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, including exhibits of Post-Effective
Amendment Number 9 to the above referenced Form N-4 Registration Statement.
This amendment is being filed pursuant to paragraph (b) of Rule 485.
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
VA2CVR.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. _9_
and
REGISTRATION STATEMENT UNDER THE INVESTMENT COMPANY ACT OF 1940
Amendment No. _9_
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) of Rule 485
_X_ on May 01, 1999 pursuant to paragraph (b) of Rule 485
___ 60 days after filing pursuant to paragraph (a) (i) of Rule 485
___ on ___(date)________ 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__
N4VA2
<PAGE>
Variable Annuity
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)
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 FundsFund/Fund II/Fund
III,
American Century's Variable Portfolio Inc.,
MFS(r)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 VC C Growth and Income Portfolio
Table of Contents
Definitions 3
SUMMARY 4
Features of Variable Annuity 4
Investment Choices 4
Withdrawals 5
Charges Under the Contracts 5
FEE TABLE 7
Additional Information About Variable Annuity 11
SEPARATE ACCOUNT C AND THE FUNDS 11
Our Separate Account And Its
Investment Divisions 11
The Funds 11
Investment Policies Of The Funds' Portfolios 12
We Own The Assets Of Our Separate Account 15
Our Right To Change How We Operate
Our Separate Account 15
DETAILED INFORMATION ABOUT
THE CONTRACT 16
Requirements for Issuance of a Contract 16
Free Look 16
Allocation of Premiums 16
Changing Your Premium Allocation Percentages 17
Transfers of Contract Value 17
Dollar Cost Averaging 17
Withdrawals 18
Loans 19
Death Benefit 19
Your Contract Value 20
Amounts In Our Separate Account 20
The General Account 21
CHARGES, FEES AND DEDUCTIONS 22
Sales Charges on Withdrawals 22
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
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 33
Year 2000 Compliance Issues 33
Discount for Midland Employees 33
Legal Matters 34
Experts 34
Statement of Additional Information 34
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 the day beforeand Christmas Eve Day and New
Year's 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 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
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 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, and (b) premiums paid less withdrawals.
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. 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 (VIP) , (2)
Fidelity's Variable Insurance Products Fund II (VIP II) , (3)
Fidelity's Variable Insurance Products Fund III (VIP III) , (4)
American Century's Variable Portfolios, Inc., (5)
MFS(r)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 11.)
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 MFS(r)
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:
VC C 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 12,
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. 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 22, "FEDERAL TAX STATUS" on page 23, and
"SELECTING 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. (See "Sales Charges on
Withdrawals" on page 22.)
The amount of any sales charge depends on the contract year of
the withdrawal.
The charge for each contract year is a percentage of the
premiums and is as follows:
Contingent
Contract Deferred Sales
Year Charge
1 7%
2 6%
3 5%
4 4%
5 3%
6 2%
7 and beyond 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.
Withdrawals may be subject to tax consequences. (See
"Withdrawals" on page 18 and "FEDERAL TAX STATUS" on page 23.)
Free Withdrawal Amount
After the first contract year, 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), if the
withdrawal is the first in the contract year, 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 $33 is deducted annually from each
contract. (See "CHARGES, FEES AND DEDUCTIONS" on page 22.)
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)
7.00%
Annual Contract Maintenance Charge(1)
$33.00
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 $33 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.
In the example, the contract maintenance charge is approximated
as a 0.11%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 0.20%0.21% 0.10% 0.30%0.31%
VIP High Income 0.58%0.59% 0.12% 0.70%0.71%
VIP Equity-Income(3) 0.49%0.50% 0.08% 0.57%0.58%
VIP Growth(3) 0.59%0.60% 0.07%0.09% 0.66%0.69%
VIP Overseas(3) 0.74%0.75% 0.15%0.17% 0.89%0.92%
VIP II Asset Manager(3) 0.54%0.55% 0.09%0.10% 0.63%0.65%
VIP II Investment Grade Bond 0.43%0.44% 0.14% 0.57%0.58%
VIP II Contrafund(3) 0.59%0.60% 0.07%0.11% 0.66%0.71%
VIP II Asset Manager: Growth(3) 0.59%0.60% 0.13%0.17% 0.72%0.77%
VIP II Index 500(3)(4) 0.24% 0.04% 0.28%
VIP III Growth & Income(3) 0.49% 0.11%0.21% 0.60%0.70%
VIP III Balanced(3) 0.44%0.45% 0.14%0.16% 0.58%0.61%
VIP III Growth Opportunities(3) 0.59%0.60% 0.11%0.14% 0.70%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 1.47%1.50% 0.00% 1.47%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(4) 0.75% 0.10%0.12% 0.85%0.87%
MFS VIT Research(4) 0.75% 0.11%0.13% 0.86%0.88%
MFS VIT Growth with Income(4)(5) 0.75% 0.13%0.25% 0.88%1.00%
MFS VIT New Discovery(4) (5) 0.90% 0.27%0.25% 1.17%1.15%
Lord, Abbett VC C Growth and Income 0.50% 0.01%0.02% 0.51%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. WithoutIncluding these reductions, total operating
expenses would have been as follows:
VIP Equity-Income 0.58%0.57%
VIP Growth 0.68%0.67%
VIP Overseas 0.91%0.90%
VIP II Asset Manager 0.64%
VIP II Index 500 0.35%
VIP II Contrafund 0.70%0.78%
VIP II Asset Manager: Growth 0.73%0.76%
VIP III Balanced 0.59%0.60%
VIP III Growth Opportunities 0.71%0.73%
VIP III Growth & Income 0.61%
(4) Each of the MFS Series has an expense offset arrangement,
which reduces the series' custodian fee based upon the amount
of cash maintained by the series with its custodian and
dividend disbursing agent. Each series may enter into other
such arrangements and directed brokerage arrangements, which
would also have the effect of reducing the series' expenses.
The expenses shown above do not take into account these expense
reductions, and are therefore higher than the actual expenses
of the series.
(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 thisthese portfolios,
and each such that the 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
4.32%0.47% and 5.22%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 8899 107128 128160 213216
VIP High Income 92103 119140 148180 254257
VIP Equity-Income 91101 115136 142173 241244
VIP Growth(3) 92103 118139 146179 250255
VIP Overseas(3) 94105 125146 158191 274279
VIP II Investment Grade Bond 91101 115136 142173 241244
VIP II Asset Manager(3) 92102 117138 145177 247251
VIP II Index 500(3) 8898 106127 127158 211213
VIP II Contrafund 92103 118140 146180 250257
VIP II Asset Manager: Growth(3) 93103 120142 149183 256263
VIP III Balanced(3) 91102 115137 142175 242247
VIP III Growth Opportunities(3) 92103 119141 148182 254261
VIP III Growth & Income(3) 91103 116140 143179 244256
American Century VP Capital Appreciation 95106 28149 164195 285287
American Century VP Balanced 95106 128149 164195 285287
American Century VP Value 95106 128149 164195 285287
American Century VP International 100111 142164 187219 330335
American Century VP Income & Growth 9293 119120 148149 254256
MFS VIT Emerging Growth(4) 94 124125 156158 270274
MFS VIT Research(4) 94 124125 157159 271275
MFS VIT Growth with Income(4) 9496 125129 158165 273287
MFS VIT New Discovery(4)(5) 97 133 172 301
Lord, Abbett VC C Growth and Income 91 113114 139140 235238
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 1819 5758 98100 213216
VIP High Income 2223 6970 118120 254257
VIP Equity-Income 21 6566 112113 241244
VIP Growth(3) 2223 6869 116119 250255
VIP Overseas(3) 2425 7576 128130 274279
VIP II Investment Grade Bond 21 6566 112113 241244
VIP II Asset Manager(3) 22 6768 115117 247251
VIP II Index 500(4) 18 5657 9798 211213
VIP II Contrafund(3) 2223 6870 116120 250257
VIP II Asset Manager: Growth(3) 23 7072 119123 256263
VIP III Balanced(3) 2122 6567 112115 242247
VIP III Growth Opportunities(3) 2223 6971 118122 254261
VIP III Growth & Income 2123 6670 113119 244256
American Century VP Capital Appreciation 2526 7879 134135 285287
American Century VP Balanced 2526 7879 134135 285287
American Century VP Value 2526 7879 134135 285287
American Century VP International 3031 9294 157159 330335
American Century VP Income & Growth 2223 6970 118119 254256
MFS VIT Emerging Growth 24 7475 126128 270274
MFS VIT Research 24 7475 127129 271275
MFS VIT Growth with Income 2426 7579 128135 273287
MFS VIT New Discovery 27 83 142 301
Lord, Abbett VC C Growth and Income21 6364 109110 235238
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 $33
contract maintenance charge as an annual charge of 0.11%0.13%
of assets based on an average cash value of $30,000$27,000.
Additional Information About
Variable Annuity
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 16 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 12th15th transfer in a contract year.
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 3532 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 Products Fund,
2. Fidelity's Variable Insurance Products Fund II,
3. Fidelity's Variable Insurance Products Fund III,
4. American Century Variable Portfolios, Inc.,
5. MFS(r) 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 as high a
level of
current income
as is
consistent with
preservation of
capital and
liquidity by
investing in
U.S. dollar-
denominated
money market
securities. 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 a high
level of
current income
by investing
primarily in
income-producing debt
securities
while also
considering
growth of
capital. Policy
owners should
understand that
the fund's unit
price may be
volatile due to
the nature of
the high yield
bond marketplace. 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. 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.
The adviser
invests the
fund's assets
in companies
the adviser
believes have
above-average
growth
potential. 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. 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
instruments. 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 a high a
level of
current income
as is
consistent with
the
preservation of
capital by
investing in
U.S. dollar-
denominated
investment-grade
bonds. 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
incomesecurities.
VIP II Contrafund
Seeks to
achieve capital
appreciation
over the long
term by
investing in
common stocks
and securities
of companies
whose value the
manager
believes is not
fully recognized by
the public. 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 by
allocating its
assets among
stocks, bonds,
short-term
instruments,
and other
investments. Seeks
to maximize
total return
over the long
term through
investments in
stocks, bonds,
and short-term
instruments.
This portfolio
has a heavier
emphasis on
stocks than the
Asset Manager
Portfolio.
VIP II Index 500
Seeks to
provide investment
results that
correspond to
the total
return of
common stocks
publicly traded
in the United
States by
duplicating the
composition and
total return of
the Standard &
Poor's
Composite Index
of 500 Stocks. 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 potential
for capital
appreciation.
earnings
potential.
VIP III Balanced
Seeks both
income and
growth of
capital. When
FMR's outlook
is neutral, it
will invest
approximately
60% of the
fund's assets
in equity
securities and
will always
invest at least
25% of the
fund's assets
in fixed-income
senior securities. 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 capital
growth by
investing
primarily in
common stocks.
Although the
fund invests
primarily in
common stocks,
it has the
ability to
purchase other
securities,
including
bonds, which
may be lower-
quality debt
securities. 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 VC C 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.
MFS(r) Massachusetts Financial Services Company manages the MFS
Variable Insurance Trusts. Lord, Abbett & Co.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. Once we accept your
application, yYou 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 010 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 17).
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 12th15th 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.
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 contract year
and withdrawals. (See "CHARGES, FEES AND DEDUCTIONS" on page
22.)
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, the contingent owner will become the owner. If
no contingent owner has been named or is living, ownership will
pass to the owner's estate.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 19.) 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.
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. $25,000$1,000
These limits do not apply to transfers made in a Dollar Cost
Averaging program that occurs over a time period of 12 or more
months.
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). 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 amount of any sales charge depends upon the contract year
of the withdrawal. Your first contract year begins on the
contract date. A subsequent contract year begins on each
anniversary of that date. Premium payments are considered
withdrawn in the order that they were received.
The charge for each contract year is a percentage of the
premiums and is as follows:
Contingent
Contract Deferred Sales
Year Charge
1 7%
2 6%
3 5%
4 4%
5 3%
6 2%
7 and beyond 0%
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
After the first contract year, you may withdraw 10% of the
total premiums paid without incurring a contingent deferred
sales charge, if the withdrawal is the first in the contract
year. 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
during that contract year.
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 $33 on each contract
anniversary on or before the maturity date. 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, 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 12th15th 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 7.
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 for nonqualified contracts and is
the contract anniversary nearest the Annuitant's 70th birthday
for qualified contracts. The maturity date differs based on
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 or five years from the contract date,
whichever is later. In addition, for qualified contracts the
maturity date can not be later than April 1 of the calendar
year immediately following the calendar year in which the
annuitant attains 70 1/2.
If you have not previously specified otherwise, 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.
SELECTING 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 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 5.25% 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
The Year 2000 issue (Y2K) relates to the ability of computer
systems to properly recognize a four-digit year code. Many
computer systems only allowed for a two-digit year code and
thus years such as 1998 were simply recognized as 98. Using a
two-digit year code for the years 2000 and beyond could result
in errors and miscalculations.
Midland National Life relies extensively on computer systems in
its daily operations. Several years ago, we began implementing
a Plan to modify all of our computer systems to properly
recognize the year 2000. Our Y2K Plan focused on assuring
compliance in the following areas: Information Technology
("IT") and non-information ("non-IT") hardware, operating
systems, software applications and custom applications. We are
in the process of the remediation and testing of other systems,
including telephone, heating and cooling, mechanical and other
equipment having embedded, date sensitive technology for Year
2000 compliance, In addition, we are reviewing the Year 2000
compliance status of our mission critical customers, vendors
and service providers.
We have upgraded our mainframe computer hardware, systems
software and applications software to address Y2K issues and we
expect to complete compliance testing by June 30, 1999. Most of
our systems run on the IBM mainframe computer platform, where
future dated systems testing has been performed through
December 31, 2000. We are in the process of updating and
testing hardware and software running on personal computer (PC)
platforms and expect to have any Y2K issues resolved by June
30, 1999.
Y2K issues have been handled primarily by our internal staff.
We spent approximately $800,000 on the Year 2000 project
through the end of 1998 and estimate additional expenditures of
$250,000 for the balance of the project. Due to our early start
in addressing Y2K issues, the number of other IT projects
delayed due to Y2K has been very limited.
We are currently in the process of developing a Y2K Contingency
Plan and will involve representatives from our IT and non-IT
business units in the planning process. The Y2K Contingency
Plan may include potential Y2K issues generated within our own
Company and potential Y2K issues generated by third parties
that have a mission critical business relationship with us.
While we cannot guarantee that our computer systems nor those
of the parties with which we conduct business will properly
function once the year 2000 is reached, Midland National Life
is committed to maintaining reliable computer systems which
properly recognize the year 2000.
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
PricewaterhouseCoopers LLP Coopers & Lybrand LLP, independent
auditors, for the periods indicated in their report which
appears in the registration statement. The address for
PricewaterhouseCoopers LLPCoopers & Lybrand LLP is:
IBM Park Building
Suite 1300
650 Third Avenue South
Minneapolis, MN 55402-4333
The financial statements audited by PricewaterhouseCoopers
LLPCoopers & 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:
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
CONDENSED FINANCIAL INFORMATION
Accumulation Number of
Unit Value at Accumulation Accumulation
Investment Beginning of Unit Value at Units at End of
Division Period End of Period 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 11.63 12.08 1,031,930
VIP High Income
1993(1) 10.00 10.22
1994 10.2 29.93 70,977
1995 9.93 11.83 139,335
1996 11.83 13.26 221,760
1997 13.26 13.58 221,760
1998 13.58 14.51 443,482
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
19961997 14.35 16.09 696,083
19971998 16.09 20.33 929,862
1998 20.33 22.37 1,212,515
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 18.28 25.14 1,102,018
VIP Overseas
1993(1) 10.00 10.40 1,706
1994 10.40 10.37 147,456
1995 10.37 11.36 217,322
1996 11.36 12.59 282,107
1997 12.59 13.85 336,988
1998 13.85 15.39 300,975
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 15.05 17.06 585,516
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 12.06 12.94 343,788
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 17.34 22.22 582,354
Accumulation Number of
Unit Value at Accumulation Accumulation
Investment Beginning of Unit Value at Units at End of
Division Period End of Period 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 16.72 19.38 255,206
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 21.67 27.42 870,732
VIP III Growth & Income
1997 10.00 12.36 54,877
1998 12.36 15.79 301,273
VIP III Balanced
1997(3) 10.00 11.45 39,701
1998 11.45 13.28 146,152
VIP III Growth Opportunities
1997(3) 10.00 12.28 75,926
1998 12.28 15.08 320,588
American Century VP Capital Appreciation
1997(3) 10.00 11.35 13,870
1998 11.35 10.94 43,157
American Century VP Value
1997(3) 10.00 12.26 44,666
1998 12.26 12.66 141,481
American Century VP Balanced
1997(3) 10.00 11.40 13,519
1998 11.40 13.01 45,229
American Century VP International
1997(3) 10.0010.001 10.930.93 34,973
1998 10.93 12.79 91,430
American Century VP Income & Growth
1998(4) 10.00 11.92 12,172
MFS VIT Emerging Growth
1998(4) 10.00 12.56 10,106
MFS VIT Research
1998(4) 10.00 11.78 9,782
MFS VIT Growth with Income
1998(4) 10.00 11.54 2,539
MFS VIT New Discovery
1998(4) 10.00 12.89 84
Lord, Abbett VC C Growth and Income
1998(4) 10.00 10.72 14,051
(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 10/1/98 to 12/31/98
5401ED.txt
<PAGE>
STATEMENT OF ADDITIONAL INFORMATION FOR THE
FLEXIBLE PREMIUM DEFERRED VARIABLE ANNUITY
CONTRACT
Offered by
MIDLAND NATIONAL LIFE INSURANCE COMPANY
(Through Midland National Life Separate Account C)
This Statement of Additional Information expands upon subjects
discussed in the current Prospectus for the Flexible Premium
deferred Variable Annuity Contract ("Contract") offered by
Midland National Life Insurance Company. You may obtain a
copy of the Prospectus dated May 1, 19991998 , 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, 19991998
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) 9
Required Distributions 9
DISTRIBUTION OF THE CONTRACT 10
SAFEKEEPING OF ACCOUNT ASSETS 10
STATE REGULATION 10
RECORDS AND REPORTS 10
LEGAL PROCEEDINGS 10
LEGAL MATTERS 10
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 Division's actual yield is affected by
changes in interest rates on money market securities, average
portfolio maturity of the VIP Money Market Portfolio or substitute
funding vehicle, the types and quality of portfolio securities held
by the VIP Money Market Portfolio or substitute funding vehicle,
and operating expenses. In addition, the yield figures do not
reflect the effect of any Contingent Deferred Sales Charge
that may be applicable to a particular Contract. The annualized
yield for the seven-day period ending 12/31/9812/31/97 was
3.60%.4.07% .
Other Investment Division Yield Calculations
Midland may from time to time disclose the current annualized yield of
one or more of the Investment Divisions (except the Money Market
Investment Division) for 30-day periods. The annualized yield of an
Investment Division refers to income generated by the Investment Division
over a specified 30-day period. Because the yield is annualized, the
yield generated by an Investment Division during the 30-day period
is assumed to be generated each 30-day period. This yield is
computed by dividing the net investment income per accumulation
unit earned during the period by the price per unit on the last
day of the period, according to the following formula:
YIELD = 2 [ (a - b + 1)6 - 1 ]
cd
Where: a = net investment income earned during the period by the Fund (or
substitute funding vehicle) attributable to
shares owned by the Investment Division.
b = expenses accrued for the period (net of reimbursements).
c = the average daily number of units outstanding during the period.
d = the maximum offering price per unit on the last day of the period.
Net investment income will be determined in accordance with rules
established by the Securities and Exchange Commission. Accrued
expenses will include all recurring fees that are charged to all
Owner accounts. The yield calculations do not reflect the effect
of any Contingent Deferred Sales Charges that may be applicable to
a particular Contract. Contingent Deferred Sales Charges range from
7% to 0% of the amount of Premium withdrawn depending on the elapsed
time since the Contract was issued.
Because of the charges and deductions imposed by the Separate Account
the yield of the Investment Division will be lower than the yield
for the corresponding Fund. The yield on amounts held in the
Investment Divisions normally will fluctuate over time. Therefore,
the disclosed yield for any given past period is not an indication
or representation of future yields or rates of return. The Investment
Division's actual yield will be affected by the types and quality
of portfolio securities held by the Fund, and its operating
expenses.
We currently do not advertise yields for any Investment Division.
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 = a hypothetical initial payment of $1,000
T = average annual total return
n = number of years
ERV = ending redeemable value of a hypothetical $1,000 payment made at the
beginning of the one, five, or
ten-year period, at the end of the one, five, or ten-year period (or
fractional portion thereof).
All recurring fees that are charged to all Owner accounts are
recognized in the ending redeemable value. The standard average
annual total return calculations which assume the Contract is
surrendered will reflect the effect of Contingent Deferred Sales
Charges that may be applicable to a particular period.
The following is the average annual total return information
for the Investment Divisions of Separate Account C. The returns
are based on the assumption that the contract is surrendered at
the end of the time period shown and the returns reflect the
impact of any applicable Contingent Deferred Sales Charge.
Investment Division Inception of the 1-Year Period
with Investment Division Ended
Inception Date to 12/31/9812/31/97 12/31/9812/31/97
VIP Money Market (10/24/93) 2.70% -4.40%
VIP II Investment Grade Bond (10/24/93) 4.12% -0.18%
VIP High Income (10/24/93) 6.54% -12.81%
VIP II Asset Manager (10/24/93) 10.04% 6.29%
VIP II Index 500 (10/24/93) 20.87% 19.38%
VIP Equity-Income (10/24/93) 16.12% 2.92%
VIP Growth (10/24/93) 18.82% 30.39%
VIP Overseas (10/24/93) 7.80% 4.02%
VIP II Contrafund (5/1/95) 23.22% 21.01%
VIP II Asset Manager: Growth (5/1/95) 18.56% 8.78%
VIP III Balanced (5/1/97) 14.55% 8.85%
VIP III Growth & Income (5/1/97) 27.78% 20.63%
VIP III Growth Opportunities (5/1/97) 24.12% 15.72%
American Century VP Balanced (5/1/97) 13.05% 6.76%
American Century VP Capital Appreciation (5/1/97) 11.24% -10.68%
American Century VP Value (5/1/97) 11.13% -3.87%
American Century VP International (5/1/97) 11.85% 9.80%
American Century VP Income & Growth (10/1/98) N/A N/A
MFS VIT Emerging Growth Series (10/1/98) N/A N/A
MFS VIT Research Series (10/1/98) N/A N/A
MFS VIT Growth with Income Series (10/1/98) N/A N/A
MFS VIT New Discovery Series (10/1/98) N/A N/A
Lord, Abbett VCC Growth and Income (10/1/98) N/A N/A
N/A - The return information for these periods is not reflected
as the funds had not been included in Midland National Life
Separate Account C for more than 12 months at 12/31/19981997.
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. The returns are
based on the assumption that the contract is kept in-force through
the end of the time period shown and the Contingent Deferred Sales
Charges are set to zero.
Investment Division Inception of the 1-Year Period
with Investment Division Ended
Inception Date to 12/31/9812/31/97 12/31/9812/31/97
VIP Money Market (10/24/93) 3.61% 2.61%
VIP II Investment Grade Bond (10/24/93) 4.98% 7.18%
VIP High Income (10/24/93) 7.33% -5.81%
VIP II Asset Manager (10/24/93) 10.73% 13.29%
VIP II Index 500 (10/24/93) 21.34% 26.38%
VIP Equity-Income (10/24/93) 16.67% 9.91%
VIP Growth (10/24/93) 19.32% 37.39%
VIP Overseas (10/24/93) 8.55% 11.02%
VIP II Contrafund (5/1/95) 24.19% 28.01%
VIP II Asset Manager: Growth (5/1/95) 19.64% 15.78%
VIP III Balanced (5/1/97) 18.44% 15.85%
VIP III Growth & Income (5/1/97) 31.41% 27.63%
VIP III Growth Opportunities (5/1/97) 27.82% 22.72%
American Century VP Balanced (5/1/97) 16.98% 13.76%
American Century VP Capital Appreciation (5/1/97) 5.46% -3.68%
American Century VP Value (5/1/97) 15.11% 3.14%
American Century VP International (5/1/97) 15.81% 16.80%
American Century VP Income & Growth (10/1/98) N/A N/A
MFS VIT Emerging Growth Series (10/1/98) N/A N/A
MFS VIT Research Series (10/1/98) N/A N/A
MFS VIT Growth with Income Series (10/1/98) N/A N/A
MFS VIT New Discovery Series (10/1/98) N/A N/A
Lord, Abbett VCC Growth and Income (10/1/98) N/A N/A
N/A - The return information for these periods is not reflected as
the funds had not been included in Midland National Life Separate
Account C for more than 12 months at 12/31/19981997.
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.
Investment Division Inception of the 1-Year Period
with Investment Division Ended
Inception Date to 12/31/9812/31/97 12/31/9812/31/97
VIP Money Market (10/24/93) 14.80% -4.40%
VIP II Investment Grade Bond (10/24/93) 23.28% -0.18%
VIP High Income (10/24/93) 38.95% -12.81%
VIP II Asset Manager (10/24/93) 64.30% 6.29%
VIP II Index 500 (10/24/93) 167.44% 19.38%
VIP Equity-Income (10/24/93) 117.16% 2.92%
VIP Growth (10/24/93) 144.67% 30.39%
VIP Overseas (10/24/93) 47.67% 4.02%
VIP II Contrafund (5/1/95) 115.22% 21.01%
VIP II Asset Manager: Growth (5/1/95) 86.85% 8.78%
VIP III Balanced (5/1/97) 25.43% 8.85%
VIP III Growth & Income (5/1/97) 50.54% 20.63%
VIP III Growth Opportunities (5/1/97) 43.41% 15.72%
American Century VP Balanced (5/1/97) 22.71% 6.76%
American Century VP Capital Appreciation (5/1/97) 2.08% -10.68%
American Century VP Value (5/1/97) 19.26% -3.87%
American Century VP International (5/1/97) 20.55% 9.80%
American Century VP Income & Growth (10/1/98)N/A N/A
MFS VIT Emerging Growth Series (10/1/98) N/A N/A
MFS VIT Research Series (10/1/98 N/A N/A
MFS VIT Growth with Income Series (10/1/98) N/A N/A
MFS VIT New Discovery Series (10/1/98) N/A N/A
Lord, Abbett VCC Growth and Income (10/1/98) N/A N/A
N/A - The return information for the funds are not reflected as the funds had
not been included in Midland National Life Separate Account C for more than
12 months at 12/31/19981997 .
The following is the cumulative total return information for the Investment
Division of Separate Account C. The returns are based on the assumption that
the contract is kept in-force through the end of the time period shown and
the Contingent Deferred Sales Charges are set to zero.
Investment Division Inception of the 1-Year Period
with Investment Division Ended
Inception Date to 12/31/9812/31/97 12/31/9812/31/97
VIP Money Market (10/24/93) 20.20% 2.61%
VIP II Investment Grade Bond (10/24/93) 28.68% 7.18%
VIP High Income (10/24/93) 44.35% -5.81%
VIP II Asset Manager (10/24/93) 69.70% 13.29%
VIP II Index 500 (10/24/93) 172.84% 26.38%
VIP Equity-Income (10/24/93) 122.56% 9.91%
VIP Growth (10/24/93) 150.07% 37.39%
VIP Overseas (10/24/93) 53.07% 11.02%
VIP II Contrafund (5/1/95) 121.52% 28.01%
VIP II Asset Manager: Growth (5/1/95) 93.51% 15.78%
VIP III Balanced (5/1/97) 32.63% 15.85%
VIP III Growth & Income (5/1/97) 57.74% 27.63%
VIP III Growth Opportunities (5/1/97) 50.61% 22.72%
American Century VP Balanced (5/1/97) 29.91% 13.76%
American Century VP Capital Appreciation (5/1/97)9.28% -3.68%
American Century VP Value (5/1/97) 26.46% 3.14%
American Century VP International (5/1/97) 27.75% 16.80%
American Century VP Income & Growth (10/1/98)N/A N/A
MFS VIT Emerging Growth Series (10/1/98) N/A N/A
MFS VIT Research Series (10/1/98) N/A N/A
MFS VIT Growth with Income Series (10/1/98) N/A N/A
MFS VIT New Discovery Series (10/1/98) N/A N/A
Lord, Abbett VCC Growth and Income (10/1/98) N/A N/A
N/A - The return information for the funds are not reflected as the funds had
not been included in Midland National Life Separate Account C for more than
12 months at 12/31/19981997.
Adjusted Historical Performance Data
Midland may also disclose adjusted historical performance data for an
Investment Division for periods before the Investment Division commenced
operations, based on the assumption that the Investment Division was in
existence before it actually was, and that the Investment Division had been
invested in a particular portfolio that was in existence prior to the
Investment Division's commencement of operations. The portfolio used for
these calculations will be the actual portfolio that the Investment Division
will invest in.
Adjusted historical performance data of this type will be calculated as
follows. First, the value of an assumed $1,000 investment in the applicable
portfolio is calculated on a monthly basis by comparing the net asset value
per share at the beginning of the month with the net asset value per share at
the end of the month (adjusted for any dividend distributions during the
month), and the resulting ratio is applied to the value of the investment at
the beginning of the month to get the gross value of the investment at the
end of the month. Second, that gross value is then reduced by a "Contract
Charges" factor to reflect the charges imposed under the Contract. The
Contract Charges factor is calculated by adding the daily charge for
mortality and expense risks (1.25%
annually) to the daily Administrative Charge (0.15% annually), and then adding
an additional amount that adjusts for the annual $33 Contract Maintenance
Charge. This additional amount is based on an average Contract Value of
$30,000$27,000, so it is calculated as $33/30,00027,000, or 0.12%0.13%
annually. The total of these three amounts is then divided by 12 to
get the monthly Contract Charges factor, which is then applied to the value of
the hypothetical initial payment in the applicable portfolio to get the value
in the Investment Division. The Contract Charges factor is assumed to be
deducted at the beginning of each month. In this manner, the Ending
Redeemable Value ("ERV") of a hypothetical $1,000 initial payment in the
Investment Division is calculated each month during the applicable period,
to get the ERV at the end of the period. Third, that ERV is then utilized in
the formulas above.
This type of adjusted historical performance data may be disclosed on both an
average annual total return and a cumulative total return basis. Moreover,
it may be disclosed assuming that the Contract is not surrendered (i.e., with
no deduction for the Contingent Deferred Sales Charge) and assuming that the
Contract is surrendered at the end of the applicable period (i.e.,
reflecting a deduction for any applicable Contingent Deferred Sales Charge).
The following is the average annual total return information based on the
assumption that the 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 Midland National Life Separate Account C
since the Portfolio Inception Date.
Investment Division Inception of the 10-Year Period 5-Year Period
with Portfolio Portfolio to Ended Ended
Inception Date 12/31/9812/31/97 12.31/9812/31/97 12/31/9812/31/97
VIP Money Market (4/1/82) 5.08% 3.92% 2.94%
VIP II Investment Grade Bond (12/5/88) 6.67% 6.69% 4.61%
VIP High Income (9/19/85) 9.37% 9.38% 6.71%
VIP II Asset Manager (9/6/89) 11.23% N/A 9.73%
VIP II Index 500 (8/27/92) 19.27% N/A 21.60%
VIP Equity-Income (10/9/86) 12.64% 13.86% 16.67%
VIP Growth (10/9/86) 15.55% 17.59% 19.62%
VIP Overseas (1/28/87) 6.90% 8.39% 7.62%
VIP II Contrafund (1/3/95) 26.22% N/A N/A
VIP II Asset Manager: Growth (1/3/95) 19.04% N/A N/A
VIP III Balanced (1/3/95) 13.44% N/A N/A
VIP III Growth & Income (12/31/96) 25.37% N/A N/A
VIP III Growth Opportunities (1/3/95) 23.83% N/A N/A
American Century VP Balanced (5/1/91) 9.79% N/A 10.63%
American Century VP Capital Appreciation (11/20/87)6.56% 7.03% 1.15%
American Century VP Value (5/1/96) 12.69% N/A N/A
American Century VP International (5/1/94)10.05% N/A N/A
American Century VP Income & Growth (10/30/97)23.92% N/A N/A
MFS VIT Emerging Growth Series (7/24/95) 23.82% N/A N/A
MFS VIT Research Series (7/26/95) 19.80% N/A N/A
MFS VIT Growth with Income Series (10/9/95)23.20% N/A N/A
MFS VIT New Discovery Series (5/1/98) -7.81% N/A N/A
Lord, Abbettt VCC Growth and Income (12/11/89)13.40% N/A 13.70%
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.
Investment Division Inception of the 10-Year Period 5-Year Period
with Portfolio Portfolio to Ended Ended
Inception Date 12/31/9812/31/97 12/31/9812/31/97 12/31/9812/31/97
VIP Money Market (4/1/82) 5.08% 3.92% 3.42%
VIP II Investment Grade Bond (12/5/88) 6.67% 6.69% 5.06%
VIP High Income (9/19/85) 9.37% 9.38% 7.13%
VIP II Asset Manager (9/6/89) 11.23% N/A 10.10%
VIP II Index 500 (8/27/92) 19.27% N/A 21.84%
VIP Equity-Income (10/9/86) 12.64% 13.86% 16.96%
VIP Growth (10/9/86) 15.55% 17.59% 19.89%
VIP Overseas (1/28/87) 6.90% 8.39% 8.02%
VIP II Contrafund (1/3/95) 26.67% N/A N/A
VIP II Asset Manager: Growth (1/3/95)19.57% N/A N/A
VIP III Balanced (1/3/95) 14.06% N/A N/A
VIP III Growth & Income (12/31/96) 27.15% N/A N/A
VIP III Growth Opportunities (1/3/95)24.30% N/A N/A
American Century VP Balanced (5/1/91)9.79% N/A 10.99%
American Century VP Capital Appreciation (11/20/87)6.56% 7.03% 1.66%
American Century VP Value (5/1/96) 14.05% N/A N/A
American Century VP International (5/1/94)10.46% N/A N/A
American Century VP Income & Growth (10/30/97)28.36% N/A N/A
MFS VIT Emerging Growth Series (7/24/95)24.43% N/A N/A
MFS VIT Research Series (7/26/95)20.47% N/A N/A
MFS VIT Growth with Income Series (10/9/95)23.89% N/A N/A
MFS VIT New Discovery Series (5/1/98)1.51% N/A N/A
Lord, Abbett VCC Growth and Income (12/11/89)13.40% N/A 14.02%
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.
Investment Division Inception of the 10-Year Period 5-Year Period
with Portfolio Portfolio to Ended Ended
Inception Date 12/31/9812/31/97 12/31/9812/31/97 12/31/9812/31/97
VIP Money Market (4/1/82)129.47% 46.89% 15.59%
VIP II Investment Grade Bond (12/5/88)91.61% 91.09% 25.28%
VIP High Income (9/19/85)228.93% 145.12% 38.36%
VIP II Asset Manager (9/6/89)169.84% N/A 59.08%
VIP II Index 500 (8/27/92)206.12% N/A 165.87%
VIP Equity-Income (10/9/86)329.25% 266.19% 116.17%
VIP Growth (10/9/86)485.89% 405.48% 144.92%
VIP Overseas (1/28/87)121.71% 123.82% 44.37%
VIP II Contrafund (1/3/95)153.50% N/A N/A
VIP II Asset Manager: Growth (1/3/95)100.63% N/A N/A
VIP III Balanced (1/3/95)65.51% N/A N/A
VIP III Growth & Income (12/31/96)57.17% N/A N/A
VIP III Growth Opportunities (1/3/95)134.85% N/A N/A
American Century VP Balanced (5/1/91)104.78% N/A 65.72%
American Century VP Capital Appreciation (11/20/87)102.69%97.27% 5.88%
American Century VP Value (5/1/96)37.53% N/A N/A
American Century VP International (5/1/94)56.42% N/A N/A
American Century VP Income & Growth (10/30/97)28.52% N/A N/A
MRS VIT Emerging Growth Series (7/24/98)108.58% N/A N/A
MFS VIT Research Series (7/26/95)86.01% N/A N/A
MFS VIT Growth with Income Series (10/9/95)96.17% N/A N/A
MFS VIT New Discovery Series (5/1/98)-5.29% N/A N/A
Lord, Abbett VCC Growth and Income (12/11/89)212.54% N/A 90.02%
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.
Investment Division Inception of the 10-Year Period 5-Year Period
with Portfolio Portfolio to Ended Ended
Inception Date 12/31/9812/31/97 12/31/9812/31/97 12/31/9812/31/97
VIP Money Market (4/1/82) 129.47% 46.89% 18.31%
VIP II Investment Grade Bond (12/5/88) 91.61% 91.09% 27.99%
VIP High Income (9/19/85) 228.93% 145.12% 41.11%
VIP II Asset Manager (9/16/89) 169.84% N/A 61.78%
VIP II Index 500 (8/27/92) 206.12% N/A 168.50%
VIP Equity-Income (10/9/86) 329.25% 266.19% 118.87%
VIP Growth (10/9/86) 485.89% 405.48% 147.69%
VIP Overseas (1/28/87) 121.71% 123.82% 47.07%
VIP II Contrafund (1/3/95) 157.10% N/A N/A
VIP II Asset Manager: Growth (1/3/95) 104.23% N/A N/A
VIP III Balanced (1/3/95) 69.11% N/A N/A
VIP III Growth & Income (12/31/96) 61.67% N/A N/A
VIP III Growth Opportunities (1/3/95) 138.45% N/A N/A
American Century VP Balanced (5/1/91) 104.78% N/A 68.43%
American Century VP Capital Appreciation (11/20/87)102.69% 97.27% 8.58%
American Century VP Value (5/1/96) 42.03% N/A N/A
American Century VP International (5/1/94)59.12% N/A N/A
American Century VP Income & Growth (10/30/97)33.92%N/A N/A
MFS VIT Emerging Growth Series (7/24/95)112.18% N/A N/A
MFS VIT Research Series (7/26/95) 89.61% N/A N/A
MFS VIT Growth with Income Series (10/9/95)99.77% N/A N/A
MFS VIT New Discovery Series 5/1/98) 1.01% N/A N/A
Lord, Abbett VCC Growth and Income (12/11/89)212.54% N/A 92.71%
FEDERAL TAX MATTERS
Tax-Free Exchanges (Section 1035)
Midland accepts Premiums which are the proceeds of a Contract in a transaction
qualifying for a tax-free exchange under Section 1035 of the Internal Revenue
Code. Except as required by federal law in calculating the basis of the
Contract, the Company does not differentiate between Section 1035 Premiums
and non-Section 1035 Premiums.
We also accept "rollovers" from Contracts qualifying as individual retirement
annuities or accounts (IRAs), or any other qualified contract which is
eligible to "rollover" into an IRA (except 403(b) contracts). The Company
differentiates between nonqualified Contracts and IRAs to the extent
necessary to comply with federal tax laws.
Required Distributions
In order to be treated as an annuity contract for federal income tax purposes,
section 72(s) of the code requires any Nonqualified Contract to provide that
(a) if any Owner dies on or after the Annuity Date but prior to the time the
entire interest in the Contract has been distributed, the remaining portion
of such interest will be distributed at least as rapidly as under the method of
distribution being used as of the date of that Owner's death; and (b) if any
Owner dies prior to the annuity starting date, the entire interest in the
Contract will be distributed (1) within five years after the date of that
Owner's death, or (2) as Annuity payments which will begin within one year
of that Owner's death and which will be made over the life of the Owner's
"Designated Beneficiary" or over a period not extending beyond the life
expectancy of that Beneficiary. The Owner's "Designated Beneficiary"
is the person to whom ownership of the Contract passes by reason of death and
must be a natural person. However, if the Owner's Designated Beneficiary is
the surviving spouse of the Owner, the Contract may be continued with the
surviving spouse as the new Owner.
The Nonqualified Contracts contain provisions which are intended to comply with
the requirements of section 72(s) of the Code, although no regulations
interpreting these requirements have yet been issued. We intend to review
such provisions and modify them if necessary to assure that they comply with
the requirements of Code section 72(s) when clarified by regulation or
otherwise.
Other rules may apply to Qualified Contracts.
DISTRIBUTION OF THE CONTRACT
Walnut Street Securities (WSS), the principal underwriter of the Contract, is
registered with the Securities and Exchange Commission under the Securities
Exchange Act of 1934 as a broker-dealer and is a member of the National
Association of Securities Dealers, Inc. The address for WSS is as follows:
Walnut Street Securities, 670 Mason Ridge Center, Suite 300, St.
Louis, MO 63141-8557.
The Contracts are offered to the public through brokers, licensed under the
federal securities laws and state insurance laws, that have entered into
agreements with WSS. The offering of the Contracts is continuous and WSS
does not anticipate discontinuing the offering of the Contracts. However,
WSS does reserve the right to discontinue the offering of the Contracts.
Beginning January 1, 1998, Midland will pay an underwriting commission to
WSS equal to 0.125% of all Variable Annuity premiums. Prior to June 1, 1996
Midland paid underwriting commissions to North American Management (NAM)
since NAM was the
principal underwriter of the Contracts during this time. The following table
shows the aggregate dollar amount of underwriting commissions paid to NAM
during the last three years. Such underwriting commissions were not paid to
WSS during these periods.
Underwriting
Year Commissions
1995 $100,715.80
1996 $99,593.61
1997 $0.00
1998 $0.00
SAFEKEEPING OF ACCOUNT ASSETS
Title to assets of the Separate Account is held by Midland. The assets are
kept physically segregated and held separate and apart from our general
account as
PricewaterhouseCoopersCoopers & Lybrand LLP
IBM Park Building, Suite 1300
650 Third Avenue S.
Minneapolis, MN 55402-4333
OTHER INFORMATION
NFORMATION
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.
5401-App
<PAGE>
C O N T E N T S
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
PricewaterhouseCoopersCoopers & 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 PricewaterhouseCoopers Coopers & Lybrand LLP have been included in
reliance on their report, given on their authority as experts in a
PricewaterhouseCoopersCoopers & Lybrand LLP
IBM Park Building, Suite 1300
650 Third Avenue S.
Minneapolis, MN 55402-4333
OTHER INFORMATION
NFORMATION
d changes in
net assets for each of the three years in the period ended
December 31, 1998, in conformity with generally accepted
accounting principles. These financial statements are the
responsibility of Midland National Life Insurance Company's
management; our responsibility is to express an opinion on
these financial statements based on our audits. We conducted
our audits of these statements in accordance with generally
accepted auditing standards which 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, assessing the accounting principles used and
significant estimates made by management, and evaluating the
overall financial statement presentation. We believe that our
audits provide a reasonable basis for the opinion expressed
above.
<TABLE>
March 26, 1999
Midland National Life Insurance Company
Separate Account C
Statement of Assets
As of December 31, 1998
<S> <C> <C>
Value
Per
ASSETS Shares Share
Investments at net asset value:
Variable Insurance Products Fund:
Money Market Portfolio (cost $12,473,870) 12,473,870 $ 1.00 $12,473,870
High Income Portfolio (cost $6,846,628) 558,310 11.53 6,437,316
Equity-Income Portfolio (cost $23,398,690) 1,067,294 25.42 27,130,618
Growth Portfolio (cost $20,592,858) 617,507 44.87 27,707,561
Overseas Portfolio (cost $4,278,299) 231,183 20.05 4,635,216
Variable Insurance Products Fund II:
Asset Manager Portfolio (cost $8,900,611) 550,363 18.16 9,994,590
Investment Grade Bond Portfolio (cost $4,270,156) 343,481 12.96 4,451,512
Index 500 Portfolio (cost $19,520,404) 169,053 141.25 23,878,794
Contrafund Portfolio (cost $10,190,470) 529,637 24.44 12,944,327
Asset Manager Growth Portfolio (cost $4,368,843) 290,530 17.03 4,947,729
Variable Insurance Products Fund III:
Balanced Portfolio (cost $1,797,598) 120,530 16.11 1,941,731
Growth & Income Portfolio (cost $4,125,444) 294,682 16.15 4,759,121
Growth Opportunities Portfolio (cost $4,228,174) 211,348 22.88 4,835,642
American Century Variable Portfolios, Inc.:
Balanced Portfolio (cost $561,296) 70,576 8.34 588,604
Capital Appreciation Portfolio (cost $468,990) 52,503 9.02 473,579
International Portfolio (cost $1,118,173) 153,552 7.62 1,170,066
Value Portfolio (cost $1,781,133) 266,208 6.73 1,791,579
Income & Growth Portfolio (cost $136,823) 21,414 6.78 145,186
Massachusetts Financial Services:
Emerging Growth Portfolio (cost $116,227) 5,914 21.47 126,969
Growth & Income Portfolio (cost $27,784) 1,457 20.11 29,309
New Discovery Portfolio (cost $1,011) 107 10.22 1,095
Research Portfolio (cost $108,944) 6,051 19.05 115,273
Lord, Abbett & Company:
Growth & Income Portfolio (cost $154,272) 7,302 20.64 150,772
Total investments (cost $129,466,698) $150,730,459
Net assets $150,730,459
</TABLE>
Midland National Life Insurance Company
Separate Account C
Statement of Assets, Continued
As of December 31, 1998
Value
Per
NET ASSETS Units Unit
Net assets represented by:
Variable Insurance Products Fund:
Money Market Portfolio 1,031,931 $12.09 $12,473,870
High Income Portfolio 443,482 14.52 6,437,316
Equity-Income Portfolio 1,212,516 22.38 27,130,618
Growth Portfolio 1,102,019 25.14 27,707,561
Overseas Portfolio 300,976 15.40 4,635,216
Variable Insurance Products Fund II:
Asset Manager Portfolio 585,516 17.07 9,994,590
Investment Grade Bond Portfolio 343,788 12.95 4,451,512
Index 500 Portfolio 870,733 27.42 23,878,794
Contrafund Portfolio 582,354 22.23 12,944,327
Asset Manager Growth Portfolio 255,207 19.39 4,947,729
Variable Insurance Products Fund III:
Balanced Portfolio 146,152 13.29 1,941,731
Growth & Income Portfolio 301,273 15.80 4,759,121
Growth Opportunities Portfolio 320,588 15.08 4,835,642
American Century Variable Portfolios, Inc.:
Balanced Portfolio 45,230 13.01 588,604
Capital Appreciation Portfolio 43,258 10.95 473,579
International Portfolio 91,431 12.80 1,170,066
Value Portfolio 141,482 12.66 1,791,579
Income & Growth Portfolio 12,173 11.93 145,186
Massachusetts Financial Services:
Emerging Growth Portfolio 10,107 12.56 126,969
Growth & Income Portfolio 2,539 11.54 29,309
New Discovery Portfolio 85 12.88 1,095
Research Portfolio 9,782 11.78 115,273
Lord, Abbett & Company:
Growth & Income Portfolio 14,052 10.73 150,772
Net assets $150,730,459
Midland National Life Insurance Company
Separate Account C
Statements of Operations and Changes in Net
Assets
For the years ended December 31, 1998, 1997 and 1996
Combined
1998 1997 1996
Investment income:
Dividend income $1,855,034 $1,222,960 $610,051
Capital gains distributions 5,675,705 2,351,461 852,325
7,530,739 3,574,421 1,462,376
Expenses:
Administrative expense 168,950 99,060 54,222
Mortality and expense risk 1,520,704 884,316 489,968
Net investment income 5,841,085 2,591,045 918,186
Realized and unrealized gains
(losses) on investments:
Net realized gains on
investments 4,099,295 2,325,825 945,397
Net unrealized appreciation
(depreciation) on investments 9,895,409 6,604,328 2,183,942
Net realized and unrealized
gains (losses) on investments 13,994,704 8,930,153 3,129,339
Net increase (decrease) in net
assets resulting from operations $19,835,789 $11,521,198 $4,047,525
Net assets at beginning of year $84,882,243 $47,905,622 $23,945,524
Net increase (decrease) in net
assets resulting from operations 19,835,789 11,521,198 4,047,525
Capital shares transactions:
Net premiums 57,035,498 29,710,164 22,109,531
Transfers of policy loans (239,919) 64,214 (138,377)
Transfers of surrenders (9,129,836) (3,059,123) (1,435,877)
Transfers of death benefits (153,431) (69,204) (98,128)
Transfers of other terminations (1,499,885) (1,190,628) (524,576)
Interfund transfers
Net increase in net assets
from capital share transactions 46,012,427 25,455,423 19,912,573
Total increase in net assets 65,848,216 36,976,621 23,960,098
Net assets at end of year $150,730,459 $84,882,243 $47,905,622
Variable Insurance Products Fund
Money Market Portfolio High Income Portfolio
1998 1997 1996 1998 1997 1996
$436,463 $300,220 $219,309 $345,800 $222,895 $131,237
219,727 27,549 25,677
436,463 300,220 219,309 565,527 250,444 156,914
12,375 8,443 6,282 8,514 5,683 3,316
107,724 74,591 52,611 76,520 51,637 30,223
316,364 217,186 160,416 480,493 193,124 123,375
32,833 120,453 39,094
(873,410) 238,019 84,465
(840,577) 358,472 123,559
$316,364 $217,186 $160,416 $(360,084) $551,596 $246,934
$6,219,257 $5,037,632 $3,452,911 $4,692,229 $2,941,240 $1,647,643
316,364 217,186 160,416 (360,084) 551,596 246,934
11,300,710 4,354,516 4,272,582 2,769,358 1,505,730 1,052,260
1,026 3,183 370 (1,161) 8,735 (18,992)
(2,868,366) (720,053) (610,463) (728,562) (193,053) (98,156)
(12,145) (9,075) (990)
(187,199) (192,221) (116,605) (91,242) (54,516) (18,874)
(2,307,922) (2,480,986) (2,109,434) 156,778 (58,428) 131,415
5,938,249 964,439 1,424,305 2,105,171 1,199,393 1,046,663
6,254,613 1,181,625 1,584,721 1,745,087 1,750,989 1,293,597
$12,473,870 $6,219,257 $5,037,632 $6,437,316 $4,692,229 $2,941,240
Midland National Life Insurance Company
Separate Account C
Statements of Operations and Changes in Net Assets, Continued
For the years ended December 31, 1998, 1997 and 1996
Variable Insurance Products Fund
Equity-Income Portfolio
1998 1997 1996
Investment income:
Dividend income $272,867 $205,546 $9,062
Capital gains distributions 971,085 1,033,441 259,769
1,243,952 1,238,987 268,831
Expenses:
Administrative expense 34,579 22,633 12,821
Mortality and expense risk 312,129 196,772 116,283
Net investment income 897,244 1,019,582 139,727
Realized and unrealized gains (losses) on investments:
Net realized gains on investments 820,340 544,429 232,696
Net unrealized appreciation (depreciation) on
investments 462,810 1,828,524 639,710
Net realized and unrealized gains on
investments 1,283,150 2,372,953 872,406
Net increase in net assets resulting
from operations $2,180,394 $3,392,535 $1,012,133
Net assets at beginning of year $18,903,655 $11,202,976 $5,535,894
Net increase in net assets resulting from
operations 2,180,394 3,392,535 1,012,133
Capital shares transactions:
Net premiums 7,033,996 4,729,107 4,495,843
Transfers of policy loans (7,815) 18,935 (16,252)
Transfers of surrenders (998,478) (494,451) (146,734)
Transfers of death benefits (56,152) (1,512) (47,195)
Transfers of other terminations (250,351) (268,311) (171,438)
Interfund transfers 325,369 324,376 540,725
Net increase in net assets from capital share
transactions 6,046,569 4,308,144 4,654,949
Total increase in net assets 8,226,963 7,700,679 5,667,082
Net assets at end of year $27,130,618 $18,903,655 $11,202,976
Variable Insurance Products Fund
Growth Portfolio Overseas Portfolio
1998 1997 1996 1998 1997 1996
$86,915 $75,678 $13,629 $89,108 $65,176 $28,907
2,273,513 338,750 344,126 262,634 258,730 31,798
2,360,428 414,428 357,755 351,742 323,906 60,705
31,608 20,920 11,964 7,131 6,503 4,460
287,311 200,814 109,649 65,879 65,711 41,952
2,041,509 192,694 236,142 278,732 251,692 14,293
669,341 691,123 342,671 251,364 98,094 51,904
4,319,239 1,712,204 260,988 (54,181) 2,092 237,970
4,988,580 2,403,327 603,659 197,183 100,186 289,874
$7,030,089 $2,596,021 $839,801 $475,915 $351,878 $304,167
$16,774,778 $10,524,695 $4,630,311 $4,666,058 $3,551,260 $2,467,800
7,030,089 2,596,021 839,801 475,915 351,878 304,167
5,293,591 4,634,527 4,775,149 565,888 949,784 897,349
(27,860) 4,007 (19,252) (268) 2,943 (10,209)
(1,012,070) (676,615) (169,952) (601,662) (176,955) (93,933)
(49,021) (1,076) (2,219) (20,400) (8,437) (8,833)
(181,637) (177,990) (49,452) (73,320) (46,889) (24,888)
(120,309) (128,791) 520,309 (376,995) 42,474 19,807
3,902,694 3,654,062 5,054,583 (506,757) 762,920 779,293
10,932,783 6,250,083 5,894,384 (30,842) 1,114,798 1,083,460
$27,707,561 $16,774,778 $10,524,695 $4,635,216 $4,666,058 $3,551,260
Midland National Life Insurance Company
Separate Account C
Statements of Operations and Changes in
Net Assets, Continued
For the years ended December 31, 1998, 1997 and 1996
Variable Insurance Products Fund II
Asset Manager Portfolio
1998 1997 1996
Investment income:
Dividend income $255,496 $200,876 $149,107
Capital gains distributions 766,487 503,893 122,948
1,021,983 704,769 272,055
Expenses:
Administrative expense 13,340 10,160 7,320
Mortality and expense risk 119,898 92,524 67,334
Net investment income 888,745 602,085 197,401
Realized and unrealized gains (losses) on investments:
Net realized gains on investments 276,757 134,752 87,754
Net unrealized appreciation (depreciation) on
investments (37,623) 410,196 305,446
Net realized and unrealized gains on
investments 239,134 544,948 393,200
Net increase in net assets resulting
from operations $1,127,879 $1,147,033 $590,601
Net assets at beginning of year $8,036,950 $5,664,702 $4,067,451
Net increase in net assets resulting from
operations 1,127,879 1,147,033 590,601
Capital shares transactions:
Net premiums 1,647,691 1,501,724 1,367,766
Transfers of policy loans 781 13,379 (16,660)
Transfers of surrenders (700,495) (313,519) (159,533)
Transfers of death benefits (19,872) (22,205)
Transfers of other terminations (163,587) (136,227) (83,451)
Interfund transfers 45,371 179,730 (79,267)
Net increase in net assets from capital share
transactions 829,761 1,225,215 1,006,650
Total increase in net assets 1,957,640 2,372,248 1,597,251
Net assets at end of year $9,994,590 $8,036,950 $5,664,702
Variable Insurance Products Fund II
Investment Grade Bond Portfolio Index 500 Portfolio
1998 1997 1996 1998 1997 1996
$79,445 $70,099 $30,902 $137,495 $53,290 $13,188
9,426 318,462 108,132 33,913
88,871 70,099 30,902 455,957 161,422 47,101
3,933 2,034 1,306 24,798 11,229 3,713
34,906 19,012 11,709 223,789 81,297 33,478
50,032 49,053 17,887 207,370 68,896 9,910
42,970 9,788 16,413 1,233,566 513,374 130,338
95,639 42,600 (6,743) 2,634,811 1,209,776 342,676
138,609 52,388 9,670 3,868,377 1,723,150 473,014
$188,641 $101,441 $27,557 $4,075,747 $1,792,046 $482,924
$1,641,646 $1,096,280 $578,159 $10,788,748 $4,253,767 $983,298
188,641 101,441 27,557 4,075,747 1,792,046 482,924
2,609,124 612,100 521,107 9,690,307 4,538,389 2,506,543
(11,442) 1,539 (9,375) (54,944) 3,990 (19,357)
(116,906) (62,059) (51,740) (1,003,115) (231,487) (81,856)
(27,858) (19,852) (1,602)
(56,620) (37,391) (6,831) (180,785) (150,241) (41,788)
197,069 (70,264) 37,403 590,694 602,136 425,605
2,621,225 443,925 490,564 9,014,299 4,742,935 2,787,545
2,809,866 545,366 518,121 13,090,046 6,534,981 3,270,469
$4,451,512 $1,641,646 $1,096,280 $23,878,794 $10,788,748 $4,253,767
Midland National Life Insurance Company
Separate Account C
Statements of Operations and Changes in
Net Assets, Continued
For the years ended December 31, 1998, 1997 and 1996
Variable Insurance Products Fund II
Contrafund Portfolio
1998 1997 1996
Investment income:
Dividend income 51,154 25,593
Capital gains distributions 376,347 67,639 4,815
427,501 93,232 4,815
Expenses:
Administrative expense 14,264 7,064 2,275
Mortality and expense risk 129,425 63,428 20,104
Net investment income 283,812 22,740 (17,564)
Realized and unrealized gains on investments:
Net realized gains on investments 498,083 139,059 39,350
Net unrealized appreciation on
investments 1,742,246 730,282 274,444
Net realized and unrealized gains on
investments 2,240,329 869,341 313,794
Net increase in net assets resulting
from operations 2,524,141 892,081 296,230
Net assets at beginning of year 6,895,729 2,659,591 425,021
Net increase in net assets resulting from
operations 2,524,141 892,081 296,230
Capital shares transactions:
Net premiums 4,060,420 2,954,381 1,564,947
Transfers of policy loans (27,929) 4,276 (14,296)
Transfers of surrenders (493,218) (156,257) (23,252)
Transfers of death benefits (9,380) (2,939)
Transfers of other terminations (152,896) (70,573) (4,941)
Interfund transfers 138,080 621,610 418,821
Net increase in net assets from capital share
transactions 3,524,457 3,344,057 1,938,340
Total increase in net assets 6,048,598 4,236,138 2,234,570
Net assets at end of year 12,944,327 6,895,729 2,659,591
<TABLE>
<S> <C> <C> <C> <C>
Variable Insurance Products II Variable Insurance Products Fund III
Growth & Income
Asset Manager Growth Portfolio Balanced Portfolio Portfolio
1998 1997 1996 1998 1997 1998 1997
$64,271 $14,710 $12,482 $ $ $3,587
300,563 1,669 29,279 19,070 4,138 11,658
364,834 1,669 43,989 31,552 4,138 15,245
5,833 2,962 765 1,490 167 3,381 293
53,144 26,529 6,625 13,014 1,395 29,192 2,465
305,857 (27,822) 36,599 17,048 (1,562) (28,435) 12,487
121,005 48,017 5,177 10,601 3,054 65,638 8,345
169,827 363,630 44,986 132,761 11,372 618,738 14,939
290,832 411,647 50,163 143,362 14,426 684,376 23,284
$596,689 $383,825 $86,762 $160,410 $12,864 $655,941 $35,771
$2,956,656 $973,479 $157,036 $454,728 $ $678,443 $
596,689 383,825 86,762 160,410 12,864 655,941 35,771
1,483,303 1,266,684 655,985 1,271,252 332,310 3,298,663 583,629
(23,118) 3,227 (14,354) (17,484) (37,622)
(186,830) (24,842) (258) (43,612) (11) (70,135) (7,194)
(84,533) (35,261) (6,308) (13,646) (4,077) (15,091)
205,562 389,544 94,616 130,083 113,642 248,922 66,237
1,394,384 1,599,352 729,681 1,326,593 441,864 3,424,737 642,672
1,991,073 1,983,177 816,443 1,487,003 454,728 4,080,678 678,443
$4,947,729 $2,956,656 $973,479 $1,941,731 $454,728 $4,759,121 $678,443
</TABLE>
<TABLE>
Midland National Life Insurance Company
Separate Account C
Statements of Operations and Changes in Net Assets,
Continued
for the years ended December 31, 1998, 1997 and 1996
<S> <C>
Variable Insurance
Products Fund III
Growth Opportunities
Portfolio
1998 1997
Investment income:
Dividend income $12,462 $
Capital gains distributions 43,319
55,781
Expenses:
Administrative expense 3,873 360
Mortality and expense risk 34,020 3,026
Net investment income (loss) 17,888 (3,386)
Realized and unrealized gains (losses) on investments:
Net realized gains (losses) on investments 72,022 8,933
Net unrealized appreciation (depreciation) on investments 570,415 37,052
Net realized and unrealized gains (losses) on investments 642,437 45,985
Net increase (decrease) in net assets resulting from operations $660,325 $42,599
Net assets at beginning of year $932,079 $
Net increase (decrease) in net assets resulting from operations 660,325 42,599
Capital shares transactions:
Net premiums 3,172,501 715,419
Transfers of policy loans (11,920)
Transfers of surrenders (135,082) (631)
Transfers of death benefits
Transfers of other terminations (27,043) (16,931)
Interfund transfers 244,782 191,623
Net increase in net assets from capital share transactions 3,243,238 889,480
Total increase in net assets 3,903,563 932,079
Net assets at end of year $4,835,642 $932,079
</TABLE>
American Century Variable Portfolios, Inc.
Capital Appreciation
Balanced Portfolio Portfolio International Portfolio
1998 1997 1998 1997 1998 1997
$3,481 $ $ $ $2,742 $
21,588 9,181 28,153
25,069 9,181 30,895
508 78 391 107 1,127 182
4,456 646 3,513 900 10,022 1,510
20,105 (724) 5,277 (1,007) 19,746 (1,692)
(2,099) 73 (9,962) 5,583 4,464 30
25,457 1,852 19,781 (15,193) 56,812 (4,918)
23,358 1,925 9,819 (9,610) 61,276 (4,888)
$43,463 $ 1,201 15,096 $(10,617) $81,022 $(6,580)
$154,125 $ $157,393 $ $382,210 $
43,463 1,201 15,096 (10,617) 81,022 (6,580)
332,426 126,660 269,862 246,807 705,423 334,703
(4,834) (766) (645)
(9,952) (104) (20,297) (31) (52,917) (174)
(7,035) (192) (2,178)
80,411 26,368 52,483 (78,766) 57,151 54,261
391,016 152,924 301,090 168,010 706,834 388,790
434,479 154,125 316,186 157,393 787,856 382,210
$588,604 $154,125 $473,579 $157,393 $1,170,066 $382,210
Midland National Life Insurance Company
Separate Account C
Statements of Operations and Changes in Net Assets,
Continued
for the years ended December 31, 1998, 1997 and 1996
American Century Variable
Portfolios, Inc.
Income &
Growth
Value Portfolio Portfolio
1998 1997 1998
Investment income:
Dividend income $4,356 $ $497
Capital gains distributions 52,012
56,368 497
Expenses:
Administrative expense 1,733 242 21
Mortality and expense risk 15,151 2,059 178
Net investment income (loss) 39,484 (2,301) 298
Realized and unrealized gains (losses) on investments:
Net realized gains on investments 12,052 718 31
Net unrealized appreciation (depreciation) on
investments (11,455) 21,901 8,364
Net realized and unrealized gains (losses) on
investments 597 22,619 8,395
Net increase (decrease) in net assets resulting
from operations $40,081 $20,318 $8,693
Net assets at beginning of year $547,559 $ $
Net increase (decrease) in net assets resulting from
operations 40,081 20,318 8,693
Capital shares transactions:
Net premiums 1,133,687 323,694 133,891
Transfers of policy loans (13,918)
Transfers of surrenders (87,563) (1,687)
Transfers of death benefits
Transfers of other terminations (12,235)
Interfund transfers 183,968 205,234 2,602
Net increase in net assets from capital share
transactions 1,203,939 527,241 136,493
Total increase in net assets 1,244,020 547,559 145,186
Net assets at end of year $1,791,579 $547,559 $145,186
Lord, Abbett
Massachusetts Financial Services & Company
Emerging Growth & New Growth &
Growth Income Discovery Research Income
Portfolio Portfolio Portfolio Portfolio Portfolio
1998 1998 1998 1998 1998
$ $ $ $ $
11 3 11 26
92 29 91 221
(103) (32) (102) (247)
54 100 13 122
10,742 1,525 84 6,328 (3,501)
10,796 1,625 84 6,341 (3,379)
$10,693 $1,593 $ 84 $6,239 $(3,626)
$ $ $ $ $
10,693 1,593 84 6,239 (3,626)
115,681 22,610 1,011 75,777 48,326
(110) (466)
(295)
890 5,216 33,257 106,538
116,276 27,716 1,011 109,034 154,398
126,969 29,309 1,095 115,273 150,772
$126,969 $29,309 $1,095 $115,273 $150,772
1. Organization and Significant Accounting Policies:
Organization:
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"), American Century Variable
Portfolios, Inc. ("ACVP"), Massachusetts Financial
Services ("MFS"), and Lord, Abbett & Company ("LAC")
(collectively "the Funds"), each diversified open-end
management companies registered under the Investment
Company Act of 1940, as directed by participants. The
VIPF III Balanced, Growth & Income and Growth
Opportunities Portfolios and the ACVP Balanced, Capital
Appreciation, International and Value portfolios were
introduced in 1997. The ACVP Income & Growth portfolio,
the MFS Emerging Growth, Growth & Income, New Discovery
and Research portfolios as well as the LAC's Growth &
Income portfolio were each introduced in 1998. 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.
Federal Income Taxes:
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.
1. Organization and Significant Accounting Policies,
continued:
Estimates:
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.
Merger:
Effective January 2, 1997, Investors Life Insurance
Company of Nebraska ("Investors Life") was merged into the
Company. Related to this merger all of the assets and
liabilities of Investors Life were transferred to Midland
including the assets of Investors Life's Separate Account
D, which were merged into Midland's Separate Account C.
The merger of the Separate Account D assets into Midland's
Separate Account C was possible as the variable annuity
insurance contracts were identical in all material
respects to the contracts issued by Separate Account C.
This merger of separate account assets was structured so
that there was no change in the rights and benefits of
persons owning contracts with either separate accounts and
no change in the net asset values held by the respective
participants of either of the separate accounts.
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.
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.
<TABLE>
3. Purchases and Sales of Investment Securities:
The aggregate cost of purchases and proceeds from sales of
investments for the years ended December 31, 1998, 1997,
and 1996 were as follows:
<S> <C> <C> <C> <C> <C> <C>
1998 1997 1996
Portfolio Purchases Sales Purchases Sales Purchases Sales
Variable Insurance
Products Fund:
Money Market $58,682,698 $52,428,084 $27,625,059 $26,449,130$21,770,832$20,184,322
High Income 4,668,527 2,082,862 2,232,925 843,780 1,623,638 452,169
Equity-Income 9,980,544 3,036,731 7,242,522 1,928,035 5,847,193 1,045,612
Growth 8,654,016 2,709,812 5,841,516 2,007,309 6,383,402 1,085,482
Overseas 1,235,489 1,463,514 1,628,137 617,620 1,433,148 638,294
Variable Insurance
Products
Fund II:
Asset Manager 3,260,450 1,541,944 2,698,162 877,678 2,005,420 799,323
Investment Grade
Bond 3,291,279 620,021 794,153 302,555 729,557 220,402
Index 500 12,815,098 3,593,428 6,785,096 1,978,193 3,217,072 415,814
Contrafund 5,501,476 1,693,206 3,996,318 632,611 2,272,788 349,389
Asset Manager
Growth 2,250,687 550,446 1,796,206 225,801 839,710 72,475
Variable Insurance
Products
Fund III:
Balanced 1,566,172 222,531 496,055 55,752
Growth & Income 3,879,201 482,899 762,183 107,025
Growth Oppor-
tunities 4,046,506 785,381 974,459 88,365
American Century
Variable
Portfolios, Inc.:
Balanced 484,206 73,085 152,934 733
Capital Apprecia-
tion 341,579 35,214 285,178 118,174
International 827,915 101,335 388,860 1,762
Value 1,564,861 321,438 542,142 17,201
Income & Growth 136,991 199
Massachusetts
Financial
Services:
Emerging Growth 116,572 398
Growth & Income 28,365 681
New Discovery 1,011
Research 109,033 101
Lord, Abbett &
Company:
Growth & Income 155,023 872
$123,597,699 $71,744,182 $64,241,905$36,251,724 $46,122,760$25,263,282
</TABLE>
<TABLE>
4. Summary of Changes from Unit Transactions:
Transactions in units for the years ended December 31, 1998,
1997, and 1996 were as follows:
<S> <C> <C> <C> <C> <C> <C>
1998 1997 1996
Portfolio Purchases Sales Purchases Sales Purchases Sales
Variable Insurance Products
Fund:
Money Market 4,894,728 4,397,734 2,382,178 2,297,883 1,965,259 1,835,459
High Income 268,215 129,662 137,806 54,636 115,859 33,434
Equity-Income 410,330 127,676 328,286 94,507 371,604 61,328
Growth 299,160 114,792 325,656 108,991 420,441 67,194
Overseas 58,771 94,783 93,231 38,350 115,187 50,402
Variable Insurance Products
Fund II:
Asset Manager 140,855 89,449 142,316 56,049 147,495 62,120
Investment Grade Bond 253,553 45,832 62,875 24,519 64,302 19,022
Index 500 510,263 137,304 339,992 99,007 211,021 25,537
Contrafund 266,211 81,447 246,458 36,569 177,080 25,284
Asset Manager Growth 105,393 26,976 117,819 12,810 63,374 5,275
Variable Insurance Products
Fund III:
Balanced 123,529 17,078 44,550 4,849
Growth & Income 278,633 32,237 63,719 8,842
Growth Opportunities 300,626 55,963 83,073 7,147
American Century Variable
Portfolios, Inc.:
Balanced 37,294 5,584 13,519
Capital Appreciation 32,484 3,096 23,010 9,140
International 63,698 7,241 34,978 5
Value 120,733 23,917 46,055 1,389
Income & Growth 12,173
Massachusetts Financial Services:
Emerging Growth 10,131 25
Growth & Income 2,598 59
New Discovery 85
Research 9,782
Lord, Abbett & Company:
Growth & Income 14,108 56
</TABLE>
5. Net Assets:
Net assets at December 31, 1998, consisted of the following:
Accumulated
Net Investment Net
Capital Income and Unrealized
Share Net Realized Appreciation
Portfolio Transactions Gains of Investments
Total
Variable Insurance Products Fund:
Money Market $11,603,751 $870,119 $ $12,473,870
High Income 5,829,806 1,016,821 (409,311) 6,437,316
Equity-Income 19,547,276 3,851,414 3,731,928 27,130,618
Growth 16,428,846 4,164,011 7,114,704 27,707,561
Overseas 3,366,527 911,772 356,917 4,635,216
Variable Insurance Products Fund II:
Asset Manager 6,743,596 2,157,015 1,093,979 9,994,590
Investment Grade Bond 4,077,726 192,430 181,356 4,451,512
Index 500 17,349,894 2,170,509 4,358,391 23,878,794
Contrafund 9,220,366 970,103 2,753,858 12,944,327
Asset Manager Growth 3,874,316 494,527 578,886 4,947,729
Variable Insurance Products Fund III:
Balanced 1,768,458 29,141 144,132 1,941,731
Growth & Income 4,067,408 58,035 633,678 4,759,121
Growth Opportunities 4,132,718 95,457 607,467 4,835,642
American Century Variable
Portfolios, Inc.:
Balanced 543,941 17,355 27,308 588,604
Capital Appreciation 469,101 (109) 4,587 473,579
International 1,095,624 22,548 51,894 1,170,066
Value 1,731,181 49,953 10,445 1,791,579
Income & Growth 136,493 329 8,364 145,186
Massachusetts Financial Services:
Emerging Growth 116,276 (49) 10,742 126,969
Growth & Income 27,716 68 1,525 29,309
New Discovery 1,011 84 1,095
Research 109,034 (89) 6,328 115,273
Lord, Abbett & Company:
Growth & Income 154,398 (125) (3,501) 150,772
$112,395,463 $17,071,235 $21,263,761 $150,730,459
The accompanying notes are an integral part of the financial statements.
4 The accompanying notes are an integral part of the
financial statements.
6 The accompanying notes are an integral part of the
financial statements.
7 The accompanying notes are an integral part of the
financial statements.
7 The accompanying notes are an integral part of the
financial statements.
8 The accompanying notes are an integral part of the
financial statements.
9 Midland National Life Insurance Company
Separate Account C
Notes to Financial Statements
19
Midland National Life Insurance Company
Separate Account C
Notes to Financial Statements, Continued
NEWSPC98
<PAGE>
C O N T E N T S
Page(s)
Report of Independent Accountants 1
Balance Sheets 2
Statements of Income 3
Statements of Stockholder's Equity 4
Statements of Cash Flows 5-6
Notes to Financial Statements 7-23
Report of Independent Accountants
The Board of Directors and Stockholder
Midland National Life Insurance Company:
In our opinion, the accompanying balance sheets and the related
statements of income, stockholder's equity, and cash flows present
fairly, in all material respects, the financial position of Midland
National Life Insurance Company as of December 31, 1998 and 1997, and
the results of its operations and its cash flows for each of the
three years in the period ended December 31, 1998, in conformity with
generally accepted accounting principles. These financial statements
are the responsibility of Midland National Life Insurance Company's
management; our responsibility is to express an opinion on these
financial statements based on our audits. We conducted our audits of
these statements in accordance with generally accepted auditing
standards which 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, assessing the accounting principles used and
significant estimates made by management, and evaluating the overall
financial statement presentation. We believe that our audits provide
a reasonable basis for the opinion expressed above.
March 10, 1999
Midland National Life Insurance Company
Balance Sheets
as of December 31, 1998 and 1997
(Amounts in thousands, except share and per share amounts)
ASSETS 1998 1997
Investments:
Fixed maturities $2,281,730 $2,420,977
Equity securities 327,309 145,156
Policy loans 213,267 202,129
Short-term investments 280,943 636,280
Other invested assets 37,076 29,329
Total investments 3,140,325 3,433,871
Cash 754 2,384
Accrued investment income 38,555 37,980
Deferred policy acquisition costs 417,164 416,767
Present value of future profits of
acquired businesses 31,162 40,397
Other receivables and other assets 14,407 28,045
Separate accounts assets 249,145 139,072
Total assets $3,891,512 $4,098,516
LIABILITIES AND STOCKHOLDER'S EQUITY
Liabilities:
Policyholder account balances $2,307,893 $2,401,302
Policy benefit reserves 419,615 419,131
Policy claims and benefits payable 30,393 33,839
Federal income taxes 20,566 36,088
Other liabilities 100,867 90,102
Security lending liability 50,500 308,125
Separate account liabilities 249,145 139,072
Total liabilities 3,178,979 3,427,659
Commitments and contingencies
Stockholder's equity:
Common stock, $1 par value, 2,549,439 shares
authorized, 2,548,878 shares outstanding 2,549 2,549
Additional paid-in capital 33,707 33,707
Accumulated other comprehensive income 26,826 30,838
Retained earnings 649,629 603,763
Less treasury stock (561 shares), at cost (178)
Total stockholder's equity 712,533 670,857
Total liabilities and stockholder's equity $3,891,512 $4,098,516
Midland National Life Insurance Company
Statements of Income
for the years ended December 31, 1998, 1997, and 1996
(Amounts in thousands)
1998 1997 1996
Revenues:
Premiums $94,495 $98,668 $101,423
Interest sensitive life and
investment product charges 159,115 157,423 150,839
Net investment income 224,939 188,650 173,583
Net realized investment (losses)
gains (6,489) 3,561 6,839
Net unrealized gains (losses) on
trading securities 2,847 (641) 6,200
Other income 3,157 2,565 4,362
Total revenue 478,064 450,226 443,246
Benefits and expenses:
Benefits incurred 137,313 146,227 151,208
Interest credited to policyholder
account balances 133,529 111,333 103,618
Total benefits 270,842 257,560 254,826
Operating expenses (net of
commissions and other expenses
deferred) 47,549 44,130 43,243
Amortization of deferred policy
acquisition costs and present
value of future profits of
acquired businesses 66,189 56,954 53,316
Total benefits and expenses 384,580 358,644 351,385
Income before income taxes 93,484 91,582 91,861
Income tax expense 32,618 33,053 31,821
Net income $60,866 $58,529 $60,040
<TABLE>
Midland National Life Insurance Company
Statements of Stockholder's Equity
for the years ended December 31, 1998, 1997, and 1996
(Amounts in thousands)
<S> <C> <C> <C> <C>
Accumulated
Additional Other Less Total
Common Paid-in Comprehensive Comprehensive Retained Treasury Stockholder's
Stock Capital Income Income Earnings Stock Equity
Balance at January 1, 1996 $2,549 $33,707 $31,027 $510,194 $577,477
Comprehensive income:
Net income $60,040 60,040 60,040
Other comprehensive income:
Net unrealized loss on available-for-sale
investments (12,202) (12,202) (12,202)
Total comprehensive income $47,838
Balance at December 31, 1996 2,549 33,707 18,825 570,234 625,315
Comprehensive income:
Net income 58,529 58,529 58,529
Other comprehensive income:
Net appreciation on available-for-sale investments 12,013 12,013 12,013
Total comprehensive income $70,542
Dividends paid on common stock (25,000) (25,000)
Balance at December 31, 1997 2,549 33,707 30,838 603,763 670,857
Comprehensive income:
Net income 60,866 60,866 60,866
Other comprehensive income:
Net unrealized loss on available-for-sale
investments (4,012) (4,012) (4,012)
Total comprehensive income $56,854
Dividends paid on common stock (15,000) (15,000)
Repurchase of minority interest shares (178) (178)
Balance at December 31, 1998 $2,549 $33,707 $26,826 $649,629 $(178) $712,533
</TABLE>
<TABLE>
Midland National Life Insurance Company
Statements of Cash Flows
for the years ended December 31, 1998, 1997, and 1996
(Amounts in thousands)
<S> <C> <C> <C>
1998 1997 1996
Cash flows from operating activities:
Net income $60,866 $58,529 $60,040
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 66,189 56,954 53,316
Net amortization of premiums and discounts on
investments 4,325 2,699 5,532
Policy acquisition costs deferred (54,611) (50,363) (65,285)
Net realized investment (gains) losses 6,489 (3,561) (6,839)
Net unrealized (gains) losses on
trading securities (2,847) 641 (6,200)
Net proceeds from (cost of) trading
securities (37,769) 99,850 5,788
Deferred income taxes (10,849) (5,421) 12,177
Net interest credited and product charges on
charges on universal life and
investment policies (25,586) (46,090) (47,221)
Changes in other assets and liabilities:
Net receivables and payables 22,190 (13,946) 32,863
Policy benefits 8,397 15,826 26,185
Other 1,173 122 (277)
Net cash provided by operating
activities 37,967 115,240 70,079
Cash flows from investing activities:
Proceeds from investments sold, matured or repaid:
Fixed maturities 1,405,391 1,217,086 1,422,426
Equity securities 304,589 137,510 129,827
Other invested assets 2,601 941 2,055
Cost of investments acquired:
Fixed maturities 1,281,839) (1,791,522)(1,569,779)
Equity securities (451,181) (144,862) (145,096)
Other invested assets (10,346) (11,702) (14,245)
Net change in policy loans (11,138) (9,995) (11,295)
Net change in short-term investments 355,337 93,875 (18,748)
Net change in security lending (257,625) 308,125
Payment for purchase of insurance business, net of
cash acquired (1,026) 23,939
Net cash provided by (used in)
investing activities 54,763 (176,605) (204,855)
</TABLE>
<TABLE>
Midland National Life Insurance Company
Statements of Cash Flows, Continued
for the years ended December 31, 1998, 1997, and 1996
(Amounts in thousands)
<S> <C> <C> <C>
1998 1997 1996
Cash flows from financing activities:
Receipts from universal life
and investment products 317,398 280,164 285,569
Benefits paid on universal life
and investment products (396,580) (194,993) (156,514)
Dividends paid on common stock (15,000) (25,000)
Repurchase of minority interest shares (178)
Net cash provided by (used in)
financing activities (94,360) 60,171 129,055
Increase (decrease) in cash (1,630) (1,194) (5,721)
Cash at beginning of year 2,384 3,578 9,299
Cash at end of year 754 2,384 3,578
Supplemental disclosures of cash flow information:
Cash paid during the year for:
Interest $119 $143 $166
Income taxes, paid to parent 45,980 42,749 16,772
Noncash operating, investing and financing
Policy loans, receivables and other assets
received in assumption reinsurance
agreements 70 38,044
</TABLE>
1. Summary of Significant Accounting Policies:
Organization:
Midland National Life Insurance Company ("Midland" or the
"Company") is a wholly-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.
1. Summary of Significant Accounting Policies, continued:
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". 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 as other comprehensive income
in stockholder's equity, net of related adjustments to deferred
policy acquisition costs, deferred income taxes and the
accumulated unrealized holding gains (losses) on securities sold
which are released into income as realized investment gains.
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.
1. Summary of Significant Accounting Policies, continued:
Investments, continued:
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.
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 future policy benefits 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% to 6.5% in
1998, 3.75% to 6.75% in 1997 and 3% to 7% in 1996. For certain
contracts these crediting rates extend for periods in excess of
one year.
1. Summary of Significant Accounting Pollicies, continued:
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:
1998 1997 1996
Deferred policy acquisition costs,
beginning of year 416,767 427,218 410,051
Commissions deferred 44,072 40,660 55,005
Underwriting and acquisition expenses
deferred 10,539 9,703 10,280
Change in offset to unrealized gains
and losses 3,766 (8,710) 92
Amortization (57,980) (52,104) (48,210)
Deferred policy acquisition costs,
end of year 417,164 416,767 427,218
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
stockholder's equity through other comprehensive income as an
offset to the unrealized gains or losses.
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:
1. Summary of Significant Accounting Policies, continued:
Present Value of Future Profits of Acquired Business, continued:
1998 1997 1996
Balance at beginning of year 40,397 21,308 26,414
Value of in-force acquired 23,939
Adjustment to purchase price (1,026)
Amortization (8,209) (4,850) (5,106)
Balance at end of year 31,162 40,397 21,308
Based on current conditions and assumptions as to future events,
the Company expects to amortize approximately 18 percent of the
December 31, 1998 balance of PVFP in 1999, 15 percent in 2000, 12
percent in 2001, 10 percent in 2002, and 9 percent in 2003. 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.
1. Summary of Significant Accounting Policies, continued:
Comprehensive Income:
During 1998, the Company adopted Statement of Financial
Accounting Standard No. 130, "Reporting Comprehensive Income."
The standard requires the reporting of comprehensive income in
addition to net income from operations. Comprehensive income is
a more inclusive financial reporting methodology that includes
disclosure of certain financial information that historically has
not been recognized in the calculation of net income.
Comprehensive income for the Company includes net income and
unrealized gains and losses (other comprehensive income) on
available-for-sale securities. The adoption of this statement
does not impact the overall financial position or stockholder's
equity of the Company.
Security Lending:
The Company periodically enters into agreements to sell and
repurchase securities. Securities out on loan are required to be
100% collateralized. Short-term investments of $50,500 and the
related liability representing the collateral received is
reflected on the balance sheets as of December 31, 1998.
Treasury Stock:
During the fourth quarter of 1998, the Company purchased its
remaining outstanding minority shares from the lone minority
shareholder for $178. The shares are retained as treasury stock
as a reduction to stockholder's equity.
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.
2. Fair Value of Financial Instruments, continued:
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 is 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:
December 31, 1998 December 31, 1997
Carrying Estimated Carrying Estimated
Value Fair Value Value Fair Value
Financial assets:
Fixed maturities,
available-for-sale $2,281,730 $2,281,730 $2,420,977 $2,420,977
Equity securities,
available-for-sale 221,325 221,325 78,950 78,950
Equity securities,
trading 105,984 105,984 66,206 66,206
Policy loans 213,267 213,267 202,129 202,129
Short-term investments 280,943 280,943 636,280 636,280
Other investments 37,076 37,076 29,329 29,329
Financial liabilities:
Investment-type insurance
Contracts 866,000 850,000 1,011,000 989,000
3. Investments and Investment Income:
Fixed Maturities and Equity Security Investments:
The amortized cost and estimated fair value of fixed maturities
and equity securities classified as available for sale are as
follows:
December 31, 1998
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 $208,581 $14,285 $378 $222,488
Corporate securities 1,052,442 30,366 15,546 1,067,262
Mortgage-backed securities 955,785 22,225 1,093 976,917
Other debt securities 14,861 225 23 15,063
Total fixed maturities 2,231,669 67,101 17,040 2,281,730
Equity securities 209,952 15,403 4,030 221,325
Total available for sale $2,441,621 $82,504 $21,070 $2,503,055
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
The cost of the equity securities classified as trading
securities are $103,798 and $66,867, respectively at December 31,
1998 and December 31, 1997.
3. Investments and Investment Income, continued:
Fixed Maturities and Investment Security Investments, continued:
The unrealized appreciation on the available-for-sale securities
in 1998 and 1997 is reduced by deferred policy acquisition costs
and deferred income taxes and is reflected as accumulated other
comprehensive income in the statements of stockholder's equity:
1998 1997
Gross unrealized appreciation $61,434 $71,374
Deferred policy acquisition costs (20,164) (23,930)
Deferred income taxes (14,444) (16,606)
Accumulated other comprehensive income $26,826 $30,838
The other comprehensive income in 1998 and 1997 is comprised of
the change in unrealized gains (losses) on available-for-sale
fixed maturities and equity security investments arising during
the period less the realized gains (losses) included in income,
deferred policy acquisition costs and deferred income taxes as
follows:
1998 1997 1996
Unrealized holding gains (losses) arising in the
current period:
Fixed maturities $(11,399) $27,096 $(12,860)
Equity securities (5,025) 3,571 759
Less reclassification adjustment for (gains)
losses released into income 6,484 (3,476) (6,851)
Less DAC impact 3,766 (8,710) 92
Less deferred income tax effect 2,162 (6,468) 6,658
Net other comprehensive income $(4,012) $12,013 $(12,202)
The amortized cost and estimated fair value of available-for-sale
fixed maturities at December 31, 1998, 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.
3. Investments and Investment Income, continued:
Fixed Maturities and Investment Security Investments, continued:
Estimated
Amortized Cost Fair Value
Due in one year or less $66,556 $67,164
Due after one year through five years 94,231 96,047
Due after five years through ten years 297,052 313,506
Due after ten years 818,045 828,096
Securities not due at a single
maturity date (primarily mortgage-
backed securities) 955,785 976,917
Total fixed maturities $2,231,669 $2,281,730
Investment Income and Investment Gains (Losses):
Major categories of investment income are summarized as follows:
1998 1997 1996
Gross investment income:
Fixed maturities $173,475 $148,640 $126,733
Equity securities 22,563 13,831 22,202
Policy loans 15,331 11,891 10,327
Short-term investments 24,308 20,594 16,946
Other invested assets 2,730 824 553
Total gross investment income 238,407 195,780 176,761
Investment expenses 13,468 7,130 3,178
Net investment income $224,939 $188,650 $173,583
The major categories of investment gains and losses reflected in
the income statement are summarized as follows:
<TABLE>
<S> <C> <C> <C> <C> <C>
1998 1997 1996
Unrealized - Unrealized - Unrealized -
Trading Trading Trading
Realized Securities Realized Securities Realized Securities
Fixed maturities $185 $2,934 $195 $8,047 $(438)
Equity securities (6,669) 2,847 542 (836) (1,196) 6,638
Other (5) 85 (12)
Net investment gains
(losses) $(6,489) $2,847 $3,561 $(641) $6,839 $6,200
</TABLE>
3. Investments and Investment Income, continued:
Investment Income and Investment Gains (Losses), continued:
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 1998, 1997, and 1996
were as follows:
<TABLE>
<S> <C> <C> <C> <C>
1998 1997 1996
Fixed Fixed Fixed
Maturities Equity Maturities Equity Maturities Equity
Proceeds from sales $744,300 $304,589 $801,246 $136,085 $1,020,090 $106,354
Gross realized gains 7,527 442 3,757 1,977 10,418 787
Gross realized losses 7,313 6,303 3,213 887 5,030 1,954
</TABLE>
Other:
At December 31, 1998, and 1997, securities amounting to
approximately $14,993 and $14,366, respectively, were on deposit
with regulatory authorities as required by law.
At December 31, 1998, and 1997, the Company entered into
repurchase agreements with brokerage firms totaling $50,500 and
$308,125, respectively.
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 stockholder's
equity at December 31, 1998, except for the following investment
with the following carrying value:
Residential Funding $75,527
4. Income Taxes:
The significant components of the provision for Federal income
taxes are as follows:
1998 1997 1996
Current $43,467 $38,474 $19,644
Deferred (10,849) (5,421) 12,177
Total federal income tax expense $32,618 $33,053 $31,821
4. Income Taxes, continued:
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:
1998 1997 1996
At statutory federal income tax rate $32,720 $32,054 $32,151
Dividends received deductions (191) (514) (1,391)
Other, net 89 1,513 1,061
Total federal income tax expense $32,618 $33,053 $31,821
The federal income tax liability as of December 31 is comprised
of the following:
1998 1997
Net deferred income tax liability $21,470 $34,480
Income taxes currently (receivable) due (904) 1,608
Federal income tax liability $20,566 $36,088
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:
1998 1997
Deferred tax liabilities:
Present value of future profits of acquired business $10,907 $14,139
Deferred policy acquisition costs 99,192 100,989
Investments 22,154 27,245
Other 906
Total deferred income tax liabilities 132,253 143,279
Deferred tax assets:
Policy liabilities and reserves 108,973 108,799
Other 1,810
Total gross deferred income tax assets 110,783 108,799
Net deferred income tax liability $21,470 $34,480
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, 1998.
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:
1998 1997 1996
Ceded Assumed Ceded Assumed Ceded Assumed
Premiums $20,280 $6,106 $17,081 $7,971 $13,759 $7,116
Claims 11,495 5,954 8,683 4,472 12,170 6,068
The Company generally 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 in 1996, the Company assumed certain policy risks from
its affiliate, North American Company for Life and Health
Insurance, and its subsidiaries. The company fulfilled its
obligation on this assumption contract and was released of this
risk effective December 31, 1998. The Company has reflected risk
and profit charges 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.
In accordance with the agreement, the final purchase price was
determined in 1998 which reduced the PVFP asset to $22,913 and
the life and annuity reserves assumed to $573,284.
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.
6. Statutory Financial Data and Dividend Restrictions, continued:
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 $15,000 and
$25,000 in 1998 and 1997, respectively. The maximum amount of
dividends payable in 1999 without prior approval of regulatory
authorities is approximately $60,000.
The statutory net income of the Company for the years ended
December 31, 1998 and 1997 is approximately $75,000 and $65,000,
respectively, and capital and surplus at December 31, 1998 and
1997 is approximately $384,000 and $323,000, respectively, in
accordance with statutory accounting principles.
7. Employee Benefits:
The Company participates in qualified pensions and other
postretirement benefit plans sponsored by SEI. The Company also
provides certain post-retirement health care and life insurance
benefits for eligible active and retired employees through a
defined benefit plan. The following table summarizes the benefit
obligations, the fair value of plan assets and the funded status
over the two-year period ended December 31, 1998. The amounts
reflect an allocation of the Company's portion of the SEI plan:
Pension Benefits Other Benefits
1998 1997 1998 1997
Benefit obligation at
December 31 $6,420 $4,678 $1,718 $2,203
Fair value of plan assets at
December 31 3,642 3,176
Funded status at December 31 $(2,778) $(1,502) $(1,718) $(2,203)
Accrued benefit liability
recognized in financial
statements $616 $92 $1,650 $1,751
7. Employee Benefits, continued:
The Company's post-retirement benefit plan is not funded;
therefore, it has no plan assets.
The amounts of contributions made to and benefits paid from the
plan are as follows:
Pension Benefits Other Benefits
1998 1997 1998 1997
Employer contributions $ $ $227 $172
Employee contributions 56 56
Benefit payments 197 444 283 228
The following table provides the net periodic benefit cost for
the years ended 1998, 1997 and 1996:
Pension Benefits Other Benefits
1998 1997 1996 1998 1997 1996
Net periodic benefit costs $524 $360 $263 $126 $179 $164
The assumptions used in the measurement of the Company's benefit
obligations are shown in the following table:
Pension Benefits Other Benefits
1998 1997 1998 1997
Weighted-average assumptions
as of December 31:
Discount rate 7.00% 7.25% 7.00% 7.25%
Expected return on plan
assets 8.75% 8.75% N/A N/A
Rate of compensation
increase 4.25% 4.25% N/A N/A
For measurement purposes, a 6.5% annual rate of increase in the
per capita cost of covered health care benefits was assumed for
1998. The rate was assumed to decrease gradually each year to a
rate of 4.5% for 2006 and remain at that level thereafter.
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 1998, 1997, and
1996 was $1,725, $1,920, and $1,700, respectively. All
contributions to the ESOP are held in trust.
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 $2,571 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 $1,511, $1,208 and $1,048 for the
years ended December 31, 1998, 1997, and 1996, respectively. The
minimum future rentals on capital and operating leases at
December 31, 1998, are as follows:
Year Ending December 31 Capital Operating Total
1999 $513 $1,823 $2,336
2000 489 1,827 2,316
2001 466 1,448 1,914
2002 442 191 633
2003 191 191
Thereafter 705 705
Total 1,910 $6,185 $8,095
Less amount representing interest 210
Present value of amounts due
under capital leases $1,700
Other Contingencies:
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 $1,552, $1,530 and $1,458 in 1998, 1997, and
1996, respectively, related to these contracts.
The Company pays investment management fees to an affiliate
(Midland Advisors Company). Net fees related to these services
were $1,855, $1,425 and $1,339 in 1998, 1997 and 1996,
respectively.
The Company provided certain insurance and non-insurance services
to North American Company for Life and Health Insurance ("North
American"), beginning in 1997. The Company was reimbursed $1,465
and $488 in 1998 and 1997, respectively, for the costs incurred
to render such services.
The Company sold certain securities to North American at the
current market value of $15,856, incurring a realized loss of
$2,736 in 1998. In addition the Company acquired securities
totaling $22,679 from North American
10. Subsequent Event:
Effective January 4, 1999, the Company received a contribution
from SEI totaling $64,000. These funds were then applied to
purchase substantially all of the assets of Parkway Mortgage Inc.
("Parkway"), a mortgage broker. In addition, the Company agreed
to assume responsibility for the warehouse line-of-credit to fund
loan originations.
The accompanying notes are an integral part of the financial statements.
The accompanying notes are an integral part of the financial statements.
The accompanying notes are an integral part of the financial statements.
Midland National Life Insurance Company
Notes to Financial Statements
(Amounts in thousands)
Midland National Life Insurance Company
Notes to Financial Statements, Continued
(Amounts in thousands)
NEWMGP98
<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 FundsFund/Fund II/Fund
III,
American Century's Variable Portfolio Inc.,
MFS(r)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 VC C Growth and Income Portfolio
Table of Contents
Definitions 3
SUMMARY 4
Features of Variable Annuity II 4
Investment Choices 4
Withdrawals 5
Charges Under the Contracts 5
FEE TABLE 7
Additional Information About Variable Annuity II 11
SEPARATE ACCOUNT C AND THE FUNDS 11
Our Separate Account And Its Investment Divisions 11
The Funds 11
Investment Policies Of The Funds' Portfolios 12
We Own The Assets Of Our Separate Account 15
Our Right To Change How We Operate Our Separate Account 15
DETAILED INFORMATION ABOUT THE CONTRACT 16
Requirements for Issuance of a Contract 16
Free Look 16
Allocation of Premiums 16
Changing Your Premium Allocation Percentages 17
Transfers of Contract Value 17
Dollar Cost Averaging 17
Portfolio Rebalancing 18
Systematic Withdrawals 18
Withdrawals 19
Loans 20
Death Benefit 21
Your Contract Value 22
Amounts In Our Separate Account 22
The General Account 23
CHARGES, FEES AND DEDUCTIONS 23
Sales Charges on Withdrawals 23
Free Withdrawal Amount 24
Administrative Charge 24
Mortality and Expense Risk Charge 24
Contract Maintenance Charge 24
Transfer Charge 25
Charges In The Funds 25
FEDERAL TAX STATUS 25
Introduction 25
Diversification 26
Taxation of Annuities in General 26
Our Income Taxes 29
Withholding 29
MATURITY DATE 30
SELECTING AN ANNUITY OPTION 30
Fixed Options 30
Variable Options 31
Transfers after the Maturity Date 32
ADDITIONAL INFORMATION 32
Midland National Life Insurance Company 32
Your Voting Rights As an Owner 32
Our Reports to Owners 33
Contract Periods, Anniversaries 33
Dividends 33
Performance 33
Your Beneficiary 34
Assigning Your Contract 34
When We Pay Proceeds From This Contract 34
Sales Agreements 34
Regulation 35
Year 2000 Compliance Issues 35
Discount for Midland Employees 36
Legal Matters 36
Experts 36
Statement of Additional Information 36
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 the day beforeand Christmas Eve Day and New
Year's 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 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 22.)
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 (VIP) , (2)
Fidelity's Variable Insurance Products Fund II (VIP II) , (3)
Fidelity's Variable Insurance Products Fund III (VIP III) , (4)
American Century's Variable Portfolios, Inc., (5)
MFS(r)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 11.)
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 MFS(r)
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:
VC C 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 12,
and "Charges In The Funds" on page 25.
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 18.) (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 23, "FEDERAL TAX
STATUS" on page 25, and "SELECTING AN ANNUITY" on page 30.)
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 23.)
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 19 and "FEDERAL TAX STATUS" on page 25.)
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 24.)
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 24.)
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 the $35this annual maintenance
charge for contracts with a value of $50,000 or more on the
contract anniversary. (See "CHARGES, FEES AND DEDUCTIONS" on
page 23.)
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 0.12%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 0.20% 0.21% 0.10% 0.30% 0.31%
VIP High Income 0.58% 0.59% 0.12% 0.70% 0.71%
VIP Equity-Income(3) 0.49% 0.50% 0.08% 0.57% 0.58%
VIP Growth(3) 0.59% 0.60% 0.07%0.09% 0.66% 0.69%
VIP Overseas(3) 0.74% 0.75% 0.15%0.17% 0.89% 0.92%
VIP II Asset Manager(3) 0.54% 0.55% 0.09%0.10% 0.63% 0.65%
VIP II Investment Grade Bond 0.43% 0.44% 0.14%0.57% 0.58%
VIP II Contrafund(3) 0.59% 0.60% 0.07%0.11% 0.66% 0.71%
VIP II Asset Manager: Growth(3) 0.59% 0.60% 0.13%0.17% 0.72% 0.77%
VIP II Index 500(3)(4) 0.24% 0.04% 0.28%
VIP III Growth & Income(3) 0.49% 0.11%0.21% 0.60% 0.70%
VIP III Balanced(3) 0.44% 0.45% 0.14%0.16% 0.58% 0.61%
VIP III Growth Opportunities(3) 0.59% 0.60% 0.11%0.14% 0.70% 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 1.47% 1.50% 0.00% 1.47% 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(4) 0.75% 0.10% 0.12% 0.85% 0.87%
MFS VIT Research(4) 0.75% 0.11% 0.13% 0.86% 0.88%
MFS VIT Growth with Income(4)(5) 0.75% 0.13% 0.25% 0.88% 1.00%
MFS VIT New Discovery(4) (5) 0.90% 0.27% 0.25% 1.17% 1.15%
Lord, Abbett VC C Growth and Income 0.50% 0.01% 0.02% 0.51% 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. WithoutIncluding these reductions, total operating
expenses would have been as follows:
VIP Equity-Income 0.58%0.57%
VIP Growth 0.68%0.67%
VIP Overseas 0.91%0.90%
VIP II Asset Manager 0.64%
VIP II Index 500 0.35%
VIP II Contrafund 0.70%0.78%
VIP II Asset Manager: Growth 0.73%0.76%
VIP III Balanced 0.59%0.60%
VIP III Growth Opportunities 0.71%0.73%
VIP III Growth & Income 0.61%
(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.
(4) Each of the MFS Series has an expense offset arrangement,
which reduces the series' custodian fee based upon the amount
of cash maintained by the series with its custodian and
dividend disubrsing agent. Each series may enter into other
such arrangements and directed brokerage arrangements, which
would also have the effect of reducing the series' expenses.
The expenses shown above do not take into account these expense
reductions, and are therefore higher than the actual expenses
of the series.
(5) MFS has agreed to bear expenses for thisthese portfolios,
and each such that the 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
4.32%0.47% and 5.22%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 9899 127128 159160 214216
VIP High Income 103 139140 179180 255257
VIP Equity-Income 101 135136 172173 242244
VIP Growth(3) 102103 138139 177179 251255
VIP Overseas(3) 104105 145146 189191 275279
VIP II Investment Grade Bond 101 135136 172173 242244
VIP II Asset Manager(3) 102 137138 175177 248251
VIP II Index 500(3) 98 127 157158 212213
VIP II Contrafund(3) 102103 138140 177180 251257
VIP II Asset Manager: Growth(3) 103 140142 180183 257263
VIP III Balanced(3) 101102 136137 173175 243247
VIP III Growth Opportunities(3) 103 139141 179182 255261
VIP III Growth & Income(3) 102103 136140 174179 245256
American Century VP Capital Appreciation 106 148149 194195 276287
American Century VP Balanced 106 148149 194195 286287
American Century VP Value 106 148149 194195 286287
American Century VP International 110111 162164 217219 331335
American Century VP Income & Growth 10393 139120 179149 255256
MFS VIT Emerging Growth(4) 10494 144125 187158 271274
MFS VIT Research(4) 10494 144125 187159 272275
MFS VIT Growth with Income(4) 10496 145129 188165 274287
MFS VIT New Discovery(4) (5) 10797 154133 202172 302301
Lord, Abbett VC C Growth and Income 10191 134114 169140 236238
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 1819 5758 99100 214216
VIP High Income 23 6970 119120 255257
VIP Equity-Income 21 6566 112113 242244
VIP Growth(3) 2223 6869 117119 251255
VIP Overseas(3) 2425 7576 129130 275279
VIP II Investment Grade Bond 21 6566 112113 242244
VIP II Asset Manager(3) 22 6768 115117 224851
VIP II Index 500(3)(4) 18 57 9798 212213
VIP II Contrafund(3) 2223 6870 117120 251257
VIP II Asset Manager: Growth(3) 23 7072 120123 257263
VIP III Balanced(3) 2122 6667 113115 243247
VIP III Growth Opportunities(3) 23 6971 119122 255261
VIP III Growth & Income(3) 2223 6670 114119 245256
American Century VP Capital Appreciation 26 7879 134135 286287
American Century VP Balanced 26 7879 134135 286287
American Century VP Value 26 7879 134135 286287
American Century VP International 3031 9294 157159 331335
American Century VP Income & Growth 23 6970 119 255256
MFS VIT Emerging Growth(4) 24 7475 127128 271274
MFS VIT Research(4) 24 7475 127129 272275
MFS VIT Growth with Income(4) 2426 7579 128135 274287
MFS VIT New Discovery(4)(5) 27 8483 142 302301
Lord, Abbett VC C Growth and Income 21 64 109110 236238
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 0.12%0.13%
of assets based on an average cash value of $30,000$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 16 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 12th15th transfer in a contract year.
For limitations on transfers to and from the General Account,
see "The General Account" on page 23.
Financial Information
Condensed financial information for the Separate Account begins
at page 34 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 Products Fund,
2. Fidelity's Variable Insurance Products Fund II,
3. Fidelity's Variable Insurance Products Fund III,
4. American Century Variable Portfolios, Inc.,
5. MFS(r) 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 as high a
level of
current income
as is
consistent with
preservation of
capital and
liquidity by
investing in
U.S. dollar-
denominated
money market
securities.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 a high
level of
current income
by investing
primarily in
income-
producing debt
securities
while also
considering
growth of
capital. Policy
owners should
understand that
the fund's unit
price may be
volatile due to
the nature of
the high yield bond
marketplace. 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. 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.
The adviser
invests the
fund's assets
in companies
the adviser
believes have
above-average
growth potential. 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. 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
instruments. 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 a high a
level of
current income
as is
consistent with
the preservation of
capital by
investing in
U.S. dollar-
denominated
investment-grade
bonds. 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
common stocks
and securities
of companies
whose value the
manager
believes is not
fully recognized by
the public. 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 by
allocating its
assets among
stocks, bonds,
short-term
instruments,
and other
investments. Seeks to maximize
total return
over the long
term through
investments in
stocks, bonds,
and short-term
instruments.
This portfolio
has a heavier
emphasis on
stocks than the
Asset Manager
Portfolio.
VIP II Index 500
Seeks to
provide
investment
results that
correspond to
the total
return of
common stocks
publicly traded
in the United
States by
duplicating the
composition and
total return of
the Standard &
Poor's
Composite Index
of 500
Stocks. 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 potential
for capital
appreciation. earnings
potential.
VIP III Balanced
Seeks both
income and
growth of
capital. When
FMR's outlook
is neutral, it
will invest
approximately
60% of the
fund's assets
in equity
securities and
will always
invest at least
25% of the
fund's assets
in fixed-income
senior
securities. 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 capital
growth by
investing
primarily in
common stocks.
Although the
fund invests
primarily in
common stocks,
it has the
ability to
purchase other
securities,
including
bonds, which
may be lower-
quality debt
securities. 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 VC C 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.
MFS(r) Massachusetts Financial Services Company manages the MFS
Variable Insurance Trusts. Lord, Abbett & Co.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. Once we accept your
application, you willYou 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 010 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 17).
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 12th15th 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 23.
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 maymust designate the systematic
withdrawal amount orand 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. (Depending on
the state your policy was issued, you may be allowed to make
the change.)
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 23.) 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 26.) 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 23.)
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 25.)
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 25.)
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, the contingent owner will become the owner. If
no contingent owner has been named or is living, ownership will
pass to the owner's estate.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 20.) 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 (GMDB)
In general, the guaranteed minimum death benefit is the highest
contract value on any contract anniversary prior to death and
prior to age 81, adjusted for any withdrawals (see the
following example for how withdrawals impact the guaranteed
minimum death benefit).
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 earlier of the annuitant's date of death or 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. (The decrease in GMDBThis 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. $25,000$1,000
These limits do no apply to transfers made in a Dollar Cost
Averaging or portfolio rebalancing program that occurs over a
time period of 12 or more months.
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 12th15th 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 7.
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.
SELECTING 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
The Year 2000 issue (Y2K) relates to the ability of computer
systems to properly recognize a four-digit year code. Many
computer systems only allowed for a two-digit year code and
thus years such as 1998 were simply recognized as 98. Using a
two-digit year code for the years 2000 and beyond could result
in errors and miscalculations.
Midland National Life relies extensively on computer systems in
its daily operations. Several years ago, we began implementing
a Plan to modify all of our computer systems to properly
recognize the year 2000. Our Y2K Plan focused on assuring
compliance in the following areas: Information Technology
("IT") and non-information ("non-IT") hardware, operating
systems, software applications and custom applications. We are
in the process of the remediation and testing of other systems,
including telephone, heating and cooling, mechanical and other
equipment having embedded, date sensitive technology for Year
2000 compliance, In addition, we are reviewing the Year 2000
compliance status of our mission critical customers, vendors
and service providers.
We have upgraded our mainframe computer hardware, systems
software and applications software to address Y2K issues and we
expect to complete compliance testing by June 30, 1999. Most of
our systems run on the IBM mainframe computer platform, where
future dated systems testing has been performed through
December 31, 2000. We are in the process of updating and
testing hardware and software running on personal computer (PC)
platforms and expect to have any Y2K issues resolved by June
30, 1999.
Y2K issues have been handled primarily by our internal staff.
We spent approximately $800,000 on the Year 2000 project
through the end of 1998 and estimate additional expenditures of
$250,000 for the balance of the project. Due to our early start
in addressing Y2K issues, the number of other IT projects
delayed due to Y2K has been very limited.
We are currently in the process of developing a Y2K Contingency
Plan and will involve representatives from our IT and non-IT
business units in the planning process. The Y2K Contingency
Plan may include potential Y2K issues generated within our own
Company and potential Y2K issues generated by third parties
that have a mission critical business relationship with us.
While we cannot guarantee that our computer systems nor those
of the parties with which we conduct business will properly
function once the year 2000 is reached, Midland National Life
is committed to maintaining reliable computer systems which
properly recognize the year 2000.
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
PricewaterhouseCoopers LLPCoopers & Lybrand LLP, independent
auditors, for the periods indicated in their report which
appears in the registration statement. The address for
PricewaterhouseCoopers LLPCoopers & Lybrand LLP is:
IBM Park Building
Suite 1300
650 Third Avenue South
Minneapolis, MN 55402-4333
The financial statements audited by PricewaterhouseCoopers
LLPCoopers & 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:
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
CONDENSED FINANCIAL INFORMATION
Accumulation Number of
Unit Value at Accumulation Accumulation
Investment Beginning of Unit Value at Units at End of
Division Period End of Period 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 11.63 12.08 1,031,930
VIP High Income
1993(1) 10.00 10.22
1994 10.2 29.93 70,977
1995 9.93 11.83 139,335
1996 11.83 13.26 221,760
1997 13.26 13.58 221,760
1998 13.58 14.51 443,482
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
19961997 14.35 16.09 696,083
19971998 16.09 20.33 929,862
1998 20.33 22.37 1,212,515
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 18.28 25.14 1,102,018
VIP Overseas
1993(1) 10.00 10.40 1,706
1994 10.40 10.37 147,456
1995 10.37 11.36 217,322
1996 11.36 12.59 282,107
1997 12.59 13.85 336,988
1998 13.85 15.39 300,975
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 15.05 17.06 585,516
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 12.06 12.94 343,788
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 17.34 22.22 582,354
Accumulation Number of
Unit Value at Accumulation Accumulation
Investment Beginning of Unit Value at Units at End of
Division Period End of Period 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 16.72 19.38 255,206
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 21.67 27.42 870,732
VIP III Growth & Income
1997 10.00 12.36 54,877
1998 12.36 15.79 301,273
VIP III Balanced
1997(3) 10.00 11.45 39,701
1998 11.45 13.28 146,152
VIP III Growth Opportunities
1997(3) 10.00 12.28 75,926
1998 12.28 15.08 320,588
American Century VP Capital Appreciation
1997(3) 10.00 11.35 13,870
1998 11.35 10.94 43,157
American Century VP Value
1997(3) 10.00 12.26 44,666
1998 12.26 12.66 141,481
American Century VP Balanced
1997(3) 10.00 11.40 13,519
1998 11.40 13.01 45,229
American Century VP International
1997(3) 10.001 10.930.93 34,973
1998 10.93 12.79 91,430
American Century VP Income & Growth
1998(4) 10.00 11.92 12,172
MFS VIT Emerging Growth
1998(4) 10.00 12.56 10,106
MFS VIT Research
1998(4) 10.00 11.78 9,782
MFS VIT Growth with Income
1998(4) 10.00 11.54 2,539
MFS VIT New Discovery
1998(4) 10.00 12.89 84
Lord Abbett VC C Growth and Income
1998(4) 10.00 10.72 14,051
(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 10/1/98 to 12/31/98
6471ED.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, 19991998 , 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, 1999199
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 HistoricalPerformance 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
late not more than ten business days before the annuity payment is due.
The payment made to the Annuitant for the first payment and all subsequent
payments will be the sum of the payment amounts for each Investment Division.
The Annuity Unit Value for each Investment Division was set at $10 on the first
day there were contract transactions in Our Separate Account. After that, the
Annuity Unit Value for any business day is equal to (1) multiplied by (2)
multiplied by (3) where:
(1) = the Annuity Unit Value for the preceding business day:
(2) = the net investment factor (as described above) for that division on that
business day.
(3) = the investment result adjustment factor (.99986634 per day), which
recognizes an assumed interest rate of 5% per year used in determining the
annuity payment amounts.
Transfers after the Maturity Date will only be allowed once per Contract Year
and will be made using the Annuity Unit Value for the Investment Divisions
on the date the request for transfer is received. On the transfer date, the
number of Annuity Units transferred from the Investment Division is
multiplied by the Annuity Unit Value for that Investment Division to
determine the value being transferred. This value is then transferred into
the indicated Investment Division(s) by converting this value into Annuity
Units of the proper Investment Division(s). The Annuity Units are determined
by dividing the value being transferred into an Investment Division by the
Annuity Unit value of the Investment Division on the transfer date. The
transfer shall result in the same dollar amount of variable annuity payment
on the date of transfer.
CALCULATION OF YIELDS AND TOTAL RETURNS
VIP Money Market Investment Division Yield Calculation
In accordance with regulations adopted by the Securities and Exchange
Commission, Midland is required to compute the VIP Money Market Investment
Division's current annualized yield for a seven-day period in a manner which
does not take into consideration any realized or unrealized gains or losses
or shares of the VIP Money Market Portfolio or on its portfolio securities.
This current annualized yield is computed by determining the net change
(exclusive of realized gains and losses on the sale of securities and
unrealized appreciation and depreciation and income other than investment
income) in the value of a hypothetical account having a balance of one unit
of the VIP Money Market Investment Division at the beginning of such seven-
day period, dividing such net change in account value by the value of the
account at the beginning of the period to determine the base period return
and annualizing this quotient on a 365-day basis. The net change in account
value reflects the deductions for the contract maintenance charge, annual
administrative expenses, the mortality and expense risk charge, and income
and expenses accrued during the period. Because of these deductions, the
yield for the VIP Money Market Investment Division of the Separate Account
will be lower than the yield for the VIP Money Market Portfolio or any
comparable substitute funding vehicle.
The Securities and Exchange Commission also permits Midland to disclose the
effective yield of the VIP Money Market Investment Division for the same
seven-day period, determined on a compounded basis. The effective yield is
calculated by compounding the unannualized base period return by adding one
to the base period return, raising the sum to a power equal to 365 divided
by 7, and subtracting one from the result.
The yield on amounts held in the VIP Money Market Investment Division
normally will fluctuate on a daily basis. Therefore, the disclosed yield for
any given past period is not an indication or representation of future yields
or rates of return. The VIP Money Market Investment Division's actual yield
is affected by changes in interest rates on money market securities, average
portfolio maturity of the VIP Money Market Portfolio or substitute funding
vehicle, the types and quality of portfolio securities held
seven-day period ending 12.31.9812/31/97 was 3.60%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 unitaccording to the following formula:
YIELD = 2 [ (a - b + 1)6 - 1 ]
cd
Where: a = net investment income earned during the period by the Fund (or
substitute funding vehicle) attributable to
shares owned by the Investment Division.
b = expenses accrued for the period (net of reimbursements).
c = the average daily number of units outstanding during the period.
d = the maximum offering price per unit on the last day of the period.
Net investment income will be determined in accordance with rules established
by the Securities and Exchange Commission. Accrued expenses will include all
recurring fees that are charged to all Owner accounts. The yield
calculations do not reflect the effect of any Contingent Deferred Sales
Charges that may be applicable to a particular Contract. Contingent Deferred
Sales Charges range from 8% to 0% of the amount of Premium withdrawn
depending on the time elapsed between each premium payment and the withdrawal.
Because of the charges and deductions imposed by the Separate Account the yield
of the Investment Division will be lower than the yield for the corresponding
Fund. The yield on amounts held in the Investment Divisions normally will
fluctuate over time. Therefore, the disclosed yield for any given past period
is not an indication or representation of future yields or rates of return.
The Investment Division's actual yield will be affected by the types and
quality of portfolio securities held by the Fund, and its operating expenses.
We currently do not advertise yields for any Investment Division.
Standard Total Return Calculations Assuming Surrender
Midland may from time to time also disclose average annual total returns for
one or more of the Investment Divisions for various periods of time. Average
annual total return quotations are computed by finding the average annual
compounded rates of return over one, five and ten year periods that would
equate the initial amount invested to the ending redeemable value, according
to the following formula:
P (1 + T)n = ERV
Where: P = an assumed initial payment of $1,000
T = average annual total return
n = number of years
ERV = ending redeemable value of an assumed $1,000 payment made at the
beginning of the one, five, or ten-year period, at the end of the one, five,
or ten-year period (or fractional portion thereof).
All recurring fees that are charged to all Owner accounts are recognized in the
ending redeemable value. The standard average annual total return calculations
which assume the Contract is surrendered will reflect the effect of
Contingent Deferred Sales Charges that may be applicable to a particular
period.
The following is the average annual total return information for the Investment
Divisions of Separate Account C based on the assumption that the contract is
surrendered at the end of the time period shown. The returns reflect the
impact of any applicable contingent deferred sales charge.
Investment Division Inception of the 1-Year Period
With Investment Division Ended
Inception Date to 12/31/9812/31/97 12/31/9812/31/97
VIP Money Market (10/24/93) 2.70% -4.60%
VIP II Investment Grade Bond (10/24/93) 4.12% -0.02%
VIP High Income (10/24/93) 6.54% -13.01%
VIP II Asset Manager (10/24/93) 10.04% 6.09%
VIP II Index 500 (10/24/93) 20.87% 19.18%
VIP Equity-Income (10/24/93) 16.12% 2.72%
VIP Growth (10/24/93) 18.82% 30.19%
VIP Overseas (10/24/93) 7.80% 3.82%
VIP II Contrafund (10/24/93) 23.22% 20.81%
VIP II Asset Manager: Growth (5/1/95) 18.56% 8.58%
VIP III Balanced (5/1/97) 14.55% 8.65%
VIP III Growth & Income (5/1/97) 27.78% 20.43%
VIP III Growth Opportunities (5/1/97) 24.12% 15.52%
American Century VP Balanced (5/1/97) 13.05% 6.56%
American Century VP Capital Appreciation (5/1/97)1.24%-10.88%
American Century VP Value (5/1/97) 11.13% -4.07%
American Century VP International (5/1/97)11.85% 9.60%
American Century VP Income & Growth (10/1/98)N/A N/A
MFS VIT Emerging Growth Series (10/1/98) N/A N/A
MFS VIT Reserach Series (10/1/98) N/A N/A
MFS VIT Growth with Income Series (10/1/98) N/A N/A
MFS VIT New Discovery Series (10/1/98) N/A N/A
Lord, Abbett VCC Growth and Income (10/1/98) N/A N/A
N/A - The return information for the funds are not reflected as the funds had
not been included in Midland National Life Separate Account C for more than
12 months at 12/311998/1997.
Midland may from time to time also disclose average annual total returns in a
format which assumes the Contract is kept in-force through the time period
shown. Such returns will be identical to the format which assumes the
Contract is surrendered except that the Contingent Deferred Sales Charge
percentage will be assumed to be 0%. The returns which assume the Contract
is kept in-force will only be shown in conjunction with returns which assume
the Contract is surrendered.
The following is the average annual total return information for the Investment
Division of Separate Account C 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.
Investment Division Inception of the 1-Year Period
with Investment Division Ended
Inception Date to 12/31/9812/31/97 12/31/9812/31/97
VIP Money Market (10/24/93) 3.61% 2.61%
VIP II Investment Grade Bond (10/24/93)4.98% 7.18%
VIP High Income (10/24/93) 7.33% -5.81%
VIP II Asset Manager (10/24/93) 10.73% 13.29%
VIP II Index 500 (10/24/93) 21.34% 26.38%
VIP Equity-Income (10/24/93) 16.67% 9.91%
VIP Growth (10/24/93) 19.32% 37.39%
VIP Overseas (10/24/93) 8.55% 11.02%
VIP II Contrafund (10/24/93) 24.19% 28.01%
VIP II Asset Manager: Growth (5/1/95) 19.64% 15.78%
VIP III Balanced (5/1/97) 18.44% 15.85%
VIP III Growth & Income (5/1/97) 31.41% 27.63%
VIP III Growth Opportunities (5/1/97) 27.82% 22.72%
American Century VP Balanced (5/1/97) 16.98% 13.76%
American Century VP Capital Appreciation (5/1/97)5.46% -3.68%
American Century VP Value (5/1/97) 15.11% 3.14%
American Century VP International (5/1/97)15.81% 16.80%
American Century VP Income & Growth (10/1/98)N/A N/A
MFS VIT Emerging Growth Series (10/1/98) N/A N/A
MFS VIT Research Series (10/1/98) N/A N/A
MFS VIT Growth with Income Series (10/1/98) N/A N/A
MFS VIT New Discovery Series (10/1/98) N/A N/A
Lord, Abbett VCC Growth and Income (10/1/98) 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 12/31/19981997.
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.
Investment Division Inception of the 1-Year Period
with Investment Division Ended
Inception Date to12/31/98 12/31/97 12/31/9812/31/97
VIP Money Market (10/24/93) 14.80% -4.60%
VIP II Investment Grade Bond (10/24/93)23.28% -0.02%
VIP High Income (10/24/93) 38.95% -13.01%
VIP II Asset Manager (10/24/93) 64.30% 6.09%
VIP II Index 500 (10/24/93) 167.44% 19.18%
VIP Equity-Income (10/24/93) 117.16% 2.72%
VIP Growth (10/24/93) 144.67% 30.19%
VIP Overseas (10/24/93) 47.67% 3.82%
VIP II Contrafund (10/24/93) 115.22% 20.81%
VIP II Asset Manager: Growth (5/1/95) 86.85% 8.58%
VIP III Balanced (5/1/97) 25.43% 8.65%
VIP III Growth & Income (5/1/97) 50.54% 20.43%
VIP III Growth Opportunities (5/1/97) 43.41% 15.52%
American Century VP Balanced (5/1/97) 22.71% 6.56%
American Century VP Capital Appreciation (5/1/97)2.08%-10.88%
American Century VP Value (5/1/97) 19.26% -4.07%
American Century VP International (5/1/97)20.55% 9.60%
American Century VP Income & Growth (10/1/98)N/A N/A
MFS VIT Emerging Growth Series (10/1/98) N/A N/A
MFS VIT Research Series (10/1/98) N/A N/A
MFS VIT Growth with Income Series (10/1/98) N/A N/A
MFS VIT New Discovery Series (10/1/98) N/A N/A
Lord, Abbett VCC Growth and Income (10/1/98) 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 12/31/19981997.
The following is the cumulative total return information for the Investment
Division of Separate Account C. The returns are based on the assumption that
the contract is kept in-force through the end of the time period shown and
the contingent deferred sales charges are set to zero.
Investment Division Inception of the 1-Year Period
with Investment Division Ended
Inception Date to 12/31/9812/31/97 12/31/9812/31/97
VIP Money Market (10/24/93) 20.20% 2.61%
VIP II Investment Grade Bond (10/24/93)28.68% 7.18%
VIP High Income (10/24/93) 44.35% -5.81%
VIP II Asset Manager (10/24/93) 69.70% 13.29%
VIP II Index 500 (10/24/93) 172.84% 26.38%
VIP Equity-Income (10/24/93) 122.56% 9.91%
VIP Growth (10/24/93) 150.07% 37.39%
VIP Overseas (10/24/93) 53.07% 11.02%
VIP II Contrafund (10/24/93) 121.52% 28.01%
VIP II Asset Manager: Growth (5/1/95) 93.15% 15.78%
VIP III Balanced (5/1/97) 32.63% 15.85%
VIP III Growth & Income (5/1/97) 57.74% 27.63%
VIP III Growth Opportunities (5/1/97) 50.61% 22.72%
American Century VP Balanced (5/1/97) 29.91% 13.76%
American Century VP Capital Appreciation (5/1/97)9.28% -3.68%
American Centu $30,000$27,000, so it is calculated as $35/$30,000$27,000,
or 0.12%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 Contrac 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 Ad
$30,000$27,000, so it is calculated as $35/$30,000$27,000, or 0.12%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.
the Portfolio Inception date.
ment Division Inception of the 10-Year Period 5-Year Period
with Portfolio Portfolio to Ended Ended
Inception Date 12/31/9812/31/97 12/31/9812/31/97 12/31/9812/31/97
VIP Money Market (4/1/82)5.08% 3.92% 3.42%
VIP II Investment Grade Bond (12/5/88)6.67% 6.69% 5.06%
VIP High Income (9/19/85)9.37% 9.38% 7.13%
VIP II Asset Manager (9/6/89)11.23% N/A 10.10%
VIP II Index 500 (8/27/92)19.27% N/A 21.84%
VIP Equity-Income (10/9/86)12.64% 13.86% 16.96%
VIP Growth (10/9/86)15.55% 17.59% 19.89%
VIP Overseas (1/28/87)6.90% 8.39% 8.02%
VIP II Contrafund (1/3/95)26.67% N/A N/A
VIP II Asset Manager: Growth (1/3/95)19.57% N/A N/A
VIP III Balanced (1/3/95)14.06% N/A N/A
VIP III Growth & Income (12/31/96)27.15% N/A N/A
VIP III Growth Opportunities (1/3/95)24.30% N/A N/A
American Century VP Balanced (5/1/91)9.79% N/A 10.99%
American Century VP Capital Appreciation (11/20/87)6.56%7.03% 1.66%
American Century VP Value (5/1/96)14.05% N/A N/A
American Century VP International (5/1/94)10.46% N/A N/A
American Century VP Income & Growth (10/30/97)28.36% N/A N/A
MFS VIT Emerging Growth Series (7/24/95)24.43% N/A N/A
MFS VIT Research Series (7/26/95)20.47% N/A N/A
MFS VIT Growth with Income Series (10/9/95)23.89% N/A N/A
MFS VIT New Discovery Series (5/1/98)1.51% N/A N/A
Lord, Abbett VCC Growth and Income (12/11/89)13.40% N/A 14.02%
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.
Investment Division Inception of the 10-Year Period 5-Year Period
with Portfolio Portfolio to Ended Ended
Inception Date 12/31/9812/31/97 12/31/9812/31/97 12/31/9812/31/97
VIP Money Market (4/1/82)129.47% 46.89% 12.92%
VIP II Investment Grade Bond (12/5/88)91.61% 91.09% 22.60%
VIP High Income (9/19/85)228.93% 145.12% 35.66%
VIP II Asset Manager (9/6/89)169.84% N/A 56.35%
VIP II Index 500 (8/27/92)202.52% N/A 163.15%
VIP Equity-Income (10/9/86)329.25% 266.19% 113.50%
VIP Growth (10/9/86)485.89% 405.48% 142.27%
VIP Overseas (1/28/87)121.71% 123.82% 41.64%
VIP II Contrafund (1/3/95)150.80% N/A N/A
VIP II Asset Manager: Growth (1/3/95)97.93% N/A N/A
VIP III Balanced (1/3/95)62.81% N/A N/A
VIP III Growth & Income (12/31/96)54.47% N/A N/A
VIP III Growth Opportunities (1/3/95)132.15% N/A N/A
American Century VP Balanced (5/1/91)104.78% N/A 63.04%
American Century VP Capital Appreciation (11/20/87)102.69% 97.27% 3.14%
American Century VP Value (5/1/96)35.73% N/A N/A
American Century VP International (5/1/94)53.72% N/A N/A
American Century VP Income & Growth (10/30/97)26.72% N/A N/A
MRS VIT Emerging Growth Series (7/24/98)105.88% N/A N/A
MFS VIT Research Series (7/26/95)83.31% N/A N/A
MFS VIT Growth with Income Series (10/9/95)93.47% N/A N/A
MFS VIT New Discovery Series (5/1/98)-6.19% N/A N/A
Lord, Abbett VCC Growth and Income (12/11/89)212.54% N/A 87.28%
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.
Investment Division Inception of the 10-Year Period 5-Year Period
with Portfolio Portfolio to Ended Ended
Inception Date 12/31/9812/31/97 12/31/9812/31/97 12/31/9812/31/97
VIP Money Market (4/1/82)129.47% 46.89% 18.31%
VIP II Investment Grade Bond (12/5/88)91.61% 91.09% 27.99%
VIP High Income (9/19/85)228.93% 145.12% 41.11%
VIP II Asset Manager (9/6/89)169.84% N/A 61.78%
VIP II Index 500 (8/27/92)206.12% N/A 168.50%
VIP Equity-Income (10/9/86)329.25% 266.19% 118.87%
VIP Growth (10/9/86)485.89% 405.48% 147.69%
VIP Overseas (1/28/87)121.71% 123.82% 47.07$
VIP II Contrafund (1/3/95)157.10% N/A N/A
VIP II Asset Manager: Growth (1/3/95)104.23% N/A N/A
VIP III Balanced (1/3/95)69.11% N/A N/A
VIP III Growth & Income (12/31/96)61.67% N/A N/A
VIP III Growth Opportunities (1/3/95)138.45% N/A N/A
American Century VP Balanced (5/1/91)104.78% N/A 68.43%
American Century VP Capital Appreciation (11/20/87)102.69%97.27% 8.58%
American Century VP Value (5/1/96)42.03% N/A N/A
American Century VP International (5/1/94)59.12% N/A N/A
American Century VP Income & Growth (10/30/97)33.92% N/A N/A
MFS VIT Emerging Growth Series (7/24/95)112.18% N/A N/A
MFS VIT Research Series (7/26/95)89.61% N/A N/A
MFS VIT Growth with Income Series (10/9/95)99.77% N/A N/A
MFS VIT New Discovery Series 5/1/98)1.01% N/A N/A
Lord, Abbett VCC Growth and Income (12/11/89)212.54% N/A 92.71%
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 all 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 are not paid to WSS.
Underwriting
Year Commissions
1995 $100,715.80
1996 $99,593.61
1997 0
1998 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
asseerts in acing. The mailing address for PricewaterhouseCoopersCoopers
& Lybrand LLP is as follows:
PricewaterhouseCoopersCoopers & 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 iThere 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
PricewaterhouseCoopersCoopers & 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 PricewaterhouseCoopersCoopers & Lybrand LLP
have been included in reliance on their report, given on their authority as
experts
Insurance Products Fund
II, the Variable Insurance Products Fund III, the American
Century Variable Portfolios, Inc., the Massachusetts Financial
Services, and the Lord, Abbett & Company) as of December 31,
1998, and the related statements of operations and changes in
net assets for each of the three years in the period ended
December 31, 1998, in conformity with generally accepted
accounting principles. These financial statements are the
responsibility of Midland National Life Insurance Company's
management; our responsibility is to express an opinion on
these financial statements based on our audits. We conducted
our audits of these statements in accordance with generally
accepted auditing standards which 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, assessing the accounting principles used and
significant estimates made by management, and evaluating the
overall financial statement presentation. We believe that our
audits provide a reasonable basis for the opinion expressed
above.
<TABLE>
March 26, 1999
Midland National Life Insurance Company
Separate Account C
Statement of Assets
As of December 31, 1998
<S> <C> <C>
Value
Per
ASSETS Shares Share
Investments at net asset value:
Variable Insurance Products Fund:
Money Market Portfolio (cost $12,473,870) 12,473,870 $ 1.00 $12,473,870
High Income Portfolio (cost $6,846,628) 558,310 11.53 6,437,316
Equity-Income Portfolio (cost $23,398,690) 1,067,294 25.42 27,130,618
Growth Portfolio (cost $20,592,858) 617,507 44.87 27,707,561
Overseas Portfolio (cost $4,278,299) 231,183 20.05 4,635,216
Variable Insurance Products Fund II:
Asset Manager Portfolio (cost $8,900,611) 550,363 18.16 9,994,590
Investment Grade Bond Portfolio (cost $4,270,156) 343,481 12.96 4,451,512
Index 500 Portfolio (cost $19,520,404) 169,053 141.25 23,878,794
Contrafund Portfolio (cost $10,190,470) 529,637 24.44 12,944,327
Asset Manager Growth Portfolio (cost $4,368,843) 290,530 17.03 4,947,729
Variable Insurance Products Fund III:
Balanced Portfolio (cost $1,797,598) 120,530 16.11 1,941,731
Growth & Income Portfolio (cost $4,125,444) 294,682 16.15 4,759,121
Growth Opportunities Portfolio (cost $4,228,174) 211,348 22.88 4,835,642
American Century Variable Portfolios, Inc.:
Balanced Portfolio (cost $561,296) 70,576 8.34 588,604
Capital Appreciation Portfolio (cost $468,990) 52,503 9.02 473,579
International Portfolio (cost $1,118,173) 153,552 7.62 1,170,066
Value Portfolio (cost $1,781,133) 266,208 6.73 1,791,579
Income & Growth Portfolio (cost $136,823) 21,414 6.78 145,186
Massachusetts Financial Services:
Emerging Growth Portfolio (cost $116,227) 5,914 21.47 126,969
Growth & Income Portfolio (cost $27,784) 1,457 20.11 29,309
New Discovery Portfolio (cost $1,011) 107 10.22 1,095
Research Portfolio (cost $108,944) 6,051 19.05 115,273
Lord, Abbett & Company:
Growth & Income Portfolio (cost $154,272) 7,302 20.64 150,772
Total investments (cost $129,466,698) $150,730,459
Net assets $150,730,459
</TABLE>
Midland National Life Insurance Company
Separate Account C
Statement of Assets, Continued
As of December 31, 1998
Value
Per
NET ASSETS Units Unit
Net assets represented by:
Variable Insurance Products Fund:
Money Market Portfolio 1,031,931 $12.09 $12,473,870
High Income Portfolio 443,482 14.52 6,437,316
Equity-Income Portfolio 1,212,516 22.38 27,130,618
Growth Portfolio 1,102,019 25.14 27,707,561
Overseas Portfolio 300,976 15.40 4,635,216
Variable Insurance Products Fund II:
Asset Manager Portfolio 585,516 17.07 9,994,590
Investment Grade Bond Portfolio 343,788 12.95 4,451,512
Index 500 Portfolio 870,733 27.42 23,878,794
Contrafund Portfolio 582,354 22.23 12,944,327
Asset Manager Growth Portfolio 255,207 19.39 4,947,729
Variable Insurance Products Fund III:
Balanced Portfolio 146,152 13.29 1,941,731
Growth & Income Portfolio 301,273 15.80 4,759,121
Growth Opportunities Portfolio 320,588 15.08 4,835,642
American Century Variable Portfolios, Inc.:
Balanced Portfolio 45,230 13.01 588,604
Capital Appreciation Portfolio 43,258 10.95 473,579
International Portfolio 91,431 12.80 1,170,066
Value Portfolio 141,482 12.66 1,791,579
Income & Growth Portfolio 12,173 11.93 145,186
Massachusetts Financial Services:
Emerging Growth Portfolio 10,107 12.56 126,969
Growth & Income Portfolio 2,539 11.54 29,309
New Discovery Portfolio 85 12.88 1,095
Research Portfolio 9,782 11.78 115,273
Lord, Abbett & Company:
Growth & Income Portfolio 14,052 10.73 150,772
Net assets $150,730,459
Midland National Life Insurance Company
Separate Account C
Statements of Operations and Changes in Net
Assets
For the years ended December 31, 1998, 1997 and 1996
Combined
1998 1997 1996
Investment income:
Dividend income $1,855,034 $1,222,960 $610,051
Capital gains distributions 5,675,705 2,351,461 852,325
7,530,739 3,574,421 1,462,376
Expenses:
Administrative expense 168,950 99,060 54,222
Mortality and expense risk 1,520,704 884,316 489,968
Net investment income 5,841,085 2,591,045 918,186
Realized and unrealized gains
(losses) on investments:
Net realized gains on
investments 4,099,295 2,325,825 945,397
Net unrealized appreciation
(depreciation) on investments 9,895,409 6,604,328 2,183,942
Net realized and unrealized
gains (losses) on investments 13,994,704 8,930,153 3,129,339
Net increase (decrease) in net
assets resulting from operations $19,835,789 $11,521,198 $4,047,525
Net assets at beginning of year $84,882,243 $47,905,622 $23,945,524
Net increase (decrease) in net
assets resulting from operations 19,835,789 11,521,198 4,047,525
Capital shares transactions:
Net premiums 57,035,498 29,710,164 22,109,531
Transfers of policy loans (239,919) 64,214 (138,377)
Transfers of surrenders (9,129,836) (3,059,123) (1,435,877)
Transfers of death benefits (153,431) (69,204) (98,128)
Transfers of other terminations (1,499,885) (1,190,628) (524,576)
Interfund transfers
Net increase in net assets
from capital share transactions 46,012,427 25,455,423 19,912,573
Total increase in net assets 65,848,216 36,976,621 23,960,098
Net assets at end of year $150,730,459 $84,882,243 $47,905,622
Variable Insurance Products Fund
Money Market Portfolio High Income Portfolio
1998 1997 1996 1998 1997 1996
$436,463 $300,220 $219,309 $345,800 $222,895 $131,237
219,727 27,549 25,677
436,463 300,220 219,309 565,527 250,444 156,914
12,375 8,443 6,282 8,514 5,683 3,316
107,724 74,591 52,611 76,520 51,637 30,223
316,364 217,186 160,416 480,493 193,124 123,375
32,833 120,453 39,094
(873,410) 238,019 84,465
(840,577) 358,472 123,559
$316,364 $217,186 $160,416 $(360,084) $551,596 $246,934
$6,219,257 $5,037,632 $3,452,911 $4,692,229 $2,941,240 $1,647,643
316,364 217,186 160,416 (360,084) 551,596 246,934
11,300,710 4,354,516 4,272,582 2,769,358 1,505,730 1,052,260
1,026 3,183 370 (1,161) 8,735 (18,992)
(2,868,366) (720,053) (610,463) (728,562) (193,053) (98,156)
(12,145) (9,075) (990)
(187,199) (192,221) (116,605) (91,242) (54,516) (18,874)
(2,307,922) (2,480,986) (2,109,434) 156,778 (58,428) 131,415
5,938,249 964,439 1,424,305 2,105,171 1,199,393 1,046,663
6,254,613 1,181,625 1,584,721 1,745,087 1,750,989 1,293,597
$12,473,870 $6,219,257 $5,037,632 $6,437,316 $4,692,229 $2,941,240
Midland National Life Insurance Company
Separate Account C
Statements of Operations and Changes in Net Assets, Continued
For the years ended December 31, 1998, 1997 and 1996
Variable Insurance Products Fund
Equity-Income Portfolio
1998 1997 1996
Investment income:
Dividend income $272,867 $205,546 $9,062
Capital gains distributions 971,085 1,033,441 259,769
1,243,952 1,238,987 268,831
Expenses:
Administrative expense 34,579 22,633 12,821
Mortality and expense risk 312,129 196,772 116,283
Net investment income 897,244 1,019,582 139,727
Realized and unrealized gains (losses) on investments:
Net realized gains on investments 820,340 544,429 232,696
Net unrealized appreciation (depreciation) on
investments 462,810 1,828,524 639,710
Net realized and unrealized gains on
investments 1,283,150 2,372,953 872,406
Net increase in net assets resulting
from operations $2,180,394 $3,392,535 $1,012,133
Net assets at beginning of year $18,903,655 $11,202,976 $5,535,894
Net increase in net assets resulting from
operations 2,180,394 3,392,535 1,012,133
Capital shares transactions:
Net premiums 7,033,996 4,729,107 4,495,843
Transfers of policy loans (7,815) 18,935 (16,252)
Transfers of surrenders (998,478) (494,451) (146,734)
Transfers of death benefits (56,152) (1,512) (47,195)
Transfers of other terminations (250,351) (268,311) (171,438)
Interfund transfers 325,369 324,376 540,725
Net increase in net assets from capital share
transactions 6,046,569 4,308,144 4,654,949
Total increase in net assets 8,226,963 7,700,679 5,667,082
Net assets at end of year $27,130,618 $18,903,655 $11,202,976
Variable Insurance Products Fund
Growth Portfolio Overseas Portfolio
1998 1997 1996 1998 1997 1996
$86,915 $75,678 $13,629 $89,108 $65,176 $28,907
2,273,513 338,750 344,126 262,634 258,730 31,798
2,360,428 414,428 357,755 351,742 323,906 60,705
31,608 20,920 11,964 7,131 6,503 4,460
287,311 200,814 109,649 65,879 65,711 41,952
2,041,509 192,694 236,142 278,732 251,692 14,293
669,341 691,123 342,671 251,364 98,094 51,904
4,319,239 1,712,204 260,988 (54,181) 2,092 237,970
4,988,580 2,403,327 603,659 197,183 100,186 289,874
$7,030,089 $2,596,021 $839,801 $475,915 $351,878 $304,167
$16,774,778 $10,524,695 $4,630,311 $4,666,058 $3,551,260 $2,467,800
7,030,089 2,596,021 839,801 475,915 351,878 304,167
5,293,591 4,634,527 4,775,149 565,888 949,784 897,349
(27,860) 4,007 (19,252) (268) 2,943 (10,209)
(1,012,070) (676,615) (169,952) (601,662) (176,955) (93,933)
(49,021) (1,076) (2,219) (20,400) (8,437) (8,833)
(181,637) (177,990) (49,452) (73,320) (46,889) (24,888)
(120,309) (128,791) 520,309 (376,995) 42,474 19,807
3,902,694 3,654,062 5,054,583 (506,757) 762,920 779,293
10,932,783 6,250,083 5,894,384 (30,842) 1,114,798 1,083,460
$27,707,561 $16,774,778 $10,524,695 $4,635,216 $4,666,058 $3,551,260
Midland National Life Insurance Company
Separate Account C
Statements of Operations and Changes in
Net Assets, Continued
For the years ended December 31, 1998, 1997 and 1996
Variable Insurance Products Fund II
Asset Manager Portfolio
1998 1997 1996
Investment income:
Dividend income $255,496 $200,876 $149,107
Capital gains distributions 766,487 503,893 122,948
1,021,983 704,769 272,055
Expenses:
Administrative expense 13,340 10,160 7,320
Mortality and expense risk 119,898 92,524 67,334
Net investment income 888,745 602,085 197,401
Realized and unrealized gains (losses) on investments:
Net realized gains on investments 276,757 134,752 87,754
Net unrealized appreciation (depreciation) on
investments (37,623) 410,196 305,446
Net realized and unrealized gains on
investments 239,134 544,948 393,200
Net increase in net assets resulting
from operations $1,127,879 $1,147,033 $590,601
Net assets at beginning of year $8,036,950 $5,664,702 $4,067,451
Net increase in net assets resulting from
operations 1,127,879 1,147,033 590,601
Capital shares transactions:
Net premiums 1,647,691 1,501,724 1,367,766
Transfers of policy loans 781 13,379 (16,660)
Transfers of surrenders (700,495) (313,519) (159,533)
Transfers of death benefits (19,872) (22,205)
Transfers of other terminations (163,587) (136,227) (83,451)
Interfund transfers 45,371 179,730 (79,267)
Net increase in net assets from capital share
transactions 829,761 1,225,215 1,006,650
Total increase in net assets 1,957,640 2,372,248 1,597,251
Net assets at end of year $9,994,590 $8,036,950 $5,664,702
Variable Insurance Products Fund II
Investment Grade Bond Portfolio Index 500 Portfolio
1998 1997 1996 1998 1997 1996
$79,445 $70,099 $30,902 $137,495 $53,290 $13,188
9,426 318,462 108,132 33,913
88,871 70,099 30,902 455,957 161,422 47,101
3,933 2,034 1,306 24,798 11,229 3,713
34,906 19,012 11,709 223,789 81,297 33,478
50,032 49,053 17,887 207,370 68,896 9,910
42,970 9,788 16,413 1,233,566 513,374 130,338
95,639 42,600 (6,743) 2,634,811 1,209,776 342,676
138,609 52,388 9,670 3,868,377 1,723,150 473,014
$188,641 $101,441 $27,557 $4,075,747 $1,792,046 $482,924
$1,641,646 $1,096,280 $578,159 $10,788,748 $4,253,767 $983,298
188,641 101,441 27,557 4,075,747 1,792,046 482,924
2,609,124 612,100 521,107 9,690,307 4,538,389 2,506,543
(11,442) 1,539 (9,375) (54,944) 3,990 (19,357)
(116,906) (62,059) (51,740) (1,003,115) (231,487) (81,856)
(27,858) (19,852) (1,602)
(56,620) (37,391) (6,831) (180,785) (150,241) (41,788)
197,069 (70,264) 37,403 590,694 602,136 425,605
2,621,225 443,925 490,564 9,014,299 4,742,935 2,787,545
2,809,866 545,366 518,121 13,090,046 6,534,981 3,270,469
$4,451,512 $1,641,646 $1,096,280 $23,878,794 $10,788,748 $4,253,767
Midland National Life Insurance Company
Separate Account C
Statements of Operations and Changes in
Net Assets, Continued
For the years ended December 31, 1998, 1997 and 1996
Variable Insurance Products Fund II
Contrafund Portfolio
1998 1997 1996
Investment income:
Dividend income 51,154 25,593
Capital gains distributions 376,347 67,639 4,815
427,501 93,232 4,815
Expenses:
Administrative expense 14,264 7,064 2,275
Mortality and expense risk 129,425 63,428 20,104
Net investment income 283,812 22,740 (17,564)
Realized and unrealized gains on investments:
Net realized gains on investments 498,083 139,059 39,350
Net unrealized appreciation on
investments 1,742,246 730,282 274,444
Net realized and unrealized gains on
investments 2,240,329 869,341 313,794
Net increase in net assets resulting
from operations 2,524,141 892,081 296,230
Net assets at beginning of year 6,895,729 2,659,591 425,021
Net increase in net assets resulting from
operations 2,524,141 892,081 296,230
Capital shares transactions:
Net premiums 4,060,420 2,954,381 1,564,947
Transfers of policy loans (27,929) 4,276 (14,296)
Transfers of surrenders (493,218) (156,257) (23,252)
Transfers of death benefits (9,380) (2,939)
Transfers of other terminations (152,896) (70,573) (4,941)
Interfund transfers 138,080 621,610 418,821
Net increase in net assets from capital share
transactions 3,524,457 3,344,057 1,938,340
Total increase in net assets 6,048,598 4,236,138 2,234,570
Net assets at end of year 12,944,327 6,895,729 2,659,591
<TABLE>
<S> <C> <C> <C> <C>
Variable Insurance Products II Variable Insurance Products Fund III
Growth & Income
Asset Manager Growth Portfolio Balanced Portfolio Portfolio
1998 1997 1996 1998 1997 1998 1997
$64,271 $14,710 $12,482 $ $ $3,587
300,563 1,669 29,279 19,070 4,138 11,658
364,834 1,669 43,989 31,552 4,138 15,245
5,833 2,962 765 1,490 167 3,381 293
53,144 26,529 6,625 13,014 1,395 29,192 2,465
305,857 (27,822) 36,599 17,048 (1,562) (28,435) 12,487
121,005 48,017 5,177 10,601 3,054 65,638 8,345
169,827 363,630 44,986 132,761 11,372 618,738 14,939
290,832 411,647 50,163 143,362 14,426 684,376 23,284
$596,689 $383,825 $86,762 $160,410 $12,864 $655,941 $35,771
$2,956,656 $973,479 $157,036 $454,728 $ $678,443 $
596,689 383,825 86,762 160,410 12,864 655,941 35,771
1,483,303 1,266,684 655,985 1,271,252 332,310 3,298,663 583,629
(23,118) 3,227 (14,354) (17,484) (37,622)
(186,830) (24,842) (258) (43,612) (11) (70,135) (7,194)
(84,533) (35,261) (6,308) (13,646) (4,077) (15,091)
205,562 389,544 94,616 130,083 113,642 248,922 66,237
1,394,384 1,599,352 729,681 1,326,593 441,864 3,424,737 642,672
1,991,073 1,983,177 816,443 1,487,003 454,728 4,080,678 678,443
$4,947,729 $2,956,656 $973,479 $1,941,731 $454,728 $4,759,121 $678,443
</TABLE>
<TABLE>
Midland National Life Insurance Company
Separate Account C
Statements of Operations and Changes in Net Assets,
Continued
for the years ended December 31, 1998, 1997 and 1996
<S> <C>
Variable Insurance
Products Fund III
Growth Opportunities
Portfolio
1998 1997
Investment income:
Dividend income $12,462 $
Capital gains distributions 43,319
55,781
Expenses:
Administrative expense 3,873 360
Mortality and expense risk 34,020 3,026
Net investment income (loss) 17,888 (3,386)
Realized and unrealized gains (losses) on investments:
Net realized gains (losses) on investments 72,022 8,933
Net unrealized appreciation (depreciation) on investments 570,415 37,052
Net realized and unrealized gains (losses) on investments 642,437 45,985
Net increase (decrease) in net assets resulting from operations $660,325 $42,599
Net assets at beginning of year $932,079 $
Net increase (decrease) in net assets resulting from operations 660,325 42,599
Capital shares transactions:
Net premiums 3,172,501 715,419
Transfers of policy loans (11,920)
Transfers of surrenders (135,082) (631)
Transfers of death benefits
Transfers of other terminations (27,043) (16,931)
Interfund transfers 244,782 191,623
Net increase in net assets from capital share transactions 3,243,238 889,480
Total increase in net assets 3,903,563 932,079
Net assets at end of year $4,835,642 $932,079
</TABLE>
American Century Variable Portfolios, Inc.
Capital Appreciation
Balanced Portfolio Portfolio International Portfolio
1998 1997 1998 1997 1998 1997
$3,481 $ $ $ $2,742 $
21,588 9,181 28,153
25,069 9,181 30,895
508 78 391 107 1,127 182
4,456 646 3,513 900 10,022 1,510
20,105 (724) 5,277 (1,007) 19,746 (1,692)
(2,099) 73 (9,962) 5,583 4,464 30
25,457 1,852 19,781 (15,193) 56,812 (4,918)
23,358 1,925 9,819 (9,610) 61,276 (4,888)
$43,463 $ 1,201 15,096 $(10,617) $81,022 $(6,580)
$154,125 $ $157,393 $ $382,210 $
43,463 1,201 15,096 (10,617) 81,022 (6,580)
332,426 126,660 269,862 246,807 705,423 334,703
(4,834) (766) (645)
(9,952) (104) (20,297) (31) (52,917) (174)
(7,035) (192) (2,178)
80,411 26,368 52,483 (78,766) 57,151 54,261
391,016 152,924 301,090 168,010 706,834 388,790
434,479 154,125 316,186 157,393 787,856 382,210
$588,604 $154,125 $473,579 $157,393 $1,170,066 $382,210
Midland National Life Insurance Company
Separate Account C
Statements of Operations and Changes in Net Assets,
Continued
for the years ended December 31, 1998, 1997 and 1996
American Century Variable
Portfolios, Inc.
Income &
Growth
Value Portfolio Portfolio
1998 1997 1998
Investment income:
Dividend income $4,356 $ $497
Capital gains distributions 52,012
56,368 497
Expenses:
Administrative expense 1,733 242 21
Mortality and expense risk 15,151 2,059 178
Net investment income (loss) 39,484 (2,301) 298
Realiz
ed and unrealized gains (losses) on investments:
Net realized gains on investments 12,052 718 31
Net unrealized appreciation (depreciation) on
investments (11,455) 21,901 8,364
Net realized and unrealized gains (losses) on
investments 597 22,619 8,395
Net increase (decrease) in net assets resulting
from operations $40,081 $20,318 $8,693
Net assets at beginning of year $547,559 $ $
Net increase (decrease) in net assets resulting from
operations 40,081 20,318 8,693
Capital shares transactions:
Net premiums 1,133,687 323,694 133,891
Transfers of policy loans (13,918)
Transfers of surrenders (87,563) (1,687)
Transfers of death benefits
Transfers of other terminations (12,235)
Interfund transfers 183,968 205,234 2,602
Net increase in net assets from capital share
transactions 1,203,939 527,241 136,493
Total increase in net assets 1,244,020 547,559 145,186
Net assets at end of year $1,791,579 $547,559 $145,186
Lord, Abbett
Massachusetts Financial Services & Company
Emerging Growth & New Growth &
Growth Income Discovery Research Income
Portfolio Portfolio Portfolio Portfolio Portfolio
1998 1998 1998 1998 1998
$ $ $ $ $
11 3 11 26
92 29 91 221
(103) (32) (102) (247)
54 100 13 122
10,742 1,525 84 6,328 (3,501)
10,796 1,625 84 6,341 (3,379)
$10,693 $1,593 $ 84 $6,239 $(3,626)
$ $ $ $ $
10,693 1,593 84 6,239 (3,626)
115,681 22,610 1,011 75,777 48,326
(110) (466)
(295)
890 5,216 33,257 106,538
116,276 27,716 1,011 109,034 154,398
126,969 29,309 1,095 115,273 150,772
$126,969 $29,309 $1,095 $115,273 $150,772
1. Organization and Significant Accounting Policies:
Organization:
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"), American Century Variable
Portfolios, Inc. ("ACVP"), Massachusetts Financial
Services ("MFS"), and Lord, Abbett & Company ("LAC")
(collectively "the Funds"), each diversified open-end
management companies registered under the Investment
Company Act of 1940, as directed by participants. The
VIPF III Balanced, Growth & Income and Growth
Opportunities Portfolios and the ACVP Balanced, Capital
Appreciation, International and Value portfolios were
introduced in 1997. The ACVP Income & Growth portfolio,
the MFS Emerging Growth, Growth & Income, New Discovery
and Research portfolios as well as the LAC's Growth &
Income portfolio were each introduced in 1998. 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.
Federal Income Taxes:
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.
1. Organization and Significant Accounting Policies,
continued:
Estimates:
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.
Merger:
Effective January 2, 1997, Investors Life Insurance
Company of Nebraska ("Investors Life") was merged into the
Company. Related to this merger all of the assets and
liabilities of Investors Life were transferred to Midland
including the assets of Investors Life's Separate Account
D, which were merged into Midland's Separate Account C.
The merger of the Separate Account D assets into Midland's
Separate Account C was possible as the variable annuity
insurance contracts were identical in all material
respects to the contracts issued by Separate Account C.
This merger of separate account assets was structured so
that there was no change in the rights and benefits of
persons owning contracts with either separate accounts and
no change in the net asset values held by the respective
participants of either of the separate accounts.
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.
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.
<TABLE>
3. Purchases and Sales of Investment Securities:
The aggregate cost of purchases and proceeds from sales of
investments for the years ended December 31, 1998, 1997,
and 1996 were as follows:
<S> <C> <C> <C> <C> <C> <C>
1998 1997 1996
Portfolio Purchases Sales Purchases Sales Purchases Sales
Variable Insurance
Products Fund:
Money Market $58,682,698 $52,428,084 $27,625,059 $26,449,130$21,770,832$20,184,322
High Income 4,668,527 2,082,862 2,232,925 843,780 1,623,638 452,169
Equity-Income 9,980,544 3,036,731 7,242,522 1,928,035 5,847,193 1,045,612
Growth 8,654,016 2,709,812 5,841,516 2,007,309 6,383,402 1,085,482
Overseas 1,235,489 1,463,514 1,628,137 617,620 1,433,148 638,294
Variable Insurance
Products
Fund II:
Asset Manager 3,260,450 1,541,944 2,698,162 877,678 2,005,420 799,323
Investment Grade
Bond 3,291,279 620,021 794,153 302,555 729,557 220,402
Index 500 12,815,098 3,593,428 6,785,096 1,978,193 3,217,072 415,814
Contrafund 5,501,476 1,693,206 3,996,318 632,611 2,272,788 349,389
Asset Manager
Growth 2,250,687 550,446 1,796,206 225,801 839,710 72,475
Variable Insurance
Products
Fund III:
Balanced 1,566,172 222,531 496,055 55,752
Growth & Income 3,879,201 482,899 762,183 107,025
Growth Oppor-
tunities 4,046,506 785,381 974,459 88,365
American Century
Variable
Portfolios, Inc.:
Balanced 484,206 73,085 152,934 733
Capital Apprecia-
tion 341,579 35,214 285,178 118,174
International 827,915 101,335 388,860 1,762
Value 1,564,861 321,438 542,142 17,201
Income & Growth 136,991 199
Massachusetts
Financial
Services:
Emerging Growth 116,572 398
Growth & Income 28,365 681
New Discovery 1,011
Research 109,033 101
Lord, Abbett &
Company:
Growth & Income 155,023 872
$123,597,699 $71,744,182 $64,241,905$36,251,724 $46,122,760$25,263,282
</TABLE>
<TABLE>
4. Summary of Changes from Unit Transactions:
Transactions in units for the years ended December 31, 1998,
1997, and 1996 were as follows:
<S> <C> <C> <C> <C> <C> <C>
1998 1997 1996
Portfolio Purchases Sales Purchases Sales Purchases Sales
Variable Insurance Products
Fund:
Money Market 4,894,728 4,397,734 2,382,178 2,297,883 1,965,259 1,835,459
High Income 268,215 129,662 137,806 54,636 115,859 33,434
Equity-Income 410,330 127,676 328,286 94,507 371,604 61,328
Growth 299,160 114,792 325,656 108,991 420,441 67,194
Overseas 58,771 94,783 93,231 38,350 115,187 50,402
Variable Insurance Products
Fund II:
Asset Manager 140,855 89,449 142,316 56,049 147,495 62,120
Investment Grade Bond 253,553 45,832 62,875 24,519 64,302 19,022
Index 500 510,263 137,304 339,992 99,007 211,021 25,537
Contrafund 266,211 81,447 246,458 36,569 177,080 25,284
Asset Manager Growth 105,393 26,976 117,819 12,810 63,374 5,275
Variable Insurance Products
Fund III:
Balanced 123,529 17,078 44,550 4,849
Growth & Income 278,633 32,237 63,719 8,842
Growth Opportunities 300,626 55,963 83,073 7,147
American Century Variable
Portfolios, Inc.:
Balanced 37,294 5,584 13,519
Capital Appreciation 32,484 3,096 23,010 9,140
International 63,698 7,241 34,978 5
Value 120,733 23,917 46,055 1,389
Income & Growth 12,173
Massachusetts Financial Services:
Emerging Growth 10,131 25
Growth & Income 2,598 59
New Discovery 85
Research 9,782
Lord, Abbett & Company:
Growth & Income 14,108 56
</TABLE>
5. Net Assets:
Net assets at December 31, 1998, consisted of the following:
Accumulated
Net Investment Net
Capital Income and Unrealized
Share Net Realized Appreciation
Portfolio Transactions Gains of Investments
Total
Variable Insurance Products Fund:
Money Market $11,603,751 $870,119 $ $12,473,870
High Income 5,829,806 1,016,821 (409,311) 6,437,316
Equity-Income 19,547,276 3,851,414 3,731,928 27,130,618
Growth 16,428,846 4,164,011 7,114,704 27,707,561
Overseas 3,366,527 911,772 356,917 4,635,216
Variable Insurance Products Fund II:
Asset Manager 6,743,596 2,157,015 1,093,979 9,994,590
Investment Grade Bond 4,077,726 192,430 181,356 4,451,512
Index 500 17,349,894 2,170,509 4,358,391 23,878,794
Contrafund 9,220,366 970,103 2,753,858 12,944,327
Asset Manager Growth 3,874,316 494,527 578,886 4,947,729
Variable Insurance Products Fund III:
Balanced 1,768,458 29,141 144,132 1,941,731
Growth & Income 4,067,408 58,035 633,678 4,759,121
Growth Opportunities 4,132,718 95,457 607,467 4,835,642
American Century Variable
Portfolios, Inc.:
Balanced 543,941 17,355 27,308 588,604
Capital Appreciation 469,101 (109) 4,587 473,579
International 1,095,624 22,548 51,894 1,170,066
Value 1,731,181 49,953 10,445 1,791,579
Income & Growth 136,493 329 8,364 145,186
Massachusetts Financial Services:
Emerging Growth 116,276 (49) 10,742 126,969
Growth & Income 27,716 68 1,525 29,309
New Discovery 1,011 84 1,095
Research 109,034 (89) 6,328 115,273
Lord, Abbett & Company:
Growth & Income 154,398 (125) (3,501) 150,772
$112,395,463 $17,071,235 $21,263,761 $150,730,459
The accompanying notes are an integral part of the financial statements.
4 The accompanying notes are an integral part of the
financial statements.
6 The accompanying notes are an integral part of the
financial statements.
7 The accompanying notes are an integral part of the
financial statements.
7 The accompanying notes are an integral part of the
financial statements.
8 The accompanying notes are an integral part of the
financial statements.
9 Midland National Life Insurance Company
Separate Account C
Notes to Financial Statements
19
Midland National Life Insurance Company
Separate Account C
Notes to Financial Statements, Continued
NEWSPC98
<PAGE>
C O N T E N T S
Page(s)
Report of Independent Accountants 1
Balance Sheets 2
Statements of Income 3
Statements of Stockholder's Equity 4
Statements of Cash Flows 5-6
Notes to Financial Statements 7-23
Report of Independent Accountants
The Board of Directors and Stockholder
Midland National Life Insurance Company:
In our opinion, the accompanying balance sheets and the related
statements of income, stockholder's equity, and cash flows present
fairly, in all material respects, the financial position of Midland
National Life Insurance Company as of December 31, 1998 and 1997, and
the results of its operations and its cash flows for each of the
three years in the period ended December 31, 1998, in conformity with
generally accepted accounting principles. These financial statements
are the responsibility of Midland National Life Insurance Company's
management; our responsibility is to express an opinion on these
financial statements based on our audits. We conducted our audits of
these statements in accordance with generally accepted auditing
standards which 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, assessing the accounting principles used and
significant estimates made by management, and evaluating the overall
financial statement presentation. We believe that our audits provide
a reasonable basis for the opinion expressed above.
March 10, 1999
Midland National Life Insurance Company
Balance Sheets
as of December 31, 1998 and 1997
(Amounts in thousands, except share and per share amounts)
ASSETS 1998 1997
Investments:
Fixed maturities $2,281,730 $2,420,977
Equity securities 327,309 145,156
Policy loans 213,267 202,129
Short-term investments 280,943 636,280
Other invested assets 37,076 29,329
Total investments 3,140,325 3,433,871
Cash 754 2,384
Accrued investment income 38,555 37,980
Deferred policy acquisition costs 417,164 416,767
Present value of future profits of
acquired businesses 31,162 40,397
Other receivables and other assets 14,407 28,045
Separate accounts assets 249,145 139,072
Total assets $3,891,512 $4,098,516
LIABILITIES AND STOCKHOLDER'S EQUITY
Liabilities:
Policyholder account balances $2,307,893 $2,401,302
Policy benefit reserves 419,615 419,131
Policy claims and benefits payable 30,393 33,839
Federal income taxes 20,566 36,088
Other liabilities 100,867 90,102
Security lending liability 50,500 308,125
Separate account liabilities 249,145 139,072
Total liabilities 3,178,979 3,427,659
Commitments and contingencies
Stockholder's equity:
Common stock, $1 par value, 2,549,439 shares
authorized, 2,548,878 shares outstanding 2,549 2,549
Additional paid-in capital 33,707 33,707
Accumulated other comprehensive income 26,826 30,838
Retained earnings 649,629 603,763
Less treasury stock (561 shares), at cost (178)
Total stockholder's equity 712,533 670,857
Total liabilities and stockholder's equity $3,891,512 $4,098,516
Midland National Life Insurance Company
Statements of Income
for the years ended December 31, 1998, 1997, and 1996
(Amounts in thousands)
1998 1997 1996
Revenues:
Premiums $94,495 $98,668 $101,423
Interest sensitive life and
investment product charges 159,115 157,423 150,839
Net investment income 224,939 188,650 173,583
Net realized investment (losses)
gains (6,489) 3,561 6,839
Net unrealized gains (losses) on
trading securities 2,847 (641) 6,200
Other income 3,157 2,565 4,362
Total revenue 478,064 450,226 443,246
Benefits and expenses:
Benefits incurred 137,313 146,227 151,208
Interest credited to policyholder
account balances 133,529 111,333 103,618
Total benefits 270,842 257,560 254,826
Operating expenses (net of
commissions and other expenses
deferred) 47,549 44,130 43,243
Amortization of deferred policy
acquisition costs and present
value of future profits of
acquired businesses 66,189 56,954 53,316
Total benefits and expenses 384,580 358,644 351,385
Income before income taxes 93,484 91,582 91,861
Income tax expense 32,618 33,053 31,821
Net income $60,866 $58,529 $60,040
<TABLE>
Midland National Life Insurance Company
Statements of Stockholder's Equity
for the years ended December 31, 1998, 1997, and 1996
(Amounts in thousands)
<S> <C> <C> <C> <C>
Accumulated
Additional Other Less Total
Common Paid-in Comprehensive Comprehensive Retained Treasury Stockholder's
Stock Capital Income Income Earnings Stock Equity
Balance at January 1, 1996 $2,549 $33,707 $31,027 $510,194 $577,477
Comprehensive income:
Net income $60,040 60,040 60,040
Other comprehensive income:
Net unrealized loss on available-for-sale
investments (12,202) (12,202) (12,202)
Total comprehensive income $47,838
Balance at December 31, 1996 2,549 33,707 18,825 570,234 625,315
Comprehensive income:
Net income 58,529 58,529 58,529
Other comprehensive income:
Net appreciation on available-for-sale investments 12,013 12,013 12,013
Total comprehensive income $70,542
Dividends paid on common stock (25,000) (25,000)
Balance at December 31, 1997 2,549 33,707 30,838 603,763 670,857
Comprehensive income:
Net income 60,866 60,866 60,866
Other comprehensive income:
Net unrealized loss on available-for-sale
investments (4,012) (4,012) (4,012)
Total comprehensive income $56,854
Dividends paid on common stock (15,000) (15,000)
Repurchase of minority interest shares (178) (178)
Balance at December 31, 1998 $2,549 $33,707 $26,826 $649,629 $(178) $712,533
</TABLE>
<TABLE>
Midland National Life Insurance Company
Statements of Cash Flows
for the years ended December 31, 1998, 1997, and 1996
(Amounts in thousands)
<S> <C> <C> <C>
1998 1997 1996
Cash flows from operating activities:
Net income $60,866 $58,529 $60,040
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 66,189 56,954 53,316
Net amortization of premiums and discounts on
investments 4,325 2,699 5,532
Policy acquisition costs deferred (54,611) (50,363) (65,285)
Net realized investment (gains) losses 6,489 (3,561) (6,839)
Net unrealized (gains) losses on
trading securities (2,847) 641 (6,200)
Net proceeds from (cost of) trading
securities (37,769) 99,850 5,788
Deferred income taxes (10,849) (5,421) 12,177
Net interest credited and product charges on
charges on universal life and
investment policies (25,586) (46,090) (47,221)
Changes in other assets and liabilities:
Net receivables and payables 22,190 (13,946) 32,863
Policy benefits 8,397 15,826 26,185
Other 1,173 122 (277)
Net cash provided by operating
activities 37,967 115,240 70,079
Cash flows from investing activities:
Proceeds from investments sold, matured or repaid:
Fixed maturities 1,405,391 1,217,086 1,422,426
Equity securities 304,589 137,510 129,827
Other invested assets 2,601 941 2,055
Cost of investments acquired:
Fixed maturities 1,281,839) (1,791,522)(1,569,779)
Equity securities (451,181) (144,862) (145,096)
Other invested assets (10,346) (11,702) (14,245)
Net change in policy loans (11,138) (9,995) (11,295)
Net change in short-term investments 355,337 93,875 (18,748)
Net change in security lending (257,625) 308,125
Payment for purchase of insurance business, net of
cash acquired (1,026) 23,939
Net cash provided by (used in)
investing activities 54,763 (176,605) (204,855)
</TABLE>
<TABLE>
Midland National Life Insurance Company
Statements of Cash Flows, Continued
for the years ended December 31, 1998, 1997, and 1996
(Amounts in thousands)
<S> <C> <C> <C>
1998 1997 1996
Cash flows from financing activities:
Receipts from universal life
and investment products 317,398 280,164 285,569
Benefits paid on universal life
and investment products (396,580) (194,993) (156,514)
Dividends paid on common stock (15,000) (25,000)
Repurchase of minority interest shares (178)
Net cash provided by (used in)
financing activities (94,360) 60,171 129,055
Increase (decrease) in cash (1,630) (1,194) (5,721)
Cash at beginning of year 2,384 3,578 9,299
Cash at end of year 754 2,384 3,578
Supplemental disclosures of cash flow information:
Cash paid during the year for:
Interest $119 $143 $166
Income taxes, paid to parent 45,980 42,749 16,772
Noncash operating, investing and financing
Policy loans, receivables and other assets
received in assumption reinsurance
agreements 70 38,044
</TABLE>
1. Summary of Significant Accounting Policies:
Organization:
Midland National Life Insurance Company ("Midland" or the
"Company") is a wholly-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.
1. Summary of Significant Accounting Policies, continued:
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". 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 as other comprehensive income
in stockholder's equity, net of related adjustments to deferred
policy acquisition costs, deferred income taxes and the
accumulated unrealized holding gains (losses) on securities sold
which are released into income as realized investment gains.
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.
1. Summary of Significant Accounting Policies, continued:
Investments, continued:
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.
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 future policy benefits 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% to 6.5% in
1998, 3.75% to 6.75% in 1997 and 3% to 7% in 1996. For certain
contracts these crediting rates extend for periods in excess of
one year.
1. Summary of Significant Accounting Pollicies, continued:
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:
1998 1997 1996
Deferred policy acquisition costs,
beginning of year 416,767 427,218 410,051
Commissions deferred 44,072 40,660 55,005
Underwriting and acquisition expenses
deferred 10,539 9,703 10,280
Change in offset to unrealized gains
and losses 3,766 (8,710) 92
Amortization (57,980) (52,104) (48,210)
Deferred policy acquisition costs,
end of year 417,164 416,767 427,218
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
stockholder's equity through other comprehensive income as an
offset to the unrealized gains or losses.
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:
1. Summary of Significant Accounting Policies, continued:
Present Value of Future Profits of Acquired Business, continued:
1998 1997 1996
Balance at beginning of year 40,397 21,308 26,414
Value of in-force acquired 23,939
Adjustment to purchase price (1,026)
Amortization (8,209) (4,850) (5,106)
Balance at end of year 31,162 40,397 21,308
Based on current conditions and assumptions as to future events,
the Company expects to amortize approximately 18 percent of the
December 31, 1998 balance of PVFP in 1999, 15 percent in 2000, 12
percent in 2001, 10 percent in 2002, and 9 percent in 2003. 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.
1. Summary of Significant Accounting Policies, continued:
Comprehensive Income:
During 1998, the Company adopted Statement of Financial
Accounting Standard No. 130, "Reporting Comprehensive Income."
The standard requires the reporting of comprehensive income in
addition to net income from operations. Comprehensive income is
a more inclusive financial reporting methodology that includes
disclosure of certain financial information that historically has
not been recognized in the calculation of net income.
Comprehensive income for the Company includes net income and
unrealized gains and losses (other comprehensive income) on
available-for-sale securities. The adoption of this statement
does not impact the overall financial position or stockholder's
equity of the Company.
Security Lending:
The Company periodically enters into agreements to sell and
repurchase securities. Securities out on loan are required to be
100% collateralized. Short-term investments of $50,500 and the
related liability representing the collateral received is
reflected on the balance sheets as of December 31, 1998.
Treasury Stock:
During the fourth quarter of 1998, the Company purchased its
remaining outstanding minority shares from the lone minority
shareholder for $178. The shares are retained as treasury stock
as a reduction to stockholder's equity.
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.
2. Fair Value of Financial Instruments, continued:
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 is 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:
December 31, 1998 December 31, 1997
Carrying Estimated Carrying Estimated
Value Fair Value Value Fair Value
Financial assets:
Fixed maturities,
available-for-sale $2,281,730 $2,281,730 $2,420,977 $2,420,977
Equity securities,
available-for-sale 221,325 221,325 78,950 78,950
Equity securities,
trading 105,984 105,984 66,206 66,206
Policy loans 213,267 213,267 202,129 202,129
Short-term investments 280,943 280,943 636,280 636,280
Other investments 37,076 37,076 29,329 29,329
Financial liabilities:
Investment-type insurance
Contracts 866,000 850,000 1,011,000 989,000
3. Investments and Investment Income:
Fixed Maturities and Equity Security Investments:
The amortized cost and estimated fair value of fixed maturities
and equity securities classified as available for sale are as
follows:
December 31, 1998
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 $208,581 $14,285 $378 $222,488
Corporate securities 1,052,442 30,366 15,546 1,067,262
Mortgage-backed securities 955,785 22,225 1,093 976,917
Other debt securities 14,861 225 23 15,063
Total fixed maturities 2,231,669 67,101 17,040 2,281,730
Equity securities 209,952 15,403 4,030 221,325
Total available for sale $2,441,621 $82,504 $21,070 $2,503,055
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
The cost of the equity securities classified as trading
securities are $103,798 and $66,867, respectively at December 31,
1998 and December 31, 1997.
3. Investments and Investment Income, continued:
Fixed Maturities and Investment Security Investments, continued:
The unrealized appreciation on the available-for-sale securities
in 1998 and 1997 is reduced by deferred policy acquisition costs
and deferred income taxes and is reflected as accumulated other
comprehensive income in the statements of stockholder's equity:
1998 1997
Gross unrealized appreciation $61,434 $71,374
Deferred policy acquisition costs (20,164) (23,930)
Deferred income taxes (14,444) (16,606)
Accumulated other comprehensive income $26,826 $30,838
The other comprehensive income in 1998 and 1997 is comprised of
the change in unrealized gains (losses) on available-for-sale
fixed maturities and equity security investments arising during
the period less the realized gains (losses) included in income,
deferred policy acquisition costs and deferred income taxes as
follows:
1998 1997 1996
Unrealized holding gains (losses) arising in the
current period:
Fixed maturities $(11,399) $27,096 $(12,860)
Equity securities (5,025) 3,571 759
Less reclassification adjustment for (gains)
losses released into income 6,484 (3,476) (6,851)
Less DAC impact 3,766 (8,710) 92
Less deferred income tax effect 2,162 (6,468) 6,658
Net other comprehensive income $(4,012) $12,013 $(12,202)
The amortized cost and estimated fair value of available-for-sale
fixed maturities at December 31, 1998, 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.
3. Investments and Investment Income, continued:
Fixed Maturities and Investment Security Investments, continued:
Estimated
Amortized Cost Fair Value
Due in one year or less $66,556 $67,164
Due after one year through five years 94,231 96,047
Due after five years through ten years 297,052 313,506
Due after ten years 818,045 828,096
Securities not due at a single
maturity date (primarily mortgage-
backed securities) 955,785 976,917
Total fixed maturities $2,231,669 $2,281,730
Investment Income and Investment Gains (Losses):
Major categories of investment income are summarized as follows:
1998 1997 1996
Gross investment income:
Fixed maturities $173,475 $148,640 $126,733
Equity securities 22,563 13,831 22,202
Policy loans 15,331 11,891 10,327
Short-term investments 24,308 20,594 16,946
Other invested assets 2,730 824 553
Total gross investment income 238,407 195,780 176,761
Investment expenses 13,468 7,130 3,178
Net investment income $224,939 $188,650 $173,583
The major categories of investment gains and losses reflected in
the income statement are summarized as follows:
<TABLE>
<S> <C> <C> <C> <C> <C>
1998 1997 1996
Unrealized - Unrealized - Unrealized -
Trading Trading Trading
Realized Securities Realized Securities Realized Securities
Fixed maturities $185 $2,934 $195 $8,047 $(438)
Equity securities (6,669) 2,847 542 (836) (1,196) 6,638
Other (5) 85 (12)
Net investment gains
(losses) $(6,489) $2,847 $3,561 $(641) $6,839 $6,200
</TABLE>
3. Investments and Investment Income, continued:
Investment Income and Investment Gains (Losses), continued:
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 1998, 1997, and 1996
were as follows:
<TABLE>
<S> <C> <C> <C> <C>
1998 1997 1996
Fixed Fixed Fixed
Maturities Equity Maturities Equity Maturities Equity
Proceeds from sales $744,300 $304,589 $801,246 $136,085 $1,020,090 $106,354
Gross realized gains 7,527 442 3,757 1,977 10,418 787
Gross realized losses 7,313 6,303 3,213 887 5,030 1,954
</TABLE>
Other:
At December 31, 1998, and 1997, securities amounting to
approximately $14,993 and $14,366, respectively, were on deposit
with regulatory authorities as required by law.
At December 31, 1998, and 1997, the Company entered into
repurchase agreements with brokerage firms totaling $50,500 and
$308,125, respectively.
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 stockholder's
equity at December 31, 1998, except for the following investment
with the following carrying value:
Residential Funding $75,527
4. Income Taxes:
The significant components of the provision for Federal income
taxes are as follows:
1998 1997 1996
Current $43,467 $38,474 $19,644
Deferred (10,849) (5,421) 12,177
Total federal income tax expense $32,618 $33,053 $31,821
4. Income Taxes, continued:
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:
1998 1997 1996
At statutory federal income tax rate $32,720 $32,054 $32,151
Dividends received deductions (191) (514) (1,391)
Other, net 89 1,513 1,061
Total federal income tax expense $32,618 $33,053 $31,821
The federal income tax liability as of December 31 is comprised
of the following:
1998 1997
Net deferred income tax liability $21,470 $34,480
Income taxes currently (receivable) due (904) 1,608
Federal income tax liability $20,566 $36,088
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:
1998 1997
Deferred tax liabilities:
Present value of future profits of acquired business $10,907 $14,139
Deferred policy acquisition costs 99,192 100,989
Investments 22,154 27,245
Other 906
Total deferred income tax liabilities 132,253 143,279
Deferred tax assets:
Policy liabilities and reserves 108,973 108,799
Other 1,810
Total gross deferred income tax assets 110,783 108,799
Net deferred income tax liability $21,470 $34,480
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, 1998.
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:
1998 1997 1996
Ceded Assumed Ceded Assumed Ceded Assumed
Premiums $20,280 $6,106 $17,081 $7,971 $13,759 $7,116
Claims 11,495 5,954 8,683 4,472 12,170 6,068
The Company generally 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 in 1996, the Company assumed certain policy risks from
its affiliate, North American Company for Life and Health
Insurance, and its subsidiaries. The company fulfilled its
obligation on this assumption contract and was released of this
risk effective December 31, 1998. The Company has reflected risk
and profit charges 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.
In accordance with the agreement, the final purchase price was
determined in 1998 which reduced the PVFP asset to $22,913 and
the life and annuity reserves assumed to $573,284.
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.
6. Statutory Financial Data and Dividend Restrictions, continued:
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 $15,000 and
$25,000 in 1998 and 1997, respectively. The maximum amount of
dividends payable in 1999 without prior approval of regulatory
authorities is approximately $60,000.
The statutory net income of the Company for the years ended
December 31, 1998 and 1997 is approximately $75,000 and $65,000,
respectively, and capital and surplus at December 31, 1998 and
1997 is approximately $384,000 and $323,000, respectively, in
accordance with statutory accounting principles.
7. Employee Benefits:
The Company participates in qualified pensions and other
postretirement benefit plans sponsored by SEI. The Company also
provides certain post-retirement health care and life insurance
benefits for eligible active and retired employees through a
defined benefit plan. The following table summarizes the benefit
obligations, the fair value of plan assets and the funded status
over the two-year period ended December 31, 1998. The amounts
reflect an allocation of the Company's portion of the SEI plan:
Pension Benefits Other Benefits
1998 1997 1998 1997
Benefit obligation at
December 31 $6,420 $4,678 $1,718 $2,203
Fair value of plan assets at
December 31 3,642 3,176
Funded status at December 31 $(2,778) $(1,502) $(1,718) $(2,203)
Accrued benefit liability
recognized in financial
statements $616 $92 $1,650 $1,751
7. Employee Benefits, continued:
The Company's post-retirement benefit plan is not funded;
therefore, it has no plan assets.
The amounts of contributions made to and benefits paid from the
plan are as follows:
Pension Benefits Other Benefits
1998 1997 1998 1997
Employer contributions $ $ $227 $172
Employee contributions 56 56
Benefit payments 197 444 283 228
The following table provides the net periodic benefit cost for
the years ended 1998, 1997 and 1996:
Pension Benefits Other Benefits
1998 1997 1996 1998 1997 1996
Net periodic benefit costs $524 $360 $263 $126 $179 $164
The assumptions used in the measurement of the Company's benefit
obligations are shown in the following table:
Pension Benefits Other Benefits
1998 1997 1998 1997
Weighted-average assumptions
as of December 31:
Discount rate 7.00% 7.25% 7.00% 7.25%
Expected return on plan
assets 8.75% 8.75% N/A N/A
Rate of compensation
increase 4.25% 4.25% N/A N/A
For measurement purposes, a 6.5% annual rate of increase in the
per capita cost of covered health care benefits was assumed for
1998. The rate was assumed to decrease gradually each year to a
rate of 4.5% for 2006 and remain at that level thereafter.
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 1998, 1997, and
1996 was $1,725, $1,920, and $1,700, respectively. All
contributions to the ESOP are held in trust.
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 $2,571 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 $1,511, $1,208 and $1,048 for the
years ended December 31, 1998, 1997, and 1996, respectively. The
minimum future rentals on capital and operating leases at
December 31, 1998, are as follows:
Year Ending December 31 Capital Operating Total
1999 $513 $1,823 $2,336
2000 489 1,827 2,316
2001 466 1,448 1,914
2002 442 191 633
2003 191 191
Thereafter 705 705
Total 1,910 $6,185 $8,095
Less amount representing interest 210
Present value of amounts due
under capital leases $1,700
Other Contingencies:
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 $1,552, $1,530 and $1,458 in 1998, 1997, and
1996, respectively, related to these contracts.
The Company pays investment management fees to an affiliate
(Midland Advisors Company). Net fees related to these services
were $1,855, $1,425 and $1,339 in 1998, 1997 and 1996,
respectively.
The Company provided certain insurance and non-insurance services
to North American Company for Life and Health Insurance ("North
American"), beginning in 1997. The Company was reimbursed $1,465
and $488 in 1998 and 1997, respectively, for the costs incurred
to render such services.
The Company sold certain securities to North American at the
current market value of $15,856, incurring a realized loss of
$2,736 in 1998. In addition the Company acquired securities
totaling $22,679 from North American
10. Subsequent Event:
Effective January 4, 1999, the Company received a contribution
from SEI totaling $64,000. These funds were then applied to
purchase substantially all of the assets of Parkway Mortgage Inc.
("Parkway"), a mortgage broker. In addition, the Company agreed
to assume responsibility for the warehouse line-of-credit to fund
loan originations.
The accompanying notes are an integral part of the financial statements.
The accompanying notes are an integral part of the financial statements.
The accompanying notes are an integral part of the financial statements.
Midland National Life Insurance Company
Notes to Financial Statements
(Amounts in thousands)
Midland National Life Insurance Company
Notes to Financial Statements, Continued
(Amounts in thousands)
NEWMGP98
<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)
(d) Participation Agreement for Massachusetts Financial
Variable Insurance Trusts. (3)
(e) Participation Agreement for Lord Abbett Series
Funds, Inc. (3)
(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 Post-effective Amendment #2 of this form N-4 Registration
Statement, file number 33-64016 (April 30, 1995).
(2) Filed with Post-effective Amendment #6 of this form N-4 Registration
Statement, file number 33-64016 (April 30, 1998).
(3) Filed herewith.
<PAGE>
Item 25.
Below is a list of our directors and executive officers.
Directors
Name and Position with Principal Occupation
Business Address Midland During Past Five Years
Michael M. Masterson Chairman of the Chairman of the Board (March 1999 to
Midland National Life Board, Chief present) 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; 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
John J. Craig, II Executive Executive Vice President (January
Midland National Life Vice President 19998 to present), Midland National
One Midland Plaza Life Insurance Company; Senior Vice
Sioux Falls, SD 57193-0001 President and Chief Financial Officer
(October 1993 to 1998), Midland
National Life Insurance Company;
(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.; 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
Executive Officers (other than Directors)
E John Fromelt Chief Chief Investment Officer (since
Midland National Life Investment 1990), Midland National Life
One Midland Plaza Officer Insurance Company; President
Sioux Falls, SD 57193 since August 1995), Midland
Advisors Company; Chief
Investment Officer (1996 to
present), North American Company
for Life and Health
Stephen P. Horvat, Jr. Senior Vice Senior Vice President (January
Midland National Life President to present), Midland National
Insurance Company Life Insurance Company; Shareholder
(June 1996 to December 1997),
Sorling Law Firm; Senior Vice
President, General Counsel and
Secretary (prior thereto), Franklin
Life Insurance Company
Gary J. Gaspar Senior Vice Senior Vice President and Chief
North American President & Information Officer (August 1998
Company for Life & Chief to present), Midland National Life
Health Insurance Information Insurance Company; Senior Vice
222 South Riverside Officer Information Systems Officer (1985
Chicago, IL 60606-5929 to present; North American Company
for Life and Health Insurance
Jack L. Briggs Vice President, Vice President, Secretary and
Midland National Life Secretary, and General Counsel (since 1978),
General Counsel Midland National Life Insurance
Company
Gary W. Helder Vice President- Vice President-Policy
Midland National Life Policy Administration (since 1991),
Administration Midland National Life Insurance
Company
Robert W. Buchanan Vice President- Vice President-Marketing
Midland National Life Marketing Services (March 1996 to
Services present), Second Vice President-
Sales Development (prior
thereto), Midland National Life
Insurance Company
Thomas M. Meyer Vice President Vice President and Chief Financial
Midland National Life and Chief Officer (January 1998 to present),
Financial Officer Second Vice President and Controller
(1995 to 1998), Midland National Life
Insurance Company
Julia B. Roper Vice President & Vice President and Chief Compliance
North American Chief Compliance Officer (August 1998 to present),
Company for Life & Officer Midland National Life Insurance
Health Insurance Company; Vice President & Chief
222 South Riverside Compliance Officer (September 1997
Chicago, IL 60606-5929 to present), North American Company
for Life & Health Insurance;
Assistant Vice President (prior
Thereto), CAN Insurance Companies
Joseph B. Moran Vice President Vice President - Parkway Mortgage
Parkway Mortgage Parkway Mortgage Division (January 1999 to present),
1700 Galloping Hill Road Division Midland National Life Company;
Kenilworth, NJ 07033 Executive Vice President (prior
Thereto), Parkway Mortgage Inc.
James T. Fehon Vice President Vice President - Parkway Mortgage
Parkway Mortgage Parkway Mortgage Division (January 1999 to present),
1700 Galloping Hill Road Division Midland National Life Insurance
Kenilworth, NJ 07033 Company; Executive Vice President
(prior thereto), Parkway Mortgage,
Inc.
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
I. Sammons Enterprises, Inc. (Delaware Corp) 82.42%
II. COMMUNICATIONS - Sammons Communications, Inc. (Delaware Corp) 100%
Sammons Communications of New Jersey, Inc. (New Jersey Corp) 100%
Oxford Valley Cable Vision, Inc. (Pennsylvania Corp) 88%
SGS, Inc. (Delaware Corp.) 100%
Sammons Communication of Pennsylvania, Inc. (Delaware Corp) 100%
III. Consolidated Investment Services Inc. (Nevada Corp) 100%
Richmond Holding Company, LLC (Delaware LLC) 5%
A. Financial Services
Sammons Financial Holdings, Inc. (Delaware Corp) 100%
Midland National Life Insurance Company (South Dakota Corp) 100%
(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%
Parkway Holdings, Inc. (Delaware Corp) 100%
Sammons Mortgage, Inc. (Delaware Corp.) 100%
B. ALLIED
CH Holdings Inc. (Delaware Corp) 100%
Sammons Corporation (Texas Corp) 100%
Otter, Inc. (Oklahoma Corp.) 100%
Cathedral Hill Hotel, Inc. (Delaware Corp) 100%
GBH Venture Co., 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
Sammons Distribution Holdings, Inc. (Delaware Corp.) 100%
Vinson Supply Company (Delaware Corp) 100%
Vinson Supply (UK) LTD. (United Kingdom Corp) 50%
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%
Briggs-Weaver Inc. (Delaware Corp) 100%
TMIS Inc. (Texas Corp) 100%
Briggs-Weaver de Mexico S.A. de C.V. (Mexico Corp) 2%
B-W Max, Inc. (Delaware Corp)100%
Abastecedora de Services Indutriales y Productos S.A.
de C.V. (ASPI) (Mexico Corp.)
Personal Para Services Intogrados de Mexico
S.A. (Personal) (Mexico Corp)
Especialistas en Systems de Distribucion Industrial
S.A. de C.V. (ESDI) (Mexico Corp.)
Especialistas en Procuramiento Industrial
S.A. de C.V. (EPI) (Mexico Corp.)
Sealing Specialists of Texas, Inc. (Texas Corp) 100%
E. Equipment Sales and Rentals
Briggs ITD Corp. (Delaware Corp.) 100%
Briggs Equipment Trust (Delaware Business Trust) 100%
Briggs Equipment Mexico Inc. (Delaware Corp.) 100%
Montacargras Yale de Mexico S. A. de C.V. (YALESA)
(Mexico Corp.)
Briggs Equipment S.A. de C.V. (BESA) (Mexico Corp.)
F. Real Estate
Crestpark Inc. (Delaware Corp.) 100%
Sammons Venture Properties, Inc. (Delaware Corp.) 100%
Sammons Realty Corporation (Delaware Corp.) 100%
Sammons Legacy Venture GP Inc. (Delaware Corp) 100%
Sammons Legacy Venture LP Inc. (Delaware Corp) 100%
Sammons Income Properties Inc. (Delaware Corp) 100%
G. Tourism
The Grove Park Inn Resort Inc. (Delaware Corp) 100%
Adventure Tours USA, Inc. (Delaware Corp) 100%
Santo Tours and Travel Inc. (New York Corp) 100%
ATUSA Inc. (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 5th day
of April, 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 April 5, 1999
Michael M. Masterson Board, Chief Executive
Officer and President
/s/ John J. Craig__ Director, Executive April 5, 1999
John J. Craig II Vice President
/s/_Russell A. Evenson Director, Senior Vice April 5, 1999
Russell A. Evenson President and Chief
Actuary
/s/_ Steven C. Palmitier Director, Senior Vice April 5, 1999
Steven C. Palmitier President and Chief
Marketing Officer
/s/_Thomas M. Meyer_ Vice President and April 5, 1999
Thomas M. Meyer Chief Financial
Officer
____________________ Director and Vice President April 5, 1999
Robert W. Korba
SECVA2
<PAGE>
SIGNATURE
__________
As required by the Securities Act of 1933, and under the Investment
Company Act of 1940, the Registrant, Midland National Life Separate
Account C certifies that it meets all the requirements for effectiveness
of this registration statement pursuant to Rule 485(b) under the
Securities Act of 1933 and has caused this Registration Statement to
be signed on its behalf in the City of Sioux Falls, South Dakota on
the 5th day of April, 1999.
Midland National Life Separate Account C
(Seal) By: Midland National Life Insurance Company
By: _/s/ John J. Craig II_____________
John J. Craig II
Executive Vice President
SECVA2A
<PAGE>
Registration No. 33-64016
POST EFFECTIVE AMENDMENT NO. 9
________________________________________________________________________________
________________________________________________________________________________
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
______________________________________________
EXHIBITS
TO
FORM N-4
REGISTRATION STATEMENT
UNDER
THE SECURITIES ACT OF 1933
FOR
MNL SEPARATE ACCOUNT C
AND
MIDLAND NATIONAL LIFE INSURANCE COMPANY
______________________________________________
________________________________________________________________________________
________________________________________________________________________________
<PAGE>
EXHIBIT INDEX
Item 24.
(b) (8) (d) Participation Agreement for Massachusetts
Financial Variable Insurance Trusts.
(e) Participation Agreement for Lord Abbett
Series Funds, Inc.
(10) (a) Consent of Counsel
(b) Consent of Independent Auditors
EXHBTVA
<PAGE>
PARTICIPATION AGREEMENT
AMONG
MFS VARIABLE INSURANCE TRUST,
MIDLAND NATIONAL LIFE INSURANCE COMPANY
AND
MASSACHUSETTS FINANCIAL SERVICES COMPANY
THIS AGREEMENT, made and entered into this ____ day of
August 1998, by and among MFS VARIABLE INSURANCE TRUST, a
Massachusetts business trust (the "Trust"), MIDLAND NATIONAL LIFE
INSURANCE COMPANY, a South Dakota corporation (the "Company")
on its own behalf and on behalf of each of the segregated asset accounts of
the Company set forth in Schedule A hereto, as may be amended from
time to time (the "Accounts"), and MASSACHUSETTS FINANCIAL
SERVICES COMPANY, a Delaware corporation ("MFS").
WHEREAS, the Trust is registered as an open-end management
investment company under the Investment Company Act of 1940, as
amended (the "1940 Act"), and its shares are registered or will be
registered under the Securities Act of 1933, as amended (the "1933 Act");
WHEREAS, shares of beneficial interest of the Trust are divided
into several series of shares, each representing the interests in a particular
managed pool of securities and other assets;
WHEREAS, the series of shares of the Trust offered by the Trust
to the Company and the Accounts are set forth on Schedule A attached
hereto (each, a "Portfolio," and, collectively, the "Portfolios");
WHEREAS, MFS is duly registered as an investment adviser
under the Investment Advisers Act of 1940, as amended, and any
applicable state securities law, and is the Trust's investment adviser;
WHEREAS, the Company will issue certain variable annuity
and/or variable life insurance contracts (individually, the "Policy" or,
collectively, the "Policies") which, if required by applicable law, will be
registered under the 1933 Act;
WHEREAS, the Accounts are duly organized, validly existing
segregated asset accounts, established by resolution of the Board of
Directors of the Company, to set aside and invest assets attributable to the
aforesaid variable annuity and/or variable life insurance contracts that are
allocated to the Accounts (the Policies and the Accounts covered by this
Agreement, and each corresponding Portfolio covered by this Agreement
in which the Accounts invest, is specified in Schedule A attached hereto as
may be modified from time to time);
WHEREAS, the Company has registered or will register the
Accounts as unit investment trusts under the 1940 Act (unless exempt
therefrom);
WHEREAS, MFS Fund Distributors, Inc. (the "Underwriter") is
registered as a broker-dealer with the Securities and Exchange
Commission (the "SEC") under the Securities Exchange Act of 1934, as
amended (hereinafter the "1934 Act"), and is a member in good standing
of the National Association of Securities Dealers, Inc. (the "NASD");
WHEREAS, Walnut Street Securities, Inc. is the underwriter for
the Policies; and
WHEREAS, to the extent permitted by applicable insurance laws
and regulations, the Company intends to purchase shares in one or more of
the Portfolios specified in Schedule A attached hereto (the "Shares") on
behalf of the Accounts to fund the Policies, and the Trust intends to sell
such Shares to the Accounts at net asset value;
NOW, THEREFORE, in consideration of their mutual promises,
the Trust, MFS, and the Company agree as follows:
ARTICLE I. SALE OF TRUST SHARES
1.1. The Trust agrees to sell to the Company those Shares
which the Accounts order (based on orders placed by Policy
holders on that Business Day, as defined below) and which are
available for purchase by such Accounts, executing such orders on
a daily basis at the net asset value next computed after receipt by
the Trust or its designee of the order for the Shares. For purposes
of this Section 1.1, the Company shall be the designee of the Trust
for receipt of such orders from Policy owners and receipt by such
designee shall constitute receipt by the Trust; provided that the
Trust receives notice of such orders by 10:00 a.m. New York time
on the next following Business Day. "Business Day" shall mean
any day on which the New York Stock Exchange, Inc. (the
"NYSE") is open for trading and on which the Trust calculates its
net asset value pursuant to the rules of the SEC.
1.2. The Trust agrees to make the Shares available indefinitely
for purchase at the applicable net asset value per share by the
Company and the Accounts on those days on which the Trust
calculates its net asset value pursuant to rules of the SEC and the
Trust shall calculate such net asset value on each day which the
NYSE is open for trading. Notwithstanding the foregoing, the
Board of Trustees of the Trust (the "Board") may refuse to sell any
Shares to the Company and the Accounts, or suspend or terminate
the offering of the Shares if such action is required by law or by
regulatory authorities having jurisdiction or is, in the sole
discretion of the Board acting in good faith and in light of its
fiduciary duties under federal and any applicable state laws,
necessary in the best interest of the Shareholders of such Portfolio.
1.3. The Trust and MFS agree that the Shares will be sold only
to insurance companies which have entered into participation
agreements with the Trust and MFS (the "Participating Insurance
Companies") and their separate accounts, qualified pension and
retirement plans and MFS or its affiliates. The Trust and MFS will
not sell Trust shares to any insurance company or separate account
unless an agreement containing provisions substantially the same
as Articles III and VII of this Agreement is in effect to govern
such sales. The Company will not resell the Shares except to the
Trust or its agents.
1.4. The Trust agrees to redeem for cash, on the Company's
request, any full or fractional Shares held by the Accounts (based
on orders placed by Policy owners on that Business Day),
executing such requests on a daily basis at the net asset value next
computed after receipt by the Trust or its designee of the request
for redemption. For purposes of this Section 1.4, the Company
shall be the designee of the Trust for receipt of requests for
redemption from Policy owners and receipt by such designee shall
constitute receipt by the Trust; provided that the Trust receives
notice of such request for redemption by 10:00 a.m. New York
time on the next following Business Day.
1.5. Each purchase, redemption and exchange order placed by
the Company shall be placed separately for each Portfolio and
shall not be netted with respect to any Portfolio. However, with
respect to payment of the purchase price by the Company and of
redemption proceeds by the Trust, the Company and the Trust
shall net purchase and redemption orders with respect to each
Portfolio and shall transmit one net payment for all of the
Portfolios in accordance with Section 1.6 hereof.
1.6. In the event of net purchases, the Company shall pay for
the Shares by 2:00 p.m. New York time on the next Business Day
after an order to purchase the Shares is made in accordance with
the provisions of Section 1.1. hereof. In the event of net
redemptions, the Trust shall pay the redemption proceeds by 2:00
p.m. New York time on the next Business Day after an order to
redeem the shares is made in accordance with the provisions of
Section 1.4. hereof. All such payments shall be in federal funds
transmitted by wire.
1.7. Issuance and transfer of the Shares will be by book entry
only. Stock certificates will not be issued to the Company or the
Accounts. The Shares ordered from the Trust will be recorded in
an appropriate title for the Accounts or the appropriate
subaccounts of the Accounts.
1.8. The Trust shall furnish same day notice (by wire or
telephone followed by written confirmation) to the Company of
any dividends or capital gain distributions payable on the Shares.
The Company hereby elects to receive all such dividends and
distributions as are payable on a Portfolio's Shares in additional
Shares of that Portfolio. The Trust shall notify the Company of
the number of Shares so issued as payment of such dividends and
distributions.
1.9. The Trust or its custodian shall make the net asset value
per share for each Portfolio available to the Company on each
Business Day as soon as reasonably practical after the net asset
value per share is calculated and shall use its best efforts to make
such net asset value per share available by 6:30 p.m. New York
time. In the event that the Trust is unable to meet the 6:30 p.m.
time stated herein, it shall provide additional time for the
Company to place orders for the purchase and redemption of
Shares. Such additional time shall be equal to the additional time
which the Trust takes to make the net asset value available to the
Company. If the Trust provides materially incorrect share net
asset value information, the Trust shall make an adjustment to the
number of shares purchased or redeemed for the Accounts to
reflect the correct net asset value per share. Any material error in
the calculation or reporting of net asset value per share, dividend
or capital gains information shall be reported promptly upon
discovery to the Company.
ARTICLE II. CERTAIN REPRESENTATIONS, WARRANTIES
AND COVENANTS
2.1. The Company represents and warrants that the Policies are
or will be registered under the 1933 Act or are exempt from or not
subject to registration thereunder, and that the Policies will be
issued, sold, and distributed in compliance in all material respects
with all applicable state and federal laws, including without
limitation the 1933 Act, the Securities Exchange Act of 1934, as
amended (the "1934 Act"), and the 1940 Act. The Company
further represents and warrants that it is an insurance company
duly organized and in good standing under applicable law and that
it has legally and validly established the Account as a segregated
asset account under applicable law and has registered or, prior to
any issuance or sale of the Policies, will register the Accounts as
unit investment trusts in accordance with the provisions of the
1940 Act (unless exempt therefrom) to serve as segregated
investment accounts for the Policies, and that it will maintain such
registration for so long as any Policies are outstanding. The
Company shall amend the registration statements under the 1933
Act for the Policies and the registration statements under the 1940
Act for the Accounts from time to time as required in order to
effect the continuous offering of the Policies or as may otherwise
be required by applicable law. The Company shall register and
qualify the Policies for sales in accordance with the securities laws
of the various states only if and to the extent deemed necessary by
the Company.
2.2. The Company represents and warrants that the Policies are
currently and at the time of issuance will be treated as life
insurance, endowment or annuity contract under applicable
provisions of the Internal Revenue Code of 1986, as amended (the
"Code"), that it will maintain such treatment and that it will notify
the Trust or MFS immediately upon having a reasonable basis for
believing that the Policies have ceased to be so treated or that they
might not be so treated in the future.
2.3. The Company represents and warrants, to the best of its
information and belief, that Walnut Street Securities, Inc., the
underwriter for the Policies, is a member in good standing of the
NASD and is a registered broker-dealer with the SEC. The
Company represents and warrants that it, and to the best of its
information and belief, Walnut Street Securities, Inc., will sell and
distribute such policies in accordance in all material respects with
all applicable state and federal securities laws, including without
limitation the 1933 Act, the 1934 Act, and the 1940 Act.
2.4. The Trust and MFS represent and warrant that the Shares
sold pursuant to this Agreement shall be registered under the 1933
Act, duly authorized for issuance and sold in compliance with the
laws of The Commonwealth of Massachusetts and all applicable
federal and state securities laws and that the Trust is and shall
remain registered under the 1940 Act. The Trust shall amend the
registration statement for its Shares under the 1933 Act and the
1940 Act from time to time as required in order to effect the
continuous offering of its Shares. The Trust shall register and
qualify the Shares for sale in accordance with the laws of the
various states only if and to the extent deemed necessary by the
Trust.
2.5. MFS represents and warrants that the Underwriter is a
member in good standing of the NASD and is registered as a
broker-dealer with the SEC. The Trust and MFS represent that the
Trust and the Underwriter will sell and distribute the Shares in
accordance in all material respects with all applicable state and
federal securities laws, including without limitation the 1933 Act,
the 1934 Act, and the 1940 Act.
2.6. The Trust represents that it is lawfully organized and
validly existing under the laws of The Commonwealth of
Massachusetts and that it does and will comply in all material
respects with the 1940 Act and any applicable regulations
thereunder.
2.7. MFS represents and warrants that it is and shall remain
duly registered under all applicable federal securities laws and that
it shall perform its obligations for the Trust in compliance in all
material respects with any applicable federal securities laws and
with the securities laws of The Commonwealth of Massachusetts.
MFS represents and warrants that it is not subject to state
securities laws other than the securities laws of The
Commonwealth of Massachusetts and that it is exempt from
registration as an investment adviser under the securities laws of
The Commonwealth of Massachusetts.
2.8. No less frequently than annually, the Company shall
submit to the Board such reports, material or data as the Board
may reasonably request so that it may carry out fully the
obligations imposed upon it by the conditions contained in the
exemptive application pursuant to which the SEC has granted
exemptive relief to permit mixed and shared funding (the "Mixed
and Shared Funding Exemptive Order").
ARTICLE III. PROSPECTUS AND PROXY STATEMENTS;
VOTING
3.1. At least annually, the Trust or its designee shall provide
the Company, free of charge, with as many copies of the current
prospectus (describing only the Portfolios listed in Schedule A
hereto) for the Shares as the Company may reasonably request for
distribution to existing Policy owners whose Policies are funded
by such Shares. The Trust or its designee shall provide the
Company, at the Company's expense, with as many copies of the
current prospectus for the Shares as the Company may reasonably
request for distribution to prospective purchasers of Policies. If
requested by the Company in lieu thereof, the Trust or its designee
shall provide such documentation (including a "camera ready"
copy of the new prospectus as set in type or, at the request of the
Company, as a diskette in the form sent to the financial printer)
and other assistance as is reasonably necessary in order for the
parties hereto once each year (or more frequently if the prospectus
for the Shares is supplemented or amended) to have the prospectus
for the Policies and the prospectus for the Shares printed together
in one document; the expenses of such printing to be apportioned
between (a) the Company and (b) the Trust or its designee in
proportion to the number of pages of the Policy and Shares'
prospectuses, taking account of other relevant factors affecting the
expense of printing, such as covers, columns, graphs and charts;
the Trust or its designee to bear the cost of printing the Shares'
prospectus portion of such document for distribution to owners of
existing Policies funded by the Shares and the Company to bear
the expenses of printing the portion of such document relating to
the Accounts; provided, however, that the Company shall bear all
printing expenses of such combined documents where used for
distribution to prospective purchasers or to owners of existing
Policies not funded by the Shares. In the event that the Company
requests that the Trust or its designee provides the Trust's
prospectus in a "camera ready" or diskette format, the Trust shall
be responsible for providing the prospectus in the format in which
it or MFS is accustomed to formatting prospectuses and shall bear
the expense of providing the prospectus in such format (e.g.,
typesetting expenses), and the Company shall bear the expense of
adjusting or changing the format to conform with any of its
prospectuses.
3.2. The prospectus for the Shares shall state that the statement
of additional information for the Shares is available from the Trust
or its designee. The Trust or its designee, at its expense, shall
print and provide such statement of additional information to the
Company (or a master of such statement suitable for duplication
by the Company) for distribution to any owner of a Policy funded
by the Shares. The Trust or its designee, at the Company's
expense, shall print and provide such statement to the Company
(or a master of such statement suitable for duplication by the
Company) for distribution to a prospective purchaser who requests
such statement or to an owner of a Policy not funded by the
Shares.
3.3. The Trust or its designee shall provide the Company free
of charge copies, if and to the extent applicable to the Shares, of
the Trust's proxy materials, reports to Shareholders and other
communications to Shareholders in such quantity as the Company
shall reasonably require for distribution to Policy owners.
3.4. Notwithstanding the provisions of Sections 3.1, 3.2, and
3.3 above, or of Article V below, the Company shall pay the
expense of printing or providing documents to the extent such cost
is considered a distribution expense. Distribution expenses would
include by way of illustration, but are not limited to, the printing
of the Shares' prospectus or prospectuses for distribution to
prospective purchasers or to owners of existing Policies not
funded by such Shares.
3.5. The Trust hereby notifies the Company that it may be
appropriate to include in the prospectus pursuant to which a Policy
is offered disclosure regarding the potential risks of mixed and
shared funding.
3.6. If and to the extent required by law, the Company shall:
(a) solicit voting instructions from Policy owners;
(b) vote the Shares in accordance with instructions
received from Policy owners; and
(c) vote the Shares for which no instructions have
been received in the same proportion as the Shares
of such Portfolio for which instructions have been
received from Policy owners;
so long as and to the extent that the SEC continues to interpret the
1940 Act to require pass through voting privileges for variable
contract owners. The Company will in no way recommend action
in connection with or oppose or interfere with the solicitation of
proxies for the Shares held for such Policy owners. The Company
reserves the right to vote shares held in any segregated asset
account in its own right, to the extent permitted by law.
Participating Insurance Companies shall be responsible for
assuring that each of their separate accounts holding Shares
calculates voting privileges in the manner required by the Mixed
and Shared Funding Exemptive Order. The Trust and MFS will
notify the Company of any changes of interpretations or
amendments to the Mixed and Shared Funding Exemptive Order.
ARTICLE IV. SALES MATERIAL AND INFORMATION
4.1. The Company shall furnish, or shall cause to be furnished,
to the Trust or its designee, each piece of sales literature or other
promotional material in which the Trust, MFS, any other
investment adviser to the Trust, or any affiliate of MFS are named,
at least three (3) Business Days prior to its use. No such material
shall be used if the Trust, MFS, or their respective designees
reasonably objects to such use within three (3) Business Days after
receipt of such material.
4.2. The Company shall not give any information or make any
representations or statement on behalf of the Trust, MFS, any
other investment adviser to the Trust, or any affiliate of MFS or
concerning the Trust or any other such entity in connection with
the sale of the Policies other than the information or
representations contained in the registration statement, prospectus
or statement of additional information for the Shares, as such
registration statement, prospectus and statement of additional
information may be amended or supplemented from time to time,
or in reports or proxy statements for the Trust, or in sales literature
or other promotional material approved by the Trust, MFS or their
respective designees, except with the permission of the Trust,
MFS or their respective designees. The Trust, MFS or their
respective designees each agrees to respond to any request for
approval on a prompt and timely basis. The Company shall adopt
and implement procedures reasonably designed to ensure that
information concerning the Trust, MFS or any of their affiliates
which is intended for use only by brokers or agents selling the
Policies (i.e., information that is not intended for distribution to
Policy owners or prospective Policy owners) is so used, and
neither the Trust, MFS nor any of their affiliates shall be liable for
any losses, damages or expenses relating to the improper use of
such broker only materials.
4.3. The Trust or its designee shall furnish, or shall cause to be
furnished, to the Company or its designee, each piece of sales
literature or other promotional material in which the Company
and/or the Accounts is named, at least three (3) Business Days
prior to its use. No such material shall be used if the Company or
its designee reasonably objects to such use within three (3)
Business Days after receipt of such material.
4.4. The Trust and MFS shall not give, and agree that the
Underwriter shall not give, any information or make any
representations on behalf of the Company or concerning the
Company, the Accounts, or the Policies in connection with the
sale of the Policies other than the information or representations
contained in a registration statement, prospectus, or statement of
additional information for the Policies, as such registration
statement, prospectus and statement of additional information may
be amended or supplemented from time to time, or in reports for
the Accounts, or in sales literature or other promotional material
approved by the Company or its designee, except with the
permission of the Company. The Company or its designee agrees
to respond to any request for approval on a prompt and timely
basis. The parties hereto agree that this Section 4.4. is neither
intended to designate nor otherwise imply that MFS is an
underwriter or distributor of the Policies.
4.5. The Company and the Trust (or its designee in lieu of the
Company or the Trust, as appropriate) will each provide to the
other at least one complete copy of all registration statements,
prospectuses, statements of additional information, reports, proxy
statements, sales literature and other promotional materials,
applications for exemptions, requests for no-action letters, and all
amendments to any of the above, that relate to the Policies, or to
the Trust or its Shares, prior to or contemporaneously with the
filing of such document with the SEC or other regulatory
authorities. The Company and the Trust shall also each promptly
inform the other of the results of any examination by the SEC (or
other regulatory authorities) that relates to the Policies, the Trust
or its Shares, and the party that was the subject of the examination
shall provide the other party with a copy of relevant portions of
any "deficiency letter" or other non-privileged correspondence or
written report regarding any such examination.
4.6. The Trust and MFS will provide the Company with as
much notice as is reasonably practicable of any proxy solicitation
for any Portfolio, and of any material change in the Trust's
registration statement, particularly any change resulting in change
to the registration statement or prospectus or statement of
additional information for any Account. The Trust and MFS will
cooperate with the Company so as to enable the Company to
solicit proxies from Policy owners or to make changes to its
prospectus, statement of additional information or registration
statement, in an orderly manner. The Trust and MFS will make
reasonable efforts to attempt to have changes affecting Policy
prospectuses become effective simultaneously with the annual
updates for such prospectuses.
4.7. For purpose of this Article IV and Article VIII, the phrase
"sales literature or other promotional material" includes but is not
limited to advertisements (such as material published, or designed
for use in, a newspaper, magazine, or other periodical, radio,
television, telephone or tape recording, videotape display, signs or
billboards, motion pictures, or other public media), and sales
literature (such as brochures, circulars, reprints or excerpts or any
other advertisement, sales literature, or published articles),
distributed or made generally available to customers or the public,
educational or training materials or communications distributed or
made generally available to some or all agents or employees.
ARTICLE V. FEES AND EXPENSES
5.1. The Trust shall pay no fee or other compensation to the
Company under this Agreement, and the Company shall pay no
fee or other compensation to the Trust, except that if the Trust or
any Portfolio adopts and implements a plan pursuant to Rule 12b-
1 under the 1940 Act to finance distribution and Shareholder
servicing expenses, then, subject to obtaining any required
exemptive orders or regulatory approvals, the Trust may make
payments to the Company or to the underwriter for the Policies if
and in amounts agreed to by the Trust in writing. Each party,
however, shall, in accordance with the allocation of expenses
specified in Articles III and V hereof, reimburse other parties for
expenses initially paid by one party but allocated to another party.
In addition, nothing herein shall prevent the parties hereto from
otherwise agreeing to perform, and arranging for appropriate
compensation for, other services relating to the Trust and/or to the
Accounts.
5.2. The Trust or its designee shall bear the expenses for the
cost of registration and qualification of the Shares under all
applicable federal and state laws, including preparation and filing
of the Trust's registration statement, and payment of filing fees
and registration fees; preparation and filing of the Trust's proxy
materials and reports to Shareholders; setting in type and printing
its prospectus and statement of additional information (to the
extent provided by and as determined in accordance with Article
III above); setting in type and printing the proxy materials and
reports to Shareholders (to the extent provided by and as
determined in accordance with Article III above); the preparation
of all statements and notices required of the Trust by any federal
or state law with respect to its Shares; all taxes on the issuance or
transfer of the Shares; and the costs of distributing the Trust's
prospectuses and proxy materials to owners of Policies funded by
the Shares and any expenses permitted to be paid or assumed by
the Trust pursuant to a plan, if any, under Rule 12b-1 under the
1940 Act. The Trust shall not bear any expenses of marketing the
Policies.
5.3. The Company shall bear the expenses of distributing the
Shares' prospectus or prospectuses in connection with new sales of
the Policies and of distributing the Trust's Shareholder reports to
Policy owners. The Company shall bear all expenses associated
with the registration, qualification, and filing of the Policies under
applicable federal securities and state insurance laws; the cost of
preparing, printing and distributing the Policy prospectus and
statement of additional information; and the cost of preparing,
printing and distributing annual individual account statements for
Policy owners as required by state insurance laws.
5.4 MFS will quarterly reimburse the Company certain of the
administrative costs and expenses incurred by the Company as a
result of operations necessitated by the beneficial ownership by
Policy owners of shares of the Portfolios of the Trust, equal to
0.15% per annum of the net assets of the Trust attributable to
variable life or variable annuity contracts offered by the Company
or its affiliates. In no event shall such fee be paid by the Trust, its
shareholders or by the Policy holders.
ARTICLE VI. DIVERSIFICATION AND RELATED
LIMITATIONS
6.1. The Trust and MFS represent and warrant that each
Portfolio of the Trust will meet the diversification requirements of
Section 817 (h) (1) of the Code and Treas. Reg. 1.817-5, relating
to the diversification requirements for variable annuity,
endowment, or life insurance contracts, as they may be amended
from time to time (and any revenue rulings, revenue procedures,
notices, and other published announcements of the Internal
Revenue Service interpreting these sections), as if those
requirements applied directly to each such Portfolio.
6.2. The Trust and MFS represent that each Portfolio will elect
to be qualified as a Regulated Investment Company under
Subchapter M of the Code and that they will maintain such
qualification (under Subchapter M or any successor or similar
provision).
ARTICLE VII. POTENTIAL MATERIAL CONFLICTS
7.1. The Trust agrees that the Board, constituted with a
majority of disinterested trustees, will monitor each Portfolio of
the Trust for the existence of any material irreconcilable conflict
between the interests of the variable annuity contract owners and
the variable life insurance policy owners of the Company and/or
affiliated companies ("contract owners") investing in the Trust.
The Board shall have the sole authority to determine if a material
irreconcilable conflict exists, and such determination shall be
binding on the Company only if approved in the form of a
resolution by a majority of the Board, or a majority of the
disinterested trustees of the Board. The Board will give prompt
notice of any such determination to the Company.
7.2. The Company agrees that it will be responsible for
assisting the Board in carrying out its responsibilities under the
conditions set forth in the Trust's exemptive application pursuant
to which the SEC has granted the Mixed and Shared Funding
Exemptive Order by providing the Board, as it may reasonably
request, with all information necessary for the Board to consider
any issues raised and agrees that it will be responsible for
promptly reporting any potential or existing conflicts of which it is
aware to the Board including, but not limited to, an obligation by
the Company to inform the Board whenever contract owner voting
instructions are disregarded. The Company also agrees that, if a
material irreconcilable conflict arises, it will at its own cost
remedy such conflict up to and including (a) withdrawing the
assets allocable to some or all of the Accounts from the Trust or
any Portfolio and reinvesting such assets in a different investment
medium, including (but not limited to) another Portfolio of the
Trust, or submitting to a vote of all affected contract owners
whether to withdraw assets from the Trust or any Portfolio and
reinvesting such assets in a different investment medium and, as
appropriate, segregating the assets attributable to any appropriate
group of contract owners that votes in favor of such segregation,
or offering to any of the affected contract owners the option of
segregating the assets attributable to their contracts or policies,
and (b) establishing a new registered management investment
company and segregating the assets underlying the Policies, unless
a majority of Policy owners materially adversely affected by the
conflict have voted to decline the offer to establish a new
registered management investment company.
7.3. A majority of the disinterested trustees of the Board shall
determine whether any proposed action by the Company
adequately remedies any material irreconcilable conflict. In the
event that the Board determines that any proposed action does not
adequately remedy any material irreconcilable conflict, the
Company will withdraw from investment in the Trust each of the
Accounts designated by the disinterested trustees and terminate
this Agreement within six (6) months after the Board informs the
Company in writing of the foregoing determination; provided,
however, that such withdrawal and termination shall be limited to
the extent required to remedy any such material irreconcilable
conflict as determined by a majority of the disinterested trustees of
the Board.
7.4. If and to the extent that Rule 6e-2 and Rule 6e-3(T) are
amended, or Rule 6e-3 is adopted, to provide exemptive relief
from any provision of the 1940 Act or the rules promulgated
thereunder with respect to mixed or shared funding (as defined in
the Mixed and Shared Funding Exemptive Order) on terms and
conditions materially different from those contained in the Mixed
and Shared Funding Exemptive Order, then (a) the Trust and/or
the Participating Insurance Companies, as appropriate, shall take
such steps as may be necessary to comply with Rule 6e-2 and 6e-
3(T), as amended, and Rule 6e-3, as adopted, to the extent such
rules are applicable; and (b) Sections 3.5, 3.6, 7.1, 7.2, 7.3 and 7.4
of this Agreement shall continue in effect only to the extent that
terms and conditions substantially identical to such Sections are
contained in such Rule(s) as so amended or adopted.
ARTICLE VIII. INDEMNIFICATION
8.1. Indemnification by the Company
The Company agrees to indemnify and hold harmless the
Trust, MFS, any affiliates of MFS, and each of their respective
directors/trustees, officers and each person, if any, who controls
the Trust or MFS within the meaning of Section 15 of the 1933
Act, and any agents or employees of the foregoing (each an
"Indemnified Party," or collectively, the "Indemnified Parties" for
purposes of this Section 8.1) against any and all losses, claims,
damages, liabilities (including amounts paid in settlement with the
written consent of the Company) or expenses (including
reasonable counsel fees) to which any Indemnified Party may
become subject under any statute, regulation, at common law or
otherwise, insofar as such losses, claims, damages, liabilities or
expenses (or actions in respect thereof) or settlements are related
to the sale or acquisition of the Shares or the Policies and:
(a) arise out of or are based upon any untrue
statement or alleged untrue statement of any
material fact contained in the registration
statement, prospectus or statement of additional
information for the Policies or contained in the
Policies or sales literature or other promotional
material for the Policies (or any amendment or
supplement to any of the foregoing), or arise out
of or are based upon the omission or the alleged
omission to state therein a material fact required
to be stated therein or necessary to make the
statements therein not misleading provided that
this agreement to indemnify shall not apply as to
any Indemnified Party if such statement or
omission or such alleged statement or omission
was made in reasonable reliance upon and in
conformity with information furnished to the
Company or its designee by or on behalf of the
Trust or MFS for use in the registration statement,
prospectus or statement of additional information
for the Policies or in the Policies or sales literature
or other promotional material (or any amendment
or supplement) or otherwise for use in connection
with the sale of the Policies or Shares; or
(b) arise out of or as a result of statements or
representations (other than statements or
representations contained in the registration
statement, prospectus, statement of additional
information or sales literature or other
promotional material of the Trust not supplied by
the Company or its designee, or persons under its
control and on which the Company has reasonably
relied) or wrongful conduct of the Company or
persons under its control, with respect to the sale
or distribution of the Policies or Shares; or
(c) arise out of any untrue statement or alleged untrue
statement of a material fact contained in the
registration statement, prospectus, statement of
additional information, or sales literature or other
promotional literature of the Trust, or any
amendment thereof or supplement thereto, or the
omission or alleged omission to state therein a
material fact required to be stated therein or
necessary to make the statement or statements
therein not misleading, if such statement or
omission was made in reliance upon information
furnished to the Trust by or on behalf of the
Company; or
(d) arise out of or result from any material breach of
any representation and/or warranty made by the
Company in this Agreement or arise out of or
result from any other material breach of this
Agreement by the Company; or
(e) arise as a result of any failure by the Company to
provide the services and furnish the materials
under the terms of this Agreement;
as limited by and in accordance with the provisions of this Article
VIII.
8.2. Indemnification by the Trust
The Trust agrees to indemnify and hold harmless the
Company and each of its directors and officers and each person, if
any, who controls the Company within the meaning of Section 15
of the 1933 Act, and any agents or employees of the foregoing
(each an "Indemnified Party," or collectively, the "Indemnified
Parties" for purposes of this Section 8.2) against any and all
losses, claims, damages, liabilities (including amounts paid in
settlement with the written consent of the Trust) or expenses
(including reasonable counsel fees) to which any Indemnified
Party may become subject under any statute, at common law or
otherwise, insofar as such losses, claims, damages, liabilities or
expenses (or actions in respect thereof) or settlements are related
to the sale or acquisition of the Shares or the Policies and:
(a) arise out of or are based upon any untrue
statement or alleged untrue statement of any
material fact contained in the registration
statement, prospectus, statement of additional
information or sales literature or other
promotional material of the Trust (or any
amendment or supplement to any of the
foregoing), or arise out of or are based upon the
omission or the alleged omission to state therein a
material fact required to be stated therein or
necessary to make the statement therein not
misleading, provided that this agreement to
indemnify shall not apply as to any Indemnified
Party if such statement or omission or such
alleged statement or omission was made in
reasonable reliance upon and in conformity with
information furnished to the Trust, MFS, the
Underwriter or their respective designees by or on
behalf of the Company for use in the registration
statement, prospectus or statement of additional
information for the Trust or in sales literature or
other promotional material for the Trust (or any
amendment or supplement) or otherwise for use in
connection with the sale of the Policies or Shares;
or
(b) arise out of or as a result of statements or
representations (other than statements or
representations contained in the registration
statement, prospectus, statement of additional
information or sales literature or other
promotional material for the Policies not supplied
by the Trust, MFS, the Underwriter or any of their
respective designees or persons under their
respective control and on which any such entity
has reasonably relied) or wrongful conduct of the
Trust or persons under its control, with respect to
the sale or distribution of the Policies or Shares;
or
(c) arise out of any untrue statement or alleged untrue
statement of a material fact contained in the
registration statement, prospectus, statement of
additional information, or sales literature or other
promotional literature of the Accounts or relating
to the Policies, or any amendment thereof or
supplement thereto, or the omission or alleged
omission to state therein a material fact required
to be stated therein or necessary to make the
statement or statements therein not misleading, if
such statement or omission was made in reliance
upon information furnished to the Company by or
on behalf of the Trust, MFS or the Underwriter; or
(d) arise out of or result from any material breach of
any representation and/or warranty made by the
Trust in this Agreement (including a failure,
whether unintentional or in good faith or
otherwise, to comply with the diversification
requirements specified in Article VI of this
Agreement) or arise out of or result from any
other material breach of this Agreement by the
Trust; or
(e) arise out of or result from the materially incorrect
or untimely calculation or reporting of the daily
net asset value per share or dividend or capital
gain distribution rate; or
(f) arise as a result of any failure by the Trust to
provide the services and furnish the materials
under the terms of the Agreement;
as limited by and in accordance with the provisions of this Article
VIII.
8.3. In no event shall the Trust be liable under the
indemnification provisions contained in this Agreement to any
individual or entity, including without limitation, the Company, or
any Participating Insurance Company or any Policy holder, with
respect to any losses, claims, damages, liabilities or expenses that
arise out of or result from (i) a breach of any representation,
warranty, and/or covenant made by the Company hereunder or by
any Participating Insurance Company under an agreement
containing substantially similar representations, warranties and
covenants; (ii) the failure by the Company or any Participating
Insurance Company to maintain its segregated asset account
(which invests in any Portfolio) as a legally and validly
established segregated asset account under applicable state law
and as a duly registered unit investment trust under the provisions
of the 1940 Act (unless exempt therefrom); or (iii) the failure by
the Company or any Participating Insurance Company to maintain
its variable annuity and/or variable life insurance contracts (with
respect to which any Portfolio serves as an underlying funding
vehicle) as life insurance, endowment or annuity contracts under
applicable provisions of the Code.
8.4. Neither the Company nor the Trust shall be liable under
the indemnification provisions contained in this Agreement with
respect to any losses, claims, damages, liabilities or expenses to
which an Indemnified Party would otherwise be subject by reason
of such Indemnified Party's willful misfeasance, willful
misconduct, or gross negligence in the performance of such
Indemnified Party's duties or by reason of such Indemnified
Party's reckless disregard of obligations and duties under this
Agreement.
8.5. Promptly after receipt by an Indemnified Party under this
Section 8.5. of notice of commencement of any action, such
Indemnified Party will, if a claim in respect thereof is to be made
against the indemnifying party under this section, notify the
indemnifying party of the commencement thereof; but the
omission so to notify the indemnifying party will not relieve it
from any liability which it may have to any Indemnified Party
otherwise than under this section. In case any such action is
brought against any Indemnified Party, and it notified the
indemnifying party of the commencement thereof, the
indemnifying party will be entitled to participate therein and, to
the extent that it may wish, assume the defense thereof, with
counsel satisfactory to such Indemnified Party. After notice from
the indemnifying party of its intention to assume the defense of an
action, the Indemnified Party shall bear the expenses of any
additional counsel obtained by it, and the indemnifying party shall
not be liable to such Indemnified Party under this section for any
legal or other expenses subsequently incurred by such Indemnified
Party in connection with the defense thereof other than reasonable
costs of investigation.
8.6. Each of the parties agrees promptly to notify the other
parties of the commencement of any litigation or proceeding
against it or any of its respective officers, directors, trustees,
employees or 1933 Act control persons in connection with the
Agreement, the issuance or sale of the Policies, the operation of
the Accounts, or the sale or acquisition of Shares.
8.7. A successor by law of the parties to this Agreement shall
be entitled to the benefits of the indemnification contained in this
Article VIII. The indemnification provisions contained in this
Article VIII shall survive any termination of this Agreement.
ARTICLE IX. APPLICABLE LAW
9.1. This Agreement shall be construed and the provisions
hereof interpreted under and in accordance with the laws of The
Commonwealth of Massachusetts.
9.2. This Agreement shall be subject to the provisions of the
1933, 1934 and 1940 Acts, and the rules and regulations and
rulings thereunder, including such exemptions from those statutes,
rules and regulations as the SEC may grant and the terms hereof
shall be interpreted and construed in accordance therewith.
ARTICLE X. NOTICE OF FORMAL PROCEEDINGS
The Trust, MFS, and the Company agree that each such party shall
promptly notify the other parties to this Agreement, in writing, of the
institution of any formal proceedings brought against such party or its
designees by the NASD, the SEC, or any insurance department or any
other regulatory body regarding such party's duties under this Agreement
or related to the sale of the Policies, the operation of the Accounts, or the
purchase of the Shares.
ARTICLE XI. TERMINATION
11.1. This Agreement shall terminate with respect to the
Accounts, or one, some, or all Portfolios:
(a) at the option of any party upon six (6) months'
advance written notice to the other parties; or
(b) at the option of the Company to the extent that the
Shares of Portfolios are not reasonably available
to meet the requirements of the Policies or are not
"appropriate funding vehicles" for the Policies, as
reasonably determined by the Company. Without
limiting the generality of the foregoing, the Shares
of a Portfolio would not be "appropriate funding
vehicles" if, for example, such Shares did not
meet the diversification or other requirements
referred to in Article VI hereof; or if the Company
would be permitted to disregard Policy owner
voting instructions pursuant to Rule 6e-2 or 6e-
3(T) under the 1940 Act. Prompt notice of the
election to terminate for such cause and an
explanation of such cause shall be furnished to the
Trust by the Company; or
(c) at the option of the Trust or MFS upon institution
of formal proceedings against the Company by the
NASD, the SEC, or any insurance department or
any other regulatory body regarding the
Company's duties under this Agreement or related
to the sale of the Policies, the operation of the
Accounts, or the purchase of the Shares; or
(d) at the option of the Company upon institution of
formal proceedings against the Trust by the
NASD, the SEC, or any state securities or
insurance department or any other regulatory body
regarding the Trust's or MFS' duties under this
Agreement or related to the sale of the Shares; or
(e) at the option of the Company, the Trust or MFS
upon receipt of any necessary regulatory
approvals and/or the vote of the Policy owners
having an interest in the Accounts (or any
subaccounts) to substitute the shares of another
investment company for the corresponding
Portfolio Shares in accordance with the terms of
the Policies for which those Portfolio Shares had
been selected to serve as the underlying
investment media. The Company will give thirty
(30) days' prior written notice to the Trust of the
Date of any proposed vote or other action taken to
replace the Shares; or
(f) termination by either the Trust or MFS by written
notice to the Company, if either one or both of the
Trust or MFS respectively, shall determine, in
their sole judgment exercised in good faith, that
the Company has suffered a material adverse
change in its business, operations, financial
condition, or prospects since the date of this
Agreement or is the subject of material adverse
publicity; or
(g) termination by the Company by written notice to
the Trust and MFS, if the Company shall
determine, in its sole judgment exercised in good
faith, that the Trust or MFS has suffered a
material adverse change in this business,
operations, financial condition or prospects since
the date of this Agreement or is the subject of
material adverse publicity; or
(h) at the option of any party to this Agreement, upon
another party's material breach of any provision of
this Agreement; or
(i) upon assignment of this Agreement, unless made
with the written consent of the parties hereto.
11.2. The notice shall specify the Portfolio or Portfolios,
Policies and, if applicable, the Accounts as to which the
Agreement is to be terminated.
11.3. It is understood and agreed that the right of any party
hereto to terminate this Agreement pursuant to Section 11.1(a)
may be exercised for cause or for no cause.
11.4. Except as necessary to implement Policy owner initiated
transactions, or as required by state insurance laws or regulations,
the Company shall not redeem the Shares attributable to the
Policies (as opposed to the Shares attributable to the Company's
assets held in the Accounts), and the Company shall not prevent
Policy owners from allocating payments to a Portfolio that was
otherwise available under the Policies, until thirty (30) days after
the Company shall have notified the Trust of its intention to do so.
11.5. Notwithstanding any termination of this Agreement, the
Trust and MFS shall, at the option of the Company, continue to
make available additional shares of the Portfolios pursuant to the
terms and conditions of this Agreement, for all Policies in effect
on the effective date of termination of this Agreement (the
"Existing Policies"), except as otherwise provided under Article
VII of this Agreement. Specifically, without limitation, the
owners of the Existing Policies shall be permitted to transfer or
reallocate investment under the Policies, redeem investments in
any Portfolio and/or invest in the Trust upon the making of
additional purchase payments under the Existing Policies.
ARTICLE XII. NOTICES
Any notice shall be sufficiently given when sent by registered or
certified mail, overnight courier or facsimile to the other party at the
address of such party set forth below or at such other address as such party
may from time to time specify in writing to the other party.
If to the Trust:
MFS Variable Insurance Trust
500 Boylston Street
Boston, Massachusetts 02116
Facsimile No.: (617) 954-6624
Attn: Stephen E. Cavan, Secretary
If to the Company:
Midland National Life Insurance Company
One Midland Plaza
Sioux Falls, SD 57193-0001
Facsimile No.: (605)373-8555
Attn: Russell Evenson, Senior Vice President and Actuary
If to MFS:
Massachusetts Financial Services Company
500 Boylston Street
Boston, Massachusetts 02116
Facsimile No.: (617) 954-6624
Attn: Stephen E. Cavan, General Counsel
ARTICLE XIII. MISCELLANEOUS
13.1. Subject to the requirement of legal process and regulatory
authority, each party hereto shall treat as confidential the names
and addresses of the owners of the Policies and all information
reasonably identified as confidential in writing by any other party
hereto and, except as permitted by this Agreement or as otherwise
required by applicable law or regulation, shall not disclose,
disseminate or utilize such names and addresses and other
confidential information without the express written consent of the
affected party until such time as it may come into the public
domain.
13.2. The captions in this Agreement are included for
convenience of reference only and in no way define or delineate
any of the provisions hereof or otherwise affect their construction
or effect.
13.3. This Agreement may be executed simultaneously in one or
more counterparts, each of which taken together shall constitute
one and the same instrument.
13.4. If any provision of this Agreement shall be held or made
invalid by a court decision, statute, rule or otherwise, the
remainder of the Agreement shall not be affected thereby.
13.5. The Schedule attached hereto, as modified from time to
time, is incorporated herein by reference and is part of this
Agreement.
13.6. Each party hereto shall cooperate with each other party in
connection with inquiries by appropriate governmental authorities
(including without limitation the SEC, the NASD, and state
insurance regulators) relating to this Agreement or the transactions
contemplated hereby.
13.7. The rights, remedies and obligations contained in this
Agreement are cumulative and are in addition to any and all rights,
remedies and obligations, at law or in equity, which the parties
hereto are entitled to under state and federal laws.
13.8. A copy of the Trust's Declaration of Trust is on file with
the Secretary of State of The Commonwealth of Massachusetts.
The Company acknowledges that the obligations of or arising out
of this instrument are not binding upon any of the Trust's trustees,
officers, employees, agents or shareholders individually, but are
binding solely upon the assets and property of the Trust in
accordance with its proportionate interest hereunder. The
Company further acknowledges that the assets and liabilities of
each Portfolio are separate and distinct and that the obligations of
or arising out of this instrument are binding solely upon the assets
or property of the Portfolio on whose behalf the Trust has
executed this instrument. The Company also agrees that the
obligations of each Portfolio hereunder shall be several and not
joint, in accordance with its proportionate interest hereunder, and
the Company agrees not to proceed against any Portfolio for the
obligations of another Portfolio.
IN WITNESS WHEREOF, each of the parties hereto has caused
this Agreement to be executed in its name and on its behalf by its duly
authorized representative and its seal to be hereunder affixed hereto as of
the date specified above.
MIDLAND NATIONAL LIFE
INSURANCE COMPANY
___________________________
__________________________
By its authorized officer,
By:
Title:
MFS VARIABLE INSURANCE
TRUST,
on behalf of the Portfolios
By its authorized officer and not
individually,
By:
James R. Bordewick, Jr.
Assistant Secretary
MASSACHUSETTS
FINANCIAL SERVICES
COMPANY
By its authorized officer,
By:
James R. Bordewick, Jr.
Senior Vice President and
Assistant General Counsel
A
s of ____________________
SCHEDULE A
ACCOUNTS, POLICIES AND PORTFOLIOS
SUBJECT TO THE PARTICIPATION AGREEMENT
Name of Separate
Account and Date
Established by Board of Directors
Policies Funded
by Separate Account
Portfolios
Applicable to Policies
Separate Account A
(July, 1987)
Separate Account C
(March, 1991)
Variable Universal Life 3
Variable Executive Universal Life
Variable Universal Life
Variable Universal Life 2
Variable Annuity II
Variable Annuity
To All Policies:
MFS Emerging Growth Series
MFS Research Series
MFS Growth with Income Series
MFS New Discovery Series
PAGREMFS.TXT
<PAGE>
FUND PARTICIPATION AGREEMENT
THIS AGREEMENT made as of the 11th day of June, 1998, by
and between Lord Abbett Series Fund, Inc. (FUND), a Maryland
Corporation, Lord, Abbett & Co. ("ADVISER"), a New York Partnership,
and Midland National Life Insurance Company (the "COMPANY), a life
insurance company organized under the laws of the State of South
Dakota .
WHEREAS, FUND is registered with the Securities and Exchange
Commission (SEC) under the Investment Company Act of 1940, as
amended (the "40 Act), as an open-end, diversified management
investment company; and
WHEREAS, FUND is organized as a series fund comprised of
several Portfolios (Portfolios), those currently available are listed on
Appendix A hereto; and
WHEREAS, FUND was organized to act as the funding vehicle
for certain variable life insurance and/or variable annuity contracts
(Variable Contracts) offered by life insurance companies through
separate accounts ("Separate Accounts") of such life insurance
companies (Participating Insurance Companies) and also offers its
shares to certain qualified pension and retirement plans ("Qualified
Plans"); and
WHEREAS, FUND intends to apply for an order from the SEC,
granting Participating Insurance Companies and their separate accounts
exemptions from the provisions of Sections 9(a), 13(a), 15(a) and 15(b)
of the 40 Act, and Rules 6e-2(b)(15) and 6e-3(T)(b)(15) thereunder, to
the extent necessary to permit shares of the Portfolios of the Fund to be
sold to and held by variable annuity and variable life insurance separate
accounts of both affiliated and unaffiliated Participating Insurance
Companies and Qualified Plans (Exemptive Order); and
WHEREAS, the COMPANY has established or will establish one
or more separate accounts (Separate Accounts) to offer Variable
Contracts and is desirous of having FUND as one of the underlying
funding vehicles for such Variable Contracts; and
WHEREAS, ADVISER is registered with the SEC as an
investment adviser under the Investment Advisers Act of 1940, as
amended and acts as the FUND's investment adviser and Adviser's
subsidiary, Lord Abbett Distributors LLC, a New York limited liability
Company (the "Distributor") is registered with the SEC as a broker-dealer
under the Securities Exchange Act of 1934, as amended and acts as
Fund's principal underwriter; and
WHEREAS, to the extent permitted by applicable insurance laws
and regulations, the COMPANY intends to purchase shares of FUND to
fund the aforementioned Variable Contracts and FUND is authorized to
sell such shares to the COMPANY at net asset value;
NOW, THEREFORE, in consideration of their mutual promises,
the COMPANY, FUND, and ADVISER agree as follows:
Article I. SALE OF FUND SHARES
1.1 FUND agrees to make available to the Separate Accounts of
the COMPANY shares of the selected Portfolios as listed on Appendix
B for investment of purchase payments of Variable Contracts allocated
to the designated Separate Accounts as provided in FUND's Registration
Statement.
1.2 FUND agrees to sell to the COMPANY those shares of the
selected Portfolios of Fund which the COMPANY orders, executing such
orders on a daily basis at the net asset value next computed after receipt
by FUND or its designee of the order for the shares of FUND. For
purposes of this Section 1.2, the COMPANY shall be the designee of
FUND for receipt of such orders from the designated Separate Account
and receipt by such designee shall constitute receipt by FUND; provided
that the COMPANY receives the order by 4:00 p.m. New York time and
FUND receives notice from the COMPANY by telephone or facsimile (or
by such other means as FUND and the COMPANY may agree in writing)
of such order by 10:00 a.m. New York time on the next following
Business Day. "Business Day" shall mean any day on which the New
York Stock Exchange is open for trading and on which FUND calculates
its net asset value pursuant to the rules of the SEC.
1.3 FUND agrees to redeem on the COMPANY's request, any full
or fractional shares of FUND held by the COMPANY, executing such
requests on a daily basis at the net asset value next computed after
receipt by FUND or its designee of the request for redemption, in
accordance with the provisions of this agreement and FUND's
Registration Statement. For purposes of this Section 1.3, the
COMPANY shall be the designee of FUND for receipt of requests for
redemption from the designated Separate Account and receipt by such
designee shall constitute receipt by FUND; provided that the COMPANY
receives the request for redemption by 4:00 p.m. New York time and
FUND receives notice from the COMPANY by telephone or facsimile (or
by such other means as FUND and the COMPANY may agree in writing)
of such request for redemption by 10:00 a.m. New York time on the next
following Business Day.
1.4 FUND shall furnish, on or before the ex-dividend date, notice
to the COMPANY of any income dividends or capital gain distributions
payable on the shares of any Portfolios of FUND. The COMPANY
hereby elects to receive all such income dividends and capital gain
distributions as are payable on a Portfolios shares in additional shares
of the Portfolio. FUND shall notify the COMPANY or its designee of the
number of shares so issued as payment of such dividends and
distributions.
1.5 FUND shall make the net asset value per share for the
selected Portfolio(s) available to the COMPANY on a daily basis as soon
as reasonably practicable after the net asset value per share is
calculated but shall use its best efforts to make such net asset value
available by 6:30 p.m. New York time. In the event that FUND is unable
to meet the 6:30 p.m. time stated herein, it shall provide additional time
for the COMPANY to place orders for the purchase and redemption of
shares. Such additional time shall be equal to the additional time which
FUND takes to make the net asset value available to the COMPANY.
If the Fund provides materially incorrect share net asset value
information, the Fund shall make an adjustment to the number of shares
purchased or redeemed for the Portfolio(s) to reflect the correct net asset
value per share. Any material error in the calculation or reporting of net
asset value per share, dividend or capital gains information shall be
reported promptly upon discovery to the Company.
1.6 At the end of each Business Day, the COMPANY shall use
the information described in Section 1.5 to calculate Separate Account
unit values for the day. Using these unit values, the COMPANY shall
process each such Business Day's Separate Account transactions
based on requests and premiums received by it by the close of trading
on the floor of the New York Stock Exchange (currently 4:00 p.m. New
York time) to determine the net dollar amount of FUND shares which
shall be purchased or redeemed at that day's closing net asset value per
share. The net purchase or redemption orders so determined shall be
transmitted to FUND by the COMPANY by 10:00 a.m. New York Time
on the Business Day next following the COMPANY's receipt of such
requests and premiums in accordance with the terms of Sections 1.2 and
1.3 hereof.
1.7 If the COMPANY's order requests the purchase of FUND
shares, the COMPANY shall pay for such purchase by wiring federal
funds to FUND or its designated custodial account on the day the order
is transmitted by the COMPANY. If the COMPANY's order requests a
net redemption resulting in a payment of redemption proceeds to the
COMPANY, FUND shall use its best efforts to wire the redemption
proceeds to the COMPANY by the next Business Day, unless doing so
would require FUND to dispose of Portfolio securities or otherwise incur
additional costs. In any event, proceeds shall be wired to the
COMPANY within three Business Days or such longer period permitted
by the '40 Act or the rules, orders or regulations thereunder and FUND
shall notify the person designated in writing by the COMPANY as the
recipient for such notice of such delay by 3:00 p.m. New York Time the
same Business Day that the COMPANY transmits the redemption order
to FUND. If the COMPANY's order requests the application of
redemption proceeds from the redemption of shares to the purchase of
shares of another Portfolio advised by ADVISER, FUND shall so apply
such proceeds the same Business Day that the COMPANY transmits
such order to FUND.
1.8 FUND agrees that all shares of the Portfolios of FUND will be
sold only to Participating Insurance Companies which have agreed to
participate in FUND to fund their Separate Accounts and/or to Qualified
Plans, all in accordance with the requirements of Section 817(h) of the
Internal Revenue Code of 1986, as amended (Code) and Treasury
Regulation 1.817-5. Shares of the Portfolios of FUND will not be sold
directly to the general public.
1.9 FUND may refuse to sell shares of any Portfolios to any
person, or suspend or terminate the offering of the shares of any
Portfolios if such action is required by law or by regulatory authorities
having jurisdiction or is, in the sole discretion of the Board of Directors
of the FUND (the "Board"), deemed necessary, desirable or appropriate.
1.10 Issuance and transfer of Portfolio shares will be by book
entry only. Stock certificates will not be issued to the COMPANY or the
Separate Accounts. Shares ordered from Portfolios will be recorded in
appropriate book entry titles for the Separate Accounts.
Article II. REPRESENTATIONS AND WARRANTIES
2.1 The COMPANY represents and warrants that it is an
insurance company duly organized and in good standing under the laws
of South Dakota and that it has legally and validly established each
Separate Account as a segregated asset account under such laws.
2.2 The COMPANY represents and warrants that it has registered
or, prior to any issuance or sale of the Variable Contracts, will register
each Separate Account as a unit investment trust (UIT) in accordance
with the provisions of the 40 Act and cause each Separate Account to
remain so registered to serve as a segregated asset account for the
Variable Contracts, unless an exemption from registration is available.
2.3 The COMPANY represents and warrants that the Variable
Contracts will be registered under the Securities Act of 1933 (the 33 Act)
unless an exemption from registration is available prior to any issuance
or sale of the Variable Contracts and that the Variable Contracts will be
issued and sold in compliance in all material respects with all applicable
federal and state laws and further that the sale of the Variable Contracts
shall comply in all material respects with state insurance law suitability
requirements.
2.4 The COMPANY represents and warrants that the Variable
Contracts are currently and at the time of issuance will be treated as life
insurance, endowment or annuity contracts under applicable provisions
of the Code, that it will maintain such treatment and that it will notify
FUND immediately upon having a reasonable basis for believing that the
Variable Contracts have ceased to be so treated or that they might not
be so treated in the future.
2.5 FUND represents and warrants that the Portfolio shares
offered and sold pursuant to this Agreement will be registered under the
'33 Act and sold in accordance with all applicable federal and state laws,
and FUND shall be registered under the 40 Act prior to and at the time
of any issuance or sale of such shares. FUND, subject to Section 1.9
above, shall amend its registration statement under the 33 Act and the
40 Act from time to time as required in order to effect the continuous
offering of its shares. FUND shall register and qualify its shares for sale
in accordance with the laws of the various states only if and to the extent
deemed advisable by FUND.
2.6 FUND represents and warrants that each Portfolio will
comply with the diversification requirements set forth in Section 817(h)
of the Code, and the rules and regulations thereunder, including without
limitation Treasury Regulation 1.817-5, and will notify the COMPANY
immediately upon having a reasonable basis for believing any Portfolio
has ceased to comply or might not so comply and will immediately take
all reasonable steps to adequately diversify the Portfolio to achieve
compliance.
2.7 FUND represents and warrants that each Portfolio invested
in by the Separate Account intends to elect to be treated as a regulated
investment company under Subchapter M of the Code, and to qualify for
such treatment for each taxable year and will notify the COMPANY
immediately upon having a reasonable basis for believing it has ceased
to so qualify or might not so qualify in the future.
2.8 ADVISER represents and warrants that Distributor is and will
be a member in good standing of the National Association of Securities
Dealers, Inc. ("NASD") and is and will be registered as a broker-dealer
with the SEC. ADVISER further represents that Distributor will sell and
distribute Portfolio shares in accordance with all applicable state and
federal laws and regulations, including without limitation the '33 Act, the
'34 Act and the '40 Act.
2.9 ADVISER represents and warrants that it and Distributor are
still and will remain duly registered and licensed in all material respects
under all applicable federal and state securities laws and shall perform
its obligations hereunder in compliance in all material respects with any
applicable state and federal laws.
Article III. PROSPECTUS AND PROXY STATEMENTS
3.1 FUND shall prepare and be responsible for filing with the SEC
and any state regulators requiring such filing all shareholder reports,
notices, proxy materials (or similar materials such as voting instruction
solicitation materials), prospectuses and statements of additional
information of FUND. Except for the costs and fees the Distributor is
obligated to pay pursuant to its distribution agreement with the FUND,
the FUND shall bear the costs of registration and qualification of shares
of the Portfolios, preparation and filing of the documents listed in this
Section 3.1 and all taxes and filing fees to which an issuer is subject on
the issuance and transfer of its shares.
3.2 At least annually, FUND or its designee shall provide the
COMPANY, free of charge, with as many copies of the current
prospectus for the shares of the Portfolios as the COMPANY may
reasonably request for distribution to existing Variable Contract owners
whose Variable Contracts are funded by such shares. FUND or its
designee shall provide the COMPANY, at the COMPANY's expense,
with as many more copies of the current prospectus for the shares as the
COMPANY may reasonably request for distribution to prospective
purchasers of Variable Contracts. If requested by the COMPANY in lieu
thereof, FUND or its designee shall provide such documentation
(including a "camera ready" copy of the new prospectus as set in type
or, at the request of the COMPANY, as a diskette in the form sent to the
financial printer) and other assistance as is reasonably necessary in
order for the parties hereto once a year (or more frequently if the
prospectus for the shares is supplemented or amended) to have the
prospectus for the Variable Contracts and the prospectus for the FUND
shares and any other fund shares offered as investments for the
Variable Contracts printed together in one document. The cost
associated with producing such single document shall be allocated as
set forth in the first two sentences of this section.
3.3 FUND will provide the COMPANY with at least one complete
copy of all prospectuses, statements of additional information, annual
and semi-annual reports, proxy statements, exemptive applications and
all amendments or supplements to any of the above that relate to the
Portfolios promptly after the filing of each such document with the SEC
or other regulatory authority. The COMPANY will provide FUND with at
least one complete copy of all prospectuses, statements of additional
information, annual and semi-annual reports, proxy statements,
exemptive applications and all amendments or supplements to any of
the above that relate to a Separate Account promptly after the filing of
each such document with the SEC or other regulatory authority.
Article IV. SALES MATERIALS
4.1 The COMPANY will furnish, or will cause to be furnished, to
FUND and ADVISER, each piece of sales literature or other promotional
material in which FUND or ADVISER or DISTRIBUTOR is named, at
least fifteen (15) Business Days prior to its intended use. No such
material will be used if FUND, ADVISER or DISTRIBUTOR objects to its
use in writing within ten (10) Business Days after receipt of such
material.
4.2 FUND and DISTRIBUTOR will furnish, or will cause to be
furnished, to the COMPANY, each piece of sales literature or other
promotional material in which the COMPANY or its Separate Accounts
are named, at least fifteen (15) Business Days prior to its intended use.
No such material will be used if the COMPANY objects to its use in
writing within ten (10) Business Days after receipt of such material.
4.3 FUND and its affiliates and agents shall not give any
information or make any representations on behalf of the COMPANY or
concerning the COMPANY, the Separate Accounts, or the Variable
Contracts issued by the COMPANY, other than the information or
representations contained in a registration statement or prospectus for
such Variable Contracts, as such registration statement and prospectus
may be amended or supplemented from time to time, or in reports of the
Separate Accounts or reports prepared for distribution to owners of such
Variable Contracts, or in sales literature or other promotional material
approved by the COMPANY or its designee, except with the written
permission of the COMPANY.
4.4 The COMPANY and its affiliates and agents shall not give any
information or make any representations on behalf of FUND , ADVISER
or DISTRIBUTOR or concerning FUND, ADVISER or DISTRIBUTOR
other than the information or representations contained in a registration
statement or prospectus for FUND, as such registration statement and
prospectus may be amended or supplemented from time to time, or in
sales literature or other promotional material approved by FUND,
ADVISER or DISTRIBUTOR or its designee, except with the written
permission of FUND, ADVISER or DISTRIBUTOR, as the case may be.
4.5 For purposes of this Agreement, the phrase "sales literature
or other promotional material" or words of similar import include, without
limitation, advertisements (such as material published, or designed for
use, in a newspaper, magazine or other periodical, radio, television,
telephone or tape recording, videotape display, signs or billboards,
motion pictures or other public media), sales literature (such as any
written communication distributed or made generally available to
customers or the public, including brochures, circulars, research reports,
market letters, form letters, seminar texts, or reprints or excerpts of any
other advertisement, sales literature, or published article), educational
or training materials or other communications distributed or made
generally available to some or all agents or employees, registration
statements, prospectuses, statements of additional information,
shareholder reports and proxy materials, and any other material
constituting sales literature or advertising under National Association of
Securities Dealers, Inc. rules, the 40 Act or the '33 Act.
Article V. POTENTIAL CONFLICTS
5.1 The parties acknowledge that FUND intends to file an
application with the SEC to request an order granting relief from various
provisions of the '40 Act and the rules thereunder to the extent
necessary to permit FUND shares to be sold to and held by variable
annuity and variable life insurance separate accounts of both affiliated
and unaffiliated Participating Insurance Companies and Qualified Plans.
It is anticipated that the Exemptive Order, when and if issued, shall
require FUND and each Participating Insurance Company to comply with
conditions and undertakings substantially as provided in this Section 5.
If the Exemptive Order imposes conditions materially different from
those provided for in this Section 5, the conditions and undertakings
imposed by the Exemptive Order shall govern this Agreement and the
parties hereto agree to amend this Agreement consistent with the
Exemptive Order. The Fund will not enter into a participation agreement
with any other Participating Insurance Company unless it imposes the
same conditions and undertakings as are imposed on the COMPANY
hereby.
5.2 The Board will monitor FUND for the existence of any
material irreconcilable conflict between the interests of Variable Contract
owners of all separate accounts investing in FUND. An irreconcilable
material conflict may arise for a variety of reasons, which may include:
(a) an action by any state insurance regulatory authority; (b) a change
in applicable federal or state insurance, tax, or securities laws or
regulations, or a public ruling, private letter ruling or any similar action by
insurance, tax or securities regulatory authorities; (c) an administrative
or judicial decision in any relevant proceeding; (d) the manner in which
the investments of FUND are being managed; (e) a difference in voting
instructions given by variable annuity and variable life insurance Contract
owners; (f) a decision by a Participating Insurance Company to disregard
the voting instructions of Variable Contract owners and (g) if applicable,
a decision by a Qualified Plan to disregard the voting instructions of plan
participants.
5.3 The COMPANY will report any potential or existing conflicts
to the Board. The COMPANY will be responsible for assisting the Board
in carrying out its duties in this regard by providing the Board with all
information reasonably necessary for the Board to consider any issues
raised. The responsibility includes, but is not limited to, an obligation by
the COMPANY to inform the Board whenever it has determined to
disregard Variable Contract owner voting instructions. These
responsibilities of the COMPANY will be carried out with a view only to
the interests of the Variable Contract owners.
5.4 If a majority of the Board or majority of its disinterested
members, determines that a material irreconcilable conflict exists,
affecting the COMPANY, the COMPANY, at its expense and to the
extent reasonably practicable (as determined by a majority of the
Board's disinterested members), will take any steps necessary to remedy
or eliminate the irreconcilable material conflict, including; (a) withdrawing
the assets allocable to some or all of the Separate Accounts from FUND
or any Portfolio thereof and reinvesting those assets in a different
investment medium, which may include another Portfolio of FUND, or
another investment company; (b) submitting the question as to whether
such segregation should be implemented to a vote of all affected
Variable Contract owners and as appropriate, segregating the assets of
any appropriate group (i.e variable annuity or variable life insurance
Contract owners of one or more Participating Insurance Companies) that
votes in favor of such segregation, or offering to the affected Variable
Contract owners the option of making such a change; and (c)
establishing a new registered management investment company (or
series thereof) or managed separate account. If a material irreconcilable
conflict arises because of the COMPANYs decision to disregard Variable
Contract owner voting instructions, and that decision represents a
minority position or would preclude a majority vote, the COMPANY may
be required, at the election of FUND to withdraw the Separate Accounts
investment in FUND, and no charge or penalty will be imposed as a
result of such withdrawal. The responsibility to take such remedial action
shall be carried out with a view only to the interests of the Variable
Contract owners.
For the purposes of this Section 5.4, a majority of the
disinterested members of the Board shall determine whether or not any
proposed action adequately remedies any irreconcilable material conflict
but in no event will FUND or ADVISER (or any other investment adviser
of FUND) be required to establish a new funding medium for any
Variable Contract. Further, the COMPANY shall not be required by this
Section 5.4 to establish a new funding medium for any Variable
Contracts if any offer to do so has been declined by a vote of a majority
of Variable Contract owners materially and adversely affected by the
irreconcilable material conflict.
5.5 The Boards determination of the existence of an
irreconcilable material conflict and its implications shall be made known
promptly and in writing to the COMPANY.
5.6 No less than annually, the COMPANY shall submit to the
Board such reports, materials or data as the Board may reasonably
request so that the Board may fully carry out its obligations. Such
reports, materials, and data shall be submitted more frequently if
deemed appropriate by the Board.
Article VI. VOTING
6.1 The COMPANY will provide pass-through voting privileges to
all Variable Contract owners so long as the SEC continues to interpret
the 40 Act as requiring pass-through voting privileges for Variable
Contract owners. Accordingly, the COMPANY, where applicable, will
vote shares of the Portfolio held in its Separate Accounts in a manner
consistent with voting instructions timely received from its Variable
Contract owners. The COMPANY will be responsible for assuring that
each of its Separate Accounts that participates in FUND calculates
voting privileges in a manner consistent with other Participating
Insurance Companies. The COMPANY will vote shares for which it has
not received timely voting instructions, as well as shares it owns, in the
same proportion as its votes those shares for which it has received
voting instructions.
6.2 If and to the extent Rule 6e-2 and Rule 6e-3(T) are amended,
or if Rule 6e-3 is adopted, to provide exemptive relief from any provision
of the 40 Act or the rules thereunder with respect to mixed and shared
funding on terms and conditions materially different from any exemptions
granted in the Exemptive Order, then FUND, and/or the Participating
Insurance Companies, as appropriate, shall take such steps as may be
necessary to comply with Rule 6e-2 and Rule 6e-3(T), as amended, and
Rule 6e-3, as adopted, to the extent such Rules are applicable.
Article VII. INDEMNIFICATION
7.1 Indemnification by the COMPANY. The COMPANY agrees
to indemnify and hold harmless FUND, ADVISER and DISTRIBUTOR
and each of their trustees, directors, members, principals, officers,
partners, employees and agents and each person, if any, who controls
FUND, ADVISER or DISTRIBUTOR within the meaning of Section 15
of the 33 Act (collectively, the Indemnified Parties for purposes of this
Article VII) against any and all losses, claims, damages, liabilities
(including amounts paid in settlement with the written consent of the
COMPANY, which consent shall not be unreasonably withheld) or
litigation (including legal and other expenses), to which the Indemnified
Parties may become subject under any statute, regulation, at common
law or otherwise, insofar as such losses, claims, damages, liabilities or
expenses (or actions in respect thereof) or settlements are related to the
sale or acquisition of FUNDs shares or the Variable Contracts and:
(a) arise out of or are based upon any untrue statements or
alleged untrue statements of any material fact contained
in the Registration Statement or prospectus for the
Variable Contracts or contained in the Variable Contracts
(or any amendment or supplement to any of the
foregoing), or arise out of or are based upon the omission
or the alleged omission to state therein a material fact
required to be stated therein or necessary to make the
statements therein not misleading, provided that this
agreement to indemnify shall not apply as to any
Indemnified Party if such statement or omission or such
alleged statement or omission was made in reliance upon
and in conformity with information furnished to the
COMPANY by or on behalf of an Indemnified Party for use
in the registration statement or prospectus for the Variable
Contracts or in the Variable Contracts or sales literature
(or any amendment or supplement) or otherwise for use in
connection with the sale of the Variable Contracts or
FUND shares; or
(b) arise out of or as a result of statements or representations
(other than statements or representations contained in the
registration statement, prospectus or sales literature of
FUND not supplied by the COMPANY, or persons under
its control) or wrongful conduct of the COMPANY or
persons under its control, with respect to the sale or
distribution of the Variable Contracts or FUND shares; or
(c) arise out of any untrue statement or alleged untrue
statement of a material fact contained in a registration
statement, prospectus, or sales literature of FUND or any
amendment thereof or supplement thereto or the omission
or alleged omission to state therein a material fact required
to be stated therein or necessary to make the statements
therein not misleading if such statement or omission or
such alleged statement or omission was made in reliance
upon and in conformity with information furnished to FUND
by or on behalf of the COMPANY; or
(d) arise as a result of any failure by the COMPANY to provide
the services and furnish the materials under the terms of
this Agreement; or
(e) arise out of or result from any material breach of any
representation and/or warranty made by the COMPANY in
this Agreement or arise out of or result from any other
material breach in this Agreement by the COMPANY.
7.2 The COMPANY shall not be liable under this indemnification
provision with respect to any losses, claims, damages, liabilities or
litigation incurred or assessed against an Indemnified Party as such may
arise from such Indemnified Party's willful misfeasance, bad faith, or
gross negligence in the performance of such Indemnified Party's duties
or by reason of such Indemnified Party's reckless disregard of
obligations or duties under this Agreement.
7.3 The COMPANY shall not be liable under this indemnification
provision with respect to any claim made against an Indemnified Party
unless such Indemnified Party shall have notified the COMPANY in
writing within a reasonable time after the summons or other first legal
process giving information of the nature of the claim shall have been
served upon such Indemnified Party (or after such Indemnified Party
shall have received notice of such service on any designated agent), but
failure to notify the COMPANY of any such claim shall not relieve the
COMPANY from any liability which it may have to the Indemnified Party
against whom such action is brought otherwise than on account of this
indemnification provision. In case any such action is brought against an
Indemnified Party, the COMPANY shall be entitled to participate at its
own expense in the defense of such action. The COMPANY also shall
be entitled to assume the defense thereof, with counsel satisfactory to
the party named in the action. After notice from the COMPANY to such
party of the COMPANY's election to assume the defense thereof, the
Indemnified Party shall bear the fees and expenses of any additional
counsel retained by it, and the COMPANY will not be liable to such party
under this Agreement for any legal or other expenses subsequently
incurred by such party independently in connection with the defense
thereof other than reasonable costs of investigation.
7.4 Indemnification by FUND. FUND agrees to indemnify and
hold harmless the COMPANY and each of its directors, officers,
employees, and agents and each person, if any, who controls the
COMPANY within the meaning of Section 15 of the 33 Act (collectively,
the Indemnified Parties for the purposes of this Article VII) against any
and all losses, claims, damages, liabilities (including amounts paid in
settlement with the written consent of ADVISER which consent shall not
be unreasonably withheld) or litigation (including legal and other
expenses) to which the Indemnified Parties may become subject under
any statute, or regulation, at common law or otherwise, insofar as such
losses, claims, damages, liabilities or expenses (or actions in respect
thereof) or settlements are related to the sale or acquisition of FUND's
shares or the Variable Contracts and:
(a) arise out of or are based upon any untrue state-
ment or alleged untrue statement of any material
fact contained in the registration statement or
prospectus of FUND (or any amendment or
supplement to any of the foregoing), or arise out
of or are based upon the omission or the alleged
omission to state therein a material fact required
to be stated therein or necessary to make the
statements therein not misleading, provided that
this agreement to indemnify shall not apply as to
any Indemnified Party if such statement or
omission or such alleged statement or omission
was made in reliance upon and in conformity with
information furnished to FUND by or on behalf of
the COMPANY for use in the registration
statement or prospectus for FUND (or any
amendment or supplement) or otherwise for use
in connection with the sale of the Variable
Contracts or FUND shares; or
(b) arise out of or as a result of statements or repre-
sentations (other than statements or repre-
sentations contained in the registration statement,
prospectus or sales literature for the Variable
Contracts not supplied by FUND or persons under
its control) or wrongful conduct of FUND or
persons under their control, with respect to the
sale or distribution of the Variable Contracts or
FUND shares; or
(c) arise out of any untrue statement or alleged untrue
statement of a material fact contained in a
registration statement or prospectus covering the
Variable Contracts, or any amendment thereof or
supplement thereto or the omission or alleged
omission to state therein a material fact required
to be stated therein or necessary to make the
statements therein not misleading, if such
statement or omission or such alleged statement
or omission was made in reliance upon and in
conformity with information furnished to the
COMPANY for inclusion therein by or on behalf of
FUND; or
(d) arise as a result of (i) a failure by FUND to provide
the services and furnish the materials under the
terms of this Agreement; or (ii) a failure by a
Portfolio(s) invested in by the Separate Account
to comply with the diversification requirements of
Section 817(h) of the Code; or (iii) a failure by a
Portfolio(s) invested in by the Separate Account to
qualify as a regulated investment company under
Subchapter M of the Code; or
(e) arise out or result from the material incorrect or untimely
calculation or reporting of the daily net asset value per
share or dividend or capital gain or distribution rate; or
(f) arise out of or result from any material breach of
any representation and/or warranty made by
FUND in this Agreement or arise out of or result
from any other material breach of this Agreement
by FUND.
7.5 Indemnification by ADVISER. To the extent not covered by
any applicable insurance coverage of the ADVISER, ADVISER agrees
to indemnify and hold harmless the Company and each of its directors,
officers, employees, and agents and each person, if any, who controls
the COMPANY within the meaning of Section 15 of the '33 Act
(collectively, the "Indemnified Parties" for the purposes of this Article VII)
against any and all losses, claims, damages, liabilities (including
amounts paid in settlement with the written consent of ADVISER which
consent shall not be unreasonably withheld) or litigation (including legal
and other expenses) to which the Indemnified Parties may become
subject under any statute, or regulation, at common law or otherwise,
insofar as such losses, claims, damages, liabilities or expenses (or
actions in respect thereof) or settlements are related to the sale or
acquisitions of FUND's shares or the Variable Contracts and:
(a) arise out of or are based upon any untrue statement or
alleged untrue statement of any material fact contained in the sales
literature of FUND (or any amendment or supplement to any of the
foregoing), or arise out of or are based upon the omission or the alleged
omission to state therein a material fact required to be stated therein or
necessary to make the statements therein not misleading, provided that
this agreement to indemnify shall not apply as to any Indemnified Party
if such statement or omission or such alleged statement or omission was
made in reliance upon and in conformity with information furnished to
ADVISER by or on behalf of the COMPANY for use in Fund sales
literature (or any amendment or supplement) or otherwise for use in
connection with the sale of the Variable Contracts or FUND shares; or
(b) arise out of or as a result of statements or
representations (other than statements or representations contained in
the registration statement, prospectus or sales literature for the Variable
Contracts not supplied by ADVISER or persons under its control, such
as Distributor) or wrongful conduct of ADVISER or persons under its
control, with respect to the sale or distribution of the Variable Contracts
or FUND shares; or
(c) arise out of any untrue statement or alleged untrue
statement of a material fact contained in a registration statement,
prospectus, or sales literature covering the Variable Contracts, or any
amendment thereof or supplement thereto or the omission or alleged
omission to state therein a material fact required to be stated therein or
necessary to make the statements therein not misleading, if such
statement or omission or such alleged statement or omission was made
in reliance upon and in conformity with information furnished to the
COMPANY for inclusion therein by or on behalf of Advisor; or
(d) arise as a result of a failure by ADVISOR to provide the
services and furnish the material under the terms of this Agreement; or
(e) arise out of or result from any material breach of any
representation and or warranty made by ADVISER in this Agreement or
arise out of or result from any other material breach of this Agreement
by ADVISER.
7.6 FUND or ADVISER shall not be liable under this indemni-
fication provision with respect to any losses, claims, damages, liabilities
or litigation to which an Indemnified Party would otherwise be subject by
reason of such Indemnified Party's willful misfeasance, bad faith, or
gross negligence in the performance of such Indemnified Party's duties
or by reason of such Indemnified Party's reckless disregard of
obligations and duties under this Agreement.
7.7 FUND or ADVISER, as the case may be, shall not be liable
under this indemnification provision with respect to any claim made
against an Indemnified Party unless such Indemnified Party shall have
notified FUND or ADVISER, as the case may be, in writing within a
reasonable time after the summons or other first legal process giving
information of the nature of the claim shall have been served upon such
Indemnified Party (or after such Indemnified Party shall have received
notice of such service on any designated agent), but failure to notify
FUND or ADVISER of any such claim shall not relieve FUND or
ADVISER from any liability which it may have to the Indemnified Party
against whom such action is brought otherwise than on account of this
indemnification provision. In case any such action is brought against the
Indemnified Parties, FUND or ADVISER shall be entitled to participate
at its own expense in the defense thereof. FUND or ADVISER also shall
be entitled to assume the defense thereof, with counsel satisfactory to
the party named in the action. After notice from FUND or ADVISER to
such party of FUND's or ADVISER's election to assume the defense
thereof, the Indemnified Party shall bear the fees and expenses of any
additional counsel retained by it, and FUND or ADVISER will not be
liable to such party under this Agreement for any legal or other expenses
subsequently incurred by such party independently in connection with
the defense thereof other than reasonable costs of investigation.
Article VIII. TERM; TERMINATION
8.1 This Agreement shall be effective as of the date hereof and
shall continue in force until terminated in accordance with the provisions
herein.
8.2 This Agreement shall terminate in accordance with the
following provisions:
(a) At the option of the COMPANY or FUND at any
time from the date hereof upon 180 days' notice,
unless a shorter time is agreed to by the parties;
(b) At the option of the COMPANY, if FUND shares
are not reasonably available to meet the
requirements of the Variable Contracts as
determined by the COMPANY. Prompt notice of
election to terminate shall be furnished by the
COMPANY, said termination to be effective ten
days after receipt of notice unless FUND makes
available a sufficient number of shares to
reasonably meet the requirements of the Variable
Contracts within said ten-day period;
(c) At the option of the COMPANY, upon the insti-
tution of formal proceedings against FUND by the
SEC, the National Association of Securities
Dealers, Inc., or any other regulatory body, the
expected or anticipated ruling, judgment or
outcome of which would, in the COMPANY's
reasonable judgment, materially impair FUND's
ability to meet and perform FUND's obligations
and duties hereunder. Prompt notice of election
to terminate shall be furnished by the COMPANY
with said termination to be effective upon receipt
of notice;
(d) At the option of FUND, upon the institution of
formal proceedings against the COMPANY by the
SEC, the National Association of Securities
Dealers, Inc., or any other regulatory body, the
expected or anticipated ruling, judgment or
outcome of which would, in FUND's reasonable
judgment, materially impair the COMPANY's
ability to meet and perform its obligations and
duties hereunder. Prompt notice of election to
terminate shall be furnished by FUND with said
termination to be effective upon receipt of notice;
(e) In the event FUNDs shares are not registered,
issued or sold in accordance with applicable state
or federal law, or such law precludes the use of
such shares as the underlying investment medium
of Variable Contracts issued or to be issued by the
COMPANY. Termination shall be effective upon
such occurrence without notice;
(f) At the option of FUND if the Variable Contracts
cease to qualify as annuity contracts or life
insurance contracts, as applicable, under the
Code, or if FUND reasonably believes that the
Variable Contracts may fail to so qualify.
Termination shall be effective upon receipt of
notice by the COMPANY;
(g) At the option of the COMPANY, upon FUND's
breach of any material provision of this Agree-
ment, which breach has not been cured to the
satisfaction of the COMPANY within ten days after
written notice of such breach is delivered to
FUND;
(h) At the option of FUND, upon the COMPANY's
breach of any material provision of this Agree-
ment, which breach has not been cured to the
satisfaction of FUND within ten days after written
notice of such breach is delivered to the
COMPANY;
(i) At the option of FUND, if the Variable Contracts
are not registered, issued or sold in accordance
with applicable federal and/or state law.
Termination shall be effective immediately upon
such occurrence without notice;
(j) In the event this Agreement is assigned without
the prior written consent of the COMPANY,
FUND, and ADVISER, termination shall be
effective immediately upon such occurrence
without notice.
8.3 Notwithstanding any termination of this Agreement pursuant
to Section 8.2 hereof, FUND at the option of the COMPANY will continue
to make available additional FUND shares, as provided below, pursuant
to the terms and conditions of this Agreement, for all Variable Contracts
in effect on the effective date of termination of this Agreement
(hereinafter referred to as "Existing Contracts"). Specifically, without
limitation, the owners of the Existing Contracts or the COMPANY,
whichever shall have legal authority to do so, shall be permitted to
reallocate investments in FUND, redeem investments in FUND and/or
invest in FUND upon the payment of additional premiums under the
Existing Contracts.
Article IX. NOTICES
Any notice hereunder shall be given by registered or certified mail
return receipt requested to the other party at the address of such party
set forth below or at such other address as such party may from time to
time specify in writing to the other party.
If to FUND, or ADVISER.
Lord, Abbett & Co.
The GM Building - 767 Fifth Avenue
New York, NY 10153-0203
Attn: Thomas F. Konop
If to the COMPANY:
Midland National Life Insurance Company
One Midland Plaza
Sioux Falls, SD 57193-0001
ATTN: Russell A. Evenson
Senior Vice President and Actuary
Notice shall be deemed given on the date of receipt by the
addressee as evidenced by the return receipt.
Article X. MISCELLANEOUS
10.1 The COMPANY shall be reimbursed for distribution
expenses as provided for in the Distribution Plan attached hereto as
Appendix C under the terms and conditions set forth in such Distribution
Plan.
10.2 The captions in this Agreement are included for convenience
of reference only and in no way define or delineate any of the provisions
hereof or otherwise affect their construction or effect.
10.3 This Agreement may be executed simultaneously in two or
more counterparts, each of which taken together shall constitute one and
the same instrument.
10.4 If any provision of this Agreement shall be held or made
invalid by a court decision, statute, rule or otherwise, the remainder of
the Agreement shall not be affected thereby.
10.5 This Agreement shall be construed and the provisions
hereof interpreted under and in accordance with the laws of the State of
Indiana. It shall also be subject to the provisions of the federal securities
laws and the rules and regulations thereunder and to any orders of the
SEC granting exemptive relief therefrom and the conditions of such
orders.
10.6 It is understood and expressly stipulated that neither the
shareholders of shares of any Portfolio nor the Board or officers of FUND
or any Portfolio shall be personally liable hereunder. No Portfolio shall
be liable for the liabilities of any other Portfolio. All persons dealing with
FUND or a Portfolio must look solely to the property of FUND or that
Portfolio, respectively, for enforcement of any claims against FUND or
that Portfolio. It is also understood that each of the Portfolios shall be
deemed to be entering into a separate Agreement with the COMPANY
so that it is as if each of the Portfolios had signed a separate Agreement
with the COMPANY and that a single document is being signed simply
to facilitate the execution and administration of the Agreement.
10.7 Each party shall cooperate with each other party and all
appropriate governmental authorities (including without limitation the
SEC, the National Association of Securities Dealers, Inc. and state
insurance regulators) and shall permit such authorities reasonable
access to its books and records in connection with any investigation or
inquiry relating to this Agreement or the transactions contemplated
hereby.
10.8 The rights, remedies and obligations contained in this
Agreement are cumulative and are in addition to any and all rights,
remedies and obligations, at law or in equity, which the parties hereto
are entitled to under state and federal laws.
10.9 No provision of this Agreement may be amended or modified
in any manner except by a written agreement properly authorized and
executed by FUND, ADVISER and the COMPANY.
10.10 If this Agreement terminates, the parties agree that Article
7 and Sections 10.1, 10.6, 10.7 and 10.8 shall remain in effect after
termination.
IN WITNESS WHEREOF, the parties have caused their duly
authorized partners or officers to execute this Fund Participation
Agreement as of the date and year first above written.
Lord Abbett Series
Fund, Inc.
By:________________
_____________
Name:
Title:
Lord, Abbett & Co.
By:________________
_____________
Name:
Title:
MIDLAND NATIONAL
LIFE INSURANCE
COMPANY
By:________________
______________
Name:
Title:
Appendix A
FUND and its Portfolios
Lord Abbett Series Fund, Inc. Growth and
Income Portfolio
Appendix B
Separate Accounts Selected Portfolios
Separate Account A Growth and Income
Portfolio
Separate Account C Growth and Income
Portfolio
PAGRELA.TXT
<PAGE>
April 26, 1999
Midland National Life Insurance Company
One Midland Plaza
Sioux Falls, SD 57193
RE: Separate Account C
Form N-4, File No. 33-64016
Gentlemen:
We hereby consent to the reference to our name under the caption "Legal
Matters" in the Statement of Additional Information filed as part of the
Post-Effective Amendment No. 9 to the Registration Statement on Form N-4
filed by Midland National Life Insurance Company Separate Account C for
certain annuity contracts (File No. 33-64016). As counsel who has reviewed
the Registration Statement, we certify that it does not contain disclosures
that would render it ineligible to become effective pursuant to paragraph
(b) of Rule 485 under the Securities Act of 1933. In giving this consent,
we do not admit that we are in the category of persons whose consent is
required under Section 7 of the Securities Act of 1933.
Very truly yours,
SUTHERLAND, ASBILL & BRENNAN L L P
by: __/s/Frederick_R._Bellamy__
Frederick R. Bellamy
<PAGE>
CONSENT OF IDEPENDENT ACCOUNTANTS
We consent to the inclusion in Post effective Amendment No. 9 to this
Registration Statement of Midland National Life Separate Account C on
Form N-4 (File No. 33-64016) of our reports dated March 26, 1999 and
March 17, 1999, on our audits of the financial statements of Midland
National Life Separate Account C, and the financial statements of Midland
National Life Insurance Company, respectively. We also consent to the
reference of our firm under the caption "Financial and Actuarial".
PRICEWATERHOUSECOOPERS L L P
MINNEAPOLIS, MINNESOTA
April 23, 1999
CNSNTVA2.TXT
<PAGE>
