LSW VARIABLE ANNUITY ACCOUNT I, N-4/A, 1998-07-31

LSW VARIABLE ANNUITY ACCOUNT I
N-4/A, 1998-07-31

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<PAGE> 1

As filed with the Securities and Exchange Commission on July 31, 1998

File No. 333-19583
File No. 811-8015

SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549

FORM N-4

REGISTRATION STATEMENT UNDER THE SECURITIES ACT OF 1933 [X]

Pre-Effective Amendment No. 1 [X]

Post-Effective Amendment No. ___ [ ]

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

LSW VARIABLE ANNUITY ACCOUNT I
(Exact Name of Registrant)

LIFE INSURANCE COMPANY OF THE SOUTHWEST
(Name of Depositor)

1300 West Mockingbird Lane
Dallas, Texas 75247-4921
(Address of Depositor's Principal Executive Offices)

Depositor's Telephone Number: (800) 228-4579

D. Russell Morgan, Esq.
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 LLP
1275 Pennsylvania Avenue, N.W.
Washington, D.C. 20004-2404

<PAGE> 2

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

Title of Securities Being Registered: Individual Flexible Premium
Variable Annuity Contracts.

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

<TABLE>
<CAPTION>
ITEM OF FORM N-4 PROSPECTUS CAPTION
<S> <C> <C>
1. Cover Page Cover Page

2. Definitions Definitions

3. Synopsis Summary of Contract Expenses; Introduction

4. Condensed Financial
Information Advertising

5. General

(a) Depositor Life Insurance Company of the Southwest
(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
(f) Fund Expenses Charges and Deductions
(g) Organizational Expenses N/A

7. Contracts

(a) Persons with Rights Introduction; Changes to Variable Account; Detailed
</TABLE>

<PAGE> 4
<TABLE>
<S> <C> <C>
Description of Contract Provisions; Contract Rights; Voting Rights
(b) (i) Allocation of
Purchase Payments Introduction; Premium Payments; Free-Look
(ii) Transfers Introduction; Transfers
(iii) Exchanges Transfers

(c) Changes Detailed Description of Contract Provisions; 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

11. Redemptions

(a) - By Owners Transfers; Surrender and Withdrawal; Payments; Annuity Payment Options; Federal
Income Tax Considerations
- By Annuitant Transfers; Surrender and Withdrawal; 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 Qualified Plans and Tax Sheltered Annuities;
Required Distributions for Individual Retirement Annuities; Generation-Skipping
Transfers; Loan Privilege-Qualified Plans and Tax Sheltered Annuities; Surrenders and
Withdrawals under a Tax Sheltered Annuity Contact; Federal Income Tax Considerations.
</TABLE>

<PAGE> 5
<TABLE>
<S> <C>
13. Legal Proceedings Legal Proceedings

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

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 Life Insurance Company
History of the Southwest

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
</TABLE>

<PAGE> 6

<TABLE>
<CAPTION>
PART C -- OTHER INFORMATION
ITEM OF FORM N-4 PART C CAPTION
<S> <C> <C>
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

Signature Page Signatures
</TABLE>

<PAGE> 7

PART A

PROSPECTUS

<PAGE> 8
LIFE INSURANCE COMPANY OF THE SOUTHWEST
HOME 0FFICE
1300 WEST MOCKINGBIRD LANE
DALLAS, TEXAS 75427-4921
1-800-228-4579

RetireMax Variable Annuity

The RetireMax Variable Annuity policies described in this prospectus
(collectively referred to as the "Policies") are individual flexible premium
deferred variable annuity policies supported by the LSW Variable Annuity
Account I (the "Variable Account"), a separate account of Life Insurance
Company of the Southwest ("LSW"). The Policies are sold either as
Non-Qualified Policies or in connection with certain retirement plans
qualifying for favorable federal income tax treatment ("Qualified Policies").
Annuity payments under the Policies are deferred until a selected later date.
Net 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
Growth 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 Inc.
STRONG VARIABLE INSURANCE FUNDS, INC.
Strong Growth Fund II Strong Capital Management, Inc.
STRONG SPECIAL FUND II, INC. Strong Capital Management, Inc.
</TABLE>

This prospectus provides you with the basic information you should
know about the RetireMax Policies, 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 ,1998 containing
further information about the Policies and the Variable Account has been filed
with the Securities and Exchange Commission. You can obtain a copy without
charge from Life Insurance Company of the Southwest by calling 1-800-228-4579,
or writing to LSW at 1300 West Mockingbird Lane, Dallas, Texas 75247-4921. 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.

<PAGE> 9
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 POLICIES ARE NOT DEPOSITS OR OBLIGATIONS OF, AND ARE NOT
GUARANTEED OR ENDORSED BY, THE ADVISER OF ANY OF THE 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.

THE SECURITIES AND EXCHANGE COMMISSION HAS NOT APPROVED OR DISAPPROVED
OF THESE SECURITIES OR PASSED UPON THE ACCURACY OR ADEQUACY OF THE PROSPECTUS.
ANY REPRESENTATION TO THE CONTRARY IS A CRIMINAL OFFENSE.

THE STATEMENT OF ADDITIONAL INFORMATION, DATED , 1998, 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 , 1998.

<PAGE> 10
TABLE OF CONTENTS

<TABLE>
<S> <C>
DEFINITIONS
SUMMARY OF POLICY EXPENSES . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
UNDERLYING FUND ANNUAL EXPENSES . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
INTRODUCTION
LIFE INSURANCE COMPANY OF THE SOUTHWEST, THE VARIABLE
ACCOUNT, AND THE FUNDS . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Life Insurance Company of the Southwest . . . . . . . . . . . . . . . . . . . . . . . . . .
The Variable Account . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Underlying Fund Options . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
DETAILED DESCRIPTION OF POLICY PROVISIONS . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Issuance of the Policy . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Premium Payments . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
The Initial Premium Payment . . . . . . . . . . . . . . . . . . . . . . . . . . .
Subsequent Premium Payments . . . . . . . . . . . . . . . . . . . . . . . . . . .
Allocation of Net Premium Payments . . . . . . . . . . . . . . . . . . . . . . . .
Transfers
Value of a Variable Account Accumulation Unit . . . . . . . . . . . . . . . . . . . . . . .
Net Investment Factor . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Determining the Accumulation 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 . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Annuitization - Fixed Account . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Annuity Payment Options . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Death of Owner . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Death of Annuitant Prior to the Annuitization Date . . . . . . . . . . . . . . . . . . . . .
Required Distributions for Qualified Plans and Tax Sheltered Annuities . . . . . . . . . . .
Required Distributions for Individual Retirement Annuities . . . . . . . . . . . . . . . . .
Generation-Skipping Transfers . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Ownership Provisions . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
CHARGES AND DEDUCTIONS . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Deductions from the Variable Account . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Contingent Deferred Sales Charge . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Administration Charge . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Annual Policy Fee . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Transfer Charge . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Premium Taxes
Charge for Optional Enhanced Death Benefit Rider . . . . . . . . . . . . . . . . . . . . . .
Other Charges
POLICY RIGHTS
Free Look
Loan Privilege - Qualified Policies and Certain Tax Sheltered Annuities . . . . . . . . . .
Surrender and Withdrawal . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Payments
Surrenders and Withdrawals Under a Tax Sheltered Annuity Policy . . . . . . . . . . . . . .
Telephone Transaction Privilege . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Available Automated Fund Management Features . . . . . . . . . . . . . . . . . . . . . . . .
Dollar Cost Averaging . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Portfolio Rebalancing . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Systematic Withdrawals . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Policy Rights Under Certain Plans . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
</TABLE>

<PAGE> 11
<TABLE>
<S> <C>
THE FIXED ACCOUNT
Minimum Guaranteed and Current Interest Rates . . . . . . . . . . . . . . . . . . . . . . .
OPTIONAL ENHANCED DEATH BENEFIT RIDER . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
FEDERAL INCOME TAX CONSIDERATIONS . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Non-Qualified Policies . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Qualified Policies . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Corporate Pension and Profit-Sharing Plans . . . . . . . . . . . . . . . . . . . . . . . . .
Code Section 403(b) Plans . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Deferred Compensation Plans . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Individual Retirement Annuities . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Simple Retirement Accounts . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Diversification . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Tax Legislation . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Charge for Tax Provisions . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Rollover Distributions . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Restrictions under Qualified Policies . . . . . . . . . . . . . . . . . . . . . . . . . . .
Gender Neutrality . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
VOTING RIGHTS
CHANGES TO VARIABLE ACCOUNT . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
ADVERTISING
DISTRIBUTION OF THE POLICIES . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
STATEMENTS AND REPORTS . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
OWNER INQUIRIES . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
LEGAL PROCEEDINGS . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
TABLE OF CONTENTS OF STATEMENT OF ADDITIONAL INFORMATION . . . . . . . . . . . . . . . . . . . .
</TABLE>

<PAGE> 12

DEFINITIONS

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

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

ANNUITANT- A person named in the Policy 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 Policy issuance unless LSW 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 Policy.

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 Policy.

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 Policy 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 Policy.

CASH SURRENDER VALUE- An amount equal to Accumulation 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 Policy.

DATE OF ISSUE- The date shown as the Date of Issue on the Data Page of the
Policy.

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 Accumulation Value.

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

FIXED ANNUITY- An annuity providing for payments which are guaranteed by LSW as
to dollar amount during Annuitization.

FUND- A registered management investment company in which the assets of a
Subaccount of the Variable Account will be invested.

HOME OFFICE- The main office of LSW located at 1300 West Mockingbird Lane,
Dallas, Texas.

1
<PAGE> 13
INDIVIDUAL RETIREMENT ANNUITY (IRA)- An annuity which qualifies for favorable
tax treatment under Section 408 of the Code. The Policies will not be issued
to Education IRA's.

INVESTMENT COMPANY ACT - The Investment Company Act of 1940, as amended from
time to time.

JOINT OWNERS- Two or more persons who own the Policy 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 Policy, and is subject to
change by the Owner, within any applicable legal limits, subject to LSW's
approval.

MONTHLY POLICY 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 Policy Date would otherwise fall on a
date other than a Valuation Day, the Monthly Policy Date will be deemed to be
the next Valuation Day.

NON-QUALIFIED POLICY- A Policy 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 Policy,
including the right to designate and change any designations of the Owner,
Annuitant, Beneficiary, Annuity Payment Option, and the Maturity Date, when
permitted under the terms of the Policy and the Code.

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

POLICY- The RetireMax individual flexible premium variable annuity policy
described in this prospectus.

POLICY ANNIVERSARY- An anniversary of the Date of Issue of the Policy.

POLICY YEAR- Each year the Policy remains in force commencing with the Date of
Issue.

PREMIUM PAYMENT- A deposit of new value into the Policy. 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 Policy,
less any premium tax deducted from premiums.

QUALIFIED POLICY - A Policy which qualifies for favorable tax treatment under
the provisions of Sections 401 or 403(a) (Qualified Plans), 408 (IRAs), 408A
(Roth 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

2
<PAGE> 14
a Policy 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 LSW Variable Annuity Account I, a separate investment
account of LSW into which Net Premium Payments under the Policies 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 to
withdraw a portion of the Accumulation Value of the Policy.

3
<PAGE> 15
SUMMARY OF POLICY EXPENSES

TRANSACTION EXPENSES

<TABLE>
<S> <C>
Sales Load Imposed on Purchases . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . None
Premium Taxes . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . See below(1)
Contingent Deferred Sales Charge (as a percentage of Net Premium Payments surrendered or withdrawn)(2)
Number of Completed Years from Date of Premium Payment
0 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 7%
1 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 6%
2 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 5%
3 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 4%
4 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 3%
5 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 2%
6 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 1%
7 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 0%
After the fifteenth Policy Anniversary, no Contingent Deferred Sales Charge
will apply.
</TABLE>

<TABLE>
<S> <C>
ANNUAL EXPENSES (as a percentage of average daily net assets value)
Mortality Risk Charge(3) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 0.85%
Expense Risk Charge(3) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 0.40%
Administration Charge(3) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 0.15%
-----
Total Basic Variable Account Annual Percentage Expenses . . . . . . . . . . . . . . . . . . . . . . 1.40%

Annual Policy Fee(4) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $30

Charge for Optional Enhanced Death Benefit Rider(5) . . . . . . . . . . . . . . . . . . . . . . . . 0.20%
</TABLE>

(1) A minority of states assess premium taxes on the Policies. LSW will make
a deduction for premium taxes at the time it pays premium taxes to the
applicable taxing authority. See "Premium Taxes", page .

(2) Each Policy Year, the Owner may withdraw without a Contingent Deferred
Sales Charge ("CDSC") an amount equal to 10% of the Accumulation Value as
of the most recent Policy Anniversary. In addition, any amount withdrawn
in order for the Policy to meet minimum Distribution requirements under
the Code shall be free of the CDSC. Withdrawals may be restricted for
Policies issued pursuant to the terms of a Tax Sheltered Annuity. This
CDSC-free Withdrawal privilege does not apply in the case of full
surrenders unless otherwise required by law, and is non-cumulative; that
is, free amounts not taken during any given Policy Year cannot be taken as
free amounts in a subsequent Policy Year (see "Contingent Deferred Sales
Charge", page ).

(3) The Mortality Risk Charge, the Expense Risk Charge 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.

(4) The Annual Policy Fee is assessed only upon Policies which as of the Date
of Issue, or applicable Policy Anniversary, have an Accumulation Value
plus any outstanding loan and accrued interest of less than $50,000, and
is not assessed on Policy Anniversaries after the Annuitization Date.

(5) This charge, which applies to the Accumulation Value plus the amount of
any outstanding loan and accrued interest, is assessed only if the Owner
has elected the Enhanced Death Benefit Rider. See "Optional Enhanced
Death Benefit Rider", page .

<PAGE> 16

UNDERLYING FUND ANNUAL EXPENSES(6) (AS A PERCENTAGE OF UNDERLYING FUND NET
ASSETS)

<TABLE>
<CAPTION>
- ---------------------------------------------------------------------------------------------------------------
MANAGEMENT OTHER TOTAL
- ---------------------------------------------------------------------------------------------------------------
FEES, EXPENSES, FUND EXPENSES,
- ---------------------------------------------------------------------------------------------------------------
AFTER EXPENSE AFTER EXPENSE AFTER EXPENSE
- ---------------------------------------------------------------------------------------------------------------
REIMBURSEMENT REIMBURSEMENT REIMBURSEMENT
- ---------------------------------------------------------------------------------------------------------------
Funds Available on May 1, 1998
- ---------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
Alger American Small Capitalization Portfolio 0.85% 0.04% 0.89%
- ---------------------------------------------------------------------------------------------------------------
Alger American Growth Portfolio 0.75% 0.04% 0.79%
- ---------------------------------------------------------------------------------------------------------------
Fidelity VIP Fund-Equity Income Portfolio 0.50% 0.08% 0.58%
- ---------------------------------------------------------------------------------------------------------------
Fidelity VIP Fund-Growth Portfolio 0.60% 0.09% 0.69%
- ---------------------------------------------------------------------------------------------------------------
Fidelity VIP Fund-High Income Portfolio 0.59% 0.12% 0.71%
- ---------------------------------------------------------------------------------------------------------------
Fidelity VIP Fund-Overseas Portfolio 0.75% 0.17% 0.92%
- ---------------------------------------------------------------------------------------------------------------
Fidelity VIP Fund II-Index 500 Portfolio 0.24% 0.04% 0.28%
- ---------------------------------------------------------------------------------------------------------------
Fidelity VIP Fund II-Contrafund Portfolio 0.60% 0.11% 0.71%
- ---------------------------------------------------------------------------------------------------------------
Market Street Growth Portfolio 0.33% 0.10% 0.43%
- ---------------------------------------------------------------------------------------------------------------
Market Street Sentinel Growth Portfolio 0.50% 0.40% 0.90%
- ---------------------------------------------------------------------------------------------------------------
Market Street Aggressive Growth Portfolio 0.45% 0.18% 0.63%
- ---------------------------------------------------------------------------------------------------------------
Market Street Managed Portfolio 0.40% 0.18% 0.58%
- ---------------------------------------------------------------------------------------------------------------
Market Street Bond Portfolio 0.35% 0.22% 0.57%
- ---------------------------------------------------------------------------------------------------------------
Market Street International Portfolio 0.75% 0.27% 1.02%
- ---------------------------------------------------------------------------------------------------------------
Market Street Money Market Portfolio 0.25% 0.14% 0.39%
- ---------------------------------------------------------------------------------------------------------------
Strong Opportunity Fund II, Inc. 1.00% 0.15% 1.15%
- ---------------------------------------------------------------------------------------------------------------
Strong Growth Fund II 1.00% 0.20% 1.20%
- ---------------------------------------------------------------------------------------------------------------
</TABLE>

(6) The Fund expenses shown above are assessed at the underlying Fund level
and are not direct charges against Variable Account assets or reductions
from Accumulation 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 LSW. 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 OTHER TOTAL
- --------------------------------------------------------------------------------------------------------------
FEES EXPENSES FUND EXPENSES
- ---------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
Fidelity VIP Fund II-Index 500 Portfolio 0.24% 0.16% 0.40%
- --------------------------------------------------------------------------------------------------------------
Market Street Sentinel Growth Portfolio 0.50% 0.85% 1.35%
- --------------------------------------------------------------------------------------------------------------
Strong Growth Fund II 1.00% 1.00% 2.00%
- --------------------------------------------------------------------------------------------------------------
</TABLE>

EXAMPLE

The following chart depicts the dollar amount of expenses that would be
incurred under this Policy assuming a $1000 investment and 5% annual return,
and no election of the optional Enhanced Death Benefit Rider. 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.

<PAGE> 17

<TABLE>
<CAPTION>
IF YOU SURRENDER YOUR IF YOU DO NOT SURRENDER IF YOU ANNUITIZE YOUR
CONTRACT AT THE END OF YOUR CONTRACT AT THE END OF CONTRACT AT THE END OF
THE APPLICABLE TIME PERIOD THE APPLICABLE TIME PERIOD THE APPLICABLE TIME PERIOD

Subaccount* 1 Yr. 3 Yrs. 1 Yr. 3 Yrs. 1 Yr.** 3 Yrs.
------------------------- --------------------- -------------------
- -----------------------------------------------------------------------------------------------------------------------------
Funds Available on May 1, 1998
- -----------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
Alger American Small Capitalization $ 95 $ 130 $ 25 $ 80 $ 25 $ 80
- -----------------------------------------------------------------------------------------------------------------------------
Alger American Growth 94 126 24 76 24 76
- -----------------------------------------------------------------------------------------------------------------------------
Fidelity VIP Fund-Equity Income 91 119 21 69 21 69
- -----------------------------------------------------------------------------------------------------------------------------
Fidelity VIP Fund-Growth 93 123 23 73 23 73
- -----------------------------------------------------------------------------------------------------------------------------
Fidelity VIP Fund-High Income 93 124 23 74 23 74
- -----------------------------------------------------------------------------------------------------------------------------
Fidelity VIP Fund-Overseas 95 131 25 81 25 81
- -----------------------------------------------------------------------------------------------------------------------------
Fidelity VIP Fund II-Index 500 88 109 18 59 18 59
- -----------------------------------------------------------------------------------------------------------------------------
Fidelity VIP Fund II-Contrafund 93 124 23 74 23 74
- -----------------------------------------------------------------------------------------------------------------------------
Market Street Growth 90 114 20 64 20 64
- -----------------------------------------------------------------------------------------------------------------------------
Market Street Sentinel Growth 95 130 25 80 25 80
- -----------------------------------------------------------------------------------------------------------------------------
Market Street Aggressive Growth 92 121 22 71 22 71
- -----------------------------------------------------------------------------------------------------------------------------
Market Street Managed 91 119 21 69 21 69
- -----------------------------------------------------------------------------------------------------------------------------
Market Street Bond 91 119 21 69 21 69
- -----------------------------------------------------------------------------------------------------------------------------
Market Street International 96 134 26 84 26 84
- -----------------------------------------------------------------------------------------------------------------------------
Market Street Money Market 89 113 19 63 19 63
- -----------------------------------------------------------------------------------------------------------------------------
Strong Opportunity Fund II, Inc. 97 138 27 88 27 88
- -----------------------------------------------------------------------------------------------------------------------------
Strong Growth Fund II 98 140 28 90 28 90
- -----------------------------------------------------------------------------------------------------------------------------
</TABLE>

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

Subaccount* 1 Yr. 3 Yrs. 1 Yr. 3 Yrs. 1 Yr.** 3 Yrs.
------------------------- --------------------- -------------------
- -----------------------------------------------------------------------------------------------------------------------------
Funds Available on May 1, 1998
- -----------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
Alger American Small Capitalization $ 97 $ 136 $ 27 $ 86 $ 27 $ 86
- -----------------------------------------------------------------------------------------------------------------------------
Alger American Growth 96 133 26 83 26 83
- -----------------------------------------------------------------------------------------------------------------------------
Fidelity VIP Fund-Equity Income 94 126 24 76 24 76
- -----------------------------------------------------------------------------------------------------------------------------
Fidelity VIP Fund-Growth 95 130 25 80 25 80
- -----------------------------------------------------------------------------------------------------------------------------
Fidelity VIP Fund-High Income 95 130 25 80 25 80
- -----------------------------------------------------------------------------------------------------------------------------
Fidelity VIP Fund-Overseas 97 137 27 87 27 87
- -----------------------------------------------------------------------------------------------------------------------------
Fidelity VIP Fund II-Index 500 90 116 20 66 20 66
- -----------------------------------------------------------------------------------------------------------------------------
Fidelity VIP Fund II-Contrafund 95 130 25 80 25 80
- -----------------------------------------------------------------------------------------------------------------------------
Market Street Growth 92 121 22 71 22 71
- -----------------------------------------------------------------------------------------------------------------------------
Market Street Sentinel Growth 97 137 27 87 27 87
- -----------------------------------------------------------------------------------------------------------------------------
Market Street Aggressive Growth 94 128 24 78 24 78
- -----------------------------------------------------------------------------------------------------------------------------
Market Street Managed 94 126 24 76 24 76
- -----------------------------------------------------------------------------------------------------------------------------
Market Street Bond 93 126 23 76 23 76
- -----------------------------------------------------------------------------------------------------------------------------
Market Street International 98 141 28 91 28 91
- -----------------------------------------------------------------------------------------------------------------------------
Market Street Money Market 92 120 22 70 22 70
- -----------------------------------------------------------------------------------------------------------------------------
Strong Opportunity Fund II, Inc. 100 145 30 95 30 95
- -----------------------------------------------------------------------------------------------------------------------------
Strong Growth Fund II 100 147 30 97 30 97
- -----------------------------------------------------------------------------------------------------------------------------
</TABLE>

<PAGE> 18
per annum. The Annual Policy Fee is waived for Policies with Accumulation
Values in excess of $50,000.

**The Policy may not be annuitized in the first five years from the Date of
Issue.

The purpose of the Summary of Policy 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 Policy. 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 ).
Certain states impose a premium tax, currently ranging up to 3.5%.

INTRODUCTION

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

The Policy is available, with certain exceptions, to Owners age 85 and
younger. See "Issuance of a Policy", page . The initial Premium Payment
must be at least $5,000 for Non-Qualified Policies, and in general must be at
least $2000 for Individual Retirement Annuities or Tax Sheltered Annuities.
LSW will also accept Policies contemplating monthly payments of at least $100
by salary reduction, deduction or electronic funds transfer (see "Premium
Payments - The Initial Premium Payment", page ) and may at its discretion
permit initial Premium Payments lower than the above minimums for groups.
Subsequent Premium Payments may be made at any time, but must be at least $100
($50 for Individual Retirement Annuities and Tax Sheltered Annuities), and
these minimums may be waived for groups or if the Premium Payments are remitted
electronically. The cumulative total of all Premium Payments under Policies
issued on the life of any one Designated Annuitant may not exceed $1,000,000
without the prior consent of LSW (see "Premium Payments", page ).

If the Accumulation Value at the Annuitization Date is less than
$3,500, the Accumulation Value may be distributed in one lump sum in lieu of
annuity payments. If any annuity payment would be less than $100, LSW 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 ).

LSW does not deduct a sales charge from Premium Payments made for
these Policies. However, if a Withdrawal is made with respect to any part of
the Accumulation Value of such Policies, or the Policy is surrendered, LSW
will, with certain exceptions, deduct from the Owner's Accumulation Value a
Contingent Deferred Sales Charge not to exceed 7% of the lesser of the total of
all Net 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 LSW to recover sales expenses which have been advanced by LSW
(see "Contingent Deferred Sales Charge", page ).

LSW 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, a 0.85% Mortality Risk Charge and a
0.40% Expense Risk Charge. The Mortality Risk Charge and the Expense Risk
Charge are for the mortality and expense risks assumed by LSW under the
Policies. The Administration Charge will reimburse LSW for the administrative
expenses related to the issue and maintenance of the Policies (see "Charges and
Deductions," page ). LSW will also assess an Annual Policy fee in the
amount of $30, payable on the Date of Issue and at each Policy Anniversary
thereafter if on the Date of Issue or such Policy Anniversary the Accumulation
Value plus any outstanding loan and accrued interest is less than $50,000 (see
"Annual Policy Fee", page ).

7
<PAGE> 19
To be sure that the Owner is satisfied with the Policy, the Owner has
a ten day free look. Some states may require a longer period. Within ten days
of the day the Policy is received, it may be returned to the Home Office of
LSW, at the address shown on page 1 of this prospectus. When the Policy is
received by LSW, LSW will void the Policy and refund the Accumulation Value
plus any charges assessed at issue, including the Annual Policy Fee, any
applicable charge for the optional Enhanced Death Benefit Rider, and any
premium tax, unless otherwise required by state and/or federal law.

In the case of Individual Retirement Annuities and Policies issued in
states that require the return of Premium Payments, LSW will refund the greater
of: (i) Premium Payments or (ii) Accumulation Value plus any amount deducted by
LSW for state premium taxes. In these cases, LSW may require that all
Accumulation 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 period, Accumulation 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, LSW
assumes the free look period ends 20 days after the date the Policy is issued.

LIFE INSURANCE COMPANY OF THE SOUTHWEST,
THE VARIABLE ACCOUNT, AND THE FUNDS

LIFE INSURANCE COMPANY OF THE SOUTHWEST

LSW, a stock life insurance company founded in 1955 under Texas law,
is authorized to transact life insurance and annuity business in Texas, and in
48 other states and the District of Columbia. LSW assumes all mortality and
expense risks under the Policies and its assets support the Policy's benefits.
Financial Statements for LSW are contained in the Statement of Additional
Information.

THE VARIABLE ACCOUNT

The Variable Account was established by LSW on December 4, 1997,
pursuant to the provisions of Texas law. LSW 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.
Such registration does not involve supervision of the management of the
Variable Account or LSW by the Securities and Exchange Commission.

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

Net 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, LSW reserves the right to limit the number of different Subaccounts
used in any Policy over its entire life to 17.

8
<PAGE> 20
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 investment objectives and policies of certain Funds are similar to
the investment objectives and policies of other portfolios that may be managed
by the same investment adviser or manager. The investment results of the
Funds, however, may differ from the results of such other portfolios. There
can be no assurance, and no representation is made, that the investment results
of any of the Funds will be comparable to the investment results of any other
portfolio, even if the other portfolio has the same investment adviser or
manager.

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 organized on April 6, 1988 as a
Massachusetts business trust. 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, at least 65% in companies with a total market
capitalization within the range of companies included in the Russell
2000 Growth Index or the S&P SmallCap 600 Index, updated quarterly
(both of the above indexes are broad indexes of small capitalization
stocks).

ALGER AMERICAN GROWTH 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. Fidelity
Management & Research Company ("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

9
<PAGE> 21

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.

-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. 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 Maryland law on March 21,
1985. 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.

GROWTH PORTFOLIO

10
<PAGE> 22
Investment Objective: To seek intermediate and long-term growth of
capital. A reasonable level of income is an important secondary objective.
This Portfolio pursues its objectives by investing primarily in common stocks
of companies believed to offer above-average growth potential over both the
intermediate and the long term.

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.

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 VARIABLE INSURANCE FUNDS, INC.

Strong Variable Insurance Funds, Inc. is an open-end management investment
company incorporated in the State of Wisconsin on December 28, 1990. 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.

11
<PAGE> 23
STRONG SPECIAL FUND II, INC.

The Strong Special Fund II, Inc. is a diversified, open-end management
company, incorporated in Wisconsin on December 28, 1990. Strong
Capital Management, Inc. is the investment advisor for the Fund.

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

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

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 Variable Account and other
separate accounts of LSW. Although LSW 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, LSW will take
any steps necessary to protect Owners and variable annuity payees, including
withdrawal of the Variable Account from participation in the underlying Fund or
Funds which are involved in the conflict.

DETAILED DESCRIPTION OF POLICY PROVISIONS

ISSUANCE OF A POLICY

If the Owner is a human being, the Policy is available to Owners up to
and including age 85 on the Date of Issue. If the Policy 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 Policy, an individual must forward an
application to LSW through a licensed LSW agent who is also a registered
representative of Equity Services, Inc. ("ESI"), the principal underwriter of
the Policies, 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. In general, the initial Premium Payment
must be at least $5,000 for Non-Qualified Policies, and must be at least $2,000
for Qualified Policies. LSW will also accept

12
<PAGE> 24

Policies contemplating monthly payments of at least $100 by salary reduction,
deduction or electronic funds transfer; in such a case, if no payments are
received on a Policy for six consecutive months and the aggregate Premium
Payments made are less than the normal $2,000 or $5,000 minimums, LSW may at its
option cancel the Policy and return the Accumulated Value, with no deduction
for a CDSC, to the Owner. LSW may also at its discretion permit initial
Premium Payments lower than the above minimums for groups.

Subsequent Premium Payments. Subsequent Premium Payments may be made
at any time, but must be at least $100, and these minimums may be waived for
groups or 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 Policies issued on
the life of any one Annuitant may not exceed $1,000,000 without the prior
consent of LSW.

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 Net Premium Payments. In the application for the
Policy, the Owner will indicate how Net 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 LSW at
its Home Office, or if the telephone transaction privilege has been elected, by
telephone instructions (see "Telephone Transaction Privilege", page ). The
percentages of Net 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%. LSW will allocate the initial Net 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, LSW 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, LSW 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 LSW
retaining the initial Premium Payment until the application is complete. Once
the application is complete, the initial Net Premium Payment will be allocated
as designated by the Owner within two business days.

Notwithstanding the foregoing, in jurisdictions where LSW must refund
the greater of aggregate Premium Payments or Accumulation Value plus any amount
deducted for state premium taxes in the event the Owner exercises the free look
right, any portion of the initial Net Premium Payment to be allocated to the
Variable Account 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 Net Premium Payment
allocation schedule then in effect.

LSW will allocate subsequent Net Premium Payments as of the Valuation
Date it receives such Net Premium Payments at its Home Office, based on the
Owner's allocation percentages then in effect. At the time of allocation, Net
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.

LSW reserves the right to limit the number of Variable Account
Subaccounts used in a single Policy over the entire life of the Policy 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.

13
<PAGE> 25
TRANSFERS

The Owner may transfer the Accumulation 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 LSW, or if the telephone transaction privilege has been elected, by
telephone instructions to LSW. 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 "Payments,"
page .

LSW currently allows transfers to the Fixed Account of all or any part
of the Variable Account Accumulation Value, without charge or penalty. With
respect to transfers from the Variable Account to the Fixed Account, LSW
reserves the right to restrict transfers to the Fixed Account to 25% of the
Variable Account Accumulation Value for any Policy Year determined as of the
most recent Policy 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 LSW in its sole discretion prior to the end of the calendar year,
but will not be less than 10% of the Accumulation Value in the Fixed Account
as of the date the request is made. Following a transfer from the Fixed
Account to the Variable Account, LSW 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.

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

LSW has no current intention to impose a transfer charge in the
foreseeable future. However, LSW 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 Policy Year. See "Transfer Charge", page .

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
Risk Charge, the Expense Risk Charge and the 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.

14
<PAGE> 26
DETERMINING THE ACCUMULATION VALUE

The Accumulation 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 Policy and accrued interest on such
loans. When charges or deductions are made against the Accumulation 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 Accumulation Value (unless otherwise specified by the
Owner). 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 Policy Fee, optional
Enhanced Death Benefit Rider charge, 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 5 years after the Date of Issue,
unless otherwise approved. If no specific Maturity Date is selected, the
Maturity Date will be the Owner's age 90 (the Annuitant's age 90 if the Owner
is not a human being); or, if later, ten years after the Date of Issue.

If the Owner requests in writing (see "Ownership Provisions",
page ), and LSW approves the request, the Maturity Date may be accelerated or
deferred.

Election of Payment Options. The Owner may, upon prior written notice
to LSW, at any time prior to the Annuitization Date, elect one of the Annuity
Payment Options. The Accumulation Value in each Subaccount less any premium tax
previously unpaid, will be applied to provide a Variable Annuity payment and
the Accumulation Value in the Fixed Account, less any premium tax previously
unpaid, will be applied to provide a Fixed Annuity payment.

If an election of an Annuity Payment Option is not on file with LSW on
the Annuitization Date, the proceeds will be paid as Option 3 - Payments for
Life with 120 months certain. 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, unless the Owner selects annual, semi-annual or
quarterly installments. However, if the amount to be applied under any Annuity
Payment Option is less than $3,500, LSW 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, LSW 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 LSW make payments under an
annuity option less frequently than annually.

ANNUITIZATION - VARIABLE ACCOUNT

The dollar amount of the first Variable Annuity payment shall be
determined by dividing the Variable Account Accumulation Value on the
Annuitization Date by 1,000 and applying the result in accordance with the
applicable Annuity Table. The amount of each Variable Annuity payment will
depend on the age of the Chosen Human Being at the time the first payment is
due, and the sex of the Chosen Human Being, if applicable, unless otherwise
required by law.

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. LSW guarantees that the
dollar amount of

15
<PAGE> 27
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 Policies. A higher assumption would mean a
higher initial payment but more slowly rising or more rapidly falling
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
LSW as to dollar amount during the annuity payment period. The amount of the
periodic Fixed Annuity payments will be determined by applying the Fixed
Account Accumulation 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.

LSW 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
Policies 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
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 DIED BEFORE THE THIRD
ANNUITY PAYMENT DATE, AND SO ON.

Option 3-Payments for Life with Period Certain- 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
LSW 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
LSW, it will be permitted under the Policy.

<PAGE> 28
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 Policy 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 a Death Benefit will be paid to the Beneficiary. Unless the Enhanced
Death Benefit Rider has been elected, the amount of the Death Benefit shall be
equal to, if such Owner or Joint Owner dies prior to attaining age 81, the
greater of (a) the Accumulation Value, or (b) the Net Premium Payments made to
the Policy minus all Withdrawals (including any CDSC deducted in connection with
such Withdrawals) and any outstanding loan on the Policy and accrued interest,
and, in the case of both (a) and (b), minus any applicable premium tax charge to
be assessed upon distribution, will be paid to the Beneficiary. If such Owner
or Joint Owner dies after attaining age 81 and the Enhanced Death Benefit Rider
has not been elected, then the Death Benefit shall be equal to the Accumulation
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
Policy 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 Policies may be subject to specific rules set forth in the
Plan, Policy, 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 Policy will mature, and a Death Benefit equal to the Cash Surrender
Value of the Policy will be payable to the Beneficiary, unless, in the case
where the Owner is a human being, 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 Policy 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 the death of the Annuitant will be treated as if it were the death
of the Owner, and the disposition of the Policy 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 LSW 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 LSW, 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 LSW, or as otherwise required by law, the Death Benefit
will be paid in a single sum payment.

If any Owner is not an individual, the Death Benefit will be paid to
the Beneficiary on the death of any Annuitant.

17
<PAGE> 29
REQUIRED DISTRIBUTIONS FOR QUALIFIED PLANS AND TAX SHELTERED ANNUITIES

The entire interest of an Annuitant under a Qualified Plan or a Tax
Sheltered Annuity Policy 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 416), or 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 Owner/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.

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.

18
<PAGE> 30
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 life expectency of 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

(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 Policy 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.

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

LSW 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 LSW 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.

19
<PAGE> 31
OWNERSHIP PROVISIONS

Unless otherwise provided, the Owner has all rights under the Policy.
IF THE PURCHASER NAMES SOMEONE OTHER THAN HIMSELF OR HERSELF AS OWNER, THE
PURCHASER WILL HAVE NO RIGHTS UNDER THE POLICY. If Joint Owners are named,
each Joint Owner will possess an undivided interest in the Policy. The death
of any Joint Owner will trigger the provisions of the Policy relating to the
death of the Owner. Unless otherwise provided, when Joint Owners are named,
the exercise of any ownership right in the Policy (including the right to
surrender the Policy 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 "Federal Income Tax Considerations",
page "). 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 LSW at its Home Office, and (3) may
include a signature guarantee as specified in the "Surrender and Withdrawal"
provision on page . 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 LSW 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 LSW 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 LSW.

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 Policy Fee and Premium Tax deductions and
the charge for the Enhanced Death Benefit Rider, if applicable, but are not
subject to charges exclusive to the Variable Account: the Mortality Risk
Charge, the Expense Risk Charge and the Administration Charge.

LSW deducts the charges described below to cover its costs and
expenses, services provided and risks assumed under the Policies. LSW incurs
certain costs and expenses for the distribution and administration of the
Policies and for providing the benefits payable thereunder. More particularly,
the administrative services include: processing applications for and issuing
the Policies, 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 Policy confirmations, providing toll-free
inquiry services and furnishing telephone transaction privileges. The risks
LSW assumes include: the risk that the actual life-span of persons receiving
annuity payments under Policy guarantees will exceed the assumptions reflected
in LSW's guaranteed rates (these rates are incorporated in the Policy 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
Accumulation Value; the risk that more Owners than expected will qualify for
waivers of the Contingent Deferred Sales Charge; and the risk that LSW's costs
in providing the services will exceed its revenues from the Policy charges
(which cannot be changed by LSW). 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 LSW.

20
<PAGE> 32
DEDUCTIONS FROM THE VARIABLE ACCOUNT

LSW 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. The charge
consists of a 0.15% Administration Charge, a 0.85% Mortality Risk Charge, and a
0.40% Expense Risk Charge.

CONTINGENT DEFERRED SALES CHARGE

No deduction for a sales charge is made from the Premium Payments for
these Policies. However, during the period prior to the fifteenth Policy
Anniversary, if a Withdrawal is made with respect to any part of the
Accumulation Value of such a Policy or a Policy is surrendered, LSW will, with
certain exceptions, deduct a Contingent Deferred Sales Charge not to exceed 7%
of the lesser of the total of all Net Premium Payments made within 84 months
prior to the date of the request to surrender, or the amount withdrawn. No
Contingent Deferred Sales Charge will apply after the fifteenth Policy
Anniversary, even with respect to Premium Payments made within 84 months of a
Withdrawal or surrender.

The Contingent Deferred Sales Charge is calculated by multiplying the
applicable Contingent Deferred Sales Charge percentages noted below by the Net
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 Net Premium Payment made to the
Policy, then the next oldest Net Premium Payment and so forth, with any
earnings attributable to such Net Premium Payments considered withdrawn only
after all Net Premium Payments made to the Policy 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 Net Premium Payments within the time periods set
forth.

The Contingent Deferred Sales Charge applies to Net 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
NET PREMIUM PAYMENT PERCENTAGE NET 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 Policy Year after the first Policy Year, the Owner may effect
Withdrawals without a Contingent Deferred Sales Charge ("CDSC") of an aggregate
amount equal to 10% of the Accumulation Value as of the most recent Policy
Anniversary. Unless otherwise required by applicable state law, this CDSC-free
Withdrawal privilege does not apply to full surrenders of the Policy, and if a
full surrender is made within one year of exercising a CDSC-free Withdrawal,
then the Contingent Deferred Sales Charge which would have been assessed at the
time of the Withdrawal will be assessed at the time of surrender. The
CDSC-free feature is also non-cumulative; so that free amounts not taken during
any given Policy Year cannot be taken as free amounts in a subsequent Policy
Year. In addition, any amount withdrawn in order to meet minimum Distribution
requirements under the Code shall be free of CDSC. In the first Policy Year a
CDSC-free Withdrawal is available only by setting up a monthly systematic
Withdrawal program for an amount not exceeding the annual CDSC-free Withdrawal
amount (see "Available Automated Fund Management Features-Systematic
Withdrawals", page ). 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 addition, no Contingent Deferred Sales Charge will be deducted: (1)
upon the Annuitization of Policies, (2) upon payment of a death benefit
pursuant to the death of the Owner, (3) from any values which have been held
under a Policy for at least 84 months, or (4) as noted above, after the

<PAGE> 33
fifteenth Policy Anniversary. 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 Policy is held by a charitable remainder trust, the amount
which may be withdrawn from this Policy without application of a Contingent
Deferred Sales Charge, after the first Policy Year, 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 Accumulation Value as of the last Policy
Anniversary and the Net Premium Payments made to the Policy, less all
Withdrawals and less any outstanding loan and accrued interest, as of the last
Policy Anniversary.

LSW will waive the Contingent Deferred Sales Charge if the Owner dies,
or if the Owner annuitizes (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 at the time of payment of the lump
sum).

LSW will also waive the CDSC if, following the first Policy
Anniversary, the Owner has been confined to an eligible nursing home (as
defined in the Policy) for at least the 90 consecutive days ending on the date
of the Withdrawal request.

ANNUAL POLICY FEE

For Policies with an Accumulation Value plus any outstanding loan and
accrued interest of less than $50,000 as of the Date of Issue, or any
subsequent Policy Anniversary prior to the Annuitization Date, LSW will assess
an Annual Policy Fee of $30.00. This fee will be assessed annually in advance
on the Date of Issue and thereafter on each Policy Anniversary on which the
Accumulation Value plus any outstanding loans and accrued interest is less than
$50,000, until the Annuitization Date. No Annual Policy 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.

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. LSW
has no present intention to impose a transfer charge in the foreseeable future.
However, LSW reserves the right to impose in the future a transfer charge of
$25 on each transfer in excess of twelve transfers in any Policy 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 Policy Year.

PREMIUM TAXES

If a governmental entity imposes premium taxes, LSW will make a
deduction for premium taxes in a corresponding amount. Certain states impose a
premium tax, currently ranging up to 3.5%. LSW will pay premium taxes at the
time imposed under applicable law. Where LSW is required to pay this premium
tax when a premium is paid, it may deduct an amount equal to premium taxes from
the Premium Payment. In the remaining states which assess premium taxes, LSW
will make a deduction for premium taxes at the time it pays premium taxes to
the applicable taxing authority.

CHARGE FOR OPTIONAL ENHANCED DEATH BENEFIT RIDER

Annual charges are made if the Owner has elected the optional Enhanced
Death Benefit Rider. See "Optional Enhanced Death Benefit Rider," page .
The annual charge for the Enhanced Death

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<PAGE> 34
Benefit Rider is 0.20% of Accumulation Value as of the date the charge is
deducted plus the amount of any outstanding loan and accrued interest. The
annual charge will be deducted at issue (or at the time of election, if elected
subsequent to issue), and then on each Policy Anniversary thereafter, up to and
including age 80 on an age-nearest-birthday basis as of the relevant Policy
Anniversary. After age 80, the charge will be discontinued. The charge will
be taken pro rata from the Subaccounts of the Variable Account and the unloaned
portion of the Fixed Account.

REDUCTION OF CHARGES

The CDSC, Annual Policy Charge and Expense Risk Charge described above
may be reduced or eliminated for Policies issued in circumstances where the
Company estimates that it will incur lower distribution or administrative
expenses or perform fewer sales or administrative services than those
originally contemplated in establishing the level of these charges. Lower
distribution and administrative expenses may be the result of economies
associated with (a) the use of mass enrollment procedures, (b) the performance
of administrative or enrollment functions by an employer, (c) the use by an
employer of automated techniques in submitting Premium Payments or information
related to Premium Payments on behalf of its employees, or (d) any other
circumstances which reduce distribution or administrative expenses. The exact
amount of the CDSC, Annual Policy Charge or Expense Risk Charge applicable to a
particular Policy will be stated in that Policy.

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. Information on the fees and
expenses for the Funds is set forth in "Underlying Fund Annual Expenses" on
page .

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

POLICY RIGHTS

FREE LOOK

The Owner may revoke the Policy at any time between the Date of Issue
and the date 10 days after receipt of the Policy, and receive a refund of the
Accumulation Value plus any charges assessed at issue, including the Annual
Policy Fee, charge for the optional Enhanced Death Benefit Rider, and any
premium tax, unless otherwise required by state and/or federal law. Some
states may require a longer period. Where the Accumulation Value is refunded,
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
Policy was in force.

In the case of Individual Retirement Annuities and states that require
the return of Premium Payments, LSW will refund the greater of: (i) Premium
Payments or (ii) Accumulation Value plus any amount deducted by LSW for state
premium taxes. LSW may require that all Accumulation Value allocated to the
Variable Account initially be held in the Market Street Money Market
Subaccount. At the end of the free look period, Accumulation 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, LSW assumes the free look period ends 20 days after the date the
Policy is issued.

In order to revoke the Policy, it must be mailed or delivered to the
Home Office of LSW 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 Policy
for revocation to be effective, except where LSW required the allocation of
Accumulation Value to the Market Street Money Market Subaccount for the free
look period. In order to revoke the Policy, if it has not been received,
written notice must be mailed or delivered to the Home Office of LSW at the
mailing address shown on page 1 of this prospectus.

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<PAGE> 35
The liability of the Variable Account under this provision is limited
to the Accumulation Value in each Subaccount on the date of revocation. Any
additional amounts refunded to the Owner will be paid by LSW.

LOAN PRIVILEGE - QUALIFIED POLICIES AND TAX SHELTERED ANNUITIES

Prior to the Annuitization Date, the Owner of a Qualified Policy under
section 401(a) (which includes section 401(k) plans) or 403(a) of the Code, or
a section 403(b) Tax Sheltered Annuity Policy, may receive a loan, subject to
the terms of the Policy, the Plan, and the Code, which may impose restrictions
on loans.

Loans from eligible Policies are available beginning one year after
the Date of Issue. The Owner may borrow a minimum of $1500. The maximum loan
balance which may be outstanding at any time is 50% of the Accumulation 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, which may be more than the
amount outstanding at the time of the loan if an interest payment or principal
repayment has been made. Only one loan may be outstanding with respect to any
one Policy at any time. Loans may only be secured by the Accumulation 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, LSW 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 Accumulation Value. No CDSC is
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 Accumulation 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 LSW 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 on each
Policy Anniversary with interest at an annual rate declared from time to time
by LSW, but will never be less than an annual rate of 3.0%. Specific loan
terms are disclosed at the time of loan application or loan issuance.

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 specified in the loan agreement. Once established, this
interest rate will be fixed for the life of the loan. Loan repayments will
consist of principal and interest in amounts set forth in the loan agreement.
Loan principal repayments will, on the date they are received, be allocated
among the Fixed Account and Subaccounts of the Variable Account in accordance
with the allocation of Net Premium Payments then in effect.

If the Policy 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 be reduced to reflect the
amount of the loan outstanding plus accrued interest. If annuity payments
start while the loan is outstanding, the Accumulation Value will be reduced by
the amount of the outstanding loan plus accrued interest. Until the loan is
repaid, LSW reserves the right to restrict any transfer of the Policy 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
the entire balance of the loan is considered in default. This amount may be
taxable to the borrower, and may be subject to the early withdrawal tax
penalty. If the Owner is not eligible to take a distribution pursuant to the
Policy or plan provisions, the

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<PAGE> 36
deemed distribution will be reportable for tax purposes, but will not be offset
against the Policy Value until such time as a distribution may be made.

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

All payments received from the Owner will be considered loan
repayments. Any payments received from the employer of the Owner will be
considered premium payments unless specifically identified as loan repayments.
LSW reserves the right to modify the terms or procedures associated with the
loan privilege in the event of a change in the laws or regulations relating to
the treatment of loans. LSW also reserves the right to assess a loan
processing fee. Individual Retirement Annuities and Non-Qualified Policies are
not eligible for loans. (See "Non-Qualified Policies", page and
"Individual Retirement Annuities", page )

SURRENDER AND WITHDRAWAL

At any time prior to the Annuitization Date, or thereafter if Payment
Option 1 has been elected, the Owner may, upon proper written application by
the Owner deemed by LSW to be in good order, surrender the Policy. "Proper
written application" means that the Owner must request the surrender in writing
and include the Policy. LSW 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.

LSW will, upon receipt of any such written request, pay to the Owner
the Cash Surrender Value. The Cash Surrender Value will be reduced by 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.

LSW 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 Cash
Surrender Value. The minimum Withdrawal is $500, and the maximum Withdrawal is
that amount which would leave $3500 in remaining Accumulation Value. If the
amount requested is more than the maximum or less than the minimum, the
Withdrawal will not be processed until LSW receives further instructions from
the Owner.

Generally, Withdrawals in the first Policy Year and Withdrawals in
excess of 10% of the Accumulation Value as of the most recent Policy
Anniversary in any Policy Year prior to the sixteenth Policy Year are subject
to the Contingent Deferred Sales Charge. See "Contingent Deferred Sales
Charge", page . However, see "Available Automated Fund Management
Features-Systematic Withdrawals" page , for information on a limited means
of making systematic Withdrawals in the first year free of the Contingent
Deferred Sales Charge. Withdrawals will be deemed to be taken from Net Premium
Payments in chronological order, with the oldest Net 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
(however, during the first Policy Year, LSW may require that Withdrawal be
taken pro rata from the Subaccounts of the Variable Account and the unloaned
portion of the Fixed Account). 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
Accumulation Value in the Variable Account is insufficient to accomplish the
Withdrawal. If specific allocation instructions are not provided by the Owner,
the

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<PAGE> 37
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 LSW receives further instructions from the
Owner.

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

PAYMENTS

LSW will pay any funds surrendered or withdrawn from the Variable
Account within 7 days of receipt of such request in LSW's Home Office.
However, LSW reserves the right to suspend or postpone the date of any payment
or transfer 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. LSW 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 a written request in a form
satisfactory to it.

SURRENDERS AND WITHDRAWALS UNDER A TAX SHELTERED ANNUITY POLICY

Where the Policy has been issued as a Tax Sheltered Annuity, the
Owner may surrender or make a Withdrawal of part or all of the Accumulation
Value at any time this Policy is in force prior to the earlier of the
Annuitization Date or the death of the Designated Annuitant except as provided
below:

A. The surrender or Withdrawal of Accumulation 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 Accumulation
Value in the case of hardship may not include any income
attributable to salary reduction contributions.

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

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

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

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<PAGE> 38
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 Policy 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,
LSW will agree to transfer the proceeds to another policy which meets the
requirements of Section 403(b) of the Code, upon proper direction by the Owner.
The foregoing is LSW'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 Policy surrender and Withdrawal provisions may also be modified
pursuant to the plan terms and Code tax provisions for Qualified Policies.

TELEPHONE TRANSACTION PRIVILEGE

If the telephone transaction privilege has been elected, either on the
application for the Policy or by thereafter providing a proper written
authorization to LSW, an Owner, or his or her LSW agent, if the Owner has so
provided on the application or by written authorization, may effect changes in
Net Premium Payment allocation, transfers, initiate dollar cost averaging or
portfolio rebalancing, and, in the case of Tax Deferred Annuity Policies, loans
of up to $10,000, by providing instructions to LSW at its Home Office over the
telephone. LSW 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 Policy Owners.

LSW will employ reasonable procedures to confirm that instructions
communicated by telephone are genuine. If LSW follows these procedures it will
not be liable for any losses due to unauthorized or fraudulent instructions.
LSW 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

LSW currently offers, at no charge to Owners, the following automated
fund management features. However, LSW 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 Policy 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.

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

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<PAGE> 39
month on the Monthly Policy Date (starting with the Monthly Policy 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 monthly, 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 Policies 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 Policy Date three, six or twelve months after the
Date of Issue, and then on each Monthly Policy Date three, six or twelve months
thereafter. Policies electing Portfolio Rebalancing after issue will have the
first automated transfer occur as of the Monthly Policy 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 Policy'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 Policy allocates premiums, and
into Subaccounts which have had relatively unfavorable investment performance
in relation to the other Subaccounts to which the Policy allocates premiums.

Systematic Withdrawals- At any time after one year from the Date of
Issue, and provided that the Accumulation 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 LSW 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 Accumulation 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,
LSW 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, LSW will withhold federal income taxes from
each systematic Withdrawal. A systematic Withdrawal program will terminate
automatically when a systematic Withdrawal would cause the remaining
Accumulation Value to be $3,500 or less. If a systematic Withdrawal would
cause the Accumulation Value to be

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<PAGE> 40
$3,500 or less, then that systematic Withdrawal transaction will not be
processed. The Owner may discontinue systematic Withdrawals at any time by
notifying LSW 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 the Owner may withdraw in each Policy Year after the
first Policy Year without a CDSC an amount up to 10% of the Accumulation Value
as of the most recent Policy Anniversary. 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
Policy Year free of the CDSC. In addition, any amount withdrawn from any
Individual Retirement Annuity Policy in order to meet minimum Distribution
requirements shall be free of CDSC.

Limited systematic Withdrawals are also available in the first Policy
Year (but after 30 days from issue). These systematic Withdrawals are limited
to monthly systematic Withdrawal programs only. The maximum aggregate amount
for the remaining months of the first Policy Year is 10% of the Accumulation
Value. These systematic Withdrawals will not be subject to a CDSC. The other
rules for systematic Withdrawals made after the first Policy Year, including
the $15,000 minimum Accumulation Value, minimum $100 payment, and allocation
rules, will apply to these systematic Withdrawals.

POLICY RIGHTS UNDER CERTAIN PLANS

Policies may be purchased in connection with a plan sponsored by an
employer. In such cases, all rights under the Policy 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 Policy 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

Net Premium Payments under the Fixed Account portion of the Policy and
transfers to the Fixed Account portion become part of the general account of
LSW, 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 ("Securities Act"), nor is the
general account registered as an investment company under the Investment
Company Act. Accordingly, neither the general account nor any interest therein
are generally subject to the provisions of the Securities Act or Investment
Company Act, and LSW has 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 Policy 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 LSW, other
than those in the Variable Account and any other segregated asset account.
Fixed Account Net 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 Net Premium Payments. LSW will invest the assets of the Fixed
Account in those assets chosen by LSW and allowed by applicable law.

MINIMUM GUARANTEED AND CURRENT INTEREST RATES

The Accumulation 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%. LSW may credit the non-loaned Accumulation Value
in the Fixed Account with current rates in excess of the

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<PAGE> 41
minimum guarantee but is not obligated to do so. Since LSW, 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 LSW 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, LSW reserves the
right to declare a new current interest rate on such amounts and accrued
interest thereon (which may be a 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 LSW. 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 Policy 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.

LSW 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 ENHANCED DEATH BENEFIT RIDER

The Enhanced Death Benefit Rider, which is subject to the restrictions
and limitations set forth in the Policy Rider, may be included in a Policy at
the option of the Owner. Election of this optional benefit involves an
additional cost. This Rider may not be available in all states. 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 (on an age nearest birthday basis): the
highest of (a) Accumulation Value; (b) the total of all Net Premium Payments,
less all Withdrawals, and less any outstanding loan and accrued interest, and
(c) the largest Accumulation Value as of any prior Policy Anniversary after the
Enhanced Death Benefit Rider was applicable to the Policy, plus any Net Premium
Payments and less any Withdrawals (including any CDSC deducted in connection
with such Withdrawals), loan and accrued interest, in each case since such
Policy Anniversary, and in each case calculated as of the date LSW receives due
proof of death. Any applicable premium tax charge payable on the death of the
Owner 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
Accumulation 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 as of a Policy Anniversary, and only if at the time of the Rider
is requested, the Accumulation Value is greater than the total of all Net
Premium Payments less all Withdrawals. The annual charge for this Rider is
0.20% of Accumulation Value. After the Owner reaches age 80, on an age nearest
birthday basis, the charge will be discontinued. See "Charge for Optional
Enhanced Death Benefit Rider", page .

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

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<PAGE> 42
FEDERAL INCOME TAX CONSIDERATIONS

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

This discussion is not intended to address the tax consequences
resulting from all of the situations in which a person may be entitled to or
may receive a distribution under the Policy issued by LSW. Any person
concerned about these tax implications should consult a competent tax advisor
before initiating any transaction. This discussion is based upon our
understanding of the present federal income tax laws, as they are currently
interpreted by the Internal Revenue Service. No representation is made as to
the likelihood of the continuation of the present federal income tax laws or of
the current interpretation by the Internal Revenue Service. Moreover, no
attempt has been made to consider any applicable state or other tax laws.

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 Policies. Each type of annuity is discussed
below.

NON-QUALIFIED POLICIES

The rules applicable to Non-Qualified Policies 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 Policy and the expected return on
the Policy. The maximum amount excludable from income is the investment in the
Policy. If the Annuitant dies prior to excluding from income the entire
investment in the Policy, the Annuitant's final tax return may reflect a
deduction for the balance of the investment in the Policy.

Distributions made from the Policy prior to the Annuitization Date are
includible in gross income and taxable to the Owner to the extent that the cash
value of the Policy 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 Policy which is assigned
or pledged; or for Policies issued after April 22, 1987, any portion of the
Policy 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 policies
issued by the same company to the same Owner during any 12 month period, will
be treated as one annuity policy. Additional limitations on the use of
multiple policies may be imposed by Treasury regulations.

In general, certain Non-Qualified Policies held by entities other than
individuals are taxed currently on the earnings on the Policy. There are
exceptions for immediate annuities and certain Policies owned for the benefit
of an individual. An immediate annuity, for purposes of this discussion, is a
single premium Policy on which payments begin within one year of purchase. Any
non-individual (such as a trust) contemplating the purchase of a Non-Qualified
Policy 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 the death or disability of the Owner. The
penalty also does not apply if the Distribution is one of a series of
substantially equal periodic 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 Policy before August 14, 1982. An Owner wishing to begin
taking Distributions to which the 10% tax penalty does not apply should forward
a written request to LSW. Upon receipt of a written request from the Owner,
LSW will inform the Owner of the procedures pursuant to LSW policy and subject
to limitations of the Policy including but not limited to first year
withdrawals.

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<PAGE> 43

In order to qualify as an annuity policy under Section 72 of the Code,
the Policy must provide that the entire interest in the Policy be distributed
upon the death of any Owner before the Annuitization Date In such case, the
Beneficiary generally must receive this Distribution within 5 years of such
Owner's death. However, the Beneficiary 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 Policy 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 Qualified Plans and Tax Sheltered
Annuities"). If the Owner is not an individual, the death of any Annuitant (or
a change in any Annuitant) will result in a Distribution pursuant to these
rules, regardless of whether a Contingent Annuitant has been named.

LSW 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 Policy 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.

LSW 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 LSW
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 Policy 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 Policy, 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 Policy, the designation of
an Annuitant of other than the Owner, the selection or change of certain
Maturity Dates, or the exchange of a Policy 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 POLICIES

The Qualified Policy 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 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); distributions that do not conform
to specified commencement and minimum distribution rules; and in other specified
circumstances.

LSW makes no attempt to provide more than general information about
use of the Policies 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
Policies may be subject to the terms and conditions of the Policy issued in
connection with

32
<PAGE> 44
such a plan. Some retirement plans are subject to distribution and other
requirements that are not incorporated in the administration of the Policies.
Owners are responsible for determining that contributions, distributions and
other transactions with respect to the Policies satisfy applicable law.
Federal income tax withholding will generally be made from Distributions under
Qualified Policies, unless the participant elects not to have tax withheld.
Withholding is required from certain tax distributions (see "Rollover
Distributions", page ). Purchasers of Policies for use with any retirement
plan should consult their legal counsel and tax advisor regarding the
suitability of the Policy.

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

Distributions from Individual Retirement Annuities and Policies 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 Policies exceeds
prior non-taxable Distributions from such Policies, and the total account
balances in such Policies at the time of the Distribution. The Owner of such
Individual Retirement Annuities or the Designated Annuitant under Policies 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 Policies.

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 Policies to accumulate
retirement savings under the plans. Adverse tax consequences to the plan, to
the participant or to both may result if this Policy is assigned or transferred
to any individual as a means to provide benefit payments.

The Policy includes a Death Benefit that in some cases may exceed the
greater of the Premium Payments or the Accumulation Value. The Death Benefit
could be characterized as an incidental benefit, the amount of which is limited
in any pension or profit-sharing plan. Because the Death Benefit may exceed
this limitation, employers using the Policy in connection with such plans
should consult their tax adviser.

CODE SECTION 403(b) PLANS

Under Code section 403(b), payments made by public school systems and
certain tax-exempt organizations to purchase annuity policies 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.

The Policy includes a Death Benefit that in some cases may exceed the
greater of the Premium Payments or the Accumulation Value. The Death Benefit
could be characterized as an incidental benefit, the amount of which is limited
in any tax-sheltered annuity under section 403(b). Because the Death Benefit
may exceed this limitation, employers using the Policy in connection with such
plans should consult their tax adviser.

Code section 403(b)(11) restricts the distribution under Code section
403(b) annuity policies 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 - Qualified Policies and
Certain 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

<PAGE> 45
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, with respect to non-governmental plans, 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, a non-government 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.

INDIVIDUAL RETIREMENT ANNUITIES

The Policy may be purchased as an Individual Retirement Annuity under
Section 408(b) of the Code. The Owner should seek competent advice as to the
tax consequences associated with the use of a Policy as an Individual
Retirement Annuity. The Policy is not available for Education IRA's.

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 Policy or the sum of all Premium Payments (less any
surrender, the sum of all Withdrawals, or any outstanding loan and accrued
interest on such loan), 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 Policy for
qualification as an IRA and has not generally ruled whether a Death Benefit
provision such as the provision in the Policy comports with IRA qualification
requirements.

The sale of a Policy for use with an IRA may be subject to special
disclosure requirements of the Internal Revenue Service. Purchasers of a
Policy for use with IRAs will be provided with supplemental information
required by the Internal Revenue Service or other appropriate agency. Such
purchasers will have the right to revoke their purchase within 7 days of the
earlier of the establishment of the IRA or their purchase. A Qualified Policy
issued in connection with an IRA will be amended as necessary to conform to the
requirements of the Code.

Earnings in an IRA are not taxed until distribution. IRA
contributions are limited each year to the lesser of $2,000 or 100% of the
Owner's adjusted gross income and may be deductible in whole or in part
depending on the individual's income and whether the individual is a
participant in a qualified plan. The limit on the amount contributed to an IRA
does not apply to distributions from certain other types of qualified plans
that are "rolled over" on a tax-deferred basis into an IRA. Amounts in the IRA
(other than nondeductible contributions) are taxed when distributed from the
IRA. Distributions prior to age 59 1/2 (unless certain exceptions apply) are
subject to a 10% penalty tax.

Simplified Employee Pension (SEP) IRAs. Employers may establish
Simplified Employee Pension (SEP) IRAs under Code section 408(k) to provide IRA
contributions on behalf of their employees. In addition to all general Code
rules governing IRAs, such plans are subject to certain Code requirements
regarding participation and amounts of contributions.

SIMPLE IRAs. Beginning January 1, 1997, certain small employers may
establish SIMPLE plans as provided by Section 408(p) of the Code, under which
employees may elect to defer to a SIMPLE IRA a percentage of compensation up to
$6,000 (as increased for cost of living adjustments). The sponsoring employer
is required to make matching or non-elective contributions on behalf of
employees. Distributions from SIMPLE IRAs 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 percent penalty tax, which is increased to 25 percent if the distribution
occurs within the first two years after the commencement of the employee's
participation in the plan.

Roth IRA's. Effective January 1, 1998, section 408A of the Code
permits certain eligible individuals to contribute to a Roth IRA.
Contributions to a Roth IRA, which are subject to certain limitations, are not
deductible and must be made in cash or as a rollover or transfer from another
Roth IRA or other IRA. A rollover from or conversion of an IRA to a Roth IRA
may be subject to tax and other special rules may apply. An Owner should
consult a tax adviser before combining any converted amounts with any other
Roth IRA contributions, including any other conversion amounts from other tax
years. Distributions from a Roth IRA generally are not taxed, except that,
once aggregate distributions exceed contributions to the Roth IRA, income tax
and a 10% penalty tax may apply to distributions made (1) before age 59 1/2
(subject to certain exceptions) or (2) during the five taxable years starting
with the year in which the first contribution is made to the Roth IRA.

DIVERSIFICATION

The Code requires that the investments of the Variable Account be
"adequately diversified" in order for the Policies to be treated as annuity
contracts for federal income tax purposes. It is intended that the Variable
Account, through the Funds, will satisfy these diversification requirements.
Although LSW does not have direct control over the Funds in which the Separate
Account invests, LSW believes that each Fund in which the Separate Account owns
shares will meet the diversification requirements, and therefore, the Policies
will be treated as annuity contracts under the Code.

In certain circumstances, owners of variable annuity policies have
been considered for Federal income tax purposes to be the owners of the assets
of the Variable Account supporting their policies due to their ability to
exercise investment control over those assets. When this is the case, the
policy 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 Policies, such as the flexibility of an Owner to allocate Net
Premium Payments and transfer Accumulation Value, have not been explicitly
addressed in published rulings. While LSW believes that the Policies do not
give Owners investment control over Variable account assets, LSW reserves the
right to modify the Policies as necessary to prevent an Owner from being
treated as the owner of the variable Account assets supporting the Policy.

TAX LEGISLATION. Although the likelihood of legislative change is
uncertain, there is always the possibility that the tax treatment of the
Policies could change by legislation or other means. For instance, the
President's 1999 Budget Proposal recommended legislation that, if enacted,
would adversely modify the federal taxation of the Policies. It is also
possible that any change could be retroactive (that is, effective prior to the
date of the change). A tax adviser should be consulted with respect to
legislative developments and their effect on the Policy.

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<PAGE> 46
CHARGE FOR TAX PROVISIONS

LSW is no longer required to maintain a capital gain reserve liability
on Non-Qualified Policies since capital gains attributable to assets held in
the Variable Account for such Policies are not taxable to LSW. However, LSW
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:

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, or

3. Distributions in respect of after-tax contributions to a Qualified
Plan.

Any Distribution eligible for rollover will be subject to federal tax
withholding at a 20% 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
Policies.

RESTRICTIONS UNDER QUALIFIED POLICIES

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

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

VOTING RIGHTS

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

In accordance with its view of present applicable law, LSW will vote
the shares of the underlying Funds held in the Variable Account at regular and
special meetings of the shareholders of

35
<PAGE> 47
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 or any regulation thereunder should be amended or
if the present interpretation thereof should change, and as a result LSW
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 Policy 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 LSW 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 LSW in the same proportion as
the voting instructions which are received with respect to all Policies
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

LSW reserves the right to create one or more new separate accounts,
combine or substitute separate accounts, or to add new investment Funds for use
in the Policies 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 LSW's management, further
investment in such underlying Fund shares should become inappropriate, LSW 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 Net Premium Payments under the Policy. 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. LSW may also operate the Variable Account as a management
investment company under the Investment Company Act, deregister the Variable
Account under the Investment Company Act if such registration is no longer
required, transfer all or part of the assets of the Variable Account to another
separate account or to the Fixed Account (subject to obtaining all necessary
regulatory approvals), and make any other changes reasonably necessary under
the Investment Company Act or applicable state law.

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.

LSW may also from time to time advertise the performance of the
Subaccounts 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.

36
<PAGE> 48
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.

LSW is also ranked and rated by independent financial rating services,
among which are A.M. Best and Duff & Phelps. The purpose of these ratings is
to reflect the financial strength or claims-paying ability of LSW. The ratings
are not intended to reflect the investment experience or financial strength of
the Variable Account. LSW may advertise these ratings from time to time. In
addition, LSW may include in certain advertisements, endorsements in the form
of a list of organizations, individuals or other parties which recommend LSW or
the Policies. Furthermore, LSW 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.

LSW may from time to time advertise several types of historical
performance for the Subaccounts of the Variable Account. LSW may advertise for
the Subaccounts standardized "average annual total return", calculated in a
manner prescribed by the Securities and Exchange Commission, and other "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 Subaccount
has been in existence, if the Subaccount has not been in existence for one of
the prescribed periods. This calculation reflects the deduction of all
applicable charges made to the Policies except for premium taxes, which may be
imposed by certain states.

Other "total returns" include nonstandardized subaccounts total return
and adjusted historic Fund performance data. Nonstandardized subaccount
"Average annual total return" will also be calculated in a similar manner and
for the same time periods but 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 Policies 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 Policy than does the $1,000 figure used in calculating the standardized
average annual total return quotations.

Generally, nonstandardized Subaccount performance data will only be
disclosed if standardized average annual total return for the Subaccounts for
the required periods is also disclosed; however, due to the recent
establishment of the Variable Account, there currently is no standardized
average annual total return data for the Subaccounts.

In addition, historic performance data may be presented for the Funds
since their inception, reduced by some or all of the fees and charges under the
Policies. Such adjusted historic Fund performance includes data that precedes
the inception date of the Subaccounts. This data is designed to show
performance that would have resulted if the Policy had been in existence during
that time. Adjusted historic Fund performance data will be shown only if
standard performance data for the Subaccounts is also shown, if available.

The charts below show adjusted historic total return fo the Funds for
the indicated periods. For the purposes of calculating Adjusted Historic Fund
Average Annual Total Return, the Mortality and Expense Risk Charge of 1.25%,
the Administration Charge of 0.15%, the Annual Policy Fee of $30, and the
applicable Contingent Deferred Sales Charge were deducted.

Based on the method of calculation described above, the Adjusted
Historic Fund Average Annual Total Return for the periods ending December 31,
1997 were:

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<PAGE> 49
upon historical earnings and are not necessarily representative of future
results. The first set of charts assumes that the Enhanced Death Benefit Rider
has not been elected by the Owner.

ADJUSTED HISTORIC FUND AVERAGE ANNUAL TOTAL RETURN
(ASSUMING ENHANCED DEATH BENEFIT RIDER IS NOT ELECTED AND
THE CONTINGENT DEFERRED SALES CHARGE IS NOT DEDUCTED)
<TABLE>
<CAPTION>
- -----------------------------------------------------------------------------------------------------------------------
1 YEAR TO 5 YEARS TO 10 YEARS TO LIFE OF FUND DATE FUND
- -----------------------------------------------------------------------------------------------------------------------
12/31/97 12/31/97 TO 12/31/97 12/31/97 EFFECTIVE
- -----------------------------------------------------------------------------------------------------------------------
Funds Available as of May 1, 1998
- -----------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
Alger American Small Capitalization 9.8% 11.0% N/A% 17.5% 9/21/88
- -----------------------------------------------------------------------------------------------------------------------
Alger American Growth 24.0 17.6 N/A 17.7 1/9/89
- -----------------------------------------------------------------------------------------------------------------------
Fidelity VIP Fund-Equity Income 26.3 18.4 15.1 13.0 10/9/86
- -----------------------------------------------------------------------------------------------------------------------
Fidelity VIP Fund-Growth 21.7 16.3 15.5 13.9 10/9/86
- -----------------------------------------------------------------------------------------------------------------------
Fidelity VIP Fund-High Income 16.0 12.3 11.2 10.8 9/19/85
- -----------------------------------------------------------------------------------------------------------------------
Fidelity VIP Fund-Overseas 10.0 12.5 8.0 6.6 1/28/87
- -----------------------------------------------------------------------------------------------------------------------
Fidelity VIP Fund II-Index 500 30.9 18.2 N/A 18.1 8/27/92
- -----------------------------------------------------------------------------------------------------------------------
Fidelity VIP Fund II-Contrafund 22.4 N/A N/A 26.4 1/3/95
- -----------------------------------------------------------------------------------------------------------------------
Market Street Growth 22.6 15.3 14.0 12.8 2/24/84
- -----------------------------------------------------------------------------------------------------------------------
Market Street Sentinel Growth 29.7 N/A N/A 22.0 3/18/96
- -----------------------------------------------------------------------------------------------------------------------
Market Street Aggressive Growth 19.5 10.2 N/A 12.8 5/1/89
- -----------------------------------------------------------------------------------------------------------------------
Market Street Managed 19.5 11.3 9.4 8.5 12/12/85
- -----------------------------------------------------------------------------------------------------------------------
Market Street Bond 7.9 5.3 6.3 7.2 2/24/84
- -----------------------------------------------------------------------------------------------------------------------
Market Street International 8.1 12.0 N/A 7.6 11/1/91
- -----------------------------------------------------------------------------------------------------------------------
Market Street Money Market 3.8 3.0 4.0 4.5 2/24/84
- -----------------------------------------------------------------------------------------------------------------------
Strong Opportunity Fund II, Inc. 23.7 17.6 N/A 18.3 5/8/92
- -----------------------------------------------------------------------------------------------------------------------
Strong Growth Fund II 27.9 N/A N/A 27.9 1/1/97
- -----------------------------------------------------------------------------------------------------------------------
</TABLE>

38
<PAGE> 50

ADJUSTED HISTORIC FUND AVERAGE ANNUAL TOTAL RETURN
(ASSUMING ENHANCED DEATH BENEFIT RIDER IS NOT ELECTED AND
THE CONTINGENT DEFERRED SALES CHARGE IS DEDUCTED)
<TABLE>
<CAPTION>
- -----------------------------------------------------------------------------------------------------------------------
1 YEAR TO 5 YEARS TO 10 YEARS TO LIFE OF FUND DATE FUND
- -----------------------------------------------------------------------------------------------------------------------
12/31/97 12/31/97 TO 12/31/97 12/31/97 EFFECTIVE
- -----------------------------------------------------------------------------------------------------------------------
Funds Available as of May 1, 1998
- -----------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
Alger American Small Capitalization 2.8% 10.6% N/A% 17.5% 9/21/88
- -----------------------------------------------------------------------------------------------------------------------
Alger American Growth 17.0 17.3 N/A 17.7 1/9/89
- -----------------------------------------------------------------------------------------------------------------------
Fidelity VIP Fund-Equity Income 19.3 18.1 15.1 13.0 10/9/86
- -----------------------------------------------------------------------------------------------------------------------
Fidelity VIP Fund-Growth 14.7 16.0 15.5 13.9 10/9/86
- -----------------------------------------------------------------------------------------------------------------------
Fidelity VIP Fund-High Income 9.0 11.9 11.2 10.8 9/19/85
- -----------------------------------------------------------------------------------------------------------------------
Fidelity VIP Fund-Overseas 3.0 12.1 8.0 6.6 1/28/87
- -----------------------------------------------------------------------------------------------------------------------
Fidelity VIP Fund II-Index 500 23.9 17.9 N/A 17.7 8/27/92
- -----------------------------------------------------------------------------------------------------------------------
Fidelity VIP Fund II-Contrafund 15.4 N/A N/A 24.2 1/3/95
- -----------------------------------------------------------------------------------------------------------------------
Market Street Growth 15.6 14.9 14.0 12.8 2/24/94
- -----------------------------------------------------------------------------------------------------------------------
Market Street Sentinel Growth 22.7 N/A N/A 17.9 3/18/96
- -----------------------------------------------------------------------------------------------------------------------
Market Street Aggressive Growth 12.5 9.8 N/A 12.8 5/1/89
- -----------------------------------------------------------------------------------------------------------------------
Market Street Managed 12.5 10.9 9.4 8.5 12/12/85
- -----------------------------------------------------------------------------------------------------------------------
Market Street Bond 0.9 4.8 6.3 7.2 2/24/84
- -----------------------------------------------------------------------------------------------------------------------
Market Street International 1.1 11.6 N/A 7.5 11/1/91
- -----------------------------------------------------------------------------------------------------------------------
Market Street Money Market (3.2) 2.4 4.0 4.5 2/24/84
- -----------------------------------------------------------------------------------------------------------------------
Strong Opportunity Fund II, Inc. 16.7 17.3 N/A 17.9 5/8/92
- -----------------------------------------------------------------------------------------------------------------------
Strong Growth Fund II 20.9 N/A N/A 19.0 1/1/97
- -----------------------------------------------------------------------------------------------------------------------
</TABLE>

ADJUSTED HISTORIC FUND AVERAGE ANNUAL TOTAL RETURN
(ASSUMING ENHANCED DEATH BENEFIT RIDER IS ELECTED AND
THE CONTINGENT DEFERRED SALES CHARGE IS NOT DEDUCTED)
<TABLE>
<CAPTION>
- -----------------------------------------------------------------------------------------------------------------------
1 YEAR TO 5 YEARS TO 10 YEARS TO LIFE OF FUND DATE FUND
- -----------------------------------------------------------------------------------------------------------------------
12/31/97 12/31/97 TO 12/31/97 12/31/97 EFFECTIVE
- -----------------------------------------------------------------------------------------------------------------------
Funds Available as of May 1, 1998:
- -----------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
Alger American Small Capitalization 9.6% 10.8% N/A% 17.3% 9/21/88
- -----------------------------------------------------------------------------------------------------------------------
Alger American Growth 23.7 17.4 N/A 17.5 1/9/89
- -----------------------------------------------------------------------------------------------------------------------
Fidelity VIP Fund-Equity Income 26.0 18.2 14.8 12.8 10/9/86
- -----------------------------------------------------------------------------------------------------------------------
Fidelity VIP Fund-Growth 21.5 16.1 15.3 13.7 10/9/86
- -----------------------------------------------------------------------------------------------------------------------
Fidelity VIP Fund-High Income 15.7 12.1 11.0 10.6 9/19/85
- -----------------------------------------------------------------------------------------------------------------------
Fidelity VIP Fund-Overseas 9.7 12.2 7.8 6.4 1/28/87
- -----------------------------------------------------------------------------------------------------------------------
Fidelity VIP Fund II-Index 500 30.7 18.0 N/A 17.9 8/27/92
- -----------------------------------------------------------------------------------------------------------------------
Fidelity VIP Fund II-Contrafund 22.1 N/A N/A 26.1 1/3/95
- -----------------------------------------------------------------------------------------------------------------------
Market Street Growth 22.3 15.1 13.8 12.5 2/24/94
- -----------------------------------------------------------------------------------------------------------------------
Market Street Sentinel Growth 29.5 N/A N/A 21.8 3/18/96
- -----------------------------------------------------------------------------------------------------------------------
Market Street Aggressive Growth 19.2 10.0 N/A 12.6 5/1/89
- -----------------------------------------------------------------------------------------------------------------------
Market Street Managed 19.3 11.0 9.2 8.3 12/12/85
- -----------------------------------------------------------------------------------------------------------------------
Market Street Bond 7.7 5.1 6.1 7.0 2/24/84
- -----------------------------------------------------------------------------------------------------------------------
Market Street International 7.9 11.8 N/A 7.4 11/1/91
- -----------------------------------------------------------------------------------------------------------------------
Market Street Money Market 3.5 2.8 3.8 4.3 2/24/84
- -----------------------------------------------------------------------------------------------------------------------
Strong Opportunity Fund II, Inc. 23.4 17.4 N/A 18.1 5/8/92
- -----------------------------------------------------------------------------------------------------------------------
Strong Growth Fund II 27.7 N/A N/A 27.7 1/1/97
- -----------------------------------------------------------------------------------------------------------------------
</TABLE>

39
<PAGE> 51

ADJUSTED HISTORIC FUND AVERAGE ANNUAL TOTAL RETURN
(ASSUMING ENHANCED DEATH BENEFIT RIDER IS ELECTED AND
THE CONTINGENT DEFERRED SALES CHARGE IS DEDUCTED)
<TABLE>
<CAPTION>
- -----------------------------------------------------------------------------------------------------------------------
1 YEAR TO 5 YEARS TO 10 YEARS TO LIFE OF FUND DATE FUND
- -----------------------------------------------------------------------------------------------------------------------
12/31/97 12/31/97 TO 12/31/97 12/31/97 EFFECTIVE
- -----------------------------------------------------------------------------------------------------------------------
Funds Available as of May 1, 1998:
- -----------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
Alger American Small Capitalization 2.60% 10.4% N/A% 17.30% 9/21/88
- -----------------------------------------------------------------------------------------------------------------------
Alger American Growth 16.7 17.0 N/A 17.50 1/9/89
- -----------------------------------------------------------------------------------------------------------------------
Fidelity VIP Fund-Equity Income 19.0 17.9 14.8 12.8 10/9/86
- -----------------------------------------------------------------------------------------------------------------------
Fidelity VIP Fund-Growth 14.5 15.8 15.3 13.7 10/9/86
- -----------------------------------------------------------------------------------------------------------------------
Fidelity VIP Fund-High Income 8.7 11.7 11.0 10.6 9/19/85
- -----------------------------------------------------------------------------------------------------------------------
Fidelity VIP Fund-Overseas 2.7 11.9 7.8 6.4 1/28/87
- -----------------------------------------------------------------------------------------------------------------------
Fidelity VIP Fund II-Index 500 23.7 17.6 N/A 17.7 8/27/92
- -----------------------------------------------------------------------------------------------------------------------
Fidelity VIP Fund II-Contrafund 15.1 N/A N/A 25.1 1/3/95
- -----------------------------------------------------------------------------------------------------------------------
Market Street Growth 15.3 14.7 13.8 12.5 2/24/84
- -----------------------------------------------------------------------------------------------------------------------
Market Street Sentinel Growth 22.5 N/A N/A 18.9 3/18/96
- -----------------------------------------------------------------------------------------------------------------------
Market Street Aggressive Growth 12.2 9.6 N/A 12.6 5/1/89
- -----------------------------------------------------------------------------------------------------------------------
Market Street Managed 12.3 10.7 9.2 8.3 12/12/85
- -----------------------------------------------------------------------------------------------------------------------
Market Street Bond 0.7 4.6 6.1 7.0 2/24/84
- -----------------------------------------------------------------------------------------------------------------------
Market Street International 0.9 11.4 N/A 7.3 11/1/91
- -----------------------------------------------------------------------------------------------------------------------
Market Street Money Market (3.5) 2.2 3.8 4.3 2/24/84
- -----------------------------------------------------------------------------------------------------------------------
Strong Opportunity Fund II, Inc. 16.4 17.1 N/A 18.0 5/8/92
- -----------------------------------------------------------------------------------------------------------------------
Strong Growth Fund II 20.7 N/A N/A 20.7 1/1/97
- -----------------------------------------------------------------------------------------------------------------------
</TABLE>

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

40
<PAGE> 52
DISTRIBUTION OF THE POLICIES

The principal underwriter for the Policies 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
Insurance Company, which owns a majority of the outstanding stock of LSW. ESI
distributes a full line of securities products, including mutual funds, unit
investment trusts, and variable insurance contracts, and provides individual
securities brokerage services. The maximum commission payable for selling the
Policies will generally be 6.5%; however, during an introductory period of
approximately six months to be announced by LSW, the maximum commission payable
on Policies purchased will be 7.0%. Commissions are lower with respect to
Premium Payments received after the tenth Policy Anniversary.

STATEMENTS AND REPORTS

LSW 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 LSW prompt notice of any address change. LSW will send a
confirmation statement to Owners each time a transaction is made affecting the
Owner's Variable Account Accumulation Value, such as making additional Premium
Payments, transfers, exchanges or Withdrawals. Quarterly statements are also
mailed detailing the Policy 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 LSW
immediately to assure proper crediting to the Owner's Policy. LSW will assume
all transactions are accurately reported on quarterly statements or
confirmation statements unless the Owner notifies LSW otherwise within 30 days
after receipt of the statement. LSW 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.

PREPARING FOR YEAR 2000

Many computer systems were designed using only two digits to
designate years. These systems may not be able to distinguish the year 2000
from the year 1900. Like all financial services providers, LSW utilizes
computer systems that may be effected by Year 2000 transition issues, and LSW
relies on service providers, including the Funds, that also may be affected.
LSW has developed, and is in the process of implementing, a Year 2000
transition plan, and is confirming that its service providers are also so
engaged. The resources that are being devoted to this effort are substantial.
It is difficult to predict with precision whether the amount of resources
ultimately devoted, or the outcome of these efforts, will have any negative
impact on LSW. However, as of the date of this prospectus, it is not
anticipated that any Policy Owners will experience negative effects on their
investment, or on the services provided in connection therewith, as a result of
Year 2000 transition implementation. LSW currently anticipates that its
computer systems will be Year 2000 compliant on or about January 1, 1999, but
there can be no assurance that LSW will be successful, or that interaction with
other service providers will not impair LSW's services at that time.

OWNER INQUIRIES

Owner inquiries may be directed to LSW by writing to it at 1300 West
Mockingbird Lane, Dallas, Texas 75247-4921, or calling 1-800-228-4579.

LEGAL PROCEEDINGS

There are no material legal proceedings involving LSW or the Variable
Account which are likely to have a material adverse effect upon the Variable
Account or upon the ability of LSW to meet its obligations under the Policies.
ESI is not engaged in any litigation of any material nature.

LSW is a party to ordinary routine litigation incidental to its
business, none of which is expected to have a material adverse effect upon its
ability to meet its obligations under the Policies.

TABLE OF CONTENTS OF STATEMENT OF ADDITIONAL INFORMATION

<PAGE> 53
<TABLE>
<S> <C>
Money Market Subaccount Yields . . . . . . . . . . . . . . . . .
Other Subaccount Yields . . . . . . . . . . . . . . . . . . . .
Average Annual Total Returns . . . . . . . . . . . . . . . . . .
Other Total Returns . . . . . . . . . . . . . . . . . . . . . .
Effect of the Annual Policy Fee on Performance Data . . . . . .
Distribution of the Policies . . . . . . . . . . . . . . . . . . . . . .
Safekeeping of Account Assets . . . . . . . . . . . . . . . . . . . . . .
State Regulation . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Records and Reports . . . . . . . . . . . . . . . . . . . . . . . . . . .
Legal Matters . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Experts . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Other Information . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Financial Statements:
</TABLE>

<PAGE> 54

PART B

STATEMENT OF ADDITIONAL INFORMATION

<PAGE> 55

LIFE INSURANCE COMPANY OF THE SOUTHWEST

LSW VARIABLE ANNUITY ACCOUNT I

RETIREMAX VARIABLE ANNUITY POLICY
STATEMENT OF ADDITIONAL INFORMATION

OFFERED BY
LIFE INSURANCE COMPANY OF THE SOUTHWEST

1300 WEST MOCKINGBIRD LANE
DALLAS, TEXAS 75247-4921

This Statement of Additional Information expands upon subjects discussed
in the current Prospectus for the above-named Retiremax Variable Annuity Policy
("Policy") offered by Life Insurance Company of the Southwest. You may obtain
a copy of the Prospectus dated , 1998 by calling
1-800-228-4579, or writing to Life Insurance Company of the Southwest, 1300
West Mockingbird Lane, Dallas, Texas 75247-4921. Definitions of terms used in
the current Prospectus for the Policy 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 POLICY.

Dated , 1998

<PAGE> 56

TABLE OF CONTENTS

<TABLE>
<S> <C>
Life Insurance Company of the Southwest . . . . . . . . . . . . . . . . .
Additional Policy Provisions . . . . . . . . . . . . . . . . . . . . . .
The Policy . . . . . . . . . . . . . . . . . . . . . . . . . . .
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 Policy Fee on Performance Data . . . . . .
Distribution of the Policies .......................... . . . . . . . . .
Safekeeping of Account Assets . . . . . . . . . . . . . . . . . . . . . .
State Regulation . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Records and Reports . . . . . . . . . . . . . . . . . . . . . . . . . . .
Legal Matters . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Experts
Other Information . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Financial Statements:
1997-1995 Statutory Basis Financial Statements . . . . . . . . . F-1
</TABLE>

<PAGE> 57
LIFE INSURANCE COMPANY OF THE SOUTHWEST

Life Insurance Company of the Southwest ("LSW") has operated as a
stock life insurance company since 1955 domiciled in the State of Texas, and
has done business continuously as "Life Insurance Company of the Southwest."

ADDITIONAL POLICY PROVISIONS
The Policy

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

Misstatement of Age or Sex

If the age or sex of the Chosen Human Being has been misstated, the
amount which will be paid is that which is appropriate to the correct age and
sex.

Dividends

The Policy is participating; however, no dividends are expected to be
paid on the Policy. 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 Policy at any time during the lifetime of the Annuitant prior to the
Annuitization Date. Such assignment will take effect upon receipt and
recording by LSW at its Home Office of a written notice executed by the Owner.
LSW assumes no responsibility for the validity or tax consequences of any
assignment. LSW shall not be liable as to any payment or other settlement made
by LSW before recording of the assignment. Where necessary for the proper
administration of the terms of the Policy, an assignment will not be recorded
until LSW has received sufficient direction from the Owner and assignee as to
the proper allocation of Policy rights under the assignment.

Any portion of Accumulation 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 Policy for the taxable
year in which assigned or pledged. In addition, any Accumulation Values
assigned may, under certain conditions, be subject to a tax penalty equal to
10% of the amount which is included in gross income. Assignment of the entire
Accumulation Value may cause the portion of the Accumulation Value which
exceeds the total investment in the Policy and previously taxed amounts to be
included in gross income for federal income tax purposes each year that the
assignment is in effect. Qualified Policies are not eligible for assignment.

CALCULATION OF YIELDS AND TOTAL RETURNS

From time to time, LSW may disclose yields, total returns, and other
performance data pertaining to the Policies 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 Policy, the
yield for the Subaccounts will be lower than the yield for their respective
Portfolios. The calculations of yields, total returns, and

<PAGE> 58
other performance data do not reflect the effect of any premium tax that may be
applicable to a particular Policy. Premium taxes currently rate from 0% to
3.5% of premium based on the state in which the Policy 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, or income other than investment income, 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 and exclusive of income other than
investment income) at the end of the seven-day period in the value of a
hypothetical account under a Policy 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 Policy which are attributable to the hypothetical
account. The charges and deductions include the per unit charges for the
hypothetical account for: 1) the Annual Policy Fee; 2) Administration Charge;
and 3) the Mortality and Expense Risk Charge. For purposes of calculating
current yields for a Policy, an average per unit Annual Policy Fee is used
based on the $30 Annual Policy Fee deducted at the beginning of each Policy
Year. For the class of Policies with the Enhanced Death Benefit Rider, the
charge for that optional benefit 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 depreciation and exclusive of
income other than investment income) 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:

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

Where:

<PAGE> 59
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 Policy, the
yield for the Money Market Subaccount will be lower than the yield for the
Market Street Money Market Portfolio.

The current yield for the Money Market Subaccount as of December 31,
1997 was %, and the effective yield for that Subaccount as of the same
date was %. These yields were calculated based on the performance of
the Market Street Money Market Portfolio for the seven days ended December 31,
1997, and the assumption that the Money Market Subaccount was in existence for
this period with the level of Policy charges that was in effect at the
inception of the Money Market Subaccount.

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 Policy 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.

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 Policy
Fee, the Administration Charge and the Mortality and Expense Risk Charge. For
the class of Policies with the Enhanced Death Benefit Rider, the charge for
that optional benefit will be included. For purposes of calculating the 30-day
or one -month yield, an average Annual Policy Fee per dollar of Accumulation
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.

<PAGE> 60
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 Policies, the
yield for the Fund 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 CDSC under the Policy
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 Policy (however, there will never be
a CDSC after the fifteenth Policy Year). A Surrender Charge will not be
imposed on Withdrawals in any Policy Year on an amount up to 10% of the
Accumulation Value as of the most recent Policy Anniversary. However, if a
Policy 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.

Standard Average Annual Total Returns for the Subaccounts

Sales literature or advertisements may quote average annual total
return for the Subaccounts for various periods of time. When the Subaccounts
have been in operation for 1, 5 and 10 years, respectively, such standardized
average annual total return for these periods will be provided. Average annual
total return for other periods of time may, from time to time, also be
disclosed.

Standard average annual total returns represent the average annual
compounded rates of return that would equate an initial investment of $1,000
under a Policy 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.

Standard average annual total return is calculated using Subaccount
unit values which LSW calculates on each Valuation Day based on the performance
of the Subaccount's underlying Fund, the deductions for the Mortality and
Expense Risk Charge, the deductions for the asset-based Administration Charge
and the annualized Policy Fee. For purposes of calculating average annual
total return, an average per dollar Annual Policy fee attributable to the
hypothetical account for the period is used. The calculation also assumes
surrender of the Policy at the end of the period for the return quotation.
Total returns will therefore reflect a deduction of the CDSC for any period
less than seven years. The average annual 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 CDSC) 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.

Average annual total return may be calculated either taking into
account or not taking into account the impact of the Enhanced Death Benefit
Rider.

<PAGE> 61

Other Total Returns

Non-standard Subaccount Average Annual Total Return. From time to
time, sales literature or advertisements may also quote nonstandardized average
annual total returns for the Subaccounts that do not reflect the CDSC. 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, and
that the initial investment is assumed to be $10,000 rather than $1,000. Such
information is also set forth in the Prospectus.

Cumulative Subaccount Total Return. LSW 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.

Adjusted Historic Fund Performance. Sales literature or
advertisements may quote nonstandardized "adjusted" total returns for the Funds
since their inception reduced by some or all of the fees and charges under the
Policy. Such adjusted historic fund performance includes data that precedes
the inception dates of the Subaccounts. This data is designed to show the
performance that would have resulted if the Policy had been in existence during
that time.

When the standard performance data for the Subaccounts is available,
nonstandardized Subaccount and adjusted historic Fund performance data will be
disclosed together with the standard performance data for the required periods.

The Funds have provided the total return information, which includes
the adjusted historic Fund total return information used to calculate the
adjusted historic total returns of the Funds 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, Inc. and Strong
Variable Insurance Funds, Inc. are not affiliated with LSW.

Such adjusted historic total return information for the Funds is set
forth in the Prospectus.

Effect of the Annual Policy Fee on Performance Data

The Policy provides, for all Policies with an Accumulation Value of
less than $50,000 on the Date of Issue or any subsequent Policy Anniversary,
for a $30 Annual Policy Fee to be deducted annually at the beginning of each
Policy 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
Accumulation Value. For purposes of reflecting the Annual Policy Fee in the
yield and total return quotations, the Annual Policy Fee is converted into a
per-dollar per-day charge. The per-dollar per-day charge has been estimated
based on the distribution of LSW's non-variable single premium deferred annuity
block of business. 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 POLICIES

The principal underwriter for the Policies is Equity Services, Inc., a
wholly-owned subsidiary of National Life Insurance Company, the parent company
of LSW. The Policies will be offered on a continuous basis and will be sold by
licensed insurance agents in the states where the Policies may lawfully be
sold. Such agents will be representatives of broker-dealers registered under
the Securities

<PAGE> 62
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

LSW holds the title to the assets of the Variable Account. The assets
are kept physically segregated and held separate and apart from LSW'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

LSW is subject to regulation and supervision by the Insurance
Department of the State of Texas 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 Policy form has been
filed with, and where required approved by, insurance officials in each
jurisdiction where the Policies are sold. LSW 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

LSW 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 Policy Owners semi-annually at the last address known to the Company.

LEGAL MATTERS

All matters relating to Texas law pertaining to the Policies,
including the validity of the Policies and LSW's authority to issue the
Policies, have been passed upon by Susan Jennings, General Counsel of LSW.
Sutherland, Asbill & Brennan LLP of Washington, D.C. has provided advice on
certain matters relating to the Federal securities laws.

EXPERTS

The statutory basis financial statements of LSW as of and for the
years ended December 31, 1997 and 1996, which are included in this
Statement of Additional Information and in the registration statement, have
been audited by PricewaterhouseCoopers LLP, independent auditors, of 2001 Ross
Avenue Suite 1800 Dallas, TX 75201-2997, 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.

The statutory basis financial statements of LSW for the year ended
December 31, 1995, which are included in this Statement of Additional
Information and in the registration statement, have been audited by KPMG Peat
Marwick LLP, independent auditors, of 200 Crescent Court, Suite 300 Dallas, TX
75201-1885, 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

<PAGE> 63
A registration statement has been filed with the SEC under the
Securities Act of 1933 as amended, with respect to the Policies 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 Policies 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

LSW's statutory basis financial statements as of December 31, 1997 and
1996, and for the years ended December 31, 1997, 1996 and 1995, which are
included in this Statement of Additional Information, should be considered only
as bearing on LSW's ability to meet its obligations under the Policies. They
should not be considered as bearing on the investment performance of the assets
held in the Variable Account.

<PAGE> 64

LIFE INSURANCE COMPANY
OF THE SOUTHWEST

3/31/98 Unaudited
Balance Sheet and
Income Statement

<PAGE> 65
Admitted Assets, Liab.

LIFE INSURANCE COMPANY OF THE SOUTHWEST
STATUTORY STATEMENT OF ADMITTED ASSETS,
LIABILITIES, AND CAPITAL AND SURPLUS
(UNAUDITED)

<TABLE>
<CAPTION>
MARCH 31
--------
1998
----
<S> <C>
ADMITTED ASSETS
Cash $ 1,398
Short-term investments 38,909
Bonds, at amortized cost 1,565,834
Preferred Stock 5,000
Investment in surplus notes 26,141
S&P 500 options - long position 12,572
Futures contracts 243
Low Income Housing Tax Credit 7,493
Mortgage loans on real estate 244,942
Policy loans 81,694
Real estate - acquired in satisfaction of debt 829
-----------
Total cash and invested assets 1,985,055

Due and deferred premiums 1,542
Due and accrued investment income 27,882
Amounts recoverable from reinsurers 28
Guaranty fund assessment 1,839
Other assets 3,172
-----------
$ 2,019,518
===========
</TABLE>

Page 1

<PAGE> 66

Liab & Capital & Surplus

LIFE INSURANCE COMPANY OF THE SOUTHWEST
STATUTORY STATEMENT OF ADMITTED ASSETS,
LIABILITIES, AND CAPITAL AND SURPLUS
(UNAUDITED)

<TABLE>
<CAPTION>
MARCH 31
--------
1998
----
<S> <C>
LIABILITIES AND CAPITAL AND SURPLUS
Liabilities:
Aggregate reserves for life and annuity policies $ 1,835,398
Policy and contract claims 603
Premium and other deposit funds 1,257
Other contract liabilities 171
S&P options - short position 3,855
Asset valuation reserve (AVR) 14,417
Interest maintenance reserve (IMR) 7,151
Unearned investment income 426
Brokered deposits on loaned securities 5,994
Dividend payable to stockholder -
Amounts withheld by company 260
Loaned securities 29,810
Other liabilities 8,575
-----------
Total liabilities 1,907,917
-----------
Capital and surplus:
Common stock, $10 par value per share; 300,000 shares
authorized, issued and outstanding in 1997 and 1996 3,000
Paid-in surplus 32,425
Unassigned surplus 76,176
-----------
Total capital and surplus 111,601
-----------
Total liabilities and capital and surplus $ 2,019,518
===========
</TABLE>

Page 1

<PAGE> 67

Stmts of Income

LIFE INSURANCE COMPANY OF THE SOUTHWEST
STATUTORY STATEMENT OF INCOME
(UNAUDITED)

<TABLE>
<CAPTION>
Quarter Ended
MARCH 31
--------
1998
----
<S> <C>
Income:
Premiums and annuity considerations $ 69,040
Net investment income 37,402
Amortization of interest maintenance reserve 574
Other income 394
-----------
Total income 107,410
-----------
Benefit and expenses:
Death and annuity benefits 5,777
Surrender benefits 39,691
Other policyholder benefits 202
Increase in reserves 48,246
-----------
Total benefits 93,916
-----------
Commissions 5,277
General insurance expenses 2,642
Taxes, licenses and fees 722
Other (2)
-----------
Total benefits and expenses 102,555

Net gain from operations before dividends to
policyholders and federal income taxes 4,855

Dividends to policyholders 7
-----------
Net gain from operations before federal income taxes 4,848

Provision for federal income taxes 954
-----------
Net gain from operations 3,894
Net realized capital losses (438)
-----------
Net income $ 3,456
===========
</TABLE>

Page 1

<PAGE> 68
LIFE INSURANCE COMPANY
OF THE SOUTHWEST

STATUTORY FINANCIAL STATEMENTS

DECEMBER 31, 1997 AND 1996

<PAGE> 69

REPORT OF INDEPENDENT ACCOUNTANTS

April 7, 1998

To the Board of Directors of
Life Insurance Company of the Southwest

We have audited the accompanying statements of admitted assets, liabilities, and
capital and surplus (statutory basis) of Life Insurance Company of the Southwest
(the "Company") as of December 31, 1997 and 1996, and the related statements of
income, of changes in capital and surplus, and of cash flows (statutory basis)
for the years then ended. These financial statements are the responsibility of
the Company's management. Our responsibility is to express an opinion on these
financial statements based on our audits.

We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements are free of
material misstatement. An audit includes examining, on a test basis, evidence
supporting the amounts and disclosures in the financial statements. An audit
also includes assessing the accounting principles used and significant estimates
made by management, as well as evaluating the overall financial statement
presentation. We believe that our audits provide a reasonable basis for our
opinion.

As described in Note 1, these financial statements were prepared in conformity
with accounting practices prescribed or permitted by the Texas Department of
Insurance, which practices differ from generally accepted accounting
principles. The effects on the financial statements of the variances between
such practices and generally accepted accounting principles are material; they
are described in Note 2.

In our opinion, because of the effects of the matters referred to in the
preceding paragraph, the financial statements audited by us do not present
fairly, in conformity with generally accepted accounting principles, the
financial position of Life Insurance Company of the Southwest at December 31,
1997 and 1996, and the results of its operations and its cash flows for the
years then ended.

Also, in our opinion, the financial statements audited by us present fairly, in
all material respects, the admitted assets, liabilities, and capital and surplus
of Life Insurance Company of the Southwest at December 31, 1997 and 1996, and
the results of its operations and its cash flows for the years then ended, on
the basis of accounting described in Note 1.

<PAGE> 70

To the Board of Directors of
Life Insurance Company of the Southwest
Page 2
April 7, 1998

<PAGE> 71

LIFE INSURANCE COMPANY OF THE SOUTHWEST

STATUTORY STATEMENTS OF ADMITTED ASSETS,
LIABILITIES, AND CAPITAL AND SURPLUS (IN THOUSANDS)
- --------------------------------------------------------------------------------

<TABLE>
<CAPTION>
DECEMBER 31,
----------------------------
1997 1996
----------- -----------
<S> <C> <C>
ADMITTED ASSETS
Cash $ 153 $ 242
Short-term investments 51,136 22,325
Bonds, at amortized cost 1,529,853 1,354,441
Investment in surplus notes 26,200 17,491
S&P 500 options - long position 5,583 3,600
Futures contracts 630 -
Mortgage loans on real estate 238,097 222,018
Policy loans 81,136 74,684
Real estate - acquired in satisfaction of debt 1,827 4,352
----------- -----------
Total cash and invested assets 1,934,615 1,699,153

Due and deferred premiums 1,688 1,639
Due and accrued investment income 27,679 25,266
Amounts recoverable from reinsurers 136 271
Guaranty fund assessment 1,813 2,017
Other assets 1,014 1,112
----------- -----------
$ 1,966,945 $ 1,729,458
=========== ===========
</TABLE>

The accompanying notes are an integral
part of these statutory financial statements.

1
<PAGE> 72

LIFE INSURANCE COMPANY OF THE SOUTHWEST

STATUTORY STATEMENTS OF ADMITTED ASSETS,
LIABILITIES, AND CAPITAL AND SURPLUS (IN THOUSANDS)
- --------------------------------------------------------------------------------

<TABLE>
<CAPTION>
DECEMBER 31,
----------------------------
1997 1996
----------- -----------
<S> <C> <C>
LIABILITIES AND CAPITAL AND SURPLUS
Liabilities:
Aggregate reserves for life and annuity policies $ 1,787,109 $ 1,586,467
Policy and contract claims 795 346
Premium and other deposit funds 1,242 1,581
Other contract liabilities 408 677
S&P options - short position 1,526 614
Asset valuation reserve (AVR) 13,559 16,031
Interest maintenance reserve (IMR) 7,026 9,402
Unearned investment income 483 747
Brokered deposits on loaned securities 6,620 9,925
Dividend payable to stockholder - 1,923
Amounts withheld by company 270 2,516
Loaned securities 30,919 -
Other liabilities 5,793 3,971
----------- -----------

Total liabilities 1,855,750 1,634,200
----------- -----------

Capital and surplus:
Common stock, $10 par value per share; 300,000 shares
authorized, issued and outstanding in 1997 and 1996 3,000 3,000
Paid-in surplus 32,425 32,425
Unassigned surplus 75,770 59,833
----------- -----------

Total capital and surplus 111,195 95,258
----------- -----------

Total liabilities and capital and surplus $ 1,966,945 $ 1,729,458
=========== ===========
</TABLE>

The accompanying notes are an integral
part of these statutory financial statements.

2
<PAGE> 73

LIFE INSURANCE COMPANY OF THE SOUTHWEST

STATUTORY STATEMENTS OF INCOME
(IN THOUSANDS)
- --------------------------------------------------------------------------------

<TABLE>
<CAPTION>
YEARS ENDED

DECEMBER 31,
--------------------------
1997 1996
--------- ---------
<S> <C> <C>
Income:
Premiums and annuity considerations $ 305,435 $ 202,086
Net investment income 135,502 116,813
Amortization of interest maintenance reserve 2,549 3,133
Other income 1,552 787
--------- ---------

Total income 445,038 322,819
--------- ---------

Benefit and expenses:
Death and annuity benefits 22,611 19,529
Surrender benefits 161,420 136,805
Other policyholder benefits 626 572
Increase in reserves 200,143 120,992
--------- ---------

Total benefits 384,800 277,898
--------- ---------

Commissions 24,638 15,164
General insurance expenses 11,827 9,865
Taxes, licenses and fees 2,093 1,278
Other (10) 257
--------- ---------

Total benefits and expenses 423,348 304,462
--------- ---------

Net gain from operations before dividends to
policyholders and federal income taxes 21,690 18,357

Dividends to policyholders 49 74
--------- ---------

Net gain from operations before federal income taxes 21,641 18,283

Provision for federal income taxes 6,397 4,813
--------- ---------

Net gain from operations 15,244 13,470
Net realized capital losses (1,533) (1,312)
--------- ---------

Net income $ 13,711 $ 12,158
========= =========
</TABLE>

The accompanying notes are an integral
part of these statutory financial statements.

3
<PAGE> 74

LIFE INSURANCE COMPANY OF THE SOUTHWEST

STATUTORY STATEMENTS OF CHANGES IN CAPITAL AND SURPLUS
(IN THOUSANDS)
- --------------------------------------------------------------------------------

<TABLE>
<S> <C>
Balance at December 31, 1995 $ 90,419

Net income 12,158

Net unrealized capital gains 1,475

Dividends paid to stockholder (6,213)

Decrease in nonadmitted assets 74

Increase in asset valuation reserve (2,310)

Other (345)
---------
Balance at December 31, 1996 95,258
---------

Net income 13,711

Net unrealized capital gains 1,490

Dividends paid or accrued to stockholder (1,000)

Decrease in nonadmitted assets (171)

Decrease in asset valuation reserve 2,472

Other (565)
---------
Balance at December 31, 1997 $ 111,195
=========
</TABLE>

The accompanying notes are an integral
part of these statutory financial statements.

4
<PAGE> 75

LIFE INSURANCE COMPANY OF THE SOUTHWEST

STATUTORY STATEMENTS OF CASH FLOWS
(IN THOUSANDS)
- -------------------------------------------------------------------------------

<TABLE>
<CAPTION>
YEARS ENDED
DECEMBER 31,
--------------------------
1997 1996
--------- ---------
<S> <C> <C>
Cash flows from operating activities:
Premiums and other considerations received $ 305,630 $ 203,277
Net investment income received 136,216 115,600
Death and accident and health benefit payments (3,441) (5,988)
Surrender benefits paid (161,420) (136,805)
Other benefit payments (19,232) (15,606)
Dividends paid to policyholders (95) (77)
Federal income taxes paid (5,244) (4,005)
Commissions, expenses and taxes paid (38,243) (26,569)
Decrease in experience rated refunds (197) (4,290)
Other benefit payments (2) (14)
--------- ---------
Net cash provided by operations 213,972 125,523

Cash flows from investing activities:
Proceeds from investments sold or matured 338,663 343,345
Cost of investments acquired (541,707) (476,379)
Increase in policy loans (6,452) (9,032)
--------- ---------
Net cash used for investing activities (209,496) (142,066)

Cash flows from financing activities:
Dividends to stockholder (2,923) (4,290)
Loaned securities financing 30,919 9,925
--------- ---------
Net cash provided from financing activities 27,996 5,635

Other sources and applications, net (3,750) (759)
--------- ---------

Net decrease in cash and short-term investments 28,722 (11,667)
Cash and short-term investments at beginning of year 22,567 34,234
--------- ---------
Cash and short-term investments at end of year $ 51,289 $ 22,567
========= =========
</TABLE>

The accompanying notes are an integral
part of these statutory financial statements.

5
<PAGE> 76

LIFE INSURANCE COMPANY OF THE SOUTHWEST

NOTES TO STATUTORY FINANCIAL STATEMENTS
DECEMBER 31, 1997 AND 1996
- --------------------------------------------------------------------------------

1. GENERAL INFORMATION AND SUMMARY OF SIGNIFICANT
ACCOUNTING POLICIES

GENERAL INFORMATION

Life Insurance Company of the Southwest (the Company) is an insurance
company domiciled in the state of Texas. The Company is a wholly-owned
subsidiary of Insurance Investors Life Insurance Company (IIL). At
February 1996, IIL was wholly-owned by LSW Holding Company (LSWH) and
ownership of LSWH voting equity was as follows:

<TABLE>
<S> <C>
Hannover Holdings, Inc. 38.07%
Bavarian Re 25.38
Hannover Reinsurance 25.00
Pilatus Re Limited 10.62
Other minority shareholders .93
---------
100.00%
=========
</TABLE>

In February 1996, a controlling two-thirds interest in LSWH was purchased
by National Financial Services, Inc., a wholly-owned subsidiary of
National Life of Vermont. LSWH was then merged with Hannover Holdings,
Inc., and the resulting entity's name was changed to LSW National
Holdings, Inc. As a result of these transactions, National Financial
Services, Inc., owns a two-thirds interest in LSW National Holdings, Inc.
(LSWNH). The voting equity of LSWNH at December 31, 1997 and 1996 is as
follows:

<TABLE>
<S> <C>
National Financial Services, Inc. 66.67%
SwissRe Investments 25.00
Hannover Reinsurance 8.33
---------
100.00%
=========
</TABLE>

The Company writes life and annuity policies in 49 states and the District
of Columbia and is subject to regulation by the Texas Department of
Insurance (state of domicile) and the insurance regulatory authorities of
other states in which it is licensed.

SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES

The accompanying financial statements have been prepared in accordance
with statutory accounting practices prescribed or permitted by the Texas
Department of Insurance, which vary in some respects from generally
accepted accounting principles (GAAP). The more significant of these
differences are as follows:

- Premium income on ordinary life insurance and annuities is reported
as earned when due. For GAAP, annuity and universal life premiums
received are accounted for in a manner consistent with accounting
for interest-bearing financial instruments. Premium receipts are not
reported as revenues, but rather as direct deposits to the contract.
Amounts assessed against annuity and universal life policyholders
are recognized as revenue in the period assessed.

6
<PAGE> 77

LIFE INSURANCE COMPANY OF THE SOUTHWEST

NOTES TO STATUTORY FINANCIAL STATEMENTS
DECEMBER 31, 1997 AND 1996
- --------------------------------------------------------------------------------

- Acquisition costs such as commissions and other costs related to
acquiring new direct business are charged to current operations as
incurred, whereas under GAAP such costs are deferred and amortized
over the expected lives of the contracts.

- Aggregate policy reserves are based on statutory mortality and
interest requirements without consideration of withdrawals, whereas
GAAP reserves are established based on Company or industry
experience and considers withdrawals. For certain annuity products
where return is indexed to equity markets, the related investment in
equity linked options to hedge the additional policy reserve is
recorded at amortized cost. Under GAAP the current value of the
hedge at the balance sheet date is reflected in both the investment
and policy reserve.

- Future policy benefits which are reinsured are presented as a
reduction of gross policy benefit reserves. Unpaid claims which are
reinsured are presented as a reduction of gross unpaid claims. Under
GAAP these reinsured amounts are recorded as receivables.

- Deferred income taxes are not provided on differences between the
tax basis of assets and liabilities and their reported amounts in
the statutory financial statements. Under generally accepted
accounting principles, deferred taxes, if any, are provided on these
differences.

- Certain assets designated as "nonadmitted assets" have been excluded
from the statutory statements of assets, liabilities, and capital
and surplus by a charge to unassigned surplus. Under GAAP, these
assets, less applicable allowance accounts, are restored to the
balance sheet.

Nonadmitted assets at December 31, 1997 and 1996 are as follows (in
thousands):

<TABLE>
<CAPTION>
1997 1996
--------- ---------
<S> <C> <C>
Guaranty Fund Assessment $ 500 $ 425
Software 82 261
Other assets 858 583
--------- ---------

Total nonadmitted assets $ 1,440 $ 1,269
========= =========
</TABLE>

- Securities are carried at amortized cost under statutory accounting
principles. Fixed maturities classified as "available for sale" are
carried at market value under generally accepted accounting
principles. Unrealized gains or losses are reflected as a separate
component of equity.

- An Asset Valuation Reserve (AVR) must be recorded under statutory
accounting practices. The AVR is designed to stabilize statutory
surplus from default losses on bonds, mortgages, real estate and
other invested assets and from fluctuations in the value of common
stocks. The AVR is calculated as prescribed by the National
Association of Insurance Commissioners (NAIC). Under GAAP, no such
liability is recorded.

7
<PAGE> 78

LIFE INSURANCE COMPANY OF THE SOUTHWEST

NOTES TO STATUTORY FINANCIAL STATEMENTS
DECEMBER 31, 1997 AND 1996
- --------------------------------------------------------------------------------

- An Interest Maintenance Reserve (IMR) must be recorded under
statutory accounting practices. The IMR is recorded to defer
interest rate related gains and losses recognized on the sale of
bonds prior to maturity. The resulting deferred gain or loss is
recognized in statutory operations over the remaining period to
maturity. Under generally accepted accounting principles, no such
liability is recorded. All gains and losses are recognized
immediately through earnings.

- Net intangible assets arising from the acquisition of business
assets are deferred and amortized in relation to the business in
force under generally accepted accounting principles. In addition,
acquired assets are recorded at fair market value at the date of
acquisition. These purchase accounting adjustments are not
recognized under statutory accounting principles.

- For statutory reporting, the Company does not record a liability for
guaranty fund assessments until the assessment has been made. Under
GAAP, the Company has recorded an additional liability for future
guaranty fund assessments relating to certain insolvencies that have
occurred as of the balance sheet date in response to an exposure
draft released in 1996 entitled, Accounting by Insurance and Other
Enterprises For Guaranty-Fund and Certain Other Insurance-Related
Assessments.

INVESTMENTS

Investments are valued in accordance with the requirements of the National
Association of Insurance Commissions (NAIC). Bonds are carried at
amortized cost. Mortgage loans are carried at their aggregate unpaid
principal balance net of an allowance for doubtful accounts. Policy loans
are carried at their aggregate unpaid principal balance. Real estate is
carried at cost less accumulated depreciation net of an allowance for
market decline.

The Company's general investment philosophy is to hold fixed maturities
for long-term investments. However, in response to changing market
conditions, liquidity requirements, interest rate movements and other
investment factors, fixed maturities may be sold prior to their maturity.
Realized gains and losses on the disposal of investments, net of amounts
deferred as part of the IMR, are recognized in net income on the specific
identification basis.

CASH

Cash includes cash on hand, amounts due from banks and certificates of
deposit. Cash on hand and amounts due from banks were $(1,887,221) and
$(1,898,385) at December 31, 1997 and 1996, respectively. Certificates of
deposits were $2,040,000 and $2,140,000 at December 31, 1997 and 1996,
respectively.

SHORT-TERM INVESTMENTS

Short-term investments are carried at cost, which approximates fair value.
For the purposes of the statement of cash flows, the Company considers all
highly liquid investments purchased with a remaining maturity of one year
or less to be short-term investments.

8
<PAGE> 79

LIFE INSURANCE COMPANY OF THE SOUTHWEST

NOTES TO STATUTORY FINANCIAL STATEMENTS
DECEMBER 31, 1997 AND 1996
- --------------------------------------------------------------------------------

FUTURE POLICY BENEFIT RESERVES AND OTHER CONTRACT RESERVES

Aggregate reserves for future policy benefits for ordinary life policies
have been computed under the net level premium method or the
Commissioner's Reserve Valuation Method using mortality tables and
interest rates as prescribed by state regulatory authorities, without
consideration of withdrawals. Interest rate assumptions range from 2-1/2%
to 6%. Mortality rates are obtained from statutory mortality tables,
primarily the 1941 C.S.O., 1958 C.S.O., and 1980 C.S.O. tables.

Policy liabilities for future policy benefits on universal life policies,
annuities, and endowments, comprise approximately 97% of all aggregate
reserves for future policy benefits at December 31, 1997 and 1996.
Annuities, which comprise approximately 90% and 89% of all aggregate
reserves for future policy benefits at December 31, 1997 and 1996,
respectively, are computed under the Commissioners Annuity Reserve Method.
Universal life and endowments are computed under the Commissioner's
Reserve Valuation Method.

Policy and contract claims reserves include all reported but unpaid claims
and an estimate of claims incurred but not reported, based on Company
experience.

FEDERAL INCOME TAXES

The Company will file a consolidated tax return for the year ended
December 31, 1997. The federal tax return will be consolidated with the
Company's parent, Insurance Investors Life Insurance Company, LSW National
Holdings, Inc. and LSW Financial Ltd. The method of allocation between the
companies is subject to a written agreement, which has been approved by
the Texas Commissioner of Insurance and the Company's board of directors.
Allocations are limited to the Company's separate return tax liabilities
computed as if it had filed a separate tax return.

REINSURANCE

Reinsurance premiums, commissions, loss and expense reimbursements and
reserves related to reinsured business are accounted for on a basis
consistent with those used in accounting for the original policies issued
and the terms of the reinsurance contract.

USE OF ESTIMATES

The preparation of financial statements in accordance with statutory
accounting practices prescribed or permitted by the Texas Department of
Insurance requires management to make estimates and assumptions that
affect the reported amounts of assets and liabilities and disclosure of
contingent assets and liabilities at the date of the financial statements
and the reported amounts of revenues and expenses during the reporting
period. Actual results could differ from these estimates.

RECLASSIFICATIONS

Certain prior year amounts have been reclassified to conform to the
current year presentation.

9
<PAGE> 80

LIFE INSURANCE COMPANY OF THE SOUTHWEST

NOTES TO STATUTORY FINANCIAL STATEMENTS
DECEMBER 31, 1997 AND 1996
- --------------------------------------------------------------------------------

2. RECONCILIATION BETWEEN STATUTORY ACCOUNTING PRINCIPLES AND GAAP

The effects on the financial statements of the variances between practices
prescribed and permitted by the Texas Department of Insurance and generally
accepted accounting principles are as follows (in thousands):

<TABLE>
<CAPTION>
December 31,
1997 1996
------------------ ------------------
<S> <C> <C>
Statutory capital and surplus $ 111,195 $ 95,258
Cost of insurance acquired (COIA) 6,033 8,684
Deferred policy acquisition costs (DAC) 78,953 62,880
Deferred income taxes (5,484) 8,902
Excess of cost over net assets 2,988 3,248
Future policy benefit reserves (96,238) (72,647)
Unrealized gains on investments 31,774 (11,413)
Asset valuation reserves 13,559 16,031
Interest maintenance reserves 7,026 9,402
Guaranty funds assessment (4,218) (5,163)
Other 7,950 2,794
------------------ ------------------

Total differences 42,343 22,718
------------------ ------------------

GAAP stockholders' equity $ 153,538 $ 117,976
------------------ ------------------

<CAPTION>
Years ended
December 31,
1997 1996
------------------ ------------------

<S> <C> <C>
Statutory net income $ 13,711 $ 12,158
Annuity premiums (300,194) (196,005)
Policy revenues 5,102 4,554
Reinsurance (2,958) (1,807)
Policy reserve increase 95,776 36,700
Surrender benefits 159,513 134,712
Deferred policy acquisition expenses 22,828 12,350
Amortization of DAC, COIA, and goodwill (9,666) (9,514)
Annuity benefits 18,710 15,161
Guaranty funds assessment - (3,957)
Taxes 917 (1,035)
Other 4,752 1,495
------------------ ------------------

Total differences (5,220) (7,346)
------------------ ------------------

GAAP net income $ 8,491 $ 4,812
------------------ ------------------
</TABLE>

3. INVESTMENTS

BONDS

At December 31, 1997 and 1996, the amortized cost and estimated market
value of investments in debt securities and surplus notes are as follows
(in thousands):

<TABLE>
<CAPTION>
GROSS GROSS ESTIMATED
AMORTIZED UNREALIZED UNREALIZED MARKET
DECEMBER 31, 1997 COST GAINS LOSSES VALUE
- ----------------- ----------- ----------- ----------- -----------
<S> <C> <C> <C> <C>
U.S. government securities $ 44,495 $ 2,030 $ 165 $ 46,360
Special revenue and assessment obligations 95,401 1,274 736 95,939
Public utilities 199,119 2,053 1,044 200,128
Industrial and miscellaneous 678,470 20,415 2,391 696,494
Private placements 123,365 4,284 1,202 126,447
Mortgage-backed securities 415,203 8,081 825 422,459
----------- ----------- ----------- -----------
Total $ 1,556,053 $ 38,137 $ 6,363 $ 1,587,827
=========== =========== =========== ===========
</TABLE>

<TABLE>
<CAPTION>
GROSS GROSS ESTIMATED
AMORTIZED UNREALIZED UNREALIZED MARKET
DECEMBER 31, 1996 COST GAINS LOSSES VALUE
- ----------------- ----------- ----------- ----------- -----------
<S> <C> <C> <C> <C>
U.S. government securities $ 16,988 $ 402 $ 2 $ 17,388
Special revenue and assessment obligations 121,525 877 2,969 119,433
Public utilities 223,567 939 6,102 218,404
Industrial and miscellaneous 520,584 5,992 7,944 518,632
Private placements 135,638 3,089 2,113 136,614
Mortgage-backed securities 353,630 3,672 5,333 351,969
----------- ----------- ----------- -----------
Total $ 1,371,932 $ 14,971 $ 24,463 $ 1,362,440
=========== =========== =========== ===========
</TABLE>

The amortized cost and estimated market value of debt securities and
surplus notes at December 31, 1997, by contractual maturity, are shown
below. Expected maturities will differ from contractual maturities because
borrowers may have the right to call or prepay obligations with or without
call or prepayment penalties.

10
<PAGE> 81

LIFE INSURANCE COMPANY OF THE SOUTHWEST

NOTES TO STATUTORY FINANCIAL STATEMENTS
DECEMBER 31, 1997 AND 1996
- --------------------------------------------------------------------------------

<TABLE>
<CAPTION>
ESTIMATED
AMORTIZED MARKET
COST VALUE
----------- -----------
(IN THOUSANDS)
<S> <C> <C>
Due in one year or less $ 5,597 $ 5,609
Due after one year through five years 139,638 142,110
Due after five years through ten years 755,384 773,983
Due after ten years 240,232 243,666
Mortgage-backed securities 415,202 422,459
----------- -----------
Totals $ 1,556,053 $ 1,587,827
=========== ===========
</TABLE>

Proceeds from sales of investments in debt securities during 1997 were
$248,616,938. Gross gains of $1,781,942 and gross losses of $1,367,331
were realized on those sales.

Proceeds from sales of investments in debt securities during 1996 were
$245,794,114. Gross gains of $2,794,583 and gross losses of $5,976,154
were realized on those sales.

As required by law, at December 31, 1997 and 1996, the Company maintains
$7,698,126 and $2,698,020, respectively, of investments on deposit with
various regulatory authorities.

In 1997 and 1996, the Company participated in certain security lending
transactions. It is the Company's policy to hold as collateral 103% of the
market value of the loaned security, which exceeds statutory requirements.
At December 31, 1997 and 1996, the collateral held related to these
transactions is $6,620,000 and $9,924,882, respectively, and is included
in short-term investments.

11
<PAGE> 82

LIFE INSURANCE COMPANY OF THE SOUTHWEST

NOTES TO STATUTORY FINANCIAL STATEMENTS
DECEMBER 31, 1997 AND 1996
- --------------------------------------------------------------------------------

MORTGAGE LOANS AND REAL ESTATE

At December 31, 1997 and 1996, the Company's mortgage loans and real
estate investments were distributed as follows:

<TABLE>
<CAPTION>
Mortgage Loans Real Estate
---------------- ----------------
1997 1996 1997 1996
----- ----- ----- -----
<S> <C> <C> <C> <C>
Geographic Region
- -----------------

New England 0.4% 0.5% -% -%
Middle Atlantic 7.5 2.1 - -
East North Central 0.9 0.9 - -
West North Central 3.8 4.3 - -
South Atlantic 16.2 12.8 41.1 33.6
East South Central 5.5 6.1 - -
West South Central 29.6 42.2 15.2 47.0
Mountain 21.7 21.7 - -
Pacific 14.4 9.4 43.7 19.4
----- ----- ----- -----
Total 100.0% 100.0% 100.0% 100.0%
===== ===== ===== =====
</TABLE>

<TABLE>
<CAPTION>
Mortgage Loans Real Estate
---------------- ----------------
1997 1996 1997 1996
----- ----- ----- -----
<S> <C> <C> <C> <C>
Property Type
- -------------

Residential 0.8% 1.1% 8.0% 1.3%
Apartment 3.5 1.8 - -
Retail 9.5 14.4 - -
Office Building 55.5 45.6 81.5 66.4
Industrial 27.7 32.2 - -
Hotel/Motel 0.4 0.5 - -
Other Commercial 2.6 4.4 10.5 32.3
----- ----- ----- -----
Total 100.0% 100.0% 100.0% 100.0%
===== ===== ===== =====
</TABLE>

The Company has recorded allowances for uncollectible balances of $400,000
and $500,000 against mortgage loans as of December 31, 1997 and 1996,
respectively. Such allowances are recorded when collectibility, in whole
or in part, is in doubt and also to establish a general allowance for the
mortgage portfolio.

Mortgage loans are collateralized by the related properties with the
amount of such mortgage loans generally being less than 75% of the
properties' estimated fair values at the time the loans are made. The
interest rates charged for loans made in 1997 ranged from 7.48% to 8.77%.

12
<PAGE> 83

LIFE INSURANCE COMPANY OF THE SOUTHWEST

NOTES TO STATUTORY FINANCIAL STATEMENTS
DECEMBER 31, 1997 AND 1996
- --------------------------------------------------------------------------------

The Company has recorded allowances for market value declines of
$1,065,000 and $2,455,000 against real estate acquired in the satisfaction
of debt as of December 31, 1997 and 1996, respectively. Such allowances
are recorded when collectibility on the sale of the acquired real estate,
in whole or in part, is in doubt and when market value (net of estimated
cost of sale) is lower than recorded book value.

INVESTMENT INCOME

Net investment income for the years ended December 31, 1997 and 1996 are
from the following sources:

<TABLE>
<CAPTION>
1997 1996
--------- ---------
(IN THOUSANDS)
<S> <C> <C>
Bonds $ 104,255 $ 94,143
Mortgage loans 20,684 20,286
Real estate 477 1,274
Policy loans 4,512 4,132
Short-term investments 2,029 915
Other 7,361 274
--------- ---------
Gross investment income 139,318 121,024
Less investment expenses (3,816) (4,211)
--------- ---------
Net investment income $ 135,502 $ 116,813
========= =========
</TABLE>

REALIZED GAINS AND LOSSES

Net realized capital gains (losses) for the years ended December 31, 1997
and 1996 consist of the following:

<TABLE>
<CAPTION>
1997 1996
-------- --------
(IN THOUSANDS)
<S> <C> <C>
Bonds sold, called and matured $ 414 $ (2,940)
Common stocks - (375)
Mortgage loans - 182
Real estate (2,178) (1,579)
Other (18) 6
-------- --------
(1,782) (4,706)
Less IMR capital gains (losses) 173 (2,205)
Federal income tax benefit 422 1,189
-------- --------
Net realized capital losses $ (1,533) $ (1,312)
======== ========
</TABLE>

13
<PAGE> 84

LIFE INSURANCE COMPANY OF THE SOUTHWEST

NOTES TO STATUTORY FINANCIAL STATEMENTS
DECEMBER 31, 1997 AND 1996
- --------------------------------------------------------------------------------

4. FAIR VALUE OF FINANCIAL INSTRUMENTS

The following table represents the carrying amounts and estimated fair
values of the Company's financial instruments at December 31, 1997 and
1996.

<TABLE>
<CAPTION>
1997 1996
--------------------------- ---------------------------
STATEMENT FAIR STATEMENT FAIR
VALUE VALUE VALUE VALUE
---------- ---------- ---------- ----------
($ IN THOUSANDS)
<S> <C> <C> <C> <C>
Nontrading instruments:
Financial assets:
Cash and short-term investments $ 51,289 $ 51,289 $ 22,567 $ 22,567
Investment securities 1,529,853 1,560,957 1,354,441 1,345,293
Mortgage loans 238,097 242,076 222,018 222,857
Policy loans 81,136 81,136 74,684 74,684
Real estate 1,827 1,912 4,352 4,459
Surplus notes 26,200 26,870 17,491 17,247
S&P options - long position 5,583 13,459 3,600 7,014
Futures contracts 630 630 - -
Financial liabilities:
Interest sensitive reserves 1,736,757 1,725,923 1,467,716 1,462,014
S&P options - short position 1,526 1,526 614 1,891
</TABLE>

The following assumptions were used to estimate the fair value of each
class of financial instruments:

Cash and short-term investments: The statement value approximates fair
value due to the relatively short period to maturity of the instruments.

Investment securities: The fair values of debt securities and equity
investments are based on quoted market prices at the reporting date for
those or similar investments. Fair values for private placement securities
not provided by an independent pricing service are estimated by the
Company.

Mortgage loans: The fair value of mortgage loans has been determined based
on certain assumptions, such as a level interest rate and prepayments.

Policy loans: The fair value of policy loans has been determined based on
the face values of the policy loans.

Real estate: The fair value of real estate has been determined based on
internal and external appraisals and discounted cash flow models using
interest rate assumptions applicable to the specific properties.

14
<PAGE> 85

LIFE INSURANCE COMPANY OF THE SOUTHWEST

NOTES TO STATUTORY FINANCIAL STATEMENTS
DECEMBER 31, 1997 AND 1996
- --------------------------------------------------------------------------------

Surplus notes: The fair value of surplus note assets is based on quotes
provided by an independent pricing service, if available. Fair values for
surplus note assets not provided by an independent pricing service are
estimated by the Company.

S&P 500 Call options: The fair value of call options is based on quoted
market values at the date of reporting.

Futures contracts: The fair value of futures contracts is based on quoted
market values at the date of reporting.

Interest sensitive reserves: The fair value of annuities and universal
life has been based on the cash surrender values of the policies.

5. DERIVATIVE FINANCIAL INSTRUMENTS

The Company may invest or disinvest in various derivative instruments,
including equity options, forwards and futures based on the S&P 500 Index,
in order to hedge its obligation with respect to indexed annuities and
life insurance. These derivative instruments, which in general do not
exceed (5%) of liabilities for the indexed annuities and life insurance
and are authorized under state law, are purchased from counterparties that
conform to the Company's policies and guidelines regarding derivative
instruments. The standard position involves contracts of one year or less
duration and, except for dynamic portfolio balancing, is held to maturity.
The Company analyzes its position in derivative instruments relative to
its annuity and insurance requirements each market day. The equity options
and forwards are carried at amortized cost with gains or losses recognized
upon the sale of the derivative instruments. The Company recorded
amortization of options of $936,484 and $3,151,330 during 1996 and 1997,
respectively, which is netted against investment income. Futures are
carried at market with gains or losses recognized in investment income
daily.

Investments in these types of instruments generally involve the following
types of risk: in the case of over-the-counter options, there are no
guarantees that markets will exist for these investments if the Company
desired to close out a position; exchanges may impose trading limits which
may inhibit the Company's ability to close out positions in
exchange-listed instruments; and, if the Company has an open position with
a dealer that becomes insolvent, the Company may experience a loss.

Cash is required, depending on market movement, when (1) buying an option
or (2) closing an option that may have been written pursuant to dynamic
portfolio balancing. A single net payment may be made by one counterparty
at maturity. Initial acquisition of instruments and subsequent balancing
are performed solely for the purpose of hedging liabilities presented by
indexed annuities.

15
<PAGE> 86

LIFE INSURANCE COMPANY OF THE SOUTHWEST

NOTES TO STATUTORY FINANCIAL STATEMENTS
DECEMBER 31, 1997 AND 1996
- --------------------------------------------------------------------------------

6. FEDERAL INCOME TAXES

A reconciliation between reported tax expense and the amount computed by
applying the statutory federal income tax rate of 35% to income before
federal income taxes and net realized capital gains for the years ended
December 31, 1997 and 1996, respectively, follows (in thousands):

<TABLE>
<CAPTION>
1997 1996
-------- --------
<S> <C> <C>
Computed "expected" tax $ 7,575 $ 6,399
Difference in statutory reserves and tax reserves 102 224
Amortization (accretion) of bond (premium) discount (829) (334)
(Amortization) capitalization of policy acquisition
costs for tax 277 37
Amortization of interest maintenance reserve (892) (1,096)
Other 164 (417)
-------- --------
Reported provision for federal income taxes $ 6,397 $ 4,813
======== ========
</TABLE>

At December 31, 1997, the Company had accumulated approximately $5,687,968
in its "policyholders' surplus account." This is a special memorandum tax
account into which certain amounts not previously taxed, under prior tax
laws, were accumulated. No new additions will be made to this account.
Federal income taxes will become payable thereon at the current tax rate
(a) when and if distributions to the shareholder, other than stock
dividends and other limited exceptions, are made in excess of the
accumulated previously taxed income; or (b) when a company ceases to be a
life insurance company as defined by the Internal Revenue Code and such
termination is not due to another life insurance company acquiring its
assets in a nontaxable transaction. The Company does not anticipate any
transactions that would cause any part of this amount to become taxable.

At December 31, 1997, the Company has approximately $92,521,204 in its
"shareholders' surplus account" from which it can make distributions to
IIL without incurring any federal tax liability. The amount of dividends
which may be paid by the Company to IIL is limited by statutory
regulations.

16
<PAGE> 87

LIFE INSURANCE COMPANY OF THE SOUTHWEST

NOTES TO STATUTORY FINANCIAL STATEMENTS
DECEMBER 31, 1997 AND 1996
- --------------------------------------------------------------------------------

7. POLICY AND BENEFIT RESERVES

The withdrawal characteristics of the Company's annuity actuarial reserves
and deposit liabilities at December 31, 1997 and 1996 are as follows (in
thousands):

<TABLE>
<CAPTION>
1997 1996
% OF % OF
AMOUNT TOTAL AMOUNT TOTAL
----------- ------------ ----------- ------------
<S> <C> <C> <C> <C>
Subject to discretionary
withdrawal with adjustment:
- at book value less
surrender charge $ 814,031 50.3% $ 663,255 46.9%

Subject to discretionary
withdrawal without adjustment:
- at book value 778,832 48.2% 729,319 51.6%
Not subject to discretionary
withdrawal provision 23,933 1.5% 20,506 1.5%
----------- ------------ ----------- ------------

Total annuity actuarial reserves
and deposit liabilities (gross) 1,616,796 100.0% 1,413,080 100.0%

Reinsurance ceded 283 339
----------- -----------

Total annuity actuarial reserves
and deposit liabilities (net) $ 1,616,513 $ 1,412,741
=========== ===========
</TABLE>

8. REINSURANCE

The Company reinsures portions of certain policies it writes, thereby
providing greater diversification of risk and minimizing exposure on
larger policies.

The Company cedes risks on a coinsurance and a yearly renewable term basis
in excess of the retention limits of $75,000 for ordinary life and
endowment products, excluding the participating ordinary life products,
and $150,000 for universal life and single premium endowment products with
a minimum cession of $25,000. Risks are ceded on a 50% modified
coinsurance basis for certain participating ordinary life products and a
100% modified coinsurance basis for all Equity Indexed Universal Life
Policies. The aggregate reserves for life and annuity policies, policy and
contract claims, premiums and annuity considerations, and benefits and
reserve changes are shown after reduction for reinsurance ceded to other
companies.

A contingent liability exists with respect to reinsurance in the event
that the reinsurance companies should be unable to meet their obligations
under the reinsurance agreements. Any contingent liability with modified
coinsurance is substantially reduced since the coinsurer places funds on
deposit with the Company. Funds held under reinsurance agreements were
approximately $91,325 and $336,005 at December 31, 1997 and 1996,
respectively.

17
<PAGE> 88

LIFE INSURANCE COMPANY OF THE SOUTHWEST

NOTES TO STATUTORY FINANCIAL STATEMENTS
DECEMBER 31, 1997 AND 1996
- --------------------------------------------------------------------------------

The following amounts were ceded to reinsurers as of and for the years ended
December 31, 1997 and 1996 (in thousands):

<TABLE>
<CAPTION>
1997 1996
-------- --------
<S> <C> <C>
Aggregate reserves for life and annuity policies $ 3,776 $ 3,093
======== ========

Policy and contract claims liability $ 259 $ 183
======== ========

Premiums and annuity considerations $ 2,933 $ 1,704
======== ========

Policy and contract claims incurred $ 443 $ 574
======== ========
</TABLE>

9. CAPITAL AND SURPLUS

The Company is required by the state of Texas to maintain capital and
surplus of at least $2,000,000.

Dividends on Company stock are paid as declared by its board of directors.
According to the bylaws of the Company, all statutory profits earned upon
the nonparticipating class of business may be paid out as dividends to
stockholders. However, not more than 10% of the statutory profits on
participating business may be paid out as dividends to stockholders.

The Company paid $2,923,000 and $4,289,919 in dividends to its immediate
parent, IIL, in 1997 and 1996, respectively. The maximum amount of
dividends that can be paid without the approval of the Texas Department of
Insurance is 10% of surplus or 100% of prior year net income, whichever is
greater. In making the determination of the maximum dividend payable, the
aggregate dividends paid over the past twelve months must be taken into
account. The amount of dividend payment for 1998, based on 1997 results,
would be limited to $13,711,144.

18
<PAGE> 89

LIFE INSURANCE COMPANY OF THE SOUTHWEST

NOTES TO STATUTORY FINANCIAL STATEMENTS
DECEMBER 31, 1997 AND 1996
- --------------------------------------------------------------------------------

10. INFORMATION PERTAINING TO THIRD PARTY ADMINISTRATORS

Set forth is certain information pertaining to the Company's third party
administrators for the year ended December 31, 1997.

<TABLE>
<CAPTION>
TYPES OF TYPES OF DIRECT
EXCLUSIVE BUSINESS AUTHORITY PREMIUMS
NAME CONTRACT WRITTEN GRANTED WRITTEN
- ----------------------------------- --------- -------- --------- --------------
(IN THOUSANDS)
<S> <C> <C> <C> <C>
Security Planning Associates No TSA Premium
Collection $ 3,782

Other Third Party Administrators No TSA Premium
Collection 6,496
--------
$ 10,278
========
</TABLE>

11. RISK-BASED CAPITAL

The Texas Department of Insurance imposes risk-based capital (RBC)
requirements on life insurance enterprises. The RBC calculation serves as
a regulatory benchmark for monitoring life insurance companies by state
insurance regulators. The Company has calculated its RBC in accordance
with the NAIC Model Rule and the RBC rules as adopted by its state of
domicile, Texas. The Company exceeds the minimum RBC levels requiring
company or regulatory action as of December 31, 1997.

12. BENEFIT PLANS

The Company has a 401(k) defined contribution plan covering substantially
all employees. Company contributions under the 401(k) plan include a
Company base contribution, equal to 3% of annual compensation (up to but
not exceeding Internal Revenue Service compensation limits), and the
Company matches employee contributions at a rate of 50% (to a maximum of
3% of compensation). Employees may make voluntary contributions not to
exceed the lesser of $9,500 or 10% of annual compensation. Additionally,
the Company contributes 3% of compensation in excess of the Social
Security taxable wage base (up to but not exceeding the Internal Revenue
Service compensation limits). Company contributions approximated $287,000
and $278,000 for the years ended December 31, 1997 and 1996, respectively.

13. RELATED PARTY TRANSACTIONS

In connection with the purchase by National Financial Services (NFS), the
Company entered into several service agreements with an affiliate,
National Life Insurance Company of Vermont (NLV), the terms of which are
outlined in the following paragraphs:

19
<PAGE> 90

LIFE INSURANCE COMPANY OF THE SOUTHWEST

NOTES TO STATUTORY FINANCIAL STATEMENTS
DECEMBER 31, 1997 AND 1996
- --------------------------------------------------------------------------------

Beginning in March 1996, the Company and NLV entered into an investment
services agreement whereby NLV manages the Company's bond and cash
portfolio for a fee equal to 4.2 basis points per annum of the average
balance of the statutory book value of the assets in the bond and cash
portfolio for the reporting period. The service fee is paid monthly in
arrears. As of December 31, 1997, the Company had recorded investment fees
to NLV for the year then ended of $623,770 under the terms of this
agreement.

In 1996, the Company and NLV entered into a tax services agreement whereby
NLV performs tax preparation and planning services for the Company and its
affiliates for an annual fee not to exceed $50,000 unless increased by
mutual agreement by the companies. During 1997, the Company recorded
$50,000 in expense under the terms of this agreement.

A data processing agreement was also entered into in 1996 between the
Company and NLV. The agreement covers processing for certain systems and
functions, telecommunications, printing and mail processing. The 1997
monthly service fee is equal to $35,000 for the data processing functions
plus allocated amounts for telecommunications and mail services. The
amount may be increased in future years by mutual agreement between the
companies. During 1997, the Company recorded $417,500 in expenses under
the terms of this agreement.

Various other administrative service agreements were entered into between
the Company and NLV in 1996. The aggregate expense recorded by the Company
associated with these agreements was $162,300 during 1997.

At December 31, 1997, the Company recorded a fee payable to NLV in the
amount of $69,550 for the service agreements presented above.

In 1997 and 1996, the Company provided certain administrative services to
its parent, IIL. IIL paid the Company $31,707 and $45,902 for the years
ended December 31, 1997 and 1996, respectively, for these services.

14. SALE OF HOME OFFICE

In 1990, the Company sold its home office land and building for $7,500,000
to the Mockingbird Property Limited Partnership. In 1995, the Company
foreclosed on the mortgage loan and reduced the carrying value of the
foreclosed property by the amount of the deferred gain remaining from the
sale. In October 1996, the Company sold its home office land and building
for $6,150,000 in cash to an unrelated third party. The Company realized a
pretax gain of $832,451 on the sale.

The Company continues to occupy the space in the building under a lease
agreement which expires over the next two years.

20
<PAGE> 91

LIFE INSURANCE COMPANY OF THE SOUTHWEST

NOTES TO STATUTORY FINANCIAL STATEMENTS
DECEMBER 31, 1997 AND 1996
- --------------------------------------------------------------------------------

Rent expense in 1997 and 1996 was $536,595 and $578,220, respectively.
Minimum annual rentals are as follows (in thousands):

15. COMMITMENTS AND CONTINGENCIES

The Company has $21,160,000 in commitments outstanding at December 31,
1997 to fund additional commercial mortgage loans.

In the ordinary course of its operations, the Company has been named as
defendant in various legal actions seeking payments for denied claims and
monetary damages. It is management's opinion that the ultimate liability,
if any, resulting from the disposition of these matters will not have a
materially adverse effect on the Company's financial position.

21
<PAGE> 92
LIFE INSURANCE COMPANY
OF THE SOUTHWEST

STATUTORY FINANCIAL STATEMENTS
DECEMBER 31, 1996 AND 1995

<PAGE> 93

REPORT OF INDEPENDENT ACCOUNTANTS

February 28, 1997

To the Board of Directors of
Life Insurance Company of the Southwest

We have audited the accompanying statutory statements of admitted assets,
liabilities, and surplus of Life Insurance Company of the Southwest (the
"Company") as of December 31, 1996, and the related statutory statements of
income and changes in surplus, and cash flows for the year then ended. These
financial statements are the responsibility of the Company's management. Our
responsibility is to express an opinion on these financial statements based on
our audit.

We conducted our audit in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements are free of
material misstatement. An audit includes examining, on a test basis, evidence
supporting the amounts and disclosures in the financial statements. An audit
also includes assessing the accounting principles used and significant
estimates made by management, as well as evaluating the overall financial
statement presentation. We believe that our audit provide a reasonable basis
for our opinion.

As described in Note 1, these financial statements were prepared in conformity
with accounting principles prescribed or permitted by the Texas Department of
Insurance which practices differ from generally accepted accounting principles.
The effects on the financial statements of the variances between such practices
and generally accepted accounting principles are material; they are described in
Note 2.
<PAGE> 94
To the Board of Directors of
Life Insurance Company of the Southwest
Page 2
February 28, 1997

In our opinion, because of the effects of the matter discussed in the preceding
paragraph, the financial statements referred to above do not present fairly, in
conformity with generally accepted accounting principles, the financial position
of Life Insurance Company of the Southwest, or the results of its operations or
its cash flows for the years then ended.

In our opinion, the financial statements referred to above present fairly, in
all material respects, the admitted assets, liabilities, and surplus of Life
Insurance Company of the Southwest as of December 31, 1996, and the results of
its operations and its cash flows for the year then ended, on the basis of
accounting described in Note 1.
<PAGE> 95
The Board of Directors
Life Insurance Company of the Southwest

We have audited the accompanying statutory financial statement of admitted
assets, liabilities, and capital and surplus of Life Insurance Company of the
Southwest (the Company) as of December 31, 1995, and the related statutory
statements of operations, capital and surplus, and cash flow for the year then
ended. These financial statements are the responsibility of the Company's
management. Our responsibility is to express an opinion on these financial
statements based on our audit.

We conducted our audit in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to
obtain reasonable assurance about whether the financial statements are free of
material misstatement. An audit includes examining, on a test basis, evidence
supporting the amounts and disclosures in the financial statements. An audit
also includes assessing the accounting principles used and significant
estimates made by management, as well as evaluating the overall financial
statement presentation. We believe that our audit provides a reasonable basis
for our opinion.

As described more fully in note 1 to the financial statements, the Company
prepared these financial statements using accounting practices prescribed or
permitted by the Texas Department of Insurance, which practices differ from
generally accepted accounting principles. The effects on the financial
statements of the variances between the statutory basis of accounting and
generally accepted accounting principles are described in note 16.

In our opinion, because of the effects of the matter discussed in the preceding
paragraph, the financial statements referred to above do not present fairly, in
conformity with generally accepted accounting principles, the financial
position of Life Insurance Company of the Southwest as of December 31, 1995, or
its results of its operations or its cash flows for the years then ended.

Also, in our opinion, the financial statements referred to above present
fairly, in all material respects, the admitted assets, liabilities, and capital
and surplus of Life Insurance Company of the Southwest as of December 31, 1995,
and the results of its operations and its cash flow for the year then ended, on
the basis of accounting described in note 1.

KPMG Peat Marwick LLP
Dallas, TX
April 5, 1996

<PAGE> 96

LIFE INSURANCE COMPANY OF THE SOUTHWEST

STATUTORY STATEMENTS OF ADMITTED ASSETS,
LIABILITIES, AND CAPITAL AND SURPLUS (IN THOUSANDS)

- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
DECEMBER 31,
------------------------------------
1996 1995
---------------- ----------------
ADMITTED ASSETS

<S> <C> <C>
Cash $ 242 $ 3,092
Short-term investments 22,325 31,142
Bonds, at amortized cost 1,354,441 1,237,514
Investment in surplus notes 17,491 -
S&P 500 options - long position 3,600 -
Mortgage loans on real estate 222,018 223,651
Policy loans 74,684 65,652
Real estate - acquired in satisfaction of debt 4,352 6,680
Real estate - home office - 5,069
---------------- ----------------

Total cash and invested assets 1,699,153 1,572,800

Due and deferred premiums 1,639 2,039
Due and accrued investment income 25,266 23,115
Amounts recoverable from reinsurers 271 72
Guaranty fund asset 2,017 1,780
Other assets 1,112 1,154
---------------- ----------------
Total admitted assets $ 1,729,458 $ 1,600,960
================ ================
</TABLE>

The accompanying notes are an integral
part of these statutory financial statements.

1
<PAGE> 97

LIFE INSURANCE COMPANY OF THE SOUTHWEST

STATUTORY STATEMENTS OF ADMITTED ASSETS,
LIABILITIES, AND CAPITAL AND SURPLUS (IN THOUSANDS)
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>

DECEMBER 31,
------------------------------------
1996 1995
---------------- ----------------

LIABILITIES AND CAPITAL AND SURPLUS

<S> <C> <C>
Liabilities:
Aggregate reserves for life and annuity policies $ 1,586,467 $ 1,464,392
Policy and contract claims 346 1,624
Premium and other deposit funds 1,581 2,769
Other contract liabilities 677 5,442
S&P options - short position 614 -
Asset valuation reserve (AVR) 16,031 13,721
Interest maintenance reserve (IMR) 9,402 14,739
Unearned investment income 747 803
Brokered deposits on loaned securities 9,925 -
Dividend payable to stockholder 1,923 -
Amounts withheld by company 2,516 2,754
Other liabilities 3,971 4,297
---------------- ----------------
Total liabilities 1,634,200 1,510,541
---------------- ----------------
Capital and surplus:
Common stock, $10 par value per share; 300,000 shares
authorized, issued and outstanding in 1996 and 1995 3,000 3,000
Paid-in surplus 32,425 32,425
Unassigned surplus 59,833 54,994
---------------- ----------------
Total capital and surplus 95,258 90,419
---------------- ----------------
Total liabilities and capital and surplus $ 1,729,458 $ 1,600,960
================ ================
</TABLE>

The accompanying notes are an integral
part of these statutory financial statements.

2
<PAGE> 98

LIFE INSURANCE COMPANY OF THE SOUTHWEST

STATUTORY STATEMENTS OF INCOME (IN THOUSANDS)
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>

YEAR ENDED
DECEMBER 31,
------------------------------------
1996 1995
---------------- ----------------

<S> <C> <C>
Income:
Premiums and annuity considerations $ 202,086 $ 159,670
Net investment income 116,813 110,943
Amortization of interest maintenance reserve 3,133 2,363
Other income 787 632
---------------- ----------------
Total income 322,819 273,608
---------------- ----------------
Benefits and expenses:
Death and annuity benefits 19,529 22,380
Surrender benefits 136,805 151,668
Other policyholder benefits 572 629
Increase in reserves 120,992 61,256
---------------- ----------------
Total benefits 277,898 235,933

Commissions 15,164 11,068
General insurance expenses 9,865 8,833
Taxes, licenses and fees 1,278 1,558
Other 257 (41)
---------------- ----------------
Total benefits and expenses 304,462 257,351
---------------- ----------------
Net gain from operations before dividends to
policyholders and federal income taxes 18,357 16,257

Dividends to policyholders 74 110
---------------- ----------------
Net gain from operations before federal income taxes 18,283 16,147
Provision for federal income taxes 4,813 4,050
---------------- ----------------
Net gain from operations 13,470 12,097
Net realized capital losses (1,312) (2,570)
---------------- ----------------
Net income $ 12,158 $ 9,527
================ ================
</TABLE>

The accompanying notes are an integral
part of these statutory financial statements.

3
<PAGE> 99

LIFE INSURANCE COMPANY OF THE SOUTHWEST

STATUTORY STATEMENTS OF CHANGES IN CAPITAL AND SURPLUS (IN THOUSANDS)
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>

<S> <C>
Balance at December 31, 1994 $ 85,027

Net income 9,527

Net unrealized capital gains 2,294

Dividends paid to stockholder (2,493)

Decrease in nonadmitted assets 323

Increase in asset valuation reserve (4,047)

Other (212)
----------------
Balance at December 31, 1995 90,419
----------------
Net income 12,158

Net unrealized capital gains 1,475

Dividends paid or accrued to stockholder (6,213)

Decrease in nonadmitted assets 74

Increase in asset valuation reserve (2,310)

Other (345)
----------------
Balance at December 31, 1996 $ 95,258
================
</TABLE>

The accompanying notes are an integral
part of these statutory financial statements.

4
<PAGE> 100

LIFE INSURANCE COMPANY OF THE SOUTHWEST

STATUTORY STATEMENTS OF CASH FLOWS (IN THOUSANDS)
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>

YEAR ENDED
DECEMBER 31,
------------------------------------
1996 1995
---------------- ----------------

<S> <C> <C>
Cash flows from operating activities:
Premiums and other considerations received $ 203,277 $ 160,176
Net investment income received 115,600 111,769
Death and accident and health benefit payments (5,988) (7,981)
Surrender benefits paid (136,805) (151,668)
Other benefit payments (15,606) (14,874)
Dividends paid to policyholders (77) (116)
Federal income taxes paid (4,005) (3,212)
Commissions, expenses and taxes paid (26,569) (21,838)
Decrease in experience rated refunds (4,290) -
Other (14) (214)
---------------- ----------------
Net cash provided by operations 125,523 72,042

Cash flows from investing activities:
Proceeds from investments sold or matured 343,345 552,526
Cost of investments acquired (476,379) (633,695)
Increase in policy loans (9,032) (7,948)
---------------- ----------------
Net cash used for investing activities (142,066) (89,117)

Cash flows from financing activities:
Dividends to stockholder (4,290) (2,492)
Loaned securities financing 9,925 -
---------------- ----------------
Net cash provided from financing activities 5,635 (2,492)

Other sources and applications, net (759) (203)
---------------- ----------------

Net decrease in cash and short-term investments (11,667) (19,770)
Cash and short-term investments at beginning of year 34,234 54,004
---------------- ----------------
Cash and short-term investments at end of year $ 22,567 $ 34,234
================ ================
</TABLE>

The accompanying notes are an integral
part of these statutory financial statements.

5
<PAGE> 101
LIFE INSURANCE COMPANY OF THE SOUTHWEST

NOTES TO STATUTORY FINANCIAL STATEMENTS
DECEMBER 31, 1996 AND 1995
- --------------------------------------------------------------------------------

1. GENERAL INFORMATION AND SUMMARY OF SIGNIFICANT
ACCOUNTING POLICIES

GENERAL INFORMATION

Life Insurance Company of the Southwest (the Company) is an insurance company
domiciled in the state of Texas. The Company is a wholly-owned subsidiary of
Insurance Investors Life Insurance Company (IIL). From June 1989 to February
1996, IIL was wholly-owned by LSW Holding Company (LSWH) and ownership of
LSWH voting equity was as follows:

Hannover Holdings, Inc. 38.07%
Bavarian Re 25.38
Hannover Reinsurance 25.00
Pilatus Re Limited 10.62
Other minority shareholders .93
------------
100.00%
============

In February 1996, a controlling two-thirds interest in LSWH was purchased by
National Financial Services, Inc., a wholly-owned subsidiary of National Life
of Vermont. LSWH was then merged with Hannover Holdings, Inc., and the
resulting entity's name was changed to LSW National Holdings, Inc. As a
result of these transactions, National Financial Services, Inc., owns a
two-thirds interest in LSW National Holdings, Inc. (LSWNH). The voting equity
of LSWNH at December 31, 1996 is as follows:

National Financial Services, Inc. 66.67%
SwissRe Investments 25.00
Other minority shareholders 8.33
------------
100.00%
============

The Company writes life and annuity policies in 49 states and the District of
Columbia and is subject to regulation by the Texas Department of Insurance
(state of domicile) and the insurance regulatory authorities of other states
in which it is licensed.

SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES

The accompanying financial statements have been prepared in accordance with
statutory accounting practices prescribed or permitted by the Texas
Department of Insurance, which vary in some respects from generally accepted
accounting principles (GAAP). Pursuant to statutory requirements:

- - Premium income on ordinary life insurance and annuities is reported as earned
when due.

6
<PAGE> 102
LIFE INSURANCE COMPANY OF THE SOUTHWEST

NOTES TO STATUTORY FINANCIAL STATEMENTS
DECEMBER 31, 1996 AND 1995
- --------------------------------------------------------------------------------

- - Acquisition costs such as commissions and other costs related to acquiring
new direct business are charged to current operations as incurred, whereas
under GAAP such costs are deferred and amortized over the expected lives of
the contracts.

- - Aggregate policy reserves are based on statutory mortality and interest
requirements without consideration of withdrawals, whereas GAAP reserves are
established based on Company or industry experience. For certain annuity
products where return is indexed to equity markets, the related investment in
equity linked options to hedge the additional policy reserve is recorded at
amortized cost. Under GAAP the current value of the hedge at the balance
sheet date is reflected in both the investment and policy reserve.

- - Future policy benefits which are reinsured are presented as a reduction of
gross policy benefit reserves. Unpaid claims which are reinsured are
presented as a reduction of gross unpaid claims. Under GAAP these reinsured
amounts are recorded as receivables.

- - Deferred income taxes are not provided on differences between the tax basis
of assets and liabilities and their reported amounts in the statutory
financial statements. Under generally accepted accounting principles,
deferred taxes, if any, are provided on these differences.

- - Certain assets designated as "nonadmitted assets" have been excluded from the
statutory statements of assets, liabilities, and capital and surplus by a
charge to unassigned surplus. Under GAAP, these assets, less applicable
allowance accounts, are restored to the balance sheet.

Nonadmitted assets at December 31, 1996 and 1995 are as follows (in
thousands):

<TABLE>
<CAPTION>
1996 1995
------------- -------------

<S> <C> <C>
Guaranty Fund Assessment $ 425 $ 300
Software 261 438
Other assets 583 605
------------- -------------
Total nonadmitted assets $ 1,269 $ 1,343
============= =============
</TABLE>

- - Securities are carried at amortized cost under statutory accounting
principles. Fixed maturities classified as "available for sale" are carried
at market value under generally accepted accounting principles. Unrealized
gains or losses are reflected as a separate component of equity.

- - An Asset Valuation Reserve (AVR) must be recorded under statutory accounting
practices. The AVR is designed to stabilize statutory surplus from default
losses on bonds, mortgages, real estate and other invested assets and from
fluctuations in the value of common stocks. The AVR is calculated as
prescribed by the National Association of Insurance Commissioners (NAIC).
Under GAAP, no such liability is recorded.

7
<PAGE> 103
LIFE INSURANCE COMPANY OF THE SOUTHWEST

NOTES TO STATUTORY FINANCIAL STATEMENTS
DECEMBER 31, 1996 AND 1995
- --------------------------------------------------------------------------------

- - An Interest Maintenance Reserve (IMR) must be recorded under statutory
accounting practices. The IMR is recorded to defer interest rate related
gains and losses recognized on the sale of bonds prior to maturity. The
resulting deferred gain or loss is recognized in statutory operations over
the remaining period to maturity. Under generally accepted accounting
principles, no such liability is recorded. All gains and losses are
recognized immediately through earnings.

- - Net intangible assets arising from the acquisition of business assets are
deferred and amortized in relation to the business in force under generally
accepted accounting principles. In addition, acquired assets are recorded at
fair market value at the date of acquisition. These purchase accounting
adjustments are not recognized under statutory accounting principles.

- - For statutory reporting, the Company does not record a liability for guaranty
fund assessments until the assessment has been made. Under GAAP, the Company
has recorded an additional liability for future guaranty fund assessments
relating to certain insolvencies that have occurred as of the balance sheet
date in response to an exposure draft released in 1996 entitled Accounting by
Insurance and Other Enterprises For Guaranty-Fund and Certain Other
Insurance-Related Assessments.

INVESTMENTS

Investments are valued in accordance with the requirements of the National
Association of Insurance Commissions (NAIC). Bonds are carried at amortized
cost. Mortgage loans are carried at their aggregate unpaid principal balance
net of an allowance for doubtful accounts. Policy loans are carried at their
aggregate unpaid principal balance. Real estate is carried at cost less
accumulated depreciation net of an allowance for market decline.

The Company's general investment philosophy is to hold fixed maturities for
long-term investments. However, in response to changing market conditions,
liquidity requirements, interest rate movements and other investment factors,
fixed maturities may be sold prior to their maturity. Realized gains and
losses on the disposal of investments, net of amounts deferred as part of the
IMR, are recognized in net income on the specific identification basis.

CASH

Cash includes cash on hand, amounts due from banks and certificates of
deposit of $2,140,000 and $5,340,000 at December 31, 1996 and 1995,
respectively.

SHORT-TERM INVESTMENTS

<PAGE> 104
LIFE INSURANCE COMPANY OF THE SOUTHWEST

NOTES TO STATUTORY FINANCIAL STATEMENTS
DECEMBER 31, 1996 AND 1995
- --------------------------------------------------------------------------------

FUTURE POLICY BENEFIT RESERVES AND OTHER CONTRACT RESERVES

Aggregate reserves for future policy benefits for ordinary life policies have
been computed under the net level premium method or the Commissioner's
Reserve Valuation Method using mortality tables and interest rates as
prescribed by state regulatory authorities, without consideration of
withdrawals. Interest rate assumptions range from 2-1/2% to 6%. Mortality
rates are obtained from statutory mortality tables, primarily the 1941
C.S.O., 1958 C.S.O., and 1980 C.S.O. tables.

Policy liabilities for future policy benefits on universal life policies,
annuities, and endowments, comprise approximately 97% of all aggregate
reserves for future policy benefits at December 31, 1996 and 1995. Annuities,
which comprise approximately 89% and 88% of all aggregate reserves for future
policy benefits at December 31, 1996 and 1995, respectively, are computed
under the Commissioners Annuity Reserve Method.

Policy and contract claims reserves include all reported but unpaid claims
and an estimate of claims incurred but not reported, based on Company
experience.

FEDERAL INCOME TAXES

The Company will file a consolidated tax return for the year ended December
31, 1996. The federal tax return will be consolidated with the Company's
parent, Insurance Investors Life Insurance Company, LSW National Holdings,
Inc. and LSW Financial Ltd. The method of allocation between the companies is
subject to a written agreement, which has been approved by the Texas
Commissioner of Insurance and the Company's board of directors. Allocations
are limited to the Company's separate return tax liabilities computed as if
it had filed a separate tax return.

In 1995, the Company participated in a tax allocation agreement and was
included in the consolidated tax return of IIL.

REINSURANCE

USE OF ESTIMATES

The preparation of financial statements in accordance with statutory
accounting practices prescribed or permitted by the Texas Department of
Insurance requires management to make estimates and assumptions that affect
the reported amounts of assets and liabilities and disclosure of contingent
assets and liabilities at the date of the financial statements and the
reported amounts of revenues and expenses during the reporting period. Actual
results could differ from these estimates.

9
<PAGE> 105
LIFE INSURANCE COMPANY OF THE SOUTHWEST

NOTES TO STATUTORY FINANCIAL STATEMENTS
DECEMBER 31, 1996 AND 1995
- --------------------------------------------------------------------------------

RECLASSIFICATIONS

Certain prior year amounts have been reclassified to conform to the current
year presentation.

2. RECONCILIATION BETWEEN STATUTORY ACCOUNTING
PRINCIPLES AND GAAP

<TABLE>
<CAPTION>
DECEMBER 31,
1996 1995
------------- -------------

<S> <C> <C>
Statutory Capital and Surplus $ 95,258 $ 90,419

Cost of insurance acquired (COIA) 8,684 12,165
Deferred policy acquisition costs (DAC) 62,880 56,304
Deferred income taxes 8,902 (6,694)
Excess of cost over net assets acquired 3,248 3,508
Future policy benefit reserves (72,647) (67,443)
Unrealized holding gains (11,413) 29,015
Asset valuation reserves 16,031 13,721
Interest maintenance reserves 9,402 14,739
Guaranty funds assessment (5,163) -
Other 2,794 (289)
------------- -------------
Total differences 22,718 55,026
------------- -------------
GAAP Stockholders' Equity $ 117,976 $ 145,445
============= =============
</TABLE>

10
<PAGE> 106
LIFE INSURANCE COMPANY OF THE SOUTHWEST

NOTES TO STATUTORY FINANCIAL STATEMENTS
DECEMBER 31, 1996 AND 1995
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>

YEAR ENDED
DECEMBER 31,
1996 1995
------------- -------------

Statutory net income $ 12,158 $ 9,527

Annuity premiums (196,005) (149,185)
Policy revenues 4,554 3,960
Reinsurance (1,807) (3,101)
Policy reserve increase 36,700 (19,593)
Surrender benefits 134,712 150,165
Deferred policy acquisition expenses 12,350 7,404
Amortization of DAC, COIA, and goodwill (9,514) (8,292)
Annuity benefits 15,161 14,551
Guaranty funds assessment (3,957) -
Other 460 1,100
------------- -------------
Total differences (7,346) (2,991)
------------- -------------
GAAP net income $ 4,812 $ 6,536
============= =============
</TABLE>

3. INVESTMENTS

BONDS

At December 31, 1996 and 1995, the amortized cost and estimated market value
of investments in debt securities are as follows (in thousands):

Gross Gross Estimated
Amortized unrealized unrealized market
December 31, 1996 cost gains losses value
- ----------------- --------------- --------------- ---------------- ---------------

<S> <C> <C> <C> <C>
U.S. government securities $ 16,988 $ 402 $ 2 $ 17,388
Special revenue and
assessment obligations 121,525 877 2,969 119,433
Public utilities 223,567 939 6,102 218,404
Industrial and miscellaneous 520,584 5,992 7,944 518,632
Private placements 135,638 3,089 2,113 136,614
Mortgage-backed securities 353,630 3,672 5,333 351,969
--------------- --------------- ---------------- ---------------
Totals $ 1,371,932 $ 14,971 $ 24,463 $ 1,362,440
=============== =============== ================ ===============
</TABLE>

<PAGE> 107
LIFE INSURANCE COMPANY OF THE SOUTHWEST

NOTES TO STATUTORY FINANCIAL STATEMENTS
DECEMBER 31, 1996 AND 1995
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>

Gross Gross Estimated
Amortized unrealized unrealized market
December 31, 1996 cost gains losses value
- ----------------- --------------- --------------- ---------------- ---------------

<S> <C> <C> <C> <C>
U.S. government securities $ 111,448 $ 1,839 $ 1,001 $ 112,286
States and political
subdivisions 44,808 464 316 44,956
Public utilities 244,741 4,877 2,646 246,972
Industrial and miscellaneous 382,077 15,226 515 396,788
Private placements 121,654 8,322 359 129,617
Mortgage-backed securities 332,786 8,004 1,340 339,450
--------------- --------------- ---------------- ---------------
Totals $ 1,237,514 $ 38,732 $ 6,177 $ 1,270,069
=============== =============== ================ ===============
</TABLE>

The amortized cost and estimated market value of debt securities at December
31, 1996, by contractual maturity, are shown below. Expected maturities will
differ from contractual maturities because borrowers may have the right to
call or repay obligations with or without call or prepayment penalties.

Estimated
Amortized market
cost value
------------- -------------
(in thousands)

<S> <C> <C>
Due in one year or less $ 25,591 $ 25,732
Due after one year through five years 79,884 80,685
Due after five years through ten years 614,528 612,222
Due after ten years 298,299 291,832
Mortgage-backed securities 353,630 351,969
------------- -------------
Totals $ 1,371,932 $ 1,362,440
============= =============
</TABLE>

Proceeds from sales of investments in debt securities during 1996 were
$245,794,114. Gross gains of $2,794,583 and gross losses of $5,976,154 were
realized on those sales.

Proceeds from sales of investments in debt securities during 1995 were
$457,461,577. Gross gains of $5,990,561 and gross losses of $6,295,069 were
realized on those sales.

As required by law, at December 31, 1996 and 1995, the Company maintains
$2,698,020 and $2,592,929, respectively, of investments on deposit with
various regulatory authorities.

In 1996, the Company participated in certain security lending transactions.
It is the Company's policy to hold as collateral 103% of the market value of
the loaned security, which exceeds statutory requirements. At December 31,
1996, the collateral held related to these transactions is $9,924,882 and is
included in short-term investments.

<PAGE> 108
LIFE INSURANCE COMPANY OF THE SOUTHWEST

NOTES TO STATUTORY FINANCIAL STATEMENTS
DECEMBER 31, 1996 AND 1995
- --------------------------------------------------------------------------------

MORTGAGE LOANS AND REAL ESTATE

At December 31, 1996 and 1995, the Company's mortgage loans and real estate
investments (excluding home office properties) were distributed as follows:

Mortgage Loans Real Estate
---------------- -----------------
1996 1995 1996 1995
------ ------ ------ ------
Geographic Region

<S> <C> <C> <C> <C>
New England 0.5% 0.5% -% -%
Middle Atlantic 2.1 2.2 - -
East North Central 0.9 0.9 - -
West North Central 4.3 3.4 - 5.3
South Atlantic 12.8 9.0 33.6 10.6
East South Central 6.1 6.4 - -
West South Central 42.2 43.2 47.0 71.2
Mountain 21.7 24.0 - -
Pacific 9.4 10.4 19.4 12.9
------ ------ ------ ------
Total 100.00% 100.00% 100.00% 100.00%
====== ====== ====== ======

<CAPTION>
Mortgage Loans Real Estate
---------------- -----------------
1996 1995 1996 1995
------ ------ ------ ------
Property Type

<S> <C> <C> <C> <C>
Residential 1.1% 1.3% 1.3% 1.2%
Apartment 1.8 2.0 - -
Retail 14.4 15.4 - 16.2
Office Building 45.6 45.3 66.4 55.1
Industrial 32.2 30.8 - -
Hotel/Motel 0.5 0.5 - -
Other Commercial 4.4 4.7 32.3 27.5
------ ------ ------ ------
Total 100.00% 100.00% 100.00% 100.00%
====== ====== ====== ======
</TABLE>

The Company has recorded allowances for uncollectible balances of $500,000
and $350,000 against mortgage loans as of December 31, 1996 and 1995,
respectively. Such allowances are recorded when collectibility, in whole or
in part, is in doubt and also to establish a general allowance for the
mortgage portfolio.

Mortgage loans are collateralized by the related properties with the amount
of such mortgage loans generally being less than 75% of the properties'
estimated fair values at the time the loans are made. The interest rates
charged for loans made in 1996 ranged from 7.95% to 8.75%.

13
<PAGE> 109
LIFE INSURANCE COMPANY OF THE SOUTHWEST

NOTES TO STATUTORY FINANCIAL STATEMENTS
DECEMBER 31, 1996 AND 1995
- --------------------------------------------------------------------------------

The Company has recorded allowances for market value declines of $2,455,000
and $3,755,000 against real estate acquired in the satisfaction of debt as of
December 31, 1996 and 1995, respectively. Such allowances are recorded when
collectibility on the sale of the acquired real estate, in whole or in part,
is in doubt and when market value (net of estimated cost of sale) is lower
than recorded book value.

INVESTMENT INCOME

Net investment income for the years ended December 31, 1996 and 1995 are from
the following sources: 1996 1995 (in thousands)

<TABLE>
<CAPTION>
1996 1995
------------- -------------
(in thousands)

<S> <C> <C>
Bonds $ 94,143 $ 88,065
Mortgage loans 20,286 19,895
Real estate 1,274 1,551
Policy loans 4,132 3,641
Short-term investments 915 1,179
Other 274 580
------------- -------------
Gross investment income 121,024 114,911
Less investment expenses (4,211) (3,968)
------------- -------------
Net investment income $ 116,813 $ 110,943
============= =============

REALIZED GAINS AND LOSSES

Net realized capital gains (losses) for the years ended December 31, 1996 and
1995 consist of the following:

<CAPTION>
1996 1995
------------- -------------

<S> <C> <C>
Bonds sold, called and matured $ (2,940) $ 576
Preferred stocks - (217)
Common stocks (375)
Mortgage loans 182 284
Real estate (1,579) (2,409)
Other 6 -
------------- -------------
(4,706) (1,766)

Less amounts deferred as IMR 2,205 (1,401)
Federal income tax benefit 1,189 597
------------- -------------
Net realized capital losses $ (1,312) $ (2,570)
============= =============
</TABLE>

<PAGE> 110
LIFE INSURANCE COMPANY OF THE SOUTHWEST

NOTES TO STATUTORY FINANCIAL STATEMENTS
DECEMBER 31, 1996 AND 1995
- --------------------------------------------------------------------------------

4. FAIR VALUE OF FINANCIAL INSTRUMENTS

The following table represents the carrying amounts and estimated fair values
of the Company's financial instruments at December 31, 1996 and 1995.

1996 1995
-------------------------- ---------------------------
Statement Fair Statement Fair
value value value value
---------- ----------- ----------- -----------
($ in thousands)
<S> <C> <C> <C> <C>
Nontrading instruments:
Financial assets:
Cash and
short-term investments $ 22,567 $ 22,567 $ 34,234 $ 34,234
Investment securities 1,354,441 1,345,293 1,237,514 1,270,069
Mortgage loans 222,018 222,857 223,651 230,610
Policy loans 74,684 74,684 65,652 65,652
Real estate 4,352 4,459 11,749 11,952
Surplus notes 17,491 17,247 - -
S&P options -
long position 3,600 7,014 - -
Financial liabilities:
Interest sensitive
reserves 1,467,716 1,462,014 1,415,419 1,350,401
S&P options -
short position 614 1,891 - -
</TABLE>

The following assumptions were used to estimate the fair value of each class
of financial instruments:

Cash and short-term investments: The statement value approximates fair value
due to the relatively short period to maturity of the instruments.

Investment securities: The fair values of debt securities and equity
investments are based on quoted market prices at the reporting date for those
or similar investments. Fair values for private placement securities not
provided by an independent pricing service are estimated by the Company.

Mortgage loans: The fair value of mortgage loans has been determined based on
certain assumptions, such as a level interest rate and prepayments.

Policy loans: The fair value of policy loans has been determined based on the
face values of the policy loans.

<PAGE> 111
LIFE INSURANCE COMPANY OF THE SOUTHWEST

NOTES TO STATUTORY FINANCIAL STATEMENTS
DECEMBER 31, 1996 AND 1995
- --------------------------------------------------------------------------------

Surplus notes: The fair value of surplus notes assets is based on quotes
provided by an independent pricing service, if available. Fair values for
surplus note assets not provided by an independent pricing service are
estimated by the Company.

S&P 500 Call options: The fair value of call options is based on quoted
market values at the date of reporting.

Interest sensitive reserves: The fair value of annuities and universal life
has been based on the cash surrender values of the policies.

5. DERIVATIVE FINANCIAL INSTRUMENTS

The Company may invest in various derivative instruments, including equity
options based on the S&P 500 Index, in order to hedge its obligation with
respect to Indexed Annuities. These derivative instruments, which in general
do not exceed five percent (5%) of liabilities for the Indexed Annuities and
are authorized under state law, are purchased from counterparties which
conform to the Company's policies and guidelines regarding derivative
instruments. The standard position is a contract of one year duration or less
and, except for dynamic portfolio balancing, is held to maturity. The
derivatives held by the Company are carried at amortized cost with gains or
losses recognized upon the sale of the derivative instruments. During 1996,
the Company recorded amortization of $936,484 which is netted against
investment income.

Investments in these types of instruments generally involve the following
types of risk: in the case of over-the-counter options, there are no
guarantees these markets will exist for these investments if the Company
wanted to close out a position; exchanges may impose trading limits which may
inhibit the Company's ability to close out positions in exchange-listed
instruments; and, if the Company has an open position with a dealer that
becomes insolvent, the Company may experience a loss.

Cash is required, depending on market movement, when (1) buying an option or
(2) closing an option that may have been written pursuant to dynamic
portfolio balancing. A single net payment may be made by one counterparty at
maturity. Initial acquisition of instruments and subsequent balancing is
performed solely for the purpose of hedging liabilities presented by Indexed
Annuities.

<PAGE> 112
LIFE INSURANCE COMPANY OF THE SOUTHWEST

NOTES TO STATUTORY FINANCIAL STATEMENTS
DECEMBER 31, 1996 AND 1995
- --------------------------------------------------------------------------------

6. FEDERAL INCOME TAXES

<TABLE>
<CAPTION>
1996 1995
------------- -------------
<S> <C> <C>
Computed "expected" tax $ 6,399 $ 5,651
Difference in statutory reserves and tax reserves 224 (236)
Amortization (accretion) of bond (premium) discount (334) (473)
(Amortization) capitalization of policy acquisition
costs for tax 37 (45)
Amortization of interest maintenance reserve (1,096) (827)
Other (417) (20)
------------- -------------
Reported provision for federal income taxes $ 4,813 $ 4,050
============= =============
</TABLE>

At December 31, 1996, the Company had accumulated approximately $5,700,000 in
its "policyholders' surplus account." This is a special memorandum tax
account into which certain amounts not previously taxed, under prior tax
laws, were accumulated. No new additions will be made to this account.
Federal income taxes will become payable thereon at the current tax rate (a)
when and if distributions to the shareholder, other than stock dividends and
other limited exceptions, are made in excess of the accumulated previously
taxed income; or (b) when a company ceases to be a life insurance company as
defined by the Internal Revenue Code and such termination is not due to
another life insurance company acquiring its assets in a nontaxable
transaction. The Company does not anticipate any transactions that would
cause any part of this amount to become taxable.

17
<PAGE> 113
LIFE INSURANCE COMPANY OF THE SOUTHWEST

NOTES TO STATUTORY FINANCIAL STATEMENTS
DECEMBER 31, 1996 AND 1995
- --------------------------------------------------------------------------------

7. POLICY AND BENEFIT RESERVES

The withdrawal characteristics of the Company's annuity actuarial reserves
and deposit liabilities at December 31, 1996 and 1995 are as follows (in
thousands):

<TABLE>
<CAPTION>
1996 1995
% OF % OF
AMOUNT TOTAL AMOUNT TOTAL
------------- ------- ------------- -------
<S> <C> <C> <C> <C>
Subject to discretionary
withdrawal with adjustment:
- at book value less
surrender charge $ 663,255 46.9% $ 591,089 45.8%
------------- ------- ------------- -------
Subtotal 663,255 46.9% 591,089 45.8%

Subject to discretionary
withdrawal without adjustment:
- at book value 729,319 51.6% 680,982 52.8%
Not subject to discretionary
withdrawal provision 20,506 1.5% 17,360 1.4%
------------- ------- ------------- -------

Total annuity actuarial reserves
and deposit liabilities (gross) 1,413,080 100.0% 1,289,431 100.0%

Reinsurance ceded 339 490
------------- -------------

Total annuity actuarial reserves
and deposit liabilities (net) $ 1,412,741 $ 1,288,941
============= =============
</TABLE>

8. REINSURANCE

The Company reinsures portions of certain policies it writes, thereby
providing greater diversification of risk and minimizing exposure on larger
policies.

The Company cedes risks on a coinsurance and a yearly renewable term basis in
excess of the retention limits of $75,000 for ordinary life and endowment
products, excluding OMNI, and $150,000 for universal life and single premium
endowment products with a minimum cession of $25,000. Risks are ceded on a
50% modified coinsurance basis for certain OMNI products. The aggregate
reserves for life and annuity policies, policy and contract claims, premiums
and annuity considerations, and benefits and reserve changes are shown after
reduction for reinsurance ceded to other companies.

18
<PAGE> 114
LIFE INSURANCE COMPANY OF THE SOUTHWEST

NOTES TO STATUTORY FINANCIAL STATEMENTS
DECEMBER 31, 1996 AND 1995
- --------------------------------------------------------------------------------

A contingent liability exists with respect to reinsurance in the event that
the reinsurance companies should be unable to meet their obligations under
the reinsurance agreements. Any contingent liability with modified
coinsurance is substantially reduced since the coinsurer places funds on
deposit with the Company. Funds held under reinsurance agreements were
approximately $336,005 and $1,232,677 at December 31, 1996 and 1995,
respectively.

The following amounts were ceded to reinsurers as of and for the years ended
December 31, 1996 and 1995:

<TABLE>
<CAPTION>
1996 1995
------------- -------------
<S> <C> <C>
Aggregate reserves for life and annuity policies $ 3,093 $ 2,256
============= =============
Policy and contract claims liability $ 183 $ 1,110
============= =============
Premiums and annuity considerations $ 1,704 $ 3,105
============= =============
Policy and contract claims incurred $ 574 $ 2,121
============= =============
</TABLE>

9. CAPITAL AND SURPLUS

The Company is required by the state of Texas to maintain capital and surplus
of at least $2,000,000.

Dividends on Company stock are paid as declared by its board of directors.
According to the bylaws of the Company, all statutory profits earned upon the
nonparticipating class of business may be paid out as dividends to
stockholders. However, not more than 10% of the statutory profits on
participating business may be paid out as dividends.

The Company paid $4,289,919 and $2,492,473 in dividends to its immediate
parent, IIL, in 1996 and 1995, respectively. In addition, the Company had
dividends declared but unpaid of $1,923,000 at December 31, 1996. The maximum
amount of dividends that can be paid without the approval of the Texas
Department of Insurance is 10% of surplus or 100% of prior year net income,
whichever is greater. In making the determination of the maximum dividend
payable, the aggregate dividends paid over the past twelve months must be
taken into account. The amount of dividend payment for 1997, based on 1996
results, would be limited to $12,157,686.

19
<PAGE> 115
LIFE INSURANCE COMPANY OF THE SOUTHWEST

NOTES TO STATUTORY FINANCIAL STATEMENTS
DECEMBER 31, 1996 AND 1995
- --------------------------------------------------------------------------------

10. INFORMATION PERTAINING TO THIRD PARTY ADMINISTRATORS

Set forth is certain information pertaining to the Company's third party
administrators for the year ended December 31, 1996.

<TABLE>
<CAPTION>
Types of Types of Direct
Exclusive Business Authority Premiums
Name Contract Written Granted Written
- ---------------------------- ----------- ---------- ----------- ----------------
(in thousands)

<S> <C> <C> <C> <C>
Security Planning Associates No TSA Premium $ 4,990
Collection
Other Third Party
Administrators No TSA Premium 4,330
----------------
Collection
$ 9,320
================
</TABLE>

11. RISK-BASED CAPITAL

The Texas Department of Insurance imposes risk-based capital (RBC)
requirements on life insurance enterprises. The RBC calculation serves as a
regulatory benchmark for monitoring life insurance companies by state
insurance regulators. The Company has calculated its RBC in accordance with
the NAIC Model Rule and the RBC rules as adopted by its state of domicile,
Texas. The Company exceeds the minimum RBC levels requiring company or
regulatory action as of December 31, 1996.

12. BENEFIT PLANS

The Company has a 401(k) defined contribution plan covering substantially
all employees. Company contributions under the 401(k) plan include a
Company base contribution, equal to 3% of annual compensation (up to but
not exceeding Internal Revenue Service compensation limits), and the
Company matches employee contributions at a rate of 50% (to a maximum of 3%
of compensation). Employees may make voluntary contributions not to exceed
the lesser of $9,500 or 10% of annual compensation. Additionally, the
Company contributes 3% of compensation in excess of the Social Security
taxable wage base (up to but not exceeding the Internal Revenue Service
compensation limits). Company contributions approximated $278,000 and
$244,000 for the years ended December 31, 1996 and 1995, respectively.

20
<PAGE> 116
LIFE INSURANCE COMPANY OF THE SOUTHWEST

NOTES TO STATUTORY FINANCIAL STATEMENTS
DECEMBER 31, 1996 AND 1995
- --------------------------------------------------------------------------------

13. RELATED PARTY TRANSACTIONS

In connection with the purchase by National Financial Services (NFS), the
Company entered into several service agreements with an affiliate, National
Life Insurance Company of Vermont (NLV), the terms of which are outlined in
the following paragraphs:

Beginning in March 1996, the Company and NLV entered into an investment
services agreement whereby NLV manages the Company's bond and cash
portfolio for a fee equal to 4.2 basis points per annum of the average
balance of the statutory book value of the assets in the bond and cash
portfolio for the reporting period. The service fee is paid monthly in
arrears. As of December 31, 1996, the Company had recorded investment fees
to NLV for the year then ended of $507,904 under the terms of this
agreement.

In 1996, the Company and NLV entered into a tax services agreement whereby
NLV performs tax preparation and planning services for the Company and its
affiliates for an annual fee not to exceed $50,000 unless increased by
mutual agreement by the companies. During 1996, the Company recorded
$33,336 in expense under the terms of this agreement.

A data processing agreement was also entered into in 1996 between the
Company and NLV. The agreement covers processing for certain systems and
functions, telecommunications, printing and mail processing. The 1996
monthly service fee is equal to $32,500 for the data processing functions
plus allocated amounts for telecommunications and mail services. The amount
may be increased in future years by mutual agreement between the companies.
During 1996, the Company recorded $314,282 in expenses under the terms of
this agreement.

Various other administrative service agreements were entered into between
the Company and NLV in 1996. The aggregate expense recorded by the Company
associated with these agreements was $149,453.

At December 31, 1996, the Company recorded a fee payable to NLV in the
amount of $128,100 for the service agreements presented above.

In 1996 and 1995, the Company provided certain administrative services to
its parent, IIL. IIL paid the Company $45,902 and $75,191 for the years
ended December 31, 1996 and 1995, respectively, for these services.

14. SALE OF HOME OFFICE

21
<PAGE> 117
LIFE INSURANCE COMPANY OF THE SOUTHWEST

NOTES TO STATUTORY FINANCIAL STATEMENTS
DECEMBER 31, 1996 AND 1995
- --------------------------------------------------------------------------------

The Company continues to occupy the space in the building under a lease
agreement which expires over the next three years.

Rent expense in 1996 and 1995 was $578,220 and $1,260,697, respectively.
Minimum annual rentals are as follows (in thousands):

1997 $ 539
1998 539
1999 449
-------------
$ 1,527
=============
15. COMMITMENTS AND CONTINGENCIES

The Company has $2,500,000 in commitments outstanding at December 31, 1996
to fund additional commercial mortgage loans.

16. SUBSEQUENT EVENT

In the first quarter of 1997, the Company paid cash dividends of $2,923,000
to its parent company, Insurance Investors Life Insurance Company, of this
amount, $1,923,000 was declared and payable at December 31, 1996.

22
<PAGE> 118

PART C

OTHER INFORMATION
<PAGE> 119
PART C - OTHER INFORMATION

Item 24. Financial Statements and Exhibits

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

Independent Auditor's Report.

Balance Sheets (Statutory Basis)
as of December 31, 1997 and 1996.

Statements of Operations and
Surplus (Statutory Basis) for the years ended
December 31, 1997 and 1996.

Statements of Cash Flow
(Statutory Basis) for the years ended
December 31, 1997 and 1996.

Notes to Financial Statements.

Independent Auditors' Report.

Balance Sheets (Statutory Basis) as of
December 31, 1996 and 1995

Statement of Operations and Surplus
(Statutory Basis) for the years ended
December 31, 1996 & 1995.

Statement of Cash Flows (Statutory Basis) for
the years ended December 31, 1996 and 1995.

Notes to Financial Statements

(b) Exhibits

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

(2) Not Applicable.

(3) Form of Distribution Agreement between the
Variable Account/Registrant and Principal
Underwriter.

(4) (a) The form of the variable annuity
policy.
(b) Form of Enhanced Death Benefit
Rider.
(c) Form of NIMCRUT Endorsement
(d) Form of TDA Endorsement
(e) Form of IRA Endorsement

(5) Variable Annuity Application

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

(7) Not Applicable.

(8) (a) Form of Amendment to Participation
Agreement by and among Market Street Fund,
Inc., Life Insurance Company of the Southwest
and Equity Services, Inc. dated ,
1998.

C-1
<PAGE> 120

(b) Form of Amendment to Participation
Agreement by and among Variable Insurance
Products Fund, Fidelity Distributors
Corporation and Life Insurance Company of the
Southwest dated , 1998.

(c) Form of Amendment to Participation
Agreement by and among The Alger American
Fund, Life Insurance Company of the
Southwest and Fred Alger and Company, dated
, 1998.

(d) Form of Participation
Agreement by and among Life Insurance
Company of the Southwest, LSW Variable
Annuity Account I and Strong Variable
Insurance Funds, Inc., Strong Fund II, Inc.,
and Strong Funds Distributors, Inc., dated
,1998.

(e) Form of Amendment to Participation
Agreement by and among Variable Insurance
Products Fund II, Fidelity Distributors
Corporation and Life Insurance Company of the
Southwest, dated , 1998.

(9) Opinion and Consent of Susan J. Jennings,
General Counsel of Life Insurance Company of
the Southwest.

(10) (a) Consent of Sutherland, Asbill &
Brennan LLP

(b) Consent of PricewaterhouseCoopers LLP

(11) Not Applicable.

(12) Not Applicable.

(13) Performance Advertising Calculation
Schedules.

*Incorporated herein by reference ot the N-4 Registration Statement (File No.
333-47363) for LSW Variable Annuity Account I filed March 5, 1998

Item 25. Directors and Officers of the Depositor

<TABLE>
<CAPTION>
Name and Principal Business Address* Position with Depositor
- ------------------------------------ -----------------------

<S> <C>
Wade H. Mayo President, Chief Executive
Officer and Director

Carl J. Lutz Senior Vice President and
Director

James A. Mallon Chairman of the Board and Director
National Life Drive
Montpelier, Vermont 05604
</TABLE>

C-2
<PAGE> 121

<TABLE>
<S> <C>
Karl-Heinz Klaeser Director
200 Crescent Court
Suite 300
Dallas, TX 75201

Rodney A. Buck Director
National Life Drive
Montpelier, Vermont 05604

Joseph M. Rob Director
National Life Drive
Montpelier, Vermont 05604

D. Russell Morgan Director
National Life Drive
Montpelier, Vermont 05604

Susan J. Jennings Vice President, General Counsel and
Secretary

Micheal F. Goni Managing Vice President - Finance
</TABLE>

*Unless otherwise indicated, the principal business address is 1300 West
Mockingbird Lane, Dallas, Texas 75247-4921.

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

A list of all persons directly or indirectly controlled by or under
common control with National Life Insurance Company, the two thirds
owner of LSW, is as set forth below:

National Life Insurance Company owns 100% of Administrative Services,
Inc. and National Financial Services, Inc. National Financial
Services, Inc. owns 66.667% of LSW National Holdings, Inc.; LSW
National Holdings, Inc. owns 100% of Insurance Investors Life
Insurance Company; Insurance Investors Life Insurance Company owns
100% of LSW.

National Life Insurance Company owns 100% of National Life Investment
Management Company, Inc. National Life Investment Management
Company, Inc. owns 100% of Sentinel Advisors, Inc., Equity Services,
Inc. and NL Capital Management, Inc. Equity Services, Inc. owns 100%
of Sentinel Administrative Service Corporation. Sentinel
Administrative Service Corporation is the majority partner of
Sentinel Administrative Service Company and Sentinel Advisors, Inc.
is the majority partner of Sentinel Advisors Company.

National Life Investment Management Company, Inc. is the majority
partner of Sentinel Management Company, and Sentinel Financial
Services Company. Sentinel Management Company owns 100% of American
Guaranty & Trust Company.

All of National Life Insurance Company, Administrative Services,
Inc., National Financial Services, Inc., LSW National Holdings, Inc.,
National Life Investment Management Company, Inc., NL Capital
Management, Inc., Equity Services, Inc., and Sentinel Administrative
Service Corporation are corporations organized under the laws of
Vermont. Insurance Investors Life Insurance Company is a corporation
organized under the laws of Texas.

C-3
<PAGE> 122

Sentinel Advisors, Inc. and American Guaranty & Trust Company are
corporations organized under the laws of Delaware.

Each of Sentinel Management Company, Sentinel Advisors Company,
Sentinel Financial Services Company and Sentinel Administrative
Service Company is a general partnership formed under Vermont law.

Item 27. Number of Contract Owners

No contracts have been issued to date.

Item 28. Indemnification

The By-Laws of Depositor provide, in Section 7 of Article IV, as
follows:

Section 7. The corporation shall indemnify each
Director and officer of the corporation, whether or not then
in office, and his heirs, executors and administrators,
against all costs and expenses reasonably incurred by or
imposed upon him in connection with or arising out of any
action, suit or proceeding in which he may be involved by
reason of his being or having been a Director or an officer of
the corporation, whether the claim asserted against him is
based on matters which occurred prior to or subsequent to the
adoption of this Bylaw. Such costs and expenses shall
include, but shall not be limited to, attorneys' fees and all
amounts paid or payable to him (other than amounts paid or
payable to the corporation itself) pursuant to any judgment
or any reasonable settlement agreement. The corporation shall
not, however, indemnify any Director or officer or his heirs,
executors or administrators, with respect to such matters as
to which he shall be finally adjudged in such action, suit or
proceeding or (in the case of a settlement) as to which he
shall have been determined by the Board of Directors of the
corporation (in the event a Director is involved, he shall not
be entitled to vote on the matter) to have been guilty of
gross negligence or willful misconduct in performance of his
duty as such Director or officer. The foregoing right of
indemnification shall not be exclusive of other rights to
which any Director or officer shall be entitled as a matter of
law.

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
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
LSW Variable Annuity Account I, National Life 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:

C-4
<PAGE> 123

<TABLE>
<CAPTION>
Name and Principal Positions and Offices
Business Address* with ESI
- ------------------- --------

<S> <C>
Joseph M. Rob Chairman, President & Chief Executive Officer & Director
John M. Grab, Jr. Senior Vice President, Chief Financial Officer and Treasurer
Stephen A. Englese Vice President - Financial Products
Budd A. Shedaker Assistant Vice President - Communications
Gregory D. Teese Vice President - Compliance
D. Russell Morgan Counsel
Lisa A. Pettrey Secretary
Patrick E. Welch Director
Thomas H. MacLeay Director
Rodney A. Buck Director
</TABLE>

*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
Life Insurance Company of the Southwest at 1300 West Mockingbird Lane, Dallas,
Texas 75247-4921, or One National Life Drive, Montpelier, Vermont 05604.

Item 31. Management Services

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.

(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. Life Insurance Company of the Southwest 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.

C-5
<PAGE> 124

(e) Life Insurance Company of the Southwest 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 Life Insurance Company of the Southwest.

C-6
<PAGE> 125

SIGNATURES

Pursuant to the requirements of the Securities Act of 1933 and the
Investment Company Act of 1940, the Registrant, LSW Variable Annuity Account I,
has duly caused this Pre-Effective Amendment No. 1 to the Registration Statement
to be signed on its behalf, in the City of Dallas and the State of Texas, on the
31st day of July, 1998.

LSW VARIABLE ANNUITY ACCOUNT I
(Registrant)

Attest: By: /s/ SJJ /s/ WHM
---------------- -------------------------
Susan J. Jennings Wade H. Mayo, President &
Secretary Chief Executive Officer
Life Insurance Company of the Southwest

By: LIFE INSURANCE COMPANY OF THE SOUTHWEST
(Depositor)

Attest: By: /s/ SJJ /s/ WHM
---------------- -------------------------
Susan J. Jennings Wade H. Mayo, President &
Secretary Chief Executive Officer

SIGNATURES

Pursuant to the requirements of the Securities Act of 1933, this
Pre-Effective Amendment No. 1 to the 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/ WHM 7/31/98
- ------------------ President -----------
Wade H. Mayo and Chief Executive Officer,
and Director

/s/ JAM 7/31/98
- ------------------ Chairman of the Board and -----------
James A. Mallon Director

C-7
<PAGE> 126

/s/ MFG 7/31/98
- ------------------ Managing Vice President - Finance -----------
Michael F. Goni (Chief Accounting Officer)

/s/ RAB 7/31/98
- ------------------ Director -----------
Rodney A. Buck

/s/ CJL 7/31/98
- ------------------ Senior Vice President and Director -----------
Carl J. Lutz

/s/ JMR 7/31/98
- ------------------ Director -----------
Joseph M. Rob

/s/ DRM 7/31/98
- ------------------ Director -----------
D. Russell Morgan

/s/ KHK 7/31/98
- ------------------ Director -----------
Karl-Heinz Klaeser

C-8

<PAGE> 1
Exhibit (b)(3)

DISTRIBUTION AGREEMENT

AGREEMENT dated as of ___________, 1998 by and between LIFE INSURANCE
COMPANY OF THE SOUTHWEST ("Insurer"), a Vermont insurance company, on its
behalf and on behalf of each separate account identified in Schedule 1 hereto,
and EQUITY SERVICES, INC. ("Distributor"), a Vermont corporation.

WITNESSETH:

WHEREAS, Distributor is a broker-dealer that engages in the
distribution of variable annuity contracts and other investment products; and

WHEREAS, Insurer desires to issue certain variable annuity contracts
described more fully below to the public through Distributor acting as
principal underwriter;

NOW, THEREFORE, in consideration of their mutual promises, Insurer and
Distributor hereby agree as follows:

1. Definitions

a. Contracts -- The class or classes of variable annuity
contracts set forth on Schedule 1 to this Agreement as in effect at the time
this Agreement is executed, and such other classes of variable annuity
contracts that may be added to Schedule 1 from time to time in accordance with
Section 11.b of this Agreement, and including any riders to such Contracts and
any other policies offered in connection therewith. For this purpose and under
this Agreement generally, a "class of Contracts" shall mean those Contracts
issued by Insurer on the same contract form or forms and covered by the same
Registration Statement.

b. Registration Statement -- At any time that this Agreement is
in effect, each currently effective registration statement filed with the SEC
under the 1933 Act on a prescribed form, or currently effective post-effective
amendment thereto, as the case may be, relating to a class of Contracts,
including financial statements included in, and all exhibits to, such
registration statement or post-effective amendment. For purposes of Section 9
of this Agreement, the term "Registration Statement" means any document which
is or at any time was a Registration Statement within the meaning of this
Section 1.b.

c. Prospectus -- The prospectus included within a Registration
Statement, except that, if the most recently filed version of the prospectus
(including any supplements thereto) filed pursuant to Rule 497 under the 1933
Act subsequent to the date on which a Registration Statement became effective
differs from the prospectus included within such Registration Statement at the
time it became effective, the term "Prospectus" shall refer to the most
recently filed prospectus filed under Rule 497 under the 1933 Act, from and
after the date on which it shall have been filed. For purposes of Section 9 of
this Agreement, the term "any Prospectus" means any document which is or at any
time was a Prospectus within the meaning of this Section 1.c.

d. Fund -- An investment company in which the Variable Account
invests.

e. Variable Account -- A separate account supporting a class or
classes of Contracts and specified on Schedule 1 as in effect at the time this
Agreement is executed, or as it may be amended from time to time in accordance
with Section 11.b of this Agreement.

-1-
<PAGE> 2
f. 1933 Act -- The Securities Act of 1933, as amended.

g. 1934 Act -- The Securities Exchange Act of 1934, as amended.

h. 1940 Act -- The Investment Company Act of 1940, as amended.

i. SEC -- The Securities and Exchange Commission.

j. NASD -- The National Association of Securities Dealers, Inc.

k. Regulations -- The rules and regulations promulgated by the
SEC under the 1933 Act, the 1934 Act and the 1940 Act as in effect at the time
this Agreement is executed or thereafter promulgated.

l. Selling Broker-Dealer -- A person or entity registered as a
broker-dealer and licensed as a life insurance agent or affiliated with a
person or entity so licensed, and authorized to distribute the Contracts
pursuant to a sales agreement as provided for in Section 4 of this Agreement.

m. Representative -- When used with reference to Distributor or a
Selling Broker-Dealer, an individual who is an associated person, as that term
is defined in the 1934 Act, thereof.

n. Application -- An application for a Contract.

o. Premium -- A payment made under a Contract by an applicant or
purchaser to purchase benefits under the Contract.

p. Customer Service Center -- The service center identified in
the Prospectus as the location at which Premiums and Applications are accepted.

2. Authorization and Appointment

a. Scope of Authority. Insurer hereby authorizes Distributor on
an exclusive basis, and Distributor accepts such authority, subject to the
registration requirements of the 1933 Act and the 1940 Act and the provisions
of the 1934 Act and conditions herein, to be the distributor and principal
underwriter for the sale of the Contracts to the public in each state and other
jurisdiction in which the Contracts may lawfully be sold during the term of
this Agreement. Insurer hereby authorizes Distributor to grant authority to
Selling Broker-Dealers to solicit Applications and Premiums to the extent
Distributor deems appropriate and consistent with the marketing program for the
Contracts or a class of Contracts, subject to the conditions set forth in
Section 4 of this Agreement. The Contracts shall be offered for sale and
distribution at premium rates set from time to time by Insurer. Distributor
shall market the Contracts actively, directly and/or through Selling
Broker-Dealers in accordance with Section 4 of this Agreement, subject to
compliance with applicable law, including rules of the NASD.

b. Limits on Authority. Distributor shall act as an independent
contractor and nothing herein contained shall constitute Distributor or its
agents, officers or employees as agents, officers or employees of Insurer
solely by virtue of their activities in connection with the

-2-
<PAGE> 3
sale of the Contracts hereunder. Distributor and its Representatives shall not
have authority, on behalf of Insurer: to make, alter or discharge any Contract
or other insurance policy or annuity entered into pursuant to a Contract; to
waive any Contract forfeiture provision; to extend the time of paying any
Premium; or to receive any monies or Premiums (except for the sole purpose of
forwarding monies or Premiums to Insurer). Distributor shall not expend, nor
contract for the expenditure of, the funds of Insurer. Distributor shall not
possess or exercise any authority on behalf of Insurer other than that
expressly conferred on Distributor by this Agreement.

3. Solicitation Activities

a. Distributor Representatives. No Distributor Representative
shall solicit the sale of a Contract unless at the time of such solicitation
such individual is duly registered with the NASD and duly licensed with all
applicable state insurance and securities regulatory authorities, and is duly
appointed as an insurance agent of Insurer.

b. Solicitation Activities. All solicitation and sales
activities engaged in by Distributor and the Distributor Representatives with
respect to the Contracts shall be in compliance with all applicable federal and
state securities laws and regulations and NASD rules, as well as all applicable
insurance laws and regulations and the Insurer's rules and procedures (to the
extent not inconsistent with the foregoing). In particular, without limiting
the generality of the foregoing:

(1) Neither Distributor nor any Distributor
Representative shall offer, attempt to offer, or solicit Applications for, the
Contracts in any state or other jurisdiction unless Insurer has notified
Distributor that such Contracts may lawfully be sold or offered for sale in
such state, and has not subsequently revised such notice.

(2) Neither Distributor nor any Distributor
Representative shall give any information or make any representation in regard
to a class of Contracts in connection with the offer or sale of such class of
Contracts that is not in accordance with the Prospectus for such class of
Contracts, or in the then-currently effective prospectus or statement of
additional information for a Fund, or in current advertising materials for such
class of Contracts authorized by Insurer.

(3) All Premiums paid by check or money order that are
collected by Distributor or any of its Representatives shall be remitted
promptly, and in any event not later than noon of the next business day
following receipt of such Premium, in full, together with any Applications,
forms and any other required documentation, to the Insurer. Checks or money
orders in payment of Premiums shall be drawn to the order of the Insurer. If
any Premium is held at any time by Distributor, Distributor shall hold such
Premium in a fiduciary capacity and such Premium shall be remitted promptly,
and in any event not later than noon of the next business day following receipt
of such Premium, to Insurer. Distributor acknowledges that all such Premiums,
whether by check, money order or wire, shall be the property of Insurer.
Distributor acknowledges that Insurer shall have the unconditional right to
reject, in whole or in part, any Application or Premium.

c. Representations and Warranties of Distributor. Distributor
represents and warrants to Insurer that Distributor is and shall remain
registered during the term of this Agreement as a broker- dealer under the 1934
Act, is a member with the NASD, and is duly registered under applicable state
securities laws, and that Distributor is and shall remain during the term of
this Agreement in compliance with Section 9(a) of the 1940 Act.

-3-
<PAGE> 4
4. Selling Broker-Dealers. Insurer shall ensure that sales of the
Contracts by Selling Broker-Dealers comply with the following conditions.

a. Every Selling Broker-Dealer shall be both registered as a
broker-dealer with the SEC and a member of the NASD and licensed as an
insurance agent with authority to sell variable products or associated with an
insurance agent so licensed. Any individuals to be authorized to act on behalf
of Selling Broker-Dealer shall be duly registered with the NASD as
representatives of Selling Broker-Dealer with authority to sell variable
products, and shall be licensed as insurance agents with authority to sell
variable products. Insurer shall verify that Selling Broker-Dealer and its
Representatives are duly licensed under applicable state insurance law to sell
the Contracts (or, if Broker-Dealer is not so licensed, that it is associated
with a person or entity so licensed).

b. Every Selling Broker-Dealer (or, if applicable, its associated
general insurance agency) and each of its Representatives who proposes to
market the Contracts shall have been appointed by Insurer, provided that
Insurer reserves the right to refuse to appoint any proposed person, or once
appointed, to terminate such appointment.

c. Every Selling Broker-Dealer must enter into a written sales
agreement with Distributor which sales agreement, among other things, will
require such Selling Broker-Dealer to use its best efforts to solicit
applications for Contracts and to comply with applicable laws and regulations,
including the Insurer's rules and regulations as reflected in the Insurer's
rules and procedures or otherwise communicated to agents appointed by Insurer,
and will contain such other provisions as the Distributor deems to be
consistent herewith.

d. In view of Insurer's desire to ensure that Contracts will be
sold to purchasers for whom the Contracts will be suitable, the written Sales
Agreement shall require that Selling Broker-Dealers and their Representatives
not make recommendations to an applicant to purchase a Contract in the absence
of reasonable grounds to believe that the purchase of the Contract is suitable
for the applicant. While not limited to the following, a determination of
suitability shall be based on information supplied by an applicant after a
reasonable inquiry concerning the applicant's other security holdings,
investment objectives, financial situation and needs, and the likelihood that
the applicant will continue to make any premium payments contemplated by the
Contract applied for and will keep the Contract in force for a sufficient
period of time so that Insurer's acquisition costs are amortized over a
reasonable period of time.

5. Marketing Materials

a. Preparation and Filing. Insurer and Distributor will work
jointly on the design and preparation of all promotional, sales and advertising
material relating to the Contracts. Distributor shall be responsible for
filing such material, as required, with the NASD and any state securities
regulatory authorities. Insurer shall be responsible for filing all
promotional, sales or advertising material, as required, with any state
insurance regulatory authorities. Insurer shall be responsible for preparing
the Contract Forms and filing them with applicable state insurance regulatory
authorities and obtaining any required approvals, and for preparing the
Prospectuses and Registration Statements and filing them with the SEC and state
regulatory authorities, to the extent required. The parties shall notify each
other expeditiously of any comments provided by the SEC, NASD or any securities
or insurance regulatory authority on

-4-
<PAGE> 5
such material, and will cooperate expeditiously in resolving and implementing
any comments, as applicable.

b. Use in Solicitation Activities. Insurer shall be responsible
for furnishing Distributor with such Applications, Prospectuses and other
materials for use by Distributor and any Selling Broker-Dealers in their
solicitation activities with respect to the Contracts. Insurer shall notify
Distributor of those states or jurisdictions which require delivery of a
statement of additional information with a prospectus to a prospective
purchaser.

6. Compensation and Expenses

a. Insurer shall pay compensation for sales of the Contracts in
accordance with Schedule 2 hereto. Until Distributor requests otherwise,
Insurer shall pay compensation payable to Distributor Representatives and to
Selling Broker-Dealers, on Distributor's behalf, subject to the provisions of
Section 7 of this Agreement and applicable NASD rules.

b. Insurer shall pay all expenses in connection with:

(1) the preparation and filing of each Registration
Statement (including each pre-effective and post-effective amendment thereto)
and the preparation and filing of each Prospectus (including any preliminary
and each definitive Prospectus);

(2) the preparation, issuance and administration of the
Contracts;

(3) any registration, qualification or approval or other
filing of the Contracts or Contract forms required under the securities or
insurance laws of the states in which the Contracts will be offered.

(4) all registration fees for the Contracts payable to
the SEC;

(5) the printing and mailing of definitive Prospectuses
for the Contracts and any supplements thereto for distribution to existing
Contract Owners;

(6) the printing and mailing of all promotional materials
relating to the Contracts;

(7) NASD filing fees (to the extent the Insurer requests
expedited review).

c. Distributor shall pay the following expenses related to its
distribution of the Contracts:

(1) NASD filing fees (to the extent expedited review is
not requested by Insurer); and

(2) any other expenses incurred by Distributor or its
employees for the purpose of carrying out the obligations of Distributor
hereunder.

7. Compliance

-5-
<PAGE> 6
a. Maintaining Registration and Approvals. Insurer shall be
responsible for maintaining the registration of the Contracts with the SEC and
any state securities regulatory authority with which such registration is
required, for gaining and maintaining approval of the Contract forms where
required under the insurance laws and regulations of each state or other
jurisdiction in which the Contracts are to be offered, and for ensuring that
the Contracts comply with the provisions of the federal securities laws and
rules thereunder.

b. Sales Load Compliance. Insurer shall be responsible for ensuring
that the sales load assessed on the Contracts and compensation paid for the
sales of the Contracts comply with the 1940 Act and rules, regulations and
interpretations thereunder, and NASD rules.

c. Confirmations and 1934 Act Compliance. Insurer, as agent for
Distributor, shall confirm to each applicant for and purchaser of a Contract in
accordance with Rule 10b-10 under the 1934 Act acceptance of Premiums and such
other transactions as are required by Rule 10b-10 or administrative
interpretations thereunder. Insurer shall maintain and preserve such books and
records with respect to such confirmations and all other required books of
account and related financial records relating to the distribution of the
Contracts in conformity with the requirements of Rules 17a-3 and 17a-4 under
the 1934 Act to the extent such requirements apply. Insurer shall maintain all
such books and records and hold such books and records on behalf of and as
agent for Distributor whose property they are and shall remain, and
acknowledges that such books and records are at all times subject to inspection
by the SEC in accordance with Section 17(a) of the 1934 Act.

d. Issuance and Administration of Contracts. Insurer shall be
responsible for issuing the Contracts and administering the Contracts and the
Variable Account, including all Contract Owner communications, in accordance
with applicable law, provided, however, that Distributor shall have full
responsibility for the securities activities of all persons employed by the
Insurer who are engaged directly or indirectly in the Contract operations, and
for the training, supervision and control of such persons to the extent of such
activities.

8. Investigations, Proceedings and Customer Complaints

a. Investigations and Proceedings. Distributor and Insurer shall
cooperate fully in any securities or insurance regulatory investigation or
proceeding or judicial proceeding arising in connection with the offering, sale
or distribution of the Contracts distributed under this Agreement. Without
limiting the foregoing, Insurer and Distributor shall notify each other
promptly of any notice of any regulatory investigation or proceeding or
judicial proceeding received by either party with respect to the Contracts.

b. Customer Complaints. Distributor and Insurer shall cooperate
fully in responding to any customer complaints. Distributor and Insurer, will
promptly provide to the other a copy of all customer complaints received by
either of them concerning or related to the Contracts. With respect to such
complaint, Distributor and Insurer shall determine which party shall be
responsible for responding to such complaint. Such determination shall take
into account the nature of the complaint, the violation alleged, and relevant
laws and facts. Distributor and Insurer will timely provide information as
needed to enable the other to respond to such complaints.

9. Indemnification

-6-
<PAGE> 7
a. By Insurer. Insurer shall indemnify and hold harmless
Distributor and each person who controls or is associated with Distributor
within the meaning of such terms under the federal securities laws, and any
officer, director, employee or agent of the foregoing, against any and all
losses, claims, damages or liabilities, joint or several (including any
investigative, legal and other expenses reasonably incurred in connection with,
and any amounts paid in settlement of, any action, suit or proceeding or any
claim asserted), to which Distributor and/or any such person may become
subject, under any statute or regulation, any NASD rule or interpretation, at
common law or otherwise, insofar as such losses, claims, damages or
liabilities:

(1) arise out of or are based upon any untrue statement
or alleged untrue statement of a material fact or omission or alleged omission
to state a material fact required to be stated therein or necessary to make the
statements therein not misleading, in light of the circumstances in which they
were made, contained in any (i) Registration Statement or in any Prospectus or
(ii) blue-sky application or other document executed by Insurer specifically
for the purpose of qualifying any or all of the Contracts for sale under the
securities laws of any jurisdiction; provided that Insurer shall not be liable
in any such case to the extent that such loss, claim, damage or liability
arises out of, or is based upon, an untrue statement or alleged untrue
statement or omission or alleged omission made in reliance upon information
furnished in writing to Insurer by Distributor specifically for use in the
preparation of any such Registration Statement or any such blue-sky application
or any amendment thereof or supplement thereto;

(2) result from any breach by Insurer of any provision of
this Agreement.

This indemnification agreement shall be in addition to any
liability that Insurer may otherwise have; provided, however, that no person
shall be entitled to indemnification pursuant to this provision if such loss,
claim, damage or liability is due to the willful misfeasance, bad faith, gross
negligence or reckless disregard of duty by the person seeking indemnification.

b. By Distributor. Distributor shall indemnify and hold harmless
Insurer and each person who controls or is associated with Insurer within the
meaning of such terms under the federal securities laws, and any officer,
director, employee or agent of the foregoing, against any and all losses,
claims, damages or liabilities, joint or several (including any investigative,
legal and other expenses reasonably incurred in connection with, and any
amounts paid in settlement of, any action, suit or proceeding or any claim
asserted), to which Insurer and/or any such person may become subject under any
statute or regulation, any NASD rule or interpretation, at common law or
otherwise, insofar as such losses, claims, damages or liabilities:

(1) arise out of or are based upon any untrue statement
or alleged untrue statement of a material fact or omission or alleged omission
to state a material fact required to be stated therein or necessary in order to
make the statements therein not misleading, in light of the circumstances in
which they were made, contained in any (i) Registration Statement or in any
Prospectus, or (ii) blue-sky application or other document executed by Insurer
specifically for the purpose of qualifying any or all of the Contracts for sale
under the securities laws of any jurisdiction; in each case to the extent, but
only to the extent, that such untrue statement or alleged untrue statement or
omission or alleged omission was made in reliance upon information furnished in
writing by Distributor to Insurer specifically for use in the preparation of
any such Registration Statement or any such blue-sky application or any
amendment thereof or supplement thereto;

(2) result because of any use by Distributor or any
Distributor Representative of promotional, sales or advertising material not
authorized by Insurer or any verbal or written misrepresentations by
Distributor or any Distributor Representative inconsistent with materials

-7-
<PAGE> 8
forwarded by Insurer or any unlawful sales practices concerning the Contracts
by Distributor or any Distributor Representative under federal securities laws
or NASD regulations; or

(3) result from any breach by Distributor of any
provision of this Agreement.

This indemnification shall be in addition to any liability
that Distributor may otherwise have; provided, however, that no person shall be
entitled to indemnification pursuant to this provision if such loss, claim,
damage or liability is due to the willful misfeasance, bad faith, gross
negligence or reckless disregard of duty by the person seeking indemnification.

c. General. Promptly after receipt by a party entitled to
indemnification ("indemnified person") under this Section 9 of notice of the
commencement of any action as to which a claim will be made against any person
obligated to provide indemnification under this Section 9 ("indemnifying
party"), such indemnified person shall notify the indemnifying party in writing
of the commencement thereof as soon as practicable thereafter, but failure to
so notify the indemnifying party shall not relieve the indemnifying party from
any liability which it may have to the indemnified person otherwise than on
account of this Section 9. The indemnifying party will be entitled to
participate in the defense of the indemnified person but such participation
will not relieve such indemnifying party of the obligation to reimburse the
indemnified person for reasonable legal and other expenses incurred by such
indemnified person in defending himself or itself.

The indemnification provisions contained in this Section 9
shall remain operative in full force and effect, regardless of any termination
of this Agreement. A successor by law of Distributor or Insurer, as the case
may be, shall be entitled to the benefits of the indemnification provisions
contained in this Section 9.

10 Termination. This Agreement shall terminate automatically if it is
assigned by a party without the prior written consent of the other party. This
Agreement may be terminated at any time for any reason or for no reason by
either party upon 60 days' written notice to the other party, without payment
of any penalty. (The term "assigned" shall not include any transaction exempted
from Section 15(b)(2) of the 1940 Act.) This Agreement may be terminated
immediately at the option of either party to this Agreement upon the other
party's material breach of any provision of this Agreement or of any
representation or warranty made in this Agreement, unless such breach has been
cured within 10 days after receipt of notice of breach from the non-breaching
party. Upon termination of this Agreement all authorizations, rights and
obligations shall cease except the obligation to settle accounts hereunder,
including commissions on Premiums subsequently received for Contracts in effect
at the time of termination or issued pursuant to Applications signed prior to
termination.

11. Miscellaneous

a. Binding Effect. This Agreement shall be binding on and shall
inure to the benefit of the respective successors and assigns of the parties
hereto provided that neither party shall assign this Agreement or any rights or
obligations hereunder without the prior written consent of the other party.

b. Schedules. The parties to this Agreement may amend Schedule 1
to this Agreement from time to time to reflect additions of any class of
Contracts and Variable Accounts. The provisions of this Agreement shall be
equally applicable to each such class of

-8-
<PAGE> 9
Contracts and each Variable Account that may be added to the Schedule, unless
the context otherwise requires. Insurer may amend Schedule 2 unilaterally,
from time to time. Any other change in the terms or provisions of this
Agreement shall be by written agreement between Insurer and Distributor.

c. Rights, Remedies, etc, are Cumulative. The rights, remedies
and obligations contained in this Agreement are cumulative and are in addition
to any and all rights, remedies and obligations, at law or in equity, which the
parties hereto are entitled to under state and federal laws. Failure of either
party to insist upon strict compliance with any of the conditions of this
Agreement shall not be construed as a waiver of any of the conditions, but the
same shall remain in full force and effect. No waiver of any of the provisions
of this Agreement shall be deemed, or shall constitute, a waiver of any other
provisions, whether or not similar, nor shall any waiver constitute a
continuing waiver.

d. Notices. All notices hereunder are to be made in writing and
shall be given:

if to Insurer, to:

D. Russell Morgan, Esq.
c/o National Life Insurance Company
One National Life Drive
Montpelier, Vermont 05604

if to Distributor, to:

Gregory D. Teese, Vice President - Compliance
Equity Services, Inc.
National Life Drive
Montpelier, Vermont 05604

or such other address as such party may hereafter specify in
writing. Each such notice to a party shall be either hand delivered or
transmitted by registered or certified United States mail with return receipt
requested, or by overnight mail by a nationally recognized courier, and shall
be effective upon delivery. Failure to provide written notice shall not
constitute a defense to any action unless the party who did not receive written
notice was materially prejudiced thereby.

f. Interpretation; Jurisdiction. This Agreement constitutes the
whole agreement between the parties hereto with respect to the subject matter
hereof, and supersedes all prior oral or written understandings, agreements or
negotiations between the parties with respect to such subject matter. No prior
writings by or between the parties with respect to the subject matter hereof
shall be used by either party in connection with the interpretation of any
provision of this Agreement. This Agreement shall be construed and its
provisions interpreted under and in accordance with the internal laws of the
state of Vermont without giving effect to principles of conflict of laws.

g. Severability. This is a severable Agreement. In the event
that any provision of this Agreement would require a party to take action
prohibited by applicable federal or state law or prohibit a party from taking
action required by applicable federal or state law, then it is the intention of
the parties hereto that such provision shall be enforced to the extent
permitted under the law, and, in any event, that all other provisions of this
Agreement shall remain valid and duly enforceable as if the provision at issue
had never been a part hereof.

-9-
<PAGE> 10
h. Section and Other Headings. The headings in this Agreement
are included for convenience of reference only and in no way define or
delineate any of the provisions hereof or otherwise affect their construction
or effect.

i. Counterparts. This Agreement may be executed in two or more
counterparts, each of which taken together shall constitute one and the same
instrument.

j. Regulation. This Agreement shall be subject to the provisions
of the 1933 Act, 1934 Act and 1940 Act and the Regulations and the rules and
regulations of the NASD, from time to time in effect, including such exemptions
from the 1940 Act as the SEC may grant, and the terms hereof shall be
interpreted and construed in accordance therewith.

IN WITNESS WHEREOF, the parties hereto have caused this Agreement to be duly
executed by such authorized officers on the date specified below.

LIFE INSURANCE COMPANY OF THE SOUTHWEST

By:
-----------------------------
Name:
Title:

EQUITY SERVICES, INC.

By:
-----------------------------
Name:
Title:

-10-
<PAGE> 11

SCHEDULE 1

<TABLE>
<CAPTION>
REGISTRATION VARIABLE
VARIABLE CONTRACT FORM STATEMENT ACCOUNT
<S> <C> <C> <C> <C>
1. Variable Annuity Form S-6 File No. 333-19583 National Variable
Contract Annuity Account II
</TABLE>

-11-
<PAGE> 12

SCHEDULE 2

SCHEDULE OF SALES COMMISSION

The commission schedules are as follow:

<TABLE>
<CAPTION>
SCHEDULE 1

Issue Comm. Expense
Age Rate Allowance Total
--- ---- --------- --------
<S> <C> <C> <C>
0-79 3.50% 3.00% 6.50%

80-85 3.50% 0.00% 3.50%

Trail No Trail
</TABLE>

<TABLE>
<CAPTION>
SCHEDULE 2

Issue Comm. Expense
Age Rate Allowance Total
--- ---- --------- ---------
<S> <C> <C> <C>
0-79 3.50% 1.75% 5.25%

80-85 2.75% 0.00% 2.75%

Trail 0.25%
</TABLE>

<TABLE>
<CAPTION>
SCHEDULE 3

Issue Comm. Expense
Age Rate Allowance Total
--- ---- --------- ---------
<S> <C> <C> <C>
0-79 3.50% 0.00% 3.50%

80-85 1.75% 0.00% 1.75%

Trail 0.50%
</TABLE>

During an introductory period, a Schedule 1 commission of 7.0% (3.50%
commission, 3.50% expense allowance) for ages 0-79 and 4.00% (3.50%
commission, 0.50% expense allowance) for ages 80-85 will be paid.

-12-

<PAGE> 1
Exhibit (b)(4)(a)

LIFE INSURANCE COMPANY OF THE SOUTHWEST
1300 West Mockingbird Lane
Dallas, Texas 75247-4921

1-800-228-4579

We, LIFE INSURANCE COMPANY OF THE SOUTHWEST, agree to pay the proceeds of this
policy, subject to its terms, to the Payee upon maturity of this policy. We
agree to pay the Death Benefit to the Beneficiary, subject to the terms of this
policy, when we receive at our Home Office due proof that a human Owner, or the
Annuitant if the Owner is not a human being, died prior to the Maturity Date.

Signed for LIFE INSURANCE COMPANY OF THE SOUTHWEST at Dallas, Texas, as of the
Date of Issue, by

Wade H. Mayo
President and Chief Executive Officer

Susan J. Jennings
Secretary

A Flexible Premium Variable Deferred Annuity.

Annuity payments, Death Benefits, Cash Surrender Values, and other Policy Values
provided by this policy, when based on the investment experience of a Variable
Account, are variable and may increase or decrease daily in accordance with
fluctuations in the investment experience of that account, and so are not
guaranteed as to dollar amount.

Ten Day Right to Review Policy. This policy, at any time within ten days after
its receipt by the Owner, may be returned in person or by mail to us or to the
agent through whom it was bought. Upon such return, the policy will be deemed
void as of its Date of Issue. We will then refund the Accumulation Value plus
any charges deducted at issue.

The data and the terms on this and all following pages are part of this policy.
<PAGE> 2
Page

1 ROLES IN THIS POLICY
1 Owner
1 Annuitant
1 Beneficiary
1 Payee
2 Change of Beneficiary or Payee
2 Trust Beneficiary or Trust Payee
2 Unnamed Beneficiary or Payee
2 Simultaneous Deaths
2 Assignments
2 PREMIUMS
2 Payment of Premiums
3 Net Premium
3 Premium Allocation
3 INVESTMENT
3 Fixed Account
3 Interest Rates Credited to the Accumulation Value in the Fixed
Account
3 Variable Account
4 Sub-Accounts
5 Valuation
5 Valuation Date and Valuation Period
5 ACCUMULATION VALUE
5 Accumulation Value
5 Accumulation Value in the Fixed Account
5 Accumulation Value in the Variable Account
6 Units in a Sub-Account
6 Unit Value
6 Net Investment Factor
6 POLICY BENEFITS
6 Deferral of Maturity Date
6 Payment on Maturity
7 Death Benefit
8 Joint Owners
8 Cash Surrender Value
8 WITHDRAWALS AND TRANSFERS
8 Withdrawal Benefit
8 Systematic Withdrawals
9 Contingent Deferred Sales Charge
9 Waiver of Contingent Deferred Sales Charges on 10% of Accumulation
Value
9 Waiver of Contingent Deferred Sales Charges for Confinement to an
Eligible Nursing Home
10 General Withdrawal Terms
10 Allocation of Withdrawals
11 Allocation of Contingent Deferred Sales Charges
11 Transfers
11 Dollar Cost Averaging
11 Portfolio Rebalancing
12 CHARGES AGAINST THE ACCUMULATION VALUE
12 Mortality Risk Charge, Expense Risk Charge and Administration
Charge
12 Annual Policy Fee
12 Rider Charges

i
<PAGE> 3
Page

12 Tax Charge
12 Transfer Charge
13 PAYMENT OPTIONS
13 Option Effective Date
13 General Payment Option Terms
13 Choice of Option
13 Fixed Payment Option
14 Variable Payment Option
14 Annuity Unit Value
14 Option 1 - Payments for a Stated Time
14 Option 2 - Payments for Life
14 Option 3 - Payments for Life with Period Certain
16 GENERAL TERMS
16 Consideration
16 Entire Contract
16 Policy Months, Years, and Anniversaries
16 Payment of Benefits
16 Postponement of Payments
17 Notices
17 Annual Report
17 Attained Age
17 Misstatement of Age or Sex
17 Proof of Age
17 Values
17 Limit on Transfer
18 Spendthrift Provision

Any Riders and Endorsements, and a copy of the application, follow page 18

ii
<PAGE> 4
We, Life Insurance Company of the Southwest, agree to pay the proceeds of this
policy, subject to its terms, to the Payee upon maturity of this policy. We
agree to pay the Death Benefit to the Beneficiary, subject to the terms of this
policy, when we receive at our Home Office due proof that a human Owner, or the
Annuitant if the Owner is not a human being, died prior to the Maturity Date.

ROLES IN THIS POLICY

If used, the term "estate" of any person shall be deemed to be a designation of
the executors or administrators of that person's estate.

OWNER. The Owner holds all rights under this policy. The Owner may take action
without the consent of and against the interest of any revocable Beneficiary or
Payee. If the Owner has waived the right to change either the Beneficiary or the
Payee, or both of them, action may be taken by the Owner only with the written
consent of all irrevocable Beneficiaries and Payees.

If an instrument of trust is identified as the Owner of this policy, ownership
will extend to such trust as amended if the trust is amendable, or to the
successors in said trust or assigns.

A Death Benefit is payable upon the death of the Owner if such death occurs
prior to the Maturity Date.

ANNUITANT. The Annuitant has no rights and receives no benefits under this
policy.

If the Owner is a human being, and the Annuitant dies prior to the Maturity
Date, an Owner may name a new Annuitant during the first 90 days following the
death of the Annuitant. If the Owner does not so name a new Annuitant, we will
pay the Cash Surrender Value to the Beneficiary.

If the Owner is not a human being, and the Annuitant dies prior to the Maturity
Date, we will pay a Death Benefit to the Beneficiary.

BENEFICIARY. The Beneficiary receives the following benefits:

1. The Beneficiary receives the Death Benefit; and

2. If income payments are being made under a Payment Option of this
policy, the Beneficiary succeeds upon the death of the Owner to such
rights in this policy as the Owner held upon his or her death.

Unless otherwise stated, the interest of any Beneficiary who dies will vest:

1. in the Owner, if living; otherwise

2. in the estate of the Beneficiary.

PAYEE. The Payee receives all proceeds payable upon maturity of this policy.

Unless otherwise stated, the interest of any Payee who dies will vest:

1. in the Owner, if living; otherwise

2. in the Beneficiary.

2
<PAGE> 5
Upon the death of the Payee, the Owner may name a new Payee. The schedule of
payments under any operational Payment Option may not be extended when a new
Payee is named.

CHANGE OF BENEFICIARY OR PAYEE. The Owner has the right to change the
Beneficiary and Payee. If the Owner expressly waives this right, no change can
be made without their written consent. A new Beneficiary or Payee may be named
by filing at our Home Office written notice in such form as we may require. When
notice is received at our Home Office, the change shall take effect as of the
date the notice was signed. We will not be liable for any payment we make before
receipt of the written notice at our Home Office.

TRUST BENEFICIARY OR TRUST PAYEE. Unless an authorized officer or registrar of
the Company explicitly agrees in writing, the following provision shall apply
when a trust is named as Beneficiary or as Payee:

In no event is the Company responsible for the application or disposition of any
proceeds it pays to such trust. Payment to such trust is a full discharge of the
liability of the Company. If a designated trust provides for successor trustees,
the designation of this policy includes successor trustees. Likewise, if the
trust allows amendments, the trust, if so amended, remains as a designated
Beneficiary or Payee.

A Trust Beneficiary or Trust Payee is considered to be a Beneficiary or Payee
who did not survive the Owner if.

1. the trust has been terminated; or

2. the specified testamentary trust does not qualify as such, or

3. for any other reason a Trust Beneficiary or Trust Payee is not entitled
to any proceeds.

UNNAMED BENEFICIARY OR PAYEE. We may rely on an affidavit by any person who in
our judgment knows the facts to identify any Beneficiary or Payee not specified
by name. All our liability shall cease when we pay on the basis of such
affidavit.

If used, the term "children" of any person shall include only lawful children
born to or legally adopted by that person.

SIMULTANEOUS DEATHS. If the timing of the deaths of the Owner and the Annuitant
are such that we cannot discern the true order of the deaths, we will administer
this policy as though the Owner predeceased the Annuitant.

If the timing of the deaths of the Owner and the Beneficiary are such that we
cannot discern the true order of the deaths, we will administer this policy as
though the Beneficiary predeceased the Owner.

ASSIGNMENTS. We are not responsible for the validity or effect of any assignment
of this policy. We will not recognize any assignment until it has been filed at
our Home Office.

PREMIUMS

PAYMENT OF PREMIUMS. A Minimum Initial Premium in the amount stated in the Data
Section is due on the Date of Issue. We retain the right to hold the Minimum
Initial Premium for up to five days while we wait for a complete application.

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<PAGE> 6
After the Date of Issue, we will not accept premium in an amount less than the
Minimum Subsequent Premium stated in the Data Section. The sum of all premiums
credited to this policy may not exceed the Premium Limit set forth in the Data
Section, unless approved by us.

The first premium may be paid to us either at our Home Office or through our
duly authorized agent in exchange for a receipt signed by that agent. Any later
premiums must be paid to us at our Home Office. All premiums will be credited
and allocated on the day we receive them.

NET PREMIUM. A Net Premium is any premium paid less any state premium tax
assessed against the premium as required by the state in which the Annuitant
resides.

If a premium tax is required by the state in which the Annuitant resides, we
will make a deduction for premium taxes at the time we pay premium taxes to the
applicable taxing authority.

PREMIUM ALLOCATION. The Owner has the right to designate the allocation of Net
Premiums among the Fixed Account and the Sub-Accounts of the Variable Account.
The initial allocation is shown in the Data Section. The allocation must be made
in percentages. Each percentage must be a whole number. Each allocation made
must be at least five percent.

The Owner may change the allocation of future premiums by notifying us in
writing at our Home Office. We reserve the right to restrict the number of
different Sub-Accounts to which premiums are allocated over the life of this
policy to seventeen.

INVESTMENT

Investment may be made in the Fixed Account and/or in one or more of the
Sub-Accounts of the LSW Variable Annuity Account I (herein called the "Variable
Account"). The Accumulation Value in the Variable Account is based on the
investment experience of the chosen Sub-Account(s) of the Variable Account, and
may increase or decrease daily. It is not guaranteed as to dollar amount.

FIXED ACCOUNT. The Fixed Account is composed of the admitted assets of Life
Insurance Company of the Southwest other than those in the Variable Account or
any other separate account.

Unless stated otherwise in this policy, all monies transferred and charges
deducted from the Fixed Account are done so on a last-in-first-out basis.

INTEREST RATES CREDITED TO THE ACCUMULATION VALUE IN THE FIXED ACCOUNT. The rate
of interest credited on any portion of the Accumulation Value in the Fixed
Account shall never be less than the Minimum Fixed Account Interest Rate shown
in the Data Section. We may credit interest at a higher interest rate. Any
higher interest rate credited on Accumulation Value in the Fixed Account shall
remain in effect for at least a one-year period.

Allocations to the Fixed Account made at different times may be credited
interest at different rates. Each month we will declare an interest rate to
apply to amounts allocated or transferred to the Fixed Account during that
month. The rate declared on such amounts will remain in effect for twelve
months. At the end of the twelve month period, such amounts and accrued interest
thereon will rollover for interest crediting at a new rate. The interest
credited to such rollover amounts may be at a different rate than that
applicable to new allocations to the Fixed Account on that date.

VARIABLE ACCOUNT. The Variable Account is composed of assets owned by Life
Insurance Company of the Southwest. These assets are held separate and apart
from Fixed Account assets. The Variable

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<PAGE> 7
Account is devoted exclusively to the investment of assets of variable annuity
policies. Income, gains, and losses from assets allocated to the Variable
Account, whether or not realized, are credited to or charged against such
account without regard to our other income, gains or losses. The portion of the
assets of the Variable Account equal to the reserves and other liabilities for
these policies shall not be chargeable with liabilities arising out of any other
business which we may conduct.

We may transfer assets which exceed the reserves and other liabilities of the
Variable Account to our Fixed Account.

The Variable Account is registered with the Securities and Exchange Commission
as a unit investment trust under the Investment Company Act of 1940 ("the 1940
Act"). It is also governed by applicable state law. We may make certain changes
if, in our sole judgment, they would best serve the interest of the owners of
policies such as this one or would be appropriate in carrying out the purposes
of such policies.

Any changes will be made only if permitted by applicable laws and regulations.
Also when required by law, we will obtain the approval of policyowners of the
changes and the approval of any appropriate regulatory authority.

For example, we may

1. operate the Variable Account as a management company under the
1940 Act; and

2. deregister the Variable Account under the 1940 Act if
registration is no longer required; and

3. combine or substitute separate accounts, including the
Variable Account; and

4. create new separate accounts; and

5. transfer all or part of the assets of the Variable Account to
another separate account or to the Fixed Account; and

6. add new investment funds or remove existing investment funds;
and

7. make any changes necessary to comply with, or obtain and
continue any exemptions from the 1940 Act; and

8. make any other necessary technical changes in this policy to
conform with any action this provision permits us to take.

SUBACCOUNTS. The Variable Account has several SubAccounts. Each SubAccount
invests exclusively in shares of an investment fund. Each investment fund
represents a separate investment portfolio.

If, in our judgment, an investment fund no longer suits the investment goals of
this policy, or tax or marketing conditions so warrant, we may substitute shares
of another investment fund or shares of another investment company.

Income and realized and unrealized gains or losses from the assets of each
SubAccount of the Variable Account are credited to or charged against that
SubAccount without regard to income, gains, or losses in the other SubAccounts
of the Variable Account, the Fixed Account, or any other separate accounts. We

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<PAGE> 8

reserve the right to credit or charge a SubAccount in a different manner if
required, or made appropriate, by reason of a change in the law. We maintain
records of all purchases and redemptions of investment fund shares by each of
the SubAccounts.

VALUATION. We will value the assets of each SubAccount of the Variable Account
on every Valuation Date.

VALUATION DATE AND VALUATION PERIOD. A Valuation Date is each day that the New
York Stock Exchange is customarily open for trading, except for:

1. the day following Thanksgiving in each year; and

2. any day on which trading is restricted by directive of the Securities
and Exchange Commission.

A Valuation Period is the period between two successive Valuation Dates.

ACCUMULATION VALUE

ACCUMULATION VALUE. The Accumulation Value of this policy is equal to the sum of
the Accumulation Value in the Fixed Account and the Accumulation Value in the
Variable Account.

ACCUMULATION VALUE IN THE FIXED ACCOUNT. Prior to the Date of Issue of the
policy, the Accumulation Value in the Fixed Account is zero. The Accumulation
Value in the Fixed Account on any day on or after the Date of Issue is:

1. the Accumulation Value in the Fixed Account on the prior day; plus

2. one day's interest on the prior day's Accumulation Value in the Fixed
Account; plus

3. the amount of all Net Premiums credited on that day which are allocated
to the Fixed Account; plus

4. the amount of all Accumulation Value transferred to the Fixed Account
from a SubAccount of the Variable Account on that day, less

5. the amount of all Accumulation Value transferred from the Fixed Account
to a SubAccount of the Variable Account on that day; less

6. the amount of any Transfer Charge assessed to the Fixed Account on that
day; less

7. the amount of all Accumulation Value withdrawn from the Fixed Account
on that day; less

8. any rider charges and Administration Charge allocated to the Fixed
Account which is due on that day.

ACCUMULATION VALUE IN THE VARIABLE ACCOUNT. The Accumulation Value in the
Variable Account is the sum of the Accumulation Values in each SubAccount of
the Variable Account.

On any day which is a Valuation Date, the Accumulation Value in each SubAccount
is the number of units in the SubAccount multiplied by the Unit Value on that
date.

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<PAGE> 9
On any date after the Date of Issue other than a Valuation Date, the
Accumulation Value in a Sub-Account is as determined on the next following
Valuation Date.

UNITS IN A SUB-ACCOUNT. Money allocated, transferred, or added to a Sub-Account
purchases units in that Sub-Account. Any money invested in a Sub-Account
increases the number of units of that Sub-Account credited to this policy. Units
are redeemed when amounts are deducted, transferred, or withdrawn.

The number of units credited to a policy equals the dollar amount directed to
each Sub-Account divided by the Unit Value for that Sub-Account for the
Valuation Date as of which the dollar amount is invested in the Sub-Account. For
each Sub-Account, the number of units purchased or redeemed in connection with a
particular transaction is determined by dividing the dollar amount of the
transaction by the Unit Value on the day the transaction is performed.

UNIT VALUE. The Unit Value in a Sub-Account on any Valuation Date is equal to
that Unit Value on the immediately preceding Valuation Date multiplied by the
Net Investment Factor in effect for that Sub-Account.

NET INVESTMENT FACTOR. Each Sub-Account of the Variable Account has its own Net
Investment Factor. The Net Investment Factor measures the performance of the
Sub-Account during individual Valuation Periods. The Net Investment Factor is
calculated as follows:

1. Take the net asset value per share of the corresponding investment fund
on the current Valuation Date.

2. Add the per share capital gain or loss and dividend distribution of the
investment fund during the current Valuation Period.

3. Divide the result of item (2) by the net asset value per share of the
corresponding investment fund on the just prior Valuation Date.

4. Subtract from the result of item (3) any Tax Charge during the current
Valuation Period.

5. Subtract from the result of item (4) the number of days in the
Valuation Period multiplied times the sum of the Mortality Risk Charge,
the Expense Risk Charge and the Administration Charge shown in the Data
Section.

The result of item (5) is the Net Investment Factor on the current Valuation
Date.

POLICY BENEFITS

This policy will be administered to fully conform with the provisions of Section
72(s) of the Internal Revenue Code.

DEFERRAL OF MATURITY DATE. If we approve, the Owner may defer the Maturity Date
upon written request received by us at our Home Office.

PAYMENT ON MATURITY. Upon the Maturity Date stated in the Data Section, the Cash
Surrender Value is payable to the Payee in a single sum. In lieu of this lump
sum payment, an income may be payable to the Payee in accordance with a Payment
Option chosen by the Owner. The amount of income shall be

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<PAGE> 10
determined by applying the Accumulation Value less any state premium tax that is
assessed on distributions as of the date this policy matures as proceeds under
that Payment Option.

Upon the Maturity Date, unless we receive at our Home Office written
instructions from the Owner to the contrary, the Owner will be deemed to have
elected an income payment pursuant to Option 3 - Payments for Life with Period
Certain, with monthly payments for 120 months, continuing thereafter during the
life of:

1. the Annuitant; or

2. the Owner, if the Annuitant is not living.

DEATH BENEFIT. A Death Benefit is payable to the Beneficiary when we receive at
our Home Office due proof that any human Owner, or the Annuitant if the Owner is
not a human being, died prior to the Maturity Date and while this policy was in
force.

1. If the deceased died prior to his or her Attained Age 81, this Death Benefit
is the greater of:

a. the Accumulation Value on the date we receive proof of death;

b. the sum, as of the date we receive proof of death, of all Net
Premiums less cumulative withdrawals made since the Date of
Issue of this policy;

less any state premium tax that is assessed on distribution.

2. If the deceased died on or after his or her Attained Age 81, this Death
Benefit is the Accumulation Value on the date we receive proof of death
less any state premium tax that is assessed on distribution.

If the Annuitant dies prior to the Maturity Date while the Owner is a human
being and the Owner does not name a new Annuitant during the first 90 days
following the death of the Annuitant, we will pay a Death Benefit equal to the
Cash Surrender Value to the Beneficiary.

Any Death Benefit is payable in one sum, or the Beneficiary may elect settlement
under one of the Payment Options of this policy. We may restrict the
availability of Payment Options when distributing Death Benefits to Fixed
Payment Options. The Death Benefit will accrue interest from the date we receive
proof of the death to the date of lump sum payment or the Option Effective Date
at a rate of interest not less than the Minimum Interest Paid on Death Claims
rate shown in the Data Section.

Payments must be completed by December 31st of the fifth calendar year
immediately following the year of the death, except that, if the Beneficiary is
a human being and so elects, the payments may be made:

1. over the life of the Beneficiary, or

2. according to a fixed schedule which does not extend beyond the life
expectancy of the Beneficiary,

provided that payments begin within one year from the date of the death.

<PAGE> 11
If there is no named Beneficiary, payment of the Death Benefit will be made in a
lump sum to the estate of the deceased on or prior to December 31st of the fifth
calendar year immediately following the year of the death.

Upon payments of a Death Benefit all rights under this policy shall cease.

JOINT OWNERS. If this policy is jointly owned, the Death Benefit will be payable
on the death of the first human Owner to die.

CASH SURRENDER VALUE. The Cash Surrender Value on any day shall be equal to:

1. the Accumulation Value on such day-, less

2. any state premium tax that is assessed on distribution; less

3. the Contingent Deferred Sales Charge which would apply if the entire
Accumulation Value were withdrawn on such day.

When no Cash Surrender Value remains, all rights under this policy shall cease.

WITHDRAWALS AND TRANSFERS

The removal of all Accumulation Value from this policy is a Cash Surrender. The
removal of less than the full Accumulation Value may be made on the first Policy
Anniversary and thereafter by withdrawal.

WITHDRAWAL BENEFIT. We will pay a Withdrawal Benefit upon written request by the
Owner received by us at our Home Office. Such request must be made prior to the
Maturity Date. The Withdrawal Benefit shall be equal to any Accumulation Value
withdrawn less any Contingent Deferred Sales Charge.

SYSTEMATIC WITHDRAWALS. Unless either Portfolio Rebalancing or Dollar Cost
Averaging has been elected for this policy, the Owner may request the payment of
Withdrawal Benefits according to a schedule of Systematic Withdrawals. According
to the chosen schedule, periodic withdrawals of a fixed dollar amount will
automatically be made from the Accumulation Value. Periodic withdrawals may be
made annually, semi-annually, quarterly, or monthly.

The Accumulation Value must be at least $15,000 before any schedule of
Systematic Withdrawals may be placed into effect. The dollar amount of each
periodic withdrawal may not be less than $100.The Owner may change the frequency
of withdrawals or the withdrawal schedule at any time. Systematic Withdrawals
will cease upon the earliest of the following:

1. the death of the Owner; or

2. when a Systematic Withdrawal would result in less than $3,500
of Accumulation Value left remaining in the policy on the day
of withdrawal; or

3. the Maturity Date; or

4. written request for cessation by the Owner is received by us
at our Home Office; or

5. 60 days prior written notice provided to the Owner by us.

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<PAGE> 12
CONTINGENT DEFERRED SALES CHARGE. For purposes of determining the Contingent
Deferred Sales Charge, the Accumulation Value will be apportioned into segments
of size equal to the Net Premiums paid into this policy. Such segments will be
considered withdrawn in the order in which the corresponding Net Premiums were
received.

The Contingent Deferred Sales Charge is a percentage of the apportioned
Accumulation Value withdrawn, and is determined independently for each segment.
The percentage depends upon the number of full 365-day years elapsed between the
date the Net Premium was credited and the date of the withdrawal.

The Contingent Deferred Sales Charge for each segment of the Accumulation Value
withdrawn is determined by multiplying the amount of the Accumulation Value in
that segment times the appropriate Contingent Deferred Sales Charge Percentage
shown in the table below:

CONTINGENT DEFERRED SALES CHARGE PERCENTAGE

NUMBER OF FULL YEARS CONTINGENT DEFERRED
ELAPSED SINCE SALES CHARGE
NET PREMIUM PAYMENT PERCENTAGE
------------------- ----------

0 Years 7%
1 Year 6%
2 Years 5%
3 Years 4%
4 Years 3%
5 Years 2%
6 Years 1%
7+Years 0%

After the fifteenth Policy Anniversary, no Contingent Deferred Sales Charge will
apply, even with respect to Premium Payments made within 84 months of a
withdrawal or surrender.

All surrenders and withdrawals will be made last from available earnings
credited to this policy. No Contingent Deferred Sales Charge will be assessed
upon the surrender or withdrawal of any earnings.

WAIVER OF CONTINGENT DEFERRED SALES CHARGES ON 10% OF ACCUMULATION VALUE. After
the first Policy Anniversary there shall be no Contingent Deferred Sales Charge
on total Accumulation Value withdrawn during any Policy Year in an amount equal
to up to 10% of the Accumulation Value at the start of the Policy Year.

This Waiver of Contingent Deferred Sales Charges does not apply upon Cash
Surrender. Any Contingent Deferred Sales Charges waived through operation of
this provision during the 12 months immediately preceding Cash Surrender of this
policy will be assessed against the Cash Surrender Value.

WAIVER OF CONTINGENT DEFERRED SALES CHARGES FOR CONFINEMENT TO ELIGIBLE NURSING
HOME. Following the first Policy Anniversary, Contingent Deferred Sales Charges
will be waived if the Owner has been confined to an Eligible Nursing Home for at
least the 90 continuous days ending on the date of the withdrawal request.
Confinement must have begun while this policy was in force, and the confinement
must be expected to be permanent.

<PAGE> 13
An Eligible Nursing Home is an institution or special unit of a hospital which
meets all of the following:

1. It is licensed as a skilled nursing home or as an intermediate
care facility by the state in which it is located; and

2. Its main function is to provide skilled or intermediate
nursing care; and

3. It is engaged in providing continuous room and board
accommodations; and

4. It is under the supervision of:

a. a Registered Nurse (RN); or

b. a Licensed Practical Nurse (LPN); or

c. a Licensed Vocational Nurse (LVN); and

5. It maintains a daily medical record of each patient.

An Eligible Nursing Home is not:

1. Any home, facility or part thereof used primarily for rest; or

2. A home or facility used for the aged or for the care of
substance abusers; or

3. A home or facility primarily used for the care and treatment
of mental diseases or disorders or custodial or educational
care.

We must receive written proof satisfactory to us that the Owner has been
confined to an Eligible Nursing Home. A written statement from a licensed
physician, other than the Owner or a member of the Owner's immediate family,
will serve as satisfactory proof.

GENERAL WITHDRAWAL TERMS. The minimum Withdrawal Benefit is $500. The maximum
Withdrawal Benefit allowed is that amount which leaves no less than $3,500 of
Accumulation Value in the policy on the day of the withdrawal. If the Owner
requests a withdrawal that would leave less than $3,500 of Accumulation Value
remaining in the policy on the day of withdrawal, the requested withdrawal will
not be processed until further instructions are received from the Owner.

ALLOCATION OF WITHDRAWALS. The amount withdrawn shall be allocated among and
deducted from the Accumulation Values held in each account according to the
following prioritization:

1. first, from the Accumulation Value held in specific
Sub-Accounts as specified by the Owner, if the Owner so
specifies; and

2. second, from the Accumulation Value in proportion to the
Accumulation Values held in the Sub-Accounts of the Variable
Account and the Fixed Account on the day the withdrawal is
made.

Within the Fixed Account, withdrawals will be from the Accumulation Value
attributable to Net Premiums in the order in which they were credited.

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<PAGE> 14
ALLOCATION OF CONTINGENT DEFERRED SALES CHARGES. To the extent possible,
Contingent Deferred Sales Charges will be assessed against the Accumulation
Value in the Fixed Account and the Sub-Accounts of the Variable Account in
proportions comparable to the Allocation of Withdrawals. If insufficient
Accumulation Value remains in any of the impacted accounts to complete this
assessment, the unallocated portion of the Contingent Deferred Sales Charge
shall be deducted from the Fixed Account and the Sub-Accounts in proportion to
the respective Accumulation Values held in those accounts immediately following
the withdrawal.

TRANSFERS. Subject to any applicable Transfer Charges, the Owner may transfer
Accumulation Value among the Sub-Accounts or to the Fixed Account without
limitation. However, we reserve the right to restrict the amount of Accumulation
Value transferred from the Variable Account to the Fixed Account in any Policy
Year to 25% of the Accumulation Value in the Variable Account at the start of
the then current Policy Year.

Once each calendar year a transfer of Accumulation Value from the Fixed Account
to the Variable Account may be made. Such a transfer may occur only between
January 1st and February 15th of the calendar year. We reserve the right to
restrict the amount of Accumulation Value transferred from the Fixed Account to
the Variable Account in any year to 10% of the Accumulation Value in the Fixed
Account on the date of transfer. Additionally, we reserve the right to impose a
one year waiting period on transfers of Accumulation Value back into the Fixed
Account that were previously moved from the Fixed Account to the Variable
Account.

While a Payment Option is operational, transfers are only allowed between the
Sub-Accounts of the Variable Account; no transfers will be allowed between the
Fixed and the Variable Accounts.

DOLLAR COST AVERAGING. If this feature is then available, the Owner may elect in
writing to have Accumulation Value transferred from the Money Market Fund
Sub-Account of the Variable Account into another designated Sub-Account or
Sub-Accounts through an automatic monthly transfer of funds called Dollar Cost
Averaging. These monthly transfers will occur on successive Monthly Policy Dates
beginning on the first Monthly Policy Date following election on which
Accumulation Value may be transferred from the Money Market Fund Sub-Account.

The amount transferred each month may not be less than $100, except on any
Monthly Policy Date on which the amount of Accumulation Value in the Money
Market Fund Sub-Account is less than $100.

Dollar Cost Averaging on this policy will be discontinued:

1. when the Accumulation Value in the Money Market Fund Sub-Account is
depleted; or

2. upon written request by the Owner received at our Home Office; or

3. upon 60 days prior written notice provided to the Owner by us.

The Company may at any time stop offering the Dollar Cost Averaging feature
altogether, upon 60 days prior written notice to all policyholders then
utilizing this feature. The Owner may not elect Dollar Cost Averaging if
Systematic Withdrawals are being made on this policy or if Portfolio Rebalancing
has been elected.

PORTFOLIO REBALANCING. If this feature is then available, the Owner may elect in
writing to have the Accumulation Value automatically redistributed on a periodic
basis according to the Premium Allocation

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<PAGE> 15
percentages then in effect on this policy. Portfolio Rebalancing may be done
annually, semi-annually, or quarterly.

Portfolio Rebalancing on this policy will be discontinued:

1. when the premium allocation percentages are changed; or

2. upon written request by the Owner received at our Home Office; or

3. upon 60 days prior written notice provided to the Owner by us.

The Company may at any time stop offering the Portfolio Rebalancing feature
altogether, upon 60 days prior written notice to all policyholders then
utilizing this feature. The Owner may not elect Portfolio Rebalancing if
Systematic Withdrawals are being made on this policy or if Dollar Cost Averaging
has been elected.

CHARGES AGAINST THE ACCUMULATION VALUE

MORTALITY RISK CHARGE, EXPENSE RISK CHARGE AND ADMINISTRATION CHARGE. The
Mortality Risk Charge, the Expense Risk Charge and the Administration Charge are
shown in the Data Section.

The Mortality Risk Charge, the Expense Risk Charge and the Administration
Charge, assessed on each day that the policy is in force, are not deducted from
funds held in the Fixed Account. The Mortality Risk Charge, the Expense Risk
Charge and the Administration Charge are assessed both prior to the Maturity
Date and during the operation of any Payment Option elected under this policy.

ANNUAL POLICY FEE. The Annual Policy Fee, stated in the Data Section, is
deducted from the Accumulation Value on the Date of Issue and on each Policy
Anniversary on which the Accumulation Value is less than $50,000.

RIDER CHARGES. Rider Charges for riders attached to this policy are stated in
the Data Section, and are deducted as described in the riders.

The Annual Policy Fee and Rider Charges shall be allocated among and deducted
from all accounts on a pro rata basis.

TAX CHARGE. We reserve the right to deduct any charge for taxes or amounts set
aside as a reserve for taxes in determining the Net Investment Factor in the
event that such a tax is levied on that Sub-Account in the future.

TRANSFER CHARGE. We may charge a Transfer Charge for the thirteenth and each
subsequent requested transfer of Accumulation Value between and among the Fixed
Account and the Sub-Accounts occurring during any Policy Year. Transfers to or
from more than one account at the same time shall be treated as one transfer.
The Transfer Charge may not exceed the Maximum Transfer Charge stated in the
Data Section. Transfer Charges shall be allocated among and deducted from the
Fixed Account and the Sub-Accounts in proportion to the Accumulation Values to
be transferred from such accounts.

No Transfer Charge will be imposed, nor will a debit be made against the twelve
free transfers allowed each Policy Year, for the transfer of Accumulation Value:

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<PAGE> 16
1. from a Sub-Account of the Variable Account to another
Sub-Account or to the Fixed Account, if there has been a
material change in the investment policy of the fund in which
the funds of that Sub-Account are invested; or

2. according to the terms of the Dollar Cost Averaging feature; or

3. according to the terms of the Portfolio Rebalancing feature.

PAYMENT OPTIONS

The term "proceeds" in this policy refers to any monies available for
distribution from the policy according to its terms.

When proceeds are taken in a lump sum, all other rights and benefits under this
policy shall cease. All or part of the proceeds of this policy may be applied
under a Payment Option. When proceeds are applied under a Payment Option, all
other rights and benefits under this policy shall cease.

While a Payment Option is operational, transfers are only allowed between the
Sub-Accounts of the Variable Account; no transfers will be allowed between the
Fixed and the Variable Accounts.

In addition to the following options, other payment options may be available. We
may issue a document stating the terms of the option.

OPTION EFFECTIVE DATE. The Option Effective Date is the date the proceeds become
payable.

GENERAL PAYMENT OPTION TERMS. If the proceeds to be placed under a Payment
Option are less than $3,500, we may pay them in one sum to the Payee. If any
payments would be less than $100, we may change the frequency to provide
payments of at least $100.

If the proceeds are assigned on the Option Effective Date, we will pay the
assignee's share in one sum and place only the balance under the option. After
the Option Effective Date neither the payments nor the remaining value may be
assigned or encumbered. To the extent the law permits, they are not subject to
any claims against the payee.

We may require proof to our satisfaction that any person upon whose life
payments are predicated is alive on the date any payment is due, and that the
Payee is alive on that date.

The schedule of payments under any operational Payment Option may not be
extended upon the death of the Owner.

CHOICE OF OPTION. Choice of an option may be made by the Owner on or prior to
the Maturity Date.

Equivalent payments for 12, 6, 3, or 1-month intervals may be chosen. The
options are described in terms of monthly payments. We will quote the amount of
the other payments on request.

FIXED PAYMENT OPTION. Proceeds originating in the Fixed Account are applied to a
Payment Option providing a fixed monthly benefit. The dollar amount of the
annuity payments is determined by applying those proceeds in the Fixed Account
to the applicable annuity table. These annuity payments are fixed and do not
change from month to month.

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<PAGE> 17
VARIABLE PAYMENT OPTION. Proceeds originating in the Variable Account are
applied to a Payment Option on a variable basis. The monthly payment will change
from month to month depending on the investment performance of the Sub-Accounts
of the Variable Account.

On the Option Effective Date, the proceeds from each Sub-Account are applied to
the selected Payment Option independently to determine the initial amount of
monthly payment associated with each Sub-Account. The dollar amount of the first
monthly payment made from each Sub-Account is then divided by the Annuity Unit
Value for that Sub-Account on the Option Effective Date to determine the number
of units of each annuity payment associated with that Sub-Account. Except as may
be affected by the transfer of units between Sub-Accounts, the number of units
remains fixed for the entire payment period.

The dollar values of subsequent payments made from individual Sub-Accounts are
determined by multiplying the fixed number of units in each Sub-Account by its
Annuity Unit Value on the date of payment. The total monthly payment made from a
Payment Option on a variable basis is the sum of the monthly payments made from
each Sub-Account.

The Mortality Risk Charge, the Expense Risk Charge and the Administration Charge
remain applicable while a Variable Payment Option is operational, as they are
reflected in the determination of the Annuity Unit Value. No Annual Policy Fee
or Rider Charges continue during a Payment Option.

ANNUITY UNIT VALUE. On any Valuation Date the Annuity Unit Value in a
Sub-Account is equal to that Annuity Unit Value on the immediately preceding
Valuation Date multiplied by the Net Investment Factor for that Sub-Account
divided by the factor 1.035 raised to the power n/365, where n is the number of
days elapsed since the immediately preceding Valuation Date.

Accumulation Value may be transferred among the Sub-Accounts of the Variable
Account. On the date of the transfer, the number of units to be transferred from
a Sub-Account will be multiplied by the Annuity Unit Value for that Sub-Account
to determine the dollar amount transferred. This dollar amount is then divided
by the Annuity Unit Value of the Sub-Account into which the amount is
transferred to determine the fixed number of units transferred into that
Sub-Account.

OPTION 1 - PAYMENTS FOR A STATED TIME. Monthly payments shall be made for a
stated number of years. The stated number of years must be at least five.

The Owner has the right to change from Option 1 - Payments for a Stated Time to
another Payment Option. The remaining value under the old option shall become
the proceeds to be placed under the new option. The Owner may also surrender the
policy under Option 1, subject to any applicable Contingent Deferred Sales
Charge.

OPTION 2 - PAYMENTS FOR LIFE. Monthly payments shall be made during the life of
a chosen human being. The amount of each monthly payment depends on the age and
sex of the chosen human being on the Option Effective Date.

OPTION 3 - PAYMENTS FOR LIFE WITH PERIOD CERTAIN. Monthly payments shall be made
for 120 or 240 months certain and thereafter during the life of a chosen human
being. The amount of each monthly payment depends on the age and sex of the
chosen human being on the Option Effective Date and on the length of the chosen
period certain.

15
<PAGE> 18
OPTIONS 2 AND 3 TABLE
MONTHLY PAYMENTS FOR EACH $1,000 OF PROCEEDS

(Amounts shown are for the age nearest birthday on the Effective Date)
Guaranteed Period

<TABLE>
<CAPTION>
Male Female
------------------------ ----------------------------

120 240 120 240
Age None Months Months None Months Months

+ Higher ages the same

16
<PAGE> 19
GENERAL TERMS

CONSIDERATION. This policy is issued in consideration of the application and
payment of the minimum premium due on the Date of Issue of this policy.

ENTIRE CONTRACT. The entire contract between the parties is this policy and a
copy of the application and any riders and endorsements which are attached at
issue. Any changes of this policy must be written and may be made only by one of
our authorized officers or registrars.

POLICY MONTHS, YEARS, AND ANNIVERSARIES. Policy Months, Years, and Anniversaries
shall be measured from the Date of Issue.

The Date of Issue is the first Monthly Policy Date. The Monthly Policy Date
shown in the Data Section occurs on the same day each month or on the last day
of any month having no such date.

PAYMENT OF BENEFITS. We will make all payments under this policy at our Home
Office.

POSTPONEMENT OF PAYMENTS. We will pay any amounts allocated to the Variable
Account which are payable as a result of Cash Surrender, or Withdrawals within
seven days after we receive written request in a form satisfactory to us.
However, determination and payment of any amount payable from the Variable
Account may be postponed whenever:

1. The New York Stock Exchange is closed, or trading on the New York Stock
Exchange is restricted by directive of the Securities and Exchange Commission;
or

2. the Securities and Exchange Commission by order permits postponement for the
protection of policyholders; or

3. an emergency exists, as determined by the Securities and Exchange Commission,
as a result of which it is not reasonably practicable to dispose of securities
or to determine the value of the net assets of the Variable Account.

Transfers to or from the Sub-Accounts of the Variable Account, though normally
occurring on the same day we receive the request for transfer, may also be
postponed upon any of the above requests.

We may delay payment of any amounts allocated to the Fixed Account which are
payable as a result of Cash Surrender, or Withdrawals for up to six months after
we receive written request in a form satisfactory to us.

We will pay the Death Benefit within seven days after we receive due proof
satisfactory to us of the death while this policy is in force. We may postpone
determination and payment of any Death Benefit in excess of the Accumulation
Value upon any of the events enumerated above.

We have the right to postpone payment which is derived from any amount recently
paid to us by check or draft, until we are satisfied the check or draft has been
paid by the bank or other financial institution on which it is drawn.

If any payment under this policy is deferred for more than 30 days, we will add
to the payment interest of at least 4-1/2% per year from the date we receive
the request to the date of payment.

17
<PAGE> 20
NOTICES. Unless this policy provides otherwise, any requests, changes, or
notices:

1. from us to the Owner shall be sent to the last address known to us of
the Owner; and

2. from us to an assignee shall be sent to the last address known to us of
such assignee; and

3. from the Owner or an assignee to us must be in writing and received by
us at our Home Office in Dallas, Texas.

ANNUAL REPORT. At least once each Policy Year we will send a report to the
Owner. The report will be sent without charge and will show, as of its date:

1. the Accumulation Value, detailing the distribution of the Accumulation
Value in the Fixed Account and each Sub-Account of the Variable
Account; and

2. the Cash Surrender Value.

This report will also provide a summary of transactions made during the previous
Policy Year and any information required by law.

ATTAINED AGE. The Attained Age of the Annuitant on any date is the Issue Age of
the Annuitant shown in the Data Section plus the number of full Policy Years
which have passed since the Date of Issue.

The Attained Age of the Owner on any date is the Issue Age of the Owner shown in
the Data Section plus the number of full Policy Years which have passed since
the Date of Issue.

MISSTATEMENT OF AGE OR SEX. If an age or sex has been misstated, benefits
provided by this policy shall be those appropriate to the correct age and sex.

PROOF OF AGE. We may require proof to our satisfaction of the age of any person
upon whose continued life payments are based before we start income payments.

VALUES. The Cash Surrender Value, Death Benefit, and payments made under any
Payment Option of this policy are not less than the minimum values and benefits
required by the law of the state in which this policy is delivered. A detailed
statement of the method used to compute Cash Surrender Values has been filed in
that state.

The tabled values in Payment Options are based on the 1983 Table "a" for
annuities projected to the year 2000 using Scale G, an expense load of 10%, and
compound interest at a rate of 3-1/2% per year.

LIMIT ON TRANSFER. Unless we receive at our Home Office written request by the
Owner to inactivate this Limit on Transfer provision, the Owner may not:

1. sell or assign the policy, except to us; or

2. use the policy as collateral for a loan; or

3. pledge the policy as security.

This provision shall not apply if the Owner is a trustee of a trust that is
described in Section 401(a) and is exempt from tax under Section 501(a) of the
Internal Revenue Code.

18
<PAGE> 21
SPENDTHRIFT PROVISION. Unless we receive at our Home Office written request by
the Owner to inactivate this Spendthrift Provision. to the extent allowed by law
and by this policy:

1. only the Owner may transfer, anticipate, commute or encumber the
proceeds of this policy; and

2. only legal process against the Owner may affect the proceeds of this
policy.

Any proceeds payable after this provision is inactivated by the Owner shall not
be affected by this provision.

<PAGE> 1
Exhibit (b)(4)(b)

ENHANCED DEATH BENEFIT RIDER

If any human owner, or the Annuitant if the Owner is not a human being, died:

1. prior to the Maturity Date;
2. prior to his or her Attained Age 81; and
3. while this Enhanced Death Benefit Rider was in force;

the Death Benefit provided in the policy is enhanced as described below.

Enhanced Death Benefit. If the deceased died according to the terms of this
rider, the Death Benefit is the greater of:

1. the Accumulation Value on the date of death,
2. the sum of all Net Premiums less cumulative withdrawals made since the
Date of Issue of this policy, and
3. the Maximum Policy Anniversary Value;

less any state premium tax that is assessed on distribution.

All other aspects of the Death Benefit provision of the policy remain unchanged.

Maximum Policy Anniversary Value. A Policy Anniversary Value is equal to the
Accumulation Value on any given Policy Anniversary adjusted by the amount of Net
Premiums paid into this policy and withdrawals taken from this policy since that
Policy Anniversary. The Maximum Policy Anniversary Value is the largest of these
Policy Anniversary Values falling prior-to the deceased's Attained Age 81 and
while this rider is in force.

Charges for this Rider. Rider charges will be deducted at issue and on each
Policy Anniversary that this rider remains in force, unless a Policy Anniversary
falls on a non-market day, in which case the deduction will be made on the first
market day following that Policy Anniversary. Rider charges will be deducted on
a pro-rata basis from the Accumulation Value held in the Sub-Accounts of the
Variable Account and the unloaned portion of the Fixed Account.

Termination. This rider shall terminate on the earliest of:

1. the Attained Age 81 of the youngest human Owner, or of the Annuitant
if the Owner is non-human; or
2. the date the policy terminates; or
3. any Policy Anniversary requested if before that date we receive at
our Home Office written request for termination.

When this rider terminates:

1. all rights under this rider shall cease; and
2. no further charges will be deducted for this rider; and
3. the policy shall be considered as separate and complete without this
rider.

Signed for Life Insurance Company of the Southwest at Dallas, Texas as of the
date of issue of this rider, by

President and
Chief Executive Officer

<PAGE> 1
Exhibit (b)(4)(c)

ENDORSEMENT TO THE FLEXIBLE PREMIUM VARIABLE DEFERRED ANNUITY
WHEN THE OWNER IS A
NET INCOME MAKEUP CHARITABLE REMAINDER UNITRUST (NIMCRUT)

This Endorsement alters a provision of the Flexible Premium Variable Deferred
Annuity policy for suitability to the NIMCRUT market. The policy is amended and
modified as set forth below.

The Waiver of Contingent Deferred Sales Charges on 10% of Accumulation Value
provision of this policy, the text of which follows, is deleted in its entirety
from this policy:

"Waiver of Contingent Deferred Sales Charges on 10% of Accumulation Value. There
shall be no Contingent Deferred Sales Charge on total Accumulation Value
withdrawn during any Policy Year in an amount equal to up to 10% of the
Accumulation Value at the start of the Policy Year."

"This Waiver of Contingent Deferred Sales Charges does not apply upon Cash
Surrender. Any Contingent Deferred Sales Charges waived through operation of
this provision during the 12 months immediately preceding Cash Surrender of this
policy will be assessed against the Cash Surrender Value."

In its place, the following provision is added to this policy:

"Waiver of Contingent Deferred Sales Charges in NIMCRUT'S. There shall be no
Contingent Deferred Sales Charge on total Accumulation Value withdrawn during
any Policy Year in an amount equal to the greater of:

a. 10% of the Accumulation Value at the start of the Policy Year; and

b. the excess of the Accumulation Value over cumulative Net Premiums paid
into this policy less cumulative withdrawals as of the start of the
Policy Year."

The effective date of this Endorsement is the Date of Issue of the policy unless
a later date is shown below.

Signed for Life Insurance Company of the Southwest at Dallas, Texas, as of its
effective date, by

Secretary

<PAGE> 1
Exhibit (b)(4)(d)

TAX DEFERRED ANNUITY (TDA) ENDORSEMENT

Effective as of the later of the Date of Issue of this policy or the date set
forth below, this policy is amended and modified to maintain it as qualified
under the rules found in Internal Revenue Code (IRC) section 403(b) and the
Regulations pertaining to that section, as set forth below.

1. This policy is not transferable by the Owner to anyone except to us.
The Limit on Transfer provision of the policy applies.

2. Except for transfers described below, contributions may only be made by
the Annuitant's employer pursuant to a salary reduction agreement
between the Annuitant and his or her employer, which is a public school
system or an enterprise described in IRC section 501(c)(3), including,
but not limited to:

a. a private or parochial school;
b. a church, as well as conventions or associations of churches;
c. a hospital;
d. a home health service agency, or
e. a health and welfare service agency.

Contributions can also be made by transfers of monies from other IRC section
403(b) plans whose distribution restrictions are the same or less stringent than
those of this policy.

In no event may contributions exceed the limits of IRC sections 401(a)(30),
402(g)(1), 403(b)(2), or 415.

For purposes of the incidental death benefit limits, all policies and other
investment vehicles that contain IRC section 403(b) contributions maintained by
the Annuitant are combined in applying the limits.

3. Prohibited Distributions. Full or partial surrenders or withdrawals
that are in violation of the specific "premature" distribution rules of
IRC section 403(b)(11) may not be made. Prohibited distributions are
those of amounts relating to contributions via a salary reduction
agreement (as described in section 402(g)(3)(C)) which are in violation
of the terms of IRC section 403(b)(11). These restrictions do not apply
to contributions or benefits that were credited to an IRC section
403(b) plan on or before December 31, 1988, nor to earnings on benefit
amounts that existed on December 31, 1988. They also do not apply when
the Annuitant:

a. attains age 59-1/2;
b. dies;
c. separates from service;
d. becomes disabled within the meaning of IRC section 72(m) (7); or
e. has a "hardship." For a "hardship," only the actual deferral
amount can be distributed and not any gain on that amount.

The restrictions also do not apply if distributions are otherwise allowed by IRC
section 403(b)(11) and the Regulations that accompany it. There are specific
"premature" distribution rules for IRC 403(b) plans that do not always match
the premature distribution rules for the impositions of the extra 10% tax of IRC
section 72(t). Refer to IRC section 72(t) to see if a distribution from this
policy is or is not subject to that tax.

4. Direct Rollover Option. If

a. rollover treatment of a distribution of this policy is allowed
pursuant to IRC section 402; and
<PAGE> 2
b. the recipient is eligible to receive rollover treatment; and

c. the recipient elects and directs us to have the distribution
paid directly to either another IRC section 403(b) plan or to
an Individual Retirement Account as described in IRC sections
408(a) and 408(b);

then the distribution will be paid to that plan as a "direct rollover"
described in IRC section 401(a)(31). An eligible recipient is either
the Annuitant or the Annuitant's spouse.

5. Required Beginning Date. The Annuitant's entire interest in this policy
attributable to amounts that accrued after December 31, 1986, Must
either be distributed or begin distribution no later than the Required
Beginning Date.

The Required Beginning Date is April 1st of the next calendar year
following the later of the calendar years in which the Annuitant
retires or reaches age 70-1/2.

All distributions of benefits under this policy shall be governed by
IRC sections 401(a)(9), 403(b)(10), and all supporting Regulations,
which include the incidental death benefit rules of IRC section 401(a)
(9)(G).

6. The interest of the Annuitant is nonforfeitable.

7. We may amend any term of this policy without the prior consent of the
Annuitant if such amendment:

a. applies to all policies with this endorsement; and
b. is in response to changes to federal law,

The Annuitant is fully responsible for compliance with the terms of
this endorsement. In the event that any provision of this endorsement
is in conflict with a provision of the policy, the terms of this
endorsement will control.

Signed for Life Insurance Company of the Southwest at its Home Office in Dallas,
Texas by

Secretary

<PAGE> 1
Exhibit (b)(4)(e)

INDIVIDUAL RETIREMENT ANNUITY (IRA) ENDORSEMENT

Effective as of the later of the Date of Issue of this policy or the date set
forth below, this policy is amended and modified as follows.

1. The policy is established for the exclusive benefit of the Owner or the
Owner's beneficiaries. The Owner must be:

a. the Annuitant; and
b. the Payee; and
c. one of the chosen human beings in any Payment Option elected
by the Owner which has a life contingency.

2. Except in the case of a rollover contribution (as permitted by Internal
Revenue Code (IRC) section 402(c), 403(a)(4), 403(b)(8), or 408(d)(3))
or a contribution made in accordance with the terms of a Simplified
Employee Pension Program (as described in section 408(k)), no
contributions will be accepted unless they are in cash, and the total
of such contributions shall not exceed $2,000 for any taxable year.

3. ARTICLE I

The Owner's entire interest in the account must be distributed, or
begin to be distributed, by the Required Beginning Date, which is the
April I following the calendar year in which the Owner reaches age
70-1/2. The distribution will be made in payments:

a. over the life of such Owner, or the lives of such Owner and
his or her designated beneficiary-, or

b. for a period certain not extending beyond the life expectancy
of such Owner, or the joint and last survivor expectancy of
such Owner and his or her designated beneficiary.

Payments must be made in periodic payments at intervals no longer than one year.
In addition, payments must be either non-increasing or they may increase only as
provided in Q&A F-3 of section 1.401(a)(9)-l of the Proposed Income Tax
Regulations.

All distributions shall be made in accordance with the requirements of IRC
section 401(a)(9), including the incidental death benefit requirements of IRC
section 401(a)(9)(G), and the regulations thereunder, including the minimum
distribution incidental benefit requirement of section 1.401(a)(9)-2 of the
Proposed Income Tax Regulations.

Life expectancy is computed using the expected return multiples in Tables V and
VI of section 1.72-9 of the Income Tax Regulations.

a. Except as noted in (b), below, life expectancies will be
re-calculated annually, unless prior to the Required Beginning
Date the Owner elects otherwise. Such election will be
irrevocable and will apply to all subsequent years.

b. The life expectancy of a non-spouse beneficiary may not be
recalculated. Instead, life expectancy will be calculated
using the attained age of such beneficiary during the calendar
year in which the Owner attains age 70-1/2. Payments in all
years will be calculated based on such life expectancy reduced
by one for each calendar year which has elapsed since the
calendar year life expectancy was first calculated.
<PAGE> 2
ARTICLE II

Distributions Beginning before Death. If the Owner dies after distribution of
his or her interest has begun, the remaining portion of such interest will
continue to be distributed at least as rapidly as under the method of
distribution being used prior to the Owner's death.

Distributions Beginning after Death. If the Owner dies before distribution of
his or her interest begins, distribution of the Owner's entire interest shall be
completed by December 31 of the calendar year containing the fifth anniversary
of the Owner's death, unless an election is made to receive distributions in
accordance with items (a) or (b), below:

a. If the Owner's interest is payable to a designated
beneficiary, then the entire interest of the Owner may be
distributed over the life, or over a period certain not longer
than the life expectancy, of the designated beneficiary. Such
distributions must commence on or before December 31 of the
calendar year immediately following the calendar year in which
the Owner died.

b. If the designated beneficiary is the Owner's surviving spouse,
the date distributions are required to begin in accordance
with item (a), above, shall not be earlier than the later of:

i. December 3l of the calendar year immediately following the
calendar year in which the Owner died; or

ii. December 31 of the calendar year in which the Owner would
have reached age 70-1/2.

c. If the designated beneficiary is the Owner's surviving spouse,
the spouse may treat the policy as his or her own IRA. This
election will be deemed to have been made if such surviving
spouse makes a regular IRA contribution to the policy, makes a
rollover to or from such policy, or fails to elect any of the
above provisions.

For purposes of distributions beginning after the Owner's death, life
expectancies are computed using the expected return multiples in Tables V and VI
of section 1.72-9 of the Income Tax Regulations.

a. Except as noted in (b), below, life expectancies will be
recalculated annually, unless prior to when distributions are
required to begin the surviving spouse elects otherwise. Such
election will be irrevocable and will apply to all subsequent
years.

b. The life expectancy of a non-spouse beneficiary may not be
recalculated. Instead, life expectancy will be calculated
using the attained age of such beneficiary during the calendar
year in which distributions are required to begin. Payments in
all years will be calculated based on such life expectancy
reduced by one for each calendar year which has elapsed since
the calendar year life expectancy, was first calculated.

Distributions under Article II are considered to have begun if
distributions are made on account of the Owner reaching his or her
Required Beginning Date, or if prior to the Required Beginning Date
distributions irrevocably commence to an Owner over a period permitted
and in an annuity form acceptable under section 1.401(a)(9) of the
Income Tax Regulations.

4. We will not pay a Withdrawal Benefit if the Owner is under 59-1/2 and
not disabled unless the intended use of the funds is set forth in the
withdrawal request.

5. The interest of the Owner is nonforfeitable.
<PAGE> 3
6. This policy is not transferable by the Owner to anyone except to us.
The Limit on Transfer provision of the policy applies.

7. Any refund of premiums (other than those attributable to excess
contributions) will be applied, before the close of the calendar year
following the year of the refund, toward the payment of future premiums
or the purchase of additional benefits.

8. We may amend the terms of this policy without the prior consent of the
Owner if such amendment:

a. applies to all policies with this endorsement; and

b. is in response to changes to federal law.

9. We will send annual calendar year reports to the Owner concerning the
status of this policy.

10. No contribution will be accepted under a SIMPLE plan established by any
employer pursuant to Internal Revenue Code section 408(p). No transfer
or rollover of funds attributable to contributions made by a particular
employer under its SIMPLE plan will be accepted from a SIMPLE-IRA (an
IRA used in conjunction with a SIMPLE plan) prior to the expiration of
a two year period beginning on the date the Owner first participated in
that employer's SIMPLE plan.

Signed for Life Insurance Company of the Southwest at its Home Office in Dallas,
Texas, by

Secretary

<PAGE> 1
EXHIBIT (b)(5)
<TABLE>
<S> <C>
NATIONAL LIFE National Life Insurance Company
of VERMONT Montpelier, Vermont 05604 RETIREMAX
Tel: 802 229-3333 Variable Annuity Application

Application No.: _______ Branch No.: ________ Pension Code: ______ Contract No.:______

A. OWNER 1. Owner Name:_______________________________________________________
INFORMATION 2. Social Security No. or Tax ID No.________________________________
3. Address: _______________________________________________________
_______________________________________________________
4. Date of Birth or Date of Trust:___________________________________
5. Sex _____Male _____Female
6. Area Code & Daytime Telephone:____________________________________
- ------------------------------------------------------------------------------------------------------------------------------------
B. ANNUITANT 1. Annuitant Name: _________________________________________________
2. Social Security No. _____________________________________________
3. Address:_________________________________________________________
_________________________________________________________
4. Date of Birth or Date of Trust:__________________________________
5. Sex _____Male _____Female
6. Area Code & Daytime Telephone:___________________________________
- ------------------------------------------------------------------------------------------------------------------------------------
C. BENEFICIARY(IES) First:_______________________________ Second:_______________________
(If 401(a), do Date of Birth:________________________ Date of Birth:__________________
NOT complete. Social Security Number:________________ Social Security Number:__________
Beneficiary will Relationship to Contract Relationship to Contract
be owner.) Owner or Annuitant:___________________ Owner or Annuitant:______________
As per supplemental request:_____________________________________________
- ------------------------------------------------------------------------------------------------------------------------------------
D. TYPE OF PLAN.1. Non-Qualified Plan 2. Qualified Plan:
___Individually Owned ____Pension or Profit-Sharing Plan Section401(a) or Section403(a)
___1035 Exchange ____Tax-Deferred Annuity (Section403(b)
___Other (Describe) ____Individual IRA ___SEP IRA ___Simple IRA
___Regular Contributor: Year____ $_________
___Transfer
___Rollover
- ------------------------------------------------------------------------------------------------------------------------------------
E. FUND SELECTION. MARKET STREET FUND: FIDELITY INVESTMENTS:
Allocate percen- Growth ____% Equity-Income _____%
tages to the Aggressive Growth ____% Overseas _____%
following funds: Managed ____% Growth _____%
(Whole percen- Bond ____% High Income _____%
tages. Not less than International ____% Index 500 _____%
5% per allocation. Sentinel Growth ____% Contrafund _____%
Select no more than Money Market
17 variable funds. Acct. ____%
Must total 100%.)
FRED ALGER MANAGEMENT: STRONG CAPITAL MGMT: NATIONAL LIFE INSURANCE COMPANY
Small Capitalization ____% Special Fund II ____% Fixed Account _____%
Growth Fund ____% Growth Fund II ____%
- ------------------------------------------------------------------------------------------------------------------------------------
F. REMINDER 1. Would you like us to send a periodic reminder to fund this contract? ___Yes ___No
NOTICE 2. Amount: $_____________________________ 4. Send Notice to: (Check one)
3. Frequency: ____Annual ____ Monthly (Group) ____Annuitant's address
____Semi-Annual ____EFT ____Owner's address
____Quarterly ____Other (Give name and address
in section K. Remarks
- ------------------------------------------------------------------------------------------------------------------------------------
G. REPLACEMENT Has there been or will there be a
lapse, surrender, replacement, reissue, or change
to reduce amount, premium or coverage of any
existing life or annuity contract if the applied
for contract is issued, or will there be any
substantial borrowing on any life insurance policy
if the applied for contract is issued? ____Yes ____No
Company Name(s) and Policy Number(s):__________________

- ------------------------------------------------------------------------------------------------------------------------------------
</TABLE>
<PAGE> 2

<TABLE>
<S> <C> <C>
H. RIDER. _____Enhanced Death Benefit Rider _____NIMCRUT Rider
_____ TDA Rider _____IRA Rider
- ------------------------------------------------------------------------------------------------------------------------------------
I. INVESTMENT 1. Portfolio Rebalancing:
MANAGEMENT a. Does the Owner request Portfolio Rebalancing, through which the Accumulated Values
(Select only in the Sub-Accounts of the Separate Account will be automatically reallocated according
ONE of these to the fund allocation percentages? ___Yes ____No
options)
b. Frequency: ____Annual _____Semi-Annual _____Quarterly

(Complete Dollar 2. Dollar Cost Averaging:
Cost Averaging Does the Owner request Dollar Cost Averaging through which the
section only if Accumulated Value in the amount designated below would be
you have selected transferred from the Money Market Sub-Account to the other
Money Market.) Sub-Accounts as have selected apportioned below, once
each month. ____Yes _____No

Allocation: (Total allocation may not be less than $ 1 00.)

MARKET STREET FUND: FIDELITY INVESTMENTS:
Growth $_________ Equity-Income $__________
Aggressive Growth $_________ Overseas $__________
Managed $_________ Growth $__________
Bond $_________ High Income $__________
International $_________ Index 500 $__________
Sentinel Growth $_________ Contrafund $__________

FRED ALGER MANAGEMENT: STRONG CAPITAL MGMT: OTHER (as available)
Small Capitalization $_________ Special Fund II $_______ ___________ $______
Growth Fund $_________ Growth Fund II $_______ ___________ $______
- ------------------------------------------------------------------------------------------------------------------------------------
J.TELEPHONE 1. Does the Owner authorize the Company to accept telephone requests by the Owner to:
TRANSACTION -Change the fund allocation percentages - Add, cancel or change Portfolio Rebalancing, or Dollar
PRIVILEGE -Transfer funds among Sub-Accounts Cost Averaging

___Check here if you wish to authorize the Company to accept telephone requests by the Owner
for investment management and fund selection.

2. ___Check here if you wish to authorize your representative/agent to have telephone transaction privileges.

Name of Representative: _________________________________________
- ------------------------------------------------------------------------------------------------------------------------------------
K. REMARKS

- ------------------------------------------------------------------------------------------------------------------------------------
L. AUTHORIZATION I hereby represent my answers to the above questions to be
true and correct to the best of my knowledge and belief I
understand that annuity payments or surrender values, when
based upon the investment experience of a separate account,
are variable and not guaranteed as to a fixed dollar amount.

____ Receipt of Variable Annuity and Fund Prospectuses is hereby acknowledged.

I have paid $___ for Variable Annuity with this application.

Monies remitted via: ___ Check ____Wire ___1035 ____ Transfer

Signed at (City & State)_________________ on this day of: (mmddyy)_______________

Owner's Signature: _________________________________________________

Annuitant's Signature: (Ifdifferent than Owner):____________________
</TABLE>

<TABLE>
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M. BROKER/DEALER Signature of Registered Representative: Signature of Broker/Dealer:
SALES _______________________________________ ___________________________________________
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<PAGE> 1
Exhibit (b)(8)(a)

Amendment No. 3, dated _______, 1998,
to the
Participation Agreement
dated January 30, 1996
By and Among
MARKET STREET FUND, INC.
and
NATIONAL LIFE INSURANCE COMPANY
and
1717 CAPITAL MANAGEMENT COMPANY
(formerly PML SECURITIES COMPANY)
and
by this Amendment No. 3, LIFE INSURANCE COMPANY OF THE SOUTHWEST

This Amendment No. 3, dated as of ___________, 1998, to the
Participation Agreement dated January 30, 1996 as previously amended by
Amendment No. 1 dated as of June 30, 1997, and Amendment No. 2 dated as of
April ___, 1998 (the "Participation Agreement"), by and among NATIONAL LIFE
INSURANCE COMPANY, a Vermont insurance company (the "Company"), the MARKET
STREET FUND, INC., an open-end diversified investment company organized under
the laws of the State of Maryland (the "Fund"), 1717 CAPITAL MANAGEMENT COMPANY
(formerly PML SECURITIES COMPANY), a Delaware corporation (the "Underwriter"),
and LIFE INSURANCE COMPANY OF THE SOUTHWEST, a Texas insurance company ("LSW")
is made and entered into as of _____ ___, 1998.

WHEREAS, LSW has formed a new separate which is to offer variable
annuity contracts, such separate account being known as "LSW Variable Annuity
Account I" (the "New Separate Account"); and

WHEREAS, LSW desires to purchase shares of the Portfolios on behalf of
the New Separate Account to fund variable annuity contracts, and the Fund and
the Underwriter are willing to sell such shares to LSW for such purpose;

NOW, THEREFORE, in consideration of their mutual promises, LSW, the
Company, the Fund and the Underwriter agree to amend the Participation
Agreement as follows:

1. Definitions. Unless otherwise specifically provided for herein,
all capitalized terms defined in the Participation Agreement shall have the
same meanings when used herein as in the Participation Agreement. The
definition of the term "the Company" will include LSW. The definition of the
term "Policy" is hereby broadened to include the variable annuity contracts to
be offered by the New Separate Account, as well as the second-to-die variable
life insurance contracts, the single life flexible premium adjustable benefit
variable life insurance policies offered by National Variable Life Insurance
Account, and the variable annuity contracts being offered by National Variable
Annuity Account II.

2. Sale of Fund Shares. The Underwriter agrees to sell shares of the
Fund, and the Fund agrees to make available its shares for such sale, to LSW on
behalf of the New Separate Account, on the same terms and conditions as the
Underwriter currently sells shares of the Fund,

<PAGE> 2
and the Fund currently makes its shares available for such sale to the Company
on behalf of the existing subaccounts of the National Variable Life Insurance
Account, and the LSW Variable Annuity Account I.

3. By executing this Amendment No. 3, LSW hereby
a. becomes a party to this Participation Agreement
b. is included in the definition of "the Company" along with
National Life Insurance Company; and
c. is bound by all of the terms and conditions as set forth in
the above referenced Participation Agreement
referenced

IN WITNESS WHEREOF, each of the parties hereto has caused this
Amendment No. 3 to the Participation Agreement to be executed in its name and
behalf by its duly authorized representative as of the date set forth above.

NATIONAL LIFE INSURANCE COMPANY

---------------------------
by:

MARKET STREET FUND, INC.

---------------------------
by:

1717 CAPITAL MANAGEMENT COMPANY

---------------------------
by:

LIFE INSURANCE COMPANY OF THE
SOUTHWEST
by: NATIONAL LIFE INSURANCE COMPANY

---------------------------
by:

<PAGE> 1
Exhibit (b)(8)(b)

AMENDMENT NO. 3 TO PARTICIPATION AGREEMENT
AMONG
VARIABLE INSURANCE PRODUCTS FUND II,
FIDELITY DISTRIBUTORS CORPORATION
NATIONAL LIFE INSURANCE COMPANY, AND
LIFE INSURANCE COMPANY OF THE SOUTHWEST

THIS AMENDMENT NO. 3 to the Participation Agreement by and among Vermont Life
Insurance Company (since merged into National Life Insurance Company), Variable
Insurance Products Fund II (the "Fund"), Fidelity Distributors Corporation
(the "Underwriter") and, by this Amendment No. 3 the Life Insurance Company of
the Southwest ("LSW"), dated April 1, 1990 as amended by Amendment No. 1 to
Participation Agreement dated April 28, 1997 (the "Participation Agreement"),
and Amendment No. 2 entered into as of April 15, 1998, is made and entered into
this ____ day of ____, 1998.

1. By executing this Amendment No. 3, LSW hereby
a. becomes a party to this Participation Agreement
b. is included in the definition of "the Company" along with
National Life Insurance Company
c. is bound by all of the terms and conditions of the
Participation Agreement referenced above.

2. Schedule A is hereby further amended to add the following contract forms:
Life Insurance Company of the Southwest Contract Form (Flexible
Premium Variable Deferred Annuity)

3. Schedule C is hereby further amended to add the following separate account:
LSW Variable Annuity Account I - December 4, 1997

4. Pursuant to section 1.6 hereof, the Fund and the Distributor hereby consents
to the investment of net amounts available under the LSW variable
annuity listed in paragraph 2 above in the following funds other than
the Fund: The Market Street Fund, Strong Opportunity Fund II, Inc.,
Strong Variable Insurance Funds, Inc., The Alger American Fund.

IN WITNESS WHEREOF, each of the parties hereto has caused this Amendment No. 3
to the Participation Agreement to be executed in its name and on its behalf by
its duly authorized representative and its seal to be affixed hereto as of the
date specified below.

NATIONAL LIFE INSURANCE COMPANY

by
--------------------------------------
Name:
Title:

VARIABLE INSURANCE PRODUCTS FUND II

by
--------------------------------------
Name:
Title:

FIDELITY DISTRIBUTORS CORPORATION

by
--------------------------------------
Name:
Title:

LIFE INSURANCE COMPANY OF THE SOUTHWEST
BY: NATIONAL LIFE INSURANCE COMPANY

by
--------------------------------------

<PAGE> 1
Exhibit (b)(8)(c)

AMENDMENT NO. 2 TO PARTICIPATION AGREEMENT

AMONG

THE ALGER AMERICAN FUND,
FRED ALGER & COMPANY, INCORPORATED,
NATIONAL LIFE INSURANCE COMPANY (AS SUCCESSOR TO
VERMONT LIFE INSURANCE COMPANY), AND LIFE INSURANCE COMPANY OF THE SOUTHWEST

THIS AMENDMENT NO. 2 to the Participation Agreement dated January 31, 1995, as
amended by updating Schedule A as of April 25, 1997 (the "Participation
Agreement") by and among The Alger American Fund (the "Trust"), Fred Alger &
Company, Incorporated (the "Distributor"), National Life Insurance Company,
and, by this Amendment No. 2 the Life Insurance Company of the Southwest
("LSW") is made and entered into this ____ day of _______, 1998.

1. By executing this Amendment No. 2, LSW hereby
a. becomes a party to this Participation Agreement
b. is included in the definition of "the Company" along with National
Life Insurance Company
c. is bound by all of the terms and conditions of the Participation
Agreement referenced above, and the Service Agreement dated June 1,
1997.

2. Schedule A was amended April 25, 1997, and is hereby further amended to
read as follows:
NATIONAL VARIABLE LIFE INSURANCE ACCOUNT
NATIONAL VARIABLE ANNUITY ACCOUNT II
LSW VARIABLE ANNUITY ACCOUNT I

IN WITNESS WHEREOF, each of the parties hereto has caused this Amendment No. 2
to the Participation Agreement to be executed in its name and on its behalf by
its duly authorized representative and its seal to be affixed hereto as of the
date specified below.

FRED ALGER & COMPANY, INCORPORATED

by
------------------------------------------
Name:
Title:

THE ALGER AMERICAN FUND

by
------------------------------------------
Name:
Title:

NATIONAL LIFE INSURANCE COMPANY

by
----------------------------
Name:
Title:

LIFE INSURANCE COMPANY OF THE SOUTHWEST
by: NATIONAL LIFE INSURANCE COMPANY

by
----------------------------
Name:
Title:

<PAGE> 1
EXHIBIT (b)(8)(d)

THIS AGREEMENT, is made as of ___________ __, 1998, by and among
Life Insurance Company of the Southwest ("Company"), on its own behalf and on
behalf of ____________________________________ Separate Account ___, a
segregated asset account of the Company ("Account"), Strong Variable Insurance
Funds, Inc. ("Strong Variable") on behalf of the Portfolios of Strong Variable
listed on the attached Exhibit A as such Exhibit may be amended from time to
time (the "Designated Portfolios"), Strong Opportunity Fund II, Inc.
("Opportunity Fund II"), Strong Capital Management, Inc. (the "Adviser"), the
investment adviser and transfer agent for the Opportunity Fund II and Strong
Variable, and Strong Funds Distributors, Inc. ("Distributors"), the distributor
for Strong Variable and the Opportunity Fund II (each, a "Party" and
collectively, the "Parties").

PRELIMINARY STATEMENTS

A. Beneficial interests in Strong Variable are divided into several
series of shares, each representing the interest in a particular managed
portfolio of securities and other assets (each, a "Portfolio").

B. To the extent permitted by applicable insurance laws and
regulations, the Company intends to purchase shares of Opportunity Fund II and
the Designated Portfolios ("Fund" or "Funds" shall be deemed to refer to each
Designated Portfolio and to the Opportunity Fund II to the extent the context
requires), on behalf of the Account to fund the variable annuity contracts that
use the Funds as an underlying investment medium (the "Contracts").

C. The Company, Adviser and Distributors desire to facilitate the
purchase and redemption of shares of the Funds by the Company for the Account
through one account in each Fund (each an "Omnibus Account") to be maintained of
record by the Company, subject to the terms and conditions of this Agreement.

D. The Company desires to provide administrative services and functions
(the "Services") for purchasers of Contracts ("Owners") who are beneficial
owners of shares of the Funds on the terms and conditions set forth in this
Agreement.

AGREEMENTS

The parties to this Agreement agree as follows:

1. Performance of Services. Company agrees to perform the administrative
functions and services specified in Exhibit B attached to this Agreement with
respect to the shares of the Funds beneficially owned by the Owners and included
in the Account. Nothing in this Agreement shall limit Company's right to engage
one or more of its wholly owned subsidiaries (each, a "Designee") to provide all
or any portion of the Services, but no such engagement shall relieve Company of
its duties, responsibilities or liabilities under this Agreement.

2. The Omnibus Accounts.

2.1 Each Omnibus Account will be opened based upon the information contained
in Exhibit C to this Agreement. In connection with each Omnibus Account, Company
represents and warrants that it is authorized to act on behalf of each
<PAGE> 2

Owner effecting transactions in the Omnibus Account and that the information
specified on Exhibit C to this Agreement is correct.

2.2 Each Fund shall designate each Omnibus Account with an account number.
These account numbers will be the means of identification when the Parties are
transacting in the Omnibus Accounts. The assets in the Accounts are segregated
from the Company's own assets. The Adviser agrees to cause the Omnibus Accounts
to be kept open on each Fund's books, as applicable, regardless of a lack of
activity or small position size except to the extent the Company takes specific
action to close an Omnibus Account or to the extent a Fund's prospectus reserves
the right to close accounts which are inactive or of a small position size. In
the latter two cases, the Adviser will give prior notice to the Company before
closing an Omnibus Account.

2.3 The Company agrees to provide Adviser such information as Adviser or
Distributors may reasonably request concerning Owners as may be necessary or
advisable to enable Adviserand Distributors to comply with applicable laws,
including state "Blue Sky" laws relating to the sales of shares of the Funds to
the Accounts.

3. Fund Shares Transactions.

3.1 In General. Shares of the Funds shall be sold on behalf of the Funds
by Distributors and purchased by Company for the Account and, indirectly for the
appropriate subaccount thereof at the net asset value next computed after
receipt by Distributors of each order of the Company or its Designee, in
accordance with the provisions of this Agreement, the then current prospectuses
of the Funds and the Contracts. Company may purchase shares of the Funds for its
own account subject to (a) receipt of prior written approval by Distributors;
and (b) such purchases being in accordance with the then current prospectuses of
the Fund and the Contracts. The Board of Directors of each Fund ("Directors")
may refuse to sell shares of the applicable Fund to any person, or suspend or
terminate the offering of shares of the Fund if such action is required by law
or by regulatory authorities having jurisdiction. Company agrees to purchase and
redeem the shares of the Funds in accordance with the provisions of this
Agreement, of the Contracts and of the then current prospectuses for the
Contracts and Funds. Except as necessary to implement transactions initiated by
Owners, or as otherwise permitted by state or federal laws or regulations,
Company shall not redeem shares of Funds attributable to the Contracts.

3.2 Purchase and Redemption Orders. On each day that a Fund is open for
business (a "Business Day"), the Company or its Designee shall aggregate and
calculate the net purchase or redemption order it receives for the Account from
the Owners for shares of the Fund that it received prior to the close of trading
on the New York Stock Exchange (the "NYSE") (i.e. 3:00 p.m., Central time,
unless the NYSE closes at an earlier time in which case such earlier time shall
apply) and communicate to Distributors, by telephone or facsimile (or by such
other means as the Parties to this Agreement may agree to in writing), the net
aggregate purchase or redemption order (if any) for the Omnibus Account for such
Business Day (such Business Day is sometimes referred to herein as the "Trade
Date"). The Company or its Designee will communicate such orders to Distributors
prior to 9:00 a.m., Central time, on the next Business Day following the Trade
Date. All trades communicated to Distributors by the foregoing deadline shall be
treated by Distributors as if they were received by Distributors prior to the
close of trading on the Trade Date.

2
<PAGE> 3

3.3 Settlement of Transactions.

(a) Purchases. Company or its Designee will wire, or arrange for the
wire of, the purchase price of each purchase order to the custodian for the Fund
in accordance with written instructions provided by Distributors to the Company
so that either (i) such funds are received by the custodian for the Fund prior
to 10:30 a.m., Central time, on the next Business Day following the Trade Date,
or (ii) Distributors is provided with a Federal Funds wire system reference
number prior to such 10:30 a.m. deadline evidencing the entry of the wire
transfer of the purchase price to the applicable custodian into the Federal
Funds wire system prior to such time. Company agrees that if it fails to provide
funds to the Fund's custodian by the close of business on the next Business Day
following the Trade Date, then, at the option of Distributors, (1) the
transaction may be canceled, or (2) the transaction may be processed at the
next-determined net asset value for the applicable Fund after purchase order
funds are received. In such event, the Company shall indemnify and hold harmless
Distributors, Adviser and the Funds from any liabilities, costs and damages
either may suffer as a result of such failure.

(b) Redemptions. The Adviser will use its best efforts to cause to
be transmitted to such custodial account as Company shall direct in writing, the
proceeds of all redemption orders placed by Company or its Designee by 9:00
a.m., Central time, on the Business Day immediately following the Trade Date, by
wire transfer on that Business Day. Should Adviser need to extend the settlement
on a trade, it will contact Company to discuss the extension. For purposes of
determining the length of settlement, Adviser agrees to treat the Account no
less favorably than other shareholders of the Funds. Each wire transfer of
redemption proceeds shall indicate, on the Federal Funds wire system, the amount
thereof attributable to each Fund; provided, however, that if the number of
entries would be too great to be transmitted through the Federal Funds wire
system, the Adviser shall, on the day the wire is sent, fax such entries to
Company or if possible, send via direct or indirect systems access until
otherwise directed by the Company in writing.

(c) Authorized Persons. The following persons are each duly
authorized to act on behalf of the Company under this Agreement. The Funds,
Adviser and Distributors are entitled to conclusively rely on verbal or written
instructions that Adviser or Distributors reasonably believes were originated by
any one of said persons. The Company shall inform Adviser and Distributors of
additions to or subtractions from this list of authorized persons pursuant to
Section 13, hereof:

---------------------------------
---------------------------------
---------------------------------

3.4 Book Entry Only. Issuance and transfer of shares of a Fund will be
by book entry only. Stock certificates will not be issued to the Company or the
Account. Shares of the Funds ordered from Distributors will be recorded in the
appropriate book entry title for the Account.

3.5 Distribution Information. The Adviser or Distributors shall provide
the Company with all distribution announcement information as soon as it is
announced by the Funds. The distribution information shall set forth, as
applicable, ex-dates, record date, payable date, distribution rate per share,
record date share balances, cash and reinvested payment amounts and all other
information reasonably requested by the Company. Where possible, the Adviser

3
<PAGE> 4

or Distributors shall provide the Company with direct or indirect systems access
to the Adviser's systems for obtaining such distribution information.

3.6 Reinvestment. All dividends and capital gains distributions will be
automatically reinvested on the payable date in additional shares of the
applicable Fund at net asset value in accordance with each Fund's then current
prospectus.

3.7 Pricing Information. Distributors shall use its best efforts to
furnish to the Company prior to 6:00 p.m., Central time, on each Business Day
each Fund's closing net asset value for that day, and for those Funds for which
such information is calculated, the daily accrual for interest rate factor (mil
rate). Such information shall be communicated via fax, or indirect or direct
systems access acceptable to the Company.

3.8 Price Errors.

(a) Notification. If an adjustment is required in accordance with a
Fund's then current policies on reimbursement ("Fund Reimbursement Policies") to
correct any error in the computation of the net asset value of Fund shares
("Price Error"), Adviser or Distributors shall notify Company as soon as
practicable after discovering the Price Error. Notice may be made via facsimile
or via direct or indirect systems access and shall state the incorrect price,
the correct price and, to the extent communicated to the Fund's shareholders,
the reason for the price change.

(b) Underpayments. If a Price Error causes an Account to receive
less than the amount to which it otherwise would have been entitled, Adviser
shall make all necessary adjustments (subject to the Fund Reimbursement
Policies) so that the Account receives the amount to which it would have been
entitled

(c) Overpayments. If a Price Error causes an Account to receive more
than the amount to which it otherwise would have been entitled, Company, when
requested by Adviser (in accordance with the Fund Reimbursement Policies), will
use its best efforts to collect such excess amounts from the applicable Owners.

(d) Fund Reimbursement Policies. Adviser agrees to treat Company's
customers no less favorably than Adviser treats its retail shareholders in
applying the provisions of paragraphs 3.8(b) and 3.8(c).

(e) Expenses. Adviser shall reimburse Company for all reasonable and
necessary out-of-pocket expenses incurred by Company for payroll overtime,
stationery and postage in adjusting Owner accounts affected by a Price Error
described in paragraphs 3.8(b) and 3.8(c). Company shall use its best efforts to
mitigate all expenses which may be reimbursable under this section 3.8(e) and
agrees that payroll overtime shall not include any time spent programming
computers or otherwise customizing Company's recordkeeping system. Upon
requesting reimbursement, Company shall present an itemized bill to Adviser
detailing the costs for which it seeks reimbursement.

3.9 Agency. Distributors hereby appoints the Company and its Designees
as its agents for the limited purpose of accepting purchase and redemption
instructions from the Owners for the purchase and redemption of shares of the
Funds by the Company on behalf of Account.

4
<PAGE> 5

3.10 Quarterly Reports. Adviser agrees to provide Company a statement of
Fund assets as soon as practicable and in any event within 30 days after the end
of each fiscal quarter, and a statement certifying the compliance by the Funds
during that fiscal quarter with the diversification requirements and
qualification as a regulated investment company. In the event of a breach of
Section 6.4(a), Adviser will take all reasonable steps (a) to notify Company of
such breach and (b) to adequately diversify the Fund so as to achieve compliance
within the grace period afforded by Treasury Regulation 1.817-5.

4. Proxy Solicitations and Voting. The Company shall, at its expense,
distribute or arrange for the distribution of all proxy materials furnished by
the Funds to the Account and shall: (a) solicit voting instructions from
Owners; (b) vote the Fund shares in accordance with instructions received from
Owners; and (c) vote the Fund shares for which no instructions have been
received, as well as shares attributable to it, in the same proportion as Fund
shares for which instructions have been received from Owners, so long as and
to the extent that the Securities and Exchange Commission (the "SEC")
continues to interpret the Investment Company Act of 1940, as amended (the
"1940 Act"), to require pass-through voting privileges for various contract
owners. The Company and its Designees and agents will not recommend action in
connection with, or oppose or interfere with, the solicitation of proxies for
the Fund shares held for Owners.

5. Customer Communications.

5.1 Prospectuses. The Adviser or Distributors, at its expense, will
provide the Company with as many copies of the current prospectus for the Funds
as the Company may reasonably request for distribution, at the Company's
expense, to existing or prospective Owners.

5.2 Shareholder Materials. The Adviser and Distributors shall, as
applicable, provide in bulk to the Company or its authorized representative, at
a single address and at no expense to the Company, the following shareholder
communications materials prepared for circulation to Owners in quantities
requested by the Company which are sufficient to allow mailing thereof by the
Company and, to the extent required by applicable law, to all Owners: proxy or
information statements, annual reports, semi-annual reports, and all initial and
updated prospectuses, supplements and amendments thereof. None of the Funds, the
Adviser or Distributors shall be responsible for the cost of distributing such
materials to Owners.

6. Representations and Warranties.

6.1 The Company represents and warrants that:

(a) It is an insurance company duly organized and in good standing
under the laws of the State of Texas and that it has legally and validly
established the Account prior to any issuance or sale thereof as a segregated
asset account and that the Company has and will maintain the capacity to issue
all Contracts that may be sold; and that it is and will remain duly registered,
licensed, qualified and in good standing to sell the Contracts in all the
jurisdictions in which such Contracts are to be offered or sold;

(b) It and each of its Designees is and will remain duly registered
and licensed in all material respects under all applicable federal and state
securities and insurance laws and shall perform its obligations under

5
<PAGE> 6

this Agreement in compliance in all material respects with any applicable state
and federal laws;

(c) The Contracts are and will be registered under the Securities
Act of 1933, as amended (the "1933 Act"), and are and will be registered and
qualified for sale in the states where so required; and the Account is and will
be registered as a unit investment trust in accordance with the 1940 Act and
shall be a segregated investment account for the Contracts;

(d) The Contracts are currently treated as annuity contracts, under
applicable provisions of the Internal Revenue Code of 1986, as amended (the
"Code"), and the Company will maintain such treatment and will notify Adviser,
Distributors and Funds promptly upon having a reasonable basis for believing
that the Contracts have ceased to be so treated or that they might not be so
treated in the future;

(e) It and each of its Designees is registered as a transfer agent
pursuant to Section 17A of the Securities Exchange Act of 1934, as amended (the
"1934 Act"), or is not required to be registered as such;

(f) The arrangements provided for in this Agreement will be
disclosed to the Owners; and

(g) It and each of its Designees is registered as a broker-dealer
under the 1934 Act and any applicable state securities laws, including as a
result of entering into and performing the Services set forth in this Agreement,
or is not required to be registered as such.

6.2 The Funds each represent and warrant that Fund shares sold pursuant
to this Agreement are and will be registered under the 1933 Act and the Fund is
and will be registered as a registered investment company under the Investment
Company Act of 1940, in each case, except to the extent the Company is so
notified in writing.

6.3 Distributors represents and warrants that:

(a) It is and will be a member in good standing of the National
Association of Securities Dealers, Inc. ("NASD") and is and will be registered
as a broker-dealer with the SEC; and

(b) It will sell and distribute Fund shares in accordance with all
applicable state and federal laws and regulations.

6.4 Adviser represents and warrants that:

(a) It will cause each Fund to invest money from the Contracts in
such a manner as to ensure that the Contracts will be treated as variable
annuity contracts under the Code and the regulations issued thereunder, and that
each Fund will comply with Section 817(h) of the Code as amended from time to
time and with all applicable regulations promulgated thereunder; and

(b) It is and will remain duly registered and licensed in all
material respects under all applicable federal and state securities and
insurance laws and shall perform its obligations under this Agreement in
compliance in all material respects with any applicable state and federal laws.

6
<PAGE> 7

6.5 Each of the Parties to this Agreement represents and warrants to the
others that:

(a) It has full power and authority under applicable law, and has
taken all action necessary, to enter into and perform this Agreement and the
person executing this Agreement on its behalf is duly authorized and empowered
to execute and deliver this Agreement;

(b) This Agreement constitutes its legal, valid and binding
obligation, enforceable against it in accordance with its terms and it shall
comply in all material respects with all laws, rules and regulations applicable
to it by virtue of entering into this Agreement;

(c) No consent or authorization of, filing with, or other act by or
in respect of any governmental authority, is required in connection with the
execution, delivery, performance, validity or enforceability of this Agreement;

(d) The execution, performance and delivery of this Agreement will
not result in it violating any applicable law or breaching or otherwise
impairing any of its contractual obligations;

(e) Each Party to this Agreement is entitled to rely on any written
records or instructions provided to it by another Party; and

(f) Its directors, officers, employees, and investment advisers, and
other individuals/entities dealing with the money or securities of a Fund are
and shall continue to be at all times covered by a blanket fidelity bond or
similar coverage for the benefit of the Fund in an amount not less than the
amount required by the applicable rules of the NASD and the federal securities
laws, which bond shall include coverage for larceny and embezzlement and shall
be issued by a reputable bonding company.

7. Sales Material and Information

7.1 NASD Filings. The Company shall promptly inform Distributors as to the
status of all sales literature filings pertaining to the Funds and shall
promptly notify Distributors of all approvals or disapprovals of sales
literature filings with the NASD. For purposes of this Section 7, the phrase
"sales literature or other promotional material" shall be construed in
accordance with all applicable securities laws and regulations.

7.2 Company Representations. Neither the Company nor any of its Designees
shall make any material representations concerning the Adviser, the
Distributors, or a Fund other than the information or representations contained
in: (a) a registration statement of the Fund or prospectus of a Fund, as amended
or supplemented from time to time; (b) published reports or statements of the
Funds which are in the public domain or are approved by Distributors or the
Funds; or (c) sales literature or other promotional material of the Funds.

7.3 Adviser, Distributors and Fund Representations. None of Adviser,
Distributors or any Fund shall make any material representations concerning the
Company or its Designees other than the information or representations contained
in: (a) a registration statement or prospectus for the Contracts, as amended or
supplemented from time to time; (b) published reports or statements of the
Contracts or the Account which are in the public domain or are approved by the
Company; or (c) sales literature or other promotional material of the Company.

7
<PAGE> 8

7.4 Trademarks, etc. Except to the extent required by applicable law, no Party
shall use any other Party's names, logos, trademarks or service marks, whether
registered or unregistered, without the prior consent of such Party.

7.5 Information From Distributors and Adviser. Upon request, Distributors or
Adviser will provide to Company at least one complete copy of all registration
statements, prospectuses, Statements of Additional Information, reports, proxy
statements, solicitations for voting instructions, applications for exemptions,
requests for no action letters, and all amendments to any of the above, that
relate to the Funds, in final form as filed with the SEC, NASD and other
regulatory authorities.

7.6 Information From Company. Company will provide to Distributors at
least one complete copy of all registration statements, prospectuses, Statements
of Additional Information, reports, solicitations for voting instructions, sales
literature and other promotional materials, applications for exemptions,
requests for no action letters and all amendments to any of the above, that
relate to a Fund and the Contracts, in final form as filed with the SEC, NASD
and other regulatory authorities.

7.7 Review of Marketing Materials. If so requested by Company, the Adviser or
Distributors will use its best efforts to review sales literature and other
marketing materials prepared by Company which relate to the Funds, the Adviser
or Distributors for factual accuracy as to such entities, provided that the
Adviser or Distributors is provided at least five (5) Business Days to review
such materials. Neither the Adviser nor Distributors will review such materials
for compliance with applicable laws. Company shall provide the Adviser with
copies of all sales literature and other marketing materials which refer to the
Funds, the Adviser or Distributors within five (5) Business Days after their
first use, regardless of whether the Adviser or Distributors has previously
reviewed such materials. If so requested by the Adviser or Distributors, Company
shall cease to use any sales literature or marketing materials which refer to
the Funds, the Adviser or Distributors that the Adviser or Distributors
determines to be inaccurate, misleading or otherwise unacceptable.

8. Fees and Expenses.

8.1 Fund Registration Expenses. Fund or Distributors shall bear the cost of
registration and qualification of Fund shares; preparation and filing of Fund
prospectuses and registration statements, proxy materials and reports;
preparation of all other statements and notices relating to the Fund or
Distributors required by any federal or state law; payment of all applicable
fees, including, without limitation, any fees due under Rule 24f-2 of the 1940
Act, relating to a Fund; and all taxes on the issuance or transfer of Fund
shares on the Fund's records.

8.2 Contract Registration Expenses. The Company shall bear the expenses
for the costs of preparation and filing of the Company's prospectus and
registration statement with respect to the Contracts; preparation of all other
statements and notices relating to the Account or the Contracts required by any
federal or state law; expenses for the solicitation and sale of the Contracts
including all costs of printing and distributing all copies of advertisements,
prospectuses, Statements of Additional Information, proxy materials, and reports
to Owners or potential purchasers of the Contracts as required by applicable
state and federal law; payment of all applicable fees

8
<PAGE> 9

relating to the Contracts; all costs of drafting, filing and obtaining approvals
of the Contracts in the various states under applicable insurance laws; filing
of annual reports on form N-SAR, and all other costs associated with ongoing
compliance with all such laws and its obligations under this Agreement.

9. Indemnification.

9.1 Indemnification By Company.

(a) Company agrees to indemnify and hold harmless the Funds, Adviser
and Distributors and each of their directors, officers, employees and agents,
and each person, if any, who controls any of them within the meaning of Section
15 of the 1933 Act (each, an "Indemnified Party" and collectively, the
"Indemnified Parties" for purposes of this Section 9.1) from and against any and
all losses, claims, damages, liabilities (including amounts paid in settlement
with the written consent of Company), and expenses including reasonable legal
fees and expenses, (collectively, hereinafter "Losses"), to which the
Indemnified Parties may become subject under any statute, regulation, at common
law or otherwise insofar as such Losses:

(i) arise out of or are based upon any untrue statements or
alleged untrue statements of any material fact contained in the registration
statement, prospectus or sales literature for the Contracts or contained in the
Contracts (or any amendment or supplement to any of the foregoing), or arise out
of or are based upon the omission or the alleged omission to state therein a
material fact required to be stated therein or necessary to make the statements
therein not misleading, provided that this paragraph 9.1(a) shall not apply as
to any Indemnified Party if such statement or omission or such alleged statement
or omission was made in reliance upon and in conformity with written information
furnished to Company by or on behalf of a Fund, Distributors or Adviser for use
in the registration statement or prospectus for the Contracts or in the
Contracts (or any amendment or supplement) or otherwise for use in connection
with the sale of the Contracts or Fund shares; or

(ii) arise out of, or as a result of, statements or
representations or wrongful conduct of Company, its Designees or its agents,
with respect to the sale or distribution of the Contracts or Fund shares; or

(iii) arise out of any untrue statement or alleged untrue statement
of a material fact contained in a registration statement, prospectus, or sales
literature covering a Fund or any amendment thereof or supplement thereto, or
the omission or alleged omission to state therein a material fact required to be
stated therein, or necessary to make the statements therein not misleading, if
such a statement or omission was made in reliance upon written information
furnished to a Fund, Adviser or Distributors by or on behalf of Company; or

(iv) arise out of, or as a result of, any failure by Company, its
Designees or persons under the Company's or Designees' control to provide the
Services and furnish the materials contemplated under the terms of this
Agreement; or

(v) arise out of, or result from, any material breach of any
representation or warranty made by Company, its Designees or persons under the
Company's or Designees' control in this Agreement or arise out of or result from
any other material breach of this Agreement by Company, its Designees or

9
<PAGE> 10

persons under the Company's or Designees' control; as limited by and in
accordance with the provisions of Sections 9.1(b) and 9.1(c) hereof; or

(vi) arise out of, or as a result of, adherence by Adviser or
Distributors to instructions that it reasonably believes were originated by
persons specified in Section 3.3(c), hereof.

This indemnification provision is in addition to any liability which the
Company or its Designees may otherwise have.

(b) Company shall not be liable under this indemnification provision
with respect to any Losses to which an Indemnified Party would otherwise be
subject by reason of such Indemnified Party's willful misfeasance, bad faith, or
gross negligence in the performance of such Indemnified Party's duties or by
reason of such Indemnified Party's reckless disregard of obligations or duties
under this Agreement.

(c) Company shall not be liable under this indemnification provision
with respect to any claim made against an Indemnified Party unless such
Indemnified Party shall have notified Company in writing within a reasonable
time after the summons or other first legal process giving information of the
nature of the claim shall have been served upon such Indemnified Party (or after
such Indemnified Party shall have received notice of such service on any
designated agent), but failure to notify Company of any such claim shall not
relieve Company from any liability which it may have to the Indemnified Party
otherwise than on account of this indemnification provision. In case any such
action is brought against any Indemnified Party, and it notified the
indemnifying Party of the commencement thereof, the indemnifying Party will be
entitled to participate therein and, to the extent that it may wish, assume the
defense thereof, with counsel satisfactory to such Indemnified Party. After
notice from the indemnifying Party of its intention to assume the defense of an
action, the Indemnified Party shall bear the expenses of any additional counsel
obtained by it, and the indemnifying Party shall not be liable to such
Indemnified Party under this Section for any legal or other expenses
subsequently incurred by such Indemnified Party in connection with the defense
thereof other than reasonable costs of investigation. The Indemnified Party may
not settle any action without the written consent of the indemnifying Party. The
indemnifying Party may not settle any action without the written consent of the
Indemnified Party unless such settlement completely and finally releases the
Indemnified Party from any and all liability. In either event, consent shall not
be unreasonably withheld.

(d) The Indemnified Parties will promptly notify Company of the
commencement of any litigation or proceedings against the Indemnified Parties in
connection with the issuance or sale of Fund shares or the Contracts or the
operation of a Fund.

9.2 Indemnification by Adviser and Distributors.

(a) Adviser and Distributors agrees to indemnify and hold harmless
Company and each of its directors, officers, employees and agents and each
person, if any, who controls Company within the meaning of Section 15 of the
1933 Act (each, an "Indemnified Party" and collectively, the "Indemnified
Parties" for purposes of this Section 9.2) from and against any and all Losses
to which the Indemnified Parties may become subject under any statute,
regulation, at common law or otherwise, insofar as such Losses:

10
<PAGE> 11

(i) arise out of or are based upon any untrue statement or
alleged untrue statement of any material fact contained in the registration
statement or prospectus or sales literature of a Fund (or any amendment or
supplement to any of the foregoing), or arise out of or are based upon the
omission or the alleged omission to state therein a material fact required to be
stated therein or necessary to make the statements therein not misleading,
provided that this Section 9.2(a) shall not apply as to any Indemnified Party if
such statement or omission or such alleged statement or omission was made in
reliance upon and in conformity with written information furnished to a Fund,
Adviser or Distributors by or on behalf of Company for use in the registration
statement or prospectus for a Fund or in sales literature (or any amendment or
supplement) or otherwise for use in connection with the sale of the Contracts or
Fund shares; or

(ii) arise out of, or as a result of, statements or
representations or wrongful conduct of Adviser or Distributors or persons under
its control, with respect to the sale or distribution of Fund shares; or

(iii) arise out of any untrue statement or alleged untrue statement
of a material fact contained in a registration statement, prospectus, or sales
literature covering the Contracts, or any amendment thereof or supplement
thereto, or the omission or alleged omission to state therein a material fact
required to be stated therein, or necessary to make the statements therein not
misleading, if such statement or omission was made in reliance upon written
information furnished to Company by or on behalf of Adviser or Distributors; or

(iv) arise out of, or as a result of, any failure by Adviser
or Distributors or persons under its control to provide the services and furnish
the materials contemplated under the terms of this Agreement; or

(v) arise out of or result from any material breach of any
representation or warranty made by Adviser or Distributors or persons under its
control in this Agreement or arise out of or result from any other material
breach of this Agreement by Adviser or Distributors or persons under its
control; as limited by and in accordance with the provisions of Sections 9.2(b)
and 9.2(c) hereof.

This indemnification provision is in addition to any liability which
Adviser and Distributors may otherwise have.

(b) Adviser and Distributors shall not be liable under this
indemnification provision with respect to any Losses to which an Indemnified
Party would otherwise be subject by reason of such Indemnified Party's willful
misfeasance, bad faith, or gross negligence in the performance of such
Indemnified Party's duties or by reason of such Indemnified Party's reckless
disregard of obligations and duties under this Agreement.

(c) Adviser and Distributors shall not be liable under this
indemnification provision with respect to any claim made against an Indemnified
Party unless such Indemnified Party shall have notified Adviser and Distributors
in writing within a reasonable time after the summons or other first legal
process giving information of the nature of the claim shall have been served
upon such Indemnified Party (or after such Indemnified Party shall have received
notice of such service on any designated agent), but failure to notify Adviser
and Distributors of any such claim shall not relieve Adviser and Distributors
from any liability which it may have to the Indemnified Party otherwise than on
account of this indemnification provision. In case any such

11
<PAGE> 12

action is brought against any Indemnified Party, and it notified the
indemnifying Party of the commencement thereof, the indemnifying Party will be
entitled to participate therein and, to the extent that it may wish, assume the
defense thereof, with counsel satisfactory to such Indemnified Party. After
notice from the indemnifying Party of its intention to assume the defense of an
action, the Indemnified Party shall bear the expenses of any additional counsel
obtained by it, and the indemnifying Party shall not be liable to such
Indemnified Party under this Section for any legal or other expenses
subsequently incurred by such Indemnified Party in connection with the defense
thereof other than reasonable costs of investigation. The Indemnified Party may
not settle any action without the written consent of the indemnifying Party. The
indemnifying Party may not settle any action without the written consent of the
Indemnified Party unless such settlement completely and finally releases the
Indemnified Party from any and all liability. In either event, consent shall not
be unreasonably withheld.

(d) The Indemnified Parties will promptly notify Adviser and
Distributors of the commencement of any litigation or proceedings against the
Indemnified Parties in connection with the issuance or sale of the Contracts or
the operation of the Account.

10. Potential Conflicts.

10.1 Monitoring by Directors for Conflicts of Interest. The Directors of
each Fund will monitor the Fund for any potential or existing material
irreconcilable conflict of interest between the interests of the contract owners
of all separate accounts investing in the Fund, including such conflict of
interest with any other separate account of any other insurance company
investing in the Fund. An irreconcilable material conflict may arise for a
variety of reasons, including: (a) an action by any state insurance regulatory
authority; (b) a change in applicable federal or state insurance, tax, or
securities laws or regulations, or a public ruling, private letter ruling,
no-action or interpretive letter, or any similar action by insurance, tax or
securities regulatory authorities; (c) an administrative or judicial decision in
any relevant proceeding; (d) the manner in which the investments of the Fund are
being managed; (e) a difference in voting instructions given by variable annuity
contract owners and variable life insurance contract owners or by contract
owners of different life insurance companies utilizing the Fund; or (f) a
decision by Company to disregard the voting instructions of Owners. The
Directors shall promptly inform the Company, in writing, if they determine that
an irreconcilable material conflict exists and the implications thereof.

10.2 Monitoring by the Company for Conflicts of Interest. The Company
will promptly notify the Directors, in writing, of any potential or existing
material irreconcilable conflicts of interest, as described in Section 10.1
above, of which it is aware. The Company will assist the Directors in carrying
out their responsibilities under any applicable provisions of the federal
securities laws and any exemptive orders granted by the SEC ("Exemptive
Order"), by providing the Directors, in a timely manner, with all information
reasonably necessary for the Directors to consider any issues raised. This
includes, but is not limited to, an obligation by the Company to inform the
Directors whenever Owner voting instructions are disregarded.

10.3 Remedies. If it is determined by a majority of the Directors, or a
majority of disinterested Directors, that a material irreconcilable conflict
exists, as described in Section 10.1 above, the Company shall, at its own
expense take whatever steps are necessary to remedy or eliminate the

12
<PAGE> 13

irreconcilable material conflict, up to and including, but not limited to: (a)
withdrawing the assets allocable to some or all of the separate accounts from
the applicable Fund and reinvesting such assets in a different investment
medium, including (but not limited to) another fund managed by the Adviser, or
submitting the question whether such segregation should be implemented to a vote
of all affected Owners and, as appropriate, segregating the assets of any
particular group that votes in favor of such segregation, or offering to the
affected owners the option of making such a change; and (b) establishing a new
registered management investment company or managed separate account.

10.4 Causes of Conflicts of Interest.

(a) State Insurance Regulators. If a material irreconcilable
conflict arises because a particular state insurance regulator's decision
applicable to the Company conflicts with the majority of other state regulators,
then the Company will withdraw the affected Account's investment in the
applicable Fund and terminate this Agreement with respect to such Account within
the period of time permitted by such decision, but in no event later than six
months after the Directors inform the Company in writing that it has determined
that such decision has created an irreconcilable material conflict; provided,
however, that such withdrawal and termination shall be limited to the extent
required by the foregoing material irreconcilable conflict as determined by a
majority of the disinterested Directors. Until the end of the foregoing period,
the Distributors and Funds shall continue to accept and implement orders by the
Company for the purchase (and redemption) of shares of the Fund to the extent
such actions do not violate applicable law.

(b) Disregard of Owner Voting. If a material irreconcilable conflict
arises because of Company's decision to disregard Owner voting instructions and
that decision represents a minority position or would preclude a majority vote,
Company may be required, at the applicable Fund's election, to withdraw the
Account's investment in said Fund. No charge or penalty will be imposed against
the Account as a result of such withdrawal.

10.5 Limitations on Consequences. For purposes of Sections 10.3 through
10.5 of this Agreement, a majority of the disinterested Directors shall
determine whether any proposed action adequately remedies any irreconcilable
material conflict. In no event will a Fund, the Adviser or the Distributors be
required to establish a new funding medium for any of the Contracts. The Company
shall not be required by Section 10.3 to establish a new funding medium for the
Contracts if an offer to do so has been declined by vote of a majority of Owners
affected by the irreconcilable material conflict. In the event that the
Directors determine that any proposed action does not adequately remedy any
irreconcilable material conflict, then the Company will withdraw the Account's
investment in the applicable Fund and terminate this Agreement as quickly as may
be required to comply with applicable law, but in no event later than six (6)
months after the Directors inform the Company in writing of the foregoing
determination, provided, however, that such withdrawal and termination shall be
limited to the extent required by any such material irreconcilable conflict.

10.6 Changes in Laws. If and to the extent that Rule 6e-2 and Rule 6e-3(T) are
amended, or Rule 6e-3 is adopted, to provide exemptive relief from any provision
of the Act or the rules promulgated thereunder with respect to mixed or shared
funding (as defined in the Funds' Exemptive Order) on terms and conditions
materially different from those contained in the Funds' Exemptive Order, then
(a) the Funds and/or the Company, as appropriate, shall take such steps as may
be necessary to comply with Rules 6e-2 and 6e-3(T), as amended,

13
<PAGE> 14

and Rule 6e-3, as adopted, to the extent such rules are applicable; and (b)
Sections 10.1, 10.2, 10.3 and 10.4 of this Agreement shall continue in effect
only to the extent that terms and conditions substantially identical to such
Sections are contained in such Rule(s) as so amended or adopted.

11. Maintenance of Records.

(a) Recordkeeping and other administrative services to Owners shall
be the responsibility of the Company and shall not be the responsibility of the
Funds, Adviser or Distributors. None of the Funds, the Adviser or Distributors
shall maintain separate accounts or records for Owners. Company shall maintain
and preserve all records as required by law to be maintained and preserved in
connection with providing the Services and in making shares of the Funds
available to the Account.

(b) Upon the request of the Adviser or Distributors, the Company
shall provide copies of all the historical records relating to transactions
between the Funds and the Account, written communications regarding the Funds to
or from the Account and other materials, in each case (1) as are maintained by
the Company in the ordinary course of its business and in compliance with
applicable law, and (2) as may reasonably be requested to enable the Adviser and
Distributors, or its representatives, including without limitation its auditors
or legal counsel, to (A) monitor and review the Services, (B) comply with any
request of a governmental body or self-regulatory organization or the Owners,
(C) verify compliance by the Company with the terms of this Agreement, (D) make
required regulatory reports, (E) verify to Advisor's reasonable satisfaction
that all purchase and redemption orders aggregated for each Trade Date were
received by Company prior to the close of trading on the NYSE on such Trade
Date, or (F) perform general customer supervision. The Company agrees that it
will permit the Adviser and Distributors or such representatives of either to
have reasonable access to its personnel and records in order to facilitate the
monitoring of the quality of the Services.

(c) Upon the request of the Company, the Adviser and Distributors
shall provide copies of all the historical records relating to transactions
between the Funds and the Account, written communications regarding the Funds to
or from the Account and other materials, in each case (1) as are maintained by
the Adviser and Distributors, as the case may be, in the ordinary course of its
business and in compliance with applicable law, and (2) as may reasonably be
requested to enable the Company, or its representatives, including without
limitation its auditors or legal counsel, to (A) comply with any request of a
governmental body or self-regulatory organization or the Owners, (B) verify
compliance by the Adviser and Distributors with the terms of this Agreement, (C)
make required regulatory reports, or (D) perform general customer supervision.

(d) The Parties agree to cooperate in good faith in providing
records to one another pursuant to this Section 11.

12. Term and Termination.

12.1 Term and Termination Without Cause. The initial term of this Agreement
shall be for a period of one year from the date hereof. Unless terminated as to
any Fund upon not less than thirty (30) days prior written notice to the other
Parties, this Agreement shall thereafter automatically renew for the remaining
Funds from year to year, subject to termination at the next applicable renewal
date upon not less than 30 days prior written notice. Any

14
<PAGE> 15

Party may terminate this Agreement as to any Fund following the initial term
upon six (6) months advance written notice to the other Parties.

12.2 Termination by Fund, Distributors or Adviser for Cause. Adviser, Fund or
Distributors may terminate this Agreement by written notice to the Company, if
any of them shall determine, in its sole judgment exercised in good faith, that
(a) the Company has suffered a material adverse change in its business,
operations, financial condition or prospects since the date of this Agreement or
is the subject of material adverse publicity; or (b) any of the Contracts are
not registered, issued or sold in accordance with applicable state and federal
law or such law precludes the use of Fund shares as the underlying investment
media of the Contracts issued or to be issued by the Company.

12.3 Termination by Company for Cause. Company may terminate this Agreement by
written notice to the Adviser, Funds and Distributors in the event that (a) any
of the Fund shares are not registered, issued or sold in accordance with
applicable state or federal law or such law precludes the use of such shares as
the underlying investment media of the Contracts issued or to be issued by the
Company; (b) the Funds cease to qualify as Regulated Investment Companies under
Subchapter M of the Code or under any successor or similar provision, or if the
Company reasonably believes that the Funds may fail to so qualify; or (c) a Fund
fails to meet the diversification requirements specified in Section 6.4(a).

12.4 Termination by any Party. This Agreement may be terminated as to any Fund
by any Party at any time (a) by giving 30 days' written notice to the other
Parties in the event of a material breach of this Agreement by the other Party
or Parties that is not cured during such 30-day period, and (b) (i) upon
institution of formal proceedings relating to the legality of the terms and
conditions of this Agreement against the Account, Company or its Designees,
Funds, Adviser or Distributors by the NASD, the SEC or any other regulatory body
provided that the terminating Party has a reasonable belief that the institution
of formal proceedings is not without foundation and will have a material adverse
impact on the terminating Party, (ii) by the non-assigning Party upon the
assignment of this Agreement in contravention of the terms hereof, or (iii) as
is required by law, order or instruction by a court of competent jurisdiction or
a regulatory body or self-regulatory organization with jurisdiction over the
terminating Party.

12.5 Limit on Termination. Notwithstanding the termination of this
Agreement with respect to any or all Funds, for so long as any Contracts remain
outstanding and invested in a Fund each Party to this Agreement shall continue
to perform such of its duties under this Agreement as are necessary to ensure
the continued tax deferred status thereof and the payment of benefits
thereunder, except to the extent proscribed by law, the SEC or other regulatory
body. Notwithstanding the foregoing, nothing in this Section 12.5 obligates a
Fund to continue in existence. In the event that any Fund elects to terminate
its operations, the Company shall, as soon as practicable, obtain an exemptive
order or order of substitution from the SEC to remove all Owners from the
applicable Fund.

13. Notices.

All notices under this Agreement shall be given in writing (and shall be
deemed to have been duly given upon receipt) by delivery in person, by
facsimile, by registered or certified mail

15
<PAGE> 16

or by overnight delivery (postage prepaid, return receipt requested) to the
respective Parties as follows:

If to Strong Variable:

Strong Variable Insurance Funds, Inc.
100 Heritage Reserve
Milwaukee, Wisconsin 53051
Attention: General Counsel
Facsimile No.: 414/359-3948

If to Opportunity Fund II:

Strong Opportunity Fund II, Inc.
100 Heritage Reserve
Milwaukee, Wisconsin 53051
Attention: General Counsel
Facsimile No.: 414/359-3948

If to Adviser:

Strong Capital Management, Inc.
100 Heritage Reserve
Milwaukee, Wisconsin 53051
Attention: General Counsel
Facsimile No.: 414/359-3948

If to Distributors:

Strong Funds Distributors, Inc.
100 Heritage Reserve
Milwaukee, Wisconsin 53051
Attention: General Counsel
Facsimile No.: 414/359-3948

If to Company:

Life Insurance Company of the Southwest
One National Life Drive
Montpelier, VT 05604
Attention: Russell Morgan
Facsimile No.: (802) 229-3743

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<PAGE> 17

14. Miscellaneous.

14.1. Captions. The captions in this Agreement are included for convenience
of reference only and in no way affect the construction or effect of any
provisions hereof.

14.2. Enforceability. If any portion of this Agreement shall be held or made
invalid by a court decision, statute, rule or otherwise, the remainder of the
Agreement shall not be affected thereby.

14.3. Counterparts. This Agreement may be executed simultaneously in two or more
counterparts, each of which taken together shall constitute one and the same
instrument.

14.4. Remedies not Exclusive. The rights, remedies and obligations contained in
this Agreement are cumulative and are in addition to any and all rights,
remedies and obligations, at law or in equity, which the Parties to this
Agreement are entitled to under state and federal laws.

14.5. Confidentiality. Subject to the requirements of legal process and
regulatory authority, the Funds and Distributors shall treat as confidential the
names and addresses of the owners of the Contracts and all information
reasonably identified as confidential in writing by the Company to this
Agreement and, except as permitted by this Agreement, shall not disclose,
disseminate or utilize such names and addresses and other confidential
information without the express written consent of the Company until such time
as it may come into the public domain.

14.6. Governing Law. This Agreement shall be governed by and interpreted
in accordance with the internal laws of the State of Wisconsin applicable to
agreements fully executed and to be performed therein; exclusive of conflicts of
laws.

14.7. Survivability. Sections 6, 7.2, 7.3, 7.4, 9, 11 and 12.5 hereof shall
survive termination of this Agreement. In addition, all provisions of this
Agreement shall survive termination of this Agreement in the event that any
Contracts are invested in a Fund at the time the termination becomes effective
and shall survive for so long as such Contracts remain so invested.

14.8. Amendment and Waiver. No modification of any provision of this
Agreement will be binding unless in writing and executed by the Party to be
bound thereby. No waiver of any provision of this Agreement will be binding
unless in writing and executed by the Party granting such waiver.
Notwithstanding anything in this Agreement to the contrary, the Adviser may
unilaterally amend Exhibit A to this Agreement to add additional series of
Strong Variable Funds ("New Funds") as Funds by sending to the Company a written
notice of the New Funds. Any valid waiver of a provision set forth herein shall
not constitute a waiver of any other provision of this Agreement. In addition,
any such waiver shall constitute a present waiver of such provision and shall
not constitute a permanent future waiver of such provision.

14.9. Assignment. This Agreement shall be binding upon and shall inure to
the benefit of the Parties and their respective successors and assigns;
provided, however, that neither this Agreement nor any rights, privileges,
duties or obligations of the Parties may be assigned by any Party without the
written consent of the other Parties or as expressly contemplated by this
Agreement.

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<PAGE> 18

14.10. Entire Agreement. This Agreement contains the full and complete
understanding between the Parties with respect to the transactions covered and
contemplated under this Agreement, and supersedes all prior agreements and
understandings between the Parties relating to the subject matter hereof,
whether oral or written, express or implied.

14.11. Relationship of Parties; No Joint Venture, Etc. Except for the
limited purpose provided in Section 3.8, it is understood and agreed that the
Company and its Designees shall be acting as an independent contractor and not
as an employee or agent of the Adviser, Distributors or the Funds, and none of
the Parties shall hold itself out as an agent of any other Party with the
authority to bind such Party. Neither the execution nor performance of this
Agreement shall be deemed to create a partnership or joint venture by and among
any of the Company or its Designees, Funds, Adviser, or Distributors.

14.12. Expenses. All expenses incident to the performance by each
Party of its respective duties under this Agreement shall be paid by that
Party.

14.13. Time of Essence. Time shall be of the essence in this
Agreement.

14.14. Non-Exclusivity. Each of the Parties acknowledges and agrees
that this Agreement and the arrangements described herein are intended to be
non-exclusive and that each of the Parties is free to enter into similar
agreements and arrangements with other entities.

14.15. Operations of Funds. In no way shall the provisions of this
Agreement limit the authority of the Funds, the Adviser or Distributors to take
such action as it may deem appropriate or advisable in connection with all
matters relating to the operation of such Fund and the sale of its shares. In no
way shall the provisions of this Agreement limit the authority of the Company to
take such action as it may deem appropriate or advisable in connection with all
matters relating to the provision of Services or the shares of funds other than
the Funds offered to the Account.

LIFE INSURANCE COMPANY OF THW SOUTHWEST

----------------------------------------
By:
Name:
Title:

STRONG CAPITAL MANAGEMENT, INC.

Rochelle Lamm WallachDonald G. Tyler
Vice President of Strong AdvisoIntermediary
Services, a
division of Strong Capital Management, Inc.

STRONG FUNDS DISTRIBUTORS, INC.

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<PAGE> 19

Stephen J. Shenkenberg, Vice President

STRONG VARIABLE INSURANCE FUNDS, INC. on behalf
of the Designated Portfolios

----------------------------------------
Stephen J. Shenkenberg, Vice President

STRONG OPPORTUNITY FUND II, INC.

----------------------------------------
Stephen J. Shenkenberg, Vice President

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<PAGE> 20

EXHIBIT A

The following is a list of Designated Portfolios under this Agreement:

Strong Growth Fund II
Strong Opportunity Fund II

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<PAGE> 21

EXHIBIT B
The Services

Company or its Designees shall perform the following services. Such
services shall be the responsibility of the Company and shall not be the
responsibility of the Funds, Adviser or Distributors.

1. Maintain separate records for each Account, which records shall
reflect Fund shares ("Shares") purchased and redeemed, including the date and
price for all transactions, Share balances, and the name and address of each
Owner, including zip codes and tax identification numbers.

2. Credit contributions to individual Owner accounts and invest such
contributions in shares of the Funds to the extent so designated by the Owner.

3. Disburse or credit to the Owners, and maintain records of, all
proceeds of redemptions of Fund shares and all other distributions not
reinvested in shares.

4. Prepare and transmit to the Owners, periodic account statements
showing, among other things, the total number of Fund shares owned as of the
statement closing date, purchases and redemptions of shares during the period
covered by the statement, the net asset value of the Funds as of a recent date,
and the dividends and other distributions paid during the statement period
(whether paid in cash or reinvested in shares).

5. Transmit to the Owners, as required by applicable law, prospectuses,
proxy materials, shareholder reports, and other information provided by the
Adviser, Distributors or Funds and required to be sent to shareholders under the
Federal securities laws.

6. Transmit to Distributors purchase orders and redemption requests
placed by the Account and arrange for the transmission of funds to and from the
Funds.

7. Transmit to Distributors such periodic reports as Distributors shall
reasonably conclude is necessary to enable the Funds to comply with applicable
Federal securities and state Blue Sky requirements.

8. Transmit to each Account confirmations of purchase orders and
redemption requests placed by each Account.

9. Maintain all account balance information for the Account and daily
and monthly purchase summaries expressed in shares and dollar amounts.

10. Prepare, transmit and file any Federal, state and local government
reports and returns as required by law with respect to each account maintained
on behalf of the Account.

11. Respond to Owners' inquiries regarding, among other things, share
prices, account balances, dividend options, dividend amounts, and dividend
payment dates.

21
<PAGE> 22

EXHIBIT C

Account Information

1. Entity in whose name each Account will be opened:
Mailing address:

2. Employer ID number (For internal usage only):

3. Authorized contact persons: The following persons are authorized on behalf
of the Company to effect transactions in each Account:

Name: Name:
----------------------------- --------------------------------
Phone: Phone:
---------------------------- -------------------------------

4. Will the Accounts have telephone exchange? ____ Yes
____ No
(This option lets Company redeem shares by telephone and apply the
proceeds for purchase in another identically registered Strong Funds account.)

5. Will the Accounts have telephone redemption? ____ Yes
____ No
(This option lets Company sell shares by telephone. The proceeds will be
wired to the bank account specified below.)

6. All dividends and capital gains will be reinvested automatically.

7. Instructions for all outgoing wire transfers:

8. If this Account Information Form contains changed information, the
undersigned authorized officer has executed this amended Account Information
Form as of the date set forth below and acknowledges the agreements and
representations set forth in the Participation Agreement between the Company,
the Funds, Adviser and Distributors:

22
<PAGE> 23

9. Company represents under penalty of perjury that:

(a) The employer ID number on this form is correct; and

(b) Company is not subject to backup withholding because (i) Company is
exempt from backup withholding, (ii) Company has not been notified by the IRS
that it is subject to backup withholding as a result of failure to report all
interest or dividends, or (iii) the IRS has notified the Company that it is no
longer subject to backup withholding. (Cross out (b) if Company has been
notified by the IRS that it is subject to backup withholding because of
underreporting interest or dividends on its tax return.)

--------------------------------------
(Signature of Authorized Officer) (Date)

Please Note: Distributors employs reasonable procedures to confirm that
instructions communicated by telephone are genuine and may not be liable for
losses due to unauthorized or fraudulent instructions. Please see the prospectus
for the applicable Fund for more information on the telephone exchange and
redemption privileges.

For Strong Internal Use: This Account Information Form may be a copy. The
original Account Information Form is attached to the Participation Agreement
with the Adviser and retained in the legal department.

23
<PAGE> 24

Re: Fee Letter Relating to the Life Insurance Company of the Southwest
Participation Agreement.

Dear Russell:

Pursuant to the Participation Agreement by and among Strong Capital
Management, Inc. ("Strong"), Life Insurance Company of the Southwest (the
"Company"), Strong Variable Insurance Funds, Inc., Strong Opportunity Fund II,
Inc. and Strong Funds Distributors, Inc. ("Distributors") dated _________ __,
1998 (the "Participation Agreement"), the Company or its Designee will provide
certain administrative services on behalf of the registered investment companies
or series thereof specified in Exhibit A (each a "Fund" and collectively the
"Funds").

In recognition of the reduction in administrative expenses that derives
from the performance of said administrative services, Strong agrees to pay the
Company the fee specified below for each Fund specified in Exhibit A to this
Letter Agreement.

(a) For average aggregate amounts (as calculated in paragraph (b), below)
invested through variable insurance products issued by the Company with the
Funds, the monthly fee shall equal the percentage (calculated in paragraph (b),
below) of the applicable annual fee for each Fund specified in Exhibit A.

(b) For purposes of computing the fee contemplated in paragraph (a) above,
Strong shall calculate and pay to the Company an amount with respect to each
Fund equal to the product of: (a) the product of (i) the number of calendar days
in the applicable month divided by the number of calendar days in that year (365
or 366 as applicable) and (ii) the applicable percentage specified in Exhibit A,
to this Letter Agreement, multiplied by (b) the average daily market value of
the investments held in such Fund pursuant to the Participation Agreement
computed by totaling the aggregate investment (share net asset value multiplied
by the total number of shares held) on each day during the calendar month and
dividing by the total number of days during such month.

(c) Strong shall calculate the amount of the payment to be made pursuant to
this Letter Agreement at the end of each calendar month and will make such
payment to the Company within 30 days after receiving the report referenced in
paragraph (e), below. Fees will be paid, at Strong's election, by wire transfer
or by check. All payments under this Letter Agreement shall be considered final
unless disputed by the Company in writing within 60 days of receipt.

(d) The parties agree that the fees contemplated herein are solely for
shareholder servicing and other administrative services provided by the Company
or its Designee and do not constitute payment in any manner for investment
advisory, distribution, trustee, or custodial services.

(e) The Company agrees to provide Strong by the 15th day of each month with a
report which indicates the number of Owners that hold through a Contract
interests in each Account as of the last day of the prior month.

24
<PAGE> 25

(f) If requested in writing by Strong, and at Strong's expense, the Company
shall provide to Strong, by February 14th of each year, a "Special Report" from
a nationally recognized accounting firm reasonably acceptable to Strong which
substantiates for each month of the prior calendar year: (a) the number of
Owners that hold, through an Account, interests in each Account maintained by
the Company on the last day of each month which held shares for which the fee
provided for in this Letter Agreement was received by the Company, (b) that any
fees billed to Strong for such month were accurately determined in accordance
with this Letter Agreement, and (c) such other information in connection with
this Letter Agreement and the Participation Agreement as may be reasonably
requested by Strong.

(g) The parties to this Letter Agreement agree that Strong may unilaterally
amend Schedule A to this Letter Agreement to add additional investment companies
or series thereof ("New Funds") as Funds subject to the provisions of this
Letter Agreement by sending to the Company a written notice of the New Funds and
indicating therein the fees to be paid to the Company with respect to the
administrative services provided pursuant to the Participation Agreement in
connection with such New Funds.

(h) The obligation to pay the fees specified in this Letter Agreement shall
survive the termination of the Participation Agreement for a period of one year
from the date of termination, provided that Company continues to provide
Services to the Owners with respect to those assets invested in the Funds and
provided that the Participation Agreement has not been terminated because of an
event described in Sections 12.2, 12.3 or 12.4 of the Participation Agreement.
Company agrees that in the event of termination it will provide the Adviser with
any reports and certificates as requested by the Adviser to determine that the
continued payment of fees has been calculated in accordance with this Letter
Agreement.

(i) Capitalized terms not otherwise defined herein shall have the meaning
assigned to them in the Participation Agreement.

If you are in agreement with the foregoing, please sign and date below
where indicated and return one copy of this signed Letter Agreement to me.

Very truly yours,

Donald G. Tyler, Senior Vice
President,
Strong Intermediary Services
Accepted and agreed to this _____ day of
_____________, 1998.

Life Insurance Company of the Southwest

- ----------------------------------------
By:
Name:
Title:

25
<PAGE> 26

EXHIBIT A to Fee Letter

The Funds subject to this Agreement and applicable annual fees are as follows:
<TABLE>
<CAPTION>
Fund Annual Fee
<S> <C>
Strong Opportunity Fund II, Inc. .20%
Strong Variable Insurance Funds, Inc.
Strong Growth Fund II .20%
</TABLE>

<PAGE> 1
Exhibit (b)(8)(e)

AMENDMENT NO. 4 TO PARTICIPATION AGREEMENT
AMONG
VARIABLE INSURANCE PRODUCTS FUND II,
FIDELITY DISTRIBUTORS CORPORATION
NATIONAL LIFE INSURANCE COMPANY, AND
LIFE INSURANCE COMPANY OF THE SOUTHWEST

THIS AMENDMENT NO. 4 to the Participation Agreement by and among Vermont Life
Insurance Company (since merged into National Life Insurance Company), Variable
Insurance Products Fund II (the "Fund"), Fidelity Distributors Corporation
(the "Underwriter") and, by this Amendment No. 4 the Life Insurance Company of
the Southwest ("LSW"), dated August 1, 1989 as amended by Amendment No. 1 to
Participation Agreement dated January 1, 1996, Amendment No. 2 to Participation
Agreement dated April 28, 1997 and Amendment No. 3 dated April 15, 1998 (the
"Participation Agreement"), is made and entered into this ____ day of _______,
1998.

1. By executing this Amendment No. 4, LSW hereby
a. becomes a party to this Participation Agreement
b. is included in the definition of "the Company" along with National
Life Insurance Company
c. is bound by all of the terms and conditions of the Participation
Agreement referenced above.

2. Schedule A is hereby further amended to add the following contract forms:
Life Insurance Company of the Southwest Contract Form (Flexible
Premium Variable Deferred Annuity)

3. Schedule C is hereby further amended to add the following separate account:
LSW Variable Annuity Account I - December 4, 1997

IN WITNESS WHEREOF, each of the parties hereto has caused this Amendment No. 4
to the Participation Agreement to be executed in its name and on its behalf by
its duly authorized representative and its seal to be affixed hereto as of the
date specified below.

NATIONAL LIFE INSURANCE COMPANY

by
---------------------------------------
Name:
Title:

VARIABLE INSURANCE PRODUCTS FUND II

by
---------------------------------------
Name:
Title:

FIDELITY DISTRIBUTORS CORPORATION

by
---------------------------------------
Name:
Title:

LIFE INSURANCE COMPANY OF THE SOUTHWEST
BY: NATIONAL LIFE INSURANCE COMPANY

by
---------------------------------------

<PAGE> 1
Exhibit (b)(9)

LSW LETTERHEAD

July 1, 1998
The Board of Directors
Life Insurance Company of the Southwest
1300 West Mockingbird Lane
Dallas, Texas 75356-9080

Re: Variable Annuity Registration Statement

Ladies and Gentlemen:

With reference to the Registration Statement on Form N-4 as amended,
filed by Life Insurance Company of the Southwest and LSW Variable Annuity
Account I with the Securities and Exchange Commission covering individual
variable annuity contracts, I have examined such documents and such laws as I
considered necessary and appropriate and on the basis of such examination, it is
my opinion that:

1. Life Insurance Company of the Southwest is duly organized
and validly existing under the laws the State of Texas,
and is duly authorized to issue life insurance and annuity
contracts by the Department of Insurance of the State of
Texas. The Company intends to apply for variable annuity
authority with the Texas Insurance Department upon receipt
of approval from the Securities and Exchange Commission
of the RetireMax Variable Annuity.

2. LSW Variable Annuity Account I is a duly authorized and
existing separate account established pursuant to the
provisions of Article 3.75, Section 1, Texas Insurance
Code.

3. The individual variable annuity contracts, when issued as
contemplated by said Form N-4 Registration Statement, will
constitute legal, validly existing issued and binding
obligations of Life Insurance Company of the Southwest.

I hereby consent to the filing of this opinion as an Exhibit to said
Form N-4 Registration Statement and to the use of my name under the
caption "Legal Matters" in the Registration Statement.

Sincerely,

Susan J. Jennings
General Counsel
SJJ/r:va:lswopcon

<PAGE> 1
Exhibit (b)(10)(a)

SUTHERLAND, ASBILL & BRENNAN, LLP LETTERHEAD

July 22, 1998

Board of Directors
National Life Insurance Company
National Life Drive
Montpelier, VT 05604

Ladies and Gentlemen:

We hereby consent to the reference to our name under the caption
"Legal Matters" in the Statement of Additional Information filed as part of
Pre-Effective Amendment No. 1 to the registration statement o Form N-4 for the
LSW Variable Annuity Account I (File No. 333-47363). In giving this consent, we
do not admit that we are in the category of persons whose consent is required
under Section 7 of the Securities Act of 1933.

Very truly yours,

SUTHERLAND, ASBILL 7 BRENNAN, L.L.P.

By: /s/ STEPHEN E. ROTH
---------------------------------
Stephen E. Roth

<PAGE> 1
EXHIBIT (b)(10)(b)

Consent of Independent Accountants

We hereby consent to the use in the Statement of Additional Information
constituting part of this Pre-Effective Amendment No. 1 to the registration
statement on Form N-4 of our reports dated April 7, 1998 and February 28, 1997,
relating to the statutory basis financial statements of Life Insurance Company
of the Southwest which appear in such Statement of Additional Information.
We also consent to the reference to us under the heading "Experts" in such
Statement of Additional Information.

PricewaterhouseCoopers LLP
Dallas, Texas
July 31, 1998

<PAGE> 1
EXHIBIT 99(b)(10)(c)

CONSENT OF INDEPENDENT ACCOUNTANTS

The Board of Directors
Life Insurance Company of the Southwest

We hereby consent to the use in the Statement of Additional Information
constituting part of this Pre-Effective Amendment No.1 to the registration
statement on Form N-4 of our report dated April 5,1996, relating to the
statutory basis financial statements of Life Insurance Company of the Southwest
which appears in such Statement of Additional Information. We also consent to
the reference to us under the heading "Experts" in such Statement of Additional
Information.

Our report dated April 5, 1996 expressed our opinion that the financial
statements did not present fairly in conformity with generally accepted
accounting principles, the financial position of Life Insurance Company of the
Southwest at December 31, 1995, or the results of its operations or its cash
flows for the year then ended.

KPMG Peat Marwick LLP
Dallas, Texas
July 31, 1998

<PAGE> 1
EXHIBIT (b)(13)

RETURN FOR THE 1 YEAR PERIOD ENDING 12/31/97
WITH ENHANCED DEATH BENEFIT RIDER
ADVISOR: FIDELITY
FUND: EQUITY INCOME

- ---------------------------------------------------------
1
----
Average Annual Total Return = [ERV with Surrender]Term
------------------ -1
[ Premium ]
- ---------------------------------------------------------

- -------------------------------
1
----
Total Return = [ ERV ]Term
------- -1
[Premium]
- -------------------------------

M&E, Admin, Contract Fee, and Rider (0.0125 + 0.0015 + 0.0006 + 0.0020)/12 =
0.001383
Premium: $1,000

<TABLE>
<CAPTION>
---------------------------------------------------------------------
Standardized Return Calculation
Premium = $1,000, Surrender, Rider
---------------------------------------------------------------------
ERV Surrender ERV with Term Average Annual
Month Charge Surrender Total Return
Ending ---------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
12/31/97 $1,260.38 $70.00 $1,190.38 1 19.04%
11/30/97 $1,235.58
10/31/97 $1,193.51
9/30/97 $1,240.57
8/31/97 $1,177.48
7/31/97 $1,237.21
6/30/97 $1,154.55
5/31/97 $1,104.72
4/30/97 $1,041.62
3/31/97 $1,007.28
2/28/97 $1,047.67
1/31/97 $1,037.61
1/1/97 $1,000.00
---------------------------------------------------------------------
</TABLE>

<TABLE>
<CAPTION>
Premium: $10,000

---------------------------------------
Non-Standard Return Calculation
Premium = $10,000, No Surrender, Rider
---------------------------------------
Month ERV Term Total Return
Ending ---------------------------------------
<S> <C> <C> <C>
12/31/97 $12,603.82 1 26.04%
11/30/97 $12,355.81
10/31/97 $11,935.10
9/30/97 $12,405.75
8/31/97 $11,774.84
7/31/97 $12,372.14
6/30/97 $11,545.49
5/31/97 $11,047.19
4/30/97 $10,416.17
3/31/97 $10,072.80
2/28/97 $10,476.68
1/31/97 $10,376.09
1/1/97 $10,000.00
---------------------------------------
</TABLE>

Life Insurance of the Southwest
RetirMax Variable Annuity
<PAGE> 2

RETURN FOR THE 5 YEAR PERIOD ENDING 12/31/97
WITH ENHANCED DEATH BENEFIT RIDER
ADVISOR: FIDELITY
FUND: EQUITY INCOME

- -------------------------------
1
----
Total Return = [ ERV ]Term
------- -1
[Premium]
- -------------------------------

M&E, Admin, Contract Fee, and Rider (0.0125 + 0.0015 + 0.0006 + 0.0020)/12 =
0.001383
Premium: $1,000

<TABLE>
<CAPTION>
(a) (b)
Month Monthly M&E and Factor
Ending Return Contract Fee 1+[(a)-(b)]
<S> <C> <C> <C>
12/31/97 2.15% 0.1383% 1.020072
11/30/97 3.66% 1.035250
10/31/97 -3.66% 0.962062
9/30/97 5.50% 1.053581
8/31/97 -4.69% 0.951722
7/31/97 7.30% 1.071599
6/30/97 4.65% 1.045106
5/31/97 6.20% 1.060581
4/30/97 3.55% 1.034089
3/31/97 -3.72% 0.961449
2/28/97 1.11% 1.009695
1/31/97 3.90% 1.037609
12/31/96 -1.64% 0.982246
11/30/96 6.69% 1.065483
10/31/96 1.62% 1.014844
9/30/96 4.28% 1.041451
8/31/96 2.05% 1.019124
7/31/96 -4.88% 0.949849
6/30/96 -0.92% 0.989461
5/31/96 1.08% 1.009414
4/30/96 1.30% 1.011638
3/31/96 1.05% 1.009117
2/29/96 0.34% 1.002017
1/31/96 2.91% 1.027717
12/31/95 2.93% 1.027917
11/30/95 4.32% 1.041817
10/31/95 -1.15% 0.987117
9/30/95 3.32% 1.031817
</TABLE>

<TABLE>
<CAPTION>
------------------------------------------------------------------------
Standardized Return Calculation
Premium = $1,000, Surrender, Rider
------------------------------------------------------------------------
ERV Surrender ERV with Term Average Annual
Month Charge Surrender Total Return
Ending ------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
12/31/97 $2,308.00 $30.00 $2,278.00 5 17.90%
11/30/97 $2,262.59
10/31/97 $2,185.55
9/30/97 $2,271.73
8/31/97 $2,156.20
7/31/97 $2,265.58
6/30/97 $2,114.20
5/31/97 $2,022.95
4/30/97 $1,907.40
3/31/97 $1,844.52
2/28/97 $1,918.48
1/31/97 $1,900.06
12/31/96 $1,831.19
11/30/96 $1,864.29
10/31/96 $1,749.72
9/30/96 $1,724.12
8/31/96 $1,655.50
7/31/96 $1,624.43
6/30/96 $1,710.20
5/31/96 $1,728.42
4/30/96 $1,712.30
3/31/96 $1,692.60
2/29/96 $1,677.31
1/31/96 $1,673.94
12/31/95 $1,628.79
11/30/95 $1,584.56
10/31/95 $1,520.95
9/30/95 $1,540.80
</TABLE>

<TABLE>
<CAPTION>
Premium: $10,000

-------------------------------------------
Non-Standard Return Calculation
Premium = $10,000, No Surrender, Rider
-------------------------------------------
Month ERV Term Total Return
Ending -------------------------------------------
<S> <C> <C> <C>
12/31/97 $23,080.03 5 18.21%
11/30/97 $22,625.87
10/31/97 $21,855.47
9/30/97 $22,717.32
8/31/97 $21,562.00
7/31/97 $22,655.78
6/30/97 $21,142.02
5/31/97 $20,229.55
4/30/97 $19,074.02
3/31/97 $18,445.24
2/28/97 $19,184.83
1/31/97 $19,000.62
12/31/96 $18,311.93
11/30/96 $18,642.92
10/31/96 $17,497.15
9/30/96 $17,241.23
8/31/96 $16,555.00
7/31/96 $16,244.35
6/30/96 $17,102.03
5/31/96 $17,284.19
4/30/96 $17,123.00
3/31/96 $16,926.03
2/29/96 $16,773.11
1/31/96 $16,739.35
12/31/95 $16,287.91
11/30/95 $15,845.55
10/31/95 $15,209.54
9/30/95 $15,408.05
</TABLE>

Life Insurance of the Southwest
RetirMax Variable Annuity
<PAGE> 3
<TABLE>
<S> <C> <C> <C> <C>
8/31/95 1.25% 1.011117 $1,493.29 $14,932.93
7/31/95 3.85% 1.037117 $1,476.88 $14,768.75
6/30/95 1.44% 1.013017 $1,424.02 $14,240.20
5/31/95 3.01% 1.028717 $1,405.72 $14,057.23
4/30/95 2.78% 1.026417 $1,366.48 $13,664.82
3/31/95 3.45% 1.033117 $1,331.31 $13,313.13
2/28/95 3.81% 1.036717 $1,288.64 $12,886.38
1/31/95 1.56% 1.014217 $1,243.00 $12,429.99
12/31/94 0.33% 1.001917 $1,225.58 $12,255.75
11/30/94 -3.27% 0.965917 $1,223.23 $12,232.31
10/31/94 2.05% 1.019117 $1,266.39 $12,663.94
9/30/94 -1.64% 0.982217 $1,242.64 $12,426.38
8/31/94 5.15% 1.050117 $1,265.14 $12,651.37
7/31/94 3.34% 1.032017 $1,204.76 $12,047.58
6/30/94 -0.62% 0.992417 $1,167.38 $11,673.83
5/31/94 0.95% 1.008117 $1,176.30 $11,763.03
4/30/94 3.45% 1.033117 $1,166.83 $11,668.32
3/31/94 -4.18% 0.956817 $1,129.43 $11,294.29
2/28/94 -2.58% 0.972817 $1,180.40 $11,804.03
1/31/94 4.40% 1.042617 $1,213.39 $12,133.87
12/31/93 2.31% 1.021717 $1,163.79 $11,637.90
11/30/93 -1.75% 0.981117 $1,139.05 $11,390.54
10/31/93 0.91% 1.007717 $1,160.98 $11,609.77
9/30/93 -0.38% 0.994817 $1,152.09 $11,520.86
8/31/93 3.83% 1.036917 $1,158.09 $11,580.89
7/31/93 1.36% 1.012217 $1,116.86 $11,168.58
6/30/93 1.18% 1.010417 $1,103.38 $11,033.79
5/31/93 1.81% 1.016717 $1,092.00 $10,920.04
4/30/93 -0.42% 0.994417 $1,074.05 $10,740.49
3/31/93 2.98% 1.028417 $1,080.08 $10,800.80
2/28/93 2.25% 1.021117 $1,050.24 $10,502.36
1/31/93 2.99% 1.028517 $1,028.52 $10,285.17
1/1/93 $1,000.00 $10,000.00
---------------------- -------------------------

</TABLE>

Life Insurance of the Southwest
RetirMax Variable Annuity

<PAGE> 4
RETURN FOR THE 10 YEAR PERIOD ENDING 12/31/97
WITH ENHANCED DEATH BENEFIT RIDER
ADVISOR: FIDELITY
FUND: EQUITY INCOME

- -------------------------------
1
----
Total Return = [ ERV ]Term
------- -1
[Premium]
- -------------------------------

M&E, Admin, Contract Fee, and Rider (0.0125 + 0.0015 + 0.0006 + 0.0020)/12 =
0.001383
Premium: $1,000

<TABLE>
<CAPTION>
-------------------------------------------------------------------------------
Standardized Return Calculation
Premium = $1,000, Surrender, Rider
-------------------------------------------------------------------------------
ERV Surrender ERV with Term Average Annual
Month Charge Surrender Total Return
Ending -------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
12/31/97 $3,983.82 $0.00 $3,983.82 10 14.82%
11/30/97 $3,905.43
10/31/97 $3,772.45
9/30/97 $3,921.22
8/31/97 $3,721.80
7/31/97 $3,910.59
6/30/97 $3,649.31
5/31/97 $3,491.80
4/30/97 $3,292.35
3/31/97 $3,183.82
2/28/97 $3,311.48
1/31/97 $3,279.68
12/31/96 $3,160.81
11/30/96 $3,217.94
10/31/96 $3,020.17
9/30/96 $2,975.99
8/31/96 $2,857.54
7/31/96 $2,803.92
6/30/96 $2,951.97
5/31/96 $2,983.41
4/30/96 $2,955.59
3/31/96 $2,921.59
2/29/96 $2,895.19
1/31/96 $2,889.36
12/31/95 $2,811.44
11/30/95 $2,735.09
10/31/95 $2,625.30
9/30/95 $2,659.57
</TABLE>

<TABLE>
<CAPTION>
Premium: $10,000

-------------------------------------------------
Non-Standard Return Calculation
Premium = $10,000, No Surrender, Rider
-------------------------------------------------
Month ERV Term Total Return
Ending -------------------------------------------------
<S> <C> <C> <C>
12/31/97 $39,838.22 10 14.82%
11/30/97 $39,054.32
10/31/97 $37,724.53
9/30/97 $39,212.16
8/31/97 $37,217.98
7/31/97 $39,105.94
6/30/97 $36,493.05
5/31/97 $34,918.03
4/30/97 $32,923.48
3/31/97 $31,838.16
2/28/97 $33,114.75
1/31/97 $32,796.80
12/31/96 $31,608.06
11/30/96 $32,179.37
10/31/96 $30,201.67
9/30/96 $29,759.92
8/31/96 $28,575.44
7/31/96 $28,039.22
6/30/96 $29,519.67
5/31/96 $29,834.09
4/30/96 $29,555.86
3/31/96 $29,215.86
2/29/96 $28,951.92
1/31/96 $28,893.65
12/31/95 $28,114.41
11/30/95 $27,350.86
10/31/95 $26,253.05
9/30/95 $26,595.69
</TABLE>

Life Insurance of the Southwest
RetirMax Variable Annuity

Life Insurance of the Southwest
RetirMax Variable Annuity

Life Insurance of the Southwest
RetirMax Variable Annuity

Life Insurance of the Southwest
RetirMax Variable Annuity

<PAGE> 8
RETURN FOR THE 1 YEAR PERIOD ENDING 12/31/97

ADVISOR: FIDELITY
FUND: EQUITY INCOME

- -------------------------------
1
----
Total Return = [ ERV ]Term
------- -1
[Premium]
- -------------------------------

M&E, Admin, and Contract Fee (0.0125 + 0.0015 + 0.0006)/12 = 0.001217
Premium: $1,000

<TABLE>
<CAPTION>
----------------------------------------------------------------------------
Standardized Return Calculation
Premium = $1,000, Surrender, Rider
----------------------------------------------------------------------------
ERV Surrender ERV with Term Average Annual
Month Charge Surrender Total Return
Ending ----------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
12/31/97 $1,262.86 $70.00 $1,192.86 1 19.29%
11/30/97 $1,237.81
10/31/97 $1,195.47
9/30/97 $1,242.39
8/31/97 $1,179.02
7/31/97 $1,238.62
6/30/97 $1,155.68
5/31/97 $1,105.62
4/30/97 $1,042.30
3/31/97 $1,007.78
2/28/97 $1,048.01
1/31/97 $1,037.78
1/1/97 $1,000.00
----------------------------------------------------------------------------
</TABLE>

<TABLE>
<CAPTION>
Premium: $10,000

----------------------------------------------
Non-Standard Return Calculation
Premium = $10,000, No Surrender, Rider
----------------------------------------------
Month ERV Term Total Return
Ending ----------------------------------------------
<S> <C> <C> <C>
12/31/97 $12,628.58 1 26.29%
11/30/97 $12,378.07
10/31/97 $11,954.67
9/30/97 $12,423.94
8/31/97 $11,790.24
7/31/97 $12,386.16
6/30/97 $11,556.77
5/31/97 $11,056.22
4/30/97 $10,423.04
3/31/97 $10,077.82
2/28/97 $10,480.09
1/31/97 $10,377.75
1/1/97 $10,000.00
----------------------------------------------
</TABLE>

Life Insurance of the Southwest
RetirMax Variable Annuity

<PAGE> 9
RETURN FOR THE 5 YEAR PERIOD ENDING 12/31/97

ADVISOR: FIDELITY
FUND: EQUITY INCOME

- -------------------------------
1
----
Total Return = [ ERV ]Term
------- -1
[Premium]
- -------------------------------

M&E, Admin, and Contract Fee (0.0125 + 0.0015 + 0.0006)/12 = 0.001217
Premium: $1,000

<TABLE>
<CAPTION>
(a) (b)
Month Monthly M&E and Factor
Ending Return Contract Fee 1+[(a)-(b)]
<S> <C> <C> <C>
12/31/97 2.15% 0.1217% 1.020239
11/30/97 3.66% 1.035417
10/31/97 -3.66% 0.962229
9/30/97 5.50% 1.053748
8/31/97 -4.69% 0.951889
7/31/97 7.30% 1.071766
6/30/97 4.65% 1.045273
5/31/97 6.20% 1.060748
4/30/97 3.55% 1.034255
3/31/97 -3.72% 0.961616
2/28/97 1.11% 1.009861
1/31/97 3.90% 1.037775
12/31/96 -1.64% 0.982413
11/30/96 6.69% 1.065650
10/31/96 1.62% 1.015011
9/30/96 4.28% 1.041618
8/31/96 2.05% 1.019291
7/31/96 -4.88% 0.950015
6/30/96 -0.92% 0.989628
5/31/96 1.08% 1.009580
4/30/96 1.30% 1.011804
3/31/96 1.05% 1.009283
2/29/96 0.34% 1.002183
1/31/96 2.91% 1.027883
12/31/95 2.93% 1.028083
11/30/95 4.32% 1.041983
10/31/95 -1.15% 0.987283
9/30/95 3.32% 1.031983
</TABLE>

<TABLE>
<CAPTION>
-----------------------------------------------------------------------------
Standardized Return Calculation
Premium = $1,000, Surrender, Rider
-----------------------------------------------------------------------------
ERV Surrender ERV with Term Average Annual
Month Charge Surrender Total Return
Ending -----------------------------------------------------------------------------
<S> <S> <C> <C> <C> <C>
12/31/97 $2,330.88 $30.00 $2,300.88 5 18.14%
11/30/97 $2,284.64
10/31/97 $2,206.50
9/30/97 $2,293.11
8/31/97 $2,176.15
7/31/97 $2,286.14
6/30/97 $2,133.06
5/31/97 $2,040.67
4/30/97 $1,923.80
3/31/97 $1,860.08
2/28/97 $1,934.33
1/31/97 $1,915.44
12/31/96 $1,845.72
11/30/96 $1,878.76
10/31/96 $1,763.02
9/30/96 $1,736.95
8/31/96 $1,667.55
7/31/96 $1,635.99
6/30/96 $1,722.07
5/31/96 $1,740.11
4/30/96 $1,723.60
3/31/96 $1,703.49
2/29/96 $1,687.83
1/31/96 $1,684.15
12/31/95 $1,638.46
11/30/95 $1,593.71
10/31/95 $1,529.49
9/30/95 $1,549.19
</TABLE>

<TABLE>
<CAPTION>
Premium: $10,000

---------------------------------------------
Non-Standard Return Calculation
Premium = $10,000, No Surrender, Rider
---------------------------------------------
ERV Term Total Return
Month
Ending ---------------------------------------------
<S> <C> <C> <C>
12/31/97 $23,308.83 5 18.44%
11/30/97 $22,846.44
10/31/97 $22,064.98
9/30/97 $22,931.11
8/31/97 $21,761.48
7/31/97 $22,861.37
6/30/97 $21,330.56
5/31/97 $20,406.69
4/30/97 $19,238.02
3/31/97 $18,600.84
2/28/97 $19,343.31
1/31/97 $19,154.42
12/31/96 $18,457.20
11/30/96 $18,787.62
10/31/96 $17,630.20
9/30/96 $17,369.48
8/31/96 $16,675.48
7/31/96 $16,359.89
6/30/96 $17,220.66
5/31/96 $17,401.15
4/30/96 $17,236.02
3/31/96 $17,034.94
2/29/96 $16,878.25
1/31/96 $16,841.48
12/31/95 $16,384.62
11/30/95 $15,937.06
10/31/95 $15,294.93
9/30/95 $15,491.93
</TABLE>

Life Insurance of the Southwest
RetirMax Variable Annuity

Life Insurance of the Southwest
RetirMax Variable Annuity

<PAGE> 11
RETURN FOR THE 10 YEAR PERIOD ENDING 12/31/97

ADVISOR: FIDELITY
FUND: EQUITY INCOME

- -------------------------------
1
----
Total Return = [ ERV ]Term
------- -1
[Premium]
- -------------------------------

M&E, Admin, and Contract Fee (0.0125 + 0.0015 + 0.0006)/12 = 0.001217
Premium: $1,000

<TABLE>
<CAPTION>
--------------------------------------------------------------------
Standardized Return Calculation
Premium = $1,000, Surrender, Rider
--------------------------------------------------------------------
ERV Surrender ERV with Term Average Annual
Month Charge Surrender Total Return
Ending --------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
12/31/97 $4,063.41 $0.00 $4,063.41 10 15.05%
11/30/97 $3,982.80
10/31/97 $3,846.57
9/30/97 $3,997.56
8/31/97 $3,793.66
7/31/97 $3,985.40
6/30/97 $3,718.54
5/31/97 $3,557.48
4/30/97 $3,353.75
3/31/97 $3,242.67
2/28/97 $3,372.10
1/31/97 $3,339.17
12/31/96 $3,217.63
11/30/96 $3,275.23
10/31/96 $3,073.46
9/30/96 $3,028.00
8/31/96 $2,907.02
7/31/96 $2,852.00
6/30/96 $3,002.06
5/31/96 $3,033.53
4/30/96 $3,004.74
3/31/96 $2,969.68
2/29/96 $2,942.37
1/31/96 $2,935.96
12/31/95 $2,856.32
11/30/95 $2,778.29
10/31/95 $2,666.35
9/30/95 $2,700.69
</TABLE>

<TABLE>
<CAPTION>
Premium: $10,000

-----------------------------------------------
Non-Standard Return Calculation
Premium = $10,000, No Surrender, Rider
-----------------------------------------------
ERV Term Total Return
Month
Ending -----------------------------------------------
<S> <C> <C> <C>
12/31/97 $40,634.06 10 15.05%
11/30/97 $39,827.99
10/31/97 $38,465.67
9/30/97 $39,975.60
8/31/97 $37,936.58
7/31/97 $39,854.02
6/30/97 $37,185.37
5/31/97 $35,574.80
4/30/97 $33,537.46
3/31/97 $32,426.67
2/28/97 $33,721.02
1/31/97 $33,391.73
12/31/96 $32,176.26
11/30/96 $32,752.28
10/31/96 $30,734.57
9/30/96 $30,280.05
8/31/96 $29,070.21
7/31/96 $28,520.04
6/30/96 $30,020.61
5/31/96 $30,335.26
4/30/96 $30,047.39
3/31/96 $29,696.85
2/29/96 $29,423.70
1/31/96 $29,359.60
12/31/95 $28,563.16
11/30/95 $27,782.92
10/31/95 $26,663.50
9/30/95 $27,006.94
</TABLE>

Life Insurance of the Southwest
RetirMax Variable Annuity

Life Insurance of the Southwest
RetirMax Variable Annuity

Life Insurance of the Southwest
RetirMax Variable Annuity

Life Insurance of the Southwest
RetirMax Variable Annuity

<PAGE> 15
7-DAY YIELD AS OF 12/31/97

ADVISOR: MARKET STREET
FUND: MONEY MARKET

- ------------------------------------------------------
7 365
7-Day Yield = ((Pi(1 + Dividend - ES))-1)x ---
t-1 t 7

365
---
7 7
7-Day Effective Yield = (Pi(1 + Dividend - ES)) -1
t-1 t
- ------------------------------------------------------

M&E, Admin and Contract Fee (0.0125 + 0.0015 + 0.0006)/365 = 0.000040

<TABLE>
<CAPTION>
-----------------------------
7-Day
7-Day Yield Effective
Day Dividend ES 1+Dividend-ES Product Yield
-----------------------------
<S> <C> <C> <C> <C> <C> <C>
12/31/97 0.000296058 0.000040 1.000256058 1.001497128 7.81% 8.11%
12/30/97 0.000146271 0.000040 1.000106271
12/29/97 0.000155986 0.000040 1.000115986
12/28/97 0.000297562 0.000040 1.000257562
12/27/97 0.000297562 0.000040 1.000257562
12/26/97 0.000297562 0.000040 1.000257562
12/25/97 0.000285182 0.000040 1.000245182
</TABLE>

Life Insurance of the Southwest
RetirMax Variable Annuity