Securities and Exchange Commission
450 5 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 4 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
<PAGE>
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. _4_ _X_
and
REGISTRATION STATEMENT UNDER THE INVESTMENT COMPANY ACT OF 1940 ___
___
Amendment No. _4_ _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, L.L.P.
1275 Pennsylvania Avenue, N.W.
Washington, D.C. 20004-2404
It is proposed that this filing will become effective (check appropriate line):
___ immediately upon filing pursuant to paragraph (b)
_X_ on May 01, 1997 pursuant to paragraph (b)
___ 60 days after filing pursuant to paragraph (a) (i)
___ on _________________ pursuant to paragraph (a) (i)
___ 75 days after filing pursuant to paragraph (a) (ii)
___ on _________________ pursuant to paragraph (a) (ii) of Rule 485
If appropriate, check the following line:
___ the Post-Effective Amendment designates a new effective date for a
previously filed Post-Effective Amendment.
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, 1996 on February 26, 1997.
N-4CVR VAMNL
<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; Valuation of
Owner's Contract Value
(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;
(Prospectus) Charges in
the Funds
(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) Exibits Exhibits
25. Directors and Officers of the Depositor Management of Midland
26. Persons Controlled By or Under Common Persons Controlled By or
Control with the Depositor or Registrant Under Command 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
N4CROS1 VA
<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 amounts in Your Contract Fund to either Our General
Account, which pays interest at a declared rate, or up to ten of the
investment divisions of Our Separate Account C. 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 Fidelity's Variable Insurance Products
Fund (VIP), or Fidelity's Variable Insurance Products Fund II
(VIP II), Fidelity's Variable Insurance Products Fund III (VIP III), or
the American Century Variable Portfolios, Inc. (collectively called the
"Funds"), mutual funds with a choice of portfolios.
The prospectus es for the Funds, which accompan ies this
Prospectus, describes the investment objectives, policies, and risks of the
Funds' portfolios associated with the seventeen divisions of Our
Separate Account: VIP Money Market Portfolio, VIP High
Income Portfolio, VIP Equity-Income Portfolio, VIP Growth
Portfolio, VIP Overseas Portfolio, VIP II Asset Manager
Portfolio, VIP II Investment Grade Bond Portfolio, VIP II
Contrafund Portfolio, VIP II Asset Manager: Growth Portfolio,
VIP II Index 500 Portfolio, VIP III Growth & Income Portfolio,
VIP III Balanced Portfolio, VIP III Growth Opportunities Portfolio, American
Century VP Capital Appreciation Portfolio, American Century VP Value
Portfolio, American Century VP Balanced Portfolio, and American Century VP
International Portfolio.
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. An investment in the portfolios, including the VIP Money Market
Portfolio, is neither insured nor guaranteed by the U.S. Government, and there
is no assurance that the VIP Money Market Portfolio will be able to maintain a
stable net asset value.
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 CURRENT PROSPECTUS ES FOR FIDELITY'S
VARIABLE INSURANCE PRODUCTS FUND, FIDELITY'S VARIABLE INSURANCE
PRODUCTS FUND II, FIDELITY'S VARIABLE INSURANCE PRODUCTS FUND III, AND
AMERICAN CENTURY VARIABLE PORTFOLIOS, INC.
The date of this prospectus is May 1, 199 7.
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.
Table of Contents
Definitions
FEE TABLE
PORTFOLIO ANNUAL EXPENSES (2)
EXAMPLES
SUMMARY
CONDENSED FINANCIAL INFORMATION
GENERAL INFORMATION ABOUT MIDLAND, SEPARATE ACCOUNT C AND THE FUNDS
The Company That Issues Variable Annuities
Midland National Life Insurance Company
Our Parent
Separate Account Investment Choices
Our Separate Account And Its Investment Divisions
The Funds
Investment Policies Of The Funds' Portfolios
We Own The Assets Of Our Separate Account
Our Right To Change How We Operate Our Separate Account
DETAILED INFORMATION ABOUT THE CONTRACT
Requirements for Issuance of a Contract
Free Look
Allocation of Premiums
Transfers of Contract Value
Dollar Cost Averaging
Withdrawals
Loans
Death Benefit
Your Contract Value
Amounts In Our Separate Account
How We Determine The Accumulation Unit Value
CHARGES, FEES AND DEDUCTIONS
Sales Charges on Withdrawals
Charges Against The Separate Account
Administrative Charge
Contract Maintenance Charge
Transfer Charge
Charges In The Funds
Changing Your Premium Allocation Percentages
The General Account
Amounts In The General Account
Adding Interest To Your Amounts In The General Account
Transfers
Additional Information About Variable Annuities
Contract Periods, Anniversaries
Inquiries
FEDERAL TAX STATUS
Introduction
Diversification
Taxation of Annuities in General
Our Income Taxes
Withholding
EFFECTING AN ANNUITY
Fixed Options
Variable Options
Transfers after the Maturity Date
ADDITIONAL INFORMATION
Your Voting Rights As an Owner
Fund Voting Rights
How We Determine Your Voting Shares
Voting Privileges Of Participants In Other Companies
Our Reports to Owners
Performance
Your Beneficiary
Assigning Your Contract
When We Pay Proceeds From This Contract
Dividends
Midland's Sales And Other Agreements
Sales Agreements
Regulation
Discount for Midland Employees
Legal Matters
Legal Proceedings
Experts
Statement of Additional Information
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. The holidays We currently observe are New Year's Day,
Memorial Day, Independence Day, Labor Day, Thanksgiving Day and the day
after, and Christmas Day and the day after.
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 Investment Companies more commonly referred to as
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 Fidelity Variable Insurance Products Fund (VIP
), the Fidelity Variable Insurance Products Fund II (VIP
II), the Fidelity Variable Insurance Products Fund III
(VIP III), and American Century Variable Portfolios, Inc. (American Century
VP).
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 15 of the prospectus for additional 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.
PORTFOLIO ANNUAL EXPENSES (2)
(as a percentage of Portfolio average net assets)
MANAGEMENT OTHER TOTAL ANNUAL
FEES EXPENSES EXPENSES
VIP Money Market 0.21% 0.09% 0.30%
VIP High Income 0.59% 0.12% 0.71%
VIP Equity-Income (3) 0.51% 0.07% 0.58%
VIP Growth (3) 0.61% 0.08% 0.69%
VIP Overseas (3) 0.76% 0.17% 0.93%
VIP II Investment Grade Bond 0.45% 0.13% 0.58%
VIP II Asset Manager (3) 0.64% 0.10% 0.74%
VIP II Index 500 (4) 0.13% 0.15% 0.28%
VIP II Contrafund (3) 0.61% 0.13% 0.74%
VIP II Asset Manager: Growth (3) 0.65% 0.22% 0.87%
VIP III Balanced (3) 0.48% 0.24% 0.72%
VIP III Growth Opportunities (3) 0.61% 0.16% 0.77%
VIP III Growth & Income (4) 0.50% 0.50% 1.00%
American Century VP Capital Appreciation 1.00% .00% 1.00%
American Century VP Balanced 1.00% .00% 1.00%
American Century VP Value 1.00% .00% 1.00%
American Century VP International 1.50% .00% 1.50%
(2) The fund data was provided by Fidelity Management & Research Company and
American Century Investment Management, Inc. Midland has not independently
guaranteed the accuracy of the Fund date.
(3) A portion of the brokerage commissions the fund paid was used to reduce
its expenses. In addition, certain funds have entered into arrangements
with their custodian and transfer agent whereby interest earned on uninvested
cash balances was used to reduce custodian and transfer agent expenses.
Without these reduction s, total operating expenses would
have been for 0.56% for VIP Equity-Income, 0.67% for VIP Growth, 0.92%
for VIP Overseas, 0.73% for VIP II Asset Manager, 0.71% for VIP II
Contrafund, 0.85% for VIP II Asset Manager: Growth, 0.76% for VIP III Growth
Opportunities, and 0.71% for VIP III Balanced.
(4) The fund's expenses were voluntarily reduced by the Fund's investment
advisor. Absent reimbursement, the management fee, other expenses, and total
expenses would have been 0.28%, 0.15% and 0.43% for VIP II
Index 500, and
0.50%, 195.78% and 196.29% for VIP III Growth &
Income.
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
VIP Money Market $89 $108 $130 $217
VIP High Income 93 121 151 260
VIP Equity-Income (3) 92 117 144 246
VIP Growth (3) 93 120 150 257
VIP Overseas 95 127 162 282
VIP II Investment Grade Bond 92 117 144 246
VIP II Asset Manager (3) 93 122 153 263
VIP II Index 500 (4) 89 108 129 215
VIP II Contrafund (3) 93 122 153 263
VIP II Asset Manager: Growth (3) 95 125 159 276
VIP III Balanced (3) 93 121 152 261
VIP III Growth Opportunities (3) 94 122 154 266
VIP III Growth & Income (4) 96 129 166 289
American Century VP Capital Appreciation 96 129 166 289
American Century VP Balanced 96 129 165 288
American Century VP Value 96 129 166 289
American Century VP International 101 144 190 336
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
YEAR YEARS YEARS YEARS
VIP Money Market $89 $108 $130 $217
VIP High Income 93 121 151 260
VIP Equity-Income (3) 92 117 144 246
VIP Growth (3) 93 120 150 257
VIP Overseas 95 127 162 282
VIP II Investment Grade Bond 92 117 144 246
VIP II Asset Manager (3) 93 122 153 263
VIP II Index 500 (4) 89 108 129 215
VIP II Contrafund (3) 93 122 153 263
VIP II Asset Manager: Growth (3) 95 125 159 276
VIP III Balanced (3) 93 121 152 261
VIP III Growth Opportunities (3) 94 122 154 266
VIP III Growth & Income (4) 96 129 166 289
American Century VP Capital Appreciation 96 129 166 289
American Century VP Balanced 96 129 165 288
American Century VP Value 96 129 166 289
American Century VP International 101 144 190 336
If You do not surrender Your Contract, You would pay the following expenses on
a $1,000 investment, assuming 5% annual return on Your assets:
ONE THREE FIVE TEN
YEAR YEARS YEARS YEARS
VIP Money Market $19 $58 $100 $217
VIP High Income 23 71 121 260
VIP Equity-Income (3) 22 67 114 246
VIP Growth (3) 23 70 120 257
VIP Overseas (3) 25 77 132 282
VIP II Investment Grade Bond 22 67 114 246
VIP II Asset Manager (3) 23 72 123 263
VIP II Index 500 (4) 19 58 99 215
VIP II Contrafund (3) 23 72 123 263
VIP II Asset Manager: Growth (3) 25 75 129 276
VIP III Balanced (3) 23 71 122 261
VIP III Growth Opportunities (3) 24 72 124 266
VIP III Growth & Income (4) 26 79 136 289
American Century VP Capital Appreciation 26 79 136 289
American Century VP Balanced 26 79 135 288
American Century VP Value 26 79 136 289
American Century VP International 31 94 160 336
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 HYPOTHETICAL; 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 0.15% OF ASSETS BASED ON AN
AVERAGE CONTRACT VALUE OF $22,000 .
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 Divisions 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 14.)
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
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 up to ten of the
Investment Divisions of Our Separate Account. Each of these Investment
Divisions invests in shares of a corresponding portfolio of Fidelity's
Variable Insurance Products Fund, Fidelity's Variable
Insurance Products Fund II, Fidelity's Variable Insurance Products Fund
III, or the American Century Variable Portfolios, Inc. "series" type
mutual funds. The portfolios have different investment objectives. Fidelity
Management & Research Company receives fees from the VIP, VIP II and
VIP III portfolio s for providing investment management services
and American Century Investment Management, Inc. receives fees from the
American Century Variable Portfolios for providing investment management
services. These fees are taken monthly in proportion to the average daily
net assets of each portfolio throughout the month.
For a full description of the Funds, see the Funds' prospectuses, which
accompany this prospectus. (See The Funds on page 10.) The current Investment
Divisions which invest in Portfolios of Fidelity's Variable Insurance
Products Fund are:
Money Market Portfolio
High Income Portfolio
Equity-Income Portfolio
Growth Portfolio
Overseas Portfolio
The current Investment Divisions which invest in Portfolios of Fidelity's
Variable Insurance Products II are:
Asset Manager Portfolio
Investment Grade Bond Portfolio
Index 500 Portfolio
Contrafund Portfolio
Asset Manager: Growth Portfolio
The current Investment Divisions which invest in Portfolios of Fidelity's
Variable Insurance Products Fund III are:
Growth & Income Portfolio
Balanced Portfolio
Growth Opportunities Portfolio
The current Investment Divisions which invest in Portfolios of the American
Century Variable Portfolios, Inc. are:
Capital Appreciation Portfolio
Value Portfolio
Balanced Portfolio
International Portfolio
Each portfolio charges a different investment advisory fee. The VIP,
VIP II, and VIP III Funds also charge an amount for other operating expenses.
The total expenses for the year ending December 31, 1996 are shown on page 4
under the table of Portfolio Annual Expenses.
See Investment Policies Of The Funds' Portfolios on page 10, Charges In The
Funds on page 16, and The General Account on page 16.
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 15, FEDERAL TAX STATUS on page 17, and EFFECTING AN
ANNUITY on page 19.) 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 15.
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 investor's 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 15.) 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 13 and FEDERAL TAX STATUS on page 17.)
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 12.)
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
VIP Money Market
1993(1) 10.00 10.02 3,675
1994 10.02 10.31 207,115
1995 10.31 10.76 320,841
1996 10.76 11.18 450,641
VIP High Income
1993(1) 10.00 10.22 2.68
1994 10.22 9.93 70,977
1995 9.93 11.83 139,335
1996 11.83 13.26 221.760
VIP Equity-Income
1993(1) 10.00 10.16 2,861
1994 10.16 10.71 163,874
1995 10.71 14.35 385,807
1996 14.35 16.09 696.083
VIP Growth
1993(1) 10.00 10.09 2,539
1994 10.09 9.80 160,540
1995 9.80 13.32 347,738
1996 13.32 15.01 700,985
VIP Overseas
1993(1) 10.00 10.40 1,706
1994 10.40 10.37 147,456
1995 10.37 11.36 217,322
1996 11.36 12.59 282,107
VIP II Asset Manager
1993(1) 10.00 10.48 11,474
1994 10.48 9.67 280,056
1995 9.67 11.22 362,467
1996 11.22 12.65 447,842
VIP II Investment
Grade Bond
1993(1) 10.00 10.06 124
1994 10.06 9.52 31,444
1995 9.52 11.03 52,431
1996 11.03 11.22 97,711
VIP II Index 500
1993(1) 10.00 10.15 22
1994 10.15 10.11 32,675
1995 10.11 13.79 71,305
1996 13.79 16.57 256,789
VIP II Asset Manager:
Growth
1995(2) 10.00 11.48 13,682
1996 11.48 13.56 71,781
VIP II Contrafund
1995(2) 10.00 11.84 35,906
1996 11.84 14.17 187,702
(1)Period from 10/24/93 to 12/31/93
(2) Period From 5/1/95 to 12/31/95
The following Investment Divisions were not available in 1996 and thus
have no financial information to report as of 12/31/96: VIP III Growth &
Income, VIP III Balanced, VIP III Growth Opportunities, American Century VP
Capital Appreciation, American Century VP Value Portfolio, American Century
VP Balanced and American Century VP International.
GENERAL INFORMATION ABOUT
MIDLAND, SEPARATE ACCOUNT C
AND THE FUNDS
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 up to ten 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. You may not
have your Contract Fund allocated to more than ten Investment Divisions of
Our Separate Account at any one point in time. (See, The General Account
on page 16.)
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 Fund s .
You may allocate part or all of Your premiums to no more than ten of the
seventeen Investment Divisions of Our Separate Account. Our
Separate Account divisions invest in the VIP Money Market Portfolio, the VIP
High Income Portfolio, the VIP Equity-Income Portfolio, the VIP Growth
Portfolio, the VIP II Asset Manager Portfolio, the VIP Overseas Portfolio, the
VIP II Investment Grade Bond Portfolio, the VIP II Contrafund Portfolio, the
VIP II Asset Manager: Growth Portfolio, the VIP II Index 500 Portfolio, the
VIP III Growth & Income Portfolio, the VIP III Balanced Portfolio, the VIP III
Growth Opportunities Portfolio, the American Century VP Capital Appreciation
Portfolio, the American Century VP Value Portfolio, the American Century VP
Balanced Portfolio, and the American Century VP International Portfolio.
The Funds
Fidelity's Variable Insurance Product Fund , Fidelity's
Variable Insurance Product Fund II, Fidelity's Variable Insurance
Product Fund III, and the American Century Variable Portfolios, Inc. are
open-end diversified management investment companies, more commonly called
mutual funds. As 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
Fund s and their investment policies, risks, expenses and
all other aspects of their operations, appears in their prospectus
es ,
which accompan y 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 Owner's interests, We will see to
it that appropriate action is taken to protect Our Contract Owners. The Funds
will also monitor this possibility. Also, if
We ever believe that any of the Funds' Portfolios are so large as to
materially impair its investment performance of a Portfolio or the Fund, We
will examine other investment options.
Investment Policies Of The Funds' Portfolios
Each portfolio has a different investment objective which it tries to achieve
by following separate investment policies. The objectives and policies of each
portfolio will affect its return and its risks. Remember that the investment
experience of the Investment Divisions of Our Separate Account depends on the
performance of the corresponding Funds' portfolios. The investment advisor
for the VIP I, VIP II, and VIP III funds is Fidelity Management & Research
Company. The investment advisor for the American Century VP funds is American
Century Investment Management, Inc. The objectives of the Funds'
portfolios are as follows:
Portfolio and Objective
VIP Money Market
Seeks to obtain as high a level of current income by investing in high quality
money market instruments as is consistent with preserving capital and
providing liquidity. (An investment in the VIP Money Market or any other
Portfolio is neither insured nor guaranteed by the U.S. Government, and there
is no assurance that the Money Market Portfolio will be able to maintain a
constant net asset value.)
VIP High Income
Seeks to obtain a high level of current income by investing primarily in high-
yielding, lower-rated, fixed-income securities, while also considering growth
of capital.
VIP Equity-Income
Seeks to obtain reasonable income by investing primarily in income-producing
equity securities. In choosing these securities, the Manager will consider the
potential for capital appreciation. The Portfolio's goal is to achieve a yield
which exceeds the composite yield on the securities comprising the Standard &
Poor's Composite Index of 500 Stocks.
VIP Growth
Seeks to achieve capital appreciation, normally through the purchase of common
stocks, although the Portfolio's investments are not restricted to any one
type of security. Capital appreciation also may be found in other types of
securities, including bonds and preferred stocks.
VIP Overseas
Seeks long-term growth of capital, primarily through investments in foreign
securities.
VIP II Asset Manager
Seeks high total return with reduced risk over the long-term by allocating its
assets among stocks, bonds and short-term fixed- income instruments.
VIP II Investment Grade Bond
Seeks as high a level of current income as is consistent with the preservation
of capital by investing in a broad range of investment grade fixed income
securities.
VIP II Contrafund
Seeks to achieve capital appreciation over the long term by investing in
securities of companies that are undervalued or out-of-favor.
VIP II Asset Manager: Growth
Seeks to maximize total return over the long term through investments in
stocks, bonds, and short-term instruments. This portfolio has a heavier
emphasis on stocks than the Asset Manager Portfolio.
VIP II Index 500
Seeks to provide investment results that correspond to the total return of
common stocks publicly traded in the United States by duplicating the
composition and total return of Standard & Poor's Composite Index of 500
Stocks. This is designed as a long-term investment option.
VIP III Growth & Income
Seeks high total return, combining current income and capital appreciation.
Invests mainly in stocks that pay current dividends and show earnings
potential.
VIP III Balanced
Seeks to balance the growth potential of stocks with the possible income
cushion of bonds. Invests in broad selection of stocks, bonds and convertible
securities.
VIP III Growth Opportunities
Seeks long-term growth of capital. Invests primarily in common stocks and
adjusts its mix between growth, value, cyclical and other securities to take
advantage of attractive valuations.
American Century VP Capital Appreciation
Seeks capital growth by investing in common stocks that management considers
to have better-than-average prospects for appreciation.
American Century VP Value
Seeks long-term capital growth with income as a secondary objective. Invests
primarily in equity securities of well-established companies that management
believes to be under-valued.
American Century VP Balanced
Seeks capital growth and current income. Invests approximately 60 percent of
its assets in growth stocks and the rest in fixed income securities.
American Century VP International
Seeks capital growth by investing in securities of foreign companies that
management believes to have potential for appreciation.
We Own The Assets Of Our Separate Account
Under South Dakota law, We own the assets of Our Separate Account and use them
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
Midland's 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 Fund's
shares be voted so as to cause a change in the investment objectives of the
portfolio of a Fund or approval or disapproval of an investment advisory
policy for the portfolio of a Fund. We would do so only if required by state
insurance regulatory authorities pursuant to insurance law or regulation; or
operate Our Separate Account or one or more of the Investment Divisions in any
other form the law allows, including a form that allows Us to make direct
investments. We may make any legal investments We wish. In choosing these
investments, We will rely on Our own or outside counsel for advice. In
addition, We may disapprove any change in investment advisers or in investment
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 current Funds.
If You then wish to transfer the amount You have in that Investment Division
to another division of Our Separate Account, or to Our General Account, You
may do so, without charge, by writing to Our Home Office. At the same time,
You may also change how Your 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. Each premium received after the Free
Look period will be allocated to Our Separate Account or General Account on
the day We receive Your premium.
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.
During the Free Look Period, Your premium will be allocated to the VIP
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. You may not have Your Contract Fund allocated
to more than ten investment divisions of Our Separate Account at any point in
time.
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 11. 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 16.
Dollar Cost Averaging
The Dollar Cost Averaging (DCA) program enables You to make monthly transfers
of a predetermined dollar amount from the VIP Money Market Investment
Division into one or more of the other Investment Divisions (not the General
Account). By allocating monthly, as opposed to allocating the total amount at
one time, You may reduce the impact of market fluctuations. This plan of
investing, however, does not assure a profit or protect against a loss in
declining markets.
DCA can be elected at any time by completion of the DCA Request Form (form
number 5653) and by insuring that a sufficient amount is in the VIP
Money Market Investment Division, either through payment of a premium with
the DCA request form, allocation of premiums, or transfer of amounts to the
VIP Money Market Investment Division. Copies of form 5653 can be
obtained by contacting Us at Our Home Office. The election will specify:
that any money received with the form is to be placed into the VIP
Money Market Investment Division the monthly amount to be transferred to
the other Investment Divisions, and how that monthly amount is to be
allocated among the Investment Divisions Since the DCA program is only
suitable for substantial, infrequent premium payments, DCA is only available
when the premium payment mode is annual or if the amount in the VIP
Money Market Investment Division is at least $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 VIP Money Market Investment
Division must be equal to at least 12 monthly transfers. When DCA is elected,
all amounts in the VIP Money Market Investment Division will be
available for transfer under the DCA program. Once DCA is elected, additional
premiums can be deposited into the VIP Money Market Investment
Division for DCA by sending them in with a DCA request form.
You may change the DCA allocation percentages or DCA transfer amounts twice
each Contract Year. Any premium payments received while the DCA program is in
effect will be allocated using the allocation percentages from the DCA request
form, unless You specify otherwise.
If requested at issue, DCA will start at the beginning of the second Contract
Month. If requested after issue, DCA will start at the beginning of the first
Contract Month which occurs at least 30 days from the day the request is
received.
Transfers under the DCA program will count toward the number of free transfers
allowed each Contract Year.
DCA will last until the value in the VIP Money Market Investment
Division is exhausted or until a request for termination is received in
writing from You. DCA will automatically be terminated on the Maturity Date.
We reserve the right to end the DCA program at any time by sending You a
notice one month in advance.
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 Account's 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 17.)
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 Participant's spouse. This consent must
contain the Participant's signature and the notarized or properly witnessed
signature of the Participant's 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 17.)
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 withdrawal
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
and the Department of Labor suggest that a loan may, at least in
certain circumstances, result in adverse tax and ERISA consequences
for Section 403(b) or Section 401(k) programs.
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 an 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 an Owner and any 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 any 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 Owner's death.
Other rules relating to distributions at death 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 16).
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
division's 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 Funds
, which reflects the investment income and realized and unrealized
capital gains and losses of the portfolio and the expenses of the Funds
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. 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.
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. 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 VIP, the VIP II, and the VIP III Portfolios have an annual management fee
that is the sum of an individual fund fee rate, and a group fee rate which is
based on the monthly average net assets of the mutual funds advised by
Fidelity Management & Research Company. In addition, each of these portfolios'
total operating expenses will include fees for management, shareholder
services and other expenses, such as custodial, legal, accounting and other
miscellaneous fees. See the VIP, VIP II and VIP III prospectus for additional
information on how these charges are determined and on the minimum and maximum
charges allowed. All expenses for the year ending December 31, 1996 are shown
on page 4 under the table titled Portfolio Annual Expenses.
The American Century Variable Portfolios have annual management fees that are
based on the monthly average of the net assets in each of the portfolios. See
the American Century VP prospectus for details. The expenses for the year
ending December 31, 1996 are shown on page 4 under the table titled Portfolio
Annual Expenses.
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 13).
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 by Us. The General Account
supports Our insurance and annuity obligations including Our obligations
under the General Account. 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:
25% of the amount in the General Account at the beginning of the Contract
year, or
$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 Midland's 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
owner's gross income. The IRS has stated in published rulings that a variable
contract owner will be considered the owner of separate account assets if the
contract owner possesses incidents of ownership in those assets, such as the
ability to exercise investment control over the assets. The Treasury
Department also announced, in connection with the issuance of regulations
concerning 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 owner's contract value over the
owner's 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 Owner's or
Annuitant's 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). Other tax penalties may
apply to certain distributions under a Qualified Contract.
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 taxpayer's 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 Q ualified 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.
Code sections 219 and 408 permit individuals or their employers to
contribute to an individual retirement program known as an "Individual
Retirement Annuity" or "IRA." Individual Retirement Annuities are subject to
limitations on the amount that may be contributed and deducted and the time
when distributions may commence. In addition, distributions from certain other
types of retirement plans may be placed into an Individual Retirement Annuity
on a tax deferred basis. Employers may establish Simplified Employee Pension
(SEP) Plans to provide IRA contributions on behalf of their employees.
Code section 401(a) permits employers to establish various types of retirement
plans for employees, and permit self-employed individuals to establish
retirement plans for themselves and their employees. These retirement plans
may permit the purchase of the Contracts to accumulate retirement savings
under the plans. Adverse tax consequences to the plan, to the participant, or
to both may result if this Contract is assigned or transferred to any
individual as a means to provide benefit payments.
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 Annuitant's 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 Annuitant's 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 person's
estate if that person died. The person who is entitled to receive payment may
change the successor at any time.
We must approve any arrangements that involve more than one of the payment
options, or a Payee who is not a natural person (for example, a corporation),
or a Payee who is a fiduciary. Also, the details of all arrangements will be
subject to Our rules at the time the arrangements take effect. This includes
rules on the minimum amount We will pay under an option, minimum amounts for
installment payments, withdrawal or commutation rights (Your rights to receive
payments over time, for which We may offer You a lump sum payment), the naming
of people who are entitled to receive payment and their successors, and the
ways of proving age and survival.
You will make Your choice of a payment option 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:
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.
Installment Options: There are two ways that We pay installments:
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.
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.
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.
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:
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.
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 Fund's Board for the Fund's shareholders meeting. The record date
for this purpose must be at least 10 and no more than 90 days before the
meeting of the Fund. We count fractional shares.
If You have a voting interest, We will send You proxy material and a form for
giving Us voting instructions. In certain cases, We may disregard instructions
relating to changes in the Fund's adviser or the investment policies of its
portfolios. We will advise You if We do and give Our reasons in the next
semiannual report to Owners.
Voting Privileges Of Participants In Other Companies
Currently, shares in the VIP Fund s 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 Division's
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 VIP 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
VIP II Investment Grade Bond and the VIP 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
Annuitant's lifetime by writing to Our Home Office. If no Beneficiary is
living when the Annuitant dies, We will pay the Death Benefit to the
Annuitant's 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.
Midland's Sales And Other Agreements
Sales Agreements
The Contract will be sold by individuals who, in addition to being licensed as
life insurance agents for Midland National Life, are also registered
representatives of Walnut Street Securities (WSS),
the principal underwriter of the Contracts, or of broker-dealers which
have entered into written sales agreements with WSS. WSS is registered
with the SEC as a broker-dealer under the Securities Exchange Act of 1934 and
is a member of the National Association of Securities Dealers, Inc. The
mailing address for WSS is 670 Mason Ridge Center, Suite 300, St. Louis,
MO 63141-8557.
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, except in the first year we may
pay 5.25% of premiums.
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 employee's
first year premiums. This contribution will be paid by Midland.
Legal Matters
The law firm of Sutherland, Asbill & Brennan L.L.P., 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 Registration Statement.
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 , by writing Our Home Office,
or by calling the
Statement of Additional Information Toll Free number at 1-800-272-1642.
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
VIP 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 (1035) 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>
2 VARIABLE ANNUITY
VARIABLE ANNUITY 1
STATEMENT OF ADDITIONAL INFORMATION FOR THE
FLEXIBLE PREMIUM DEFERRED VARIABLE ANNUITY CONTRACT
Offered by
MIDLAND NATIONAL LIFE INSURANCE COMPANY
This Statement of Additional Information expands upon subjects discussed in
the current Prospectus for the Flexible Premium Deferred Variable Annuity
Contract ("Contract") offered by Midland National Life Insurance Company. You
may obtain a copy of the Prospectus dated May 1, 199 7 , by writing
to Midland National Life Insurance Company, One Midland Plaza, Sioux Falls,
SD 57193. Terms used in the current Prospectus for the Contract are
incorporated in this Statement.
THIS STATEMENT OF ADDITIONAL INFORMATION IS NOT A PROSPECTUS AND SHOULD BE
READ ONLY IN CONJUNCTION WITH THE PROSPECTUS FOR THE POLICY.
Dated May 1, 199 7
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
VIP
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
(1035) 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 10
FINANCIAL STATEMENTS 10
THE CONTRACT
Non-Participation
The Contracts are non-participating. No dividends are payable and the
Contracts will not share in the profits or surplus earnings of Midland.
Misstatement of Age or Sex
If the age or sex of the Annuitant or any other payee has been misstated in
the application, the Annuity payable under the Contract will be whatever the
Contract Value of the Contract would purchase on the basis of the correct age
or sex of the Annuitant and/or other payee, if any, on the date Annuity
Payments begin. Any overpayment or underpayments by Midland as a result of any
such misstatement will be corrected using an interest rate of 6% per year.
Proof of Existence and Age
Before making any payment under the Contract, we may require proof of the
existence and/or proof of the age of the Owner or Annuitant.
Assignment
No assignment of a Contract will be binding on Midland unless made in writing
and sent to us at our Home Office. Midland is not responsible for the adequacy
of any assignment. The Owner's rights and the interest of any Beneficiary not
designated irrevocably will be subject to the rights of any assignee of
record.
Annuity Data
We will not be liable for obligations which depend on receiving information
from a payee until such information is received in a satisfactory form.
Incontestability
The Contract is incontestable after it has been in force, during the
Annuitant's lifetime, for two years.
Ownership
Before the Annuitant's death, only the Owner will be entitled to the rights
granted by the Contract or allowed by Midland under the Contract, except that
the right to choose a Payment Option will belong to the Payee, unless
otherwise specified. If the Owner is an individual and dies before the
Annuitant, the rights of the Owner belong to the estate of the Owner unless
this Contract has been endorsed to provide otherwise.
Entire Contract
We have issued the Contract in consideration of the application and payment of
the first premium. A copy of the application is attached to and is a part of
the Contract. The Policy Form with the application and any riders make the
entire Contract. All statements made by or for the Annuitant are considered
representations and not warranties. Midland will not use any statement in
defense of a claim unless it is made in the application and a copy of the
application is attached to the Contract when issued.
Changes in the Contract
Only Midland's President, a Vice President, the Secretary or an Assistant
Secretary of our Company have the authority to make any change in the Contract
and then only in writing. We will not be bound by any promise or
representation made by any other person.
Midland may not change or amend the Contract, except as expressly provided in
the Contract, without the Owner's consent. However, we may change or amend the
Contract if such change or amendment is necessary for the Contract to comply
with any state or federal law, rule or regulation.
Protection of Benefits
To the extent permitted by law, no benefit under the Contract will be subject
to any claim or process of law by any creditor.
Accumulation Unit Value
We determine Accumulation Unit Values for the Investment Division of Our
Separate Account at the end of each Business Day. The
Accumulation Unit Value for each Investment Division was set at $10.00 on the
first day there were contract transactions in Our Separate Account. After
that, the Accumulation Unit Value for any Business Day is equal to the
Accumulation Unit Value for the preceding Business Day multiplied by the net
investment factor for that division on that Business Day.
We determine the net investment factor for each Investment Division every
Business Day as follows:
First, We take the value of the shares belonging to the division (including
any shares from reinvested dividends or capital gain distributions) in the
corresponding Fund portfolio at the close of business that day (before giving
effect to any contract transaction for that day, such as premium payments or
surrenders). For this purpose, We use the share value reported to Us by the
Fund.
Then, We divide this amount by the value of the amounts in the Investment
Division at the close of business on the preceding Business Day (after giving
effect to any contract transactions on that day).
Then, We subtract a daily asset charge for each calendar day between Business
Days (for example, a Monday calculation may include charges for Saturday,
Sunday, and Monday). The daily charge is .0038626% which is an effective
annual rate of 1.40%. This charge is for mortality and expense risks assumed
by Us under the contract and to cover administrative costs We incur for
transactions related to the Separate Account.
Finally, We reserve the right to subtract any other daily charge for taxes or
amounts set aside as a reserve for taxes. Generally, this means that We would
adjust unit values to reflect what happens to the Funds, and also for any
charges.
Annuity Payments
The amount of each fixed annuity payment will be set on the Maturity Date and
will not subsequently be affected by the investment performance of the
Investment Divisions.
The amount of each variable annuity payment will be affected by the investment
performance of the Investment Divisions. Variable payment options are not
available in certain states.
The dollar amount of the first monthly variable annuity payment is computed
for each Investment Division by applying the value in the Investment Division,
as of a date not more than 10 business days prior to the Maturity Date, to the
appropriate rate for the payout option selected using the age and sex (where
permissible) of the Annuitant. The number of Annuity Units for each Investment
Division is then calculated by dividing the first variable annuity payment for
that Investment Division by the Investment Division's Annuity Unit Value as of
the same date.
The dollar amount of each subsequent payment from an Investment Division is
equal to the number of Annuity Units for that Investment Division times the
Annuity Unit value for that Investment Division as of a uniformly applied date
not more than ten business days before the annuity payment is due.
The payment made to the Annuitant for the first payment and all subsequent
payments will be the sum of the payment amounts for each Investment Division.
The Annuity Unit Value for each Investment Division was set at $10 on the
first day there were contract transactions in Our Separate Account. After
that, the Annuity Unit Value for any business day is equal to (1) multiplied
by (2) multiplied by (3) where:
(1) = the Annuity Unit Value for the preceding business day:
(2) = the net investment factor (as described above) for that division on that
business day.
(3) = the investment result adjustment factor (.99986634 per day), which
recognizes an assumed interest rate of 5% per year used in determining the
annuity payment amounts.
Transfers after the Maturity Date will only be allowed once per Contract Year
and will be made using the Annuity Unit Value for the Investment Divisions on
the date the request for transfer is received. On the transfer date, the
number of Annuity Units transferred from the Investment Division is multiplied
by the Annuity Unit Value for that Investment Division to determine the value
being transferred. This value is then transferred into the indicated
Investment Division(s) by converting this value into Annuity Units of the
proper Investment Division(s). The Annuity Units are determined by dividing
the value being transferred into an Investment Division by the Annuity Unit
value of the Investment Division on the transfer date. The transfer shall
result in the same dollar amount of variable annuity payment on the date of
transfer.
CALCULATION OF YIELDS AND TOTAL RETURNS
VIP Money Market Investment Division Yield Calculation
In accordance with regulations adopted by the Securities and Exchange
Commission, Midland is required to compute the VIP Money Market
Investment Division's current annualized yield for a seven-day period in a
manner which does not take into consideration any realized or unrealized
gains or losses or shares of the VIP Money Market Portfolio or on
its portfolio securities. This current annualized yield is computed by
determining the net change (exclusive of realized gains and losses on the
sale of securities and unrealized appreciation and depreciation) in the
value of a hypothetical account having a balance of one unit of the
VIP Money Market Investment Division at the beginning of such
seven-day period, dividing such net change in account value by the value of
the account at the beginning of the period to determine the base period
return and annualizing this quotient on a 365-day basis. The net change in
account value reflects the deductions for the contract maintenance charge,
annual administrative expenses, the mortality and expense risk charge,
and income and expenses accrued during the period. Because of these
deductions, the yield for the VIP Money Market Investment Division
of the Separate Account will be lower than the yield for the VIP
Money Market Portfolio Fund or any comparable substitute funding vehicle.
The Securities and Exchange Commission also permits Midland to disclose the
effective yield of the VIP Money Market Investment Division for the
same seven-day period, determined on a compounded basis. The effective yield
is calculated by compounding the unannualized base period return by adding one
to the base period return, raising the sum to a power equal to 365 divided
by 7, and subtracting one from the result.
The yield on amounts held in the VIP Money Market Investment Division
normally will fluctuate on a daily basis. Therefore, the disclosed yield for
any given past period is not an indication or representation of future yields
or rates of return. The VIP Money Market Investment Division's
actual yield is affected by changes in interest rates on money market
securities, average portfolio maturity of the VIP Money Market
Portfolio Fund or substitute funding vehicle, the types and quality of
portfolio securities held by the VIP Money Market Portfolio Fund or
substitute funding vehicle, and operating expenses. In addition, the yield
figures do not reflect the effect of any Contingent Deferred Sales Charge that
may be applicable to a particular Contract. The annualized yield for the
seven-day period ending 12/31/9 6 was 3.75%. Other
Investment Division Yield Calculations Midland may from time to time
disclose the current annualized yield of one or more of the Investment
Divisions (except the Money Market Investment Division) for 30-day periods.
The annualized yield of an Investment Division refers to income generated by
the Investment Division over a specified 30-day period. Because the yield is
annualized, the yield generated by an Investment Division during the 30-day
period is assumed to be generated each 30-day period. This yield is computed
by dividing the net investment income per accumulation unit earned during the
period by the price per unit on the last day of the period, according to the
following formula:
YIELD = 2 [ (a - b + 1)6 - 1 ]
cd
Where: a = net investment income earned during the period by the Fund
(or substitute funding vehicle) attributable to shares owned by
the Investment Division.
b = expenses accrued for the period (net of reimbursements).
c = the average daily number of units outstanding during the period.
d = the maximum offering price per unit on the last day of the period.
Net investment income will be determined in accordance with rules established
by the Securities and Exchange Commission. Accrued expenses will include all
recurring fees that are charged to all Owner accounts. The yield calculations
do not reflect the effect of any Contingent Deferred Sales Charges that may be
applicable to a particular Contract. Contingent Deferred Sales Charges range
from 7% to 0% of the amount of Premium withdrawn depending on the elapsed time
since the Contract was issued.
Because of the charges and deductions imposed by the Separate Account the
yield of the Investment Division will be lower than the yield for the
corresponding Fund. The yield on amounts held in the Investment Divisions
normally will fluctuate over time. Therefore, the disclosed yield for any
given past period is not an indication or representation of future yields or
rates of return. The Investment Division's actual yield will be affected by
the types and quality of portfolio securities held by the Fund, and its
operating expenses.
We currently do not advertise yields for any Investment Division.
Standard Total Return Calculations
Midland may from time to time also disclose average annual total returns for
one or more of the Investment Divisions for various periods of time. Average
annual total return quotations are computed by finding the average annual
compounded rates of return over one, five and ten year periods that would
equate the initial amount invested to the ending redeemable value, according
to the following formula:
P (1 + T)n = ERV
Where: P = a hypothetical initial payment of $1,000
T = average annual total return
n = number of years
ERV = ending redeemable value of a hypothetical $1,000 payment made
at the beginning of the one, five, or n-year period, at the end
of the one, five, or ten-year period (or fractional portion
thereof).
All recurring fees that are charged to all Owner accounts are recognized in
the ending redeemable value. The standard average annual total return
calculations will reflect the effect of Contingent Deferred Sales Charges that
may be applicable to a particular period.
The following is standardized average annual total return information for the
Investment Divisions of Separate Account C.
<TABLE>
Investment Division Inception of the 1-Year Period
with Investment Division to Ended
Inception Date 12/31/9 6 12/31/9 6
<S> <C> <C> <C>
VIP High Income (10/24/93) 8.28% 4.99%
VIP Equity Income (10/24/93) 15.24% 4.99%
VIP Growth (10/24/93) 12.69% 5.58%
VIP Overseas (10/24/93) 6.47% 3.68%
VIP II Investment Grade Bond (10/24/93) 2.58% -5.41%
VIP II Index 500 (10/24/93) 16.31% 12.94%
VIP II Asset Manager (10/24/93) 6.64% 5.54%
VIP II Money Market (10/24/93) 2.45% -3.29%
VIP II Asset Manager: Growth (5/1/95)
17.04% 10.98%
VIP II Contrafund (5/1/95)
20.27% 12.52%
</TABLE>
Midland may from time to time also disclose average annual total returns in a
non-standard format in conjunction with the standard format described above.
The non-standard format will be identical to the standard format except that
the Contingent Deferred Sales Charge percentage will be assumed to be 0%.
The following is non-standardized average annual total return information for
the Investment Divisions of Separate Account C.
<TABLE>
Inception of the 1-Year Period
Investment Division to Ended
Investment Division 12/31/9 6 </R > 12/31/9
6
<S> <C> <C> <C>
VIP High Income (10/24/93) 9.26% 11.99%
VIP Equity Income (10/24/93) 16.09% 11.99%
VIP Growth (10/24/93) 13.59% 12.58%
VIP Overseas (10/24/93) 7.48% 10.68%
VIP II Investment Grade Bond (10/24/93) 3.68% 1.59%
VIP II Index 500 (10/24/93) 17.15% 19.94%
VIP II Asset Manager (10/24/93) 7.65% 12.54%
VIP Money Market (10/24/93) 3.56% 3.71%
VIP II Asset Manager: Growth (5/1/95) 20.00% 17.98%
VIP II Contrafund (5/1/95) 23.18% 19.52%
</TABLE>
Since the VIP III Balanced, VIP III Growth Opportunities, VIP III Growth &
Income, American Century VP Capital Appreciation, American Century VP
Balanced, American Century VP Value and American Century VP International
Investment Divisions were not available to the portfolio at 12/31/9
6 , there is no average annual total return information to report for
these Investment Divisions.
Other Performance Data
Midland may from time to time also disclose cumulative total returns in
conjunction with the standard format described above. The cumulative returns
will be calculated using the following formula assuming that the Contingent
Deferred Sales Charge percentage will be 0%.
CTR = [ERV/P] - 1
Where: CTR = the cumulative total return net of Investment Division
recurring charges for the period.
ERV = ending redeemable value of a hypothetical $1,000 payment at the
beginning of the one, five, or ten-year period at the end of the
one, five, or ten-year period (or fractional portion thereof).
P = a hypothetical initial payment of $1,000
All non-standard performance data will only be advertised if the standard
performance data is also disclosed.
Midland may also disclose the value of a hypothetical payment of $10,000 at
the end of various periods of time.
The following is standardized cumulative total return information for the
Investment Divisions of Separate Account C.
<TABLE>
Inception of the 1-Year Period
Investment Division to Ended
Investment Division Inception Date 12/31/9 6 12/31/9 6
<S> <C> <C> <C>
VIP
High Income (10/24/93)
28.88% 4.99%
VIP
Equity Income (10/24/93)
57.19% 4.99%
VIP
Growth (10/24/93)
46.39% 5.58%
VIP
Overseas (10/24/93)
22.13% 3.68%
VIP II
Investment Grade Bond (10/24/93)
8.45% -5.41%
VIP II
Index 500 (10/24/93)
61.90% 12.94%
VIP II
Asset Manager (10/24/93)
22.74% 5.54%
VIP
Money Market (10/24/93)
8.04% -3.29%
VIP II Asset Manager: Growth (5/1/95) 30.07% 10.98%
VIP II Contrafund (5/1/95) 36.14% 12.52%
</TABLE>
The following is non-standardized cumulative total return information for the
Investment Divisions of Separate Account C.
<TABLE>
Inception of the 1-Year Period
Investment Division to Ended
Investment Division Inception Date 12/31/9 6 12/31/9 6 </>R
<S> <C> <C> <C>
VIP
High Income (10/24/93)
32.63% 11.99%
VIP
Equity Income (10/24/93)
60.94% 11.99%
VIP
Growth (10/24/93)
50.14% 12.58%
VIP
Overseas (10/24/93)
25.88% 10.68%
VIP II
Investment Grade Bond (10/24/93)
12.20% 1.59%
VIP II
Index 500 (10/24/93)
65.65% 19.94%
VIP II
Asset Manager (10/24/93)
26.49% 12.54%
VIP
Money Market (10/24/93)
11.79% 3.71%
VIP II Asset Manager: Growth (5/1/95) 35.62% 17.98%
VIP II Contrafund (5/1/95) 41.69% 19.52%
</TABLE>
Since the VIP III Balanced, VIP III Growth Opportunities, VIP III Growth &
Income, American Century VP Capital Appreciation, American Century VP
Balanced, American Century VP Value and American Century VP International
Investment Divisions were not available to the portfolio at 12/31/96
there is no cumulative total return information to report for these
Investment Divisions.
Hypothetical Performance Data
Midland may also disclose "hypothetical" performance data for an Investment
Division for periods before the Investment Division commenced operations,
based on the assumption that the Investment Division was in existence before
it actually was, and that the Investment Division had been invested in a
particular portfolio that was in existence prior to the Investment Division's
commencement of operations. The portfolio used for these calculations will be
the actual portfolio that the Investment Division will invest in.
Hypothetical performance data of this type will be calculated as follows.
First, the value of a hypothetical $1,000 investment in the applicable
portfolio is calculated on a monthly basis by comparing the net asset value
per share at the beginning of the month with the net asset value per share at
the end of the month (adjusted for any dividend distributions during the
month), and the resulting ratio is applied to the value of the investment at
the beginning of the month to get the gross value of the investment at the end
of the month. Second, that gross value is then reduced by a "Contract Charges"
factor to reflect the charges imposed under the Contract. This Contract
Charges factor is calculated by adding the daily charge for mortality and
expense risks (1.25% annually) to the daily Administrative Charge (0.15%
annually), and then adding an additional amount that adjusts for the annual
$33 Contract Maintenance Charge. This additional amount is based on an average
Contract Value of $22,000 , so it is calculated as $33/22,000 ,
or .15% annually. The total of these three amounts is then divided by
12 to get the monthly Contract Charges factor, which is then applied to the
value of the hypothetical initial payment in the applicable portfolio to get
the value in the Investment Division. The Contract Charges factor is assumed
to be deducted at the beginning of each month. In this manner, the Ending
Redeemable Value ("ERV") of a hypothetical $1,000 initial payment in the
Investment Division is calculated each month during the applicable period, to
get the ERV at the end of the period. Third, that ERV is then utilized in the
formulas above.
This type of hypothetical performance data may be disclosed on both an average
annual total return and a cumulative total return basis. Moreover, it may be
disclosed assuming that the Contract is not surrendered (i.e., with no
deduction for the Contingent Deferred Sales Charge) and assuming that the
Contract is surrendered at the end of the applicable period (i.e., reflecting
a deduction for any applicable Contingent Deferred Sales Charge).
The following is standardized average annual total return information based on
the hypothetical assumption that each of the Investment Divisions listed had
been available to Separate Account C since the inception of each corresponding
Portfolio.
<TABLE>
Inception of the 10-Year Period 5-Year Period
Portfolio Portfolio to Ended Ended
Investment Division Inception Date 12/31/9 6 12/31/9 6 12/31/9 6
<S> <C> <C> <C> <C>
VIP High Income (9/19/85) 10.26% 9.42% 12.87%
VIP Equity Income (10/9/86) 11.67% 12.00% 15.88%
VIP Growth (10/9/86) 13.04% 13.39% 13.08%
VIP Overseas (1/28/87) 6.20% N/A 7.06%
VIP II Investment Grade Bond (12/5/88) 6.51% N/A 4.55%
VIP II Index 500 (8/27/92) 14.86% N/A N/A
VIP II Asset Manager (9/16/89) 9.96% N/A 9.17%
VIP Money Market (4/1/82) 5.33% 4.33% 2.43%
VIP II Asset Manager: Growth (1/3/95) 17.16% N/A N/A
VIP II Contrafund (1/3/95) 25.85% N/A N/A
</TABLE>
The following is non-standardized average annual total return information
based on the hypothetical assumption that each of the Investment Divisions
listed had been available to Separate Account C since the inception of each
corresponding Portfolio.
<TABLE>
Inception of the 10-Year Period 5-Year Period
Portfolio Portfolio to Ended Ended
Investment Division Inception Date 12/31/9 6 12/31/9 6 12/31/9 6
<S> <C> <C> <C> <C>
VIP High Income (9/19/85) 10.26% 9.42% 13.20%
VIP Equity Income (10/9/86) 11.67% 12.00% 16.18%
VIP Growth (10/9/86) 13.04% 13.39% 13.40%
VIP Overseas (1/28/87) 6.20% N/A 7.47%
VIP II Investment Grade Bond (12/5/88) 6.51% N/A 5.00%
VIP II Index 500 (8/27/92) 15.25% N/A N/A
VIP II Asset Manager (9/16/89) 9.96% N/A 9.55%
VIP Money Market (4/1/82) 5.33% 4.33% 2.92%
VIP II Asset Manager: Growth (1/3/95) 19.70% N/A N/A
VIP II Contrafund (1/3/95) 28.22% N/A N/A
</TABLE>
The following is standardized cumulative total return information based on the
hypothetical assumption that each of the Investment Divisions listed had been
available to Separate Account C since the inception of each corresponding
Portfolio.
<TABLE>
Inception of the 10-Year Period 5-Year Period
Portfolio Portfolio to Ended Ended
Investment Division Inception Date 12/31/9 6 12/31/9 6 12/31/9 6
<S> <C> <C> <C> <C>
VIP High Income (9/19/85) 201.35% 146.03% 83.20%
VIP Equity Income (10/9/86) 209.50% 210.49% 108.95%
VIP Growth (10/9/86) 250.65% 251.42% 84.86%
VIP Overseas (1/28/87) 81.78% N/A 40.66%
VIP II Investment Grade Bond (12/5/88) 66.47% N/A 24.91%
VIP II Index 500 (8/27/92) 82.63% N/A N/A
VIP II Asset Manager (9/16/89) 100.45% N/A 55.10%
VIP Money Market (4/1/82) 115.37% 52.77% 12.77%
VIP II Asset Manager: Growth (1/3/95) 37.21% N/A N/A
VIP II Contrafund (1/3/95) 58.28% N/A N/A
</TABLE>
The following is non-standardized cumulative total return information based on
the hypothetical assumption that each of the Investment Divisions listed had
been available to Separate Account C since the inception of each corresponding
Portfolio.
<TABLE>
Inception of the 10-Year Period 5-Year Period
Portfolio Investment Division to Ended Ended
Investment Division Inception Date 12/31/9 6 12/31/9 6 12/31/9 6
<S> <C> <C> <C> <C>
VIP High Income (9/19/85) 201.35% 146.03% 85.90%
VIP Equity Income (10/9/86) 209.50% 210.49% 111.65%
VIP Growth (10/9/86) 250.65% 251.42% 87.56%
VIP Overseas (1/28/87) 81.78% N/A 43.36%
VIP II Investment Grade Bond (12/5/88) 66.47% N/A 27.61%
VIP II Index 500 (8/27/92) 85.33% N/A N/A
VIP II Asset Manager (9/16/89) 100.45% N/A 57.80%
VIP Money Market (4/1/82) 115.37% 52.77% 15.47%
VIP II Asset Manager: Growth (1/3/95) 43.21% N/A N/A
VIP II Contrafund (1/3/95) 64.28% N/A N/A
</TABLE>
FEDERAL TAX MATTERS
Tax-Free Exchanges (Section 1035)
Midland accepts Premiums which are the proceeds of a Contract in a transaction
qualifying for a tax-free exchange under Section 1035 of the Internal Revenue
Code. Except as required by federal law in calculating the basis of the
Contract, the Company does not differentiate between Section 1035 Premiums and
non-Section 1035 Premiums.
We also accept "rollovers" from Contracts qualifying as individual retirement
annuities or accounts (IRAs), or any other qualified contract which is
eligible to "rollover" into an IRA (except 403(b) contracts). The Company
differentiates between nonqualified Contracts and IRAs to the extent necessary
to comply with federal tax laws.
Required Distributions
In order to be treated as an annuity contract for federal income tax purposes,
section 72(s) of the code requires any Nonqualified Contract to provide that
(a) if any Owner dies on or after the Annuity Date but prior to the time the
entire interest in the Contract has been distributed, the remaining portion of
such interest will be distributed at least as rapidly as under the method of
distribution being used as of the date of that Owner's death; and (b) if any
Owner dies prior to the annuity starting date, the entire interest in the
Contract will be distributed (1) within five years after the date of that
Owner's death, or (2) as Annuity payments which will begin within one year of
that Owner's death and which will be made over the life of the Owner's
"Designated Beneficiary" or over a period not extending beyond the life
expectancy of that Beneficiary. The Owner's "Designated Beneficiary" is the
person to whom ownership of the Contract passes by reason of death and must be
a natural person. However, if the Owner's Designated Beneficiary is the
surviving spouse of the Owner, the Contract may be continued with the
surviving spouse as the new Owner.
The Nonqualified Contracts contain provisions which are intended to comply
with the requirements of section 72(s) of the Code, although no regulations
interpreting these requirements have yet been issued. We intend to review such
provisions and modify them if necessary to assure that they comply with the
requirements of Code section 72(s) when clarified by regulation or otherwise.
Other rules may apply to Qualified Contracts.
DISTRIBUTION OF THE CONTRACT
Walnut Street Securities (WSS), the principal
underwriter of the Contract, is registered with the Securities and Exchange
Commission under the Securities Exchange Act of 1934 as a broker-dealer and is
a member of the National Association of Securities Dealers, Inc. The
address for WSS is as follows: Walnut Street Securities, 670 Mason Ridge
Center, Suite 300, St. Louis, MO 63141-8557.
The Contracts are offered to the public through brokers, licensed under the
federal securities laws and state insurance laws, that have entered into
agreements with WSS . The offering of the Contracts is continuous and
WSS does not anticipate discontinuing the offering of the Contracts.
However, WSS does reserve the right to discontinue the offering of
the Contracts.
Prior to June 1, 1996 Midland paid underwriting commissions to North
American Management (NAM) since NAM was the principal underwriter of the
Contracts during this time. The following table shows the aggregate
dollar amount of underwriting commissions paid to NAM during the last three
years. Such underwriting commissions are not paid to WSS.
Underwriting
Year Commissions
1994 $121,960.86
1995 $100,715.80
1996 $99,593.61
SAFEKEEPING OF ACCOUNT ASSETS
Title to assets of the Separate Account is held by Midland. The assets are
kept physically segregated and held separate and apart from our general
account assets. Records are maintained of all Premiums and redemptions of Fund
shares held by each of the Investment Divisions.
STATE REGULATION
Midland is subject to the insurance laws and regulations of all the states
where it is licensed to operate. The availability of certain contract rights
and provisions depends on state approval and/or filing and review processes.
Where required by state law or regulation, the Contracts will be modified
accordingly.
RECORDS AND REPORTS
All records and accounts relating to the Separate Account will be maintained
by Midland. As presently required by the Investment Company Act of 1940 and
regulations promulgated thereunder, reports containing such information as may
be required under that Act or by any other applicable law or regulation will
be sent to Owners semi-annually at their last known address of record.
LEGAL PROCEEDINGS
There are no legal proceedings to which the Separate Account is a party or to
which the assets of the Separate Account are subject that are material to the
Contracts. We are not involved in any litigation that is of material
importance in relation to our total assets or that relates to the Separate
Account.
LEGAL MATTERS
Legal advice regarding certain matters relating to the federal securities laws
applicable to the issue and sale of the Contracts has been provided by
Sutherland, Asbill & Brennan L.L.P., of Washington, D.C.
EXPERTS
The financial statements of Midland National Life Separate Account C and
Midland National Life Insurance Company included in this Statement of
Additional Information and Registration Statement have been audited by Coopers
& Lybrand LLP, independent auditors, for the periods indicated in their report
thereon which appears elsewhere herein and in the Registration Statement. The
financial statements and schedules audited by Coopers & Lybrand LLP have been
included in reliance on their report, given on their authority as experts in
accounting and auditing. The mailing address for Coopers & Lybrand LLP is
as follows:
Coopers & Lybrand LLP
IBM Park Building, Suite 1300
650 Third Avenue S.
Minneapolis, MN 55402-4333
OTHER INFORMATION
A Registration Statement has been filed with the Securities and Exchange
Commission under the Securities Act of 1933 as amended, with respect to the
Contracts discussed in this Statement of Additional Information. Not all of
the information set forth in the Registration Statement, amendments and
exhibits thereto has been included in this Statement of Additional
Information. Statements contained in this Statement of Additional Information
concerning the content of the Contracts and other legal instruments are
intended to be summaries. For a complete statement of the terms of these
documents, reference should be made to the instruments filed with the
Securities and Exchange Commission.
FINANCIAL STATEMENTS
The financial statements of Midland National Life Separate Account C and
Midland National Life Insurance Company should be considered only as bearing
on the ability of Midland to meet its obligations under the Contracts. They
should not be considered as bearing on the investment performance of Separate
Account C.
2
22
Financial Statements
For the Years Ended December 31, 1996, 1995, and 1994
C o n t e n t s Page(s)
Report of Independent Accountants 1
Statement of Assets and Liabilities 2-3
Statements of Operations and Changes in Net Assets 4-7
Notes to Financial Statements 8-10
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, 1996, and the related statements of
operations and changes in net assets for each of the
three years in the period ended December 31, 1996.
These financial statements are the responsibility of
the Company's management.Our responsibility is to
express an opinion on these financial statements
based on our audits.
We conducted our audits in accordance with
generally accepted auditing standards. Those
standards require that we plan and perform the audit
to obtain reasonable assurance about whether the
financial statements are free of material
misstatement. An audit includes examining, on a test
basis, evidence supporting the amounts and
disclosures in the financial statements. Our
procedures included confirmation of securities owned
as of December 31, 1996, by correspondence with the
custodian. An audit also includes assessing the
accounting principles used and significant estimates
made by management, as well as evaluating the overall
financial statement presentation. We believe that
our audits provide a reasonable basis for our
opinion.
In our opinion, the financial statements
referred to above present fairly, in all material
respects, the financial position of each of the
respective portfolios constituting the Midland
National Life Separate Account C at December 31,
1996, and the results of their operations and changes
in their net assets for each of the three years in
the period ended December 31, 1996, in conformity
with generally accepted accounting principles.
COOPERS & LYBRAND L.L.P.
Minneapolis, Minnesota
March 7, 1997
<TABLE>
MIDLAND NATIONAL LIFE SEPARATE ACCOUNT C
<CAPTION>
STATEMENT OF ASSETS AND LIABILITIES
as of DECEMBER 31, 1996
Value
Per
ASSETS Shares Share
<S> <C> <C> <C>
Investments at net asset value:
Variable Insurance Products Fund:
Money Market Portfolio (cost $5,043,328) 5,043,328 $ 1.00 $ 5,043,328
High Income Portfolio (cost $2,718,532) 235,193 12.52 2,944,612
Equity-Income Portfolio (cost $9,775,621) 533,344 21.03 11,216,215
Growth Portfolio (cost $9,453,983) 338,383 31.14 10,537,243
Overseas Portfolio (cost $3,146,349) 188,713 18.84 3,555,356
Variable Insurance Products Fund II:
Asset Manager Portfolio (cost $4,950,112) 334,998 16.93 5,671,518
Investment Grade Bond Portfolio (cost $1,054,543) 89,678 12.24 1,097,659
Index 500 Portfolio (cost $3,744,891) 47,781 89.13 4,258,694
Contrafund Portfolio (cost $2,381,351) 160,790 16.56 2,662,680
Asset Manager Growth Portfolio (cost $929,175) 74,397 13.10 974,604
Total investments (cost $43,197,885) 47,961,909
</TABLE>
<TABLE>
LIABILITIES
<S> <C>
Accrued liabilities to be paid from:
Variable Insurance Products Fund:
Money Market Portfolio 5,696
High Income Portfolio 3,372
Equity -Income Portfolio 13,239
Growth Portfolio 12,548
Overseas Portfolio 4,096
Variable Insurance Products Fund II:
Asset Manager Portfolio 6,816
Investment Grade Bond Portfolio 1,379
Index 500 Portfolio 4,927
Contrafund Portfolio 3,089
Asset Manager Growth Portfolio 1,125
Total liabilities 56,287
Net assets $ 47,905,622
</TABLE>
The accompanying notes are an integral part of the financial statements.
<TABLE>
MIDLAND NATIONAL LIFE SEPARATE ACCOUNT C
<CAPTION>
STATEMENT OF ASSETS AND LIABILITIES - (Continued)
as of DECEMBER 31, 1996
Units Value
Net assets represented by:
<S> <C> <C> <C>
Variable Insurance Products Fund:
Money Market Portfolio 450,641 $11.18 $ 5,037,632
High Income Portfolio 221,760 13.26 2,941,240
Equity-Income Portfolio 696,083 16.09 11,202,976
Growth Portfolio 700,985 15.01 10,524,695
Overseas Portfolio 282,107 12.59 3,551,260
Variable Insurance Products Fund II:
Asset Manager Portfolio 447,842 12.65 5,664,702
Investment Grade Bond Portfolio 97,711 11.22 1,096,280
Index 500 Portfolio 256,789 16.57 4,253,767
Contrafund Portfolio 187,702 14.17 2,659,591
Asset Manager Growth Portfolio 71,781 13.56 973,479
Net assets $ 47,905,622
</TABLE>
The accompanying notes are an integral part of the financial statements.
<TABLE>
MIDLAND NATIONAL LIFE SEPARATE ACCOUNT C
<CAPTION>
STATEMENTS OF OPERATIONS AND CHANGES IN NET ASSETS
for the YEARS ENDED DECEMBER 31, 1996, 1995, and 1994
Variable Insurance Products Funds
Combined
1996 1995 1994
<S> <C> <C> <C>
Investment income:
Dividend income $ 610,051 $ 385,267 $ 79,766
Capital gains distributions 852,325 119,444 15,723
1,462,376 504,711 95,489
Expenses:
Administrative expense 54,222 25,328 8,142
Mortality and expense risk 489,968 217,898 68,555
Net investment income 918,186 261,485 18,792
Realized and unrealized gains(losses) on investments:
Net realized gains(losses) on investments 945,397 115,024 (45,126)
Net unrealized appreciation(depreciation) on
investments 2,183,942 2,674,228 (97,100)
Net realized and unrealized gains(losses) on
investments 3,129,339 2,789,252 (142,226)
Net increase(decrease) in net assets resulting from
operations $ 4,047,525 $ 3,050,737 $(123,434)
Net assets at beginning of year $23,945,524 $11,038,803 $ 233,806
Net increase(decrease) in net assets resulting
from operations 4,047,525 3,050,737 (123,434)
Capital shares transactions:
Net premiums 22,109,531 10,581,601 11,255,230
Transfers of policy loans (138,377) (144,179) -
Transfers of surrenders (1,435,877) (372,226) (321,278)
Transfers of death benefits (98,128) (46,217) -
Transfers of other terminations (524,576) (162,995) (5,521)
Interfund transfers - - -
Net increase in net assets from capital share
transactions 19,912,573 9,855,984 10,928,431
Total increase in net assets 23,960,098 12,906,721 10,804,997
Net assets at end of year $47,905,622 $23,945,524 $11,038,803
</TABLE>
The accompanying notes are an integral part of the financial statements.
<TABLE>
Variable Insurance Products Fund
<CAPTION>
Money Market Portfolio High Income Portfolio
<S> <C> <C> <C> <C> <C>
1996 1995 1994 1996 1995 1994
$ 219,309 $ 149,556 $ 49,963 $ 131,237 $ 55,615 $ 1,379
- - - 25,677 - 699
219,309 149,556 49,963 156,914 55,615 2,078
6,282 3,966 (386) 3,316 1,707 1,007
52,611 6,001 13,964 30,223 17,175 4,260
160,416 139,589 36,385 123,375 36,733 (3,189)
- - - 39,094 (488) (5,605)
- - - 84,465 145,024 (3,425)
- - - 123,559 144,536 (9,030)
$ 160,416 $ 139,589 $ 36,385 $ 246,934 $ 181,269 $ (12,219)
$3,452,911 $2,134,127 $ 36,896 $1,647,643 $ 704,704 $ 2,737
160,416 139,589 36,385 246,934 181,269 (12,219)
4,272,582 2,427,862 2,689,276 1,052,260 628,141 707,347
370 (84,063) - (18,992) 905 -
(610,463) (207,573) (197,524) (98,156) (3,633) (6,446)
(12,145) (8,341) - (990) (2,894) -
(116,605) (54,310) - (18,874) (10,701) (393)
(2,109,434) (894,380) (430,906) 131,415 149,852 13,678
1,424,305 1,179,195 2,060,846 1,046,663 761,670 714,186
1,584,721 1,318,784 2,097,231 1,293,597 942,939 701,967
$5,037,632 $3,452,911 $2,134,127 $2,941,240 $1,647,643 $ 704,704
</TABLE>
<TABLE>
MIDLAND NATIONAL LIFE SEPARATE ACCOUNT C
<CAPTION>
STATEMENTS OF OPERATIONS AND CHANGES IN NET ASSETS - (Continued)
for the YEARS ENDED DECEMBER 31, 1996, 1995, and 1994
Variable Insurance Products Fund
Equity-Income Portfolio
1996 1995 1994
<S> <C> <C> <C>
Investment income:
Dividend income $ 9,062 $ 84,766 $ 20,434
Capital gains distributions 259,769 103,811 2,143
268,831 188,577 22,577
Expenses:
Administrative expense 12,821 5,142 1,140
Mortality and expense risk 116,283 47,852 9,042
Net investment income 139,727 135,583 12,395
Realized and unrealized gains(losses) on
investments:
Net realized gains(losses) on investments 232,696 50,124 (838)
Net unrealized appreciation(depreciation)
on investments 639,710 792,899 7,652
Net realized and unrealized gains(losses)
on investments 872,406 843,023 6,814
Net increase(decrease) in net assets
resulting from operations $ 1,012,133 $ 978,606 $ 19,209
Net assets at beginning of year $ 5,535,894 $ 1,754,790 $ 29,066
Net increase(decrease) in net assets
resulting from operations 1,012,133 978,606 19,209
Capital shares transactions:
Net premiums 4,495,843 2,393,449 1,555,505
Transfers of policy loans (16,252) (30,250) -
Transfers of surrenders (146,734) (5,378) (14,353)
Transfers of death benefits (47,195) (11,605) -
Transfers of other terminations (171,438) (27,844) -
Interfund transfers 540,725 484,126 165,363
Net increase in net assets from capital
share transactions 4,654,949 2,802,498 1,706,515
Total increase in net assets 5,667,082 3,781,104 1,725,724
Net assets at end of year $ 11,202,976 $ 5,535,894 $ 1,754,790
</TABLE>
The accompanying notes are an integral part of the financial statements.
<TABLE>
Variable Insurance Products Fund
<CAPTION>
Growth Portfolio Overseas Portfolio
1996 1995 1994 1996 1995 1994
<S> <C> <C> <C> <C> <C>
$ 13,629 $ 9,943 $ 342 $ 28,907 $ 6,509 $ 582
344,126 - 3,615 31,798 6,509 -
357,755 9,943 3,957 60,705 13,018 582
11,964 4,688 1,147 4,460 3,030 1,784
109,649 48,286 8,834 41,952 31,243 9,379
236,142 (43,031) (6,024) 14,293 (21,255) (10,581)
342,671 49,376 (9,769) 51,904 (4,096) 1,635
260,988 795,521 26,404 237,970 215,778 (44,981)
603,659 844,897 16,635 289,874 211,682 (43,346)
$ 839,801 $ 801,866 $ 10,611 $ 304,167 $ 190,427 $ (53,927)
$ 4,630,311 $ 1,577,355 $ 25,617 $ 2,467,800 $ 1,529,642 $ 17,740
839,801 801,866 10,611 304,167 190,427 (53,927)
4,775,149 2,063,830 1,445,857 897,349 939,866 1,500,159
(19,252) 1,918 - (10,209) (4,570) -
(169,952) (14,054) (21,580) (93,933) (30,716) (12,830)
(2,219) (2,721) - (8,833) (2,457) -
(49,452) (16,169) (425) (24,888) (10,988) (395)
520,309 218,286 117,275 19,807 (143,404) 78,895
5,054,583 2,251,090 1,541,127 779,293 747,731 1,565,829
5,894,384 3,052,956 1,551,738 1,083,460 938,158 1,511,902
$ 10,524,695 $ 4,630,311 $ 1,577,355 $ 3,551,260 $ 2,467,800 $ 1,529,642
</TABLE>
<TABLE>
MIDLAND NATIONAL LIFE SEPARATE ACCOUNT C
<CAPTION>
STATEMENTS OF OPERATIONS AND CHANGES IN NET ASSETS - (Continued)
for the YEARS ENDED DECEMBER 31, 1996, 1995, and 1994
Variable Insurance Products Fund II
Asset Manager Portfolio
1996 1995 1994
<S> <C> <C> <C>
Investment income:
Dividend income $ 149,107 $ 58,611 $ 7,066
Capital gains distributions 122,948 - 9,226
272,055 58,611 16,292
Expenses:
Administrative expense 7,320 5,073 2,981
Mortality and expense risk 67,334 49,939 19,372
Net investment income 197,401 3,599 (6,061)
Realized and unrealized gains(losses) on investments:
Net realized gains(losses) on investments 87,754 1,832 (29,778)
Net unrealized appreciation(depreciation) on
investments 305,446 501,254 (87,326)
Net realized and unrealized gains(losses) on
investments 393,200 503,086 (117,104)
Net increase(decrease) in net assets resulting
from operations $ 590,601 $ 506,685 $ (123,165)
Net assets at beginning of year $ 4,067,451 $ 2,708,296 $ 120,282
Net increase(decrease) in net assets resulting
from operations 590,601 506,685 (123,165)
Capital shares transactions:
Net premiums 1,367,766 1,080,935 2,725,096
Transfers of policy loans (16,660) (28,119) -
Transfers of surrenders (159,533) (106,073) (60,424)
Transfers of death benefits (22,205) (10,336) -
Transfers of other terminations (83,451) (28,833) (4,308)
Interfund transfers (79,267) (55,104) 50,815
Net increase in net assets from capital share
transactions 1,006,650 852,470 2,711,179
Total increase in net assets 1,597,251 1,359,155 2,588,014
Net assets at end of year $ 5,664,702 $ 4,067,451 $ 2,708,296
</TABLE>
The accompanying notes are an integral part of the financial statements.
<TABLE>
Variable Insurance Products Fund II
Investment Grade Bond Portfolio
<CAPTION>
Index 500 Portfolio
1996 1995 1994 1996 1995 1994
<S> <C> <C> <C> <C> <C>
$ 30,902 $ 11,234 $ - $ 13,188 $ 6,043 $ -
- - 26 33,913 827 14
30,902 11,234 26 47,101 6,870 14
1,306 631 239 3,713 882 230
11,709 5,847 1,821 33,478 9,800 1,883
17,887 4,756 (2,034) 9,910 (3,812) (2,099)
16,413 4,272 (719) 130,338 13,011 (52)
(6,743) 51,182 (1,314) 342,676 165,241 5,890
9,670 55,454 (2,033) 473,014 178,252 5,838
$ 27,557 $ 60,210 $ (4,067) $ 482,924 $ 174,440 $ 3,739
$ 578,159 $ 299,623 $ 1,245 $ 983,298 $ 330,266 $ 223
27,557 60,210 (4,067) 482,924 174,440 3,739
521,107 263,700 303,858 2,506,543 395,859 328,132
(9,375) - - (19,357) - -
(51,740) (393) (160) (81,856) (4,406) (7,961)
- - - (1,602) (7,863) -
(6,831) (5,791) - (41,788) (8,359) -
37,403 (39,190) (1,253) 425,605 103,361 6,133
490,564 218,326 302,445 2,787,545 478,592 326,304
518,121 278,536 298,378 3,270,469 653,032 330,043
$ 1,096,280 $ 578,159 $ 299,623 $ 4,253,767 $ 983,298 $ 330,266
</TABLE>
<TABLE>
MIDLAND NATIONAL LIFE SEPARATE ACCOUNT C
<CAPTION>
STATEMENTS OF OPERATIONS AND CHANGES IN NET ASSETS - (Continued)
for the YEARS ENDED DECEMBER 31, 1996 and 1995
Variable Insurance Products Fund II
Contrafund Portfolio
Asset Manager Growth Portfolio
1996 1995 1996 1995
<S> <C> <C> <C> <C>
Investment income:
Dividend income $ - $ 1,716 $ 14,710 $ 1,274
Capital gains distributions 4,815 3,433 29,279 4,864
4,815 5,149 43,989 6,138
Expenses:
Administrative expense 2,275 157 765 52
Mortality and expense risk 20,104 1,322 6,625 433
Net investment income (17,564) 3,670 36,599 5,653
Realized and unrealized gains(losses) on investments:
Net realized gains(losses) on
investments 39,350 952 5,177 41
Net unrealized appreciation
(depreciation) on investments 274,444 6,886 44,986 443
Net realized and unrealized gains
(losses) on investments 313,794 7,838 50,163 484
Net increase(decrease) in net assets
resulting from operations $ 296,230 $ 11,508 $ 86,762 $ 6,137
Net assets at beginning of year $ 425,021 $ - $ 157,036 $ -
Net increase(decrease) in net assets
resulting from operations 296,230 11,508 86,762 6,137
Capital shares transactions:
Net premiums 1,564,947 266,136 655,985 121,823
Transfers of policy loans (14,296) - (14,354) -
Transfers of surrenders (23,252) - (258) -
Transfers of death benefits (2,939) - - -
Transfers of other terminations (4,941) - (6,308) -
Interfund transfers 418,821 147,377 94,616 29,076
Net increase in net assets from
capital share transactions 1,938,340 413,513 729,681 150,899
Total increase in net assets 2,234,570 425,021 816,443 157,036
Net assets at end of year $ 2,659,591 $ 425,021 $ 973,479 $ 157,036
</TABLE>
The accompanying notes are an integral part of the financial statements.
MIDLAND NATIONAL LIFE SEPARATE ACCOUNT C
NOTES TO FINANCIAL STATEMENTS
(1) Organization and Significant Accounting Policies
Midland National Life Separate Account C
("Separate Account"), a unit investment trust, was
established as a segregated investment account of
Midland National Life Insurance Company ("the
Company") in accordance with the provisions of the
South Dakota Insurance laws. The assets and
liabilities of the Separate Account are clearly
identified and distinguished from the other assets
and liabilities of the Company. The Separate Account
is used to fund variable annuity contracts of the
Company.
The Separate Account invests solely in specified
portfolios of Variable Insurance Products Fund and
Variable Insurance Products Fund II ("the Funds"),
diversified open-end management companies registered
under the Investment Company Act of 1940, as directed
by participants. The Contrafund and Asset Manager
Growth portfolios were introduced in 1995. All other
portfolios have been in existence for more than three
years. Investments in shares of the Funds are valued
at the net asset values of the respective portfolios
of the Funds corresponding to the investment
portfolios of the Separate Account. Fair value of
investments is also the net asset value. Walnut
Street Securities serves as the underwriter of the
Separate Account. Investment transactions are
recorded on the trade date. Dividends are
automatically reinvested in shares of the Funds. The
first-in, first-out (FIFO) method is used to
determine realized gains and losses on investments.
The operations of the Separate Account are
included in the federal income tax return of the
Company. Under the provisions of the policies, the
Company has the right to charge the Separate Account
for federal income tax attributable to the Separate
Account. No charge is currently being made against
the Separate Account for such tax since, under
current law, the Company pays no tax on investment
income and capital gains reflected in variable
annuity policy reserves. However, the Company
retains the right to charge for any federal income
tax incurred which is attributable to the Separate
Account if the law is changed. Charges for state and
local taxes, if any, attributable to the Separate
Account may also be made.
The preparation of financial statements in
conformity with generally accepted accounting
principles requires management to make estimates and
assumptions that affect the reported amounts of
assets and liabilities and disclosure of contingent
assets and liabilities at the date of the financial
statements and the reported amounts of revenues and
expenses during the reporting period. Actual results
could differ from those estimates.
(2) Expense Charges
The Company is compensated for certain expenses.
A contract administration fee is charged at an
effective annual rate of .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.
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.
<TABLE>
MIDLAND NATIONAL LIFE SEPARATE ACCOUNT C
<CAPTION>
NOTES TO FINANCIAL STATEMENTS - (Continued)
(3) Purchases and Sales of Investment Securities
The aggregate cost of purchases and proceeds
from sales of investments for the years ended
December 31, 1996, 1995, and 1994 were as follows:
1996 1995 1994
Purchases Sales Purchases Sales Purchases Sales
Portfolio
Variable Insurance Products Fund:
<S> <C> <C> <C> <C> <C> <C>
Money Market $21,770,832 $20,184,322 $11,196,889 $ 9,876,492 $13,317,547 $11,218,076
High Income 1,623,638 452,169 888,869 89,297 922,604 210,837
Equity-Income 5,847,193 1,045,612 3,383,946 441,477 2,055,273 334,443
Growth 6,383,402 1,085,482 2,519,137 307,501 1,681,546 144,688
Overseas 1,433,148 638,294 1,225,697 498,085 1,816,836 259,906
Variable Insurance Products Fund II:
Asset Manager 2,005,420 799,323 1,584,016 726,420 3,383,150 674,860
Investment
Grade Bond 729,557 220,402 300,334 76,922 317,328 16,573
Index 500 3,217,072 415,814 538,870 63,352 347,045 22,454
Contrafund 2,272,788 349,389 425,185 7,535 - -
Asset Manager
Growth 839,710 72,475 157,037 315 - -
$46,122,760 $25,263,282 $22,219,980 $12,087,396 $23,841,329 $12,881,837
</TABLE>
<TABLE>
(4) Summary of Changes from Unit Transactions
<CAPTION>
Transactions in units for the years ended
December 31, 1996, 1995, and 1994 were as follows:
1996 1995 1994
Purchases Sales Purchases Sales Purchases Sales
Portfolio
Variable Insurance Products Fund:
<S> <C> <C> <C> <C> <C> <C>
Money Market 1,965,259 1,835,459 1,047,251 933,525 1,308,723 1,105,283
High Income 115,859 33,434 75,488 7,130 90,728 20,019
Equity-Income 371,604 61,328 254,614 32,681 192,510 31,497
Growth 420,441 67,194 210,022 22,824 172,127 14,126
Overseas 115,187 50,402 114,354 44,488 169,067 23,317
Variable Insurance Products Fund II:
Asset Manager 147,495 62,120 148,566 66,155 332,194 63,612
Investment Grade
Bond 64,302 19,022 27,779 6,792 32,872 1,552
Index 500 211,021 25,537 43,113 4,483 34,706 2,053
Contrafund 177,080 25,284 36,480 574 - -
Asset Manager
Growth 63,374 5,275 13,682 - - -
</TABLE>
<TABLE>
MIDLAND NATIONAL LIFE SEPARATE ACCOUNT C
<CAPTION>
NOTES TO FINANCIAL STATEMENTS - (Continued)
(5) Net Assets
Net assets at December 31, 1996,
consisted of the following:
Accumulated
Net Net
Investment Unrealized
Capital Income and Appreciation
Share Net Realized of
Transactions Gains Investments Total
Portfolio
Variable Insurance Products Fund:
<S> <C> <C> <C> <C>
Money Market $ 4,701,063 $ 336,569 $ - $ 5,037,632
High Income 2,525,242 189,918 226,080 2,941,240
Equity-Income 9,192,563 569,819 1,440,594 11,202,976
Growth 8,872,091 569,344 1,083,260 10,524,695
Overseas 3,110,363 31,890 409,007 3,551,260
Variable Insurance Products Fund II:
Asset Manager 4,688,620 254,676 721,406 5,664,702
Investment Grade Bond 1,012,577 40,587 43,116 1,096,280
Index 500 3,592,661 147,303 513,803 4,253,767
Contrafund 2,351,853 26,409 281,329 2,659,591
Asset Manager Growth 880,580 47,470 45,429 973,479
$ 40,927,613 $ 2,213,985 $ 4,764,024 $ 47,905,622
</TABLE>
(6) Subsequent Events
In 1996, the Company filed with the Securities &
Exchange Commission an application for an order of
exemption pursuant to Section 17(b) of the Investment
Company Act of 1940 from Section 17(a) of the Act
which will permit the transfer of the entire amount
of assets and the assumption of the entire amount of
liabilities of the Investors Life Separate Account D
into the Separate Account C. Separate Account D
issues certain variable annuity contracts that were
sponsored by Investors Life Insurance Company of
Nebraska ("Investors Life"), a wholly-owned insurance
subsidiary of the Company. These variable annuity
contracts are nearly identical in all material
respects to the variable annuity contracts issued by
Separate Account C. This transaction was the result
of certain business decisions whereby Investors Life
will be reorganized with and merged into the Company,
with the Company remaining as the surviving
corporation. The Company will assume ownership of
all assets of Investors Life, including all assets
held in Separate Account D. This reorganization was
structured so that there would be no change in the
rights and benefits of persons having an interest in
the variable annuity contracts issued by either of
the separate accounts and no change in the net asset
values held by the respective participants of either
of the Separate Accounts. This transaction occurred
effective January 2, 1997.
Midland National Life Insurance Company
Consolidated Financial Statements
For the Years Ended December 31, 1996, 1995, and 1994
C o n t e n t s
Page(s)
Report of Independent Accountants............................... 1
Consolidated Balance Sheets.................................... 2
Consolidated Statements of Income............................... 3
Consolidated Statements of Stockholders' Equity................... 4
Consolidated Statements of Cash Flows........................... 5-6
Notes to Consolidated Financial Statements....................... 7-20
REPORT OF INDEPENDENT ACCOUNTANTS
The Board of Directors
Midland National Life Insurance Company:
We have audited the accompanying consolidated
balance sheets of Midland National Life Insurance
Company, a majority-owned subsidiary of Sammons
Enterprises, Inc., as of December 31, 1996 and 1995, and
the related consolidated statements of income,
stockholders' equity, and cash flows for each of the three
years in the period ended December 31, 1996. These
financial statements are the responsibility of the
Company's management. Our responsibility is to express
an opinion on these financial statements based on our
audits.
We conducted our audits in accordance with
generally accepted auditing standards. Those standards
require that we plan and perform the audit to obtain
reasonable assurance about whether the financial
statements are free of material misstatement. An audit
includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements.
An audit also includes assessing the accounting principles
used and significant estimates made by management, as
well as evaluating the overall financial statement
presentation. We believe that our audits provide a
reasonable basis for our opinion.
In our opinion, the financial statements referred to
above present fairly, in all material respects, the
consolidated financial position of Midland National Life
Insurance Company as of December 31, 1996 and 1995,
and the consolidated results of its operations and its cash
flows for each of the three years in the period ended
December 31, 1996, in conformity with generally accepted
accounting principles.
COOPERS & LYBRAND L.L.P.
Minneapolis, Minnesota
March 7, 1997
<TABLE>
MIDLAND NATIONAL LIFE INSURANCE COMPANY
<CAPTION>
CONSOLIDATED BALANCE SHEETS
as of DECEMBER 31, 1996 and 1995
(Amounts in thousands, except share and per share amounts)
ASSETS
1996 1995
Investments:
<S> <C> <C>
Fixed maturities...............................$ 1,840,902 $ 1,689,811
Equity securities.............................. 215,964 221,712
Policy loans.................................. 154,090 142,795
Short-term investments........................ 242,857 224,109
Other invested assets...................... .. 18,495 6,271
Total investments............................. 2,472,308 2,284,698
Cash ............................................. 3,578 9,299
Accrued investment income......................... 32,613 34,493
Deferred policy acquisition costs.................... 427,218 410,051
Present value of future profits of acquired business... 21,308 26,414
Other receivables and other assets..................... 23,922 35,476
Separate account assets................................. 81,516 44,273
Total assets....................................... $ 3,062,463 $ 2,844,704
</TABLE>
LIABILITIES AND STOCKHOLDERS' EQUITY
Liabilities:
Policyholder account balances................. $ 1,789,732 $ 1,707,898
Policy benefit reserves........................ 404,806 379,787
Policy claims and benefits payable............. 31,512 30,347
Federal income taxes............................ 39,315 31,019
Other liabilities............................... 90,267 73,903
Separate account liabilities.................... 81,516 44,273
Total liabilities................................... 2,437,148 2,267,227
Commitments and contingencies.......................... Stockholders' equity:
Common stock $1 par value, 2,549,439 shares
authorized, issued and outstanding................ 2,549 2,549
Additional paid-in capital........................ 33,707 33,707
Net unrealized appreciation of investment securities.18,825 31,027
Retained earnings................................ 570,234 510,194
Total stockholders' equity....................... 625,315 577,477
Total liabilities and stockholders' equity.............$ 3,062,463 $ 2,844,704
<TABLE>
MIDLAND NATIONAL LIFE INSURANCE COMPANY
<CAPTION>
CONSOLIDATED STATEMENTS OF INCOME
for the YEARS ENDED DECEMBER 31, 1996, 1995, and 1994
(Amounts in thousands)
1996 1995 1994
Revenues:
<S> <C> <C> <C>
Premiums.................................................$ 101,423 $ 100,858 $ 101,296
Interest sensitive life and investment product charges... 150,839 139,611 113,334
Net investment income.................................... 173,583 167,020 150,318
Net realized investment gains (losses)................... 6,839 1,762 (17,764)
Net unrealized gains (losses) on trading securities...... 6,200 7,057 (13,277)
Other income............................................. 4,362 5,754 4,545
Total revenues........................................... 443,246 422,062 338,452
Benefits and expenses:
Benefits incurred........................................ 151,208 139,056 144,178
Interest credited to policyholder account balances....... 103,618 102,339 86,395
Total benefits........................................... 254,826 241,395 230,573
Operating expenses....................................... 43,243 43,726 34,249
Amortization of deferred policy acquisition costs and
present value of future profits of acquired business..... 53,316 51,576 39,820
Total benefits and expenses.............................. 351,385 336,697 304,642
Income before income taxes............................... 91,861 85,365 33,810
Income taxes............................................. 31,821 28,703 9,837
Net income................................................... $ 60,040 $ 56,662 $ 23,973
</TABLE>
<TABLE>
MIDLAND NATIONAL LIFE INSURANCE COMPANY
<CAPTION>
CONSOLIDATED STATEMENTS OF STOCKHOLDERS' EQUITY
for the YEARS ENDED DECEMBER 31, 1996, 1995, and 1994
(Amounts in thousands)
Net Unrealized
Appreciation
Additional (Depreciation)
Common Paid-In of Investment Retained
Stock Capital Securities Earnings Total
<S> <S> <S> <S> <S> <S>
Balance at January 1, 1994................$ 2,549 $ 33,707 $ 3,785 $ 452,734 $ 492,775
Adjustment to beginning balance for
change in accounting principle............ - - 33,616 - 33,616
Net income................................ - - - 23,973 23,973
Dividends paid on common stock............ - - - (12,850) (12,850)
Net depreciation of available
for sale investments...................... - - (47,404) - (47,404)
Balance at December 31, 1994.............. 2,549 33,707 (10,003) 463,857 490,110
Net income................................ - - - 56,662 56,662
Dividends paid on common stock............. - - - (10,325) (10,325)
Net appreciation of available
for sale investments....................... - - 41,030 - 41,030
Balance at December 31, 1995............... 2,549 33,707 31,027 510,194 577,477
Net income................................. - - - 60,040 60,040
Net depreciation of available
for sale investments....................... - - (12,202) - (12,202)
Balance at December 31, 1996............. $ 2,549 $ 33,707 $ 18,825 $ 570,234 $ 625,315
</TABLE>
The accompanying notes are an integral part of the financial statements.
<TABLE>
MIDLAND NATIONAL LIFE INSURANCE COMPANY
<CAPTION>
CONSOLIDATED STATEMENTS OF CASH FLOWS
for the YEARS ENDED DECEMBER 31, 1996, 1995, and 1994
(Amounts in thousands)
1996 1995 1994
Cash flows from operating activities:
<S> <C> <C> <C>
Net income ............................................ $ 60,040 $ 56,662 $ 23,973
Adjustments to reconcile net income to net cash
provided by operating activities:
Amortization of deferred policy acquisition costs and
present value of future profits of acquired
business............................................... 53,316 51,576 39,820
Net amortization of premiums and discounts on
investments........................................... 5,532 4,828 3,577
Policy acquisition costs deferred ........................ (65,285) (63,717) (61,045)
Net realized investment (gains) losses.................... (6,839) (1,762) 17,764
Net unrealized (gains) losses on trading securities....... (6,200) (7,057) 13,277
Net proceeds from (cost of) trading securities............ 5,788 (23,305) 47,585
Deferred income taxes..................................... 12,177 (5,721) (6,953)
Net interest credited and product charges on
universal life and investment policies................. (47,221) (37,272) (26,939)
Changes in other assets and liabilities:
Net receivables and payables.............................. 32,863 12,346 8,172
Policy benefits........................................... 26,185 23,500 21,659
Other ................................................ (277) 539 (19)
Net cash provided by operating activities................... 70,079 10,617 80,871
Cash flows from investing activities:
Proceeds from investments sold, matured, or repaid:
Fixed maturities ....................................... 1,422,426 911,883 736,651
Equity securities........................................... 129,827 51,567 12,171
Other invested assets....................................... 2,055 421 1,486
Cost of investments acquired:
Fixed maturities............................................ (1,569,779) (994,486) (1,071,431)
Equity securities........................................... (145,096) (41,968) (26,229)
Other invested assets....................................... (14,245) (2,283) -
Net change in policy loans.................................. (11,295) (9,883) (10,425)
Net change in short-term investments........................ (18,748) (24,963) 90,704
Net change in security lending.............................. - (33,239) 33,239
Payment for purchase of insurance business, net of
cash acquired............................................. - (440) 32,215
Net cash used in investing activities........................ (204,855) (143,391) (201,619)
</TABLE>
The accompanying notes are an integral part of the financial statements.
<TABLE>
MIDLAND NATIONAL LIFE INSURANCE COMPANY
<CAPTION>
CONSOLIDATED STATEMENTS OF CASH FLOWS (CONTINUED)
for the YEARS ENDED DECEMBER 31, 1996, 1995, and 1994
(Amounts in thousands)
1996 1995 1994
Cash flows from operating activities:
<S> <C> <C> <C>
Receipts from universal life and investment products............. $ 285,569 $ 272,511 $ 237,792
Benefits paid on universal life and investment products.......... (156,514) (129,024) (98,775)
Dividends paid to common stockholders.............................. - (10,325) (12,850)
Net cash provided by financing activities.............................. 129,055 133,162 126,167
(Decrease) increase in cash.............................................. (5,721) 388 5,419
Cash at beginning of year................................................... 9,299 8,911 3,492
Cash at end of year........................................................$ 3,578 $ 9,299 $ 8,911
Supplemental disclosures of cash information:
Cash paid during the year for:
Interest.................................................................$ 166 $ 188 $ 210
Income taxes, paid to parent.......................................... 16,772 25,376 23,573
Noncash operating, investing and financing activity:
Policy loans and receivables from state guaranty
associations and others received in assumption
reinsurance agreements................................................. - 9,723 48,546
</TABLE>
The accompanying notes are an integral part of the financial statements.
(1) Summary of Significant Accounting Policies Organization
Midland National Life Insurance Company ("Midland") is
a majority-owned subsidiary of Sammons Enterprises, Inc.
("SEI"). Midland operates predominantly in the individual
life and annuity business of the life insurance industry in
49 states.
Basis of Presentation
The accompanying consolidated financial statements
include the accounts of Midland and its wholly-owned
subsidiaries (collectively "the Company"). All significant
intercompany accounts and transactions have been
eliminated in consolidation.
Effective May 31, 1996, Midland sold its wholly-owned
subsidiary, North American Management, Inc. (NAM), to
an unrelated party for a net consideration which
approximated the net equity of NAM at May 31, 1996. The
operations of the subsidiary, which were included through
May 31, 1996, were not material to the consolidated
group.
On January 2, 1997, Investors Life Insurance Company
of Nebraska was merged into Midland. Since this wholly-
owned subsidiary was previously consolidated with
Midland, this merger will have no impact on the
consolidated financial statements of Midland.
In preparing the consolidated financial statements,
management is required to make estimates and
assumptions that affect the reported amounts of assets
and liabilities and disclosure of contingent assets and
liabilities as of the date of the balance sheet and revenues
and expenses for the period. Actual results could differ
significantly from those estimates. The following are the
more significant elements of the financial statements
affected by the use of estimates and assumptions:
Investment values.
Deferred policy acquisition costs.
Present value of future profits of acquired business.
Policy benefit reserves and claims reserves.
Fair value of financial instruments.
The Company is subject to the risk that interest rates
will change and cause a decrease in the value of its
investments. To the extent that fluctuations in interest
rates cause the duration of assets and liabilities to differ,
the Company may have to sell assets prior to their
maturity and realize a loss.
Investments
The Company adopted the provisions of the FASB's
Statement of Financial Accounting Standards No. 115
"Accounting for Certain Investments in Debt and Equity
Securities" ("SFAS 115") in 1994. SFAS 115 requires the
Company to classify its fixed maturity investments (bonds
and redeemable preferred stocks) and equity securities
(common and nonredeemable preferred stocks) into three
categories: securities that the Company has the positive
intent and the ability to hold to maturity are classified as
"held to maturity"; securities that are held for current resale
are classified as "trading securities"; and securities not
classified as held to maturity or as trading securities are
classified as "available for sale". The Company has no
securities classified as held-to-maturity.
SFAS 115 requires fixed maturity investments
classified as trading or available-for-sale to be reported at
fair value in the balance sheet. The cumulative effect of
adopting SFAS 115 for available-for-sale securities is
reflected in stockholders' equity (as a cumulative effect of
a change in accounting principle) in 1994. There was no
material effect of adopting SFAS 115 for trading securities.
Trading securities are held for resale in anticipation of
short-term market movements. The Company's trading
securities are stated at market value. Gains and losses on
these securities, both realized and unrealized, are included
in the determination of net income. Net cost of or
proceeds from trading securities are included in operating
activities in the consolidated statement of cash flows.
Available-for-sale securities are classified as such if not
considered trading securities or if there is not the positive
intent and ability to hold the securities to maturity. Such
securities are carried at market value with the unrealized
holding gains and losses included directly in stockholders'
equity, net of related adjustments to deferred policy
acquisition costs and deferred income taxes. Cash flows
from available-for-sale security transactions are included
in investing activities in the consolidated statement of cash
flows.
Policy loans and other invested assets are carried at
unpaid principal balances. Short-term investments are
carried at amortized cost, which approximates fair value.
Investment income is recorded when earned. Realized
gains and losses are determined on the basis of specific
identification of the investments.
When a decline in value of an investment is determined
to be other than temporary, the specific investment is
carried at estimated realizable value and its original book
value is reduced to reflect this impairment. Such
reductions in book value are recognized as realized
investment losses in the period in which they were written
down.
For CMOs and mortgage-backed securities, the
Company recognizes income using a constant effective
yield based on anticipated prepayments and the estimated
economic life of the securities. When actual prepayments
differ significantly from anticipated prepayments, the
effective yield is recalculated to reflect actual payments to
date and anticipated future payments. The net investment
in the security is adjusted to the amount that would have
existed had the new effective yield been applied since the
acquisition of the security. This adjustment is included in
net investment income.
The Company periodically enters into agreements to
sell and repurchase securities. The commitment to
repurchase securities sold under these agreements are
reported as liabilities and the investments acquired with
the funds received from the securities sold are included in
short-term investments.
Recognition of Traditional Life, Health, and Annuity
Premium Revenue and Policy Benefits
Traditional life insurance products include those
products with fixed and guaranteed premiums and
benefits, and consist principally of whole life insurance
policies. Life insurance premiums, which comprise the
majority of premium revenues, are recognized as premium
income when due. Benefits and expenses are associated
with earned premiums so as to result in recognition of
profits over the life of the contracts. This association is
accomplished by means of the provision for policy benefit
reserves and the amortization of deferred policy
acquisition costs.
Liabilities for policy benefit reserves for traditional
policies generally are computed by the net level premium
method based on estimated future investment yield,
mortality, morbidity, and withdrawals which were
appropriate at the time the policies were issued or
acquired. Interest rate assumptions range from 6.5% to
11.0%.
Recognition of Revenue and Policy Benefits for Interest
Sensitive Life Insurance Products
and Investment Contracts (Interest Sensitive Policies)
Interest sensitive policies are issued on a periodic and
single premium basis. Amounts collected are credited to
policyholder account balances. Revenues from interest
sensitive policies consist of charges assessed against
policyholder account balances for the cost of insurance,
policy administration, and surrender charges. Revenues
also include investment income related to the investments
which support the policyholder account balances. Policy
benefits and claims that are charged to expense include
benefits incurred in the period in excess of related
policyholder account balances. Benefits also include
interest credited to the account balances.
Policy reserves for universal life and other interest-
sensitive life insurance and investment contracts are
determined using the retrospective deposit method. Policy
reserves consist of the policyholder deposits and credited
interest less withdrawals and charges for mortality,
administrative, and policy expenses. Interest crediting
rates ranged primarily from 3% to 7% in 1996, 3% to 7.5%
in 1995, and 3.5% to 7.5% in 1994. For certain contracts
these crediting rates extend for periods in excess of one
year.
Deferred Policy Acquisition Costs
Policy acquisition costs which vary with, and are
primarily related to the production of new business, have
been deferred to the extent that such costs are deemed
recoverable from future profits. Such costs include
commissions, policy issuance, underwriting, and variable
agency expenses.
Costs deferred related to traditional life insurance are
amortized over the estimated premium paying period of
the related policies in proportion to the ratio of annual
premium revenues to total anticipated premium revenues.
Costs deferred related to interest sensitive policies are
being amortized over the lives of the policies (up to 25
years) in relation to the present value of actual and
estimated gross profits subject to regular evaluation and
retroactive revision to reflect actual emerging experience.
<TABLE>
Policy acquisition costs deferred and amortized for
years ended December 31 are as follows:
<CAPTION>
1996 1995 1994
<S> <C> <C> <C>
Deferred policy acquisition costs, beginning of year.............. $ 410,051 $ 415,594 $ 86,637
Commissions deferred............................................ 55,005 52,533 50,252
Underwriting and acquisition expenses deferred................. 10,280 11,184 10,793
Change in offset to unrealized gains and losses................. 92 (22,325) 7,011
Amortization.................................................... (48,210) (46,935) (39,099)
Deferred policy acquisition costs, end of year..................... $ 427,218 $ 410,051 $ 415,594
</TABLE>
To the extent that unrealized gains and losses on
available-for-sale securities would result in an adjustment
to the amortization pattern of deferred policy acquisition
costs or present value of future profits of acquired
business had those gains or losses actually been realized,
the adjustments are recorded directly to stockholders'
equity as an offset to the unrealized gains or losses with
no effect on income.
Present Value of Future Profits of Acquired Business
The present value of future profits of acquired business
(PVFP) represents the portion of the purchase price of a
block of business which is allocated to the future profits
attributable to the insurance in force at the dates of
acquisition. The PVFP is amortized in relationship to the
actual and expected emergence of such future profits.
The composition of the PVFP for the years ended
December 31 is summarized below:
<TABLE>
<S> <C> <C> <C>
Balance at beginning of year...... $ 26,414 $ 31,495 $ -
Value of in force acquired..... - (440) 32,216
Amortization................... (5,106) (4,641) (721)
Balance at end of year........... $ 21,308 $ 26,414 $ 31,495
</TABLE>
Based on current conditions and assumptions as to
future events, the Company expects to amortize
approximately 19 percent of the December 31, 1996,
balance of PVFP in 1997, 16 percent in 1998, 14 percent
in 1999, 12 percent in 2000, and 10 percent in 2001. The
interest rates used to determine the amortization of the
cost of policies purchased ranged from 5.5 percent to 6.5
percent.
Policy Claims and Benefits Payable
The liability for policy claims and benefits payable
includes provisions for reported claims and estimates for
claims incurred but not reported, based on the terms of the
related policies and contracts and on prior experience.
Claim liabilities are necessarily based on estimates and
are subject to future changes in claim severity and
frequency. Estimates are continually reviewed and
adjustments to such liabilities are reflected in current
operations
Federal Income Taxes
The Company is a member of SEI's consolidated
United States federal income tax group. The policy for
intercompany allocation of federal income taxes provides
that the Company compute the provision for federal
income taxes on a separate consolidated return with its
subsidiaries. The Company makes payment to, or
receives payment from, SEI in the amount they would
have paid to, or received from, the Internal Revenue
Service had they not been members of the consolidated
tax group. The separate Company provisions and
payments are computed using the tax elections made by
the Parent.
Deferred tax liabilities and assets are recognized
based upon the difference between the financial statement
and tax bases of assets and liabilities using enacted tax
rates in effect for the year in which the differences are
expected to reverse.
Separate Account
Separate account assets and liabilities represent funds
held for the exclusive benefit of variable universal life and
annuity contractholders. Fees are received for
administrative expenses and for assuming certain
mortality, distribution and expense risks. Operations of the
separate accounts are not included in these consolidated
financial statements.
Reclassifications
Certain items in the 1995 and 1994 financial statements
have been reclassified to conform to the 1996
presentation.
(2) Fair Value of Financial Instruments
The following methods and assumptions were used by
the Company in estimating its fair value disclosures for
financial instruments:
Cash, short-term investments, policy loans,
and other invested assets: The carrying
amounts reported in the balance sheets for
these instruments approximate their fair
values.
Investment securities: Fair value for fixed
maturity securities (including redeemable
preferred stocks) are based on quoted
market prices, where available. For fixed
maturities not actively traded, fair values
are estimated using values obtained from
independent pricing services. In some
cases, such as private placements and
certain mortgage-backed securities, fair
values are estimated by discounting
expected future cash flows using a current
market rate applicable to the yield, credit
quality and maturity of the investments.
The fair value of equity securities are based
on quoted market prices.
Investment-type contracts: Fair values for
the Company's liabilities under investment -
type insurance contracts are estimated
using two methods. For those contracts
without a defined maturity, the fair value
was estimated as the amount payable on
demand (cash surrender value). For those
contracts with known maturities, fair value is
estimated using discounted cash flow
calculations using interest rates currently
being offered for similar contracts with
maturities consistent with those remaining
for the contracts being valued.
These fair value estimates are significantly affected
by the assumptions used, including the discount rate and
estimates of future cash flows. Although fair value
estimates are calculated using assumptions that
management believes are appropriate, changes in
assumptions could cause these estimates to vary
materially. In that regard, the derived fair value estimates
cannot be substantiated by comparison to independent
markets and, in some cases, could not be realized in the
immediate settlement of the instruments. Certain financial
liabilities (including non investment-type insurance
contracts) and all nonfinancial instruments are excluded
from the disclosure requirements. Accordingly, the
aggregate fair value amounts presented do not represent
the underlying value of the Company.
<TABLE>
The carrying value and estimated fair value of the
Company's financial instruments are as follows:
<CAPTION>
December 31, 1996 December 31, 1995
Carrying Estimated Carrying Estimated
Value Fair Value Value Fair Value
Financial assets:
<S> <C> <C> <C> <C>
Fixed maturities - available for sale........ $ 1,807,362 $ 1,807,362 $ 1,680,408 $ 1,680,408
Fixed maturities - trading..................... 33,540 33,540 9,403 9,403
Equity securities - available for sale...... 67,498 67,498 50,582 50,582
Equity securities - trading.................... 148,466 148,466 171,130 171,130
Policy loans....................................... 154,090 154,090 142,795 142,795
Short-term investments....................... 242,857 242,857 224,109 224,109
Other investments.............................. 18,495 18,495 6,271 6,271
Financial liabilities:
Investment-type insurance contracts....... 615,000 597,000 609,000 590,000
</TABLE>
(3) Investments and Investment Income
Fixed Maturities and Equity Security Investments
<TABLE>
The amortized cost and estimated fair value of fixed
maturities and equity securities classified as available for
sale are as follows:
<CAPTION>
December 31, 1996
Gross Gross
Unrealized Unrealized Estimated
Amortized Holding Holding Fair
Cost Gains Losses Value
Fixed maturities:
<S> <C> <C> <C> <C>
U.S. Treasury and other U.S. Government
corporations and agencies................. $ 671,485 $ 4,798 $ 783 $ 675,500
Obligations of U.S. states and political
subdivisions...................................... 3,203 267 - 3,470
Corporate securities.......................... 522,349 26,551 961 547,939
Mortgage-backed securities.............. 572,763 8,242 634 580,371
Other debt securities......................... 79 3 - 82
Total fixed maturities...................... 1,769,879 39,861 2,378 1,807,362
Equity securities.............................. 60,798 7,912 1,212 67,498
Total available for sale.................... $ 1,830,677 $ 47,773 $ 3,590 $1,874,860
</TABLE>
<TABLE>
<CAPTION>
December 31, 1995
Gross Gross
Unrealized Unrealized Estimated
Amortized Holding Holding Fair
<S> Cost Gains Losses Value
Fixed maturities:
<C> <C> <C> <C>
U.S. Treasury and other U.S. Government
corporations and agencies................................. $ 663,677 $ 6,449 $ 1,791 $ 668,335
Obligations of U.S. states and political
subdivisions.............................................. 3,604 418 - 4,022
Corporate securities.................................. 495,345 39,129 196 534,278
Mortgage-backed securities........................... 449,177 15,882 230 464,829
Other debt securities.................................. 10,215 6 1,277 8,944
Total fixed maturities................................. 1,622,018 61,884 3,494 1,680,408
Equity securities...................................... 45,837 7,045 2,300 50,582
Total available for sale............................... $ 1,667,855 $ 68,929 $ 5,794 $1,730,990
</TABLE>
The amortized cost of the fixed maturities and the cost
of the equity securities classified as trading securities are
$33,735 and $148,291, respectively, at December 31,
1996, and $9,160 and $177,593, respectively, at
December 31, 1995.
The net unrealized appreciation on the available-for-
sale securities is reduced by deferred policy acquisition
costs and deferred income taxes at December 31, as
shown below:
1996 1995
Gross unrealized appreciation ......................$ 44,183 $ 63,135
Deferred policy acquisition costs .................. (15,220) (15,312)
Deferred income taxes............................... (10,138) (16,796)
Net unrealized appreciation of investments.......... $ 18,825 $ 31,027
<TABLE>
The change in net unrealized gains (losses) on
available-for-sale fixed maturity and equity security
investments were as follows:
<CAPTION>
1996 1995 1994
<S> <C> <C> <C>
Fixed maturities...................................................$ (20,907) $ 79,603 $ (87,911)
Equity securities.................................................. 1,955 5,974 (6,377)
Less DAC impact.................................................. 92 (22,325) 21,219
Less deferred income tax effect.............................. 6,658 (22,222) 25,665
Net change in unrealized gains (losses).................. $ (12,202) $ 41,030 $ (47,404)
</TABLE>
The amortized cost and estimated fair value of
available-for-sale fixed maturities at December 31, 1996,
by contractual maturity, are as follows. Expected
maturities will differ from contractual maturities because
borrowers may have the right to call or prepay
obligations with or without call or prepayment penalties.
Estimated
Amortized Fair
Cost Value
Due in one year or less........................ $ 173,223 $ 173,283
Due after one year through five years.......... 661,453 670,036
Due after five years through ten years........ 183,194 192,562
Due after ten years........................... 179,246 191,109
Securities not due at a single maturity date (primarily
mortgage-backed securities).................. 572,763 580,372
Total fixed maturities........................ $ 1,769,879 $ 1,807,362
Investment Income and Investment Gains (Losses)
Major categories of investment income are summarized as follows:
1996 1995 1994
Gross investment income:
Fixed maturities................ $ 126,733 $ 121,003 $ 112,120
Equity securities................. 22,202 20,885 22,450
Policy loans...................... 10,327 9,485 7,369
Short-term investments............ 16,946 18,648 12,344
Other Invested Assets............ 553 490 589
Gross investment income.......... 176,761 170,511 154,872
Less investment expenses........ 3,178 3,491 4,554
Net investment income........... $ 173,583 $ 167,020 $ 150,318
<TABLE>
The major categories of investment gains and losses
reflected in the income statement are summarized as
follows:
<CAPTION>
1996 1995 1994
Realized Realized Realized
Unrealized Unrealized - Unrealized
-Trading Trading -Trading
Securities Securities Securities
<S> <C> <C> <C> <C> <C> <C>
Fixed maturities................. $ 8,047 $ (438) $ 14,303 $ 834 $ (6,115) $ (591)
Equity securities................ (1,196) 6,638 (12,608) 6,223 (11,669) (12,686)
Other............................ (12) - 67 - 20 -
Net investment gains (losses) $ 6,839 $ 6,200 $ 1,762 $ 7,057 $ (17,764) $ (13,277)
</TABLE>
<TABLE>
Proceeds from the sale of available-for-sale securities
and the gross realized gains and losses on these sales
(excluding maturities, calls and prepayments) during 1996,
1995, and 1994 were as follows:
<CAPTION>
1996 1995 1994
Fixed Fixed Fixed
Maturities Equity Maturities Equity Maturities Equity
<S> <C> <C> <C> <C> <C> <C>
Proceeds from sales $ 1,020,090 $ 106,354 $ 651,092 $ 51,547 $ 489,418 $ 12,171
Gross realized gains 10,418 787 15,205 617 4,634 254
Gross realized losses 5,030 1,954 4,241 2,802 11,115 1,003
</TABLE>
Other
At December 31, 1996, and 1995, securities
amounting to approximately $16,816 and $16,518,
respectively, were on deposit with regulatory authorities
as required by law.
The Company periodically enters into repurchase
agreements with brokerage firms. No investments were
outstanding under repurchase agreements at December
31, 1996 and 1995.
The Company generally strives to maintain a
diversified invested assets portfolio. Other than
investments in U.S. Government or U.S. Government
Agency or Authority, the Company had no investments in
one entity which exceeded 10% of stockholders' equity
at December 31, 1996, except for an investment in
Apollo Computers with a carrying value of $75,139.
(4) Income Taxes
The significant components of the provision for
federal income taxes are as follows:
1996 1995 1994
Current..............................$ 19,644 $ 34,424 $ 16,790
Deferred............................. 12,177 (5,721) (6,953)
Total federal income tax expense.....$ 31,821 $ 28,703 $ 9,837
Income tax expense differs from the amounts
computed by applying the U.S. Federal income tax rate
of 35% to income before income taxes as follows:
1996 1995 1994
At statutory Federal income tax rate........$ 32,151 $ 29,980 $ 11,755
Dividends received deductions............... (1,391) (1,718) (1,798)
Other, net.................................. 1,061 441 (120)
Total federal income tax expense.........$ 31,821 $ 28,703 $ 9,837
The federal income tax liability as of December 31 is
comprised of the following:
1996 1995
Net deferred income tax liability.......... $ 33,432 $ 27,913
Income taxes currently due................. 5,883 3,106
Federal income tax liability............. $ 39,315 $ 31,019
<TABLE>
The tax effects of temporary differences that give rise
to significant portions of the deferred income tax assets
and deferred income tax liabilities at December 31 are as
follows:
<CAPTION>
1996 1995
<S> <C> <C>
Deferred tax liabilities:
Present value of future profits of acquired businesses........ $ 7,458 $ 9,276
Deferred policy acquisition costs............................. 114,971 112,818
Investments................................................... 17,541 22,330
Other......................................................... 2,909 -
Total deferred income tax liabilities....................... 142,879 144,424
Deferred tax assets:
Policy liabilities and reserves............................... 109,447 115,547
Other......................................................... - 964
Total gross deferred income tax assets...................... 109,447 116,511
Net deferred income tax liability........................... $ 33,432 $ 27,913
</TABLE>
Prior to 1984, certain special deductions were allowed
life insurance companies for federal income tax
purposes. These special deductions were accumulated
in a memorandum tax account designated as
"Policyholders' Surplus." Such amounts will usually
become subject to tax at the then current rates only if the
accumulated balance exceeds certain maximum
limitations or certain cash distributions are deemed to be
paid out of this account. It is management's opinion that
such events are not likely to occur. Accordingly, no
provision for income tax has been made on the
approximately $66,000 balance in the policyholders'
surplus account at December 31, 1996.
(5) Reinsurance
The Company is involved in both the cession and
assumption of reinsurance with other companies.
Reinsurance premiums and claims ceded and assumed
for the years ended December 31 are as follows:
1996 1995 1994
Ceded Assumed Ceded Assumed Ceded Assumed
Premiums written... $ 13,759 $ 7,116 $ 13,165 $ 5,368 $ 7,516 $ 5,210
Claims incurred.... 12,170 6,068 11,899 5,204 7,546 7,069
The Company presently reinsures the excess of each
individual risk over $500 on ordinary life insurance in
order to spread its risk of loss. Certain other individual
health contracts are reinsured on a policy-by-policy
basis.
To the extent that reinsurers may not be able to
meet the obligations assumed under the reinsurance
contracts, the Company is contingently liable to pay
policy benefits.
Effective January 1, 1996, the Company assumed
certain policy risks ($22,591,000 of life insurance in force
at December 31, 1996) from its affiliate, North American
Company for Life and Health Insurance, and its
subsidiaries. The Company has reflected a risk and
profit charge of $1,119 in other income.
(6) Statutory Financial Data and Dividend
Restrictions
The Company is domiciled in South Dakota. Its
statutory-basis financial statements are prepared in
accordance with accounting practices prescribed or
permitted by the insurance department of the domiciliary
state. "Prescribed" statutory accounting practices
include state laws, regulations, and general
administrative rules, as well as a variety of publications
of the National Association of Insurance Commissioners
(NAIC). "Permitted" statutory accounting practices
encompass all accounting practices that are not
prescribed. Such practices differ from state to state and
company to company.
Generally, the net assets of the Company
available for distribution to its shareholders are limited to
the amounts by which the net assets, as determined in
accordance with statutory accounting practices, exceed
minimum regulatory statutory capital requirements. All
payments of dividends or other distributions to
stockholders are subject to approval by regulatory
authorities. The maximum amount of dividends which
can be paid by Midland and its subsidiaries during any
12-month period, without prior approval of the insurance
commissioner, is limited according to statutory
regulations and is a function of statutory equity and
statutory net income (generally, the greater of
statutory-basis net gain from operations or 10% of prior
year-end statutory-basis surplus). The maximum
amount of dividends payable in 1997 without prior
approval of regulatory authorities is approximately
$30,000.
Combined statutory net income of the Company
and its insurance subsidiaries for the years ended
December 31, 1996 and 1995 is approximately $16,000
and $39,000, respectively, and capital and surplus at
December 31, 1996 and 1995 is approximately $300,000
and $284,000, respectively, in accordance with statutory
accounting principles.
(7) Employee Benefits
Midland participates in a noncontributory defined
benefit pension plan sponsored by SEI which covers
substantially all home office employees of Midland. Prior
to 1996, the Company sponsored its own
noncontributory defined benefit pension plan which was
merged with a similar benefit plan of SEI on January 1,
1996. Pension benefits are generally based upon years
of service and include accruing pension cost currently,
contributing the maximum amount deductible for federal
income taxes and meeting minimum funding standards of
the Employee Retirement Income Security Act of 1974
as determined by an actuarial valuation. Plan assets
consist primarily of cash equivalents, listed stocks and
bonds, and group annuity contracts with a subsidiary
insurance company.
The following table sets forth the funded status and
the amounts recognized in the consolidated financial
statements at December 31 for the qualified plan. The
1996 amounts reflect an allocation of the Company's
portion of the SEI plan:
1996 1995
Accumulated benefit obligation:
Vested...................................... $ 2,192 $ 2,395
Nonvested................................ 283 400
Total accumulated benefit obligation...... $ 2,475 $ 2,795
Fair value of plan assets................. $ 3,400 $ 3,750
Projected benefit obligation.............. (3,786) (4,091)
Funded Status............................. (386) (341)
Unrecognized net gain..................... 613 817
Unrecognized prior service costs........... 41 56
Net asset recognized in financial statements $ 268 $ 532
The net periodic pension cost included the following components:
1996 1995 1994
Service cost -- benefits earned during the period.. 285 $ 248 $ 250
Interest cost on projected benefit obligation..... 291 283 300
Return on plan assets............................. (619) (220) (200)
Net amortization and deferral..................... 306 (53) (47)
Net periodic pension cost........................$ 263 $ 258 $ 303
The weighted-average discount rate used in
determining the actuarial present value of the projected
benefit obligations was 7.25% for 1996 and 1995. The
average rate of increase in future compensation levels
was 4.25% for 1996 and 5.5% for 1995. The expected
long-term rate of return on plan assets used to develop
the net periodic pension cost was 8.75% in 1996 and
1995, and 8.0% in 1994.
The Company participates in a noncontributory
Employee Stock Ownership Plan (ESOP) which is
qualified as a stock bonus plan. All employees are
eligible to participate in this plan upon satisfying eligibility
requirements. The ESOP is sponsored by SEI. Each
year the Company makes a contribution to the ESOP as
determined by the Board of SEI. The expense for 1996,
1995, and 1994 was $1,700, $2,096, and $767,
respectively. All contributions to the ESOP are held in
trust.
The Company provides certain post-retirement health
care and life insurance benefits for eligible active and
retired employees through a defined benefit plan.
The actuarial and recorded liabilities for these post-
retirement benefits at December 31, none of which were
funded, are as follows:
1996 1995
Accumulated postretirement benefit obligation:
Retirees...................................... $ 1,718 $ 1,235
Fully eligible active plan participants....... 170 274
Other active plan participants................. 191 560
2,079 2,069
Unrecognized loss.................................. (135) (101)
Accrued postretirement benefit obligation......$ 1,944 $ 1,9968
The net periodic cost for postretirement benefits
other than pensions for the years ended December 31
included the following components:
1996 1995 1994
Service cost - benefits earned during the period...$ 16 $ 16 $ 13
Interest cost on other post-retirement benefits.... 148 164 144
Net amortization................................... - 10 10
Total periodic expense...........................$ 164 190 167
The weighted average annual assumed rate of
increase in the per capita cost of covered benefits (i.e.
health care cost trend rate) reflects a 7.5% rate in 1996
grading down to 4.5% in years 2006 and later.
Increasing the assumed health care cost trend rate by
one percentage point would increase the accumulated
postretirement benefit obligation at December 31, 1996
by $185 and the aggregate of the service and interest
cost components of the net periodic postretirement
benefit cost for 1996 by $13. The weighted average
discount rate used in determining the accumulated
postretirement benefit obligation was 7.25% and 7.75%
at December 31, 1996 and 1995, respectively.
(8) Commitments and Contingencies
The Company had $35,000 of outstanding
commitments to purchase trust certificates secured by
government guaranteed notes.
Midland's home office building has been conveyed
to the City of Sioux Falls, South Dakota, and leased back
in a transaction in which the City issued $4,250 of
Industrial Revenue Bonds for face value. The bonds are
collateralized by $4,173 of Midland's investments in
government bonds. The lease includes a purchase
option under which Midland may repurchase the building
upon repayment of all bonds issued. The lease terms
provide for 10 annual payments equivalent to principal of
$425 beginning in 1993 and semiannual payments
through 2002 in amounts equivalent to interest at 5.5%
on the outstanding revenue bond principal. The building
and land costs have been capitalized and are carried as
part of other assets and the lease obligation as part of
other liabilities.
The Company also leases certain equipment. Rental
expense on operating leases amounted to $1,048, $548
and $14 for the years ended December 31, 1996, 1995
and 1994, respectively. The minimum future rentals on
capital and operating leases at December 31, 1996 are
as follows:
Year ending December 31,
<TABLE>
Capital Operating Total
<S> <C> <C> <C>
1997.......... $ 559 $ 926 $ 1,485
1998.......... 536 946 1,482
1999.......... 513 855 1,368
2000.......... 489 358 847
2001.......... 466 369 835
Thereafter..... 442 - 442
Total........ 3,005 $ 3,454 $6,459
Less amount representing interest...... 455
Present value of amounts due under capital leases.... $ 2,550
</TABLE>
The Company is a defendant in various lawsuits
related to the normal conduct of its insurance business.
Litigation is subject to many uncertainties and the
outcome of individual litigated matters is not predictable
with assurance; however, in the opinion of management,
the ultimate resolution of such litigation will not materially
impact the Company's financial position.
The Company is liable for guaranty fund assessments
related to certain unaffiliated insurance companies that
have become insolvent. These assessments are reflected
in the operating results of the Company. The Company is
also contingently liable for any future guaranty fund
assessments related to the insolvencies of unaffiliated
insurance companies. An accrual of $2,184 and $2,166
has been included in the December 31, 1996 and 1995
balance sheets, respectively. These accruals were
calculated by estimating the Company's share of both
open and closed insolvencies based on industry data
provided to the Company.
(9) Other Related Party Transactions
The Company pays fees to SEI under management
contracts. The Company was charged $1,458, $2,778,
and $70 in 1996, 1995, and 1994, respectively, related to
these contracts.
The Company pays investment management fees to
an affiliate (Midland Advisors Company). Net fees
related to these services were $1,339 and $66 in 1996
and 1995, respectively.
(..continued)
2
The accompanying notes are an integral part of the financial statements.
4
37
MIDLAND NATIONAL LIFE INSURANCE COMPANY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Amounts in thousands)
MIDLAND NATIONAL LIFE INSURANCE COMPANY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)
(Amounts in thousands)
<PAGE>
Part C.
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 Walnut Street Securities (4)
(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) (a) Form of Participation Agreement between Midland National Life
Insurance Company and Fidelity VIP I and VIP II (1)
(b) Form of Participation Agreement between Midland National Life
Insurance Company and Fidelity VIP III (4)
(c) Form of Participation Agreement between Midland National Life
Insurance Company and American Century Investment Services
Inc. (4)
(9) Opinion and Consent of Counsel (2)
(10) (a) Consent of Counsel (4)
(b) Consent of Independent Auditors (4)
(11) Not Applicable
(12) Not Applicable
(13) Performance Data Calculations (3)
(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.
<PAGE>
MANAGEMENT OF MIDLAND
Item 25.
Below is a list of our directors and executive officers.
Directors
Name and Principal Principal Occupation
Business Address Occupation During Past Five Years
John C. Watson Chairman of Chairman of the Board (October
Midland National Life the Board 1992 to present), Chairman of
One Midland Plaza the Board and Chief Executive
Sioux Falls, SD 57193 Officer (October 1992 to March
(1997), Midland National Life
Insurance Company; President
and Director (1992 to present),
Consolidated Investment Services,
Inc.; Chairman of the Board,
President, and Chief Executive
Officer (December 1996 to
present), Sammons Financial
Holdings, Inc.; Chairman of the
Board and Chief Executive Officer
(December 1996 to present), North
American Company for Life and
Health Insurance; President and
Director (1996 to present),
Briggs ITD Corporation; Director
(1996 to present), NACOLAH
Holding Corporation; Director
(1996 to present), North American
Company for Life and Health of
New York; Director (1996 to
present), NACOLAH Life Insurance
Company; Director (1996 to
present), Institutional Founders
Life Insurance Company; Chairman
of the Board (1995-present),
Midland Advisors Company;
President and Director (1992 to
present), CH Holdings, Inc.;
Director, (1992 to present),
Sammons Enterprises, Inc.;
Chairman of the Board and Chief
Executive Officer (October 1992
to January 1997), Investors Life
Insurance Company of Nebraska;
President and Chief Operating
Officer (1990 to October 1992),
Franklin Life Insurance Company
Michael M. Masterson Chief Executive Chief Executive Officer and
Midland National Life Officer and President (March 1997 to present)
One Midland Plaza President President and Chief Operating
Sioux Falls, SD 57193 Officer (March 1996 to February
1997), Executive Vice President-
Marketing (March 1995 to February
1996), Midland National Life
Insurance Company; President and
Chief Operating Officer (March
1996 to December 1996), Executive
Vice President-Marketing (March
1995 to February 1996), Investors
Life Insurance Company of
Nebraska; Vice President-
Individual Sales (prior thereto),
Northwestern National Life
William D. Sims Senior Vice Senior Vice President-
Midland National Life President- Administration (since 1986),
One Midland Plaza Administration Midland National Life Insurance
Sioux Falls, SD 57193 Company; Senior Vice President-
Administration (1986 to 1996),
Investors Life Insurance Company
of Nebraska
Russell A. Evenson Senior Vice Senior Vice President and Chief
Midland National Life President and Actuary (March 1996 to present),
One Midland Plaza Chief Actuary Senior Vice President and Actuary
Sioux Falls, SD 57193 (prior thereto), Midland National
Life Insurance Company; Senior
Vice President and Chief Actuary
(March 1996 to December 1996),
Senior Vice President and Actuary
(prior thereto), Investors Life
Insurance Company of Nebraska;
Vice President and Chief Actuary
(1990 to 1993), Professional
Insurance Corporation
John J. Craig, II Senior Vice Senior Vice President and Chief
Midland National Life President and Financial Officer (October 1993
One Midland Plaza Chief Financial to present), Midland National
Sioux Falls, SD 57193 Officer Life Insurance Company; Treasurer
(January 1996 to present), Briggs
ITD Corp.; Treasurer (March 1996
to present), Sammons Financial
Holdings, Inc.; Treasurer
(November 1993 to present), CH
Holdings; Treasurer (November
1993 to present), Consolidated
Investment Services, Inc.;
Treasurer (November 1993 to
present), Richmond Holding
Company, L.L.C.; Senior
Vice President and Chief
Financial Officer (October 1993
to December 1996), Investors Life
Insurance Company of Nebraska;
Partner (prior thereto), Ernst
and Young
Steven C. Palmitier Senior Vice Senior Vice President and Chief
Midland National Life President and Marketing Officer (March 1997
One Midland Plaza Chief Marketing to present), Senior Vice
Sioux Falls, SD 57193 Officer President-Sales (August 1996 to
February 1997), Midland National
Life Insurance Company; Senior
Vice President-Sales (prior
thereto), Penn Mutual Life
Insurance
Robert W. Korba Board of President and Director (since
Sammons Enterprises, Inc Directors 1988), Sammons Enterprises, Inc.
300 Crescent CT Member
Dallas, TX 75201
James N. Whitson Board of Executive Vice President (since
Sammons Enterprises, Inc Directors 1989), Sammons Enterprises, Inc.
300 Crescent CT Member
Dallas, TX 75201
E John Fromelt Chief Chief Investment Officer (since
Midland National Life Investment 1990), Midland National Life
One Midland Plaza Officer Insurance Company; President
Sioux Falls, SD 57193 (since August 1995), Midland
Advisors Company; Chief
Investment Officer (1996 to
present), North American Company
for Life and Health; Chief
Investment Officer (1990-1996),
Investors Life Insurance Company
of Nebraska
Executive Officers (Other Than Directors)
Jack L. Briggs Vice President, Vice President, Secretary and
Midland National Life Secretary, and General Counsel (since 1978),
One Midland Plaza General Counsel Midland National Life Insurance
Sioux Falls, SD 57193 Company; Vice President,
Secretary, and General Counsel
(1978 to 1996), Investors Life
Insurance Company of Nebraska
Gary W. Helder Vice President- Vice President-Policy
Midland National Life Policy Administration (since 1991),
One Midland Plaza Administration Midland National Life Insurance
Sioux Falls, SD 57193 Company; Vice President-Policy
Administration (1991-1996),
Investors Life Insurance Company
of Nebraska
Robert W. Buchanan Vice President- Vice President-Marketing
Midland National Life Marketing Services (March 1996 to
One Midland Plaza Services present), Second Vice President-
Sioux Falls, SD 57193 Sales Development (prior
thereto), Midland National Life
Insurance Company; Second Vice
President - Sales Development
(1983 to 1996), Investors Life
Insurance Company of Nebraska
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 following indicates the persons controlled by or under common control
with Midland:
Estate of Charles A. Sammons
Sammons Enterprises, Inc. (Delaware Corp) 56.82%
I. Richmond Holding Company, LLC (Delaware LLC) 95%
II. 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%
III. 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%
A. INSURANCE
Sammons Financial Holdings, Inc. (Delaware Corp) 100%
Midland National Life Insurance Company (South Dakota Corp) 99.9%
(FEDID #46-0164570 NAIC CO Code 66044 SD)
Investors Life Insurance Company of Nebraska (SD Corp) 100%
(FEDID #470465313 NAIC CO Code 86975 SD)
NACOLAH Holding Corporation (Delaware Corp) 100%
(FEDID #36-412699)
Institutional Founders Life Insurance Company (Ill. Corp.) 100%,
FEDID No. 36-3508234, NAIC Co. Code 85707, Group Code 0431 IL
North American Company for Life & Health Insurance (Ill. Corp)100%
FEDID No. 36-2428931, NAIC Co. Code 66974, Group Code 0431 IL
North American Company for Life & Health Insurance of
New York (New York Corp.), 100%
FEDID No. 361556010, NAIC Co. Code 91286, Group Code 0431 NY
NACOLAH Life Insurance Company (Ill. Corp.) 100%
FEDID No. 36-3723034, NAIC Co. Code 85456, Group Code 0431 IL
NAC Holdings, Inc. (Delaware Corp.) 100%
NACOLAH Ventures, L.L.C. (Delaware Corp.), FEDID No. 36-3495904
Midland Advisors Company (South Dakota Corp.) 100%
B. 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%
C. WATER
Mountain Valley Spring Company (Arkansas Corp) 100%
Water Lines Inc. (Arkansas Corp) 100%
D. 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%
TMIS Inc. (Texas Corp) 100%
Briggs-Weaver de Mexico S.A. de C.V. (Mexico Corp) 2%
Sealing Specialists of Texas, Inc. (Texas Corp) 100%
Briggs-Weaver de Mexico S.A. de C.V. (Mexico Corp) 98%
Vinson Marrero Company (Delaware Corp) 100%
Item 27. Number of Contract Owners
As of February 28, 1997, there were 925 holders of nonqualified contracts
an 1,503 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
Walnut Street Securities, 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
Walnut Street Securities is 670 Mason Ridge Center Drive, Suite 300, St. Louis
MO 63141-8557
Name and Principal Position and Offices
Business Address With Walnut Street Securities
Richard J. Miller Pres., CEO, Dir.
Nancy L. Gucwa Chief Operating Officer, E.V.P., Dir.
Steve Abbey Chief Compliance Officer, V.P., Securities
Registered Options Principal, Municipal
Securities Registered Principal
Don Wuller Sr.V.P.Admin, CFO
Margret Witt Compliance Registered Options Principal
Randall Vogel Chief Operations Officer
Milton F. Svetanics Jr. Dir., Chief Legal Officer, V.P.
Mathew P. McCauley Dir.
Dona Barber Dir.
Bernard H. Wolzenski Dir.
Michael M. Masterson Dir.
Genmark, Inc. Owner
Item 29c.Compensation of Principal Underwriters
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 338,422.88 0 0 99,593.61
Management
Walnut Street 631,206.10 0 0 0
Securities
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 and Representations - Midland National Life
Insurance Company represents that all fees and charges deducted under
the contract in the aggregate are reasonable in relation to the services
rendered, the expenses to be incurred and the risk assumed by Midland
National Life Insurance Company.
(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 redeemability 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.
N4CROS2 VA
<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, 1997.
(Seal) Midland National Life Insurance Company
Attest:_Jack_L._Briggs___________ By:_Michael_M._Masterson______________
Secretary 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, 1997
John C. Watson
Michael_M._Masterson_____ Director, Chief Operating April 25, 1997
Michael M. Masterson Officer, Chief Executive
Officer, President
William_D._Sims__________ Director, Senior Vice April 25, 1997
William D. Sims President
Russell_A._Evenson_______ Director, Senior Vice April 25, 1997
Russell A. Evenson President
John_J._Craig_II_________ Director, Senior Vice April 25, 1997
John J. Craig II President (Principal
Financial Officer,
Principal Accountant)
_________________________ Director April 25, 1997
Robert W. Korba
_________________________ Director April 25, 1997
James N. Whitson
SEC0501 MNLVA
<PAGE>
Registration No. 33-64016
POST EFFECTIVE AMENDMENT NO. 4
________________________________________________________________________________
________________________________________________________________________________
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
______________________________________________
________________________________________________________________________________
________________________________________________________________________________
N-4EXH VAMNL
<PAGE>
EXHIBIT INDEX
Exhibit
_________
1 (3) (a) Principal Underwriting Agreement
1 (8) (b) Participation Agreement - Fidelity
1 (8) (c) Participation Agreement - American Century
10 a. Consent of Counsel
10 b. Consent of Independent Auditors
<PAGE>
SECINDX VA
EXHIBIT 1(3)(a)
PRINCIPAL UNDERWRITING AGREEMENT
THIS UNDERWRITING AGREEMENT made this 1st day of June, 1996, by and
between Walnut Street Securities (hereinafter called "WSS") and
Midland National Life Insurance Company (hereinafter called the
"Company"), on its own behalf and on behalf of Midland National Life
Insurance Separate Account A and Separate Account C (hereinafter
"Separate Accounts"), separate accounts of the Company, witnessed
that:
WHEREAS, the Separate Accounts were established under authority of a
resolution of the Company's Board of Directors so the Company could
set aside and invest assets attributable to certain flexible premium
variable life contracts and variable deferred annuity contracts
(hereinafter called the "Contracts") issued by the Company;
WHEREAS, the Company has registered the Separate Accounts as unit
investment trusts under the Investment Company Act of 1940 (the
"Investment Company Act") and has registered the Contracts under
the Securities Act of 1933;
WHEREAS, the Company and the Separate Accounts desire to have
Contracts sold and distributed through WSS and WSS is willing to sell
and distribute such Contracts under the terms stated hereinafter.
NOW THEREFORE, for and in consideration of these premises and the
covenants and agreements hereinafter stated, the parties hereto agree
as follows:
1. The Company grants to WSS the right to be, and WSS agrees to serve
as, a distributor and principal underwriter of the Contracts during
the term of this Agreement. WSS agrees to use its best efforts to
solicit applications for the Contracts, and to undertake, at its own
expense, to provide all sales services relative to the Contracts and
otherwise to perform all duties and functions which are necessary and
proper for the distribution of the Contracts.
2. All premiums for the Contracts shall be remitted promptly in full
together with such application forms and any other required
documentation to the Company. Checks or money orders in payment of
premium shall be drawn to the order of "Midland National Life
Insurance Company."
3. WSS agrees to offer the Contracts for sale in accordance with the
prospectus therefor then in effect. WSS is not authorized to give
any information or to make any representations concerning the
Contracts other than those contained in the current prospectus
therefor filed with the Securities and Exchange Commission or in such
sales literature as may be authorized by the Company. Neither WSS
nor any person, entity, agent or representative or associated through
it shall make, use or provide any advertisement, sales document,
circular, or any other document to a customer in connection with a
solicitation or sale unless with the prior approval of the Company.
4. On behalf of the Separate Accounts, the Company shall furnish WSS with
copies of all prospectuses, financial statements and other documents
which WSS reasonably requests for use in connection with the
distribution of the Contracts.
5. WSS represents that it is duly registered as a broker-dealer under
the Securities Exchange Act and is a member in good standing of the
NASD and, to the extent necessary to offer the Contracts, shall be
duly registered or otherwise qualified under the securities and
insurance laws of any state or other jurisdiction. WSS shall be
responsible for carrying out its sales and underwriting obligations
hereunder in continued compliance with the NASD Rules of Fair
Practice and federal and state securities and insurance laws and
regulations. Without limiting the generality of the foregoing, WSS
agrees that it shall be fully responsible for:
(a) ensuring that no person shall offer or sell the Contracts on
its behalf until such person is duly registered as a
representative of WSS, duly licensed and appointed by the
Company, and appropriately licensed, registered, or otherwise
qualified to offer and sell such Contracts under the federal
securities and insurance laws and any applicable securities and
insurance laws of each state or other jurisdiction in which such
Contracts may be lawfully sold, in which the Company is licensed
to sell the Contracts, and in which such persons shall offer or
sell the Contracts; and
(b) training, supervising, and controlling of all such persons for
purposes of complying on a continuous basis with the NASD Rules
of Fair Practice and with federal and state securities and
insurance law requirements applicable in connection with the
offering and sale of the Contracts. In this connection WSS
shall:
(1) conduct such training (including the preparation and utilization
of training materials) as in the opinion of WSS is necessary to
accomplish the purposes of this Agreement;
(2) establish and implement reasonable written procedures for
supervision of sales practices of WSS agents, representatives,
or brokers selling the Contracts; and
(3) take all reasonable and appropriate steps to ensure that its
associated persons shall not sell a Contract in the absence of
reasonable grounds to believe that the purchase of the Contract
is suitable for such applicant.
6. Notwithstanding anything in this Agreement to the contrary, the
Company through WSS, may enter into sales agreements with other
independent broker-dealers for the sale of the Contracts. All such
sales agreements entered into by WSS shall provide that each
independent broker-dealer will assume full responsibility for
continued compliance by itself and its associated persons with the
NASD Rules of Fair Practice and applicable federal and state
securities and insurance laws. All associated persons of such
independent broker-dealers soliciting applications for the Contracts
shall be duly and appropriately licensed, contracted or appointed by
the Company for the sale of the Contracts under the insurance laws of
the applicable states or jurisdictions in which such Contracts may be
lawfully sold.
7. The Company shall apply for the proper insurance licenses in the
appropriate states or jurisdictions for the designated persons
associated with WSS or with other independent broker-dealers which
have entered into agreements with WSS for the sale of the Contracts,
provided that the Company reserves the right in its sole discretion
to refuse to appoint any proposed registered representative as an
agent or broker, and to terminate the insurance license, contract or
appointment of an agent or broker once appointed. Agents and
representatives associated with WSS and other independent broker-
dealers are deemed independent contractors and nothing in this
Agreement shall be construed to create the relationship of employer
and employee.
8. The Company and WSS shall cause to be maintained and preserved for
the periods prescribed such accounts, books, and other documents as
are required of them by the Investment Company Act, the Security
Exchange Act, the NASD, and any other applicable laws and
regulations. The books, accounts and records of the Company, the
Separate Accounts, and WSS as to all transactions hereunder shall be
maintained so as to disclose clearly and accurately the nature and
details of the transactions. The Company shall maintain such books
and records of WSS pertaining to the sale of the Contracts and
required by the Security Exchange Act or the NASD as may be mutually
agreed upon from time to time by the Company and WSS; provided that
such books and records shall be jointly owned property of WSS and the
Company, and shall at all times be subject to such reasonable
periodic, special or other examination by the SEC, the NASD, and all
other regulatory bodies having jurisdiction. The Company shall have
complete use of, and right to the information contained in such books
and records. The Company shall be responsible for sending all
required confirmations on customer transactions in compliance with
applicable regulations, as modified by any exemptions or other relief
obtained by the Company. WSS shall cause the Company to be promptly
furnished with such reports as the Company may reasonably request for
the purpose of meeting its reporting and recordkeeping requirements
under all Federal and State Laws and Regulations, the Investment
Company Act, Security Exchange Act, the NASD, and the insurance laws
of the State of South Dakota and any other applicable states or
jurisdictions.
9. The Company shall have the responsibility for paying (i) all
commissions or other fees to its licensed or appointed representatives
and agents which are due for the sale of the Contracts and (ii) any
compensation to other independent broker-dealers and their associated
persons due for the sale of the Contracts under the terms of any sales
agreements between the Company and with such broker-dealers.
Notwithstanding the preceding sentence, no associated person or
broker-dealer shall have an interest in any deductions or other fees
payable to WSS as set forth herein.
10. WSS and the Company agree to cooperate fully in any insurance
regulatory investigation or proceeding or judicial proceeding
arising in connection with the Contracts distributed under this
Agreement. WSS and the Company further agree to cooperate fully in
any securities regulatory inspection, inquiry, investigation or
proceeding or any judicial proceeding with respect to the Company,
WSS, their affiliates and their representatives to the extent that
such inspection, inquiry, investigation or proceeding is in
connection with Contracts distributed under this Agreement.
Without limiting the foregoing:
(a) WSS will be notified promptly of any customer complaint or
notice of any regulatory inspection, inquiry, investigation or
proceeding received by the Company with respect to WSS or any
representative or which may affect the Company's issuance of any
Contract marketed under this Agreement.
(b) WSS will promptly notify the Company of any customer complaint or
notice of any regulatory inspection, inquiry, investigation or
proceeding received by WSS or its affiliates with respect to WSS
or any representative in connection with any Contract distributed
under this Agreement or any activity in connection with any such
Contract. In the case of a customer complaint, WSS and the
Company will cooperate in investigating such complaint and arrive
at a mutually satisfactory response.
11. The services of WSS to the Separate Accounts hereunder are not to be
deemed exclusive and WSS shall be free to render similar services to
others so long as its services hereunder are not impaired or
interfered with thereby.
12. (a) This Agreement may be terminated by either party hereto upon 60
days' written notice to the other party.
(b) This Agreement may be terminated upon written notice of one party
to the other party hereto in the event of bankruptcy or insolvency
of such party to which notice is given.
(c) This Agreement may be terminated at any time upon the mutual
written consent of the parties thereto.
(d) This Agreement shall automatically be terminated in the event of
its assignment.
(e) Upon termination of this Agreement, all authorizations, rights and
obligations shall cease except the obligations to settle accounts
hereunder, including payments of premiums or contributions
subsequently received for Contracts in effect at the time of
termination of the Contracts issued pursuant to applications
received by the Company prior to termination.
13. All notices, requests, demands, and other communications required or
permitted under this Agreement shall be in writing and shall be
deemed to have been duly given and made upon being delivered either
by courier or fax delivery to the Party for whom it is intended,
provided that a copy thereof is deposited, postage prepaid, certified
or registered mail, return receipt requested, in the United States
mail, bearing the address shown in this Section 13 for, or such other
address as may be designated in writing hereafter by, such part;
(a) If to WSS: Walnut Street Securities, Inc.
670 Mason Ridge Center Drive
Suite 300
St. Louis, Missouri 63141
Attention: Nancy L. Gucwa
(b) If to the Company: Midland National Life Insurance
Company
One Midland Plaza
Sioux Falls, South Dakota 57193
Attention: Michael M. Masterson
14. This Agreement shall be subject to the provisions of Investment
Company Act and the Securities Exchange Act and the rules,
regulations, and rulings thereunder and of the NASD, from time to
time in effect, including such exemptions from the Investment Company
Act as the Securities and Exchange Commission may grant, and the
terms hereof shall be interpreted and construed in accordance
therewith. Without limiting the generality of the foregoing, the
term "assigned" shall not include any transaction exempted from
section 15(b)(2) of the Investment Company Act.
WSS shall submit to all regulatory and administrative bodies having
jurisdiction over the operations of the Separate Accounts, present or
future, any information, reports or other material which any such body
by reason of this Agreement may request or require pursuant to
applicable laws or regulations.
15. The Company agrees to reimburse WSS the estimated annual costs WSS
incurs in connection with certain financial reporting WSS has to make
relating to the sale of the Contracts described herein. Such
estimated annual costs shall be mutually agreed upon by WSS and the
Company for each calendar year on or before September of the preceding
year, except that the estimated costs for 1996 of Sixty-Five Hundred
Dollars ($6,500) shall be paid by the Company to WSS within 20 days
following the execution of this Agreement by both parties. Within 20
days following the end of each calendar year during the term of this
Agreement, the Company shall make a payment to WSS for the mutually
agreed upon estimated costs.
16. Company shall indemnify and hold WSS, its officers, employees, agents,
and affiliated companies, harmless from all claims, actions, suits,
judgments, liabilities, losses, costs and expenses, including
reasonable attorneys' fees, which result, directly or indirectly,
from any negligent act, omission or misrepresentation of Company,
arising out of the sale of the Contracts or for breach of the
Agreement.
WSS shall indemnify and hold the Company, its officers, employees,
agents, and its affiliated companies harmless from any and all
claims, actions, suits, judgments, liabilities, losses, costs and
expenses, including reasonable attorneys' fees, which result,
directly or indirectly, from any negligent act, omission or
misrepresentation of WSS arising out of the sale of the Contracts
or any of its representatives or agents, or for breach of the
Agreement.
The agreements of indemnification contained in this Paragraph 16
shall survive the termination of this Agreement and be binding on
the successors and assigns of the parties hereto.
17. If any provision of this Agreement shall be held or made invalid by
a court decision, statute, rule or otherwise, the remainder of this
Agreement shall not be affected thereby.
18. This Agreement shall be construed and enforced in accordance with
the governed by the laws of the State of South Dakota.
IN WITNESS WHEREOF, the parties hereto have caused this Agreement to
be signed by their respective officials thereunder duly authorized
and seals to be affixed, as of the day and year first above written.
MIDLAND NATIONAL LIFE INSURANCE COMPANY
Attest: __Jack_L._Briggs__
Jack L. Briggs, Secretary
By: __Michael_M._Masterson__
Michael M. Masterson, President
WALNUT STREET SECURITIES
Attest:
, Secretary
By: __Nancy_L._Gucwa__
Nancy L. Gucwa, Chief Operating Officer
0012DRA2
<PAGE>
EXHIBIT 1(8)(b)
PARTICIPATION AGREEMENT
Among
VARIABLE INSURANCE PRODUCTS FUND III,
FIDELITY DISTRIBUTORS CORPORATION
and
MIDLAND NATIONAL LIFE INSURANCE COMPANY
THIS AGREEMENT, made and entered into as of the
3rd day of April, 1997 by and among MIDLAND
NATIONAL LIFE INSURANCE COMPANY, (hereinafter
the "Company"), a South Dakota corporation, on its own
behalf and on behalf of each segregated asset account of the
Company set forth on Schedule A hereto as may be
amended from time to time (each such account hereinafter
referred to as the "Account"), and the VARIABLE
INSURANCE PRODUCTS FUND III, an unincorporated
business trust organized under the laws of the
Commonwealth of Massachusetts (hereinafter the "Fund")
and FIDELITY DISTRIBUTORS CORPORATION
(hereinafter the "Underwriter"), a Massachusetts
corporation.
WHEREAS, the Fund engages in business as an open-
end management investment company and is available to
act as the investment vehicle for separate accounts
established for variable life insurance policies and variable
annuity contracts (collectively, the "Variable Insurance
Products") to be offered by insurance companies which
have entered into participation agreements with the Fund
and the Underwriter (hereinafter "Participating Insurance
Companies"); and
WHEREAS, the beneficial interest in the Fund is
divided into several series of shares, each representing the
interest in a particular managed portfolio of securities and
other assets, any one or more of which may be made
available under this Agreement, as may be amended from
time to time by mutual agreement of the parties hereto
(each such series hereinafter referred to as a "Portfolio");
and
WHEREAS, the Fund has obtained an order from the
Securities and Exchange Commission, dated September 17,
1986 (File No. 812-6422), granting Participating Insurance
Companies and variable annuity and variable life insurance
separate accounts exemptions from the provisions of
sections 9(a), 13(a), 15(a), and 15(b) of the Investment
Company Act of 1940, as amended, (hereinafter the "1940
Act") and Rules 6e-2(b) (15) and 6e-3(T) (b) (15)
thereunder, to the extent necessary to permit shares of the
Fund to be sold to and held by variable annuity and variable
life insurance separate accounts of both affiliated and
unaffiliated life insurance companies (hereinafter the
"Shared Funding Exemptive Order"); and
WHEREAS, the Fund is registered as an open-end
management investment company under the 1940 Act and
its shares are registered under the Securities Act of 1933, as
amended (hereinafter the "1933 Act"); and
WHEREAS, Fidelity Management & Research
Company (the "Adviser") is duly registered as an
investment adviser under the federal Investment Advisers
Act of 1940 and any applicable state securities law; and
WHEREAS, the Company has registered or will register
certain variable life insurance and variable annuity
contracts under the 1933 Act; and
WHEREAS, each Account is a duly organized, validly
existing segregated asset account, established by resolution
of the Board of Directors of the Company, on the date
shown for such Account on Schedule A hereto, to set aside
and invest assets attributable to the aforesaid variable
annuity contracts; and
WHEREAS, the Company has registered or will register
each Account as a unit investment trust under the 1940 Act;
and
WHEREAS, the Underwriter is registered as a broker
dealer with the Securities and Exchange Commission
("SEC") under the Securities Exchange Act of 1934, as
amended, (hereinafter the "1934 Act"), and is a member in
good standing of the National Association of Securities
Dealers, Inc. (hereinafter "NASD"); and
WHEREAS, to the extent permitted by applicable
insurance laws and regulations, the Company intends to
purchase shares in the Portfolios on behalf of each Account
to fund certain of the aforesaid variable life and variable
annuity contracts and the Underwriter is authorized to sell
such shares to unit investment trusts such as each Account
at net asset value;
NOW, THEREFORE, in consideration of their mutual
promises, the Company, the Fund and the Underwriter
agree as follows:
ARTICLE I. Sale of Fund Shares
1.1. The Underwriter agrees to sell to the Company
those shares of the Fund which each Account orders,
executing such orders on a daily basis at the net asset value
next computed after receipt by the Fund or its designee of
the order for the shares of the Fund. For purposes of this
Section 1.1, the Company shall be the designee of the Fund
for receipt of such orders from each Account and receipt by
such designee shall constitute receipt by the Fund; provided
that the Fund receives notice of such order by 9:30 a.m.
Boston time on the next following Business Day.
"Business Day" shall mean any day on which the New
York Stock Exchange is open for trading and on which the
Fund calculates its net asset value pursuant to the rules of
the Securities and Exchange Commission.
1.2. The Fund agrees to make its shares available
indefinitely for purchase at the applicable net asset value
per share by the Company and its Accounts on those days
on which the Fund calculates its net asset value pursuant to
rules of the Securities and Exchange Commission and the
Fund shall use reasonable efforts to calculate such net asset
value on each day which the New York Stock Exchange is
open for trading. Notwithstanding the foregoing, the Board
of Trustees of the Fund (hereinafter the "Board") may
refuse to sell shares of any Portfolio to any person, or
suspend or terminate the offering of shares of any Portfolio
if such action is required by law or by regulatory authorities
having jurisdiction or is, in the sole discretion of the Board
acting in good faith and in light of their fiduciary duties
under federal and any applicable state laws, necessary in
the best interests of the shareholders of such Portfolio.
1.3. The Fund and the Underwriter agree that shares of
the Fund will be sold only to Participating Insurance
Companies and their separate accounts. No shares of any
Portfolio will be sold to the general public.
1.4. The Fund and the Underwriter will not sell Fund
shares to any insurance company or separate account unless
an agreement containing provisions substantially the same
as Articles I, III, V, VII and Section 2.5 of Article II of this
Agreement is in effect to govern such sales.
1.5. The Fund agrees to redeem for cash, on the
Company's request, any full or fractional shares of the Fund
held by the Company, executing such requests on a daily
basis at the net asset value next computed after receipt by
the Fund or its designee of the request for redemption. For
purposes of this Section 1.5, the Company shall be the
designee of the Fund for receipt of requests for redemption
from each Account and receipt by such designee shall
constitute receipt by the Fund; provided that the Fund
receives notice of such request for redemption on the next
following Business Day.
1.6. The Company agrees that purchases and
redemptions of Portfolio shares offered by the then current
prospectus of the Fund shall be made in accordance with
the provisions of such prospectus. The Company agrees
that all net amounts available under the variable life and
annuity contracts with the form number(s) which are listed
on Schedule A attached hereto and incorporated herein by
this reference, as such Schedule A may be amended from
time to time hereafter by mutual written agreement of all
the parties hereto, (the "Contracts") shall be invested in the
Fund, in such other Funds advised by the Adviser as may
be mutually agreed to in writing by the parties hereto, or in
the Company's general account, provided that such amounts
may also be invested in an investment company other than
the Fund if (a) such other investment company, or series
thereof, has investment objectives or policies that are
substantially different from the investment objectives and
policies of all the Portfolios of the Fund; or (b) the
Company gives the Fund and the Underwriter 45 days
written notice of its intention to make such other
investment company available as a funding vehicle for the
Contracts; or (c) such other investment company was
available as a funding vehicle for the Contracts prior to the
date of this Agreement and the Company so informs the
Fund and Underwriter prior to their signing this Agreement
(a list of such funds appearing on Schedule C to this
Agreement); or (d) the Fund or Underwriter consents to the
use of such other investment company.
1.7. The Company shall pay for Fund shares on the next
Business Day after an order to purchase Fund shares is
made in accordance with the provisions of Section 1.1
hereof. Payment shall be in federal funds transmitted by
wire. For purpose of Section 2.10 and 2.11, upon receipt
by the Fund of the federal funds so wired, such funds shall
cease to be the responsibility of the Company and shall
become the responsibility of the Fund.
1.8. Issuance and transfer of the Fund's shares will be
by book entry only. Stock certificates will not be issued to
the Company or any Account. Shares ordered from the
Fund will be recorded in an appropriate title for each
Account or the appropriate subaccount of each Account.
1.9. The Fund shall furnish same day notice (by wire or
telephone, followed by written confirmation) to the
Company of any income, dividends or capital gain
distributions payable on the Fund's shares. The Company
hereby elects to receive all such income dividends and
capital gain distributions as are payable on the Portfolio
shares in additional shares of that Portfolio. The Company
reserves the right to revoke this election and to receive all
such income dividends and capital gain distributions in
cash. The Fund shall notify the Company of the number of
shares so issued as payment of such dividends and
distributions.
1.10. The Fund shall make the net asset value per share
for each Portfolio available to the Company on a daily basis
as soon as reasonably practical after the net asset value per
share is calculated (normally by 6:30 p.m. Boston time) and
shall use its best efforts to make such net asset value per
share available by 7 p.m. Boston time.
ARTICLE II. Representations and Warranties
2.1. The Company represents and warrants that the
Contracts are or will be registered under the 1933 Act; that
the Contracts will be issued and sold in compliance in all
material respects with all applicable Federal and State laws
and that the sale of the Contracts shall comply in all
material respects with state insurance suitability
requirements. The Company further represents and
warrants that it is an insurance company duly organized and
in good standing under applicable law and that it has
legally and validly established each Account prior to any
issuance or sale thereof as a segregated asset account under
Section 58-28 of the South Dakota Insurance Code and has
registered or, prior to any issuance or sale of the Contracts,
will register each Account as a unit investment trust in
accordance with the provisions of the 1940 Act to serve as
a segregated investment account for the Contracts.
2.2. The Fund represents and warrants that Fund shares
sold pursuant to this Agreement shall be registered under
the 1933 Act, duly authorized for issuance and sold in
compliance with the laws of the State of South Dakota and
all applicable federal and state securities laws and that the
Fund is and shall remain registered under the 1940 Act.
The Fund shall amend the Registration Statement for its
shares under the 1933 Act and the 1940 Act from time to
time as required in order to effect the continuous offering of
its shares. The Fund shall register and qualify the shares
for sale in accordance with the laws of the various states
only if and to the extent deemed advisable by the Fund or
the Underwriter.
2.3. The Fund represents that it is currently qualified as
a Regulated Investment Company under Subchapter M of
the Internal Revenue Code of 1986, as amended, (the
"Code") and that it will make every effort to maintain such
qualification (under Subchapter M or any successor or
similar provision) and that it will notify the Company
immediately upon having a reasonable basis for believing
that it has ceased to so qualify or that it might not so
qualify in the future.
2.4. The Company represents that the Contracts are
currently treated as endowment, life insurance or annuity
contracts, under applicable provisions of the Code and that
it will make every effort to maintain such treatment and
that it will notify the Fund and the Underwriter
immediately upon having a reasonable basis for believing
that the Contracts have ceased to be so treated or that they
might not be so treated in the future.
2.5. The Fund currently does not intend to make any
payments to finance distribution expenses pursuant to Rule
12b-1 under the 1940 Act or otherwise, although it may
make such payments in the future. The Fund has adopted a
"no fee" or "defensive" Rule 12b-1 Plan under which it
makes no payments for distribution expenses. To the
extent that it decides to finance distribution expenses
pursuant to Rule 12b-1, the Fund undertakes to have a
board of trustees, a majority of whom are not interested
persons of the Fund, formulate and approve any plan under
Rule 12b-1 to finance distribution expenses.
2.6. The Fund makes no representation as to whether
any aspect of its operations (including, but not limited to,
fees and expenses and investment policies) complies with
the insurance laws or regulations of the various states
except that the Fund represents that the Fund's investment
policies, fees and expenses are and shall at all times remain
in compliance with the laws of the State of South Dakota
and the Fund and the Underwriter represent that their
respective operations are and shall at all times remain in
material compliance with the laws of the State of South
Dakota to the extent required to perform this Agreement.
2.7. The Underwriter represents and warrants that it is a
member in good standing of the NASD and is registered as
a broker-dealer with the SEC. The Underwriter further
represents that it will sell and distribute the Fund shares in
accordance with the laws of the State of South Dakota and
all applicable state and federal securities laws, including
without limitation the 1933 Act, the 1934 Act, and the 1940
Act.
2.8. The Fund represents that it is lawfully organized
and validly existing under the laws of the Commonwealth
of Massachusetts and that it does and will comply in all
material respects with the 1940 Act.
2.9. The Underwriter represents and warrants that the
Adviser is and shall remain duly registered in all material
respects under all applicable federal and state securities
laws and that the Adviser shall perform its obligations for
the Fund in compliance in all material respects with the
laws of the State of South Dakota and any applicable state
and federal securities laws.
2.10. The Fund and Underwriter represent and warrant
that all of their directors, officers, employees, investment
advisers, and other individuals/entities dealing with the
money and/or securities of the Fund are and shall continue
to be at all times covered by a blanket fidelity bond or
similar coverage for the benefit of the Fund in an amount
not less than the minimal coverage as required currently by
Rule 17g-(1) of the 1940 Act or related provisions as may
be promulgated from time to time. The aforesaid Bond
shall include coverage for larceny and embezzlement and
shall be issued by a reputable bonding company.
2.11. The Company represents and warrants that all of
its directors, officers, employees, investment advisers, and
other individuals/entities dealing with the money and/or
securities of the Fund are covered by a blanket fidelity
bond or similar coverage for the benefit of the Fund, and
that said bond is issued by a reputable bonding company,
includes coverage for larceny and embezzlement, and is in
an amount not less than $5 million. The Company agrees
to make all reasonable efforts to see that this bond or
another bond containing these provisions is always in
effect, and agrees to notify the Fund and the Underwriter in
the event that such coverage no longer applies.
ARTICLE III. Prospectuses and Proxy Statements; Voting
3.1. The Underwriter shall provide the Company with
as many printed copies of the Fund's current prospectus and
Statement of Additional Information as the Company may
reasonably request. If requested by the Company in lieu
thereof, the Fund shall provide camera-ready film
containing the Fund's prospectus and Statement of
Additional Information, and such other assistance as is
reasonably necessary in order for the Company once each
year (or more frequently if the prospectus and/or Statement
of Additional Information for the Fund is amended during
the year) to have the prospectus for the Contracts and the
Fund's prospectus printed together in one document, and to
have the Statement of Additional Information for the Fund
and the Statement of Additional Information for the
Contracts printed together in one document. Alternatively,
the Company may print the Fund's prospectus and/or its
Statement of Additional Information in combination with
other fund companies' prospectuses and statements of
additional information. Except as provided in the
following three sentences, all expenses of printing and
distributing Fund prospectuses and Statements of
Additional Information shall be the expense of the
Company. For prospectuses and Statements of Additional
Information provided by the Company to its existing
owners of Contracts in order to update disclosure annually
as required by the 1933 Act and/or the 1940 Act, the cost of
printing shall be borne by the Fund. If the Company
chooses to receive camera-ready film in lieu of receiving
printed copies of the Fund's prospectus, the Fund will
reimburse the Company in an amount equal to the product
of A and B where A is the number of such prospectuses
distributed to owners of the Contracts, and B is the Fund's
per unit cost of typesetting and printing the Fund's
prospectus. The same procedures shall be followed with
respect to the Fund's Statement of Additional Information.
The Company agrees to provide the Fund or its designee
with such information as may be reasonably requested by
the Fund to assure that the Fund's expenses do not include
the cost of printing any prospectuses or Statements of
Additional Information other than those actually distributed
to existing owners of the Contracts.
3.2. The Fund's prospectus shall state that the Statement
of Additional Information for the Fund is available from the
Underwriter or the Company (or in the Fund's discretion,
the Prospectus shall state that such Statement is available
from the Fund).
3.3. The Fund, at its expense, shall provide the
Company with copies of its proxy statements, reports to
shareholders, and other communications (except for
prospectuses and Statements of Additional Information,
which are covered in Section 3.1) to shareholders in such
quantity as the Company shall reasonably require for
distributing to Contract owners.
3.4. If and to the extent required by law the Company
shall:
(i) solicit voting instructions from Contract owners;
(ii) vote the Fund shares in accordance with instructions
received from Contract owners; and
(iii) vote Fund shares for which no instructions have
been received in a particular separate account in the same
proportion as Fund shares of such portfolio for which
instructions have been received in that separate account,
so long as and to the extent that the Securities and
Exchange Commission continues to interpret the 1940 Act
to require pass-through voting privileges for variable
contract owners. The Company reserves the right to vote
Fund shares held in any segregated asset account in its own
right, to the extent permitted by law. Participating
Insurance Companies shall be responsible for assuring that
each of their separate accounts participating in the Fund
calculates voting privileges in a manner consistent with the
standards set forth on Schedule B attached hereto and
incorporated herein by this reference, which standards will
also be provided to the other Participating Insurance
Companies.
3.5. The Fund will comply with all provisions of the
1940 Act requiring voting by shareholders, and in particular
the Fund will either provide for annual meetings or comply
with Section 16(c) of the 1940 Act (although the Fund is
not one of the trusts described in Section 16(c) of that Act)
as well as with Sections 16(a) and, if and when applicable,
16(b). Further, the Fund will act in accordance with the
Securities and Exchange Commission's interpretation of the
requirements of Section 16(a) with respect to periodic
elections of trustees and with whatever rules the
Commission may promulgate with respect thereto.
ARTICLE IV. Sales Material and Information
4.1. The Company shall furnish, or shall cause to be
furnished, to the Fund or its designee, each piece of sales
literature or other promotional material in which the Fund
or its investment adviser or the Underwriter is named, at
least fifteen Business Days prior to its use. No such
material shall be used if the Fund or its designee reasonably
objects to such use within fifteen Business Days after
receipt of such material.
4.2. The Company shall not give any information or
make any representations or statements on behalf of the
Fund or concerning the Fund in connection with the sale of
the Contracts other than the information or representations
contained in the registration statement or prospectus for the
Fund shares, as such registration statement and prospectus
may be amended or supplemented from time to time, or in
reports or proxy statements for the Fund, or in sales
literature or other promotional material approved by the
Fund or its designee or by the Underwriter, except with the
permission of the Fund or the Underwriter or the designee
of either.
4.3. The Fund, Underwriter, or its designee shall
furnish, or shall cause to be furnished, to the Company or
its designee, each piece of sales literature or other
promotional material in which the Company and/or its
separate account(s), is named at least fifteen Business Days
prior to its use. No such material shall be used if the
Company or its designee reasonably objects to such use
within fifteen Business Days after receipt of such material.
4.4. The Fund and the Underwriter shall not give any
information or make any representations on behalf of the
Company or concerning the Company, each Account, or
the Contracts other than the information or representations
contained in a registration statement or prospectus for the
Contracts, as such registration statement and prospectus
may be amended or supplemented from time to time, or in
published reports for each Account which are in the public
domain or approved by the Company for distribution to
Contract owners, or in sales literature or other promotional
material approved by the Company or its designee, except
with the permission of the Company.
4.5. The Fund will provide to the Company at least one
complete copy of all registration statements, prospectuses,
Statements of Additional Information, reports, proxy
statements, sales literature and other promotional materials,
applications for exemptions, requests for no-action letters,
and all amendments to any of the above, that relate to the
Fund or its shares, contemporaneously with the filing of
such document with the Securities and Exchange
Commission or other regulatory authorities.
4.6. The Company will provide to the Fund at least one
complete copy of all registration statements, prospectuses,
Statements of Additional Information, reports, solicitations
for voting instructions, sales literature and other
promotional materials, applications for exemptions,
requests for no action letters, and all amendments to any of
the above, that relate to the Contracts or each Account,
contemporaneously with the filing of such document with
the SEC or other regulatory authorities.
4.7. For purposes of this Article IV, the phrase "sales
literature or other promotional material" includes, but is not
limited to, any of the following that refer to the Fund or any
affiliate of the Fund: advertisements (such as material
published, or designed for use in, a newspaper, magazine,
or other periodical, radio, television, telephone or tape
recording, videotape display, signs or billboards, motion
pictures, or other public media), sales literature (i.e., any
written communication distributed or made generally
available to customers or the public, including brochures,
circulars, research reports, market letters, form letters,
seminar texts, reprints or excerpts of any other
advertisement, sales literature, or published article),
educational or training materials or other communications
distributed or made generally available to some or all
agents or employees, and registration statements,
prospectuses, Statements of Additional Information,
shareholder reports, and proxy materials.
ARTICLE V. Fees and Expenses
5.1. The Fund and Underwriter shall pay no fee or other
compensation to the Company under this agreement, except
that if the Fund or any Portfolio adopts and implements a
plan pursuant to Rule 12b-1 to finance distribution
expenses, then the Underwriter may make payments to the
Company or to the underwriter for the Contracts if and in
amounts agreed to by the Underwriter in writing and such
payments will be made out of existing fees otherwise
payable to the Underwriter, past profits of the Underwriter
or other resources available to the Underwriter. No such
payments shall be made directly by the Fund.
5.2. All expenses incident to performance by the Fund
under this Agreement shall be paid by the Fund. The Fund
shall see to it that all its shares are registered and authorized
for issuance in accordance with applicable federal law and,
if and to the extent deemed advisable by the Fund, in
accordance with applicable state laws prior to their sale.
The Fund shall bear the expenses for the cost of registration
and qualification of the Fund's shares, preparation and
filing of the Fund's prospectus and registration statement,
proxy materials and reports, setting the prospectus in type,
setting in type and printing the proxy materials and reports
to shareholders (including the costs of printing a prospectus
that constitutes an annual report), the preparation of all
statements and notices required by any federal or state law,
and all taxes on the issuance or transfer of the Fund's
shares.
5.3. The Company shall bear the expenses of
distributing the Fund's prospectus, proxy materials and
reports to owners of Contracts issued by the Company.
ARTICLE VI. Diversification
6.1. The Fund will at all times invest money from the
Contracts in such a manner as to ensure that the Contracts
will be treated as variable contracts under the Code and the
regulations issued thereunder. Without limiting the scope
of the foregoing, the Fund will at all times comply with
Section 817(h) of the Code and Treasury Regulation 1.817-
5, relating to the diversification requirements for variable
annuity, endowment, or life insurance contracts and any
amendments or other modifications to such Section or
Regulations. In the event of a breach of this Article VI by
the Fund, it will take all reasonable steps (a) to notify
Company of such breach and (b) to adequately diversify the
Fund so as to achieve compliance within the grace period
afforded by Regulation 1.817-5.
ARTICLE VII. Potential Conflicts
7.1. The Board will monitor the Fund for the existence
of any material irreconcilable conflict between the interests
of the contract owners of all separate accounts investing in
the Fund. An irreconcilable material conflict may arise for
a variety of reasons, including: (a) an action by any state
insurance regulatory authority; (b) a change in applicable
federal or state insurance, tax, or securities laws or
regulations, or a public ruling, private letter ruling, no-
action or interpretative letter, or any similar action by
insurance, tax, or securities regulatory authorities; (c) an
administrative or judicial decision in any relevant
proceeding; (d) the manner in which the investments of any
Portfolio are being managed; (e) a difference in voting
instructions given by variable annuity contract and variable
life insurance contract owners; or (f) a decision by an
insurer to disregard the voting instructions of contract
owners. The Board shall promptly inform the Company if
it determines that an irreconcilable material conflict exists
and the implications thereof.
7.2. The Company will report any potential or existing
conflicts of which it is aware to the Board. The Company
will assist the Board in carrying out its responsibilities
under the Shared Funding Exemptive Order, by providing
the Board with all information reasonably necessary for the
Board to consider any issues raised. This includes, but is
not limited to, an obligation by the Company to inform the
Board whenever contract owner voting instructions are
disregarded.
7.3. If it is determined by a majority of the Board, or a
majority of its disinterested trustees, that a material
irreconcilable conflict exists, the Company and other
Participating Insurance Companies shall, at their expense
and to the extent reasonably practicable (as determined by a
majority of the disinterested trustees), take whatever steps
are necessary to remedy or eliminate the irreconcilable
material conflict, up to and including: (1), withdrawing the
assets allocable to some or all of the separate accounts from
the Fund or any Portfolio and reinvesting such assets in a
different investment medium, including (but not limited to)
another Portfolio of the Fund, or submitting the question
whether such segregation should be implemented to a vote
of all affected Contract owners and, as appropriate,
segregating the assets of any appropriate group (i.e.,
annuity contract owners, life insurance contract owners, or
variable contract owners of one or more Participating
Insurance Companies) that votes in favor of such
segregation, or offering to the affected contract owners the
option of making such a change; and (2), establishing a new
registered management investment company or managed
separate account.
7.4. If a material irreconcilable conflict arises because
of a decision by the Company to disregard contract owner
voting instructions and that decision represents a minority
position or would preclude a majority vote, the Company
may be required, at the Fund's election, to withdraw the
affected Account's investment in the Fund and terminate
this Agreement with respect to such Account; provided,
however that such withdrawal and termination shall be
limited to the extent required by the foregoing material
irreconcilable conflict as determined by a majority of the
disinterested members of the Board. Any such withdrawal
and termination must take place within six (6) months after
the Fund gives written notice that this provision is being
implemented, and until the end of that six month period the
Underwriter and Fund shall continue to accept and
implement orders by the Company for the purchase (and
redemption) of shares of the Fund.
7.5. If a material irreconcilable conflict arises because a
particular state insurance regulator's decision applicable to
the Company conflicts with the majority of other state
regulators, then the Company will withdraw the affected
Account's investment in the Fund and terminate this
Agreement with respect to such Account within six months
after the Board informs the Company in writing that it has
determined that such decision has created an irreconcilable
material conflict; provided, however, that such withdrawal
and termination shall be limited to the extent required by
the foregoing material irreconcilable conflict as determined
by a majority of the disinterested members of the Board.
Until the end of the foregoing six month period, the
Underwriter and Fund shall continue to accept and
implement orders by the Company for the purchase (and
redemption) of shares of the Fund.
7.6. For purposes of Sections 7.3 through 7.6 of this
Agreement, a majority of the disinterested members of the
Board shall determine whether any proposed action
adequately remedies any irreconcilable material conflict,
but in no event will the Fund be required to establish a new
funding medium for the Contracts. The Company shall not
be required by Section 7.3 to establish a new funding
medium for the Contracts if an offer to do so has been
declined by vote of a majority of Contract owners
materially adversely affected by the irreconcilable material
conflict. In the event that the Board determines that any
proposed action does not adequately remedy any
irreconcilable material conflict, then the Company will
withdraw the Account's investment in the Fund and
terminate this Agreement within six (6) months after the
Board informs the Company in writing of the foregoing
determination, provided, however, that such withdrawal
and termination shall be limited to the extent required by
any such material irreconcilable conflict as determined by a
majority of the disinterested members of the Board.
7.7. If and to the extent that Rule 6e-2 and Rule 6e-3(T)
are amended, or Rule 6e-3 is adopted, to provide exemptive
relief from any provision of the Act or the rules
promulgated thereunder with respect to mixed or shared
funding (as defined in the Shared Funding Exemptive
Order) on terms and conditions materially different from
those contained in the Shared Funding Exemptive Order,
then (a) the Fund and/or the Participating Insurance
Companies, as appropriate, shall take such steps as may be
necessary to comply with Rules 6e-2 and 6e-3(T), as
amended, and Rule 6e-3, as adopted, to the extent such
rules are applicable; and (b) Sections 3.4, 3.5, 7.1, 7.2, 7.3,
7.4, and 7.5 of this Agreement shall continue in effect only
to the extent that terms and conditions substantially
identical to such Sections are contained in such Rule(s) as
so amended or adopted.
ARTICLE VIII. Indemnification
8.1. Indemnification By The Company
8.1(a). The Company agrees to indemnify and hold
harmless the Fund and each trustee of the Board and
officers and each person, if any, who controls the Fund
within the meaning of Section 15 of the 1933 Act
(collectively, the "Indemnified Parties" for purposes of this
Section 8.1) against any and all losses, claims, damages,
liabilities (including amounts paid in settlement with the
written consent of the Company) or litigation (including
legal and other expenses), to which the Indemnified Parties
may become subject under any statute, regulation, at
common law or otherwise, insofar as such losses, claims,
damages, liabilities or expenses (or actions in respect
thereof) or settlements are related to the sale or acquisition
of the Fund's shares or the Contracts and:
(i) arise out of or are based upon any untrue statements or
alleged untrue statements of any material fact contained in
the Registration Statement or prospectus for the Contracts
or contained in the Contracts or sales literature for the
Contracts (or any amendment or supplement to any of the
foregoing), or arise out of or are based upon the omission
or the alleged omission to state therein a material fact
required to be stated therein or necessary to make the
statements therein not misleading, provided that this
agreement to indemnify shall not apply as to any
Indemnified Party if such statement or omission or such
alleged statement or omission was made in reliance upon
and in conformity with information furnished to the
Company by or on behalf of the Fund for use in the
Registration Statement or prospectus for the Contracts or in
the Contracts or sales literature (or any amendment or
supplement) or otherwise for use in connection with the
sale of the Contracts or Fund shares; or
(ii) arise out of or as a result of statements or
representations (other than statements or representations
contained in the Registration Statement, prospectus or sales
literature of the Fund not supplied by the Company, or
persons under its control) or wrongful conduct of the
Company or persons under its control, with respect to the
sale or distribution of the Contracts or Fund Shares; or
(iii) arise out of any untrue statement or alleged untrue
statement of a material fact contained in a Registration
Statement, prospectus, or sales literature of the Fund or any
amendment thereof or supplement thereto or the omission
or alleged omission to state therein a material fact required
to be stated therein or necessary to make the statements
therein not misleading if such a statement or omission was
made in reliance upon information furnished to the Fund by
or on behalf of the Company; or
(iv) arise as a result of any failure by the Company to
provide the services and furnish the materials under the
terms of this Agreement; or
(v) arise out of or result from any material breach of any
representation and/or warranty made by the Company in
this Agreement or arise out of or result from any other
material breach of this Agreement by the Company, as
limited by and in accordance with the provisions of
Sections 8.1(b) and 8.1(c) hereof.
8.1(b). The Company shall not be liable under this
indemnification provision with respect to any losses,
claims, damages, liabilities or litigation incurred or
assessed against an Indemnified Party as such may arise
from such Indemnified Party's willful misfeasance, bad
faith, or gross negligence in the performance of such
Indemnified Party's duties or by reason of such Indemnified
Party's reckless disregard of obligations or duties under this
Agreement or to the Fund, whichever is applicable.
8.1(c). The Company shall not be liable under this
indemnification provision with respect to any claim made
against an Indemnified Party unless such Indemnified Party
shall have notified the Company in writing within a
reasonable time after the summons or other first legal
process giving information of the nature of the claim shall
have been served upon such Indemnified Party (or after
such Indemnified Party shall have received notice of such
service on any designated agent), but failure to notify the
Company of any such claim shall not relieve the Company
from any liability which it may have to the Indemnified
Party against whom such action is brought otherwise than
on account of this indemnification provision. In case any
such action is brought against the Indemnified Parties, the
Company shall be entitled to participate, at its own
expense, in the defense of such action. The Company also
shall be entitled to assume the defense thereof, with counsel
satisfactory to the party named in the action. After notice
from the Company to such party of the Company's election
to assume the defense thereof, the Indemnified Party shall
bear the fees and expenses of any additional counsel
retained by it, and the Company will not be liable to such
party under this Agreement for any legal or other expenses
subsequently incurred by such party independently in
connection with the defense thereof other than reasonable
costs of investigation.
8.1(d). The Indemnified Parties will promptly notify
the Company of the commencement of any
litigation or proceedings against them in
connection with the issuance or sale of the
Fund Shares or the Contracts or the operation
of the Fund.
8.2. Indemnification by the Underwriter
8.2(a). The Underwriter agrees to indemnify and hold
harmless the Company and each of its directors and officers
and each person, if any, who controls the Company within
the meaning of Section 15 of the 1933 Act (collectively, the
"Indemnified Parties" for purposes of this Section 8.2)
against any and all losses, claims, damages, liabilities
(including amounts paid in settlement with the written
consent of the Underwriter) or litigation (including legal
and other expenses) to which the Indemnified Parties may
become subject under any statute, at common law or
otherwise, insofar as such losses, claims, damages,
liabilities or expenses (or actions in respect thereof) or
settlements are related to the sale or acquisition of the
Fund's shares or the Contracts and:
(i) arise out of or are based upon any untrue statement or
alleged untrue statement of any material fact contained in
the Registration Statement or prospectus or sales literature
of the Fund (or any amendment or supplement to any of the
foregoing), or arise out of or are based upon the omission
or the alleged omission to state therein a material fact
required to be stated therein or necessary to make the
statements therein not misleading, provided that this
agreement to indemnify shall not apply as to any
Indemnified Party if such statement or omission or such
alleged statement or omission was made in reliance upon
and in conformity with information furnished to the
Underwriter or Fund by or on behalf of the Company for
use in the Registration Statement or prospectus for the
Fund or in sales literature (or any amendment or
supplement) or otherwise for use in connection with the
sale of the Contracts or Fund shares; or
(ii) arise out of or as a result of statements or
representations (other than statements or representations
contained in the Registration Statement, prospectus or sales
literature for the Contracts not supplied by the Underwriter
or persons under its control) or wrongful conduct of the
Fund, Adviser or Underwriter or persons under their
control, with respect to the sale or distribution of the
Contracts or Fund shares; or
(iii) arise out of any untrue statement or alleged untrue
statement of a material fact contained in a Registration
Statement, prospectus, or sales literature covering the
Contracts, or any amendment thereof or supplement
thereto, or the omission or alleged omission to state therein
a material fact required to be stated therein or necessary to
make the statement or statements therein not misleading, if
such statement or omission was made in reliance upon
information furnished to the Company by or on behalf of
the Fund; or
(iv) arise as a result of any failure by the Fund to provide
the services and furnish the materials under the terms of
this Agreement (including a failure, whether unintentional
or in good faith or otherwise, to comply with the
diversification requirements specified in Article VI of this
Agreement); or
(v) arise out of or result from any material breach of any
representation and/or warranty made by the Underwriter in
this Agreement or arise out of or result from any other
material breach of this Agreement by the Underwriter; as
limited by and in accordance with the provisions of
Sections 8.2(b) and 8.2(c) hereof.
8.2(b). The Underwriter shall not be liable under this
indemnification provision with respect to any losses,
claims, damages, liabilities or litigation to which an
Indemnified Party would otherwise be subject by reason of
such Indemnified Party's willful misfeasance, bad faith, or
gross negligence in the performance of such Indemnified
Party's duties or by reason of such Indemnified Party's
reckless disregard of obligations and duties under this
Agreement or to each Company or the Account, whichever
is applicable.
8.2(c). The Underwriter shall not be liable under this
indemnification provision with respect to any claim made
against an Indemnified Party unless such Indemnified Party
shall have notified the Underwriter in writing within a
reasonable time after the summons or other first legal
process giving information of the nature of the claim shall
have been served upon such Indemnified Party (or after
such Indemnified Party shall have received notice of such
service on any designated agent), but failure to notify the
Underwriter of any such claim shall not relieve the
Underwriter from any liability which it may have to the
Indemnified Party against whom such action is brought
otherwise than on account of this indemnification
provision. In case any such action is brought against the
Indemnified Parties, the Underwriter will be entitled to
participate, at its own expense, in the defense thereof. The
Underwriter also shall be entitled to assume the defense
thereof, with counsel satisfactory to the party named in the
action. After notice from the Underwriter to such party of
the Underwriter's election to assume the defense thereof,
the Indemnified Party shall bear the fees and expenses of
any additional counsel retained by it, and the Underwriter
will not be liable to such party under this Agreement for
any legal or other expenses subsequently incurred by such
party independently in connection with the defense thereof
other than reasonable costs of investigation.
8.2(d). The Company agrees promptly to notify the
Underwriter of the commencement of any litigation or
proceedings against it or any of its officers or directors in
connection with the issuance or sale of the Contracts or the
operation of each Account.
8.3. Indemnification By the Fund
8.3(a). The Fund agrees to indemnify and hold harmless
the Company, and each of its directors and officers and
each person, if any, who controls the Company within the
meaning of Section 15 of the 1933 Act (collectively, the
"Indemnified Parties" for purposes of this Section 8.3)
against any and all losses, claims, damages, liabilities
(including amounts paid in settlement with the written
consent of the Fund) or litigation (including legal and other
expenses) to which the Indemnified Parties may become
subject under any statute, at common law or otherwise,
insofar as such losses, claims, damages, liabilities or
expenses (or actions in respect thereof) or settlements result
from the gross negligence, bad faith or willful misconduct
of the Board or any member thereof, are related to the
operations of the Fund and:
(i) arise as a result of any failure by the Fund to provide
the services and furnish the materials under the terms of
this Agreement (including a failure to comply with the
diversification requirements specified in Article VI of this
Agreement);or
(ii) arise out of or result from any material breach of any
representation and/or warranty made by the Fund in this
Agreement or arise out of or result from any other material
breach of this Agreement by the Fund;
as limited by and in accordance with the provisions of
Sections 8.3(b) and 8.3(c) hereof.
8.3(b). The Fund shall not be liable under this
indemnification provision with respect to any losses,
claims, damages, liabilities or litigation incurred or
assessed against an Indemnified Party as such may arise
from such Indemnified Party's willful misfeasance, bad
faith, or gross negligence in the performance of such
Indemnified Party's duties or by reason of such Indemnified
Party's reckless disregard of obligations and duties under
this Agreement or to the Company, the Fund, the
Underwriter or each Account, whichever is applicable.
8.3(c). The Fund shall not be liable under this
indemnification provision with respect to any claim made
against an Indemnified Party unless such Indemnified Party
shall have notified the Fund in writing within a reasonable
time after the summons or other first legal process giving
information of the nature of the claim shall have been
served upon such Indemnified Party (or after such
Indemnified Party shall have received notice of such
service on any designated agent), but failure to notify the
Fund of any such claim shall not relieve the Fund from any
liability which it may have to the Indemnified Party against
whom such action is brought otherwise than on account of
this indemnification provision. In case any such action is
brought against the Indemnified Parties, the Fund will be
entitled to participate, at its own expense, in the defense
thereof. The Fund also shall be entitled to assume the
defense thereof, with counsel satisfactory to the party
named in the action. After notice from the Fund to such
party of the Fund's election to assume the defense thereof,
the Indemnified Party shall bear the fees and expenses of
any additional counsel retained by it, and the Fund will not
be liable to such party under this Agreement for any legal
or other expenses subsequently incurred by such party
independently in connection with the defense thereof other
than reasonable costs of investigation.
8.3(d). The Company and the Underwriter agree promptly
to notify the Fund of the commencement of any litigation
or proceedings against it or any of its respective officers or
directors in connection with this Agreement, the issuance or
sale of the Contracts, with respect to the operation of either
Account, or the sale or acquisition of shares of the Fund.
ARTICLE IX. Applicable Law
9.1. This Agreement shall be construed and the
provisions hereof interpreted under and in accordance with
the laws of the Commonwealth of Massachusetts.
9.2. This Agreement shall be subject to the provisions
of the 1933, 1934 and 1940 acts, and the rules and
regulations and rulings thereunder, including such
exemptions from those statutes, rules and regulations as the
Securities and Exchange Commission may grant
(including, but not limited to, the Shared Funding
Exemptive Order) and the terms hereof shall be interpreted
and construed in accordance therewith.
ARTICLE X. Termination
10.1. This Agreement shall continue in full force and
effect until the first to occur of:
(a) termination by any party for any reason by sixty (60)
days advance written notice delivered to the other parties;
or
(b) termination by the Company by written notice to the
Fund and the Underwriter with respect to any Portfolio
based upon the Company's determination that shares of
such Portfolio are not reasonably available to meet the
requirements of the Contracts; or
(c) termination by the Company by written notice to the
Fund and the Underwriter with respect to any Portfolio in
the event any of the Portfolio's shares are not registered,
issued or sold in accordance with applicable state and/or
federal law or such law precludes the use of such shares as
the underlying investment media of the Contracts issued or
to be issued by the Company; or
(d) termination by the Company by written notice to the
Fund and the Underwriter with respect to any Portfolio in
the event that such Portfolio ceases to qualify as a
Regulated Investment Company under Subchapter M of the
Code or under any successor or similar provision, or if the
Company reasonably believes that the Fund may fail to so
qualify; or
(e) termination by the Company by written notice to the
Fund and the Underwriter with respect to any Portfolio in
the event that such Portfolio fails to meet the diversification
requirements specified in Article VI hereof; or
(f) termination by either the Fund or the Underwriter by
written notice to the Company, if either one or both of the
Fund or the Underwriter respectively, shall determine, in
their sole judgment exercised in good faith, that the
Company and/or its affiliated companies has suffered a
material adverse change in its business, operations,
financial condition or prospects since the date of this
Agreement or is the subject of material adverse publicity;
or
(g) termination by the Company by written notice to the
Fund and the Underwriter, if the Company shall determine,
in its sole judgment exercised in good faith, that either the
Fund or the Underwriter has suffered a material adverse
change in its business, operations, financial condition or
prospects since the date of this Agreement or is the subject
of material adverse publicity; or
(h) termination by the Fund or the Underwriter by
written notice to the Company, if the Company gives the
Fund and the Underwriter the written notice specified in
Section 1.6(b) hereof and at the time such notice was given
there was no notice of termination outstanding under any
other provision of this Agreement; provided, however any
termination under this Section 10.1(h) shall be effective
forty five (45) days after the notice specified in Section
1.6(b) was given.
10.2. Effect of Termination. Notwithstanding any termination of
this Agreement, the Fund and the Underwriter shall at the option of
the Company, continue to make available additional shares of the
Fund pursuant to the terms and conditions of this Agreement, for
all Contracts in effect on the effective date of termination of this
Agreement (hereinafter referred to as "Existing Contracts").
Specifically, without limitation, the owners of the Existing
Contracts shall be permitted to reallocate investments in the Fund,
redeem investments in the Fund and/or invest in the Fund upon the
making of additional purchase payments under the Existing
Contracts. The parties agree that this Section 10.2 shall not apply
to any terminations under Article VII and the effect of such Article
VII terminations shall be governed by Article VII of this
Agreement.
10.3 The Company shall not redeem Fund shares attributable to
the Contracts (as opposed to Fund shares attributable to the
Company's assets held in the Account) except (i) as necessary to
implement Contract Owner initiated or approved transactions, or
(ii) as required by state and/or federal laws or regulations or
judicial or other legal precedent of general application (hereinafter
referred to as a "Legally Required Redemption") or (iii) as
permitted by an order of the SEC pursuant to Section 26(b) of the
1940 Act. Upon request, the Company will promptly furnish to the
Fund and the Underwriter the opinion of counsel for the Company
(which counsel shall be reasonably satisfactory to the Fund and the
Underwriter) to the effect that any redemption pursuant to clause
(ii) above is a Legally Required Redemption. Furthermore, except
in cases where permitted under the terms of the Contracts, the
Company shall not prevent Contract Owners from allocating
payments to a Portfolio that was otherwise available under the
Contracts without first giving the Fund or the Underwriter 90 days
notice of its intention to do so.
ARTICLE XI. Notices
Any notice shall be sufficiently given when sent by
registered or certified mail to the other party at the address
of such party set forth below or at such other address as
such party may from time to time specify in writing to the
other party.
If to the Fund:
82 Devonshire Street
Boston, Massachusetts 02109
Attention: Treasurer
If to the Company:
Midland National Life Insurance Company
One Midland Plaza
Sioux Falls, South Dakota
Attention: Russell Evenson
If to the Underwriter:
82 Devonshire Street
Boston, Massachusetts 02109
Attention: Treasurer
ARTICLE XII. Miscellaneous
12.1 All persons dealing with the Fund must look solely
to the property of the Fund for the enforcement of any
claims against the Fund as neither the Board, officers,
agents or shareholders assume any personal liability for
obligations entered into on behalf of the Fund.
12.2 Subject to the requirements of legal process and
regulatory authority, each party hereto shall treat as
confidential the names and addresses of the owners of the
Contracts and all information reasonably identified as
confidential in writing by any other party hereto and,
except as permitted by this Agreement, shall not disclose,
disseminate or utilize such names and addresses and other
confidential information until such time as it may come
into the public domain without the express written consent
of the affected party.
12.3 The captions in this Agreement are included for
convenience of reference only and in no way define or
delineate any of the provisions hereof or otherwise affect
their construction or effect.
12.4 This Agreement may be executed simultaneously
in two or more counterparts, each of which taken together
shall constitute one and the same instrument.
12.5 If any provision of this Agreement shall be held or
made invalid by a court decision, statute, rule or otherwise,
the remainder of the Agreement shall not be affected
thereby.
12.6 Each party hereto shall cooperate with each other
party and all appropriate governmental authorities
(including without limitation the SEC, the NASD and state
insurance regulators) and shall permit such authorities
reasonable access to its books and records in connection
with any investigation or inquiry relating to this Agreement
or the transactions contemplated hereby. Notwithstanding
the generality of the foregoing, each party hereto further
agrees to furnish the California Insurance Commissioner
with any information or reports in connection with services
provided under this Agreement which such Commissioner
may request in order to ascertain whether the insurance
operations of the Company are being conducted in a
manner consistent with the California Insurance
Regulations and any other applicable law or regulations.
12.7 The rights, remedies and obligations contained in
this Agreement are cumulative and are in addition to any
and all rights, remedies and obligations, at law or in equity,
which the parties hereto are entitled to under state and
federal laws.
12.8. This Agreement or any of the rights and
obligations hereunder may not be assigned by any party
without the prior written consent of all parties hereto;
provided, however, that the Underwriter may assign this
Agreement or any rights or obligations hereunder to any
affiliate of or company under common control with the
Underwriter, if such assignee is duly licensed and
registered to perform the obligations of the Underwriter
under this Agreement. The Company shall promptly notify
the Fund and the Underwriter of any change in control of
the Company.
12.9. The Company shall furnish, or shall cause to be
furnished, to the Fund or its designee copies of the following
reports:
(a) the Company's annual statement (prepared under
statutory accounting principles) and annual report (prepared
under generally accepted accounting principles ("GAAP"), if
any), as soon as practical and in any event within 90 days
after the end of each fiscal year;
(b) the Company's quarterly statements (statutory) (and
GAAP, if any), as soon as practical and in any event within
45 days after the end of each quarterly period:
(c) any financial statement, proxy statement, notice or
report of the Company sent to stockholders and/or
policyholders, as soon as practical after the delivery thereof
to stockholders;
(d) any registration statement (without exhibits) and
financial reports of the Company filed with the Securities
and Exchange Commission or any state insurance regulator,
as soon as practical after the filing thereof;
(e) any other report submitted to the Company by
independent accountants in connection with any annual,
interim or special audit made by them of the books of the
Company, as soon as practical after the receipt thereof.
IN WITNESS WHEREOF, each of the parties hereto
has caused this Agreement to be executed in its name and
on its behalf by its duly authorized representative and its
seal to be hereunder affixed hereto as of the date specified
below.
MIDLAND NATIONAL LIFE INSURANCE COMPANY
By: __Michael_M_Masterson_____________________
Name: Michael M. Masterson
Title: Chief Executive Officer and President
VARIABLE INSURANCE PRODUCTS FUND III
By: __Gary_Burkhead____
J. Gary Burkhead
Senior Vice President
FIDELITY DISTRIBUTORS CORPORATION
By: __Paul_J_Hondros__
Paul J. Hondros
President
Schedule A
Separate Accounts and Associated Contracts
Name of Separate Account and Policy Form Numbers of
Contracts Funded
Date Established by Board of Directors By Separate
Account
Midland National Life Separate Account A LT-91
(July 20, 1987) L101A1
L108A1
L109A1
Midland National Life Separate Account C A053A1
March 19, 1991
SCHEDULE B
PROXY VOTING PROCEDURE
The following is a list of procedures and corresponding
responsibilities for the handling of proxies relating to the
Fund by the Underwriter, the Fund and the Company. The
defined terms herein shall have the meanings assigned in
the Participation Agreement except that the term
"Company" shall also include the department or third party
assigned by the Insurance Company to perform the steps
delineated below.
1. The number of proxy proposals is given to the
Company by the Underwriter as early as possible
before the date set by the Fund for the shareholder
meeting to facilitate the establishment of tabulation
procedures. At this time the Underwriter will inform
the Company of the Record, Mailing and Meeting
dates. This will be done verbally approximately two
months before meeting.
2. Promptly after the Record Date, the Company will
perform a "tape run", or other activity, which will
generate the names, addresses and number of units
which are attributed to each
contractowner/policyholder (the "Customer") as of
the Record Date. Allowance should be made for
account adjustments made after this date that could
affect the status of the Customers' accounts as of the
Record Date.
Note: The number of proxy statements is determined by
the activities described in Step #2. The Company
will use its best efforts to call in the number of
Customers to Fidelity, as soon as possible, but no
later than two weeks after the Record Date.
3. The Fund's Annual Report no longer needs to be sent
to each Customer by the Company either before or
together with the Customers' receipt of a proxy
statement. Underwriter will provide the last Annual
Report to the Company pursuant to the terms of
Section 3.3 of the Agreement to which this Schedule
relates.
4. The text and format for the Voting Instruction Cards
("Cards" or "Card") is provided to the Company by
the Fund. The Company, at its expense, shall
produce and personalize the Voting Instruction Cards.
The Legal Department of the Underwriter or its
affiliate ("Fidelity Legal") must approve the Card
before it is printed. Allow approximately 2-4
business days for printing information on the Cards.
Information commonly found on the Cards includes:
a. name (legal name as found on account
registration)
b. address
c. Fund or account number
d. coding to state number of units
e. individual Card number for use in tracking and
verification of votes (already on Cards as
printed by the Fund)
(This and related steps may occur later in the chronological
process due to possible uncertainties relating to the
proposals.)
5. During this time, Fidelity Legal will develop,
produce, and the Fund will pay for the Notice
of Proxy and the Proxy Statement (one
document). Printed and folded notices and
statements will be sent to Company for
insertion into envelopes (envelopes and return
envelopes are provided and paid for by the
Insurance Company). Contents of envelope
sent to Customers by Company will include:
a. Voting Instruction Card(s)
b. One proxy notice and statement (one
document)
c. return envelope (postage pre-paid by
Company) addressed to the Company or its
tabulation agent
d. "urge buckslip" - optional, but
recommended. (This is a small, single sheet of
paper that requests Customers to vote as
quickly as possible and that their vote is
important. One copy will be supplied by the
Fund.)
e. cover letter - optional, supplied by
Company and reviewed and approved in
advance by Fidelity Legal.
6. The above contents should be received by the
Company approximately 3-5 business days
before mail date. Individual in charge at
Company reviews and approves the contents of
the mailing package to ensure correctness and
completeness. Copy of this approval sent to
Fidelity Legal.
7. Package mailed by the Company.
* The Fund must allow at least a 15-day
solicitation time to the Company as the
shareowner. (A 5-week period is
recommended.) Solicitation time is
calculated as calendar days from (but not
including) the meeting, counting backwards.
8. Collection and tabulation of Cards begins.
Tabulation usually takes place in another
department or another vendor depending on
process used. An often used procedure is to
sort Cards on arrival by proposal into vote
categories of all yes, no, or mixed replies, and
to begin data entry.
Note: Postmarks are not generally needed. A
need for postmark information would be due to
an insurance company's internal procedure and
has not been required by Fidelity in the past.
9. Signatures on Card checked against legal name
on account registration which was printed on
the Card.
Note: For Example, If the account registration
is under "Bertram C. Jones, Trustee," then that
is the exact legal name to be printed on the
Card and is the signature needed on the Card.
10. If Cards are mutilated, or for any reason are
illegible or are not signed properly, they are
sent back to Customer with an explanatory
letter, a new Card and return envelope. The
mutilated or illegible Card is disregarded and
considered to be not received for purposes of
vote tabulation. Any Cards that have "kicked
out" (e.g. mutilated, illegible) of the procedure
are "hand verified," i.e., examined as to why
they did not complete the system. Any
questions on those Cards are usually remedied
individually.
11. There are various control procedures used to
ensure proper tabulation of votes and accuracy
of that tabulation. The most prevalent is to sort
the Cards as they first arrive into categories
depending upon their vote; an estimate of how
the vote is progressing may then be calculated.
If the initial estimates and the actual vote do
not coincide, then an internal audit of that vote
should occur. This may entail a recount.
12. The actual tabulation of votes is done in units
which is then converted to shares. (It is very
important that the Fund receives the tabulations
stated in terms of a percentage and the number
of shares.) Fidelity Legal must review and
approve tabulation format.
13. Final tabulation in shares is verbally given by
the Company to Fidelity Legal on the morning
of the meeting not later than 10:00 a.m. Boston
time. Fidelity Legal may request an earlier
deadline if required to calculate the vote in time
for the meeting.
14. A Certification of Mailing and Authorization to
Vote Shares will be required from the
Company as well as an original copy of the
final vote. Fidelity Legal will provide a
standard form for each Certification.
15. The Company will be required to box and
archive the Cards received from the Customers.
In the event that any vote is challenged or if
otherwise necessary for legal, regulatory, or
accounting purposes, Fidelity Legal will be
permitted reasonable access to such Cards.
16. All approvals and "signing-off" may be done orally,
but must always be followed up in writing
SCHEDULE C
Other, non-Fidelity Investments investment companies
currently available under variable annuities or variable life
insurance issued by the Company:
American Century Variable Portfolios Inc.
Capital Appreciation Portfolio
Value Portfolio
Balanced Portfolio
International Portfolio
<PAGE>
EXHIBIT 1(8)(c)
FUND PARTICIPATION AGREEMENT
THIS FUND PARTICIPATION AGREEMENT is
made and entered into as of April 11, 1997 by and
between MIDLAND NATIONAL LIFE INSURANCE
COMPANY (the "Company"), and AMERICAN
CENTURY INVESTMENT SERVICES, INC. (the
Distributor).
WHEREAS, the Company offers to the public certain
variable annuity contracts and variable life insurance
contracts (the "Contracts"); and
WHEREAS, the Company wishes to offer as investment
options under the Contracts, TCI Balanced, TCI Growth,
TCI Value and TCI International (the "Funds"), each of
which is a series of mutual fund shares registered under the
Investment Company Act of 1940, as amended, and issued
by TCI Portfolios, Inc. (the Issuer); and
WHEREAS, on the terms and conditions hereinafter set
forth, Distributor and the Issuer desire to make shares of the
Funds available as investment options under the Contracts
and to retain the Company to perform certain administrative
services on behalf of the Funds;
NOW, THEREFORE, the Company and Distributor
agree as follows:
1. Transactions in the Funds. Subject to the terms and
conditions of this Agreement, Distributor will make shares of
the Funds available to be purchased, exchanged, or
redeemed, by the Company on behalf of the Accounts
(defined in Section 6(a) below) through a single account per
Fund at the net asset value applicable to each order. The
Funds' shares shall be purchased and redeemed on a net basis
in such quantity and at such time as determined by the
Company to satisfy the requirements of the Contracts for
which the Funds serve as underlying investment media.
Dividends and capital gains distributions will be
automatically reinvested in full and fractional shares of the
Funds.
2. Administrative Services. The Company shall be
solely responsible for providing all administrative services
for the Contracts owners. The Company agrees that it will
maintain and preserve all records as required by law to be
maintained and preserved, and will otherwise comply with
all laws, rules and regulations applicable to the marketing of
the Contracts and the provision of administrative services to
the Contract owners.
3. Processing and Timing of Transactions.
(a) Distributor hereby appoints the Company as its agent
for the limited purpose of accepting purchase and redemption
orders for Fund shares from the Accounts and/or Record
Owners (each as defined below), as applicable. On each day
the New York Stock Exchange (the "Exchange") is open for
business (each, a "Business Day"), the Company may receive
instructions from the Accounts and/or Record Owners for the
purchase or redemption of shares of the Funds ("Orders").
Orders received and accepted by the Company prior to the
close of regular trading on the Exchange (the "Close of
Trading") on any given Business Day (currently, 3:00 p.m.
Central time) and transmitted to the Issuer by 9:00 a.m.
Central time on the next following Business Day will be
executed by the Issuer at the net asset value determined as of
the Close of Trading on the previous Business Day ("Day
1"). Any Orders received by the Company after the Close of
Trading, and all Orders that are transmitted to the Issuer after
9:00 a.m. Central time on the next following Business Day,
will be executed by the Issuer at the net asset value next
determined following receipt of such Order. The day as of
which an Order is executed by the Issuer pursuant to the
provisions set forth above is referred to herein as the
"Effective Trade Date".
(b) By 5:30 p.m. Central time on each Business Day,
Distributor will provide to the Company, via facsimile or
other electronic transmission acceptable to the Company, the
Funds' net asset value, dividend and capital gain information
and, in the case of income funds, the daily accrual for interest
rate factor (mil rate), determined at the Close of Trading.
(c) By 9:00 a.m. Central time on each Business Day, the
Company will provide to Distributor via facsimile or other
electronic transmission acceptable to Distributor a report
stating whether the Orders received by the Company from
Participants by the Close of Trading on the preceding
Business Day resulted in the Plan being a net purchaser or
net seller of shares of the Funds. As used in this Agreement,
the phrase "other electronic transmission acceptable to
Distributor" includes the use of remote computer terminals
located at the premises of the Company, its agents or
affiliates, which terminals may be linked electronically to the
computer system of Distributor, its agents or affiliates
(hereinafter, "Remote Computer Terminals").
(d) Upon the timely receipt from the Company of the
report described in (c) above, Distributor will execute the
purchase or redemption transactions (as the case may be) at
the net asset value computed as of the Close of Trading on
Day 1. Payment for net purchase transactions shall be made
by wire transfer to the custodial account designated by the
Funds on the Business Day next following the Effective
Trade Date. Such wire transfers shall be initiated by the
Company's bank prior to 3:00 p.m. Central time and received
by the Funds prior to 5:00 p.m. Central time on the Business
Day next following the Effective Trade Date. If payments
for a purchase Order is not timely received, such Order will
be executed at the net asset value next computed following
receipt of payment. Payments for net redemption
transactions shall be made by wire transfer by the Issuer to
the account designated by the appropriate receiving party
within the time period set forth in the applicable Fund's then-
current prospectus; provided, however, Distributor will use
all reasonable efforts to settle all redemptions on the
Business Day following the Effective Trade Date. On any
Business Day when the Federal Reserve Wire Transfer
System is closed, all communication and processing rules
will be suspended for the settlement of Orders. Orders will
be settled on the next Business Day on which the Federal
Reserve Wire Transfer System is open and the Effective
Trade Date will apply.
4. Prospectus and Proxy Materials.
(a) Distributor shall provide to the shareholder of record
copies of the Issuer's proxy materials, periodic fund reports
to shareholders and other materials that are required by law
to be sent to the Issuer's shareholders. In addition, Distributor
shall provide the Company with a sufficient quantity of
prospectuses of the Funds to be used in conjunction with the
transactions contemplated by this Agreement, together with
such additional copies of the Issuer's prospectuses as may be
reasonably requested by Company. If the Company provides
for pass-through voting by the Contract owners, Distributor
will provide the Company with a sufficient quantity of proxy
materials for each Contract owner.
(b) The cost of preparing, printing and shipping of the
prospectuses, proxy materials, periodic fund reports and
other materials of the Issuer to the Company shall be paid by
Distributor or its agents or affiliates; provided, however, that
if at any time Distributor or its agent reasonably deems the
usage by the Company of such items to be excessive, it may,
prior to the delivery of any quantity of materials in excess of
what is deemed reasonable, request that the Company
demonstrate the reasonableness of such usage. If the
Distributor believes the reasonableness of such usage has not
been adequately demonstrated, it may request that the
Company pay the cost of printing (including press time) and
delivery of any excess copies of such materials. Unless the
Company agrees to make such payments, Distributor may
refuse to supply such additional materials and this section
shall not be interpreted as requiring delivery by Distributor
or Issuer of any copies in excess of the number of copies
required by law.
(c) The cost of distribution, if any, of any prospectuses,
proxy materials, periodic fund reports and other materials of
the Issuer to the Contract owners shall be paid by the
Company and shall not be the responsibility of Distributor or
the Issuer.
5. Compensation and Expenses.
(a) The Accounts shall be the sole shareholder of Fund
shares purchased for the Contract owners pursuant to this
Agreement (the "Record Owners"). The Company and the
Record Owners shall properly complete any applications or
other forms required by Distributor or the Issuer from time to
time.
(b) Distributor acknowledges that it will derive a
substantial savings in administrative expenses, such as a
reduction in expenses related to postage, shareholder
communications and recordkeeping, by virtue of having a
single shareholder account per Fund for the Accounts rather
than having each Contract owner as a shareholder. In
consideration of the Administrative Services and
performance of all other obligations under this Agreement by
the Company, Distributor will pay the Company a fee (the
"Administrative Services fee") equal to 15 basis points per
annum of the average aggregate amount invested by the
Company under this Agreement, commencing with the
month in which the average aggregate market value of
investments by the Company (on behalf of the Contract
owners) in the Funds exceeds $10 million. No payment
obligation shall arise until the Company's average aggregate
investment in the Funds reaches $10 million, and such
payment obligation, once commenced, shall be suspended
with respect to any month during which the Company's
average aggregate investment in the Funds drops below $10
million.
(c) The parties understand that Distributor customarily
pays, out of its management fee, another affiliated
corporation for the type of administrative services to be
provided by the Company to the Contract owners. The
parties agree that the payments by Distributor to the
Company, like Distributor's payments to its affiliated
corporation, are for administrative services only and do not
constitute payment in any manner for investment advisory
services or for costs of distribution.
(d) For the purposes of computing the payment to the
Company contemplated by this Section 5, the average
aggregate amount invested by the Accounts in the Funds
over a one month period shall be computed by totaling the
Company's aggregate investment (share net asset value
multiplied by total number of shares of the Funds held by the
Company) on each Business Day during the month and
dividing by the total number of Business Days during such
month.
(e) Distributor will calculate the amount of the payment to
be made pursuant to this Section 5 at the end of each
calendar quarter and will make such payment to the
Company within 30 days thereafter. The check for such
payment will be accompanied by a statement showing the
calculation of the amounts being paid by Distributor for the
relevant months and such other supporting data as may be
reasonably requested by the Company and shall be mailed to:
Midland National Life Insurance Company
One Midland Plaza
Sioux Falls, SD 57193
Attention: Theresa Kuiper
(f) In the event Distributor reduces its management fee
with respect to any Fund after the date hereof, Distributor
may amend the Administrative Services fee payable with
regard to such Fund by providing the Company 30 days'
advance written notice of any such adjustment. The revised
Administrative Services fee shall become effective as of the
latter of 30 days from the date of delivery of the notice or the
date prescribed in the notice.
6. Representations and Warranties.
(a) The Company represents and warrants that: (i) this
Agreement has been duly authorized by all necessary
corporate action and, when executed and delivered, shall
constitute the legal, valid and binding obligation of the
Company, enforceable in accordance with its terms; (ii) it has
established the Separate Account A and the Separate
Account C (the "Accounts"), each of which is a separate
account under South Dakota Insurance law, and has
registered each Account as a unit investment trust under the
Investment Company Act of 1940 (the "1940 Act") to serve
as an investment vehicle for the Contracts; (iii) each Contract
provides for the allocation of net amounts received by the
Company to an Account for investment in the shares of one
of more specified investment companies selected among
those companies available through the Account to act as
underlying investment media; (iv) selection of a particular
investment company is made by the Contract owner under a
particular Contract, who may change such selection from
time to time in accordance with the terms of the applicable
Contract; and (v) the activities of the Company contemplated
by this Agreement comply with all provisions of federal and
state insurance, securities, and tax laws applicable to such
activities.
(b) Distributor represents that: (i) this Agreement has been
duly authorized by all necessary corporate action and, when
executed and delivered, shall constitute the legal, valid and
binding obligation of Distributor enforceable in accordance
with its terms; and (ii) the investments of the Funds will at
all times be adequately diversified within the meaning of
Section 817(h) of the Internal Revenue Service Code of
1986, as amended (the "Code"), and the regulations
thereunder, and that at all times while this Agreement is in
effect, all beneficial interests in each of the Funds will be
owned by one or more insurance companies or by any other
party permitted under Section 1.817-5(f)(3) of the
Regulations promulgated under the Code.
7. Additional Covenants and Agreements.
(a) Each party shall comply with all provisions of federal
and state laws applicable to its respective activities under this
Agreement.
(b) Each party shall promptly notify the other parties in
the event that it is, for any reason, unable to perform any of
its obligations under this Agreement.
(c) The Company covenants and agrees that all Orders
accepted and transmitted by it hereunder with respect to each
Account on any Business Day will be based upon
instructions that it received from the Contract owners in
proper form prior to the Close of Trading of the Exchange on
that Business Day.
(d) The Company covenants and agrees that all Orders
transmitted to the Issuer, whether by telephone, telecopy, or
other electronic transmission acceptable to Distributor, shall
be sent by or under the authority and direction of a person
designated by the Company as being duly authorized to act
on behalf of the owner of the Accounts. Absent actual
knowledge to the contrary, Distributor shall be entitled to
rely on the existence of such authority and to assume that any
person transmitting Orders for the purchase, redemption or
transfer of Fund shares on behalf of the Company is "an
appropriate person" as used in Sections 8-107 and 8-401 of
the Uniform Commercial Code with respect to the
transmission of instructions regarding Fund shares on behalf
of the owner of such Fund shares. The Company shall
maintain the confidentiality of all passwords and security
procedures issued, installed or otherwise put in place with
respect to the use of Remote Computer Terminals and
assumes full responsibility for the security therefor. The
Company further agrees to be solely responsible for the
accuracy, propriety and consequences of all data transmitted
to Distributor by the Company by telephone, telecopy or
other electronic transmission acceptable to Distributor.
(e) The Company agrees to make every reasonable effort
to market its Contracts. It will use its best efforts to give
equal emphasis and promotion to shares of the Funds as is
given to other underlying investments of the Accounts.
(f) The Company shall not, without the written consent of
Distributor, make representations concerning the Issuer or
the shares of the Funds except those contained in the then-
current prospectus and in current printed sales literature
approved by Distributor or the Issuer.
(g) Advertising and sales literature with respect to the
Issuer or the Funds prepared by the Company or its agents, if
any, for use in marketing shares of the Funds as underlying
investment media to Contract owners shall be submitted to
Distributor for review and approval before such material is
used.
(h) The Company will provide to Distributor at least one
complete copy of all registration statements, prospectuses,
statements of additional information, annual and semi-annual
reports, proxy statements, and all amendments or
supplements to any of the above that include a description of
or information regarding the Funds promptly after the filing
of such document with the SEC or other regulatory authority.
8. Use of Names. Except as otherwise expressly provided
for in this Agreement, neither Distributor nor the Funds shall
use any trademark, trade name, service mark or logo of the
Company, or any variation of any such trademark, trade
name, service mark or logo, without the Company's prior
written consent, the granting of which shall be at the
Company's sole option. Except as otherwise expressly
provided for in this Agreement, the Company shall not use
any trademark, trade name, service mark or logo of the Issuer
or Distributor, or any variation of any such trademarks, trade
names, service marks, or logos, without the prior written
consent of either the Issuer or Distributor, as appropriate, the
granting of which shall be at the sole option of Distributor
and/or the Issuer.
9. Proxy Voting.
(a) The Company shall provide pass-through voting
privileges to all Contract owners so long as the SEC
continues to interpret the 1940 Act as requiring such
privileges. It shall be the responsibility of the Company to
assure that it and the separate accounts of the other
Participating Companies (as defined in Section 11(a) below)
participating in any Fund calculate voting privileges in a
consistent manner.
(b) The Company will distribute to Contract owners all
proxy material furnished by Distributor and will vote shares
in accordance with instructions received from such Contract
owners. The Company shall vote Fund shares for which no
instructions have been received in the same proportion as
shares for which such instructions have been received. The
Company and its agents shall not oppose or interfere with the
solicitation of proxies for Fund shares held for such Contract
owners.
10. Indemnity.
(a) Distributor agrees to indemnify and hold harmless the
Company and its officers, directors, employees, agents,
affiliates and each person, if any, who controls the Company
within the meaning of the Securities Act of 1933
(collectively, the "Indemnified Parties" for purposes of this
Section 10(a)) against any losses, claims, expenses,
reasonable out-of-pocket administrative costs (not including
any internal costs or charges), damages or liabilities
(including amounts paid in settlement thereof) or litigation
expenses (including legal and other expenses) (collectively,
"Losses"), to which the Indemnified Parties may become
subject, insofar as such Losses result from a breach by
Distributor of a material provision of this Agreement,
including, but not limited to, any Losses arising out of or
resulting from the materially incorrect reporting of the daily
net asset value per share or dividend or capital gain
distribution rate. Distributor will reimburse any legal or
other expenses reasonably incurred by the Indemnified
Parties in connection with investigating or defending any
such Losses. Distributor shall not be liable for
indemnification hereunder if such Losses are attributable to
the negligence or misconduct of the Company in performing
its obligations under this Agreement.
(b) The Company agrees to indemnify and hold harmless
Distributor and the Issuer and their respective officers,
directors, employees, agents, affiliates and each person, if
any, who controls the Issuer or Distributor within the
meaning of the Securities Act of 1933 (collectively, the
"Indemnified Parties" for purposes of this Section 10(b))
against any Losses to which the Indemnified Parties may
become subject, insofar as such Losses (i) result from a
breach by the Company of a material provision of this
Agreement, or (ii) arise out of or are based upon any untrue
statement or alleged untrue statement of any material fact
contained in any registration statement or prospectus of the
Company regarding the Contracts, if any, or arise out of or
are based upon the omission or alleged omission to state
therein a material fact required to be stated therein or
necessary to make the statements therein not misleading, or
(iii) result from the use by any person of a Remote Computer
Terminal. The Company will reimburse any legal or other
expenses reasonably incurred by the Indemnified Parties in
connection with investigating or defending any such Losses.
The Company shall not be liable for indemnification
hereunder if such Losses are attributable to the negligence or
misconduct of Distributor or the Issuer in performing their
obligations under this Agreement.
(c) Promptly after receipt by an indemnified party
hereunder of notice of the commencement of action, such
indemnified party will, if a claim in respect thereof is to be
made against the indemnifying party hereunder, notify the
indemnifying party of the commencement thereof; but the
omission so to notify the indemnifying party will not relieve
it from any liability which it may have to any indemnified
party otherwise than under this Section 10. In case any such
action is brought against any indemnified party, and it
notifies the indemnifying party of the commencement
thereof, the indemnifying party will be entitled to participate
therein and, to the extent that it may wish to, assume the
defense thereof, with counsel satisfactory to such
indemnified party, and after notice from the indemnifying
party to such indemnified party of its election to assume the
defense thereof, the indemnifying party will not be liable to
such indemnified party under this Section 10 for any legal or
other expenses subsequently incurred by such indemnified
party in connection with the defense thereof other than
reasonable costs of investigation.
(d) If the indemnifying party assumes the defense of any
such action, the indemnifying party shall not, without the
prior written consent of the indemnified parties in such
action, settle or compromise the liability of the indemnified
parties in such action, or permit a default or consent to the
entry of any judgment in respect thereof, unless in
connection with such settlement, compromise or consent,
each indemnified party receives from such claimant an
unconditional release from all liability in respect of such
claim.
11. Potential Conflicts.
(a) The Company has received a copy of an application
for exemptive relief, as amended, filed by Distributor on
December 21, 1987, with the SEC and the order issued by
the SEC in response thereto (the "Shared Funding Exemptive
Order"). The Company has reviewed the conditions to the
requested relief set forth in such application for exemptive
relief. As set forth in such application, the Board of
Directors of the Issuer (the "Board") will monitor the Issuer
for the existence of any material irreconcilable conflict
between the interests of the contract owners of all separate
accounts ("Participating Companies") investing in funds of
the Issuer. An irreconcilable material conflict may arise for a
variety of reasons, including: (i) an action by any state
insurance regulatory authority; (ii) a change in applicable
federal or state insurance, tax, or securities laws or
regulations, or a public ruling, private letter ruling, no-action
or interpretative letter, or any similar actions by insurance,
tax or securities regulatory authorities; (iii) an administrative
or judicial decision in any relevant proceeding; (iv) the
manner in which the investments of any portfolio are being
managed; (v) a difference in voting instructions given by
variable annuity contract owners and variable life insurance
contract owners; or (vi) a decision by an insurer to disregard
the voting instructions of contract owners. The Board shall
promptly inform the Company if it determines that an
irreconcilable material conflict exists and the implications
thereof.
(b) The Company will report any potential or existing
conflicts of which it is aware to the Board. The Company
will assist the Board in carrying out its responsibilities under
the Shared Funding Exemptive Order by providing the Board
with all information reasonably necessary for the Board to
consider any issues raised. This includes, but is not limited
to, an obligation by the Company to inform the Board
whenever contract owner voting instructions are disregarded.
(c) If a majority of the Board, or a majority of its
disinterested Board members, determines that a material
irreconcilable conflict exists with regard to contract owner
investments in a Fund, the Board shall give prompt notice to
all Participating Companies. If the Board determines that the
Company is responsible for causing or creating said conflict,
the Company shall at its sole cost and expense, and to the
extent reasonably practicable (as determined by a majority of
the disinterested Board members), take such action as is
necessary to remedy or eliminate the irreconcilable material
conflict. Such necessary action may include but shall not be
limited to:
(i) withdrawing the assets allocable to the Accounts
from the Fund and reinvesting such assets in a
different investment medium or submitting the
question of whether such segregation should be
implemented to a vote of all affected contract owners
and as appropriate, segregating the assets of any
appropriate group (i.e., annuity contract owners, life
insurance contract owners, or variable contract
owners of one or more Participating Companies) that
votes in favor of such segregation, or offering to the
affected contract owners the option of making such a
change; and/or
(ii) establishing a new registered management
investment company or managed separate
account.
(d) If a material irreconcilable conflict arises as a result of
a decision by the Company to disregard its contract owner
voting instructions and said decision represents a minority
position or would preclude a majority vote by all of its
contract owners having an interest in the Issuer, the
Company at its sole cost, may be required, at the Board's
election, to withdraw an Account's investment in the Issuer
and terminate this Agreement; provided, however, that such
withdrawal and termination shall be limited to the extent
required by the foregoing material irreconcilable conflict as
determined by a majority of the disinterested members of the
Board.
(e) For the purpose of this Section 11, a majority of the
disinterested Board members shall determine whether or not
any proposed action adequately remedies any irreconcilable
material conflict, but in no event will the Issuer be required
to establish a new funding medium for any Contract. The
Company shall not be required by this Section 11 to
establish a new funding medium for any Contract if an offer
to do so has been declined by vote of a majority of the
Contract owners materially adversely affected by the
irreconcilable material conflict.
12. Termination; Withdrawal of Offering. This
Agreement may be terminated by either party upon 180 days'
prior written notice to the other parties. Notwithstanding the
above, each Issuer reserves the right, without prior notice, to
suspend sales of shares of any Fund, in whole or in part, or to
make a limited offering of shares of any of the Funds in the
event that (A) any regulatory body commences formal
proceedings against the Company, Distributor, affiliates of
Distributor, or any of the Issuers, which proceedings
Distributor reasonably believes may have a material adverse
impact on the ability of Distributor, the Issuers or the
Company to perform its obligations under this Agreement or
(B) in the judgment of Distributor, declining to accept any
additional instructions for the purchase or sale of shares of
any such Fund is warranted by market, economic or political
conditions. Notwithstanding the foregoing, this Agreement
may be terminated immediately (i) by any party as a result of
any other breach of this Agreement by another party, which
breach is not cured within 30 days after receipt of notice
from the other party, or (ii) by any party upon a
determination that continuing to perform under this
Agreement would, in the reasonable opinion of the
terminating party's counsel, violate any applicable federal or
state law, rule, regulation or judicial order. Termination of
this Agreement shall not affect the obligations of the parties
to make payments under Section 3 for Orders received by
the Company prior to such termination and shall not affect
the Issuers' obligation to maintain the Accounts in the name
of the Plans or any successor trustee or recordkeeper for the
Plans. Following termination, Distributor shall not have any
Administrative Services payment obligation to the Company
(except for payment obligations accrued but not yet paid as
of the termination date).
13. Continuation of Agreement. Termination as the
result of any cause listed in Section 12 shall not affect the
Distributor's obligation to cause the Issuer to furnish its
shares to Contracts then in force for which its shares serve or
may serve as the underlying medium (unless such further
sale of Fund shares is proscribed by law or the SEC or other
regulatory body). Following termination, Distributor shall
not have any Administrative Services payment obligation to
the Company (except for payment obligations accrued but
not yet paid as of the termination date).
14. Non-Exclusivity. Each of the parties acknowledges
and agrees that this Agreement and the arrangement
described herein are intended to be non-exclusive and that
each of the parties is free to enter into similar agreements and
arrangements with other entities.
15. Survival. The provisions of Section 8 (use of names)
and Section 10 (indemnity) of this Agreement shall survive
termination of this Agreement.
16. Amendment. Neither this Agreement, nor any
provision hereof, may be amended, waived, discharged or
terminated orally, but only by an instrument in writing
signed by all of the parties hereto.
17. Notices. All notices and other communications
hereunder shall be given or made in writing and shall be
delivered personally, or sent by telex, telecopier, express
delivery or registered or certified mail, postage prepaid,
return receipt requested, to the party or parties to whom they
are directed at the following addresses, or at such other
addresses as may be designated by notice from such party to
all other parties.
To the Company:
Midland National Life Insurance Company
One Midland Plaza
Sioux Falls, SD 57193
Attention: Russell Evenson
(605) 335-5700 (office number)
(605) 335-3621 (telecopy number)
To the Issuer or Distributor:
American Century Mutual Funds
4500 Main Street
Kansas City, Missouri 64111
Attention: Charles A. Etherington, Esq.
(816) 340-4051 (office number)
(816) 340-4964 (telecopy number)
Any notice, demand or other communication given in a
manner prescribed in this Section 17 shall be deemed to have
been delivered on receipt.
18. Successors and Assigns. This Agreement may not be
assigned without the written consent of all parties to the
Agreement at the time of such assignment. This Agreement
shall be binding upon and inure to the benefit of the parties
hereto and their respective permitted successors and assigns.
19. Counterparts. This Agreement may be executed in
any number of counterparts, all of which taken together shall
constitute one agreement, and any party hereto may execute
this Agreement by signing any such counterpart.
20. Severability. In case any one or more of the
provisions contained in this Agreement should be invalid,
illegal or unenforceable in any respect, the validity, legality
and enforceability of the remaining provisions contained
herein shall not in any way be affected or impaired thereby.
21. Entire Agreement. This Agreement, including the
Attachments hereto, constitutes the entire agreement between
the parties with respect to the matters dealt with herein, and
supersedes all previous agreements, written or oral, with
respect to such matters.
IN WITNESS WHEREOF, the undersigned have
executed this Agreement as of the date set forth above.
AMERICAN CENTURY INVESTMENT MIDLAND NATIONAL LIFE
SERVICES, INC. INSURANCE COMPANY
By: __William_M._Lyons__ By:__Michael_M._Masterson__
William M. Lyons Michael M. Masterson
Executive Vice President President and Chief Executive Officer
<PAGE>
EXHIBIT 10.a.
April 11, 1997
Midland National Life Insurance Company
One Midland Plaza
Sioux Falls, SD 57193
RE: Variable Annuity Form N-4
Gentlemen:
We hereby consent to the reference to our name under the caption "Legal
Matters" in the Prospectus filed as part of the Post-Effective Amendment
4 to the Registration Statement on Form N-4 filed by Midland National
Life Insurance Company Separate Account C for certain variable annuity
contracts (file number 33-64016). In giving this consent, we do not
admit that we are in the category of persons whose consent is required
under Section 7 of the Securities Act of 1933.
Very truly yours,
SUTHERLAND, ASBILL & BRENNAN, L.L.P.
by: __Frederick_R._Bellamy__
Frederick R. Bellamy
FREDCONS LLPVA
<PAGE>
EXHIBIT 10.b.
CONSENT OF INDEPENDENT ACCOUNTANTS
We consent to the inclusion in this Registration Statement under the
Securities Act of 1933 (Post Effective Amendment No.4) on Form N-4
(File No. 33-64016) of our reports dated March 7, 1997, 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, 1997
