the SEC staff's
previous positions in SAB No. 99, MATERIALITY, regarding qualitative
considerations in assessing the materiality of misstatements. SAB 108 is
effective for fiscal years ending after November 15, 2006. Any material
errors in existence at the beginning of the fiscal year ending after
November 15, 2006, may be corrected through a one-time cumulative effect
adjustment to beginning of year retained earnings. There was no material
impact to the Company's consolidated results of operations or financial
position due to the adoption of SAB 108 in 2006.
In June 2006, the FASB issued Interpretation No. 48, ACCOUNTING FOR
UNCERTAINTY IN INCOME TAXES - AN INTERPRETATION OF FASB STATEMENT NO. 109,
ACCOUNTING FOR INCOME TAXES (FIN 48). FIN 48 clarifies the accounting for
uncertainty in income taxes recognized in an enterprise's financial
statements in accordance with FASB Statement No. 109, ACCOUNTING FOR INCOME
TAXES. FIN 48 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. FIN 48 also provides
guidance on derecognition, classification, interest and penalties,
disclosure and transition. The application of FIN 48 is required for fiscal
years beginning after December 15, 2006. The Company expects no material
impact to its consolidated results of operations or financial position due
to the adoption of FIN 48 in 2007.
In February 2006, the FASB released Statement of Financial Accounting
Standards No. 155 (FAS 155), ACCOUNTING FOR CERTAIN HYBRID INSTRUMENTS, AN
AMENDMENT OF FASB STATEMENTS NO. 133 AND 140. In summary, this
pronouncement: (1) permits fair value remeasurement for any hybrid
instrument that contains an embedded derivative that otherwise would
require bifurcation; (2) clarifies accounting for interest-only strips and
principal-only strips; (3) requires evaluation of interest in securitized
financial assets to identify interests that contain derivatives; (4)
clarifies that concentrations of credit risk in the form of subordination
are not embedded derivatives; and (5) eliminates the prohibition on a
qualifying special purpose entity from holding a derivative financial
instrument that pertains to a beneficial interest other than another
derivative. The application of FAS 155 is effective for all financial
instruments acquired or issued after the beginning of the fiscal year that
begins after September 15, 2006. The Company expects no material impact to
its consolidated results of operations or financial position due to the
adoption of FAS 155.
In November 2005, the FASB issued FASB Staff Position (FSP) FAS 115-1 and
124-1, THE MEANING OF OTHER-THAN-TEMPORARY IMPAIRMENT AND ITS APPLICATION
TO CERTAIN INVESTMENTS, which addresses the determination as to when an
investment is considered impaired, whether that impairment is
other-than-temporary, and the measurement of an impairment loss. This staff
position also includes accounting considerations subsequent to the
recognition of an other-than-temporary impairment and requires certain
disclosures regarding unrealized losses that have not been recognized as
other-than-temporary impairments. The Company's other-than-temporary policy
was not impacted by the adoption of this staff position as the Company's
policy was already consistent with the resulting guidance.
22
(2) SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)
NEW PRONOUNCEMENTS (CONTINUED)
In September 2005, the American Institute of Certified Public Accountants
Accounting Standards Executive Committee issued Statement of Position 05-1
(SOP 05-1), ACCOUNTING BY INSURANCE ENTERPRISES FOR DEFERRED ACQUISITION
COSTS IN CONNECTION WITH MODIFICATIONS OR EXCHANGES OF INSURANCE CONTRACTS.
This statement provides guidance on accounting for DAC on internal
replacements and investment contracts other than those specifically
described by FASB Statement No. 97, ACCOUNTING AND REPORTING BY INSURANCE
ENTERPRISES FOR CERTAIN LONG-DURATION CONTRACTS AND FOR REALIZED GAINS AND
LOSSES FROM THE SALE OF INVESTMENTS. This statement is effective for
internal replacements occurring in fiscal years beginning after December
15, 2006. The Company will adopt SOP 05-1 on January 1, 2007. The Company
expects no material impact to its consolidated results of operations or
financial position due to the adoption of SOP 05-1.
In May 2005, the FASB issued Statement of Financial Accounting Standards
No. 154 (FAS 154), ACCOUNTING CHANGES AND ERROR CORRECTIONS, A REPLACEMENT
OF APB OPINION NO. 20 AND FASB STATEMENT NO. 3. This document establishes
retrospective application for a change in accounting principle, if
practicable, unless specifically addressed in transition guidance within an
accounting pronouncement. The document also provides guidance for
determining whether retroactive treatment is impracticable. In addition the
document addresses reporting of a correction of an error and restating
previously issued financial statements. FAS 154 was effective for
accounting changes and corrections of errors made in fiscal years beginning
after December 15, 2005. The adoption of FAS 154 on January 1, 2006, did
not have a material impact on the consolidated results of operations or
financial position of the Company.
In December 2004, the FASB issued Statement of Financial Accounting
Standards No. 153 (FAS 153), EXCHANGE OF NONMONETARY ASSETS, AN AMENDMENT
OF APB OPINION NO. 29 (APB 29), which eliminates the exception in APB 29
for nonmonetary exchanges of similar productive assets and replaces it with
a general exception for exchanges of nonmonetary assets that do not have
commercial substance. This guidance is effective for nonmonetary asset
exchanges occurring in fiscal periods beginning after June 15, 2005. The
adoption of FAS 153 on January 1, 2006, did not have a material impact on
the consolidated results of operations or financial position of the
Company.
The Medicare Prescription Drug, Improvement and Modernization Act of 2003
(the Act) was signed into law on December 8, 2003. In accordance with FSP
FAS 106-1, ACCOUNTING AND DISCLOSURE REQUIREMENTS RELATED TO THE MEDICARE
PRESCRIPTION DRUG, IMPROVEMENT AND MODERNIZATION ACT OF 2003 (FSP FAS
106-1), issued in January 2004, the Company elected to defer accounting for
the effects of the Act until the FASB issued guidance on how to account for
the provisions of the Act. In May 2004, the FASB issued FSP FAS 106-2,
ACCOUNTING AND DISCLOSURE REQUIREMENTS RELATED TO THE MEDICARE PRESCRIPTION
DRUG, IMPROVEMENT AND MODERNIZATION ACT OF 2003 (FSP FAS 106-2), which
superseded FSP FAS 106-1 and provided guidance on accounting and
disclosures related to the Act.
The Company has concluded that prescription drug benefits available under
its postretirement plans to some or all participants for some or all future
years are at least actuarially equivalent to Medicare Part D, and thus
qualify for the subsidy under the Act. The Company has estimated the
expected subsidy that will reduce the Company's share of the cost and has
reflected that in its postretirement plan costs and obligations.
The effect of the Act to the Company is a $7,750,000 reduction of the
accumulated postretirement benefit obligation as of December 31, 2004 and a
$1,151,000 reduction in the net periodic postretirement benefit cost for
2004.
23
(2) SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)
NEW PRONOUNCEMENTS (CONTINUED)
In March 2004, the Emerging Issues Task Force (EITF) reached consensus on
further guidance concerning the identification of and accounting for
other-than-temporary impairments and disclosures for cost method
investments, as required by EITF Issue No. 03-1, THE MEANING OF
OTHER-THAN-TEMPORARY IMPAIRMENT AND ITS APPLICATION TO CERTAIN INVESTMENTS
(EITF 03-1), which was issued on October 23, 2003. The Company revised its
method of calculating the impairment of securities based on this additional
guidance. Other-than-temporary impairments reduce the value of the
investment to fair value.
In September 2004, the FASB exposed for comment FSP EITF Issue 03-1-a,
which was intended to provide guidance related to the application of
paragraph 16 of EITF 03-1, and proposed FSP EITF Issue 03-1-b, which
proposed a delay in the effective date of EITF 03-1 for debt securities
that are impaired because of interest rate and/or sector spread increases.
Based on comments received on these proposals, on September 30, 2004 the
FASB issued FSP EITF 03-1-1, EFFECTIVE DATE OF PARAGRAPHS 10-20 OF EITF
ISSUE NO. 03-1, which delayed the effectiveness of the related paragraphs
in EITF 03-1, with the exception of certain disclosure requirements.
In June 2004, the FASB issued FSP 97-1, Situations in Which Paragraphs
17(b) and 20 of FASB Statement No. 97, Accounting and Reporting by
Insurance Enterprises for Certain Long-Duration Contracts and for Realized
Gains and Losses from the Sale of Investments (FAS 97), Permit or Require
Accrual of an Unearned Revenue Liability (FSP FAS 97-1), to clarify the
guidance related to unearned revenue reserves (URR). The primary purpose of
FSP FAS 97-1 is to address the practice question of whether SOP 03-1
restricts the application of the URR guidance in FAS 97 to situations in
which profits are expected to be followed by losses. Although SOP 03-1
requires URR in certain situations where profits are followed by losses, it
does not restrict the calculation of URR to only those situations. The
adoption of FSP FAS 97-1 in 2004 had no material impact to the consolidated
results of operations or financial position of the Company.
Effective January 1, 2004, the Company adopted SOP 03-1. This statement
provides guidance on the classification, valuation and accounting for
nontraditional long-duration contract liabilities, the accounting for
contracts with guaranteed minimum death benefits (GMDB), the accounting for
sales inducements, and separate account presentation and valuation. SOP
03-1 requires companies to evaluate the significance of certain guarantees
in products such as GMDB to determine whether a contract should be
accounted for as an investment or insurance contract. At adoption, the
Company reclassified $44,945,000 of ownership in its own separate accounts
from separate account assets to equity securities. The Company also has
recorded certain market value adjusted ("MVA") fixed annuity products and
investment options on variable annuities as separate account assets and
liabilities through December 31, 2003. Notwithstanding the market value
adjustment feature, all of the investment performance of the separate
account assets is not being passed to the contractholder, and it therefore
does not meet the conditions for separate account reporting under the SOP.
On January 1, 2004, market value reserves included in separate account
liabilities of $37,979,000 were revalued at current account value in the
general account to $37,552,000. The related separate account assets of
$38,912,000 were also reclassified to the general account. Since adoption
of the SOP, the components of the spread on a book value basis are recorded
in interest income and interest credited. Realized gains and losses on
investments and market value adjustments on contract surrenders are
recognized as incurred. The adoption of SOP 03-1 had no material impact to
the consolidated results of operations or financial position of the
Company.
In December 2003, the FASB issued Statement of Financial Accounting
Standards No. 132, revised 2003 (FAS 132(R)), EMPLOYERS' DISCLOSURES ABOUT
PENSIONS AND OTHER POST RETIREMENT BENEFITS, which amends disclosure
requirements for pension plans and other post retirement benefit plans,
effective for nonpublic entities for fiscal years ending after June 15,
2004. The adoption of FAS 132(R) on January 1, 2004, did not have a
material impact on the consolidated results of operations or financial
position of the Company.
24
(2) SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)
RECLASSIFICATION
Certain 2005 and 2004 financial statement balances have been reclassified
to conform to the 2006 presentation.
(3) INVESTMENTS
Net investment income for the years ended December 31 was as follows:
IN THOUSANDS 2006 2005 2004
------------ -------- -------- --------
Fixed maturity securities $392,210 $384,844 $367,978
Equity securities 20,997 21,360 14,368
Mortgage loans 70,711 68,160 62,182
Real estate (35) (36) 29
Policy loans 21,592 20,395 19,843
Cash equivalents 8,514 6,010 2,233
Private equity investments 302 296 4,909
Other invested assets 2,541 2,055 3,305
-------- -------- --------
Gross investment income 516,832 503,084 474,847
Investment expenses (16,432) (16,071) (15,235)
-------- -------- --------
Total $500,400 $487,013 $459,612
======== ======== ========
Net realized investment gains (losses) for the years ended December 31 were
as follows:
IN THOUSANDS 2006 2005 2004
------------ -------- -------- --------
Fixed maturity securities $(41,722) $(16,256) $ 9,712
Equity securities 76,134 69,052 70,636
Mortgage loans -- 617 (242)
Real estate -- -- (33)
Private equity investments 18,058 13,139 11,571
Other invested assets 933 (1,597) (17,782)
-------- -------- --------
Total $ 53,403 $ 64,955 $ 73,862
======== ======== ========
Gross realized gains (losses) on the sales and impairments of fixed
maturity securities, equity securities and private equity investments for
the years ended December 31 were as follows:
IN THOUSANDS 2006 2005 2004
------------ -------- -------- --------
Fixed maturity securities
Gross realized gains $ 6,189 $ 10,290 $ 24,167
Gross realized losses (47,911) (26,546) (14,455)
Equity securities:
Gross realized gains 95,587 84,573 94,704
Gross realized losses (19,453) (15,521) (24,068)
Private equity investments:
Gross realized gains 29,165 22,625 26,852
Gross realized losses (11,107) (9,486) (15,281)
25
(3) INVESTMENTS (CONTINUED)
Net accumulated unrealized gains (losses) included in stockholder's equity
at December 31 were as follows:
IN THOUSANDS 2006 2005
------------ -------- --------
Gross unrealized gains $341,570 $346,076
Gross unrealized losses (73,566) (91,051)
Adjustment to deferred policy acquisition costs (7,358) (16,542)
Adjustment to reserves (15,040) (23,595)
Adjustment to unearned policy and contract fees 1,328 2,459
-------- --------
246,934 217,347
Deferred federal income taxes (88,703) (77,241)
-------- --------
Net accumulated unrealized gains $158,231 $140,106
======== ========
The amortized cost and fair value of investments in fixed maturity and
marketable equity securities by type of investment were as follows:
[Download Table]
GROSS UNREALIZED
IN THOUSANDS AMORTIZED ------------------ FAIR
DECEMBER 31, 2006 COST GAINS LOSSES VALUE
------------------------------------- ---------- -------- ------- ----------
U.S. government $ 26,962 $ 539 $ 249 $ 27,252
Agencies not backed by the full faith
and credit of the U.S. government 22,881 1,631 64 24,448
Foreign governments 1,753 80 -- 1,833
Corporate securities 3,357,554 68,208 26,939 3,398,823
Asset-backed securities 310,638 3,862 1,297 313,203
Mortgage-backed securities 1,543,580 21,337 3,909 1,561,008
---------- -------- ------- ----------
Total fixed maturities 5,263,368 95,657 32,458 5,326,567
Equity securities - unaffiliated 576,887 152,183 3,263 725,807
---------- -------- ------- ----------
Total $5,840,255 $247,840 $35,721 $6,052,374
========== ======== ======= ==========
[Download Table]
GROSS UNREALIZED
IN THOUSANDS AMORTIZED ------------------ FAIR
DECEMBER 31, 2005 COST GAINS LOSSES VALUE
------------------------------------- ---------- -------- ------- ----------
U.S. government $ 29,599 $ 272 $ 190 $ 29,681
Agencies not backed by the full faith
and credit of the U.S. government 19,974 958 101 20,831
Foreign governments 1,533 321 -- 1,854
Corporate securities 3,359,380 104,925 27,007 3,437,298
Asset-backed securities 323,642 10,507 2,034 332,115
Mortgage-backed securities 1,361,388 24,501 17,434 1,368,455
---------- -------- ------- ----------
Total fixed maturities 5,095,516 141,484 46,766 5,190,234
Equity securities - unaffiliated 577,658 114,425 8,793 683,290
---------- -------- ------- ----------
Total $5,673,174 $255,909 $55,559 $5,873,524
========== ======== ======= ==========
26
(3) INVESTMENTS (CONTINUED)
The amortized cost and fair value of securities on loan by type of
investment were as follows:
[Download Table]
GROSS UNREALIZED
IN THOUSANDS AMORTIZED ----------------- FAIR
DECEMBER 31, 2006 COST GAINS LOSSES VALUE
------------------------------------- ---------- ------- ------- ----------
U.S. government $ 100,177 $ 6,961 $ 172 $ 106,966
Agencies not backed by the full faith
and credit of the U.S. government 49,303 1,146 70 50,379
Corporate securities 81,885 1,558 695 82,748
Asset-backed securities 5,645 32 -- 5,677
Mortgage-backed securities 1,071,061 3,890 14,554 1,060,397
---------- ------- ------- ----------
Total fixed maturities 1,308,071 13,587 15,491 1,306,167
Equity securities - unaffiliated 54,495 26,306 1,586 79,215
---------- ------- ------- ----------
Total $1,362,566 $39,893 $17,077 $1,385,382
========== ======= ======= ==========
[Download Table]
GROSS UNREALIZED
IN THOUSANDS AMORTIZED ----------------- FAIR
DECEMBER 31, 2005 COST GAINS LOSSES VALUE
------------------------------------- ---------- ------- ------- ----------
U.S. government $ 102,714 $10,101 $ 214 $ 112,601
Agencies not backed by the full faith
and credit of the U.S. government 64,675 1,780 323 66,132
Corporate securities 42,665 264 584 42,345
Asset-backed securities 6,042 106 -- 6,148
Mortgage-backed securities 1,059,532 5,522 13,339 1,051,715
---------- ------- ------- ----------
Total fixed maturities 1,275,628 17,773 14,460 1,278,941
Equity securities - unaffiliated 89,165 31,757 1,835 119,087
---------- ------- ------- ----------
Total $1,364,793 $49,530 $16,295 $1,398,028
========== ======= ======= ==========
The amortized cost and estimated fair value of fixed maturity securities at
December 31, 2006, 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.
[Enlarge/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 $ 91,625 $ 91,317 $ 65,689 $ 66,531
Due after one year through five years 1,135,156 1,158,022 11,113 10,865
Due after five years through ten years 1,931,106 1,938,668 92,803 94,721
Due after ten years 561,901 577,552 67,405 73,653
---------- ---------- ---------- ----------
3,719,788 3,765,559 237,010 245,770
Mortgage-backed securities 1,543,580 1,561,008 1,071,061 1,060,397
---------- ---------- ---------- ----------
Total $5,263,368 $5,326,567 $1,308,071 $1,306,167
========== ========== ========== ==========
27
(3) INVESTMENTS (CONTINUED)
The Company had certain investments with a reported fair value lower than
the cost of the investment as follows:
[Download Table]
IN THOUSANDS UNREALIZED
DECEMBER 31, 2006 FAIR VALUE COST LOSSES
----------------------------------------- ---------- -------- ----------
U.S. government securities
Less than 12 months $ 8,345 $ 8,449 $ 104
Greater than 12 months 2,815 2,960 145
Agencies not backed by the full faith and
credit of the U.S. government
Less than 12 months 6,442 6,498 56
Greater than 12 months 2,347 2,355 8
Corporate securities
Less than 12 months 620,378 626,600 6,222
Greater than 12 months 728,310 749,027 20,717
Mortgage and asset-backed securities
Less than 12 months 330,165 332,220 2,055
Greater than 12 months 337,796 340,947 3,151
Equity securities - unaffiliated
Less than 12 months 27,963 30,382 2,419
Greater than 12 months 33,104 33,948 844
Private equity investments
Less than 12 months 27,578 32,173 4,595
Greater than 12 months 44,387 54,710 10,323
[Download Table]
IN THOUSANDS UNREALIZED
DECEMBER 31, 2005 FAIR VALUE COST LOSSES
----------------------------------------- ---------- ---------- ----------
U.S. government securities
Less than 12 months $ 12,878 $ 13,066 $ 188
Greater than 12 months 301 303 2
Agencies not backed by the full faith and
credit of the U.S. government
Less than 12 months 6,120 6,171 51
Greater than 12 months 2,249 2,299 50
Corporate securities
Less than 12 months 1,083,943 1,103,622 19,679
Greater than 12 months 198,267 205,595 7,328
Mortgage and asset-backed securities
Less than 12 months 764,296 779,383 15,087
Greater than 12 months 104,656 109,037 4,381
Equity securities - unaffiliated
Less than 12 months 151,291 159,418 8,127
Greater than 12 months 3,292 3,958 666
Private equity investments
Less than 12 months 15,908 17,868 1,960
Greater than 12 months 48,564 63,163 14,599
28
(3) INVESTMENTS (CONTINUED)
The Company had certain investments on loan with a reported fair value
lower than the cost of the investment as follows:
[Download Table]
IN THOUSANDS UNREALIZED
DECEMBER 31, 2006 FAIR VALUE COST LOSSES
----------------------------------------- ---------- -------- ----------
U.S. government securities
Less than 12 months $ 23,694 $ 23,817 $ 123
Greater than 12 months 3,732 3,781 49
Agencies not backed by the full faith and
credit of the U.S. government
Less than 12 months 5,639 5,648 9
Greater than 12 months 11,417 11,478 61
Corporate securities
Less than 12 months 8,136 8,192 56
Greater than 12 months 25,651 26,290 639
Mortgage backed securities
Less than 12 months 211,358 213,139 1,781
Greater than 12 months 530,637 543,410 12,773
Equity securities - unaffiliated
Less than 12 months 7,000 8,163 1,163
Greater than 12 months 987 1,410 423
[Download Table]
IN THOUSANDS UNREALIZED
DECEMBER 31, 2005 FAIR VALUE COST LOSSES
----------------------------------------- ---------- -------- ----------
U.S. government securities
Less than 12 months $ 17,418 $ 17,507 $ 89
Greater than 12 months 15,551 15,676 125
Agencies not backed by the full faith and
credit of the U.S. government
Less than 12 months 32,905 33,217 312
Greater than 12 months 2,210 2,221 11
Corporate securities
Less than 12 months 25,751 26,335 584
Greater than 12 months -- -- --
Mortgage backed securities
Less than 12 months 504,177 511,305 7,128
Greater than 12 months 162,432 168,643 6,211
Equity securities - unaffiliated
Less than 12 months 12,855 14,377 1,522
Greater than 12 months 469 782 313
Unrealized losses on fixed maturity securities are generally interest
related rather than credit related and management has the ability and the
intent to hold until recovery of amortized costs. For equity securities,
outside research supports target prices for the holdings that will return
the securities to original cost or higher within the next twelve months.
For private equity securities, unrealized losses are generally due to heavy
initial expenses and capital calls typical of newly developed funds.
29
(3) INVESTMENTS (CONTINUED)
At December 31, 2006 and 2005, no specific mortgage loans were considered
impaired. At December 31, 2003, one mortgage loan was considered impaired.
An allowance of $400,000 was recorded in 2003 on the impaired mortgage
loan. The loan was sold in 2004, resulting in an additional realized loss
of $242,000. As of December 31, 2006 and 2005, there was no general
allowance for credit losses for potential impairments in the mortgage loan
portfolio. Provisions for credit losses or charge-offs for the years ended
December 31, 2006, 2005, and 2004 was zero.
The Company did not collect any interest income on impaired mortgages in
2006, 2005, or 2004.
At December 31, 2006 and 2005, fixed maturity securities and cash
equivalents with a carrying value of $13,690,000 and $12,008,000,
respectively, were on deposit with various regulatory authorities as
required by law.
(4) VARIABLE INTEREST ENTITIES
In January 2003, the FASB issued Interpretation No. 46, CONSOLIDATION OF
VARIABLE INTEREST ENTITIES - AN INTERPRETATION OF ARB NO. 51, subsequently
revised in December of 2003 (FIN 46-R). The provisions of FIN 46-R for
non-public entities apply immediately to variable interest entities (VIEs)
created after December 31, 2003, and to VIEs in which an enterprise obtains
an interest after that date. For VIEs created prior to December 31, 2003
the effective date of FIN 46-R is the beginning of the first period
beginning after December 15, 2004. FIN 46-R changes the method of
determining whether certain entities should be included in the Company's
consolidated financial statements. An entity subject to FIN 46-R is called
a 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, 2006 and 2005, 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, 2006 and 2005 were $5,269,000 and $5,257,000,
respectively 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:
IN THOUSANDS MAXIMUM
DECEMBER 31, 2006 TOTAL ASSETS EXPOSURE TO LOSS
-------------------------- ------------ ----------------
Private equity investments $44,673 $38,205
Other invested assets 2,286 2,286
IN THOUSANDS MAXIMUM
DECEMBER 31, 2005 TOTAL ASSETS EXPOSURE TO LOSS
-------------------------- ------------ ----------------
Private equity investments $51,968 $41,436
Other invested assets 2,445 2,445
30
(5) NET FINANCE RECEIVABLES
Finance receivables as of December 31 were as follows:
IN THOUSANDS 2006 2005
------------ -------- --------
Direct installment loans $193,509 $171,889
Retail installment notes 29,941 26,929
Accrued interest 3,537 3,065
-------- --------
Gross receivables 226,987 201,883
Unearned finance charges (54,769) (47,183)
Allowance for uncollectible amounts (9,227) (8,292)
-------- --------
Finance receivables, net $162,991 $146,408
======== ========
Direct installment loans, at December 31, 2006 and 2005, consisted of
$132,776,000 and $117,336,000, respectively, of discount basis loans, net
of unearned finance charges and unearned other charges, and $11,445,000 and
$12,143,000, 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.
Total finance receivables, net of unearned finance charges, by date of
final maturity at December 31, 2006 were as follows:
IN THOUSANDS
------------
2007 $ 24,342
2008 50,841
2009 77,685
2010 16,021
2011 977
2012 and thereafter 2,352
--------
Total finance receivables, net of unearned finance charges 172,218
Allowance for uncollectible amounts (9,227)
--------
Finance receivables, net $162,991
========
During the years ended December 31, 2006, 2005 and 2004, principal cash
collections of direct installment loans were $71,630,000, $64,880,000 and
$57,523,000, respectively, and the percentages of these cash collections to
average net balances were 54%, 53% and 49%, respectively. Retail
installment notes' principal cash collections were $32,938,000, $34,161,000
and $28,653,000, respectively, and the percentages of these cash
collections to average net balances were 145%, 163% and 164% for 2006, 2005
and 2004, respectively.
The ratio of the allowance for losses to total finance receivables, net of
unearned finance charges, at December 31, 2006 and 2005 was 5.4%.
Changes in the allowance for losses for the years ended December 31 were as
follows:
IN THOUSANDS 2006 2005 2004
------------ ------- -------- ---------
Balance at beginning of year $ 8,292 $ 7,878 $ 7,232
Provision for credit losses 5,890 8,444 8,080
Charge-offs (8,183) (11,346) (10,541)
Recoveries 3,228 3,316 3,107
------- -------- ---------
Balance at end of year $ 9,227 $ 8,292 $ 7,878
======= ======== =========
31
(5) NET FINANCE RECEIVABLES (CONTINUED)
At December 31, 2006 and 2005, the recorded investments in certain direct
installment loans were considered to be impaired. The balances of such
loans at December 31, 2006 and 2005 and the related allowance for losses
were as follows:
INSTALLMENT
IN THOUSANDS LOANS
------------ -----------
Balances at December 31, 2006 $157
Related allowance for credit losses $ 93
Balances at December 31, 2005 $153
Related allowance for credit losses $102
All loans deemed to be impaired are placed on non-accrual status. No
accrued or unpaid interest was recognized on impaired loans during the
years ended December 31, 2006, 2005 and 2004. The average quarterly balance
of impaired loans during the years ended December 31, 2006 and 2005 was
$172,000 and $234,000, respectively.
There were no commitments to lend additional funds to customers whose loans
were classified as impaired at December 31, 2006.
The net investment in loans on which the accrual of finance charges and
interest was suspended at December 31, 2006 and 2005 was $18,834,000 and
$16,342,000, respectively. There was no investment in receivables past due
more than 90 days that were accounted for on an accrual basis at December
31, 2006 and 2005.
(6) NOTES RECEIVABLE
The Company entered into a loan contingency agreement with the Housing and
Redevelopment Authority of the City of St. Paul, Minnesota (HRA) in
November 1997 in connection with the Company's construction of an
additional home office facility in St. Paul, Minnesota. The interest rate
on the non-collateralized note was 8.625%, with principal payments to the
Company commencing February 2004 and a maturity date of August 2025.
Interest payments to the Company were payable February and August of each
year commencing February 2001. All principal and interest payments were due
only to the extent of available tax increments. In 2002, the loan reached
its maximum principal balance of $15,000,000. In 2003, the Company took a
write-down on the loan of $5,200,000, consisting of $4,959,000 of accrued
interest and $241,000 of principal. The loan continued to accrue interest
on the new balance, with payments applied first to accrued interest and
then to principal. During 2004, the note was refinanced into two new notes:
a $17,800,000 note and a $2,976,000 note. An immediate write down at the
time of refinancing of $4,808,000 and $428,000, respectively, was taken on
each of these notes. The two new notes were subsequently transferred from
the Company to its parent in the form of a dividend during 2004. For the
year ended December 31, 2004, the Company received principal payments of
zero and interest payments of $346,000. Interest income was included in net
investment income.
32
(7) INCOME TAXES
Income tax expense varies from the amount computed by applying the federal
income tax rate of 35% to income from operations before taxes. The
significant components of this difference were as follows:
[Download Table]
IN THOUSANDS 2006 2005 2004
------------ -------- ------- -------
Computed tax expense $ 86,542 $95,523 $69,693
Difference between computed and actual tax expense:
Dividends received deduction (10,992) (6,943) (8,751)
Tax credits (2,793) (2,426) (1,811)
Expense adjustments and other (1,105) 1,491 1,135
-------- ------- -------
Total tax expense $ 71,652 $87,645 $60,266
======== ======= =======
The tax effects of temporary differences that give rise to the Company's
net deferred federal tax liability at December 31 were as follows:
IN THOUSANDS 2006 2005
------------ -------- --------
Deferred tax assets:
Policyholder liabilities $ 1,493 $ --
Pension and postretirement benefits 27,374 33,630
Tax deferred policy acquisition costs 105,972 100,182
Deferred gain on individual disability coinsurance 13,597 15,023
Net realized capital losses 77,268 64,286
Ceding commissions and goodwill 7,837 6,907
Other 6,517 6,028
-------- --------
Gross deferred tax assets 240,058 226,056
-------- --------
Deferred tax liabilities:
Policyholder liabilities -- 3,113
Deferred policy acquisition costs 242,255 228,248
Premiums 27,184 24,977
Real estate and property and equipment depreciation 7,473 8,413
Basis difference on investments 40,314 34,747
Net unrealized capital gains 96,077 90,429
Other 11,268 10,265
-------- --------
Gross deferred tax liabilities 424,571 400,192
-------- --------
Net deferred tax liability $184,513 $174,136
======== ========
A valuation allowance for deferred tax assets was not considered necessary
as of December 31, 2006 and 2005 because the Company believes that it is
more likely than not that the deferred tax assets will be realized through
future reversals of existing taxable temporary differences and future
taxable income.
At December 31, 2006, state net operating loss carryforwards were
$1,186,000 and will expire beginning in 2016.
Income taxes paid for the years ended December 31, 2006, 2005, and 2004,
were $70,018,000, $75,756,000 and $23,747,000, respectively.
33
(7) INCOME TAXES (CONTINUED)
In December 2006, the IRS completed their audit of the consolidated federal
income tax returns for Minnesota Mutual Companies, Inc. and subsidiaries
for the years 2003 and 2004. The Company has accrued for its applicable
share of the taxes assessed as a result of the audit. The consolidated tax
returns for 2005 and later are expected to be under examination by the IRS
beginning in late 2007. The Company believes that its applicable share of
any additional taxes refunded or assessed as a result of the examination
will not have a material effect on its consolidated financial position.
(8) EMPLOYEE BENEFIT PLANS
PENSION PLANS AND POSTRETIREMENT PLANS OTHER THAN PENSIONS
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 2007, the Company expects to
contribute to its non-contributory defined benefit plans at least the
amount required to meet minimum funding requirements, which is currently
estimated to be zero. In addition, it may contribute additional tax
deductible amounts.
The Company also 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.
The Company also has 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. 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 $3,150,000 to the 401(h) account in 2007, and may
contribute additional tax deductible amounts.
The measurement date of the majority of the Company's pension and
postretirement plans other than pensions is December 1.
The change in the benefit obligation and plan assets for the Company's
plans as of December 31 was calculated as follows:
[Download Table]
PENSION BENEFITS OTHER BENEFITS
------------------- ------------------
IN THOUSANDS 2006 2005 2006 2005
------------ -------- -------- -------- -------
Change in benefit obligation:
Benefit obligation at beginning of year $398,118 $356,921 $ 66,761 $61,872
Service cost 16,260 16,366 1,845 3,295
Interest cost 22,307 21,553 2,914 3,880
Amendments (5,940) -- (14,165) --
Actuarial (gain) loss 26,107 11,366 8,290 (721)
Benefits paid (8,750) (8,088) (2,449) (1,565)
-------- -------- -------- -------
Benefit obligation at end of year $448,102 $398,118 $ 63,196 $66,761
======== ======== ======== =======
34
(8) EMPLOYEE BENEFIT PLANS (CONTINUED)
PENSION PLANS AND POSTRETIREMENT PLANS OTHER THAN PENSIONS (CONTINUED)
[Enlarge/Download Table]
PENSION BENEFITS OTHER BENEFITS
--------------------- -------------------
IN THOUSANDS 2006 2005 2006 2005
------------ --------- --------- -------- --------
Change in plan assets:
Fair value of plan assets at beginning
of year $ 289,179 $ 236,996 $ 4,377 $ 2,900
Actual return on plan assets 41,737 19,712 456 35
Employer contribution 11,399 40,559 2,540 3,007
Benefits paid (8,750) (8,088) (2,449) (1,565)
--------- --------- -------- --------
Fair value of plan assets at end of year $ 333,565 $ 289,179 $ 4,924 $ 4,377
========= ========= ======== ========
Net amount recognized:
Funded status $(114,537) $(108,939) $(58,272) $(62,384)
Unrecognized net actuarial loss 91,082 91,126 13,973 5,783
Unrecognized transition obligation 548 1,096 -- --
Unrecognized prior service cost (3,959) 1,904 (13,026) --
Contributions after measurement date 37,523 -- -- --
--------- --------- -------- --------
Net amount recognized $ 10,657 $ (14,813) $(57,325) $(56,601)
========= ========= ======== ========
Amounts recognized on the consolidated
balance sheets consist of:
Prepaid benefit cost $ 7,969 $ 16,731 $ -- $ --
Accrued benefit cost (40,827) (34,169) (57,325) (56,601)
Intangible asset 41 55 -- --
Accumulated other comprehensive income 5,951 2,570 -- --
Contributions after measurement date 37,523 -- -- --
--------- --------- -------- --------
Net amount recognized $ 10,657 $ (14,813) $(57,325) $(56,601)
========= ========= ======== ========
Accumulated benefit obligation $ 327,418 $ 279,707 $ 63,196 $ 66,761
Plans with accumulated benefit obligation
in excess of plan assets:
Projected benefit obligation $ 81,600 $ 71,452
Accumulated benefit obligation 67,004 58,228
Fair value of plan assets 28,254 26,782
Minimum pension liability 38,750 31,446
Increase in minimum liability included in
other comprehensive income 3,380 1,343
Weighted average assumptions used to
determine benefit obligations:
Discount rate 5.69% 5.76% 5.71% 5.79%
Rate of compensation increase 5.71% 5.95% -- --
35
(8) EMPLOYEE BENEFIT PLANS (CONTINUED)
PENSION PLANS AND POSTRETIREMENT PLANS OTHER THAN PENSIONS (CONTINUED)
[Download Table]
PENSION BENEFITS OTHER BENEFITS
-------------------- ----------------
IN THOUSANDS 2006 2005 2006 2005
------------ -------- --------- ------- ------
Components of net periodic benefit cost:
Service cost $ 16,260 $ 16,366 $ 1,845 $3,295
Interest cost 22,307 21,553 2,914 3,880
Expected return on plan assets (21,192) (18,420) (375) (98)
Transition obligation amortization 548 536 -- --
Prior service cost (benefit) amortization (77) 418 (1,138) --
Recognized net actuarial loss 5,607 5,503 18 537
-------- -------- ------- ------
Net periodic benefit cost $ 23,453 $ 25,956 $ 3,264 $7,614
======== ======== ======= ======
Weighted average assumptions used to
determine net periodic benefit costs:
Discount rate 5.76% 5.99% 5.79% 6.00%
Expected long-term return on plan assets 7.83% 7.84% 7.00% 4.00%
Rate of compensation increase 5.95% 5.95% -- --
Estimated future benefit payments for pension and other postretirement
benefits:
PENSION OTHER MEDICARE
IN THOUSANDS BENEFITS BENEFITS SUBSIDY
------------ -------- -------- --------
2007 $ 9,706 $ 1,680 $ 73
2008 10,696 1,877 83
2009 11,902 2,045 92
2010 13,105 2,221 100
2011 14,624 2,348 111
2012 - 2016 96,218 13,899 810
For measurement purposes, an 8.0% and 8.5% annual rate of increase in the
per capita cost of covered health care benefits was assumed for 2006 and
2005, respectively. The rate was assumed to decrease gradually to 5.5% for
2012 and remain at that level thereafter.
The Company recorded an additional minimum liability of $5,992,000 and
$2,625,000 as of December 31, 2006, and 2005, respectively. This liability
represents the amount by which the accumulated benefit obligation exceeded
the sum of the fair value of plan assets and accrued amounts previously
recorded. The additional liability may be offset by an intangible asset to
the extent of previously unrecognized prior service cost. The intangible
asset of $41,000 and $55,000 at December 31, 2006, and 2005, respectively,
is included in other assets on the consolidated balance sheets.
The assumptions presented herein are based on pertinent information
available to management as of December 31, 2006 and 2005. 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, 2006 by
$8,595,000 and the estimated eligibility cost and interest cost components
of net periodic benefit costs for 2006 by $552,000. Decreasing the assumed
health care cost trend rates by one percentage point would decrease the
postretirement benefit obligation as of December 31, 2006 by $7,063,000 and
the estimated eligibility cost and interest cost components of net periodic
postretirement benefit costs for 2006 by $551,000.
36
(8) EMPLOYEE BENEFIT PLANS (CONTINUED)
PENSION PLANS AND POSTRETIREMENT PLANS OTHER THAN PENSIONS (CONTINUED)
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.
The Company's non-contributory defined benefit plans weighted average asset
allocations by asset category at December 31 are as follows:
2006 2005
---- ----
Equity securities 56% 57%
Debt securities 34% 32%
Insurance company general account 10% 11%
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 investments for asset allocation purposes. A tactical
asset allocation overlay investment was also employed, which utilized
equity and debt futures positions to adjust overall exposure to these broad
asset classes. The Company's use of this allocation overlay was
discontinued during 2005.
Generally, the investment objective of the non-contributory defined benefit
plans is to pursue high returns but to limit: (1) the volatility of returns
to a level which will keep 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 to levels deemed tolerable.
The target asset allocation as of December 31, 2006, for each of the broad
investment categories, weighted for all plans combined is as follows:
Equity securities 49% to 68%
Debt securities 21% to 42%
Insurance company general account 8% to 15%
Other 0% to 2%
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% debt securities. The target
asset allocation as of December 31, 2006 is 50% equity securities and 50%
debt securities.
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 2006, 2005, and 2004 of $10,970,000,
$9,477,000 and $10,811,000, respectively. Participants may elect to receive
a portion of their contributions in cash.
(9) LIABILITY FOR UNPAID ACCIDENT AND HEALTH CLAIMS, RESERVE FOR LOSSES, AND
CLAIM AND LOSS ADJUSTMENT EXPENSES
The liability for unpaid accident and health claims, reserve for losses and
claim and loss adjustment expenses is included in future policy and
contract benefits, pending policy and contract claims, and other
liabilities on the consolidated balance sheets.
37
(9) LIABILITY FOR UNPAID ACCIDENT AND HEALTH CLAIMS, RESERVE FOR LOSSES, AND
CLAIM AND LOSS ADJUSTMENT EXPENSES (CONTINUED)
Activity in the liability for unpaid accident and health claims, reserve
for losses and claim and loss adjustment expenses is summarized as follows:
IN THOUSANDS 2006 2005 2004
------------ -------- -------- --------
Balance at January 1 $584,771 $575,431 $554,160
Less: reinsurance recoverable 507,076 496,450 471,425
-------- -------- --------
Net balance at January 1 77,695 78,981 82,735
-------- -------- --------
Incurred related to:
Current year 68,017 53,215 55,546
Prior years 1,098 263 3,388
-------- -------- --------
Total incurred 69,115 53,478 58,934
-------- -------- --------
Paid related to:
Current year 37,453 22,849 24,165
Prior years 33,237 32,765 38,523
-------- -------- --------
Total paid 70,690 55,614 62,688
-------- -------- --------
Transfer of subsidiary balance -- 850 --
-------- -------- --------
Net balance at December 31 76,120 77,695 78,981
Plus: reinsurance recoverable 523,490 507,076 496,450
-------- -------- --------
Balance at December 31 $599,610 $584,771 $575,431
======== ======== ========
As a result of changes in estimates of claims incurred in prior years, the
accident and health claims, reserve for losses and claim and loss
adjustment expenses incurred increased by $1,098,000, $263,000 and
$3,388,000 in 2006, 2005, and 2004, respectively, which includes the
amortization of discount on individual accident and health claim reserves
of $63,000, $82,000, and $75,000 in 2006, 2005, and 2004, respectively. The
remaining changes in amounts are the result of normal reserve development
inherent in the uncertainty of establishing the liability for unpaid
accident and health claims, reserve for losses and claim and loss
adjustment expenses.
(10) REINSURANCE
In the normal course of business, the Company seeks to limit its exposure
to loss on any single insured and to recover a portion of benefits paid by
ceding reinsurance to other insurance companies. To the extent that a
reinsurer is unable to meet its obligation under the reinsurance agreement,
the Company remains liable. The Company evaluates the financial condition
of its reinsurers and monitors concentrations of credit risk to minimize
its exposure to significant losses from reinsurer insolvencies. Allowances
are established for amounts deemed to be uncollectible.
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.
38
(10) REINSURANCE (CONTINUED)
The effect of reinsurance on premiums for the years ended December 31 was
as follows:
IN THOUSANDS 2006 2005 2004
------------ ---------- ---------- ----------
Direct premiums $1,086,913 $1,002,353 $ 924,713
Reinsurance assumed 374,505 310,515 276,104
Reinsurance ceded (152,479) (129,032) (122,231)
---------- ---------- ----------
Net premiums $1,308,939 $1,183,836 $1,078,586
========== ========== ==========
Reinsurance recoveries on ceded reinsurance contracts included in
policyholder benefits on the consolidated statements of operations were
$142,801,000, $119,630,000 and $105,589,000 during 2006, 2005, and 2004,
respectively.
On March 7, 2006, the Company entered into a coinsurance agreement with
American United Life Insurance Company whereby group life and accident and
health accounts representing 1,030 group contracts with associated policy
and claim liabilities of approximately $33,256,000 were transferred to the
Company, effective May 1, 2006 along with assets of $19,607,000. The
Company paid a ceding commission in exchange for the liability transfer.
Including the ceding commission, total expenses of $13,933,000 were
capitalized and are included within deferred policy acquisition costs on
the consolidated balance sheets. This amount is being amortized over the
life of the underlying block of policies included in the coinsurance
agreement.
(11) 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 revenue, 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 universal life and
variable life policy 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 2005 or 2006.
39
(11) CERTAIN NONTRADITIONAL LONG-DURATION CONTRACTS AND SEPARATE ACCOUNTS
(CONTINUED)
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 2006 2005
------------ ---------- ----------
Return of net deposits:
In the event of death
Account value $1,731,681 $1,509,164
Net amount at risk $ 4,582 $ 8,650
Average attained age of contractholders 51.3 51.3
As withdrawals are taken
Account value $ 148,249 $ 43,050
Net amount at risk $ 5,076 $ 26
Average attained age of contractholders 61.5 60.5
Return of net deposits plus a minimum return:
In the event of death
Account value $ 119,910 $ 95,063
Net amount at risk $ -- $ 409
Average attained age of contractholders 57.4 57.2
At annuitization
Account value $ 255,292 $ 193,476
Net amount at risk $ -- $ --
Weighted average period remaining until
expected annuitization (in years) 8.4 9.1
40
(11) CERTAIN NONTRADITIONAL LONG-DURATION CONTRACTS AND SEPARATE ACCOUNTS
(CONTINUED)
At December 31, the Company had the following variable annuity contracts
with guarantees:
IN THOUSANDS 2006 2005
------------ -------- --------
Highest specified anniversary account value:
In the event of death
Account value $569,163 $469,989
Net amount at risk $ 3,801 $ 6,779
Average attained age of contractholders 52.0 51.9
Guaranteed payout annuity floor:
Account value $ 80,272 $ 77,208
Net amount at risk $ 7 $ 15
Average attained age of contractholders 67.5 67.0
At December 31, the Company had the following universal life and variable
life contracts with guarantees:
IN THOUSANDS 2006 2005
------------ ----------- -----------
Account value (general and separate accounts) $ 2,258,787 $ 1,905,806
Net amount at risk $35,694,634 $34,402,214
Average attained age of policyholders 46.0 46.0
Liabilities for guarantees on variable contracts reflected in the general
account as of December 31, 2006 are:
[Download Table]
MINIMUM GUARANTEED UNIVERSAL
GUARANTEED PAYOUT LIFE AND
IN THOUSANDS DEATH BENEFIT ANNUITY FLOOR VARIABLE LIFE
------------ ------------- ------------- -------------
Balance at beginning of year $ 355 $ 8,354 $ 3,064
Incurred guarantee benefits 596 (2,394) 8,522
Paid guaranteed benefits (237) (144) (4,386)
----- ------- -------
Balance at end of year $ 714 $ 5,816 $ 7,200
===== ======= =======
Liabilities for guarantees on variable contracts reflected in the general
account as of December 31, 2005 are:
[Download Table]
MINIMUM GUARANTEED UNIVERSAL
GUARANTEED PAYOUT LIFE AND
IN THOUSANDS DEATH BENEFIT ANNUITY FLOOR VARIABLE LIFE
------------ ------------- ------------- -------------
Balance at beginning of year $ 221 $8,192 $ 867
Incurred guarantee benefits 321 353 4,813
Paid guaranteed benefits (187) (191) (2,616)
----- ------ -------
Balance at end of year $ 355 $8,354 $ 3,064
===== ====== =======
41
(11) CERTAIN NONTRADITIONAL LONG-DURATION CONTRACTS AND SEPARATE ACCOUNTS
(CONTINUED)
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 benefits are
considered to be derivatives under FASB Statement No. 133, ACCOUNTING FOR
DERIVATIVE INSTRUMENTS AND HEDGING ACTIVITIES, 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.
The following assumptions and methodology were used to determine the
minimum guaranteed death benefit liability on variable annuities at
December 31, 2006 and 2005 (except where noted otherwise):
- Data compiled from 10,000 stochastically generated investment
performance scenarios and ranked by wealth factors. Projections were
run using a sampling of these scenarios.
- Mean investment performance was 9.68% and 10.37% for 2006 and 2005,
respectively, and is consistent with DAC projections over a 10 year
period.
- Annualized monthly standard deviation was 14.28%.
- Assumed mortality was 100% of the 1983a table.
- Lapse rates varied by contract type and policy duration, ranging form
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, 2006 and 2005 (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% and 4.9% for 2006 and 2005,
respectively.
- Separate account discount rate was 7.73% and 7.75% for 2006 and 2005,
respectively.
Account balances for contracts with guarantees were invested in variable
separate accounts by mutual fund grouping as follows at December 31:
[Download Table]
VARIABLE ANNUITY CONTRACTS VARIABLE LIFE CONTRACTS
-------------------------- -----------------------
IN THOUSANDS 2006 2005 2006 2005
------------ ---------- ---------- ---------- ----------
Equity $1,699,138 $1,442,983 $1,505,776 $1,269,169
Bond 277,878 234,960 108,476 95,231
Balanced 249,131 226,537 184,714 152,762
Money market 48,441 37,971 38,809 28,474
Mortgage 124,236 130,880 61,504 56,928
Real estate 102,202 78,093 51,913 35,987
---------- ---------- ---------- ----------
Total $2,501,026 $2,151,424 $1,951,192 $1,638,551
========== ========== ========== ==========
42
(12) 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, 2006 and 2005, the liability associated with unremitted
premiums payable was $12,888,000 and $15,109,000, respectively. As
described in note 2, as of December 31, 2006 and 2005, the Company had
restricted the use of $12,888,000 and $15,109,000, respectively, of its
cash and cash equivalents to satisfy these premium remittance payables.
(13) 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, 2006 and 2005, the approved
accrued interest was $3,008,000. At December 31, 2006 and 2005, 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, 2006 and 2005, accumulated amortization was $497,000 and $408,000,
respectively.
At December 31, 2006, the aggregate minimum annual notes payable maturities
for the next five years are as follows: 2007, $0; 2008, $0; 2009, $0; 2010,
$0; 2011, $0; thereafter $125,000,000.
Interest paid on debt for the years ended December 31, 2006, 2005 and 2004,
was $10,402,000, $10,325,000 and $10,360,000, respectively.
(14) FAIR VALUE OF FINANCIAL INSTRUMENTS
The estimated fair value of the Company's financial instruments has been
determined using available market information as of December 31, 2006 and
2005. Although management is not aware of any factors that would
significantly affect the estimated fair value, such amounts have not been
comprehensively revalued since those dates. Therefore, estimates of fair
value subsequent to the valuation dates may differ significantly from the
amounts presented herein. Considerable 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.
Refer to note 2 for additional fair value disclosures concerning fixed
maturity securities, equity securities, mortgages, private equity
investments and derivatives. Fair values of mortgage loans are based upon
discounted cash flows, quoted market prices and matrix pricing. The
carrying amounts for policy loans, cash, cash equivalents, and finance
receivables approximate the assets' fair values. The fair values of
securities lending collateral assets and liabilities are based on quoted
market prices.
The interest rates on the finance receivables outstanding as of December
31, 2006 and 2005, are consistent with the rates at which loans would
currently be made to borrowers of similar credit quality and for the same
maturity; as such, the carrying value of the finance receivables
outstanding as of December 31, 2006 and 2005, approximate the fair value
for those respective dates.
43
(14) FAIR VALUE OF FINANCIAL INSTRUMENTS (CONTINUED)
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, 2006 and 2005 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.
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.
Rates currently available to the Company for debt with similar terms and
remaining maturities are used to estimate the fair value of notes payable.
The carrying amounts and fair values of the Company's financial
instruments, which were classified as assets as of December 31, were as
follows:
[Enlarge/Download Table]
2006 2005
------------------------- -------------------------
CARRYING FAIR CARRYING FAIR
IN THOUSANDS AMOUNT VALUE AMOUNT VALUE
------------ ----------- ------------ ----------- -----------
Fixed maturity securities $ 5,326,567 $ 5,326,567 $ 5,190,234 $ 5,190,234
Equity securities 725,807 725,807 683,290 683,290
Mortgage loans, net 1,133,784 1,147,210 1,020,427 1,059,985
Finance receivables, net 162,991 162,991 146,408 146,408
Policy loans 297,312 297,312 279,699 279,699
Private equity investments 325,619 325,619 268,535 268,535
Fixed maturity securities on loan 1,306,167 1,306,167 1,278,941 1,278,941
Equity securities on loan 79,215 79,215 119,087 119,087
Derivative instruments 23,886 23,886 6,997 6,997
Cash and cash equivalents 165,075 165,075 284,283 284,283
Securities held as collateral 1,430,984 1,430,984 1,439,254 1,439,254
Separate account assets 12,272,433 12,272,433 10,600,016 10,600,016
----------- ----------- ----------- -----------
Total financial assets $23,249,840 $23,263,266 $21,317,171 $21,356,729
=========== =========== =========== ===========
The carrying amounts and fair values of the Company's financial
instruments, which were classified as liabilities as of December 31, were
as follows:
[Enlarge/Download Table]
2006 2005
------------------------- -------------------------
CARRYING FAIR CARRYING FAIR
IN THOUSANDS AMOUNT VALUE AMOUNT VALUE
------------ ----------- ----------- ----------- ------------
Deferred annuities $ 1,950,751 $ 1,944,537 $ 1,988,262 $ 1,984,540
Annuity certain contracts 58,865 60,057 56,855 58,877
Other fund deposits 1,245,959 1,238,361 1,192,209 1,193,762
Supplementary contracts without
life contingencies 49,844 49,844 46,646 46,646
Notes payable 125,000 127,084 125,000 126,995
Securities lending collateral 1,430,984 1,430,984 1,439,254 1,439,254
Separate account liabilities 12,272,433 12,272,433 10,600,016 10,600,016
----------- ----------- ----------- -----------
Total financial liabilities $17,133,836 $17,123,300 $15,448,242 $15,450,090
=========== =========== =========== ===========
44
(15) BUSINESS COMBINATIONS
Effective June 1, 2004, the Company completed the acquisition of Allied, a
privately held independent distributor of credit union insurance and
financial services products. The Company anticipates this acquisition will
strengthen its leadership position in the credit union marketplace through
the combination of each entity's respective strengths; manufacturing
through Minnesota Life Insurance Company and distribution through Allied.
The acquisition was accounted for under the purchase method of accounting
as required by FASB Statement No. 141, BUSINESS COMBINATIONS (FAS 141),
which requires that assets purchased and liabilities assumed be valued at
fair value. Goodwill represents the excess of the purchase price over the
fair value of the acquired tangible assets, assumed liabilities and
identifiable intangible assets.
The following summarizes the initial purchase price allocation and the
subsequent changes to the Company's estimates of the fair values of assets
and liabilities acquired and resulting goodwill from finalization of
purchase accounting:
[Download Table]
CHANGE IN
JUNE 1, ADDITIONAL FAIR VALUE DECEMBER 31,
IN THOUSANDS 2004 CONSIDERATION EVALUATION 2006
------------ -------- ------------- ---------- ------------
Cash $ 8,504 $ -- $ 50 $ 8,554
Property and equipment 1,250 -- 129 1,379
Intangible assets 13,592 -- -- 13,592
Other assets 3,388 -- 169 3,557
Other liabilities (16,012) -- (169) (16,181)
-------- ------- ----- --------
Net assets acquired 10,722 -- 179 10,901
Excess of cost over fair value -
goodwill 10,778 14,572 (179) 25,171
-------- ------- ----- --------
Allocated purchase price $ 21,500 $14,572 $ -- $ 36,072
======== ======= ===== ========
The Company paid an additional $1,000,000 in 2005 when a contractual
obligation was met by the sellers. This payment resulted in an increase to
goodwill. During 2005, the Company also completed the final fair value
evaluation of assets acquired, resulting in a $179,000 decrease to
goodwill.
Of the $13,592,000 of value assigned to intangible assets, $2,146,000 was
assigned to non-compete covenants specified in the purchase agreement to be
amortized over a three-year period on a straight-line basis. The remaining
assignment of intangible asset relates to the purchased customer/client
relationships existing at the date of acquisition. The assigned value of
$11,446,000 was supported through a discounted cash flow analysis that
estimated the value and the useful life of the intangibles. These
intangible assets are amortized on a straight line basis, over the
estimated useful life of the underlying customer/client relationships,
which ranges from three to ten years.
In connection with the acquisition of Allied, the Company has agreed to pay
additional consideration in future periods, based on either the fulfillment
of certain requirements or the attainment of defined operating objectives.
In accordance with FAS 141, the Company does not accrue contingent
consideration obligations prior to the attainment of the objectives. During
2006, certain operating objectives were attained by Allied, which made it
determinable beyond a reasonable doubt at December 31, 2006 that the
Company would have to pay at least $13,572,000 of the $19,072,000 maximum
potential payout pursuant to the agreement. As a result, the Company has
recorded an additional $13,572,000 of goodwill and a corresponding
liability as of December 31, 2006 on the consolidated balance sheets. Final
determination and payout of the contingent consideration is likely to occur
in 2007. Any additional amount paid in excess of the $13,572,000 recorded
in 2006, is expected to be recorded as additional goodwill.
45
(16) 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 2006 2005
------------ ------- -------
Balance at beginning of year $11,599 $10,778
Adjustments to acquisition 13,572 821
------- -------
Balance at end of year $25,171 $11,599
======= =======
Annual impairment testing of goodwill was completed in 2006. 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 2006 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 2006 2005
------------ ------- -------
Balance at beginning of year $ 9,453 $12,311
Acquisitions 775 200
Amortization (2,947) (3,058)
------- -------
Balance at end of year $ 7,281 $ 9,453
======= =======
The Company has intangible assets resulting from acquisitions. Intangible
assets acquired during 2006 included a non-compete agreement amortizable on
a straight-line basis over three years and a customer list amortizable over
its assigned economic useful life. The remaining intangible assets consist
of a non-compete agreement and 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 non-compete agreement is
amortized on a straight-line basis over three 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.
Amortization expense for 2006 and 2005 in the amount of $2,947,000 and
$3,058,000, respectively, is included in general operating expenses.
Projected amortization expense for the next five years is as follows: 2007,
$2,420,000; 2008, $1,997,000; 2009, $1,044,000; 2010, $438,000; 2011,
$404,000.
(17) RELATED PARTY TRANSACTIONS
The Company has investment advisory agreements with an affiliate, Advantus
Capital Management, Inc. (Advantus). Under these agreements, the Company
pays quarterly investment management fees based on total assets managed.
Investment management fees paid by the Company were $13,137,000,
$12,913,000 and $12,407,000 during 2006, 2005 and 2004, respectively. As of
December 31, 2006 and 2005, the amount due to Advantus under these
agreements was $3,679,000 and $3,819,000, respectively.
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 for
performing compliance functions for these variable products by the Company
totaled $4,235,000, $4,216,000 and $3,813,000 for the years ended December
31, 2006, 2005 and 2004, respectively.
46
(17) RELATED PARTY TRANSACTIONS (CONTINUED)
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, 2006, 2005 and
2004, the amounts transferred were $13,699,000, $13,054,000, and
$12,367,000, 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, in which the Company
incurs on behalf of its affiliates. At December 31, 2006 and 2005, the
amount payable to the Company was $10,486,000 and $10,653,000,
respectively. The amount of expenses incurred for the years ended December
31, 2006, 2005, and 2004 were $48,565,000, $44,468,000 and $42,322,000,
respectively.
During 2002, the Company sold a group variable universal life policy to
Securian Financial Group, Inc. The Company received premiums of $2,000,000
in 2006, 2005 and 2004. No claims were paid during 2006, 2005 and 2004. As
of December 31, 2006 and 2005, reserves held under this policy were
$15,533,000 and $11,760,000, respectively.
(18) OTHER COMPREHENSIVE INCOME
Comprehensive income 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, unrealized appreciation
(depreciation) on securities and related adjustments.
The components of comprehensive income (loss), other than net income are
illustrated below:
[Enlarge/Download Table]
IN THOUSANDS 2006 2005 2004
------------ -------- --------- --------
Other comprehensive income (loss), before tax:
Unrealized gains (loss) on securities $ 65,449 $(121,334) $ 74,513
Reclassification adjustment for
(gains) losses included in net income (52,470) (65,935) (91,919)
Adjustment to deferred policy acquisition costs 9,184 47,057 48,407
Adjustment to reserves 8,555 20,685 2,941
Adjustment to unearned policy and contract fees (1,131) (7,794) (7,112)
-------- --------- --------
29,587 (127,321) 26,830
Income tax expense (benefit) related to items of
other comprehensive income (11,462) 44,406 (17,476)
-------- --------- --------
Other comprehensive income (loss), net of tax $ 18,125 $ (82,915) $ 9,354
======== ========= ========
(19) STOCK DIVIDENDS AND CAPITAL CONTRIBUTIONS
During 2006, the Company declared and paid cash dividends to Securian
Financial Group, Inc. totaling $65,000,000. Additionally, the Company
declared and paid a dividend in the form of preferred stock to Securian
Financial Group, Inc. totaling $805,000. During 2005, the Company declared
and paid cash dividends to Securian Financial Group, Inc. totaling
$12,500,000. During 2004, the Company declared and paid a dividend to
Securian Financial Group, Inc. in the amount of $15,539,000. This dividend
was in the form of tax increment financing note agreements with the City of
St. Paul.
47
(19) STOCK DIVIDENDS AND CAPITAL CONTRIBUTIONS (CONTINUED)
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 2006 statutory results, the maximum amount available for the payment of
dividends during 2007 by Minnesota Life Insurance Company without prior
regulatory approval is $171,088,000 after January 1, 2007.
During 2005, Securian Financial Group, Inc. contributed capital to the
Company in the amount of $6,900,000. This contribution was made in the form
of cash. Additionally, during 2005, Securian Financial Group, Inc.
contributed capital to the Company in the amount of $13,568,000,
representing the affiliated stock of Securian Life Insurance Company.
During 2004, Securian Financial Group, Inc. contributed capital to the
Company in the amount of $55,000,000. This contribution was made in the
form of cash and cash equivalents. Additionally, during 2004, Securian
Financial Group, Inc. contributed capital to the Company in the amount of
$3,164,000. This contribution was made in the form of real estate.
(20) 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 recent years, life insurance companies have been named as defendants in
lawsuits, including class action lawsuits relating to life insurance and
annuity pricing and sales practices. A number of these lawsuits have
resulted in substantial jury awards or settlements against life insurers
other than the Company.
The financial services industry, including mutual fund, variable annuity,
life insurance and distribution companies, has been the subject of
increasing scrutiny by regulators, legislators and the media over the past
few years. Many regulators, including the SEC, the National Association of
Securities Dealers and the New York State Attorney General, have commenced
industry-wide investigations regarding late trading and market timing in
connection with mutual funds and variable insurance contracts, and have
commenced enforcement actions against some mutual fund and life insurance
companies on those issues. The Company has been contacted by the SEC, which
is investigating market timing in certain mutual funds or in those types of
insurance products offered by the Company. The Company has cooperated with
these requests. Information requests from the SEC with respect to
investigations into late trading and market timing were responded to by the
Company and its affiliates and no further information requests have been
received with respect to these matters.
In addition, state and federal regulators have commenced investigations or
other proceedings relating to compensation and bidding arrangements and
possible anti-competitive activities between insurance producers and
brokers and issuers of insurance products, and unsuitable sales and
replacements by producers on behalf of the issuer. Also under investigation
are compensation and revenue sharing arrangements between the issuers of
variable insurance contracts and mutual funds or their affiliates, the use
of side agreements and finite reinsurance agreements, and funding
agreements. Related investigations and proceedings may be commenced in the
future. The Company and/or its affiliates have been contacted by state and
federal regulatory agencies for information relating to certain of these
investigations. The Company is cooperating with regulators in connection
with these requests.
48
(20) COMMITMENTS AND CONTINGENCIES (CONTINUED)
These proceedings are expected to continue in the future and could result
in legal precedents and new industry-wide legislation, rules and
regulations that could significantly affect the financial services
industry, including life insurance and annuity companies. There can be no
assurance that any such litigation or regulatory actions will not have a
material adverse effect on the Company in the future.
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, 2006 and 2005, these
securities were reported at fair value of $24,646,000 and $7,415,000,
respectively.
The Company has long-term commitments to fund private equity investments
and real estate investments totaling $201,395,000 as of December 31, 2006.
The Company estimates that $66,000,000 of these commitments will be
invested in 2007, with the remaining $135,395,000 invested over the next
four years.
As of December 31, 2006, the Company had committed to purchase mortgage
loans totaling $40,200,000 but had not completed the purchase transactions.
As of December 31, 2006, the Company had committed to purchase corporate
bonds totaling $4,200,000 but had not completed the purchase transactions.
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:
2007, $11,267,000; 2008, $11,267,000; 2009, $11,267,000; 2010, $11,267,000;
2011, $11,267,000. The Company sub-leases space in downtown St. Paul.
Commitments to the Company from these agreements are as follows: 2007,
$757,000; 2008, $722,000; 2009, $709,000; 2010, $573,000; 2011, $351,000.
Lease expense net of sub-lease income for the years ended December 31,
2006, 2005 and 2004 was $8,558,000, $8,910,000, and $8,561,000,
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: 2007, $2,604,000;
2008, $1,826,000; 2009, $1,530,000; 2010, $761,000; 2011, $260,000.
At December 31, 2006, the Company had guaranteed the payment of $68,800,000
policyholder dividends and discretionary amounts payable in 2007. The
Company has pledged fixed maturity securities, valued at $76,669,000 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, 2006 and 2005 the assets held in trust were $625,898,000 and
$603,158,000, respectively. These assets are not reflected in the
accompanying consolidated balance sheets.
49
(20) COMMITMENTS AND CONTINGENCIES (CONTINUED)
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, 2006 and 2005 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 $1,529,000 and
$1,597,000 as of December 31, 2006 and 2005, respectively. These assets are
being amortized over a five-year period.
Occasionally, the Company will enter into arrangements where by certain
lease obligations related to general agents' office space are guaranteed.
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 have either been over or under provided for,
an exchange of the difference is required by the agreement. Management
reevaluates this exposure each accounting period. At December 31, 2006 and
2005, a liability of $1,008,000 was included in other liabilities on the
consolidated balance sheets.
The Company has minimum compensation agreements with certain sales and
employee groups, the terms of which expire at various times through 2009.
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, 2006 was approximately
$2,310,000.
(21) STATUTORY FINANCIAL DATA
The Company's insurance operations, domiciled in the states of Minnesota
and New York, prepare statutory financial statements in accordance with the
accounting practices prescribed or permitted by the insurance departments
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 19 for discussion of statutory dividend
limitations.
On a statutory accounting basis, the Company reported net income of
$172,804,000 in 2006, $159,919,000 in 2005, and $155,796,000 in 2004.
Statutory surplus of these operations was $1,710,884,000 and $1,585,280,000
as of December 31, 2006 and 2005, respectively.
50
(22) SUBSEQUENT EVENTS
Minnesota Life Insurance Company has signed a letter of intent to sell
Northstar Life Insurance Company, a New York domiciled life insurance
company, to an unaffiliated insurance company. As part of this transaction,
any policies or contracts remaining in Northstar Life Insurance Company as
of the sale date will be 100% reinsured to Securian Life Insurance Company
through a coinsurance agreement. Northstar Life Insurance Company is
licensed in New York only, while Securian Life Insurance Company is
licensed in all 50 states. As of December 31, 2006, Northstar Life
Insurance Company had total assets of $40,477,000 and liabilities of
$14,379,000 included in the consolidated balance sheets of the Company.
Subject to regulatory approval, the Company expects the sale to close in
June 2007.
51
MINNESOTA LIFE INSURANCE COMPANY AND SUBSIDIARIES
SCHEDULE I - SUMMARY OF INVESTMENTS - OTHER THAN INVESTMENTS IN RELATED PARTIES
DECEMBER 31, 2006
(In thousands)
[Enlarge/Download Table]
AS SHOWN
ON THE
CONSOLIDATED
MARKET BALANCE
TYPE OF INVESTMENT COST (3) VALUE SHEET (1)
---------- ---------- ------------
Fixed maturity securities
U.S. government $ 26,962 $ 27,252 $ 27,252
Agencies not backed by the full faith and
credit of the U.S. government 22,881 24,448 24,448
Foreign governments 1,753 1,833 1,833
Public utilities 538,608 549,644 549,644
Asset-backed securities 310,638 313,203 313,203
Mortgage-backed securities 1,543,580 1,561,008 1,561,008
All other corporate fixed maturity securities 2,818,946 2,849,179 2,849,179
---------- ---------- ----------
Total fixed maturity securities 5,263,368 5,326,567 5,326,567
---------- ---------- ----------
Equity securities:
Common stocks:
Public utilities 3,846 4,845 4,845
Banks, trusts and insurance companies 121,750 166,062 166,062
Industrial, miscellaneous and all other 447,032 550,647 550,647
Nonredeemable preferred stocks 4,259 4,253 4,253
---------- ---------- ----------
Total equity securities 576,887 725,807 725,807
---------- ---------- ----------
Mortgage loans on real estate 1,133,784 xxxxxx 1,133,784
Real estate (2) 755 xxxxxx 755
Policy loans 297,312 xxxxxx 297,312
Other investments 181,964 xxxxxx 181,964
Private equity investments 286,700 xxxxxx 325,619
Derivative investments 23,886 xxxxxx 23,886
Fixed maturity securities on loan 1,308,071 xxxxxx 1,306,167
Equity securities on loan 54,495 xxxxxx 79,215
---------- ----------
Total 3,286,967 xxxxxx 3,348,702
---------- ----------
Total investments $9,127,222 xxxxxx $9,401,076
========== ==========
(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.
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
---------------------- ----------- -------------- ------------ ------------
2006:
Life insurance $636,082 $2,899,758 $222,080 $199,244
Accident and
health insurance 67,863 725,059 44,017 26,211
Annuity 168,636 3,573,357 42 48
-------- ---------- -------- --------
$872,581 $7,198,174 $266,139 $225,503
======== ========== ======== ========
2005:
Life insurance $607,463 $2,807,696 $197,776 $180,688
Accident and
health insurance 63,685 704,302 29,877 24,812
Annuity 152,609 3,568,234 31 57
-------- ---------- -------- --------
$823,757 $7,080,232 $227,684 $205,557
======== ========== ======== ========
2004:
Life insurance $526,326 $2,758,353 $180,596 $146,579
Accident and
health insurance 66,502 695,602 31,443 22,793
Annuity 128,227 3,462,700 18 327
-------- ---------- -------- --------
$721,055 $6,916,655 $212,057 $169,699
======== ========== ======== ========
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)
---------------------- ----------- ---------- -------------- ------------ --------- -----------
2006:
Life insurance $1,483,066 $276,838 $1,343,646 $140,362 $433,882 $--
Accident and
health insurance 144,927 12,187 62,727 17,126 83,475 --
Annuity 135,099 211,375 193,909 27,144 124,959 --
---------- -------- ---------- -------- -------- ---
$1,763,092 $500,400 $1,600,282 $184,632 $642,316 $--
========== ======== ========== ======== ======== ===
2005:
Life insurance $1,319,853 $269,231 $1,169,894 $123,387 $427,570 $--
Accident and
health insurance 127,013 11,143 49,012 15,527 73,887 --
Annuity 136,646 206,639 207,339 23,596 123,477 --
---------- -------- ---------- -------- -------- ---
$1,583,512 $487,013 $1,426,245 $162,510 $624,934 $--
========== ======== ========== ======== ======== ===
2004:
Life insurance $1,208,310 $238,378 $1,064,797 $134,768 $410,621 $--
Accident and
health insurance 128,773 11,478 57,185 12,896 74,682 --
Annuity 123,551 209,756 201,727 22,224 121,702 --
---------- -------- ---------- -------- -------- ---
$1,460,634 $459,612 $1,323,709 $169,888 $607,005 $--
========== ======== ========== ======== ======== ===
(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.
MINNESOTA LIFE INSURANCE COMPANY AND SUBSIDIARIES
SCHEDULE IV - REINSURANCE
YEARS ENDED DECEMBER 31, 2006, 2005 AND 2004
(In thousands)
[Enlarge/Download Table]
PERCENTAGE
CEDED TO ASSUMED FROM OF AMOUNT
GROSS OTHER OTHER NET ASSUMED
AMOUNT COMPANIES COMPANIES AMOUNT TO NET
------------ ----------- ------------ ------------ ----------
2006: Life insurance in force $419,319,492 $63,028,552 $154,997,537 $511,288,477 30.3%
============ =========== ============ ============
Premiums:
Life insurance $ 834,505 $ 67,063 $ 364,099 $ 1,131,541 32.2%
Accident and health insurance 220,054 85,416 10,289 144,927 7.1%
Annuity 32,354 -- 117 32,471 0.4%
------------ ----------- ------------ ------------
Total premiums $ 1,086,913 $ 152,479 $ 374,505 $ 1,308,939 28.6%
============ =========== ============ ============
2005: Life insurance in force $365,941,212 $54,429,939 $131,535,964 $443,047,237 29.7%
============ =========== ============ ============
Premiums:
Life insurance $ 756,902 $ 53,260 $ 309,714 $ 1,013,356 30.6%
Accident and health insurance 202,025 75,772 760 127,013 0.6%
Annuity 43,426 -- 41 43,467 0.1%
------------ ----------- ------------ ------------
Total premiums $ 1,002,353 $ 129,032 $ 310,515 $ 1,183,836 26.2%
============ =========== ============ ============
2004: Life insurance in force $329,081,364 $47,795,013 $104,062,955 $385,349,306 27.0%
============ =========== ============ ============
Premiums:
Life insurance $ 684,749 $ 47,738 $ 275,004 $ 912,015 30.2%
Accident and health insurance 202,718 74,493 548 128,773 0.4%
Annuity 37,246 -- 552 37,798 --
------------ ----------- ------------ ------------
Total premiums $ 924,713 $ 122,231 $ 276,104 $ 1,078,586 25.6%
============ =========== ============ ============
See accompanying report of independent registered public accounting firm.
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
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
Jenean C. Cordon Vice President
Minnesota Life Insurance Company
400 Robert Street North
St. Paul, MN 55101
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
Craig J. Frisvold Vice President - Individual
Minnesota Life Insurance Company Underwriting and Claims
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 E. Gherty Director
2255 South Shore Boulevard
White Bear Lake, MN 55110
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
John H. Hooley Director
SUPERVALU INC.
11840 Valley View Road
Eden Prairie, MN 55344-3691
[Download Table]
Name and Principal Position and Offices
Business Address with Minnesota Life
------------------ --------------------
James E. Johnson Executive Vice President
Minnesota Life Insurance Company
400 Robert Street North
St. Paul, MN 55101
Wilford J. Kavanaugh Vice President -- Securian
Minnesota Life Insurance Company Distribution Management
400 Robert Street North
St. Paul, MN 55101
David J. LePlavy Second Vice President
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
Anthony J. Martins Second 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
H. Geoffrey Peterson Second 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 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 Senior Vice President
Minnesota Life Insurance Company
400 Robert Street North
St. Paul, MN 55101
Gregory S. Strong Senior Vice President
Minnesota Life Insurance Company and Treasurer
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
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.
I.A. Systems, Inc. (New York)
Securian Casualty Company
CNL Financial Corporation (Georgia)
Wholly-owned subsidiaries of Minnesota Life Insurance Company:
Northstar Life Insurance Company (New York)
Personal Finance Company LLC (Delaware)
Enterprise Holding Corporation
Allied Solutions, LLC (Indiana)
Securian Life Insurance Company
Wholly-owned subsidiaries of Enterprise Holding Corporation:
Financial Ink Corporation
Oakleaf Service Corporation
Concepts in Marketing Research Corporation
Lafayette Litho, Inc.
MIMLIC Funding, Inc.
MCM Funding 1997-1, Inc.
MCM Funding 1998-1, Inc.
Wholly-owned subsidiaries of Securian Financial Network, Inc.:
Securian Financial Network, Inc. (Alabama)
Securian Financial Network, Inc. (Nevada)
Securian Financial Network, Inc. (Oklahoma)
Securian Financial Network Insurance Agency, Inc. (Massachusetts)
Wholly-owned subsidiaries of CNL Financial Corporation:
Cherokee National Life Insurance Company (Georgia)
CNL/Insurance America, Inc. (Georgia)
CNL/Resource Marketing Corporation (Georgia)
Commodore National Reinsurance Company, Ltd.
Open-end registered investment company offering shares solely to separate
accounts of Minnesota 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
(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
Lynda S. Czarnetzki Vice President - Financial
Securian Financial Services, Inc. Management and Treasurer
400 Robert Street North
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 - Operations
Securian Financial Services, Inc.
400 Robert Street North
St. Paul, Minnesota 55101
[Download Table]
Positions and
Name and Principal Offices
Business Address with Underwriter
------------------ ----------------
Loyall E. Wilson Vice President, Chief
Securian Financial Services, Inc. Compliance Officer and
400 Robert Street North Secretary
St. Paul, Minnesota 55101
Kimberly K. Carpenter Assistant Secretary
Securian Financial Services, Inc.
400 Robert Street North
St. Paul, Minnesota 55101
Allen L. Peterson Assistant Secretary
Securian Financial Services, Inc.
400 Robert Street North
St. Paul, Minnesota 55101
Matthew N. Fries Assistant Secretary
Securian Financial Services, Inc.
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. $231,246 -- -- --
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 20th day
of April, 2007.
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 April 20, 2007
---------------------------
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 E. Gherty
* Director
---------------------------
John F. Grundhofer
* Director
---------------------------
John H. Hooley
* Director
---------------------------
Dennis E. Prohofsky
Director
---------------------------
Trudy A. Rautio
* Director
---------------------------
Randy F. Wallake
* Director
---------------------------
Warren J. Zaccaro
/s/ Warren J. Zaccaro
--------------------------- Executive Vice President April 20, 2007
Warren J. Zaccaro and Chief Financial Officer
(chief financial officer)
/s/ Warren J. Zaccaro
--------------------------- Executive Vice President April 20, 2007
Warren J. Zaccaro and Chief Financial Officer
(chief accounting officer)
/s/ Gregory S. Strong
--------------------------- Senior Vice President, Chief April 20, 2007
Gregory S. Strong Actuary and Treasurer
(treasurer)
/s/ Dwayne C. Radel
--------------------------- Attorney-in-Fact April 20, 2007
Dwayne C. Radel
* Pursuant to power of attorney dated February 12, 2007, 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) Distribution Agreement, filed on March 3, 1997 as
Exhibit A (3)(a) to the Registrant's Form S-6, File Number
33-85496, Post-Effective Amendment Number 2, 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 24, 2002 as Exhibit A(5)(c) to the Registrant's
Form S-6, File Number 33-85496, Post-Effective Amendment
Number 9, 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.
[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(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(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 February 27, 2003 as Exhibit
27(h)(1)(i) to Registrant's Form N-6, File Number 33-85496,
Post-Effective Amendment Number 10, is hereby incorporated
by reference.
26(h)(1)(ii) Amendment Number One to the Participation Agreement among
Advantus Series Fund, Inc., Advantus Capital Management,
Inc. and Minnesota Life Insurance Company, filed on February
27, 2003 as Exhibit 27(h)(1)(ii) to Registrant's Form N-6,
File Number 33-85496, Post-Effective Amendment Number 10, is
hereby incorporated by reference.
[Download Table]
Exhibit Number Description of Exhibit
-------------- ----------------------
26(h)(1)(iii) Amendment Number Two to the Participation Agreement among
Advantus Series Fund, Inc., Advantus Capital Management,
Inc. and Minnesota Life Insurance Company, filed on February
27, 2003 as Exhibit 27(h)(1)(iii) to Registrant's Form N-6,
File Number 33-85496, Post-Effective Amendment Number 10, is
hereby incorporated by reference.
26(h)(1)(iv) Shareholder Information Agreement between Advantus Series
Fund, Inc. and Minnesota Life Insurance Company.
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.
26(h)(3) Amended and Restated Participation Agreement among Variable
Insurance Products Fund, Fidelity Distributors Corporation
and Minnesota Life Insurance Company.
[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.
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.
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.
26(h)(7)(ii) Van Eck Shareholder Information Agreement between Minnesota
Life Insurance Company and Van Eck Securities Corporation.
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 Donald F. Gruber, Esq.
26(l) Actuarial opinion of Brian C. Anderson, FSA.
26(m) Calculations.
26(n) Consent of KPMG LLP.
26(o) Not Applicable.
26(p) Not Applicable.
26(q) Redeemability exemption.
26(r) Minnesota Life Insurance Company - Power of Attorney to Sign
Registration Statements.
Dates Referenced Herein and Documents Incorporated by Reference
95 Subsequent Filings that Reference this Filing
↑Top
Filing Submission 0000950137-07-005793 – Alternative Formats (Word / Rich Text, HTML, Plain Text, et al.)
Copyright © 2024 Fran Finnegan & Company LLC – All Rights Reserved.
About — Privacy — Redactions — Help —
Fri., May 17, 10:00:28.6am ET