NATIONAL VARIABLE ANNUITY ACCOUNT II, N-4 EL, 1997-01-10

NATIONAL VARIABLE ANNUITY ACCOUNT II
N-4 EL, 1997-01-10

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<PAGE> 1
As filed with the Securities and Exchange Commission on January 10,1997

File No. 333-
File No. 811-

SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549

FORM N-4

REGISTRATION STATEMENT UNDER THE SECURITIES ACT OF 1933 [X]
Pre-Effective Amendment No. [ ]
Post-Effective Amendment No. ___ [ ]

REGISTRATION STATEMENT UNDER THE INVESTMENT COMPANY ACT OF 1940 [X]
Amendment No.

NATIONAL VARIABLE ANNUITY ACCOUNT II
(Exact Name of Registrant)

NATIONAL LIFE INSURANCE COMPANY
(Name of Depositor)

National Life Drive
Montpelier, Vermont 05604
(Address of Depositor's Principal Executive Offices)

Depositor's Telephone Number: (800) ___ -_____

D. Russell Morgan, Esq.
Counsel
National Life Insurance Company
National Life Drive
Montpelier, Vermont 05604

(Name and Address of Agent for Service of Process)

Copy to:

Stephen E. Roth, Esquire
Sutherland, Asbill & Brennan
1275 Pennsylvania Avenue, N.W.
Washington, D.C. 20004-2404

Approximate Date of Proposed Public Offering: As soon as practicable after
the effective date of the registration statement.

<PAGE> 2
Pursuant to Rule 24f-2 under the Investment Company Act of 1940, the registrant
hereby elects to register an indefinite amount of securities being offered.

The registrant hereby amends this registration statement on such date or dates
as may be necessary to delay its effective date until the registrant shall file
a further amendment which specifically states that this registration statement
shall thereafter become effective in accordance with Section 8(a) of the
Securities Act of 1933 or until the registration shall become effective on such
date as the Commission, acting pursuant to Section 8(a), may determine.

<PAGE> 3
CROSS REFERENCE SHEET
Pursuant to Rules 481(a) and 495(a)

Showing location in Part A (prospectus) and Part B (statement of additional
information) of registration statement of information required by Form N-4

PART A

ITEM OF FORM N-4 PROSPECTUS CAPTION

1. Cover Page ..................... Cover Page

2. Definitions .................... Definitions

3. Synopsis ....................... Expense Tables;
Introduction

4. Condensed Financial
Information .................. Advertising

5. General

(a) Depositor ................ National Life Insurance
Company
(b) Registrant ............... The Variable Account
(c) Portfolio Company ........ Underlying Fund Options
(d) Fund Prospectus .......... Underlying Fund Options
(e) Voting Rights ............ Voting Rights
(f) Administrators ........... N/A

6. Deductions and Expenses

(a) General .................. Charges and Deductions;
Introduction
(b) Sales Load ............... Charges and Deductions;
Introduction
(c) Special Purchase Plan .... N/A
(d) Commissions .............. Distribution of the
Contracts
(e) Expenses - Registrant .... Charges and Deductions;
Introduction

<PAGE> 4
(f) Fund Expenses ............ Charges and Deductions
(g) Organizational Expenses .. N/A

7. Contracts

(a) Persons with Rights ...... Introduction; Changes to
Variable Account;
Detailed Description of
Contract Provisions;
Contract Rights; Optional
Benefits; Voting Rights
(b) (i) Allocation of
Purchase Payments ... Introduction; Premium
Payments; Free-Look
(ii) Transfers ........... Introduction; Transfers
(iii) Exchanges ........... Transfers; Assignments

(c) Changes .................. Detailed Description of
Contract; Changes to
Variable Account
(d) Inquiries ................ Cover page; Owner
Inquiries

8. Annuity Period ................. Annuity Payment Options

9. Death Benefit .................. Death of Owner; Death of
Annuitant Prior to the
Annuitization Date

10. Purchases and Contract Value

(a) Purchases ................ Introduction; Issuance of
a Contract; Premium
Payments; Free Look;
Transfers
(b) Valuation ................ Definitions; Value of a
Variable Account
Accumulation Unit
(c) Daily Calculation ........ Definitions; Value of a
Variable Account
Accumulation Unit
(d) Underwriter .............. Distribution of the
Contracts

<PAGE> 5
11. Redemptions

(a) - By Owners .............. Transfers; Surrender;
Withdrawals; Payments;
Annuity Payment Options;
Federal Income Tax
Considerations
- By Annuitant ........... Transfers; Surrender;
Withdrawals; Payments;
Annuity Payment Options;
Federal Income Tax
Considerations
(b) Texas ORP ................ N/A
(c) Check Delay .............. N/A
(d) Lapse .................... N/A
(e) Free Look ................ Premium Payments; Free
Look

12. Taxes .......................... Introduction; Required
Distributions for Tax
Sheltered Annuities;
Required Distributions
for Individual Retirement
Annuities; Generation-
Skipping Transfers; Loan
Privilege-Tax Sheltered
Annuities; Surrenders and
Withdrawals under a Tax
Sheltered Annuity
Contact; Federal Income
Tax Considerations.

13. Legal Proceedings .............. Legal Proceedings

14. Table of Contents for the
Statement of Additional
Information ................... Table of Contents of
Statement of Additional
Information

<PAGE> 6

PART A

PROSPECTUS

<PAGE> 7
NATIONAL LIFE INSURANCE COMPANY

HOME 0FFICE
NATIONAL LIFE DRIVE
MONTPELIER, VERMONT 05604
1-800- -

[TimeChallenge]

The [TimeChallenge] contracts described in this prospectus (collectively
referred to as the "Contracts") are individual flexible premium variable annuity
contracts supported by National Variable Annuity Account II (the "Variable
Account"), a separate account of National Life Insurance Company ("National
Life"). The Contracts are sold either as Non-Qualified Contracts; or in
connection with certain retirement plans qualifying for favorable federal income
tax treatment ("Qualified Contracts"). Annuity payments under the Contracts are
deferred until a selected later date. Premium Payments are allocated either to
the Fixed Account or to the Variable Account, which is divided into Subaccounts,
each of which invests in shares of one of the underlying Fund options (each a
"Fund") described below:

<TABLE>
<CAPTION>
FUNDS INVESTMENT ADVISOR
- ----- ------------------
<S> <C>
ALGER AMERICAN FUND
Alger American Small Capitalization Portfolio Fred Alger Management, Inc.
Alger American Growth Portfolio Fred Alger Management, Inc.
VARIABLE INSURANCE PRODUCTS FUND
Equity-Income Portfolio Fidelity Investments
Growth Portfolio Fidelity Investments
High Income Portfolio Fidelity Investments
Overseas Portfolio Fidelity Investments
VARIABLE INSURANCE PRODUCTS FUND II
Index 500 Portfolio Fidelity Investments
Contrafund Portfolio Fidelity Investments
THE MARKET STREET FUND
Common Stock Portfolio Sentinel Advisors Company
Sentinel Growth Portfolio Sentinel Advisors Company
Aggressive Growth Portfolio Sentinel Advisors Company
Bond Portfolio Sentinel Advisors Company
Managed Portfolio Sentinel Advisors Company
Money Market Portfolio Sentinel Advisors Company
International Portfolio Boston Company Asset Management Co.
STRONG SPECIAL FUND II, INC. Strong Capital Management, Inc.
STRONG VARIABLE INSURANCE FUNDS, INC.
Strong Growth Fund II Strong Capital Management, Inc.
</TABLE>

This prospectus provides you with the basic information you should know
about the [TimeChallenge] Contracts, the Variable Account and the Fixed Account
before investing. You should read it and keep it for future reference. A
Statement of Additional Information dated , 1997 containing further information
about the Contracts and the Variable Account has been filed with the Securities
and Exchange Commission. You can obtain a copy without charge from National Life
Insurance Company by calling 1-800- - , or writing to National Life at National
Life Drive, Montpelier, Vermont 05604. You may also obtain prospectuses for each
of the underlying Fund options identified above without charge by calling or
writing to the above telephone number or address.

PLEASE READ THIS PROSPECTUS CAREFULLY AND KEEP IT FOR FUTURE REFERENCE. THIS
PROSPECTUS MUST BE ACCOMPANIED BY CURRENT PROSPECTUSES FOR THE FUNDS.

INVESTMENTS IN THESE CONTRACTS ARE NOT DEPOSITS OR OBLIGATIONS OF, AND ARE NOT
GUARANTEED OR ENDORSED BY, THE ADVISER OF ANY OF THE

<PAGE> 8

UNDERLYING FUNDS IDENTIFIED ABOVE, THE U.S. GOVERNMENT, OR ANY BANK OR BANK
AFFILIATE. INVESTMENTS ARE NOT FEDERALLY INSURED BY THE FEDERAL DEPOSIT
INSURANCE CORPORATION, THE FEDERAL RESERVE BOARD, OR ANY OTHER GOVERNMENTAL
AGENCY.

THESE SECURITIES HAVE NOT BEEN APPROVED OR DISAPPROVED BY THE SECURITIES AND
EXCHANGE COMMISSION NOR HAS THE COMMISSION PASSED UPON THE ACCURACY OR ADEQUACY
OF THE PROSPECTUS. ANY REPRESENTATION TO THE CONTRARY IS A CRIMINAL OFFENSE.

THE STATEMENT OF ADDITIONAL INFORMATION, DATED , 1997, IS INCORPORATED
HEREIN BY REFERENCE. THE TABLE OF CONTENTS FOR THE STATEMENT OF ADDITIONAL
INFORMATION APPEARS ON PAGE OF THE PROSPECTUS.

THE DATE OF THIS PROSPECTUS IS , 1997.

<PAGE> 9
TABLE OF CONTENTS

DEFINITIONS..................................................................
SUMMARY OF CONTRACT EXPENSES.................................................
UNDERLYING FUND ANNUAL EXPENSES..............................................
INTRODUCTION.................................................................
NATIONAL LIFE INSURANCE COMPANY, THE VARIABLE ACCOUNT, AND THE FUNDS.........
National Life Insurance Company.....................................
The Variable Account................................................
Underlying Fund Options.............................................
DETAILED DESCRIPTION OF CONTRACT PROVISIONS....................................
Issuance of the Contract............................................
Premium Payments....................................................
The Initial Premium Payment................................
Subsequent Premium Payments................................
Allocation of Premium Payments.............................
Transfers...........................................................
Value of a Variable Account Accumulation Unit.......................
Net Investment Factor
Determining the Contract Value......................................
Annuitization.......................................................
Maturity Date..............................................
Election of Payment Options................................
Frequency and Amount of Annuity Payments...................
Annuitization - Variable Account....................................
Value of an Annuity Unit...................................
Assumed Investment Rate....................................
Change in Maturity Date....................................
Annuity Payment Options.............................................
Death of Owner......................................................
Death of Annuitant Prior to the Annuitization Date..................
Required Distribution for Qualfied Plans and Tax Sheltered Annuities
Required Distributions for Individual Retirement Annuities..........
Generation-Skipping Transfers.......................................
Ownership Provisions................................................
Arbitration.........................................................

CHARGES AND DEDUCTIONS.........................................................
Mortality Risk Charge...............................................
Expense Risk Charge.................................................
Contingent Deferred Sales Charge....................................
Administration Charge...............................................
Annual Contract Fee.................................................
Transfer Charge.....................................................
Premium Taxes.......................................................
Charges for Optional Benefits.......................................
Other Charges.......................................................
CONTRACT RIGHTS................................................................
Free Look...........................................................
Loan Privilege - Tax Sheltered Annuities............................
Surrender and Withdrawal ...........................................
Payments............................................................
Surrenders and Withdrawals Under a Tax Sheltered Annuity Contract...
Telephone Transaction Privilege.....................................
Available Automated Fund Management Features........................

3
<PAGE> 10

Dollar Cost Averaging....................................
Portfolio Rebalancing....................................
Systematic Withdrawals...................................
Contract Rights Under Certain Plans.................................
THE FIXED ACCOUNT..............................................................
Minimum Guaranteed and Current Interest Rates.......................
OPTIONAL BENEFITS..............................................................
Enhanced Death Benefit Rider........................................
Critical Needs Rider................................................
FEDERAL INCOME TAX CONSIDERATIONS..............................................
Non-Qualified Contracts.............................................
Qualified Contracts.................................................
Corporate Pension and Profit-Sharing Plans..........................
Code Section 403(b) Plans...........................................
Deferred Compensation Plans.........................................
Individual Retirement Annuities.....................................
Simple Retirement Accounts..........................................
Diversification.....................................................
Charge for Tax Provisions...........................................
Rollover Distributions..............................................
Restrictions under Qualified Contracts..............................
Gender Neutrality...................................................
VOTING RIGHTS..................................................................
CHANGES TO VARIABLE ACCOUNT....................................................
ADVERTISING....................................................................
DISTRIBUTION OF THE CONTRACTS .................................................
STATEMENTS AND REPORTS.........................................................
OWNER INQUIRIES................................................................
LEGAL PROCEEDINGS..............................................................
TABLE OF CONTENTS OF STATEMENT OF ADDITIONAL INFORMATION.......................

4
<PAGE> 11
DEFINITIONS

Accumulation Unit- An accounting unit of measure used to calculate the Variable
Account Contract Value prior to the Annuitization Date.

Annuitant- A person named in the Contract who is expected to become, at
Annuitization, the person upon whose continuation of life any annuity payments
involving life contingencies depends. Unless the Owner is a different individual
who is age 85 or younger, this person must be age 85 or younger at the time of
Contract issuance unless National Life has approved a request for an Annuitant
of greater age. The Owner may change the Annuitant prior to the Annuitization
Date, as set forth in the Contract.

Annuitization- The period during which annuity payments are actually received.

Annuitization Date- The date on which annuity payments actually commence.

Annuity Payment Option- The chosen form of annuity payments. Several options are
available under the Contract.

Annuity Unit- An accounting unit of measure used to calculate the value of
Variable Annuity payments.

Beneficiary- The Beneficiary is the person designated to receive certain
benefits under the Contract upon the death of the Owner or Annuitant prior to
the Annuitization Date. The Beneficiary can be changed by the Owner as set forth
in the Contract.

Cash Surrender Value- An amount equal to Contract Value, minus any applicable
Contingent Deferred Sales Charge, minus any applicable premium tax charge.

Chosen Human Being- An individual named at the time of Annuitization upon whose
continuation of life any annuity payments involving life contingencies depends.

Code- The Internal Revenue Code of 1986, as amended.

Collateral Fixed Account- The portion of the Fixed Account which holds value
which secures a loan on the Contract.

Contract- The [TimeChallenge] individual flexible premium variable annuity
contract described in this prospectus.

Contract Anniversary- An anniversary of the Date of Issue of the Contract.

Contract Value- The sum of the value of all Variable Account Accumulation Units
attributable to the Contract, plus any amount held under the Contract in the
Fixed Account, minus any outstanding loans on the Contract and accrued interest
on such loans.

Contract Year- Each year the Contract remains in force commencing with the Date
of Issue.

Date Of Issue- The date shown as the Date of Issue on the Data Page of the
Contract.

Death Benefit- The benefit payable to the Beneficiary upon the death of the
Owner or the Annuitant.

Distribution- Any payment of part or all of the Contract Value.

Fixed Account- The Fixed Account is made up of all assets of National Life other
than those in the Variable Account or any other segregated asset account of
National Life.

5
<PAGE> 12
Fixed Annuity- An annuity providing for payments which are guaranteed by
National Life as to dollar amount during Annuitization.

Fund- A registered management investment company in which the assets of the
Subaccounts of the Variable Account will be invested.

Home Office- The main office of National Life located at National Life Drive,
Montpelier, Vermont.

Individual Retirement Annuity (IRA)- An annuity which qualifies for favorable
tax treatment under Section 408 of the Code.

Joint Owners- Two or more persons who own the Contract as tenants in common or
as joint tenants. If joint owners are named, references to "Owner" in this
prospectus will apply to both of the Joint Owners.

Maturity Date- The date on which annuity payments are scheduled to commence. The
Maturity Date is shown on the Data Page of the Contract, and is subject to
change by the Owner, within any applicable legal limits.

Monthly Contract Date- The day in each calendar month which is the same day of
the month as the Date of Issue, or the last day of any month having no such
date, except that whenever the Monthly Contract Date would otherwise fall on a
date other than a Valuation Day, the Monthly Contract Date will be deemed to be
the next Valuation Day.

Non-Qualified Contract- A Contract which does not qualify for favorable tax
treatment under the provisions of Sections 401 or 403(a) (Qualified Plans), 408
(IRAs) or 403(b) (Tax-Sheltered Annuities) of the Code.

Owner- The Owner is the person who possesses all rights under the Contract,
including the right to designate and change any designations of the Owner,
Annuitant, Beneficiary, Annuity Payment Option, and the Maturity Date.

Payee- The person who is designated at the time of Annuitization to receive the
proceeds of the Contract upon Annuitization.

Premium Payment- A deposit of new value into the Contract. The term "Premium
Payment" does not include transfers between the Variable Account and Fixed
Account, or among the Subaccounts.

Net Premium Payments- The total of all Premium Payments made under the Contract,
less all Withdrawals.

Qualified Contract - A Contract which qualifies for favorable tax treatment
under the provisions of Sections 401 or 403(a) (Qualified Plans, 408 (IRAs)
403(b) (Tax-Sheltered Annuities) or 457 of the Code.

Qualified Plans- Retirement plans which receive favorable tax treatment under
Section 401 or 403(a) of the Code.

Subaccounts- Separate and distinct divisions of the Variable Account, to which
specific underlying Fund shares are allocated and for which Accumulation Units
and Annuity Units are separately maintained.

Tax Sheltered Annuity- An annuity which qualifies for favorable tax treatment
under Section 403(b) of the Code.

Valuation Day- Each day the New York Stock Exchange is open for business other
than the day after Thanksgiving and any day on which trading is restricted.
Unless otherwise indicated, whenever under a

6
<PAGE> 13
Contract an event occurs or a transaction is to be effected on a day that is not
a Valuation Day, it will be deemed to have occurred on the next Valuation Day.

Valuation Period- The time between two successive Valuation Days.

Variable Account- The National Variable Annuity Account II, a separate
investment account of National Life into which Variable Account Premium Payments
are allocated. The Variable Account is divided into Subaccounts, each of which
invests in the shares of a separate underlying Fund.

Variable Annuity- An annuity the accumulated value of which varies with the
investment experience of a separate account.

Withdrawal- A payment made at the request of the Owner pursuant to the right in
the Contract to withdraw a portion of the Contract Value of the Contract.

7
<PAGE> 14
SUMMARY OF CONTRACT EXPENSES

TRANSACTION EXPENSES

Sales Load Imposed on Purchases
Contingent Deferred Sales Charge (as a percentage of Premium Payments
surrendered or withdrawn)(1)

Number of Completed Years from Date of Premium Payment None

0 7%

1 6%

2 5%

3 4%

4 3%

5 2%

6 1%

7 0%

ANNUAL EXPENSES
Mortality and Expense Risk Charge(2).....................................1.25%
Administration Charge....................................................0.15%
----
Total Basic Variable Account Annual Percentage Expenses..................1.40%

Annual Contract Fee(3)...............................................$30

Charges for Optional Benefits(4)
Enhanced Death Benefit Rider.....................................0.30%
Critical Needs Rider.............................................0.05%

1 Each Contract Year, the Owner may withdraw without a Contingent Deferred
Sales Charge (CDSC) an amount equal to 15% of the Contract Value as of the
most recent Contract Anniversary. In addition, any amount withdrawn in
order for the Contract to meet minimum Distribution requirements under the
Code shall be free of CDSC. Withdrawals may be restricted for Contracts
issued pursuant to the terms of a Tax Sheltered Annuity. This CDSC-free
withdrawal privilege does not apply in the case of full surrenders, and is
non-cumulative, that is, free amounts not taken during any given Contract
Year cannot be taken as free amounts in a subsequent Contract Year; in
addition, certain states do not permit this CDSC-free Withdrawal
provision, in which case a different CDSC-free Withdrawal provision will
apply (see "Contingent Deferred Sales Charge", page ).

2 The Mortality and Expense Risk Charges and the Administration Charge set
forth above apply exclusively to allocations made to the Subaccount(s) of
the Variable Account. Such charges do not apply to, and will not be
assessed against, allocations made to the Fixed Account.

3 The Annual Contract Fee is assessed only upon Contracts which as of the
Date of Issue, or applicable Contract Anniversary, have a Contract Value
of less than $50,000, and is not assessed on Contract Anniversaries after
the Annuitization Date.

4 These charges are assessed only if the Owner has elected one or both of
these optional benefits. See "Optional Benefits", page .

8
<PAGE> 15
UNDERLYING FUND ANNUAL EXPENSES5(AS A PERCENTAGE OF UNDERLYING FUND NET ASSETS)

<TABLE>
<CAPTION>
Management 12b-1 Total Mutual
Fees fees Other Expenses Fund Expenses
<S> <C> <C> <C> <C>
Alger American Small Capitalization Portfolio
Alger American Growth Portfolio
Fidelity VIP Fund-Equity Income Portfolio
Fidelity VIP Fund-Growth Portfolio
Fidelity VIP Fund-High Income Portfolio
Fidelity VIP Fund-Overseas Portfolio
Fidelity VIP Fund II-Index 500 Portfolio
Fidelity VIP Fund II-Contrafund Portfolio
Market Street Common Stock Portfolio
Market Street Sentinel Growth Portfolio
Market Street Aggressive Growth Portfolio
Market Street Managed Portfolio
Market Street Bond Portfolio
Market Street International Portfolio
Market Street Money Market Portfolio
Strong Special Fund II, Inc.
Strong Growth Fund II
</TABLE>

5 The Fund expenses shown above are assessed at the underlying Fund level and
are not direct charges against Variable Account assets or reductions from
Contract Values. These underlying Fund expenses are taken into consideration in
computing each underlying Fund's net asset value, which is the share price used
to calculate the unit values of the Variable Account. The management fees and
other expenses, are more fully described in the prospectuses for each individual
underlying Fund. The information relating to the underlying Fund expenses was
provided by the underlying Fund and was not independently verified by National
Life. In the absence of any fee waivers or expense reimbursements, the
Management Fees, Other Expenses, and Total Expenses of the Funds listed below
would have been as follows:

<TABLE>
<CAPTION>
Management 12b-1 Total Mutual
Fees fees (if any) Other Expenses Fund Expenses
<S> <C> <C> <C> <C>
</TABLE>

9
<PAGE> 16

EXAMPLE

The following chart depicts the dollar amount of expenses that would be incurred
under this Contract assuming a $1000 investment and 5% annual return, and no
election of either of the available optional benefits. THESE DOLLAR FIGURES ARE
ILLUSTRATIVE ONLY AND SHOULD NOT BE CONSIDERED A REPRESENTATION OF PAST OR
FUTURE EXPENSES. ACTUAL EXPENSES MAY BE GREATER OR LESSER THAN THOSE SHOWN
BELOW.

<TABLE>
<CAPTION>
If you do not
If you surrender your surrender your If you annuitize your
Contract at the end Contract at the Contract at the end
of the applicable end of the of the applicable
time period applicable time period time period

Subaccount 1 Yr. 3 Yrs. 1 Yr. 3 Yrs. 1 Yr.* 3 Yrs.
---------- -------------- ------------- ----------------
<S> <C> <C> <C>
Alger American Small Capitalization
Alger American Growth
Fidelity VIP Fund-Equity Income
Fidelity VIP Fund-Growth
Fidelity VIP Fund-High Income
Fidelity VIP Fund-Overseas
Fidelity VIP Fund II-Index 500
Fidelity VIP Fund II-Contrafund
Market Street Common Stock
Market Street Sentinel Growth
Market Street Aggressive Growth
Market Street Managed
Market Street Bond
Market Street International
Market Street Money Market
Strong Special Fund II, Inc.
Strong Growth Fund II
</TABLE>

For an Owner who has elected both the Enhanced Death Benefit Rider and the
Critical Needs Rider (see "Optional Benefits", page ), and again assuming a
$1000 investment and 5% annual return, the chart below depicts the annual
expenses that would be incurred under this Contract:

10
<PAGE> 17

<TABLE>
<S> <C>
Strong Special Fund II, Inc.
Strong Growth Fund II
</TABLE>

*A Contingent Deferred Sales Charge will be assessed if the Contract is
annuitized within two years of the Date of Issue.

The purpose of the Summary of Contract Expenses and Example is to assist
the Owner in understanding the various costs and expenses that will be borne
directly or indirectly when investing in the Contract. The expenses of the
Variable Account as well as those of the underlying Funds are reflected in the
Example. For more complete descriptions of the expenses of the Variable Account,
see "Charges and Deductions", page . For more complete information regarding
expenses paid out of the assets of the underlying Funds, see the underlying Fund
prospectuses. Deductions for premium taxes may also apply but are not reflected
in the Example shown above (see "Premium Taxes", page ).

11
<PAGE> 18
INTRODUCTION

These contracts may be offered as: (1) Non-Qualified Contracts, or (2)
Qualified Contracts.

The Contract is available, with certain exceptions, to Owners age 85
and younger. See "Issuance of a Contract", page . The initial Premium Payment
must be at least $5,000 for Non-Qualified Contracts, and in general must be at
least $1500 for Individual Retirement Annuities or Tax Sheltered Annuities
(National Life may at its discretion permit initial Premium Payments lower than
the $1500 minimum if a group of Contracts are being purchased by a group of
individuals and funds are remitted electronically). Subsequent Premium Payments
may be made at any time, but must be at least $100, except that National Life
may accept lower Premium Payments at its discretion if the Premium Payments are
remitted electronically. The cumulative total of all Premium Payments under
Contracts issued on the life of any one Designated Annuitant may not exceed
$1,000,000 without the prior consent of National Life (see "Premium Payments",
page ).

If the Contract Value at the Annuitization Date is less than $3,500,
the Contract Value may be distributed in one lump sum in lieu of annuity
payments. If any annuity payment would be less than $100, National Life shall
have the right to change the frequency of payments to such intervals as will
result in payments of at least $100. In no event, however, will annuity payments
be made less frequently than annually (see "Annuitization - Frequency and Amount
of Annuity Payments", page ).

National Life does not deduct a sales charge from Premium Payments made
for these Contracts. However, if a Withdrawal is made with respect to any part
of the Contract Value of such Contracts, the Contract is surrendered, or the
Contract is annuitized within two years after the Date of Issue, National Life
will, with certain exceptions, deduct from the Owner's Contract Value a
Contingent Deferred Sales Charge not to exceed 7% of the lesser of the total of
all Premium Payments made within 84 months prior to the date of the request to
surrender, or the amount surrendered. This charge, when applicable, is imposed
to permit National Life to recover sales expenses which have been advanced by
National Life (see "Contingent Deferred Sales Charge", page ).

National Life deducts from the Variable Account an amount, computed
daily, which is equal to an annual rate of 1.40% of the daily net asset value.
This charge consists of a 0.15% Administration Charge and a 1.25% Mortality and
Expense Risk Charge. The Mortality and Expense Risk Charge is for the mortality
and expense risks assumed by National Life under the Contracts. The
Administration Charge will reimburse National Life for the administrative
expenses related to the issue and maintenance of the Contracts (see "Charges and
Deductions, page ). For Contracts which have Contract Values as of the time for
such assessment of less than $50,000, National Life will also assess an Annual
Contract fee in the amount of $30, payable on the Date of Issue and at each
Contract Anniversary thereafter if on such Contract Anniversary the Contract
Value is less than $50,000 (see "Annual Contract Fee", page ).

To be sure that the Owner is satisfied with the Contract, the Owner has
a ten day free look. Some states may require a longer period. Within ten days of
the day the Contract is received, it may be returned to the Home Office of
National Life, at the address shown on page 1 of this prospectus. When the
Contract is received by National Life, National Life will void the Contract and
refund the Contract Value, unless otherwise required by state and/or federal
law.

In the case of Individual Retirement Annuities and Contracts issued in
states that require the return of Premium Payments , National Life will refund
the greater of: (i) Premium Payments or (ii) Contract Value plus any amount
deducted by National Life for state premium taxes. In these cases, National Life
may require that all Contract Value allocated to the Variable Account initially
be held in the Market Street Money Market Subaccount (see "Free Look", page ).
At the end of the free look

12
<PAGE> 19
period, Contract Value will be allocated among the Subaccounts of the Variable
Account and the Fixed Account based on the allocation percentages specified in
the application. For this purpose, National Life assumes the free look period
ends 20 days after the Date of Issue.

NATIONAL LIFE INSURANCE COMPANY, THE VARIABLE ACCOUNT, AND THE FUNDS

NATIONAL LIFE INSURANCE COMPANY

National Life, a mutual life insurance company chartered in 1848 under
Vermont law, is authorized to transact life insurance and annuity business in
Vermont and in 50 other jurisdictions. National Life assumes all mortality and
expense risks under the Contracts and its assets support the Contract's
benefits. On December 31, 1996, National Life's assets were over $ billion.
Financial Statements for National Life are contained in the Statement of
Additional Information.

THE VARIABLE ACCOUNT

The Variable Account was established by National Life on November 1,
1996, pursuant to the provisions of Vermont law. National Life has caused the
Variable Account to be registered with the Securities and Exchange Commission as
a unit investment trust pursuant to the provisions of the Investment Company Act
of 1940. Such registration does not involve supervision of the management of the
Variable Account or National Life by the Securities and Exchange Commission.

The Variable Account is a separate investment account of National Life
and, as such, is not chargeable with liabilities arising out of any other
business National Life may conduct. National Life does not guarantee the
investment performance of the Variable Account. Obligations under the Contracts,
however, are obligations of National Life. Income, gains and losses, whether or
not realized, from the assets of the Variable Account are, in accordance with
the Contracts, credited to or charged against the Variable Account without
regard to other income, gains, or losses of National Life.

Premium Payments are allocated within the Variable Account among one or
more Subaccounts made up of shares in the underlying Fund options designated by
the Owner. A separate Subaccount is established within the Variable Account for
each of the underlying Fund options that may be designated by the Owner.

UNDERLYING FUND OPTIONS

Owners may choose from among a number of different Subaccount options.
However, National Life reserves the right to limit the number of different
Subaccounts used in any Contract over its entire life to 17.

Summary information, including the investment objectives for each of
the underlying Funds held in the Subaccounts is set forth below. THERE CAN BE NO
ASSURANCE THAT THE INVESTMENT OBJECTIVES WILL BE ACHIEVED.

THE ALGER AMERICAN FUND

The Alger American Fund is a "series" type Fund registered with the SEC
as a diversified open-end management investment company issuing a
number of series or classes of shares, each of which represents an
interest in a Portfolio of the Alger American Fund. It was incorporated
under law on , 199 , and commenced operations on , 199 . Fred Alger
Management, Inc., acts as the Fund's investment advisor.

ALGER AMERICAN SMALL CAPITALIZATION PORTFOLIO

Investment Objective: To seek long-term capital appreciation by
investing in a diversified, actively managed portfolio of equity
securities, primarily of companies with a total market

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capitalization of $1 billion or greater. Income is a consideration in
the selection of investments but is not an investment objective of the
Portfolio.

ALGER AMERICAN GROWTH PORTFOLIO

Investment Objective: To seek long-term capital appreciation by
investing in a diversified, actively managed portfolio of equity
securities, primarily of companies with a total market capitalization
of $1 billion or greater. Income is a consideration in the selection of
investments but is not an investment objective of the Portfolio.

FIDELITY VARIABLE INSURANCE PRODUCTS FUND

The Fund is an open-end, diversified, management investment company
organized as a Massachusetts business trust on November 13, 1981. The
Fund's shares are purchased by insurance companies to fund benefits
under variable insurance and annuity policies. Fidelity Management &
Research National Life ("FMR") is the Fund's manager.

-EQUITY-INCOME PORTFOLIO

Investment Objective: To seek reasonable income by investing primarily
in income-producing equity securities. In choosing these securities FMR
also 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 500 Composite
Stock Price Index.

-GROWTH PORTFOLIO

Investment Objective: Seeks to achieve capital appreciation. This
Portfolio will invest in the securities of both well-known and
established companies, and smaller, less well-known companies which may
have a narrow product line or whose securities are thinly traded. These
latter securities will often involve greater risk than may be found in
the ordinary investment security. FMR's analysis and expertise plays an
integral role in the selection of securities and, therefore, the
performance of the Portfolio. Many securities which FMR believes would
have the greatest potential may be regarded as speculative, and
investment in the Portfolio may involve greater risk than is inherent
in other underlying Funds. It is also important to point out that the
Portfolio makes most sense for you if you can afford to ride out
changes in the stock market, because it invests primarily in common
stocks. FMR also can make temporary investments in securities such as
investment-grade bonds, high-quality preferred stocks and short-term
notes, for defensive purposes when it believes market conditions
warrant.

-HIGH INCOME PORTFOLIO

Investment Objective: Seeks to obtain a high level of current income by
investing primarily in high-risk, lower-rated, high-yielding,
fixed-income securities, while also considering growth of capital. The
Portfolio manager will seek high current income normally by investing
the Portfolio's assets as follows:

- at least 65% in income-producing debt securities
and preferred stocks, including convertible securities; and

- up to 20% in common stocks and other equity
securities when consistent with the Portfolio's primary objective or
acquired as part of a unit combining fixed- income and equity
securities.

The Portfolio's investment strategy may provide the opportunity for
higher than average yields by investing in securities with higher than
average risk, such as lower rated and unrated debt and comparable
equity instruments. For a discussion of the risks associated with such
investments, please see the "Risks of Lower Rated Debt Securities"
section of the Portfolio's prospectus.

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<PAGE> 21

-OVERSEAS PORTFOLIO

Investment Objective: To seek long term growth of capital primarily
through investments in foreign securities. The Overseas Portfolio
provides a means for investors to diversify their own portfolios by
participating in companies and economies outside of the United States.

FIDELITY VARIABLE INSURANCE PRODUCTS FUND II

The Variable Insurance Products Fund II is an open-end, diversified,
management investment company organized as a Massachusetts business
trust on March 21, 1988. The Fund's shares are purchased by insurance
companies to fund benefits under variable insurance and annuity
policies. Fidelity Management & Research Company ("FMR") is the Fund's
manager.

-INDEX 500 PORTFOLIO

Investment Objective: To seek to match the total return of the Standard
& Poors' Composite Index of 500 Stocks ("S&P 500") while keeping
expenses low. FMR normally invests at least 80% of the fund's assets in
equity securities of companies that compose the S&P 500.

-CONTRAFUND PORTFOLIO

Investment Objective: To seek capital appreciation by investing
primarily in companies that the Fund manager believes to be undervalued
due to an overly pessimistic appraisal by the public. This strategy can
lead to investments in domestic or foreign companies, small and large,
many of which may not be well known. The Fund primarily invests in
common stock and securities convertible into common stock, but it has
the flexibility to invest in any type of security that may produce
capital appreciation.

MARKET STREET FUND, INC.

The Market Street Fund, Inc is a "series" type Fund registered with the
SEC as a diversified open-end management investment company issuing a
number of series or classes of shares, each of which represents an
interest in a Portfolio of the Fund. It was incorporated under law on ,
198 , and commenced operations on , 198 . Sentinel Advisors Company
acts as the Fund's investment advisor for all portfolios except the
International Fund, whose investment advisor is Providentmutual
Investment Management Company, and whose subadvisor is The Boston
Company Asset Management, Inc.

COMMON STOCK PORTFOLIO

Investment Objective: To seek a combination of long-term growth of
capital and current income with relatively low risk by investing in common
stocks of many well-established companies.

SENTINEL GROWTH PORTFOLIO

Investment Objective: To seek long-term growth of capital through
equity participation in companies having growth potential believed by its
investment adviser to be more favorable than the U.S. economy as a whole,
with a focus on relatively well-established companies.

AGGRESSIVE GROWTH PORTFOLIO

Investment Objective: To seek to achieve a high level of long-term
capital appreciation by investing in securities of a diverse group of
smaller emerging companies.

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<PAGE> 22

BOND PORTFOLIO

Investment Objective: To seek to generate a high level of current
income consistent with prudent investment risk by investing in a
diversified portfolio of marketable debt securities.

MANAGED PORTFOLIO

Investment Objective: To seek to realize as high a level of long-term
total rate of return as is consistent with prudent investment risk by
investing in stocks, bonds, money market instruments or a combination
thereof.

INTERNATIONAL PORTFOLIO

Investment Objective: To seek long-term growth of capital principally
through investments in a diversified portfolio of marketable equity
securities of established non-United States companies.

MONEY MARKET PORTFOLIO

Investment Objective: To seek to provide maximum current income
consistent with capital preservation and liquidity by investing in
high-quality money market instruments. AN INVESTMENT IN THE MONEY MARKET
PORTFOLIO IS NEITHER INSURED NOR GUARANTEED BY THE U.S. GOVERNMENT, AND
THERE CAN BE NO ASSURANCE THAT THE PORTFOLIO WILL BE ABLE TO MAINTAIN A
STABLE NET ASSET VALUE OF $1.

STRONG SPECIAL FUND II, INC.

The Strong Special Fund II, Inc. is a diversified, open-end management
company commonly called a Fund. The Special Fund II, Inc. was
incorporated in Wisconsin and may only be purchased by the separate
accounts of insurance companies for the purpose of funding variable
annuity contracts and variable life insurance policies. Strong Capital
Management Inc. (the "Advisor) is the investment advisor for the Fund.

Investment Objective: To seek capital appreciation through investments
in a diversified portfolio of equity securities.

STRONG VARIABLE INSURANCE FUNDS, INC.

Strong Variable Insurance Funds, Inc. ("Corporation") is an open-end
management investment company commonly referred to as a Fund.
Incorporated in the State of Wisconsin, the Corporation has been
authorized to issue shares of common stock and series and classes of
series of common stock. The series are offered by the Corporation to
insurance company separate accounts for the purpose of funding variable
life insurance policies and variable annuity contracts. Strong Capital
Management,. Inc. is the investment advisor to the Funds.

-GROWTH FUND II

Investment Objective: To seek capital growth. It invests primarily in
equity securities that the advisor believes have above-average growth
prospects.

National Life has entered into or may enter into agreements with Funds
pursuant to which the adviser or distributor pays National Life a fee based upon
an annual percentage of the average net asset amount invested by National Life
on behalf of the Variable Account and other separate accounts of National Life.
These percentages may differ, and National Life may be paid a greater percentage
by some investment advisers or distributors than other advisers or distributors.
These agreements reflect administrative services provided by National Life.

The underlying Fund options may also be available to registered
separate accounts offering variable annuity and variable life products of other
participating insurance companies, as well as to the

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<PAGE> 23
Variable Account and other separate accounts of National Life. Although National
Life does not anticipate any disadvantages to this, there is a possibility that
a material conflict may arise between the interest of the Variable Account and
one or more of the other separate accounts participating in the underlying
Funds. A conflict may occur due to a change in law affecting the operations of
variable life and variable annuity separate accounts, differences in the voting
instructions of the Owners and those of other companies, or some other reason.
In the event of conflict, National Life will take any steps necessary to protect
Owners and variable annuity payees, including withdrawal of the Variable Account
from participation in the underlying Fund of Funds which are involved in the
conflict.

DETAILED DESCRIPTION OF CONTRACT PROVISIONS

ISSUANCE OF A CONTRACT

If the Owner is a human being, the Contract is available to Owners up to
and including age 85 on the Date of Issue. If the Contract is issued to Joint
Owners, then the oldest of the Joint Owners must be 85 years of age or younger
on the Date of Issue. If the Owner is not a human being, then the age of the
Annuitant governs, and must meet the requirements for Owners set forth above.

In order to purchase a Contract, an individual must forward an application
to National Life through a licensed National Life agent who is also a registered
representative of Equity Services, Inc. ("ESI"), the principal underwriter of
the Contracts, or another broker/dealer having a Selling Agreement with ESI or a
broker/dealer having a Selling Agreement with such a broker/dealer.

PREMIUM PAYMENTS

The Initial Premium Payment. The initial Premium Payment must be at
least $5,000 for Non-Qualified Contracts, and in general must be at least $1500
for Qualified Contracts (National Life may at its discretion permit initial
Premium Payments lower than the $1500 minimum if a group of Contracts are being
purchased by a group of individuals and funds are remitted electronically).

Subsequent Premium Payments. Subsequent Premium Payments may be made at
any time, but must be at least $100, except that National Life may accept lower
Premium Payments at its discretion if the Premium Payments are remitted
electronically. Subsequent Premium Payments to the Variable Account will be
priced on the basis of the Accumulation Unit Value next computed for the
appropriate Subaccount after the additional Premium Payment is received.

The cumulative total of all Premium Payments under Contracts issued on
the life of any one Annuitant may not exceed $1,000,000 without the prior
consent of National Life.

Premium Payments will not be processed on the following days: New
Year's Day, Presidents' Day, Good Friday, Memorial Day, Independence Day, Labor
Day, Thanksgiving, the day after Thanksgiving and Christmas Day.

Allocation of Premium Payments. In the application for the Contract,
the Owner will indicate how Premium Payments are to be allocated among the
Subaccounts of the Variable Account and/or the Fixed Account. These allocations
may be changed at any time by the Owner by written notice to National Life at
its Home Office, or if the telephone transaction privilege has been elected, by
telephone instructions (see "Telephone Transaction Privilege", page ). The
percentages of Premium Payments that may be allocated to any Subaccount must be
in whole numbers of not less than 5%, and the sum of the allocation percentages
must be 100%. National Life will allocate the initial Premium Payment within two
business days after receipt, if the application and all information necessary
for processing the order are complete. If the application is not properly
completed, National Life will retain the initial Premium Payment for up to five
business days while attempting to complete the application. If the application
is not complete at the end of the five day period, National Life will inform the
applicant of the reason for the delay and the initial Premium Payment will be
returned immediately, unless the applicant specifically consents to National
Life retaining the initial Premium Payment until the application is complete.
Once the application is complete, the initial Premium Payment will be allocated
as designated by the Owner within two business days.

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<PAGE> 24
Notwithstanding the foregoing, in jurisdictions where National Life
must refund the greater of aggregate Premium Payments or Contract Value plus any
amount deducted for state premium taxes in the event the Owner exercises the
free look right, any portion of the initial Premium Payment to be allocated to a
Subaccount will be allocated to the Market Street Money Market Subaccount for
the free look period following the Date of Issue. At the end of that period, the
amount in the Market Street Money Market Subaccount will be allocated to the
Subaccounts as designated by the Owner based on the proportion that the
allocation percentage for each such Subaccount bears to the sum of the
allocation percentages to the Subaccounts set forth in the Premium Payment
allocation schedule then in effect.

National Life will allocate subsequent Premium Payments as of the
Valuation Date it receives such Premium Payments at its Home Office, based on
the Owner's allocation percentages then in effect. At the time of allocation,
Premium Payments are applied to the purchase of shares of the respective
underlying Funds at net asset value for the respective Subaccount(s) and
converted into Accumulation Units.

National Life reserves the right to limit the number of Variable
Account Subaccounts used in a single Contract over the entire life of the
Contract to 17.

The values of the Subaccounts will vary with their investment
experience and the Owner bears the entire investment risk. Owners should
periodically review their allocation percentages in light of market conditions
and the Owner's overall financial objectives.

TRANSFERS

The Owner may transfer the Contract Value among the Subaccounts of the
Variable Account, and between the Variable Account and the Fixed Account,
subject to the limitations set forth below, by making a written transfer request
to National Life, or if the telephone transaction privilege has been elected, by
telephone instructions to National Life. See "Telephone Transaction Privilege",
page . Transfers between and among the Subaccounts of the Variable Account and
the Fixed Account are made as of the Valuation Day that the request for transfer
is received at the Home Office. Transfers to or from the Subaccounts of the
Variable Account may be postponed under certain circumstances. See "Surrender,"
page .

National Life currently allows transfers to the Fixed Account of all or
any part of the Variable Account Contract Value, without charge or penalty. With
respect to transfers from the Variable Account to the Fixed Account, National
Life reserves the right to restrict transfers to the Fixed Account to 25% of the
Variable Account Contract Value for any Contract Year determined as of the
most recent Contract Anniversary.

Owners may, once per year within 45 days after the end of the calendar
year, transfer a portion of the unloaned value in the Fixed Account to the
Variable Account. The maximum percentage that may be transferred will be
determined by National Life in its sole discretion prior to the end of the
calendar year, but will not be less than 10% of the total value in the Fixed
Account as of the date the request is made. Following a transfer from the Fixed
Account to the Variable Account, National Life reserves the right to require
that the value so transferred remain in the Variable Account for at least one
year before it may be transferred back to the Fixed Account.

National Life does not permit transfers between the Variable Account
and the Fixed Account after the Annuitization Date.

National Life has no current intention to impose a transfer charge in
the foreseeable future. However, National Life reserves the right, upon prior
notice to Owners, to impose a transfer charge of $25 for each transfer in excess
of twelve transfers in any one Contract Year. See "Transfer Charge", page .

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<PAGE> 25
VALUE OF A VARIABLE ACCOUNT ACCUMULATION UNIT

The value of a Variable Account Accumulation Unit for each Subaccount
was arbitrarily set initially at $10 when the Subaccounts commenced operations.
The value for any subsequent Valuation Period is determined by multiplying the
Accumulation Unit value for each Subaccount for the immediately preceding
Valuation Period by the Net Investment Factor for the Subaccount during the
subsequent Valuation Period. The value of an Accumulation Unit may increase or
decrease from Valuation Period to Valuation Period. No minimum Accumulation Unit
value is guaranteed. The number of Accumulation Units will not change as a
result of investment experience.

Net Investment Factor. Each Subaccount of the Variable Account
has its own Net Investment Factor. The Net Investment Factor measures the daily
investment performance of that Subaccount. The Net Investment Factor may be
greater or less than one; therefore, the value of an Accumulation Unit may
increase or decrease. It should be noted that changes in the Net Investment
Factor may not be directly proportional to changes in the net asset value of
underlying Fund shares, because of the deduction for the Mortality and Expense
Risk Charge and Administration Charge.

Underlying Fund shares in the Variable Account will be valued at their
net asset value. For underlying Funds that credit dividends on a daily basis and
pay such dividends once a month (the Market Street Money Market Portfolio), the
Net Investment Factor allows for the monthly reinvestment of these daily
dividends.

DETERMINING THE CONTRACT VALUE

The Contract Value is the sum of: 1) the value of all Variable Account
Accumulation Units, and 2) amounts allocated and credited to the Fixed Account,
minus any outstanding loans on the Contract and accrued interest on such loans.
When charges or deductions are made against the Contract Value, an appropriate
number of Accumulation Units from the Variable Account and an appropriate amount
from the Fixed Account will be deducted in the same proportion that the Owner's
interest in the Variable Account and Fixed Account bears to the total Contract
Value. Value held in the Fixed Account is not subject to Variable Account
charges (Mortality and Expense Risk and Administration Charges), but may be
subject to Contingent Deferred Sales Charges, the Annual Contract Fee, and
premium taxes, if applicable.

ANNUITIZATION

Maturity Date. The Owner selects a Maturity Date at the time of
application. Such date must be at least 2 years after the Date of Issue, unless
otherwise approved.

The Owner may, upon prior written notice to National Life, defer the
Maturity Date. If the Owner requests in writing (see "Ownership Provisions",
page ), and National Life approves the request, the Maturity Date may be
accelerated.

Election of Payment Options. The Owner may, upon prior written notice
to National Life, at any time prior to the Annuitization Date, elect one of the
Annuity Payment Options.

If an election of an Annuity Payment Option is not on file with
National Life on the Annuitization Date, the proceeds will be paid as Option 3 -
Payments for Life with 120 months certain. The Contract Value in each Subaccount
less any premium tax previously unpaid, will be applied to provide a Variable
Annuity payment and the Contract Value in the Fixed Account, less any premium
tax previously unpaid, will be applied to provide a Fixed Annuity payment. An
Annuity Payment Option may be elected, revoked or changed by the Owner at any
time before the Annuitization Date upon 30 days prior written notice. The
Annuity Payment Options available are described below.

Frequency and Amount of Annuity Payments. Annuity payments will be paid
as monthly installments. However, if the amount to be applied under any Annuity
Payment Option is less than $3,500, National Life shall have the right to pay
such amount in one lump sum in lieu of the payments otherwise provided for. In
addition, if the payments provided for would be or become less than $100,

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National Life shall have the right to change the frequency of payments to such
intervals as will result in payments of at least $100. In no event will National
Life make payments under an annuity option less frequently than annually.

ANNUITIZATION - VARIABLE ACCOUNT

At the Annuitization Date the Variable Account Contract Value is
applied to the Annuity Payment Option elected and the amount of the first such
payment made shall be determined in accordance with the applicable Annuity Table
in the Contract.

Subsequent Variable Annuity payments vary in amount in accordance with
the investment performance of the Variable Account. The dollar amount of the
first annuity payment determined as above is divided by the value of an Annuity
Unit as of the Annuitization Date to establish the number of Annuity Units
representing each monthly annuity payment. This number of Annuity Units remains
fixed during the annuity payment period. The dollar amount of the second and
subsequent payments is not predetermined and may change from month to month. The
dollar amount of each subsequent payment is determined by multiplying the fixed
number of Annuity Units by the value of an Annuity Unit for the Valuation Period
in which the payment is due. National Life guarantees that the dollar amount of
each payment after the first will not be affected by variations in mortality
experience from mortality assumptions used to determine the first payment.

Value of an Annuity Unit. The value of an Annuity Unit for a Subaccount
was arbitrarily set initially at $10 when the first underlying Fund shares were
purchased. The value of an Annuity Unit for a Subaccount for any subsequent
Valuation Period is determined by multiplying the value of an Annuity Unit for
the immediately preceding Valuation Period by the applicable Net Investment
Factor for the Valuation Period for which the value of an Annuity Unit is being
calculated, and multiplying the result by an interest factor to neutralize the
assumed investment rate of 3.5% per annum (see "Net Investment Factor", page ).

Assumed Investment Rate. A 3.5% Assumed Investment Rate is built into
the Annuity Tables contained in the Contracts. A higher assumption would mean a
higher initial payment but more slowly rising or more rapidly failing subsequent
payments. A lower assumption would have the opposite effect. If the actual
investment return is at the annual rate of 3.5%, the annuity payments will be
level.

ANNUITIZATION - FIXED ACCOUNT

A Fixed Annuity is an annuity with payments which are guaranteed by
National Life as to dollar amount during the annuity payment period. The first
Fixed Annuity payment will be determined by applying the Fixed Account Contract
Value to the applicable Annuity Table in accordance with the Annuity Payment
Option elected. This will be done at the Annuitization Date on an age nearest
birthday basis. Fixed Annuity payments after the first will not be less than the
first Fixed Annuity payment.

National Life does not credit discretionary interest to Fixed Annuity
payments during the annuity payment period for annuity options based on life
contingencies. The Annuitant must rely on the Annuity Tables applicable to the
Contracts to determine the amount of such Fixed Annuity payments.

ANNUITY PAYMENT OPTIONS

Any of the following Annuity Payment Options may be elected:

Option 1-Payments for a Stated Time. Monthly payments will be made for
the number of years selected, which may range from 5 years to 30 years.

Option 2-Payments for Life-An annuity payable monthly during the
lifetime of a Chosen Human Being (who may be named at the time of
election of the Payment Option), ceasing with the last payment due
prior to the death of the Chosen Human Being. IT WOULD BE POSSIBLE

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UNDER THIS OPTION FOR THE PAYEE TO RECEIVE ONLY ONE ANNUITY PAYMENT IF
THE CHOSEN HUMAN BEING DIED BEFORE THE SECOND ANNUITY PAYMENT DATE, TWO
ANNUITY PAYMENTS IF THE CHOSEN HUMAN BEING BEFORE THE THIRD ANNUITY
PAYMENT DATE, AND SO ON.

Option 3-Payments for Life with Period Certain-Guaranteed-An annuity
that if at the death of the Chosen Human Being payments have been made
for fewer than 120 or 240 months, as selected, guaranteed annuity
payments will be continued during the remainder of the selected period
to the Payee, or another recipient as chosen by the Payee at the time
the Annuity Payment Option was selected. In the alternative, the
recipient may, at any time, elect to have the present value of the
guaranteed number of annuity payments remaining paid in a lump sum,
computed as of the date on which notice of death of the Chosen Human
Being is received by National Life at its Home Office.

Other Annuity Payment Options may be available.

Some of the stated Annuity Payment Options may not be available in all
states. The Owner may request an alternative non-guaranteed option by giving
notice in writing prior to Annuitization. If such a request is approved by
National Life, it will be permitted under the Contract.

Individual Retirement Annuities and Tax Sheltered Annuities are subject
to the minimum Distribution requirements set forth in the Code.

Under Payment Option 1, the Owner may change to any other Payment
Option at any time. At the time of the change, the remaining value will be
applied to the new Payment Option to determine the amount of the payments. Under
Payment Option 1, the Owner may also fully surrender the Contract at any time or
make Withdrawals at any time or from time to time. A surrender or Withdrawal
will be subject to any applicable Contingent Deferred Sales Charge at the time
of the surrender or Withdrawal.

DEATH OF OWNER

If any Owner or Joint Owner dies prior to the Annuitization Date, then,
unless the Enhanced Death Benefit Rider has been elected, a Death Benefit in an
amount equal to, if such Owner or Joint Owner dies prior to attaining age 81,
the greater of (a) the Contract Value, or (b) the Net Premium Payments made to
the Contract, in each case minus any applicable premium tax charge, will be paid
to the Beneficiary. If such Owner or Joint Owner dies after attaining age 81,
then the Death Benefit shall be equal to the Contract Value, minus any
applicable premium tax charge.

Unless the Beneficiary is the deceased Owner's (or Joint Owner's)
spouse, the Death Benefit must be distributed within five years of such Owner's
death. The Beneficiary may, however, elect to receive Distribution in the form
of a life annuity or an annuity for a period not exceeding his or her life
expectancy. Such annuity must begin within one year following the date of the
Owner's death, and is currently available only as a Fixed Annuity. If the
Beneficiary is the spouse of the deceased Owner (or Joint Owner), then the
Contract may be continued without any required Distribution. If the deceased
Owner (or Joint Owner) and the Annuitant are the same person, the death of that
person will be treated as the death of the Owner for purposes of determining
the Death Benefit payable.

Qualified Contracts may be subject to specific rules set forth in the
Plan, Contract, or Code concerning Distributions upon the death of the Owner.

DEATH OF ANNUITANT PRIOR TO THE ANNUITIZATION DATE

If an Annuitant who is not an Owner dies prior to the Annuitization
Date, the Contract will mature, and a Death Benefit equal to the Cash Surrender
Value of the Contract will be payable to the Beneficiary, unless a Contingent
Annuitant has been named or the Owner names a Contingent Annuitant within 90
days of such Annuitant's death, in which case the Contract may be continued
without any required Distribution. If no Beneficiary is named (or if the
Beneficiary predeceases the Annuitant), then the Death Benefit will be paid to
the Owner. If the Owner is not a human being, then

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<PAGE> 28
the death of the Annuitant will be treated as if it were the death of the Owner,
and the disposition of the Contract will follow the death of the Owner
provisions set forth above.

In any case where a Death Benefit is paid, the value of the Death
Benefit will be determined as of the Valuation Day coincident with or next
following the date National Life receives in writing: (1) due proof of the
Annuitant's or an Owner's (or Joint Owner's) death; (2) an election for
either a single sum payment or an Annuity Payment Option (currently only Fixed
Annuities are available in these circumstances); and (3) any form
required by state insurance laws. If a single sum payment is requested, payment
will be made in accordance with any applicable laws and regulations governing
the payment of Death Benefits. If an Annuity Payment Option is requested,
election must be made by the Beneficiary during the 90-day period commencing
with the date written notice is received by National Life, and as otherwise
required by law. If no election has been made by the end of such 90-day period
commencing with the date written notice is received by National Life, or as
otherwise required by law, the Death Benefit will be paid in a single sum
payment.

REQUIRED DISTRIBUTION FOR QUALIFIED PLANS AND TAX SHELTERED ANNUITIES

The entire interest of an Annuitant under a Qualified Plan or a Tax
Sheltered Annuity Contract will be distributed in a manner consistent with the
Minimum Distribution and Incidental Benefit (MDIB) provisions of Section
401(a)(9) of the Code and regulations thereunder, as applicable, and will be
paid, notwithstanding anything else contained herein, to the Owner/Annuitant
under the Annuity Payments Option selected, over a period not exceeding:

(a) the life of the Owner/Annuitant or the lives of the Owner/Annuitant
and the Owner/Annuitant's Beneficiary; or

(b) a period not extending beyond the life expectancy of the
Owner/Annuitant or the life expectancy of the Owner/Annuitant and the
Owner/Annuitant's Beneficiary.

If the Owner/Annuitant's entire interest is to be distributed in equal
or substantially equal payments over a period described in (a) or (b), such
payments will commence not later than the first day of April following the
calendar year in which the Owner/Annuitant attains age 70 1/2 (the required
beginning date). Beginning January 1, 1997, for an Owner/Annuitant other than a
"5 percent owner" (as defined in Code Section in the case of a governmental plan
(as defined in Code Section 414(d)), or church plan (as defined in Code Section
401(a)(9)(C)), the Required Beginning Date will be the later of the dates
determined under the preceding sentence or April 1 of the calendar year
following the calendar year in which the Annuitant retires.

If the Owner dies prior to the commencement of his or her Distribution,
the interest in the Qualified Plan or Tax Sheltered Annuity must be distributed
by December 31 of the calendar year in which the fifth anniversary of his or her
death occurs unless:

(a) the Owner names his or her surviving spouse as the Beneficiary and such
spouse elects to:

(i) in the case of a Tax-Sheltered Annuity, treat the annuity as
a Tax Sheltered Annuity established for his or her benefit; or

(ii) receive Distribution of the account in nearly equal payments
over his or her life (or a period not exceeding his or her
life expectancy) and commencing not later than December 31 of
the year in which the Owner would have attained age 70 1/2; or

(b) the Owner names a Beneficiary other than his or her surviving spouse
and such Beneficiary elects to receive a Distribution of the account in
nearly equal payments over his or her life (or a period not exceeding
his or her life expectancy) commencing not later than December 31 of
the year following the year in which the Owner dies.

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<PAGE> 29

If the Owner/Annuitant dies after Distribution has commenced,
Distribution must continue at least as rapidly as under the schedule being used
prior to his or her death.

Payments commencing on the Required Beginning Date will not be less
than the lesser of the quotient obtained by dividing the entire interest of the
Owner/Annuitant by the life expectancy of the Owner/Annuitant, or the joint and
last survivor expectancy of the Owner/Annuitant and the Owner/Annuitant's
Designated Beneficiary (whichever is applicable under the applicable Minimum
Distribution or MDIB provisions). Life expectancy and joint and last survivor
expectancy are computed by the use of return multiples contained in Section
1.72-9 of the Treasury Regulations.

Other distribution rules may apply to Section 457 plans.

If the amounts distributed to the Owner are less than those mentioned
above, a penalty tax of 50% is levied on the amount that should have been
distributed for that year.

REQUIRED DISTRIBUTIONS FOR INDIVIDUAL RETIREMENT ANNUITIES

Distribution from an Individual Retirement Annuity must begin not later
than April 1 of the calendar year following the calendar year in which the Owner
attains age 70 1/2. Distribution may be accepted in a lump sum or in nearly
equal payments over: (a) the Owner's life or the lives of the Owner and the
Owner's spouse or designated Beneficiary, or (b) a period not extending beyond
the Owner and the Owner's spouse or designated Beneficiary.

If the Owner dies prior to the commencement of the Distribution, the
interest in the Individual Retirement Annuity must be distributed by December 31
of the calendar year in which the fifth anniversary of the Owner's death occurs
unless:

(a) The Owner has named his or her surviving spouse as the designated
Beneficiary and such spouse elects to:

(i) treat the annuity as an Individual Retirement Annuity established
for his or her benefit; or

(ii) receive Distribution of the account in nearly equal payments over
his or her life (or a period not exceeding his or her life
expectancy) and commencing not later than December 31 of the year
in which the Owner would have attained age 70 1/2; or

(b) The Owner has named a Beneficiary other than his or her surviving
spouse and such Beneficiary elects to receive a Distribution of the
account in nearly equal payments over his or her life (or a period not
exceeding his or her life expectancy) commencing not later than
December 31 of the year following the year in which the Owner dies.

If the Owner dies after Distribution has commenced, the Distribution
must continue at least as rapidly as under the schedule being used prior to the
Owner's death, except to the extent that a surviving spouse Beneficiary may
elect to treat the Contract as his or her own, in the same manner as is
described in section (a)(i) of this provision.

If the amounts distributed to the Owner are less than those mentioned
above, a penalty tax of 50% is levied on the amount that should have been
distributed for that year.

A pro-rata portion of all Distributions will be included in the gross
income of the person receiving the Distribution and taxed at ordinary income tax
rates. The portion of the Distribution which is taxable is based on the ratio
between the amount by which non-deductible Premium Payments exceed prior
non-taxable Distributions and total account balances at the time of the
Distribution. The Owner must annually report the amount of non-deductible
Premium Payments, the amount of any Distribution, the amount by which
non-deductible Premium Payments for all years exceed non-taxable Distributions
for all years and the total balance of all Individual Retirement Annuities.

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<PAGE> 30
Individual Retirement Annuity Distributions will not receive the
benefit of the tax treatment of a lump sum Distribution from a Qualified Plan.
If the Owner dies prior to the time Distribution of the Owner's interest in the
annuity is completed, the balance will also be included in the Owner's gross
estate.

GENERATION-SKIPPING TRANSFERS

National Life may determine whether the Death Benefit or any other
payment constitutes a direct skip as defined in Section 2612 of the Code, and
the amount of the tax on the generation-skipping transfer resulting from such
direct skip. If applicable, the payment will be reduced by any tax National Life
is required to pay by Section 2603 of the Code.

A direct skip may occur when property is transferred to or a Death
Benefit is paid to an individual two or more generations younger than the Owner.

OWNERSHIP PROVISIONS

Unless otherwise provided, the Owner has all rights under the Contract.
IF THE PURCHASER NAMES SOMEONE OTHER THAN HIMSELF OR HERSELF AS OWNER, THE
PURCHASER WILL HAVE NO RIGHTS UNDER THE CONTRACT. If Joint Owners are named,
each Joint Owner will possess an undivided interest in the Contract. The death
of any Joint Owner will trigger the provisions of the Contract relating to the
death of the Owner. Unless otherwise provided, when Joint Owners are named, the
exercise of any ownership right in the Contract (including the right to
surrender the Contract or make a Withdrawal, to change the Owner, the Annuitant,
a Contingent Annuitant, the Beneficiary, the Annuity Payment Option or the
Maturity Date) shall require a written indication of an intent to exercise that
right, signed by all Joint Owners.

Prior to the Annuitization Date, the Owner may name a new Owner. Such
change may be subject to state and federal gift taxes, and may also result in
current federal income taxation (see "Taxes"). Any change of Owner will
automatically revoke any prior Owner designation. Any request for change of
Owner must be (1) made by proper written application, (2) received and recorded
by National Life at its Home Office, and (3) may include a signature guarantee
as specified in the "Surrender" provision. The change will become effective as
of the date the written request is signed. A new choice of Owner will not apply
to any payment made or action taken by National Life prior to the time it was
received and recorded.

The Owner may request a change in the Annuitant or Contingent Annuitant
before the Annuitization Date. Such a request must be made in writing on a form
acceptable to National Life and must be signed by the Owner and the person to be
named as Annuitant or Contingent Annuitant. Any such change is subject to
underwriting and approval by National Life.

ARBITRATION

Except where otherwise required by state law, the Contract provides
that any controversy under the Contract shall be settled by arbitration in the
state of residence of the Owner, in accordance with the rules of the American
Arbitration Association or any similar rules to which the parties agree. Any
award rendered through arbitration will be final on all parties, and the award
may be enforced in court.

The purpose of the arbitration is to provide an alternative dispute
resolution mechanism for investors that may be more efficient and less costly
than court litigation. Owners should be aware, however, that arbitration is, as
noted above, final and binding on all parties, and that the right to seek
remedies in court is waived, including the right to jury trial. Pre-arbitration
discovery is generally more limited than and different from court discovery
procedures, and the arbitrator's award is not required to include factual
findings or legal reasoning. Any party's right to appeal or to seek modification
of rulings by the arbitrators is strictly limited.

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<PAGE> 31
CHARGES AND DEDUCTIONS

All of the charges described in this section apply to Variable Account
allocations. Allocations to the Fixed Account are subject to Contingent Deferred
Sales Charges, the Annual Contract Fee and Premium Tax deductions and charges
for optional benefits, if applicable, but are not subject to charges exclusive
to the Variable Account: the Mortality and Expense Risk Charge and the
Administration Charge.

National Life deducts the charges described below to cover its costs and
expenses, services provided and risks assumed under the Contracts. National Life
incurs certain costs and expenses for the distribution and administration of the
Contracts and for providing the benefits payable thereunder. More particularly,
these administrative services include: processing applications for and issuing
the Contracts, processing purchases and redemptions of Fund shares as required
(including automatic withdrawal services), maintaining records, administering
annuity payouts, furnishing accounting and valuation services (including the
calculation and monitoring of daily Subaccount values), reconciling and
depositing cash receipts, providing Contract confirmations, providing toll-free
inquiry services and furnishing telephone transaction privileges. The risks
National Life assumes include: the risk that the actual life-span of persons
receiving annuity payments under Contract guarantees will exceed the assumptions
reflected in National Life's guaranteed rates (these rates are incorporated in
the Contract and cannot be changed); the risk that Death Benefits, or the
Enhanced Death Benefit under the optional Enhanced Death Benefit Rider, will
exceed the actual Contract Value, the risk that more Owners than expected will
qualify for waivers of the Contingent Deferred Sales Charge; and the risk that
National Life's costs in providing the services will exceed its revenues from
the Contract charges (which cannot be changed by National Life). The amount of a
charge will not necessarily correspond to the costs associated with providing
the services or benefits indicated by the designation of the charge. For
example, the Contingent Deferred Sales Charge collected may not fully cover all
of the distribution expenses incurred by National Life.

DEDUCTIONS FROM THE VARIABLE ACCOUNT

We deduct from the Variable Account an amount, computed daily, which is
equal to an annual rate of 1.40% of the daily net asset value. The charge
consists of a 0.15% Administration Charge and a 1.25% Mortality and Expense Risk
Charge.

CONTINGENT DEFERRED SALES CHARGE

No deduction for a sales charge is made from the Premium Payments for
these Contracts. However, if a Withdrawal is made with respect to any part of
the Contract Value of such a Contract or a Contract is surrendered, or
annuitized within two years after the Date of Issue, National Life will, with
certain exceptions, deduct a Contingent Deferred Sales Charge not to exceed 7%
of the lesser of the total of all Premium Payments made within 84 months prior
to the date of the request to surrender, or the amount withdrawn.

The Contingent Deferred Sales Charge is calculated by multiplying the
applicable Contingent Deferred Sales Charge percentages noted below by the
Premium Payments that are withdrawn or surrendered. For purposes of calculating
the Contingent Deferred Sales Charge, Withdrawals or surrenders are considered
to come first from the oldest Premium Payment made to the Contract, then the
next oldest Premium Payment and so forth, with any earnings attributable to such
Premium Payments considered withdrawn only after all Premium Payments made to
the Contract have been considered withdrawn (no Contingent Deferred Sales
Charge is ever assessed with respect to a Withdrawal or surrender of earnings).
For tax purposes, a surrender is usually treated as a withdrawal of earnings
first. This charge will apply in the amounts set forth below to Premium
Payments within the time periods set forth.

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<PAGE> 32
The Contingent Deferred Sales Charge applies to Premium Payments as
follows:

<TABLE>
<CAPTION>
NUMBER OF COMPLETED CONTINGENT DEFERRED NUMBER OF COMPLETED CONTINGENT DEFERRED
YEARS FROM DATE OF SALES CHARGE YEARS FROM DATE OF SALES CHARGE
PREMIUM PAYMENT PERCENTAGE PREMIUM PAYMENT PERCENTAGE
- ---------------- ---------- --------------- -----------
<S> <C> <C> <C>

0 7% 4 3%
1 6% 5 2%
2 5% 6 1%
3 4% 7 0%
</TABLE>

In any Contract Year, except in the states referred to in the last
sentence of this paragraph, the Owner may effect Withdrawals without a
Contingent Deferred Sales Charge ("CDSC") of an aggregate amount equal to 15% of
the Contract Value as of the most recent Contract Anniversary. This CDSC-free
Withdrawal privilege does not apply to full surrenders of the Contract, and if a
full surrender is made within one year of exercising a CDSC-free Withdrawal,
then the Contingent Deferred Sales Charge will be assessed as if the surrender
had been taken in a single step. The CDSC-free feature is also non-cumulative;
so that free amounts not taken during any given Contract Year cannot be taken as
free amounts in a subsequent Contract Year. In addition, any amount withdrawn in
order to meet minimum Distribution requirements under the Code shall be free of
CDSC. The Owner may be subject to a tax penalty if the Owner takes Withdrawals
prior to age 59 1/2 (see "Federal Income Tax Considerations"). In any states
which require that any CDSC-free Withdrawal provision be available on full
surrenders as well as Withdrawals, the CDSC-free Withdrawal provision will apply
to full surrenders but will be limited to 10% of the Contract Value as of the
most recent Contract Anniversary for both Withdrawals and full surrenders.

In addition, no Contingent Deferred Sales Charge will be deducted: (1)
upon the Annuitization of Contracts which have been in force for at least two
years, (2) upon payment of a death benefit pursuant to the death of the Owner,
or (3) from any values which have been held under a Contract for at least 84
months. No Contingent Deferred Sales Charge applies upon the transfer of value
among the Subaccounts or between the Fixed Account and the Variable Account.

When a Contract is held by a Charitable Remainder Trust, the amount
which may be withdrawn from this Contract without application of a Contingent
Deferred Sales Charge, shall be the larger of (a) or (b), where (a) is the
amount which would otherwise be available for Withdrawal without application of
a Contingent Deferred Sales Charge; and where (b) is the difference between the
Net Premium Payments made to the Contract as of the date of the Withdrawal, and
the Contract Value at the close of the day prior to the date of the Withdrawal.

National Life will waive the Contingent Deferred Sales Charge if the
Owner dies, or if the Owner annuitizes after 2 years in the Contract (in such a
case, however, the Owner may not elect a settlement option under which he or she
has the right to receive a lump sum prior to seven years after the date of the
last Premium Payment, unless a Contingent Deferred Sales Charge is paid).

ANNUAL CONTRACT FEE

For Contracts with a Contract Value of less than $50,000 as of the Date of
Issue, or any subsequent Contract Anniversary prior to the Annuitization Date,
National Life will assess an Annual Contract Fee of $30.00. This fee will be
assessed annually in advance on the Date of Issue and thereafter on each
Contract Anniversary on which the Contract Value is less than $50,000, until the
Annuitization Date. No Annual Contract Fee will be assessed after the
Annuitization Date. This fee will be taken pro rata from all Subaccounts of the
Variable Account and the unloaned portion of the Fixed Account.

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<PAGE> 33
TRANSFER CHARGE

Currently, unlimited transfers are permitted among the Subaccounts, and
transfers between the Fixed Account and the Variable Account are permitted
within the limits described on Page , in each case without charge. National Life
has no present intention to impose a transfer charge in the foreseeable future.
However, National Life reserves the right to impose in the future a transfer
charge of $25 on each transfer in excess of twelve transfers in any Contract
Year.

If imposed, the transfer charge will be deducted from the amount being
transferred. All transfers requested on the same Valuation Day are treated as
one transfer transaction. Any future transfer charge will not apply to transfers
resulting from loans, and any transfers made pursuant to the Dollar Cost
Averaging and Portfolio Rebalancing features. These transfers will not count
against the twelve free transfers in any Contract Year.

PREMIUM TAXES

If a governmental entity imposes premium taxes, National Life will make
a deduction for premium taxes in a corresponding amount. Certain states impose a
premium tax, currently ranging up to 3.5%. National Life will pay premium taxes
at the time imposed under applicable law. National Life currently expects to
make its deduction for premium taxes, if applicable, at the time of
Annuitization, death of the Owner, or surrender, although it also reserves the
right to make such a deduction at the time it pays premium taxes to the
applicable taxing authority.

CHARGES FOR OPTIONAL BENEFITS

Annual charges are made if the Owner has elected an optional benefit.
See "Optional Benefits," page . The annual charge for the Enhanced Death Benefit
Rider is 0.30% of Contract Value, and the annual charge for the Critical Needs
Rider is 0.05% of Contract Value. In each case, the annual charge will be
deducted at issue (or a pro rata portion of an annual charge for the period from
effectiveness to the next Contract Anniversary, in the case of an election
subsequent to issue), and then on each Contract Anniversary thereafter, up to
and including age 80 in the case of the Enhanced Death Benefit Rider. In each
case the charge for the applicable optional benefit will be taken pro rata from
the Subaccounts of the Variable Account and the unloaned portion of the Fixed
Account.

OTHER CHARGES

The Variable Account purchases shares of the Funds at net asset value.
The net asset value of those shares reflect management fees and expenses already
deducted from the assets of the Funds. The fees and expenses for the Funds are
described briefly in connection with a general description of each Fund.

More detailed information is contained in the Funds' prospectuses which
accompany this prospectus.

CONTRACT RIGHTS

FREE LOOK

The Owner may revoke the Contract at any time between the Date of Issue
and the date 10 days after receipt of the Contract, and receive a refund of the
Contract Value, unless otherwise required by state and/or federal law. Some
states may require a longer period. Where the refund is in the amount of the
Contract Value, the Owner will have borne the investment risk and been entitled
to the benefit of the investment performance of the chosen Subaccounts during
the time the Contract was in force.

In the case of Individual Retirement Annuities and states that require
the return of Premium Payments, National Life will refund the greater of: (i)
Premium Payments or (ii) Contract Value plus

27
<PAGE> 34
any amount deducted by National Life for state premium taxes. National Life may
require that all Contract Value allocated to the Variable Account initially be
held in the Market Street Money Market Subaccount. At the end of the free look
period, Contract Value will be allocated among the Subaccounts of the Variable
Account and the Fixed Account based on the allocation percentages specified in
the application. For this purpose, National Life assumes the free look period
ends 20 days after the Date of Issue.

In order to revoke the Contract, it must be mailed or delivered to the
Home Office of National Life at the mailing address shown on page 1 of this
prospectus. Mailing or delivery must occur on or before 10 days after receipt of
the Contract for revocation to be effective, except where National Life required
the allocation of Contract Value to the Market Street Money Market Subaccount
for the free look period. In order to revoke the Contract, if it has not been
received, written notice must be mailed or delivered to the Home Office of
National Life at the mailing address shown on page 1 of this prospectus.

The liability of the Variable Account under this provision is limited
to the Contract Value in each Subaccount on the date of revocation. Any
additional amounts refunded to the Owner will be paid by National Life.

LOAN PRIVILEGE - TAX SHELTERED ANNUITIES

Prior to the Annuitization Date, the Owner of a Tax Sheltered Annuity
Contract may receive a loan subject to the terms of the Contract, the Plan, and
the Code, which may impose restrictions on loans.

Loans from Tax Sheltered Annuities are available beginning 30 days
after the Date of Issue. The Owner may borrow a minimum of $500. The maximum
loan balance which may be outstanding at any time is 50% of the Contract Value,
but not more than $50,000. The $50,000 limit will be reduced by the highest loan
balances owed during the prior one-year period. Additional loans are subject to
the contract minimum amount. The aggregate of all loans may not exceed the
Contract Value limitations stated above. Loans may only be secured by the
Contract Value.

All loans are made from the Collateral Fixed Account. An amount equal
to the principal amount of the loan will be transferred to the Collateral Fixed
Account. Unless instructed to the contrary by the Owner, National Life will
transfer to the Collateral Fixed Account an amount equaling the loan from the
Subaccounts of the Variable Account and unloaned portion of the Fixed Account in
the same proportion that such amounts bear to the total Contract Value. No
withdrawal charges are deducted at the time of the loan, or on any transfers to
the Collateral Fixed Account. If the Owner provides specific instructions, loan
amounts must be taken first from the Variable Account, and may only be taken
from the unloaned portion of the Fixed Account to the extent that the Contract
Value in the Variable Account is insufficient to provide the loan. If the loan
cannot be processed in accordance with instructions provided by the Owner, then
the loan will not be processed until National Life receives further instructions
from the Owner.

Until the loan has been repaid in full, that portion of the Collateral
Fixed Account equal to the outstanding loan balance shall be credited with
interest at a rate declared by National Life on a calendar year basis, but will
never be less than 3.0%.

Loans must be repaid in substantially level payments, not less
frequently than quarterly, within five years. Loans used to purchase the
principal residence of the Owner must be repaid within 15 years. During the loan
term, the outstanding balance of the loan will continue to accrue interest at an
annual rate of 6%, payable in arrears. Loan repayments will consist of principal
and interest in amounts set forth in the loan agreement. Loan repayments will be
allocated among the Fixed Account and Subaccounts of the Variable Account in
accordance with the allocation of Premium Payments then in effect.

28
<PAGE> 35
If the Contract is surrendered while the loan is outstanding, the Owner
will receive the Cash Surrender Value. If the Owner/Annuitant dies while the
loan is outstanding, the Death Benefit will also reflect the amount of the loan
outstanding plus accrued interest. If annuity payments start while the loan is
outstanding, the Contract Value will be reduced by the amount of the outstanding
loan plus accrued interest. Until the loan is repaid, National Life reserves the
right to restrict any transfer of the Contract which would otherwise qualify as
a transfer as permitted in the Code.

If a loan payment is not made when due, interest will continue to
accrue. If a loan payment is not made within 31 days of when it was due, then
that payment, which may be a single periodic payment or payment of the entire
loan, will be treated as a deemed Distribution, as permitted by law, may be
taxable to the borrower, and may be subject to the early withdrawal tax penalty.
Interest which subsequently accrues on defaulted amounts may also be treated as
additional deemed Distributions each year. Any defaulted amounts, plus accrued
interest, will be deducted from the Contract when the participant becomes
eligible for a Distribution of at least that amount, and this amount may again
be treated as a Distribution where required by law. Additional loans may not be
available while a previous loan remains in default.

Loans may also be subject to additional limitations or restrictions
under the terms of the employer's plan. Loans permitted under this Contract may
still be taxable in whole or part if the participant has additional loans from
other plans or contracts. National Life will calculate the maximum nontaxable
loan based on the information provided by the participant or the employer.

Loan repayments must be identified as such or else they will be treated
as Premium Payments and will not be used to reduce the outstanding loan
principal or interest due. National Life reserves the right to modify the term
or procedures associated with the loan privilege in the event of a change in the
laws or regulations relating to the treatment of loans. National Life also
reserves the right to assess a loan processing fee. Individual Retirement
Annuities and Non-Qualified Contracts are not eligible for loans.

SURRENDER AND WITHDRAWAL

At any time prior to the Annuitization Date, the Owner may, upon proper
written application by the Owner deemed by National Life to be in good order,
surrender the Contract Value. "Proper written application" means that the Owner
must request the surrender in writing and include the Contract. National Life
may require that the signature(s) be guaranteed by a member firm of a major
stock exchange or other depository institution qualified to give such a
guaranty.

National Life will, upon receipt of any such written request, pay to
the Owner the Cash Surrender Value. The Cash Surrender Value will reflect any
applicable Contingent Deferred Sales Charge (see "Contingent Deferred Sales
Charge"), as well as any outstanding loan and accrued interest and, in certain
states, a premium tax charge (see "Premium Taxes", page ). The Cash Surrender
Value may be more or less than the total of Premium Payments made by a Owner,
depending on the market value of the underlying Fund shares, the amount of any
applicable Contingent Deferred Sales Charge, and other factors.

National Life will normally not permit Withdrawal or surrender of Premium
Payments made by check within the 15 calendar days prior to the date the request
for Withdrawal or surrender is received.

At any time before the death of the Owner and after 30 days from the
date of Issue, the Owner may make a Withdrawal of a portion of the Contract
Value. The minimum Withdrawal is $500, and the maximum Withdrawal is that amount
which would leave $3500 in remaining Contract Value. If the amount requested is
more than the maximum or less than the minimum, the Withdrawal will not be
processed until National Life receives further instructions from the Owner.

In each Contract Year, except as otherwise provided below, the Owner may
withdraw without a Contingent Deferred Sales Charge an aggregate amount equal to
15% of the Contract Value as of the most recent Contract Anniversary. Generally,
Withdrawals in excess of 15% of Net Premiums in any Contract year are subject to
the Contingent Deferred Sales Charge. In any states which require that any

29
<PAGE> 36
CDSC-free Withdrawal provision be available on full surrenders as well as
Withdrawals, the CDSC-free Withdrawal provision will apply to full surrenders
but will be limited to 10% of the Contract Value as of the most recent Contract
Anniversary for both Withdrawals and full surrenders. See "Contingent Deferred
Sales Charge", page . Withdrawals will be deemed to be taken from Premium
Payments in chronological order, with the oldest Premium Payment being withdrawn
first. This method will tend to minimize the amount of the Contingent Deferred
Sales Charge.

The Withdrawal will be taken from the Subaccounts of the Variable
Account based on the instructions of the Owner at the time of the Withdrawal. If
the Owner provides specific instructions, amounts must be deducted first from
the Variable Account, and may only be deducted from the unloaned portion of the
Fixed Account to the extent that the Contract Value in the Variable Account is
insufficient to accomplish the Withdrawal. If specific allocation instructions
are not provided by the Owner, the Withdrawal will be deducted pro rata from the
Subaccounts of the Variable Account and from the unloaned portion of the Fixed
Account. Any Contingent Deferred Sales Charge associated with a Withdrawal will
be deducted from the Subaccounts of the Variable Account and from the Fixed
Account based on the allocation percentages of the Withdrawal itself, except
that any amount that would be so deducted from a Subaccount which is in excess
of the available value in that Subaccount will be deducted pro rata among the
remaining Subaccounts and the unloaned portion of the Fixed Account. If the
Withdrawal cannot be processed in accordance with instructions provided by the
Owner, then it will not be processed until National Life receives further
instructions from the Owner.

A surrender or a Withdrawal may have tax consequences. See "Federal Income
Tax Considerations", page .

PAYMENTS

National Life will pay any funds surrendered or withdrawn from
the Variable Account within 7 days of receipt of such request in National Life's
Home Office. However, National Life reserves the right to suspend or postpone
the date of any payment of any benefit or values for any Valuation Period (1)
when the New York Stock Exchange ("Exchange") is closed, (2) when trading on the
Exchange is restricted, (3) when an emergency exists as a result of which
disposal of securities held in the Variable Account is not reasonably
practicable or it is not reasonably practicable to determine the value of the
Variable Account's net assets, or (4) during any other period when the
Securities and Exchange Commission, by order, so permits for the protection of
security holders, provided that applicable rules and regulations of the
Securities and Exchange Commission shall govern as to whether the conditions
prescribed in (2) and (3) exist. National Life reserves the right to delay
payment of any amounts allocated to the Fixed Account which are payable as a
result of a surrender, Withdrawal or loan for up to six months after it has
received written request in a form satisfactory to it.

SURRENDERS AND WITHDRAWALS UNDER A TAX SHELTERED ANNUITY CONTRACT

Except as provided below, the Owner may surrender part or all of the
Contract Value at any time this Contract is in force prior to the earlier of the
Annuitization Date or the death of the Designated Annuitant:

A. The surrender of Contract Value attributable to contributions made
pursuant to a salary reduction agreement (within the meaning of Code
Section 402(g)(3)(A) or (C)), or transfers from a Custodial Account
described in Section 403(b)(7) of the Code, may be executed only:

1. when the Owner attains age 59 1/2, separates from service, dies, or
becomes disabled (within the meaning of Code Section 72(m)(7)); or

2. in the case of hardship (as defined for purposes of Code Section 401
(k)), provided that any surrender of Contract Value in the case of
hardship may not include any income attributable to salary reduction
contributions.

B. The surrender limitations described in A. above for Tax Sheltered
Annuities apply to:

30
<PAGE> 37

1. salary reduction contributions to Tax Sheltered Annuities
made for plan years beginning after December 31, 1988;

2. earnings credited to such contracts after the last plan year
beginning before January 1, 1989, on amounts attributable to
salary reduction contributions; and

3. all amounts transferred from 403(b)(7) Custodial Accounts (except
that earnings, and employer contributions as of December 31, 1988
in such Custodial Accounts may be withdrawn in the case of
hardship).

C. Any Distribution other than the above, including exercise of a
contractual ten-day free look provision (when available) may result in
the immediate application of taxes and penalties and/or retroactive
disqualification of a Qualified Contract or Tax Sheltered Annuity.

A premature Distribution may not be eligible for rollover treatment. To
assist in preventing disqualification in the event of a ten-day free look,
National Life will agree to transfer the proceeds to another contract which
meets the requirements of Section 403(b) of the Code, upon proper direction by
the Owner. The foregoing is National Life's understanding of the withdrawal
restrictions which are currently applicable under Section 403(b)(11) and Revenue
Ruling 90-24. Such restrictions are subject to legislative change and/or
reinterpretation from time to time. Distributions pursuant to Qualified Domestic
Relations Orders will not be considered to be a violation of the restrictions
stated in this provision.

The Contract surrender and Withdrawal provisions may also be modified
pursuant to the plan terms and Code tax provisions for Qualified Contracts.

TELEPHONE TRANSACTION PRIVILEGE

If the telephone transaction privilege has been elected, either on the
application for the Contract or by thereafter providing a proper written
authorization to National Life, an Owner may effect changes in Premium Payment
allocation, transfers, initiate dollar cost averaging or portfolio rebalancing,
and, in the case of Tax Deferred Annuity Contracts, loans of up to $10,000, by
providing instructions to National Life at its Home Office over the telephone.
National Life reserves the right to suspend telephone transaction privileges at
any time, for any reason, if it deems such suspension to be in the best
interests of Contract Owners.

National Life will employ reasonable procedures to confirm that
instructions communicated by telephone are genuine. If National Life follows
these procedures it will not be liable for any losses due to unauthorized or
fraudulent instructions. National Life may be liable for any such losses if
those reasonable procedures are not followed. The procedures to be followed for
telephone transfers will include one or more of the following: requiring some
form of personal identification prior to acting on instructions received by
telephone, providing written confirmation of the transaction, and making a tape
recording of the instructions given by telephone.

AVAILABLE AUTOMATED FUND MANAGEMENT FEATURES

National Life currently offers, at no charge to Owners, the following
automated fund management features. However, National Life is not legally
obligated to continue to offer these features, and although it has no current
intention to do so, it may cease offering one or more of such features at any
time, after providing 60 days prior written notice to all Owners who are
currently utilizing the features being discontinued. Only one automated fund
management feature is available under any single Contract at one time.

Dollar Cost Averaging. This feature permits an Owner to automatically
transfer funds from the Money Market Subaccount to any other Subaccounts on a
monthly basis. It may be elected at issue by marking the appropriate box on the
initial application, and completing the appropriate instructions, or, after
issue, by filling out similar information on a change request form and sending
it to the Home Office.

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If this feature is elected, the amount to be transferred will be taken
from the Money Market Subaccount and transferred to the Subaccount or
Subaccounts designated to receive the funds, each month on the Monthly Contract
Date (starting with the Monthly Contract Date next succeeding the Date of Issue,
or next succeeding the date of an election subsequent to purchase), until the
amount in the Money Market Fund is depleted. The minimum monthly transfer by
Dollar Cost Averaging is $100, except for the transfer which reduces the amount
in the Money Market Subaccount to zero. An Owner may discontinue Dollar Cost
Averaging at any time by sending an appropriate change request form to the Home
Office.

This feature allows an Owner to move funds into the various investment
classes on a more gradual and systematic basis than the frequency on which
Premium Payments ordinarily are made. The periodic investment of the same amount
will result in higher numbers of units being purchased when unit prices are
lower, and lower numbers of units being purchased when unit prices are higher.
This will result, over time, in a lower cost per unit than the average of the
unit costs on the days on which the automated purchases are made. This technique
will not, however, assure a profit or protect against a loss in declining
markets. Moreover, for the dollar cost averaging technique to be effective,
amounts should be available for allocation from the Money Market Subaccount
through periods of low price levels as well as higher price levels.

Portfolio Rebalancing. This feature permits an Owner to automatically
rebalance the value in the Subaccounts on a quarterly, semi-annual or annual
basis, based on the Owner's premium allocation percentages in effect at the time
of the rebalancing. It may be elected at issue by marking the appropriate box on
the initial application, or, after issue, by completing a change request form
and sending it to the Home Office.

In Contracts utilizing Portfolio Rebalancing from the Date of Issue, an
automatic transfer will take place which causes the percentages of the current
values in each Subaccount to match the current premium allocation percentages,
starting with the Monthly Contract Date three, six or twelve months after the
Date of Issue, and then on each Monthly Contract Date three, six or twelve
months thereafter. Contracts electing Portfolio Rebalancing after issue will
have the first automated transfer occur as of the Monthly Contract Date on or
next following the date that the election is received at the Home Office, and
subsequent rebalancing transfers will occur every three, six or twelve months
from such date. An Owner may discontinue Portfolio Rebalancing at any time by
submitting an appropriate change request form to the Home Office.

In the event that an Owner changes the Contract's premium allocation
percentages, Portfolio Rebalancing will automatically be discontinued unless the
Owner specifically directs otherwise.

Portfolio Rebalancing will result in periodic transfers out of Subaccounts
that have had relatively favorable investment performance in relation to the
other Subaccounts to which a Contract allocates premiums, and into Subaccounts
which have had relatively unfavorable investment performance in relation to the
other Subaccounts to which the Contract allocates premiums.

Systematic Withdrawals- At any time after 30 days from the Date of
Issue, and provided that the Contract Value at the time of initiation of the
program is at least $15,000, the Owner may elect in writing on a form provided
by National Life to take Systematic Withdrawals of a specified dollar amount (of
at least $100) on a monthly, quarterly, semi-annual or annual basis. The Owner
may provide specific instructions as to how the systematic Withdrawals are to be
taken, but the Withdrawals must be taken first from the Subaccounts of the
Variable Account, and may only be taken from the unloaned portion of the Fixed
Account to the extent that the Contract Value in the Variable Account is
insufficient to accomplish the Withdrawal. If the Owner has not provided
specific instructions, or if such specific instructions cannot be carried out,
National Life will process the Withdrawals by taking on a pro-rata basis
Accumulation Units from all of the Subaccounts in which the Owner has an
interest and the unloaned portion of the Fixed Account. Each Systematic
Withdrawal is subject to federal income taxes on the taxable portion. In
addition, a 10% federal penalty tax may be assessed on Systematic Withdrawals if
the Owner is under age 59 1/2. If directed by the Owner, National Life will
withhold federal income taxes from each Systematic Withdrawal. A Systematic
Withdrawal program will

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terminate automatically when a Systematic Withdrawal would cause the remaining
Contract Value to be $3,500 or less. If a Systematic Withdrawal would cause the
Contract Value to be $3,500 or less, then that Systematic Withdrawal transaction
will not be processed. The Owner may discontinue Systematic Withdrawals at any
time by notifying National Life in writing.

A Contingent Deferred Sales Charge may apply to Systematic Withdrawals
in accordance with the considerations set forth in "Contingent Deferred Sales
Charge", page . If the Owner withdraws amounts pursuant to a Systematic
Withdrawal program, then, in most states, the Owner may withdraw in each
Contract Year without a CDSC an amount up to 15% of the Contract Value as of the
most recent Contract Anniversary (a different CDSC-free Withdrawal provision may
apply in certain states - see "Contingent Deferred Sales Charge, page ). Both
Withdrawals at the specific request of the Owner and Withdrawals pursuant to a
Systematic Withdrawal program will count toward the limit of the amount that may
be Withdrawn in any Contract Year free of the CDSC. In addition, any amount
withdrawn from any Individual Retirement Annuity Contract in order to meet
minimum Distribution requirements shall be free of CDSC.

CONTRACT RIGHTS UNDER CERTAIN PLANS

Contracts may be purchased in connection with a plan sponsored by an
employer. In such cases, all rights under the Contract rest with the Owner,
which may be the employer or other obligor under the plan, and benefits
available to participants under the plan will be governed solely by the
provisions of the plan. Accordingly, some of the options and elections under the
Contract may not be available to participants under the provisions of the plan.
In such cases, participants should contact their employers for information
regarding the specifics of the plan.

THE FIXED ACCOUNT

Premium Payments under the Fixed Account portion of the Contract and
transfers to the Fixed Account portion become part of the general account of
National Life, which support insurance and annuity obligations. Because of
exemptive and exclusionary provisions, interests in the general account have not
been registered under the Securities Act of 1933 ("1933 Act"), nor is the
general account registered as an investment company under the Investment Company
Act of 1940 ("1940 Act"). Accordingly, neither the general account nor any
interest therein are generally subject to the provisions of the 1933 or 1940
Acts, and we have been advised that the staff of the Securities and Exchange
Commission has not reviewed the disclosures in this prospectus which related to
the guaranteed interest portion. Disclosures regarding the Fixed Account portion
of the Contract and the general account, however, may be subject to certain
generally applicable provisions of the federal securities laws relating to the
accuracy and completeness of statements made in prospectuses.

The Fixed Account is made up of all the general assets of National
Life, other than those in the Variable Account and any other segregated asset
account. Fixed Account Premium Payments will be allocated to the Fixed Account
by election of the Owner at the time of purchase, or by a later change in
allocation of Premium Payments. National Life will invest the assets of the
Fixed Account in those assets chosen by National Life and allowed by applicable
law.

MINIMUM GUARANTEED AND CURRENT INTEREST RATES

The Contract Value held in the Fixed Account which is not held in a
Collateral Fixed Account is guaranteed to accumulate at a minimum effective
annual interest rate of 3.0%. National Life may credit the non-loaned Contract
Value in the Fixed Account with current rates in excess of the minimum
guarantee but is not obligated to do so. These current interest rates are
influenced by, but do not necessarily correspond to, prevailing general market
interest rates. Since National Life, in its sole discretion, anticipates
changing the current interest rate from time to time, allocations to the Fixed
Account made at different times are likely to be credited with different
current interest rates. An interest rate will be declared by National Life
each month to apply to amounts allocated or transferred to the Fixed Account
in that month. The rate declared on such amounts will remain in effect for
twelve months. At the end of the 12-month period, National Life reserves the
right to declare a new current interest rate on such amounts and accrued
interest thereon (which may be a

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different current interest rate than the current interest rate on new
allocations to the Fixed Account on that date). Any interest credited on the
amounts in the Fixed Account in excess of the minimum guaranteed rate of 3.0%
per year will be determined in the sole discretion of National Life. The Owner
assumes the risk that interest credited may not exceed the guaranteed minimum
rate.

Amounts deducted from the unloaned portion of the Fixed Account for
Optional Benefits charges, the Annual Contract Fee, loans or transfers to the
Variable Account are, for the purpose of crediting interest, accounted for on
a last in, first out basis. Amounts deducted from the unloaned portion of the
Fixed Account for Withdrawals are accounted for on a first in, first out basis
for such purpose.

National Life reserves the right to change the method of crediting
interest from time to time, provided that such changes do not have the effect
of reducing the guaranteed rate of interest below 3.0% per annum or shorten
the period for which the interest rate applies to less than 12 months.

OPTIONAL BENEFITS

The following optional benefits, which are subject to the restrictions
and limitations set forth in the applicable Contract Riders, may be included in
a Contract at the option of the Owner. Election of these optional benefits
involves an additional cost. These Riders may not be available in all states.

ENHANCED DEATH BENEFIT RIDER

If the Owner has elected the Enhanced Death Benefit Rider, then the
following enhanced death benefit will be payable to the Beneficiary if the Owner
(or the first of Joint Owners) dies prior to reaching age 81: the highest of (a)
Contact Value; (b) the Net Premium Payments, and (c) the largest Contract Value
as of any prior Contract Anniversary after the Enhanced Death Benefit Rider was
applicable to the Contract, plus any Premium Payments and less any Withdrawals
and loans, in each case since such Contract Anniversary, in each case calculated
as of the date National Life receives due proof of death. Any applicable premium
tax charge will be applied to reduce the value of the above determined enhanced
death benefit (see "Premium Taxes, page ).

If the Owner (or the first of Joint Owners) dies at age 81 or later,
the death benefit will not be enhanced, and will be an amount equal to Contract
Value, less any applicable premium tax charge.

The Enhanced Death Benefit Rider will be available at issue to Owners
age 75 and younger. It will be available after issue to Owners age 75 or
younger, only if at the time of the Rider is requested, the Contract Value is
greater than the Net Premium Payments. The annual charge for this Rider is 0.30%
of Contract Value. See "Charges for Optional Benefits", page .

The Enhanced Death Benefit will be distributed in the same manner as
the normal Death Benefit. See "Death of Owner", page .

CRITICAL NEEDS RIDER

If an Owner elects the Critical Needs Rider, then National Life will
waive any otherwise applicable CDSC due on any Withdrawal or surrender if the
Owner meets one or more of the following conditions: (a) the Owner is confined
to an eligible nursing home facility for at least 120 consecutive days, (b) the
Owner cannot perform at least 2 out of the 5 "activities of daily living", and
(c) the Owner has less than 12 months to live.

This Rider is available at any time to Owners age 70 or younger, except
that it is not available to Owners who already meet one of the conditions which
would waive the CDSC. The annual charge for this Rider is 0.05% of Contract
Value. See "Charges for Optional Benefits", page .

FEDERAL INCOME TAX CONSIDERATIONS

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INFORMATION CONTAINED HEREIN SHOULD NOT BE SUBSTITUTED FOR THE ADVICE
OF A PERSONAL TAX ADVISER.

National Life does not make any guarantee regarding the tax status for
any Contract or any transaction involving the Contracts.

Section 72 of the Code governs taxation of annuities in general. That
section sets forth different rules for: (1) Qualified Plans; (2) Individual
Retirement Annuities and Individual Retirement Accounts; (3) Tax Sheltered
Annuities; or (4) Non-Qualified Contracts. Each type of annuity is discussed
below.

Distributions to participants from Qualified Plans or Tax Sheltered
Annuities are generally taxed when received. A portion of each Distribution is
excludable from income based on the ratio between the after tax investment of
the Owner/Annuitant in the Contract and the value of the Contract at the time of
the withdrawal or Annuitization.

Distributions from Individual Retirement Annuities and Contracts owned
by Individual Retirement Accounts are also generally taxed when received. The
portion of each such payment which is excludable is based on the ratio between
the amount by which nondeductible Premium Payments to all such Contracts exceeds
prior non-taxable Distributions from such Contracts, and the total account
balances in such Contracts at the time of the Distribution. The Owner of such
Individual Retirement Annuities or the Designated Annuitant under Contracts held
by Individual Retirement Accounts must annually report to the Internal Revenue
Service the amount of nondeductible Premium Payments, the amount of any
Distribution, the amount by which nondeductible Premium Payments for all years
exceed non-taxable Distributions for all years, and the total balance in all
Individual Retirement Annuities and Accounts. Owners should consult a financial
consultant, legal counsel or tax advisor to discuss in detail the taxation and
the use of the Contracts.

NON-QUALIFIED CONTRACTS

The rules applicable to Non-Qualified Contracts provide that a portion
of each annuity payment received is excludable from taxable income based on the
ratio between the Owner's investment in the Contract and the expected return on
the Contract. The maximum amount excludable from income is the investment in the
Contract. If the Annuitant dies prior to excluding from income the entire
investment in the Contract, the Annuitant's final tax return may reflect a
deduction for the balance of the investment in the Contract.

Distributions made from the Contract prior to the Annuitization Date
are includible in gross income and taxable to the Owner to the extent that the
cash value of the Contract exceeds the Owner's investment at the time of the
Distribution. Distributions, for this purpose, include surrenders, Withdrawals,
dividends, loans, or any portion of the Contract which is assigned or pledged;
or for Contracts issued after April 22, 1987, any portion of the Contract
transferred by gift. For these purposes, a transfer by gift may occur upon
Annuitization if the Owner and the Annuitant are not the same individual. In
determining the taxable amount of a Distribution, all annuity contracts issued
by the same company to the same Owner during any 12 month period, will be
treated as one annuity contract. Additional limitations on the use of multiple
contracts may be imposed by Treasury regulations.

In general, certain Non-Qualified Contracts held by entities other than
individuals are taxed currently on the earnings on the Contract. There are
exceptions for immediate annuities and certain Contracts owned for the benefit
of an individual. An immediate annuity, for purposes of this discussion, is a
single premium Contract on which payments begin within one year of purchase. Any
non-individual (such as a trust) contemplating the purchase of a Non-Qualified
Contract should consult a tax advisor prior to such purchase.

Code Section 72 also provides for a penalty, equal to 10% of any
Distribution which is includible in gross income, if such Distribution is made
prior to attaining age 59 1/2 or disability of the Owner. The penalty does not
apply if the Distribution is one of a series of substantially equal periodic

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payments made over the life or life expectancy (or joint lives or life
expectancies) of the taxpayer (and the taxpayer's Beneficiary), or for the
purchase of an immediate annuity, or is allocable to an investment in the
Contract before August 14, 1982. A Owner wishing to begin taking Distributions
to which the 10% tax penalty does not apply should forward a written request to
National Life. Upon receipt of a written request from the Owner, National Life
will inform the Owner of the procedures pursuant to National Life policy and
subject to limitations of the Contract including but not limited to first year
withdrawals. If an annuity for life or life expectancy is selected, or a
pre-defined series of withdrawals based on life expectancy is begun, and changes
the method of payment before the expiration of 5 years and the attainment of age
59 1/2, the early withdrawal penalty will apply. The penalty will be equal to
that which would have been imposed had no exception applied from the outset, and
interest will also be due on the amount of the penalty from the date it would
have originally applied until it is actually paid.

In order to qualify as an annuity Contract under Section 72 of the
Code, the Contract must provide for Distribution to be made upon the death of
any Owner. In such case, the Beneficiary must receive the Distribution within 5
years of such Owner's death. However, the recipient may elect for payments to be
made over their life or life expectancy if such payments begin within one year
from the death of the Owner. If the Beneficiary is the surviving spouse of the
deceased Owner, such spouse may be treated as the Owner and the Contract may be
continued throughout the life of the surviving spouse. In the event any Owner
dies on or after the Annuitization Date and before the entire interest has been
distributed, the remaining portion must be distributed at least as rapidly as
under the method of Distribution being used as of the date of such Owner's death
(see "Required Distribution For Tax Sheltered Annuities"). If the Owner is not
an individual, the death of the Annuitant (or a change in the Annuitant) will
result in a Distribution pursuant to these rules, regardless of whether a
Contingent Annuitant has been named.

National Life is required to withhold tax from certain Distributions to
the extent that such Distribution would constitute income to the Owner. The
Owner is generally entitled to elect not to have federal income tax withheld
from any such Distribution, but may be subject to penalties in the event
insufficient federal income tax is withheld during a calendar year.

Generally, the taxable portion of any Distribution from a Contract to a
nonresident alien of the United States is subject to tax withholding at a rate
equal to thirty percent (30%) of such amount or, if applicable, a lower treaty
rate. A payment may not be subject to withholding where the recipient
sufficiently establishes that such payment is effectively connected to the
recipient's conduct of a trade or business in the United States and such payment
is includible in the recipient's gross income.

National Life may be required to determine whether the Death Benefit or
any other payment constitutes a direct skip as defined in Section 2612 of the
Code, and the amount of the tax on the generation-skipping transfer resulting
from such direct skip. If applicable, such payment will be reduced by any tax
National Life is required to pay by Section 2603 of the Code. A direct skip may
occur when property is transferred to or a Death Benefit is paid to an
individual two or more generations younger than the Owner.

Amounts may be distributed from a Contract because of an Owner's death
or the death of the Annuitant. Generally, such amounts are includible in the
income of the recipient as follows: (i) if distributed in a lump sum, they are
taxed in the same manner as a surrender of the Contract, or (ii) if distributed
under a Payment Option, they are taxed in the same way as annuity payments.

A transfer or assignment of ownership of a Contract, the designation of
an Annuitant of other than the Owner, the selection of certain Annuitization
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, should consult a tax advisor as to the tax
consequences.

QUALIFIED CONTRACTS

The Qualified Contract is designed for use with several types of
retirement plans. The tax rules applicable to participants and beneficiaries in
retirement plans vary according to the type of plan and the

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terms and conditions of the plan. Special favorable tax treatment may be
available for certain types of contributions and distributions. Adverse tax
consequences may result from contributions in excess of specified limits;
distributions prior to age 59 1/2 (subject to certain exceptions); distribution
that do not conform to specified commencement and minimum distribution rules;
aggregate distributions in excess of a specified annual amount; and in other
specified circumstances.

National Life makes no attempt to provide more than general information
about use of the Contracts with the various types of retirement plans. Owners
and participants under retirement plans as well as Annuitants and Beneficiaries
are cautioned that the rights of any person to any benefits under Qualified
Contracts may be subject to the terms and conditions of the Contract issued in
connection with such a plan. Some retirement plans are subject to distribution
and other requirements that are not incorporated in the administration of the
Contracts. Owners are responsible for determining that contributions,
distributions and other transactions with respect to the Contracts satisfy
applicable law. Federal income tax withholding will generally be made from
Distributions under Qualified Contracts, unless the participant elects not to
have tax withheld. Withholding is required from certain tax distributions (see
"Rollover Distributions, page ). Purchasers of Contracts for use with any
retirement plan should consult their legal counsel and tax adviser regarding the
suitability of the Contract.

CORPORATE PENSION AND PROFIT-SHARING PLANS

Code section 401(a) permits employers to establish various types of
retirement plans for employees, and permits 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.

CODE SECTION 403(b) PLANS

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.

Code section 403(b)(11) restricts the distribution under Code section
403(b) annuity contracts of: (1) elective contributions made in years beginning
after December 31, 1988; (2) earnings on those contributions; and (3) earnings
in such years on amounts held as of the last year beginning before January 1,
1989. Distribution of those amounts may only occur upon death of the employee,
attainment of age 59 1/2, separation from service, disability, or financial
hardship. In addition, income attributable to elective contributions may not be
distributed in the case of hardship. Employee loans may be available, subject to
certain restrictions (see "Loan Privilege - Tax-Sheltered Annuities", page ).

DEFERRED COMPENSATION PLANS

Code section 457 provides for certain deferred compensation plans. These
plans may be offered with respect to service for state governments, local
governments, political subdivisions, agencies, instrumentalities and certain
affiliates of such entities, and tax-exempt organizations. These plans are
subject to various restrictions on contributions and distributions. The plans
may permit participants to specify the form of investment for their deferred
compensation account. In general, all investments are owned by the sponsoring
employer and are subject to the claims of the general creditors of the employer.
Depending on the terms of the particular plan, the employer may be entitled to
draw on deferred amounts for purposes unrelated to its section 457 plan
obligations. In general, all amounts received under a section 457 plan are
taxable.

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INDIVIDUAL RETIREMENT ANNUITIES

The Contract may be purchased as an Individual Retirement Annuity under
Section 408(b) of the Code. Because the Contract's initial and subsequent
Premium Payments are greater than the maximum contribution permitted an
Individual Retirement Annuity, or an Individual Retirement Annuity Contract may
be purchased only in connection with a "rollover" (including a direct
trustee-to-trustee transfer, where permitted). Specifically, an Individual
Retirement Annuity Contract may be purchased only in connection with a rollover
of amounts from a Qualified Plan, Tax-Sheltered Annuity or Individual Retirement
Annuity. The Owner should seek competent advice as to the tax consequences
associated with the use of a Contract as an Individual Retirement Annuity.

Recent changes to the Code permit the rollover of most Distributions
from Qualified Plans to other Qualified Plans or Individual Retirement Accounts.
Most Distributions from Tax-Sheltered Annuities may be rolled into another
Tax-Sheltered Annuity or Individual Retirement Account. Distributions which may
not be rolled over are those which are:

1. one of a series of substantially equal annual (or more frequent)
payments made: (a) over the life (or life expectancy) of the employee,
(b) the joint lives (or joint life expectancies) of the employee and
the employee's designated Beneficiary, or (c) for a specified period of
ten years or more, or

2. a required minimum Distribution.

Any Distribution eligible for rollover will be subject to federal tax
withholding at a rate of twenty percent (20%) unless the Distribution is
transferred directly to an appropriate plan as described above.

Individual Retirement Accounts and Individual Retirement Annuities may
not provide life insurance benefits. If the Death Benefit exceeds the greater of
the cash value of the Contract or the sum of all Premium Payments (less any
surrenders), it is possible the Internal Revenue Service could determine that
the Individual Retirement Account or Individual Retirement Annuity did not
qualify for the desired tax treatment.

The Internal Revenue Service has not reviewed the Contract for qualification as
an IRA and has not generally ruled whether a Death Benefit provision such as the
provision in the Contract comports with IRA qualification requirements.

SIMPLE RETIREMENT ACCOUNTS

Beginning January 1, 1997, certain small employers may establish Simple
Retirement Accounts as provided by Section 408(p) of the Code, under which
employees may elect to defer up to $6000 (as increased for cost of living
adjustments) as a percentage of compensation. The sponsoring employer is
required to make a matching contribution on behalf of contributing employees.
Distributions from a Simple Retirement Account are subject to the same
restrictions that apply to IRA distributions and are taxed as ordinary income.
Subject to certain exceptions, premature distributions prior to age 59 1/2 are
subject to a 10% penalty tax, which is increased to 25% if the distribution
occurs within the first two years after the commencement of the employee's
participation in the plan. The failure of the Simple Retirement Account to meet
Code requirements may result in adverse tax consequences.

DIVERSIFICATION

The Internal Revenue Service has promulgated regulations under Section
817(h) of the Code relating to diversification standards for the investments
underlying a variable annuity contract. The regulations provide that a variable
annuity contract which does not satisfy the diversification standards will not
be treated as an annuity contract, unless the failure to satisfy the regulations
was inadvertent, the failure is corrected, and the Owner or National Life pays
an amount to the Internal Revenue Service. The amount will be based on the tax
that would have been paid by the Owner if the income, for the period the
contract was not diversified, had been received by the Owner. If the failure to

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diversify is not corrected in this manner, the Owner of an annuity contract will
be deemed the owner of the underlying securities and will be taxed on the
earnings of his or her account. National Life believes, under its interpretation
of the Code and regulations thereunder, that the investments underlying this
Contract meet these diversification standards.

In certain circumstances, owners of variable annuity contracts have
been considered for Federal income tax purposes to be the owners of the assets
of the Variable Account supporting their contracts due to their ability to
exercise investment control over those assets. When this is the case, the
contract owners have been currently taxed on income and gains attributable to
the variable account assets. There is little guidance in this area, and some
features of the Contracts, such as the flexibility of an Owner to allocate
Premium Payments and transfer Contract Value, have not been explicitly addressed
in published rulings. While National Life believes that the Contracts do not
give Owners investment control over Variable account assets, National Life
reserves the right to modify the Contracts as necessary to prevent an Owner from
being treated as the owner of the variable Account assets supporting the
Contract.

CHARGE FOR TAX PROVISIONS

National Life is no longer required to maintain a capital gain reserve
liability on Non-Qualified Contracts since capital gains attributable to assets
held in the Variable Account for such Contracts are not taxable to National
Life. However, National Life reserves the right to implement and adjust the tax
charge in the future, if the tax laws change.

ROLLOVER DISTRIBUTIONS

The Code permits the rollover of most Distributions from Qualified
Plans to other Qualified Plans, Individual Retirement Accounts, or Individual
Retirement Annuities. Most Distributions from Tax Sheltered Annuities may be
rolled into another Tax Sheltered Annuity, an Individual Retirement Account, or
an Individual Retirement Annuity. Distributions which may not be rolled over
are those which are:

2. a required minimum Distribution.

Any Distribution eligible for rollover will be subject to federal tax
withholding at a 20 percent rate unless the Distribution is transferred directly
to an appropriate plan as described above. Owner's should consult a financial
consultant to discuss in detail a particular tax situation and the use of the
Contracts.

RESTRICTIONS UNDER QUALIFIED CONTRACTS

Other restrictions with respect to the election, commencement, or
distribution of benefits may apply under Qualified Contracts or under the terms
of the plans in respect of which Qualified Contracts are issued.

GENDER NEUTRALITY

In 1983, the United States Supreme Court held that optional annuity
benefits provided under an employee's deferred compensation plan could not,
under Title VII of the Civil Rights Act of 1964 vary between men and women on
the basis of sex. The Court applied its decision to benefits derived from
contributions made on or after August 1, 1983. Lower federal courts have since
held that the Title VII prohibition of sex-distinct benefits may apply at an
earlier date. In addition, some states prohibit using sex-distinct mortality
tables.

39
<PAGE> 46

The Contract uses sex-distinct actuarial tables, unless state law
requires the use of sex-neutral actuarial tables. As a result, the Contract
generally provides different benefits to men and women of the same age.
Employers and employee organizations which may consider buying Contracts in
connection with any employment-related insurance or benefits program should
consult their legal advisors to determine whether the Contract is appropriate
for this purpose.

VOTING RIGHTS

Voting rights under the Contracts apply only with respect to Premium
Payments or accumulated amounts allocated to the Variable Account.

In accordance with its view of present applicable law, National Life
will vote the shares of the underlying Funds held in the Variable Account at
regular and special meetings of the shareholders of the underlying Funds. These
shares will be voted in accordance with instructions received from Owners who
have an interest in the Variable Account. If the Investment Company Act of 1940
or any regulation thereunder should be amended or if the present interpretation
thereof should change, and as a result National Life determines that it is
permitted to vote the shares of the underlying Funds in its own right, it may
elect to do so.

The person having the voting interest under a Contract shall be the
Owner. The number of underlying Fund shares attributable to each Owner is
determined by dividing the Owner's interest in each respective Subaccount of the
Variable Account by the net asset value of the underlying Fund corresponding to
the Subaccount.

The number of shares which a person has the right to vote will be
determined as of the date to be chosen by National Life not more than 90 days
prior to the meeting of the underlying Fund. Voting instructions will be
solicited by written communication at least 21 days prior to such meeting.

Underlying Fund shares held in the Variable Account as to which no
timely instructions are received will be voted by National Life in the same
proportion as the voting instructions which are received with respect to all
Contracts participating in the Variable Account.

Each person having a voting interest will receive periodic reports
relating to the underlying Fund, proxy material and a form with which to give
such voting instructions.

CHANGES TO VARIABLE ACCOUNT

National Life reserves the right to create one or more new separate
accounts, or to add new investments Funds for use in the Contracts at any time.
In addition, if the shares of the underlying Funds described in this prospectus
should no longer be available for investment by the Variable Account or if, in
the judgment of National Life's management, further investment in such
underlying Fund shares should become inappropriate, National Life may eliminate
Subaccounts, combine two or more Subaccounts or substitute one or more
underlying Funds for other underlying Fund shares already purchased or to be
purchased in the future by Premium Payments under the Contract. No substitution
of securities in the Variable Account may take place without prior approval of
the Securities and Exchange Commission, and under such requirements as it may
impose.

ADVERTISING

A "yield" and "effective yield" may be advertised for the Market Street
Money Market Portfolio Subaccount. "Yield" is a measure of the net dividend and
interest income earned over a specific seven-day period (which period will be
stated in the advertisement) expressed as a percentage of the offering price of
the Subaccount's units. Yield is an annualized figure, which means that it is
assumed that the Subaccount generates the same level of net income over a
52-week period. The "effective yield" is calculated similarly but includes the
effect of assumed compounding, calculated under rules prescribed by the
Securities and Exchange Commission. The effective yield will be slightly higher
than yield due to this compounding effect.

40
<PAGE> 47
National Life may also from time to time advertise the performance of
the Subaccount of the Variable Account relative to the performance of other
variable annuity Subaccounts or underlying Funds with similar or different
objectives, or the investment industry as a whole. Other investments to which
the Subaccounts may be compared include, but are not limited to: precious
metals; real estate; stocks and bonds; closed-end funds; CDs; bank money market
deposit accounts and passbook savings; and the Consumer Price Index.

The Subaccounts of the Variable Account may also be compared to certain
market indexes, which may include, but are not limited to: S&P 500;
Shearson/Lehman Intermediate Government/Corporate Bond Index; Shearson/Lehman
Long-Term Government/Corporate Bond Index; Donoghue Money Fund Average; U.S.
Treasury Note Index; Bank Rate Monitor National Index of 2 Year CD Rates; and
Dow Jones Industrial Average.

Normally these rankings and ratings are published by independent
tracking services and publications of general interest including, but not
limited to: Lipper Analytical Services, Inc., CDA/ Wiesenberger, Morningstar,
Donoghue's; magazines such as Money, Forbes, Kiplinger's Personal Finance
Magazine, Financial World, Consumer Reports, Business Week, Time, Newsweek,
National Underwriter, U.S. News and World Report; rating services such as LIMRA,
Value, Best's Agent Guide, Western Annuity Guide, Comparative Annuity Reports;
and other publications such as the Wall Street Journal, Barron's, Investor's
Daily, and Standard & Poor's Outlook. In addition, Variable Annuity Research &
Data Service (The VARDS Report) is an independent rating service that ranks over
500 variable annuity funds based upon total return performance. These rating
services and publications rank the performance of the underlying Funds against
all underlying Funds over specified periods and against funds in specified
categories. The rankings may or may not include the effects of sales or other
charges.

National Life is also ranked and rated by independent financial rating
services, among which are Moody's, Standard & Poor's and A.M. Best. The purpose
of these ratings is to reflect the financial strength or claims-paying ability
of National Life. The ratings are not intended to reflect the investment
experience or financial strength of the Variable Account. National Life may
advertise these ratings from time to time. In addition, National Life may
include in certain advertisements, endorsements in the form of a list of
organizations, individuals or other parties which recommend National Life or the
Contracts. Furthermore, National Life may occasionally include in advertisements
comparisons of currently taxable and tax deferred investment programs, based on
selected tax brackets, or discussions of alternative investment vehicles and
general economic conditions.

National Life may from time to time advertise several types of
historical performance for the Subaccounts of the Variable Account. National
Life may advertise for the Subaccounts standardized "average annual total
return", calculated in a manner prescribed by the Securities and Exchange
Commission, and nonstandardized "total return" "Average annual total return"
will show the percentage rate of return of a hypothetical initial investment of
$1,000 for at least the most recent one, five and ten year period, or for a
period covering the time the underlying Fund option held in the Subaccount has
been in existence, if the underlying Fund option has not been in existence for
one of the prescribed periods. This calculation reflects the deduction of all
applicable charges made to the Contracts except for premium taxes, which may be
imposed by certain states.

Nonstandardized "total return" will be calculated in a similar manner
and for the same time periods as the average annual total return except total
return will assume an initial investment of $10,000 and will not reflect the
deduction of any applicable Contingent Deferred Sales Charge, which, if
reflected, would decrease the level of performance shown. The Contingent
Deferred Sales Charge is not reflected because the Contracts are designed for
long term investment. An assumed initial investment of $10,000 will be used
because that figure more closely approximates the size of a typical Contract
than does the $1,000 figure used in calculating the standardized average annual
total return quotations. The amount of the hypothetical initial investment
assumed affects performance because the Annual Contract Fee is a fixed per
Contract charge.

41
<PAGE> 48

The tables below provide performance information for each Subaccount
for specified periods ending December 31, 1996. Because all the Subaccounts had
not commenced operations as of that date, performance information for the
Contracts will be calculated based on the performance of the Fund portfolios and
the assumption that the Subaccounts were in existence for the same periods with
the level of Contract charges that were in effect at the inception of the
Subaccounts.

All performance information and comparative material advertised by
National Life is historical in nature and is not intended to represent or
guarantee future results. An Owner's Contract Value at redemption may be more or
less than original cost.

Below are quotations of standardized average annual total return and
non-standardized total return calculated as described above, for each of the
Subaccounts available within the Variable Account for which there is significant
investment history. These figures are based upon historical earnings and are not
necessarily representative of future results. The first set of charts assumes
that neither of the optional benefits, the Enhanced Death Benefit Rider or the
Critical Needs Rider (see "Optional Benefits", page ) has been elected by the
Owner.

NON-STANDARDIZED TOTAL RETURN

<TABLE>
<CAPTION>
1 Year to 5 Years to Life of Fund to Date Fund
12/31/96 12/31/96 12/31/96 Effective
<S> <C> <C> <C> <C>
Alger American Small Capitalization Portfolio
Alger American Growth Portfolio
Fidelity VIP Fund-Equity Income Portfolio
Fidelity VIP Fund-Growth Portfolio
Fidelity VIP Fund-High Income Portfolio
Fidelity VIP Fund-Overseas Portfolio
Fidelity VIP Fund II-Index 500 Portfolio
Fidelity VIP Fund II-Contrafund Portfolio
Market Street Common Stock Portfolio
Market Street Sentinel Growth Portfolio
Market Street Aggressive Growth Portfolio
Market Street Managed Portfolio
Market Street Bond Portfolio
Market Street International Portfolio
Market Street Money Market Portfolio
Strong Special Fund II, Inc.
Strong Growth Fund II
</TABLE>

STANDARDIZED AVERAGE ANNUAL TOTAL RETURN

42
<PAGE> 49
The following quotations of standardized and non-standardized total
return assume that the Owner has elected both of the available optional
benefits, the Enhanced Death Benefit Rider and the Critical needs Rider:

NON-STANDARDIZED TOTAL RETURN

STANDARDIZED AVERAGE ANNUAL TOTAL RETURN

DISTRIBUTION OF THE CONTRACTS

The principal underwriter for the contracts is ESI, which is an
SEC-registered broker-dealer firm which is a member of the National Association
of Securities Dealers, Inc. ESI is a wholly-owned subsidiary of National Life.
It distributes a full line of securities products, including mutual funds, unit
investment trusts, and variable insurance contracts, and provides individual
securities brokerage

43
<PAGE> 50
services. The maximum commission payable for selling the Contracts will
generally be 6.5%; however, for the first six months that the Contracts are
available for sale in each state, the maximum commission payable on Contracts
purchased in such state will be 7.0%.

STATEMENTS AND REPORTS

National Life will mail to Owners, at their last known address of
record, any statements and reports required by applicable laws or regulations.
Owners should therefore give National Life prompt notice of any address change.
National Life will send a confirmation statement to Owners each time a
transaction is made affecting the Owner's Variable Account Contract Value, such
as making additional Premium Payments, transfers, exchanges or Withdrawals.
Quarterly statements are also mailed detailing the Contract activity during the
calendar quarter. Instead of receiving an immediate confirmation of transactions
made pursuant to some types of periodic payment plans (such as a dollar cost
averaging program) or salary reduction arrangement, the Owner may receive
confirmation of such transactions in their quarterly statements. The Owner
should review the information in these statements carefully. All errors or
corrections must be reported to National Life immediately to assure proper
crediting to the Owner's Contract. National Life will assume all transactions
are accurately reported on quarterly statements or confirmation statements
unless the Owner notifies National Life otherwise within 30 days after receipt
of the statement. National Life will also send to Owners each year an annual
report and a semi-annual report containing financial statements for the Variable
Account, as of December 31 and June 30, respectively.

OWNER INQUIRIES

Owner inquiries may be directed to National Life Insurance Company by
writing to it at National Life Drive, Montpelier, Vermont 05604, or calling
1-800- - .

LEGAL PROCEEDINGS

There are no material legal proceedings involving National Life or the
Variable Account, other than ordinary routine litigation incidental to the
business to which National Life is a party or to which any of its property is
the subject. ESI is not engaged in any litigation of any material nature.

TABLE OF CONTENTS OF STATEMENT OF ADDITIONAL INFORMATION

National Life Insurance Company.......................................
Additional Contract Provisions........................................
The Contract.................................................
Misstatement of Age or Sex...................................
Dividends....................................................
Assignment...................................................
Calculation of Yields and Total Returns...............................
Money Market Subaccount Yields...............................
Other Subaccount Yields......................................
Average Annual Total Returns.................................
Other Total Returns..........................................
Effect of the Annual Contract Fee on Performance Data........
Distribution of the Contracts ........................................
Safekeeping of Account Assets.........................................
State Regulation......................................................
Records and Reports...................................................
Legal Matters.........................................................
Experts
Other Information.....................................................
Financial Statements..................................................

44
<PAGE> 51
PART B

STATEMENT OF ADDITIONAL INFORMATION

<PAGE> 52

PART B

ITEM OF FORM N-4 PART B CAPTION

15. Cover Page ......................Cover Page

16. Table of Contents ...............Table of Contents

17. General Information and
History ........................NATIONAL LIFE INSURANCE
COMPANY

18. Services

(a) Fees and Expenses of
Registrant ................Charges and Deductions
(prospectus)
(b) Management Contracts ......N/A
(c) Custodian .................Safekeeping of Account
Assets
Independent Public
Accountant ................Experts
(d) Assets of Registrant ......The Variable Account
(prospectus)
(e) Affiliated Persons ........N/A
(f) Principal Underwriter .....Distribution of the
Contracts

19. Purchase of Securities
Being Offered ..................Distribution of the
Contracts
Offering Sales Load ............N/A

20. Underwriters ....................Distribution of the
Contracts

21. Calculation of Performance
Data ............................Calculation of Yields and
Total Returns

22. Annuity Payments ................Annuity Payment Options
(prospectus)

23. Financial Statements ............Financial Statements

<PAGE> 53
PART C -- OTHER INFORMATION

ITEM OF FORM N-4 PART C CAPTION

24. Financial Statements
and Exhibits ...................Financial Statements and
Exhibits

(a) Financial Statements .......(a) Financial Statements
(b) Exhibits ...................(b) Exhibits

25. Directors and Officers
of the Depositor ................Directors and Officers of
the Depositor

26. Persons Controlled By or
Under Common Control with the
Depositor or Registrant ........Persons Controlled By or
Under Common Control with
the Depositor or
Registrant

27. Number of Contractowners ........Number of Contract Owners

28. Indemnification .................Indemnification

29. Principal Underwriters ..........Principal Underwriter

30. Location of Accounts
and Records .....................Location of Books and
Records

31. Management Services .............Management Services

32. Undertakings ....................Undertakings and
Representations

Signature Page ..................Signatures

<PAGE> 54

NATIONAL LIFE INSURANCE COMPANY

STATEMENT OF ADDITIONAL INFORMATION

NATIONAL VARIABLE ANNUITY ACCOUNT II

THE [TIME CHALLENGE] VARIABLE ANNUITY CONTRACT

OFFERED BY
NATIONAL LIFE INSURANCE COMPANY
National Life Drive
Montpelier, Vermont 05604

This Statement of Additional Information expands upon subjects
discussed in the current Prospectus for the above-named [TimeChallenge] Variable
Annuity Contract ("Contract") offered by National Life Insurance Company. You
may obtain a copy of the Prospectus dated ________________ by calling
1-800-___-____, or writing to National Life Insurance Company, One National Life
Drive, Montpelier, Vermont 05604. Definitions of terms used in the current
Prospectus for the Contract are incorporated in this Statement of Additional
Information.

THIS STATEMENT OF ADDITIONAL INFORMATION IS
NOT A PROSPECTUS AND SHOULD BE READ ONLY IN
CONJUNCTION WITH THE PROSPECTUS FOR THE CONTRACT.

Dated __________, 1997

<PAGE> 55

TABLE OF CONTENTS

National Life Insurance Company.................................................
Additional Contract Provisions..................................................
The Contract...........................................................
Misstatement of Age or Sex.............................................
Dividends..............................................................
Assignment.............................................................
Calculation of Yields and Total Returns.........................................
Money Market Subaccount Yields.........................................
Other Subaccount Yields................................................
Average Annual Total Returns...........................................
Other Total Returns....................................................
Effect of the Annual Contract Fee on Performance Data..................
Distribution of the Contracts ..................................................
Safekeeping of Account Assets...................................................
State Regulation................................................................
Records and Reports.............................................................
Legal Matters...................................................................
Experts
Other Information...............................................................
Financial Statements............................................................

<PAGE> 56

NATIONAL LIFE INSURANCE COMPANY

National Life Insurance Company ("National Life") has operated as a
mutual life insurance company since 1848 under a charter granted by the State of
Vermont, and has done business continuously as "National Life Insurance
Company."

ADDITIONAL CONTRACT PROVISIONS

The Contract

The entire contract is made up of the Contract and the application. The
statements made in the application are deemed representations and not
warranties. National Life cannot use any statement in defense of a claim or to
void the Contract unless it is contained in the application and a copy of the
application is attached to the Contract at issue.

Misstatement of Age or Sex

If the age or sex of the annuitant has been misstated, the amount which
will be paid is that which the proceeds would have purchased at the correct age
and sex.

If an overpayment is made because of an error in age or sex, the
overpayment plus interest at 6% compounded annually will be a debt against the
Contract. If the debt is not repaid, future payments will be reduced
accordingly.

If an underpayment is made because of an error in age or sex, the
underpayment, with interest at 6% compounded annually, will be paid in one sum
by National Life.

Dividends

The Contract is participating; however, no dividends are expected to be
paid on the Contract. If dividends are ever declared, they will be paid in cash.

Assignment

Where permitted, the Owner may assign some or all of the rights under
the Contract at any time during the lifetime of the Annuitant prior to the
Annuitization Date. Such assignment will take effect upon receipt and recording
by National Life at its Home Office of a written notice executed by the Owner.
National Life assumes no responsibility for the validity or tax consequences of
any assignment. National Life shall not be liable as to any payment or other
settlement made by National Life before recording of the assignment. Where
necessary for the proper administration of the terms of the Contract, an
assignment will not be recorded until National Life has received sufficient
direction from the Owner and assignee as to the proper allocation of Contract
rights under the assignment.

Any portion of Contract Value which is pledged or assigned shall be
treated as a Distribution and shall be included in gross income to the extent
that the cash value exceeds the investment in the Contract for the taxable year
in which assigned or pledged. In addition, any Contract Values assigned may,
under certain conditions, be subject to a tax penalty equal to 10% of the amount
which is included in gross income. All rights in this Contract are personal to
the Owner and may not be assigned without written consent of National Life.
Assignment of the

3
<PAGE> 57
entire Contract Value may cause the portion of the Contract Value which exceeds
the total investment in the Contract and previously taxed amounts to be included
in gross income for federal income tax purposes each year that the assignment is
in effect. Qualified Contracts are not eligible for assignment.

CALCULATION OF YIELDS AND TOTAL RETURNS

From time to time, National Life may disclose yields, total returns,
and other performance data pertaining to the Contracts or a Subaccount. Such
performance data will be computed, or accompanied by performance data computed,
in accordance with the standards defined by the Securities and Exchange
Commission.

Because of the charges and deductions imposed under a Contract, the
yield for the Subaccounts will be lower than the yield for their respective
Portfolios. The calculations of yields, total returns, and other performance
data do not reflect the effect of any premium tax that may be applicable to a
particular Contract. Premium taxes currently rate from 0% to 3.5% of premium
based on the state in which the Contract is sold.

Money Market Subaccount Yields

From time to time, advertisements and sales literature may quote the
current annualized yield of the Money Market Subaccount for a seven-day period
in a manner which does not take into consideration any realized or unrealized
gains or losses on shares of the Market Street 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) at the end of the seven-day period in the value
of a hypothetical account under a Contract having a balance of 1 unit of the
Money Market Subaccount at the beginning of the period, dividing such net change
in account value by the value of the hypothetical 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: 1) net income from
the Portfolio attributable to the hypothetical account; and 2) charges and
deductions imposed under the Contract which are attributable to the hypothetical
account. The charges and deductions include the per unit charges for the
hypothetical account for: 1) the Annual Contract Fee; 2) Administration Charge;
and 3) the Mortality and Expense Risk Charge. For purposes of calculating
current yields for a Contract, an average per unit Annual Account Fee is used
based on the $30 Annual Account Fee deducted at the beginning of each Contract
Year. For the class of Contracts with the Enhanced Death Benefit Rider and
Critical Needs Rider, the charges for those optional benefits will be included.
Current Yield will be calculated according to the following formula:

Current Yield = ((NCS - ES) /UV) x (365/7)

Where:

NCS = the net change in the value of the Portfolio
(exclusive of realized gains or losses on the sale of
securities and unrealized appreciation and

<PAGE> 58

depreciation) for the seven-day period attributable
to a hypothetical account having a balance of 1
Subaccount unit.

ES = per unit expenses attributable to the hypothetical
account for the seven-day period.

UV = The unit value on the first day of the seven-day period.

The effective yield of the Money Market Subaccount determined on a
compounded basis for the same seven-day period may also be quoted.

The effective yield is calculated by compounding the unannualized base
period return according to the following formula:

Effective Yield = (1 + (NCS - ES)/UV))365/7 - 1

Where:

NCS = the net change in the value of the Portfolio (exclusive
of realized gains or losses on the sale of securities and
unrealized appreciation and depreciation) for the seven-
day period attributable to a hypothetical account having
a balance of 1 Subaccount unit.

ES = per unit expenses attributable to the hypothetical
account for the seven day period.

UV = The unit value on the first day of the seven-day period.

Because of the charges and deductions imposed under the Contract, the
yield for the Money Market Subaccount will be lower than the yield for the
Market Street Money Market Portfolio.

The current and effective yields on amounts held in the Money Market
Subaccount 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 Money Market Subaccount's actual yield is
affected by changes in interest rates on money market securities, average
portfolio maturity of the Market Street Money Market Portfolio, the types of
quality of portfolio securities held by the Market Street Money Market Portfolio
and the Market Street Money Market Portfolio's operating expenses. Yields on
amounts held in the Money Market Subaccount may also be presented for periods
other than a seven-day period.

Other Subaccount Yields

From time to time, sales literature or advertisements may quote the
current annualized yield of one or more of the Subaccounts (except the Money
Market Subaccount) for a Contract for 30-day or one-month periods. The
annualized yield of a Subaccount refers to income generated by the Subaccount
over a specific 30-day or one-month period. Because the yield is annualized, the
yield generated by a Subaccount during a 30-day or one-month period is assumed
to be generated each period over a 12-month period.

<PAGE> 59
The yield is computed by: 1) dividing the net investment income of the
Portfolio attributable to the Subaccount units less Subaccount expenses for the
period; by (2) the maximum offering price per unit on the last day of the period
times the daily average number of units outstanding for the period; by 3)
compounding that yield for a six-month period; and by 4) multiplying that result
by 2. Expenses attributable to the Subaccount include the Annual Account Fee,
the Administration Charge and the Mortality and Expense Risk Charge. The yield
calculation assumes an Annual Contract Fee of $30 per year per Contract deducted
at the beginning of each Contract Year. For the class of Contracts with the
Enhanced Death Benefit Rider and Critical Needs Rider, the charges for those
optional benefits will be included. For purposes of calculating the 30-day or
one -month yield, an average Annual Contract Fee per dollar of Contract Value in
the Variable Account is used to determine the amount of the charge attributable
to the Subaccount for the 30-day or one-month period. The 30-day or one-month
yield is calculated according to the following formula:

6
Yield = 2 x (((NI - ES)/(U x UV)) + 1) -1)

Where:

NI = net income of the Portfolio for the 30-day or one-month period
attributable to the Subaccount's units.

ES = expenses of the Subaccount for the 30-day or one-month period.

U = the average number of units outstanding.

UV = the unit value at the close (highest) of the last day in the
30-day or one-month period.

Because of the charges and deductions imposed under the Contracts, the
yield for the Subaccount will be lower than the yield for the corresponding
Fund.

The yield on the amounts held in the Subaccounts 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
Subaccount's actual yield is affected by the types and quality of portfolio
securities held by the Portfolio and its operating expenses.

Yield calculations do not take into account the Surrender Charge under
the Contract equal to from 1% to 7% of premiums paid during the seven years
prior to the surrender or Withdrawal (including the year in which the surrender
is made) on amounts surrendered or withdrawn under the Contract. A Surrender
Charge will not be imposed on Withdrawals in any Contract Year on an amount up
to 15% of the Contract Value as of the most recent Contract Anniversary.
However, if a Contract is subsequently surrendered within a year after taking a
Withdrawal that benefits from the CDSC-free provision, then a CDSC will be
assessed at the time of the surrender as if the surrender had been taken as a
single step.

Average Annual Total Returns

From time to time, sales literature or advertisements may also quote
average annual total returns for one or more of the Subaccounts for various
periods of time.

Until a Subaccount has been in operation for 10 years, National Life
will always include quotes of average annual total return of the period measured
from the date the

<PAGE> 60
Contracts were first offered for sale. When a Subaccount has been in operation
for 1, 5 and 10 years, respectively, the average annual total return for these
periods will be provided. Average annual total returns for other periods of time
may, from time to time, also be disclosed.

Average annual total returns represent the average annual compounded
rates of return that would equate an initial investment of $1,000 under a
Contract to the redemption value of that investment as of the last day of each
of the periods. The ending date for each period for which total return
quotations are provided will be for the most recent month-end practicable,
considering the type and media of the communication and will be stated in the
communication.

Average annual total returns will be calculated using Subaccount unit
values which National Life calculates on each Valuation Day based on the
performance of the Subaccount's underlying Portfolio, the deductions for the
Mortality and Expense Risk Charge, the Asset-Based Administration Charge, and
the Annual Administration Fee. The calculation assumes that the administration
fee is $30 per year per contract deducted at the end of each Contract Year. For
the class of Contracts with the Enhanced Death Benefit Rider and the Critical
Needs Rider, the charges for those optional benefits will be included. For
purposes of calculating average annual total return, an average per dollar
administration fee attributable to the hypothetical account for the period is
used. The calculation also assumes surrender of the Contract at the end of the
period for the return quotation. Total returns will therefore reflect a
deduction of the Surrender Charge for any period less than seven years. The
total return will then be calculated according to the following formula:

TR = ( ( ERV/P) 1/N) - 1

Where:

TR = the average annual total return net of Subaccount
recurring charges.

ERV= the ending redeemable value (net of any applicable
surrender charge) of the hypothetical account at the end
of the period.

P = a hypothetical initial payment of $1,000.

N = the number of years in the period.

From time to time, sales literature or advertisements may also quote
average annual total returns for periods prior to the date the Variable Account
commenced operations. For those periods, performance information for the
Contracts will be calculated based on the performance of the Fund Portfolios and
the assumption that the Subaccounts were in existence for the same periods with
the level of Contract charges that were in effect at the inception of the
Subaccounts.

The Funds have provided the total return information, including the
Fund total return information used to calculate the total returns of the
Subaccounts for periods prior to the inception of the Subaccounts. The Alger
American Fund, Variable Insurance Products Fund, Variable Insurance Product Fund
II, Strong Special Fund II, and Strong Growth Fund II are not affiliated with
National Life. While National Life has no reason to doubt the accuracy of these
figures provided by these non-affiliated Funds, National Life does not represent
that they are true and complete, and disclaims all responsibility for these
figures.

7
<PAGE> 61
Such average annual total return information for the Subaccounts is set
forth in the Prospectus.

Other Total Returns

From time to time, sales literature or advertisements may also quote
average annual total returns that do not reflect the Surrender Charge. These are
calculated in exactly the same way as average annual total returns described
above, except that the ending redeemable value of the hypothetical account for
the period is replaced with an ending value for the period that does not take
into account any charges on amounts surrendered or withdrawn. Such information
is also set forth in the Prospectus.

National Life may disclose Cumulative Total Returns in conjunction with
the standard formats described above. The Cumulative Total Returns will be
calculated using the following formula:

CTR = (ERV/P) - 1

Where:

CTR = The Cumulative Total Return net of Subaccount recurring
charges for the period.

ERV = The ending redeemable value of the hypothetical investment
at the end of the period.

P = A hypothetical single payment of $1,000.

CTR = (ERV/P) - 1

Where:

CTR = The Cumulative Total Return net of Subaccount recurring
charges for the period.

ERV = The ending redeemable value of the hypothetical investment
at the end of the period.

P = A hypothetical single payment of $1,000.

Effect of the Annual Contract Fee on Performance Data

The Contract provides, for all Contracts with a Contract Value on the
Date of Issue or any subsequent Contract Anniversary, for a $30 Annual Contract
Fee to be deducted annually at the beginning of each Contract Year, from the
Subaccounts and the unloaned portion of the Fixed Account based on the
proportion that the value of each such account bears to the total Contract
Value. For purposes of reflecting the Annual Contract Fee in yield and total
return quotations, the Annual Contract Fee is converted into a per-dollar
per-day charge based on the average Contract Value in the Variable Account of
all Contracts on the last day of the period

8
<PAGE> 62
for which quotations are provided. The per-dollar per-day average charge will
then be adjusted to reflect the basis upon which the particular quotation is
calculated.

DISTRIBUTION OF THE CONTRACTS

The principal underwriter for the Contracts is Equity Services, Inc., a
wholly-owned subsidiary of the Company. The Contracts will be offered on a
continuous basis and will be sold by licensed insurance agents in the states
where the Contracts may lawfully be sold. Such agents will be representatives of
broker-dealers registered under the Securities Exchange Act of 1934 who are
members of the National Association of Securities Dealers, Inc. Broker-dealers
other than Equity Services, Inc. will have executed Selling Agreements with
Equity Services, Inc.

SAFEKEEPING OF ACCOUNT ASSETS

National Life holds the title to the assets of the Variable Account. The
assets are kept physically segregated and held separate and apart from the
Company's General Account assets and from the assets in any other separate
account.

Records are maintained of all purchases and redemptions of Fund shares
held by each of the Subaccounts.

STATE REGULATION

National Life is subject to regulation and supervision by the Insurance
Department of the State of Vermont which periodically examines its affairs. It
is also subject to the insurance laws and regulations of all jurisdictions where
it is authorized to do business. A copy of the Contract form has been filed
with, and where required approved by, insurance officials in each jurisdiction
where the Contracts are sold. National Life is required to submit annual
statements of its operations, including financial statements, to the insurance
departments of the various jurisdictions in which it does business for the
purposes of determining solvency and compliance with local insurance laws and
regulations.

RECORDS AND REPORTS

National Life will maintain all records and accounts relating to the
Variable Account. As presently required by the Investment Company Act of 1940
and regulations promulgated thereunder, reports containing such information as
may be required under the Act or by any other applicable law or regulation will
be sent to Contract Owners semi-annually at the last address known to the
Company.

LEGAL MATTERS

All matters relating to Vermont law pertaining to the Contracts,
including the validity of the Contracts and National Life's authority to issue
the Contracts, have been passed upon by Margaret K. Arthur, General Counsel of
National Life. Sutherland, Asbill & Brennan

9
<PAGE> 63
of Washington, D.C. has provided advice on certain matters relating to the
Federal securities laws.

EXPERTS

The statements of financial condition for National Life as of December
31, 1996 and 1995 and the related statements of operations, changes in capital
and surplus and cash flows for each of the three years in the period ended
December 31, 1996, which are included in this Statement of Additional
Information and in the registration statement, have been audited by Price
Waterhouse LLP, independent auditors, of National Life Building - 2nd Floor, One
National Life Drive, Montpelier, Vermont 05602, as set forth in their report
included herein, and are included herein in reliance upon such report and upon
the authority of such firm as experts in accounting and auditing.

OTHER INFORMATION

A registration statement has been filed with the SEC under the
Securities Act of 1933 as amended, with respect to the Contracts discussed in
this Statement of Additional Information. Not all 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 SEC at 450 Fifth Street, N.W., Washington, DC 20549.

FINANCIAL STATEMENTS

National Life's statements of financial condition as of December 31,
1996 and 1995 and the related statements of operations, changes in capital and
surplus and cash flows for each of the three years in the period ended December
31, 1996, which are included in this Statement of Additional Information, should
be considered only as bearing on National Life's ability to meet its obligations
under the Contracts. They should not be considered as bearing on the investment
performance of the assets held in the Variable Account.

[Financial Statements to be provided by amendment.]

10
<PAGE> 64
PART C

OTHER INFORMATION

<PAGE> 65
PART C - OTHER INFORMATION

Item 24. Financial Statements and Exhibits

(a) Financial Statements:

(1) Financial statements and schedule included in
Prospectus

Condensed Financial Information

(2) Financial statements and schedule included in Part B:

National Life Insurance Company:

Independent Auditor's Report.

Consolidated Balance Sheets as of December 31, 1996 and 1995.

Consolidated Statements of Income for the years ended
December 31, 1996, 1995 and 1994.

Consolidated Statements of Shareholder's Equity for the years
ended December 31, 1996, 1995 and 1994.

Notes to Consolidated Financial Statements

(b) Exhibits

(1) Resolution of the Depositor's Board of
Directors authorizing the establishment of
the Registrant.

(2) Not Applicable

(3) Underwriting Contract between the Variable
Account/Registrant and Principal
Underwriter*

(4) The form of the variable annuity contract*

(5) Variable Annuity Application*

(6) Articles of Incorporation and By-Laws of
Depositor**.

(7) Not Applicable

C-1
<PAGE> 66
(8) (a) Form of Participation Agreement by
and among Market Street Fund, Inc., National
Life Insurance Comapny and Equity Services,
Inc. dated _____________, 1997*.

(b) Form of Participation Agreement by
and among Variable Insurance Products Fund,
Fidelity Distributors Corporation and
National Life Insurance Company, dated
_________, 1997*.

(c) Form of Participation Agreement by
and among The Alger American Fund, National
Life Insurance Company and Fred Alger and
Company, dated _________, 1997*

(d) Form of Participation Agreement by
and among National Life Insurance Company,
National Life Variable Annuity Account II
and Strong Variable Insurance Funds, Inc.,
Strong Special Fund II, Inc., and Strong
Funds Distributors, Inc., dated
_______________1997*

(9) Opinion of Counsel*

(10) Not Applicable

(11) Not Applicable

(12) Not Applicable

(13) Performance Advertising Calculation
Schedule*

(14) Powers of Attorney

(a) Robert E. Boardman
(b) David R. Coates
(c) Benjamin F. Edwards III
(d) Charles H. Erhart, Jr.
(e) Earle H. Harbison, Jr.
(f) Roger B. Porter
(g) E. Miles Prentice, III
(h) Thomas P. Salmon
(i) A. Gary Shilling
(j) Patricia K. Woolf

*To be filed by amendment.

C-2
<PAGE> 67

** Incorporated herein by reference to the Form S-6 Registration Statement
(File No. 33-91938) for National Variable Life Insurance Account filed on
May 5, 1995.

Item 25. Directors and Officers of the Depositor

<TABLE>
<CAPTION>
Name and Principal Business Address* Position with Depositor
- ------------------------------------ -----------------------
<S> <C>
Frederic H. Bertrand Chairman of the Board, Chief Executive
Officer and Director

Thomas H. MacLeay President, Chief Operating Officer and
Director

Robert E. Boardman Director
Hickok & Boardman Financial Network
346 Shelburne Street, P. O. Box 1064
Burlington, VT 05402-1064

David R. Coates Director
KPMG Peat Marwick
One Church Street, P. O. Box 564
Burlington, VT 05402-0564

Benjamin F. Edwards III Director
A. G. Edwards & Sons, Inc.
1 N. Jefferson Avenue
St. Louis, MO 63103

Charles H. Erhart, Jr. Director
149 E. 73rd St.
New York, NY 10021

Earle H. Harbison, Jr. Director
Harbison Corporation
7700 Bonhomme Ave., Suite 750
St. Louis, MO 63105

Roger B. Porter Director
Center for Business & Govt. - 414
Kennedy School of Government
Harvard University
79 John F. Kennedy St.
Cambridge, MA 02138
</TABLE>

C-3
<PAGE> 68
<TABLE>
<S> <C>
E. Miles Prentice III Director
Bryan Cave LLP
245 Park Avenue
New York, NY 10167-0034

Thomas P. Salmon Director
The University of Vermont
349 Waterman Building
85 S. Prospect Street
Burlington, VT 05405-0160

A. Gary Shilling Director
A. Gary Shilling & Co., Inc.
500 Morris Avenue
Springfield, New Jersey 07081-1020

Thomas R. Williams Director
The Wales Group, Inc.
3200 Arden Rd., NW
Atlanta, GA 30305

Patricia K. Woolf Director
506 Quaker Road
Princeton, NJ 08540

Margaret K. Arthur Senior Vice President & General Counsel

Beverly A. Bagalio Senior Vice President - Service Strategies

Rodney A. Buck Senior Vice President & Chief
Investment Officer

William L. Cassidy Executive Vice President

John L. LaGue, Jr. Vice President & Controller

Mark J. Levesque Senior Vice President - Information System
Systems & Management Services

Craig A. Smith Senior Vice President - Product

Theodore N. von Wallmenich Senior Vice President & Chief Actuary
</TABLE>

*Unless otherwise indicated, the principal business address is National Life
Drive, Montpelier, Vermont 05604.

C-4
<PAGE> 69

Item 26. Persons Controlled by or Under Common Control with the Depositor or
Registrant.

A diagram of all persons directly or indirectly controlled by
or under common control with National Life is included as Exhibit ____
hereto (to be filed by amendment).

Item 27. Number of Contract Owners

No contracts have been issued to date.

Item 28. Indemnification

The By-Laws of Depositor provide, in part in Article VI, as follows:

Article 6.02 Any person who at any time shall serve or shall have
served, at the request of the Corporation, as
director or officer or employee of the Corporation or
any other corporation, including but not limited to
the Corporation's subsidiaries and mutual funds
organized by the Corporation, but an officer,
director or employee of such a fund only if such
person is also a director, officer or employee of the
Corporation or a subsidiary) and the heirs, executors
or administrators of such person shall be indemnified
to the maximum extent permitted by law by the
Corporation against all costs and expenses (including
but not limited to counsel fees, amounts of judgments
paid and amounts paid in settlement, before or after
a suit or proceeding is actually commenced)
reasonably incurred with the defense of any claim,
action, suit or proceeding, whether civil, criminal,
administrative or other, in which such person or
persons may be involved by virtue of such person
being or having been a director, officer or employee.
The lawfulness of such indemnification shall be
determined by the opinion of independent counsel,
which opinion shall be based upon the facts of any
particular claim. The disinterested senior legal
officer of the Corporation shall select independent
counsel in such manner as to ensure the impartiality
of that independent counsel in the matter to be
decided. The foregoing indemnification shall not be
deemed exclusive of any other rights to which those
indemnified may be entitled under any resolution,
agreement, vote of shareholders or otherwise.

Insofar as indemnification for liabilities arising under the Securities
Act of 1933 may be permitted to directors, officers, and controlling
persons of the Registrant pursuant to the foregoing provisions, or
otherwise, the Registrant has been advised that in the opinion of the
Securities and Exchange Commission such indemnification

C-5
<PAGE> 70
is against public policy as expressed in the Act and is, therefore,
unenforceable. In the event that a claim for indemnification against
such liabilities (other than the payment by the Registrant of expenses
incurred or paid by a director, officer or controlling person of the
Registrant in the successful defense of any such action, suit or
proceeding) is asserted by such director, officer, or controlling
person in connection with the securities being registered, the
Registrant will, unless in the opinion of its counsel the matter has
been settled by controlling precedent, submit to a court of appropriate
jurisdiction the question of whether such indemnification by it is
against public policy as expressed in the Act and will be governed by
the final adjudication of such issue.

Item 29 Principal Underwriter

(a) Equity Services, Inc. (ESI) is the principal underwriter for
National Variable Annuity Account II and National Variable Life
Insurance Account.

(b) The following information is furnished with respect to the officers
and directors of ESI:

Name and Principal Positions and Offices
Business Address* with ESI
- ----------------- --------

Joseph M. Rob Chairman & Chief Executive Officer & Director
Nancy K. Port President & Chief Operating Officer
John M. Grab, Jr. Senior Vice President & Chief Financial Officer
Stephen A. Englese Vice President - Financial Products
Marvin Aber Vice President
Budd A. Shedaker Assistant Vice President - Communications
Pauline R. Stebar Assistant Vice President - Compliance
D. Russell Morgan Counsel
Brian K. Martin Treasurer
Lisa A. Pettrey Secretary
Jean K. Landolt Assistant Secretary
Frederic H.Bertrand Director
Thomas H. MacLeay Director
William L. Cassidy Director

*Unless otherwise indicated, principal business address is One National Life
Drive, Montpelier, Vermont 05604.

Item 30. Location of Accounts and Records

All accounts and records required to be maintained by Section 31(a) of
the Investment Company Act of 1940 and the rules thereunder are maintained by
National Life Insurance Company at One National Life Drive, Montpelier, Vermont
05604.

Item 31. Management Services

C-6
<PAGE> 71
All management contracts are discussed in Part A or Part B.

Item 32 Undertakings

(a) Registrant hereby undertakes to file a post-effective amendment to
this registration statement as frequently as is necessary to ensure that the
audited financial statements in the registration statement are never more than
sixteen (16) months old for so long as payments under the variable annuity
contracts may be accepted;

(b) Registrant hereby undertakes to include either (1) as part of any
application to purchase a contract offered by the Prospectus, a space that an
applicant can check to request a Statement of Additional Information, or (2) a
postcard or similar written communication affixed to or included in the
Prospectus that the applicant can remove to send for a Statement of Additional
Information; and

(c) Registrant hereby undertakes to deliver any Statement of Additional
Information and any financial statement required to be made available under this
form promptly upon written or oral request.

(d) Reliance on No-Action Letter Regarding Section 403(b) Retirement
Plan. National Life Insurance Company and the Registrant/Variable Account rely
on a no-action letter issued by the Division of Investment Management to the
American Council of Life Insurance on November 28, 1988 and represent that the
conditions enumerated therein have been or will be complied with.

(e) National Life Insurance Company hereby represents that the fees and
charges deducted under the Contract, in the aggregate, are reasonable in
relation to the services rendered, the expenses expected to be incurred, and the
risks assumed by National Life Insurance Company.

C-7
<PAGE> 72

SIGNATURES

Pursuant to the requirements of the Securities Act of 1933, the
Registrant, National Variable Annuity Account II, has duly caused this
Registration Statement to be signed on its behalf, in the City of Montpelier and
the State of Vermont, on the 8th day of January, 1997.

NATIONAL VARIABLE ANNUITY ACCOUNT II
(Registrant)

Attest: /s/ Lisa A. Pettrey By: /s/ Thomas H. MacLeay
--------------------------- ---------------------------------
Assistant Secretary Thomas H. MacLeay, President &
Chief Operating Officer
National Life Insurance Company

By: NATIONAL LIFE INSURANCE COMPANY
(Depositor)

Attest: /s/ Lisa A. Pettrey By: /s/ Thomas H. MacLeay
--------------------------- --------------------------------
Thomas H. MacLeay
Assistant Secretary President & Chief
Operating Officer

SIGNATURES

Pursuant to the requirements of the Securities Act of 1933, this
Registration Statement has been signed below by the following persons in the
capacities indicated on the date(s) set forth below.

Signature Title Date
- --------- ----- ----
/s/ Frederic H. Bertrand Chairman of the Board and 1/8/97
- ----------------------------- and Chief Executive Officer,
Frederic H. Bertrand and Director

C-8
<PAGE> 73
/s/ Thomas H. MacLeay President & Chief Operating 1/8/97
- ----------------------------- Officer, and Director
Thomas H. MacLeay

/s/ John L. LaGue, Jr. Vice President & Controller 1/8/97
- ----------------------------- (Chief Accounting Officer)
John L. LaGue, Jr.

Robert E. Boardman* Director ____________
- -----------------------------
Robert E. Boardman

David R. Coates* Director ____________
- -----------------------------
David R. Coates

Benjamin F. Edwards III* Director ____________
- -----------------------------
Benjamin F. Edwards III

Charles H. Erhart, Jr.* Director ____________
- -----------------------------
Charles H. Erhart, Jr.

Earle H. Harbison, Jr.* Director ____________
- -----------------------------
Earle H. Harbison, Jr.

Roger B. Porter* Director ____________
- -----------------------------
Roger B. Porter

E. Miles Prentice, III* Director ____________
- -----------------------------
E. Miles Prentice, III

Thomas P. Salmon* Director ____________
- -----------------------------
Thomas P. Salmon

A. Gary Shilling* Director ____________
- -----------------------------
A. Gary Shilling

- ----------------------------- Director ____________
Thomas R. Williams

C-9
<PAGE> 74

Patricia K. Woolf* Director ____________
- -----------------------------
Patricia K. Woolf

*By /s/ Thomas H. MacLeay Date: January 8, 1997
----------------------
Thomas H. MacLeay
Pursuant to Power of Attorney

<PAGE> 1

NATIONAL LIFE INSURANCE COMPANY

ESTABLISHING A SEPARATE ACCOUNT

NATIONAL VARIABLE ANNUITY ACCOUNT II

BE IT RESOLVED, that the Company, pursuant to the provisions of section 3855 of
Title 8 of the Vermont Statutes Annotated, hereby establishes a separate account
designated, "National Variable Annuity Account II" ("Variable Account") for the
following use and purposes, and subject to such conditions as hereinafter set
forth:

FURTHER RESOLVED, that the Variable Account shall be established for the purpose
of providing for the issuance by the Company of such variable annuity or such
other contracts ("Contracts") as the Executive Committee may designate for such
purpose and shall constitute a separate account into which are allocated amounts
paid to or held by the Company under such Contracts; and

FURTHER RESOLVED, that the income, gains and losses, whether or not realized,
from assets allocated to the Variable Account shall, in accordance with the
Contracts, be credited to or charged against such account without regard to
other income, gains, losses, or liabilities of the Company; and

FURTHER RESOLVED, that the fundamental investment policy of the Variable Account
shall be to invest or reinvest the assets of the Variable Account in securities
issued by investment companies registered under the Investment Company Act of
1940 as may be specified in the respective Contracts; and

FURTHER RESOLVED, that thirty investment divisions be, and hereby are
established within the Variable Account to which net payments under the
Contracts will be allocated in accordance with instructions received from
contractholders, and that the Executive Committee be, and hereby is, authorized
to increase or decrease the number of investment divisions in the Variable
Account as it deems necessary or appropriate; and

FURTHER RESOLVED, that each such investment division shall invest only in the
shares of a single mutual fund or a single mutual fund portfolio of an
investment company organized as a series fund pursuant to the Investment Company
Act of 1940; and

FURTHER RESOLVED, that the Chairman and the President and any Senior Vice
President be, and they hereby are, authorized to deposit such amounts in the
Variable Account or in each investment division thereof as may be necessary or
appropriate to facilitate the commencement of the Account's operations; and

FURTHER RESOLVED, that the Chairman and the President and any Senior Vice
President be, and they hereby are, authorized to transfer funds from time to
time between the Company's general account and the Variable Account as deemed
necessary or appropriate and consistent with the terms of the Contracts; and

<PAGE> 2

FURTHER RESOLVED, that the Executive Committee of the Company be, and is hereby,
authorized to change the designation of the Variable Account to such other
designation as it may deem necessary or appropriate; and

FURTHER RESOLVED, that the appropriate officers of the Company, with such
assistance from the Company's auditors, legal counsel and independent
consultants or others as they may require, be, and they hereby are, authorized
and directed to take all action necessary to: (a) register the Variable Account
as a unit investment trust under the Investment Company Act of 1940, as amended;
(b) register the Contracts in such amounts, which may be an indefinite amount,
as the officers of the Company shall from time to time deem appropriate under
the Securities Act of 1933; and (c) take all other actions which are necessary
in connection with the offering of said Contracts for sale and the operation of
the Variable Account in order to comply with the Investment Company Act of 1940,
the Securities Exchange Act of 1934, the Securities Act of 1933, and other
applicable federal laws, including the filing of any amendments to registration
statement, any undertakings, and any applications for exemptions from the
Investment Company Act of 1940 or other applicable federal laws as the officers
of the Company shall deem necessary or appropriate; and

FURTHER RESOLVED, that the Chairman, the President, any Senior Vice President,
and the General Counsel, and each of them with full power to act without the
others, hereby are severally authorized and empowered to prepare, execute, in
person or by attorney-in-fact, and cause to be filed with the Securities and
Exchange Commission on behalf of the Variable Account, and by the Company as
sponsor and depositor a Registration Statement under the Securities Act of 1933
registering the Contracts, and any and all amendments to the foregoing on behalf
of the Variable Account and the Company and on behalf of and as attorneys for
the principal executive officer and/or the principal financial officer and/or
the principal accounting officer and/or any other officer of the Company; and

FURTHER RESOLVED, that the General Counsel is hereby appointed as agent for
service under any such registration statement duly authorized to receive
communications and notices from the Securities and Exchange Commission with
respect thereto; and

FURTHER RESOLVED, that the appropriate officers of the Company be, and they
hereby are, authorized on behalf of the Variable Account and on behalf of the
Company to take any and all action that they may deem necessary or advisable in
order to sell the Contracts, including any registrations, filings and
qualifications of the Company, its officers, agents and employees, and the
Contracts under the insurance and securities laws of any of the states of the
United States of America or other jurisdictions, and in connection therewith to
prepare, execute, deliver and file all such applications, reports, covenants,
resolutions, applications for exemptions, consents to service of process and
other papers and instruments as may be required under such laws, and to take any
and all further action which said officers or counsel of the Company may deem
necessary or desirable (including entering into whatever agreements and
contracts may be necessary) in order to maintain such registrations or
qualifications for as long as said officers or counsel deem it to be in the best
interests of the Variable Account and the Company; and

FURTHER RESOLVED, that the Chairman, President, any Senior Vice President and
the General Counsel of the Company be, and they hereby are, authorized in the
names and on behalf of the Variable Account and of the Company to execute and
file irrevocable written consents on the part of the Variable Account and of the
Company to be used in such states wherein such consents to service of process
may be requisite under the insurance or securities laws therein in connection
with said registration or qualification of Contracts and to appoint the
appropriate state official, or such other person as may be allowed by said
insurance or securities laws, agent of the Variable Account and of the Company
for the purpose of receiving and accepting process; and

2
<PAGE> 3
FURTHER RESOLVED, that the Chairman, President and any Senior Vice President of
the Company be, and hereby is, authorized to establish procedures under which
the Company will provide voting rights for owners of such Contracts with respect
to securities owned by the Variable Account; and

FURTHER RESOLVED, that the Chairman, President and any Senior Vice President of
the Company is hereby authorized to execute such agreement or agreements as
deemed necessary and appropriate (i) with Equity Services, Inc., ("ESI") or
other qualified entity under which ESI or such other entity will be appointed
principal underwriter and distributor for the Contracts and (ii) with one or
more qualified banks or other qualified entities to provide administrative
and/or custodial services in connection with the establishment and maintenance
of the Variable Account and the design, issuance, and administration of the
Contracts; and

FURTHER RESOLVED, that, since it is expected that the Variable Account will
invest in the securities issued by one or more investment companies, the
appropriate officers of the Company are hereby authorized to execute whatever
agreement or agreements as may be necessary or appropriate to enable such
investments to be made; and

FURTHER RESOLVED, that the appropriate officers of the Company, and each of
them, are hereby authorized to execute and deliver all such documents and papers
and to do or cause to be done all such acts and things as he/she may deem
necessary or desirable to carry out the forgoing resolutions and the intent and
purposes thereof.

3
<PAGE> 4
National Life Insurance Company

Power of Attorney

The undersigned hereby appoints Frederic H. Bertrand, Thomas H.
MacLeay, or Rodney A. Buck, or any of them, his attorney-in-fact to execute in
his name, and on his behalf, the National Life variable annuity registration
statement on Form N-4, and all amendments thereto, to be filed by National Life
Insurance Company under the Securities Act of 1933.

/s/ Robert E. Boardman
----------------------
Robert E. Boardman

<PAGE> 1
National Life Insurance Company

Power of Attorney

/s/ Robert E. Boardman
----------------------
Robert E. Boardman

<PAGE> 1