Document/Exhibit Description Pages Size
1: 485BPOS Post-Effective Amendment No. 23 & 5 to Form N-6 178 951K
4: EX-99.26(H)(10)(III) Amendment No. 1 to the Participation 4 20K
Agreement
5: EX-99.26(H)(14)(IV) Amendment No. 1 to Participation 11 46K
Agreement
2: EX-99.26(H)(7)(IV) Amendment No. 3 to the Participation 2 12K
Agreement
3: EX-99.26(H)(8)(IV) Amendment No. 3 to Participation Agreement 2 11K
6: EX-99.26(K) Opinion and Consent of Donald F. Gruber, Esq. 1 10K
7: EX-99.26(L) Actuarial Opinion of Robert J. Ehren, Fsa, Clu. 2± 10K
8: EX-99.26(M) Calculation 2± 9K
9: EX-99.26(N) Consent of Kpmg LLP 1 8K
10: EX-99.26(R) Power of Attorney to Sign Registration Statements 2 13K
485BPOS — Post-Effective Amendment No. 23 & 5 to Form N-6
Document Table of Contents
File Number 33-3233
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM N-6
REGISTRATION STATEMENT UNDER THE SECURITIES ACT OF 1933
Pre-Effective Amendment Number
Post-Effective Amendment Number 23 X
and/or
REGISTRATION STATEMENT UNDER THE INVESTMENT COMPANY ACT OF 1940
Amendment Number 5 X
MINNESOTA LIFE VARIABLE LIFE ACCOUNT
------------------------------------
(formerly Minnesota Mutual Variable Life Account)
(Name of Trust)
Minnesota Life Insurance Company
--------------------------------
(formerly The Minnesota Mutual Life Insurance Company
(Depositor)
400 Robert Street North, St. Paul, Minnesota 55101-2098
-------------------------------------------------------
(Depositor's Principal Executive Offices)
Dwayne C. Radel
Vice President and General Counsel
Minnesota Life Insurance Company
400 Robert Street North
St. Paul, Minnesota 55101-2098
------------------------------
(Agent for Service)
Copy to:
J. Sumner Jones, Esq.
Dykema Gossett PLLC
Franklin Square
Suite 300 West
1300 I Street NW
Washington, D.C. 20005
It is proposed that this filing will become effective (check appropriate box):
immediately upon filing pursuant to paragraph (b) of Rule 485
---
X on April 29, 2005 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:
Variable Adjustable Life Insurance Policies
PART A: INFORMATION REQUIRED IN A PROSPECTUS
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 Life
Account, Minnesota Life Insurance Company and Portfolio
Companies
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 Insurance Company
Minnesota Life Variable Life Account
Variable Adjustable Life Insurance Policy
This prospectus describes a Variable Adjustable Life Insurance Policy
issued by Minnesota Life Insurance Company ("Minnesota Life"). It provides
life insurance protection for the life of the insured so long as scheduled
premiums are paid. Under some plans of insurance, the face amount of
insurance may decrease or terminate during the life of the insured.
The Policy may be adjusted, within described limits, as to face amount,
premium amount and the plan of insurance.
Variable Adjustable Life policy values may be invested in our separate
account called the Minnesota Life Variable Life Account ("Variable Life
Account"). Policy values may also be invested in a general account option.
The actual cash value of all Policies will vary with the investment
experience of these options.
The Variable Life Account invests in the following Fund portfolios:
(ADVANTUS(TM) SERIES FUND, INC. LOGO)
Advantus Series Fund, Inc.
- Bond Portfolio
- Index 400 Mid-Cap Portfolio
- Index 500 Portfolio
- International Bond Portfolio
- Money Market Portfolio
- Mortgage Securities Portfolio
- Real Estate Securities Portfolio
(AIM FUNDS(SM) LOGO)
AIM Variable Insurance Fund
- AIM V.I. Aggressive Growth Fund -- Series II Shares
- AIM V.I. Balanced Fund -- Series II Shares (AIM V.I. Basic Balanced
Fund -- Series II Shares effective July 1, 2005)
- AIM V.I. Dent Demographic Trends Fund -- Series II Shares (AIM V.I.
Demographic Trends Fund -- Series II Shares effective July 1, 2005)
- AIM V.I. Premier Equity Fund -- Series II Shares
(AMERICAN CENTURY(R) LOGO)
American Century Variable Portfolios, Inc.
- VP Income & Growth Fund -- Class II Shares
- VP Ultra(R) Fund -- Class II Shares
- VP Value Fund -- Class II Shares
(CREDIT SUISSE ASSET MANAGEMENT LOGO)
Credit Suisse Trust
- Global Small Cap Portfolio (formerly Credit Suisse Global Post -- Venture
Capital Portfolio)
(FIDELITY INVESTMENTS(R) LOGO)
Fidelity Variable Insurance Products Funds
- Contrafund(R) Portfolio -- Service Class 2 Shares
- Equity-Income Portfolio -- Service Class 2 Shares
- Mid Cap Portfolio -- Service Class 2 Shares
(FRANKLIN TEMPLETON INVESTMENTS LOGO)
Franklin Templeton Variable Insurance Products Trust
- Franklin Large Cap Growth Securities Fund -- Class 2 Shares
- Franklin Small-Mid Cap Growth Securities Fund -- Class 2 Shares (formerly
Franklin Small Cap Fund)
- Mutual Shares Securities Fund -- Class 2 Shares
- Templeton Developing Markets Securities Fund -- Class 2 Shares
- Templeton Global Asset Allocation Fund -- Class 2 Shares
(JANUS CAPITAL GROUP LOGO)
Janus Aspen Series
- Balanced Portfolio -- Service Shares
- Forty Portfolio -- Service Shares (formerly Janus Aspen Series Capital
Appreciation Portfolio)
- International Growth Portfolio -- Service Shares
(MFS(R) INVESTMENT MANAGEMENT WE INVENTED THE MUTUAL FUND(R) LOGO)
MFS(R) Variable Insurance Trust(sm)
- Investors Growth Stock Series -- Service Shares
- Mid Cap Growth Series -- Service Shares
- New Discovery Series -- Service Shares
- Value Series -- Service Shares
(OPPENHEIMER FUNDS(R) THE RIGHT WAY TO INVEST LOGO)
Oppenheimer Variable Account Funds
- Capital Appreciation Fund -- Service Shares
- High Income Fund -- Service Shares
Panorama Series Fund, Inc.
- International Growth Fund -- Service Shares
(PUTNAM INVESTMENTS LOGO)
Putnam Variable Trust
- Putnam VT Growth and Income Fund -- Class IB Shares
- Putnam VT International Equity Fund -- Class IB Shares
- Putnam VT New Opportunities Fund -- Class IB Shares
- Putnam VT New Value Fund -- Class IB Shares
- Putnam VT Voyager Fund -- Class IB Shares
(W&R LOGO)
W&R Target Funds, Inc.
- W&R Asset Strategy Portfolio
- W&R Balanced Portfolio
- W&R Core Equity Portfolio
- W&R Growth Portfolio
- W&R International Growth Portfolio (formerly W&R International Portfolio)
- W&R International Value Portfolio (formerly W&R International II Portfolio)
- W&R Micro Cap Growth Portfolio
- W&R Science and Technology Portfolio
- W&R Small Cap Growth Portfolio
- W&R Small Cap Value Portfolio
- W&R Value Portfolio
THIS PROSPECTUS MUST BE ACCOMPANIED BY THE CURRENT PROSPECTUSES OF THE FUND
PORTFOLIOS SHOWN ABOVE. THIS PROSPECTUS SHOULD BE READ CAREFULLY AND
RETAINED FOR FUTURE REFERENCE.
THE POLICIES HAVE NOT BEEN APPROVED OR DISAPPROVED BY THE SEC. NEITHER THE
SEC NOR ANY STATE HAS DETERMINED WHETHER THIS PROSPECTUS IS TRUTHFUL OR
COMPLETE. ANY REPRESENTATION TO THE CONTRARY IS A CRIMINAL OFFENSE.
(MINNESOTA LIFE LOGO)
400 Robert Street North - St. Paul, Minnesota 55101-2098
Ph 651/665-3500 - http:/www.minnesotalife.com
DATED: APRIL 29, 2005
TABLE OF CONTENTS
[Download Table]
SUMMARY OF BENEFITS AND RISKS 1
GENERAL DESCRIPTIONS 6
Minnesota Life Insurance Company 6
Variable Life Account 7
The Funds 8
Additions, Deletions or Substitutions 11
The Guaranteed Principal Account 11
Payments Made by Underlying Mutual Funds 12
DETAILED INFORMATION ABOUT THE VARIABLE ADJUSTABLE LIFE INSURANCE POLICY 13
Adjustable Life Insurance 13
Policy Adjustments 16
Applications and Policy Issue 21
Policy Premiums 22
Policy Values 26
Death Benefit Options 30
Policy Loans 31
Surrender 33
Free Look 34
Conversion 34
Policy Charges 35
Other Policy Provisions 38
Additional Benefits 41
OTHER MATTERS 42
Federal Tax Status 42
Voting Rights 46
Compensation Paid for the Sale of Policies 47
Legal Proceedings 48
Registration Statement 48
SPECIAL TERMS 49
APPENDIX A -- EXAMPLE OF SALES LOAD COMPUTATION 50
STATEMENT OF ADDITIONAL INFORMATION 51
(This page has been left blank intentionally.)
SUMMARY OF BENEFITS AND RISKS
The following summary is designed to answer certain general questions concerning
the Policy and to give you a brief overview of the more significant features.
The summary is not comprehensive and you should review the information contained
elsewhere in this prospectus. This prospectus describes two versions of the
Variable Adjustable Life ("VAL") Insurance Policy, VAL '87 and VAL '95. In
states where the policy forms were approved, VAL '87 was issued prior to May 1,
1995 and VAL '95 after that date. As the policy owner, you can exercise all the
rights under the Policy, including the right to change the owner and the
beneficiary and the right to make Policy adjustments. A variable adjustable life
insurance policy is intended for the use of persons who wish to combine both
life insurance and the accumulation of cash values; it is not suitable as a
short-term investment vehicle.
WHAT ARE SOME OF THE BENEFITS OF THE POLICY?
The Policy described in this prospectus combines a guaranteed death benefit,
flexible administrative procedures, and significant and useful market sensitive
investment features.
WHAT IS THE GUARANTEED DEATH BENEFIT?
We guarantee that the face amount of insurance shown on the policy specification
page will be paid on the death of the insured as long as there is no policy
indebtedness and all scheduled premiums have been paid. Some policies have a
scheduled decrease in the guaranteed face amount at the end of the initial
policy protection period. In this case, the time and amount of the decrease are
also shown on the policy specification page. The importance of the guarantee is
that adverse investment performance may never reduce your life insurance
protection below the guaranteed amount. See "Adjustable Life Insurance" on page
13.
WHAT MAKES THE POLICY "ADJUSTABLE"?
The Policy is called "Adjustable" because it allows you the flexibility to
tailor your Policy to your needs at issue and thereafter to change or adjust
your Policy as your insurance needs change. The three components in designing
your Policy are the level of premiums you wish to pay, the level of death
benefit protection you need and the appropriate plan of insurance for you. You
may choose any two of the three components -- premium, face amount and
plan -- and we will calculate the third component. Within very broad limits,
including those designed to assure that the Policy qualifies as life insurance
for tax purposes, you may choose any level of premium or death benefit that you
wish. Some limitations do apply to policy adjustments. See "Policy Adjustments"
on page 15.
Whole life insurance plans provide life insurance in an amount at least equal to
the initial face amount at the death of the insured whenever that occurs. Whole
life plans may be suitable for individuals who wish to ensure lifetime coverage,
without any scheduled reduction in face amount, by the payment of relatively
higher premiums and, in certain cases, for a lesser period of time, or who wish
to accumulate substantial cash values by utilizing the investment features of
the Policy. Protection insurance plans provide life insurance in an amount at
least equal to the initial face amount for a specified period. A protection plan
requires the lowest initial level of premiums and offers the most insurance
protection with the lowest investment element. The protection plan may be a
suitable starting point for young policy owners who have not reached their peak
earning years but who have substantial life insurance needs. For any given face
amount of insurance, you may select a plan that falls anywhere between the
minimum protection plan and the maximum whole life plan. The higher the premium
you pay, the greater will be your cash value accumulation at any
Page 1
given time and therefore, for whole life plans, the shorter the period during
which you need to pay premiums before your Policy becomes paid-up.
WHAT MAKES THE POLICY "VARIABLE"?
The Policy is called "Variable" because unlike traditional whole life and
universal life contracts which provide for accumulations of contract values at
fixed rates determined by the insurance company, the value in the Policy may be
invested in a separate account of ours called the Minnesota Life Variable Life
Account. The sub-accounts of the separate account are invested in corresponding
Portfolios of the Funds. Your policy values invested in these sub-accounts will
fluctuate with the performance of the sub-accounts and will reflect market rates
of return. See "Variable Life Account" on page 7 and "The Funds" on page 8.
Those seeking the traditional insurance protections of a guaranteed cash value
may allocate premiums to the guaranteed principal account, which is a general
account option with a guaranteed accumulation at a fixed rate of interest. With
the guaranteed principal account, you do not bear the risk that adverse
investment performance will depreciate the account value. See "The Guaranteed
Principal Account" on page 11.
WHAT DEATH BENEFIT OPTIONS ARE OFFERED UNDER THE POLICY?
The Policy provides two death benefit options: the Cash Option and the
Protection Option. Your choice will depend on which option best fits your need.
The Cash Option provides a fixed death benefit equal to the guaranteed face
amount. Favorable nonguaranteed elements, including investment returns, will be
reflected in increased actual cash values which will, on whole life plans,
shorten the premium paying period. Only if and when the policy value exceeds the
net single premium, as defined on page 46, for the then current face amount will
the death benefit vary.
The Protection Option provides a variable death benefit from the issue date as
well as variable actual cash value. Favorable nonguaranteed elements, including
investment returns, will be reflected both in increased life insurance coverage
and increased cash value accumulations, although any increases in actual cash
values under the Protection Option will not be as great as under the Cash
Option. See "Death Benefit Options" on page 28.
DO YOU HAVE ACCESS TO YOUR POLICY VALUES?
Yes. You may transfer policy values among the available investment options, make
a partial surrender of the actual cash values, or surrender the Policy. See
"Transfers" on page 27 and "Surrender" on page 32. You may also borrow up to 90
percent of your policy value as a policy loan. See "Policy Loans" on page 30.
Some of these transactions may have significant tax consequences. See "Federal
Tax Status" on page 40.
WHAT ARE SOME OF THE RISKS OF THE POLICY?
There is an investment risk. A variable adjustable life insurance policy is
intended for those who wish to combine both life insurance and the accumulation
of cash values; it is not suitable as a short-term investment vehicle. The
values in the sub-accounts have no guaranteed minimum account value. The
claims-paying ability of Minnesota Life as measured by independent rating
agencies does not provide any guarantees of the investment performance of the
Variable Life Account. Therefore, you bear the risk that adverse investment
performance may depreciate your investment in the Policy. Additional information
concerning investment objectives and policies of the Portfolios (including a
comprehensive discussion of the risks of each Portfolio) may be found in
Page 2
the current prospectuses for each Fund which accompany this prospectus. You
should carefully review each Fund prospectus before purchasing the policy. See
"Policy Values" on page 25.
There is a risk that a Policy will lapse. Lapse will occur if a scheduled
premium is not paid, or if there is no actual cash value when there is a policy
loan. Policy loans may increase the risk that the Policy will lapse. If a Policy
with a substantial loan lapses, there may be significant negative tax
consequences. Policy loans may also have a negative impact on the cash value,
and may reduce the death benefit. See "Policy Premiums" on page 21.
You may make a partial surrender of the actual cash value. A partial surrender
may be subject to a transaction charge equal to the lesser of $25 or 2 percent
of the amount of the partial surrender. A partial surrender will reduce the
actual cash value and the death benefit and will increase the risk of lapse or
termination. In addition, a partial surrender may have significant tax
consequences. See "Federal Tax Status" on page 40.
There is risk that the Policy may not qualify as life insurance for federal tax
purposes. We believe that a Policy issued on the basis of a standard premium
class should so qualify. However, it is not clear whether a Policy issued on a
sub-standard basis would qualify. Failure to qualify would mean that the death
proceeds would be included in the beneficiary's gross income for federal income
tax purposes, and that cash values are not constructively received until they
are actually received.
There is also a risk that a Policy qualifying as life insurance will be treated
as a modified endowment contract ("MEC"). A MEC is treated as life insurance
with respect to the tax treatment of death proceeds and the tax-free inside
build-up of yearly cash value increases. However, any amounts you receive, such
as dividends, cash withdrawals, loans or amounts received from partial or total
surrender of the Policy are includable in gross income on an income-first basis.
With certain exceptions, the tax treatment includes a 10 percent additional
income tax imposed on the portion of any distribution that is included in
income. See "Federal Tax Status" on page 40.
SUMMARY FEE TABLES
The following tables describe the fees and expenses that you will pay when
buying, owning and surrendering the Policy.
TRANSACTION FEES
This table describes the fees and expense that you will pay at the time that you
buy the Policy, surrender the Policy, adjust the Policy or make transfers
between the investment options.
[Download Table]
CHARGE WHEN CHARGE IS DEDUCTED AMOUNT DEDUCTED
First Year Sales Load(1) Upon first year premium Maximum of 23 percent of
payment and for the first first year premium(3)
year after a premium
increase(2)
Sales Load(1) Upon premium payment Maximum of 7 percent of
premiums in all years(4)
Underwriting Charge Upon first year premium Maximum of $5 per $1,000
payment and for the first of face amount(3)
year after a premium
increase(2)
Premium Tax Charge Upon premium payment 2.5 percent of premium(5)
Face Amount Guarantee Charge Upon premium payment 1.5 percent of premium(4)
Policy Adjustment At policy adjustment for $25
Transaction Charge(6) changes in premium, face
amount or plan of insurance
Page 3
[Download Table]
CHARGE WHEN CHARGE IS DEDUCTED AMOUNT DEDUCTED
Partial Surrender At partial surrender The lesser of $25 or 2
Transaction Charge percent of partial
surrender amount
Transfer Transaction Charge At transfer of cash values $10(7)
Sub-standard Risk Charge Upon premium payment Maximum of $260 and
(VAL '95) minimum of $0.08 per
$1,000 of face amount
The charge for a
representative male
nonsmoker age 40 would be
$3 per $1,000 of face
amount(8)
Exchange Administrative At issue of an internal $150
Charge exchange
(1) Sales load is the maximum sales charge imposed on a premium.
(2) First year premium is base premium payable in the first 12 months of the
contract, or the increase in base premium paid in the 12 months following a
premium increase.
(3) The charge only applies to base premium up to that which provides level
premium and face amount for life.
(4) Applies to base premiums. This charge does not apply to premiums for
additional agreements. This charge currently does not apply to non-repeating
premiums. See "Special Terms" on page 46.
(5) Applies to base premiums and non-repeating premiums.
(6) See "Policy Adjustments" on page 15.
(7) Only applies to non-systematic transfers in excess of 12 per year.
(8) (i) The charge varies by the age and underwriting class of the insured as
well as the face amount and premium level of the policy. (ii) The
sub-standard risk charges shown in the table may not be representative of
the charges for a particular insured. (iii) More information regarding these
charges for a specific insured are available upon request to us.
PERIODIC CHARGES OTHER THAN INVESTMENT OPTION OPERATING EXPENSES
The next table describes the fees and expenses that you will pay periodically
during the time that you own the Policy, not including fees and expenses of the
variable investment options.
[Download Table]
CHARGE WHEN CHARGE IS DEDUCTED AMOUNT DEDUCTED
Cost of Insurance Charge Monthly Maximum of $83.33 and
minimum of $0.01 per
$1,000 of net amount at
risk(1)
The charge for a
representative male
nonsmoker standard risk
age 45 would be $0.10 per
$1,000 of net amount at
risk(1)
Page 4
[Download Table]
CHARGE WHEN CHARGE IS DEDUCTED AMOUNT DEDUCTED
Administration Charge Monthly $5
Mortality and Expense Risk Daily An annual rate of 0.50
Charge percent of average daily
net assets of Variable
Life Account
Sub-standard Risk Charge Monthly Maximum of $22 and minimum
(VAL '87) of $0.01 per $1,000 of
face amount
The charge for a
representative male
nonsmoker age 40 would be
$0.25 per $1,000 of face
amount(1)
Loan Interest Charge Annually and upon policy Loan interest accrues
adjustment daily at an annual rate of
8 percent of loan
amount(2)
Additional Agreements:
a) Waiver of Premium Upon premium payment a) Maximum of $11.24 and
Agreement minimum of $0.12 per
$1,000 of face amount
annually
The charge for a
representative male
nonsmoker age 40
would be $0.94 per
$1,000 of face amount
annually(3)
b) Policy Enhancement Annually b) $8 annually
Agreement
c) Face Amount Increase Upon premium payment c) Maximum of $2.29 and
Agreement minimum of $0.65 per
$1,000 of agreement
coverage annually
The charge for a
representative male
age 22 would be $1.53
per $1,000 of
agreement coverage
annually(4)
d) Survivorship Life Upon premium payment d) Maximum of $35.04 and
Agreement minimum of $0.20 per
$1,000 of agreement
coverage annually
The charge for
representative male
and female both
nonsmokers age 40
would be $0.28 per
$1,000 of agreement
coverage annually(5)
e) Family Term Agreement Upon premium payment e) $5 per $1,000 of
agreement coverage
annually
Page 5
(1) Net amount at risk is defined as death benefit minus policy value. (i) These
charges vary by the age and underwriting class of the insured as well as the
duration, face amount and premium level of the Policy. (ii) The cost of
insurance or sub-standard risk charges shown in the table may not be
representative of the charges for a particular insured. (iii) More
information regarding these charges for a specific insured are available
upon request to us.
(2) See "Policy Loan Interest" on page 30.
(3) The charge varies by the age and underwriting class of the insured. These
charges may not be representative of the charges for a particular insured.
More information regarding these charges for a specific insured are
available upon request to us.
(4) The charge varies by the age of the insured. These charges may not be
representative of the charges for a particular insured. More information
regarding these charges for a specific insured are available upon request to
us.
(5) The charge varies by the ages and underwriting classes of the applicants.
These charges may not be representative of the charges for a particular
insured. More information regarding these charges for a specific insured are
available upon request to us.
TOTAL ANNUAL OPERATING EXPENSES OF THE FUNDS
This table describes the total annual operating expenses associated with the
Funds that you will pay while you own the Policy. The table shows the minimum
and maximum expenses (as a percentage of Fund assets) charged by any of the
Funds. More detail concerning a particular Fund and its portfolios' fees and
expenses is contained in the prospectus for that Fund.
[Download Table]
CHARGE MINIMUM MAXIMUM
Total Fees and Expenses(1) 0.45% 1.79%
(1) The total fees and expenses include the investment management fee,
distribution (12b-1) fee and other expenses for the Funds.
GENERAL DESCRIPTIONS
MINNESOTA LIFE INSURANCE COMPANY
We are Minnesota Life Insurance Company ("Minnesota Life"), a life insurance
company organized under the laws of Minnesota. Minnesota Life was formerly known
as The Minnesota Mutual Life Insurance Company ("Minnesota Mutual"), a mutual
life insurance company organized in 1880 under the laws of Minnesota. Effective
October 1, 1998, The Minnesota Mutual Life Insurance Company reorganized by
forming a mutual insurance holding company named "Minnesota Mutual Companies,
Inc." The Minnesota Mutual Life Insurance Company continued its corporate
existence following conversion to a Minnesota stock life insurance company named
"Minnesota Life Insurance Company" ("Minnesota Life"). 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 conduct life insurance business in
all states of the United States
Page 6
(except New York where we are an authorized reinsurer), the District of
Columbia, Canada, Puerto Rico and Guam.
VARIABLE LIFE ACCOUNT
A separate account, called the Minnesota Life Variable Life Account, was
established on October 21, 1985, by our Board of Trustees in accordance with
certain provisions of the Minnesota insurance law. The separate account is
registered as a "unit investment trust" with the Securities and Exchange
Commission ("SEC") under the Investment Company Act of 1940 ("1940 Act").
Registration under the Act does not signify that the SEC supervises the
management, or the investment practices or policies, of the Variable Life
Account. The separate account meets the definition of a "separate account" under
the federal securities laws.
We are the legal owner of the assets in the Variable Life Account. The
obligations to policy owners and beneficiaries arising under the Policies are
general corporate obligations of Minnesota Life and thus our general assets back
the Policies. The Minnesota law under which the Variable Life Account was
established provides that the assets of the Variable Life Account shall not be
chargeable with liabilities arising out of any other business which we may
conduct, but shall be held and applied exclusively to the benefit of the holders
of those variable life insurance policies for which the separate account was
established. The investment performance of the Variable Life Account is entirely
independent of both the investment performance of our general account and of any
other separate account which we may have established or may later establish.
The Variable Life Account currently has forty-nine sub-accounts to which you may
allocate premiums. Each sub-account invests in shares of a corresponding
Portfolio of the Funds.
Page 7
THE FUNDS
Below is a list of the Portfolios and their investment adviser or sub-adviser.
Prospectuses for the Funds must accompany this Prospectus. You should carefully
read these Prospectuses before investing in the Policy.
[Enlarge/Download Table]
INVESTMENT INVESTMENT
FUND/PORTFOLIO ADVISER SUB-ADVISER
-------------- ---------- -----------
ADVANTUS SERIES FUND, INC.:
Bond Portfolio Advantus Capital Management, Inc.
Index 400 Mid-Cap Portfolio Advantus Capital Management, Inc.
Index 500 Portfolio Advantus Capital Management, Inc.
International Bond Portfolio Advantus Capital Management, Inc. Julius Baer Investments Limited
Money Market Portfolio Advantus Capital Management, Inc.
Mortgage Securities Portfolio Advantus Capital Management, Inc.
Real Estate Securities Portfolio Advantus Capital Management, Inc.
AIM VARIABLE INSURANCE FUND:
AIM V.I. Aggressive Growth Fund - Series II A I M Advisors, Inc.
Shares
AIM V.I. Balanced Fund - Series II Shares A I M Advisors, Inc.
AIM V.I. Dent Demographic Trends Fund - A I M Advisors, Inc. H.S. Dent Advisors, Inc.
Series II Shares (through June 30, 2005)
AIM V.I. Premier Equity Fund - Series II A I M Advisors, Inc.
Shares
AMERICAN CENTURY VARIABLE PORTFOLIOS, INC.:
VP Income & Growth Fund - Class II Shares American Century Investment
Management, Inc.
VP Ultra(R) Fund - Class II Shares American Century Investment
Management, Inc.
VP Value Fund - Class II Shares American Century Investment
Management, Inc.
CREDIT SUISSE TRUST:
Global Small Cap Portfolio Credit Suisse Asset Management, LLC
Page 8
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INVESTMENT INVESTMENT
FUND/PORTFOLIO ADVISER SUB-ADVISER
-------------- ---------- -----------
FIDELITY VARIABLE INSURANCE PRODUCTS FUNDS:
Contrafund(R) Portfolio - Service Class 2 Fidelity Management & Research
Shares Company, FMR Co., Inc., Fidelity
Management & Research (U.K.) Inc.
(FMR U.K.), Fidelity Management &
Research (Far East) Inc. (FMR Far
East), Fidelity International
Investment Advisors (FIIA),
Fidelity International Investment
Advisors (U.K.) Limited
(FIIA(U.K.)L), Fidelity Investments
Japan Limited (FIJ)
Equity-Income Portfolio - Service Class 2 Fidelity Management & Research
Shares Company, FMR Co., Inc., Fidelity
Management & Research (U.K.) Inc.
(FMR U.K.), Fidelity Management &
Research (Far East) Inc. (FMR Far
East), Fidelity International
Investment Advisors (FIIA),
Fidelity International Investment
Advisors (U.K.) Limited
(FIIA(U.K.)L), Fidelity Investments
Japan Limited (FIJ)
Mid Cap Portfolio - Service Class 2 Shares Fidelity Management & Research
Company, FMR Co., Inc., Fidelity
Management & Research (U.K.) Inc.
(FMR U.K.), Fidelity Management &
Research (Far East) Inc. (FMR Far
East), Fidelity International
Investment Advisors (FIIA),
Fidelity International Investment
Advisors (U.K.) Limited
(FIIA(U.K.)L), Fidelity Investments
Japan Limited (FIJ)
FRANKLIN TEMPLETON VARIABLE INSURANCE
PRODUCTS TRUST:
Franklin Large Cap Growth Securities Fund - Franklin Advisers, Inc.
Class 2 Shares
Franklin Small-Mid Cap Growth Securities Franklin Advisers, Inc.
Fund - Class 2 Shares
Mutual Shares Securities Fund - Class 2 Franklin Mutual Advisers, LLC
Shares
Templeton Developing Markets Securities Fund Templeton Asset Management Ltd.
- Class 2 Shares
Templeton Global Asset Allocation Fund - Templeton Investment Counsel, LLC
Class 2 Shares
JANUS ASPEN SERIES:
Balanced Portfolio - Service Shares Janus Capital
Forty Portfolio - Service Shares Janus Capital
International Growth Portfolio - Service Janus Capital
Shares
Page 9
[Enlarge/Download Table]
INVESTMENT INVESTMENT
FUND/PORTFOLIO ADVISER SUB-ADVISER
-------------- ---------- -----------
MFS(R) VARIABLE INSURANCE TRUST(SM):
Investors Growth Stock Series - Service Massachusetts Financial Services
Shares Company
Mid Cap Growth Series - Service Shares Massachusetts Financial Services
Company
New Discovery Series - Service Shares Massachusetts Financial Services
Company
Value Series - Service Shares Massachusetts Financial Services
Company
OPPENHEIMER VARIABLE ACCOUNT FUNDS:
Capital Appreciation Fund - Service Shares OppenheimerFunds, Inc.
High Income Fund - Service Shares OppenheimerFunds, Inc.
PANORAMA SERIES FUND, INC.:
International Growth Fund - Service Shares OppenheimerFunds, Inc.
PUTNAM VARIABLE TRUST:
Putnam VT Growth and Income Fund - Class IB Putnam Investment Management, LLC
Shares
Putnam VT International Equity - Class IB Putnam Investment Management, LLC
Shares
Putnam VT New Opportunities Fund - Class IB Putnam Investment Management, LLC
Shares
Putnam VT New Value Fund - Class IB Shares Putnam Investment Management, LLC
Putnam VT Voyager Fund - Class IB Shares Putnam Investment Management, LLC
W&R TARGET FUNDS, INC.:
W&R Asset Strategy Portfolio Waddell & Reed Investment
Management Company
W&R Balanced Portfolio Waddell & Reed Investment
Management Company
W&R Core Equity Portfolio Waddell & Reed Investment
Management Company
W&R Growth Portfolio Waddell & Reed Investment
Management Company
W&R International Growth Portfolio Waddell & Reed Investment
Management Company
W&R International Value Portfolio Waddell & Reed Investment Templeton Investment Counsel,
Management Company LLC
W&R Micro Cap Growth Portfolio Waddell & Reed Investment Wall Street Associates
Management Company
W&R Science and Technology Portfolio Waddell & Reed Investment
Management Company
W&R Small Cap Growth Portfolio Waddell & Reed Investment
Management Company
W&R Small Cap Value Portfolio Waddell & Reed Investment BlackRock Financial Management,
Management Company Inc.
W&R Value Portfolio Waddell & Reed Investment
Management Company
Page 10
ADDITIONS, DELETIONS OR SUBSTITUTIONS
We reserve the right to add, combine or remove any sub-accounts of the Variable
Life Account when permitted by law. Each additional sub-account will purchase
shares in a new portfolio or mutual fund. Such sub-accounts may be established
when, in our sole discretion, marketing, tax, investment or other conditions
warrant such action. We will use similar considerations should there be a
determination to eliminate one or more of the sub-accounts of the Variable Life
Account. The addition of any investment option will be made available to
existing policy owners on such basis as may be determined by us.
We retain the right, subject to any applicable law, to make substitutions with
respect to the investments of the sub-accounts of the Variable Life Account. If
investment in a Fund Portfolio should no longer be possible or if we determine
it becomes inappropriate for Policies of this class, we may substitute another
mutual fund or portfolio for a sub-account. Substitution may be made with
respect to existing policy values and future premium payments. A substitution
may be made only with any necessary approval of the SEC.
We reserve the right to transfer assets of the Variable Life Account as
determined by us to be associated with the Policies to another separate account.
A transfer of this kind may require the approvals of state regulatory
authorities and of the SEC.
We also reserve the right, when permitted by law, to de-register the Variable
Life Account under the 1940 Act, to restrict or eliminate any voting rights of
the policy owners, and to combine the Variable Life Account with one or more of
our other separate accounts.
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.
THE GUARANTEED PRINCIPAL ACCOUNT
The guaranteed principal account is a general account option. You may allocate
net premiums and may transfer your actual cash value subject to Policy
limitations to the guaranteed principal account which is part of our general
account.
Page 11
Because of exemptive and exclusionary provisions, interests in our general
account have not been registered under the Securities Act of 1933, and the
general account has not been registered as an investment company under the 1940
Act. Therefore, neither the guaranteed principal account nor any interest
therein is subject to the provisions of these Acts, and we have been advised
that the staff of the SEC does not review disclosures relating to the guaranteed
principal account. Disclosures regarding the guaranteed principal account may,
however, be subject to certain generally applicable provisions of the Federal
Securities Laws relating to the accuracy and completeness of statements made in
prospectuses.
This prospectus describes a Variable Adjustable Life insurance policy and is
generally intended to serve as a disclosure document only for the aspects of the
Policy relating to the sub-accounts of the Variable Life Account. For complete
details regarding the guaranteed principal account, please see the Variable
Adjustable Life Policy.
GENERAL ACCOUNT DESCRIPTION Our general account consists of all assets owned by
us other than those in the Variable Life Account and any other separate accounts
which we may establish. The guaranteed principal account is that portion of our
general assets which is attributable to this Policy and policies of this class,
exclusive of policy loans. The description is for accounting purposes only and
does not represent a division of the general account assets for the specific
benefit of contracts of this class. Allocations to the guaranteed principal
account become part of our general assets and are used to support insurance and
annuity obligations. Subject to applicable law, we have sole discretion over the
investment of assets of the general account. Policy owners do not share in the
actual investment experience of the assets in the general account.
You may allocate or transfer a portion or all of the net premiums to accumulate
at a fixed rate of interest in the guaranteed principal account. We guarantee
such amounts as to principal and a minimum rate of interest. Transfers from the
guaranteed principal account to the sub-accounts of the Variable Life Account
are subject to certain limitations with respect to timing and amount.
GENERAL ACCOUNT VALUE We bear the full investment risk for amounts allocated to
the guaranteed principal account and guarantee that interest credited to each
policy owner's actual cash value in the guaranteed principal account will not be
less than an annual rate of 4 percent without regard to the actual investment
experience of the general account.
We may, at our sole discretion, credit a higher rate of interest, "excess
interest," although we are not obligated to credit interest in excess of 4
percent per year, and may not do so. Any interest credited on the Policy's
actual cash value in the guaranteed principal account in excess of the
guaranteed minimum rate per year will be determined at our sole discretion.
You assume the risk that interest credited may not exceed the guaranteed minimum
rate.
Even if excess interest is credited to your actual cash value in the guaranteed
principal account, we will not credit excess interest to that portion of the
policy value which is in the loan account in the general account. However, such
loan account will be credited interest at a rate which is not less than the
policy loan interest rate minus 2 percent per annum.
PAYMENTS MADE BY UNDERLYING MUTUAL FUNDS
Minnesota Life pays the costs of selling Policies; some of these costs are
described in more detail above in this prospectus. This benefits the underlying
mutual funds by providing increased distribution of the shares of such funds.
The underlying mutual funds, or their investment advisers or principal
underwriters, may pay Minnesota Life (or Minnesota Life affiliates) a fee for
the purpose of reimbursing Minnesota Life for the costs of certain distribution
or operational services
Page 12
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 in this Policy are 0.25 percent of fund assets held in the
Variable Life 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.
Service and administrative payments reimburse Minnesota Life or its affiliates
for such things as Minnesota Life's aggregation of all policy owner purchase,
redemption, and transfer requests within the sub-accounts of the Variable Life
Account each business day and the submission of one net purchase/redemption
request to each underlying mutual fund. When the Variable Life Account
aggregates such transactions through the Variable Life Account's omnibus account
with an underlying mutual fund, the fund avoids the expenses associated with
processing individual transactions. Those expenses are incurred by Minnesota
Life as part of its policy administration. Service and administrative payments
received by Minnesota Life or its affiliates range in amounts from 0 percent to
0.25 percent of fund assets held in the Variable Life Account.
Minnesota Life took into consideration anticipated payments from underlying
mutual funds held in the Variable Life Account when it determined the charges
that are assessed under the Policy. Without these payments, certain Policy
charges would likely be higher than they are currently.
Minnesota Life considers profitability when determining the charges in the
Policy. In early policy 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 policy years. In general, Minnesota Life's profit will be greater the
longer a Policy is held and the greater a Policy's investment return.
DETAILED INFORMATION ABOUT THE
VARIABLE ADJUSTABLE LIFE INSURANCE POLICY
ADJUSTABLE LIFE INSURANCE
This Policy is similar to our conventional life insurance product known as
"adjustable life". This Policy, like conventional adjustable life insurance,
permits you to determine the amount of life insurance protection you need and
the amount of money you plan to pay. BASED ON YOUR SELECTION OF ANY TWO OF THE
THREE COMPONENTS OF A POLICY -- FACE AMOUNT, PREMIUM AND PLAN -- WE WILL THEN
CALCULATE THE THIRD. Thus, adjustable life allows you the flexibility to
custom-design a Policy to meet your needs. Theoretically, each Policy can be
unique because of the different combinations of age, amount of life insurance
protection and premium. In addition, adjustable life is designed to adapt to
your changing needs and objectives by allowing you to change your Policy after
issue. You may adjust the face amount and premium level, and thus the plan of
insurance, subject to the limitations described herein, so long as the Policy
remains in force.
FLEXIBILITY AT ISSUE Subject to certain minimums, maximums and our underwriting
standards, you may choose any level of premium or face amount that you wish.
This flexibility results in a broad range of plans of insurance. GENERALLY
SPEAKING, A PLAN OF INSURANCE REFERS TO THE LEVEL OF CASH VALUE ACCUMULATION
ASSUMED IN THE DESIGN OF THE POLICY AND, FOR WHOLE LIFE PLANS, THE PERIOD DURING
WHICH YOU WILL HAVE TO PAY PREMIUMS.
Page 13
Whole life insurance plans provide life insurance in an amount at least equal to
the initial face amount at the death of the insured whenever that occurs.
Premiums may be payable for a specified number of years or for the life of the
insured. WHOLE LIFE INSURANCE PLANS ASSUME AN EVENTUAL TABULAR CASH VALUE
ACCUMULATION, AT OR BEFORE THE INSURED'S AGE 100, EQUAL TO THE NET SINGLE
PREMIUM REQUIRED FOR THAT FACE AMOUNT OF INSURANCE. The tabular cash value is
shown in your Policy and is described below under "Policy Adjustments." The net
single premium for a whole life insurance plan is the amount of money that is
necessary, at the insured's attained age, as defined in "Special Terms," to pay
for all future guaranteed cost of insurance charges for the entire lifetime of
the insured without the payment of additional premium. This determination
assumes that the current face amount of the Policy will be constant and that the
Policy will perform at its assumed rate of return.
Protection insurance plans provide life insurance in an amount at least equal to
the initial face amount for a specified period. After the initial protection
period, there is insurance coverage in a reduced amount on the life of the
insured. PROTECTION PLANS OF INSURANCE ASSUME THE EXHAUSTION OF THE TABULAR CASH
VALUE AT THE END OF THE INITIAL PROTECTION PERIOD, EXCEPT FOR THE CASH VALUE
ASSOCIATED WITH THE REDUCED AMOUNT OF INSURANCE COVERAGE AT THE END OF THE
INITIAL PROTECTION PERIOD.
The larger the premium you pay, the larger the policy values you may expect to
be available for investment in the Fund Portfolios, and, for whole life plans of
insurance, the shorter the period of time during which you will have to pay
premiums. Under the Policy, the highest premium amount permitted at the time of
issue, or the maximum plan of insurance, for a specific face amount is one which
will provide a fully paid-up Policy after the payment of ten annual premium
payments. A Policy becomes paid-up when its policy value is such that no further
premiums are required to provide the face amount of insurance until the death of
the insured, provided there is no policy indebtedness.
Whole life plans may become paid-up upon the payment of a designated number of
annual premiums or at a designated age of the insured. If you select a premium
level for a specific face amount which would cause the Policy to become paid-up
at other than a policy anniversary, you will be required to pay scheduled
premiums until the policy anniversary immediately following the date the Policy
is scheduled to become paid-up. The Policy will be issued with a scheduled
increase in face amount to reflect the fact that the scheduled premiums were in
excess of the premiums required to have a paid-up Policy for the initial face
amount of coverage.
If you select a premium amount which is less than the premium required for a
whole life plan of insurance or, in other words, IF YOU SELECT A PROTECTION PLAN
OF INSURANCE, PREMIUMS WILL BE PAYABLE FOR THE LIFE OF THE INSURED OR TO AGE
100, BUT THE GUARANTEED FACE AMOUNT OF INSURANCE PROVIDED BY THE POLICY WILL NOT
BE LEVEL DURING THE LIFE OF THE INSURED. The initial face amount will be in
effect until the Policy's tabular cash value, i.e., the cash value which is
assumed in designing the Policy and which would be guaranteed in a conventional
fixed-benefit policy, is exhausted. At that time a lower amount of insurance
will become effective. This is called the scheduled reduction in face amount.
The reduced face amount is calculated on the basis of the continued payment of
the scheduled premiums and a whole life plan of insurance. The result is that
the Policy, on issue, will have an initial guaranteed death benefit extending to
a stated date; after that date, a lower death benefit is guaranteed for the life
of the insured.
At the time of the scheduled reduction in face amount, we will adjust your
Policy as described in the policy adjustment section of this prospectus. If the
policy value (the actual cash value plus the amount of any loan) is greater than
the tabular cash value, the adjustment will result in either a
Page 14
smaller reduction in the face amount or a scheduled reduction in face amount
occurring at a later date.
For example, if a standard risk VAL '95 Policy were issued with a face amount of
$100,000 and an annual premium of $926, the plan of insurance for a male
non-smoker insured age 45 at issue would be full coverage until age 65, at which
time the face amount would be reduced to $14,701 guaranteed for the whole of
life. If we assume a hypothetical net annual investment return of 6 percent, the
Cash Option death benefit, current mortality charges, no loans, and no policy
adjustments, the policy value of the Policy at age 65 would be $14,613. Based on
this policy value, a whole life plan, and the continued payment of the $926
premium, the face amount would be reduced to $39,983 guaranteed thereafter for
the whole of life.
The table below shows the policy values and death benefits for the Policy
described in the above example, if the scheduled reduction is allowed to occur,
which is twenty years after issue.
SCHEDULED REDUCTION
[Download Table]
GUARANTEED
NON-GUARANTEED MINIMUM
POLICY ATTAINED ANNUAL POLICY VALUE DEATH BENEFIT DEATH BENEFIT
YEAR AGE PREMIUM END OF YEAR BEGINNING OF YEAR AT ISSUE
------ -------- ------- ------------ ----------------- -------------
5 50 $926 $2,038 $100,000 $100,000
10 55 926 5,662 100,000 100,000
15 60 926 10,059 100,000 100,000
20 65 926 14,613 100,000 100,000
21 66 926 16,116 39,983 14,701
22 67 926 17,709 39,983 14,701
23 68 926 19,402 39,983 14,701
24 69 926 21,203 39,983 14,701
25 70 926 23,124 39,983 14,701
Alternately, for the VAL '95 Policy above we will make a policy adjustment
effective the same date as the scheduled reduction to maintain the $100,000 face
amount and the $926 premium. The new guaranteed plan of insurance would be full
coverage until age 73, at which time the face amount would be reduced to not
less than $11,871, again with the face amount guaranteed for the whole of life.
The following table shows the policy values and death benefits when a policy
adjustment to maintain the initial face amount is automatically done after
twenty years.
POLICY ADJUSTMENT
[Download Table]
GUARANTEED
NON-GUARANTEED MINIMUM
POLICY ATTAINED ANNUAL POLICY VALUE DEATH BENEFIT DEATH BENEFIT
YEAR AGE PREMIUM END OF YEAR BEGINNING OF YEAR ADJUSTMENT
------ -------- ------- ------------ ----------------- -------------
5 50 $926 $2,038 $100,000 $100,000
10 55 926 5,662 100,000 100,000
15 60 926 10,059 100,000 100,000
20 65 926 14,613 100,000 100,000
21 66 926 15,501 100,000 100,000
22 67 926 16,372 100,000 100,000
23 68 926 17,222 100,000 100,000
24 69 926 18,041 100,000 100,000
25 70 926 18,819 100,000 100,000
Page 15
The lowest annual base premium allowed for any plan of insurance is $300.
Subject to this limitation, the lowest premium you may choose for any specific
amount of life insurance protection is a premium which will provide a level
death benefit for a period which shall be the longer of ten years from the
policy issue date or five years from the date of a policy adjustment. If the
insured's age at original issue is over age 55, the minimum plan of protection
will be less than ten years, as described in the table below:
[Download Table]
MINIMUM PLAN
ISSUE AGE (IN YEARS)
--------- ------------
56 9
57 8
58 7
59 6
60 or greater 5
This is the minimum plan of insurance for any given face amount. The minimum
initial face amount on a Policy is $50,000.
POLICY ADJUSTMENTS
Adjustable life insurance policies allow you to change the premium, face amount
or the plan of insurance of the Policy after it is issued. SUBJECT TO THE
LIMITATIONS DESCRIBED MORE FULLY BELOW, YOU CAN AT ANY TIME CHANGE THE FACE
AMOUNT OF YOUR POLICY OR YOUR SCHEDULED PREMIUM. A change in scheduled premium
or face amount will usually result in a change in the plan of insurance.
Depending upon the change you request, the premium paying period may be
lengthened or shortened for whole life plans or the plan may be converted from a
whole life plan to a protection type plan which provides for a scheduled
reduction in face amount at a future date. For Policies having a protection type
plan, a change in face amount or premium may convert the Policy to a whole life
plan by eliminating the scheduled decrease in face amount or it may change the
time at which the decrease is scheduled to occur.
CHANGES IN PREMIUM, FACE AMOUNT OR THE PLAN OF INSURANCE ARE REFERRED TO AS
POLICY ADJUSTMENTS. THEY MAY BE MADE SINGLY OR IN COMBINATION WITH ONE ANOTHER.
Policy adjustments can include:
(1) a partial surrender of a Policy's cash value;
(2) an adjustment so that there are no further scheduled base premiums;
(3) an automatic adjustment at the point when the face amount is scheduled
to decrease;
(4) an automatic adjustment made under VAL '95 at the policy anniversary
nearest the insured's age 70; and
(5) an automatic adjustment when a nonrepeating premium is received in
connection with a Section 1035 exchange.
When a Policy is adjusted, we compute a new plan of insurance, face amount or
premium amount, if any. Certain adjustments may cause a Policy to become a
modified endowment contract. See "Federal Tax Status."
IN COMPUTING EITHER A NEW FACE AMOUNT OR NEW PLAN OF INSURANCE AS A RESULT OF AN
ADJUSTMENT, WE WILL MAKE THE CALCULATION ON THE BASIS OF THE HIGHER OF THE
POLICY'S "POLICY VALUE" OR ITS "TABULAR CASH VALUE" AT THE TIME OF THE CHANGE.
The "policy value" is the actual cash value of the Policy plus the amount of any
policy loan, while the "tabular cash value" is what
Page 16
the actual cash value of the Policy would have been if all scheduled premiums
were paid annually on the premium due date, there were no policy adjustments or
policy loans, any percentage increase in the actual cash value matched the
Policy's assumed rate of return, the net investment experience of the
sub-accounts selected by the owner or the interest credited to the guaranteed
principal account matched the policy's assumed rate of return, the maximum cost
of insurance charges were deducted once at the end of the policy year and other
charges provided for in the Policy were deducted. See, for a further description
of these values, the section "Policy Values." If the policy value is higher than
the tabular cash value, a policy adjustment will translate the excess value into
enhanced insurance coverage, as either a higher face amount or an improved plan
of insurance. IF THE POLICY VALUE IS LESS THAN THE TABULAR CASH VALUE, USE OF
THE TABULAR CASH VALUE ENSURES THAT THE POLICY'S GUARANTEE OF A MINIMUM DEATH
BENEFIT IS NOT IMPAIRED BY THE ADJUSTMENT.
Any adjustment will result in a redetermination of a Policy's tabular cash
value. After adjustment, the tabular cash value shall be equal to the greater of
the policy value or the tabular cash value prior to that adjustment, plus any
nonrepeating premium paid at the time of the adjustment and minus the amount of
any partial surrender made at the time of the adjustment.
On adjustment, you may request a new Policy face amount. In the absence of
instructions to the contrary, we will calculate the face amount after adjustment
depending on the Policy's death benefit option, the type of adjustment, and
whether the Policy is a VAL '95 or a VAL '87. With both VAL '87 and VAL '95, if
the Policy has the Cash Option death benefit the new face amount will be equal
to the face amount of the Policy less the amount of any partial surrender made
as part of the adjustment. With a VAL '87 Policy with the Protection Option
death benefit and with the Amended VAL '95 Protection Option after age 70, the
face amount after adjustment shall be equal to the death benefit provided by the
Policy immediately prior to the adjustment less the amount of any partial
surrender made as part of the adjustment. With a VAL '95 Policy with the
Protection Option death benefit before age 70, the face amount after adjustment
will be equal to the face amount of the Policy immediately prior to the
adjustment.
To illustrate the operation of an adjustment, consider a standard risk VAL '95
Policy issued with a face amount of $100,000 and an annual premium of $926 to a
male non-smoker insured age 45. If we assume a hypothetical net annual
investment return of 6 percent, the Protection Option death benefit, current
mortality charges, no loans, and no policy adjustments, the policy value of the
Policy at age 50 would be $2,023 and the Policy's tabular cash value would be
$1,680. Assume the owner requests a policy adjustment to increase the scheduled
premium to $1,500, but does not specify the face amount. As described above, we
compare the policy value less the charge on adjustment to the tabular cash value
to determine the policy value to be used in the plan of insurance calculation.
In this example, the policy value (less the charge on adjustment) is greater
than the tabular cash value, so the policy value is used. The tabular cash value
is then set equal to the policy value. The policy adjustment would therefore
result in a face amount of $100,000, a scheduled premium of $1,500, and a plan
of insurance of full coverage until age 74, at which time the face amount would
be scheduled to reduce to $14,712.
Page 17
The table below shows the tabular cash values, policy values and death benefits
for the first ten years of the example described.
[Download Table]
END OF YEAR
POLICY ANNUAL TABULAR END OF YEAR BEGINNING OF YEAR
YEAR ATTAINED AGE PREMIUM CASH VALUE POLICY VALUE DEATH BENEFIT
------ ------------ ------- ----------- ------------ -----------------
1 46 $ 926 $ 0 $ 11 $100,000
2 47 926 437 468 100,011
3 48 926 865 929 100,929
4 49 926 1,280 1,448 101,448
5 50 926 1,680 2,023 102,023
6 51 1,500 2,789 2,849 102,023
7 52 1,500 3,712 3,930 102,849
8 53 1,500 4,627 5,117 103,930
9 54 1,500 5,531 6,402 105,117
10 55 1,500 6,415 7,778 106,402
Adjustments can be made on any monthly anniversary of the policy date; only one
adjustment may be made each month. You may request a policy adjustment by
completing an application for adjustment. Adjustments will not apply to any
additional benefit agreements which are attached to your Policy. Any adjustment
will be effective on the date that it is approved by us and recorded at our home
office.
All of these changes may be accomplished under a single Policy. There is no need
to surrender the Policy or purchase a new one simply because of a change in your
insurance needs. Whenever adjustments are made, new policy information pages
will be provided. These pages state the new face amount, scheduled premium, plan
of insurance, attained age and tabular cash value.
RESTRICTIONS ON ADJUSTMENTS An adjustment must satisfy certain limitations on
premiums, face amount and plan. Other limitations on adjustments and
combinations of adjustments may also apply. THE CURRENT LIMITS ON ADJUSTMENTS
ARE THOSE DESCRIBED HERE. WE RESERVE THE RIGHT TO CHANGE THESE LIMITATIONS FROM
TIME TO TIME.
(1) Any adjustment for a change of premium must result in a change of the
annual premium of at least $100. Currently, we will waive this limitation
for changes in premium which are the result of a face amount change under
the Cost of Living or Policy Enhancement Agreements.
(2) Any Policy adjustment, other than a change to a stop premium, must result
in a Policy with an annual base premium of at least $300.
(3) Any adjustment for a change of the face amount must result in a change of
the face amount of at least $5,000, except for face amount changes which
are the result of a Cost of Living or Policy Enhancement Agreement change,
a partial surrender under the Policy or face amount changes which are
required to satisfy limitations pertaining to plans of insurance.
(4) After age 85, increases in face amount requiring evidence of insurability
may not be allowed.
(5) An adjustment may not result in more than a paid-up whole life plan for the
then current face amount.
(6) Any adjustment involving an increase in premium may not result in a whole
life plan of insurance requiring the payment of premiums for less than ten
years or to age 100, if less.
Page 18
(7) After an adjustment involving a face amount increase requiring evidence of
insurability or a premium increase, the Policy must provide a level face
amount to the next policy anniversary after the later of: (a) five years
from the date of adjustment; or (b) ten years from the date of issue. If
the insured's age at original issue is over age 55, the minimum plan of
protection will be less than ten years, as described on page 15.
(8) After certain adjustments (an automatic adjustment under VAL '95 at the
insured's age 70, an automatic adjustment at the point when the face amount
is scheduled to decrease, or an adjustment to stop premium), the Policy
must have sufficient actual cash value to keep the Policy in force until
the next policy anniversary.
(9) After an adjustment other than those described in paragraphs (7) and (8)
above, the Policy must provide a level face amount to the next policy
anniversary after the later of: (a) two years from the date of adjustment;
or (b) ten years from the date of issue. If the insured's age at original
issue is over age 55, the minimum plan of protection will be less than ten
years, as described on page 15.
(10) If the insured is disabled and receiving, or are entitled to receive,
waiver of premium benefits under a Waiver of Premium Agreement attached to
this Policy, no adjustments will be permitted, except as provided in the
Waiver of Premium Agreement.
EXAMPLE As an example of the operation of the plan limitation on policy
adjustment, assume a minimum plan VAL '95 Policy issued to a standard non-smoker
risk male at age 40 with a level face amount of $100,000 for a period of ten
years (until age 50) on a protection type plan for an annual premium of $428.
Assume also that the Policy has a policy value equal at all times to its tabular
cash value. If at the end of five years (at age 45) the policy owner wished to
decrease the premium so as to reduce the period before a scheduled reduction in
face amount took place from age 50 to age 49, the adjustment would not be
allowed because a face amount decrease at age 49 would be only nine years from
the date of issue (see limitation 9). On the other hand, if the owner wished to
postpone a scheduled reduction in face amount until age 65 by increasing the
premium of the Policy to $835 for the same initial face amount, the adjustment
would be permitted because the face amount decrease would occur 25 years from
the original issue date and 20 years from the date of adjustment, both periods
of time which are within the policy adjustment limitations on plans of
insurance.
The plan limitations apply for each type of adjustment. Consider a situation
similar to the one above except that the Policy has an initial face amount of
$200,000. In that case the annual premium for a minimum plan of ten years
(before the scheduled reduction in face amount) would be $800. If the policy
owner wished to make a partial surrender of $500 at the end of five years, the
surrender would not be permitted without either an increase in premium or a
further reduction in face amount, since the annual premium of $800 would support
the adjusted face amount of $199,500 for only two more years from the point of
adjustment. This resulting plan would be less than the minimum plan of ten years
from issue. If the owner elected to increase the premium in order to maintain
the new face amount of $199,500, the new premium would have to be sufficient to
continue the new face amount for an additional five years which is ten years
from the date of issue.
Similarly, if the owner requested a reduction in face amount below $199,500 in
order to satisfy the limitations pertaining to plans of insurance, the new face
amount would have to continue for an additional five years, which is ten years
from the date of issue. As indicated, a face amount change made for the purpose
of bringing an adjustment into compliance with the plan limitation will not
Page 19
be subject to the usual minimum face amount change requirement of $5,000. A
partial surrender may often require a reduction in face amount by more than the
amount of the surrender in order to satisfy plan limitations.
PROOF OF INSURABILITY We require proof of insurability for all adjustments
resulting in an increase in face amount, except for increases made pursuant to
an additional benefit agreement. In addition, except for partial surrenders to
pay sub-standard risk premiums when the policy is on stop premium, we require
proof of insurability for partial surrenders where, at the request of the policy
owner, no reduction is made in the Policy's death benefit. Decreases in face
amount or premium and increases in premium not resulting in any increase in
death benefit do not require evidence of insurability. With VAL '87, the payment
of a nonrepeating premium will require evidence of insurability when the
Protection Option death benefit option is in effect or if the Policy is paid-up
at the time of payment. With VAL '95, we may require evidence of insurability
when a nonrepeating premium is paid if the death benefit of your Policy
increases as a result of the payment of a nonrepeating premium.
CHARGES IN CONNECTION WITH POLICY ADJUSTMENTS In connection with a policy
adjustment, we will make a special $25 charge to cover the administrative costs
associated with processing the adjustment. If, however, the only policy
adjustment is a partial surrender, the transaction charge shall be the lesser of
$25 or 2 percent of the amount surrendered. In addition, because of the
underwriting and selling expenses anticipated for any change resulting in an
increase in premium, we will assess a new first year sales load on any increase
in premium on adjustment. We will also assess an underwriting charge on any
increase in face amount requiring evidence of insurability. See "Policy
Charges." Limiting the first year sales load and underwriting charge to the
increased premium or face amount is in substance the equivalent of issuing a new
Policy for the increase.
Page 20
The chart below illustrates the effects of certain policy adjustments:
[Enlarge/Download Table]
ADJUSTMENT EFFECT
Decrease the current face amount and keep a scheduled decrease in the current face
the premiums the same amount, if any, will take place at a later
OR policy anniversary
Keep the current face amount and increase OR
the premiums a scheduled decrease in the face amount
will be eliminated
OR
the premium paying period will be
shortened
Increase the current face amount and keep a scheduled decrease in the current face
the premiums the same amount, if any, will take place at an
OR earlier policy anniversary
Keep the current face amount and decrease OR
the premiums a scheduled decrease in the face amount
OR will occur
Make a partial surrender and keep the OR
premiums and face amount the same the premium paying period will be
lengthened
Stop base premium and keep the face amount a scheduled decrease in the current face
the same amount, if any, will take place at an
earlier policy anniversary and no
insurance will be provided after the
decrease
OR
a scheduled decrease in the face amount
will occur. However, you must continue to
pay the charge for a sub-standard risk, or
your Policy will lapse
APPLICATIONS AND POLICY ISSUE
Persons wishing to purchase a Policy must send a completed application to us at
our home office. The minimum face amount we will issue on a Policy is $50,000
and we require an annual base premium on each Policy of at least $300. The
minimum plan of insurance at policy issue is a protection plan which has a level
face amount for a period of ten years. If the insured's age at original issue is
over age 55, the minimum plan of protection will be less than ten years from the
Policy date, as shown in the chart under "Adjustable Life Insurance." The Policy
must be issued on an insured no more than age 85. Before issuing any Policy, we
require evidence of insurability satisfactory to us, which in some cases will
require a medical examination. Persons who are offered the most favorable
premium rates, while a higher premium is charged to persons with a greater
mortality risk. Acceptance of an application is subject to our underwriting
rules and we reserve the right to reject an application for any reason.
If we accept an application, accompanied by a check for all or at least
one-twelfth of the annual premium, the policy date will be the issue date, which
is the date the decision to accept the application and issue the Policy is made.
The policy date will be used to determine subsequent policy anniversaries and
premium due dates.
If we accept an application not accompanied by a check for the initial premium,
a Policy will be issued with a policy date which is 25 days after the issue
date. We have determined 25 days to be the normal time during which delivery of
the Policy is expected to occur. We or our agent must receive the initial
premium within 60 days after the issue date. No life insurance coverage is
provided until the initial premium is paid. If the initial premium is paid after
the policy date (and
Page 21
the policy date is not changed as described below), you will have paid for
insurance coverage during a period when no coverage was in force. Therefore, in
such circumstance you should consider requesting a current policy date, i.e.,
the date on which our home office receives the premium. You will be sent updated
policy pages to reflect the change in policy date. This request should be made
at or prior to the time you pay the initial premium.
In certain circumstances it may be to your advantage to have the policy date be
the same as the issue date in order to preserve an issue age on which premium
rates are based. In that case, all premiums due between the issue date and the
date of delivery of the Policy must be paid on delivery.
When the Policy is issued, the face amount, premium, tabular cash values and a
listing of any supplemental agreements are stated on the policy information
pages of the policy form, page 1.
POLICY PREMIUMS
The Policies have a level scheduled premium throughout the life of the insured
or until the Policy becomes paid-up. We guarantee that we will not increase the
amount of premiums for a Policy in force. Subject to the limitations discussed
in "Restrictions on Adjustments" under "Policy Adjustments," you may choose to
adjust the Policy at any time and alter the amount of future premiums.
The initial premium required for a Policy will depend on the Policy's initial
face amount, the plan of insurance, the insured's age at issue, sex, risk
classification, tobacco use and the additional benefits associated with the
Policy.
The first premium is due as of the policy date and must be paid on or before the
date your Policy is delivered. Between the date we receive an initial premium
for the Policy, either a full first premium or a partial premium, and the date
insurance coverage commences under the Policy, the life of the insured may be
covered under the terms of a temporary insurance agreement. All scheduled
premiums after the first premium are payable on or before the date they are due
and must be mailed to us at our home office. In some cases, you may elect to
have premiums paid under our automatic payment plan through pre-authorized
transfers from a bank checking account or such other account as your bank
approves.
Scheduled premiums on the Policy are payable during the insured's lifetime on an
annual, semi-annual or quarterly basis on the due dates set forth in the Policy.
You may also pay scheduled premiums monthly if you make arrangements for
payments through an automatic payment plan established through your bank or if
you meet the requirements to establish a payroll deduction plan through your
employer. A scheduled premium may be paid no earlier than twenty days prior to
the date that it is due. For premiums paid after the due date, see the paragraph
following the heading "Lapse" in this section of the prospectus.
With VAL '87, charges for additional benefits are deducted from premiums to
calculate base premiums. From base premiums we deduct charges assessed against
premiums and nonrepeating premiums, to calculate net premiums. With VAL '95,
charges for additional benefits and for sub-standard risks are deducted from
premiums to calculate base premiums. From base premiums we deduct charges
assessed against premiums and nonrepeating premiums to calculate net premiums.
Net premiums are allocated to the guaranteed principal account or sub-accounts
of the Variable Life Account which, in turn, invest in Fund shares.
Page 22
In rare circumstances, if we receive and allocate your premium before its due
date, your Policy will become a modified endowment contract. See "Federal Tax
Status." To prevent your Policy 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 principal account or
sub-accounts of the Variable Life Account.
You make your selection on your application for the Policy. You may change your
allocation instructions for future premiums by giving us a signed written
request, by calling us at 1-800-277-9244 between the hours of 8:00 a.m. and 4:30
p.m., Central time, our regular business hours, or by contacting us through our
Internet Online Service Center. The allocation to the guaranteed principal
account or to any sub-account of the Variable Life Account must be in multiples
of 1 percent of the net premium. We reserve the right to delay the allocation of
net premiums to named sub-accounts for a period of up to 30 days after Policy
issue or an adjustment. In no event will any delay extend beyond the free look
period applied to the Policy in the state in which it is issued. If we exercise
this right, net premiums will be allocated to the Money Market sub-account until
the end of that period. This right, which has not been implemented to date, will
be exercised by us only when we believe economic conditions make such an
allocation necessary to reduce market risk during the free look period.
We reserve the right to restrict the allocation of premiums to the guaranteed
principal account. If we do so, no more than 50 percent of the net premium may
be allocated to the guaranteed principal account. Currently, we do not exercise
such a restriction, and this restriction is not applicable when you are
allocating all of your premiums to the guaranteed principal account as a
conversion privilege.
NONREPEATING PREMIUMS The Policy also allows a policy owner to pay a premium
called a nonrepeating premium. This payment of premium is in addition to the
scheduled premium payments called for by the terms of the Policy. While the
payment of a nonrepeating premium generally does not cause an adjustment to the
Policy, any such payment will be reflected in the tabular cash value of the
Policy at issue or upon any later adjustment. The payment of a nonrepeating
premium will increase the policy values you have available for investment in the
Fund. With VAL '95, we may impose additional restrictions or refuse to permit
nonrepeating premiums at our discretion.
THE MAXIMUM NONREPEATING PREMIUM WE WILL ACCEPT IS THE AMOUNT SUFFICIENT TO
CHANGE YOUR POLICY TO A PAID-UP WHOLE LIFE POLICY FOR THE THEN CURRENT FACE
AMOUNT. THE MINIMUM NONREPEATING PREMIUM IS $500.
We will bill annually, semi-annually or quarterly for nonrepeating premiums if a
Policy has a total annual premium of at least $2,400 and if the total amount
billed for nonrepeating premiums is at least $600. You may also arrange for
monthly payments through an automatic payment plan established through your
bank; in this situation, your base annual premium must be at least $2,400 and
each nonrepeating premium must be at least $50.
The payment of a nonrepeating premium may have federal income tax consequences.
See "Federal Tax Status."
PAID-UP POLICIES A POLICY IS PAID-UP WHEN NO ADDITIONAL PREMIUMS ARE REQUIRED
TO PROVIDE THE FACE AMOUNT OF INSURANCE FOR THE LIFE OF THE INSURED. We may or
may not accept additional premiums. When a Policy becomes paid-up, the policy
value will then equal or exceed the net single premium needed to purchase an
amount of insurance equal to the face amount of the Policy at the insured's then
attained age. However, its actual cash value will continue to vary daily to
reflect the
Page 23
investment experience of the Variable Life Account and any interest credited as
a result of a policy loan. Once a Policy becomes paid-up, it will always retain
its paid-up status regardless of any subsequent decrease in its policy value.
However, on a paid-up Policy with indebtedness, where the actual cash value
decreases to zero, a loan repayment may be required to keep the Policy in force.
See "Policy Loans."
We will make a determination on each policy anniversary as to whether a Policy
is paid-up. When a Policy becomes paid-up, we will send you a notice.
LAPSE YOUR POLICY MAY LAPSE IN ONE OF TWO WAYS: (1) IF A SCHEDULED PREMIUM IS
NOT PAID; OR (2) IF THERE IS NO ACTUAL CASH VALUE WHEN THERE IS A POLICY LOAN.
As a scheduled premium policy, your Policy will lapse if a premium is not paid
on or before the date it is due or within the 31-day grace period provided by
the Policy. You may pay that premium during the 31-day period immediately
following the premium due date. Your premium payment, however, must be received
in our home office within the 31-day grace period. The insured's life will
continue to be insured during this 31-day period. If the insured dies during the
31-day period, we will deduct unpaid policy charges for that period from the
death proceeds.
With VAL '95, if a Policy covers an insured in a sub-standard risk class, the
portion of the scheduled premium equal to the charge for such risk will continue
to be payable notwithstanding the adjustment to a stop premium mode. As with any
scheduled premium, failure to pay the premium for the sub-standard risk within
the grace period provided will cause the Policy to lapse.
If scheduled premiums are paid on or before the dates they are due or within the
grace period, absent any policy loans, the Policy will remain in force even if
the investment results of the sub-accounts have been so unfavorable that the
actual cash value has decreased to zero. However, should the actual cash value
decrease to zero while there is an outstanding policy loan the Policy will
lapse, even if the Policy was paid-up and all scheduled premiums had been paid.
If the Policy lapses because not all scheduled premiums have been paid or if a
Policy with a policy loan has no actual cash value, we will send you a notice of
default that will indicate the payment required to keep the Policy in force on a
premium paying basis. If the payment is not received within 31 days after the
date of mailing the notice of default, the Policy will terminate or the
nonforfeiture benefits will apply. See "Avoiding Lapse" below.
If at the time of any lapse a Policy has a surrender value, that is, an amount
remaining after subtracting from the actual cash value all unpaid policy
charges, we will use it to purchase extended term insurance. The extended term
benefit is a fixed life insurance benefit calculated on the 1980 Commissioners
Standard Ordinary Mortality Tables with 4 percent interest. As an alternative to
the extended term insurance, you may have the surrender value paid to you in a
single sum payment, thereby terminating the Policy. We will notify you that you
must request a single sum payment of your surrender value within 62 days of the
date of the first unpaid premium, or we will apply it to purchase extended term
insurance on the insured's life.
We determine the duration of the extended term benefit by applying the surrender
value of your Policy as of the end of the grace period as a net single premium
to buy fixed benefit term insurance. The extended term benefit is not provided
through the Variable Life Account and the death benefit will not vary during the
extended term insurance period. The amount of this insurance will be equal to
the face amount of your Policy, less the amount of any policy loans at the date
of lapse. During the extended term period a Policy has a surrender value equal
to the reserve for the insurance coverage for the remaining extended term
period. At the end of the extended term period all insurance provided by your
Policy will terminate and the Policy will have no further value.
Page 24
You may arrange for automatic premium loans to keep the Policy in force in the
event that a scheduled premium payment is not made. See "Policy Loans."
REINSTATEMENT AT ANY TIME WITHIN THREE YEARS FROM THE DATE OF LAPSE YOU MAY ASK
US TO RESTORE YOUR POLICY TO A PREMIUM PAYING STATUS unless the Policy
terminated because the surrender value has been paid, or the period of extended
term insurance has expired. We will require:
(1) your written request to reinstate the Policy;
(2) that you submit to us at our home office during the insured's lifetime
evidence satisfactory to us of the insured's insurability so that we
may have time to act on the evidence during the insured's lifetime; and
(3) at our option a premium payment which is equal to all overdue premiums
with interest at a rate not to exceed 6 percent per annum compounded
annually and any policy loan in effect at the end of the grace period
following the date of default with interest at a rate not exceeding 8
percent per annum compounded annually. At the present time we do not
require the payment of all overdue premiums, or the payment of interest
on reinstated loans.
AVOIDING LAPSE If your Policy has sufficient loan value, you can avoid a lapse
due to the failure to pay a scheduled premium by arranging for an automatic
premium loan. The effect of a policy loan on policy values and the restrictions
applicable thereto are described under "Policy Loans." An automatic premium loan
is particularly advantageous for a policy owner who contemplates early repayment
of the amount loaned, since it permits the policy owner to restore policy values
without additional sales and underwriting charges. Automatic premium loans for
the long term are generally not advantageous.
You may also avoid a lapse by adjusting your Policy to a zero base premium. We
call this the stop premium mode. We will use the greater of your policy value or
tabular cash value to determine a new plan of insurance based on the greater of
the then current face amount or death benefit of the Policy and the assumption
that no further premiums will be paid. The new plan may be a term or protection
plan, but unlike other term plans there will be no reduced face amount of
coverage at the end of the protection period, because no further premiums will
be payable. If at that time the Policy has a surrender value, we will use it to
purchase extended term coverage or we will pay it to you in a single sum thereby
terminating the Policy.
The insurance coverage resulting from an adjustment to a stop premium mode is
similar to the coverage available under the extended term option. Under both,
the coverage is available only for a limited period of time. There are, however,
fundamental differences between the two. Extended term coverage is a fixed
benefit with fixed cash values providing a longer guaranteed period of coverage
than the same amount applied as a stop premium. The stop premium mode provides
variable insurance with an actual cash value and, under the Protection Option, a
death benefit that will vary with the actual cash value. Because the actual cash
value continues to exist, we will continue to assess policy charges against the
actual cash value while the Policy is on stop premium. Moreover with VAL '95, if
a Policy covers an insured in a sub-standard risk class, the portion of the
scheduled premium equal to the charge for such risk will continue to be payable.
There are also other differences which should be considered. In general, if you
contemplate resuming premium payments at a future date, the stop premium mode
may be more desirable in that you may resume premium payments at any time
without evidence of insurability. The
Page 25
reinstatement option available during the extended term period requires proof of
insurability and must be exercised within three years following the date of
lapse.
If you do not contemplate resuming premium payments, your choice between
permitting your Policy to lapse and adjusting it to a stop premium mode should
depend on, first, whether the surrender value of your Policy at that time
exceeds its tabular cash value and, second, whether you expect your Policy's
policy value to exceed its tabular cash value in the future. If at the time of
possible lapse your Policy's surrender value is less than its tabular cash
value, you should consider adjusting to a stop premium mode because the period
of insurance coverage will be based on the higher tabular cash value while the
period of extended term coverage upon lapse would be computed on the basis of
the lower surrender value. If the two values are the same, the period of
guaranteed coverage under the extended term option will be longer than under the
stop premium mode. Thus, you should be sure that the benefit of using the higher
tabular cash value is not offset by the shorter period of guaranteed insurance
coverage usually resulting from the stop premium mode.
On the other hand, if the surrender value of your Policy exceeds its tabular
cash value, you should evaluate the benefit of a guaranteed longer period of
insurance coverage under the extended term option against the possibility of
longer coverage under the stop premium mode. With the stop premium mode there
may be an available policy value at the end of the plan which could be used to
continue the face amount of the Policy to a later time than provided under the
extended term option. In considering this possibility, you should keep in mind
that a Policy with the Cash Option death benefit is more likely to have a higher
policy value than a comparable Policy with the Protection Option death benefit.
POLICY VALUES
The Policy has an actual cash value which varies with the investment experience
of the guaranteed principal account and the sub-accounts of the Variable Life
Account.
The Policy's interest in the guaranteed principal account and the sub-accounts
of the Variable Life Account is known as its actual cash value. It is determined
separately for your guaranteed principal account actual cash value and for your
separate account actual cash value. The SEPARATE ACCOUNT ACTUAL CASH VALUE will
include all sub-accounts of the Variable Life Account.
Unlike a traditional fixed benefit life insurance policy, a Policy's actual cash
value cannot be determined in advance, even if scheduled premiums are made when
required, because the separate account actual cash value varies daily with the
investment performance of the sub-accounts. EVEN IF YOU CONTINUE TO PAY
SCHEDULED PREMIUMS WHEN DUE, THE SEPARATE ACCOUNT ACTUAL CASH VALUE OF A POLICY
COULD DECLINE TO ZERO BECAUSE OF UNFAVORABLE INVESTMENT EXPERIENCE AND THE
ASSESSMENT OF CHARGES. Upon request, we will tell you the actual cash value of
your Policy. We will also send you a report each year on the policy anniversary
advising you of your Policy's actual cash values, the face amount and the death
benefit as of the date of the report. It will also summarize Policy transactions
during the year. The information will be current as of a date within two months
of its mailing.
THE GUARANTEED PRINCIPAL ACCOUNT ACTUAL CASH VALUE is the sum of all net premium
payments allocated to the guaranteed principal account. This amount will be
increased by any interest, dividends, loan repayments, policy loan interest
credits and transfers into the guaranteed principal account. This amount will be
reduced by any policy loans, unpaid policy loan interest, partial surrenders,
transfers into the sub-accounts of the Variable Life Account and charges
assessed against your guaranteed principal account actual cash value. We will
credit on the guaranteed principal account actual cash value of your Policy.
Interest is credited daily at a rate of not less than
Page 26
4 percent per year, compounded annually. We guarantee this minimum rate for the
life of the Policy without regard to the actual experience of the general
account. As conditions permit, we will credit additional amounts of interest to
the guaranteed principal account actual cash value. YOUR GUARANTEED PRINCIPAL
ACCOUNT ACTUAL CASH VALUE IS GUARANTEED BY US. It cannot be reduced by any
investment experience of the general account.
We determine each portion of a Policy's separate account actual cash value
separately. The separate account actual cash value is not guaranteed. WE
DETERMINE THE SEPARATE ACCOUNT ACTUAL CASH VALUE BY MULTIPLYING THE CURRENT
NUMBER OF SUB-ACCOUNT UNITS CREDITED TO A POLICY BY THE CURRENT SUB-ACCOUNT UNIT
VALUE. A unit is a measure of your Policy's interest in a sub-account. The
number of units credited with respect to each net premium payment is determined
by dividing the portion of the net premium payment allocated to each sub-account
by the then current unit value for that sub-account. The number of units so
credited is determined as of the end of the valuation period during which we
receive your premium at our home office.
Once determined, the number of units credited to your Policy will not be
affected by changes in the unit value. However, the number will be increased by
the allocation of subsequent net premiums, nonrepeating premiums, dividends,
loan repayments, loan interest credits and transfers to that sub-account. The
number of units of will be decreased by policy charges to the sub-account,
policy loans and loan interest, transfers from that sub-account and partial
surrenders from that sub-account. The number of units will decrease to zero on a
policy surrender, the purchase of extended term insurance or termination.
The unit value of a sub-account will be determined on each valuation date. The
amount of any increase or decrease will depend on the net investment experience
of that sub-account. The value of a unit for each sub-account was originally set
at $1.00 on the first valuation date. For any subsequent valuation date, its
value is equal to its value on the preceding valuation date multiplied by the
net investment factor for that sub-account for the valuation period ending on
the subsequent valuation date.
The net investment factor for a valuation period is: the gross investment rate
for such valuation period, less a deduction for the mortality and expense risk
charge under this Policy which is assessed at an annual rate of .50 percent
against the average daily net assets of each sub-account of the Variable Life
Account. The gross investment rate is equal to:
(1) the net asset value per share of a Fund share held in the sub-account
of the Variable Life Account determined at the end of the current
valuation period; plus
(2) the per share amount of any dividend or capital gain distributions by
the Funds if the "ex-dividend" date occurs during the current valuation
period; with the sum divided by
(3) the net asset value per share of that Fund share held in the
sub-account determined at the end of the preceding valuation period.
We determine the value of the units in each sub-account on each day on which the
Portfolios of the Funds are valued. The net asset value of the Funds' shares is
computed once daily, and, in the case of the Money Market Portfolio, after the
declaration of the daily dividend, as of the primary closing time for business
on the New York Stock Exchange (as of the date hereof the primary close of
trading is 3:00 p.m. (Central time), but this time may be changed) on each day,
Monday through Friday, except:
(1) days on which changes in the value of the Funds' portfolio securities
will not materially affect the current net asset value of the Funds'
shares,
Page 27
(2) days during which no Funds' shares are tendered for redemption and no
order to purchase or sell the Funds' shares is received by the Funds,
and
(3) customary national business holidays on which the New York Stock
Exchange is closed for trading.
Although the actual cash value for each Policy is determinable on a daily basis,
we update our records to reflect that value on each monthly anniversary. We also
make policy value determinations on the date of the insured's death and on a
policy adjustment, surrender, and lapse. When the policy value is determined, we
will assess and update to the date of the transaction those charges made against
your actual cash value, namely the administration charge of $60 per year and the
cost of insurance charge (and, for VAL '87 any charge for sub-standard risks).
Increases or decreases in policy values will not be uniform for all Policies but
will be affected by policy transaction activity, cost of insurance charges,
(charges for sub-standard risks for VAL '87) and the existence of policy loans.
TRANSFERS The Policy allows for transfers of the actual cash value between the
guaranteed principal account and the Variable Life Account or among the
sub-accounts of the Variable Life Account. You may request a transfer at any
time while the Policy remains in force or you may arrange in advance for
systematic transfers; systematic transfers are transfers of specified dollar or
unit value amounts to be made periodically among the sub-accounts and the
guaranteed principal account. One type of systematic transfer is known as an
automatic portfolio rebalancing ("APR"). Following your written instructions as
to the percentage of your actual cash value you wish to have in each of your
sub-accounts, we will transfer amounts to and from those sub-accounts to achieve
the percentages you desire.
WE RESERVE THE RIGHT TO LIMIT THE AMOUNT TO BE TRANSFERRED TO OR FROM A
SUB-ACCOUNT OR THE GUARANTEED PRINCIPAL ACCOUNT TO AT LEAST $250. If the actual
cash value is less than $250, the entire actual cash value attributable to that
sub-account or the guaranteed principal account must be transferred. If a
transfer would reduce the actual cash value in the sub-account from which the
transfer is to be made to less than $250, we reserve the right to include that
remaining sub-account actual cash value in the amount transferred. We will make
the transfer on the basis of sub-account unit values as of the end of the
valuation period during which your written or telephone request is received at
our home office. A transfer is subject to a transaction charge, not to exceed
$10, for each transfer of actual cash value among the sub-accounts and the
guaranteed principal account. Currently there is no charge for systematic
transfers. There is a charge only for non-systematic transfers in excess of 12
per year. None of these requirements will apply when you are transferring all of
the policy value to the guaranteed principal account as a conversion privilege.
Your instructions for transfer may be made in writing or you, or your agent if
authorized by you, may make such changes by telephone. To do so, you may call us
at 1-800-277-9244 between the hours of 8:00 a.m. and 4:30 p.m., Central time,
our regular business hours. Policy owners may also submit their requests for
transfer, surrender or other transactions to us by facsimile (FAX) transmission
at (651) 665-4194, or by contacting us through our Internet Online Service
Center.
Transfers made pursuant to a telephone call or through the internet are subject
to the same conditions and procedures as would apply to written transfer
requests. During periods of marked economic or market changes, you may have
difficulty making a telephone or internet request due to a heavy volume of
telephone calls or internet activity. In such a circumstance, you should
consider submitting a written transfer request while continuing to attempt a
telephone or internet transaction. We reserve the right to restrict the
frequency of, or otherwise modify, condition,
Page 28
terminate or impose charges upon, telephone or internet transfer privileges. For
more information on telephone or internet transactions, contact us.
With all telephone or internet transactions, we will employ reasonable
procedures to satisfy ourselves that instructions received from policy owners
are genuine and, to the extent that we do not, we may be liable for any losses
due to unauthorized or fraudulent instructions. We require policy owners to
identify themselves through policy numbers, social security numbers and such
other information we deem reasonable. We record telephone transfer instruction
conversations and we provide the policy owners with a written confirmation of
the telephone or internet transfer.
The maximum amount of actual cash value to be transferred out of the guaranteed
principal account to the sub-accounts of the Variable Life Account may be
limited to 20 percent of the guaranteed principal account balance. Transfers to
or from the guaranteed principal account may be limited to one such transfer per
policy year. Neither of these restrictions will apply when you are transferring
all of the policy value to the guaranteed principal account as a conversion
privilege.
Transfers from the guaranteed principal account may be made by a written or
telephone request or through the internet. Your request must be received by us
or postmarked in the 30-day period before or after the last day of the policy
year. Currently, we do not impose this time restriction. Written requests for
transfers which meet these conditions will be effective after we approve and
record them at our home office.
MARKET-TIMING AND DISRUPTIVE TRADING 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, administer, and charge you for any fees or
restrictions, including redemption fees that
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may be imposed by an underlying portfolio attributable to transfers in your
contract. We will consider one or more of the following factors:
- 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 our detecting 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 or Automatic Portfolio Rebalancing.
DEATH BENEFIT OPTIONS
The death benefit provided by the Policy depends upon the death benefit option
you choose. You may choose one of two available death benefit options -- the
CASH OPTION or the PROTECTION OPTION. If you fail to make an election, the Cash
Option will be in effect. The scheduled premium for a Policy is the same no
matter which death benefit option you choose. At no time will the death benefit
be less than the larger of the then current face amount or the amount of
insurance that could be purchased using the policy value as a net single
premium.
CASH OPTION Under the Cash Option, the death benefit will be the current face
amount at the time of the insured's death. The death benefit will not vary
unless the policy value exceeds the net single premium for the then current face
amount. At that time, the death benefit will be the greater of the face amount
of the Policy or the amount of insurance which could be purchased at the date of
the insured's death by using the policy value as a net single premium.
PROTECTION OPTION The death benefit provided by the Protection Option will vary
depending on the investment experience of the allocation options you select,
depending on whether there is interest credited as a result of a policy loan and
the extent to which we assess lower insurance charges than those maximums
derived from the 1980 Commissioners Standard Ordinary Mortality Tables.
With VAL '87, the amount of the death benefit is equal to the current face
amount or, if the policy value is greater than the tabular cash value (as
described under "Policy Adjustments") at the date of the insured's death, the
current face amount plus an additional amount of insurance which could be
purchased by using that difference between values as a net single premium.
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Before the policy anniversary nearest the insured's age 70, and with both VAL
'95 and the Amended VAL '95 Protection Option, if you have chosen that Option,
the amount of the death benefit is equal to the policy value, plus the larger
of:
(a) the then current face amount; and
(b) the amount of insurance which could be purchased using the policy value
as a net single premium.
At the policy anniversary nearest the insured's age 70, we will automatically
adjust the face amount of your Policy to equal the death benefit immediately
preceding the adjustment. The Protection Option of VAL '95 is only available
until the policy anniversary nearest the insured's age 70; at that time we will
convert the death benefit option to the Cash Option. With the Amended VAL '95
Protection Option, after the policy anniversary nearest the insured's age 70,
the amount of the death benefit is equal to the current face amount or, if the
policy value is greater than the tabular cash value at the date of the insured's
death, the current face amount plus an additional amount of insurance which
could be purchased by using that difference between values as a net single
premium.
CHOOSING THE DEATH BENEFIT OPTION The different death benefit options meet
different needs and objectives. If you are satisfied with the amount of your
insurance coverage and wish to have any favorable policy performance reflected
to the maximum extent in increasing actual cash values, you should choose the
Cash Option. The Protection Option results primarily in an increased death
benefit. In addition, there are other distinctions between the two options which
may influence your selection. In the event of a superior policy performance, the
Cash Option will result in a Policy becoming paid-up more rapidly than the
Protection Option. This is because of larger cost of insurance charges under the
Protection Option resulting from the additional amount of death benefit provided
under that option. But under the Cash Option, favorable policy experience does
not increase the death benefit unless the policy value exceeds the net single
premium for the then current face amount, and the beneficiary will not benefit
from any larger actual cash value which exists at the time of the insured's
death because of the favorable policy experience.
You may change the death benefit option while the Policy is in force by filing a
written request with us at our home office. We may require that you provide us
with satisfactory evidence of the insured's insurability before we make a change
to the Protection Option. The change will take effect when we approve and record
it in our home office. A change in death benefit option may have federal income
tax consequences. See "Federal Tax Status."
POLICY LOANS
You may borrow from us using only your Policy as the security for the loan. THE
TOTAL AMOUNT OF YOUR LOAN MAY NOT EXCEED 90 PERCENT OF YOUR POLICY VALUE. A loan
taken from, or secured by a Policy, may have federal income tax consequences.
See "Federal Tax Status."
The policy value is the actual cash value of your Policy plus any policy loan.
Any policy loan paid to you in cash must be in an amount of at least $100.
Policy loans in smaller amounts are allowed under the automatic premium loan
provision. We will deduct interest on the loan in arrears. You may obtain a
policy loan with a written request or by calling us at 1-800-277-9244 between
the hours of 8:00 a.m. and 4:30 p.m., Central time, our regular business hours.
If you call us you will be asked, for security purposes, for your personal
identification and policy number. The Policy will be the only security required
for your loan. We will determine your policy value as of the date we receive
your request at our home office.
Page 31
When you take a loan, we will reduce both the death benefit and the actual cash
value by the amount you borrow and any unpaid interest. Unless you direct us
otherwise, we will take the policy loan from your guaranteed principal account
actual cash value and separate account actual cash value in the same proportion
that those values bear to each other and, as to the actual cash value in the
separate account, from each sub-account in the proportion that the actual cash
value in such sub-account bears to your actual cash value in all of the
sub-accounts. The number of units to be sold will be based upon the value of the
units as of the end of the valuation period during which we receive your loan
request at our home office. This amount shall be transferred to the loan
account. The loan account continues to be part of the Policy in the general
account. A policy loan has no immediate effect on policy value since at the time
of the loan the policy value is the sum of your actual cash value and any policy
loan.
The actual cash value of your Policy may decrease between premium due dates.
Unfavorable investment experience and the assessment of charges could cause your
separate account actual cash value to decline to zero. IF YOUR POLICY HAS
INDEBTEDNESS AND NO ACTUAL CASH VALUE, THE POLICY WILL LAPSE AND THERE MAY BE
ADVERSE TAX CONSEQUENCES; SEE "FEDERAL TAX STATUS." In this event, to keep your
Policy in force, you will have to make a loan repayment. We will give you notice
of our intent to terminate the Policy and the loan repayment required to keep it
in force. The time for repayment will be within 31 days after our mailing of the
notice.
POLICY LOAN INTEREST The interest rate on a policy loan will not be more than
the rate shown on page 1 of your Policy. The interest rate charged on a policy
loan will not be more than that permitted in the state in which the Policy is
delivered.
Policy loan interest is due:
- on the date of the death of the insured
- on a policy adjustment, surrender, lapse, a policy loan transaction
- on each policy anniversary.
If you do not pay the interest on your loan in cash, your policy loan will be
increased and your actual cash value will be reduced by the amount of the unpaid
interest. The new loan will be subject to the same rate of interest as the loan
in effect.
We will also credit interest to your Policy when there is a policy loan.
Interest credits on a policy loan shall be at a rate which is not less than your
policy loan interest rate minus 2 percent per year. We allocate policy loan
interest credits to your actual cash value as of the date of the death of the
insured, on a policy adjustment, surrender, lapse, a policy loan transaction and
on each policy anniversary. We allocate interest credits to the guaranteed
principal account and separate account following your instructions to us for the
allocation of net premiums.
Currently, the loan account credits interest, as described above, at a rate
which is not less than your policy loan interest rate minus 2 percent per year.
However, depending on the insured's age and the period of time that the Policy
has been in force, we may credit the Policy with interest at a more favorable
rate. Under our current procedures, if all the conditions are met we will credit
your loan at a rate which is equal to the policy loan rate minus .75 percent per
year. The conditions which must be met have to do with your age and the duration
of the Policy. The insured's age must be greater than or equal to age 55 as of
the last policy anniversary. The duration of the Policy, which is the number of
years during which the Policy has been in force, must be greater than or equal
to 10. The duration includes any period a previous policy was in effect if that
previous policy was exchanged for this Policy.
Page 32
Policy loans may also be used as automatic premium loans to keep your Policy in
force if a premium is unpaid at the end of the grace period. If you asked for
this service in your application, or if you write us and ask for this service
after your Policy has been issued, we will make automatic premium loans. You can
also write to us at any time and tell us you do not want this service. If you
have this service and you have not paid the premium that is due before the end
of the grace period, we will make a policy loan to pay the premium. Interest on
such a policy loan is charged from the date the premium was due. However, in
order for an automatic premium loan to occur, the amount available for a loan
must be enough to pay at least a quarterly premium. If the loan value is not
enough to pay at least a quarterly premium, your Policy will lapse.
POLICY LOAN REPAYMENTS If your Policy is in force, you can repay your loan in
part or in full at any time before the insured's death. Your loan may also be
repaid within 60 days after the date of the insured's death, if we have not paid
any of the benefits under the Policy. Any loan repayment must be at least $100
unless the balance due is less than $100. We will waive this minimum loan
repayment provision for loan repayments made under our automatic payment plan
where loan repayments are in an amount of at least $25.
We allocate loan repayments to the guaranteed principal account until all loans
from the guaranteed principal account have been repaid. Thereafter we allocate
loan repayments to the guaranteed principal account or the sub-accounts of the
Variable Life Account as you direct. In the absence of your instructions, we
will allocate loan repayments to the guaranteed principal account actual cash
value and separate account actual cash value in the same proportion that those
values bear to each other and, as to the actual cash value in the separate
account, to each sub-account in the proportion that the actual cash value in
such sub-account bears to your actual cash value in all of the sub-accounts.
Loan repayments reduce your loan account by the amount of the loan repayment.
A policy loan, whether or not it is repaid, will have a permanent effect on the
policy value because the investment results of the sub-accounts will apply only
to the amount remaining in the sub-accounts. The effect could be either positive
or negative. If net investment results of the sub-accounts are greater than the
amount being credited on the loan, the policy value will not increase as rapidly
as it would have if no loan had been made. If investment results of the
sub-accounts are less than the amount being credited on the loan, the policy
value will be greater than if no loan had been made.
SURRENDER
You may request a surrender or partial surrender of your Policy at any time
while the insured is living. The surrender value of the Policy is the actual
cash value minus unpaid policy charges which are assessed against actual cash
value. We determine the surrender value as of the end of the valuation period
during which we receive your surrender request at our home office. You may
surrender the Policy by sending us the Policy and a written request for its
surrender. You may request that the surrender value be paid to you in cash or,
alternatively, applied on a settlement option or to provide extended term
insurance on the life of the insured.
We also permit a partial surrender of the actual cash value of the Policy in any
amount of $500 or more. In addition, the amount of a partial surrender may not
exceed the amount available as a policy loan. If a Policy is not paid-up, the
death benefit of the Policy will be reduced by the amount of the partial
surrender. If the Policy is paid-up, the death benefit will be reduced so as to
retain the same ratio between the policy value and the death benefit of the
Policy as existed prior to the partial
Page 33
surrender. With any partial surrender, we will adjust the Policy to reflect the
new face amount and actual cash value and, unless otherwise instructed, the
existing level of premium payments.
We are currently waiving the restriction requiring a minimum amount for a
partial surrender where a partial withdrawal from a Policy, which is on stop
premium, is being used to pay premiums for sub-standard risks or premiums on any
benefits and riders issued as part of the Policy. Transaction fees otherwise
applicable to such a partial withdrawal are also waived.
On a partial surrender, you may tell us which Variable Life Account sub-accounts
from which a partial surrender is to be taken or whether it is to be taken in
whole or in part from the guaranteed principal account. If you do not, we will
deduct partial surrenders from your guaranteed principal account actual cash
value and separate account actual cash value in the same proportion that those
values bear to each other and, as to the actual cash value in the separate
account, from each sub-account in the proportion that the actual cash value in
such sub-account bears to your actual cash value in all of the sub-accounts. We
will tell you, on request, what amounts are available for a partial surrender
under your Policy.
We will pay a surrender or partial surrender as soon as possible, but not later
than seven days after our receipt of your written request for surrender.
However, if any portion of the actual cash value to be surrendered is
attributable to a premium or nonrepeating premium payment made by non-
guaranteed funds such as a personal check, we will delay mailing that portion of
the surrender proceeds until we have reasonable assurance that the payment has
cleared and that good payment has been collected. The amount you receive on
surrender may be more or less than the total premiums paid for your Policy.
FREE LOOK
It is important to us that you are satisfied with this Policy after it is
issued. If you are not satisfied with it, you may return the Policy to us or
your agent by the later of:
(1) ten days after you receive it;
(2) 45 days after you have signed the application; or
(3) ten days after we mail to you a notice of your right of withdrawal.
If you return the Policy, you will receive within seven days of the date we
receive your notice of cancellation a full refund of the premiums you have paid.
If the Policy is adjusted, as described under "Policy Adjustments," and if the
adjustment results in an increased premium, you will again have a right to
examine the Policy and you may return the Policy within the time periods stated
above. If you return the Policy, the requested premium adjustment will be
cancelled. You will receive a refund of the additional premiums paid within
seven days of the date we receive your notice of cancellation for that
adjustment.
CONVERSION
So long as your Policy is in force and all scheduled premiums have been duly
paid, you may convert the Policy to an adjustable life policy, with a fixed
death benefit and cash values, which we may then offer. This right is in
addition to your right to make described policy adjustments. For VAL '95, this
conversion privilege is only available during the first 24 months from the
original policy date, but comparable fixed insurance coverage can be obtained
after 24 months from the original policy date by transferring all of the policy
value to the guaranteed principal account and thereafter allocating all premiums
to that account.
Page 34
The converted Policy shall have the same face amount as is currently provided by
your Policy and premiums based upon the same issue age and risk classification
of the insured as stated in your Policy. The premiums and actual cash values
provided by the converted Policy may be different as a result of an equitable
adjustment made to reflect any variances in the premiums and cash values under
the Policy and the new Policy.
POLICY CHARGES
PREMIUM CHARGES Premium charges vary depending on whether the premium is a
scheduled premium or a nonrepeating premium. Generally, the word "premium" when
used in this prospectus means a scheduled premium only. With VAL '87, charges
for sub-standard risks are assessed against the actual cash values. With VAL
'95, charges for sub-standard risks are deducted from the premium, to calculate
the base premium. The SUB-STANDARD RISK CHARGE is for providing the death
benefit for Policies whose mortality risks exceed the standard. With both VAL
'87 and VAL '95, charges for additional agreements are shown in the Summary Fee
Tables under "Summary of Benefits and Risks" and are deducted from the premium
to calculate the base premium.
From base premiums we deduct a sales load, an underwriting charge, a premium tax
charge and a face amount guarantee charge. The base premium excludes any charge
deducted from the premium to provide for any additional benefits provided by
rider and, in the case of VAL '95, any charge deducted for sub-standard risks.
(1) The SALES LOAD consists of a deduction from each premium of 7 percent
and it may also include a first year sales load deduction not to exceed
23 percent. The first year sales load will apply only to base premiums,
scheduled to be paid in the 12 month period following the policy date,
or any policy adjustment involving an increase in base premium or any
policy adjustment occurring during a period when a first year sales
load is being assessed. It will also apply only to that portion of an
annual base premium necessary for an original issue whole life plan of
insurance. In other words, for base premiums greater than this whole
life premium, the amount of the base premium in excess of such whole
life base premium will be subject only to the 7 percent basic sales
load.
Only adjustments that involve an increase in base premium will result
in additional first year sales load being assessed on that increase in
premium. If any adjustment occurs during a period when a first year
sales load is being collected and the adjustment results in an increase
in base premium, an additional first year sales load, not to exceed 23
percent of the increase in base premium, will be added to the
uncollected portion of the first year sales load that was being
collected prior to the adjustment. This total amount of first year
sales load will then be collected during the 12 month period following
the adjustment.
If any adjustment occurs during the 12 month period when a first year
sales load is being collected and the adjustment does not result in an
increase in base premium, the first year sales load percentage not to
exceed 23 percent, that was in effect prior to the adjustment is
multiplied by the base premium in effect after the adjustment; this
number is then multiplied by a fraction equal to the number of months
remaining in the previous 12 month period divided by 12. This amount of
first year sales load will then be collected during the 12 month period
following the adjustment.
All of the sales load charges are designed to average not more than 9
percent of the base premiums (in the case of a VAL '87 Policy, the base
premium less any charge for sub-standard risks) over the lesser of: the
life expectancy of the insured at policy issue or adjustment; or 15
years from the policy issue or adjustment; or the premium paying
period.
Page 35
Compliance with the 9 percent ceiling will be achieved by reducing the
amount of the first year sales load, if necessary. For examples of how
we compute sales load charges, see Appendix A "Example of Sales Load
Computations."
The sales load is designed to compensate us for distribution expenses
incurred with respect to the Policies. The amount of the sales load in
any policy year cannot be specifically related to sales expenses for
that year. To the extent that sales expenses are not recovered from the
sales load, we will recover them from our other assets or surplus
including profits from mortality and expense risk charges.
It should be noted from the above that the sales load charges are
designed to be spread over time and they assume a continuation of the
Policy. Early adjustment of the Policy to lower premium levels or early
surrender of policy values will have the effect of increasing the
portion of premium payments used for sales load charges. In addition,
because a first year sales load is applied to increases in premium, a
pattern of increases and decreases in premiums should be avoided.
(2) The UNDERWRITING CHARGE currently is an amount not to exceed $5 per
$1,000 of face amount of insurance. This amount may vary by the age of
the insured and the premium level for a given amount of insurance. This
charge is made ratably from premiums scheduled to be made during the
first policy year and during the twelve months following certain policy
adjustments. The underwriting charge is designed to compensate us for
the administrative costs associated with issuance or adjustment of the
Policies, including the cost of processing applications, conducting
medical exams, classifying risks, determining insurability and risk
class and establishing policy records. This charge is not guaranteed,
so that on a policy adjustment the then current underwriting charge
will apply to any increase in face amount which requires new evidence
of insurability. In the event of a policy adjustment which results in a
face amount increase and no premium, you must remit the underwriting
charge attributable to the policy adjustment to us prior to the
effective date of the adjustment. Otherwise we will assess the charge
against your actual cash value as a transaction charge on adjustment.
(3) The PREMIUM TAX CHARGE of 2.5 percent is deducted from each base
premium. This charge is designed to cover the aggregate premium taxes
we pay to state and local governments for this class of policies.
Currently premium taxes imposed by the states vary from .50 percent to
4.0 percent. We do not guarantee this charge, and it may be increased
in the future, but only as necessary to cover our premium tax expenses.
(4) The FACE AMOUNT GUARANTEE CHARGE of 1.5 percent is deducted from each
base premium. This charge is designed to compensate us for our
guarantee that the death benefit will always be at least equal to the
current face amount in effect at the time of death regardless of the
investment performance of the sub-accounts in which net premiums have
been invested. The face amount of a Policy at issue or adjustment and
the appropriate premium therefor reflect a "tabular cash value" (as
described under "Policy Adjustments") based upon an assumed annual rate
of return of 4 percent. If the policy value is less than the tabular
cash value at the time of death, it will not be sufficient to support
the face amount of the Policy under the actuarial assumptions made in
designing the Policy. The face amount guarantee is a guarantee that the
face amount will be available as a death benefit notwithstanding the
failure of the Policy to perform in accordance with the assumptions
made in its design. Thus, even if the policy value should be less than
the amount needed to pay the deductions to be made from the actual cash
value on the next monthly policy
Page 36
anniversary, see discussion below, the Policy's guaranteed death
benefit will remain in effect and the Policy will remain in force. We
guarantee not to increase this charge.
NONREPEATING PREMIUMS Nonrepeating premiums are currently subject to the 2.5
percent premium tax charge but not to a sales load charge. We do not assess a
face amount guarantee charge or underwriting charge against nonrepeating
premiums.
ACTUAL CASH VALUE CHARGES In addition to deductions from premiums and
nonrepeating premiums, we assess from the actual cash value of a Policy an
administration charge, certain transaction charges and the cost of insurance
charge, (and in the case of a VAL '87 Policy, any charge for sub-standard
risks). These charges are as follows:
(1) The ADMINISTRATION CHARGE is designed to cover certain of our
administrative expenses, including those attributable to the records
maintained for your Policy. The administration charge is $5 for each
policy month. The ADMINISTRATION CHARGE is assessed if you surrender
your Policy during a policy year, and equals the amount of the unpaid
monthly administration charges for that policy year.
(2) The TRANSACTION CHARGES are for expenses associated with processing
transactions. There is a POLICY ADJUSTMENT TRANSACTION CHARGE of $25
for each policy adjustment (a change in premium, face amount or plan of
insurance).
If the only policy adjustment is a partial surrender, the PARTIAL
SURRENDER TRANSACTION CHARGE shall be the lesser of $25 or 2 percent of
the amount surrendered.
We also reserve the right to make a TRANSFER TRANSACTION CHARGE, not to
exceed $10, for each transfer of actual cash value among the guaranteed
principal account and the sub-accounts of the Variable Life Account.
Currently there is a $10 charge only for non-systematic transfers in
excess of 12 per year.
(3) The COST OF INSURANCE CHARGE compensates us for providing the death
benefit under a Policy. The charge is calculated by multiplying the net
amount at risk under your Policy by a rate which varies with the
insured's age, sex, risk class, the level of scheduled premiums for a
given amount of insurance, duration of the Policy and the tobacco use
of the insured. The rate is guaranteed not to exceed the maximum
charges for mortality derived from the 1980 Commissioners Standard
Ordinary Mortality Tables. The net amount at risk is the death benefit
under your Policy less your policy value. The net amount at risk varies
with investment performance, payment of premiums and policy charges.
Where circumstances require, we will base our rates on "unisex," rather
than sex-based, mortality tables.
We assess administration and cost of insurance charges (and for a VAL '87
Policy, sub-standard risk charges, if any,) against your actual cash value on
the monthly policy anniversary. In addition, we assess such charges assessed on
the occurrence of the death of the insured, policy surrender, lapse or a policy
adjustment.
We assess transaction charges against your actual cash value at the time of a
policy adjustment or when a transfer is made. In the case of a transfer, the
charge is assessed against the amount transferred.
Ordinarily, we assess charges against your guaranteed principal account actual
cash value and separate account actual cash value in the same proportion that
those values bear to each other and, as to the actual cash value in the separate
account, from each sub-account in the proportion that the actual cash value in
such sub-account bears to your actual cash value in all of the sub-accounts.
However, if you instruct us in writing, we will assess the administration charge
and the cost of
Page 37
insurance charge (and for a VAL '87 Policy, the sub-standard risk charge)
against the guaranteed principal account or the sub-account(s) that you specify.
SEPARATE ACCOUNT CHARGES We assess a mortality and expense risk charge directly
against the assets held in the Variable Life Account. The mortality and expense
risk charge compensates us for assuming the risks that cost of insurance charges
will be insufficient to cover actual mortality experience and that the other
charges will not cover our expenses in connection with the Policy. We deduct the
mortality and expense risk charge from Variable Life Account assets on each
valuation date at an annual rate of .50 percent of the average daily net assets
of the Variable Life Account.
We reserve the right to charge or make provision for any taxes payable by us
with respect to the Variable Life Account or the Policies by a charge or
adjustment to such assets. No such charge or provision is made at the present
time.
PORTFOLIO COMPANY CHARGES Charges are deducted from and expenses paid out of
the assets of the Fund Portfolio companies, as described in the prospectuses for
those companies.
POLICIES ISSUED IN EXCHANGE We will waive or modify certain charges assessed
against base premiums as described above in situations where our existing life
insurance policy owners wish to exchange their policies for the Policies
described herein. Those policy owners may do so, subject to their application
for this Policy and our approval of the exchange. Under certain circumstances,
we will require evidence of insurability for an exchange. A $150 EXCHANGE
ADMINISTRATIVE CHARGE is currently required for the exchange.
In those situations where a Policy is issued in exchange for a current policy
issued by us, we will not assess any charges, except for the administrative
charge, to the existing cash values at the time they are transferred to the
Policy. Subsequent premium payments, absent adjustment and unless the exchanged
policy was not in force for at least one year, will not be subject to a first
year sales load or underwriting charge (unless evidence of insurability has been
required for the exchange) at the established face amount and the level of
premiums of the exchanged policy. All other charges will apply to the Policy and
premiums paid under it thereafter.
OTHER POLICY PROVISIONS
BENEFICIARY When we receive proof satisfactory to us of the insured's death, we
will pay the death proceeds of a Policy to the beneficiary or beneficiaries
named in the application for the Policy unless the owner has changed the
beneficiary. In that event, we will pay the death proceeds to the beneficiary
named in the last change of beneficiary request as provided below.
If a beneficiary dies before the insured, that beneficiary's interest in the
Policy ends with that beneficiary's death. Only those beneficiaries who survive
the insured will be eligible to share in the death proceeds. If no beneficiary
survives the insured we will pay the death proceeds of this Policy to the owner,
if living, otherwise to the owner's estate, or, if the owner is a corporation,
to it or its successor.
You may change the beneficiary designated to receive the proceeds. If you have
reserved the right to change the beneficiary, you can file a written request
with us to change the beneficiary. If you have not reserved the right to change
the beneficiary, the written consent of the irrevocable beneficiary will be
required.
Your written request will not be effective until it is recorded in our home
office. After it has been so recorded, it will take effect as of the date you
signed the request. However, if the insured dies
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before the request has been so recorded, the request will not be effective as to
those death proceeds we have paid before your request was recorded in our home
office records.
PAYMENT OF PROCEEDS The amount payable as death proceeds upon the insured's
death will be the death benefit provided by the Policy, plus any additional
insurance on the insured's life provided by an additional benefit agreement, if
any, minus any policy charges and minus any policy loans. In addition, if the
Cash Option is in effect at the insured's death, we will pay to the beneficiary
any part of a paid premium that covers the period from the end of the policy
month in which the insured died to the date to which premiums are paid.
Normally, we will pay any policy proceeds within seven days after our receipt of
all the documents required for such a payment. Other than the death proceeds,
which are determined as of the date of death of the insured, we will determine
the amount of payment as of the end of the valuation period during which a
request is received at our home office.
We reserve the right to defer policy payments, including policy loans, for up to
six months from the date of your request, if such payments are based upon policy
values which do not depend on the investment performance of the Variable Life
Account. In that case, if we postpone a payment other than a policy loan payment
for more than 31 days, we will pay you interest at 3 percent per year (4 percent
for a VAL '87 Policy) for the period beyond that time that payment is postponed.
For payments based on policy values which do depend on the investment
performance of the Variable Life Account, we may defer payment only:
(1) for any period during which the New York Stock Exchange is closed for
trading (except for normal holiday closing); or
(2) when the SEC has determined that a state of emergency exists which may
make such payment impractical.
SETTLEMENT OPTIONS The proceeds of a Policy will be payable if the Policy is
surrendered, or we receive proof satisfactory to us of the insured's death.
These events must occur while the Policy is in force. We will pay the proceeds
at our home office and in a single sum unless a settlement option has been
selected. We will deduct any indebtedness and unpaid charges from the proceeds.
Proof of any claim under this Policy must be submitted in writing to our home
office.
We will pay interest on single sum death proceeds from the date of the insured's
death until the date of payment. Interest will be at an annual rate determined
by us, but never less than 3 percent (4 percent for VAL '87).
The proceeds of a Policy may be paid in other than a single sum and you may,
during the lifetime of the insured, request that we pay the proceeds under one
of the Policy's settlement options. We may also use any other method of payment
that is agreeable to both you and us. A settlement option may be selected only
if the payments are to be made to a natural person in that person's own right,
and if the periodic installment or interest payment is at least $20.
Each settlement option is payable in fixed amounts as described below. The
payments do not vary with the investment performance of the Variable Life
Account.
OPTION 1 -- INTEREST PAYMENTS
We will pay interest on the proceeds at such times and for a period that is
agreeable to you and us. Withdrawals of proceeds may be made in amounts of at
least $500. At the end of the period, any remaining proceeds will be paid in
either a single sum or under any other method we approve.
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OPTION 2 -- PAYMENTS FOR A SPECIFIED PERIOD
We will make payments for a specified number of years. The amount of guaranteed
payments for each $1,000 of proceeds applied is as shown in the Policy. Monthly
payments for periods not shown and current rates are available from us at your
request.
OPTION 3 -- LIFE INCOME
We will make payments 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
is as shown in the Policy. Monthly payments for ages not shown and current rates
are available from us at your request.
OPTION 4 -- PAYMENTS OF A SPECIFIED AMOUNT
We will pay a specified amount until the proceeds and interest are fully paid.
If you request a settlement option, you will be asked to sign an agreement
covering the election which will state the terms and conditions of the payments.
Unless you elect otherwise, a beneficiary may select a settlement option after
the insured's death.
The minimum amount of interest we will pay under any settlement option is 3
percent per year (4 percent for a VAL '87 Policy). Additional interest earnings,
if any, on deposits under a settlement option will be payable as we determined.
ASSIGNMENT The Policy may be assigned. The assignment must be in writing and
filed at our home office. We assume no responsibility for the validity or effect
of any assignment of the Policy or of any interest in it. Any proceeds which
become payable to an assignee will be payable in a single sum. Any claim made by
an assignee will be subject to proof of the assignee's interest and the extent
of the assignment.
MISSTATEMENT OF AGE If the insured's age has been misstated, we will adjust the
amount of proceeds payable under the Policy to reflect cost of insurance charges
based upon the insured's correct age.
INCONTESTABILITY After a Policy has been in force during the insured's lifetime
for two years from the original policy date, we may not contest the Policy,
except for fraud or for nonpayment of premium. However, if there has been a face
amount increase for which we required evidence of insurability, we may contest
that increase for two years with respect to information provided at that time,
during the lifetime of the insured, from the effective date of the increase.
SUICIDE If the insured, whether sane or insane, dies by suicide, within two
years of the original policy date, our liability will be limited to an amount
equal to the premiums paid for the Policy. If there has been a face amount
increase for which we required evidence of insurability, and if the insured dies
by suicide within two years from the effective date of the increase, our
liability with respect to the increase will be limited to an amount equal to the
premiums paid for such increase.
DIVIDENDS Each year, if your Policy is a participating policy, we will
determine if this class of Policies and your Policy will share in our divisible
surplus. We call your share of this participation a dividend. We do not
anticipate that dividends will be declared with respect to these Policies.
Dividends, if received, may be added to your actual cash value or, if you so
elect, they may be paid in cash.
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We will allocate any dividend applied to actual cash value to the guaranteed
principal account or to the sub-accounts of the separate account in accordance
with your instructions for new premiums. In the absence of instruction, we will
allocate dividends to the guaranteed principal account actual cash value and
separate account actual cash value in the same proportion that those actual cash
values bear to each other and, as to the actual cash value in the separate
account, to each sub-account in the proportion that the actual cash value in
such sub-account bears to your actual cash value in all of the sub-accounts.
REPORTS At least once each year we will send you a report. This report will
include the actual cash value, the face amount and the variable death benefit as
of the date of the report. It will also show the premiums paid during the policy
year, policy loan activity and the policy value. We will send the report to you
without cost. The information in the report will be current as of a date within
two months of its mailing.
ADDITIONAL BENEFITS
You may be able to obtain additional policy benefits subject to underwriting
approval. We will provide these benefits by a rider to the Policy, which may
require the payment of additional premium.
WAIVER OF PREMIUM AGREEMENT The Waiver of Premium Agreement requires an
additional premium and provides for the payment of policy premium in the event
of the insured's disability.
POLICY ENHANCEMENT AGREEMENT AND COST OF LIVING AGREEMENT Both the Policy
Enhancement Agreement and the Cost of Living Agreement provide for increases in
the face amount, without evidence of insurability and help you maintain the
purchasing power of the protection provided by the Policy. The Policy
Enhancement Agreement requires an additional premium, but none is required for
the Cost of Living Agreement. Your Policy may not contain both of these
agreements.
The Policy Enhancement Agreement provides for an increase in the face amount on
each policy anniversary. The face amount will be increased by a specified
percent, between 3 percent and 10 percent, which you choose when you apply for
this benefit.
Unless you choose the Policy Enhancement Agreement, we will issue most Policies
with a Cost of Living Agreement. The Cost of Living Agreement provides for a
face amount increase equal to the percentage increase in the consumer price
index during the previous three years, provided that you have not made a face
amount adjustment during that time.
FACE AMOUNT INCREASE AGREEMENT The Face Amount Increase Agreement requires an
additional premium and provides for increases in the face amount, without
evidence of insurability, at specified ages of the insured.
SURVIVORSHIP LIFE AGREEMENT The Survivorship Life Agreement requires an
additional premium and allows you to purchase a specified amount of additional
insurance, without evidence of insurability, at the death of another person
previously designated by you.
FAMILY TERM RIDER The Family Term Rider requires an additional premium and
provides a fixed amount of protection insurance on children of an insured.
EXCHANGE OF INSUREDS AGREEMENT The Exchange of Insureds requires no additional
premium and allows for the transfer of existing insurance coverage to another
insured within a business setting.
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ACCELERATED BENEFITS AGREEMENT The Accelerated Benefits Agreement is issued
without additional premium on all Policies issued to individual insureds. It
allows you to receive a significant portion of your Policy's death benefit, if
the insured develops a terminal condition due to sickness or injury.
The accelerated benefit will be treated as a loan, apart from the policy loan
provisions described elsewhere. A receipt of amounts under the agreement may be
taxable. You should seek assistance from your tax adviser.
OTHER MATTERS
FEDERAL TAX STATUS
INTRODUCTION The discussion of federal taxes is general in nature and is not
intended as tax advice. Each person concerned should consult a tax adviser. This
discussion is based on our understanding of federal income tax laws as they are
currently interpreted. No representation is made regarding the likelihood of
continuation of current income tax laws or the current interpretations of the
Internal Revenue Service (the "IRS"). We have not considered any applicable
state or other tax laws.
TAXATION OF MINNESOTA LIFE AND THE VARIABLE LIFE ACCOUNT We are taxed as a
"life insurance company" under the Internal Revenue Code (the "Code"). The
operations of the Variable Life Account form a part of, and are taxed with, our
other business activities. Currently, we pay no federal income tax on income
dividends received by the Variable Life Account or on capital gains arising from
the Variable Life Account's activities. The Variable Life Account is not taxed
as a "regulated investment company" under the Code and it does not anticipate
any change in that tax status.
At the present time, we make no charge to the Variable Life Account for any
federal, state or local taxes that we incur that may be attributable to such
Account or to the Policies. We, however, reserve the right in the future to make
a charge for any such tax or other economic burden resulting from the
application of the tax laws that we determine to be properly attributable to the
Variable Life Account or the Policies.
TAX STATUS OF POLICIES Under Section 7702 of the Code, life insurance contracts
such as the Policies 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 generally believe that a Policy
issued on a standard risk should meet the statutory definition of a life
insurance contract under Section 7702. With respect to a Policy issued on a
sub-standard basis (i.e., a premium class involving higher than standard
mortality risk), there is insufficient guidance to determine if such a Policy
would satisfy the Section 7702 definition of a life insurance contract. If a
Policy were determined not to be a life insurance contract under Section 7702 of
the Code, that Policy would not provide most of the tax advantages normally
provided by a life insurance contract.
If it is subsequently determined that a Policy does not satisfy Section 7702, we
may take whatever steps are appropriate and necessary to attempt to cause such a
Policy to comply with Section 7702. For these reasons, we reserve the right to
restrict Policy transactions as necessary to attempt to qualify it as a life
insurance contract under Section 7702 of the Code.
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OWNER CONTROL In certain circumstances, owners of variable life policies may be
considered the owners, for federal income tax purposes, of the assets of the
separate account supporting their policies due to their ability to exercise
control over those assets. Where this is the case, the contract owners will be
currently taxed on income and gains attributable to the separate account assets.
In Revenue Ruling 2003-91, the IRS described the circumstances under which the
owner of a variable contract will not possess sufficient control over the assets
underlying the contract to be treated as the owner of those assets for federal
income tax purposes. Under the contracts in Rev. Rul. 2003-91, there was no
arrangement, plan, contract or agreement between the policy owner and the
insurance company regarding the availability of a particular investment option
and other than the policy owner's right to allocate premiums and transfer funds
among the available sub-accounts, all investment decisions concerning the
sub-accounts were made by the insurance company or an advisor in its sole and
absolute discretion.
We do not believe that the ownership rights of a Policy owner under the Policy
would result in any Policy owner being treated as the owner of the assets of the
Variable Life Account under Rev. Rul. 2003-91. However, we do not know whether
additional guidance will be provided by the IRS on this issue and what standards
may be contained in such guidance. Therefore, we reserve the right to modify the
Policy as necessary to attempt to prevent a Policy owner from being considered
the owner of a pro rata share of the assets of the Variable Life Account.
DIVERSIFICATION OF INVESTMENTS In addition, the Code requires that the
investments of the Variable Life Account be "adequately diversified" in order to
treat the Policy as a life insurance contract for federal income tax purposes.
We intend that the Variable Life Account, through the Funds and the Portfolios,
will satisfy these diversification requirements.
The following discussion assumes that the Policy will qualify as a life
insurance contract for federal income tax purposes.
TAX TREATMENT OF POLICY BENEFITS On the death of the insured, we believe that
the death benefit provided by the Policies will be excludable from the gross
income of the beneficiary under Section 101(a) of the Code. If you receive an
accelerated benefit, that benefit may be taxable and you should seek assistance
from a tax adviser. You are not currently taxed on any part of the inside
build-up of cash value until you actually receive cash from the Policy. However,
taxability may also be determined by your contributions to the Policy and prior
Policy activity.
Depending on the circumstances, the exchange of a Policy, the receipt of a
Policy in an exchange, a change in the Policy's death benefit option (e.g., a
change from Cash Option to Protection Option), a policy loan, a partial
surrender, a complete surrender, a change in ownership, a change of insured, an
adjustment of the face amount, or an assignment of the Policy may have federal
income tax consequences. If you are considering any such transactions, you
should consult a tax adviser before effecting the transaction.
We also believe that Policy loans will be treated as indebtedness and will not
be currently taxable as income to you unless your Policy is a modified endowment
contract, as described below. However, whether a modified endowment contract or
not, the interest paid on Policy loans will generally not be tax deductible.
There may be adverse tax consequences when a Policy with a Policy loan is lapsed
or surrendered.
A complete surrender or partial surrender of the actual cash values of a Policy
may have tax consequences. On surrender, you will not be taxed on values
received except to the extent that they exceed the gross premiums paid under the
Policy, reduced by any previously received excludable amounts ("cost basis"). An
exception to this general rule occurs in the case of a partial withdrawal,
Page 43
a decrease in the face amount, or any other change that reduces benefits under
the Policy in the first 15 years after the Policy is issued and that results in
a cash distribution to you in order for the Policy to continue complying with
the Section 7702 definitional limits. In that case, such distribution will be
taxed in whole or in part as ordinary income (to the extent of any gain in the
Policy) under rules prescribed in Section 7702. Finally, upon a complete
surrender or lapse of a Policy or when benefits are paid at a Policy's maturity
date, if the amount received plus the amount of any Policy loan exceeds the cost
basis of the Policy, the excess will generally be treated as ordinary income,
subject to tax.
MODIFIED ENDOWMENT CONTRACTS It should be noted, however, that under the Code
the tax treatment described above is not available for Policies characterized as
modified endowment contracts. In general, policies with a high premium in
relation to the death benefit may be considered modified endowment contracts.
The Code requires that the cumulative premiums paid on a life insurance policy
during the first seven contract years not exceed the sum of the net level
premiums which would be paid under a 7-pay life policy. If those cumulative
premiums exceed the 7-pay life premiums, the policy is a modified endowment
contract.
Modified endowment contracts are still treated as life insurance with respect to
the tax treatment of death proceeds and to the extent that the inside build-up
of cash value is not taxed on a yearly basis. However, any amounts you receive,
such as dividends, cash withdrawals, loans and amounts received from a partial
or total surrender of the Policy 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 cost basis of the Policy). 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 date you attain age 59 1/2, or is attributable to your
becoming disabled, or as part of a series of substantially equal periodic
payments for your life or the joint lives of you and your beneficiary.
Compliance with the 7-pay test does not imply or guarantee that only seven
payments will be required for the initial death benefit to be guaranteed for
life. Making additional payments or reducing the benefits (for example, through
a partial withdrawal, a change in death benefit option, or a scheduled
reduction) may either violate the 7-pay test or reduce the amount that may be
paid in the future under the 7-pay test. Further, reducing the death benefit at
any time will require retroactive retesting and could result in a failure of the
7-pay test regardless of any of our efforts to provide a payment schedule that
will not violate the 7-pay test.
Any Policy received in an exchange for a modified endowment contract will be
considered a modified endowment contract and will be subject to the tax
treatment accorded to modified endowment contracts. Accordingly, you should
consult a tax adviser before effecting an exchange of any life insurance policy.
A Policy that is not originally classified as a modified endowment contract can
become so classified if there is a reduction in benefits at any time or if a
material change is made in the contract at any time. A material change includes,
but is not limited to, a change in the benefits that was not reflected in a
prior 7-pay test computation.
The modified endowment contract provisions of the Code apply to all policies
entered into on or after June 21, 1988 that fail to meet the 7-pay test
described above and to a Policy that is received in exchange for a modified
endowment contract. It should be noted, in addition, that a Policy which is
subject to a "material change" shall be treated as newly entered into on the
date on which such
Page 44
material change takes effect. Appropriate adjustment shall be made in
determining whether such a Policy meets the 7-pay test by taking into account
the previously existing cash surrender value. While certain adjustments
described herein may result in a material change, the law provides that any cost
of living increase described in regulations and based upon an established
broad-based index will not be treated as a material change if any increase is
funded ratably over the remaining period during which premiums are required to
be paid under the Policy. To date, no regulations under this provision have been
issued. The addition of the guaranteed principal account to an outstanding
Policy may have federal income tax implications, e.g., whether the addition of
such an account causes a "material change."
In rare circumstances, if we receive and allocate your premium before its due
date, your Policy will become a modified endowment contract. To prevent your
Policy 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 principal account or sub-accounts of the
Variable Life Account.
If a Policy becomes a modified endowment contract, distributions that occur
during the Policy year it becomes a modified endowment contract and any
subsequent Policy year will be taxed as distributions from a modified endowment
contract. Distributions from a Policy within two years before it becomes a
modified endowment contract will also be taxed in this manner. This means that a
distribution made from a Policy that is not a modified endowment contract could
later become taxable as a distribution from a modified endowment contract.
Due to the Policy's flexibility, classification of a Policy as a modified
endowment contract will depend upon the circumstances of each Policy.
Accordingly, a prospective Policy owner should contact a tax adviser before
purchasing a Policy to determine the circumstances under which the Policy would
be a modified endowment contract. You should also contact a tax adviser before
paying any nonrepeating premiums or making any other change to, including an
exchange of, a Policy to determine whether such premium or change would cause
the Policy (or the new Policy in the case of an exchange) to be treated as a
modified endowment contract.
MULTIPLE POLICIES Under the Code, all modified endowment contracts, issued by
us (or an affiliated company) to the same Policy owner during any calendar year
will be treated as one modified endowment contract for purposes of determining
the amount includable in gross income under Section 72(e) of the Code.
Additional rules may be promulgated under this provision to prevent avoidance of
its effects through serial contracts or otherwise. For further information on
current aggregation rules under this provision, see your own tax adviser.
OTHER TAXES The transfer of the Policy or the designation of a beneficiary may
have federal, state, and/or local transfer and inheritance tax consequences,
including the imposition of gift, estate and generation-skipping transfer taxes.
For example, the transfer of the Policy to, or the designation as beneficiary
of, or the payment of proceeds to, a person who is assigned to a generation
which is two or more generations below the generation assignment of the Policy
owner, may have Generation-Skipping Transfer tax considerations under Section
2601 of the Code.
The individual situation of each Policy owner or beneficiary will determine the
extent, if any, to which federal, state and local transfer taxes may be imposed.
That situation will also determine how ownership or receipt of Policy proceeds
will be treated for purposes of federal, state and local estate inheritance,
generation skipping transfer and other taxes.
In addition, the tax consequences associated with a Policy remaining in force
after the insured's 100th birthday are unclear. You should consult a tax adviser
in all these circumstances.
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OTHER TRANSACTIONS Changing the Policy owner may have tax consequences.
Exchanging this Policy for another involving the same insureds should have no
federal income tax consequences if there is no debt and no cash or other
property is received, according to Section 1035(a)(1) of the Code. The new
Policy would have to satisfy the 7-pay test from the date of the exchange to
avoid characterization as a modified endowment contract. An exchange of a life
insurance contract for a new life insurance contract may, however, result in a
loss of grandfathering status for statutory changes made after the old Policy
was issued.
The Policies may be used in various arrangements, including nonqualified
deferred compensation or salary continuance plans, split dollar insurance plans,
executive bonus plans, retiree medical benefit plans and others. The tax
consequences of such plans may vary depending on the particular facts and
circumstances of each individual arrangement. Therefore, if you are
contemplating the use of such Policies in any arrangement the value of which
depends in part on its tax consequences, you should be sure to consult a tax
adviser regarding the tax attributes of the particular arrangement. Moreover, in
recent years, Congress has adopted new rules relating to corporate owned life
insurance. The IRS has also recently issued guidance on split dollar insurance
plans. A tax adviser should be consulted with respect to this new guidance if
you have purchased or are considering the purchase of a Policy for a split
dollar insurance plan. Any business contemplating the purchase of a new life
insurance contract or a change in an existing contract should consult a tax
adviser. There may also be an indirect tax upon the income in the Policy or the
proceeds of a Policy under the federal corporate alternative minimum tax, if the
policy owner is subject to that tax.
It should be understood that the foregoing description of the federal income tax
consequences under the Policies is not exhaustive and that special rules are
provided with respect to situations not discussed. Statutory changes in the
Code, with varying effective dates, and regulations adopted thereunder may also
alter the tax consequences of specific factual situations. Due to the complexity
of the applicable laws, a person contemplating the purchase of a variable life
insurance policy or exercising elections under such a policy should consult a
tax adviser.
VOTING RIGHTS
We will vote the Fund shares held in the various sub-accounts of the Variable
Life Account at regular and special shareholder meetings of the Funds in
accordance with your instructions. If, however, the 1940 Act or any regulation
thereunder should change and we determine that it is permissible to vote the
Fund shares in our own right, we may elect to do so. The number of votes as to
which you have the right to instruct will be determined by dividing your
Policy's actual cash value in a sub-account by the net asset value per share of
the corresponding Fund portfolio. Fractional shares will be counted. The number
of votes as to which you have the right to instruct will be determined as of the
date coincident with the date established by the Funds for determining
shareholders eligible to vote at the meeting of the Funds. Voting instructions
will be solicited in writing prior to such meeting in accordance with procedures
established by the Funds. We will vote Fund shares held by the Variable Life
Account as to which no instructions are received in proportion to the voting
instructions which are received from policy owners with respect to all Policies
participating in the Variable Life Account. Each policy owner having a voting
interest will receive proxy material, reports and other material relating to the
Funds.
We may, when required by state insurance regulatory authorities, disregard
voting instructions if the instructions require that shares be voted so as to
cause a change in subclassification or investment policies of the Funds or
approve or disapprove an investment advisory contract of the Funds. In addition,
we may disregard voting instructions in favor of changes in the investment
policies or the
Page 46
investment advisers of the Funds if we reasonably disapprove of such changes. A
change would be disapproved only
- if the proposed change is contrary to state law or disapproved by state
regulatory authorities on a determination that the change would be
detrimental to the interests of policy owners or
- if we determined that the change would be inconsistent with the
investment objectives of the Funds or would result in the purchase of
securities for the Funds which vary from the general quality and nature
of investments and investment techniques utilized by other separate
accounts created by us or any of our affiliates which have similar
investment objectives.
In the event that we disregard voting instructions, a summary of that action and
the reason for such action will be included in your next semi-annual report.
COMPENSATION PAID FOR THE SALE OF POLICIES
Securian Financial Services, 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. Securian
Financial, an affiliate of Minnesota Life, is the principal underwriter of the
Policies. Securian Financial and other authorized broker-dealers sell Policies
through their registered representatives, each of whom is also an insurance
agent appointed by Minnesota Life. Commissions for the sale of Policies by
broker-dealers other than Securian Financial are paid directly to such
broker-dealers by Minnesota Life, in all cases as agent for Securian Financial,
and as authorized by the broker-dealers. The amount of commission received by an
individual registered representative in connection with the sale of a Policy is
determined by his or her broker-dealer. In the case of Policies sold by
registered representatives of Securian Financial, commissions are paid directly
to such registered representatives by Minnesota Life as agent for Securian
Financial. Minnesota Life also pays compensation as agent for Securian Financial
to general agents of Minnesota Life who are also Securian Financial registered
representatives. The commissions and compensation described in this paragraph,
and the payments to broker-dealers described below, do not result in charges to
the Policy that are in addition to the Policy Charges described elsewhere in
this prospectus.
PAYMENTS TO REGISTERED REPRESENTATIVES OF SECURIAN FINANCIAL Commissions on the
sale of Policies include: up to 50 percent of gross premium in the first policy
year; up to 6 percent of the gross premium in policy years two through ten; up
to 2 percent in policy years thereafter; and 0 percent of nonrepeating premiums.
This description of commissions shows the amount of commission payable under the
Policy for plans of insurance described as protection and whole life insurance
plans. The commissions payable on premiums received for plans described as
greater than whole life plans will differ from the percentages shown above, as a
first year commission will be paid only on such amounts as we may classify as a
first year premium, based upon a whole life premium per $1,000 of face amount
and a Policy face amount of $100,000. On premiums received in excess of that
amount we will pay commissions at a rate of 4 percent.
In addition, Securian Financial or we will pay based uniformly on the sales of
insurance policies by registered representatives of Securian Financial, credits
which allow those registered representatives who are responsible for sales of
the Policies to attend conventions and other meetings sponsored by us or our
affiliates for the purpose of promoting the sale of insurance and/or investment
products offered by us and our affiliates. Such credits may cover the registered
representatives' transportation, hotel accommodations, meals, registration fees
and the like. We may also pay registered
Page 47
representatives additional amounts based upon their production and the
persistency of life insurance and annuity business placed with us. Finally,
registered representatives may also be eligible for financing arrangements,
insurance benefits, and other benefits based on their contract with us.
We make additional payments for sales of the Policies to general agents who
manage registered representatives and to the business unit responsible for the
operation of our distribution system. Payments to general agents vary and depend
on many factors including the commissions and amount of proprietary products
sold by registered representatives supervised by the general agent. General
Agents may also be eligible for insurance benefits, other cash benefits, and
non-cash compensation such as conventions and other meetings.
PAYMENTS TO BROKER-DEALERS We pay compensation for the sale of the Policies by
affiliated and unaffiliated broker-dealers. The compensation that we pay to
broker-dealers for the sale of the Polices is generally not expected to exceed,
on a present value basis, the aggregate amount of compensation that we pay with
respect to sales made by registered representatives of Securian Financial.
Broker-dealers pay their sales representatives all or a portion of the
commissions received for their sales of the Policy.
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 this Policy 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. You may ask your registered
representative about these differences and how he or she and his or her broker-
dealer are compensated for selling the Policies.
LEGAL PROCEEDINGS
As an insurance company, we are ordinarily involved in litigation. We are of the
opinion that such litigation is not material with respect to the Policies or the
Variable Life Account.
REGISTRATION STATEMENT
We have filed with the Securities and Exchange Commission a Registration
Statement under the Securities Act of 1933, as amended, with respect to the
Policies offered hereby. This prospectus does not contain all the information
set forth in the registration statement and amendments thereto and the exhibits
filed as a part thereof, to all of which reference is hereby made for further
information concerning the Variable Life Account, Minnesota Life, and the
Policies. Statements contained in this prospectus as to the contents of Policies
and other legal instruments are summaries, and reference is made to such
instruments as filed.
Page 48
SPECIAL TERMS
As used in this prospectus, the following terms have the indicated meanings:
Actual Cash Value: the value of your Variable Life Account and guaranteed
principal account interest under a Policy. It is composed of a Policy's interest
in the guaranteed principal account and in one or more sub-accounts of the
Variable Life Account. The interest in each is valued separately. For each
Variable Life Account sub-account, the value is determined by multiplying the
current number of sub-account units credited to a Policy by the current
sub-account unit value. Actual cash value does not include the loan account.
Attained Age: your issue age plus the number of policy anniversaries during
which the Policy has been in force.
Base Premium: the premium less any amount deducted from the premium for
additional benefits and, for VAL '95, for sub-standard risks.
Code: the Internal Revenue Code of 1986, as amended.
Funds: the mutual funds or separate investment portfolios within series mutual
funds which we have designated as an eligible investment for the Variable Life
Account.
Guaranteed Principal Account: the portion of the general account of Minnesota
Life which is attributable to Policies of this class, exclusive of policy loans.
It is not a separate account or a division of the general account.
Issue Age: your age as of your nearest birthday as of the Policy date.
Loan Account: the portion of the general account attributable to policy loans
under Policies of this type. The loan account balance is the sum of all
outstanding loans under this Policy.
Net Single Premium: the amount of money necessary, at the insured's attained
age, to pay for all future guaranteed cost of insurance charges for the entire
lifetime of the insured, or for the coverage period in the case of extended term
insurance, without the payment of additional premium. This determination shall
assume that the current face amount of the Policy will remain constant and that
the Policy will perform at its assumed rate of return.
Nonrepeating Premium: a payment made to this Policy in addition to its
scheduled payments.
Paid-Up: the status of the Policy when its policy value is such that no further
premiums are required to provide the death benefit.
Policy Owner: the owner of a Policy.
Policy Value: the actual cash value of a Policy plus any policy loan.
Policy Year: a period of one year beginning with the policy date or a policy
anniversary.
Premium: a scheduled payment required for this Policy.
Valuation Date: each date on which a Fund Portfolio is valued.
Valuation Period: the period between successive valuation dates measured from
the time of one determination to the next.
Variable Life Account: a separate investment account called the Minnesota Life
Variable Life Account, where the investment experience of its assets is kept
separate from our other assets.
We, Our, Us: Minnesota Life Insurance Company.
You, Your: the policy owner.
Page 49
APPENDIX A
EXAMPLE OF SALES LOAD COMPUTATION
As an example of the method we use to compute sales load, assume a protection
type plan where the annual base premium is $1,000 and where the premium paying
period, prior to any reduction in face amount, is 20 years. The insured is a
male, age 35 with a life expectancy of 38 years. As premiums are paid in each
year, we will assess a basic sales load of 7 percent or $70 in each year. Also,
as premiums are paid in the first year, we will assess a first year sales load
of 23 percent or $230. Therefore, in the first year the sales load charges will
total $300 or 30 percent ($300 / $1,000), and over the 15 year period from
policy issue sales load charges will total $1,280 or 8.54 percent ($1,280 /
$15,000).
Compliance with the 9 percent limitation will be achieved by reducing the first
year sales load, if necessary. For example, consider a Policy with a protection
type plan where the annual base premium is $1,000 and where the premium paying
period prior to any reduction in face amount is 20 years. Further assume that
the insured is a male, age 72 at issue, with a life expectancy of 9 years. In
this case, the first year sales load must be reduced so that the total sales
load will not exceed 9 percent over the life expectancy of the insured. As
premiums are paid in each year we will assess the basic sales load of 7 percent,
or $70, but the first year sales load applicable to premiums paid in the first
year will be reduced from 23 percent to 18 percent, or $180. Therefore, in the
first year the sales load charges will total $250 or 25 percent ($250 / $1,000),
and over the period of the insured's life expectancy sales load charges will
total $810 or 9 percent ($810 / $9,000).
As an example of the method we use to assess sales load when an adjustment
occurs during a period in which a first year sales load is being collected,
consider a Policy where an adjustment is made after one-half of the first annual
premium is paid. Assume that the premium is $1,000 annually as in the example
above and further assume that the premiums are being paid on a monthly basis,
$83.33 per month. As premiums are paid in each year we will assess a basic sales
load of 7 percent of premiums received or $70 in that year. A first year sales
load, taken in addition to the basic sales load, would also be assessed in a
total amount of $230. Now assume an adjustment is made, after the payment of six
monthly premiums, and that the premium is increased from $1,000 to $1,200. Both
before and after the adjustment we will continue to assess a basic sales load of
7 percent of the premiums received. However, since only one-half of the first
year sales load of $230 has been collected, a first year sales load of $115
remains to be collected. The $200 increase in premium will also be assessed a
first year sales load of 23 percent, or $46. Both are added together and will be
collected in the 12 months following the adjustment. Therefore, after the
adjustment of the premium to a $1,200 amount, and assuming that premiums
continue to be paid on a monthly basis, each monthly premium of $100 will be
subjected to a total sales load amount of $20.42, consisting of $7 of basic
sales load, and $13.42 of first year sales load.
Page 50
STATEMENT OF ADDITIONAL INFORMATION
A Statement of Additional Information, with the same date, containing further
information about Minnesota Life Variable Life Account and the variable life
policy 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 Statement of
Additional Information, a personalized illustration or any information about
your Policy call us at 1-800-277-9244 or write to us at: Minnesota Life
Insurance Company at 400 Robert Street North, Saint Paul, Minnesota 55101.
Information about Minnesota Life Variable 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
1-202-942-8090) 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, 450 Fifth Street, NW, Washington,
DC, 20549-0102. You can also call the SEC at 1-202-942-8090.
The table of contents for the Statement of Additional Information is as follows:
General Information and History
Additional Information About Operation of Contracts and Registrant
Underwriters
Additional Information About Charges
Illustrations
Financial Statements
Investment Company Act Number 811-4585
Page 51
PART B: INFORMATION REQUIRED IN A STATEMENT OF ADDITIONAL INFORMATION
Item Number Caption in Prospectus
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 Life Account
20. Underwriters
21. Additional Information About Charges
22. Lapse and Reinstatement
23. Loans
24. Financial Statements
25. Illustrations
MINNESOTA LIFE VARIABLE 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)
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:
J. Sumner Jones, Esq.
Dykema Gossett PLLC
Franklin Square
Suite 300 West
1300 I Street NW
Washington, D.C. 20005
Statement of Additional Information
The date of this document and the prospectus is: April 29, 2005
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 Funds' current prospectuses, bearing the same date,
which may be obtained by calling Minnesota Life Insurance Company at
1-800-277-9244, or writing to Minnesota Life at 400 Robert Street North, Saint
Paul, Minnesota 55101. Defined terms as used in the prospectus and the Policy
are incorporated into this Statement of Additional Information.
Table of Contents
General Information and History
Additional Information About Operation of Contracts and Registrant
Underwriters
Additional Information About Charges
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 conduct life insurance business in
all states of the United States (except New York where we are an authorized
reinsurer), the District of Columbia, Canada, Puerto Rico and Guam.
VARIABLE LIFE ACCOUNT
A separate account, called the Minnesota Life Variable Life Account ("Variable
Life Account"), was established on October 21, 1985, by our Board of Trustees in
accordance with certain provisions of the Minnesota insurance law. The separate
account is registered as a "unit investment trust" with the Securities and
Exchange Commission ("SEC") under the Investment Company Act of 1940 ("1940
Act"). Registration under the Act does not signify that the SEC supervises the
management, or the investment practices or policies, of the Variable Life
Account. The separate account meets the definition of a "separate account" under
the federal securities laws.
We are the legal owner of the assets in the Variable Life Account. The
obligations to policy owners and beneficiaries arising under the Policies are
general corporate obligations of Minnesota Life and thus our general assets back
the Policies. The Minnesota law under which the Variable Life Account was
established provides that the assets of the Variable Life Account shall not be
chargeable with liabilities arising out of any other business which we may
conduct, but shall be held and applied exclusively to the benefit of the holders
of those variable life insurance policies for which the separate account was
established. The investment performance of the Variable Life Account is entirely
independent of both the investment performance of our general account and of any
other separate account which we may have established or may later establish.
The Variable Life Account currently has forty-nine sub-accounts to which you
may allocate premiums. Each sub-account invests in shares of a corresponding
Portfolio of the Funds.
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.
UNDERWRITERS
The Policies 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. Both Securian Financial and
Minnesota Life are wholly-owned subsidiaries of Securian Financial Group, Inc.,
which is a second-tier subsidiary of a mutual insurance holding company called
Minnesota Mutual Companies, Inc.
Securian Financial Services, Inc., whose address is 400 Robert Street North, St.
Paul, Minnesota 55101-2098, is a registered broker-dealer under the Securities
Exchange Act of 1934 and a member of the National Association of Securities
Dealers, Inc. Securian Financial was incorporated in 1984 under the laws of the
State of Minnesota. The Policies are sold in the states where their sale is
lawful.
Commissions to registered representatives of Securian Financial on the sale of
Policies include: up to 50 percent of gross premium in the first policy year; up
to 6 percent of the gross premium in policy years two through ten; up to 2
percent in policy years thereafter; and 0 percent of nonrepeating premiums. This
description of commissions shows the amount of commissions payable under the
Variable Adjustable Life Insurance Policy for plans of insurance described as
protection and whole life insurance plans. The commissions payable on premiums
received for plans described as greater than whole life plans will differ from
the percentages shown above, as a first year commission will be paid only on
such amounts as we may classify as a first year premium, based upon a whole life
premium per $1,000 of face amount and a Policy face amount of $100,000. On
premiums received in excess of that amount we will pay commissions at a rate of
4 percent. Amounts paid by Minnesota Life to the underwriters of the Policies
during 2004, 2003 and 2002 were $55,987,595, $51,402,568 and $52,341,391,
respectively, which include amounts paid for other contracts issued through the
Variable Life Account.
In addition, Securian Financial or we will pay, based uniformly on the sales of
insurance policies by registered representatives of Securian Financial, credits
which allow those registered representatives who are responsible for sales of
the Policies to attend conventions and other meetings sponsored by us or our
affiliates for the purpose of promoting the sale of insurance and/or investment
products offered by us and our affiliates. Such credits may cover the registered
representatives' transportation, hotel accommodations, meals, registration fees
and the like. We may also pay registered representatives additional amounts
based upon their production and the persistency of life insurance and annuity
business placed with us. Finally, the underwriter also receives amounts from the
Fund for services provided under a 12b-1 plan of distribution. For providing
these distribution services, the underwriter receives a fee of .25 percent of
the average daily net assets of those Portfolios of the Fund which have a 12b-1
fee.
ADDITIONAL INFORMATION ABOUT CHARGES
A. Sales Load
The sales load consists of a deduction from each premium of 7 percent and it may
also include a first year sales load deduction not to exceed 23 percent. The
first year sales load will apply only to base premium, scheduled to be paid in
the 12 month period following the policy date, or any policy adjustment
involving an increase in base premium or any policy adjustment occurring during
a period when a first year sales load is being assessed. All of the sales load
charges are designed to average not more than 9 percent of the base premiums
over the lesser of: the life expectancy of the insured at policy issue or
adjustment; or 15 years from the policy issue or adjustment; or the premium
paying period. Compliance with the 9 percent ceiling will be achieved by
reducing the amount of the first year sales load, if necessary.
B. Special Purchase Plans
We will waive or modify certain charges assessed against base premiums in
situations where our existing life insurance policy owners wish to exchange
their policies for the Policies described in the prospectus. In those
situations, we will not assess any charges except for the administrative charge
to the existing cash values at the time they are transferred to the Policy.
After the exchange, premium payments will not be subject to a first year sales
load or underwriting charge on the existing face amount and premium level,
unless evidence of insurability was required for the exchange.
C. Underwriting Procedures
We require proof of insurability for policy issue and all adjustments resulting
in an increase in face amount or other changes that result in an increase in the
net amount at risk in the Policy. Proof of insurability and classification for
cost of insurance charges are determined by our underwriting rules and
procedures which utilize factors such as age, sex, health and occupation.
Persons who present a lower mortality risk are charged the most favorable cost
of insurance rates. Requirements may be waived or modified for Policies issued
in exchange for existing policies, for Policies issued as a result of conversion
from existing Policies, or face amount increases pursuant to an additional
benefit agreement.
For VAL'87 Policies, the basis for the mortality charges guaranteed in the
Policies are determined by the sex and age of the insured and are based on the
1980 CSO sex distinct age nearest birthday mortality tables. For VAL'95
Policies, the basis for the mortality charges guaranteed in the Policies are
determined by the sex, tobacco habits and age of the insured and are based on
the 1980 CSO sex and smoker distinct age nearest birthday mortality tables. In
instances where the insurance is required to be provided on a unisex basis, the
guaranteed mortality charges are based on the 1980 CSO Unisex Table B.
D. Increases in Face Amount
An increase in face amount is a policy adjustment and is subject to a $25
transaction charge. An increase in face amount is also subject to an
underwriting charge not to exceed $5 per $1,000 of face amount of increase. This
charge is made against premiums in the 12 months following the policy
adjustment.
ILLUSTRATIONS
An illustration is provided for a standard non-tobacco male age 40. The
illustration shows the projected actual cash values, death benefits and
premiums. The plan of insurance for the illustration is a whole life plan, with
an initial face amount of $250,000. The cash death benefit option is shown. We
show the illustration based on both guaranteed maximum and current mortality
charges, and we include all charges. The illustration is for VAL '95.
Guaranteed maximum cost of insurance charges will vary by age, sex, risk class
and policy form. We use the male, female and unisex 1980 Commissioners Standard
Ordinary Mortality Tables ("1980 CSO"), as appropriate. The unisex tables are
used in circumstances where legal considerations require the elimination of
sex-based distinctions in the calculation of mortality costs. Our maximum cost
of insurance charges are based on an assumption of the mortality rates reflected
in 1980 CSO Tables.
In most cases we intend to impose cost of insurance charges which are
substantially lower than the maximum charges determined as described above. In
addition to the factors governing maximum cost of insurance charges, actual
charges will vary depending on the level of scheduled premiums for a given
amount of insurance, the duration of the Policy and the tobacco use of the
insured. Current cost of insurance changes reflect our current practices with
respect to mortality charges is provided primarily to show, by comparison with
that showing current charges, the consequences of our charging less than the
full 1980 CSO based charges.
The illustration shows how actual cash values and death benefits would vary over
time if the return on the assets held in the Variable Life Account equaled a
gross annual rate after tax, of 0 percent, 6 percent and 12 percent. The actual
cash values and death benefits would be different from those shown if the
returns averaged 0 percent, 6 percent and 12 percent but fluctuated over the
life of the Policy. The illustration assumes scheduled premiums are paid when
due.
The amounts shown for the hypothetical actual cash value and death benefit as of
each policy year reflect the fact that the net investment return on the assets
held in the sub-accounts is lower than the gross, after-tax return. This is
because certain fees and expenses are deducted from the gross return. The
mortality and expense risk charge reflected in the illustration is at an annual
rate of .50 percent. The investment management fee illustrated is .68 percent
and represents the arithmetic average of the annual fee charged for all
Portfolios of the Funds. The illustrations also reflect a deduction for those
Fund costs and expenses borne by the Funds and for distribution (12b-1) fees.
Fund expenses illustrated are .13 percent, representing the arithmetic average
of the 2004 expense ratios of the Portfolios of the Funds. Certain expenses for
certain Portfolios of the Funds were waived or reduced, however the averages
used in these illustrations do not reflect the waivers or reductions. The 12b-1
fee illustrated is .24 percent and represents the arithmetic average of those
fees charged for Portfolios of the Funds. Therefore, gross annual rates of
return of 0 percent, 6 percent and 12 percent correspond to approximate net
annual rates of return of -1.55 percent, 4.45 percent and 10.45 percent.
The illustration reflects the fact that no charges for federal, state or local
income taxes are currently made against the Variable Life Account. If such a
charge is made in the future, it will take a higher gross rate of return to
produce after-tax returns of 0 percent, 6 percent and 12 percent than it does
now.
Upon request, we will furnish a personalized illustration based upon a proposed
insured's age, sex and risk classification, and on the face amount, premium,
plan of insurance and gross annual rate of return requested. Actual
illustrations may be materially different from that illustrated, depending upon
the proposed insured's actual situation.
VAL '95
DEATH BENEFIT OPTION - CASH OPTION
MALE ISSUE AGE 40 FOR NON-TOBACCO
INITIAL FACE AMOUNT - $250,000(1)
$4,205 INITIAL SCHEDULED PREMIUM
USING CURRENT MORTALITY CHARGES
[Enlarge/Download Table]
-ASSUMING HYPOTHETICAL INVESTMENT RETURNS OF-
0% GROSS 6% GROSS 12% GROSS
(-1.55% NET) (4.45% NET) (10.45% NET)
POL ATT BASE POLICY DEATH POLICY DEATH POLICY DEATH
YR AGE PREMIUM VALUE BENEFIT VALUE BENEFIT VALUE BENEFIT
-- --- ------- --------- --------- --------- --------- ----------- ----------
1 41 $ 4,205 $ 897 $ 250,000 $ 972 $ 250,000 $ 1,047 $ 250,000
2 42 4,205 3,928 250,000 4,267 250,000 4,617 250,000
3 43 4,205 6,877 250,000 7,675 250,000 8,525 250,000
4 44 4,205 9,740 250,000 11,194 250,000 12,802 250,000
5 45 4,205 12,518 250,000 14,831 250,000 17,490 250,000
6 46 4,205 15,206 250,000 18,585 250,000 22,627 250,000
7 47 4,205 17,801 250,000 22,459 250,000 28,258 250,000
8 48 4,205 20,320 250,000 26,482 250,000 34,477 250,000
9 49 4,205 22,877 250,000 30,779 250,000 41,461 250,000
10 50 4,205 25,462 250,000 35,348 250,000 49,276 250,000
15 55 4,205 38,228 250,000 62,197 250,000 103,866 250,000
20 60 4,205 49,166 250,000 95,598 250,000 196,043 354,269
25 65 4,205 56,807 250,000 136,698 250,000 344,910 550,656
30 70 4,205 59,713 250,000 188,391 279,604 582,671 830,014
35 75 4,205 55,609 250,000 250,937 337,767 960,947 1,238,091
40 80 4,205 39,684 250,000 325,354 404,451 1,560,654 1,853,118
45 85 4,205 0 250,000 413,172 481,464 2,505,576 2,784,155
50 90 4,205 0 250,000 517,205 574,519 3,995,131 4,225,930
55 95 4,205 0 252,301 643,766 682,547 6,373,680 6,427,477
(1) The initial death benefit is guaranteed to age 100.
The hypothetical investment rates of return shown above are illustrative only
and should not be deemed a representation of past or future investment rates of
return. Actual rates of return may be more or less than those shown and will
depend on a number of factors, including the investment allocations made by an
owner, and prevailing interest rates. The death benefits and policy values for a
Policy would be different from those shown if the actual rates of return
averaged 0%, 6% and 12% over a period of years but also fluctuated above or
below those averages for individual policy years. No representations can be made
by Minnesota Life or the Funds that these hypothetical rates of return can be
achieved for any one year or sustained over any period of time.
VAL '95
DEATH BENEFIT OPTION - CASH OPTION
MALE ISSUE AGE 40 FOR NON-TOBACCO
INITIAL FACE AMOUNT - $250,000(1)
$4,205 INITIAL SCHEDULED PREMIUM
USING MAXIMUM CONTRACTUAL MORTALITY CHARGES
[Enlarge/Download Table]
-ASSUMING HYPOTHETICAL INVESTMENT RETURNS OF-
0% GROSS 6% GROSS 12% GROSS
(-1.55% NET) (4.45% NET) (10.45% NET)
POL ATT BASE POLICY DEATH POLICY DEATH POLICY DEATH
YR AGE PREMIUM VALUE BENEFIT VALUE BENEFIT VALUE BENEFIT
-- --- -------- ---------- --------- --------- ------- ---------- ----------
1 41 $ 4,205 $ 897 $ 250,000 $ 972 $ 250,000 $ 1,047 $ 250,000
2 42 4,205 3,928 250,000 4,267 250,000 4,617 250,000
3 43 4,205 6,877 250,000 7,675 250,000 8,525 250,000
4 44 4,205 9,740 250,000 11,194 250,000 12,802 250,000
5 45 4,205 12,518 250,000 14,831 250,000 17,490 250,000
6 46 4,205 15,206 250,000 18,585 250,000 22,627 250,000
7 47 4,205 17,801 250,000 22,459 250,000 28,258 250,000
8 48 4,205 20,302 250,000 26,456 250,000 34,437 250,000
9 49 4,205 22,705 250,000 30,579 250,000 41,222 250,000
10 50 4,205 25,007 250,000 34,830 250,000 48,676 250,000
15 55 4,205 34,714 250,000 58,002 250,000 98,782 250,000
20 60 4,205 40,337 250,000 84,215 250,000 179,932 327,361
25 65 4,205 39,717 250,000 113,520 250,000 304,646 490,446
30 70 4,205 27,964 250,000 146,157 250,000 490,569 706,113
35 75 4,205 0 250,000 184,527 250,487 762,060 994,908
40 80 4,205 0 250,000 257,056 285,481 1,148,114 1,385,015
45 85 4,205 0 250,000 270,546 319,716 1,691,936 1,914,936
50 90 4,205 0 250,000 313,501 353,824 2,443,248 2,637,403
55 95 4,205 0 252,301 361,372 388,755 3,531,017 3,628,921
(1) The initial death benefit is guaranteed to age 100.
The hypothetical investment rates of return shown above are illustrative only
and should not be deemed a representation of past or future investment rates of
return. Actual rates of return may be more or less than those shown and will
depend on a number of factors, including the investment allocations made by an
owner, and prevailing interest rates. The death benefits and policy values for a
Policy would be different from those shown if the actual rates of return
averaged 0%, 6% and 12% over a period of years but also fluctuated above or
below those averages for individual policy years. No representations can be made
by Minnesota Life or the Funds that these hypothetical rates of return can be
achieved for any one year or sustained over any period of time.
FINANCIAL STATEMENTS
The consolidated financial statements of Minnesota Life Insurance Company and
subsidiaries and the financial statements of the Minnesota Life Variable Life
Account as of December 31, 2004, have been audited by our independent registered
public accounting firm, KPMG LLP, 4200 Wells Fargo Center, 90 South Seventh
Street, Minneapolis, Minnesota 55402. The report dated March 10, 2005 on the
consolidated financial statements of Minnesota Life Insurance Company and
subsidiaries refers to the adoption, effective January 1, 2004, of Statement of
Position 03-1, Accounting and Reporting by Insurance Enterprises for Certain
Nontraditional Long-Duration Contracts and for Separate Accounts. The financial
statements are included in this Statement of Additional Information, as stated
in the report of independent registered public accounting firm appearing herein,
and are included in reliance upon the reports of such firm given upon their
authority 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 Life Account:
We have audited the accompanying statements of assets and liabilities of the
Advantus Bond, Advantus Money Market, Advantus Index 500, Advantus Mortgage
Securities, Advantus International Bond, Advantus Index 400 Mid-Cap, Advantus
Real Estate Securities, AIM V.I. Aggressive Growth, AIM V.I. Balanced, AIM V.I.
Dent Demographic Trends, AIM V.I. Premier Equity, American Century Income and
Growth, American Century Ultra, American Century Value, Credit Suisse Global
Post-Venture Capital, Fidelity VIP Contrafund, Fidelity VIP Equity-Income,
Fidelity VIP Mid-Cap, Franklin Large Cap Growth Securities, Franklin Mutual
Shares Securities, Franklin Small Cap, Templeton Developing Markets Securities,
Templeton Global Asset Allocation, Janus Aspen Balanced, Janus Aspen Capital
Appreciation, Janus Aspen International Growth, MFS Investors Growth Stock, MFS
Mid Cap Growth, MFS New Discovery, MFS Value, Oppenheimer Capital Appreciation,
Oppenheimer High Income, Oppenheimer International Growth, Putnam VT Growth and
Income, Putnam VT International Growth, Putnam VT New Opportunities, Putnam VT
New Value, Putnam VT Voyager, Waddell & Reed Balanced, Waddell & Reed Growth,
Waddell & Reed International II, Waddell & Reed Small Cap Growth, Waddell & Reed
Value, Waddell & Reed Micro-Cap Growth, Waddell & Reed Small Cap Value, Waddell
& Reed Core Equity, Waddell & Reed Asset Strategy, Waddell & Reed International
and Waddell & Reed Science & Technology Segregated Sub-Accounts of Minnesota
Life Variable Life Account (the Account) as of December 31, 2004, and the
related statements of operations for the year then ended, the statements of
changes in net assets for each of the two years or periods in the period then
ended, and the financial highlights for each of the four years or periods in the
period then ended. These financial statements and financial highlights are the
responsibility of the 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 audits to obtain reasonable assurance about whether the
financial statements and the financial highlights are free of material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements. Investments owned at
December 31, 2004 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 financial position of the
Advantus Bond, Advantus Money Market, Advantus Index 500, Advantus Mortgage
Securities, Advantus International Bond, Advantus Index 400 Mid-Cap, Advantus
Real Estate Securities, AIM V.I. Aggressive Growth, AIM V.I. Balanced, AIM V.I.
Dent Demographic Trends, AIM V.I. Premier Equity, American Century Income and
Growth, American Century Ultra, American Century Value, Credit Suisse Global
Post-Venture Capital, Fidelity VIP Contrafund, Fidelity VIP Equity-Income,
Fidelity VIP Mid-Cap, Franklin Large Cap Growth Securities, Franklin Mutual
Shares Securities, Franklin Small Cap, Templeton Developing Markets Securities,
Templeton Global Asset Allocation, Janus Aspen Balanced, Janus Aspen Capital
Appreciation, Janus Aspen International Growth,
MFS Investors Growth Stock, MFS Mid Cap Growth, MFS New Discovery, MFS Value,
Oppenheimer Capital Appreciation, Oppenheimer High Income, Oppenheimer
International Growth, Putnam VT Growth and Income, Putnam VT International
Growth, Putnam VT New Opportunities, Putnam VT New Value, Putnam VT Voyager,
Waddell & Reed Balanced, Waddell & Reed Growth, Waddell & Reed International II,
Waddell & Reed Small Cap Growth, Waddell & Reed Value, Waddell & Reed Micro-Cap
Growth, Waddell & Reed Small Cap Value, Waddell & Reed Core Equity, Waddell &
Reed Asset Strategy, Waddell & Reed International and Waddell & Reed Science &
Technology Segregated Sub-Accounts of Minnesota Life Variable Life Account at
December 31, 2004, and the results of their operations for the year then ended,
the changes in their net assets for each of the two years or periods in the
period then ended, and the financial highlights for each of the four years or
periods in the period then ended, in conformity with U.S. generally accepted
accounting principles.
Minneapolis, Minnesota
March 25, 2005
Minnesota Life Variable Life Account
Statements of Assets and Liabilities
December 31, 2004
[Enlarge/Download Table]
Segregated Sub-Accounts
---------------------------------------------------------
Advantus Advantus Advantus
Advantus Money Index Mortgage
Bond Market 500 Securities
------------ ------------ ------------ ------------
Assets
Investments in shares of Advantus Series Fund, Inc.:
Bond Portfolio, 49,818,265 shares at net asset value of $1.44 per
share (cost $62,588,922) ........................................... $ 71,755,838 - - -
Money Market Portfolio, 16,732,581 shares at net asset value of $1.00
per share (cost $16,732,581) ....................................... - 16,732,581 - -
Index 500 Portfolio, 69,930,680 shares at net asset value of $3.81
per share (cost $232,435,871) ..................................... - - 266,633,584 -
Mortgage Securities Portfolio, 38,761,484 shares at net asset value
of $1.41 per share (cost $48,444,310) .............................. - - - 54,497,600
International Bond Portfolio, 8,340,753 shares at net asset value of
$1.46 per share (cost $9,169,099) ................................. - - - -
Index 400 Mid-Cap Portfolio, 20,828,580 shares at net asset value of
$1.50 per share (cost $24,034,456) ................................. - - - -
Real Estate Securities Portfolio, 14,946,830 shares at net asset
value of $1.97 per share (cost $18,820,862) ........................ - - - -
------------ ------------ ------------ ------------
71,755,838 16,732,581 266,633,584 54,497,600
Receivable from Minnesota Life for Policy purchase payments ............ 56,875 3,807 - -
Receivable for investments sold ........................................ - - 262,822 19,822
------------ ------------ ------------ ------------
Total assets ..................................................... 71,812,713 16,736,388 266,896,406 54,517,422
------------ ------------ ------------ ------------
Liabilities
Payable to Minnesota Life for Policy terminations, withdrawal payments
and mortality and expense charges ...................................... - - 262,822 19,822
Payable for investments purchased ...................................... 56,875 3,807 - -
------------ ------------ ------------ ------------
Total liabilities ................................................ 56,875 3,807 262,822 19,822
------------ ------------ ------------ ------------
Net assets applicable to policy owners ........................... $ 71,755,838 16,732,581 266,633,584 54,497,600
============ ============ ============ ============
Policy Owners' Equity
Total Policy Owners' equity (notes 5 and 6) ...................... $ 71,755,838 16,732,581 266,633,584 54,497,600
============ ============ ============ ============
Segregated Sub-Accounts
------------------------------------------
Advantus Advantus Advantus
International Index 400 Real Estate
Bond Mid-Cap Securities
------------ ------------ ------------
Assets
Investments in shares of Advantus Series Fund, Inc.:
Bond Portfolio, 49,818,265 shares at net asset value of
$1.44 per share (cost $62,588,922) ................................. - - -
Money Market Portfolio, 16,732,581 shares at net asset value
of $1.00 per share (cost $16,732,581) .............................. - - -
Index 500 Portfolio, 69,930,680 shares at net asset value of
$3.81 per share (cost $232,435,871) ............................... - - -
Mortgage Securities Portfolio, 38,761,484 shares at net
asset value of $1.41 per share (cost $48,444,310) .................. - - -
International Bond Portfolio, 8,340,753 shares at net asset
value of $1.46 per share (cost $9,169,099) ........................ 12,137,030 - -
Index 400 Mid-Cap Portfolio, 20,828,580 shares at net asset
value of $1.50 per share (cost $24,034,456) ........................ - 31,210,253 -
Real Estate Securities Portfolio, 14,946,830 shares at net
asset value of $1.97 per share (cost $18,820,862) .................. - - 29,496,448
------------ ------------ ------------
12,137,030 31,210,253 29,496,448
Receivable from Minnesota Life for Policy purchase payments ............ 12,753 75,588 -
Receivable for investments sold ........................................ - - 21,808
------------ ------------ ------------
Total assets ..................................................... 12,149,783 31,285,841 29,518,256
------------ ------------ ------------
Liabilities
Payable to Minnesota Life for Policy terminations, withdrawal
payments and mortality and expense charges ............................. - - 21,808
Payable for investments purchased ...................................... 12,753 75,588 -
------------ ------------ ------------
Total liabilities ................................................ 12,753 75,588 21,808
------------ ------------ ------------
Net assets applicable to policy owners ........................... 12,137,030 31,210,253 29,496,448
============ ============ ============
Policy Owners' Equity
Total Policy Owners' equity (notes 5 and 6) ...................... 12,137,030 31,210,253 29,496,448
============ ============ ============
See accompanying notes to financial statements
Minnesota Life Variable Life Account
Statements of Assets and Liabilities
December 31, 2004
[Enlarge/Download Table]
Segregated Sub-Accounts
---------------------------------------------------------
AIM V.I.
AIM V.I. Dent AIM V.I.
Aggressive AIM V.I. Demographic Premier
Growth Balanced Trends Equity
------------ ------------ ------------ ------------
Assets
Investments in shares of AIM Variable Insurance Funds:
Aggressive Growth Fund, 168,480 shares at net asset value of $11.76
per share (cost $1,724,777) ....................................... $ 1,981,322 - - -
Balanced Fund, 33,377 shares at net asset value of $10.53 per share
(cost $336,822) ................................................... - 351,456 - -
Dent Demographics Fund, 40,927 shares at net asset value of $5.60 per
share (cost $213,994) .............................................. - - 229,191 -
Premier Equity Fund, 24,471 shares at net asset value of $21.18 per
share (cost $470,711) .............................................. - - - 518,293
Investments in shares of American Century Variable Portfolios, Inc.:
Income & Growth Fund, 127,474 shares at net asset value of $7.30 per
share (cost $848,646) ............................................. - - - -
Ultra Fund, 947,387 shares at net asset value of $10.13 per share
(cost $8,745,697) ................................................. - - - -
Value Fund, 369,992 shares at net asset value of $8.74 per share
(cost $2,948,563) .................................................. - - - -
------------ ------------ ------------ ------------
1,981,322 351,456 229,191 518,293
Receivable from Minnesota Life for Policy purchase payments ............ 3,574 6,463 - 76
Receivable for investments sold ........................................ - - 41 -
------------ ------------ ------------ ------------
Total assets ..................................................... 1,984,896 357,919 229,232 518,369
------------ ------------ ------------ ------------
Liabilities
Payable to Minnesota Life for Policy terminations, withdrawal payments
and mortality and expense charges ...................................... - - 41 -
Payable for investments purchased ...................................... 3,574 6,463 - 76
------------ ------------ ------------ ------------
Total liabilities ................................................ 3,574 6,463 41 76
------------ ------------ ------------ ------------
Net assets applicable to policy owners ........................... $ 1,981,322 351,456 229,191 518,293
============ ============ ============ ============
Policy Owners' Equity
Total Policy Owners' equity (notes 5 and 6) ...................... $ 1,981,322 351,456 229,191 518,293
============ ============ ============ ============
Segregated Sub-Accounts
------------------------------------------
American
Century American American
Income Century Century
and Growth Ultra Value
------------ ------------ ------------
Assets
Investments in shares of AIM Variable Insurance Funds:
Aggressive Growth Fund, 168,480 shares at net asset value of
$11.76 per share (cost $1,724,777) ................................ - - -
Balanced Fund, 33,377 shares at net asset value of $10.53
per share (cost $336,822) ......................................... - - -
Dent Demographics Fund, 40,927 shares at net asset value of
$5.60 per share (cost $213,994) .................................... - - -
Premier Equity Fund, 24,471 shares at net asset value of
$21.18 per share (cost $470,711) ................................... - - -
Investments in shares of American Century Variable Portfolios,
Inc.:
Income & Growth Fund, 127,474 shares at net asset value of
$7.30 per share (cost $848,646) ................................... 930,562 - -
Ultra Fund, 947,387 shares at net asset value of $10.13
per share (cost $8,745,697) ................................... - 9,597,027 -
Value Fund, 369,992 shares at net asset value of $8.74 per
share (cost $2,948,563) ........................................ - - 3,233,734
------------ ------------ ------------
930,562 9,597,027 3,233,734
Receivable from Minnesota Life for Policy purchase payments ............ - 120,023 14,320
Receivable for investments sold ........................................ 215 - -
------------ ------------ ------------
Total assets ..................................................... 930,777 9,717,050 3,248,054
------------ ------------ ------------
Liabilities
Payable to Minnesota Life for Policy terminations, withdrawal payments
and mortality and expense charges ..................................... 215 - -
Payable for investments purchased ...................................... - 120,023 14,320
------------ ------------ ------------
Total liabilities ................................................ 215 120,023 14,320
------------ ------------ ------------
Net assets applicable to policy owners ........................... 930,562 9,597,027 3,233,734
============ ============ ============
Policy Owners' Equity
Total Policy Owners' equity (notes 5 and 6) ...................... 930,562 9,597,027 3,233,734
============ ============ ============
See accompanying notes to financial statements
Minnesota Life Variable Life Account
Statements of Assets and Liabilities
December 31, 2004
[Enlarge/Download Table]
Segregated Sub-Accounts
---------------------------------------------------------
Credit Suisse
Global
Post-Venture Fidelity VIP Fidelity VIP Fidelity VIP
Capital Contrafund Equity-Income Mid-Cap
------------ ------------ ------------ ------------
Assets
Investments in shares of Credit Suisse Trust:
Global Post-Venture Capital Portfolio, 169,299 shares at net asset
value of $11.15 per share (cost $1,561,863) ....................... $ 1,887,687 - - -
Investments in shares of Fidelity Variable Insurance Products Fund:
Contrafund Portfolio, 1,404,705 shares at net asset value of $26.35
per share (cost $29,427,716) ....................................... - 37,013,973 - -
Equity-Income Portfolio, 1,495,889 shares at net asset value of
$25.09 per share (cost $31,671,272) ................................ - - 37,531,850 -
Mid-Cap Portfolio, 1,054,420 shares at net asset value of $29.88 per
share (cost $21,622,583) .......................................... - - - 31,506,078
Investments in shares of Franklin Templeton Variable Insurance Products
Trust:
Large Cap Growth Securities Fund, 110,181 shares at net asset value
of $14.90 per share (cost $1,528,391) ............................. - - - -
Mutual Shares Securities Fund, 290,607 shares at net asset value of
$16.64 per share (cost $4,343,421) ................................. - - - -
Small Cap Fund, 881,574 shares at net asset value of $19.43 per share
(cost $13,873,420) ................................................ - - - -
------------ ------------ ------------ ------------
1,887,687 37,013,973 37,531,850 31,506,078
Receivable from Minnesota Life for Policy purchase payments ............ - 6,836 148,663 -
Receivable for investments sold ........................................ 536 - - 4,466
------------ ------------ ------------ ------------
Total assets ..................................................... 1,888,223 37,020,809 37,680,513 31,510,544
------------ ------------ ------------ ------------
Liabilities
Payable to Minnesota Life for Policy terminations, withdrawal payments
and mortality and expense charges ...................................... 536 - - 4,466
Payable for investments purchased ...................................... - 6,836 148,663 -
------------ ------------ ------------ ------------
Total liabilities ................................................ 536 6,836 148,663 4,466
------------ ------------ ------------ ------------
Net assets applicable to policy owners ........................... $ 1,887,687 37,013,973 37,531,850 31,506,078
============ ============ ============ ============
Policy Owners' Equity
Total Policy Owners' equity (notes 5 and 6) ...................... $ 1,887,687 37,013,973 37,531,850 31,506,078
============ ============ ============ ============
Segregated Sub-Accounts
------------------------------------------
Franklin
Large Cap Franklin
Growth Mutual Shares Franklin
Securities Securities Small Cap
------------ ------------ ------------
Assets
Investments in shares of Credit Suisse Trust:
Global Post-Venture Capital Portfolio, 169,299 shares at net
asset value of $11.15 per share (cost $1,561,863) .................. - - -
Investments in shares of Fidelity Variable Insurance Products Fund:
Contrafund Portfolio, 1,404,705 shares at net asset value of
$26.35 per share (cost $29,427,716) ................................ - - -
Equity-Income Portfolio, 1,495,889 shares at net asset value
of $25.09 per share (cost $31,671,272) ............................. - - -
Mid-Cap Portfolio, 1,054,420 shares at net asset value of
$29.88 per share (cost $21,622,583) ............................... - - -
Investments in shares of Franklin Templeton Variable Insurance
Products Trust:
Large Cap Growth Securities Fund, 110,181 shares at net
asset value of $14.90 per share (cost $1,528,391) ................. 1,641,699 - -
Mutual Shares Securities Fund, 290,607 shares at net asset
value of $16.64 per share (cost $4,343,421) ........................ - 4,835,693 -
Small Cap Fund, 881,574 shares at net asset value of $19.43
per share (cost $13,873,420) ...................................... - - 17,128,990
------------ ------------ ------------
1,641,699 4,835,693 17,128,990
Receivable from Minnesota Life for Policy purchase payments ............ - 42,552 -
Receivable for investments sold ........................................ 1,660 - 13,596
------------ ------------ ------------
Total assets ..................................................... 1,643,359 4,878,245 17,142,586
------------ ------------ ------------
Liabilities
Payable to Minnesota Life for Policy terminations, withdrawal
payments and mortality and expense charges ........................... 1,660 - 13,596
Payable for investments purchased ...................................... - 42,552 -
------------ ------------ ------------
Total liabilities ................................................ 1,660 42,552 13,596
------------ ------------ ------------
Net assets applicable to policy owners ........................... 1,641,699 4,835,693 17,128,990
============ ============ ============
Policy Owners' Equity
Total Policy Owners' equity (notes 5 and 6) ...................... 1,641,699 4,835,693 17,128,990
============ ============ ============
See accompanying notes to financial statements
Minnesota Life Variable Life Account
Statements of Assets and Liabilities
December 31, 2004
[Enlarge/Download Table]
Segregated Sub-Accounts
---------------------------------------------------------
Templeton
Developing Templeton Janus Janus
Markets Global Asset Aspen Aspen Capital
Securities Allocation Balanced Appreciation
------------ ------------ ------------ ------------
Assets
Investments in shares of Franklin Templeton Variable Insurance
Products Trust:
Developing Markets Securities Fund, 1,685,371 shares at net asset
value of $8.67 per share (cost $10,051,343) ........................ $ 14,612,168 - - -
Global Asset Allocation Fund, 286,557 shares at net asset value of
$20.95 per share (cost $5,077,658) ................................. - 6,003,376 - -
Investments in shares of Janus Aspen Series - Service Shares:
Balanced Portfolio, 14,494 shares at net asset value of $25.24 per
share (cost $339,812) .............................................. - - 365,833 -
Capital Appreciation Portfolio, 1,004,601 shares at net asset
value of $24.39 per share (cost $22,824,060) ....................... - - - 24,502,223
International Growth Portfolio, 785,950 shares at net asset value
of $26.94 per share (cost $19,077,740) ............................. - - - -
Investments in shares of MFS Variable Insurance Trust:
Investors Growth Stock Series, 70,335 shares at net asset value of
$9.34 per share (cost $602,965) .................................... - - - -
Mid Cap Growth Series, 127,835 shares at net asset value of $7.00
per share (cost $830,019) .......................................... - - - -
------------ ------------ ------------ ------------
14,612,168 6,003,376 365,833 24,502,223
Receivable from Minnesota Life for Policy purchase payments ............ - 42,706 143 -
Receivable for investments sold ........................................ 22,644 - - 10,005
------------ ------------ ------------ ------------
Total assets ..................................................... 14,634,812 6,046,082 365,976 24,512,228
------------ ------------ ------------ ------------
Liabilities
Payable to Minnesota Life for Policy terminations, withdrawal
payments and mortality and expense charges .......................... 22,644 - - 10,005
Payable for investments purchased ...................................... - 42,706 143 -
------------ ------------ ------------ ------------
Total liabilities ................................................ 22,644 42,706 143 10,005
------------ ------------ ------------ ------------
Net assets applicable to policy owners ........................... $ 14,612,168 6,003,376 365,833 24,502,223
============ ============ ============ ============
Policy Owners' Equity
Total Policy Owners' equity (notes 5 and 6) ...................... $ 14,612,168 6,003,376 365,833 24,502,223
============ ============ ============ ============
Segregated Sub-Accounts
------------------------------------------
Janus
Aspen MFS MFS
International Investors Mid Cap
Growth Growth Stock Growth
------------ ------------ ------------
Assets
Investments in shares of Franklin Templeton Variable Insurance
Products Trust:
Developing Markets Securities Fund, 1,685,371 shares at net
asset value of $8.67 per share (cost $10,051,343) .................. - - -
Global Asset Allocation Fund, 286,557 shares at net asset
value of $20.95 per share (cost $5,077,658) ........................ - - -
Investments in shares of Janus Aspen Series - Service Shares:
Balanced Portfolio, 14,494 shares at net asset value of
$25.24 per share (cost $339,812) .................................. - - -
Capital Appreciation Portfolio, 1,004,601 shares at net asset
value of $24.39 per share (cost $22,824,060) ....................... - - -
International Growth Portfolio, 785,950 shares at net asset
value of $26.94 per share (cost $19,077,740) ....................... 21,173,506 - -
Investments in shares of MFS Variable Insurance Trust:
Investors Growth Stock Series, 70,335 shares at net asset
value of $9.34 per share (cost $602,965) ........................... - 656,928 -
Mid Cap Growth Series, 127,835 shares at net asset value of
$7.00 per share (cost $830,019) .................................... - - 894,843
------------ ------------ ------------
21,173,506 656,928 894,843
Receivable from Minnesota Life for Policy purchase payments ............ 90,264 - -
Receivable for investments sold ........................................ - 2,659 202
------------ ------------ ------------
Total assets ..................................................... 21,263,770 659,587 895,045
------------ ------------ ------------
Liabilities
Payable to Minnesota Life for Policy terminations, withdrawal
payments and mortality and expense charges ........................... - 2,659 202
Payable for investments purchased ...................................... 90,264 - -
------------ ------------ ------------
Total liabilities ................................................ 90,264 2,659 202
------------ ------------ ------------
Net assets applicable to policy owners ........................... 21,173,506 656,928 894,843
============ ============ ============
Policy Owners' Equity
Total Policy Owners' equity (notes 5 and 6) ...................... 21,173,506 656,928 894,843
============ ============ ============
See accompanying notes to financial statements
Minnesota Life Variable Life Account
Statements of Assets and Liabilities
December 31, 2004
[Enlarge/Download Table]
Segregated Sub-Accounts
---------------------------------------------------------
MFS Oppenheimer
New MFS Capital Oppenheimer
Discovery Value Appreciation High Income
------------ ------------ ------------ ------------
Assets
Investments in shares of MFS Variable Insurance Trust:
New Discovery Fund, 295,389 shares at net asset value of $14.71 per
share (cost $4,073,678) ............................................ $ 4,345,170 - - -
Value Fund, 396,504 shares at net asset value of $12.07 per share
(cost $4,159,199) .................................................. - 4,785,808 - -
Investments in shares of Oppenheimer Variable Account Funds:
Capital Appreciation Fund, 87,959 shares at net asset value of $36.73
per share (cost $3,000,439) ........................................ - - 3,230,727 -
High Income Fund, 384,133 shares at net asset value of $8.76 per share
(cost $3,237,589) ................................................. - - - 3,365,008
Investments in shares of Panorama Series Funds, Inc.:
International Growth, 2,313,474 shares at net asset value of $1.34 per
share (cost $2,648,099) ............................................ - - - -
Investments in shares of Putnam Variable Trust:
Growth and Income Fund, 12,944 shares at net asset value of $25.44 per
share (cost $295,442) .............................................. - - - -
International Growth Fund, 244,494 shares at net asset value of $14.71
per share (cost $3,054,989) ........................................ - - - -
------------ ------------ ------------ ------------
4,345,170 4,785,808 3,230,727 3,365,008
Receivable from Minnesota Life for Policy purchase payments ............ 28,848 7,838 8,852 21,782
Receivable for investments sold ........................................ - - - -
------------ ------------ ------------ ------------
Total assets ..................................................... 4,374,018 4,793,646 3,239,579 3,386,790
------------ ------------ ------------ ------------
Liabilities
Payable to Minnesota Life for Policy terminations, withdrawal payments
and mortality and expense charges ................................... - - - -
Payable for investments purchased ...................................... 28,848 7,838 8,852 21,782
------------ ------------ ------------ ------------
Total liabilities ................................................ 28,848 7,838 8,852 21,782
------------ ------------ ------------ ------------
Net assets applicable to policy owners ........................... $ 4,345,170 4,785,808 3,230,727 3,365,008
============ ============ ============ ============
Policy Owners' Equity
Total Policy Owners' equity (notes 5 and 6) ...................... $ 4,345,170 4,785,808 3,230,727 3,365,008
============ ============ ============ ============
Segregated Sub-Accounts
------------------------------------------
Oppenheimer Putnam VT Putnam VT
International Growth and International
Growth Income Growth
------------ ------------ ------------
Assets
Investments in shares of MFS Variable Insurance Trust:
New Discovery Fund, 295,389 shares at net asset value of
$14.71 per share (cost $4,073,678) ................................. - - -
Value Fund, 396,504 shares at net asset value of $12.07 per
share (cost $4,159,199) ............................................ - - -
Investments in shares of Oppenheimer Variable Account Funds:
Capital Appreciation Fund, 87,959 shares at net asset value
of $36.73 per share (cost $3,000,439) .............................. - - -
High Income Fund, 384,133 shares at net asset value of $8.76
per share (cost $3,237,589) ....................................... - - -
Investments in shares of Panorama Series Funds, Inc.:
International Growth, 2,313,474 shares at net asset value of
$1.34 per share (cost $2,648,099) .................................. 3,100,055 - -
Investments in shares of Putnam Variable Trust:
Growth and Income Fund, 12,944 shares at net asset value of
$25.44 per share (cost $295,442) ................................... - 329,299 -
International Growth Fund, 244,494 shares at net asset value
of $14.71 per share (cost $3,054,989) .............................. - - 3,596,507
------------ ------------ ------------
3,100,055 329,299 3,596,507
Receivable from Minnesota Life for Policy purchase payments ............ 3,136 - 26,023
Receivable for investments sold ........................................ - 249 -
------------ ------------ ------------
Total assets ..................................................... 3,103,191 329,548 3,622,530
------------ ------------ ------------
Liabilities
Payable to Minnesota Life for Policy terminations, withdrawal
payments and mortality and expense charges .......................... - 249 -
Payable for investments purchased ...................................... 3,136 - 26,023
------------ ------------ ------------
Total liabilities ................................................ 3,136 249 26,023
------------ ------------ ------------
Net assets applicable to policy owners ........................... 3,100,055 329,299 3,596,507
============ ============ ============
Policy Owners' Equity
Total Policy Owners' equity (notes 5 and 6) ...................... 3,100,055 329,299 3,596,507
============ ============ ============
See accompanying notes to financial statements
Minnesota Life Variable Life Account
Statements of Assets and Liabilities
December 31, 2004
[Enlarge/Download Table]
Segregated Sub-Accounts
---------------------------------------------------------
Putnam VT Putnam VT
New New Putnam VT Waddell & Reed
Opportunities Value Voyager Balanced
------------ ------------ ------------ ------------
Assets
Investments in shares of Putnam Variable Trust:
New Opportunities Fund, 3,630 shares at net asset value of $16.80 per $ 60,976 - - -
share (cost $55,542) ...............................................
New Value Fund, 108,242 shares at net asset value of $16.33 per share - 1,767,585 - -
(cost $1,573,584)
Voyager Fund, 118,853 shares at net asset value of $27.20 per share .. - - 3,232,814 -
(cost $3,014,903)
Investments in shares of Waddell & Reed Target Funds, Inc.:
Balanced Portfolio, 19,326,438 shares at net asset value of $7.68 per - - - 148,394,189
share (cost $149,720,036) ..........................................
Growth Portfolio, 20,753,151 shares at net asset value of $8.37 per .. - - - -
share (cost $189,575,381)
International II Portfolio, 7,902,570 shares at net asset value of ... - - - -
$19.17 per share (cost $116,227,445)
Small Cap Growth Portfolio, 9,486,500 shares at net asset value
of $9 68 per share (cost $87,932,182) ............................. - - - -
------------ ------------ ------------ ------------
60,976 1,767,585 3,232,814 148,394,189
Receivable from Minnesota Life for Policy purchase payments ............ - - 27,670 1,593
Receivable for investments sold ........................................ 15 5,377 - -
------------ ------------ ------------ ------------
Total assets ..................................................... 60,991 1,772,962 3,260,484 148,395,782
------------ ------------ ------------ ------------
Liabilities
Payable to Minnesota Life for Policy terminations, withdrawal payments .
and mortality and expense charges ................................... 15 5,377 - -
Payable for investments purchased ...................................... - - 27,670 1,593
------------ ------------ ------------ ------------
Total liabilities ................................................ 15 5,377 27,670 1,593
------------ ------------ ------------ ------------
Net assets applicable to policy owners ........................... $ 60,976 1,767,585 3,232,814 148,394,189
============ ============ ============ ============
Policy Owners' Equity
Total Policy Owners' equity (notes 5 and 6) ...................... $ 60,976 1,767,585 3,232,814 148,394,189
============ ============ ============ ============
Segregated Sub-Accounts
------------------------------------------
Waddell Waddell
Waddell & Reed & Reed
& Reed International Small Cap
Growth II Growth
------------ ------------ ------------
Assets
Investments in shares of Putnam Variable Trust:
New Opportunities Fund, 3,630 shares at net asset value of
$16.80 per share (cost $55,542).. .................................. - - -
New Value Fund, 108,242 shares at net asset value of $16.33
per share (cost $1,573,584) ........................................ - - -
Voyager Fund, 118,853 shares at net asset value of $27.20 per
share (cost $3,014,903) ............................................ - - -
Investments in shares of Waddell & Reed Target Funds, Inc.:
Balanced Portfolio, 19,326,438 shares at net asset value of
$7.68 per share (cost $149,720,036).. .............................. - - -
Growth Portfolio, 20,753,151 shares at net asset value of
$8.37 per share (cost $189,575,381). ............................... 173,761,982 - -
International II Portfolio, 7,902,570 shares at net asset
value of $19.17 per share (cost $116,227,445). ..................... - 151,477,262 -
Small Cap Growth Portfolio, 9,486,500 shares at net asset
value of $9.68 per share (cost $87,932,182).. ...................... - - 91,838,802
------------ ------------ ------------
173,761,982 151,477,262 91,838,802
Receivable from Minnesota Life for Policy purchase payments. - 70,443 17,379
Receivable for investments sold ........................................ 99,912 - -
------------ ------------ ------------
Total assets. .................................................... 173,861,894 151,547,705 91,856,181
------------ ------------ ------------
Liabilities
Payable to Minnesota Life for Policy terminations, withdrawal .......... 99,912 - -
payments and mortality and expense charges..
Payable for investments purchased. ..................................... - 70,443 17,379
------------ ------------ ------------
Total liabilities ................................................ 99,912 70,443 17,379
------------ ------------ ------------
Net assets applicable to policy owners .. ........................ 173,761,982 151,477,262 91,838,802
============ ============ ============
Policy Owners' Equity
Total Policy Owners' equity (notes 5 and 6) ...................... 173,761,982 151,477,262 91,838,802
============ ============ ============
See accompanying notes to financial statements
Minnesota Life Variable Life Account
Statements of Assets and Liabilities
December 31, 2004
[Enlarge/Download Table]
Segregated Sub-Accounts
---------------------------------------------------------
Waddell Waddell
Waddell & Reed & Reed Waddell
& Reed Micro-Cap Small Cap & Reed
Value Growth Value Core Equity
------------ ------------ ------------ ------------
Assets
Investments in shares of Waddell & Reed Target Funds, Inc.:
Value Portfolio, 11,559,365 shares at net asset value of $6.22 per
share (cost $62,003,217) ........................................... $ 71,928,148 - - -
Micro-Cap Growth Portfolio, 1,235,300 shares at net asset value of
$14.80 per share (cost $16,525,193) ................................ - 18,281,451 - -
Small Cap Value Portfolio, 2,257,673 shares at net asset value of
$16.63 per share (cost $28,608,860) ................................ - - 37,551,645 -
Core Equity Portfolio, 1,035,768 shares at net asset value of $10.24
per share (cost $10,229,137) ...................................... - - - 10,603,056
Asset Strategy Portfolio, 82,847 shares at net asset value of $7.69
per share (cost $594,489) ......................................... - - - -
International Portfolio, 135,719 shares at net asset value of $6.65
per share (cost $805,294) .......................................... - - - -
Science & Technology Portfolio, 43,269 shares at net asset value of
$14.40 per share (cost $549,724) .................................. - - - -
------------ ------------ ------------ ------------
71,928,148 18,281,451 37,551,645 10,603,056
Receivable from Minnesota Life for Policy purchase payments ............ - 4,964 57,744 -
Receivable for investments sold ........................................ 19,010 - - 5,486
------------ ------------ ------------ ------------
Total assets ..................................................... 71,947,158 18,286,415 37,609,389 10,608,542
------------ ------------ ------------ ------------
Liabilities
Payable to Minnesota Life for Policy terminations, withdrawal payments
and mortality and expense charges ................................... 19,010 - - 5,486
Payable for investments purchased ...................................... - 4,964 57,744 -
------------ ------------ ------------ ------------
Total liabilities ................................................ 19,010 4,964 57,744 5,486
------------ ------------ ------------ ------------
Net assets applicable to policy owners ........................... $ 71,928,148 18,281,451 37,551,645 10,603,056
============ ============ ============ ============
Policy Owners' Equity
Total Policy Owners' equity (notes 5 and 6) ...................... $ 71,928,148 18,281,451 37,551,645 10,603,056
============ ============ ============ ============
Segregated Sub-Accounts
------------------------------------------
Waddell Waddell
& Reed Waddell & Reed
Asset & Reed Science &
Assets Strategy International Technology
------------ ------------ ------------
Investments in shares of Waddell & Reed Target Funds, Inc.:
Value Portfolio, 11,559,365 shares at net asset value of
$6.22 per share (cost $62,003,217) ................................. - - -
Micro-Cap Growth Portfolio, 1,235,300 shares at net asset
value of $14.80 per share (cost $16,525,193) ....................... - - -
Small Cap Value Portfolio, 2,257,673 shares at net asset
value of $16.63 per share (cost $28,608,860) ....................... - - -
Core Equity Portfolio, 1,035,768 shares at net asset value of
$10.24 per share (cost $10,229,137) ............................... - - -
Asset Strategy Portfolio, 82,847 shares at net asset value of
$7.69 per share (cost $594,489) ................................... 637,309 - -
International Portfolio, 135,719 shares at net asset value of
$6.65 per share (cost $805,294) .................................... - 902,995 -
Science & Technology Portfolio, 43,269 shares at net asset
value of $14.40 per share (cost $549,724) ......................... - - 623,134
------------ ------------ ------------
637,309 902,995 623,134
Receivable from Minnesota Life for Policy purchase payments ............ 7,300 3,968 -
Receivable for investments sold ........................................ - - 961
------------ ------------ ------------
Total assets ..................................................... 644,609 906,963 624,095
------------ ------------ ------------
Liabilities
Payable to Minnesota Life for Policy terminations, withdrawal
payments and mortality and expense charges .......................... - - 961
Payable for investments purchased ...................................... 7,300 3,968 -
------------ ------------ ------------
Total liabilities ................................................ 7,300 3,968 961
------------ ------------ ------------
Net assets applicable to policy owners ........................... 637,309 902,995 623,134
============ ============ ============
Policy Owners' Equity
Total Policy Owners' equity (notes 5 and 6) ...................... 637,309 902,995 623,134
============ ============ ============
See accompanying notes to financial statements
Minnesota Life Variable Life Account
Statements of Operations
Year ended December 31, 2004
[Enlarge/Download Table]
Segregated Sub-Accounts
---------------------------------------------------------
Advantus Advantus Advantus
Advantus Money Index Mortgage
Bond Market 500 Securities
------------ ------------ ------------ ------------
Investment income (loss):
Investment income distributions from underlying mutual fund .......... $ - 124,991 - -
Mortality, expense charges and administrative charges (note 3) ....... (335,759) (83,747) (1,216,414) (258,584)
------------ ------------ ------------ ------------
Investment income (loss) - net ................................... (335,759) 41,244 (1,216,414) (258,584)
------------ ------------ ------------ ------------
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 .............................................. 4,096,932 11,178,457 10,776,845 3,307,142
Cost of investments sold ......................................... (3,620,820) (11,178,457) (10,181,058) (2,955,412)
------------ ------------ ------------ ------------
476,112 - 595,787 351,730
------------ ------------ ------------ ------------
Net realized gains (losses) on investments ....................... 476,112 - 595,787 351,730
------------ ------------ ------------ ------------
Net change in unrealized appreciation or depreciation of investments 2,788,573 - 24,447,826 2,086,600
------------ ------------ ------------ ------------
Net gains (losses) on investments ................................ 3,264,685 - 25,043,613 2,438,330
------------ ------------ ------------ ------------
Net increase (decrease) in net assets resulting from operations .. $ 2,928,926 41,244 23,827,199 2,179,746
============ ============ ============ ============
Segregated Sub-Accounts
------------------------------------------
Advantus Advantus Advantus
International Index 400 Real Estate
Bond Mid-Cap Securities
------------ ------------ ------------
Investment income (loss):
Investment income distributions from underlying mutual fund .......... - - -
Mortality, expense charges and administrative charges (note 3) ....... (51,130) (131,887) (101,728)
------------ ------------ ------------
Investment income (loss) - net ................................... (51,130) (131,887) (101,728)
------------ ------------ ------------
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 .............................................. 939,106 2,279,045 1,082,050
Cost of investments sold. ........................................ (724,284) (1,896,313) (740,163)
------------ ------------ ------------
214,822 382,732 341,887
------------ ------------ ------------
Net realized gains (losses) on investments ....................... 214,822 382,732 341,887
------------ ------------ ------------
Net change in unrealized appreciation or depreciation of investments . 994,833 3,709,918 6,528,702
------------ ------------ ------------
Net gains (losses) on investments ................................ 1,209,655 4,092,650 6,870,589
------------ ------------ ------------
Net increase (decrease) in net assets resulting from operations .. 1,158,525 3,960,763 6,768,861
============ ============ ============
See accompanying notes to financial statements
Minnesota Life Variable Life Account
Statements of Operations
Year ended December 31, 2004
[Enlarge/Download Table]
Segregated Sub-Accounts
---------------------------------------------------------
AIM V.I.
AIM V.I. Dent AIM V.I.
Aggressive AIM V.I. Demographic Premier
Growth Balanced Trends Equity
------------ ------------ ------------ ------------
Investment income (loss):
Investment income distributions from underlying mutual fund .......... $ - 4,549 - 1,587
Mortality, expense charges and administrative charges (note 3) ....... (7,420) (1,307) (919) (1,773)
------------ ------------ ------------ ------------
Investment income (loss) - net ................................... (7,420) 3,242 (919) (186)
------------ ------------ ------------ ------------
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 .............................................. 172,935 120,751 81,117 23,183
Cost of investments sold ......................................... (145,555) (113,687) (80,022) (20,642)
------------ ------------ ------------ ------------
27,380 7,064 1,095 2,541
------------ ------------ ------------ ------------
Net realized gains (losses) on investments ....................... 27,380 7,064 1,095 2,541
------------ ------------ ------------ ------------
Net change in unrealized appreciation or depreciation of investments . 169,196 8,208 11,049 23,544
------------ ------------ ------------ ------------
Net gains (losses) on investments ................................ 196,576 15,272 12,144 26,085
------------ ------------ ------------ ------------
Net increase (decrease) in net assets resulting from operations .. $ 189,156 18,514 11,225 25,899
============ ============ ============ ============
Segregated Sub-Accounts
------------------------------------------
American
Century American American
Income Century Century
and Growth Ultra Value
------------ ------------ ------------
Investment income (loss):
Investment income distributions from underlying mutual fund .......... $ 4,629 - 8,209
Mortality, expense charges and administrative charges (note 3) ....... (2,836) (26,911) (7,876)
------------ ------------ ------------
Investment income (loss) - net ................................... 1,793 (26,911) 333
------------ ------------ ------------
Realized and unrealized gains (losses) on investments - net:
Realized gain distributions from underlying mutual fund .............. - - 7,535
------------ ------------ ------------
Realized gains (losses) on sales of investments:
Proceeds from sales .............................................. 191,911 161,544 265,261
Cost of investments sold ......................................... (168,462) (133,892) (220,331)
------------ ------------ ------------
23,449 27,652 44,930
------------ ------------ ------------
Net realized gains (losses) on investments ....................... 23,449 27,652 52,465
------------ ------------ ------------
Net change in unrealized appreciation or depreciation of investments . 54,666 728,592 211,539
------------ ------------ ------------
Net gains (losses) on investments ................................ 78,115 756,244 264,004
------------ ------------ ------------
Net increase (decrease) in net assets resulting from
operations ....................................................... $ 79,908 729,333 264,337
============ ============ ============
See accompanying notes to financial statements
Minnesota Life Variable Life Account
Statements of Operations
Year ended December 31, 2004
[Enlarge/Download Table]
Segregated Sub-Accounts
---------------------------------------------------------
Credit Suisse
Global Fidelity VIP
Post-Venture Fidelity VIP Equity- Fidelity VIP
Capital Contrafund Income Mid-Cap
------------ ------------ ------------ ------------
Investment income (loss):
Investment income distributions from underlying mutual fund .......... $ - 57,059 365,077 -
Mortality, expense charges and administrative charges (note 3) ....... (8,108) (149,123) (148,915) (119,155)
------------ ------------ ------------ ------------
Investment income (loss) - net ................................... (8,108) (92,064) 216,162 (119,155)
------------ ------------ ------------ ------------
Realized and unrealized gains (losses) on investments - net:
Realized gain distributions from underlying mutual fund .............. - - 95,141 -
------------ ------------ ------------ ------------
Realized gains (losses) on sales of investments:
Proceeds from sales .............................................. 487,650 757,298 1,387,120 882,736
Cost of investments sold ......................................... (474,790) (642,059) (1,266,249) (654,707)
------------ ------------ ------------ ------------
12,860 115,239 120,871 228,029
------------ ------------ ------------ ------------
Net realized gains (losses) on investments ....................... 12,860 115,239 216,012 228,029
------------ ------------ ------------ ------------
Net change in unrealized appreciation or depreciation of investments . 261,234 4,368,947 2,917,348 5,531,819
------------ ------------ ------------ ------------
Net gains (losses) on investments ................................ 274,094 4,484,186 3,133,360 5,759,848
------------ ------------ ------------ ------------
Net increase (decrease) in net assets resulting from operations .. $ 265,986 4,392,122 3,349,522 5,640,693
============ ============ ============ ============
Segregated Sub-Accounts
------------------------------------------
Franklin
Large Cap Franklin
Growth Mutual Shares Franklin
Securities Securities Small Cap
------------ ------------ ------------
Investment income (loss):
Investment income distributions from underlying mutual fund .......... 4,822 18,805 -
Mortality, expense charges and administrative charges (note 3) ....... (5,288) (13,372) (70,822)
------------ ------------ ------------
Investment income (loss) - net ................................... (466) 5,433 (70,822)
------------ ------------ ------------
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 .............................................. 296,120 118,407 1,005,000
Cost of investments sold ......................................... (255,150) (98,706) (858,216)
------------ ------------ ------------
40,970 19,701 146,784
------------ ------------ ------------
Net realized gains (losses) on investments ....................... 40,970 19,701 146,784
------------ ------------ ------------
Net change in unrealized appreciation or depreciation of investments . 59,152 385,842 1,522,935
------------ ------------ ------------
Net gains (losses) on investments ................................ 100,122 405,543 1,669,719
------------ ------------ ------------
Net increase (decrease) in net assets resulting from operations .. 99,656 410,976 1,598,897
============ ============ ============
See accompanying notes to financial statements
Minnesota Life Variable Life Account
Statements of Operations
Year ended December 31, 2004
[Enlarge/Download Table]
Segregated Sub-Accounts
---------------------------------------------------------
Templeton
Developing Templeton Janus Janus
Markets Global Asset Aspen Aspen Capital
Securities Allocation Balanced Appreciation
------------ ------------ ------------ ------------
Investment income (loss):
Investment income distributions from underlying mutual fund .......... $ 221,499 117,024 7,416 5,729
Mortality, expense charges and administrative charges (note 3) ....... (61,027) (21,037) (1,482) (108,888)
------------ ------------ ------------ ------------
Investment income (loss) - net ................................... 160,472 95,987 5,934 (103,159)
------------ ------------ ------------ ------------
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 .............................................. 1,746,043 342,078 62,640 2,563,775
Cost of investments sold ......................................... (1,295,326) (303,603) (57,216) (2,751,092)
------------ ------------ ------------ ------------
450,717 38,475 5,424 (187,317)
------------ ------------ ------------ ------------
Net realized gains (losses) on investments ....................... 450,717 38,475 5,424 (187,317)
------------ ------------ ------------ ------------
Net change in unrealized appreciation or depreciation of investments . 2,185,193 564,427 15,231 3,914,933
------------ ------------ ------------ ------------
Net gains (losses) on investments ................................ 2,635,910 602,902 20,655 3,727,616
------------ ------------ ------------ ------------
Net increase (decrease) in net assets resulting from operations .. $ 2,796,382 698,889 26,589 3,624,457
============ ============ ============ ============
Segregated Sub-Accounts
------------------------------------------
Janus MFS MFS
International Investors Mid Cap
Growth Growth Stock Growth
------------ ------------ ------------
Investment income (loss):
Investment income distributions from underlying mutual fund .......... 156,885 - -
Mortality, expense charges and administrative charges (note 3) ....... (90,535) (2,733) (3,307)
------------ ------------ ------------
Investment income (loss) - net ................................... 66,350 (2,733) (3,307)
------------ ------------ ------------
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 .............................................. 1,898,634 219,257 720,446
Cost of investments sold ......................................... (2,002,867) (202,423) (700,527)
------------ ------------ ------------
(104,233) 16,834 19,919
------------ ------------ ------------
Net realized gains (losses) on investments ....................... (104,233) 16,834 19,919
------------ ------------ ------------
Net change in unrealized appreciation or depreciation of investments . 3,255,464 32,436 49,904
------------ ------------ ------------
Net gains (losses) on investments ................................ 3,151,231 49,270 69,823
------------ ------------ ------------
Net increase (decrease) in net assets resulting from operations .. 3,217,581 46,537 66,516
============ ============ ============
See accompanying notes to financial statements
Minnesota Life Variable Life Account
Statements of Operations
Year ended December 31, 2004
[Enlarge/Download Table]
Segregated Sub-Accounts
---------------------------------------------------------
MFS Oppenheimer
New MFS Capital Oppenheimer
Discovery Value Appreciation High Income
------------ ------------ ------------ ------------
Investment income (loss):
Investment income distributions from underlying mutual fund .......... $ - 51,161 3,789 114,375
Mortality, expense charges and administrative charges (note 3) ....... (14,662) (15,301) (10,468) (10,815)
------------ ------------ ------------ ------------
Investment income (loss) - net ..................................... (14,662) 35,860 (6,679) 103,560
------------ ------------ ------------ ------------
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 ................................................ 583,099 151,399 225,460 624,964
Cost of investments sold ........................................... (530,464) (129,664) (194,247) (605,952)
------------ ------------ ------------ ------------
52,635 21,735 31,213 19,012
------------ ------------ ------------ ------------
Net realized gains (losses) on investments ......................... 52,635 21,735 31,213 19,012
------------ ------------ ------------ ------------
Net change in unrealized appreciation or depreciation of investments . 205,742 454,834 149,841 69,810
------------ ------------ ------------ ------------
Net gains (losses) on investments .................................. 258,377 476,569 181,054 88,822
------------ ------------ ------------ ------------
Net increase (decrease) in net assets resulting from operations .... $ 243,715 512,429 174,375 192,382
============ ============ ============ ============
Segregated Sub-Accounts
------------------------------------------
Oppenheimer Putnam VT Putnam VT
International Growth and International
Growth Income Growth
------------ ------------ ------------
Investment income (loss):
Investment income distributions from underlying mutual fund .......... 21,418 4,042 30,885
Mortality, expense charges and administrative charges (note 3) ....... (10,340) (1,291) (12,664)
------------ ------------ ------------
Investment income (loss) - net ..................................... 11,078 2,751 18,221
------------ ------------ ------------
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 ................................................ 364,782 45,954 432,708
Cost of investments sold ........................................... (291,270) (39,468) (348,680)
------------ ------------ ------------
73,512 6,486 84,028
------------ ------------ ------------
Net realized gains (losses) on investments ......................... 73,512 6,486 84,028
------------ ------------ ------------
Net change in unrealized appreciation or depreciation of investments . 335,037 18,021 363,845
------------ ------------ ------------
Net gains (losses) on investments .................................. 408,549 24,507 447,873
------------ ------------ ------------
Net increase (decrease) in net assets resulting from operations .... 419,627 27,258 466,094
============ ============ ============
See accompanying notes to financial statements
Minnesota Life Variable Life Account
Statements of Operations
Year ended December 31, 2004
[Enlarge/Download Table]
Segregated Sub-Accounts
---------------------------------------------------------
Putnam VT Putnam VT Waddell &
New New Putnam VT Reed
Opportunities Value Voyager Balanced
------------- ------------ ------------ ------------
Investment income (loss):
Investment income distributions from underlying mutual fund .......... $ - 6,076 5,095 2,087,407
Mortality, expense charges and administrative charges (note 3) ....... (508) (4,744) (11,926) (710,781)
------------ ------------ ------------ ------------
Investment income (loss) - net ..................................... (508) 1,332 (6,831) 1,376,626
------------ ------------ ------------ ------------
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 ................................................ 131,673 252,486 215,897 12,990,964
Cost of investments sold ........................................... (122,917) (206,232) (194,799) (13,880,213)
------------ ------------ ------------ ------------
8,756 46,254 21,098 (889,249)
------------ ------------ ------------ ------------
Net realized gains (losses) on investments ......................... 8,756 46,254 21,098 (889,249)
------------ ------------ ------------ ------------
Net change in unrealized appreciation or depreciation of investments . 2,986 121,994 132,113 11,159,598
------------ ------------ ------------ ------------
Net gains (losses) on investments .................................. 11,742 168,248 153,211 10,270,349
------------ ------------ ------------ ------------
Net increase (decrease) in net assets resulting from operations .... $ 11,234 169,580 146,380 11,646,975
============ ============ ============ ============
Segregated Sub-Accounts
------------------------------------------
Waddell & Waddell &
Waddell & Reed Reed
Reed International Small Cap
Growth II Growth
------------ ------------ ------------
Investment income (loss):
Investment income distributions from underlying mutual fund .......... 469,680 1,436,181 -
Mortality, expense charges and administrative charges (note 3) ....... (850,190) (663,144) (422,269)
------------ ------------ ------------
Investment income (loss) - net ..................................... (380,510) 773,037 (422,269)
------------ ------------ ------------
Realized and unrealized gains (losses) on investments - net:
Realized gain distributions from underlying mutual fund .............. - 1,133,819 -
------------ ------------ ------------
Realized gains (losses) on sales of investments:
Proceeds from sales ................................................ 13,470,609 8,559,641 8,109,684
Cost of investments sold ........................................... (16,651,245) (7,321,998) (8,809,097)
------------ ------------ ------------
(3,180,636) 1,237,643 (699,413)
------------ ------------ ------------
Net realized gains (losses) on investments ......................... (3,180,636) 2,371,462 (699,413)
------------ ------------ ------------
Net change in unrealized appreciation or depreciation of investments . 8,178,901 24,364,116 12,224,651
------------ ------------ ------------
Net gains (losses) on investments .................................. 4,998,265 26,735,578 11,525,238
------------ ------------ ------------
Net increase (decrease) in net assets resulting from operations .... 4,617,755 27,508,615 11,102,969
============ ============ ============
See accompanying notes to financial statements
Minnesota Life Variable Life Account
Statements of Operations
Year ended December 31, 2004
[Enlarge/Download Table]
Segregated Sub-Accounts
---------------------------------------------------------
Waddell & Waddell &
Waddell & Reed Reed Waddell &
Reed Micro-Cap Small Cap Reed
Value Growth Value Core Equity
------------ ------------ ------------ ------------
Investment income (loss):
Investment income distributions from underlying mutual fund .......... $ 710,138 - - 64,018
Mortality, expense charges and administrative charges (note 3) ....... (333,468) (86,350) (157,303) (48,938)
------------ ------------ ------------ ------------
Investment income (loss) - net ..................................... 376,670 (86,350) (157,303) 15,080
------------ ------------ ------------ ------------
Realized and unrealized gains (losses) on investments - net:
Realized gain distributions from underlying mutual fund .............. - - 1,826,341 -
------------ ------------ ------------ ------------
Realized gains (losses) on sales of investments:
Proceeds from sales ................................................ 5,758,322 3,382,137 2,142,640 1,738,678
Cost of investments sold ........................................... (5,361,800) (3,648,240) (1,668,264) (1,876,513)
------------ ------------ ------------ ------------
396,522 (266,103) 474,376 (137,835)
------------ ------------ ------------ ------------
Net realized gains (losses) on investments ......................... 396,522 (266,103) 2,300,717 (137,835)
------------ ------------ ------------ ------------
Net change in unrealized appreciation or depreciation of investments . 8,214,821 1,846,334 2,413,155 961,258
------------ ------------ ------------ ------------
Net gains (losses) on investments .................................. 8,611,343 1,580,231 4,713,872 823,423
------------ ------------ ------------ ------------
Net increase (decrease) in net assets resulting from operations .... $ 8,988,013 1,493,881 4,556,569 838,503
============ ============ ============ ============
Segregated Sub-Accounts
------------------------------------------
Waddell & Waddell &
Reed Waddell & Reed
Asset Reed Science &
Strategy International Technology
------------ ------------ ------------
Investment income (loss):
Investment income distributions from underlying mutual fund .......... $ 7,952 5,482 -
Mortality, expense charges and administrative charges (note 3) ....... (1,447) (2,555) (1,792)
------------ ------------ ------------
Investment income (loss) - net ..................................... 6,505 2,927 (1,792)
------------ ------------ ------------
Realized and unrealized gains (losses) on investments - net:
Realized gain distributions from underlying mutual fund .............. 4,242 - -
------------ ------------ ------------
Realized gains (losses) on sales of investments:
Proceeds from sales ................................................ 61,266 534,105 387,912
Cost of investments sold ........................................... (60,612) (520,590) (392,732)
------------ ------------ ------------
654 13,515 (4,820)
------------ ------------ ------------
Net realized gains (losses) on investments ......................... 4,896 13,515 (4,820)
------------ ------------ ------------
Net change in unrealized appreciation or depreciation of investments . 41,715 81,267 70,463
------------ ------------ ------------
Net gains (losses) on investments .................................. 46,611 94,782 65,643
------------ ------------ ------------
Net increase (decrease) in net assets resulting from operations .... $ 53,116 97,709 63,851
============ ============ ============
See accompanying notes to financial statements
Minnesota Life Variable Life Account
Statement of Changes in Net Assets
Year ended December 31, 2004
[Enlarge/Download Table]
Segregated Sub-Accounts
---------------------------------------------------------
Advantus Advantus Advantus
Advantus Money Index Mortgage
Bond Market 500 Securities
------------ ------------ ------------ ------------
Operations:
Investment income (loss) - net ....................................... $ (335,759) 41,244 (1,216,414) (258,584)
Net realized gains (losses) on investments ........................... 476,112 - 595,787 351,730
Net change in unrealized appreciation or depreciation of
investments ........................................................ 2,788,573 - 24,447,826 2,086,600
------------ ------------ ------------ ------------
Net increase (decrease) in net assets resulting from operations ........ 2,928,926 41,244 23,827,199 2,179,746
------------ ------------ ------------ ------------
Policy transactions (notes 2, 3, 4 and 5):
Policy purchase payments ............................................. 7,912,396 9,504,325 19,449,648 6,311,864
Policy terminations, withdrawal payments and charges ................. (3,997,944) (11,141,549) (10,347,830) (3,217,063)
------------ ------------ ------------ ------------
Increase (decrease) in net assets from Policy transactions ............. 3,914,452 (1,637,224) 9,101,818 3,094,801
------------ ------------ ------------ ------------
Increase (decrease) in net assets ...................................... 6,843,378 (1,595,980) 32,929,017 5,274,547
Net assets at the beginning of year .................................... 64,912,460 18,328,561 233,704,567 49,223,053
------------ ------------ ------------ ------------
Net assets at the end of year .......................................... $ 71,755,838 16,732,581 266,633,584 54,497,600
============ ============ ============ ============
Segregated Sub-Accounts
------------------------------------------
Advantus Advantus Advantus
International Index 400 Real Estate
Bond Mid-Cap Securities
------------ ------------ ------------
Operations:
Investment income (loss) - net ....................................... (51,130) (131,887) (101,728)
Net realized gains (losses) on investments ........................... 214,822 382,732 341,887
Net change in unrealized appreciation or depreciation of
investments ........................................................ 994,833 3,709,918 6,528,702
------------ ------------ ------------
Net increase (decrease) in net assets resulting from operations ........ 1,158,525 3,960,763 6,768,861
------------ ------------ ------------
Policy transactions (notes 2, 3, 4 and 5):
Policy purchase payments ............................................. 2,263,340 6,049,293 8,489,305
Policy terminations, withdrawal payments and charges ................. (924,421) (2,247,598) (1,066,492)
------------ ------------ ------------
Increase (decrease) in net assets from Policy transactions ............. 1,338,919 3,801,695 7,422,813
------------ ------------ ------------
Increase (decrease) in net assets ...................................... 2,497,444 7,762,458 14,191,674
Net assets at the beginning of year .................................... 9,639,586 23,447,795 15,304,774
------------ ------------ ------------
Net assets at the end of year .......................................... 12,137,030 31,210,253 29,496,448
============ ============ ============
See accompanying notes to financial statements
Minnesota Life Variable Life Account
Statement of Changes in Net Assets
Year ended December 31, 2004
[Enlarge/Download Table]
Segregated Sub-Accounts
---------------------------------------------------------
AIM V.I.
AIM V.I. Dent AIM V.I.
Aggressive AIM V.I. Demographic Premier
Growth Balanced Trends Equity
------------ ------------ ------------ ------------
Operations:
Investment income (loss) - net ....................................... $ (7,420) 3,242 (919) (186)
Net realized gains (losses) on investments ........................... 27,380 7,064 1,095 2,541
Net change in unrealized appreciation or depreciation of
investments ........................................................ 169,196 8,208 11,049 23,544
------------ ------------ ------------ ------------
Net increase (decrease) in net assets resulting from operations ........ 189,156 18,514 11,225 25,899
------------ ------------ ------------ ------------
Policy transactions (notes 2, 3, 4 and 5):
Policy purchase payments ............................................. 880,305 288,154 183,147 235,436
Policy withdrawals and charges ....................................... (171,240) (120,220) (80,745) (22,570)
------------ ------------ ------------ ------------
Increase (decrease) in net assets from Policy transactions ............. 709,065 167,934 102,402 212,866
------------ ------------ ------------ ------------
Increase (decrease) in net assets ...................................... 898,221 186,448 113,627 238,765
Net assets at the beginning of year .................................... 1,083,101 165,008 115,564 279,528
------------ ------------ ------------ ------------
Net assets at the end of year .......................................... $ 1,981,322 351,456 229,191 518,293
============ ============ ============ ============
Segregated Sub-Accounts
------------------------------------------
American
Century American American
Income Century Century
and Growth Ultra Value
------------ ------------ ------------
Operations:
Investment income (loss) - net ....................................... 1,793 (26,911) 333
Net realized gains (losses) on investments ........................... 23,449 27,652 52,465
Net change in unrealized appreciation or depreciation of
investments ........................................................ 54,666 728,592 211,539
------------ ------------ ------------
Net increase (decrease) in net assets resulting from operations ........ 79,908 729,333 264,337
------------ ------------ ------------
Policy transactions (notes 2, 3, 4 and 5):
Policy purchase payments ............................................. 715,658 6,562,662 2,562,395
Policy withdrawals and charges ....................................... (191,040) (159,574) (264,194)
------------ ------------ ------------
Increase (decrease) in net assets from Policy transactions ............. 524,618 6,403,088 2,298,201
------------ ------------ ------------
Increase (decrease) in net assets ...................................... 604,526 7,132,421 2,562,538
Net assets at the beginning of year .................................... 326,036 2,464,606 671,196
------------ ------------ ------------
Net assets at the end of year .......................................... 930,562 9,597,027 3,233,734
============ ============ ============
See accompanying notes to financial statements
Minnesota Life Variable Life Account
Statement of Changes in Net Assets
Year ended December 31, 2004
[Enlarge/Download Table]
Segregated Sub-Accounts
---------------------------------------------------------
Credit
Suisse
Global Fidelity VIP
Post-Venture Fidelity VIP Equity- Fidelity VIP
Capital Contrafund Income Mid-Cap
------------ ------------ ------------ ------------
Operations:
Investment income (loss) - net ....................................... $ (8,108) (92,064) 216,162 (119,155)
Net realized gains (losses) on investments ........................... 12,860 115,239 216,012 228,029
Net change in unrealized appreciation or depreciation of
investments ........................................................ 261,234 4,368,947 2,917,348 5,531,819
------------ ------------ ------------ ------------
Net increase (decrease) in net assets resulting from operations ........ 265,986 4,392,122 3,349,522 5,640,693
------------ ------------ ------------ ------------
Policy transactions (notes 2, 3, 4 and 5):
Policy purchase payments ............................................. 699,809 8,424,224 11,360,594 6,885,856
Policy withdrawals and charges ....................................... (485,146) (733,470) (1,366,573) (858,100)
------------ ------------ ------------ ------------
Increase (decrease) in net assets from Policy transactions ............. 214,663 7,690,754 9,994,021 6,027,756
------------ ------------ ------------ ------------
Increase (decrease) in net assets ...................................... 480,649 12,082,876 13,343,543 11,668,449
Net assets at the beginning of year .................................... 1,407,038 24,931,097 24,188,307 19,837,629
------------ ------------ ------------ ------------
Net assets at the end of year .......................................... $ 1,887,687 37,013,973 37,531,850 31,506,078
============ ============ ============ ============
Segregated Sub-Accounts
------------------------------------------
Franklin
Large Cap Franklin
Growth Mutual Shares Franklin
Securities Securities Small Cap
------------ ------------ ------------
Operations:
Investment income (loss) - net ....................................... (466) 5,433 (70,822)
Net realized gains (losses) on investments ........................... 40,970 19,701 146,784
Net change in unrealized appreciation or depreciation of
investments ........................................................ 59,152 385,842 1,522,935
------------ ------------ ------------
Net increase (decrease) in net assets resulting from operations ........ 99,656 410,976 1,598,897
------------ ------------ ------------
Policy transactions (notes 2, 3, 4 and 5):
Policy purchase payments ............................................. 1,187,933 3,237,623 4,071,084
Policy withdrawals and charges ....................................... (294,779) (116,671) (987,570)
------------ ------------ ------------
Increase (decrease) in net assets from Policy transactions ............. 893,154 3,120,952 3,083,514
------------ ------------ ------------
Increase (decrease) in net assets ...................................... 992,810 3,531,928 4,682,411
Net assets at the beginning of year .................................... 648,889 1,303,765 12,446,579
------------ ------------ ------------
Net assets at the end of year .......................................... 1,641,699 4,835,693 17,128,990
============ ============ ============
See accompanying notes to financial statements
Minnesota Life Variable Life Account
Statement of Changes in Net Assets
Year ended December 31, 2004
[Enlarge/Download Table]
Segregated Sub-Accounts
---------------------------------------------------------
Templeton
Developing Templeton Janus Janus
Markets Global Asset Aspen Aspen Capital
Securities Allocation Balanced Appreciation
------------ ------------ ------------ ------------
Operations:
Investment income (loss) - net ....................................... $ 160,472 95,987 5,934 (103,159)
Net realized gains (losses) on investments ........................... 450,717 38,475 5,424 (187,317)
Net change in unrealized appreciation or depreciation of
investments ........................................................ 2,185,193 564,427 15,231 3,914,933
------------ ------------ ------------ ------------
Net increase (decrease) in net assets resulting from operations ........ 2,796,382 698,889 26,589 3,624,457
------------ ------------ ------------ ------------
Policy transactions (notes 2, 3, 4 and 5):
Policy purchase payments ............................................. 2,663,774 2,934,104 174,184 2,735,330
Policy withdrawals and charges ....................................... (1,728,077) (338,347) (62,197) (2,519,011)
------------ ------------ ------------ ------------
Increase (decrease) in net assets from Policy transactions ............. 935,697 2,595,757 111,987 216,319
------------ ------------ ------------ ------------
Increase (decrease) in net assets ...................................... 3,732,079 3,294,646 138,576 3,840,776
Net assets at the beginning of year .................................... 10,880,089 2,708,730 227,257 20,661,447
------------ ------------ ------------ ------------
Net assets at the end of year .......................................... $ 14,612,168 6,003,376 365,833 24,502,223
============ ============ ============ ============
Segregated Sub-Accounts
------------------------------------------
Janus MFS MFS
International Investors Mid Cap
Growth Growth Stock Growth
------------ ------------ ------------
Operations:
Investment income (loss) - net ....................................... 66,350 (2,733) (3,307)
Net realized gains (losses) on investments ........................... (104,233) 16,834 19,919
Net change in unrealized appreciation or depreciation of
investments ........................................................ 3,255,464 32,436 49,904
------------ ------------ ------------
Net increase (decrease) in net assets resulting from operations ........ 3,217,581 46,537 66,516
------------ ------------ ------------
Policy transactions (notes 2, 3, 4 and 5):
Policy purchase payments ............................................. 2,602,100 382,620 1,239,708
Policy withdrawals and charges ....................................... (1,867,303) (218,462) (719,302)
------------ ------------ ------------
Increase (decrease) in net assets from Policy transactions ............. 734,797 164,158 520,406
------------ ------------ ------------
Increase (decrease) in net assets ...................................... 3,952,378 210,695 586,922
Net assets at the beginning of year .................................... 17,221,128 446,233 307,921
------------ ------------ ------------
Net assets at the end of year .......................................... 21,173,506 656,928 894,843
============ ============ ============
See accompanying notes to financial statements
Minnesota Life Variable Life Account
Statement of Changes in Net Assets
Year ended December 31, 2004
[Enlarge/Download Table]
Segregated Sub-Accounts
---------------------------------------------------------
MFS Oppenheimer
New MFS Capital Oppenheimer
Discovery Value Appreciation High Income
------------ ------------ ------------ ------------
Operations:
Investment income (loss) - net ....................................... $ (14,662) 35,860 (6,679) 103,560
Net realized gains (losses) on investments ........................... 52,635 21,735 31,213 19,012
Net change in unrealized appreciation or depreciation of
investments ........................................................ 205,742 454,834 149,841 69,810
------------ ------------ ------------ ------------
Net increase (decrease) in net assets resulting from operations ........ 243,715 512,429 174,375 192,382
------------ ------------ ------------ ------------
Policy transactions (notes 2, 3, 4 and 5):
Policy purchase payments ............................................. 3,094,198 2,662,262 2,202,753 2,377,623
Policy withdrawals and charges ....................................... (580,436) (148,487) (223,917) (623,161)
------------ ------------ ------------ ------------
Increase (decrease) in net assets from Policy transactions ............. 2,513,762 2,513,775 1,978,836 1,754,462
------------ ------------ ------------ ------------
Increase (decrease) in net assets ...................................... 2,757,477 3,026,204 2,153,211 1,946,844
Net assets at the beginning of year .................................... 1,587,693 1,759,604 1,077,516 1,418,164
------------ ------------ ------------ ------------
Net assets at the end of year .......................................... $ 4,345,170 4,785,808 3,230,727 3,365,008
============ ============ ============ ============
Segregated Sub-Accounts
------------------------------------------
Oppenheimer Putnam VT Putnam VT
International Growth and International
Growth Income Growth
------------ ------------ ------------
Operations:
Investment income (loss) - net ....................................... 11,078 2,751 18,221
Net realized gains (losses) on investments ........................... 73,512 6,486 84,028
Net change in unrealized appreciation or depreciation of
investments ........................................................ 335,037 18,021 363,845
------------ ------------ ------------
Net increase (decrease) in net assets resulting from operations ........ 419,627 27,258 466,094
------------ ------------ ------------
Policy transactions (notes 2, 3, 4 and 5):
Policy purchase payments ............................................. 1,839,798 198,259 1,991,654
Policy withdrawals and charges ....................................... (362,675) (45,596) (430,015)
------------ ------------ ------------
Increase (decrease) in net assets from Policy transactions ............. 1,477,123 152,663 1,561,639
------------ ------------ ------------
Increase (decrease) in net assets ...................................... 1,896,750 179,921 2,027,733
Net assets at the beginning of year .................................... 1,203,305 149,378 1,568,774
------------ ------------ ------------
Net assets at the end of year .......................................... 3,100,055 329,299 3,596,507
============ ============ ============
See accompanying notes to financial statements
Minnesota Life Variable Life Account
Statement of Changes in Net Assets
Year ended December 31, 2004
[Enlarge/Download Table]
Segregated Sub-Accounts
---------------------------------------------------------
Putnam VT Putnam VT Waddell &
New New Putnam VT Reed
Opportunities Value Voyager Balanced
------------ ------------ ------------ ------------
Operations:
Investment income (loss) - net ....................................... $ (508) 1,332 (6,831) 1,376,626
Net realized gains (losses) on investments ........................... 8,756 46,254 21,098 (889,249)
Net change in unrealized appreciation or depreciation of
investments ........................................................ 2,986 121,994 132,113 11,159,598
------------ ------------ ------------ ------------
Net increase (decrease) in net assets resulting from operations ........ 11,234 169,580 146,380 11,646,975
------------ ------------ ------------ ------------
Policy transactions (notes 2, 3, 4 and 5):
Policy purchase payments ............................................. 120,821 1,264,423 1,719,665 5,613,980
Policy withdrawals and charges ....................................... (131,446) (251,358) (213,064) (12,595,690)
------------ ------------ ------------ ------------
Increase (decrease) in net assets from Policy transactions ............. (10,625) 1,013,065 1,506,601 (6,981,710)
------------ ------------ ------------ ------------
Increase (decrease) in net assets ...................................... 609 1,182,645 1,652,981 4,665,265
Net assets at the beginning of year .................................... 60,367 584,940 1,579,833 143,728,924
------------ ------------ ------------ ------------
Net assets at the end of year .......................................... $ 60,976 1,767,585 3,232,814 148,394,189
============ ============ ============ ============
Segregated Sub-Accounts
------------------------------------------
Waddell & Waddell &
Waddell & Reed Reed
Reed International Small Cap
Growth II Growth
------------ ------------ ------------
Operations:
Investment income (loss) - net ....................................... (380,510) 773,037 (422,269)
Net realized gains (losses) on investments ........................... (3,180,636) 2,371,462 (699,413)
Net change in unrealized appreciation or depreciation of investments . 8,178,901 24,364,116 12,224,651
------------ ------------ ------------
Net increase (decrease) in net assets resulting from operations ........ 4,617,755 27,508,615 11,102,969
------------ ------------ ------------
Policy transactions (notes 2, 3, 4 and 5):
Policy purchase payments ............................................. 7,396,050 6,543,983 4,799,032
Policy withdrawals and charges ....................................... (13,005,530) (8,235,744) (7,860,955)
------------ ------------ ------------
Increase (decrease) in net assets from Policy transactions ............. (5,609,480) (1,691,761) (3,061,923)
------------ ------------ ------------
Increase (decrease) in net assets ...................................... (991,725) 25,816,854 8,041,046
Net assets at the beginning of year .................................... 174,753,707 125,660,408 83,797,756
------------ ------------ ------------
Net assets at the end of year .......................................... 173,761,982 151,477,262 91,838,802
============ ============ ============
See accompanying notes to financial statements
Minnesota Life Variable Life Account
Statement of Changes in Net Assets
Year ended December 31, 2004
[Enlarge/Download Table]
Segregated Sub-Accounts
---------------------------------------------------------
Waddell & Waddell &
Waddell & Reed Reed Waddell &
Reed Micro-Cap Small Cap Reed
Value Growth Value Core Equity
------------ ------------ ------------ ------------
Operations:
Investment income (loss) - net ....................................... $ 376,670 (86,350) (157,303) 15,080
Net realized gains (losses) on investments ........................... 396,522 (266,103) 2,300,717 (137,835)
Net change in unrealized appreciation or depreciation of
investments ........................................................ 8,214,821 1,846,334 2,413,155 961,258
------------ ------------ ------------ ------------
Net increase (decrease) in net assets resulting from operations ........ 8,988,013 1,493,881 4,556,569 838,503
------------ ------------ ------------ ------------
Policy transactions (notes 2, 3, 4 and 5):
Policy purchase payments ............................................. 3,851,312 2,459,860 6,096,816 1,350,790
Policy withdrawals and charges ....................................... (5,596,208) (3,343,632) (2,106,195) (1,717,749)
------------ ------------ ------------ ------------
Increase (decrease) in net assets from Policy transactions ............. (1,744,896) (883,772) 3,990,621 (366,959)
------------ ------------ ------------ ------------
Increase (decrease) in net assets ...................................... 7,243,117 610,109 8,547,190 471,544
Net assets at the beginning of year .................................... 64,685,031 17,671,342 29,004,455 10,131,512
------------ ------------ ------------ ------------
Net assets at the end of year .......................................... $ 71,928,148 18,281,451 37,551,645 10,603,056
============ ============ ============ ============
Segregated Sub-Accounts
------------------------------------------
Waddell & Waddell &
Reed Waddell & Reed
Asset Reed Science &
Strategy International Technology
------------ ------------ ------------
Operations:
Investment income (loss) - net ....................................... 6,505 2,927 (1,792)
Net realized gains (losses) on investments ........................... 4,896 13,515 (4,820)
Net change in unrealized appreciation or depreciation of
investments ........................................................ 41,715 81,267 70,463
------------ ------------ ------------
Net increase (decrease) in net assets resulting from operations ........ 53,116 97,709 63,851
------------ ------------ ------------
Policy transactions (notes 2, 3, 4 and 5):
Policy purchase payments ............................................. 579,960 1,100,787 843,340
Policy withdrawals and charges ....................................... (60,548) (533,466) (387,494)
------------ ------------ ------------
Increase (decrease) in net assets from Policy transactions ............. 519,412 567,321 455,846
------------ ------------ ------------
Increase (decrease) in net assets ...................................... 572,528 665,030 519,697
Net assets at the beginning of year .................................... 64,781 237,965 103,437
------------ ------------ ------------
Net assets at the end of year .......................................... 637,309 902,995 623,134
============ ============ ============
See accompanying notes to financial statements
Minnesota Life Variable Life Account
Statements of Changes in Net Assets
Year ended December 31, 2003
[Enlarge/Download Table]
Segregated Sub-Accounts
---------------------------------------------------------
Advantus Advantus Advantus
Advantus Money Mortgage Index
Bond Market Securities 500
------------ ------------ ------------ ------------
Operations:
Investment income (loss) - net ....................................... $ (315,508) 27,459 (235,609) (945,814)
Net realized gains (losses) on investments ........................... 401,690 - 263,208 (4,089,002)
Net change in unrealized appreciation or depreciation on investments . 2,842,718 - 1,632,816 52,663,675
------------ ------------ ------------ ------------
Net increase in net assets resulting from operations ................... 2,928,900 27,459 1,660,415 47,628,859
------------ ------------ ------------ ------------
Policy transactions (notes 3,4 and 5):
Policy purchase payments ............................................. 7,065,350 11,758,903 6,930,611 38,825,815
Policy withdrawals and charges ....................................... (4,237,948) (18,587,936) (3,246,805) (17,081,633)
------------ ------------ ------------ ------------
Increase (decrease) in net assets from policy transactions ............. 2,827,402 (6,829,033) 3,683,806 21,744,182
------------ ------------ ------------ ------------
Increase (decrease) in net assets ...................................... 5,756,302 (6,801,574) 5,344,221 69,373,041
Net assets at the beginning of year (note 1) ........................... 59,156,158 25,130,135 43,878,832 164,331,526
------------ ------------ ------------ ------------
Net assets at the end of year .......................................... $ 64,912,460 18,328,561 49,223,053 233,704,567
============ ============ ============ ============
Segregated Sub-Accounts
------------------------------------------
Advantus
Advantus Advantus Real
International Index 400 Estate
Bond Mid-Cap Securities
------------ ------------ ------------
Operations:
Investment income (loss) - net ....................................... (41,367) (86,236) (54,111)
Net realized gains (losses) on investments ........................... 216,412 (203,119) 97,004
Net change in unrealized appreciation or depreciation on investments . 1,319,870 5,562,260 3,879,591
------------ ------------ ------------
Net increase in net assets resulting from operations ................... 1,494,915 5,272,905 3,922,484
------------ ------------ ------------
Policy transactions (notes 3,4 and 5):
Policy purchase payments ............................................. 2,972,502 6,245,191 3,974,290
Policy withdrawals and charges ....................................... (1,226,232) (2,214,601) (491,437)
------------ ------------ ------------
Increase (decrease) in net assets from policy transactions ............. 1,746,270 4,030,590 3,482,853
------------ ------------ ------------
Increase (decrease) in net assets ...................................... 3,241,185 9,303,495 7,405,337
Net assets at the beginning of year (note 1) ........................... 6,398,401 14,144,300 7,899,437
------------ ------------ ------------
Net assets at the end of year .......................................... 9,639,586 23,447,795 15,304,774
============ ============ ============
See accompanying notes to financial statements
Minnesota Life Variable Life Account
Statements of Changes in Net Assets
Year ended December 31, 2003
[Enlarge/Download Table]
Segregated Sub-Accounts
---------------------------------------------------------
Templeton
Developing Templeton
Markets Global Asset Franklin Fidelity VIP
Securities Allocation Small Cap Mid Cap
------------ ------------ ------------ ------------
Operations:
Investment income (loss) - net ....................................... $ 51,731 26,095 (45,310) (37,533)
Net realized gains (losses) on investments ........................... (20,607) 4,541 (13,800) 19,860
Net change in unrealized appreciation or depreciation on investments . 3,499,117 422,929 3,106,671 5,014,456
------------ ------------ ------------ ------------
Net increase in net assets resulting from operations ................... 3,530,241 453,565 3,047,561 4,996,783
------------ ------------ ------------ ------------
Policy transactions (notes 3,4 and 5):
Policy purchase payments ............................................. 1,908,746 1,558,991 4,149,341 4,284,987
Policy withdrawals and charges ....................................... (916,948) (131,016) (488,246) (932,758)
------------ ------------ ------------ ------------
Increase (decrease) in net assets from policy transactions ............. 991,798 1,427,975 3,661,095 3,352,229
------------ ------------ ------------ ------------
Increase (decrease) in net assets ...................................... 4,522,039 1,881,540 6,708,656 8,349,012
Net assets at the beginning of year (note 1) ........................... 6,358,050 827,190 5,737,923 11,488,617
------------ ------------ ------------ ------------
Net assets at the end of year .......................................... $ 10,880,089 2,708,730 12,446,579 19,837,629
============ ============ ============ ============
Segregated Sub-Accounts
------------------------------------------
Janus
Fidelity VIP Fidelity VIP Aspen Capital
Contrafund Equity Income Appreciation
------------ ------------- ------------
Operations:
Investment income (loss) - net ....................................... (41,545) 149,006 (45,154)
Net realized gains (losses) on investments ........................... (100,171) (37,188) (460,647)
Net change in unrealized appreciation or depreciation on investments . 5,795,617 4,884,022 3,844,731
------------ ------------ ------------
Net increase in net assets resulting from operations ................... 5,653,901 4,995,840 3,338,930
------------ ------------ ------------
Policy transactions (notes 3,4 and 5):
Policy purchase payments ............................................. 6,919,144 7,493,147 3,479,774
Policy withdrawals and charges ....................................... (7,568,494) (668,462) (1,560,902)
------------ ------------ ------------
Increase (decrease) in net assets from policy transactions ............. (649,350) 6,824,685 1,918,872
------------ ------------ ------------
Increase (decrease) in net assets ...................................... 5,004,551 11,820,525 5,257,802
Net assets at the beginning of year (note 1) ........................... 19,926,546 12,367,782 15,403,645
------------ ------------ ------------
Net assets at the end of year .......................................... 24,931,097 24,188,307 20,661,447
============ ============ ============
See accompanying notes to financial statements
Minnesota Life Variable Life Account
Statements of Changes in Net Assets
Year ended December 31, 2003
[Enlarge/Download Table]
Segregated Sub-Accounts
---------------------------------------------------------
Credit Suisse
Janus Aspen Janus Global AIM V.I.
International Aspen Post-Venture Aggressive
Growth Balanced Capital Growth
------------ ------------ ------------ ------------
Operations:
Investment income (loss) - net ....................................... $ 67,481 1,943 (4,867) (1,573)
Net realized gains (losses) on investments ........................... (523,116) 199 (79,068) 1,372
Net change in unrealized appreciation or depreciation on investments . 4,804,775 10,790 465,928 87,349
------------ ------------ ------------ ------------
Net increase in net assets resulting from operations ................... 4,349,140 12,932 381,993 87,148
------------ ------------ ------------ ------------
Policy transactions (notes 3,4 and 5):
Policy purchase payments ............................................. 2,462,136 219,390 502,231 1,011,070
Policy withdrawals and charges ....................................... (1,343,844) (5,065) (218,159) (15,117)
------------ ------------ ------------ ------------
Increase (decrease) in net assets from policy transactions ............. 1,118,292 214,325 284,072 995,953
------------ ------------ ------------ ------------
Increase (decrease) in net assets ...................................... 5,467,432 227,257 666,065 1,083,101
Net assets at the beginning of year (note 1) ........................... 11,753,696 - 740,973 -
------------ ------------ ------------ ------------
Net assets at the end of year .......................................... $ 17,221,128 227,257 1,407,038 1,083,101
============ ============ ============ ============
Segregated Sub-Accounts
------------------------------------------
AIM V.I.
AIM V.I. Dent
AIM V.I. Premier Demographic
Balanced Equity Trends
------------ ------------ ------------
Operations:
Investment income (loss) - net ....................................... 2,799 97 (153)
Net realized gains (losses) on investments ........................... 986 571 2,387
Net change in unrealized appreciation or depreciation on investments . 6,426 24,038 4,148
------------ ------------ ------------
Net increase in net assets resulting from operations ................... 10,211 24,706 6,382
------------ ------------ ------------
Policy transactions (notes 3,4 and 5):
Policy purchase payments ............................................. 169,356 262,909 181,932
Policy withdrawals and charges ....................................... (14,559) (8,087) (72,750)
------------ ------------ ------------
Increase (decrease) in net assets from policy transactions ............. 154,797 254,822 109,182
------------ ------------ ------------
Increase (decrease) in net assets ...................................... 165,008 279,528 115,564
Net assets at the beginning of year (note 1) ........................... - - -
------------ ------------ ------------
Net assets at the end of year .......................................... 165,008 279,528 115,564
============ ============ ============
See accompanying notes to financial statements
Minnesota Life Variable Life Account
Statements of Changes in Net Assets
Year ended December 31, 2003
[Enlarge/Download Table]
Segregated Sub-Accounts
---------------------------------------------------------
American
American Century American Franklin
Century Income Century Mutual Shares
Value and Growth Ultra Securities
------------ ------------ ------------ ------------
Operations:
Investment income (loss) - net ....................................... $ (967) (396) (2,703) 1,151
Net realized gains (losses) on investments ........................... 1,046 1,536 987 119
Net change in unrealized appreciation or depreciation on investments . 73,632 27,250 122,738 106,430
------------ ------------ ------------ ------------
Net increase in net assets resulting from operations ................... 73,711 28,390 121,022 107,700
------------ ------------ ------------ ------------
Policy transactions (notes 3,4 and 5):
Policy purchase payments ............................................. 608,982 314,931 2,352,785 1,196,069
Policy withdrawals and charges ....................................... (11,497) (17,285) (9,201) (2,800)
------------ ------------ ------------ ------------
Increase (decrease) in net assets from policy transactions ............. 597,485 297,646 2,343,584 1,196,065
------------ ------------ ------------ ------------
Increase (decrease) in net assets ...................................... 671,196 326,036 2,464,606 1,303,765
Net assets at the beginning of year (note 1) ........................... - - - -
------------ ------------ ------------ ------------
Net assets at the end of year .......................................... $ 671,196 326,036 2,464,606 1,303,765
============ ============ ============ ============
Segregated Sub-Accounts
------------------------------------------
Franklin
Large Cap MFS MFS
Growth Investors Mid Cap
Securities Growth Stock Growth
------------ ------------ ------------
Operations:
Investment income (loss) - net ....................................... (26) (610) (375)
Net realized gains (losses) on investments ........................... 825 288 3,666
Net change in unrealized appreciation or depreciation on investments . 54,156 21,527 14,920
------------ ------------ ------------
Net increase in net assets resulting from operations ................... 54,955 21,205 18,211
------------ ------------ ------------
Policy transactions (notes 3,4 and 5):
Policy purchase payments ............................................. 603,616 428,448 337,481
Policy withdrawals and charges ....................................... (10,539) (3,420) (47,771)
------------ ------------ ------------
Increase (decrease) in net assets from policy transactions ............. 593,934 425,028 289,710
------------ ------------ ------------
Increase (decrease) in net assets ...................................... 648,889 446,233 307,921
Net assets at the beginning of year (note 1) ........................... - - -
------------ ------------ ------------
Net assets at the end of year .......................................... 648,889 446,233 307,921
============ ============ ============
See accompanying notes to financial statements
Minnesota Life Variable Life Account
Statements of Changes in Net Assets
Year ended December 31, 2003
[Enlarge/Download Table]
Segregated Sub-Accounts
---------------------------------------------------------
MFS Oppenheimer
New MFS Capital Oppenheimer
Discovery Value Appreciation High Income
------------ ------------ ------------ ------------
Operations:
Investment income (loss) - net ....................................... $ (1,724) (2,326) (1,307) (1,678)
Net realized gains (losses) on investments ........................... 8,935 2,353 8,111 9,503
Net change in unrealized appreciation or depreciation on investments . 65,750 171,775 80,447 57,609
------------ ------------ ------------ ------------
Net increase in net assets resulting from operations ................... 72,961 171,802 87,251 65,434
------------ ------------ ------------ ------------
Policy transactions (notes 3,4 and 5):
Policy purchase payments ............................................. 1,568,875 1,607,676 1,069,925 1,541,243
Policy withdrawals and charges ....................................... (54,143) (19,874) (79,660) (188,513)
------------ ------------ ------------ ------------
Increase (decrease) in net assets from policy transactions ............. 1,514,732 1,587,802 990,265 1,352,730
------------ ------------ ------------ ------------
Increase (decrease) in net assets ...................................... 1,587,693 1,759,604 1,077,516 1,418,164
Net assets at the beginning of year (note 1) ........................... - - - -
------------ ------------ ------------ ------------
Net assets at the end of year .......................................... $ 1,587,693 1,759,604 1,077,516 1,418,164
============ ============ ============ ============
Segregated Sub-Accounts
------------------------------------------
Oppenheimer Putnam VT Putnam VT
International Growth and International
Growth Income Equity
------------ ------------ ------------
Operations:
Investment income (loss) - net ....................................... (1,272) (232) (2,258)
Net realized gains (losses) on investments ........................... 35,508 927 21,365
Net change in unrealized appreciation or depreciation on investments . 116,919 15,836 177,673
------------ ------------ ------------
Net increase in net assets resulting from operations ................... 151,155 16,531 196,780
------------ ------------ ------------
Policy transactions (notes 3,4 and 5):
Policy purchase payments ............................................. 1,901,858 141,028 1,685,212
Policy withdrawals and charges ....................................... (849,708) (8,181) (313,218)
------------ ------------ ------------
Increase (decrease) in net assets from policy transactions ............. 1,052,150 132,847 1,371,994
------------ ------------ ------------
Increase (decrease) in net assets ...................................... 1,203,305 149,378 1,568,774
Net assets at the beginning of year (note 1) ........................... - - -
------------ ------------ ------------
Net assets at the end of year .......................................... 1,203,305 149,378 1,568,774
============ ============ ============
See accompanying notes to financial statements
Minnesota Life Variable Life Account
Statements of Changes in Net Assets
Year ended December 31, 2003
[Enlarge/Download Table]
Segregated Sub-Accounts
----------------------------------------------------------
Putnam VT Putnam VT Waddell
New New Putnam VT & Reed
Opportunities Value Voyager Growth
------------- ------------ ------------ --------------
Operations:
Investment income (loss) - net ....................................... $ (50) (824) (2,213) (772,787)
Net realized gains (losses) on investments ........................... 452 5,200 7,038 (54,647,919)
Net change in unrealized appreciation or depreciation on investments . 2,448 72,007 85,798 89,142,818
------------ ------------ ------------ ------------
Net increase in net assets resulting from operations ................... 2,850 76,383 90,623 33,722,112
------------ ------------ ------------ ------------
Policy transactions (notes 3,4 and 5):
Policy purchase payments ............................................. 61,325 537,158 1,553,585 91,798,638
Policy withdrawals and charges ....................................... (3,808) (28,601) (64,375) (90,791,365)
------------ ------------ ------------ ------------
Increase (decrease) in net assets from policy transactions ............. 57,517 508,557 1,489,210 1,007,273
------------ ------------ ------------ ------------
Increase (decrease) in net assets ...................................... 60,367 584,940 1,579,833 34,729,385
Net assets at the beginning of year (note 1) ........................... - - - 140,024,322
------------ ------------ ------------ ------------
Net assets at the end of year .......................................... $ 60,367 584,940 1,579,833 174,753,707
============ ============ ============ ============
Segregated Sub-Accounts
------------------------------------------
Waddell
Waddell Waddell & Reed
& Reed & Reed Small Cap
Core Equity International Growth
------------ ------------ ------------
Operations:
Investment income (loss) - net ....................................... 25,502 3,074 (342,106)
Net realized gains (losses) on investments ........................... (278,228) 2,420 (2,437,395)
Net change in unrealized appreciation or depreciation on investments . 2,008,731 16,434 29,785,725
------------ ------------ ------------
Net increase in net assets resulting from operations ................... 1,756,005 21,928 27,006,224
------------ ------------ ------------
Policy transactions (notes 3,4 and 5):
Policy purchase payments ............................................. 1,407,170 256,996 6,257,981
Policy withdrawals and charges ....................................... (1,223,827) (44,220) (6,192,288)
------------ ------------ ------------
Increase (decrease) in net assets from policy transactions ............. 183,343 216,037 65,693
------------ ------------ ------------
Increase (decrease) in net assets ...................................... 1,939,348 237,965 27,071,917
Net assets at the beginning of year (note 1) ........................... 8,192,164 - 56,725,839
------------ ------------ ------------
Net assets at the end of year .......................................... 10,131,512 237,965 83,797,756
============ ============ ============
See accompanying notes to financial statements
Minnesota Life Variable Life Account
Statements of Changes in Net Assets
Year ended December 31, 2003
[Enlarge/Download Table]
Segregated Sub-Accounts
---------------------------------------------------------
Waddell Waddell Waddell
Waddell & Reed & Reed & Reed
& Reed International Micro-Cap Small Cap
Balanced II Growth Value
------------ ------------ ------------ ------------
Operations:
Investment income (loss) - net ....................................... $ 270,942 1,402,893 (66,619) (102,302)
Net realized gains (losses) on investments ........................... (2,693,962) (1,023,226) (569,086) (122,898)
Net change in unrealized appreciation or depreciation on investments . 27,378,029 39,507,264 6,472,780 9,055,985
------------ ------------ ------------ ------------
Net increase in net assets resulting from operations ................... 24,955,009 39,886,931 5,837,075 8,830,785
------------ ------------ ------------ ------------
Policy transactions (notes 3,4 and 5):
Policy purchase payments ............................................. 6,589,108 7,390,769 3,202,932 5,218,710
Policy withdrawals and charges ....................................... (12,253,582) (7,355,298) (1,525,612) (1,189,477)
------------ ------------ ------------ ------------
Increase (decrease) in net assets from policy transactions ............. (5,664,474) 35,471 1,677,320 4,029,233
------------ ------------ ------------ ------------
Increase (decrease) in net assets ...................................... 19,290,535 39,922,402 7,514,395 12,860,018
Net assets at the beginning of year (note 1) ........................... 124,438,389 85,738,006 10,156,947 16,144,437
------------ ------------ ------------ ------------
Net assets at the end of year .......................................... $143,728,924 125,660,408 17,671,342 29,004,455
============ ============ ============ ============
Segregated Sub-Accounts
------------------------------------------
Waddell Waddell
Waddell & Reed & Reed
& Reed Science & Asset
Value Technology Strategy
------------ ------------ ------------
Operations:
Investment income (loss) - net ....................................... 49,184 (86) 666
Net realized gains (losses) on investments ........................... (549,381) 2,844 -
Net change in unrealized appreciation or depreciation on investments . 13,984,996 2,947 1,105
------------ ------------ ------------
Net increase in net assets resulting from operations ................... 13,484,799 5,705 2,057
------------ ------------ ------------
Policy transactions (notes 3,4 and 5):
Policy purchase payments ............................................. 4,760,183 221,914 79,236
Policy withdrawals and charges ....................................... (3,789,028) (124,182) (16,512)
------------ ------------ ------------
Increase (decrease) in net assets from policy transactions ............. 971,154 97,732 62,724
------------ ------------ ------------
Increase (decrease) in net assets ...................................... 14,455,953 103,437 64,781
Net assets at the beginning of year (note 1) ........................... 50,229,078 - -
------------ ------------ ------------
Net assets at the end of year .......................................... 64,685,031 103,437 64,781
============ ============ ============
See accompanying notes to financial statements
1
Minnesota Life Variable Life Account
Notes to Financial Statements
December 31, 2004 and 2003
(1) Organization
The Minnesota Life Variable Life Account (the Account) was established on
October 21, 1985 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). There
are currently four types of variable life policies each consisting of forty-nine
segregated sub-accounts to which policy owners may allocate their purchase
payments. The financial statements presented herein include four types of
variable life policies, Variable Adjustable Life, Variable Adjustable Life
Second Death, Variable Adjustable Life Horizon and Variable Adjustable Life
Summit offered by the Account.
The assets of each segregated sub-account are held for the exclusive benefit of
the variable life policy owners and are not chargeable with liabilities arising
out of the business conducted by any other account or by Minnesota Life.
Variable 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 Advantus Series Fund, Inc., AIM Variable Insurance Funds, American
Century Variable Portfolios, Credit Suisse Trust, Fidelity Variable Insurance
Products Fund, Franklin Templeton Variable Insurance Products Trust, Janus Aspen
Series, MFS Variable Insurance Trust, Oppenheimer Variable Account Funds,
Panorama Series Fund, Inc., Putnam Variable Trust, and Waddell & Reed Target
Funds, Inc., (collectively, the Underlying Funds). The Advantus Series Fund,
Inc. was organized by Minnesota Life as the investment vehicle for its variable
life insurance policies and variable annuity contracts. 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.
On September 22, 2003, the Advantus Series Fund, Inc. and Waddell & Reed Target
Funds, Inc. completed a tax free exchange where the shares of the Advantus
Growth and Advantus Capital Appreciation Portfolios were combined into Waddell &
Reed Growth, and the Advantus Asset Allocation, Advantus International Stock,
Advantus Value Stock, Advantus Small Company Value, Advantus Macro-Cap Value and
Advantus Micro-Cap Growth were exchanged for shares of Waddell & Reed Balanced,
Waddell & Reed International II, Waddell & Reed Value, Waddell & Reed Small-Cap
Growth, Waddell & Reed Core Equity and Waddell & Reed Micro-Cap Growth,
respectively.
Payments allocated to the Advantus Bond, Advantus Money Market, Advantus Index
500, Advantus Mortgage Securities, Advantus International Bond, Advantus Index
400 Mid-Cap, Advantus Real Estate Securities, AIM V.I. Aggressive Growth, AIM
V.I. Balanced, AIM V.I. Dent Demographics Trends, AIM V.I. Premier Equity,
American Century Income and Growth, American Century Ultra, American Century
Value, Credit Suisse Global Post-Venture Capital, Fidelity VIP Contrafund,
Fidelity VIP Equity-Income, Fidelity VIP Mid Cap, Franklin Large Cap Growth
Securities, Franklin Mutual Shares Securities, Franklin Small Cap, Templeton
Developing Markets Securities, Templeton Global Asset Allocation, Janus Aspen
Balanced, Janus Aspen Capital Appreciation, Janus Aspen International Growth,
MFS Investors Growth Stock, MFS Mid Cap Growth, MFS New Discovery, MFS Value,
Oppenheimer Capital Appreciation, Oppenheimer High Income, Oppenheimer
International Growth, Putnam VT Growth and Income, Putnam VT International
Growth, Putnam VT New Opportunities, Putnam VT New Value, Putnam VT Voyager,
Waddell & Reed Balanced, Waddell & Reed Growth, Waddell & Reed International II,
Waddell & Reed Small Cap Growth, Waddell & Reed Value, Waddell & Reed Micro-Cap
Growth, Waddell & Reed Small Cap Value, Waddell & Reed Core Equity, Waddell &
Reed Asset Strategy, Waddell & Reed International,
2
Minnesota Life Variable Life Account
Notes to Financial Statements
December 31, 2004 and 2003
(1) Organization - Continued
and Waddell & Reed Science and Technology segregated sub-accounts are invested
in shares of the Bond, Money Market, Index 500, Mortgage Securities,
International Bond, Index 400 Mid-Cap, and Real Estate Securities Portfolios of
the Advantus Series Fund, Inc.; Series II shares of AIM V.I. Aggressive Growth,
AIM V.I. Balanced, AIM V.I. Dent Demographic Trends Fund, and AIM V.I. Premier
Equity Funds of the AIM Variable Insurance Funds; Class II shares of American
Century Income and Growth, American Century Ultra, and American Century Value
Funds of the American Century Variable Portfolios, Inc.; Credit Suisse Global
Post-Venture Capital Portfolio of Credit Suisse Trust; Service Class 2 shares of
VIP Contrafund, VIP Equity-Income, and VIP Mid Cap Portfolios of Fidelity
Variable Insurance Products Funds; Class 2 shares of Franklin Large Cap Growth
Securities, Franklin Mutual Shares Securities, Franklin Small Cap, Templeton
Developing Markets Securities, and Templeton Global Asset Allocation Funds of
Franklin Templeton Variable Insurance Products Trust; Service shares of Janus
Aspen Balanced, Janus Aspen Capital Appreciation, and Janus Aspen International
Growth Portfolios of Janus Aspen Series; Service shares of MFS Investors Growth
Stock, MFS Mid Cap Growth, MFS New Discovery, and MFS Value Series of MFS
Variable Insurance Trust; Service shares of Oppenheimer Capital Appreciation and
Oppenheimer High Income Funds of Oppenheimer Variable Account Funds; Service
shares of Oppenheimer International Growth Fund of Panorama Series Fund, Inc.;
IB shares of Putnam VT Growth and Income, Putnam VT International Growth, Putnam
VT New Opportunities, Putnam VT New Value, and Putnam VT Voyager Funds of Putnam
Variable Trust; Waddell & Reed Balanced, Waddell & Reed Growth, Waddell & Reed
International II, Waddell & Reed Small Cap Growth, Waddell & Reed Value, Waddell
& Reed Micro-Cap Growth, Waddell & Reed Small Cap Value, Waddell & Reed Core
Equity, Waddell & Reed Asset Strategy, Waddell & Reed International, and Waddell
& Reed Science and Technology Portfolios of the Waddell & Reed Target Funds,
Inc., respectively.
Securian Financial Services, Inc. (Securian) acts as the underwriter for the
Account. Advantus Capital Management, Inc. (Advantus) acts as the investment
adviser for the Advantus Series Fund, 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.
Effective January 1, 2003, the cost of investments sold is determined on the
FIFO basis. Prior to January 1, 2003, the cost of investments sold was
determined on the average cost method. The financial statement
3
Minnesota Life Variable Life Account
Notes to Financial Statements
December 31, 2004 and 2003
(2) Summary of Significant Accounting Policies - continued
impact of this change in determining the cost of investments sold does not
change the net assets of the sub-account and is limited to classification
changes between realized and unrealized gains and losses. Management has
determined that the reclassification amounts were not material.
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 dividend 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.
(3) Expenses and Related Party Transactions
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 basic sales load of up to 7 percent is deducted from each premium payment for
Variable Adjustable Life and Variable Adjustable Life Second Death policies. A
first year sales load not to exceed 44 percent may also be deducted. Total sales
charges deducted from premium payments for the years ended December 31, 2004 and
2003 amounted to $31,016,224 and $29,006,038, respectively.
An underwriting charge is deducted from first year purchase payments in an
amount not to exceed $5 per $1,000 face amount of insurance for Variable
Adjustable Life policies and $10 per $1,000 face amount of insurance for
Variable Adjustable Life Second Death policies. The amount may vary by the age
of the insured and the premium level for a given amount of insurance. The
underwriting charge is paid for administrative costs associated with issuance or
adjustment of policies. Total underwriting charges deducted from premium
payments for the years ended December 31, 2004 and 2003 amounted to $6,944,713
and $6,088,393, respectively.
A premium tax charge in the amount of 2.5 percent is deducted from each premium
payment for Variable Adjustable Life and Variable Adjustable Life Second Death
policies. Premium taxes are paid to state and local governments. Total premium
tax charges for the years ended December 31, 2004 and 2003 amounted to
$6,268,331 and $6,496,072, respectively.
A face amount guarantee charge of 1.5 percent is deducted from each Variable
Adjustable Life policy premium payment. The charge is paid for the guarantee
that the death benefit will always be at least equal to the current face amount
of insurance regardless of the investment performance. Total face amount
guarantee charges deducted from premium payments for the years ended December
31, 2004 and 2003 amounted to $2,978,788 and $3,116,949, respectively.
4
Minnesota Life Variable Life Account
Notes to Financial Statements
December 31, 2004 and 2003
(3) Expenses and Related Party Transactions - Continued
A federal tax charge of 1.25 percent is deducted from each Variable Adjustable
Life Second Death policy 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, 2004 and 2003 amounted to $468,983 and
$433,822, respectively.
In addition to deductions from premium payments, cash value charges (which may
include an administration charge, certain transaction charges, a cost of
insurance charge and a charge for sub-standard risks), 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 individual policy owner. The administration charge is
$60 for each policy year for Variable Adjustable Life policies and $120 for each
policy year for Variable Adjustable Life Second Death policies. The transaction
charges are for expenses incurred by Minnesota Life for processing certain
transactions. A charge of $25 to $95 is assessed for each policy adjustment. A
charge not to exceed $25 may be assessed for each transfer of actual cash value
among the segregated sub-accounts. In addition, a face amount guarantee charge
is assessed from the actual cash value of each Variable Adjustable Life Second
Death policy. The face amount guarantee charge is guaranteed not to exceed 3
cents per thousand dollars of face amount per month.
The following charges are associated with Variable Adjustable Life Horizon. An
additional face amount charge not to exceed $5 per thousand is charged for
first-year base premiums. A premium charge of 6 percent is charged on all
non-repeating premiums. In addition, against the cash value of a Policy,
Minnesota Life deducts a monthly policy charge of $8 plus 2 cents per thousand
of the face amount. The monthly policy charge cannot exceed $10 plus 3 cents per
thousand of the face amount.
The following charges are associated with Variable Adjustable Life Summit. An
additional face amount charge not to exceed 5.75 percent is charged for base and
non-repeating premiums. In addition, against the cash value of a Policy,
Minnesota Life deducts a monthly policy charge of $5 plus $0.0125 per thousand
of the face amount. The monthly policy charge cannot exceed $12 plus $0.0125 per
thousand of the face amount.
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, sex, risk class, level of scheduled premium and duration of the policy. The
charge for substandard risks is for providing death benefits for policies which
have mortality risks in excess of the standard.
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 of the 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. Each
Portfolio pays an annual fee equal to 0.02 % of net assets to State Street, Inc.
for daily fund accounting services. Advantus Series Fund, Inc. also pays an
administrative services fee to Minnesota Life.
To the extent the Account invests in non-affiliated funds, the Account will also
indirectly incur fees.
5
Minnesota Life Variable Life Account
Notes to Financial Statements
December 31, 2004 and 2003
(3) Expenses and Related Party Transactions - Continued
The total of cash value charges for the years ended December 31, 2004 and 2003
for each segregated sub-account are as follows:
2004 2003
-------------- -------------
Advantus Bond................................ $ 4,459,500 $ 4,821,497
Advantus Money Market........................ 1,741,741 2,524,951
Advantus Index 500........................... 14,408,176 14,637,158
Advantus Mortgage Securities................. 3,841,798 3,992,836
Advantus International Bond.................. 831,533 872,975
Advantus Index 400 Mid-Cap................... 1,687,991 1,384,516
Advantus Real Estate Securities.............. 1,383,273 863,449
AIM V.I. Aggressive Growth................... 132,976 26,769
AIM V.I. Balanced............................ 49,902 12,227
AIM V.I. Dent Demographics Trends............ 15,370 3,066
AIM V.I. Premier Equity...................... 29,020 9,283
American Century Income & Growth............. 61,619 9,473
American Century Ultra....................... 625,472 49,879
American Century Value....................... 124,026 14,644
Credit Suisse Global Post-Venture Capital.... 130,421 118,633
Fidelity VIP Contrafund...................... 2,215,821 1,933,098
Fidelity VIP Equity-Income................... 2,591,839 1,733,764
Fidelity VIP Mid-Cap......................... 1,736,560 1,377,611
Franklin Large Cap Growth Securities......... 81,741 14,777
Franklin Mutual Shares Securities............ 207,462 29,431
Franklin Small Cap........................... 1,207,380 1,051,128
Templeton Developing Markets Securities...... 829,514 695,492
Templeton Global Asset Allocation............ 358,322 150,164
Janus Aspen Balanced......................... 37,420 10,704
Janus Aspen Capital Appreciation............. 1,755,784 1,912,206
Janus International Growth................... 1,559,663 1,573,926
MFS Investors Growth Stock................... 53,360 11,695
MFS Mid Cap Growth........................... 57,212 8,729
MFS New Discovery............................ 327,539 32,069
MFS Value.................................... 253,875 54,807
Oppenheimer Capital Appreciation............. 166,784 22,241
Oppenheimer High Income...................... 179,718 24,260
Oppenheimer International Growth............. 144,529 18,377
Putnam VT Growth and Income.................. 28,355 7,780
Putnam VT International Growth............... 288,618 42,808
Putnam VT New Opportunities.................. 11,344 2,637
Putnam VT New Value.......................... 52,412 9,261
Putnam VT Voyager............................ 291,709 93,761
Waddell & Reed Balanced...................... 8,302,095 9,618,193
Waddell & Reed Growth........................ 10,818,869 12,284,376
Waddell & Reed International II.............. 7,483,504 7,156,561
Waddell & Reed Small Cap Growth.............. 5,207,285 5,590,778
Waddell & Reed Value......................... 4,296,206 4,648,694
Waddell & Reed Micro-Cap Growth.............. 1,274,590 1,298,035
Waddell & Reed Small Cap Value............... 2,039,270 1,724,213
Waddell & Reed Core Equity................... 659,997 794,503
Waddell & Reed Asset Strategy................ 27,117 1,520
Waddell & Reed International................. 42,363 3,192
Waddell & Reed Science & Technology.......... 28,948 1,415
6
Minnesota Life Variable Life Account
Notes to Financial Statements
December 31, 2004 and 2003
(4) Investment Transactions
The Account's purchases of Underlying Funds shares, including reinvestment of
dividend distributions, were as follows during the year ended December 31, 2004:
Advantus Bond $ 7,675,625
Advantus Money Market 9,582,477
Advantus Index 500 18,662,249
Advantus Mortgage Securities 6,143,359
Advantus International Bond 2,226,895
Advantus Index 400 Mid-Cap 5,948,853
Advantus Real Estate Securities 8,403,135
AIM V.I. Aggressive Growth 874,580
AIM V.I. Balanced 291,927
AIM V.I. Dent Demographic Trends 182,600
AIM V.I. Premier Equity 235,863
American Century Income and Growth 718,322
American Century Ultra 6,537,721
American Century Value 2,571,330
Credit Suisse Global Post-Venture Capital 694,205
Fidelity VIP Contrafund 8,355,988
Fidelity VIP Equity-Income 11,692,444
Fidelity VIP Mid-Cap 6,791,337
Franklin Large Cap Growth Securities 1,188,808
Franklin Mutual Shares Securities 3,244,792
Franklin Small Cap 4,017,692
Templeton Developing Markets Securities 2,842,212
Templeton Global Asset Allocation 3,033,822
Janus Aspen Balanced 180,561
Janus Aspen Capital Appreciation 2,676,935
Janus International Growth 2,699,781
MFS Investors Growth Stock 380,682
MFS Mid Cap Growth 1,237,545
MFS New Discovery 3,082,199
MFS Value 2,701,034
Oppenheimer Capital Appreciation 2,197,617
Oppenheimer High Income 2,482,986
Oppenheimer International Growth 1,852,983
Putnam VT Growth and Income 201,368
Putnam VT International Growth 2,012,568
Putnam VT New Opportunities 120,540
Putnam VT New Value 1,266,883
Putnam VT Voyager 1,715,667
Waddell & Reed Balanced 7,385,880
Waddell & Reed Growth 7,480,619
Waddell & Reed International II 8,774,736
Waddell & Reed Small Cap Growth 4,625,492
Waddell & Reed Value 4,390,096
Waddell & Reed Micro-Cap Growth 2,412,015
Waddell & Reed Small Cap Value 7,802,299
Waddell & Reed Core Equity 1,386,799
Waddell & Reed Asset Strategy 591,425
Waddell & Reed International 1,104,353
Waddell & Reed Science & Technology 841,966
7
Minnesota Variable Life Account
Notes to Financial Statements
December 31, 2004 and 2003
(5) Unit Activity from Contract Transactions
Transactions in units for each segregated sub-account for the years ended
December 31, 2004 and 2003 were as follows:
[Enlarge/Download Table]
Segregated Sub-Accounts
--------------------------------------------------------------------
Advantus Advantus Advantus Advantus
Advantus Money Index Mortgage International
Bond Market 500 Securities Bond
------------ ------------ ------------ ------------ ------------
Units outstanding at December 31, 2002 ..................... 20,565,466 12,693,008 45,940,654 13,407,079 5,388,668
Contract purchase payments ............................ 2,453,240 5,969,505 10,158,348 2,117,830 2,374,100
Contract terminations, withdrawal payments and charges (1,492,109) (9,415,376) (4,819,470) (1,013,485) (977,927)
------------ ------------ ------------ ------------ ------------
Units outstanding at December 31, 2003 ..................... 21,526,597 9,247,137 51,279,532 14,511,424 6,784,841
Contract purchase payments ............................ 2,561,725 4,793,719 4,194,370 1,819,792 1,579,404
Contract terminations, withdrawal payments and charges (1,306,919) (5,619,715) (2,212,057) (925,220) (659,538)
------------ ------------ ------------ ------------ ------------
Units outstanding at December 31, 2004 ..................... 22,781,403 8,421,141 53,261,845 15,405,996 7,704,707
============ ============ ============ ============ ============
Segregated Sub-Accounts
--------------------------------------------------------------------
AIM V.I.
Advantus Advantus AIM V.I. Dent
Index 400 Real Estate Aggressive AIM V.I. Demographic
Mid-Cap Securities Growth Balanced Trends
------------ ------------ ------------ ------------ ------------
Units outstanding at December 31, 2002 ..................... 12,100,332 6,543,375 - - -
Contract purchase payments ............................ 4,724,911 2,792,845 883,482 159,169 154,120
Contract terminations, withdrawal payments and charges (1,846,370) (377,358) (14,580) (13,283) (62,348)
------------ ------------ ------------ ------------ ------------
Units outstanding at December 31, 2003 ..................... 14,978,873 8,958,862 868,902 145,886 91,772
Contract purchase payments ............................ 3,722,356 4,448,831 698,175 250,444 143,699
Contract terminations, withdrawal payments and charges (1,387,081) (603,473) (133,980) (105,135) (65,944)
------------ ------------ ------------ ------------ ------------
Units outstanding at
December 31, 2004 ...................................... 17,314,148 12,804,220 1,433,097 291,195 169,527
============ ============ ============ ============ ============
8
Minnesota Variable Life Account
Notes to Financial Statements
December 31, 2004 and 2003
(5) Unit Activity from Contract Transactions - continued
[Enlarge/Download Table]
Segregated Sub-Accounts
--------------------------------------------------------------------
American Credit Suisse
AIM V.I. Century American American Global
Premier Income Century Century Post-Venture
Equity and Growth Ultra Value Capital
------------ ------------ ------------ ------------ ------------
Units outstanding at December 31, 2002 ..................... - - - - 2,099,443
Contract purchase payments ............................. 243,363 277,590 2,088,173 547,546 1,168,654
Contract terminations, withdrawal payments and charges (7,565) (15,436) (10,616) (11,176) (554,704)
------------ ------------ ------------ ------------ ------------
Units outstanding at December 31, 2003 ..................... 235,798 262,154 2,077,557 536,370 2,713,393
Contract purchase payments ............................. 199,898 556,020 5,403,193 1,941,455 1,299,719
Contract terminations, withdrawal payments and charges . (19,168) (150,181) (128,801) (203,066) (912,381)
------------ ------------ ------------ ------------ ------------
Units outstanding at December 31, 2004 ..................... 416,528 667,993 7,351,949 2,274,759 3,100,731
============ ============ ============ ============ ============
Segregated Sub-Accounts
--------------------------------------------------------------------
Franklin
Large Cap Franklin
Fidelity VIP Fidelity VIP Fidelity VIP Growth Mutual Shares
Contrafund Equity-Income Mid-Cap Securities Securities
------------ ------------ ------------ ------------ ------------
Units outstanding at December 31, 2002 ..................... 26,787,135 14,130,074 10,480,433 - -
Contract purchase payments ............................. 8,727,725 7,986,592 3,506,521 545,270 1,081,793
Contract terminations, withdrawal payments and charges . (9,240,888) (757,427) (831,765) (9,397) (1,480)
------------ ------------ ------------ ------------ ------------
Units outstanding at December 31, 2003 ..................... 26,273,972 21,359,239 13,155,189 535,873 1,080,313
Contract purchase payments ............................. 8,506,667 9,782,777 4,223,154 962,366 2,590,307
Contract terminations, withdrawal payments and charges . (738,190) (1,197,574) (533,876) (235,807) (95,198)
------------ ------------ ------------ ------------ ------------
Units outstanding at December 31, 2004 ..................... 34,042,449 29,944,442 16,844,467 1,262,432 3,575,422
============ ============ ============ ============ ============
9
Minnesota Variable Life Account
Notes to Financial Statements
December 31, 2004 and 2003
(5) Unit Activity from Contract Transactions - continued
[Enlarge/Download Table]
Segregated Sub-Accounts
--------------------------------------------------------------------
Templeton
Developing Templeton Janus Janus
Franklin Markets Global Asset Aspen Aspen Capital
Small Cap Securities Allocation Balanced Appreciation
------------ ------------ ------------ ------------ ------------
Units outstanding at December 31, 2002 ..................... 11,455,017 7,896,110 965,472 - 28,666,591
Contract purchase payments ............................. 7,612,837 1,993,809 1,584,196 211,648 6,271,223
Contract terminations, withdrawal payments and charges . (872,542) (1,013,873) (141,748) (5,050) (2,797,245)
------------ ------------ ------------ ------------ ------------
Units outstanding at December 31, 2003 ..................... 18,195,312 8,876,046 2,407,920 206,598 32,140,569
Contract purchase payments ............................. 5,773,416 2,025,417 2,518,888 156,361 4,092,453
Contract terminations, withdrawal payments and charges . (1,393,344) (1,294,926) (291,921) (54,312) (3,761,220)
------------ ------------ ------------ ------------ ------------
Units outstanding at December 31, 2004 ..................... 22,575,384 9,606,537 4,634,887 308,647 32,471,802
============ ============ ============ ============ ============
Segregated Sub-Accounts
--------------------------------------------------------------------
Janus MFS MFS MFS
International Investors Mid Cap New MFS
Growth Growth Stock Growth Discovery Value
------------ ------------ ------------ ------------ ------------
Units outstanding at December 31, 2002 ..................... 25,080,452 - - - -
Contract purchase payments ............................. 5,074,818 390,012 280,530 1,282,031 1,448,427
Contract terminations, withdrawal payments and charges . (2,703,944) (3,629) (40,367) (43,962) (19,382)
------------ ------------ ------------ ------------ ------------
Units outstanding at December 31, 2003 ..................... 27,451,326 386,383 240,163 1,238,069 1,429,045
Contract purchase payments ............................. 3,997,885 326,161 915,139 2,422,407 2,090,315
Contract terminations, withdrawal payments and charges . (2,869,087) (188,000) (542,049) (454,244) (117,433)
------------ ------------ ------------ ------------ ------------
Units outstanding at December 31, 2004 ..................... 28,580,124 524,544 613,253 3,206,232 3,401,927
============ ============ ============ ============ ============
10
Minnesota Variable Life Account
Notes to Financial Statements
December 31, 2004 and 2003
(5) Unit Activity from Contract Transactions - continued
[Enlarge/Download Table]
Segregated Sub-Accounts
--------------------------------------------------------------------
Oppenheimer Oppenheimer Putnam VT Putnam VT
Capital Oppenheimer International Growth and International
Appreciation High Income Growth Income Growth
------------ ------------ ------------ ------------ ------------
Units outstanding at December 31, 2002 ..................... - - - - -
Contract purchase payments ............................. 940,144 1,453,385 1,537,925 127,880 1,508,680
Contract terminations, withdrawal payments and charges . (70,848) (180,436) (726,559) (7,325) (279,545)
------------ ------------ ------------ ------------ ------------
Units outstanding at December 31, 2003 ..................... 869,296 1,272,949 811,366 120,555 1,229,135
Contract purchase payments ............................. 1,765,828 2,066,482 1,217,869 155,695 1,527,854
Contract terminations, withdrawal payments and charges . (178,155) (547,590) (235,924) (35,867) (319,696)
------------ ------------ ------------ ------------ ------------
Units outstanding at December 31, 2004 ..................... 2,456,969 2,791,841 1,793,311 240,383 2,437,293
============ ============ ============ ============ ============
Segregated Sub-Accounts
--------------------------------------------------------------------
Putnam VT Putnam VT Waddell Waddell
New New Putnam VT & Reed & Reed
Opportunities Value Voyager Balanced Growth
------------ ------------ ------------ ------------ ------------
Units outstanding at December 31, 2002 ..................... - - - 43,396,953 53,681,235
Contract purchase payments ............................. 51,999 474,003 1,394,309 2,242,574 4,467,026
Contract terminations, withdrawal payments and charges . (3,307) (23,495) (57,851) (4,026,414) (1,782,723)
------------ ------------ ------------ ------------ ------------
Units outstanding at December 31, 2003 ..................... 48,692 450,508 1,336,458 41,613,113 56,365,538
Contract purchase payments ............................. 95,071 921,743 1,460,940 1,600,959 2,417,027
Contract terminations, withdrawal payments and charges . (98,956) (186,930) (180,570) (3,576,421) (4,259,235)
------------ ------------ ------------ ------------ ------------
Units outstanding at December 31, 2004 ..................... 44,807 1,185,321 2,616,828 39,637,651 54,523,330
============ ============ ============ ============ ============
11
Minnesota Variable Life Account
Notes to Financial Statements
December 31, 2004 and 2003
(5) Unit Activity from Contract Transactions - continued
[Enlarge/Download Table]
Segregated Sub-Accounts
---------------------------------------------------------------------
Waddell Waddell Waddell Waddell
& Reed & Reed Waddell & Reed & Reed
International Small Cap & Reed Micro-Cap Small Cap
II Growth Value Growth Value
------------- ------------ ------------ ------------ ------------
Units outstanding at December 31, 2002 ..................... 46,305,966 42,200,879 31,449,334 10,236,599 16,594,749
Contract purchase payments ............................. 3,622,384 4,026,258 2,844,698 2,615,949 4,685,722
Contract terminations, withdrawal payments and charges . (3,481,359) (3,887,964) (2,258,205) (1,259,328) (1,236,112)
------------ ------------ ------------ ------------ ------------
Units outstanding at December 31, 2003 ..................... 46,446,991 42,339,173 32,035,827 11,593,220 20,044,359
Contract purchase payments ............................. 2,259,821 2,352,823 1,820,889 1,616,767 4,081,350
Contract terminations, withdrawal payments and charges . (2,838,308) (3,889,570) (2,644,092) (2,257,222) (1,450,497)
------------ ------------ ------------ ------------ ------------
Units outstanding at December 31, 2004 ..................... 45,868,504 40,802,426 31,212,624 10,952,765 22,675,212
============ ============ ============ ============ ============
Segregated Sub-Accounts
------------------------------------------------------
Waddell Waddell
Waddell & Reed Waddell & Reed
& Reed Asset & Reed Science &
Core Equity Strategy International Technology
------------ ------------ ------------ ------------
Units outstanding at December 31, 2002 ..................... 11,911,619 - - -
Contract purchase payments ............................. 1,978,693 77,351 249,556 213,225
Contract terminations, withdrawal payments and charges . (1,688,066) (16,213) (38,949) (119,362)
------------ ------------ ------------ ------------
Units outstanding at December 31, 2003 ..................... 12,202,246 61,138 210,607 93,863
Contract purchase payments ............................. 1,589,475 530,164 962,695 737,998
Contract terminations, withdrawal payments and charges . (2,078,404) (57,767) (468,740) (343,010)
------------ ------------ ------------ ------------
Units outstanding at December 31, 2004 ..................... 11,713,317 533,535 704,562 488,851
============ ============ ============ ============
12
Minnesota Life Variable Life Account
Notes to Financial Statements
(6) Financial Highlights
A summary of units outstanding, unit values, net assets, ratios, and total
return for variable life policies for the periods ended December 31, 2004, 2003,
2002, and 2001 is as follows:
[Enlarge/Download Table]
At December 31 For the years ended December 31
----------------------------------------- -----------------------------------------
Units Unit Investment Expense Total
Outstanding Fair Value Net Assets Income Ratio* Ratio** Return***
----------------------------------------- -----------------------------------------
Advantus Bond
2004 22,781,403 3.15 71,755,838 0.00% 0.50% 4.45%
2003 21,526,597 3.02 64,912,460 0.00% 0.50% 4.83%
2002 20,565,466 2.88 59,156,158 0.00% 0.50% 9.95%
2001 18,422,198 2.62 48,199,915 11.15% 0.50% 7.36%
Advantus Money Market
2004 8,421,141 1.99 16,732,581 0.75% 0.50% 0.25%
2003 9,247,137 1.98 18,328,561 0.62% 0.50% 0.11%
2002 12,693,008 1.98 25,130,135 1.26% 0.50% 0.78%
2001 9,674,106 1.96 19,005,982 3.72% 0.50% 3.27%
Advantus Index 500
2004 53,261,845 5.01 266,633,584 0.00% 0.50% 9.84%
2003 51,279,532 4.56 233,704,567 0.00% 0.50% 27.41%
2002 45,940,654 3.58 164,331,526 0.00% 0.50% -22.75%
2001 42,856,025 4.63 198,433,249 1.01% 0.50% -12.69%
Advantus Mortgage Securities
2004 15,405,996 3.54 54,497,600 0.00% 0.50% 4.29%
2003 14,511,424 3.39 49,223,053 0.00% 0.50% 3.64%
2002 13,407,079 3.27 43,878,832 0.06% 0.50% 9.11%
2001 10,233,221 3.00 30,708,062 12.24% 0.50% 8.43%
Advantus International Bond
2004 7,704,707 1.58 12,137,030 0.00% 0.50% 10.88%
2003 6,784,841 1.42 9,639,586 0.00% 0.50% 19.65%
2002 5,388,668 1.19 6,398,401 0.25% 0.50% 17.35%
2001 3,763,791 1.01 3,812,011 1.28% 0.50% -2.00%
Advantus Index 400 Mid-Cap
2004 17,314,148 1.80 31,210,253 0.00% 0.50% 15.15%
2003 14,978,873 1.57 23,447,795 0.00% 0.50% 33.92%
2002 12,100,332 1.17 14,144,300 0.00% 0.50% -15.46%
2001 9,183,344 1.38 12,697,653 1.07% 0.50% -1.56%
Advantus Real Estate Securities
2004 12,804,220 2.30 29,496,448 0.00% 0.50% 34.85%
2003 8,958,862 1.71 15,304,774 0.00% 0.50% 41.50%
2002 6,543,375 1.21 7,899,437 0.02% 0.50% 6.43%
2001 2,873,626 1.13 3,259,285 4.28% 0.50% 9.49%
AIM V.I. Aggressive Growth
2004 1,433,097 1.38 1,981,322 0.00% 0.50% 10.91%
2003 (a) 868,902 1.25 1,083,101 0.00% 0.50% 24.65%
AIM V.I. Balanced
2004 291,195 1.21 351,456 1.74% 0.50% 6.71%
2003 (a) 145,886 1.13 165,008 3.84% 0.50% 13.10%
AIM V.I. Dent Demographic Trends
2004 169,527 1.35 229,191 0.00% 0.50% 7.36%
2003 (a) 91,772 1.26 115,564 0.00% 0.50% 25.92%
AIM V.I. Premier Equity
2004 416,528 1.24 518,293 0.45% 0.50% 4.97%
2003 (a) 235,798 1.19 279,528 0.38% 0.50% 18.54%
13
Minnesota Life Variable Life Account
Notes to Financial Statements
(6) Financial Highlights - continued
[Enlarge/Download Table]
At December 31 For the years ended December 31
----------------------------------------- -----------------------------------------
Units Unit Investment Expense Total
Outstanding Fair Value Net Assets Income Ratio* Ratio** Return***
----------------------------------------- -----------------------------------------
American Century Income and Growth
2004 667,993 1.39 930,562 0.81% 0.50% 12.01%
2003 (a) 262,154 1.24 326,036 0.00% 0.50% 24.36%
American Century Ultra
2004 7,351,949 1.31 9,597,027 0.00% 0.50% 10.04%
2003 (a) 2,077,557 1.19 2,464,606 0.00% 0.50% 18.63%
American Century Value
2004 2,274,759 1.42 3,233,734 0.52% 0.50% 13.60%
2003 (a) 536,370 1.25 671,196 0.00% 0.50% 25.13%
Credit Suisse Global Post-Venture Capital
2004 3,100,731 0.61 1,887,687 0.00% 0.50% 17.40%
2003 2,713,393 0.52 1,407,038 0.00% 0.50% 46.92%
2002 2,099,443 0.35 740,973 0.00% 0.50% -34.49%
2001 1,646,164 0.54 886,810 0.00% 0.50% -28.99%
Fidelity VIP Contrafund
2004 34,042,449 1.09 37,013,973 0.19% 0.50% 14.59%
2003 26,273,972 0.95 24,931,097 0.31% 0.50% 27.56%
2002 26,787,135 0.74 19,926,546 0.55% 0.50% -10.06%
2001 14,805,889 0.83 12,245,077 0.57% 0.50% -12.91%
Fidelity VIP Equity-Income
2004 29,944,442 1.25 37,531,850 1.22% 0.50% 10.68%
2003 21,359,239 1.13 24,188,307 1.36% 0.50% 29.38%
2002 14,130,074 0.88 12,367,782 3.29% 0.50% -17.57%
2001 8,892,303 1.06 9,441,794 0.89% 0.50% -5.70%
Fidelity VIP Mid-Cap
2004 16,844,467 1.87 31,506,078 0.00% 0.50% 24.03%
2003 13,155,189 1.51 19,837,629 0.24% 0.50% 37.56%
2002 10,480,433 1.10 11,488,617 0.00% 0.50% -10.47%
2001 7,981,235 1.22 9,772,447 0.00% 0.50% -4.00%
Franklin Large Cap Growth Securities
2004 1,262,432 1.30 1,641,699 0.45% 0.50% 7.40%
2003 (a) 535,873 1.21 648,889 0.30% 0.50% 21.08%
Franklin Mutual Shares Securities
2004 3,575,422 1.35 4,835,693 0.70% 0.50% 12.07%
2003 (a) 1,080,313 1.21 1,303,765 0.52% 0.50% 20.68%
Franklin Small Cap
2004 22,575,384 0.76 17,128,990 0.00% 0.50% 10.92%
2003 18,195,312 0.68 12,446,579 0.00% 0.50% 36.56%
2002 11,455,017 0.50 5,737,923 0.24% 0.50% -29.04%
2001 5,985,912 0.71 4,225,431 0.37% 0.50% -15.67%
Templeton Developing Markets Securities
2004 9,606,537 1.52 14,612,168 1.81% 0.50% 24.09%
2003 8,876,046 1.23 10,880,089 1.16% 0.50% 52.23%
2002 7,896,110 0.81 6,358,050 1.43% 0.50% -0.64%
2001 6,558,923 0.81 5,315,587 0.84% 0.50% -8.54%
Templeton Global Asset Allocation
2004 4,634,887 1.30 6,003,376 2.78% 0.50% 15.14%
2003 2,407,920 1.12 2,708,730 2.34% 0.50% 31.30%
2002 965,472 0.86 827,190 1.79% 0.50% -4.87%
2001 455,500 0.90 410,214 1.39% 0.50% -10.40%
Janus Aspen Balanced
2004 308,647 1.19 365,833 2.50% 0.50% 7.75%
2003 (a) 206,598 1.10 227,257 2.03% 0.50% 10.00%
14
Minnesota Life Variable Life Account
Notes to Financial Statements
(6) Financial Highlights - continued
[Enlarge/Download Table]
At December 31 For the years ended December 31
----------------------------------------- -----------------------------------------
Units Unit Investment Expense Total
Outstanding Fair Value Net Assets Income Ratio* Ratio** Return***
----------------------------------------- -----------------------------------------
Janus Aspen Capital Appreciation
2004 32,471,802 0.75 24,502,223 0.03% 0.50% 17.38%
2003 32,140,569 0.64 20,661,447 0.25% 0.50% 19.63%
2002 28,666,591 0.54 15,403,645 0.32% 0.50% -16.35%
2001 22,458,144 0.64 14,425,719 0.87% 0.50% -22.22%
Janus International Growth
2004 28,580,124 0.74 21,173,506 0.87% 0.50% 18.09%
2003 27,451,326 0.63 17,221,128 0.99% 0.50% 33.87%
2002 25,080,452 0.47 11,753,696 0.69% 0.50% -26.13%
2001 21,590,583 0.63 13,697,066 0.75% 0.50% -23.81%
MFS Investors Growth Stock
2004 524,544 1.25 656,928 0.00% 0.50% 8.44%
2003 (a) 386,383 1.15 446,233 0.00% 0.50% 15.49%
MFS Mid Cap Growth
2004 613,253 1.46 894,843 0.00% 0.50% 13.81%
2003 (a) 240,163 1.28 307,921 0.00% 0.50% 28.21%
MFS New Discovery
2004 3,206,232 1.36 4,345,170 0.00% 0.50% 5.68%
2003 (a) 1,238,069 1.28 1,587,693 0.00% 0.50% 28.24%
MFS Value
2004 3,401,927 1.41 4,785,808 1.67% 0.50% 14.25%
2003 (a) 1,429,045 1.23 1,759,604 0.00% 0.50% 23.13%
Oppenheimer Capital Appreciation
2004 2,456,969 1.31 3,230,727 0.18% 0.50% 6.08%
2003 (a) 869,296 1.24 1,077,516 0.00% 0.50% 23.95%
Oppenheimer High Income
2004 2,791,841 1.21 3,365,008 5.27% 0.50% 8.19%
2003 (a) 1,272,949 1.11 1,418,164 0.00% 0.50% 11.40%
Oppenheimer International Growth
2004 1,793,311 1.73 3,100,055 1.03% 0.50% 16.56%
2003 (a) 811,366 1.48 1,203,305 0.00% 0.50% 48.30%
Putnam VT Growth and Income
2004 240,383 1.37 329,299 1.56% 0.50% 10.56%
2003 (a) 120,555 1.24 149,378 0.00% 0.50% 23.90%
Putnam VT International Growth
2004 2,437,293 1.48 3,596,507 1.22% 0.50% 15.62%
2003 (a) 1,229,135 1.28 1,568,774 0.00% 0.50% 27.63%
Putnam VT New Opportunities
2004 44,807 1.36 60,976 0.00% 0.50% 9.76%
2003 (a) 48,692 1.24 60,367 0.00% 0.50% 23.98%
Putnam VT New Value
2004 1,185,321 1.49 1,767,585 0.64% 0.50% 14.85%
2003 (a) 450,508 1.30 584,940 0.00% 0.50% 29.83%
15
Minnesota Life Variable Life Account
Notes to Financial Statements
(6) Financial Highlights - continued
[Enlarge/Download Table]
At December 31 For the years ended December 31
----------------------------------------- -----------------------------------------
Units Unit Investment Expense Total
Outstanding Fair Value Net Assets Income Ratio* Ratio** Return***
----------------------------------------- -----------------------------------------
Putnam VT Voyager
2004 2,616,828 1.24 3,232,814 0.21% 0.50% 4.51%
2003 (a) 1,336,458 1.18 1,579,833 0.00% 0.50% 18.21%
Waddell & Reed Balanced (b)
2004 39,637,651 3.74 148,394,189 1.47% 0.50% 8.39%
2003 41,613,113 3.45 143,728,924 0.70% 0.50% 20.45%
2002 43,396,953 2.87 124,438,389 0.00% 0.50% -9.44%
2001 44,034,423 3.17 139,433,091 2.12% 0.50% -14.79%
Waddell & Reed Growth
2004 54,523,330 3.19 173,761,982 0.28% 0.50% 2.79%
2003 56,365,538 3.10 174,753,707 0.00% 0.50% 24.83%
2002 53,681,235 2.48 70,296,942 0.00% 0.50% -25.81%
2001 27,973,687 3.35 93,654,792 0.00% 0.50% -25.18%
Waddell & Reed International II
2004 45,868,504 3.30 151,477,262 1.08% 0.50% 22.07%
2003 46,446,991 2.71 125,660,408 1.90% 0.50% 46.12%
2002 46,305,966 1.85 85,738,006 0.00% 0.50% -18.23%
2001 45,809,624 2.26 103,736,638 4.23% 0.50% -11.65%
Waddell & Reed Small Cap Growth
2004 40,802,426 2.25 91,838,802 0.00% 0.50% 13.72%
2003 42,339,173 1.98 83,797,756 0.00% 0.50% 47.24%
2002 42,200,879 1.34 56,725,839 0.00% 0.50% -32.14%
2001 40,649,586 1.98 80,522,027 0.00% 0.50% -15.12%
Waddell & Reed Value
2004 31,212,624 2.30 71,928,148 1.06% 0.50% 14.13%
2003 32,035,827 2.02 64,685,031 0.59% 0.50% 26.42%
2002 31,449,334 1.60 50,229,078 0.00% 0.50% -15.74%
2001 29,568,022 1.90 56,049,664 1.17% 0.50% -10.90%
Waddell & Reed Micro-Cap Growth
2004 10,952,765 1.67 18,281,451 0.00% 0.50% 9.50%
2003 11,593,220 1.52 17,671,342 0.00% 0.50% 53.64%
2002 10,236,599 0.99 10,156,947 0.00% 0.50% -43.93%
2001 8,554,102 1.77 15,138,052 0.00% 0.50% -11.77%
Waddell & Reed Small Cap Value
2004 22,675,212 1.66 37,551,645 0.00% 0.50% 14.45%
2003 20,044,359 1.45 29,004,455 0.00% 0.50% 48.73%
2002 16,594,748 0.97 16,144,437 0.00% 0.50% -20.38%
2001 11,588,912 1.22 14,159,859 0.00% 0.50% -15.01%
Waddell & Reed Core Equity
2004 11,713,317 0.91 10,603,056 0.65% 0.50% 9.02%
2003 12,202,246 0.83 10,131,512 0.78% 0.50% 20.73%
2002 11,911,619 0.69 8,192,164 0.00% 0.50% -28.50%
2001 9,107,021 0.96 8,759,999 0.32% 0.50% -8.20%
Waddell & Reed Asset Strategy
2004 533,535 1.19 637,309 2.73% 0.50% 12.73%
2003 (a) 61,138 1.06 64,781 2.28% 0.50% 5.96%
Waddell & Reed International
2004 704,562 1.28 902,995 1.07% 0.50% 13.43%
2003 (a) 210,607 1.13 237,965 2.37% 0.50% 12.99%
Waddell & Reed Science & Technology
2004 488,851 1.27 623,134 0.00% 0.50% 15.67%
2003 (a) 93,863 1.10 103,437 0.00% 0.50% 10.20%
16
Minnesota Life Variable 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, that result in
direct reductions 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 dividends rather than paying dividends in cash
or reinvested shares, the Account does not record investment income.
**This ratio represents the annualized contract expenses of the separate
account, consisting of mortality and expense charges. The ratio includes only
those expenses that result in a direct reduction to unit values. Charges made
directly to contract owner accounts through the redemption of units and expenses
of the underlying fund are excluded.
***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 for
the period indicated or from the effective date through the end of the reporting
period.
(a) Period from September 22, 2003, commencement of operations, to December 31,
2003.
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, 2004 and 2003, and the related consolidated statements of operations and
comprehensive income, changes in stockholder's equity and cash flows for each of
the years in the three-year period ended December 31, 2004. 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
consolidated financial statements are free of material misstatement. An audit
includes examining, on a test basis, evidence supporting the amounts and
disclosures in the consolidated financial statements. An audit also includes
assessing the accounting principles used and significant estimates made by
management, as well as evaluating the overall financial statement presentation.
We believe that our audits provide a reasonable basis for our opinion.
In our opinion, the consolidated financial statements referred to above present
fairly, in all material respects, the financial position of Minnesota Life
Insurance Company and subsidiaries as of December 31, 2004 and 2003, and the
results of their operations and their cash flows for each of the years in the
three-year period ended December 31, 2004, in conformity with U.S. generally
accepted accounting principles.
As discussed in note 2 to the consolidated financial statements, effective
January 1, 2004, the Company adopted Statement of Position 03-1, Accounting and
Reporting by Insurance Enterprises for Certain Nontraditional Long- Duration
Contracts and for Separate Accounts.
Our audits were made for the purpose of forming an opinion on the basic
consolidated financial statements taken as a whole. The supplementary
information included in the accompanying schedules is presented for purpose of
additional analysis and is not a required part of the basic consolidated
financial statements. Such information has been subjected to the auditing
procedures applied in the audits of the basic consolidated financial statements
and, in our opinion, is fairly stated in all material respects in relation to
the basic consolidated financial statements taken as a whole.
Minneapolis, Minnesota
March 10, 2005
MINNESOTA LIFE INSURANCE COMPANY AND SUBSIDIARIES
Consolidated Balance Sheets
December 31, 2004 and 2003
(In thousands)
[Enlarge/Download Table]
2004 2003
----------- -----------
Assets
Fixed maturity securities:
Available-for-sale, at fair value (amortized cost $5,213,338 and $4,647,433) $ 5,472,948 $ 4,941,278
Equity securities, at fair value (cost $606,225 and $580,495) 747,277 676,398
Mortgage loans, net 810,508 773,479
Real estate, net 1,771 1,830
Finance receivables, net 140,425 127,716
Policy loans 270,186 263,508
Private equity investments (cost $228,338 and $236,197) 226,631 222,200
Fixed maturity securities on loan, at fair value
(amortized cost $1,128,126 and $1,304,233) 1,152,143 1,361,128
Equity securities on loan, at fair value (cost $63,396 and $52,100) 84,121 68,771
Other invested assets 23,306 169,720
----------- -----------
Total investments 8,929,316 8,606,028
Cash and cash equivalents 196,508 222,529
Securities held as collateral 1,276,761 1,466,354
Deferred policy acquisition costs 721,055 636,475
Accrued investment income 85,553 83,461
Premiums and fees receivable 137,578 137,954
Property and equipment, net 80,033 82,856
Reinsurance recoverables 727,129 677,102
Goodwill and intangible assets, net 23,089 --
Other assets 36,653 31,870
Separate account assets 9,563,176 8,854,022
----------- -----------
Total assets $21,776,851 $20,798,651
=========== ===========
Liabilities and Stockholder's Equity
Liabilities:
Policy and contract account balances $ 4,853,594 $ 4,688,655
Future policy and contract benefits 2,090,802 2,052,276
Pending policy and contract claims 169,699 160,687
Other policyholder funds 578,621 557,525
Policyholder dividends payable 48,301 52,995
Unearned premiums and fees 212,057 199,767
Federal income tax liability:
Current 24,457 32,429
Deferred 198,484 138,964
Other liabilities 428,111 497,970
Notes payable 125,000 125,000
Securities lending collateral 1,276,761 1,466,354
Separate account liabilities 9,563,176 8,809,077
----------- -----------
Total liabilities 19,569,063 18,781,699
----------- -----------
Stockholder's equity:
Common stock, $1 par value, 5,000,000 shares authorized,
issued and outstanding 5,000 5,000
Additional paid in capital 61,164 3,000
Retained earnings 1,918,603 1,795,285
Accumulated other comprehensive income 223,021 213,667
----------- -----------
Total stockholder's equity 2,207,788 2,016,952
----------- -----------
Total liabilities and stockholder's equity $21,776,851 $20,798,651
=========== ===========
See accompanying notes to consolidated financial statements.
2
MINNESOTA LIFE INSURANCE COMPANY AND SUBSIDIARIES
Consolidated Statements of Operations and Comprehensive Income
Years ended December 31, 2004, 2003 and 2002
(In thousands)
[Enlarge/Download Table]
2004 2003 2002
---------- ---------- ----------
Revenues:
Premiums $1,078,586 $1,005,277 $ 900,074
Policy and contract fees 382,048 351,669 355,890
Net investment income 459,612 465,858 499,103
Net realized investment gains (losses) 73,862 (48,641) (137,097)
Finance charge income 37,694 34,148 33,125
Commission income 40,589 -- --
Other income 21,273 18,820 22,777
---------- ---------- ----------
Total revenues 2,093,664 1,827,131 1,673,872
---------- ---------- ----------
Benefits and expenses:
Policyholder benefits 1,027,760 975,604 849,342
Interest credited to policies and contracts 280,618 287,018 289,606
General operating expenses 389,924 341,552 328,421
Commissions 143,633 108,293 100,912
Administrative and sponsorship fees 63,057 68,773 71,166
Dividends to policyholders 15,331 17,817 19,162
Interest on notes payable 10,391 11,258 12,758
Amortization of deferred policy acquisition costs 169,888 166,138 188,662
Capitalization of policy acquisition costs (206,061) (208,620) (169,437)
---------- ---------- ----------
Total benefits and expenses 1,894,541 1,767,833 1,690,592
---------- ---------- ----------
Income (loss) from operations before taxes 199,123 59,298 (16,720)
Federal income tax expense (benefit):
Current 17,445 19,121 3,048
Deferred 42,821 (4,268) (23,524)
---------- ---------- ----------
Total federal income tax expense (benefit) 60,266 14,853 (20,476)
---------- ---------- ----------
Net income $ 138,857 $ 44,445 $ 3,756
========== ========== ==========
Other comprehensive income (loss), net of tax:
Unrealized gains (losses) on securities, net $ 9,354 $ 155,276 $ (44,898)
---------- ---------- ----------
Other comprehensive income (loss), net of tax 9,354 155,276 (44,898)
---------- ---------- ----------
Comprehensive income (loss) $ 148,211 $ 199,721 $ (41,142)
========== ========== ==========
See accompanying notes to consolidated financial statements.
3
MINNESOTA LIFE INSURANCE COMPANY AND SUBSIDIARIES
Consolidated Statements of Changes in Stockholder's Equity
Years ended December 31, 2004, 2003 and 2002
(In thousands)
[Enlarge/Download Table]
2004 2003 2002
---------- ---------- ----------
Common stock:
Total common stock $ 5,000 $ 5,000 $ 5,000
========== ========== ==========
Additional paid in capital:
Beginning balance $ 3,000 $ 3,000 $ 3,000
Contributions 58,164 -- --
---------- ---------- ----------
Total additional paid in capital $ 61,164 $ 3,000 $ 3,000
========== ========== ==========
Retained earnings:
Beginning balance $1,795,285 $1,786,873 $1,821,015
Net income 138,857 44,445 3,756
Dividends to stockholder (15,539) (36,033) (37,898)
---------- ---------- ----------
Total retained earnings $1,918,603 $1,795,285 $1,786,873
========== ========== ==========
Accumulated other comprehensive income:
Beginning balance $ 213,667 $ 58,391 $ 103,289
Change in unrealized appreciation (depreciation)
of securities, net 9,354 155,276 (44,898)
---------- ---------- ----------
Total accumulated other comprehensive income $ 223,021 $ 213,667 $ 58,391
========== ========== ==========
Total stockholder's equity $2,207,788 $2,016,952 $1,853,264
========== ========== ==========
See accompanying notes to consolidated financial statements.
4
MINNESOTA LIFE INSURANCE COMPANY AND SUBSIDIARIES
Consolidated Statements of Cash Flows
Years ended December 31, 2004, 2003 and 2002
(In thousands)
[Enlarge/Download Table]
2004 2003 2002
----------- ----------- -----------
Cash Flows from Operating Activities
Net income $ 138,857 $ 44,445 $ 3,756
Adjustments to reconcile net income to net cash
provided by operating activities:
Interest credited to annuity and insurance contracts 248,103 249,128 251,828
Fees deducted from policy and contract balances (352,028) (327,631) (319,227)
Change in future policy benefits 41,572 30,013 153,061
Change in other policyholder liabilities, net 9,006 35,834 (35,323)
Amortization of deferred policy acquisition costs 169,888 166,138 188,662
Capitalization of policy acquisition costs (206,061) (208,620) (169,437)
Change in premiums and fees receivable 375 (12,530) (6,689)
Deferred tax provision 42,821 (4,268) (23,524)
Change in federal income tax liabilities - current (7,972) 16,009 (16,929)
Net realized investment losses (gains) (73,862) 48,641 137,097
Change in reinsurance recoverables (50,027) (30,147) (22,515)
Other, net 90,532 137,729 14,973
----------- ----------- -----------
Net cash provided by operating activities 51,204 144,741 155,733
----------- ----------- -----------
Cash Flows from Investing Activities
Proceeds from sales of:
Fixed maturity securities, available-for-sale 1,538,904 1,658,859 2,046,691
Equity securities 537,399 429,470 378,452
Mortgage loans 3,239 -- --
Real estate 1,276 11,255 3,301
Private equity investments 63,623 23,703 11,583
Other invested assets 23,619 1,729 12,343
Proceeds from maturities and repayments of:
Fixed maturity securities, available-for-sale 1,262,636 1,170,516 601,211
Mortgage loans 79,356 81,056 50,370
Purchases and originations of:
Fixed maturity securities, available-for-sale (3,077,269) (3,281,851) (2,898,144)
Equity securities (477,434) (462,070) (377,641)
Mortgage loans (119,806) (86,931) (78,011)
Real estate (1,324) (737) --
Private equity investments (51,265) (31,519) (42,639)
Other invested assets (21,779) (4,319) (2,866)
Finance receivable originations or purchases (109,989) (91,674) (82,141)
Finance receivable principal payments 89,283 77,154 78,266
Securities in transit (109,734) 95,821 (39,632)
Other, net (23,196) (22,760) (14,346)
----------- ----------- -----------
Net cash used for investing activities (392,461) (432,298) (353,203)
----------- ----------- -----------
Cash Flows from Financing Activities
Deposits credited to annuity and insurance contracts 1,814,146 1,626,707 1,434,456
Withdrawals from annuity and insurance contracts (1,546,611) (1,263,337) (1,188,125)
Payments on debt -- (12,000) (22,000)
Contributed capital 55,000 -- --
Dividends paid to stockholder -- (22,000) (78,586)
Other, net (7,299) 2,714 (363)
----------- ----------- -----------
Net cash provided by financing activities 315,236 332,084 145,382
----------- ----------- -----------
Net (decrease) increase in cash and cash equivalents (26,021) 44,527 (52,088)
Cash and cash equivalents, beginning of year 222,529 178,002 230,090
----------- ----------- -----------
Cash and cash equivalents, end of year $ 196,508 $ 222,529 $ 178,002
=========== =========== ===========
See accompanying notes to consolidated financial statements.
5
MINNESOTA LIFE INSURANCE COMPANY AND SUBSIDIARIES
Notes to Consolidated Financial Statements
December 31, 2004, 2003 and 2002
(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, 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. To achieve this
objective, 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 Services.
Revenues, including net realized investment gains and losses, in 2004 for
these business units were $598,650,000, $270,687,000, $888,030,000 and
$197,468,000, respectively. Revenues in 2003 for these strategic business
units were $589,782,000, $258,798,000, $805,084,000, and $187,440,000,
respectively. Revenues in 2002 for these strategic business units were
$620,370,000, $287,073,000, $672,316,000, and $188,626,000, respectively.
Additional revenues, including the majority of net realized investment
gains and losses, reported by the Company's subsidiaries and corporate
product line for the years ended December 31, 2004, 2003 and 2002, were
$138,829,000, ($13,973,000) and ($94,513,000), respectively.
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.
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 Subsidiary
(Allied). See note 13 for further explanation of this transaction.
Effective July 1, 2003, Personal Finance Company converted from a C
corporation into a limited liability company and its name was changed to
Personal Finance Company LLC.
On April 1, 2003, ownership of Securian Life Insurance Company was
transferred from the Company to Securian Financial Group, Inc., in the form
of a dividend.
On January 2, 2003, ownership of Securian Casualty Company was transferred
from the Company to Securian Financial Group, Inc., in the form of a
dividend.
(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 the Minnesota
Life Insurance Company and its subsidiaries. The results of Allied are
reported on a month lag, which is not considered to be material to the
consolidated results of operations or financial position of the Company.
All material intercompany transactions and balances have been eliminated.
(Continued)
6
MINNESOTA LIFE INSURANCE COMPANY AND SUBSIDIARIES
Notes to Consolidated Financial Statements (Continued)
(2) Summary of Significant Accounting Policies (Continued)
Basis of Presentation (Continued)
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 National
Association of Insurance Commissioners accounting practices. See note 19
for discussion of statutory dividend limitations.
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.
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, impairment losses on investments, valuation allowances for
mortgage loans on real estate, federal 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 receivables 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.
(Continued)
7
MINNESOTA LIFE INSURANCE COMPANY AND SUBSIDIARIES
Notes to Consolidated Financial Statements (Continued)
(2) Summary of Significant Accounting Policies (Continued)
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.
Deferred Policy Acquisition Costs
The costs of acquiring new and renewal business, which vary with and are
primarily related to the production of new and renewal business, are
generally deferred to the extent recoverable from future premiums or
expected gross profits. Deferrable costs include commissions, underwriting
expenses and certain other selling and issue costs. Deferred policy
acquisition costs (DAC) are subject to loss recognition 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.
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 changed from 9% to 8% at December 31, 2004. This change was a
result of a change in management's best estimate regarding future long-term
separate account performance. 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 the long-term assumption. This modified yield assumption is not
permitted to be negative or in excess of 15% 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
in the consolidated statements of operations. Deferred policy acquisition
costs are adjusted to reflect the impact of unrealized gains and losses on
fixed maturity securities available-for-sale as described in note 17.
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. The Company had unamortized cost of $26,183,000 and
$26,032,000 as of December 31, 2004 and 2003, respectively, and amortized
software expense of $8,356,000, $7,838,000 and $8,227,000 for the years
ended December 31, 2004, 2003 and 2002, respectively.
(Continued)
8
MINNESOTA LIFE INSURANCE COMPANY AND SUBSIDIARIES
Notes to Consolidated Financial Statements (Continued)
(2) Summary of Significant Accounting Policies (Continued)
Finance Charge Income and Receivables
Finance charge income, arising from the Company's consumer finance
operations, includes earned finance charges, interest, and fees on finance
receivables. Accrued and uncollected finance charges, interest, and fees
are included in finance receivables in the consolidated balance sheets. The
Company uses the interest (actuarial) method of accounting for 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 less late charges are due and unpaid. Accrual of finance charges and
interest is suspended on other receivables at the earlier of when they are
contractually past due for more than 60 days or they are considered by
management to be impaired.
A loan is treated as impaired when based upon current information and
events it is probable that the Company will be unable to collect all
amounts due according to all of the contractual terms of the loan
agreement. Loan impairment is measured based on the present value of
expected future cash flows discounted at the loan's effective interest
rate, or as a practical expedient, at the observable market price of the
loan or the fair value of the collateral if the loan is collateral
dependent. When a loan is identified as impaired, interest 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.
Valuation of Investments and Net Investment Income
Fixed maturity securities, which may be sold prior to maturity, including
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 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 over the initial investment
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 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 (common stocks, preferred stocks and equity
securities on loan) are classified as available-for-sale and are carried at
fair value. Mutual funds in select asset classes that are sub-advised are
carried at the fair value of the underlying net assets of the funds.
(Continued)
9
MINNESOTA LIFE INSURANCE COMPANY AND SUBSIDIARIES
Notes to Consolidated Financial Statements (Continued)
(2) Summary of Significant Accounting Policies (Continued)
Valuation of Investments and Net Investment Income (Continued)
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 interest yield method. Impairments are
determined by specific identification. A mortgage loan is considered
impaired if it is probable that contractual amounts due will not be
collected. Impaired mortgage loans are valued at the fair value of the
underlying collateral.
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.
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.
Fair values of fixed maturity securities are based on quoted market prices
where available. Fair values of marketable equity securities and embedded
derivatives 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 and securities that do not trade regularly) 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 trustee of the related security. As of December 31, 2004, 79.3% of
the fair values of fixed maturity securities were obtained from quoted
market prices, 19.8% from the internal methods described above and .9% from
other sources, primarily broker bids.
Real estate is carried at cost less accumulated depreciation and an
allowance for estimated losses.
The Company recognizes interest income as earned and recognizes dividend
income on equity securities upon the declaration of the dividend.
For mortgage-backed 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.
Policy loans are carried at the unpaid principal balance.
(Continued)
10
MINNESOTA LIFE INSURANCE COMPANY AND SUBSIDIARIES
Notes to Consolidated Financial Statements (Continued)
(2) Summary of Significant Accounting Policies (Continued)
Valuation of Investments and Net Investment Income (Continued)
Cash and cash equivalents are carried at cost, which approximates fair
value. The Company considers all money market funds and commercial paper
with original maturity dates of less than three months to be cash
equivalents. The Company places its cash and cash equivalents with high
quality financial institutions and, at times, these balances may be in
excess of the Federal Deposit Insurance Corporation (FDIC) insurance limit.
A portion of the funds collected by the Company from its financial
institution customers is restricted in its use because the Company is
acting as an agent on behalf of certain insurance underwriters. As an
agent, the Company has a fiduciary responsibility to remit the appropriate
percentage of monies collected to the corresponding insurance underwriters.
This sum of money is defined as unremitted premiums payable, is recorded in
other liabilities on the consolidated balance sheets, and is 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 $13,008,000 and $0 at December 31, 2004 and
2003, respectively.
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 federal 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.
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-off. The
interest rates on the receivables outstanding at December 31, 2004 and 2003
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, 2004 and 2003 approximate the fair value at that date.
Credit Risk
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. 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.
(Continued)
11
MINNESOTA LIFE INSURANCE COMPANY AND SUBSIDIARIES
Notes to Consolidated Financial Statements (Continued)
(2) Summary of Significant Accounting Policies (Continued)
Credit Risk (Continued)
During 2003, the Company exchanged its affiliated investment advisor's
mutual funds for shares of Waddell and Reed Ivy Investment Co. funds due to
the sale of the equity advisory business by its affiliated investment
advisor. For 2003, the investments continued to be invested across the same
eight well-diversified investment strategies employed by the former
affiliated funds. The fair value of these funds at December 31, 2003 was
$172,424,000. During 2004, four of these funds were liquidated while the
remaining four funds continue to be managed using the same diversification
strategy and had a fair value at December 31, 2004 of $93,297,000.
Derivative Financial Instruments
The Company holds derivative financial instruments for the purpose of
hedging the risks of certain identifiable and anticipated transactions. In
general, the types of risks hedged are those relating to the variability of
future earnings and cash flows caused by movements in foreign currency
exchange rates and changes in interest rates. The Company documents its
risk management strategy and hedge effectiveness at the inception of and
during the term of each hedge.
In the normal course of business, the Company held one derivative in the
form of an equity swap which matured in August 2003. The purpose of this
swap was to hedge the fair value of equity-linked instruments to equity
market movements. This swap was a customized derivative that was embedded
directly with the underlying equity-linked fixed maturity security and
could not be unwound separately from the fixed maturity security. Equity
swaps are considered to be fair value hedges and were entered into only for
the purpose of hedging such risks, not for speculation. The change in fair
value of this swap was offset to net realized capital losses by changes in
the fair value of the item being hedged. As of December 31, 2004 and 2003,
the Company had no equity swap positions.
The Company uses short-duration spot contracts to manage the foreign
exchange risk inherent in the elapsed time between trade processing and
trade settlement in its international equity portfolio. The contracts had
an immaterial impact on the Company's current year consolidated operating
results.
The Company reclassified certain mortgage dollar roll securities from fixed
maturity and equity securities classified as available-for-sale as of
December 31, 2004 and 2003, in the amount of $2,926,000 and $114,809,000,
respectively, to other invested assets. As of December 31, 2004 and 2003,
the change in fair value of these securities included in realized capital
gains (losses) was $1,013,000 and ($1,007,000), respectively.
Realized and Unrealized Gains and Losses
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.
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 benefit
interest to fair value.
(Continued)
12
MINNESOTA LIFE INSURANCE COMPANY AND SUBSIDIARIES
Notes to Consolidated Financial Statements (Continued)
(2) Summary of Significant Accounting Policies (Continued)
Realized and Unrealized Gains and Losses (Continued)
For other debt and equity securities, an other-than-temporary charge 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
security. Many criteria are considered during this process including but
not limited to, the current fair value as compared to the amortized cost of
the security, specific credit issues such as collateral, and financial
prospects related to the issuer, the Company's intent to hold or dispose of
the security, and current economic conditions.
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 and the manager's
intent to hold the stock. Mutual funds are reviewed 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 charge.
Other-than-temporary impairments are recorded to bring the cost of the
investment down to the fair market value. Other-than-temporary impairment
losses result in a permanent reduction to the cost basis of the underlying
investment.
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, 2004 and 2003.
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.
Total other-than-temporary write-downs for fixed maturity securities for
the years ended December 31, 2004, 2003 and 2002 respectively were
$6,684,000, $34,632,000 and $53,299,000, respectively.
Total other-than-temporary write-downs for marketable equity securities for
the years ended December 31, 2004, 2003 and 2002 were $1,728,000,
$13,157,000 and $5,314,000 respectively. An additional $23,427,000 and
$40,300,000 of other than temporary write-downs for marketable equity
securities were recorded on securities that were subsequently sold during
2003 and 2002, respectively.
Total other-than-temporary write-downs for private equity investments for
the years ended December 31, 2004, 2003 and 2002 were $13,863,000,
$57,480,000 and $51,410,000, respectively.
(Continued)
13
MINNESOTA LIFE INSURANCE COMPANY AND SUBSIDIARIES
Notes to Consolidated Financial Statements (Continued)
(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 income from these investments is recorded in net
investment income and was $1,762,000, $2,378,000, and $1,413,000 for the
years ended December 31, 2004, 2003, and 2002, respectively. Securities,
consisting of equity securities and fixed maturity securities, were loaned
to other financial institutions. Amounts loaned as of December 31, 2004 and
2003 were $1,236,264,000 and $1,429,899,000, respectively. As of December
31, 2004 and 2003, the collateral associated with securities lending was
$1,276,761,000 and $1,466,354,000, respectively.
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 in the consolidated balance sheets as
securities held as collateral and securities lending collateral,
respectively.
Although the Company's securities lending program involves certain credit
risk, the Company believes that the high quality of the collateral received
(primarily commercial paper and money market instruments) and the Company's
monitoring policies and procedures mitigate the likelihood of material
losses under these arrangements.
Property and Equipment
Property and equipment are carried at cost, net of accumulated depreciation
of $179,776,000 and $170,390,000 at December 31, 2004 and 2003,
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, 2004, 2003, and 2002, was $12,427,000,
$11,855,000, and $12,085,000, respectively. Effective January 1, 2002, the
Company adopted Financial Accounting Standards Board (FASB) Statement No.
144 (FAS 144), Accounting for the Impairment or Disposal of Long-Lived
Assets, which addresses financial accounting and reporting standards for
the impairment and disposal of long-lived assets for fiscal years beginning
after December 15, 2001. The Company determined that there were no material
impacts to the consolidated statements of operations or financial position
due to the adoption and subsequent application of FAS 144.
Goodwill and Other Intangible Assets
In accordance with FASB Statement No. 142 (FAS 142), Goodwill and Other
Intangible Assets, the Company does not amortize goodwill. The Company
tests goodwill, 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.
(Continued)
14
MINNESOTA LIFE INSURANCE COMPANY AND SUBSIDIARIES
Notes to Consolidated Financial Statements (Continued)
(2) Summary of Significant Accounting Policies (Continued)
Goodwill and Other Intangible Assets (Continued)
The Company also evaluates the recoverability of other intangible assets
with an indefinite useful life 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 calculated 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.
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 in 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.
The Company periodically invests money in its separate accounts. The fair
value of such investments, included with separate account assets at
December 31, 2003 was $44,945,000. At December 31, 2004, the fair value of
these investments was $49,445,000 and 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).
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.
The Company's sales inducement credits the policyholder with a higher
interest rate than the normal general account interest rate for the first
policy year. Changes in deferred sales inducements for the period ended
December 31 were as follows:
in thousands 2004
------------ ----
Balance at beginning of year $ --
Capitalization 261
Amortization (11)
----
Balance at end of year $250
====
(Continued)
15
MINNESOTA LIFE INSURANCE COMPANY AND SUBSIDIARIES
Notes to Consolidated Financial Statements (Continued)
(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. 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 in the account balances include
surrenders, withdrawals, benefit payments and charges assessed for the cost
of insurance, policy administration and surrenders.
Future policy and contract benefits are comprised of reserves for
traditional life, group life and accident and health products. The reserves
were calculated using the net level premium method based upon assumptions
regarding investment yield, mortality, morbidity and withdrawal rates
determined at the date of issue, commensurate with the Company's
experience. Provision has been made in certain cases for adverse deviations
from these assumptions. 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, 2004, the
Company has assumed an average rate of investment yields ranging from 4.69%
to 4.95%.
Future policy and contract benefits are adjusted to reflect the impact of
unrealized gains and losses on securities as described in note 17.
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, 2004 and 2003,
the total participating business in force was $1,310,550,000 and
$1,199,752,000, respectively. As a percentage of total life insurance in
force, participating business in force represents .3% at December 31, 2004
and 2003.
Income Taxes
The Company files a consolidated life/non-life federal income tax return
with Minnesota Mutual Companies, Inc., the Company's ultimate parent. The
method of allocation between companies is subject to written agreement,
approved by an officer of the Company. Allocation is based upon separate
return calculations with a credit for any currently used net losses and tax
credits. Intercompany tax balances are settled annually when the tax return
is filed with the Internal Revenue Service (IRS).
(Continued)
16
MINNESOTA LIFE INSURANCE COMPANY AND SUBSIDIARIES
Notes to Consolidated Financial Statements (Continued)
(2) Summary of Significant Accounting Policies (Continued)
Income Taxes (Continued)
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 in the consolidated
financial statements. Any such change could significantly affect the
amounts reported in 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 December 2004, the FASB issued Statement 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 Company expects no material impact to
its consolidated results of operations or financial position due to the
adoption of FAS 153.
The Medicare Prescription Drug, Improvement and Modernization Act of 2003
(the Act) was signed into law on December 8, 2003. In accordance with FASB
Staff Position (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.
(Continued)
17
MINNESOTA LIFE INSURANCE COMPANY AND SUBSIDIARIES
Notes to Consolidated Financial Statements (Continued)
(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.
On September 8, 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. The
delay had no impact on the Company's consolidated financial position or
results of operations.
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 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 a 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 No. 132, revised 2003, (FAS
132), 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 on January 1,
2004, did not have a material impact on the consolidated results of
operations or financial position of the Company.
(Continued)
18
MINNESOTA LIFE INSURANCE COMPANY AND SUBSIDIARIES
Notes to Consolidated Financial Statements (Continued)
(2) Summary of Significant Accounting Policies (Continued)
Reclassification
Certain 2003 and 2002 financial statement balances have been reclassified
to conform to the 2004 presentation.
(3) Investments
Net investment income for the years ended December 31 was as follows:
[Download Table]
in thousands 2004 2003 2002
------------ -------- -------- --------
Fixed maturity securities $367,978 $370,208 $398,491
Equity securities 14,368 17,615 24,620
Mortgage loans 62,182 61,404 58,791
Real estate 29 1,543 1,285
Policy loans 19,843 19,517 19,360
Cash equivalents 2,233 2,216 3,384
Private equity investments 4,909 1,853 3,277
Other invested assets 3,305 5,357 3,019
-------- -------- --------
Gross investment income 474,847 479,713 512,227
Investment expenses (15,235) (13,855) (13,124)
-------- -------- --------
Total $459,612 $465,858 $499,103
======== ======== ========
Net realized investment gains (losses) for the years ended December 31 were
as follows:
[Download Table]
in thousands 2004 2003 2002
------------ -------- -------- ---------
Fixed maturity securities $ 9,712 $(19,499) $ (26,162)
Equity securities 64,029 25,572 (64,038)
Mortgage loans (242) (376) 1,509
Real estate (33) 4,490 (1)
Private equity investments 11,571 (54,224) (48,395)
Other invested assets (11,175) (4,604) (10)
-------- -------- ---------
Total $ 73,862 $(48,641) $(137,097)
======== ======== =========
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:
[Download Table]
in thousands 2004 2003 2002
------------ -------- -------- ---------
Fixed maturity securities, available-for-sale:
Gross realized gains $ 24,167 $ 21,560 $ 59,802
Gross realized losses (14,455) (41,059) (85,964)
Equity securities:
Gross realized gains 88,097 93,634 40,973
Gross realized losses (24,068) (68,062) (105,011)
Private equity investments:
Gross realized gains 26,852 3,823 3,525
Gross realized losses (15,281) (58,047) (51,920)
(Continued)
19
MINNESOTA LIFE INSURANCE COMPANY AND SUBSIDIARIES
Notes to Consolidated Financial Statements (Continued)
(3) Investments (Continued)
Net unrealized gains (losses) included in stockholder's equity at December
31 were as follows:
[Download Table]
in thousands 2004 2003
------------ --------- ---------
Gross unrealized gains $ 492,319 $ 514,469
Gross unrealized losses (50,025) (54,769)
Adjustment to deferred policy acquisition costs (63,599) (112,006)
Adjustment to reserves (44,280) (47,221)
Adjustment to unearned policy and contract fees 10,253 17,365
Deferred federal income taxes (121,647) (104,171)
--------- ---------
Net unrealized gains $ 223,021 $ 213,667
========= =========
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, 2004 Cost Gains Losses Value
----------------------------------- ---------- -------- ------- ----------
United States government $ 20,377 $ 431 $ 72 $ 20,736
Government agencies and authorities 44,517 550 125 44,942
Foreign governments 1,714 76 -- 1,790
Corporate securities 3,207,961 197,974 7,162 3,398,773
Asset-backed securities 504,197 25,654 2,448 527,403
Mortgage-backed securities 1,434,572 50,040 5,308 1,479,304
---------- -------- ------- ----------
Total fixed maturities 5,213,338 274,725 15,115 5,472,948
Equity securities-unaffiliated 606,225 144,589 3,537 747,277
---------- -------- ------- ----------
Total $5,819,563 $419,314 $18,652 $6,220,225
========== ======== ======= ==========
[Download Table]
Gross Unrealized
in thousands Amortized ------------------ Fair
December 31, 2003 Cost Gains Losses Value
----------------------------------- ---------- -------- ------- ----------
United States government $ 54,092 $ -- $ 66 $ 54,026
Government agencies and authorities 5,582 17 5 5,594
Foreign governments 1,467 127 -- 1,594
Corporate securities 2,637,690 226,145 9,262 2,854,573
Asset-backed securities 661,465 16,702 5,404 672,763
Mortgage-backed securities 1,287,137 68,816 3,225 1,352,728
---------- -------- ------- ----------
Total fixed maturities 4,647,433 311,807 17,962 4,941,278
Equity securities-unaffiliated 580,495 97,537 1,634 676,398
---------- -------- ------- ----------
Total $5,227,928 $409,344 $19,596 $5,617,676
========== ======== ======= ==========
(Continued)
20
MINNESOTA LIFE INSURANCE COMPANY AND SUBSIDIARIES
Notes to Consolidated Financial Statements (Continued)
(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, 2004 Cost Gains Losses Value
----------------------------------- ---------- ------- ------ ----------
United States government $ 219,852 $10,294 $ 714 $ 229,432
Government agencies and authorities 168,952 4,203 832 172,323
Corporate securities 101,224 3,119 94 104,249
Asset-backed securities 8,170 304 -- 8,474
Mortgage-backed securities 629,928 10,381 2,644 637,665
---------- ------- ------ ----------
Total fixed maturities 1,128,126 28,301 4,284 1,152,143
Equity securities-unaffiliated 63,396 21,579 854 84,121
---------- ------- ------ ----------
Total $1,191,522 $49,880 $5,138 $1,236,264
========== ======= ====== ==========
[Download Table]
Gross Unrealized
in thousands Amortized ---------------- Fair
December 31, 2003 Cost Gains Losses Value
----------------------------------- ---------- ------- ------ ----------
United States government $ 205,495 $10,883 $ 47 $ 216,331
Government agencies and authorities 219,209 7,393 -- 226,602
Corporate securities 323,481 29,123 226 352,378
Asset-backed securities 12,529 669 -- 13,198
Mortgage-backed securities 543,519 10,985 1,885 552,619
---------- ------- ------ ----------
Total fixed maturities 1,304,233 59,053 2,158 1,361,128
Equity securities-unaffiliated 52,100 16,920 249 68,771
---------- ------- ------ ----------
Total $1,356,333 $75,973 $2,407 $1,429,899
========== ======= ====== ==========
The amortized cost and estimated fair value of fixed maturity securities at
December 31, 2004, 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 $ 311,134 $ 321,851 $ 45,809 $ 46,109
Due after one year through five years 195,890 209,785 250,228 253,794
Due after five years through ten years 2,343,390 2,446,881 138,459 143,854
Due after ten years 928,352 1,015,127 63,702 70,721
---------- ---------- ---------- ----------
3,778,766 3,993,644 498,198 514,478
Mortgage-backed securities 1,434,572 1,479,304 629,928 637,665
---------- ---------- ---------- ----------
Total $5,213,338 $5,472,948 $1,128,126 $1,152,143
========== ========== ========== ==========
(Continued)
21
MINNESOTA LIFE INSURANCE COMPANY AND SUBSIDIARIES
Notes to Consolidated Financial Statements (Continued)
(3) Investments (Continued)
The Company had certain investments with a reported fair value lower than
the cost of the investment as follows:
in thousands Unrealized
December 31, 2004 Fair Value Cost Losses
------------------------------------ ---------- -------- ----------
US government securities
Less than 12 months $ 11,526 $ 11,598 $ 72
Greater than 12 months -- -- --
Government agencies and authorities
Less than 12 months 25,883 26,008 125
Greater than 12 months -- -- --
Corporate securities
Less than 12 months 562,396 569,337 6,941
Greater than 12 months 23,947 24,168 221
Mortgage and asset-backed securities
Less than 12 months 541,614 549,370 7,756
Greater than 12 months -- -- --
Equity securities - unaffiliated
Less than 12 months 41,894 45,431 3,537
Greater than 12 months -- -- --
Private equity investments
Less than 12 months 14,732 16,177 1,445
Greater than 12 months 76,048 99,435 23,387
in thousands Unrealized
December 31, 2003 Fair Value Cost Losses
------------------------------------ ---------- -------- ----------
US government securities
Less than 12 months $ 18,579 $ 18,645 $ 66
Greater than 12 months -- -- --
Government agencies and authorities
Less than 12 months 8,251 8,256 5
Greater than 12 months -- -- --
Corporate securities
Less than 12 months 248,946 252,829 3,883
Greater than 12 months 71,276 76,655 5,379
Mortgage and asset-backed securities
Less than 12 months 371,769 376,996 5,227
Greater than 12 months 30,697 34,099 3,402
Equity securities - unaffiliated
Less than 12 months 13,817 14,534 717
Greater than 12 months 15,350 16,267 917
Private equity investments
Less than 12 months 95,778 124,813 29,035
Greater than 12 months 6,905 9,271 2,366
(Continued)
22
MINNESOTA LIFE INSURANCE COMPANY AND SUBSIDIARIES
Notes to Consolidated Financial Statements (Continued)
(3) Investments (Continued)
The Company had certain investments on loan with a reported fair value
lower than the cost of the investment as follows:
in thousands Unrealized
December 31, 2004 Fair Value Cost Losses
------------------------------------ ---------- -------- ----------
US government securities
Less than 12 months $ 85,483 $ 86,197 $ 714
Greater than 12 months -- -- --
Government agencies and authorities
Less than 12 months 95,646 96,478 832
Greater than 12 months -- -- --
Corporate securities
Less than 12 months 20,363 20,457 94
Greater than 12 months -- -- --
Mortgage and asset-backed securities
Less than 12 months 221,959 224,603 2,644
Greater than 12 months -- -- --
Equity securities - unaffiliated
Less than 12 months 7,439 8,293 854
Greater than 12 months -- -- --
in thousands Unrealized
December 31, 2003 Fair Value Cost Losses
------------------------------------ ---------- -------- ----------
US government securities
Less than 12 months $ 1,814 $ 1,861 $ 47
Greater than 12 months -- -- --
Government agencies and authorities
Less than 12 months -- -- --
Greater than 12 months -- -- --
Corporate securities
Less than 12 months 24,081 24,307 226
Greater than 12 months -- -- --
Mortgage and asset-backed securities
Less than 12 months 173,292 175,177 1,885
Greater than 12 months -- -- --
Equity securities - unaffiliated
Less than 12 months 3,460 3,709 249
Greater than 12 months -- -- --
Unrealized losses on fixed maturity securities are generally interest related
rather than credit related. For equity securities, outside research supports
target prices for the holdings that will return the securities to original cost
or higher. For private equity securities, unrealized losses are generally due to
heavy initial expenses and capital calls typical of newly developed funds.
(Continued)
23
MINNESOTA LIFE INSURANCE COMPANY AND SUBSIDIARIES
Notes to Consolidated Financial Statements (Continued)
(3) Investments (Continued)
At December 31, 2004, 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, 2004 and 2003, there was no general allowance
for credit losses for potential impairments in the mortgage loan portfolio.
There were no provisions for credit losses or charge-offs in 2004, 2003 or
2002.
Below is a summary of interest income on impaired mortgage loans.
[Download Table]
in thousands 2004 2003 2002
------------ ---- ---- ----
Impaired mortgage loans $-- $ -- $ 1
Interest income on impaired mortgage loans - contractual -- 442 166
Interest income on impaired mortgage loans - collected -- -- --
At December 31, 2004 and 2003, fixed maturity securities and cash
equivalents with a carrying value of $9,522,000 and $9,568,000,
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. The Company has identified two VIEs for which it is the primary
beneficiary. The Company has invested debt with the holding company of a
former related party. Management of the holding company are not under
agreement or regulation required to produce consolidated financial
statement information. Data available for the Company to consolidate is
considered incomplete, particularly in regard to revenue, capital
transactions and minority interest information, and immaterial to the
financial results of the Company. The Company estimates its maximum
remaining exposure in this VIE to be $300,000. The Company estimates the
revenue of this VIE to be approximately $1,000,000. The Company
additionally holds an investment in a trust for which it is the primary
beneficiary and where results are consolidated in the Company's financial
results. The assets held under this VIE are approximately $5,000,000. The
Company has identified VIE arrangements in which it holds significant
variable interests, but is not the primary beneficiary and for which
results have not been consolidated as detailed below:
Maximum Exposure
in thousands Total Assets to Loss
------------ ------------ ----------------
Collateralized debt obligations $ 12,870 $ 13,000
Non-registered mutual funds 125,436 113,592
Private equity investments 33,625 30,977
Other invested assets 3,141 3,141
(Continued)
24
MINNESOTA LIFE INSURANCE COMPANY AND SUBSIDIARIES
Notes to Consolidated Financial Statements (Continued)
(5) 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 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. As of
December 31, 2003, the loan balance was $13,791,000 and the accrued
interest was $496,000. For the years ended December 31, 2004 and 2003, the
Company received principal payments of $0 and $968,000, respectively, and
interest payments of $346,000 and $755,000, respectively. 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. The loan balance was included in other invested assets, accrued
interest was included in accrued investment income, and investment income
is included in net investment income.
(6) Net Finance Receivables
Finance receivables as of December 31 were as follows:
in thousands 2004 2003
------------ -------- --------
Direct installment loans $163,348 $154,155
Retail installment notes 24,971 17,286
Retail revolving credit 51 108
Accrued interest 2,915 2,632
-------- --------
Gross receivables 191,285 174,181
Unearned finance charges (42,982) (39,233)
Allowance for uncollectible amounts (7,878) (7,232)
-------- --------
Finance receivables, net $140,425 $127,716
======== ========
Direct installment loans, at December 31, 2004 and 2003, consisted of
$111,100,000 and $103,349,000, respectively, of discount basis loans, net
of unearned finance charges, and $13,762,000 and $14,552,000, 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.
(Continued)
25
MINNESOTA LIFE INSURANCE COMPANY AND SUBSIDIARIES
Notes to Consolidated Financial Statements (Continued)
(6) Net Finance Receivables (Continued)
Total finance receivables, net of unearned finance charges, by date of
final maturity at December 31, 2004 were as follows:
in thousands
------------
2005 $ 20,726
2006 43,855
2007 66,758
2008 12,167
2009 1,585
2010 and thereafter 3,212
--------
Total finance receivables, net of unearned finance charges 148,303
Allowance for uncollectible amounts (7,878)
--------
Finance receivables, net $140,425
========
During the years ended December 31, 2004 and 2003, principal cash
collections of direct installment loans were $57,523,000 and $52,705,000,
respectively, and the percentages of these cash collections to average net
balances were 49% and 48%, respectively. Retail installment notes'
principal cash collections were $28,653,000 and $21,597,000, respectively,
and the percentages of these cash collections to average net balances were
164% for both 2004 and 2003.
The ratio for the allowance for losses to net outstanding receivables
balances at December 31, 2004 and 2003 was 5.3% and 5.4%, respectively.
Changes in the allowance for losses for the periods ended December 31 were
as follows:
in thousands 2004 2003 2002
------------ -------- -------- --------
Balance at beginning of year $ 7,232 $ 6,627 $ 5,846
Provision for credit losses 8,080 8,014 8,029
Allowance applicable to bulk purchase -- -- 4
Charge-offs (10,541) (10,262) (10,292)
Recoveries 3,107 2,853 3,040
-------- -------- --------
Balance at end of year $ 7,878 $ 7,232 $ 6,627
======== ======== ========
At December 31, 2004 and 2003, the recorded investments in certain direct
installment loans and direct revolving credit loans were considered to be
impaired. The balances of such loans at December 31, 2004 and 2003 and the
related allowance for losses was as follows:
Installment Revolving
in thousands Loans Credit Total
------------ ----------- --------- -----
Balances at December 31, 2004 $303 -- $303
Related allowance for credit losses $110 -- $110
Balances at December 31, 2003 $374 54 $428
Related allowance for credit losses $122 54 $176
(Continued)
26
MINNESOTA LIFE INSURANCE COMPANY AND SUBSIDIARIES
Notes to Consolidated Financial Statements (Continued)
(6) Net Finance Receivables (Continued)
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, 2004, 2003 and 2002. The average quarterly balance
of impaired loans during the years ended December 31, 2004 and 2003 was
$348,000 and $515,000 for installment basis loans and $13,000 and $54,000
for revolving credit loans, respectively.
There were no commitments to lend additional funds to customers whose loans
were classified as impaired at December 31, 2004.
The net investment in loans on which the accrual of finance charges and
interest was suspended at December 31, 2004 and 2003 was $15,691,000 and
$14,625,000, respectively. There was no investment in receivables past due
more than 90 days that were accounted for on an accrual basis at December
31, 2004 and 2003.
(7) Income Taxes
Income tax expense (benefit) varies from the amount computed by applying
the federal income tax rate of 35% to income (loss) from operations before
taxes. The significant components of this difference were as follows:
[Download Table]
in thousands 2004 2003 2002
------------ ------- ------- --------
Computed tax expense (benefit) $69,693 $20,754 $ (5,852)
Difference between computed and actual tax expense:
Dividends received deduction (8,751) (5,032) (8,539)
Tax credits (1,811) (1,200) (1,300)
Expense adjustments and other 1,135 331 (4,785)
------- ------- --------
Total tax expense (benefit) $60,266 $14,853 $(20,476)
======= ======= ========
The tax effects of temporary differences that give rise to the Company's
net deferred federal tax liability were as follows:
[Download Table]
in thousands 2004 2003
------------ -------- --------
Deferred tax assets:
Policyholder liabilities $ 4,108 $ 18,565
Pension and post retirement benefits 34,857 35,330
Tax deferred policy acquisition costs 95,386 103,556
Deferred gain on individual disability coinsurance 16,449 17,874
Net realized capital losses 60,163 56,592
Ceding commissions 7,363 8,611
Other 7,598 11,232
-------- --------
Gross deferred tax assets 225,924 251,760
-------- --------
Deferred tax liabilities:
Deferred policy acquisition costs 198,437 173,739
Premiums 20,003 19,246
Real estate and property and equipment depreciation 9,383 9,056
Basis difference on investments 28,965 21,734
Net unrealized capital gains 155,817 154,633
Other 11,803 12,316
-------- --------
Gross deferred tax liabilities 424,408 390,724
-------- --------
Net deferred tax liability $198,484 $138,964
======== ========
(Continued)
27
MINNESOTA LIFE INSURANCE COMPANY AND SUBSIDIARIES
Notes to Consolidated Financial Statements (Continued)
(7) Income Taxes (Continued)
A valuation allowance for deferred tax assets was not considered necessary
as of December 31, 2004 and 2003 because the Company believes that it is
more likely than not that the deferred tax assets will be realized through
future reversals of existing taxable temporary differences and future
taxable income.
Income taxes paid for the years ended December 31, 2004, 2003, and 2002,
were $23,747,000, $3,588,000 and $20,066,000, respectively.
In December 2004, the IRS completed their audit of the Company's federal
income tax returns for the years 2001 and 2002. The Company has accrued for
the taxes assessed as a result of the audit. The Company's tax returns for
2003 and later are expected to be under examination by the IRS beginning in
late 2005. The Company believes that any additional taxes refunded or
assessed as a result of this future examination will not have a material
effect on its consolidated financial position.
(8) Employee Benefit Plans
Pension Plans and Post Retirement Plans Other than Pensions
The Company has noncontributory defined benefit retirement plans covering
substantially all employees and certain agents. Benefits are based upon
years of participation and the employee's average monthly compensation or
the agent's adjusted annual compensation. The Company expects to contribute
at least $7,000,000 to its noncontributory defined benefit retirement plans
in 2005 and intends to contribute more if required to meet minimum funding
standards. In addition, it may contribute additional tax deductible
amounts.
The Company also has an unfunded noncontributory defined benefit retirement
plan, which provides certain employees with benefits in excess of limits
for qualified retirement plans.
The Company also has postretirement plans that provide certain health care
and life insurance benefits to substantially all retired employees and
agents. Eligibility is determined by age at retirement and years of service
after age 30. Health care premiums are shared with retirees, and other
cost-sharing features include deductibles and co-payments. The Company has
set up a 401(h) account during 2004 through its noncontributory defined
benefit plan to partially fund retiree medical costs for non-key employees.
The Company expects to contribute additional tax deductible amounts during
2005.
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 2004 2003 2004 2003
------------ -------- -------- ------- -------
Change in benefit obligation:
Benefit obligation at beginning of year $330,876 $275,112 $56,754 $52,719
Service cost 14,674 12,871 2,510 2,589
Interest cost 19,624 18,718 3,155 3,516
Actuarial (gain) loss (1,248) 30,707 728 (994)
Benefits paid (7,005) (1,275) (1,076)
(6,532)
-------- -------- ------- -------
Benefit obligation at end of year $356,921 $330,876 $61,872 $56,754
======== ======== ======= =======
(Continued)
28
MINNESOTA LIFE INSURANCE COMPANY AND SUBSIDIARIES
Notes to Consolidated Financial Statements (Continued)
(8) Employee Benefit Plans (Continued)
Pension Plans and Post Retirement Plans Other than Pensions (Continued)
[Enlarge/Download Table]
Pension Benefits Other Benefits
--------------------- -------------------
in thousands 2004 2003 2004 2003
------------ --------- --------- -------- --------
Change in plan assets:
Fair value of plan assets at beginning
of year $ 192,833 $ 160,852 $ -- $ --
Actual return on plan assets 25,612 24,046 -- --
Employer contribution 25,556 14,467 4,175 1,076
Benefits paid (7,005) (6,532) (1,275) (1,076)
--------- --------- -------- --------
Fair value of plan assets at end of year $ 236,996 $ 192,833 $ 2,900 $ --
========= ========= ======== ========
Net amount recognized:
Funded status $(119,924) $(138,043) $(58,972) $(56,755)
Unrecognized net actuarial loss 86,555 101,461 6,979 5,943
Unrecognized transition obligation 1,631 2,167
Unrecognized prior service cost (benefit) 2,323 2,741 -- (526)
--------- --------- -------- --------
Net amount recognized $ (29,415) $ (31,674) $(51,993) $(51,338)
========= ========= ======== ========
Amounts recognized in the consolidated balance sheets consist of:
Accrued benefit cost $ (30,711) $ (35,586) $(51,993) $(51,338)
Intangible asset 68 3,892 -- --
Accumulated other comprehensive income 1,228 20 -- --
--------- --------- -------- --------
Net amount recognized $ (29,415) $ (31,674) $(51,993) $(51,338)
========= ========= ======== ========
Accumulated benefit obligation $ 250,129 $ 225,079 $ 61,872 $ 56,755
Plans with accumulated benefit obligation in excess of plan
assets:
Projected benefit obligation $ 72,497 $ 321,240
Accumulated benefit obligation 59,880 217,525
Fair value of plan assets 33,731 185,266
Minimum pension liability 26,149 32,259
Increase in minimum liability included in other comprehensive
income 1,208 20
Weighted average assumptions used to determine benefit
obligations:
Discount rate 5.99% 6.25% 6.00% 6.25%
Rate of compensation increase 5.95% 5.95% -- --
(Continued)
29
MINNESOTA LIFE INSURANCE COMPANY AND SUBSIDIARIES
Notes to Consolidated Financial Statements (Continued)
(8) Employee Benefit Plans (Continued)
Pension Plans and Post Retirement Plans Other than Pensions (Continued)
[Download Table]
Pension Benefits Other Benefits
------------------- ----------------
in thousands 2004 2003 2004 2003
------------ -------- -------- ------- ------
Components of net periodic benefit cost:
Service cost $ 14,674 $ 12,871 $ 2,510 $2,589
Interest cost 19,624 18,718 3,155 3,516
Expected return on plan assets (16,043) (14,730) -- --
Transition obligation amortization 536 536 -- --
Prior service cost (benefit) amortization 418 418 (526) (526)
Recognized net actuarial loss (gain) 4,088 2,283 (308) 101
-------- -------- ------- ------
Net periodic benefit cost $ 23,297 $ 20,096 $ 4,831 $5,680
======== ======== ======= ======
Weighted average assumptions used to
Determine net periodic benefit costs:
Discount rate 6.24% 7.00% 6.25% 7.00%
Expected long-term return on plan assets 7.81% 7.79% -- --
Rate of compensation increase 5.95% 5.97% -- --
Estimated future benefit payments for pension and other postretirement
benefits:
Pension Other Medicare
in thousands Benefits Benefits Subsidy
------------ -------- -------- --------
2005 $ 7,642 $ 1,355 $ --
2006 8,211 1,410 216
2007 8,927 1,606 247
2008 9,556 1,821 280
2009 10,378 2,056 317
2010 - 2014 69,404 14,480 2,179
For measurement purposes, a 9.0% and 10.0% annual rate of increase in the
per capita cost of covered health care benefits was assumed for 2004 and
2003, 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 $1,296,000 and
$3,912,000 as of December 31, 2004, and 2003, 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 $68,000 and $3,892,000 at December 31, 2004, and 2003,
respectively, is included in other assets in the consolidated balance
sheets.
The assumptions presented herein are based on pertinent information
available to management as of December 31, 2004 and 2003. 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, 2004 by
$22,084,000 and the estimated eligibility cost and interest cost components
of net periodic benefit costs for 2004 by $2,565,000. Decreasing the
assumed health care cost trend rates by one percentage point would decrease
the postretirement benefit obligation as of December 31, 2004 by
$17,259,000 and the estimated eligibility cost and interest cost components
of net periodic postretirement benefit costs for 2004 by $1,929,000.
(Continued)
30
MINNESOTA LIFE INSURANCE COMPANY AND SUBSIDIARIES
Notes to Consolidated Financial Statements (Continued)
(8) Employee Benefit Plans (Continued)
Pension Plans and Post Retirement 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:
2004 2003
---- ----
Equity securities 61% 57%
Debt securities 26% 28%
Insurance company general account 13% 15%
At times, investments may be made in non-traditional 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 is also employed which utilizes equity
and debt futures positions to adjust overall exposure to these broad asset
classes. The futures contracts owned control 10% positions in both equity
securities and fixed income securities in one of the non-contributory
defined benefit plans, and 9% when weighted across all non-contributory
defined benefit plans.
Generally, the investment objective of the non-contributory defined benefit
plans is to pursue high returns but to limit the volatility of returns to a
level which will keep the liquidation of depressed assets for benefit
payments, the increase in contributions and pension expense due to
investment losses, and the decline in the funded ratios due to investment
losses to levels deemed tolerable.
The target asset allocation as of December 31, 2004, for each of the broad
investment categories, weighted for all plans combined is as follows:
Equity securities 43% to 71%
Debt securities 16% to 42%
Insurance company general account 11% to 18%
Other 0% to 2%
The primary investment goals of the postretirement plans are to preserve
capital and provide sufficient liquidity to meet the annual expenses
incurred by the Company. These plan assets are currently allocated to 100%
debt securities, which are primarily high quality short-term fixed income
securities. The target asset allocation as of December 31, 2004 is 100% to
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 2004, 2003, and 2002 of $10,811,000,
$6,924,000 and $3,899,000, respectively. Participants may elect to receive
a portion of their contributions in cash.
(Continued)
31
MINNESOTA LIFE INSURANCE COMPANY AND SUBSIDIARIES
Notes to Consolidated Financial Statements (Continued)
(9) Liability for Unpaid Accident and Health Claims, Reserve for Losses, and
Claim and Loss Adjustment Expenses
Activity in the liability for unpaid accident and health claims, reserve
for losses and claim and loss adjustment expenses is summarized as follows:
in thousands 2004 2003 2002
------------ -------- -------- --------
Balance at January 1 $554,160 $536,604 $518,209
Less: reinsurance recoverable 471,425 449,212 433,323
-------- -------- --------
Net balance at January 1 82,735 87,392 84,886
-------- -------- --------
Incurred related to:
Current year 55,546 60,927 65,692
Prior years 3,388 (526) 4,839
-------- -------- --------
Total incurred 58,934 60,401 70,531
-------- -------- --------
Paid related to:
Current year 24,165 24,849 27,436
Prior years 38,523 40,209 40,589
-------- -------- --------
Total paid 62,688 65,058 68,025
-------- -------- --------
Net balance at December 31 78,981 82,735 87,392
Plus: reinsurance recoverable 496,450 471,425 449,212
-------- -------- --------
Balance at December 31 $575,431 $554,160 $536,604
======== ======== ========
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.
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 $3,388,000 in 2004, decreased by
$526,000 in 2003, and increased by $4,839,000 in 2002, which includes the
amortization of discount on individual accident and health claim reserves
of $75,000, $153,000, and $331,000 in 2004, 2003, and 2002, 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.
Reinsurance is accounted for over the lives of the underlying reinsured
policies using assumptions consistent with those used to account for the
underlying policies.
(Continued)
32
MINNESOTA LIFE INSURANCE COMPANY AND SUBSIDIARIES
Notes to Consolidated Financial Statements (Continued)
(10) Reinsurance(Continued)
The effect of reinsurance on premiums for the years ended December 31 was
as follows:
in thousands 2004 2003 2002
------------ ---------- ---------- --------
Direct premiums $ 924,713 $ 887,189 $807,116
Reinsurance assumed 276,104 225,288 181,473
Reinsurance ceded (122,231) (107,200) (88,515)
---------- ---------- --------
Net premiums $1,078,586 $1,005,277 $900,074
========== ========== ========
Reinsurance recoveries on ceded reinsurance contracts were $105,589,000,
$103,839,000 and $103,979,000 during 2004, 2003, and 2002, respectively.
During September 2003, the Company entered into a written agreement with
Pan-American Life Insurance Company whereby 401(k) accounts representing
865 contracts with associated fixed and variable assets of approximately
$488,174,000 were transferred to separate accounts and approximately
$85,366,000 were transferred to the general account, effective November 17,
2003. The amounts pertaining to reinsurance assumed and coinsurance
agreements are $55,236,000 and $518,305,000, respectively.
(11) Certain Nontraditional Long-Duration Contracts and Separate Accounts
The Company issues certain nontraditional long-duration contracts including
universal life, variable universal 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 or
annuitization. The Company also issues universal life and variable
universal 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
universal 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 losses in the
consolidated statements of operations. For universal life contracts the
amounts assessed against the contractholders for mortality, administrative,
and other services are included in universal life policy fees and changes
in liabilities for guaranteed benefits are included in policyholder
benefits in the consolidated statements of operations. For both variable
annuity and universal life contracts, separate account net investment
income, net investment gains and losses, and the related liability changes
are offset within the same line item in 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 2004.
(Continued)
33
MINNESOTA LIFE INSURANCE COMPANY AND SUBSIDIARIES
Notes to Consolidated Financial Statements (Continued)
(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 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 universal 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 and January 1, 2004, the Company had the following variable
annuity contracts with guarantees:
December 31 January 1
in thousands 2004 2004
------------ ----------- ----------
Return of net deposits:
In the event of death
Account value $1,412,580 $1,316,042
Net amount at risk $ 14,272 $ 27,997
Average attained age of contractholders 52.4 52.7
Return of net deposits plus a minimum return:
In the event of death
Account value $ 62,843 $ 25,971
Net amount at risk $ 70 $ 23
Average attained age of contractholders 57.7 58.9
At annuitization
Account value $ 81,233 $ 3,112
Net amount at risk -- --
Weighted average period remaining until
expected annuitization (in years) 9.7 9.9
Highest specified anniversary account value:
In the event of death
Account value $ 390,485 $ 314,950
Net amount at risk $ 9,962 $ 17,206
Average attained age of contractholders 52.5 52.5
Guaranteed payout annuity floor:
Account value $ 78,809 $ 52,271
Net amount at risk $ 14 $ 19
Average attained age of contractholders 66 67
(Continued)
34
MINNESOTA LIFE INSURANCE COMPANY AND SUBSIDIARIES
Notes to Consolidated Financial Statements (Continued)
(11) Certain Nontraditional Long-Duration Contracts and Separate Accounts
(Continued)
At December 31 and January 1, 2004, the Company had the following universal
life and variable universal life contracts with guarantees:
December 31 January 1
in thousands 2004 2004
------------ ----------- -----------
Account value (general and separate accounts) $ 1,656,229 $ 1,399,563
Net amount at risk $32,902,249 $31,422,025
Average attained age of policyholders 46 45
Liabilities for guarantees on variable contracts reflected in the general
account for 2004 are:
[Download Table]
Minimum Guaranteed Universal Life
Guaranteed Payout and Variable
in thousands Death Benefit Annuity Floor Universal Life
------------ ------------- ------------- --------------
Balance at beginning of year $ 87 $7,493 $ --
Incurred guarantee benefits 654 924 2,294
Paid guaranteed benefits (520) (225) (1,427)
----- ------ -------
Balance at end of year $ 221 $8,192 $ 867
===== ====== =======
The minimum guaranteed death benefit 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 universal 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 both variable annuity and
universal 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, 2004:
. 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 10.35% 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.
(Continued)
35
MINNESOTA LIFE INSURANCE COMPANY AND SUBSIDIARIES
Notes to Consolidated Financial Statements (Continued)
(11) Certain Nontraditional Long-Duration Contracts and Separate Accounts
(Continued)
The following assumptions and methodology, which are consistent with those
used for DAC models, were used to determine the universal life and variable
universal life liability at December 31, 2004:
. 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 5.5%.
. Separate account discount rate was 7.7%.
Account balances for contracts with guarantees were invested in variable
separate accounts by mutual fund grouping as follows at December 31 and
January 1, 2004:
Variable Annuity Contracts Universal Life Contracts
-------------------------- ------------------------
in thousands December 31 January 1 December 31 January 1
------------ ----------- ---------- ----------- ----------
Equity $1,259,616 $1,040,199 $1,089,227 $ 911,641
Bond 209,677 192,712 83,893 74,537
Balanced 238,106 248,114 157,382 147,868
Money market 33,859 42,568 18,374 18,959
Mortgage 137,110 149,231 54,498 49,154
Real estate 66,349 36,410 29,496 15,296
---------- ---------- ---------- ----------
Total $1,944,717 $1,709,234 $1,432,870 $1,217,455
========== ========== ========== ==========
(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, 2004 and 2003, the liability associated with unremitted
premiums payable was $13,008,000 and $0, respectively. As described in note
2, as of December 31, 2004 and 2003, the Company had restricted the use of
$13,008,000 and $0, respectively, of its cash and cash equivalents to
satisfy these premium remittance payables.
(13) 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 FAS 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.
(Continued)
36
MINNESOTA LIFE INSURANCE COMPANY AND SUBSIDIARIES
Notes to Consolidated Financial Statements (Continued)
(13) Business Combinations (Continued)
In accordance with the purchase method of accounting, the purchase price of
$21,500,000 was allocated based on an estimate of the fair values of assets
acquired and liabilities assumed as of June 1, 2004, as follows:
in thousands
------------
Cash $ 8,504
Property and equipment 1,250
Intangible assets 13,592
Other assets 3,388
Other liabilities (16,012)
--------
Net assets acquired 10,722
Excess of cost over fair value - goodwill 10,778
--------
Allocated purchase price $ 21,500
========
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 is supported through a discounted cash flow analysis that
estimated the value and the useful life of the intangibles. The
amortization of this intangible asset is three to ten years based on the
estimated useful life of the underlying customer/client relationships on a
straight-line basis. Amortization expense for 2004 in the amount of
$1,281,000 is included in general operating expenses. Projected
amortization expense for the next five years is as follows: 2005,
$2,720,000; 2006, $2,720,000; 2007, $1,998,000; 2008, $1,705,000; 2009,
$1,055,000.
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. At
December 31, 2004, the maximum potential future consideration pursuant to
this agreement, to be resolved over the next three years, is $18,500,000.
The Company anticipates that any such payments would result in increases in
goodwill.
The Company has also agreed to pay an additional $1,000,000 in the period
where a contractual obligation was met by the sellers. Subsequent to
December 31, 2004, the sellers have met this requirement and payment was
made in January, 2005. The Company anticipates that this payment will
result in an increase in goodwill.
(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, 2004 and
2003. 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.
Please 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.
(Continued)
37
MINNESOTA LIFE INSURANCE COMPANY AND SUBSIDIARIES
Notes to Consolidated Financial Statements (Continued)
(14) Fair Value of Financial Instruments (Continued)
The interest rates on the finance receivables outstanding as of December
31, 2004 and 2003, 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, 2004 and 2003, approximate the fair value
for those respective dates.
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, 2004 and 2003 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]
2004 2003
------------------------- -------------------------
Carrying Fair Carrying Fair
in thousands Amount Value Amount Value
------------ ----------- ----------- ----------- -----------
Fixed maturity securities
Available-for-sale $ 5,472,948 $ 5,472,948 $ 4,941,278 $ 4,941,278
Equity securities 747,277 747,277 676,398 676,398
Mortgage loans, net 810,508 885,371 773,479 868,556
Finance receivables, net 140,425 140,425 127,716 127,716
Policy loans 270,186 270,186 263,508 263,508
Private equity investments 226,631 226,631 222,200 222,200
Fixed maturity securities on loan 1,152,143 1,152,143 1,361,128 1,361,128
Equity securities on loan 84,121 84,121 68,771 68,771
Other invested assets 2,926 2,926 114,809 114,809
Cash and cash equivalents 196,508 196,508 222,529 222,529
Securities held as collateral 1,276,761 1,276,761 1,466,354 1,466,354
Separate account assets 9,563,176 9,563,176 8,854,022 8,854,022
----------- ----------- ----------- -----------
Total financial assets $19,943,610 $20,018,473 $19,092,192 $19,187,269
=========== =========== =========== ===========
(Continued)
38
MINNESOTA LIFE INSURANCE COMPANY AND SUBSIDIARIES
Notes to Consolidated Financial Statements (Continued)
(14) Fair Value of Financial Instruments (Continued)
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]
2004 2003
------------------------- -------------------------
Carrying Fair Carrying Fair
in thousands Amount Value Amount Value
------------ ----------- ----------- ----------- -----------
Deferred annuities $ 1,962,025 $ 1,967,527 $ 1,831,790 $ 1,835,924
Annuity certain contracts 59,666 62,712 62,144 65,858
Other fund deposits 1,103,217 1,107,354 1,121,288 1,130,236
Supplementary contracts without
life contingencies 43,538 43,538 42,068 42,068
Notes payable 125,000 126,983 125,000 126,935
Securities lending collateral 1,276,761 1,276,761 1,466,354 1,466,354
Separate account liabilities 9,563,176 9,563,176 8,809,077 8,809,077
----------- ----------- ----------- -----------
Total financial liabilities $14,133,383 $14,148,051 $13,457,721 $13,476,452
=========== =========== =========== ===========
(15) 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 $12,407,000,
$11,379,000 and $10,866,000 during 2004, 2003 and 2002, respectively. As of
December 31, 2004 and 2003, the amount due to Advantus under these
agreements was $3,594,000 and $3,527,000, 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 $3,813,000, $3,448,000 and $3,539,000 for the years ended December
31, 2004, 2003 and 2002, 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, 2004 and 2003, the
amount payable to the Company was $9,310,000 and $9,219,000, respectively.
The amount of expenses incurred for the years ended December 31, 2004,
2003, and 2002 were $42,322,000, $48,896,000 and $49,205,000, 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 2004, 2003 and 2002. No claims were paid during 2004, 2003 and 2002. As
of December 31, 2004 and 2003, reserves held under this policy were
$9,516,000 and $6,841,000, respectively.
(Continued)
39
MINNESOTA LIFE INSURANCE COMPANY AND SUBSIDIARIES
Notes to Consolidated Financial Statements (Continued)
(16) Notes Payable
In September 1995, the Company issued surplus notes with a face value of
$125,000,000, at 8.25%, due in 2025. The surplus notes are subordinate to
all current and future policyholders interests, including claims, and
indebtedness of the Company. All payments of interest and principal on the
notes are subject to the approval of the Minnesota Department of Commerce
(Department of Commerce). The approved accrued interest was $3,008,000 as
of December 31, 2004 and 2003. The issuance costs of $1,421,000 are
deferred and amortized over 30 years on straight-line basis. At December
31, 2004 and 2003, the balance of the surplus notes was $125,000,000.
At December 31, 2004, the aggregate minimum annual notes payable maturities
for the next five years are as follows: 2005, $0; 2006, $0; 2007, $0; 2008,
$0; 2009, $0; thereafter $125,000,000.
Prior to 2004, the Company maintained a line of credit, which was drawn
down periodically throughout the year. As of December 31, 2003, the
outstanding balance of this line of credit was zero.
Interest paid on debt for the years ended December 31, 2004, 2003 and 2002,
was $10,360,000, $11,180,000 and $12,579,000, respectively.
(17) 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:
[Download Table]
in thousands 2004 2003 2002
------------ -------- -------- --------
Other comprehensive income (loss), before tax:
Unrealized gains (loss) on securities $ 67,906 $154,508 $(74,150)
Reclassification adjustment for
(gains) losses included in net income (85,312) 48,151 138,595
Adjustment to unearned policy and contract fees (7,112) (2,142) 13,074
Adjustment to reserves 2,941 7,069 (54,290)
Adjustment to deferred policy acquisition costs 48,407 23,362 (93,375)
-------- -------- --------
26,830 230,948 (70,146)
Income tax expense (benefit) related to items of
other comprehensive income (17,476) (75,672) 25,248
-------- -------- --------
Other comprehensive income (loss), net of tax $ 9,354 $155,276 $(44,898)
======== ======== ========
(18) Stock Dividends and Capital Contributions
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. During
2003, the Company declared and paid dividends to Securian Financial Group,
Inc. totaling $22,000,000. These dividends were in the form of cash.
Additionally, the Company declared and paid a dividend representing the
affiliated stock of Securian Life Insurance Company in the amount of
$14,033,000. During 2002, the Company declared and paid dividends to
Securian Financial Group, Inc. totaling $29,500,000. These dividends were
in the form of cash. Additionally, the Company declared and accrued a
dividend representing the affiliated stock of Securian Casualty Company.
The amount of the transfer, on January 2, 2003, of Securian Casualty
Company was $8,398,000.
(Continued)
40
MINNESOTA LIFE INSURANCE COMPANY AND SUBSIDIARIES
Notes to Consolidated Financial Statements (Continued)
(18) 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 2004 statutory results, the maximum amount available for the payment of
dividends during 2005 by Minnesota Life Insurance Company without prior
regulatory approval is $141,945,000 after January 1, 2005.
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.
(19) Commitments and Contingencies
The Company is involved in various pending or threatened legal proceedings
arising out of the normal course of business. In the opinion of management,
the ultimate resolution of such litigation will not have a material adverse
effect on consolidated operations or the financial position of the Company.
In the normal course of business, the Company seeks to limit its exposure
to loss on any single insured and to recover a portion of benefits paid by
ceding reinsurance to other insurance companies. 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 "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
these 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 other invested assets. As of
December 31, 2004 and 2003, these securities were reported at $2,926,000
and $110,894,000, respectively.
The Company has long-term commitments to fund private equity investments
and real estate investments totaling $140,685,000 as of December 31, 2004.
The Company estimates that $46,000,000 of these commitments will be
invested in 2005, with the remaining $94,685,000 invested over the next
four years.
As of December 31, 2004, the Company had committed to purchase mortgage
loans totaling $45,950,000 and fixed maturity corporate securities totaling
$31,187,000 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:
2005, $11,267,000; 2006, $11,267,000; 2007, $11,267,000; 2008, $11,267,000;
2009, $11,267,000. The Company sub-leases space in downtown St. Paul.
Commitments to the Company from these agreements are as follows: 2005,
$802,000; 2006, $718,000; 2007, $734,000; 2008, $704,000; 2009, $707,000.
Lease expense net of sub-lease income for the years ended December 31,
2004, 2003 and 2002 was $8,561,000, $8,705,000 and $8,740,000,
respectively. The Company also has long-term lease agreements with
unaffiliated companies. Minimum gross rental commitments under these leases
are as follows: 2005, $2,854,000; 2006, $2,409,000; 2007, $1,474,000; 2008,
$886,000; 2009, $735,000.
(Continued)
41
MINNESOTA LIFE INSURANCE COMPANY AND SUBSIDIARIES
Notes to Consolidated Financial Statements (Continued)
(19) Commitments and Contingencies (Continued)
At December 31, 2004, the Company had guaranteed the payment of $73,600,000
in policyholder dividends and discretionary amounts payable in 2005. The
Company has pledged fixed maturity securities, valued at $87,178,000 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 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. 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, 2004 and 2003 the assets held in trust
were $608,550,000 and $566,495,000, respectively.
The Company in conjunction with Securian Holding Company, the parent
company of Securian Financial Group, 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 revocable by the parties to the agreement and under
certain other conditions. 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, 2004 and 2003 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 $1,634,000 and
$1,913,000 as of December 31, 2004 and 2003, 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.
(Continued)
42
MINNESOTA LIFE INSURANCE COMPANY AND SUBSIDIARIES
Notes to Consolidated Financial Statements (Continued)
(20) Statutory Financial Data
The significant differences that exist between statutory and GAAP
accounting, and their effects are illustrated below:
[Download Table]
Year ended December 31
-----------------------
in thousands 2004 2003
------------ ---------- ----------
Statutory capital and surplus $1,419,449 $1,168,753
Adjustments:
Deferred policy acquisition costs 719,598 636,179
Net unrealized investment gains 282,168 351,806
Adjustment to reserves (44,174) (47,221)
Statutory asset valuation reserve 213,750 205,298
Statutory interest maintenance reserve 15,323 14,181
Premiums and fees deferred or receivable (37,583) (35,687)
Change in reserve basis 134,848 124,117
Deferred reinsurance gain (46,996) (51,070)
Separate accounts (35,300) (30,847)
Unearned policy and contract fees (155,226) (138,449)
Surplus notes (125,000) (125,000)
Net deferred income taxes (334,823) (338,228)
Pension benefit liabilities (39,597) (30,907)
Non-admitted assets 180,460 250,105
Policyholder dividends 56,582 62,497
Other 4,309 1,425
---------- ----------
Stockholder's equity as reported in the accompanying
consolidated financial statements $2,207,788 $2,016,952
========== ==========
The significant differences that exist between statutory and GAAP
accounting, and their effects are illustrated below:
[Download Table]
As of December 31
------------------------------
in thousands 2004 2003 2002
------------ -------- -------- --------
Statutory net income (loss) $155,796 $ 11,638 $ (9,814)
Adjustments:
Deferred policy acquisition costs 35,050 42,482 (19,156)
Statutory interest maintenance reserve 1,373 1,450 5,470
Premiums and fees deferred or receivable (1,906) 13,817 1,611
Change in reserve basis 10,962 (746) (2,797)
Separate accounts (4,454) (2,162) 10,913
Deferred reinsurance gain (1,713) (3,409) (12,847)
Unearned policy and contract fees (9,665) (7,617) 1,600
Realized gains (losses) 3,431 (5,642) (10,012)
Net deferred income taxes (42,821) 4,268 23,524
Policyholder dividends (5,915) (2,162) (1,168)
Pension benefits (498) (682) 7,472
Other (783) (6,790) 8,960
-------- -------- --------
Net income as reported in the accompanying
consolidated financial statements $138,857 $ 44,445 $ 3,756
======== ======== ========
(Continued)
43
MINNESOTA LIFE INSURANCE COMPANY AND SUBSIDIARIES
Schedule I - Summary of Investments - Other than Investments in Related
Parties December 31, 2004
(In thousands)
[Enlarge/Download Table]
As shown
on the
Market consolidated
Type of investment Cost (3) Value balance sheet (1)
------------------ ---------- ---------- -----------------
Fixed maturity securities
United States government $ 20,377 $ 20,736 $ 20,736
Government agencies and authorities 44,517 44,942 44,942
Foreign governments 1,714 1,790 1,790
Public utilities 441,420 472,789 472,789
Asset-backed securities 494,235 517,067 517,067
Mortgage-backed securities 1,434,572 1,479,304 1,479,304
All other corporate fixed maturity securities 2,776,503 2,936,320 2,936,320
---------- ---------- ----------
Total fixed maturity securities 5,213,338 5,472,948 5,472,948
---------- ---------- ----------
Equity securities:
Common stocks:
Public utilities 6,841 7,520 7,520
Banks, trusts and insurance companies 129,863 163,587 163,587
Industrial, miscellaneous and all other 466,071 572,747 572,747
Nonredeemable preferred stocks 3,450 3,423 3,423
---------- ---------- ----------
Total equity securities 606,225 747,277 747,277
---------- ---------- ----------
Mortgage loans on real estate 810,508 xxxxxx 810,508
Real estate (2) 1,771 xxxxxx 1,771
Policy loans 270,186 xxxxxx 270,186
Other investments 163,731 xxxxxx 163,731
Private equity investments 228,338 xxxxxx 226,631
Fixed maturity securities on loan 1,128,126 xxxxxx 1,152,143
Equity securities on loan 63,396 xxxxxx 84,121
---------- ---------- ----------
Total 2,666,056 -- 2,709,091
---------- ---------- ----------
Total investments $8,485,619 $6,220,225 $8,929,316
========== ========== ==========
(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.
44
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
--------------------------- ----------- -------------- ------------ -------------
2004:
Life insurance $526,326 $2,758,334 $180,596 $148,057
Accident and
health insurance 66,502 695,620 31,443 21,315
Annuity 128,227 3,490,442 18 327
-------- ---------- -------- --------
$721,055 $6,944,396 $212,057 $169,699
======== ========== ======== ========
2003:
Life insurance $464,087 $2,690,654 $168,868 $140,799
Accident and
health insurance 70,299 663,495 30,871 19,775
Annuity 102,089 3,386,782 28 113
-------- ---------- -------- --------
$636,475 $6,740,931 $199,767 $160,687
======== ========== ======== ========
2002:
Life insurance $421,265 $2,605,553 $156,832 $111,576
Accident and
health insurance 78,588 638,288 34,418 19,349
Annuity 70,885 3,155,822 27 196
Property and
liability insurance -- 25 -- --
-------- ---------- -------- --------
$570,738 $6,399,688 $191,277 $131,121
======== ========== ======== ========
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)
--------------------------- ----------- ----------- -------------- ------------ --------- -----------
2004:
Life insurance $1,204,119 $238,332 $1,061,659 $134,768 $408,460 $--
Accident and
health insurance 132,964 11,524 60,323 12,896 76,843 --
Annuity 123,551 209,756 201,727 22,224 121,702 --
---------- -------- ---------- -------- -------- ---
$1,460,634 $459,612 $1,323,709 $169,888 $607,005 $--
========== ======== ========== ======== ======== ===
2003:
Life insurance $1,122,503 $240,777 $1,024,443 $127,528 $341,177 $--
Accident and
health insurance 131,057 10,711 57,919 19,214 79,737 --
Annuity 103,386 214,370 198,077 19,396 108,962 --
---------- -------- ---------- -------- -------- ---
$1,356,946 $465,858 $1,280,439 $166,138 $529,876 $--
========== ======== ========== ======== ======== ===
2002:
Life insurance $1,012,901 $260,686 $ 883,852 $147,235 $336,387 $--
Accident and
health insurance 131,835 12,494 60,459 20,511 88,290 --
Annuity 111,228 225,704 213,817 20,916 88,540 --
Property and
liability insurance -- 219 (18) -- 40 --
---------- -------- ---------- -------- -------- ---
$1,255,964 $499,103 $1,158,110 $188,662 $513,257 $--
========== ======== ========== ======== ======== ===
(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.
45
MINNESOTA LIFE INSURANCE COMPANY AND SUBSIDIARIES
Schedule IV - Reinsurance
Years ended December 31, 2004, 2003 and 2002
(In thousands)
[Enlarge/Download Table]
Percentage
Ceded to Assumed from of amount
Gross other other Net assumed
amount companies companies amount to net
------------ ----------- ------------ ------------ ----------
2004: Life insurance in force $329,081,364 $47,795,013 $104,062,955 $385,349,306 27.0%
============ =========== ============ ============
Premiums:
Life insurance $ 685,032 $ 52,212 $ 275,004 $ 907,824 30.3%
Accident and health insurance 202,435 70,019 548 132,964 0.4%
Annuity 37,246 -- 552 37,798 1.5%
------------ ----------- ------------ ------------
Total premiums $ 924,713 $ 122,231 $ 276,104 $ 1,078,586 25.6%
============ =========== ============ ============
2003: Life insurance in force $302,107,783 $38,521,130 $ 90,958,405 $354,545,058 25.7%
============ =========== ============ ============
Premiums:
Life insurance $ 650,603 $ 37,988 $ 223,765 $ 836,380 26.8%
Accident and health insurance 204,829 69,212 1,469 137,086 1.1%
Annuity 31,757 -- 54 31,811 --
------------ ----------- ------------ ------------
Total premiums $ 887,189 $ 107,200 $ 225,288 $ 1,005,277 22.4%
============ =========== ============ ============
2002: Life insurance in force $266,335,791 $35,836,486 $ 76,101,905 $306,601,210 24.8%
============ =========== ============ ============
Premiums:
Life insurance $ 566,342 $ 13,677 $ 180,539 $ 733,204 24.6%
Accident and health insurance 200,610 74,838 934 126,706 0.7%
Annuity 40,164 -- -- 40,164 --
------------ ----------- ------------ ------------
Total premiums $ 807,116 $ 88,515 $ 181,473 $ 900,074 20.2%
============ =========== ============ ============
See accompanying report of independent registered public accounting firm.
46
PART C: OTHER INFORMATION
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 Life Account
29. Indemnification
30. Principal Underwriters
31. Location of Accounts and Records
32. Management Services
33. Fee Representation
71
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
------------------ --------------------
Mary K. Brainerd Director
HealthPartners
8100 34th Avenue South
Bloomington, MN 55425
John F. Bruder Senior Vice President
Minnesota Life Insurance Company
400 Robert Street North
St. Paul, MN 55101
Thomas P. Burns Senior Vice President
Minnesota Life Insurance Company
400 Robert Street North
St. Paul, MN 55101
Keith M. Campbell Senior Vice President
Minnesota Life Insurance Company
400 Robert Street North
St. Paul, MN 55101
John W. Castro Director
Merrill Corporation
One Merrill Circle
St. Paul, MN 55108
John E. Gherty Director
Land O'Lakes, Inc.
P.O. Box 64101
St. Paul, MN 55164
John F. Grundhofer Director
U.S. Bancorp
800 Nicollet Mall
Suite 2300
Minneapolis, MN 55402
John H. Hooley Director
SUPERVALU INC.
11840 Valley View Road
Eden Prairie, MN 55344-3691
Robert E. Hunstad Director and
Minnesota Life Insurance Company Executive Vice President
400 Robert Street North
St. Paul, MN 55101
[Download Table]
Name and Principal Position and Offices
Business Address with Minnesota Life
------------------ --------------------
James E. Johnson Senior Vice President
Minnesota Life Insurance Company
400 Robert Street North
St. Paul, MN 55101
Dianne M. Orbison Senior Vice President
Minnesota Life Insurance Company and Treasurer
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
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 Chief Financial Officer
400 Robert Street North
St. Paul, MN 55101
Randy F. Wallake Director and Executive Vice President
Minnesota Life Insurance Company
400 Robert Street North
St. Paul, MN 55101
Warren J. Zaccaro Executive Vice President
Minnesota Life Insurance Company
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 Life Account
Wholly-owned subsidiary of Minnesota Mutual Companies, Inc.:
Securian Holding Company (Delaware)
Wholly-owned subsidiaries of Securian Holding Company:
Securian Financial Group, Inc. (Delaware)
Capitol City Property Management, Inc.
Robert Street Property Management, Inc.
Wholly-owned subsidiaries of Securian Financial Group, Inc.
Minnesota Life Insurance Company
Securian Financial Network, Inc.
Securian Ventures, Inc.
Advantus Capital Management, Inc.
Securian Financial Services, Inc.
Securian Casualty Company
I.A. Systems, Inc. (New York)
Securian Life Insurance Company
Wholly-owned subsidiaries of Minnesota Life Insurance Company:
Northstar Life Insurance Company (New York)
Personal Finance Company (Delaware)
Enterprise Holding Corporation
Allied Solutions, L.L.C. (Indiana)
Wholly-owned subsidiaries of Securian Financial Services, Inc.:
MIMLIC Insurance Agency of Massachusetts, Inc. (Massachusetts)
Ascend Insurance Agency of Nevada, Inc. (Nevada)
Ascend Insurance Agency of Oklahoma, Inc. (Oklahoma)
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)
Open-end registered investment company offering shares solely to separate
accounts of Minnesota Life Insurance Company:
Advantus Series Fund, Inc.
Fifty percent-owned subsidiary of Enterprise Holding Corporation
CRI Securities, LLC
Majority-owned subsidiary of Securian Financial Group, Inc.:
Securian Trust Company, N.A.
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 Life Account
pursuant to the foregoing provisions, or otherwise, Minnesota Life Insurance
Company and Minnesota Life Variable 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
Life Account of expenses incurred or paid by a director, officer or controlling
person of Minnesota Life Insurance Company and Minnesota Life Variable 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
Northstar Life Variable Universal Life Account
(b) The name and principal business address, positions and offices
with Securian Financial Services, Inc., and positions and offices with
Registrant of each director and officer of Securian Financial Services, Inc. is
as follows:
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Positions and
Name and Principal Offices
Business Address with Underwriter
------------------ ----------------
George I. Connolly President, Chief Executive
Securian Financial Services, Inc. Officer and Director
400 Robert Street North
St. Paul, Minnesota 55101
Lynda S. Czarnetzki Treasurer
Securian Financial Services, Inc.
400 Robert Street North
St. Paul, Minnesota 55101
Robert E. Hunstad 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
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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
Michael J. Jorgenson Vice President and
Securian Financial Services, Inc. Chief Operating
400 Robert Street North Officer
St. Paul, Minnesota 55101
Richard A. Diehl Vice President and
Securian Financial Services, Inc. Chief Investment
400 Robert Street North Officer
St. Paul, Minnesota 55101
Kimberly K. Carpenter Assistant
Securian Financial Services, Inc. Secretary
400 Robert Street North
St. Paul, Minnesota 55101
Allen L. Peterson Assistant
Securian Financial Services, Inc. Secretary
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. $55,987,595 -- -- --
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. 33-3233, the fees and charges deducted under the contract, 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
Compare Act of 1940, the Registrant, Minnesota Life Variable Life Account,
certifies that it meets all of the requirements for effectiveness of this
Registration Statement pursuant to Rule 485(b) under the Securities Act of 1933
and has duly caused this Post-Effective Amendment to the Registration Statement
to be signed on its behalf by the undersigned, thereunto duly authorized, in the
City of Saint Paul, and State of Minnesota, on the 26th day of April, 2005.
MINNESOTA LIFE VARIABLE 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.
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Signature Title Date
--------- ----- ----
/s/ Robert L. Senkler Chairman, President and April 26, 2005
--------------------------------------- Chief Executive Officer
Robert L. Senkler
* Director
---------------------------------------
Mary K. Brainerd
* Director
---------------------------------------
John W. Castro
* Director
---------------------------------------
John E. Gherty
* Director
---------------------------------------
John F. Grundhofer
* Director
---------------------------------------
John H. Hooley
--------------------------------------- Director
Robert E. Hunstad
* Director
---------------------------------------
Dennis E. Prohofsky
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Signature Title Date
--------- ----- ----
* Director
---------------------------------------
Randy F. Wallake
/s/ Gregory S. Strong Senior Vice President April 26, 2005
--------------------------------------- (chief financial officer)
Gregory S. Strong
/s/ Gregory S. Strong Senior Vice President April 26, 2005
--------------------------------------- (chief accounting officer)
Gregory S. Strong
/s/ Dianne M. Orbison Senior Vice President and April 26, 2005
--------------------------------------- Treasurer (treasurer)
Dianne M. Ordibson
/s/ Dwayne C. Radel Attorney-in-Fact April 26, 2005
---------------------------------------
Dwayne C. Radel
* Pursuant to power of attorney dated April 4, 2005, a copy of which is filed
herewith.
EXHIBIT INDEX
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Exhibit Number Description of Exhibit
-------------- ----------------------
26(a) Resolution of the Board of Trustees of The Minnesota
Mutual Life Insurance Company dated October 21, 1985,
previously filed as Exhibit 26(a) to Minnesota Life
Variable Life Account's Form N-6, File Number
333-120704, Initial Registration Statement, on November
23, 2004, is hereby incorporated by reference.
26(b) Not Applicable.
26(c)(1) Distribution Agreement, previously filed as Exhibit
A(3)(a) to Registrant's Form S-6, File Number 33-3233,
Post-Effective Amendment Number 12, on April 28, 1997,
is hereby incorporated by reference.
26(c)(2) Schedule A to the Distribution Agreement, previously
filed as Exhibit 27(c)(2) to Minnesota Life Variable
Life Account's Form N-6, File Number 333-109853,
Post-Effective Amendment Number 1, on April 23, 2004,
is hereby incorporated by reference.
26(c)(3) Agent and General Agent Sales Agreements, previously
filed as Exhibit 27(c)(3) to Minnesota Life Variable
Life Account's Form N-6, File Number 333-109853,
Post-Effective Amendment Number 1, on April 23, 2004,
is hereby incorporated by reference.
26(c)(4) Combined with the Exhibit listed under 27(c)(3) above.
26(d)(1) Variable Adjustable Life Insurance Policy, form 86-660,
previously filed as Exhibit A(5)(a) to Registrant's
Form S-6, File Number 33-3233, Post-Effective Amendment
Number 12, on April 28, 1997, is hereby incorporated by
reference.
26(d)(2) Variable Adjustable Life Insurance Policy, form 87-670,
previously filed as Exhibit A(5)(b) to Registrant's
Form S-6, File Number 33-3233, Post-Effective Amendment
Number 12, on April 28, 1997, is hereby incorporated by
reference.
26(d)(3) Variable Adjustable Life Insurance Policy, form 90-670,
previously filed as Exhibit A(5)(c) to Registrant's
Form S-6, File Number 33-3233, Post-Effective Amendment
Number 12, on April 28, 1997, is hereby incorporated by
reference.
26(d)(4) Variable Adjustable Life Insurance Policy, form
MHC-98-670, previously filed as Exhibit A(5)(d) to
Registrant's Form S-6, File Number 33-3233,
Post-Effective Amendment Number 14, on March 4, 1999,
is hereby incorporated by reference.
26(d)(5) Guaranteed Principal Account Agreement, form 90-930,
previously filed as Exhibit A(5)(e) to Registrant's
Form S-6, File Number 33-3233, Post-Effective Amendment
Number 12, on April 28, 1997, is hereby incorporated by
reference.
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26(d)(6) Family Term Agreement-Children, form MHC-86-904,
previously filed as Exhibit A(5)(f) to Registrant's
Form S-6, File Number 33-3233, Post-Effective Amendment
Number 14, on March 4, 1999, is hereby incorporated by
reference.
26(d)(7) Exchange of Insureds Agreement, form MHC-86-914,
previously filed as Exhibit A(5)(g) to Registrant's
Form S-6, File Number 33-3233, Post-Effective Amendment
Number 14, on March 4, 1999, is hereby incorporated by
reference.
26(d)(8) Face Amount Increase Agreement, form MHC-86-915,
previously filed as Exhibit A(5)(h) to Registrant's
Form S-6, File Number 33-3233, Post-Effective Amendment
Number 14, on March 4, 1999, is hereby incorporated by
reference.
26(d)(9) Cost of Living Increase Agreement, form MHC-86-916,
previously filed as Exhibit A(5)(i) to Registrant's
Form S-6, File Number 33-3233, Post-Effective Amendment
Number 14, on March 4, 1999, is hereby incorporated by
reference.
26(d)(10) Waiver of Premium Agreement, form MHC-86-917,
previously filed as Exhibit A(5)(j) to Registrant's
Form S-6, File Number 33-3233, Post-Effective Amendment
Number 14, on March 4, 1999, is hereby incorporated by
reference.
26(d)(11) Survivorship Life Agreement, form MHC-90-929,
previously filed as Exhibit A(5)(k) to Registrant's
Form S-6, File Number 33-3233, Post-Effective Amendment
Number 14, on March 4, 1999, is hereby incorporated by
reference.
26(d)(12) Accelerated Benefit Agreement, form MHC-92-931,
previously filed as Exhibit A(5)(l) to Registrant's
Form S-6, File Number 33-3233, Post-Effective Amendment
Number 14, on March 4, 1999, is hereby incorporated by
reference.
26(d)(13) Short Term Agreement, form MHC-E324.1 10-1998,
previously filed as Exhibit A(5)(m) to Registrant's
Form S-6, File Number 33-3233, Post-Effective Amendment
Number 14, on March 4, 1999, is hereby incorporated by
reference.
26(d)(14) Policy Enhancement Agreement, form MHC-95-941,
previously filed as Exhibit A(5)(n) to Registrant's
Form S-6, File Number 33-3233, Post-Effective Amendment
Number 14, on March 4, 1999, is hereby incorporated by
reference.
26(d)(15) Protection Option Amendment, form MHC-98-945,
previously filed as Exhibit A(5)(o) to Registrant's
Form S-6, File Number 33-3233, Post-Effective Amendment
Number 14, on March 4, 1999, is hereby incorporated by
reference.
26(d)(16) Variable Early Value Agreement, form MHC-98-940,
previously filed as Exhibit A(5)(p) to Registrant's
Form S-6, File Number 33-3233, Post-Effective Amendment
Number 14, on March 4, 1999, is hereby incorporated by
reference.
26(e)(1) New Issue Application - Part 1, form F. 59410 Rev.
5-2004, previously filed as Exhibit 26(e)(1) to
Minnesota Life Variable Life Account's Form N-6, File
Number 333-120704,
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Pre-Effective Amendment Number 1, on February 16, 2005,
is hereby incorporated by reference.
26(e)(2) Application Part 2, form F. 59572 8-2003, previously
filed as exhibit 26(e)(2) to Minnesota Life Variable
Life Account's Form N-6, File Number 333-120704,
Initial Registration Statement, on November 23, 2004,
is hereby incorporated by reference.
26(e)(3) Application - Part 3 - Authorization New Issue; form F.
59536 8-2003, previously filed as Exhibit 27 (e)(2) to
Registrant's Form N-6, File Number 33-3233,
Post-Effective Amendment Number 22, on April 23, 2004,
is hereby incorporated by reference.
26(e)(4) Policy Change Application - Part 1, form F. 59538 Rev.
5-2004, previously filed as Exhibit 26(e)(5) to
Minnesota Life Variable Life Account's Form N-6, File
Number 333-120704, Pre-Effective Amendment Number 1, on
February 16, 2005, is hereby incorporated by reference.
26(e)(5) Policy Change Application - Part 3, form F. 59534
8-2003, previously filed as Exhibit 27(e)(4) to
Registrant's Form N-6, File Number 33-3233,
Post-Effective Amendment Number 22, on April 23, 2004,
is hereby incorporated by reference.
26(e)(6) Policy Change Application -- Part 1, form F. 59537 Rev.
5-2004, previously filed as Exhibit 26(e)(7) to
Minnesota Life Variable Life Account's Form N-6, File
Number 333-120704, Pre-Effective Amendment Number 1, on
February 16, 2005, is hereby incorporated by reference.
26(e)(7) Application Part 2, form F. 59573 8-2003, previously
filed as exhibit 26(e)(3) to Minnesota Life Variable
Life Account, File Number 333-120704, Initial
Registration Statement, on November 23, 2004, is hereby
incorporated by reference.
26(f)(1) Restated Certificate of Incorporation of the Depositor,
previously filed as Exhibit A(5)(a) to Registrant's
Form S-6, File Number 33-3233, Post-Effective Amendment
Number 14, on March 4, 1999 is hereby incorporated by
reference.
26(f)(2) Bylaws of the Depositor, previously filed as Exhibit
26(f)(2) to Minnesota Life Variable Life Account's Form
N-6, File Number 333-120704, Initial Registration
Statement, on November 23, 2004, is hereby incorporated
by reference.
26(g) Reinsurance Contract, previously filed as Exhibit 27(g)
to Minnesota Life Variable Life Account's Form N-6,
File Number 333-96383, Post-Effective Amendment Number
4, on April 30, 2003, 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, previously filed as Exhibit
27(h)(1)(i) to Minnesota Life Variable Universal Life
Account's Form N-6, File Number 33-85496,
Post-Effective Amendment Number 10, on February 27,
2003, is hereby incorporated by reference.
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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,
previously filed as Exhibit 27(h)(1)(ii) to Minnesota
Life Variable Universal Life Account's Form N-6, File
Number 33-85496, Post-Effective Amendment Number 10, on
February 27, 2003, is hereby incorporated by reference.
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,
previously filed as Exhibit 27(h)(1)(iii) to Minnesota
Life Variable Universal Life Account's Form N-6, File
Number 33-85496, Post-Effective Amendment Number 10, on
February 27, 2003, is hereby incorporated by reference.
26(h)(2)(i) Fund Participation Agreement between Janus Aspen
Series, Janus Distributors, Inc. and Minnesota Life
Insurance Company, previously filed as Exhibit
27(h)(2)(i) to Minnesota Life Variable Universal Life
Account's Form N-6, File Number 33-85496,
Post-Effective Amendment Number 10, on February 27,
2003, 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, previously filed as Exhibit 27(h)(2)(ii) to
Minnesota Life Variable Universal Life Account's Form
N-6, File Number 33-85496, Post-Effective Amendment
Number 10, on February 27, 2003, 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, previously filed as Exhibit
27(h)(2)(iii) to Minnesota Life Variable Universal Life
Account's Form N-6, File Number 33-85496,
Post-Effective Amendment Number 10, on February 27,
2003, 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, previously filed as Exhibit 27(h)(2)(iv) to
Minnesota Life Variable Universal Life Account's Form
N-6, File Number 33-85496, Post-Effective Amendment
Number 10, on February 27, 2003, 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
Minnesota Life Variable Universal Life Account's Form
N-6, File Number 33-85496, Post-Effective Amendment
Number 14, is hereby incorporated by reference.
26(h)(3)(i) Participation Agreement among Variable Insurance
Products Fund, Fidelity Distributors Corporation and
Minnesota Life Insurance Company, previously filed as
Exhibit 27(h)(3)(i) to Minnesota Life Variable
Universal Life Account's Form N-6,
[Download Table]
File Number 33-85496, Post-Effective Amendment Number
10, on February 27, 2003, is hereby incorporated by
reference.
26(h)(3)(ii) Amendment One to the Participation Agreement among
Variable Insurance Products Fund, Fidelity Distributors
Corporation and Minnesota Life Insurance Company,
previously filed as Exhibit 27(h)(3)(ii) to Minnesota
Life Variable Universal Life Account's Form N-6, File
Number 33-85496, Post-Effective Amendment Number 10, on
February 27, 2003, is hereby incorporated by reference.
26(h)(3)(iii) Second Amendment to Participation Agreement among
Variable Insurance Products Fund, Fidelity Distributors
Corporation and Minnesota Life Insurance Company,
previously filed as Exhibit 27(h)(3)(iii) to Minnesota
Life Variable Universal Life Account's Form N-6, File
Number 33-85496, Post-Effective Amendment Number 10, on
February 27, 2003, is hereby incorporated by reference.
26(h)(3)(iv) Third Amendment to Participation Agreement among
Variable Insurance Products Fund, Fidelity Distributors
Corporation and Minnesota Life Insurance Company, filed
on April 22, 2005 as Exhibit 26(h)(3)(iv) to Minnesota
Life Variable Universal Life Account's Form N-6, File
Number 33-85496, Post-Effective Amendment Number 14, is
hereby incorporated by reference.
26(h)(4)(i) Participation Agreement among Variable Insurance
Products Fund II, Fidelity Distributors Corporation and
Minnesota Life Insurance Company, previously filed as
Exhibit 27(h)(4)(i) to Minnesota Life Variable
Universal Life Account's Form N-6, File Number
33-85496, Post-Effective Amendment Number 10, on
February 27, 2003, is hereby incorporated by reference.
26(h)(4)(ii) Amendment One to the Participation Agreement among
Variable Insurance Products Fund II, Fidelity
Distributors Corporation and Minnesota Life Insurance
Company, previously filed as Exhibit 27(h)(4)(ii) to
Minnesota Life Variable Universal Life Account's Form
N-6, File Number 33-85496, Post-Effective Amendment
Number 10, on February 27, 2003, is hereby incorporated
by reference.
26(h)(4)(iii) Second Amendment to Participation Agreement among
Variable Insurance Products Fund II, Fidelity
Distributors Corporation and Minnesota Life Insurance
Company, previously filed as Exhibit 27(h)(4)(iii) to
Minnesota Life Variable Universal Life Account's Form
N-6, File Number 33-85496, Post-Effective Amendment
Number 10, on February 27, 2003, is hereby incorporated
by reference.
26(h)(4)(iv) Third Amendment to Participation Agreement among
Variable Insurance Products Fund II, Fidelity
Distributors Corporation and Minnesota Life Insurance
Company, filed on April 22, 2005 as Exhibit
26(h)(4)(iv) to Minnesota Life Variable Universal Life
Account's Form N-6, File Number 33-85496,
Post-Effective Amendment Number 14, is hereby
incorporated by reference.
26(h)(5)(i) Participation Agreement among Variable Insurance
Products Fund III, Fidelity Distributors Corporation
and Minnesota
[Download Table]
Life Insurance Company, previously filed as Exhibit
27(h)(5)(i) to Minnesota Life Variable Universal Life
Account's Form N-6, File Number 33-85496,
Post-Effective Amendment Number 10, on February 27,
2003, is hereby incorporated by reference.
26(h)(5)(ii) First Amendment to Participation Agreement among
Variable Insurance Products Fund III, Fidelity
Distributors Corporation and Minnesota Life Insurance
Company, previously filed as Exhibit 27(h)(5)(ii) to
Minnesota Life Variable Universal Life Account's Form
N-6, File Number 33-85496, Post-Effective Amendment
Number 10, on February 27, 2003, is hereby incorporated
by reference.
26(h)(5)(iii) Third Amendment to Participation Agreement among
Variable Insurance Products Fund III, Fidelity
Distributors Corporation and Minnesota Life Insurance
Company, filed on April 22, 2005 as Exhibit
26(h)(5)(iii) to Minnesota Life Variable Universal Life
Account's Form N-6, File Number 33-85496,
Post-Effective Amendment Number 14, is hereby
incorporated by reference.
26(h)(6) Fund Shareholder Services Agreement between Minnesota
Life Insurance Company and Ascend Financial Services,
Inc., previously filed as Exhibit 27(h)(6) to Minnesota
Life Variable Universal Life Account's Form N-6, File
Number 33-85496, Post-Effective Amendment Number 10, on
February 27, 2003, is hereby incorporated by reference.
26(h)(7)(i) Participation Agreement among Oppenheimer Variable
Account Funds, OppenheimerFunds, Inc. and Minnesota
Life Insurance Company, previously filed as Exhibit
8(s) to Variable Annuity Account's Form N-4, File
Number 333-91784, Post-Effective Amendment Number 2, on
April 29, 2003, is hereby incorporated by reference.
26(h)(7)(ii) Amendment No. 1 to the Participation Agreement among
Oppenheimer Variable Account Funds, OppenheimerFunds,
Inc. and Minnesota Life Insurance Company, previously
filed as Exhibit 8(s)(i) to Variable Annuity Account's
Form N-4, File Number 333-91784, Post-Effective
Amendment Number 2, on April 29, 2003, is hereby
incorporated by reference.
26(h)(7)(iii) Amendment No. 2 to the Participation Agreement among
Oppenheimer Variable Account Funds, OppenheimerFunds,
Inc. and Minnesota Life Insurance Company, previously
filed as Exhibit 8(s)(ii) to Variable Annuity Account's
Form N-4, File Number 333-91784, Post-Effective
Amendment Number 2, on April 29, 2003, is hereby
incorporated by reference.
26(h)(7)(iv) Amendment No. 3 to the Participation Agreement among
Oppenheimer Variable Accounts Funds, OppenheimerFunds,
Inc. and Minnesota Life Insurance Company.
26(h)(8)(i) Participation Agreement among Panorama Series Fund,
Inc., OppenheimerFunds, Inc. and Minnesota Life
Insurance Company, previously filed as Exhibit 8(t) to
Variable Annuity Account's Form N-4, File Number
333-91784, Post-Effective
[Download Table]
Amendment Number 2, on April 29, 2003, is hereby
incorporated by reference.
26(h)(8)(ii) Amendment No. 1 to the Participation Agreement among
Panorama Series Fund, Inc., OppenheimerFunds, Inc. and
Minnesota Life Insurance Company, previously filed as
Exhibit 8(t)(i) to Variable Annuity Account's Form N-4,
File Number 333-91784, Post-Effective Amendment Number
2, on April 29, 2003, is hereby incorporated by
reference.
26(h)(8)(iii) Amendment No. 2 to the Participation Agreement among
Panorama Series Fund, Inc., OppenheimerFunds, Inc. and
Minnesota Life Insurance Company, previously filed as
Exhibit 8(t)(ii) to Variable Annuity Account's Form
N-4, File Number 333-91784, Post-Effective Amendment
Number 2, on April 29, 2003, is hereby incorporated by
reference.
26(h)(8)(iv) Amendment No. 3 to Participation Agreement among
Panorama Series Funds, Inc., OppenheimerFunds, Inc. and
Minnesota Life Insurance Company.
26(h)(9)(i) Participation Agreement among Putnam Variable Trust,
Putnam Retail Management, L.P. and Minnesota Life
Insurance Company, previously filed as Exhibit 8(u) to
Variable Annuity Account's Form N-4, File Number
333-91784, Post-Effective Amendment Number 2, on April
29, 2003, is hereby incorporated by reference.
26(h)(9)(ii) Schedule A as amended May 1, 2003 to the Participation
Agreement among Putnam Variable Trust, Putnam Retail
Management, L.P. and Minnesota Life Insurance Company,
previously filed as Exhibit 8(u)(i) to Variable Annuity
Account's Form N-4, File Number 333-91784,
Post-Effective Amendment Number 2, on April 29, 2003,
is hereby incorporated by reference.
26(h)(10)(i) Participation Agreement by and among AIM Variable
Insurance Funds, AIM Distributors, Inc. and Minnesota
Life Insurance Company, previously filed as Exhibit
27(h)(10)(i) to Minnesota Life Variable Life Account's
Form N-6, File Number 333-96383, Post-Effective
Amendment Number 4, on April 30, 2003, is hereby
incorporated by reference.
26(h)(10)(ii) Schedule A as amended May 1, 2003 to the Participation
Agreement among AIM Variable Insurance Funds, AIM
Distributors, Inc. and Minnesota Life Insurance
Company, previously filed as Exhibit 27(h)(10)(ii) to
Minnesota Life Variable Life Account's Form N-6, File
Number 333-96383, Post-Effective Amendment Number 4, on
April 30, 2003, is hereby incorporated by reference.
26(h)(10)(iii) Amendment No. 1 to the Participation Agreement dated
March 4, 2002, by and among AIM Variable Insurance
Funds, AIM Distributors, Inc. and Minnesota Life
Insurance Company.
26(h)(11) Shareholder Services Agreement among American Century
Investment Services, Inc. and Minnesota Life Insurance
Company, previously filed as Exhibit 27(h)(11) to
Minnesota Life Variable Life Account's Form N-6, File
Number 333-96383,
[Download Table]
Post-Effective Amendment Number 4, on April 30, 2003,
is hereby incorporated by reference.
26(h)(12) Participation Agreement by and among Minnesota Life
Insurance Company, Warburg, Pincus Trust, Credit Suisse
Asset Management, LLC and Credit Suisse Asset
Management Securities, Inc., previously filed as
Exhibit 27(h)(12) to Minnesota Life Variable Life
Account's Form N-6, File Number 333-96383,
Post-Effective Amendment Number 4, on April 30, 2003,
is hereby incorporated by reference.
26(h)(13)(i) Participation Agreement among MFS Variable Insurance
Trust, Massachusetts Financial Services Company and
Minnesota Life Insurance Company, previously filed as
Exhibit 27(h)(13)(i) to Minnesota Life Variable Life
Account's Form N-6, File Number 333-96383,
Post-Effective Amendment Number 4, on April 30, 2003,
is hereby incorporated by reference.
26(h)(13)(ii) Amendment No. 1 to the Participation Agreement among
MFS Variable Insurance Trust, Massachusetts Financial
Services Company and Minnesota Life Insurance Company,
previously filed as Exhibit 27(h)(13)(ii) to Minnesota
Life Variable Life Account's Form N-6, File Number
333-96383, Post-Effective Amendment Number 4, on April
30, 2003, is hereby incorporated by reference.
26(h)(13)(iii) Amendment No. 2 to the Participation Agreement among
MFS Variable Insurance Trust, Massachusetts Financial
Services Company and Minnesota Life Insurance Company,
previously filed as Exhibit 27(h)(13)(iii) to Minnesota
Life Variable Life Account's Form N-6, File Number
333-96383, Post-Effective Amendment Number 4, on April
30, 2003, is hereby incorporated by reference.
26(h)(14)(i) Participation Agreement as of May 1, 2000 between
Franklin Templeton Variable Insurance Products Trust,
Franklin Templeton Distributors, Inc. and Minnesota
Life Insurance Company, previously filed as Exhibit
27(h)(14)(i) to Minnesota Life Variable Life Account's
Form N-6, File Number 333-96383, Post-Effective
Amendment Number 4, on April 30, 2003, is hereby
incorporated by reference.
26(h)(14)(ii) Amendment to Participation Agreement as of May 1, 2000
between Franklin Templeton Variable Insurance Products
Trust, Franklin Templeton Distributors, Inc. and
Minnesota Life Insurance Company, previously filed as
Exhibit 27(h)(14)(ii) to Minnesota Life Variable Life
Account's Form N-6, File Number 333-96383,
Post-Effective Amendment Number 4, on April 30, 2003,
is hereby incorporated by reference.
26(h)(14)(iii) Amendment No. 2 to Participation Agreement between
Franklin Templeton Variable Insurance Products Trust,
Franklin Templeton Distributors, Inc. and Minnesota
Life Insurance Company, previously filed as Exhibit
27(h)(14)(iii) to Minnesota Life Variable Life
Account's Form N-6, File Number 333-96383,
Post-Effective Amendment Number 4, on April 30, 2003,
is hereby incorporated by reference.
[Download Table]
26(h)(14)(iv) Amendment No. 3 to Participation Agreement by and among
Franklin Templeton Variable Insurance Products Trust,
Franklin Templeton Distributors, Inc., Minnesota Life
Insurance Company and Securian Financial Services, Inc.
26(h)(15) Participation Agreement as of September 29, 2003
between Minnesota Life Insurance Company and Waddell &
Reed, Inc. previously filed as Exhibit 27(h)(15) to
Minnesota Life Variable Life Account's Form N-6, File
Number 333-109853, Pre-Effective Amendment Number 1, on
February 19, 2004, is hereby incorporated by reference.
26(i)(1) Investment Accounting Agreement between Securian
Financial Group, Inc. and State Street Bank and Trust
Company, previously filed as Exhibit 24(c)8(q) to
Variable Annuity Account's Form N-4, File Number
333-91784, Post-Effective Amendment Number 1, on
February 25, 2003, is hereby incorporated by reference.
26(i)(2) Administration Agreement between Securian Financial
Group, Inc. and State Street Bank and Trust Company,
previously filed as Exhibit 24(c)8(r) to Variable
Annuity Account's Form N-4, File Number 333-91784,
Post-Effective Amendment Number 1, on February 25,
2003, is hereby incorporated by reference.
26(j) Not Applicable.
26(k) Opinion and Consent of Donald F. Gruber, Esq.
26(l) Actuarial opinion of Robert J. Ehren, FSA, CLU.
26(m) Calculation.
26(n) Consent of KPMG LLP.
26(o) Not Applicable.
26(p) Not Applicable.
26(q) Not Applicable.
26(r) Minnesota Life Insurance Company - Power of Attorney to
Sign Registration Statements.
Dates Referenced Herein and Documents Incorporated by Reference
88 Subsequent Filings that Reference this Filing
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