Securities and Exchange Commission
450 Fifth Street, N.W.
Washington, DC 20549
RE: Midland National Life Separate Account A
File Number 33-76318
Commissioners:
Enclosed for filing is a complete copy, including exhibits, of
Post Effective Amendment Number 2 to the above referenced Form
S-6 Registration Statement.
This amendment is being filed pursuant to paragraph (b) of Rule 485,
and pursuant to subparagraph (b) (4) of that Rule, we certify the
amendment does not contain disclosure which would render it ineligible
to become effective pursuant to said paragraph (b).
If you have any comments or questions about this filing, please contact
me at 605-335-5700.
Sincerely,
Paul M. Phalen CLU, FLMI
Compliance Officer
Midland National Life Insurance Company
One Midland Plaza
Sioux Falls, SD 57193
<PAGE>
As filed with the Securities and Exchange Commission on April 29, 1996
Registration No. 33-76318
POST-EFFECTIVE AMENDMENT NO. 2
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM S-6
--------
FOR REGISTRATION UNDER THE SECURITIES ACT
OF 1933 OF SECURITIES OF UNIT INVESTMENT
TRUSTS REGISTERED ON FORM N-8B-2
MIDLAND NATIONAL LIFE SEPARATE ACCOUNT A
________________________________________
(Exact Name of Trust)
MIDLAND NATIONAL LIFE INSURANCE COMPANY
(Name of Depositor)
One Midland Plaza
Sioux Falls, SD 57193
(Address of Principal Executive Office)
_________________________
Jack L. Briggs, Vice President, Secretary and General
Counsel
Midland National Life Insurance Company
One Midland Plaza
Sioux Falls, SD 57193
(Name and Address of Agent for Service of
Process)
Copy to:
Frederick R. Bellamy
Sutherland, Asbill & Brennan
1275 Pennsylvania Avenue, N.W.
Washington, D.C. 20004-2404
It is proposed that this filing will become effective
(check appropriate line):
___ immediately upon filing pursuant to paragraph
(b)
_X_ on May 01, 1996 pursuant to paragraph (b)
___ 60 days after filing pursuant to paragraph (a)
(i)
___ on _________________ pursuant to paragraph (a)
(i)
___ 75 days after filing pursuant to paragraph (a)
(ii)
___ on _________________ pursuant to paragraph (a)
(ii) of Rule 485
If appropriate, check the following line:
___ the Post-Effective Amendment designates a new
effective date for a
previously filed Post-Effective Amendment.
-------------------------------------------------------
- ---------------
Pursuant to Rule 24f-2 under the Investment Company Act
of 1940,
the Registrant has registered an indefinite amount of
securities.
The Registrant filed the 24f-2 Notice for the fiscal
year ended
December 31, 1995 on February 29, 1996.
<PAGE>
CROSS REFERENCE TO ITEMS REQUIRED
BY FORM N-8B-2
Item No. of
Form N-8B-2 Caption in
Prospective
1. Cover Page
2. Cover Page
3. Not Applicable
4. Midlands Sales And Other
Agreements
5. Midland National Life Insurance
Company; Our Separate
Account And Its Investment
Divisions
6. Our Separate Account And Its
Investment Divisions
7. Not Applicable
8. Not Applicable
9. Legal Proceedings
10. Summary; Our Separate Account And
Its Investment
Divisions; Your Right To Examine
The Policy;
Withdrawing Money From Your
Contract Fund;
Surrendering Your Policy for Its
Net Cash Surrender
Value; Death Benefits; The Fund;
Transfers Of
Contract Fund Value Among
Investment Divisions; Your
Policy May Lapse; You May
Reinstate Your Policy;
Right To Change How We Operate
Our Separate
Account; Flexible Premium
Payments; Maturity
Benefits; Your Contract Fund
Value; Borrowing From
Your Payment Options; Additional
Benefits May Be
Available
11. Summary; The Funds; Investment
Policies Of The Funds
Portfolios
12. Summary; The Funds
13. Summary; Deductions And Charges
14. Summary; Policy Periods,
Anniversaries
15. Summary; Flexible Premium Payments
16. Our Separate Account Investment
Choices
17. Summary; Withdrawing Money From
Your Contract Fund;
Surrendering Your Policy For Its
Net Cash
Surrender Value; Your Right To
Examine The Policy
18. The Funds; Flexible Premium
Payments
19. Our Reports To Contractowners;
Separate Account Voting
Rights
20. Not Applicable
21. Borrowing From Your Contract Fund;
How To Request A
Loan; Policy Loan Interest; When
Interest Is Due;
Repaying The Loan; The Effects
Of A Policy Loan On
Your Contract Fund
22. Not Applicable
23. Additional Information
24. Limits On Our Right To Challenge
The Policy
25. Midland National Life Insurance
Company
26. Not Applicable
27. Midland National Life Insurance
Company
28. Management Of Midland
29. Our Parent
<PAGE>
30. Not Applicable
31. Not Applicable
32. Not Applicable
33. Not Applicable
34. Not Applicable
35. Midlands Sales And Other
Agreements
36. Not Applicable
37. Not Applicable
38. Midlands Sales And Other
Agreements
39. Midlands Sales And Other
Agreements
40. Not Applicable
41. Midlands Sales And Other
Agreements
42. Not Applicable
43. Not Applicable
44. Flexible Premium Payments
45. Not Applicable
46. Withdrawing Money From Your
Contract Fund;
Surrendering Your Policy For Its
Net Cash Surrender
Value
47. The Funds
48. Not Applicable
49. Not Applicable
50. We Own The Assets Of Our Separate
Account
51. Cover Page; Summary; Death
Benefits; Deductions And
Charges; Your Beneficiary
52. The Funds
53. Not Applicable
54. Not Applicable
55. Not Applicable
56. Not Applicable
57. Not Applicable
58. Not Applicable
59. Financial Statements
VUL VUL2-MNL
<PAGE>
Flexible Premium Variable Life Insurance Contract
(Variable Universal Life 2)
Issued By:
Midland National Life Insurance Company
One Midland Plaza Sioux Falls, SD 57193 (605) 335-5700
This prospectus describes Variable
Universal Life 2, an individual
flexible premium variable life
insurance contract issued by Midland
National Life Insurance Company
(Midland). We have designed Variable
Universal Life 2 to provide insurance
coverage with flexibility in death
benefits and premiums. Variable
Universal Life 2 can also provide
substantial cash build-up.
This prospectus generally describes
only the variable portion of the
Contract, except where the General
Account is specifically mentioned.
Variable Universal Life 2 pays a
death benefit when the Insured Person
dies if the contract is still in
effect. You may choose Option 1, a
fixed death benefit that equals the
Specified Amount, or Option 2, a
variable death benefit that equals
the Specified Amount plus the value
of your Contract Fund. A death
benefit equal to a percentage of the
Contract Fund on the day the Insured
Person dies will be paid if that
benefit would be greater.
You may borrow against Your contract,
withdraw part of the Net Cash
Surrender Value, or completely
surrender Your contract for its Net
Cash Surrender Value.
After a premium tax charge and any
per premium expense charge is
deducted, Your net premiums are put
in Your Contract Fund. You may
allocate Your Contract Fund to Our
General Account or to one or more of
the investment divisions of Our
Separate Account A.
We invest each of the investment
divisions of Our Separate Account in
shares of a corresponding portfolio
of the Variable Insurance Products
Fund or Variable Insurance Products
Fund II (collectively called the
Funds), mutual funds with a choice of
portfolios.
The prospectus for the Funds, which
accompanies this prospectus,
describes the investment objectives,
policies, and risks of the Funds
portfolios associated with the ten
divisions of Our Separate Account:
the Money Market Portfolio, the High
Income Portfolio, the Equity-Income
Portfolio, the Growth Portfolio, the
Overseas Portfolio, the Asset Manager
Portfolio, the Investment Grade Bond
Portfolio, Contrafund Portfolio,
Asset Manager: Growth Portfolio, and
the Index 500 Portfolio. An
investment in the portfolios,
including the Money Market Portfolio,
is neither insured nor guaranteed by
the U.S. Government, and there is no
assurance that the Money Market
Portfolio will be able to maintain a
stable net asset value.
You bear the investment risk of this
contract for all amounts allocated to
Our Separate Account A. To the
extent that Your Contract Fund is in
Separate Account A, the value of Your
Contract Fund will vary with the
investment performance of the
corresponding portfolios of the
Funds; there is no minimum guaranteed
cash value for amounts allocated to
the investment divisions of Our
Separate Account. Your Contract Fund
will also reflect deductions for the
cost of insurance and expenses and
increases for additional premium
payments. You may incur a Surrender
Charge if You surrender Your contract
or allow it to lapse.
After the first premium, You may
decide how much Your premium payments
will be and how often You wish to
make them, within limits. You may
also increase or decrease the amount
of insurance protection, within
limits.
Depending on the amount of premiums
paid, this may or may not be a
modified endowment contract. If it is
a modified endowment contract, loans
and withdrawals may result in more
adverse tax consequences than would
apply if the contract was not a
modified endowment contract.
You have a limited right to examine
this contract and return it to Us for
a refund.
Replacing your existing insurance or,
if You already own a flexible premium
variable insurance contract,
acquiring additional insurance
through the contract described in
this prospectus, may not be to your
advantage.
THESE SECURITIES HAVE NOT BEEN
APPROVED OR DISAPPROVED BY THE
SECURITIES AND EXCHANGE COMMISSION
NOR HAS THE COMMISSION PASSED UPON
THE ACCURACY OR ADEQUACY OF THIS
PROSPECTUS. ANY REPRESENTATION TO THE
CONTRARY IS A CRIMINAL OFFENSE.
PLEASE READ THIS PROSPECTUS FOR
DETAILS ON THE CONTRACT BEING OFFERED
TO YOU, AND KEEP IT FOR FUTURE
REFERENCE. THIS PROSPECTUS IS VALID
ONLY WHEN ACCOMPANIED BY A CURRENT
PROSPECTUS FOR VARIABLE INSURANCE
PRODUCTS FUND AND VARIABLE INSURANCE
PRODUCTS FUND II.
The date of this prospectus is May 1, 199 6 .
<PAGE>
Table of Contents
Definitions 3
PART 1: SUMMARY 3
DEDUCTIONS AND CHARGES 5
PART 2: DETAILED INFORMATION ABOUT
VARIABLE UNIVERSAL LIFE 2 7
THE COMPANY THAT ISSUES VARIABLE
UNIVERSAL LIFE 2 7
Midland National Life Insurance
Company 7
Our Parent 7
THE FEATURES OF VARIABLE UNIVERSAL
LIFE 2 7
How Variable Universal Life 2 Differs
From Whole Life Insurance 7
Death Benefits 7
Maturity Benefit 8
Changes In Variable Universal Life 2 8
Changing Your Death Benefit Option 8
When Contract Changes Go Into Effect 9
Flexible Premium Payments 9
Premium Provisions For The First Five
Years 9
Premium Provisions Beyond The Fifth
Year 9
Allocation of Premiums 9
Additional Benefits May Be Available 10
SEPARATE ACCOUNT INVESTMENT CHOICES 11
Our Separate Account And Its
Investment Divisions 11
The Funds 11
Investment Policies Of The Funds
Portfolios 11
We Own The Assets Of Our Separate
Account 12
Our Right To Change How We Operate Our
Separate Account 12
DEDUCTIONS AND CHARGES 12
Charges Against The Separate Account 12
Charges In The Funds 13
Deductions From Your Premiums 13
Deductions From Your Contract Fund 14
Other Transaction Charges 14
How Contract Fund Charges Are
Allocated 15
Surrender Charge 15
YOUR CONTRACT FUND VALUE 16
Amounts In Our Separate Account 16
How We Determine The Accumulation Unit
Value 16
CONTRACT FUND TRANSACTIONS 17
Changing Your Premium And Deduction
Allocation Percentages 17
Transfers Of Contract Fund Value 17
Dollar Cost Averaging. 17
Borrowing From Your Contract Fund 18
How To Request A Loan 18
Contract Loan Interest 18
When Interest Is Due 18
Repaying The Loan 18
The Effects Of A Contract Loan On Your
Contract Fund 18
Your Contract May Lapse 18
Withdrawing Money From Your Contract
Fund 18
Withdrawal Charges 19
The Effects Of A Partial Withdrawal 19
Surrendering Your Contract For Its Net
Cash Surrender Value 19
THE GENERAL ACCOUNT 19
Amounts In The General Account 19
Adding Interest To Your Amounts In The
General Account 19
Transfers 19
ADDITIONAL INFORMATION ABOUT VARIABLE
UNIVERSAL LIFE 2 20
Your Right To Examine The Contract 20
Your Contract Can Lapse 20
You May Reinstate Your Contract 20
Contract Periods, Anniversaries 20
Application for Insurance 20
Maturity Date Error! Bookmark not defined.
TAX EFFECTS 21
Contract Proceeds 21
Possible Charge for Midlands Taxes 22
Other Tax Considerations 22
PART 3: ADDITIONAL INFORMATION 23
YOUR VOTING RIGHTS AS AN OWNER 23
Fund Voting Rights 23
How We Determine Your Voting Shares 23
Voting Privileges Of Participants In
Other Companies 23
OUR REPORTS TO CONTRACTOWNERS 23
LIMITS ON OUR RIGHT TO CHALLENGE THE
CONTRACT 24
YOUR PAYMENT OPTIONS 24
YOUR BENEFICIARY 25
ASSIGNING YOUR CONTRACT 25
WHEN WE PAY PROCEEDS FROM THIS
CONTRACT 25
DIVIDENDS 25
MIDLANDS SALES AND OTHER AGREEMENTS 25
Sales Agreements 25
REGULATION 25
DISCOUNT FOR MIDLAND EMPLOYEES 26
LEGAL MATTERS 26
LEGAL PROCEEDINGS 26
FINANCIAL AND ACTUARIAL 26
ADDITIONAL INFORMATION 26
Management of Midland 27
Appendix 28
Financial Statements 35
<PAGE>
Definitions
Accumulation Unit means the units
credited to each investment division
in the Separate Account.
Age means the age of the Insured
Person on his/her birthday which
immediately precedes the Contract
Date.
Attained Age means the age of the
Insured Person on his/her birthday
preceding a Contract Anniversary
date.
Beneficiary means the person or
persons to whom the contracts death
benefit is paid when the Insured
Person dies.
Business Day means any day We are
open and the New York Stock Exchange
is open for trading.
Contract Fund means the total amount
of monies in Our Separate Account A
attributable to Your contract in
force. It also includes monies in our
General Account for Your contract.
Cash Surrender Value means the
Contract Fund on the date of
surrender, less any Surrender
Charges.
Contract Date means the date from
which Contract Anniversaries and
Contract Years are determined.
Contract Month means a month that
starts on a Monthly Anniversary and
ends on the following Monthly
Anniversary.
Contract Year means a year that
starts on the Contract Date or on
each anniversary thereafter.
Death Benefit means the amount
payable under Your contract when the
Insured Person dies.
Funds mean the mutual funds available
for investment by Separate Account A
on the Contract Date or as later
changed by us. The Funds available as
of the date of the prospectus are the
Variable Insurance Products Fund and
the Variable Insurance Products Fund
II.
Home Office means where You write to
Us to pay premiums or take other
action, such as transfers between
investment divisions, changes in
Specified Amount, or other such
action regarding Your contract. The
address is:
Midland National Life Insurance
Company
One Midland Plaza
Sioux Falls, SD 57193
In Force means the Insured Persons
life remains insured under the terms
of the contract.
Insured Person means the person whose
life is insured by the contract.
Investment Division means a division
of Separate Account A which invests
exclusively in the shares of a
specified Portfolio of the Fund.
Maturity Date initially set at the
date on which the Insured Person
reaches Attained Age 100. However,
this date may be extended if doing so
will not result in adverse tax
consequences.
Monthly Anniversary means the day of
each month that has the same
numerical date as the Contract Date.
Net Cash Surrender Value means the
Cash Surrender Value less any
outstanding contract loan.
Net Premium means the premium paid
less any deduction for premium taxes
and less any per premium expenses.
Record Date means the date the
contract is recorded on Our books as
an In Force contract.
Separate Account means Our Separate
Account A which receives and invests
Your net premiums under the contract.
Specified Amount means the face
amount of the contract which is the
minimum death benefit payable under
the contract.
Surrender Charges means a charge made
only upon surrender of the contract.
It includes a charge for sales
related expenses and issue related
expenses.
PART 1: SUMMARY
In this prospectus We, Our, and Us
mean Midland National Life Insurance
Company.
You and Your mean the owner of the
contract. We refer to the person who
is covered by the contract as the
Insured Person, because the Insured
Person and the Owner may not be the
same.
The following summary is qualified in
its entirety by the detailed
information appearing later in this
prospectus. This summary must be read
in conjunction with that detailed
information. Unless otherwise
indicated, the description of the
contract in this prospectus assumes
that the contract is in force and
that there is no outstanding contract
loan.
FEATURES OF VARIABLE UNIVERSAL LIFE 2
Insurance Benefit Options
Variable Universal Life 2 offers
insurance on the life of the Insured
Person. We will pay a death benefit
when the Insured dies while the
contract is in force. We pay a
maturity benefit in lieu of a death
benefit when the Insured Person
reaches the Maturity Date. Two death
benefit options are available:
- - The Option 1 death benefit
equals the Specified Amount of
the insurance contract.
- - The Option 2 death benefit
equals the Specified Amount of
the contract, plus the value of
the Contract Fund.
Provisions in the Federal tax law may
require the benefit to be even
greater. A death benefit equal to a
percentage multiple of the Contract
Fund on the day the Insured Person
dies will be paid if that benefit
would be greater. See Death Benefits
on page 7.
We will deduct any outstanding loans
or unpaid charges before paying any
benefits. Proceeds may be paid in a
lump sum or under a variety of
payment plans. The length of time
Your contract will remain in force
depends on the amount of Your Net
Cash Surrender Value and, during the
first five years, the amount of
premiums You have paid.
<PAGE>
The minimum Specified Amount is
$50,000. For Insured Persons age 0 to
14 at issue, the minimum Specified
Amount is $25,000.
Your Contract Fund
Your Contract Fund is established
after We receive Your first premium
payment. After We deduct a premium
tax charge and any per premium
expenses from Your premiums, We put
the balance into Your Contract Fund.
Your Contract Fund reflects the
amount and frequency of premium
payments, deductions for the cost of
insurance and expense charges, the
investment experience of amounts
allocated to Our Separate Account,
interest earned on amounts allocated
to the General Account, loans, and
partial withdrawals. You bear the
investment risk under Variable
Universal Life 2 as the value of Your
Contract Fund will vary according to
the investment experience of the
divisions of Our Separate Account You
have selected. There is no minimum
guaranteed Contract Fund value with
respect to any amounts allocated to
the Separate Account. See YOUR
CONTRACT FUND VALUE on page 16.
Contract Changes
You may change the death benefit
option You have chosen. You may also
increase or decrease the Specified
Amount of Your contract, within
limits.
Flexible Premium Payments
You may pay premiums whenever You
want, in whatever amount You want,
within certain limits. We require an
initial minimum premium based on the
age and sex of the Insured Person and
the Specified Amount of the contract.
You will also choose a planned
periodic premium. You need not pay
premiums of any set amount or
according to the planned schedule or
any other set schedule, but You may
have to make additional premium
payments to keep Your contract in
force because payment of the planned
premiums does not ensure that Your
contract will remain in force.
However, You have the option of
ensuring that Your contract stays in
force for the first five years by
paying premiums equal to the
accumulated minimum premium amounts.
Beyond the fifth year, additional
premiums may be required to keep the
contract in force. See Flexible
Premium Payments on page 9.
Additional Benefits May Be Available
You may choose to include additional
benefits in the contract by rider.
These benefits may include an
accidental death benefit, life
insurance for additional insured
persons, life insurance for children,
family life insurance coverage, a
monthly disability benefit, a
disability waiver benefit to waive
the cost of monthly deductions, and
an accelerated death benefit in the
event of a terminal illness. Any cost
of additional benefits will be
deducted monthly from Your Contract
Fund. See Additional Benefits May Be
Available on page 10.
INVESTMENT CHOICES OF VARIABLE
UNIVERSAL
LIFE 2
You may allocate amounts in Your
Contract Fund to either our General
Account, which pays interest at a
declared rate, or any one or more of
the investment divisions of Our
Separate Account. Each of these
investment divisions invests in
shares of a corresponding portfolio
of the Variable Insurance Products
Fund or the Variable Insurance
Products Fund II, series type mutual
funds. The portfolios have different
investment objectives. Fidelity
Management & Research Company
receives fees from each portfolio for
providing investment management
services. These fees are taken
monthly in proportion to the average
daily net assets of each portfolio
throughout the month.
For a full description of the Funds,
see the Funds prospectus ,
which accompan ies this
prospectus. See The Funds on page
11.The current investment divisions
which invest in Portfolios of
the Variable Insurance Products
Fund are:
- - Money Market Portfolio
- - High Income Portfolio
- - Equity-Income Portfolio
- - Growth Portfolio
- - Overseas Portfolio
The current investment divisions
which invest in Portfolios of
the Variable Insurance Products Fund
II are:
- - Asset Manager Portfolio
- - Investment Grade Bond Portfolio
- - Contrafund Portfolio
- - Asset Manager: Growth Portfolio
- - Index 500 Portfolio
Each portfolio charges a different
investment advisory fee. The fee for
the Money Market Portfolio is the sum
of a group fee rate based on the
average net assets of all mutual
funds advised by Fidelity, an
individual fund fee rate of .03%, and
an income component of 6% of the
Portfolios gross income in excess of
a 5% annual yield. The fee for the
High Income Portfolio and Investment
Grade Bond Portfolio is the sum of a
group component based on assets under
management for all the Fidelity
funds, .16% as of December,
199 5 , and individual
components of .45% and .30%,
respectively. The Equity-Income,
Growth, Overseas, Contrafund, Asset
Manager: Growth and Asset Manager
Portfolios fees are made up of a
group component, .32% as of December,
199 5 and individual components
of .20%, .30%, .45% , .30%,
.40% and .40% respectively. The
fee for the Index 500 Portfolio will
be .28%. These charges are reflected
in the net asset value of each
Portfolio.
See Investment Policies Of The Funds
Portfolios on page 11, Charges In The
Funds on page 13, and THE GENERAL
ACCOUNT on page 19.
DEDUCTIONS AND CHARGES
Deductions From Your Premiums
<PAGE>
A charge for any applicable premium
taxes is deducted from each premium
payment. The current premium tax We
take is 2.5%. We may increase this
charge at any time if Our premium tax
expenses increase. We reserve the
right to vary this charge by state.
A charge of $.46 is also deducted
from each premium payment if you have
elected to pay premiums by Civil
Service Allotment. We do not expect
to profit from this charge. See
Deductions From Your Premiums on page
13.
Deductions From Your Contract Fund
Certain amounts are deducted from
Your Contract Fund each month. These
are:
- - an expense charge of $5 each
month (currently We plan to make
this deduction for the first 15
years only. This charge is
intended to reimburse Us for
costs incurred in maintaining
Your contract, and We do not
expect to profit from this
charge).
- - a cost of insurance charge,
which is based on the Insured
Persons attained age and sex,
risk class, and the amount of
insurance You are buying, and
- - a charge for additional
benefits, if any.
We guarantee that the insurance
deductions from Your Contract Fund
will never be more than the maximum
amounts shown in Your contract.
In addition, We make charges when
You:
- - make a partial withdrawal of Net
Cash Surrender Value more than
once in a contract year.
- - make more than fifteen transfers
(four transfers on a guaranteed
basis) a year between investment
divisions.
See Deductions From Your Contract
Fund on page 14.
Deductions From The Separate Account
We make a charge at an effective
annual rate of 0.90% of the value of
the assets of Our Separate Account
for certain mortality and expense
risks We assume. We make an
administrative charge at an effective
annual rate of 0.20% of the value of
the assets for Our expenses We incur
in operating Our Separate Account.
See Charges Against The Separate
Account on page 12.
Surrender Charges
The Surrender Charge is made up of
two pieces: The Deferred Sales Charge
and the Deferred Issue Charge. The
Deferred Sales Charge is to reimburse
Us for the cost We incur in selling
and distributing this contract. The
Deferred Issue Charge is to reimburse
Us for underwriting and other costs
We have when We issue the contract.
We do not expect to profit from these
charges.
During the first 15 years, We will
subtract a Surrender Charge from Your
Contract Fund if You give up Your
contract for its Net Cash Surrender
Value, or let Your contract lapse at
the end of a grace period.
The Deferred Sales Charge is based on
the premiums You have paid:
- - 30% of any premium payment in
the first two contract years up
to one guideline annual
premium.
- - 9% of all other premium
payments.
This sum cannot exceed 9% times the
guideline annual premium times the
lesser of 20 or the Insured Persons
life expectancy. The sum is
multiplied by a percentage 100% for
the first ten years, decreasing to 0%
after the fifteenth year. The amount
of the Deferred Sales Charge You pay
depends on the amount of premiums You
pay, when You pay Your premiums and
when You surrender or lapse Your
contract. Because the percent of each
premium added to the Deferred Sales
Charge is greater in the first two
years, You may minimize this charge
by paying only the minimum premium
during this period. You will not
incur any sales charge, regardless of
the amount and timing of premiums if
You keep this contract in force for
fifteen years.
The Deferred Issue Charge is a fixed
schedule per thousand dollars of
Specified Amount starting at $3.00
per thousand for the first ten years,
decreasing to zero after the
fifteenth year. This discussion of
the Deferred Sales Charge and the
Deferred Issue Charge assumes no
changes in Specified Amount. See
Surrender Charge on page 15.
USING YOUR CONTRACT FUND
Transfers
You may transfer amounts in Your
Contract Fund between the General
Account and the investment divisions
of the Separate Account, and among
the investment divisions of the
Separate Account. Transfers take
effect on the date We receive Your
request. We require minimum amounts
for each transfer, usually $200. If
You make more than fifteen transfers
a year, an administrative charge may
be deducted from Your Contract Fund.
($25 for each additional transfer).
We reserve the right to assess this
charge after the fourth transfer in a
Contract Year. There are other
limitations on transfers to and from
the General Account. See Transfers Of
Contract Fund Value on page 17.
Borrowing Against Your Contract
You may borrow a total amount up to
the Cash Surrender Value divided by
1.08, using Your contract as security
for the loan. A minimum loan amount,
usually $200, will be stated in Your
contract. Contract loan interest
accrues daily at a rate adjusted
annually. See Borrowing From Your
Contract Fund on page 18. Contract
loan interest is not deductible on
Contracts owned by an individual.
It should be noted, however, that
loans taken from, or secured by, a
contract may have Federal tax
consequences. See TAX EFFECTS on Page
21.
Withdrawing Cash From Your Contract
Fund
You may make a partial
withdrawal from Your Contract Fund.
The current minimum for Your
withdrawal is $200. The maximum
withdrawal You can make is 20% of the
Net Cash Surrender Value. Your
withdrawal is subject to
<PAGE>
certain other requirements. A charge
(currently $25 or 2 percent of the
amount withdrawn, whichever is less)
will be deducted from Your Contract
Fund if You make more than one
withdrawal in a Contract Year. See
Withdrawing Money From Your Contract
Fund on page 18. Withdrawals and
Surrenders may have adverse tax
consequences. See TAX EFFECTS on page
21.
Surrendering Your Contract
Variable Universal Life 2 has a Cash
Surrender Value, which is the
difference between the value of Your
Contract Fund and any Surrender
Charge which applies during the first
15 Contract Years. If You surrender
the contract for cash, We will pay
You the Net Cash Surrender Value,
which is the Cash Surrender Value
less any outstanding loan and loan
interest due. See Surrendering Your
Contract For Its Net Cash Surrender
Value on page 19.
ADDITIONAL INFORMATION ABOUT VARIABLE
UNIVERSAL LIFE 2
Your Right To Examine This Contract
You have a right to examine the
contract and, if You wish, return it
to Us. Your request must be
postmarked by the latest of:
- - 10 days after You receive Your
contract.
- - 10 days after We mail You a
notice of this right, or
- - 45 days after You signed the
application for the contract.
When You return your contract, We
will return the sum of all charges
deducted from premiums paid, from the
Separate Account, and from the
Contract Fund, plus the Contract
Fund. Charges deducted in the Funds
are not returned.
See Your Right To Examine The
Contract on page 20.
Tax Effects of Variable Universal
Life 2
With respect to a contract that is
issued on the basis of a standard
rate class, Midland believes such a
contract should meet the definition
of a life insurance contract for
Federal income tax purposes. As for a
contract that is issued on a
substandard basis, it is not clear
whether or not such a contract would
qualify as a life insurance contract
for Federal tax purposes,
particularly if the owner of such a
contract pays the full amount of
premiums permitted under the
contract. If it is subsequently
determined that a contract does not
satisfy section 7702 of the Internal
Revenue code (which defines life
insurance for tax purposes), Midland
will take appropriate and reasonable
steps to attempt to cause such a
contract to comply with section 7702.
Assuming that a contract qualifies as
a life insurance contract for Federal
income tax purposes, the death
benefit paid to the beneficiary of
this contract is not subject to
federal income tax. In addition,
under current federal tax law, You do
not have to pay income tax on any
earnings in Your Contract Fund as
long as they remain in Your Contract
Fund. A contract may be treated as a
modified endowment contract depending
upon the amount of premiums paid in
relation to the death benefit. If the
contract is a modified endowment
contract, then all pre-death
distributions, including contract
loans, will be treated first as a
distribution of taxable income and
then as a return of investment in the
contract. In addition, prior to age
59 1/2 any such distributions
generally will be subject to a 10%
penalty tax.
If the contract is not a modified
endowment contract, distributions
generally will be treated first as a
return of investment in the contract
and then as disbursing taxable
income. Moreover, loans will not be
treated as distributions. Finally,
neither distributions nor loans from
a contract that is not a modified
endowment contract are subject to the
10% penalty tax. See TAX EFFECTS on
page 21.
Your Contract Can Lapse
During the first five Contract Years,
this contract will remain in force
unless the Net Cash Surrender Value
is insufficient to pay monthly
charges and You fail to meet certain
minimum premium requirements which
apply. Beyond the first five years,
this contract will remain in force as
long as the Net Cash Surrender Value
is sufficient to pay monthly charges.
See Your Contract May Lapse on page
18.
Illustrations
Sample projections of hypothetical
Death Benefits and Cash Surrender
Values are included starting at page
28 of this prospectus. These are only
hypothetical figures and are not
indications of either past or
anticipated future investment
performance. However, these
projections of hypothetical values
may be helpful in understanding the
long-term effects of different levels
of investment performance and the
charges and deductions, and also in
comparing this contract to other life
insurance contracts. These
projections also show the value of
premiums accumulated with interest
and indicate that if the contract is
surrendered in the early contract
years, the Net Cash Surrender Value
may be low compared to premiums
accumulated at interest. This
reflects the cost of insurance
protection and other charges, and
demonstrates that this contract
should not be purchased as a short-
term investment.
PART 2: DETAILED
INFORMATION
ABOUT VARIABLE UNIVERSAL
LIFE 2
THE COMPANY THAT ISSUES VARIABLE
UNIVERSAL LIFE 2
Midland National Life Insurance
Company
We are Midland National Life
Insurance Company, a stock life
insurance company. Midland was
organized in 1906 in South Dakota as
a mutual life insurance company at
that time named The Dakota Mutual
Life Insurance Company. We were
reincorporated as a stock life
insurance company in 1909. Our name
Midland was adopted in 1925. We are
licensed to do business in 49 states,
the District of Columbia, and Puerto
Rico.
<PAGE>
Our Parent
Midland is a subsidiary of Sammons
Enterprises, Inc., Dallas, Texas.
Sammons has controlling or
substantial stock interests in a
large number of other companies
engaged in the areas of insurance,
corporate services, and
industrial distribution.
THE FEATURES OF VARIABLE UNIVERSAL
LIFE 2
This prospectus describes Our regular
Variable Universal Life 2 contract.
There may be differences because of
requirements of the state where Your
contract is issued, which will be
included in Your contract.
How Variable Universal Life 2 Differs
From Whole Life Insurance
Variable Universal Life 2 is designed
to provide insurance coverage with
flexibility in death benefits and
premium payments. It is different
from traditional whole life insurance
in that You are not required to pay
scheduled premiums and may, within
limits, choose the amount and
frequency of premium payments.
Variable Universal Life 2 also
provides for two different types of
insurance benefit options. You may
switch back and forth between these
options. Another feature of Variable
Universal Life 2 which is not
available under traditional whole
life insurance is Your ability to
increase or decrease the Specified
Amount without purchasing a new
contract. However, evidence of
insurability may be required. The
built-in flexibilities of Variable
Universal Life 2 enable You to
respond to changes in lifestyle and
take advantage of favorable financial
conditions.
Death Benefits
We pay a benefit (net of
indebtedness) to the beneficiary of
this contract when the Insured Person
dies. As the Owner, You may choose
from two death benefit options:
Option 1 and Option 2.
Option 1 provides a benefit that
equals the Specified Amount of the
contract. Except as described below,
the Option 1 benefit is fixed. Owners
who prefer to have insurance coverage
that does not vary in amount and
lower cost of insurance charges
should choose Option 1.
Option 2 provides a benefit that
equals the Specified Amount of the
contract plus the amount in Your
Contract Fund on the day the Insured
Person dies. Under Option 2, the
value of the benefit is variable and
fluctuates with the amount in Your
Contract Fund. Owners who prefer to
have investment experience reflected
in the amount of their insurance
coverage should choose Option 2.
Under both options, a provision of
the federal tax law may require a
greater benefit than the option
selected. This benefit is a corridor
percentage multiple of the amount in
Your Contract Fund. The corridor
percentage declines as the Insured
Person gets older. The benefit will
be the amount in Your Contract Fund
on the day the Insured Person dies
times the percentage for the attained
age (last birthday) at the beginning
of the Contract Year of the Insured
Persons death. The percentages are
in the following table:
Table of Death Benefits
Based on Contract Fund Value
The Death The Death
Benefit Will Benefit Will
Be At Least Be At Least
If The Equal To If The Equal To
Insured This Percent Insured This Percent
Persons of The Persons of The
Age Is Contract Fund Age Is Contract Fund
0-40 250% 60 130%
41 243 61 128
42 236 62 126
43 229 63 124
44 222 64 122
45 215 65 120
46 209 66 119
47 203 67 118
48 197 68 117
49 191 69 116
50 185 70 115
51 178 71 113
52 171 72 111
53 164 73 109
54 157 74 107
55 150 75-90 105
56 146 91 104
57 142 92 103
58 138 93 102
59 134 94 101
95-99 100
These percentages are based on
provisions of federal tax law which
require a minimum death benefit in
relation to cash value for Your
contract to qualify as life
insurance.
For example, assume the insured
person is 55 years old and the
Specified Amount is $100,000. Under
Option 1, the death benefit will
generally be $100,000. However, when
the Contract Fund is greater than
$66,666.67, the corridor percentage
applies. In this case, age 55, the
factor We multiply with the Contract
Fund is 150 percent. If the Contract
Fund was $70,000 the death benefit at
that time would be $105,000.
Under Option 2, the death benefit is
the Specified Amount, $100,000 in the
example, plus the Contract Fund. If
the contract on this 55-year-old
insured person had a Contract Fund
greater than $200,000, the corridor
percentage applies.
Under either option, the length of
time Your contract remains in force
depends on the Net Cash Surrender
Value of Your contract and, during
the first five Contract Years, Your
ability to meet the minimum premium
requirements. Because the charges
that maintain Your contract are
deducted from Your Contract Fund,
Your coverage will last as long as
Your Net Cash Surrender Value (the
amount in Your Contract Fund minus
the Surrender Charge and any
outstanding loan and loan interest)
can cover these deductions. However,
during the first five Contract Years,
as long as You pay premiums
<PAGE>
more than the sum of monthly minimum
premium s to that Contract
Date, the contract will remain in
force.
The investment experience of any
amounts in the investment divisions
of Our Separate Account and the
interest earned on any amounts in the
General Account will affect the
amount in Your Contract Fund. As a
result, the returns from these
investment options will affect the
length of time Your contract remains
in force.
The minimum Specified Amount at issue
is $50,000. For issue ages 0 to 14,
the minimum is $25,000. The maximum
issue age is 80.
Maturity Benefit
If the Insured Person is still living
on the Maturity Date, We will pay You
the amount in the Contract Fund net
of loans. This contract will then
end.
Changes In Variable Universal Life 2
Variable Universal Life 2 provides
You the flexibility to choose from a
variety of strategies, described in
the sections that follow, which
enable You to increase or decrease
Your insurance protection.
A reduction in Specified Amount
lessens emphasis on the contracts
insurance coverage by reducing both
the death benefit and the amount at
risk (the difference between Contract
Fund and death benefit). The reduced
amount at risk results in lower cost
of insurance deductions from the
Contract Fund. A partial withdrawal
reduces the Contract Fund and death
benefit, while providing You with a
cash payment, but does not reduce the
amount at risk. Choosing not to make
premium payments may have the effect
of reducing the Contract Fund.
Reducing the Contract Fund will,
under Option 1, increase the amount
at risk (and therefore increase the
cost of insurance deductions) while
leaving the death benefit unchanged;
under Option 2, it will decrease the
death benefit while leaving the
amount at risk unchanged.
Increases in the Specified Amount
emphasize insurance coverage by
increasing both the death benefit and
the amount at risk. Additional
premium payments may increase the
Contract Fund, which has the effect,
under Option 1, of reducing the
amount at risk while leaving the
death benefit unchanged, or under
Option 2, of increasing the death
benefit while leaving the amount at
risk unchanged.
Changing The Specified Amount of
Insurance
Any time after Your contract is
issued, You may change its Specified
Amount. You may do this by sending a
written request to Our Home Office.
You are limited to two changes in
Specified Amount each Contract Year.
Any change will be subject to Our
approval and the following
conditions:
- - If You increase the Specified
Amount, You must provide
satisfactory evidence that the
Insured Person is still
insurable. Our current
procedure , if the Insured
Person has become a more
expensive risk , is to
charge higher cost of insurance
charges for the additional
amounts of insurance.
- - Any increase must be at least
$25,000. Monthly deductions from
Your Contract Fund for the cost
of insurance will increase,
beginning on the date the
increase in the Specified Amount
takes effect. An increase in
Specified Amount will also
result in an increase in
Surrender Charges.
- - The rights to examine and
exchange this contract which
apply at issue do not apply to
increases in Specified Amount.
- - If You reduce the Specified
Amount You may not reduce it
below the minimum We require to
issue this contract at the time
of the reduction. Monthly
deductions from Your Contract
Fund for the cost of insurance
will decrease.
- - If You request a decrease in
Specified Amount, it may be
limited by federal tax law. In
such a case, Your new death
benefit will be Your Contract
Fund multiplied by the corridor
percentage the federal tax law
specifies for the Insureds age
at the time of the change.
- - Our current procedure, if You
request a Specified Amount
decrease when an increased
Specified Amount is at
substandard (i.e., higher) risk
charges and the original
Specified Amount was at standard
risk charges, is to first
decrease the Specified Amount
that is at substandard risk
charges.
Changing Your Death Benefit Option
You may change Your death benefit
option by sending a written request
to our Home Office. We will require
satisfactory evidence of the
Insured Persons insurability
to make this change.
If You change from Option 1 to Option
2, the Specified Amount will be
decreased by the amount in Your
Contract Fund on the date of the
change. We may not allow such a
change if it would reduce the
Specified Amount below the minimum We
require to issue this contract at the
time of the reduction.
If You change from Option 2 to Option
1, the Specified Amount of insurance
will be increased by the amount in
the Contract Fund on the date of the
change. These increases and decreases
in Specified Amount are made so that
the amount of the death benefit
remains the same on the date of the
change. When the death benefit
remains the same, there is no change
in the net amount at risk, which is
the amount on which Your cost of
insurance charges are based.
When Contract Changes Go Into Effect
Any changes in the Specified Amount
or death benefit option of Your
contract will go into effect on the
Monthly Anniversary following the
date We approve Your request for the
change. After Your request is
approved, You will receive a written
notice of the approval showing each
change. You should
<PAGE>
attach this notice to Your contract.
We may also ask You to return Your
contract to us at our Home Office so
that We can make a change.
In some cases, We may not approve a
change You request because it might
disqualify Your contract as life
insurance under applicable federal
tax law. We will send You a written
notice of Our decision about making
the change.
Contract changes may have adverse tax
consequences. See TAX EFFECTS on page
21.
Flexible Premium Payments
You may choose the amount and
frequency of premium payments, as
long as they are within the limits
described below. You may specify the
frequency to be on a quarterly, semi-
annual or annual basis. Planned
periodic premiums may also be monthly
if paid by pre-authorized check or
premiums may be paid bi-weekly if
paid by Civil Service Allotment.
Even though Your premiums are
flexible, the contract information
page of Your contract will show a
planned periodic premium. The planned
premium is determined by You within
limits set by Us when You apply for
the contract and is not necessarily
designed to equal the amount of
premiums that will keep Your contract
in effect. Planned premiums are
generally the amount You decide You
want to pay and You can change them
at any time. Payment of the planned
premiums does not guarantee that Your
contract will stay in force, so
additional premium payments may be
necessary.
You must pay a minimum initial
premium on or before the date on
which the contract is delivered to
You. The insurance will not go into
effect until We receive this minimum
initial premium. We determine the
applicable minimum initial premium
based on the age, sex, and premium
class of the Insured Person, the
initial Specified Amount of the
contract and any additional benefits
selected. Your first premium payment
may be by Your check or money order
payable to Midland. Any additional
premiums should be payable to Midland
and should be sent directly to Our
Home Office.
We will send You premium reminder
notices based on Your planned
premium. You may make the planned
payment, skip the planned payment, or
change the frequency or the amount of
the payment. Generally, You may pay
other premiums at any time. Amounts
must be at least $50 or may be $30
through a monthly automatic payment
plan.
You may send Us a premium payment
that would cause Your contract to
cease to qualify as life insurance
under federal tax law. If so, We will
notify You and return to You the
portion of the premium that would
cause the disqualification.
Premium Provisions For The First Five
Years
During the first five Contract Years,
Your contract may be kept in force by
meeting a minimum premium
requirement. A monthly minimum
premium is shown on the Contract
Information page of Your contract.
The minimum premium requirement will
be satisfied if the sum of premiums
You have paid exceeds a total equal
to the sum of these monthly minimums
had they been paid each month the
contract was In Force.
If You stop paying premiums in the
first five Contract Years, Your
contract will continue in effect
until both of two conditions are
true: The Net Cash Surrender Value
can no longer cover the monthly
deductions from Your Contract Fund
for the benefits selected; and, the
total premiums You have paid are less
than the total monthly minimum
premiums required to that date.
Premium Provisions Beyond The Fifth
Year
Beyond the fifth Contract Year, Your
contract will lapse if the Net Cash
Surrender Value can no longer cover
the monthly deductions from Your
Contract Fund for the benefits
selected. You should note that Your
planned premiums may not be
sufficient to maintain Your contract
because of investment experience,
contract changes, or other factors.
Therefore, premiums in addition to
the planned premiums may be necessary
to keep Your contract in force.
Allocation of Premiums
Each net premium, except any premium
received before the Record
Date , will be allocated to Our
Separate Account or General Account
on the day We receive Your premium.
After the premium tax charge and any
expense charges are deducted from
each of Your premiums, the balance,
called Your net premium, is put into
Your Contract Fund. Net premiums may
be allocated to Our General Account
or to one or more of the investment
divisions of Our Separate Account
according to the directions You
provided on Your contract
application. These instructions will
apply to any subsequent premiums You
pay until You write to Our Home
Office with new instructions.
Allocation percentages may be any
whole number from 10 to 100, but the
sum must equal 100. You may choose
not to allocate any premium to any
particular investment division. See
THE GENERAL ACCOUNT on page 19.
Any premium received before the
Record Date will be held in the
General Account from the day We
receive it until the day after the
Record Date and will earn interest
during this period. When this period
has expired, the premium received
prior to the Record Date and any
interest earned during the period
will be allocated to the investment
divisions of Our Separate Account and
the General Account according to the
instructions You have given Us.
Additional Benefits May Be Available
Your contract may include additional
benefits. A charge will be deducted
from Your Contract Fund monthly for
certain additional benefits You
choose. You may cancel these benefits
at any time. More details will be
included in Your
<PAGE>
contract if You choose any of these
benefits. The following additional
benefits are currently available:
Disability Waiver Benefit. With this
benefit, We waive monthly charges
from the Contract Fund if the Insured
Person becomes totally disabled on or
after the Insured Persons fifteenth
birthday and the disability continues
for six months. If the disability
starts before the Contract
Anniversary following the Insured
Persons 65th birthday, We will waive
monthly deductions for life as long
as the disability continues.
Monthly Disability Benefit. With this
benefit, We will pay into your
Contract Fund an amount on Your
Contract Information page. The
benefit is payable when the Insured
Person becomes totally disabled on or
after the Insured Persons fifteenth
birthday and the disability continues
for six months. Disability must start
before the Contract Anniversary
following the Insured Persons 65th
birthday. The benefit will continue
until the Insured Person is age 65.
If the amount of benefit paid into
the Contract Fund exceeds the amount
allowed by Federal Guidelines, the
monthly benefit will be paid to the
Insured Person.
Accidental Death Benefit. We will pay
an additional benefit if the Insured
Person dies from bodily injury that
results from an accident, provided
the Insured Person dies before the
Contract Anniversary nearest his or
her 70th birthday.
Childrens Insurance Rider. This
benefit provides term life insurance
on the lives of the Insured Persons
children, including natural children,
stepchildren, and legally adopted
children, between the ages of 15 days
and 21 years. They are covered only
until the Insured Person reaches age
65 or the child reaches age 25.
Family Insurance Rider. This benefit
provides term life insurance on the
Insured Persons children as does the
Childrens Term Insurance. It also
provides decreasing term life
insurance on the Insureds spouse.
Additional Insured Rider. You may
provide term insurance for another
person, such as the Insured Persons
spouse, under Your contract. A
separate charge will be deducted for
each additional insured.
Guaranteed Insurability Rider. This
benefit provides for the issuance of
additional amounts of insurance
without further evidence of
insurability.
Cost of Living Rider. This benefit
provides for limited annual increases
in the amount of insurance.
Living Needs Rider. This benefit
provides an accelerated death benefit
in the event the Insured Person is
expected to die within 12 months.
You choose the amount of the Death
Benefit to accelerate at the time of
the claim. The Maximum Advanced Sum
is 50% of the Eligible Death Benefit
(which is the death benefit of the
contract plus the sum of any
additional death benefits on the life
of the Insured Person provided by any
Eligible Riders) currently subject to
a maximum of $250,000 and a minimum
of $5,000.
There is no charge for this benefit
prior to the time of a payment. The
amount of the Advanced Sum paid is
reduced by expected future interest
and may be reduced by a charge for
administrative expenses.
On the day We pay the accelerated
benefit, We will reduce the following
in proportion to the reduction in the
Eligible Death Benefit:
a. the death benefit of the
Contract and of each Eligible
Rider
b. the Specified Amount
c. any contract values
d. any outstanding loan
When We reduce the Contract Fund, We
will allocate the reduction based on
the proportion that Your unloaned
amounts in the General Account and
Your amounts in the Investment
Divisions of Our Separate Account
bear to the total unloaned value of
Your Contract Fund.
The tax treatment of adding or
receiving benefits under this rider
are not clear. Whether or not You
incur a tax liability when benefits
are advanced depends on how the IRS
interprets applicable portions of the
Tax Code. You should consult a
competent tax advisor for further
information.
SEPARATE ACCOUNT INVESTMENT CHOICES
Our Separate Account And Its
Investment Divisions
The Separate Account is Our Separate
Account A, established under the
Insurance Laws of the State of South
Dakota, and is a unit investment
trust registered with the Securities
and Exchange Commission (SEC) under
the Investment Company Act of 1940.
Our Separate Account A meets the
definition of a separate account
under the Federal securities laws but
this registration does not involve
any supervision by the SEC of the
management or investment contracts of
the Separate Account. A unit
investment trust is a type of
investment company. The Separate
Account has a number of investment
divisions, each of which invests in
shares of a corresponding portfolio
of the Variable Insurance Products
Fund or the Variable Insurance
Products Fund II. You may allocate
part or all of Your net premiums to
one or more of the ten
investment divisions of Our
Separate Account. Our Separate
Account divisions invest in the Money
Market Portfolio, the High Income
Portfolio, the Equity-Income
Portfolio, the Growth Portfolio, the
Asset Manager Portfolio, the Overseas
Portfolio, the Investment Grade Bond
Portfolio, the Contrafund Portfolio,
the Asset Manager: Growth Portfolio
and the Index 500 Portfolio.
The Funds
The Variable Insurance Products Fund
and the Variable Insurance Products
Fund II are open-end diversified
management investment companies, more
commonly called mutual funds. As
series types of mutual funds, they
issue several different series of
portfolios. The Funds shares are
<PAGE>
bought and sold by Our Separate
Account at net asset value. More
detailed information about the
Variable Insurance Products Fund and
the Variable Insurance Products Fund
II, their investment objectives,
policies, risks, expenses and all
other aspects of their operations,
appears in their prospectus ,
which accompanies this prospectus,
and in the Funds Statement of
Additional Information.
The Funds sell their shares to
separate accounts of various
insurance companies to support both
variable life insurance contracts and
variable annuity contracts. We
currently do not foresee any
disadvantages to Our owners arising
out of this. If We believe that the
Funds do not sufficiently respond to
protect Our owners interests, We
will see to it that appropriate
action is taken to protect Our
owners. The Funds will also monitor
this possibility. See the section
entitled FMR and Its
Affiliates in the prospectus
for the Variable Insurance
Products Fund and the Variable
Insurance Products Fund II
Also, if We ever believe that any of
the Funds portfolios are so large as
to materially impair its investment
performance of a portfolio or the
Fund, We will examine other
investment options.
Investment Policies Of The Funds
Portfolios
Each portfolio has a different
investment objective which it tries
to achieve by following separate
investment policies. The objectives
and policies of each portfolio will
affect its return and its risks.
Remember that the investment
experience of the investment
divisions of Our Separate Account
depends on the performance of the
corresponding Funds portfolios. The
objectives of the Funds portfolios
are as follows:
Portfolio
Objective
Money Market
Seeks to obtain as high a
level of current income as
is consistent with
preserving capital and
providing liquidity by
investing in high quality
money market instruments .
(An investment in the Money
Market or any other
Portfolio is neither
insured nor guaranteed by
the U.S. Government, and
there is no assurance that
the Money Market Portfolio
will be able to maintain a
constant net asset value.)
High Income
Seeks to obtain a high
level of current income by
investing primarily in
high-yielding, lower-rated,
fixed-income securities,
while also considering
growth of capital. For a
description of the special
risks involved in investing
in these securities, see
the prospectus for the
Funds.
Equity-Income
Seeks to obtain reasonable
income by investing
primarily in income-
producing equity
securities. In choosing
these securities, the
Manager will consider the
potential for capital
appreciation. The
Portfolios goal is to
achieve a yield which
exceeds the composite yield
on the securities
comprising the Standard &
Poors Composite Index
of 500 Stocks .
Growth
Seeks to achieve capital
appreciation, normally
through the purchase of
common stocks, although the
Portfolios investments are
not restricted to any one
type of security. Capital
appreciation also may be
found in other types of
securities, including bonds
and preferred stocks.
Overseas
Seeks long-term growth of
capital , primarily
through investments in
foreign securities.
Asset Manager
Seeks high total return
with reduced risk over the
long-term by allocating its
assets among domestic and
foreign stocks, bonds and
short-term fixed-income
instru-ments.
Investment
Grade Bond
Seeks as high a level of
current income as is
consistent with the
preservation of capital by
investing in a broad range
of investment grade fixed
income securities.
Contrafund
Seeks to achieve capital
appreciation over the long
term by investing in
securities of companies
that are undervalued or
out-of-favor.
Asset Manager:
Growth
Seeks to maximize total
return over the long term
through investments in
stocks, bonds, and short-
term instruments. This
portfolio has a heavier
emphasis on stocks than the
Asset Manager Portfolio.
Index 500
Seeks to provide investment
results that correspond to
the total return of common
stocks publicly traded in
the United States by
duplicating the composition
and total return of the
Standard & Poors Composite
Index of 500 Stocks. This
is designed as a long-term
investment option.
We Own The Assets Of Our Separate
Account
Under South Dakota law, We own the
assets of Our Separate Account and
use them to support Your contract and
other variable life contracts. Under
certain unlikely
<PAGE>
circumstances, one investment
division of the Separate Account may
be liable for claims relating to the
operations of another division. We
may also permit charges owed to Us to
stay in the Separate Account. Thus,
We may also participate
proportionately in the Separate
Account. These accumulated amounts
belong to Us and We may transfer them
from the Separate Account to Our
General Account.
Our Right To Change How We Operate
Our Separate Account
In addition to changing or adding
investment companies, We have the
right to modify how We or Our
Separate Account operate. We intend
to comply with applicable law in
making any changes and, if necessary,
We will seek contractowner approval.
We have the right to:
- - add investment divisions to, or
remove investment divisions
from, Our Separate Account,
combine two or more divisions
within Our Separate Account, or
withdraw assets relating to
Variable Universal Life 2 from
one investment division and put
them into another;
- - eliminate the shares of the
portfolio and substitute shares
of another portfolio of the
Funds or another open-end,
registered investment company,
if the shares of the portfolio
are no longer available for
investment or, if in Our
judgment, further investment in
the portfolio should become
inappropriate in view of the
purposes of Separate Account A;
- - register or end the registration
of Our Separate Account under
the Investment Company Act of
1940;
- - operate Our Separate Account
under the direction of a
committee or discharge such a
committee at any time (the
committee may be composed
entirely of persons who are
interested persons of Midland
under the Investment Company Act
of 1940);
- - disregard instructions from
contractowners that would
otherwise require that a Funds
shares be voted so as to cause a
change in the investment
objectives of the Portfolio of a
Fund or approval or disapproval
of an investment advisory policy
for the Portfolio of a Fund. We
would do so only if required by
state insurance regulatory
authorities pursuant to
insurance law or regulation;
or
- - operate Our Separate Account or
one or more of the investment
divisions in any other form the
law allows, including a form
that allows Us to make direct
investments. We may make any
legal investments We wish. In
choosing these investments, We
will rely on Our own or outside
counsel for advice. In addition,
We may disapprove any change in
investment advisers or in
investment contract unless a law
or regulation provides
differently.
If any changes are made that result
in a material change in the
underlying investments of any
investment division, You will be
notified. We may, for example, cause
the investment division to invest in
a mutual fund other than or in
addition to the Variable Insurance
Products Fund or the Variable
Insurance Products Fund II.
If You then wish to transfer the
amount You have in that investment
division to another division of Our
Separate Account, or to Our General
Account, You may do so, without
charge, by writing to Our Home
Office. At the same time, You may
also change how Your net premiums and
deductions are allocated.
DEDUCTIONS AND CHARGES
Charges Against The Separate Account
The amount in Your Contract Fund
which is allocated to the investment
divisions of Our Separate Account
will be reduced by any fees and
charges allocated to the investment
divisions of Our Separate Account.
Administrative Charge. We make a
charge to cover our record-keeping
and other administrative expenses
incurred to operate the Separate
Account, including expenses for
purchasing, selling, and transferring
shares from the Funds. The effective
annual rate of this charge is 0.20%
of the value of the assets in the
Separate Account. This charge is
reflected in the Accumulation Unit
Values for the investment divisions
of the Separate Account. This charge
is designed to reimburse Us for
expenses and We do not expect to
profit from it.
Mortality and Expense Risks. We make
a charge for assuming mortality and
expense risks. We guarantee that
monthly administrative and insurance
deductions from Your Contract Fund
will never be greater than the
maximum amounts shown in Your
contract. The mortality risk We
assume is that Insured Persons will
live for shorter periods than We
estimated. When this happens, We have
to pay a greater amount of death
benefits than We expected to in
relation to the cost of insurance
charges We received. The expense risk
We assume is that the cost of issuing
and administering contracts will be
greater than We expected. We make a
charge for mortality and expense
risks at an effective annual rate of
0.90% of the value of the assets in
the Separate Account attributable to
Variable Universal Life 2. This
charge is reflected in the
Accumulation Unit values for the
investment divisions of the Separate
Account. See Your Contract Fund Value
How We Determine The Accumulation
Unit Value on page 16. If the money
We collect from this charge is not
needed, it will be to Our gain, and
We expect a profit from this charge.
To the extent sales expenses are not
covered by the Deferred Sales Charge,
Our General Account funds, which may
include amounts derived from this
mortality and expense risk charge,
will be used to cover sales expenses.
Tax Reserve. We reserve the right to
make a charge in the future for taxes
or reserves set aside for taxes,
which if made will reduce the
investment experience of the
investment divisions of Our Separate
Account. Currently no such charge is
made.
<PAGE>
Charges In The Funds
The Funds make a charge for managing
investments and providing services.
These charges vary by portfolio.
Money Market Portfolios management
fee is calculated as follows: (a) the
sum of a group fee rate and an
individual fund fee rate of .03%, and
(b) the addition of an income
component of 6% of the Portfolios
gross income in excess of a 5% annual
yield. The result is multiplied by
the Portfolios average net assets.
The group fee rate cannot rise above
.37%, and it drops as total assets
under management increase. The income
component cannot rise above .24%.
The High Income Portfolio and
Investment Grade Bond Portfolios
annual fee is the sum of the
following two components:
1. A group fee based on the
monthly average net assets of
all the mutual funds advised by
Fidelity Management & Research
Company. On an annual basis this
rate cannot rise above .37%, and
it drops as total assets in all
these funds rise. For example,
the effective group fee rate for
December, 199 5 was
.1 5 %.
2. An individual fund fee rate of
.45% for the High Income
Portfolio and .30% for the
Investment Grade Bond Portfolio.
The Equity-Income, Growth, Overseas,
Contrafund, Asset Manager: Growth and
Asset Manager Portfolios fee is the
sum of two components:
1. A group fee rate based on the
monthly average net assets of
all the mutual funds advised by
the Manager. This rate cannot
rise above .52%, and it drops as
total assets in all these funds
rise. The effective group fee
rate for December, 199 5
was .3 1 %.
2. An individual Portfolio fee
rate of .20% for the Equity-
Income Portfolio, .30% for the
Growth Portfolio, .45% for the
Overseas Portfolio, .30% for the
Contrafund Portfolio, .40% for
the Asset Manager:
G rowth Portfolio and .40%
for the Asset Manager Portfolio.
The Index 500 Portfolio fee is based
on the monthly average net assets of
the Index 500 Portfolio. On an annual
basis this rate will be .28%.
Each portfolios total operating
expenses will include fees for
management, shareholder services and
other expenses, such as custodial,
legal, accounting and other
miscellaneous fees.
Deductions From Your Premiums
A 2.5% charge for premium taxes is
deducted from all of Your premiums
and $.46 is deducted from each
premium payment if You have chosen
the Civil Service Allotment Mode. The
rest of each premium (the net
premium) is placed in Your Contract
Fund.
The $.46 deducted from each premium
payment under the Civil Service
Allotment Mode is intended to cover
the extra expenses We incur in
processing bi-weekly premium
payments. We do not expect to profit
from this charge.
Applicable Taxes. All states and
certain jurisdictions (cities,
counties, municipalities) tax premium
payments and some levy other charges.
Currently, as indicated above, We
deduct a charge of 2.5% of each
premium for these. These tax rates
currently range from 0.75% to 4%.
Because of certain retaliatory
provisions in the premium tax
regulations, We expect to pay at
least 2.5% of each premium in premium
tax.
This is a tax to Midland so You
cannot deduct it on Your income tax
return. Since the charge is a
percentage of Your premium, the
amount of the charge will also vary
with the amount of the premium.
We may increase this charge at any
time if Our premium tax expenses
increase and We reserve the right to
vary this charge by state. If We make
such a change, We will notify
You.
Deductions From Your Contract Fund
At the beginning of each Contract
Month (including the Contract Date),
the following three Contract Fund
charges are deducted from Your
Contract Fund.
1. Expense Charge. This charge is
$5 per month (currently We plan
to make this deduction for the
first 15 years only, but we
reserve the right to deduct it
throughout the life of the
contract). This charge is
designed to cover the continuing
costs of maintaining Your
contract, such as premium
billing and collections, claim
processing, contract
transactions, recordkeeping,
communications with owners and
other expense and overhead
items. This charge is designed
to reimburse Us for expenses and
We do not expect to gain from
it.
2. Charges for Additional
Benefits. The cost for any
additional benefits You choose
will be deducted monthly. We may
change these charges, but Your
contract contains tables showing
the guaranteed maximum rates for
all of these insurance costs.
3. Cost of Insurance Charge. The
cost of insurance is Our current
monthly cost of insurance rate
times the amount at risk at the
beginning of the Contract Month.
Amount at risk is the difference
between the current death
benefit and the amount in Your
Contract Fund. If the current
death benefit for the month is
increased due to the
requirements of federal tax law,
Your amount at risk for the
month will also increase. For
this purpose the amount in Your
Contract Fund is determined
before deduction of the cost of
insurance charge but after all
of the other deductions due on
that date. The amount of the
cost of insurance charge will
vary from month to month with
changes in the amount at risk
and with increasing attained age
of the Insured Person.
<PAGE>
The cost of insurance rate is based
on the sex, attained age, and rating
class of the Insured Person at the
time of the charge. We may change
these rates from time to time, but
they will never be more than the
guaranteed maximum rates set forth in
Your contract. The maximum charges
are equal to the charges specified in
the Commissioners 1980 Standard
Ordinary Mortality Table. The table
below shows the current and
guaranteed maximum monthly cost of
insurance rates per $1,000 of amount
at risk for a male nonsmoker standard
risk at various ages. In Montana,
there will be no distinctions based
on sex. Employers and employee
organizations should consider, in
consultation with counsel, the impact
of Title VII of the Civil Rights Act
of 1964 on the purchase of Variable
Universal Life 2 in connection with
an employment-related insurance or
benefit plan. The United States
Supreme Court held, in a 1983
decision, that under Title VII,
optional annuity benefits under a
deferred compensation plan could not
vary on the basis of sex.
Illustrative Table of Monthly Cost of
Insurance Rates (Rounded) per $1,000
of Amount at Risk
Male Guaranteed Current
Attained Maximum (Non-Smoker)
Age Rate Rate
5 $.07 $.07
15 .11 .11
25 .13 .11
35 .14 .13
45 .29 .26
55 .69 .54
65 1.87 1.24
For a male non-smoker, age 35, with a
$100,000 Specified Amount Option 1
contract and an initial premium of
$1,000, the cost of insurance for the
first month will be $12.87. This
example assumes the expense charge
($5 per month) and current cost of
insurance rate ($.13 per $1,000).
We offer lower current cost of
insurance rates at most ages for
insured people who qualify as non-
smokers. To qualify, an insured must
be a standard risk and must meet
additional requirements that relate
to smoking habits. In addition, the
insured must be age 15 or over. The
reduced cost of insurance rates
depend on such variables as the
attained age and sex of the insured.
Changes in Monthly Charges. Any
changes in the cost of insurance,
charges for additional benefits or
expense charges will be by class of
insured and will be based on changes
in future expectations about such
things as investment earnings,
mortality, the length of time
contracts will remain in effect,
expenses and taxes.
Other Transaction Charges
In addition to the deductions
described above, We charge fees for
certain contract transactions:
- - Partial Withdrawal of Net Cash
Surrender Value. You may make
one partial withdrawal during
each Contract Year without a
charge. There is an
administrative charge of $25 or
2 percent of the amount
withdrawn, whichever is less,
each time You make a partial
withdrawal if more than one
withdrawal is made during a
year.
- - Transfers. If You make more than
fifteen transfers of Contract
Fund value in a Contract Year
among investment divisions, You
will be charged $25 for each
additional transfer in that
Contract Year. We reserve the
right to assess this charge
after the fourth transfer in a
Contract Year.
How Contract Fund Charges Are
Allocated
Generally, deductions from Your
Contract Fund for monthly charges or
partial withdrawal charges are made
from the investment divisions of Our
Separate Account and the unloaned
portion of the General Account in
accordance with the deduction
allocation percentages specified by
You in Your application unless You
instruct Us to do otherwise. Your
allocation percentages for deductions
may be any whole numbers (from 10 to
100) which add up to one hundred. You
may change Your deduction allocation
percentages by writing to Our Home
Office. Changes will be effective as
of the date We receive them.
If We cannot make a deduction in
accordance with these percentages, We
will make it based on the proportion
that Your unloaned amounts in the
General Account and Your amounts in
the investment divisions of Our
Separate Account bear to the total
unloaned value of Your Contract Fund.
Deductions for transfer charges are
allocated to the investment divisions
from which the transfer is being made
in equal proportion to such
investment divisions. For example, if
the transfer is made from two
investment divisions, the transfer
charge allocated to each of the
investment divisions will be $12.50.
Surrender Charge
We incur various sales and
promotional expenses in connection
with selling Variable Universal Life
2, such as commissions, the cost of
preparing sales literature, other
promotional activities and other
direct and indirect distribution
expenses. We also incur expenses for
underwriting, printing of contract
forms and prospectuses, and putting
information in Our records.
There is a difference between the
amount in Your Contract Fund and the
Cash Surrender Value of Your contract
for the first 15 Contract Years. This
difference is the Surrender Charge,
which is a contingent deferred issue
charge and sales load designed to
recover Our expenses in distributing
and issuing contracts which are
terminated by surrender in their
early years. It is a contingent load
because You pay it only if You
surrender Your contract (or let it
lapse) during the first 15 Contract
Years. It is a deferred load because
We do not deduct it from Your
premiums. The amount of the load in a
Contract Year is not necessarily
related to Our actual sales expense
in that year. We anticipate that the
Surrender
<PAGE>
Charge will not fully cover Our sales
expenses. To the extent sales
expenses are not covered by the
Surrender Charge, We will cover them
from other funds including any funds
in Our General Account, which may
include amounts derived from the
mortality and expense risk charge.
The Net Cash Surrender Value, which
is the amount We pay You if You
surrender Your contract for cash,
equals the Cash Surrender Value minus
any outstanding loan and loan
interest.
In the first 15 Contract Years, You
will incur a Surrender Charge if You
give up Your contract for its Net
Cash Surrender Value, or let Your
contract lapse.
The Surrender Charge You pay includes
Deferred Sales Charges and Deferred
Issue Charges. The Deferred Sales
Charge is based on the sum of two
pieces.
The Deferred Sales Charge is:
- - 30% of any premium payment in
the first two Contract Years up
to one guideline annual premium.
- - 9% of all other premium
payments.
The sum of the above pieces is also
limited by the Guideline Annual
Premium, times 9%, times the expected
future lifetime at issue as
determined by the 1980 CSO Mortality
Table or 20 years, whichever is less.
The guideline annual premium varies
for each contract. It is specified on
the contract information page of Your
contract.
During the first ten contract years,
the Deferred Sales Charge will be
100% of the sum of these two pieces
or the maximum charge described in
the second preceding paragraph,
whichever is less. Beginning in the
eleventh year, the sum or maximum
will be multiplied by a percentage.
The percentage is 83.33% for year
eleven, 66.67% for year twelve, 50%
for year thirteen, 33.33% for year
fourteen, and 16.67% for year
fifteen. After the 15th Contract
Year, there is no Surrender Charge.
If there is an increase in Specified
Amount (at any time), there will also
be an increase in the Guideline
Annual Premium. All additions to the
Deferred Sales Charge due to this
increase will be 9% of premiums. The
maximum limit will also increase by
the additional Guideline Annual
Premium, times 9%, times the expected
future lifetime at the time of the
increase as determined by the 1980
CSO Mortality Table or 20 years,
whichever is less. Total in the
Deferred Sales Charge prior to the
increase in Specified Amount will not
be affected.
If there is a decrease in Specified
Amount, there will also be a decrease
in Guideline Annual Premium. Future
additions to the Deferred Sales
Charge will follow the same rules as
at issue with the new Guideline
Annual Premium. Prior totals in the
Deferred Sales Charge will not be
affected.
Because the percent of each premium
added to the Deferred Sales Charge is
greater in the first two years, You
may minimize this charge by paying
only the minimum premium during this
period. You will not incur any sales
charge, regardless of the amount and
timing of premiums, if You keep this
contract in force for fifteen years.
The following table shows the
Deferred Issue Charge which is a
dollar amount for each thousand
dollars of the Specified Amount.
After the 15th Contract Year, there
is no Deferred Issue Charge.
Table of Deferred Issue Charges
Per Thousand of Specified Amount
Contract Contract Contract
Year Charge Year Charge Year Charge
1 $3.00 6 $3.00 11 $2.50
2 3.00 7 3.00 12 2.00
3 3.00 8 3.00 13 1.50
4 3.00 9 3.00 14 1.00
5 3.00 10 3.00 15 .50
If there has been a change in
Specified Amount during the life of
the contract, the Deferred Issue
Charge is applied against the highest
Specified Amount in force during the
life of the contract.
YOUR CONTRACT FUND VALUE
The amount in Your Contract Fund is
the sum of the amounts You have in
the General Account and in the
various investment divisions of Our
Separate Account (plus the amount in
Our General Account securing any
contract loan). Your Contract Fund
also reflects the various charges
described above. Monthly deductions
are made as of the first day of each
Contract Month. Transaction charges
or Surrender Charges are made as of
the effective date of the
transaction. Charges against Our
Separate Account are reflected daily.
Any amount allocated to an investment
division of Our Separate Account will
go up or down depending on the
investment experience of that
division. You bear this investment
risk. For amounts allocated to the
investment divisions of Our Separate
Account, there is no guaranteed
minimum cash value. Any amount
allocated to the General Account is
guaranteed.
Amounts In Our Separate Account
Amounts allocated, transferred or
added to the investment divisions of
Our Separate Account are used to
purchase Accumulation Units. The
amount You have in each division is
represented by the value of the
Accumulation Units credited to Your
Contract Fund for that division. The
number of Accumulation Units
purchased or redeemed in an
investment division of Our Separate
Account is calculated by dividing the
dollar amount of the transaction by
the divisions Accumulation Unit
Value calculated at the end of that
day. The number of Accumulation Units
for an investment division at any
time is the number of Accumulation
Units purchased less the number of
Accumulation Units redeemed. The
value of Accumulation Units
fluctuates with the investment
performance of the corresponding
portfolios of the Variable Insurance
Products Fund and the Variable
Insurance Products Fund II, which
reflects the investment income and
realized and unrealized capital gains
and losses of the
<PAGE>
portfolio and Funds expenses. The
Accumulation Unit Values also reflect
deductions and charges We make to Our
Separate Account. The number of
Accumulation Units credited to You,
however, will not vary because of
changes in Accumulation Unit Values.
On any given day, the value You have
in an investment division of Our
Separate Account is the Accumulation
Unit Value times the number of
Accumulation Units credited to You in
that division. The Accumulation Units
of each investment division of Our
Separate Account have different
Accumulation Unit Values.
Accumulation Units of an investment
division are purchased when You
allocate premiums, repay loans or
transfer amounts to that division.
Accumulation Units are redeemed or
sold when you make withdrawals or
transfer amounts from an investment
division of the Separate Account
(including transfers for loans) and
to pay the death benefit when the
Insured Person dies. We also redeem
Accumulation Units for monthly
deductions or other charges.
How We Determine The Accumulation
Unit Value
We determine Accumulation Unit Values
for the investment divisions of our
Separate Account at the end of each
business day. The Accumulation Unit
Value for each investment division
was set at $10.00 on the first day
there were contract transactions in
Our Separate Account. After that, the
Accumulation Unit Value for any
business day is equal to the
Accumulation Unit Value for the
preceding business day multiplied by
the net investment factor for that
division on that business day.
We determine the net investment
factor for each investment division
every business day as follows:
First, We take the value of the
shares belonging to the division in
the corresponding Fund portfolio at
the close of business that day
(before giving effect to any contract
transaction for that day, such as
premium payments or surrenders). For
this purpose, We use the share value
reported to Us by the Fund.
Next, We add any dividends or capital
gains distributions paid by the Fund
on that day.
Then, We divide this amount by the
value of the amounts in the
investment division at the close of
business on the preceding business
day (after giving effect to any
contract transactions on that day).
Then, We subtract a daily asset
charge for each calendar day between
business days (for example, a Monday
calculation may include charges for
Saturday and Sunday). The daily
charge is .0030304%, which is an
effective annual rate of 1.10%. This
charge is for mortality and expense
risks assumed by Us under the
contract and to cover administrative
costs We incur for transactions
related to the Separate Account.
Finally, We subtract any daily charge
for taxes or amounts set aside as a
reserve for taxes.
Generally, this means that We adjust
Accumulation Unit Values to reflect
what happens to the Fund, and also
for the mortality and expense risk
charge and any other charges.
CONTRACT FUND TRANSACTIONS
The transactions described below may
have different effects on Your
Contract Fund, death benefit,
Specified Amount or cost of
insurance. You should consider the
net effects before combining Contract
Fund transactions. Certain
transactions also have fees.
Changing Your Premium And Deduction
Allocation Percentages
You may change the allocation
percentages of Your net premiums or
of Your monthly deductions by writing
to Our Home Office and telling Us
what changes You wish to make. These
changes will go into effect as of the
date We receive Your request at Our
Home Office and will affect
transactions on and after that date.
Transfers Of Contract Fund Value
Currently, You may make up to fifteen
transfers of Contract Fund value in
each Contract Year without charge. We
charge $25 for each additional
transfer in a single Contract Year.
We reserve the right to assess this
charge after the fourth transfer in a
Contract Year. During the first two
Contract Years, if a transfer is all
of Your value in Our Separate Account
to the General Account, We will not
make a charge for that transfer. To
make a transfer, write to Our Home
Office.
If We charge You for making a
transfer, We will allocate the charge
as described under Deductions and
Charges How Contract Fund Charges
Are Allocated on page 15. All
transfers included in one transfer
request count as one transfer for
purposes of any fee.
You may ask Us to transfer amounts
between the General Account and any
investment divisions of Our Separate
Account, and among investment
divisions of Our Separate Account.
The transfer will take effect as of
the date We receive Your request. The
minimum amount We will transfer on
any date is $200. A smaller transfer
may be made under special
circumstances mentioned in Our Right
to Change How We Operate Our Separate
Account. This minimum need not come
from any one investment division or
be transferred to any one investment
division as long as the total amount
transferred that day equals the
minimum.
The amount that can be transferred
from the General Account to the
Separate Account in any Contract Year
cannot exceed the larger of:
1. 25% of the unloaned amount in
the General Account at the
beginning of the Contract Year,
or
2. $1,000.
<PAGE>
Dollar Cost Averaging.
The Dollar Cost Averaging (DCA)
program enables You to make monthly
transfers of a predetermined dollar
amount from the Money Market
investment division into one or more
of the other investment divisions
(not the General Account). By
allocating monthly, as opposed to
allocating the total amount at one
time, You may reduce the impact of
market fluctuations.
DCA can be elected at any time by
completion of the DCA Request Form
(form number 5856) and by insuring
that a sufficient amount is in the
Money Market investment division,
either through payment of a premium
with the DCA request form, allocation
of premiums, or transfer of amounts
to the Money Market investment
division. Copies of form 5856 can be
obtained by contacting Us at Our Home
Office. The election will specify:
a. that any money received with the
form is to be placed into the
Money Market investment division
b. the monthly amount to be
transferred to the other
investment divisions, and
c. how that monthly amount is to be
allocated among the investment
divisions
Since the DCA program is only
suitable for substantial, infrequent
premium payments, DCA is only
available when the premium payment
mode is annual or if the amount in
the Money Market investment division
is at least equal to the sum of
$2,400 and the minimum premium. The
DCA Request Form must be received
with any premium payment You intend
to apply to DCA.
The minimum monthly amount to be
transferred using DCA is $200. In
order to begin the DCA program, the
value in the Money Market investment
division must be at least equal to
the sum of 12 monthly transfers and
the minimum premium. When DCA is
elected, all amounts in the Money
Market investment division will be
available for transfer under the DCA
program. Once DCA is elected,
additional premiums can be deposited
into the Money Market investment
division for DCA by sending them in
with a DCA request form.
You may change the DCA allocation
percentages or DCA transfer amounts
twice each Contract Year. Any premium
payments received while the DCA
program is in effect will be
allocated using the allocation
percentages from the DCA request
form, unless You specify otherwise.
If requested at issue, DCA will start
at the beginning of the second
Contract Month. If requested after
issue, DCA will start at the
beginning of the first Contract Month
which occurs at least 30 days from
the day the request is received.
Transfers under the DCA program will
count toward the number of free
transfers allowed each Contract Year.
DCA will last until the value in the
Money Market investment division is
exhausted or until a request for
termination is received in writing
from You. DCA will automatically be
terminated on the Maturity Date.
We reserve the right to end the DCA
program at any time by sending You a
notice one month in advance.
Borrowing From Your Contract Fund
At any time Your contract has a Net
Cash Surrender Value, You may borrow
money using only Your contract as
security for the loan. If You request
an additional loan, the amounts of
any outstanding loan and loan
interest will be added to the
additional amount You have requested
and the original loan will be
canceled. Thus, You will have only
one loan outstanding at any time. Any
amount that secures a loan remains
part of Your Contract Fund, but is
automatically transferred out of Our
Separate Account and put in Our
General Account as collateral. We pay
You interest on this loaned amount,
currently at an annual rate of 6%.
However, after the tenth Contract
Year, the annual rate of interest
paid on the loaned portion of the
Contract Fund will equal 8% for the
portion of any loan that does not
exceed the Contract Fund minus the
total premiums paid.
A loan taken from, or secured by, a
contract may have Federal Income Tax
consequences. See TAX EFFECTS on page
21.
How To Request A Loan
You may request a loan by contacting
Our Home Office. You may tell Us how
much of the loan You want taken from
Your unloaned amount in the General
Account or from Your amounts in the
investment divisions of Our Separate
Account. We will redeem units from an
Investment Division of Our Separate
Account sufficient to cover that part
of the loan. The amounts You have in
each division will be determined as
of the day We receive Your request
for a loan at Our Home Office.
If You do not tell Us how to allocate
Your loan, the loan will be allocated
according to Your deduction
allocation percentages. If the loan
cannot be allocated based on these
percentages, We will allocate it
based on the proportions of Your
unloaned amounts in the General
Account and Your value in each
Investment Division of Our Separate
Account to the unloaned value of Your
Contract Fund.
Contract Loan Interest
Interest on a contract loan accrues
daily at an annual interest rate of
8%.
When Interest Is Due
Interest is due on each Contract
Anniversary. If You do not pay the
interest when it is due, it will be
added to Your outstanding loan and
allocated based on the deduction
allocation percentages for Your
Contract Fund then in effect. This
means We make an additional loan to
pay the interest and We transfer
amounts from the General Account or
the Investment Divisions to make the
loan. If we cannot allocate
<PAGE>
the interest based on these
percentages, We will allocate it as
described above for allocating Your
loan.
Repaying The Loan
You may repay all or part of a
contract loan at any time while Your
contract is In Force. While You have
a contract loan, We assume that any
money You send Us is meant to repay
the loan. If You wish to have any of
these payments be premium payments,
You must tell Us in writing.
You may choose how You want Us to
allocate Your repayments. If You do
not give us instructions, We will
allocate Your repayments based on
Your premium allocation percentages.
The Effects Of A Contract Loan On
Your Contract Fund
A loan against Your contract will
have a permanent effect on the value
of Your Contract Fund and, therefore,
on Your benefits under this contract,
even if the loan is repaid. When You
borrow on Your contract, the amount
of Your loan is set aside where it
earns a declared rate for loaned
amounts. The loan amount will not be
available for You to invest in the
divisions of Our Separate Account or
the unloaned portion of the General
Account. Whether You earn more or
less with the loan amount set aside
depends on the investment experience
of the investment divisions of Our
Separate Account and the rates
declared for the unloaned portion of
the General Account.
Your Contract May Lapse
Your loan may also affect the amount
of time that Your insurance remains
in force. For example, Your contract
may lapse more quickly when You have
a loan because the loaned amount
cannot be used to cover the monthly
deductions that are taken from Your
Contract Fund. If these deductions
exceed the Net Cash Surrender Value
of Your contract, then the lapse
provisions of the contract may apply.
Since the contract permits loans up
to the Cash Surrender Value divided
by 1.08, loan repayments or
additional premium payments may be
required to keep the contract in
force if You borrow the maximum.
Withdrawing Money From Your Contract
Fund
You may request a partial
withdrawal of Your Net Cash Surrender
Value by writing to Our Home Office.
You will not incur either the
Deferred Sales Charge or Deferred
Issue Charge upon a partial
withdrawal. Partial withdrawals are
subject to certain conditions. They
must:
- - be at least $200
- - total no more than 20% of the
Net Cash Surrender Value in any
Contract Year
- - not cause the death benefit to
fall below the minimum for which
we would issue the contract at
the time
- - not cause the contract to fail
to qualify as life insurance
under applicable tax law.
You may specify how much of the
withdrawal You want taken from each
investment division. If You do not
tell Us, We will make the withdrawal
on the basis of Your deduction
allocation percentages. If We cannot
withdraw the amount based on Your
directions or on Your deduction
allocation percentages, We will
withdraw the amount based on the
proportions of Your unloaned amounts
in the General Account and the
investment divisions of Our Separate
Account to the total unloaned value
of Your Contract Fund.
Withdrawal Charges
When You make a partial withdrawal
more than once in a Contract Year, a
charge of $25 or 2 percent of the
amount withdrawn, whichever is less,
will be deducted from Your Contract
Fund. If You do not give Us
instructions for deducting the
charge, it will be deducted as
described under Deductions and
Charges How Contract Fund Charges
Are Allocated on page 15.
In general, We do not permit You to
make a withdrawal on monies for which
Your premium check has not cleared
your bank.
The Effects Of A Partial Withdrawal
A partial withdrawal reduces the
amount You have in Your Contract
Fund. It also reduces the Cash
Surrender Value and the death benefit
on a dollar-for-dollar basis. If the
death benefit is based on a
percentage multiple, the reduction in
death benefit could be greater. If
you selected death benefit Option 1,
We will also reduce the Specified
Amount of Your contract so there will
be no change in the net amount at
risk. We will send You a new contract
information page to Your contract to
reflect this change. We may ask You
to return Your contract to Our Home
Office to make a change. The
withdrawal and these reductions will
be effective as of the date We
receive Your request at Our Home
Office.
A contract loan might be better if
Your need for cash is temporary.
Surrendering Your Contract For Its
Net Cash Surrender Value
You may surrender Your contract for
its Net Cash Surrender Value at any
time while the Insured Person is
living. You may do this by sending a
written request and the contract to
Our Home Office. The Net Cash
Surrender Value of Your contract
equals the Cash Surrender Value minus
any outstanding loan and loan
interest. During the first 15
Contract Years, the Cash Surrender
Value is the amount in Your Contract
Fund minus the Surrender Charge.
After 15 years, the Cash Surrender
Value and Contract Fund are equal. We
will compute the Net Cash Surrender
Value as of the date We receive Your
request and the contract at Our Home
Office, and all insurance coverage
under Your contract will end on that
date.
<PAGE>
THE GENERAL ACCOUNT
You may allocate some or all of Your
Contract Fund to the General Account,
which pays interest at a declared
rate. The principal, after
deductions, is guaranteed. The
General Account supports Our
insurance and annuity obligations.
Because of applicable exemptive and
exclusionary provisions, interests in
the 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 Investment Company
Act of 1940. Accordingly, neither the
General Account nor any interests
therein are generally subject to
regulation under the 1933 Act or the
1940 Act. We have been advised that
the staff of the SEC has not made a
review of the disclosures which are
included in this prospectus for Your
information and which relate to the
General Account.
Amounts In The General Account
You may accumulate amounts in the
General Account by:
- - allocating net premium and loan
repayments,
- - transferring amounts from the
investment divisions of Our
Separate Account, or
- - earning interest on amounts You
already have in the General
Account.
The amount You have in the General
Account at any time is the sum of all
net premiums and loan repayments
allocated to that Account, all
transfers and earned interest, and
includes amounts securing any
contract loan You have. This amount
is reduced by amounts transferred out
or withdrawn and deductions allocated
to this Account.
Adding Interest To Your Amounts In
The General Account
We pay interest on all amounts that
You have in the General Account. The
annual interest rates will never be
less than the minimum guaranteed
interest rate of 4%. We may, at the
sole discretion of Our Board of
Directors, credit interest in excess
of 4%. You assume the risk that
interest credited may not exceed 4%.
We pay different rates on unloaned
and loaned amounts in the General
Account. Interest is compounded daily
at an effective annual rate that
equals the annual rate declared by
Our Board of Directors.
Transfers
You may request a transfer between
the General Account and one or more
of the investment divisions of Our
Separate Account. See Transfers Of
Contract Fund Value on Page 17.
ADDITIONAL INFORMATION ABOUT VARIABLE
UNIVERSAL LIFE 2
Your Right To Examine The Contract
You have a right to examine the
contract. If for any reason You are
not satisfied with it, You may cancel
the contract within the time limits
described below. You may cancel the
contract by sending it to Our Home
Office with a written request to
cancel.
Your request to cancel this contract
must be postmarked no later than the
latest of the following three dates:
- - 10 days after You receive Your
contract,
- - 10 days after We mail You a
written notice telling You about
Your rights to cancel (Notice of
Withdrawal Right), or
- - 45 days after You sign Part 1 of
the contract application.
If You cancel Your contract, We will
return the sum of all charges
deducted from premiums paid and Your
Contract Fund, plus the Contract
Fund.
Insurance coverage ends when You send
Your request.
Your Contract Can Lapse
Your insurance coverage under
Variable Universal Life 2 continues
as long as the Net Cash Surrender
Value of your contract is enough to
pay the deductions that are taken out
of your Contract Fund each month or,
during the first five years, as long
as your premiums paid exceed the
schedule of required minimum
premiums. If neither of these
conditions are true at the beginning
of any Contract Month, a 61-day grace
period will start, beginning on the
day We send You notice that the grace
period is starting. We will notify
You and any assignees on Our records
in writing that the grace period has
begun and tell You the amount of
premium payment that will be
sufficient to satisfy the minimum
requirement for two months.
If We receive payment of this amount
before the end of the grace period,
We will use the amount You send Us to
make the overdue deductions. We will
put any balance left in Your Contract
Fund and allocate it in the same
manner as Your previous premium
payments.
If We do not receive payment within
the 61 days, Your contract will lapse
without value. We will withdraw any
amount left in Your Contract Fund. We
will apply this amount to the
deductions owed to Us, including any
applicable Surrender Charge. We will
inform You and any assignee at last
known address that Your contract has
ended without value.
If the Insured Person dies during the
grace period, We will pay the
insurance benefits to the
beneficiary, minus any loan, loan
interest and overdue deductions.
<PAGE>
You May Reinstate Your Contract
You may reinstate the contract within
five years after it lapses if:
- - You provide evidence that the
Insured Person is still
insurable,
- - You complete an application for
reinstatement, You pay premium
enough to pay all overdue
monthly deductions including the
premium tax on those deductions,
plus increase the Contract Fund
to a level where the Contract
Fund less any contract debt
equals the surrender charges,
plus cover the next two months
deductions,
- - You pay or restore any contract
debt,
- - You did not end the contract by
payment of the Net Cash
Surrender Value.
The Contract Date of the reinstated
contract will be the beginning of the
Contract Month which coincides with
or follows the date We approve Your
reinstatement application. Upon
reinstatement, there will be no
further Surrender Charges applied
against the contract. Previous loans
will not be reinstated.
Contract Periods, Anniversaries
We measure Contract Years, Contract
Months and Contract Anniversaries
(annual and monthly) from the
Contract Date shown on the contract
information page of Your contract.
Each Contract Month begins on the
same day in each calendar month as
the day of the month in the Contract
Date. The calendar days of 29, 30,
and 31 are not used. Our right to
challenge a contract is measured from
the Contract Date, as is the suicide
exclusion. These provisions are
mentioned in LIMITS ON OUR RIGHT TO
CHALLENGE THE CONTRACT on page 24.
Application for Insurance
When an application for one of Our
contracts is completed, it is
submitted to Us. We make the decision
to issue a contract based on the
information in the application and
Our standards for issuing insurance
and classifying risks. If We decide
not to issue a contract, We will
return the sum of all charges
deducted from premiums paid, plus the
net premiums, plus interest credited
to the net premiums.
Maturity Date
The Maturity Date is the Contract
Anniversary after the Insured
Persons 100th birthday. The contract
ends on that date if the Insured
Person is still alive and the
maturity benefit is paid.
If the Insured Person survives to the
Maturity Date, and You would like to
continue the contract, We will extend
the Maturity Date if in doing so this
contract still qualifies as life
insurance according to the Internal
Revenue Service and your state. In
order to continue the contract beyond
the original Maturity Date, We may
require that the death benefit not
exceed the Contract Fund on the
original Maturity Date.
Generally, when We refer to the age
of the insured person, We mean his or
her age on the birthday prior to that
particular date.
TAX EFFECTS
Contract Proceeds
The Internal Revenue Code of 1986
(Code) (in Section 7702) defines life
insurance for tax purposes.
Amendments to the Code made in 1988
place limits on certain
contract charges used in determining
the maximum amount of premiums that
may be paid under section 7702 for
C ontracts described in this
prospectus. The Secretary of the
Treasury (Treasury) has issued
proposed regulations that would
specify what will be considered
reasonable mortality charges for
these limits. Guidance as to how
section 7702 is to be applied is,
however, limited.
With respect to a contract that is
issued on the basis of a standard
rate class, while there is some
uncertainty due to the lack of
guidance under section 7702, Midland
believes that such a contract should
meet the section 7702 definition of a
life insurance contract. With respect
to a contract that is issued on a
substandard basis (i.e., a rate class
involving higher than standard
mortality risk), there is even less
guidance, in particular as to how the
new charge requirements are to be
applied in determining whether such a
contract meets the section 7702
definition of a life insurance
contract. Thus, it is not clear
whether or not such a contract would
satisfy section 7702, particularly if
the contract owner pays the full
amount of premiums permitted under
the contract.
If it is subsequently determined that
only a lower amount of premiums may
be paid for a contract to satisfy
section 7702, Midland may take
whatever steps are appropriate and
reasonable to attempt to cause the
contract to comply with section 7702,
including possibly refunding any
premiums paid which exceed that lower
amount (together with interest or
such other earnings on any such
premiums as is required by law).
If the Specified Amount of a contract
is increased or decreased, the
applicable premium limitation may
change. During the first fifteen
years of the contract, there are
certain events that may create
taxable ordinary income to You if at
the time of the event there has been
a gain in the contract. These events
include:
- - A decrease in the Specified
Amount;
- - A partial withdrawal;
- - A change from Option 2 to Option
1; or,
- - Any change that otherwise
reduces benefits under the
contract and that results in a
cash distribution in order
<PAGE>
- - for the contract to continue to
comply with Section 7702
relating to premium and cash
value limitations.
Such income inclusion will also
result, in certain circumstances,
with respect to cash distributions
made in anticipation of reductions in
benefits under the contract.
Code Section 7702A affects the
taxation of distributions (other than
proceeds paid at the death of the
insured) from certain variable life
insurance contracts:
1. If premiums are paid more rapidly
than the rate defined by a 7-Pay
Test, the contract will be treated
as a modified endowment contract.
2. Any contract received in exchange
for a contract classified as a
modified endowment contract will
be treated as a modified endowment
contract regardless of whether the
contract received in the exchange
meets the 7-Pay Test.
3. Loans, including unpaid loan
interest, (as well as surrenders
and withdrawals) from a modified
endowment contract will be
considered distributions.
4. Distributions (including loans)
from a modified endowment contract
will be taxed first as
distribution of gain from the
contract (to the extent that gain
exists), and then as non-taxable
recovery of basis.
5. An extra tax of 10% of any
distribution includable in income
will be imposed, unless such
distributions are made (1) after
You attain age 59 1/2, (2) on
account of You becoming disabled,
or (3) as substantially equal
annuity payments over Your life or
life expectancy.
For contracts not classified as
modified endowment contacts,
distributions will be taxed in
accordance with the rules in effect
prior to the enactment of Section
7702A.
A contract that is not a modified
endowment contract may be classified
as a modified endowment contract if
it is materially changed and the
materially changed contract fails to
meet the 7-Pay Test and any
distributions from such a contract
will be taxed as explained above.
Material changes include a requested
increase in death benefit or a change
from Option 1 to Option 2. Before
making any change to a contract, a
competent tax advisor should be
consulted.
Additionally, any life insurance
contracts which are treated as
modified endowment contracts and
which are issued by Midland National
Life or any of its affiliates:
- - with the same person designated
as the owner;
- - on or after June 21, 1988; and
- - within any single calendar year
will be aggregated and treated as one
contract for purposes of determining
any tax on distributions.
Even if a contract is not a modified
endowment contract, loans at very low
or no net cost may be treated as
distributions for federal income tax
purposes.
The Code (Section 817(h)) also
authorizes the Secretary of the
Treasury to set standards by
regulation or otherwise for the
investments of Separate Account A to
be adequately diversified in order
for Variable Universal Life 2 to be
treated as a life insurance contract
for federal tax purposes. Separate
Account A, through the Funds, intends
to comply with the diversification
requirements established by the
Secretary although We do not control
the Funds. We believe Separate
Account A will be adequately
diversified to be treated as a life
insurance contract for federal tax
purposes.
In certain circumstances, owners of
variable life insurance contracts may
be considered the owners, for federal
income tax purposes, of the assets of
the separate account used to support
their contracts. In those
circumstances, income and gains from
the separate account assets would be
includable in the variable contract
owners gross income. The IRS has
stated in published rulings that a
variable contract owner will be
considered the owner of separate
account assets if the contract owner
possesses incidents of ownership in
those assets, such as the ability to
exercise investment control over the
assets. The Treasury Department also
announced, in connection with the
issuance of regulations concerning
diversification, that those
regulations do not provide guidance
concerning the circumstances in which
investor control of the investments
of a segregated asset account may
cause the investor (i.e., the
Policyowner), rather than the
insurance company, to be treated as
the owner of the assets in the
account. This announcement also
stated that guidance would be issued
by way of regulations or rulings on
the extent to which policyholders may
direct their investments to
particular subaccounts without being
treated as owners of the underlying
assets. As of the date of this
prospectus, no such guidance has been
issued.
The ownership rights under Variable
Universal Life 2 are similar to, but
different in certain respects from,
those described by the IRS in rulings
in which it was determined that
contract owners were not owners of
separate account assets. For example,
the owner has additional flexibility
in allocating premium payments and
contract values. These differences
could result in an owner being
treated as the owner of a pro rata
portion of the assets of Separate
Account A. In addition, Midland does
not know what standards will be set
forth, if any, in the regulations or
rulings which the Treasury Department
has stated it expects to issue.
Midland therefore reserves the right
to modify the contract as necessary
to attempt to prevent an owner from
being considered the owner of a pro
rata share of the assets of Separate
Account A or to otherwise qualify
Variable Universal Life 2 for
favorable tax treatment.
Assuming a contract is a life
insurance contract for federal income
tax purposes, the contract should
receive the same federal income tax
treatment as fixed benefit life
insurance. As a result, the life
insurance proceeds payable under
either benefit option should be
excludable from the gross income of
the beneficiary under Section 101 of
the Code, and You should not be
deemed to be in constructive receipt
of the cash values under a contract
until actual distribution.
<PAGE>
A change of owners as well as a
surrender or withdrawal, an
assignment of the contract, a change
from one death benefit option to
another, and other changes reducing
future death benefits may have tax
consequences depending on the
circumstances of such surrender or
change. Upon complete surrender or
when maturity benefits are paid, if
the amount received plus the contract
debt exceeds the total premiums paid
that are not treated as previously
withdrawn by You, the excess
generally will be treated as ordinary
income.
Federal estate and state or
local estate, inheritance and other
tax consequences of ownership or
receipt of contract proceeds depend
on the circumstances of each contract
owner or beneficiary.
A contract 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 a contract in any
arrangement the value of which
depends in part on its tax
consequences, You should be sure to
consult a qualified tax advisor
regarding the tax attributes of the
particular arrangement.
Possible Charge for Midlands Taxes
At the present time, Midland makes no
charge to the Separate Account for
any Federal, state or local taxes
(other than premium taxes) that it
incurs which may be attributable to
such Account or to the contracts.
Midland, however, reserves 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 it determines to be
properly attributable to the Separate
Account or to the contracts.
If such a charge is made, it would be
set aside as a provision for taxes
which We would keep in the affected
division rather than in Our General
Account. We anticipate that Our
flexible premium variable life
contractowners would benefit from any
investment earnings that are not
needed to maintain this provision.
Other Tax Considerations
The foregoing discussion is general
and is not intended as tax advice. If
You are concerned about these tax
implications, You should consult a
competent tax adviser. This
discussion is based on Our
understanding of the present federal
income tax laws as they are currently
interpreted by the Internal Revenue
Service. No representation is made as
to the likelihood of continuation of
these current laws and
interpretations, and We do not make
any guarantee as to the tax status of
the contract. It should be further
understood that the foregoing
discussion is not exhaustive and that
special rules not described in this
prospectus may be applicable in
certain situations. Moreover, no
attempt has been made to consider any
applicable state or other tax laws.
PART 3: ADDITIONAL
INFORMATION
YOUR VOTING RIGHTS AS AN OWNER
Fund Voting Rights
We invest the assets in the divisions
of Our Separate Account in shares of
the corresponding portfolios of the
Funds. Midland is the legal owner of
the shares and, as such, has the
right to vote on certain matters.
Among other things, We may vote to:
- - elect the Funds Board of
Directors,
- - ratify the selection of
independent auditors for the
Funds, and
- - vote on any other matters
described in the Funds current
prospectuses or requiring a vote
by shareholders under the
Investment Company Act of 1940.
Even though We own the shares, We
give You the opportunity to tell Us
how to vote the number of shares that
are allocated to Your contract. We
will vote those shares at meetings of
Fund shareholders according to Your
instructions.
The Funds will determine how often
shareholder meetings are held. As We
receive notice of these meetings, We
will solicit Your voting
instructions. The Funds are not
required to hold a meeting in any
given year.
If We do not receive instructions in
time from all contractowners, We will
vote shares for which no instructions
have been received in a portfolio in
the same proportion as We vote shares
for which We have received
instructions in that portfolio. We
will also vote any Fund shares that
We are entitled to vote directly due
to amounts We have accumulated in Our
Separate Account in the same
proportions that contractowners vote.
If the federal securities laws or
regulations or interpretations of
them change so that We are permitted
to vote shares of the Fund in Our own
right or to restrict contractowner
voting, We may do so.
How We Determine Your Voting Shares
You may participate in voting only on
matters concerning the Fund
portfolios in which Your assets have
been invested. We determine the
number of Fund shares in each
division that are attributable to
Your contract by dividing the amount
in Your Contract Fund allocated to
that division by the net asset value
of one share of the corresponding
Fund portfolio as of the record date
set by the Funds Board for the
Funds shareholders meeting. The
record date for this purpose must be
at least 10 and no more than 90 days
before the meeting of the Fund. We
count fractional shares.
<PAGE>
If You have a voting interest, We
will send You proxy material and a
form for giving Us voting
instructions. In certain cases, We
may disregard instructions relating
to changes in the Funds adviser or
the investment policies of its
portfolios. We will advise You if We
do and give Our reasons in the next
semiannual report to You.
Voting Privileges Of Participants In
Other Companies
Currently, shares in the Variable
Insurance Product s Fund and
the Variable Insurance Products Fund
II are owned by other insurance
companies to support their variable
insurance products as well as Our
Separate Account. Those shares
generally will be voted according to
the instructions of the owners of
insurance contracts and contracts
issued by those other insurance
companies. In certain cases, an
insurance company or some other owner
of Fund shares may vote as they
choose. This will dilute the effect
of the voting instructions of the
owners of Variable Universal Life 2.
We do not foresee any disadvantage to
this. Nevertheless, the Funds Board
of Directors will monitor events to
identify conflicts that may arise and
determine appropriate action. If We
think any Fund action is
insufficient, We will see that
appropriate action is taken to
protect Our contractowners.
OUR REPORTS TO CONTRACTOWNERS
Shortly after the end of each
Contract Year, We will send you a
report that shows the current Death
Benefit for Your contract, the value
of Your Contract Fund, information
about investment divisions, the Cash
Surrender Value of Your contract, the
amount of any outstanding contract
loans that You may have, the amount
of any interest that You owe on the
loan and information about the
current loan interest rate. The
annual report will also show any
transactions involving Your Contract
Fund that occurred during the year.
Transactions include Your premium
allocations, Our deductions, and any
transfers or withdrawals that You
made in that year.
We will also send You semi-annual
reports with financial information on
the Funds, including a list of the
investments held by each portfolio.
In addition, Our report will also
contain any other information that is
required by the insurance supervisory
official in the jurisdiction in which
this insurance contract is delivered.
Notices will be sent to You for
transfers of amounts between
investment divisions and certain
other contract transactions.
LIMITS ON OUR RIGHT TO CHALLENGE THE
CONTRACT
We can challenge the validity of Your
insurance contract (based on material
misstatements in the application) if
it appears that the Insured Person is
not actually covered by the contract,
under Our rules. However, there are
some limits on how and when We can
challenge the contract.
- - We cannot challenge the contract
after it has been in effect,
during the Insured Persons
lifetime, for two years from the
date the contract was issued or
reinstated. (Some states may
require Us to measure this in
some other way.)
- - We cannot challenge any contract
change that requires evidence of
insurability (such as an
increase in Face Amount) after
the change has been in effect
for two years during the Insured
Persons lifetime.
- - We can challenge at any time
(and require proof of continuing
disability) an additional
benefit that provides benefits
to the Insured Person in the
event that the Insured Person
becomes totally disabled.
If the Insured Person dies within the
time that We may challenge the
validity of the contract, We may
delay payment until We decide whether
to challenge the contract.
If the Insured Persons age or sex is
misstated on any application, the
death benefit and any additional
benefits provided will be those which
would be purchased by the most recent
deduction for the cost of insurance
and the cost of any additional
benefits at the Insured Persons
correct age and sex.
If the Insured Person commits suicide
within two years after the date on
which the contract was issued or
reinstated, the death benefit will be
limited to the total of all premiums
that have been paid to the time of
death minus the amount of any
outstanding contract loan and loan
interest and minus any partial
withdrawals of Net Cash Surrender
Value. If the Insured Person commits
suicide within two years after the
effective date of an increase in
Specified Amount that You requested,
We will pay the Specified Amount
which was in effect before the
increase, plus the monthly cost of
insurance deductions for the increase
(Some states require Us to measure
this time by some other date.)
YOUR PAYMENT OPTIONS
Contract benefits or other payments
such as the Net Cash Surrender Value
or Death Benefit may be paid
immediately in one sum or You may
choose another form of payment for
all or part of the money. Payments
under these options are not affected
by the investment experience of any
investment division of Our Separate
Account. Instead, interest accrues
pursuant to the options chosen. If
You do not arrange for a specific
form of payment before the Insured
Person dies, the beneficiary will
have this choice. However, if You do
make an arrangement with Us for how
the money will be paid, the
beneficiary cannot change Your choice
after the Insured Person dies.
Payment Options will also be subject
to Our rules at the time of
selection. Our consent is required
when optional payment is selected and
the payee is either an assignee or
not a natural person. Currently,
these alternate payment options are
only available if the proceeds
applied are $1,000 or more and any
periodic payment will be at least
$20.
You have the following payment
options:
<PAGE>
1. Deposit Option: The money will
stay on deposit with Us for a
period that You and We agree
upon. You will receive interest
on the money at a declared
interest rate.
2. Installment Options: There are
two ways that We pay
installments:
a. Fixed Period: We will pay the
amount applied in equal
installments plus applicable
interest, for a specific
number of years, for up to 30
years.
b. Fixed Amount: We will pay the
sum in installments in an
amount that You and We agree
upon. We will pay the
installments until We pay the
original amount, together with
any interest You have earned.
3. Monthly Life Income Option: We
will pay the money as monthly
income for life. You may choose
any one of 4 ways to receive the
income: We will guarantee
payments for at least 10 years
(called 10 Years Certain); at
least 20 years (called 20 Years
Certain); at least 5 years
(called 5 Years Certain); or
payment only for life.
4. Other: You may ask Us to apply
the money under any option that
We make available at the time
the benefit is paid.
We guarantee interest under the
Deposit Option at the rate of 2.75% a
year, and under either Installment
Option at 2.75% a year. We may also
allow interest under the Deposit
Option and under either Installment
Option at a rate that is above the
guaranteed rate.
The beneficiary or any other person
who is entitled to receive payment
may name a successor to receive any
amount that We would otherwise pay to
that persons estate if that person
died. The person who is entitled to
receive payment may change the
successor at any time.
We must approve any arrangements that
involve more than one of the payment
options, or a payee who is not a
natural person (for example, a
corporation), or a payee who is a
fiduciary. Also, the details of all
arrangements will be subject to our
rules at the time the arrangements
take effect. This includes rules on
the minimum amount We will pay under
an option, minimum amounts for
installment payments, withdrawal or
commutation rights (Your rights to
receive payments over time, for which
We may offer You a lump sum payment),
the naming of people who are entitled
to receive payment and their
successors, and the ways of proving
age and survival.
You will make Your choice of a
payment option (or any later changes)
and Your choice will take effect in
the same way as it would if You were
changing a beneficiary. (See Your
Beneficiary below). Any amounts that
We pay under the payment options will
not be subject to the claims of
creditors or to legal process, to the
extent that the law provides.
YOUR BENEFICIARY
You name Your beneficiary when You
apply for Your contract. The
beneficiary is entitled to the
insurance benefits of the contract.
You may change the beneficiary during
the Insured Persons lifetime by
writing to Our Home Office. If no
beneficiary is living when the
Insured Person dies, We will pay the
Death Benefit in equal shares to the
Insured Persons surviving children.
If there are no surviving children,
We will pay the Death Benefit to the
Insured Persons estate.
ASSIGNING YOUR CONTRACT
You may assign (transfer) Your rights
in this contract to someone else as
collateral for a loan or for some
other reason. If You do, You must
send a copy of the assignment to Our
Home Office. We are not responsible
for any payment We make or any action
We take before We receive notice of
the assignment or for the validity of
the assignment. An absolute
assignment is a change of ownership.
WHEN WE PAY PROCEEDS FROM THIS
CONTRACT
We will generally pay any death
benefits, Net Cash Surrender Value or
loan proceeds within seven days after
We receive the required form or
request (and other documents that may
be required for payment of death
benefits) at Our Home Office. Death
benefits are determined as of the
date of death of the Insured Person
and will not be affected by
subsequent changes in the
Accumulation Unit values of the
investment divisions of Our Separate
Account. We pay interest from the
date of death to the date of payment.
We may, however, delay payment for
one of more of the following reasons:
- - We contest the contract.
- - We cannot determine the amount
of the payment because the New
York Stock Exchange is closed,
because trading in securities
has been restricted by the
Securities and Exchange
Commission, or because the SEC
has declared that an emergency
exists.
- - The SEC by order permits us to
delay payment to protect our
contractowners.
We may also delay any payment until
Your premium checks have cleared Your
bank.
We may defer payment of any loan
amount, or withdrawal or surrender
from the General Account, for up to
six months after We receive Your
request.
DIVIDENDS
We do not pay any dividends on the
contract described in this
prospectus.
<PAGE>
MIDLANDS SALES AND OTHER AGREEMENTS
Sales Agreements
The contract will be sold by
individuals who, in addition to being
licensed as life insurance agents for
Midland National Life, are also
registered representatives of North
American Management (NAM), the
principal underwriter of the
contracts, or of broker-dealers which
have entered into written sales
agreements with NAM. NAM is
registered with the SEC as a broker-
dealer under the Securities Exchange
Act of 1934 and is a member of the
National Association of Securities
Dealers, Inc. NAM is also a
subsidiary of Midland.
During the first Contract Year, We
will pay agents a commission of up to
70 % of premiums paid. For
subsequent years, the commission
allowance may equal an amount up to
5% of premiums paid. Beyond the
fifteenth Contract Year, We pay no
commission.
We may also sell Our contracts
through broker-dealers registered
with the Securities and Exchange
Commission under the Securities
Exchange Act of 1934 which enter into
selling agreements with us. The
commission for broker-dealers will be
no more than that described above.
REGULATION
We are regulated and supervised by
the South Dakota Insurance
Department. In addition, We are
subject to the insurance laws and
regulations in every jurisdiction
where We sell contracts. This
contract has been filed with and
approved by insurance officials in
such states. As a result, the
provisions of this contract may vary
somewhat from jurisdiction to
jurisdiction.
We submit annual reports on Our
operations and finances to insurance
officials in all the jurisdictions
where We sell contracts. The
officials are responsible for
reviewing our reports to be sure that
we are financially sound and that We
are complying with applicable laws
and regulations.
We are also subject to various
federal securities laws and
regulations.
DISCOUNT FOR MIDLAND EMPLOYEES
Midland employees may receive a
discount of up to 45 percent of first
year premium. The discount will be
effected by Midland paying the
discount as the employee pays the
qualifying premium. All other
contract provisions will apply.
LEGAL MATTERS
The law firm of Sutherland, Asbill &
Brennan, Washington, DC, has provided
advice regarding certain matters
relating to federal securities laws.
LEGAL PROCEEDINGS
We are not involved in any material
legal proceedings.
FINANCIAL AND ACTUARIAL
The financial statements of Midland
National Life Separate Account A and
Midland National Life Insurance
Company included in this prospectus
and the registration statementhave
been audited by Coopers & Lybrand
LLP , independent auditors, for
the periods indicated in their
report which appears in this
prospectus and in the registration
statement. Such financial statements
have been included herein in reliance
upon such report given upon
the authority of the
firm as experts in accounting
and auditing.
Actuarial matters in this prospectus
have been examined by Russell A.
Evenson, F.S.A., M.A.A.A., who is
Senior Vice President and Actuary of
Midland. His opinion on actuarial
matters is filed as an exhibit to the
Registration Statement We filed with
the Securities and Exchange
Commission.
ADDITIONAL INFORMATION
We have filed a Registration
Statement relating to the Separate
Account and the variable life
insurance contract described in this
prospectus with the Securities and
Exchange Commission. The Registration
Statement, which is required by the
Securities Act of 1933, includes
additional information that is not
required in this prospectus under the
rules and regulations of the SEC. If
You would like the additional
information, You may obtain it from
the SECs main office in Washington,
DC You will have to pay a fee for the
material.
<PAGE>
Management of Midland
Here is a list of our directors and officers.
Directors
Name Principal Occupation and Business Address
John C. Watson Chief Executive Officer & Chairman of
the Board
Midland National Life, One Midland Plaza,
Sioux Falls, SD 57193
Michael M. Masterson President and Chief Operating Officer
Midland National Life, One Midland Plaza,
Sioux Falls, SD 57193
William D. Sims Senior Vice President, Administration
Midland National Life, One Midland Plaza
Sioux Falls, SD 57193
Russell A. Evenson Senior Vice President & Actuary
Midland National Life, One Midland Plaza
Sioux Falls, SD 57193
John J. Craig, II Senior Vice President & Chief Financial
Officer
Midland National Life, One Midland Plaza
Sioux Falls, SD 57193
Robert W. Korba Board of Directors Member
Sammons Enterprises, Inc., 300 Crescent CT.,
Dallas, TX 75201
James N. Whitson Board of Directors Member
Sammons Enterprises, Inc., 300 Crescent CT.,
Dallas, TX 75201
Executive Officers (other than Directors)
Jack L. Briggs Vice President, Secretary and General Counsel
Gary W. Helder Vice President, Policy Administration
E John Fromelt Senior Vice President & Chief Investment
Officer
<PAGE>
Appendix
Illustrations of Contract Funds, Cash
Surrender Values and Death Benefits
Following are a series of tables that
illustrate how the contract funds,
cash surrender values, and death
benefits of a contract change with
the investment performance of the
Funds. The tables show how the
contract funds, cash surrender
values, and death benefits of a
contract issued to an insured of a
given age and given premium would
vary over time if the return on the
assets held in each Portfolio of the
Funds were a constant gross, after
tax annual rate of 0%, 6%, or 12%.
The tables on pages 29 through 31
illustrate a contract issued to a
male, age 25, under a standard rate
non-smoker underwriting risk
classification. The tables on pages
32 through 34 illustrate a contract
issued to a male, age 40, under a
standard rate non-smoker underwriting
risk classification. The contract
funds, cash surrender values, and
death benefits would be different
from those shown if the returns
averaged 0%, 6%, and 12% over a
period of years, but fluctuated above
and below those averages for
individual contract years.
The amount of the contract fund
exceeds the cash surrender value
during the first fifteen contract
years due to the surrender charge.
For contract years sixteen and after,
the contract fund and cash surrender
value are equal, since the surrender
charge has reduced to zero.
The second column shows the
accumulation value of the premiums
paid at the stated interest rate. The
third and sixth columns illustrate
the contract funds and the fourth and
seventh columns illustrate the cash
surrender values of the contract over
the designated period. The contract
funds shown in the third column and
the cash values shown in the fourth
column assume the monthly charge for
cost of insurance is based upon the
current cost of insurance rates. The
contract funds shown in the sixth
column and the cash surrender values
shown in the seventh column assume
the monthly charge for cost of
insurance is based upon the cost of
insurance rates that we guarantee.
The maximum cost of insurance rates
allowable under the contract are
based on the Commissioners 1980
Standard Ordinary Mortality Table.
The fifth and eighth columns
illustrate the death benefit of a
contract over the designated period.
The illustrations of death benefits
reflect the same assumptions as the
contract fund and cash surrender
values. The death benefit values also
vary between tables, depending upon
whether Option 1 or Option 2 death
benefits are illustrated.
The amounts shown for the death
benefit, contract funds, and cash
surrender values reflect the fact
that the net investment return of the
divisions of our Separate Account is
lower than the gross, after-tax
return on the assets in the Funds, as
a result of expenses paid by the
Funds and charges levied against the
divisions of our Separate Account.
The illustrations also reflect the
2.5% premium tax deduction from each
premium and the $5 per month expense
charge (for the first fifteen years
on a current basis) as well as
current and guaranteed cost of
insurance charges.
The contract values shown assume
daily investment advisory fees and
operating expenses equivalent to an
annual rate of 6 6 % of the
aggregate average daily net assets of
the Portfolios of the Funds (the
average rate of the Portfolios for
December, 199 5 ). The actual
fees and expenses associated with the
contract may be more or less than
6 6 % and will depend on how
allocations are made to each
investment division. The contract
values also take into account a daily
charge to each division of Separate
Account A for assuming mortality and
expense risks and administrative
charges which is equivalent to a
charge at an annual rate of 1.10% of
the average net assets of the
divisions of Separate Account A.
After deductions of these amounts,
the illustrated gross investment
rates of 0%, 6%, and 12% correspond
to approximate net annual rates of -
1.7 6 %, 4.2 4 %, and
10.2 4 %, respectively.
The hypothetical values shown in the
tables do not reflect any charges for
federal income taxes against Separate
Account A since Midland is not
currently making such charges.
However, if, in the future, such
charges are made, the gross annual
investment rate of return would have
to exceed the stated investment rates
by a sufficient amount to cover the
tax charges in order to produce the
contract funds, cash surrender
values, and death benefits
illustrated.
The tables illustrate the contract
values that would result based on
hypothetical investment rates of
return if premiums are paid in full
at the beginning of each year and if
no contract loans have been made. The
values would vary from those shown if
the assumed annual premium payments
were paid in installments during a
year. The values would also vary if
the contract owner varied the amount
or frequency of premium payments. The
tables also assume that the contract
owner has not requested an increase
or decrease in Specified Amount, that
no withdrawals have been made and no
withdrawal charges imposed, that no
contract loans have been taken, and
that no transfers have been made and
no transfer charges imposed.
<PAGE>
<TABLE>
MIDLAND NATIONAL LIFE INSURANCE COMPANY
FLEXIBLE PREMIUM VARIABLE LIFE INSURANCE CONTRACT
DEATH BENEFIT OPTION 1 ASSUMED HYPOTHETICAL GROSS
MALE NON-SMOKER ISSUE AGE 25 ANNUAL RATE OF RETURN: 0%
$100,000 INITIAL SPECIFIED AMOUNT ASSUMED ANNUAL PREMIUM(1): $ 750
<CAPTION>
PREMIUMS ASSUMING CURRENT COSTS
ASSUMING
GUARANTEED COSTS
END ACCUMULATED
OF AT 5% INTEREST CONTRACT SURRENDER DEATH CONTRACT
SURRENDER DEATH
YEAR PER YEAR FUND(2) VALUE(2) BENEFIT(2) FUND(2)
VALUE(2) BENEFIT(2)
<S> <C <C> <C> <C> <C> <C> <C>
1 788 529 32 100,000 505 9 100,000
2 1,614 1,049 485 100,000 1,014 450 100,000
3 2,483 1,561 930 100,000 1,515 883 100,000
4 3,394 2,065 1,366 100,000 2,007 1,309 100,000
5 4,351 2,560 1,793 100,000 2,492 1,726 100,000
6 5,357 3,035 2,202 100,000 2,969 2,135 100,000
7 6,412 3,503 2,602 100,000 3,438 2,536 100,000
8 7,520 3,964 2,995 100,000 3,888 2,919 100,000
9 8,683 4,417 3,380 100,000 4,331 3,294 100,000
10 9,905 4,862 3,758 100,000 4,755 3,651 100,000
11 11,188 5,290 4,313 100,000 5,173 4,196 100,000
12 12,535 5,710 4,884 100,000 5,572 4,746 100,000
13 13,949 6,112 5,459 100,000 5,955 5,301 100,000
14 15,434 6,497 6,039 100,000 6,320 5,862 100,000
15 16,993 6,865 6,630 100,000 6,668 6,434 100,000
16 18,630 7,275 7,275 100,000 6,989 6,989 100,000
17 20,349 7,668 7,668 100,000 7,294 7,294 100,000
18 22,154 8,033 8,033 100,000 7,572 7,572 100,000
19 24,049 8,371 8,371 100,000 7,824 7,824 100,000
20 26,039 8,682 8,682 100,000 8,051 8,051 100,000
21 28,129 8,967 8,967 100,000 8,253 8,253 100,000
22 30,323 9,226 9,226 100,000 8,430 8,430 100,000
23 32,626 9,459 9,459 100,000 8,572 8,572 100,000
24 35,045 9,668 9,668 100,000 8,690 8,690 100,000
25 37,585 9,853 9,853 100,000 8,774 8,774 100,000
30 52,321 10,289 10,289 100,000 8,487 8,487 100,000
35 71,127 9,506 9,506 100,000 6,481 6,481 100,000
40 95,130 6,941 6,941 100,000 1,494 1,494 100,000
<FN>
1. ASSUMES A $750 PREMIUM IS PAID AT THE BEGINNING OF EACH CONTRACT
YEAR.
VALUES WOULD BE DIFFERENT IF PREMIUMS ARE PAID WITH A DIFFERENT
FREQUENCY
OR IN DIFFERENT AMOUNTS.
2. ASSUMES THAT NO CONTRACT LOANS OR WITHDRAWALS HAVE BEEN MADE.
ZERO VALUES
INDICATE LAPSE IN THE ABSENCE OF AN ADDITIONAL PREMIUM PAYMENT.
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
INVESTMENT RATES OF RETURN MAY BE MORE OR LESS THAN THOSE SHOWN
AND WILL DEPEND ON A
NUMBER OF FACTORS, INCLUDING THE INVESTMENT ALLOCATIONS BY THE
OWNER AND DIFFERENT
INVESTMENT RATES OF RETURN FOR THE FUND SERIES. THE CONTRACT FUND,
SURRENDER VALUE AND
DEATH BENEFIT FOR A CONTRACT WOULD BE DIFFERENT FROM THOSE SHOWN
IF THE ACTUAL
INVESTMENT RATES OF RETURN AVERAGED OVER A PERIOD OF YEARS, BUT
FLUCTUATED ABOVE OR
BELOW THOSE AVERAGES FOR THE INDIVIDUAL CONTRACT YEARS. NO
REPRESENTATION CAN BE MADE BY
MIDLAND, THE SEPARATE ACCOUNT, OR THE FUND THAT THIS ASSUMED
INVESTMENT RATE OF RETURN
CAN BE ACHIEVED FOR ANY ONE YEAR OR SUSTAINED OVER ANY PERIOD OF
TIME.
</TABLE>
<TABLE>
MIDLAND NATIONAL LIFE INSURANCE COMPANY
FLEXIBLE PREMIUM VARIABLE LIFE INSURANCE CONTRACT
DEATH BENEFIT OPTION 1 ASSUMED HYPOTHETICAL GROSS
MALE NON-SMOKER ISSUE AGE 25 ANNUAL RATE OF RETURN: 6%
$100,000 INITIAL SPECIFIED AMOUNT ASSUMED ANNUAL PREMIUM(1): $ 750
<CAPTION>
PREMIUMS ASSUMING CURRENT COSTS
ASSUMING
GUARANTEED COSTS
END ACCUMULATED
OF AT 5% INTEREST CONTRACT SURRENDER DEATH CONTRACT
SURRENDER DEATH
YEAR PER YEAR FUND(2) VALUE(2) BENEFIT(2) FUND(2)
VALUE(2) BENEFIT(2)
<S><C> <C> <C> <C> <C> <C> <C>
1 788 567 70 100,000 542 46 100,000
2 1,614 1,158 594 100,000 1,120 556 100,000
3 2,483 1,775 1,144 100,000 1,724 1,093 100,000
4 3,394 2,420 1,721 100,000 2,354 1,655 100,000
5 4,351 3,092 2,326 100,000 3,012 2,245 100,000
6 5,357 3,782 2,949 100,000 3,699 2,865 100,000
7 6,412 4,503 3,602 100,000 4,415 3,514 100,000
8 7,520 5,255 4,286 100,000 5,152 4,183 100,000
9 8,683 6,040 5,004 100,000 5,921 4,885 100,000
10 9,905 6,860 5,756 100,000 6,712 5,608 100,000
11 11,188 7,704 6,728 100,000 7,539 6,563 100,000
12 12,535 8,585 7,759 100,000 8,390 7,564 100,000
13 13,949 9,494 8,841 100,000 9,268 8,615 100,000
14 15,434 10,433 9,975 100,000 10,174 9,716 100,000
15 16,993 11,401 11,167 100,000 11,110 10,876 100,000
16 18,630 12,464 12,464 100,000 12,065 12,065 100,000
17 20,349 13,563 13,563 100,000 13,053 13,053 100,000
18 22,154 14,690 14,690 100,000 14,064 14,064 100,000
19 24,049 15,847 15,847 100,000 15,100 15,100 100,000
20 26,039 17,036 17,036 100,000 16,162 16,162 100,000
21 28,129 18,258 18,258 100,000 17,253 17,253 100,000
22 30,323 19,517 19,517 100,000 18,374 18,374 100,000
23 32,626 20,814 20,814 100,000 19,516 19,516 100,000
24 35,045 22,151 22,151 100,000 20,693 20,693 100,000
25 37,585 23,531 23,531 100,000 21,896 21,896 100,000
30 52,321 31,063 31,063 100,000 28,190 28,190 100,000
35 71,127 39,590 39,590 100,000 34,706 34,706 100,000
40 95,130 49,220 49,220 100,000 40,870 40,870 100,000
<FN>
1. ASSUMES A $750 PREMIUM IS PAID AT THE BEGINNING OF EACH CONTRACT
YEAR.
VALUES WOULD BE DIFFERENT IF PREMIUMS ARE PAID WITH A DIFFERENT
FREQUENCY
OR IN DIFFERENT AMOUNTS.
2. ASSUMES THAT NO CONTRACT LOANS OR WITHDRAWALS HAVE BEEN MADE.
ZERO VALUES
INDICATE LAPSE IN THE ABSENCE OF AN ADDITIONAL PREMIUM PAYMENT.
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
INVESTMENT RATES OF RETURN MAY BE MORE OR LESS THAN THOSE SHOWN
AND WILL DEPEND ON A
NUMBER OF FACTORS, INCLUDING THE INVESTMENT ALLOCATIONS BY THE
OWNER AND DIFFERENT
INVESTMENT RATES OF RETURN FOR THE FUND SERIES. THE CONTRACT FUND,
SURRENDER VALUE AND
DEATH BENEFIT FOR A CONTRACT WOULD BE DIFFERENT FROM THOSE SHOWN
IF THE ACTUAL
INVESTMENT RATES OF RETURN AVERAGED OVER A PERIOD OF YEARS, BUT
FLUCTUATED ABOVE OR
BELOW THOSE AVERAGES FOR THE INDIVIDUAL CONTRACT YEARS. NO
REPRESENTATION CAN BE MADE BY
MIDLAND, THE SEPARATE ACCOUNT, OR THE FUND THAT THIS ASSUMED
INVESTMENT RATE OF RETURN
CAN BE ACHIEVED FOR ANY ONE YEAR OR SUSTAINED OVER ANY PERIOD OF
TIME.
</TABLE>
<TABLE>
MIDLAND NATIONAL LIFE INSURANCE COMPANY
FLEXIBLE PREMIUM VARIABLE LIFE INSURANCE CONTRACT
DEATH BENEFIT OPTION 1 ASSUMED HYPOTHETICAL GROSS
MALE NON-SMOKER ISSUE AGE 25 ANNUAL RATE OF RETURN: 12%
$100,000 INITIAL SPECIFIED AMOUNT ASSUMED ANNUAL PREMIUM(1): $ 750
<CAPTION>
PREMIUMS ASSUMING CURRENT COSTS
ASSUMING
GUARANTEED COSTS
END ACCUMULATED
OF AT 5% INTEREST CONTRACT SURRENDER DEATH CONTRACT
SURRENDER DEATH
YEAR PER YEAR FUND(2) VALUE(2) BENEFIT(2) FUND(2)
VALUE(2) BENEFIT(2)
<S> <C> <C> <C> <C> <C> <C> <C>
1 788 605 108 100,000 579 83 100,000
2 1,614 1,272 708 100,000 1,231 667 100,000
3 2,483 2,008 1,377 100,000 1,951 1,320 100,000
4 3,394 2,821 2,122 100,000 2,746 2,047 100,000
5 4,351 3,719 2,952 100,000 3,623 2,857 100,000
6 5,357 4,697 3,863 100,000 4,592 3,758 100,000
7 6,412 5,777 4,876 100,000 5,661 4,760 100,000
8 7,520 6,970 6,001 100,000 6,830 5,861 100,000
9 8,683 8,287 7,250 100,000 8,121 7,084 100,000
10 9,905 9,740 8,636 100,000 9,534 8,430 100,000
11 11,188 11,334 10,358 100,000 11,094 10,118 100,000
12 12,535 13,093 12,267 100,000 12,807 11,981 100,000
13 13,949 15,025 14,372 100,000 14,687 14,033 100,000
14 15,434 17,147 16,689 100,000 16,752 16,295 100,000
15 16,993 19,481 19,247 100,000 19,024 18,790 100,000
16 18,630 22,112 22,112 100,000 21,514 21,514 100,000
17 20,349 25,008 25,008 100,000 24,255 24,255 100,000
18 22,154 28,190 28,190 100,000 27,266 27,266 100,000
19 24,049 31,688 31,688 100,000 30,576 30,576 100,000
20 26,039 35,538 35,538 100,000 34,219 34,219 100,000
21 28,129 39,778 39,778 100,000 38,233 38,233 100,000
22 30,323 44,452 44,452 100,000 42,657 42,657 100,000
23 32,626 49,609 49,609 100,707 47,532 47,532 100,000
24 35,045 55,289 55,289 108,919 52,912 52,912 104,237
25 37,585 61,528 61,528 117,518 58,822 58,822 112,350
30 52,321 103,295 103,295 162,173 98,206 98,206 154,183
35 71,127 170,375 170,375 228,303 161,097 161,097
215,870
40 95,130 278,080 278,080 339,257 261,281 261,281
318,763
<FN>
1. ASSUMES A $750 PREMIUM IS PAID AT THE BEGINNING OF EACH CONTRACT
YEAR.
VALUES WOULD BE DIFFERENT IF PREMIUMS ARE PAID WITH A DIFFERENT
FREQUENCY
OR IN DIFFERENT AMOUNTS.
2. ASSUMES THAT NO CONTRACT LOANS OR WITHDRAWALS HAVE BEEN MADE.
ZERO VALUES
INDICATE LAPSE IN THE ABSENCE OF AN ADDITIONAL PREMIUM PAYMENT.
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
INVESTMENT RATES OF RETURN MAY BE MORE OR LESS THAN THOSE SHOWN
AND WILL DEPEND ON A
NUMBER OF FACTORS, INCLUDING THE INVESTMENT ALLOCATIONS BY THE
OWNER AND DIFFERENT
INVESTMENT RATES OF RETURN FOR THE FUND SERIES. THE CONTRACT FUND,
SURRENDER VALUE AND
DEATH BENEFIT FOR A CONTRACT WOULD BE DIFFERENT FROM THOSE SHOWN
IF THE ACTUAL
INVESTMENT RATES OF RETURN AVERAGED OVER A PERIOD OF YEARS, BUT
FLUCTUATED ABOVE OR
BELOW THOSE AVERAGES FOR THE INDIVIDUAL CONTRACT YEARS. NO
REPRESENTATION CAN BE MADE BY
MIDLAND, THE SEPARATE ACCOUNT, OR THE FUND THAT THIS ASSUMED
INVESTMENT RATE OF RETURN
CAN BE ACHIEVED FOR ANY ONE YEAR OR SUSTAINED OVER ANY PERIOD OF
TIME.
</TABLE>
<TABLE>
MIDLAND NATIONAL LIFE INSURANCE COMPANY
FLEXIBLE PREMIUM VARIABLE LIFE INSURANCE CONTRACT
DEATH BENEFIT OPTION 1 ASSUMED HYPOTHETICAL GROSS
MALE NON-SMOKER ISSUE AGE 40 ANNUAL RATE OF RETURN: 0%
$100,000 INITIAL SPECIFIED AMOUNT ASSUMED ANNUAL PREMIUM(1): $1500
<CAPTION>
PREMIUMS ASSUMING CURRENT COSTS
ASSUMING
GUARANTEED COSTS
END ACCUMULATED
OF AT 5% INTEREST CONTRACT SURRENDER DEATH CONTRACT
SURRENDER DEATH
YEAR PER YEAR FUND(2) VALUE(2) BENEFIT(2) FUND(2)
VALUE(2) BENEFIT(2)
<S> <C> <C> <C> <C> <C> <C> <C>
1 1,575 1,178 480 100,000 1,143 445 100,000
2 3,229 2,326 1,493 100,000 2,256 1,423 100,000
3 4,965 3,433 2,465 100,000 3,330 2,362 100,000
4 6,788 4,500 3,397 100,000 4,365 3,262 100,000
5 8,703 5,529 4,291 100,000 5,362 4,124 100,000
6 10,713 6,521 5,148 100,000 6,323 4,950 100,000
7 12,824 7,476 5,968 100,000 7,248 5,740 100,000
8 15,040 8,396 6,753 100,000 8,127 6,484 100,000
9 17,367 9,281 7,503 100,000 8,973 7,195 100,000
10 19,810 10,133 8,220 100,000 9,775 7,862 100,000
11 22,376 10,952 9,245 100,000 10,525 8,818 100,000
12 25,069 11,729 10,273 100,000 11,223 9,767 100,000
13 27,898 12,464 11,305 100,000 11,870 10,711 100,000
14 30,868 13,149 12,331 100,000 12,448 11,631 100,000
15 33,986 13,785 13,359 100,000 12,968 12,543 100,000
16 37,261 14,432 14,432 100,000 13,411 13,411 100,000
17 40,699 15,021 15,021 100,000 13,778 13,778 100,000
18 44,309 15,545 15,545 100,000 14,070 14,070 100,000
19 48,099 16,003 16,003 100,000 14,269 14,269 100,000
20 52,079 16,387 16,387 100,000 14,375 14,375 100,000
21 56,258 16,699 16,699 100,000 14,379 14,379 100,000
22 60,646 16,940 16,940 100,000 14,261 14,261 100,000
23 65,253 17,111 17,111 100,000 14,000 14,000 100,000
24 70,091 17,211 17,211 100,000 13,587 13,587 100,000
25 75,170 17,223 17,223 100,000 12,998 12,998 100,000
30 104,641 15,725 15,725 100,000 6,669 6,669 100,000
35 142,254 10,892 10,892 100,000 0 0 0
40 190,260 0 0 0 0 0 0
<FN>
1. ASSUMES A $1500 PREMIUM IS PAID AT THE BEGINNING OF EACH CONTRACT
YEAR.
VALUES WOULD BE DIFFERENT IF PREMIUMS ARE PAID WITH A DIFFERENT
FREQUENCY
OR IN DIFFERENT AMOUNTS.
2. ASSUMES THAT NO CONTRACT LOANS OR WITHDRAWALS HAVE BEEN MADE.
ZERO VALUES
INDICATE LAPSE IN THE ABSENCE OF AN ADDITIONAL PREMIUM PAYMENT.
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
INVESTMENT RATES OF RETURN MAY BE MORE OR LESS THAN THOSE SHOWN
AND WILL DEPEND ON A
NUMBER OF FACTORS, INCLUDING THE INVESTMENT ALLOCATIONS BY THE
OWNER AND DIFFERENT
INVESTMENT RATES OF RETURN FOR THE FUND SERIES. THE CONTRACT FUND,
SURRENDER VALUE AND
DEATH BENEFIT FOR A CONTRACT WOULD BE DIFFERENT FROM THOSE SHOWN
IF THE ACTUAL
INVESTMENT RATES OF RETURN AVERAGED OVER A PERIOD OF YEARS, BUT
FLUCTUATED ABOVE OR
BELOW THOSE AVERAGES FOR THE INDIVIDUAL CONTRACT YEARS. NO
REPRESENTATION CAN BE MADE BY
MIDLAND, THE SEPARATE ACCOUNT, OR THE FUND THAT THIS ASSUMED
INVESTMENT RATE OF RETURN
CAN BE ACHIEVED FOR ANY ONE YEAR OR SUSTAINED OVER ANY PERIOD OF
TIME.
</TABLE>
<TABLE>
MIDLAND NATIONAL LIFE INSURANCE COMPANY
FLEXIBLE PREMIUM VARIABLE LIFE INSURANCE CONTRACT
DEATH BENEFIT OPTION 1 ASSUMED HYPOTHETICAL GROSS
MALE NON-SMOKER ISSUE AGE 40 ANNUAL RATE OF RETURN: 6%
$100,000 INITIAL SPECIFIED AMOUNT ASSUMED ANNUAL PREMIUM(1): $1500
<CAPTION>
PREMIUMS ASSUMING CURRENT COSTS
ASSUMING
GUARANTEED COSTS
END ACCUMULATED
OF AT 5% INTEREST CONTRACT SURRENDER DEATH CONTRACT
SURRENDER DEATH
YEAR PER YEAR FUND(2) VALUE(2) BENEFIT(2) FUND(2)
VALUE(2) BENEFIT(2)
<S> <C> <C> <C> <C> <C> <C> <C>
1 1,575 1,277 559 100,000 1,221 523 100,000
2 3,229 2,558 1,725 100,000 2,484 1,651 100,000
3 4,965 3,894 2,926 100,000 3,781 2,813 100,000
4 6,788 5,266 4,163 100,000 5,113 4,010 100,000
5 8,703 6,678 5,440 100,000 6,483 5,245 100,000
6 10,713 8,130 6,757 100,000 7,893 6,520 100,000
7 12,824 9,627 8,119 100,000 9,346 7,838 100,000
8 15,040 11,171 9,528 100,000 10,833 9,190 100,000
9 17,367 12,764 10,987 100,000 12,367 10,589 100,000
10 19,810 14,411 12,498 100,000 13,942 12,029 100,000
11 22,376 16,113 14,407 100,000 15,550 13,843 100,000
12 25,069 17,865 16,410 100,000 17,193 15,738 100,000
13 27,898 19,670 18,511 100,000 18,876 17,717 100,000
14 30,868 21,523 20,705 100,000 20,583 19,765 100,000
15 33,986 23,426 23,001 100,000 22,325 21,900 100,000
16 37,261 25,447 25,447 100,000 24,090 24,090 100,000
17 40,699 27,523 27,523 100,000 25,881 25,881 100,000
18 44,309 29,649 29,649 100,000 27,702 27,702 100,000
19 48,099 31,833 31,833 100,000 29,540 29,540 100,000
20 52,079 34,071 34,071 100,000 31,401 31,401 100,000
21 56,258 36,370 36,370 100,000 33,283 33,283 100,000
22 60,646 38,739 38,739 100,000 35,173 35,173 100,000
23 65,253 41,183 41,183 100,000 37,064 37,064 100,000
24 70,091 43,713 43,713 100,000 38,953 38,953 100,000
25 75,170 46,323 46,323 100,000 40,834 40,834 100,000
30 104,641 60,849 60,849 100,000 49,992 49,992 100,000
35 142,254 79,016 79,016 100,000 57,933 57,933 100,000
40 190,260 103,443 103,443 108,615 62,615 62,615
100,000
<FN>
1. ASSUMES A $1500 PREMIUM IS PAID AT THE BEGINNING OF EACH CONTRACT
YEAR.
VALUES WOULD BE DIFFERENT IF PREMIUMS ARE PAID WITH A DIFFERENT
FREQUENCY
OR IN DIFFERENT AMOUNTS.
2. ASSUMES THAT NO CONTRACT LOANS OR WITHDRAWALS HAVE BEEN MADE.
ZERO VALUES
INDICATE LAPSE IN THE ABSENCE OF AN ADDITIONAL PREMIUM PAYMENT.
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
INVESTMENT RATES OF RETURN MAY BE MORE OR LESS THAN THOSE SHOWN
AND WILL DEPEND ON A
NUMBER OF FACTORS, INCLUDING THE INVESTMENT ALLOCATIONS BY THE
OWNER AND DIFFERENT
INVESTMENT RATES OF RETURN FOR THE FUND SERIES. THE CONTRACT FUND,
SURRENDER VALUE AND
DEATH BENEFIT FOR A CONTRACT WOULD BE DIFFERENT FROM THOSE SHOWN
IF THE ACTUAL
INVESTMENT RATES OF RETURN AVERAGED OVER A PERIOD OF YEARS, BUT
FLUCTUATED ABOVE OR
BELOW THOSE AVERAGES FOR THE INDIVIDUAL CONTRACT YEARS. NO
REPRESENTATION CAN BE MADE BY
MIDLAND, THE SEPARATE ACCOUNT, OR THE FUND THAT THIS ASSUMED
INVESTMENT RATE OF RETURN
CAN BE ACHIEVED FOR ANY ONE YEAR OR SUSTAINED OVER ANY PERIOD OF
TIME.
</TABLE>
<TABLE>
MIDLAND NATIONAL LIFE INSURANCE COMPANY
FLEXIBLE PREMIUM VARIABLE LIFE INSURANCE CONTRACT
DEATH BENEFIT OPTION 1 ASSUMED HYPOTHETICAL GROSS
MALE NON-SMOKER ISSUE AGE 40 ANNUAL RATE OF RETURN: 12%
$100,000 INITIAL SPECIFIED AMOUNT ASSUMED ANNUAL PREMIUM(1): $1500
<CAPTION>
PREMIUMS ASSUMING CURRENT COSTS
ASSUMING
GUARANTEED COSTS
END ACCUMULATED
OF AT 5% INTEREST CONTRACT SURRENDER DEATH CONTRACT
SURRENDER DEATH
YEAR PER YEAR FUND(2) VALUE(2) BENEFIT(2) FUND(2)
VALUE(2) BENEFIT(2)
<S> <C> <C> <C> <C> <C> <C> <C>
1 1,575 1,337 639 100,000 1,299 601 100,000
2 3,229 2,801 1,968 100,000 2,722 1,890 100,000
3 4,965 4,394 3,426 100,000 4,271 3,303 100,000
4 6,788 6,131 5,028 100,000 5,959 4,856 100,000
5 8,703 8,028 6,790 100,000 7,802 6,564 100,000
6 10,713 10,101 8,728 100,000 9,818 8,445 100,000
7 12,824 12,372 10,864 100,000 12,025 10,517 100,000
8 15,040 14,862 13,219 100,000 14,434 12,791 100,000
9 17,367 17,596 15,818 100,000 17,080 15,302 100,000
10 19,810 20,601 18,688 100,000 19,979 18,066 100,000
11 22,376 23,908 22,201 100,000 23,150 21,443 100,000
12 25,069 27,541 26,086 100,000 26,626 25,170 100,000
13 27,898 31,538 30,379 100,000 30,443 29,284 100,000
14 30,868 35,934 35,116 100,000 34,626 33,808 100,000
15 33,986 40,775 40,349 100,000 39,229 38,804 100,000
16 37,261 46,179 46,179 100,000 44,290 44,290 100,000
17 40,699 52,143 52,143 100,000 49,870 49,870 100,000
18 44,309 58,731 58,731 100,000 56,035 56,035 100,000
19 48,099 66,022 66,022 100,000 62,853 62,853 100,000
20 52,079 74,102 74,102 100,000 70,415 70,415 100,000
21 56,258 83,045 83,045 107,959 78,819 78,819 102,465
22 60,646 92,874 92,874 118,879 88,075 88,075 112,736
23 65,253 103,676 103,676 130,632 98,222 98,222 123,760
24 70,091 115,552 115,552 143,285 109,350 109,350
135,594
25 75,170 128,606 128,606 156,900 121,554 121,554
148,296
30 104,641 215,926 215,926 250,474 202,443
202,443 234,833
35 142,254 356,635 356,635 381,600 330,995
330,995 354,165
40 190,260 584,979 584,979 614,228 537,943
537,943 564,840
<FN>
1. ASSUMES A $1500 PREMIUM IS PAID AT THE BEGINNING OF EACH CONTRACT
YEAR.
VALUES WOULD BE DIFFERENT IF PREMIUMS ARE PAID WITH A DIFFERENT
FREQUENCY
OR IN DIFFERENT AMOUNTS.
2. ASSUMES THAT NO CONTRACT LOANS OR WITHDRAWALS HAVE BEEN MADE.
ZERO VALUES
INDICATE LAPSE IN THE ABSENCE OF AN ADDITIONAL PREMIUM PAYMENT.
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
INVESTMENT RATES OF RETURN MAY BE MORE OR LESS THAN THOSE SHOWN
AND WILL DEPEND ON A
NUMBER OF FACTORS, INCLUDING THE INVESTMENT ALLOCATIONS BY THE
OWNER AND DIFFERENT
INVESTMENT RATES OF RETURN FOR THE FUND SERIES. THE CONTRACT FUND,
SURRENDER VALUE AND
DEATH BENEFIT FOR A CONTRACT WOULD BE DIFFERENT FROM THOSE SHOWN
IF THE ACTUAL
INVESTMENT RATES OF RETURN AVERAGED OVER A PERIOD OF YEARS, BUT
FLUCTUATED ABOVE OR
BELOW THOSE AVERAGES FOR THE INDIVIDUAL CONTRACT YEARS. NO
REPRESENTATION CAN BE MADE BY
MIDLAND, THE SEPARATE ACCOUNT, OR THE FUND THAT THIS ASSUMED
INVESTMENT RATE OF RETURN
CAN BE ACHIEVED FOR ANY ONE YEAR OR SUSTAINED OVER ANY PERIOD OF
TIME.
</TABLE>
<PAGE>
Financial Statements
The financial statements of Midland National Life Insurance Company included
in this prospectus should be distinguished from the financial statements of
the Midland National Life Separate Account A and should be considered only as
bearing upon the ability of Midland to meet its obligations under the
Contracts. They should not be considered as bearing upon the investment
performance of the assets held in the separate account.
<PAGE>
MIDLAND NATIONAL LIFE SEPARATE ACCOUNT A
FINANCIAL STATEMENTS
FOR THE YEARS ENDED DECEMBER 31, 1995, 1994 AND 1993
<PAGE>
Report of Independent Accountants
The Board of Directors
Midland National Life Insurance Company:
We have audited the accompanying statement of assets and
liabilities of Midland National Life Separate Account A
(comprising, respectively, the portfolios of the Variable
Insurance Products Fund and the Variable Insurance Products Fund
II) as of December 31, 1995, and the related statement of
operations and changes in net assets for each of the three years
ended December 31, 1995. These financial statements are the
responsibility of the Company's management. Our responsibility
is to express an opinion on these financial statements based on
our audits.
We conducted our audits in accordance with generally accepted
auditing standards. Those standards require that we plan and
perform the audit to obtain reasonable assurance about whether
the financial statements are free of material misstatement. An
audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements. Our
procedures included confirmation of securities owned as of
December 31, 1995, by correspondence with the custodian. An
audit also includes assessing the accounting principles used and
significant estimates made by management, as well as evaluating
the overall financial statement presentation. We believe that
our audits provide a reasonable basis for our opinion.
In our opinion, the financial statements referred to above
present fairly, in all material respects, the financial position
of each of the respective portfolios constituting the Midland
National Life Separate Account A at December 31, 1995, and the
results of their operations and changes in their net assets for
each of the three years ended December 31, 1995, in conformity
with generally accepted accounting principles.
Minneapolis, Minnesota
March 8, 1996
<PAGE>
Midland National Life Separate Account A
Statement of Assets and Liabilities
December 31, 1995
ASSETS Shares Value Per Share
Investments at net asset value:
Variable Insurance Products Fund:
Money Market Portfolio (cost $589,821)
589,821 $ 1.00 $ 589,821
High Income Portfolio (cost $745,163)
67,582 12.08 816,395
Equity-Income Portfolio (cost $3,100,897)
192,423 19.36 3,725,301
Growth Portfolio (cost $6,299,240)
267,153 29.29 7,824,918
Overseas Portfolio (cost $1,610,220)
100,490 17.17 1,725,419
Variable Insurance Products Fund II:
Asset Manager Portfolio (cost $3,275,564)
229,766 15.83 3,637,197
Investment Grade Bond Portfolio (cost $659,224)
56,966 12.48 710,936
Index 500 Portfolio (cost $258,866)
3,836 76.33 292,796
Contra Portfolio (cost $290,655)
21,195 13.77 291,857
Asset Manager Growth Portfolio (cost $54,680)
4,548 11.79 53,623
Total investments (cost $16,884,330) 19,668,263
LIABILITIES
Accrued liabilities to be paid from:
Variable Insurance Products Fund:
Money Market Portfolio 552
High Income Portfolio 768
Equity-Income Portfolio 3,490
Growth Portfolio 7,580
Overseas Portfolio 1,627
Variable Insurance Products Fund II:
Asset Manager Portfolio 3,448
Investment Grade Bond Portfolio 660
Index 500 Portfolio 323
Contra Portfolio 247
Asset Manager Growth Portfolio 47
Total Liabilities 18,742
Net Assets $ 19,649,521
<PAGE>
Midland National Life Separate Account A
Statement of Assets and Liabilities, Continued
December 31, 1995
Units Unit Value
Net assets represented by:
Variable Insurance Products Fund:
Money Market Portfolio 41,052 $ 14.35 $ 589,269
High Income Portfolio 37,625 21.68 815,627
Equity-Income Portfolio 138,208 26.93 3,721,811
Growth Portfolio 267,598 29.21 7,817,338
Overseas Portfolio 97,414 17.70 1,723,792
Variable Insurance Products Fund II:
Asset Manager Portfolio 199,705 18.20 3,633,749
Investment Grade Bond Portfolio 48,400 14.67 710,276
Index 500 Portfolio 19,995 14.63 292,473
Contra Portfolio 24,587 11.86 291,610
Asset Manager Growth Portfolio 4,659 11.50 53,576
Net Assets $ 19,649,521
<PAGE>
Midland National Life Separate Account A
Statements of Operations and Changes in Net Assets
for the years ended December 31, 1995, 1994 and 1993
Variable Insurance Products Fund
Combined
1995 1994 1993
Investment income:
Dividend income $ 235,744 $ 117,497 $ 100,002
Capital gains distributions 115,007 308,161 51,272
350,751 425,658 151,274
Expenses:
Administrative expense 31,601 18,934 11,331
Mortality and expense risk 142,636 85,682 51,270
Net investment income (loss)176,514 321,042 88,673
Realized and unrealized gains (losses) on investments:
Net realized gains (losses) 553,768 385,419 271,956
on investments
Net unrealized appreciation 2,816,691 (906,457) 567,447
(depreciation) on investments
Net realized and unrealized
gains (losses) on
investments 3,370,459 (521,038) 839,403
Net increase (decrease)
in net assets resulting
from operations $ 3,546,973 $ (199,996) $928,076
Net assets at beginning
of year $ 11,518,208 $ 7,561,601 $ 3,558,991
Net increase (decrease) in
net assets resulting
from operations 3,546,973 (199,996) 928,076
Capital share transactions:
Net premiums 7,502,546 5,794,814 4,044,354
Transfers of policy loans (394,995) (188,643) (132,805)
Transfers of cost of
insurance (1,781,520) (1,108,558) (638,173)
Transfers of surrenders (725,170) (327,508) (196,638)
Transfers of death benefits (2,316) (6,258) (1,397)
Transfers of other
terminations (14,205) (7,244) (807)
Net increase (decrease) in
net assets from capital
share transactions 4,584,340 4,156,603 3,074,534
Total increase (decrease)
in net assets 8,131,313 3,956,607 4,002,610
Net assets at end of year $ 19,649,521 $ 11,518,208 $ 7,561,601
The accompanying notes are an intergral part of the fininacial statements.
<PAGE>
Variable Insurance Products Fund
Money Market Portfolio High Income Portfolio
1995 1994 1993 1995 1994 1993
$ 24,560 $ 6,177 $ 3,249 $ 34,582 $ 20,440 $ 10,463
- - - - 10,360 756
24,560 6,177 3,249 34,582 30,800 11,219
875 295 220 1,308 793 408
3,958 1,330 996 5,906 3,585 1,844
19,727 4,552 2,033 27,368 26,422 8,967
- - - (5,589) 3,464 5,940
- - - 88,560 (41,360) 17,789
- - - 82,971 (37,896) 23,729
$ 19,727 $ 4,552 $ 2,033 $ 110,339 $ (11,474) $ 32,696
$ 212,950 $ 98,795 $ 93,682 $ 482,015 $ 320,348 $ 126,685
19,727 4,552 2,033 110,339 (11,474) 32,696
413,585 167,252 38,288 399,047 269,727 210,013
(2,496) (2,100) (2,445) (15,746) (12,790) (6,751)
(45,281) (19,380) (19,619) (95,111) (56,424) (29,980)
(9,216) (36,169) (13,144) (63,603) (23,675) (12,315)
- - - - (2,285) -
- - - (1,314) (1,412) -
356,592 109,603 3,080 223,273 173,141 160,967
376,319 114,155 5,113 333,612 161,667 193,663
$ 589,269 $ 212,950 $ 98,795 $ 815,627 $ 482,015 $ 320,348
The accompanying notes are an intergral part of the fininacial statements.
<PAGE>
Midland National Life Separate Account A
Statements of Operations and Changes in Net Assets, Continued
for the years ended December 31, 1995, 1994 and 1993
Variable Insurance Products Fund
Equity-Income Portfolio
1995 1994 1993
Investment income:
Dividend income $ 67,980 $ 40,172 $ 28,408
Capital gains distributions 105,457 64,643 -
173,437 104,815 28,408
Expenses:
Administrative expense 5,693 3,202 2,078
Mortality and expense risk 25,786 14,491 9,402
Net investment income (loss) 141,958 87,122 16,928
Realized and unrealized gains (losses) on investments:
Net realized gains (losses) on
investments 118,598 102,566 75,881
Net unrealized appreciation
(depreciation) on investments 566,696 (109,514) 55,361
Net realized and unrealized gains
(losses) on investments 685,294 (6,948) 131,242
Net increase (decrease) in net
assets resulting from
operations $ 827,252 $ 80,174 $148,170
Net assets at beginning of year $ 1,952,718 $ 1,262,900 $ 858,626
Net increase (decrease) in net
assets resulting from operations 827,252 80,174 148,170
Capital share transactions:
Net premiums 1,361,317 855,025 449,427
Transfers of policy loans (57,976) (50,244) (31,980)
Transfers of cost of insurance (301,032) (164,908) (108,618)
Transfers of surrenders (55,313) (29,156) (52,453)
Transfers of death benefits (264) (731) (272)
Transfers of other terminations (4,891) (342) -
Net increase (decrease) in net
assets from capital share
transactions 941,841 609,644 256,104
Total increase (decrease) in
net assets 1,769,093 689,818 404,274
Net assets at end of year $ 3,721,811 $ 1,952,718 $ 1,262,900
The accompanying notes are an intergral part of the fininacial statements.
<PAGE>
Variable Insurance Products Fund
Growth Portfolio Overseas Portfolio
1995 1994 1993 1995 1994 1993
$ 26,217 $ 17,584 $ 11,965 $ 4,975 $ 3,566 $ 6,878
- 186,093 35,894 4,975 - 1,563
26,217 203,677 47,859 9,950 3,566 8,441
12,891 7,630 5,187 2,977 1,908 942
55,214 34,524 23,469 16,273 8,645 4,263
(41,888) 161,523 19,203 (9,300) (6,987) 3,236
377,876 175,775 155,095 55,223 65,573 6,405
1,483,959 (410,363) 235,907 99,903 (75,975) 128,149
1,861,835 (234,588) 391,002 155,126 (10,402) 134,554
$1,819,947 $ (73,065) $ 410,205 $ 145,826 $ (17,389) $137,790
$4,508,874 $ 3,321,335 $ 1,760,348 $ 1,212,949 $ 639,452 $ 339,689
1,819,947 (73,065) 410,205 145,826 (17,389) 137,790
2,541,252 1,925,091 1,557,018 779,465 769,361 252,962
(187,011) (67,353) (51,088) (48,974) (19,256) (21,043)
(671,659) (441,618) (280,156) (211,845) (130,943) (59,255)
(188,163) (151,160) (73,522) (152,057) (24,571) (10,488)
(1,816) (1,884) (866) - (1,358) -
(4,086) (2,472) (604) (1,572) (2,347) (203)
1,488,517 1,260,604 1,150,782 365,017 590,886 161,973
3,308,464 1,187,539 1,560,987 510,843 573,497 299,763
$7,817,338 $4,508,874 $3,321,335 $1,723,792 $1,212,949 $ 639,452
The accompanying notes are an intergral part of the fininacial statements.
<PAGE>
Midland National Life Separate Account A
Statements of Operations and Changes in Net Assets, Continued
for the years ended December 31, 1995, 1994 and 1993
Variable Insurance Products Fund II
Asset Manager Portfolio
1995 1994 1993
Investment income:
Dividend income $ 56,666 $ 29,558 $ 16,058
Capital gains distributions - 45,881 10,850
56,666 75,439 26,908
Expenses:
Administrative expense 6,261 4,092 1,734
Mortality and expense risk 28,250 18,516 7,847
Net investment income (loss) 22,155 52,831 17,327
Realized and unrealized gains (losses) on investments:
Net realized gains (losses)
on investments (13,155) 37,621 25,398
Net unrealized appreciation
(depreciation) on investments 477,422 (249,678) 121,659
Net realized and unrealized gains
(losses) on investments 464,267 (212,057) 147,057
Net increase (decrease) in net
assets resulting from
operations $ 486,422 $ (159,226) $ 164,384
Net assets at beginning of year $2,595,623 $ 1,472,030 $ 272,294
Net increase (decrease) in net
assets resulting from operations 486,422 (159,226) 164,384
Capital share transactions:
Net premiums 1,228,465 1,604,577 1,164,733
Transfers of policy loans (77,688) (29,012) (14,536)
Transfers of cost of insurance (359,734) (250,836) (109,574)
Transfers of surrenders (236,821) (41,239) (5,012)
Transfers of death benefits (236) - (259)
Transfers of other terminations (2,282) (671) -
Net increase (decrease) in net
assets from capital share
transactions 551,704 1,282,819 1,035,352
Total increase (decrease) in
net assets 1,038,126 1,123,593 1,199,736
Net assets at end of year $ 3,633,749 $ 2,595,623 $ 1,472,030
The accompanying notes are an intergral part of the fininacial statements.
<PAGE>
Variable Insurance Products Fund II
Investment Grade Index 500
Bond Portfolio Portfolio
1995 1994 1993 1995 1994 1993
$ 17,803 $ - $ 22,937 $ 1,202 $ - $ 44
- 1,172 2,190 165 12 19
17,803 1,172 25,127 1,367 12 63
1,128 959 761 297 55 1
5,140 4,339 3,445 1,334 252 4
11,53 (4,126) 20,921 (264) (295) 58
7,242 357 3,218 10,309 63 19
66,536 (20,080) 8,635 33,470 513 (53)
73,778 (19,723) 11,853 43,779 576 (34)
$ 85,313 $ (23,849) $ 32,774 $ 43,515 $ 281 $ 24
$ 497,870 $ 444,921 $107,667 $ 55,209 $1,820 $ -
85,313 (23,849) 32,774 43,515 281 24
200,234 144,985 369,760 227,265 58,796 2,153
(3,183) (7,862) (4,962) (3,683) (26) -
(50,491) (38,932) (30,614) (29,243) (5,517) (357)
(19,407) (21,393) (29,704) (590) (145) -
- - - - - -
(60) - - - - -
127,093 76,798 304,480 193,749 53,108 1,796
212,406 52,949 337,254 237,264 53,389 1,820
$ 710,276 $ 497,870 $ 444,921 $ 292,473 $55,209 $ 1,820
The accompanying notes are an intergral part of the fininacial statements.
<PAGE>
Contra Asset Manager
Portfolio Growth Portfolio
1995 1995
$ 1,269 $ 490
2,538 1,872
3,807 2,362
152 19
688 87
2,967 2,256
3,233 31
1,202 (1,057)
4,435 (1,026)
$ 7,402 $ 1,230
$ - $ -
7,402 1,230
296,190 55,726
1,762 -
(13,744) (3,380)
- -
- -
- -
284,208 52,346
291,610 53,576
$ 291,610 $ 53,576
The accompanying notes are an intergral part of the fininacial statements.
<PAGE>
1. Organization and Significant Accounting Policies:
Midland National Life Separate Account A (Separate Account),
unit investment trust, was established as a segregated
investment account of Midland National Life Insurance Company
(the Company) in accordance with the provisions of the South
Dakota Insurance laws. The assets and liabilities of the
Separate Account are clearly identified and distinguished from
the other assets and liabilities of the Company. The Separate
account is used to fund variable universal life insurance
policies of the Company.
The Separate Account invests solely in specified portfolios of
Variable Insurance Products Fund and Variable Insurance Products
Fund II, diversified open-end management companies registered
under the Investment Company Act of 1940, as directed by
participants. The Index 500 Portfolio was introduced in 1993
and the Contra and Asset Manager Growth Portfolios were
introduced in 1995. All other portfolios have been in existence
for more than three years. Investments in shares of the Funds
are valued at the net asset values of the respective portfolios
of the Funds corresponding to the investment portfolios of the
Separate Account. Fair value of investments is also the net
asset value. North American Management Company, an affiliate,
serves as the underwriter of the Separate Account. Investment
transactions are recorded on the trade date. Dividends are
recorded as received and are automatically reinvested in shares
of the Funds. The first-in, first-out (FIFO) method is used to
determine realized gains and losses on investments.
The operations of the Separate Account are included in the
federal income tax return of the Company. Under the provisions
of the policies, the Company has the right to charge the
Separate Account for federal income tax attributable to the
Separate Account. No charge is currently being made against the
Separate Account for such tax since, under current law, the
Company pays no tax on investment income and capital gains
reflected in variable life insurance policy reserves. However,
the Company retains the right to charge for any federal income
tax incurred which is attributable to the Separate Account if
the law is changed. Charges for state and local taxes, if any,
attributable to the Separate Account may also be made.
The preparation of financial statements in conformity with
generally accepted accounting principles requires management to
make estimates and assumptions that affect the reported amounts
of assets and liabilities and disclosure of contingent assets
and liabilities at the date of the financial statements and the
reported amounts of revenues and expenses during the reporting
period. Actual results could differ from those estimates.
2. Expense Charges:
The Company is compensated for certain expenses. A contract
administration fee is charged at an effective annual rate of
.20% of the value of the assets in the Separate Account to cover
the Company's recordkeeping and other administrative expenses
incurred to operate the Separate Account.
<PAGE>
2. Expense Charges, continued:
A mortality and expense risk fee is charged at an effective
annual rate of .90% of the value of the assets in the Separate
Account in return for the Company's assumption of risks
associated with adverse mortality experience or excess
administrative expenses in connection with policies issued.
The Company assumes the responsibility for providing the
insurance benefits included in the policy. The cost of
insurance is determined each month based upon the applicable
insurance rate and the current death benefit. The cost of
insurance can vary from month to month since the determination
of both the insurance rate and the current death benefit depends
upon a number of variables as described in the Separate
Account's prospectus.
A transfer charge of $25 is imposed on each transfer between
portfolios of the Separate Account in excess of four in any one
contract year. A surrender charge may be imposed in the event
of a contract surrender or lapse within the first 15 contract
years. The charge as described in the Separate Account's
prospectus is a percentage of the premium paid in the first year.
3. Purchases and Sales of Investment Securities:
The aggregate cost of purchases and proceeds from sales of investments for the
years ended December 31, 1995, 1994 and 1993 were as follows:
1995 1994 1993
Purchases Sales Purchases Sales Purchases Sales
Portfolio
Variable Insurance Products Fund:
Money Market
$ 665,299 $ 291,399 $ 224,174 $ 107,230 $ 81,164 $ 78,531
High Income
506,889 259,469 362,641 167,346 252,665 78,899
Equity-Income
1,711,755 639,107 1,204,121 503,129 555,290 294,865
Growth
3,050,540 1,621,442 2,583,941 1,149,477 1,851,212 701,407
Overseas
951,209 604,563 904,713 312,145 300,579 139,176
Variable Insurance Products Fund II:
Asset Manager
1,549,225 985,616 1,973,950 641,450 1,346,562 282,519
Investment Grade Bond
294,633 156,524 161,148 89,028 457,517 133,691
Index 500
249,692 56,745 81,852 28,931 3,466 859
Contra
334,133 46,711 - - - -
Asset Manager Growth
61,622 6,973 - - - -
$ 9,374,997 $ 4,668,549 $ 7,496,540 $ 2,998,736 $ 4,848,455 $ 1,709,947
<PAGE>
4. Summary of Changes From Unit Transactions:
Transactions in units for the years ended December 31, 1995,
1994 and 1993 were as follows:
1995 1994 1993
Purchases Sales Purchases Sales Purchases Sales
Portfolio
Variable Insurance Products Fund:
Money Market
45,654 20,129 15,450 7,349 5,705 5,476
High Income
23,134 12,089 17,173 7,792 13,330 4,241
Equity-Income
65,454 24,740 52,737 21,940 28,468 14,752
Growth
113,881 56,756 103,156 43,669 88,043 31,522
Overseas
56,643 34,460 51,909 16,362 21,141 10,089
Variable Insurance Products Fund II:
Asset Manager
89,048 55,423 110,282 31,315 84,825 17,008
Investment Grade Bond
19,845 10,894 12,293 6,329 34,767 10,174
Index 500
18,815 3,958 5,991 1,023 250 80
Contra
28,468 3,881 - - - -
Asset Manager Growth
5,265 606 - - - -
466,207 222,936 368,991 135,779 276,529 93,342
5. Net Assets:
Net assets at December 31, 1995 consisted of the following:
Accumulated Net Net Unrealized
Capital Investment Income Appreciation
Share and Net Realized (Depreciation)
Transactions Gains of Investments Total
Variable Insurance Products Fund:
Money Market $ 552,534 $ 36,735 $ - $ 589,269
High Income 643,030 101,365 71,232 815,627
Equity-Income 2,478,025 619,382 624,404 3,721,811
Growth 5,267,440 1,024,220 1,525,678 7,817,338
Overseas 1,491,637 116,956 115,199 1,723,792
Variable Insurance Products Fund II:
Asset Manager 3,109,192 162,925 361,632 3,633,749
Investment Grade
Bond 615,108 43,456 51,712 710,276
Index 500 248,653 9,890 33,930 292,473
Contra 284,208 6,200 1,202 291,610
Asset Manager
Growth 52,346 2,287 (1,057) 53,576
$ 14,742,173 $ 2,123,416 $2,783,932 $19,649,521
MIDLAND NATIONAL LIFE INSURANCE COMPANY
CONSOLIDATED FINANCIAL STATEMENTS
FOR THE YEARS ENDED DECEMBER 31, 1995, 1994 AND 1993
<PAGE>
Report of Independent Accountants
To the Board of Directors
Midland National Life Insurance Company:
We have audited the accompanying consolidated balance sheets of
Midland National Life Insurance Company, a majority-owned
subsidiary of Sammons Enterprises, Inc., as of December 31, 1995
and 1994, and the related consolidated statements of income,
changes in stockholders' equity, and cash flows for each of the
three years ended December 31, 1995. These financial statements
are the responsibility of the Company's management. Our
responsibility is to express an opinion on these financial
statements based on our audits.
We conducted our audits in accordance with generally accepted
auditing standards. Those standards require that we plan and
perform the audit to obtain reasonable assurance about whether
the financial statements are free of material misstatement. An
audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements. An
audit also includes assessing the accounting principles used and
significant estimates made by management, as well as evaluating
the overall financial statement presentation. We believe that
our audits provide a reasonable basis for our opinion.
In our opinion, the financial statements referred to above
present fairly, in all material respects, the consolidated
financial position of Midland National Life Insurance Company as
of December 31, 1995 and 1994, and the consolidated results of
its operations and its cash flows for each of the three years
ended December 31, 1995, in conformity with generally accepted
accounting principles.
As discussed in Note 2 to the financial statements, the Company
changed its method of accounting for investments effective
January 1, 1994.
Minneapolis, Minnesota
March 8, 1996
<PAGE>
Midland National Life Insurance Company
Consolidated Balance Sheets
as of December 31, 1995 and 1994
(dollars in thousands)
ASSETS 1995 1994
Investments:
Fixed maturities $ 1,689,811 $ 1,517,911
Equity securities 221,712 207,778
Policy loans 142,795 131,878
Short-term investments 224,109 199,146
Other invested assets 6,271 4,409
Total investments 2,284,698 2,061,122
Cash and cash equivalents 9,299 8,911
Deferred policy acquisition costs 410,051 415,594
Present value of future 26,414 31,495
profits of acquired businesses
Accrued investment income 34,493 31,074
Other assets 35,476 21,556
Separate account assets 44,273 22,800
Total assets $ 2,844,704 $ 2,592,552
LIABILITIES AND STOCKHOLDERS' EQUITY
Policy liabilities:
Future policy benefits:
Traditional life insurance 368,069 346,943
products
Universal life and investment 1,707,898 1,591,787
products
Policy and contract claims 30,347 28,693
Policyowner funds 11,718 11,259
Total policy liabilities 2,118,032 1,978,682
Accounts payable and 73,903 62,251
other liabilities
Federal income taxes 31,019 5,470
Security lending liability - 33,239
Separate account liabilities 44,273 22,800
Total liabilities 2,267,227 2,102,442
Commitments and contingencies
Stockholders' equity:
Common stock, $1 par value per share, 2,549,439 shares
authorized, issued and outstanding 2,549 2,549
Additional paid-in capital 33,707 33,707
Unrealized appreciation (depreciation)
of investments, net 31,027 (10,003)
Retained earnings 510,194 463,857
Total stockholders' equity 577,477 490,110
Total liabilities
and stockholders' equity $2,844,704 $ 2,592,552
<PAGE>
Midland National Life Insurance Company
Consolidated Statements of Income
for the years ended December 31, 1995, 1994 and 1993
(dollars in thousands)
1995 1994 1993
Revenue:
Traditional life insurance premiums $100,795 $ 101,146 $ 101,049
Universal life and investment 139,611 113,334 101,252
product charges
Accident and health insurance premiums 63 150 20,061
Investment income, net of related 167,020 150,318 137,737
expenses
Net realized investment gains (losses) 1,762 (17,764) 17,435
Net unrealized gains (losses) 7,057 (13,277) -
on trading securities
Other income 5,754 4,545 4,527
422,062 338,452 382,061
Benefits and expenses:
Policy benefits:
Traditional life insurance 66,543 61,242 57,917
Universal life and investment products 151,762 130,591 120,590
Accident and health 224 13,850 11,666
218,529 205,683 190,173
Increase (decrease) in liability for future policy benefits:
Traditional life insurance 21,464 23,741 18,231
Accident and health (60) (240) 1,791
21,404 23,501 20,022
239,933 229,184 210,195
Amortization of deferred policy
acquisition costs and present value
of future profits of acquired businesses 51,576 39,820 43,595
General and administrative expenses 43,726 34,249 47,390
Dividends to policyholders 1,462 1,389 1,430
336,697 304,642 302,610
Income before income taxes 85,365 33,810 79,451
Income taxes 28,703 9,837 24,578
Net income $ 56,662 $ 23,973 $ 54,873
<PAGE>
Midland National Life Insurance Company
Consolidated Statements of Changes in Stockholders' Equity
for the years ended December 31, 1995, 1994 and 1993
(dollars in thousands)
Common Stock Additional
Paid-In
Shares Amount Capital
Balance, January 1, 1993 $ 2,549,439 $ 2,549 $ 33,707
Net income - - -
Cash dividends paid to stockholders - - -
Change in unrealized appreciation of
equity securities - - -
Balance, December 31, 1993 2,549,439 2,549 33,707
Adjustment to beginning balance of
retained earnings for change in
accounting principle - - -
Net income - - -
Cash dividends paid to stockholders - - -
Change in unrealized depreciation of
investments - - -
Balance, December 31, 1994 2,549,439 2,549 33,707
Net income - - -
Cash dividends paid to stockholders - - -
Change in unrealized appreciation of
investments - - -
Balance, December 31, 1995 2,549,439 $ 2,549 $ 33,707
Unrealized
Appreciation
(Depreciation) Total
of Retained Stockholders'
Investments Earnings Equity
Balance, January 1, 1993 $ 3,323 $ 410,338 $ 449,917
Net income - 54,873 54,873
Cash dividends paid to stockholders - (12,477) (12,477)
Change in unrealized appreciation of
equity securities 462 - 462
Balance, December 31, 1993 3,785 452,734 492,775
Adjustment to beginning balance of
retained earnings for change in
accounting principle 33,616 - 33,616
Net income - 23,973 23,973
Cash dividends paid to stockholders - (12,850) (12,850)
Change in unrealized depreciation of
investments (47,404) - (47,404)
Balance, December 31, 1994 (10,003) 463,857 490,110
Net income - 56,662 56,662
Cash dividends paid to stockholders - (10,325) (10,325)
Change in unrealized appreciation of
investments 41,030 - 41,030
Balance, December 31, 1995 $ 31,027 $ 510,194 $ 577,477
<PAGE>
Midland National Life Insurance Company
Consolidated Statements of Cash Flows
for the years ended December 31, 1995, 1994 and 1993
(dollars in thousands)
1995 1994 1993
Cash flows from operating activities:
Net Income $ 56,662 $ 23,973 $ 54,873
Adjustments to reconcile net income to net cash provided
by operating activities:
Depreciation expense 304 301 483
Amortization of deferred policy acquisition costs and
present value of future profits of acquired business
51,576 39,820 43,595
Net amortization of premiums and discounts on
investments 4,828 3,577 1,223
Net realized investment (gains) losses
(1,762) 17,764 (17,435)
Net unrealized (gains) losses on trading securities
(7,057) 13,277 -
Net (cost of) proceeds from trading securities
(23,305) 47,585 -
Deferred income taxes (5,721) (6,953) (1,024)
Net interest credited and mortality and expense charges
on universal life and investment products
(37,272) (26,939) (18,269)
Change in assets and liabilities net of effects from
purchase of insurance business:
Net Receivables and Payables 12,346 8,172 1,830
Policy Acquisition Costs Deferred(63,718) (61,045) (62,935)
Liability for future policy 21,464 23,741 20,022
benefits
Policy and contract claims 1,577 (2,671) 3,506
Policyowner funds 459 589 275
Other, net 236 (320) (611)
Net cash provided by operating
activities 10,617 80,871 25,533
Cash flows from investing activities:
Proceeds from investments sold, matured or repaid:
Fixed maturities 911,883 736,651 516,239
Equity securities 51,567 12,171 248,878
Real estate - 237 1,040
Wholly-owned subsidiary - - 23,228
Short-term investments, net - 90,704 17,998
Other invested assets 421 1,249 893
Cost of investments acquired:
Fixed maturities (994,486) (1,071,431) (673,949)
Equity securities (41,968) (26,229) (309,058)
Increase in policy loans, net (9,883) (10,425) (8,915)
Short-term investments, net (24,963) - -
Other invested assets (2,283) - (549)
Payment for purchase of insurance business, net of
cash acquired (440) 32,215 -
Change in security lending (33,239) 33,239 -
Net cash used in investing activities
(143,391) (201,619) (184,195)
<PAGE>
Midland National Life Insurance Company
Consolidated Statements of Cash Flows, Continued
for the years ended December 31, 1995, 1994 and 1993
(dollars in thousands)
1995 1994 1993
Cash flows from financing activities:
Receipts from universal life and investment products
$ 272,511 $ 237,792 $ 238,069
Benefits paid on universal life and investment products
(129,024) (98,775) (69,653)
Cash dividends paid to stockholders by operating
activities: (10,325) (12,850) (12,477)
Net cash provided by financing activities
133,162 126,167 155,939
Increase (decrease) in cash and cash equivalents
388 5,419 (2,723)
Cash and cash equivalents, beginning of year
8,911 3,492 6,215
Cash and cash equivalents, end of year
$ 9,299 $ 8,911 $ 3,492
Supplemental disclosures of cash flow information:
Cash paid during the year for:
Interest Net receivables and payables
$ 188 $ 210 $ 234
Income taxes paid to parent Policy acquisition costs
deferred 25,376 23,573 24,734
Noncash operating, investing and financing activity:
Policy loans and receivables from state guaranty
associations and others received in assumption
reinsurance agreement 9,723 48,546 -
<PAGE>
1. Summary of Significant Accounting Policies:
Organization:
Midland National Life Insurance Company (Midland) is a
majority-owned subsidiary of Sammons Enterprises, Inc. (SEI).
Midland operates predominantly in the individual life and
annuity business of the life insurance industry in 49 states.
Basis of Presentation:
The consolidated financial statements include the accounts of
Midland and its wholly-owned subsidiaries (collectively, the
Company). All significant intercompany accounts and
transactions have been eliminated.
The preparation of financial statements in conformity with
generally accepted accounting principles requires management to
make estimates and assumptions that affect the reported amounts
of assets and liabilities and disclosure of contingent assets
and liabilities at the date of the financial statements and the
reported amounts of revenues and expenses during the reported
period. Actual results could differ from those estimates. The
most significant areas which require the use of management's
estimates relate to determinations of the fair values of
financial instruments, deferred policy acquisition costs,
present value of future profits of acquired businesses and
future policy benefits for traditional policies.
Investments:
Effective January 1, 1994, the Company implemented the
provisions of Statement of Financial Accounting Standards No.
115, Accounting for Certain Investments in Debt and Equity
Securities (SFAS No. 115). SFAS No. 115 requires the Company
to classify its fixed maturity investments (bonds and redeemable
preferred stocks) and equity securities (common and
nonredeemable preferred stocks) as trading, available-for-sale
or held to maturity at the time of purchase.
Trading securities are held for resale in anticipation of
short-term market movements. The Company's trading securities
are stated at market value. Gains and losses on these
securities, both realized and unrealized, are included in the
determination of net income. Net cost of or proceeds from
trading securities are included in operating activities in the
consolidated statement of cash flows.
Available-for-sale securities are classified as such if not
considered trading securities or if there is not the positive
intent and ability to hold the securities to maturity. Such
securities are carried at market value with the unrealized
holding gains and losses included directly in stockholders'
equity, net of related adjustments to deferred policy
acquisition costs and deferred income taxes. Cash flows from
available-for-sale security transactions are included in
investing activities in the consolidated statement of cash flows.
<PAGE>
1. Summary of Significant Accounting Policies, continued:
Investments, continued:
The Company has no securities classified as held-to-maturity.
Prior to 1994, fixed maturity investments were generally stated
at amortized cost and equity securities were stated at quoted
market values. The change in unrealized appreciation and
depreciation of equity securities (net of related deferred
income taxes) was included directly in stockholders' equity.
Policy loans and other invested assets are stated at their
unpaid balances. Short-term investments are stated at cost
which approximates market.
Investment income is recorded when earned. Realized gains and
losses are determined on the basis of specific identification of
the investments.
When a decline in value of an investment is determined to be
other than temporary, the Company's carrying value of the
investment is reduced to its estimated realizable value. Such
reductions in carrying value are recognized as realized losses
in the determination of net income.
The Company also enters into agreements to sell and repurchase
securities. The commitment to repurchase securities sold under
these agreements are reported as liabilities and the investments
acquired with the funds received from the securities sold are
included in short-term investments.
Cash and Cash Equivalents:
The Company considers all demand deposits and interest-bearing
accounts not related to the investment function to be cash
equivalents.
Deferred Policy Acquisition Costs:
Policy acquisition costs, representing commissions, medical
examinations, underwriting, issue and other expenses which vary
with and are primarily related to the production of new business
are deferred. For traditional insurance products, such costs
are amortized over the premium-paying period of the related
policies in proportion to the ratio of the annual premium
revenue to the total anticipated premium revenue. For universal
life and other interest-sensitive life insurance and investment
contracts, such costs are amortized over periods of up to 25
years in relation to the present value of expected gross profits
(including the unrealized gains and losses recognized under SFAS
No. 115), subject to regular evaluation and retroactive revision
to reflect actual emerging experience.
1. Summary of Significant Accounting Policies, continued:
<PAGE>
Present Value of Future Profits of Acquired Businesses:
The present value of future profits of acquired businesses (PVP)
is being amortized principally over periods of up to 25 years in
relation to the present value of expected gross profits.
Separate Account:
Separate account assets and liabilities represent funds held for
the exclusive benefit of variable universal life and annuity
contractholders. Fees are received for administrative expenses
and for assuming certain mortality, distribution and expense
risks. Operations of the separate accounts are not included in
these consolidated financial statements.
Policy Benefits:
The liabilities for future policy benefits for traditional life
insurance policies generally are computed by the net level
premium method, based upon estimated future investment yield,
mortality and withdrawals (including a provision for the risk of
adverse deviations from the estimates) which were appropriate at
the time the policies were issued or acquired. Interest
assumptions range from 6.5% to 11%, graded to 5% after 30 years.
Mortality and withdrawal assumptions are based, in general, on
the Company's own experience.
Participating business approximates 1% of the Company's ordinary
life insurance in force. Dividends to be paid on participating
policies are determined annually by the Board of Directors based
upon the Company's published dividend tables.
Policy reserves for universal life and other interest-sensitive
life insurance and investment contracts are determined using the
retrospective deposit method. Policy reserves consist of the
policyholder deposits accumulated at credited interest less
withdrawals and charges for mortality, administrative and policy
initiation expenses. Interest credited to these policies where
the interest rate is not fixed ranged from 3% to 7.5% during
1995 and 3.5% to 7.5% during 1994.
Liabilities for policy and contract claims include provisions
for reported claims and estimates for claims incurred but not
reported. Changes in estimates are reflected in operating
results in the year the change is made. Liabilities for claim
adjustment expenses are based on estimates of allocated and
unallocated expenses.
Federal Income Taxes:
The Company is a member of SEI's consolidated United States
federal income tax group. The policy for intercompany
allocation of federal income taxes provides that the Company
compute the provision for federal income taxes on a separate
consolidated return with its subsidiaries. The Company makes
payment to, or receives payments from, SEI in the amount they
would have paid to or received from the Internal Revenue Service
had they not been members of the consolidated tax group. The
separate Company provisions and payments are computed using the
tax elections made by the Parent.
<PAGE>
1. Summary of Significant Accounting Policies, continued:
Federal Income Taxes, continued:
Deferred tax liabilities and assets are recognized based upon
the difference between the financial statement and tax bases of
assets and liabilities using enacted tax rates in effect for the
year in which the differences are expected to reverse.
Recognition of Premium Revenues:
Life insurance premiums, other than premiums on universal life
and other interest-sensitive life insurance and investment
contracts, are recognized as revenue over the premium paying
period. Accident and health insurance premiums are earned pro
rata over the periods to which the premiums relate.
Revenues for universal life and other interest-sensitive life
insurance and investment contracts consist of policy fund
charges for the cost of insurance, policy administration and
surrender charges assessed against policyholder account balances.
Fair Value of Financial Instruments:
The following methods and assumption were used by the Company in
estimating its fair value disclosures for financial instruments:
Cash and cash equivalents, short-term investments and other
invested assets: The carrying amounts reported in the balance
sheet for these instruments approximate their fair values.
Investment securities: Fair values for fixed maturity
securities (including redeemable preferred stocks) are based on
quoted market prices, where available. For securities not
actively traded, fair values are estimated using values obtained
from independent pricing services or, in the case of private
placements, are estimated by discounting expected future cash
flows using a current market rate applicable to the yield,
credit quality and maturity of the investments. The fair values
for equity securities are based on quoted market prices.
Policy loans: The Company does not believe an estimate of the
fair value of policy loans can be made without incurring
excessive cost.
Investment-type insurance contracts: Fair values for the
Company's liabilities under investment-type insurance contracts
are estimated based on the cash surrender values of the
underlying contracts.
Insurance contracts: Fair values for the Company's insurance
contracts other than investment-type contracts are not required
to be disclosed.
Security lending liability: The carrying amount approximates
fair value because of the short maturity of these instruments.
<PAGE>
1. Summary of Significant Accounting Policies, continued:
Fair Value of Financial Instruments, continued:
The cost, carrying value and estimated fair value of the
Company's financial instruments are as follows (dollars in
thousands):
December 31, 1995 Cost Carrying Value Fair Value
Financial assets:
Fixed maturities:
Available-for-sale $ 1,622,018 $ 1,680,408 $ 1,680,408
Trading 9,160 9,403 9,403
Equity securities:
Available-for-sale 45,837 50,582 50,582
Trading 177,593 171,130 171,130
Short-term investments 224,109 224,109 224,109
Other invested assets 6,271 6,271 6,271
Financial liabilities:
Investment-type insurance contracts
* 599,000 583,000
* Cost is not applicable.
December 31, 1994
Financial assets:
Fixed maturities:
Available-for-sale $ 1,531,777 $ 1,510,564 $ 1,510,564
Trading 7,938 7,347 7,347
Equity securities:
Available-for-sale 57,620 56,391 56,391
Trading 164,074 151,387 151,387
Short-term investments 199,146 199,146 199,146
Other invested assets 4,409 4,409 4,409
Financial liabilities:
Investment-type insurance contracts
* 567,000 551,000
Security lending liability 33,239 33,239 33,239
* Cost is not applicable.
<PAGE>
1. Summary of Significant Accounting Policies, continued:
Dividend Restrictions:
Generally, the net assets of the Company available for
distribution to its shareholders are limited to the amounts by
which the net assets, as determined in accordance with statutory
accounting practices, exceed minimum regulatory statutory
capital requirements. All payments of dividends or other
distributions to stockholders are subject to approval by
regulatory authorities. The maximum amount of dividends which
can be paid by Midland and its subsidiaries during any 12-month
period to stockholders without prior approval of the insurance
commissioner is limited according to statutory regulations and
is a function of statutory equity and statutory net income. The
maximum amount of dividends payable in 1996 without prior
approval of regulatory authorities is approximately $39,000,000.
Combined statutory net income of the Company and its insurance
subsidiaries for the years ended December 31, 1995 and 1994 is
approximately $39,000,000 and $26,000,000, respectively, and
capital and surplus at December 31, 1995 and 1994 is
approximately $284,000,000 and $254,000,000, respectively, in
accordance with statutory accounting principles.
Prescribed Statutory Accounting Policies:
The Company, which is domiciled in South Dakota, prepares its
statutory basis financial statements in accordance with
accounting practices prescribed or permitted by the Division of
Insurance of the State of South Dakota. Prescribed statutory
accounting practices include state laws, regulations and general
administrative rules, as well as a variety of publications of
the National Association of Insurance Commissioners (NAIC).
Permitted practices encompass all accounting practices not so
prescribed. The Company uses prescribed practices or, if
prescribed statutory accounting practices do not address the
accounting for a transaction, the Company uses generally
accepted accounting principles to prepare its statutory basis
financial statements.
Reclassifications:
Certain items in the 1994 and 1993 financial statements have
been reclassified to conform to the 1995 presentation.
2. Change in Accounting Policy:
In 1994, the Company adopted the provisions of SFAS No. 115 for
investments held as of or acquired after January 1, 1994. The
fundamental change contained in SFAS No. 115 was to require
fixed maturity investments classified as trading or
available-for-sale to be reported at fair value in the balance
sheet. The cumulative effect of adopting SFAS No. 115 for
available-for-sale securities is reflected in stockholders'
equity (as a cumulative effect of a change in accounting
principle). There was no material effect of adopting SFAS No.
115 for trading securities.
<PAGE>
2. Change in Accounting Policy, continued:
The following is the effect on stockholders' equity of adopting
SFAS No. 115 as of January 1, 1994:
Cumulative effect (dollars in thousands):
Increase in carrying value of investments $66,019
Adjustment to deferred policy acquisition costs (14,207)
Deferred federal income tax adjustment (18,196)
Net effect on stockholders' equity $ 33,616
With the recognition of the unrealized gains and losses under
SFAS No. 115, an adjustment is required to the deferred policy
acquisition cost asset associated with universal life and
investment type contracts (as defined in SFAS No. 97). The
adjustment requires the gross profit stream to be revised as if
the unrealized gains or losses on the investments underlying the
universal life and investment type contracts had actually been
realized.
In accordance with the Statement, prior period financial
statements have not been restated to reflect the change in
accounting principle.
3. Sale of Affiliated Companies and Accident and Health
Business:
Effective September 30, 1993, Midland sold its majority-owned
subsidiary, Professional Insurance Corporation, to an unrelated
party for a net consideration of $23,228,000. The Company
recognized a gain of $5,647,000, which is included in net
realized investment gains. As of the disposal date,
Professional Insurance Corporation had assets with a carrying
value of $55,656,000 and net liabilities with a carrying value
of $38,075,000. The operations of the subsidiary were not
material to the consolidated group.
<PAGE>
4. Investments and Investment Income:
Following is a summary of the fixed maturity and equity
investments classified as available-for-sale (dollars in
thousands):
December 31, 1995 Gross Gross Estimated
Amortized Unrealized Unrealized Market
Cost Gains Losses Value
Fixed maturities:
U.S. treasury and other U.S. govern-
ment corporations and agencies
$ 662,677 $ 6,449 $ 1,791 $ 668,335
Obligations of U.S. states and political
subdivisions 3,604 418 - 4,022
Corporate debt securities
495,345 39,129 196 534,278
Mortgage-backed securities
449,177 15,882 230 464,829
Other debt securities 10,215 6 1,277 8,944
Total fixed maturities
1,622,018 61,884 3,494 1,680,408
Equity securities 45,837 7,045 2,300 50,582
Total available-for-sale
$ 1,667,855 $ 68,929 $ 5,794 $ 1,730,990
December 31, 1994
Fixed maturities:
U.S. treasury and other U.S. govern-
ment corporations and agencies
$ 348,698 $ 1,010 $ 10,672 $ 339,036
Obligations of U.S. states and political
subdivisions 5,853 601 6 6,448
Corporate debt securities
665,165 15,945 15,868 665,242
Mortgage-backed securities
495,082 6,032 17,924 483,190
Other debt securities 16,979 117 448 16,648
Total fixed maturities
1,531,777 23,705 44,918 1,510,564
Equity securities 57,620 4,173 5,402 56,391
Total available-for-sale
$ 1,589,397 $ 27,878 $ 50,320 $ 1,566,955
<PAGE>
4. Investments and Investment Income, continued:
The net unrealized appreciation (depreciation) on the
available-for-sale securities have been reduced by deferred
income taxes and deferred policy acquisition costs as of
December 31, 1995 and 1994 as shown below (dollars in thousands):
1995 1994
Gross unrealized appreciation (depreciation)
$ 63,135 $ (22,442)
Deferred income taxes (16,898) 5,427
Deferred policy acquisition costs (15,210) 7,012
Unrealized appreciation (depreciation) of investments, net
$ 31,027 $ (10,003)
The amortized cost and estimated market value of
available-for-sale debt securities at December 31, 1995, by
contractual maturities, are shown below. Expected maturities
may differ from contractual maturities because borrowers may
have the right to call or prepay obligations with or without
call or prepayment penalties (dollars in thousands):
Amortized Estimated
Cost Market
Value
Due in one year or less $ 545,635 $ 546,848
Due after one year through five years 345,698 357,115
Due after five years through ten years 109,024 121,291
Due after ten years 172,484 190,325
Mortgage-backed securities 449,177 464,829
Total fixed maturities $ 1,622,018 $ 1,680,408
Major categories of investment income are summarized below
(dollars in thousands):
1995 1994 1993
Fixed maturities $ 121,003 $ 112,120 $ 106,701
Equity securities 20,885 22,450 18,071
Short-term investments 18,648 12,344 7,963
Policy loans 9,485 7,369 6,438
Other invested assets 490 589 1,158
170,511 154,872 140,331
Less investments expenses 3,491 4,554 2,594
Net investment income $ 167,020 $ 150,318 $ 137,737
<PAGE>
4. Investments and Investment Income, continued:
Realized and unrealized investment gains and losses are
summarized below (dollars in thousands):
Unrealized
December 31, 1995 Available
Realized Trading for Sale
Fixed maturities $ 14,303 $ 834 $ 79,603
Equity securities (12,608) 6,223 5,974
Other 67 - -
Less deferred policy acquisition cost effects
- - (22,325)
Less income tax effects - - (22,222)
Net gains on investments $ 1,762 $ 7,057 $ 41,030
December 31, 1994
Fixed maturities $ (6,115) $ (591) $ (87,911)
Equity securities (11,669) (12,686) (6,377)
Other 20 - -
Less deferred policy acquisition cost effects
- 21,219 -
Less income tax effects - - 25,665
Net losses on investments $ (17,764) $ (13,277) $ (47,404)
December 31, 1993 Realized Unrealized
Fixed maturities $ 11,724 $ (9,312)
Equity securities 648 719
Mortgage loans (224) -
Sale of wholly-owned subsidiary 5,647 -
Other (360) -
Less income tax effects - 3,018
Gains and losses on investments $ 17,435 $ (5,575)
<PAGE>
4. Investments and Investment Income, continued:
Proceeds from the sale of available-for-sale securities in 1995
and 1994 and the gross gains and losses realized on these sales
are summarized below (dollars in thousands):
1995 Fixed
Maturities Equity Combined
Proceeds from sales $ 651,092 $ 51,547 $ 702,639
Gross realized gains 15,205 617 15,822
Gross realized losses 4,241 2,802 7,043
1994
Proceeds from sales $ 489,418 $ 12,171 $ 501,589
Gross realized gains 4,634 254 4,888
Gross realized losses 11,115 1,003 12,118
Proceeds from the sale of fixed maturities investments during
1993 and the gross gains and losses realized on these sales are
summarized below (dollars in thousands):
Proceeds from sales $ 105,311
Gross realized gains 2,182
Gross realized losses 3,153
The Company had U.S. Treasury notes under repurchase agreements
with brokerage firms at December 31, 1994. The carrying value
and market value of the U.S. Treasury notes sold were
$32,250,000 as of December 31, 1994. The interest rates on the
liabilities varied from 5% to 5.25%. The Company had no
investments under repurchase agreements at December 31, 1995.
<PAGE>
5. Federal Income Taxes:
Significant components of the provisions for federal income
taxes are as follows (dollars in thousands):
1995 1994 1993
Current $ 34,424 $ 16,790 $ 25,602
Deferred:
From operations (5,721) (6,953) (1,751)
From tax rate change - - 727
Total deferred (5,721) (6,953) (1,024)
Total $ 28,703 $ 9,837 $ 24,578
The reconciliation of federal income tax attributable to
continuing operations computed at the U.S. federal statutory tax
rates to income tax expense is as follows (dollars in thousands):
1995 1994 1993
Tax computed on income at statutory rate $ 29,980 $ 11,755 $ 27,903
Dividends received deduction (1,718) (1,798) (1,737)
Temporary differences of subsidiary not recognized From
operations - - (2,010)
Tax rate change - - 727
Other From tax rate change 441 (120) (305)
$ 28,703 $ 9,837 $ 24,578
The federal income tax liability as of December 31, 1995 and
1994 are comprised of the following (dollars in thousands):
1995 1994
Net deferred income tax liability $ 27,913 $ 11,412
Income taxes due to (receivable from) parent 3,106 (5,942)
Federal income tax liability $ 31,019 $ 5,470
<PAGE>
5. Federal Income Taxes, continued:
The tax effect of temporary differences giving rise to the
Company's consolidated deferred income tax liability at December
31, 1995 and 1994 are as follows (dollars in thousands):
1995 1994
Deferred tax liabilities:
Deferred policy acquisition costs $ 112,818 $ 119,379
Unrealized appreciation on investments 845 -
Unrealized appreciation on fixed maturities 20,592 -
Accrued dividends 2,590 1,133
Net unamortized discount on fixed maturities
- 1,954
Unamortized present value of future profits of acquired
business 9,276 11,061
Other 4,598 4,719
150,719 138,246
Deferred tax assets:
Unrealized depreciation on equity securities 603 4,887
Unrealized depreciation on fixed maturities - 7,665
Write-downs of investments not currently deductible for tax
- 139
Future policy benefits and policy claims 115,547 112,235
Other 6,656 1,908
122,806 126,834
Net deferred income tax liability $ 27,913 $ 11,412
Under provisions of the Life Insurance Company Income Tax Act of
1959, as revised by the 1984 Act, certain special deductions
were allowed life insurance companies for federal income tax
purposes. The special deductions for 1983 and prior years were
accumulated in a memorandum tax account designated as
Policyholders' Surplus. Such amounts will usually become
subject to tax at the then current rates only if the accumulated
balance exceeds certain maximum limitations or certain cash
distributions are deemed to be paid out of this account. It is
management's opinion that such events are not likely to occur.
Accordingly, no provision for income tax has been made on the
approximately $66,000,000 balance in the policyholders' surplus
account at December 31, 1995.
<PAGE>
6. Commitments and Contingencies:
The Company had $62 million of outstanding commitments to
purchase trust certificates secured by government guaranteed
notes.
The Company's home office building has been conveyed to the City
of Sioux Falls, South Dakota and leased back in a transaction in
which the City issued $4,250,000 of Industrial Revenue Bonds for
face value. The bonds are collateralized by $4,714,000 of
Midland's investments in government bonds. The lease includes a
purchase option under which Midland may repurchase the building
for $10 upon repayment of all bonds issued. The lease terms
provide for 10 annual payments equivalent to principal of
$425,000 beginning in 1993 and semiannual payments through 2002
in amounts equivalent to interest at 5.5% on the outstanding
revenue bond principal. The building and land costs have been
capitalized and are carried in the balance sheet as part of
other assets. The liability is included in accounts payable and
other liabilities in the balance sheet.
The Company is a party to various other lease agreements.
Certain of these leases contain purchase options and none
contain restrictions which have a material effect on the
Company's operations.
Future minimum lease payments on the capital lease as of
December 31, 1995 are as follows (dollars in thousands):
1996 $ 583
1997 559
1998 536
1999 513
2000 489
Thereafter 908
Total 3,588
Less amount representing interest 613
Present value of amounts due under capital lease $ 2,975
The Company is a defendant in various lawsuits related to the
normal conduct of its insurance business. Litigation is subject
to many uncertainties and the outcome of individual litigated
matters is not predictable with assurance; however, in the
opinion of management, the ultimate resolution of such
litigation will not materially impact the Company's financial
position.
<PAGE>
6. Commitments and Contingencies, continued:
In 1994, the Company settled a lawsuit associated with an
accident and health policy acquired in the 1990 merger of
Reserve Life Insurance Company (former parent company of
Midland). The net impact of this settlement was a charge to the
statement of income of $12,500,000 and was included as part of
accident and health benefits.
The Company is also subject to insurance guaranty laws in the
states in which it writes business. These laws provide for
assessments against insurance companies for the benefit of
policyholders and claimants in the event of insolvency of other
life insurance companies. The Company has accrued for the
estimated present value of future guaranty fund assessments, net
of estimated recoveries through premium tax offsets, for known
insolvencies.
7. Retirement and Benefit Plans:
Defined Benefit Pension Plan:
The Company has a noncontributory defined benefit pension plan
covering substantially all home office employees of Midland.
The defined benefits are based on years of service and
compensation during an employee's last 10 years of service. The
Company's policy is to fund accrued pension costs currently.
The following table sets forth the plan's funded status and
amounts recognized in the Company's balance sheet at December 31:
1995 1994
Actuarial present value of benefit obligations:
Accumulated benefit obligation, including vested benefit of
$2,394,578 in 1995 and $1,962,013 in 1994
$2,794,919 $ 2,110,178
Projected benefit obligation for service rendered to date
$ (4,091,097) $ (3,453,408)
Plan assets at fair value (funds on deposit with the Company)
3,750,261 3,314,939
Projected benefit obligation in excess of plan assets
(340,836) (138,469)
Unrecognized net gain from past experience different than from
assumed 56,052 71,468
Deferred investment gain 816,445 345,087
Prepaid pension cost $ 531,661 $ 278,086
<PAGE>
7. Retirement and Benefit Plans, continued:
Defined Benefit Pension Plan, continued:
Net pension cost incudes the following components:
1995 1994 1993
Service cost-benefits earned during the period
$ 248,258 $ 250,273 $ 193,745
Interest cost on projected benefit obligation
283,271 299,132 245,263
Actual return on plan assets (220,332) (199,797) (90,823)
Net amortization and deferral (53,138) (46,808) (232,407)
Net periodic pension cost $ 258,059 $ 302,800 $ 115,778
The assumed discount rates used in determining the actuarial
present value of the projected benefit obligation as of December
31, 1995 and 1994 were 7.25% and 8.5%, respectively. The rate
of increase in future compensation levels used in determining
the actuarial present value of projected benefit obligation as
of December 31, 1995 and 1994 was 5.5%. The expected long-term
rate of return on plan assets in 1995 and 1994 was 8.75% and
8.0%, respectively.
Effective January 1, 1996, this plan was merged with a similar
benefit plan of SEI.
Employee Stock Ownership Plan:
The Company participates in a noncontributory Employee Stock
Ownership Plan (ESOP) which is qualified as a stock bonus plan.
All employees are eligible to participate in this plan upon
satisfying eligibility requirements. The ESOP is sponsored by
SEI. Each year the Company makes a contribution to the ESOP as
determined by the Board of SEI. The amounts payable to the ESOP
at December 31, 1995 and 1994 were $1,515,000 and $874,000,
respectively. The expense for 1995, 1994 and 1993 was
$2,096,000, $767,000 and $1,095,000, respectively. All
contributions to the ESOP are held in trust.
Postretirement Benefit Plan:
The Company sponsors a defined benefit health care plan that
provides postretirement medical benefits to full-time employees
whose sum of age and years of service are at least 70. The plan
provides a monthly defined dollar benefit based on years of
service up to a maximum benefit of 90% of the cost of coverage.
<PAGE>
7. Retirement and Benefit Plans, continued:
Postretirement Benefit Plan, continued:
The Company has chosen not to fund any amounts in excess of
currently payable benefits. The following table sets forth the
amounts recognized in the Company's consolidated balance sheet
at December 31, 1995 and 1994:
1995 1994
Accumulated postretirement medical benefit obligation:
Retirees $ 1,235,000 $ 1,127,000
Fully eligible active plan participants
274,000 247,000
Other active plan participants 560,000 505,000
Accumulated unfunded postretirement benefit obligation
$ 2,069,000 $ 1,879,000
Net periodic postretirement benefit costs include the following
components for the years ended December 31, 1995 and 1994:
1995 1994
Service cost $ 16,000 $ 13,000
Interest cost 164,000 144,000
Amortization of loss 10,000 10,000
Net periodic postretirement benefit cost $ 190,000 $ 167,000
The weighted-average annual assumed rate of increase in the per
capita cost of health care benefits for employees (i.e., health
care cost trend rate) is 13% graded down 1% per year for seven
years and to 6% for year six and thereafter. The health care
cost trend rate assumption normally has a significant effect on
the amounts reported. However, increasing the assumed health
care trend rates by 1% would decrease the accumulated
postretirement benefit obligation as of December 31, 1995 by
only $38,000 and net periodic postretirement benefit costs for
the year ended December 31, 1995 by only $5,000 due to the plan
provision of a $50,000 post-age 65 lifetime maximum. As medical
costs increase, retirees reach their lifetime maximum sooner.
Since the benefits are fixed, the Company provides these for a
shorter period of time so the cost is less. The
weighted-average discount rate used in determining the
accumulated postretirement benefit obligation was 7.75% at
December 31, 1995 and 1994.
Other:
Funds of the pension plan and other previously terminated plans
totaling $7,928,000 and $7,470,000 were invested in deposit
administration contracts of the Company as of December 31, 1995
and 1994, respectively. The plans deposit the contributions
received in accordance with plan provisions. Interest of
$492,000 in 1995 and $495,000 in 1994 were credited to
participant accounts at a rate declared by the Company for group
annuity contracts.
<PAGE>
8. Reinsurance:
The Company presently reinsures the excess of each individual
risk over $500,000 on ordinary life insurance in order to spread
its risk of loss. Certain other individual health contracts are
reinsured on a policy-by-policy basis.
To the extent that reinsurers may not be able to meet the
obligations assumed under the reinsurance contracts, the Company
is contingently liable to pay policy benefits.
Effective November 1, 1994, the Company acquired, via assumption
reinsurance, three blocks of life and annuity business. Under
the agreements, the Company assumed approximately $190,000,000
of life and annuity reserves which is included primarily in the
universal life and investment products policy liabilities.
The Company received $158,000,000 in assets which was net of
$32,000,000 of the present value of future profits (PVP). The
assets acquired in the agreement included approximately
$110,000,000 in cash, $22,000,000 in policy loans and
$26,000,000 of receivables from various state guaranty
associations, of which approximately $22,000,000 of the
receivables remained outstanding at December 31, 1994 (reflected
in the balance sheet in short-term investments) with none
outstanding as of December 31, 1995. The final purchase price
was determined based on final accounting on June 30, 1995. In
the final accounting, life reserves acquired in the agreement
decreased by $871,000 and cash and other assets of $350,000 were
received, resulting in a net decrease to the PVP asset of
$1,221,000. The Company maintained the reinsurance associated
with these blocks whereby the excess of each individual risk
over $100,000 on ordinary life insurance is reinsured.
Effective January 1, 1995, the Company acquired, via assumption
reinsurance, a block of life and annuity business. Under the
agreement, the Company assumed approximately $10,504,000 of life
and annuity reserves which is included primarily in universal
life and investment products policy liabilities. The Company
received $9,723,000 in assets which was net of $781,000 of the
PVP. The assets acquired in the agreement included $1,356,000
in policy loans and due premium and a $8,367,000 receivable from
the ceding company, of which all of the receivable was collected
as of December 31, 1995.
<PAGE>
8. Reinsurance, continued:
The following schedule presents a summary of the life insurance
in force and premium income as affected by reinsurance
transactions (dollars in thousands):
Ceded to Assumed
Other From Other
Direct Companies Companies Net
Life insurance in force,
December 31, 1995
$56,082,611 $ 3,138,454 $ 5,454,111 $58,398,268
1995 revenues:
Individual life and annuity
$ 246,786 $ 12,449 $ (45) $ 234,292
Individual accident and health
746 683 - 63
Group 734 33 5,413 6,114
Total $ 248,266 $ 13,165 $ 5,368 $ 240,469
Life insurance in force,
December 31, 1994 $53,863,471 $ 3,440,640 $ 5,207,543 $55,630,374
1994 revenues:
Individual life and annuity
$ 215,333 $ 6,617 $ 58 $ 208,774
Individual accident and health
1,018 868 - 150
Group 584 30 5,152 5,706
Total $ 216,935 $ 7,515 $ 5,210 $214,630
Life insurance in force,
December 31, 1993
$ 47,564,264 $ 1,602,047 $ 5,268,314 $ 51,230,531
1993 revenues:
Individual life and annuity
$ 201,696 $ 4,971 $ 90 $ 196,815
Individual accident and health
21,371 1,310 - 20,061
Group 145 25 5,366 5,486
Total $ 223,212 $ 6,306 $ 5,456 $ 222,362
9. Other Related Party Transactions:
The Company pays fees to SEI under management contracts. The
Company was charged $2,778,000, $70,000 and $2,480,000 in 1995,
1994 and 1993, respectively, related to these contracts.
Included in the fixed maturity investments at December 31, 1994
was a $45,000,000 note receivable from SEI. The note was repaid
by SEI in 1995.
<PAGE>
PART II
UNDERTAKING TO FILE REPORTS
Subject to the terms and conditions of Section 15(d) of the Securi-
ties Exchange Act of 1934, the undersigned registrant hereby undertakes
to file with the Securities and Exchange Commission such supplementary
and periodic information, documents, and reports as may be prescribed by
any rule or regulation of the Commission heretofore, or hereafter duly
adopted pursuant to authority conferred in that section.
RULE 484 UNDERTAKING
Insofar as indemnification for liability arising under the Securities
Act of 1933 may be permitted to directors, officers and controlling per-
sons of the registrant pursuant to the foregoing provisions, or other-
wise, the registrant has been advised that in the opinion of the Securi-
ties 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 the registrant of expenses incurred or paid by a
director, officer or controlling person in connection with the securities
being registered, the registrant 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 indemnifi-
cation by it is against public policy as expressed in the Act and will
be governed by the final jurisdiction of such issue.
<PAGE>
REPRESENTATIONS PURSUANT TO RULE 6e-3(T)
This filing is made pursuant to Rule 6c-3 and 6e-3(T) under the
Investment Company Act of 1940.
Registrant elects to be governed by Rule 6e-3(T)(b)(13)(i)(B) under
the Investment Company Act of 1940 with respect to the Policies described
in the Prospectus.
Registrant makes the following representations:
(1) Section 6d-3(T)(b)(13)(iii)(F) has been relied upon.
(2) The level of the mortality and expense risk charge is within the
range of industry practice for comparable flexible premium var-
iable life insurance policies.
(3) Registrant has concluded that there is a reasonable likelihood
that the distribution financing arrangement of the Separate
Account A will benefit the Separate Account A and Contractowners
and will keep and make available to the Commission on request a
memorandum setting forth the basis for this representation.
(4) The Separate Account A will invest only in management investment
companies which have undertaken to have a board of directors, a
majority of whom are not interested persons of the company,
formulate and approve any plan under Rule 12b-1 to finance dis-
tribution expense.
The methodology used to support the representation made in paragraph
(2) above is based on an analysis of other policies registered under the
Securities Act of 1933, including the level of other expense charges,
uncertainties in terms of expense and mortality factors, and contract
guarantees. Registrant undertakes to keep and make available to the
Commission on request the documents used to support the representation in
paragraph (2) above.
<PAGE>
VUL2-MNL
CONTENTS OF REGISTRATION STATEMENT
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This Registration Statement comprises the following Papers and Documents:
The facing sheet.
The prospectus consisting of 57 pages.
The undertaking to file reports.
Representations pursuant to Rule 6e-3(T).
The signatures.
Written consents of the following persons:
(a) Jack L. Briggs *
(b) Messrs. Sutherland, Asbill & Brennan. *
(c) Russell A. Evenson, FSA.
(d) Ernst & Young.
(e) Coopers & Lybrand.
The following exhibits:
1. The following exhibits correspond to those required by paragraph A of
the instructions as to the exhibits in Form N-8B-2:
(1) Resolution of the Board of Directors of Midland National Life
establishing the Separate Account A. *
(2) Not applicable.
(3) (a) Principal Underwriting Agreement. *
(b) Selling Agreement. *
(c) Commission schedule. **
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(4) Not applicable.
(5) Form of Contract. *
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* Filed previously in Original filing on March 10, 1994.
** Filed previously in Pre-Effective Amendment No. 1 on October 26,
1994.
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(6) (a) Articles of Incorporation of Midland National Life. *
(b) By-Laws of Midland National Life. *
(7) Not applicable.
(8) Participation Agreements for Fidelity Distributors Corporation/
Variable Insurance Products Fund, and Variable Products Fund II. *
(9) Not applicable.
(10) Application Form. *
(11) Memorandum describing Midland National Lifes insurance, transfer
and redemption procedures for the Contract. **
2. See Exhibit 1(5).
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3. Opinion and Consent of Jack L. Briggs. **
4. No financial statements are omitted from the Prospectus pursuant to
Instruction 1(b) or (c) or Part I.
5. Not applicable.
6. Opinion and Consent of Russell A. Evenson, Senior Vice President and
Actuary
of Midland National Life.
7. Consent of Messrs. Sutherland, Asbill & Brennan. **
8. Consent of Ernst & Young and Coopers & Lybrand.
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* Filed previously in Original filing on March 10, 1994.
** Filed previously in Pre-Effective Amendment No. 1 on October 26,
1994.
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SIGNATURES
__________
Pursuant to the requirements of the Securities Act of 1933, the
registrant, Midland National Life Separate Account A, certifies that
it meets the requirements of Securities Act Rule 485(b) for effectiveness
of this registration statement and has duly caused this Registration
Statement to be signed on its behalf by the undersigned thereunto duly
authorized, and its seal to be hereunto affixed and attested, all in
Sioux Falls, South Dakota, on the 25th day of April, 1996.
Midland National Life Separate Account A
(Registrant)
(Seal) By: Midland National Life Insurance
Company
(Depositor)
Attest:_Jack_L._Briggs___________ By:_Michael_M._Masterson______________
President
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Pursuant to the requirements of the Securities Act of 1933, Midland
National Life Separate Account A, certifies that it meets the require-
ments of Securities Act Rule 485(b) for effectiveness of this registration
statement and has duly caused this registration statement to be signed
on its behalf by the undersigned thereunto duly authorized, and its seal
to be hereunto affixed and attested, all in Sioux Falls, South Dakota,
on the 25th day of April, 1996.
(Seal) Midland National Life Insurance Company
Attest:_Jack_L._Briggs___________ By:_Michael_M._Masterson______________
President
Pursuant to the requirements of the Securities Act of 1933, this
Registration Statement has been signed below by the following Directors
of Midland National Life Insurance Company in the capacities and on the
dates indicated.
Signature Title Date
- --------- ----- ----
John_C._Watson___________ Chairman of the Board, April 25, 1996
John C. Watson Chief Executive Officer
Michael_M._Masterson_____ Director, President April 25, 1996
Michael M. Masterson
William_D._Sims__________ Director, Senior Vice April 25, 1996
William D. Sims President
Russell_A._Evenson_______ Director, Senior Vice April 25, 1996
Russell A. Evenson President
John_J._Craig_II_________ Director, Senior Vice April 25, 1996
John J. Craig II President (Principal
Financial Officer,
Principal Accountant)
_________________________ Director April 25, 1996
Robert W. Korba
_________________________ Director April 25, 1996
James N. Whitson
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Registration No. 33-76318
POST EFFECTIVE AMENDMENT NO.2
______________________________________________________________________________
__
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SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
____________________________________
EXHIBITS
TO
FORM S-6
REGISTRATION STATEMENT
UNDER
THE SECURITIES ACT OF 1933
FOR
MIDLAND NATIONAL LIFE SEPARATE ACCOUNT A
AND
MIDLAND NATIONAL LIFE INSURANCE COMPANY
____________________________________
______________________________________________________________________________
__
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EXHIBIT INDEX
Exhibit
_________
6. Opinion and Consent of Russell A. Evenson, Senior
Vice President and Actuary of Midland National Life
8. Consents of Coopers & Lybrand.
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March 18, 1996
Midland National Life Insurance Company
One Midland Plaza
Sioux Falls, SD 57193
Gentlemen:
This opinion is furnished in connection with the filing of Post-
Effective Amendment No. 2 to Registration Statement No. 33-76318 on Form
S-6 (Registration Statement) which covers premiums expected to be
received under the flexible premium Variable Life Insurance 2 policy
(Policy) to be offered by Midland National Life Insurance Company. The
Prospectus included in the Registration Statement describes policies
which will be offered by Midland in each State where they have been
approved by appropriate State insurance authorities. The policy form was
prepared under my direction, and I am familiar with the Registration
Statement and Exhibits thereto. In my opinion:
1. The sales load as defined in paragraph (c)(4) of Rule 6e-3(T)
under the Investment Company Act of 1940, will not exceed 9
per centum of the sum of the guideline annual premiums that would
be paid during the period equal to the lesser of 20 years or the
anticipated life expectancy of the named insured based on the
1980 Commissioners Standard Ordinary Table.
2. The illustrations of death benefits, contract fund and
accumulated premiums in Appendix A of the Prospectus included in
the Registration Statement (the Prospectus), based on the
assumptions stated in the illustrations, are consistent with the
provisions of the Contract. The rate structure of the Contracts
has not been designed so as to make the relationship between
premiums and benefits, as shown in the illustrations, appear to
be correspondingly more favorable to prospective purchasers of
Contracts aged 25 or 40 in the underwriting classes illustrated
than to prospective purchasers of Contracts at other ages or
underwriting classes.
I hereby consent to the filing of this opinion as an Exhibit to the
Registration Statement and to use of my name under the heading Experts
in the Prospectus.
Sincerely,
_Russell_A._Evenson______
Russell A. Evenson, FSA, CLU, ChFC
Senior Vice President and Actuary
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74 VARIABLE UNIVERSAL LIFE 2
VARIABLE UNIVERSAL LIFE 2 1
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CONSENT OF INDEPENDENT ACCOUNTANTS
We consent to the inclusion in this Registration Statement under
the Securities Act of 1933 (Post Effective Amendment No. 2) on
Form S-6 (File No. 33-76318) and related Prospectus of our
reports dated March 8, 1996, on our audits of the financial
statements of Midland National Life Separate Account A and the
consolidated financial statements of Midland National Life
Insurance Company. We also consent to the reference to our firm
under the caption Financial and Actuarial.
COOPERS & LYBRAND L.L.P.
Minneapolis, Minnesota
April 25, 1996
