Securities and Exchange Commission
450 5 Street, N.W.
Washington, DC 20549
RE: Midland National Life Separate Account C
File Number 33-64016
Commissioners:
Enclosed for filing is a copy of Post Effective Amendment Number 8
to the above referenced Form N-4 Registration Statement.
This amendment is being filed pursuant to paragraph (a) of Rule 485.
This amendment reflects changes that Zandra Bailes of the staff conveyed
to Fred Bellamy of Sutherland Asbill and Brennan on February 8, 1999.
Attached is a courtesy copy of the filing.
If you have any comments or questions about this filing, please contact
Fred Bellamy of Sutherland Asbill and Brennan at 202-383-0126.
Sincerely,
Paul M. Phalen, CLU, FLMI
Assistant Vice-President
Product Implementation
VA2PECVR.TXT
<PAGE>
Registration No. 33-64016
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. _8_
and
REGISTRATION STATEMENT UNDER THE INVESTMENT COMPANY ACT OF 1940 ___
Amendment No. _8_
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)
605-335-5700
(Depositor's Telephone Number, including Area Code:
_________________________
Jack L. Briggs, Vice President, Secretary and General Counsel
Midland National Life Insurance Company
One Midland Plaza
Sioux Falls, SD 57193
(Name and Address of Agent for Service)
Copy to:
Frederick R. Bellamy
Sutherland Asbill & Brennan, L L P
1275 Pennsylvania Avenue, N.W.
Washington, D.C. 20004-2404
It is proposed that this filing will become effective (check appropriate line):
___ immediately upon filing pursuant to paragraph (b)
___ on May 01, 1999 pursuant to paragraph (b)
___ 60 days after filing pursuant to paragraph (a) (i)
_X_ on _April 30__ pursuant to paragraph (a) (i)
___ 75 days after filing pursuant to paragraph (a) (ii)
___ on _________________ pursuant to paragraph (a) (ii) of Rule 485
If appropriate, check the following line:
___ the Post-Effective Amendment designates a new effective date for a
previously filed Post-Effective Amendment.
Titles of Securities Being Registered: __Variable_Annuity_Contracts__
N4PEVA2
<PAGE>
Variable Annuity II
Prospectus
May 1, 1999
Please read this prospectus for details on the contract being offered
to you and keep it for future reference. This prospectus sets forth
the information that a prospective investor should know before
investing.
A Statement of Additional Information ("SAI") about the contract
and Separate Account C is available by checking the appropriate box
on the application form or by writing to Midland at:
Midland National Life Insurance Company
One Midland Plaza
Sioux Falls, SD 57193
(605) 335-5700
The SAI, dated May 1, 1999, has been filed with the U.S. Securities
and Exchange Commission ("SEC") and is incorporated herein by
reference. The table of contents of the SAI is included at the end of
this prospectus.
The SEC has not approved or disapproved of these securities or
determined if this prospectus is truthful or complete. Any
representation to the contrary is a criminal offense.
The contracts involve investment risk, including possible loss of
principal. 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 or any other agency.
This prospectus is valid only when accompanied by the Funds'
current prospectuses.
Flexible Premium Deferred Variable Annuity
Contract (Variable Annuity II)
issued by
Midland National Life Insurance Company
through
Midland National Life Separate Account C
The prospectuses for the following Funds:
Fidelity's Variable Insurance Products Fund/Fund II/Fund III,
American Century's Variable Portfolio Inc.,
Massachusetts Financial's Variable Insurance Trusts, and
Lord , Abbett's Series Funds, Inc.,
describe the investment objectives, policies, and risks of the Funds'
portfolios that are available under the contracts:
1. VIP Money Market Portfolio
2. VIP High Income Portfolio
3. VIP Equity-Income Portfolio
4. VIP Growth Portfolio
5. VIP Overseas Portfolio
6. VIP II Asset Manager Portfolio
7. VIP II Investment Grade Bond Portfolio
8. VIP II Contrafund Portfolio
9. VIP II Asset Manager: Growth Portfolio
10. VIP II Index 500 Portfolio
11. VIP III Growth & Income Portfolio
12. VIP III Balanced Portfolio
13. VIP III Growth Opportunities Portfolio
14. American Century VP Capital Appreciation Portfolio
15. American Century VP Value Portfolio
16. American Century VP Balanced Portfolio
17. American Century VP International Portfolio
18. American Century VP Income & Growth Portfolio
19. MFS VIT Emerging Growth Portfolio
20. MFS VIT Research Portfolio
21. MFS VIT Growth with Income Portfolio
22. MFS VIT New Discovery Portfolio
23. Lord , Abbett VCC Growth and Income Portfolio
Table of Contents
SUMMARY 3
Features of Variable Annuity II 3
Investment Choices 3
Withdrawals 4
Charges Under the Contracts 4
FEE TABLE 6
Additional Information About
Variable Annuity II 10
SEPARATE ACCOUNT C AND THE FUNDS 10
Our Separate Account And Its
Investment Divisions 10
The Funds 10
Investment Policies Of The Funds' Portfolios 11
We Own The Assets Of Our Separate Account 13
Our Right To Change How We Operate Our
Separate Account 13
DETAILED INFORMATION ABOUT
THE CONTRACT 14
Requirements for Issuance of a Contract 14
Free Look 14
Allocation of Premiums 14
Changing Your Premium Allocation Percentages 15
Transfers of Contract Value 15
Dollar Cost Averaging 15
Portfolio Rebalancing 16
Systematic Withdrawals 16
Withdrawals 17
Loans 18
Death Benefit 19
Your Contract Value 20
Amounts In Our Separate Account 20
The General Account 21
CHARGES, FEES AND DEDUCTIONS 21
Sales Charges on Withdrawals 21
Free Withdrawal Amount 22
Administrative Charge 22
Mortality and Expense Risk Charge 22
Contract Maintenance Charge 22
Transfer Charge 23
Charges In The Funds 23
FEDERAL TAX STATUS 23
Introduction 23
Diversification 24
Taxation of Annuities in General 24
Our Income Taxes 27
Withholding 27
MATURITY DATE 27
EFFECTING AN ANNUITY SELECTING AN ANNUITY OPTION 28
Fixed Options 28
Variable Options 29
Transfers after the Maturity Date 30
ADDITIONAL INFORMATION 30
Midland National Life Insurance Company 30
Your Voting Rights As an Owner 30
Our Reports to Owners 31
Contract Periods, Anniversaries 31
Dividends 31
Performance 31
Your Beneficiary 32
Assigning Your Contract 32
When We Pay Proceeds From This Contract 32
Sales Agreements 32
Regulation 32
Year 2000 Compliance Issues 33
Discount for Midland Employees 33
Legal Matters 33
Experts 33
Statement of Additional Information 33
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 that 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 contract's
death benefit is paid when 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 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.
Cash Surrender Value means the Contract Value on the date of
surrender minus the contract maintenance charge and any contingent
deferred sales charge.
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 in force contract. It also includes
monies in our General Account for your contract.
Contract Month means a month that starts on a Monthly
Anniversary and ends on the following Monthly Anniversary.
Contract Year means a year that starts on the Contract Date or on
each anniversary thereafter.
Death Benefit means the amount payable under your contract if the
annuitant dies before the maturity date.
Funds mean the investment companies, more commonly called
mutual funds, available for investment by Separate Account C on
the Contract Date or as later changed by us.
Home Office means where you write to us to pay premiums or take
other action, such as transfers between investment divisions. The
address is:
Midland National Life Insurance Company
One Midland Plaza
Sioux Falls, SD 57193
In Force means the Annuitant's life remains insured under the terms
of the contract.
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 that 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 has
all rights in the contract before the maturity date, including the
rights to make withdrawals or surrender the contract, to designate
and change the beneficiaries who will receive the proceeds at the
annuitant's death 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.
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 should be read with the detailed information
appearing later in this prospectus and is qualified in its entirety
and superseded by that information. The detailed information appearing
later in this prospectus further explains the following summary. This
summary must be read along with that detailed information.
Unless otherwise indicated, the description of the contract in this
prospectus assumes that the contract is in force.
Features of Variable Annuity II
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 those tax advantages (Qualified Plans).
This prospectus generally describes only the variable portion of the
contract, except where the General Account is specifically
mentioned.
The Variable Annuity II 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 (a) the contract value, (b) premiums
paid less withdrawals, or (c) the guaranteed minimum death benefit.
Your Contract Value
Your contract value depends on:
the amount and frequency of premium payments,
the selected portfolio's investment experience,
interest earned on amounts allocated to the General Account,
withdrawals, and
charges and deductions.
You bear the investment risk under the Variable Annuity II. There
is no minimum guaranteed cash value with respect to any amounts
allocated to the Separate Account. (See "Your Contract Value" on
page 20.)
Flexible Premium Payments
You may pay premiums whenever you want and in whatever amount
you want, within certain limits. We require an initial minimum
premium of at least $2,000; other premium payments must be at
least $50. (Currently, we waive the initial minimum premium
requirement for certain qualified contracts enrolled in a bank draft
investment program or payroll deduction plan.)
You will choose a planned periodic premium. You need not pay
premiums according to the planned schedule.
Investment Choices
You may allocate your contract value to up to ten of the investment
divisions of our Separate Account. You may also allocate your
contract value to our General Account, which pays interest at a
declared rate.
Each of the Separate Account investment divisions invests in shares
of a corresponding portfolio of one of the following "series" type
mutual funds: (1) Fidelity's Variable Insurance Products Fund,
(2) Fidelity's Variable Insurance Products Fund II,
(3) Fidelity's Variable Insurance Products Fund III,
(4) American Century's Variable Portfolios, Inc.,
(5) Massachusetts Financial's Variable Insurance Trusts, and
(6) Lord , Abbett's Series Fund, Inc. The portfolios have different
investment policies and objectives.
For a full description of the portfolios, see the Funds' prospectuses,
which accompany this prospectus. (See The Funds on page 10.)
The investment divisions that 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 investment divisions that 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 Contrafund Portfolio
VIP II Asset Manager: Growth Portfolio
VIP II Index 500 Portfolio
The investment divisions that 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 investment divisions that invest in portfolios of the American
Century Variable Portfolios, Inc. are:
VP Capital Appreciation Portfolio
VP Value Portfolio
VP Balanced Portfolio
VP International Portfolio
VP Income & Growth Portfolio
The investment divisions that invest in portfolios of the
Massachusetts Financial Variable Insurance Trusts are:
VIT Emerging Growth Portfolio
VIT Research
VIT Growth with Income
VIT New Discovery
The investment division that invests in a portfolio of the Lord ,
Abbett Series Fund, Inc. is:
VCC Growth and Income
Each portfolio pays a different investment management or advisory
fee and different operating expenses. The fees and expenses for the
year ending December 31, 1998 are shown under the table of
Portfolio Annual Expenses.
See "Investment Policies Of The Funds' Portfolios" on page 11, and
"Charges In The Funds" on page 23.
Withdrawals
You may generally withdraw all or part of your cash surrender value
at any time, before annuity payments begin. You may also elect a
systematic withdrawal option (See "Systematic Withdrawals" on
page 16.) (Your retirement plan may restrict withdrawals.) A
contingent deferred sales charge may be imposed on any
withdrawal, and upon full withdrawal a contract maintenance charge
may also be imposed. The amount you request plus any deferred
sales charge will be deducted from your contract value. You may
take a withdrawal 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 have negative tax consequences, including a 10%
tax penalty on certain withdrawals prior to age 59 1/2. Three years
after the contract date, the contingent deferred sales charge will be
waived upon the withdrawal of funds to effect a life annuity. (See
"Sales Charges on Withdrawals" on page 21, "FEDERAL TAX
STATUS" on page 23, and " SELECTINGEFFECTING AN ANNUITY " on page
28.) 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
Sales Charge
Sales expenses are not deducted from premium payments. 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 21.)
The length of time between the 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 made 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, or
2. exercise of the free withdrawal privilege.
In addition, Midland will not assess a contingent deferred sales
charge on either a full or partial surrender [subject to approval of the
state insurance authorities] after the first contract anniversary if:
1. our home office receives written proof 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
2. a licensed physician provides a written statement to us that the
owner is expected to die within the next 12 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. (See
"Withdrawals" on page 17 and "FEDERAL TAX STATUS" on page
23.)
Free Withdrawal Amount
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), minus any withdrawals made in the prior 12
months, without incurring a contingent deferred sales charge. (See
"Free Withdrawal Amount" on page 22.)
Mortality and Expense Risk Charge
Midland deducts a 1.25% per annum charge against all contract
values held in the Separate Account for assuming the mortality and
expense risks under the contract. (See "Mortality and Expense Risk
Charge" on page 22.)
Administration and Maintenance Fee
An administration charge of 0.15% per annum is deducted from all
contract values held in the Separate Account. In addition, a
maintenance charge of $35 is deducted annually from each contract.
Currently, we waive this annual maintenance charge for contracts
with a value of $50,000 or more on the contract anniversary. (See
"CHARGES, FEES AND DEDUCTIONS" on page 21.)
Premium Taxes
Currently, we do not deduct for premium taxes. We reserve the
right to deduct for premium taxes for contracts sold in states that
charge a premium tax.
FEE TABLE
This information is intended to assist you in understanding the
various costs and expenses that you will bear. It reflects expenses of
the Separate Account as well as the portfolios.
Contract Owner Transaction Expenses
Sales Load Imposed on Purchases (as a percentage of premium
payments) None
Transfer Fee None
Maximum Deferred Sales Load (as a percentage of premiums
withdrawn) 8.00%
Annual Contract Maintenance Charge(1) $35.00
Separate Account Annual Expenses (as a percentage of average
daily Contract Value)
Mortality and Expense Risk 1.25%
Administration Fees 0.15%
Total Separate Account Expenses 1.40%
(1) The contract maintenance charge is an annual $35 charge per
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 after fee waivers
and expense reimbursement )
TOTAL
MANAGEMENT OTHER 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 Asset Manager(3) 0.55% 0.10% 0.65%
VIP II Investment Grade Bond 0.44% 0.14% 0.58%
VIP II Contrafund(3) 0.60% 0.11% 0.71%
VIP II Asset Manager: Growth(3) 0.60% 0.17% 0.77%
VIP II Index 500(4) 0.24% 0.04% 0.28%
VIP III Growth & Income 0.49% 0.21% 0.70%
VIP III Balanced(3) 0.45% 0.16% 0.61%
VIP III Growth Opportunities(3) 0.60% 0.14% 0.74%
American Century VP Capital Appreciation 1.00% 0.00% 1.00%
American Century VP Value 1.00% 0.00% 1.00%
American Century VP Balanced 1.00% 0.00% 1.00%
American Century VP International 1.50% 0.00% 1.50%
American Century VP Income & Growth 0.70% 0.00% 0.70%
TOTAL
MANAGEMENT OTHER ANNUAL
FEES EXPENSES EXPENSES(2)
MFS VIT Emerging Growth 0.75% 0.12% 0.87%
MFS VIT Research 0.75% 0.13% 0.88%
MFS VIT Growth with Income(5) 0.75% 0.25% 1.00%
MFS VIT New Discovery(5) 0.90% 0.25% 1.15%
Lord , Abbett VCC Growth and Income 0.50% 0.02% 0.52%
(1) The fund data was provided by the funds or their managers.
Midland has not independently verified the accuracy of the Fund
data.
(2) The annual expenses shown are based on actual expenses for
1998.
(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 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 0.78%
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%, and 0.40% respectively.
(5) MFS has agreed to bear expenses for these portfolios, and each
such portfolio's other expenses shall not exceed 0.25%. Without
this limitation, the other expenses and total expenses would have
been:
0.35% and 1.10% for the MFS VIT Growth with Income, and
0.47% and 1.37% for the MFS VIT New Discovery.
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 a 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 101 136 173 244
VIP Growth (3) 103 139 179 255
VIP Overseas (3) 105 146 191 279
VIP II Asset Manager 102 138 177 251
VIP II Investment Grade Bond 101 136 173 244
VIP II Contrafund 103 140 180 257
VIP II Asset Manager: Growth (3) 103 142 183 263
VIP II Index 500 98 127 158 213
VIP III Growth & Income 103 140 179 256
VIP III Balanced 102 137 175 247
VIP III Growth Opportunities (3) 103 141 182 261
American Century VP Capital Appreciation 106 149 195 287
American Century VP Value 106 149 195 287
American Century VP Balanced 106 149 195 287
American Century VP International 111 164 219 335
American Century VP Income & Growth 93 120 149 256
MFS VIT Emerging Growth 94 125 158 274
MFS VIT Research 94 125 159 275
MFS VIT Growth with Income 96 129 165 287
MFS VIT New Discovery 97 133 172 301
Lord , Abbett VCC Growth and Income 91 114 140 238
If you do not surrender your contract, 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 19 58 100 216
VIP High Income 23 70 120 257
VIP Equity-Income 21 66 113 244
VIP Growth (3) 23 69 119 255
VIP Overseas (3) 25 76 130 279
VIP II Asset Manager (3) 22 68 117 251
VIP II Investment Grade Bond 21 66 113 244
VIP II Contrafund (3) 23 70 120 257
VIP II Asset Manager: Growth (3) 23 72 123 263
VIP II Index 500 (4) 18 57 98 213
VIP III Growth & Income 23 70 119 256
VIP III Balanced (3) 22 67 115 247
VIP III Growth Opportunities (3) 23 71 122 261
American Century VP Capital Appre 26 79 135 287
American Century VP Value 26 79 135 287
American Century VP Balanced 26 79 135 287
American Century VP International 31 94 159 335
American Century VP Income & Growth 23 70 119 256
MFS VIT Emerging Growth 24 75 128 274
MFS VIT Research 24 75 129 275
MFS VIT Growth with Income 26 79 125 287
MFS VIT New Discovery 27 83 142 301
Lord , Abbett VCC Growth and Income 21 64 110 238
The examples are based on actual expenses for 1998. Actual
expenses reflected are net of any fee waivers or expense
reimbursements.
The examples 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 $35 contract maintenance
charge as an annual charge of 0.13% of assets based on an average
cash value of $27,000.
Additional Information About
Variable Annuity II
Your "Free Look" Right
You have a right to examine the contract and 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 14 for more details.)
Transfers
You may transfer your contract value among the investment
divisions and between the General Account and the investment
divisions. Transfers take effect on the date we receive your request.
We require minimum amounts, usually $200, for each transfer.
Transfers are not permitted before the end of the "free look" period
or after annuity payments begin.
Currently, we do not charge for making transfers. However, we
reserve the right to assess a $25 administrative charge after the 15th
transfer in a contract year.
There are other limitations on transfers to and from the General
Account. For limitations on transfers to and from the General Account, see
"The General Account" on page 21.
Financial Information
Condensed financial information for the Separate Account begins at
page 3437 of this prospectus. Our financial statements, and full
financial statements for the Separate Account, are in the Statement
of Additional Information.
Inquiries
If you have any questions about your contract or need to make
changes, then contact your financial representative who sold you the
contract, or contact us at:
Midland National Life Insurance Company
One Midland Plaza
Sioux Falls, South Dakota 57193
(605) 335-5700
SEPARATE ACCOUNT C AND THE FUNDS
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. It 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 SEC supervision of
its management or investment policies. The Separate Account has
a number of investment divisions, each of which invests in shares of
a corresponding portfolio of the Funds. You may allocate part or all
of your net premiums to any 10 of the 23 investment divisions of our
Separate Account.
The Funds
Each of the 23 portfolios available under the contract is commonly
called a mutual fund. Each one is a "series" of one of the following
open-end diversified investment companies:
1. Fidelity's Variable Insurance Product Fund,
2. Fidelity's Variable Insurance Product Fund II,
3. Fidelity's Variable Insurance Product Fund III,
4. American Century Variable Portfolios, Inc.,
5. Massachusetts Financial Variable Insurance Trusts, and
6. Lord , Abbett's Series Fund, Inc.
Our Separate Account buys and sells the shares of each portfolio at
net asset value (with no sales charge). More detailed information
about the portfolios and their investment objectives, policies, risks,
expenses and other aspects of their operations, appear in their
prospectuses, which accompany this prospectus and in the Funds'
Statements of Additional Information. You should read the Funds'
prospectuses carefully before allocating or transferring money to
any portfolio.
We may from time to time receive revenue from the Funds and/or
from their managers. The amounts of the revenue, if any, may be
based on the amount of our investments in the Funds.
Investment Policies Of The Funds' Portfolios
Each portfolio tries to achieve a specified investment objective by
following certain investment policies. A portfolio's objectives and
policies affect its returns and risks. Each investment division's
performance depends on the experience of the corresponding
portfolio. The objectives of the portfolios are as follows:
Portfolio/Objective
VIP Market Money
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 by investing in high quality money
market instruments. (An investment in the VIP Money Market or
any other Portfolio is neither insured nor guaranteed by the U.S.
Government, and there is no assurance that the Money Market
Portfolio will be able to maintain a constant net asset value.)
VIP High Income
Seeks high current income by investing primarily in high-yielding,
lower-rated, fixed-income securities, while also considering growth
of capital. For a description of the special risks involved in investing
in these securities, see the prospectus for the Funds.
VIP Equity-Income
Seeks reasonable income by investing primarily in income-
producing equity securities. In choosing these securities, the
Manager will consider the potential for capital appreciation. The
Portfolio's goal is to achieve a yield which exceeds the composite
yield on the securities comprising the Standard & Poor's Composite
Index of 500 Stocks.
VIP Growth
Seeks capital appreciation by investing in common stocks, although
the Portfolio's investments are not restricted to any one type of
security. Capital appreciation also may be found in other types of
securities, including bonds and preferred stocks.
VIP Overseas
Seeks long-term growth of capital, primarily through investments in
foreign securities.
VIP II Asset Manager
Seeks high total return with reduced risk over the long-term by
allocating its assets among domestic and foreign stocks, bonds and
short-term money 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.
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 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. The
Portfolio will seek to achieve its investment objective by investing
in common stocks.
MFS VIT Emerging Growth
Seeks to provide long-term growth of capital. Dividend and interest
income from portfolio securities, if any, is incidental to the Series'
investment objective of long-term growth capital.
MFS VIT Research
Seeks to provide long-term growth of capital and future income.
MFS VIT Growth with Income
Seeks to provide reasonable current income and long-term growth of
capital and income.
MFS VIT New Discovery
Seeks capital appreciation.
Lord , Abbett VCC Growth and Income
Seeks long-term growth of capital and income without excessive
fluctuation in market value.
Fidelity Management & Research Company manages the VIP, VIP
II and VIP III portfolios. American Century Investment
Management, Inc. manages the American Century VP portfolios.
Massachusetts Financial Services Company manages the MFS
Variable Insurance Trusts. Lord , Abbett & Company manages the
Lord , Abbett Series Fund, Inc.
The Funds sell their shares to Separate Accounts of various
insurance companies to support both variable life insurance and
variable annuity contracts, and to qualified retirement plans. We
currently do not foresee any disadvantages to our contract owners
arising from this use of the Funds for mixed and shared funding.
The Funds will monitor for possible conflicts arising out of this
practice. If any such conflict or disadvantage does arise, we and/or
the applicable Fund may take appropriate action to protect your
interests.
The Fund portfolios available under these contracts are not available
for purchase directly by the general public, and are not the same as
the mutual funds with very similar or nearly identical names that are
sold directly to the public. However, the investment objectives and
policies of the portfolios are very similar to the investment
objectives and policies of other (publicly available) mutual fund
portfolios that have very similar or nearly identical names and that
are or may be managed by the same investment adviser or manager.
Nevertheless, the investment performance and results of any of the
Funds' portfolios that are available under the contracts may be
lower, or higher, than the investment results of such other (publicly
available) portfolios. There can be no assurance, and no
representation is made, that the investment results of any of the
available portfolios will be comparable to the investment results of
any other portfolio or mutual fund, even if the other portfolio or
mutual fund has the same investment adviser or manager and the
same investment objectives and policies and a very similar or nearly
identical name.
We Own The Assets Of Our Separate Account
We own the assets of our Separate Account and use them to support
your contract and other variable annuity contracts. We may 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. The assets in the
Separate Account may not be charged with liabilities arising out of
our other business. The obligations under the contracts are our
obligations. The income, gains and losses (realized and unrealized)
of the Separate Account are credited to or charged against the
Separate Account without regard to our other income, gains, or
losses. Under certain unlikely circumstances, one investment
division of the Separate Account may be liable for claims relating to
the operations of another division.
Our Right To Change How We Operate Our Separate Account
We have the right to modify how we operate Separate Account C.
In making any changes, we may not seek approval of contract
owners (unless approval is required by law). 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;
withdraw assets relating to our variable annuities from one
investment division and put them into another;
eliminate a portfolio's shares and substitute shares of another
portfolio of the Funds or another open-end, registered investment
company. This may happen if the portfolio's shares are no longer
available for investment or, if in our judgment, further investment
in the portfolio is inappropriate in view of Separate Account C's
purposes;
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 "interested persons" of Midland under the
Investment Company Act of 1940);
disregard instructions from contract owners regarding a change in
the investment objectives of the portfolio or the approval or
disapproval of an investment advisory contract. (We would do so
only if required by state insurance regulatory authorities, or
otherwise pursuant to insurance law or regulation); and
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. In addition, we may
disapprove any change in investment advisers or investment
policies 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, then 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
portfolios.
You may want to transfer the amount in that investment division
as a result of changes we have made.
If you wish to transfer the amount you have in that investment
division to another division of our Separate Account, or to our
General Account, then 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 send us an application form and an
initial premium payment of at least $2,000. If you enroll in a bank
draft investment program or payroll deduction plan for a qualified
contract and the monthly premium is at least $100, then the initial
premium amount can be lower. This sale must take place through a
representative who is licensed and registered to sell the contract.
You will then be issued a contract that sets forth precisely your
rights and our obligations. Additional premium payments, of at
least $50, may then be made by check or money order payable to
Midland and mailed to the home office.
If your application is complete, then we will accept or reject it
within two business days of receipt. If the application is incomplete,
then we will attempt to complete it within five business days. If it is
not complete at the end of this period, then we will inform you of
the reason for the delay and the premium payment will be returned
immediately. Note that you may specifically consent to us keeping
the premium payment until the application is complete. Your initial
premium payment will be allocated to the VIP Money Market
Investment Division as of the business day we receive it or we
accept your application, whichever is later. Each premium received
after the "Free Look" period will be allocated to our Separate
Account or General Account on the day of receipt.
Free Look
You have a 10-day Free Look period after you receive your contract.
You may review it and decide whether to keep it or cancel it. If you
want to cancel the contract, then you must return it to the agent who
sold it to you or to our home office. If you cancel your contract,
then 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.
The length of the Free Look period may vary in certain states in
compliance with specific regulations and legal requirements.
Allocation of Premiums
We allocate your entire contract value to the VIP Money Market
Investment Division during the "Free Look" period. You will
specify your desired premium allocation on the contract's
application form. Your instructions in your application will dictate
how to allocate your contract value at the end of the Free Look
period (which is administratively assumed to be 15 days after the
contract date for reallocation purposes). Allocation percentages may
be any whole number (from 10 to 100) and the sum must equal 100.
The allocation instructions in your application will apply to all other
premiums you pay, unless you change subsequent premium
allocations by providing us with written instructions. You may not
allocate your contract value to more than 10 investment divisions of
our Separate Account at any point in time. In certain states,
allocations to and transfers to and from the General Account are not
permitted.
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 affect transactions as of the date we
receive your request at our home office. While the Dollar Cost
Averaging program is in effect, the allocation percentages that apply
to any premiums received will be the DCA allocation percentages
unless you specify otherwise. (See "Dollar Cost Averaging" on
page 15).
Transfers of Contract Value
You may transfer amounts among the investment divisions and
between the General Account and any investment division. Write to
our home office to make a transfer of contract value. Currently, you
may make an unlimited number of transfers of contract value in each
contract year. But we reserve the right to assess a $25 charge after
the 15th transfer in a contract year.
The transfer takes effect on the date we receive your request. The
minimum transfer amount is $200. The minimum amount does not
have to come from or be transferred to just one investment division.
The only requirement is that the total amount transferred that day
equals the transfer minimum. For limitations on transfers to and
from the General Account, see "The General Account" on page 21.
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 investment division or the General Account)
into one or more of the investment divisions. This program may
reduce the impact of market fluctuations by allocating monthly, as
opposed to allocating the total amount at one time. This plan of
investing does not insure a profit or protect against a loss in
declining markets. The minimum monthly amount to be transferred
using DCA is $200.
You can elect the DCA program at any time. You must complete
the proper request forms and there must be a sufficient amount in
the DCA source account. DCA is only available if the amount in the
DCA source account is at least $2,400 at the time DCA is to begin.
You can get a sufficient amount by paying a premium with the DCA
request form, allocating premiums, or transferring 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:
1) The DCA source account from which transfers will be made,
2) That any money received with the form is to be placed into the
DCA source account,
3) The total monthly amount to be transferred to the other
investment divisions, and
4) How that monthly amount is to be allocated among the
investment divisions.
The DCA request form must be received with any premium payment
you intend to apply to DCA.
Once you elect DCA, additional premiums can be deposited into the
DCA source account by sending them in with a DCA request form.
All amounts in the DCA source account will be available for transfer
under the DCA program.
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. You may change
the DCA allocation percentages or DCA transfer amounts twice
during a contract year.
If it is requested when the contract is issued, then DCA will start at
the beginning of the second contract month. If it is requested after
issue, then DCA will start at the beginning of the first contract
month which occurs at least 30 days after the day the request is
received.
DCA will last until the value in the DCA source account falls below
the allowable limit or until we receive your written termination
request. DCA automatically terminates on the maturity date.
We reserve the right to end the DCA program by sending you one
month's notice.
Portfolio Rebalancing
The Portfolio Rebalancing Option 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, an owner may specify 30% in the VIP Growth Investment
Division, 40% in the VIP High Income Investment Division and
30% in the VIP II Overseas Investment Division.) If you elect this
option, then at each contract anniversary We will transfer the
amounts needed to "rebalance" the contract value to your specified
percentages. Rebalancing may result in transferring amounts from
an investment division earning a relatively high return to one
earning a relatively low return.
Even with the Portfolio Rebalancing option, the contract value may
only be allocated to up to 10 investment divisions. We reserve the
right to end the Portfolio Rebalancing option by sending you one
month's notice. The transfer restrictions regarding the General
Account are not applicable to the Portfolio Rebalancing option.
However, you can not change the election allocated to the General
Account by more than 10% at any one time. Contact us at our home
office to elect the Portfolio Rebalancing option.
Systematic Withdrawals
The Systematic Withdrawal feature allows you to have a portion of
the contract value withdrawn automatically. Under this feature, you
may elect to receive preauthorized scheduled partial withdrawals.
These payments can be made only while the annuitant is living,
before the maturity date, and after the Free Look period. You may
elect this option by sending a properly completed Preauthorized
Systematic Withdrawal Request Form to our home office. You must
designate the systematic withdrawal amount and 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 begins.
Each systematic withdrawal is made at the end of the scheduled
business day. If the New York Stock Exchange is closed on the day
when the withdrawal is to be made, then the withdrawal will be
processed on the next business day. You should designate the
investment(s) from which the withdrawals should be made.
Otherwise, the deduction caused by the systematic withdrawal will
be allocated proportionately to your contract value in the investment
divisions and the General Account.
You can stop or modify the systematic withdrawals by sending us a
written request, with at least 30 days notice. 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. We reserve the
right to change the required minimum systematic withdrawal
amount. Upon payment, we reduce the contract value by an amount
equal to the payment proceeds plus any applicable contingent
deferred sales charge. (See "Sales Charges on Withdrawals" on
page 21.) The contingent deferred sales charge applies to systematic
withdrawals in the same manner as it applies to other withdrawals.
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.
Systematic withdrawals generally are included in the contract
owner's gross income for tax purposes in the year in which the
withdrawal occurs, and may be subject to a penalty tax of 10%
before age 59-1/2. (See "Taxation of Annuities in General" on page
24.) Additional terms and conditions for the systematic withdrawal
program are set forth in your contract and in the application for the
program.
Withdrawals
You may withdraw all or part of your cash surrender value by
sending us a written request. (Withdrawals may be restricted by a
retirement arrangement under which you are covered.) Partial
withdrawals from an investment division or the General Account,
however, must be made in amounts of $500 or more (except for
Systematic withdrawals described above) and cannot reduce your
contract value to less than $1,000. If a withdrawal results in less
than $1,000 remaining, then the entire contract value must be
withdrawn.
Any applicable contingent deferred sales charge and any required
tax withholding will be deducted from the amount paid. In addition,
upon full withdrawal a contract maintenance charge is also
subtracted.
We will generally pay the withdrawal amount from the Separate
Account 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 SEC;
the New York Stock Exchange is closed (other than customary
weekend and holiday closing);
an emergency exists as defined by the SEC 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 SEC may by order permit for the
protection of owners.
We expect to pay the withdrawal amount from the General Account
promptly, but we have the right to delay payment for up to six
months.
Unless you specify otherwise, your withdrawal will be allocated
among all investment divisions and the General Account in the same
proportion as your contract value bears to each investment division
and the General Account. This allocation is subject to minimum
amount requirements. 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 21.)
A withdrawal will generally have Federal income tax consequences
that can include tax penalties and tax withholding. You should
consult your tax advisor before making a withdrawal. (See
"FEDERAL TAX STATUS" on page 23.)
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 the Section 403(b)
annuities that 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 with
a tax advisor before making a withdrawal.
Participants in the Texas Optional Retirement Program may not
make a withdrawal from a contract (including withdrawals to
establish 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 23.)
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 Internal Revenue Code and the terms of the
retirement program. You should consult a tax advisor before
requesting a loan.
Only one loan can be made within a 12 month period. The loan
amount must be at least $2,000 and must not exceed the contract
value minus any applicable contingent deferred sales charge minus
any outstanding prior loans minus loan interest to the end of the next
contract year.
The portion of the contract value that is equal to the loan amount
will be held in the General Account and will earn interest at a rate of
3% per year. When a loan is requested, you should tell us how
much of the loan you want taken from your unloaned amount in the
General Account or from the Separate Account investment
divisions. If you do not tell us how to allocate your loan, then it will
be allocated among all investment divisions and the General
Account in the same proportion as the value of your interest in each
division bears to your total contract value. We will redeem units
from each investment division equal in value to the amount of the
loan allocated to that investment division.
We charge interest on loans at the rate of 5% per year. Loan interest
is due on each contract anniversary. Unpaid interest will be added
to the loan and accrue interest. If the total loan plus loan interest
equals or exceeds the contract value minus any applicable
contingent deferred sales charge and withholding taxes, then 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 period from the installment due date. If a quarterly
installment is not received within the grace period, then a deemed
distribution of the entire amount of the outstanding loan 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
Internal Revenue Code and may adversely affect the treatment of the
contract under Internal Revenue Code section 403(b).
If the amount or duration of the loan violates Internal Revenue Code
requirements, then you may be subject to income tax or a penalty.
IRS authorities and the Department of Labor suggest that in certain
circumstances a loan may result in adverse tax and ERISA
consequences for Section 403(b) or Section 401 (k) programs.
A loan has a permanent effect on the contract value because the
investment experience 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, then the contract value will
not increase as rapidly as it would have if no debt were outstanding.
If net investment results are below 3%, then 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 must be paid within 5 years of the annuitant's death
(other than amounts payable to, or for the benefits of, the surviving
spouse of the annuitant as the contingent owner). The value of the
death benefit, as described below, will be determined on the
business day following the date our home office receives:
(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 an owner dies before the
maturity date, then 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 spouse is named as the contingent owner,
then the contract will continue with the spouse now being the owner.
If the surviving spouse has not been named as the contingent owner,
then the contract ends and the contract value (not the death benefit)
must be paid out within 5 years of the owner's death.
If an owner dies on or after the maturity date, then any remaining
amounts, other than amounts payable to, or for the benefit of, the
owner's surviving spouse, must be paid at the same rate as the
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.
The death benefit is only paid on the annuitant's death prior to the
maturity date (not on the death of the owner unless the owner is also
the annuitant). Any loan amount and loan accrued interest
outstanding will reduce the death benefit proceeds. (See "Loans" on
page 18.) The death benefit paid to the beneficiary will be the
greater of:
(a) The current contract value. For this purpose, the current contract
value is the value on the business day following the date we
receive at our home office the latest of:
(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
In general, the guaranteed minimum death benefit is the highest
contract value on any contract anniversary prior to age 81,
adjusted for any withdrawals (see the following example
for how withdrawals impact the guaranteed minimum death benefit).
less subsequent withdrawals.
The guaranteed minimum death benefit is zero upon issuance of the
contract. The guaranteed minimum death benefit is recalculated on
the first contract anniversary and every year thereafter, until the
contract anniversary immediately preceding the annuitant's 81st
birthday. 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, or
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. (This could be
more or less than the dollar amount 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)]. (In this example, the contingent deferred sales
charge would be taken out of the $2,800 withdrawn.)
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 your amounts in the various
investment divisions and in the General Account (including any
amount in our General Account securing a contract loan). Your
contract value reflects various charges. Transaction and sales
charges are made on the effective date of the transaction. Charges
against our Separate Account are reflected daily.
We guarantee amounts allocated to the General Account. There is
no guaranteed minimum contract value for amounts allocated to the
investment divisions of our Separate Account. You bear the
investment risk. An investment division's performance will cause
your contract value to go up or down.
Amounts In Our Separate Account
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 value you have in an investment division is the
accumulation unit value times the number of accumulation units
credited to you. Amounts allocated, transferred or added to the
investment divisions are used to purchase accumulation units.
Accumulation units of an investment division are purchased when
you allocate premiums, or transfer amounts to that division.
Accumulation units are sold or redeemed when you make
withdrawals or transfer amounts from an investment division, and to
pay the death benefit when the annuitant dies. We also redeem units
to pay for certain charges.
We calculate the number of accumulation units purchased or
redeemed in an investment division by dividing the dollar amount of
the transaction by the division's accumulation unit value at the end
of that day. The number of accumulation units credited to you will
not vary because of changes in accumulation unit values.
The accumulation units of each investment division have different
accumulation unit values. We determine accumulation unit values
for the investment divisions at the end of each business day. If the
New York Stock Exchange is not open that day, then the transaction
will be processed on the next business day. The accumulation unit
value for each investment division is initially set at $10.00.
Accumulation unit values fluctuate with the investment performance
of the corresponding portfolios of the Funds. They reflect
investment income, the portfolios' realized and unrealized capital
gains and losses, and the Funds' expenses. The accumulation unit
values also reflect the daily asset charge we make to our Separate
Account at an effective annual rate of 1.40%. Additional
information on the accumulation unit values is contained in the
Statement of Additional Information.
The General Account
You may allocate some or all of your contract value to the General
Account, subject to certain limitations described below. The
General Account pays interest at a declared rate. We guarantee the
principal after deductions. The General Account supports our
insurance and annuity obligations. Certain states do not permit
allocations and transfers to and from the General Account. 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 reviewed the
disclosures that are included in this prospectus which relate to
the General Account.
You may accumulate amounts in the General Account by:
allocating premiums,
transferring amounts from the investment divisions, or
earning interest on amounts you already have in the General
Account.
Transfers, withdrawals and allocated deductions reduce this amount.
$250,000 is the maximum amount that, over the contract's life, you
can allocate to the General Account through allocating premiums
and net transfers (amounts transferred in minus amounts transferred
out).
We pay interest on all your amounts in the General Account. The
annual interest rate has a minimum guarantee of 3.0%. We may, at
our sole discretion, credit interest in excess of 3.0%. You
assume the risk that interest credited may not exceed 3.0%.
Currently, we 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 we declare.
You may transfer amounts among the investment divisions and
between the General Account and any investment divisions.
However, only 2 transfers are allowed from the General Account per
contract year. The total amount transferred from the General
Account in any contract year is limited to the larger of:
1. the amount in the General Account at the beginning of the
contract year, or
2. $1,000
CHARGES, FEES AND DEDUCTIONS
Sales Charges on Withdrawals
A contingent deferred sales charge may be imposed on a withdrawal
of premiums (including a withdrawal to effect an annuity and on
Systematic Withdrawals). This charge partially reimburses us for
the selling and distributing costs of this contract. These include
commissions and the costs of preparing sales literature and printing
prospectuses. If the contingent deferred sales charge is insufficient
to cover all distribution expenses, then the deficiency will be met
from our surplus that 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 withdrawal
determines the amount of the contingent deferred sales charge.
Premium payments are considered withdrawn in the order that they
were received.
The charge is a percentage of the premiums withdrawn and equals:
Length of Time from Contingent
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+ 0%
We will waive the contingent deferred sales charge on either a full
or partial surrender after the first contract anniversary, if:
(a) written proof is given to us at our home office that the owner is
confined in a state licensed inpatient 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 12 months due to a non-
correctable medical condition. The licensed physician cannot be
the owner or part of the owner's immediate family.
This waiver is subject to approval of state insurance authorities.
If you make a full surrender after the contract has been in force for 3
years, and use the proceeds to purchase a life income annuity option
from us, then we will waive the contingent deferred sales charge.
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 Amount.
Free Withdrawal Amount
You may withdraw 10% of the total premiums paid without
incurring a contingent deferred sales charge. The value of 10% of
the total premiums paid is determined on the date of the requested
withdrawal. 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 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.
Administrative Charge
We charge for our administrative expenses in operating the Separate
Account at an effective annual rate of 0.15% of the value of the
assets in the Separate Account. The investment divisions'
accumulation unit values reflect this charge. We cannot increase
this charge.
Mortality and Expense Risk Charge
We charge for mortality and expense risks at an effective annual rate
of 1.25% of the value of the assets in the Separate Account. The
investment divisions' accumulation unit values reflect this charge.
We cannot increase this charge. We expect to profit from this
charge.
Contract Maintenance Charge
We deduct a contract maintenance charge of $35 on each contract
anniversary on or before the maturity date. We waive this charge if
your contract value is $50,000 or more on the contract anniversary.
This charge is for our recordkeeping and other expenses incurred in
maintaining the contracts. We deduct this charge from each
investment division and the General Account in the same proportion
as the value of your interest in each has to the total contract value.
If the contract is surrendered during a contract year and the contract
value is less than $50,000, then 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 a savings of administrative expenses. The
amount of reductions will be considered on a case-by-case basis and
reflect our expected reductions in administrative expenses.
Transfer Charge
Currently, we do not charge you for making transfers of contract
value among investment divisions. We reserve the right to assess a
$25 charge after the 15th transfer in a contract year.
If we charge you for making a transfer, then we will allocate the
charge to the investment divisions from which the transfer is being
made. For example, if the transfer is made from two investment
divisions, then a $12.50 transfer charge will be allocated to each of
the investment divisions. All transfers included in one transfer
request count as only one transfer for purposes of any fee.
Charges In The Funds
The Funds charge their portfolios for managing investments and
providing services. The portfolios may also pay operating expenses.
Each portfolios' charges and expenses vary.
See the Funds' prospectuses for more information. Also see the
"FEE TABLE" on page 6.
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 advisor 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 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 and/or to the participant 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 included in the variable contract owner's gross
income. The IRS has stated in published rulings that a variable
contract owner will be considered the owner of Separate Account
assets if the contract owner possesses incidents of ownership in
those assets, such as the ability to exercise investment control over
the assets. The Treasury Department also announced, in connection
with the issuance of regulations concerning diversification, that
those regulations, "do not provide guidance concerning the
circumstances in which investor control of the investments of a
segregated asset account may cause the investor (i.e., the 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 policy-owners may direct their investments to
particular sub-accounts 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 that 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 minus 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 contract
value 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 that
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 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 (as either fixed or variable payments) received after
you have recovered the investment in the contract 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 included in
the income of the recipient as follows:
(1) if distributed in a lump sum, they are taxed in the same manner
as a withdrawal from the contract; or
(2) 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 from time to time that would have adversely modified the
federal taxation of certain 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 a contract's ownership, 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 same insurance company (or
its affiliates) to the same owner during any calendar year are treated
as one annuity contract for purposes of determining the amount
included in gross income under Code Section 72(a). This rule 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, or 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) allows 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
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, then 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. If you choose a "direct
rollover" from the plan to another tax-qualified plan or IRA, then the
20% withholding does not apply.
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
The maturity date is the contract anniversary nearest the annuitant's
attained age 90 (unless restricted by the laws of the state in which
this contract is delivered)). You may elect a different maturity date
by sending a written request to us at least 31 days before the
requested new maturity date. The requested maturity date must be a
contract anniversary. The requested maturity date cannot be later
than the annuitant's attained age 90 and cannot be earlier than the
10th contract anniversary. For qualified contracts the requested
maturity date cannot be earlier than the annuitant attained age 59-
1/2.
If you have not previously specified otherwise and have not elected
certain systematic withdrawal options, then on the maturity date you
may:
1. take the cash surrender value (in some states, the contract value)
in one lump sum, or
2. convert the contract value into an annuity payable to the
annuitant under one or more of the payment options described
below.
SELECTINGEFFECTING AN ANNUITY OPTION
You may apply the proceeds of a withdrawal to effect an annuity.
Unless you choose otherwise, the amount of the proceeds from the
General Account 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. The first
monthly annuity payment will be made within one month after the
maturity date. Variable payment options are not available in certain
states.
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.
The payee's actual age will affect each payment amount for annuity
income options involving life income. The amount of each annuity
payment to older payees will be greater than for younger payees
because payments to older payees are expected to be fewer in
number. 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. Payments that 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.
Payment options will be subject to our rules at the time of selection.
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 or an
assignee. 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 choose a payment option when you apply for a contract and
may change it by writing to our home office.
Fixed Options
Payments under the fixed options are not affected by the investment
experience of any investment division. The value as of the maturity
date will be applied to the fixed option selected. Thereafter, interest
or payments are fixed according to the options chosen. The
following fixed options are available:
1. Deposit Option: The money will stay on deposit with us for a
period that we agree upon. You will receive interest on the
money at a declared interest rate.
2. Installment Options: There are two ways that we pay
installments:
(a) Fixed Period: We will pay the amount applied in equal
installments plus applicable interest, for a specified time, up
to 30 years.
(b) Fixed Amount: We will pay the sum in installments in an
amount that we agree upon. We will continue to pay the
installments until we pay the original amount, together with
any interest you have earned.
3. Monthly Life Income Option: We will pay the money as
monthly income for life. You may choose from 1 of 3 ways to
receive the income. We will guarantee payments for:
(a) at least 10 years (called "10 Years Certain and Life");
(b) at least 20 years (called "20 Years Certain and Life"); or
(c) payment only for life. With a life only payment option,
payments will only be made as long as the payee is alive.
Therefore, if the payee dies after the first payment, then
only one payment will be made.
4. Other: You may ask us to apply the money under any option that
we make available at the time the benefit is paid.
We guarantee interest under the fixed options at a rate of 2.75% a
year. We may also credit interest under the fixed deposit options at
a rate that is above the 2.75% guaranteed rate.
Variable Options
Payments under the variable options will vary in amount depending
on the investment experience of the investment divisions. Variable
payment options are not available in certain states.
The annuity tables contained in the contract are based on a 5% (five
percent) 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, then the payment
will increase. Conversely, if the actual investment experience is less
than the assumed investment rate, then payments will decrease.
We determine the amount of the first monthly variable payment by
applying the value in each investment division (as of a date not more
than 10 business days prior to the maturity date) to the appropriate
rate (from the annuity tables in the contract) for the payout options
selected using the payee's age and sex (where permissible). 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 minus 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 that can be
obtained by writing to our home office.
The following variable options are available:
1. Monthly Life Income Option: We will pay the money as
monthly income for life. You may choose from 1 of 3 ways to
receive the income. We will guarantee payments for:
(a) at least 10 years (called "10 Years Certain and Life");
(b) at least 20 years (called "20 Years Certain and Life"); or
(c) payment only for life. With a life only payment option,
payments will only be made as long as the annuitant is alive.
Therefore, if the payee dies after the first payment, only
one payment will be made.
2. Other: You may ask us to apply the money under any option
that we make available at the time the benefit is paid.
Transfers after the Maturity Date
After the maturity date, one transfer per contract year may be made
among the investment divisions. The transfer will take effect as of
the date we receive your request. 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. 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 vice versa.
ADDITIONAL INFORMATION
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 address is:
Midland National Life Insurance Company
One Midland Plaza
Sioux Falls, SD 57193
(605) 335-5700
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.
Your Voting Rights As an Owner
Fund Voting Rights
We invest the assets of our Separate Account divisions in shares of
the Funds' portfolios. Midland is the legal owner of the shares and
has the right to vote on certain matters. Among other things, we
may vote:
to elect the Funds' Board of Directors,
to ratify the selection of independent auditors for the Funds,
on any other matters described in the Funds' current prospectuses
or requiring a vote by shareholders under the Investment
Company Act of 1940, and
to 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 at shareholders meetings according to your
instructions.
The Funds will determine how often shareholder meetings are held.
As we receive notice of these meetings, we will ask for your voting
instructions. The Funds are not required to hold a meeting in any
given year.
If we do not receive instructions in time from all contract owners,
then we will vote those shares 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 alone are entitled to vote in
the same proportions that contract 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, then 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 contract value has been invested. We
determine your voting shares in each division by dividing the
amount of your contract value allocated to that division by the net
asset value of one share of the corresponding Fund portfolio. This is
determined as of the record date set by the Fund's Board for the
shareholders meeting. We count fractional shares.
If you have a voting interest, then 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.
Voting Privileges Of Participants In Other Companies
Other insurance companies own shares in the Funds to support their
variable life insurance and variable annuity products. 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 disagree with any Fund action,
then we will see that appropriate action is taken to protect our
contract owners. If we ever believe that any of the Funds' portfolios
are so large as to materiality impair its investment performance, then
we will examine other investment options.
Our Reports to Owners
Shortly after the end of each contract year, we will send you a report
that shows your contract value, and any transactions involving your
contract value that occurred during the year. Transactions include your
premium allocations, transfers and withdrawals 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.
Confirmation notices will be sent to you for transfers of amounts
between investment divisions and certain other contract transactions.
Contract Periods, Anniversaries
We measure contract years, contract months and contract
anniversaries from the contract date shown on your contract's
information page. Each contract month begins on the same day in
each contract month. The calendar days of 29, 30, and 31 are not
used.
Dividends
We do not pay any dividends on the contract described in this
prospectus.
Performance
Performance information for the investment divisions may appear in
reports and advertising to current and prospective owners. The
performance information is based on the historical investment
experience of the investment division and the portfolios 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 portfolio 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. If the performance had been constant over the entire period,
then an average annual total return reflects the hypothetical annually
compounded return that would have produced the same cumulative
total return. 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 in your contract application. The
beneficiary is entitled to the insurance benefits of the contract. 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, then we will pay the death benefit to the annuitant's
estate.
Assigning Your Contract
You may assign your rights in this contract. You must send a copy
of the assignment to our home office. We are not responsible for the
validity of the assignment or for any payment we make or any action
we take before we receive notice of the assignment. An absolute
assignment is a change of ownership. There may be tax
consequences.
When We Pay Proceeds From This Contract
We will generally pay any death benefits, withdrawals, or loans
within seven days after receiving the required form(s) 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 delay payment for one or more of the following reasons:
1) We cannot determine the amount of the payment because:
a) the New York Stock Exchange is closed,
b) trading in securities has been restricted by the SEC, or
c) the SEC has declared that an emergency exists,
2) the SEC by order permits us to delay payment to protect our
owners, or
3) your premium checks have not cleared your bank.
We may defer payment of any withdrawal or surrender from the
General Account, for up to 6 months after we receive your request.
Sales Agreements
The contract will be sold by individuals who, in addition to being
licensed as life insurance agents for Midland National Life, are
registered representatives of Walnut Street Securities (WSS), or
broker-dealers who have entered into written sales agreements with
WSS. WSS, the principal underwriter of the contracts, 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, Missouri 63141-8557
We will pay agents a commission of up to 6.5% of premiums paid.
We may sell our contracts through broker-dealers registered with the
SEC under the Securities Exchange Act of 1934 that enter into
selling agreements with us. The commission for broker-dealers will
be no more than that described above, except in the first year when
we may pay 6.7% of premiums.
Regulation
We are regulated and supervised by the South Dakota Insurance
Department. 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 those states. 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 are complying with the applicable laws
and regulations. We are also subject to various federal securities
laws and regulations.
Year 2000 Compliance Issues
Midland National Life is in the process of updating its
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 that would normally have been
paid on the employee's first year premiums. Midland will pay this
contribution.
Legal Matters
The law firm of Sutherland Asbill & Brennan LLP, Washington,
DC, has provided advice regarding certain matters relating to federal
securities laws. 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 address for
Coopers & Lybrand LLP is:
IBM Park Building
Suite 1300
650 Third Avenue South
Minneapolis, MN 55402-4333
The financial statements audited by Coopers & Lybrand LLP have
been included in reliance on their reports given upon 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:
CONDENSED FINANCIAL INFORMATION
Accumulation Number of
Unit Value at Accumulation Accumulation
Investment Beginning of Unit Value at Units at End
Division Period End 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
1998
VIP High Income
1993(1) 10.00 10.22 2.68
1994 10.20 29.93 70,977
1995 9.93 11.8 139,335
1996 11.83 13.26 221,760
1997 13.26 13.58 221,760
1998
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
1997 14.35 16.09 696,083
1998 16.09 20.33 929,862
VIP Growth
1993 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
1998
VIP Overseas
1993(1) 10.00 10.40 1,706
1994 10.40 10.30 147,456
1995 10.37 11.36 217,322
1996 11.36 12.59 282,107
1997 12.59 13.85 336,988
1998
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
1998
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
1998
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
1998
Accumulation Number of
Unit Value at Accumulation Accumulation
Investment Beginning of Unit Value at Units at End
Division Period End of Period of Period
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
1998
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 21.67 497,7741
1998
VIP III Growth & Income
1997 10.00 12.36 54,877
1998
VIP III Balanced
1997(3) 10.00 11.45 39,701
1998
VIP III Growth Opportunities
1997(3) 10.00 12.28 75,926
1998
American Century VP Capital Appreciation
1997(3) 10.00 11.35 13,870
1998
American Century VP Value
1997(3) 10.00 12.26 44,666
1998
American Century VP Balanced
1997(3) 10.00 11.40 13,519
1998
American Century VP International
1997(3) 10.00 0.93 34,973
1998
American Century VP Income & Growth
1998(4)
MFS VIT Emerging Growth
1998(4)
MFS VIT Research
1998(4)
MFS VIT Growth with Income
1998(4)
MFS VIT New Discovery
1998(4)
Lord , Abbett VCC Growth and Income
1998(4)
(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
(4) Period from ______/98 to 12/31/9
6471PMPa.TXT
<PAGE>
STATEMENT OF ADDITIONAL
INFORMATION FOR THE
FLEXIBLE PREMIUM DEFERRED
VARIABLE ANNUITY II 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 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, 199
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) 10
Required Distributions 10
DISTRIBUTION OF THE CONTRACT 10
SAFEKEEPING OF ACCOUNT ASSETS 10
STATE REGULATION 11
RECORDS AND REPORTS 11
LEGAL PROCEEDINGS 11
LEGAL MATTERS 11
EXPERTS 11
OTHER INFORMATION 11
FINANCIAL STATEMENTS 11
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 Divi-
sion'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 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.
Inception
of the 1-Year
Investment Division Investment Period
with 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
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.
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 zero. 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 contingent deferred sales charges are set to zero.
Inception
of the
Investment Division Investment 1-Year Period
with 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
N/A - The return information for these Investment Divisions is 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 zero.
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 assumed 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.
Inception
of the 1-Year
Investment Division Investment Period
with 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
N/A - The return information for these Investment Divisions is 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.
Inception
of the 1-Year
Investment Division Investment Period
with 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
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 port-
folio 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 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.
10-Year 5-year
Investment Division Inception of the Period 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
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.
10-Year 5-Year
Investment Division Inception of the Period 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 (11/10/87) 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
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.
10-Year 5-Year
Investment Division Inception of the Period 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 (10/20/87)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
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.
10-Year 5-Year
Investment Division Inception of the Period 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
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 0.1625% of Variable
Annuity II premiums.
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 were 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 LLP, 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 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.
6471vw.TXT
<PAGE>
REPORT OF INDEPENDENT ACCOUNTANTS
The Board of Directors
Midland National Life Insurance Company:
We have audited the accompanying statement of assets and liabilities of
Midland National Life Separate Account C (comprising, respectively, the
portfolios of the Variable Insurance Products Fund, the Variable Insurance
Products Fund II, The Variable Insurance Products Fund III, and the American
Century Variable Portfolios, Inc.) as of December 31, 1997, and the related
statements of operations and changes in net assets for each of the three
years in the period ended December 31, 1997. These financial statements are
the responsibility of the Company's management. Our responsibility is to
express an opinion on these financial statements based on our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to
obtain reasonable assurance about whether the financial statements are free
of material misstatement. An audit includes examining, on a test basis,
evidence supporting the amounts and disclosures in the financial statements.
Our procedures included confirmation of securities owned as of December 31,
1997, by correspondence with the custodian. An audit also includes assessing
the accounting principles used and significant estimates made by management,
as well as evaluating the overall financial statement presentation. We
believe that our audits provide a reasonable basis for our opinion.
In our opinion, the financial statements referred to above present fairly,
in all material respects, the financial position of each of the respective
portfolios constituting the Midland National Life Separate Account C at
December 31, 1997, and the results of their operations and changes in their
net assets for each of the three years in the period ended December 31, 1997,
in conformity with generally accepted accounting principles.
Minneapolis, Minnesota
March 17, 1998
MIDLAND NATIONAL LIFE INSURANCE COMPANY
SEPARATE ACCOUNT C
STATEMENT OF ASSETS AND LIABILITIES
as of DECEMBER 31, 1997
<TABLE>
<S> <C> <C> <C>
Value
Per
ASSETS Shares Share
Investments at net asset value:
Variable Insurance Products Fund:
Money Market Portfolio (cost $6,219,257) 6,219,257 $ 1.00 $ 6,219,257
High Income Portfolio (cost $4,228,130) 345,525 13.58 4,692,229
Equity-Income Portfolio (cost $15,634,537) 778,569 24.28 18,903,655
Growth Portfolio (cost $13,979,313) 452,150 37.10 16,774,778
Overseas Portfolio (cost $4,254,960) 243,024 19.20 4,666,058
Variable Insurance Products Fund II:
Asset Manager Portfolio (cost $6,905,348) 446,249 18.01 8,036,950
Investment Grade Bond Portfolio (cost $1,555,929) 130,704 12.56 1,641,646
Index 500 Portfolio (cost $9,065,168) 94,315 114.39 10,788,748
Contrafund Portfolio (cost $5,884,117) 345,824 19.94 6,895,729
Asset Manager Growth Portfolio (cost $2,547,597) 180,725 16.36 2,956,656
Variable Insurance Products Fund III:
Balanced Portfolio (cost $443,357) 31,189 14.58 454,728
Growth & Income Portfolio (cost $663,503) 54,145 12.53 678,443
Growth Opportunities Portfolio (cost $895,027) 48,369 19.27 932,079
American Century Variable Portfolios, Inc.:
Balanced Portfolio (cost $152,274) 18,705 8.24 154,125
Capital Appreciation Portfolio (cost $172,587) 16,260 9.68 157,393
International Portfolio (cost $387,128) 55,879 6.84 382,210
Value Portfolio (cost $525,659) 79,013 6.93 547,559
Total investments (cost $73,513,891) $ 84,882,243
LIABILITIES
Total liabilities $ -
Net assets $ 84,882,243
</TABLE>
The accompanying notes are an integral part of the financial statements.
MIDLAND NATIONAL LIFE INSURANCE COMPANY
SEPARATE ACCOUNT C
STATEMENT OF ASSETS AND LIABILITIES - (Continued)
as of DECEMBER 31, 1997
<TABLE>
<S> <C> <C> <C>
NET ASSETS Units Value
Net assets represented by:
Variable Insurance Products Fund:
Money Market Portfolio 534,936 $ 11.63 $ 6,219,257
High Income Portfolio 304,930 15.39 4,692,229
Equity-Income Portfolio 929,862 20.33 18,903,655
Growth Portfolio 917,650 18.28 16,774,778
Overseas Portfolio 336,988 13.85 4,666,058
Variable Insurance Products Fund II:
Asset Manager Portfolio 534,109 15.05 8,036,950
Investment Grade Bond Portfolio 136,067 12.06 1,641,646
Index 500 Portfolio 497,774 21.67 10,788,748
Contrafund Portfolio 397,591 17.34 6,895,729
Asset Manager Growth Portfolio 176,790 16.72 2,956,656
Variable Insurance Products Fund III:
Balanced Portfolio 39,701 11.45 454,728
Growth & Income Portfolio 54,877 12.36 678,443
Growth Opportunities Portfolio 75,926 12.28 932,079
American Century Variable Portfolios, Inc.:
Balanced Portfolio 13,519 11.40 154,125
Capital Appreciation Portfolio 13,870 11.35 157,393
International Portfolio 34,973 10.93 382,210
Value Portfolio 44,666 12.26 547,559
Net assets $ 84,882,243
</TABLE>
The accompanying notes are an integral part of the financial statements.
MIDLAND NATIONAL LIFE INSURANCE COMPANY
SEPARATE ACCOUNT C
STATEMENTS OF OPERATIONS AND CHANGES IN NET ASSETS
for the YEARS ENDED DECEMBER 31, 1997, 1996, and 1995
<TABLE>
<S> <C> <C> <C>
Combined
1997 1996 1995
Investment income:
Dividend income $ 1,222,960 $ 610,051 $ 385,267
Capital gains distributions 2,351,461 852,325 119,444
3,574,421 1,462,376 504,711
Expenses:
Administrative expense 99,060 54,222 25,328
Mortality and expense risk 884,316 489,968 217,898
Net investment income (loss) 2,591,045 918,186 261,485
Realized and unrealized gains(losses) on investments:
Net realized gains(losses) on investments 2,325,825 945,397 115,024
Net unrealized appreciation(depreciation) on
investments 6,604,328 2,183,942 2,674,228
Net realized and unrealized gains(losses) on
investments 8,930,153 3,129,339 2,789,252
Net increase(decrease) in net assets resulting from
operations $ 11,521,198 $ 4,047,525 $ 3,050,737
Net assets at beginning of year $ 47,905,622 $ 23,945,524 $ 11,038,803
Net increase(decrease) in net assets resulting
from operations 11,521,198 4,047,525 3,050,737
Capital shares transactions:
Net premiums 29,710,164 22,109,531 10,581,601
Transfers of policy loans 64,214 (138,377) (144,179)
Transfers of surrenders (3,059,123) (1,435,877) (372,226)
Transfers of death benefits (69,204) (98,128) (46,217)
Transfers of other terminations (1,190,628) (524,576) (162,995)
Interfund transfers - - -
Net increase in net assets from capital share
transactions 25,455,423 19,912,573 9,855,984
Total increase in net assets 36,976,621 23,960,098 12,906,721
Net assets at end of year $ 84,882,243 $ 47,905,622 $ 23,945,524
</TABLE>
The accompanying notes are an integral part of the financial statements.
<TABLE>
<S> <C> <C> <C> <C> <C>
Variable Insurance Products Fund
Money Market Portfolio High Income Portfolio
1997 1996 1995 1997 1996 1995
$ 300,220 $ 219,309 $ 149,556 $ 222,895 $ 131,237 $ 55,615
- - - 27,549 25,677 -
300,220 219,309 149,556 250,444 156,914 55,615
8,443 6,282 3,966 5,683 3,316 1,707
74,591 52,611 6,001 51,637 30,223 17,175
217,186 160,416 139,589 193,124 123,375 36,733
- - - 120,453 39,094 (488)
- - - 238,019 84,465 145,024
- - - 358,472 123,559 144,536
$ 217,186 $ 160,416 $ 139,589 $ 551,596 $ 246,934 $ 181,269
$5,037,632 $3,452,911 $2,134,127 $2,941,240 $1,647,643 $ 704,704
217,186 160,416 139,589 551,596 246,934 181,269
4,354,516 4,272,582 2,427,862 1,505,730 1,052,260 628,141
3,183 370 (84,063) 8,735 (18,992) 905
(720,053) (610,463) (207,573) (193,053) (98,156) (3,633)
- (12,145) (8,341) (9,075) (990) (2,894)
(192,221) (116,605) (54,310) (54,516) (18,874) (10,701)
(2,480,986) (2,109,434) (894,380) (58,428) 131,415 149,852
964,439 1,424,305 1,179,195 1,199,393 1,046,663 761,670
1,181,625 1,584,721 1,318,784 1,750,989 1,293,597 942,939
$ 6,219,257 $ 5,037,632 $3,452,911 $ 4,692,229 $2,941,240 $1,647,643
</TABLE>
MIDLAND NATIONAL LIFE INSURANCE COMPANY
SEPARATE ACCOUNT C
STATEMENTS OF OPERATIONS AND CHANGES IN NET ASSETS - (Continued)
for the YEARS ENDED DECEMBER 31, 1997, 1996, and 1995
<TABLE>
<S> <C> <C> <C>
Variable Insurance Products Fund
Equity-Income Portfolio
1997 1996 1995
Investment income:
Dividend income $ 205,546 $ 9,062 $ 84,766
Capital gains distributions 1,033,441 259,769 103,811
1,238,987 268,831 188,577
Expenses:
Administrative expense 22,633 12,821 5,142
Mortality and expense risk 196,772 116,283 47,852
Net investment income (loss) 1,019,582 139,727 135,583
Realized and unrealized gains(losses) on investments:
Net realized gains(losses) on investments 544,429 232,696 50,124
Net unrealized appreciation(depreciation) on
investments 1,828,524 639,710 792,899
Net realized and unrealized gains(losses) on
investments 2,372,953 872,406 843,023
Net increase(decrease) in net assets resulting from
operations $ 3,392,535 $ 1,012,133 $ 978,606
Net assets at beginning of year $ 11,202,976 $ 5,535,894 $ 1,754,790
Net increase(decrease) in net assets resulting
from operations 3,392,535 1,012,133 978,606
Capital shares transactions:
Net premiums 4,729,107 4,495,843 2,393,449
Transfers of policy loans 18,935 (16,252) (30,250)
Transfers of surrenders (494,451) (146,734) (5,378)
Transfers of death benefits (1,512) (47,195) (11,605)
Transfers of other terminations (268,311) (171,438) (27,844)
Interfund transfers 324,376 540,725 484,126
Net increase in net assets from capital share
transactions 4,308,144 4,654,949 2,802,498
Total increase in net assets 7,700,679 5,667,082 3,781,104
Net assets at end of year $ 18,903,655 $11,202,976 $ 5,535,894
</TABLE>
The accompanying notes are an integral part of the financial statements.
<TABLE>
<S> <C> <C> <C> <C> <C>
Variable Insurance Products Fund
Growth Portfolio Overseas Portfolio
1997 1996 1995 1997 1996 1995
$ 75,678 $ 13,629 $ 9,943 $ 65,176 $ 28,907 $ 6,509
338,750 344,126 - 258,730 31,798 6,509
414,428 357,755 9,943 323,906 60,705 13,018
20,920 11,964 4,688 6,503 4,460 3,030
200,814 109,649 48,286 65,711 41,952 31,243
192,694 236,142 (43,031) 251,692 14,293 (21,255)
691,123 342,671 49,376 98,094 51,904 (4,096)
1,712,204 260,988 795,521 2,092 237,970 215,778
2,403,327 603,659 844,897 100,186 289,874 211,682
$ 2,596,021 $ 839,801 $ 801,866 $ 351,878 $ 304,167 $ 190,427
$ 10,524,695 $4,630,311 $1,577,355 $ 3,551,260 $ 2,467,800 $ 1,529,642
2,596,021 839,801 801,866 351,878 304,167 190,427
4,634,527 4,775,149 2,063,830 949,784 897,349 939,866
4,007 (19,252) 1,918 2,943 (10,209) (4,570)
(676,615) (169,952) (14,054) (176,955) (93,933) (30,716)
(1,076) (2,219) (2,721) (8,437) (8,833) (2,457)
(177,990) (49,452) (16,169) (46,889) (24,888) (10,988)
(128,791) 520,309 218,286 42,474 19,807 (143,404)
3,654,062 5,054,583 2,251,090 762,920 779,293 747,731
6,250,083 5,894,384 3,052,956 1,114,798 1,083,460 938,158
$ 16,774,778$10,524,695 $4,630,311 $ 4,666,058 $ 3,551,260 $ 2,467,800
</TABLE>
MIDLAND NATIONAL LIFE INSURANCE COMPANY
SEPARATE ACCOUNT C
<TABLE>
STATEMENTS OF OPERATIONS AND CHANGES IN NET ASSETS - (Continued)
for the YEARS ENDED DECEMBER 31, 1997, 1996, and 1995
<S> <C> <C> <C>
Variable Insurance Products Fund II
Asset Manager Portfolio
1997 1996 1995
Investment income:
Dividend income $ 200,876 $ 149,107 $ 58,611
Capital gains distribution s 503,893 122,948 -
704,769 272,055 58,611
Expenses:
Administrative expense 10,160 7,320 5,073
Mortality and expense risk 92,524 67,334 49,939
Net investment income (loss) 602,085 197,401 3,599
Realized and unrealized gains(losses) on investments:
Net realized gains(losses) on investments 134,752 87,754 1,832
Net unrealized appreciation(depreciation) on
investments 410,196 305,446 501,254
Net realized and unrealized gains(losses) on
investments 544,948 393,200 503,086
Net increase(decrease) in net assets resulting from
operations $ 1,147,033 $ 590,601 $ 506,685
Net assets at beginning of year $ 5,664,702 $4,067,451 $ 2,708,296
Net increase(decrease) in net assets resulting
from operations 1,147,033 590,601 506,685
Capital shares transactions:
Net premiums 1,501,724 1,367,766 1,080,935
Transfers of policy loans 13,379 (16,660) (28,119)
Transfers of surrenders (313,519) (159,533) (106,073)
Transfers of death benefits (19,872) (22,205) (10,336)
Transfers of other terminations (136,227) (83,451) (28,833)
Interfund transfers 179,730 (79,267) (55,104)
Net increase in net assets from capital share
transactions 1,225,215 1,006,650 852,470
Total increase in net assets 2,372,248 1,597,251 1,359,155
Net assets at end of year $ 8,036,950 $ 5,664,702 $ 4,067,451
</TABLE>
The accompanying notes are an integral part of the financial statements.
<TABLE>
<S> <C> <C> <C> <C> <C>
Variable Insurance Products Fund II
Investment Grade Bond Portfolio Index 500 Portfolio
1997 1996 1995 1997 1996 1995
$ 70,099 $ 30,902 $ 11,234 $ 53,290 $ 13,188 $ 6,043
- - - 108,132 33,913 827
70,099 30,902 11,234 161,422 47,101 6,870
2,034 1,306 631 11,229 3,713 882
19,012 11,709 5,847 81,297 33,478 9,800
49,053 17,887 4,756 68,896 9,910 (3,812)
9,788 16,413 4,272 513,374 130,338 13,011
42,600 (6,743) 51,182 1,209,776 342,676 165,241
52,388 9,670 55,454 1,723,150 473,014 178,252
$ 101,441 $ 27,557 $ 60,210 $ 1,792,046 $ 482,924 $ 174,440
$ 1,096,280 $ 578,159 $ 299,623 $ 4,253,767 $ 983,298 $ 330,266
101,441 27,557 60,210 1,792,046 482,924 174,440
612,100 521,107 263,700 4,538,389 2,506,543 395,859
1,539 (9,375) - 3,990 (19,357) -
(62,059) (51,740) (393) (231,487) (81,856) (4,406)
- - - (19,852) (1,602) (7,863)
(37,391) (6,831) (5,791) (150,241) (41,788) (8,359)
(70,264) 37,403 (39,190) 602,136 425,605 103,361
343,925 490,564 218,326 4,742,935 2,787,545 478,592
545,366 518,121 278,536 6,534,981 3,270,469 653,032
$ 1,641,646 $1,096,280 $ 578,159 $ 10,788,748 $4,253,767 $ 983,298
</TABLE>
MIDLAND NATIONAL LIFE INSURANCE COMPANY
SEPARATE ACCOUNT C
<TABLE>
STATEMENTS OF OPERATIONS AND CHANGES IN NET ASSETS - (Continued)
for the YEARS ENDED DECEMBER 31, 1997, 1996 and 1995
<S> <C> <C> <C>
Variable Insurance Products Fund II
Contrafund Portfolio
1997 1996 1995
Investment income:
Dividend income $ 25,593 $ - $ 1,716
Capital gains distributions 67,639 4,815 3,433
93,232 4,815 5,149
Expenses:
Administrative expense 7,064 2,275 157
Mortality and expense risk 63,428 20,104 1,322
Net investment income (loss) 22,740 (17,564) 3,670
Realized and unrealized gains(losses) on investments:
Net realized gains(losses) on investments 139,059 39,350 952
Net unrealized appreciation(depreciation) on
investments 730,282 274,444 6,886
Net realized and unrealized gains(losses) on
investments 869,341 313,794 7,838
Net increase(decrease) in net assets resulting from
operations $ 892,081 $ 296,230 $ 11,508
Net assets at beginning of year $ 2,659,591 $ 425,021 $ -
Net increase(decrease) in net assets resulting
from operations 892,081 296,230 11,508
Capital shares transactions:
Net premiums 2,954,381 1,564,947 266,136
Transfers of policy loans 4,276 (14,296) -
Transfers of surrenders (156,257) (23,252) -
Transfers of death benefits (9,380) (2,939) -
Transfers of other terminations (70,573) (4,941) -
Interfund transfers 621,610 418,821 147,377
Net increase in net assets from capital share
transactions 3,344,057 1,938,340 413,513
Total increase in net assets 4,236,138 2,234,570 425,021
Net assets at end of year $ 6,895,729 $ 2,659,591 $ 425,021
</TABLE>
The accompanying notes are an integral part of the financial statements.
<TABLE>
<S> <C> <C> <C> <C> <C>
Variable Insurance Products Fund II Variable Insurance Products Fund III
Asset Manager Growth Portfolio Growth & Growth
Balanced Income Opportunities
Portfolio Portfolio Portfolio
1997 1996 1995 1997 1997 1997
$ - $ 14,710 $ 1,274 $ - $ 3,587 $ -
1,669 29,279 4,864 - 11,658 -
1,669 43,989 6,138 - 15,245 -
2,962 765 52 167 293 360
26,529 6,625 433 1,395 2,465 3,026
(27,822) 36,599 5,653 (1,562) 12,487 (3,386)
48,017 5,177 41 3,054 8,345 8,933
363,630 44,986 443 11,372 14,939 37,052
411,647 50,163 484 14,426 23,284 45,985
$ 383,825 $ 86,762 $ 6,137 $ 12,864 $ 35,771 $ 42,599
$ 973,479 $ 157,036 $ - $ - $ - $ -
383,825 86,762 6,137 12,864 35,771 42,599
1,266,684 655,985 121,823 332,310 583,629 715,419
3,227 (14,354) - - - -
(24,842) (258) - (11) (7,194) (631)
- - - - - -
(35,261) (6,308) - (4,077) - (16,931)
389,544 94,616 29,076 113,642 66,237 191,623
1,599,352 729,681 150,899 441,864 642,672 889,480
1,983,177 816,443 157,036 454,728 678,443 932,079
$2,956,656 $ 973,479 $ 157,036 $ 454,728 $ 678,443 $ 932,079
</TABLE>
MIDLAND NATIONAL LIFE INSURANCE COMPANY
SEPARATE ACCOUNT C
<TABLE>
STATEMENTS OF OPERATIONS AND CHANGES IN NET ASSETS - (Continued)
for the YEARS ENDED DECEMBER 31, 1997, 1996, and 1995
<S> <C> <C> <C> <C>
American Century Variable Portfolios, Inc.
Capital
Balanced Appreciation International Value
Portfolio Portfolio Portfolio Portfolio
1997 1997 1997 1997
Investment income:
Dividend income $ - $ - $ - $ -
Capital gains distributions - - - -
- - - -
Expenses:
Administrative expense 78 107 182 242
Mortality and expense risk 646 900 1,510 2,059
Net investment income (loss) (724) (1,007) (1,692) (2,301)
Realized and unrealized gains(losses) on investments:
Net realized gains(losses) on investments 73 5,583 30 718
Net unrealized appreciation(depreciation) on
investments 1,852 (15,193) (4,918) 21,901
Net realized and unrealized gains(losses) on
investments 1,925 (9,610) (4,888) 22,619
Net increase(decrease) in net assets resulting from
operations $ 1,201 $ (10,617) $ (6,580) $ 20,318
Net assets at beginning of year $ - $ - $ - $ -
Net increase(decrease) in net assets resulting
from operations 1,201 (10,617) (6,580) 20,318
Capital shares transactions:
Net premiums 126,660 246,807 334,703 323,694
Transfers of policy loans - - - -
Transfers of surrenders (104) (31) (174) (1,687)
Transfers of death benefits - - - -
Transfers of other terminations - - - -
Interfund transfers 26,368 (78,766) 54,261 205,234
Net increase in net assets from capital share
transactions 152,924 168,010 388,790 527,241
Total increase in net assets 154,125 157,393 382,210 547,559
Net assets at end of year $ 154,125 $ 157,393 $ 382,210 $ 547,559
</TABLE>
The accompanying notes are an integral part of the financial statements.
MIDLAND NATIONAL LIFE INSURANCE COMPANY
SEPARATE ACCOUNT C
NOTES TO FINANCIAL STATEMENTS
(1) Organization and Significant Accounting Policies
Midland National Life Separate Account C (Separate Account), a unit
investment trust, was established as a segregated investment account of
Midland National Life Insurance Company (the Company) in accordance with
the provisions of the South Dakota Insurance laws. The assets and
liabilities of the Separate Account are clearly identified and distinguished
from the other assets and liabilities of the Company. The Separate Account
is used to fund variable annuity contracts of the Company.
The Separate Account invests in specified portfolios of Variable Insurance
Products Fund (VIPF), Variable Insurance Products Fund II (VIPF II),
Variable Insurance Products Fund III (VIPF III), and American Century
Variable Portfolios, Inc. (ACVP) (collectively the Funds), each diversified
open-end management companies registered under the Investment Company Act of
1940, as directed by participants. The VIPF II Contrafund and Asset Manager
Growth portfolios were introduced in 1995. The VIPF III Balanced, Growth &
Income and Growth Opportunities Portfolios and the ACVP Balanced, Capital
Appreciation, International and Value portfolios were introduced in 1997.
All other portfolios have been in existence for more than three years.
Investments in shares of the Funds are valued at the net asset values of the
respective portfolios of the Funds corresponding to the investment portfolios
of the Separate Account. Fair value of investments is also the net asset
value. Walnut Street Securities serves as the underwriter of the Separate
Account. Investment transactions are recorded on the trade date. Dividends
are automatically reinvested in shares of the Funds. The first-in, first-out
(FIFO) method is used to determine realized gains and losses on investments.
The operations of the Separate Account are included in the federal income tax
return of the Company. Under the provisions of the policies, the Company has
the right to charge the Separate Account for federal income tax attributable
to the Separate Account. No charge is currently being made against the
Separate Account for such tax since, under current law, the Company pays no
tax on investment income and capital gains reflected in variable annuity
policy reserves. However, the Company retains the right to charge for any
federal income tax incurred which is attributable to the Separate Account if
the law is changed. Charges for state and local taxes, if any, attributable
to the Separate Account may also be made.
The preparation of financial statements in conformity with generally accepted
accounting principles requires management to make estimates and assumptions
that affect the reported amounts of assets and liabilities and disclosure of
contingent assets and liabilities at the date of the financial statements and
the reported amounts of revenues and expenses during the reporting period.
Actual results could differ from those estimates.
(2) Expense Charges
The Company is compensated for certain expenses as described below. The
rates of each applicable charge is described in the Separate Account's
prospectus.
A contract administration fee is charged to cover the Company's recordkeeping
and other administrative expenses incurred to operate the Separate Account.
A mortality and expense risk fee is charged in return for the Company's
assumption of risks associated with adverse mortality experience or excess
administrative expenses in connection with policies issued.
An annual charge is deducted from the Separate Account value at the end of
each contract year, upon full withdrawal or at maturity.
MIDLAND NATIONAL LIFE INSURANCE COMPANY
SEPARATE ACCOUNT C
NOTES TO FINANCIAL STATEMENTS - (Continued)
2) Expense Charges (continued)
A transfer charge is imposed on each transfer between portfolios of the
Separate Account in excess of a stipulated number of transfers in any one
contract year. A deferred sales charge may be imposed in the event of a
full or partial withdrawal within the a stipulated number of years.
3) Purchases and Sales of Investment Securities
The aggregate cost of purchases and proceeds from sales of investments for
the years ended December 31, 1997, 1996, and 1995 were as follows:
<TABLE>
<S> <C> <C> <C> <C> <C> <C>
1997 1996 1995
Purchases Sales Purchases Sales Purchases Sales
Portfolio
Variable Insurance Products Fund:
Money Market $ 27,625,059 $ 26,449,130 $ 21,770,832 $ 20,184,322 $ 11,196,889 $ 9,876,492
High Income 2,232,925 843,780 1,623,638 452,169 888,869 89,297
Equity-Income 7,242,522 1,928,035 5,847,193 1,045,612 3,383,946 441,477
Growth 5,841,516 2,007,309 6,383,402 1,085,482 2,519,137 307,501
Overseas 1,628,137 617,620 1,433,148 638,294 1,225,697 498,085
Variable Insurance Products Fund II:
Asset Manager 2,698,162 877,678 2,005,420 799,323 1,584,016 726,420
Investment Grade Bond 794,153 302,555 729,557 220,402 300,334 76,922
Index 500 6,785,096 1,978,193 3,217,072 415,814 538,870 63,352
Contrafund 3,996,318 632,611 2,272,788 349,389 425,185 7,535
Asset Manager Growth 1,796,206 225,801 839,710 72,475 157,037 315
Variable Insurance Products Fund III:
Balanced 496,055 55,752 - - - -
Growth & Income 762,183 107,025 - - - -
Growth Opportunities 974,459 88,365 - - - -
American Century Variable Portfolios, Inc.:
Balanced 152,934 733 - - - -
Capital Appreciation 285,178 118,174 - - - -
International 388,860 1,762 - - - -
Value 542,142 17,201 - - - -
$ 64,241,905 $ 36,251,724 $ 46,122,760 $ 25,263,282 $ 22,219,980 $ 12,087,396
</TABLE>
MIDLAND NATIONAL LIFE INSURANCE COMPANY
SEPARATE ACCOUNT C
NOTES TO FINANCIAL STATEMENTS - (Continued)
(4) Summary of Changes from Unit Transactions
<TABLE>
Transactions in units for the years ended December 31, 1997, 1996, and 1995
were as follows:
<S> <C> <C> <C> <C> <C> <C>
1997 1996 1995
Purchases Sales Purchases Sales Purchases Sales
Portfolio
Variable Insurance Products Fund:
Money Market 2,382,178 2,297,883 1,965,259 1,835,459 1,047,251 933,525
High Income 137,806 54,636 115,859 33,434 75,488 7,130
Equity-Income 328,286 94,507 371,604 61,328 254,614 32,681
Growth 325,656 108,991 420,441 67,194 210,022 22,824
Overseas 93,231 38,350 115,187 50,402 114,354 44,488
Variable Insurance Products Fund II:
Asset Manager 142,316 56,049 147,495 62,120 148,566 66,155
Investment Grade Bond 62,875 24,519 64,302 19,022 27,779 6,792
Index 500 339,992 99,007 211,021 25,537 43,113 4,483
Contrafund 246,458 36,569 177,080 25,284 36,480 574
Asset Manager Growth 117,819 12,810 63,374 5,275 13,682 -
Variable Insurance Products Fund III:
Balanced 44,550 4,849 - - - -
Growth & Income 63,719 8,842 - - - -
Growth Opportunities 83,073 7,147 - - - -
American Century Variable Portfolios, Inc.:
Balanced 13,519 - - - - -
Capital Appreciation 23,010 9,140 - - - -
International 34,978 5 - - - -
Value 46,055 1,389 - - - -
</TABLE>
MIDLAND NATIONAL LIFE INSURANCE COMPANY
SEPARATE ACCOUNT C
NOTES TO FINANCIAL STATEMENTS - (Continued)
(5) Net Assets
Net assets at December 31, 1997, consisted of the following:
<TABLE>
<S> <C> <C> <C> <C>
Accumulated
Net Net
Investment Unrealized
Capital Income and Appreciation
Share Net Realized of
Transactions Gains Investments Total
Portfolio
Variable Insurance Products Fund:
Money Market $ 5,665,502 $ 553,755 $ - $ 6,219,257
High Income 3,724,635 503,495 464,099 4,692,229
Equity-Income 13,500,707 2,133,830 3,269,118 18,903,655
Growth 12,526,152 1,453,161 2,795,465 16,774,778
Overseas 3,873,284 381,676 411,098 4,666,058
Variable Insurance Products Fund II:
Asset Manager 5,913,835 991,513 1,131,602 8,036,950
Investment Grade Bond 1,456,501 99,428 85,717 1,641,646
Index 500 8,335,595 729,573 1,723,580 10,788,748
Contrafund 5,695,909 188,208 1,011,612 6,895,729
Asset Manager Growth 2,479,932 67,665 409,059 2,956,656
Variable Insurance Products Fund III:
Balanced 441,865 1,492 11,371 454,728
Growth & Income 642,671 20,832 14,940 678,443
Growth Opportunities 889,480 5,547 37,052 932,079
American Century Variable Portfolios, Inc.:
Balanced 152,925 (651) 1,851 154,125
Capital Appreciation 168,011 4,576 (15,194) 157,393
International 388,790 (1,662) (4,918) 382,210
Value 527,242 (1,583) 21,900 547,559
$ 66,383,036 $ 7,130,855 $ 11,368,352 $ 84,882,243
</TABLE>
MIDLAND NATIONAL LIFE INSURANCE COMPANY
SEPARATE ACCOUNT C
NOTES TO FINANCIAL STATEMENTS - (Continued)
(6) Merger
EFfective January 2, 1997, Investors Life Insurance Company of Nebraska
(Investors Life) along with all of its assets and liabilities was merged
into the Company. Related to the merger, the Company transferred the entire
amount of assets and assumed the entire amount of liabilities of the
Investors Life Separate Account D into the Separate Account C. Separate
Account D issued certain variable annuity contracts that were sponsored by
Investors Life which was a wholly-owned insurance subsidiary of the Company.
These variable annuity contracts are nearly identical in all material respects
to the variable annuity contracts issued by Separate Account C. This
transaction was the result of certain business decisions whereby Investors
Life was reorganized with and merged into the Company, with the Company
remaining as the surviving corporation. The Company assumed ownership of all
assets of Investors Life, including all assets held in Separate Account D.
The assumption of the Separate Account D net assets was accomplished by
purchasing similar investment funds with the same value from each of
the respective fund portfolios in Separate Account C. This reorganization
was structured so that there was no change in the rights and benefits of
persons having an interest in the variable annuity contracts issued by either
of the separate accounts and no change in the net asset values held by the
respective participants of either of the separate accounts.
MNLSEPC.TXT
<PAGE>
REPORT OF INDEPENDENT ACCOUNTANTS
The Board of Directors and Stockholders
Midland National Life Insurance Company:
We have audited the accompanying balance sheets of Midland National
Life Insurance Company (the Company), as of December 31, 1997 and 1996,
and the related statements of income, stockholders' equity, and cash flows
for each of the three years in the period ended December 31, 1997. These
financial statements are the responsibility of the Company's management.
Our responsibility is to express an opinion on these financial statements
based on our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to
obtain reasonable assurance about whether the financial statements are free
of material misstatement. An audit includes examining, on a test basis,
evidence supporting the amounts and disclosures in the financial statements.
An audit also includes assessing the accounting principles used and
significant estimates made by management, as well as evaluating the overall
financial statement presentation. We believe that our audits provide a
reasonable basis for our opinion.
In our opinion, the financial statements referred to above present fairly,
in all material respects, the financial position of Midland National Life
Insurance Company as of December 31, 1997 and 1996, and the results of its
operations and its cash flows for each of the three years in the period
ended December 31, 1997, in conformity with generally accepted accounting
principles.
Minneapolis, Minnesota
March 12, 1998
MIDLAND NATIONAL LIFE INSURANCE COMPANY
BALANCE SHEETS
as of DECEMBER 31, 1997 and 1996
(Amounts in thousands, except share and per share amounts)
<TABLE>
<S> <C> <C>
ASSETS
1997 1996
Investments:
Fixed maturities $ 2,420,977 $ 1,840,902
Equity securities 145,156 215,964
Policy loans 202,129 154,090
Short-term investments 636,280 242,857
Other invested assets 29,329 18,495
Total investments 3,433,871 2,472,308
Cash 2,384 3,578
Accrued investment income 37,980 32,613
Deferred policy acquisition costs 416,767 427,218
Present value of future profits of acquired businesses 40,397 21,308
Other receivables and other assets 28,045 23,922
Separate account assets 139,072 81,516
Total assets $ 4,098,516 $ 3,062,463
</TABLE>
<TABLE>
LIABILITIES AND STOCKHOLDERS' EQUITY
<S> <C> <C>
Liabilities:
Policyholder account balances $ 2,401,302 $ 1,789,732
Policy benefit reserves 419,131 404,806
Policy claims and benefits payable 33,839 31,512
Federal income taxes 36,088 39,315
Other liabilities 90,102 90,267
Security lending liability 308,125 -
Separate account liabilities 139,072 81,516
Total liabilities 3,427,659 2,437,148
</TABLE>
<TABLE>
Commitments and contingencies
<S> <C> <C>
Stockholders' equity:
Common stock $1 par value, 2,549,439 shares authorized, issued
and outstanding 2,549 2,549
Additional paid-in capital 33,707 33,707
Net unrealized appreciation of investment securities 30,838 18,825
Retained earnings 603,763 570,234
Total stockholders' equity 670,857 625,315
Total liabilities and stockholders' equity $ 4,098,516 $ 3,062,463
</TABLE>
MIDLAND NATIONAL LIFE INSURANCE COMPANY
<TABLE>
STATEMENTS OF INCOME
for the YEARS ENDED DECEMBER 31, 1997, 1996, and 1995
(Amounts in thousands)
<S> <C> <C> <C>
1997 1996 1995
Revenues:
Premiums $ 98,668 $ 101,423 $ 100,858
Interest sensitive life and investment product charges 157,423 150,839 139,611
Net investment income 188,650 173,583 167,020
Net realized investment gains 3,561 6,839 1,762
Net unrealized gains (losses) on trading securities (641) 6,200 7,057
Other income 2,565 4,362 5,754
Total Revenue 450,226 443,246 422,062
Benefits and expenses:
Benefits incurred 146,227 151,208 139,056
Interest credited to policyholder account balances 111,333 103,618 102,339
Total benefits 257,560 254,826 241,395
Operating expenses (net of commissions & other
expenses deferred) 44,130 43,243 43,726
Amortization of deferred policy acquisition costs and
present value of future profits of acquired
businesses 56,954 53,316 51,576
Total benefits and expenses 358,644 351,385 336,697
Income before income taxes 91,582 91,861 85,365
Income tax expense 33,053 31,821 28,703
Net income $ 58,529 $ 60,040 $ 56,662
</TABLE>
MIDLAND NATIONAL LIFE INSURANCE COMPANY
<TABLE>
STATEMENTS OF STOCKHOLDERS' EQUITY
for the YEARS ENDED DECMBER 31, 1997, 1996, and 1995
(Amounts in thousands)
<S> <C> <C> <C> <C> <C>
Net Unrealized
Appreciation
Additional (Depreciation) Total
Common Paid-In of Investment Retained Stockholders'
Stock Capital Securities Earnings Equity
Balance at January 1, 1995 $ 2,549 $ 33,707 $ (10,003) $ 463,857 $ 490,110
Net Income - - - 56,662 56,662
Dividends paid on common stock - - - (10,325) (10,325)
Net appreciation of available for investments - - 41,030 - 41,030
Balance at December 31, 1995 2,549 33,707 31,027 510,194 577,477
Net Income - - - 60,040 60,040
Net depreciation of available for investments - - (12,202) - (12,202)
Balance at December 31, 1996 2,549 33,707 18,825 570,234 625,315
Net Income - - - 58,529 58,529
Dividends paid on common stock - - - (25,000) (25,000)
Net appreciation of avialable for
sale investments - - 12,013 - 12,013
Balance at December 31, 1997 $ 2,549 $ 33,707 $ 30,838 $ 603,763 $ 670,857
</TABLE>
The accompanying notes are an integral part of the financial statements.
MIDLAND NATIONAL LIFE INSURANCE COMPANY
<TABLE>
STATEMENTS OF CASH FLOWS
for the YEARS ENDED DECEMBER 31, 1997, 1996, and 1995
(Amounts in thousands)
<S> <C> <C> <C>
1997 1996 1995
Cash flows from operating activities:
Net Income $ 58,529 $ 60,040 $ 56,662
Adjustments to reconcile net income to net cash provided
by operating activities:
Amortization of deferred policy acquisition costs and
present value of future profits of acquired business 56,954 53,316 51,576
Net amortization of premiums and discounts on investments 2,699 5,532 4,828
Policy acquisition costs deferred (50,363) (65,285) (63,717)
Net realized investment gains (3,561) (6,839) (1,762)
Net unrealized (gains) losses on trading securities 641 (6,200) (7,057)
Net proceeds from (cost of) trading securities 99,850 5,788 (23,305)
Deferred income taxes (5,421) 12,177 (5,721)
Net interest credited and product charges on universal life
and investment policies (46,090) (47,221) (37,272)
Changes in other assets and liabilities:
Net receivables and payables (13,946) 32,863 12,346
Policy benefits 15,826 26,185 23,500
Other 122 (277) 539
Net cash provided by operating activities 115,240 70,079 10,617
Cash flows from investing activities:
Proceeds from investments sold, matured, or repaid:
Fixed maturities 1,217,086 1,422,426 911,883
Equity securities 137,510 129,827 51,567
Other invested assets 941 2,055 421
Cost of investments acquired:
Fixed maturities (1,791,522) (1,569,779) (994,486)
Equity securities (144,862) (145,096) (41,968)
Other invested assets (11,702) (14,245) (2,283)
Net change in policy loans (9,995) (11,295) (9,883)
Net change in short-term investments 93,875 (18,748) (24,963)
Net change in security lending 308,125 - (33,239)
Payment for purchase of insurance business, net of
cash acquired 23,939 - (440)
Net cash used in investing activities (176,605) (204,855) (143,391)
</TABLE>
The accompanying notes are an integral part of the financial statements.
<TABLE>
MIDLAND NATIONAL LIFE INSURANCE COMPANY
STATEMENTS OF CASH FLOWS ( CONTINUED)
for the YEARS ENDED DECEMBER 31, 1997, 1996, AND 1995
(Amounts in thousands)
<S> <C> <C> <C>
1997 1996 1995
Cash flows from financing activities:
Receipts from universal life and investment products $ 280,164 $ 285,569 $ 272,511
Benefits paid on universal life and investment products (194,993) (156,514) (129,024)
Dividends paid on common stock (25,000) - (10,325)
Net cash provided by financing activities 60,171 129,055 133,162
Increase (decrease) in cash (1,194) (5,721) 388
Cash at beginning of year 3,578 9,299 8,911
Cash at end of year $ 2,384 $ 3,578 $ 9,299
Supplemental disclosures of cash flow information:
Cash paid during the year for:
Interest $ 143 $ 166 $ 188
Income taxes, paid to parent 42,749 16,772 25,376
Non-cash operating, investing and financing activity:
Policy loans, receivables and other assets received in
assumption reinsurance agreements 38,044 - 9,723
</TABLE>
The accompanying notes are an integral part of the financial statements.
(1) Summary of Significant Accounting Policies
Organization
Midland National Life Insurance Company (Midland or the Company) is a
majority-owned subsidiary of Sammons Enterprises, Inc. (SEI). Midland
operates predominantly in the individual life and annuity business of the
life insurance industry. The Company is licensed to operate in 49 states
and the District of Columbia.
Basis of Presentation
Effective May 31, 1996, Midland sold its wholly-owned subsidiary,
North American Management, Inc. (NAM), to an unrelated party for a net
consideration which approximated the net equity of NAM at May 31, 1996. The
operations of the subsidiary, which were included through May 31, 1996, were
not material to the financial statements.
On January 2, 1997, Investors Life Insurance Company of Nebraska was
merged into Midland. Since this wholly-owned subsidiary was previously
consolidated with Midland, this merger had no impact on the financial
statements of Midland.
In preparing the financial statements, management is required to make
estimates and assumptions that affect the reported amounts of assets and
liabilities and disclosure of contingent assets and liabilities as of the
date of the balance sheet and revenues and expenses for the period. Actual
results could differ significantly from those estimates. The following are
the more significant elements of the financial statements affected by the
use of estimates and assumptions:
Investment values.
Deferred policy acquisition costs.
Present value of future profits of acquired business.
Policy benefit reserves and claims reserves.
Fair value of financial instruments.
The Company is subject to the risk that interest rates will change and
cause a decrease in the value of its investments. To the extent that
fluctuations in interest rates cause the duration of assets and liabilities
to differ, the Company may have to sell assets prior to their maturity and
realize a loss.
Investments
The Company is required to classify its fixed maturity investments
(bonds and redeemable preferred stocks) and equity securities (common and
nonredeemable preferred stocks) into three categories: securities that the
Company has the positive intent and the ability to hold to maturity are
classified as "held to maturity"; securities that are held for current resale
are classified as "trading securities"; and securities not classified as held
to maturity or as trading securities are classified as "available for sale.
Fixed maturity investments classified as trading or available-for-sale are
required to be reported at fair value in the balance sheet. The Company has
no securities classified as held-to-maturity.
Trading securities are held for resale in anticipation of short-term
market movements. The Company's trading securities are stated at market
value. Gains and losses on these securities, both realized and unrealized,
are included in the determination of net income. Net cost of or proceeds
from trading securities are included in operating activities in the statements
of cash flows.
Available-for-sale securities are classified as such if not considered
trading securities or if there is not the positive intent and ability to hold
the securities to maturity. Such securities are carried at market value with
the unrealized holding gains and losses included directly in stockholders'
equity, net of related adjustments to deferred policy acquisition costs and
deferred income taxes. Cash flows from available-for-sale security
transactions are included in investing activities in the statements of cash
flows.
For CMO's and mortgage-backed securities, the Company recognizes
income using a constant effective yield based on anticipated prepayments and
the estimated economic life of the securities. When actual prepayments
differ significantly from anticipated prepayments, the effective yield is
recalculated to reflect actual payments to date and anticipated future
payments. The net investment in the security is adjusted to the amount that
would have existed had the new effective yield been applied since the
acquisition of the security. This adjustment is included in net investment
income.
Policy loans and other invested assets are carried at unpaid principal
balances. Short-term investments are carried at amortized cost, which
approximates fair value.
Investment income is recorded when earned. Realized gains and losses
are determined on the basis of specific identification of the investments.
When a decline in value of an investment is determined to be other
than temporary, the specific investment is carried at estimated realizable
value and its original book value is reduced to reflect this impairment.
Such reductions in book value are recognized as realized investment losses
in the period in which they were written down.
The Company periodically enters into agreements to sell and
repurchase securities. The commitment to repurchase securities sold under
these agreements are reported as liabilities and the investments acquired
with the funds received from the securities sold are included in short-term
investments.
Recognition of Traditional Life, Health, and Annuity Premium Revenue and Policy
Benefits
Traditional life insurance products include those products with fixed and
guaranteed premiums and benefits. Life insurance premiums, which comprise
the majority of premium revenues, are recognized as premium income when due.
Benefits and expenses are associated with earned premiums so as to result in
recognition of profits over the life of the contracts. This association is
accomplished by means of the provision for policy benefit reserves and the
amortization of deferred policy acquisition costs.
Liabilities for policy benefit reserves for traditional policies
generally are computed by the net level premium method based on estimated
future investment yield, mortality, morbidity, and withdrawals which were
appropriate at the time the policies were issued or acquired. Interest rate
assumptions range from 6.5% to 11%.
Recognition of Revenue and Policy Benefits for Interest Sensitive Life
Insurance Products and Investment Contracts (Interest Sensitive Policies)
Interest sensitive policies are issued on a periodic and single
premium basis. Amounts collected are credited to policyholder account
balances. Revenues from interest sensitive policies consist of charges
assessed against policyholder account balances for the cost of insurance,
policy administration, and surrender charges. Revenues also include
investment income related to the investments which support the policyholder
account balances. Policy benefits and claims that are charged to expense
include benefits incurred in the period in excess of related policyholder
account balances. Benefits also include interest credited to the
account balances.
Policy reserves for universal life and other interest-sensitive life
insurance and investment contracts are determined using the retrospective
deposit method. Policy reserves consist of the policyholder deposits and
credited interest less withdrawals and charges for mortality, administrative,
and policy expenses. Interest crediting rates ranged primarily from 3.75% to
6.75% in 1997, 3% to 7% in 1996 and 3% to 7.5% in 1995. For certain
contracts these crediting rates extend for periods in excess of one year.
Deferred Policy Acquisition Costs
Policy acquisition costs which vary with, and are primarily related
to the production of new business, have been deferred to the extent that such
costs are deemed recoverable from future profits. Such costs include
commissions, policy issuance, underwriting, and certain variable agency
expenses.
Deferred costs related to traditional life insurance are amortized
over the estimated premium paying period of the related policies in
proportion to the ratio of annual premium revenues to total anticipated
premium revenues.
Deferred costs related to interest sensitive policies are being
amortized over the lives of the policies (up to 25 years) in relation to the
present value of actual and estimated gross profits subject to regular
evaluation and retroactive revision to reflect actual emerging experience.
Policy acquisition costs deferred and amortized for years ended
December 31 are as follows:
<TABLE>
<S> <C> <C> <C>
1997 1996 1995
Deferred policy acquisition costs, beginning of year $ 427,218 $ 410,051 $ 415,594
Commissions deferred 40,660 55,005 52,533
Underwriting and acquisition expenses deferred 9,703 10,280 11,184
Change in offset to unrealized gains and losses (8,710) 92 (22,325)
Amortization (52,104) (48,210) (46,935)
Deferred policy acquisition costs, end of year $ 416,767 $ 427,218 $ 410,051
</TABLE>
To the extent that unrealized gains and losses on available-for-sale
securities would result in an adjustment to the amortization pattern of
deferred policy acquisition costs or present value of future profits of
acquired business had those gains or losses actually been realized, the
adjustments are recorded directly to stockholders' equity as an offset to
the unrealized gains or losses with no effect on income.
Present Value of Future Profits of Acquired Business
The present value of future profits of acquired business (PVFP)
represents the portion of the purchase price of a block of business which is
allocated to the future profits attributable to the insurance in force at the
dates of acquisition. The PVFP is amortized in relationship to the actual
and expected emergence of such future profits. The composition of the PVFP
for the years ended December 31 is summarized below:
<TABLE>
<S> <C> <C> <C>
1997 1996 1995
Balance at beginning of year $ 21,308 $ 26,414 $ 31,495
Value of in force acquired 23,939 - (440)
Amortization (4,850) (5,106) (4,641)
Balance at end of year $ 40,397 $ 21,308 $ 26,414
</TABLE>
Based on current conditions and assumptions as to future events, the
Company expects to amortize approximately 20 percent of the December 31, 1997
balance of PVFP in 1998, 16 percent in 1999, 14 percent in 2000, 11 percent
in 2001, and 9 percent in 2002. The interest rates used to determine the
amortization of the PVFP purchased ranged from 5.5 percent to 6.5 percent.
Policy Claims and Benefits Payable
The liability for policy claims and benefits payable includes
provisions for reported claims and estimates for claims incurred but not
reported, based on the terms of the related policies and contracts and on
prior experience. Claim liabilities are necessarily based on estimates and
are subject to future changes in claim severity and frequency. Estimates are
periodically reviewed and adjustments to such liabilities are reflected in
current operations.
Federal Income Taxes
The Company is a member of SEI's consolidated United States
federal income tax group. The policy for intercompany allocation of federal
income taxes provides that the Company compute the provision for federal
income taxes on a separate return basis. The Company makes payment to, or
receives payment from, SEI in the amount they would have paid to, or received
from, the Internal Revenue Service had they not been members of the
consolidated tax group. The separate Company provisions and payments are
computed using the tax elections made by the Parent.
Deferred tax liabilities and assets are recognized based upon the
difference between the financial statement and tax bases of assets and
liabilities using enacted tax rates in effect for the year in which the
differences are expected to reverse.
Separate Account
Separate account assets and liabilities represent funds held for the
exclusive benefit of variable universal life and annuity contractholders.
Fees are received for administrative expenses and for assuming certain
mortality, distribution and expense risks. Operations of the separate
accounts are not included in these financial statements.
(2) Fair Value of Financial Instruments
The following methods and assumptions were used by the Company in
estimating its fair value disclosures for financial instruments:
Cash, short-term investments, policy loans, and other invested
assets: The carrying amounts reported in the balance sheets for
these instruments approximate their fair values.
Investment securities: Fair value for fixed maturity securities
(including redeemable preferred stocks) are based on quoted
market prices, where available. For fixed maturities not actively
traded, fair values are estimated using values obtained from
independent pricing services. In some cases, such as private
placements and certain mortgage-backed securities, fair values are
estimated by discounting expected future cash flows using a
current market rate applicable to the yield, credit quality and
maturity of the investments. The fair value of equity securities are
based on quoted market prices.
Investment-type insurance contracts: Fair values for the
Company's liabilities under investment -type insurance contracts
are estimated using two methods. For those contracts without a
defined maturity, the fair value was estimated as the amount
payable on demand (cash surrender value). For those contracts
with known maturities, fair value is estimated using discounted
cash flow calculations using interest rates currently being offered
for similar contracts with maturities consistent with the contracts
being valued.
These fair value estimates are significantly affected by the
assumptions used, including the discount rate and estimates of future cash
flows. Although fair value estimates are calculated using assumptions that
management believes are appropriate, changes in assumptions could cause
these estimates to vary materially. In that regard, the derived fair value
estimates cannot be substantiated by comparison to independent markets and,
in some cases, could not be realized in the immediate settlement of the
instruments. Certain financial liabilities (including non investment-type
insurance contracts) and all nonfinancial instruments are excluded from the
disclosure requirements. Accordingly, the aggregate fair value amounts
presented do not represent the underlying value of the Company.
The carrying value and estimated fair value of the Company's
financial instruments are as follows:
<TABLE>
<S> <C> <C> <C> <C>
December 31, 1997 December 31, 1996
Carrying Estimated Carrying Estimated
Value Fair Value Value Fair Value
Financial assets:
Fixed maturities - available-for-sale $ 2,420,977 $ 2,420,977 $ 1,807,362 $ 1,807,362
Fixed maturities - trading - - 33,540 33,540
Equity securities - available-for-sale 78,950 78,950 67,498 67,498
Equity securities - trading 66,206 66,206 148,466 148,466
Policy loans 202,129 202,129 154,090 154,090
Short-term investments 636,280 636,280 242,857 242,857
Other investments 29,329 29,329 18,495 18,495
Financial liabilities:
Investment-type insurance contracts 1,011,000 989,000 615,000 597,000
</TABLE>
(3) Investments and Investment Income
Fixed Maturities and Equity Security Investments
<TABLE>
The amortized cost and estimated fair value of fixed maturities and
equity securities classified as available for sale are as follows:
<S> <C> <C> <C> <C>
December 31, 1997
Gross Gross
Unrealized Unrealized Estimated
Amortized Holding Holding Fair
Cost Gains Losses Value
Fixed maturities:
U.S. Treasury and other U.S. Government
corporations and agencies $ 625,958 $ 9,232 $ 266 $ 634,924
Obligations of U.S. states and political
subdivisions 3,201 147 - 3,348
Corporate securities 660,172 30,234 577 689,829
Mortgage-backed securities 1,055,140 22,159 109 1,077,190
Other debt securities 14,861 826 1 15,686
Total fixed maturities 2,359,332 62,598 953 2,420,977
Equity securities 69,221 10,433 704 78,950
Total available for sale $ 2,428,553 $ 73,031 $ 1,657 $ 2,499,927
</TABLE>
<TABLE>
<S> <C> <C> <C> <C>
December 31, 1996
Gross Gross
Unrealized Unrealized Estimated
Amortized Holding Holding Fair
Cost Gains Losses Value
Fixed maturities:
U.S. Treasury and other U.S. Government
corporations and agencies $ 671,485 $ 4,798 $ 783 $ 675,500
Obligations of U.S. states and political
subdivisions 3,203 267 - 3,470
Corporate securities 522,349 26,551 961 547,939
Mortgage-backed securities 572,763 8,242 634 580,371
Other debt securities 79 3 - 82
Total fixed maturities 1,769,879 39,861 2,378 1,807,362
Equity securities 60,798 7,912 1,212 67,498
Total available for sale $ 1,830,677 $ 47,773 $ 3,590 $ 1,874,860
</TABLE>
The amortized cost of the fixed maturities and the cost of the equity
securities classified as trading securities are $0 and $66,867, respectively
at December 31, 1997 and $33,735 and $148,291, respectively, at December 31,
1996.
The net unrealized appreciation on the available-for-sale securities
is reduced by deferred policy acquisition costs and deferred income taxes at
December 31, as shown below:
<TABLE>
<S> <C> <C>
1997 1996
Gross unrealized appreciation $ 71,374 $ 44,183
Deferred policy acquisition costs (23,930) (15,220)
Deferred income taxes (16,606) (10,138)
Net unrealized appreciation of investments $ 30,838 $ 18,825
The change in net unrealized gains (losses) on available-for-sale
fixed maturity and equity security investments are as follows:
1997 1996 1995
Fixed maturities $ 24,162 $ (20,907) $ 79,603
Equity securities 3,029 1,955 5,974
Less DAC impact (8,710) 92 (22,325)
Less deferred income tax effect (6,468) 6,658 (22,222)
Net change in unrealized gains (losses) $ 12,013 $ (12,202) $ 41,030
</TABLE>
The amortized cost and estimated fair value of available-for-sale
fixed maturities at December 31, 1997, by contractual maturity, are as
follows. Expected maturities will differ from contractual maturities because
borrowers may have the right to call or prepay obligations with or without
call or prepayment penalties.
<TABLE>
<S> <C> <C>
Amortized Fair
Cost Value
Due in one year or less $ 327,750 $ 329,539
Due after one year through five years 147,408 152,516
Due after five years through ten years 190,528 200,958
Due after ten years 638,505 660,773
Securities not due at a single maturity date (primarily
mortgage-backed securities) 1,055,141 1,077,191
Total fixed maturities $ 2,359,332 $ 2,420,977
</TABLE>
Investment Income and Investment Gains (Losses)
Major categories of investment income are summarized as follows:
<TABLE>
<S> <C> <C> <C>
1997 1996 1995
Gross investment income:
Fixed maturities $ 148,640 $ 126,733 $ 121,003
Equity securities 13,831 22,202 20,885
Policy loans 11,891 10,327 9,485
Short-term investments 20,594 16,946 18,648
Other invested assets 824 553 490
Gross investment income 195,780 176,761 170,511
Investment expenses 7,130 3,178 3,491
Net investment income $ 188,650 $ 173,583 $ 167,020
</TABLE>
The major categories of investment gains and losses reflected in the
income statement are summarized as follows:
<TABLE>
<S> <C> <C> <C> <C> <C> <C>
1997 1996 1995
____________________ ____________________ ____________________
Unrealized Unrealized Unrealized
-Trading -Trading -Trading
Realized Securities Realized Securities Realizied Securities
Fixed maturities $ 2,934 $ 195 $ 8,047 $ (438) $ 14,303 $ 834
Equity securities 542 (836) (1,196) 6,638 (12,608) 6,223
Other 85 - (12) - 67 -
Net investment gains (losses) $ 3,561 $ (641) $ 6,839 $ 6,200 $ 1,762 $ 7,057
</TABLE>
Proceeds from the sale of available-for-sale securities and the gross
realized gains and losses on these sales (excluding maturities, calls and
prepayments) during 1997, 1996, and 1995 were as follows:
<TABLE>
<S> <C> <C> <C> <C> <C> <C>
1997 1996 1995
_____________________ _____________________ ____________________
Fixed Fixed Fixed
Maturities Equity Maturities Equity Maturities Equity
Proceeds from sales $ 801,246 $ 136,085 $ 1,020,090 $ 106,354 $ 651,092 $ 51,547
Gross realized gains 3,757 1,977 10,418 787 15,205 617
Gross realized losses 3,213 887 5,030 1,954 4,241 2,802
</TABLE>
Other
At December 31, 1997, and 1996, securities amounting to
approximately $14,366 and $16,816, respectively, were on deposit with
regulatory authorities as required by law.
The Company periodically enters into repurchase agreements with
brokerage firms. Repurchase agreements totaling $308,125 were outstanding
at December 31, 1997. No investments were outstanding under repurchase
agreements at December 31, 1996.
The Company generally strives to maintain a diversified invested
assets portfolio. Other than investments in U.S. Government or U.S.
Government Agency or Authority, the Company had no investments in one entity
which exceeded 10% of stockholders' equity at December 31, 1997, except for
investments with the following carrying values:
GTE Corporation $ 95,366
APOLLO Computers 85,267
Norfolk Southern 73,977
(4) Income Taxes
The significant components of the provision for Federal income taxes
are as follows:
<TABLE>
<S> <C> <C> <C>
1997 1996 1995
Current
$ 38,474 $ 19,644 $ 34,424
Deferred
(5,421) 12,177 (5,721)
Total Federal income tax expense
$ 33,053 $ 31,821 $ 28,703
</TABLE>
Income tax expense differs from the amounts computed by applying
the U.S. Federal income tax rate of 35% to income before income taxes as
follows:
<TABLE>
<S> <C> <C> <C>
1997 1996 1995
At statutory Federal income tax rate
$ 32,054 $ 32,151 $ 29,980
Dividends received deductions
(514) (1,391) (1,718)
Other, net
1,513 1,061 441
Total Federal income tax expense
$ 33,053 $ 31,821 $ 28,703
</TABLE>
The federal income tax liability as of December 31 is comprised of
the following:
<TABLE>
<S> <C> <C>
1997 1996
Net deferred income tax liability
$ 34,480 $ 33,432
Income taxes currently due
1,608 5,883
Federal income tax liability
$ 36,088 $ 39,315
</TABLE>
The tax effects of temporary differences that give rise to
significant portions of the deferred income tax assets and deferred income
tax liabilities at December 31 are as follows:
<TABLE>
<S> <C> <C>
1997 1996
Deferred tax liabilities:
Present value of future profits of acquired business $ 14,139 $ 7,458
Deferred policy acquisition costs 100,989 114,971
Investments 27,245 17,541
Others 906 2,909
Total deferred income tax liabilities 143,279 142,879
Deferred tax assets:
Policy liabilities and reserves 108,799 109,447
Total gross deferred income tax assets 108,799 109,447
Net deferred income tax liability $ 34,480 $ 33,432
</TABLE>
Prior to 1984, certain special deductions were allowed life insurance
companies for federal income tax purposes. These special deductions were
accumulated in a memorandum tax account designated as "Policyholders'
Surplus". Such amounts will usually become subject to tax at the then
current rates only if the accumulated balance exceeds certain maximum
limitations or certain cash distributions are deemed to be paid out of this
account. It is management's opinion that such events are not likely to
occur. Accordingly,no provision for income tax has been made on the
approximately $66,000 balance in the policyholders' surplus account at
December 31, 1997.
(5) Reinsurance
The Company is involved in both the cession and assumption of
reinsurance with other companies. Reinsurance premiums and claims ceded
and assumed for the years ended December 31 are as follows:
<TABLE>
<S> <C> <C> <C> <C> <C> <C>
1997 1996 1995
Ceded Assumed Ceded Assumed Ceded Assumed
Premiums $ 17,081 $ 7,971 $ 13,759 $ 7,116 $ 13,165 $ 5,368
Claims 8,683 4,472 12,170 6,068 11,899 5,204
</TABLE>
The Company presently reinsures the excess of each individual risk
over $500 on ordinary life policies in order to spread its risk of loss.
Certain other individual health contracts are reinsured on a policy-by-policy
basis. The Company remains contingently liable for certain of the liabilities
ceded in the event the reinsurers are unable to meet their obligations under
the reinsurance agreement.
Effective January 1, 1996, the Company assumed certain policy risks
($8,900,130 of life insurance in force at December 31, 1997) from its
affiliate, North American Company for Life and Health Insurance, and its
subsidiaries. The Company has reflected a risk and profit charge of $729 and
$1,119 in other income in 1997 and 1996, respectively, under the terms of
the reinsurance contract.
Effective October 31, 1997, Midland acquired, via assumption
reinsurance, a block of life and annuity business. Under the assumption
agreement, the Company assumed approximately $574,310 of life and annuity
reserves which is reflected in the liabilities for future policy benefits
and received $550,371 of assets which was net of $23,939 of PVFP. The PVFP
asset is being amortized principally over periods up to 25 years in relation
to the present value of expected gross profits. The assets acquired included
approximately $511,877 in cash and short term instruments, $38,044 in policy
loans and $450 of other assets. The final purchase price is subject to
change following a final accounting scheduled to occur on or before April 30,
1998.
(6) Statutory Financial Data and Dividend Restrictions
The Company is domiciled in South Dakota and its statutory-basis
financial statements are prepared in accordance with accounting practices
prescribed or permitted by the insurance department of the domiciliary state.
"Prescribed" statutory accounting practices include state laws, regulations,
and general administrative rules, as well as a variety of publications of the
National Association of Insurance Commissioners (NAIC). "Permitted"
statutory accounting practices encompass all accounting practices that are
not prescribed. Such practices differ from state to state and company to
company.
Generally, the net assets of the Company available for distribution
to its shareholders are limited to the amounts by which the net assets, as
determined in accordance with statutory accounting practices, exceed minimum
regulatory statutory capital requirements. All payments of dividends or
other distributions to stockholders are subject to approval by regulatory
authorities. The maximum amount of dividends which can be paid by the Company
during any 12-month period, without prior approval of the insurance
commissioner, is limited according to statutory regulations and is a
function of statutory equity and statutory net income (generally, the
greater of statutory-basis net gain from operations or 10% of prior year-end
statutory-basis surplus). The company paid a stockholder dividend of $25,000
in 1997. The maximum amount of dividends payable in 1998 without prior
approval of regulatory authorities is approximately $40,306.
The statutory net income of the Company for the years ended
December 31, 1997 and 1996 is approximately $65,000 and $16,000,
respectively, and capital and surplus at December 31, 1997 and 1996 is
approximately $323,000 and $300,000, respectively, in accordance with
statutory accounting principles.
(7) Employee Benefits
Employee Retirement Plans
The Company participates in a noncontributory defined benefit
pension plan sponsored by SEI which covers substantially all home office
employees. Prior to 1996, the Company sponsored its own noncontributory
defined benefit pension plan which was merged with a similar benefit plan of
SEI on January 1, 1996. Pension benefits are generally based upon years of
service and include accruing pension cost currently, contributing the maximum
amount deductible for federal income taxes and meeting minimum funding
standards of the Employee Retirement Income Security Act of 1974 as
determined by an actuarial valuation. Plan assets consist primarily of cash
equivalents, listed stocks and bonds, and group annuity contracts.
The following table sets forth the funded status and the amounts
recognized in the financial statements at December 31 for the qualified plan.
The 1997 and 1996 amounts reflect an allocation of the Company's portion of
the SEI plan:
<TABLE>
<S> <C> <C>
1997 1996
Accumulated benefit obligation:
Vested $ 2,558 $ 2,192
Nonvested 591 283
Total accumulated benefit obligation $ 3,149 $ 2,475
Fair value of plan assets $ 3,176 $ 3,400
Projected benefit obligation (4,678) (3,786)
Funded status (1,502) (386)
Unrecognized net gain 1,385 613
Unrecognized prior service costs 25 41
Net asset/(liability) recognized in financial statements
$ (92) $ 268
</TABLE>
The net periodic pension cost included the following components:
<TABLE>
<S> <C> <C> <C>
1997 1996 1995
Service cost-benefits earned during the period
$ 317 $ 285 $ 248
Interest cost on projected benefit obligation
325 291 283
Return on plan assets
(297) (619) (220)
Net amortization and deferral
15 306 (53)
Net periodic pension cost
$ 360 $ 263 $ 258
</TABLE>
The weighted-average discount rate used in determining the actuarial
present value of the projected benefit obligations was 7.25% for 1997 and
1996. The average rate of increase in future compensation levels was 4.25%
for 1997 and 1996. The expected long-term rate of return on plan assets used
to develop the net periodic pension cost was 8.75% in 1997, 1996 and 1995.
The Company also participates in a noncontributory Employee Stock
Ownership Plan (ESOP) which is qualified as a stock bonus plan. All
employees are eligible to participate in this plan upon satisfying
eligibility requirements. The ESOP is sponsored by SEI. Each year the
Company makes a contribution to the ESOP as determined by the Board of SEI.
The expense for 1997, 1996, and 1995 was $1,920, $1,700, and $2,096,
respectively. All contributions to the ESOP are held in trust.
Postretirement Benefit Plan
The Company provides certain post-retirement health care and life
insurance benefits for eligible active and retired employees through a defined
benefit plan.
The actuarial and recorded liabilities for these post-retirement
benefits at December 31, none of which were funded, are as follows:
<TABLE>
<S> <C> <C> <C>
1997 1996 1995
Accumulated postretirement benefit obligation:
Retirees $ 1,771 $ 1,718 $ 1,235
Fully eligible active plan participants
192 170 274
Other active plan participants
240 191 560
2,203 2,079 2,069
Unrecognized loss (452) (135) (101)
Accrued postretirement benefit obligation
$ 1,751 $ 1,944 $ 1,968
</TABLE>
The net periodic cost for postretirement benefits other than
pensions for the years ended December 31 included the following components:
<TABLE>
<S> <C> <C> <C>
1997 1996 1995
Service cost - benefits earned during the period
$ 18 $ 16 $ 16
Interest cost on other post-retirement benefits
154 148 164
Net amortization
7 - 10
Total periodic expense
$ 179 $ 164 $ 190
</TABLE>
The weighted average annual assumed rate of increase in the per capita
cost of covered benefits (i.e. health care cost trend rate) reflects a 7.25%
rate in 1997 grading down to 4.5% in years 2006 and later. Increasing the
assumed health care cost trend rate by one percentage point would increase
the accumulated postretirement benefit obligation at December 31, 1997 by
$217 and the aggregate of the service and interest cost components of the
net periodic postretirement benefit cost for 1997 by $16. The weighted
average discount rate used in determining the accumulated postretirement
benefit obligation was 7.25% at December 31, 1997 and 1996.
(8) Commitments and Contingencies
Lease Commitments
Midland's home office building has been conveyed to the City of
Sioux Falls, South Dakota, and leased back in a transaction in which the City
issued $4,250 of Industrial Revenue Bonds for face value. The bonds are
collateralized by $2,822 of Midland's investments in government bonds. The
lease includes a purchase option under which Midland may repurchase the
building upon repayment of all bonds issued. The lease terms provide for 10
annual payments equivalent to principal of $425 beginning in 1993 and
semiannual payments through 2002 in amounts equivalent to interest at 5.5%
on the outstanding revenue bond principal. The building and land costs
have been capitalized and are carried as part of other assets and the lease
obligation as part of other liabilities.
The Company also leases certain equipment. Rental expense on
operating leases amounted to $1,208, $1,048 and $548 for the years ended
December 31, 1997, 1996, and 1995, respectively. The minimum future
rentals on capital and operating leases at December 31, 1997, are as follows:
<TABLE>
<S> <C> <C> <C>
Year ending December 31,
Capital Operating Total
1998 ........................ $ 536 $ 1,076 $ 1,612
1999 ........................ 513 1,098 1,611
2000 ........................ 489 537 1,026
2001 ........................ 466 487 953
2002 ........................ 442 498 940
Thereafter ................ - 559 559
Total ........................ $ 2,446 $ 4,255 $ 6,701
Less amount representing interest.... 321
Present value of amounts due
under capital leases ................ $ 2,125
</TABLE>
Other Contingencies
The Company is liable for guaranty fund assessments related to
certain unaffiliated insurance companies that have become insolvent. These
assessments are reflected in the operating results of the Company. The
Company is also contingently liable for any future guaranty fund assessments
related to the insolvencies of unaffiliated insurance companies. An accrual
of $2,184 has been included in the December 31, 1997 balance sheets. This
accrual was calculated by estimating the Company's share of both open and
closed insolvencies based on industry data provided to the Company.
The Company is a defendant in various lawsuits related to the normal
conduct of its insurance business. Litigation is subject to many
uncertainties and the outcome of individual litigated matters is not
predictable with assurance; however, in the opinion of management, the
ultimate resolution of such litigation will not materially impact the
Company's financial position.
(9) Other Related Party Transactions
The Company pays fees to SEI under management contracts. The
Company was charged $1,530, $1,458 and $2,778 in 1997, 1996, and 1995,
respectively, related to these contracts.
The Company pays investment management fees to an affiliate
(Midland Advisors Company). Net fees related to these services were $1,425,
$1,339 and $66 in 1997, 1996 and 1995, respectively.
The Company provided certain insurance and non-insurance services
to North American Company for Life and Health Insurance, in return for
which the Company was reimbursed $488 in 1997 for the costs incurred to
render such services.
MNLGP97.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)
(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 #6 of this form N-4 Registration
Statement, file number 33-64016 (April 30, 1998).
(3) To be filed by amendment.
<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
Michael M. Masterson Chairman of the Chairman of the Board (present)
Midland National Life Board, Chief Chief Executive Officer and
One Midland Plaza Executive Officer President (March 1997 to present)
Sioux Falls, SD 57193 and President President and Chief Operating
Officer (March 1996 to February
1997), Executive Vice President-
Marketing (March 1995 to February
1996), Midland National Life
Insurance Company; President and
Chief Operating Officer (March
1996 to December 1996), Executive
Vice President-Marketing (March
1995 to February 1996), Investors
Life Insurance Company of Nebraska;
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
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
Invesment 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, 1998 there were 1,1772 holders of nonqualified contracts
and 3,472 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 Executive Officer, E.V.P., Dir.
Steve Abbey V.P., Compliance and Assistant Secretary
Steven Anderson V.P.
Mabeline Julien Assistant Treasurer
James Koeger Assistant Treasurer
Thomas Hughes, Jr. Treasurer
Maureen Sheehan Assistant Secretary
Joyce Hillebrand Assistant Secretary
Norman Lazarus CCO, Director of Compliance
Don Wuller Sr.V.P.Admin, CEO
Milton F. Svetanics Jr. Dir., V.P., General Counsel and Secretary
Dona Barber Dir.
Mathew P. McCauley Dir.
Bernard H. Wolzenski Dir.
Stephen Palmitier Dir.
Kevin Eichner Dir. , Chairman
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 2,857,416 0 0 223,950
Securities
Item 30. Location of Accounts and Records
The records required to be maintained by Section 31(a) of the Investment
Company Act of 1940 and Rules 31a-1 to 31a-3 promulgated thereunder, are
maintained by Midland National Life Insurance Company at:
One Midland Plaza
Sioux Falls, SD 57193
Item 31. Management Services
No management related services are provided to the Registrant, except as
discussed in Parts A and B.
Item 32. Undertakings and Representations - Midland National Life
Insurance Company represents that all fees and charges deducted under
the contract in the aggregate are reasonable in relation to the services
rendered, the expenses to be incurred and the risk assumed by Midland
National Life Insurance Company.
(a) A post-effective amendment to this registration statement will be filed as
frequently as is necessary to ensure that the audited financial statement in
the registration statement are never more than 16 months old for so long as
payments under the variable annuity contracts may be accepted.
(b) Any application to purchase a contract offered by the prospectus will
include a space that an applicant can check to request a Statement of
Additional Information.
(c) Any Statement of Additional Information and any financial statements
required to be made available under this form will be delivered promptly
upon written or oral request.
Section 403(b) Representation
Registrant represents that it is relying on a no-action letter dated November
28, 1988, to the American Council of Life Insurance (Ref. No. IP-6-88),
regarding sections 22(e), 27(c)(1), and 27(d) of the Investment Company Act
of 1940, in connection with redeemability restrictions on Section 403(b)
Contracts, and that paragraphs numbered (1) through (4) of that letter will
be complied with.
Statement Pursuant to Rule 6c-7
Midland National Life and Separate Account C rely on 17 C.F.R. Section 270.6c-7
and represent that the provisions of that Rule have been or will be complied
with. Accordingly, Midland National Life and Separate Account C are exempt
from the provisions of Sections 22(e), 27(c)(1), and 27(d) of the Investment
Company Act of 1940 with respect to any variable annuity contract participating
in such account to the extent necessary to permit compliance with the Texas
Optional Retirement Program.
VAITEM24
<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 has caused this Registration Statement to be signed on
its behalf in the City of Sioux Falls, South Dakota on the 17th day
of February, 1999.
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
--------- ----- ----
/s/ Michael M. Masterson Director, Chairman of the February 17, 1999
Michael M. Masterson Board, Chief Executive
Officer and President
/s/ John J. Craig___ Director, Executive February 17, 1999
John J. Craig II Vice President
/s/ Russell A Evenson ___ Director, Senior Vice February 17, 1999
Russell A. Evenson President and Chief
Actuary
/s/ Steven C. Palmitier __ Director, Senior Vice February 17, 1999
Steven C. Palmitier President and Chief
Marketing Officer
/s/ Thomas M Meyer____ Vice President and February 17, 1999
Thomas M. Meyer Chief Financial
Officer
______________________ Director and Vice President February 17, 1999
Robert W. Korba
SECPEVA2
<PAGE>
