Securities and Exchange Commission
450 5 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 3 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
<PAGE>
Registration No. 33-76318
POST-EFFECTIVE AMENDMENT NO. 3
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, L.L.P.
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, 1997 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, 1996 on February 26, 1997.
S-6CVR VUL2MNL
<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. Midland's 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
30. Not Applicable
31. Not Applicable
32. Not Applicable
33. Not Applicable
34. Not Applicable
35. Midland's Sales And Other Agreements
36. Not Applicable
37. Not Applicable
38. Midland's Sales And Other Agreements
39. Midland's Sales And Other Agreements
40. Not Applicable
41. Midland's 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
X-REFER VULVUL2
<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 up to ten 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 Fidelity's Variable Insurance Products
Fund (VIP) , Fidelity's Variable Insurance Products Fund II
(VIP II), Fidelity's Variable Insurance Products III (VIP III), or the American
Century Variable Portfolios, Inc. (American Century VP) (collectively
called the "Funds"), mutual funds with a choice of portfolios.
The prospectus es for the Funds, which accompan y this prospectus,
describes the investment objectives, policies, and risks of the Funds'
portfolios associated with the seventeen divisions of Our Separate
Account: VIP Money Market Portfolio, VIP High Income Portfolio,
VIP Equity-Income Portfolio, VIP Growth Portfolio, VIP
Overseas Portfolio, VIP II Asset Manager Portfolio, VIP II
Investment Grade Bond Portfolio, VIP II Contrafund Portfolio,
VIP II Asset Manager: Growth Portfolio, VIP II Index 500
Portfolio, VIP III Growth & Income Portfolio VIP III Balanced Portfolio,
VIP III Growth Opportunities Portfolio, American Century VP Capital
Appreciation Portfolio, American Century VP Value Portfolio, American Century
VP Balanced Portfolio, and American Century VP International Portfolio. An
investment in the portfolios, including the VIP Money Market
Portfolio, is neither insured not guaranteed by the U.S. Government, and
there is no assurance that the VIP 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 CURRENT PROSPECTUS ES FOR FIDELITY'S VARIABLE
INSURANCE PRODUCTS FUND , FIDELITY'S VARIABLE INSURANCE PRODUCTS
FUND II , FIDELITY'S VARIABLE INSURANCE PRODUCTS FUND III, AND AMERICAN
CENTURY VARIABLE PORTFOLIOS, INC.
The date of this prospectus is May 1, 199 7 .
Table of Contents
Definitions
PART 1: SUMMARY
FEATURES OF VARIABLE UNIVERSAL LIFE 2
INVESTMENT CHOICES OF VARIABLE UNIVERSAL LIFE 2
DEDUCTIONS AND CHARGES
USING YOUR CONTRACT FUND
ADDITIONAL INFORMATION ABOUT VARIABLE UNIVERSAL LIFE 2
PART 2: DETAILED INFORMATION ABOUT VARIABLE UNIVERSAL LIFE 2
THE COMPANY THAT ISSUES VARIABLE UNIVERSAL LIFE 2
Midland National Life Insurance Company
Our Parent
THE FEATURES OF VARIABLE UNIVERSAL LIFE 2
How Variable Universal Life 2 Differs From Whole Life Insurance
Death Benefits
Maturity Benefit
Changes In Variable Universal Life 2
Changing The Specified Amount of Insurance
Changing Your Death Benefit Option
When Contract Changes Go Into Effect
Flexible Premium Payments
Premium Provisions For The First Five Years
Premium Provisions Beyond The Fifth Year
Allocation of Premiums
Additional Benefits May Be Available
SEPARATE ACCOUNT INVESTMENT CHOICES
Our Separate Account And Its Investment Divisions
The Funds
Investment Policies Of The Funds' Portfolios
We Own The Assets Of Our Separate Account
Our Right To Change How We Operate Our Separate Account
DEDUCTIONS AND CHARGES
Charges Against The Separate Account
Charges In The Funds
Deductions From Your Premiums
Deductions From Your Contract Fund
Other Transaction Charges
How Contract Fund Charges Are Allocated
Surrender Charge
YOUR CONTRACT FUND VALUE
Amounts In Our Separate Account
How We Determine The Accumulation Unit Value
CONTRACT FUND TRANSACTIONS
Changing Your Premium And Deduction Allocation Percentages
Transfers Of Contract Fund Value
Dollar Cost Averaging.
Borrowing From Your Contract Fund
How To Request A Loan
Contract Loan Interest
When Interest Is Due
Repaying The Loan
The Effects Of A Contract Loan On Your Contract Fund
Your Contract May Lapse
Withdrawing Money From Your Contract Fund
Withdrawal Charges
The Effects Of A Partial Withdrawal
Surrendering Your Contract For Its Net Cash Surrender Value
THE GENERAL ACCOUNT
Amounts In The General Account
Adding Interest To Your Amounts In The General Account
Transfers
ADDITIONAL INFORMATION ABOUT VARIABLE UNIVERSAL LIFE 2
Your Right To Examine The Contract
Your Contract Can Lapse
You May Reinstate Your Contract
Contract Periods, Anniversaries
Application for Insurance
Maturity Date
TAX EFFECTS
Contract Proceeds
Possible Charge for Midland's Taxes
Other Tax Considerations
PART 3: ADDITIONAL INFORMATION
YOUR VOTING RIGHTS AS AN OWNER
Fund Voting Rights
How We Determine Your Voting Shares
Voting Privileges Of Participants In Other Companies
OUR REPORTS TO CONTRACTOWNERS
LIMITS ON OUR RIGHT TO CHALLENGE THE CONTRACT
YOUR PAYMENT OPTIONS
YOUR BENEFICIARY
ASSIGNING YOUR CONTRACT
WHEN WE PAY PROCEEDS FROM THIS CONTRACT
DIVIDENDS
MIDLAND'S SALES AND OTHER AGREEMENTS
Sales Agreements
REGULATION
DISCOUNT FOR MIDLAND EMPLOYEES
LEGAL MATTERS
LEGAL PROCEEDINGS
FINANCIAL AND ACTUARIAL
ADDITIONAL INFORMATION
Management of Midland
Appendix
Financial Statements
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 contract's 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. The holidays We currently observe are New Year's Day, Memorial
Day, Independence Day, Labor Day, Thanksgiving Day and the day after, and
Christmas Day and the day after.
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 investment companies, more commonly called 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 Fidelity's Variable Insurance Products Fund (VIP),
Fidelity's Variable Insurance Products Fund II (VIP II),
Fidelity's Variable Insurance Products Fund III (VIP III), and the American
Century Variable Portfolios, Inc, (American Century VP).
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 Person's 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.
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 17.
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 up to ten of the
investment divisions of Our Separate Account. Each of these investment
divisions invests in shares of a corresponding portfolio of Fidelity's
Variable Insurance Products Fund , Fidelity's Variable Insurance
Products Fund II, Fidelity's Variable Insurance Products Fund III, or the
American Century Variable Portfolios, Inc. "series" type mutual funds. The
portfolios have different investment objectives. Fidelity Management &
Research Company receives fees from the VIP, VIP II and VIP III
portfolio s for providing investment management services and
American Century Investment Management, Inc. receives fees from the American
Century Variable Portfolios 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 es , which
accompanies this prospectus. See "The Funds" on page 11.The current investment
divisions which invest in Portfolios of Fidelity's 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
Fidelity's Variable Insurance Products Fund II are:
Asset Manager Portfolio
Investment Grade Bond Portfolio
Contrafund Portfolio
Asset Manager: Growth Portfolio
Index 500 Portfolio
The current investment divisions which invest in Portfolios of Fidelity's
Variable Insurance Products Fund III are:
Growth & Income Portfolio
Balanced Portfolio
Growth Opportunities Portfolio
The current investment divisions which invest in Portfolios of the American
Century Variable Portfolios, Inc. are:
Capital Appreciation Portfolio
Value Portfolio
Balanced Portfolio
International Portfolio
Each portfolio charges a different investment advisory fee. The VIP,
VIP II, and VIP III also charge an amount for operating expenses. The total
expenses for the year ending December 31, 1996 are shown in the table
below.
Portfolio Total Expenses
VIP Money Market .30%
VIP High Income .71%
VIP Equity-Income .58%
VIP Growth .69%
VIP Overseas .93%
VIP II Investment Grade Bond .58%
VIP II Asset Manager .74%
VIP II Index 500 Portfolio .28%
VIP II Contrafund .74%
VIP II Asset Manager: Growth .87%
VIP III Balanced .72%
VIP III Growth Opportunities .77%
VIP III Growth & Income 1.00%
American Century VP Capital Appreciation 1.00%
American Century VP Balanced 1.00%
American Century VP Value 1.00%
American Century VP International 1.50%
See "Investment Policies Of The Funds' Portfolios" on page 12, "Charges In
The Funds" on page 14, and "THE GENERAL ACCOUNT" on page 20.
DEDUCTIONS AND CHARGES
Deductions From Your Premiums
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. See Deductions
From Your Premiums on page 15
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.
a cost of insurance charge, which is based on the Insured Person's 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 15.
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 13.
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 Person's 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 16.
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 18.
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 20.
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 19.
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 22.
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 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 20. Withdrawals and Surrenders may have adverse tax
consequences. See "TAX EFFECTS" on page 22.
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 21.
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 22.
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 20.
Illustrations
Sample projections of hypothetical Death Benefits and Cash Surrender Values
are included starting at page 30 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.
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 Person's 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
Person's of The Person's 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 more than the sum of monthly
minimum premiums 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 contract's 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
Insured's 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 Person's
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 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
22.
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. You may not have Your Contract Fund
allocated to more than ten investment divisions of Our Separate Account at any
one point in time. See "THE GENERAL ACCOUNT" on page 20.
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
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 Person's fifteenth birthday and the disability continues for six
months. If the disability starts before the Contract Anniversary following the
Insured Person's 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 Person's
fifteenth birthday and the disability continues for six months. Disability
must start before the Contract Anniversary following the Insured Person's 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.
Children's Insurance Rider. This benefit provides term life insurance on the
lives of the Insured Person's 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 Person's children as does the Children's Term Insurance. It also
provides decreasing term life insurance on the Insured's spouse.
Additional Insured Rider. You may provide term insurance for another person,
such as the Insured Person's 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.
Pursuant to the recently enacted Health Insurance Portability and
Accountability Act of 1996, We believe that for federal income tax purposes an
Advanced Sum payment made under the Living Needs Rider should be fully
excludable from the gross income of the beneficiary, as long as the
beneficiary is the Insured Person under the contract. However, You should
consult a qualified tax adviser about the consequences of adding this Rider to
a contract or requesting an Advanced Sum payment under this Rider.
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 Fund
s . You may allocate part or all of Your net premiums to no more
than ten of the seventeen investment divisions of Our Separate
Account. Our Separate Account divisions invest in the VIP Money Market
Portfolio, the VIP High Income Portfolio, the VIP Equity-Income
Portfolio, the VIP Growth Portfolio, the VIP II Asset Manager
Portfolio, the VIP Overseas Portfolio, the VIP II Investment
Grade Bond Portfolio, the VIP II Contrafund Portfolio, the
VIP II Asset Manager: Growth Portfolio , VIP II Index
500 Portfolio, VIP III Growth & Income Portfolio, VIP III Balanced
Portfolio, VIP III Growth Opportunities Portfolio, American Century VP
Capital Appreciation Portfolio, American Century VP Value Portfolio, American
Century VP Balanced Portfolio, and American Century VP International
Portfolio.
The Funds
Fidelity's Variable Insurance Products Fund , Fidelity's
Variable Insurance Products Fund II, Fidelity's Variable Insurance Product
Fund III, and the American Century Variable Portfolios, Inc. 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 bought and sold by Our Separate
Account at net asset value. More detailed information about the Funds and
their investment objectives, policies, risks, expenses and all other
aspects of their operations, appears in their prospectus es , which
accompan y 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 owner's interests, We will see to it that appropriate action is
taken to protect Our owners. The Funds will also monitor this possibility.
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. American Century
Investment Management, Inc. serves as the Investment Advisor for American
Century Variable Portfolios and Fidelity Management & Research Company serves
as the Investment Advisor for Fidelity's VIP, VIP II, and VIP III Funds.
The objectives of the Funds' portfolios are as follows:
Portfolio
Objective
VIP 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 VIP Money Market or any
other Portfolio is neither insured nor guaranteed by the U.S. Government,
and there is no assurance that the VIP Money Market Portfolio will be
able to maintain a constant net asset value.)
VIP 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.
VIP 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 Portfolio's goal is to achieve a yield
which exceeds the composite yield on the securities comprising the Standard &
Poor's Composite Index of 500 Stocks.
VIP Growth
Seeks to achieve capital appreciation, normally through the purchase of common
stocks, although the Portfolio's 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.
VIP Overseas
Seeks long-term growth of capital, primarily through investments in foreign
securities.
VIP II 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
instruments.
VIP II
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.
VIP II
Contrafund
Seeks to achieve capital appreciation over the long term by investing in
securities of companies that are undervalued or out-of-favor.
VIP II
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.
VIP II
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 & Poor's Composite Index of 500
Stocks. This is designed as a long-term investment option.
VIP III Growth & Income
Seeks high total return, combining current income and capital appreciation.
Invests mainly in stocks that pay current dividends and show earnings
potential.
VIP III Balanced
Seeks to balance the growth potential of stocks with the possible income
cushion of bonds. Invests in broad selection of stocks, bonds and convertible
securities.
VIP III Growth Opportunities
Seeks long-term growth of capital. Invests primarily in common stocks and
adjusts its mix between growth, value, cyclical and other securities to take
advantage of attractive valuations.
American Century VP Capital Appreciation
Seeks capital growth by investing in common stocks that management considers
to have better-than-average prospects for appreciation.
American Century VP Value
Seeks long-term capital growth with income as a secondary objective. Invests
primarily in equity securities of well-established companies that management
believes to be under-valued.
American Century VP Balanced
Seeks capital growth and current income. Invests approximately 60 percent of
its assets in growth stocks and the rest in fixed income securities.
American Century VP International
Seeks capital growth by investing in securities of foreign companies that
management believes to have potential for appreciation.
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 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 Fund's 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 current Funds.
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 can be allocated to
as many as ten 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.
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 18. 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.
Charges In The Funds
The Funds make a charge for managing investments and providing services.
These charges vary by portfolio.
The VIP, the VIP II, and the VIP III Portfolios have an annual management
fee that is the sum of an individual fund fee rate, and a group fee rate
which is based on the monthly average net assets of the mutual funds advised
by Fidelity Management & Research Company. In addition, each of these
portfolios' total operating expenses will include fees for management,
shareholder services and other expenses, such as custodial, legal, accounting
and other miscellaneous fees. See the VIP, VIP II and VIP III prospectus for
additional information on how these charges are determined and on the minimum
and maximum charges allowed. All expenses for the year ending December 31,
1996 are shown in the table below.
The American Century Variable Portfolios have annual management fees that are
based on the monthly average of the net assets in each of the portfolios. See
the American Century Variable Portfolios prospectus for details. The expenses
for the year ending December 31, 1996 are shown in the table below.
Management Other Total
Portfolio Fee Expenses Expenses
VIP Money Market .21% .09% .30%
VIP High Income .59% .12% .71%
VIP Equity-Income .51% .07% .58%
VIP Growth .61% .08% .69%
VIP Overseas .76% .17% .93%
VIP II Investment
Grade Bond .45% .13% .58%
VIP II Asset Manager .64% .10% .74%
VIP II Index 500 .13% .15% .28%
VIP II Contrafund .61% .13% .74%
VIP II Asset
Manager: Growth .65% .22% .87%
VIP III Blanced .48% .24% .72%
VIP III Growth
Opportunities .61% .16% .77%
VIP III Growth
& Income .50% .50% 1.00%
American Century VP
Capital Appreciation 1.00% .00% 1.00%
American Century VP
Balanced 1.00% .00% 1.00%
American Century VP
Value 1.00% .00% 1.00%
American Century VP
International 1.00% .00% 1.50%
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.
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.
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.
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 based on the
charges specified in the Commissioner's 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 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 by Us .
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
division's 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 Fund s , which reflects
the investment income and realized and unrealized capital gains and losses of
the 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. Upon completion of these transactions, You may
not have Your Contract Fund allocated to more than ten investment
divisions.
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. 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 16. 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.
Dollar Cost Averaging.
The Dollar Cost Averaging (DCA) program enables You to make monthly transfers
of a predetermined dollar amount from the VIP 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. This plan of
investing, however, does not assure a profit or protect against a loss in
declining markets.
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 VIP
Money Market investment division, either through payment of a premium with
the DCA request form, allocation of premiums, or transfer of amounts to the
VIP 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 VIP
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 VIP 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 VIP 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 VIP Money
Market investment division will be available for transfer under the DCA
program. Once DCA is elected, additional premiums can be deposited into the
VIP 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 VIP 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 22.
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 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 16.
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.
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 18.
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.
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 25.
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 Person's 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 Contracts 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 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 owner's 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.
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 Midland's 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 Fund's Board for the Fund's 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.
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 Fund's 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 Fund s 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 Fund's 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 Person's 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 Person's 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 Person's 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 Person's 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:
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. With a life only payment option,
payments will only be made as long as the payee is alive. Therefore, if a
life only payment option is chosen and the payee dies after the first
payment, only one payment will be made.
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
person's 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 Person's 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 Person's surviving children.
If there are no surviving children, We will pay the Death Benefit to the
Insured Person's 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.
MIDLAND'S 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 Walnut Street Securities (WSS), the principal
underwriter of the contracts, or other broker-dealers which have
entered into written sales agreements with WSS . WSS 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. The address for Walnut Street
Securities is 670 Mason Ridge Center Drive, Suite 300, St. Louis, Missouri
63141.
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, L.L.P., 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 statement have 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. The address for Coopers &
Lybrand LLP is IBM Park Building, Suite 1300, 650 Third Avenue South,
Minneapolis, MN 55402-4333.
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 SEC's
main office in Washington, DC. You will have to pay a fee for the material.
Management of Midland
Here is a list of our directors and officers.
Directors
Name and
Business Address
Principal Occupation
Principal Occupation During Past Five Years
John C. Watson
Midland National Life
One Midland Plaza
Sioux Falls, SD 57193
Chairman of the Board
Chairman of the Board (October 1992 to present), Chairman of the Board and
Chief Executive Officer (October 1992 to March 1997), Midland National
Insurance Company; President and Director (1992 to present) Consolidated
Investment Services, Inc.; Chairman of the Board, President, and Chief
Executive Officer (December 1996 to present), Sammons Financial Holdings,
Inc.; Chairman of the Board and Chief Executive Officer (December 1996 to
present), North American Company for Life and Health Insurance; President and
Director (1996 to present), Briggs ITD Corporation; Director (1996 to
present), NACOLAH Holding Corporation; Director (1996 to present), North
American Company for Life and Health of New York; Director (1996 to present),
NACOLAH Life Insurance Company; Director (1996 to present), Institutional
Founders Life Insurance Company; Chairman of the Board (1995-present), Midland
Advisors Company; President and Director (1992 to present), CH Holdings, Inc.;
Director, (1992 to present), Sammons Enterprises Inc.; Chairman of the Board
and Chief Executive Officer (October 1992 to January 1997), Investors Life
Insurance Company of Nebraska; President and Chief Operating Officer (1990 to
October 1992), Franklin Life Insurance Company
Michael M. Masterson
Midland National Life
One Midland Plaza
Sioux Falls, SD 57193
Chief Executive Officer and President
Chief Executive Officer and President (March 1997 to present) President and
Chief Operating Officer (March 1996 to February 1997), Executive Vice
President-Marketing (March 1995 to February 1996), Midland National Life
Insurance Company; President and Chief Operating Officer (March 1996 to
December 1996), Executive Vice President-Marketing (March 1995 to February
1996), Investors Life Insurance Company of Nebraska; Vice President -
Individual Sales (prior thereto), Northwestern National Life
William D. Sims
Midland National Life
One Midland Plaza
Sioux Falls, SD 57193
Senior Vice President-Administration
Senior Vice President-Administration (since 1986), Midland National Life
Insurance Company; Senior Vice President-Administration (1986 to 1996),
Investors Life Insurance Company of Nebraska
Russell A. Evenson
Midland National Life
One Midland Plaza
Sioux Falls, SD 57193
Senior Vice President and Chief Actuary
Senior Vice President and Chief Actuary (March 1996 to present), Senior Vice
President and Actuary (prior thereto), Midland National Life Insurance
Company; Senior Vice President and Chief Actuary (March 1996 to December
1996), Senior Vice President and Actuary (prior thereto), Investors Life
Insurance Company of Nebraska; Vice President and Chief Actuary (1990 to
1993), Professional Insurance Corporation
John J. Craig, II
Midland National Life
One Midland Plaza
Sioux Falls, SD 57193
Senior Vice President and Chief Financial Officer
Senior Vice President and Chief Financial Officer (October 1993 to present),
Midland National Life Insurance Company; Treasurer (January 1996 to present),
Briggs ITD Corp.; Treasurer (March 1996 to present), Sammons Financial
Holdings, Inc.; Treasurer (November 1993 to present), CH Holdings; Treasurer
(November 1993 to present), Consolidated Investment Services, Inc.; Treasurer
(November 1993 to present), Richmond Holding Company, L.L.C.; Senior Vice
President and Chief Financial Officer (October 1993 to December 1996),
Investors Life Insurance Company of Nebraska; Partner (prior thereto), Ernst
and Young
Steven C. Palmitier
Midland National Life
One Midland Plaza
Sioux Falls, SD 57193
Senior Vice President and Chief Marketing Officer
Senior Vice President and Chief Marketing Officer (March 1997 to present),
Senior Vice President-Sales (August 1996 to February 1997), Midland National
Life Insurance Company; Senior Vice President-Sales (prior thereto), Penn
Mutual Life Insurance
Robert W. Korba
Sammons Enterprises, Inc.
300 Crescent CT
Dallas, TX 75201
Board of Directors Member
President and Director (since 1988), Sammons Enterprises, Inc.
James N. Whitson
Sammons Enterprises, Inc.
300 Crescent CT
Dallas, TX 75201
Board of Directors Member
Executive Vice President (since 1989), Sammons Enterprises, Inc.
Executive Officers (other than Directors)
Name and
Business Address
Principal Occupation
Principal Occupation During Past Five Years
E John Fromelt
Midland National Life
One Midland Plaza
Sioux Falls, SD 57193
Chief Investment Officer
Chief Investment Officer (since 1990), Midland National Life Insurance
Company; President (since August 1995), Midland Advisors Company; Chief
Investment Officer (1996 to present), North American Company for Life and
Health; Chief Investment Officer (1990-1996), Investors Life Insurance Company
of Nebraska
Jack L. Briggs
Midland National Life
One Midland Plaza
Sioux Falls, SD 57193
Vice President, Secretary, and General Counsel
Vice President, Secretary and General Counsel (since 1978), Midland National
Life Insurance Company; Vice President, Secretary, and General Counsel (1978
to 1996), Investors Life Insurance Company of Nebraska
Gary W. Helder
Midland National Life
One Midland Plaza
Sioux Falls, SD 57193
Vice President- Policy Administration
Vice President-Policy Administration (since 1991), Midland National Life
Insurance Company; Vice President-Policy Administration (1991-1996), Investors
Life Insurance Company of Nebraska
Robert W. Buchanan
Midland National Life
One Midland Plaza
Sioux Falls, SD 57193
Vice President- Marketing Services
Vice President-Marketing Services (March 1996 to present), Second Vice
President-Sales Development (prior thereto), Midland National Life Insurance
Company; Second Vice President-Sales Development (1983 to 1996), Investors
Life Insurance Company of Nebraska
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 31 through 33 illustrate a
contract issued to a male, age 25, under a standard rate non-smoker
underwriting risk classification. The tables on pages 34 through 36 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
Commissioner's 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 .79 % of the aggregate average
daily net assets of the Portfolios of the Funds (the average rate of the
Portfolios for December, 199 6 ). The actual fees and expenses associated
with the contract may be more or less than .79 % 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. 89 %, 4. 11 %, and 10.
11 %, 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.
<TABLE>
MIDLAND NATIONAL LIFE INSURANCE COMPANY
FLEXIBLE PREMIUM VARIABLE LIFE INSURANCE CONTRACT
<CAPTION>
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
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>
1 788 528 32 100,000 504 8 100,000
2 1,614 1,047 483 100,000 1,012 448 100,000
3 2,483 1,557 925 100,000 1,511 879 100,000
4 3,394 2,057 1,358 100,000 2,000 1,301 100,000
5 4,351 2,549 1,783 100,000 2,482 1,715 100,000
6 5,357 3,021 2,187 100,000 2,955 2,121 100,000
7 6,412 3,484 2,583 100,000 3,419 2,518 100,000
8 7,520 3,940 2,971 100,000 3,864 2,895 100,000
9 8,683 4,387 3,351 100,000 4,302 3,265 100,000
10 9,905 4,827 3,723 100,000 4,720 3,616 100,000
11 11,188 5,247 4,271 100,000 5,131 4,155 100,000
12 12,535 5,661 4,835 100,000 5,524 4,698 100,000
13 13,949 6,056 5,402 100,000 5,899 5,246 100,000
14 15,434 6,433 5,975 100,000 6,257 5,799 100,000
15 16,993 6,792 6,558 100,000 6,597 6,363 100,000
16 18,630 7,194 7,194 100,000 6,910 6,910 100,000
17 20,349 7,578 7,578 100,000 7,206 7,206 100,000
18 22,154 7,934 7,934 100,000 7,475 7,475 100,000
19 24,049 8,262 8,262 100,000 7,719 7,719 100,000
20 26,039 8,563 8,563 100,000 7,936 7,936 100,000
21 28,129 8,838 8,838 100,000 8,129 8,129 100,000
22 30,323 9,086 9,086 100,000 8,296 8,296 100,000
23 32,626 9,309 9,309 100,000 8,428 8,428 100,000
24 35,045 9,508 9,508 100,000 8,537 8,537 100,000
25 37,585 9,682 9,682 100,000 8,612 8,612 100,000
30 52,321 10,062 10,062 100,000 8,276 8,276 100,000
35 71,127 9,225 9,225 100,000 6,228 6,228 100,000
40 95,130 6,612 6,612 100,000 1,213 1,213 100,000
<FN>
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.
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
<CAPTION>
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
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>
1 788 566 69 100,000 541 45 100,000
2 1,614 1,156 592 100,000 1,118 554 100,000
3 2,483 1,771 1,139 100,000 1,719 1,088 100,000
4 3,394 2,412 1,713 100,000 2,346 1,647 100,000
5 4,351 3,080 2,313 100,000 3,000 2,233 100,000
6 5,357 3,765 2,931 100,000 3,681 2,847 100,000
7 6,412 4,479 3,577 100,000 4,392 3,490 100,000
8 7,520 5,223 4,254 100,000 5,121 4,152 100,000
9 8,683 5,999 4,963 100,000 5,881 4,844 100,000
10 9,905 6,808 5,704 100,000 6,662 5,558 100,000
11 11,188 7,641 6,664 100,000 7,477 6,500 100,000
12 12,535 8,508 7,682 100,000 8,315 7,489 100,000
13 13,949 9,402 8,749 100,000 9,178 8,525 100,000
14 15,434 10,323 9,865 100,000 10,067 9,609 100,000
15 16,993 11,273 11,039 100,000 10,984 10,750 100,000
16 18,630 12,314 12,314 100,000 11,919 11,919 100,000
17 20,349 13,390 13,390 100,000 12,884 12,884 100,000
18 22,154 14,491 14,491 100,000 13,870 13,870 100,000
19 24,049 15,619 15,619 100,000 14,878 14,878 100,000
20 26,039 16,777 16,777 100,000 15,910 15,910 100,000
21 28,129 17,965 17,965 100,000 16,968 16,968 100,000
22 30,323 19,186 19,186 100,000 18,052 18,052 100,000
23 32,626 20,441 20,441 100,000 19,156 19,156 100,000
24 35,045 21,734 21,734 100,000 20,290 20,290 100,000
25 37,585 23,066 23,066 100,000 21,446 21,446 100,000
30 52,321 30,287 30,287 100,000 27,446 27,446 100,000
35 71,127 38,352 38,352 100,000 33,523 33,523 100,000
40 95,130 47,296 47,296 100,000 39,024 39,024 100,000
<FN>
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.
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
<CAPTION>
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
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>
1 788 604 107 100,000 578 82 100,000
2 1,614 1,269 705 100,000 1,229 665 100,000
3 2,483 2,003 1,371 100,000 1,946 1,315 100,000
4 3,394 2,812 2,113 100,000 2,737 2,038 100,000
5 4,351 3,704 2,938 100,000 3,609 2,843 100,000
6 5,357 4,675 3,841 100,000 4,571 3,737 100,000
7 6,412 5,746 4,845 100,000 5,631 4,730 100,000
8 7,520 6,928 5,959 100,000 6,789 5,820 100,000
9 8,683 8,230 7,194 100,000 8,065 7,029 100,000
10 9,905 9,666 8,562 100,000 9,461 8,357 100,000
11 11,188 11,239 10,262 100,000 11,001 10,025 100,000
12 12,535 12,973 12,147 100,000 12,688 11,862 100,000
13 13,949 14,874 14,221 100,000 14,539 13,886 100,000
14 15,434 16,960 16,502 100,000 16,569 16,111 100,000
15 16,993 19,252 19,018 100,000 18,800 18,565 100,000
16 18,630 21,833 21,833 100,000 21,240 21,240 100,000
17 20,349 24,671 24,671 100,000 23,924 23,924 100,000
18 22,154 27,784 27,784 100,000 26,869 26,869 100,000
19 24,049 31,202 31,202 100,000 30,101 30,101 100,000
20 26,039 34,959 34,959 100,000 33,654 33,654 100,000
21 28,129 39,092 39,092 100,000 37,563 37,563 100,000
22 30,323 43,642 43,642 100,000 41,866 41,866 100,000
23 32,626 48,655 48,655 100,000 46,601 46,601 100,000
24 35,045 54,175 54,175 106,724 51,822 51,822 102,090
25 37,585 60,233 60,233 115,045 57,558 57,558 109,936
30 52,321 100,639 100,639 158,003 95,636 95,636 150,148
35 71,127 165,154 165,154 221,306 156,085 156,085 209,153
40 95,130 268,131 268,131 327,120 251,810 251,810 307,209
<FN>
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.
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
<CAPTION>
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
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 1,176 478 100,000 1,141 443 100,000
2 3,229 2,321 1,488 100,000 2,251 1,418 100,000
3 4,965 3,423 2,455 100,000 3,320 2,352 100,000
4 6,788 4,485 3,382 100,000 4,349 3,247 100,000
5 8,703 5,506 4,268 100,000 5,340 4,102 100,000
6 10,713 6,490 5,117 100,000 6,292 4,919 100,000
7 12,824 7,435 5,927 100,000 7,208 5,700 100,000
8 15,040 8,344 6,701 100,000 8,077 6,434 100,000
9 17,367 9,218 7,440 100,000 8,911 7,133 100,000
10 19,810 10,057 8,144 100,000 9,701 7,788 100,000
11 22,376 10,862 9,156 100,000 10,437 8,731 100,000
12 25,069 11,624 10,169 100,000 11,121 9,666 100,000
13 27,898 12,344 11,185 100,000 11,754 10,595 100,000
14 30,868 13,013 12,195 100,000 12,316 11,499 100,000
15 33,986 13,632 13,206 100,000 12,820 12,395 100,000
16 37,261 14,261 14,261 100,000 13,246 13,246 100,000
17 40,699 14,833 14,833 100,000 13,596 13,596 100,000
18 44,309 15,337 15,337 100,000 13,871 13,871 100,000
19 48,099 15,776 15,776 100,000 14,052 14,052 100,000
20 52,079 16,140 16,140 100,000 14,139 14,139 100,000
21 56,258 16,432 16,432 100,000 14,125 14,125 100,000
22 60,646 16,652 16,652 100,000 13,988 13,988 100,000
23 65,253 16,801 16,801 100,000 13,709 13,709 100,000
24 70,091 16,880 16,880 100,000 13,276 13,276 100,000
25 75,170 16,870 16,870 100,000 12,668 12,668 100,000
30 104,641 15,259 15,259 100,000 6,250 6,250 100,000
35 142,254 10,315 10,315 100,000 0 0 0
40 190,260 0 0 0 0 0 0
<FN>
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.
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
<CAPTION>
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
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 1,255 558 100,000 1,219 521 100,000
2 3,229 2,553 1,720 100,000 2,479 1,646 100,000
3 4,965 3,884 2,916 100,000 3,771 2,803 100,000
4 6,788 5,249 4,146 100,000 5,096 3,993 100,000
5 8,703 6,651 5,413 100,000 6,457 5,219 100,000
6 10,713 8,092 6,719 100,000 7,856 6,483 100,000
7 12,824 9,575 8,067 100,000 9,295 7,787 100,000
8 15,040 11,102 9,459 100,000 10,765 9,122 100,000
9 17,367 12,676 10,898 100,000 12,281 10,503 100,000
10 19,810 14,300 12,387 100,000 13,834 11,921 100,000
11 22,376 15,977 14,271 100,000 15,417 13,711 100,000
12 25,069 17,701 16,245 100,000 17,033 15,578 100,000
13 27,898 19,473 18,314 100,000 18,684 17,525 100,000
14 30,868 21,289 20,471 100,000 20,355 19,538 100,000
15 33,986 23,152 22,726 100,000 22,059 21,633 100,000
16 37,261 25,128 25,128 100,000 23,779 23,779 100,000
17 40,699 27,153 27,153 100,000 25,521 25,521 100,000
18 44,309 29,224 29,224 100,000 27,289 27,289 100,000
19 48,099 31,346 31,346 100,000 29,068 29,068 100,000
20 52,079 33,516 33,516 100,000 30,864 30,864 100,000
21 56,258 35,741 35,741 100,000 32,673 32,673 100,000
22 60,646 38,027 38,027 100,000 34,485 34,485 100,000
23 65,253 40,382 40,382 100,000 36,288 36,288 100,000
24 70,091 42,812 42,812 100,000 38,081 38,081 100,000
25 75,170 45,314 45,314 100,000 39,855 39,855 100,000
30 104,641 59,111 59,111 100,000 48,274 48,274 100,000
35 142,254 76,088 76,088 100,000 54,854 54,854 100,000
40 190,260 98,680 98,680 103,614 56,533 56,533 100,000
<FN>
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.
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
<CAPTION>
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
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 1,335 637 100,000 1,297 600 100,000
2 3,229 2,796 1,963 100,000 2,717 1,884 100,000
3 4,965 4,383 3,415 100,000 4,260 3,292 100,000
4 6,788 6,111 5,008 100,000 5,940 4,837 100,000
5 8,703 7,996 6,758 100,000 7,771 6,534 100,000
6 10,713 10,054 8,681 100,000 9,772 8,399 100,000
7 12,824 12,305 10,798 100,000 11,960 10,452 100,000
8 15,040 14,771 13,128 100,000 14,345 12,702 100,000
9 17,367 17,474 15,696 100,000 16,961 15,183 100,000
10 19,810 20,442 18,529 100,000 19,823 17,910 100,000
11 22,376 23,703 21,996 100,000 22,950 21,243 100,000
12 25,069 27,282 25,826 100,000 26,372 24,917 100,000
13 27,898 31,214 30,055 100,000 30,126 28,967 100,000
14 30,868 35,532 34,714 100,000 34,234 33,416 100,000
15 33,986 40,281 39,855 100,000 38,747 38,322 100,000
16 37,261 45,577 45,577 100,000 43,703 43,703 100,000
17 40,699 51,414 51,414 100,000 49,157 49,157 100,000
18 44,309 57,852 57,852 100,000 55,176 55,176 100,000
19 48,099 64,967 64,967 100,000 61,822 61,822 100,000
20 52,079 72,842 72,842 100,000 69,182 69,182 100,000
21 56,258 81,557 81,557 106,024 77,352 77,352 100,557
22 60,646 91,131 91,131 116,648 86,362 86,362 110,543
23 65,253 101,641 101,641 128,067 96,228 96,228 121,248
24 70,091 113,181 113,181 140,345 107,035 107,035 132,724
25 75,170 125,852 125,852 153,540 118,873 118,873 145,025
30 104,641 210,288 210,288 243,934 197,038 197,038 228,564
35 142,254 345,556 345,556 369,745 320,531 320,531 342,969
40 190,260 563,797 563,797 591,986 518,187 518,187 544,096
<FN>
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.
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>
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.
14 VARIABLE UNIVERSAL LIFE 2
VARIABLE UNIVERSAL LIFE 2 1
MIDLAND NATIONAL LIFE SEPARATE ACCOUNT A
FINANCIAL STATEMENTS
FOR THE YEARS ENDED DECEMBER 31, 1996, 1995 AND 1994
C O N T E N T S
Page(s)
Report of Independent Accountants 1
Statement of Assets and Liabilities 2-3
Statements of Operations and Changes in Net Assets 4-7
Notes to Financial Statements 8-11
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, 1996, and the related
statements of operations and changes in net assets for each of the three
years in the period ended December 31, 1996. 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, 1996, 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, 1996, and the results of their operations and changes in
their net assets for each of the three years in the period ended December
31, 1996, in conformity with generally accepted accounting principles.
COOPERS & LYBRAND L.L.P.
Minneapolis, Minnesota
March 7, 1997
<TABLE>
Midland National Life Separate Account A
Statement of Assets and Liabilities
December 31, 1996
<CAPTION>
Value
Per
ASSETS Shares Share
<S> <C> <C> <C>
Investments at net asset value:
Variable Insurance Products Fund:
Money Market Portfolio (cost $1,674,309) 1,674,309 $ 1.00 $ 1,674,309
High Income Portfolio (cost $1,332,202) 113,636 12.52 1,422,717
Equity-Income Portfolio (cost $5,417,458) 292,627 21.03 6,153,940
Growth Portfolio (cost $10,184,754) 376,073 31.14 11,710,900
Overseas Portfolio (cost $2,319,530) 137,484 18.84 2,590,191
Variable Insurance Products Fund II:
Asset Manager Portfolio (cost $3,950,197) 265,092 16.93 4,488,007
Investment Grade Bond Portfolio (cost $724,539) 61,986 12.24 758,706
Index 500 Portfolio (cost $1,224,783) 15,054 89.13 1,341,779
Contra Fund Portfolio (cost $1,729,872) 116,017 16.56 1,921,244
Asset Manager Growth Portfolio (cost $453,233) 35,752 13.10 468,357
Total Investments (cost $29,010,877) 32,530,150
</TABLE>
<TABLE>
<CAPTION>
LIABILITIES
<S> <C>
Accrued Liabilities to be paid from:
Variable Insurance Products Fund:
Money Market Portfolio 1,568
High Income Portfolio 1,303
Equity-Income Portfolio 5,711
Growth Portfolio 11,024
Overseas Portfolio 2,376
Variable Insurance Products Fund II:
Asset Manager Portfolio 4,222
Investment Grade Bond Portfolio 713
Index 500 Portfolio 1,209
Contra Fund Portfolio 1,719
Asset Manager Growth Portfolio 426
Total liabilities 30,271
Net assets $ 32,499,879
</TABLE>
The accompanying notes are an integral part of the financial statements.
2
<TABLE>
Midland National Life Separate Account A
Statement of Assets and Liabilities, Continued
December 31, 1996
<CAPTION>
Unit
Units Value
<S> <C> <C> <C>
Net assets represented by:
Variable Insurance Products Fund:
Money Market Portfolio 111,850 $ 14.96 $ 1,672,741
High Income Portfolio 58,284 24.39 1,421,414
Equity-Income Portfolio 202,936 30.30 6,148,229
Growth Portfolio 354,117 33.04 11,699,876
Overseas Portfolio 131,520 19.68 2,587,815
Variable Insurance Products Fund II:
Asset Manager Portfolio 217,954 20.57 4,483,785
Investment Grade Bond Portfolio 50,612 14.98 757,993
Index 500 Portfolio 76,065 17.62 1,340,570
Contra Fund Portfolio 134,798 14.24 1,919,525
Asset Manager Growth Portfolio 34,332 13.63 467,931
Net assets $ 32,499,879
</TABLE>
The accompanying notes are an integral part of the financial statements.
<TABLE>
Midland National Life Separate Account A
Statements of Operations and Changes in Net Assets
for the years ended December 31, 1996, 1995 and 1994
<CAPTION>
Variable Insurance Products Funds
__________________________________
Combined
<S> <C> <C> <C>
Investment Income: 1996 1995 1994
Dividend income $ 353,783 $ 235,744 $ 117,497
Capital gains distributions 907,775 115,007 308,161
Expenses: 1,261,558 350,751 425,658
Administrative expense 52,416 31,601 18,934
Mortality and expense risk 237,175 142,636 85,682
Net investment income 971,967 176,514 321,042
Realized and unrealized gains (losses) on investments:
Net realized gains (losses) on investments 1,387,105 553,768 385,419
Net unrealized appreciation (depreciation) on investments 735,339 2,816,691 (906,457)
Net realized and unrealized gains (losses) on
investments 2,122,444 3,370,459 (521,038)
Net increase (decrease) in net assets resulting from
operations $ 3,094,411 $ 3,546,973 $ (199,996)
Net assets at beginning of year $ 19,649,521 $ 11,518,208 $ 7,561,601
Net increase (decrease) in net assets resulting
from operations 3,094,411 3,546,973 (199,996)
Capital shares transactions:
Net premiums 14,348,315 7,502,546 5,794,814
Transfers of policy loans (633,495) (394,995) (188,643)
Transfers of cost of insurance (2,927,460) (1,781,520) (1,108,558)
Transfers of surrenders (998,919) (725,170) (327,508)
Transfers of death benefits (13,892) (2,316) (6,258)
Transfers of other terminations (18,602) (14,205) (7,244)
Interfund transfers - - -
Net increase in net assets from capital share
transactions 9,755,947 4,584,340 4,156,603
Total increase in net assets 12,850,358 8,131,313 3,956,607
Net assets at end of year $ 32,499,879 $ 19,649,521 $ 11,518,208
</TABLE>
The accompanying notes are an integral part of the financial statements.
<TABLE>
<CAPTION>
Variable Insurance Products Fund
____________________________________________
Money Market Portfolio High Income Portfolio
_________________________________ __________________________________
<S> <C> <C> <C> <C> <C>
1996 1995 1994 1996 1995 1994
$ 58,559 $ 24,560 $ 6,177 $ 65,229 $ 34,582 $ 20,440
- - - 12,762 - 10,360
58,559 24,560 6,177 77,991 34,582 30,800
2,241 875 295 2,332 1,308 793
10,139 3,958 1,330 10,553 5,906 3,585
46,179 19,727 4,552 65,106 27,368 26,422
- - - 49,881 (5,589) 3,464
- - - 19,282 88,560 (41,360)
- - - 69,163 82,971 (37,896)
$ 46,179 $ 19,727 $ 4,552 $ 134,269 $ 110,339 $ (11,474)
$ 589,269 $ 212,950 $ 98,795 $ 815,627 $ 482,015 $ 320,348
46,179 19,727 4,552 134,269 110,339 (11,474)
857,355 413,585 167,252 841,221 399,047 269,727
(9,004) (2,496) (2,100) (41,674) (15,746) (12,790)
(94,185) (45,281) (19,380) (159,359) (95,111) (56,424)
(187,306) (9,216) (36,169) (54,152) (63,603) (23,675)
- - - - - (2,285)
(224) - - (447) (1,314) (1,412)
470,657 - - (114,071) - -
1,037,293 356,592 109,603 471,518 223,273 173,141
1,083,472 376,319 114,155 605,787 333,612 161,667
$ 1,672,741 $ 589,269 $ 212,950 $ 1,421,414 $ 815,627 $ 482,015
</TABLE>
<TABLE>
Midland National Life Separate Account A
Statements of Operations and Changes in Net Assets, Continued
for the years ended December 31, 1996, 1995 and 1994
<CAPTION>
Variable Insurance Products Funds
_______________________________
Equity-Income Portfolio
_________________________________
<S> <C> <C> <C>
1996 1995 1994
Investment Income:
Dividend income $ 6,019 $ 67,980 $ 40,172
Capital gains distributions 172,545 105,457 64,643
178,564 173,437 104,815
Expenses:
Administrative expense 9,932 5,693 3,202
Mortality and expense risk 44,942 25,786 14,491
Net investment income 123,690 141,958 87,122
Realized and unrealized gains (losses) on investments:
Net realized gains (losses) on investments 344,216 118,598 102,566
Net unrealized appreciation (depreciation) on investments 112,077 566,696 (109,514)
Net realized and unrealized gains (losses) on
investments 456,293 685,294 (6,948)
Net increase (decrease) in net assets resulting from
operations $ 579,983 $ 827,252 $ 80,174
Net assets at beginning of year $ 3,721,811 $ 1,952,718 $ 1,262,900
Net increase (decrease) in net assets resulting
from operations 579,983 827,252 80,174
Capital share transactions:
Net premiums 2,820,841 1,361,317 855,025
Transfers of policy loans (114,290) (57,976) (50,244)
Transfers of cost of insurance (533,174) (301,032) (164,908)
Transfers of surrenders (93,138) (55,313) (29,156)
Transfers of death benefits (131) (264) (731)
Transfers of other terminations (4,334) (4,891) (342)
Interfund transfers (229,339) - -
Net increase in net assets from capital share
transactions 1,846,435 941,841 609,644
Total increase in net assets 2,426,418 1,769,093 689,818
Net assets at end of year $ 6,148,229 $ 3,721,811 $ 1,952,718
</TABLE>
The accompanying notes are an integral part of the financial statements.
5
<TABLE>
<CAPTION>
Variable Insurance Products Funds
_______________________________________________________________________
Growth Portfolio Overseas Portfolio
_________________________________ _________________________________
<S> <C> <C> <C> <C> <C>
1996 1995 1994 1996 1995 1994
$ 22,193 $ 26,217 $ 17,584 $ 20,685 $ 4,975 $ 3,566
560,363 - 186,093 22,754 4,975 -
582,556 26,217 203,677 43,439 9,950 3,566
19,895 12,891 7,630 4,298 2,977 1,908
90,025 55,214 34,524 19,450 16,273 8,645
472,636 (41,888) 161,523 19,691 (9,300) (6,987)
700,698 377,876 175,775 58,004 55,223 65,573
469 1,483,959 (410,363) 155,462 99,903 (75,975)
701,167 1,861,835 (234,588) 213,466 155,126 (10,402)
$ 1,173,803 $ 1,819,947 $ (73,065) $ 233,157 $ 145,826 $ (17,389)
$ 7,817,338 $ 4,508,874 $ 3,321,335 $ 1,723,792 $ 1,212,949 $ 639,452
1,173,803 1,819,947 (73,065) 233,157 145,826 (17,389)
4,390,266 2,541,252 1,925,091 1,053,155 779,465 769,361
(252,514) (187,011) (67,353) (59,815) (48,974) (19,256)
(1,059,362) (671,659) (441,618) (263,297) (211,845) (130,943)
(309,025) (188,163) (151,160) (73,670) (152,057) (24,571)
(10,342) (1,816) (1,884) (83) - (1,358)
(6,455) (4,086) (2,472) (1,405) (1,572) (2,347)
(43,833) - - (24,019) - -
2,708,735 1,488,517 1,260,604 630,866 365,017 590,886
3,882,538 3,308,464 1,187,539 864,023 510,843 573,497
$ 11,699,876 $ 7,817,338 $ 4,508,874 $ 2,587,815 $ 1,723,792 $ 1,212,949
</TABLE>
<TABLE>
Midland National Life Separate Account A
Statements of Operations and Changes in Net Assets, Continued
for the years ended December 31, 1996, 1995 and 1994
<CAPTION>
Variable Insurance Products Funds
_________________________________
Asset Manager Portfolio
_________________________________
1996 1995 1994
<S> <C> <C> <C>
Investment Income:
Dividend income $ 133,666 $ 56,666 $ 29,558
Capital gains distributions 110,216 - 45,881
243,882 56,666 75,439
Expenses:
Administrative expense 8,072 6,261 4,092
Mortality and expense risk 36,522 28,250 18,516
Net investment income 199,288 22,155 52,831
Realized and unrealized gains (losses) on investments:
Net realized gains (losses) on investments 122,556 (13,155) 37,621
Net unrealized appreciation (depreciation) on investments 176,177 477,422 (249,678)
Net realized and unrealized gains (losses) on
investments 298,733 464,267 (212,057)
Net increase (decrease) in net assets resulting from
operations $ 498,021 $ 486,422 $ (159,226)
Net assets at beginning of year $ 3,633,749 $ 2,595,623 $ 1,472,030
Net increase (decrease) in net assets resulting
from operations 498,021 486,422 (159,226)
Capital share transactions:
Net premiums 1,212,022 1,228,465 1,604,577
Transfers of policy loans (67,771) (77,688) (29,012)
Transfers of cost of insurance (401,099) (359,734) (250,836)
Transfers of surrenders (222,263) (236,821) (41,239)
Transfers of death benefits (2,280) (236) -
Transfers of other terminations (5,303) (2,282) (671)
Interfund transfers (161,291) - -
Net increase in net assets from capital share
transactions 352,015 551,704 1,282,819
Total increase in net assets 850,036 1,038,126 1,123,593
Net assets at end of year $ 4,483,785 $ 3,633,749 $ 2,595,623
</TABLE>
The accompanying notes are an integral part of the financial statements.
<TABLE>
<CAPTION>
Variable Insurance Products Funds II
________________________________________________________________________
Investment Grade
Bond Portfolio Index 500 Portfolio
_________________________________ ________________________________
<S> <C> <C> <C> <C> <C>
1996 1995 1994 1996 1995 1994
$ 35,859 $ 17,803 $ - $ 4,429 $ 1,202 $ -
- - 1,172 11,389 165 12
35,859 17,803 1,172 15,818 1,367 12
1,469 1,128 959 1,561 297 55
6,648 5,140 4,339 7,065 1,334 252
27,742 11,535 (4,126) 7,192 (264) (295)
4,931 7,242 357 64,340 10,309 63
(17,545) 66,536 (20,080) 83,067 33,470 513
(12,614) 73,778 (19,723) 147,407 43,779 576
$ 15,128 $ 85,313 $ (23,849) $ 154,599 $ 43,515 $ 281
$ 710,276 $ 497,870 $ 444,921 $ 292,473 $ 55,209 $ 1,820
15,128 85,313 (23,849) 154,599 43,515 281
241,760 200,234 144,985 1,028,697 227,265 58,796
(39,038) (3,183) (7,862) (17,532) (3,683) (26)
(80,239) (50,491) (38,932) (141,911) (29,243) (5,517)
(31,289) (19,407) (21,393) (11,092) (590) (145)
(1,056) - - - - -
(540) (60) (87) - - -
(57,009) - - 35,423 - -
32,589 127,093 76,798 893,498 193,749 53,108
47,717 212,406 52,949 1,048,097 237,264 53,389
$ 757,993 $ 710,276 $ 497,870 $ 1,340,570 $ 292,473 $ 55,209
</TABLE>
<TABLE>
<CAPTION>
Variable Insurance Products Fund II
___________________________________
Contra Fund Asset Manager
Portfolio Growth Portfolio
_________________ ________________
1996 1995 1996 1995
<S> <C> <C> <C> <C>
Investment Income:
Dividend income $ - $ 1,269 $ 7,144 $ 490
Capital gains distributions 3,899 2,538 13,847 1,872
3,899 3,807 20,991 2,362
Expenses:
Administrative expense 2,164 152 452 19
Mortality and expense risk 2,790 688 2,041 87
Net investment income (8,055) 2,967 18,498 2,256
Realized and unrealized gains (losses) on investments:
Net realized gains (losses) on investments 36,440 3,233 6,039 31
Net unrealized appreciation (depreciation)
on investments 190,170 1,202 16,180 (1,057)
Net realized and unrealized gains (losses)
on investments 226,610 4,435 22,219 (1,026)
Net increase (decrease) in net assets
resulting from operations $ 218,555 $ 7,402 $ 40,717 $ 1,230
Net assets at beginning of year $ 291,610 $ - $ 53,576 $ -
Net increase (decrease) in net assets
resulting from operations 218,555 7,402 40,717 1,230
Capital share transactions:
Net premiums 1,487,812 296,190 415,186 55,726
Transfer of policy loans (19,479) 1,762 (12,378) -
Transfer of cost insurance (154,413) (13,744) (40,421) (3,380)
Transfers of surrenders (16,096) - (888) -
Transfers of death benefits - - - -
Transfers of other terminations 193 - - -
Interfund transfers 111,343 - 12,139 -
Net increase in net assets from capital
share transactions 1,409,360 284,208 373,638 52,346
Total increase in net assets 1,627,915 291,610 414,355 53,576
Net assets at end of year $ 1,919,525 $ 291,610 $ 467,931 $ 53,576
</TABLE>
7
Midland National Life Separate Account A
Notes to Financial Statements
1. Organization and Significant Accounting Policies:
Midland National Life Separate Account A ("Separate Account"), a
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 ("the Funds"), diversified open-end management companies
registered under the Investment Company Act of 1940, as directed
by participants. The Contra Fund 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.
Walnut Street Securities serves as the underwriter of the Separate
Account. Investment transactions are recorded on the trade date.
Dividends 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 as described
below. The rates for each applicable charge is described in the
Separate Account's prospectus.
- A contract administration fee is charged to cover the Company's
recordkeeping and other administrative expenses incurred to
operate the Separate Account.
- A mortality and expense risk fee is charged 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 is imposed on each transfer between portfolios
of the Separate Account in excess of a stipulated number of
transfers in any one contract year.
- A surrender charge may be imposed in the event of a current
surrender or lapse within a stipulated number of years.
3. Purchase and Sales of Investment Securities:
<TABLE>
The aggregate cost of purchases and proceeds from sales of
investments for the years ended December 31, 1996, 1995 and
1994 were as follows:
<CAPTION>
1996 1995 1994
Portfolio Purchases Sales Purchases Sales Purchases Sales
Variable Insurance Products Fund:
<S> <C> <C> <C> <C> <C> <C>
Money Market $ 2,034,275 $ 949,787 $ 665,299 $ 291,399 $ 224,174 $ 107,230
High Income 1,130,421 593,263 506,889 259,469 362,641 167,346
Equity-Income 3,626,635 1,654,290 1,711,755 639,107 1,204,121 503,129
Growth 5,850,056 2,665,240 3,050,540 1,621,442 2,583,941 1,149,477
Overseas 1,305,663 654,357 951,209 604,563 904,713 312,145
Variable Insurance Products Fund II:
Asset Manager 1,858,024 1,305,947 1,549,225 985,616 1,973,950 641,450
Investment Grade Bond 340,129 279,745 294,633 156,524 161,148 89,028
Index 500 1,327,248 425,671 249,692 56,745 81,852 28,931
Contra Fund 1,876,198 473,421 334,133 46,711 - -
Asset Manager Growth 522,652 130,138 61,622 6,973 - -
$ 19,871,301 $ 9,131,859 $ 9,374,997 $ 4,668,549 $ 7,496,540 $ 2,998,736
</TABLE>
<TABLE>
Midland National Life Separate Account A
Notes to Financial Statements, Continued
<CAPTION>
4. Summary of Changes from Unit Transactions:
Transactions in units for the years ended December 31, 1996,
1995 and 1994 were as follows:
1996 1995 1994
Portfolio Purchases Sales Purchases Sales Purchases Sales
<S> <C> <C> <C> <C> <C> <C>
Variable Insurance Products Fund:
Money market 132,191 61,393 45,654 20,129 15,450 7,349
High income 45,898 25,239 23,134 12,089 17,173 7,792
Equity-income 122,028 57,300 65,454 24,740 52,737 21,940
Growth 167,406 80,887 113,881 56,756 103,156 43,669
Overseas 67,962 33,856 56,643 34,460 51,909 16,362
Variable Insurance Products Fund II:
Asset manager 84,315 66,066 89,048 55,423 110,282 31,315
Investment grade bond 20,996 18,784 19,845 10,894 12,293 6,329
Index 500 81,534 25,464 18,815 3,958 5,991 1,023
Contra Fund 145,795 35,584 28,468 3,881 - -
Asset manager growth 39,936 10,263 5,265 606 - -
</TABLE>
<TABLE>
5. Net Assets:
Net assets at December 31, 1996, consisted of the following:
<CAPTION>
Accumulated
Net Net
Investment Unrealized
Capital Income and Appreciation
Share Net Realized of
Portfolio Transactions Gains Investments Total
<S> <C> <C> <C> <C>
Variable Insurance Products Fund:
Money Market $ 1,589,827 $ 82,914 $ - 1,672,741
High Income 1,114,548 216,352 90,514 1,421,414
Equity-Income 4,324,460 ,087,288 736,481 6,148,229
Growth 7,976,175 2,197,554 1,526,147 11,699,876
Overseas 2,122,503 194,651 270,661 2,587,815
Variable Insurance Products Fund II:
Asset Manager 3,461,207 84,769 537,809 4,483,785
Investment Grade Bond 647,697 76,129 34,167 757,993
Index 500 1,142,151 81,422 116,997 1,340,570
Contra Fund 1,693,568 34,585 191,372 1,919,525
Asset Manager Growth 425,984 26,824 15,123 467,931
$ 24,498,120 $ 4,482,488 $ 3,519,271 $ 32,499,879
</TABLE>
1
6. Subsequent Events:
In 1996, the Company filed with the Securities & Exchange
Commission an application for an order of exemption pursuant to
Section 17(b) of the Investment Company Act of 1940 from Section
17(a) of the Act which will permit the transfer of the entire amount of
assets and the assumption of the entire amount of liabilities of the
Investors Life Separate Account B into the Separate Account A.
Separate Account B issues certain variable universal life insurance
contracts that were sponsored by Investors Life Insurance Company
of Nebraska ("Investors Life"), a wholly-owned insurance subsidiary
of the Company. These variable universal life insurance contracts
are nearly identical in all material respects to the variable universal
life insurance contracts issued by Separate Account A. This
transaction was the result of certain business decisions whereby
Investors Life will be reorganized with and merged into the Company,
with the Company remaining as the surviving corporation. The
Company will assume ownership of all assets of Investors Life,
including all assets held in Separate Account B. This reorganization
was structured so that there would be no change in the rights and
benefits of persons having an interest in the variable life insurance
contracts issued by either of the separate accounts and no change in
the net asset values held by the participants of either of the Separate
Accounts. This transaction occurred effective January 2, 1997.
Midland National Life Insurance Company
Consolidated Financial Statements
For the Years Ended December 31, 1996, 1995, and 1994
C o n t e n t s
Page(s)
Report of Independent Accountants............................... 1
Consolidated Balance Sheets.................................... 2
Consolidated Statements of Income............................... 3
Consolidated Statements of Stockholders' Equity................... 4
Consolidated Statements of Cash Flows........................... 5-6
Notes to Consolidated Financial Statements....................... 7-20
REPORT OF INDEPENDENT ACCOUNTANTS
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, 1996 and 1995, and
the related consolidated statements of income,
stockholders' equity, and cash flows for each of the three
years in the period ended December 31, 1996. 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, 1996 and 1995,
and the consolidated results of its operations and its cash
flows for each of the three years in the period ended
December 31, 1996, in conformity with generally accepted
accounting principles.
COOPERS & LYBRAND L.L.P.
Minneapolis, Minnesota
March 7, 1997
<TABLE>
MIDLAND NATIONAL LIFE INSURANCE COMPANY
<CAPTION>
CONSOLIDATED BALANCE SHEETS
as of DECEMBER 31, 1996 and 1995
(Amounts in thousands, except share and per share amounts)
ASSETS
1996 1995
Investments:
<S> <C> <C>
Fixed maturities...............................$ 1,840,902 $ 1,689,811
Equity securities.............................. 215,964 221,712
Policy loans.................................. 154,090 142,795
Short-term investments........................ 242,857 224,109
Other invested assets...................... .. 18,495 6,271
Total investments............................. 2,472,308 2,284,698
Cash ............................................. 3,578 9,299
Accrued investment income......................... 32,613 34,493
Deferred policy acquisition costs.................... 427,218 410,051
Present value of future profits of acquired business... 21,308 26,414
Other receivables and other assets..................... 23,922 35,476
Separate account assets................................. 81,516 44,273
Total assets....................................... $ 3,062,463 $ 2,844,704
</TABLE>
LIABILITIES AND STOCKHOLDERS' EQUITY
Liabilities:
Policyholder account balances................. $ 1,789,732 $ 1,707,898
Policy benefit reserves........................ 404,806 379,787
Policy claims and benefits payable............. 31,512 30,347
Federal income taxes............................ 39,315 31,019
Other liabilities............................... 90,267 73,903
Separate account liabilities.................... 81,516 44,273
Total liabilities................................... 2,437,148 2,267,227
Commitments and contingencies.......................... Stockholders' equity:
Common stock $1 par value, 2,549,439 shares
authorized, issued and outstanding................ 2,549 2,549
Additional paid-in capital........................ 33,707 33,707
Net unrealized appreciation of investment securities.18,825 31,027
Retained earnings................................ 570,234 510,194
Total stockholders' equity....................... 625,315 577,477
Total liabilities and stockholders' equity.............$ 3,062,463 $ 2,844,704
<TABLE>
MIDLAND NATIONAL LIFE INSURANCE COMPANY
<CAPTION>
CONSOLIDATED STATEMENTS OF INCOME
for the YEARS ENDED DECEMBER 31, 1996, 1995, and 1994
(Amounts in thousands)
1996 1995 1994
Revenues:
<S> <C> <C> <C>
Premiums.................................................$ 101,423 $ 100,858 $ 101,296
Interest sensitive life and investment product charges... 150,839 139,611 113,334
Net investment income.................................... 173,583 167,020 150,318
Net realized investment gains (losses)................... 6,839 1,762 (17,764)
Net unrealized gains (losses) on trading securities...... 6,200 7,057 (13,277)
Other income............................................. 4,362 5,754 4,545
Total revenues........................................... 443,246 422,062 338,452
Benefits and expenses:
Benefits incurred........................................ 151,208 139,056 144,178
Interest credited to policyholder account balances....... 103,618 102,339 86,395
Total benefits........................................... 254,826 241,395 230,573
Operating expenses....................................... 43,243 43,726 34,249
Amortization of deferred policy acquisition costs and
present value of future profits of acquired business..... 53,316 51,576 39,820
Total benefits and expenses.............................. 351,385 336,697 304,642
Income before income taxes............................... 91,861 85,365 33,810
Income taxes............................................. 31,821 28,703 9,837
Net income................................................... $ 60,040 $ 56,662 $ 23,973
</TABLE>
<TABLE>
MIDLAND NATIONAL LIFE INSURANCE COMPANY
<CAPTION>
CONSOLIDATED STATEMENTS OF STOCKHOLDERS' EQUITY
for the YEARS ENDED DECEMBER 31, 1996, 1995, and 1994
(Amounts in thousands)
Net Unrealized
Appreciation
Additional (Depreciation)
Common Paid-In of Investment Retained
Stock Capital Securities Earnings Total
<S> <S> <S> <S> <S> <S>
Balance at January 1, 1994................$ 2,549 $ 33,707 $ 3,785 $ 452,734 $ 492,775
Adjustment to beginning balance for
change in accounting principle............ - - 33,616 - 33,616
Net income................................ - - - 23,973 23,973
Dividends paid on common stock............ - - - (12,850) (12,850)
Net depreciation of available
for sale investments...................... - - (47,404) - (47,404)
Balance at December 31, 1994.............. 2,549 33,707 (10,003) 463,857 490,110
Net income................................ - - - 56,662 56,662
Dividends paid on common stock............. - - - (10,325) (10,325)
Net appreciation of available
for sale investments....................... - - 41,030 - 41,030
Balance at December 31, 1995............... 2,549 33,707 31,027 510,194 577,477
Net income................................. - - - 60,040 60,040
Net depreciation of available
for sale investments....................... - - (12,202) - (12,202)
Balance at December 31, 1996............. $ 2,549 $ 33,707 $ 18,825 $ 570,234 $ 625,315
</TABLE>
The accompanying notes are an integral part of the financial statements.
<TABLE>
MIDLAND NATIONAL LIFE INSURANCE COMPANY
<CAPTION>
CONSOLIDATED STATEMENTS OF CASH FLOWS
for the YEARS ENDED DECEMBER 31, 1996, 1995, and 1994
(Amounts in thousands)
1996 1995 1994
Cash flows from operating activities:
<S> <C> <C> <C>
Net income ............................................ $ 60,040 $ 56,662 $ 23,973
Adjustments to reconcile net income to net cash
provided by operating activities:
Amortization of deferred policy acquisition costs and
present value of future profits of acquired
business............................................... 53,316 51,576 39,820
Net amortization of premiums and discounts on
investments........................................... 5,532 4,828 3,577
Policy acquisition costs deferred ........................ (65,285) (63,717) (61,045)
Net realized investment (gains) losses.................... (6,839) (1,762) 17,764
Net unrealized (gains) losses on trading securities....... (6,200) (7,057) 13,277
Net proceeds from (cost of) trading securities............ 5,788 (23,305) 47,585
Deferred income taxes..................................... 12,177 (5,721) (6,953)
Net interest credited and product charges on
universal life and investment policies................. (47,221) (37,272) (26,939)
Changes in other assets and liabilities:
Net receivables and payables.............................. 32,863 12,346 8,172
Policy benefits........................................... 26,185 23,500 21,659
Other ................................................ (277) 539 (19)
Net cash provided by operating activities................... 70,079 10,617 80,871
Cash flows from investing activities:
Proceeds from investments sold, matured, or repaid:
Fixed maturities ....................................... 1,422,426 911,883 736,651
Equity securities........................................... 129,827 51,567 12,171
Other invested assets....................................... 2,055 421 1,486
Cost of investments acquired:
Fixed maturities............................................ (1,569,779) (994,486) (1,071,431)
Equity securities........................................... (145,096) (41,968) (26,229)
Other invested assets....................................... (14,245) (2,283) -
Net change in policy loans.................................. (11,295) (9,883) (10,425)
Net change in short-term investments........................ (18,748) (24,963) 90,704
Net change in security lending.............................. - (33,239) 33,239
Payment for purchase of insurance business, net of
cash acquired............................................. - (440) 32,215
Net cash used in investing activities........................ (204,855) (143,391) (201,619)
</TABLE>
The accompanying notes are an integral part of the financial statements.
<TABLE>
MIDLAND NATIONAL LIFE INSURANCE COMPANY
<CAPTION>
CONSOLIDATED STATEMENTS OF CASH FLOWS (CONTINUED)
for the YEARS ENDED DECEMBER 31, 1996, 1995, and 1994
(Amounts in thousands)
1996 1995 1994
Cash flows from operating activities:
<S> <C> <C> <C>
Receipts from universal life and investment products............. $ 285,569 $ 272,511 $ 237,792
Benefits paid on universal life and investment products.......... (156,514) (129,024) (98,775)
Dividends paid to common stockholders.............................. - (10,325) (12,850)
Net cash provided by financing activities.............................. 129,055 133,162 126,167
(Decrease) increase in cash.............................................. (5,721) 388 5,419
Cash at beginning of year................................................... 9,299 8,911 3,492
Cash at end of year........................................................$ 3,578 $ 9,299 $ 8,911
Supplemental disclosures of cash information:
Cash paid during the year for:
Interest.................................................................$ 166 $ 188 $ 210
Income taxes, paid to parent.......................................... 16,772 25,376 23,573
Noncash operating, investing and financing activity:
Policy loans and receivables from state guaranty
associations and others received in assumption
reinsurance agreements................................................. - 9,723 48,546
</TABLE>
The accompanying notes are an integral part of the financial statements.
(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 accompanying 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 in consolidation.
Effective May 31, 1996, Midland sold its wholly-owned
subsidiary, North American Management, Inc. (NAM), to
an unrelated party for a net consideration which
approximated the net equity of NAM at May 31, 1996. The
operations of the subsidiary, which were included through
May 31, 1996, were not material to the consolidated
group.
On January 2, 1997, Investors Life Insurance Company
of Nebraska was merged into Midland. Since this wholly-
owned subsidiary was previously consolidated with
Midland, this merger will have no impact on the
consolidated financial statements of Midland.
In preparing the consolidated financial statements,
management is required to make estimates and
assumptions that affect the reported amounts of assets
and liabilities and disclosure of contingent assets and
liabilities as of the date of the balance sheet and revenues
and expenses for the period. Actual results could differ
significantly from those estimates. The following are the
more significant elements of the financial statements
affected by the use of estimates and assumptions:
Investment values.
Deferred policy acquisition costs.
Present value of future profits of acquired business.
Policy benefit reserves and claims reserves.
Fair value of financial instruments.
The Company is subject to the risk that interest rates
will change and cause a decrease in the value of its
investments. To the extent that fluctuations in interest
rates cause the duration of assets and liabilities to differ,
the Company may have to sell assets prior to their
maturity and realize a loss.
Investments
The Company adopted the provisions of the FASB's
Statement of Financial Accounting Standards No. 115
"Accounting for Certain Investments in Debt and Equity
Securities" ("SFAS 115") in 1994. SFAS 115 requires the
Company to classify its fixed maturity investments (bonds
and redeemable preferred stocks) and equity securities
(common and nonredeemable preferred stocks) into three
categories: securities that the Company has the positive
intent and the ability to hold to maturity are classified as
"held to maturity"; securities that are held for current resale
are classified as "trading securities"; and securities not
classified as held to maturity or as trading securities are
classified as "available for sale". The Company has no
securities classified as held-to-maturity.
SFAS 115 requires 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 115 for available-for-sale securities is
reflected in stockholders' equity (as a cumulative effect of
a change in accounting principle) in 1994. There was no
material effect of adopting SFAS 115 for trading securities.
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.
Policy loans and other invested assets are carried at
unpaid principal balances. Short-term investments are
carried at amortized cost, which approximates fair value.
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 specific investment is
carried at estimated realizable value and its original book
value is reduced to reflect this impairment. Such
reductions in book value are recognized as realized
investment losses in the period in which they were written
down.
For CMOs and mortgage-backed securities, the
Company recognizes income using a constant effective
yield based on anticipated prepayments and the estimated
economic life of the securities. When actual prepayments
differ significantly from anticipated prepayments, the
effective yield is recalculated to reflect actual payments to
date and anticipated future payments. The net investment
in the security is adjusted to the amount that would have
existed had the new effective yield been applied since the
acquisition of the security. This adjustment is included in
net investment income.
The Company periodically 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.
Recognition of Traditional Life, Health, and Annuity
Premium Revenue and Policy Benefits
Traditional life insurance products include those
products with fixed and guaranteed premiums and
benefits, and consist principally of whole life insurance
policies. Life insurance premiums, which comprise the
majority of premium revenues, are recognized as premium
income when due. Benefits and expenses are associated
with earned premiums so as to result in recognition of
profits over the life of the contracts. This association is
accomplished by means of the provision for policy benefit
reserves and the amortization of deferred policy
acquisition costs.
Liabilities for policy benefit reserves for traditional
policies generally are computed by the net level premium
method based on estimated future investment yield,
mortality, morbidity, and withdrawals which were
appropriate at the time the policies were issued or
acquired. Interest rate assumptions range from 6.5% to
11.0%.
Recognition of Revenue and Policy Benefits for Interest
Sensitive Life Insurance Products
and Investment Contracts (Interest Sensitive Policies)
Interest sensitive policies are issued on a periodic and
single premium basis. Amounts collected are credited to
policyholder account balances. Revenues from interest
sensitive policies consist of charges assessed against
policyholder account balances for the cost of insurance,
policy administration, and surrender charges. Revenues
also include investment income related to the investments
which support the policyholder account balances. Policy
benefits and claims that are charged to expense include
benefits incurred in the period in excess of related
policyholder account balances. Benefits also include
interest credited to the account balances.
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 and credited
interest less withdrawals and charges for mortality,
administrative, and policy expenses. Interest crediting
rates ranged primarily from 3% to 7% in 1996, 3% to 7.5%
in 1995, and 3.5% to 7.5% in 1994. For certain contracts
these crediting rates extend for periods in excess of one
year.
Deferred Policy Acquisition Costs
Policy acquisition costs which vary with, and are
primarily related to the production of new business, have
been deferred to the extent that such costs are deemed
recoverable from future profits. Such costs include
commissions, policy issuance, underwriting, and variable
agency expenses.
Costs deferred related to traditional life insurance are
amortized over the estimated premium paying period of
the related policies in proportion to the ratio of annual
premium revenues to total anticipated premium revenues.
Costs deferred related to interest sensitive policies are
being amortized over the lives of the policies (up to 25
years) in relation to the present value of actual and
estimated gross profits subject to regular evaluation and
retroactive revision to reflect actual emerging experience.
<TABLE>
Policy acquisition costs deferred and amortized for
years ended December 31 are as follows:
<CAPTION>
1996 1995 1994
<S> <C> <C> <C>
Deferred policy acquisition costs, beginning of year.............. $ 410,051 $ 415,594 $ 86,637
Commissions deferred............................................ 55,005 52,533 50,252
Underwriting and acquisition expenses deferred................. 10,280 11,184 10,793
Change in offset to unrealized gains and losses................. 92 (22,325) 7,011
Amortization.................................................... (48,210) (46,935) (39,099)
Deferred policy acquisition costs, end of year..................... $ 427,218 $ 410,051 $ 415,594
</TABLE>
To the extent that unrealized gains and losses on
available-for-sale securities would result in an adjustment
to the amortization pattern of deferred policy acquisition
costs or present value of future profits of acquired
business had those gains or losses actually been realized,
the adjustments are recorded directly to stockholders'
equity as an offset to the unrealized gains or losses with
no effect on income.
Present Value of Future Profits of Acquired Business
The present value of future profits of acquired business
(PVFP) represents the portion of the purchase price of a
block of business which is allocated to the future profits
attributable to the insurance in force at the dates of
acquisition. The PVFP is amortized in relationship to the
actual and expected emergence of such future profits.
The composition of the PVFP for the years ended
December 31 is summarized below:
<TABLE>
<S> <C> <C> <C>
Balance at beginning of year...... $ 26,414 $ 31,495 $ -
Value of in force acquired..... - (440) 32,216
Amortization................... (5,106) (4,641) (721)
Balance at end of year........... $ 21,308 $ 26,414 $ 31,495
</TABLE>
Based on current conditions and assumptions as to
future events, the Company expects to amortize
approximately 19 percent of the December 31, 1996,
balance of PVFP in 1997, 16 percent in 1998, 14 percent
in 1999, 12 percent in 2000, and 10 percent in 2001. The
interest rates used to determine the amortization of the
cost of policies purchased ranged from 5.5 percent to 6.5
percent.
Policy Claims and Benefits Payable
The liability for policy claims and benefits payable
includes provisions for reported claims and estimates for
claims incurred but not reported, based on the terms of the
related policies and contracts and on prior experience.
Claim liabilities are necessarily based on estimates and
are subject to future changes in claim severity and
frequency. Estimates are continually reviewed and
adjustments to such liabilities are reflected in current
operations
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 payment 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.
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.
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.
Reclassifications
Certain items in the 1995 and 1994 financial statements
have been reclassified to conform to the 1996
presentation.
(2) Fair Value of Financial Instruments
The following methods and assumptions were used by
the Company in estimating its fair value disclosures for
financial instruments:
Cash, short-term investments, policy loans,
and other invested assets: The carrying
amounts reported in the balance sheets for
these instruments approximate their fair
values.
Investment securities: Fair value for fixed
maturity securities (including redeemable
preferred stocks) are based on quoted
market prices, where available. For fixed
maturities not actively traded, fair values
are estimated using values obtained from
independent pricing services. In some
cases, such as private placements and
certain mortgage-backed securities, fair
values 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 value of equity securities are based
on quoted market prices.
Investment-type contracts: Fair values for
the Company's liabilities under investment -
type insurance contracts are estimated
using two methods. For those contracts
without a defined maturity, the fair value
was estimated as the amount payable on
demand (cash surrender value). For those
contracts with known maturities, fair value is
estimated using discounted cash flow
calculations using interest rates currently
being offered for similar contracts with
maturities consistent with those remaining
for the contracts being valued.
These fair value estimates are significantly affected
by the assumptions used, including the discount rate and
estimates of future cash flows. Although fair value
estimates are calculated using assumptions that
management believes are appropriate, changes in
assumptions could cause these estimates to vary
materially. In that regard, the derived fair value estimates
cannot be substantiated by comparison to independent
markets and, in some cases, could not be realized in the
immediate settlement of the instruments. Certain financial
liabilities (including non investment-type insurance
contracts) and all nonfinancial instruments are excluded
from the disclosure requirements. Accordingly, the
aggregate fair value amounts presented do not represent
the underlying value of the Company.
<TABLE>
The carrying value and estimated fair value of the
Company's financial instruments are as follows:
<CAPTION>
December 31, 1996 December 31, 1995
Carrying Estimated Carrying Estimated
Value Fair Value Value Fair Value
Financial assets:
<S> <C> <C> <C> <C>
Fixed maturities - available for sale........ $ 1,807,362 $ 1,807,362 $ 1,680,408 $ 1,680,408
Fixed maturities - trading..................... 33,540 33,540 9,403 9,403
Equity securities - available for sale...... 67,498 67,498 50,582 50,582
Equity securities - trading.................... 148,466 148,466 171,130 171,130
Policy loans....................................... 154,090 154,090 142,795 142,795
Short-term investments....................... 242,857 242,857 224,109 224,109
Other investments.............................. 18,495 18,495 6,271 6,271
Financial liabilities:
Investment-type insurance contracts....... 615,000 597,000 609,000 590,000
</TABLE>
(3) Investments and Investment Income
Fixed Maturities and Equity Security Investments
<TABLE>
The amortized cost and estimated fair value of fixed
maturities and equity securities classified as available for
sale are as follows:
<CAPTION>
December 31, 1996
Gross Gross
Unrealized Unrealized Estimated
Amortized Holding Holding Fair
Cost Gains Losses Value
Fixed maturities:
<S> <C> <C> <C> <C>
U.S. Treasury and other U.S. Government
corporations and agencies................. $ 671,485 $ 4,798 $ 783 $ 675,500
Obligations of U.S. states and political
subdivisions...................................... 3,203 267 - 3,470
Corporate securities.......................... 522,349 26,551 961 547,939
Mortgage-backed securities.............. 572,763 8,242 634 580,371
Other debt securities......................... 79 3 - 82
Total fixed maturities...................... 1,769,879 39,861 2,378 1,807,362
Equity securities.............................. 60,798 7,912 1,212 67,498
Total available for sale.................... $ 1,830,677 $ 47,773 $ 3,590 $1,874,860
</TABLE>
<TABLE>
<CAPTION>
December 31, 1995
Gross Gross
Unrealized Unrealized Estimated
Amortized Holding Holding Fair
<S> Cost Gains Losses Value
Fixed maturities:
<C> <C> <C> <C>
U.S. Treasury and other U.S. Government
corporations and agencies................................. $ 663,677 $ 6,449 $ 1,791 $ 668,335
Obligations of U.S. states and political
subdivisions.............................................. 3,604 418 - 4,022
Corporate 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
</TABLE>
The amortized cost of the fixed maturities and the cost
of the equity securities classified as trading securities are
$33,735 and $148,291, respectively, at December 31,
1996, and $9,160 and $177,593, respectively, at
December 31, 1995.
The net unrealized appreciation on the available-for-
sale securities is reduced by deferred policy acquisition
costs and deferred income taxes at December 31, as
shown below:
1996 1995
Gross unrealized appreciation ......................$ 44,183 $ 63,135
Deferred policy acquisition costs .................. (15,220) (15,312)
Deferred income taxes............................... (10,138) (16,796)
Net unrealized appreciation of investments.......... $ 18,825 $ 31,027
<TABLE>
The change in net unrealized gains (losses) on
available-for-sale fixed maturity and equity security
investments were as follows:
<CAPTION>
1996 1995 1994
<S> <C> <C> <C>
Fixed maturities...................................................$ (20,907) $ 79,603 $ (87,911)
Equity securities.................................................. 1,955 5,974 (6,377)
Less DAC impact.................................................. 92 (22,325) 21,219
Less deferred income tax effect.............................. 6,658 (22,222) 25,665
Net change in unrealized gains (losses).................. $ (12,202) $ 41,030 $ (47,404)
</TABLE>
The amortized cost and estimated fair value of
available-for-sale fixed maturities at December 31, 1996,
by contractual maturity, are as follows. Expected
maturities will differ from contractual maturities because
borrowers may have the right to call or prepay
obligations with or without call or prepayment penalties.
Estimated
Amortized Fair
Cost Value
Due in one year or less........................ $ 173,223 $ 173,283
Due after one year through five years.......... 661,453 670,036
Due after five years through ten years........ 183,194 192,562
Due after ten years........................... 179,246 191,109
Securities not due at a single maturity date (primarily
mortgage-backed securities).................. 572,763 580,372
Total fixed maturities........................ $ 1,769,879 $ 1,807,362
Investment Income and Investment Gains (Losses)
Major categories of investment income are summarized as follows:
1996 1995 1994
Gross investment income:
Fixed maturities................ $ 126,733 $ 121,003 $ 112,120
Equity securities................. 22,202 20,885 22,450
Policy loans...................... 10,327 9,485 7,369
Short-term investments............ 16,946 18,648 12,344
Other Invested Assets............ 553 490 589
Gross investment income.......... 176,761 170,511 154,872
Less investment expenses........ 3,178 3,491 4,554
Net investment income........... $ 173,583 $ 167,020 $ 150,318
<TABLE>
The major categories of investment gains and losses
reflected in the income statement are summarized as
follows:
<CAPTION>
1996 1995 1994
Realized Realized Realized
Unrealized Unrealized - Unrealized
-Trading Trading -Trading
Securities Securities Securities
<S> <C> <C> <C> <C> <C> <C>
Fixed maturities................. $ 8,047 $ (438) $ 14,303 $ 834 $ (6,115) $ (591)
Equity securities................ (1,196) 6,638 (12,608) 6,223 (11,669) (12,686)
Other............................ (12) - 67 - 20 -
Net investment gains (losses) $ 6,839 $ 6,200 $ 1,762 $ 7,057 $ (17,764) $ (13,277)
</TABLE>
<TABLE>
Proceeds from the sale of available-for-sale securities
and the gross realized gains and losses on these sales
(excluding maturities, calls and prepayments) during 1996,
1995, and 1994 were as follows:
<CAPTION>
1996 1995 1994
Fixed Fixed Fixed
Maturities Equity Maturities Equity Maturities Equity
<S> <C> <C> <C> <C> <C> <C>
Proceeds from sales $ 1,020,090 $ 106,354 $ 651,092 $ 51,547 $ 489,418 $ 12,171
Gross realized gains 10,418 787 15,205 617 4,634 254
Gross realized losses 5,030 1,954 4,241 2,802 11,115 1,003
</TABLE>
Other
At December 31, 1996, and 1995, securities
amounting to approximately $16,816 and $16,518,
respectively, were on deposit with regulatory authorities
as required by law.
The Company periodically enters into repurchase
agreements with brokerage firms. No investments were
outstanding under repurchase agreements at December
31, 1996 and 1995.
The Company generally strives to maintain a
diversified invested assets portfolio. Other than
investments in U.S. Government or U.S. Government
Agency or Authority, the Company had no investments in
one entity which exceeded 10% of stockholders' equity
at December 31, 1996, except for an investment in
Apollo Computers with a carrying value of $75,139.
(4) Income Taxes
The significant components of the provision for
federal income taxes are as follows:
1996 1995 1994
Current..............................$ 19,644 $ 34,424 $ 16,790
Deferred............................. 12,177 (5,721) (6,953)
Total federal income tax expense.....$ 31,821 $ 28,703 $ 9,837
Income tax expense differs from the amounts
computed by applying the U.S. Federal income tax rate
of 35% to income before income taxes as follows:
1996 1995 1994
At statutory Federal income tax rate........$ 32,151 $ 29,980 $ 11,755
Dividends received deductions............... (1,391) (1,718) (1,798)
Other, net.................................. 1,061 441 (120)
Total federal income tax expense.........$ 31,821 $ 28,703 $ 9,837
The federal income tax liability as of December 31 is
comprised of the following:
1996 1995
Net deferred income tax liability.......... $ 33,432 $ 27,913
Income taxes currently due................. 5,883 3,106
Federal income tax liability............. $ 39,315 $ 31,019
<TABLE>
The tax effects of temporary differences that give rise
to significant portions of the deferred income tax assets
and deferred income tax liabilities at December 31 are as
follows:
<CAPTION>
1996 1995
<S> <C> <C>
Deferred tax liabilities:
Present value of future profits of acquired businesses........ $ 7,458 $ 9,276
Deferred policy acquisition costs............................. 114,971 112,818
Investments................................................... 17,541 22,330
Other......................................................... 2,909 -
Total deferred income tax liabilities....................... 142,879 144,424
Deferred tax assets:
Policy liabilities and reserves............................... 109,447 115,547
Other......................................................... - 964
Total gross deferred income tax assets...................... 109,447 116,511
Net deferred income tax liability........................... $ 33,432 $ 27,913
</TABLE>
Prior to 1984, certain special deductions were allowed
life insurance companies for federal income tax
purposes. These special deductions 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 balance in the policyholders'
surplus account at December 31, 1996.
(5) Reinsurance
The Company is involved in both the cession and
assumption of reinsurance with other companies.
Reinsurance premiums and claims ceded and assumed
for the years ended December 31 are as follows:
1996 1995 1994
Ceded Assumed Ceded Assumed Ceded Assumed
Premiums written... $ 13,759 $ 7,116 $ 13,165 $ 5,368 $ 7,516 $ 5,210
Claims incurred.... 12,170 6,068 11,899 5,204 7,546 7,069
The Company presently reinsures the excess of each
individual risk over $500 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 January 1, 1996, the Company assumed
certain policy risks ($22,591,000 of life insurance in force
at December 31, 1996) from its affiliate, North American
Company for Life and Health Insurance, and its
subsidiaries. The Company has reflected a risk and
profit charge of $1,119 in other income.
(6) Statutory Financial Data and Dividend
Restrictions
The Company is domiciled in South Dakota. Its
statutory-basis financial statements are prepared in
accordance with accounting practices prescribed or
permitted by the insurance department of the domiciliary
state. "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" statutory accounting practices
encompass all accounting practices that are not
prescribed. Such practices differ from state to state and
company to company.
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, without prior approval of the insurance
commissioner, is limited according to statutory
regulations and is a function of statutory equity and
statutory net income (generally, the greater of
statutory-basis net gain from operations or 10% of prior
year-end statutory-basis surplus). The maximum
amount of dividends payable in 1997 without prior
approval of regulatory authorities is approximately
$30,000.
Combined statutory net income of the Company
and its insurance subsidiaries for the years ended
December 31, 1996 and 1995 is approximately $16,000
and $39,000, respectively, and capital and surplus at
December 31, 1996 and 1995 is approximately $300,000
and $284,000, respectively, in accordance with statutory
accounting principles.
(7) Employee Benefits
Midland participates in a noncontributory defined
benefit pension plan sponsored by SEI which covers
substantially all home office employees of Midland. Prior
to 1996, the Company sponsored its own
noncontributory defined benefit pension plan which was
merged with a similar benefit plan of SEI on January 1,
1996. Pension benefits are generally based upon years
of service and include accruing pension cost currently,
contributing the maximum amount deductible for federal
income taxes and meeting minimum funding standards of
the Employee Retirement Income Security Act of 1974
as determined by an actuarial valuation. Plan assets
consist primarily of cash equivalents, listed stocks and
bonds, and group annuity contracts with a subsidiary
insurance company.
The following table sets forth the funded status and
the amounts recognized in the consolidated financial
statements at December 31 for the qualified plan. The
1996 amounts reflect an allocation of the Company's
portion of the SEI plan:
1996 1995
Accumulated benefit obligation:
Vested...................................... $ 2,192 $ 2,395
Nonvested................................ 283 400
Total accumulated benefit obligation...... $ 2,475 $ 2,795
Fair value of plan assets................. $ 3,400 $ 3,750
Projected benefit obligation.............. (3,786) (4,091)
Funded Status............................. (386) (341)
Unrecognized net gain..................... 613 817
Unrecognized prior service costs........... 41 56
Net asset recognized in financial statements $ 268 $ 532
The net periodic pension cost included the following components:
1996 1995 1994
Service cost -- benefits earned during the period.. 285 $ 248 $ 250
Interest cost on projected benefit obligation..... 291 283 300
Return on plan assets............................. (619) (220) (200)
Net amortization and deferral..................... 306 (53) (47)
Net periodic pension cost........................$ 263 $ 258 $ 303
The weighted-average discount rate used in
determining the actuarial present value of the projected
benefit obligations was 7.25% for 1996 and 1995. The
average rate of increase in future compensation levels
was 4.25% for 1996 and 5.5% for 1995. The expected
long-term rate of return on plan assets used to develop
the net periodic pension cost was 8.75% in 1996 and
1995, and 8.0% in 1994.
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 expense for 1996,
1995, and 1994 was $1,700, $2,096, and $767,
respectively. All contributions to the ESOP are held in
trust.
The Company provides certain post-retirement health
care and life insurance benefits for eligible active and
retired employees through a defined benefit plan.
The actuarial and recorded liabilities for these post-
retirement benefits at December 31, none of which were
funded, are as follows:
1996 1995
Accumulated postretirement benefit obligation:
Retirees...................................... $ 1,718 $ 1,235
Fully eligible active plan participants....... 170 274
Other active plan participants................. 191 560
2,079 2,069
Unrecognized loss.................................. (135) (101)
Accrued postretirement benefit obligation......$ 1,944 $ 1,9968
The net periodic cost for postretirement benefits
other than pensions for the years ended December 31
included the following components:
1996 1995 1994
Service cost - benefits earned during the period...$ 16 $ 16 $ 13
Interest cost on other post-retirement benefits.... 148 164 144
Net amortization................................... - 10 10
Total periodic expense...........................$ 164 190 167
The weighted average annual assumed rate of
increase in the per capita cost of covered benefits (i.e.
health care cost trend rate) reflects a 7.5% rate in 1996
grading down to 4.5% in years 2006 and later.
Increasing the assumed health care cost trend rate by
one percentage point would increase the accumulated
postretirement benefit obligation at December 31, 1996
by $185 and the aggregate of the service and interest
cost components of the net periodic postretirement
benefit cost for 1996 by $13. The weighted average
discount rate used in determining the accumulated
postretirement benefit obligation was 7.25% and 7.75%
at December 31, 1996 and 1995, respectively.
(8) Commitments and Contingencies
The Company had $35,000 of outstanding
commitments to purchase trust certificates secured by
government guaranteed notes.
Midland'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 of
Industrial Revenue Bonds for face value. The bonds are
collateralized by $4,173 of Midland's investments in
government bonds. The lease includes a purchase
option under which Midland may repurchase the building
upon repayment of all bonds issued. The lease terms
provide for 10 annual payments equivalent to principal of
$425 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 as
part of other assets and the lease obligation as part of
other liabilities.
The Company also leases certain equipment. Rental
expense on operating leases amounted to $1,048, $548
and $14 for the years ended December 31, 1996, 1995
and 1994, respectively. The minimum future rentals on
capital and operating leases at December 31, 1996 are
as follows:
Year ending December 31,
<TABLE>
Capital Operating Total
<S> <C> <C> <C>
1997.......... $ 559 $ 926 $ 1,485
1998.......... 536 946 1,482
1999.......... 513 855 1,368
2000.......... 489 358 847
2001.......... 466 369 835
Thereafter..... 442 - 442
Total........ 3,005 $ 3,454 $6,459
Less amount representing interest...... 455
Present value of amounts due under capital leases.... $ 2,550
</TABLE>
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.
The Company is liable for guaranty fund assessments
related to certain unaffiliated insurance companies that
have become insolvent. These assessments are reflected
in the operating results of the Company. The Company is
also contingently liable for any future guaranty fund
assessments related to the insolvencies of unaffiliated
insurance companies. An accrual of $2,184 and $2,166
has been included in the December 31, 1996 and 1995
balance sheets, respectively. These accruals were
calculated by estimating the Company's share of both
open and closed insolvencies based on industry data
provided to the Company.
(9) Other Related Party Transactions
The Company pays fees to SEI under management
contracts. The Company was charged $1,458, $2,778,
and $70 in 1996, 1995, and 1994, respectively, related to
these contracts.
The Company pays investment management fees to
an affiliate (Midland Advisors Company). Net fees
related to these services were $1,339 and $66 in 1996
and 1995, respectively.
(..continued)
2
The accompanying notes are an integral part of the financial statements.
4
37
MIDLAND NATIONAL LIFE INSURANCE COMPANY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Amounts in thousands)
MIDLAND NATIONAL LIFE INSURANCE COMPANY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)
(Amounts in thousands)
<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.
UNDRTAKE VULVUL2
<PAGE>
REPRESENTATIONS PURSUANT TO SECTION 26 (e) OF THE INVESTMENT COMPANY ACT
Midland National Life Insurance Company hereby represents that the
fees and charges deducted under the Contract, in the aggregate, are
reasonable in relation to the services rendered, the expenses expected
to be incurred, and the risks assumed by Midland National Life Insurance
Company.
S-6FORM VULVUL2
<PAGE>
CONTENTS OF REGISTRATION STATEMENT
----------------------------------
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) Sutherland, Asbill & Brennan, L.L.P.
(c) Russell A. Evenson, FSA.
(d) Coopers & Lybrand, L.L.P.
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. **
--------------------
(4) Not applicable.
(5) Form of Contract. *
- -----------------------
* Filed previously in Original filing on March 10, 1994.
** Filed previously in Pre-Effective Amendment No. 1 on October 26, 1994.
(6) (a) Articles of Incorporation of Midland National Life. *
(b) By-Laws of Midland National Life. *
(7) Not applicable.
(8) (a) Participation Agreements for Fidelity Distributors
Corporation/Variable Insurance Products Fund, and
Variable Products Fund II. *
(8) (b) Participation Agreement for Fidelity Distributors
Corporation/Variable Insurance Products Fund III.
(8) (c) Participation Agreement for American Century Investment
Services, Inc.
(9) Not applicable.
(10) Application Form. *
(11) Memorandum describing Midland National Life's insurance, transfer
and redemption procedures for the Contract. **
2. See Exhibit 1(5).
---
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 Sutherland, Asbill & Brennan, L.L.P.
8. Consent of Coopers & Lybrand, L.L.P.
27. Financial Data Schedule
- -----------------------
* Filed previously in Original filing on March 10, 1994.
** Filed previously in Pre-Effective Amendment No. 1 on October 26, 1994.
CONTENTS VUL2MNL
<PAGE>
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, 1997.
Midland National Life Separate Account A
(Registrant)
(Seal) By: Midland National Life Insurance
Company
(Depositor)
Attest:_Jack_L._Briggs___________ By:__Michael_M._Masterson_____________
Secretary President
VUL2
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, 1997
John C. Watson
Michael_M._Masterson_____ Director, Chief Operating April 25, 1997
Michael M. Masterson Officer, Chief Executive
Officer, President
William_D._Sims__________ Director, Senior Vice April 25, 1997
William D. Sims President
Russell_A._Evenson_______ Director, Senior Vice April 25, 1997
Russell A. Evenson President
John_J._Craig_II_________ Director, Senior Vice April 25, 1997
John J. Craig II President (Principal
Financial Officer,
Principal Accountant)
_________________________ Director April 25, 1997
Robert W. Korba
_________________________ Director April 25, 1997
James N. Whitson
SEC0501 MNLVUL2
<PAGE>
Registration No. 33-76318
POST EFFECTIVE AMENDMENT NO.3
________________________________________________________________________________
- --------------------------------------------------------------------------------
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
____________________________________
________________________________________________________________________________
- --------------------------------------------------------------------------------
EXHFACE VUL2MNL
<PAGE>
EXHIBIT INDEX
Exhibit
_________
1.(3) (a) Principal Underwriting Agreement
1.(8) (b) Participation Agreement - Fidelity
1.(8) (c) Participation Agreement - American Century
6. Opinion and Consent of Russell A. Evenson, Senior
Vice President and Actuary of Midland National Life
7. Consent of Sutherland, Asbill & Brennan, L.L.P.
8. Consent of Coopers & Lybrand, L.L.P.
27. Financial Data Schedule
INDEX VULVUL2
<PAGE>
EXHIBIT 1.(3)(a)
PRINCIPAL UNDERWRITING AGREEMENT
THIS UNDERWRITING AGREEMENT made this 1st day of June, 1996, by and
between Walnut Street Securities (hereinafter called "WSS") and
Midland National Life Insurance Company (hereinafter called the
"Company"), on its own behalf and on behalf of Midland National Life
Insurance Separate Account A and Separate Account C (hereinafter
"Separate Accounts"), separate accounts of the Company, witnessed
that:
WHEREAS, the Separate Accounts were established under authority of a
resolution of the Company's Board of Directors so the Company could
set aside and invest assets attributable to certain flexible premium
variable life contracts and variable deferred annuity contracts
(hereinafter called the "Contracts") issued by the Company;
WHEREAS, the Company has registered the Separate Accounts as unit
investment trusts under the Investment Company Act of 1940 (the
"Investment Company Act") and has registered the Contracts under
the Securities Act of 1933;
WHEREAS, the Company and the Separate Accounts desire to have
Contracts sold and distributed through WSS and WSS is willing to sell
and distribute such Contracts under the terms stated hereinafter.
NOW THEREFORE, for and in consideration of these premises and the
covenants and agreements hereinafter stated, the parties hereto agree
as follows:
1. The Company grants to WSS the right to be, and WSS agrees to serve
as, a distributor and principal underwriter of the Contracts during
the term of this Agreement. WSS agrees to use its best efforts to
solicit applications for the Contracts, and to undertake, at its own
expense, to provide all sales services relative to the Contracts and
otherwise to perform all duties and functions which are necessary and
proper for the distribution of the Contracts.
2. All premiums for the Contracts shall be remitted promptly in full
together with such application forms and any other required
documentation to the Company. Checks or money orders in payment of
premium shall be drawn to the order of "Midland National Life
Insurance Company."
3. WSS agrees to offer the Contracts for sale in accordance with the
prospectus therefor then in effect. WSS is not authorized to give
any information or to make any representations concerning the
Contracts other than those contained in the current prospectus
therefor filed with the Securities and Exchange Commission or in such
sales literature as may be authorized by the Company. Neither WSS
nor any person, entity, agent or representative or associated through
it shall make, use or provide any advertisement, sales document,
circular, or any other document to a customer in connection with a
solicitation or sale unless with the prior approval of the Company.
4. On behalf of the Separate Accounts, the Company shall furnish WSS with
copies of all prospectuses, financial statements and other documents
which WSS reasonably requests for use in connection with the
distribution of the Contracts.
5. WSS represents that it is duly registered as a broker-dealer under
the Securities Exchange Act and is a member in good standing of the
NASD and, to the extent necessary to offer the Contracts, shall be
duly registered or otherwise qualified under the securities and
insurance laws of any state or other jurisdiction. WSS shall be
responsible for carrying out its sales and underwriting obligations
hereunder in continued compliance with the NASD Rules of Fair
Practice and federal and state securities and insurance laws and
regulations. Without limiting the generality of the foregoing, WSS
agrees that it shall be fully responsible for:
(a) ensuring that no person shall offer or sell the Contracts on
its behalf until such person is duly registered as a
representative of WSS, duly licensed and appointed by the
Company, and appropriately licensed, registered, or otherwise
qualified to offer and sell such Contracts under the federal
securities and insurance laws and any applicable securities and
insurance laws of each state or other jurisdiction in which such
Contracts may be lawfully sold, in which the Company is licensed
to sell the Contracts, and in which such persons shall offer or
sell the Contracts; and
(b) training, supervising, and controlling of all such persons for
purposes of complying on a continuous basis with the NASD Rules
of Fair Practice and with federal and state securities and
insurance law requirements applicable in connection with the
offering and sale of the Contracts. In this connection WSS
shall:
(1) conduct such training (including the preparation and utilization
of training materials) as in the opinion of WSS is necessary to
accomplish the purposes of this Agreement;
(2) establish and implement reasonable written procedures for
supervision of sales practices of WSS agents, representatives,
or brokers selling the Contracts; and
(3) take all reasonable and appropriate steps to ensure that its
associated persons shall not sell a Contract in the absence of
reasonable grounds to believe that the purchase of the Contract
is suitable for such applicant.
6. Notwithstanding anything in this Agreement to the contrary, the
Company through WSS, may enter into sales agreements with other
independent broker-dealers for the sale of the Contracts. All such
sales agreements entered into by WSS shall provide that each
independent broker-dealer will assume full responsibility for
continued compliance by itself and its associated persons with the
NASD Rules of Fair Practice and applicable federal and state
securities and insurance laws. All associated persons of such
independent broker-dealers soliciting applications for the Contracts
shall be duly and appropriately licensed, contracted or appointed by
the Company for the sale of the Contracts under the insurance laws of
the applicable states or jurisdictions in which such Contracts may be
lawfully sold.
7. The Company shall apply for the proper insurance licenses in the
appropriate states or jurisdictions for the designated persons
associated with WSS or with other independent broker-dealers which
have entered into agreements with WSS for the sale of the Contracts,
provided that the Company reserves the right in its sole discretion
to refuse to appoint any proposed registered representative as an
agent or broker, and to terminate the insurance license, contract or
appointment of an agent or broker once appointed. Agents and
representatives associated with WSS and other independent broker-
dealers are deemed independent contractors and nothing in this
Agreement shall be construed to create the relationship of employer
and employee.
8. The Company and WSS shall cause to be maintained and preserved for
the periods prescribed such accounts, books, and other documents as
are required of them by the Investment Company Act, the Security
Exchange Act, the NASD, and any other applicable laws and
regulations. The books, accounts and records of the Company, the
Separate Accounts, and WSS as to all transactions hereunder shall be
maintained so as to disclose clearly and accurately the nature and
details of the transactions. The Company shall maintain such books
and records of WSS pertaining to the sale of the Contracts and
required by the Security Exchange Act or the NASD as may be mutually
agreed upon from time to time by the Company and WSS; provided that
such books and records shall be jointly owned property of WSS and the
Company, and shall at all times be subject to such reasonable
periodic, special or other examination by the SEC, the NASD, and all
other regulatory bodies having jurisdiction. The Company shall have
complete use of, and right to the information contained in such books
and records. The Company shall be responsible for sending all
required confirmations on customer transactions in compliance with
applicable regulations, as modified by any exemptions or other relief
obtained by the Company. WSS shall cause the Company to be promptly
furnished with such reports as the Company may reasonably request for
the purpose of meeting its reporting and recordkeeping requirements
under all Federal and State Laws and Regulations, the Investment
Company Act, Security Exchange Act, the NASD, and the insurance laws
of the State of South Dakota and any other applicable states or
jurisdictions.
9. The Company shall have the responsibility for paying (i) all
commissions or other fees to its licensed or appointed representatives
and agents which are due for the sale of the Contracts and (ii) any
compensation to other independent broker-dealers and their associated
persons due for the sale of the Contracts under the terms of any sales
agreements between the Company and with such broker-dealers.
Notwithstanding the preceding sentence, no associated person or
broker-dealer shall have an interest in any deductions or other fees
payable to WSS as set forth herein.
10. WSS and the Company agree to cooperate fully in any insurance
regulatory investigation or proceeding or judicial proceeding
arising in connection with the Contracts distributed under this
Agreement. WSS and the Company further agree to cooperate fully in
any securities regulatory inspection, inquiry, investigation or
proceeding or any judicial proceeding with respect to the Company,
WSS, their affiliates and their representatives to the extent that
such inspection, inquiry, investigation or proceeding is in
connection with Contracts distributed under this Agreement.
Without limiting the foregoing:
(a) WSS will be notified promptly of any customer complaint or
notice of any regulatory inspection, inquiry, investigation or
proceeding received by the Company with respect to WSS or any
representative or which may affect the Company's issuance of any
Contract marketed under this Agreement.
(b) WSS will promptly notify the Company of any customer complaint or
notice of any regulatory inspection, inquiry, investigation or
proceeding received by WSS or its affiliates with respect to WSS
or any representative in connection with any Contract distributed
under this Agreement or any activity in connection with any such
Contract. In the case of a customer complaint, WSS and the
Company will cooperate in investigating such complaint and arrive
at a mutually satisfactory response.
11. The services of WSS to the Separate Accounts hereunder are not to be
deemed exclusive and WSS shall be free to render similar services to
others so long as its services hereunder are not impaired or
interfered with thereby.
12. (a) This Agreement may be terminated by either party hereto upon 60
days' written notice to the other party.
(b) This Agreement may be terminated upon written notice of one party
to the other party hereto in the event of bankruptcy or insolvency
of such party to which notice is given.
(c) This Agreement may be terminated at any time upon the mutual
written consent of the parties thereto.
(d) This Agreement shall automatically be terminated in the event of
its assignment.
(e) Upon termination of this Agreement, all authorizations, rights and
obligations shall cease except the obligations to settle accounts
hereunder, including payments of premiums or contributions
subsequently received for Contracts in effect at the time of
termination of the Contracts issued pursuant to applications
received by the Company prior to termination.
13. All notices, requests, demands, and other communications required or
permitted under this Agreement shall be in writing and shall be
deemed to have been duly given and made upon being delivered either
by courier or fax delivery to the Party for whom it is intended,
provided that a copy thereof is deposited, postage prepaid, certified
or registered mail, return receipt requested, in the United States
mail, bearing the address shown in this Section 13 for, or such other
address as may be designated in writing hereafter by, such part;
(a) If to WSS: Walnut Street Securities, Inc.
670 Mason Ridge Center Drive
Suite 300
St. Louis, Missouri 63141
Attention: Nancy L. Gucwa
(b) If to the Company: Midland National Life Insurance
Company
One Midland Plaza
Sioux Falls, South Dakota 57193
Attention: Michael M. Masterson
14. This Agreement shall be subject to the provisions of Investment
Company Act and the Securities Exchange Act and the rules,
regulations, and rulings thereunder and of the NASD, from time to
time in effect, including such exemptions from the Investment Company
Act as the Securities and Exchange Commission may grant, and the
terms hereof shall be interpreted and construed in accordance
therewith. Without limiting the generality of the foregoing, the
term "assigned" shall not include any transaction exempted from
section 15(b)(2) of the Investment Company Act.
WSS shall submit to all regulatory and administrative bodies having
jurisdiction over the operations of the Separate Accounts, present or
future, any information, reports or other material which any such body
by reason of this Agreement may request or require pursuant to
applicable laws or regulations.
15. The Company agrees to reimburse WSS the estimated annual costs WSS
incurs in connection with certain financial reporting WSS has to make
relating to the sale of the Contracts described herein. Such
estimated annual costs shall be mutually agreed upon by WSS and the
Company for each calendar year on or before September of the preceding
year, except that the estimated costs for 1996 of Sixty-Five Hundred
Dollars ($6,500) shall be paid by the Company to WSS within 20 days
following the execution of this Agreement by both parties. Within 20
days following the end of each calendar year during the term of this
Agreement, the Company shall make a payment to WSS for the mutually
agreed upon estimated costs.
16. Company shall indemnify and hold WSS, its officers, employees, agents,
and affiliated companies, harmless from all claims, actions, suits,
judgments, liabilities, losses, costs and expenses, including
reasonable attorneys' fees, which result, directly or indirectly,
from any negligent act, omission or misrepresentation of Company,
arising out of the sale of the Contracts or for breach of the
Agreement.
WSS shall indemnify and hold the Company, its officers, employees,
agents, and its affiliated companies harmless from any and all
claims, actions, suits, judgments, liabilities, losses, costs and
expenses, including reasonable attorneys' fees, which result,
directly or indirectly, from any negligent act, omission or
misrepresentation of WSS arising out of the sale of the Contracts
or any of its representatives or agents, or for breach of the
Agreement.
The agreements of indemnification contained in this Paragraph 16
shall survive the termination of this Agreement and be binding on
the successors and assigns of the parties hereto.
17. If any provision of this Agreement shall be held or made invalid by
a court decision, statute, rule or otherwise, the remainder of this
Agreement shall not be affected thereby.
18. This Agreement shall be construed and enforced in accordance with
the governed by the laws of the State of South Dakota.
IN WITNESS WHEREOF, the parties hereto have caused this Agreement to
be signed by their respective officials thereunder duly authorized
and seals to be affixed, as of the day and year first above written.
MIDLAND NATIONAL LIFE INSURANCE COMPANY
Attest: __Jack_L._Briggs__
Jack L. Briggs, Secretary
By: __Michael_M._Masterson__
Michael M. Masterson, President
WALNUT STREET SECURITIES
Attest:
, Secretary
By: __Nancy_L._Gucwa__
Nancy L. Gucwa, Chief Operating Officer
0012DRA2
<PAGE>
EXHIBIT 1(8)(b)
PARTICIPATION AGREEMENT
Among
VARIABLE INSURANCE PRODUCTS FUND III,
FIDELITY DISTRIBUTORS CORPORATION
and
MIDLAND NATIONAL LIFE INSURANCE COMPANY
THIS AGREEMENT, made and entered into as of the
3rd day of April, 1997 by and among MIDLAND
NATIONAL LIFE INSURANCE COMPANY, (hereinafter
the "Company"), a South Dakota corporation, on its own
behalf and on behalf of each segregated asset account of the
Company set forth on Schedule A hereto as may be
amended from time to time (each such account hereinafter
referred to as the "Account"), and the VARIABLE
INSURANCE PRODUCTS FUND III, an unincorporated
business trust organized under the laws of the
Commonwealth of Massachusetts (hereinafter the "Fund")
and FIDELITY DISTRIBUTORS CORPORATION
(hereinafter the "Underwriter"), a Massachusetts
corporation.
WHEREAS, the Fund engages in business as an open-
end management investment company and is available to
act as the investment vehicle for separate accounts
established for variable life insurance policies and variable
annuity contracts (collectively, the "Variable Insurance
Products") to be offered by insurance companies which
have entered into participation agreements with the Fund
and the Underwriter (hereinafter "Participating Insurance
Companies"); and
WHEREAS, the beneficial interest in the Fund is
divided into several series of shares, each representing the
interest in a particular managed portfolio of securities and
other assets, any one or more of which may be made
available under this Agreement, as may be amended from
time to time by mutual agreement of the parties hereto
(each such series hereinafter referred to as a "Portfolio");
and
WHEREAS, the Fund has obtained an order from the
Securities and Exchange Commission, dated September 17,
1986 (File No. 812-6422), granting Participating Insurance
Companies and variable annuity and variable life insurance
separate accounts exemptions from the provisions of
sections 9(a), 13(a), 15(a), and 15(b) of the Investment
Company Act of 1940, as amended, (hereinafter the "1940
Act") and Rules 6e-2(b) (15) and 6e-3(T) (b) (15)
thereunder, to the extent necessary to permit shares of the
Fund to be sold to and held by variable annuity and variable
life insurance separate accounts of both affiliated and
unaffiliated life insurance companies (hereinafter the
"Shared Funding Exemptive Order"); and
WHEREAS, the Fund is registered as an open-end
management investment company under the 1940 Act and
its shares are registered under the Securities Act of 1933, as
amended (hereinafter the "1933 Act"); and
WHEREAS, Fidelity Management & Research
Company (the "Adviser") is duly registered as an
investment adviser under the federal Investment Advisers
Act of 1940 and any applicable state securities law; and
WHEREAS, the Company has registered or will register
certain variable life insurance and variable annuity
contracts under the 1933 Act; and
WHEREAS, each Account is a duly organized, validly
existing segregated asset account, established by resolution
of the Board of Directors of the Company, on the date
shown for such Account on Schedule A hereto, to set aside
and invest assets attributable to the aforesaid variable
annuity contracts; and
WHEREAS, the Company has registered or will register
each Account as a unit investment trust under the 1940 Act;
and
WHEREAS, the Underwriter is registered as a broker
dealer with the Securities and Exchange Commission
("SEC") under the Securities Exchange Act of 1934, as
amended, (hereinafter the "1934 Act"), and is a member in
good standing of the National Association of Securities
Dealers, Inc. (hereinafter "NASD"); and
WHEREAS, to the extent permitted by applicable
insurance laws and regulations, the Company intends to
purchase shares in the Portfolios on behalf of each Account
to fund certain of the aforesaid variable life and variable
annuity contracts and the Underwriter is authorized to sell
such shares to unit investment trusts such as each Account
at net asset value;
NOW, THEREFORE, in consideration of their mutual
promises, the Company, the Fund and the Underwriter
agree as follows:
ARTICLE I. Sale of Fund Shares
1.1. The Underwriter agrees to sell to the Company
those shares of the Fund which each Account orders,
executing such orders on a daily basis at the net asset value
next computed after receipt by the Fund or its designee of
the order for the shares of the Fund. For purposes of this
Section 1.1, the Company shall be the designee of the Fund
for receipt of such orders from each Account and receipt by
such designee shall constitute receipt by the Fund; provided
that the Fund receives notice of such order by 9:30 a.m.
Boston time on the next following Business Day.
"Business Day" shall mean any day on which the New
York Stock Exchange is open for trading and on which the
Fund calculates its net asset value pursuant to the rules of
the Securities and Exchange Commission.
1.2. The Fund agrees to make its shares available
indefinitely for purchase at the applicable net asset value
per share by the Company and its Accounts on those days
on which the Fund calculates its net asset value pursuant to
rules of the Securities and Exchange Commission and the
Fund shall use reasonable efforts to calculate such net asset
value on each day which the New York Stock Exchange is
open for trading. Notwithstanding the foregoing, the Board
of Trustees of the Fund (hereinafter the "Board") may
refuse to sell shares of any Portfolio to any person, or
suspend or terminate the offering of shares of any Portfolio
if such action is required by law or by regulatory authorities
having jurisdiction or is, in the sole discretion of the Board
acting in good faith and in light of their fiduciary duties
under federal and any applicable state laws, necessary in
the best interests of the shareholders of such Portfolio.
1.3. The Fund and the Underwriter agree that shares of
the Fund will be sold only to Participating Insurance
Companies and their separate accounts. No shares of any
Portfolio will be sold to the general public.
1.4. The Fund and the Underwriter will not sell Fund
shares to any insurance company or separate account unless
an agreement containing provisions substantially the same
as Articles I, III, V, VII and Section 2.5 of Article II of this
Agreement is in effect to govern such sales.
1.5. The Fund agrees to redeem for cash, on the
Company's request, any full or fractional shares of the Fund
held by the Company, executing such requests on a daily
basis at the net asset value next computed after receipt by
the Fund or its designee of the request for redemption. For
purposes of this Section 1.5, the Company shall be the
designee of the Fund for receipt of requests for redemption
from each Account and receipt by such designee shall
constitute receipt by the Fund; provided that the Fund
receives notice of such request for redemption on the next
following Business Day.
1.6. The Company agrees that purchases and
redemptions of Portfolio shares offered by the then current
prospectus of the Fund shall be made in accordance with
the provisions of such prospectus. The Company agrees
that all net amounts available under the variable life and
annuity contracts with the form number(s) which are listed
on Schedule A attached hereto and incorporated herein by
this reference, as such Schedule A may be amended from
time to time hereafter by mutual written agreement of all
the parties hereto, (the "Contracts") shall be invested in the
Fund, in such other Funds advised by the Adviser as may
be mutually agreed to in writing by the parties hereto, or in
the Company's general account, provided that such amounts
may also be invested in an investment company other than
the Fund if (a) such other investment company, or series
thereof, has investment objectives or policies that are
substantially different from the investment objectives and
policies of all the Portfolios of the Fund; or (b) the
Company gives the Fund and the Underwriter 45 days
written notice of its intention to make such other
investment company available as a funding vehicle for the
Contracts; or (c) such other investment company was
available as a funding vehicle for the Contracts prior to the
date of this Agreement and the Company so informs the
Fund and Underwriter prior to their signing this Agreement
(a list of such funds appearing on Schedule C to this
Agreement); or (d) the Fund or Underwriter consents to the
use of such other investment company.
1.7. The Company shall pay for Fund shares on the next
Business Day after an order to purchase Fund shares is
made in accordance with the provisions of Section 1.1
hereof. Payment shall be in federal funds transmitted by
wire. For purpose of Section 2.10 and 2.11, upon receipt
by the Fund of the federal funds so wired, such funds shall
cease to be the responsibility of the Company and shall
become the responsibility of the Fund.
1.8. Issuance and transfer of the Fund's shares will be
by book entry only. Stock certificates will not be issued to
the Company or any Account. Shares ordered from the
Fund will be recorded in an appropriate title for each
Account or the appropriate subaccount of each Account.
1.9. The Fund shall furnish same day notice (by wire or
telephone, followed by written confirmation) to the
Company of any income, dividends or capital gain
distributions payable on the Fund's shares. The Company
hereby elects to receive all such income dividends and
capital gain distributions as are payable on the Portfolio
shares in additional shares of that Portfolio. The Company
reserves the right to revoke this election and to receive all
such income dividends and capital gain distributions in
cash. The Fund shall notify the Company of the number of
shares so issued as payment of such dividends and
distributions.
1.10. The Fund shall make the net asset value per share
for each Portfolio available to the Company on a daily basis
as soon as reasonably practical after the net asset value per
share is calculated (normally by 6:30 p.m. Boston time) and
shall use its best efforts to make such net asset value per
share available by 7 p.m. Boston time.
ARTICLE II. Representations and Warranties
2.1. The Company represents and warrants that the
Contracts are or will be registered under the 1933 Act; that
the Contracts will be issued and sold in compliance in all
material respects with all applicable Federal and State laws
and that the sale of the Contracts shall comply in all
material respects with state insurance suitability
requirements. The Company further represents and
warrants that it is an insurance company duly organized and
in good standing under applicable law and that it has
legally and validly established each Account prior to any
issuance or sale thereof as a segregated asset account under
Section 58-28 of the South Dakota Insurance Code and has
registered or, prior to any issuance or sale of the Contracts,
will register each Account as a unit investment trust in
accordance with the provisions of the 1940 Act to serve as
a segregated investment account for the Contracts.
2.2. The Fund represents and warrants that Fund shares
sold pursuant to this Agreement shall be registered under
the 1933 Act, duly authorized for issuance and sold in
compliance with the laws of the State of South Dakota and
all applicable federal and state securities laws and that the
Fund is and shall remain registered under the 1940 Act.
The Fund shall amend the Registration Statement for its
shares under the 1933 Act and the 1940 Act from time to
time as required in order to effect the continuous offering of
its shares. The Fund shall register and qualify the shares
for sale in accordance with the laws of the various states
only if and to the extent deemed advisable by the Fund or
the Underwriter.
2.3. The Fund represents that it is currently qualified as
a Regulated Investment Company under Subchapter M of
the Internal Revenue Code of 1986, as amended, (the
"Code") and that it will make every effort to maintain such
qualification (under Subchapter M or any successor or
similar provision) and that it will notify the Company
immediately upon having a reasonable basis for believing
that it has ceased to so qualify or that it might not so
qualify in the future.
2.4. The Company represents that the Contracts are
currently treated as endowment, life insurance or annuity
contracts, under applicable provisions of the Code and that
it will make every effort to maintain such treatment and
that it will notify the Fund and the Underwriter
immediately upon having a reasonable basis for believing
that the Contracts have ceased to be so treated or that they
might not be so treated in the future.
2.5. The Fund currently does not intend to make any
payments to finance distribution expenses pursuant to Rule
12b-1 under the 1940 Act or otherwise, although it may
make such payments in the future. The Fund has adopted a
"no fee" or "defensive" Rule 12b-1 Plan under which it
makes no payments for distribution expenses. To the
extent that it decides to finance distribution expenses
pursuant to Rule 12b-1, the Fund undertakes to have a
board of trustees, a majority of whom are not interested
persons of the Fund, formulate and approve any plan under
Rule 12b-1 to finance distribution expenses.
2.6. The Fund makes no representation as to whether
any aspect of its operations (including, but not limited to,
fees and expenses and investment policies) complies with
the insurance laws or regulations of the various states
except that the Fund represents that the Fund's investment
policies, fees and expenses are and shall at all times remain
in compliance with the laws of the State of South Dakota
and the Fund and the Underwriter represent that their
respective operations are and shall at all times remain in
material compliance with the laws of the State of South
Dakota to the extent required to perform this Agreement.
2.7. The Underwriter represents and warrants that it is a
member in good standing of the NASD and is registered as
a broker-dealer with the SEC. The Underwriter further
represents that it will sell and distribute the Fund shares in
accordance with the laws of the State of South Dakota and
all applicable state and federal securities laws, including
without limitation the 1933 Act, the 1934 Act, and the 1940
Act.
2.8. The Fund represents that it is lawfully organized
and validly existing under the laws of the Commonwealth
of Massachusetts and that it does and will comply in all
material respects with the 1940 Act.
2.9. The Underwriter represents and warrants that the
Adviser is and shall remain duly registered in all material
respects under all applicable federal and state securities
laws and that the Adviser shall perform its obligations for
the Fund in compliance in all material respects with the
laws of the State of South Dakota and any applicable state
and federal securities laws.
2.10. The Fund and Underwriter represent and warrant
that all of their directors, officers, employees, investment
advisers, and other individuals/entities dealing with the
money and/or securities of the Fund are and shall continue
to be at all times covered by a blanket fidelity bond or
similar coverage for the benefit of the Fund in an amount
not less than the minimal coverage as required currently by
Rule 17g-(1) of the 1940 Act or related provisions as may
be promulgated from time to time. The aforesaid Bond
shall include coverage for larceny and embezzlement and
shall be issued by a reputable bonding company.
2.11. The Company represents and warrants that all of
its directors, officers, employees, investment advisers, and
other individuals/entities dealing with the money and/or
securities of the Fund are covered by a blanket fidelity
bond or similar coverage for the benefit of the Fund, and
that said bond is issued by a reputable bonding company,
includes coverage for larceny and embezzlement, and is in
an amount not less than $5 million. The Company agrees
to make all reasonable efforts to see that this bond or
another bond containing these provisions is always in
effect, and agrees to notify the Fund and the Underwriter in
the event that such coverage no longer applies.
ARTICLE III. Prospectuses and Proxy Statements; Voting
3.1. The Underwriter shall provide the Company with
as many printed copies of the Fund's current prospectus and
Statement of Additional Information as the Company may
reasonably request. If requested by the Company in lieu
thereof, the Fund shall provide camera-ready film
containing the Fund's prospectus and Statement of
Additional Information, and such other assistance as is
reasonably necessary in order for the Company once each
year (or more frequently if the prospectus and/or Statement
of Additional Information for the Fund is amended during
the year) to have the prospectus for the Contracts and the
Fund's prospectus printed together in one document, and to
have the Statement of Additional Information for the Fund
and the Statement of Additional Information for the
Contracts printed together in one document. Alternatively,
the Company may print the Fund's prospectus and/or its
Statement of Additional Information in combination with
other fund companies' prospectuses and statements of
additional information. Except as provided in the
following three sentences, all expenses of printing and
distributing Fund prospectuses and Statements of
Additional Information shall be the expense of the
Company. For prospectuses and Statements of Additional
Information provided by the Company to its existing
owners of Contracts in order to update disclosure annually
as required by the 1933 Act and/or the 1940 Act, the cost of
printing shall be borne by the Fund. If the Company
chooses to receive camera-ready film in lieu of receiving
printed copies of the Fund's prospectus, the Fund will
reimburse the Company in an amount equal to the product
of A and B where A is the number of such prospectuses
distributed to owners of the Contracts, and B is the Fund's
per unit cost of typesetting and printing the Fund's
prospectus. The same procedures shall be followed with
respect to the Fund's Statement of Additional Information.
The Company agrees to provide the Fund or its designee
with such information as may be reasonably requested by
the Fund to assure that the Fund's expenses do not include
the cost of printing any prospectuses or Statements of
Additional Information other than those actually distributed
to existing owners of the Contracts.
3.2. The Fund's prospectus shall state that the Statement
of Additional Information for the Fund is available from the
Underwriter or the Company (or in the Fund's discretion,
the Prospectus shall state that such Statement is available
from the Fund).
3.3. The Fund, at its expense, shall provide the
Company with copies of its proxy statements, reports to
shareholders, and other communications (except for
prospectuses and Statements of Additional Information,
which are covered in Section 3.1) to shareholders in such
quantity as the Company shall reasonably require for
distributing to Contract owners.
3.4. If and to the extent required by law the Company
shall:
(i) solicit voting instructions from Contract owners;
(ii) vote the Fund shares in accordance with instructions
received from Contract owners; and
(iii) vote Fund shares for which no instructions have
been received in a particular separate account in the same
proportion as Fund shares of such portfolio for which
instructions have been received in that separate account,
so long as and to the extent that the Securities and
Exchange Commission continues to interpret the 1940 Act
to require pass-through voting privileges for variable
contract owners. The Company reserves the right to vote
Fund shares held in any segregated asset account in its own
right, to the extent permitted by law. Participating
Insurance Companies shall be responsible for assuring that
each of their separate accounts participating in the Fund
calculates voting privileges in a manner consistent with the
standards set forth on Schedule B attached hereto and
incorporated herein by this reference, which standards will
also be provided to the other Participating Insurance
Companies.
3.5. The Fund will comply with all provisions of the
1940 Act requiring voting by shareholders, and in particular
the Fund will either provide for annual meetings or comply
with Section 16(c) of the 1940 Act (although the Fund is
not one of the trusts described in Section 16(c) of that Act)
as well as with Sections 16(a) and, if and when applicable,
16(b). Further, the Fund will act in accordance with the
Securities and Exchange Commission's interpretation of the
requirements of Section 16(a) with respect to periodic
elections of trustees and with whatever rules the
Commission may promulgate with respect thereto.
ARTICLE IV. Sales Material and Information
4.1. The Company shall furnish, or shall cause to be
furnished, to the Fund or its designee, each piece of sales
literature or other promotional material in which the Fund
or its investment adviser or the Underwriter is named, at
least fifteen Business Days prior to its use. No such
material shall be used if the Fund or its designee reasonably
objects to such use within fifteen Business Days after
receipt of such material.
4.2. The Company shall not give any information or
make any representations or statements on behalf of the
Fund or concerning the Fund in connection with the sale of
the Contracts other than the information or representations
contained in the registration statement or prospectus for the
Fund shares, as such registration statement and prospectus
may be amended or supplemented from time to time, or in
reports or proxy statements for the Fund, or in sales
literature or other promotional material approved by the
Fund or its designee or by the Underwriter, except with the
permission of the Fund or the Underwriter or the designee
of either.
4.3. The Fund, Underwriter, or its designee shall
furnish, or shall cause to be furnished, to the Company or
its designee, each piece of sales literature or other
promotional material in which the Company and/or its
separate account(s), is named at least fifteen Business Days
prior to its use. No such material shall be used if the
Company or its designee reasonably objects to such use
within fifteen Business Days after receipt of such material.
4.4. The Fund and the Underwriter shall not give any
information or make any representations on behalf of the
Company or concerning the Company, each Account, or
the Contracts other than the information or representations
contained in a registration statement or prospectus for the
Contracts, as such registration statement and prospectus
may be amended or supplemented from time to time, or in
published reports for each Account which are in the public
domain or approved by the Company for distribution to
Contract owners, or in sales literature or other promotional
material approved by the Company or its designee, except
with the permission of the Company.
4.5. The Fund will provide to the Company at least one
complete copy of all registration statements, prospectuses,
Statements of Additional Information, reports, proxy
statements, sales literature and other promotional materials,
applications for exemptions, requests for no-action letters,
and all amendments to any of the above, that relate to the
Fund or its shares, contemporaneously with the filing of
such document with the Securities and Exchange
Commission or other regulatory authorities.
4.6. The Company will provide to the Fund at least one
complete copy of all registration statements, prospectuses,
Statements of Additional Information, reports, solicitations
for voting instructions, sales literature and other
promotional materials, applications for exemptions,
requests for no action letters, and all amendments to any of
the above, that relate to the Contracts or each Account,
contemporaneously with the filing of such document with
the SEC or other regulatory authorities.
4.7. For purposes of this Article IV, the phrase "sales
literature or other promotional material" includes, but is not
limited to, any of the following that refer to the Fund or any
affiliate of the Fund: advertisements (such as material
published, or designed for use in, a newspaper, magazine,
or other periodical, radio, television, telephone or tape
recording, videotape display, signs or billboards, motion
pictures, or other public media), sales literature (i.e., any
written communication distributed or made generally
available to customers or the public, including brochures,
circulars, research reports, market letters, form letters,
seminar texts, reprints or excerpts of any other
advertisement, sales literature, or published article),
educational or training materials or other communications
distributed or made generally available to some or all
agents or employees, and registration statements,
prospectuses, Statements of Additional Information,
shareholder reports, and proxy materials.
ARTICLE V. Fees and Expenses
5.1. The Fund and Underwriter shall pay no fee or other
compensation to the Company under this agreement, except
that if the Fund or any Portfolio adopts and implements a
plan pursuant to Rule 12b-1 to finance distribution
expenses, then the Underwriter may make payments to the
Company or to the underwriter for the Contracts if and in
amounts agreed to by the Underwriter in writing and such
payments will be made out of existing fees otherwise
payable to the Underwriter, past profits of the Underwriter
or other resources available to the Underwriter. No such
payments shall be made directly by the Fund.
5.2. All expenses incident to performance by the Fund
under this Agreement shall be paid by the Fund. The Fund
shall see to it that all its shares are registered and authorized
for issuance in accordance with applicable federal law and,
if and to the extent deemed advisable by the Fund, in
accordance with applicable state laws prior to their sale.
The Fund shall bear the expenses for the cost of registration
and qualification of the Fund's shares, preparation and
filing of the Fund's prospectus and registration statement,
proxy materials and reports, setting the prospectus in type,
setting in type and printing the proxy materials and reports
to shareholders (including the costs of printing a prospectus
that constitutes an annual report), the preparation of all
statements and notices required by any federal or state law,
and all taxes on the issuance or transfer of the Fund's
shares.
5.3. The Company shall bear the expenses of
distributing the Fund's prospectus, proxy materials and
reports to owners of Contracts issued by the Company.
ARTICLE VI. Diversification
6.1. The Fund will at all times invest money from the
Contracts in such a manner as to ensure that the Contracts
will be treated as variable contracts under the Code and the
regulations issued thereunder. Without limiting the scope
of the foregoing, the Fund will at all times comply with
Section 817(h) of the Code and Treasury Regulation 1.817-
5, relating to the diversification requirements for variable
annuity, endowment, or life insurance contracts and any
amendments or other modifications to such Section or
Regulations. In the event of a breach of this Article VI by
the Fund, it will take all reasonable steps (a) to notify
Company of such breach and (b) to adequately diversify the
Fund so as to achieve compliance within the grace period
afforded by Regulation 1.817-5.
ARTICLE VII. Potential Conflicts
7.1. The Board will monitor the Fund for the existence
of any material irreconcilable conflict between the interests
of the contract owners of all separate accounts investing in
the Fund. An irreconcilable material conflict may arise for
a variety of reasons, including: (a) an action by any state
insurance regulatory authority; (b) a change in applicable
federal or state insurance, tax, or securities laws or
regulations, or a public ruling, private letter ruling, no-
action or interpretative letter, or any similar action by
insurance, tax, or securities regulatory authorities; (c) an
administrative or judicial decision in any relevant
proceeding; (d) the manner in which the investments of any
Portfolio are being managed; (e) a difference in voting
instructions given by variable annuity contract and variable
life insurance contract owners; or (f) a decision by an
insurer to disregard the voting instructions of contract
owners. The Board shall promptly inform the Company if
it determines that an irreconcilable material conflict exists
and the implications thereof.
7.2. The Company will report any potential or existing
conflicts of which it is aware to the Board. The Company
will assist the Board in carrying out its responsibilities
under the Shared Funding Exemptive Order, by providing
the Board with all information reasonably necessary for the
Board to consider any issues raised. This includes, but is
not limited to, an obligation by the Company to inform the
Board whenever contract owner voting instructions are
disregarded.
7.3. If it is determined by a majority of the Board, or a
majority of its disinterested trustees, that a material
irreconcilable conflict exists, the Company and other
Participating Insurance Companies shall, at their expense
and to the extent reasonably practicable (as determined by a
majority of the disinterested trustees), take whatever steps
are necessary to remedy or eliminate the irreconcilable
material conflict, up to and including: (1), withdrawing the
assets allocable to some or all of the separate accounts from
the Fund or any Portfolio and reinvesting such assets in a
different investment medium, including (but not limited to)
another Portfolio of the Fund, or submitting the question
whether such segregation should be implemented to a vote
of all affected Contract owners and, as appropriate,
segregating the assets of any appropriate group (i.e.,
annuity contract owners, life insurance contract owners, or
variable contract owners of one or more Participating
Insurance Companies) that votes in favor of such
segregation, or offering to the affected contract owners the
option of making such a change; and (2), establishing a new
registered management investment company or managed
separate account.
7.4. If a material irreconcilable conflict arises because
of a decision by the Company to disregard contract owner
voting instructions and that decision represents a minority
position or would preclude a majority vote, the Company
may be required, at the Fund's election, to withdraw the
affected Account's investment in the Fund and terminate
this Agreement with respect to such Account; provided,
however that such withdrawal and termination shall be
limited to the extent required by the foregoing material
irreconcilable conflict as determined by a majority of the
disinterested members of the Board. Any such withdrawal
and termination must take place within six (6) months after
the Fund gives written notice that this provision is being
implemented, and until the end of that six month period the
Underwriter and Fund shall continue to accept and
implement orders by the Company for the purchase (and
redemption) of shares of the Fund.
7.5. If a material irreconcilable conflict arises because a
particular state insurance regulator's decision applicable to
the Company conflicts with the majority of other state
regulators, then the Company will withdraw the affected
Account's investment in the Fund and terminate this
Agreement with respect to such Account within six months
after the Board informs the Company in writing that it has
determined that such decision has created an irreconcilable
material conflict; provided, however, that such withdrawal
and termination shall be limited to the extent required by
the foregoing material irreconcilable conflict as determined
by a majority of the disinterested members of the Board.
Until the end of the foregoing six month period, the
Underwriter and Fund shall continue to accept and
implement orders by the Company for the purchase (and
redemption) of shares of the Fund.
7.6. For purposes of Sections 7.3 through 7.6 of this
Agreement, a majority of the disinterested members of the
Board shall determine whether any proposed action
adequately remedies any irreconcilable material conflict,
but in no event will the Fund be required to establish a new
funding medium for the Contracts. The Company shall not
be required by Section 7.3 to establish a new funding
medium for the Contracts if an offer to do so has been
declined by vote of a majority of Contract owners
materially adversely affected by the irreconcilable material
conflict. In the event that the Board determines that any
proposed action does not adequately remedy any
irreconcilable material conflict, then the Company will
withdraw the Account's investment in the Fund and
terminate this Agreement within six (6) months after the
Board informs the Company in writing of the foregoing
determination, provided, however, that such withdrawal
and termination shall be limited to the extent required by
any such material irreconcilable conflict as determined by a
majority of the disinterested members of the Board.
7.7. If and to the extent that Rule 6e-2 and Rule 6e-3(T)
are amended, or Rule 6e-3 is adopted, to provide exemptive
relief from any provision of the Act or the rules
promulgated thereunder with respect to mixed or shared
funding (as defined in the Shared Funding Exemptive
Order) on terms and conditions materially different from
those contained in the Shared Funding Exemptive Order,
then (a) the Fund and/or the Participating Insurance
Companies, as appropriate, shall take such steps as may be
necessary to comply with Rules 6e-2 and 6e-3(T), as
amended, and Rule 6e-3, as adopted, to the extent such
rules are applicable; and (b) Sections 3.4, 3.5, 7.1, 7.2, 7.3,
7.4, and 7.5 of this Agreement shall continue in effect only
to the extent that terms and conditions substantially
identical to such Sections are contained in such Rule(s) as
so amended or adopted.
ARTICLE VIII. Indemnification
8.1. Indemnification By The Company
8.1(a). The Company agrees to indemnify and hold
harmless the Fund and each trustee of the Board and
officers and each person, if any, who controls the Fund
within the meaning of Section 15 of the 1933 Act
(collectively, the "Indemnified Parties" for purposes of this
Section 8.1) against any and all losses, claims, damages,
liabilities (including amounts paid in settlement with the
written consent of the Company) or litigation (including
legal and other expenses), to which the Indemnified Parties
may become subject under any statute, regulation, at
common law or otherwise, insofar as such losses, claims,
damages, liabilities or expenses (or actions in respect
thereof) or settlements are related to the sale or acquisition
of the Fund's shares or the Contracts and:
(i) arise out of or are based upon any untrue statements or
alleged untrue statements of any material fact contained in
the Registration Statement or prospectus for the Contracts
or contained in the Contracts or sales literature for the
Contracts (or any amendment or supplement to any of the
foregoing), or arise out of or are based upon the omission
or the alleged omission to state therein a material fact
required to be stated therein or necessary to make the
statements therein not misleading, provided that this
agreement to indemnify shall not apply as to any
Indemnified Party if such statement or omission or such
alleged statement or omission was made in reliance upon
and in conformity with information furnished to the
Company by or on behalf of the Fund for use in the
Registration Statement or prospectus for the Contracts or in
the Contracts or sales literature (or any amendment or
supplement) or otherwise for use in connection with the
sale of the Contracts or Fund shares; or
(ii) arise out of or as a result of statements or
representations (other than statements or representations
contained in the Registration Statement, prospectus or sales
literature of the Fund not supplied by the Company, or
persons under its control) or wrongful conduct of the
Company or persons under its control, with respect to the
sale or distribution of the Contracts or Fund Shares; or
(iii) arise out of any untrue statement or alleged untrue
statement of a material fact contained in a Registration
Statement, prospectus, or sales literature of the Fund or any
amendment thereof or supplement thereto or the omission
or alleged omission to state therein a material fact required
to be stated therein or necessary to make the statements
therein not misleading if such a statement or omission was
made in reliance upon information furnished to the Fund by
or on behalf of the Company; or
(iv) arise as a result of any failure by the Company to
provide the services and furnish the materials under the
terms of this Agreement; or
(v) arise out of or result from any material breach of any
representation and/or warranty made by the Company in
this Agreement or arise out of or result from any other
material breach of this Agreement by the Company, as
limited by and in accordance with the provisions of
Sections 8.1(b) and 8.1(c) hereof.
8.1(b). The Company shall not be liable under this
indemnification provision with respect to any losses,
claims, damages, liabilities or litigation incurred or
assessed against an Indemnified Party as such may arise
from such Indemnified Party's willful misfeasance, bad
faith, or gross negligence in the performance of such
Indemnified Party's duties or by reason of such Indemnified
Party's reckless disregard of obligations or duties under this
Agreement or to the Fund, whichever is applicable.
8.1(c). The Company shall not be liable under this
indemnification provision with respect to any claim made
against an Indemnified Party unless such Indemnified Party
shall have notified the Company in writing within a
reasonable time after the summons or other first legal
process giving information of the nature of the claim shall
have been served upon such Indemnified Party (or after
such Indemnified Party shall have received notice of such
service on any designated agent), but failure to notify the
Company of any such claim shall not relieve the Company
from any liability which it may have to the Indemnified
Party against whom such action is brought otherwise than
on account of this indemnification provision. In case any
such action is brought against the Indemnified Parties, the
Company shall be entitled to participate, at its own
expense, in the defense of such action. The Company also
shall be entitled to assume the defense thereof, with counsel
satisfactory to the party named in the action. After notice
from the Company to such party of the Company's election
to assume the defense thereof, the Indemnified Party shall
bear the fees and expenses of any additional counsel
retained by it, and the Company will not be liable to such
party under this Agreement for any legal or other expenses
subsequently incurred by such party independently in
connection with the defense thereof other than reasonable
costs of investigation.
8.1(d). The Indemnified Parties will promptly notify
the Company of the commencement of any
litigation or proceedings against them in
connection with the issuance or sale of the
Fund Shares or the Contracts or the operation
of the Fund.
8.2. Indemnification by the Underwriter
8.2(a). The Underwriter agrees to indemnify and hold
harmless the Company and each of its directors and officers
and each person, if any, who controls the Company within
the meaning of Section 15 of the 1933 Act (collectively, the
"Indemnified Parties" for purposes of this Section 8.2)
against any and all losses, claims, damages, liabilities
(including amounts paid in settlement with the written
consent of the Underwriter) or litigation (including legal
and other expenses) to which the Indemnified Parties may
become subject under any statute, at common law or
otherwise, insofar as such losses, claims, damages,
liabilities or expenses (or actions in respect thereof) or
settlements are related to the sale or acquisition of the
Fund's shares or the Contracts and:
(i) arise out of or are based upon any untrue statement or
alleged untrue statement of any material fact contained in
the Registration Statement or prospectus or sales literature
of the Fund (or any amendment or supplement to any of the
foregoing), or arise out of or are based upon the omission
or the alleged omission to state therein a material fact
required to be stated therein or necessary to make the
statements therein not misleading, provided that this
agreement to indemnify shall not apply as to any
Indemnified Party if such statement or omission or such
alleged statement or omission was made in reliance upon
and in conformity with information furnished to the
Underwriter or Fund by or on behalf of the Company for
use in the Registration Statement or prospectus for the
Fund or in sales literature (or any amendment or
supplement) or otherwise for use in connection with the
sale of the Contracts or Fund shares; or
(ii) arise out of or as a result of statements or
representations (other than statements or representations
contained in the Registration Statement, prospectus or sales
literature for the Contracts not supplied by the Underwriter
or persons under its control) or wrongful conduct of the
Fund, Adviser or Underwriter or persons under their
control, with respect to the sale or distribution of the
Contracts or Fund shares; or
(iii) arise out of any untrue statement or alleged untrue
statement of a material fact contained in a Registration
Statement, prospectus, or sales literature covering the
Contracts, or any amendment thereof or supplement
thereto, or the omission or alleged omission to state therein
a material fact required to be stated therein or necessary to
make the statement or statements therein not misleading, if
such statement or omission was made in reliance upon
information furnished to the Company by or on behalf of
the Fund; or
(iv) arise as a result of any failure by the Fund to provide
the services and furnish the materials under the terms of
this Agreement (including a failure, whether unintentional
or in good faith or otherwise, to comply with the
diversification requirements specified in Article VI of this
Agreement); or
(v) arise out of or result from any material breach of any
representation and/or warranty made by the Underwriter in
this Agreement or arise out of or result from any other
material breach of this Agreement by the Underwriter; as
limited by and in accordance with the provisions of
Sections 8.2(b) and 8.2(c) hereof.
8.2(b). The Underwriter shall not be liable under this
indemnification provision with respect to any losses,
claims, damages, liabilities or litigation to which an
Indemnified Party would otherwise be subject by reason of
such Indemnified Party's willful misfeasance, bad faith, or
gross negligence in the performance of such Indemnified
Party's duties or by reason of such Indemnified Party's
reckless disregard of obligations and duties under this
Agreement or to each Company or the Account, whichever
is applicable.
8.2(c). The Underwriter shall not be liable under this
indemnification provision with respect to any claim made
against an Indemnified Party unless such Indemnified Party
shall have notified the Underwriter in writing within a
reasonable time after the summons or other first legal
process giving information of the nature of the claim shall
have been served upon such Indemnified Party (or after
such Indemnified Party shall have received notice of such
service on any designated agent), but failure to notify the
Underwriter of any such claim shall not relieve the
Underwriter from any liability which it may have to the
Indemnified Party against whom such action is brought
otherwise than on account of this indemnification
provision. In case any such action is brought against the
Indemnified Parties, the Underwriter will be entitled to
participate, at its own expense, in the defense thereof. The
Underwriter also shall be entitled to assume the defense
thereof, with counsel satisfactory to the party named in the
action. After notice from the Underwriter to such party of
the Underwriter's election to assume the defense thereof,
the Indemnified Party shall bear the fees and expenses of
any additional counsel retained by it, and the Underwriter
will not be liable to such party under this Agreement for
any legal or other expenses subsequently incurred by such
party independently in connection with the defense thereof
other than reasonable costs of investigation.
8.2(d). The Company agrees promptly to notify the
Underwriter of the commencement of any litigation or
proceedings against it or any of its officers or directors in
connection with the issuance or sale of the Contracts or the
operation of each Account.
8.3. Indemnification By the Fund
8.3(a). The Fund agrees to indemnify and hold harmless
the Company, and each of its directors and officers and
each person, if any, who controls the Company within the
meaning of Section 15 of the 1933 Act (collectively, the
"Indemnified Parties" for purposes of this Section 8.3)
against any and all losses, claims, damages, liabilities
(including amounts paid in settlement with the written
consent of the Fund) or litigation (including legal and other
expenses) to which the Indemnified Parties may become
subject under any statute, at common law or otherwise,
insofar as such losses, claims, damages, liabilities or
expenses (or actions in respect thereof) or settlements result
from the gross negligence, bad faith or willful misconduct
of the Board or any member thereof, are related to the
operations of the Fund and:
(i) arise as a result of any failure by the Fund to provide
the services and furnish the materials under the terms of
this Agreement (including a failure to comply with the
diversification requirements specified in Article VI of this
Agreement);or
(ii) arise out of or result from any material breach of any
representation and/or warranty made by the Fund in this
Agreement or arise out of or result from any other material
breach of this Agreement by the Fund;
as limited by and in accordance with the provisions of
Sections 8.3(b) and 8.3(c) hereof.
8.3(b). The Fund shall not be liable under this
indemnification provision with respect to any losses,
claims, damages, liabilities or litigation incurred or
assessed against an Indemnified Party as such may arise
from such Indemnified Party's willful misfeasance, bad
faith, or gross negligence in the performance of such
Indemnified Party's duties or by reason of such Indemnified
Party's reckless disregard of obligations and duties under
this Agreement or to the Company, the Fund, the
Underwriter or each Account, whichever is applicable.
8.3(c). The Fund shall not be liable under this
indemnification provision with respect to any claim made
against an Indemnified Party unless such Indemnified Party
shall have notified the Fund in writing within a reasonable
time after the summons or other first legal process giving
information of the nature of the claim shall have been
served upon such Indemnified Party (or after such
Indemnified Party shall have received notice of such
service on any designated agent), but failure to notify the
Fund of any such claim shall not relieve the Fund from any
liability which it may have to the Indemnified Party against
whom such action is brought otherwise than on account of
this indemnification provision. In case any such action is
brought against the Indemnified Parties, the Fund will be
entitled to participate, at its own expense, in the defense
thereof. The Fund also shall be entitled to assume the
defense thereof, with counsel satisfactory to the party
named in the action. After notice from the Fund to such
party of the Fund's election to assume the defense thereof,
the Indemnified Party shall bear the fees and expenses of
any additional counsel retained by it, and the Fund will not
be liable to such party under this Agreement for any legal
or other expenses subsequently incurred by such party
independently in connection with the defense thereof other
than reasonable costs of investigation.
8.3(d). The Company and the Underwriter agree promptly
to notify the Fund of the commencement of any litigation
or proceedings against it or any of its respective officers or
directors in connection with this Agreement, the issuance or
sale of the Contracts, with respect to the operation of either
Account, or the sale or acquisition of shares of the Fund.
ARTICLE IX. Applicable Law
9.1. This Agreement shall be construed and the
provisions hereof interpreted under and in accordance with
the laws of the Commonwealth of Massachusetts.
9.2. This Agreement shall be subject to the provisions
of the 1933, 1934 and 1940 acts, and the rules and
regulations and rulings thereunder, including such
exemptions from those statutes, rules and regulations as the
Securities and Exchange Commission may grant
(including, but not limited to, the Shared Funding
Exemptive Order) and the terms hereof shall be interpreted
and construed in accordance therewith.
ARTICLE X. Termination
10.1. This Agreement shall continue in full force and
effect until the first to occur of:
(a) termination by any party for any reason by sixty (60)
days advance written notice delivered to the other parties;
or
(b) termination by the Company by written notice to the
Fund and the Underwriter with respect to any Portfolio
based upon the Company's determination that shares of
such Portfolio are not reasonably available to meet the
requirements of the Contracts; or
(c) termination by the Company by written notice to the
Fund and the Underwriter with respect to any Portfolio in
the event any of the Portfolio's shares are not registered,
issued or sold in accordance with applicable state and/or
federal law or such law precludes the use of such shares as
the underlying investment media of the Contracts issued or
to be issued by the Company; or
(d) termination by the Company by written notice to the
Fund and the Underwriter with respect to any Portfolio in
the event that such Portfolio ceases to qualify as a
Regulated Investment Company under Subchapter M of the
Code or under any successor or similar provision, or if the
Company reasonably believes that the Fund may fail to so
qualify; or
(e) termination by the Company by written notice to the
Fund and the Underwriter with respect to any Portfolio in
the event that such Portfolio fails to meet the diversification
requirements specified in Article VI hereof; or
(f) termination by either the Fund or the Underwriter by
written notice to the Company, if either one or both of the
Fund or the Underwriter respectively, shall determine, in
their sole judgment exercised in good faith, that the
Company and/or its affiliated companies has suffered a
material adverse change in its business, operations,
financial condition or prospects since the date of this
Agreement or is the subject of material adverse publicity;
or
(g) termination by the Company by written notice to the
Fund and the Underwriter, if the Company shall determine,
in its sole judgment exercised in good faith, that either the
Fund or the Underwriter has suffered a material adverse
change in its business, operations, financial condition or
prospects since the date of this Agreement or is the subject
of material adverse publicity; or
(h) termination by the Fund or the Underwriter by
written notice to the Company, if the Company gives the
Fund and the Underwriter the written notice specified in
Section 1.6(b) hereof and at the time such notice was given
there was no notice of termination outstanding under any
other provision of this Agreement; provided, however any
termination under this Section 10.1(h) shall be effective
forty five (45) days after the notice specified in Section
1.6(b) was given.
10.2. Effect of Termination. Notwithstanding any termination of
this Agreement, the Fund and the Underwriter shall at the option of
the Company, continue to make available additional shares of the
Fund pursuant to the terms and conditions of this Agreement, for
all Contracts in effect on the effective date of termination of this
Agreement (hereinafter referred to as "Existing Contracts").
Specifically, without limitation, the owners of the Existing
Contracts shall be permitted to reallocate investments in the Fund,
redeem investments in the Fund and/or invest in the Fund upon the
making of additional purchase payments under the Existing
Contracts. The parties agree that this Section 10.2 shall not apply
to any terminations under Article VII and the effect of such Article
VII terminations shall be governed by Article VII of this
Agreement.
10.3 The Company shall not redeem Fund shares attributable to
the Contracts (as opposed to Fund shares attributable to the
Company's assets held in the Account) except (i) as necessary to
implement Contract Owner initiated or approved transactions, or
(ii) as required by state and/or federal laws or regulations or
judicial or other legal precedent of general application (hereinafter
referred to as a "Legally Required Redemption") or (iii) as
permitted by an order of the SEC pursuant to Section 26(b) of the
1940 Act. Upon request, the Company will promptly furnish to the
Fund and the Underwriter the opinion of counsel for the Company
(which counsel shall be reasonably satisfactory to the Fund and the
Underwriter) to the effect that any redemption pursuant to clause
(ii) above is a Legally Required Redemption. Furthermore, except
in cases where permitted under the terms of the Contracts, the
Company shall not prevent Contract Owners from allocating
payments to a Portfolio that was otherwise available under the
Contracts without first giving the Fund or the Underwriter 90 days
notice of its intention to do so.
ARTICLE XI. Notices
Any notice shall be sufficiently given when sent by
registered or certified mail to the other party at the address
of such party set forth below or at such other address as
such party may from time to time specify in writing to the
other party.
If to the Fund:
82 Devonshire Street
Boston, Massachusetts 02109
Attention: Treasurer
If to the Company:
Midland National Life Insurance Company
One Midland Plaza
Sioux Falls, South Dakota
Attention: Russell Evenson
If to the Underwriter:
82 Devonshire Street
Boston, Massachusetts 02109
Attention: Treasurer
ARTICLE XII. Miscellaneous
12.1 All persons dealing with the Fund must look solely
to the property of the Fund for the enforcement of any
claims against the Fund as neither the Board, officers,
agents or shareholders assume any personal liability for
obligations entered into on behalf of the Fund.
12.2 Subject to the requirements of legal process and
regulatory authority, each party hereto shall treat as
confidential the names and addresses of the owners of the
Contracts and all information reasonably identified as
confidential in writing by any other party hereto and,
except as permitted by this Agreement, shall not disclose,
disseminate or utilize such names and addresses and other
confidential information until such time as it may come
into the public domain without the express written consent
of the affected party.
12.3 The captions in this Agreement are included for
convenience of reference only and in no way define or
delineate any of the provisions hereof or otherwise affect
their construction or effect.
12.4 This Agreement may be executed simultaneously
in two or more counterparts, each of which taken together
shall constitute one and the same instrument.
12.5 If any provision of this Agreement shall be held or
made invalid by a court decision, statute, rule or otherwise,
the remainder of the Agreement shall not be affected
thereby.
12.6 Each party hereto shall cooperate with each other
party and all appropriate governmental authorities
(including without limitation the SEC, the NASD and state
insurance regulators) and shall permit such authorities
reasonable access to its books and records in connection
with any investigation or inquiry relating to this Agreement
or the transactions contemplated hereby. Notwithstanding
the generality of the foregoing, each party hereto further
agrees to furnish the California Insurance Commissioner
with any information or reports in connection with services
provided under this Agreement which such Commissioner
may request in order to ascertain whether the insurance
operations of the Company are being conducted in a
manner consistent with the California Insurance
Regulations and any other applicable law or regulations.
12.7 The rights, remedies and obligations contained in
this Agreement are cumulative and are in addition to any
and all rights, remedies and obligations, at law or in equity,
which the parties hereto are entitled to under state and
federal laws.
12.8. This Agreement or any of the rights and
obligations hereunder may not be assigned by any party
without the prior written consent of all parties hereto;
provided, however, that the Underwriter may assign this
Agreement or any rights or obligations hereunder to any
affiliate of or company under common control with the
Underwriter, if such assignee is duly licensed and
registered to perform the obligations of the Underwriter
under this Agreement. The Company shall promptly notify
the Fund and the Underwriter of any change in control of
the Company.
12.9. The Company shall furnish, or shall cause to be
furnished, to the Fund or its designee copies of the following
reports:
(a) the Company's annual statement (prepared under
statutory accounting principles) and annual report (prepared
under generally accepted accounting principles ("GAAP"), if
any), as soon as practical and in any event within 90 days
after the end of each fiscal year;
(b) the Company's quarterly statements (statutory) (and
GAAP, if any), as soon as practical and in any event within
45 days after the end of each quarterly period:
(c) any financial statement, proxy statement, notice or
report of the Company sent to stockholders and/or
policyholders, as soon as practical after the delivery thereof
to stockholders;
(d) any registration statement (without exhibits) and
financial reports of the Company filed with the Securities
and Exchange Commission or any state insurance regulator,
as soon as practical after the filing thereof;
(e) any other report submitted to the Company by
independent accountants in connection with any annual,
interim or special audit made by them of the books of the
Company, as soon as practical after the receipt thereof.
IN WITNESS WHEREOF, each of the parties hereto
has caused this Agreement to be executed in its name and
on its behalf by its duly authorized representative and its
seal to be hereunder affixed hereto as of the date specified
below.
MIDLAND NATIONAL LIFE INSURANCE COMPANY
By: __Michael_M_Masterson_____________________
Name: Michael M. Masterson
Title: Chief Executive Officer and President
VARIABLE INSURANCE PRODUCTS FUND III
By: __Gary_Burkhead____
J. Gary Burkhead
Senior Vice President
FIDELITY DISTRIBUTORS CORPORATION
By: __Paul_J_Hondros__
Paul J. Hondros
President
Schedule A
Separate Accounts and Associated Contracts
Name of Separate Account and Policy Form Numbers of
Contracts Funded
Date Established by Board of Directors By Separate
Account
Midland National Life Separate Account A LT-91
(July 20, 1987) L101A1
L108A1
L109A1
Midland National Life Separate Account C A053A1
March 19, 1991
SCHEDULE B
PROXY VOTING PROCEDURE
The following is a list of procedures and corresponding
responsibilities for the handling of proxies relating to the
Fund by the Underwriter, the Fund and the Company. The
defined terms herein shall have the meanings assigned in
the Participation Agreement except that the term
"Company" shall also include the department or third party
assigned by the Insurance Company to perform the steps
delineated below.
1. The number of proxy proposals is given to the
Company by the Underwriter as early as possible
before the date set by the Fund for the shareholder
meeting to facilitate the establishment of tabulation
procedures. At this time the Underwriter will inform
the Company of the Record, Mailing and Meeting
dates. This will be done verbally approximately two
months before meeting.
2. Promptly after the Record Date, the Company will
perform a "tape run", or other activity, which will
generate the names, addresses and number of units
which are attributed to each
contractowner/policyholder (the "Customer") as of
the Record Date. Allowance should be made for
account adjustments made after this date that could
affect the status of the Customers' accounts as of the
Record Date.
Note: The number of proxy statements is determined by
the activities described in Step #2. The Company
will use its best efforts to call in the number of
Customers to Fidelity, as soon as possible, but no
later than two weeks after the Record Date.
3. The Fund's Annual Report no longer needs to be sent
to each Customer by the Company either before or
together with the Customers' receipt of a proxy
statement. Underwriter will provide the last Annual
Report to the Company pursuant to the terms of
Section 3.3 of the Agreement to which this Schedule
relates.
4. The text and format for the Voting Instruction Cards
("Cards" or "Card") is provided to the Company by
the Fund. The Company, at its expense, shall
produce and personalize the Voting Instruction Cards.
The Legal Department of the Underwriter or its
affiliate ("Fidelity Legal") must approve the Card
before it is printed. Allow approximately 2-4
business days for printing information on the Cards.
Information commonly found on the Cards includes:
a. name (legal name as found on account
registration)
b. address
c. Fund or account number
d. coding to state number of units
e. individual Card number for use in tracking and
verification of votes (already on Cards as
printed by the Fund)
(This and related steps may occur later in the chronological
process due to possible uncertainties relating to the
proposals.)
5. During this time, Fidelity Legal will develop,
produce, and the Fund will pay for the Notice
of Proxy and the Proxy Statement (one
document). Printed and folded notices and
statements will be sent to Company for
insertion into envelopes (envelopes and return
envelopes are provided and paid for by the
Insurance Company). Contents of envelope
sent to Customers by Company will include:
a. Voting Instruction Card(s)
b. One proxy notice and statement (one
document)
c. return envelope (postage pre-paid by
Company) addressed to the Company or its
tabulation agent
d. "urge buckslip" - optional, but
recommended. (This is a small, single sheet of
paper that requests Customers to vote as
quickly as possible and that their vote is
important. One copy will be supplied by the
Fund.)
e. cover letter - optional, supplied by
Company and reviewed and approved in
advance by Fidelity Legal.
6. The above contents should be received by the
Company approximately 3-5 business days
before mail date. Individual in charge at
Company reviews and approves the contents of
the mailing package to ensure correctness and
completeness. Copy of this approval sent to
Fidelity Legal.
7. Package mailed by the Company.
* The Fund must allow at least a 15-day
solicitation time to the Company as the
shareowner. (A 5-week period is
recommended.) Solicitation time is
calculated as calendar days from (but not
including) the meeting, counting backwards.
8. Collection and tabulation of Cards begins.
Tabulation usually takes place in another
department or another vendor depending on
process used. An often used procedure is to
sort Cards on arrival by proposal into vote
categories of all yes, no, or mixed replies, and
to begin data entry.
Note: Postmarks are not generally needed. A
need for postmark information would be due to
an insurance company's internal procedure and
has not been required by Fidelity in the past.
9. Signatures on Card checked against legal name
on account registration which was printed on
the Card.
Note: For Example, If the account registration
is under "Bertram C. Jones, Trustee," then that
is the exact legal name to be printed on the
Card and is the signature needed on the Card.
10. If Cards are mutilated, or for any reason are
illegible or are not signed properly, they are
sent back to Customer with an explanatory
letter, a new Card and return envelope. The
mutilated or illegible Card is disregarded and
considered to be not received for purposes of
vote tabulation. Any Cards that have "kicked
out" (e.g. mutilated, illegible) of the procedure
are "hand verified," i.e., examined as to why
they did not complete the system. Any
questions on those Cards are usually remedied
individually.
11. There are various control procedures used to
ensure proper tabulation of votes and accuracy
of that tabulation. The most prevalent is to sort
the Cards as they first arrive into categories
depending upon their vote; an estimate of how
the vote is progressing may then be calculated.
If the initial estimates and the actual vote do
not coincide, then an internal audit of that vote
should occur. This may entail a recount.
12. The actual tabulation of votes is done in units
which is then converted to shares. (It is very
important that the Fund receives the tabulations
stated in terms of a percentage and the number
of shares.) Fidelity Legal must review and
approve tabulation format.
13. Final tabulation in shares is verbally given by
the Company to Fidelity Legal on the morning
of the meeting not later than 10:00 a.m. Boston
time. Fidelity Legal may request an earlier
deadline if required to calculate the vote in time
for the meeting.
14. A Certification of Mailing and Authorization to
Vote Shares will be required from the
Company as well as an original copy of the
final vote. Fidelity Legal will provide a
standard form for each Certification.
15. The Company will be required to box and
archive the Cards received from the Customers.
In the event that any vote is challenged or if
otherwise necessary for legal, regulatory, or
accounting purposes, Fidelity Legal will be
permitted reasonable access to such Cards.
16. All approvals and "signing-off" may be done orally,
but must always be followed up in writing
SCHEDULE C
Other, non-Fidelity Investments investment companies
currently available under variable annuities or variable life
insurance issued by the Company:
American Century Variable Portfolios Inc.
Capital Appreciation Portfolio
Value Portfolio
Balanced Portfolio
International Portfolio
<PAGE>
EXHIBIT 1(8)(c)
FUND PARTICIPATION AGREEMENT
THIS FUND PARTICIPATION AGREEMENT is
made and entered into as of April 11, 1997 by and
between MIDLAND NATIONAL LIFE INSURANCE
COMPANY (the "Company"), and AMERICAN
CENTURY INVESTMENT SERVICES, INC. (the
Distributor).
WHEREAS, the Company offers to the public certain
variable annuity contracts and variable life insurance
contracts (the "Contracts"); and
WHEREAS, the Company wishes to offer as investment
options under the Contracts, TCI Balanced, TCI Growth,
TCI Value and TCI International (the "Funds"), each of
which is a series of mutual fund shares registered under the
Investment Company Act of 1940, as amended, and issued
by TCI Portfolios, Inc. (the Issuer); and
WHEREAS, on the terms and conditions hereinafter set
forth, Distributor and the Issuer desire to make shares of the
Funds available as investment options under the Contracts
and to retain the Company to perform certain administrative
services on behalf of the Funds;
NOW, THEREFORE, the Company and Distributor
agree as follows:
1. Transactions in the Funds. Subject to the terms and
conditions of this Agreement, Distributor will make shares of
the Funds available to be purchased, exchanged, or
redeemed, by the Company on behalf of the Accounts
(defined in Section 6(a) below) through a single account per
Fund at the net asset value applicable to each order. The
Funds' shares shall be purchased and redeemed on a net basis
in such quantity and at such time as determined by the
Company to satisfy the requirements of the Contracts for
which the Funds serve as underlying investment media.
Dividends and capital gains distributions will be
automatically reinvested in full and fractional shares of the
Funds.
2. Administrative Services. The Company shall be
solely responsible for providing all administrative services
for the Contracts owners. The Company agrees that it will
maintain and preserve all records as required by law to be
maintained and preserved, and will otherwise comply with
all laws, rules and regulations applicable to the marketing of
the Contracts and the provision of administrative services to
the Contract owners.
3. Processing and Timing of Transactions.
(a) Distributor hereby appoints the Company as its agent
for the limited purpose of accepting purchase and redemption
orders for Fund shares from the Accounts and/or Record
Owners (each as defined below), as applicable. On each day
the New York Stock Exchange (the "Exchange") is open for
business (each, a "Business Day"), the Company may receive
instructions from the Accounts and/or Record Owners for the
purchase or redemption of shares of the Funds ("Orders").
Orders received and accepted by the Company prior to the
close of regular trading on the Exchange (the "Close of
Trading") on any given Business Day (currently, 3:00 p.m.
Central time) and transmitted to the Issuer by 9:00 a.m.
Central time on the next following Business Day will be
executed by the Issuer at the net asset value determined as of
the Close of Trading on the previous Business Day ("Day
1"). Any Orders received by the Company after the Close of
Trading, and all Orders that are transmitted to the Issuer after
9:00 a.m. Central time on the next following Business Day,
will be executed by the Issuer at the net asset value next
determined following receipt of such Order. The day as of
which an Order is executed by the Issuer pursuant to the
provisions set forth above is referred to herein as the
"Effective Trade Date".
(b) By 5:30 p.m. Central time on each Business Day,
Distributor will provide to the Company, via facsimile or
other electronic transmission acceptable to the Company, the
Funds' net asset value, dividend and capital gain information
and, in the case of income funds, the daily accrual for interest
rate factor (mil rate), determined at the Close of Trading.
(c) By 9:00 a.m. Central time on each Business Day, the
Company will provide to Distributor via facsimile or other
electronic transmission acceptable to Distributor a report
stating whether the Orders received by the Company from
Participants by the Close of Trading on the preceding
Business Day resulted in the Plan being a net purchaser or
net seller of shares of the Funds. As used in this Agreement,
the phrase "other electronic transmission acceptable to
Distributor" includes the use of remote computer terminals
located at the premises of the Company, its agents or
affiliates, which terminals may be linked electronically to the
computer system of Distributor, its agents or affiliates
(hereinafter, "Remote Computer Terminals").
(d) Upon the timely receipt from the Company of the
report described in (c) above, Distributor will execute the
purchase or redemption transactions (as the case may be) at
the net asset value computed as of the Close of Trading on
Day 1. Payment for net purchase transactions shall be made
by wire transfer to the custodial account designated by the
Funds on the Business Day next following the Effective
Trade Date. Such wire transfers shall be initiated by the
Company's bank prior to 3:00 p.m. Central time and received
by the Funds prior to 5:00 p.m. Central time on the Business
Day next following the Effective Trade Date. If payments
for a purchase Order is not timely received, such Order will
be executed at the net asset value next computed following
receipt of payment. Payments for net redemption
transactions shall be made by wire transfer by the Issuer to
the account designated by the appropriate receiving party
within the time period set forth in the applicable Fund's then-
current prospectus; provided, however, Distributor will use
all reasonable efforts to settle all redemptions on the
Business Day following the Effective Trade Date. On any
Business Day when the Federal Reserve Wire Transfer
System is closed, all communication and processing rules
will be suspended for the settlement of Orders. Orders will
be settled on the next Business Day on which the Federal
Reserve Wire Transfer System is open and the Effective
Trade Date will apply.
4. Prospectus and Proxy Materials.
(a) Distributor shall provide to the shareholder of record
copies of the Issuer's proxy materials, periodic fund reports
to shareholders and other materials that are required by law
to be sent to the Issuer's shareholders. In addition, Distributor
shall provide the Company with a sufficient quantity of
prospectuses of the Funds to be used in conjunction with the
transactions contemplated by this Agreement, together with
such additional copies of the Issuer's prospectuses as may be
reasonably requested by Company. If the Company provides
for pass-through voting by the Contract owners, Distributor
will provide the Company with a sufficient quantity of proxy
materials for each Contract owner.
(b) The cost of preparing, printing and shipping of the
prospectuses, proxy materials, periodic fund reports and
other materials of the Issuer to the Company shall be paid by
Distributor or its agents or affiliates; provided, however, that
if at any time Distributor or its agent reasonably deems the
usage by the Company of such items to be excessive, it may,
prior to the delivery of any quantity of materials in excess of
what is deemed reasonable, request that the Company
demonstrate the reasonableness of such usage. If the
Distributor believes the reasonableness of such usage has not
been adequately demonstrated, it may request that the
Company pay the cost of printing (including press time) and
delivery of any excess copies of such materials. Unless the
Company agrees to make such payments, Distributor may
refuse to supply such additional materials and this section
shall not be interpreted as requiring delivery by Distributor
or Issuer of any copies in excess of the number of copies
required by law.
(c) The cost of distribution, if any, of any prospectuses,
proxy materials, periodic fund reports and other materials of
the Issuer to the Contract owners shall be paid by the
Company and shall not be the responsibility of Distributor or
the Issuer.
5. Compensation and Expenses.
(a) The Accounts shall be the sole shareholder of Fund
shares purchased for the Contract owners pursuant to this
Agreement (the "Record Owners"). The Company and the
Record Owners shall properly complete any applications or
other forms required by Distributor or the Issuer from time to
time.
(b) Distributor acknowledges that it will derive a
substantial savings in administrative expenses, such as a
reduction in expenses related to postage, shareholder
communications and recordkeeping, by virtue of having a
single shareholder account per Fund for the Accounts rather
than having each Contract owner as a shareholder. In
consideration of the Administrative Services and
performance of all other obligations under this Agreement by
the Company, Distributor will pay the Company a fee (the
"Administrative Services fee") equal to 15 basis points per
annum of the average aggregate amount invested by the
Company under this Agreement, commencing with the
month in which the average aggregate market value of
investments by the Company (on behalf of the Contract
owners) in the Funds exceeds $10 million. No payment
obligation shall arise until the Company's average aggregate
investment in the Funds reaches $10 million, and such
payment obligation, once commenced, shall be suspended
with respect to any month during which the Company's
average aggregate investment in the Funds drops below $10
million.
(c) The parties understand that Distributor customarily
pays, out of its management fee, another affiliated
corporation for the type of administrative services to be
provided by the Company to the Contract owners. The
parties agree that the payments by Distributor to the
Company, like Distributor's payments to its affiliated
corporation, are for administrative services only and do not
constitute payment in any manner for investment advisory
services or for costs of distribution.
(d) For the purposes of computing the payment to the
Company contemplated by this Section 5, the average
aggregate amount invested by the Accounts in the Funds
over a one month period shall be computed by totaling the
Company's aggregate investment (share net asset value
multiplied by total number of shares of the Funds held by the
Company) on each Business Day during the month and
dividing by the total number of Business Days during such
month.
(e) Distributor will calculate the amount of the payment to
be made pursuant to this Section 5 at the end of each
calendar quarter and will make such payment to the
Company within 30 days thereafter. The check for such
payment will be accompanied by a statement showing the
calculation of the amounts being paid by Distributor for the
relevant months and such other supporting data as may be
reasonably requested by the Company and shall be mailed to:
Midland National Life Insurance Company
One Midland Plaza
Sioux Falls, SD 57193
Attention: Theresa Kuiper
(f) In the event Distributor reduces its management fee
with respect to any Fund after the date hereof, Distributor
may amend the Administrative Services fee payable with
regard to such Fund by providing the Company 30 days'
advance written notice of any such adjustment. The revised
Administrative Services fee shall become effective as of the
latter of 30 days from the date of delivery of the notice or the
date prescribed in the notice.
6. Representations and Warranties.
(a) The Company represents and warrants that: (i) this
Agreement has been duly authorized by all necessary
corporate action and, when executed and delivered, shall
constitute the legal, valid and binding obligation of the
Company, enforceable in accordance with its terms; (ii) it has
established the Separate Account A and the Separate
Account C (the "Accounts"), each of which is a separate
account under South Dakota Insurance law, and has
registered each Account as a unit investment trust under the
Investment Company Act of 1940 (the "1940 Act") to serve
as an investment vehicle for the Contracts; (iii) each Contract
provides for the allocation of net amounts received by the
Company to an Account for investment in the shares of one
of more specified investment companies selected among
those companies available through the Account to act as
underlying investment media; (iv) selection of a particular
investment company is made by the Contract owner under a
particular Contract, who may change such selection from
time to time in accordance with the terms of the applicable
Contract; and (v) the activities of the Company contemplated
by this Agreement comply with all provisions of federal and
state insurance, securities, and tax laws applicable to such
activities.
(b) Distributor represents that: (i) this Agreement has been
duly authorized by all necessary corporate action and, when
executed and delivered, shall constitute the legal, valid and
binding obligation of Distributor enforceable in accordance
with its terms; and (ii) the investments of the Funds will at
all times be adequately diversified within the meaning of
Section 817(h) of the Internal Revenue Service Code of
1986, as amended (the "Code"), and the regulations
thereunder, and that at all times while this Agreement is in
effect, all beneficial interests in each of the Funds will be
owned by one or more insurance companies or by any other
party permitted under Section 1.817-5(f)(3) of the
Regulations promulgated under the Code.
7. Additional Covenants and Agreements.
(a) Each party shall comply with all provisions of federal
and state laws applicable to its respective activities under this
Agreement.
(b) Each party shall promptly notify the other parties in
the event that it is, for any reason, unable to perform any of
its obligations under this Agreement.
(c) The Company covenants and agrees that all Orders
accepted and transmitted by it hereunder with respect to each
Account on any Business Day will be based upon
instructions that it received from the Contract owners in
proper form prior to the Close of Trading of the Exchange on
that Business Day.
(d) The Company covenants and agrees that all Orders
transmitted to the Issuer, whether by telephone, telecopy, or
other electronic transmission acceptable to Distributor, shall
be sent by or under the authority and direction of a person
designated by the Company as being duly authorized to act
on behalf of the owner of the Accounts. Absent actual
knowledge to the contrary, Distributor shall be entitled to
rely on the existence of such authority and to assume that any
person transmitting Orders for the purchase, redemption or
transfer of Fund shares on behalf of the Company is "an
appropriate person" as used in Sections 8-107 and 8-401 of
the Uniform Commercial Code with respect to the
transmission of instructions regarding Fund shares on behalf
of the owner of such Fund shares. The Company shall
maintain the confidentiality of all passwords and security
procedures issued, installed or otherwise put in place with
respect to the use of Remote Computer Terminals and
assumes full responsibility for the security therefor. The
Company further agrees to be solely responsible for the
accuracy, propriety and consequences of all data transmitted
to Distributor by the Company by telephone, telecopy or
other electronic transmission acceptable to Distributor.
(e) The Company agrees to make every reasonable effort
to market its Contracts. It will use its best efforts to give
equal emphasis and promotion to shares of the Funds as is
given to other underlying investments of the Accounts.
(f) The Company shall not, without the written consent of
Distributor, make representations concerning the Issuer or
the shares of the Funds except those contained in the then-
current prospectus and in current printed sales literature
approved by Distributor or the Issuer.
(g) Advertising and sales literature with respect to the
Issuer or the Funds prepared by the Company or its agents, if
any, for use in marketing shares of the Funds as underlying
investment media to Contract owners shall be submitted to
Distributor for review and approval before such material is
used.
(h) The Company will provide to Distributor at least one
complete copy of all registration statements, prospectuses,
statements of additional information, annual and semi-annual
reports, proxy statements, and all amendments or
supplements to any of the above that include a description of
or information regarding the Funds promptly after the filing
of such document with the SEC or other regulatory authority.
8. Use of Names. Except as otherwise expressly provided
for in this Agreement, neither Distributor nor the Funds shall
use any trademark, trade name, service mark or logo of the
Company, or any variation of any such trademark, trade
name, service mark or logo, without the Company's prior
written consent, the granting of which shall be at the
Company's sole option. Except as otherwise expressly
provided for in this Agreement, the Company shall not use
any trademark, trade name, service mark or logo of the Issuer
or Distributor, or any variation of any such trademarks, trade
names, service marks, or logos, without the prior written
consent of either the Issuer or Distributor, as appropriate, the
granting of which shall be at the sole option of Distributor
and/or the Issuer.
9. Proxy Voting.
(a) The Company shall provide pass-through voting
privileges to all Contract owners so long as the SEC
continues to interpret the 1940 Act as requiring such
privileges. It shall be the responsibility of the Company to
assure that it and the separate accounts of the other
Participating Companies (as defined in Section 11(a) below)
participating in any Fund calculate voting privileges in a
consistent manner.
(b) The Company will distribute to Contract owners all
proxy material furnished by Distributor and will vote shares
in accordance with instructions received from such Contract
owners. The Company shall vote Fund shares for which no
instructions have been received in the same proportion as
shares for which such instructions have been received. The
Company and its agents shall not oppose or interfere with the
solicitation of proxies for Fund shares held for such Contract
owners.
10. Indemnity.
(a) Distributor agrees to indemnify and hold harmless the
Company and its officers, directors, employees, agents,
affiliates and each person, if any, who controls the Company
within the meaning of the Securities Act of 1933
(collectively, the "Indemnified Parties" for purposes of this
Section 10(a)) against any losses, claims, expenses,
reasonable out-of-pocket administrative costs (not including
any internal costs or charges), damages or liabilities
(including amounts paid in settlement thereof) or litigation
expenses (including legal and other expenses) (collectively,
"Losses"), to which the Indemnified Parties may become
subject, insofar as such Losses result from a breach by
Distributor of a material provision of this Agreement,
including, but not limited to, any Losses arising out of or
resulting from the materially incorrect reporting of the daily
net asset value per share or dividend or capital gain
distribution rate. Distributor will reimburse any legal or
other expenses reasonably incurred by the Indemnified
Parties in connection with investigating or defending any
such Losses. Distributor shall not be liable for
indemnification hereunder if such Losses are attributable to
the negligence or misconduct of the Company in performing
its obligations under this Agreement.
(b) The Company agrees to indemnify and hold harmless
Distributor and the Issuer and their respective officers,
directors, employees, agents, affiliates and each person, if
any, who controls the Issuer or Distributor within the
meaning of the Securities Act of 1933 (collectively, the
"Indemnified Parties" for purposes of this Section 10(b))
against any Losses to which the Indemnified Parties may
become subject, insofar as such Losses (i) result from a
breach by the Company of a material provision of this
Agreement, or (ii) arise out of or are based upon any untrue
statement or alleged untrue statement of any material fact
contained in any registration statement or prospectus of the
Company regarding the Contracts, if any, or arise out of or
are based upon the omission or alleged omission to state
therein a material fact required to be stated therein or
necessary to make the statements therein not misleading, or
(iii) result from the use by any person of a Remote Computer
Terminal. The Company will reimburse any legal or other
expenses reasonably incurred by the Indemnified Parties in
connection with investigating or defending any such Losses.
The Company shall not be liable for indemnification
hereunder if such Losses are attributable to the negligence or
misconduct of Distributor or the Issuer in performing their
obligations under this Agreement.
(c) Promptly after receipt by an indemnified party
hereunder of notice of the commencement of action, such
indemnified party will, if a claim in respect thereof is to be
made against the indemnifying party hereunder, notify the
indemnifying party of the commencement thereof; but the
omission so to notify the indemnifying party will not relieve
it from any liability which it may have to any indemnified
party otherwise than under this Section 10. In case any such
action is brought against any indemnified party, and it
notifies the indemnifying party of the commencement
thereof, the indemnifying party will be entitled to participate
therein and, to the extent that it may wish to, assume the
defense thereof, with counsel satisfactory to such
indemnified party, and after notice from the indemnifying
party to such indemnified party of its election to assume the
defense thereof, the indemnifying party will not be liable to
such indemnified party under this Section 10 for any legal or
other expenses subsequently incurred by such indemnified
party in connection with the defense thereof other than
reasonable costs of investigation.
(d) If the indemnifying party assumes the defense of any
such action, the indemnifying party shall not, without the
prior written consent of the indemnified parties in such
action, settle or compromise the liability of the indemnified
parties in such action, or permit a default or consent to the
entry of any judgment in respect thereof, unless in
connection with such settlement, compromise or consent,
each indemnified party receives from such claimant an
unconditional release from all liability in respect of such
claim.
11. Potential Conflicts.
(a) The Company has received a copy of an application
for exemptive relief, as amended, filed by Distributor on
December 21, 1987, with the SEC and the order issued by
the SEC in response thereto (the "Shared Funding Exemptive
Order"). The Company has reviewed the conditions to the
requested relief set forth in such application for exemptive
relief. As set forth in such application, the Board of
Directors of the Issuer (the "Board") will monitor the Issuer
for the existence of any material irreconcilable conflict
between the interests of the contract owners of all separate
accounts ("Participating Companies") investing in funds of
the Issuer. An irreconcilable material conflict may arise for a
variety of reasons, including: (i) an action by any state
insurance regulatory authority; (ii) a change in applicable
federal or state insurance, tax, or securities laws or
regulations, or a public ruling, private letter ruling, no-action
or interpretative letter, or any similar actions by insurance,
tax or securities regulatory authorities; (iii) an administrative
or judicial decision in any relevant proceeding; (iv) the
manner in which the investments of any portfolio are being
managed; (v) a difference in voting instructions given by
variable annuity contract owners and variable life insurance
contract owners; or (vi) a decision by an insurer to disregard
the voting instructions of contract owners. The Board shall
promptly inform the Company if it determines that an
irreconcilable material conflict exists and the implications
thereof.
(b) The Company will report any potential or existing
conflicts of which it is aware to the Board. The Company
will assist the Board in carrying out its responsibilities under
the Shared Funding Exemptive Order by providing the Board
with all information reasonably necessary for the Board to
consider any issues raised. This includes, but is not limited
to, an obligation by the Company to inform the Board
whenever contract owner voting instructions are disregarded.
(c) If a majority of the Board, or a majority of its
disinterested Board members, determines that a material
irreconcilable conflict exists with regard to contract owner
investments in a Fund, the Board shall give prompt notice to
all Participating Companies. If the Board determines that the
Company is responsible for causing or creating said conflict,
the Company shall at its sole cost and expense, and to the
extent reasonably practicable (as determined by a majority of
the disinterested Board members), take such action as is
necessary to remedy or eliminate the irreconcilable material
conflict. Such necessary action may include but shall not be
limited to:
(i) withdrawing the assets allocable to the Accounts
from the Fund and reinvesting such assets in a
different investment medium or submitting the
question of whether such segregation should be
implemented to a vote of all affected contract owners
and as appropriate, segregating the assets of any
appropriate group (i.e., annuity contract owners, life
insurance contract owners, or variable contract
owners of one or more Participating Companies) that
votes in favor of such segregation, or offering to the
affected contract owners the option of making such a
change; and/or
(ii) establishing a new registered management
investment company or managed separate
account.
(d) If a material irreconcilable conflict arises as a result of
a decision by the Company to disregard its contract owner
voting instructions and said decision represents a minority
position or would preclude a majority vote by all of its
contract owners having an interest in the Issuer, the
Company at its sole cost, may be required, at the Board's
election, to withdraw an Account's investment in the Issuer
and terminate this Agreement; provided, however, that such
withdrawal and termination shall be limited to the extent
required by the foregoing material irreconcilable conflict as
determined by a majority of the disinterested members of the
Board.
(e) For the purpose of this Section 11, a majority of the
disinterested Board members shall determine whether or not
any proposed action adequately remedies any irreconcilable
material conflict, but in no event will the Issuer be required
to establish a new funding medium for any Contract. The
Company shall not be required by this Section 11 to
establish a new funding medium for any Contract if an offer
to do so has been declined by vote of a majority of the
Contract owners materially adversely affected by the
irreconcilable material conflict.
12. Termination; Withdrawal of Offering. This
Agreement may be terminated by either party upon 180 days'
prior written notice to the other parties. Notwithstanding the
above, each Issuer reserves the right, without prior notice, to
suspend sales of shares of any Fund, in whole or in part, or to
make a limited offering of shares of any of the Funds in the
event that (A) any regulatory body commences formal
proceedings against the Company, Distributor, affiliates of
Distributor, or any of the Issuers, which proceedings
Distributor reasonably believes may have a material adverse
impact on the ability of Distributor, the Issuers or the
Company to perform its obligations under this Agreement or
(B) in the judgment of Distributor, declining to accept any
additional instructions for the purchase or sale of shares of
any such Fund is warranted by market, economic or political
conditions. Notwithstanding the foregoing, this Agreement
may be terminated immediately (i) by any party as a result of
any other breach of this Agreement by another party, which
breach is not cured within 30 days after receipt of notice
from the other party, or (ii) by any party upon a
determination that continuing to perform under this
Agreement would, in the reasonable opinion of the
terminating party's counsel, violate any applicable federal or
state law, rule, regulation or judicial order. Termination of
this Agreement shall not affect the obligations of the parties
to make payments under Section 3 for Orders received by
the Company prior to such termination and shall not affect
the Issuers' obligation to maintain the Accounts in the name
of the Plans or any successor trustee or recordkeeper for the
Plans. Following termination, Distributor shall not have any
Administrative Services payment obligation to the Company
(except for payment obligations accrued but not yet paid as
of the termination date).
13. Continuation of Agreement. Termination as the
result of any cause listed in Section 12 shall not affect the
Distributor's obligation to cause the Issuer to furnish its
shares to Contracts then in force for which its shares serve or
may serve as the underlying medium (unless such further
sale of Fund shares is proscribed by law or the SEC or other
regulatory body). Following termination, Distributor shall
not have any Administrative Services payment obligation to
the Company (except for payment obligations accrued but
not yet paid as of the termination date).
14. Non-Exclusivity. Each of the parties acknowledges
and agrees that this Agreement and the arrangement
described herein are intended to be non-exclusive and that
each of the parties is free to enter into similar agreements and
arrangements with other entities.
15. Survival. The provisions of Section 8 (use of names)
and Section 10 (indemnity) of this Agreement shall survive
termination of this Agreement.
16. Amendment. Neither this Agreement, nor any
provision hereof, may be amended, waived, discharged or
terminated orally, but only by an instrument in writing
signed by all of the parties hereto.
17. Notices. All notices and other communications
hereunder shall be given or made in writing and shall be
delivered personally, or sent by telex, telecopier, express
delivery or registered or certified mail, postage prepaid,
return receipt requested, to the party or parties to whom they
are directed at the following addresses, or at such other
addresses as may be designated by notice from such party to
all other parties.
To the Company:
Midland National Life Insurance Company
One Midland Plaza
Sioux Falls, SD 57193
Attention: Russell Evenson
(605) 335-5700 (office number)
(605) 335-3621 (telecopy number)
To the Issuer or Distributor:
American Century Mutual Funds
4500 Main Street
Kansas City, Missouri 64111
Attention: Charles A. Etherington, Esq.
(816) 340-4051 (office number)
(816) 340-4964 (telecopy number)
Any notice, demand or other communication given in a
manner prescribed in this Section 17 shall be deemed to have
been delivered on receipt.
18. Successors and Assigns. This Agreement may not be
assigned without the written consent of all parties to the
Agreement at the time of such assignment. This Agreement
shall be binding upon and inure to the benefit of the parties
hereto and their respective permitted successors and assigns.
19. Counterparts. This Agreement may be executed in
any number of counterparts, all of which taken together shall
constitute one agreement, and any party hereto may execute
this Agreement by signing any such counterpart.
20. Severability. In case any one or more of the
provisions contained in this Agreement should be invalid,
illegal or unenforceable in any respect, the validity, legality
and enforceability of the remaining provisions contained
herein shall not in any way be affected or impaired thereby.
21. Entire Agreement. This Agreement, including the
Attachments hereto, constitutes the entire agreement between
the parties with respect to the matters dealt with herein, and
supersedes all previous agreements, written or oral, with
respect to such matters.
IN WITNESS WHEREOF, the undersigned have
executed this Agreement as of the date set forth above.
AMERICAN CENTURY INVESTMENT MIDLAND NATIONAL LIFE
SERVICES, INC. INSURANCE COMPANY
By: __William_M._Lyons__ By:__Michael_M._Masterson__
William M. Lyons Michael M. Masterson
Executive Vice President President and Chief Executive Officer
<PAGE>
EXHIBIT 6.
March 18, 1997
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. 3 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
VUL2
<PAGE>
EXHIBIT 7
April 11, 1997
Midland National Life Insurance Company
One Midland Plaza
Sioux Falls, SD 57193
RE: VUL2 Form S-6
Gentlemen:
We hereby consent to the reference to our name under the caption "Legal
Matters" in the Prospectus filed as part of the Post-Effective Amendment
3 to the Registration Statement on Form S-6 filed by Midland National
Life Insurance Company Separate Account A for certain variable life
insurance contracts (file number 33-76318). In giving this consent, we
do not admit that we are in the category of persons whose consent is
required under Section 7 of the Securities Act of 1933.
Very truly yours,
SUTHERLAND, ASBILL & BRENNAN, L.L.P.
by: __Frederick_R._Bellamy__
Frederick R. Bellamy
FREDCONS LLPVUL2
<PAGE>
EXHIBIT 8.
CONSENT OF IDEPENDENT ACCOUNTANTS
We consent to the inclusion in this Registration Statement under the
Securities Act of 1933 (Post Effective Amendment No.3) on Form S-6
(File No. 33-76318) of our reports dated March 7, 1997, 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, 1997
<PAGE>
EXHIBIT 27
[ARTICLE] 6
<TABLE>
<S> <C>
[PERIOD-TYPE] 12-MOS
[FISCAL-YEAR-END] DEC-31-1996
[PERIOD-START] JAN-01-1996
[PERIOD-END] DEC-31-1996
[INVESTMENTS-AT-COST] 28,666,449
[INVESTMENTS-AT-VALUE] 39,990,322
[RECEIVABLES] 0
[ASSETS-OTHER] 0
[OTHER-ITEMS-ASSETS] 0
[TOTAL-ASSETS] 39,990,322
[PAYABLE-FOR-SECURITIES] 0
[SENIOR-LONG-TERM-DEBT] 0
[OTHER-ITEMS-LIABILITIES] 7,749
[TOTAL-LIABILITIES] 7,749
[SENIOR-EQUITY] 0
[PAID-IN-CAPITAL-COMMON] 0
[SHARES-COMMON-STOCK] 0
[SHARES-COMMON-PRIOR] 0
[ACCUMULATED-NII-CURRENT] 0
[OVERDISTRIBUTION-NII] 0
[ACCUMULATED-NET-GAINS] 0
[OVERDISTRIBUTION-GAINS] 0
[ACCUM-APPREC-OR-DEPREC] 0
[NET-ASSETS] 39,982,573
[DIVIDEND-INCOME] 3,752,785
[INTEREST-INCOME] 0
[OTHER-INCOME] 0
[EXPENSES-NET] 666,843
[NET-INVESTMENT-INCOME] 3,085,942
[REALIZED-GAINS-CURRENT] 212,217
[APPREC-INCREASE-CURRENT] 4,494,844
[NET-CHANGE-FROM-OPS] 7,792,703
[EQUALIZATION] 0
[DISTRIBUTIONS-OF-INCOME] 0
[DISTRIBUTIONS-OF-GAINS] 0
[DISTRIBUTIONS-OTHER] 0
[NUMBER-OF-SHARES-SOLD] 0
[NUMBER-OF-SHARES-REDEEMED] 0
[SHARES-REINVESTED] 0
[NET-CHANGE-IN-ASSETS] 12,547,051
[ACCUMULATED-NII-PRIOR] 0
[ACCUMULATED-GAINS-PRIOR] 0
[OVERDISTRIB-NII-PRIOR] 0
[OVERDIST-NET-GAINS-PRIOR] 0
[GROSS-ADVISORY-FEES] 0
[INTEREST-EXPENSE] 0
[GROSS-EXPENSE] 666,443
[AVERAGE-NET-ASSETS] 0
[PER-SHARE-NAV-BEGIN] 0
[PER-SHARE-NII] 0
[PER-SHARE-GAIN-APPREC] 0
[PER-SHARE-DIVIDEND] 0
[PER-SHARE-DISTRIBUTIONS] 0
[RETURNS-OF-CAPITAL] 0
[PER-SHARE-NAV-END] 0
[EXPENSE-RATIO] 0
[AVG-DEBT-OUTSTANDING] 0
[AVG-DEBT-PER-SHARE] 0
</TABLE>
