Securities and Exchange Commission
450 Fifth Street, N.W.
Washington, DC 20549
RE: Midland National Life Separate Account C
File Number 33-64016
Commissioners:
Enclosed for filing is a copy, including exhibits, excluding financials,
of Post-Effective Amendment Number 6 to the above referenced Form
N-4 Registration Statement.
This amendment is being filed under 485(b) because of amendments made
to Post-Effective Amendment Number 5. These amendments include Company
and Separate Account C financials as well as Counsel and Independent
Auditors consents.
If you have any comments or questions concerning the materials filed,
herewith, please contact Frederick R. Bellamy of Sutherland, Asbill and
Brennan LLP at 202-383-0126.
Sincerely,
Paul M. Phalen, CLU, FLMI
Assistant Vice President -
Product Implementation
VA2CVRA.TXT
<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. _6_ _X_
and
REGISTRATION STATEMENT UNDER THE INVESTMENT
COMPANY ACT OF 1940 ___
___
Amendment No. _6_ _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)
_________________________
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 LLP
1275 Pennsylvania Avenue, N.W.
Washington, D.C. 20004-2404
It is proposed that this filing will become effective (check appropriate
box):
___ immediately upon filing pursuant to paragraph (b) of Rule 485
_X_ on May 01, 1998 pursuant to paragraph (b) of Rule 485
___ 60 days after filing pursuant to paragraph (a) (1) of Rule 485
___ on ___(date)___ pursuant to paragraph (a) (1) of Rule 485
If appropriate, check the following line:
___ this Post-Effective Amendment designates a new effective date
for a previously filed Post-Effective Amendment.
Titles of Securities Being Registered: __Variable_Annuity_Contracts__
VA2CVR2.TXT
<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) Exhibits 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
VA2REF.TXT
<PAGE>
Flexible Premium Deferred Variable Annuity Contract
(Variable Annuity II 2)
Issued By:
Midland National Life Insurance Company Through Midland National
Life Separate Account C
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 II2 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, premiums paid
less withdrawals, or the Guaranteed Minimum Death Benefit.
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), 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 Prospectuses for the Funds, which accompany this Prospectus,
describe the inve s tment objectives, policies and risks of the Funds'
portfolios associated with the followingeighteen divisions of our
Separate Account:
VIP Money Market Portfolio
VIP High Income Portfolio
VIP Equity-Income Portfolio
VIP Growth Portfolio
VIP Overseas Portfolio
VIP II Asset Manager Portfolio
VIP II Investment Grade Bond Portfolio
VIP II Contrafund Portfolio
VIP II Asset Manager: Growth Portfolio
VIP II Index 500 Portfolio
VIP III Growth & Income Portfolio
VIP III Balanced Portfolio
VIP III Growth Opportunities Portfolio
American Century VP Capital Appreciation Portfolio
American Century VP Value Portfolio
American Century VP Balanced Portfolio
American Century VP International Portfolio
American Century VP Income & Growth 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 PROSPECTUSES FOR FIDELITY'S
VARIABLE INSURANCE PRODUCTS FUND, FIDELITY'S
VARIABLE INSURANCE PRODUCTS FUND II, FIDELITY'S
VARIABLE INSURANCE PRODUCTS FUND III, AND AMERICAN
CENTURY VARIABLE PORTFOLIOS, INC.
The date of this prospectus is May 1, 1998.
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 (1)
EXAMPLES
SUMMARY
CONDENSED FINANCIAL INFORMATION
GENERAL INFORMATION ABOUT MIDLAND, SEPARATE
ACCOUNT C AND THE FUNDS
The Company That Issues Variable Annuity 2
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
Portfolio Rebalancing
Systematic Withdrawals
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
Free Withdrawal Option
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
MATURITY DATE
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
Year 2000 Compliance Issues
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 and the New York Stock
Exchange is open for trading. The holidays which We are closed but the
New York Stock Exchange is open are the day after Thanksgiving and Christmas
Eve Day. These days along with the days the New York Stock Exchange is not
open for trading will not be counted as Business Days.The holidays We 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 Anniversary - The same month and day of the Contract Date in
each year following the Contract Date.
Contract Date means the date from which Contract Anniversaries and
Contract Years are determined.
Contract 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 19 of the prospectus for
additional information.
Contract Owner Transaction Expenses (All Investment Divisions)
Sales Load Imposed on Purchases (as a percentage of premium payments)
None
Transfer Fee $0.00
Deferred Sales Load (as a percentage of premiums withdrawn)
Years 0-1 (1) 8.00%
Years 1-2 8.00%
Years 2-3 7.00%
Years 3-4 7.00%
Years 4-5 6.00%
Years 5-6 5.00%
Years 6-7 4.00%
Years 7-8 2.00%
Eighth Year 0.00%
Annual Contract Maintenance Charge (2) $35.00
Annual Expenses - Separate Account (as a percentage of average Contract
Value)
Mortality and Expense Risk 1.25%
Administration Fees 0.15%
Total 1.40%
(1) Length of time between premium payments and withdrawal.
(2) The Contract Maintenance Charge is an annuala single $35 charge
on a Contract. It is deducted proportionally from the Investment Divisions
in use at the time of the charge. The Contract Maintenance Charge has been
reflected in the Examples by a method intended to show the "average" impact
of the Contract Maintenance Charge on an investment in the Separate Account.
The Contract Maintenance Charge is deducted only when the accumulated
value is less than $50,000. In the Example, the Contract Maintenance
Charge is approximated as a 0.13% annual asset charge based on the
experience of the Contracts.
PORTFOLIO ANNUAL EXPENSES (1)
(as a percentage of Portfolio average net assets)
MANAGEMENT OTHER TOTAL ANNUAL
FEES EXPENSES EXPENSES(2)
VIP Money Market 0.21% 0.10% 0.31%
VIP High Income 0.59% 0.12% 0.71%
VIP Equity-Income (3) 0.50% 0.08% 0.58%
VIP Growth (3) 0.60% 0.09% 0.69%
VIP Overseas (3) 0.75% 0.17% 0.92%
VIP II Investment Grade Bond 0.44% 0.14% 0.58%
VIP II Asset Manager (3) 0.55% 0.10% 0.65%
VIP II Index 500 (4) 0.24% 0.04% 0.28%
VIP II Contrafund (3) 0.60% 0.11% 0.71%
VIP II Asset Manager: Growth (3) 0.60% 0.17% 0.77%
VIP III Balanced (3) 0.45% 0.16% 0.61%
VIP III Growth Opportunities (3) 0.60% 0.14% 0.74%
VIP III Growth & Income (4) 0.49% 0.21% 0.70%
American Century VP Capital Appreciation 1.00% 0.00% 1.00%
American Century VP Balanced 1.00% 0.00% 1.00%
American Century VP Value 1.00% 0.00% 1.00%
American Century VP International 1.50% 0.00% 1.50%
American Century VP Income & Growth (5) 1.00% 0.00% 1.00%
(1)The fund data was provided by Fidelity Management & Research
Company and American Century Investment Management, Inc. Midland
has not independently verifiedthe accuracy of the Fund datae.
(2)
With the exception of the American Century VP Income & Growth Portfolio
as described in (5)the annual expenses shown are based on actual
expenses for 1997.
(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 credits
realized as a result of on uninvested cash balances were
used to reduce custodian and transfer agent expenses. Including
these reductions, total operating expenses would have been as follows:
VIP Equity-Income 0.57%
VIP Growth 0.67%
VIP Overseas 0.90%
VIP II Asset Manager 0.64%
VIP II Contrafund 0.68%
VIP II Asset Manager: Growth 0.76%
VIP III Balanced 0.60%
VIP III Growth Opportunities 0.7 3 1%
(4) The fund's expenses were voluntarily reduced by the Fund's investment
advisor. Absent reimbursement, the management fee, other expenses, and
total expenses for the VIP II Index 500 would have been 0.27%, 0.13%
and 0.40% respectively. 0.28%, 0.15% and 0.43% for VIP II Index 500,
and0.50%, 195.78% and 196.29% for VIP III Growth & Income.
(5) The American Century VP Income & Growth portfolio was established
on 10/30/1997. The annual expenses shown in the table and reflected in
the examples are estimated 1998 expenses as provided to Midland by
American Century Investment Management, Inc.
EXAMPLES
If You surrender or annuitize 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 99 128 160 216
VIP High Income 103 140 180 257
VIP Equity-Income (3) 101 136 173 2443
VIP Growth (3) 1032 139 1798 2553
VIP Overseas (3) 105 146 1910 2797
VIP II Investment Grade Bond 101 136 173 244
VIP II Asset Manager (3) 102 138 1776 2510
VIP II Index 500 (4) 98 127 158 213
VIP II Contrafund (3) 1032 14039 18078 2574
VIP III Asset Manager: Growth (3) 103 142 183 263
VIP III Balanced (3) 102 137 1754 2476
VIP III Growth Opportunities (3) 103 141 1821 2610
VIP III Growth & Income 103 140 179 256
American Century VP Capital Appreciation 106 149 195 287
American Century VP Balanced 106 149 195 287
American Century VP Value 106 149 195 287
American Century VP International 111 164 219 335
American Century VP Income & Growth (5) 106 149 195 287
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 58 100 216
VIP High Income 23 70 120 257
VIP Equity-Income (3) 21 66 113 2443
VIP Growth (3) 232 69 1198 2553
VIP Overseas (3) 25 76 130 2797
VIP II Investment Grade Bond 21 66 113 244
VIP II Asset Manager (3) 22 68 1176 2510
VIP II Index 500 (4) 18 57 98 213
VIP II Contrafund (3) 232 7069 120118 257254
VIP II Asset Manager: Growth (3) 23 72 123 263
VIP III Balanced (3) 22 67 1154 2476
VIP III Growth Opportunities (3) 23 71 1221 2610
VIP III Growth & Income 23 70 119 256
American Century VP Capital Appreciation 26 79 135 287
American Century VP Balanced 26 79 135 287
American Century VP Value 26 79 135 287
American Century VP International 31 94 159 335
American Century VP Income & Growth (5) 26 79 135 287
WITH THE EXCEPTION OF THE AMERICAN CENTURY VP
INCOME & GROWTH PORTFOLIO, THE EXAMPLES ARE BASED
ON ACTUAL EXPENSES FOR 1997. ACTUAL EXPENSES ARE AS
SHOWN ON PAGE 54 UNDER PORTFOLIO ANNUAL EXPENSES
AND ARE NET OF ANY FEE WAIVERS OR EXPENSE
REIMBURSEMENTS. THE EXPENSES FOR THE AMERICAN
CENTURY VP INCOME & GROWTH PORTFOLIO ARE BASED ON
ESTIMATED 1998 EXPENSES AS PROVIDED TO MIDLAND BY
AMERICAN CENTURY MANAGEMENT, INC.
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 $353 CONTRACT MAINTENANCE CHARGE AS AN ANNUAL
CHARGE OF 0.13% OF ASSETS BASED ON AN AVERAGE
CONTRACT VALUE OF $27,000.
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 II 2
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 II2 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 II 2
You may allocate amounts in Your Contract Value to either Our General
Account, which pays interest at a declared rate, or after the Free Look
Period 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 portfolios 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 9.)
VIP Money Market
VIP High Income Portfolio
VIP Equity-Income Portfolio
VIP Growth Portfolio
VIP Overseas Portfolio
VIP II Asset Manager Portfolio
VIP II Investment Grade Bond Portfolio
VIP II Contrafund Portfolio
VIP II Asset Manager: Growth Portfolio
VIP II Index 500 Portfolio
VIP III Growth & Income Portfolio
VIP III Balanced Portfolio
VIP III Growth Opportunities Portfolio
American Century VP Capital Appreciation Portfolio
American Century VP Value Portfolio
American Century VP Balanced Portfolio
American Century VP International Portfolio
American Century VP Income & Growth Portfolio
The current Investment Divisions which invest in Portfolios of Fidelity's
Variable Insurance Products Fund are:
VIP Money Market Portfolio
VIP High Income Portfolio
VIP Equity-Income Portfolio
VIP Growth Portfolio
VIP Overseas Portfolio
The current Investment Divisions which invest in Portfolios of Fidelity's
Variable Insurance Products Fund II are:
VIP II Asset Manager Portfolio
VIP II Investment Grade Bond Portfolio
VIP II Index 500 Portfolio
VIP II Contrafund Portfolio
VIP II Asset Manager: Growth Portfolio
The current Investment Divisions which invest in Portfolios of Fidelity's
Variable Insurance Products Fund III are:
VIP III Growth & Income Portfolio
VIP III Balanced Portfolio
VIP III 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
Income & Growth 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, 1997 are shown on
page 54 under the table of Portfolio Annual Expenses.
See Investment Policies Of The Funds' Portfolios on page 9, 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. In addition, You may elect a
Systematic Withdrawal Option (See Systematic Withdrawals on page 16.)
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 Contingent
Ddeferred Ssales Ccharge, 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 20.) 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 by Midland
Sales Expenses There is no deduction for sales expenses from premium
payments when made. However, a Contingent Deferred Sales Charge may
be assessed against Contract Values when they are withdrawn, including
withdrawals to effect an annuity and systematic withdrawals. (See Sales
Charges on Withdrawals on page 15.)
The length of time from receipt of each premium payment and the
withdrawal determines the Contingent Deferred Sales Charge. For this
purpose, premium payments will be deemed to be withdrawn in the order
in which they are received and all withdrawals will be first from premium
payments and then from other Contract Values. The charge is a percentage
of the premiums and is as follows:
Length of Time Contingent
from Premium Payment Deferred Sales
(Number of Years) Charge
0-1 8%
1-2 8%
2-3 7%
3-4 7%
4-5 6%
5-6 5%
6-7 4%
7-8 2%
8 or more 0%
No contingent deferred sales charge will be assessed upon (1) payment of
death proceeds under the Contract (2) exercise of the Free Withdrawal
Privilege or (3) Subject to approval of the state insurance authorities, after
the first Contract Anniversary, Midland will not assess a Contingent
Deferred Sales Charge on either a full or partial surrender if (a) written
proof is given to Us at Our Home Office that the Owner is confined in a
state licensed in-patient nursing facility for a total of 90 days, provided We
receive Your withdrawal request within 90 days after discharge from such
facilities or (b) A licensed Physician provides a written statement to Us
that the Owner is expected to die within the next twelve months due to a
non-correctable medical condition. The licensed Physician cannot be the
Owner or part of the Owner's immediate family. We reserve the right to
have a physician of Our choice examine the Owner.
Withdrawals may be subject to tax consequences under the Internal
Revenue Code. (See Withdrawals on page 12 and FEDERAL TAX
STATUS on page 17).
Free Withdrawal Privilege You may make a withdrawal from Your
Contract value of up to 10% of the total premiums paid (as determined on
the date of the requested withdrawal), less any withdrawals made in the
prior 12 months, without incurring a Contingent Deferred Sales Charge.
(See Free Withdrawal Option on page 15 for exact details.)
Mortality and Expense Risks For assuming the mortality and expense
risks under the Contract, Midland will impose a 1.25% per annum charge
against all Contract Values held in the Separate Account (See CHARGES,
FEES AND DEDUCTIONS on page 15.)
Annual Administration and Maintenance Fee The Contract provides for
administration and Contract maintenance charges. For administration, the
charge is 0.15% per annum against all Contract Values held in the
Separate Account. For maintenance, the charge is $35 annually. At the
current time, Contracts with a Contract Value of $50,000 or more at time
of Contract Anniversary will not be assessed the $35 Contract
Maintenance Charge. (See CHARGES, FEES AND DEDUCTIONS on
page 15.)
Premium Taxes At the current time, Midland does not impose a
deduction for Premium Taxes. Midland does, however, reserve the right to
impose a deduction for Premium taxes for Contracts sold in states that
charge a premium tax.
Using Your Contract Value
Transfers - After the Free Look Period and Oo or before the Maturity
Date, You may transfer amounts in Your Contract Value between the General
Account and after the Free Look Period between 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, We do
not charge You for making transfers. However, We reserve the right to assess
a $25 Administrative Charge this charge after the fifteenth transfer in a
Contract Year. There are other limitations on transfers to and from the
General Account.
Additional Information About Variable Annuity II 2
Your Right To Examine This Contract - You have a right to examine the
Contract and, if You wish, return it to Us. Your request must be
postmarked no later than 10 days after You receive Your Contract. During
the Free Look Period Your premium will be allocated to the VIP Money
Market Investment Division. (See Free Look on page 11 for more details.)
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 30,841
1996 10.76 11.18 450,641
1997 11.18 11.63 534,936
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
1997 13.26 13.58 304,930
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
1997 16.09 20.33 929,862
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 11.36 12.59 282,107
1996 12.59 13.85 336,988
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
1997 12.65 15.05 534,109
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
1997 11.22 12.06 136,067
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
1997 16.57 21.67 497,774
VIP II Asset Manager: Growth
1995(2) 10.00 11.48 13,682
1996 11.48 13.56 71,781
1997 13.56 16.72 176,790
VIP II Contrafund
1995(2) 10.00 11.84 35,906
1996 11.84 14.17 187,702
1997 14.17 17.34 397,591
VIP III Balanced
1997(3) 10.00 11.45 39,701
VIP III Growth Opportunities
1997(3) 10.00 12.28 75,926
VIP III Growth & Income
1997(3) 10.00 12.36 54,877
American Century VP
Capital Appreciation
1997(3) 10.00 11.35 13,870
American Century VP
Balanced
1997(3) 10.00 11.40 13,519
American Century VP
Value
1997(3) 10.00 12.26 44,666
American Century VP
International
1997(3) 10.00 10.93 34,973
(1)Period from 10/24/93 to 12/31/93
(2) Period From 5/1/95 to 12/31/95
(3)Period from 5/1/97 to 12/31/97
The American Century VP Income & Growth Investment Division became
available on May 1, 1998, and thus had no financial information to report
at 12/31/1997.
GENERAL INFORMATION ABOUT
MIDLAND, SEPARATE ACCOUNT C
AND THE FUNDS
The Company That Issues Variable Annuityies II 2
Midland National Life Insurance Company
We are Midland National Life Insurance Company, a stock life insurance
company. Midland was organized in 1906 in South Dakota as a mutual life
insurance company at that time named "The Dakota Mutual Life Insurance
Company". We were reincorporated as a stock life insurance company in
1909. Our name "Midland" was adopted in 1925. We are licensed to do
business in 49 states, the District of Columbia, and Puerto Rico.
Our Parent
Midland is a subsidiary of Sammons Enterprises, Inc., Dallas, Texas.
Sammons has controlling or substantial stock interests in a large number
of other companies engaged in the areas of insurance, corporate services,
and industrial distribution.
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
instructions 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 Value
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 Funds. You may allocate part or all of Your premiums to no more than
ten of the eighteen Investment Divisions of Our Separate
Account. Our Separate Account divisions invest in the following
Mutual Fund Portfolio Investment Divisions :
VIP Money Market Portfolio
VIP High Income Portfolio
VIP Equity-Income Portfolio
VIP Growth Portfolio
VIP Overseas Portfolio
VIP II Asset Manager Portfolio
VIP II Investment Grade Bond Portfolio
VIP II Contrafund Portfolio
VIP II Asset Manager: Growth Portfolio
VIP II Index 500 Portfolio
VIP III Growth & Income Portfolio
VIP III Balanced Portfolio
VIP III Growth Opportunities Portfolio
American Century VP Capital Appreciation Portfolio
American Century VP Value Portfolio
American Century VP Balanced Portfolio
American Century VP International Portfolio
American Century VP Income & Growth 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 Funds and
their investment policies, risks, expenses and all other aspects of their
operations, appears in their prospectuses, which accompany 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.
Midland may from time to time receive revenue from Fidelity
Management & Research Company and/or American Century Investment
Management, Inc. The amounts of the revenue, if any, may be based on
the amount of investments by Midland contained in the Funds.
Investment Policies Of The Funds' Portfolios
Each portfolio has a different investment objective which it tries to
achieve by following separate investment policies. The objectives and
policies of each portfolio will affect its return and its risks. Remember that
the investment experience of the Investment Divisions of Our Separate
Account depends on the performance of the corresponding Funds'
portfolios. The 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
Objective
VIP Money Market
Seeks to earn a 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 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 Fund seeks
is to achieve a yield that exceeds the composite yield on the
securities comprising the Standard & Poor's Composite Index of 500
Stocks.
VIP Growth
Seeks capital appreciation by investing in common st o i cks,
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 Money Market 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 whose value the manager believes is not
recognized fully by the publicthat are undervalued or out-of-favor.
VIP II Asset Manager: Growth
Seeks to maximize total return over the long term through investments in
stocks, bonds, and short-term instruments. This portfolio has a heavier
emphasis on stocks than the Asset Manager Portfolio.
VIP II Index 500
Seeks to provide investment results that correspond to the total return of
common stocks publicly traded in the United States by duplicating the
composition and total return of Standard & Poor's Composite Index of 500
Stocks. This is designed as a long-term investment option.
VIP III Growth & Income
Seeks high total return, combining current income and capital
appreciation. Invests mainly in stocks that pay current dividends and show
earnings potential.
VIP III Balanced
Seeks to balance the growth potential of stocks with the possible income
cushion of bonds. Invests in broad selection of stocks, bonds and
convertible securities.
VIP III Growth Opportunities
Seeks long-term growth of capital. Invests primarily in common stocks
and securities convertible into common stocks, but it has the ability to
purchase other securities such as preferred stocks and bonds that may
produce capital growth.
American Century VP Capital Appreciation
Seeks capital growth by investing primarily in common stocks that
management considers to have better-than-average prospects for appreciation.
American Century VP Value
Seeks long-term capital growth with income as a secondary objective.
Invests primarily in equity securities of well-established companies that
management believes to be under-valued.
American Century VP Balanced
Seeks capital growth and current income. Invests approximately 60
percent of its assets in common growth stocks that
management considers to have better than average potential for
appreciation and the rest in fixed income securities.
American Century VP International
Seeks capital growth by investing primarily in securities of
foreign companies that management believes to have potential for
appreciation.
American Century
VP Income & Growth
Seeks dividend growth, current income and capital appreciation by
investing in common stocks.
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 complete, We will accept or
reject it within two business days of receipt. 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 after the
Free Look Period 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. After the Free Look
Period, 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 Value 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 an unlimited
number of transfers of Contract Value in each Contract Year
without charge. We reserve the right to assess a $25 charge after
the fifteenth transfer in a Contract Year. 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. 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 DCA Source Account
(any one Investment Division or the General Account, subject to the
limitations from the General Account described on page 21) into one or
more of the other Investment Divisions, or the General Account, subject
to the limitation that the Contract Value may only be allocated in up
to ten of the Investment Divisions. By allocating monthly, as
opposed to allocating the total amount at one time, You may reduce the
impact of market fluctuations. This plan of investing, however, does not
assure a profit or protect against a loss in declining markets.
DCA can be elected at any time by completion of the proper request forms
(obtained by contacting Us at the Home Office) and by insuring that a
sufficient amount is in the DCA Source Account, either through payment of
a premium with the DCA request form, allocation of premiums, or through a
transfer Copies of the DCA Request Form can be obtained by contacting Us
at Our Home Office. The election will specify:
The DCA Source Account. The DCA Source Account is the account from which
DCA transfers will be made.
That any money received with the form is to be placed into the DCA
Source Account.
The monthly amount to be transferred to the other Investment Divisions,
and
How that monthly amount is to be allocated among the Investment
Divisions
DCA is only available if the amount in the DCA Source Account is at least
$2,400 at the time DCA is to begin. The DCA Request Form must be received
with any premium payment You intend to apply to DCA.
The minimum monthly amount to be transferred using DCA is $200. When
DCA is elected, all amounts in the DCA Source Account will be available
for transfer under the DCA program. Once DCA is elected, additional premiums
can be deposited into the DCA Source Account 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.
DCA will last until the value in the DCA Source Account 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.
Portfolio Rebalancing
Midland currently offers an option which allows Contract Owners who are
not Dollar Cost Averaging to reset the percentage of Contract Value
allocated to each Investment Division to a pre-set level (for example, 30%
in the VIP Equity-Income Investment Division, 40% in the VIP High
Income Investment Division and 30% in the VIP II Asset Manager
Investment Division). If You elect this option, at the beginning of each
Contract Anniversary Midland will transfer the amounts needed to
"rebalance" the Contract Value to the percentages specified by You.
Rebalancing may result in transferring amounts from an Investment
Division earning a relatively higher return to one earning a relatively
lower return. The Portfolio Rebalancing Option is subject to the limitation
that the Contract Value may only be allocated in up to 10 Investment
Divisions. Midland reserves the right to terminate the portfolio
rebalancing option by sending You a notice one month in advance. The
transfer restrictions regarding the General Account discussed under
Transfers on page 21 are not applicable to the Portfolio Rebalancing
Option. However, Midland will not allow the owner to change the election
allocated to the General Account by more than 10% at any one time. To
elect the Portfolio Rebalancing option, please contact Us at the Home
Office address.
Systematic Withdrawals
The Systematic Withdrawal feature available in connection with the
Contract allows You to have a portion of the Contract Value withdrawn
automatically. Under this feature, a Contract Owner may elect to receive
preauthorized scheduled partial withdrawals while the Annuitant is living
before the Maturity Date and after the Free Look Period by sending a
properly completed Preauthorized Systematic Withdrawal Request Form
to Midland National Life at Our Home Office. A Contract Owner may
designate the systematic withdrawal amount or the period for systematic
withdrawal payments. You will also designate the desired frequency of the
systematic withdrawals, which may be monthly, quarterly, semi-annually
or annually. See Your Contract for details on Systematic Withdrawal
options and when each will begin.
Each systematic withdrawal will be effected as of the end of the Business
Day during which the withdrawal is scheduled. If the New York Stock
Exchange is closed on the day when the withdrawal is to be made, the
withdrawal will be processed on the next Business Day. Unless elected
otherwise, the deduction caused by the Systematic Withdrawal will be
allocated proportionately to the Contract Value in the Investment
Divisions and the General Account.
Systematic Withdrawals of a fixed amount may be stopped or modified
upon proper written request by the Contract Owner received by Midland
National Life at least 30 days in advance. A proper written request must
include the written consent of any effective assignee or irrevocable
Beneficiary, if applicable. Systematic Withdrawals over a fixed period or
over the Annuitant's life expectancy cannot be changed.
Each systematic withdrawal must be at least $100. Midland reserves the
right to change the required minimum systematic withdrawal amount.
Upon payment, the Contract Value will be reduced by any amount equal to
the payment proceeds plus any applicable Contingent Deferred Sales
Charge. (See Sales Charges on Withdrawals on page 15.) The Contingent
Deferred Sales Charge will apply to amounts withdrawn under the
Systematic Withdrawal program in the same manner as it applies to other
withdrawals of the Contract Value. However, Systematic Withdrawals
taken to satisfy IRS required minimum withdrawals and paid under a life
expectancy option will not be subject to a Contingent Deferred Sales
Charge. Any systematic withdrawal that equals or exceeds the Cash
Surrender Value will be treated as a complete withdrawal. In no event will
payment of a systematic withdrawal exceed the Cash Surrender Value.
The Contract will automatically terminate if a systematic withdrawal
causes the Contract's Cash Surrender Value to equal zero or less.
The Federal tax laws may include systematic withdrawals in the Contract
Owner's gross income in the year in which the withdrawal occurs and will
impose a penalty tax of 10% on certain systematic withdrawals which are
premature distributions. (See Taxation of Annuities in General on page
22.) Additional terms and conditions for the systematic withdrawal
program are set forth in Your Contract and in the application for the
program.
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. Unscheduled 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 Contingent Deferred 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.
Unless You specify otherwise, 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
based on the length of time between premium payments and withdrawals.
(See CHARGES, FEES AND DEDUCTIONS on page 19.)
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 21.)
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 spousal consent
requirements generally 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 Ccontract Vvalue
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 (as described below) will be determined as of the Business Day
next following the date Midland receives at Our Home Office (1) due
proof of death and (2) an election form of how the Death Benefit is to be
paid. 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 form of how the Contract Value 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 of the date We have received both the due proof of
death and the election form, 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.
Death Benefit on the Annuitant's Death Prior to the Maturity Date
Death Benefit - The Death Benefit paid to the Beneficiary will be the
greater of (a), (b) or (c) stated below. The Death Benefit is only
paid on the annuitant's death prior to the Anniversary Date (not on the
death of the owner unless the owner is also the annuitant. Death
proceeds will be reduced by the amount of any loan and loan accrued interest.
(See loan provisions on page 14 for certain qualified plans.)
(a) The current Contract Value. For this purpose, the current Contract
Value is the value on the Business Day next following the date We receive
at Our Home Office (1) Due proof of death and (2) An Election Form of
how the death proceeds are to be paid (or 90 days after We receive due
proof of death, if no election form is received), or
(b) 100% of the total premium payments made to Your Contract,
reduced by any prior withdrawals, or
(c) The Guaranteed Minimum Death Benefit as defined below.
Guaranteed Minimum Death Benefit - At the inception of the Contract, the
Guaranteed Minimum Death Benefit is zero. On the first Contract
Anniversary and every year thereafter until the Contract Anniversary
immediately preceding the Annuitant's 81st birthday, the Guaranteed
Minimum Death Benefit under the Contract is recalculated. The purpose
of the recalculation is to give you the benefit of any positive investment
experience under Your Contract. Your Contract's investment experience
can cause the Guaranteed Minimum Death Benefit to increase on the
recalculation date, but cannot cause it to decrease. The Guaranteed
Minimum Death Benefit determined on a recalculation date is the larger
of:
(a) the Guaranteed Minimum Death Benefit that applied to Your
Contract immediately prior to the recalculation date; and
(b) The Contract Value on the date of the recalculation.
The new Guaranteed Minimum Death Benefit applies to Your Contract
until the next Contract Anniversary, or until You make a premium
payment or withdrawal. Any subsequent premium payments will
immediately increase Your Guaranteed Minimum Death Benefit by the
amount of the premium payment. Any partial withdrawal will immediately
decrease Your Guaranteed Minimum Death Benefit by the percentage of
the Contract Value being withdrawn.
Example: Assume that a contract is issued with a $10,000 premium on
5/1/1998 to an owner at attained age 55. No further premiums are made
and no withdrawals are made during the first year. Assume that on the
Contract Anniversary on 5/1/1999 the Contract Value is $12,000. The
Guaranteed Minimum Death Benefit is reset on 5/1/1999 to $12,000.
Assume that the Contract Value increases to $15,000 on 5/1/2000 and
decreases to $13,000 on 5/1/2001. The Guaranteed Minimum Death
Benefit on 5/1/2001 is $15,000.
Assume that by 7/1/2001, the Contract Value increases to $14,000 and
You request a partial withdrawal of $2,800 or 20% of Your Contract
Value on that date. The Guaranteed Minimum Death Benefit immediately
following the partial withdrawal is $12,000 = [$15,000 - .20*($15,000)].
Assume that on 9/1/2001 the Contract Value decreases to $8,000. The
Guaranteed Minimum Death Benefit remains at $12,000 and the death
proceeds payable on 9/1/2001 are $12,000.
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 and on
Systematic Withdrawals). The charge compensates Us for paying the
expenses of selling and distributing the cContacts, including commissions,
preparation of sales literature, and other promotional activities. To the
extent that the Contingent 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 Contingent 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 length of time between each premium payment and the withdrawal,
determines the amount of the Contingent Deferred Sales Charge. Premium
payments will be deemed to be withdrawn in the order in which they were
received.
The charge is a percentage of the premiums withdrawn and equals:
Length of Time Contingent
from Premium Payment Deferred Sales
(Number of Years) Charge
0-1 8%
1-2 8%
2-3 7%
3-4 7%
4-5 6%
5-6 5%
6-7 4%
7-8 2%
8 or more 0%
Subject to approval of the state insurance authorities, after the first
Contract Anniversary, Midland will not assess a Contingent Deferred
Sales Charge on either a full or partial surrender if (a) written proof is
given to Us at Our Home Office that the Owner is confined in a state
licensed in-patient nursing facility for a total of 90 days, provided We
receive Your withdrawal request within 90 days after discharge from such
facilities or (b) A licensed Physician provides awritten statement to Us that
the Owner is expected to die within the next twelve months due to a non-
correctable medical condition. The licensed Physician cannot be the
Owner or part of the Owner's immediate family. We reserve the right to
have a physician of Our choice examine the Owner.
After the Contract has been in force for three years, Midland will not
assess a Contingent Deferred Sales Charge if You make a full surrender
and use the proceeds to purchase a life income annuity option from
us.
Amounts withdrawn under the Contract to comply with IRS minimum
distribution rules and paid under a life expectancy option will not be
subject to a Contingent Deferred Sales Charge. Amounts withdrawn to
comply with IRS minimum distribution rules will reduce the amount
available under the Free Withdrawal Option.
Free Withdrawal Option
You may make a withdrawal from Your Contract Value of up to 10% of
the total premiums paid (as determined on the date of the requested
withdrawal), less any withdrawals made in the prior 12 months, without
incurring a Contingent Deferred Sales Charge. The full 10% is available
only if no other withdrawals have been taken in the prior 12 month period.
Any withdrawal taken within the last 12 months (as determined on the
date of the requested withdrawal) will reduce the amount that can be taken
without incurring a Contingent Deferred Sales Charge. No more than 10%
of premiums paid will be available in any 12 month period without
incurring a Contingent Deferred Sales Charge.
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 is
reflected in the unit values and 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 $35.00 on each
Contract Anniversary on or before the Maturity Date if Your Contract
Value is less than $50,000 on the Anniversary. 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 if Your Contract Value is less than $50,000.
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, You may make an unlimited number
of transfers of Contract Value in each Contract Year without charge. We
reserve the right to assess a charge of $25 after the fifteenth transfer in a
Contract Year. To make a transfer, contact Us at Our Home Office.
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.
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.
Also see the table titled Portfolio Annual Expenses on page 4.
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 11).
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 an 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
proposed from time to timein 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, and in certain other circumstances. For qualified
plans under Section 401(a), 403(a), 403(b), and 457, the Code requires that
distributions generally must commence no later than the later of April 1 of
the calendar year following the calendar year in which You (or the plan
participant) (i) reach age 70 1/2 or (ii) retire, and must be made in a
specified form or manner. If the plan participant is a "5 percent owner"
(as defined in the Code), distributions generally must begin no later than
April 1 of the calendar year following the calendar year in which You (or the
plan participant) reach age 70 1/2. For IRAs described in Section 408,
distributions generally must commence no later than the later of April 1 of
the calendar year following the calendar year in which You (or the plan
participant) reach age 70 1/2. Roth IRAs under Section 408A do not require
distributions at any time prior to Your death.
Under Code section 403(b), payments made by public school systems and
certain tax exempt organizations to purchase annuity contracts for their
employees are excludable from the gross income of the employee, subject
to certain limitations. However, these payments may be subject to FICA
(Social Security) taxes. A Qualified Contract issued as a tax-sheltered
annuity under section 403(b) will be amended as necessary to conform to
the requirements of the Code. 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.
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
Distributions from Contracts generally are subject to withholding for Your
federal income tax liability. The withholding rate varies according to the
type of distribution and Your tax status. You will be provided the
opportunity to elect not to have tax withheld from distributions.
"Eligible rollover distributions" from section 401(a) plans and 403(b) tax-
sheltered annuities are subject to a mandatory federal income tax
withholding of 20%. An eligible rollover distribution is the taxable portion
of any distribution from such a plan, except certain distributions such as
distributions required by the Code or distributions in a specified annuity
form. The 20% withholding does not apply, however, if You choose a
"direct rollover" from the plan to another tax-qualified plan o rf IRA.
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.
MATURITY DATE
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 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 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.
If You have not previously specified otherwise and if You have not elected
certain Systematic Withdrawal options, 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.
EFFECTING AN ANNUITY
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 three 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);
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 three 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");
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. 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 Funds 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. 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.
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 6.7% 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.
Year 2000 Compliance Issues
Midland National Life is currently in the process of updating its
their administrative systems to accommodate all Year 2000 issues.
Midland does not anticipate any material financial impact in processing and
completing the changes required to comply with the Year 2000 issues.
Discount for Midland Employees
Midland employees may receive a 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
Total Return Calculations Assuming Surrender 5
Other Performance Data 6
Adjusted Historical 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
VA2PROSA.TXT
<PAGE>
STATEMENT OF ADDITIONAL INFORMATION FOR THE
FLEXIBLE PREMIUM DEFERRED VARIABLE ANNUITY II 2
CONTRACT
Offered by
MIDLAND NATIONAL LIFE INSURANCE COMPANY
Through Midland National Life Separate Account C
This Statement of Additional Information expands upon subjects discussed
in the current Prospectus for the Flexible Premium Deferred Variable
Annuity II 2 Contract ("Contract") offered by Midland National Life
Insurance Company. You may obtain a copy of the Prospectus dated May
1, 1998, 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, 1998
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
Total Return Calculations Assuming Surrender 5
Other Performance Data 6
Adjusted Historical 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
and
income other than Investment Income ) 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 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
12/31/97 was 4.07%.
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 8% to 0% of the
amount of Premium withdrawn depending on the time elapsed between
each premium payment and the withdrawal.
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 Assuming Surrender
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 = an assumed initial payment of $1,000
T = average annual total return
n = number of years
ERV = ending redeemable value of an assumed
$1,000 payment made 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).
All recurring fees that are charged to all Owner accounts are recognized in
the ending redeemable value. The standard average annual total return
calculations which assume the Contract is surrendered will reflect the
effect of Contingent Deferred Sales Charges that may be applicable to a
particular period.
The following is the average annual total return information for the
Investment Divisions of Separate Account C based on the assumption that
the contract is surrendered at the end of the time period shown. The returns
reflect the impact of any applicable contingent deferred sales charge.
Investment Division Inception of the 1-Year Period
with Investment Division Ended
Inception Date to 12/31/97 12/31/97
VIP Money Market (10/24/93) 2.35% -3.33%
VIP II Investment Grade Bond (10/24/93) 3.30% 0.20%
VIP High Income (10/24/93) 9.76% 8.67%
VIP II Asset Manager (10/24/93) 9.16% 11.61%
VIP II Index 500 (10/24/93) 19.43% 23.47%
VIP Equity-Income (10/24/93) 17.57% 18.95%
VIP Growth (10/24/93) 14.53% 14.40%
VIP Overseas (10/24/93) 6.94% 2.65%
VIP II Contrafund (10/24/93) 21.06% 15.05%
VIP II Asset Manager: Growth (5/1/95) 19.36% 15.96%
VIP III Balanced (5/1/97) N/A N/A
VIP III Growth & Income (5/1/97) N/A N/A
VIP III Growth Opportunities (5/1/97) N/A N/A
American Century VP Balanced (5/1/97) N/A N/A
American Century VP Capital Appreciation (5/1/97) N/A N/A
American Century VP Value (5/1/97) N/A N/A
American Century VP International (5/1/97) N/A N/A
American Century VP Income & Growth (5/1/98) N/A N/A
N/A - The return information the Investment Division isfor the funds are
not reflected as the funds had not been included in Midland National
Life Separate Account C for more than 12 months at 12/31/1997.
Midland may from time to time also disclose average annual total returns
in a format which assumes the Contract is kept in-force through the time
period shown. Such returns will be identical to the standard format which
assumes the Contract is surrendered except that the Contingent Deferred Sales
Charge percentage will be assumed to be zero0% . The returns which
assume the Contract is kept in-force will only be shown in conjunction with
returns which assume the Contract is surrendered.
The following is the average annual total return information for the
Investment Division of Separate Account C based on the assumption that
the contract is kept in-force through the end of the time period shown. The
Cc ontingent Dd eferred Ss ales Cc harges are set
to zero.
Investment Division Inception of the 1-Year Period
with Investment Division Ended
Inception Date to 12/31/97 12/31/97
VIP Money Market (10/24/93) 3.53% 3.87%
VIP II Investment Grade Bond (10/24/93) 4.44% 7.40%
VIP High Income (10/24/93) 10.71% 15.87%
VIP II Asset Manager (10/24/93) 10.12% 18.81%
VIP II Index 500 (10/24/93) 20.15% 30.67%
VIP Equity-Income (10/24/93) 18.33% 26.15%
VIP Growth (10/24/93) 15.36% 21.60%
VIP Overseas (10/24/93) 7.96% 9.85%
VIP II Contrafund (10/24/93) 22.75% 22.25%
VIP II Asset Manager: Growth (5/1/95) 21.09% 23.16%
VIP III Balanced (5/1/97) N/A N/A
VIP III Growth & Income (5/1/97) N/A N/A
VIP III Growth Opportunities (5/1/97) N/A N/A
American Century VP Balanced (5/1/97) N/A N/A
American Century VP Capital Appreciation (5/1/97) N/A N/A
American Century VP Value (5/1/97) N/A N/A
American Century VP International (5/1/97) N/A N/A
American Century VP Income & Growth (5/1/98) N/A N/A
N/A - The return information for the funds are not reflected as the funds
had not been included in Midland National Life Separate Account C for
more than 12 months at 12/31/1997.
Other Performance Data
Midland may from time to time also disclose cumulative total returns in
conjunction with the annual returns described above. The cumulative returns
will be calculated using the following formula. The cumulative returns which
assume the Contract is kept in-force assume 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 an assumeda 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 = an assumed initial payment of $1,000
The returns which assume the Contract is kept in-force will only be shown
in conjunction with returns which assume the Contract is surrendered.
Midland may also disclose the value of an assumed payment of $10,000
(or oterh amounts) at the end of various periods of time.
The following is the cumulative total return information for the Investment
Division of Separate Account C. The returns are based on the assumption
that the contract is surrendered at the end of the time period shown and the
returns reflect the impact of any applicable Contingent Deferred Sales
Charge.
Investment Division Inception of the 1-Year Period
with Investment Division Ended
Inception Date to 12/31/97 12/31/97
VIP Money Market (10/24/93) 10.24% -3.33%
VIP II Investment Grade Bond (10/24/93) 14.56% 0.20%
VIP High Income (10/24/93) 47.74% 8.67%
VIP II Asset Manager (10/24/93) 44.35% 11.61%
VIP II Index 500 (10/24/93) 110.36% 23.47%
VIP Equity-Income (10/24/93) 96.99% 18.95%
VIP Growth (10/24/93) 76.55% 14.40%
VIP Overseas (10/24/93) 32.43% 2.65%
VIP II Contrafund (10/24/93) 66.60% 15.05%
VIP II Asset Manager: Growth (5/1/95) 60.43% 15.96%
VIP III Balanced (5/1/97) N/A N/A
VIP III Growth & Income (5/1/97) N/A N/A
VIP III Growth Opportunities (5/1/97) N/A N/A
American Century VP Balanced (5/1/97) N/A N/A
American Century VP Capital Appreciation (5/1/97) N/A N/A
American Century VP Value (5/1/97) N/A N/A
American Century VP International (5/1/97) N/A N/A
American Century VP Income & Growth (5/1/98) N/A N/A
N/A - The return information for the funds are not reflected as the funds
had not been included in Midland National Life Separate Account C for
more than 12 months at 12/31/1997.
The following is the cumulative total return information for the Investment
Division of Separate Account C. The returns are based on the assumption
that the contract is kept in-force through the end of the time period shown
and the contingent deferred sales charges are set to zero.
Investment Division Inception of the 1-Year Period
with Investman Division Ended
Inception Date to 12/31/97 12/31/97
VIP Money Market (10/24/93) 15.64% 3.87%
VIP II Investment Grade Bond (10/24/93) 19.96% 7.40%
VIP High Income (10/24/93) 53.14% 15.87%
VIP II Asset Manager (10/24/93) 49.75% 18.81%
VIP II Index 500 (10/24/93) 115.76% 30.67%
VIP Equity-Income (10/24/93) 102.39% 26.15%
VIP Growth (10/24/93) 81.95% 21.60%
VIP Overseas (10/24/93) 37.83% 9.85%
VIP II Contrafund (10/24/93) 72.90% 22.25%
VIP II Asset Manager: Growth (5/1/95) 66.73% 23.16%
VIP III Balanced (5/1/97) N/A N/A
VIP III Growth & Income (5/1/97) N/A N/A
VIP III Growth Opportunities (5/1/97) N/A N/A
American Century VP Balanced (5/1/97) N/A N/A
American Century VP Capital Appreciation (5/1/97) N/A N/A
American Century VP Value (5/1/97) N/A N/A
American Century VP International (5/1/97) N/A N/A
American Century VP Income & Growth (5/1/98) N/A N/A
N/A - The return information for the funds are not reflected as the funds
had not been included in Midland National Life Separate Account C for
more than 12 months at 12/31/1997.
Adjusted Historical Performance Data
Midland may also disclose adjusted historical 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.
Adjusted historical 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 $35 Contract Maintenance Charge. This
additional amount is based on an average Contract Value of $27,000 so it is
calculated as $35 $27,000, or 0.13%.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 an
assumed 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 the average annual total return information based on the
assumption that the contract is surrendered at the end of the time period
shown. The impact of any applicable contingent deferred sales charges are
reflected in the returns. The returns assume that each of the Investment
Divisions had been available to Separate Account C since the Portfolio
Inception date.
<TABLE>
<S> <C> <C> <C>
Investment Division Inception of the 10-Year Period 5-Year Period
with Portfolio Portfolio to Ended Ended
Inception Date 12/31/97 12/31/97 12/31/97
VIP Money Market (4/1/82) 5.27% 4.26% 2.28%
VIP II Investment Grade Bond (12/5/88) 6.64% N/A 4.61%
VIP High Income (9/19/85) 10.74% 11.11% 11.51%
VIP II Asset Manager (9/6/89) 11.02% N/A 10.57%
VIP II Index 500 (8/27/92) 17.61% N/A 17.56%
VIP Equity-Income (10/9/86) 12.92% 14.97% 17.81%
VIP Growth (10/9/86) 13.81% 15.43% 15.64%
VIP Overseas (1/28/87) 6.56% 7.97% 11.72%
VIP II Contrafund (1/3/95) 24.89% N/A N/A
VIP II Asset Manager: Growth (1/3/95) 19.42% N/A N/A
VIP III Balanced (1/3/95) 11.84% N/A N/A
VIP III Growth & Income (12/31/96) 19.51% N/A N/A
VIP III Growth Opportunities (1/3/95) 23.50% N/A N/A
American Century VP Balanced (5/1/91) 8.91% N/A 8.83%
American Century VP Capital Appreciation (11/20/87) 7.66% 7.05% 3.22%
American Century VP Value (5/1/96) 17.34% N/A N/A
American Century VP International (5/1/94) 7.43% N/A N/A
American Century VP Income & Growth (10/30/97) N/A N/A N/A
</TABLE>
There are no returns shown for the American Century VP Income &
Growth Investment Division since the fund was formed within 12 months
of year ending 12/31/1997.
The following is the average annual total return information based on the
assumption that the contract is kept in-force through the end of the time
period shown. The contingent deferred sales charges are assumed to be
zero. The returns assume that each of the Investment Divisions had been
available to Separate Account C since the Portfolio Inception date.
<TABLE>
<S> <C> <C> <C>
Investment Division Inception of the 10-Year Period 5-Year Period
with Portfolio Portfolio to Ended Ended
Inception Date 12/31/97 12/31/97 12/31/97
VIP Money Market (4/1/82) 5.27% 4.26% 3.25%
VIP II Investment Grade Bond (12/5/88) 6.64% N/A 5.50%
VIP High Income (9/19/85) 10.74% 11.11% 12.20%
VIP II Asset Manager (9/6/89) 11.02% N/A 11.28%
VIP II Index 500 (8/27/92) 18.02% N/A 18.12%
VIP Equity-Income (10/9/86) 12.92% 14.97% 18.36%
VIP Growth (10/9/86) 13.81% 15.43% 16.24%
VIP Overseas (1/28/87) 6.56% 7.97% 12.40%
VIP II Contrafund (1/3/95) 26.23% N/A N/A
VIP II Asset Manager: Growth (1/3/95) 20.88% N/A N/A
VIP III Balanced (1/3/95) 13.50% N/A N/A
VIP III Growth & Income (12/31/96) 26.71% N/A N/A
VIP III Growth Opportunities (1/3/95) 24.87% N/A N/A
American Century VP Balanced (5/1/91) 9.24% N/A 9.59%
American Century VP Capital Appreciation (11/20/87) 7.66% 7.05% 4.16%
American Century VP Value (5/1/96) 21.18% N/A N/A
American Century VP International (5/1/94) 8.82% N/A N/A
American Century VP Income & Growth (10/30/97) N/A N/A N/A
</TABLE>
There are no returns shown for the American Century VP Income &
Growth Investment Division since the fund was formed within 12 months
of year ending 12/31/1997.
The following is the cumulative total return information based on the
assumption that the contract is surrendered at the end of the time period
shown. The impact of any applicable contingent deferred sales charges are
reflected in the returns. The returns assume that each of the Investment
Divisions had been available to Separate Account C since the Portfolio
Inception date.
<TABLE>
<S> <C> <C> <C>
Investment Division Inception of the 10-Year Period 5-Year Period
with Portfolio Portfolio to Ended Ended
Inception Date 12/31/97 12/31/97 12/31/97
VIP Money Market (4/1/82) 124.57% 51.75% 11.95%
VIP II Investment Grade Bond (12/5/88) 79.21% N/A 25.27%
VIP High Income (9/19/85) 250.35% 186.84% 72.43%
VIP II Asset Manager (9/6/89) 138.70% N/A 65.27%
VIP II Index 500 (8/27/92) 138.07% N/A 124.51%
VIP Equity-Income (10/9/86) 291.68% 303.55% 126.90%
VIP Growth (10/9/86) 327.70% 319.84% 106.77%
VIP Overseas (1/28/87) 100.28% 115.23% 74.02%
VIP II Contrafund (1/3/95) 94.70% N/A N/A
VIP II Asset Manager: Growth (1/3/95) 70.23% N/A N/A
VIP III Balanced (1/3/95) 39.79% N/A N/A
VIP III Growth & Income (12/31/96) 19.51% N/A N/A
VIP III Growth Opportunities (1/3/95) 88.16% N/A N/A
American Century VP Balanced (5/1/91) 76.77% N/A 52.67%
American Century VP Capital Appreciation (11/20/87) 110.99% 97.55% 17.18%
American Century VP Value (5/1/96) 30.58% N/A N/A
American Century VP International (5/1/94) 30.08% N/A N/A
American Century VP Income & Growth (10/30/97) N/A N/A N/A
</TABLE>
There are no returns shown for the American Century VP Income &
Growth Investment Division since the fund was formed within 12 months
of year ending 12/31/1997.
The following is the cumulative total return information based on the
assumption that the contract is kept in-force through the end of the time
period shown. The contingent deferred sales charges are assumed to be
zero. The returns assume that each of the Investment Divisions had been
available to Separate Account C since the Portfolio Inception date.
<TABLE>
<S> <C> <C> <C>
Investment Division Inception of the 10-Year Period 5-Year Period
with Portfolio Portfolio to Ended Ended
Inception Date 12/31/97 12/31/97 12/31/97
VIP Money Market (4/1/82) 124.57% 51.75% 17.35%
VIP II Investment Grade Bond (12/5/88) 79.21% N/A 30.67%
VIP High Income (9/19/85) 250.35% 186.84% 77.83%
VIP II Asset Manager (9/6/89) 138.70% N/A 70.67%
VIP II Index 500 (8/27/92) 142.57% N/A 129.91%
VIP Equity-Income (10/9/86) 291.68% 303.55% 132.30%
VIP Growth (10/9/86) 327.70% 319.84% 112.17%
VIP Overseas (1/28/87) 100.28% 115.23% 79.42%
VIP II Contrafund (1/3/95) 101.00% N/A N/A
VIP II Asset Manager: Growth (1/3/95 76.53% N/A N/A
VIP III Balanced (1/3/95) 46.09% N/A N/A
VIP III Growth & Income (12/31/96) 26.71% N/A N/A
VIP III Growth Opportunities (1/3/95) 94.46% N/A N/A
American Century VP Balanced (5/1/91) 80.37% N/A 58.07%
American Century VP Capital Appreciation (11/20/87) 110.99% 97.55% 22.58%
American Century VP Value (5/1/96) 37.78% N/A N/A
American Century VP International (5/1/94) 36.38% N/A N/A
American Century VP Income & Growth (10/30/97) N/A N/A N/A
</TABLE>
There are no returns shown for the American Century VP Income &
Growth Investment Division since the fund was formed within 12 months
of year ending 12/31/1997.
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. Beginning January 1, 1998, Midland will pay an
underwriting commission to WSS equal topays 0.1625% of all premiums
paid into the Variable Annuity II 2 premiumsContract as
underwriting commission to WSS.
Prior to June 1, 1996 Midland paid underwriting commissions to North
American Management (NAM) since NAM was the principal underwriter
of Midland's Variable Annuity 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 wereare not paid to WSS during these periods.
Underwriting
Year Commissions
1995 $100,715.80
1996 $99,593.61
1997 0
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.
VA2SAIA.TXT
<PAGE>
Flexible Premium Deferred Variable Annuity Contract
(Variable Annuity)
Issued By:
Midland National Life Insurance Company (Through Midland National
Life Separate Account C)
One Midland Plaza Sioux Falls, SD 57193 (605)
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), 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 prospectuses for the Funds, which accompany this Prospectus,
describes the investment objectives, policies, and risks of the Funds'
portfolios associated with the following eighteen divisions of
Our Separate Account:
VIP Money Market Portfolio
VIP High Income Portfolio
VIP Equity-Income Portfolio
VIP Growth Portfolio
VIP Overseas Portfolio
VIP II Asset Manager Portfolio
VIP II Investment Grade Bond Portfolio
VIP II Contrafund Portfolio
VIP II Asset Manager: Growth Portfolio
VIP II Index 500 Portfolio
VIP III Growth & Income Portfolio
VIP III Balanced Portfolio
VIP III Growth Opportunities Portfolio
American Century VP Capital Appreciation Portfolio
American Century VP Value Portfolio
American Century VP Balanced Portfolio
American Century VP International Portfolio
American Century VP Income and Growth 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 PROSPECTUSES FOR FIDELITY'S
VARIABLE INSURANCE PRODUCTS FUND, FIDELITY'S
VARIABLE INSURANCE PRODUCTS FUND II, FIDELITY'S
VARIABLE INSURANCE PRODUCTS FUND III, AND AMERICAN
CENTURY VARIABLE PORTFOLIOS, INC.
The date of this prospectus is May 1, 1998.
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 (1)
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
MATURITY DATE
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
Year 2000 Compliance Issues
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 are closed but the
New York Stock Exchange is open are the day after Thanksgiving
and Christmas Day Eve. These days along with the days the New
York Stock Exchange is not open for trading will not be counted as
Business Days.The holidays We currently observe are New Years Day,
Memorial Day, Independence Day, Labor Day, Thanksgiving Day and the
day after, 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 Anniversary - The same month and day of the Contract Date in
each year following the Contract Date.
Contract Date means the date from which Contract Anniversaries and
Contract Years are determined.
Contract 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) $0.00
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 (1)
(as a percentage of Portfolio average net assets)
<TABLE>
<S> <C> <C> <C>
MANAGEMENT OTHER TOTAL ANNUAL
FEES EXPENSES EXPENSES(2)
VIP Money Market 0.21% 0.10% 0.31%
VIP High Income 0.59% 0.12% 0.71%
VIP Equity-Income (3) 0.50% 0.08% 0.58%
VIP Growth (3) 0.60% 0.09% 0.69%
VIP Overseas (3) 0.75% 0.17% 0.92%
VIP II Investment Grade Bond 0.44% 0.14% 0.58%
VIP II Asset Manager (3) 0.55% 0.10% 0.65%
VIP II Index 500 (4) 0.24% 0.04% 0.28%
VIP II Contrafund (3) 0.60% 0.11% 0.71%
VIP II Asset Manager: Growth (3) 0.60% 0.17% 0.77%
VIP III Balanced (3) 0.45% 0.16% 0.61%
VIP III Growth Opportunities (3) 0.60% 0.14% 0.74%
VIP III Growth & Income (4) 0.49% 0.21% 0.70%
American Century VP Capital Appreciation 1.00% 0.00% 1.00%
American Century VP Balanced 1.00% 0.00% 1.00%
American Century VP Value 1.00% 0.00% 1.00%
American Century VP International 1.50% 0.00% 1.50%
American Century VP Income & Growth 1.00% 0.00% 1.00%
</TABLE>
(1) The fund data was provided by Fidelity Management & Research
Company and American Century Investment Management, Inc. Midland
has not independently verifiedguaranteed the accuracy of the Fund
data.
(2) With the exeption of the American Century VP Income & Growth Portfolio
as described in (5). T the annual expenses are based on actual expenses
for 1997.
(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 credits
realized as a result ofinterest earned on uninvested cash balances were
used to reduce custodian and transfer agent expenses. IncludingWithout
these reductions, total operating expenses would have been as follows: 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.
VIP Equity-Income 0.57%
VIP Growth 0.67%
VIP Overseas 0.90%
VIP II Asset Manager 0.64%
VIP II Contrafund 0.68%
VIP II Asset Manager: Growth 0.76%
VIP III Balanced 0.60%
VIP III Growth Opportunities 0.73%
(4) The fund's expenses were voluntarily reduced by the Fund's investment
advisor. Absent reimbursement, the management fee, other expenses, and
total expenses for the VIP II Index 500 would have been 0.27%, 0.13% %.
and0.50%, 195.78% and 196.29% for VIP III Growth & Income.
(5) The American Century VP Income & Growth Portfolio was established
on 10/03/1997. The annual expenses shown are estimated 1998 expenses as
provided to Midland by American Century Investment Company, Inc.
EXAMPLES
If You surrender or annuitize 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 89 108 129 215
VIP High Income 93 120 149 256
VIP Equity-Income (3) 91 115 143142 243242
VIP Growth (3) 92 119 148147 254252
VIP Overseas 95 125 160159 278276
VIP II Investment Grade Bond 91 116 143 243
VIP II Asset Manager (3) 92 118 146 250249
VIP II Index 500 (4) 88 107 127 212
VIP II Contrafund (3) 9392 120119 149148 256253
VIP II Asset Manager: Growth (3) 93 121 152 262
VIP III Balanced (3) 92 117116 144 246245
VIP III Growth Opportunities (3) 93 121120 151150 260258
VIP III Growth & Income (4) 93 119 149 255
American Century VP Capital Appreciation 96 128 164 286
American Century VP Balanced 96 128 164 286
American Century VP Value 96 128 164 286
American Century VP International 100 143 189 334
American Century VP Income & Growth 96 128 164 286
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 99 215
VIP High Income 23 70 119 256
VIP Equity-Income (3) 21 6665 113112 243242
VIP Growth (3) 22 69 118117 254252
VIP Overseas (3) 25 7675 130129 278276
VIP II Investment Grade Bond 21 66 113 243
VIP II Asset Manager (3) 22 68 116 250249
VIP II Index 500 (4) 18 57 97 212
VIP II Contrafund (3) 2322 7069 119118 256253
VIP II Asset Manager: Growth (3) 23 71 122 262
VIP III Balanced (3) 22 6766 114 246245
VIP III Growth Opportunities (3) 23 7170 121120 260258
VIP III Growth & Income (4) 23 69 119 255
American Century VP Capital Appreciation 26 78 134 286
American Century VP Balanced 26 78 134 286
American Century VP Value 26 78 134 286
American Century VP International 30 93 159 334
American Century VP Income & Growth (5)26 78 134 286
WITH THE EXCEPTION OF THE AMERICAN CENTURY VP
INCOME & GROWTH PORTFOLIO, THE EXAMPLES ARE BASED
ON ACTUAL EXPENSES FOR 1997. ACTUAL EXPENSES ARE
SHOWN ON PAGE 4 5 UNDER PORTFOLIO ANNUAL EXPENSES
AND ARE NET OF ANY FEE WAIVERS OR EXPENSE
REIMBURSEMENTS. THE EXPENSES FOR THE AMERICAN
CENTURY VP INCOME & GROWTH PORTFOLIO ARE BASED ON
ESTIMATED 1998 EXPENSES AS PROVIDED TO MIDLAND BY
AMERICAN CENTURY MANAGEMENT, INC.
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 0.13% OF ASSETS BASED ON AN AVERAGE
CONTRACT VALUE OF $27,000.
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 15.)
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
portfolios 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:
VIP Money Market Portfolio
VIP High Income Portfolio
VIP Equity-Income Portfolio
VIP Growth Portfolio
VIP Overseas Portfolio
The current Investment Divisions which invest in Portfolios of Fidelity's
Variable Insurance Products Fund II are:
VIPII Asset Manager Portfolio
VIPII Investment Grade Bond Portfolio
VIPII Index 500 Portfolio
VIPII Contrafund Portfolio
VIPII Asset Manager: Growth Portfolio
The current Investment Divisions which invest in Portfolios of Fidelity's
Variable Insurance Products Fund III are:
VIPIII Growth & Income Portfolio
VIPIII Balanced Portfolio
VIPIII Growth Opportunities Portfolio
The current Investment Divisions which invest in Portfolios of the
American Century Variable Portfolios, Inc. are:
Capital Appreciation Portfolio
Value Portfolio
Balanced Portfolio
International Portfolio
Income & Growth
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, 1997 are shown
on page 4 5 under the table of Portfolio Annual Expenses.
See Investment Policies Of The Funds' Portfolios on page 11, 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 20.) 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 14 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, We do not charge You for making transfers. We
reserve the right to assess a $25 Administrative Charge after the
fifteenth 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. During
the Free Look Period, Your premium will be allocated to the VIP Money
Market Investment Division. (See Free Look on page 13.)
<PAGE>
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
1997 11.18 11.63 534,936
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
1997 13.26 13.58 304,930
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
1997 16.09 20.33 929,862
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
1997 15.01 18.28 917,650
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
1997 12.59 13.85 336,988
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
1997 12.65 15.05 534,109
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
1997 11.22 12.06 136,067
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
1997 16.57 21.67 497,774
VIP II Asset Manager: Growth
1995(2) 10.00 11.48 13,682
1996 11.48 13.56 71,781
1997 13.56 16.92 176,790
VIP II Contrafund
1995(2) 10.00 11.84 35,906
1996 11.84 14.17 187,702
1997 14.17 17.34 397,591
VIP III Balanced
1997(3) 10.00 11.45 39,701
VIP III Growth Opportunities
1997(3) 10.00 12.28 75,926
VIP III Growth & Income
1997(3) 10.00 12.36 54,877
American Century VP
Capital Appreciation
1997(3) 10.00 11.35 13,870
American Century VP
Balanced(3) 10.00 11.40 13,519
American Century VP
Value
1997(3) 10.00 12.26 44,666
American Century VP
International
1997(3) 10.00 10.93 34,973
(1)Period from 10/24/93 to 12/31/93
(2) Period From 5/1/95 to 12/31/95
(3)Period from 5/1/97 to 12/31/97
The American Century VP Income and Growth Investment Division became
available on May 1, 1998, and thus, had no financial information to
report at 12/31/1997.
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 Value 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 Funds. You may allocate part or all of Your premiums to no more than
ten of the eighteen Investment Divisions of Our Separate
Account. Our Separate Account divisions invest in the :
VIP Money Market Portfolio
VIP High Income Portfolio
VIP Equity-Income Portfolio
VIP Growth Portfolio
VIP Overseas Portfolio
VIP II Asset Manager Portfolio
VIP II Investment Grade Bond Portfolio
VIP II Contrafund Portfolio
VIP II Asset Manager: Growth Portfolio
VIP II Index 500 Portfolio
VIP III Growth & Income Portfolio
VIP III Balanced Portfolio
VIP III Growth Opportunities Portfolio
American Century VP Capital Appreciation Portfolio
American Century VP Value Portfolio
American Century VP Balanced Portfolio
American Century VP International Portfolio
American Century VP Income & Growth Portfolio
The Funds
Fidelity's Variable Insurance Products Fund, Fidelity's Variable Insurance
Products Fund II, Fidelity's Variable Insurance Products Fund III, and the
American Century Variable Portfolios, Inc. are open-end diversified
management investment companies, more commonly called mutual funds.
As 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 Funds and
their investment policies, risks, expenses and all other aspects of their
operations, appears in their prospectuses, which accompany 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
Objective
VIP Money Market
Seeks to earn a high 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 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 reasonable income by investing primarily in income-
producing equity securities. In choosing these securities, the Manager will
consider the potential for capital appreciation. The Fund seeks
to achieve a yield that exceeds the yield on the
securities comprising the Standard & Poor's Composite Index of 500
Stocks.
VIP Growth
Seeks capital appreciation by investing in common stocks,
normally through the purchase of common stocks, although the Portfolio's
investments are not restricted to any one type of security. Capital
appreciation also may be found in other types of securities, including
bonds and preferred stocks.
VIP Overseas
Seeks long-term growth of capital, primarily through investments in
foreign securities.
VIP II Asset Manager
Seeks high total return with reduced risk over the long-term by allocating
its assets among stocks, bonds and short-term fixed-income
money-market instruments.
VIP II Investment Grade Bond
Seeks as high a level of current income as is consistent with the
preservation of capital by investing in a broad range of investment grade
fixed income securities.
VIP II Contrafund
Seeks to achieve capital appreciation over the long term by investing in
securities of companies whose value the manager believes is not
recognized fully by the public 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 securities convertible into common stocks, but it has the ability to
purchase other securities such as preferred stocks and bonds that may
produce capital growth.
American Century VP Capital Appreciation
Seeks capital growth by investing primarily in common stocks
that management considers to have better-than-average prospects for
appreciation.
American Century VP Value
Seeks long-term capital growth with income as a secondary objective.
Invests primarily in equity securities of well-established companies that
management believes to be under-valued.
American Century VP Balanced
Seeks capital growth and current income. Invests approximately 60
percent of its assets in common growth staocks that management
considers to have better than average potential for appreciation
stocks and the rest in fixed income securities.
American Century VP International
Seeks capital growth by investing primarily in securities of
foreign companies that management believes to have potential for
appreciation.
American Century VP Income & Growth
Seeks dividend growth, current income and capital appreciation by
investing in common stocks.
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 complete, We will accept or
reject it within two business days of receipt. 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. After the Free Feee Look Period, 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 Value 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 an unlimited
number of transfers of Contract Value in each Contract Year
without charge. We reserve the right to assess a $25 charge after the
fifteenth transfer in a Contract Year. 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. 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 DCA Source Account
(any one Investment Division or the General Account) into one or more of the
other Investment Divisions (not the General Account). By allocating monthly,
as opposed to allocating the total amount at one time, You may reduce the
impact of market fluctuations. This plan of investing, however, does not
assure a profit or protect against a loss in declining markets.
DCA can be elected at any time by completion of the Proper Request
Forms (obtained by contacting Us at the Home Office) and by insuring
that a sufficient amount is in DCA Source Accountthe 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 DCA
Source Account. Copies of the DCA Request Form can be obtained by
contacting Us at Our Home Office. The election will specify:
a. The DCA Source Account. The DCA Source Account is the account from
which DCA transfers will be made.
b. that at any money received with the form is to be placed into the DCA
Source Account.
c. The monthly amount to be transferred to the other Investment Divisions,
and
d. How that monthly amount is to be allocated among the Investment
Divisions
DCA is only available if the amount in the DCA Source Account is at least
$2,400 at the time DCA is to begin. The DCA Request Form must be received
with any premium payment You intend to apply to DCA.
The minimum monthly amount to be transferred using DCA is $200. When
DCA is elected, all amounts in the DCA Source Account will be available
for transfer under the DCA program. Once DCA is elected, additional
premiums can be deposited into the DCA Source Account 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.
DCA will last until the value in the DCA Source Account 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, less 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.
Unless You specify otherwise, 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.
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 spousal consent
requirements generally 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.
After the Contract has been in force for three years, Midland will not
assess a Contingent Deferred Sales Charge if You make a full surrender
and use the proceeds to purchase a life income annuity option.
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, You may make an unlimited number
of transfers of Contract ValueFund in each Contract Year without
charge. However, We reserve the right to assess a charge of $25 after the
fifteenth transfer in a Contract Year. To make a transfer, contact Us at
Our Home Office.
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, 1997 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, 1997 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 an
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, and in certain other circumstances. For qualified
plans under Section 401(a), 403(a), 403(b), and 457, the Code requires that
distributions generally must commence no later than the later of April 1 of
the calendar year following the calendar year in which You (or the plan
participant) (I) reach age 70 1/2 or (ii) retire, and must be made in a
specified form or manner. If the plan participant is a "5 percent owner" (as
defined in the Code), distributions generally must begin no later than April
1 of the calendar year following the calendar year in which You (or the
plan participant) reach age 70 1/2. For IRAs described in Section 408,
distributions generally must commence no later than the later of April 1 of
the calendar year following the calendar year in which You (or the plan
participant) reach age 70 1/2. Roth IRAs under Section 408A do not
require distributions at any time prior to Your death.
Under Code section 403(b), payments made by public school systems and
certain tax exempt organizations to purchase annuity contracts for their
employees are excludable from the gross income of the employee, subject
to ceretain limitations. However, these payments may be subject to FICA
(Social Security) taxes. A Qualified Contract issued as a tax-sheltered
annuity under section 403(b) will be amended as necessary to conform to
the requirements of the Code. 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.
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
Distributions from Contracts generally are subject to withholding for Your
federal income tax liability. The withholding rate varies according to the
type of distribution and Your tax status. You will be provided the
opportunity to elect not to have tax withheld from distributions.
"Eligible rollover distributions" from section 401(a) plans and section
403(b) tax-sheltered annuities are subject to a mandatory federal income
tax withholding of 20%. An eligible rollover distribution is the taxable
portion of any distribution from such a plan, except certain distributions
such as distributions required by the Code or distributions in a specified
annuity form. The 20% withholding does not apply, however, if You
choose a "direct rollover" from the plan to another tax-qualified plan or
IRA.
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.
MATURITY DATE
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.
EFFECTING AN ANNUITY
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 three 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); 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 three 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"); 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 Funds 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.
Year 2000 Compliance Issues
Midland National Life is currently in the process of updating itstheir
administrative systems to accommodate all Year 2000 issues. Midland
does not anticipate any material financial impact in processing and
completing the changes required to comply with the Year 2000 issues.
Discount for Midland Employees
Midland employees may receive a 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 Assuming Surrender 5
Other Performance Data 6
Adjusted Historical 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
VAPROSA.TXT
<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
(Through Midland National Life Separate Account C)
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,
19981997 , 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, 1998
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
Total Return Calculations Assuming Surrender 5
Other Performance Data 6
Adjusted Historical 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 and
income other than investment income ) 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 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 or substitute
funding vehicle, the types and quality of portfolio securities held by the
VIP Money Market Portfolio 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 12/31/97
was 4.07%.
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.
Total Return Calculations Assuming Surrender
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 ten-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 which assume the Contract is surrendered will reflect the
effect of Contingent Deferred Sales Charges that may be applicable to a
particular period.
The following is the average annual total return information for the
Investment Division of Separate Account C. The returns are based on the
assumption that the contract is surrendered at the end of the time period
shown and the returns reflect the impact of any applicable Contingent
Deferred Sales Charge.
<TABLE>
<S> <C> <C>
Investment Division Inception of the 1-Year Period
with Investment Division Ended
Inception Date to 12/31/97 12/31/97
VIP Money Market (10/24/93) 2.95% -3.13%
VIP II Investment Grade Bond (10/24/93) 3.87% 0.40%
VIP High Income (10/24/93) 10.24% 8.87%
VIP II Asset Manager (10/24/93) 9.64% 11.81%
VIP II Index 500 (10/24/93) 19.79% 23.67%
VIP Equity-Income (10/24/93) 17.95% 19.15%
VIP Growth (10/24/93) 14.95% 14.60%
VIP Overseas (10/24/93) 7.45% 2.85%
VIP II Contrafund (5/1/95) 21.54% 15.25%
VIP II Asset Manager: Growth (5/1/95) 19.86% 16.16%
VIP III Balanced (5/1/97) N/A N/A
VIP III Growth & Income (5/1/97) N/A N/A
VIP III Growth Opportunities (5/1/97) N/A N/A
American Century VP Balanced (5/1/97) N/A N/A
American Century VP Capital Appreciation (5/1/97) N/A N/A
American Century VP Value (5/1/97) N/A N/A
American Century VP International (5/1/97) N/A N/A
American Century VP Income & Growth (5/1/98) N/A N/A
</TABLE>
N/A - The return information for these periods isthe funds are not
reflected as the funds had not been included in Midland National Life
Separate Account C for more than 12 months at 12/31/1997.
Midland may from time to time also disclose average annual total returns
in a format which assumes the Contract is kept in-force through the time
period shown. Such returns will be identical to the format which assumes
the Contract is surrendered except that the Contingent Deferred Sales Charge
percentage will be assumed to be 0%. The returns which assume the Contract
is kept in-force will only be shown in conjunction with returns which assume
the Contract is surrendered.
The following is the average annual total return information for the
Investment Division of Separate Account C. The returns are based on the
assumption that the contract is kept in-force through the end of the time
period shown and the contingent deferred sales charges are set to zero.
<TABLE>
<S> <C> <C>
Investment Division Inception of the 1-Year Period
with Investment Division Ended
Inception Date to 12/31/97 12/31/97
VIP Money Market (10/24/93) 3.53% 3.87%
VIP II Investment Grade Bond (10/24/93) 4.44% 7.40%
VIP High Income (10/24/93) 10.71% 15.87%
VIP II Asset Manager (10/24/93) 10.12% 18.81%
VIP II Index 500 (10/24/93) 20.15% 30.67%
VIP Equity-Income (10/24/93) 18.33% 26.15%
VIP Growth (10/24/93) 15.36% 21.60%
VIP Overseas (10/24/93) 7.96% 9.85%
VIP II Contrafund (5/1/95) 22.75% 22.25%
VIP II Asset Manager: Growth (5/1/95) 21.09% 23.16%
VIP III Balanced (5/1/97) N/A N/A
VIP III Growth & Income (5/1/97) N/A N/A
VIP III Growth Opportunities (5/1/97) N/A N/A
American Century VP Balanced (5/1/97) N/A N/A
American Century VP Capital Appreciation (5/1/97) N/A N/A
American Century VP Value (5/1/97) N/A N/A
American Century VP International (5/1/97) N/A N/A
American Century VP Income & Growth (5/1/98) N/A N/A
</TABLE>
N/A - The return information for the funds are not reflected as the funds
had not been included in Midland National Life Separate Account C for
more than 12 months at 12/31/1997.
Other Performance Data
Midland may from time to time also disclose cumulative total returns in
conjunction with the annual returns described above. The cumulative returns
will be calculated using the following formula. The cumulative returns which
assume the Contract is kept inforce assume that the Contingent Deferred Sales
Charge percentage will be zero.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 an assumed $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 = an assumed initial payment of $1,000
The returns which assume the Contract is kept in-force will only be shown
in conjunction with returns which assume the Contract is surrendered.
Midland may also disclose the value of an assumeda hypothetical payment
of $10,000 (or other amounts at the end of various periods of time.
The following is the cumulative total return information for the Investment
Division of Separate Account C. The returns are based on the assumption
that the contract is surrendered at the end of the time period shown and the
returns reflect the impact of any applicable contingent deferred sales
charge.
<TABLE>
<S> <C> <C>
Investment Division Inception of the 1-Year Period
with Investment Division Ended
Inception Date to 12/31/97 12/31/97
VIP Money Market (10/24/93) 12.94% -3.13%
VIP II Investment Grade Bond (10/24/93) 17.26% 0.40%
VIP High Income (10/24/93) 50.44% 8.87%
VIP II Asset Manager (10/24/93) 47.05% 11.81%
VIP II Index 500 (10/24/93) 113.06% 23.67%
VIP Equity-Income (10/24/93) 99.69% 19.15%
VIP Growth (10/24/93) 79.25% 14.60%
VIP Overseas (10/24/93) 35.13% 2.85%
VIP II Contrafund (5/1/95) 68.40% 15.25%
VIP II Asset Manager: Growth (5/1/95) 62.23% 16.16%
VIP III Balanced (5/1/97) N/A N/A
VIP III Growth & Income (5/1/97) N/A N/A
VIP III Growth Opportunities (5/1/97) N/A N/A
American Century VP Balanced (5/1/97) N/A N/A
American Century VP Capital Appreciation (5/1/97) N/A N/A
American Century VP Value (5/1/97) N/A N/A
American Century VP International (5/1/97) N/A N/A
American Century VP Income & Growth (5/1/98) N/A N/A
</TABLE>
N/A - The return information for these Investment Divisions isthe funds
are not reflected as the funds had not been included in Midland National
Life Separate Account C for more than 12 months at 12/31/1997.
The following is the cumulative total return information for the Investment
Division of Separate Account C. The returns are based on the assumption
that the contract is kept in-force through the end of the time period shown
and the contingent deferred sales charges are set to zero.
<TABLE>
<S> <C> <C>
Investment Division Inception of the 1-Year Period
with Investment Division Ended
Inception Date to 12/31/97 12/31/97
VIP Money Market (10/24/93) 15.64% 3.87%
VIP II Investment Grade Bond (10/24/93) 19.96% 7.40%
VIP High Income (10/24/93) 53.14% 15.87%
VIP II Asset Manager (10/24/93) 49.75% 18.81%
VIP II Index 500 (10/24/93) 115.76% 30.67%
VIP Equity-Income (10/24/93) 102.39% 26.15%
VIP Growth (10/24/93) 81.95% 21.60%
VIP Overseas (10/24/93) 37.83% 9.85%
VIP II Contrafund (5/1/95) 72.90% 22.25%
VIP II Asset Manager: Growth (5/1/95) 66.73% 23.16%
VIP III Balanced (5/1/97) N/A N/A
VIP III Growth & Income (5/1/97) N/A N/A
VIP III Growth Opportunities (5/1/97) N/A N/A
American Century VP Balanced (5/1/97) N/A N/A
American Century VP Capital Appreciation (5/97) N/A N/A
American Century VP Value (5/1/97) N/A N/A
American Century VP International (5/1/97) N/A N/A
American Century VP Income & Growth (5/1/98) N/A N/A
</TABLE>
N/A - The return information for the funds are not reflected as the funds
had not been included in Midland National Life Separate Account C for
more than 12 months at 12/31/1997.
Adjusted Historical Performance Data
Midland may also disclose adjusted historical 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.
Adjusted historical performance data of this type will be
calculated as follows. First, the value of an assumed $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. The 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 $27,000, so it is calculated as $33/27,000, or 0.13%
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 adjusted historical 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 the average annual total return information based on the
assumption that the Cc ontract is surrendered at the end of the time
period shown. The impact of any applicable Cc Contingent
Dd eferred Ss ales Cc harges are reflected in the returns.
The returns assume that each of the Investment Divisions had been available
to Midland National Life Separate Account C since the Portfolio Inception
Date.
<TABLE>
<S> <C> <C> <C>
Investment Division Inception of the 10-Year Period 5-Year Period
with Portfolio Portfolio to Ended Ended
Inception Date 12/31/97 12/31/97 12/31/97
VIP Money Market (4/1/82) 5.27% 4.26% 2.77%
VIP II Investment Grade Bond (12/5/88) 6.64% N/A 5.06%
VIP High Income (9/19/85) 10.74% 11.11% 11.86%
VIP II Asset Manager (9/16/89) 11.02% N/A 10.93%
VIP II Index 500 (8/27/92) 17.86% N/A 17.84%
VIP Equity-Income (10/9/86) 12.92% 14.97% 18.08%
VIP Growth (10/9/86) 13.81% 15.43% 15.94%
VIP Overseas (1/28/87) 6.56% 7.97% 12.06%
VIP II Contrafund (1/3/95) 25.28% N/A N/A
VIP II Asset Manager: Growth (1/3/95) 19.84% N/A N/A
VIP III Balanced (1/3/95) 12.32% N/A N/A
VIP III Growth & Income (12/31/96) 19.71% N/A N/A
VIP III Growth Opportunities (1/3/95) 23.89% N/A N/A
American Century VP Balanced (5/1/91) 9.24% N/A 9.21%
American Century VP Capital Appreciation (11/20/87) 7.66% 7.05% 3.69%
American Century VP Value (5/1/96) 18.31% N/A N/A
American Century VP International (5/1/94) 8.03% N/A N/A
American Century VP Income & Growth (10/30/97) N/A N/A N/A
There are no returns shown for the American Century VP Income &
Growth Investment Division since the fund was formed within 12 months
of year ending 12/31/1997.
The following is the average annual total return information based on the
assumption that the Cc ontract is kept in-force through the end of
the time period shown. The Cc ontingent Dd eferred Ss ales
Cc harges are assumed to be zero. The returns assume that each of the
Investment Divisions had been available to Separate Account C since the
Portfolio Inception date.
</TABLE>
<TABLE>
<S> <C> <C> <C>
Investment Division Inception of the 10-Year Period 5-Year Period
with Portfolio Portfolio to Ended Ended
Inception Date 12/31/97 12/31/97 12/31/97
VIP Money Market (4/1/82) 5.27% 4.26% 3.25%
VIP II Investment Grade Bond (12/5/88) 6.64% N/A 5.50%
VIP High Income (9/19/85) 10.74% 11.11% 12.20%
VIP II Asset Manager (9/16/89) 11.02% N/A 11.28%
VIP II Index 500 (8/27/92) 18.02% N/A 18.12%
VIP Equity-Income (10/9/86) 12.92% 14.97% 18.36%
VIP Growth (10/9/86) 13.81% 15.43% 16.24%
VIP Overseas (1/28/87) 6.56% 7.97% 12.40%
VIP II Contrafund (1/3/95) 26.23% N/A N/A
VIP II Asset Manager: Growth (1/3/95) 20.88% N/A N/A
VIP III Balanced (1/3/95) 13.50% N/A N/A
VIP III Growth & Income (12/31/96) 26.71% N/A N/A
VIP III Growth Opportunities (1/3/95) 24.87% N/A N/A
American Century VP Balanced (5/1/91) 9.24% N/A 9.59%
American Century VP Capital Appreciation (11/20/87) 7.66% 7.05% 4.16%
American Century VP Value (5/1/96) 21.18% N/A N/A
American Century VP International (5/1/94) 8.82% N/A N/A
American Century VP Income & Growth (10/30/97) N/A N/A N/A
There are no returns shown for the American Century VP Income &
Growth Investment Division since the fund was formed within 12 months
of year ending 12/31/1997.
The following is the cumulative total return information based on the
assumption that the Cc ontract is surrendered at the end of the time
period shown. The impact of any applicable Cc ontingent
Dd</>eferred
Ss ales Cc harges are reflected in the returns.
The returns assume that each of the Investment Divisions had been available
to Separate Account C since the Portfolio Inception date.
</TABLE>
<TABLE>
<S> <C> <C> <C>
Investment Division Inception of the 10-Year Period 5-Year Period
with Portfolio Portfolio to Ended Ended
Inception Date 12/31/97 12/31/97 12/31/97
VIP Money Market (4/1/82) 124.57% 51.75% 14.65%
VIP II Investment Grade Bond (12/5/88) 79.21% N/A 27.97%
VIP High Income (9/19/85) 250.35% 186.84% 75.13%
VIP II Asset Manager (9/16/89) 138.70% N/A 67.97%
VIP II Index 500 (8/27/92) 140.77% N/A 127.21%
VIP Equity-Income (10/9/86) 291.68% 303.55% 129.60%
VIP Growth (10/9/86) 327.70% 319.84% 109.47%
VIP Overseas (1/28/87) 100.28% 115.23% 76.72%
VIP II Contrafund (1/3/95) 96.50% N/A N/A
VIP II Asset Manager: Growth (1/3/95) 72.03% N/A N/A
VIP III Balanced (1/3/95) 41.59% N/A N/A
VIP III Growth & Income (12/31/96) 19.71% N/A N/A
VIP III Growth Opportunities (1/3/95) 89.96% N/A N/A
American Century VP Balanced (5/1/91) 80.37% N/A 55.37%
American Century VP Capital Appreciation (11/20/87) 110.99% 97.55% 19.88%
American Century VP Value (5/1/96) 32.38% N/A N/A
American Century VP International (5/1/94) 32.78% N/A N/A
American Century VP Income & Growth (10/30/97) N/A N/A N/A
There are no returns shown for the American Century VP Income &
Growth Investment Division since the fund was formed within 12 months
of year ending 12/31/1997.
The following is the cumulative total return information based on the
assumption that the contract is kept in-force through the end of the time
period shown. The contingent deferred sales charges are assumed to be
zero. The returns assume that each of the Investment Divisions had been
available to Separate Account C since the Portfolio Inception date.
</TABLE>
<TABLE>
<S> <C> <C> <C>
Investment Division Inception of the 10-Year Period 5-Year Period
with Portfolio Portfolio to Ended Ended
Inception Date 12/31/97 12/31/97 12/31/97
VIP Money Market (4/1/82) 124.57% 51.75% 17.35%
VIP II Investment Grade Bond (12/5/88) 79.21% N/A 30.67%
VIP High Income (9/19/85) 250.35% 186.84% 77.83%
VIP II Asset Manager (9/16/89) 138.70% N/A 70.67%
VIP II Index 500 (8/27/92) 142.57% N/A 129.91%
VIP Equity-Income (10/9/86) 291.68% 303.55% 132.30%
VIP Growth (10/9/86) 327.70% 319.84% 112.17%
VIP Overseas (1/28/87) 100.28% 115.23% 79.42%
VIP II Contrafund (1/3/95) 101.00% N/A N/A
VIP II Asset Manager: Growth (1/3/95) 76.53% N/A N/A
VIP III Balanced (1/3/95) 46.09% N/A N/A
VIP III Growth & Income (12/31/96) 26.71% N/A N/A
VIP III Growth Opportunities (1/3/95) 94.46% N/A N/A
American Century VP Balanced (5/1/91) 80.37% N/A 58.07%
American Century VP Capital Appreciation (11/20/87) 110.99% 97.55% 22.58%
American Century VP Value (5/1/96) 37.78% N/A N/A
American Century VP International (5/1/94) 36.38% N/A N/A
American Century VP Income & Growth (10/30/97) N/A N/A N/A
</TABLE>
There are no returns shown for the American Century VP Income &
Growth Investment Division since the fund was formed within 12 months
of year ending 12/31/1997.
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. Beginning January 1, 1998, Midland will pay an underwriting
commission to WSS equal to 0.125% of all Variable Annuity
premiums.
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 were not paid to WSS during
these periods.
Underwriting
Year Commissions
1995 $100,715.80
1996 $99,593.61
1997 $0.00
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.
VASAIA.TXT
<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. (2)
(2) Not Applicable
(3) (a) Principal Underwriting Agreement between Midland
National Life Insurance Company and Walnut Street Securities (2)
(b) Registered Representative Contract (2)
(4) (a) Form A053A1 Flexible Premium Deferred Variable Annuity
Contract (2)
(b) Maturity Date Endorsement for Qualified Contracts (2)
(c) Endorsement for Tax Sheltered Annuity (2)
(d) Form A057A1 Flexible Premium Deferred Variable Annuity
Contract (2)
(5) (a) Form of Application for Flexible Premium Deferred Variable
Annuity Contract A053A1 and A057A1 (2)
(b) Supplement to Application (2)
(6) (a) Articles of Incorporation of Midland National Life Insurance
Company (2)
(b) By-laws of Midland National Life Insurance Company (2)
(7) Not Applicable
(8) (a) Form of Participation Agreement between Midland National
Life Insurance Company and Fidelity VIP I and VIP II (2)
(b) Form of Participation Agreement between Midland National
Life Insurance Company and Fidelity VIP III (2)
(c) Form of Participation Agreement between Midland National Life
Insurance Company and American Century Investment Services
Inc. (2)
(9) Opinion and Consent of Counsel (2)
(10) (a) Consent of Counsel (3)
(b) Consent of Independent Auditors (3)
(11) Not Applicable
(12) Not Applicable
(13) Performance Data Calculations (1)
(14) Not Applicable
(1) Filed with Pre-effective Amendment #1 of this form N-4 Registration
Statement, file number 33-64016 (August 11, 1993).
(2) Filed with Post-effective Amendment #5 of this form N-4 Registration
Statement, file number 33-64016 (February 23, 1998).
(3) Filed herewith.
<PAGE>
Item 25.
Below is a list of our directors and executive officers.
Directors
Name and Position with Principal Occupation
Business Address Midland 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 September 1997),
Consolidated Investment Services,
Inc.; Chairman of the Board,
President, (December 1996 to
present), Sammons Financial
Holdings, Inc.; Chairman of the
Board and Chief Executive Officer/
President (December 1996 to present),
North American Company for Life and
Health Insurance; President and
Director (1996 to December 1997),
Briggs ITD Corporation; Director,
Chairman of the Board, President,
Chief Executive Officer
(1996 to present), NACOLAH
Holding Corporation; Director,
Chairman of the Board, President,
Chief Executive Officer
(1996 to present), North American
Company for Life and Health of
New York; Director, Chairman of
the Board, President, Chief
Executive Officer (1996 to present),
NACOLAH Life Insurance Company;
Director, Chairman of the Board,
President, Chief Executive Officer
(1996 to present), Institutional
Founders Life Insurance Company;
Chairman of the Board and Director
(1995-present), Midland Advisors
Company; President and Director (1992
to September 1997), CH Holdings, Inc.;
Director, (1992 to present), Sammons
Enterprises, Inc.; Chairman of the
Board, President, 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
Vice President (November 1996 to
present), NAC Holdings, Inc.
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;
President and Director (September
1997 to present), CH Holdings, Inc.;
President and Director (December 1997
to present), Brigg ITD Corp; President
and Director (September 1997 to
present), Consolidated Investment
Services; Director (January 1995 to
present), Midland Advisors Company;
Director (January 1996 to present),
NACOLAH Holding Corp; Director (May
1997 to Present), Sammons Financial
Holdings; Vice President-Individual
Sales (prior thereto), Northwestern
National Life
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 Executive Senior Vice President and Chief
Midland National Life Vice President Financial Officer (October 1993
One Midland Plaza to present), Midland National
Sioux Falls, SD 57193 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 (August 1996
One Midland Plaza Chief Marketing to present), Midland National
Sioux Falls, SD 57193 Officer 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)
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 December 31, 1997 there were 1,128 holders of nonqualified
contracts and 1,990 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.
Walnut Street Securities, the principal underwriter of the Registrant is
also the principal underwriter for General American Life Insurance
Company as well as Paragon Life Insurance Company.
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.
Stephen Palmitier Dir.
Kevin Eichner 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
Walnut Street 1,310,003.97 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
(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.
(d) 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.
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--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.
VAITM24.TXT
<PAGE>
SIGNATURES
__________
As required by the Securities Act of 1933, and under the Investment
Company Act of 1940, the Registrant, Midland National Life Separate
Account C certifies that it meets the requirements of Securities Act
485 (b) for effectiveness of this Registration Statement and has caused
this Registration Statement to be signed on its behalf in the City of
Sioux Falls, South Dakota on the 24th day of April, 1998.
Midland National Life Separate Account C
(Seal) By: Midland National Life Insurance Company
By:_/s/Michael_M._Masterson______________
President
Pursuant to the requirements of the Securities Act of 1933, this
Registration Statement has been signed below by the following
Directors of Midland National Life Insurance Company in the
capacities and on the dates indicated.
Signature Title Date
- --------- ----- ----
_________________________ Chairman of the Board April 24, 1998
John C. Watson
/s/Michael_M._Masterson_____ Director, Chief April 24, 1998
Michael M. Masterson Executive Officer
and President
/s/John_J._Craig_II_________ Director, Executive April 24, 1998
John J. Craig II Vice President
/s/Russell_A._Evenson_______ Director, Senior Vice April 24, 1998
Russell A. Evenson President and Chief
Actuary
/s/Steven_C._Palmitier______ Director, Senior Vice April 24, 1998
Steven C. Palmitier President and Chief
Marketing Officer
/s/Thomas_M._Meyer__________ Vice President and April 24, 1998
Thomas M. Meyer Chief Financial
Officer
______________________ Director April 24, 1998
Robert W. Korba
______________________ Director April 24, 1998
James N. Whitson
VASIGA.TXT
<PAGE>
Registration No. 33-64016
POST EFFECTIVE AMENDMENT NO. 6
______________________________________________________________________________
______________________________________________________________________________
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
______________________________________________
_____________________________________________________________________________
_____________________________________________________________________________
VAEXHA.TXT
<PAGE>
EXHIBIT INDEX
Item 24.
(b)(10) (a) Consent of Counsel
(b) Consent of Independent Auditors
VAINDXA.TXT
<PAGE>
April 28, 1998
Midland National Life Insurance Company
One Midland Plaza
Sioux Falls, SD 57193
RE: Separate Account C Form N-4, File No. 33-64016
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
No. 6 to the Registration Statement on Form N-4 filed by Midland National
LifeInsurance Company Separate Account C for certain annuity contracts
(File No. 33-64016). As counsel who has reviewd the Registration Statement,
we certify that it does not contain disclosures that would render it
ineligible to become effective pursuant to paragraph (b) of Rule 485 under
the Securities Act of 1933. In giving this consent, we do not admit that we
are in the category of persons whose consent is required under Section 7 of
the Securities Act of 1933.
Very truly yours,
SUTHERLAND, ASBILL & BRENNAN L L P
by: __/s/Frederick_R._Bellamy__
Frederick R. Bellamy
<PAGE>
CONSENT OF IDEPENDENT ACCOUNTANTS
We consent to the inclusion in Post effective Amendment No. 6 to this
Registration Statement of Midland National Life Separate Account C on
Form N-4 (File No. 33-64016) of our reports dated March 17, 1998 and
March 12, 1998, on our audits of the financial statements of Midland
National Life Separate Account C, and the financial statements of Midland
National Life Insurance Company, respectively. We also consent to the
reference of our firm under the caption "Financial and Actuarial".
COOPERS & LYBRAND L.L.P.
MINNEAPOLIS, MINNESOTA
April 24, 1998
CNSNTVA2
<PAGE>