Securities and Exchange Commission
405 Fifth Street, N.W.
Washington, DC 20549
RE: Midland National Life Separate Account C
File Number 33-64016
Commissioners:
Enclosed for filing is a complete copy, including exhibits, of
Post-Effective Amendment Number 3 to the above referenced Form
N-4 Registration Statement.
This amendment is being filed pursuant to paragraph (b) of Rule 485,
and pursuant to subparagraph (b) (4) of that Rule, we certify the
amendment does not contain disclosure which would render it ineligible
to become effective pursuant to said paragraph (b).
If you have any comments or questions about this filing, please contact
me at 605-335-5700.
Sincerely,
Paul M. Phalen CLU, FLMI
Compliance Officer
Midland National Life Insurance Company
One Midland Plaza
Sioux Falls, SD 57193
<PAGE>
As filed with the Securities and Exchange Commission on April 29, 1996.
Registration No. 33-64016
811-7772
FORM N-4
--------
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
REGISTRATION STATEMENT UNDER THE SECURITIES ACT OF 1933 ___
Pre-Effective Amendment No. ___ ___
Post-Effective Amendment No. _3_ _X_
and
REGISTRATION STATEMENT UNDER THE INVESTMENT COMPANY ACT OF 1940 ___
Amendment No. _3_ _X_
MIDLAND NATIONAL LIFE SEPARATE ACCOUNT C
________________________________________
(Exact Name of Registrant)
MIDLAND NATIONAL LIFE INSURANCE COMPANY
(Name of Depositor)
One Midland Plaza
Sioux Falls, SD 57193
(Address of Depositor's Principal Executive Office)
_________________________
(Depositor's Telephone Number, including Area Code:
(605) 335-5700
_________________________
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)
Copy to:
Frederick R. Bellamy
Sutherland, Asbill & Brennan
1275 Pennsylvania Avenue, N.W.
Washington, D.C. 20004-2404
It is proposed that this filing will become effective (check appropriate line):
___ immediately upon filing pursuant to paragraph (b)
_X_ on May 01, 1996 pursuant to paragraph (b)
___ 60 days after filing pursuant to paragraph (a) (i)
___ on _________________ pursuant to paragraph (a) (i)
___ 75 days after filing pursuant to paragraph (a) (ii)
___ on _________________ pursuant to paragraph (a) (ii) of Rule 485
If appropriate, check the following line:
___ the Post-Effective Amendment designates a new effective date for a
previously filed Post-Effective Amendment.
An indefinite amount of securities (variable annuity contracts) is
being registered under the Securities Act of 1933 pursuant to Rule 24f-2
under the Investment Company Act of 1940. The Registrant filed the 24f-2
Notice for the fiscal year ended December 31, 1995 on February 29, 1996.
<PAGE>
CROSS REFERENCE SHEET
Pursuant to Rule 495
Showing Location in Part A (Prospectus),
Part B (Statement of Additional Information) and Part C
of Registration Statement Information Required by Form N-4
PART A
Item of Form N-4 Prospectus Caption
1 Cover Page Cover Page
2. Definitions Definitions
3. Synopsis Summary
4. Condensed Financial Information Financial Information
5. General
(a) Depositor Midland National Life Insurance Company;
Our Parent;
(b) Registrant Our Separate Account and It's Investment
Divisions
(c) Portfolio Company The Funds
(d) Fund Prospectus The Funds
(e) Voting Rights Your Voting Rights as an Owner
6. Deductions and Expenses
(a) General Charges, Fees, and Deductions
(b) Sales Load % Sales Charges on Withdrawals
(c) Special Purchase Plan Discount for Midland Employees
(d) Commissions Sales Agreements
(e) Fund Expenses Charges Against the Separate Account
(f) Operating Expenses Fee Table
7. Contracts
(a) Persons with Rights Withdrawals; Death Benefit; Your Voting Rights
as an Owner
(b) (i) Allocation of Premium Payments Allocation of Premiums
(ii) Transfers Transfers of Contract Value
(iii)Exchanges Not Applicable
(c) Changes Our Right to Change How We Operate Our
Separate Account
(d) Inquiries Face Page
8. Annuity Period Effecting An Annuity
9. Death Benefit Death Benefit
10. Purchase and Contract Value
(a) Purchases Requirements for Issuance of a Contract;
(b) Valuation Valuation of Owner's Contract Value
(c) Daily Calculation How We Determine the Unit Value
(d) Underwriter Sales Agreements
11. Redemptions
(a) By Contract Owners Withdrawals
By Annuitant Not Applicable
(b) Texas ORP Withdrawals
(c) Check Delay Withdrawals
(d) Lapse Not Applicable
(e) Free Look Free Look
12. Taxes Federal Tax Status
13. Legal Proceedings Legal Proceedings
14. Table of Contents for the Statement
of Additional Information Statement of Additional Information
PART B
Item of Form N-4 Statement of Additional Information Caption
15. Cover Page Cover Page
16. Table of Contents Table of Contents
17. General Information and History (Prospectus) Midland National Life
Insurance Company; (Prospectus) Our Parent
18. Services
(a) Fees and Expenses of Registrant (Prospectus) Fee Table;
(b) Management Contracts Not Applicable
(c) Custodian Records and Reports; Safekeeping of Account
Assets
Independent Auditors Experts
(d) Assets of Registrant Not Applicable
(e) Affiliated Person Not Applicable
(f) Principal Underwriter Not Applicable
19. Purchase of Securities Being Offered (Prospectus) Detailed Information
About the Contract
Offering Sales Load (Prospectus) Sales Charges on Withdrawals
20. Underwriters Distribution of the Contract
21. Calculation of Performance Data Calculation of Yields and Total Returns
22. Annuity Payments Annuity Payments
23. Financial Statements Financial Statements
PART C - OTHER INFORMATION
Item of Form N-4 Part C Caption
24. Financial Statements and Exhibits Financial Statements and Exhibits
(a) Financial Statements Financial Statements
(b) Exhibits Exhibits
25. Directors and Officers of the Depositor Management of Midland
26. Persons Controlled By or Under Common Persons Controlled By or Under Comnd
Control with the Depositor or Registrant Control with the Depositor
27. Number of Contract Owners Number of Contract Owners
28. Indemnification Indemnification
29. Principal Underwriters Relationship of Principal Underwriter to Other
Investment Companies; Principal Underwriters;
Compensation of North American Management
30. Location of Accounts and Records Location of Accounts and Records
31. Management Services Management Services
32. Undertakings Undertakings
Signature Page Signatures
F0634
<PAGE>
Flexible Premium Deferred Variable Annuity Contract
(Variable Annuity)
Issued By:
Midland National Life Insurance Company
One Midland Plaza Sioux Falls, SD 57193 (605) 335-5700
The Individual Flexible Premium Deferred Variable
Annuity Contracts described in this Prospectus
provide for accumulation of the Contract Value and
payment of annuity payments on a fixed or variable
basis. Variable payment options are not available
in certain states. The Contracts are designed to
aid individuals in long term planning for
retirement or other long term purposes.
The Contracts are available for retirement plans
which do not qualify for the special federal tax
advantages available under the Internal Revenue
Code (Non-Qualified Plans) and for retirement plans
which do qualify for the federal tax advantages
available under the Internal Revenue Code
(Qualified Plans).
This Prospectus generally describes only the
variable portion of the Contract, except where the
General Account is specifically mentioned.
The Variable Annuity pays a Death Benefit when the
Annuitant dies before the Maturity Date if the
Contract is still In Force. The Death Benefit is
equal to the greater of the Contract Value or
premiums paid less withdrawals.
You may withdraw part of the Contract Value, or
completely surrender Your Contract for its Cash
Surrender Value prior to the Maturity Date. You may
incur a deferred sales charge, taxes and/or a tax
penalty if You surrender Your Contract or make a
partial withdrawal.
You may allocate Your Contract Value to one or more
of the ten Investment Divisions of Our Separate
Account C or to Our General Account. In certain
states, allocations to and transfers to and from
the General Account are not permitted.
We invest each of the Investment Divisions of Our
Separate Account in shares of a corresponding
portfolio of the Variable Insurance Products Fund
or Variable Insurance Products Fund II
(collectively called the Funds), mutual funds with
a choice of portfolios. These Funds are advised by
Fidelity Management & Research Company.
The prospectus for the Funds, which accompanies
this Prospectus, describes the investment
objectives, policies, and risks of the Funds
portfolios associated with the divisions of Our
Separate Account: the Index 500 Portfolio, the
Asset Manager Portfolio, the Money Market
Portfolio, the High Income Portfolio, the Equity-
Income Portfolio, the Growth Portfolio, the
Overseas Portfolio, the Contrafund Portfolio, the
Asset Manager: Growth Portfolio, and the Investment
Grade Bond Portfolio.
You bear the investment risk of this Contract for
all amounts allocated to Separate Account C. To the
extent that Your Contract Value is in Separate
Account C, Your Contract Value will vary with the
investment performance of the corresponding
portfolios of the Funds; there is no minimum
guaranteed fund value for amounts allocated to the
Investment Divisions of Our Separate Account.
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 have a limited right to examine this Contract
and return it to Us for a refund.
This Prospectus sets forth the information that a
prospective investor should know before investing.
A Statement of Additional Information about the
Contract and Separate Account C is available free
by writing Midland at the address above or by
checking the appropriate box on the application
form. The Statement of Additional Information,
which has the same date as this Prospectus, has
been filed with the Securities and Exchange
Commission and is incorporated herein by reference.
The table of contents of the Statement of
Additional Information is included at the end of
this Prospectus.
THESE SECURITIES HAVE NOT BEEN APPROVED OR
DISAPPROVED BY THE SECURITIES AND EXCHANGE
COMMISSION NOR HAS THE COMMISSION PASSED UPON THE
ACCURACY OR ADEQUACY OF THIS PROSPECTUS. ANY
REPRESENTATION TO THE CONTRARY IS A CRIMINAL
OFFENSE.
PLEASE READ THIS PROSPECTUS FOR DETAILS ON THE
CONTRACT BEING OFFERED TO YOU, AND KEEP IT FOR
FUTURE REFERENCE. THIS PROSPECTUS IS VALID ONLY
WHEN ACCOMPANIED BY A CURRENT PROSPECTUS FOR THE
VARIABLE INSURANCE PRODUCTS FUND AND VARIABLE
INSURANCE PRODUCTS FUND II.
The date of this prospectus is May 1, 199 6 .
The Contracts Are Not A Deposit Of, Or Guaranteed Or Endorsed By, Any Bank
Or Depository
Institution, And The Contract Is Not Federally Insured By The Federal Deposit
Insurance
Corporation, The Federal Reserve Board, Or Any Other Agency. The Contracts
involve investment
risk, including possible loss of principal.
<PAGE>
Table of Contents
Definitions 3
FEE TABLE 3
PORTFOLIO ANNUAL EXPENSES (2) 4
EXAMPLES 4
SUMMARY 5
CONDENSED FINANCIAL INFORMATION 7
GENERAL INFORMATION ABOUT MIDLAND, SEPARATE ACCOUNT
C AND THE FUNDS 7
The Company That Issues Variable Annuities 7
Midland National Life Insurance Company 7
Our Parent 7
Separate Account Investment Choices 7
Our Separate Account And Its Investment Divisions 7
The Funds 8
Investment Policies Of The Funds Portfolios 8
We Own The Assets Of Our Separate Account 8
Our Right To Change How We Operate Our Separate
Account 9
DETAILED INFORMATION ABOUT THE CONTRACT 9
Requirements for Issuance of a Contract 9
Free Look 9
Allocation of Premiums 9
Transfers of Contract Value 9
Dollar Cost Averaging 10
Withdrawals 10
Loans 11
Death Benefit 11
Your Contract Value 11
Amounts In Our Separate Account 12
How We Determine The Accumulation Unit Value 12
CHARGES, FEES AND DEDUCTIONS 12
Sales Charges on Withdrawals 12
Charges Against The Separate Account 12
Administrative Charge 12
Contract Maintenance Charge 13
Transfer Charge 13
Charges In The Funds 13
Changing Your Premium Allocation Percentages 13
The General Account 13
Amounts In The General Account 14
Adding Interest To Your Amounts In The General
Account 14
Transfers 14
Additional Information About Variable Annuities 14
Contract Periods, Anniversaries 14
Inquiries 14
FEDERAL TAX STATUS 14
Introduction 14
Diversification 14
Taxation of Annuities in General 15
Our Income Taxes 16
Withholding 16
EFFECTING AN ANNUITY 16
Fixed Options 17
Variable Options 17
Transfers after the Maturity Date 18
ADDITIONAL INFORMATION 18
Your Voting Rights As an Owner 18
Fund Voting Rights 18
How We Determine Your Voting Shares 18
Voting Privileges Of Participants In Other
Companies 18
Our Reports to Owners 19
Performance 19
Your Beneficiary 19
Assigning Your Contract 19
When We Pay Proceeds From This Contract 19
Dividends 19
Midlands Sales And Other Agreements 19
Sales Agreements 19
Regulation 20
Discount for Midland Employees 20
Legal Matters 20
Legal Proceedings 20
Experts 20
Statement of Additional Information 20
<PAGE>
Definitions
Accumulation Unit means the units credited to
each Investment Division in the Separate
Account before the Maturity Date.
Annuitant means the person, designated by the
Owner, upon whose life annuity payments are
intended to be based on the Maturity Date.
Annuity Unit means the units in the Separate
Account after the Maturity Date which are
used to determine the amount of the annuity
payment.
Attained Age means the Issue Age plus the
number of complete Contract Years since the
Contract Date.
Beneficiary means the person or persons to
whom the Death Benefit is paid if the
Annuitant dies before the Maturity Date.
Business Day means any day We are open and
the New York Stock Exchange is open for
trading.
Cash Surrender Value means the Contract Value
on the date of surrender, less the Contract
Maintenance Charge and any Contingent
Deferred Sales Charge.
Contract means a contract designed to provide
an Annuitant with an income, which may be a
lifetime income, beginning on the Maturity
Date.
Contract Date means the date from which
Contract Anniversaries and Contract Years are
determined.
Contract Value means the total amount of
monies in Our Separate Account C attributable
to Your Contract and the monies in Our
General Account for Your Contract.
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 if the Annuitant dies before
the Maturity Date.
Funds mean the mutual funds available for
investment by Separate Account C on the
Contract Date or as later changed by Us. The
Funds available as of the date of the
prospectus are the Variable Insurance
Products Fund (VIP Fund) and the Variable
Insurance Products Fund II (VIP Fund II).
Home Office means where You write to Us to
pay premiums, request transfers, or other
action regarding Your Contract. The address
is:
Midland National Life Insurance Company
One Midland Plaza
Sioux Falls, SD 57193
In Force means the Contract has not been
terminated.
Investment Division means a division of
Separate Account C which invests exclusively
in the shares of a specified Portfolio of the
Funds.
Issue Age means the age of the Annuitant on
his/her birthday which is nearest to the
Contract Date.
Maturity Date means the date, specified in
the Contract, when annuity payments are to
begin.
Owner means the person who purchases an
Individual Variable Annuity Contract and
makes the premium payments. The Owner will
usually be an Annuitant, but need not be. The
Owner has all rights in the Contract before
the Maturity Date, including the right to
make withdrawals or surrender the Contract,
to designate and change the Beneficiaries who
will receive the proceeds at the death of the
Annuitant before the Maturity Date, to
transfer funds among the Investment
Divisions, and to designate a mode of
settlement for the Annuitant on the Maturity
Date.
Payee means the person who is entitled to
receive annuity payments after an annuity is
effected. On or after the Maturity Date, the
Annuitant will be the Payee. Before the
Maturity Date, You will be the Payee.
Separate Account means Our Separate Account C
which receives and invests Your premiums
under the Contract.
FEE TABLE
This information is intended to assist You in understanding the various
costs and expenses that
an Owner will bear directly or indirectly. It reflects expenses of the
Separate Account as well
as the Portfolios. See CHARGES, FEES AND DEDUCTIONS on page 12 of the
prospectus for additonal information.
CONTRACT OWNER TRANSACTION EXPENSES
Sales Charge imposed on Premiums 0.00%
Maximum Contingent Deferred Sales Charge (as a percentage of premiums) (1)
7.00%
Transfer Fee (after 15 free transfers per year) $25.00
ANNUAL CONTRACT MAINTENANCE CHARGE $33.00
SEPARATE ACCOUNT ANNUAL EXPENSES
(as a percentage of average account value)
Mortality and Expense Risk Fees 1.25%
Administrative Charge .15%
Total Separate Account Annual Expenses 1.40%
(1) The Maximum Contingent Deferred Sales Charge decreases each year so
there is no charge
after 6 Contract Years. Each year, after the first year, 10% of total
premiums may be withdrawn
without a Contingent Deferred Sales Charge. The Contingent Deferred Sales
Charge is based solely on the Contract Year additional premiums do not
cause the Contingent Deferred Sales
Charge percentages to start over.
<PAGE>
PORTFOLIO ANNUAL EXPENSES (2)
(as a percentage of Portfolio average net assets)
MANAGEMENT OTHER TOTAL ANNUAL
FEES EXPENSES EXPENSES
INDEX 500 (4) 0.00% 0.28% 0.28%
ASSET MANAGER (3) 0. 71 % 0.08% 0.79%
MONEY MARKET 0. 24 % 0. 09 % 0.33%
HIGH INCOME (3) 0. 60 % 0. 11 % 0.71%
EQUITY-INCOME 0. 51 % 0. 10 % 0.61%
GROWTH 0. 61 % 0. 09 % 0.70%
OVERSEAS 0. 76 % 0.15% 0. 91 %
INVESTMENT GRADE BOND 0. 45 % 0. 14 % 0. 59 %
ASSET MANAGER: GROWTH(3) (4) 0. 71 % 0. 29 % 1.00 %
CONTRAFUND(3) 0. 61 % 0. 11 % 0. 72 %
(2) The fund data was provided by Fidelity Management & Research Company
and while Midland has
no reason to doubt their accuracy, Midland has not verified the figures and
does not guarantee
their accuracy and disclaims all responsibility for them.
(3) A portion of the brokerage commissions the fund paid was used to reduce
its expense.
Without this reduction, total operating expenses would have been for High
Income 0.71%.
Asset Manager 0.81%, for Asset Manager: Growth 1.13%, and for Contrafund
0.73%
(4) The funds expenses were voluntarily reduced by the Funds investment
advisor. Absent
reimbursement, the management fee, other expenses, and total expenses
would have been
for Index 500 0.28%, 0.19%, and 0.4%, respectively and for Asset Manager:
Growth 0.71%,
0.42%, and 1.13%, respectively .
EXAMPLES
If You surrender Your Contract at the end of the applicable time period,
you would pay the
following expenses on a $1,000 investment, assuming 5% annual return on assets:
ONE THREE FIVE TEN
YEAR YEARS YEARS YEARS
INDEX 500 $89 $ 108 $ 129 $216
ASSET MANAGER 94 123 155 268
MONEY MARKET 89 109 132 221
HIGH INCOME 93 121 151 260
EQUITY-INCOME 92 118 146 250
GROWTH 93 121 151 259
OVERSEAS 95 127 161 280
INVESTMENT GRADE BOND 92 117 145 248
ASSET MANAGER: GROWTH 96 130 166 289
CONTRAFUND 93 121 152 261
<PAGE>
If You annuitize at the end of the applicable time period, You would pay the
following expenses
on a $1,000 investment, assuming 5% annual return on Your assets.
ONE THREE FIVE TEN
YEARS YEARS YEARS YEARS
INDEX 500 $89 $ 108 $ 129 $ 216
ASSET MANAGER 94 123 155 268
MONEY MARKET 89 109 132 221
HIGH INCOME 93 121 151 260
EQUITY-INCOME 92 118 146 250
GROWTH 93 121 151 259
OVERSEAS 95 127 161 280
INVESTMENT GRADE BOND 92 117 145 248
ASSET MANAGER: GROWTH 96 130 166 289
CONTRAFUND 93 121 152 261
If You do not surrender Your Contract, You would pay the following expenses
on a $1,000.00
investment assuming 5% annual return on Your assets:
ONE THREE FIVE TEN
YEARS YEARS YEARS YEARS
INDEX 500 $19 $ 58 $ 99 $ 216
ASSET MANAGER 24 73 125 268
MONEY MARKET 19 59 102 221
HIGH INCOME 23 71 121 260
EQUITY-INCOME 22 68 116 250
GROWTH 23 71 121 259
OVERSEAS 25 77 131 280
INVESTMENT GRADE BOND 22 67 115 248
ASSET MANAGER: GROWTH 26 80 136 289
CONTRAFUND 23 71 122 261
THE EXAMPLE SHOULD NOT BE CONSIDERED A REPRESENTATION OF PAST OR FUTURE
EXPENSES. ACTUAL
EXPENSES MAY BE GREATER OR LESS THAN THOSE SHOWN. THE ASSUMED 5% ANNUAL
RETURN IS HYPOTHETICA;
PAST OR FUTURE ANNUAL RETURNS MAY BE GREATER OR LESSER THAN THE ASSUMED
AMOUNT. THESE EXAMPLES
REFLECT THE $33 CONTRACT MAINTENANCE CHARGE AS AN ANNUAL CHARGE OF
0.1571 . PERCENTAGE OF ASSETS
BASED ON AN AVERAGE CONTRACT VALUE OF $ 21,000 .
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 Annuitant, because the
Annuitant 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 and 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.
Features of the Variable Annuity
Your Contract Value Your Contract Value is
established after We receive Your first
premium payment.
Your Contract Value reflects the amount and
frequency of premium payments, the investment
experience of amounts allocated to Our
Separate Account, interest earned on amounts
allocated to the General Account,
withdrawals, and deduction of the Separate
Account and Contract Charges. You bear the
investment risk under the Variable Annuity as
Your Contract Value will vary according to
the investment experience of the
Investment D ivisions of Our Separate
Account You have selected. There is no
minimum guaranteed Contract Value with
respect to any amounts allocated to the
Separate Account. (See Your Contract Value on
page 11.)
Flexible Premium Payments You may pay
premiums whenever You want (prior to the
Maturity Date), in whatever amount You want,
within certain limits. We require an initial
minimum premium of at least $2,000 and
ongoing premium
<PAGE>
payments of at least $50. We currently waive
the initial minimum premium requirement of
$2,000 for Qualified Contracts enrolled in a
bank draft investment program or payroll
deduction plan if the monthly premium is at
least $100.
You will also choose a planned periodic
premium. You need not pay premiums of any set
amount or according to the planned schedule.
Investment Choices of the Variable Annuity
You may allocate amounts in Your Contract
Value to either Our General Account, which
pays interest at a declared rate, or any one
or more of the Investment Divisions of Our
Separate Account. Each of these Investment
Divisions invests in shares of a
corresponding portfolio of the Variable
Insurance Products Fund (VIP Fund), or the
Variable Insurance Products Fund II (VIP Fund
II), series type mutual funds. The portfolios
have different investment objectives.
Fidelity Management & Research Company
receives fees from each portfolio for
providing investment management services.
These fees are taken monthly in proportion to
the average daily net assets of each
portfolio throughout the month.
For a full description of the Funds, see the
Funds prospectuses, which accompany this
prospectus. (See The Funds on page 8.) The
current Investment Divisions which are
represented by the VIP Fund are:
- - Money Market Portfolio
- - High Income Portfolio
- - Equity-Income Portfolio
- - Growth Portfolio
- - Overseas Portfolio
The current Investment Divisions which are
represented by the VIP Fund II are:
- - Asset Manager Portfolio
- - Investment Grade Bond Portfolio
- - Index 500 Portfolio
- - Contrafund Portfolio
- - Asset Manager: Growth Portfolio
Each portfolio charges a different investment
advisory fee. The fee for the Money Market
Portfolio is the sum of a group fee rate
based on the average net assets of all mutual
funds advised by Fidelity, an individual fund
fee rate of .03%, and an income component of
6% of the Portfolios gross income in excess
of a 5% annual yield. The fee for the High
Income and Investment Grade Bond Portfolio is
the sum of a group component based on assets
under management for all the Fidelity funds,
.1 5 % as of December, 199 5 , and
individual components of .45% and .30%,
respectively. The Equity-Income, Growth,
Asset Manager, Contrafund, Asset Manager:
Growth, and Overseas Portfolios fees are made
up of a group component, .3 1 % as of
December, 199 5 and individual
components of .20%, .30%, .40%, .30%, .40%,
and .45%, respectively. The fee for the Index
500 Portfolio will be .28%. These charges are
reflected in the net asset value of each
Portfolio.
See Investment Policies Of The Funds
Portfolios on page 8, Charges In The Funds on
page 13, and The General Account on page 13.
Withdrawals
Unless restricted by a retirement arrangement
in connection with which You have purchased a
Contract, You may withdraw all or part of
Your Cash Surrender Value at any time. A
Contingent Deferred Sales Charge may be
imposed on the withdrawal. The amount You
request plus any deferred sales charge, and,
upon full withdrawal, plus the Contract
Maintenance Charge will be deducted from Your
Contract Value. You may withdraw this amount
in a lump sum or use it to purchase an
annuity that will continue as long as You
live or for some other period You select. A
withdrawal may also have tax consequences
including a 10% tax penalty on certain
withdrawals prior to age 59 1/2. After three
years from the Contract Date, the deferred
sales charge, if any, will be waived upon the
withdrawal of funds to effect a life annuity.
(See Sales Charges on Withdrawals on page 12,
FEDERAL TAX STATUS on page 14, and EFFECTING
AN ANNUITY on page 16.) Withdrawals from
Contracts used in connection with tax-
qualified retirement plans may be restricted
or penalized by the terms of the plan or
applicable law.
Charges under the Contracts. The charges made
by Midland are intended to compensate Us for
paying the various categories of expenses and
taxes incurred in maintaining and operating
the Contracts and Separate Account and for
assuming mortality and expense risks under
the Contracts. These charges consist of a $33
annual Contract Maintenance Charge and a
daily charge at an effective annual rate of
1.40% of the assets held in the Investment
Divisions. For more information regarding
these charges, see CHARGES, FEES AND
DEDUCTIONS on page 12.
A Contingent Deferred Sales Charge is imposed
to reimburse Midland for distribution
expenses, such as commissions paid to sales
personnel, costs of advertising and sales
promotions, prospectus costs, and costs of
policy administration. Many mutual
funds, other than no-load funds, make this
charge by deducting a percentage of the
investors payment and investing only the
remainder. Under the Contracts described in
this prospectus, no sales charge is taken out
when Your premium is invested in the
Investment Divisions designated by You or in
the General Account if so directed. In any
Contract Year, after the first Contract Year,
You may make a withdrawal of 10% of the sum
of premiums paid without charge. A Contingent
Deferred Sales Charge may be deducted on all
other withdrawals (including withdrawals to
effect an annuity). The charge is 7% of the
amount of the premiums withdrawn in the first
Contract Year and thereafter the charge
decreases. (See Sales Charges on Withdrawals
on page 12.) Withdrawals made seven or more
Contract Years after the Contract Date are
subject to no Contingent Deferred Sales
Charge at all. Withdrawals may be subject to
tax consequences under the Internal Revenue
Code. (See Withdrawals on page 10 and FEDERAL
TAX STATUS on page 14.)
Using Your Contract Value
Transfers On or before the Maturity Date,
You may transfer amounts in Your Contract
Value between the General Account and
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 also
require minimum amounts for each transfer,
usually $200. Currently, if You make more
than fifteen transfers a year, an
administrative charge may be deducted from
Your Contract Value ($25 for each additional
transfer). We reserve the right to assess
this charge after the fourth transfer in a
Contract Year. There are other limitations on
transfers to and from the General Account.
Additional Information About Variable
Annuities
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 no later than 10 days after You
receive Your Contract. (See Free Look on page
9.)
CONDENSED FINANCIAL INFORMATION
Accumulation Accumulation Number of
Unit Value Unit Value Accumulation
Investment at Beginning at End Units at End
Division of Period of Period of Period
Money Market
1993(1) 10.00 10.02 3,675
1994 10.02 10.31 207,115
1995 10.31 10.76 320,841
High Income
1993(1) 10.00 10.22 2.68
1994 10.22 9.93 70,977
1995 9.93 11.83 139,335
Equity-Income
1993(1) 10.00 10.16 2,861
1994 10.16 10.71 163,874
1995 10.71 14.35 385,807
Growth
1993(1) 10.00 10.09 2,539
1994 10.09 9.80 160,540
1995 9.80 13.32 347,738
Overseas
1993(1) 10.00 10.40 1,706
1994 10.40 10.37 147,456
1995 10.37 11.36 217,322
Asset Manager
1993(1) 10.00 10.48 11,474
1994 10.48 9.67 280,056
1995 9.67 11.22 362,467
Investment
Grade Bond
1993(1) 10.00 10.06 124
1994 10.06 9.52 31,444
1995 9.52 11.03 52,431
Index 500
1993(1) 10.00 10.15 22
1994 10.15 10.11 32,675
1995 10.11 13.79 71,305
Asset Manager:
Growth
1995(2) 10.00 11.48 13,682
Contrafund
1995(2) 10.00 11.84 35,906
(1)Period from 10/24/93 to 12/31/93
(2) Period From 5/1/95 to 12/31/95
GENERAL INFORMATION ABOUT
MIDLAND, SEPARATE ACCOUNT C
AND THE FUND S
The Company That Issues Variable Annuities
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.
Separate Account Investment Choices
Premiums may be allocated to one or more of
the Investment Divisions of Our Separate
Account or to Our General Account according
to the directions You provided on Your
application. In certain states, allocations
to and transfers to and from the General
Account are not permitted. These instructions
will apply to any subsequent premiums You pay
that do not include instructions as to how
the premium is to be allocated until You
write to Our Home Office with new
instructions. Allocation percentages may be
any whole number from 10 to 100, and the sum
must equal 100. You may choose not to
allocate any premium to any particular
Investment Division. (See, The General
Account on page 13.)
Our Separate Account And Its Investment
Divisions
The Separate Account is Our Separate Account
C, established under the Insurance Laws of
the State of South Dakota in March, 1991, and
is a unit investment trust registered with
the Securities and Exchange Commission (SEC)
under the Investment Company Act of 1940.
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 VIP Fund or the VIP Fund II.
You may allocate part or all of Your premiums
to one or more of the Investment Divisions of
Our Separate Account. Our Separate Account
Investment Divisions are the Index 500
Portfolio, the Asset Manager Portfolio, the
Money Market Portfolio, the High Income
Portfolio, the Equity-Income Portfolio, the
Growth Portfolio, the Overseas Portfolio, the
Contrafund Portfolio, the Asset Manager:
Growth Portfolio, and the Investment Grade
Bond Portfolio.
The Funds
The VIP Fund and the VIP Fund II are open-end
diversified management investment companies,
more commonly called mutual funds. As a
series type 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 VIP Fund and
the VIP Fund II, their investment policies,
risks, expenses and all other aspects of
their operations, appears in their
prospectus , which accompanies this
prospectus, and in the Funds Statements of
Additional Information. You should read the
Funds prospectus carefully before allocating
or transferring money to any Fund.
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 Contract Owners arising out of this. If
We believe that the Funds do not sufficiently
respond to protect Our Contract Owners
interests, We will see to it that appropriate
action is taken to protect Our Contract
Owners. The Funds will also monitor this
possibility. See the section entitled FMR and
Its Affiliates in the prospectus for the VIP
Fund and the VIP Fund II. Also, if We ever
believe that any of the Funds Portfolios are
so large as to materially impair its
investment performance of a Portfolio or the
Fund, We will examine other investment
options.
Investment Policies Of The Funds Portfolios
Each portfolio has a different investment
objective which it tries to achieve by
following separate investment policies. The
objectives and policies of each portfolio
will affect its return and its risks.
Remember that the investment experience of
the Investment Divisions of Our Separate
Account depends on the performance of the
corresponding Funds portfolios. The
objectives of the Funds portfolios are as
follows:
Portfolio
Objective
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 and Poors Composite
Index of 500 Stocks. This is
designed as a long-term
investment option.
Asset Manager
Seeks high total return with
reduced risk over the long-
term by allocating its
assets among domestic and
foreign stocks, bonds and
short-term fixed income
instruments.
Money Market
Seeks to obtain a high 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
Portfolio is neither insured
nor guaranteed by the U.S.
Government, and there is no
assurance that the Money
Market Portfolio will be
able to maintain a constant
net asset value.)
High Income
Seeks to obtain a high level
of current income by
investing primarily in high-
yielding, lower-rated,
fixed-income securities,
while also considering
growth of capital.
Equity-Income
Seeks to obtain reasonable
income by investing
primarily in income-
producing equity securities.
In choosing these
securities, the Manager will
consider the potential for
capital appreciation. The
Portfolios goal is to
achieve a yield which
exceeds the composite yield
on the securities comprising
the Standard & Poors
Composite Index of 500
Stocks.
Growth
Seeks to achieve capital
appreciation, normally
through the purchase of
common stocks, although the
Portfolios investments are
not restricted to any one
type of security. Capital
appreciation also may be
found in other types of
securities, including bonds
and preferred stocks.
Overseas
Seeks long-term growth of
capital, primarily through
investments in foreign
securities.
Investment
Grade Bond
Seeks as high a level of
current income as is
consistent with the
preservation of capital by
investing in a broad range
of investment grade fixed
income securities.
Contrafund
Seeks to achieve capital
appreciation over the long
term by investing in
securities of companies that
are undervalued or out-of-
favor.
Asset Manager:
Growth
Seeks to maximize total
return over the long term
through investments in
domestic stocks, bonds, and
short-term instruments. This
portfolio has a heavier
emphasis on stocks than the
Asset Manager Portfolio.
We Own The Assets Of Our Separate Account
Under South Dakota law, We own the assets of
Our Separate Account and use them only to
support Your Contract and other Variable
Annuity Contracts. The assets of the Separate
Account may not be charged with liabilities
arising out of Midlands other business and
the obligations under the Contracts are
obligations of Midland. The income, gains and
losses (realized and unrealized) of the
Separate Account are credited to or charged
against the Separate Account without regard
to other income, gains, or losses of Midland.
Under certain unlikely circumstances, one
Investment Division of the Separate Account
may be liable for claims relating to the
operations of another division. We may also
permit charges owed to Us to stay in the
Separate Account. Thus, We may also
participate proportionately in the Separate
Account. These accumulated amounts belong to
Us and We may transfer them from the Separate
Account to Our General Account.
Our Right To Change How We Operate Our
Separate Account
In addition to changing or adding investment
companies, We have the right to modify how We
or Our Separate Account operate. We intend to
comply with applicable law in making any
changes and, if necessary, We will seek
approval of Contract Owners. 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 Our Variable Annuities
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 C;
- - 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 Owners that
would otherwise require that a Funds
shares be voted so as to cause a change
in the investment objectives of the
portfolio of a Fund or approval or
disapproval of an investment advisory
policy for the portfolio of a Fund. We
would do so only if required by state
insurance regulatory authorities pursuant
to insurance law or regulation;
or
- - operate Our Separate Account or one or
more of the Investment Divisions in any
other form the law allows, including a
form that allows Us to make direct
investments. We may make any legal
investments We wish. In choosing these
investments, We will rely on Our own or
outside counsel for advice. In addition,
We may disapprove any change in
investment advisers or in investment
policy 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 VIP
Fund or the VIP Fund II.
If You then wish to transfer the amount You
have in that Investment Division to another
division of Our Separate Account, or to Our
General Account, You may do so, without
charge, by writing to Our Home Office. At the
same time, You may also change how Your
premiums are allocated.
DETAILED INFORMATION ABOUT
THE CONTRACT
Requirements for Issuance of a Contract
To buy a Contract, You must complete an
application form and send it , together
with Your initial premium payment of at least
$2,000 (except for Qualified Contracts
enrolled in a bank draft investment program
or payroll deduction plan if the monthly
premium is at least $100) to Midland through
a representative who is fully licensed and
registered to sell the Contract. You will
then be issued a Contract that sets forth
precisely Your rights and Our obligations.
Once Your Contract is issued, additional
premium payments may be made by check or
money order payable to the order of Midland
and mailed to the Home Office. Any additional
premium payment must be at least $50.
If We receive and accept Your completed
application for a Contract with or before
Your initial premium payment, We will, as of
the day We receive Your premium, invest the
entire amount in the Money Market Investment
Division . If the application is
incomplete, We will attempt to complete it
within five business days. If it is not
complete at the end of this period, We will
inform You of the reason for the delay and
the premium payment will be returned
immediately, unless You specifically consent
to Us keeping the premium payment until the
application is complete.
Free Look
You have a 10-day free look period after You
receive Your Contract to review it and decide
whether You wish to retain it. If You wish to
cancel the Contract, You may return it to the
agent who sold it to You or to Our office. If
You return Your Contract, We will
return the greater of: (1) the premium paid;
or (2) the Contract Value plus the sum of all
charges deducted from the Contract Value.
D uring the Free Look Period, Your
premium will be allocated to the Money Market
Investment Division. At the end of the Free
Look Period (which is administratively
assumed to be 15 days after the Contract Date
for reallocation purposes), Your Contract
Value will then be allocated according to the
instructions in Your application. (See
Allocation of Premiums below.)
In order to comply with regulations and legal
requirements, in certain states the length of
the Free Look Period may vary.
Allocation of Premiums
The Owner determines how the premiums will be
allocated among the Investment Divisions, and
between the Separate Account and the General
Account, by specifying the desired allocation
on the application form of the Contract. You
may change subsequent premium allocations by
providing Us with written instructions. If
You send Us an additional premium payment
without instructions about how the premium
should be allocated, We will allocate the
premium using the premium allocations
specified in the application form or
subsequently changed by You.
Transfers of Contract Value
Currently, on or before the Maturity Date,
You may make up to fifteen transfers of
Contract Value in each Contract Year without
charge. We charge $25 for each additional
transfer in a single Contract Year. We
reserve the right to assess this charge after
the fourth transfer in a Contract Year.
During the first two Contract Years, if a
transfer is all of Your Contract Value in Our
Separate Account to the General Account, We
will not make a charge for that transfer. To
make a transfer, write to Our Home Office.
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
by writing to Us at Our Home Office. 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 on
page 9. This minimum need not come from any
one Investment Division or be transferred to
any one Investment Division as long as the
total net amount transferred that day equals
the minimum.
For limitations on transfers to and from the
General Account, see The General Account on
page 13.
Dollar Cost Averaging
The Dollar Cost Averaging (DCA) program
enables You to make monthly transfers of a
predetermined dollar amount from the Money
Market Investment Division into one or more
of the other Investment Divisions (not the
General Account). By allocating monthly, as
opposed to allocating the total amount at one
time, You may reduce the impact of market
fluctuations.
DCA can be elected at any time by completion
of the DCA Request Form (form number 5653)
and by insuring that a sufficient amount is
in the Money Market Investment Division,
either through payment of a premium with the
DCA request form, allocation of premiums, or
transfer of amounts to the Money Market
Investment Division. Copies of form 5653 can
be obtained by contacting Us at Our Home
Office. The election will specify:
a. that any money received with the form is
to be placed into the Money Market
Investment Division
b. the monthly amount to be transferred to
the other Investment Divisions, and
c. how that monthly amount is to be
allocated among the Investment Divisions
Since the DCA program is only suitable for
substantial, infrequent premium payments, DCA
is only available when the premium payment
mode is annual or if the amount in the Money
Market Investment Division is at least
$2,400. The DCA Request Form must be received
with any premium payment You intend to apply
to DCA.
The minimum monthly amount to be transferred
using DCA is $200. In order to begin the DCA
program, the value in the Money Market
Investment Division must be equal to at least
12 monthly transfers. When DCA is elected,
all amounts in the Money Market Investment
Division will be available for transfer under
the DCA program. Once DCA is elected,
additional premiums can be deposited into the
Money Market Investment Division for DCA by
sending them in with a DCA request form.
You may change the DCA allocation percentages
or DCA transfer amounts twice each Contract
Year. Any premium payments received while the
DCA program is in effect will be allocated
using the allocation percentages from the DCA
request form, unless You specify otherwise.
If requested at issue, DCA will start at the
beginning of the second Contract Month. If
requested after issue, DCA will start at the
beginning of the first Contract Month which
occurs at least 30 days from the day the
request is received.
Transfers under the DCA program will count
toward the number of free transfers allowed
each Contract Year.
DCA will last until the value in the Money
Market Investment Division is exhausted or
until a request for termination is received
in writing from You. DCA will automatically
be terminated on the Maturity Date.
We reserve the right to end the DCA program
at any time by sending You a notice one month
in advance.
Withdrawals
Unless restricted by a retirement arrangement
under which You are covered, You may at any
time withdraw all or part of Your Cash
Surrender Value by sending Us Your request in
writing. Partial withdrawals from an
Investment Division or the General Account,
however, must be made in amounts of $500 or
more and cannot reduce Your Contract Value to
less than $1,000. If a withdrawal results in
less than $1,000 remaining, the entire
Contract Value must be withdrawn.
We will generally pay the amount of any
withdrawal from the Separate Account, less
any applicable sales charge and any required
tax withholding, and upon full withdrawal,
the Contract Maintenance Charge within seven
days after We receive a properly completed
withdrawal request. We may defer payment for
a longer period only when trading on the New
York Stock Exchange is restricted as defined
by the Securities and Exchange Commission;
when the New York Stock Exchange is closed
(other than customary weekend and holiday
closing); when an emergency exists as defined
by the Securities and Exchange Commission as
a result of which disposal of the Separate
Accounts securities or determination of the
net asset value of each Investment Division
is not reasonably practicable; or for such
other periods as the Securities and Exchange
Commission may by order permit for the
protection of Owners. We expect to pay the
amount of any withdrawal from the General
Account promptly, but have the right to delay
payment up to six months.
A withdrawal will generally have federal
income tax consequences, which can include
tax penalties and tax withholding . You
should consult with tax advisers before
making a withdrawal. (See FEDERAL TAX STATUS
on page 14.)
Under certain types of retirement
arrangements, the Retirement Equity Act of
1984 provides that, in the case of a married
Participant, a withdrawal request must
include the consent of the Participants
spouse. This consent must contain the
Participants signature and the notarized or
properly witnessed signature of the
Participants spouse. These new spousal
consent requirements were effective beginning
January 1, 1985 and apply to married
Participants in most qualified pension plans,
including plans for self-employed
individuals, and those Section 403(b)
annuities which are considered employee
pension benefit plans under the Employee
Retirement Income Security Act of 1974
(ERISA). You should check the terms of Your
retirement plan and consult a tax advisor
before making a withdrawal.
Participants in the Texas Optional Retirement
Program may not receive the proceeds of a
withdrawal from a Contract or apply them to
start an annuity prior to retirement except
in the case of termination of employment in
the Texas public institutions of higher
education, death, or total disability. Such
proceeds may, however, be used to fund
another eligible vehicle.
Withdrawals from Section 403(b) plans are
also severely restricted. (See FEDERAL TAX
STATUS on page 14.)
Loans
Prior to the Maturity Date, owners of
contracts issued in connection with Section
403(b) or Section 401(k) qualified plans may
request a loan using the Contract as security
for the loan. Loans are subject to provisions
of the Code and the terms of the retirement
program. A tax advisor should be consulted
prior to requesting a loan.
The amount of the loan must be at least
$2,000 and must not exceed the Contract Value
less any applicable Contingent Deferred Sales
Charge, less any outstanding prior loans,
less loan interest to the end of the next
Contract Year. Only one loan can be made
within a 12 month period.
When a loan is requested, You may tell Us how
much of the loan is to be allocated to Your
unloaned value in the General Account and to
Your value in each Investment Division of the
Separate Account. If You fail to specify, the
loan will be allocated among all Investment
Divisions and the General Account in the same
proportion as the value of Your interest in
each Investment Division and the General
Account bears to Your total Contract Value.
We will redeem units from an Investment
Division sufficient to cover that part of the
loan. That portion of the Contract Value
which is equal to the loan will be held in
the General Account and will earn interest at
a rate of 3% per year.
We will charge interest on loans at the rate
of 5% per year. Loan interest is due and
payable on each Contract Anniversary.
Interest not paid will be added to the loan
and also bear interest. If the total loan
plus loan interest equals or exceeds the
Contract Value, less any applicable
Contingent Deferred Sales Charge, less any
applicable withholding taxes, the Contract
will terminate with no further value. In such
case, We will give You at least 31 days
written notice.
The total loan plus loan interest will be
deducted from any amount applied under a
payment option or otherwise payable under the
Contract.
The loan agreement will describe the amount,
duration, and restrictions on the loan. In
general, loans must be repaid in monthly or
quarterly installments within 5 years. You
are allowed a 30-day grace from the
installment due date. If a quarterly
installment is not received within the grace
period, a deemed distribution of the entire
amount of the outstanding principal, interest
due, and any applicable charges under this
Contract, including any withdraw al
charge, will be made. This deemed
distribution may be subject to income and
penalty tax under the Code and may adversely
affect the treatment of the Contract under
Internal Revenue Code section 403(b).
You may be subject to income tax or penalty
if the amount or duration of the loan
violates Internal Revenue Code requirements.
In addition, IRS authorities suggest that a
loan may, at least in certain circumstances,
result in adverse tax consequences for
Section 403(b) or Section 401(k)
program s
Requesting a loan will have a permanent
affect on the contract value because the
investment results of the Investment
Divisions will apply only to the unborrowed
portion of the Contract Value. The longer a
loan is outstanding, the greater the effect
is likely to be. The effect could be
favorable or unfavorable. If the net
investment results are greater than 3% while
the loan is outstanding, the Contract Value
will not increase as rapidly as it would have
if no debt were outstanding. If net
investment results are below 3% the Contract
Value will be higher than it would have been
had no loan been outstanding.
Death Benefit
If the Annuitant is the Owner and dies
before the Maturity Date, then the Death
Benefit, other than amounts payable to or for
the benefits of the surviving spouse of the
Annuitant as the Contingent Owner, must be
paid out within 5 years of the death of the
Annuitant. The value of the Death Benefit
will be determined as of the date We receive
due proof of death and the election of how
the Death Benefit is to be paid. The Death
Benefit will be the greater of i) the
Contract Value and ii) the sum of all
premiums paid less any prior withdrawals.
Unless a Payment Option is selected within 90
days after We receive due proof of death, the
Death Benefit will be paid as a lump sum.
If the Annuitant is not the Owner and the
Owner dies before the Maturity Date, the
Contract Value will be paid as of the date We
receive due proof of death and an election of
how it is to be paid. If the surviving spouse
has not been named as the Contingent Owner,
the Contract ends and the Contract Value (not
the Death Benefit) must be paid out within 5
years of the death of the Owner. Unless
another choice is made within 90 days, the
Contract Value will be paid in a lump sum. If
the spouse is named as the Contingent Owner,
the Contract will continue with the spouse
now being the Owner.
If the Owner dies on or after the Maturity
Date, then any amounts remaining to be paid,
other than amounts payable to or for the
benefit of the surviving spouse of the Owner,
must be paid out at least as rapidly as
benefits were being paid at the time of the
Owners death.
Similar rules apply to Qualified Contracts.
Your Contract Value
Your Contract Value is the sum of the amounts
You have in the General Account and in the
various Investment Divisions of Our Separate
Account. Your Contract Value also reflects
the various charges described below.
Transaction charges or sales charges are made
as of the effective date of the transaction.
Charges against Our Separate Account are
reflected daily. The value of 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 value. However, We
guarantee a minimum interest rate of 3.0% a
year on that portion of the Contract Value
held under the General Account. Excess
interest on payments held under the General
Account may be credited in addition to the
3.0% guaranteed interest rate (but there is
no guarantee that any additional interest
will ever be credited) (see The General
Account on page 13).
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
Value for that division. The number of
Accumulation Units purchased or redeemed in
an Investment Division of Our Separate
Account is calculated by dividing the dollar
amount of the transaction by the divisions
Accumulation Unit Value calculated as of the
close of business that day if that is a day
on which the New York Stock Exchange is open.
If the New York Stock Exchange is not open
that day, the request will be processed on
the next Business 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 VIP Fund and
the VIP Fund II, 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 the daily asset charge We make
to Our Separate Account at an effective
annual rate of 1.40%. 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 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 and to pay the Death Benefit when the
Annuitant dies. We also redeem Accumulation
Units for 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. Generally, a
Business Day is any day We are open and the
New York Stock Exchange is open for trading.
The Accumulation Unit Value for each
Investment Division was set at $10.00 on the
first day there were contract transactions in
Our Separate Account.
Additional information on the Accumulation
Unit Values is contained in the Statement of
Additional Information which can be obtained
by writing Our Home Office.
CHARGES, FEES AND DEDUCTIONS
Sales Charges on Withdrawals
A Contingent Deferred Sales Charge may be
imposed on the withdrawal of the premiums
(including a withdrawal to effect an
annuity). The charge compensates Us for
paying the expenses of selling and
distributing the Contacts, including
commissions, preparation of sales literature,
and other promotional activities. To the
extent that the deferred sales charge is
insufficient to recover all distribution
expenses, the deficiency will be met from Our
surplus which may be, in part, derived from
the charges for the assumption of mortality
and expense risks (described below). For the
purpose of determining the deferred sales
charge, any amount that You withdraw will be
treated as being from premiums first, and
then from investment income. There is no
sales charge on the investment income
withdrawn. The amount of any sales charge
depends on the Contract Year of the
withdrawal. Your first Contract Year begins
on the Contract Date. A subsequent Contract
Year begins on each anniversary of that date.
After the first Contract Year, You may make a
withdrawal from Your Contract Value of up to
10% of the sum of the premiums paid without
incurring a sales charge if the withdrawal is
the first in the Contract Year. This is only
available on the first withdrawal in a
Contract Year and amounts not taken in a
Contract Year are not carried over to the
following Contract Year. For the purpose of
applying the sales charge, any premium not
subject to the sales charge will be withdrawn
first.
The Table below shows the Contingent Deferred
Sales Charge for each Contract Year that will
be applied to the premium withdrawn.
The Sales Charge
As A Percentage Of
Contract Year The Premium Withdrawn (a)
1 7%
2 6%
3 5%
4 4%
5 3%
6 2%
7 and Beyond No Charge
(a) Subject to 10% free withdrawal described
above.
Your withdrawal request may specify the
source from which the withdrawal is to be
made. If You fail to specify, Your withdrawal
will, subject to minimum amount requirements,
be allocated among all Investment Divisions
and the General Account in the same
proportion as the value of Your interest in
each Investment Division and in the General
Account bears to Your total Contract Value.
The Contingent Deferred Sales Charge will be
determined without reference to the source of
the withdrawal. The charge will be determined
by reference to the Contract Year at the time
of the withdrawal.
Charges Against The Separate Account
The amount in Your Contract Value which is
allocated to the Investment Divisions of Our
Separate Account will be reduced by any fees
and charges allocated to the Investment
Divisions of Our Separate Account.
Administrative Charge
We make a daily charge to cover Our
administrative expenses incurred to operate
the Separate Account. The effective annual
rate of this charge is .15% of the value of
the assets in the Separate Account. This
charge is reflected in the unit values for
the Investment Divisions of the Separate
Account and cannot be increased. This charge
and the Contract Maintenance Charge described
below are designed to reimburse Us for
expenses and We do not expect to gain from
them.
Charge for Assuming Mortality and Expense
Risks.
A deduction is made daily from each
Investment Division at an annual rate of
1.25% of the assets held in the Investment
Division. This charge may not be increased by
Midland. Of this amount, .40% is for assuming
the risk that the charges made under the
Contracts may not cover expenses, .85% is for
assuming mortality risks. This charge is not
assessed against amounts invested under the
General Account or amounts effected as a
fixed dollar annuity. We expect a profit from
this charge.
Contract Maintenance Charge
We will deduct a Contract Maintenance Charge
of $33.00 on each Contract Anniversary on or
before the Maturity Date. This charge is
intended to cover Our recordkeeping and other
expenses incurred to maintain the Contracts.
The charge is deducted from each Investment
Division and the General Account in the same
proportion as the value of Your interest in
each Investment Division and in the General
Account bears to the total Contract Value. If
the Contract is surrendered during a Contract
Year, We will deduct the full Contract
Maintenance Charge for the current Contract
Year at that time.
We may reduce the Contract Maintenance Charge
for contracts issued in a manner that
results in savings of administrative
expenses. The amounts of reductions will be
considered on a case-by-case basis and will
reflect the reduced administrative expenses
we expect .
Transfer Charge
Currently, before the Maturity Date, if You
make more than fifteen transfers in any
Contract Year We will charge You a transfer
fee of $25 for each additional transfer.
There will be no charge for the first fifteen
transfers in any Contract Year. However, We
reserve the right to assess this charge after
the fourth transfer in a Contract Year.
If We charge You for making a transfer, We
will allocate the charge 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. All
transfers included in one transfer request
count as one transfer for purposes of any
fee.
Charges In The Funds
The Funds make a charge for managing
investments and providing services. These
charges vary by portfolio.
The Money Market Portfolios management fee is
calculated as follows:
1. T he sum of a group fee rate (as
described for High Income and Investment
Grade Bond Portfolio) and an individual
fund fee rate of .03%, and
2. T he addition of an income
component of 6% of the Portfolios gross
income in excess of a 5% annual yield.
The result is multiplied by the
Portfolios average net assets. The group
fee rate cannot rise above .37%, and it
drops as total assets under management
increase. The income component cannot
rise above .24%.
The High Income Portfolios and Investment
Grade Bond Portfolios annual fee is the sum
of the following two components:
1. A group fee based on the monthly average
net assets of all the mutual funds
advised by Fidelity Management & Research
Company. On an annual basis this rate
cannot rise above .37%, and it drops as
total assets in all these funds rise. For
example, the effective group fee rate for
December, 199 5 was .1 5 %.
2. An individual fund fee rate of .45% for
the High Income Portfolio and .30% for
the Investment Grade Bond Portfolio.
The Equity-Income, Growth, Overseas,
Contrafund, Asset Manager: Growth and Asset
Manager Portfolios fee is the sum of two
components:
1. A group fee rate based on the monthly
average net assets of all the mutual
funds advised by the Manager. This rate
cannot rise above .52%, and it drops as
total assets in all these funds rise. The
effective group fee rate for December,
199 5 was .3 1 %.
2. An individual Portfolio fee rate of .20%
for the Equity-Income Portfolio, .30% for
the Growth Portfolio, .45% for the
Overseas Portfolio, .30% for the
Contrafund Portfolio, .40% for the Asset
Manager: Growth Portfolio and .40% for
the Asset Manager Portfolio.
The Index 500 Portfolio fee is based on the
monthly net assets of the Index 500
Portfolio. On an annual basis this rate will
be .28%.
Each portfolios total operating expenses will
include fees for management, shareholder
services and other expenses, such as
custodial, legal, accounting and other
miscellaneous fees.
Changing Your Premium Allocation Percentages
You may change the allocation percentages of
Your premiums 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. While the Dollar Cost
Averaging program is in effect, the
allocation percentages that apply to any
premiums received will be the Dollar Cost
Averaging allocation percentages unless you
specify otherwise. (See Dollar Cost
Averaging, page 10).
The General Account
Subject to certain limitations described
below, You may allocate some or all of Your
Contract Value to the General Account, which
pays interest at a declared rate. The
principal is guaranteed. The General Account
supports Our insurance and annuity
obligations. In certain states, allocations
to and transfers to and from the General
Account are not permitted. 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 which relate
to the General Account.
Amounts In The General Account
You may accumulate amounts in the General
Account by:
- - allocating premium,
- - transferring amounts from the Investment
Divisions of Our Separate Account, or
- - earning interest on amounts You already
have in the General Account.
The maximum amount that can be allocated to
the General Account through allocation of
premiums and net transfers (amounts
transferred in less amounts transferred out)
over the life of the Contract is $250,000.
The amount You have in the General Account at
any time is the sum of all premiums allocated
to that account, all transfers and all earned
interest. This amount is reduced by amounts
transferred out or withdrawn and deductions
allocated to the General 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 3.0%. We may, at
the sole discretion of Our Board of
Directors, credit interest in excess of 3.0%.
You assume the risk that interest credited
may not exceed 3.0%. We currently intend to
guarantee the interest rate for one year
periods starting at the beginning of each
calendar year. 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.
However, only two transfers are allowed from
the General Account per Contract Year and the
total amount transferred from the General
Account in any Contract Year is limited to
the larger of:
1. 25% of the amount in the General Account
at the beginning of the Contract year, or
2. $1,000.
Additional Information About Variable
Annuities
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.
Generally, when We refer to the age of the
Annuitant, We mean his or her age on the
birthday nearest to that particular date.
Inquiries
You can make any inquiries about Your
Contract by writing or calling Us at Our Home
Office.
FEDERAL TAX STATUS
Introduction
THE FOLLOWING DISCUSSION IS GENERAL AND IS
NOT INTENDED AS TAX ADVICE.
This discussion is not intended to address
the tax consequences resulting from all of
the situations in which a person may be
entitled to or may receive a distribution
under a Contract. Any person concerned about
these tax implications should consult a
competent tax adviser before making a premium
payment. This discussion is based upon
Midlands 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 the continuation of the present
federal income tax laws or of the current
interpretation by the Internal Revenue
Service. Moreover, no attempt has been made
to consider any applicable state or other tax
laws.
The Qualified Contracts are designed for use
by individuals in connection with retirement
plans which are intended to qualify as plans
qualified for special income tax treatment
under Sections 401, 403(a), 403(b) or 408 of
the Internal Revenue Code (the Code). The
ultimate effect of federal income taxes on
the contributions, Contract Value, on annuity
payments and on the economic benefit to the
Owner, the Annuitant or the Beneficiary
depends on the type of retirement plan, on
the tax and employment status of the
individual concerned and on Our tax status.
In addition, certain requirements must be
satisfied in purchasing a qualified contract
in connection with a tax qualified plan in
order to receive favorable tax treatment.
These retirement plans may permit the
purchase of the Contracts to accumulate
retirement savings under the plans. Adverse
tax or other legal consequences to the plan,
to the participant, or both may result if
this Contract is assigned or transferred to
any individual as a means to provide benefit
payments, unless the plan complies with all
legal requirements applicable to such
benefits prior to transfer of the Contract.
With respect to qualified Contracts an
endorsement of the Contract and/or
limitations or penalties imposed by the
Internal Revenue Code may impose limits on
premiums, withdrawals, distributions or
benefits, or on other provisions of the
Contracts. Some retirement plans are subject
to distribution and other requirements that
are not incorporated into our Contract
administrative procedures. Owners,
participants and beneficiaries are
responsible for determining that
contributions, distributions and other
transactions with respect to the Contracts
comply with applicable law. Therefore,
purchasers of Qualified Contracts should seek
competent legal and tax advice regarding the
suitability of the Contract for their
situation, the applicable requirements and
the tax treatment of the rights and benefits
of a Contract. The following discussion
assumes the Qualified Contracts are purchased
in connection with retirement plans that
qualify for special federal income tax
treatment described above.
Diversification
Section 817(h) of the Code imposes certain
diversification standards on the underlying
assets of variable annuity contracts. The
Code provides that a variable annuity
contract will not be treated as an annuity
contract for any period (and any subsequent
period) for which the investments are not, in
accordance with regulations prescribed by the
United States Treasury Department (Treasury
Department), adequately diversified.
Disqualification of the Contract as an
annuity contract would result in imposition
of federal income tax to the Contract Owner
with respect to earnings allocable to the
Contract prior to the receipt of payments
under the Contract.
We intend that all Funds underlying the
Contracts will be managed in such a manner as
to comply with these diversification
requirements.
In certain circumstances, owners of variable
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 includible in the variable contract owners
gross income. The IRS has stated in published
rulings that a variable contract owner will
be considered the owner of separate account
assets if the contract owner possesses
incidents of ownership in those assets, such
as the ability to exercise investment control
over the assets. The Treasury Department also
announced, in connection with the issuance of
regulations concerning diversifications, 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 Contract Owner), 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 policyowners may direct
their investments to particular subaccounts
without being treated as owners of the
underlying assets.
The ownership rights under the Contract are
similar to, but different in certain respects
from, those described by the IRS in rulings
in which it was determined that policy 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 the
Separate Account. In addition, We do 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. We
therefore reserve 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 the Separate
Account.
Taxation of Annuities in General
Nonqualified Policies. The following
discussion assumes that the Contract will
qualify as an annuity contract for federal
income tax purposes. Investment in the
Contract refers to premiums paid less any
prior withdrawals of premiums where prior
withdrawals are treated as being earnings
first.
Section 72 of the Code governs taxation of
annuities in general. We believe that the
owner generally is not taxed on increases in
the value of a Contract until distribution
occurs either in the form of a lump sum
received by withdrawing all or part of the
Contract Value (i.e., withdrawals) or as
annuity payments under the annuity income
option elected. The exception to this rule is
the treatment afforded to owners that are not
natural persons. Generally, an owner of a
contract who is not a natural person must
include in income any increase in the excess
of the owners contract value over the owners
Investment in the Contract during the taxable
year, even if no distribution occurs. There
are, however, exceptions to this rule which
You may wish to discuss with Your tax
counsel. The following discussion applies to
Contracts owned by natural persons.
The taxable portion of a distribution (in the
form of an annuity or lump sum payment) is
taxed as ordinary income. For this purpose,
the assignment, pledge, or agreement to
assign or pledge any portion of the Contract
Value generally will be treated as a
distribution.
Generally, in the case of a withdrawal under
a nonqualified contract, amounts received are
first treated as taxable income to the extent
that the Contract Value immediately before
the withdrawal exceeds the Investment in the
Contract at that time. Any additional amount
is not taxable.
Although the tax consequences may vary
depending on the annuity income option
elected under the Contract, in general, only
the portion of the annuity payment that
represents the amount by which the Contract
Value exceeds the Investment in the Contract
will be taxed. For fixed annuity payments, in
general, there is no tax on the amount of
each payment which represents the same ratio
that the Investment in the Contract bears to
the total expected value of the annuity
payment for the term of the payment; however,
the remainder of each annuity payment is
taxable. For variable annuity payments, in
general, a specific dollar amount of each
payment is not taxed. The dollar amount is
determined by dividing the Investment in the
Contract by the total number of expected
periodic payments. The remainder of each
annuity payment is taxable. Any distribution
received subsequent to the investment in the
Contract being recovered will be fully
taxable.
Amounts may be distributed from a Contract
because of the death of the Owner or an
Annuitant. Generally, such amounts are
includible in the income of the recipient as
follows: (i) if distributed in a lump sum,
they are taxed in the same manner as a
withdrawal from the Contract; or (ii) if
distributed under a payment option, they are
taxed in the same way as annuity payments.
For these purposes, the Investment in the
Contract is not affected by the Owners or
Annuitants death. That is, the Investment in
the Contract remains the amount of any
premiums paid which were not excluded from
gross income.
In the case of a distribution pursuant to a
nonqualified contract, there may be imposed a
federal penalty tax equal to 10% of the
amount treated as taxable income. In general,
however, there is no penalty tax on
distributions: (1) made on or after the date
on which the owner is actual age 59-1/2, (2)
made as a result of death or disability of
the owner, or (3) received in substantially
equal payments as a life annuity (subject to
special recapture rules if the series of
payments is subsequently modified).
Possible Changes in Taxation. In past years,
legislation has been proposed in the U.S.
Congress that would have adversely modified
the federal taxation of certain annuities.
For example, one such proposal would have
changed that tax treatment of nonqualified
annuities that did not have substantial life
contingencies by taxing income as it is
credited to the annuity. Although as of the
date of this Prospectus Congress was not
actively considering any legislation
regarding the taxation of annuities, there is
always the possibility that the tax treatment
of annuities could change by legislation or
other means (such as IRS regulations, revenue
rulings, judicial decisions, etc.). Moreover,
it is also possible that any change could be
retroactive (that is, effective prior to the
date of the change.)
Transfers, Assignments or Exchanges of a
Contract. A transfer of ownership of a
Contract, the designation of an Annuitant,
payee or other beneficiary who is not also
the Owner, the selection of certain Maturity
Dates or the exchange of a Contract may
result in certain tax consequences to the
Owner that are not discussed herein. An Owner
contemplating any such transfer, assignment
or exchange of a Contract should contact a
competent tax advisor with respect to the
potential tax effects of such transaction.
Multiple Contracts. All nonqualified deferred
annuity contracts entered into after October
12, 1988 that are issued by the Company (or
its affiliates) to the same Owner during any
calendar year are treated as one annuity
Contract for purposes of determining the
amount includible in gross income under Code
Section 72(e). The effects of this rule are
not yet clear; however, it could affect the
time when income is taxable and the amount
that might be subject to the 10% penalty tax
described above. In addition, the Treasury
Department has specific authority to issue
regulations that prevent the avoidance of
Section 72(e) through the serial purchase of
annuity contracts or otherwise. There may
also be other situations in which the
Treasury may conclude that it would be
appropriate to aggregate two or more annuity
contracts purchased by the same Owner.
Accordingly, a Contract Owner should consult
a competent tax advisor before purchasing
more than one annuity contract.
Qualified Policies. The rules governing the
tax treatment of distributions under
qualified plans vary according to the type of
plan and the terms and conditions of the plan
itself. Generally, in the case of a
distribution to a participant or beneficiary
under a Contract purchased in connection with
these plans, only the portion of the payment
in excess of the Investment in the Contract
allocated to that payment is subject to tax.
The Investment in the Contract equals the
portion of premiums invested in the Contract
that were not excluded from Your gross
income, and may be zero. In general, for
allowed withdrawals, a ratable portion of the
amount received is taxable, based on the
ratio of the Investment in the Contract to
the total Contract Value. The amount excluded
from a taxpayers income will be limited to an
aggregate cap equal to the Investment in the
Contract. The taxable portion of annuity
payments is generally determined under the
same rules applicable to nonqualified
contracts. However, special favorable tax
treatment may be available for certain
distributions (including lump sum
distributions). Adverse tax consequences may
result from distributions prior to age 59-1/2
(subject to certain exceptions),
distributions that do not conform to
specified commencement and minimum
distribution rules, aggregate distributions
in excess of a specified annual amount, and
in certain other circumstances. Code section
403(b)(11) restricts the distribution under
Code section 403(b) annuity contracts of: (1)
elective contributions made in years
beginning after December 31, 1988; (2)
earnings on those contributions; and (3)
earnings in such years on amounts held as of
the last year beginning before January 1,
1989. Distribution of those amounts may only
occur upon death of the employee, attainment
of age 59-1/2, separation from service,
disability, or financial hardship. In
addition, income attributable to elective
contributions may not be distributed in the
case of hardship.
Distributions from qualified Contracts are
generally subject to the same withholding
rules as distributions from nonqualified
Contracts, except that certain distributions
are subject to mandatory federal income tax
withholding.
Our Income Taxes
The operations of Our Separate Account are
included in Our federal income tax return and
We pay no tax on investment income and
capital gains reflected in Variable Annuity
Contract reserves. However, the 1990 Tax Act
requires a negative reserve, based on
premiums, to be established. This reserve
will cause Our taxable income to increase. We
reserve the right to charge the Separate
Account for this and any other such taxes in
the future if the tax law changes and We
incur additional federal income taxes which
are attributable to Our Separate Account.
This charge will be set aside as a provision
for taxes which We will keep in the
Investment Divisions rather than in Our
General Account. We anticipate that Our
Owners would benefit from any investment
earnings that are not needed to maintain this
provision.
We may have to pay state and local taxes (in
addition to applicable taxes based on
premiums) in several states. At present,
these taxes are not substantial. If they
increase, however, charges may be made for
such taxes when they are attributable to Our
Separate Account.
Withholding
Unless You elect to the contrary, any amounts
that are received under Your Contract that We
reasonably believe are includible in gross
income for tax purposes will be subject to
withholding to meet federal income tax
obligations. The rate of withholding on
payments under Your Contract, such as
withdrawals, will be 10%. Withholding is
mandatory for certain Qualified Contracts.
Thus, in the absence of an election by
You that We should not do so, We will
withhold from every withdrawal the
appropriate percentage of the amount of the
payment that We reasonably believe is
includible in gross income. Midland will
provide forms and instructions concerning the
right to elect that no amount be withheld
from payments. Generally there will be no
withholding for taxes until payments are
actually received under Your Contract.
The Interest and Dividend Tax Compliance Act
of 1983 requires recipients, including those
who have elected out of withholding, to
supply their Taxpayer Identification Number
(Social Security Number) to payers of
distributions for tax reporting purposes.
Failure to furnish this number when required
may result in the imposition of a tax penalty
and will subject the distribution to the
withholding requirements of the law described
above.
EFFECTING AN ANNUITY
Unless restricted by the laws of the state in
which this Contract is delivered, the
Maturity Date of the Contract is the Contract
Anniversary nearest Attained Age 90 of the
Annuitant for nonqualified Contracts and is
the Contract Anniversary nearest the
Annuitants 70th birthday for Qualified
Contracts. You may elect a different Maturity
Date by filing a written request to Us at
least 31 days before the requested Maturity
Date. The requested Maturity Date must be a
Contract Anniversary. For nonqualified
Contracts the requested Maturity Date cannot
be later than the Annuitants Attained Age 90
and cannot be earlier than the tenth Contract
Anniversary. For qualified Contracts the
requested Maturity Date cannot be earlier
than the date the Annuitant attains age 59-
1/2 or five years from the Contract Date,
whichever is later; and in no event can the
Maturity Date be later than April 1 of the
calendar year immediately following the
calendar year in which the Annuitant attains
age 70-1/2.
If You have not previously specified
otherwise, on the Maturity Date You may take
the Cash Surrender Value (in some states, the
Contract Value) in one sum or convert the
Contract Value into an annuity payable to the
Annuitant under one or more of the payment
options described below. Unless You choose
otherwise, the amount in the General Account
will be applied to a 10 Year Certain and Life
fixed payout and the amount in the Separate
Account will be applied to a 10 Year Certain
and Life variable payout. The first monthly
annuity payment will be made within one month
after the Maturity Date. Variable payment
options are not available in certain states.
You may apply the proceeds of a withdrawal to
effect an annuity. Unless you choose
otherwise, the amount of the proceeds from
the General Acount will be applied to a 10
Year Certain and Life fixed payout and the
amount of the proceeds from the Separate
Account will be applied to a 10 Year Certain
and Life variable payout.
Payment options will be subject to Our rules
at the time of selection. Our consent is
required when an optional payment is
selected, and when the Payee either is an
assignee or is not a natural person.
Currently, the payment options are only
available if the proceeds applied are $1,000
or more and the first periodic payment will
be at least $20.
For annuity income options involving life
income, the actual age of the Payee will
affect the amount of each payment. Since
payments to older Payees are expected to be
fewer in number, the amounts of each annuity
payment shall be greater than for younger
Payees. For annuity income options that do
not involve life income, the length of the
payment period will affect the amount of each
payment. With a shorter period, the amount of
each annuity payment will be greater. Also,
payments which occur more frequently will be
smaller than those occurring less frequently.
The Payee or any other person who is entitled
to receive payment may name a successor to
receive any amount that We would otherwise
pay to that persons estate if that person
died. The person who is entitled to receive
payment may change the successor at any time.
We must approve any arrangements that involve
more than one of the payment options, or a
Payee who is not a natural person (for
example, a corporation), or a Payee who is a
fiduciary. Also, the details of all
arrangements will be subject to Our rules at
the time the arrangements take effect. This
includes rules on the minimum amount We will
pay under an option, minimum amounts for
installment payments, withdrawal or
commutation rights (Your rights to receive
payments over time, for which We may offer
You a lump sum payment), the naming of people
who are entitled to receive payment and their
successors, and the ways of proving age and
survival.
You will make Your choice of a payment option
when You apply for a Contract and may make
any changes by writing to Our Home Office.
Fixed Options
Payments under the fixed options are not
affected by the investment experience of any
Investment Division of Our Separate Account.
The value as of the Maturity Date will be
applied to the fixed option selected.
Thereafter, interest or payments are fixed
according to the options chosen. The
following fixed options are available:
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 four ways to receive the
income: We will guarantee payments for at
least 20 years (called 20 Years Certain and
Life); at least 10 years (called 10 Years
Certain and Life); at least 5 years (called
5 Years Certain and Life); 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.
Variable Options
Payments under the variable options are
affected by the investment experience of the
Investment Divisions of Our Separate Account.
Variable payment options are not available in
certain states.
The annuity tables contained in the Contract
are based on a five percent (5%) assumed
investment rate. This is a fulcrum rate
around which variable annuity payments will
fluctuate to reflect whether the investment
experience of the Investment Divisions is
better or worse than the assumed investment
rate. If the actual investment experience
exceeds the assumed investment rate, the
payment will increase. Conversely, if the
actual investment experience is less than the
assumed investment rate, payments will
decrease.
To determine the dollar amount of the first
monthly variable payment, the value in each
Investment Division (as of a date not more
than 10 business days prior to the Maturity
Date) will be applied to the appropriate rate
for the payout options selected using the age
and sex (where permissible) of the Payee. The
amount of the first payment will then be used
to determine the number of Annuity Units for
each Investment Division. The number of
Annuity Units is used to determine the amount
of subsequent variable payments.
The Annuity Unit Value for each Investment
Division will be set at $10 on the first day
there are contract transactions in Our
Separate Account. Thereafter the Annuity Unit
Value will vary with the investment
experience of the Investment Division and
will reflect the daily asset charge We make
at an effective annual rate of 1.40%. The
Annuity Unit Value will increase if the net
investment experience (investment experience
less the asset charge) is greater than the 5%
assumed investment rate. The Annuity Unit
Value will decrease if the net investment
experience is less than the 5% assumed
investment rate.
The amount of each subsequent variable
payment will be determined for each
Investment Division by multiplying the number
of Annuity Units by the Annuity Unit Value.
Additional information on the variable
annuity payments is contained in the
Statement of Additional Information which can
be obtained by writing to Our Home Office.
The following variable options are available:
1. Monthly Life Income Option: We will pay
the money as monthly income for life. You
may choose any one of four ways to
receive the income: We will guarantee
payments for at least 10 years (called 10
Years Certain and Life); at least 20
years (called 20 Years Certain and Life);
at least 5 years (called 5 Years Certain
and Life); or payment only for life. With
a life only payment option, payments will
only be made as long as the Annuitant 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.
2. Other: You may ask Us to apply the money
under any option that We make available
at the time the benefit is paid.
Transfers after the Maturity Date
After the Maturity Date, one transfer per
Contract Year may be made among the
Investment Divisions of Our Separate Account.
The transfer request must be received at
least 10 business days before the due date of
the first annuity payment to which the change
will apply. The transfer will take effect as
of the date We receive Your request.
Transfers after the annuity payments have
started will be based on the Annuity Unit
Values. There will be no transfer charge for
this transfer. No transfers are allowed from
a fixed annuity option to a variable annuity
option or from a variable annuity option to a
fixed annuity option.
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,
- - vote on any other matters described in
the Funds current prospectuses or
requiring a vote by shareholders under
the Investment Company Act of 1940, and
- - change the investment objectives and
policies.
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. Although the Funds
have held shareholder meetings approximately
once a year, the Funds are not required to
hold a meeting in any given year.
If We do not receive instructions in time
from all Owners, 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 Owners 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 Owner 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 Value allocated
to that division by the net asset value of
one share of the corresponding Fund portfolio
as of the record date set by the Funds Board
for the Funds shareholders meeting. The
record date for this purpose must be at least
10 and no more than 90 days before the
meeting of the Fund. We count fractional
shares.
If You have a voting interest, We will send
You proxy material and a form for giving Us
voting instructions. In certain cases, We may
disregard instructions relating to changes in
the Funds adviser or the investment policies
of its portfolios. We will advise You if We
do and give Our reasons in the next
semiannual report to Owners.
Voting Privileges Of Participants In Other
Companies
Currently, shares in the VIP Fund and the VIP
Fund II are owned by other insurance
companies to support their variable life
insurance and variable annuity products as
well as Our Separate Account. Those shares
generally will be voted according to the
instructions of the owners of insurance and
annuity 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 Our Variable Annuities. We
do not foresee any disadvantage to this.
Nevertheless, the Funds Board of Directors
will monitor events to identify conflicts
that may arise and determine appropriate
action. If We think any Fund action is
insufficient, We will see that appropriate
action is taken to protect Our Owners.
Our Reports to Owners
Shortly after the end of each Contract Year,
We will send You a report that shows Your
Contract Value, information about Investment
Divisions, and any transactions involving
Your Contract Value that occurred during the
year. Transactions include Your premium
allocations 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 Contract is
delivered.
Notices will be sent to You for transfers of
amounts between Investment Divisions and
certain other Contract transactions.
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 returns are based on the overall dollar
or percentage change in value of a
hypothetical investment. Total return
quotations reflect changes in Fund share
price, the automatic reinvestment by the
Separate Account of all distributions and the
deduction of applicable charges (including
any Contingent Deferred Sales Charges that
would apply if You surrendered the Contract
at the end of the period indicated).
Quotations of total return may also be shown
that do not take into account certain
contractual charges such as the Contingent
Deferred Sales Charge. The total return
percentage will be higher under this method
than under the standard method described
above.
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 Divisions
returns, You should recognize that they are
not the same as actual year-by-year results.
Some Investment Divisions may also advertise
yield. These measures reflect the income
generated by an investment in the Investment
Divisions over a specified period of time.
This income is annualized and shown as a
percentage. Yields do not take into account
capital gains or losses or the Contingent
Deferred Sales Charge. The standard
quotations of yield reflect the Contract
Maintenance Charge.
The Money Market Investment Division may
advertise its current and effective yield.
Current yield reflects the income generated
by an investment in the Investment Division
over a 7 day period. Effective yield is
calculated in a similar manner except that
income earned is assumed to be reinvested.
The Investment Grade Bond and the High Income
Investment Divisions may advertise a 30 day
yield which reflects the income generated by
an investment in the Investment Division over
a 30 day period.
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.
Your Beneficiary
You name Your Beneficiary when You apply for
Your Contract. Unless You have previously
indicated otherwise, You may change the
Beneficiary during the Annuitants lifetime by
writing to Our Home Office. If no Beneficiary
is living when the Annuitant dies, We will
pay the Death Benefit to the Annuitants
estate.
Assigning Your Contract
You may assign (transfer) Your rights in this
Contract to someone else. 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. An
assignment may be a taxable event.
When We Pay Proceeds From This Contract
We will generally pay any Death Benefits,
withdrawals, or loans 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 We receive due proof of death and
the election of how the Death Benefit is to
be paid.
We may, however, delay payment for one or
more of the following reasons:
- - 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 ; or
- - The SEC by order permits Us to delay
payment to protect Our Owners.
We may also delay any payment until Your
premium checks have cleared Your bank.
We may defer payment of any 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.
Midlands Sales And Other Agreements
Sales Agreements
The Contract will be sold by individuals who,
in addition to being licensed as life
insurance agents for Midland National Life,
are also registered representatives of North
American Management (NAM), the principal
underwriter of the Contracts, or of broker-
dealers which have entered into written sales
agreements with NAM. NAM is registered with
the SEC as a broker-dealer under the
Securities Exchange Act of 1934 and is a
member of the National Association of
Securities Dealers, Inc. NAM is also a
subsidiary of Midland.
During the first five Contract Years, We will
pay agents a commission of up to 5% of
premiums paid. For subsequent years, the
commission allowance may equal an amount up
to 3% of premiums paid and .25% of the
Contract Value.
We may also sell Our Contracts through
broker-dealers registered with the Securities
and Exchange Commission under the Securities
Exchange Act of 1934 which enter into selling
agreements with Us. The commission for
broker-dealers will be no more than that
described above.
Regulation
We are regulated and supervised by the South
Dakota Insurance Department. In addition, We
are subject to the insurance laws and
regulations in every jurisdiction where We
sell contracts. This Contract has been filed
with and approved by insurance officials in
such states. As a result, the provisions of
this Contract may vary somewhat from
jurisdiction to jurisdiction.
We submit annual reports on Our operations
and finances to insurance officials in all
the jurisdictions where We sell contracts.
The officials are responsible for reviewing
Our reports to be sure that We are
financially sound and that We are complying
with applicable laws and regulations.
We are also subject to various federal
securities laws and regulations.
Discount for Midland Employees
Midland employees may receive a contribution
to the Contract of 65% of the first year
commission which would normally have been
paid on the employees first year premiums.
This contribution will be paid by Midland.
Legal Matters
The law firm of Sutherland, Asbill & Brennan,
Washington, D.C., has provided advice
regarding certain matters relating to federal
securities laws.
Legal Proceedings
We are not involved in any material legal
proceedings.
Experts
The financial statements of Midland
National Life Separate Account C and
Midland National Life Insurance Company
included in the Registration Statement have
been audited by Coopers & Lybrand LLP ,
independent auditors, for the periods
indicated in their report which appears in
the R egistration S tatement.
The financial statements audited by
Coopers & Lybrand LLP have been
included in reliance on their report
given on their authority as experts in
accounting and auditing.
Statement of Additional Information
A Statement of Additional Information is
available which contains more details
concerning the subjects discussed in this
Prospectus. This Statement of Additional
Information can be acquired by checking the
appropriate box on the application form or by
writing Our Home Office. The following is the
Table of Contents for the Statement of
Additional Information
TABLE OF CONTENTS
PAGE
THE CONTRACT
Non-Participation 3
Misstatement of Age or Sex 3
Proof of Existence and Age 3
Assignment 3
Annuity Data 3
Incontestability 3
Ownership 3
Entire Contract 3
Changes in the Contract 3
Protection of Benefits 3
Accumulation Unit Value 3
Annuity Payments 4
CALCULATION OF YIELDS AND TOTAL RETURNS
Money Market Investment Division Yield Calculation 4
Other Investment Division Yield Calculations 5
Standard Total Return Calculations 5
Other Performance Data 6
Hypothetical Performance Data 7
FEDERAL TAX MATTERS
Tax Free Exchanges 8
Required Distributions 8
DISTRIBUTION OF THE CONTRACT 9
SAFEKEEPING OF ACCOUNT ASSETS 9
STATE REGULATION 9
RECORDS AND REPORTS 9
LEGAL PROCEEDINGS 9
LEGAL MATTERS 9
EXPERTS 9
OTHER INFORMATION 9
FINANCIAL STATEMENTS 10
<PAGE>
MIDLAND NATIONAL LIFE SEPARATE ACCOUNT C
FINANCIAL STATEMENTS
FOR THE YEARS ENDED DECEMBER 31, 1995 AND 1994
AND THE PERIOD FROM OCTOBER 21, 1993 (DATE OF INCEPTION)
TO DECEMBER 31, 1993
<PAGE>
Report of Independent Accountants
The Board of Directors
Midland National Life Insurance Company:
We have audited the accompanying statement of assets and
liabilities of Midland National Life Separate Account C
(comprising, respectively, the portfolios of the Variable
Insurance Products Fund and the Variable Insurance Products Fund
II) as of December 31, 1995, and the related statements of
operations and changes in net assets for the years ended
December 31, 1995 and 1994 and the period from October 21, 1993
(date of inception) to December 31, 1993. These financial
statements are the responsibility of the Company's management.
Our responsibility is to express an opinion on these financial
statements based on our audits.
We conducted our audits in accordance with generally accepted
auditing standards. Those standards require that we plan and
perform the audit to obtain reasonable assurance about whether
the financial statements are free of material misstatement. An
audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements. Our
procedures included confirmation of securities owned as of
December 31, 1995, by correspondence with the custodian. An
audit also includes assessing the accounting principles used and
significant estimates made by management, as well as evaluating
the overall financial statement presentation. We believe that
our audits provide a reasonable basis for our opinion.
In our opinion, the financial statements referred to above
present fairly, in all material respects, the financial position
of each of the respective portfolios constituting the Midland
National Life Separate Account C at December 31, 1995, and the
results of their operations and changes in their net assets for
the years ended December 31, 1995 and 1994 and the period from
October 21, 1993 (date of inception) to December 31, 1993, in
conformity with generally accepted accounting principles.
Minneapolis, Minnesota
March 8, 1996
<PAGE>
Midland National Life Separate Account C
Statement of Assets and Liabilities
December 31, 1995
ASSETS Shares Value Per Share
Investments at net asset value:
Variable Insurance Products Fund:
Money Market Portfolio (cost $3,456,818)
3,456,818 $ 1.00 $ 3,456,818
High Income Portfolio (cost $1,507,969)
136,555 12.08 1,649,584
Equity-Income Portfolio (cost $4,741,344)
286,272 19.36 5,542,228
Growth Portfolio (cost $3,813,392)
158,268 29.29 4,635,663
Overseas Portfolio (cost $2,299,591)
143,892 17.17 2,470,626
Variable Insurance Products Fund II:
Asset Manager Portfolio (cost $3,656,261)
257,247 15.83 4,072,221
Investment Grade Bond Portfolio (cost $528,975)
46,381 12.48 578,835
Index 500 Portfolio (cost $813,295)
12,897 76.33 984,422
Contra Portfolio (cost $418,602)
30,900 13.77 425,488
Asset Manager Growth Portfolio (cost $156,763)
13,334 11.79 157,206
Total investments (cost $21,393,010)
23,973,091
LIABILITIES
Accrued liabilities to be paid from:
Variable Insurance Products Fund:
Money Market Portfolio 3,907
High Income Portfolio 1,941
Equity-Income Portfolio 6,334
Growth Portfolio 5,352
Overseas Portfolio 2,826
Variable Insurance Products Fund II:
Asset Manager Portfolio 4,770
Investment Grade Bond Portfolio 676
Index 500 Portfolio 1,124
Contra Portfolio 467
Asset Manager Growth Portfolio 170
Total liabilities 27,567
Net assets $ 23,945,524
<PAGE>
Midland National Life Separate Account C
Statement of Assets and Liabilities, Continued
December 31, 1995
Units Unit Value
Net assets represented by:
Variable Insurance Products Fund:
Money Market Portfolio 320,841 $ 10.76 $ 3,452,911
High Income Portfolio 139,335 11.83 1,647,643
Equity-Income Portfolio 385,807 14.35 5,535,894
Growth Portfolio 347,738 13.32 4,630,311
Overseas Portfolio 217,322 11.36 2,467,800
Variable Insurance Products Fund II:
Asset Manager Portfolio 362,467 11.22 4,067,451
Investment Grade Bond Portfolio 52,431 11.03 578,159
Index 500 Portfolio 71,305 13.79 983,298
Contra Portfolio 35,906 11.84 425,021
Asset Manager Growth Portfolio 13,682 11.48 157,036
Net assets $ 23,945,524
<PAGE>
Midland National Life Separate Account C
Statements of Operations and Changes in Net Assets
for the years ended December 31, 1995 and 1994
and the period from October 21, 1993 (date of inception) to
December 31, 1993
Variable Insurance Products Fund
Combined
1995 1994 1993
Investment income:
Dividend income $ 385,267 $ 79,766 $ 408
Capital gains distributions 119,444 15,723 3
504,711 95,489 411
Expenses:
Administrative expense 25,328 8,142 19
Mortality and expense risk 217,898 68,555 162
Net investment income (loss) 261,485 18,792 230
Realized and unrealized gains (losses) on investments:
Net realized gains (losses)
on investments 115,024 (45,126) -
Net unrealized appreciation
(depreciation) on investments 2,674,228 (97,100) 2,951
Net realized and unrealized gains
(losses) on investments 2,789,252 (142,226) 2,951
Net increase (decrease) in net assets
resulting from operations $ 3,050,737 $ (123,434) $3,181
Net assets at beginning of year $ 11,038,803 $ 233,806 $ -
Net increase (decrease) in net assets
resulting from operations 3,050,737 (123,434) 3,181
Capital share transactions:
Net premiums 10,581,601 11,255,230 230,625
Transfers of policy loans (144,179) - -
Transfers of surrenders (372,226) (321,278) -
Transfers of death benefits (46,217) - -
Transfers of other terminations (162,995) (5,521) -
Interfund transfers - - -
Net increase in net assets from
capital share transactions 9,855,984 10,928,431 230,625
Total increase in net assets 12,906,721 10,804,997 233,806
Net assets at end of year $ 23,945,524 $ 11,038,803 $233,806
<PAGE>
Variable Insurance Products Fund
Money Market Portfolio High Income Portfolio
1995 1994 1993 1995 1994 1993
$ 149,556 $ 49,963 $ 233 $ 55,615 $ 1,379 $ -
- - - - 699 -
149,556 49,963 233 55,615 2,078 -
3,966 (386) 6 1,707 1,007 -
6,001 13,964 48 17,175 4,260 1
139,589 36,385 179 36,733 (3,189) (1)
- - - (488) (5,605) -
- - - 145,024 (3,425) 15
- - - 144,536 (9,030) 15
$ 139,589 $ 36,385 $ 179 $ 181,269 $ (12,219) $ 14
$2,134,127 $ 36,896 $ - $ 704,704 $ 2,737 $ -
139,589 36,385 179 181,269 (12,219) 14
2,427,862 2,689,276 36,717 628,141 707,347 2,723
(84,063) - - 905 - -
(207,573) (197,524) - (3,633) (6,446) -
(8,341) - - (2,894) - -
(54,310) - - (10,701) (393) -
(894,380) (430,906) - 149,852 13,678 -
1,179,195 2,060,846 36,717 761,670 714,186 2,723
1,318,784 2,097,231 36,896 942,939 701,967 2,737
$3,452,911 $ 2,134,127 $ 36,896 $ 1,647,643 $ 704,704 $ 2,737
<PAGE>
Midland National Life Separate Account C
Statements of Operations and Changes in Net Assets, Continued
for the years ended December 31, 1995 and 1994
and the period from October 21, 1993 (date of inception) to
December 31, 1993
Variable Insurance Products Fund
Equity-Income Portfolio
1995 1994 1993
Investment income:
Dividend income $ 84,766 $ 20,434 $ 158
Capital gains distributions 103,811 2,143 -
188,577 22,577 158
Expenses:
Administrative expense 5,142 1,140 3
Mortality and expense risk 47,852 9,042 23
Net investment income (loss) 135,583 12,395 132
Realized and unrealized gains (losses) on investments:
Net realized gains (losses)
on investments 50,124 (838) -
Net unrealized appreciation
(depreciation) on investments 792,899 7,652 333
Net realized and unrealized gains (losses) on
investments 843,023 6,814 333
Net increase (decrease) in net assets resulting from
operations $ 978,606 $ 19,209 $ 465
Net assets at beginning of year $ 1,754,790 $ 29,066 $ -
Net increase (decrease) in net assets resulting from
operations 978,606 19,209 465
Capital share transactions:
Net premiums 2,393,449 1,555,505 28,601
Transfers of policy loans (30,250) - -
Transfers of surrenders (5,378) (14,353) -
Transfers of death benefits (11,605) - -
Transfers of other terminations (27,844) - -
Interfund transfers 484,126 165,363 -
Net increase in net assets from capital share
transactions 2,802,498 1,706,515 28,601
Total increase in net assets 3,781,104 1,725,724 29,066
Net assets at end of year $ 5,535,894 $ 1,754,790 $ 29,066
<PAGE>
Variable Insurance Products Fund
Growth Portfolio Overseas Portfolio
1995 1994 1993 1995 1994 1993
$ 9,943 $ 342 $ - $ 6,509 $ 582 $ -
- 3,615 - 6,509 - -
9,943 3,957 - 13,018 582 -
4,688 1,147 2 3,030 1,784 1
48,286 8,834 19 31,243 9,379 8
(43,031) (6,024) (21) (21,255) (10,581) (9)
49,376 (9,769) - (4,096) 1,635 -
795,521 26,404 347 215,778 (44,981) 239
844,897 16,635 347 211,682 (43,346) 239
$801,866 $ 10,611 $ 326 $ 190,427 $ (53,927) $ 230
$1,577,355 $ 25,617 $ - $ 1,529,642 $ 17,740 $ -
801,866 10,611 326 190,427 (53,927) 230
2,063,830 1,445,857 25,291 939,866 1,500,159 17,510
1,918 - - (4,570) - -
(14,054) (21,580) - (30,716) (12,830) -
(2,721) - - (2,457) - -
(16,169) (425) - (10,988) (395) -
218,286 117,275 - (143,404) 78,895 -
2,251,090 1,541,127 25,291 747,731 1,565,829 17,510
3,052,956 1,551,738 25,617 938,158 1,511,902 17,740
$4,630,311$1,577,355 $ 25,617 $ 2,467,800 $ 1,529,642 $ 17,740
<PAGE>
Midland National Life Separate Account C
Statements of Operations and Changes in Net Assets, Continued
for the years ended December 31, 1995 and 1994
and the period from October 21, 1993 (date of inception) to
December 31, 1993
Variable Insurance Products Fund II
Asset Manager Portfolio
1995 1994 1993
Investment income:
Dividend income $ 58,611 $ 7,066 $ -
Capital gains distributions - 9,226 -
58,611 16,292 -
Expenses:
Administrative expense 5,073 2,981 7
Mortality and expense risk 49,939 19,372 62
Net investment income (loss) 3,599 (6,061) (69)
Realized and unrealized gains (losses) on investments:
Net realized gains (losses) 1,832 (29,778)
on investments
Net unrealized appreciation 501,254 (87,326) 2,030
(depreciation) on investments
Net realized and unrealized 503,086 (117,104) 2,030
gains (losses) on investments
Net increase (decrease) in $ 506,685 $ (123,165) $ 1,961
net assets resulting from
operations
Net assets at beginning of year $ 2,708,296 $ 120,282 $ -
Net increase (decrease) in 506,685 (123,165) 1,961
net assets resulting from
operations
Capital share transactions:
Net Premiums 1,080,935 2,725,096 118,321
Transfers of Policy Loans (28,119) - -
Transfers of Surrenders (106,073) (60,424) -
Transfers of Death Benefits (10,336) - -
Transfers of other terminations (28,833) (4,308) -
Interfund transfers (55,104) 50,815 -
Net Increase in Net Assets 852,470 2,711,179 118,321
from Capital Share
transactions
Total increase in net assets 1,359,155 2,588,014 120,282
Net assets at end of year $ 4,067,451 $ 2,708,296 $ 120,282
<PAGE>
Variable Insurance Products Fund II
Investment Grade Index 500
Bond Portfolio Portfolio
1995 1994 1993 1995 1994 1993
$ 11,234 $ - $ 12 $ 6,043 $ - $ 5
- 26 1 827 14 2
11,234 26 13 6,870 14 7
631 239 - 882 230 -
5,847 1,821 1 9,800 1,883 -
4,756 (2,034) 12 (3,812) (2,099) 7
4,272 (719) - 13,011 (52) -
51,182 (1,314) (9) 165,241 5,890 (4)
55,454 (2,033) (9) 178,252 5,838 (4)
$ 60,210 $ (4,067) $ 3 $ 174,440 $ 3,739 $ 3
$ 299,623 $ 1,245 $ - $ 330,266 $ 223 $ -
60,210 (4,067) 3 174,440 3,739 3
263,700 303,858 1,242 395,859 328,132 220
- - - - - -
(393) (160) - (4,406) (7,961) -
- - - (7,863) - -
(5,791) - - (8,359) - -
(39,190) (1,253) - 103,361 6,133 -
218,326 302,445 1,242 478,592 326,304 220
278,536 298,378 1,245 653,032 330,043 223
$578,159 $299,623 $ 1,245 $ 983,298 $ 330,266 $ 223
<PAGE>
Variable Insurance Products Fund II
Contra Asset Manager
Portfolio Growth Portfolio
1995 1995
1,716 $ 1,274
3,433 4,864
5,149 6,138
157 52
1,322 433
3,670 5,653
952 41
6,886 443
7,838 484
$ 11,508 $ 6,137
$ - $ -
11,508 6,137
266,136 121,823
- -
- -
- -
- -
147,377 29,076
413,513 150,899
425,021 157,036
$ 425,021 $ 157,036
<PAGE>
1. Organization and Significant Accounting Policies:
Midland National Life Separate Account C (Separate Account), a
unit investment trust, was established in 1993 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 annuity contracts of the
Company.
The Separate Account invests solely in specified portfolios of
Variable Insurance Products Fund and Variable Insurance Products
Fund II, diversified open-end management companies registered
under the Investment Company Act of 1940, as directed by
participants. The Contra and Asset Manager Growth portfolios
were introduced in 1995. Investments in shares of the Funds are
valued at the net asset values of the respective portfolios of
the Funds corresponding to the investment portfolios of the
Separate Account. Fair value of investments is also the net
asset value. North American Management Company, an affiliate,
serves as the underwriter of the Separate Account. Investment
transactions are recorded on the trade date. Dividends are
recorded as received and are automatically reinvested in shares
of the Funds. The first-in, first-out (FIFO) method is used to
determine realized gains and losses on investments.
The operations of the Separate Account are included in the
federal income tax return of the Company. Under the provisions
of the policies, the Company has the right to charge the
Separate Account for federal income tax attributable to the
Separate Account. No charge is currently being made against the
Separate Account for such tax since, under current law, the
Company pays no tax on investment income and capital gains
reflected in variable life insurance policy reserves. However,
the Company retains the right to charge for any federal income
tax incurred which is attributable to the Separate Account if
the law is changed. Charges for state and local taxes, if any,
attributable to the Separate Account may also be made.
The preparation of financial statements in conformity with
generally accepted accounting principles requires management to
make estimates and assumptions that affect the reported amounts
of assets and liabilities and disclosure of contingent assets
and liabilities at the date of the financial statements and the
reported amounts of revenues and expenses during the reported
period. Actual results could differ from those estimates.
2. Expense Charges:
The Company is compensated for certain expenses. A contract
administration fee is charged at an effective annual rate of
.15% of the value of the assets in the Separate Account to cover
the Company's recordkeeping and other administrative expenses
incurred to operate the Separate Account.
<PAGE>
2. Expense Charges, continued:
A mortality and expense risk fee is charged at an effective
annual rate of 1.25% of the value of the assets in the Separate
Account in return for the Company's assumption of risks
associated with adverse mortality experience or excess
administrative expenses in connection with policies issued. A
$33 charge is deducted from the separate account value at the
end of each contract year, upon full withdrawal or at maturity.
A transfer charge of $25 is imposed on each transfer between
portfolios of the Separate Account in excess of 15 transfers in
any one contract year. A deferred sales charge may be imposed
in the event of a full or partial withdrawal within the first
six contract years. The charge as described in the Separate
Account's prospectus is a percentage of the premium withdrawn.
A free partial withdrawal can be made after the first contract
year if the amount of the withdrawal is less than 10% of the
total premiums paid and represents the first withdrawal in the
contract year.
3. Purchases and Sales of Investment Securities:
The aggregate cost of purchases and proceeds from sales of
investments for the years ended December 31, 1995 and 1994 and
the period from October 21, 1993 (date of inception) to December
31, 1993 were as follows:
1995 1994 1993
Purchases Sales Purchases Sales Purchases Sales
Portfolio
Variable Insurance Product Fund:
Money Market
$ 11,196,889 $ 9,876,492 $ 13,317,547 $ 11,218,076 $ 306,304 $ 269,354
High Income
888,869 89,297 922,604 210,837 2,723 -
Equity-Income
3,383,946 441,477 2,055,273 334,443 28,759 -
Growth
2,519,137 307,501 1,681,546 144,688 25,291 -
Overseas
1,225,697 498,085 1,816,836 259,906 17,510 -
Variable Insurance Product Fund II:
Asset Manager
1,584,016 726,420 3,383,150 674,860 118,321 -
Investment Grade Bond
300,334 76,922 317,328 16,573 - -
Index 500
538,870 63,352 347,045 22,454 - -
Contra
425,185 7,535 - - 1,255 -
Asset Manager Growth
157,037 315 - - 227 -
$22,219,980 $12,087,396 $23,841,329 $ 12,881,837 $ 500,390 $ 269,354
<PAGE>
4. Summary of Changes From Unit Transactions:
Transactions in units for the years ended December 31, 1995 and
1994 and the period from October 21, 1993 (date of inception) to
December 31, 1993 were as follows:
Purchases Sales
1995 1994 1993 1995 1994 1993
Portfolio
Variable Insurance Product Fund:
Money Market
1,047,251 1,308,723 30,573 933,525 1,105,283 26,898
High Income
75,488 90,728 268 7,130 20,019 -
Equity-Income
254,614 192,510 2,861 32,681 31,497 -
Growth
210,022 172,127 2,539 22,824 14,126 -
Overseas
114,354 169,067 1,706 44,488 23,317 -
Variable Insurance Product Fund II:
Asset Manager
148,566 332,194 11,474 66,155 63,612 -
Investment Grade Bond
27,779 32,872 - 6,792 1,552 -
Index 500
43,113 34,706 - 4,483 2,053 -
Contra
36,480 - 124 574 - -
Asset Manager Growth
13,682 - 22 - - -
1,971,349 2,332,927 49,567 1,118,652 1,261,459 26,898
5. Net Assets:
Net assets at December 31, 1995 consisted of the following:
Accumulated Net Net
Investment Unrealized
Capital Income and Appreciation
Share Net Realized (Depreciation)
Transactions Gains (Losses) of Investments Total
Variable Insurance Product Fund:
Money Market
$ 3,276,758 $ 176,153 $ - $ 3,452,911
High Income
1,478,579 27,450 141,614 1,647,643
Equity-Income
4,537,614 197,396 800,884 5,535,894
Growth
3,817,508 (9,469) 822,272 4,630,311
Overseas
2,331,070 (34,306) 171,036 2,467,800
Variable Insurance Product Fund II:
Asset Manager
3,681,970 (30,477) 415,958 4,067,451
Investment Grade Bond
522,013 6,287 49,859 578,159
Index 500
805,116 7,055 171,127 983,298
Contra
413,513 4,622 6,886 425,021
Asset Manager Growth
150,899 5,694 443 157,036
$21,015,040 $ 350,405 $ 2,580,079 $23,945,524
MIDLAND NATIONAL LIFE INSURANCE COMPANY
CONSOLIDATED FINANCIAL STATEMENTS
FOR THE YEARS ENDED DECEMBER 31, 1995, 1994 AND 1993
<PAGE>
Report of Independent Accountants
To the Board of Directors
Midland National Life Insurance Company:
We have audited the accompanying consolidated balance sheets of
Midland National Life Insurance Company, a majority-owned
subsidiary of Sammons Enterprises, Inc., as of December 31, 1995
and 1994, and the related consolidated statements of income,
changes in stockholders' equity, and cash flows for each of the
three years ended December 31, 1995. These financial statements
are the responsibility of the Company's management. Our
responsibility is to express an opinion on these financial
statements based on our audits.
We conducted our audits in accordance with generally accepted
auditing standards. Those standards require that we plan and
perform the audit to obtain reasonable assurance about whether
the financial statements are free of material misstatement. An
audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements. An
audit also includes assessing the accounting principles used and
significant estimates made by management, as well as evaluating
the overall financial statement presentation. We believe that
our audits provide a reasonable basis for our opinion.
In our opinion, the financial statements referred to above
present fairly, in all material respects, the consolidated
financial position of Midland National Life Insurance Company as
of December 31, 1995 and 1994, and the consolidated results of
its operations and its cash flows for each of the three years
ended December 31, 1995, in conformity with generally accepted
accounting principles.
As discussed in Note 2 to the financial statements, the Company
changed its method of accounting for investments effective
January 1, 1994.
Minneapolis, Minnesota
March 8, 1996
<PAGE>
Midland National Life Insurance Company
Consolidated Balance Sheets
as of December 31, 1995 and 1994
(dollars in thousands)
ASSETS 1995 1994
Investments:
Fixed maturities $ 1,689,811 $ 1,517,911
Equity securities 221,712 207,778
Policy loans 142,795 131,878
Short-term investments 224,109 199,146
Other invested assets 6,271 4,409
Total investments 2,284,698 2,061,122
Cash and cash equivalents 9,299 8,911
Deferred policy acquisition costs 410,051 415,594
Present value of future 26,414 31,495
profits of acquired businesses
Accrued investment income 34,493 31,074
Other assets 35,476 21,556
Separate account assets 44,273 22,800
Total assets $ 2,844,704 $ 2,592,552
LIABILITIES AND STOCKHOLDERS' EQUITY
Policy liabilities:
Future policy benefits:
Traditional life insurance 368,069 346,943
products
Universal life and investment 1,707,898 1,591,787
products
Policy and contract claims 30,347 28,693
Policyowner funds 11,718 11,259
Total policy liabilities 2,118,032 1,978,682
Accounts payable and 73,903 62,251
other liabilities
Federal income taxes 31,019 5,470
Security lending liability - 33,239
Separate account liabilities 44,273 22,800
Total liabilities 2,267,227 2,102,442
Commitments and contingencies
Stockholders' equity:
Common stock, $1 par value per share, 2,549,439 shares
authorized, issued and outstanding 2,549 2,549
Additional paid-in capital 33,707 33,707
Unrealized appreciation (depreciation)
of investments, net 31,027 (10,003)
Retained earnings 510,194 463,857
Total stockholders' equity 577,477 490,110
Total liabilities
and stockholders' equity $2,844,704 $ 2,592,552
<PAGE>
Midland National Life Insurance Company
Consolidated Statements of Income
for the years ended December 31, 1995, 1994 and 1993
(dollars in thousands)
1995 1994 1993
Revenue:
Traditional life insurance premiums $100,795 $ 101,146 $ 101,049
Universal life and investment 139,611 113,334 101,252
product charges
Accident and health insurance premiums 63 150 20,061
Investment income, net of related 167,020 150,318 137,737
expenses
Net realized investment gains (losses) 1,762 (17,764) 17,435
Net unrealized gains (losses) 7,057 (13,277) -
on trading securities
Other income 5,754 4,545 4,527
422,062 338,452 382,061
Benefits and expenses:
Policy benefits:
Traditional life insurance 66,543 61,242 57,917
Universal life and investment products 151,762 130,591 120,590
Accident and health 224 13,850 11,666
218,529 205,683 190,173
Increase (decrease) in liability for future policy benefits:
Traditional life insurance 21,464 23,741 18,231
Accident and health (60) (240) 1,791
21,404 23,501 20,022
239,933 229,184 210,195
Amortization of deferred policy
acquisition costs and present value
of future profits of acquired businesses 51,576 39,820 43,595
General and administrative expenses 43,726 34,249 47,390
Dividends to policyholders 1,462 1,389 1,430
336,697 304,642 302,610
Income before income taxes 85,365 33,810 79,451
Income taxes 28,703 9,837 24,578
Net income $ 56,662 $ 23,973 $ 54,873
<PAGE>
Midland National Life Insurance Company
Consolidated Statements of Changes in Stockholders' Equity
for the years ended December 31, 1995, 1994 and 1993
(dollars in thousands)
Common Stock Additional
Paid-In
Shares Amount Capital
Balance, January 1, 1993 $ 2,549,439 $ 2,549 $ 33,707
Net income - - -
Cash dividends paid to stockholders - - -
Change in unrealized appreciation of
equity securities - - -
Balance, December 31, 1993 2,549,439 2,549 33,707
Adjustment to beginning balance of
retained earnings for change in
accounting principle - - -
Net income - - -
Cash dividends paid to stockholders - - -
Change in unrealized depreciation of
investments - - -
Balance, December 31, 1994 2,549,439 2,549 33,707
Net income - - -
Cash dividends paid to stockholders - - -
Change in unrealized appreciation of
investments - - -
Balance, December 31, 1995 2,549,439 $ 2,549 $ 33,707
Unrealized
Appreciation
(Depreciation) Total
of Retained Stockholders'
Investments Earnings Equity
Balance, January 1, 1993 $ 3,323 $ 410,338 $ 449,917
Net income - 54,873 54,873
Cash dividends paid to stockholders - (12,477) (12,477)
Change in unrealized appreciation of
equity securities 462 - 462
Balance, December 31, 1993 3,785 452,734 492,775
Adjustment to beginning balance of
retained earnings for change in
accounting principle 33,616 - 33,616
Net income - 23,973 23,973
Cash dividends paid to stockholders - (12,850) (12,850)
Change in unrealized depreciation of
investments (47,404) - (47,404)
Balance, December 31, 1994 (10,003) 463,857 490,110
Net income - 56,662 56,662
Cash dividends paid to stockholders - (10,325) (10,325)
Change in unrealized appreciation of
investments 41,030 - 41,030
Balance, December 31, 1995 $ 31,027 $ 510,194 $ 577,477
<PAGE>
Midland National Life Insurance Company
Consolidated Statements of Cash Flows
for the years ended December 31, 1995, 1994 and 1993
(dollars in thousands)
1995 1994 1993
Cash flows from operating activities:
Net Income $ 56,662 $ 23,973 $ 54,873
Adjustments to reconcile net income to net cash provided
by operating activities:
Depreciation expense 304 301 483
Amortization of deferred policy acquisition costs and
present value of future profits of acquired business
51,576 39,820 43,595
Net amortization of premiums and discounts on
investments 4,828 3,577 1,223
Net realized investment (gains) losses
(1,762) 17,764 (17,435)
Net unrealized (gains) losses on trading securities
(7,057) 13,277 -
Net (cost of) proceeds from trading securities
(23,305) 47,585 -
Deferred income taxes (5,721) (6,953) (1,024)
Net interest credited and mortality and expense charges
on universal life and investment products
(37,272) (26,939) (18,269)
Change in assets and liabilities net of effects from
purchase of insurance business:
Net Receivables and Payables 12,346 8,172 1,830
Policy Acquisition Costs Deferred(63,718) (61,045) (62,935)
Liability for future policy 21,464 23,741 20,022
benefits
Policy and contract claims 1,577 (2,671) 3,506
Policyowner funds 459 589 275
Other, net 236 (320) (611)
Net cash provided by operating
activities 10,617 80,871 25,533
Cash flows from investing activities:
Proceeds from investments sold, matured or repaid:
Fixed maturities 911,883 736,651 516,239
Equity securities 51,567 12,171 248,878
Real estate - 237 1,040
Wholly-owned subsidiary - - 23,228
Short-term investments, net - 90,704 17,998
Other invested assets 421 1,249 893
Cost of investments acquired:
Fixed maturities (994,486) (1,071,431) (673,949)
Equity securities (41,968) (26,229) (309,058)
Increase in policy loans, net (9,883) (10,425) (8,915)
Short-term investments, net (24,963) - -
Other invested assets (2,283) - (549)
Payment for purchase of insurance business, net of
cash acquired (440) 32,215 -
Change in security lending (33,239) 33,239 -
Net cash used in investing activities
(143,391) (201,619) (184,195)
<PAGE>
Midland National Life Insurance Company
Consolidated Statements of Cash Flows, Continued
for the years ended December 31, 1995, 1994 and 1993
(dollars in thousands)
1995 1994 1993
Cash flows from financing activities:
Receipts from universal life and investment products
$ 272,511 $ 237,792 $ 238,069
Benefits paid on universal life and investment products
(129,024) (98,775) (69,653)
Cash dividends paid to stockholders by operating
activities: (10,325) (12,850) (12,477)
Net cash provided by financing activities
133,162 126,167 155,939
Increase (decrease) in cash and cash equivalents
388 5,419 (2,723)
Cash and cash equivalents, beginning of year
8,911 3,492 6,215
Cash and cash equivalents, end of year
$ 9,299 $ 8,911 $ 3,492
Supplemental disclosures of cash flow information:
Cash paid during the year for:
Interest Net receivables and payables
$ 188 $ 210 $ 234
Income taxes paid to parent Policy acquisition costs
deferred 25,376 23,573 24,734
Noncash operating, investing and financing activity:
Policy loans and receivables from state guaranty
associations and others received in assumption
reinsurance agreement 9,723 48,546 -
<PAGE>
1. Summary of Significant Accounting Policies:
Organization:
Midland National Life Insurance Company (Midland) is a
majority-owned subsidiary of Sammons Enterprises, Inc. (SEI).
Midland operates predominantly in the individual life and
annuity business of the life insurance industry in 49 states.
Basis of Presentation:
The consolidated financial statements include the accounts of
Midland and its wholly-owned subsidiaries (collectively, the
Company). All significant intercompany accounts and
transactions have been eliminated.
The preparation of financial statements in conformity with
generally accepted accounting principles requires management to
make estimates and assumptions that affect the reported amounts
of assets and liabilities and disclosure of contingent assets
and liabilities at the date of the financial statements and the
reported amounts of revenues and expenses during the reported
period. Actual results could differ from those estimates. The
most significant areas which require the use of management's
estimates relate to determinations of the fair values of
financial instruments, deferred policy acquisition costs,
present value of future profits of acquired businesses and
future policy benefits for traditional policies.
Investments:
Effective January 1, 1994, the Company implemented the
provisions of Statement of Financial Accounting Standards No.
115, Accounting for Certain Investments in Debt and Equity
Securities (SFAS No. 115). SFAS No. 115 requires the Company
to classify its fixed maturity investments (bonds and redeemable
preferred stocks) and equity securities (common and
nonredeemable preferred stocks) as trading, available-for-sale
or held to maturity at the time of purchase.
Trading securities are held for resale in anticipation of
short-term market movements. The Company's trading securities
are stated at market value. Gains and losses on these
securities, both realized and unrealized, are included in the
determination of net income. Net cost of or proceeds from
trading securities are included in operating activities in the
consolidated statement of cash flows.
Available-for-sale securities are classified as such if not
considered trading securities or if there is not the positive
intent and ability to hold the securities to maturity. Such
securities are carried at market value with the unrealized
holding gains and losses included directly in stockholders'
equity, net of related adjustments to deferred policy
acquisition costs and deferred income taxes. Cash flows from
available-for-sale security transactions are included in
investing activities in the consolidated statement of cash flows
<PAGE>
1. Summary of Significant Accounting Policies, continued:
Investments, continued:
The Company has no securities classified as held-to-maturity.
Prior to 1994, fixed maturity investments were generally stated
at amortized cost and equity securities were stated at quoted
market values. The change in unrealized appreciation and
depreciation of equity securities (net of related deferred
income taxes) was included directly in stockholders' equity.
Policy loans and other invested assets are stated at their
unpaid balances. Short-term investments are stated at cost
which approximates market.
Investment income is recorded when earned. Realized gains and
losses are determined on the basis of specific identification of
the investments.
When a decline in value of an investment is determined to be
other than temporary, the Company's carrying value of the
investment is reduced to its estimated realizable value. Such
reductions in carrying value are recognized as realized losses
in the determination of net income.
The Company also enters into agreements to sell and repurchase
securities. The commitment to repurchase securities sold under
these agreements are reported as liabilities and the investments
acquired with the funds received from the securities sold are
included in short-term investments.
Cash and Cash Equivalents:
The Company considers all demand deposits and interest-bearing
accounts not related to the investment function to be cash
equivalents.
Deferred Policy Acquisition Costs:
Policy acquisition costs, representing commissions, medical
examinations, underwriting, issue and other expenses which vary
with and are primarily related to the production of new business
are deferred. For traditional insurance products, such costs
are amortized over the premium-paying period of the related
policies in proportion to the ratio of the annual premium
revenue to the total anticipated premium revenue. For universal
life and other interest-sensitive life insurance and investment
contracts, such costs are amortized over periods of up to 25
years in relation to the present value of expected gross profits
(including the unrealized gains and losses recognized under SFAS
No. 115), subject to regular evaluation and retroactive revision
to reflect actual emerging experience
1. Summary of Significant Accounting Policies, continued:
<PAGE>
Present Value of Future Profits of Acquired Businesses:
The present value of future profits of acquired businesses (PVP)
is being amortized principally over periods of up to 25 years in
relation to the present value of expected gross profits.
Separate Account:
Separate account assets and liabilities represent funds held for
the exclusive benefit of variable universal life and annuity
contractholders. Fees are received for administrative expenses
and for assuming certain mortality, distribution and expense
risks. Operations of the separate accounts are not included in
these consolidated financial statements.
Policy Benefits:
The liabilities for future policy benefits for traditional life
insurance policies generally are computed by the net level
premium method, based upon estimated future investment yield,
mortality and withdrawals (including a provision for the risk of
adverse deviations from the estimates) which were appropriate at
the time the policies were issued or acquired. Interest
assumptions range from 6.5% to 11%, graded to 5% after 30 years.
Mortality and withdrawal assumptions are based, in general, on
the Company's own experience.
Participating business approximates 1% of the Company's ordinary
life insurance in force. Dividends to be paid on participating
policies are determined annually by the Board of Directors based
upon the Company's published dividend tables.
Policy reserves for universal life and other interest-sensitive
life insurance and investment contracts are determined using the
retrospective deposit method. Policy reserves consist of the
policyholder deposits accumulated at credited interest less
withdrawals and charges for mortality, administrative and policy
initiation expenses. Interest credited to these policies where
the interest rate is not fixed ranged from 3% to 7.5% during
1995 and 3.5% to 7.5% during 1994.
Liabilities for policy and contract claims include provisions
for reported claims and estimates for claims incurred but not
reported. Changes in estimates are reflected in operating
results in the year the change is made. Liabilities for claim
adjustment expenses are based on estimates of allocated and
unallocated expenses.
Federal Income Taxes:
The Company is a member of SEI's consolidated United States
federal income tax group. The policy for intercompany
allocation of federal income taxes provides that the Company
compute the provision for federal income taxes on a separate
consolidated return with its subsidiaries. The Company makes
payment to, or receives payments from, SEI in the amount they
would have paid to or received from the Internal Revenue Service
had they not been members of the consolidated tax group. The
separate Company provisions and payments are computed using the
tax elections made by the Parent.
<PAGE>
1. Summary of Significant Accounting Policies, continued:
Federal Income Taxes, continued:
Deferred tax liabilities and assets are recognized based upon
the difference between the financial statement and tax bases of
assets and liabilities using enacted tax rates in effect for the
year in which the differences are expected to reverse.
Recognition of Premium Revenues:
Life insurance premiums, other than premiums on universal life
and other interest-sensitive life insurance and investment
contracts, are recognized as revenue over the premium paying
period. Accident and health insurance premiums are earned pro
rata over the periods to which the premiums relate.
Revenues for universal life and other interest-sensitive life
insurance and investment contracts consist of policy fund
charges for the cost of insurance, policy administration and
surrender charges assessed against policyholder account balances.
Fair Value of Financial Instruments:
The following methods and assumption were used by the Company in
estimating its fair value disclosures for financial instruments:
Cash and cash equivalents, short-term investments and other
invested assets: The carrying amounts reported in the balance
sheet for these instruments approximate their fair values.
Investment securities: Fair values for fixed maturity
securities (including redeemable preferred stocks) are based on
quoted market prices, where available. For securities not
actively traded, fair values are estimated using values obtained
from independent pricing services or, in the case of private
placements, are estimated by discounting expected future cash
flows using a current market rate applicable to the yield,
credit quality and maturity of the investments. The fair values
for equity securities are based on quoted market prices.
Policy loans: The Company does not believe an estimate of the
fair value of policy loans can be made without incurring
excessive cost.
Investment-type insurance contracts: Fair values for the
Company's liabilities under investment-type insurance contracts
are estimated based on the cash surrender values of the
underlying contracts.
Insurance contracts: Fair values for the Company's insurance
contracts other than investment-type contracts are not required
to be disclosed.
Security lending liability: The carrying amount approximates
fair value because of the short maturity of these instruments
<PAGE>
1. Summary of Significant Accounting Policies, continued:
Fair Value of Financial Instruments, continued:
The cost, carrying value and estimated fair value of the
Company's financial instruments are as follows (dollars in
thousands):
December 31, 1995 Cost Carrying Value Fair Value
Financial assets:
Fixed maturities:
Available-for-sale $ 1,622,018 $ 1,680,408 $ 1,680,408
Trading 9,160 9,403 9,403
Equity securities:
Available-for-sale 45,837 50,582 50,582
Trading 177,593 171,130 171,130
Short-term investments 224,109 224,109 224,109
Other invested assets 6,271 6,271 6,271
Financial liabilities:
Investment-type insurance contracts
* 599,000 583,000
* Cost is not applicable.
December 31, 1994
Financial assets:
Fixed maturities:
Available-for-sale $ 1,531,777 $ 1,510,564 $ 1,510,564
Trading 7,938 7,347 7,347
Equity securities:
Available-for-sale 57,620 56,391 56,391
Trading 164,074 151,387 151,387
Short-term investments 199,146 199,146 199,146
Other invested assets 4,409 4,409 4,409
Financial liabilities:
Investment-type insurance contracts
* 567,000 551,000
Security lending liability 33,239 33,239 33,239
* Cost is not applicable.
<PAGE>
1. Summary of Significant Accounting Policies, continued:
Dividend Restrictions:
Generally, the net assets of the Company available for
distribution to its shareholders are limited to the amounts by
which the net assets, as determined in accordance with statutory
accounting practices, exceed minimum regulatory statutory
capital requirements. All payments of dividends or other
distributions to stockholders are subject to approval by
regulatory authorities. The maximum amount of dividends which
can be paid by Midland and its subsidiaries during any 12-month
period to stockholders without prior approval of the insurance
commissioner is limited according to statutory regulations and
is a function of statutory equity and statutory net income. The
maximum amount of dividends payable in 1996 without prior
approval of regulatory authorities is approximately $39,000,000.
Combined statutory net income of the Company and its insurance
subsidiaries for the years ended December 31, 1995 and 1994 is
approximately $39,000,000 and $26,000,000, respectively, and
capital and surplus at December 31, 1995 and 1994 is
approximately $284,000,000 and $254,000,000, respectively, in
accordance with statutory accounting principles.
Prescribed Statutory Accounting Policies:
The Company, which is domiciled in South Dakota, prepares its
statutory basis financial statements in accordance with
accounting practices prescribed or permitted by the Division of
Insurance of the State of South Dakota. Prescribed statutory
accounting practices include state laws, regulations and general
administrative rules, as well as a variety of publications of
the National Association of Insurance Commissioners (NAIC).
Permitted practices encompass all accounting practices not so
prescribed. The Company uses prescribed practices or, if
prescribed statutory accounting practices do not address the
accounting for a transaction, the Company uses generally
accepted accounting principles to prepare its statutory basis
financial statements.
Reclassifications:
Certain items in the 1994 and 1993 financial statements have
been reclassified to conform to the 1995 presentation.
2. Change in Accounting Policy:
In 1994, the Company adopted the provisions of SFAS No. 115 for
investments held as of or acquired after January 1, 1994. The
fundamental change contained in SFAS No. 115 was to require
fixed maturity investments classified as trading or
available-for-sale to be reported at fair value in the balance
sheet. The cumulative effect of adopting SFAS No. 115 for
available-for-sale securities is reflected in stockholders'
equity (as a cumulative effect of a change in accounting
principle). There was no material effect of adopting SFAS No.
115 for trading securities.
<PAGE>
2. Change in Accounting Policy, continued:
The following is the effect on stockholders' equity of adopting
SFAS No. 115 as of January 1, 1994:
Cumulative effect (dollars in thousands):
Increase in carrying value of investments $66,019
Adjustment to deferred policy acquisition costs (14,207)
Deferred federal income tax adjustment (18,196)
Net effect on stockholders' equity $ 33,616
With the recognition of the unrealized gains and losses under
SFAS No. 115, an adjustment is required to the deferred policy
acquisition cost asset associated with universal life and
investment type contracts (as defined in SFAS No. 97). The
adjustment requires the gross profit stream to be revised as if
the unrealized gains or losses on the investments underlying the
universal life and investment type contracts had actually been
realized.
In accordance with the Statement, prior period financial
statements have not been restated to reflect the change in
accounting principle.
3. Sale of Affiliated Companies and Accident and Health
Business:
Effective September 30, 1993, Midland sold its majority-owned
subsidiary, Professional Insurance Corporation, to an unrelated
party for a net consideration of $23,228,000. The Company
recognized a gain of $5,647,000, which is included in net
realized investment gains. As of the disposal date,
Professional Insurance Corporation had assets with a carrying
value of $55,656,000 and net liabilities with a carrying value
of $38,075,000. The operations of the subsidiary were not
material to the consolidated group.
<PAGE>
4. Investments and Investment Income:
Following is a summary of the fixed maturity and equity
investments classified as available-for-sale (dollars in
thousands):
December 31, 1995 Gross Gross Estimated
Amortized Unrealized Unrealized Market
Cost Gains Losses Value
Fixed maturities:
U.S. treasury and other U.S. govern-
ment corporations and agencies
$ 662,677 $ 6,449 $ 1,791 $ 668,335
Obligations of U.S. states and political
subdivisions 3,604 418 - 4,022
Corporate debt securities
495,345 39,129 196 534,278
Mortgage-backed securities
449,177 15,882 230 464,829
Other debt securities 10,215 6 1,277 8,944
Total fixed maturities
1,622,018 61,884 3,494 1,680,408
Equity securities 45,837 7,045 2,300 50,582
Total available-for-sale
$ 1,667,855 $ 68,929 $ 5,794 $ 1,730,990
December 31, 1994
Fixed maturities:
U.S. treasury and other U.S. govern-
ment corporations and agencies
$ 348,698 $ 1,010 $ 10,672 $ 339,036
Obligations of U.S. states and political
subdivisions 5,853 601 6 6,448
Corporate debt securities
665,165 15,945 15,868 665,242
Mortgage-backed securities
495,082 6,032 17,924 483,190
Other debt securities 16,979 117 448 16,648
Total fixed maturities
1,531,777 23,705 44,918 1,510,564
Equity securities 57,620 4,173 5,402 56,391
Total available-for-sale
$ 1,589,397 $ 27,878 $ 50,320 $ 1,566,955
<PAGE>
4. Investments and Investment Income, continued:
The net unrealized appreciation (depreciation) on the
available-for-sale securities have been reduced by deferred
income taxes and deferred policy acquisition costs as of
December 31, 1995 and 1994 as shown below (dollars in thousands):
1995 1994
Gross unrealized appreciation (depreciation)
$ 63,135 $ (22,442)
Deferred income taxes (16,898) 5,427
Deferred policy acquisition costs (15,210) 7,012
Unrealized appreciation (depreciation) of investments, net
$ 31,027 $ (10,003)
The amortized cost and estimated market value of
available-for-sale debt securities at December 31, 1995, by
contractual maturities, are shown below. Expected maturities
may differ from contractual maturities because borrowers may
have the right to call or prepay obligations with or without
call or prepayment penalties (dollars in thousands):
Amortized Estimated
Cost Market
Value
Due in one year or less $ 545,635 $ 546,848
Due after one year through five years 345,698 357,115
Due after five years through ten years 109,024 121,291
Due after ten years 172,484 190,325
Mortgage-backed securities 449,177 464,829
Total fixed maturities $ 1,622,018 $ 1,680,408
Major categories of investment income are summarized below
(dollars in thousands):
1995 1994 1993
Fixed maturities $ 121,003 $ 112,120 $ 106,701
Equity securities 20,885 22,450 18,071
Short-term investments 18,648 12,344 7,963
Policy loans 9,485 7,369 6,438
Other invested assets 490 589 1,158
170,511 154,872 140,331
Less investments expenses 3,491 4,554 2,594
Net investment income $ 167,020 $ 150,318 $ 137,737
<PAGE>
4. Investments and Investment Income, continued:
Realized and unrealized investment gains and losses are
summarized below (dollars in thousands):
Unrealized
December 31, 1995 Available
Realized Trading for Sale
Fixed maturities $ 14,303 $ 834 $ 79,603
Equity securities (12,608) 6,223 5,974
Other 67 - -
Less deferred policy acquisition cost effects
- - (22,325)
Less income tax effects - - (22,222)
Net gains on investments $ 1,762 $ 7,057 $ 41,030
December 31, 1994
Fixed maturities $ (6,115) $ (591) $ (87,911)
Equity securities (11,669) (12,686) (6,377)
Other 20 - -
Less deferred policy acquisition cost effects
- 21,219 -
Less income tax effects - - 25,665
Net losses on investments $ (17,764) $ (13,277) $ (47,404)
December 31, 1993 Realized Unrealized
Fixed maturities $ 11,724 $ (9,312)
Equity securities 648 719
Mortgage loans (224) -
Sale of wholly-owned subsidiary 5,647 -
Other (360) -
Less income tax effects - 3,018
Gains and losses on investments $ 17,435 $ (5,575)
<PAGE>
4. Investments and Investment Income, continued:
Proceeds from the sale of available-for-sale securities in 1995
and 1994 and the gross gains and losses realized on these sales
are summarized below (dollars in thousands):
1995 Fixed
Maturities Equity Combined
Proceeds from sales $ 651,092 $ 51,547 $ 702,639
Gross realized gains 15,205 617 15,822
Gross realized losses 4,241 2,802 7,043
1994
Proceeds from sales $ 489,418 $ 12,171 $ 501,589
Gross realized gains 4,634 254 4,888
Gross realized losses 11,115 1,003 12,118
Proceeds from the sale of fixed maturities investments during
1993 and the gross gains and losses realized on these sales are
summarized below (dollars in thousands):
Proceeds from sales $ 105,311
Gross realized gains 2,182
Gross realized losses 3,153
The Company had U.S. Treasury notes under repurchase agreements
with brokerage firms at December 31, 1994. The carrying value
and market value of the U.S. Treasury notes sold were
$32,250,000 as of December 31, 1994. The interest rates on the
liabilities varied from 5% to 5.25%. The Company had no
investments under repurchase agreements at December 31, 1995
<PAGE>
5. Federal Income Taxes:
Significant components of the provisions for federal income
taxes are as follows (dollars in thousands):
1995 1994 1993
Current $ 34,424 $ 16,790 $ 25,602
Deferred:
From operations (5,721) (6,953) (1,751)
From tax rate change - - 727
Total deferred (5,721) (6,953) (1,024)
Total $ 28,703 $ 9,837 $ 24,578
The reconciliation of federal income tax attributable to
continuing operations computed at the U.S. federal statutory tax
rates to income tax expense is as follows (dollars in thousands):
1995 1994 1993
Tax computed on income at statutory rate $ 29,980 $ 11,755 $ 27,903
Dividends received deduction (1,718) (1,798) (1,737)
Temporary differences of subsidiary not recognized From
operations - - (2,010)
Tax rate change - - 727
Other From tax rate change 441 (120) (305)
$ 28,703 $ 9,837 $ 24,578
The federal income tax liability as of December 31, 1995 and
1994 are comprised of the following (dollars in thousands):
1995 1994
Net deferred income tax liability $ 27,913 $ 11,412
Income taxes due to (receivable from) parent 3,106 (5,942)
Federal income tax liability $ 31,019 $ 5,470
<PAGE>
5. Federal Income Taxes, continued:
The tax effect of temporary differences giving rise to the
Company's consolidated deferred income tax liability at December
31, 1995 and 1994 are as follows (dollars in thousands):
1995 1994
Deferred tax liabilities:
Deferred policy acquisition costs $ 112,818 $ 119,379
Unrealized appreciation on investments 845 -
Unrealized appreciation on fixed maturities 20,592 -
Accrued dividends 2,590 1,133
Net unamortized discount on fixed maturities
- 1,954
Unamortized present value of future profits of acquired
business 9,276 11,061
Other 4,598 4,719
150,719 138,246
Deferred tax assets:
Unrealized depreciation on equity securities 603 4,887
Unrealized depreciation on fixed maturities - 7,665
Write-downs of investments not currently deductible for tax
- 139
Future policy benefits and policy claims 115,547 112,235
Other 6,656 1,908
122,806 126,834
Net deferred income tax liability $ 27,913 $ 11,412
Under provisions of the Life Insurance Company Income Tax Act of
1959, as revised by the 1984 Act, certain special deductions
were allowed life insurance companies for federal income tax
purposes. The special deductions for 1983 and prior years were
accumulated in a memorandum tax account designated as
"Policyholders' Surplus". Such amounts will usually become
subject to tax at the then current rates only if the accumulated
balance exceeds certain maximum limitations or certain cash
distributions are deemed to be paid out of this account. It is
management's opinion that such events are not likely to occur.
Accordingly, no provision for income tax has been made on the
approximately $66,000,000 balance in the policyholders' surplus
account at December 31, 1995
<PAGE>
6. Commitments and Contingencies:
The Company had $62 million of outstanding commitments to
purchase trust certificates secured by government guaranteed
notes.
The Company's home office building has been conveyed to the City
of Sioux Falls, South Dakota and leased back in a transaction in
which the City issued $4,250,000 of Industrial Revenue Bonds for
face value. The bonds are collateralized by $4,714,000 of
Midland's investments in government bonds. The lease includes a
purchase option under which Midland may repurchase the building
for $10 upon repayment of all bonds issued. The lease terms
provide for 10 annual payments equivalent to principal of
$425,000 beginning in 1993 and semiannual payments through 2002
in amounts equivalent to interest at 5.5% on the outstanding
revenue bond principal. The building and land costs have been
capitalized and are carried in the balance sheet as part of
other assets. The liability is included in accounts payable and
other liabilities in the balance sheet.
The Company is a party to various other lease agreements.
Certain of these leases contain purchase options and none
contain restrictions which have a material effect on the
Company's operations.
Future minimum lease payments on the capital lease as of
December 31, 1995 are as follows (dollars in thousands):
1996 $ 583
1997 559
1998 536
1999 513
2000 489
Thereafter 908
Total 3,588
Less amount representing interest 613
Present value of amounts due under capital lease $ 2,975
The Company is a defendant in various lawsuits related to the
normal conduct of its insurance business. Litigation is subject
to many uncertainties and the outcome of individual litigated
matters is not predictable with assurance; however, in the
opinion of management, the ultimate resolution of such
litigation will not materially impact the Company's financial
position.
<PAGE>
6. Commitments and Contingencies, continued:
In 1994, the Company settled a lawsuit associated with an
accident and health policy acquired in the 1990 merger of
Reserve Life Insurance Company (former parent company of
Midland). The net impact of this settlement was a charge to the
statement of income of $12,500,000 and was included as part of
accident and health benefits.
The Company is also subject to insurance guaranty laws in the
states in which it writes business. These laws provide for
assessments against insurance companies for the benefit of
policyholders and claimants in the event of insolvency of other
life insurance companies. The Company has accrued for the
estimated present value of future guaranty fund assessments, net
of estimated recoveries through premium tax offsets, for known
insolvencies.
7. Retirement and Benefit Plans:
Defined Benefit Pension Plan:
The Company has a noncontributory defined benefit pension plan
covering substantially all home office employees of Midland.
The defined benefits are based on years of service and
compensation during an employee's last 10 years of service. The
Company's policy is to fund accrued pension costs currently.
The following table sets forth the plan's funded status and
amounts recognized in the Company's balance sheet at December 31:
1995 1994
Actuarial present value of benefit obligations:
Accumulated benefit obligation, including vested benefit of
$2,394,578 in 1995 and $1,962,013 in 1994
$2,794,919 $ 2,110,178
Projected benefit obligation for service rendered to date
$ (4,091,097) $ (3,453,408)
Plan assets at fair value (funds on deposit with the Company)
3,750,261 3,314,939
Projected benefit obligation in excess of plan assets
(340,836) (138,469)
Unrecognized net gain from past experience different than from
assumed 56,052 71,468
Deferred investment gain 816,445 345,087
Prepaid pension cost $ 531,661 $ 278,086
<PAGE>
7. Retirement and Benefit Plans, continued:
Defined Benefit Pension Plan, continued:
Net pension cost incudes the following components:
1995 1994 1993
Service cost-benefits earned during the period
$ 248,258 $ 250,273 $ 193,745
Interest cost on projected benefit obligation
283,271 299,132 245,263
Actual return on plan assets (220,332) (199,797) (90,823)
Net amortization and deferral (53,138) (46,808) (232,407)
Net periodic pension cost $ 258,059 $ 302,800 $ 115,778
The assumed discount rates used in determining the actuarial
present value of the projected benefit obligation as of December
31, 1995 and 1994 were 7.25% and 8.5%, respectively. The rate
of increase in future compensation levels used in determining
the actuarial present value of projected benefit obligation as
of December 31, 1995 and 1994 was 5.5%. The expected long-term
rate of return on plan assets in 1995 and 1994 was 8.75% and
8.0%, respectively.
Effective January 1, 1996, this plan was merged with a similar
benefit plan of SEI.
Employee Stock Ownership Plan:
The Company participates in a noncontributory Employee Stock
Ownership Plan (ESOP) which is qualified as a stock bonus plan.
All employees are eligible to participate in this plan upon
satisfying eligibility requirements. The ESOP is sponsored by
SEI. Each year the Company makes a contribution to the ESOP as
determined by the Board of SEI. The amounts payable to the ESOP
at December 31, 1995 and 1994 were $1,515,000 and $874,000,
respectively. The expense for 1995, 1994 and 1993 was
$2,096,000, $767,000 and $1,095,000, respectively. All
contributions to the ESOP are held in trust.
Postretirement Benefit Plan:
The Company sponsors a defined benefit health care plan that
provides postretirement medical benefits to full-time employees
whose sum of age and years of service are at least 70. The plan
provides a monthly defined dollar benefit based on years of
service up to a maximum benefit of 90% of the cost of coverage.
<PAGE>
7. Retirement and Benefit Plans, continued:
Postretirement Benefit Plan, continued:
The Company has chosen not to fund any amounts in excess of
currently payable benefits. The following table sets forth the
amounts recognized in the Company's consolidated balance sheet
at December 31, 1995 and 1994:
1995 1994
Accumulated postretirement medical benefit obligation:
Retirees $ 1,235,000 $ 1,127,000
Fully eligible active plan participants
274,000 247,000
Other active plan participants 560,000 505,000
Accumulated unfunded postretirement benefit obligation
$ 2,069,000 $ 1,879,000
Net periodic postretirement benefit costs include the following
components for the years ended December 31, 1995 and 1994:
1995 1994
Service cost $ 16,000 $ 13,000
Interest cost 164,000 144,000
Amortization of loss 10,000 10,000
Net periodic postretirement benefit cost $ 190,000 $ 167,000
The weighted-average annual assumed rate of increase in the per
capita cost of health care benefits for employees (i.e., health
care cost trend rate) is 13% graded down 1% per year for seven
years and to 6% for year six and thereafter. The health care
cost trend rate assumption normally has a significant effect on
the amounts reported. However, increasing the assumed health
care trend rates by 1% would decrease the accumulated
postretirement benefit obligation as of December 31, 1995 by
only $38,000 and net periodic postretirement benefit costs for
the year ended December 31, 1995 by only $5,000 due to the plan
provision of a $50,000 post-age 65 lifetime maximum. As medical
costs increase, retirees reach their lifetime maximum sooner.
Since the benefits are fixed, the Company provides these for a
shorter period of time so the cost is less. The
weighted-average discount rate used in determining the
accumulated postretirement benefit obligation was 7.75% at
December 31, 1995 and 1994.
Other:
Funds of the pension plan and other previously terminated plans
totaling $7,928,000 and $7,470,000 were invested in deposit
administration contracts of the Company as of December 31, 1995
and 1994, respectively. The plans deposit the contributions
received in accordance with plan provisions. Interest of
$492,000 in 1995 and $495,000 in 1994 were credited to
participant accounts at a rate declared by the Company for group
annuity contracts.
<PAGE>
8. Reinsurance:
The Company presently reinsures the excess of each individual
risk over $500,000 on ordinary life insurance in order to spread
its risk of loss. Certain other individual health contracts are
reinsured on a policy-by-policy basis.
To the extent that reinsurers may not be able to meet the
obligations assumed under the reinsurance contracts, the Company
is contingently liable to pay policy benefits.
Effective November 1, 1994, the Company acquired, via assumption
reinsurance, three blocks of life and annuity business. Under
the agreements, the Company assumed approximately $190,000,000
of life and annuity reserves which is included primarily in the
universal life and investment products policy liabilities.
The Company received $158,000,000 in assets which was net of
$32,000,000 of the present value of future profits (PVP). The
assets acquired in the agreement included approximately
$110,000,000 in cash, $22,000,000 in policy loans and
$26,000,000 of receivables from various state guaranty
associations, of which approximately $22,000,000 of the
receivables remained outstanding at December 31, 1994 (reflected
in the balance sheet in short-term investments) with none
outstanding as of December 31, 1995. The final purchase price
was determined based on final accounting on June 30, 1995. In
the final accounting, life reserves acquired in the agreement
decreased by $871,000 and cash and other assets of $350,000 were
received, resulting in a net decrease to the PVP asset of
$1,221,000. The Company maintained the reinsurance associated
with these blocks whereby the excess of each individual risk
over $100,000 on ordinary life insurance is reinsured.
Effective January 1, 1995, the Company acquired, via assumption
reinsurance, a block of life and annuity business. Under the
agreement, the Company assumed approximately $10,504,000 of life
and annuity reserves which is included primarily in universal
life and investment products policy liabilities. The Company
received $9,723,000 in assets which was net of $781,000 of the
PVP. The assets acquired in the agreement included $1,356,000
in policy loans and due premium and a $8,367,000 receivable from
the ceding company, of which all of the receivable was collected
as of December 31, 1995.
<PAGE>
8. Reinsurance, continued:
The following schedule presents a summary of the life insurance
in force and premium income as affected by reinsurance
transactions (dollars in thousands):
Ceded to Assumed
Other From Other
Direct Companies Companies Net
Life insurance in force,
December 31, 1995
$56,082,611 $ 3,138,454 $ 5,454,111 $58,398,268
1995 revenues:
Individual life and annuity
$ 246,786 $ 12,449 $ (45) $ 234,292
Individual accident and health
746 683 - 63
Group 734 33 5,413 6,114
Total $ 248,266 $ 13,165 $ 5,368 $ 240,469
Life insurance in force,
December 31, 1994 $53,863,471 $ 3,440,640 $ 5,207,543 $55,630,374
1994 revenues:
Individual life and annuity
$ 215,333 $ 6,617 $ 58 $ 208,774
Individual accident and health
1,018 868 - 150
Group 584 30 5,152 5,706
Total $ 216,935 $ 7,515 $ 5,210 $214,630
Life insurance in force,
December 31, 1993
$ 47,564,264 $ 1,602,047 $ 5,268,314 $ 51,230,531
1993 revenues:
Individual life and annuity
$ 201,696 $ 4,971 $ 90 $ 196,815
Individual accident and health
21,371 1,310 - 20,061
Group 145 25 5,366 5,486
Total $ 223,212 $ 6,306 $ 5,456 $ 222,362
9. Other Related Party Transactions:
The Company pays fees to SEI under management contracts. The
Company was charged $2,778,000, $70,000 and $2,480,000 in 1995,
1994 and 1993, respectively, related to these contracts.
Included in the fixed maturity investments at December 31, 1994
was a $45,000,000 note receivable from SEI. The note was repaid
by SEI in 1995.
Item 24.
(a) Financial Statements
Financial statements are included in Part B of the Registration Statement.
(b) Exhibits:
(1) Resolution of the Board of Directors of Midland National Life Insurance
Company authorizing establishment of Separate Account C. (1)
(2) Not Applicable
(3) (a) Principal Underwriting Agreement between Midland National Life
Insurance Company and North American Management, Inc. (1)
(b) Supplement Appointing General Agent (1)
(c) Registered Representative Contract (1)
(4) (a) Form of Flexible Premium Deferred Variable Annuity Contract (2)
(b) Maturity Date Endorsement for Qualified Contracts (1)
(c) Endorsement for Tax Sheltered Annuity (1)
(5) (a) Form of Application for Flexible Premium Deferred Variable Annuity
Contract (1)
(b) Supplement to Application (1)
(6) (a) Articles of Incorporation of Midland National Life Insurance
Company (1)
(b) By-laws of Midland National Life Insurance Company (1)
(7) Not Applicable
(8) Form of Participation Agreement1
(9) Opinion and Consent of Counsel2
(10) (a) Consent of Counsel4
(b) Consent of Independent Auditors4
(11) Not Applicable
(12) Not Applicable
(1) Filed with initial filing of this form N-4 Registration Statement, file
number
33-64016 (June 7, 1993).
(2) Filed with Pre-effective Amendment No. 1 of this form N-4 Registration
Statement
(August 11, 1993)
(3) Filed with Pre-effective Amendment No. 2 of this form N-4 Registration
Statement
(September 16, 1993).
(4) Filed herewith.
MANAGEMENT OF MIDLAND
Item 25.
Here is a list of our directors and executive officers.
DIRECTORS
NAME PRINCIPAL OCCUPATION AND BUSINESS ADDRESS
John C. Watson Chief Executive Officer and Chairman of the Board
Midland National Life, One Midland Plaza, Sioux Falls, SD
57193
Michael M. Masterson President and Chief Operating Officer
Midland National Life, One Midland Plaza, Sioux Falls, SD
57193
William D. Sims Senior Vice President, Administration
Midland National Life, One Midland Plaza, Sioux Falls, SD
57193
Russell A. Evenson Senior Vice President and Actuary
Midland National Life, One Midland Plaza, Sioux Falls, SD
57193
John J. Craig II Senior Vice President and Chief Financial Officer
Midland National Life, One Midland Plaza, Sioux Falls, SD
57193
Robert W. Korba Board of Directors Member
Sammons Enterprises, Inc., 300 Crescent Ct., Dallas, TX 75201
James N. Whitson Board of Directors Member
Sammons Enterprises, Inc., 300 Crescent Ct., Dallas, TX 75201
EXECUTIVE OFFICERS (OTHER THAN DIRECTORS)
Jack L. Briggs Vice President, Secretary and General Counsel
Gary W. Helder Vice President, Policy Administration
E. John Fromelt Vice President and Chief Investment Officer
Item 26 Persons Controlled by or Under Common Control With the Depositor.
The Depositor, Midland National Life Insurance Company (Midland) is a
subsidiary of Sammons Enterprises, Incorporated. The Registrant is a
segregated asset account of Midland.
The chart on the following page indicates the persons controlled by or
under common control with Midland.
Item 27. Number of Contract Owners
As of February 29, 1996, there were 428 holders of nonqualified contracts
and 788 holders of qualified contracts.
Item 28. Indemnification
The Company indemnifies actions against all officers, directors, and
employees to the full extent permitted by South Dakota law. This includes
any threatened, pending, or completed action, suit or proceeding, whether
civil, criminal, administrative, or investigative. Such indemnification
includes expenses, judgments, fines, and amounts paid in settlement of such
actions, suits, or proceedings.
Item 29a. Relationship of Principal Underwriter to Other Investment Companies
North American Management, Inc., the principal underwriter of the
Registrant is also the principal underwriter for flexible premium variable
life insurance contracts issued through Midland National Life Separate
Account A.
Item 29b. Principal Underwriters
Unless otherwise noted, the address of each director and executive officer
of North American Management is One Midland Plaza, Sioux Falls, SD 57193.
Name and Principal Position and Offices
Business Address With North American Management
John C. Watson President and Chairman of the Board
Robert W. Buchanan Second Vice President
E John Fromelt Investment Manager
John J. Craig II Chief Financial Officer
Item 29c. Compensation of North American Management
The following commissions and other compensation were received by each
principal underwriter, directly or indirectly, from the Registrant during
the Registrant's last fiscal year:
(1) (2) (3) (4) (5)
Net
Name of Underwriting
Principal Discount and Compensation Brokerage
Underwriter Commissions On Redemption Commissions Compensation
North American 467,253.23 0 0 100,715.80
Management
Item 30. Location of Accounts and Records
The records required to be maintained by Section 31(a) of the Investment
Company Act of 1940 and Rules 31a-1 to 31a-3 promulgated thereunder, are
maintained by Midland National Life Insurance Company at:
One Midland Plaza
Sioux Falls, SD 57193
Item 31. Management Services
No management related services are provided to the Registrant, except as
discussed in Parts A and B.
Item 32. Undertakings
(a) A post-effective amendment to this registration statement will be filed as
frequently as is necessary to ensure that the audited financial statement
in the registration statement are never more than 16 months old for so long
as payments under the variable annuity contracts may be accepted.
(b) Any application to purchase a contract offered by the prospectus will
include a space that an applicant can check to request a Statement of
Additional Information.
(c) Any Statement of Additional Information and any financial statements
required to be made available under this form will be delivered promptly
upon written or oral request.
Section 403(b) Representation
Registrant represents that it is relying on a no-action letter dated November
28,
1988, to the American Council of Life Insurance (Ref. No. IP-6-88), regarding
sections 22(e), 27(c)(1), and 27(d) of the Investment Company Act of 1940, in
connection with redeem- ability restrictions on Section 403(b) Contracts, and
that paragraphs numbered (1) through (4) of that letter will be complied with.
Statement Pursuant to Rule 6c-7
Midland National Life and Separate Account C rely on 17 C.F.R. Section
270.6c-7 and
represent that the provisions of that Rule have been or will be complied with.
Accordingly, Midland National Life and Separate Account C are exempt from the
provisions of Sections 22(e), 27(c)(1), and 27(d) of the Investment Company Act
of 1940 with respect to any variable annuity contract participating in such
account to the extent necessary to permit compliance with the Texas Optional
Retirement Program.
<PAGE>
Estate of Charles A. Sammons
Sammons Enterprises, Inc. (Delaware Corp) 56.82%
Richmond Holding Company, LLC (Delaware LLC) 95%
COMMUNICATIONS
Sammons Communications, Inc. (Delaware Corp) 100%
Sammons of Fort Worth (A partnership) 60%
Sammons Communications of New Jersey, Inc. (New Jersey Corp) 100%
NTV Realty, Inc. (Delaware Corp) 100%
Sammons Communications of Connecticut, Inc. (Connecticut Corp) 100%
Sammons Communications of Washington, Inc. (Delaware Corp) 100%
Oxford Valley Cable Vision, Inc. (Pennsylvania Corp) 88%
Sammons Communications of Texas, Inc. (Texas Corp) 100%
Sammons Communications of Illinois, Inc. (Delaware Corp) 100%
Sammons Communications of New York, Inc. (Delaware Corp) 100%
Sammons Communication of Pennsylvania, Inc. (Delaware Corp) 100%
Sammons Communications of Virginia, Inc. (Delaware Corp) 100%
Sammons Communications of Mississippi, Inc. (Delaware Corp) 100%
AC Communications, Inc. (Delaware Corp) 100%
Sammons Cardinal Inc. (Delaware Corp) 100%
Sammons of Indiana (A partnership) 50%
Sammons Communications of Indiana Inc. (Delaware Corp) 100%
Sammons of Indiana (A partnership) 50%
Capital Telecommunications Inc. (Delaware Corp) 100%
Metroplex Cable Television, Inc. (Texas Corp) 100%
Sammons of Fort Worth (A partnership) 40%
Pacific Communications, Inc. (Delaware Corp) 100%
Consolidated Investment Services Inc. (Nevada Corp) 100%
Richmond Holding Company, LLC (Delaware LLC) 5%
Midland Advisors Company (South Dakota Corp) 100%
Vinson Supply (UK) LTD. (United Kingdom Corp) 50%
INSURANCE
Midland National Life Insurance Company (South Dakota Corp) 99.9%
(FEDID #46-0164570 NAIC CO Code 66044 SD)
North American Management, Inc. (Nebraska Corp) 100%
Investors Life Insurance Company of Nebraska (South Dakota Corp) 100%
(FEDID #470465313 NAIC CO Code 86975 SD)
ALLIED
CH Holdings Inc. (Delaware Corp) 100%
Sammons Corporation (Texas Corp) 100%
Sammons Realty, Inc. (Delaware Corp) 100%
Wood Young and Company, Inc. (Texas Corp) 100%
Cathedral Hill Hotel, Inc. (Delaware Corp) 100%
Grand Bahama Hotel Company (Delaware Corp) 100%
Jack Tar Grand Bahama Limited (Bahama Corp) 100%
WATER
Mountain Valley Spring Company (Arkansas Corp) 100%
Water Lines Inc. (Arkansas Corp) 100%
SUPPLY AND SERVICE
Vinson Supply Company (Delaware Corp) 100%
Vinson Supply (UK) LTD. (United Kingdom Corp) 50%
Composite Thread Protectors (UK) LTD. (United Kingdom Corp) 100%
Myron C. Jacobs Supply Company (Oklahoma Corp) 100%
Composite Thread Protectors, Inc. (Pennsylvania Corp) 100%
Vinson Supply DE Mexico S.A. DE C.V. (Mexico Corp) 98%
Otter (?) Inc. (Oklahoma Corp) 100%
Vinson Supply DE Mexico S.A. DE C.V. (Mexico Corp) 2%
Briggs-Weaver Inc. (Delaware Corp) 100%
Sealing Specialists of Texas, Inc. (Texas Corp) 100%
Briggs-Weaver DE Mexico S.A. DE C.V. (Mexico Corp) 98%
TMIS Inc. (Texas Corp) 100%
Briggs-Weaver DE Mexico S.A. DE C.V. (Mexico Corp) 2%
Vinson Marrero Company (Delaware Corp) 100%
<PAGE>
SIGNATURES
__________
As required by the Securities Act of 1933, and under the Investment
Company Act of 1940, the Registrant, Separate Account C of Midland
National Life Insurance Company certifies that it meets the require-
ments of Securities Act Rule 485(b) for effectiveness of this Registra-
tion Statement and has caused this Registration Statement to be signed
on its behalf in the City of Sioux Falls, South Dakota on the 25th day
of April, 1996.
(Seal) Midland National Life Insurance Company
Attest:_Jack_L._Briggs __________ By:_Michael_M._Masterson______________
President
Pursuant to the requirements of the Securities Act of 1933, this
Registration Statement has been signed below by the following
Directors of Midland National Life Insurance Company in the
capacities and on the dates indicated.
Signature Title Date
- --------- ----- ----
John_C._Watson___________ Chairman of the Board, April 25, 1996
John C. Watson Chief Executive Officer
Michael_M._Masterson_____ Director, President April 25, 1996
Michael M. Masterson
William_D._Sims__________ Director, Senior Vice April 25, 1996
William D. Sims President
Russell_A._Evenson_______ Director, Senior Vice April 25, 1996
Russell A. Evenson President
John_J._Craig_II_________ Director, Senior Vice April 25, 1996
John J. Craig II President (Principal
Financial Officer,
Principal Accountant)
_________________________ Director April 25, 1996
Robert W. Korba
_________________________ Director April 25, 1996
James N. Whitson
VA
<PAGE>
Registration No. 33-64016
POST EFFECTIVE AMENDMENT NO. 3
_______________________________________________________________________________
_______________________________________________________________________________
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
______________________________________________
EXHIBITS
TO
FORM N-4
REGISTRATION STATEMENT
UNDER
THE SECURITIES ACT OF 1933
FOR
MNL SEPARATE ACCOUNT C
AND
MIDLAND NATIONAL LIFE INSURANCE COMPANY
______________________________________________
_______________________________________________________________________________
_______________________________________________________________________________
<PAGE>
EXHIBIT INDEX
Exhibit
_________
10b. Consent of Auditors
<PAGE>
EXHIBIT 10b.
<PAGE>
CONSENT OF INDEPENDENT ACCOUNTANTS
We consent to the inclusion in this Registration Statement under the
Securities Act of 1933 (Post Effective
Amendment No. 3) and the Investment Company Act of 1940 (Amendment No. 5) on
Form N-4 (File No.
33-64016) and related Prospectus of our reports dated March 8, 1996, on our
audits of the financial
statements of Midland National Life Separate Account C and the consolidated
financial statements of
Midland National Life Insurance Company. We also consent to the reference to
our firm under the caption Financial and Actuarial.
COOPERS & LYBRAND L.L.P.
Minneapolis, Minnesota
April 25, 1996
68 VARIABLE ANNUITY
VARIABLE ANNUITY 5
