Securities and Exchange Commission
450 Fifth Street, N.W.
Washington, DC 20549
RE: Midland National Life Separate Account A
File Number 333-14081
Commissioners:
Enclosed for filing is a complete copy, including exhibits, of
Post-Effective Amendment Number 1 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
Fred Bellamy of Sutherland, Asbill and Brennan at 202-383-0126.
Sincerely,
Paul M. Phalen, CLU, FLMI
Assistant Vice-President
Product Implementation
VEULCVR.TXT
<PAGE>
Registration No. 333-14081
POST-EFFECTIVE AMENDMENT NO. 1
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, 1998 pursuant to paragraph (b)
___ 60 days after filing pursuant to paragraph (a) (i)
___ on _________________ pursuant to paragraph (a) (i) 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.
----------------------------------------------------------------------
S6CVRVEL.TXT
<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
<PAGE>
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
XREFER.TXT
<PAGE>
Flexible Premium Variable Life Insurance Contract
(Variable Executive Universal Life)
Issued By:
Midland National Life Insurance Company
One Midland Plaza, Sioux Falls, SD 57193, (605) 335-5700
This prospectus describes Variable Executive Universal Life, an
individual flexible premium variable life insurance contract issued by
Midland National Life Insurance Company (Midland). We have
designed Variable Executive Universal Life to provide insurance
coverage with flexibility in death benefits and premiums. Variable
Executive Universal Life 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 Executive Universal Life pays a death benefit if the Insured
Person dies while 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 the sales charge, 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 Fund 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 prospectuses for the Funds, which accompany 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
American Century VP International Portfolio
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 nor 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 PROSPECTUSES 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, 19981997.
Table of Contents
Definitions
PART 1: SUMMARY
FEATURES OF VARIABLE EXECUTIVE UNIVERSAL LIFE
INVESTMENT CHOICES OF VARIABLE EXECUTIVE
UNIVERSAL LIFE
DEDUCTIONS AND CHARGES
USING YOUR CONTRACT FUND
ADDITIONAL INFORMATION ABOUT VARIABLE EXECUTIVE
UNIVERSAL LIFE
PART 2: DETAILED INFORMATION ABOUT VARIABLE
EXECUTIVE UNIVERSAL LIFE
THE COMPANY THAT ISSUES VARIABLE EXECUTIVE
UNIVERSAL LIFE
Midland National Life Insurance Company
Our Parent
THE FEATURES OF VARIABLE EXECUTIVE UNIVERSAL LIFE
How Variable Executive Universal Life Differs From Whole Life
Insurance
Death Benefits
Maturity Benefit
Changes In Variable Executive Universal Life
Changing The Specified Amount of Insurance
Automatic Benefit Increase Provision
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
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 EXECUTIVE
UNIVERSAL LIFE
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
Year 2000 Compliance Issues
DISCOUNT FOR MIDLAND EMPLOYEES
LEGAL MATTERS
LEGAL PROCEEDINGS
FINANCIAL AND ACTUARIAL
ADDITIONAL INFORMATION
Management of Midland
Appendix
Financial Statements
This prospectus generally describes only the variable portion of the
Contract, except where the General Account is specifically mentioned.
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.
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 PROSPECTUSES FOR
THE FUNDS.
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 which we are closed but the New York
Stock Exchange is open are the day after Thanksgiving, and Christmas Eve
Day. These days along with the days the New York Stock Exchange is not
open for trading will not be counted as Business Days.
Contract Fund means the total amount of monies in Our Separate
Account A attributable to Your in force contract. 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 Anniversary: The same month and day of the Contract Date
in each year following the Contract Date.
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, less any deduction for the sales charge 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 EXECUTIVE UNIVERSAL LIFE
Insurance Benefit Options
Variable Executive Universal Life 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 9.
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 $150,000.
Your Contract Fund
Your Contract Fund is established after We receive Your first premium
payment. After We deduct the sales charge, 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 Executive Universal Life 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 19.
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 11.
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 12.
INVESTMENT CHOICES OF VARIABLE EXECUTIVE
UNIVERSAL LIFE
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 managesreceives fees
from the VIP, VIP II and VIP III portfolios for providing investment
management services and American Century Investment Management,
Inc. manages thereceives fees from American Century VPVariable
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. They receive fees from the portfolios
for these services.
For a full description of the Funds, see the Funds' prospectus, which
accompanies this prospectus. See "The Funds" on page 14. The current
investment divisions which invest in pP ortfolios of Fidelity's
Variable Insurance Products Fund are:
VIP Money Market Portfolio
VIP High Income Portfolio
VIP Equity-Income Portfolio
VIP Growth Portfolio
VIP Overseas Portfolio
The current investment divisions which invest in pP ortfolios of
Fidelity's Variable Insurance Products Fund II are:
VIPII Asset Manager Portfolio
VIPII Investment Grade Bond Portfolio
VIPII Contrafund Portfolio
VIPII Asset Manager: Growth Portfolio
VIPII Index 500 Portfolio
The current investment divisions which invest in Portfolios of
Fidelity's Variable Insurance Products Fund III are:
VIPIII Growth & Income Portfolio
VIPIII Balanced Portfolio
VIPIII 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 Funds also charge an amount for other operating
expenses. The total expenses for the year ending December 31,
19971996 are shown in the table below.
Portfolio Total Expenses
VIP Money Market .31%.30%
VIP High Income .71%
VIP Equity-Income(1) .58%.58%
VIP Growth(1) .69%.69%
VIP Overseas(1) .92%.93%
VIP II Investment Grade Bond .58%
VIP II Asset Manager(1) .65%.74%
VIP II Index 500 Portfolio(2) .28%
VIP II Contrafund(1) .71%.74%
VIP II Asset Manager: Growth(1) .77%.87%
VIP III Balanced(1) .61%.72%
VIP III Growth Opportunities(1) .74%.77%
VIP III Growth & Income .70%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%
(1)A portion of the brokerage commissions the fund paid was used to
reduce its expenses. In addition, certain funds have entered into
arrangements with their custodian and transfer agent whereby credits
realized as a result of uninvested cash balances were used to reduce
custodian and transfer agent expenses. Including these reductions, total
operating expenses would have been as follows:
VIP Equity-Income 0.57%
VIP Growth 0.67%
VIP Overseas 0.90%
VIP II Asset Manager 0.64%
VIP II Contrafund 0.68%
VIP II Asset Manager: Growth 0.76%
VIP III Balanced 0.60%
VIP III Growth Opportunities 0.73%
(2)The fund's expenses were voluntarily reduced by the Fund's
investment advisor. Absent reimbursement, the total expenses for the
VIP II Index 500 would have been 0.40%.
See "Investment Policies Of The Funds' Portfolios" on page 14,
"Charges In The Funds" on page 16, and "THE GENERAL
ACCOUNT" on page 23.
DEDUCTIONS AND CHARGES
Deductions From Your Premiums
We deduct a sales charge of 2.50% from each premium payment. This
charge is to partially reimburse Us for the cost incurred in selling and
distributing this contract. A charge for any applicable premium taxes is
deducted from each premium payment. The current premium tax
charge We take is 2.5%. If the premium tax We incur on any premium
is less than 2.5%, We may reduce the charge for premium taxes on that
premium. 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 on page 17.
Deductions From Your Contract Fund
Certain amounts are deducted from Your Contract Fund each month.
These are:
an expense charge of $6.00 each month (currently We plan to make
this deduction for the first 15 contract 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 twelve transfers a year between investment divisions.
We currently waive this charge.On a current basis an unlimited
number of transfers are allowed without a charge.
See "Deductions From Your Contract Fund" on page 17.
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. On a current basis, We currently intend to reduce
this charge to 0.50% after the tenth Contract Year (but there is no
guarantee We will do so). See "Charges Against The Separate
Account" on page 16.
Charges In The Funds
The Funds make a charge for managing investments and providing
services. See Charges In The Funds on page 16.
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 partially 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 12 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:
27.5% of any premium payment in the first two contract years up to
one guideline annual premium.
6.5% of all other premium payments.
This sum cannot exceed 6.5% times the guideline annual premium
times the lesser of 20 or the number of years in the Insured Person's
life expectancy. The sum is multiplied by a percentage - 100% for the
first seven years, decreasing to 0% after the twelfth 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. You will not incur any Deferred
Sales Charge, regardless of the amount and timing of premiums if You
keep this contract in force for twelve years.
The Deferred Issue Charge is a fixed schedule per thousand dollars of
Specified Amount starting at $3.00 per thousand for the first seven
years, decreasing to zero after the twelfth year. This discussion of the
Deferred Sales Charge and the Deferred Issue Charge assumes no
changes in Specified Amount. See "Surrender Charge" on page 18.
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. Currently, We allow
unlimited transfers without a charge. However, We reserve the right to
assess a $25 charge after the twelfth 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 20.
Surrendering Your Contract
Variable Executive Universal Life 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 12 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 23.
Borrowing Against Your Contract
You may borrow a total amount up to 92% of the Cash Surrender
Value, 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 21. 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 24.
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 50% 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 22. Withdrawals and Surrenders
may have adverse tax consequences. See "TAX EFFECTS" on page
24.
ADDITIONAL INFORMATION ABOUT VARIABLE EXECUTIVE
UNIVERSAL LIFE
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 23.
Tax Effects of Variable Executive Universal Life
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 24.
Your Contract Can Lapse
During the first five Contract Years, this contract will remain in force
if either (a)unless the Net Cash Surrender Value is insufficient to
pay monthly charges or (b)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. Therefore, the contract could lapse
after the Minimum Premium Period even if You continue paying
minimum premiums. See "Your Contract May Lapse" on page 22.
Illustrations
Sample projections of hypothetical Death Benefits and Cash Surrender
Values are included starting at page 33 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.
Performance
Performance information for the investment divisions may appear in
reports and advertising to current and prospective Owners. The
performance information is based on historical investment experience
of the investment division and the Funds and does not indicate or
represent future performance.
Total return quotations reflect changes in Fund share price, the
automatic reinvestment by the Separate Account of all distributions
and the deduction of the Mortality and Expense Risk charge. The
quotations will not reflect deductions from premiums (the sales charge,
premium tax charge, and any per premium expense charge), the
monthly deduction from the Contract Fund (the expense charge, the
cost of insurance charge, and any charges for additional benefits), the
Surrender Charge, or other transaction charges. Therefore, these
returns do not show how actual investment performance will affect
Contract benefits.
A cumulative total return reflects performance over a stated period of
time. An average annual total return reflects the hypothetical annually
compounded return that would have produced the same cumulative
total return if the performance had been constant over the entire period.
Because average annual total returns tend to smooth out variations in
an investment division's returns, You should recognize that they are
not the same as actual year-by-year results.
Midland may also advertise performance figures for the investment
divisions based on the performance of a Portfolio prior to the time the
Separate Account commenced operations.
Midland may also provide individual hypothetical illustrations of
Contract Fund Value, Cash Surrender Value, and Death Benefit based
on historical investment returns of the Funds. The illustrations will
reflect the deductions of expenses in the Funds and the deduction of
Contract charges, including the Mortality and Expense Risk Charge,
the deductions from premiums, the monthly deduction from the
Contract Fund and the Surrender Charge. The illustrations do not
indicate what contract benefits will be in the future.
PART 2: DETAILED INFORMATION
ABOUT VARIABLE EXECUTIVE
UNIVERSAL LIFE
THE COMPANY THAT ISSUES VARIABLE EXECUTIVE
UNIVERSAL LIFE
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 EXECUTIVE UNIVERSAL LIFE
This prospectus describes Our regular Variable Executive Universal
Life 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 Executive Universal Life Differs From Whole Life
Insurance
Variable Executive Universal Life 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. However, paying
scheduled premiums may not prevent the Variable Executive Universal
Life contract from lapsing. Variable Executive Universal Life also
provides for two different types of insurance benefit options. You may
switch back and forth between these options. Another feature of
Variable Executive Universal Life 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 Executive Universal Life 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, Whether YouYour 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, Your contract will remain in-force
provided the sum of the premiums You have paid less any loans or
withdrawals taken exceeds the total sum of all monthly minimum
premiums for all the contract months the contract has been in-forceas
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 $150,000. 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 Executive Universal Life
Variable Executive Universal Life 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.
Automatic Benefit Increase Provision
The Automatic Benefit Increase (ABI) Provision provides for increases
to Your face amount of insurance to keep pace with inflation. The ABI
provision is included on all standard issues of regularily underwritten
policies where the issue age of the primary insured is 55 or younger
and where the billing mode is not military government allotment nor
civil service allotment nor list bill.
The Increase Dates begin on the second Contract Anniversary and
occur every two years after they begin until this provision terminates.
At least 30 days before the Increase Date, We will send a notice to
You regarding the amount of increase. The Cost of Living Rider policy
form specifies the conditions under which the provision can be
terminated. You have the right to reject any increase in specified
amount by sending Us a notice before it becomes effective. If You
reject any such increase, the ABI provision will terminate. (See Your
policy form for exact details.)
The exact amount of increase to the specified amount of insurance will
be calculated as follows:
a. The Eligible Specified Amount (unless the ABI provision has
terminated, this is the sum of the portions of the specified amount of
insurance that are in the Non-smoker, Ordinary or Preferred Premium
Class) times
b. The Consumer Price Index five months before such Increase
Date divided by
c. The Consumer Price Index 29 months before such Increase Date
minus the Eligible Specified Amount from part a.
The maximum amount of any increase is $50,000 or 20% of the eligible
specified amount, whichever is less. Once the total of all increases
provided by this provision exceeds two times the initial specified amount
of insurance, the ABI provision will automatically terminate.
The Consumer Price Index is the U.S. Consumer Price Index for All
Urban Consumers as published by the U.S. Department of Labor (See
Your policy form for more details on this index.)
The Automatic Benefit Increase (ABI) Provision does not require
separate monthly charges, but it does affect the amount of Your
monthly cost of insurance charge by increasing Your specified
insurance amount. (See Deductions From Your Contract Fund on page
17 for more details.)
The ABI increases will increase the planned and minimum premiums. (See Your
Cost of Living Rider Policy Form and your base contract policy form for exact
details.)
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 24.
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. The planned premium will
increase for any increases in specified amounts of insurance, including
increases resulting from the Automatic Benefit Increase Provision.
(See the ABI Provision on page 11 for details on how and when the
increases are applied.)
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 will increase for any increases in
specified amounts of insurance including increases resulting from the
Automatic Benefit Increase Provision. (See the ABI Provision on page
11 for details on how and when the increases are applied.) The
minimum premium requirement will be satisfied if the sum of
premiums You have paid less any loans or withdrawals you have taken
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 sales charge, 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 23.
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
as payment of an "Advanced Sum," 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
Funds. 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, the 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 Products
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 prospectuses, which accompanies this prospectus, and in the
Funds' Statement of Additional Information.
The Funds sell their shares to separate accounts of various insurance
companies to support both variable life insurance contracts and
variable annuity contracts. We currently do not foresee any
disadvantages to Our owners arising out of this. If We believe that the
Funds do not sufficiently respond to protect Our 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.
Midland may from time to time receive revenue from Fidelity
Management & Research Company and/or American Century
Investment Management, Inc. The amounts of the revenue, if any, may
be based on the amount of investments by Midland contained in the
Funds.
Investment Policies Of The Funds' Portfolios
Each portfolio has a different investment objective which it tries to
achieve by following separate investment policies. The objectives and
policies of each portfolio will affect its return and its risks. Remember
that the investment experience of the investment divisions of Our
Separate Account depends on the performance of the corresponding
Funds' portfolios. The objectives of the Funds' portfolios are as
follows:
Portfolio
Objective
VIP Money Market
Seeks to earn aobtain as high a level of current income as is
consistent with preserving capital and providing liquidity by investing
in high quality money market instruments. (An investment in the Money
Market or any other Portfolio is neither insured nor guaranteed by the
U.S. Government, and there is no assurance that the Money Market
Portfolio will be able to maintain a constant net asset value.)
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 by investing in common stocks,
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 money marketfixed-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 whose value the manager believes is not
recognized fully by the publicthat 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 securities convertible into common stocks, but it has the ability to
purchase other securities such as preferred stocks and bonds that may
produce capital growth.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 primarily 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 commongrowth stocks that management
considers to have better than average potential for appreciation and the
rest in fixed income securities.
American Century VP International
Seeks capital growth by investing primarily 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. Under certain unlikely circumstances, one investment
division of the Separate Account may be liable for claims relating to
the operations of another division.
Our Right To Change How We Operate Our Separate Account
In addition to changing or adding funds or portfoliosinvestment
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 Executive Universal
Life 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.
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 Executive Universal Life. Currently
We intend to reduce this charge to 0.50% after the tenth Contract Year
(but We are not obligated to and might not do so). 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 20. 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 sales charge and 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,
19971996 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,
19971996 are shown in the table below.
Management Other Total
Portfolio Fee Expenses Expenses
VIP Money Market .21% .10.09% .31.30%
VIP High Income .59% .12% .71%
VIP Equity-Income(1) .50.51% .08.07% .58%
VIP Growth(1) .60.61% .09.08% .69%
VIP Overseas(1) .75.76% .17.17% .92.93%
VIP II Investment
Grade Bond .44.45% .14.13% .58%
VIP II Asset Manager(1) .55.64% .10% .65.74%
VIP II Index 500 .24.13% .04.15% .28%
VIP II Contrafund(1) .60.61% .11.13% .71.74%
VIP II Asset
Manager: Growth(1) .60.65% .17.22% .77.87%
VIP III Balanced(1) .45.48% .16.24% .61.72%
VIP III Growth
Opportunities(1) .60.61% .14.16% .74.77%
VIP III Growth
& Income .49.50% .21.50% .701.00%
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 1.50% .00% 1.50%
(1)A portion of the brokerage commissions the fund paid was used to
reduce its expenses. In addition, certain funds have entered into
arrangements with their custodian and transfer agent whereby credits
realized as a result of uninvested cash balances were used to reduce
custodian and transfer agent expenses. Including these reductions, total
operating expenses would have been as follows:
VIP Equity-Income 0.59%
VIP Growth 0.67%
VIP Overseas 0.90%
VIP II Asset Manager 0.64%
VIP II Contrafund 0.68%
VIP II Asset Manager: Growth 0.76%
VIP III Balanced 0.60%
VIP III Growth Opportunities 0.73%
(2)The portfolio's expenses were voluntarily reduced by the Fund's
investment advisor. Absent reimbursement, the management fee, other
expenses, and total expenses for the VIP II Index 500 would have been
0.27%, 0.13% and 0.40%, respectively.
Deductions From Your Premiums
We deduct a sales charge of 2.50% from each premium payment. This
charge is to partially reimburse Us for the cost incurred in selling and
distributing this contract, including commissions, the cost of preparing
sales literature and printing of prospectuses. A Deferred Sales Charge
will also be deductedincurred if You give up Your contract for its
Net Cash Surrender Value or let Your contract lapse. See Surrender Charge
on page 18.
A 2.5% charge for premium taxes is also 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. If the
premium tax We incur on any premium is less than 2.5%, We may
reduce the charge for premium taxes on that premium.
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 mosteach premiums in
premium tax. If We pay less, We may reduce the charge for that
premium.
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 $6.00 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 currently
place the Insured Person that is a standard risk in the following rate
classes: preferred non-smoker, non-smoker, and smoker. The Insured
Person may also be placed in a rate class involving a higher mortality
risk, known as a substandard class. We may change the cost of
insurance 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 preferred 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 Executive Universal Life 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 (Preferred Non-Smoker)
Age Rate Rate
5 $.07 $.05
15 .11 .10
25 .13 .07
35 .14 .08
45 .29 .17
55 .69 .36
65 1.87 .74
For a male preferred 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 $7.92. This example assumes
the expense charge ($6.00 per month) and current cost of insurance
rate ($.08 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 habitsThe reduced cost of insurance rates depend on such
variables as the attained age and sex of the insured.
The preferred non-smoker cost of insurance rates are lower than the
non-smoker cost of insurance rates. To qualify for the preferred non-
smoker class, the Insured Person must be age 20 or over and meet
certain underwriting requirements.
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.
Automatic Benefit Increase Charges There is no separate charge for
the Automatic Benefit Increase (ABI) provision. However, as the
automatic increases are applied (see page 11 for exact details) the
specified amount of insurance will increase. The increase in specified
amount will cause the amount at risk to increase which will increase
the monthly cost of insurance charge over what would have been
charged without the increase.
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. Currently, We do not charge when You make transfers of
Contract Fund value among investment divisions. We reserve the right
to assess a $25 charge after the twelfth 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 Executive Universal Life, 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 12 Contract
Years. This difference is the Surrender Charge, which is a contingent
deferred issue charge and sales load designed to partially recover Our
expenses in distributing and issuing contracts which are terminated by
surrender in their early years (the sales charge is also designed to
partially reimburse Us for these expenses). It is a contingent load
because You pay it only if You surrender Your contract (or let it lapse)
during the first 12 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 sales charge and Surrender Charge
will not fully cover Our sales expenses. To the extent sales expenses
are not covered by the sales charge and 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 12 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:
27.5% of any premium payment in the first two Contract Years up to
one guideline annual premium.
6.5% of all other premium payments.
The sum of the above pieces is also limited by the Guideline Annual
Premium, times 6.5%, 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 seven 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
eighth year, the sum or maximum will be multiplied by a percentage.
The percentage is 83.33% for year eight, 66.67% for year nine, 50%
for year ten, 33.33% for year eleven, and 16.67% for year twelve.
After the 12th 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 5% of
premiums. The maximum limit will also increase by the additional
Guideline Annual Premium, times 6.5%, 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. The 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.
You will not incur any Deferred Sales Charge, regardless of the
amount and timing of premiums, if You keep this contract in force for
thirteen years.
The following table shows the Deferred Issue Charge which is a dollar
amount for each thousand dollars of the Specified Amount. After the
12th 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 $1.00
2 3.00 7 3.00 12 0.50
3 3.00 8 2.50
4 3.00 9 2.00
5 3.00 10 1.50
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 Funds, 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 will be set at
$10.00 on the first day there are contract transactions in Our Separate
Account associated with these contracts. 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 .0024547%, which is an
effective annual rate of 0.90%. On a current basis We currently
intend to reduce this charge to 0.50% annually (.0013664% daily) after the
tenth Contract Year, but We are not obligated to reduce it. 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 an unlimited number of transfers of
Contract Fund value in each Contract Year without charge. We reserve
the right to assess a $25 charge after the twelfth 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 18. 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 DCA
Source Account (any one investment division or the General
Account)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 proper Request
Forms (obtained by contacting Us at the Home Office)DCA Request
Form (form number 5856) and by insuring that a sufficient amount is
in the DCA Source AccountVIP Money Market investment division,
either through payment of a premium with the DCA request form,
allocation of premiums, or transfer of amounts to the DCA Source
AccountVIP Money Market investment division. Copies of the DCA
Request Formform 5856 can be obtained by contacting Us at Our
Home Office. The election will specify:
a. The DCA Source Account. The DCA Source Account is the account
from which DCA transfers will be made.that any money received with
the form is to be placed into the VIP Money Market investment
division
b. That any money received with the form is to be placed into the DCA
Source Account.
cb. T the monthly amount to be transferred to the other investment
divisions, and
dc. H 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 DCA Source
AccountVIP Money Market investment division is at least equal to the
sum of $2,400 and the minimum premium at the time DCA is to begin.
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 plus the minimum premium. When DCA is elected,
all amounts in the DCA Source AccountVIP Money Market
investment division will be available for transfer under the DCA
program. Once DCA is elected, additional premiums can be deposited
into the DCA Source AccountVIP 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 Rr equest Ff orm,
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.
DCA will last until the value in the DCA Source AccountVIP 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 up to 92% of the Cash Surrender Value 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, We guarantee that the
annual rate of interest paid on the loaned portion of the Contract Fund
will equal 8% (which is equal to the interest rate charged on the
Contract Loan) 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 24.
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 92% of the Cash Surrender Value , 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 50% 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 18.
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 12
Contract Years, the Cash Surrender Value is the amount in Your
Contract Fund minus the Surrender Charge. After 12 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 3.5%. We may, at the sole discretion of Our
Board of Directors, credit interest in excess of 3.5%. You assume the
risk that interest credited may not exceed 3.5%. 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 subject to a
limit. See "Transfers Of Contract Fund Value" on Page 20.
ADDITIONAL INFORMATION ABOUT VARIABLE EXECUTIVE
UNIVERSAL LIFE
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 3 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 28.
Application for Insurance
When an application for one of Our contracts is completed, it is
submitted to Us. We decide whethermake 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. By extending the Maturity
Date, the contract may not qualify as life insurance and may be subject
to tax consequences. A tax advisor should be consulted prior to
electing to extend the Maturity Date. In order to continue the contract
beyond the original Maturity Date, We will 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 Executive Universal Life 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 Executive Universal Life 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 Executive Universal Life
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.
In recent years, Congress has adopted new rules relating to corporate
owned life insurance. Any business contemplating the purchase of a
new life insurance contract or a change in an existing contract should
consult a tax adviser. Although the likelihood of legislative changes is
uncertain, there is always the possibility that the tax treatment of the
Policy could change by legislation or other means. For instance, the
President's 1999 Budget Proposal has recommended legislation that, if
enacted, would adversely modify the federal taxation of the contracts
described in this prospectus. It is possible that any change could be
retroactive (that is, effective prior to the date of the change). A tax
adviser could be consulted with respect to legislative development and
their effect on a Contract.
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.
In recent years, Congress has adopted new rules relating to corporate
owned life insurance. Any business contemplating the purchase of a
new life insurance contract or a change in an existing contract should
consult a tax adviser. Although the likelihood of legislative changes is
uncertain, there is always the possibility that the tax treatment of the
Policy could change by legislation or other means. For instance, the
President's 1999 Budget Proposal has recommended legislation that, if
enacted, would adversely modify the federal taxation of the contracts
described in this prospectus. It is possible that any change could be
retroactive (that is, effective prior to the date of the change). A tax
adviser could be consulted with respect to legislative development and
their effect on a Contract.
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 Funds 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 Executive Universal Life. 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 the third, sixth, ninth, and twelfth Contract
Month, 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 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 50% of premiums paid. For subsequent years, the commission
allowance may equal an amount up to 2.5% of premiums paid. Beyond
the fifteenth Contract Year, We pay no commission. Certain
persistency and production bonus may also be paid.
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.
Year 2000 Compliance Issues
Midland National Life is currently in the process of updating their
administrative systems to accomodate all Year 2000 issues. Midland
does not anticipate any material financial impact in processing and
completing the changes required to comply with the Year 2000 issues.
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
ExecutiveSenior Vice President and Chief Financial Officer
Executive Vice President (January 1998 to present), Midland National
Life Insurance Company; Senior Vice President and Chief Financial
Officer (October 1993 to 1998present ), 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
Thomas M. Meyer
Midland National Life
One Midland Plaza
Sioux Falls, SD 57193
Vice President and Chief Financial Officer
Vice President and Chief Financial Officer (January 1998 to present),
Second Vice President and Controller (1995 to 1998), Midland
National Life Insurance Company
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 preferred 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 preferred 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 twelve contract years due to the surrender charge. For
contract years thirteen 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% sales charge deduction
from each premium, the 2.5% premium tax deduction from each
premium and the $6.00 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 .75%.79% of the
aggregate average daily net assets of the Portfolios of the Funds (the
average rate of the Portfolios for the period ending December 31,
19971996) . The actual fees and expenses associated with the contract
may be more or less than .75%.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 .90% (.50% after year 10 on a current basis) 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 -1.65%,-1.69%,
4.35%,4.31%, and 10.35%,10.31%, respectively (-1.25%,-1.29%,
4.75%,4.71%, 10.75%10.71% after year 10 on a current basis).
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.
MIDLAND NATIONAL LIFE INSURANCE COMPANY
FLEXIBLE PREMIUM VARIABLE LIFE INSURANCE
CONTRACT
DEATH BENEFIT OPTION 1 ASSUMED HYPOTHETICAL GROSS
MALE PREFERRED NON-SMOKER ISSUE AGE 25 ANNUAL RATE OF RETURN: 0%
$200,000 INITIAL SPECIFIED AMOUNT ASSUMED ANNUAL PREMIUM(1): $1500
<TABLE>
<S> <C> <C> <C> <C> <C> <C> <C>
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)
1 1,575 1,165 191 200,000 1,023 49 200,000
2 3,229 2,288 1,217 200,000 2,054 983 200,000
3 4,965 3,393 2,225 200,000 3,069 1,901 200,000
4 6,788 4,481 3,216 200,000 4,070 2,804 200,000
5 8,703 5,553 4,189 200,000 5,055 3,691 200,000
6 10,713 6,608 5,147 200,000 6,025 4,564 200,000
7 12,824 7,646 6,087 200,000 6,981 5,422 200,000
8 15,040 8,668 7,288 200,000 7,899 6,519 200,000
9 17,367 9,674 8,505 200,000 8,804 7,635 200,000
10 19,810 10,665 9,739 200,000 9,672 8,747 200,000
11 22,376 11,688 11,038 200,000 10,528 9,878 200,000
12 25,069 12,699 12,358 200,000 11,348 11,007 200,000
13 27,898 13,676 13,676 200,000 12,134 12,134 200,000
14 30,868 14,643 14,643 200,000 12,887 12,887 200,000
15 33,986 15,576 15,576 200,000 13,606 13,606 200,000
16 37,261 16,548 16,548 200,000 14,271 14,271 200,000
17 40,699 17,488 17,488 200,000 14,904 14,904 200,000
18 44,309 18,395 18,395 200,000 15,485 15,485 200,000
19 48,099 19,271 19,271 200,000 16,014 16,014 200,000
20 52,079 20,117 20,117 200,000 16,492 16,492 200,000
21 56,258 20,910 20,910 200,000 16,921 16,921 200,000
22 60,646 21,674 21,674 200,000 17,300 17,300 200,000
23 65,253 22,409 22,409 200,000 17,610 17,610 200,000
24 70,091 23,116 23,116 200,000 17,872 17,872 200,000
25 75,170 23,773 23,773 200,000 18,067 18,067 200,000
30 104,641 26,246 26,246 200,000 17,622 17,622 200,000
35 142,254 27,437 27,437 200,000 13,740 13,740 200,000
40 190,260 26,922 26,922 200,000 3,884 3,884 200,000
</TABLE>
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.
MIDLAND NATIONAL LIFE INSURANCE COMPANY
FLEXIBLE PREMIUM VARIABLE LIFE INSURANCE
CONTRACT
DEATH BENEFIT OPTION 1 ASSUMED HYPOTHETICAL GROSS
MALE PREFERRED NON-SMOKER ISSUE AGE 25 ANNUAL RATE OF RETURN: 6%
$200,000 INITIAL SPECIFIED AMOUNT ASSUMED ANNUAL PREMIUM(1): $1500
<TABLE>
<S> <C> <C> <C> <C> <C> <C> <C>
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)
1 1,575 1,243 269 200,000 1,096 123 200,000
2 3,229 2,516 1,445 200,000 2,266 1,195 200,000
3 4,965 3,846 2,678 200,000 3,488 2,320 200,000
4 6,788 5,235 3,969 200,000 4,766 3,500 200,000
5 8,703 6,686 5,323 200,000 6,101 4,737 200,000
6 10,713 8,202 6,741 200,000 7,496 6,035 200,000
7 12,824 9,785 8,227 200,000 8,953 7,395 200,000
8 15,040 11,439 10,059 200,000 10,453 9,073 200,000
9 17,367 13,166 11,997 200,000 12,021 10,852 200,000
10 19,810 14,970 14,044 200,000 13,637 12,711 200,000
11 22,376 16,919 16,270 200,000 15,326 14,676 200,000
12 25,069 18,963 18,622 200,000 17,068 16,727 200,000
13 27,898 21,084 21,084 200,000 18,868 18,868 200,000
14 30,868 23,308 23,308 200,000 20,727 20,727 200,000
15 33,986 25,619 25,619 200,000 22,649 22,649 200,000
16 37,261 28,095 28,095 200,000 24,616 24,616 200,000
17 40,699 30,671 30,671 200,000 26,652 26,652 200,000
18 44,309 33,353 33,353 200,000 28,740 28,740 200,000
19 48,099 36,147 36,147 200,000 30,883 30,883 200,000
20 52,079 39,058 39,058 200,000 33,085 33,085 200,000
21 56,258 42,073 42,073 200,000 35,350 35,350 200,000
22 60,646 45,220 45,220 200,000 37,681 37,681 200,000
23 65,253 48,504 48,504 200,000 40,063 40,063 200,000
24 70,091 51,933 51,933 200,000 42,521 42,521 200,000
25 75,170 55,498 55,498 200,000 45,038 45,038 200,000
30 104,641 75,594 75,594 200,000 58,336 58,336 200,000
35 142,254 100,492 100,492 200,000 72,404 72,404 200,000
40 190,260 131,743 131,743 200,000 86,305 86,305 200,000
</TABLE>
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.
MIDLAND NATIONAL LIFE INSURANCE COMPANY
FLEXIBLE PREMIUM VARIABLE LIFE INSURANCE
CONTRACT
DEATH BENEFIT OPTION 1 ASSUMED HYPOTHETICAL GROSS
MALE PREFERRED NON-SMOKER ISSUE AGE 25 ANNUAL RATE OF RETURN: 12%
$200,000 INITIAL SPECIFIED AMOUNT ASSUMED ANNUAL PREMIUM(1): $1500
<TABLE>
<S> <C> <C> <C> <C> <C> <C> <C>
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)
1 1,575 1,320 347 200,000 1,169 196 200,000
2 3,229 2,754 1,683 200,000 2,487 1,416 200,000
3 4,965 4,337 3,169 200,000 3,943 2,774 200,000
4 6,788 6,086 4,820 200,000 5,552 4,286 200,000
5 8,703 8,017 6,654 200,000 7,330 5,967 200,000
6 10,713 10,151 8,690 200,000 9,295 7,834 200,000
7 12,824 12,508 10,949 200,000 11,466 9,908 200,000
8 15,040 15,111 13,731 200,000 13,842 12,462 200,000
9 17,367 17,986 16,817 200,000 16,468 15,299 200,000
10 19,810 21,162 20,237 200,000 19,347 18,422 200,000
11 22,376 24,760 24,110 200,000 22,530 21,881 200,000
12 25,069 28,748 28,407 200,000 26,026 25,685 200,000
13 27,898 33,148 33,148 200,000 29,869 29,869 200,000
14 30,868 38,027 38,027 200,000 34,096 34,096 200,000
15 33,986 43,415 43,415 200,000 38,750 38,750 200,000
16 37,261 49,447 49,447 200,000 43,856 43,856 200,000
17 40,699 56,117 56,117 200,000 49,485 49,485 200,000
18 44,309 63,497 63,497 200,000 55,676 55,676 200,000
19 48,099 71,666 71,666 200,000 62,490 62,490 200,000
20 52,079 80,714 80,714 200,000 69,998 69,998 200,000
21 56,258 90,722 90,722 200,000 78,278 78,278 200,000
22 60,646 101,817 101,817 212,797 87,418 87,418 200,000
23 65,253 114,118 114,118 231,660 97,500 97,500 200,000
24 70,091 127,764 127,764 251,694 108,646 108,646 214,033
25 75,170 142,896 142,896 272,931 120,967 120,967 231,048
30 104,641 247,642 247,642 388,799 205,524 205,524 322,673
35 142,254 426,337 426,337 571,292 350,022 350,022 469,029
40 190,260 736,079 736,079 898,016 609,967 609,967 744,160
</TABLE>
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.
MIDLAND NATIONAL LIFE INSURANCE COMPANY
FLEXIBLE PREMIUM VARIABLE LIFE INSURANCE
CONTRACT
DEATH BENEFIT OPTION 1 ASSUMED HYPOTHETICAL GROSS
MALE PREFERRED NON-SMOKER ISSUE AGE 40 ANNUAL RATE OF RETURN: 0%
$200,000 INITIAL SPECIFIED AMOUNT ASSUMED ANNUAL PREMIUM(1): $3000
<TABLE>
<S> <C> <C> <C> <C> <C> <C> <C>
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)
1 3,150 2,473 1,116 200,000 2,262 905 200,000
2 6,458 4,886 3,334 200,000 4,469 2,916 200,000
3 9,930 7,240 5,492 200,000 6,599 4,851 200,000
4 13,577 9,535 7,593 200,000 8,654 6,712 200,000
5 17,406 11,774 9,637 200,000 10,636 8,499 200,000
6 21,426 13,936 11,604 200,000 12,548 10,215 200,000
7 25,647 16,045 13,517 200,000 14,390 11,862 200,000
8 30,080 18,102 15,833 200,000 16,143 13,874 200,000
9 34,734 20,108 18,163 200,000 17,831 15,886 200,000
10 39,620 22,043 20,487 200,000 19,434 17,878 200,000
11 44,751 24,009 22,906 200,000 20,933 19,830 200,000
12 50,139 25,913 25,330 200,000 22,330 21,747 200,000
13 55,796 27,739 27,739 200,000 23,629 23,629 200,000
14 61,736 29,487 29,487 200,000 24,789 24,789 200,000
15 67,972 31,180 31,180 200,000 25,835 25,835 200,000
16 74,521 32,890 32,890 200,000 26,727 26,727 200,000
17 81,397 34,547 34,547 200,000 27,468 27,468 200,000
18 88,617 36,151 36,151 200,000 28,061 28,061 200,000
19 96,198 37,686 37,686 200,000 28,468 28,468 200,000
20 104,158 39,151 39,151 200,000 28,689 28,689 200,000
21 112,516 40,549 40,549 200,000 28,706 28,706 200,000
22 121,291 41,882 41,882 200,000 28,479 28,479 200,000
23 130,506 43,132 43,132 200,000 27,968 27,968 200,000
24 140,181 44,281 44,281 200,000 27,149 27,149 200,000
25 150,340 45,315 45,315 200,000 25,979 25,979 200,000
30 209,282 48,240 48,240 200,000 13,332 13,332 200,000
35 284,509 45,774 45,774 200,000 0 0 0
40 380,519 35,896 35,896 200,000 0 0 0
ASSUMES A $3000 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.
MIDLAND NATIONAL LIFE INSURANCE COMPANY
FLEXIBLE PREMIUM VARIABLE LIFE INSURANCE
CONTRACT
DEATH BENEFIT OPTION 1 ASSUMED HYPOTHETICAL GROSS
MALE PREFERRED NON-SMOKER ISSUE AGE 40 ANNUAL RATE OF RETURN: 6%
$200,000 INITIAL SPECIFIED AMOUNT ASSUMED ANNUAL PREMIUM(1): $3000
</TABLE>
<TABLE>
<S> <C> <C> <C> <C> <C> <C> <C>
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)
1 3,150 2,634 1,276 200,000 2,416 1,058 200,000
2 6,458 5,362 3,810 200,000 4,918 3,366 200,000
3 9,930 8,189 6,442 200,000 7,489 5,742 200,000
4 13,577 11,121 9,179 200,000 10,133 8,190 200,000
5 17,406 14,162 12,025 200,000 12,853 10,716 200,000
6 21,426 17,297 14,965 200,000 15,656 13,324 200,000
7 25,647 20,553 18,025 200,000 18,547 16,019 200,000
8 30,080 23,935 21,667 200,000 21,508 19,240 200,000
9 34,734 27,452 25,507 200,000 24,568 22,623 200,000
10 39,620 31,089 29,533 200,000 27,711 26,155 200,000
11 44,751 34,988 33,886 200,000 30,923 29,820 200,000
12 50,139 39,045 38,461 200,000 34,210 33,626 200,000
13 55,796 43,249 43,249 200,000 37,579 37,579 200,000
14 61,736 47,611 47,611 200,000 40,999 40,999 200,000
15 67,972 52,162 52,162 200,000 44,496 44,496 200,000
16 74,521 56,986 56,986 200,000 48,041 48,041 200,000
17 81,397 62,027 62,027 200,000 51,642 51,642 200,000
18 88,617 67,299 67,299 200,000 55,310 55,310 200,000
19 96,198 72,801 72,801 200,000 59,018 59,018 200,000
20 104,158 78,547 78,547 200,000 62,777 62,777 200,000
21 112,516 84,557 84,557 200,000 66,582 66,582 200,000
22 121,291 90,848 90,848 200,000 70,413 70,413 200,000
23 130,506 97,428 97,428 200,000 74,251 74,251 200,000
24 140,181 104,306 104,306 200,000 78,096 78,096 200,000
25 150,340 111,496 111,496 200,000 81,931 81,931 200,000
30 209,282 152,964 152,964 200,000 100,792 100,792 200,000
35 284,509 207,396 207,396 221,913 117,719 117,719 200,000
40 380,519 284,954 284,954 299,201 129,388 129,388 200,000
</TABLE>
ASSUMES A $3000 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.
MIDLAND NATIONAL LIFE INSURANCE COMPANY
FLEXIBLE PREMIUM VARIABLE LIFE INSURANCE
CONTRACT
DEATH BENEFIT OPTION 1 ASSUMED HYPOTHETICAL GROSS
MALE PREFERRED NON-SMOKER ISSUE AGE 40 ANNUAL RATE OF RETURN: 12%
$200,000 INITIAL SPECIFIED AMOUNT ASSUMED ANNUAL PREMIUM(1): $3000
<TABLE>
<S> <C> <C> <C> <C> <C> <C> <C>
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)
1 3,150 2,794 1,437 200,000 2,569 1,212 200,000
2 6,458 5,857 4,305 200,000 5,387 3,834 200,000
3 9,930 9,218 7,471 200,000 8,455 6,708 200,000
4 13,577 12,909 10,966 200,000 11,803 9,860 200,000
5 17,406 16,965 14,827 200,000 15,461 13,323 200,000
6 21,426 21,403 19,071 200,000 19,465 17,132 200,000
7 25,647 26,289 23,762 200,000 23,853 21,326 200,000
8 30,080 31,670 29,402 200,000 28,649 26,380 200,000
9 34,734 37,602 35,657 200,000 33,920 31,975 200,000
10 39,620 44,123 42,566 200,000 39,700 38,143 200,000
11 44,751 51,486 50,384 200,000 46,029 44,926 200,000
12 50,139 59,628 59,044 200,000 52,973 52,389 200,000
13 55,796 68,622 68,622 200,000 60,607 60,607 200,000
14 61,736 78,570 78,570 200,000 68,981 68,981 200,000
15 67,972 89,601 89,601 200,000 78,205 78,205 200,000
16 74,521 101,917 101,917 200,000 88,357 88,357 200,000
17 81,397 115,593 115,593 200,000 99,560 99,560 200,000
18 88,617 130,790 130,790 200,000 111,952 111,952 200,000
19 96,198 147,678 147,678 203,795 125,671 125,671 200,000
20 104,158 166,462 166,462 223,059 140,903 140,903 200,000
21 112,516 187,371 187,371 243,583 157,852 157,852 205,208
22 121,291 210,665 210,665 269,651 176,757 176,757 226,249
23 130,506 236,636 236,636 298,162 197,907 197,907 249,362
24 140,181 265,626 265,626 329,376 221,651 221,651 274,847
25 150,340 298,030 298,030 363,596 248,410 248,410 303,060
30 209,282 530,321 530,321 615,172 449,591 449,591 521,526
35 284,509 963,505 963,505 1,030,950 883,084 883,084 944,900
40 380,519 1,823,405 1,823,405 1,914,575 2,033,864 2,033,864 2,135,557
</TABLE>
ASSUMES A $3000 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.
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.
2 VARIABLE EXECUTIVE UNIVERSAL LIFE
VARIABLE EXECUTIVE UNIVERSAL LIFE 1
6244PMP.TXT
<PAGE>
Midland National Life Insurance Company
Separate Account A
Financial Statements
For the Years Ended December 31, 1997, 1996, and 1995
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 4-8
Notes to Financial Statements 9-13
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, the Variable
Insurance Products Fund II, the Variable Insurance Products Fund III,
and the American Century Variable Portfolios, Inc.) as of December 31, 1997,
and the related statements of operations and changes in net assets for each
of the three years in the period ended December 31, 1997. 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,
1997, 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, 1997, and the results of their operations and changes in their
net assets for each of the three years in the period ended December 31, 1997,
in conformity with generally accepted accounting principles.
Minneapolis, Minnesota
March 17, 1998
MIDLAND NATIONAL LIFE INSURANCE COMPANY
SEPARATE ACCOUNT A
STATEMENT OF ASSETS AND LIABILITIES
as of DECEMBER 31, 1997
<TABLE>
<S> <C> <C> <C>
Value
Per
ASSETS Shares Share
Investments at net asset value:
Variable Insurance Products Fund:
Money Market Portfolio (cost $1,393,023) 1,393,023 $ 1.00 $ 1,393,023
High Income Portfolio (cost $2,602,845) 208,467 13.58 2,830,980
Equity-Income Portfolio (cost $8,561,981) 416,742 24.28 10,118,500
Growth Portfolio (cost $14,426,025) 461,790 37.10 17,132,404
Overseas Portfolio (cost $3,521,053) 193,137 19.20 3,708,222
Variable Insurance Products Fund II:
Asset Manager Portfolio (cost $5,118,653) 325,640 18.01 5,864,777
Investment Grade Bond Portfolio (cost $780,570) 65,585 12.56 823,750
Index 500 Portfolio (cost $3,994,020) 39,922 114.39 4,566,701
Contrafund Portfolio (cost $4,525,400) 255,867 19.94 5,101,986
Asset Manager Growth Portfolio (cost $1,171,954) 79,747 16.36 1,304,663
Variable Insurance Products Fund III:
Balanced Portfolio (cost $119,638) 8,352 14.58 121,777
Growth & Income Portfolio (cost $213,483) 17,100 12.53 214,268
Growth Opportunities Portfolio (cost $520,908) 28,239 19.27 544,175
American Century Variable Portfolios, Inc.:
Balanced Portfolio (cost $51,539) 6,323 8.24 52,097
Capital Appreciation Portfolio (cost $78,339) 7,542 9.68 73,008
International Portfolio (cost $199,061) 29,198 6.84 199,713
Value Portfolio (cost $137,346) 20,139 6.93 139,559
Total investments (cost $47,415,838) $ 54,189,603
LIABILITIES
Total liabilities $ -
Net assets $ 54,189,603
</TABLE>
The accompanying notes are an integral part of the financial statements.
MIDLAND NATIONAL LIFE INSURANCE COMPANY
SEPARATE ACCOUNT A
STATEMENT OF ASSETS AND LIABILITIES - (Continued)
as of DECEMBER 31, 1997
<TABLE>
<S> <C> <C> <C>
NET ASSETS Units Value
Net assets represented by:
Variable Insurance Products Fund:
Money Market Portfolio 97,203 $ 14.33 $ 1,393,023
High Income Portfolio 109,231 25.92 2,830,980
Equity-Income Portfolio 299,834 33.75 10,118,500
Growth Portfolio 467,695 36.63 17,132,404
Overseas Portfolio 182,042 20.37 3,708,222
Variable Insurance Products Fund II:
Asset Manager Portfolio 244,581 23.98 5,864,777
Investment Grade Bond Portfolio 51,656 15.95 823,750
Index 500 Portfolio 232,667 19.63 4,566,701
Contrafund Portfolio 314,162 16.24 5,101,986
Asset Manager Growth Portfolio 82,904 15.74 1,304,663
Variable Insurance Products Fund III:
Balanced Portfolio 10,860 11.21 121,777
Growth & Income Portfolio 17,880 11.98 214,268
Growth Opportunities Portfolio 45,554 11.95 544,175
American Century Variable Portfolios, Inc.:
Balanced Portfolio 4,655 11.19 52,097
Capital Appreciation Portfolio 6,775 10.78 73,008
International Portfolio 18,903 10.56 199,713
Value Portfolio 11,732 11.90 139,559
Net assets $ 54,189,603
</TABLE>
The accompanying notes are an integral part of the financial statements.
3
MIDLAND NATIONAL LIFE INSURANCE COMPANY
SEPARATE ACCOUNT A
STATEMENTS OF OPERATIONS AND CHANGES IN NET ASSETS
for the YEARS ENDED DECEMBER 31, 1997, 1996, and 1995
<TABLE>
<S> <C> <C> <C>
Combined
1997 1996 1995
Investment income:
Dividend income $ 676,790 $ 353,783 $ 235,744
Capital gains distributions 1,587,492 907,775 115,007
2,264,282 1,261,558 350,751
Expenses:
Administrative expense 84,730 52,416 31,601
Mortality and expense risk 427,879 237,175 142,636
Net investment income (loss) 1,751,673 971,967 176,514
Realized and unrealized gains(losses) on investments:
Net realized gains(losses) on investments 2,741,725 1,387,105 553,768
Net unrealized appreciation(depreciation) on
investments 3,254,492 735,339 2,816,691
Net realized and unrealized gains(losses) on
investments 5,996,217 2,122,444 3,370,459
Net increase(decrease) in net assets resulting from
operations $ 7,747,890 $ 3,094,411 $ 3,546,973
Net assets at beginning of year $ 32,499,879 $ 19,649,521 $ 11,518,208
Net increase(decrease) in net assets resulting
from operations 7,747,890 3,094,411 3,546,973
Capital shares transactions:
Net premiums 21,376,417 14,348,315 7,502,546
Transfers of policy loans (1,016,654) (633,495) (394,995)
Transfers of cost of insurance (4,261,689) (2,927,460) (1,781,520)
Transfers of surrenders (2,042,224) (998,919) (725,170)
Transfers of death benefits (38,948) (13,892) (2,316)
Transfers of other terminations (75,068) (18,602) (14,205)
Interfund transfers - - -
Net increase in net assets from capital share
transactions 13,941,834 9,755,947 4,584,340
Total increase in net assets 21,689,724 12,850,358 8,131,313
Net assets at end of year $ 54,189,603 $ 32,499,879 $ 19,649,521
</TABLE>
The accompanying notes are an integral part of the financial statements.
<TABLE>
<S> <C> <C> <C> <C> <C>
Variable Insurance Products Fund
Money Market Portfolio High Income Portfolio
1997 1996 1995 1997 1996 1995
$ 94,654 $ 58,559 $ 24,560 $ 104,881 $ 65,229 $ 34,582
- - - 12,963 12,762 -
94,654 58,559 24,560 117,844 77,991 34,582
3,462 2,241 875 3,598 2,332 1,308
16,588 10,139 3,958 18,244 10,553 5,906
74,604 46,179 19,727 96,002 65,106 27,368
- - - 42,799 49,881 (5,589)
- - - 137,622 19,282 88,560
- - - 180,421 69,163 82,971
$ 74,604 $ 46,179 $ 19,727 $ 276,423 $ 134,269 $ 110,339
$1,672,741 $ 589,269 $ 212,950 $ 1,421,414 $ 815,627 $ 482,015
74,604 46,179 19,727 276,423 134,269 110,339
1,828,298 857,355 413,585 876,690 841,221 399,047
18,183 (9,004) (2,496) (37,241) (41,674) (15,746)
(119,358) (94,185) (45,281) (207,138) (159,359) (95,111)
(914,181) (187,306) (9,216) (78,445) (54,152) (63,603)
(130) - - (1,051) - -
(1,028) (224) - (1,570) (447) (1,314)
(1,166,106) 470,657 - 581,898 (114,071) -
(354,322) 1,037,293 356,592 1,133,143 471,518 223,273
(279,718) 1,083,472 376,319 1,409,566 605,787 333,612
$ 1,393,023 $ 1,672,741 $ 589,269 $ 2,830,980 $ 1,421,414 $ 815,627
</TABLE>
MIDLAND NATIONAL LIFE INSURANCE COMPANY
SEPARATE ACCOUNT A
STATEMENTS OF OPERATIONS AND CHANGES IN NET ASSETS - (Continued)
for the YEARS ENDED DECEMBER 31, 1997, 1996, and 1995
<TABLE>
<S> <C> <C> <C>
Variable Insurance Products Fund
Equity-Income Portfolio
1997 1996 1995
Investment income:
Dividend income $ 107,918 $ 6,019 $ 67,980
Capital gains distributions 542,585 172,545 105,457
650,503 178,564 173,437
Expenses:
Administrative expense 16,434 9,932 5,693
Mortality and expense risk 80,523 44,942 25,786
Net investment income (loss) 553,546 123,690 141,958
Realized and unrealized gains(losses) on investments:
Net realized gains(losses) on investments 465,017 344,216 118,598
Net unrealized appreciation(depreciation) on
investments 820,036 112,077 566,696
Net realized and unrealized gains(losses) on
investments 1,285,053 456,293 685,294
Net increase(decrease) in net assets resulting from
operations $ 1,838,599 $ 579,983 $ 827,252
Net assets at beginning of year $ 6,148,229 $3,721,811 $1,952,718
Net increase(decrease) in net assets resulting
from operations 1,838,599 579,983 827,252
Capital shares transactions:
Net premiums 3,188,435 2,820,841 1,361,317
Transfers of policy loans (198,994) (114,290) (57,976)
Transfers of cost of insurance (757,555) (533,174) (301,032)
Transfers of surrenders (171,987) (93,138) (55,313)
Transfers of death benefits (16,504) (131) (264)
Transfers of other terminations (17,833) (4,334) (4,891)
Interfund transfers 106,110 (229,339) -
Net increase in net assets from capital share
transactions 2,131,672 1,846,435 941,841
Total increase in net assets 3,970,271 2,426,418 1,769,093
Net assets at end of year $ 10,118,500 $ 6,148,229 $ 3,721,811
</TABLE>
The accompanying notes are an integral part of the financial statements.
<TABLE>
Variable Insurance Products Fund
Growth Portfolio Overseas Portfolio
<S> <C> <C> <C> <C> <C>
1997 1996 1995 1997 1996 1995
$ 80,524 $ 22,193 $ 26,217 $ 47,188 $ 20,685 $ 4,975
360,439 560,363 - 187,323 22,754 4,975
440,963 582,556 26,217 234,511 43,439 9,950
28,874 19,895 12,891 6,468 4,298 2,977
152,938 90,025 55,214 17,378 19,450 16,273
259,151 472,636 (41,888) 210,665 19,691 (9,300)
1,336,185 700,698 377,876 154,287 58,004 55,223
1,180,231 469 1,483,959 (83,491) 155,462 99,903
2,516,416 701,167 1,861,835 70,796 213,466 155,126
$ 2,775,567 $1,173,803 $ 1,819,947 $ 281,461 $ 233,157 $ 145,826
$ 11,699,876 $7,817,338 $ 4,508,874 $ 2,587,815 $1,723,792 $1,212,949
2,775,567 1,173,803 1,819,947 281,461 233,157 145,826
5,149,531 4,390,266 2,541,252 1,410,695 1,053,155 779,465
(446,688) (252,514) (187,011) (91,175 (59,815) (48,974)
(1,357,432)(1,059,362) (671,659) (324,642 (263,297) (211,845)
(354,778) (309,025) (188,163) (94,010 (73,670) (152,057)
(14,755) (10,342) (1,816) (3,223) (83) -
(34,808) (6,455) (4,086) (2,361) (1,405) (1,572)
(284,109) (43,833) - (56,338) (24,019) -
2,656,961 2,708,735 1,488,517 838,946 630,866 365,017
5,432,528 3,882,538 3,308,464 1,120,407 864,023 510,843
$ 17,132,404 $11,699,876 $7,817,338 $3,708,222 $ 2,587,815 $1,723,792
</TABLE>
MIDLAND NATIONAL LIFE INSURANCE COMPANY
SEPARATE ACCOUNT A
STATEMENTS OF OPERATIONS AND CHANGES IN NET ASSETS - (Continued)
for the YEARS ENDED DECEMBER 31, 1997, 1996, and 1995
<TABLE>
Variable Insurance Products Fund II
Asset Manager Portfolio
<S> <C> <C> <C>
1997 1996 1995
Investment income:
Dividend income $ 158,180 $ 133,666 $ 56,666
Capital gains distributions 396,791 110,216 -
554,971 243,882 56,666
Expenses:
Administrative expense 10,361 8,072 6,261
Mortality and expense risk 54,683 36,522 28,250
Net investment income (loss) 489,927 199,288 22,155
Realized and unrealized gains(losses) on investments:
Net realized gains(losses) on investments 198,545 122,556 (13,155)
Net unrealized appreciation(depreciation) on
investments 208,315 176,177 477,422
Net realized and unrealized gains(losses) on
investments 406,860 298,733 464,267
Net increase(decrease) in net assets resulting from
operations $ 896,787 $ 498,021 $ 486,422
Net assets at beginning of year $ 4,483,785 $ 3,633,749 $ 2,595,623
Net increase(decrease) in net assets resulting
from operations 896,787 498,021 486,422
Capital shares transactions:
Net premiums 1,304,321 1,212,022 1,228,465
Transfers of policy loans (100,858) (67,771) (77,688)
Transfers of cost of insurance (423,781) (401,099) (359,734)
Transfers of surrenders (123,302) (222,263) (236,821)
Transfers of death benefits (158) (2,280) (236)
Transfers of other terminations (3,731) (5,303) (2,282)
Interfund transfers (168,286) (161,291) -
Net increase in net assets from capital share
transactions 484,205 352,015 551,704
Total increase in net assets 1,380,992 850,036 1,038,126
Net assets at end of year $ 5,864,777 $ 4,483,785 $ 3,633,749
</TABLE>
The accompanying notes are an integral part of the financial statements.
<TABLE>
Variable Insurance Products Fund II
Investment Grade Bond Portfolio Index 500 Portfolio
<S> <C> <C> <C> <C> <C>
1997 1996 1995 1997 1996 1995
$ 46,902 $ 35,859 $ 17,803 $ 17,532 $ 4,429 $ 1,202
- - - 35,574 11,389 165
46,902 35,859 17,803 53,106 15,818 1,367
1,572 1,469 1,128 5,431 1,561 297
8,015 6,648 5,140 33,893 7,065 1,334
37,315 27,742 11,535 13,782 7,192 (264)
12,052 4,931 7,242 213,675 64,340 10,309
9,013 (17,545) 66,536 455,684 83,067 33,470
21,065 (12,614) 73,778 669,359 147,407 43,779
$ 58,380 $ 15,128 $ 85,313 $ 683,141 $ 154,599 $ 43,515
$ 757,993 $ 710,276 $ 497,870 $ 1,340,570 $ 292,473 $ 55,209
58,380 15,128 85,313 683,141 154,599 43,515
233,307 241,760 200,234 2,611,727 1,028,697 227,265
2,346 (39,038) (3,183) (39,650) (17,532) (3,683)
(83,015) (80,239) (50,491) (393,476) (141,911) (29,243)
(105,722) (31,289) (19,407) (54,915) (11,092) (590)
(618) (1,056) - (1,332) - -
(505) (540) (60) (4,272) (87) -
(38,416) (57,00) - 424,908 35,423 -
7,377 32,589 127,093 2,542,990 893,498 193,749
65,757 47,717 212,406 3,226,131 1,048,097 237,264
$ 823,750 $ 757,993 $ 710,276 $ 4,566,701 $ 1,340,570 $ 292,473
</TABLE>
MIDLAND NATIONAL LIFE INSURANCE COMPANY
SEPARATE ACCOUNT A
<TABLE>
STATEMENTS OF OPERATIONS AND CHANGES IN NET ASSETS - (Continued)
for the YEARS ENDED DECEMBER 31, 1997, 1996 and 1995
<S> <C> <C> <C>
Variable Insurance Products Fund II
Contrafund Portfolio
1997 1996 1995
Investment income:
Dividend income $ 17,687 $ - $ 1,269
Capital gains distributions 46,743 3,899 2,538
64,430 3,899 3,807
Expenses:
Administrative expense 6,563 2,164 152
Mortality and expense risk 33,820 9,790 688
Net investment income (loss) 24,047 (8,055) 2,967
Realized and unrealized gains(losses) on investments:
Net realized gains(losses) on investments 248,167 36,440 3,233
Net unrealized appreciation(depreciation) on
investments 385,213 190,170 1,202
Net realized and unrealized gains(losses) on
investments 633,380 226,610 4,435
Net increase(decrease) in net assets resulting from
operations $ 657,427 $ 218,555 $7,402
Net assets at beginning of year $ 1,919,525 $ 291,610 $ -
Net increase(decrease) in net assets resulting
from operations 657,427 218,555 7,402
Capital shares transactions:
Net premiums 2,852,974 1,487,812 296,190
Transfers of policy loans (93,023) (19,479) 1,762
Transfers of cost of insurance (414,073) (154,413) (13,744)
Transfers of surrenders (103,126) (16,096) -
Transfers of death benefits (1,177) - -
Transfers of other terminations (8,960) 193 -
Interfund transfers 292,419 111,343 -
Net increase in net assets from capital share
transactions 2,525,034 1,409,360 284,208
Total increase in net assets 3,182,461 1,627,915 291,610
Net assets at end of year $ 5,101,986 $1,919,525 $ 291,610
</TABLE>
The accompanying notes are an integral part of the financial statements.
<TABLE>
Variable Insurance Products Fund II Variable Insurance Products Fund III
<S> <C> <C> <C> <C> <C>
Asset Manager Growth Portfolio Growth & Growth
Balanced Income Opportunities
Portfolio Portfolio Portfolio
1997 1996 1995 1997 1997 1997
$ - $ 7,144 $ 490 $ - $ 1,324 $ -
772 13,847 1,872 - 4,302 -
772 20,991 2,362 - 5,626 -
1,700 452 19 25 26 143
9,040 2,041 87 320 370 1,194
(9,968) 18,498 2,256 (345) 5,230 (1,337)
65,245 6,039 31 191 473 4,463
117,585 16,180 (1,057) 2,140 786 23,265
182,830 22,219 (1,026) 2,331 1,259 27,728
$ 172,862 $ 40,717 $ 1,230 $ 1,986 $ 6,489 $ 26,391
$ 467,931 $ 53,576 $ - $ - $ - $ -
172,862 40,717 1,230 1,986 6,489 26,391
787,790 415,186 55,726 102,622 182,863 424,520
(29,528) (12,378) - - (71) -
(122,121) (40,421) (3,380) (3,050) (8,429) (19,831)
(39,420) (888) - (4) (307) (536)
- - - - - -
- - - - - -
67,149 12,139 - 20,223 33,723 113,631
663,870 373,638 52,346 119,791 207,779 517,784
836,732 414,355 53,576 121,777 214,268 544,175
$ 1,304,663 $ 467,931 $ 53,576 $ 121,777 $ 214,268 $ 544,175
</TABLE>
MIDLAND NATIONAL LIFE INSURANCE COMPANY
SEPARATE ACCOUNT A
<TABLE>
STATEMENTS OF OPERATIONS AND CHANGES IN NET ASSETS - (Continued)
for the YEARS ENDED DECEMBER 31, 1997, 1996, and 1995
<S> <C> <C> <C> <C>
American Century Variable Portfolios, Inc.
Capital
Balanced Appreciation International Value
Portfolio Portfolio Portfolio Portfolio
1997 1997 1997 1997
Investment income:
Dividend income $ - $ - $ - $ -
Capital gains distributions - - - -
- - - -
Expenses:
Administrative expense 5 10 38 20
Mortality and expense risk 126 141 392 214
Net investment income (loss) (131) (151) (430) (234)
Realized and unrealized gains(losses) on investments:
Net realized gains(losses) on investments 387 (425) (34) 698
Net unrealized appreciation(depreciation) on
investments 559 (5,332) 652 2,214
Net realized and unrealized gains(losses) on
investments 946 (5,757) 618 2,912
Net increase(decrease) in net assets resulting from
operations $ 815 $ (5,908) $ 188 $ 2,678
Net assets at beginning of year $ - $ - $ - $ -
Net increase(decrease) in net assets resulting
from operations 815 (5,908) 188 2,678
Capital shares transactions:
Net premiums 57,959 71,171 176,976 116,538
Transfers of policy loans - - 45 -
Transfers of cost of insurance (6,022) (4,961) (8,337) (8,468)
Transfers of surrenders (110) (126) (1,208) (47)
Transfers of death benefits - - - -
Transfers of other terminations - - - -
Interfund transfers (545) 12,832 32,049 28,858
Net increase in net assets from capital share
transactions 51,282 78,916 199,525 136,881
Total increase in net assets 52,097 73,008 199,713 139,559
Net assets at end of year $ 52,097 $ 73,008 $ 199,713 $ 139,559
</TABLE>
The accompanying notes are an integral part of the financial statements.
MIDLAND NATIONAL LIFE INSURANCE COMPANY
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 in specified portfolios of Variable Insurance
Products Fund (VIPF), Variable Insurance Products Fund II (VIPF II), Variable
Insurance Products Fund III (VIPF III), and American Century Variable
Portfolios, Inc. (ACVP) (collectively the Funds), each diversified open-end
management companies registered under the Investment Company Act of 1940,
as directed by participants. The VIPF II Contrafund and Asset Manager Growth
portfolios were introduced in 1995. The VIPF III Balanced, Growth & Income
and Growth Opportunities portfolios and the ACVP Balanced, Capital
Appreciation, International and Value portfolios were introduced in 1997.
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.
9
MIDLAND NATIONAL LIFE INSURANCE COMPANY
SEPARATE ACCOUNT A
NOTES TO FINANCIAL STATEMENTS - (Continued)
(2) Expense Charges (continued)
A surrender charge may be imposed in the event of a contract surrender or
lapse within a stipulated number of years.
(3) Purchases and Sales of Investment Securities
The aggregate cost of purchases and proceeds from sales of investments for
the years ended December 31, 1997, 1996, and 1995 were as follows:
<TABLE>
<S> <C> <C> <C> <C> <C> <C>
1997 1996 995
Purchases Sales Purchases Sales Purchases Sales
Portfolio
Variable Insurance Products Fund:
Money Market $2,398,056 $ 2,679,342 $ 2,034,275 $ 949,787 $ 665,299 $ 291,399
High Income 1,762,564 534,720 1,130,421 593,263 506,889 259,469
Equity-Income 4,606,039 1,926,533 3,626,635 1,654,290 1,711,755 639,107
Growth 6,694,330 3,789,244 5,850,056 2,665,240 3,050,540 1,621,442
Overseas 1,975,804 928,568 1,305,663 654,357 951,209 604,563
Variable Insurance Products Fund II:
Asset Manager 2,167,982 1,198,071 1,858,024 1,305,947 1,549,225 985,616
Investment Grade Bond 351,091 307,112 340,129 279,745 294,633 156,524
Index 500 3,510,441 954,879 1,327,248 425,671 249,692 56,745
Contrafund 3,786,750 1,239,389 1,876,198 473,421 334,133 46,711
Asset Manager Growth 1,025,893 372,417 522,652 130,138 61,622 6,973
Variable Insurance Products Fund III:
Balanced 151,867 32,420 - - - -
Growth & Income 229,692 16,682 - - - -
Growth Opportunities 583,991 67,546 - - - -
American Century Variable Portfolios, Inc.:
Balanced 69,085 17,933 - - - -
Capital Appreciation 93,376 14,612 - - - -
International 224,848 25,753 - - - -
Value 153,593 16,945 - - - -
$ 29,785,402 $ 14,122,166 $ 19,871,301 $ 9,131,859 $ 9,374,997 $ 4,668,549
</TABLE>
MIDLAND NATIONAL LIFE INSURANCE COMPANY
SEPARATE ACCOUNT A
NOTES TO FINANCIAL STATEMENTS - (Continued)
(4) Summary of Changes from Unit Transactions
Transactions in units for the years ended December 31, 1997, 1996, and 1995
were as follows:
<TABLE>
<S> <C> <C> <C> <C> <C> <C>
1997 1996 1995
Purchases Sales Purchases Sales Purchases Sales
Portfolio
Variable Insurance Products Fund:
Money Markt 160,457 175,104 132,191 61,393 45,654 20,129
High Income 71,855 20,908 45,898 25,239 23,134 12,089
Equity-Income 155,294 58,396 122,028 57,300 65,454 24,740
Growth 216,574 102,996 167,406 80,887 113,881 56,756
Overseas 89,759 39,237 67,962 33,856 56,643 34,460
Variable Insurance Products Fund II:
Asset Manager 77,125 50,498 84,315 66,066 89,048 55,423
Investment Grade Bond 20,534 19,490 20,996 18,784 19,845 10,894
Index 500 204,615 48,013 81,534 25,464 18,815 3,958
Contrafund 254,844 75,480 145,795 35,584 28,468 3,881
Asset Manager Growth 71,882 23,310 39,936 10,263 5,265 606
Variable Insurance Products Fund III:
Balanced 13,593 2,733 - - - -
Growth & Income 19,277 1,397 - - - -
Growth Opportunities 51,166 5,612 - - - -
American Century Variable Portfolios, Inc.:
Balanced 6,244 1,589 - - - -
Capital Appreciation 8,033 1,258 - - - -
International 21,308 2,405 - - - -
Value 13,166 1,434 - - - -
</TABLE>
MIDLAND NATIONAL LIFE INSURANCE COMPANY
SEPARATE ACCOUNT A
NOTES TO FINANCIAL STATEMENTS - (Continued)
(5) Net Assets
Net assets at December 31, 1997, consisted of the following:
<TABLE>
<S> <C> <C> <C> <C>
Accumulated
Net Net
Investment Unrealized
Capital Income and Appreciation
Share Net Realized of
Transactions Gains Investments Total
Portfolio
Variable Insurance Products Fund:
Money Market $ 1,235,505 $ 157,518 $ - $ 1,393,023
High Income 2,247,693 355,152 228,135 2,830,980
Equity-Income 6,456,131 2,105,850 1,556,519 10,118,500
Growth 10,633,134 3,792,891 2,706,379 17,132,404
Overseas 2,961,450 559,603 187,169 3,708,222
Variable Insurance Products Fund II:
Asset Manager 3,945,413 1,173,240 746,124 5,864,777
Investment Grade Bond 655,074 125,496 43,180 823,750
Index 500 3,685,140 308,880 572,681 4,566,701
Contrafund 4,218,601 306,799 576,586 5,101,986
Asset Manager Growth 1,089,854 82,100 132,709 1,304,663
Variable Insurance Products Fund III:
Balanced 119,792 (154) 2,139 121,777
Growth & Income 207,780 5,703 785 214,268
Growth Opportunities 517,782 3,126 23,267 544,175
American Century Variable Portfolios, Inc.:
Balanced 51,283 256 558 52,097
Capital Appreciation 78,915 (576) (5,331) 73,008
International 199,525 (464) 652 199,713
Value 136,882 464 2,213 139,559
$ 38,439,954 $ 8,975,884 $ 6,773,765 $54,189,603
</TABLE>
MIDLAND NATIONAL LIFE INSURANCE COMPANY
SEPARATE ACCOUNT A
NOTES TO FINANCIAL STATEMENTS - (Continued)
(6) Merger
Effective January 2, 1997, Investors Life Insurance Company of Nebraska
(Investors) along with all of its assets and liabilities was merged into the
Company. Related to the merger, the Company transferred the entire amount of
assets and assumed the entire amount of liabilities of the Investors Life
Separate Account B into the Separate Account A. Separate Account B issued
certain variable universal life insurance contracts that were sponsored by
Investors Life which was 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 was reorganized with and merged into the
Company, with the Company remaining as the surviving corporation. The
Company assumed ownership of all assets of Investors Life, including all
assets held in Separate Account B. The assumption of the Separate Account B
net assets was accomplished by purchasing similar investment funds with the
same value from each of the respective fund portfolios in Separate Account A.
This reorganization was structured so that there was 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 respective participants of either of the Separate
Accounts.
MNLSEPA.TXT
<PAGE>
Midland National Life Insurance Company
Financial Statements
For the Years Ended December 31, 1997, 1996, and 1995
C o n t e n t s Page(s)
Report of Independent Accountants 1
Balance Sheets 2
Statements of Income 3
Statements of Stockholders Equity 4
Statements of Cash Flows 5-6
Notes to Financial Statements 7-19
REPORT OF INDEPENDENT ACCOUNTANTS
The Board of Directors and Stockholders
Midland National Life Insurance Company:
We have audited the accompanying balance sheets of Midland National
Life Insurance Company (the Company), as of December 31, 1997 and 1996,
and the related statements of income, stockholders' equity, and cash flows
for each of the three years in the period ended December 31, 1997. 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 financial position of Midland National Life
Insurance Company as of December 31, 1997 and 1996, and the results of its
operations and its cash flows for each of the three years in the period
ended December 31, 1997, in conformity with generally accepted accounting
principles.
Minneapolis, Minnesota
March 12, 1998
MIDLAND NATIONAL LIFE INSURANCE COMPANY
BALANCE SHEETS
as of DECEMBER 31, 1997 and 1996
(Amounts in thousands, except share and per share amounts)
<TABLE>
<S> <C> <C>
ASSETS
1997 1996
Investments:
Fixed maturities $ 2,420,977 $ 1,840,902
Equity securities 145,156 215,964
Policy loans 202,129 154,090
Short-term investments 636,280 242,857
Other invested assets 29,329 18,495
Total investments 3,433,871 2,472,308
Cash 2,384 3,578
Accrued investment income 37,980 32,613
Deferred policy acquisition costs 416,767 427,218
Present value of future profits of acquired businesses 40,397 21,308
Other receivables and other assets 28,045 23,922
Separate account assets 139,072 81,516
Total assets $ 4,098,516 $ 3,062,463
</TABLE>
<TABLE>
LIABILITIES AND STOCKHOLDERS' EQUITY
<S> <C> <C>
Liabilities:
Policyholder account balances $ 2,401,302 $ 1,789,732
Policy benefit reserves 419,131 404,806
Policy claims and benefits payable 33,839 31,512
Federal income taxes 36,088 39,315
Other liabilities 90,102 90,267
Security lending liability 308,125 -
Separate account liabilities 139,072 81,516
Total liabilities 3,427,659 2,437,148
</TABLE>
<TABLE>
Commitments and contingencies
<S> <C> <C>
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 30,838 18,825
Retained earnings 603,763 570,234
Total stockholders' equity 670,857 625,315
Total liabilities and stockholders' equity $ 4,098,516 $ 3,062,463
</TABLE>
MIDLAND NATIONAL LIFE INSURANCE COMPANY
<TABLE>
STATEMENTS OF INCOME
for the YEARS ENDED DECEMBER 31, 1997, 1996, and 1995
(Amounts in thousands)
<S> <C> <C> <C>
1997 1996 1995
Revenues:
Premiums $ 98,668 $ 101,423 $ 100,858
Interest sensitive life and investment product charges 157,423 150,839 139,611
Net investment income 188,650 173,583 167,020
Net realized investment gains 3,561 6,839 1,762
Net unrealized gains (losses) on trading securities (641) 6,200 7,057
Other income 2,565 4,362 5,754
Total Revenue 450,226 443,246 422,062
Benefits and expenses:
Benefits incurred 146,227 151,208 139,056
Interest credited to policyholder account balances 111,333 103,618 102,339
Total benefits 257,560 254,826 241,395
Operating expenses (net of commissions & other
expenses deferred) 44,130 43,243 43,726
Amortization of deferred policy acquisition costs and
present value of future profits of acquired
businesses 56,954 53,316 51,576
Total benefits and expenses 358,644 351,385 336,697
Income before income taxes 91,582 91,861 85,365
Income tax expense 33,053 31,821 28,703
Net income $ 58,529 $ 60,040 $ 56,662
</TABLE>
MIDLAND NATIONAL LIFE INSURANCE COMPANY
<TABLE>
STATEMENTS OF STOCKHOLDERS' EQUITY
for the YEARS ENDED DECMBER 31, 1997, 1996, and 1995
(Amounts in thousands)
<S> <C> <C> <C> <C> <C>
Net Unrealized
Appreciation
Additional (Depreciation) Total
Common Paid-In of Investment Retained Stockholders'
Stock Capital Securities Earnings Equity
Balance at January 1, 1995 $ 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 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 investments - - (12,202) - (12,202)
Balance at December 31, 1996 2,549 33,707 18,825 570,234 625,315
Net Income - - - 58,529 58,529
Dividends paid on common stock - - - (25,000) (25,000)
Net appreciation of avialable for
sale investments - - 12,013 - 12,013
Balance at December 31, 1997 $ 2,549 $ 33,707 $ 30,838 $ 603,763 $ 670,857
</TABLE>
The accompanying notes are an integral part of the financial statements.
MIDLAND NATIONAL LIFE INSURANCE COMPANY
<TABLE>
STATEMENTS OF CASH FLOWS
for the YEARS ENDED DECEMBER 31, 1997, 1996, and 1995
(Amounts in thousands)
<S> <C> <C> <C>
1997 1996 1995
Cash flows from operating activities:
Net Income $ 58,529 $ 60,040 $ 56,662
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 56,954 53,316 51,576
Net amortization of premiums and discounts on investments 2,699 5,532 4,828
Policy acquisition costs deferred (50,363) (65,285) (63,717)
Net realized investment gains (3,561) (6,839) (1,762)
Net unrealized (gains) losses on trading securities 641 (6,200) (7,057)
Net proceeds from (cost of) trading securities 99,850 5,788 (23,305)
Deferred income taxes (5,421) 12,177 (5,721)
Net interest credited and product charges on universal life
and investment policies (46,090) (47,221) (37,272)
Changes in other assets and liabilities:
Net receivables and payables (13,946) 32,863 12,346
Policy benefits 15,826 26,185 23,500
Other 122 (277) 539
Net cash provided by operating activities 115,240 70,079 10,617
Cash flows from investing activities:
Proceeds from investments sold, matured, or repaid:
Fixed maturities 1,217,086 1,422,426 911,883
Equity securities 137,510 129,827 51,567
Other invested assets 941 2,055 421
Cost of investments acquired:
Fixed maturities (1,791,522) (1,569,779) (994,486)
Equity securities (144,862) (145,096) (41,968)
Other invested assets (11,702) (14,245) (2,283)
Net change in policy loans (9,995) (11,295) (9,883)
Net change in short-term investments 93,875 (18,748) (24,963)
Net change in security lending 308,125 - (33,239)
Payment for purchase of insurance business, net of
cash acquired 23,939 - (440)
Net cash used in investing activities (176,605) (204,855) (143,391)
</TABLE>
The accompanying notes are an integral part of the financial statements.
<TABLE>
MIDLAND NATIONAL LIFE INSURANCE COMPANY
STATEMENTS OF CASH FLOWS ( CONTINUED)
for the YEARS ENDED DECEMBER 31, 1997, 1996, AND 1995
(Amounts in thousands)
<S> <C> <C> <C>
1997 1996 1995
Cash flows from financing activities:
Receipts from universal life and investment products $ 280,164 $ 285,569 $ 272,511
Benefits paid on universal life and investment products (194,993) (156,514) (129,024)
Dividends paid on common stock (25,000) - (10,325)
Net cash provided by financing activities 60,171 129,055 133,162
Increase (decrease) in cash (1,194) (5,721) 388
Cash at beginning of year 3,578 9,299 8,911
Cash at end of year $ 2,384 $ 3,578 $ 9,299
Supplemental disclosures of cash flow information:
Cash paid during the year for:
Interest $ 143 $ 166 $ 188
Income taxes, paid to parent 42,749 16,772 25,376
Non-cash operating, investing and financing activity:
Policy loans, receivables and other assets received in
assumption reinsurance agreements 38,044 - 9,723
</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 or the Company) 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. The Company is licensed to operate in 49 states
and the District of Columbia.
Basis of Presentation
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 financial statements.
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 had no impact on the financial
statements of Midland.
In preparing the 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 is required 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.
Fixed maturity investments classified as trading or available-for-sale are
required to be reported at fair value in the balance sheet. The Company has
no securities classified as held-to-maturity.
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 statements
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 statements of cash
flows.
For CMO's 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.
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.
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. 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%.
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 3.75% to
6.75% in 1997, 3% to 7% in 1996 and 3% to 7.5% in 1995. 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 certain variable agency
expenses.
Deferred costs 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.
Deferred costs 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.
Policy acquisition costs deferred and amortized for years ended
December 31 are as follows:
<TABLE>
<S> <C> <C> <C>
1997 1996 1995
Deferred policy acquisition costs, beginning of year $ 427,218 $ 410,051 $ 415,594
Commissions deferred 40,660 55,005 52,533
Underwriting and acquisition expenses deferred 9,703 10,280 11,184
Change in offset to unrealized gains and losses (8,710) 92 (22,325)
Amortization (52,104) (48,210) (46,935)
Deferred policy acquisition costs, end of year $ 416,767 $ 427,218 $ 410,051
</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>
1997 1996 1995
Balance at beginning of year $ 21,308 $ 26,414 $ 31,495
Value of in force acquired 23,939 - (440)
Amortization (4,850) (5,106) (4,641)
Balance at end of year $ 40,397 $ 21,308 $ 26,414
</TABLE>
Based on current conditions and assumptions as to future events, the
Company expects to amortize approximately 20 percent of the December 31, 1997
balance of PVFP in 1998, 16 percent in 1999, 14 percent in 2000, 11 percent
in 2001, and 9 percent in 2002. The interest rates used to determine the
amortization of the PVFP 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
periodically 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 return basis. 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 financial statements.
(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 insurance 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 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.
The carrying value and estimated fair value of the Company's
financial instruments are as follows:
<TABLE>
<S> <C> <C> <C> <C>
December 31, 1997 December 31, 1996
Carrying Estimated Carrying Estimated
Value Fair Value Value Fair Value
Financial assets:
Fixed maturities - available-for-sale $ 2,420,977 $ 2,420,977 $ 1,807,362 $ 1,807,362
Fixed maturities - trading - - 33,540 33,540
Equity securities - available-for-sale 78,950 78,950 67,498 67,498
Equity securities - trading 66,206 66,206 148,466 148,466
Policy loans 202,129 202,129 154,090 154,090
Short-term investments 636,280 636,280 242,857 242,857
Other investments 29,329 29,329 18,495 18,495
Financial liabilities:
Investment-type insurance contracts 1,011,000 989,000 615,000 597,000
</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:
<S> <C> <C> <C> <C>
December 31, 1997
Gross Gross
Unrealized Unrealized Estimated
Amortized Holding Holding Fair
Cost Gains Losses Value
Fixed maturities:
U.S. Treasury and other U.S. Government
corporations and agencies $ 625,958 $ 9,232 $ 266 $ 634,924
Obligations of U.S. states and political
subdivisions 3,201 147 - 3,348
Corporate securities 660,172 30,234 577 689,829
Mortgage-backed securities 1,055,140 22,159 109 1,077,190
Other debt securities 14,861 826 1 15,686
Total fixed maturities 2,359,332 62,598 953 2,420,977
Equity securities 69,221 10,433 704 78,950
Total available for sale $ 2,428,553 $ 73,031 $ 1,657 $ 2,499,927
</TABLE>
<TABLE>
<S> <C> <C> <C> <C>
December 31, 1996
Gross Gross
Unrealized Unrealized Estimated
Amortized Holding Holding Fair
Cost Gains Losses Value
Fixed maturities:
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>
The amortized cost of the fixed maturities and the cost of the equity
securities classified as trading securities are $0 and $66,867, respectively
at December 31, 1997 and $33,735 and $148,291, respectively, at December 31,
1996.
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:
<TABLE>
<S> <C> <C>
1997 1996
Gross unrealized appreciation $ 71,374 $ 44,183
Deferred policy acquisition costs (23,930) (15,220)
Deferred income taxes (16,606) (10,138)
Net unrealized appreciation of investments $ 30,838 $ 18,825
The change in net unrealized gains (losses) on available-for-sale
fixed maturity and equity security investments are as follows:
1997 1996 1995
Fixed maturities $ 24,162 $ (20,907) $ 79,603
Equity securities 3,029 1,955 5,974
Less DAC impact (8,710) 92 (22,325)
Less deferred income tax effect (6,468) 6,658 (22,222)
Net change in unrealized gains (losses) $ 12,013 $ (12,202) $ 41,030
</TABLE>
The amortized cost and estimated fair value of available-for-sale
fixed maturities at December 31, 1997, 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.
<TABLE>
<S> <C> <C>
Amortized Fair
Cost Value
Due in one year or less $ 327,750 $ 329,539
Due after one year through five years 147,408 152,516
Due after five years through ten years 190,528 200,958
Due after ten years 638,505 660,773
Securities not due at a single maturity date (primarily
mortgage-backed securities) 1,055,141 1,077,191
Total fixed maturities $ 2,359,332 $ 2,420,977
</TABLE>
Investment Income and Investment Gains (Losses)
Major categories of investment income are summarized as follows:
<TABLE>
<S> <C> <C> <C>
1997 1996 1995
Gross investment income:
Fixed maturities $ 148,640 $ 126,733 $ 121,003
Equity securities 13,831 22,202 20,885
Policy loans 11,891 10,327 9,485
Short-term investments 20,594 16,946 18,648
Other invested assets 824 553 490
Gross investment income 195,780 176,761 170,511
Investment expenses 7,130 3,178 3,491
Net investment income $ 188,650 $ 173,583 $ 167,020
</TABLE>
The major categories of investment gains and losses reflected in the
income statement are summarized as follows:
<TABLE>
<S> <C> <C> <C> <C> <C> <C>
1997 1996 1995
____________________ ____________________ ____________________
Unrealized Unrealized Unrealized
-Trading -Trading -Trading
Realized Securities Realized Securities Realizied Securities
Fixed maturities $ 2,934 $ 195 $ 8,047 $ (438) $ 14,303 $ 834
Equity securities 542 (836) (1,196) 6,638 (12,608) 6,223
Other 85 - (12) - 67 -
Net investment gains (losses) $ 3,561 $ (641) $ 6,839 $ 6,200 $ 1,762 $ 7,057
</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 1997, 1996, and 1995 were as follows:
<TABLE>
<S> <C> <C> <C> <C> <C> <C>
1997 1996 1995
_____________________ _____________________ ____________________
Fixed Fixed Fixed
Maturities Equity Maturities Equity Maturities Equity
Proceeds from sales $ 801,246 $ 136,085 $ 1,020,090 $ 106,354 $ 651,092 $ 51,547
Gross realized gains 3,757 1,977 10,418 787 15,205 617
Gross realized losses 3,213 887 5,030 1,954 4,241 2,802
</TABLE>
Other
At December 31, 1997, and 1996, securities amounting to
approximately $14,366 and $16,816, respectively, were on deposit with
regulatory authorities as required by law.
The Company periodically enters into repurchase agreements with
brokerage firms. Repurchase agreements totaling $308,125 were outstanding
at December 31, 1997. No investments were outstanding under repurchase
agreements at December 31, 1996.
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, 1997, except for
investments with the following carrying values:
GTE Corporation $ 95,366
APOLLO Computers 85,267
Norfolk Southern 73,977
(4) Income Taxes
The significant components of the provision for Federal income taxes
are as follows:
<TABLE>
<S> <C> <C> <C>
1997 1996 1995
Current
$ 38,474 $ 19,644 $ 34,424
Deferred
(5,421) 12,177 (5,721)
Total Federal income tax expense
$ 33,053 $ 31,821 $ 28,703
</TABLE>
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:
<TABLE>
<S> <C> <C> <C>
1997 1996 1995
At statutory Federal income tax rate
$ 32,054 $ 32,151 $ 29,980
Dividends received deductions
(514) (1,391) (1,718)
Other, net
1,513 1,061 441
Total Federal income tax expense
$ 33,053 $ 31,821 $ 28,703
</TABLE>
The federal income tax liability as of December 31 is comprised of
the following:
<TABLE>
<S> <C> <C>
1997 1996
Net deferred income tax liability
$ 34,480 $ 33,432
Income taxes currently due
1,608 5,883
Federal income tax liability
$ 36,088 $ 39,315
</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:
<TABLE>
<S> <C> <C>
1997 1996
Deferred tax liabilities:
Present value of future profits of acquired business
$ 14,139 $ 7,458
Deferred policy acquisition costs 100,989 114,971
Investments 27,245 17,541
Others 906 2,909
Total deferred income tax liabilities 143,279 142,879
Deferred tax assets:
Policy liabilities and reserves 108,799 109,447
Total gross deferred income tax assets 108,799 109,447
Net deferred income tax liability $ 34,480 $ 33,432
</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, 1997.
(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:
<TABLE>
<S> <C> <C> <C> <C> <C> <C>
1997 1996 1995
Ceded Assumed Ceded Assumed Ceded Assumed
Premiums $ 17,081 $ 7,971 $ 13,759 $ 7,116 $ 13,165 $ 5,368
Claims 8,683 4,472 12,170 6,068 11,899 5,204
</TABLE>
The Company presently reinsures the excess of each individual risk
over $500 on ordinary life policies in order to spread its risk of loss.
Certain other individual health contracts are reinsured on a policy-by-policy
basis. The Company remains contingently liable for certain of the liabilities
ceded in the event the reinsurers are unable to meet their obligations under
the reinsurance agreement.
Effective January 1, 1996, the Company assumed certain policy risks
($8,900,130 of life insurance in force at December 31, 1997) from its
affiliate, North American Company for Life and Health Insurance, and its
subsidiaries. The Company has reflected a risk and profit charge of $729 and
$1,119 in other income in 1997 and 1996, respectively, under the terms of
the reinsurance contract.
Effective October 31, 1997, Midland acquired, via assumption
reinsurance, a block of life and annuity business. Under the assumption
agreement, the Company assumed approximately $574,310 of life and annuity
reserves which is reflected in the liabilities for future policy benefits
and received $550,371 of assets which was net of $23,939 of PVFP. The PVFP
asset is being amortized principally over periods up to 25 years in relation
to the present value of expected gross profits. The assets acquired included
approximately $511,877 in cash and short term instruments, $38,044 in policy
loans and $450 of other assets. The final purchase price is subject to
change following a final accounting scheduled to occur on or before April 30,
1998.
(6) Statutory Financial Data and Dividend Restrictions
The Company is domiciled in South Dakota and 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 the Company
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 company paid a stockholder dividend of $25,000
in 1997. The maximum amount of dividends payable in 1998 without prior
approval of regulatory authorities is approximately $40,306.
The statutory net income of the Company for the years ended
December 31, 1997 and 1996 is approximately $65,000 and $16,000,
respectively, and capital and surplus at December 31, 1997 and 1996 is
approximately $323,000 and $300,000, respectively, in accordance with
statutory accounting principles.
(7) Employee Benefits
Employee Retirement Plans
The Company participates in a noncontributory defined benefit
pension plan sponsored by SEI which covers substantially all home office
employees. 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.
The following table sets forth the funded status and the amounts
recognized in the financial statements at December 31 for the qualified plan.
The 1997 and 1996 amounts reflect an allocation of the Company's portion of
the SEI plan:
<TABLE>
<S> <C> <C>
1997 1996
Accumulated benefit obligation:
Vested $ 2,558 $ 2,192
Nonvested 591 283
Total accumulated benefit obligation $ 3,149 $ 2,475
Fair value of plan assets $ 3,176 $ 3,400
Projected benefit obligation (4,678) (3,786)
Funded status (1,502) (386)
Unrecognized net gain 1,385 613
Unrecognized prior service costs 25 41
Net asset/(liability) recognized in financial statements
$ (92) $ 268
</TABLE>
The net periodic pension cost included the following components:
<TABLE>
<S> <C> <C> <C>
1997 1996 1995
Service cost-benefits earned during the period
$ 317 $ 285 $ 248
Interest cost on projected benefit obligation
325 291 283
Return on plan assets
(297) (619) (220)
Net amortization and deferral
15 306 (53)
Net periodic pension cost
$ 360 $ 263 $ 258
</TABLE>
The weighted-average discount rate used in determining the actuarial
present value of the projected benefit obligations was 7.25% for 1997 and
1996. The average rate of increase in future compensation levels was 4.25%
for 1997 and 1996. The expected long-term rate of return on plan assets used
to develop the net periodic pension cost was 8.75% in 1997, 1996 and 1995.
The Company also 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 1997, 1996, and 1995 was $1,920, $1,700, and $2,096,
respectively. All contributions to the ESOP are held in trust.
Postretirement Benefit Plan
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:
<TABLE>
<S> <C> <C> <C>
1997 1996 1995
Accumulated postretirement benefit obligation:
Retirees $ 1,771 $ 1,718 $ 1,235
Fully eligible active plan participants
192 170 274
Other active plan participants
240 191 560
2,203 2,079 2,069
Unrecognized loss (452) (135) (101)
Accrued postretirement benefit obligation
$ 1,751 $ 1,944 $ 1,968
</TABLE>
The net periodic cost for postretirement benefits other than
pensions for the years ended December 31 included the following components:
<TABLE>
<S> <C> <C> <C>
1997 1996 1995
Service cost - benefits earned during the period
$ 18 $ 16 $ 16
Interest cost on other post-retirement benefits
154 148 164
Net amortization
7 - 10
Total periodic expense
$ 179 $ 164 $ 190
</TABLE>
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 7.25%
rate in 1997 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, 1997 by
$217 and the aggregate of the service and interest cost components of the
net periodic postretirement benefit cost for 1997 by $16. The weighted
average discount rate used in determining the accumulated postretirement
benefit obligation was 7.25% at December 31, 1997 and 1996.
(8) Commitments and Contingencies
Lease Commitments
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 $2,822 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 $1,208, $1,048 and $548 for the years ended
December 31, 1997, 1996, and 1995, respectively. The minimum future
rentals on capital and operating leases at December 31, 1997, are as follows:
<TABLE>
<S> <C> <C> <C>
Year ending December 31,
Capital Operating Total
1998 ........................ $ 536 $ 1,076 $ 1,612
1999 ........................ 513 1,098 1,611
2000 ........................ 489 537 1,026
2001 ........................ 466 487 953
2002 ........................ 442 498 940
Thereafter ................ - 559 559
Total ........................ $ 2,446 $ 4,255 $ 6,701
Less amount representing interest.... 321
Present value of amounts due
under capital leases ................ $ 2,125
</TABLE>
Other Contingencies
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 has been included in the December 31, 1997 balance sheets. This
accrual was calculated by estimating the Company's share of both open and
closed insolvencies based on industry data provided to the Company.
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.
(9) Other Related Party Transactions
The Company pays fees to SEI under management contracts. The
Company was charged $1,530, $1,458 and $2,778 in 1997, 1996, and 1995,
respectively, related to these contracts.
The Company pays investment management fees to an affiliate
(Midland Advisors Company). Net fees related to these services were $1,425,
$1,339 and $66 in 1997, 1996 and 1995, respectively.
The Company provided certain insurance and non-insurance services
to North American Company for Life and Health Insurance, in return for
which the Company was reimbursed $488 in 1997 for the costs incurred to
render such services.
(..continued)
The accompanying notes are an integral part of the financial statements.
MIDLAND NATIONAL LIFE INSURANCE COMPANY
NOTES TO FINANCIAL STATEMENTS--(Continued)
(Amounts in thousands)
MNLGP97.TXT
<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.TXT
<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.
S6FORM.TXT
<PAGE>
CONTENTS OF REGISTRATION STATEMENT
----------------------------------
This Registration Statement comprises the following Papers and Documents:
The facing sheet.
The prospectus consisting of 72 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 Pre-Effective Amendment No. 1 on January 31, 1997.
** Filed previously in Pre-Effective Amendment No. 2 on April 23, 1997.
*** Filed in Post-Effective Amendment No. 1 for Registration No. 333-14061.
**** Filed herewith.
<PAGE>
(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) Amendments to Participation Agreements for Fidelity
Distributors Corporation/Variable Insurance Products Fund,
and Variable Products Fund II. **
(8) (c) Participation Agreement for Fidelity Distributors
Corporation/Variable Insurance Products Fund III. ***
(8) (d) 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 ****
- -----------------------
* Filed previously in Pre-Effective Amendment No. 1 on January 31, 1997.
** Filed previously in Pre-Effective Amendment No. 2 on April 23, 1997.
*** Filed in Post Effective Amendment No. 1 for Registration No. 333-14061.
**** Filed herewith.
CONVEL.TXT
<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 24th day of April, 1998.
Midland National Life Separate Account A
(Seal) By: Midland National Life Insurance
Company
By:__/s/Michael_M._Masterson_____________
President
VUL3/VEUL
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
- --------- ----- ----
_________________________ Chairman of the Board April 24, 1998
John C. Watson
/s/Michael_M._Masterson_____ Director, Chief Executive April 24, 1998
Michael M. Masterson Officer and President
/s/John_J._Craig_II_________ Director, Executive Vice April 24, 1998
John J. Craig II President
/s/Russell_A._Evenson_______ Director, Senior Vice April 24, 1998
Russell A. Evenson President and Chief
Actuary
/s/Steven_C._Palmitier______ Director, Senior Vice April 24, 1998
Steven C. Palmitier President and Chief
Marketing Officer
/s/Thomas_M._Meyer__________ Vice President and April 24, 1998
Thomas M. Meyer Chief Financial
Officer
_________________________ Director April 24, 1998
Robert W. Korba
_________________________ Director April 24, 1998
James N. Whitson
SECVUL2.TXT
<PAGE>
Registration No. 333-14081
POST EFFECTIVE AMENDMENT NO.1
________________________________________________________________________________
- --------------------------------------------------------------------------------
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
____________________________________
________________________________________________________________________________
- --------------------------------------------------------------------------------
EXHVEUL.TXT
<PAGE>
EXHIBIT INDEX
Exhibit
_________
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
INDVEUL.TXT
<PAGE>
March 25, 1998
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. 1 to Registration Statement No. 333-14081 on Form
S-6 ("Registration Statement") which covers premiums expected to be
received under the flexible premium Variable Executive Universal Life
Insurance 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,
/s/__Russell_A._Evenson__
Russell A. Evenson, FSA, CLU, ChFC
Senior Vice President and Actuary
RAEVEUL.TXT
<PAGE>
April 20, 1998
Midland National Life Insurance Company
One Midland Plaza
Sioux Falls, SD 57193
RE: Variable Executive Universal Life - 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 333-14081). 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: __/s/Frederick_R._Bellamy__
Frederick R. Bellamy
<PAGE>
CONSENT OF IDEPENDENT ACCOUNTANTS
We consent to the inclusion in Post effective Amendment No. 1 to this
Registration Statement of Midland National Life Separate Account A on
Form S-6 (File No. 333-14081) of our reports dated March 17, 1998 and
March 12, 1998, on our audits of the financial statements of Midland
National Life Separate Account A, and the financial statements of Midland
National Life Insurance Company, respectively. We also consent to the
reference of our firm under the caption "Financial and Actuarial".
COOPERS & LYBRAND L.L.P.
MINNEAPOLIS, MINNESOTA
April 24, 1998
CNSNTVL3.TXT
<PAGE>
