NATIONAL VARIABLE LIFE INSURANCE ACCOUNT, 485BPOS, 1997-04-30

NATIONAL VARIABLE LIFE INSURANCE ACCOUNT
485BPOS, 1997-04-30

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<PAGE> 1

As filed with the Securities and Exchange Commission on April 30, 1997.

Registration No. 33-91938

================================================================================

SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549

-----------------------

POST-EFFECTIVE AMENDMENT NO. 2 TO

FORM S-6

FOR REGISTRATION UNDER THE SECURITIES ACT OF 1933
OF SECURITIES OF UNIT INVESTMENT TRUSTS
REGISTERED ON FORM N-8B-2

-----------------------

NATIONAL VARIABLE LIFE INSURANCE ACCOUNT
(Exact name of trust)

NATIONAL LIFE INSURANCE COMPANY
(Name of depositor)
One National Life Drive
Montpelier, Vermont 05604
(Complete address of depositor's principal executive offices)

-----------------------

D. Russell Morgan
Counsel
National Life Insurance Company
One National Life Drive
Montpelier, Vermont 05604
(Name and complete address of agent for service)

-----------------------

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

-----------------------

It is proposed that this filing will become effective:
immediately upon filing pursuant to paragraph (b) of Rule 485
- -----------

X on May 1, 1997 pursuant to paragraph (b) of Rule 485
- -----------

60 days after filing pursuant to paragraph (a) of Rule 485
- -----------
on ______________ pursuant to paragraph (a) of Rule 485
- -----------

-----------------------

Pursuant to Rule 24f-2 of the Investment Company Act of 1940,
the Registrant has elected to register an indefinite amount of the securities
being offered. Registrant shall file its Rule 24f-2 Notice for the fiscal year
ended December 31, 1996 on or about June 25, 1997.

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<PAGE> 2
NATIONAL VARIABLE LIFE INSURANCE ACCOUNT
THE NATIONAL LIFE INSURANCE COMPANY

Cross Reference to Items Required by Form N-8B-2

<TABLE>
<CAPTION>
N-8B-2 ITEM CAPTION IN PROSPECTUS
- ----------- ---------------------
<S> <C>
1 Cover Page
2 Cover Page
3 Not applicable
4 Distribution of Policies
5 The Separate Account
6 The Separate Account
7 Not applicable
8 Not applicable
9 Legal Matters
10 Summary Description of the Policy; Payment and Allocation of Premiums; Policy Rights; Other Policy
Provisions; Changes in Applicable Law, Funding or Otherwise; Voting Rights
11 The Market Street Fund; Variable Insurance Products Fund; Alger American Fund
12 The Market Street Fund; Variable Insurance Products Fund; Alger American Fund
13 Charges and Deductions
14 Payment and Allocation of Premiums
15 Payment and Allocation of Premiums
16 The Market Street Fund; Variable Insurance Products Fund; Alger American Fund
17 Surrender Privilege; Withdrawal of Cash Surrender Value
18 The Separate Account
19 Policy Reports
20 Not Applicable
21 Loan Privileges
22 Not applicable
23 Not applicable
24 Not applicable
25 National Life Insurance Company
26 Not applicable
27 National Life Insurance Company
28 Officers and Directors of National Life
29 Not applicable
30 Not applicable
31 Not applicable
32 Not applicable
33 Not applicable
34 Not applicable
</TABLE>

<PAGE> 3
<TABLE>
<S> <C>
35 Not applicable
36 Not applicable
37 Not applicable
38 Distribution of Policies
39 Distribution of Policies
40 Distribution of Policies
41 Not applicable
42 Not applicable
43 Not applicable
44 Accumulated Value
45 Not applicable
46 Not applicable
47 National Life Insurance Company, The Separate Account, The Funds
48 Not applicable
49 Not applicable
50 The Separate Account
51 Payment and Allocation of Premiums; Death Benefit; Distribution of Policies
52 Changes in Applicable Law, Funding and Otherwise
53 Not applicable
54 Not applicable
55 Appendix A - Illustration of Death Benefits, Accumulated Values and Cash Surrender Values
56 Appendix A - Illustration of Death Benefits, Accumulated Values and Cash Surrender Values
57 Appendix A - Illustration of Death Benefits, Accumulated Values and Cash Surrender Values
58 Not applicable
59 Financial Statements
</TABLE>

<PAGE> 4

PART I

Information Required in Prospectus

<PAGE> 5

(logo) PROSPECTUS
VariTrak

FLEXIBLE PREMIUM ADJUSTABLE BENEFIT VARIABLE LIFE INSURANCE POLICY
ISSUED BY
NATIONAL LIFE INSURANCE COMPANY
One National Life Drive, Montpelier, Vermont 05604
Telephone: (802) 229-3333

This Prospectus describes the VariTrak Policy, a flexible premium
adjustable benefit variable life insurance policy (the "Policy") offered by
National Life Insurance Company ("National Life"). The Policy has an insurance
component and an investment component. The primary purpose of the Policy is to
provide insurance coverage on the life of the Insured. It is designed to
provide considerable flexibility in connection with premium payments,
investment options, and death benefits. It does so by giving the owner of a
Policy (the "Owner") the right to vary the frequency and amount of premium
payments (after the initial premium), to allocate Net Premiums among investment
alternatives with different investment objectives and (after the first Policy
Year) to increase or decrease the Death Benefit payable under the Policy.

After certain deductions are made, Net Premiums are allocated to the
National Variable Life Insurance Account, a separate account of National Life
(the "Separate Account") or to National Life's General Account (which pays
interest at declared rates guaranteed to equal or exceed 4%) or both. The
Separate Account has fifteen Subaccounts, the assets of which are used to
purchase shares of a designated corresponding mutual fund portfolio (each, a
"Portfolio") that is part of one of the following funds (each, a "Fund"): the
Market Street Fund, Inc. (the "Market Street Fund"), managed by Sentinel
Advisors Company, except as to the International Portfolio and the Money Market
Portfolio, which are managed by Providentmutual Investment Management Company,
the Variable Insurance Products Fund and the Variable Insurance Products Fund
II, managed by Fidelity Investments, and the Alger American Fund, managed by
Fred Alger Management, Inc.

The portion of the Accumulated Value in the Subaccounts will vary with
the investment experience of the corresponding Portfolios. The Owner bears the
entire investment risk for all amounts allocated to the Separate Account; there
is no guaranteed minimum Accumulated Value for the Separate Account, and Cash
Surrender Value may be more or less than premiums paid.

The accompanying Prospectuses for the Funds describe the investment
objectives and the attendant risks of the Portfolios.

The Accumulated Value will reflect the Monthly Deductions and certain
other fees and charges such as the Mortality and Expense Risk Charge. Also, a
Surrender Charge may be imposed if, during the first 15 Policy Years, the
Policy lapses or is surrendered. Generally, during the first five Policy Years
the Policy will remain in force as long as the Minimum Guarantee Premium is
paid or the Cash Surrender Value is sufficient to pay Monthly Deductions
imposed in connection with the Policy. After the fifth Policy Year, whether
the Policy remains in force depends upon whether the Cash Surrender Value is
sufficient to pay the Monthly Deductions under the Policy, unless the optional
Guaranteed Death Benefit Rider has been purchased and Minimum Guarantee
Premiums have been paid in accordance with such Rider.

It may not be advantageous to purchase a Policy as a replacement for
another type of life insurance or as a means to obtain additional protection if
the purchaser already owns an adjustable benefit variable life insurance
policy.

-----------------------

THIS PROSPECTUS MUST BE ACCOMPANIED OR PRECEDED BY CURRENT PROSPECTUSES FOR THE
FUNDS LISTED ABOVE.

-----------------------

PLEASE READ THIS PROSPECTUS CAREFULLY AND RETAIN IT FOR FUTURE REFERENCE.

-----------------------

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

-----------------------

SHARES OF THE FUNDS AND INTERESTS IN THE CONTRACTS ARE NOT DEPOSITS OR
OBLIGATIONS OF, OR GUARANTEED OR ENDORSED BY, A BANK, AND THE SHARES AND
INTERESTS ARE NOT FEDERALLY INSURED BY THE FEDERAL DEPOSIT INSURANCE
CORPORATION, THE FEDERAL RESERVE BOARD, OR ANY OTHER AGENCY.

Prospectus dated May 1, 1997

<PAGE> 6

TABLE OF CONTENTS

<TABLE>
<CAPTION>
PAGE
<S> <C>
Definitions . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

Summary Description of the Policy . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
The Policy Offered . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
The Separate Account . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Availability of Policy . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
The Death Benefit . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Flexibility to Adjust Amount of Death Benefit . . . . . . . . . . . . . . . . . . . . . .
Accumulated Value . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Allocation of Net Premiums . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Transfers . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Free-Look Privilege . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Charges Assessed in Connection with the Policy . . . . . . . . . . . . . . . . . . . . . .
Premium Tax Charge . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Monthly Deductions . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Surrender Charge . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Transfer Charge . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Withdrawal Charge . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Projection Report Charge . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Daily Charges Against the Separate Account . . . . . . . . . . . . . . . . . . . .
Other Charges . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Policy Lapse and Reinstatement . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Loan Privilege . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Withdrawal of Cash Surrender Value . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Surrender of the Policy . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Available Automated Fund Management Features . . . . . . . . . . . . . . . . . . . . . . .
Tax Treatment . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Unisex Policies . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Illustrations of Death Benefits, Accumulated Value and Cash Surrender Value . . . . . . .

National Life Insurance Company, The Separate Account, and The Funds . . . . . . . . . . . . . . .
National Life Insurance Company . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
The Separate Account . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
The Market Street Fund . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
The Common Stock Portfolio . . . . . . . . . . . . . . . . . . . . . . . . . . . .
The Sentinel Growth Portfolio . . . . . . . . . . . . . . . . . . . . . . . . . .
The Aggressive Growth Portfolio . . . . . . . . . . . . . . . . . . . . . . . . .
The Bond Portfolio . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
The Managed Portfolio . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
The International Portfolio . . . . . . . . . . . . . . . . . . . . . . . . . . .
The Money Market Portfolio . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Variable Insurance Products Fund and Variable Insurance Products Fund II . . . . . . . . . 13
Equity-Income Portfolio . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Growth Portfolio . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
High Income Portfolio . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Overseas Portfolio . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Index 500 Portfolio. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Contrafund Portfolio . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Alger American Fund . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Alger American Small Capitalization Portfolio . . . . . . . . . . . . . . . . . .
Alger American Growth Portfolio . . . . . . . . . . . . . . . . . . . . . . . . .
Termination of Participation Agreements . . . . . . . . . . . . . . . . . . . . . . . . .
</TABLE>

ii
<PAGE> 7

<TABLE>
<CAPTION>
PAGE
<S> <C>
Resolving Material Conflicts . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
The General Account . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

Detailed Description of Policy Provisions . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Death Benefit . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
General . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Death Benefit Options . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Option A . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Option B . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Which Death Benefit Option to Choose . . . . . . . . . . . . . . . . . . . . . . .
Change in Death Benefit Option . . . . . . . . . . . . . . . . . . . . . . . . . .
How the Death Benefit May Vary . . . . . . . . . . . . . . . . . . . . . . . . . .
Ability to Adjust Face Amount . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Increase . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Decrease . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
How the Duration of the Policy May Vary . . . . . . . . . . . . . . . . . . . . . . . . .
Accumulated Value . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Determination of Number of Units for the Separate Account . . . . . . . . . . . .
Determination of Unit Value . . . . . . . . . . . . . . . . . . . . . . . . . . .
Net Investment Factor . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Calculation of Accumulated Value . . . . . . . . . . . . . . . . . . . . . . . . .
Payment and Allocation of Premiums . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Issuance of a Policy . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Amount and Timing of Premiums . . . . . . . . . . . . . . . . . . . . . . . . . .
Premium Limitations . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Allocation of Net Premiums . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Transfers . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Policy Lapse . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Reinstatement . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

Charges and Deductions . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Premium Tax Charge . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Surrender Charges . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Deferred Administrative Charge . . . . . . . . . . . . . . . . . . . . . . . . . .
Deferred Sales Charge . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Monthly Deductions . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Cost of Insurance Charge . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Cost of Insurance Rate . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Rate Class . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Monthly Administrative Charge . . . . . . . . . . . . . . . . . . . . . . . . . .
Optional Benefit Charges . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Bonus . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Withdrawal Charge . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Transfer Charge . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Projection Report Charge . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Mortality and Expense Risk Charge . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Other Charges . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
</TABLE>

iii
<PAGE> 8

<TABLE>
<CAPTION>
PAGE
<S> <C>
Policy Rights
Loan Privileges . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
General . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Interest Rate Charged . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Allocation of Loans and Collateral . . . . . . . . . . . . . . . . . . . . . . . .
Interest Credited to Amounts Held as Collateral . . . . . . . . . . . . . . . . .
Bonus . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Preferred Policy Loans . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Effect of Policy Loan . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Loan Repayments . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Lapse With Loans Outstanding . . . . . . . . . . . . . . . . . . . . . . . . . . .
Tax Considerations . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Surrender Privilege . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Withdrawal of Cash Surrender Value . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Option A . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Option B . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Free-Look Privilege . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Telephone Transaction Privilege . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Special Transfer Rights . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Transfer Right for Policy . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Transfer Right for Change in Investment Policy
Exchange Right for Connecticut Residents . . . . . . . . . . . . . . . . . . . . .
Available Automated Fund Management Features . . . . . . . . . . . . . . . . . . . . . . .
Dollar Cost Averaging . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Portfolio Rebalancing . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Policy Rights Under Certain Plans . . . . . . . . . . . . . . . . . . . . . . . . . . . .

The General Account . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Minimum Guaranteed and Current Interest Rates . . . . . . . . . . . . . . . . . . . . . .
Bonus Interest . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Calculation of Non-loaned Accumulated Value in the General Account . . . . . . . .
Transfers from General Account . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

Other Policy Provisions . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Indefinite Policy Duration . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Payment of Policy Benefits . . . . . . . . . . . . . . . . . . . . . . . . . . . .
The Contract . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Ownership . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Beneficiary . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Change of Owner and Beneficiary . . . . . . . . . . . . . . . . . . . . . . . . .
Split Dollar Arrangements . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Assignments . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Misstatement of Age and Sex . . . . . . . . . . . . . . . . . . . . . . . . . . .
Suicide . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Incontestability . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Arbitration . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Dividends . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Correspondence . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Settlement Options . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Payment of Interest Only . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Payments for a Stated Time . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Payments for Life . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Payments of a Stated Amount . . . . . . . . . . . . . . . . . . . . . . . . . . .
Life Annuity . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Joint and Two Thirds Annuity . . . . . . . . . . . . . . . . . . . . . . . . . . .
50% Survivor Annuity . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
</TABLE>

iv
<PAGE> 9

<TABLE>
<CAPTION>
PAGE
<S> <C>
Optional Benefits . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Waiver of Monthly Deductions . . . . . . . . . . . . . . . . . . . . . . . . . . .
Accidental Death Benefit . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Guaranteed Insurability Option . . . . . . . . . . . . . . . . . . . . . . . . . .
Guaranteed Death Benefit . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

Federal Income Tax Considerations . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Introduction . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Tax Status of the Policy . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Tax Treatment of Policy Benefits . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
In General . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Modified Endowment Contracts . . . . . . . . . . . . . . . . . . . . . . . . . . .
Distributions from Policies Classified as Modified Endowment Contracts . . . . . .
Distributions from Policies Not Classified as Modified Endowment Contracts . . . .
Policy Loan Interest . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Investment in the Policy . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Multiple Policies . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Special Rules for Employee Benefit Plans . . . . . . . . . . . . . . . . . . . . . . . . .
Possible Charge for National Life's Taxes . . . . . . . . . . . . . . . . . . . . . . . .

Policies Issued in Conjunction with Employee Benefit Plans . . . . . . . . . . . . . . . . . . . .
Legal Developments Regarding Unisex Actuarial Tables . . . . . . . . . . . . . . . . . . . . . . .
Voting Rights . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Changes in Applicable Law, Funding and Otherwise
Officers and Directors of National Life . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Distribution of Policies . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Policy Reports . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
State Regulation . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Experts . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Legal Matters . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Financial Statements . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

Appendix A-Illustration of Death Benefits, Accumulated Values and
Cash Surrender Values . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . A-1

Financial Statements . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . F-1
</TABLE>

THE POLICY MAY NOT BE AVAILABLE IN ALL JURISDICTIONS. THIS PROSPECTUS DOES NOT
CONSTITUTE AN OFFERING IN ANY JURISDICTION IN WHICH SUCH OFFERING MAY NOT
LAWFULLY BE MADE. NO PERSON IS AUTHORIZED TO GIVE ANY INFORMATION OR MAKE ANY
REPRESENTATIONS IN CONNECTION WITH THIS OFFERING OTHER THAN THOSE CONTAINED IN
THIS PROSPECTUS. IF GIVEN, SUCH INFORMATION OR REPRESENTATIONS SHOULD NOT BE
RELIED ON.

THE PRIMARY PURPOSE OF THIS VARIABLE LIFE INSURANCE POLICY IS TO PROVIDE
INSURANCE PROTECTION. NO CLAIM IS MADE THAT THE POLICY IS IN ANY WAY SIMILAR
OR COMPARABLE TO AN INVESTMENT IN A MUTUAL FUND.

v
<PAGE> 10

DEFINITIONS

<TABLE>
<S> <C>
ACCUMULATED VALUE The sum of the Policy's values in the Separate Account and the General Account.

ATTAINED AGE The Issue Age of the Insured plus the number of full Policy Years which have passed
since the Date of Issue.

BENEFICIARY The person(s) or entity(ies) designated to receive all or some of the Death Benefit when
the Insured dies. The Beneficiary is designated in the application or if subsequently
changed, as shown in the latest change filed with National Life. The interest of any
Beneficiary who dies before the Insured shall vest in the Owner unless otherwise stated.

CASH SURRENDER VALUE The Accumulated Value minus any applicable Surrender Charge, and minus any outstanding
Policy loans and accrued interest on such loans.

COLLATERAL The portion of the Accumulated Value in the General Account which secures the amount of
any Policy loan.

DAC TAX A tax attributable to Specified Policy Acquisition Expenses under Internal Revenue Code
Section 848.

DATE OF ISSUE The date on which the Policy is issued, which is set forth in the Policy. It is used to
determine Policy Years, Policy Months and Monthly Policy Dates, as well as to measure
suicide and contestable periods.

DEATH BENEFIT The Policy's Unadjusted Death Benefit, plus any dividends payable, plus any relevant
additional benefits provided by a supplementary benefit Rider, less any outstanding
Policy loan and accrued interest, and less any unpaid Monthly Deductions.

DURATION The number of full years the insurance has been in force; for the Initial Face Amount,
measured from the Date of Issue; for any increase in Face Amount, measured from the
effective date of such increase.

FACE AMOUNT The Initial Face Amount plus any increases in Face Amount and minus any decreases in
Face Amount.

GENERAL ACCOUNT The account which holds the assets of National Life which are available to support its
insurance and annuity obligations.

GRACE PERIOD A 61-day period measured from the date on which notice of pending lapse is sent by
National Life, during which the Policy will not lapse and insurance coverage continues.
To prevent lapse, the Owner must during the Grace Period make a premium payment equal to
the sum of any amount by which the past Monthly Deductions have been in excess of Cash
Surrender Value, plus three times the Monthly Deduction due the date the Grace Period
began.
</TABLE>

1
<PAGE> 11
<TABLE>
<S> <C>
GUARANTEED DEATH BENEFIT
RIDER An optional Rider that will guarantee that the Policy will not lapse prior to Attained
Age 70, or 20 years from the Policy's Date of Issue, if longer, regardless of investment
performance, if the Minimum Guarantee Premium has been paid as of each Monthly Policy
Date.

HOME OFFICE National Life's Home Office at National Life Drive, Montpelier, Vermont 05604.

INITIAL FACE AMOUNT The Face Amount of the Policy on the Date of Issue. The Face Amount may be increased or
decreased after the first Policy Year.

INSURED The person upon whose life the Policy is issued.

ISSUE AGE The age of the Insured at his or her birthday nearest the Date of Issue. The Issue Age
is stated in the Policy.

MINIMUM FACE AMOUNT The Minimum Face Amount is generally $50,000. However, exceptions may be made in
employee benefit plan cases.

MINIMUM GUARANTEE PREMIUM The sum of the Minimum Monthly Premiums in effect on each Monthly Policy Date since the
Date of Issue (including the current month), plus all Withdrawals and outstanding Policy
loans and accrued interest.

MINIMUM INITIAL PREMIUM The minimum premium required to issue a Policy. It is equal to two times the Minimum
Monthly Premium.

MINIMUM MONTHLY PREMIUM The monthly amount used to determine the Minimum Guarantee Premium. This amount, which
includes any substandard charges and any applicable Rider charges, is determined
separately for each Policy, based on the requested Initial Face Amount, and the Issue
Age, sex and Rate Class of the Insured, and the Death Benefit Option and any optional
benefits selected. It is stated in each Policy.

MONTHLY ADMINISTRATIVE
CHARGE A charge of $7.50 per month included in the Monthly Deduction, which is intended to
reimburse National Life for ordinary administrative expenses.

MONTHLY DEDUCTION The amount deducted from the Accumulated Value on each Monthly Policy Date. It includes
the Monthly Administrative Charge, the Cost of Insurance Charge, and the monthly cost of
any benefits provided by Riders.

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.
</TABLE>

2
<PAGE> 12
<TABLE>
<S> <C>
NET AMOUNT AT RISK The amount by which the Unadjusted Death Benefit exceeds the Accumulated Value.

NET PREMIUM The remainder of a premium after the deduction of the Premium Tax Charge.

OWNER The person(s) or entity(ies) entitled to exercise the rights granted in the Policy.

PLANNED PERIODIC PREMIUM The premium amount which the Owner plans to pay at the frequency selected. The Owner
may request a reminder notice and may change the amount of the Planned Periodic Premium.
The Owner is not required to pay the designated amount.

POLICY ANNIVERSARY The same day and month as the Date of Issue in each later year.

POLICY YEAR A year that starts on the Date of Issue or on a Policy Anniversary.

PREMIUM TAX CHARGE A charge deducted from each premium payment to cover the cost of state and local premium
taxes, and the federal DAC Tax.

RATE CLASS The classification of the Insured for cost of insurance purposes. The Rate Classes are:
preferred nonsmoker; standard nonsmoker; smoker; juvenile; and substandard.

RIDERS Optional benefits that an Owner may elect to add to the Policy at an additional cost.

SURRENDER CHARGE The amount deducted from the Accumulated Value of the Policy upon lapse or surrender
during the first 15 Policy Years. The Maximum Surrender Charge is shown in the Policy.

UNADJUSTED DEATH BENEFIT Under Option A, the greater of the Face Amount or the applicable percentage of the
Accumulated Value on the date of death; under Option B, the greater of the Face Amount
plus the Accumulated Value on the date of death, or the applicable percentage of the
Accumulated Value on the date of death. The Death Benefit Option is selected at time of
application but may be later changed.

VALUATION DAY Each day that the New York Stock Exchange is open for business other than the day after
Thanksgiving and any day on which trading is restricted by directive of the Securities
and Exchange Commission. Unless otherwise indicated, whenever under a Policy an event
occurs or a transaction is to be effected on a day that is not a Valuation Date, it will
be deemed to have occurred on the next Valuation Date.

VALUATION PERIOD The time between two successive Valuation Days. Each Valuation Period includes a
Valuation Day and any non-Valuation Day or consecutive non-Valuation Days immediately
preceding it.
</TABLE>

3
<PAGE> 13
<TABLE>
<S> <C>
WITHDRAWAL A payment made at the request of the Owner pursuant to the right in the Policy to
withdraw a portion of the Cash Surrender Value of the Policy. The Withdrawal Charge
will be deducted from the Withdrawal Amount.
</TABLE>

SUMMARY DESCRIPTION OF THE POLICY

The following summary of the Policy provisions should be read in
conjunction with the detailed information appearing elsewhere in this
Prospectus. Unless otherwise noted, this Prospectus assumes the Insured is
alive.

THE POLICY OFFERED

The VariTrak flexible premium adjustable benefit variable life
insurance policy offered by this Prospectus is issued by National Life. The
Policy allows the Owner, subject to certain limitations, to make premium
payments in any amount and at any frequency. As long as the Policy remains in
force, it will provide for:

(1) Life insurance coverage on the named Insured;

(2) A Cash Surrender Value;

(3) Surrender and withdrawal rights and Policy loan privileges; and

(4) A variety of additional insurance benefits.

The Policy described in this Prospectus is designed to provide
insurance coverage to help lessen the economic loss resulting from the death of
the Insured. It is not offered primarily as an investment. Life insurance is
not a short-term investment. Prospective Owners should consider their need for
insurance coverage and the Policy's investment potential on a long-term basis.

The Policy is called "flexible premium" because there is no fixed
schedule for premium payments, even though the Owner may establish a schedule
of Planned Periodic Premiums. The Policy is described as "adjustable benefit"
because the Owner may, after the first Policy Year and within limits, increase
or decrease the Face Amount and may change the Death Benefit Option. The
Policy is called "variable" because, unlike a fixed benefit whole life
insurance policy, the Death Benefit under the Policy may, and its Accumulated
Value will, vary to reflect the investment performance of the chosen
subaccounts of the Separate Account, and the crediting of interest to the
General Account, as well as other factors.

The failure to pay Planned Periodic Premiums will not itself cause the
Policy to lapse. Conversely, the payment of premiums in any amount or
frequency will not necessarily guarantee that the Policy will remain in force.
In general, the Policy will lapse if the Cash Surrender Value is insufficient
to pay the Monthly Deduction for Cost of Insurance, Monthly Administrative
Charges and any applicable Rider charges. During the first five Policy Years,
and, if the optional Guaranteed Death Benefit Rider has been purchased, until
the later of the Insured's Attained Age 70 or 20 Policy Years from the Date of
Issue, the Policy will not lapse, even if the Cash Surrender Value is
insufficient to pay the Monthly Deductions, so long as the Minimum Guarantee
Premium has been paid.

A prospective Owner who already has life insurance coverage should
consider whether or not changing or adding to existing coverage would be
advantageous. Generally it is not advisable to purchase another policy as a
replacement for an existing policy.

THE SEPARATE ACCOUNT

The Separate Account consists of fifteen Subaccounts, the assets of
which are used to purchase shares of a designated corresponding Portfolio that
is part of one of the following Funds: the

4
<PAGE> 14

Market Street Fund, the Variable Insurance Products Fund, Variable Insurance
Products Fund II and the Alger American Fund. There is no assurance that the
investment objectives of a particular Portfolio will be met. The Owner bears
the entire investment risk of amounts allocated to the Separate Account.

AVAILABILITY OF POLICY

This Policy can be issued for Insureds from Issue Ages 0 to 85. The
Minimum Face Amount is generally $50,000, although exceptions to this minimum
may be made for employee benefit plans. Before issuing a Policy, National Life
will require that the proposed Insured meet certain underwriting standards
satisfactory to National Life. The Rate Classes available are Preferred
Nonsmoker, Standard Nonsmoker, Smoker, Juvenile, and Substandard. (See
"Issuance of a Policy," Page ____.)

THE DEATH BENEFIT

As long as the Policy remains in force, National Life will pay the
Death Benefit to the Beneficiary upon receipt of due proof of the death of the
Insured. The Death Benefit will consist of the Policy's Unadjusted Death
Benefit, plus any dividends payable, plus any relevant additional benefits
provided by a supplementary benefit Rider, less any outstanding Policy loan and
accrued interest, and less any unpaid Monthly Deductions.

There are two Death Benefit Options available. Death Benefit Option A
provides for the greater of (a) the Face Amount and (b) the applicable
percentage of the Accumulated Value. Death Benefit Option B provides for the
greater of (a) the Face Amount plus the Accumulated Value and (b) the
applicable percentage of the Accumulated Value. (See "Death Benefit Options,"
Page ____.)

FLEXIBILITY TO ADJUST AMOUNT OF DEATH BENEFIT

After the first Policy Year, the Owner has significant flexibility to
adjust the Death Benefit by changing the Death Benefit Option or by increasing
or decreasing the Face Amount of the Policy. (See "Change in Death Benefit
Option," Page ____, and "Ability to Adjust Face Amount," Page ____.)

Any change in Death Benefit Option or in the Face Amount may affect
the charges under the Policy. Any increase in the Face Amount will result in
an increase in the Monthly Deductions. A decrease in Face Amount may also
affect the Monthly Deductions. (See "Cost of Insurance," Page ____.)

To the extent that a requested decrease in Face Amount would result in
cumulative premiums exceeding the maximum premium limitations applicable under
the Internal Revenue Code for life insurance, National Life will not effect the
decrease.

ACCUMULATED VALUE

The Accumulated Value is the total amount of value held under the
Policy at any time. It equals the sum of the amounts held in the Separate
Account and the General Account. (See "Calculation of Accumulated Value," Page
____.)

The Accumulated Value in the Separate Account will reflect the
investment performance of the chosen Subaccounts of the Separate Account, any
Net Premiums paid, any transfers, any Withdrawals, any loans, any loan
repayments, any loan interest paid or credited and any charges assessed in
connection with the Policy. The Owner bears the entire investment risk for
amounts allocated to the Separate Account. There is no guaranteed minimum for
the portion of the Accumulated Value in the Separate Account. Accumulated
Value in the Separate Account may be greater or less than the Net Premiums
allocated to the Separate Account.

The General Account earns interest at rates National Life declares in
advance for specific periods. The rates are guaranteed to equal or exceed 4%.
The principal, after all deductions and charges, is also guaranteed. National
Life currently offers a bonus on the crediting rate in the amount of

5
<PAGE> 15

0.50% per annum on the non-loaned portion of the Accumulated Value in the
General Account in each Policy Year beginning with Policy Year 11; however, no
bonus is guaranteed except as required by the state of issue. The value of the
General Account will reflect any amounts allocated or transferred to it plus
interest credited to it, less amounts deducted, transferred or withdrawn from
it. (See "The General Account," Page ____.)

The Collateral portion of the Accumulated Value in the General Account
will reflect any amounts transferred from the Separate Account and/or
non-loaned portion of the General Account as collateral for Policy loans, plus
interest at rates National Life declares of at least 4%. The Collateral will be
reduced by loan repayments. (See "Loan Privileges," Page ____.)

The Accumulated Value is relevant to the computation of the Death
Benefit and Cost of Insurance Charges.

ALLOCATION OF NET PREMIUMS

Except as described below, Net Premiums will generally be allocated to
the Subaccounts of the Separate Account and the General Account in accordance
with the allocation percentages which are in effect for such premium when
received at National Life's Home Office. These percentages will be those
specified in the application or as subsequently changed by the Owner.

Any portion of the initial Net Premium and any Net Premiums received
before National Life receives at its Home Office a signed delivery receipt for
the Policy (or other evidence satisfactory to National Life that delivery has
been completed), and until the date which is ten days after the date of such
delivery, that are designated to be allocated to the Separate Account will be
allocated instead to the Money Market Subaccount. At the end of such period,
the amount in the Money Market Subaccount (including investment experience)
will be allocated to each of the chosen Subaccounts based on the proportion
that the allocation percentage for such Subaccount bears to the sum of the
Separate Account premium allocation percentages. (See "Allocation of Net
Premiums," Page ____.)

TRANSFERS

The Owner may make transfers of the amounts in the Subaccounts of the
Separate Account and General Account between and among such accounts.
Transfers between the Subaccounts of the Separate Account or into the General
Account will be made on the Valuation Day National Life receives the request.
Transfers out of the General Account are limited in amount, and to one transfer
per Policy Year. Currently transfers may be made without charge regardless of
their frequency, and National Life has no present intent to impose a charge for
transfers in the foreseeable future; however, National Life reserves the right,
upon prior notice to Policy Owners, to impose in the future a charge of $25 on
each transfer in excess of five transfers in any one Policy Year. (See
"Transfers," Page ____.)

FREE-LOOK PRIVILEGE

The Policy provides for an initial "free-look" period, during which
the Owner may cancel the Policy and receive a refund equal to the gross
premiums paid on the Policy. This free-look period ends on the latest of: (a)
45 days after Part A of the application for the Policy is signed; (b) 10 days
after the Owner receives the Policy; and (c) 10 days after National Life mails
or personally delivers a Notice of Withdrawal Right to the Owner or any longer
period provided by state law. To cancel the Policy, the Owner must return the
Policy to National Life or to an agent of National Life within such
time with a written request for cancellation. (See "Free-Look Privilege," Page
____.)

CHARGES ASSESSED IN CONNECTION WITH THE POLICY

Summary of Policy Expenses.

<TABLE>
<S> <C>
Transaction Expenses
Premium Tax.............................. 3.25%
Sales Loan Imposed on Purchases.......... NONE
Surrender Charge......................... See below
Withdrawal Charge........................ Lesser of 2% or $25

Annual Charges
Mortality and Expense Risk Charge........ 0.90%
Cost of Insurance Charge................. Varies by age, sex, Rate Class-See below
Administrative Charge.................... $90 per year
</TABLE>

Annual Charges of Underlying Funds (for the year ended December 31, 1996

<TABLE>
<CAPTION>
Management Other Total
Fee Expenses Expenses
---------- -------- --------
<S> <C> <C> <C>
Alger:
Alger American Growth Portfolio 0.75% 0.04% 0.79%
Alger American Small Capitalization 0.85% 0.03% 0.88%

Market Street Fund, Inc.:
Money Market Portfolio 0.25% 0.19% 0.44%
Bond Portfolio 0.35% 0.21% 0.56%
Managed Portfolio 0.40% 0.20% 0.60%
Aggressive Growth Portfolio 0.47% 0.21% 0.68%
International Portfolio 0.75% 0.30% 1.05%
Common Stock Portfolio 0.40% 0.40% 0.80%
Sentinel Growth Portfolio 0.50% 0.40% 0.90%

Fidelity: Variable Insurance Products Fund I:
Equity Income Portfolio 0.51% 0.07% 0.58%
Growth Portfolio 0.61% 0.08% 0.69%
High Income Portfolio 0.59% 0.12% 0.71%
Overseas Portfolio 0.76% 0.17% 0.93%

Fidelity: Variable Insurance Products Fund II:
Index 500 Portfolio 0.13% 0.15% 0.28%
Contrafund Portfolio 0.61% 0.13% 0.74%
</TABLE>

National Life has agreed to reimburse a portion of the expenses of the
Market Street Common Stock and Sentinel Growth Portfolios. Without this
reimbursement for the Common Stock Portfolio the management fee, other expenses
and total expenses would have been 0.40%, 1.03% and 1.43% respectively, and for
the Sentinel Growth Portfolio the management fee, other expenses and total
expenses would have been 0.50%, 1.01% and 1.51% respectively.

Fidelity Investments agreed to reimburse a portion of Index 500
Portfolios expenses during the period. Without this reimbursement, the funds
management fee, other expenses and total expenses would have been 0.28%, 0.15%
and 0.43% respectively.

Premium Tax Charge. A Premium Tax Charge will be deducted from each
premium payment, to cover the cost of state and local premium taxes, and the
federal DAC Tax. The charge is in an amount of 3.25% of each premium. For
qualified employee benefit plans, the charge will be 2.00% of each premium
rather than 3.25%. National Life reserves the right to change the amount of the
charge

6
<PAGE> 16
deducted from future premiums if the applicable law is changed. (See "Premium
Tax Charge," Page ____.)

Monthly Deductions. On the Date of Issue and on each Monthly Policy
Date thereafter, the Accumulated Value will be reduced by a Monthly Deduction
equal to the sum of the monthly Cost of Insurance Charge, Monthly
Administrative Charge, and a charge for any additional benefits added by rider.
The monthly Cost of Insurance Charge will be determined by multiplying the Net
Amount at Risk (that is, the Unadjusted Death Benefit less Accumulated Value)
by the applicable cost of insurance rate(s), which will depend upon the Issue
Age, sex, and Rate Class of the Insured, the Duration and policy size band of
the Policy, and on National Life's expectations as to future mortality and
expense experience, but which will not exceed the guaranteed maximum cost of
insurance rates set forth in the Policy based on the Insured's Attained Age,
sex, Rate Class, and the "1980 Commissioners Standard Ordinary Smoker and
Nonsmoker Mortality Table." (See "Cost of Insurance," Page ____.) The Monthly
Administrative Charge is $7.50. In Texas the Monthly Administrative Charge
may be changed but is guaranteed never to be greater than $7.50 plus $0.07 per
$1,000 of Face Amount. (See "Monthly Administrative Charge," Page ____.)
Beginning with Policy Year 11, National Life currently applies a bonus under
which the Monthly Deductions are reduced by 0.50% per annum of the Accumulated
Value in the Separate Account. (See "Bonus," Page ____.) However, no such
bonus is guaranteed except as required by the state of issue.

Surrender Charge. A Surrender Charge is imposed if the Policy is
surrendered or lapses at any time before the end of the fifteenth Policy Year.
The Surrender Charge consists of a Deferred Administrative Charge and a
Deferred Sales Charge. (See "Surrender Charge," Page ____.)

The Deferred Administrative Charge varies by Issue Age, and is based
on Initial Face Amount. Charges per $1,000 of this amount for sample Issue
Ages are shown below. After the first five Policy Years, it declines linearly
by month until the end of Policy Year 15, when it becomes zero.

<TABLE>
<CAPTION>
Sample
Issue Age Charge per $1000 of Initial Face Amount
--------- ---------------------------------------
<S> <C>
0-5 None
10 $0.50
15 $1.00
20 $1.50
25-85 $2.00
</TABLE>

For Issue Ages not shown, the charge will increase by a ratable portion for
each full year.

The Deferred Sales Charge is calculated individually for each Policy,
based on its Surrender Charge target premium. The Surrender Charge target
premium is an annual amount, based on the Initial Face Amount, Issue Age, sex
and Rate Class of the Insured, used solely for the purpose of calculating the
Deferred Sales Charge. The Deferred Sales Charge is equal to the lesser of (a)
30% of the premiums received up to one Surrender Charge target premium, plus
10% of all premiums paid in excess of this amount but not greater than twice
such amount, plus 9% of all premiums paid in excess of twice such amount, or
(b) an amount that during the first five Policy Years is equal to 50% of the
Surrender Charge target premium and that then declines linearly by month
through the end of the fifteenth Policy Year, when it becomes zero (or, if
less, the maximum permitted under the New York nonforfeiture law).

Daily Charge Against the Separate Account. A daily charge for National
Life's assumption of certain mortality and expense risks incurred in connection
with the Policy will be imposed at an annual rate which is currently 0.90% of
the average daily net assets of the Separate Account. (See "Charges Against the
Separate Account," Page ____.)

Transfer Charge. Currently an unlimited number of transfers are permitted
in each Policy Year without charge, and National Life has no current intent to
impose a transfer charge in the foreseeable future; however, National Life
reserves the right to impose in the future a charge of $25 for each transfer in
excess of five transfers in any one Policy Year. (See "Transfer Charge," Page
____.)

7
<PAGE> 17
Withdrawal Charge. A charge equal to the lesser of 2% of the amount
withdrawn or $25 will be deducted from each Withdrawal amount paid. (See
"Withdrawal Charge," Page ____.)

Projection Report Charge. National Life may impose a charge for each
projection report requested by the Owner. (See "Projection Report Charge, Page
___.)

Other Charges. Shares of the Portfolios are purchased by the Separate
Account at net asset value, which reflects management fees and expenses
deducted from the assets of the Portfolios.

POLICY LAPSE AND REINSTATEMENT

During the first five Policy Years, the Policy will not lapse if premiums in
an amount at least equal to the Minimum Guarantee Premium have been paid,
regardless of the amount of Cash Surrender Value. If, however, premiums paid
are less than the Minimum Guarantee Premium, and the Cash Surrender Value on a
Monthly Processing Date is insufficient to cover the Monthly Deduction then
due, the Policy will lapse after a 61-day Grace Period unless a sufficient
premium has been paid.

An optional Guaranteed Death Benefit Rider is available which will
guarantee that the Policy will not lapse prior to the Insured's Attained Age
70, or 20 years from the Date of Issue of the Policy if longer, regardless of
investment performance, if the Minimum Guarantee Premium has been paid on a
timely basis. (See "Optional Benefits - Guaranteed Death Benefit," Page ___.)

Subject to certain conditions, including evidence of insurability
satisfactory to National Life and the payment of a sufficient premium, a Policy
may be reinstated at any time within five years (or such longer period as may
be required in a particular state) after the beginning of the Grace Period.
(See "Reinstatement," Page ____.)

LOAN PRIVILEGE

After the first Policy Year, the Owner may obtain Policy loans in an
amount not exceeding, in the aggregate, the Cash Surrender Value less three
Monthly Deductions.

Policy loans will bear interest at a fixed rate of 6% per year,
payable at the end of each Policy Year. If interest is not paid when due, it
will be added to the outstanding loan balance. Policy loans may be repaid at
any time and in any amount. Policy loans outstanding when the Death Benefit
becomes payable or the Policy is surrendered will be deducted from the
proceeds otherwise payable.

When a Policy loan is taken, Accumulated Value will be held in the
General Account as Collateral for the Policy loan. Accumulated Value is taken
from the Subaccounts of the Separate Account based on the instructions of the
Owner at the time a loan is taken. If specific allocation instructions have
not been received from the Owner, the Policy loan will be allocated to the
Subaccounts based on the proportion that each Subaccount's value bears to the
total Accumulated Value in the Separate Account. If the Accumulated Value in
one or more of the Subaccounts is insufficient to carry out the Owner's
instructions, the loan will not be processed until further instructions are
received from the Owner. Accumulated Value will be taken from the non-loaned
portion of the General Account as Collateral for a loan only to the extent that
the Accumulated Value in the Separate Account is insufficient. This amount
held in the General Account as Collateral will earn interest at an effective
annual rate National Life will determine prior to each calendar year. This
rate will not be less than 4%, and National Life currently intends to credit
interest on non-loaned Accumulated Value in the General Account for Policies in
Policy Year 11 and thereafter at rates which are 0.50% per annum higher than
those that apply to non-loaned Accumulated Value in the General Account for
Policies still in their first

8
<PAGE> 18

ten Policy Years. Except as required by the state of issue, this bonus is not
guaranteed, however, and upon prior notice to Owners National Life may, in its
sole discretion, decide not to credit the bonus. National Life also currently
intends, but is not obligated to continue, to make preferred loans available on
the later of the Insured's Attained Age 65 and the end of Policy Year 20, in
limited amounts. For such Policy loans the amount held in the General Account
as Collateral will be credited with interest at an annual rate of 6%. However,
National Life is not obligated to continue to make preferred loans available,
and will make such loans available in its sole discretion. (See "Loan
Privileges," Page ____.)

Depending upon the investment performance of Cash Surrender Value and
the amount of a Policy loan, the loan may cause a Policy to lapse. If a Policy
is not a Modified Endowment Contract, lapse of the Policy with Policy loans
outstanding may result in adverse tax consequences. (See "Tax Treatment of
Policy Benefits," Page ____.)

WITHDRAWAL OF CASH SURRENDER VALUE

After the first Policy Anniversary, the Owner may, subject to certain
restrictions, request a Withdrawal of Cash Surrender Value. The minimum amount
for such Withdrawal is $500 (exceptions down to $100 may be made for employee
benefit plans). The Withdrawal amount will be taken from the Subaccounts of
the Separate Account based on instructions provided by the Owner at the time of
the Withdrawal. If specific allocation instructions have not been received
from the Owner, the Withdrawal will be allocated to the Subaccounts based on
the proportion that the value in each account bears to the total Accumulated
Value in the Separate Account. If the Accumulated Value in one or more
Subaccounts is insufficient to carry out the Owner's instructions, the
Withdrawal will not be processed until further instructions are received from
the Owner. Withdrawal amounts will be taken from the General Account only to
the extent that the Accumulated Value in the Separate Account is insufficient.
If Death Benefit Option A is in effect, National Life will reduce the Face
Amount by an amount equal to the lesser of (a) the amount of the withdrawal and
(b) the excess of the Face Amount divided by the applicable percentage over the
Accumulated Value just after the withdrawal, but in any case not less than
zero. (See "Withdrawal of Cash Surrender Value," Page ____.)

A Withdrawal Charge will be deducted from the amount of each Withdrawal.
(See "Charges and Deductions - Withdrawal Charge," Page ____.)

If a requested Withdrawal would reduce the Face Amount below the Minimum
Face Amount, the Withdrawal will not be allowed.

SURRENDER OF THE POLICY

The Owner may at any time fully surrender the Policy and receive the
Cash Surrender Value, if any. The Cash Surrender Value will equal the
Accumulated Value less any Policy loan with accrued interest and any applicable
Surrender Charge. (See "Surrender Privilege," Page ____.)

AVAILABLE AUTOMATED FUND MANAGEMENT FEATURES

National Life currently offers, at no charge to Policyowners, two
automated fund management programs, Dollar Cost Averaging and Portfolio
Rebalancing. (For a description of these features, see "Contract Rights -
Available Automated Fund Management Features," Page ____.)

TAX TREATMENT

National Life believes (based upon Notice 88-128 and the proposed
Regulations under Section 7702, issued on July 5, 1991) that a Policy issued on
a standard Rate Class basis generally should meet the Section 7702 definition
of a life insurance contract. With respect to a Policy issued on a substandard
basis, there is insufficient guidance to determine if such a Policy would in
all situations satisfy the Section 7702 definition of a life insurance
contract, particularly if the Owner pays the full amount of premiums permitted
under such a Policy. Assuming that a Policy qualifies as a life insurance
contract for Federal income tax purposes, an Owner should not be deemed to be
in constructive receipt of

9
<PAGE> 19
Accumulated Value under a Policy until there is a distribution from the Policy.
Moreover, death benefits payable under a Policy should be completely excludable
from the gross income of the Beneficiary. As a result, the Beneficiary
generally should not be taxed on these proceeds. (See "Tax Status of the
Policy," Page ____.)

Under certain circumstances, a Policy may be treated as a "Modified
Endowment Contract." If the Policy is a Modified Endowment Contract, then all
pre-death distributions, including Policy loans, will be treated first as a
distribution of taxable income and then as a return of basis or investment in
the contract. In addition, prior to age 59 1/2 any such distributions
generally will be subject to a 10% penalty tax. (For further discussion on the
circumstances under which a Policy will be treated as a Modified Endowment
Contract, See "Tax Treatment of Policy Benefits," Page ____.)

If the Policy is not a Modified Endowment Contract, distributions
generally will be treated first as a return of basis or investment in the
contract and then as disbursing taxable income. Moreover, loans will not be
treated as distributions. Finally, neither distributions nor loans from a
Policy that is not a Modified Endowment Contract are subject to the 10% penalty
tax. (See "Distributions from Policies Not Classified as Modified Endowment
Contracts," Page ____.)

UNISEX POLICIES

Policies issued in several states provide for policy values which do
not vary by the sex of the Insured. (See "Cost of Insurance", Page ____.) In
addition, Policies issued in conjunction with employee benefit plans provide
for policy values which do not vary by the sex of the Insured. (See "Policies
Issued in Conjunction with Employee Benefit Plans", Page ____.) Thus,
references in this Prospectus to sex-distinct cost of insurance rates and any
values that vary by the sex of the Insured are not applicable to Policies
issued in states which require "unisex" policies or to Policies issued in
conjunction with employee benefit plans. Illustrations of the effect of these
unisex rates on premiums, Cash Surrender Values, and Death Benefits are
available from National Life on request.

ILLUSTRATIONS OF DEATH BENEFITS, ACCUMULATED VALUE AND CASH SURRENDER VALUE

Illustrations of how investment performance of the Separate Account
may cause the Death Benefit, the Accumulated Value and the Cash Surrender Value
to vary are included in Appendix A commencing on page A-1.

These projections of hypothetical values may be helpful in
understanding the long-term effects of different levels of investment
performance, of charges and deductions, of electing one or the other death
benefit option, and generally comparing and contrasting this Policy to other
life insurance policies. Nonetheless, the illustrations are based on
hypothetical investment rates of return and are not guaranteed. Illustrations
are illustrative only and are not a representation of past or future
performance. Actual rates of return may be more or less than those reflected
in the illustrations and, therefore, actual values will be different from those
illustrated.

NATIONAL LIFE INSURANCE COMPANY, THE SEPARATE ACCOUNT,
AND THE FUNDS.

NATIONAL LIFE INSURANCE COMPANY

National Life, a mutual life insurance company chartered in 1848 under
Vermont law, is authorized to transact life insurance and annuity business in
Vermont and in 50 other jurisdictions. National Life assumes all insurance
risks under the Policy and its assets support the Policy's benefits. On
December 31, 1996, National Life's consolidated assets were over $8.3 billion.
(See "Financial Statements," Page F-1.)

THE SEPARATE ACCOUNT

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<PAGE> 20
The Separate Account was established by National Life on February 1,
1985 under the provisions of the Vermont Insurance Law. It is a separate
investment account to which assets are allocated to support the benefits
payable under the Policies as well as other variable life insurance policies
National Life may issue.

The Separate Account's assets are the property of National Life. Each
Policy provides that the portion of the Separate Account's assets equal to the
reserves and other liabilities under the Policies (and other policies)
supported by the Separate Account will not be chargeable with liabilities
arising out of any other business that National Life may conduct. In addition
to the net assets and other liabilities for the Policies, the Separate
Account's net assets may in the future include amounts held to support other
variable life insurance policies issued by National Life and amounts derived
from expenses charged to the Policies by National Life which it currently holds
in the Separate Account. From time to time these additional amounts will be
transferred in cash by National Life to its General Account.

The Separate Account is registered with the Securities and Exchange
Commission ("SEC") under the Investment Company Act of 1940 ("1940 Act") as a
unit investment trust type of investment company. Such registration does not
involve any supervision of the management or investment practices or policies
of the Separate Account by the SEC. The Separate Account meets the definition
of a "Separate Account" under Federal securities laws.

THE MARKET STREET FUND

The Common Stock, Sentinel Growth, Aggressive Growth, Bond, Managed,
International, and Money Market Subaccounts of the Separate Account invest in
shares of The Market Street Fund, Inc., a "series" type of mutual fund which is
registered with the SEC under the 1940 Act as a diversified open-end management
investment company. The Market Street Fund currently issues eight "series" or
classes of shares, each of which represents an interest in a separate portfolio
within the Fund, and seven of which are purchased and redeemed by the
corresponding Subaccounts of the Separate Account: the Common Stock Portfolio,
the Sentinel Growth Portfolio, the Aggressive Growth Portfolio, the Bond
Portfolio, the Managed Portfolio, the International Portfolio and the Money
Market Portfolio. The Market Street Fund sells and redeems its shares at net
asset value without a sales charge.

The investment objectives of the Market Street Fund's Portfolios
eligible for purchase by the Separate Account are set forth below. The
investment experience of each of the Subaccounts of the Separate Account
depends on the investment performance of the corresponding Portfolio. There is
no assurance that any Portfolio will achieve its stated objective.

The Common Stock Portfolio. The Common Stock Portfolio seeks a
combination of long-term growth of capital and current income with relatively
low risk by investing in common stocks of many well-established companies.

The Sentinel Growth Portfolio. The Sentinel Growth Portfolio seeks
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.

The Aggressive Growth Portfolio. The Aggressive Growth Portfolio
seeks to achieve a high level of long-term capital appreciation by investing in
securities of a diverse group of smaller emerging companies.

The Bond Portfolio. The Bond Portfolio seeks to generate a high level
of current income consistent with prudent investment risk by investing in a
diversified portfolio of marketable debt securities.

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<PAGE> 21
The Managed Portfolio. The Managed Portfolio seeks 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.

The International Portfolio. The International Portfolio seeks
long-term growth of capital principally through investments in a diversified
portfolio of marketable equity securities of established non-United States
companies.

The Money Market Portfolio. The Money Market Portfolio seeks to
provide maximum current income consistent with capital preservation and
liquidity by investing in high-quality money market instruments.

With respect to the Common Stock, Sentinel Growth, Aggressive Growth,
Bond, Managed and Money Market Portfolios, the Market Street Fund is advised by
Sentinel Advisors Company ("SAC"), which is registered with the SEC as
an investment adviser under the Investment Advisers Act of 1940. SAC is a
partnership whose partners are affiliates of National Life, Provident Mutual
Life Insurance Company ("Provident Mutual"), and The Penn Mutual Life Insurance
Company. National Life's affiliate is currently the managing partner of SAC and
is entitled to the majority share of SAC's profit or loss. As compensation for
its services, SAC receives monthly compensation as follows:

Bond Portfolio - 0.35% of the first $100 million of the average daily
net assets of the Portfolio and 0.30% of the average daily net assets in
excess of $100 million.

Common Stock and Managed Portfolios - 0.40% of the first $100 million
of the average daily net assets of each suchPortfolio and 0.35% of
suchaverage daily net assets in excess of $100 million.

Sentinel Growth and Aggressive Growth Portfolios - 0.50% of the first
$20 million of the average daily net assets of each such Portfolio, 0.40%
of the next $20 million of the average daily net assets of each such
Portfolio and 0.30% of such average daily net assets of each such
Portfolio in excess of $40 million.

Money Market Portfolio - 0.25% of the average daily net assets of the
Portfolio.

With respect to the International Portfolio, the Market Street Fund is
advised by Providentmutual Investment Management Company ("PIMC"), which is
also registered with the SEC as an investment adviser under the Investment
Advisers Act of 1940, and which receives monthly compensation at an effective
annual rate of 0.75% of the first $500 million of the average daily net assets
of the portfolio and 0.60% of the average daily net assets in excess of $500
million. PIMC has employed The Boston Company Asset Management, Inc. to
provide investment advisory services in connection with the Portfolio. As
compensation for the investment advisory services rendered, PIMC pays The
Boston Company Asset Management, Inc. a monthly fee at an effective annual rate
of 0.375% of the first $500 million of the average daily net assets of the
portfolio and 0.30% of the average daily net assets in excess of $500 million.

In addition to the fee for the investment advisory services, the Market
Street Fund pays its own expenses generally, including brokerage costs,
administrative costs, custodian costs, and legal, accounting and printing
costs. However, Provident Mutual has entered into an agreement with the Market
Street Fund whereby it will reimburse the Aggressive Growth, Bond, Managed, and
Money

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<PAGE> 22
Market Portfolios for all ordinary operating expenses, excluding advisory fees,
in excess of an annual rate of 0.40% of the average daily net assets of each
Portfolio. National Life has entered into an agreement whereby it will
reimburse the Common Stock and Sentinel Growth Portfolios for all ordinary
operating expenses, excluding advisory fees, in excess of an annual rate of
0.40% of the average daily net assets of each Portfolio. With respect to the
International Portfolio, Provident Mutual has entered into an agreement with
the Market Street Fund whereby it will reimburse the International Portfolio
for all ordinary operating expenses, excluding advisory fees, in excess of an
annual rate of 0.75% of its average daily net assets. It is anticipated that
these arrangements will continue, but neither Provident Mutual nor National
Life are under any legal obligation to continue these reimbursement
arrangements for any particular period of time; if they are terminated, Market
Street Fund expenses may increase.

A full description of the Market Street Fund, its investment objectives and
policies, its risks, expenses, and all other aspects of its operation is
contained in the attached Prospectus for the Market Street Fund, which should
be read together with this Prospectus.

VARIABLE INSURANCE PRODUCTS FUND AND VARIABLE INSURANCE PRODUCTS FUND II

The Separate Account has four Subaccounts which invest exclusively in
shares of Portfolios of the Variable Insurance Products Fund (the "VIP Fund")
and two Subaccounts which invest exclusively in shares of Portfolios of the
Variable Insurance Products Fund II ("VIP Fund II"). Like the Market Street
Fund, the VIP Fund and the VIP II Fund are "series" type mutual funds registered
with the SEC as diversified open-end management investment companies issuing a
number of series or classes of shares, each of which represents an interest in
a Portfolio of the VIP Fund or VIP Fund II.

The Fidelity Equity-Income Subaccount, Fidelity Growth Subaccount,
Fidelity High Income Subaccount, and Fidelity Overseas Subaccount of the
Separate Account invest in shares of the Equity-Income Portfolio, Growth
Portfolio, the High Income Portfolio, and the Overseas Portfolio, respectively,
of the VIP Fund. The Fidelity Index 500 Subaccount and the Fidelity Contrafund
Subaccount of the Separate Account invest in shares of the Index 500 Portfolio
and the Contrafund Portfolio, respectively, of the VIP Fund II. Shares of these
Portfolios are purchased and redeemed by the Separate Account at net asset
value without a sales charge. The Separate Account purchases shares of the
Portfolios from the VIP Fund and the VIP Fund II in accordance with
participation agreements between such funds and National Life. The termination
provisions of these participation agreements are described below.

The investment objectives of the Portfolios of the VIP Fund and the VIP
Fund II in which the Subaccounts invest are set forth below. The investment
experience of each Subaccount depends upon the investment performance of the
corresponding Portfolio. There is no assurance that any Portfolio will achieve
its stated objective.

Equity-Income Portfolio. This Portfolio seeks reasonable income by
investing primarily in income producing equity securities. In choosing these
securities, the Equity-Income Portfolio considers the potential for capital
appreciation. The Portfolio's goal is to achieve a yield which exceeds the
composite yield of the securities comprising the Standard and Poor's 500
Composite Stock Price Index.

Growth Portfolio. This Portfolio seeks to achieve capital appreciation.
The Growth Portfolio normally purchases common stocks, although its investments
are not restricted to any one type of security. Capital appreciation may also
be found in other types of securities, including bonds and preferred stocks.

High Income Portfolio. This Portfolio seeks to obtain a high level of
current income by investing primarily in high-yielding, lower-rated,
fixed-income securities, while also considering growth of capital. The risks of
investing in these high-yielding, high-risk securities is described in the
attached Prospectus for the VIP Fund, which should be read carefully before
investing.

Overseas Portfolio. This Portfolio seeks long term growth of capital
primarily through investments in foreign securities. The Overseas Portfolio
provides a means for diversification by participating in companies and
economies outside of the United States.

Index 500 Portfolio. This portfolio seeks to match the total return of
the Standard & Poors' Composite Index of 500 Stocks ("S&P 500") while keeping
expenses low. Fidelity Management & Research Company ("FMR"), the VIP Fund II
Fund Manager, normally invests at least 80% of the fund's assets in equity
securities of companies that compose the S&P 500.

Contrafund Portfolio. This Portfolio seeks 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.

The Equity-Income, Growth, High Income, and Overseas Portfolios of the VIP
Fund and the Index 500 and Contrafund Portfolios of the VIP Fund II are managed
by FMR. For managing its investments and business affairs, each Portfolio
pays FMR a monthly fee.

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<PAGE> 23

For the Equity Income, Growth, Overseas and Contrafund Portfolios, the
annual fee rate is the sum of two components:

1. A group fee rate based on the monthly average net assets of all the
mutual funds advised by FMR. This rate cannot rise above 0.52% and
it drops (to as low as a marginal rate of 0.30% when average group
assets exceed $174 billion) as total assets in all these funds rise.

2. An individual fund fee rate of 0.20% for the Equity-Income Portfolio,
0.30% for the Growth Portfolio, 0.45% for the Overseas Portfolio and
0.30% for the Contrafund Portfolio.

One-twelfth of the combined annual fee rate is applied to each Portfolio's
net assets averaged over the most recent month, giving a dollar amount which is
the fee for that month.

For the High Income Portfolio, the annual fee rate is the sum of two
components:

1. A group fee rate based on the monthly average net assets of all the
mutual funds advised by FMR. This rate cannot rise above .37%, and
it drops (to as low as a marginal rate of .14%) as total assets in
all these funds rise.

2. An individual fund fee rate of .35% for the High Income Portfolio.

One-twelfth of the combined annual fee rate is applied to the Portfolio's
net assets averaged over the most recent month, giving a dollar amount which
is the fee for that month.

On behalf of Overseas Portfolio, FMR has entered into sub-advisory
agreements with FMR U.K., FMR Far East, and Fidelity International Investment
Advisors ("FIIA"). Under the sub-advisory agreements, FMR may receive
investment advice and research services with respect to companies based outside
the U.S. and may grant them investment management authority as well as the
authority to buy and sell securities if FMR believes it would be beneficial to
the Portfolio. FIIA, in turn, has entered into a sub-advisory agreement with
its wholly owned subsidiary Fidelity International Investment Advisors (U.K.)
Limited ("FIIAL U.K.").

Currently, FMR U.K., FMR Far East, FIIA and FIIAL U.K. each focus on
investment opportunities in countries other than the U.S., including
countries in Europe, Asia and the Pacific Basin.

Under the sub-advisory agreements FMR pays the fees of FMR U.K., FMR
Far East, and FIIA. FIIA, in turn, pays the fees of FIIAL U.K.

For providing investment advice and research services the sub-advisors
are compensated as follows:

- FMR pays FMR U.K. and FMR Far East fees equal to 110% and 105%,
respectively, of FMR U.K.'s and FMR Far East's costs incurred in
connection with providing investment advice and research services.

- FMR pays FIIA 30% of its monthly management fee with respect to the
average market value of investments held by the Portfolio for which
FIIA has provided FMR with investment advice.

- FIIA pays FIIAL U.K. a fee equal to 110% of FIIAL U.K.'s costs
incurred in connection with providing investment advice and research
services.

For providing investment management services, the sub-advisors are compensated
according to the following formulas:

14
<PAGE> 24
- FMR pays FMR U.K., FMR Far East, and FIIA 50% of its monthly
management fee with respect to the Portfolio's average net assets
managed by the sub-advisor on a discretionary basis.

- FIIA pays FIIAL U.K. 110% of FIIAL U.K.'s costs incurred in connection
with providing investment management.

For the Index 500 Portfolio, the fee is 0.28% per annum of its average net
assets.

Each Portfolio utilizes Fidelity Investments Institutional Operations
Company ("FIIOC"), an affiliate of FMR, to maintain the master accounts of the
participating insurance companies. Under the transfer agent agreement with
FIIOC, each Portfolio pays fees based on the type, size, and number of accounts
in each Portfolio and the number of transactions made by shareholders of each
Portfolio.

Each Portfolio also has an agreement with Fidelity Service Co.
("Service"), an affiliate of FMR under which each Portfolio pays Service to
calculate its daily share prices and to maintain the portfolio and general
accounting records of each Portfolio and to administer each Portfolio's
securities lending program. The fees for pricing and bookkeeping services are
based on each Portfolio's average net assets but must fall within a range of
$45,000 to $750,000. The fees for securities lending services are based on the
number and duration of individual securities loans.

FMR may, from time to time, agree to reimburse a Portfolio for management
fees and other expenses above a specified percentage of average net assets.
Reimbursement arrangements, which may be terminated at any time without notice,
will increase a Portfolio's yield. If FMR discontinues a reimbursement
arrangement, each Portfolio's expenses will go up and its yield will be
reduced. FMR retains the right to be repaid by a Portfolio for expense
reimbursements if expenses fall below the limit prior to the end of a fiscal
year. Repayment by a Portfolio will lower its yield. FMR has voluntarily
agreed to reimburse the management fees and all other expenses (excluding
taxes, interest and extraordinary expenses) in excess of 1.50% of the average
net assets of the Equity-Income and Growth Portfolios.

A full description of the VIP Fund and the VIP Fund II, the
investment objectives and policies of the Portfolios, the risks, expenses and
all other aspects of their operation is contained in the attached Prospectuses
for the VIP Fund and the VIP Fund II.

ALGER AMERICAN FUND

The Separate Account has two Subaccounts which invest exclusively in shares
of Portfolios of the Alger American Fund. Like the Market Street Fund and the
VIP Fund, the Alger American Fund is a "series" type mutual 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.

The Alger Small Cap Subaccount and the Alger Growth Subaccount of the
Separate Account invest in shares of the Alger American Small Capitalization
Portfolio and the Alger American Growth Portfolio, respectively, of the Alger
American Fund. Shares of these Portfolios are purchased and redeemed by the
Separate Account at net asset value without a sales charge. The Separate
Account purchases shares of the Portfolios from the Alger American Fund in
accordance with a participation agreement between the Alger American Fund and
National Life. The termination provisions of this participation agreement are
described below.

The investment objectives of the Portfolios of the Alger American Fund in
which the Subaccounts invest are set forth below. The investment experience of
each Subaccount depends upon the investment performance of the corresponding
Portfolio. There is no assurance that any Portfolio will achieve its stated
objective.

Alger American Small Capitalization Portfolio. This Portfolio seeks
long-term capital appreciation by investing in a diversified, actively managed
portfolio of equity securities, primarily of companies

15
<PAGE> 25
with total market capitalization of less than $1 billion. Income is a
consideration in the selection of investments but is not an investment
objective of the Portfolio.

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

The Alger American Small Capitalization Portfolio and the Alger
American Growth Portfolio are managed by Fred Alger Management, Inc. As
compensation for the investment advisory services rendered, the Alger American
Small Capitalization Portfolio and the Alger American Growth Portfolio pay Fred
Alger Management, Inc. a monthly fee at an annual rate of 0.85% and 0.75%,
respectively of the average daily net assets of the relevant portfolio.

In addition to the fee for the investment advisory services, the Alger
American Fund pays its own expenses generally, including brokerage costs,
administrative costs, custodian costs, and legal, accounting and printing
costs. Fred Alger Management, Inc. has agreed that it will reimburse the Alger
American Small Capitalization Portfolio and the Alger American Growth Portfolio
to the extent that annual operating expenses (excluding interest, taxes, fees
for brokerage services and extraordinary expenses) exceed 1.50% of the average
daily net assets of these Portfolios. In recent years, the expenses of these
Portfolios have been substantially less than 1.50% of average daily net
assets, and these agreements have not resulted in reimbursements to these
Portfolios from Fred Alger Management, Inc.

A full description of the Alger American Fund, the investment
objectives and policies of the Portfolios, the risks, expenses and all other
aspects of their operation is contained in the attached Prospectus for the
Alger American Fund.

TERMINATION OF PARTICIPATION AGREEMENTS

The participation agreements pursuant to which the Funds sell their
shares to Subaccounts of the Separate Account contain varying provisions
regarding termination. In the case of the VIP Fund and the VIP Fund II, the
agreement provides for termination 1) upon one year's advance written notice by
any party, 2) at National Life's option if shares of the Fund are not
reasonably available to meet requirements of the Policies, 3) at the option of
National Life or the Fund if certain enforcement proceedings are instituted
against the other, 4) upon the vote of the Owners of Policies to substitute
shares of another mutual fund, 5) at National Life's option if shares of the
Fund are not registered, issued, or sold in accordance with applicable laws, if
the Fund ceases to qualify as a regulated investment company under the Code or
fails to meet certain diversification requirements, 6) at the option of the
Fund or its principal underwriter if it determines that National Life has
suffered material adverse changes in its business or financial condition or is
subject to material adverse publicity, 7) at the option of National Life if the
Fund has suffered material adverse changes in its business or financial
condition or is a subject of material adverse publicity, or 8) at the option of
the Fund or its principal underwriter if National Life decides to make another
mutual fund available as a funding vehicle for its policies.

In the case of the Alger American Fund, the participation agreement
provides for termination 1) upon 60 days' advance notice by either party, 2)
at the option of the Fund or its principal underwriter, if the Policies cease
to qualify as life insurance contracts under the Code, or if the Policies are
not registered, issued or sold in accordance with applicable law, 3) at the
option of any party, if the Trustees of the Fund determine that a material
irreconcilable conflict exists, 4) at National Life's option, if formal
proceedings are instituted against the Fund or its principal underwriter by
the NASD, the SEC, any state securities or insurance department or any other
regulatory body regarding the Fund's or such principal underwriter's duties
under the agreement or related to the sale of Fund shares or the operation of
the Fund, 5) at National Life's option, as to a Portfolio if it fails to
meet diversification requirements under the Code, 6) at National Life's
option, if shares of the

16
<PAGE> 26
Fund are not reasonably available to meet requirements of the Policies, 7) at
National Life's option, if shares of the Fund are not registered, issued, or
sold in accordance with applicable laws, or applicable law precludes the use
of such shares as the underlying investment media for the Policies, 8) at
National Life's option, as to any Portfolio if that Portfolio fails to
qualify as a regulated investment company under Subchapter M of the Code, 9)
at the option of the Fund's principal underwriter if it determines that
National Life has suffered material adverse changes in its business,
operations, financial condition or prospects or is subject to material
adverse publicity, or 10) at National Life's option if the Fund or its
principal underwriter has suffered material adverse changes in its business,
operations, financial condition or prospects or is subject to material
adverse publicity.

In the case of the Market Street Fund, the agreement provides for
termination 1) on one year's advance notice by any party, 2) at National
Life's option if shares of the Fund are not reasonably available to meet the
requirements of the Policies, 3) at the option of the Fund or National Life
if certain enforcement proceedings are instituted against the other, 4) upon
vote of the Owners of Policies to substitute shares of another mutual fund,
5) at the option of National Life or the Fund upon a determination that an
irreconcilable material conflict exists between Owners of variable insurance
products of all the separate accounts or the interests of participating
insurance companies investing in the Fund, 6) at the option of National Life
if it has withdrawn the Separate Account's investment in the Fund, 7) at
National Life's option if the Fund ceases to qualify as a regulated
investment company under the Code or fails to meet certain diversification
requirements thereunder, or 8) at the option of any party upon another
party's material breach of any provision of the agreement.

Should an agreement between National Life and a Fund terminate, the
Subaccounts which invest in that Fund may not be able to purchase additional
shares of such Fund. In that event, Owners will no longer be able to
transfer Accumulated Values or allocate Net Premiums to Subaccounts
investing in Portfolios of such Fund.

Additionally, in certain circumstances, it is possible that a Fund or
a Portfolio of a Fund may refuse to sell its shares to a Subaccount despite
the fact that the participation agreement between the Fund and National Life
has not been terminated. Should a Fund or Portfolio of such Fund decide not
to sell its shares to National Life, National Life will not be able to honor
requests by Owners to allocate cash values or net premiums to Subaccounts
investing in shares of that Fund or Portfolio.

RESOLVING MATERIAL CONFLICTS

The Funds are available to registered separate accounts of insurance
companies, other than National Life, offering variable annuity and variable
life insurance policies. As a result, there is a possibility that a material
conflict may arise between the interests of Owners with Accumulated Value
allocated to the Separate Account and the owners of life insurance policies
and variable annuities issued by such other companies whose values are
allocated to one or more other separate accounts investing in any one of the
Funds.

In the event of a material conflict, National Life will take any
necessary steps, including removing the Separate Account from that Fund, to
resolve the matter. The Board of Directors or Trustees of the Funds intend
to monitor events in order to identify any material conflicts that possibly
may arise and to determine what action, if any, should be taken in response
to those events or conflicts. See the individual Fund Prospectuses for more
information.

THE GENERAL ACCOUNT

For information on the General Account, see page ____.

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<PAGE> 27
DETAILED DESCRIPTION OF POLICY PROVISIONS

DEATH BENEFIT

General. As long as the Policy remains in force, the Death Benefit of
the Policy will, upon due proof of the Insured's death (and fulfillment of
certain other requirements), be paid to the named Beneficiary in accordance
with the designated Death Benefit Option, unless the claim is contestable in
accordance with the terms of the Policy. The proceeds may be paid in cash or
under one of the Settlement Options set forth in the Policy. (See "Payment
of Policy Benefits," Page __.) The Death Benefit payable under the
designated Death Benefit Option will be the Unadjusted Death Benefit under
that Death Benefit Option, increased by any additional benefits and any
dividend payable, and decreased by any outstanding Policy loan and accrued
interest and any unpaid Monthly Deductions.

Death Benefit Options. The Policy provides two Death Benefit Options:
Option A and Option B. The Owner designates the Death Benefit Option in the
application and may change it as described in "Change in Death Benefit
Option," Page ___.

Option A. The Unadjusted Death Benefit is equal to the greater of (a) the
Face Amount of the Policy and (b) the Accumulated Value on the Valuation Date
on or next following the Insured's date of death multiplied by the specified
percentage shown in the table below:

<TABLE>
<CAPTION>
Attained Age Percentage Attained Age Percentage
------------ ---------- ------------ ----------
<S> <C> <C> <C>
40 and under 250% 60 130%
45 215% 65 120%
50 185% 70 115%
55 150% 75 and over 105%
</TABLE>

For Attained Ages not shown, the percentages will decrease by a ratable portion
of each full year.

Illustration of Option A -- For purposes of this illustration, assume that
the Insured is under Attained Age 40 and there is no Policy loan outstanding.

Under Option A, a Policy with a Face Amount of $200,000 will generally pay
an Unadjusted Death Benefit of $200,000. The specified percentage for an
Insured under Attained Age 40 on the Policy Anniversary prior to the date of
death is 250%. Because the Unadjusted Death Benefit must be equal to or
greater than 2.50 times the Accumulated Value, any time the Accumulated Value
exceeds $80,000 the Unadjusted Death Benefit will exceed the Face Amount. Each
additional dollar added to the Accumulated Value will increase the Unadjusted
Death Benefit by $2.50. Thus, a 35 year old Insured with an Accumulated Value
of $90,000 will have an Unadjusted Death Benefit of $225,000 (2.50 x $90,000,
and an Accumulated Value of $150,000 will have an Unadjusted Death Benefit of
$375,000 (2.50 x $150,000).

Similarly, any time the Accumulated Value exceeds $80,000, each dollar
taken out of the Accumulated Value will reduce the Unadjusted Death Benefit by
$2.50. If at any time, however, the Accumulated Value multiplied by the
specified percentage is less than the Face Amount, the Unadjusted Death Benefit
will be the Face Amount of the Policy.

Option B. The Unadjusted Death Benefit is equal to the greater of (a) the
Face Amount of the Policy plus the Accumulated Value and (b) the Accumulated
Value on the Valuation Date on or next following the Insured's date of death
multiplied by the specified percentage shown in the table above.

Illustration of Option B -- For purposes of this illustration, assume that
the Insured is under Attained Age 40 and there is no Policy loan outstanding.

Under Option B, a Policy with a face amount of $200,000 will generally pay
an Unadjusted Death Benefit of $200,000 plus the Accumulated Value. Thus, for
example, a Policy with a $50,000

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<PAGE> 28
Accumulated Value will have an Unadjusted Death Benefit of $250,000 ($200,000
plus $50,000). Since the specified percentage is 250%, the Unadjusted Death
Benefit will be at least 2.50 times the Accumulated Value. As a result, if the
Accumulated Value exceeds $133,333, the Unadjusted Death Benefit will be
greater than the Face Amount plus the Accumulated Value. Each additional
dollar added to the Accumulated Value above $133,333 will increase the
Unadjusted Death Benefit by $2.50. An Insured with an Accumulated Value of
$150,000 will have an Unadjusted Death Benefit of $375,000 (2.50 x $150,000),
and an Accumulated Value of $200,000 will yield an Unadjusted Death Benefit of
$500,000 (2.50 x $200,000). Similarly, any time the Accumulated Value exceeds
$133,333, each dollar taken out of the Accumulated Value will reduce the
Unadjusted Death Benefit by $2.50. If at any time, however, the Accumulated
Value multiplied by the specified percentage is less than the Face Amount plus
the Accumulated Value, the Unadjusted Death Benefit will be the Face Amount
plus the Accumulated Value.

At Attained Age 99, Option B automatically becomes Option A.

Which Death Benefit Option to Choose. If an Owner prefers to have premium
payments and favorable investment performance reflected partly in the form of
an increasing Death Benefit, the Owner should choose Option B. If an Owner is
satisfied with the amount of the Insured's existing insurance coverage and
prefers to have premium payments and favorable investment performance reflected
to the maximum extent in the Accumulated Value, the Owner should choose Option
A.

Change in Death Benefit Option. After the first Policy Year, the Death
Benefit Option in effect may be changed by sending National Life a written
request. No charges will be imposed to make a change in the Death Benefit
Option. The effective date of any such change will be the Monthly Policy Date
on or next following the date National Life receives the written request. Only
one change in Death Benefit Option is permitted in any one Policy Year.

If the Death Benefit Option is changed from Option A to Option B, on the
effective date of the change, the Death Benefit will not change and the Face
Amount will be decreased by the Accumulated Value on that date. However, this
change may not be made if it would reduce the Face Amount to less than the
Minimum Face Amount.

If the Death Benefit Option is changed from Option B to Option A, on the
effective date of the change, the Death Benefit will not change and the Face
Amount will be increased by the Accumulated Value on that date.

A change in the Death Benefit Option may affect the Net Amount at Risk
over time which, in turn, would affect the monthly Cost of Insurance Charge
(see "Monthly Deductions," Page __). Changing from Option A to Option B will
generally result in a Net Amount at Risk that remains level. Such a change
will result in a relative increase in the Cost of Insurance Charges over time
because the Net Amount at Risk will, unless the Unadjusted Death Benefit is
based on the applicable percentage of Accumulated Value, remain level as cost
of insurance rates increase over time, rather than the Net Amount at Risk
decreasing as the Accumulated Value increases. Changing from Option B to
Option A will, if the Accumulated Value increases, decrease the Net Amount at
Risk over time, thereby potentially offsetting the effect of increases and over
time in the cost of insurance rates.

The effects of these Death Benefit Option changes on the Face Amount,
Unadjusted Death Benefit and Net Amount at Risk can be illustrated as follows.
Assume that a contract under Option A has a Face Amount of $500,000 and an
Accumulated Value of $100,000 and, therefore, an Unadjusted Death Benefit of
$500,000 and a Net Amount at Risk of $400,000 ($500,000 - $100,000). If the
Death Benefit Option is changed from Option A to Option B, the Face Amount will
decrease from $500,000 to $400,000 and the Unadjusted Death Benefit and Net
Amount at Risk would remain the same. Assume that a contract under Option B
has a Face Amount of $500,000 and an Accumulated Value of $50,000 and,
therefore, the Unadjusted Death Benefit is $550,000 ($500,000 + $50,000) and
the Net Amount at Risk is $500,000 ($550,000 - $50,000). If the Death Benefit
Option is changed from Option B to Option A, the Face Amount will increase to
$550,000, and the Unadjusted Death Benefit and Net Amount at Risk would remain
the same.

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<PAGE> 29
If a change in the Death Benefit Option would result in cumulative
premiums exceeding the maximum premium limitations under the Internal Revenue
Code for life insurance, National Life will not effect the change.

A change in the Death Benefit Option may have Federal income tax
consequences. (See "Tax Treatment of Policy Benefits," Page ____).

How the Death Benefit May Vary. The amount of the Death Benefit may vary
with the Accumulated Value in the following circumstances. The Death Benefit
under Option A will vary with the Accumulated Value whenever the specified
percentage of Accumulated Value exceeds the Face Amount of the Policy. The
Death Benefit under Option B will always vary with the Accumulated Value
because the Unadjusted Death Benefit equals the greater of (a) the Face Amount
plus the Accumulated Value and (b) the Accumulated Value multiplied by the
specified percentage.

ABILITY TO ADJUST FACE AMOUNT

Subject to certain limitations, an Owner may generally, at any time
after the first Policy Year, increase or decrease the Policy's Face Amount by
submitting a written application to National Life. The effective date of an
increase will be the Monthly Policy Date on or next following National Life's
approval of the request, and the effective date of a decrease is the Monthly
Policy Date on or next following the date that National Life receives the
written request. Employee benefit plan Policies may adjust the Face Amount
even in Policy Year 1. An increase in Face Amount may have federal tax
consequences. (See "Tax Treatment Of Policy Benefits," Page ___). The effect
of changes in Face Amount on Policy charges, as well as other considerations,
are described below.

Increase. A request for an increase in Face Amount may not be for less
than $25,000, or such lesser amount required in a particular state (except
that the minimum for employee benefit plans is $2000). The Owner may not
increase the Face Amount after the Insured's Attained Age 85. To obtain the
increase, the Owner must submit an application for the increase and provide
evidence satisfactory to National Life of the Insured's insurability.

On the effective date of an increase, and taking the increase into
account, the Cash Surrender Value must be equal to the Monthly Deductions
then due. If the Cash Surrender Value is not sufficient, the increase will
not take effect until the Owner makes a sufficient additional premium payment
to increase the Cash Surrender Value.

An increase in the Face Amount will generally affect the total Net
Amount at Risk which will increase the monthly Cost of Insurance Charges. In
addition, the Insured may be in a different Rate Class as to the increase in
insurance coverage. An increase in premium payment or frequency may be
appropriate after an increase in Face Amount. (See "Cost of Insurance," Page
___).

Decrease. The amount of the Face Amount after a decrease cannot be
less than 75% of the largest Face Amount in force at any time in the twelve
months immediately preceding National Life's receipt of the request. The
Face Amount after any decrease may not be less than the Minimum Face Amount,
which is generally currently $50,000. To the extent a decrease in the Face
Amount could result in cumulative premiums exceeding the maximum premium
limitations applicable for life insurance under the Internal Revenue Code,
National Life will not effect the decrease.

A decrease in the Face Amount generally will decrease the total Net
Amount at Risk, which will decrease an Owner's monthly Cost of Insurance
Charges.

For purposes of determining the Cost of Insurance Charge, any decrease
in the Face Amount will reduce the Face Amount in the following order: (a)
the increase in Face Amount provided by the most recent increase; (b) the
next most recent increases, in inverse chronological order; and (c) the
Initial Face Amount.

20
<PAGE> 30
HOW THE DURATION OF THE POLICY MAY VARY

The Policy will remain in force as long as the Cash Surrender Value of
the Policy is sufficient to pay the Monthly Deductions and the charges under
the Policy. When the Cash Surrender Value is insufficient to pay the charges
and the Grace Period expires without an adequate premium payment by the Owner,
the Policy will lapse and terminate without value. Notwithstanding the
foregoing, during the first five Policy Years the Policy will not lapse if, as
of the Monthly Policy Date that the Cash Surrender Value of the Policy first
becomes insufficient to pay the charges, the Minimum Guarantee Premium has been
paid. The Owner has certain rights to reinstate the Policy, if it should
lapse. (See "Reinstatement," Page ___).

In addition, an optional Guaranteed Death Benefit Rider is available
which will guarantee that the Policy will not lapse prior to age 70, or 20
years from the Date of Issue of the Policy, if longer, regardless of investment
performance, if the Minimum Guarantee Premium has been paid as of each Monthly
Policy Date.

ACCUMULATED VALUE

The Accumulated Value is the total amount of value held under the
Policy at any time. It is equal to the sum of the Policy's values in the
Separate Account and the General Account. The Accumulated Value minus any
applicable Surrender Charge, and minus any outstanding Policy loans and accrued
interest, is equal to the Cash Surrender Value. There is no guaranteed minimum
for the portion of the Accumulated Value in any of the Subaccounts of the
Separate Account and, because the Accumulated Value on any future date depends
upon a number of variables, it cannot be predetermined.

The Accumulated Value and Cash Surrender Value will reflect the Net
Premiums paid, investment performance of the chosen Subaccounts of the Separate
Account, the crediting of interest on non-loaned Accumulated Value in the
General Account and amounts held as Collateral in the General Account, any
transfers, any Withdrawals, any loans, any loan repayments, any loan interest
paid, and charges assessed in connection with the Policy.

Determination of Number of Units for the Separate Account. Amounts
allocated, transferred or added to a Subaccount of the Separate Account under a
Policy are used to purchase units of that Subaccount; units are redeemed when
amounts are deducted, transferred or withdrawn. The number of units a Policy
has in a Subaccount equals the number of units purchased minus the number of
units redeemed up to such time. For each Subaccount, the number of units
purchased or redeemed in connection with a particular transaction is determined
by dividing the dollar amount by the unit value.

Determination of Unit Value. The unit value of a Subaccount is equal
to the unit value on the immediately preceding Valuation Day multiplied by the
Net Investment Factor for that Subaccount on that Valuation Day.

Net Investment Factor. Each Subaccount of the Separate Account has
its own Net Investment Factor. The Net Investment Factor measures the daily
investment performance of the Subaccount. The factor will increase or
decrease, as appropriate, to reflect net investment income and capital gains or
losses, realized and unrealized, for the securities of the underlying portfolio
or series.

The asset charge for mortality and expense risks will be deducted in
determining the applicable Net Investment Factor. (See "Charges and Deductions
- - Mortality and Expense Risk Charge," Page __).

Calculation of Accumulated Value. The Accumulated Value is determined
first on the Date of Issue and thereafter on each Valuation Day. On the Date
of Issue, the Accumulated Value will be the Net Premiums received, plus any
earnings prior to the Date of Issue, less any Monthly Deductions due on the
Date of Issue. On each Valuation Day after the Date of Issue, the Accumulated
Value will be:

21
<PAGE> 31
(1) The aggregate of the values attributable to the Policy in the
Separate Account, determined by multiplying the number of
units the Policy has in each Subaccount of the Separate
Account by such Subaccount's unit value on that date; plus

(2) The value attributable to the Policy in the General Account
(See "The General Account," Page ___).

PAYMENT AND ALLOCATION OF PREMIUMS

Issuance of a Policy. In order to purchase a Policy, an individual
must make application to National Life through a licensed National Life agent
who is also a registered representative of Equity Services, Inc. ("ESI") or a
broker/dealer having a Selling Agreement with ESI or a broker/dealer having a
Selling Agreement with such a broker/dealer. If the Minimum Initial Premium
is not submitted with the application, it must be submitted when the Policy
is delivered. The Minimum Face Amount of a Policy under National Life's
rules is generally $50,000; however, exceptions may be made for employee
benefit plans.

National Life reserves the right to revise its rules from time to time
to specify a different Minimum Face Amount for subsequently issued policies.
A Policy will be issued only on Insureds who have an Issue Age of 85 or less
and who provide National Life with satisfactory evidence of insurability.
Acceptance is subject to National Life's underwriting rules. National Life
reserves the right to reject an application for any reason permitted by law.
(See "Distribution of Policies," Page ___.)

From the time the application for a Policy is signed until the time
the Policy is issued, an applicant can, subject to National Life's
underwriting rules, obtain temporary insurance protection, pending issuance
of the Policy, by answering "no" to the Health Questions of the Receipt &
Temporary Life Insurance Agreement and submitting (a) a complete Application
including any medical questionnaire required, and (b) payment of the Minimum
Initial Premium. The Minimum Initial Premium will equal two times the
Minimum Monthly Premium.

The amount of coverage under the Receipt & Temporary Life Insurance
Agreement is the lesser of the Face Amount applied for or $1,000,000
($100,000 in the case of proposed Insureds age 70 or over). Coverage under
the agreement will end on the earliest of (a) the 90th day from the date of
the agreement; (b) the date that insurance takes effect under the Policy; (c)
the date a policy, other than as applied for, is offered to the Applicant;
(d) three days from the date National Life mails a notice of termination of
coverage; (e) the time the Applicant first learns that the Company has
terminated the temporary life insurance; or (f) the time the Applicant
withdraws the application for life insurance.

National Life will offer a one time credit on conversions of eligible
National Life term insurance policies to a VariTrak Policy. If the term
policy being converted has been in force for at least twelve months, the
amount of the credit is equal to 12% of a target amount used to determine
commission payments. If the term policy being converted has been in force
for less than twelve months, the credit will be prorated based on the number
of months the term policy has been outstanding at the time of conversion. For
GRT term policies, the credit will be 18% of the target amount used to
determine commission payments if the GRT term policy has been in force for at
least two years but not more than five years. For GRT term policies in
force for less than two years, the credit is 0.5% per month for each month in
the first year, and 1.0% per month for each month in the second year. For
GRT policies in force more than five years, the credit decreases from 18% by
0.5% for each month beyond five years, until it becomes zero at the end of
year eight.

The amount of the credit will be added to the initial premium
payment, if any, submitted by the Policy Owner converting the term policy,
and will be treated as part of the Initial Premium for the Policy. Thus, the
credit will be included in premium payments for purposes of calculating and
deducting the Premium Tax Charge. If the Policy is surrendered, the credit
will not be recaptured by National Life. The amount of the credit will not
be included for purposes of calculating agent compensation for the sale of
the Policy.

National Life will also offer a one time credit to Home Office
employees who purchase a VariTrak Policy, as both Owner and Insured. This
one time credit is calculated differently from the credit described above; in
particular, the amount of the credit will be 50% of the target premium used
in the calculation of commissions on the Policy. Otherwise, the credit will
be treated in the same manner as the credit described above.

Amount and Timing of Premiums. Each premium payment must be at least
$50. Subject to certain limitations described below, an Owner has
considerable flexibility in determining the amount and frequency of premium
payments.

At the time of application, each Owner will select a Planned Periodic
Premium schedule, based on a periodic billing mode of annual, semi-annual, or
quarterly payments. The Owner may request National Life to send a premium
reminder notice at the specified interval. The Owner may change the Planned
Periodic Premium frequency and amount. Also, under a "Check-O-Matic" plan,
the Owner can select a monthly payment schedule pursuant to which premium
payments will be automatically deducted from a bank account or other source,
rather than being "billed." National Life may allow, in certain situations,
Check-O-Matic payments of less than $50. National Life reserves the right
to require that Check-O-Matic be set up for at least the Minimum Monthly
Premium.

The Owner is not required to pay the Planned Periodic Premiums in
accordance with the specified schedule. The Owner may pay premiums in any
amount (subject to the $50 minimum and the limitations described in the next
section), frequency and time period. Payment of the Planned Periodic
Premiums will not, however, guarantee that the Policy will remain in force
(except that if such premiums are at least equal to the Minimum Guarantee
Premium, then the Policy will remain in force for at least 5 years, or for
the period covered by the Guaranteed Death Benefit Rider if such Rider is
purchased). Instead, the duration of the Policy depends upon the Policy's
Cash Surrender Value.

22
<PAGE> 32
Thus, even if Planned Periodic Premiums are paid, the Policy will lapse
whenever the Cash Surrender Value is insufficient to pay the Monthly
Deductions and any other charges under the Policy and if a Grace Period
expires without an adequate payment by the Owner (unless the Policy is in its
first five years, or the Guaranteed Death Benefit Rider has been purchased
and remains applicable, in either case so long as the Minimum Guarantee
Premium has been paid).

Any payments made while there is an outstanding Policy loan will be
applied as premium payments rather than loan repayments, unless National Life
is notified in writing that the amount is to be applied as a loan repayment.
No premium payments may be made after the Insured reaches Attained Age 99.
However, loan repayments will be permitted after Attained Age 99.

Higher premium payments under Death Benefit Option A, until the
applicable percentage of Accumulated Value exceeds the Face Amount, will
generally result in a lower Net Amount at Risk, and lower Cost of Insurance
Charges against the Policy. Conversely, lower premium payments in this
situation will result in a higher Net Amount at Risk, which will result in
higher Cost of Insurance Charges under the Policy.

Under Death Benefit Option B, until the applicable percentage of
Accumulated Value exceeds the Face Amount plus the Accumulated Value, the level
of premium payments will not affect the Net Amount at Risk. (However, both the
Accumulated Value and Death Benefit will be higher if premium payments are
higher, and lower if premium payments are lower.)

Under either Death Benefit Option, if the Unadjusted Death Benefit is
the applicable percentage of Accumulated Value, then higher premium payments
will result in a higher Net Amount at Risk, and higher Cost of Insurance
Charges. Lower premium payments will result in a lower Net Amount at Risk, and
lower Cost of Insurance Charges.

Premium Limitations. With regard to a Policy's inside build-up, the
Internal Revenue Code of 1986 (the "Code") provides for exclusion of the
Unadjusted Death Benefit from gross income if total premium payments do not
exceed certain stated limits. In no event can the total of all premiums paid
under a Policy exceed such limits. If at any time a premium is paid which
would result in total premiums exceeding such limits, National Life will only
accept that portion of the premium which would make total premiums equal the
maximum amount which may be paid under the Policy. The excess will be
promptly refunded, and in the cases of premiums paid by check, after such
check has cleared. If there is an outstanding loan on the Policy, the excess
may instead be applied as a loan repayment. Even if total premiums were to
exceed the maximum premium limitations established by the Code, the excess of
(a) a Policy's Unadjusted Death Benefit over (b) the Policy's Cash Surrender
Value plus outstanding Policy loans and accrued interest, would still be
excludable from gross income under the Code.

The maximum premium limitations set forth in the Code depend in part
upon the amount of the Unadjusted Death Benefit at any time. As a result,
any Policy changes which affect the amount of the Unadjusted Death Benefit
may affect whether cumulative premiums paid under the Policy exceed the
maximum premium limitations. To the extent that any such change would result
in cumulative premiums exceeding the maximum premium limitations, National
Life will not effect such change. (See "Federal Income Tax Considerations,"
Page ___).

Unless the Insured provides satisfactory evidence of insurability,
National Life reserves the right to limit the amount of any premium payment
if it increases the Unadjusted Death Benefit more than it increases the
Accumulated Value.

Allocation of Net Premiums. The Net Premium equals the premium paid
less the Premium Tax Charge. In the application for the Policy, the Owner
will indicate how Net Premiums should be allocated among the Subaccounts of
the Separate Account and/or the General Account. These allocations may be
changed at any time by the Owner by written notice to National Life at its
Home Office, or if the telephone transaction privilege has been elected, by
telephone instructions (See "Telephone Transaction Privilege," Page ___).
The percentages of each Net Premium that may be

23
<PAGE> 33
allocated to any Subaccount must be in whole numbers of not less than 5%, and
the sum of the allocation percentages must be 100%. Except in the
circumstances described in the following paragraph, National Life will
allocate the Net Premiums as of the Valuation Date it receives such premium
at its Home Office, based on the allocation percentages then in effect.

Any portion of the Initial Premium and any subsequent premiums
received by National Life before National Life receives at its Home Office a
signed delivery receipt for the Policy (or other evidence satisfactory to
National Life that delivery has been completed) and for a 10 day period
beginning with the date of such delivery, which are to be allocated to the
Separate Account will be allocated to the Money Market Subaccount. On the
first Valuation Date at or after the end of such period, National Life will
allocate the amount in the Money Market Subaccount to each of the Subaccounts
selected in the application based on the proportion that the allocation
percentage set forth in the application for such Subaccount bears to the sum
of the Separate Account premium allocation percentages then in effect.

For example, assume a Policy was issued with Net Premiums to be
allocated 25% to the Managed Subaccount, 25% to the Bond Subaccount and 50%
to the General Account. During the period stated above, 50% (25% + 25%) of
the Net Premiums will be allocated to the Money Market Subaccount. At the
end of such period, 50% (25% / 50%) of the amount in the Money Market
Subaccount will be transferred to the Managed Subaccount and 50% to the Bond
Subaccount.

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

Transfers. The Owner may transfer the Accumulated Value between and
among the Subaccounts of the Separate Account and the General Account by making
a written transfer request to National Life, or if the telephone transaction
privilege has been elected, by telephone instructions to National Life (See
"Telephone Transaction Privilege," Page ___). Transfers between and among the
Subaccounts of the Separate Account and the General Account are made as of the
Valuation Day that the request for transfer is received at the Home Office. The
Owner may, at any time, transfer all or part of the amount in one of the
Subaccounts of the Separate Account to another Subaccount and/or to the General
Account. (For transfers from the General Account to the Separate Account, see
"Transfers from General Account," Page ___).

Currently an unlimited number of transfers is permitted without
charge, and National Life has no current intent to impose a transfer charge in
the foreseeable future. However, National Life reserves the right, upon prior
notice to Policy Owners, to change this policy so as to deduct a $25 transfer
charge from each transfer in excess of the fifth transfer during any one Policy
Year. All transfers requested during one Valuation Period are treated as one
transfer transaction. If a transfer charge is adopted in the future, transfers
resulting from Policy loans, the exercise of Special Transfer Rights (see
"Policy Rights - Special Transfer Rights, Page ____), and the reallocation from
the Money Market Subaccount following the 10-day period after the Date of
Issue, will not be subject to a transfer charge and will not count against the
five free transfers in any Policy Year. Under present law, transfers are not
taxable transactions.

Policy Lapse. The failure to make a premium payment will not itself
cause a Policy to lapse. Lapse will only occur when the Cash Surrender Value
is insufficient to cover the Monthly Deductions and other charges under the
Policy and the Grace Period expires without a sufficient payment. During the
first five Policy Years, the Policy will not lapse so long as the Minimum
Guarantee Premium has been paid.

In addition, if the Owner has elected at issue the Guaranteed Death
Benefit Rider, and has paid the Minimum Guarantee Premium as of each Monthly
Policy Date, the Policy will not lapse prior to the Insured's Attained Age 70,
or 20 years from the Date of Issue of the Policy if longer, regardless of
whether the Cash Surrender Value is sufficient to cover the Monthly Deductions.
See "Optional Benefits - Guaranteed Death Benefit, Page ___)."

24
<PAGE> 34
The Policy provides for a 61-day Grace Period that is measured from
the date on which notice is sent by National Life. The Policy does not lapse,
and the insurance coverage continues, until the expiration of this Grace
Period. In order to prevent lapse, the Owner must during the Grace Period make
a premium payment equal to the sum of any amount by which the past Monthly
Deductions have been in excess of Cash Surrender Value, plus three times the
Monthly Deduction due the date the Grace Period began. The notice sent by
National Life will specify the payment required to keep the Policy in force.
Failure to make a payment at least equal to the required amount within the
Grace Period will result in lapse of the Policy without value.

Reinstatement. A Policy that lapses without value may be reinstated
at any time within five years (or longer period required in a particular state)
after the beginning of the Grace Period by submitting evidence of the Insured's
insurability satisfactory to National Life and payment of an amount sufficient
to provide for two times the Monthly Deduction due on the date the Grace Period
began plus three times the Monthly Deduction due on the effective date of
reinstatement, which is, unless otherwise required by state law, the Monthly
Policy Date on or next following the date the reinstatement application
is approved. Upon reinstatement, the Accumulated Value will be based upon the
premium paid to reinstate the Policy and the Policy will be reinstated with the
same Date of Issue as it had prior to the lapse. Neither the five year no
lapse guarantee nor the Death Benefit Guarantee Rider may be reinstated.

Specialized Uses of the Policy. Because the Policy provides for an
accumulation of cash value as well as a death benefit, the Policy can be used
for various individual and business financial planning purposes. Purchasing the
Policy in part for such purposes entails certain risks. For example, if the
investment performance of Subaccounts to which Policy Value is allocated is
poorer than expected or if sufficient premiums are not paid, the Policy may
lapse or may not accumulate sufficient Accumulated Value or Cash Surrender
Value to fund the purpose for which the Policy was purchased. Withdrawals and
Policy loans may significantly affect current and future Accumulated Value,
Cash Surrender Value, or Death Benefit proceeds. Depending upon Subaccount
investment performance and the amount of a Policy loan, the loan may cause a
Policy to lapse. Because the Policy is designed to provide benefits on a
long-term basis, before purchasing a Policy for a specialized purpose a
purchaser should consider whether the long-term nature of the Policy is
consistent with the purpose for which it is being considered. Using a Policy
for a specialized purpose may have tax consequences. (See "Federal Income Tax
Considerations," Page __.)

For Policies that are intended to be used in STEP plans, prospective
purchasers should be aware that there is a risk that the intended tax
consequences of such a plan may not be realized. In two audits, the Internal
Revenue Service has proposed tax treatment less advantageous than intended, and
those matters are currently in litigation. The plans under audit may have
considerable differences from those a prospective Policy Owner may be
considering, and the litigation regarding such plans may or may not be
controlling with respect to STEP Plans of prospective Policy Owners. National
Life does not guarantee any particular tax consequences of any use of the
Policies, including but not limited to use in STEP Plans, and recommends that
prospective purchases of Policies seek independent tax advice with respect to
applications in which particular tax consequences are sought.

CHARGES AND DEDUCTIONS

Charges will be deducted in connection with the Policy to compensate
National Life for (a) providing the insurance and other benefits set forth in
the Policy; (b) administering the Policy; (c) assuming certain mortality and
other risks in connection with the Policy; and (d) incurring expenses in
distributing the Policy including costs associated with prospectuses and sales
literature and sales compensation.

PREMIUM TAX CHARGE

A deduction of 3.25% of the premium will be made from each premium
payment prior to allocation of Net Premiums, to cover state premium taxes and
the federal DAC Tax. For qualified employee benefit plans, the deduction will
be 2.0% of each premium rather than 3.25%.

The federal DAC Tax is a tax attributable to certain "policy acquisition
expenses" under Internal Revenue Code Section 848. Section 848 in effect
accelerates the realization of income National Life receives from the Policies,
and therefore the payment of federal income taxes on that income. The economic
consequence of Section 848 is, therefore, an increase in the tax burden borne
by National Life that is attributable to the Policies.

SURRENDER CHARGES

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<PAGE> 35
A Surrender Charge, which consists of a Deferred Administrative Charge
and a Deferred Sales Charge, is imposed if the Policy is surrendered or lapses
at any time before the end of the fifteenth Policy Year.

Deferred Administrative Charge. The Deferred Administrative Charge
varies by Issue Age, and is based on Initial Face Amount. After the first five
Policy Years, it declines linearly by Policy Month until the end of Policy Year
15, when it becomes zero. Charges per $1,000 of Face Amount for sample Issue
Ages are shown below:

<TABLE>
<CAPTION>
Sample
Issue Age Charge per $1000 of Initial Face Amount
--------- ---------------------------------------
<S> <C>
0-5 None
10 $0.50
15 $1.00
20 $1.50
25-85 $2.00
</TABLE>

For Issue Ages not shown, the charge will increase by a ratable portion
for each full year. The Deferred Administrative Charge has been designed to
cover actual expenses for the issue and underwriting of Policies, and is not
intended to produce a profit.

Deferred Sales Charge. The Deferred Sales Charge will not exceed the
Maximum Deferred Sales Charge specified in the Policy. During Policy Years 1
through 5, this maximum equals 50% of the Surrender Charge target premium
(which is an amount, based on the Initial Face Amount, Issue Age, sex and
Rate Class of the Insured, used solely for the purpose of calculating the
Deferred Sales Charge) for the Face Amount. Thereafter, the 50% declines
linearly by month through the 180th month, after which it is zero. The
Maximum Deferred Sales Charge will also be subject to the maximum imposed by
New York State law, where applicable. The Deferred Sales Charge actually
imposed will equal the lesser of this maximum and an amount equal to 30% of
the premiums actually received up to one Surrender Charge target premium,
plus 10% of all premiums paid in excess of this amount but not greater than
twice this amount, plus 9% of all premiums paid in excess of twice this
amount.

To illustrate the calculation of a Policy's Surrender Charge,
assume that the Policy is issued to a male nonsmoker, Issue
Age 45, with a Face Amount of $100,000. Assume that the
Surrender Charge target premium ("SCTP") is $1,652, the
initial Maximum Deferred Sales Charge is $826 (50% of $1,652)
and the Insured pays annual premiums of $1,500 at the
beginning of each Policy Year. This example will illustrate
surrenders in the first five Policy Years and in the first
month of the eighth Policy Year.

Deferred Administrative Charge. The Deferred Administrative
Charge for the first five Policy Years is $200. This is
calculated by applying the charge of $2.00 per $1,000 of Face
Amount for Issue Age 45 from the schedule above to the Face
Amount of $100,000 ($2.00 x (100,000/1,000)). The Deferred
Administrative Charge reduces linearly by Policy Month in
Policy Years 6 through 15. Linear reduction is equivalent to
a reduction each month of 1/121st of the initial charge. For
example, the Deferred Administrative Charge in the first month
of the eighth Policy Year (the 25th month after the end of the
5th Policy Year) will be $158.68 ($200 - ($200 x (25/121)).
After

26
<PAGE> 36
completion of the 15th Policy Year, the Deferred
Administrative Charge is zero. The schedule of Deferred
Administrative Charges in effect for the first fifteen Policy
Years is shown in the Policy.

Deferred Sales Charge. The Deferred Sales Charge is the
lesser of the Maximum Deferred Sales Charge and an amount
calculated based on the Insured's actual premium payments.
The Maximum Deferred Sales Charge in effect for the first five
Policy Years is $826. The Maximum Deferred Sales Charge
reduces linearly by month in Policy Years 6 through 15.
Linear reduction is equivalent to a reduction each month of
1/121st of the initial charge. For example, the Maximum
Deferred Sales Charge in the first month of the 8th Policy
Year (the 25th month after the end of the 5th Policy Year)
will be $655.34 ($826 - ($826 x (25/121))). After the
completion of the 15th Policy Year, the Maximum Deferred Sales
Charge is $0. The schedule of Maximum Deferred Sales Charges
in effect for the first fifteen Policy Years is shown in the
Policy.

The Maximum Deferred Sales Charge is compared to an amount
calculated as a function of premiums actually paid and the
SCTP. The amount is calculated as the sum of 30% of premiums
paid up to the first SCTP ($1,652), 10% of premiums paid in
excess of the first SCTP but not more than two SCTP's (from
$1,653 to $3,304), and 9% of premiums paid in excess of two
SCTP's (above $3,304). As an example, the calculated amounts
in Policy Years 1 through 5 and Policy Year 8 would be as
follows:

<TABLE>
<CAPTION>
- -------------------------------------------------------------------------------------------------------------
Amount at 10%
Policy Cumulative Amount at 30% (From $1,653 Amount at 9%
Year Premiums (Below $1,652) to $3,304) (Above $3,304) Total
- -------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
1 $ 1,500 $1,500x.30=$450.00 - - $ 450.00
- -------------------------------------------------------------------------------------------------------------

2 $ 3,000 $1,652x.30=$495.60 $1,348x.10=$134.80 - $ 630.40
- -------------------------------------------------------------------------------------------------------------

3 $ 4,500 $1,652x.30=$495.60 $1,652x.10=$165.20 $1,196x.09=$107.64 $ 768.44
- -------------------------------------------------------------------------------------------------------------

4 $ 6,000 $1,652x.30=$495.60 $1,652x.10=$165.20 $2,696x.09=$242.64 $ 903.44
- -------------------------------------------------------------------------------------------------------------

5 $ 7,500 $1,652x.30=$495.60 $1,652x.10=$165.20 $4,196x.09=$377.64 $1,038.44
- -------------------------------------------------------------------------------------------------------------

8 $12,000 $1,652x.30=$495.60 $1,652x.10=$165.20 $8,696x.09=$782.64 $1,443.44
- -------------------------------------------------------------------------------------------------------------
</TABLE>

27
<PAGE> 37
The total calculated amount would be compared to the Maximum
Deferred Sales Charge to determine the applicable Deferred
Sales Charge. For example, the Deferred Sales Charge in the
first five years would be the following:

<TABLE>
<CAPTION>
- -------------------------------------------------------------------------------------------------------------
(A) (B)
- -------------------------------------------------------------------------------------------------------------
Maximum Deferred Deferred Sales Charge
Policy Year Calculated Amount Sales Charge (Lesser of (A) and (B)
- -------------------------------------------------------------------------------------------------------------

- -------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
1 $ 450.00 $826.00 $450.00
- -------------------------------------------------------------------------------------------------------------
2 $ 630.40 $826.00 $630.40
- -------------------------------------------------------------------------------------------------------------
3 $ 768.44 $826.00 $768.44
- -------------------------------------------------------------------------------------------------------------
4 $ 903.44 $826.00 $826.00
- -------------------------------------------------------------------------------------------------------------
5 $1,038.44 $826.00 $826.00
- -------------------------------------------------------------------------------------------------------------
</TABLE>

In this example, the charge based on SCTP is less than the
Maximum Deferred Sales Charge until the fourth Policy Year.
Thereafter, the Maximum Deferred Sales Charge is less than the
charge based on SCTP. For example, the Deferred Sales Charge
in the first month of the eighth Policy Year will be the
Maximum Deferred Sales Charge of $655.34 (calculated above)
since this is less than $1,443.44 (the calculated amount based
on premiums paid).

MONTHLY DEDUCTIONS

Charges will be deducted from the Accumulated Value on the Date of
Issue and on each Monthly Policy Date. The Monthly Deduction consists of three
components - (a) the Cost of Insurance Charge, (b) the Monthly Administrative
Charge, and (c) the cost of any additional benefits provided by Rider. Because
portions of the Monthly Deduction, such as the Cost of Insurance Charge, can
vary from Policy Month to Policy Month, the Monthly Deduction may vary in
amount from Policy Month to Policy Month. The Monthly Deduction will be
deducted on a pro rata basis from the Subaccounts of the Separate Account and
the General Account, unless the Owner has elected at the time of application,
or later requests in writing, that the Monthly Deduction be made from the Money
Market Subaccount. If a Monthly Deduction cannot be made from the Money Market
Subaccount, where that has been elected, the amount of the deduction in excess
of the Accumulated Value available in the Money Market Subaccount will be made
on a pro rata basis from Accumulated Value in the Subaccounts of the Separate
Account and the General Account.

Cost of Insurance Charge. Because the Cost of Insurance Charge
depends upon several variables, the cost for each Policy Month can vary.
National Life will determine the monthly Cost of Insurance Charge by
multiplying the applicable cost of insurance rate or rates by the Net Amount at
Risk for each Policy Month.

The Net Amount at Risk on any Monthly Policy Date is the amount by
which the Unadjusted Death Benefit on that Monthly Policy Date, adjusted by a
factor, exceeds the Accumulated Value. This factor is 1.00327234, and is used
to reduce the Net Amount at Risk, solely for purposes of computing the Cost of
Insurance Charge, by taking into account assumed monthly earnings at an annual
rate of 4%.

28
<PAGE> 38
The Net Amount at Risk is determined separately for the Initial Face Amount and
any increases in Face Amount. In determining the Net Amount at Risk for each
increment of Face Amount, the Accumulated Value is first considered part of the
Initial Face Amount. If the Accumulated Value exceeds the Initial Face Amount,
it is considered as part of any increases in Face Amount in the order such
increases took effect.

A cost of insurance rate is also determined separately for the Initial
Face Amount and any increases in Face Amount. In calculating the Cost of
Insurance Charge, the rate for the Rate Class on the Date of Issue is applied
to the Net Amount at Risk for the Initial Face Amount. For each increase in
Face Amount, the rate for the Rate Class applicable to the increase is used.
If, however, the Unadjusted Death Benefit is calculated as the Accumulated
Value times the specified percentage, the rate for the Rate Class for the
Initial Face Amount will be used for the amount of the Unadjusted Death Benefit
in excess of the total Face Amount.

Any change in the Net Amount at Risk will affect the total Cost of
Insurance Charges paid by the Owner.

Cost of Insurance Rate. The guaranteed maximum cost of insurance
rates are set forth in the Policy, and will depend on the Insured's Attained
Age, sex, Rate Class, and the 1980 Commissioners Standard Ordinary
Smoker/Nonsmoker Mortality Table. For Policies issued in states which require
"unisex" policies or in conjunction with employee benefit plans, the guaranteed
maximum cost of insurance rate will depend on the Insured's Attained Age, Rate
Class and the 1980 Commissioners Standard Ordinary Mortality Tables NB and SB.
The actual cost of insurance rates used ("current rates") will depend on the
Insured's Issue Age, sex, and Rate Class, as well as the Policy's Duration and
size. Generally, the current cost of insurance rates for a given Attained Age
will be less than for an Insured whose Policy was issued more than 10 years
ago, than for an Insured whose Policy was issued less than 10 years ago, other
factors being equal. National Life periodically reviews the adequacy of
its current cost of insurance rates and may adjust their level. However,
they will never exceed guaranteed maximum cost of insurance rates. Any change
in the current cost of insurance rates will apply to all persons of the same
Issue Age, sex, and Rate Class, and with Policies of the same Duration and
size.

Policies may also be issued on a guaranteed issue basis, where no
medical underwriting is required prior to issuance of a Policy. Current cost
of insurance rates for Policies issued on a guaranteed issue basis may be
higher than current cost of insurance rates for healthy Insureds who undergo
medical underwriting.

Rate Class. The Rate Class of the Insured will affect the guaranteed
and current cost of insurance rates. National Life currently places Insureds
into preferred nonsmoker, standard nonsmoker, smoker, juvenile classes, and
substandard classes. Smoker, juvenile, and substandard classes reflect higher
mortality risks. In an otherwise identical Policy, an Insured in a preferred or
standard class will have a lower Cost of Insurance Charge than an Insured in a
substandard class with higher mortality risks. Nonsmoking Insureds will
generally incur lower cost of insurance rates than Insureds who are classified
as smokers.

Since the nonsmoker designation is not available for Insureds under
Attained Age 20, shortly before an Insured attains age 20, National Life will
notify the Insured about possible classification as a nonsmoker and direct the
Insured to his or her agent to initiate a change in Rate Class. If the Insured
either does not initiate a change in Rate Class or does not qualify as a
nonsmoker, guaranteed cost of insurance rates will remain as shown in the
Policy. However, if the Insured qualifies as a nonsmoker, the guaranteed and
current cost of insurance rates will be changed to reflect the nonsmoker
classification.

Current cost of insurance rates will also vary by Policy size, in the
following bands: those with Unadjusted Death Benefits less than $250,000; those
with Unadjusted Death Benefits between $250,000 and $999,999, inclusive; and
those with Unadjusted Death Benefits of $1,000,000 and over. Cost of insurance
rates will be lower as the Policy size band is larger.

29
<PAGE> 39

Monthly Administrative Charge. The Monthly Administrative Charge of
$7.50 will be deducted from the Accumulated Value on the Date of Issue and each
Monthly Policy Date as part of the Monthly Deduction. In Texas, the Monthly
Administrative Charge may be increased, but is guaranteed never to exceed $7.50
plus $0.07 per $1,000 of Face Amount.

Bonus. National Life currently intends to reduce the Monthly
Deductions starting in the eleventh Policy Year by an amount equal to 0.50% per
annum of the Accumulated Value in the Separate Account. This bonus is not
guaranteed (except as required by the state of issue), however, and will only
be continued if National Life's mortality and expense experience with the
Policies justifies such continuation. National Life will notify the Owner
before the commencement of the eleventh Policy Year if it intends to
discontinue this practice.

The bonus is calculated on each Monthly Policy Date as .041572% (the
monthly equivalent of 0.50% per annum) of the Accumulated Value in the Separate
Account on the just prior Monthly Policy Date. For example, if the Accumulated
Value in the Separate Account on the just prior Monthly Policy Date is $10,000,
then the bonus calculated for the current Monthly Policy Date will be $4.16
($10,000 X .00041572). To calculate the Monthly Deduction for the current
Monthly Policy Date, the $4.16 bonus is netted against the Monthly Deductions
for Cost of Insurance, the Monthly Administrative Charge, and charges for any
Optional Benefits.

MORTALITY AND EXPENSE RISK CHARGE

A daily charge will be deducted from the value of the net assets of
the Separate Account at an annual rate of 0.90% (or a daily rate of .0024548%)
of the average daily net assets of each Subaccount of the Separate Account.

WITHDRAWAL CHARGE

At the time of a Withdrawal, National Life will assess a charge equal
to the lesser of 2% of the Withdrawal amount and $25. This Withdrawal Charge
will be deducted from the Withdrawal amount.

TRANSFER CHARGE

Currently, unlimited transfers are permitted among the Subaccounts, or
from the Separate Account to the General Account, and transfers from the
General Account to the Separate Account are permitted within the limits
described on page , in each case without charge. National Life has no
present intention to impose a transfer charge in the foreseeable future.
However, National Life reserves the right to impose in the future a transfer
charge of $25 on each transfer in excess of five transfers in any Policy Year.
The Transfer Charge would be imposed to compensate National Life for the costs
of processing such transfers, and would not be designed to produce a profit.

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

30
<PAGE> 40
will not apply to transfers resulting from Policy loans, the exercise of
special transfer rights, the initial reallocation of account values from the
Money Market Subaccount to other Subaccounts, and any transfers made pursuant
to the Dollar Cost Averaging and Portfolio Rebalancing features. These
transfers will not count against the five free transfers in any Policy Year.

PROJECTION REPORT CHARGE

National Life may impose a charge for each projection report requested by
the Owner. This report will project future values and future Death Benefits
for the Policy. National Life will notify the Owner in advance of the amount
of the charge, and the Owner may elect to pay the charge in advance. If not
paid in advance, this charge will be allocated among and deducted from the
Subaccounts of the Separate Account and/or the General Account in proportion to
their respective Accumulated Values on the date of the deduction.

OTHER CHARGES

The Separate 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' Portfolios. The fees and
expenses for the Funds and their Portfolios are described briefly in connection
with a general description of each Fund.

More detailed information is contained in the Funds Prospectuses which
are attached to or accompany this Prospectus.

POLICY RIGHTS

LOAN PRIVILEGES

General. The Owner may at any time after the first anniversary of the
Date of Issue (and during the first year where required by law) borrow money
from National Life using the Policy as the only security for the loan.
The Owner may obtain Policy loans while the Policy is in force in an amount not
exceeding the Policy's Cash Surrender Value on the date of receipt of the loan
request, minus three times the Monthly Deduction for the most recent Monthly
Policy Date. While the Insured is living, the Owner may repay all or a portion
of a loan and accrued interest. Loans may be taken by making a written request
to National Life at its Home Office, or, if the telephone transaction privilege
has been elected, by providing telephone instructions to National Life at its
Home Office. Loan proceeds will be paid within seven days of a valid loan
request (See "Telephone Transaction Privilege," Page ). National Life
limits the amount of a Policy loan taken pursuant to telephone instructions to
$10,000.

31
<PAGE> 41

Interest Rate Charged. The interest rate charged on Policy loans will
be at the fixed rate of 6% per year. Interest is charged from the date of the
loan and is due at the end of each Policy Year. If interest is not paid when
due, it will be added to the loan balance and bear interest at the same rate.

Allocation of Loans and Collateral. When a Policy loan is taken,
Accumulated Value is held in the General Account as Collateral for the Policy
loan. Accumulated Value is taken from the Subaccounts of the Separate Account
based upon the instructions of the Owner at the time the loan is taken. If
specific allocation instructions have not been received from the Owner, the
Policy loan will be allocated to the Subaccounts based on the proportion that
each Subaccount's value bears to the total Accumulated Value in the Separate
Account. If the Accumulated Value in one or more of the Subaccounts is
insufficient to carry out the Owner's instructions, the loan will not be
processed until further instructions are received from the Owner. Non-loaned
Accumulated Value in the General Account will become Collateral for a loan only
to the extent that the Accumulated Value in the Separate Account is
insufficient. Any loan interest due and unpaid will be allocated among and
transferred first from the Subaccounts of the Separate Account in proportion to
the Accumulated Values held in the Subaccounts, and then from the non-loaned
portion of the General Account.

The Collateral for a Policy loan will initially be the loan amount.
Any loan interest due and unpaid will be added to the Policy loan. National
Life will take additional Collateral for such loan interest so added pro rata
from the Subaccounts of the Separate Account, and then, if the amounts in the
Separate Account are insufficient, from the non-loaned portion of the General
Account, and hold the Collateral in the General Account. At any time, the
amount of the outstanding loan under a Policy equals the sum of all loans
(including due and unpaid interest added to the loan balance) minus any loan
repayments.

Interest Credited to Amounts Held as Collateral. As long as the
Policy is in force, National Life will credit the amount held in the General
Account as Collateral with interest at effective annual rates it determines,
but not less than 4% or such higher minimum rate required under state law. The
rate will apply to the calendar year which follows the date of determination.

Bonus. In Policy Years 11 and thereafter, National Life currently
intends to credit interest on amounts held in the General Account as Collateral
at a rate 0.50% per annum higher than for similar amounts for Policies still in
their first ten Policy Years. This bonus is not guaranteed, however, and upon
prior notice to Owners National Life may, in its sole discretion, decide not to
credit the bonus.

Preferred Policy Loans. National Life currently intends, but is not
obligated to continue, to make preferred Policy loans available, on the later
of the Insured's Attained Age 65 and the beginning of Policy Year 21, in
maximum amounts of 5% of Accumulated Value per year, subject to a cumulative
maximum of 50% of Accumulated Value. For such preferred Policy loans amounts
held as Collateral in the General Account will be credited with interest at an
annual rate of 6%. If both preferred and non-preferred loans exist at the same
time, any loan repayment will be applied first to the non-preferred loan.
National Life is not obligated to continue to make preferred loans available,
and will make such loans available in its sole discretion. Preferred loans may
not be treated as indebtedness for federal income tax purposes.

Effect of Policy Loan. Policy loans, whether or not repaid, will have
a permanent effect on the Accumulated Value and the Cash Surrender Value, and
may permanently affect the Death Benefit under the Policy. The effect on the
Accumulated Value and Death Benefit could be favorable or unfavorable,
depending on whether the investment performance of the Subaccounts and the
interest credited to the Accumulated Value in the General Account not held as
Collateral is less than or greater than the interest being credited on the
amounts held as Collateral in the General Account while the loan is
outstanding. Compared to a Policy under which no loan is made, values under a
Policy will be lower when the credited interest rate on Collateral is less than
the investment experience of assets held in the Separate Account and interest
credited to the Accumulated Value in the General Account not held as
Collateral. The longer a loan is outstanding, the greater the effect a Policy
loan is likely to have. The Death Benefit will be reduced by the amount of any
outstanding Policy loan.

32
<PAGE> 42
Loan Repayments. National Life will assume that any payments made
while there is an outstanding loan on the Policy are premium payments, rather
than loan repayments, unless it receives written instructions that a payment is
a loan repayment. In the event of a loan repayment, the amount held as
Collateral in the General Account will be reduced by an amount equal to the
repayment, and such amount will be transferred to the Subaccounts of the
Separate Account and to the non-loaned portion of the General Account based on
the Net Premium allocations in effect at the time of the repayment.

Lapse With Loans Outstanding. The amount of an outstanding loan under
a Policy plus any accrued interest on outstanding loans is not part of Cash
Surrender Value. Therefore, the larger the amount of an outstanding loan, the
more likely it is that the Policy could lapse. (See "How the Duration of the
Policy May Vary," Page ___ and "Policy Lapse," Page ____.) In addition, if the
Policy is not a Modified Endowment Policy, lapse of the Policy with outstanding
loans may result in adverse federal income tax consequences. (See "Tax
Treatment of Policy Benefits," Page ___.)

Tax Considerations. Any loans taken from a "Modified Endowment
Contract" will be treated as a taxable distribution. In addition, with certain
exceptions, a 10% additional income tax penalty will be imposed on the portion
of any loan that is included in income. (See "Distributions from Policies
Classified as Modified Endowment Contracts," Page ___).

SURRENDER PRIVILEGE

At any time before the death of the Insured, the Owner may surrender
the Policy for its Cash Surrender Value. The Cash Surrender Value is the
Accumulated Value minus any Policy loan and accrued interest and less any
applicable Surrender Charge. The Cash Surrender Value will be determined by
National Life on the Valuation Day it receives, at its Home Office, a written
surrender request signed by the Owner, and the Policy. A surrender may not be
requested over the telephone. Coverage under the Policy will end on the day
the Owner mails or otherwise sends the written surrender request and the Policy
to National Life. Surrender proceeds will ordinarily be mailed by National
Life to the Owner within seven days of receipt of the request. (See "Other
Policy Provisions - Payment of Policy Benefits", Page ____).

A surrender may have Federal income tax consequences. (See "Tax Treatment
of Policy Benefits," Page ___).

WITHDRAWAL OF CASH SURRENDER VALUE

At any time before the death of the Insured and, except for employee
benefit plans, after the first Policy Anniversary, the Owner may withdraw a
portion of the Policy's Cash Surrender Value. The minimum amount which may be
withdrawn is $500, except for employee benefit plans, where the minimum is
$100. The maximum Withdrawal is the Cash Surrender Value on the date of
receipt of the Withdrawal request, minus three times the Monthly Deduction for
the most recent Monthly Policy Date. A Withdrawal Charge will be deducted from
the amount of the Withdrawal. For a discussion of the Withdrawal Charge, see
"Charges and Deductions - Withdrawal Charge" on page ____.

The Withdrawal will be taken from the Subaccounts of the Separate
Account based upon the instructions of the Owner at the time of the Withdrawal.
If specific allocation instructions have not been received from the Owner, the
Withdrawal will be allocated to the Subaccounts based on the proportion that
each Subaccount's value bears to the total Accumulated Value in the Separate
Account. If the Accumulated Value in one or more Subaccounts is insufficient
to carry out the Owner's instructions, the Withdrawal will not be processed
until further instructions are received from the Owner. Withdrawals will be
taken from the General Account only to the extent that Accumulated Value in the
Separate Account is insufficient.

The effect of a Withdrawal on the Death Benefit and Face Amount will
vary depending upon the Death Benefit Option in effect and whether the
Unadjusted Death Benefit is based on the applicable percentage of Accumulated
Value. (See "Death Benefit Options," Page ___.)

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Option A. The effect of a Withdrawal on the Face Amount and Unadjusted
Death Benefit under Option A can be described as follows:

If the Face Amount divided by the applicable percentage of
Accumulated Value exceeds the Accumulated Value just after the
Withdrawal, a Withdrawal will reduce the Face Amount and the
Unadjusted Death Benefit by the lesser of such excess and the amount
of the Withdrawal.

For the purposes of this illustration (and the following
illustrations of Withdrawals), assume that the Attained Age of the
Insured is under 40 and there is no indebtedness. The applicable
percentage is 250% for an Insured with an Attained Age under 40.

Under Option A, a contract with a Face Amount of $300,000 and
an Accumulated Value of $30,000 will have an Unadjusted Death Benefit
of $300,000. Assume that the Owner takes a Withdrawal of $10,000.
The Withdrawal Charge will be $25 and the amount paid to the Owner
will be $9,975. The Withdrawal will reduce the Accumulated Value to
$20,000 ($30,000 - $10,000) after the Withdrawal. The Face Amount
divided by the applicable percentage is $120,000 ($300,000 / 2.50),
which exceeds the Accumulated Value after the Withdrawal by $100,000
($120,000 - $20,000). The lesser of this excess and the amount of
the Withdrawal is $10,000, the amount of the Withdrawal. Therefore,
the Unadjusted Death Benefit and Face Amount will be reduced by
$10,000 to $290,000.

If the Face Amount divided by the applicable percentage of
Accumulated Value does not exceed the Accumulated Value just after
the Withdrawal, then the Face Amount is not reduced. The Unadjusted
Death Benefit will be reduced by an amount equal to the reduction in
Accumulated Value times the applicable percentage (or equivalently,
the Unadjusted Death Benefit is equal to the new Accumulated Value
times the applicable percentage).

Under Option A, a policy with a Face Amount of $300,000 and an
Accumulated Value of $150,000 will have an Unadjusted Death Benefit
of $375,000 ($150,000 x 2.50). Assume that the Owner takes a
Withdrawal of $10,000. The Withdrawal Charge will be $25 and the
amount paid to the Owner will be $9,975. The Withdrawal will reduce
the Accumulated Value to $140,000 ($150,000 - $10,000). The Face
Amount divided by the applicable percentage is $120,000, which does
not exceed the Accumulated Value after the withdrawal. Therefore,
the Face Amount stays at $300,000 and the Unadjusted Death Benefit
is $350,000 ($140,000 x 2.50).

Option B. The Face Amount will never be decreased by a Withdrawal. A
Withdrawal will, however, always decrease the Death Benefit.

If the Unadjusted Death Benefit equals the Face Amount plus
the Accumulated Value, a Withdrawal will reduce the Accumulated Value
by the amount of the Withdrawal and thus the Unadjusted Death Benefit
will also be reduced by the amount of the Withdrawal.

Under Option B, a Policy with a Face Amount of $300,000 and an
Accumulated Value of $90,000 will have an Unadjusted Death Benefit of
$390,000 ($300,000 + $90,000). Assume the Owner takes a Withdrawal
of $20,000. The Withdrawal Charge will be $25 and the amount paid to
the Owner will be $19,975. The Withdrawal will reduce the
Accumulated Value to $70,000 ($90,000 - $20,000) and the Unadjusted
Death Benefit to $370,000 ($300,000 + $70,000). The Face Amount is
unchanged.

If the Unadjusted Death Benefit immediately prior to the
Withdrawal is based on the applicable percentage of Accumulated
Value, the Unadjusted Death Benefit will be reduced to equal the
greater of (a) the Face Amount plus the Accumulated Value after
deducting the amount of the Withdrawal and Withdrawal Charge and (b)
the applicable percentage of Accumulated Value after deducting the
amount of the Withdrawal.

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Under Option B, a Policy with a Face Amount of $300,000 and an
Accumulated Value of $210,000 will have an Unadjusted Death Benefit of
$525,000 ($210,000 X 2.5). Assume the Owner takes a Withdrawal of
$60,000. The Withdrawal Charge will be $25 and the amount paid to the
Owner will be $59,975. The Withdrawal will reduce the Accumulated
Value to $150,000 ($210,000 - $60,000), and the Unadjusted Death
Benefit to the greater of (a) the Face Amount plus the Accumulated
Value, or $450,000 ($300,000 + $150,000) and (b) the Unadjusted Death
Benefit based on the applicable percentage of the Accumulated Value,
or $375,000 ($150,000 X 2.50). Therefore, the Unadjusted Death
Benefit will be $450,000. The Face Amount is unchanged.

Any decrease in Face Amount due to a Withdrawal will first reduce the
most recent increase in Face Amount, then the most recent increases,
successively, and lastly, the Initial Face Amount.

Because a Withdrawal can affect the Face Amount and the Unadjusted
Death Benefit as described above, a Withdrawal may also affect the Net Amount
at Risk which is used to calculate the Cost of Insurance Charge under the
Policy. (See "Cost of Insurance," Page ___). Since a Withdrawal reduces the
Accumulated Value, the Cash Surrender Value of the Policy is reduced, thereby
increasing the likelihood that the Policy will lapse. (See "Policy Lapse,"
Page ___). A request for Withdrawal may not be allowed if such Withdrawal
would reduce the Face Amount below the Minimum Face Amount for the Policy.
Also, if a Withdrawal would result in cumulative premiums exceeding the maximum
premium limitations applicable under the Code for life insurance, National Life
will not allow such Withdrawal.

Withdrawals may be requested only by sending a written request, signed
by the Owner, to National Life at its Home Office. A Withdrawal may not be
requested over the telephone. A Withdrawal will ordinarily be paid within
seven days of receipt at the Home Office of a valid Withdrawal request.

A Withdrawal of Cash Surrender Value may have Federal income tax
consequences. (See "Tax Treatment of Policy Benefits", Page ___).

FREE-LOOK PRIVILEGE

The Policy provides for a "free-look" period, during which the Owner
may cancel the Policy and receive a refund equal to the gross premiums paid on
the Policy. This free-look period ends on the latest of: (a) 45 days after
Part A of the application for the Policy is signed; (b) 10 days after the Owner
receives the Policy; and (c) 10 days after National Life mails the Notice of
Withdrawal Right to the Owner, or any longer period provided by state law. To
cancel the Policy, the Owner must return the Policy to National Life or to an
agent of National Life within such time with a written request for cancellation.

TELEPHONE TRANSACTION PRIVILEGE

If the telephone transaction privilege has been elected, either on the
application for the Policy or thereafter by providing a proper written
authorization to National Life, an Owner may effect changes in premium
allocation, transfers, and loans of up to $10,000 by providing instructions to
National Life at its Home Office over the telephone. National Life reserves
the right to suspend telephone transaction privileges at any time, for any
reason, if it deems such suspension to be in the best interests of Policy
Owners.

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

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SPECIAL TRANSFER RIGHTS

Transfer Right for Policy. During the first two years following
Policy issue, the Owner may, on one occasion, transfer the entire Accumulated
Value in the Separate Account to the General Account, without regard to any
limits on transfers or free transfers.

Transfer Right for Change in Investment Policy. If the investment
policy of a Subaccount of the Separate Account is materially changed, the Owner
may transfer the portion of the Accumulated Value in such Subaccount to another
Subaccount or to the General Account, without regard to any limits on transfers
or free transfers.

Exchange Right for Connecticut Residents. For eighteen months after the
Date of Issue, Connecticut residents may exchange the Policy for any flexible
premium adjustable benefit life insurance policy offered for sale by National
Life, the benefits of which policy do not vary with the investment performance
of a separate account. Evidence of insurability will not be required to effect
this exchange.

AVAILABLE AUTOMATED FUND MANAGEMENT FEATURES

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

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 month on the Monthly Policy
Date (starting with the Monthly Policy Date next succeeding the date that the
reallocation of the Accumulated Value out of the Money Market Subaccount and
into the other Subaccounts would normally have occurred after expiration of the
10-day free look period after the Owner receives the Policy, 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
types on a more gradual and systematic basis than the frequency on which
premiums are paid. 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 semi-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 six months after the Date of Issue, and
then on each Policy Anniversary, and each Monthly Policy Date six months
thereafter. Policies electing Portfolio Rebalancing after issue will have the
first automated transfer occur as of the

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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 six
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.

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 Policy
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 GENERAL ACCOUNT

An Owner may allocate some or all of the Net Premiums and transfer
some or all of the Accumulated Value to National Life's General Account.
National Life credits interest on Net Premiums and Accumulated Value
allocated to the General Account at rates declared by National Life (subject
to a minimum guaranteed interest rate of 4%). The principal, after
deductions, is also guaranteed. National Life's General Account supports its
insurance and annuity obligations. All assets in the General Account are
subject to National Life's general liabilities from business operations.

The General Account has not, and is not required to be, registered
with the SEC under the Securities Act of 1933, and the General Account has
not been registered as an investment company under the Investment Company Act
of 1940. Therefore, the General Account and the interests therein are
generally not subject to regulation under the 1933 Act or the 1940 Act. The
disclosures relating to this account which are included in this Prospectus
are for your information and have not been reviewed by the SEC. However,
such disclosures may be subject to certain generally applicable provisions of
the Federal securities laws relating to the accuracy and completeness of
statements made in prospectuses.

MINIMUM GUARANTEED AND CURRENT INTEREST RATES

The Accumulated Value not held as Collateral in the General Account is
guaranteed to accumulate at a minimum effective annual interest rate of 4%.
National Life may credit the non-loaned Accumulated Value in the General
Account with current rates in excess of the minimum guarantee but is not
obligated to do so. These current interest rates are influenced by, but do
not necessarily correspond to, prevailing general market interest rates.
Since National Life, in its sole discretion, anticipates changing the current
interest rate from time to time, allocations to the General Account made at
different times are likely to be credited with different current interest
rates. An interest rate will be declared by National Life each month to
apply to amounts allocated or transferred to the General Account in that
month. The rate declared on such amounts will remain in effect for twelve
months. At the end of the 12-month period, National Life reserves the right
to declare a new current interest rate on such amounts and accrued interest
thereon (which may be a different current interest rate than the current
interest rate on new allocations to the General Account on that date). Any
interest credited on the amounts in the General Account in excess of the
minimum guaranteed rate of 4% per year will be determined in the sole
discretion of National Life. The Owner assumes the risk that interest
credited may not exceed the guaranteed minimum rate.

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Amounts deducted from the non-loaned Accumulated Value in the General
Account for Withdrawals, Policy loans, transfers to the Separate Account,
Monthly Deductions or other charges are currently, for the purpose of
crediting interest, accounted for on a last in, first out ("LIFO") method.

National Life reserves the right to change the method of crediting
interest from time to time, provided that such changes do not have the effect
of reducing the guaranteed rate of interest below 4% per annum or shorten the
period for which the interest rate applies to less than 12 months.

Bonus Interest. National Life currently intends to credit interest on
non-loaned Accumulated Value in the General Account for Policies in Policy Year
11 and thereafter at rates which are 0.50% per annum higher than those that
apply to non-loaned Accumulated Value in the General Account for Policies still
in their first ten Policy Years. Except as required by the state of issue,
this bonus is not guaranteed, however, and upon prior notice to Owners National
Life may, in its sole discretion, decide not to credit the bonus.

Calculation of Non-loaned Accumulated Value in the General Account.
The non-loaned Accumulated Value in the General Account at any time is equal
to amounts allocated and transferred to it plus interest credited to it,
minus amounts deducted, transferred or withdrawn from it.

Interest will be credited to the non-loaned Accumulated Value in the
General Account on each Monthly Policy Date as follows: for amounts in the
account for the entire Policy Month, from the beginning to the end of the
month; for amounts allocated to the account during the prior Policy Month, from
the date the Net Premium or loan repayment is allocated to the end of the
month; for amounts transferred to the account during the Policy Month, from the
date of transfer to the end of the month; and for amounts deducted or withdrawn
from the account during the prior Policy Month, from the beginning of the month
to the date of deduction or withdrawal.

TRANSFERS FROM GENERAL ACCOUNT

One transfer in each Policy Year is allowed from the amount of
non-loaned Accumulated Value in the General Account to any or all of the
Subaccounts of the Separate Account. The amount transferred from the General
Account may not exceed the greater of 25% of the value of the non-loaned
Accumulated Value in such account at the time of transfer, or $1000. The
transfer will be made as of the Valuation Day National Life receives the
written or telephone request at its Home Office.

OTHER POLICY PROVISIONS

Indefinite Policy Duration. The Policy can remain in force indefinitely
(in Texas and Maryland, however, the Policy matures at Attained Age 99 at which
time National Life will pay the Cash Surrender Value to the Owner in one sum
unless a Payment Option is chosen, and the Policy will terminate). However,
for a Policy to remain in force after the Insured reaches Attained Age 99, if
the Face Amount is greater than the Accumulated Value, the Face Amount will
automatically be decreased to the current Accumulated Value. Also, at
Attained Age 99 Option B automatically becomes Option A, and no premium
payments are allowed after Attained Age 99, although loan repayments are
allowed. The tax treatment of a Policy's Accumulated Value after Age 100 is
unclear, and the Owner may wish to discuss this treatment with a tax advisor.

Payment of Policy Benefits. The Owner may decide the form in
which Death Benefit proceeds will be paid. During the Insured's lifetime, the
Owner may arrange for the Death Benefit to be paid in a lump sum or under a
Settlement Option. These choices are also available upon surrender of the
Policy for its Cash Surrender Value. If no election is made, payment will be
made in a lump sum. The Beneficiary may also arrange for payment of the Death
Benefit in a lump sum or under a Settlement Option. If paid in a lump sum, the
Death Benefit under a Policy will ordinarily be paid to the Beneficiary within
seven days after National Life receives proof of the Insured's death at its
Home Office and all other requirements are satisfied. If paid under a
Settlement Option, the Death Benefit will be applied to the Settlement Option
within seven days after National Life receives proof of the Insured's death at
its Home Office and all other requirements are satisfied.

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<PAGE> 48
Interest at the annual rate of 4% or any higher rate declared by
National Life or required by law is paid on the Death Benefit from the date of
death until payment is made.

Any amounts payable as a result of surrender, Withdrawal, or Policy
loan will ordinarily be paid within seven days of receipt of written request at
National Life's Home Office in a form satisfactory to National Life.

Generally, the amount of a payment will be determined as of the date
of receipt by National Life of all required documents. However, National Life
may defer the determination or payment of such amounts if the date for
determining such amounts falls within any period during which: (1) the disposal
or valuation of a Subaccount's assets is not reasonably practicable because the
New York Stock Exchange is closed or conditions are such that, under the SEC's
rules and regulations, trading is restricted or an emergency is deemed to
exist; or (2) the SEC by order permits postponement of such actions for the
protection of National Life policyholders. National Life also may defer the
determination or payment of amounts from the General Account for up to six
months.

National Life may postpone any payment under the Policy derived from
an amount paid by check or draft until National Life is satisfied that the
check or draft has been paid by the bank upon which it was drawn.

The Contract. The Policy and a copy of the applications attached
thereto are the entire contract. Only statements made in the applications can
be used to void the Policy or deny a claim. The statements are considered
representations and not warranties. Only one of National Life's duly
authorized officers or registrars can agree to change or waive any provisions
of the Policy and only in writing. As a result of differences in applicable
state laws, certain provisions of the Policy may vary from state to state.

Ownership. The Owner is the Insured unless a different Owner is named
in the application or thereafter changed. While the Insured is living, the
Owner is entitled to exercise any of the rights stated in the Policy or
otherwise granted by National Life. If the Insured and Owner are not the same,
and the Owner dies before the Insured, these rights will vest in the estate of
the Owner, unless otherwise provided.

Beneficiary. The Beneficiary is designated in the application for the
Policy, unless thereafter changed by the Owner during the Insured's lifetime by
written notice to National Life. The interest of any Beneficiary who dies
before the Insured shall vest in the Owner unless otherwise stated.

Change of Owner and Beneficiary. As long as the Policy is in force,
the Owner or Beneficiary may be changed by written request in a form acceptable
to National Life. The change will take effect as of the date it is signed,
whether or not the Insured is living when the request is received by National
Life. National Life will not be responsible for any payment made or action
taken before it receives the written request.

Split Dollar Arrangements. The Owner or Owners may enter into a Split
Dollar Arrangement between each other or another person or persons whereby the
payment of premiums and the right to receive the benefits under the Policy
(i.e., Cash Surrender Value or Death Benefit) are split between the parties.
There are different ways of allocating such rights.

For example, an employer and employee might agree that under a Policy
on the life of the employee, the employer will pay the premiums and will have
the right to receive the Cash Surrender

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<PAGE> 49
Value. The employee may designate the Beneficiary to receive any Death Benefit
in excess of the Cash Surrender Value. If the employee dies while such an
arrangement is in effect, the employer would receive from the Death Benefit the
amount which the employer would have been entitled to receive upon surrender of
the Policy and the employee's Beneficiary would receive the balance of the
proceeds.

No transfer of Policy rights pursuant to a Split Dollar Arrangement
will be binding on National Life unless in writing and received by National
Life.

The parties who elect to enter into a Split Dollar Arrangement should
consult their own tax advisers regarding the tax consequences of such an
arrangement.

Assignments. The Owner may assign any and all rights under the
Policy. No assignment binds National Life unless in writing and received by
National Life at its Home Office. National Life assumes no responsibility for
determining whether an assignment is valid or the extent of the assignee's
interest. All assignments will be subject to any Policy loan. The interest of
any Beneficiary or other person will be subordinate to any assignment. A payee
who is not also the Owner may not assign or encumber Policy benefits, and to
the extent permitted by applicable law, such benefits are not subject to any
legal process for the payment of any claim against the payee.

Misstatement of Age and Sex. If the age or sex of the Insured at the
Date of Issue has been misstated in the application, the Accumulated Value
of the Policy will be adjusted to be the amount that it would have been
had the Cost of Insurance Charges deducted been based on the correct age and
sex, or as otherwise required by state law. The adjustment will take
place on the Monthly Policy Date on or after the date on which National Life
has proof to its satisfaction of the misstatement. If the Insured has died,
National Life will adjust the Accumulated Value as of the last Monthly Policy
Date prior to the Insured's death; however, if the Accumulated Value is
insufficient for that adjustment, the amount of the Unadjusted Death Benefit
will also be adjusted.

Suicide. In the event of the Insured's suicide, while sane or insane,
within two years from the Date of Issue of the Policy (except where state law
requires a shorter period), or within two years of the effective date of a
reinstatement, (unless otherwise required by state law), National Life's
liability is limited to the payment to the Beneficiary of a sum equal
to the premiums paid less any Policy loan and accrued interest and any
Withdrawals (since the date of reinstatement, in the case of a suicide within
two years of the effective date of a reinstatement), or other reduced amount
provided by state law.

If the Insured commits suicide within two years (or shorter period
required by state law) from the effective date of any Policy change which
increases the Unadjusted Death Benefit and for which an application is
required, the amount which National Life will pay with respect to the increase
will be the Cost of Insurance Charges previously made for such increase (unless
otherwise required by state law).

Incontestability. The Policy will be incontestable after it has been
in force during the Insured's lifetime for two years from the Date of Issue (or
such other date as required by state law). Similar incontestability will apply
to an increase in Face Amount or reinstatement after it has been in force
during the Insured's lifetime for two years from its effective date.

Before such times, however, National Life may contest the validity of
the Policy (or changes) based on material misstatements in the initial or any
subsequent application.

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

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

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include factual findings or legal reasoning. Any party's right to appeal or to
seek modification of rulings by the arbitrators is strictly limited.

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.

Correspondence. All correspondence to the Owner is deemed to have
been sent to the Owner if mailed to the Owner at the Owner's last known
address.

Settlement Options. In lieu of a single sum payment on death or
surrender, an election may be made to apply the Death Benefit under any one of
the fixed-benefit Settlement Options provided in the Policy. The options are
described below.

Payment of Interest Only. Interest at a rate of 3.5% per year will be
paid on the amount of the proceeds retained by National Life. Upon the earlier
of the payee's death or the end of a chosen period, the proceeds retained will
be paid.

Payments for a Stated Time. Equal monthly payments, based on an
interest rate of 3.5% per annum, will be made for the number of years selected.

Payments for Life. Equal monthly payments, based on an interest rate
of 3.5% per annum, will be made for a guaranteed period and thereafter during
the life of a chosen person. Guaranteed payment periods may be elected for 0,
10, 15, or 20 years or for a refund period, at the end of which the total
payments will equal the proceeds placed under the option.

Payments of a Stated Amount. Equal monthly payments will be made
until the proceeds, with interest at 3.5% per year on the unpaid balance, have
been paid in full. The total payments in any year must be at least $10 per
month for each thousand dollars of proceeds placed under this option.

Life Annuity. Equal monthly payments will be made in the same manner
as in the above Payments for Life option except that the amount of each payment
will be the monthly income provided by National Life's then current settlement
rates on the date the proceeds become payable. No additional interest will be
paid.

Joint and Two Thirds Annuity. Equal monthly payments, based on an
interest rate of 3.5% per year, will be made while two chosen persons are both
living. Upon the death of either, two-thirds of the amount of those payments
will continue to be made during the life of the survivor. National Life may
require proof of the ages of the chosen persons.

50% Survivor Annuity. Equal monthly payments, based on an interest
rate of 3.5% per year, will be made during the lifetime of the chosen primary
person. Upon the death of the chosen primary person, 50% of the amount of
those payments will continue to be made during the lifetime of the secondary
chosen person. National Life may require proof of the ages of the chosen
persons.

National Life may pay interest in excess of the stated amounts under
the first four options listed above, but not the last three. A right to change
options or to withdraw all or part of the remaining proceeds may be included in
the first two, and the fourth, options above. For additional information
concerning the payment options, see the Policy.

OPTIONAL BENEFITS

The following optional benefits, which are subject to the restrictions
and limitations set forth in the applicable Policy Riders, may be included in a
Policy at the option of the Owner (election of any of these optional benefits
involves an additional cost):

Waiver of Monthly Deductions. The Waiver of Monthly Deductions Rider
will waive Monthly Deductions against the Policy if the Insured becomes totally
disabled, before age 65 and for at least 120

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days. If total disability occurs after age 60 and before age 65, then Monthly
Deductions will be waived only until the Insured reaches Attained Age 65, or
for a period of two years, if longer. The monthly cost of this Rider is based
on sex-distinct rates (except for Policies issued in states which require
"unisex" policies or in conjunction with employee benefit plans, where the cost
of this Rider will not vary by sex) multiplied by the Monthly Deduction on the
Policy, and will be added to the Monthly Deduction on the Policy.

Accidental Death Benefit. The Accidental Death Rider provides for an
increased Death Benefit in the event that the Insured dies in an accident. If
this Rider is elected, the monthly cost of this Rider will be added to the
Monthly Deduction on the Policy.

Guaranteed Insurability Option. This Rider will permit the Owner to
increase the Face Amount of the Policy, within certain limits, without being
required to submit satisfactory proof of insurability at the time of the
request for the increase. Again, if this Rider is elected, the monthly cost of
this Rider will be added to the Monthly Deduction on the Policy.

Guaranteed Death Benefit. If this Rider is elected, National Life
will guarantee that the Policy will not lapse prior to the Insured's Attained
Age 70, or 20 years from the Date of Issue of the Policy, if longer, regardless
of the Policy's investment performance. To keep this Rider in force,
cumulative premiums paid must be greater than the Minimum Guarantee Premium
from the Date of Issue. The Policy will be tested monthly for this
qualification, and if not met, a notice will be sent to the Owner, who will
have 61 days from the date the notice is mailed to pay a premium sufficient to
keep the Rider in force. The premium required will be the Minimum Guarantee
Premium from the Date of Issue, plus two times the Minimum Monthly Premium,
minus premiums previously paid. The Rider will be cancelled if a sufficient
premium is not paid during that 61-day period.

The cost of the Guaranteed Death Benefit Rider is $0.01 per thousand
of Face Amount per month. This Rider is available only at issue, and only for
Issue Ages 0-65.

If while the Guaranteed Death Benefit Rider is in force, the
Accumulated Value of the Policy is not sufficient to cover the Monthly
Deductions, Monthly Deductions will be made until the Accumulated Value of the
Policy is exhausted, and will thereafter be deferred, and collected at such
time as the Policy has positive Accumulated Value.

If the Face Amount of a Policy subject to the Guaranteed Death Benefit
Rider is increased, the Rider's guarantee will extend to the increased Face
Amount. This will result in increased Minimum Guarantee Premiums.

If both the Waiver of Monthly Deductions Rider and the Guaranteed
Death Benefit Rider apply to a Policy and Monthly Deductions are waived because
of total disability, then Minimum Guarantee Premiums required to keep the
Guaranteed Death Benefit Rider in force will be waived during the period that
Monthly Deductions are being waived.

For Policies with the Guaranteed Death Benefit Rider, Withdrawals and
Policy loans will be limited to the excess of premiums paid over the Minimum
Guarantee Premium, if the Owner wishes to keep the Rider in force. If a Policy
loan or Withdrawal for an amount greater than such excess is desired, the
Guaranteed Death Benefit Rider will enter a 61-day lapse-pending notification
period, and will be cancelled if a sufficient premium is not paid.

The Guaranteed Death Benefit Rider is not available in Texas or
Massachusetts.

FEDERAL INCOME TAX CONSIDERATIONS

INTRODUCTION

The following summary provides a general description of the Federal
income tax considerations associated with the Policy and does not purport to be
complete or to cover all situations. This discussion is not intended as tax
advice. Counsel or other competent tax advisors should be consulted for more
complete information. This discussion is based upon National Life's
understanding of the

42
<PAGE> 52
present Federal income tax laws as they are currently interpreted by the
Internal Revenue Service (the "Service"). No representation is made as to the
likelihood of continuation of the present Federal income tax laws or of the
current interpretations by the Service.

TAX STATUS OF THE POLICY

Section 7702 of the Internal Revenue Code of 1986, as amended (the
"Code") sets forth a definition of a life insurance contract for Federal tax
purposes. Although the Secretary of the Treasury (the "Treasury") is
authorized to prescribe regulations implementing Section 7702, while proposed
regulations and other interim guidance has been issued, final regulations have
not been adopted. Guidance as to how Section 7702 is to be applied is limited.
If a Policy were determined not to be a life insurance contract for purposes of
Section 7702, such Policy would not provide the tax advantages normally
provided by a life insurance policy.

With respect to a Policy issued on the basis of a standard rate class,
National Life believes (largely in reliance on the Service's Notice 88-128 and
the proposed regulations under Section 7702, issued on July 5, 1991) that such
a Policy should meet the Section 7702 definition of a life insurance contract.

With respect to a Policy that is issued on a substandard basis (i.e.,
a Rate Class involving higher than standard mortality risk), there is less
guidance. Thus, it is not clear whether or not such a Policy would satisfy
section 7702, particularly if the Owner pays the full amount of premiums
permitted under the Policy.

If it is subsequently determined that a Policy does not satisfy
Section 7702, National Life may take whatever steps are appropriate and
necessary to attempt to cause such a Policy to comply with Section 7702. For
these reasons, National Life reserves the right to restrict Policy transactions
as necessary to attempt to qualify it as a life insurance contract under
Section 7702.

Section 817(h) of the Code requires that the investments of each
Subaccount of the Separate Account must be "adequately diversified" in
accordance with Treasury regulations in order for the Policy to qualify as a
life insurance contract under Section 7702 of the Code (discussed above). The
Separate Account, through the Funds, intends to comply with the diversification
requirements prescribed in Treas. Reg. Section 1.817-5, which affect how each
Fund's assets are to be invested. National Life believes that the Separate
Account will, thus, meet the diversification requirement, and National Life
will monitor continued compliance with this requirement.

In certain circumstances, owners of variable life insurance contracts
may be considered the owners, for federal income tax purposes, of the assets of
the separate accounts used to support their contracts. In those circumstances,
income and gains from the separate account assets would be includible in the
variable contract owner's gross income. The Service has stated in published
rulings that a variable contract owner will be considered the owner of separate
account assets if the contract owner possesses incidents of ownership in those
assets, such as the ability to exercise investment control over the assets.
The Treasury Department has also announced, in connection with the issuance of
regulations concerning diversification, that those regulations "do not provide
guidance concerning the circumstances in which investor control of the
investments of a segregated asset account may cause the investor (i.e., the
Owner), rather than the insurance company, to be treated as the owner of the
assets in the account." This announcement also stated that guidance would be
issued by way of regulations or rulings on the "extent to which policyholders
may direct their investments to particular subaccounts without being treated as
owners of the underlying assets."

The ownership rights under the Policy are similar to, but different in
certain respects from, those described by the Service in rulings in which it
was determined that Policy Owners were not owners of separate account assets.
For example, the Owner has additional flexibility in allocating premium
payments and Accumulated Value. These differences could result in an Owner
being treated as the owner of a pro rata portion of the assets of the Separate
Account. In addition, National Life does not know what standards will be set
forth, if any, in the regulations or rulings which the Treasury

43
<PAGE> 53
Department has stated it expects to issue. National Life therefore reserves the
right to modify the Policy as necessary to attempt to prevent an Owner from
being considered the owner of a pro rata share of the assets of the Separate
Account.

The following discussion assumes that the Policy will qualify as a
life insurance contract for Federal income tax purposes.

TAX TREATMENT OF POLICY BENEFITS

In General. National Life believes that the proceeds and cash value
increases of a Policy should be treated in a manner consistent with a
fixed-benefit life insurance policy for Federal income tax purposes. Thus, the
Unadjusted Death Benefit under the Policy should be excludable from the gross
income of the Beneficiary under Section 101(a)(1) of the Code.

Depending on the circumstances, the exchange of a Policy, a change in
the Policy's Death Benefit Option (i.e., a change from Death Benefit Option A
to Death Benefit Option B or vice versa), a Policy loan, a Withdrawal, a
surrender, a change in ownership, or an assignment of the Policy' may have
Federal income tax consequences. In addition, Federal, state and local
transfer, and other tax consequences of ownership or receipt of Policy proceeds
depend on the circumstances of each Owner or Beneficiary. The Policies also
may be used in various arrangements, including nonqualified deferred
compensation or salary continuance plans, split dollar insurance plans,
executive bonus plans, retiree medical benefit plans and others. The tax
consequences of such plans may vary depending on the particular facts and
circumstances of each individual arrangement. Therefore, if you are
contemplating the use of the Policies in any arrangement the value of which
depends in part on its tax consequences, you should be sure to consult a
qualified tax advisor regarding the tax attributes of the particular
arrangement.

Generally, the Owner will not be deemed to be in constructive receipt
of the Accumulated Value, including increments thereof, until there is a
distribution. The tax consequences of distributions from, and loans taken from
or secured by, a Policy depend on whether the Policy is classified as a
"Modified Endowment Contract". Whether a Policy is or is not a Modified
Endowment Contract, upon a complete surrender or lapse of a Policy or when
benefits are paid at a Policy's maturity date, if the amount received plus the
amount of indebtedness exceeds the total investment in the Policy, the excess
will generally be treated as ordinary income subject to tax.

Modified Endowment Contracts. Section 7702A establishes a class of
life insurance contracts designated as "Modified Endowment Contracts," which
applies to Policies entered into or materially changed after June 20, 1988.

Due to the Policy's flexibility, classification as a Modified
Endowment Contract will depend on the individual circumstances of each Policy.
In general, a Policy will be a Modified Endowment Contract if the accumulated
premiums paid at any time during the first seven Policy Years exceeds the sum
of the net level premiums which would have been paid on or before such time if
the Policy provided for paid-up future benefits after the payment of seven
level annual premiums. The determination of whether a Policy will be a
Modified Endowment Contract after a material change generally depends upon the
relationship of the Unadjusted Death Benefit and Accumulated Value at the time
of such change and the additional premiums paid in the seven years following
the material change. At the time a premium is credited which would cause the
Policy to become a Modified Endowment Contract, National Life will notify the
Owner's agent of action or actions that may be taken to prevent the Policy from
becoming a Modified Endowment Contract. If after 30 days from contacting the
agent, National Life has not heard from the Owner, National Life will mail a
letter directly to the Owner notifying him or her of actions that may be taken
to prevent the Policy from becoming a Modified Endowment Contract. If after 30
days from mailing such notification National Life has received no response,
National Life will assume the Owner wishes to take no action. If the Owner
requests a refund of excess premium, the excess premium paid (with appropriate
interest) will be returned to the Owner. The amount to be refunded will be
deducted from the

44
<PAGE> 54
Accumulated Value in the Separate Account and in the General Account in the
same proportion as the premium payment was allocated to such accounts.

The rules relating to whether a Policy will be treated as a Modified
Endowment Contract are extremely complex and cannot be adequately described in
the limited confines of this summary. Therefore, a current or prospective
Owner should consult with a competent advisor to determine whether a policy
transaction will cause the Policy to be treated as a Modified Endowment
Contract.

Distributions from Policies Classified as Modified Endowment
Contracts. Policies classified as Modified Endowment Contracts will be
subject to the following tax rules: First, all distributions, including
distributions upon surrender and Withdrawals from such a Policy are treated
as ordinary income subject to tax up to the amount equal to the excess (if
any) of the Accumulated Value immediately before the distribution over the
investment in the Policy (described below) at such time. Second, loans taken
from or secured by, such a Policy are treated as distributions from such a
Policy and taxed accordingly. Past due loan interest that is added to the
loan amount will be treated as a loan. Third, a 10 percent additional income
tax is imposed on the portion of any distribution from, or loan taken from or
secured by, such a Policy that is included in income except where the
distribution or loan is made on or after the Owner attains age 59-1/2, is
attributable to the Owner's becoming disabled, or is part of a series of
substantially equal periodic payments for the life (or life expectancy) of
the Owner or the joint lives (or joint life expectancies) of the Owner and
the Owner's Beneficiary.

Distributions From Policies Not Classified as Modified Endowment
Contracts. Distributions from a Policy that is not a Modified Endowment
Contract, are generally treated as first recovering the investment in the
Policy (described below) and then, only after the return of all such investment
in the Policy, as distributing taxable income. An exception to this general
rule occurs in the case of a decrease in the Policy's Unadjusted Death Benefit
or any other change that reduces benefits under the Policy in the first 15
years after the Policy is issued and that results in a cash distribution to the
Owner in order for the Policy to continue complying with the Section 7702
definitional limits. Such a cash distribution will be taxed in whole or in
part as ordinary income (to the extent of any gain in the Policy) under rules
prescribed in Section 7702.

Loans from, or secured by, a Policy that is not a Modified Endowment
Contract are not treated as distributions. Instead, such loans are treated as
indebtedness of the Owner.

Finally, neither distributions (including distributions upon
surrender) nor loans from, or secured by, a Policy that is not a Modified
Endowment Contract are subject to the 10 percent additional tax.

Policy Loan Interest. Generally, interest paid on any loan under a
Policy is not deductible. A tax advisor should be consulted before deducting
Policy loan interest.

Investment in the Policy. Investment in the Policy means: (i) the
aggregate amount of any premiums or other consideration paid for a Policy,
minus (ii) the aggregate amount received under the Policy which is excluded
from gross income of the Owner (except that the amount of any loan from, or
secured by, a Policy that is a Modified Endowment Contract, to the extent
such amount is excluded from gross income, will be disregarded), plus (iii)
the amount of any loan from, or secured by, a Policy that is a Modified
Endowment Contract to the extent that such amount is included in the gross
income of the Owner.

Multiple Policies. All Modified Endowment Contracts that are issued
by National Life to the same Owner during any calendar year are treated as
one Modified Endowment Contract for purposes of determining the amount
includible in the gross income under Section 72(e) of the Code.

SPECIAL RULES FOR EMPLOYEE BENEFIT PLANS

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<PAGE> 55
If Policies are purchased by a trust forming part of a pension or
profit-sharing plan meeting the qualification requirements of Section 401(a)
of the Code, various special tax rules will apply. Because these rules are
extensive and complicated, it is not possible to describe all of them here.
Accordingly, counsel or other competent tax advisors familiar with qualified
plan matters should be consulted in connection with any such purchase.

Generally, a plan participant on whose behalf a Policy is purchased
will be treated as having annual imputed income based on a cost of insurance
factor multiplied by the Net Amount at Risk under the Policy. This imputed
income is to be reported by the employer to the employee and the Service
annually and included in the employee's gross income. In the event of the
death of a plan participant while covered by the plan, an Unadjusted Death
Benefit paid to the participant's Beneficiary generally will not be completely
excludable from the Beneficiary's gross income under Section 101(a) of the
Code. Any Unadjusted Death Benefit in excess of the Accumulated Value will be
excludable. The portion of the Unadjusted Death Benefit equal to the
Accumulated Value, however, generally will be subject to Federal income tax to
the extent it exceeds the participant's "investment in the contract" as defined
in the Code, which will include the imputed income noted above. Special
rules may apply in certain circumstances (e.g., to Owner-employees or
participants who have borrowed from the plan).

The Service has interpreted the plan qualification provisions of the
Code to require that non-retirement benefits, including death benefits, payable
under a qualified plan be "incidental to" retirement benefits provided by the
plan. These interpretations, which are primarily set forth in a series of
Revenue Rulings issued by the Service, should be considered in connection with
any purchase of life insurance policies to provide benefits under a qualified
plan.

POSSIBLE CHARGE FOR NATIONAL LIFE'S TAXES

At the present time, National Life makes no charge for any Federal,
state or local taxes (other than state premium taxes or the DAC Tax) that the
Company incurs that may be attributable to the Separate Account or to the
Policies. National Life, however, reserves the right in the future to make a
charge for any such tax or other economic burden resulting from the application
of the tax laws that it determines to be properly attributable to the Accounts
or to the Policies. If any tax charges are made in the future, they will be
accumulated daily and transferred from the Separate Account to National Life's
General Account. Any investment earnings on tax charges accumulated in the
Separate Account will be retained by National Life.

POLICIES ISSUED IN CONJUNCTION WITH
EMPLOYEE BENEFIT PLANS

Policies may be acquired in conjunction with employee benefit plans,
including the funding of qualified pension plans meeting the requirements of
Section 401 of the Code.

For employee benefit plan Policies, the maximum cost of insurance
rates used to determine the monthly Cost of Insurance Charge are based on the
Commissioners' 1980 Standard Ordinary Mortality Tables NB and SB. Under these
Tables, mortality rates are the same for male and female Insureds of a
particular Attained Age and Rate Class. (See "Cost of Insurance", Page ___.)

Illustrations reflecting the premiums and charges for employee benefit
plan Policies will be provided upon request to purchasers of such Policies.

There is no provision for misstatement of sex in the employee benefit
plan Policies. (See "Misstatement of Age and Sex", Page ___.) Also, the rates
used to determine the amount payable under a particular Settlement Option will
be the same for male and female Insureds. (See "Settlement Options", Page ___.)

LEGAL DEVELOPMENTS REGARDING UNISEX ACTUARIAL TABLES

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<PAGE> 56

In 1983, the United States Supreme Court held in Arizona Governing
Committee v. Norris 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. In that case, the
Court applied its decision only to benefits derived from contributions made on
or after August 1, 1983. Subsequent decisions of lower federal courts indicate
that in other factual circumstances the Title VII prohibition of sex-distinct
benefits may apply at an earlier date. In addition, legislative, regulatory,
or decisional authority of some states may prohibit use of sex-distinct
mortality tables under certain circumstances. The Policies offered by this
Prospectus, other than Policies issued in states which require "unisex"
policies (currently Montana) and employee benefit plan Policies (see "Policies
Issued in Conjunction with Employee Benefit Plans on Page ___) are based upon
actuarial tables which distinguish between men and women and, thus, the Policy
provides different benefits to men and women of the same age. Accordingly,
employers and employee organizations should consider, in consultation with
legal counsel, the impact of these authorities on any employment-related
insurance or benefits program before purchasing the Policy and in determining
whether an employee benefit plan Policy is appropriate.

VOTING RIGHTS

All of the assets held in the Subaccounts of the Separate Account will
be invested in shares of corresponding Portfolios of the Funds. The Funds do
not hold routine annual shareholders' meetings. Shareholders' meetings will be
called whenever each Fund believes that it is necessary to vote to elect the
Board of Directors of the Fund and to vote upon certain other matters that are
required by the 1940 Act or other applicable law or governing documents to be
approved or ratified by the shareholders of a mutual fund. National Life is the
legal owner of Fund shares and as such has the right to vote upon any matter
that may be voted upon at a shareholders' meeting. However, in accordance with
the SEC's view of present applicable law, National Life will vote the shares of
the Funds at meetings of the shareholders of the appropriate Fund or Portfolio
in accordance with instructions received from Owners. Fund shares held in each
Subaccount of the Separate Account for which no timely instructions from Owners
are received will be voted by National Life in the same proportion as those
shares in that Subaccount for which instructions are received.

Each Owner having a voting interest will be sent proxy material and a
form for giving voting instructions. Owners may vote, by proxy or in person,
only as to the Portfolios that correspond to the Subaccounts in which their
Policy values are allocated. The number of shares held in each Subaccount
attributable to a Policy for which the Owner may provide voting instructions
will be determined by dividing the Policy's Accumulated Value in that account
by the net asset value of one share of the corresponding Portfolio as of the
record date for the shareholder meeting. Fractional shares will be counted.
For each share of a Portfolio for which Owners have no interest, National Life
will cast votes, for or against any matter, in the same proportion as Owners
vote.

If required by state insurance officials, National Life may disregard
voting instructions if such instructions would require shares to be voted so as
to cause a change in the investment objectives or policies of one or more of
the Portfolios, or to approve or disapprove an investment policy or investment
adviser of one or more of the Portfolios. In addition, National Life may
disregard voting instructions in favor of certain changes initiated by an Owner
or the Fund's Board of Directors provided that National Life's disapproval of
the change is reasonable and is based on a good faith determination that the
change would be contrary to state law or otherwise inappropriate, considering
the portfolio's objectives and purposes, and the effect the change would have
on National Life. If National Life does disregard voting instructions, it will
advise Owners of that action and its reasons for such action in the next
semi-annual report to Owners.

Shares of the Funds are currently being offered to variable life
insurance and variable annuity separate accounts of life insurance companies
other than National Life that are not affiliated with National Life. National
Life understands that shares of these Funds also will be voted by such other
life insurance companies in accordance with instructions from their
policyholders invested in such separate accounts. This will dilute the effect
of voting instructions of Owners of the Policies.

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<PAGE> 57
CHANGES IN APPLICABLE LAW, FUNDING AND OTHERWISE

The voting rights described in this Prospectus are created under
applicable Federal securities laws. To the extent that such laws or regulations
promulgated thereunder eliminate the necessity to solicit voting instructions
from Owners or restrict such voting rights, National Life reserves the right to
proceed in accordance with any such laws or regulations.

National Life also reserves the right, subject to compliance with
applicable law, including approval of Owners, if so required: (1) to make
changes in the form of the Separate Account, if in its judgment such changes
would serve the interests of Owners or would be appropriate in carrying out the
purposes of the Policies, for example: (i) operating the Separate Account as a
management company under the 1940 Act; (ii) deregistering the Separate Account
under the 1940 Act if registration is no longer required; (iii) combining or
substituting separate accounts; (iv) transferring the assets of the Separate
Account to another separate account or to the General Account; (v) making
changes necessary to comply with, obtain or continue any exemptions from the
1940 Act; or (vi) making other technical changes in the Policy to conform with
any action described herein; (2) if in its judgment a Portfolio no longer suits
the investment goals of the Policy, or if tax or marketing conditions so
warrant, to substitute shares of another investment portfolio for shares of
such Portfolio; (3) to eliminate, combine, or substitute Subaccounts and
establish new Subaccounts, if in its judgment marketing needs, tax
considerations, or investment conditions so warrant; and (4) to transfer assets
from a Subaccount to another Subaccount or separate account if the transfer in
National Life's judgment would best serve interests of Policy Owners or would
be appropriate in carrying out the purposes of the Policies; and (5) to modify
the provisions of the Policies to comply with applicable laws. National Life
has reserved all rights in respect of its corporate name and any part thereof,
including without limitation the right to withdraw its use and to grant its use
to one or more other separate accounts and other entities.

If a Policy has Accumulated Value in a Subaccount that is eliminated,
National Life will give the Owner at least 30 days notice before the
elimination, and will request that the Owner designate the Subaccount or
Subaccounts (or the General Account) to which the Accumulated Value in the
Subaccount to be eliminated should be transferred. If no such designation is
received prior to the date of the elimination, then the Accumulated Value in
such Subaccount will be transferred to the Money Market Subaccount. In any
case, if in the future a transfer charge is imposed or limits on the number of
transfers or free transfers are established, no charge will be made for this
transfer, and it will not count toward any limit on transfers or free
transfers.

OFFICERS AND DIRECTORS OF NATIONAL LIFE

The officers and directors of National Life, as well as their principal
occupations during the past five years, are listed below.

<TABLE>
<CAPTION>
PRINCIPAL OCCUPATION
NAME AND POSITION DURING THE PAST FIVE YEARS
- ----------------- --------------------------
<S> <C>
Patrick E. Welch 1997 to present - Chairman of the
Chairman of the Board, Board and Chief Executive Officer;
Chief Executive Officer, 1992 to 1997 - Chairman of the
and Director Board, Chief Executive Officer
and President of GNA Corporation

Thomas H. MacLeay 1996 to Present - President and Chief
President, Chief Operating Officer; 1993 to 1996 -
Operating Officer, Executive Vice President & Chief
and Director Financial Officer

Robert E. Boardman 1994 to present - Chairman of Hickok &
</TABLE>

48
<PAGE> 58

<TABLE>
<S> <C>
Director Boardman Financial Network
1967 to present - President of Hickok & Boardman Realty, Inc.

David R. Coates 1993 to present - Business
Director Consultant; 1987 to 1993 - Managing Partner of KPMG Peat
Marwick in Burlington, VT

Benjamin F. Edwards III 1983 to present - Chairman, President
Director and Chief Executive Officer of A.
G. Edwards, Inc.

Charles H. Erhart, Jr. Retired; 1989 to 1991 - President
Director of W. R. Grace & Company

Earle H. Harbison, Jr. 1993 to present: Chairman of
Director Harbison Walker, Inc.; 1986 to
1992 - President and Chief
Operating Officer of Monsanto Company

Roger B. Porter 1985 to present - Professor of Business
Director and Government, Harvard University; 1976 to
present - Member of the President's Commission
on White House Fellowships; 1993 to present,
Senior Scholar, Woodrow Wilson International
Center for Scholars

E. Miles Prentice III 1996 to present - Partner in the law firm of Bryan Cave L.L.P.;
Director 1993 to 1996 - Partner in the law
firm of Piper & Marbury; 1984 to 1993 - Partner in the law firm of Brown & Wood

Thomas P. Salmon 1991 to present - President, the University of
Director Vermont; Formerly Governor, State of Vermont

A. Gary Shilling 1978 to present - President of A.
Director Gary Shilling & Company, Inc.

Thomas R. Williams 1987 to present - President of the
Director Wales Group, Inc.

Patricia K. Woolf 1990 to present - Author, Consultant,
</TABLE>

49
<PAGE> 59

<TABLE>
<S> <C>
Director and lecturer at the Department of
Molecular Biology at Princeton University

Margaret K. Arthur 1996 to present - Senior Vice President
Senior Vice President and General Counsel; 1993 to 1996 - Vice
and General Counsel President, Counsel and Secretary; 1992 to
1993 - Counsel and Secretary

Beverly A. Bagalio 1993 to present - Senior Vice
Senior Vice President - President - Service Strategies;
Service Strategies 1986 to 1993 - Vice President of
Retirement Services

Rodney A. Buck 1996 to present - Senior Vice
Senior Vice President & President and Chief Investment
Chief Investment Officer Officer; 1996 to present - Chairman
& Chief Executive Officer, National
Life Investment Management
Company, Inc. ("NLIMC"); 1993 to 1995 - Senior Vice President -Investments; 1991
to 1995 - President and Chief Operating Officer, NLIMC; 1987 to present - Senior
Vice President - Sentinel Advisors Company

Mark J. Levesque 1988 to present - Senior Vice
Senior Vice President - President - Information Systems &
Information Systems & Management Services
Management Services

Craig A. Smith 1993 to present - Senior Vice
Senior Vice President - President - Product; 1992 to 1993 -
Product Vice President - Product Development
</TABLE>

50
<PAGE> 60
<TABLE>
<S> <C>
Theodore N. vonWallmenich 1989 to present - Senior Vice
Senior Vice President President & Chief Actuary
& Chief Actuary
</TABLE>

DISTRIBUTION OF POLICIES

Applications for the Policies are solicited by agents who are licensed by
state insurance authorities to sell National Life's variable life insurance
policies, and who are also registered representatives of Equity Services, Inc.
("ESI") or registered representatives of broker/dealers who have Selling
Agreements with ESI. ESI, whose address is National Life Drive, Montpelier,
Vermont 05604, is a registered broker/dealer under the Securities Exchange Act
of 1934 (the "1934 Act") and a member of the National Association of Securities
Dealers, Inc. (the "NASD"). ESI is an indirect wholly-owned subsidiary of
National Life. ESI acts as the principal underwriter, as defined in the 1940
Act, of the Policies, and for the Separate Account pursuant to an Underwriting
Agreement to which the Separate Account, ESI and National Life are parties.
The Policies are offered and sold only in those states where their sale is
lawful.

The insurance underwriting and the determination of a proposed Insured's
Rate Class and whether to accept or reject an application for a Policy is done
by National Life. National Life will refund any premiums paid if a Policy
ultimately is not issued or will refund the applicable amount if the Policy is
returned under the free look provision.

Agents are compensated for sales of the Policies on a commission and
service fee basis and with other forms of compensation. During the first
Policy Year, agent commissions will not be more than 50% of the premiums paid
up to a target amount (used only to determine commission payments) and 3% of
the premiums paid in excess of that amount. For Policy Years 2 through 5, the
agent commissions will not be more than 4.0% of the premiums paid up to the
target amount, and 3% of premiums paid in excess of that amount. For Policy
Years 6 through 10, agent commissions will be 4% of premiums paid up to the
target amount, and 3% of premiums paid in excess of that amount, and in Policy
Year 11 and thereafter, agent commissions will be 1.5% of all premiums paid.
For premiums received in the year following an increase in Face Amount and
attributable to the increase, agent commissions will not be more than 48.5% up
to the target amount for the increase. Agents may also receive expense
allowances. The agent may be required to return all or a portion of the first
year commission less the deferred sales charge imposed if a Policy is not
continued through the second Policy Year.

POLICY REPORTS

Once each Policy Year a statement will be sent to the Owner describing
the status of the Policy, including setting forth the Face Amount, the current
Unadjusted Death Benefit, any Policy loans and accrued interest, the current
Accumulated Value, the non-loaned Accumulated Value in the General Account, the
amount held as Collateral in the General Account, the value in each Subaccount
of the Separate Account, premiums paid since the last report, charges deducted
since the last report, any Withdrawals since the last report, and the current
Cash Surrender Value. In addition, a statement will be sent to an Owner
showing the status of the Policy following the transfer of amounts from one
Subaccount of a Separate Account to another, the taking out of a loan, a
repayment of a loan, a Withdrawal and the payment of any premiums (excluding
those paid by bank draft or otherwise under the Automatic Payment Plan).

51
<PAGE> 61
An Owner will be sent a semi-annual report containing the financial
statements of each Fund in which his or her Policy has Accumulated Value, as
required by the 1940 Act.

STATE REGULATION

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

EXPERTS

The Financial Statements listed on Page F-1have been included in this
Prospectus, in reliance on the reports of Price Waterhouse LLP, independent
accountants, given on the authority of that firm as experts in accounting and
auditing.

Actuarial matters included in the Prospectus have been examined by
Craig A. Smith, F.S.A., MAAA, Senior Vice President - Product of National Life.

LEGAL MATTERS

Sutherland, Asbill & Brennan of Washington, D.C. has provided advice
on legal matters relating to certain aspects of Federal securities law
applicable to the issue and sale of the Policies. Matters of Vermont law
pertaining to the Policies, including National Life's right to issue the
Policies and its qualification to do so under applicable laws and regulations
issued thereunder, have been passed upon by Margaret K. Arthur, General Counsel
of National Life.

The Separate Account is not a party to any litigation. Its depositor,
National Life, as an insurance company, ordinarily is involved in litigation.
National Life is of the opinion that such litigation is not material with
respect to the Owners or the Separate Account.

FINANCIAL STATEMENTS

The financial statements of National Life appear on the following
pages. The financial statements of National Life should be distinguished from
any financial statements of the Separate Account and should be considered only
as bearing upon National Life's ability to meet its obligations under the
Policies. No financial statements are included for the Separate Account
because the Subaccounts had no assets as of the date of this Prospectus.

52
<PAGE> 62
APPENDIX A
ILLUSTRATION OF DEATH BENEFITS, ACCUMULATED VALUES
AND CASH SURRENDER VALUES

The following tables illustrate how the Death Benefits, Accumulated Values
and Cash Surrender Values of a Policy may change with the investment experience
of the Separate Account. The tables show how the Death Benefits, Accumulated
Values and Cash Surrender Values of a Policy issued to an Insured of a given
age, sex and Rate Class would vary over time if the investment return on the
assets held in each Portfolio of each of the Funds were a uniform, gross,
annual rate of 0%, 6% and 12%.

The tables on pages A-2 to A-7 illustrate a Policy issued to a male
Insured, Age 40 in the Preferred Nonsmoker Rate Class with a Face Amount of
$250,000 and Planned Periodic Premiums of $3,000 for Death Benefit Option A,
and $4,000 for Death Benefit Option B, in each case paid at the beginning
of each Policy Year. The Death Benefits, Accumulated Values and Cash
Surrender Values would be lower if the Insured was in a standard nonsmoker,
smoker or substandard class since the cost of insurance charges are higher for
these classes. Also, the values would be different from those shown if the
gross annual investment returns averaged 0%, 6% and 12% over a period of years,
but fluctuated above and below those averages for individual Policy Years.

The second column of the tables show the amount to which the premiums
would accumulate if an amount equal to those premiums were invested to earn
interest, after taxes, at 5% compounded annually. The columns shown under the
heading "Guaranteed" assume that throughout the life of the policy, the monthly
charge for cost of insurance is based on the maximum level permitted under the
Policy (based on the 1980 CSO Smoker/Nonsmoker Table); the columns under the
heading "Current" assume that throughout the life of the Policy, the monthly
charge for cost of insurance is based on the current cost of insurance rate,
and for Policy Years after year 10, a bonus under which the Monthly Deductions
are reduced by 0.50% per annum.

The amounts shown in all tables reflect an averaging of certain other
asset charges described below that may be assessed under the Policy, depending
upon how premiums are allocated. The total of the asset charges reflected in
the Current and Guaranteed illustrations, including the Mortality and Expense
Risk Charge of 0.90%, is 1.61%. This total charge is based on an assumption
that an Owner allocates the Policy values equally among the Subaccounts of the
Separate Account.

These asset charges reflect an investment advisory fee of 0.53%, which
represents an average of the fees incurred by the Portfolios during 1996 and
expenses of 0.18% which is based on an average of the actual expenses incurred
by the Portfolios during 1996, adjusted, as appropriate, to take into account
expense reimbursement arrangements expected to be in place for 1997. For
information on Fund expenses, see the prospectuses for the Funds accompanying
this prospectus. For some of the Portfolios, the annual expenses used in the
illustrations are net of certain reimbursements that may or may not continue.

The tables also reflect the fact that no charges for Federal or state
income taxes are currently made against the Separate Accounts. If such a
charge is made in the future, it would take a higher gross annual rate of
return to produce the same Policy values.

The tables illustrate the Policy values that would result based upon the
hypothetical investment rates of return if premiums are paid and allocated as
indicated, no amounts are allocated to the General Account, and no Policy loans
are made. The tables are also based on the assumption that the Owner has not
requested an increase or decrease in the Face Amount, that no Withdrawals have
been made and no transfers have been made in any Policy Year.

Upon request, National Life will provide a comparable illustration based
upon the proposed Insured's Age and Rate Class, the Death Benefit Option, Face
Amount, Planned Periodic Premiums and Riders requested.

A-1
<PAGE> 63
NATIONAL LIFE
VARITRAK FLEXIBLE PREMIUM ADJUSTABLE VARIABLE LIFE INSURANCE

$250,000 FACE AMOUNT MALE INSURED ISSUE AGE 40 PREFERRED
DEATH BENEFIT OPTION A ANNUAL PREMIUM $3000 NONSMOKER

ASSUMING HYPOTHETICAL GROSS ANNUAL RATE OF RETURN 0%

Guaranteed Current
Premiums ------------------------------------------ --------------------------------------------
End of Accumulated Accum- Cash Accum- Cash
Policy at 5% Int. ulated Surrender Death ulated Surrender Death
Year Per Year Value Value Benefit Value Value Benefit
- ---- -------- ----- ----- ------- ----- ----- -------
<S> <C> <C> <C> <C> <C> <C> <C>
1 3,150 2,207 807 250,000 2,305 905 250,000
2 6,458 4,339 2,601 250,000 4,552 2,814 250,000
3 9,930 6,399 4,387 250,000 6,739 4,727 250,000
4 13,577 8,381 6,284 250,000 8,864 6,767 250,000
5 17,406 10,287 8,190 250,000 10,920 8,822 250,000

6 21,426 12,110 10,220 250,000 12,907 11,018 250,000
7 25,647 13,846 12,164 250,000 14,817 13,136 250,000
8 30,080 15,493 14,019 250,000 16,643 15,170 250,000
9 34,734 17,048 15,783 250,000 18,391 17,126 250,000
10 39,620 18,505 17,448 250,000 20,055 18,998 250,000

11 44,751 19,861 19,012 250,000 21,994 21,145 250,000
12 50,139 21,103 20,461 250,000 23,861 23,220 250,000
13 55,796 22,216 21,783 250,000 25,655 25,221 250,000
14 61,736 23,190 22,965 250,000 27,368 27,143 250,000
15 67,972 24,008 23,995 250,000 28,996 28,983 250,000

16 74,521 24,656 24,656 250,000 30,536 30,536 250,000
17 81,397 25,119 25,119 250,000 31,979 31,979 250,000
18 88,617 25,387 25,387 250,000 33,314 33,314 250,000
19 96,198 25,448 25,448 250,000 34,524 34,524 250,000
20 104,158 25,275 25,275 250,000 35,588 35,588 250,000
25 150,340 19,778 19,778 250,000 38,559 38,559 250,000
30 209,282 1,944 1,944 250,000 36,518 36,518 250,000
</TABLE>

The Death Benefit may, and the Accumulated Values and Cash Surrender Values
will, differ if premiums are paid in different amounts or frequencies.

IT IS EMPHASIZED THAT THE HYPOTHETICAL INVESTMENT RESULTS ARE ILLUSTRATIVE ONLY
AND SHOULD NOT BE DEEMED A REPRESENTATION OF PAST OR FUTURE INVESTMENT RESULTS.
ACTUAL INVESTMENT RESULTS MAY BE MORE OR LESS THAN THOSE SHOWN. THE DEATH
BENEFIT, ACCUMULATED VALUE AND CASH SURRENDER VALUE FOR A POLICY WOULD BE
DIFFERENT FROM THOSE SHOWN IF ACTUAL RATES OF INVESTMENT RETURN APPLICABLE TO
THE POLICY AVERAGED 0%, 6% OR 12% OVER A PERIOD OF YEARS, BUT ALSO FLUCTUATED
ABOVE OR BELOW THAT AVERAGE FOR INDIVIDUAL POLICY YEARS. THE DEATH BENEFIT,
ACCUMULATED VALUE AND CASH SURRENDER VALUE WOULD ALSO BE DIFFERENT FROM THOSE
SHOWN, DEPENDING ON THE INVESTMENT ALLOCATIONS MADE TO THE SUBACCOUNTS OF THE
SEPARATE ACCOUNT AND THE DIFFERENT RATES OF RETURN OF THE SUBACCOUNTS IF THE
ACTUAL RATES OF INVESTMENT RETURN APPLICABLE TO THE POLICY AVERAGED 0%, 6%, OR
12%, BUT VARIED ABOVE OR BELOW THAT AVERAGE FOR PARTICULAR SUBACCOUNTS. NO
REPRESENTATIONS CAN BE MADE THAT THESE HYPOTHETICAL RATES OF RETURN CAN BE
ACHIEVED FOR ANY ONE YEAR OR SUSTAINED OVER ANY PERIOD OF TIME.

A-2
<PAGE> 64
NATIONAL LIFE
VARITRAK FLEXIBLE PREMIUM ADJUSTABLE VARIABLE LIFE INSURANCE

<TABLE>
<CAPTION>
$250,000 FACE AMOUNT MALE INSURED ISSUE AGE 40 PREFERRED
DEATH BENEFIT OPTION A ANNUAL PREMIUM $3000 NONSMOKER

ASSUMING HYPOTHETICAL GROSS ANNUAL RATE OF RETURN 6%

Guaranteed Current
Premiums ------------------------------------------ --------------------------------------------
End of Accumulated Accum- Cash Accum- Cash
Policy at 5% Int. ulated Surrender Death ulated Surrender Death
Year Per Year Value Value Benefit Value Value Benefit
- ---- -------- ----- ----- ------- ----- ----- -------
<S> <C> <C> <C> <C> <C> <C> <C>
1 3,150 2,357 957 250,000 2,458 1,058 250,000
2 6,458 4,776 3,038 250,000 5,002 3,264 250,000
3 9,930 7,261 5,249 250,000 7,631 5,618 250,000
4 13,577 9,808 7,710 250,000 10,346 8,249 250,000
5 17,406 12,421 10,323 250,000 13,143 11,046 250,000

6 21,426 15,094 13,204 250,000 16,027 14,138 250,000
7 25,647 17,827 16,146 250,000 18,990 17,309 250,000
8 30,080 20,620 19,147 250,000 22,032 20,558 250,000
9 34,734 23,473 22,207 250,000 25,158 23,892 250,000
10 39,620 26,380 25,323 250,000 28,368 27,310 250,000

11 44,751 29,343 28,494 250,000 32,071 31,222 250,000
12 50,139 32,350 31,709 250,000 35,909 35,268 250,000
13 55,796 35,391 34,958 250,000 39,887 39,454 250,000
14 61,736 38,458 38,233 250,000 44,007 43,781 250,000
15 67,972 41,536 41,523 250,000 48,272 48,259 250,000

16 74,521 44,616 44,616 250,000 52,688 52,688 250,000
17 81,397 47,685 47,685 250,000 57,258 57,258 250,000
18 88,617 50,739 50,739 250,000 61,980 61,980 250,000
19 96,198 53,766 53,766 250,000 66,851 66,851 250,000
20 104,158 56,748 56,748 250,000 71,867 71,867 250,000
25 150,340 70,130 70,130 250,000 99,444 99,444 250,000
30 209,282 77,558 77,558 250,000 132,247 132,247 250,000
</TABLE>

The Death Benefit may, and the Accumulated Values and Cash Surrender Values
will, differ if premiums are paid in different amounts or frequencies.

A-3
<PAGE> 65
NATIONAL LIFE
VARITRAK FLEXIBLE PREMIUM ADJUSTABLE VARIABLE LIFE INSURANCE

<TABLE>
<CAPTION>
$250,000 FACE AMOUNT MALE INSURED ISSUE AGE 40 PREFERRED
DEATH BENEFIT OPTION A ANNUAL PREMIUM $3000 NONSMOKER

ASSUMING HYPOTHETICAL GROSS ANNUAL RATE OF RETURN 12%

Guaranteed Current
Premiums ------------------------------------------ --------------------------------------------
End of Accumulated Accum- Cash Accum- Cash
Policy at 5% Int. ulated Surrender Death ulated Surrender Death
Year Per Year Value Value Benefit Value Value Benefit
- ---- -------- ----- ----- ------- ----- ----- -------
<S> <C> <C> <C> <C> <C> <C> <C>
1 3,150 2,508 1,108 250,000 2,612 1,212 250,000
2 6,458 5,232 3,494 250,000 5,471 3,732 250,000
3 9,930 8,196 6,184 250,000 8,597 6,584 250,000
4 13,577 11,417 9,320 250,000 12,016 9,918 250,000
5 17,406 14,926 12,828 250,000 15,750 13,653 250,000

6 21,426 18,742 16,853 250,000 19,834 17,944 250,000
7 25,647 22,898 21,216 250,000 24,293 22,612 250,000
8 30,080 27,425 25,951 250,000 29,163 27,689 250,000
9 34,734 32,361 31,096 250,000 34,490 33,225 250,000
10 39,620 37,745 36,688 250,000 40,320 39,263 250,000

11 44,751 43,625 42,775 250,000 47,179 46,330 250,000
12 50,139 50,041 49,400 250,000 54,744 54,103 250,000
13 55,796 57,046 56,612 250,000 63,094 62,661 250,000
14 61,736 64,697 64,471 250,000 72,315 72,089 250,000
15 67,972 73,057 73,044 250,000 82,502 82,489 250,000

16 74,521 82,203 82,203 250,000 93,769 93,769 250,000
17 81,397 92,223 92,223 250,000 106,235 106,235 250,000
18 88,617 103,224 103,224 250,000 120,040 120,040 250,000
19 96,198 115,324 115,324 250,000 135,334 135,334 250,000
20 104,158 128,657 128,657 250,000 152,296 152,296 250,000
25 150,340 220,247 220,247 268,701 269,542 269,542 328,842
30 209,282 368,585 368,585 427,558 462,993 462,993 537,072
</TABLE>

The Death Benefit may, and the Accumulated Values and Cash Surrender Values
will, differ if premiums are paid in different amounts or frequencies.

A-4
<PAGE> 66
NATIONAL LIFE
VARITRAK FLEXIBLE PREMIUM ADJUSTABLE VARIABLE LIFE INSURANCE

<TABLE>
<CAPTION>
$250,000 FACE AMOUNT MALE INSURED ISSUE AGE 40 PREFERRED
DEATH BENEFIT OPTION B ANNUAL PREMIUM $4000 NONSMOKER

ASSUMING HYPOTHETICAL GROSS ANNUAL RATE OF RETURN 0%

Guaranteed Current
Premiums ------------------------------------------ --------------------------------------------
End of Accumulated Accum- Cash Accum- Cash
Policy at 5% Int. ulated Surrender Death ulated Surrender Death
Year Per Year Value Value Benefit Value Value Benefit
- ---- -------- ----- ----- ------- ----- ----- -------
<S> <C> <C> <C> <C> <C> <C> <C>
1 4,200 3,153 1,614 253,153 3,252 1,713 253,252
2 8,610 6,210 4,288 256,210 6,426 4,504 256,426
3 13,241 9,174 7,077 259,174 9,520 7,422 259,520
4 18,103 12,038 9,941 262,038 12,532 10,434 262,532
5 23,208 14,805 12,707 264,805 15,453 13,356 265,453

6 28,568 17,465 15,575 267,465 18,286 16,396 268,286
7 34,196 20,015 18,334 270,015 21,018 19,337 271,018
8 40,106 22,453 20,980 272,453 23,645 22,172 273,645
9 46,312 24,775 23,510 274,775 26,170 24,905 276,170
10 52,827 26,973 25,916 276,973 28,588 27,531 278,588

11 59,669 29,045 28,195 279,045 31,327 30,478 281,327
12 66,852 30,974 30,333 280,974 33,974 33,333 283,974
13 74,395 32,746 32,313 282,746 36,527 36,094 286,527
14 82,314 34,349 34,124 284,349 38,977 38,752 288,977
15 90,630 35,763 35,750 285,763 41,318 41,305 291,318

16 99,361 36,974 36,974 286,974 43,547 43,547 293,547
17 108,530 37,965 37,965 287,965 45,651 45,651 295,651
18 118,156 38,728 38,728 288,728 47,618 47,618 297,618
19 128,264 39,248 39,248 289,248 49,426 49,426 299,426
20 138,877 39,500 39,500 289,500 51,054 51,054 301,054
25 200,454 35,660 35,660 285,660 56,251 56,251 306,251
30 279,043 19,570 19,570 269,570 55,380 55,380 305,380
</TABLE>

The Death Benefit may, and the Accumulated Values and Cash Surrender Values
will, differ if premiums are paid in different amounts or frequencies.

A-5
<PAGE> 67
NATIONAL LIFE
VARITRAK FLEXIBLE PREMIUM ADJUSTABLE VARIABLE LIFE INSURANCE

<TABLE>
<CAPTION>
$250,000 FACE AMOUNT MALE INSURED ISSUE AGE 40 PREFERRED
DEATH BENEFIT OPTION B ANNUAL PREMIUM $4000 NONSMOKER

ASSUMING HYPOTHETICAL GROSS ANNUAL RATE OF RETURN 6%

Guaranteed Current
Premiums ------------------------------------------ --------------------------------------------
End of Accumulated Accum- Cash Accum- Cash
Policy at 5% Int. ulated Surrender Death ulated Surrender Death
Year Per Year Value Value Benefit Value Value Benefit
- ---- -------- ----- ----- ------- ----- ----- -------
<S> <C> <C> <C> <C> <C> <C> <C>
1 4,200 3,360 1,822 253,360 3,462 1,924 253,462
2 8,610 6,819 4,896 256,819 7,048 5,125 257,048
3 13,241 10,380 8,282 260,380 10,756 8,659 260,756
4 18,103 14,040 11,943 264,040 14,591 12,494 264,591
5 23,208 17,805 15,707 267,805 18,547 16,450 268,547

6 28,568 21,667 19,777 271,667 22,630 20,740 272,630
7 34,196 25,626 23,944 275,626 26,832 25,150 276,832
8 40,106 29,681 28,208 279,681 31,150 29,677 281,150
9 46,312 33,831 32,566 283,831 35,593 34,328 285,593
10 52,827 38,071 37,013 288,071 40,158 39,101 290,158

11 59,669 42,398 41,548 292,398 45,355 44,505 295,355
12 66,852 46,798 46,157 296,798 50,738 50,096 300,738
13 74,395 51,258 50,825 301,258 56,313 55,880 306,313
14 82,314 55,764 55,538 305,764 62,080 61,855 312,080
15 90,630 60,295 60,282 310,295 68,041 68,028 318,041

16 99,361 64,834 64,834 314,834 74,199 74,199 324,199
17 108,530 69,362 69,362 319,362 80,551 80,551 330,551
18 118,156 73,865 73,865 323,865 87,092 87,092 337,092
19 128,264 78,325 78,325 328,325 93,807 93,807 343,807
20 138,877 82,708 82,708 332,708 100,679 100,679 350,679
25 200,454 102,022 102,022 352,022 137,355 137,355 387,355
30 279,043 111,457 111,457 361,457 177,125 177,125 427,125
</TABLE>

The Death Benefit may, and the Accumulated Values and Cash Surrender Values
will, differ if premiums are paid in different amounts or frequencies.

A-6
<PAGE> 68
NATIONAL LIFE
VARITRAK FLEXIBLE PREMIUM ADJUSTABLE VARIABLE LIFE INSURANCE

<TABLE>
<CAPTION>
$250,000 FACE AMOUNT MALE INSURED ISSUE AGE 40 PREFERRED
DEATH BENEFIT OPTION B ANNUAL PREMIUM $4000 NONSMOKER

ASSUMING HYPOTHETICAL GROSS ANNUAL RATE OF RETURN 12%

Guaranteed Current
Premiums ------------------------------------------ --------------------------------------------
End of Accumulated Accum- Cash Accum- Cash
Policy at 5% Int. ulated Surrender Death ulated Surrender Death
Year Per Year Value Value Benefit Value Value Benefit
- ---- -------- ----- ----- ------- ----- ----- -------
<S> <C> <C> <C> <C> <C> <C> <C>
1 4,200 3,568 2,029 253,568 3,673 2,135 253,673
2 8,610 7,452 5,530 257,452 7,694 5,772 257,694
3 13,241 11,686 9,588 261,686 12,094 9,997 262,094
4 18,103 16,296 14,198 266,296 16,909 14,811 266,909
5 23,208 21,320 19,223 271,320 22,170 20,072 272,170

6 28,568 26,792 24,902 276,792 27,922 26,033 277,922
7 34,196 32,750 31,069 282,750 34,203 32,522 284,203
8 40,106 39,240 37,767 289,240 41,060 39,586 291,060
9 46,312 46,310 45,045 296,310 48,552 47,287 298,552
10 52,827 54,010 52,952 304,010 56,737 55,680 306,737

11 59,669 62,397 61,548 312,397 66,302 65,453 316,302
12 66,852 71,525 70,883 321,525 76,829 76,187 326,829
13 74,395 81,449 81,015 331,449 88,418 87,984 338,418
14 82,314 92,235 92,010 342,235 101,173 100,947 351,173
15 90,630 103,948 103,935 353,948 115,212 115,198 365,212

16 99,361 116,664 116,664 366,664 130,667 130,667 380,667
17 108,530 130,465 130,465 380,465 147,677 147,677 397,677
18 118,156 145,447 145,447 395,447 166,395 166,395 416,395
19 128,264 161,713 161,713 411,713 186,979 186,979 436,979
20 138,877 179,362 179,362 429,362 209,603 209,603 459,603
25 200,454 292,388 292,388 542,388 361,543 361,543 611,543
30 279,043 459,628 459,628 709,628 607,088 607,088 857,088
</TABLE>

The Death Benefit may, and the Accumulated Values and Cash Surrender Values
will, differ if premiums are paid in different amounts or frequencies.

A-7
<PAGE> 69
NATIONAL LIFE INSURANCE COMPANY

* * * * *

FINANCIAL STATEMENTS

* * * * *

DECEMBER 31, 1996 AND 1995

F-1
<PAGE> 70

[PRICE WATERHOUSE LLP LETTERHEAD]

Report of Independent Accountants

April 15, 1997

To the Board of Directors and
Policyowners of National Life Insurance Company

In our opinion, the accompanying consolidated balance sheet and the related
consolidated statements of operations and policyowners' equity, and cash flows
present fairly, in all material respects, the financial position of National
Life Insurance Company and its subsidiaries at December 31, 1996 and 1995, and
the results of their operations and their cash flows for the years then ended
in conformity with generally accepted accounting principles. 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 of these statements in accordance with
generally accepted auditing standards which require that we plan and perform
the audit to obtain reasonable assurance about whether the financial statements
are free of material misstatement. An audit includes examining, on a test
basis, evidence supporting the amounts and disclosures in the financial
statements, assessing the accounting principles used and significant estimates
made by management, and evaluating the overall financial statement
presentation. We believe that our audits provide a reasonable basis for the
opinion expressed above.

As discussed in Note 2, the Company changed its accounting policies to adopt
pronouncements of the Financial Accounting Standards Board, which are effective
for 1996 financial statements and require restatement of all prior periods
presented.

/s/ PRICE WATERHOUSE LLP

F-2
<PAGE> 71
NATIONAL LIFE INSURANCE COMPANY AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEET

<TABLE>
<CAPTION>
DECEMBER 31,
- ---------------------------------------------------------------------------------------------------------
(In Thousands) 1996 1995
- ---------------------------------------------------------------------------------------------------------
<S> <C> <C>
ASSETS:
Cash and cash equivalents $ 268,235 $ 310,905
Debt and equity securities
Available-for-sale, at fair value 4,393,046 3,240,480
Held-to-maturity, at amortized cost 590,700 477,708
Mortgage loans 907,024 649,892
Policy loans 796,193 735,852
Real estate investments 99,442 97,612
Other invested assets 78,596 25,733
- ---------------------------------------------------------------------------------------------------------

Total cash and invested assets 7,133,236 5,538,182

Deferred policy acquistion costs 421,584 327,629
Due and accrued investment income 120,753 96,852
Premiums and fees receivable 25,874 23,648
Deferred income taxes 33,514 1,924
Amounts recoverable from reinsurers 190,873 161,997
Present value of future profits of insurance acquired 80,957 -
Property and equipment, net 64,302 62,418
Other assets 51,453 49,810
Separate account assets 181,771 177,890
- ---------------------------------------------------------------------------------------------------------

Total assets $ 8,304,317 $ 6,440,350
=========================================================================================================

LIABILITIES:
Policy liabilities:
Policy benefit liabilities $ 3,701,597 $ 3,484,844
Policyowners' account balances 3,051,973 1,431,386
Policyowners' deposits 37,524 36,642
Policy claims payable 31,217 25,545
Policyowners' dividends 51,792 47,025
Other liabilities and accrued expenses 394,127 396,407
Debt 82,682 69,679
Separate account liabilities 165,234 167,162
- ---------------------------------------------------------------------------------------------------------

Total liabilities 7,516,146 5,658,690
- ---------------------------------------------------------------------------------------------------------

MINORITY INTERESTS 39,263 1,569

POLICYOWNERS' EQUITY:
Net unrealized gain on available-for-sale securities 28,867 77,173
Retained earnings 720,041 702,918
- ---------------------------------------------------------------------------------------------------------
Total policyowners' equity 748,908 780,091
- ---------------------------------------------------------------------------------------------------------

Total liabilities, minority interests and policyowners' equity $ 8,304,317 $ 6,440,350
=========================================================================================================
</TABLE>

F-3

The accompanying notes are an integral part of these financial statements.
<PAGE> 72
NATIONAL LIFE INSURANCE COMPANY AND SUBSIDIARIES
CONSOLIDATED STATEMENT OF OPERATIONS AND POLICYOWNERS' EQUITY

<TABLE>
<CAPTION>
FOR THE YEARS ENDED DECEMBER 31,
- ----------------------------------------------------------------------------------------------------
(In Thousands) 1996 1995
- ----------------------------------------------------------------------------------------------------
<S> <C> <C>
REVENUES:
Insurance premiums $ 406,286 $ 418,227
Universal life and investment-type policy charges 41,745 36,900
Net investment income 517,268 396,079
Realized investment (losses) gains (2,070) 33,925
Investment advisory fees 42,256 34,278
Other income 21,278 19,845
- ----------------------------------------------------------------------------------------------------

Total revenue 1,026,763 939,254
- ----------------------------------------------------------------------------------------------------

BENEFITS AND EXPENSES:
Policy benefits 297,564 278,123
Policyowners' dividends 105,690 98,952
Interest credited to policyowners' account balances 170,955 90,037
Increase in reserves 166,668 187,433
Operating expenses 148,716 124,425
Commissions and expense allowances 95,517 80,050
Deferral of acquisition costs (53,600) (44,331)
Amortization of deferred policy acquisition costs 40,248 42,234
- ----------------------------------------------------------------------------------------------------

Total benefits and expenses 971,758 856,923
- ----------------------------------------------------------------------------------------------------

Income before income taxes and minority interests 55,005 82,331

Income taxes 31,957 31,365
Minority interests in subsidiary earnings 5,925 2,968
- ----------------------------------------------------------------------------------------------------

NET INCOME 17,123 47,998

RETAINED EARNINGS:
Beginning of year 702,918 654,920
- ----------------------------------------------------------------------------------------------------

End of year $ 720,041 $ 702,918
====================================================================================================

NET UNREALIZED GAIN (LOSS) ON AVAILABLE-FOR-SALE SECURITIES:
Beginning of year $ 77,173 $ (23,195)
Change during year (48,306) 100,368
- ----------------------------------------------------------------------------------------------------

End of year $ 28,867 $ 77,173
====================================================================================================

</TABLE>

F-4

The accompanying notes are an integral part of these financial statements.
<PAGE> 73
NATIONAL LIFE INSURANCE COMPANY AND SUBSIDIARIES
CONSOLIDATED STATEMENT OF CASH FLOW

<TABLE>
<CAPTION>
FOR THE YEARS ENDED DECEMBER 31,
- ------------------------------------------------------------------------------------------------------------
(In Thousands) 1996 1995
- ------------------------------------------------------------------------------------------------------------
<S> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES:
Net income $ 17,123 $ 47,998

Adjustments to reconcile net income to net cash provided by operations:
Change in due and accrued investment income (1,502) (4,785)
Realized investment gains (2,070) (33,925)
Change in policy benefit liabilities 144,723 146,727
Change in deferred policy acquisition costs (9,956) (2,097)
Depreciation 4,283 3,709
Change in policyowners' dividends 4,975 (5,102)
Change in deferred income taxes (13,646) (9,771)
Other (8,538) 30,154
- ------------------------------------------------------------------------------------------------------------

Net cash provided by operating activities 135,392 172,908
- ------------------------------------------------------------------------------------------------------------

CASH FLOWS FROM INVESTING ACTIVITIES:
Proceeds from sales of investments 2,157,236 1,814,927
Investment maturities and repayments 340,412 89,919
Cost of investments acquired (2,714,560) (2,126,075)
Acquisition of LSW National Holdings, net (81,551) -
Other 4,793 27,587
- ------------------------------------------------------------------------------------------------------------

Net cash used by investing activities (293,670) (193,642)
- ------------------------------------------------------------------------------------------------------------

CASH FLOWS FROM FINANCING ACTIVITIES:
Policyowners' account balances:
Deposits, including interest credited 535,932 279,889
Withdrawals, including policy charges (418,775) (239,354)
Net (decrease) increase in borrowings under repurchase agreements (51,013) 51,013
Net increase in securities lending liabilities 31,717 31,489
Other 17,747 3,012
- ------------------------------------------------------------------------------------------------------------

Net cash provided by financing activities 115,608 126,049
- ------------------------------------------------------------------------------------------------------------

NET (DECREASE) INCREASE IN CASH AND CASH EQUIVALENTS (42,670) 105,315

CASH AND CASH EQUIVALENTS:
Beginning of year 310,905 205,590
- ------------------------------------------------------------------------------------------------------------

End of year $ 268,235 $ 310,905
============================================================================================================
</TABLE>

F-5

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

<PAGE> 74

NATIONAL LIFE INSURANCE COMPANY and SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
DECEMBER 31, 1996 and 1995

NOTE 1 - NATURE OF OPERATIONS

National Life Insurance Company (National Life) was chartered in 1848 and is
among ten oldest insurance companies and the 25 largest mutual life insurance
companies in the United States. National Life is also known by its registered
trade name "National Life of Vermont". National Life employs about 1,000 people
in its home office in Montpelier, Vermont. As a mutual life insurance company,
National Life has no shareholders. With its affiliates and subsidiaries,
National Life offers a broad range of financial services and products,
including life insurance, annuities, disability income insurance and mutual
funds.

National Life primarily develops and distributes traditional and universal
individual life insurance and annuity products. National Life markets its
products primarily to small business owners, professionals and high net worth
individuals by providing financial solutions in the form of estate, business
succession and retirement planning, deferred compensation and other key
executive fringe benefit plans. Insurance and annuity products are primarily
distributed through about 50 general agencies in major metropolitan areas
throughout the United States. National Life also distributes its products
through brokers and banks. National Life has more than 250,000 policyowners and
is licensed to do business in all 50 states and the District of Columbia.
About 27% of National Life's total collected premiums are from residents of New
York and California.

Through affiliates National Life also distributes and provides investment
advisory and administrative services to the Sentinel Funds, a family of twelve
mutual funds that is one of America's oldest mutual funds. The Sentinel Funds'
$2.3 billion of net assets are managed on behalf of about 102,300 individual,
corporate and institutional shareholders worldwide.

During 1996, National Life acquired a majority interest in Life Insurance
Company of the Southwest (LSW), a Dallas, Texas based financial services
company specializing in annuities. LSW is licensed in all states but New York.
LSW's customer focus has been mainly on teachers and employees of non-profit
institutions, with particular concentration in the west and the southwest.
About 60% of LSW's total collected premiums are from residents of California,
Texas and Florida.

NOTE 2 - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES

BASIS OF PRESENTATION

The accompanying consolidated financial statements of National Life and
subsidiaries have been prepared in conformity with generally accepted
accounting principles (GAAP).

The consolidated financial statements include the accounts of National Life
Insurance Company and its subsidiaries. All significant intercompany
transactions and balances have been eliminated in consolidation.

The preparation of financial statements in conformity with GAAP requires
management to make estimates and assumptions that affect the reported amounts
of assets and liabilities and disclosure of contingent assets and liabilities
at the date of the financial statements and the reported amounts of revenues
and expenses during the reporting period. Actual results could differ from
those estimates.

F-6
<PAGE> 75

ACCOUNTING CHANGES

Prior to these 1996 financial statements, National Life prepared its financial
statements in accordance with statutory accounting practices prescribed or
permitted by the State of Vermont Department of Banking, Insurance, Securities
and Health Care Administration, its domicillary insurance regulator. Prior to
1996, statutory basis financial statements were considered in conformity with
GAAP for mutual life insurance companies.

In 1993 through 1995, the Financial Accounting Standards Board and the American
Institute of Certified Public Accountants issued certain pronouncements that
redefined generally accepted accounting principles for mutual life insurance
companies. Beginning in 1996, statutory basis financial statements are no
longer considered in conformity with GAAP.

The accompanying GAAP financial statements apply all applicable authoritative
accounting pronouncements required to meet the new standards. The 1995
information included in these financial statements has been restated on a GAAP
basis to enhance comparability with the 1996 information, consistent with the
transition provisions of the new accounting standards. The cumulative effect on
1995 beginning policyowners' equity was as follows (in thousands):

<TABLE>
<CAPTION>
Effect on beginning
policyowners' equity
- --------------------------------------------------------------------------------------------
<S> <C>
Asset valuation reserve $ 49,681
Interest maintenance reserve 31,663
Surplus notes (69,675)
Non-admitted assets 16,492

Investments 7,294
Deferred policy acquisition costs 437,516
Deferred income taxes 33,292
Policy liabilities (174,976)
Policyowners' dividends 60,945
Benefit plans (40,113)
Net unrealized loss on available-for-sale securities (23,195)
Other changes, net (14,133)
- --------------------------------------------------------------------------------------------
Increase in policyowners' equity from conversion to GAAP 314,791
Statutory surplus, December, 31, 1994; as previously reported 316,934
- --------------------------------------------------------------------------------------------
GAAP policyowners' equity, January 1, 1995 $ 631,725
============================================================================================

January 1, 1995:
Net unrealized loss on available-for-sale securities $ (23,195)
Retained earnings 654,920
- --------------------------------------------------------------------------------------------
Total policyowners' equity $ 631,725
============================================================================================
</TABLE>

INVESTMENTS

Cash and cash equivalents include highly liquid debt instruments purchased with
remaining maturities of three months or less.

Debt and equity securities are designated as available-for-sale or
held-to-maturity where the company has the ability and intent to hold
securities to maturity. Available-for-sale securities are reported at estimated
fair value. Held-to-maturity securities are reported at amortized cost. Debt
and equity securities that experience declines in value that are other than
temporary are written down with a corresponding charge to realized losses.

Mortgage loans are reported at amortized cost, less valuation allowances for
the excess, if any, of the

F-7
<PAGE> 76

amortized cost of impaired loans over the estimated fair value of the related
collateral. Changes in valuation allowances are included in realized gains and
losses.

Policy loans are reported at their unpaid balance and are fully collateralized
by related cash surrender values.

Real estate investments are reported at depreciated cost. Real estate acquired
in satisfaction of debt is transferred to real estate at the lower of the
recorded investment in the loan, including accrued interest, or estimated fair
value.

Realized investment gains and losses are recognized using the specific
identification method and include changes in valuation allowances. Changes in
the estimated fair values of available-for-sale debt and equity securities are
reflected in policyowners' equity after adjustments for related deferred policy
acquisition costs, present value of future profits of insurance acquired and
income taxes.

DEFERRED POLICY ACQUISITION COSTS

Commissions and other costs of acquiring new business that vary with and are
primarily related to the production of new business are generally deferred.

Deferred policy acquisition costs for participating life insurance, universal
life insurance and investment-type annuities are amortized in relation to
estimated gross margins or profits. Amortization is adjusted retrospectively
for actual experience and when estimates of future gross margins or profits are
revised. Balances of deferred policy acquisition costs for these products are
adjusted for related unrealized gains and losses on available-for-sale
securities through policyowners' equity, net of related income taxes.

Deferred policy acquisition costs for non-participating term life insurance and
disability income insurance is amortized in relation to premium income using
assumptions consistent with those used in computing policy benefit liabilities.

Balances of deferred policy acquisition costs are regularly evaluated for
recoverability from product margins or profits.

PRESENT VALUE OF FUTURE PROFITS OF INSURANCE ACQUIRED

Present value of future profits of insurance acquired is the
actuarially-determined present value of future projected profits from policies
in force at the date of their acquisition, and is amortized in relation to
gross profits of those policies.

PROPERTY AND EQUIPMENT

Property and equipment is reported at depreciated cost. Real property is
depreciated over 40 years using the straight line method. Furniture and
equipment is depreciated using accelerated depreciation methods over 7 years
and 5 years, respectively.

SEPARATE ACCOUNTS

Separate accounts are segregated funds relating to certain variable annuity and
variable life policies, and National Life's pension plans. Separate account
assets are primarily common stocks, bonds, mortgage loans, and real estate and
are carried at estimated fair value. Separate account liabilities reflect
separate account policyowners' interests in separate account assets, include
the actual investment performance of the respective accounts and are not
guaranteed. Separate account results relating to these policyowners' interests
are excluded from revenues and expenses.

F-8
<PAGE> 77

POLICY LIABILITIES

Policy benefit liabilities for participating life insurance are developed using
the net level premium method, with interest and mortality assumptions used in
calculating policy cash surrender values. Participating life insurance terminal
dividends are accrued in relation to gross margins.

Policy benefit liabilities for non-participating life insurance, disability
income insurance and certain annuities are developed using the net level
premium method, with assumptions for interest, mortality, morbidity,
withdrawals and expenses based principally on company experience.

Policyowners' account balances for universal life insurance and investment-type
annuities represent amounts that inure to the benefit of the policyowners
(before surrender charges).

POLICYOWNERS' DIVIDENDS

Policyowners' dividends are the pro-rata amount of dividends earned that will
be paid or credited at the next policy anniversary. Dividends are based on a
scale that seeks to reflect the relative contribution of each group of policies
to National Life's overall operating results. The dividend scale is approved
annually by National Life's Board of Directors.

RECOGNITION OF INSURANCE INCOME AND RELATED EXPENSES

Premiums from traditional life and certain annuities are recognized as revenue
when due from the policyowner. Benefits and expenses are matched with income by
providing for policy benefit liabilities and the deferral and amortization of
policy acquisition costs so as to recognize profits over the life of the
policies.

Premiums from universal life and investment-type annuities are reported as
increases in policyowners' account balances. Revenues for these policies
consist of mortality charges, policy administration charges and surrender
charges deducted from policyowners' account balances. Policy benefits charged
to expense include benefit claims in excess of related policyowners' account
balances.

Premiums from disability income policies are recognized as revenue over the
period to which the premiums relate.

FEDERAL INCOME TAXES

National Life files a consolidated federal income tax return that includes all
of its wholly-owned subsidiaries. Current federal income taxes are charged or
credited to operations based upon amounts estimated to be payable or
recoverable as a result of taxable operations for the current year. Deferred
income tax assets and liabilities are recognized based on temporary differences
between financial statement carrying amounts and income tax bases of assets and
liabilities using enacted income tax rates and laws.

F-9
<PAGE> 78

NOTE 3 - INVESTMENTS

DEBT AND EQUITY SECURITIES

The amortized cost and estimated fair values of debt and equity securities at
December 31 were as follows (in thousands):
<TABLE>
<CAPTION>
Gross Gross
Amortized Cost Unrealized Unrealized Estimated Fair
1996 Gains Losses Value
- --------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Available-for-sale:
U.S. government obligations $ 180,646 $ 3,336 $ 187 $ 183,795
Government agencies, authorities and
subdivisions 222,867 9,165 3,693 228,339
Public utilities 427,426 12,354 7,270 432,510
Corporate 2,176,977 72,482 20,581 2,228,878
Private placements 199,061 4,923 2,349 201,635
Mortgage-backed securities 1,089,434 16,244 10,142 1,095,536
- --------------------------------------------------------------------------------------------------------------------
4,296,411 118,504 44,222 4,370,693
Preferred stocks 9,719 739 359 10,099
Common stocks 9,705 2,560 11 12,254
- --------------------------------------------------------------------------------------------------------------------
Total $ 4,315,835 $ 121,803 $ 44,592 $ 4,393,046
====================================================================================================================

Held-to-maturity:
U.S. government obligations $ 2,052 $ 14 $ 2 $ 2,064
Government agencies, authorities and
subdivisions 20,970 1,264 208 22,026
Public utilities 9,953 359 1 10,311
Corporate 30,669 1,593 40 32,222
Private placements 527,056 21,799 3,059 545,794
- --------------------------------------------------------------------------------------------------------------------
Total $ 590,700 $ 25,029 $ 3,310 $ 612,417
====================================================================================================================
</TABLE>

<TABLE>
<CAPTION>
1995
- --------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Available-for-sale:
U.S. government obligations $ 310,430 $ 15,105 $ 12 $ 325,523
Government agencies, authorities and
subdivisions 97,474 9,502 87 106,889
Public utilities 245,525 23,935 524 268,936
Corporate 1,515,959 143,525 674 1,658,810
Private placements 150,866 11,439 1,753 160,552
Mortgage-backed securities 667,827 29,203 535 696,495
- --------------------------------------------------------------------------------------------------------------------
2,988,081 232,709 3,585 3,217,205
Preferred stocks 14,217 453 423 14,247
Common stocks 7,428 1,637 37 9,028
- --------------------------------------------------------------------------------------------------------------------
Total $ 3,009,726 $ 234,799 $ 4,045 $ 3,240,480
====================================================================================================================

Held-to-maturity:
Government agencies, authorities and
subdivisions $ 21,708 $ 1,276 $ 6 $ 22,978
Public utilities 9,839 778 - 10,617
Corporate 32,358 3,353 - 35,711
Private placements 413,803 38,629 1,951 450,481
- --------------------------------------------------------------------------------------------------------------------
Total $ 477,708 $ 44,036 $ 1,957 $ 519,787
====================================================================================================================
</TABLE>

F-10
<PAGE> 79

Unrealized gains and losses on available-for-sale debt and equity securities
included as a component of policyowners' equity and changes therein for the
years ended December 31 were as follows (in thousands):

<TABLE>
<CAPTION>
1996 1995
- ---------------------------------------------------------------------------------------------------
<S> <C> <C>
Net unrealized (losses) gains on available-for-sale securities $ (153,543) $ 305,859
Net unrealized gains on separate account seed money 1,225 -
Related minority interests 2,474 -
Related deferred policy acquisition costs 61,726 (151,447)
Related present value of future profits on insurance acquired 11,639 -
Related deferred income taxes 28,173 (54,044)
- ---------------------------------------------------------------------------------------------------
Increase (decrease) in net unrealized gains (losses) (48,306) 100,368
Balance, beginning of year 77,173 (23,195)
- ---------------------------------------------------------------------------------------------------
Balance, end of year $ 28,867 $ 77,173
===================================================================================================

Balance, end of year includes:
Net unrealized gains on available-for-sale securities $ 77,211 $ 230,754
Net unrealized gains on separate account seed money 1,225 -
Related minority interests 2,474 -
Related deferred policy acquisition costs (50,300) (112,026)
Related present value of future profits on insurance acquired 11,639 -
Related deferred income taxes (13,382) (41,555)
- ---------------------------------------------------------------------------------------------------
Balance, end of year $ 28,867 $ 77,173
===================================================================================================
</TABLE>

In December 1995, securities with an estimated fair value and an amortized cost
of $70.7 million and $67.7 million, respectively were reclassified from
held-to-maturity to available-for-sale consistent with the transition
provisions of the Financial Accounting Standards Board Special Report "A Guide
to Implementation of Statement 115 on Accounting for Certain Debt and Equity
Securities".

The amortized cost and estimated fair values of debt securities by contractual
maturity at December 31, 1996 are shown below (in thousands). Expected
maturities will differ from contractual maturities because borrowers may have
the right to call or prepay obligations with or without call or prepayment
penalties.

<TABLE>
<CAPTION>
Available-for-sale Held-to-maturity
-----------------------------------------------------------------------
Amortized Estimated Fair Amortized Estimated Fair
Cost Value Cost Value
- --------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Due in one year or less $ 47,136 $ 47,520 $ 9,562 $ 9,727
Due after one year through five years 384,967 396,911 122,675 125,576
Due after five years through ten years 1,607,585 1,616,822 260,462 271,399
Due after ten years 1,163,295 1,209,956 198,001 205,715
Mortgage-backed securities 1,093,428 1,099,484 - -
- --------------------------------------------------------------------------------------------------------------------
Total $ 4,296,411 $ 4,370,693 $ 590,700 $ 612,417
====================================================================================================================
</TABLE>

Information relating to debt security sale transactions for the years ended
December 31 are shown below (in thousands):

<TABLE>
<CAPTION>
Available-for-sale
------------------------------------
1996 1995
- ---------------------------------------------------------------------------------
<S> <C> <C>
Proceeds from sales $ 1,990,175 $ 1,575,695

Gross realized gains $ 46,092 $ 54,877
Gross realized losses $ 42,759 $ 12,216
</TABLE>

There were no sales of held-to-maturity securities in 1996 or 1995.

F-11
<PAGE> 80

National Life periodically lends certain U.S. government or corporate bonds to
approved counterparties to enhance the yield of its bond portfolio. National
Life receives cash collateral slightly higher than the market value of
securities loaned. Collateral adequacy is evaluated daily and periodically
adjusted for changes in the market value of securities loaned. The carrying
values of securities loaned are unaffected by the transaction. Collateral held
(included in cash and cash equivalents) and the corresponding liability for
collateral held (included in other liabilities) were $159.4 million and $127.7
million at December 31, 1996 and 1995, respectively.

National Life also periodically enters into repurchase agreements on U.S.
Treasury securities to enhance the yield of its bond portfolio. These
transactions are accounted for as financings because the securities received at
the end of the repurchase period are identical to the securities transferred.
The repurchase liability is included in other liabilities and was $51.0 million
at December 31, 1995. There were no open transactions at December 31, 1996.

MORTGAGE LOANS AND REAL ESTATE

The distributions of mortgage loans and real estate at December 31 were as
follows:

<TABLE>
<CAPTION>
Mortgage Loans Real Estate
-----------------------------------------------------------
1996 1995 1996 1995
-----------------------------------------------------------
<S> <C> <C> <C> <C>
GEOGRAPHIC REGION
-----------------
New England 5.0% 8.9%
Middle Atlantic 10.1 14.6 - 0.1%
East North Central 9.4 12.0 19.6% 20.5
West North Central 3.9 2.8 0.1 0.1
South Atlantic 28.9 29.2 42.0 48.6
East South Central 4.4 5.1 4.2 -
West South Central 11.5 2.4 29.5 27.0
Mountain 17.6 15.8
Pacific 9.2 9.2 4.6 3.7
-----------------------------------------------------------------------------------------------------------------

Total 100.0% 100.0% 100.0% 100.0%
=================================================================================================================

PROPERTY TYPE
-------------
Residential 0.3% -
Apartment 23.4 27.3%
Retail 19.5 27.7 10.5% 10.7%
Office Building 34.9 27.0 11.3 10.2
Industrial 19.9 15.3 71.6 73.4
Hotel/Motel 1.1 1.4
Other Commercial 0.9 1.3 6.6 5.7
-----------------------------------------------------------------------------------------------------------------

Total 100.0% 100.0% 100.0% 100.0%
=================================================================================================================

</TABLE>

F-12
<PAGE> 81

Mortgage loans and related valuation allowances at December 31 were as follows
(in thousands):

<TABLE>
<CAPTION>
1996 1995
- -----------------------------------------------------------------------------------
<S> <C> <C>
Unimpaired loans $ 876,994 $ 615,359
Impaired loans without valuation allowances 6,146 13,667
--------------------------------
Subtotal 883,140 629,026
--------------------------------
Impaired loans with valuation allowances 31,167 29,341
Related valuation allowances (7,283) (8,475)
--------------------------------
Subtotal 23,884 20,866
- -----------------------------------------------------------------------------------
Total $ 907,024 $ 649,892
===================================================================================

Impaired loans:
Average recorded investment $ 40,161 $ 41,483
Interest income recognized $ 5,026 $ 4,856
Interest received $ 5,170 $ 4,900
</TABLE>

Impaired loans are mortgage loans where it is not probable that all amounts due
under the contractual terms of the loan will be received. Impaired loans
without valuation allowances are mortgage loans where the estimated fair value
of the collateral exceeds the recorded investment in the loan. For these
impaired loans, interest income is recognized on an accrual basis, subject to
recoverability from the estimated fair value of the loan collateral. For
impaired loans with valuation allowances, interest income is recognized on a
cash basis.

Activity in the valuation allowances for impaired mortgage loans for the years
ended December 31 were as follows (in thousands):

<TABLE>
<CAPTION>
1996 1995
-------------------------------------------------------------------------------------------------
<S> <C> <C>
Additions for impaired loans charged to realized losses $ 3,944 $ 2,240
Impairment losses charged to valuation allowances (7,559) (6,671)
Changes to previously established valuation allowances 2,423 3,367
-----------------------------------------------------------------------------------------------
Decrease in valuation allowances (1,192) (1,064)
Balance, beginning of year 8,475 9,539
-----------------------------------------------------------------------------------------------
Balance, end of year $ 7,283 $ 8,475
===============================================================================================
</TABLE>

NET INVESTMENT INCOME

Net investment income is presented net of related investment expenses of
$31.4 million and $32.5 million for the years ended December 31, 1996 and
1995, respectively.

NOTE 4 - INSURANCE IN-FORCE AND REINSURANCE

National Life reinsures certain risks assumed in the normal course of business.
For individual life products, National Life generally retains no more than $3.0
million of risk on any person (excluding accidental death benefits and dividend
additions). Reinsurance for life products is ceded under yearly renewable term,
coinsurance, and modified coinsurance. National Life has assumed a small amount
of yearly renewable term reinsurance from non-affiliated insurers. Disability
income products are significantly reinsured under coinsurance and modified
coinsurance.

National Life remains liable in the event any reinsurer is unable to meet its
assumed obligations. National Life regularly evaluates the financial condition
of its reinsurers and concentrations of credit risk of reinsurers to minimize
its exposure to significant losses from reinsurer insolvencies.

F-13
<PAGE> 82

The effects of reinsurance for the years ended December 31, were as follows (in
thousands):

<TABLE>
<CAPTION>
1996 1995
----------------------------------------------------------------------------------
<S> <C> <C>
Insurance premiums:
Direct premiums $ 474,998 $ 487,411
Reinsurance assumed 959 672
Reinsurance ceded (69,671) (69,856)
----------------------------------------------------------------------------------
$ 406,286 $ 418,227
==================================================================================

Policy benefits:
Direct policy benefits $ 363,405 $ 351,635
Reinsurance assumed 62 -
Reinsurance ceded (65,903) (73,512)
----------------------------------------------------------------------------------
$ 297,564 $ 278,123
==================================================================================

Policyowners' dividends:
Direct policyowners' dividends $ 112,050 $ 104,845
Reinsurance ceded (6,360) (5,893)
----------------------------------------------------------------------------------
$ 105,690 $ 98,952
==================================================================================

Increase in policy liabilities:
Direct increase in policy liabilities $ 164,233 $ 181,145
Reinsurance assumed (20) -
Reinsurance ceded 2,455 6,288
----------------------------------------------------------------------------------
$ 166,668 $ 187,433
==================================================================================
</TABLE>

NOTE 5 - INCOME TAXES

The components of income taxes and a reconciliation of the expected and actual
income taxes and marginal and effective federal income tax rates for the years
ended December 31 were as follows ($ in thousands):

<TABLE>
<CAPTION>
1996 1995
------------------------------------------------------------------------------------------------------------------
Amount Rate Amount Rate
------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Current $ 45,603 $ 41,136
Deferred (13,646) (9,771)
------------------------------------------------------------------- --------------
Income taxes $ 31,957 $ 31,365
=================================================================== ==============

Expected income taxes $ 17,178 35.0% $ 27,777 35.0%
Differential earnings amount 6,007 12.2 - -
Net change in tax reserves 10,290 21.0 4,233 5.3
Other (1,518) (3.1) (645) (.8)
------------------------------------------------------------------------------------------------------------------
Income taxes $ 31,957 $ 31,365
=================================================================== =============
Effective federal income tax rate 65.1% 39.5%
=================================================== =============== ==============

</TABLE>

F-14
<PAGE> 83

Components of net deferred income tax assets at December 31 were as follows (in
thousands):

<TABLE>
<CAPTION>
1996 1995
-------------------------------------------------------------------------------------------------------------
<S> <C> <C>
Deferred tax assets:
Policy liabilities $ 160,933 $ 122,832
Other liabilities and accrued expenses 47,703 44,960
Other 10,495 10,873
-------------------------------------------------------------------------------------------------------------
Total deferred income tax assets 219,131 178,665
-------------------------------------------------------------------------------------------------------------

Deferred income tax liabilities:
Deferred policy acquisition costs 125,454 120,081
Present value of future profits of insurance acquired 24,262 -
Net unrealized gain on available-for-sale debt and equity securities 13,382 41,555
Debt and equity securities 9,352 4,678
Other 13,167 10,427
-------------------------------------------------------------------------------------------------------------
Total deferred income tax liabilities 185,617 176,741
-------------------------------------------------------------------------------------------------------------

Net deferred income tax assets $ 33,514 $ 1,924
=============================================================================================================
</TABLE>

Management believes it is more likely than not that National Life will realize
the benefit of deferred tax assets.

National Life's federal income tax returns are routinely audited by the IRS.
The IRS has examined tax returns through 1993 and is currently examining the
years 1994 and 1995. In management's opinion adequate tax liabilities have been
established for all open years.

NOTE 6 - BENEFIT PLANS

National Life sponsors a qualified defined benefit pension plan covering
substantially all employees. The plan is administered by National Life's
Benefits Committee and is non-contributory, with benefits based on an
employee's retirement age, years of service and compensation near retirement.
National Life makes annual contributions to the plan of the maximum amount
deductible for income tax purposes. Plan assets are primarily bonds and common
stocks held in a National Life separate account and funds invested in an
annuity contract issued by National Life.

National Life also sponsors other non-qualified pension plans, including a
non-contributory defined benefit plan for general agents that provides benefits
based on years of service and sales levels, a contributory defined benefit plan
for certain employees, agents and general agents and a non-contributory defined
supplemental benefit plan for certain executives. These non-qualified plans are
not funded.

F-15
<PAGE> 84

The status of the defined benefit plans at December 31, were as follows (in
thousands):

<TABLE>
<CAPTION>
1996 1995
--------------------------------------------------------
Funded plan Unfunded Funded plan Unfunded
plans plans
---------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Actuarial present value of benefit obligation:
Vested $ 83,362 $ 63,255 $ 76,764 $ 62,981
Non-vested 476 19 444 15
---------------------------------------------------------------------------------------------------------------------
Accumulated benefit obligation $ 83,838 $ 63,274 $ 77,208 $ 62,996
---------------------------------------------------------------------------------------------------------------------

Projected benefit obligation $ 108,564 $ 66,402 $ 102,525 $ 67,473
Plan assets at fair value (97,566) - (90,095) -
---------------------------------------------------------------------------------------------------------------------
Projected benefit obligation in excess of plan assets 10,998 66,402 12,430 67,473
Unrecognized net gain (loss) 512 (1,292) (2,527) (2,538)
---------------------------------------------------------------------------------------------------------------------
Accrued pension cost (included in other liabilities) $ 11,510 $ 65,110 $ 9,903 $ 64,935
=====================================================================================================================
</TABLE>

The components of net periodic pension cost for the years ended December 31,
were as follows (in thousands):

<TABLE>
<CAPTION>
1996 1995
---------------------------------------------------------------------------------------------------------
<S> <C> <C>
Service cost (benefits earned during the current period) $ 4,384 $ 3,706
Interest cost on projected benefit obligation 11,788 11,331
Actual return on plan assets (10,230) (15,090)
Net amortization and deferrals (99) 5,438
---------------------------------------------------------------------------------------------------------

Net periodic pension cost (included in operating expenses) $ 5,843 $ 5,385
==========================================================================================================
</TABLE>

The actuarial assumptions used in determining pension benefit obligations at
December 31, were as follows:

<TABLE>
<CAPTION>
1996 1995
---------------------------------------------------------------------------------------------------------
<S> <C> <C>
Discount rate 7.00% 7.75%
Rate of increase in future compensation levels 5.00% 5.00%
Expected long term return on plan assets 7.00% 7.75%
---------------------------------------------------------------------------------------------------------
</TABLE>

National Life uses the straight-line method of amortization for prior service
cost and unrecognized gains and losses.

National Life provides employee savings and 401(k) plans where up to 3% of an
employee's compensation may be invested by the employee in either plan with
matching funds contributed by the company. National Life also contributes
various amounts of an employee's compensation (up to certain levels) to a
401(k) account. Additional voluntary employee contributions may be made to the
plans subject to certain limits. Company contributions to these plans generally
vest within two years.

National Life also sponsors four defined benefit postretirement plans. The
plans provide medical and dental benefits and life insurance benefits to
employees and agents. Substantially all employees and agents may be eligible
for retiree benefits if they reach normal retirement age and meet certain
minimum service requirements while working for National Life. Most of the plans
are contributory, with retiree contributions adjusted annually, and contain
cost sharing features such as deductibles and coinsurance. The plans are not
funded and National Life pays for plan benefits on a current basis. The cost
of these benefits is recognized as earned.

F-16
<PAGE> 85

The plans' combined status at December 31, were as follows (in thousands):

<TABLE>
<CAPTION>
1996 1995
------------------------------------------------------------------------------------------------------------------
<S> <C> <C>
Accumulated postretirement benefit obligation (APBO):
Retirees $ 13,902 $ 14,003
Fully eligible active plan participants 3,365 2,951
Other active plan participants 7,084 6,456
------------------------------------------------------------------------------------------------------------------
Total accumulated postretirement benefit obligation 24,351 23,410

Unrecognized actuarial gain 930 338
Unrecognized prior service cost (1,296) (1,368)
------------------------------------------------------------------------------------------------------------------

Accrued postretirement benefit cost (included in other liabilities) $ 23,985 $ 22,380
==================================================================================================================
</TABLE>

The components of net periodic postretirement benefit cost for the years ended
December 31, were as follows (in thousands):

<TABLE>
<CAPTION>
1996 1995
------------------------------------------------------------------------------------------------------------------
<S> <C> <C>
Service cost (benefits earned during the current period) $ 667 $ 444
Interest cost on accumulated postretirement benefit obligation 1,652 1,518
Amortization of prior service cost over 10 years 72 72
----------------------------------------------------------------------------------------------------------------

Net periodic postretirement benefit cost (included in operating expenses) $ 2,391 $ 2,034
================================================================================================================
</TABLE>

The discount rate used in determining the APBO was 7.0% for 1996 and 1995. The
health care cost trend rates for 1997 are 6.8% and 7.2% for the employee and
agent medical plans, respectively, and grade to 5% in year 2000 and remain
level thereafter. Increasing the assumed health care trend rates by one
percentage point in each year would increase the APBO by about $1.1 million and
the 1996 service and interest cost components of net periodic postretirement
benefit cost by about $0.1 million.

During 1995 plan amendments were enacted which increased some of the medical
plan benefits for active and retired employees. These changes increased the
APBO by approximately $1.4 million, which is amortized over the average
remaining years of service of the plan participants of ten years.

NOTE 7 - DERIVATIVES

National Life purchases option contracts on the Standard & Poor's 500 (S&P 500)
index to hedge obligations relating to equity indexed annuity products. When
the S&P 500 index increases, increases in the intrinsic value of the purchased
options are offset by increases in equity indexed annuities account values.
When the S&P 500 index decreases, National Life's loss is limited to the
premium paid for the options.

National Life purchases options only from highly rated institutions. However,
in the event a counterparty failed to perform, National Life's loss would be
equal to the fair value of the net options held from that counterparty.

The option premium is expensed over the term of the option. The amortization of
the option premium and increases in the intrinsic value of purchased options
are reflected in investment income. Interest credited includes amounts that
would be credited on the next policy anniversary based on the S&P 500 index's
value at the reporting date.

At December 31, 1996, National Life held purchased options with a notional
amount of $61.1 million. These options had a net book value of $6.5 million,
consisting of $3.0 million of net amortized cost and $3.5 million of intrinsic
value.

F-17
<PAGE> 86

NOTE 8 - FAIR VALUE OF FINANCIAL INSTRUMENTS

The carrying values and estimated fair values of financial instruments at
December 31 were as follows (in thousands):

<TABLE>
<CAPTION>
1996 1995
- --------------------------------------------------------------------------------------------------------------------
Estimated Fair Estimated Fair
Carrying Value Value Carrying Value Value
- --------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Cash and cash equivalents $ 268,235 $ 268,235 $ 310,905 $ 310,905
Debt and equity securities:
Available-for-sale 4,393,046 4,393,046 3,240,480 3,240,480
Held-to-maturity 590,700 612,417 477,708 519,787
Mortgage loans 907,024 924,732 649,892 706,309
Policy loans 796,193 715,914 735,852 665,151
Derivatives 6,496 5,123 - -

Investment products 2,341,273 2,336,171 872,551 832,013
Debt 82,682 80,149 69,679 70,771
</TABLE>

For cash and cash equivalents carrying value approximates estimated fair value.

Debt and equity securities estimated fair values are based on quoted values
where available. Where quoted values are not available, estimated fair values
are based on discounted cash flows using current interest rates of similar
securities.

Mortgage loan fair values are estimated as the average of discounted cash flows
under different scenarios of future mortgage interest rates (including
appropriate provisions for default losses and borrower prepayments).

For variable rate policy loans the unpaid balance approximates fair value.
Fixed rate policy loan fair values are estimated based on discounted cash flows
using the current variable policy loan rate (including appropriate provisions
for mortality and repayments).

Derivatives estimated fair values are based on quoted values.

Investment products include flexible premium annuities, single premium deferred
annuities and supplementary contracts not involving life contingencies.
Investment product fair values are estimated as the average of discounted cash
flows under different scenarios of future interest rates of A-rated corporate
bonds and related changes in premium persistency and surrenders.

Debt fair values are estimated values are based on discounted cash flows using
current interest rates of similar securities.

F-18
<PAGE> 87

NOTE 9 - DEBT

Debt consists of the following (in thousands):
<TABLE>
<CAPTION>
1996 1995
- -----------------------------------------------------------------------------------------------------------------------
<S> <C> <C>
National Life - 8 1/4% Surplus Notes:
$70 million, maturing March 1, 2024 with interest payable semi-annually on
March 1 and September 1. The notes are unsecured and subordinated to all
present and future indebtedness, policy claims and prior claims. The notes
may be redeemed in whole or in part any time after March 1, 2004 at
predetermined redemption prices. All interest and principal payments require
prior written approval by the State of Vermont Department of Banking,
Insurance, Securities and Health Care Administration.
$ 69,682 $ 69,679

LSW National Holdings, Inc. - 6.1% Term Note:
maturing March 1, 2000 with interest payable semi-annually on
March 1 and September 1. The note is secured by subsidiary stock,
includes certain restrictive covenants and requires annual
payments of principal (see below). 13,000
- ---------------------------------------------------------------------------------------------------------------------
Total debt $ 82,682 $ 69,679
=====================================================================================================================
</TABLE>

The aggregate annual maturities of debt for the next five years are as follows:

NOTE 10 - ACQUISITION

National Financial Services, Inc., a wholly-owned subsidiary of National Life,
acquired a two-thirds interest in Life Insurance Company of the Southwest (LSW)
located in Dallas, Texas on February 8, 1996. LSW is a financial services
company specializing in annuities that is licensed in all states but New York
and has assets of $1.8 billion. LSW's customer focus has been mainly on
teachers and employees of non-profit institutions, with particular
concentration in the west and the southwest.

The acquisition was accomplished by purchasing two-thirds of LSW Holdings
Corporation, the owner of LSW. LSW Holdings Corporation was renamed LSW
National Holdings, Inc. concurrent with the purchase. The purchase price was
about $102 million in cash. The purchase resulted in the recording of an
intangible asset for the present value of future profits of insurance acquired
of $67.2 million.

The minority shareholders have the right to put their shares to National Life
at specified prices in the event of certain contingencies during the first five
years subsequent to closing and generally thereafter. Similarly, National Life
has the right to call the minority shareholders' shares at specified prices.
The specified prices are generally a function of GAAP equity or the original
purchase price.

F-19
<PAGE> 88

These consolidated financial statements include the financial position and
operations of LSW National Holdings since the purchase, along with appropriate
adjustments for minority interests, using the purchase method. Pro forma
results had the acquisition occurred as of January 1, 1996 and 1995 are shown
in the table below. These pro forma results are not necessarily indicative of
the actual results which might have occurred had National Life owned LSW since
that date.

<TABLE>
<CAPTION>
1996 1995
- -----------------------------------------------------------------------------------------
<S> <C> <C>
Revenues $ 1,026,763 $ 1,060,948
Net income 17,356 45,905
</TABLE>

Noncash investing activities relating to the acquisition that are not reflected
in the consolidated statement of cash flow were as follows (in thousands):

<TABLE>
<S> <C>
Fair value of assets acquired, excluding cash acquired $ 1,144,694
Liabilities assumed (1,063,143)
- ------------------------------------------------------------------------
Cash paid (net of cash acquired) $ 81,551
========================================================================
</TABLE>

NOTE 11 - STATUTORY INFORMATION

National Life prepares statutory basis financial statements for regulatory
filings with insurance regulators in all 50 states and the District of
Columbia. A reconciliation of National Life Insurance Company's statutory
surplus to GAAP retained earnings at December 31 and statutory net income to
GAAP net income for the years ended December 31 were as follows (in thousands):

<TABLE>
<CAPTION>
1996 1995
-----------------------------------------------------------------------
Surplus/ Surplus/
Retained Retained
Earnings Net Income Earnings Net Income
- --------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Statutory surplus/net income (loss) $ 305,611 $ 11,684 $ 312,488 $ (3,757)

Asset valuation reserve 57,054 - 55,570 -
Interest maintenance reserve 57,169 1,540 55,629 23,966
Surplus notes (69,681) (3) (69,678) (3)
Non-admitted assets 18,391 - 18,352 -

Investments 18,504 290 5,043 5,191
Deferred policy acquisition costs 443,583 3,970 439,613 2,097
Deferred income taxes 58,737 9,179 42,934 9,341
Policy liabilities (193,798) (9,874) (179,310) (4,335)
Policyowners' dividends 62,528 (1,142) 63,670 2,725
Benefit plans (36,094) 4,403 (38,869) 1,244
Other changes, net (1,963) (2,924) (2,524) 11,529
- --------------------------------------------------------------------------------------------------------------------

GAAP retained earnings/net income $ 720,041 $ 17,123 $ 702,918 $ 47,998
====================================================================================================================
</TABLE>

The New York Insurance Department recognizes only statutory accounting
practices for determining and reporting the financial condition and results of
operations of an insurance company and for determining solvency under the New
York Insurance Law. No consideration is given by the Department to financial
statements prepared in accordance with generally accepted accounting principles
in making such determinations.

F-20
<PAGE> 89

NATIONAL VARIABLE
LIFE INSURANCE ACCOUNT

FINANCIAL STATEMENTS

* * * * *

DECEMBER 31, 1996

F-21
<PAGE> 90
[PRICE WATERHOUSE LLP LETTERHEAD]

REPORT OF INDEPENDENT ACCOUNTANTS

April 21, 1997

To the Policyowners of
National Variable Life Insurance Account

In our opinion, the accompanying statement of net assets and the related
statements of operations and of changes in net assets present fairly, in all
material respects, the financial position of National Variable Life Insurance
Account (a Separate Account of National Life Insurance Company) (the Variable
Account) at December 31, 1996, and the results of its operations and the
changes in its net assets for the period from March 11, 1996 through December
31, 1996, in conformity with generally accepted accounting principles. These
financial statements are the responsibility of the Variable Account's
management; our responsibility is to express an opinion on these financial
statements based on our audit. We conducted our audit of these financial
statements in accordance with generally accepted auditing standards which
require that we plan and perform the audit to obtain reasonable assurance about
whether the financial statements are free of material misstatement. An audit
includes examining, on a test basis, evidence supporting the amounts and
disclosures in the financial statements, assessing the accounting principles
used and significant estimates made by management, and evaluating the overall
financial statement presentation. We believe that our audit, which included
confirmation of securities at December 31, 1996 by correspondence with the
custodian, provides a reasonable basis for the opinion expressed above.

/s/ PRICE WATERHOUSE LLP

F-22
<PAGE> 91
NATIONAL VARIABLE LIFE INSURANCE ACCOUNT
(A SEPARATE ACCOUNT OF NATIONAL LIFE INSURANCE COMPANY)

STATEMENT OF NET ASSETS

DECEMBER 31, 1996

<TABLE>
<CAPTION>
POLICYOWNER NATIONAL LIFE
ACCOUNT INSURANCE
VALUES COMPANY TOTAL
----------------- ------------------- -----------------
<S> <C> <C> <C>
ASSETS:
Investments in shares of mutual
fund portfolios at market value:

Market Street Fund Money Market $ 1,131,637 $ $ 1,131,637
Market Street Fund Common Stock 851,877 5,655,000 6,506,877
Market Street Fund Aggressive Growth 105,530 105,530
Market Street Fund Managed 417,105 417,105
Market Street Fund Bond 79,850 79,850
Market Street Fund International 264,228 264,228
Market Street Fund Sentinel Growth 92,137 5,570,000 5,662,137
VIPF Equity-Income 1,314,531 1,314,531
VIPF Overseas 200,505 200,505
VIPF Growth 677,987 677,987
VIPF High Income 171,338 171,338
Alger American Growth 561,650 561,650
Alger American Small Capitalization 618,383 618,383
-------------------------------------------------------------

Total assets and net assets $ 6,486,758 $ 11,225,000 $ 17,711,758
=============================================================
</TABLE>

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

F-23

<PAGE> 92
NATIONAL VARIABLE LIFE INSURANCE ACCOUNT
(A SEPARATE ACCOUNT OF NATIONAL LIFE INSURANCE COMPANY)

STATEMENT OF OPERATIONS

FOR THE PERIOD MARCH 11, 1996 THROUGH DECEMBER 31, 1996

<TABLE>
<CAPTION>
POLICYOWNER ACCOUNT VALUES
-----------------------------------------------------------------------------------------

MARKET STREET FUND
-----------------------------------------------------------------------------------------
MONEY COMMON AGGRESSIVE
MARKET STOCK GROWTH MANAGED BOND
------------ ----------------- ---------------- --------------- -----------------

<S> <C> <C> <C> <C> <C>
INVESTMENT INCOME:
Dividend income and
capital gain distributions $ 29,274 $ 1,900 $ - $ 283 $ 216

EXPENSES:
Mortality and expense risk charge 5,265 1,828 225 372 141
-----------------------------------------------------------------------------------------

Net investment income (loss) 24,009 72 (225) (89) 75
-----------------------------------------------------------------------------------------

REALIZED AND UNREALIZED
GAIN ON INVESTMENTS:
Net realized gain from
shares sold - 8,318 828 346 133

Net unrealized
appreciation on investments - 34,582 4,883 331 753
-----------------------------------------------------------------------------------------

Net realized and unrealized
gain on investments - 42,900 5,711 677 886
-----------------------------------------------------------------------------------------

Net increase in net assets
resulting from operations $ 24,009 $ 42,972 $ 5,486 $ 588 $ 961
=========================================================================================

</TABLE>

<TABLE>
<CAPTION>
POLICYOWNER ACCOUNT VALUES
--------------------------------------

MARKET STREET FUND
--------------------------------------
SENTINEL
INTERNATIONAL GROWTH
--------------- ----------------

<S> <C> <C>
INVESTMENT INCOME:
Dividend income and
capital gain distributions $ - $ -

EXPENSES:
Mortality and expense risk charge 529 201
-------------------------------------

Net investment income (loss) (529) (201)
-------------------------------------

REALIZED AND UNREALIZED
GAIN ON INVESTMENTS:
Net realized gain from
shares sold 1,673 489

Net unrealized
appreciation on investments 7,565 5,612
-------------------------------------

Net realized and unrealized
gain on investments 9,238 6,101
-------------------------------------

Net increase in net assets
resulting from operations $ 8,709 $ 5,900
=====================================

</TABLE>

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

F-24
<PAGE> 93

NATIONAL VARIABLE LIFE INSURANCE ACCOUNT
(A SEPARATE ACCOUNT OF NATIONAL LIFE INSURANCE COMPANY)

STATEMENT OF OPERATIONS

FOR THE PERIOD MARCH 11, 1996 THROUGH DECEMBER 31, 1996

<TABLE>
<CAPTION>
POLICYOWNER ACCOUNT VALUES
-----------------------------------------------------------
VIPF
----------------------------------------------------------
EQUITY - HIGH
INCOME OVERSEAS GROWTH INCOME
--------------- ------------ ---------- ----------

<S> <C> <C> <C> <C>
INVESTMENT INCOME:
Dividend income and
capital gain distributions $ - $ - $ - $ -

EXPENSES:
Mortality and expense risk charge 3,061 476 1,503 279
-------------------------------------------------------------

Net investment income (loss) (3,061) (476) (1,503) (279)
-------------------------------------------------------------

REALIZED AND UNREALIZED
GAIN ON INVESTMENTS:
Net realized gain from
shares sold 6,031 880 5,445 470

Net unrealized
appreciation on investments 54,065 8,670 16,949 3,742

Net realized and unrealized
gain on investments 60,096 9,550 22,394 4,212
-------------------------------------------------------------

Net increase in net assets
resulting from operations $ 57,035 $ 9,074 $ 20,891 $ 3,933
=============================================================

</TABLE>

<TABLE>
<CAPTION>
POLICYOWNER ACCOUNT VALUES NATIONAL LIFE INSURANCE COMPANY
------------------------------ ---------------------------------
ALGER AMERICAN MARKET STREET FUND
--------------------------- ---------------------------------
COMMON SENTINEL
GROWTH SMALL CAP STOCK GROWTH TOTAL
--------- ------------- ----------- ------------------- -------------

<S> <C> <C> <C> <C> <C>
INVESTMENT INCOME:
Dividend income and
capital gain distributions $ 326 $ 42 $ - $ - $ 32,041

EXPENSES:
Mortality and expense risk charge 1,425 1,294 - - 16,599
-------------------------------------------------------------------------------------

Net investment income (loss) (1,099) (1,252) - - 15,442
-------------------------------------------------------------------------------------

REALIZED AND UNREALIZED
GAIN ON INVESTMENTS:
Net realized gain from
shares sold 5,700 696 - - 31,009

Net unrealized
appreciation on investments 20,305 631 655,000 570,000 1,383,088

Net realized and unrealized
gain on investments 26,005 1,327 655,000 570,000 1,414,097
-------------------------------------------------------------------------------------

Net increase in net assets
resulting from operations $ 24,906 $ 75 $ 655,000 $ 570,000 $ 1,429,539
=====================================================================================

</TABLE>

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

F-25
<PAGE> 94
NATIONAL VARIABLE LIFE INSURANCE ACCOUNT
(A SEPARATE ACCOUNT OF NATIONAL LIFE INSURANCE COMPANY)

STATEMENT OF CHANGES IN NET ASSETS

FOR THE PERIOD MARCH 11, 1996 THROUGH DECEMBER 31, 1996

<TABLE>
<CAPTION>
POLICYOWNER ACCOUNT VALUES
-------------------------------------------------------------------------------
MARKET STREET FUND
------------------------------------------------------------------------------
MONEY COMMON AGGRESSIVE
MARKET STOCK GROWTH MANAGED
----------------- ----------------- ---------------- ---------------
<S> <C> <C> <C> <C>
NET INCREASE IN NET ASSETS
resulting from operations $ 24,009 $ 42,972 $ 5,486 $ 588
------------------------------------------------------------------------------

CONTRIBUTIONS AND WITHDRAWALS:
Participant deposits 5,500,094 210,351 40,861 49,310
Miscellaneous (872) 82 (34) 6,033
National Life contributions - - - -
Transfers between investment
sub-accounts, net (4,100,684) 639,915 64,732 369,030
Surrenders and lapses (127) (315) (47) -
Cost of insurance charges (290,783) (41,128) (5,468) (7,856)
------------------------------------------------------------------------------

Total net contributions 1,107,628 808,905 100,044 416,517
------------------------------------------------------------------------------

Increase in net assets 1,131,637 851,877 105,530 417,105

Net assets, beginning of period - - - -
------------------------------------------------------------------------------

Net assets, end of period $ 1,131,637 $ 851,877 $ 105,530 $ 417,105
==============================================================================
</TABLE>

<TABLE>
<CAPTION>
POLICYOWNER ACCOUNT VALUES
-----------------------------------------------------
MARKET STREET FUND
-----------------------------------------------------
SENTINEL
BOND INTERNATIONAL GROWTH
---------------- ----------------- ----------------
<S> <C> <C> <C>
NET INCREASE IN NET ASSETS
resulting from operations $ 961 $ 8,709 $ 5,900
------------------------------------------------------

CONTRIBUTIONS AND WITHDRAWALS:
Participant deposits 8,079 65,892 14,470
Miscellaneous (39) 198 2
National Life contributions - - -
Transfers between investment
sub-accounts, net 73,513 203,603 77,833
Surrenders and lapses (51) (56) -
Cost of insurance charges (2,613) (14,118) (6,068)
------------------------------------------------------

Total net contributions 78,889 255,519 86,237
------------------------------------------------------

Increase in net assets 79,850 264,228 92,137

Net assets, beginning of period - - -
------------------------------------------------------

Net assets, end of period $ 79,850 $ 264,228 $ 92,137
======================================================
</TABLE>

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

F-26
<PAGE> 95
NATIONAL VARIABLE LIFE INSURANCE ACCOUNT
(A SEPARATE ACCOUNT OF NATIONAL LIFE INSURANCE COMPANY)

STATEMENT OF CHANGES IN NET ASSETS

FOR THE PERIOD MARCH 11, 1996 THROUGH DECEMBER 31, 1996

<TABLE>
<CAPTION>
POLICYOWNER ACCOUNT VALUES
-------------------------------------------------------------------------------------------
VIPF ALGER AMERICAN
-------------------------------------------------------------- --------------------------
EQUITY - HIGH
INCOME OVERSEAS GROWTH INCOME GROWTH SMALL CAP
---------------- ------------- -------------- ----------- ----------- ------------
<S> <C> <C> <C> <C> <C> <C>
NET INCREASE IN NET ASSETS
resulting from operations $ 57,035 $ 9,074 $ 20,891 3,933 24,906 75
---------------------------------------------------------------------------------------------

CONTRIBUTIONS AND WITHDRAWALS:
Participant deposits 230,608 52,178 200,316 51,019 171,670 203,653
Miscellaneous 1,462 (16) 1,145 172 93 (246)
National Life contributions - - - - - -
Transfers between investment
sub-accounts, net 1,062,706 149,481 493,808 121,155 394,402 450,506
Surrenders and lapses (767) (77) (608) (63) (103) (636)
Cost of insurance charges (36,513) (10,135) (37,565) (4,878) (29,318) (34,969)
---------------------------------------------------------------------------------------------

Total net contributions 1,257,496 191,431 657,096 167,405 536,744 618,308
---------------------------------------------------------------------------------------------

Increase in net assets 1,314,531 200,505 677,987 171,338 561,650 618,383

Net assets, beginning of period - - - - - -
---------------------------------------------------------------------------------------------

Net assets, end of period $ 1,314,531 $ 200,505 $ 677,987 171,338 561,650 618,383
=============================================================================================

</TABLE>

<TABLE>
<CAPTION>
NATIONAL LIFE INSURANCE COMPANY
---------------------------------
MARKET STREET FUND
---------------------------------
COMMON SENTINEL
STOCK GROWTH TOTAL
--------------- -------------- -------------
<S> <C> <C> <C>
NET INCREASE IN NET ASSETS
resulting from operations 655,000 570,000 1,429,539
-------------------------------------------------------

CONTRIBUTIONS AND WITHDRAWALS:
Participant deposits - - 6,798,501
Miscellaneous - - 7,980
National Life contributions 5,000,000 5,000,000 10,000,000
Transfers between investment
sub-accounts, net - - -
Surrenders and lapses - - (2,850)
Cost of insurance charges - - (521,412)
-------------------------------------------------------

Total net contributions 5,000,000 5,000,000 16,282,219
-------------------------------------------------------

Increase in net assets 5,655,000 5,570,000 17,711,758

Net assets, beginning of period - - -
-------------------------------------------------------

Net assets, end of period 5,655,000 5,570,000 17,711,758
=======================================================

</TABLE>

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

F-27

<PAGE> 96
NATIONAL VARIABLE LIFE INSURANCE ACCOUNT
(A Separate Account of National Life Insurance Company)
NOTES TO THE FINANCIAL STATEMENTS
DECEMBER 31, 1996

NOTE 1 - NATURE OF OPERATIONS

National Variable Life Insurance Account (the Variable Account) began
operations on March 11, 1996 and is registered as a unit investment trust under
the Investment Company Act of 1940, as amended. The operations of the Variable
Account are part of National Life Insurance Company (National Life). The
Variable Account was established by National Life as a separate investment
account to invest the net premiums received from the sale of certain variable
life insurance products. Equity Services, Inc., an indirect wholly-owned
subsidiary of National Life, is the principal underwriter for the variable life
insurance policies issued by National Life. Sentinel Advisors Company, an
indirectly-owned subsidiary of National Life, provides investment advisory
services for certain Market Street Fund, Inc. mutual fund portfolios.

The Variable Account invests the accumulated policyowner account values in
shares of mutual fund portfolios within Market Street Fund, Inc., Variable
Insurance Products Fund (VIPF), and Alger American Fund. Net premiums received
by the Variable Account are deposited in investment portfolios as designated by
the policyowner, except for initial net premiums on new policies which are
first invested in the Market Street Fund Money Market Portfolio.

There are thirteen sub-accounts within the Variable Account. Each sub-account,
which invests exclusively in the shares of the corresponding portfolio,
comprises the accumulated policyowner account values of the underlying variable
life insurance policies investing in the sub-account.

NOTE 2 - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES

INVESTMENTS

The mutual fund portfolios consist of the Market Street Fund Money Market,
Market Street Fund Common Stock, Market Street Fund Aggressive Growth, Market
Street Fund Managed, Market Street Fund Bond, Market Street Fund International,
Market Street Fund Sentinel Growth, VIPF Equity-Income, VIPF Overseas, VIPF
Growth, VIPF High Income, Alger American Growth, Alger American Small
Capitalization (the Portfolios). The assets of each portfolio are held
separate from the assets of the other portfolios and each has different
investment objectives and policies. Each portfolio operates separately and the
gains or losses in one portfolio have no effect on the investment performance
of the other portfolios. Investment advisory fees are deducted by the
Portfolios in determining investment income.

The investments in the Portfolios are valued at the closing net asset value per
share as determined by the portfolio at the end of each period.

Investment transactions are accounted for on the trade date (date the order to
buy or sell is executed) and dividend income is recorded on the ex-dividend
date. The cost of investments sold is determined using the weighted average
cost method.

CHARGES AND EXPENSES

Cost of insurance charges are deducted monthly from each policyowner's
accumulated account value for the insurance protection provided and are
remitted to National Life.

National Life also deducts a daily charge from the sub-accounts for its
assumption of mortality and expense risks. The mortality risk assumed is that
the insureds under the policies may die sooner than anticipated. The expense
risk assumed is that expenses incurred in issuing and administering the
policies may exceed expected levels.

F-28
<PAGE> 97
The underlying variable life insurance policies are subject to certain deferred
administrative and sales charges if surrendered or lapsed prior to the end of
the fifteenth policy year.

Cost of insurance, mortality and expense risk charges and sales load are
recorded when deducted from each policyowner's accumulated account value.

FEDERAL INCOME TAXES

The operations of the Variable Account are part of, and taxed with, the total
operations of National Life. Under existing federal income tax law, investment
income and capital gains attributable to the Variable Account are not taxed.

NOTE 2 - INVESTMENTS

The number of shares held, and identified cost for each of the portfolios at
December 31, 1996 are set forth below:

<TABLE>
<CAPTION>
Portfolio Shares Identified Cost
- --------- --------- ---------------
<S> <C> <C>
Market Street Fund Money Market 1,131,637 $ 1,131,637

Market Street Fund Common Stock 575,321 5,817,295

Market Street Fund Aggressive Growth 5,698 100,647

Market Street Fund Managed 28,413 416,774

Market Street Fund Bond 7,484 79,097

Market Street Fund International 19,704 256,663

Market Street Fund Sentinel Growth 508,271 5,086,525

VIPF Equity-Income 62,507 1,260,466

VIPF Overseas 10,643 191,835

VIPF Growth 21,772 661,038

VIPF High Income 13,685 167,596

Alger American Growth 16,360 541,345

Alger American Small Capitalization 15,116 617,752
-----------

Total $16,328,670
===========
</TABLE>

The identified cost also represents the aggregate cost for federal income tax
purposes.

F-29

<PAGE> 98
NOTE 3 - DISTRIBUTION OF NET INCOME

The Variable Account does not expect to declare dividends to policyowners from
accumulated net income. The accumulated net income will be distributed to
policyowners as withdrawals (in the form of death benefits, surrenders or
policy loans) in excess of the policyowners' net contributions to the Variable
Account.

F-30

<PAGE> 99

(logo) PROSPECTUS
VariTrak

FLEXIBLE PREMIUM ADJUSTABLE BENEFIT VARIABLE LIFE INSURANCE POLICY
ISSUED BY
NATIONAL LIFE INSURANCE COMPANY
One National Life Drive, Montpelier, Vermont 05604
Telephone: (802) 229-3333

After certain deductions are made, Net Premiums are allocated to the
National Variable Life Insurance Account, a separate account of National Life
(the "Separate Account") or to National Life's General Account (which pays
interest at declared rates guaranteed to equal or exceed 4%) or both. The
Separate Account has fifteen Subaccounts, the assets of which are used to
purchase shares of a designated corresponding mutual fund portfolio (each, a
"Portfolio") that is part of one of the following funds (each, a "Fund"): the
Market Street Fund, Inc. (the "Market Street Fund"), managed by Sentinel
Advisors Company, except as to the International Portfolio and the Money Market
Portfolio, which are managed by Providentmutual Investment Management Company,
the Variable Insurance Products Fund, managed by Fidelity Investments, and the
Alger American Fund, managed by Fred Alger Management, Inc.

The accompanying Prospectuses for the Funds describe the investment
objectives and the attendant risks of the Portfolios.

-----------------------

THIS PROSPECTUS MUST BE ACCOMPANIED OR PRECEDED BY CURRENT PROSPECTUSES FOR THE
FUNDS LISTED ABOVE.

-----------------------

PLEASE READ THIS PROSPECTUS CAREFULLY AND RETAIN IT FOR FUTURE REFERENCE.

-----------------------

Prospectus dated May 1, 1997

<PAGE> 100

TABLE OF CONTENTS

<TABLE>
<CAPTION>
PAGE
<S> <C>
Definitions . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

Summary Description of the Policy . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
The Policy Offered . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
The Separate Account . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Availability of Policy . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
The Death Benefit . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Flexibility to Adjust Amount of Death Benefit . . . . . . . . . . . . . . . . . . . . . .
Accumulated Value . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Allocation of Net Premiums . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Transfers . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Free-Look Privilege . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Charges Assessed in Connection with the Policy . . . . . . . . . . . . . . . . . . . . . .
Summary of Policy Expenses . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Premium Tax Charge . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Monthly Deductions . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Surrender Charge . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Daily Charge Against the Separate Account . . . . . . . . . . . . . . . . . . . .
Transfer Charge . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Withdrawal Charge . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Projection Report Charge . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Daily Charges Against the Separate Account . . . . . . . . . . . . . . . . . . . .
Other Charges . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Policy Lapse and Reinstatement . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Loan Privilege . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Withdrawal of Cash Surrender Value . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Surrender of the Policy . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Available Automated Fund Management Features . . . . . . . . . . . . . . . . . . . . . . .
Tax Treatment . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Unisex Policies . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Illustrations of Death Benefits, Accumulated Value and Cash Surrender Value . . . . . . .

National Life Insurance Company, The Separate Account, and The Funds . . . . . . . . . . . . . . .
National Life Insurance Company . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
The Separate Account . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
The Market Street Fund . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
The Common Stock Portfolio . . . . . . . . . . . . . . . . . . . . . . . . . . . .
The Sentinel Growth Portfolio . . . . . . . . . . . . . . . . . . . . . . . . . .
The Aggressive Growth Portfolio . . . . . . . . . . . . . . . . . . . . . . . . .
The Bond Portfolio . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
The Managed Portfolio . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
The International Portfolio . . . . . . . . . . . . . . . . . . . . . . . . . . .
The Money Market Portfolio . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Variable Insurance Products Fund . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Equity-Income Portfolio . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Growth Portfolio . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
High Income Portfolio . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Overseas Portfolio . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Index 500 Portfolio. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Contrafund Portfolio . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Alger American Fund . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Alger American Small Capitalization Portfolio . . . . . . . . . . . . . . . . . .
Alger American Growth Portfolio . . . . . . . . . . . . . . . . . . . . . . . . .
Termination of Participation Agreements . . . . . . . . . . . . . . . . . . . . . . . . .
</TABLE>

ii
<PAGE> 101

Charges and Deductions . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Premium Tax Charge . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Surrender Charges . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Deferred Administrative Charge . . . . . . . . . . . . . . . . . . . . . . . . . .
Deferred Sales Charge . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Monthly Deductions . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Cost of Insurance Charge . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Cost of Insurance Rate . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Rate Class . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Monthly Administrative Charge . . . . . . . . . . . . . . . . . . . . . . . . . .
Optional Benefit Charges . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Separate Account Enhancement . . . . . . . . . . . . . . . . . . . . . . . . . . .
Withdrawal Charge . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Transfer Charge . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Projection Report Charge . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Mortality and Expense Risk Charge . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Other Charges . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
</TABLE>

iii
<PAGE> 102

<TABLE>
<CAPTION>
PAGE
<S> <C>
Policy Rights
Loan Privileges . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
General . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Interest Rate Charged . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Allocation of Loans and Collateral . . . . . . . . . . . . . . . . . . . . . . . .
Interest Credited to Amounts Held as Collateral . . . . . . . . . . . . . . . . .
Preferred Policy Loans . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Effect of Policy Loan . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Loan Repayments . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Lapse With Loans Outstanding . . . . . . . . . . . . . . . . . . . . . . . . . . .
Tax Considerations . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Surrender Privilege . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Withdrawal of Cash Surrender Value . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Option A . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Option B . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Free-Look Privilege . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Telephone Transaction Privilege . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Special Transfer Rights . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Transfer Right for Policy . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Transfer Right for Change in Investment Policy
Available Automated Fund Management Features . . . . . . . . . . . . . . . . . . . . . . .
Dollar Cost Averaging . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Portfolio Rebalancing . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Policy Rights Under Certain Plans . . . . . . . . . . . . . . . . . . . . . . . . . . . .

The General Account . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Minimum Guaranteed and Current Interest Rates . . . . . . . . . . . . . . . . . . . . . .
Calculation of Non-loaned Accumulated Value in the General Account . . . . . . . .
Transfers from General Account . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

Other Policy Provisions . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Maturity at 99 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Reduced Paid-Up Benefit . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Payment of Policy Benefits . . . . . . . . . . . . . . . . . . . . . . . . . . . .
The Contract . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Ownership . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Beneficiary . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Change of Owner and Beneficiary . . . . . . . . . . . . . . . . . . . . . . . . .
Split Dollar Arrangements . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Assignments . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Misstatement of Age and Sex . . . . . . . . . . . . . . . . . . . . . . . . . . .
Suicide . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Incontestability . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Dividends . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Correspondence . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Settlement Options . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Payment of Interest Only . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Payments for a Stated Time . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Payments for Life . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Payments of a Stated Amount . . . . . . . . . . . . . . . . . . . . . . . . . . .
Life Annuity . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Joint and Two Thirds Annuity . . . . . . . . . . . . . . . . . . . . . . . . . . .
50% Survivor Annuity . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
</TABLE>

iv
<PAGE> 103

Appendix A-Illustration of Death Benefits, Accumulated Values and
Cash Surrender Values . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . A-1

Financial Statements . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . F-1
</TABLE>

THE PRIMARY PURPOSE OF THIS VARIABLE LIFE INSURANCE POLICY IS TO PROVIDE
INSURANCE PROTECTION. NO CLAIM IS MADE THAT THE POLICY IS IN ANY WAY SIMILAR
OR COMPARABLE TO AN INVESTMENT IN A MUTUAL FUND.

v
<PAGE> 104

DEFINITIONS
<TABLE>
<S> <C>
ACCUMULATED VALUE The sum of the Policy's values in the Separate Account and the General Account.

ATTAINED AGE The Issue Age of the Insured plus the number of full Policy Years which have passed
since the Date of Issue.

CASH SURRENDER VALUE The Accumulated Value minus any applicable Surrender Charge, and minus any outstanding
Policy loans and accrued interest on such loans.

COLLATERAL The portion of the Accumulated Value in the General Account which secures the amount of
any Policy loan.

DAC TAX A tax attributable to Specified Policy Acquisition Expenses under Internal Revenue Code
Section 848.

FACE AMOUNT The Initial Face Amount plus any increases in Face Amount and minus any decreases in
Face Amount.

GENERAL ACCOUNT The account which holds the assets of National Life which are available to support its
insurance and annuity obligations.

1
<PAGE> 105
<TABLE>
<S> <C>
GUARANTEED DEATH BENEFIT
RIDER An optional Rider that will guarantee that the Policy will not lapse prior to Attained
Age 70, or 20 years from the Policy's Date of Issue, if longer, regardless of investment
performance, if the Minimum Guarantee Premium has been paid as of each Monthly Policy
Date.

HOME OFFICE National Life's Home Office at National Life Drive, Montpelier, Vermont 05604.

INITIAL FACE AMOUNT The Face Amount of the Policy on the Date of Issue. The Face Amount may be increased or
decreased after the first Policy Year.

INSURED The person upon whose life the Policy is issued.

ISSUE AGE The age of the Insured at his or her birthday nearest the Date of Issue. The Issue Age
is stated in the Policy.

MINIMUM FACE AMOUNT The Minimum Face Amount is generally $50,000. However, exceptions may be made in
employee benefit plan cases.

MINIMUM INITIAL PREMIUM The minimum premium required to issue a Policy. It is equal to two times the Minimum
Monthly Premium.

MONTHLY ADMINISTRATIVE
CHARGE A current charge of $7.50 per month included in the Monthly Deduction, which is intended
to reimburse National Life for ordinary administrative expenses. On a guaranteed basis,
this charge may not exceed $7.50 per policy plus $0.07 per thousand of Face Amount per
month.

2
<PAGE> 106
<TABLE>
<S> <C>
NET AMOUNT AT RISK The amount by which the Unadjusted Death Benefit exceeds the Accumulated Value.