<PAGE> 1
As filed with the Securities and Exchange Commission on April 16, 1998
Registration No. 333-44723
================================================================================
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
-----------------------
PRE-EFFECTIVE AMENDMENT NO. 1 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
-----------------------
APPROXIMATE DATE OF PROPOSED PUBLIC OFFERING:
As soon as practicable after the effective date of the Registration Statement.
TITLE OF SECURITIES BEING REGISTERED:
Last survivor flexible premium adjustable benefit variable
life insurance policies.
The Registrant hereby amends this Registration Statement on such date or
dates as may be necessary to delay its effective date until the Registrant
shall file a further amendment which specifically states that the
Registration Statement shall thereafter become effective in accordance with
Section 8(a) of the Securities Act of 1933 or until the Registration Statement
shall become effective on such date as the Commission, acting pursuant to said
Section 8(a), may determine.
================================================================================
<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 and Variable Insurance Products Fund II;
American Century Investment Management, Inc.; Neuberger & Berman Advisers Managers Trust;
J.P. Morgan Series Trust II; Goldman Sach Variable Insurance Trust; Strong Variable Insurance Funds, Inc.
and Strong Opportunity Fund II, Inc.; Van Eck Worldwide Insurance Trust
12 The Market Street Fund; Variable Insurance Products Fund and Variable Insurance Products Fund II;
American Century Investment Management, Inc.; Neuberger & Berman Advisers Managers Trust;
J.P. Morgan Series Trust II; Goldman Sach Variable Insurance Trust; Strong Variable Insurance Funds, Inc.
and Strong Opportunity Fund II, Inc.; American Century Investment Management, Inc.; Neuberger & Berman
Advisers Managers Trust; J.P. Morgan Series Trust II; Goldman Sach Variable Insurance Trust;
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 and Variable Insurance Products Fund II;
American Century Investment Management, Inc.; Neuberger & Berman Advisers Managers Trust;
J.P. Morgan Series Trust II; Goldman Sach Variable Insurance Trust; Strong Variable Insurance Funds, Inc.
and Strong Opportunity Fund II, Inc.; American Century Investment Management, Inc.; Neuberger & Berman
Advisers Managers Trust; J.P. Morgan Series Trust II; Goldman Sach Variable Insurance Trust;
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 Not applicable
57 Not applicable
58 Not applicable
59 Financial Statements
</TABLE>
<PAGE> 4
PART I
Information Required in Prospectus
<PAGE> 5
PROSPEC 6
ALL CHANGES SINCE JANUARY 22, 1998 SEC FILING
R:2DTODIE:PROSPEC5
(logo) PROSPECTUS
SENTINEL ESTATE PROVIDER
LAST SURVIVOR FLEXIBLE PREMIUM ADJUSTABLE BENEFIT VARIABLE LIFE INSURANCE
POLICY
ISSUED BY
NATIONAL LIFE INSURANCE COMPANY
One National Life Drive, Montpelier, Vermont 05604
Telephone: (800) 537-7003
This Prospectus describes the Sentinel Estate Provider Policy, a last
survivor 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 which will provide a
death benefit on the death of the last to die of two specified Insureds. 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, within limits, 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 "Variable Account") or to the Fixed Account (which pays interest at
declared rates guaranteed to equal or exceed 4%) or both. The Variable Account
has twenty-two 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 which is managed by Providentmutual
Investment Management Company, the American Century Variable Portfolios, Inc.,
managed by American Century Investment Management, Inc., the Variable Insurance
Products Fund and the Variable Insurance Products Fund II, managed by Fidelity
Investments, the Goldman Sachs Variable Insurance Trust, managed by Goldman
Sachs Asset Management and Goldman Sachs Asset Management International, the
J.P. Morgan Series Trust II, managed by J.P. Morgan Asset Management Inc., the
Neuberger & Berman Advisers Management Trust, managed by Neuberger & Berman
Management Incorporated, and the Strong Growth Fund II and Strong Opportunity
Fund II, managed by Strong Capital 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 Variable Account; there
is no guaranteed minimum Accumulated Value for the Variable 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, including
the Variable Account Charge, and certain other fees and charges. Also, a
Surrender Charge may be imposed if, during the first 10 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 Cumulative Minimum Monthly
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 Cumulative
Guarantee Premium has 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 a life insurance policy.
---------------
THIS PROSPECTUS MUST BE ACCOMPANIED OR PRECEDED BY CURRENT PROSPECTUSES OR
PROSPECTUS PROFILES FOR THE FUNDS LISTED ABOVE.
---------------
<PAGE> 6
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
<PAGE> 7
TABLE OF CONTENTS
<TABLE>
<CAPTION>
PAGE
<S> <C>
Definitions . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 1
Summary Description of the Policy . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
The Policy Offered . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
The Variable 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 Expense Charge . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Surrender Charge . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Withdrawal Charge . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Monthly Deductions . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Transfer Charge . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Projection Report Charge . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Other Charges . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Policy Lapse and Reinstatement . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Loan Privilege . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Withdrawal of Cash Surrender Value . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Surrender of the Policy . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Available Automated Fund Management Features . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Optional Benefits
Tax Treatment . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Illustrations of Death Benefits, Accumulated Value and Cash Surrender Value . . . . . . . . . . . . . .
National Life Insurance Company, The Variable Account, and The Funds . . . . . . . . . . . . . . . . . . . . . .
National Life Insurance Company . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
The Variable Account . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
The Market Street Fund . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
The Growth Portfolio . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
The Sentinel Growth Portfolio . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
The Aggressive Growth Portfolio . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
The Bond Portfolio . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
The Managed Portfolio . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
The International Portfolio . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
The Money Market Portfolio . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
American Century Variable Portfolios, Inc.
VP Value Portfolio
VP Income & Growth Portfolio
Variable Insurance Products Fund and Variable Insurance Products Fund II . . . . . . . . . . . . . . . .
Growth Portfolio . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
High Income Portfolio . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Index 500 Portfolio . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Contrafund . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
</TABLE>
ii
<PAGE> 8
<TABLE>
<CAPTION>
PAGE
<S> <C>
Goldman Sachs Variable Insurance Trust
International Equity
Global Income
CORE Small Cap Equity
Mid Cap Equity
J.P. Morgan Series Trust II
International Opportunities Portfolio
Small Company Portfolio
Neuberger & Berman Advisers Management Trust
Partners Portfolio
Strong Variable Insurance Funds, Inc. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Growth Fund II . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Strong Opportunity Fund II . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Resolving Material Conflicts . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
The Fixed 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 Variable 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 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Specialized Uses of the Policy . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Charges and Deductions . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Premium Expense Charge . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Surrender Charge . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Monthly Deductions . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Cost of Insurance Charge . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Cost of Insurance Rate . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Rate Class . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Variable Account Charge . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Monthly Administrative Charge . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Optional Benefit Charges . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Withdrawal Charge . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Transfer Charge . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Projection Report Charge . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Other Charges . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
</TABLE>
iii
<PAGE> 9
<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 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
The Fixed Account . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Minimum Guaranteed and Current Interest Rates . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Calculation of Non-loaned Accumulated Value in the Fixed Account . . . . . . . . . . . . . . . .
Transfers from Fixed 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 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
</TABLE>
iv
<PAGE> 10
<TABLE>
<CAPTION>
PAGE
<S> <C>
Payments of a Stated Amount . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Life Annuity . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Joint and Two Thirds Annuity . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
50% Survivor Annuity . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Optional Benefits . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Guaranteed Death Benefit . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Additional Protection Benefit . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Policy Split Option . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Estate Protector Rider . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Term Rider . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Continuing Coverage Rider . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Enhanced Death Benefit Rider . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Automatic Increase Rider . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
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 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Possible Charge for National Life's Taxes . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Possible Changes in Taxation . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Voting Rights . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Changes in Applicable Law, Funding and Otherwise . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Officers and Directors of National Life . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Distribution of Policies . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Policy Reports . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
State Regulation . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Preparing for Year 2000 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
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> 11
DEFINITIONS
<TABLE>
<S> <C>
ACCUMULATED VALUE The sum of the Policy's values in
the Variable Account and the
Fixed Account.
ADDITIONAL COVERAGE One of the two types of coverage
of which the Face Amount is
comprised, which is provided by
the Additional Protection Benefit
Rider; the other type of coverage
is Basic Coverage.
ADDITIONAL PROTECTION BENEFIT RIDER An optional benefit that may be
included in the Policy at the
Owner's option, which provides
Additional Coverage.
ATTAINED AGE The Issue Age of the Insured plus
the number of full Policy Years
which have passed since the Date
of Issue.
BASIC COVERAGE One of the two types of coverage
of which the Face Amount is
comprised; the other type is
Additional Coverage, provided by
the Additional Protection Benefit
Rider.
BENEFICIARY The person(s) or entity(ies)
designated to receive all or some
of the Death Benefit on the death
of the last to die of the two
Insureds. 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 last to die of the two
Insureds 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 Fixed Account which
secures the amount of any Policy
loan.
CODE The Internal Revenue Code of 1986,
as amended.
CUMULATIVE GUARANTEE PREMIUM The sum of the Monthly Guarantee
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.
CUMULATIVE MINIMUM MONTHLY
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.
DAC TAX A tax attributable to Specified
Policy Acquisition Expenses under
Section 848 of the Code.
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.
</TABLE>
1
<PAGE> 12
<TABLE>
<S> <C>
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. The
Face Amount is the sum of the
Basic Coverage and the Additional
Coverage.
FIXED 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.
GUARANTEED DEATH BENEFIT RIDER An optional Rider that will
guarantee that the Policy will not
lapse, either prior to the end of
the year that the younger
Insured attains Age 80, or for the
entire lifetimes of the Insureds,
whichever is elected by the Owner,
regardless of investment
performance, if the Cumulative
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.
INSUREDS The two persons upon whose lives
the Policy is issued.
ISSUE AGE The age of an Insured at his or
her birthday nearest the Date of
Issue. The Issue Ages of the two
Insureds are stated in the Policy.
JOINT AGE The age assigned to the Policy,
based on characteristics of the
two Insureds, used in the
calculation of the Target Premium
and the Surrender Charge. The
Joint Age is set forth in the
Policy, and is discussed in
Appendix B of this Prospectus.
MINIMUM BASIC COVERAGE AMOUNT The Minimum Basic Coverage Amount
is $100,000.
MINIMUM INITIAL PREMIUM The minimum premium required to
issue a Policy. It is equal to
two times the Minimum Monthly
Premium, or if the Guaranteed
</TABLE>
2
<PAGE> 13
<TABLE>
<S> <C>
Death Benefit Rider applies to the
Policy, two times the Monthly
Guarantee Premium.
MINIMUM MONTHLY PREMIUM The monthly premium which, if
paid, will guarantee that the
Policy will stay in force during
the first five Policy Years. 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
Ages, sexes and Rate Classes of
the two Insureds. This premium is
stated in the Policy, and will be
restated upon changes in coverage.
MONTHLY ADMINISTRATIVE CHARGE A charge included in the Monthly
Deduction, which is intended to
reimburse National Life for
ordinary administrative expenses
and distribution expenses.
MONTHLY DEDUCTION The amount deducted from the
Accumulated Value on each Monthly
Policy Date. It includes the
Variable Account Charge, the
Monthly Administrative Charge, the
Cost of Insurance Charge, and the
monthly cost of any benefits
provided by Riders.
MONTHLY GUARANTEE PREMIUM The monthly premium level which
will keep the Guaranteed Death
Benefit Rider in force. If the
Guaranteed Death Benefit Rider
applies only until the younger
Insured's Attained Age 81, then
the Monthly Guarantee Premium will
be less than if the Owner elects
to have the Guaranteed Death
Benefit Rider apply for the entire
lifetimes of the two Insureds. If
the Guaranteed Death Benefit Rider
applies to a Policy, the Monthly
Guarantee Premium will be stated
in the Policy.
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.
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
Expense 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.
</TABLE>
3
<PAGE> 14
<TABLE>
<S> <C>
PREMIUM EXPENSE CHARGE A charge deducted from each
premium payment which has two
parts: one to cover the cost of
state and local premium taxes, and
the federal DAC Tax, and the other
to cover distribution expenses
incurred in connection with the
Policies.
RATE CLASS The classification of an Insured
for cost of insurance purposes.
The Rate Classes are: preferred
nonsmoker; nonsmoker; preferred
smoker; smoker; substandard and
uninsurable.
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 10 Policy Years or 10 years
following an increase in Basic
Coverage. The Surrender Charge is
shown in the Policy and is
discussed in Appendix B to this
Prosepctus.
TARGET PREMIUM The premium used in the
determination of the amount of the
Premium Expense Charge. This
amount is shown in each Policy and
is discussed in Appendix B to this
Prospectus.
UNADJUSTED DEATH BENEFIT Under Option A, the greater of the
Face Amount or the applicable
percentage of the Accumulated
Value; under Option B, the greater
of the Face Amount plus the
Accumulated Value, or the
applicable percentage of the
Accumulated Value. 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.
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>
4
<PAGE> 15
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 at least one of
the Insureds is alive.
THE POLICY OFFERED
The Sentinel Estate Provider last survivor 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 which will provide a death benefit on
the death of the last to die of two named Insureds;
(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 deaths
of the two Insureds. It is not offered primarily as an investment. Life
insurance is not a short-term investment. Prospective Owners should consider
their need for survivorship 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 "last survivor" because it pays its Death Benefit on the death
of the last to die of two named Insureds. 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 Variable Account, and
the crediting of interest to the Fixed 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. During the first five Policy Years, the Policy
will not lapse, even if the Cash Surrender Value is insufficient to pay the
Monthly Deductions, so long as the Cumulative Minimum Monthly Premium has been
paid. In addition, if the optional Guaranteed Death Benefit Rider has been
purchased, the Policy will not lapse, either prior to the younger Insured's
Attained Age 81, or for the entire lifetimes of the two Insureds, as the Owner
elects, even if the Cash Surrender Value is insufficient to pay the Monthly
Deductions, so long as the Cumulative Guarantee Premium has been paid. The
Monthly Guarantee Premium, and therefore the Cumulative Guarantee Premium, will
be higher for Guaranteed Death Benefit Riders which apply for the entire
lifetimes of the two Insureds, than for such Riders which apply until the
younger Insured's Attained Age 81.
5
<PAGE> 16
A prospective Owner who already has life insurance coverage should
consider whether or not changing or adding to existing coverage would be
advantageous. It may not be advisable to purchase another policy as a
replacement for an existing policy.
THE VARIABLE ACCOUNT
The Variable Account is divided into Subaccounts, twenty two of which
are available under the Policy. The assets of each Subaccount are used to
purchase shares of a designated corresponding Portfolio that is part of one of
the following Funds: the Market Street Fund, the American Century Variable
Portfolios, Inc., the Variable Insurance Products Fund, the Variable Insurance
Products Fund II, the Goldman Sachs Variable Insurance Trust, the J.P. Morgan
Series Trust II, the Neuberger & Berman Advisers Management Trust, the Strong
Variable Insurance Funds, Inc., and the Strong Opportunity Fund II. 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
Variable Account.
AVAILABILITY OF POLICY
This Policy can be issued for Insureds from Issue Ages 0 to 90, as
long as the Joint Age is 15 to 90. The minimum amount of Basic Coverage for a
Policy is $100,000. Before issuing a Policy, National Life will require that
the proposed Insureds meet certain underwriting standards satisfactory to
National Life. The Rate Classes available are Preferred Nonsmoker, Nonsmoker,
Preferred Smoker, Smoker, Substandard and Uninsurable. An Insured may be
assigned to an Uninsurable Rate Class where he or she would not be insurable
for single life coverage. (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 both
of the two Insureds. 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 (other than the Additional
Protection Benefit Rider, the benefit from which is included in the Face Amount
of the Policy), 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 ___.)
There are two types of coverage available under the Policy - Basic
Coverage and Additional Coverage. (See "Death Benefit", 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 Charge," Page ___.)
To the extent that a requested decrease in Face Amount would result in
cumulative premiums exceeding the maximum premium limitations applicable under
the Code for life insurance, National Life will not effect the decrease.
6
<PAGE> 17
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 Variable
Account and the Fixed Account. (See "Calculation of Accumulated Value," Page
___.)
The Accumulated Value in the Variable Account will reflect the
investment performance of the chosen Subaccounts of the Variable 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 Variable Account. There is no guaranteed minimum for
the portion of the Accumulated Value in the Variable Account. Accumulated
Value in the Variable Account may be greater or less than the Net Premiums
allocated to the Variable Account.
The Fixed 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.
The value of the Fixed 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 Fixed Account," Page ___.)
The Collateral portion of the Accumulated Value in the Fixed Account
will reflect any amounts transferred from the Variable Account and/or
non-loaned portion of the Fixed 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 the Monthly Deduction.
ALLOCATION OF NET PREMIUMS
Except as described below, Net Premiums will generally be allocated to
the Subaccounts of the Variable Account and the Fixed 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. Owners
of Policies may choose among all twenty-two available Subaccounts of the
Variable Account; however, National Life reserves the right to limit the number
of different Subaccounts used in any Policy over its entire life to 17.
Any portion of the initial Net Premium and any Net Premiums received
during the free-look period that are designated to be allocated to the
Variable 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 Variable Account premium allocation percentages. For
this purpose, National Life will assume that the free-look period ends 20 days
after the date the Policy is issued. (See "Allocation of Net Premiums," Page
___.)
TRANSFERS
The Owner may make transfers of the amounts in the Subaccounts of the
Variable Account and Fixed Account between and among such accounts. Transfers
between the Subaccounts of the Variable Account or into the Fixed Account will
be made on the Valuation Day National Life receives the request. Transfers out
of the Fixed Account are limited to the greater of $1000 and 25% of Accumulated
Value in the Fixed Account, and to one transfer per Policy Year. Currently
transfers may be made without charge
7
<PAGE> 18
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 twelve 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 10 days after the
Owner receives the Policy, or at the end of such 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
<TABLE>
<S> <C>
Summary of Policy Expenses
Transaction Expenses
Premium Expense Charge (as a
percentage of premiums paid) . . . . . . . . . . . . 3.40%, plus: for Policy
Years 1 to 10: 7% up to Target Premium,
4% for premiums in excess of Target
Premium
After Policy Year 10: 4%(1)
Surrender Charge . . . . . . . . . . . . . . . . . . See below
Withdrawal Charge . . . . . . . . . . . . . . . . . Lesser of 2% or $25
</TABLE>
- ----------------------
(1)National Life reserves the right to raise the Premium Expense Charge as a
percentage of premiums paid in excess of the Target Premium to 3.40%, plus 5%.
National Life also reserves the right after Policy Year 10 to charge a Premium
Expense Charge of up to the maximum permitted during the first 10 Policy Years.
<TABLE>
<S> <C>
MONTHLY DEDUCTIONS
Accumulated Value Charge Policy Years 1-10: . . . . Basic Coverage less than $1 million: annual rate
. . . . . . . . . . . . . . . . . . . . . . . . . . of 0.90%(2)
Basic Coverage of $1 million to $2,999,999: annual
rate of .80%(2)
Basic Coverage $3 million and over: annual
rate of 0.75%(2)
After Policy Year 10: Basic Coverage less than $1 million: 0.35%(3)
Basic Coverage of $1 million to $2,999,999: 0.30%(3)
Basic Coverage $3 million and over: 0.25%(3)
Cost of Insurance Charge Varies by Issue Age, sexes, Rate Class, duration of the
Policy-See below
Administrative Charge Policy Years 1 to 10: $15 plus $0.08(4) per $1000 of
Basic Coverage per month(5)
After Policy Year 10: $7.50 per month(6)
Rider Charges . . . . . . . . . . . . . . . . . . . See "Optional Benefits" on page for charges
applicable to optional Riders elected for a Policy
</TABLE>
- ----------------------
8
<PAGE> 19
(2)The charge shown is the annual equivalent of the monthly charge. The
Variable Account Charge applies to Accumulated Value held in the Variable
Account. This charge does not apply to amounts held in the Fixed Account.
(3)This reduction is not guaranteed, except as required by the state of issue.
(4)This rate is lower for Joint Ages 38 and below.
(5)This charge is increased by $.005 per $1000 of Basic Coverage per month for
each Insured who is a smoker.
(6)National Life reserves the right to increase the Monthly Administrative
Charge for Policy years after Policy Year 10 up to an amount not to exceed $15
plus $0.08 per $1000 of Basic Coverage, plus $0.005 per $1000 of Basic Coverage
per month for each smoker. In addition, the $0.08 per $1000 of Basic Coverage
portion of the Monthly Administrative Charge will apply to increases in Basic
Coverage for 10 years after an increase in Basic Coverage.
Annual Charges of Underlying Funds (for the year ended
December 31, 1997):
<TABLE>
<CAPTION>
Management Other Total
Fee, after expense Expenses, Expenses,
reimbursement after expense after expense
reimbursement reimbursement
<S> <C> <C> <C>
Market Street Fund, Inc.:
Money Market Portfolio .25% .14% .39%
Bond Portfolio .35% .22% .57%
Managed Portfolio .40% .18% .58%
Aggressive Growth Portfolio .45% .18% .63%
International Portfolio .75% .27% 1.02%
Growth Portfolio .33% .10% .43%
Sentinel Growth Portfolio .50% .40% .90%
American Century Variable Portfolios, Inc.
VP Value Portfolio 1.00% 0 1.00%
VP Income & Growth Portfolio .70% 0 .70%
Fidelity: Variable Insurance Products Fund I:
Growth Portfolio .60% .07% .67%
High Income Portfolio .59% .12% .71%
Fidelity: Variable Insurance Products Fund II:
Index 500 Portfolio .24% .04% .28%
Contrafund Portfolio .60% .08% .68%
Goldman Sachs Variable Insurance Trust
International Equity 1.00% .25% 1.25%
Global Income .90% .15% 1.05%
CORE Small Cap Equity .75% .15% .90%
Mid Cap Equity .80% .15% .95%
J.P. Morgan Series Trust II
International Opportunities Portfolio .60% .60% 1.20%
Small Company Portfolio .60% .55% 1.15%
</TABLE>
9
<PAGE> 20
<TABLE>
<S> <C> <C> <C>
Neuberger & Berman Advisers Management Trust
Partners Portfolio .86% 0 .86%
Strong Variable Insurance Funds, Inc.
Growth Fund II 1.00% .20% 1.20%
Strong Opportunity Fund II 1.00% .15% 1.15%
</TABLE>
National Life has agreed to reimburse a portion of the expenses of the
Sentinel Growth Portfolio. Without this reimbursement, the Sentinel Growth
Portfolio's management fee, other expenses and total expenses would have been
%, % and % respectively.
Fidelity Investments agreed to reimburse a portion of Index 500
Portfolio's expenses during the period. Without this reimbursement, the fund's
management fee, other expenses and total expenses would have been %,
% and % respectively.
Strong Capital Management, Inc. has agreed to reimburse a portion of
the expenses of the Growth Fund II Portfolio. Without this reimbursement the
management fee, other expenses and total expenses of the Growth Fund II
Portfolio would have been . %, . % and . % respectively.
Premium Expense Charge. A Premium Expense Charge will be deducted
from each premium payment, which includes a charge in the amount of 3.40% of
each premium, to cover the cost of state and local premium taxes, and the
federal DAC Tax. National Life reserves the right to change the amount of the
charge deducted from future premiums if the applicable law is changed. (See
"Premium Expense Charge," Page ___.)
The Premium Expense Charge will also include, during the first 10
Policy Years, a deduction of 7.0% of each premium paid up to the Target
Premium, and 4.0% of premiums paid in excess of the Target Premium, from each
premium payment prior to allocation of Net Premiums, to compensate National
Life for the expenses incurred in distributing the Policies, including
commissions to selling agents. National Life reserves the right to increase
the charge for premiums in excess of the Target Premium from 4.0% to 5.0% of
such premiums. National Life currently intends to reduce this deduction from
premiums paid after the tenth Policy Anniversary to 4.0% of all premiums,
although it reserves the right to make a deduction of up to the maximum
permitted during the first ten Policy Years.
Surrender Charge. A Surrender Charge is imposed if the Policy is
surrendered or lapses at any time before the end of the tenth Policy Year, or
the ten years after an increase in the Basic Coverage. The initial Surrender
Charge varies by Joint Age and is shown in Appendix B of this Prospectus.
The Surrender Charge will be level for up to five Policy Years, and then
decline each month by one sixtieth of the initial Surrender Charge until it is
zero at the beginning of Policy Year 11 (or if the level Surrender Charge
period ends earlier than the end of Policy Year 5, declining each month by an
amount equal to the initial Surrender Charge multiplied by a fraction of which
the numerator is one and the denominator is the number of months from the end
of the level Surrender Charge period to the beginning of Policy Year 11). For
increases in Basic Coverage, the Surrender Charge will be determined in a like
fashion and will decline each month by one sixtieth of the initial Surrender
Charge following the five-year level period until it is zero at the beginning
of the eleventh year after the date of the increase (or if the level Surrender
Charge period ends earlier than the fifth anniversary of the increase,
declining each month by an amount equal to the initial Surrender Charge
multiplied by a fraction of which the numerator is one and the denominator is
the number of months from the end of the level Surrender Charge period to the
beginning of the eleventh year after the effective date of the increase). The
Surrender Charge will not decrease in the event of a decrease in Basic
Coverage. (See "Surrender Charge," Page .)
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<PAGE> 21
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 .)
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, Variable Account
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 Ages, sexes, and Rate Classes of the Insureds, the
Duration of the coverage, whether the coverage is Basic Coverage or Additional
Coverage, 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 Insureds' Issue Ages,
sexes, substandard or uninsurable status, the coverage's Duration, whether the
coverage is Basic Coverage or Additional Coverage, and the "1980 Commissioners
Standard Ordinary Mortality Table." (See "Cost of Insurance Charge," Page
___.).
The Variable Account Charge varies by the amount of Basic Coverage in
the Policy. It is a percentage of the Accumulated Value in the Variable
Account, and does not apply to Accumulated Value in the Fixed Account. During
the first 10 Policy Years, for Policies with Basic Coverage less than
$1,000,000, the current annual charge is 0.90%; for Policies with Basic
Coverage from $1,000,000 to $2,999,999, the current annual charge is 0.80%, and
for Policies with Basic Coverage of $3 million or more, the current annual
charge is 0.75%. In all cases, National Life reserves the right to increase
this charge to an amount not to exceed 0.90%. After Policy Year 10, National
Life currently intends to reduce this charge to the following rates: for
Policies with Basic Coverage of less than $1 million, an annual charge of
0.35%; for Policies with Basic Coverage from $1,000,000 to $2,999,999, an
annual charge of 0.30%, and for Policies with Basic Coverage of $3 million or
more, an annual charge of 0.25%. However, National Life reserves the right to
continue to charge a Variable Account Charge in an annual amount up to 0.90%
after Policy Year 10. (See "Variable Account Charge, page ).
The Monthly Administrative Charge during the first 10 Policy Years is
$15.00 plus $0.08 per $1000 of Basic Coverage. This charge is increased during
the first ten Policy Years by $0.005 per $1000 of Basic Coverage for each
Insured who is a smoker, and is reduced if the Joint Age of the Insureds is 38
or less. After the end of Policy Year 10, National Life currently intends to
assess a reduced Monthly Administrative Charge of $7.50, with no additional
amount per $1000 of Basic Coverage, but National Life reserves the right to
increase the Monthly Administrative Charge after Policy Year 10 to an amount
not to exceed $15 plus $0.08 per $1000 of Basic Coverage, plus $0.005 for each
smoker. The $0.08 per $1000 of Basic Coverage portion of the Monthly
Administrative Charge will also apply to the increase in Basic Coverage for 10
years after an increase in Basic Coverage. (See "Monthly Administrative
Charge," 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 twelve transfers in any one Policy Year. (See "Transfer
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 Variable
Account at net asset value, which reflects management fees and expenses
deducted from the assets of the Portfolios. These management fees and expenses
are shown above under "Annual Charges of Underlying Funds".
11
<PAGE> 22
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 Cumulative Minimum Monthly Premium
have been paid, regardless of the amount of Cash Surrender Value. If, however,
total premiums paid are less than the Cumulative Minimum Monthly 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, either prior to the end of the year
that the younger Insured attains Age 80, or for the entire lifetimes of the two
Insureds, as the Owner elects, regardless of investment performance, if total
premiums paid are at least equal to the Cumulative Guarantee Premium. (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. At the end of the Policy Year, the
loan interest will be added to the outstanding loan balance. Any payments made
by the Owner to cover loan interest will be applied to the repayment of 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
Fixed Account as Collateral for the Policy loan. Accumulated Value is taken
from the Subaccounts of the Variable 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 Variable 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 Fixed Account as Collateral for a loan only to the extent that
the Accumulated Value in the Variable Account is insufficient. This amount
held in the Fixed 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%. National Life currently intends, but is not
obligated to continue, to make preferred loans available beginning in Policy
Year 11. At such time, the interest rate charged on all loans will be 4.25%,
and the amount held in the Fixed Account as Collateral will be credited with
interest at an annual rate of 4.0%. (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, and the
12
<PAGE> 23
maximum is the Cash Surrender Value minus three Monthly Deductions. The
Withdrawal amount will be taken from the Subaccounts of the Variable 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 Variable
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 Fixed Account only to the extent that the Accumulated
Value in the Variable 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 ___.)
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 "Available Automated
Fund Management Features," Page ___.)
OPTIONAL BENEFITS
Several optional benefits are available in connection with the
Policies, including the Guaranteed Death Benefit Rider, the Additional
Protection Benefit Rider, the Policy Split Option, the Estate Preservation
Rider, the Term Rider, the Continuing Coverage Rider, the Enhanced Death
Benefit Rider and the Automatic Increase Rider. (See "Optional Benefits", page
.)
TAX TREATMENT
Under current federal tax law, life insurance contracts receive
tax-favored treatment. Assuming that a Policy qualifies as a life insurance
contract for federal income tax purposes, an Owner should not be taxed on any
increase in Cash Surrender Value while the Policy remains in force. 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
certain 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
13
<PAGE> 24
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 ___.)
Generally, the proceeds of the Policy are includible in the gross
estate of the Insured if the Insured posses any "incidents of ownership" over
the Policy at death. "Incidents of ownership" generally includes the right to
receive economic benefits of the Policy as defined in Section 2042 of the Code
and applicable Treasury regulations. If the Insured never held incidents of
ownership over the Policy, or irrevocably transferred all interests in the
Policy to a third party (e.g., an irrevocable life insurance trust) more than
three years before death, the proceeds should be excluded from the Insured's
gross estate.
ILLUSTRATIONS OF DEATH BENEFITS, ACCUMULATED VALUE AND CASH SURRENDER VALUE
Illustrations of how investment performance of the Variable 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 VARIABLE ACCOUNT,
AND THE FUNDS.
NATIONAL LIFE INSURANCE COMPANY
National Life, a mutual life insurance company chartered in 1848 under
Vermont law, is authorized to transact life insurance and annuity business in
Vermont and in 50 other jurisdictions. National Life assumes all insurance
risks under the Policy and its assets support the Policy's benefits. On
December 31, 1997, National Life's consolidated assets were over $8 billion.
(See "Financial Statements," Page F-1.)
THE VARIABLE ACCOUNT
The Variable 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, other variable life insurance policies National
Life currently issues, and other variable life insurance policies National Life
may issue in the future. Owners of Policies may choose among all the
Subaccounts of the Variable Account available under the Policies; however,
National Life reserves the right to limit the number of different Subaccounts
used in any Policy over its entire life to 17.
The Variable Account's assets are the property of National Life. Each
Policy provides that the portion of the Variable Account's assets equal to the
reserves and other liabilities under the Policies (and other policies)
supported by the Variable Account will not be chargeable with liabilities
arising out of any other business that National Life may conduct. The portion
of the Variable Account's assets equal to the reserves and other liabilities
under the Policies may, however, be chargeable with liabilities arising from
other subaccounts of the Variable Account that fund other variable life
insurance policies. In addition to the net assets and other liabilities for
the Policies (and other policies), the Variable Account's net assets
14
<PAGE> 25
include amounts derived from expenses charged to the Policies (and the other
policies) by National Life which it currently holds in the Variable Account,
and may in the future include amounts held to support other variable life
insurance policies issued by National Life. From time to time these additional
amounts will be transferred in cash by National Life to its Fixed Account.
The Variable 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 Variable Account by the SEC. The Variable Account meets the definition
of a "separate account" under federal securities laws.
THE MARKET STREET FUND
The Growth, Sentinel Growth, Aggressive Growth, Bond, Managed,
International, and Money Market Subaccounts of the Variable 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 seven "series" or
classes of shares, each of which represents an interest in a separate portfolio
within the Fund, and which are purchased and redeemed by the corresponding
Subaccounts of the Variable Account: the Growth 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 Variable Account are set forth below. The
investment experience of each of the Subaccounts of the Variable Account
depends on the investment performance of the corresponding Portfolio. There is
no assurance that any Portfolio will achieve its stated objective.
The Growth Portfolio. The Growth Portfolio seeks intermediate and
long-term growth of capital. A reasonable level of income is an important
secondary objective. This Portfolio pursues its objectives by investing
primarily in common stocks of companies believed to offer above-average growth
potential over both the intermediate and the long term.
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.
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.
15
<PAGE> 26
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 Growth, 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. 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. PIMC has employed The Boston Company Asset Management, Inc. to
provide investment advisory services in connection with the Portfolio.
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.
AMERICAN CENTURY VARIABLE PORTFOLIOS, INC.
The Variable Account has one Subaccount which invests exclusively in
shares of the VP Value fund, and one Subaccount which invests exclusively in
shares of VP Income & Growth fund, each of which are series of American Century
Variable Portfolios, Inc. American Century Variable Portfolios, Inc. 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 fund of American Century Variable
Portfolios, Inc..
The American Century VP Value Subaccount and the American Century VP
Income & Growth Subaccount of the Variable Account invest in shares of the VP
Value fund and the VP Income & Growth fund, respectively, of the American
Century Variable Portfolios, Inc.. Shares of these Funds are purchased and
redeemed by the Variable Account at net asset value without a sales charge.
The investment objectives of the Funds of American Century Variable
Portfolios, Inc. in which the Subaccounts invest are set forth below. The
investment experience of each Subaccount depends upon the investment
performance of the underlying Fund. There is no assurance that either Fund
will achieve its stated objective.
VP Value. To seek long-term capital growth. Income is a secondary
objective. The fund will seek to achieve its investment objective by investing
in securities that management believes to be undervalued at the time of
purchase.
VP Income & Growth. To seek dividend growth, current income and
capital appreciation. The fund will seek to achieve its investment objective
by investing in common stocks.
The VP Value fund and the VP Income & Growth fund of the American
Century Variable Portfolios, Inc. are managed by American Century Investment
Management, Inc. A full description of these Funds, their investment
objectives and policies, and the risks, expenses and all other aspects of their
operation is contained in the attached Prospectuses for VP Value and VP Income
& Growth.
VARIABLE INSURANCE PRODUCTS FUND AND VARIABLE INSURANCE PRODUCTS FUND II
The Variable Account has two Subaccounts which invest exclusively in
shares of Portfolios of the Variable Insurance Products Fund (the "VIP Fund")
and two Subaccounts which invest exclusively in
16
<PAGE> 27
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 Growth Subaccount and Fidelity High Income Subaccount of
the Variable Account invest in shares of the Growth Portfolio and the High
Income Portfolio, respectively, of the VIP Fund. The Fidelity Index 500
Subaccount and the Fidelity Contrafund Subaccount of the Variable 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 Variable Account at net asset value without a sales charge.
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.
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.
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, 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 Growth and High Income Portfolios of the VIP Fund and the Index 500 and
Contrafund Portfolios of the VIP Fund II are managed by Fidelity Management &
Research Company. A full description of the VIP Fund and 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 VIP Fund II.
GOLDMAN SACHS VARIABLE INSURANCE TRUST
The Variable Account has four Subaccounts which invest exclusively in shares of
the following four Funds of Goldman Sachs Variable Insurance Trust: the
International Equity Fund, the Global Income Fund, the CORE Small Cap Equity
Fund and the Mid Cap Equity Fund. Goldman Sachs Variable Insurance Trust 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 Fund of Goldman Sachs Variable
Insurance Trust.
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<PAGE> 28
The Goldman Sachs International Equity Subaccount, the Goldman Sachs
Global Income Subaccount, the Goldman Sachs CORE Small Cap Equity Subaccount
and the Goldman Sachs Mid Cap Equity Subaccount invest in shares of the the
International Equity Fund, the Global Income Fund, the CORE Small Cap Equity
and the Mid Cap Equity Fund, respectively, of Goldman Sachs Variable Insurance
Trust. Shares of these Funds are purchased and redeemed by the Variable
Account at net asset value without a sales charge.
The investment objectives of the Funds of Goldman Sachs Variable
Insurance Trust which the Subaccounts invest are set forth below. The
investment experience of each Subaccount depends upon the investment
performance of the underlying Fund. There is no assurance that either Fund
will achieve its stated objective.
Goldman Sachs International Equity Fund. Seeks long-term capital
appreciation through investments in equity securities of companies that are
organized outside the U.S. or whose securities are principally traded outside
the U.S.
Goldman Sachs Global Income Fund. Seeks a high total return,
emphasizing current income and, to a lesser extent, providing opportunities for
capital appreciation. The Fund invests primarily in a portfolio of high
quality fixed-income securities of U.S. and foreign issuers and foreign
currencies.This Fund seeks capital appreciation through investments in a
diversified portfolio of equity securities.
Goldman Sachs Core Small Cap Equity Fund. Seeks long-term growth of
capital through a broadly diversified portfolio of equity securities of U.S.
issuers which are included in the Russell 2000 Index at the time of investment.
Goldman Sachs Mid Cap Equity Fund. Seeks long-term capital
appreciation primarily through investments in equity securities of companies
with public stock market capitalizations of between $500 million and $10
billion at the time of investment.
The International Equity and Global Income Funds are managed by
Goldman Sachs Asset Management International, and the Core Small Cap Equity and
Mid Cap Equity Funds are managed by Goldman Sachs Asset Management. A full
description of the International Equity Fund, the Global Income Fund, the CORE
Small Cap Equity Fund and the Mid Cap Equity Fund series of Goldman Sachs
Variable Insurance Trust. their investment objectives and policies, and the
risks, expenses and all other aspects of their operation is contained in the
attached Prospectuses for the Goldman Sachs Variable Insurance Trust.
J.P. MORGAN SERIES TRUST II
The Variable Account has one Subaccount which invests exclusively in
shares of the J.P. Morgan International Opportunities Portfolio, and one
Subaccount which invests exclusively in shares of J.P. Morgan Small Company
Portfolio, each of which are series of J.P. Morgan Series Trust II. J.P.
Morgan Series Fund II 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
J.P. Morgan Series Trust II.
The J.P. Morgan International Opportunities Subaccount and the J.P.
Morgan Small Company Subaccount of the Variable Account invest in shares of the
J.P. Morgan International Opportunities Portfolio and the J.P. Morgan Small
Company Portfolio, respectively, of the J.P. Morgan Series Trust II. Shares of
these Funds are purchased and redeemed by the Variable Account at net asset
value without a sales charge.
The investment objectives of the J.P. Morgan Series Trust II
Portfolios in which the Subaccounts invest are set forth below. The investment
experience of each Subaccount depends upon the investment
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<PAGE> 29
performance of the underlying Fund. There is no assurance that either Fund
will achieve its stated objective.
J.P. Morgan International Opportunities Portfolio. Seeks to provide a
high total return from a portfolio comprised of equity securities of foreign
corporations. The Portfolio is designed for investors with a long-term
investment horizon who want to diversify their investments by adding
international equities and take advantage of investment opportunities outside
the U.S. As an international investment, the Portfolio is subject to foreign
market, political, and currency risks.
J.P. Morgan Small Company Portfolio. Seeks to provide a high total
return from a portfolio comprised of equity securities of small companies. The
Portfolio invests at least 65% of the value of its total assets in the common
stock of small U.S. companies primarily with market capitalizations of less
than $1 billion. The Portfolio is designed for investors who are willing to
assume the somewhat higher risk of investing in small companies in order to
seek a higher return over time than might be expected from a portfolio of large
companies.
The J.P. Morgan International Opportunities Portfolio and the J.P.
Morgan Small Company Portfolio of the J.P. Morgan Series Trust II are managed
by J.P. Morgan Investment Management Inc. A full description of these Funds,
their investment objectives and policies, and the risks, expenses and all other
aspects of their operation is contained in the attached Prospectuses for the
J.P. Morgan International Opportunities Portfolio and the J.P. Morgan Small
Company Portfolio.
NEUBERGER & BERMAN ADVISERS MANAGEMENT TRUST
The Variable Account has one Subaccount which invests exclusively in
shares of the Partners Portfolio, a series of Neuberger & Berman Advisers
Management Trust. Neuberger & Berman Advisers Management Trust 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 Neuberger & Berman Advisers
Management Trust.
The Neuberger & Berman Partners Subaccount of the Variable Account
invests in shares of the Partners Portfolio of Neuberger & Berman Advisers
Management Trust. Shares of this Portfolio are purchased and redeemed by the
Variable Account at net asset value without a sales charge.
The investment objectives of the Partners Portfolio are set forth
below. The investment experience of each Subaccount depends upon the
investment performance of the underlying Fund. There is no assurance that the
Fund will achieve its stated objective.
Partners Portfolio. To seek capital growth. This Portfolio will seek
to achieve its objective by investing primarily in the common stock of
established companies. Its investment program seeks securities believed to be
undervalued based on fundamentals such as low price-to-earnings ratios,
consistent cash flows, and support from asset values. The objective of the
Partners Portfolio is not fundamental and can be changed by the Trustees of the
Neuberger & Berman Advisers Management Trust without shareholder approval.
Shareholders will, however, receive at least 30 days prior notice thereof.
The Partners Portfolio of Neuberger & Berman Advisers Management Trust
is managed by Neuberger & Berman Management Incorporated. A full description
of this Fund, its investment objectives and policies, and the risks, expenses
and all other aspects of its operation is contained in the attached Prospectus
for the Partners Portfolio of Neuberger & Berman Advisers Management Trust.
STRONG VARIABLE INSURANCE FUNDS, INC. AND STRONG OPPORTUNITY FUND II, INC.
The Variable Account has one Subaccount which invests exclusively in
shares of the Growth Fund II, a series of Strong Variable Insurance Funds,
Inc., and one Subaccount which invests exclusively in shares of Strong
Opportunity Fund II, Inc. Strong Variable Insurance Funds, Inc. is a "series"
type mutual fund
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<PAGE> 30
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 Fund of Strong Variable Insurance Funds, Inc., and Strong
Opportunity Fund II is a single series mutual fund also registered with the SEC
as a diversified open-end management investment company.
The Strong Growth Subaccount and the Strong Opportunity Subaccount of
the Variable Account invest in shares of the Growth Fund II series of the
Strong Variable Insurance Funds, Inc., and the Strong Opportunity Fund II,
respectively. Shares of these Funds are purchased and redeemed by the Variable
Account at net asset value without a sales charge.
The investment objectives of the Strong Funds in which the Subaccounts
invest are set forth below. The investment experience of each Subaccount
depends upon the investment performance of the underlying Fund. There is no
assurance that either Fund will achieve its stated objective.
Growth Fund II. This Fund seeks capital growth. It invests primarily
in equity securities that the advisor believes have above-average growth
prospects.
Strong Opportunity Fund II, Inc. This Fund seeks capital appreciation
through investments in a diversified portfolio of equity securities.
The Growth Fund II series of Strong Variable Insurance Funds, Inc.,
and Strong Opportunity Fund, Inc. are managed by Strong Capital Management,
Inc.
A full description of the Growth Fund II series of Strong Variable
Insurance Funds, Inc., and Strong Opportunity Fund, Inc. their investment
objectives and policies, and the risks, expenses and all other aspects of their
operation is contained in the attached Prospectuses for the Growth Fund II and
Strong Opportunity Fund II, Inc.
National Life has entered into or may enter into agreements with Funds
pursuant to which the advisor or distributor pays National Life a fee based
upon an annual percentage of the average net asset amount invested by National
Life on behalf of the Variable Account and other separate accounts of National
Life. These percentages may differ, and National Life may be paid a greater
percentage by some investment advisors or distributors than other advisors or
distributors. These agreements reflect administrative services provided by
National Life.
The participation agreements pursuant to which the Funds sell their
shares to Subaccounts of the Variable Account contain varying provisions
regarding termination. In general, each party may terminate at its option with
specified advance written notice, and may also terminate in the event of
specific regulatory or business developments.
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
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<PAGE> 31
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 Variable 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 Variable 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 investment objectives and policies of certain Portfolios are
similar to the investment objectives and policies of mutual fund portfolios
other than the Portfolios that may be managed by the investment adviser or
manager. The investment results of the Portfolios, however, may be higher or
lower than the results of such other portfolios. There can be no assurance,
and no representation is made, that the investment results of any of the Funds
will be comparable to the investment results of any other portfolio, even if
the other portfolio has the same investment adviser or manager.
THE FIXED ACCOUNT
For information on the Fixed Account, see page .
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 death of both of the Insureds (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. The Face
Amount of a Policy, on which the Unadjusted Death Benefit is based, may be
made up of either Basic Coverage or Additional Coverage. Additional
Coverage is provided by the Additional Protection Benefit Rider.
The Owner must notify National Life as soon as reasonably possible of
the death of each Insured. National Life may require proof of whether both
Insureds are living two years from the Date of Issue. On the death of the
first Insured to die National Life will require the Owner to provide it with
evidence of death and proof of age and, if the death is within two years from
the Date of Issue, the cause of death.
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 , multiplied by
the specified percentage shown in the table below:
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<PAGE> 32
<TABLE>
<CAPTION>
Attained Age Percentage Attained Age Percentage
------------ ---------- ------------ ----------
of Younger of Younger
---------- ----------
Insured Insured
------- -------
<S> <C> <C> <C>
40 and under 250% 75-90 105%
45 215% 91 104%
50 185% 92 103%
55 150% 93 102%
60 130% 94+ 101%
65 120%
70 115%
</TABLE>
For Attained Ages of the younger Insured 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 younger 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
have an Unadjusted Death Benefit of $200,000. Assuming the specified
percentage for a particular Policy for a particular Attained Age of the younger
Insured is 250%, then, 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, an Accumulated Value of $90,000 for this Policy
at this Attained Age for the younger Insured will result in an Unadjusted Death
Benefit of $225,000 (2.50 x $90,000), and an Accumulated Value of $150,000 will
result in 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 multiplied by the specified percentage shown in the table
above.
Illustration of Option B -- For purposes of this illustration, assume
that the younger 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 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 Accumulated
Value of $150,000 will result in 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 100 of the younger of the two Insureds (even if the
younger of the two Insureds is not then living), Option B automatically becomes
Option A.
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<PAGE> 33
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 Insureds' existing insurance
coverages 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 Basic Coverage to less than
the Minimum Basic Coverage 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. The decrease will apply to Basic
Coverage and Additional Coverage in the order described under "Ability to
Adjust Face Amount - Decreases" on page . 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. The $50,000 increase in Face Amount will be Basic Coverage.
If a change in the Death Benefit Option would result in cumulative
premiums exceeding the maximum premium limitations under the 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.
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<PAGE> 34
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. An increase or decrease 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 $50,000, or such lesser amount required in a particular state.
The Owner may not increase the Face Amount after the older of the two
Insureds' Attained Age 90 or if the Joint Age is greater than 90. To obtain
the increase, the Owner must submit an application for the increase and
provide evidence satisfactory to National Life of both Insureds'
insurability. The increase may be either an addition of Basic Coverage or
Additional Coverage. An increase in Basic Coverage will result in increased
Surrender Charges. An increase in Basic Coverage will also begin a new ten
year period for purposes of applying the Monthly Administrative Charge to
the new amount of Basic Coverage. If an increase in Basic Coverage would
move the Policy into a new size band for purposes of the Variable Account
Charge, the Variable Account Charge percentage rate may be reduced as a
result of the increase. In the event that an increase simultaneously adds
both Basic Coverage and Additional Coverage, the Basic Coverage is assumed
to have been added first.
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, and the Surrender Charge associated with the increase, in the case
of an increase in Basic Coverage. 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 Insureds may be in different Rate Classes 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
Charge," Page ___.)
After an increase, part of the Net Amount at Risk will be attributable
to the initial coverage under the Policy and part will be attributable to the
increase. For purposes of allocating Accumulated Value to each coverage to
determine the Net Amount at Risk and Cost of Insurance Charge by coverage
segment, the Accumulated Value is first considered part of the initial segment.
If the Accumulated Value exceeds the initial segment's Face Amount, then it is
allocated to increases in Face Amount in the order that such increases took
effect.
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
Basic Coverage after any decrease may not be less than the Minimum Basic
Coverage Amount, which is currently $100,000. 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 Code, National
Life will not effect the decrease.
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<PAGE> 35
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. If a decrease in Basic Coverage would move the Policy into a new
size band for purposes of the Variable Account Charge, the Variable Account
Charge percentage rate may be increased as a result of the decrease.
For purposes of determining the Monthly Deductions, 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. If an increase involved the simultaneous addition of Basic
Coverage, Additional Coverage and Face Amount added through the operation of
the Automatic Increase Rider, a decrease in the Face Amount will reduce
automatic increase first, the Additional Coverage second, and then the Basic
Coverage.
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 Cumulative Minimum Monthly 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 a time specified
in such Rider, regardless of investment performance, if the Cumulative
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
Variable Account and the Fixed 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
Variable 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 Variable
Account, the crediting of interest on non-loaned Accumulated Value in the Fixed
Account and amounts held as Collateral in the Fixed Account, any transfers, any
Withdrawals, any loans, any loan repayments, and charges assessed in
connection with the Policy.
Determination of Number of Units for the Variable Account. Amounts
allocated, transferred or added to a Subaccount of the Variable 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.
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<PAGE> 36
Net Investment Factor. Each Subaccount of the Variable Account has
its own Net Investment Factor. The Net Investment Factor measures the daily
investment performance of 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.
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:
(1) The aggregate of the values attributable to the Policy in the
Variable Account, determined by multiplying the number of
units the Policy has in each Subaccount of the Variable
Account by such Subaccount's unit value on that date; plus
(2) The value attributable to the Policy in the Fixed Account (See
"The Fixed 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. Prior to the Issue Date, National
Life will accept amounts less than the Minimum Initial Premium as long as
they are at least equal to the Minimum Monthly Premium. If the amount paid
by the Issue Date is not at least the Minimum Initial Premium, then all
premiums paid will be refunded, and the Policy will not be issued. If the
first premium is submitted when the Policy is delivered, and the premium is
less than the Minimum Initial Premium, the balance of the Minimum Initial
Premium must be received within five days, or all premiums will be refunded.
The minimum amount of Basic Coverage of a Policy under National Life's rules
is $100,000.
National Life reserves the right to revise its rules from time to time
to specify a different minimum amount of Basic Coverage for subsequently
issued Policies. A Policy will be issued only on two Insureds each of whom
has an Issue Age from 0 to 90 and whose Joint Age is from 15 to 90, 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 "Cost of Insurance Rate", Page , and "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 survivorship insurance protection,
pending issuance of the Policy, by answering "no" with respect to both
Insureds 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 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 that the younger of the two proposed Insureds is 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.
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National Life will offer a one time credit to Home Office employees
who purchase a Policy, as both Owner and one of the two Insureds. This one
time credit will be 50% of the Target Premium on the Policy. The amount of the
credit will be added to the initial premium payment submitted by the Owner.
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.
Amount and Timing of Premiums. Each premium payment must be at least
$100. 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 or group billing payments of
less than $100. 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 $100 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 Cumulative Minimum
Monthly 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 and premiums equal to or greater than the Cumulative
Guarantee Premium have been paid). Instead, the duration of the Policy
depends upon the Policy's Cash Surrender Value. 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, so
long as the Cumulative Minimum Monthly Premium, or the Cumulative Guarantee
Premium, respectively, 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 younger of the Insureds reaches
Attained Age 100. However, loan repayments will be permitted after the younger
of the Insureds Attained Age 100.
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
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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
Code provides for exclusion of the 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 generally 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 Insureds provide 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. However, premiums will not be limited to the extent that
they are Planned Periodic Premiums.
Allocation of Net Premiums. The Net Premium equals the premium paid
less the Premium Expense Charge. In the application for the Policy, the
Owner will indicate how Net Premiums should be allocated among the
Subaccounts of the Variable Account and/or the Fixed Account. These
allocations may be changed at any time by the Owner by written notice to
National Life at its Home Office, or if the telephone transaction privilege
has been elected, by telephone instructions (See "Telephone Transaction
Privilege," Page ___.) The percentages of each Net Premium that may be
allocated to any Subaccount must be in whole numbers of not less than 5%,
and the sum of the allocation percentages must be 100%. 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 the end of the free-look period which are
to be allocated to the Variable Account will be allocated to the Money
Market Subaccount. For this purpose, National Life will assume that the
free-look period will end 20 days after the date the Policy is issued. On
the first Valuation Date following 20 days after issue of the Policy,
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 Variable 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 Fixed 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.
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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 Variable Account and the Fixed 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 Variable Account and the Fixed 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 Variable Account to another Subaccount and/or to the Fixed
Account. (For transfers from the Fixed Account to the Variable Account, see
"Transfers from Fixed 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 twelfth 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 operation of the dollar cost
averaging or portfolio rebalancing features, 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 twelve 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 Cumulative Minimum
Monthly Premium has been paid, regardless of whether the Cash Surrender Value is
sufficient to cover the monthly Deductions and other charges. In addition, if
the Owner has elected at issue the Guaranteed Death Benefit Rider, and has paid
the Cumulative Guarantee Premium as of each Monthly Policy Date, the Policy will
not lapse, either prior to the end of the year that the younger Insured attains
Age 80 or for the entire lifetimes of the two Insureds, whichever is elected by
the Owner, regardless of whether the Cash Surrender Value is sufficient to cover
the Monthly Deductions. (See "Optional Benefits - Guaranteed Death Benefit,"
Page ___.)
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 both
Insureds' 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.
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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 ___.)
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) issuing and 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 printing
prospectuses and sales literature and sales compensation. National Life may
realize a profit from any charges. Any such profit may be used for any
purpose, including payment of distribution expenses.
PREMIUM EXPENSE CHARGE
The Premium Expense Charge consists of two portions. The first is
that a deduction of 3.40% 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.
The federal DAC Tax is a tax attributable to certain "policy
acquisition expenses" under Section 848 of the Code. 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.
The Premium Expense Charge will also include, during the first 10
Policy Years, a deduction of 7.0% of the premium up to the Target Premium, and
4.0% of premium in excess of the Target Premium, from each premium payment prior
to allocation of Net Premiums, to compensate National Life for the expenses
incurred in distributing the Policies, including commissions to selling agents.
National Life reserves the right to increase the the charge for premiums in
excess of the Target Premium from 4.0% to 5.0% of such premiums. National Life
currently intends to reduce this deduction from premiums paid after the tenth
Policy Anniversary to 4.0% of all premiums, although it reserves the right to
make a deduction of up to the maximum permitted during the first ten years.
SURRENDER CHARGE
A Surrender Charge is imposed if the Policy is surrendered or lapses
at any time before the end of the tenth Policy Year, or the ten years after an
increase in the Basic Coverage. The Surrender Charge rate depends on the Joint
Age at issue or at the time of increase in Basic Coverage. The initial
Surrender Charge per $1,000 of Basic Coverage is shown in Appendix B to this
Prospectus. The Surrender Charge will be level for up to five years, and then
decline each month by one sixtieth of the initial Surrender Charge until it is
zero at the beginning of Policy Year 11, or at the beginning of the eleventh
year after the date of an increase in Basic Coverage (or, for those cases in
which the level Surrender Charge period is
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less than five years from the Date of Issue or the effective date of the
increase, declining each month by an amount equal to the initial Surrender
Charge multiplied by a fraction of which the numerator is one and the
denominator is the number of months from the end of the level Surrender Charge
period to the beginning of Policy Year 11, or the beginning of the eleventh
year from the effective date of the increase). The Surrender Charge will not
decrease in the event of a decrease in Basic Coverage. The actual Surrender
Charge for your Policy will be stated in the Policy.
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 four
components - (a) the Cost of Insurance Charge, (b) the Variable Account Charge,
(c) the Monthly Administrative Charge, and (d) 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 Variable Account and the Fixed 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 Variable Account and the Fixed 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%. 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.
If the Policy includes Basic Coverage, Additional Coverage and
coverage added through the operation of the Automatic Increase Rider, the Net
Amount at Risk is separated into portions applicable to each type of coverage.
For this purpose, Accumulated Value is applied against Basic Coverage first,
Additional Coverage second and automatic increase third if they began
simultaneously. Any change in the Net Amount at Risk will affect the total
Cost of Insurance Charges paid by the Owner.
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, a rate based on the Rate Classes of the two Insureds on the
Date of Issue is applied to the Net Amount at Risk for the Initial Face Amount.
For each increase in Face Amount, a rate based on the Rate Classes of the two
Insureds applicable at the time of the increase is used. If, however, the
Unadjusted Death Benefit is calculated as the Accumulated Value times the
specified percentage, the rate based on the Rate Classes for the Initial Face
Amount will be used for the amount of the Unadjusted Death Benefit in excess of
the total Face Amount. Again, if any time segment includes both Basic Coverage
and Additional Coverage, separate cost of insurance rates are applied to each
type of coverage.
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Cost of Insurance Rate. The guaranteed maximum cost of insurance
rates are set forth in the Policy, and will depend on each Insured's Issue Age,
sex, substandard or uninsurable status, the coverage's Duration, and the 1980
Commissioners Standard Ordinary Mortality Table. Guaranteed maximum cost of
insurance rates will also vary depending on whether the coverage is Basic
Coverage or Additional Coverage, with higher rates being applicable to
Additional Coverage. The actual cost of insurance rates used ("current rates")
will depend on each Insured's Issue Age, sex, and Rate Class, as well as the
coverage's Duration, and whether the coverage is Basic Coverage or Additional
Coverage (however, current rates applicable to Additional Coverage may be higher
or lower than for Basic Coverage). 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 sets of persons
of the same Issue Ages, sexes, and Rate Classes, and with coverages of the same
Duration.
Rate Class. The Rate Classes of the two Insureds will affect the
current cost of insurance rates. National Life currently places Insureds into
preferred nonsmoker, nonsmoker, preferred smoker, smoker, substandard, and
uninsurable classes. Smoker, substandard, and uninsurable classes reflect
higher mortality risks. In an otherwise identical Policy, Insureds in a
preferred or standard class will have a lower Cost of Insurance Charge than
Insureds 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. Classification of an Insured as substandard or
uninsurable will also affect the guaranteed cost of insurance rates.
Variable Account Charge. The Variable Account Charge varies by the
amount of Basic Coverage in the Policy. It is a percentage of the Accumulated
Value in the Variable Account, and does not apply to Accumulated Value in the
Fixed Account. During the first 10 Policy Years, for Policies with Basic
Coverage less than $1,000,000, the current annual charge is 0.90%; for Policies
with Basic Coverage from $1,000,000 to $2,999,999, the current annual charge is
0.80%, and for Policies with Basic Coverage of $3 million or more, the current
annual charge is 0.75%. In all cases, National Life reserves the right to
increase this charge to an amount not to exceed 0.90%. For years after Policy
Year 10, National Life currently intends to reduce this charge to the following
rates: for Polices with Basic Coverage of less than $1,000,000, an annual charge
of 0.35%; for Policies with Basic Coverage from $1,000,000 to $2,999,999, an
annual charge of 0.30%, and for Policies with Basic Coverage of $3 million or
more, an annual charge of 0.25%. However, National Life reserves the right to
continue to charge a Variable Account Charge in an annual amount up to 0.90% in
years after Policy Year 10.
Monthly Administrative Charge. The amount of the Monthly
Administrative Charge during the first ten Policy Years is $15.00, plus $0.08
per $1000 of Basic Coverage (less for Joint Ages of 38 or less). The per $1000
portion of this charge during the first ten Policy Years will be increased by
$.005 per $1000 of Basic Coverage for each Insured who is a smoker. National
Life classifies all nicotine users as smokers, including cigarette, cigar, pipe,
chewing tobacco, snuff, nicotine patches and nicotine gum.
After the first ten Policy Years, National Life currently intends to
charge a Monthly Administrative Charge in the amount of $7.50, with no
additional amount per $1000 of Basic Coverage, and during this period the
Monthly Administrative Charge is guaranteed not to exceed $15.00, plus $0.08 per
$1000 of Basic Coverage plus $0.005 per $1000 of Basic Coverage for each Insured
who is a smoker. In addition, the $0.08 per $1000 of Basic Coverage portion of
the Monthly Administrative Charge will apply to increases in Basic Coverage for
10 years after an increase in Basic Coverage.
Optional Benefit Charges. The Monthly Deduction will include charges
for any additional benefits added to the Policy. The monthly charges will be
specified in the applicable Rider. The available Riders are listed under
"Optional Benefits," on Page ___ below.
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<PAGE> 43
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 Variable Account to the Fixed Account, and transfers from the Fixed
Account to the Variable Account are permitted within the limits described on
Page ___, in each case without charge. National Life has no present intention
to impose a transfer charge in the foreseeable future. However, National Life
reserves the right to impose in the future a transfer charge of $25 on each
transfer in excess of twelve transfers in any 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 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
twelve 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 Variable Account and/or the Fixed Account in proportion to
their respective Accumulated Values on the date of the deduction.
OTHER CHARGES
The Variable Account purchases shares of the Funds at net asset value.
The net asset value of those shares reflect management fees and expenses
already deducted from the assets of the Funds' Portfolios. The fees and
expenses for the Funds and their Portfolios are described briefly in connection
with a general description of each Fund, and historical expense ratio
information for the Funds is presented in the "Summary of Policy Expenses"
section on page above. 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. However, for Policies which have elected the Guaranteed Death
Benefit Rider, if the Owner obtains a Policy loan in excess of the cumulative
premiums paid minus the Cumulative Guarantee Premium, then the Guaranteed Death
Benefit Rider will enter a lapse pending notification period. This means that
the Guaranteed Death Benefit Rider (but not the Policy itself) will lapse if a
sufficient premium is not paid within the 61-day lapse pending notification
period.
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While either 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
$25,000.
Interest Rate Charged. The interest rate charged on Policy loans will
be at the fixed rate of 6% per year. At the end of the Policy Year, the loan
interest will be added to the loan balance. Any payments made by the Owner to
cover loan interest will be used to reduce the amount of the Policy loan.
Allocation of Loans and Collateral. When a Policy loan is taken,
Accumulated Value is held in the Fixed Account as Collateral for the Policy
loan. Accumulated Value is taken from the Subaccounts of the Variable 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 Variable
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 Fixed Account will become Collateral for a loan only
to the extent that the Accumulated Value in the Variable Account is
insufficient. Loan interest will be allocated among and transferred first from
the Subaccounts of the Variable Account in proportion to the Accumulated Values
held in the Subaccounts, and then from the non-loaned portion of the Fixed
Account.
The Collateral for a Policy loan will initially be the loan amount.
Loan interest 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 Variable Account, and then, if the amounts in the Variable
Account are insufficient, from the non-loaned portion of the Fixed Account, and
hold the Collateral in the Fixed Account. At any time, the amount of the
outstanding loan under a Policy equals the sum of all loans (including 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 Fixed
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.
Preferred Policy Loans. National Life currently intends, but is not
obligated to continue, to make preferred Policy loans available at the
beginning of Policy Year 11. At such time the rate of interest charged on all
loans will be 4.25%, and amounts held as Collateral in the Fixed Account will
be credited with interest at an annual rate of 4.0%. 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 Fixed Account not held as
Collateral is less than or greater than the interest being credited on the
amounts held as Collateral in the Fixed 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 Variable Account and interest credited to the
Accumulated Value in the Fixed 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.
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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 Fixed Account will be reduced by an amount equal to the
repayment, and such amount will be transferred to the Subaccounts of the
Variable Account and to the non-loaned portion of the Fixed 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 last to die of the two Insureds,
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 last to die of the two Insureds
and 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. 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. However, for Policies which have elected
the Guaranteed Death Benefit Rider, if the Owner obtains a Withdrawal in excess
of the cumulative premiums paid minus the Cumulative Guarantee Premium, then
the Guaranteed Death Benefit Rider will enter a lapse pending notification
period. This means that the Guaranteed Death Benefit Rider (but not the Policy
itself) will lapse if a sufficient premium is not paid within the 61-day lapse
pending notification period.
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 Variable
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
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each Subaccount's value bears to the total Accumulated Value in the Variable
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 Fixed Account only to the extent that Accumulated Value in the
Variable 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 ___.)
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
younger Insured is under 40 and there is no indebtedness. The
applicable percentage is 250% for a younger 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.
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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.
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 reduce Face
Amount in the order described under "Ability to Adjust Face Amount - Decreases"
on page .
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 Charge," 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 ___.) 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 10 days after the Owner receives the
Policy (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 $25,000 by providing instructions to
National Life at its Home Office over the telephone. National Life reserves
the right to suspend telephone transaction
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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.
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 Variable Account to the Fixed 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 Variable Account is materially changed, the Owner
may transfer the portion of the Accumulated Value in such Subaccount to another
Subaccount or to the Fixed Account, without regard to any limits on transfers
or free transfers.
AVAILABLE AUTOMATED FUND MANAGEMENT FEATURES
National Life currently offers, at no charge to Owners, the following
automated fund management features. Only one of these two automated fund
management features may be operable at any time. 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. The dollar
cost averaging feature may not be used to transfer Accumulated Value to the
Fixed Account.
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
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the dollar cost averaging technique to be effective, amounts should be
available for allocation from the Money Market Subaccount through periods of
low price levels as well as higher price levels.
Portfolio Rebalancing. This feature permits an Owner to automatically
rebalance the value in the Subaccounts on a quarterly, semi-annual or annual
basis, based on the Owner's premium allocation percentages in effect at the
time of the rebalancing. It may be elected at issue by marking the appropriate
box on the initial application, or, after issue, by completing a change request
form and sending it to the Home Office.
In Policies utilizing Portfolio Rebalancing from the Date of Issue, an
automatic transfer will take place which causes the percentages of the current
values in each Subaccount to match the current premium allocation percentages,
starting with the Monthly Policy Date three, six or twelve months after the
Date of Issue, and then on each Monthly Policy Date three, six or twelve
months thereafter. Policies electing Portfolio Rebalancing after issue will
have the first automated transfer occur as of the Monthly Policy Date on or
next following the date that the election is received at the Home Office, and
subsequent rebalancing transfers will occur every three, six or twelve months
from such date. An Owner may discontinue Portfolio Rebalancing at any time by
submitting an appropriate change request form to the Home Office.
In the event that an Owner changes the Policy's premium allocation
percentages, Portfolio Rebalancing will automatically be discontinued unless
the Owner specifically directs otherwise.
Portfolio Rebalancing will result in periodic transfers out of
Subaccounts that have had relatively favorable investment performance in
relation to the other Subaccounts to which a Policy allocates premiums, and
into Subaccounts which have had relatively unfavorable investment performance
in relation to the other Subaccounts to which the Policy allocates premiums.
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 Fixed Account.
National Life credits interest on Net Premiums and Accumulated Value
allocated to the Fixed 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 Fixed Account supports its insurance and
annuity obligations. All assets in the Fixed Account are subject to National
Life's general liabilities from business operations.
The Fixed Account has not, and is not required to be, registered with
the SEC under the Securities Act of 1933, and the Fixed Account has not been
registered as an investment company under the Investment Company Act of 1940.
Therefore, the Fixed 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 in the Fixed 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 Fixed Account with current rates in
excess of the minimum guarantee but is not obligated to do so. These current
interest rates are influenced by, but do not necessarily correspond to,
prevailing general market interest rates. Since National Life, in its sole
discretion, anticipates changing the current interest rate from time to time,
allocations to the Fixed Account made at different times are likely to be
credited with different current interest rates. An interest rate will be
declared by National Life each month to apply to amounts allocated or
transferred to the Fixed Account in that month. The rate declared on such
amounts
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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 Fixed
Account on that date). Any interest credited on the amounts in the Fixed
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.
Amounts deducted from the non-loaned Accumulated Value in the Fixed
Account for Withdrawals, Policy loans, transfers to the Variable 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.
Calculation of Non-loaned Accumulated Value in the Fixed Account. The
non-loaned Accumulated Value in the Fixed 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
Fixed 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 FIXED ACCOUNT
One transfer in each Policy Year is allowed from the amount of
non-loaned Accumulated Value in the Fixed Account to any or all of the
Subaccounts of the Variable Account. The amount transferred from the Fixed
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 the younger
Insured's Attained Age 100 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
younger Insured reaches Attained Age 100, if the Face Amount is greater than
the Accumulated Value, the Face Amount will automatically be decreased to the
current Accumulated Value, and all Accumulated Value is transferred to the
Fixed Account. Also, at the younger Insured's Attained Age 100 Option B
automatically becomes Option A, and no premium payments are allowed after the
younger Insured's Attained Age 100, although loan repayments are allowed.
Monthly Deductions cease at the younger Insured's Attained Age 100. 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 lifetime of either of
the two Insureds, 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
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Beneficiary within seven days after National Life receives proof of the death
of both of the Insureds 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 death of both of the Insureds at its Home Office and all other
requirements are satisfied.
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
National Life receives due proof of the death of the last to die of the two
Insureds 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 Fixed 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 named in the application or thereafter
changed. While either of the two Insureds is living, the Owner is entitled to
exercise any of the rights stated in the Policy or otherwise granted by
National Life. If the Owner dies before the last to die of the two Insureds,
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 lifetime of either of
the two Insureds by written notice to National Life. The interest of any
Beneficiary who dies before the last to die of the two Insureds 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 Insureds are 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.
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For example, an employer and employee might agree that under a Policy
on the lives of the employee and his or her spouse, the employer will pay the
premiums and will have the right to receive the Cash Surrender Value. The
employee may designate the Beneficiary to receive any Death Benefit in excess
of the Cash Surrender Value. If the employee and his or her spouse both die
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 either of the two
Insureds 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 both of the Insureds
have died, National Life will adjust the Accumulated Value as of the last
Monthly Policy Date prior to the last to die of the Insureds' 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 that either Insured dies by 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 either Insured dies by 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 both Insured's lifetimes 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 both Insureds' lifetimes 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.
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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, or paid in the form required by the applicable state.
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, if the Insureds meet any applicable
underwriting requirements (election of any of these optional benefits may
involve an additional cost):
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GUARANTEED DEATH BENEFIT
If the Guaranteed Death Benefit Rider is elected, National Life will
guarantee that the Policy will not lapse, regardless of the Policy's investment
performance, either for the entire lifetimes of the Insureds, or until the end
of the year that the younger Insured attains Age 80, whichever is elected by the
Owner. In order to elect the guarantee period until the end of the year that
the younger Insured attains Age 80, the Issue Age of the younger Insured must
be 70 or less. Riders which guarantee that the Policy will not lapse prior to
the end of the year that the younger Insured attains Age 80 will have lower
Monthly Guarantee Premiums (and therefore lower Cumulative Guarantee Premiums)
than Riders which guarantee that the Policy will not lapse for the entire
lifetimes of the Insureds.
To keep this Rider in force, cumulative premiums paid must be greater
than the Cumulative 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 an
amount equal to the Cumulative Guarantee Premium from the Date of Issue, plus
two times the Monthly Guarantee Premium, minus the sum of all premiums
previously paid. The Rider will be cancelled if a sufficient premium is not
paid during that 61-day period. The Rider cannot be reinstated. The amount of
the Monthly Guarantee Premium for each Policy electing the Guaranteed Death
Benefit Rider will be stated in the Data section of the Policy.
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 if
at least 50% of the Face Amount consists of Basic Coverage.
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. For as long as Cash
Surrender Value is zero, failure to have paid the Cumulative Guarantee Premium
as of any Monthly Policy Date will cause the Guaranteed Death Benefit Rider to
enter a 61 day lapse pending notification period. If a sufficient premium, as
set forth above, is not paid during this period, the Rider will be cancelled
and if the Cash Surrender Value is still zero, the Policy will enter a Grace
Period, and will lapse if the Grace Period expires without a sufficient premium
payment (see "Payment and Allocation of Premiums - Policy Lapse", Page ).
If the Face Amount of a Policy subject to the Guaranteed Death Benefit
Rider is increased or the Death Benefit Option is changed from Option A to
Option B, the Rider's guarantee will extend to the increased Face Amount. This
will result in increased Monthly Guarantee Premiums.
For Policies with the Guaranteed Death Benefit Rider, Withdrawals and
Policy loans will be limited to the excess of premiums paid over the Cumulative
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.
ADDITIONAL PROTECTION BENEFIT
The Additional Protection Benefit Rider may be used to provide a
higher Face Amount by adding Additional Coverage to the Policy. This Rider is
available only at issue, or after issue only by submitting an application to
National Life with evidence satisfactory to National Life of insurability of
both Insureds. Additional Coverage must be in an amount of at least $50,000,
and cannot exceed three times the Basic Coverage.
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Adding to the Face Amount of the Policy through the Additional
Protection Benefit Rider can offer a cost savings over adding to the Face
Amount by increasing the Basic Coverage. Specifically, there is no Target
Premium, no Surrender Charge, and no per $1000 Monthly Administrative Charge
associated with Additional Coverage. The cost of the Rider is that a Cost of
Insurance Charge is included in the Monthly Deductions for the Additional
Coverage - the guaranteed cost of insurance rate applicable to the Additional
Coverage will generally be higher than the rate applicable to Basic Coverage,
but current cost of insurance rates may be either higher or lower for the
Additional Coverage than for the Basic Coverage.
POLICY SPLIT OPTION
If the Policy Split Option Rider is elected, the Owner will have the
right to split the Face Amount and Accumulated Value of a Policy into two
single life whole life insurance contracts on the lives of each of the two
Insureds, in the event of divorce or a material change in federal estate tax
law. The two single life contracts may be any traditional whole life
insurance, universal or variable life insurance contract then offered by
National Life. This Rider is available only at issue, only to Insureds legally
married to each other, only where both Insureds are not in a substandard Rate
Class with a rating in excess of 250% and not uninsurable, and only where
neither Insured is older than age 80. Exercise of the option to split the
Policy will be allowed without evidence of insurability, but only within 180
days of the date of a final divorce decree relating to the Insureds, or within
180 days of the occurrence of either of the following changes in federal estate
tax law: (1) an end to the Unlimited Marital Deduction, as defined in the
Code;; and (2) a reduction of 50% or more of the percentage federal estate tax
rate applicable to the estate of the surviving spouse.
The two new policies will have an issue date of the date of the split,
and will be based on the Insureds' ages as of the date of the split. The Rate
Classes of each of the Insureds will be the Rate Class for such Insured for the
most recently issued coverage segment under the Policy. The Owner may select
the face amounts of the new policies, as long as the total of the two face
amounts does not exceed the Face Amount of the Policy on the date of the split,
and neither of the face amounts on the two new policies exceeds 50% of the Face
Amount on the Policy. Increases on the Policy which contain a substandard
rating in excess of 250% will not be eligible for the split. If the face
amounts of the new policies are not equal, and the Policy is jointly owned,
then the consent of all Owners to the split is required. The Accumulated
Value, and any Policy loans and accrued interest, will be split in proportion
to the Face Amount split, and the total of the accumulated values and any
policy loans and accrued interest of the new individual contracts will equal
the Accumulated Value of the Policy. There will not be new suicide and
incontestability periods for the new individual policies as of the date of the
split if they had expired on the Policy prior to the split, but if such periods
had not expired, then the remaining time to expiration will be transferred to
the new Policies.
There is no cost for the Policy Split Option Rider, except that a
fixed charge of $200 will also be assessed at the time of the split to cover
administrative costs. The Rider may be cancelled at any time by the Owner, and
will automatically terminate on its exercise, on the date of death of the first
of the two Insureds to die, or on the date that the older of the Insureds
reaches Attained Age 85. Any other Riders applicable to the Policy will
terminate upon exercise of the Policy Split Option.
ESTATE PRESERVATION RIDER
The Estate Preservation Rider is designed for use in situations in
which a Policy is issued outside of an irrevocable life insurance trust but is
expected to be transferred into such a trust within a year after the Date of
Issue. This Rider provides four years of additional last survivor term
coverage on the two Insureds. The goal of the rider is to provide a Death
Benefit including this Rider, net of incremental
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estate taxes owed as a result of the Policy, at least equal to the Death
Benefit provided by the Policy not including the Rider. This Rider is
available only at issue and only where the Insureds are legally married to each
other.
The cost of the Estate Preservation Rider is a charge for the death
benefit coverage included by this Rider, at the same rates that apply to the
Additional Coverage. The coverage provided by this Rider will be level,
regardless of whether Option A or Option B applies to the Face Amount of the
Policy. The amount of coverage will be the initial Face Amount multiplied by a
fraction the numerator of which is 0.55 and the denominator of which is 1-0.55,
or 0.45. A factor of 0.55 is used in the above formula because the maximum
estate tax rate is currently 55%.
Any decrease in Face Amount during the first four Policy Years will
result in a proportionate reduction in the coverage provided by the Estate
Preservation Rider.
The Estate Preservation Rider will terminate on the first Policy
Anniversary, if the Owner of the Policy has not become an irrevocable life
insurance trust by that time. If the Owner has become an irrevocable life
insurance trust by such time, then the Rider will automatically terminate at
the end of the fourth Policy Year.
TERM RIDER
The Term Rider allows an Owner to add individual life term coverage on
either or both of the two Insureds. The Term Rider is available at any time,
subject to submission of an application with evidence of insurability
satisfactory to National Life, on Insureds with Issue Ages from 20 through 75.
The Term Rider coverage is renewable through age 80. The maximum amount of
Term Rider coverage for each Insured is 50% of the Face Amount of the Policy.
Charges included in the Monthly Deductions will include amounts associated with
the individual life term coverage. The cost of insurance rates for the Term
Rider will be set forth in the Rider.
Individual term life insurance coverage addresses different insurance
needs than the survivorship life insurance coverage provided by the Face Amount
of the Policy. Your determination of the usefulness of the Term Rider should
be based on your specific insurance needs. Consult your sales representative
for further information.
CONTINUING COVERAGE RIDER
The Continuing Coverage Rider allows an Owner to extend coverage at
the Face Amount of a Policy beyond the younger Insured's Attained Age 100 if
the Policy is still in force at that time. This Rider is available only at
issue and only if the younger Insured is no older than Attained Age 75.
On the date that the extension of coverage occurs, the Policy's
Accumulated Value will be transferred to the Fixed Account, and no further
transfers will be permitted. The Monthly Deductions will be set to zero. No
further Premium Payments will be accepted. All other rights and benefits will
continue while the Policy is in force.
The charge is guaranteed never to exceed $3.50 per $1000 per month
applied to the Net Amount at Risk. The current charge for the Continuing
Coverage Rider is $2.50 per $1000 per month, applied to the Net Amount at Risk.
The charge will begin at the younger Insured's Attained Age 90. At the time
charges
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begin for this Rider, Policies with Death Benefit Option B will automatically
be changed to Death Benefit Option A.
The tax consequences associated with continuing a Policy beyond age
100 of the younger Insured are uncertain.
ENHANCED DEATH BENEFIT RIDER
The Enhanced Death Benefit Rider may provide a higher Death Benefit at a
targeted age for the younger Insured. The target age is selected by the Owner.
The Rider operates by increasing the otherwise applicable specified percentages
that are shown in the Policy and which may be applied in determining the Death
Benefit, beginning 4 years prior to the targeted Attained Age and ending at
Attained Age 99 of the younger Insured, by the following percentages:
<TABLE>
<S> <C> <C>
Target Age - 4: 4% Target Age -1: 16% Attained Age - 97: 12%
Target Age - 3: 8% Target Age through Age 95: 20% Attained Age - 98: 8%
Target Age - 2: 12% Attained Age - 96: 16% Attained Age - 99: 4%
</TABLE>
The minimum target age that may be selected by the Owner is the later
of the younger Insured's Attained Age 70 and 15 years after the Date of Issue.
The maximum target age that may be selected is Attained Age 95 of the younger
Insured. Once selected, the target age may not be changed. This Rider may be
cancelled at any time, but if cancelled, cannot be reinstated.
There is no cost for the Enhanced Death Benefit Rider. However, if
the Rider's increases in the specified percentages result in an increase in
Death Benefit, the Net Amount at Risk will be higher than if the Rider did not
apply, and the Cost of Insurance Charges will be commensurately higher .
This Rider is available only at issue, and only where the younger
Insured's Attained Age is 80 or less.
AUTOMATIC INCREASE RIDER
The Automatic Increase Rider will provide for regular increases in
Face Amount. The Owner may elect that such increases be effected annually in
amounts equal to either of 5% or 10% of the sum of the Face Amount of the
Policy at issue plus all previous increases resulting from this Rider. The
Owner may also elect annual increases of a level amount equal to the Owner's
planned periodic premiums for the Policy. In either case, the maximum increase
that can be effected by means of the Automatic Increase Rider is 100% of the
Face Amount of the Policy at issue.
Increases in Face Amount effected by means of the Automatic Increase
Rider will be similar to Additional Coverage in that there will be no Target
Premium , no Surrender Charge and no per $1000 Monthly Administrative Charge
associated with these increases.
The cost of the Rider is that the Cost of Insurance Charge for the
Policy will include amounts for the increase segments as they become effective.
The cost of insurance rates will be the same as the rates
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applied to Basic Coverage at issue. Guaranteed cost of insurance rates that
will be applied to increases effected through this Rider will be set forth in
the Rider.
An Automatic Increase Rider terminates (a) at the request of the
Owner, (b) when the younger insured reaches Attained Age 81, (c) when the
maximum total increase is reached, (d) on the death of the first to die of the
Insureds, or (e) when a requested decrease in Face Amount becomes effective.
Termination of the Rider does not cancel previously added increases.
This Rider is available only at issue, only if the younger Insured's
Issue Age is at least 20 and less than 71, and only if neither Insured has a
substandard rating in excess of 250%.
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 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
In order to qualify as a life insurance contract for federal income
tax purposes, the policy must meet the definition of a life insurance contract
which is set forth in Section 7702 of the Code. The manner in which Section
7702 should be applied to certain features of the Policy is not directly
addressed by Section 7702 or any guidance issued to date under Section 7702.
Nevertheless, National Life believes it is reasonable to conclude that the
Policy will meet the Section 7702 definition of a life insurance contract. In
the absence of final regulations or other pertinent interpretations of Section
7702, however, there is necessarily some uncertainty as to whether a Policy
will meet the life insurance contract definition, particularly if the Owner
pays the full amount of premiums permitted under the Policy. An Owner
contemplating the payment of such premiums should do so only after consulting a
tax adviser. 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.
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 Variable 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
Variable 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 Variable
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
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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 Variable
Account. In addition, National Life does not know what standards will be set
forth, if any, in the regulations or rulings which the Treasury 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 Variable 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, an increase or decrease in a Policy's
Face Amount, 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.
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. The
rules for determining whether a Policy will be classified as a Modifeid
Endowment Contract generally apply when a Policy is entered into, materially
changed, or the death benefit is reduced.
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. A policy may become a Modified Endowment Contract if
there is a reduction in the Policy's death benefit at any time. At the time a
premium is credited, or the death benefit is reduced, 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
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<PAGE> 60
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 Accumulated Value in the
Variable Account and in the Fixed 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.
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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.
Taxation of Policy Split. The Policy Split Option Rider permits a
Policy to be split into two other fixed-benefit or variable-benefit life
insurance policies in certain situations. A Policy split could have adverse
tax consequences; for example, it is not clear whether a Policy split will be
treated as a non-taxable exchange under Sections 1031 through 1043 of the Code.
If a Policy split is not treated as a nontaxable exchange, a split could result
in the recognition of taxable income in an amount up to any gain in the Policy
at the time of the split. In addition, it is not clear whether, in all
circumstances, the individual contracts that result from a Policy split would
be would be classified as modified endowment contracts. Before exercising
rights provided by the Policy Split Option Rider, it is important for an Owner
to consult with a tax adviser regarding the possible consequences of a Policy
split.
Other Tax Considerations. The transfer of a Policy or the designation
of a Beneficiary may have federal, state, and/or local transfer and inheritance
tax consequences, including the imposition of gift, estate and
generation-skipping transfer taxes. For example, the transfer of a Policy to,
or the designation as Beneficiary of, or the payments of proceeds to, a person
who is assigned to a generation which is two or more generations below the
generation assignment of the Owner, may have gift and generation skipping
transfer tax considerations under the Code.
Generally, the proceeds of the Policy are includible in the gross
estate of the Insured if the Insured possesses any "incidents of ownership"
over the Policy at death. "Incidents of ownership" generally includes the
right to receive economic benefits of the Policy as defined in Section 2042 of
the Code and applicable Treasury regulations. If the Insured never held
incidents of ownership over the Policy, or irrevocably transferred all
interests in the Policy to a third party (e.g., an irrevocable life insurance
trust) more than three years before death, the proceeds should be excluded from
the Insured's gross estate.
The individual situations of each Owner or Beneficiary will determine
the extent, if any, to which federal, state or local transfer taxes may be
imposed. Prospective Owners should consult their tax advisers for specific
information in connection with these taxes. 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.
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 Variable 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 periodically from the Variable Account to
National Life's general account. Any investment earnings on tax charges
accumulated in the Variable Account will be retained by National Life.
POSSIBLE CHANGES IN TAXATION
Although the likelihood of legislative change is uncertain, there is
always the possibility that the tax treatment of the Policies could change by
legislation or other means. For instance, the President's 1999 Budget Proposal
recommended legislation that, if enacted, would adversely modify the federal
taxation of
51
<PAGE> 62
the Policies. It is also possible that any change could be retroactive (that
is, effective prior to the date of the change). A tax adviser should be
consulted with respect to legislative developments and their effect on the
Policy.
VOTING RIGHTS
All of the assets held in the Subaccounts of the Variable 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 Variable 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.
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 Variable Account, if in its judgment such
52
<PAGE> 63
changes would serve the interests of Owners or would be appropriate in carrying
out the purposes of the Policies, for example: (i) operating the Variable
Account as a management company under the 1940 Act; (ii) deregistering the
Variable Account under the 1940 Act if registration is no longer required;
(iii) combining or substituting separate accounts; (iv) transferring the assets
of the Variable Account to another separate account or to the Fixed 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 Fixed 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 Board
Chairman of the Board, and Chief Executive Officer; 1992 to 1997 -
Chief Executive Officer Chairman of the Board, Chief Executive
Officer and President of GNA Corporation
Thomas H. MacLeay 1996 to Present - President and
President, Chief Chief Operating Officer; 1993 to
Operating Officer, 1996 - Executive Vice President
and Director & Chief Financial Officer; 1991 to
1993 - Senior Vice President & Chief Financial Officer
Robert E. Boardman 1994 to present - Chairman of Hickok &
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
</TABLE>
53
<PAGE> 64
<TABLE>
<S> <C>
Director and Chief Executive Officer of A.
G. Edwards, Inc.
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 1997 to present: Partner in the law firm of Eaton
Director & Van Winkle; 1996 to 1997 - Partner in
the law firm of Bryan Cave L.L.P.; 1993 to 1996 - Partner
in the law firm of Piper & Marbury
Thomas P. Salmon 1997 to present: Partner in the law firm of
Director Salmon & Nostrand; 1991 to 1996 - President, the University of
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,
Director and lecturer at the Department of
Molecular Biology at Princeton University
Martin P. Klein 1998 to present: Executive Vice President &
Executive Vice President & Chief Financial Officer; 1996 to 1998: Managing
Chief Financial Officer Director - Zurich Insurance Group; 1994 to 1996:
Executive Vice President Centre-Re Chase
Investment Company; 1992 to 1994: Executive
Vice President and Chief Financial Officer -
Arm Financial Group, Inc.
James A. Mallon 1998 to present: Executive Vice President & Chief
Executive Vice President & Marketing Officer; 1996 to 1998: President & Chief
Chief Marketing Officer Executive Officer - Integon Life Insurance Corporation;
1993 to 1996: Senior Vice President & Chief Marketing Officer -
Commercial Union Life Insurance Company of America
Rodney A. Buck 1996 to present - Senior Vice
Senior Vice President & President and Chief Investment
Chief Investment Officer Officer; 1993 to 1995 - Senior Vice President -
Investments; 1996 to present - Chairman
& Chief Executive Officer, National
Life Investment Management
Company, Inc. ("NLIMC"); 1991 to 1995 - President and Chief
Operating Officer, NLIMC; 1998 to present - Chief Executive Officer
- Sentinel Advisors Company; 1987 to present - Senior Vice
President - Sentinel Advisors Company
Jeffrey P. Johnson 1997 to present - General Counsel; 1992- to present -
General Counsel Partner, Primmer & Piper (law firm)
Craig A. Smith 1998 to present: Vice President - Corporate
Vice President Actuarial; 1996 to 1998 - Senior Vice President; 1993 to 1996 -
Senior Vice
</TABLE>
54
<PAGE> 65
<TABLE>
<S> <C>
- President - Product; 1992 to 1993 -
Vice President - Product Development
</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 Variable Account pursuant to an Underwriting
Agreement to which the Variable 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 who are ESI registered representatives 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 (which is a
function of Basic Coverage, and which is used primarily to determine commission
payments) and 3% of the premiums paid in excess of that amount. For Policy
Years 2 through 10, 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 Year 11 and thereafter, agent commissions will be 1.5%
of all premiums paid. For premiums received in the year following an increase
in Basic Coverage 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, and will also receive service fees, starting in
Policy year 5, of 0.15% of unloaned accumulated value. Agents who are
affiliated with National Life's producer group may receive compensation
somewhat higher than the amounts stated above.
Dealers other than ESI will receive gross concessions during the first
Policy Year of 90% of the premiums paid up to the target amount, and 4% of the
premiums paid in excess of that amount. For Policy Years 2 through 10, the
gross dealer concession will not be more than 4.0% of the premiums paid. For
Policy Year 11 and thereafter, the gross dealer concession will be 1.5% of all
premiums paid. Such delaers will also receive gross service fees beginning in
Policy Year 5 of 0.20% of unloaned Accumulated Value.
POLICY REPORTS
At least 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 Fixed
Account, the amount held as Collateral in the Fixed Account, the value in each
Subaccount of the Variable 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. National Life currently plans to send
such statements quarterly. 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 Variable Account to another or between the Fixed Account and
the Variable Account, 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).
55
<PAGE> 66
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.
PREPARING FOR YEAR 2000
Many computer systems were designed using only two digits to designate
years. These systems may not be able to distinguish the year 2000 from the
year 1900. Like all financial services providers, National Life utilizes
computer systems that may be effected by Year 2000 transition issues, and
National Life relies on service providers, including the Funds, that also may
be affected. National Life has developed, and is in the process of
implementing, a Year 2000 transition plan, and is confirming that its service
providers are also so engaged. The resources that are being devoted to this
effort are substantial. It is difficult to predict with precision whether the
amount of resources ultimately devoted, or the outcome of these efforts, will
have any negative impact on National Life. However, as of the date of this
prospectus, it is not anticipated that any Policy Owners will experience
negative effects on their investment, or on the services provided in connection
therewith, as a result of Year 2000 transition implementation. National Life
currently anticipates that its computer systems will be Year 2000 compliant on
or about January 1, 1999, but there can be no assurance that National Life will
be successful, or that interaction with other service providers will not impair
National Life's services at that time.
EXPERTS
The Financial Statements listed on Page F-1 have 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
Elizabeth H. MacGowan, F.S.A., MAAA, Associate Actuary - Product Development
of National Life.
LEGAL MATTERS
Sutherland, Asbill & Brennan LLP 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 Jeffrey P. Johnson, General Counsel
of National Life.
The Variable Account is not a party to any litigation. There are no
material legal proceedings involving National Life which are likely to have a
material adverse effect upon the Variable Account or upon the ability of
National Life to meet its obligations under the Policies. ESI is not engaged
in any litigation of any material nature.
In recent years, life insurance companies have been named as
defendants in lawsuits, including class action lawsuits, relating to life
insurance pricing and sales practices. A number of these lawsuits have
resulted in substantial jury awards or settlements. During 1997 several
lawsuits of this nature were
56
<PAGE> 67
filed against National Life on behalf of purported classes of persons who
purchased certain insurance products from National Life. National Life has
highly meritorious defenses and believes that plaintiffs' claims are entirely
without merit and further, does not believe that these lawsuits will have any
material adverse effect upon its ability to meet its obligations under the
Policies.
National Life is also party to ordinary routine litigation incidental
to the business, none of which is expected to have a material adverse effect
upon its ability to meet its obligations under the Policies.
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 Variable Account and should be considered only
as bearing upon National Life's ability to meet its obligations under the
Policies. No financial statements of the Variable Account are included herein
because, as of the date of this prospectus, the Subaccounts of the Variable
Account that have been established to serve as investment options under the
Policies had no assets and had incurred no liabilities.
57
<PAGE> 68
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 Variable Account. The tables show how the Death Benefits,
Accumulated Values and Cash Surrender Values of a Policy issued to two Insureds
of 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 with the
Insureds being a male age 55 and a female age 50, each in the Preferred
Nonsmoker Rate Class with a Face Amount of $1,000,000 and Planned Periodic
Premiums of $10,000 paid at the beginning of each Policy Year. Both Death
Benefit Option A and Death Benefit Option B, are illustrated. The Death
Benefits, Accumulated Values and Cash Surrender Values would be lower if either
or both of the Insureds were in a nonsmoker, preferred smoker, smoker,
substandard or uninsurable 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
Cost of Insurance Charge, the Premium Expense Charge, the Variable Account
Charge, and the Monthly Administrative Charge are charged at the maximum level.
The columns under the heading "Current" assume that throughout the life of the
Policy, the monthly charge for the cost of insurance is based on the current
cost of insurance rates and that the Premium Expense Charge, the Variable
Account Charge and the Monthly Administrative Charges are assessed at current
levels.
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 asset charge reflected in the
Current and Guaranteed illustrations, is 0.83%. This total charge is based on
an assumption that an Owner allocates the Policy values equally among the
Subaccounts of the Variable Account.
The asset charge reflects an investment advisory fee of %, which
represents an average of the fees incurred by the Portfolios during 1997 and
expenses of % which is based on an average of the actual expenses incurred
by the Portfolios during 1997, adjusted, as appropriate, to take into account
expense reimbursement arrangements expected to be in place for 1998. 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 Variable 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 Fixed 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, and that no
Riders have been purchased.
Upon request, National Life will provide a comparable illustration
based upon the proposed Insureds' Ages and Rate Classes, the Death Benefit
Option, Face Amount, Planned Periodic Premiums and Riders requested.
A-1
<PAGE> 69
NATIONAL LIFE
SENTINEL ESTATE PROVIDER LAST SURVIVOR FLEXIBLE PREMIUM ADJUSTABLE VARIABLE
LIFE INSURANCE
$1,000,000 FACE AMOUNT
MALE INSURED ISSUE AGE 55, PREFERRED NONSMOKER
FEMALE INSURED ISSUE AGE 50, PREFERRED NONSMOKER
DEATH BENEFIT OPTION A ANNUAL PREMIUM $10,000
ASSUMING HYPOTHETICAL GROSS ANNUAL RATE OF RETURN 0%
<TABLE>
<CAPTION>
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 10,000 7,626 0 1,000,000 7,634 0 1,000,000
2 20,500 15,005 5,005 1,000,000 15,028 5,028 1,000,000
3 31,525 22,117 12,117 1,000,000 22,164 12,164 1,000,000
4 43,101 28,941 18,941 1,000,000 29,016 19,016 1,000,000
5 55,256 35,449 25,449 1,000,000 35,559 25,559 1,000,000
6 68,019 41,613 33,446 1,000,000 41,764 33,597 1,000,000
7 81,420 47,400 41,233 1,000,000 47,597 41,430 1,000,000
8 95,491 52,774 48,608 1,000,000 53,315 49,149 1,000,000
9 110,266 57,698 55,531 1,000,000 58,923 56,756 1,000,000
10 125,779 62,122 61,955 1,000,000 64,412 64,245 1,000,000
11 142,068 65,990 65,990 1,000,000 71,465 71,465 1,000,000
12 159,171 69,229 69,229 1,000,000 78,390 78,390 1,000,000
13 177,130 71,748 71,748 1,000,000 85,172 85,172 1,000,000
14 195,986 73,427 73,427 1,000,000 91,784 91,784 1,000,000
15 215,786 74,133 74,133 1,000,000 98,206 98,206 1,000,000
16 236,575 73,717 73,717 1,000,000 104,406 104,406 1,000,000
17 258,404 72,014 72,014 1,000,000 110,345 110,345 1,000,000
18 281,324 68,846 68,846 1,000,000 115,975 115,975 1,000,000
19 305,390 64,021 64,021 1,000,000 121,235 121,235 1,000,000
20 330,660 57,301 57,301 1,000,000 126,050 126,050 1,000,000
25 477,271 0 0 0 145,339 145,339 1,000,000
30 664,388 0 0 0 133,585 133,585 1,000,000
</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
VARIABLE 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> 70
NATIONAL LIFE
SENTINEL ESTATE PROVIDER LAST SURVIVOR FLEXIBLE PREMIUM ADJUSTABLE VARIABLE
LIFE INSURANCE
$1,000,000 FACE AMOUNT
MALE INSURED ISSUE AGE 55, PREFERRED NONSMOKER
FEMALE INSURED ISSUE AGE 50, PREFERRED NONSMOKER
DEATH BENEFIT OPTION A ANNUAL PREMIUM $10,000
ASSUMING HYPOTHETICAL GROSS ANNUAL RATE OF RETURN 6%
<TABLE>
<CAPTION>
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 10,000 8,116 0 1,000,000 8,125 0 1,000,000
2 20,500 16,452 6,452 1,000,000 16,478 6,478 1,000,000
3 31,525 24,993 14,993 1,000,000 25,046 15,046 1,000,000
4 43,101 33,720 23,720 1,000,000 33,809 23,809 1,000,000
5 55,256 42,609 32,609 1,000,000 42,746 32,746 1,000,000
6 68,019 51,634 43,467 1,000,000 51,829 43,663 1,000,000
7 81,420 60,762 54,595 1,000,000 61,028 54,862 1,000,000
8 95,491 69,959 65,792 1,000,000 70,605 66,439 1,000,000
9 110,266 79,184 77,017 1,000,000 80,580 78,413 1,000,000
10 125,779 88,387 88,220 1,000,000 90,960 90,793 1,000,000
11 142,068 97,507 97,507 1,000,000 103,657 103,657 1,000,000
12 159,171 106,466 106,466 1,000,000 116,925 116,925 1,000,000
13 177,130 115,166 115,166 1,000,000 130,776 130,776 1,000,000
14 195,986 123,477 123,477 1,000,000 145,215 145,215 1,000,000
15 215,786 131,255 131,255 1,000,000 160,250 160,250 1,000,000
16 236,575 138,335 138,335 1,000,000 175,883 175,883 1,000,000
17 258,404 144,533 144,533 1,000,000 192,108 192,108 1,000,000
18 281,324 149,646 149,646 1,000,000 208,912 208,912 1,000,000
19 305,390 153,456 153,456 1,000,000 226,274 226,274 1,000,000
20 330,660 155,693 155,693 1,000,000 244,164 244,164 1,000,000
25 477,271 128,044 128,044 1,000,000 344,981 344,981 1,000,000
30 664,388 0 0 0 451,264 451,264 1,000,000
</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
VARIABLE 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-3
<PAGE> 71
NATIONAL LIFE
SENTINEL ESTATE PROVIDER LAST SURVIVOR FLEXIBLE PREMIUM ADJUSTABLE VARIABLE
LIFE INSURANCE
$1,000,000 FACE AMOUNT
MALE INSURED ISSUE AGE 55, PREFERRED NONSMOKER
FEMALE INSURED ISSUE AGE 50, PREFERRED NONSMOKER
DEATH BENEFIT OPTION A ANNUAL PREMIUM $10,000
ASSUMING HYPOTHETICAL GROSS ANNUAL RATE OF RETURN 12%
<TABLE>
<CAPTION>
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 10,000 8,607 0 1,000,000 8,616 0 1,000,000
2 20,500 17,959 7,959 1,000,000 17,988 7,988 1,000,000
3 31,525 28,106 18,106 1,000,000 28,166 18,166 1,000,000
4 43,101 39,099 29,099 1,000,000 39,206 29,206 1,000,000
5 55,256 50,996 40,996 1,000,000 51,165 41,165 1,000,000
6 68,019 63,853 55,686 1,000,000 64,104 55,938 1,000,000
7 81,420 77,732 71,565 1,000,000 78,089 71,922 1,000,000
8 95,491 92,701 88,534 1,000,000 93,488 89,321 1,000,000
9 110,266 108,832 106,666 1,000,000 110,452 108,285 1,000,000
10 125,779 126,200 126,034 1,000,000 129,134 128,967 1,000,000
11 142,068 144,883 144,883 1,000,000 151,896 151,896 1,000,000
12 159,171 164,956 164,956 1,000,000 177,082 177,082 1,000,000
13 177,130 186,494 186,494 1,000,000 204,942 204,942 1,000,000
14 195,986 209,561 209,561 1,000,000 235,747 235,747 1,000,000
15 215,786 234,235 234,235 1,000,000 269,806 269,806 1,000,000
16 236,575 260,603 260,603 1,000,000 307,454 307,454 1,000,000
17 258,404 288,771 288,771 1,000,000 349,066 349,066 1,000,000
18 281,324 318,875 318,875 1,000,000 395,055 395,055 1,000,000
19 305,390 351,093 351,093 1,000,000 445,886 445,886 1,000,000
20 330,660 385,626 385,626 1,000,000 502,082 502,082 1,000,000
25 477,271 603,292 603,292 1,000,000 890,838 890,838 1,000,000
30 664,388 960,216 960,216 1,008,227 1,542,054 1,542,054 1,619,156
</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
VARIABLE 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-4
<PAGE> 72
NATIONAL LIFE
SENTINEL ESTATE PROVIDER LAST SURVIVOR FLEXIBLE PREMIUM ADJUSTABLE VARIABLE
LIFE INSURANCE
$1,000,000 FACE AMOUNT
MALE INSURED ISSUE AGE 55, PREFERRED NONSMOKER
FEMALE INSURED ISSUE AGE 50, PREFERRED NONSMOKER
DEATH BENEFIT OPTION B ANNUAL PREMIUM $10,000
ASSUMING HYPOTHETICAL GROSS ANNUAL RATE OF RETURN 0%
<TABLE>
<CAPTION>
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 10,000 7625 0 1,007,625 7,645 0 1,007,634
2 20,500 15,002 5,002 1,015,002 15,025 5,024 1,015,025
3 31,525 22,107 12,107 1,022,107 22,153 12,153 1,022,153
4 43,101 28,916 18,916 1,028,916 28,991 18,991 1,028,991
5 55,256 35,399 25,399 1,035,399 35,509 25,509 1,035,509
6 68,019 41,523 33,357 1,041,523 41,674 33,507 1,041,674
7 81,420 47,251 41,084 1,047,251 47,448 41,281 1,047,448
8 95,491 52,542 48,376 1,052,542 53,099 48,932 1,053,099
9 110,266 57,352 55,186 1,057,352 58,631 56,465 1,058,631
10 125,779 61,626 61,460 1,061,626 64,037 63,871 1,064,037
11 142,068 65,301 65,301 1,065,301 70,994 70,994 1,070,994
12 159,171 68,295 68,295 1,068,295 77,808 77,808 1,077,808
13 177,130 70,507 70,507 1,070,507 84,464 84,464 1,084,464
14 195,986 71,808 71,808 1,071,808 90,931 90,931 1,090,931
15 215,786 72,056 72,056 1,072,056 97,184 97,184 1,097,184
16 236,575 71,093 71,093 1,071,093 103,187 103,187 1,103,187
17 258,404 68,752 68,752 1,068,752 108,893 108,893 1,108,893
18 281,324 64,857 64,587 1,064,587 114,246 114,246 1,114,246
19 305,390 59,231 59,231 1,059,231 119,173 119,173 1,119,173
20 330,660 51,658 51,658 1,051,658 123,587 123,587 1,123,587
25 477,271 0 0 0 139,974 139,974 1,139,974
30 664,388 0 0 0 120,204 120,204 1,120,204
</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
VARIABLE 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-5
<PAGE> 73
NATIONAL LIFE
SENTINEL ESTATE PROVIDER LAST SURVIVOR FLEXIBLE PREMIUM ADJUSTABLE VARIABLE
LIFE INSURANCE
$1,000,000 FACE AMOUNT
MALE INSURED ISSUE AGE 55, PREFERRED NONSMOKER
FEMALE INSURED ISSUE AGE 50, PREFERRED NONSMOKER
DEATH BENEFIT OPTION B ANNUAL PREMIUM $10,000
ASSUMING HYPOTHETICAL GROSS ANNUAL RATE OF RETURN 6%
<TABLE>
<CAPTION>
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 10,000 8,116 0 1,008,116 8,124 0 1,008,124
2 20,500 16,449 6,449 1,016,449 16,475 6,475 1,016,475
3 31.525 24,982 14,982 1,024,982 25,034 15,034 1,025,034
4 43,101 33,690 23,690 1,033,690 33,780 23,780 1,033,780
5 55,256 42,548 32,548 1,042,548 42,685 32,685 1,042,685
6 68,019 51,520 43,353 1,051,520 51,715 43,549 1,051,715
7 81,420 60,566 54,400 1,060,566 60,832 54,665 1,060,832
8 95,491 69,642 65,475 1,069,642 70,309 66,142 1,070,309
9 110,266 78,694 76,527 1,078,694 80,164 77,997 1,080,164
10 125,779 87,656 87,490 1.087,656 90,403 90,236 1,090,403
11 142,068 96,450 96,450 1,096,450 102,927 102,927 1,102,927
12 159,171 104,974 104,974 1,104,974 115,988 115,988 1,115,988
13 177,130 113,101 113,101 1,113,101 129,591 129,591 1,129,591
14 195,986 120,667 120,667 1,120,667 143,731 143,731 1,143,731
15 215,786 127,484 127,484 1,127,484 158,405 158,405 1,158,405
16 236,575 133,342 133,342 1,133,342 173,598 173,598 1,173,598
17 258,404 138,006 138,006 1,138,006 189,286 189,286 1,189,286
18 281,324 141,219 141,219 1,141,219 205,430 205,430 1,205,430
19 305,390 142,711 142,711 1,142,711 221,972 221,972 1,221,972
20 330,660 142,159 142,159 1,142,159 238,836 238,836 1,238,836
25 477,271 92,109 92,109 1,092,109 330,948 330,948 1,330,948
30 664,388 0 0 0 407,332 407,332 1,407,332
</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
VARIABLE 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-6
<PAGE> 74
NATIONAL LIFE
SENTINEL ESTATE PROVIDER LAST SURVIVOR FLEXIBLE PREMIUM ADJUSTABLE VARIABLE
LIFE INSURANCE
$1,000,000 FACE AMOUNT
MALE INSURED ISSUE AGE 55, PREFERRED NONSMOKER
FEMALE INSURED ISSUE AGE 50, PREFERRED NONSMOKER
DEATH BENEFIT OPTION B ANNUAL PREMIUM $10,000
ASSUMING HYPOTHETICAL GROSS ANNUAL RATE OF RETURN 12%
<TABLE>
<CAPTION>
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 10,000 8,607 0 1,008,607 8,616 0 1,008,616
2 20,500 17,955 7955 1,017,955 17,984 7,984 1,017,984
3 31,525 28,093 18,093 1,028,093 28,153 18,153 1,028,153
4 43,101 39,065 29,065 1,039,065 39,172 29,172 1,039,172
5 55,256 50,922 40,922 1,050,922 51,091 41,091 1,051,091
6 68,019 63,709 55,543 1,063,709 63,960 55,794 1,063,960
7 81,420 77,476 71,309 1,077,476 77,831 71,664 1,077,831
8 95,491 92,269 88,103 1,092,269 93,083 88,917 1,093,083
9 110,266 108,138 105,972 1,108,138 109,861 107,694 1,109,861
10 125,779 125,125 124,958 1,125,125 128,308 128,141 1,128,308
11 142,068 143,262 143,262 1,143,262 150,768 150,768 1,150,768
12 159,171 162,571 162,571 1,162,571 175,572 175,572 1,175,572
13 177,130 183,049 183,049 1,183,049 202,953 202,953 1,202,953
14 195,986 204,663 204,663 1,204,663 233,153 233,153 1,233,153
15 215,786 227,357 227,357 1,227,357 266,446 266,446 1,266,446
16 236,575 251,057 251,057 1,251,057 303,123 303,123 1,303,123
17 258,404 275,662 275,662 1,275,662 343,496 343,496 1,343,496
18 281,324 301,052 301,052 1,301,052 387,896 387,896 1,387,896
19 305,390 327,090 327,090 1,327,090 436,675 436,675 1,436,675
20 330,660 353,582 353,582 1,353,582 490,207 490,207 1,490,207
25 477,271 479,970 479,970 1,479,970 852,096 852,096 1,852,096
30 664,388 531,112 531,112 1,531,112 1,409,275 1,409,275 2,409,275
</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
VARIABLE 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-7
<PAGE> 75
APPENDIX B
JOINT AGE CALCULATION
To calculate Joint Age, the two insureds ages are converted to adjusted ages,
the difference in the adjusted ages is converted to an add-on, and the add-on
is added to the adjusted age of the younger insured.
Step1: Sex Adjustment
Make the following adjustment to each insured's age based on sex:
Male: Subtract 0
Female: Subtract 5
Step2: Tobacco Adjustment
Take the results from Step 1 and make the following adjustment to each
insured's age based on tobacco use:
Male Tobacco: Add 3
Female Tobacco: Add 2
Step3: Substandard Rating Adjustment:
Take the results from Step 2 and make the following adjustment to each
insured's age based on substandard rating table:
<TABLE>
<S> <C> <C>
Table A (125%) Add 2
Table B (150%) Add 4
Table C (175%) Add 6
Table D (200%) Add 8
Table E (225%) Add 10
Table F (250%) Add 12
Table H (300%) Add 14
Table J (350%) Add 15
Table L (400%) Add 16
Table P (500%) Add 19
</TABLE>
If the adjusted age exceeds 100, then cap the adjusted age at 100.
Step 4: Uninsurables:
An adjusted age of 100 will be used for all uninsurables.
B-1
<PAGE> 76
Step 5: Age Add-on:
Take the difference of the adjusted ages and determine the add-on from
the following table:
<TABLE>
<S> <C>
0 0
1-2 1
3-4 2
5-6 3
7-9 4
10-12 5
13-15 6
16-18 7
19-23 8
24-28 9
29-34 10
35-39 11
40-44 12
45-47 13
48-50 14
51-53 15
54-56 16
57-60 17
61-64 18
65-69 19
70-75 20
76-85 21
</TABLE>
Step 6: Joint Age:
Add the add-on from Step 5 to the younger adjusted age to get the
Joint Age.
B-2
<PAGE> 77
Target Premiums and Surrender Charges
(Annual rates per $1000 of Basic Coverage)
The initial surrender charge is level for the number of years indicated below.
Following this level period, the surrender charge decreases linearly by month
until it is zero at the beginning of the 11th year.
<TABLE>
<CAPTION>
Initial Level Initial Level
Joint Target Surrender Period Joint Target Surrender Period
Age Premium Charge (in years) Age Premium Charge (in years)
- --- ------- ------ ---------- --- ------- ------ ----------
<S> <C> <C> <C> <C> <C> <C> <C>
15 2.40 2.40 5 53 11.70 11.70 5
16 2.50 2.50 5 54 12.90 12.90 5
17 2.60 2.60 5 55 14.05 14.05 5
18 2.65 2.65 5 56 15.25 15.25 5
19 2.75 2.75 5 57 16.45 16.45 5
20 2.80 2.80 5 58 17.65 17.65 5
21 2.90 2.90 5 59 18.80 18.80 5
22 3.00 3.00 5 60 20.00 20.00 5
23 3.10 3.10 5 61 20.75 20.75 5
24 3.20 3.20 5 62 21.50 21.50 5
25 3.30 3.30 5 63 22.70 22.70 5
26 3.35 3.35 5 64 23.90 23.90 5
27 3.45 3.45 5 65 25.05 25.05 5
28 3.60 3.60 5 66 26.25 26.25 5
29 3.70 3.70 5 67 27.45 27.45 5
30 3.80 3.80 5 68 28.65 28.65 5
31 3.90 3.90 5 69 29.80 29.80 5
32 4.00 4.00 5 70 31.00 31.00 5
33 4.15 4.15 5 71 31.75 31.75 5
34 4.30 4.30 5 72 32.50 32.50 5
35 4.50 4.50 5 73 33.45 33.45 5
36 4.70 4.70 5 74 34.40 34.40 5
37 4.85 4.85 5 75 35.30 35.30 5
38 5.05 5.05 5 76 36.25 36.25 5
39 5.30 5.30 5 77 37.20 37.20 5
40 5.50 5.50 5 78 38.15 38.15 5
41 5.65 5.65 5 79 39.05 39.05 5
42 5.80 5.80 5 80 40.00 40.00 5
43 6.35 6.35 5 81 40.00 41.00 4
44 6.85 6.85 5 82 40.00 42.00 4
45 7.40 7.40 5 83 40.00 43.00 4
</TABLE>
B-3
<PAGE> 78
<TABLE>
<S> <C> <C> <C> <C> <C> <C> <C>
46 7.90 7.90 5 84 40.00 44.00 3
47 8.45 8.45 5 85 40.00 45.00 3
48 8.95 8.95 5 86 40.00 46.00 2
49 9.50 9.50 5 87 40.00 47.00 2
50 10.00 10.00 5 88 40.00 48.00 2
51 10.25 10.25 5 89 40.00 49.00 2
52 10.50 10.50 5 90 40.00 50.00 2
</TABLE>
B-4
<PAGE> 79
NATIONAL LIFE INSURANCE COMPANY
* * * * *
FINANCIAL STATEMENTS
* * * * *
DECEMBER 31, 1997 AND 1996
<PAGE> 80
Report of Independent Accountants
April 7, 1998
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 of cash
flows present fairly, in all material respects, the financial position of
National Life Insurance Company and its subsidiaries at December 31, 1997 and
1996, 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.
PRICE WATERHOUSE, LLP
<PAGE> 81
NATIONAL LIFE INSURANCE COMPANY AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEET
<TABLE>
<CAPTION>
DECEMBER 31,
- -------------------------------------------------------------------------------------------------------------------
(In Thousands) 1997 1996
- -------------------------------------------------------------------------------------------------------------------
<S> <C> <C>
ASSETS:
Cash and cash equivalents $ 372,180 $ 268,235
Available-for-sale debt and equity securities, at fair value 5,317,427 4,393,046
Held-to-maturity debt securities, at amortized cost - 590,700
Mortgage loans 992,170 907,024
Policy loans 791,753 796,193
Real estate investments 95,926 99,442
Other invested assets 90,520 78,596
- -------------------------------------------------------------------------------------------------------------------
Total cash and invested assets 7,659,976 7,133,236
Deferred policy acquisition costs 392,014 421,584
Due and accrued investment income 125,790 120,753
Premiums and fees receivable 23,458 25,874
Deferred income taxes 17,517 33,514
Amounts recoverable from reinsurers 210,020 190,873
Present value of future profits of insurance acquired 54,444 80,957
Property and equipment, net 59,188 64,302
Other assets 63,967 51,453
Separate account assets 207,425 181,771
- -------------------------------------------------------------------------------------------------------------------
Total assets $ 8,813,799 $ 8,304,317
===================================================================================================================
LIABILITIES:
Policy benefit liabilities $ 3,814,213 $ 3,701,597
Policyowners' accounts 3,236,710 3,051,973
Policyowners' deposits 40,836 37,524
Policy claims payable 26,968 31,217
Policyowners' dividends 53,395 51,792
Other liabilities and accrued expenses 479,483 394,127
Debt 80,085 82,682
Separate account liabilities 187,998 165,234
- -------------------------------------------------------------------------------------------------------------------
Total liabilities 7,919,688 7,516,146
- -------------------------------------------------------------------------------------------------------------------
MINORITY INTERESTS 53,222 39,263
POLICYOWNERS' EQUITY:
Net unrealized gains on available-for-sale securities 85,017 28,867
Retained earnings 755,872 720,041
- -------------------------------------------------------------------------------------------------------------------
Total policyowners' equity 840,889 748,908
- -------------------------------------------------------------------------------------------------------------------
Total liabilities, minority interests and policyowners' equity $ 8,813,799 $ 8,304,317
===================================================================================================================
</TABLE>
The accompanying notes are an integral part of these financial statements.
1
<PAGE> 82
NATIONAL LIFE INSURANCE COMPANY AND SUBSIDIARIES
CONSOLIDATED STATEMENT OF OPERATIONS AND POLICYOWNERS' EQUITY
<TABLE>
<CAPTION>
FOR THE YEARS ENDED DECEMBER 31,
- -------------------------------------------------------------------------------------------------------------------
(In Thousands) 1997 1996
- -------------------------------------------------------------------------------------------------------------------
<S> <C> <C>
REVENUES:
Insurance premiums $ 399,017 $ 406,286
Universal life and investment-type policy fees 45,397 41,745
Net investment income 532,594 517,268
Realized investment gains (losses) 11,887 (2,070)
Mutual fund commission and fee income 51,417 42,256
Other income 17,524 21,278
- -------------------------------------------------------------------------------------------------------------------
Total revenue 1,057,836 1,026,763
- -------------------------------------------------------------------------------------------------------------------
BENEFITS AND EXPENSES:
Increase in policy liabilities 118,134 166,668
Policy benefits 313,819 297,564
Policyowners' dividends 106,312 105,690
Interest credited to policyowners' accounts 189,776 170,955
Operating expenses 174,709 148,716
Commissions and expense allowances 105,329 95,517
Net deferral of policy acquisition costs (14,617) (13,352)
- -------------------------------------------------------------------------------------------------------------------
Total benefits and expenses 993,462 971,758
- -------------------------------------------------------------------------------------------------------------------
Income before income taxes and minority interests 64,374 55,005
Income taxes 20,907 31,957
- -------------------------------------------------------------------------------------------------------------------
Income before minority interests 43,467 23,048
Minority interests 7,636 5,925
- -------------------------------------------------------------------------------------------------------------------
NET INCOME 35,831 17,123
RETAINED EARNINGS:
Beginning of year 720,041 702,918
- -------------------------------------------------------------------------------------------------------------------
End of year $ 755,872 $ 720,041
===================================================================================================================
NET UNREALIZED GAINS ON AVAILABLE-FOR-SALE SECURITIES:
Beginning of year $ 28,867 $ 77,173
Change during year 56,150 (48,306)
- -------------------------------------------------------------------------------------------------------------------
End of year $ 85,017 $ 28,867
===================================================================================================================
</TABLE>
The accompanying notes are an integral part of these financial statements.
2
<PAGE> 83
NATIONAL LIFE INSURANCE COMPANY AND SUBSIDIARIES
CONSOLIDATED STATEMENT OF CASH FLOW
<TABLE>
<CAPTION>
FOR THE YEARS ENDED DECEMBER 31,
- ----------------------------------------------------------------------------------------------------------------------
(In Thousands) 1997 1996
- ----------------------------------------------------------------------------------------------------------------------
<S> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES:
Net income $ 35,831 $ 17,123
Adjustments to reconcile net income to net cash provided by operations:
Change in:
Due and accrued investment income (5,037) (1,502)
Policy liabilities 74,693 144,723
Deferred policy acquisition costs (14,617) (9,956)
Policyowners' dividends 1,603 4,975
Deferred income taxes (20,747) (13,646)
Realized investment (gains) losses (11,887) 2,070
Depreciation 3,715 4,283
Other 15,774 (12,678)
- ----------------------------------------------------------------------------------------------------------------------
Net cash provided by operating activities 79,328 135,392
- ----------------------------------------------------------------------------------------------------------------------
CASH FLOWS FROM INVESTING ACTIVITIES:
Proceeds from sales, maturities and repayments of investments 2,385,471 2,497,648
Cost of investments acquired (2,647,628) (2,714,560)
Acquisition of subsidiary, net - (81,551)
Other 7,091 4,793
- ----------------------------------------------------------------------------------------------------------------------
Net cash used by investing activities (255,066) (293,670)
- ----------------------------------------------------------------------------------------------------------------------
CASH FLOWS FROM FINANCING ACTIVITIES:
Policyowners' deposits, including interest credited 670,780 535,932
Policyowners' withdrawals, including policy charges (495,076) (418,775)
Net increase (decrease) in borrowings under repurchase agreements 234,570 (51,013)
Net (decrease) increase in securities lending liabilities (139,652) 31,717
Other 9,061 17,747
- ----------------------------------------------------------------------------------------------------------------------
Net cash provided by financing activities 279,683 115,608
- ----------------------------------------------------------------------------------------------------------------------
NET INCREASE (DECREASE) IN CASH AND CASH EQUIVALENTS 103,945 (42,670)
CASH AND CASH EQUIVALENTS:
Beginning of year 268,235 310,905
- ----------------------------------------------------------------------------------------------------------------------
End of year $ 372,180 $ 268,235
======================================================================================================================
</TABLE>
The accompanying notes are an integral part of these financial statements.
3
<PAGE> 84
NATIONAL LIFE INSURANCE COMPANY and SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
DECEMBER 31, 1997 and 1996
NOTE 1 - NATURE OF OPERATIONS
National Life Insurance Company (National Life) was chartered in 1848 and is
among the 15 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 750 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 products and services, including life insurance,
annuities, disability income insurance, mutual funds, investment advisory and
administration services.
National Life primarily develops and distributes 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 40
general agencies in major metropolitan areas throughout the United States.
National Life also distributes its products through brokers and banks.
National Life has about 235,000 policyowners and is licensed to do business in
all 50 states and the District of Columbia. About 26% 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 Group Funds, Inc. The
Sentinel Funds' $2.8 billion of net assets represent thirteen mutual funds
managed on behalf of about 107,000 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,
with particular concentration in the west and the southwest. About 50% 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. Certain
reclassifications have been made to conform prior periods presented to the
current year's presentation.
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.
INVESTMENTS
Cash and cash equivalents include highly liquid debt instruments purchased with
remaining maturities of three months or less.
4
<PAGE> 85
Debt 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 debt securities and equity securities are reported at
estimated fair value. Held-to-maturity debt 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 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,
income taxes and minority interests.
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 debt and
equity 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. Amortization is adjusted retrospectively for
actual experience and when estimates of future profits are revised.
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.
5
<PAGE> 86
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.
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' accounts. Revenues for these policies consist of
mortality charges, policy administration fees and surrender charges deducted
from policyowners' accounts. 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.
6
<PAGE> 87
NOTE 3 - 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 except New
York.
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.
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 are shown in the
table below (in thousands). These pro forma consolidated results are not
necessarily indicative of the actual results which might have occurred had
National Life owned LSW since that date.
<TABLE>
<CAPTION>
1996
- ---------------------------------------------------------------------------------
<S> <C>
Revenues $ 1,026,763
Net income 17,356
</TABLE>
Noncash investing activities relating to the acquisition that are not reflected
in the 1996 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>
7
<PAGE> 88
NOTE 4 - 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 Unrealized Unrealized Estimated Fair
1997 Cost Gains Losses Value
- ---------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Available-for-sale (AFS):
U.S. government obligations $ 284,039 $ 13,515 $ 612 $ 296,942
Government agencies, authorities
and subdivisions 178,986 11,649 793 189,842
Public utilities 389,744 19,246 6,314 402,676
Corporate 2,403,091 133,881 7,069 2,529,903
Private placements 598,144 29,576 2,170 625,550
Mortgage-backed securities 1,196,369 35,308 1,275 1,230,402
- ---------------------------------------------------------------------------------------------------------------
Total AFS debt securities 5,050,373 243,175 18,233 5,275,315
Preferred stocks 6,482 803 259 7,026
Common stocks 29,638 5,511 63 35,086
- ---------------------------------------------------------------------------------------------------------------
Total AFS debt and equity securities $ 5,086,493 $ 249,489 $ 18,555 $ 5,317,427
===============================================================================================================
1996
- ---------------------------------------------------------------------------------------------------------------
Available-for-sale (AFS):
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
- ---------------------------------------------------------------------------------------------------------------
Total AFS debt securities 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 AFS debt and equity securities $ 4,315,835 $ 121,803 $ 44,592 $ 4,393,046
===============================================================================================================
Held-to-maturity (HTM) debt securities:
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 3,061 545,794
- ---------------------------------------------------------------------------------------------------------------
Total HTM debt securities $ 590,700 $ 25,029 $ 3,312 $ 612,417
===============================================================================================================
</TABLE>
8
<PAGE> 89
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>
1997 1996
- ----------------------------------------------------------------------------------------------------
<S> <C> <C>
Net unrealized gains (losses) on available-for-sale securities $ 153,723 $ (153,543)
Net unrealized gains on separate accounts 3,047 1,225
Related minority interests (9,360) 2,474
Related deferred policy acquisition costs (44,378) 61,726
Related present value of future profits of insurance acquired (10,138) 11,639
Related deferred income taxes (36,744) 28,173
- ----------------------------------------------------------------------------------------------------
Increase (decrease) in net unrealized gains (losses) 56,150 (48,306)
Balance, beginning of year 28,867 77,173
- ----------------------------------------------------------------------------------------------------
Balance, end of year $ 85,017 $ 28,867
====================================================================================================
Balance, end of year includes:
Net unrealized gains on available-for-sale securities $ 230,934 $ 77,211
Net unrealized gains on separate accounts 4,272 1,225
Related minority interests (6,886) 2,474
Related deferred policy acquisition costs (94,678) (50,300)
Related present value of future profits on insurance acquired 1,501 11,639
Related deferred income taxes (50,126) (13,382)
- ----------------------------------------------------------------------------------------------------
Balance, end of year $ 85,017 $ 28,867
====================================================================================================
</TABLE>
In December 1997, National Life transferred all securities designated as
held-to-maturity to available-for-sale. The securities transferred had an
estimated fair value of $618.8 million and an amortized cost of $586.1 million,
resulting in $32.7 million in unrealized gains.
The amortized cost and estimated fair values of debt securities by contractual
maturity at December 31, 1997 are shown below (in thousands). Expected
maturities may differ from contractual maturities because borrowers may have
the right to call or prepay obligations with or without call or prepayment
penalties.
<TABLE>
<CAPTION>
Amortized Estimated Fair
Cost Value
- ---------------------------------------------------------------------------
<S> <C> <C>
Due in one year or less $ 82,465 $ 83,291
Due after one year through five years 557,609 575,489
Due after five years through ten years 2,074,439 2,147,536
Due after ten years 1,139,491 1,238,597
Mortgage-backed securities 1,196,369 1,230,402
- ---------------------------------------------------------------------------
Total $ 5,050,373 $ 5,275,315
===========================================================================
</TABLE>
Information relating to available-for-sale debt security sale transactions for
the years ended December 31 are shown below (in thousands):
<TABLE>
<CAPTION>
1997 1996
- ---------------------------------------------------------------------------
<S> <C> <C>
Proceeds from sales $ 1,928,055 $ 1,990,175
Gross realized gains $ 27,318 $ 46,092
Gross realized losses $ 16,916 $ 42,759
</TABLE>
9
<PAGE> 90
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 for at least 105% of 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 $19.8 million and $159.4
million at December 31, 1997 and 1996, 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.
There were no open transactions at December 31, 1996. The repurchase liability
is included in other liabilities and was $234.6 million at December 31, 1997.
MORTGAGE LOANS AND REAL ESTATE
The distributions of mortgage loans and real estate at December 31 were as
follows:
<TABLE>
<CAPTION>
1997 1996
------------------------------
<S> <C> <C>
GEOGRAPHIC REGION
-----------------
New England 4.0% 4.5%
Middle Atlantic 10.3 9.0
East North Central 8.8 10.4
West North Central 4.9 3.6
South Atlantic 29.1 30.2
East South Central 5.0 4.4
West South Central 10.8 13.3
Mountain 16.7 15.9
Pacific 10.4 8.7
- ---------------------------------------------------------------------------------
Total 100.0% 100.0%
=================================================================================
PROPERTY TYPE
-------------
Residential 0.2% 0.3%
Apartment 24.3 21.1
Retail 15.9 18.6
Office Building 34.0 32.6
Industrial 22.2 25.0
Hotel/Motel 0.9 1.0
Other Commercial 2.5 1.4
- ---------------------------------------------------------------------------------
Total 100.0% 100.0%
=================================================================================
Total mortgage loans and real estate $ 1,088,096 $ 1,006,466
=================================================================================
</TABLE>
10
<PAGE> 91
Mortgage loans and related valuation allowances at December 31 were as follows
(in thousands):
<TABLE>
<CAPTION>
1997 1996
- ----------------------------------------------------------------------------
<S> <C> <C>
Unimpaired loans $ 965,760 $ 876,994
Impaired loans without valuation allowances 9,413 6,146
- ----------------------------------------------------------------------------
Subtotal 975,173 883,140
- ----------------------------------------------------------------------------
Impaired loans with valuation allowances 21,426 31,167
Related valuation allowances (4,429) (7,283)
- ----------------------------------------------------------------------------
Subtotal 16,997 23,884
- ----------------------------------------------------------------------------
Total $ 992,170 $ 907,024
============================================================================
Impaired loans:
Average recorded investment $ 34,076 $ 40,161
Interest income recognized $ 3,543 $ 5,026
Interest received $ 3,818 $ 5,170
</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>
1997 1996
=========================================================================================
<S> <C> <C>
Additions for impaired loans charged to realized losses $ 1,543 $ 3,944
Impairment losses charged to valuation allowances (1,419) (7,559)
Changes to previously established valuation allowances (2,978) 2,423
- -----------------------------------------------------------------------------------------
Decrease in valuation allowances (2,854) (1,192)
Balance, beginning of year 7,283 8,475
- -----------------------------------------------------------------------------------------
Balance, end of year $ 4,429 $ 7,283
=========================================================================================
</TABLE>
NET INVESTMENT INCOME
The components of net investment income for the years ended December 31 were as
follows (in thousands):
<TABLE>
<CAPTION>
1997 1996
- ----------------------------------------------------------------------------
<S> <C> <C>
Debt securities interest $ 392,674 $ 385,750
Equity securities dividends 2,765 1,730
Mortgage loan interest 85,782 81,575
Policy loan interest 48,856 49,438
Real estate income 15,822 15,193
Other investment income 13,627 9,016
- ----------------------------------------------------------------------------
Gross investment income 559,526 542,702
Less: investment expenses 26,932 25,434
- ----------------------------------------------------------------------------
Net investment income $ 532,594 $ 517,268
============================================================================
</TABLE>
DERIVATIVES
National Life purchases over-the-counter options and exchange-traded futures on
the Standard & Poor's 500 (S&P 500) index to hedge obligations relating to
equity indexed products. When the S&P 500 index increases, increases in the
intrinsic value of the options and fair value of futures are offset by
increases in equity indexed product account values. When the S&P 500 index
decreases, National Life's loss is the decrease in the fair value of futures
and is limited to the premium paid for the options.
11
<PAGE> 92
National Life purchases options only from highly rated counterparties.
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, increases in the intrinsic value of options and changes
in the fair value of futures 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.
The notional amounts and net book value of options and futures at December 31,
were as follows (in thousands):
<TABLE>
<CAPTION>
1997 1996
- -----------------------------------------------------------------------------------------------------------
<S> <C> <C>
Notional amounts:
Options $ 245,187 $ 61,078
Futures $ 27,892 -
===========================================================================================================
Book values:
Options: Net amortized cost $ 4,058 $ 2,986
Intrinsic value 7,876 3,480
- -----------------------------------------------------------------------------------------------------------
Book value 11,934 6,466
Futures at fair value 630 -
- -----------------------------------------------------------------------------------------------------------
Net book value (included in other invested assets) $ 12,564 $ 6,466
===========================================================================================================
</TABLE>
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>
1997 1996
- ----------------------------------------------------------------------------------------------------------------------
Carrying Estimated Fair Carrying Value Estimated Fair
Value Value Value
- ----------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Cash and cash equivalents $ 372,180 $ 372,180 $ 268,235 $ 268,235
Available-for-sale debt and equity securities 5,317,427 5,317,427 4,393,046 4,393,046
Held-to-maturity debt securities - - 590,700 612,417
Mortgage loans 992,170 1,024,582 907,024 924,732
Policy loans 791,753 730,059 796,193 715,914
Derivatives 12,564 11,629 6,466 5,123
Investment products 2,642,511 2,503,727 2,341,273 2,336,171
Debt 80,085 82,314 82,682 80,149
</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.
12
<PAGE> 93
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.
NOTE 5 - 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. 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.
The effects of reinsurance for the years ended December 31, were as follows (in
thousands):
<TABLE>
<CAPTION>
1997 1996
- -------------------------------------------------------------------------------
<S> <C> <C>
Insurance premiums:
Direct premiums $ 470,853 $ 474,998
Reinsurance assumed 896 959
Reinsurance ceded (72,732) (69,671)
- -------------------------------------------------------------------------------
$ 399,017 $ 406,286
===============================================================================
Increase in policy liabilities:
Direct increase in policy $ 112,577 $ 164,233
liabilities
Reinsurance assumed 17 (20)
Reinsurance ceded 5,540 2,455
- -------------------------------------------------------------------------------
$ 118,134 $ 166,668
===============================================================================
Policy benefits:
Direct policy benefits $ 393,082 $ 363,405
Reinsurance assumed 12 62
Reinsurance ceded (79,275) (65,903)
- -------------------------------------------------------------------------------
$ 313,819 $ 297,564
===============================================================================
Policyowners' dividends:
Direct policyowners' dividends $ 111,617 $ 112,050
Reinsurance ceded (5,305) (6,360)
- -------------------------------------------------------------------------------
$ 106,312 $ 105,690
===============================================================================
</TABLE>
13
<PAGE> 94
NOTE 6 - 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>
1997 1996
- -----------------------------------------------------------------------------------------------------------------
Amount Rate Amount Rate
- -----------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Current $ 41,654 $ 45,603
Deferred (20,747) (13,646)
- ------------------------------------------------------------------ -----------------
Income taxes $ 20,907 $ 31,957
================================================================== =================
Expected income taxes $ 22,531 35.0% $ 19,252 35.0%
Differential earnings amount 4,581 7.1 6,007 10.9
Affordable housing tax credit (4,318) (6.7) (1,305) (2.4)
Net change in tax reserves 1,298 2.0 10,290 18.7
Other, net (3,185) (4.9) (2,287) (4.1)
- -----------------------------------------------------------------------------------------------------------------
Income taxes $ 20,907 $ 31,957
================================================================= =================
Effective federal income tax rate 32.5% 58.1%
========================================== ============== ==================
</TABLE>
Components of net deferred income tax assets at December 31 were as follows (in
thousands):
<TABLE>
<CAPTION>
1997 1996
- -----------------------------------------------------------------------------------------------------------------
<S> <C> <C>
Deferred income tax assets:
Policy liabilities $ 172,387 $ 160,933
Other liabilities and accrued expenses 56,946 47,703
Other 4,294 10,495
- -----------------------------------------------------------------------------------------------------------------
Total deferred income tax assets 233,627 219,131
- -----------------------------------------------------------------------------------------------------------------
Deferred income tax liabilities:
Deferred policy acquisition costs 126,914 125,454
Present value of future profits of insurance acquired 20,642 24,262
Net unrealized gain on available-for-sale securities 50,126 13,382
Debt and equity securities 9,253 9,352
Other 9,175 13,167
- -----------------------------------------------------------------------------------------------------------------
Total deferred income tax liabilities 216,110 185,617
- -----------------------------------------------------------------------------------------------------------------
Net deferred income tax assets $ 17,517 $ 33,514
=================================================================================================================
</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 7 - 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.
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
14
<PAGE> 95
agents and a non-contributory defined supplemental benefit plan for certain
executives. These non-qualified plans are not funded.
National Life sponsors four defined benefit postretirement plans that provide
medical, dental 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 copayments. 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.
During 1997, National Life offered enhanced pension and postretirement benefits
to employees meeting certain defined eligibility requirements. The program
resulted in special termination benefits for the expected present value of the
enhancements to benefits, curtailment gains for reductions in the pension
benefit obligations relating to assumed increases in future compensation levels
and settlement gains for the pro-rata recognition of actuarial gains on lump
sum settlements of pension benefit obligations.
The status of the defined benefit plans at December 31, was as follows (in
thousands):
<TABLE>
<CAPTION>
Pension Benefits Other Benefits
---------------------------------------------------------
1997 1996 1997 1996
- ------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
CHANGE IN BENEFIT OBLIGATION:
Benefit obligation, beginning of year $180,075 $ 170,740 $ 24,351 $ 23,410
Service cost (benefits earned during the current period) 4,467 4,384 630 667
Interest cost on benefit obligation 13,629 11,788 1,669 1,652
Actuarial gains (19,077) 3,312 (3,587) (592)
Benefits paid (14,557) (10,149) (784) (786)
1997 early retirement program:
Special termination benefits 10,878 - 2,480 -
Curtailment gain (3,630) - - -
Settlement payments (8,799) - - -
- ------------------------------------------------------------------------------------------------------------------------------
Benefit obligation, end of year $ 162,986 $ 180,075 $ 24,759 $ 24,351
==============================================================================================================================
CHANGE IN PLAN ASSETS:
Plan assets, beginning of year $ 97,566 $ 90,592
Actual return on plan assets 23,337 10,230
Employer contributions 2,502 2,047
Benefits paid (5,722) (5,303)
1997 early retirement program settlement payments (8,799) -
- ------------------------------------------------------------------------------------------------------
Plan assets, end of year $ 108,884 $ 97,566
======================================================================================================
FUNDED STATUS:
Benefit obligation $ 162,986 $ 180,075 $ 24,759 $ 24,351
Plan assets (108,884) (97,566) - -
- ------------------------------------------------------------------------------------------------------------------------------
Benefit obligation in excess of plan assets 54,102 82,509 24,759 24,351
Unrecognized actuarial gains (losses) 28,485 (2,376) 4,548 930
Unrecognized prior service cost - - (1,224) (1,296)
- ------------------------------------------------------------------------------------------------------------------------------
Accrued benefit cost (included in other liabilities) $ 82,587 $ 80,133 $ 28,083 $ 23,985
==============================================================================================================================
</TABLE>
15
<PAGE> 96
The components of net periodic benefit cost for the years ended December 31,
were as follows (in thousands):
<TABLE>
<CAPTION>
Pension Benefits Other Benefits
----------------------------------------------------
1997 1996 1997 1996
- ------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Service cost (benefits earned during the current period) $ 4,467 $ 4,384 $ 630 $ 667
Interest cost on benefit obligation 13,629 11,788 1,669 1,652
Expected return on plan assets (8,636) (6,225) - -
Net amortization and deferrals - - 31 -
Amortization of prior service cost - - 72 72
1997 early retirement program:
Special termination benefits 10,878 - 2,480 -
Curtailment gain (3,630) - - -
Settlement gains (2,917) - - -
- ------------------------------------------------------------------------------------------------------------------
Net periodic benefit cost (included in operating expenses) $ 13,791 $ 9,947 $ 4,882 $ 2,391
==================================================================================================================
</TABLE>
The projected benefit obligation, accumulated benefit obligation and fair value
of plan assets for pension plans with accumulated benefit obligations in excess
of plan assets were as follows (in thousands):
<TABLE>
<CAPTION>
1997 1996
- ---------------------------------------------------------------------------------------
<S> <C> <C>
Projected benefit obligation $ 69,116 $ 71,511
Accumulated benefit obligation 66,268 67,070
Fair value of plan assets - -
</TABLE>
The actuarial assumptions used in determining benefit obligations at December
31, were as follows:
<TABLE>
<CAPTION>
Pension Benefits Other Benefits
---------------------------------------------------
1997 1996 1997 1996
- ------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Discount rate 7.50% 7.00% 7.50% 7.00%
Rate of increase in future compensation levels 3.50% 5.00%
Expected long term return on plan assets 9.00% 7.00%
</TABLE>
Health care cost trend rates 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 $2.4 million and the 1997
service and interest cost components of net periodic postretirement benefit
cost by about $0.3 million. Decreasing the assumed health care trend rates by
one percentage point in each year would reduce the APBO by about $1.9 million
and the 1997 service and interest cost components of net periodic
postretirement benefit cost by about $0.3 million. 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.
16
<PAGE> 97
NOTE 8 - DEBT
<TABLE>
<CAPTION>
Debt consists of the following (in thousands):
1997 1996
- ---------------------------------------------------------------------------------------------------------------------------
<S> <C> <C>
8.25% Surplus Notes: $ 69,685 $ 69,682
$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.
6.10% Term Note: 10,400 13,000
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).
- ---------------------------------------------------------------------------------------------------------------------------
Total debt $ 80,085 $ 82,682
===========================================================================================================================
</TABLE>
The aggregate annual maturities of debt for the next five years are as follows
(in thousands):
<TABLE>
<CAPTION>
<S> <C>
1998 $ 4,400
1999 3,000
2000 3,000
2001 -
2002 -
</TABLE>
In February 1998, the Term Note was renegotiated. Under the new terms,
effective March 1, 1998, the interest rate will be 6.57% with principal
payments of $2.0 million annually for 1998 to 2001 (inclusive) and $2.4 million
in 2002.
NOTE 9 - CONTINGENCIES
During 1997, several class action lawsuits were filed against National Life in
various states relating to the sale of life insurance policies during the
1980's and 1990's. National Life specifically denies any wrongdoing and
intends to defend these cases vigorously. Accordingly, a provision for legal
and administrative costs of defending these lawsuits was established in 1997.
The ultimate outcome of such litigation is uncertain given the complexity and
scope of the issues involved. While management believes that the ultimate
outcome is unlikely to have a material adverse effect on National Life's
financial position (after considering existing provisions), an adverse outcome
could materially affect operating results for a given year.
17
<PAGE> 98
NOTE 10 - 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>
1997 1996
----------------------------------------------------------------------
Surplus/ Surplus/
Retained Retained
Earnings Net Income Earnings Net Income
- --------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Statutory surplus/net income $ 342,614 $ 49,574 $ 305,611 $ 11,684
Asset valuation reserve 67,734 - 57,054 -
Interest maintenance reserve 56,940 (229) 57,169 1,540
Surplus notes (69,685) (3) (69,682) (3)
Non-admitted assets 20,874 - 18,391 -
Investments (944) (18,856) 18,504 290
Deferred policy acquisition costs 437,932 (5,651) 443,583 3,970
Deferred income taxes 72,544 13,807 58,737 9,179
Policy liabilities (186,349) 7,449 (193,798) (9,874)
Policyowners' dividends 64,734 2,206 62,528 (1,142)
Benefit plans (37,826) (1,732) (36,094) 4,403
Other changes, net (12,696) (10,734) (1,962) (2,924)
- --------------------------------------------------------------------------------------------------------------
GAAP retained earnings/net income $ 755,872 $ 35,831 $ 720,041 $ 17,123
==============================================================================================================
</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.
18
<PAGE> 99
UNDERTAKING TO FILE REPORTS
Subject to the terms and conditions of Section 15(d) of the Securities
Exchange Act of 1934, the undersigned Registrant hereby undertakes to file with
the Securities and Exchange Commission such supplementary and periodic
information, documents and reports as may be prescribed by any rule or
regulation of the Commission heretofore or hereafter duly adopted pursuant to
authority conferred in that section.
RULE 484 UNDERTAKING
Article VI, Section 2 of the Bylaws of National Life Insurance Company
("National Life" or the "Company") provides that, in accordance with the
provisions of the Section, the Company shall indemnify directors, officers and
employees of the Company or any other corporation served at the request of the
Company, and their heirs, executors and administrators, shall be indemnified to
the maximum extent permitted by law against all costs and expenses, including
judgments paid, settlement costs, and counsel fees, reasonably incurred in the
defense of any claim in which such person is involved by virtue of his or her
being or having been such a director, officer, or employee.
The Bylaws are filed as Exhibit 1.A.(7) to this Registration
Statement.
Vermont law authorizes Vermont corporations to provide indemnification
to directors, officers and other persons.
National Life owns a directors and officers liability insurance policy
covering liabilities that directors and officers of National Life and its
subsidiaries and affiliates may incur in acting as directors and officers.
Insofar as indemnification for liability arising under the Securities
Act of 1933 (the "Act") may be permitted to directors, officers, and
controlling persons of the Registrant pursuant to the foregoing provisions, or
otherwise, the Registrant has been advised that in the opinion of the
Securities and Exchange Commission such indemnification is against public
policy as expressed in the Act and is, therefore, unenforceable. In the event
that a claim for indemnification against such liabilities (other than the
payment by the Registrant of expenses incurred or paid by a director, officer,
or other controlling person of the Registrant in the successful defense of any
action, suit or proceeding) is asserted by such director, officer or
controlling person in connection with the securities being registered, the
Registrant will, unless in the opinion of its counsel the matter has been
settled by controlling precedent, submit to a court of appropriate jurisdiction
the question whether such indemnification by it is against public policy as
expressed in the Act and will be governed by the final adjudication of such
issue.
REPRESENTATION RELATING TO FEES AND CHARGES
National Life Insurance Company ("the Company") hereby represents that
the fees and charges deducted under the last survivor variable life insurance
policy described in the prospectus contained in this registration statement are,
in the aggregate, reasonable in relationship to the services rendered, the
expenses expected to be incurred, and the risks assumed by the Company.
<PAGE> 100
Part II
<PAGE> 101
CONTENTS OF REGISTRATION STATEMENT
This Registration Statement comprises the following papers and documents.
The facing sheet.
The prospectus consisting of __ pages.
Undertaking to file reports.
Rule 484 undertaking.
Representation relating to fees and charges.
The signatures.
Written consents of the following persons:
(a) Jeffrey P. Johnson, Esq.
(b) Elizabeth H. MacGowan, F.S.A., M.A.A.A.
(c) Sutherland, Asbill & Brennan.
(d) Price Waterhouse LLP.
The following exhibits, corresponding to those required by paragraph A
of the instructions as to exhibits in Form N-8B-2:
1.
A.
(1) Resolutions of the Board of Directors of National
Life Insurance Company establishing the National
Variable Life Insurance Account.**
(2) Not Applicable.
(3) (a) Form of Distribution Agreement between
National Life Insurance Company and Equity
Services, Inc.****
(b)(1) Form of Equity Services, Inc. Branch Office
Supervisor Contract.**
(b)(2) Form of Equity Services, Inc. Registered
Representative Contract.**
(c) Schedule of Sales Commissions.
(4) Not Applicable.
(5) (a) Specimen Sentinel Estate Builder Policy Form.
(b) Rider for Guaranteed Death Benefit.
(c) Rider for Additional Protection Benefit.
(d) Rider for Policy Split Option.
(e) Rider for Estate Preservation.
(f) Rider for Annually Renewable Term.
(g) Rider for Continuing Coverage.
(h) Rider for Enhanced Death Benefit.
(i) Rider for Automatic Increase.
(6) (a) Charter documents of National Life Insurance
Company.**
(b) Bylaws of National Life Insurance Company.**
(7) Not Applicable.
(8) (a) Participation Agreement by and among Market
Street Fund, Inc., National Life Insurance
Company and Equity Services, Inc.****
(a)(3) Form of Amendment No. 2 to Participation
Agreement among Market Street Fund., Inc.,
National Life Insurance Company and Equity
Services, Inc.
(b) Participation Agreement among Variable
Insurance Products Fund, Fidelity
Distributors Corporation and Vermont Life
Insurance Company (now National Life
Insurance Company) dated August 1, 1989.***
(b)(2) Amendment No. 1 to Participation Agreement
among Variable Insurance Products Fund,
Fidelity Distributors Corporation and
National Life Insurance Company.****
(b)(4) Form of Amendment No. 3 to Participation
Agreement Among Variable Insurance Products
Fund, Fidelity Distributors Corporation and
National Life Insurance Company
(c) Participation Agreement by and among National
Life Insurance Company, Strong Variable
Insurance Funds, Inc., Strong Special Fund
II, Strong Capital Management, Inc. and
Strong Funds Distributors, Inc.
(d) Form of Participation Agreement Among
Variable Insurance Products Fund II,
Fidelity Distributors Corporation and
Vermont Life Insurance Company (now National
Life Insurance Company) dated April 1,
1990*****
(d)(2) Form of Amendment No 1. to Participation
Agreement Among Variable Insurance Products
Fund II, Fidelity Distributors Corporation,
and National Life Insurance Company (as
successor to Vermont Life Insurance
Company)******
(d)(3) Form of Amendment No. 2 to Participation
Agreement among Variable Insurance Products
Fund II, Fidelity Distributors Corporation
and National Life Insurance Company (as
successor to Vermont Life Insurance Company)
(e) Form of Participation Agreement among
National Life Insurance Company, American
Century Investment Management, Inc.
(f) Form of Participation Agreement among
National Life Insurance Company, Neuberger &
Berman Advisers Managers Trust.
(g) Form of Participation Agreement among
National Life Insurance Company, J. P. Morgan
Series Trust II.
(h) Form of Participation Agreement among
National Life Insurance Company, Goldman
Sachs Variable Insurance Trust.
<PAGE> 102
(9) Not Applicable.
(10) Sentinel Estate Builder Application Form.
(11) Memorandum describing issuance, transfer and
redemption procedures.
2. Opinion and Consent of Jeffrey P. Johnson, Esq., as to the
legality of the securities being offered.
3. Not Applicable.
4. Not Applicable.
5. Not Applicable.
6. Opinion and Consent of Elizabeth H. MacGowan, F.S.A.,
M.A.A.A., as to actuarial matters pertaining to the
securities being registered.
7. (a) Consent of Price Waterhouse LLP.
(b) Consent of Sutherland, Asbill & Brennan LLP.
8. Powers of Attorney for Directors.*
- ------------------
* Incorporated herein by reference to Registration Statement on Form S-6
(File No. 333-44723) filed January 22, 1998, Accession No. 00009501
33-98-000165.
** Incorporated herein by reference to the Form S-6 Registration
Statement (File No. 33-91938) for National Variable Life Insurance
Account filed on May 5, 1995.
*** Incorporated herein by reference to Post-Effective Amendment No. 3
to the Form S-6 Registration Statement (File No. 33-16470) for
Vermont Variable Life Insurance Account filed April 30, 1990.
**** Incorporated herein by reference to Post Effective Amendment No. 1 to
S-6 Registration Statement File No. 33-91938 for National Variable
Life Insurance Account filed March 12, 1996, Accession Number
0000950133-96-000202.
***** Incorporated herein by reference to Post-Effective Amendment No. 3 to
the Form S-6 Registration Statement (File No. 33-16470) for Vermont
Variable Life Insurance Company filed April 30, 1990.
****** Incorporated herein by reference to Post Effective Amendment No. 2 to
the Form S-6 Registration Statement (File No. 33-91938) for National
Variable Life Insurance Account filed April 30, 1997 (Accession Number
000.950133-97-001551).
<PAGE> 103
SIGNATURES
Pursuant to the requirements of the Securities Act of 1933, the
Registrant, National Variable Life Insurance Account, has duly caused this
Pre-Effective Amendment No. 1 to the Registration Statement to be signed on its
behalf by the undersigned thereunto duly authorized, in the City of
Montpelier and the State of Vermont, on the 9th day of April, 1998.
NATIONAL VARIABLE LIFE INSURANCE ACCOUNT
(Registrant)
By: NATIONAL LIFE INSURANCE COMPANY
Attest: /s/ LISA A. PETTREY By: /s/ PATRICK E. WELCH
--------------------- -----------------------------
Patrick E. Welch
Assistant Secretary Chairman of the Board and
Chief Executive Officer
<PAGE> 104
SIGNATURES
Pursuant to the requirements of the Securities Act of 1933, National
Life Insurance Company has duly caused this Pre-Effective Amendment No. 1 to
the Registration Statement to be signed on its behalf by the undersigned
thereunto duly authorized, and its seal fixed and attested, in the City of
Montpelier and the State of Vermont, on the 9th day of April, 1998.
NATIONAL LIFE INSURANCE COMPANY
(SEAL) (Depositor)
Attest: /s/ LISA A. PETTREY By: /s/ PATRICK E. WELCH
--------------------- -----------------------------
Patrick E. Welch
Assistant Secretary Chairman of the Board and
Chief Executive Officer
Pursuant to the requirements of the Securities Act of 1933, this
Pre-Effective Amendment No. 1 Registration Statement has been signed below by
the following persons in the capacities indicated on the date(s) set forth
below.
<TABLE>
<CAPTION>
Signature Title Date
- --------- ----- ----
<S> <C> <C>
/s/ PATRICK E. WELCH Chairman of the Board and April 9, 1998
- ------------------------ and Chief Executive Officer
Patrick E. Welch
/s/ THOMAS H. MACLEAY President, Chief Operating April 9, 1998
- ------------------------ Officer and Director
Thomas H. MacLeay
/s/ Martin P. Klein Executive Vice President April 9, 1998
- ------------------------ Chief Financial Officer
Martin P. Klein
Robert E. Boardman* Director
- ------------------ ------------
Robert E. Boardman
David R. Coates* Director
- ---------------- ------------
David R. Coates
</TABLE>
<PAGE> 105
<TABLE>
<S> <C> <C>
Benjamin F. Edwards III* Director
- ----------------------- ------------
Benjamin F. Edwards III
Earle H. Harbison, Jr.* Director
- ---------------------- ------------
Earle H. Harbison, Jr.
Roger B. Porter* Director
- ---------------------- ------------
Roger B. Porter
E. Miles Prentice, III* Director
- ---------------------- ------------
E. Miles Prentice, III
Director
- ---------------- ------------
Thomas P. Salmon
A. Gary Shilling* Director
- ---------------- ------------
A. Gary Shilling
Thomas R. Williams* Director
- ------------------ ------------
Thomas R. Williams
Director
- ----------------- ------------
Patricia K. Woolf
*By /s/ PATRICK E. WELCH Date: April 9, 1998
--------------------------
Patrick E. Welch
Pursuant to Power of Attorney
</TABLE>
<PAGE> 106
EXHIBIT INDEX
1.
A.
(3) (c) Schedule of Sales Commissions
(5) (a) Sentinel Estate Provider Policy Form
(b) Rider for Guaranteed Death Benefit
(c) Rider for Additional Protection Benefit
(d) Rider for Policy Split option
(e) Rider for Estate Preservation
(f) Rider for Annually Renewable Term
(g) Rider for Continuing Coverage
(h) Rider for Enhanced Death Benefit
(i) Rider for Automatic Increase
(8) (a)(3) Form of Amendment No. 2 to Participation
Agreement among Market Street Fund., Inc.,
National Life Insurance Company and Equity
Services, Inc.
(b)(4) Form of Amendment No. 3 to Participation
Agreement Among Variable Insurance Products
Fund, Fidelity Distributors Corporation and
National Life Insurance Company
(c) Participation Agreement by and among National
Life Insurance Company, Strong Variable
Insurance Funds, Inc., Strong Special Fund
II, Strong Capital Management, Inc. and
Strong Funds Distributors, Inc.
(d)(3) Form of Amendment No. 2 to Participation
Agreement among Variable Insurance Products
Fund II, Fidelity Distributors Corporation
and National Life Insurance Company (as
successor to Vermont Life Insurance Company)
(e) Form of Participation Agreement among
National Life Insurance Company, American
Century Investment Management, Inc.
(f) Form of Participation Agreement among
National Life Insurance Company, Neuberger &
Berman Advisers Managers Trust.
(g) Form of Participation Agreement among
National Life Insurance Company, J. P. Morgan
Series Trust II.
(h) Form of Participation Agreement among
National Life Insurance Company, Goldman
Sachs Variable Insurance Trust.
(10) Sentinel Estate Provider Application Form.
(11) Memorandum describing issuance, transfer
and redemption procedures
<PAGE> 107
EXHIBIT INDEX (continued)
(2) Opinion and Consent of Jeffrey P. Johnson,
Esq.
(6) Opinion and Consent of Elizabeth H. MacGowan,
FSA, MAAA
(7) (a) Consent of Price Waterhouse LLP
(b) Consent of Sutherland, Asbill & Brennan LLP
<PAGE> 1
EXHIBIT 1(A)(3)(c)
Page 1 of 2
Schedule of Sales Commissions
(Broker-Dealers other than ESI)
Broker-dealers other than ESI are compensated for sales of this Policy on a
gross concession and service fee basis. The compensation is calculated as a
percentage of premium paid up to the Commissionable Target Premium (a target
amount used only to determine commission payments), plus a percentage of premium
paid in excess of Commissionable Target Premium. The schedule of percentage is
as follows:
Percent of Premium up to Commissionable Target Premium:
<TABLE>
<CAPTION>
Policy Year Gross Concession
- -----------
<S> <C>
1 90%
2-10 4%
11+ 1.5%
</TABLE>
Percent of Premium in excess of Commissionable Target Premium:
<TABLE>
<CAPTION>
Policy Year Gross Concession
- -----------
<S> <C>
1 4%
2-10 4%
11+ 1.5%
</TABLE>
Service fees beginning in policy year 5 of 0.20% of unloaned Accumulated Value
(paid quarterly)
<PAGE> 2
EXHIBIT 1(A)(3)(c)
Page 2 of 2
Schedule of Sales Commissions
(ESI Registered Representatives)
ESI Registered Representatives are compensated for sales of this Policy on a
commission and service fee basis. The compensation is calculated as a percentage
of premium paid up to the Commissionable Target Premium (a target amount used
only to determine commission payments), plus a percentage of premium paid in
excess of Commissionable Target Premium. The schedule of percentage is as
follows:
Percent of Premium up to Commissionable Target Premium:
<TABLE>
<CAPTION>
Policy Year Commission Service Fee
- ----------
<S> <C> <C>
1 50%
2-10 4.0%
11+ 1.5%
</TABLE>
Percent of Premium in excess of Commissionable Target Premium:
<TABLE>
<CAPTION>
Policy Year Commission Service Fee
- ---------- ---------- -----------
<S> <C> <C>
1 2%
2-10 2.0%
11+ 1.5%
</TABLE>
Service fees beginning in policy year 5 of 0.15% of unloaned Accumulated Value
(paid quarterly)
<PAGE> 1
EXHIBIT 1.A.(5)(a)
We, National Life Insurance Company, agree
to pay the Death Benefit to the
Beneficiary, subject to the terms of this
policy, when we receive at our Home Office
due proof that both of the Insureds died
while this policy was in force.
The final section of this policy, General
Terms of this Policy, defines terms used
in this policy.
ROLES IN THIS POLICY
---------------------------------------------------------------------
If used, the term "estate" of any person
shall be deemed to be a designation of the
executors or administrators of that person's
estate.
OWNER
The Owner holds all rights under this
policy. The Owner may take action without
the consent and against the interest of any
revocable Beneficiary and any contingent
owner. If the Owner has waived the right to
change the Beneficiary, action may be taken
by the Owner only with the written consent
of all irrevocable Beneficiaries. These
actions may be taken only during the lives
of one or both of the Insureds.
If an instrument of trust is identified as
the Owner of this contract, ownership will
extend to such trust as amended if the trust
is amendable, or to the successor(s) in said
trust or assigns.
INSUREDS
The Death Benefit becomes payable upon the
death of the second of the Insureds to die.
The Insureds, in their role as the Insureds,
have no rights and receive no benefits under
this policy.
BENEFICIARY
The Beneficiary receives the Death Benefit.
Unless later changed, the Beneficiary shall
be as stated in the application. The
interest of any Beneficiary who predeceases
the second of the Insureds to die shall vest
in the Owner unless otherwise stated.
Where two or more Beneficiaries are
designated to take in the alternative based
on the order of the Insureds' deaths and
there is not sufficient evidence that the
Insureds died other than simultaneously, one
half of the Death Benefit shall be paid as
if the first Insured had survived the second
Insured, and one half shall be paid as if
the second Insured had survived the first
Insured. This shall not apply if the
application or the Owner has provided for a
different payment.
CHANGE OF
BENEFICIARY
The Owner has the right to change the
Beneficiary. If the Owner expressly waives
this right, no change can be made without
the written consent of the Beneficiary.
A new Beneficiary may be named during the
lives of one or both of the Insureds by
filing at our Home Office written notice in
such form as we may require. When notice is
received at our Home Office, the change
shall take effect as of the date the notice
is signed whether or not either Insured is
living at the time of receipt. We will not
be liable for any payment we make before
receipt of the written notice at our Home
Office.
- --------------------------------------------------------------------------------
7461(0398)
<PAGE> 2
TRUST
BENEFICIARY
Unless an authorized officer or registrar of
the Company explicitly agrees otherwise in
writing, the following provision shall apply
when a trust is named as Beneficiary.
In no event is the Company responsible for
the application or disposition of any
proceeds it pays to a Trust Beneficiary.
Payment to a Trust Beneficiary is a full
discharge of the liability of the Company.
If a designated trust provides for successor
trustees, the designation in this policy
includes successor trustees. Likewise, if
the trust allows amendments, the trust, if
so amended, remains as a designated
Beneficiary.
A Trust Beneficiary is considered to be a
Beneficiary who did not survive the Insureds
if:
1. the trust has been terminated; or
2. the specified testamentary trust
does not qualify as such; or
3. for any other reason a Trust
Beneficiary is not entitled to
any proceeds.
UNNAMED
BENEFICIARY
We may rely on an affidavit by any person
who in our judgment knows the facts to
identify any Beneficiary not specified by
name. All our liability shall cease when we
pay on the basis of such affidavit.
If used, the term "children" of any person
shall include only lawful children born to
or legally adopted by that person.
ASSIGNMENTS
If this contract is assigned, such
assignment shall transfer to the assignee
the interest of:
1. any Beneficiary whom the assignor
can change; and
2. any contingent owner.
If the assignee acquires a right to
proceeds, they shall be paid in one sum even
though a Payment Option may be in effect at
the time the assignment was signed. However,
if we specifically agree, an assignment may
limit the method of payment of any proceeds.
We are not responsible for the validity or
effect of any assignment of this policy. We
will not recognize any assignment until it
has been filed at our Home Office.
SPENDTHRIFT
PROVISION
If we receive at our Home Office written
request by the Owner for this Spendthrift
Provision, then, to the extent allowed by
law and by this policy:
1. only the Owner may transfer,
anticipate, commute, or encumber
the proceeds of this policy; and
2. only legal process against the
Owner may affect the proceeds of
this policy.
Any proceeds payable after this request is
withdrawn by the Owner shall not be affected
by this provision.
PREMIUMS
---------------------------------------------------------------------
- --------------------------------------------------------------------------------
7461(0398)
<PAGE> 3
POLICY PROTECTION
PERIOD
The first 60 months following the Date of
Issue during which this policy remains
continuously in force is referred to as the
Policy Protection Period.
MINIMUM INITIAL
PREMIUM
A premium at least equal to the Minimum
Initial Premium stated in the Data Section
is due on the Date of Issue. Thereafter,
premiums may be paid towards this policy,
under the circumstances described below,
until the Final Premium Acceptance Date
stated in the Data Section.
MINIMUM
MONTHLY
PREMIUM
The Minimum Monthly Premium specific to this
policy is stated in the Data Section. It is
subject to change upon Changes in Face
Amount and Death Benefit Option, and upon
adding, changing, or deleting rider
coverages on this contract.
CUMULATIVE
MINIMUM
MONTHLY
PREMIUM
The Cumulative Minimum Monthly Premium at
any time is the sum of all Minimum Monthly
Premiums in effect on this policy for all
months elapsed since the Date of Issue.
During the Policy Protection Period payment
of total accumulated premiums, in excess of
withdrawals and debt, at least equal to the
Cumulative Minimum Monthly Premium, will
keep the policy in force to the next
Monthly Policy Date. If during the Policy
Protection Period, while this Cumulative
Minimum Monthly Premium test is met, the
Cash Surrender Value is not sufficient to
cover the Monthly Deductions, Monthly
Deductions will be deducted from the
Accumulated Value until the Accumulated
Value is exhausted, and will thereafter be
forgiven until such time as this policy has
positive Accumulated Value.
This policy will always remain
in force, both during the Policy Protection
Period and beyond, as long as the Cash
Surrender Value is sufficient to provide for
Monthly Deductions.
PLANNED PERIODIC
PREMIUMS
The Planned Periodic Premiums are the
premiums the Applicant has requested be
billed. The Owner may change the amount or
frequency of Planned Periodic Premiums at
any time by sending a written notice to us
at our Home Office.
Planned Periodic Premiums, however, may not
be more frequent than quarterly, except for
policies which are part of a group or
pension plan on which premiums are
accepted monthly, or for policies on which
the premiums are automatically withdrawn
from a checking account according to the
terms of a special billing arrangement
agreed to by the Company.
In addition, we will accept unscheduled
premiums, which are premiums in addition to
the Minimum Initial, Minimum Monthly, or
Planned Periodic Premiums.
All premiums are limited by a minimum and a
maximum. The minimum is $100 per premium
payment. The maximum is any limit imposed
by the Internal Revenue Code for qualifying
the policy as "Life Insurance" for Federal
Income Tax purposes. We will
- --------------------------------------------------------------------------------
7461(0398)
<PAGE> 4
not accept any premium in excess of the
maximum. We reserve the right to return
any premium, the payment of which, through
application of the Death Benefit Standard,
increases the Death Benefit of this policy
by an amount exceeding the dollar amount of
the premium paid.
No premium will be accepted on this policy
on or after the Final Premium Acceptance
Date.
The first premium may be paid to us either
through our duly authorized agent in
exchange for a receipt signed by that agent,
or at our Home Office. All subsequent
premiums must be paid to us at our Home
Office, and will be credited and allocated
on the day we receive them.
NET PREMIUM
A Net Premium is the amount of any premium
paid after the deduction of the applicable
Premium Expense Charge associated with that
premium.
PREMIUM
EXPENSE
CHARGE
We will deduct from each premium paid
percentages for the payment of premium taxes
before allocating such premium to the
Accumulated Value. The State Premium Tax
percentage and the percentage for Taxes
Attributed to Specified Policy Acquisition
Expenses under Internal Revenue Code Section
848 deducted from the premium paid as of the
Date of Issue of the policy are stated in
the Data Section.
We will deduct from each premium paid a
Percent of Premium Charge before allocating
such premium to the Accumulated Value. The
Current Percent of Premium Charge will not
exceed the Guaranteed Maximum Percent of
Premium percentages stated in the Data
Section.
PREMIUM
ALLOCATION
The Owner has the right to designate the
allocation of net premiums among the Fixed
Account and the Sub-Accounts of the Variable
Account. The initial allocation is shown in
the Data Section. That portion of the
premium due on the Date of Issue which is
allocated to the Fixed Account will be
transferred to the Fixed Account upon
receipt. However, any portion of the premium
due on the Date of Issue which is allocated
to a Sub-Account of the Variable Account
will be held in the Money Market Fund
Sub-Account until the end of the 20th day
following the Date of Issue. It will then be
transferred to any other accounts as
designated by the Owner.
The allocation must be made in percentages.
Each percentage must be a whole number.
Each allocation made must be at least five
percent.
The Owner may change the allocation of
future premiums by notifying us in writing
at our Home Office. Any allocation made will
remain in effect until changed. We reserve
the right to restrict the number of
different Sub-Accounts to which premiums are
allocated over the life of this contract to
seventeen.
GRACE PERIOD
A Grace Period shall start:
<PAGE> 5
- If on any Monthly Policy Date during
the Policy Protection Period,
both of the following occur:
1. the amount of Cash Surrender
Value is smaller than the amount
of the Monthly Deductions on that
date; and
2. the Cumulative Minimum Monthly
Premium is greater than a sum
equal to:
a) all premiums paid; less
b) all withdrawals made; less
c) any debt to us on this policy.
- If on any Monthly Policy Date on or
after the end of the Policy Protection
Period, the Cash Surrender Value is
smaller than the Monthly Deductions on
such date.
A Grace Period shall not be less than 61
days. During a Grace Period this policy
shall remain in force.
The premium needed to keep the policy in
force beyond a Grace Period shall be the net
premium sufficient to produce a Cash
Surrender Value equal to three times the
Monthly Deduction due on the date the Grace
Period began.
We will mail notice of the premium needed to
the Owner. If the premium needed is unpaid
on the 61st day after the notice is sent,
then the Grace Period shall end and this
policy shall terminate without value. This
policy shall then be null and void and all
rights shall cease, except as may be
provided in Reinstatement.
A Grace Period will not begin solely because
payments of Planned Periodic Premiums are
discontinued. Whether or not premiums are
paid, Charges Against the Accumulated Value
will be made.
REINSTATEMENT
If this policy terminates after the end of a
Grace Period, it may be reinstated. It must
be reinstated on a Monthly Policy Date
within five years from the start of such
Grace Period.
For Reinstatement we will require:
1. an application for Reinstatement;
and
2. proof to our satisfaction that
each Insured who was living at
the end of the Grace Period is
living and insurable; and
3. payment of a net premium which
will make the Cash Surrender
Value sufficient to provide:
a) two times the Monthly
Deduction due on the date
the Grace Period began; plus
b) three times the Monthly
Deduction due on the date of
Reinstatement.
We will send the Owner notice of the
required payment upon request.
In the event of Reinstatement, all schedules
of charges in effect on the date the Grace
Period began, except the Cost of Insurance
Charges, will resume as if uninterrupted.
The Cost of Insurance Charges will be
applied at the Attained Ages of the
Insureds.
<PAGE> 6
DEATH BENEFIT AND POLICY CHANGES
---------------------------------------------------------------------
DEATH BENEFIT
We will pay the Death Benefit to the
Beneficiary when we receive at our Home
Office due proof that both Insureds died
while this policy was in force. We will pay
the Death Benefit in one sum unless a
Payment Option is chosen. If the Death
Benefit is paid in one sum, it shall be
increased by interest from the date we
receive proof of death of the second of the
Insureds to die to the date of payment. We
will set the rate of interest at not less
than the Minimum Interest Paid on Death
Claims percentage shown in the Data Section.
SUICIDE
LIMITATION
If either of the Insureds dies within two
years of the Date of Issue as the result of
suicide, while sane or insane, we will pay
only a sum equal to:
1. the premiums paid; less
2. any debt to us on this policy; less
3. any withdrawals made.
This policy shall immediately terminate on
the first such death by suicide. Payment
will be made to the Beneficiary.
A similar two year period shall apply to any
increase in Face Amount for which an
application is required. Such period shall
begin on the Effective Date of any such
increase. During such period if either
Insured dies as the result of suicide, we
will terminate the increase segment, and
will refund to the Owner only a sum equal to
the Cost of Insurance Charges that we have
deducted from the Accumulated Value for such
increase. However, if such increase became
effective within two years after the
Effective Date of a Reinstatement, we will
pay only the amount set forth in the next
paragraph.
<PAGE> 7
If this policy is reinstated, a similar two
year period shall start from the Effective
Date of the Reinstatement. During such
period, if either Insured dies as the result
of suicide, while sane or insane, we will
pay only a sum equal to:
1. the premiums paid since the
Effective Date of the
Reinstatement; less
2. any debt to us on this policy;
less
3. any withdrawals made since the
Effective Date of the
Reinstatement.
NOTICE OF DEATH
AND CLAIMS
The Owner must notify us as soon as
reasonably possible of the death of each
Insured. We may require proof whether both
Insureds are living two years from the Date
of Issue. On the death of the first Insured
to die we will require the Owner to provide
us with evidence of death and proof of age
and, if the death is within two years from
the Date of Issue, the cause of death.
QUALIFICATION AS
LIFE INSURANCE
This policy will retain its qualification
as "Life Insurance" under Section 7702 of
the Internal Revenue Code according to the
requirements of the Guideline Premium and
Cash Value Corridor Test.
DEATH BENEFIT
OPTIONS
The Owner may elect either of two Death
Benefit Options, Option A or Option B, for
the period prior to the Final Premium
Acceptance Date. The Death Benefit Option in
effect on this policy is stated in the Data
Section.
OPTION A
Under Option A the Death Benefit shall be
the greater of the Death Benefit Standard or
the following:
1. the Face Amount on the date of
death of the second of the
Insureds to die; less
2. the amount of any Monthly
Deductions then due; less
3. any debt to us on this policy.
OPTION B
Under Option B the Death Benefit shall be
the greater of the Death Benefit Standard or
the following:
1. the Face Amount on the date of
death of the second of the
Insureds to die; plus
2. the Accumulated Value of this
policy on the date of death of
the second of the Insureds to
die; less
3. the amount of any Monthly
Deductions then due; less
4. any debt to us on this policy.
DEATH BENEFIT
STANDARD
The Death Benefit Standard is established in
conformance with Section 7702 of the
Internal Revenue Code, which defines "Life
Insurance" for Federal Income Tax
purposes. The Death Benefit Standard is:
1. the Death Benefit Factor
multiplied by the Accumulated
Value of the policy on the date
of death of the second of the
Insureds to die; less
2. the amount of any Monthly
Deductions then due; less
3. any debt to us on this policy.
The Death Benefit Factors for this policy
are stated in the Data Section.
CHANGES IN FACE
AMOUNT AND
<PAGE> 8
DEATH BENEFIT
OPTION
The Face Amount is the sum of the Base
Coverage and any Additional Protection
Benefit provided through an Additional
Protection Benefit Rider attached to this
policy and all Automatic Increase Coverages
added under an Automatic Increase Rider
attached to this policy.
The Owner may request any of the following
changes. We will make a change subject to
the conditions stated. In addition, the
following conditions apply to all of these
changes:
1. These changes may be made only
after the first Policy Anniversary.
2. Any change will initiate a
redetermination of the Minimum
Monthly Premium.
We will send the Owner a revised or
additional Data Section if any of these
changes is made.
FACE AMOUNT INCREASES. A Face Amount
Increase may be made only while both
Insureds are living.
Face Amount Increases may be made in
conformance with our policy issue limits. We
will require an application from the Owner
and proof to our satisfaction that both
Insureds are then insurable. An increase in
Face Amount, and an associated
redetermination of the Minimum Monthly
Premium, shall be effective upon the Monthly
Policy Date next following our approval. Any
increase in Face Amount must be at least as
large as the Minimum Increase Amount stated
in the Data Section.
Face Amount Increases may be limited by our
condition that the Accumulated Value
immediately following the increase must be
at least equal to the sum of the Surrender
Charges associated with the original
coverage and the increase in coverage.
FACE AMOUNT DECREASES. We will require a
written request by the Owner. A decrease in
Face Amount, and an associated
redetermination of the Minimum Monthly
Premium, shall be effective upon the Monthly
Policy Date on or next following our receipt
of the request.
Decreases shall not be permitted which would
reduce the Face Amount to less than any of
the following:
- the minimum insurance
amount for which the policy
would qualify as "Life
Insurance" for Federal
Income Tax purposes under
the Internal Revenue Code; or
- the Minimum Base Coverage shown
in the Data Section; or
- 75% of the largest Face Amount
in force at any time in the
twelve policy months
immediately preceding our
receipt of the request.
A decrease in total coverage shall apply in
the following order:
- first, to any increases in Face
Amount in the reverse order in
which they were made;
- second, to the Face Amount on
the Date of Issue.
If an increase in Base Coverage, addition
of Additional Protection Benefit, and/or
addition of an Automatic Increase Coverage
were performed simultaneously, the
Automatic Increase Coverage will be removed
first, followed by the Additional
Protection Benefit, and finally any other
increases made in Base Coverage.
DEATH BENEFIT OPTION CHANGES. The Death
Benefit Option may be changed once each
Policy Year prior to the Final Premium
Acceptance Date. A Death Benefit Option
Change may be made only while both Insureds
are living. We will require a written
request from the Owner. A change will be
effective on the Monthly Policy Date on or
next following our receipt of the request.
The change will be made only if after such
<PAGE> 9
change the policy would qualify as "Life
Insurance" for Federal Income Tax purposes
under the Internal Revenue Code.
Upon a change from Option A to Option B, the
Face Amount shall decrease by an amount
equal to the Accumulated Value of the policy
just prior to the Effective Date of the
change. However, the change may be made only
if after such change the Face Amount would
not be below the Minimum Base Coverage shown
in the Data Section. The decrease in Face
Amount will be performed in the order
described in Face Amount Decreases, above.
Upon a change from Option B to Option A, the
Face Amount shall increase by an amount
equal to the Accumulated Value just prior to
the Effective Date of the change.
INSURANCE
CONTINUATION
On the Final Premium Acceptance Date stated
in the Data Section, if this policy is still
in force, the Face Amount of this policy
will be set equal to the Accumulated Value,
and the Death Benefit Option will
automatically revert to Option A. The Death
Benefit Option may not thereafter be
changed, and no additional premium will be
accepted on this policy. All Accumulated
Value will be transferred to the Fixed
Account, and no transfers will be thereafter
allowed. All Monthly Deductions on this
policy will cease. The Owner may, however,
continue to access the Cash Surrender Value
and to make or repay Policy Loans.
INVESTMENT
---------------------------------------------------------------------
Investment of the Accumulated Value of the
policy may be made in the Fixed Account
and/or in one or more of the Sub-Accounts of
the National Variable Life Insurance Account
(herein called the "Variable Account"). The
Accumulated Value in the Variable Account is
based on the investment experience of the
chosen Sub-Account(s) of the Variable
Account, and may increase or decrease daily.
It is not guaranteed as to dollar amount.
FIXED ACCOUNT
The Fixed Account is composed of the
admitted assets of National Life Insurance
Company other than those in the Variable
Account or any other separate account.
INTEREST RATES
CREDITED TO THE
ACCUMULATED
VALUE IN THE
FIXED ACCOUNT
The rate of interest credited on any portion
of the Accumulated Value in the Fixed
Account shall never be less than the Minimum
Fixed Account Interest Rate shown in the
Data Section. We may credit interest at a
higher interest rate. Any higher interest
rate credited on Accumulated Value in the
Fixed Account shall remain in effect for at
least a one-year period.
Allocations to the Fixed Account made at
different times may be credited interest at
different rates. Each month we will declare
an interest rate to apply to amounts
allocated
<PAGE> 10
or transferred to the Fixed Account during
that month. The rate declared on such
amounts will remain in effect for twelve
months. At the end of the twelve month
period, such amounts and accrued interest
thereon will rollover for interest crediting
at a new rate. The interest credited to such
rollover amounts may be at a different rate
than that applicable to new allocations to
the Fixed Account on that date.
Interest at different rates may be credited
to:
1. that portion which is equal to
any debt to us on this policy;
and
2. any portion in excess of any such
debt.
VARIABLE
ACCOUNT
The Variable Account is composed of assets
owned by National Life Insurance Company.
These assets are held separate and apart
from Fixed Account assets. The Variable
Account is devoted exclusively to the
investment of assets of variable life
insurance policies. Income, gains, and
losses from assets allocated to the Variable
Account, whether or not realized, are
credited to or charged against such account
without regard to our other income, gains,
or losses. The portion of the assets of the
Variable Account equal to the reserves and
other liabilities for these policies shall
not be chargeable with liabilities arising
out of any other business which we may
conduct.
We may transfer assets which exceed the
reserves and other liabilities of the
Variable Account to our Fixed Account.
The Variable Account is registered with the
Securities and Exchange Commission as a
unit investment trust under the Investment
Company Act of 1940 ("the 1940 Act").
It is also governed by applicable state law.
We may make certain changes if, in our sole
judgment, they would best serve the
interests of the owners of policies such as
this one or would be appropriate in carrying
out the purposes of such policies. Any
changes will be made only if permitted by
applicable laws and regulations. Also, when
required by law, we will obtain the approval
of policyowners of the changes and the
approval of any appropriate regulatory
authority.
For example, we may:
1. operate the Variable Account as a
management company under the 1940
Act;
2. deregister the Variable Account
under the 1940 Act if
registration is no longer
required; and
3. combine or substitute Variable
Accounts; and
4. create new Variable Accounts; and
5. transfer all or part of the
assets of the Variable Account to
another Variable Account or to
the Fixed Account; and
6. add new investment funds or
remove existing investment funds;
and
7. make any changes necessary to
comply with, or obtain and
continue any exemptions from the
1940 Act; and
8. make any other necessary
technical changes in this policy
to conform with any action this
provision permits us to take.
SUB-ACCOUNTS
The Variable Account has several
Sub-Accounts. Each Sub-Account will buy
shares of an investment fund. Each
investment fund represents a separate
investment portfolio.
<PAGE> 11
If, in our judgment, an investment fund no
longer suits the investment goals of the
policy, or tax or marketing conditions so
warrant, we may substitute shares of another
investment fund or shares of another
investment company.
Income and realized and unrealized gains or
losses from the assets of each Sub- Account
of the Variable Account are credited to or
charged against that Sub-Account without
regard to income, gains, or losses in the
other Sub-Accounts of the Variable Account,
the Fixed Account, or any other separate
accounts. We reserve the right to credit or
charge a Sub-Account in a different manner
if required, or made appropriate, by reason
of a change in the law. We maintain records
of all purchases and redemptions of
investment fund shares by each of the
Sub-Accounts.
VALUATION
We will value the assets of each Sub-Account
of the Variable Account on each Valuation
Date.
TRANSFERS
Subject to any applicable Transfer Charges,
the Owner may transfer Accumulated Value
among the Sub-Accounts or to the Fixed
Account without limitation. However, only
one transfer from the Fixed Account to the
Variable Account may be made during any
Policy Year. The Accumulated Value
transferred from the Fixed Account in any
Policy Year may not exceed the greater of:
- 25% of the unloaned portion of the
Accumulated Value in the Fixed Account
immediately prior to the transfer; and
- $1,000.
POLICY VALUES
---------------------------------------------------------------------
ACCUMULATED
VALUE OF THE
POLICY
The Accumulated Value of the policy is equal
to the sum of the Accumulated Value in the
Fixed Account and the Accumulated Value in
the Variable Account.
ACCUMULATED
VALUE IN THE
FIXED ACCOUNT
The Accumulated Value in the Fixed Account
on any day is:
1. the Accumulated Value in the
Fixed Account on the just prior
Monthly Policy Date, if any; plus
2. interest on the Accumulated Value
in the Fixed Account on the just
prior Monthly Policy Date from
the just prior Monthly Policy
Date to such day; plus
3. the amount of all net premiums
accepted since the just prior
Monthly Policy Date which are
allocated to the Fixed Account;
plus
4. interest on item (3) from the
date of net premium allocation to
the Fixed Account to such day;
plus
5. the amount of all Accumulated
Values transferred to the Fixed
Account from a Sub-Account of the
Variable Account since the just
prior Monthly Policy Date; plus
<PAGE> 12
6. interest on item (5) from the
date of the transfer to such day;
less
7. the amount of all Accumulated
Values transferred from the Fixed
Account to a Sub-Account of the
Variable Account since the just
prior Monthly Policy Date; less
8. interest on item (7) from
the date of transfer to such day;
less
9. the amount of all Accumulated
Values withdrawn from the Fixed
Account since the just prior
Monthly Policy Date; less
10. interest on item (9) from the
date of withdrawal to such day;
less
11. any Monthly Deduction allocated
to the Fixed Account for the
month next following the Monthly
Policy Date which is due on such
day.
ACCUMULATED
VALUE IN THE
VARIABLE
ACCOUNT
The Accumulated Value in the Variable
Account is the sum of the Accumulated Values
in each Sub-Account of the Variable Account.
On any later day which is a Valuation Date,
the policy's Accumulated Value in each
Sub-Account is the number of units in the
Sub-Account multiplied by the Unit Value on
that date.
On any date after the Date of Issue other
than a Valuation Date, the Accumulated Value
in a Sub-Account is the Accumulated Value of
such Sub-Account on the next following
Valuation Date.
UNITS IN A SUB-
ACCOUNT
Amounts allocated, transferred, or added to
a Sub-Account are used to purchase units in
that Sub-Account. Any such amount increases
the number of units credited to that
Sub-Account. The number of units credited to
the Sub-Account equals the dollar amount
directed to the Sub-Account divided by the
Unit Value for that Sub-Account for the
Valuation Date as of which the transaction
is performed.
Units are redeemed from a Sub-Account when
amounts are deducted, transferred, or
withdrawn from the Sub-Account. Any such
amount decreases the number of units
credited to that Sub-Account. The number of
units redeemed from the Sub-Account equals
the dollar amount redeemed from the
Sub-Account divided by the Unit Value for
that Sub-Account for the Valuation Date as
of which the transaction is performed.
UNIT VALUE
The Unit Value in a Sub-Account on any
Valuation Date is equal to that Unit Value
on the immediately preceding Valuation Date
multiplied by the Net Investment Factor in
effect for that Sub-Account.
NET INVESTMENT
FACTOR
Each Sub-Account of the Variable Account has
its own Net Investment Factor. The Net
Investment Factor measures the performance
of the Sub-Account for individual Valuation
Periods. The Net Investment Factor is
calculated as follows:
1. Take the net asset value per
share of the corresponding
investment fund on the current
Valuation Date.
<PAGE> 13
2. Add the per share capital gain or
loss and dividend distribution of
the investment fund during the
current Valuation Period.
3. Divide the result of item (2) by
the net asset value per share of
the corresponding investment fund
on the just prior Valuation Date.
4. Subtract from the result of item
(3) any Tax Charge during the
current Valuation Period.
The result of item (4) is the Net Investment
Factor on the current Valuation Date.
Net asset values per share of corresponding
investment funds reflect fees and operating
expenses deducted by investment advisors.
ACCUMULATED
VALUE UPON
REINSTATEMENT
If this policy is reinstated, the
Accumulated Value on the date of
Reinstatement shall be:
1. the Accumulated Value on the date
the Grace Period began; less
2. two times the Monthly Deduction
due on the date the Grace Period
began; plus
3. the net premium paid to reinstate
the policy; less
4. the Monthly Deduction due on such
date.
CASH SURRENDER
VALUE
The Owner may, by written request to us,
surrender this policy while one or both of
the Insureds are living for its Cash
Surrender Value. We may require that the
policy be returned to us. When this policy
has been surrendered, it shall be null and
void and all rights shall cease. Proceeds
shall be paid in one lump sum unless a
Payment Option is chosen.
The Cash Surrender Value on any day shall be
equal to:
1. the Accumulated Value on such
day; less
2. any debt to us on this policy;
less
3. any Surrender Charges which apply
on such day.
SURRENDER
CHARGES
Surrender Charges, according to the schedule
presented in the Data Section, apply during
the first 120 Policy Months following the
Effective Date of any segment of coverage.
An increase in Base Coverage will be
accompanied by a New Data Section which
will present the Surrender Charge Schedule
associated with the increase.
DIVIDENDS
We may credit this policy with shares,
called dividends, from our divisible
surplus. However, it is expected that no
dividends will be credited to this policy.
Any dividends shall be set by us and shall
be credited on the policy anniversary. Any
dividends credited shall be paid in cash.
CHARGES AGAINST THE ACCUMULATED VALUE
---------------------------------------------------------------------
TAX CHARGE
<PAGE> 14
We reserve the right to deduct any charge
for taxes or amounts set aside as a reserve
for taxes in determining the value of an
Accumulated Value Unit for each of the
Sub-Accounts in the event that such a tax is
levied on that Sub-Account in the future.
MONTHLY
DEDUCTION
The Monthly Deduction is the sum of the
Cost of Insurance Charge, the Variable
Account Charge, and the Monthly
Administrative Charge and any rider
charges. The Monthly Deduction shall be
deducted from the Accumulated Value of the
policy on the Monthly Policy Date, as
follows:
1. The Owner may elect to allocate
the Monthly Deduction entirely to
the Money Market Fund
Sub-Account, by notifying us in
writing. If the Accumulated
Value in the Money Market Fund
Sub-Account is not sufficient to
provide for the entire Monthly
Deduction on a Monthly Policy
Date, the Monthly Deduction will
be taken from the Money Market
Fund Sub-Account until that
account is exhausted, and any
additional amount necessary to
fund the full Monthly Deduction
shall be allocated among and
deducted from the unloaned
portion of the Fixed Account and
the other Sub-Accounts on a pro
rata basis.
2. If the Owner does not elect 1,
above, the Monthly Deduction
shall be allocated among and
deducted from the unloaned
portion of the Fixed Account and
the Sub-Accounts on a pro rata
basis.
COST OF
INSURANCE
CHARGE
The Cost of Insurance rate for each segment
of coverage on any day shall be based on
the issue ages and duration of each
coverage segment, the sexes and rate class
of each Insured, and any substandard rating
applied to either Insured on the Date of
Issue or upon any increase in Face Amount.
On any Monthly Policy Date, the Cost of
Insurance Charge of the policy shall be the
Cost of Insurance rates on such date
multiplied by the excess of:
1. the Death Benefit of the policy
plus any debt to us on the policy
divided by the Cost of Insurance
Divisor; over
2. the Accumulated Value of the
policy on such date before the
Cost of Insurance Charge is
deducted.
We may change the Cost of Insurance rates
from time to time based on our expectations
of future experience. Any change in the Cost
of Insurance rates shall apply to all
policies of the same duration, insuring
persons of the same sexes, Attained Ages,
and rate classes as the Insureds.
The Cost of Insurance rates applicable to
each segment of coverage shall not be
greater than the guaranteed rates set forth
in the Data Section. These rates are based
on the Mortality Table named in the Data
Section.
The rate class of the Insureds at the time
of an increase in Face Amount for which an
application is required may differ from the
rate class on the Date of Issue. For
determining the Cost of Insurance Charge:
1. the Accumulated Value is first
considered part of the Base
Coverage on the Date of Issue;
and
<PAGE> 15
2. then, part of any Additional
Protection Benefit on the Date of
Issue; and
3. then, coverage segments are
addressed in their order of
occurrence. If more than one
segment was added on the same
day, segments are addressed in
the prioritization described in
the Changes in Face Amount and
Death Benefit Option provision
of this contract.
4. If the Death Benefit is the
Death Benefit Standard, the
excess of the Death Benefit over
the total Face Amount divided by
the Cost of Insurance Divisor is
assigned the rate class of the
Base Coverage in effect on the
Date of Issue.
VARIABLE
ACCOUNT CHARGE
The Variable Account Charge Percentage shown
in the Data Section will be applied against
Accumulated Value in the Variable Account on
the Monthly Policy Date to determine the
monthly Variable Account Charge. This
monthly charge, assessed to cover mortality
and expense risk, will never exceed that
determined using the Guaranteed Maximum
Variable Account Charge Percentage shown in
the Data Section.
MONTHLY
ADMINISTRATION
CHARGE
The Monthly Administrative Charges are shown
in the Data Section. Increases in Base
Coverage will increase the Monthly per
$1,000 Administrative Charge but this charge
will not be reduced upon a decrease in Base
Coverage.
TRANSFER CHARGE
We may charge a Transfer Charge for the
thirteenth and each subsequent requested
transfer of Accumulated Value between and
among the Fixed Account and the Sub-
Accounts occurring during any Policy Year.
Transfers to or from more than one account
at the same time shall be treated as one
transfer. The Transfer Charge may not exceed
the Maximum Transfer Charge stated in the
Data Section. Transfer Charges shall be
allocated among and deducted from the Fixed
Account and the Sub-Accounts in proportion
to the Accumulated Values to be transferred
from such accounts.
No Transfer Charge will be imposed for the
following transactions, nor will any of the
following transactions be counted against
the twelve free transfers allowed each
Policy Year:
1. the transfer of all Accumulated
Value to the Fixed Account if
during the first two Policy Years
and in one transaction; and
2. the transfer of Accumulated Value
from a Sub-Account of the
Variable Account to another
Sub-Account or to the Fixed
Account, if there has been a
material change in the investment
policy of the fund in which the
funds of that Sub- Account are
invested; and
3. the initial allocation of the
premium due on the Date of Issue
from the Money Market Fund
Sub-Account; and
4. transfers of Accumulated Value
from the Variable Account into
the Fixed Account pursuant to the
taking of a Policy Loan; and
5. allocation of the payment of any
debt to us on this policy
<PAGE> 16
WITHDRAWALS
---------------------------------------------------------------------
After the first policy anniversary, the
Owner may make withdrawals by written
request to us. Withdrawals shall be subject
to all of the following terms.
1. The amount withdrawn may not be
less than the Minimum Withdrawal
Amount stated in the Data
Section.
2. The amount withdrawn may not
exceed the Cash Surrender Value
on the date of withdrawal less
three times the Monthly
Deduction for the most recent
Monthly Policy Date.
3. The amount withdrawn may not be
such that it reduces the Face
Amount below the Minimum Base
Coverage stated in the Data
Section.
The Accumulated Value will be reduced by the
amount of the withdrawal.
If Death Benefit Option A is in effect on
the date of the withdrawal and if the Face
Amount divided by the Death Benefit Factor
on the date of the withdrawal exceeds the
Accumulated Value of the policy just after
the withdrawal, the Face Amount shall also
be decreased. The decrease in Face Amount
shall equal the lesser of such excess or the
amount of the withdrawal. A decrease in
total insurance coverage shall apply first
to any increases in Face Amount in the
reverse order in which they were made, and
then to the Face Amount on the Date of
Issue.
If Death Benefit Option B is in effect on
the date of the withdrawal, there shall be
no decrease in the Face Amount.
WITHDRAWAL
CHARGE
We will assess a Withdrawal Charge equal to
the lesser of:
- 2% of the amount withdrawn; and
- $25.
This Withdrawal Charge will be deducted from
the amount withdrawn.
ALLOCATION OF
WITHDRAWALS
The amount withdrawn shall be allocated
among and deducted from the Accumulated
Values held in each account according to the
following prioritization:
1. first, from the Accumulated Value
held in specific Sub-Accounts as
specified by the Owner, if the
Owner so specifies; and
2. second, from the Accumulated
Value in the Sub-Accounts on a
pro rata basis; and
3. finally, from the non-loaned
Accumulated Value held in the
Fixed Account.
If the Accumulated Value in any Sub-Account
from which the Owner has requested that
withdrawals be allocated and deducted is
insufficient to cover the amount of the
withdrawal, the withdrawal will not be
processed until further instructions are
received by us from the Owner.
POLICY LOANS
---------------------------------------------------------------------
<PAGE> 17
We will loan an amount up to the Loan Value
of this policy less the amount of any
outstanding debt, at any time after the
first Policy Year. At the time of the loan
the policy must be in force. The policy
shall be the sole security for the loan and
must be duly assigned to us.
LOAN VALUE
The Loan Value on any day is equal to:
1. the Accumulated Value on such
day; less
2. the Surrender Charges on such
day; less
3. three times the Monthly
Deduction for the most recent
Monthly Policy Date.
LOAN INTEREST
RATE
Any loan shall bear interest from the date
the loan is made. The Loan Interest Rate is
shown in the Data Section.
GENERAL LOAN
TERMS
After the loan is made, loan interest shall
be due on the next and all later Policy
Anniversaries. On the date interest is
due, it shall be added to the loan and
bear interest on the same terms.
The debt secured by this policy includes
loans, unpaid loan interest, and accrued
loan interest not otherwise due.
All or any part of the debt may be paid to
us at any time prior to:
1. the death of the second of the
Insureds to die; and
2. surrender of the policy.
However, during a Grace Period the debt may
not be repaid.
All payments made to repay debt will be used
to reduce the amount of loans. Unless the
Owner specifies, any payment to us shall
be deemed a premium payment and not a
payment of the debt. At the death of the
Insured or upon the surrender of the
policy, all debt shall become due at once.
It shall be paid from the policy values.
ALLOCATION OF
POLICY LOANS
The loaned amounts allocated to the
Sub-Accounts shall be transferred from the
Sub-Accounts and placed into the Fixed
Account. Policy Loans shall be allocated
among and transferred from the Accumulated
Values held in each account according to the
following prioritization:
1. first, from the Accumulated Value
held in specific Sub-Accounts as
specified by the Owner, if the
Owner so specifies; and
2. second, from the Accumulated
Value in the Sub-Accounts on a
pro rata basis ; and
3. finally, from the non-loaned
Accumulated Value held in the
Fixed Account.
If the Accumulated Value in any Sub-Account
from which the Owner has requested that
loaned amounts be transferred is
insufficient to cover the amount of the
loan, the loan will not be processed until
further instructions are received from the
Owner.
<PAGE> 18
Loan repayments shall be allocated among the
Fixed Account and the Sub-Accounts in
proportion to the Premium Allocation
percentages assigned by the Owner.
Loan interest due shall be allocated
among and transferred, on the date the
interest is due, from the Accumulated
Values held in each account:
1. first, from the Accumulated
Values held in the Sub-Accounts
on a pro rata basis until those
accounts are exhausted; and
2. then from the non-loaned
Accumulated Value held in the
Fixed Account.
These amounts shall be placed in, or
segmented within, the Fixed Account.
PAYMENT OPTIONS
---------------------------------------------------------------------
In lieu of a lump sum settlement, all or
part of the proceeds of this contract may be
applied under a Payment Option. When
proceeds are applied under a Payment Option,
all other rights and benefits under this
contract shall cease.
In addition to the following options, other
payment options may be available.
OPTION EFFECTIVE
DATE
The Option Effective Date is the date the
proceeds become payable.
GENERAL PAYMENT
OPTION TERMS
If the proceeds to be placed under a Payment
Option are less than $3,500, we may pay them
in one sum to the payee who otherwise would
receive the first payment under the option.
If any payments would be less than $100, we
will change the frequency to provide
payments of at least $100.
If the proceeds are assigned on the Option
Effective Date, we will pay the assignee's
share in one sum and place only the balance
under the option. After the Option Effective
Date neither the payments nor the remaining
value may be assigned or encumbered. To the
extent the law permits, they are not subject
to any claims against the payee.
We may require proof to our satisfaction
that any payee is alive on the date any
payment is due.
CHOICE OF OPTION
Choice of an option may be made:
1. by the Owner if one or both of
the Insureds are living; or
2. by the Beneficiary if neither
Insured is living and no option
is in effect.
Equivalent payments for 12-, 6-, 3-, or
1-month intervals may be chosen. The options
are described in terms of monthly payments.
We will quote the amount of other payments
on request.
We may issue a document stating the terms of
the option.
<PAGE> 19
CHANGE OF
PAYMENT OPTION
The right to change Payment Options exists
under Options 1, 2, and 4. At the time of
change the remaining value under the old
option shall become the proceeds to be
placed under the new option.
LUMP SUM
REMOVAL OF
PROCEEDS APPLIED
UNDER A PAYMENT
OPTION
Lump sum payments may be taken from the
remaining proceeds placed under Payment
Options 1, 2, and 4.
Under Options 1 and 4 all or any part of the
remaining value may be taken at any time,
though no more than four transactions may be
made during any calendar year.
Under Option 2 the entire remaining value
may be taken at any time.
No lump sum removal of proceeds may be made
under Options 3, 5, 6, and 7.
OPTION 1 -
PAYMENT OF
INTEREST ONLY
Interest at a rate of 3 1/2% per year shall
be paid either for:
1. the life of a chosen human being;
or
2. a chosen period.
We may pay more interest in any given year.
Upon the earlier of the death of the chosen
human being or the end of the chosen period,
any remaining value will be paid. The first
payment shall be made one month after the
Option Effective Date. If the payee is not a
human being, payments may not continue for
more than 30 years.
OPTION 2 -
PAYMENTS FOR A
STATED TIME
Equal monthly payments shall be made for a
stated number of years. The first payment
shall be made on the Option Effective Date.
The amount of each monthly payment is shown
in the table. The monthly payments are based
on an interest rate of 3 1/2% per year. We
may pay more interest in any year.
OPTION 2 TABLE
MONTHLY PAYMENTS FOR EACH $1,000 OF PROCEEDS
<TABLE>
<CAPTION>
Stated Number of Years Monthly Payments
<S> <C>
1 $84.65
2 43.05
3 29.19
4 22.27
5 18.12
</TABLE>
<PAGE> 20
<TABLE>
<S> <C>
6 15.35
7 13.38
8 11.90
9 10.75
10 9.83
11 9.09
12 8.46
13 7.94
14 7.49
15 7.10
16 6.76
17 6.47
18 6.20
19 5.97
20 5.75
21 5.56
22 5.39
23 5.24
24 5.09
25 4.96
26 4.84
27 4.73
28 4.63
29 4.53
30 4.45
</TABLE>
OPTION 3 -
PAYMENTS FOR
LIFE
Equal monthly payments shall be made for any
guaranteed period chosen and thereafter
during the life of a chosen human being. The
first payment shall be made on the Option
Effective Date. The amount of each monthly
payment depends on the age and sex of the
chosen human being on the Option Effective
Date and on any guaranteed period chosen. We
may require proof to our satisfaction of
such age. We may require like proof that
such human being is alive on the date any
payment is due. The guaranteed period may be
five or ten years or a Refund period. A
Refund period extends until the sum of the
payments is equal to the proceeds placed
under the option. The monthly payments are
based on an interest rate of 3 1/2% per
year. We may pay more interest in any year
during the guaranteed period. We will quote
the amount of monthly payments for lower
ages and guaranteed periods not shown in the
Option 3 Table on request.
OPTION 3 TABLE
MONTHLY PAYMENTS FOR EACH $1,000 OF PROCEEDS
(Amounts shown are for the age nearest birthday on the Option Effective Date)
Guaranteed Period
<TABLE>
<CAPTION>
Male Female
Age None 10 Years Refund None 10 Years Refund
<S> <C> <C> <C> <C> <C> <C>
50 $4.44 $4.40 $4.29 $4.10 $4.09 $4.03
51 4.52 4.47 4.35 4.16 4.14 4.08
</TABLE>
<PAGE> 21
<TABLE>
<S> <C> <C> <C> <C> <C> <C>
52 4.59 4.54 4.42 4.22 4.20 4.13
53 4.67 4.62 4.48 4.29 4.26 4.19
54 4.76 4.70 4.55 4.35 4.33 4.24
55 4.85 4.78 4.62 4.42 4.39 4.30
56 4.94 4.86 4.70 4.50 4.47 4.37
57 5.04 4.96 4.78 4.58 4.54 4.44
58 5.15 5.05 4.86 4.66 4.62 4.51
59 5.26 5.15 4.95 4.75 4.70 4.58
60 5.38 5.26 5.04 4.85 4.79 4.66
61 5.51 5.37 5.14 4.95 4.89 4.74
62 5.65 5.49 5.24 5.06 4.99 4.83
63 5.80 5.62 5.35 5.17 5.09 4.92
64 5.96 5.75 5.47 5.30 5.20 5.02
65 6.13 5.88 5.59 5.43 5.32 5.12
66 6.31 6.03 5.71 5.57 5.44 5.23
67 6.51 6.17 5.84 5.72 5.57 5.34
68 6.72 6.33 5.98 5.88 5.71 5.47
69 6.94 6.48 6.13 6.05 5.85 5.60
70 7.18 6.65 6.28 6.24 6.01 5.73
71 7.43 6.81 6.45 6.44 6.17 5.87
72 7.70 6.98 6.61 6.66 6.34 6.03
73 7.99 7.15 6.79 6.90 6.51 6.19
74 8.29 7.33 6.99 7.16 6.69 6.37
75 8.62 7.50 7.17 7.44 6.88 6.55
76 8.98 7.67 7.38 7.74 7.07 6.74
77 9.35 7.85 7.61 8.06 7.27 6.95
78 9.76 8.02 7.84 8.41 7.46 7.16
79 10.19 8.18 8.08 8.79 7.66 7.39
80 10.66 8.34 8.35 9.20 7.86 7.65
81 11.15 8.50 8.59 9.65 8.05 7.90
82 11.68 8.65 8.88 10.13 8.24 8.16
83 12.24 8.79 9.19 10.65 8.42 8.45
84 12.83 8.91 9.47 11.21 8.59 8.74
85+ 13.46 9.04 9.81 11.82 8.74 9.09
</TABLE>
+ Higher ages the same
OPTION 4 -
PAYMENTS OF A
STATED AMOUNT
Equal monthly payments of a stated amount
shall be made until the proceeds, with
interest at 3 1/2% per year on the unpaid
balance, are used up. The first payment
shall be made on the Option Effective Date.
The amount chosen must be at least $10 per
month for each $1,000 of proceeds placed
under this option. We may add more interest
to the unpaid balance in any year, which
will extend the number of payments. The last
payment will be for the balance only.
OPTION 5 -
LIFE ANNUITY
Equal monthly payments shall be made in the
same manner as Option 3 except:
<PAGE> 22
1. the amount of each payment shall
be based on our current
settlement rates on the Option
Effective Date; and
2. no additional interest shall be
paid.
OPTION 6 -
JOINT AND TWO-THIRDS
ANNUITY
Equal monthly payments shall be made while
two chosen human beings are both living.
Upon the death of either, two-thirds of the
amount of such payments shall continue
during the life of the survivor. The first
payment shall be made on the Option
Effective Date. The amount of each monthly
payment depends on the ages and sexes of the
chosen human beings on the Option Effective
Date. We may require proof to our
satisfaction of their ages. We may require
like proof that any chosen human being is
alive on the date any payment conditioned on
the life of such human being is due. The
initial amount of each monthly payment is
shown in the table. We will quote the amount
of monthly payments for any other age
combination on request. The monthly payments
are based on an interest rate of 3 1/2% per
year. No additional interest shall be paid.
OPTION 6 TABLE
MONTHLY PAYMENTS FOR EACH $1,000 OF PROCEEDS
(Amounts shown are for the age nearest birthday on the Option Effective Date)
<TABLE>
<CAPTION>
Ages of Both One Male Ages of Both One Male
and and
One Female One Female
<S> <C> <C> <C>
50 $4.11 68 $5.86
51 4.17 69 6.03
52 4.23 70 6.21
53 4.29 71 6.41
54 4.35 72 6.62
55 4.42 73 6.84
56 4.50 74 7.08
57 4.58 75 7.35
58 4.66 76 7.63
59 4.75 77 7.93
60 4.84 78 8.25
61 4.94 79 8.60
62 5.05 80 8.97
63 5.16 81 9.38
64 5.29 82 9.81
65 5.42 83 10.27
66 5.55 84 10.77
67 5.70 85+ 11.31
</TABLE>
+Higher ages the same
OPTION 7 - 50%
SURVIVOR
ANNUITY
Equal monthly payments shall be made during
the life of the chosen primary human being.
Upon the death of the chosen primary human
being, 50% of the amount of such
<PAGE> 23
payments shall continue during the life of
the chosen secondary human being. The first
payment shall be made on the Option
Effective Date. The amount of each monthly
payment depends on the ages and sexes of the
chosen human beings on the Option Effective
Date. We may require proof to our
satisfaction of their ages. We may require
like proof that any chosen human being is
alive on the date any payment conditioned on
the life of such human being is due. The
initial amount of each monthly payment is
shown in the table. We will quote the amount
of monthly payments for any other age
combination on request. The monthly payments
are based on an interest rate of 3 1/2% per
year. No additional interest shall be paid.
OPTION 7 TABLE
MONTHLY PAYMENTS FOR EACH $1,000 OF PROCEEDS
(Amounts shown are for the age nearest birthday on the Option Effective Date)
<TABLE>
<CAPTION>
Male Female Male Female
Ages Primary Primary Ages Primary Primary
of Female Male of Female Male
Both Secondary Secondary Both Secondary Secondary
<S> <C> <C> <C> <C> <C>
50 $4.11 $3.96 68 $5.85 $5.51
51 4.17 4.01 69 6.02 5.66
52 4.23 4.06 70 6.20 5.82
53 4.29 4.12 71 6.39 6.00
54 4.35 4.18 72 6.59 6.18
55 4.42 4.24 73 6.81 6.39
56 4.50 4.31 74 7.05 6.60
57 4.58 4.38 75 7.30 6.84
58 4.66 4.45 76 7.57 7.09
59 4.75 4.53 77 7.86 7.36
60 4.84 4.61 78 8.17 7.66
61 4.94 4.70 79 8.51 7.97
62 5.05 4.79 80 8.86 8.32
63 5.16 4.89 81 9.25 8.68
64 5.28 5.00 82 9.66 9.08
65 5.41 5.12 83 10.10 9.51
66 5.55 5.24 84 10.56 9.97
67 5.69 5.37 85+ 11.06 10.47
</TABLE>
+Higher ages the same
GENERAL TERMS OF THIS POLICY
---------------------------------------------------------------------
CONSIDERATION
This policy is issued in consideration of
the application and payment of at least the
Minimum Initial Premium shown in the Data
Section. We will incur no liability if no
premium is paid.
ENTIRE CONTRACT
On the Date of Issue the entire contract
between the parties is this policy and a
copy of the application and any riders and
endorsements which are attached at issue.
Any changes of this contract must be written
and may be made only by one of our
authorized
<PAGE> 24
officers or registrars. We will send the
Owner a copy of any application for a change
which we approve. It and any additional Data
Section shall become part of this contract
on the effective date of such change.
REPRESENTATIONS
Any statement made by or for either or both
of the Insureds shall be deemed a
representation and not a warranty. Unless
such statement is in the attached
application or in any subsequent
application, it shall not be used to:
1. make this policy void; or
2. make any increase in Face Amount
void; or
3. make any Reinstatement void; or
4. defend any claim.
INCONTESTABILITY
After this policy has been in force during
the life of each Insured for two years from
the policy Date of Issue, we will not
contest it with respect to representations
made by that Insured; however:
1. we may contest any increase in
Face Amount for which an
application is required until
such increase has been in force
during the life of both Insureds
for two years from its Effective
Date; and
2. we may contest any Reinstatement
until such Reinstatement has
been in force during the life of
both Insureds for two years from
its Effective Date.
POLICY MONTHS,
YEARS AND
ANNIVERSARIES
Policy Months, Years and Anniversaries shall
be measured from the Date of Issue.
The Date of Issue is the first Monthly
Policy Date. The Monthly Policy Date shown
in the Data Section occurs on the same day
each month or on the last day of any month
having no such date.
A Contract Anniversary falls on each
successive anniversary of the Date of Issue.
The first Contract Year begins on the Date
of Issue and ends on the day before the
first Contract Anniversary. Each subsequent
Contract Year begins on a Contract
Anniversary and ends on the day before the
next Contract Anniversary.
POLICY EFFECTIVE
DATES
The Face Amount on the Date of Issue shall
become effective on the Date of Issue shown
in the Data Section.
Any increase in Face Amount for which an
application is required shall become
effective on the Monthly Policy Date on or
next following the date we approve the
application for such increase in Face
Amount.
Any increase in Face Amount for which an
application is not required shall become
effective on the Monthly Policy Date on or
next following the date we receive the
request for such increase unless otherwise
provided by the policy.
Any decrease in Face Amount requested shall
become effective on the Monthly Policy Date
on or next following the date we receive the
request for such decrease.
<PAGE> 25
Any reinstatement of this policy shall
become effective on the Monthly Policy Date
on or next following the date we approve the
application for Reinstatement.
Any change of Death Benefit Option shall
become effective on the Monthly Policy Date
on or next following the date we receive the
request for such change.
ATTAINED AGE
The Attained Age of each Insured on any date
is that Insured's Issue Age shown in the
Data Section plus the number of full Policy
Years which have passed since the Date of
Issue.
MISSTATEMENT OF
AGE OR SEX
The Issue Ages shown in the Data Section are
the ages of the Insureds on their birthdays
nearest to the Date of Issue. These are
based on the dates of birth shown in the
application.
If the age or sex of either Insured has been
misstated, we will adjust the Accumulated
Value to be the Accumulated Value that would
have resulted had the Cost of Insurance
Charges been based on the correct ages and
sexes of the Insureds. The adjustment shall
take effect on the Monthly Policy Date on or
next following the date we have proof to our
satisfaction of such misstatement.
If both Insureds have died, we will
similarly adjust the Accumulated Value as of
the last Monthly Policy Date prior to the
death of the second of the Insureds to die.
To the extent that the recomputed, adjusted
Accumulated Value is negative, we will
deduct such negative amount from the Death
Benefit otherwise payable.
VALUATION DATE
AND VALUATION
PERIOD
A Valuation Date is each day that the New
York Stock Exchange is customarily open for
trading, except for:
1. the day following Thanksgiving in
each year; and
2. any day on which trading is
restricted by directive of the
Securities and Exchange
Commission.
A Valuation Period is the period between two
successive Valuation Dates.
INTEREST RATES
All interest rates stated in this policy are
effective annual rates.
BASIS OF VALUES
Any guaranteed values for this policy are
equal to or greater than those required by
the law of the state where this policy is
delivered. Any guaranteed values are based
on interest at the Minimum Fixed Account
Interest Rate and the Mortality Table shown
in the Data Section. A detailed statement of
the method of computing values has been
filed in the state in which this policy is
delivered.
PAYMENT OF
BENEFITS
<PAGE> 26
We will pay all benefits under this policy
at our Home Office. Before payment of any
Death Benefit we may investigate the death.
POSTPONEMENT OF
BENEFITS
We will pay any amounts which are payable as
a result of Cash Surrender, Withdrawals, or
Policy Loans and which are allocated to the
Variable Account within seven days after we
receive written request in a form
satisfactory to us. However, determination
and payment of any amount payable from the
Variable Account may be postponed whenever:
1. the New York Stock Exchange is
closed, or trading on the New
York Stock Exchange is restricted
by directive of the Securities
and Exchange Commission; or
2. the Securities and Exchange
Commission by order permits
postponement for the protection
of policyowners; or
3. an emergency exists, as
determined by the Securities and
Exchange Commission, as a result
of which it is not reasonably
practicable to dispose of
securities or to determine the
value of the net assets of the
Variable Account.
Transfers to or from the Sub-Accounts of the
Variable Account, though normally occurring
on the same day we receive the request for
transfer, may also be postponed upon any of
the above events.
We may delay payment of any amounts which
are payable as a result of Cash Surrender,
Withdrawals, or Policy Loans and which are
allocated to the FIXED ACCOUNT for up to six
months after we receive written request in a
form satisfactory to us.
We will pay the Death Benefit within seven
days after we receive due proof satisfactory
to us of the death of the second of the
Insureds to die while this policy is in
force. We may postpone determination and
payment of any Death Benefit in excess of
the Face Amount, net of any debt to us on
this policy, upon any of the events
enumerated above.
We have the right to postpone payment which
is derived from any amount recently paid to
us by check or draft, until we are satisfied
the check or draft has been paid by the bank
or other financial institution on which it
is drawn.
NOTICES
Unless this policy provides otherwise, any
requests, changes, or notices:
1. from us to the Owner shall be
sent to the last address known to
us of the Owner; and
2. from us to an assignee shall be
sent to the last address known to
us of such assignee; and
3. from the Owner or an assignee to
us must be in writing and
received by us at our Home Office
in Montpelier, Vermont.
ANNUAL REPORT
At least once each Policy Year we will send
a report to the Owner. The report will show,
as of its date:
1. the Accumulated Value of the
policy, detailing the Accumulated
Value in the Fixed Account and
the Accumulated Value in each
Sub-Account of the Variable
Account; and
2. the Face Amount; and
3. the Cash Surrender Value; and
<PAGE> 27
4. any debt to us on this policy;
and
5. the Death Benefit.
The report will also show a summary of
transactions of the previous year and any
information required by law or by the
supervisory insurance official of the
Insurance Department of the state in which
this policy was delivered.
PROJECTION
REPORT
The Owner may request in writing a report
which projects future values and future
Death Benefits for this policy. The report
will also show any information required by
law. The Projection Report will be based on:
1. data the Owner gives us as to
Face Amount and premiums; and
2. such assumptions as either we or
the Owner specifies.
We may charge the Owner for each Projection
Report.
<PAGE> 1
EXHIBIT 1.A.(5)(b)
GUARANTEED DEATH BENEFIT RIDER
We, National Life Insurance Company, guarantee that the policy will not lapse if
and as long as the Conditions of this Rider are met. This no-lapse guarantee
ensures that a Death Benefit will be payable under this policy for as long as
this rider remains in force.
The date of issue of this rider is the policy Date of Issue.
MONTHLY GUARANTEE PREMIUM. The Monthly Guarantee Premium specific to this rider
is stated in the Data Section. It is subject to change upon increases or
decreases in Face Amount, changes in the Death Benefit Option of this policy,
and additions or deletions of rider coverages.
CONDITIONS OF THIS RIDER. To keep this rider in force, cumulative premiums paid
in excess of withdrawals and debt must, on each Monthly Policy Date during the
No Lapse Period, equal at least the sum of all unique Monthly Guarantee
Premiums in effect since the Date of Issue of the policy times the number of
Monthly Policy Dates that elapsed while each Monthly Guarantee Premium was in
effect. Compliance with this condition will be determined on every Monthly
Policy Date.
IMPACT OF WITHDRAWALS AND POLICY LOANS. Withdrawals and Policy Loans taken
against this policy will impact the calculation described in Conditions of this
Rider. If a Withdrawal made or Policy Loan taken against this policy leaves the
policy out of compliance with the Conditions of this Rider, a Notice of Pending
Termination of this Rider will be sent to the Owner.
COST OF THIS RIDER. The monthly cost of this rider is shown in the Data Section.
It shall be based on the Face Amount of the policy. If, while this rider is in
force, any increase or decrease in the Face Amount of the policy is made, the
monthly cost of this rider will similarly increase or decrease. The monthly cost
of this rider shall be deducted from the Accumulated Value of the policy in the
same manner as is the Monthly Deduction.
SUSPENSION OF MONTHLY DEDUCTIONS. If, while this rider is in force, the
Accumulated Value of the Policy is not sufficient to cover the Monthly
Deductions, Monthly Deductions will be deducted from the Accumulated Value
until the Accumulated Value is exhausted, and will thereafter be deferred until
such time as the policy has positive Accumulated Value. Upon the death of the
second of the Insureds to die, we will waive that portion of any Monthly
Deductions then in arrears.
SUICIDE LIMITATION If either of the Insureds dies within two years of the date
of issue of this rider as the result of suicide, while sane or insane, we will
pay only the sum set forth in the Suicide Limitation provision of the policy.
Payment will be made to the Beneficiary.
INCONTESTABILITY. After this rider has been in force during the life of each
Insured for two years from its date of issue, we will not contest it.
CONSIDERATION. This rider is issued in consideration of the application for the
rider and the monthly cost of the rider. The rider and a copy of the application
for the rider shall become part of the policy on the date of issue of the rider.
NOTICE OF PENDING TERMINATION OF THIS RIDER. If on any Monthly Policy Date the
Conditions of this Rider are not met, the Owner will be sent notice that unless
the premium described below is paid during the first 61 days measured from the
date we mail such notice, this rider will terminate. The required premium will
be:
1. the sum of all unique Minimum Guarantee Premiums in effect since the
Date of Issue of this policy times the number of Monthly Policy Dates
that elapsed while each Monthly Guarantee Premium was in effect; plus
2. two times the Monthly Guarantee Premium then in effect; plus
3. all withdrawals made from this policy; plus
4. all debt to us on the policy; minus
5. all premiums paid on the policy since its Date of Issue.
<PAGE> 2
TERMINATION OF THIS RIDER. This rider shall terminate on the earliest of:
1. the end of the No-Lapse Period specified in the Data Section; or
2. the end of the 61st day following our sending a notice of pending
termination of this rider, if prior to that time the premium described in
Notice of Pending Termination of this Rider is not paid; or
3. the date the policy terminates. If the policy is reinstated, this rider
will not be reinstated; or
4. any Monthly Policy Date requested, if before that date we receive at our
Home Office written request for termination of this rider.
When this rider terminates:
1. all rights under this rider will cease; and
2. there will be no further monthly costs for this rider; and
3. the policy will be considered separate and complete without this rider.
If this rider terminates while the Cash Surrender Value of the policy is zero,
the policy will immediately enter a Grace Period.
Signed for NATIONAL LIFE INSURANCE COMPANY at Montpelier, Vermont, as of the
date of issue of this rider, by
Chairman of the Board
and
Chief Executive Officer
7464(0398)
<PAGE> 1
EXHIBIT 1.A.(5)(c)
ADDITIONAL PROTECTION BENEFIT RIDER
We, National Life Insurance Company, will pay the Additional Protection Benefit,
subject to the terms of this rider, in addition to the Basic Coverage of the
policy, when we receive at our Home Office due proof that both Insureds died
while this rider was in force.
The sum of the Basic Coverage provided by the base policy all Automatic
Increase Coverages added under any Automatic Increase Rider attached to the
policy and the Additional Protection Benefit provided by this rider is the
total Face Amount of the policy.
The date of issue of this rider is the policy Date of Issue unless a later date
is set forth below.
ADDITIONAL PROTECTION BENEFIT. We will pay the Additional Protection Benefit to
the Beneficiary when we receive at our Home Office due proof that both Insureds
died while this rider was in force. We will pay the Additional Protection
Benefit in one sum unless a Payment Option, as described in the policy to which
this rider is attached, is chosen. If the Additional Protection Benefit is paid
in one sum, it shall be increased by interest from the date we receive proof of
death of the second of the Insureds to die to the date of payment. We will set
the rate of interest at not less than the Minimum Interest Paid on Death Claims
percentage shown in the Data Section.
COST OF ADDITIONAL PROTECTION BENEFIT. The Cost of Additional Protection Benefit
rate on any day shall be based on the duration of this rider, the Insureds' then
Attained Ages, and the rate class of the Additional Protection Benefit on the
date of issue of this rider.
On any Monthly Policy Date, the Cost of Additional Protection Benefit shall be:
1. the Cost of Additional Protection Benefit rate on such date divided by
$1,000; multiplied times
2. the Additional Protection Benefit on such date, divided by the Cost of
Insurance Divisor shown in the Data Section.
We may change the Cost of Additional Protection Benefit rates from time to time
based on our expectations of future experience. Any change in the Cost of
Additional Protection Benefit rates shall apply to all riders of the same
duration, insuring persons of the same Attained Ages and rate class as the
Insureds. The Cost of Additional Protection Benefit rates shall not be greater
than the rates set forth in the Table of Guaranteed Maximum Cost of Additional
Protection Benefit Rates shown in the Data Section.
ADDITIONAL PROTECTION BENEFIT DECREASES. The Owner may request that the
Additional Protection Benefit be decreased. Such decreases will be performed
subject to the terms of the Face Amount Decreases provision of the base policy.
SUICIDE LIMITATION. If either of the Insureds dies within two years of the date
of issue of this rider as the result of suicide, while sane or insane, we will
pay only the sum set forth in the Suicide Limitation provision of the policy.
Payment will be made to the Beneficiary.
INCONTESTABILITY. After this rider has been in force during the life of each
Insured for two years from its date of issue, we will not contest it.
CONSIDERATION. This rider is issued in consideration of the application for the
rider and the monthly cost of the rider. The rider and a copy of the application
for the rider shall become part of the policy on the date of issue of the rider.
TERMINATION. This rider shall terminate on the earliest of:
<PAGE> 2
1. the date the policy terminates; or
2. any Monthly Policy Date requested, if before that date we receive at our
Home Office written request for termination.
When this rider terminates:
1. all rights under this rider shall cease; and
2. there will be no further monthly costs for this rider; and
3. the policy will be considered separate and complete without this rider.
Signed for NATIONAL LIFE INSURANCE COMPANY at Montpelier, Vermont, as of the
date of issue, by
Chairman of the Board
and
Chief Executive Officer
7463(0398)
<PAGE> 1
EXHIBIT 1.A.(5)(d)
POLICY SPLIT OPTION RIDER
You may exchange this policy, subject to the terms of this rider, for two new
individual policies, one on each of the two Insureds, described below.
The date of issue of this rider is the policy Date of Issue.
EXCHANGE CONDITIONS
We will exchange this policy only if one of the following events occurs:
1. A final decree of divorce is issued terminating a marriage
of the two Insureds to each other.
2. There is a change in the Federal Estate Tax law which results
in either-
a) an end to the unlimited marital deduction available to
the Insureds if they were to die; or
b) a reduction in maximum Federal Estate Tax rate of 50%
or more.
We must receive a written request from the Owner for an exchange within 180
days of the date a decree of divorce becomes final or the date we notify the
Owner of a change in the Federal Estate Tax law, whichever applies. We will
require the return of this policy.
A $200 fee will be deducted from the Accumulated Value of the base policy on the
day prior to the Exchange Date. This charge is to cover expenses associated with
the policy split.
We reserve the right to deduct a charge from the base policy's Accumulated Value
to cover our expenses arising from any state or federal taxes generated by the
exchange.
EXCHANGE DATE. The exchange will be effective on the Exchange Date, which is
the date all of the above exchange conditions are met.
NEW POLICIES. The exchange may be to any traditional whole life, individual
flexible premium adjustable benefit life or variable life policy that we
regularly issue at the time of exchange, subject to our approval. The issue
date of each of the two new individual policies will be the Exchange Date. The
new policy on each Insured will be based on that Insured's Attained Age on the
Exchange Date. The new policy on each Insured will be based on that Insured's
risk classification as of the most recently issued coverage segment on this
policy.
The face amount of each new individual policy may not exceed 50% of the Face
Amount of this policy. Any Increase in Face Amount on this policy which was
made with either or both of the Insureds rated 250% or higher, or in an
uninsurable class, will be surrendered at the time of the policy split.
The Accumulated Value and debt of this policy on the day prior to the Exchange
Date will be divided and allocated to the two new individual policies in
proportion to their face amounts.
Subject to our approval, riders or benefits may be added to the new policies
where available.
ASSIGNMENT. Any assignment of this policy will apply to each new individual
policy.
Suicide Limitation and Incontestability. The Suicide Limitation and
Incontestability periods of the new policies will be measured from the Date of
Issue of this policy.
TERMINATION. Coverage under this rider will terminate on the earliest of:
<PAGE> 2
1. our receipt of written request by the Owner for termination; or
2. the date that the first death of the two Insured's occurs; or
3. termination of the base policy; or
4. the Policy Anniversary on which the older of the Insureds reaches
Attained Age 85; or
5. exercise of the option to exchange the base policy under this rider.
Signed for NATIONAL LIFE INSURANCE COMPANY at Montpelier, Vermont, as of the
date of issue of this rider, by
Chairman of the Board
and
Chief Executive Officer
7465(0398)
<PAGE> 1
EXHIBIT 1.A.(5)(e)
ESTATE PRESERVATION RIDER
In addition to the Death Benefit of the policy, we, National Life Insurance
Company, will pay the Estate Preservation Benefit, subject to the terms of this
rider, when we receive at our Home Office due proof that both Insureds died
while this rider was in force. The dollar amount of the Estate Preservation
Benefit is stated in the Data Section.
The date of issue of this rider is the policy Date of Issue.
ESTATE PRESERVATION BENEFIT. We will pay the Estate Preservation Benefit to the
Beneficiary when we receive at our Home Office due proof that both Insureds died
while this rider was in force. We will pay the Estate Preservation Benefit in
one sum unless a Payment Option, as described in the policy to which this rider
is attached, is chosen. If the Estate Preservation Benefit is paid in one sum,
it shall be increased by interest from the date we receive proof of death of the
second of the Insureds to die to the date of payment. We will set the rate of
interest at not less than the Minimum Interest Paid on Death Claims percentage
shown in the Data Section.
The Estate Preservation Benefit will be decreased in proportion to any decrease
in the Face Amount of this policy.
COST OF ESTATE PRESERVATION BENEFIT. The Cost of Estate Preservation Benefit
rate on any day shall be based on the duration of this rider, the Insureds' then
Attained Ages, and the rate classes of the Insureds on the Date of Issue.
On any Monthly Policy Date, the Cost of Estate Preservation Benefit shall be:
1. the Cost of Estate Preservation Benefit rate on such date divided by
$1,000; multiplied times
2. the Estate Preservation Benefit
We may change the Cost of Estate Preservation Benefit rates from time to time
based on our expectations of future experience. Any change in the Cost of Estate
Preservation Benefit rates shall apply to all riders of the same duration,
insuring persons of the same Attained Ages and rate classes as the Insureds. The
Cost of Estate Preservation Benefit rates shall not be greater than the rates
set forth in the Table of Guaranteed Maximum Cost of Estate Preservation Benefit
Rates shown in the Data Section.
SUICIDE LIMITATION. If either of the Insureds dies within two years of the date
of issue of this ride as the result of suicide, while sane or insane, we will
pay only the sum set forth in the Suicide Limitation provision of the policy.
Payment will be made to the Beneficiary.
INCONTESTABILITY. After this rider has been in force during the life of each
Insured for two years from its date of issue, we will not contest it.
CONSIDERATION. This rider is issued in consideration of the application for the
rider and the monthly cost of the rider. The rider and a copy of the application
for the rider shall become part of the policy on the date of issue of the rider.
TERMINATION. This rider shall terminate on the earliest of:
1. the first Policy Anniversary, if the Owner of the policy to which this
rider is attached is not an irrevocable life insurance trust on that date;
or
2. the date the policy terminates; or
3. any Monthly Policy Date requested, if before that date we receive at our
Home Office written request
<PAGE> 2
for termination; or
4. the fourth Policy Anniversary.
When this rider terminates:
1. all rights under this rider shall cease; and
2. there will be no further monthly costs for this rider; and
3. the policy will be considered separate and complete without this rider.
Signed for National Life Insurance Company at Montpelier, Vermont, as of the
date of issue, by
Chairman of the Board
and
Chief Executive Officer
7467(0398)
<PAGE> 1
EXHIBIT 1.A.(5)(f)
ANNUALLY RENEWABLE TERM INSURANCE RIDER
In addition to the Death Benefit of the policy, we, National Life Insurance
Company, will pay the Renewable Term Insurance Amount, subject to the terms of
this rider, when we receive at our Home Office due proof that the Term Insured
died while this rider was in force. Payment will be made to the Renewable Term
Insurance Beneficiary. The Term Insured and the Renewable Term Insurance
Beneficiary are identified in the Data Section.
The date of issue of this rider is the policy Date of Issue unless a later date
is shown below.
Renewable Term Insurance Amount. A schedule of Renewable Term Insurance
Amounts is presented in the Data Section.
COST OF RENEWABLE TERM INSURANCE. The Renewable Term Insurance rate on any day
shall be based on the duration of this rider, the Attained Age of the Term
Insured, and the rate classes of the Term Insured on the date of issue of this
rider.
On any Monthly Policy Date, the Cost of Renewable Term Insurance shall be:
1. the Renewable Term Insurance rate on such date divided by $1,000;
multiplied times
2. the Renewable Term Insurance Amount.
We may change the Cost of Renewable Term Insurance rates from time to time based
on our expectations of future experience. Any change in the Cost of Renewable
Term Insurance rates shall apply to all riders of the same duration, insuring
persons of the same Attained Age and rate class as the Term Insured. The Cost of
Renewable Term Insurance rates shall not be greater than the rates set forth in
the Table of Guaranteed Maximum Cost of Renewable Term Insurance Rates shown in
the Data Section. These rates are based on the Renewable Term Insurance
Mortality Table named in the Data Section.
RENEWAL. This rider expires on each rider anniversary. Upon each expiration, if
all monthly Cost of Renewable Term Insurance charges for the expired term have
been paid, the rider will be renewed for a one year term.
No renewal shall occur on or after the Final Term Expiration Date shown in the
Data Section.
ATTAINED AGE EXCHANGE. Upon written request received at our Home Office, this
rider may be exchanged for a whole life policy, limited payment life policy, or
a flexible premium life policy, on the life of the Term Insured with a Sum
Insured or Face Amount equal to this rider is Renewable Term Insurance Amount,
without proof that the Term Insured is insurable if:
1. this rider is in force; and
2. the exchange is made prior to the Final Exchange Date set forth in the
Data Section.
The new policy shall:
1. be on a form in use by us on the date of exchange; and
2. be at the premium rate in effect for the Term Insured's Attained Age on
the date of exchange. If this rider is subject to a substandard risk
classification on the date of exchange, the new policy shall be issued in
the same substandard risk class.
<PAGE> 2
We may require that this rider be returned to us.
INCONTESTABILITY. After this rider has been in force during the life of the Term
Insured for two years from its date of issue, we will not contest it except for
failure to pay the Cost of Renewable Term Insurance.
SUICIDE LIMITATION. If the death of the Term Insured within two years from the
date of issue of this rider results from suicide, while sane or insane, we will
pay only the sum set forth in the Suicide Limitation provision of the policy.
CONSIDERATION. This rider is issued in consideration of the application for the
rider and the monthly cost of the rider. The rider and a copy of the application
for the rider are attached and made a part of the policy.
RIDER YEARS AND ANNIVERSARIES. Rider years and anniversaries shall be measured
from the date of issue of the rider.
TERMINATION. This rider shall terminate:
1. on each anniversary, unless renewed; or
<PAGE> 3
2. on its Final Term Expiration Date; or
3. on the day the rider is exchanged, or
4. on the day the policy terminates; or
5. on any Monthly Policy Date requested, if before that date we receive at our
Home Office written request for termination.
When this rider terminates:
1. all rights under this rider shall cease; and
2. there will be no further monthly costs for this rider; and
3. the policy will be considered separate and complete without this rider.
Signed for National Life Insurance Company at Montpelier, Vermont, as of the
date of issue, by
Chairman of the Board
and
Chief Executive Officer
7468(0398)
<PAGE> 1
EXHIBIT 1.A.(5)(g)
CONTINUING COVERAGE RIDER
CONTINUING COVERAGE RIDER
This rider provides Continuing Coverage on and after the Final Premium
Acceptance Date stated in the Data Section. The amount of coverage that
continues is the Face Amount that was in force on the Final Premium Acceptance
Date.
The date of issue of this rider is the policy Date of Issue.
CONTINUING
COVERAGE
On the Continuing Coverage Start Date shown in the Data Section, the Death
Benefit Option of the policy will automatically revert to Option A. The Death
Benefit Option may not thereafter be changed.
On the Final Premium Acceptance Date, if the terms of this rider are met and
the policy remains in force:
1. the terms of the Insurance Continuation provision of the policy are
negated; and
2. no additional premium will be accepted on the policy, and
3. all Accumulated Value will be transferred to the Fixed Account, and no
transfers will be thereafter allowed; and
4. all Monthly Deductions on the policy will cease; and
5. the Owner may continue to access the Cash Surrender Value and make or
repay Policy Loans.
COST OF THIS
RIDER
Monthly charges for this rider, identified in the Data Section, will be
assessed beginning on the Continuing Coverage Start Date.
SUICIDE
LIMITATIONS
If either of the Insureds dies within two years of the date of issue of this
rider as the result of suicide, while sane or insane, we will pay only the sum
set forth in the Suicide Limitation provision of the policy. Payment will be
made to the Beneficiary.
INCONTESTABILITY
After this rider has been in force during the life of each Insured for two
years from its date of issue, we will not contest it.
CONSIDERATION
This rider is issued in consideration of the application for the rider and the
monthly cost of the rider. The rider and a copy of the application for the
rider shall become part of the policy on the date of issue of the rider.
TERMINATION
This rider shall terminate on the earliest of:
1. any Monthly Policy Date requested, if before that date we
receive at our Home Office written request for termination; or
2 the date the policy terminates.
When this rider terminates:
1. all rights under this rider shall cease;. and
2. there will be no further monthly costs for this rider; and
3. the policy will be considered separate and complete without
this rider.
Signed for National Life Insurance Company at Montpelier, Vermont, as of the
date of issue, by
Chairman of the Board
and
Chief Executive Officer
7462(0398)
<PAGE> 1
EXHIBIT 1.A.(5)(h)
ENHANCED DEATH BENEFIT RIDER
The Death Benefit Factors provided in the Data Section of the policy are raised
to provide enhanced Death Benefits in Policy Years associated with a Targeted
Attained Age of the Younger of the Insureds. The Targeted Attained Age of the
Younger of the Insureds is stated in the Data Section.
The date of issue of this rider is the policy Date of Issue.
DEATH BENEFIT FACTOR. The table of Death Benefit Factors shown in the rider
Data Section supercedes the table of Death Benefit Factors provided in the
policy Data Section. The Death Benefit Factors applied through operation of
this rider are higher than those which would otherwise be in effect on the
policy.
COST OF THE ENHANCED DEATH BENEFIT. There is no separate additional charge for
this Enhanced Death Benefit Rider, but the Cost of Insurance Charge on the
policy will be higher to the extent that the higher Death Benefit Factors
associated with this rider increase the Death Benefit of the policy.
SUICIDE LIMITATION. If either of the Insureds dies within two years of the
date of issue of this rider as the result of suicide, while sane or insane, we
will pay only the sum set forth in the Suicide Limitation provision of the
policy. Payment will be made to the Beneficiary.
INCONTESTABILITY. After this rider has been in force during the life of each
Insured for two years from its date of issue, we will not contest it.
TERMINATION. This rider shall terminate on the earliest of:
1. any Monthly Policy Date requested, if before that date we receive at our
Home Office written request for termination; or
2. the date the policy terminates. If the policy is later reinstated, this
rider will not be reinstated.
<PAGE> 2
When this rider terminates:
1. all rights under this rider will cease; and
2. the policy will be considered separate and complete without this rider.
Signed for National Life Insurance Company at Montpelier, Vermont, as of the
date of issue of this rider, by
Chairman of the Board
and
Chief Executive Officer
7466(0398)
<PAGE> 1
EXHIBIT 1.A.(5)(i)
AUTOMATIC INCREASE RIDER
We, National Life Insurance Company, will add to the Face Amount of the policy,
without proof that the Insured is insurable, on each policy anniversary while
this rider is in force, subject to its terms.
The date of issue of this rider is the policy Date of Issue.
AMOUNTS ADDED TO FACE AMOUNT
Each coverage segment added to the Face Amount under this rider will be called
an Automatic Increase Coverage.
The amount added to the Face Amount on a Policy Anniversary will equal either:
1. the Automatic Increase Rate shown in the Data Section multiplied by.-
a) the sum of all amounts added to the Face Amount under this
rider; plus
b) the Face Amount of the policy on its Date of Issue; or
2. the Automatic Increase Amount shown in the Data Section.
However, the total amount added to the Face Amount under this rider will not
exceed the Face Amount of the policy on its Date of Issue.
COST OF AMOUNTS ADDED TO FACE AMOUNT
The rate classes of the Insured on the policy Date of Issue will be used in
determining Cost of Insurance rates for any amounts added under this rider.
Each increase segment will be assessed Cost of Insurance charges at the same
rate applied in that Policy Year to the Base Coverage at issue.
No other charges apply to the Face Amount added under this rider.
FEATURES OF ADDED FACE AMOUNT
The effective date of each amount added under this rider will be the Policy
Anniversary on which the Face Amount is added.
We will not contest any Face Amount added under this rider after this rider has
been in force during the life of both Insureds for two years from its date
of issue.
SUICIDE LIMITATION
If either of the Insureds dies within two years of the date of issue of this
rider as the result of suicide, while sane or insane, we will pay only the
sum set forth in the
<PAGE> 2
Suicide Limitation provision of the policy. Payment will be made to the
Beneficiary.
INCONTESTABILITY
After this rider has been in force during the life of each Insured for two
years from its date of issue, we will not contest it.
CONSIDERATION
This rider is issued in consideration of the application for the rider and the
monthly cost of the rider. The rider and a copy of the application for the
rider shall become part of the policy on its Date of Issue.
TERMINATION OF AUTOMATIC INCREASES
No further Face Amount will be added under this rider:
1. on or after the Policy Anniversary when the total Face Amount added
under this rider equals or exceeds the Face Amount of the policy on
its Date of Issue; or
2. on or after the Automatic Increase End Date stated in the Data
Section; or
3. on or after any Policy Anniversary as of which the Owner requests
that an addition to the Face Amount not be made under this rider or
that automatic increases terminate; or
4. on or after the date a requested decrease in Face Amount of this
policy becomes effective. However, termination of automatic increases
under this rider will not occur solely because of a decrease in Face
Amount as a result of a change in the Death Benefit Option.
TERMINATION OF RIDER
This rider will terminate on the date the policy terminates.
Signed for National Life Insurance Company at Montpelier, Vermont as of the
date of issue, by
Chairman of the Board
and
Chief Executive Officer
7630(0398)
<PAGE> 1
EXHIBIT 8(a)(3)
Amendment No. 2, dated April ____, 1998,
to the
Participation Agreement
dated January 30, 1996
By and Among
MARKET STREET FUND, INC.
and
NATIONAL LIFE INSURANCE COMPANY
and
1717 CAPITAL MANAGEMENT COMPANY
(formerly PML SECURITIES COMPANY)
This Amendment No. 2, dated as of April ___, 1998, to the
Participation Agreement dated January 30, 1996 (the "Participation Agreement"),
by and among NATIONAL LIFE INSURANCE COMPANY, a Vermont insurance company (the
"Company"), the MARKET STREET FUND, INC., an open-end diversified investment
company organized under the laws of the State of Maryland (the "Fund") and 1717
CAPITAL MANAGEMENT COMPANY (formerly PML SECURITIES COMPANY), a Delaware
corporation (the "Underwriter"), is made and entered into as of April ___,
1998.
WHEREAS, the Company has formed a new set of subaccounts of National
Variable Life Insurance Account, which will fund second-to-die variable life
insurance contracts, such new set of subaccounts being known as the "New
Subacounts"; and
WHEREAS, the Company desires to purchase shares of the Portfolios on
behalf of the New Subaccounts to fund the second-to-die variable life insurance
contracts, and the Fund and the Underwriter are willing to to sell such shares
to the Company for such purpose;
NOW, THEREFORE, in consideration of their mutual promises, the
Company, the Fund and the Underwriter agree to amend the Participation
Agreement as follows:
1. Definitions. Unless otherwise specifically provided for herein,
all capitalized terms defined in the Participation Agreement shall have the
same meanings when used herein as in the Participation Agreement. The
definition of the term "Policy" is hereby broadened to include the
second-to-die variable life insurance contracts to be offered by the New
Subaccounts, as well as the single life flexible premium adjustable benefit
variable life insurance policies offered by National Variable Life Insurance
Account, and the variable annuity contracts being offered by National Variable
Annuity Account II.
2. Sale of Fund Shares. The Underwriter agrees to sell shares of the
Fund, and the Fund agrees to make available its shares for such sale, to the
Company on behalf of the New Subaccounts, on the same terms and conditions as
the Underwriter currently sells shares of the Fund, and the Fund currently
makes its shares available for such sale to the
<PAGE> 2
Company on behalf of the existing subaccounts of the National Variable Life
Insurance Account, and the National Variable Annuity Account II.
IN WITNESS WHEREOF, each of the parties hereto has caused this
Amendment No. 2 to the Participation Agreement to be executed in its name and
behalf by its duly authorized representative as of the date set forth above.
NATIONAL LIFE INSURANCE COMPANY
------------------------------
by:
MARKET STREET FUND, INC.
------------------------------
by:
1717 CAPITAL MANAGEMENT COMPANY
------------------------------
by:
<PAGE> 1
EXHIBIT 8(b)4
AMENDMENT NO. 3 TO PARTICIPATION AGREEMENT
AMONG
VARIABLE INSURANCE PRODUCTS FUND,
FIDELITY DISTRIBUTORS CORPORATION
AND
NATIONAL LIFE INSURANCE COMPANY (AS SUCCESSOR TO
VERMONT LIFE INSURANCE COMPANY)
THIS AMENDMENT NO. 3 to the Participation Agreement by and among Vermont Life
Insurance Company (since merged into National Life Insurance Company), Variable
Insurance Products Fund (the "Fund"), and Fidelity Distributors Corporation
(the "Underwriter"), dated August 1, 1989 as amended by Amendment No. 1 to
Participation Agreement dated January 1, 1996 and Amendment No. 2 to
Participation Agreement dated April 28, 1997 (the "Participation Agreement"),
is made and entered into this ____ day of _______, 1998.
1. Schedule A is hereby further amended to add the following contract forms:
National Life Contract Form 7461(0398) (Last Survivor Flexible
Premium Adjustable Benefit Variable Life Insurance)
2. Pursuant to section 1.6 hereof, the Fund and the Distributor hereby
consents to the investment of net amounts available under the variable
contracts listed in paragraph 1 above in the following Funds other than the
Fund: The Market Street Fund, Strong Opportunity Fund II, Inc., Strong Variable
Insurance Funds, Inc., American Century Investment Management, Inc., Neuberger
& Berman Advisers Managers Trust, J. P. Morgan Series Trust II and Goldman
Sachs Variable Insurance Trust.
IN WITNESS WHEREOF, each of the parties hereto has caused this Amendment No. 3
to the Participation Agreement to be executed in its name and on its behalf by
its duly authorized representative and its seal to be affixed hereto as of the
date specified below.
NATIONAL LIFE INSURANCE COMPANY
by
-----------------------------
Name:
Title:
VARIABLE INSURANCE PRODUCTS FUND
by
-----------------------------
Name:
Title:
FIDELITY DISTRIBUTORS CORPORATION
by
-----------------------------
Name:
Title:
<PAGE> 1
EXHIBIT 1 A 8(c)
PARTICIPATION AGREEMENT
THIS AGREEMENT, is made as of ___________ __, 1998, by and
among National Life Insurance Company ("Company"), on its own behalf and on
behalf of ____________________________________ Separate Account ___, a
segregated asset account of the Company ("Account"), Strong Variable Insurance
Funds, Inc. ("Strong Variable") on behalf of the Portfolios of Strong Variable
listed on the attached Exhibit A as such Exhibit may be amended from time to
time (the "Designated Portfolios"), Strong Opportunity Fund II, Inc.
("Opportunity Fund II"), Strong Capital Management, Inc. (the "Adviser"), the
investment adviser and transfer agent for the Opportunity Fund II and Strong
Variable, and Strong Funds Distributors, Inc. ("Distributors"), the distributor
for Strong Variable and the Opportunity Fund II (each, a "Party" and
collectively, the "Parties").
PRELIMINARY STATEMENTS
A. Beneficial interests in Strong Variable are divided into
several series of shares, each representing the interest in a particular
managed portfolio of securities and other assets (each, a "Portfolio").
B. To the extent permitted by applicable insurance laws and
regulations, the Company intends to purchase shares of Opportunity Fund II and
the Designated Portfolios ("Fund" or "Funds" shall be deemed to refer to each
Designated Portfolio and to the Opportunity Fund II to the extent the context
requires), on behalf of the Account to fund the variable annuity contracts that
use the Funds as an underlying investment medium (the "Contracts").
C. The Company, Adviser and Distributors desire to facilitate the
purchase and redemption of shares of the Funds by the Company for the Account
through one account in each Fund (each an "Omnibus Account") to be maintained
of record by the Company, subject to the terms and conditions of this
Agreement.
D. The Company desires to provide administrative services and
functions (the "Services") for purchasers of Contracts ("Owners") who are
beneficial owners of shares of the Funds on the terms and conditions set forth
in this Agreement.
AGREEMENTS
The parties to this Agreement agree as follows:
1. Performance of Services. Company agrees to perform the administrative
functions and services specified in Exhibit B attached to this Agreement with
respect to the shares of the Funds beneficially owned by the Owners and
included in the Account.
<PAGE> 2
2. The Omnibus Accounts.
2.1 Each Omnibus Account will be opened based upon the information
contained in Exhibit C to this Agreement. In connection with each Omnibus
Account, Company represents and warrants that it is authorized to act on behalf
of each Owner effecting transactions in the Omnibus Account and that the
information specified on Exhibit C to this Agreement is correct.
2.2 Each Fund shall designate each Omnibus Account with an account
number. These account numbers will be the means of identification when the
Parties are transacting in the Omnibus Accounts. The assets in the Accounts
are segregated from the Company's own assets. The Adviser agrees to cause the
Omnibus Accounts to be kept open on each Fund's books, as applicable,
regardless of a lack of activity or small position size except to the extent
the Company takes specific action to close an Omnibus Account or to the extent
a Fund's prospectus reserves the right to close accounts which are inactive or
of a small position size. In the latter two cases, the Adviser will give prior
notice to the Company before closing an Omnibus Account.
2.3 The Company agrees to provide Adviser such information as
Adviser or Distributors may reasonably request concerning Owners as may be
necessary or advisable to enable Company and Distributors to comply with
applicable laws, including state "Blue Sky" laws relating to the sales of
shares of the Funds to the Accounts.
3. Fund Shares Transactions.
3.1 In General. Shares of the Funds shall be sold on behalf of
the Funds by Distributors and purchased by Company for the Account and,
indirectly for the appropriate subaccount thereof at the net asset value next
computed after receipt by Distributors of each order of the Company or its
designee, in accordance with the provisions of this Agreement, the then current
prospectuses of the Funds, and the Contracts. Company may purchase shares of
the Funds for its own account subject to (a) receipt of prior written approval
by Distributors; and (b) such purchases being in accordance with the then
current prospectuses of the Fund and the Contracts. The Board of Directors of
each Fund ("Directors") may refuse to sell shares of the applicable Fund to any
person, or suspend or terminate the offering of shares of the Fund if such
action is required by law or by regulatory authorities having jurisdiction.
Company agrees to purchase and redeem the shares of the Funds in accordance
with the provisions of this Agreement, of the Contracts and of the then current
prospectuses for the Contracts and Funds. Except as necessary to implement
transactions initiated by Owners, or as otherwise permitted by state or federal
laws or regulations, Company shall not redeem shares of Funds attributable to
the Contracts.
3.2 Purchase and Redemption Orders. On each day that a Fund is
open for business (a "Business Day"), the Company shall aggregate and calculate
the net purchase or redemption order it receives for the Account from the
Owners for shares of the Fund that it received prior to
2
<PAGE> 3
the close of trading on the New York Stock Exchange (the "NYSE") (i.e. 3:00
p.m., Central time, unless the NYSE closes at an earlier time in which case
such earlier time shall apply) and communicate to Distributors, by telephone or
facsimile (or by such other means as the Parties to this Agreement may agree to
in writing), the net aggregate purchase or redemption order (if any) for the
Omnibus Account for such Business Day (such Business Day is sometimes referred
to herein as the "Trade Date"). The Company will communicate such orders to
Distributors prior to 9:00 a.m., Central time, on the next Business Day
following the Trade Date. All trades communicated to Distributors by the
foregoing deadline shall be treated by Distributors as if they were received by
Distributors prior to the close of trading on the Trade Date.
3.3 Settlement of Transactions.
(a) Purchases. Company will wire, or arrange for the
wire of, the purchase price of each purchase order to the custodian for the
Fund in accordance with written instructions provided by Distributors to the
Company so that either (1) such funds are received by the custodian for the
Fund prior to 10:30 a.m., Central time, on the next Business Day following the
Trade Date, or (2) Distributors is provided with a Federal Funds wire system
reference number prior to such 10:30 a.m. deadline evidencing the entry of the
wire transfer of the purchase price to the applicable custodian into the
Federal Funds wire system prior to such time. Company agrees that if it fails
to provide funds to the Fund's custodian by the close of business on the next
Business Day following the Trade Date, then, at the option of Distributors, (i)
the transaction may be canceled, or (ii) the transaction may be processed at
the next-determined net asset value for the applicable Fund after purchase
order funds are received. In such event, the Company shall indemnify and hold
harmless Distributors, Adviser and the Funds from any liabilities, costs and
damages either may suffer as a result of such failure.
(b) Redemptions. The Adviser will use its best efforts
to cause to be transmitted to such custodial account as Company shall direct in
writing, the proceeds of all redemption orders placed by Company by 9:00 a.m.,
Central time, on the Business Day immediately following the Trade Date, by wire
transfer on that Business Day. Should Adviser need to extend the settlement on
a trade, it will contact Company to discuss the extension. For purposes of
determining the length of settlement, Adviser agrees to treat the Account no
less favorably than other shareholders of the Funds. Each wire transfer of
redemption proceeds shall indicate, on the Federal Funds wire system, the
amount thereof attributable to each Fund; provided, however, that if the number
of entries would be too great to be transmitted through the Federal Funds wire
system, the Adviser shall, on the day the wire is sent, fax such entries to
Company or if possible, send via direct or indirect systems access until
otherwise directed by the Company in writing.
(c) Authorized Persons. The following persons are each
duly authorized to act on behalf of the Company under this Agreement. The
Funds, Adviser and Distributors are entitled to conclusively rely on verbal or
written instructions that Adviser or Distributors reasonably believes were
originated by any one of said persons. The Company shall inform
3
<PAGE> 4
Adviser and Distributors of additions to or subtractions from this list of
authorized persons pursuant to Section 13, hereof:
----------------------------------------------
----------------------------------------------
----------------------------------------------
3.4 Book Entry Only. Issuance and transfer of shares of a Fund
will be by book entry only. Stock certificates will not be issued to the
Company or the Account. Shares of the Funds ordered from Distributors will be
recorded in the appropriate book entry title for the Account.
3.5 Distribution Information. The Adviser or Distributors shall
provide the Company with all distribution announcement information as soon as
it is announced by the Funds. The distribution information shall set forth, as
applicable, ex-dates, record date, payable date, distribution rate per share,
record date share balances, cash and reinvested payment amounts and all other
information reasonably requested by the Company. Where possible, the Adviser
or Distributors shall provide the Company with direct or indirect systems
access to the Adviser's systems for obtaining such distribution information.
3.6 Reinvestment. All dividends and capital gains distributions
will be automatically reinvested on the payable date in additional shares of
the applicable Fund at net asset value in accordance with each Fund's then
current prospectus.
3.7 Pricing Information. Distributors shall use its best efforts
to furnish to the Company prior to 6:00 p.m., Central time, on each Business
Day each Fund's closing net asset value for that day, and for those Funds for
which such information is calculated, the daily accrual for interest rate
factor (mil rate). Such information shall be communicated via fax, or indirect
or direct systems access acceptable to the Company.
3.8 Price Errors.
(a) Notification. If an adjustment is required in
accordance with a Fund's then current policies on reimbursement ("Fund
Reimbursement Policies") to correct any error in the computation of the net
asset value of Fund shares ("Price Error"), Adviser or Distributors shall
notify Company as soon as practicable after discovering the Price Error.
Notice may be made via facsimile or via direct or indirect systems access and
shall state the incorrect price, the correct price and, to the extent
communicated to the Fund's shareholders, the reason for the price change.
(b) Underpayments. If a Price Error causes an Account to
receive less than the amount to which it otherwise would have been entitled,
Adviser shall make all necessary adjustments (subject to the Fund Reimbursement
Policies) so that the Account receives the amount to which it would have been
entitled
4
<PAGE> 5
(c) Overpayments. If a Price Error causes an Account
to receive more than the amount to which it otherwise would have been entitled,
Company, when requested by Adviser (in accordance with the Fund Reimbursement
Policies), will use its best efforts to collect such excess amounts from the
applicable Owners.
(d) Fund Reimbursement Policies. Adviser agrees to treat
Company's customers no less favorably than Adviser treats its retail
shareholders in applying the provisions of paragraphs 3.8(b) and 3.8(c).
(e) Expenses. Adviser shall reimburse Company for all
reasonable and necessary out-of-pocket expenses incurred by Company for payroll
overtime, stationery and postage in adjusting Owner accounts affected by a
Price Error described in paragraphs 3.8(b) and 3.8(c). Company shall use its
best efforts to mitigate all expenses which may be reimbursable under this
section 3.8(e) and agrees that payroll overtime shall not include any time
spent programming computers or otherwise customizing Company's recordkeeping
system. Upon requesting reimbursement, Company shall present an itemized bill
to Adviser detailing the costs for which it seeks reimbursement.
3.9 Agency. Distributors hereby appoints the Company as its agent
for the limited purpose of accepting purchase and redemption instructions from
the Owners for the purchase and redemption of shares of the Funds by the
Company on behalf of Account.
3.10 Quarterly Reports. Adviser agrees to provide Company a
statement of Fund assets as soon as practicable and in any event within 30 days
after the end of each fiscal quarter, and a statement certifying the compliance
by the Funds during that fiscal quarter with the diversification requirements
and qualification as a regulated investment company. In the event of a breach
of Section 6.4(a), Adviser will take all reasonable steps (a) to notify Company
of such breach and (b) to adequately diversify the Fund so as to achieve
compliance within the grace period afforded by Treasury Regulation 1.817-5.
4. Proxy Solicitations and Voting. The Company shall, at its expense,
distribute or arrange for the distribution of all proxy materials furnished by
the Funds to the Account and shall: (a) solicit voting instructions from
Owners; (b) vote the Fund shares in accordance with instructions received from
Owners; and (c) vote the Fund shares for which no instructions have been
received, as well as shares attributable to it, in the same proportion as Fund
shares for which instructions have been received from Owners, so long as and to
the extent that the Securities and Exchange Commission (the "SEC") continues to
interpret the Investment Company Act of 1940, as amended (the "1940 Act"), to
require pass-through voting privileges for various contract owners. The
Company and its agents will not recommend action in connection with, or oppose
or interfere with, the solicitation of proxies for the Fund shares held for
Owners.
5
<PAGE> 6
5. Customer Communications.
5.1 Prospectuses. The Adviser or Distributors, at its expense,
will provide the Company with as many copies of the current prospectus for the
Funds as the Company may reasonably request for distribution, at the Company's
expense, to existing or prospective Owners.
5.2 Shareholder Materials. The Adviser and Distributors shall,
as applicable, provide in bulk to the Company or its authorized representative,
at a single address and at no expense to the Company, the following shareholder
communications materials prepared for circulation to Owners in quantities
requested by the Company which are sufficient to allow mailing thereof by the
Company and, to the extent required by applicable law, to all Owners: proxy or
information statements, annual reports, semi-annual reports, and all initial
and updated prospectuses, supplements and amendments thereof. None of the
Funds, the Adviser or Distributors shall be responsible for the cost of
distributing such materials to Owners.
6. Representations and Warranties.
6.1 The Company represents and warrants that:
(a) It is an insurance company duly organized and in good
standing under the laws of the State of Vermont and that it has legally and
validly established the Account prior to any issuance or sale thereof as a
segregated asset account and that the Company has and will maintain the
capacity to issue all Contracts that may be sold; and that it is and will
remain duly registered, licensed, qualified and in good standing to sell the
Contracts in all the jurisdictions in which such Contracts are to be offered or
sold;
(b) It is and will remain duly registered and licensed in
all material respects under all applicable federal and state securities and
insurance laws and shall perform its obligations under this Agreement in
compliance in all material respects with any applicable state and federal laws;
(c) The Contracts are and will be registered under the
Securities Act of 1933, as amended (the "1933 Act"), and are and will be
registered and qualified for sale in the states where so required; and the
Account is and will be registered as a unit investment trust in accordance with
the 1940 Act and shall be a segregated investment account for the Contracts;
(d) The Contracts are currently treated as annuity
contracts, under applicable provisions of the Internal Revenue Code of 1986, as
amended (the "Code"), and the Company will maintain such treatment and will
notify Adviser, Distributors and Funds promptly upon having a reasonable basis
for believing that the Contracts have ceased to be so treated or that they
might not be so treated in the future;
6
<PAGE> 7
(e) It is registered as a transfer agent pursuant to
Section 17A of the Securities Exchange Act of 1934, as amended (the "1934
Act"), or is not required to be registered as such;
(f) The arrangements provided for in this Agreement will
be disclosed to the Owners; and
(g) It is registered as a broker-dealer under the 1934
Act and any applicable state securities laws, including as a result of entering
into and performing the Services set forth in this Agreement, or is not
required to be registered as such.
6.2 The Funds each represent and warrant that Fund shares sold
pursuant to this Agreement are and will be registered under the 1933 Act and
the Fund is and will be registered as a registered investment company under the
Investment Company Act of 1940, in each case, except to the extent the Company
is so notified in writing;
6.3 Distributors represents and warrants that:
(a) It is and will be a member in good standing of the
National Association of Securities Dealers, Inc. ("NASD") and is and will be
registered as a broker-dealer with the SEC; and
(b) It will sell and distribute Fund shares in accordance
with all applicable state and federal laws and regulations.
6.4 Adviser represents and warrants that:
(a) It will cause each Fund to invest money from the
Contracts in such a manner as to ensure that the Contracts will be treated as
variable annuity contracts under the Code and the regulations issued
thereunder, and that each Fund will comply with Section 817(h) of the Code as
amended from time to time and with all applicable regulations promulgated
thereunder; and
(b) It is and will remain duly registered and licensed in
all material respects under all applicable federal and state securities and
insurance laws and shall perform its obligations under this Agreement in
compliance in all material respects with any applicable state and federal laws.
6.5 Each of the Parties to this Agreement represents and warrants
to the others that:
(a) It has full power and authority under applicable law,
and has taken all action necessary, to enter into and perform this Agreement
and the person executing this Agreement on its behalf is duly authorized and
empowered to execute and deliver this Agreement;
7
<PAGE> 8
(b) This Agreement constitutes its legal, valid and
binding obligation, enforceable against it in accordance with its terms and it
shall comply in all material respects with all laws, rules and regulations
applicable to it by virtue of entering into this Agreement;
(c) No consent or authorization of, filing with, or other
act by or in respect of any governmental authority, is required in connection
with the execution, delivery, performance, validity or enforceability of this
Agreement;
(d) The execution, performance and delivery of this
Agreement will not result in it violating any applicable law or breaching or
otherwise impairing any of its contractual obligations;
(e) Each Party to this Agreement is entitled to rely on
any written records or instructions provided to it by another Party; and
(f) Its directors, officers, employees, and investment
advisers, and other individuals/entities dealing with the money or securities
of a Fund are and shall continue to be at all times covered by a blanket
fidelity bond or similar coverage for the benefit of the Fund in an amount not
less than the amount required by the applicable rules of the NASD and the
federal securities laws, which bond shall include coverage for larceny and
embezzlement and shall be issued by a reputable bonding company.
7. Sales Material and Information
7.1 NASD Filings. The Company shall promptly inform Distributors
as to the status of all sales literature filings pertaining to the Funds and
shall promptly notify Distributors of all approvals or disapprovals of sales
literature filings with the NASD. For purposes of this Section 7, the phrase
"sales literature or other promotional material" shall be construed in
accordance with all applicable securities laws and regulations.
7.2 Company Representations. The Company shall not make any
material representations concerning the Adviser, the Distributors, or a Fund
other than the information or representations contained in: (a) a registration
statement of the Fund or prospectus of a Fund, as amended or supplemented from
time to time; (b) published reports or statements of the Funds which are in the
public domain or are approved by Distributors or the Funds; or (c) sales
literature or other promotional material of the Funds.
7.3 Adviser, Distributors and Fund Representations. None of
Adviser, Distributors or any Fund shall make any material representations
concerning the Company other than the information or representations contained
in: (a) a registration statement or prospectus for the Contracts, as amended or
supplemented from time to time; (b) published reports or statements of
8
<PAGE> 9
the Contracts or the Account which are in the public domain or are approved by
the Company; or (c) sales literature or other promotional material of the
Company.
7.4 Trademarks, etc. Except to the extent required by applicable
law, no Party shall use any other Party's names, logos, trademarks or service
marks, whether registered or unregistered, without the prior consent of such
Party.
7.5 Information From Distributors and Adviser. Upon request,
Distributors or Adviser will provide to Company at least one complete copy of
all registration statements, prospectuses, Statements of Additional
Information, reports, proxy statements, solicitations for voting instructions,
applications for exemptions, requests for no action letters, and all amendments
to any of the above, that relate to the Funds, in final form as filed with the
SEC, NASD and other regulatory authorities.
7.6 Information From Company. Company will provide to
Distributors at least one complete copy of all registration statements,
prospectuses, Statements of Additional Information, reports, solicitations for
voting instructions, sales literature and other promotional materials,
applications for exemptions, requests for no action letters and all amendments
to any of the above, that relate to a Fund and the Contracts, in final form as
filed with the SEC, NASD and other regulatory authorities.
7.7 Review of Marketing Materials. If so requested by Company,
the Adviser or Distributors will use its best efforts to review sales
literature and other marketing materials prepared by Company which relate to
the Funds, the Adviser or Distributors for factual accuracy as to such
entities, provided that the Adviser or Distributors is provided at least five
(5) Business Days to review such materials. Neither the Adviser nor
Distributors will review such materials for compliance with applicable laws.
Company shall provide the Adviser with copies of all sales literature and other
marketing materials which refer to the Funds, the Adviser or Distributors
within five (5) Business Days after their first use, regardless of whether the
Adviser or Distributors has previously reviewed such materials. If so
requested by the Adviser or Distributors, Company shall cease to use any sales
literature or marketing materials which refer to the Funds, the Adviser or
Distributors that the Adviser or Distributors determines to be inaccurate,
misleading or otherwise unacceptable.
8. Fees and Expenses.
8.1 Fund Registration Expenses. Fund or Distributors shall bear
the cost of registration and qualification of Fund shares; preparation and
filing of Fund prospectuses and registration statements, proxy materials and
reports; preparation of all other statements and notices relating to the Fund
or Distributors required by any federal or state law; payment of all applicable
fees, including, without limitation, any fees due under Rule 24f-2 of the 1940
Act, relating to a Fund; and all taxes on the issuance or transfer of Fund
shares on the Fund's records.
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<PAGE> 10
8.2 Contract Registration Expenses. The Company shall bear the
expenses for the costs of preparation and filing of the Company's prospectus
and registration statement with respect to the Contracts; preparation of all
other statements and notices relating to the Account or the Contracts required
by any federal or state law; expenses for the solicitation and sale of the
Contracts including all costs of printing and distributing all copies of
advertisements, prospectuses, Statements of Additional Information, proxy
materials, and reports to Owners or potential purchasers of the Contracts as
required by applicable state and federal law; payment of all applicable fees
relating to the Contracts; all costs of drafting, filing and obtaining
approvals of the Contracts in the various states under applicable insurance
laws; filing of annual reports on form N-SAR, and all other costs associated
with ongoing compliance with all such laws and its obligations under this
Agreement.
9. Indemnification.
9.1 Indemnification By Company.
(a) Company agrees to indemnify and hold harmless the
Funds, Adviser and Distributors and each of their directors, officers,
employees and agents, and each person, if any, who controls any of them within
the meaning of Section 15 of the 1933 Act (each, an "Indemnified Party" and
collectively, the "Indemnified Parties" for purposes of this Section 9.1) from
and against any and all losses, claims, damages, liabilities (including amounts
paid in settlement with the written consent of Company), and expenses including
reasonable legal fees and expenses, (collectively, hereinafter "Losses"), to
which the Indemnified Parties may become subject under any statute, regulation,
at common law or otherwise insofar as such Losses:
(i) arise out of or are based upon any untrue
statements or alleged untrue statements of any material fact contained in the
registration statement, prospectus or sales literature for the Contracts or
contained in the Contracts (or any amendment or supplement to any of the
foregoing), or arise out of or are based upon the omission or the alleged
omission to state therein a material fact required to be stated therein or
necessary to make the statements therein not misleading, provided that this
paragraph 9.1(a) shall not apply as to any Indemnified Party if such statement
or omission or such alleged statement or omission was made in reliance upon and
in conformity with written information furnished to Company by or on behalf of
a Fund, Distributors or Adviser for use in the registration statement or
prospectus for the Contracts or in the Contracts (or any amendment or
supplement) or otherwise for use in connection with the sale of the Contracts
or Fund shares; or
(ii) arise out of, or as a result of, statements
or representations or wrongful conduct of Company or its agents, with respect
to the sale or distribution of the Contracts or Fund shares; or
(iii) arise out of any untrue statement or alleged
untrue statement of a material fact contained in a registration statement,
prospectus, or sales literature covering a Fund
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<PAGE> 11
or any amendment thereof or supplement thereto, or the omission or alleged
omission to state therein a material fact required to be stated therein, or
necessary to make the statements therein not misleading, if such a statement or
omission was made in reliance upon written information furnished to a Fund,
Adviser or Distributors by or on behalf of Company; or
(iv) arise out of, or as a result of, any failure
by Company or persons under its control to provide the Services and furnish the
materials contemplated under the terms of this Agreement; or
(v) arise out of, or result from, any material
breach of any representation or warranty made by Company or persons under its
control in this Agreement or arise out of or result from any other material
breach of this Agreement by Company or persons under its control; as limited by
and in accordance with the provisions of Sections 9.1(b) and 9.1(c) hereof; or
(vi) arise out of, or as a result of, adherence by
Adviser or Distributors to instructions that it reasonably believes were
originated by persons specified in Section 3.3(c), hereof.
This indemnification provision is in addition to any liability
which the Company may otherwise have.
(b) Company shall not be liable under this
indemnification provision with respect to any Losses to which an Indemnified
Party would otherwise be subject by reason of such Indemnified Party's willful
misfeasance, bad faith, or gross negligence in the performance of such
Indemnified Party's duties or by reason of such Indemnified Party's reckless
disregard of obligations or duties under this Agreement.
(c) Company shall not be liable under this
indemnification provision with respect to any claim made against an Indemnified
Party unless such Indemnified Party shall have notified Company in writing
within a reasonable time after the summons or other first legal process giving
information of the nature of the claim shall have been served upon such
Indemnified Party (or after such Indemnified Party shall have received notice
of such service on any designated agent), but failure to notify Company of any
such claim shall not relieve Company from any liability which it may have to
the Indemnified Party otherwise than on account of this indemnification
provision. In case any such action is brought against any Indemnified Party,
and it notified the indemnifying Party of the commencement thereof, the
indemnifying Party will be entitled to participate therein and, to the extent
that it may wish, assume the defense thereof, with counsel satisfactory to such
Indemnified Party. After notice from the indemnifying Party of its intention
to assume the defense of an action, the Indemnified Party shall bear the
expenses of any additional counsel obtained by it, and the indemnifying Party
shall not be liable to such Indemnified Party under this Section for any legal
or other expenses subsequently incurred by such Indemnified Party in connection
with the defense thereof
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<PAGE> 12
other than reasonable costs of investigation. The Indemnified Party may not
settle any action without the written consent of the indemnifying Party. The
indemnifying Party may not settle any action without the written consent of the
Indemnified Party unless such settlement completely and finally releases the
Indemnified Party from any and all liability. In either event, consent shall
not be unreasonably withheld.
(d) The Indemnified Parties will promptly notify Company
of the commencement of any litigation or proceedings against the Indemnified
Parties in connection with the issuance or sale of Fund shares or the Contracts
or the operation of a Fund.
9.2 Indemnification by Adviser and Distributors.
(a) Adviser and Distributors agrees to indemnify and hold
harmless Company and each of its directors, officers, employees and agents and
each person, if any, who controls Company within the meaning of Section 15 of
the 1933 Act (each, an "Indemnified Party" and collectively, the "Indemnified
Parties" for purposes of this Section 9.2) from and against any and all Losses
to which the Indemnified Parties may become subject under any statute,
regulation, at common law or otherwise, insofar as such Losses:
(i) arise out of or are based upon any untrue
statement or alleged untrue statement of any material fact contained in the
registration statement or prospectus or sales literature of a Fund (or any
amendment or supplement to any of the foregoing), or arise out of or are based
upon the omission or the alleged omission to state therein a material fact
required to be stated therein or necessary to make the statements therein not
misleading, provided that this Section 9.2(a) shall not apply as to any
Indemnified Party if such statement or omission or such alleged statement or
omission was made in reliance upon and in conformity with written information
furnished to a Fund, Adviser or Distributors by or on behalf of Company for use
in the registration statement or prospectus for a Fund or in sales literature
(or any amendment or supplement) or otherwise for use in connection with the
sale of the Contracts or Fund shares; or
(ii) arise out of, or as a result of, statements
or representations or wrongful conduct of Adviser or Distributors or persons
under its control, with respect to the sale or distribution of Fund shares; or
(iii) arise out of any untrue statement or alleged
untrue statement of a material fact contained in a registration statement,
prospectus, or sales literature covering the Contracts, or any amendment
thereof or supplement thereto, or the omission or alleged omission to state
therein a material fact required to be stated therein, or necessary to make the
statements therein not misleading, if such statement or omission was made in
reliance upon written information furnished to Company by or on behalf of
Adviser or Distributors; or
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<PAGE> 13
(iv) arise out of, or as a result of, any failure
by Adviser or Distributors or persons under its control to provide the services
and furnish the materials contemplated under the terms of this Agreement; or
(v) arise out of or result from any material
breach of any representation or warranty made by Adviser or Distributors or
persons under its control in this Agreement or arise out of or result from any
other material breach of this Agreement by Adviser or Distributors or persons
under its control; as limited by and in accordance with the provisions of
Sections 9.2(b) and 9.2(c) hereof.
This indemnification provision is in addition to any liability
which Adviser and Distributors may otherwise have.
(b) Adviser and Distributors shall not be liable under
this indemnification provision with respect to any Losses to which an
Indemnified Party would otherwise be subject by reason of such Indemnified
Party's willful misfeasance, bad faith, or gross negligence in the performance
of such Indemnified Party's duties or by reason of such Indemnified Party's
reckless disregard of obligations and duties under this Agreement.
(c) Adviser and Distributors shall not be liable under
this indemnification provision with respect to any claim made against an
Indemnified Party unless such Indemnified Party shall have notified Adviser and
Distributors in writing within a reasonable time after the summons or other
first legal process giving information of the nature of the claim shall have
been served upon such Indemnified Party (or after such Indemnified Party shall
have received notice of such service on any designated agent), but failure to
notify Adviser and Distributors of any such claim shall not relieve Adviser and
Distributors from any liability which it may have to the Indemnified Party
otherwise than on account of this indemnification provision. In case any such
action is brought against any Indemnified Party, and it notified the
indemnifying Party of the commencement thereof, the indemnifying Party will be
entitled to participate therein and, to the extent that it may wish, assume the
defense thereof, with counsel satisfactory to such Indemnified Party. After
notice from the indemnifying Party of its intention to assume the defense of an
action, the Indemnified Party shall bear the expenses of any additional counsel
obtained by it, and the indemnifying Party shall not be liable to such
Indemnified Party under this Section for any legal or other expenses
subsequently incurred by such Indemnified Party in connection with the defense
thereof other than reasonable costs of investigation. The Indemnified Party
may not settle any action without the written consent of the indemnifying
Party. The indemnifying Party may not settle any action without the written
consent of the Indemnified Party unless such settlement completely and finally
releases the Indemnified Party from any and all liability. In either event,
consent shall not be unreasonably withheld.
(d) The Indemnified Parties will promptly notify Adviser
and Distributors of the commencement of any litigation or proceedings against
the Indemnified Parties in connection with the issuance or sale of the
Contracts or the operation of the Account.
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<PAGE> 14
10. Potential Conflicts.
10.1 Monitoring by Directors for Conflicts of Interest. The
Directors of each Fund will monitor the Fund for any potential or existing
material irreconcilable conflict of interest between the interests of the
contract owners of all separate accounts investing in the Fund, including such
conflict of interest with any other separate account of any other insurance
company investing in the Fund. An irreconcilable material conflict may arise
for a variety of reasons, including: (a) an action by any state insurance
regulatory authority; (b) a change in applicable federal or state insurance,
tax, or securities laws or regulations, or a public ruling, private letter
ruling, no-action or interpretive letter, or any similar action by insurance,
tax or securities regulatory authorities; (c) an administrative or judicial
decision in any relevant proceeding; (d) the manner in which the investments of
the Fund are being managed; (e) a difference in voting instructions given by
variable annuity contract owners and variable life insurance contract owners or
by contract owners of different life insurance companies utilizing the Fund; or
(f) a decision by Company to disregard the voting instructions of Owners. The
Directors shall promptly inform the Company, in writing, if they determine that
an irreconcilable material conflict exists and the implications thereof.
10.2 Monitoring by the Company for Conflicts of Interest. The
Company will promptly notify the Directors, in writing, of any potential or
existing material irreconcilable conflicts of interest, as described in Section
10.1 above, of which it is aware. The Company will assist the Directors in
carrying out their responsibilities under any applicable provisions of the
federal securities laws and any exemptive orders granted by the SEC ("Exemptive
Order"), by providing the Directors, in a timely manner, with all information
reasonably necessary for the Directors to consider any issues raised. This
includes, but is not limited to, an obligation by the Company to inform the
Directors whenever Owner voting instructions are disregarded.
10.3 Remedies. If it is determined by a majority of the Directors,
or a majority of disinterested Directors, that a material irreconcilable
conflict exists, as described in Section 10.1 above, the Company shall, at its
own expense take whatever steps are necessary to remedy or eliminate the
irreconcilable material conflict, up to and including, but not limited to: (a)
withdrawing the assets allocable to some or all of the separate accounts from
the applicable Fund and reinvesting such assets in a different investment
medium, including (but not limited to) another fund managed by the Adviser, or
submitting the question whether such segregation should be implemented to a
vote of all affected Owners and, as appropriate, segregating the assets of any
particular group that votes in favor of such segregation, or offering to the
affected owners the option of making such a change; and (b) establishing a new
registered management investment company or managed separate account.
10.4 Causes of Conflicts of Interest.
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<PAGE> 15
(a) State Insurance Regulators. If a material
irreconcilable conflict arises because a particular state insurance regulator's
decision applicable to the Company conflicts with the majority of other state
regulators, then the Company will withdraw the affected Account's investment in
the applicable Fund and terminate this Agreement with respect to such Account
within the period of time permitted by such decision, but in no event later
than six months after the Directors inform the Company in writing that it has
determined that such decision has created an irreconcilable material conflict;
provided, however, that such withdrawal and termination shall be limited to the
extent required by the foregoing material irreconcilable conflict as determined
by a majority of the disinterested Directors. Until the end of the foregoing
period, the Distributors and Funds shall continue to accept and implement
orders by the Company for the purchase (and redemption) of shares of the Fund
to the extent such actions do not violate applicable law.
(b) Disregard of Owner Voting. If a material
irreconcilable conflict arises because of Company's decision to disregard Owner
voting instructions and that decision represents a minority position or would
preclude a majority vote, Company may be required, at the applicable Fund's
election, to withdraw the Account's investment in said Fund. No charge or
penalty will be imposed against the Account as a result of such withdrawal.
10.5 Limitations on Consequences. For purposes of Sections 10.3
through 10.5 of this Agreement, a majority of the disinterested Directors shall
determine whether any proposed action adequately remedies any irreconcilable
material conflict. In no event will a Fund, the Adviser or the Distributors be
required to establish a new funding medium for any of the Contracts. The
Company shall not be required by Section 10.3 to establish a new funding medium
for the Contracts if an offer to do so has been declined by vote of a majority
of Owners affected by the irreconcilable material conflict. In the event that
the Directors determine that any proposed action does not adequately remedy any
irreconcilable material conflict, then the Company will withdraw the Account's
investment in the applicable Fund and terminate this Agreement as quickly as
may be required to comply with applicable law, but in no event later than six
(6) months after the Directors inform the Company in writing of the foregoing
determination, provided, however, that such withdrawal and termination shall be
limited to the extent required by any such material irreconcilable conflict.
10.6 Changes in Laws. If and to the extent that Rule 6e-2 and Rule
6e-3(T) are amended, or Rule 6e-3 is adopted, to provide exemptive relief from
any provision of the Act or the rules promulgated thereunder with respect to
mixed or shared funding (as defined in the Funds' Exemptive Order) on terms and
conditions materially different from those contained in the Funds' Exemptive
Order, then (a) the Funds and/or the Company, as appropriate, shall take such
steps as may be necessary to comply with Rules 6e-2 and 6e-3(T), as amended,
and Rule 6e-3, as adopted, to the extent such rules are applicable; and (b)
Sections 10.1, 10.2, 10.3 and 10.4 of this Agreement shall continue in effect
only to the extent that terms and conditions substantially identical to such
Sections are contained in such Rule(s) as so amended or adopted.
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<PAGE> 16
11. Maintenance of Records.
(a) Recordkeeping and other administrative services to
Owners shall be the responsibility of the Company and shall not be the
responsibility of the Funds, Adviser or Distributors. None of the Funds, the
Adviser or Distributors shall maintain separate accounts or records for Owners.
Company shall maintain and preserve all records as required by law to be
maintained and preserved in connection with providing the Services and in
making shares of the Funds available to the Account.
(b) Upon the request of the Adviser or Distributors, the
Company shall provide copies of all the historical records relating to
transactions between the Funds and the Account, written communications
regarding the Funds to or from the Account and other materials, in each case
(1) as are maintained by the Company in the ordinary course of its business and
in compliance with applicable law, and (2) as may reasonably be requested to
enable the Adviser and Distributors, or its representatives, including without
limitation its auditors or legal counsel, to (A) monitor and review the
Services, (B) comply with any request of a governmental body or self-regulatory
organization or the Owners, (C) verify compliance by the Company with the terms
of this Agreement, (D) make required regulatory reports, (E) verify to
Advisor's reasonable satisfaction that all purchase and redemption orders
aggregated for each Trade Date were received by Company prior to the close of
trading on the NYSE on such Trade Date, or (F) perform general customer
supervision. The Company agrees that it will permit the Adviser and
Distributors or such representatives of either to have reasonable access to its
personnel and records in order to facilitate the monitoring of the quality of
the Services.
(c) Upon the request of the Company, the Adviser and
Distributors shall provide copies of all the historical records relating to
transactions between the Funds and the Account, written communications
regarding the Funds to or from the Account and other materials, in each case
(1) as are maintained by the Adviser and Distributors, as the case may be, in
the ordinary course of its business and in compliance with applicable law, and
(2) as may reasonably be requested to enable the Company, or its
representatives, including without limitation its auditors or legal counsel, to
(A) comply with any request of a governmental body or self-regulatory
organization or the Owners, (B) verify compliance by the Adviser and
Distributors with the terms of this Agreement, (C) make required regulatory
reports, or (D) perform general customer supervision.
(d) The Parties agree to cooperate in good faith in
providing records to one another pursuant to this Section 11.
12. Term and Termination.
12.1 Term and Termination Without Cause. The initial term of this
Agreement shall be for a period of one year from the date hereof. Unless
terminated as to any Fund upon not less than thirty (30) days prior written
notice to the other Parties, this Agreement shall thereafter
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<PAGE> 17
automatically renew for the remaining Funds from year to year, subject to
termination at the next applicable renewal date upon not less than 30 days
prior written notice. Any Party may terminate this Agreement as to any Fund
following the initial term upon six (6) months advance written notice to the
other Parties.
12.2 Termination by Fund, Distributors or Adviser for Cause.
Adviser, Fund or Distributors may terminate this Agreement by written notice to
the Company, if any of them shall determine, in its sole judgment exercised in
good faith, that (a) the Company has suffered a material adverse change in its
business, operations, financial condition or prospects since the date of this
Agreement or is the subject of material adverse publicity; or (b) any of the
Contracts are not registered, issued or sold in accordance with applicable
state and federal law or such law precludes the use of Fund shares as the
underlying investment media of the Contracts issued or to be issued by the
Company.
12.3 Termination by Company for Cause. Company may terminate this
Agreement by written notice to the Adviser, Funds and Distributors in the event
that (a) any of the Fund shares are not registered, issued or sold in
accordance with applicable state or federal law or such law precludes the use
of such shares as the underlying investment media of the Contracts issued or to
be issued by the Company; (b) the Funds cease to qualify as Regulated
Investment Companies under Subchapter M of the Code or under any successor or
similar provision, or if the Company reasonably believes that the Funds may
fail to so qualify; or (c) a Fund fails to meet the diversification
requirements specified in Section 6.4(a).
12.4 Termination by any Party. This Agreement may be terminated as
to any Fund by any Party at any time (a) by giving 30 days' written notice to
the other Parties in the event of a material breach of this Agreement by the
other Party or Parties that is not cured during such 30-day period, and (b) (i)
upon institution of formal proceedings relating to the legality of the terms
and conditions of this Agreement against the Account, Company, Funds, Adviser
or Distributors by the NASD, the SEC or any other regulatory body provided that
the terminating Party has a reasonable belief that the institution of formal
proceedings is not without foundation and will have a material adverse impact
on the terminating Party, (ii) by the non-assigning Party upon the assignment
of this Agreement in contravention of the terms hereof, or (iii) as is required
by law, order or instruction by a court of competent jurisdiction or a
regulatory body or self-regulatory organization with jurisdiction over the
terminating Party.
12.5 Limit on Termination. Notwithstanding the termination of this
Agreement with respect to any or all Funds, for so long as any Contracts remain
outstanding and invested in a Fund each Party to this Agreement shall continue
to perform such of its duties under this Agreement as are necessary to ensure
the continued tax deferred status thereof and the payment of benefits
thereunder, except to the extent proscribed by law, the SEC or other regulatory
body. Notwithstanding the foregoing, nothing in this Section 12.5 obligates a
Fund to continue in existence. In the event that any Fund elects to terminate
its operations, the Company shall, as
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soon as practicable, obtain an exemptive order or order of substitution from
the SEC to remove all Owners from the applicable Fund.
13. Notices.
All notices under this Agreement shall be given in writing (and shall
be deemed to have been duly given upon receipt) by delivery in person, by
facsimile, by registered or certified mail
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or by overnight delivery (postage prepaid, return receipt requested) to the
respective Parties as follows:
If to Strong Variable:
Strong Variable Insurance Funds, Inc.
100 Heritage Reserve
Milwaukee, WI 53051
Attention: General Counsel
Facsimile No.: 414/359-3948
If to Opportunity Fund II:
Strong Opportunity Fund II, Inc.
100 Heritage Reserve
Milwaukee, WI 53051
Attention: General Counsel
Facsimile No.: 414/359-3948
If to Adviser:
Strong Capital Management, Inc.
100 Heritage Reserve
Milwaukee, WI 53051
Attention: General Counsel
Facsimile No.: 414/359-3948
If to Distributors:
Strong Funds Distributors, Inc.
100 Heritage Reserve
Milwaukee, WI 53051
Attention: General Counsel
Facsimile No.: 414/359-3948
If to Company:
National Life Insurance Company
One National Life Drive
Montpelier, VT 05604
Attention: Russell Morgan
Facsimile No.: (802) 229-3743
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<PAGE> 20
14. Miscellaneous.
14.1. Captions. The captions in this Agreement are included for
convenience of reference only and in no way affect the construction or effect
of any provisions hereof.
14.2. Enforceability. If any portion of this Agreement shall be
held or made invalid by a court decision, statute, rule or otherwise, the
remainder of the Agreement shall not be affected thereby.
14.3. Counterparts. This Agreement may be executed simultaneously
in two or more counterparts, each of which taken together shall constitute one
and the same instrument.
14.4. Remedies not Exclusive. The rights, remedies and obligations
contained in this Agreement are cumulative and are in addition to any and all
rights, remedies and obligations, at law or in equity, which the Parties to
this Agreement are entitled to under state and federal laws.
14.5. Confidentiality. Subject to the requirements of legal process
and regulatory authority, the Funds and Distributors shall treat as
confidential the names and addresses of the owners of the Contracts and all
information reasonably identified as confidential in writing by the Company to
this Agreement and, except as permitted by this Agreement, shall not disclose,
disseminate or utilize such names and addresses and other confidential
information without the express written consent of the Company until such time
as it may come into the public domain.
14.6. Governing Law. This Agreement shall be governed by and
interpreted in accordance with the internal laws of the State of Wisconsin
applicable to agreements fully executed and to be performed therein; exclusive
of conflicts of laws.
14.7. Survivability. Sections 6, 7.2, 7.3, 7.4, 9, 11 and 12.5
hereof shall survive termination of this Agreement. In addition, all
provisions of this Agreement shall survive termination of this Agreement in the
event that any Contracts are invested in a Fund at the time the termination
becomes effective and shall survive for so long as such Contracts remain so
invested.
14.8. Amendment and Waiver. No modification of any provision of
this Agreement will be binding unless in writing and executed by the Party to
be bound thereby. No waiver of any provision of this Agreement will be binding
unless in writing and executed by the Party granting such waiver.
Notwithstanding anything in this Agreement to the contrary, the Adviser may
unilaterally amend Exhibit A to this Agreement to add additional series of
Strong Variable Funds ("New Funds") as Funds by sending to the Company a
written notice of the New Funds. Any valid waiver of a provision set forth
herein shall not constitute a waiver of any other provision of this Agreement.
In addition, any such waiver shall constitute a present waiver of such
provision and shall not constitute a permanent future waiver of such provision.
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<PAGE> 21
14.9. Assignment. This Agreement shall be binding upon and shall
inure to the benefit of the Parties and their respective successors and
assigns; provided, however, that neither this Agreement nor any rights,
privileges, duties or obligations of the Parties may be assigned by any Party
without the written consent of the other Parties or as expressly contemplated
by this Agreement.
14.10. Entire Agreement. This Agreement contains the full and
complete understanding between the Parties with respect to the transactions
covered and contemplated under this Agreement, and supersedes all prior
agreements and understandings between the Parties relating to the subject
matter hereof, whether oral or written, express or implied.
14.11. Relationship of Parties; No Joint Venture, Etc. Except for
the limited purpose provided in Section 3.8, it is understood and agreed that
the Company shall be acting as an independent contractor and not as an employee
or agent of the Adviser, Distributors or the Funds, and none of the Parties
shall hold itself out as an agent of any other Party with the authority to bind
such Party. Neither the execution nor performance of this Agreement shall be
deemed to create a partnership or joint venture by and among any of the
Company, Funds, Adviser, or Distributors.
14.12. Expenses. All expenses incident to the performance by each
Party of its respective duties under this Agreement shall be paid by that
Party.
14.13. Time of Essence. Time shall be of the essence in this
Agreement.
14.14. Non-Exclusivity. Each of the Parties acknowledges and agrees
that this Agreement and the arrangements described herein are intended to be
non-exclusive and that each of the Parties is free to enter into similar
agreements and arrangements with other entities.
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<PAGE> 22
14.15. Operations of Funds. In no way shall the provisions of this
Agreement limit the authority of the Funds, the Adviser or Distributors to take
such action as it may deem appropriate or advisable in connection with all
matters relating to the operation of such Fund and the sale of its shares. In
no way shall the provisions of this Agreement limit the authority of the
Company to take such action as it may deem appropriate or advisable in
connection with all matters relating to the provision of Services or the shares
of funds other than the Funds offered to the Account.
NATIONAL LIFE INSURANCE COMPANY
------------------------------------------------------
By:
Name:
Title:
STRONG CAPITAL MANAGEMENT, INC.
------------------------------------------------------
Donald G. Tyler, Senior Vice President
Strong Intermediary Services
STRONG FUNDS DISTRIBUTORS, INC.
------------------------------------------------------
Stephen J. Shenkenberg, Vice President
STRONG VARIABLE INSURANCE FUNDS, INC.
on behalf of the Designated Portfolios
------------------------------------------------------
Stephen J. Shenkenberg, Vice President
STRONG OPPORTUNITY FUND II, INC.
------------------------------------------------------
Stephen J. Shenkenberg, Vice President
22
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EXHIBIT A
The following is a list of Designated Portfolios under this Agreement:
Strong Growth Fund II
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<PAGE> 24
EXHIBIT B
THE SERVICES
Company shall perform the following services. Such services
shall be the responsibility of the Company and shall not be the responsibility
of the Funds, Adviser or Distributors.
1. Maintain separate records for each Account, which records
shall reflect Fund shares ("Shares") purchased and redeemed, including the date
and price for all transactions, Share balances, and the name and address of
each Owner, including zip codes and tax identification numbers.
2. Credit contributions to individual Owner accounts and invest
such contributions in shares of the Funds to the extent so designated by the
Owner.
3. Disburse or credit to the Owners, and maintain records of, all
proceeds of redemptions of Fund shares and all other distributions not
reinvested in shares.
4. Prepare and transmit to the Owners, periodic account
statements showing, among other things, the total number of Fund shares owned
as of the statement closing date, purchases and redemptions of shares during
the period covered by the statement, the net asset value of the Funds as of a
recent date, and the dividends and other distributions paid during the
statement period (whether paid in cash or reinvested in shares).
5. Transmit to the Owners, as required by applicable law,
prospectuses, proxy materials, shareholder reports, and other information
provided by the Adviser, Distributors or Funds and required to be sent to
shareholders under the Federal securities laws.
6. Transmit to Distributors purchase orders and redemption
requests placed by the Account and arrange for the transmission of funds to and
from the Funds.
7. Transmit to Distributors such periodic reports as Distributors
shall reasonably conclude is necessary to enable the Funds to comply with
applicable Federal securities and state Blue Sky requirements.
8. Transmit to each Account confirmations of purchase orders and
redemption requests placed by each Account.
9. Maintain all account balance information for the Account and
daily and monthly purchase summaries expressed in shares and dollar amounts.
10. Prepare, transmit and file any Federal, state and local
government reports and returns as required by law with respect to each account
maintained on behalf of the Account.
24
<PAGE> 25
11. Respond to Owners' inquiries regarding, among other things,
share prices, account balances, dividend options, dividend amounts, and
dividend payment dates.
25
<PAGE> 26
EXHIBIT C
ACCOUNT INFORMATION
<TABLE>
<S> <C>
1. Entity in whose name each Account will be opened: ----------------------------------------
Mailing address: ----------------------------------------
----------------------------------------
----------------------------------------
2. Employer ID number (For internal usage only): ----------------------------------------
</TABLE>
3. Authorized contact persons: The following persons are authorized on behalf
of the Company to effect transactions in each Account:
<TABLE>
<S> <C>
Name: Name:
----------------------------- ------------------------------
Phone: Phone:
----------------------------- ------------------------------
</TABLE>
4. Will the Accounts have telephone exchange? Yes No
---- ----
(This option lets Company redeem shares by telephone and apply the proceeds
for purchase in another identically registered Strong Funds account.)
5. Will the Accounts have telephone redemption? Yes No
---- ----
(This option lets Company sell shares by telephone. The proceeds will be
wired to the bank account specified below.)
6. All dividends and capital gains will be reinvested automatically.
<TABLE>
<S> <C>
7. Instructions for all outgoing wire transfers: ------------------------------------------
------------------------------------------
------------------------------------------
------------------------------------------
</TABLE>
8. If this Account Information Form contains changed information, the
undersigned authorized officer has executed this amended Account Information
Form as of the date set forth below and acknowledges the agreements and
representations set forth in the Participation Agreement between the Company,
the Funds, Adviser and Distributors:
26
<PAGE> 27
9. Company represents under penalty of perjury that:
(a) The employer ID number on this form is correct; and
(b) Company is not subject to backup withholding because (i)
Company is exempt from backup withholding, (ii) Company has not been notified
by the IRS that it is subject to backup withholding as a result of failure to
report all interest or dividends, or (iii) the IRS has notified the Company
that it is no longer subject to backup withholding. (Cross out (b) if Company
has been notified by the IRS that it is subject to backup withholding because
of underreporting interest or dividends on its tax return.)
<TABLE>
<S> <C>
-------------------------------------- ----------------------------
(Signature of Authorized Officer) (Date)
</TABLE>
Please Note: Distributors employs reasonable procedures to confirm that
instructions communicated by telephone are genuine and may not be liable for
losses due to unauthorized or fraudulent instructions. Please see the
prospectus for the applicable Fund for more information on the telephone
exchange and redemption privileges.
For Strong Internal Use: This Account Information Form may be a copy. The
original Account Information Form is attached to the Participation Agreement
with the Adviser and retained in the legal department.
27
<PAGE> 1
EXHIBIT 8(d)3
AMENDMENT NO. 2 TO PARTICIPATION AGREEMENT
AMONG
VARIABLE INSURANCE PRODUCTS FUND II,
FIDELITY DISTRIBUTORS CORPORATION
AND
NATIONAL LIFE INSURANCE COMPANY (AS SUCCESSOR TO
VERMONT LIFE INSURANCE COMPANY)
THIS AMENDMENT NO. 2 to the Participation Agreement by and among Vermont Life
Insurance Company (since merged into National Life Insurance Company), Variable
Insurance Products Fund II (the "Fund"), and Fidelity Distributors Corporation
(the "Underwriter"), dated April 1, 1990 as amended by Amendment No. 1 to
Participation Agreement dated April 28, 1997 (the "Participation Agreement"),
and is made and entered into this ____ day of _______, 1998.
1. Schedule A is hereby further amended to add the following contract forms:
National Life Contract Form 7461(0398) (Last Survivor Flexible
Premium Adjustable Benefit Variable Life Insurance)
2. Pursuant to section 1.6 hereof, the Fund and the Distributor hereby
consents to the investment of net amounts available under the variable
contracts listed in paragraph 1 above in the following Funds other than the
Fund: The Market Street Fund, Strong Opportunity Fund II, Inc., Strong Variable
Insurance Funds, Inc., American Century Investment Management, Inc., Neuberger
& Berman Advisers Managers Trust, J. P. Morgan Series Trust II and Goldman
Sachs Variable Insurance Trust.
IN WITNESS WHEREOF, each of the parties hereto has caused this Amendment No. 2
to the Participation Agreement to be executed in its name and on its behalf by
its duly authorized representative and its seal to be affixed hereto as of the
date specified below.
NATIONAL LIFE INSURANCE COMPANY
by
-----------------------------
Name:
Title:
VARIABLE INSURANCE PRODUCTS FUND II
by
-----------------------------
Name:
Title:
FIDELITY DISTRIBUTORS CORPORATION
by
-----------------------------
Name:
Title:
<PAGE> 1
EXHIBIT 1a 8(e)
SHAREHOLDER SERVICES AGREEMENT
THIS SHAREHOLDER SERVICES AGREEMENT is made and entered into as of
___________, 1998 by and between National Life Insurance Company (the
"Company"), and AMERICAN CENTURY INVESTMENT MANAGEMENT, INC. ("ACIM").
WHEREAS, the Company offers to the public certain group and individual
variable annuity and variable life insurance contracts (the "Contracts"); and
WHEREAS, the Company wishes to make available as investment options
under the Contracts, VP Advantage, VP Balanced, VP Capital Appreciation, VP
Income & Growth, VP International and VP Value (the "Funds"), each of which is
a series of mutual fund shares registered under the Investment Company Act of
1940, as amended, and issued by American Century Variable Portfolios, Inc.
(the "Issuer"); and
WHEREAS, on the terms and conditions hereinafter set forth, ACIM
desires to make shares of the Funds available as investment options under the
Contracts and to retain the Company to perform certain administrative services
on behalf of the Funds, and the Company is willing and able to furnish such
services;
NOW, THEREFORE, the Company and ACIM agree as follows:
1. TRANSACTIONS IN THE FUNDS. Subject to the terms and
conditions of this Agreement, ACIM will cause the Issuer to make shares of the
Funds available to be purchased, exchanged, or redeemed, by or on behalf of the
Accounts (defined in SECTION 7(a) below) through a single account per Fund at
the net asset value applicable to each order. The Funds' shares shall be
purchased and redeemed on a net basis in such quantity and at such time as
determined by the Company to satisfy the requirements of the Contracts for
which the Funds serve as underlying investment media. Dividends and capital
gains distributions will be automatically reinvested in full and fractional
shares of the Funds.
2. ADMINISTRATIVE SERVICES. The Company agrees to provide all
administrative services for the Contract owners, including but not limited to
those services specified in EXHIBIT A (the "Administrative Services"). Neither
ACIM nor the Issuer shall be required to provide Administrative Services for
the benefit of Contract owners. The Company agrees that it will maintain and
preserve all records as required by law to be maintained and preserved in
connection with providing the Administrative Services, and will otherwise
comply with all laws, rules and regulations applicable to the marketing of the
Contracts and the provision of the Administrative Services. Upon request, the
Company will provide ACIM or its representatives reasonable information
regarding the quality of the Administrative Services being provided and its
compliance with the terms of this Agreement.
1
<PAGE> 2
3. TIMING OF TRANSACTIONS. ACIM hereby appoints the Company as
agent for the Funds for the limited purpose of accepting purchase and
redemption orders for Fund shares from the Contract owners. On each day the
New York Stock Exchange (the "Exchange") is open for business (each, a
"Business Day"), the Company may receive instructions from the Contract owners
for the purchase or redemption of shares of the Funds ("Orders"). Orders
received and accepted by the Company prior to the close of regular trading on
the Exchange (the "Close of Trading") on any given Business Day
(currently, 4:00 p.m. Eastern time) and transmitted to the Funds' transfer
agent by 9:00 a.m. Eastern time on the next Business Day will be executed at
the net asset value determined as of the Close of Trading on the prior Business
Day. Any Orders received by the Company on such day but after the Close of
Trading, and all Orders that are transmitted to the Funds' transfer agent after
9:00 a.m. Eastern time on the next Business Day, will be executed at the net
asset value determined as of the Close of Trading on the next Business Day
following the day of receipt of such Order. The day as of which an Order is
executed by the Funds' transfer agent pursuant to the provisions set forth
above is referred to herein as the "Trade Date".
4. PROCESSING OF TRANSACTIONS.
(a) If transactions in Fund shares are to be settled through the
National Securities Clearing Corporation's Mutual Fund Settlement, Entry, and
Registration Verification (Fund/SERV) system, the terms of the FUND/SERV
AGREEMENT, between Company and American Century Services Corporation, shall
apply.
(b) If transactions in Fund shares are to be settled directly with
the Funds' transfer agent, the following provisions shall apply:
(1) By 6:30 p.m. Eastern time on each Business Day, ACIM
(or one of its affiliates) will provide to the Company via facsimile or other
electronic transmission acceptable to the Company the Funds' net asset value,
dividend and capital gain information and, in the case of income funds, the
daily accrual for interest rate factor (mil rate), determined at the Close of
Trading.
(2) By 9:00 a.m. Eastern time on each Business Day, the
Company will provide to ACIM via facsimile or other electronic transmission
acceptable to ACIM a report stating whether the instructions received by the
Company from Contract owners by the Close of Trading on such Business Day
resulted in the Accounts being a net purchaser or net seller of shares of the
Funds. As used in this Agreement, the phrase "other electronic transmission
acceptable to ACIM" includes the use of remote computer terminals located at
the premises of the Company, its agents or affiliates, which terminals may be
linked electronically to the computer system of ACIM, its agents or affiliates
(hereinafter, "Remote Computer Terminals").
(3) Upon the timely receipt from the Company of the
report described in (2) above, the Funds' transfer agent will execute the
purchase or redemption transactions (as the case
2
<PAGE> 3
may be) at the net asset value computed as of the Close of Trading on the Trade
Date. Payment for net purchase transactions shall be made by wire transfer to
the applicable Fund custodial account designated by the Funds on the Business
Day next following the Trade Date. Such wire transfers shall be initiated by
the Company's bank prior to 4:00 p.m. Eastern time and received by the Funds
prior to 6:00 p.m. Eastern time on the Business Day next following the Trade
Date ("T+1"). If payment for a purchase Order is not timely received, such
Order will be executed at the net asset value next computed following receipt
of payment. Payments for net redemption transactions shall be made by wire
transfer by the Issuer to the account(s) designated by the Company on T+1;
provided, however, the Issuer reserves the right to settle redemption
transactions within the time period set forth in the applicable Fund's
then-current prospectus. On any Business Day when the Federal Reserve Wire
Transfer System is closed, all communication and processing rules will be
suspended for the settlement of Orders. Orders will be settled on the next
Business Day on which the Federal Reserve Wire Transfer System is open and the
original Trade Date will apply.
5. PROSPECTUS AND PROXY MATERIALS.
(a) ACIM shall provide the Company with copies of the Issuer's
proxy materials, periodic fund reports to shareholders and other materials that
are required by law to be sent to the Issuer's shareholders. In addition, ACIM
shall provide the Company with a sufficient quantity of prospectuses of the
Funds to be used in conjunction with the transactions contemplated by this
Agreement, together with such additional copies of the Issuer's prospectuses as
may be reasonably requested by Company. If the Company provides for
pass-through voting by the Contract owners, or if the Company determines that
pass-through voting is required by law, ACIM will provide the Company with a
sufficient quantity of proxy materials for each, as directed by the Company.
(b) The cost of preparing, printing and shipping of the
prospectuses, proxy materials, periodic fund reports and other materials of the
Issuer to the Company shall be paid by ACIM or its agents or affiliates;
provided, however, that if at any time ACIM or its agent reasonably deems the
usage by the Company of such items to be excessive, it may, prior to the
delivery of any quantity of materials in excess of what is deemed reasonable,
request that the Company demonstrate the reasonableness of such usage. If ACIM
believes the reasonableness of such usage has not been adequately demonstrated,
it may request that the party responsible for such excess usage pay the cost of
printing (including press time) and delivery of any excess copies of such
materials. Unless the Company agrees to make such payments, ACIM may refuse to
supply such additional materials and ACIM shall be deemed in compliance with
this SECTION 5 if it delivers to the Company at least the number of
prospectuses and other materials as may be required by the Issuer under
applicable law.
(c) The cost of any distribution of prospectuses, proxy materials,
periodic fund reports and other materials of the Issuer to the Contract owners
shall be paid by the Company and shall not be the responsibility of ACIM or the
Issuer.
3
<PAGE> 4
6. COMPENSATION AND EXPENSES.
(a) Each Account shall be the sole shareholder of Fund shares
purchased for the Contract owners pursuant to this Agreement (the "Record
Owner"). The Record Owner shall properly complete any applications or other
forms required by ACIM or the Issuer from time to time.
(b) ACIM acknowledges that it will derive a substantial savings in
administrative expenses, such as a reduction in expenses related to postage,
shareholder communications and recordkeeping, by virtue of having a single
shareholder account per Fund for the Accounts rather than having each Contract
owner as a shareholder. In consideration of the Administrative Services and
performance of all other obligations under this Agreement by the Company, ACIM
will pay the Company a fee (the "Administrative Services Fee") equal to 20
basis points (0.20%) per annum of the average aggregate amount invested by the
Company under this Agreement.
(c) The payments received by the Company under this Agreement are
for administrative and shareholder services only and do not constitute payment
in any manner for investment advisory services or for costs of distribution.
(d) For the purposes of computing the payment to the Company
contemplated by this SECTION 6, the average aggregate amount invested by the
Company on behalf of the Accounts in the Funds over a one month period shall be
computed by totaling the Company's aggregate investment (share net asset value
multiplied by total number of shares of the Funds held by the Company) on each
Business Day during the month and dividing by the total number of Business Days
during such month.
(e) ACIM will calculate the amount of the payment to be made
pursuant to this SECTION 6 at the end of each calendar quarter and will make
such payment to the Company within 30 days thereafter. The check for such
payment will be accompanied by a statement showing the calculation of the
amounts being paid by ACIM for the relevant months and such other supporting
data as may be reasonably requested by the Company and shall be mailed to:
National Life Insurance Company
---------------------------------------------------
National Life Drive
---------------------------------------------------
Montpelier, VT 05604
---------------------------------------------------
Attention: Treasurer
---------------------------------------
Phone No.: 802-229-7072
----------------------------------------
Fax No.: 802-229-3750
-------------------------------------------
4
<PAGE> 5
7. REPRESENTATIONS.
(a) The Company represents and warrants that (i) this Agreement has
been duly authorized by all necessary corporate action and, when executed and
delivered, shall constitute the legal, valid and binding obligation of
the Company, enforceable in accordance with its terms; (ii) it has established
the National Variable Life Insurance Account and the National Variable Annuity
Account II (the "Accounts"), each of which is a duly authorized and established
separate account under Vermont Insurance law, and has registered each Account
as a unit investment trust under the Investment Company Act of 1940 (the "1940
Act") to serve as an investment vehicle for the Contracts; (iii) each Contract
provides for the allocation of net amounts received by the Company to an
Account for investment in the shares of one or more specified investment
companies selected among those companies available through the Account to act
as underlying investment media; (iv) selection of a particular investment
company is made by the Contract owner under a particular Contract, who may
change such selection from time to time in accordance with the terms of the
applicable Contract; and (v) the activities of the Company contemplated by this
Agreement comply in all material respects with all provisions of federal and
state securities laws applicable to such activities.
(b) ACIM represents that (i) this Agreement has been duly
authorized by all necessary corporate action and, when executed and delivered,
shall constitute the legal, valid and binding obligation of ACIM, enforceable
in accordance with its terms; (ii) the prospectus of each Fund complies in all
material respects with federal and state securities laws, and (iii) shares of
the Issuer are registered and authorized for sale in accordance with all
federal and state securities laws.
8. ADDITIONAL COVENANTS AND AGREEMENTS.
(a) Each party shall comply with all provisions of federal and
state laws applicable to its respective activities under this Agreement. All
obligations of each party under this Agreement are subject to compliance with
applicable federal and state laws.
(b) Each party shall promptly notify the other parties in the
event that it is, for any reason, unable to perform any of its obligations
under this Agreement.
(c) The Company covenants and agrees that all Orders accepted and
transmitted by it hereunder with respect to each Account on any Business Day
will be based upon instructions that it received from the Contract owners, in
proper form prior to the Close of Trading of the Exchange on that Business Day.
The Company shall time stamp all Orders or otherwise maintain records that will
enable the Company to demonstrate compliance with SECTION 8(c) hereof.
(d) The Company covenants and agrees that all Orders transmitted
to the Issuer, whether by telephone, telecopy, or other electronic transmission
acceptable to ACIM, shall be sent by or under the authority and direction of a
person designated by the Company as being duly
5
<PAGE> 6
authorized to act on behalf of the owner of the Accounts. ACIM shall be
entitled to rely on the existence of such authority and to assume that any
person transmitting Orders for the purchase, redemption or transfer of Fund
shares on behalf of the Company is "an appropriate person" as used in Sections
8-107 and 8-401 of the Uniform Commercial Code with respect to the transmission
of instructions regarding Fund shares on behalf of the owner of such Fund
shares. The Company shall maintain the confidentiality of all passwords and
security procedures issued, installed or otherwise put in place with respect to
the use of Remote Computer Terminals and assumes full responsibility for the
security therefor. The Company further agrees to be responsible for the
accuracy, propriety and consequences of all data transmitted to ACIM by the
Company by telephone, telecopy or other electronic transmission acceptable to
ACIM.
(e) The Company agrees that, to the extent it is able to do so, it
will use its best efforts to give equal emphasis and promotion to shares of the
Funds as is given to other underlying investments of the Accounts, subject to
applicable Securities and Exchange Commission rules. In addition, the Company
shall not impose any fee, condition, or requirement for the use of the Funds as
investment options for the Contracts that operates to the specific prejudice of
the Funds vis-a-vis the other investment media made available for the Contracts
by the Company.
(f) The Company shall not, without the written consent of ACIM,
make representations concerning the Issuer or the shares of the Funds except
those contained in the then-current prospectus and in current printed sales
literature approved by ACIM or the Issuer.
(g) Advertising and sales literature with respect to the Issuer or
the Funds prepared by the Company or its agents, if any, for use in marketing
shares of the Funds as underlying investment media to Contract owners shall be
submitted to ACIM for review and approval before such material is used.
9. USE OF NAMES. Except as otherwise expressly provided for in
this Agreement, neither ACIM nor any of its affiliates or the Funds shall use
any trademark, trade name, service mark or logo of the Company, or any
variation of any such trademark, trade name, service mark or logo, without the
Company's prior written consent, the granting of which shall be at the
Company's sole option. Except as otherwise expressly provided for in this
Agreement, the Company shall not use any trademark, trade name, service mark or
logo of the Issuer, ACIM or any of its affiliates or any variation of any such
trademarks, trade names, service marks, or logos, without the prior written
consent of either the Issuer or ACIM, as appropriate, the granting of which
shall be at the sole option of ACIM and/or the Issuer.
10. PROXY VOTING.
(a) The Company shall provide pass-through voting privileges to
all Contract owners so long as the SEC continues to interpret the 1940 Act as
requiring such privileges. It shall be the responsibility of the Company to
assure that it and the separate accounts of the other Participating
6
<PAGE> 7
Companies (as defined in SECTION 12(a) below) participating in any Fund
calculate voting privileges in a consistent manner.
(b) The Company will distribute to Contract owners all proxy material
furnished by ACIM and will vote shares in accordance with instructions received
from such Contract owners. The Company shall vote Fund shares for which no
voting instructions are received in the same proportion as shares for which
such instructions have been received. The Company and its agents shall not
oppose or interfere with the solicitation of proxies for Fund shares held for
such Contract owners.
11. INDEMNITY.
(a) ACIM agrees to indemnify and hold harmless the Company and its
officers, directors, employees, agents, affiliates and each person, if any, who
controls the Company within the meaning of the Securities Act of 1933
(collectively, the "Indemnified Parties" for purposes of this SECTION 11(a))
against any losses, claims, expenses, damages or liabilities (including amounts
paid in settlement thereof) or litigation expenses (including legal and other
expenses) (collectively, "Losses"), to which the Indemnified Parties may become
subject, insofar as such Losses result from (i) a breach by ACIM of a material
provision of this Agreement or (ii) any untrue statement of any material fact
contained in any registration statement, prospectus or statement of
additional information of a Fund or the omission to state therein a material
fact required to be stated therein or necessary to make the statements therein
not misleading. ACIM will reimburse any legal or other expenses reasonably
incurred by the Indemnified Parties in connection with investigating or
defending any such Losses. ACIM shall not be liable for indemnification
hereunder if such Losses are attributable to the negligence or misconduct of
the Company in performing its obligations under this Agreement.
(b) The Company agrees to indemnify and hold harmless ACIM and the
Issuer, and their respective officers, directors, employees, agents, affiliates
and each person, if any, who controls Issuer or ACIM within the meaning of the
Securities Act of 1933 (collectively, the "Indemnified Parties" for purposes of
this SECTION 11(b)) against any Losses to which the Indemnified Parties
may become subject, insofar as such Losses result from (i) a breach by the
Company of a material provision of this Agreement or the use by any person of
the Remote Computer Terminals or (ii) any untrue statement of any material fact
contained in any registration statement, prospectus or statement of additional
information of a Contract, or the omission to state therein a material fact
required to be stated therein or necessary to make the statements therein not
misleading. The Company will reimburse any legal or other expenses reasonably
incurred by the Indemnified Parties in connection with investigating or
defending any such Losses. The Company shall not be liable for indemnification
hereunder if such Losses are attributable to the negligence or misconduct of
ACIM or the Issuer in performing their obligations under this Agreement.
(c) Promptly after receipt by an indemnified party hereunder of
notice of the commencement of action, such indemnified party will, if a claim
in respect thereof is to be made against the indemnifying party hereunder,
notify the indemnifying party of the commencement thereof; but the omission so
to notify the indemnifying party will not relieve it from any liability which
it may have to any indemnified party otherwise than under this SECTION 11. In
case any such action is brought against any indemnified party, and it notifies
the indemnifying party of the
7
<PAGE> 8
commencement thereof, the indemnifying party will be entitled to participate
therein and, to the extent that it may wish to, assume the defense thereof,
with counsel satisfactory to such indemnified party, and after notice from the
indemnifying party to such indemnified party of its election to assume the
defense thereof, the indemnifying party will not be liable to such indemnified
party under this SECTION 11 for any legal or other expenses subsequently
incurred by such indemnified party in connection with the defense thereof other
than reasonable costs of investigation.
(d) If the indemnifying party assumes the defense of any such
action, the indemnifying party shall not, without the prior written consent of
the indemnified parties in such action, settle or compromise the liability of
the indemnified parties in such action, or permit a default or consent to the
entry of any judgment in respect thereof, unless in connection with such
settlement, compromise or consent, each indemnified party receives from such
claimant an unconditional release from all liability in respect of such claim.
12. POTENTIAL CONFLICTS
(a) The Company has received a copy of an application for
exemptive relief, as amended, filed by the Issuer on December 21, 1987, with
the SEC and the order issued by the SEC in response thereto (the "Shared
Funding Exemptive Order"). The Company has reviewed the conditions to the
requested relief set forth in such application for exemptive relief. As set
forth in such application, the Board of Directors of the Issuer (the "Board")
will monitor the Issuer for the existence of any material irreconcilable
conflict between the interests of the contract owners of all separate accounts
("Participating Companies") investing in funds of the Issuer. An
irreconcilable material conflict may arise for a variety of reasons, including:
(i) an action by any state insurance regulatory authority; (ii) a change in
applicable federal or state insurance, tax, or securities laws or regulations,
or a public ruling, private letter ruling, no-action or interpretative letter,
or any similar actions by insurance, tax or securities regulatory authorities;
(iii) an administrative or judicial decision in any relevant proceeding; (iv)
the manner in which the investments of any portfolio are being managed; (v) a
difference in voting instructions given by variable annuity contract owners and
variable life insurance contract owners; or (vi) a decision by an insurer to
disregard the voting instructions of contract owners. The Board shall promptly
inform the Company if it determines that an irreconcilable material conflict
exists and the implications thereof.
(b) The Company will report any potential or existing conflicts of
which it is aware to the Board. The Company will assist the Board in carrying
out its responsibilities under the Shared Funding Exemptive Order by providing
the Board with all information reasonably necessary for the Board to consider
any issues raised. This includes, but is not limited to, an obligation by the
Company to inform the Board whenever contract owner voting instructions are
disregarded.
(c) If a majority of the Board, or a majority of its disinterested
Board members, determines that a material irreconcilable conflict exists with
regard to contract owner investments in
8
<PAGE> 9
a Fund, the Board shall give prompt notice to all Participating Companies. If
the Board determines that the Company is responsible for causing or creating
said conflict, the Company shall at its sole cost and expense, and to the
extent reasonably practicable (as determined by a majority of the disinterested
Board members), take such action as is necessary to remedy or eliminate the
irreconcilable material conflict. Such necessary action may include but shall
not be limited to:
(i) withdrawing the assets allocable to the Accounts from
the Fund and reinvesting such assets in a different
investment medium or submitting the question of
whether such segregation should be implemented to a
vote of all affected contract owners and as
appropriate, segregating the assets of any
appropriate group (i.e., annuity contract owners,
life insurance contract owners, or variable contract
owners of one or more Participating Companies) that
votes in favor of such segregation, or offering to
the affected contract owners the option of making
such a change; and/or
(ii) establishing a new registered management investment
company or managed separate account.
(d) If a material irreconcilable conflict arises as a result of a
decision by the Company to disregard its contract owner voting instructions and
said decision represents a minority position or would preclude a majority vote
by all of its contract owners having an interest in the Issuer, the Company at
its sole cost, may be required, at the Board's election, to withdraw an
Account's investment in the Issuer and terminate this Agreement; provided,
however, that such withdrawal and termination shall be limited to the extent
required by the foregoing material irreconcilable conflict as determined by a
majority of the disinterested members of the Board.
(e) For the purpose of this SECTION 12, a majority of the
disinterested Board members shall determine whether or not any proposed action
adequately remedies any irreconcilable material conflict, but in no event will
the Issuer be required to establish a new funding medium for any Contract. The
Company shall not be required by this SECTION 12 to establish a new funding
medium for any Contract if an offer to do so has been declined by vote of a
majority of the Contract owners materially adversely affected by the
irreconcilable material conflict.
13. TERMINATION; WITHDRAWAL OF OFFERING. This Agreement may be
terminated by either party upon 180 days' prior written notice to the other
parties. Notwithstanding the above, the Issuer reserves the right, without
prior notice, to suspend sales of shares of any Fund, in whole or in part, or
to make a limited offering of shares of any of the Funds in the event that (A)
any regulatory body commences formal proceedings against the Company, ACIM,
affiliates of ACIM, or the Issuer, which proceedings ACIM reasonably believes
may have a material adverse impact on the ability of ACIM, the Issuer or the
Company to perform its obligations under this Agreement or (B) in the judgment
of ACIM, declining to accept any additional instructions for the purchase or
sale of shares of any such Fund is warranted by market, economic or political
conditions. Notwithstanding
9
<PAGE> 10
the foregoing, this Agreement may be terminated immediately (i) by any party as
a result of any other breach of this Agreement by another party, which breach
is not cured within 30 days after receipt of notice from the other party, or
(ii) by any party upon a determination that continuing to perform under this
Agreement would, in the reasonable opinion of the terminating party's counsel,
violate any applicable federal or state law, rule, regulation or judicial
order. Termination of this Agreement shall not affect the obligations of the
parties to make payments under SECTION 4 for Orders received by the Company
prior to such termination and shall not affect the Issuer's obligation to
maintain the Accounts as set forth by this Agreement. Following termination,
ACIM shall not have any Administrative Services payment obligation to the
Company (except for payment obligations accrued but not yet paid as of the
termination date).
14. NON-EXCLUSIVITY. Each of the parties acknowledges and agrees
that this Agreement and the arrangement described herein are intended to be
non-exclusive and that each of the parties is free to enter into similar
agreements and arrangements with other entities.
15. SURVIVAL. The provisions of SECTION 9 (use of names) and
SECTION 11 (indemnity) of this Agreement shall survive termination of this
Agreement.
16. AMENDMENT. Neither this Agreement, nor any provision hereof,
may be amended, waived, discharged or terminated orally, but only by an
instrument in writing signed by all of the parties hereto.
17. NOTICES. All notices and other communications hereunder shall
be given or made in writing and shall be delivered personally, or sent by
telex, 1telecopier, express delivery or registered or certified mail, postage
prepaid, return receipt requested, to the party or parties to whom they are
directed at the following addresses, or at such other addresses as may be
designated by notice from such party to all other parties.
To the Company:
National Life Insurance Company
-----------------------------------------------------
National Life Drive
-----------------------------------------------------
Montpelier, VT 05604
-----------------------------------------------------
(802) 229-3113 (office number)
------------------
(802) 229-3743 (telecopy number)
------------------
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To the Issuer or ACIM:
American Century Investment Management, Inc.
4500 Main Street
Kansas City, Missouri 64111
Attention: Charles A. Etherington, Esq.
(816) 340-4051 (office number)
(816) 340-4964 (telecopy number)
Any notice, demand or other communication given in a manner prescribed in this
SECTION 17 shall be deemed to have been delivered on receipt.
18. SUCCESSORS AND ASSIGNS. This Agreement may not be assigned
without the written consent of all parties to the Agreement at the time of such
assignment. This Agreement shall be binding upon and inure to the benefit of
the parties hereto and their respective permitted successors and assigns.
19. COUNTERPARTS. This Agreement may be executed in any number of
counterparts, all of which taken together shall constitute one agreement, and
any party hereto may execute this Agreement by signing any such counterpart.
20. SEVERABILITY. In case any one or more of the provisions
contained in this Agreement should be invalid, illegal or unenforceable in any
respect, the validity, legality and enforceability of the remaining provisions
contained herein shall not in any way be affected or impaired thereby.
21. ENTIRE AGREEMENT. This Agreement, including the attachments
hereto, constitutes the entire agreement between the parties with respect to
the matters dealt with herein, and supersedes all previous agreements, written
or oral, with respect to such matters.
IN WITNESS WHEREOF, the undersigned have executed this Agreement as of
the date set forth above.
<TABLE>
<S> <C>
National Life Insurance Company AMERICAN CENTURY INVESTMENT
- --------------------------------------------------- MANAGEMENT, INC.
By: By:
----------------------------------------------- -----------------------------------------------
Name: William M. Lyons
--------------------------------------------- Executive Vice President
Title:
--------------------------------------------
</TABLE>
11
<PAGE> 12
EXHIBIT A
ADMINISTRATIVE SERVICES
Pursuant to the Agreement to which this is attached, the Company shall perform
all administrative and shareholder services required or requested under the
Contracts with respect to the Contract owners, including, but not limited to,
the following:
1. Maintain separate records for each Contract owner, which
records shall reflect the shares purchased and redeemed and share balances of
such Contract owners. The Company will maintain a single master account with
each Fund on behalf of the Contract owners of each Contract and such account
shall be in the name of the Company (or its nominee) as the record owner of
shares owned by the Contract owners.
2. Disburse or credit to the Contract owners all proceeds of
redemptions of shares of the Funds and all dividends and other distributions
not reinvested in shares of the Funds.
3. Prepare and transmit to the Contract owners, as required by
law or the Contracts, periodic statements showing the total number of shares
owned by the Contract owners as of the statement closing date, purchases and
redemptions of Fund shares by the Contract owners during the period covered by
the statement and the dividends and other distributions paid during the
statement period (whether paid in cash or reinvested in Fund shares), and such
other information as may be required, from time to time, by the Contracts.
4. Transmit purchase and redemption orders to the Funds on behalf
of the Contract owners in accordance with the procedures set forth in SECTION 4
to the Agreement.
5. Distribute to the Contract owners copies of the Funds'
prospectus, proxy materials, periodic fund reports to shareholders and other
materials that the Funds are required by law or otherwise to provide to their
shareholders or prospective shareholders.
6. Maintain and preserve all records as required by law to be
maintained and preserved in connection with providing the Administrative
Services for the Contracts.
A-1
<PAGE> 1
EXH. 1a 8(f)
FUND PARTICIPATION AGREEMENT
THIS AGREEMENT made as of the ______________ day of ______, _________, by
and between NEUBERGER&BERMAN ADVISERS MANAGEMENT TRUST ("TRUST"), a Delaware
business trust, ADVISERS MANAGERS TRUST ("MANAGERS TRUST"), a New York common
law trust, NEUBERGER&BERMAN MANAGEMENT INCORPORATED ("N&B MANAGEMENT"), a New
York corporation, and NATIONAL LIFE INSURANCE COMPANY ("LIFE COMPANY"), a life
insurance company organized under the laws of the State of Vermont.
WHEREAS, TRUST and MANAGERS TRUST are registered with the Securities and
Exchange Commission ("SEC") under the Investment Company Act of 1940, as
amended ("40 Act") as open-end, diversified management investment companies;
and
WHEREAS, TRUST is organized as a series fund comprised of several
portfolios ("Portfolios"), the currently available of which are listed on
Appendix A hereto; and
WHEREAS, MANAGERS TRUST is organized as a series fund, comprised of
several portfolios ("Series"), the currently operational of which are listed on
Appendix A hereto; and
WHEREAS, each Portfolio of TRUST will invest all of its net investable
assets in a corresponding Series of MANAGERS TRUST; and
WHEREAS, TRUST was organized to act as the funding vehicle for certain
variable life insurance and/or variable annuity contracts ("Variable
Contracts") offered by life insurance companies through separate accounts of
such life insurance companies ("Participating Insurance Companies") and also
offers its shares to certain qualified pension and retirement plans; and
WHEREAS, TRUST has received an order from the SEC, dated May 5,1995 (File
No. 812-9164), granting Participating Insurance Companies and their separate
accounts exemptions from the provisions of Sections 9(a), 13(a), 15(a) and
15(b) of the '40 Act, and Rules 6e-2(b)(15) and 6e-3(T)(b)(15) thereunder, to
the extent necessary to permit shares of the Portfolios of the TRUST to be sold
to and held by variable annuity and variable life insurance separate accounts
of both affiliated and unaffiliated life insurance companies and certain
qualified pension and retirement plans (the "Order"); and
WHEREAS, LIFE COMPANY has established or will establish one or more
separate accounts ("Separate Accounts") to offer Variable Contracts and is
desirous of having TRUST as one of the underlying funding vehicles for such
Variable Contracts; and
WHEREAS, N&B MANAGEMENT is registered with the SEC as an investment
adviser under the Investment Advisers Act of 1940 and as a broker-dealer under
the Securities Exchange Act of 1934, as amended; and
<PAGE> 2
WHEREAS, N&B MANAGEMENT is the administrator and distributor of the shares
of each Portfolio of TRUST and investment manager of the corresponding Series
of MANAGERS TRUST; and
WHEREAS, to the extent permitted by applicable insurance laws and
regulations, LIFE COMPANY intends to purchase shares of TRUST to fund the
aforementioned Variable Contracts and TRUST is authorized to sell such shares
to LIFE COMPANY at net asset value;
NOW, THEREFORE, in consideration of their mutual promises, LIFE COMPANY,
TRUST, MANAGERS TRUST and N&B MANAGEMENT agree as follows:
Article 1. SALE OF TRUST SHARES
1.1 TRUST agrees to make available to the Separate Accounts of LIFE
COMPANY shares of the selected Portfolios as listed in Appendix B for
investment of proceeds from Variable Contracts allocated to the designated
Separate Accounts, such shares to be offered as provided in TRUST's Prospectus.
1.2 TRUST agrees to sell to LIFE COMPANY those shares of the selected
Portfolios of TRUST which LIFE COMPANY orders, executing such orders on a daily
basis at the net asset value next computed after receipt by TRUST or its
designee of the order for the shares of TRUST. For purposes of this Section
1.2, LIFE COMPANY shall be the designee of TRUST for receipt of such orders
from LIFE COMPANY and receipt by such designee shall constitute receipt by
TRUST; provided that TRUST receives notice of such order by 8:30 a.m New York
time on the next following Business Day. "Business Day" shall mean any day on
which the New York Stock Exchange is open for trading and on which TRUST
calculates its net asset value pursuant to the rules of the SEC.
1.3 TRUST agrees to redeem for cash, on LIFE COMPANY's request, any
full or fractional shares of TRUST held by LIFE COMPANY, executing such
requests on a daily basis at the net asset value next computed after receipt by
TRUST or its designee of the request for redemption. For purposes of this
Section 1.3, LIFE COMPANY shall be the designee of TRUST for receipt of
requests for redemption from LIFE COMPANY and receipt by such designee shall
constitute receipt by TRUST; provided that TRUST receives notice of such
request for redemption by 8:30 a.m. New York time on the next following
Business Day.
1.4 TRUST shall furnish, on or before the ex-dividend date, notice to
LIFE COMPANY of any income dividends or capital gain distributions payable on
the shares of any Portfolio of TRUST. LIFE COMPANY hereby elects to receive
all such income dividends and capital gain distributions as are payable on a
Portfolio's shares in additional shares of the Portfolio. TRUST shall notify
LIFE COMPANY of the number of shares so issued as payment of such dividends and
distributions.
2
<PAGE> 3
1.5 TRUST shall make the net asset value per share for the selected
Portfolio(s) available to LIFE COMPANY on a daily basis as soon as reasonably
practicable after the net asset value per share is calculated but shall use its
best efforts to make such net asset value available by 6:30 p.m. New York time.
If TRUST provides LIFE COMPANY with materially incorrect share net asset value
information through no fault of LIFE COMPANY, LIFE COMPANY on behalf of the
Separate Accounts, shall be entitled to an adjustment to the number of shares
purchased or redeemed to reflect the correct share net asset value. Any
material error in the calculation of net asset value per share, dividend or
capital gain information shall be reported promptly upon discovery to LIFE
COMPANY.
1.6 At the end of each Business Day, LIFE COMPANY shall use the
information described in Section 1.5 to calculate Separate Account unit values
for the day. Using these unit values, LIFE COMPANY shall process each such
Business Day's Separate Account transactions based on requests and premiums
received by it by the close of trading on the floor of the New York Stock
Exchange (currently 4:00 p.m. New York time) to determine the net dollar amount
of TRUST shares which shall be purchased or redeemed at that day's closing net
asset value per share. The net purchase or redemption orders so determined
shall be transmitted to TRUST by LIFE COMPANY by 8:30 a.m. New York Time on the
Business Day next following LIFE COMPANY's receipt of such requests and
premiums in accordance with the terms of Sections 1.2 and 1.3 hereof.
1.7 If LIFE COMPANY's order requests the purchase of TRUST shares,
LIFE COMPANY shall pay for such purchase by wiring federal funds to TRUST or
its designated custodial account on the day the order is transmitted by LIFE
COMPANY. If LIFE COMPANY's order requests a net redemption resulting in a
payment of redemption proceeds to LIFE COMPANY, TRUST shall wire the redemption
proceeds to LIFE COMPANY by the next Business Day, unless doing so would
require TRUST to dispose of portfolio securities or otherwise incur additional
costs, but in such event, proceeds shall be wired to LIFE COMPANY within seven
days and TRUST shall notify the person designated in writing by LIFE COMPANY as
the recipient for such notice of such delay by 3:00 p.m. New York Time the same
Business Day that LIFE COMPANY transmits the redemption order to TRUST. If
LIFE COMPANY's order requests the application of redemption proceeds from the
redemption of shares to the purchase of shares of another fund administered or
distributed by N&B MANAGEMENT, TRUST shall so apply such proceeds the same
Business Day that LIFE COMPANY transmits such order to TRUST.
1.8 Notwithstanding Section 1.7, TRUST reserves the right to suspend
the right of redemption or postpone the date of payment or satisfaction upon
redemption consistent with Section 22(e) of the 40 Act and any rules
thereunder.
1.9 TRUST agrees that all shares of the Portfolios of TRUST will be
sold only to Participating Insurance Companies which have agreed to participate
in TRUST to fund their Separate Accounts and/or to certain qualified pension
and other retirement plans, all in accordance with the requirements of Section
817(h) of the Internal Revenue Code of 1986, as amended ("Code") and Treasury
Regulation 1.817-5. Shares of the Portfolios of TRUST will not be sold directly
to the general public.
3
<PAGE> 4
1.10 TRUST may refuse to sell shares of any Portfolio to any person, or
suspend or terminate the offering of the shares of any Portfolio if such action
is required by law or by regulatory authorities having jurisdiction or is, in
the sole discretion of the Board of Trustees of TRUST, acting in good faith and
in light of its fiduciary duties under federal and any applicable state laws,
deemed necessary and in the best interests of the shareholders of such
Portfolios.
Article II. REPRESENTATIONS AND WARRANTIES
2.1 LIFE COMPANY represents and warrants that it is an insurance
company duly organized and in good standing under the laws of Vermont and
that it has legally and validly established each Separate Account as a
segregated asset account under such laws, and that Equity Services, Inc.,
the principal underwriter for the Variable Contracts, is registered as a
broker-dealer under the Securities Exchange Act of 1934.
2.2 LIFE COMPANY represents and warrants that it has registered or,
prior to any issuance or sale of the Variable Contracts, will register each
Separate Account as a unit investment trust ("UIT") in accordance with the
provisions of the '40 Act and cause each Separate Account to remain so
registered to serve as a segregated asset account for the Variable Contracts,
unless an exemption from registration is available.
2.2 LIFE COMPANY represents and warrants that the Variable Contracts
will be registered under the Securities Act of 1933 (the "'33 Act") unless an
exemption from registration is available prior to any issuance or sale of the
Variable Contracts and that the Variable Contracts will be issued and sold in
compliance in all material respects with all applicable federal and state laws
and further that the sale of the Variable Contracts shall comply in all
material respects with state insurance law suitability requirements.
2.4 LIFE COMPANY represents and warrants that the Variable Contracts
are currently and at the time of issuance will be treated as life insurance,
endowment or annuity contracts under applicable provisions of the Code, that it
will maintain such treatment and that it will notify TRUST immediately upon
having a reasonable basis for believing that the Variable Contracts have ceased
to be so treated or that they might not be so treated in the future.
2.5 LIFE COMPANY represents and warrants that it shall deliver such
prospectuses, statements of additional information, proxy statements and
periodic reports of the Trust as required to be delivered under applicable
federal or state law and interpretations of federal and state securities
regulators thereunder in connection with the offer, sale or acquisition of the
Variable Contracts.
2.6 TRUST represents and warrants that the Portfolio shares offered
and sold pursuant to this Agreement will be registered under the '33 Act and
sold in accordance with all applicable federal and state laws, and TRUST shall
be registered under the '40 Act prior to and at the time of any issuance or
sale of such shares. TRUST shall amend its registration statement under the
'33
4
<PAGE> 5
Act and the '40 Act from time to time as required in order to effect the
continuous offering of its shares. TRUST shall register and qualify its shares
for sale in accordance with the laws of the various states only if and to the
extent deemed advisable by TRUST.
2.7 TRUST represents and warrants that each Portfolio will comply with
the diversification requirements set forth in Section 817(h) of the Code, and
the rules and regulations thereunder, including without limitation Treasury
Regulation 1.817-5, and will notify LIFE COMPANY immediately upon having a
reasonable basis for believing any Portfolio has ceased to comply or might not
so comply and will immediately take all reasonable steps to adequately
diversify the Portfolio to achieve compliance within the grace period afforded
by Regulation 1.8175.
2.8 TRUST represents and warrants that each Portfolio invested in by
the Separate Account is currently qualified as a "regulated investment company"
under Subchapter M of the Code, that it will make every effort to maintain such
qualification and will notify LIFE COMPANY immediately upon having a reasonable
basis for believing it has ceased to so qualify or might not so qualify in the
future.
Article III. PROSPECTUS AND PROXY STATEMENTS
3.1 TRUST shall prepare and be responsible for filing with the SEC
and any state regulators requiring such filing all shareholder reports,
notices, proxy materials (or similar materials such as voting instruction
solicitation materials), prospectuses and statements of additional information
of TRUST. TRUST shall bear the costs of registration and qualification of
shares of the Portfolios, preparation and filing of the documents listed in
this Section 3.1 and all taxes to which an issuer is subject on the issuance
and transfer of its shares.
3.2 TRUST will bear the printing costs (or duplicating costs with
respect to the statement of additional information) and mailing costs
associated with the delivery of the following TRUST (or individual Portfolio)
documents, and any supplements thereto, to existing Variable Contract owners of
LIFE COMPANY:
(i) prospectuses and statements of additional information;
(ii) annual and semi-annual reports; and
(iii) proxy materials.
LIFE COMPANY will submit any bills for printing, duplicating
and/or mailing costs, relating to the TRUST documents described above, to TRUST
for reimbursement by TRUST. LIFE COMPANY shall monitor such costs and shall
use its best efforts to control these costs. LIFE COMPANY will provide TRUST
on a semi-annual basis, or more frequently as reasonably requested by TRUST,
with a current tabulation of the number of existing Variable Contract owners of
LIFE COMPANY whose Variable Contract values are invested in TRUST.
5
<PAGE> 6
This tabulation will be sent to TRUST in the form of a letter signed by a duly
authorized officer of LIFE COMPANY attesting to the accuracy of the information
contained in the letter. If requested by LIFE COMPANY, the TRUST shall provide
such documentation (including a final copy of the TRUST's prospectus as set in
type or in camera-ready copy) and other assistance as is reasonably necessary
in order for LIFE COMPANY to print together in one document the current
prospectus for the Variable Contracts issued by LIFE COMPANY and the current
prospectus for the TRUST. Should LIFE COMPANY wish to print any of these
documents in a format different from that provided by TRUST, LIFE COMPANY shall
provide Trust with sixty (60) days' prior written notice and LIFE COMPANY shall
bear the cost associated with any format change.
3.3 TRUST will provide, at its expense, LIFE COMPANY with the
following TRUST (or individual Portfolio) documents, and any supplements
thereto, with respect to prospective Variable Contract owners of LIFE COMPANY:
(i) camera-ready copy of the current prospectus for
printing by the LIFE COMPANY;
(ii) a copy of the statement of additional information
suitable for duplication;
(iii) camera-ready copy of proxy material suitable for
printing; and
(iv) camera-ready copy of the annual and semi-annual
reports for printing by the LIFE COMPANY.
3.4 TRUST will provide LIFE COMPANY with at least one complete copy of
all prospectuses, statements of additional information, annual and semi-annual
reports, proxy statements, exemptive applications and all amendments or
supplements to any of the above that relate to the Portfolios promptly after
the filing of each such document with the SEC or other regulatory authority.
LIFE COMPANY will provide TRUST with at least one complete copy of all
prospectuses, statements of additional information, annual and semi-annual
reports, proxy statements, exemptive applications and all amendments or
supplements to any of the above that relate to a Separate Account promptly
after the filing of each such document with the SEC or other regulatory
authority.
Article IV. SALES MATERIALS
4.1 LIFE COMPANY will furnish, or will cause to be furnished, to TRUST
and N&B MANAGEMENT, each piece of sales literature or other promotional
material in which TRUST, MANAGERS TRUST or N&B MANAGEMENT is named, at least
fifteen (15) Business Days prior to its intended use. No such material will be
used if TRUST, MANAGERS TRUST or N&B MANAGEMENT objects to its use in writing
within ten (10) Business Days after receipt of such material.
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<PAGE> 7
4.2 TRUST and N&B MANAGEMENT will furnish, or will cause to be
furnished, to LIFE COMPANY, each piece of sales literature or other
promotional material in which LIFE COMPANY or its Separate Accounts are named,
at least fifteen (15) Business Days prior to its intended use. No such
material will be used if LIFE COMPANY objects to its use in writing within ten
(10) Business Days after receipt of such material.
4.3 TRUST and its affiliates and agents shall not give any information
or make any representations on behalf of LIFE COMPANY or concerning LIFE
COMPANY, the Separate Accounts, or the Variable Contracts issued by LIFE
COMPANY, other than the information or representations contained in a
registration statement or prospectus for such Variable Contracts, as such
registration statement and prospectus may be amended or supplemented from time
to time, or in reports of the Separate Accounts or reports prepared for
distribution to owners of such Variable Contracts, or in sales literature or
other promotional material approved by LIFE COMPANY or its designee, except
with the written permission of LIFE COMPANY.
4.4 LIFE COMPANY and its affiliates and agents shall not give any
information or make any representations on behalf of TRUST or concerning TRUST
other than the information or representations contained in a registration
statement or prospectus for TRUST, as such registration statement and
prospectus may be amended or supplemented from time to time, or in sales
literature or other promotional material approved by TRUST or its designee,
except with the written permission of TRUST.
4.5 For purposes of this Agreement, the phrase "sales literature or
other promotional material" or words of similar import include, without
limitation, advertisements (such as material published, or designed for use, in
a newspaper, magazine or other periodical, radio, television, telephone or tape
recording, videotape display, signs or billboards, motion pictures or other
public media), sales literature (such as any written communication distributed
or made generally available to customers or the public, including brochures,
circulars, research reports, market letters, form letters, seminar texts, or
reprints or excerpts of any other advertisement, sales literature, or published
article), educational or training materials or other communications distributed
or made generally available to some or all agents or employees, registration
statements, prospectuses, statements of additional information, shareholder
reports and proxy materials, and any other material constituting sales
literature or advertising under National Association of Securities Dealers,
Inc. rules, the '40 Act or the '33 Act.
Article V. POTENTIAL CONFLICTS
5.1 The Board of Trustees of TRUST and MANAGERS TRUST (the "Boards")
will monitor TRUST and MANAGERS TRUST, respectively, (collectively the
"Funds"), for the existence of any material irreconcilable conflict between the
interests of the Variable Contract owners of Participating Insurance Company
Separate Accounts investing in the Funds. A material irreconcilable conflict
may arise for a variety of reasons, including: (a) state insurance regulatory
authority action; (b) a change in applicable federal or state insurance, tax,
or securities laws or regulations, or a public ruling, private letter ruling,
or any similar action by insurance, tax, or
7
<PAGE> 8
securities regulatory authorities; (c) an administrative or judicial decision
in any relevant proceeding; (d) the manner in which the investments of the
Funds are being managed; (e) a difference in voting instructions given by
variable annuity and variable life insurance contract owners or by contract
owners of different Participating Insurance Companies; or (f)a decision by a
Participating Insurance Company to disregard voting instructions of Variable
Contract owners.
5.2 LIFE COMPANY will report any potential or existing conflicts to
the Boards. LIFE COMPANY will be responsible for assisting each appropriate
Board in carrying out its responsibilities under the Conditions set forth in
the notice issued by the SEC for the Funds on April 12, 1995 (the "Notice")
(Investment Company Act Release No. 21003), which LIFE COMPANY has reviewed, by
providing each appropriate Board with all information reasonably necessary for
it to consider any issues raised. This responsibility includes, but is not
limited to, an obligation by LIFE COMPANY to inform each appropriate Board
whenever Variable Contract owner voting instructions are disregarded by LIFE
COMPANY. These responsibilities will be carried out with a view only to the
interests of the Variable Contract owners.
5.3 If a majority of the Board of a Fund or a majority of its
disinterested trustees or directors, determines that a material irreconcilable
conflict exists, affecting the LIFE COMPANY, LIFE COMPANY, at its expense and
to the extent reasonably practicable (as determined by a majority of
disinterested trustees or directors), will take any steps necessary to remedy
or eliminate the irreconcilable material conflict, including: (a) withdrawing
the assets allocable to some or all of the Separate Accounts from the Funds or
any series thereof and reinvesting those assets in a different investment
medium, which may include another series of TRUST or MANAGERS TRUST, or another
investment company or submitting the question as to whether such segregation
should be implemented to a vote of all affected Variable Contract owners and,
as appropriate, segregating the assets of any appropriate group (i.e., Variable
Contract owners of one or more Participating Insurance Companies) that votes in
favor of such segregation, or offering to the affected Variable Contract owners
the option of making such a change; and (b) establishing a new registered
management investment company or managed separate account. If a material
irreconcilable conflict arises because of LIFE COMPANY's decision to disregard
Variable Contract owner voting instructions, and that decision represents a
minority position or would preclude a majority vote, LIFE COMPANY may be
required, at the election of the relevant Fund, to withdraw its Separate
Account's investment in such Fund, and no charge or penalty will be imposed as
a result of such withdrawal. The responsibility to take such remedial action
shall be carried out with a view only to the interests of the Variable Contract
owners.
For the purposes of this Section 5.3, a majority of the disinterested
members of the applicable Board shall determine whether or not any proposed
action adequately remedies any irreconcilable material conflict, but in no
event will the relevant Fund or N&B MANAGEMENT (or any other investment adviser
of the Funds) be required to establish a new funding medium for any Variable
Contract. Further, LIFE COMPANY shall not be required by this Section 5.3 to
establish a new funding medium for any Variable Contract if any offer to do so
has been declined by a vote of a majority of Variable Contract owners
materially affected by the irreconcilable material conflict.
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<PAGE> 9
5.4 Any Board's determination of the existence of an irreconcilable
material conflict and its implications shall be made known promptly and in
writing to LIFE COMPANY.
5.5 No less than annually, LIFE COMPANY shall submit to the Boards
such reports, materials or data as such Boards may reasonably request so that
the Boards may fully carry out the obligations imposed upon them by these
Conditions. Such reports, materials, and data shall be submitted more
frequently if deemed appropriate by the applicable Boards.
Article VI. VOTING
6.1 LIFE COMPANY will provide pass-through voting privileges to all
Variable Contract owners so long as the SEC continues to interpret the '40 Act
as requiring pass-through voting privileges for Variable Contract owners. This
condition will apply to UIT Separate Accounts investing in TRUST and to managed
separate accounts investing in MANAGERS TRUST to the extent a vote is required
with respect to matters relating to MANAGERS TRUST. Accordingly, LIFE COMPANY,
where applicable, will vote shares of a Fund held in its Separate Accounts in a
manner consistent with voting instructions timely received from its Variable
Contract owners. LIFE COMPANY will be responsible for assuring that each of
its Separate Accounts that participates in any Fund calculates voting
privileges in a manner consistent with other participants as defined in the
Conditions set forth in the Notice ("Participants"). The obligation to
calculate voting privileges in a manner consistent with all other Separate
Accounts investing in a Fund will be a contractual obligation of all
Participants under the agreements governing participation in the Funds. Each
Participant will vote shares for which it has not received timely voting
instructions, as well as shares it owns, in the same proportion as its votes
those shares for which it has received voting instructions.
6.2 If and to the extent Rule 6e-2 and Rule 6e-3(T) are amended, or
Rule 6e-3 is adopted, to provide exemptive relief from any provision of the '40
Act or the rules thereunder with respect to mixed and shared funding on terms
and conditions materially different from any exemptions granted in the Order,
then TRUST, MANAGERS TRUST and/or the Participants, as appropriate, shall take
such steps as may be necessary to comply with Rule 6e-2 and Rule 6e-3(T), as
amended, and Rule 6e-3, as adopted, to the extent such Rules are applicable.
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Article VII. INDEMNIFICATION
7.1 Indemnification by LIFE COMPANY. LIFE COMPANY agrees to indemnify
and hold harmless TRUST, MANAGERS TRUST, N&B MANAGEMENT and each of their
Trustees, directors, officers, employees and agents and each person, if any,
who controls TRUST or MANAGERS TRUST or N&B MANAGEMENT within the meaning of
Section 15 of the '33 Act (collectively, the "Indemnified Parties" for purposes
of this Article VII) against any and all losses, claims, damages, liabilities
(including amounts paid in settlement with the written consent of LIFE COMPANY,
which consent shall not be unreasonably withheld) or litigation (including
legal and other expenses), to which the Indemnified Parties may become subject
under any statute, regulation, at common law or otherwise, insofar as such
losses, claims, damages, liabilities or expenses (or actions in respect
thereof) or settlements are related to the offer, sale or acquisition of
TRUST's shares or the Variable Contracts and:
(a) arise out of or are based upon any untrue statements or
alleged untrue statements of any material fact contained
in the Registration Statement or prospectus for the
Variable Contracts or contained in the Variable Contracts
(or any amendment or supplement to any of the foregoing),
or arise out of or are based upon the omission or the
alleged omission to state therein a material fact required
to be stated therein or necessary to make the statements
therein not misleading, provided that this agreement to
indemnify shall not apply as to any Indemnified Party if
such statement or omission or such alleged statement or
omission was made in reliance upon and in conformity with
information furnished to LIFE COMPANY by or on behalf of
TRUST for use in the registration statement or prospectus
for the Variable Contracts or in the Variable Contracts or
sales literature (or any amendment or supplement) or
otherwise for use in connection with the sale of the
Variable Contracts or TRUST shares; or
(b) arise out of or as a result of statements or
representations (other than statements or representations
contained in the registration statement, prospectus or
sales literature of TRUST not supplied by LIFE COMPANY, or
persons under its control) or wrongful conduct of LIFE
COMPANY or persons under its control, with respect to the
sale or distribution of the Variable Contracts or TRUST
shares; or
(c) arise out of any untrue statement or alleged untrue
statement of a material fact contained in a registration
statement, prospectus, or sales literature of TRUST or any
amendment thereof or supplement thereto or the omission or
alleged omission to state therein a material fact required
to be stated therein or necessary to make the statements
therein not misleading if such statement or omission or
such alleged statement or omission was made in reliance
upon and in conformity with information furnished to TRUST
for inclusion therein by or on behalf of LIFE COMPANY; or
10
<PAGE> 11
(d) arise as a result of any failure by LIFE COMPANY to
substantially provide the services and furnish the
materials under the terms of this Agreement; or
(e) arise out of or result from any material breach of any
representation and/or warranty made by LIFE COMPANY in
this Agreement or arise out of or result from any other
material breach of this Agreement by LIFE COMPANY.
7.2 LIFE COMPANY shall not be liable under this indemnification
provision with respect to any losses, claims, damages, liabilities or
litigation incurred or assessed against an Indemnified Party as such may arise
from such Indemnified Party's willful misfeasance, bad faith, or gross
negligence in the performance of such Indemnified Party's duties or by reason
of such Indemnified Party's reckless disregard of obligations or duties under
this Agreement or to TRUST, whichever is applicable.
7.3 LIFE COMPANY shall not be liable under this indemnification
provision with respect to any claim made against an Indemnified Party unless
such Indemnified Party shall have notified LIFE COMPANY in writing within a
reasonable time after the summons or other first legal process giving
information of the nature of the claim shall have been served upon such
Indemnified Party (or after such Indemnified Party shall have received notice
of such service on any designated agent), but failure to notify LIFE COMPANY of
any such claim shall not relieve LIFE COMPANY from any liability which it may
have to the Indemnified Party against whom such action is brought otherwise
than on account of this indemnification provision. In case any such action is
brought against an Indemnified Party, LIFE COMPANY shall be entitled to
participate at its own expense in the defense of such action. LIFE COMPANY
also shall be entitled to assume the defense thereof, with counsel satisfactory
to the party named in the action. After notice from LIFE COMPANY to such party
of LIFE COMPANY's election to assume the defense thereof, the Indemnified Party
shall bear the fees and expenses of any additional counsel retained by it, and
LIFE COMPANY will not be liable to such party under this Agreement for any
legal or other expenses subsequently incurred by such party independently in
connection with the defense thereof other than reasonable costs of
investigation.
7.4 Indemnification by N&B MANAGEMENT. N&B MANAGEMENT agrees to
indemnify and hold harmless LIFE COMPANY and each of its directors, officers,
employees, and agents and each person, if any, who controls LIFE COMPANY within
the meaning of Section 15 of the '33 Act (collectively, the "Indemnified
Parties" for the purposes of this Article VII) against any and all losses,
claims, damages, liabilities (including amounts paid in settlement with the
written consent of N&B MANAGEMENT which consent shall not be unreasonably
withheld) or litigation (including legal and other expenses) to which the
Indemnified Parties may become subject under any statute, or regulation, at
common law or otherwise, insofar as such losses, claims, damages, liabilities
or expenses (or actions in respect thereof) or settlements are related to the
offer, sale or acquisition of TRUST's shares or the Variable Contracts and:
11
<PAGE> 12
(a) arise out of or are based upon any untrue statement or
alleged untrue statement of any material fact contained in
the registration statement or prospectus or sales
literature of TRUST (or any amendment or supplement to any
of the foregoing), or arise out of or are based upon the
omission or the alleged omission to state therein a
material fact required to be stated therein or necessary
to make the statements therein not misleading, provided
that this agreement to indemnify shall not apply as to any
Indemnified Party if such statement or omission or such
alleged statement or omission was made in reliance upon
and in conformity with information furnished to N&B
MANAGEMENT or TRUST by or on behalf of LIFE COMPANY for
use in the registration statement or prospectus for TRUST
or in sales literature (or any amendment or supplement) or
otherwise for use in connection with the sale of the
Variable Contracts or TRUST shares; or
(b) arise out of or as a result of statements or
representations (other than statements or representations
contained in the registration statement, prospectus or
sales literature for the Variable Contracts not supplied
by N&B MANAGEMENT or persons under its control) or
wrongful conduct of TRUST or N&B MANAGEMENT or persons
under their control, with respect to the sale or
distribution of the Variable Contracts or TRUST shares; or
(c) arise out of any untrue statement or alleged untrue
statement of a material fact contained in a registration
statement, prospectus, or sales literature covering the
Variable Contracts, or any amendment thereof or supplement
thereto or the omission or alleged omission to state
therein a material fact required to be stated therein or
necessary to make the statements therein not misleading,
if such statement or omission or such alleged statement or
omission was made in reliance upon and in conformity with
information furnished to LIFE COMPANY for inclusion
therein by or on behalf of TRUST; or
(d) arise as a result of (i) a failure by TRUST to
substantially provide the services and furnish the
materials under the terms of this Agreement; or (ii) a
failure by a Portfolio(s) invested in by the Separate
Account to comply with the diversification requirements of
Section 817(h) of the Code; or (iii) a failure by a
Portfolio(s) invested in by the Separate Account to
qualify as a "regulated investment company" under
Subchapter M of the Code; or
(e) arise out of or result from any material breach of any
representation and/or warranty made by N&B MANAGEMENT in
this Agreement or arise out of or result from any other
material breach of this Agreement by N&B MANAGEMENT.
12
<PAGE> 13
7.5 N&B MANAGEMENT shall not be liable under this indemnification
provision with respect to any losses, claims, damages, liabilities or
litigation to which an Indemnified Party would otherwise be subject by reason
of such Indemnified Party's willful misfeasance, bad faith, or gross negligence
in the performance of such Indemnified Party's duties or by reason of such
Indemnified Party's reckless disregard of obligations and duties under this
Agreement or to LIFE COMPANY.
7.6 N&B MANAGEMENT shall not be liable under this indemnification
provision with respect to any claim made against an Indemnified Party unless
such Indemnified Party shall have notified N&B MANAGEMENT in writing within a
reasonable time after the summons or other first legal process giving
information of the nature of the claim shall have been served upon such
Indemnified Party (or after such Indemnified Party shall have received notice
of such service on any designated agent), but failure to notify N&B MANAGEMENT
of any such claim shall not relieve N&B MANAGEMENT from any liability which it
may have to the Indemnified Party against whom such action is brought otherwise
than on account of this indemnification provision. In case any such action is
brought against the Indemnified Parties, N&B MANAGEMENT shall be entitled to
participate at its own expense in the defense thereof. N&B MANAGEMENT also
shall be entitled to assume the defense thereof, with counsel satisfactory to
the party named in the action. After notice from N&B MANAGEMENT to such party
of N&B MANAGEMENT's election to assume the defense thereof, the Indemnified
Party shall bear the fees and expenses of any additional counsel retained by
it, and N&B MANAGEMENT will not be liable to such party under this Agreement
for any legal or other expenses subsequently incurred by such party
independently in connection with the defense thereof other than reasonable
costs of investigation.
Article VIII. TERM; TERMINATION
8.1 This Agreement shall be effective as of the date hereof and shall
continue in force until terminated in accordance with the provisions herein.
8.2 This Agreement shall terminate in accordance with the following
provisions:
(a) At the option of LIFE COMPANY or TRUST at any time from
the date hereof upon 180 days' notice, unless a shorter
time is agreed to by the parties;
(b) At the option of LIFE COMPANY, if TRUST shares are not
reasonably available to meet the requirements of the
Variable Contracts as determined by LIFE COMPANY. Prompt
notice of election to terminate shall be furnished by LIFE
COMPANY, said termination to be effective ten days after
receipt of notice unless TRUST makes available a
sufficient number of shares to reasonably meet the
requirements of the Variable Contracts within said ten-day
period;
13
<PAGE> 14
(c) At the option of LIFE COMPANY, upon the institution of
formal proceedings against TRUST by the SEC, or any other
regulatory body, the expected or anticipated ruling,
judgment or outcome of which would, in LIFE COMPANY's
reasonable judgment, materially impair TRUST's ability to
meet and perform Trust's obligations and duties hereunder.
Prompt notice of election to terminate shall be furnished
by LIFE COMPANY with said termination to be effective upon
receipt of notice;
(d) At the option of TRUST, upon the institution of formal
proceedings against LIFE COMPANY by the SEC, the National
Association of Securities Dealers, Inc., or any other
regulatory body, the expected or anticipated ruling,
judgment or outcome of which would, in TRUST's reasonable
judgment, materially impair LIFE COMPANY's ability to meet
and perform its obligations and duties hereunder. Prompt
notice of election to terminate shall be furnished by
TRUST with said termination to be effective upon receipt
of notice;
(e) In the event TRUST's shares are not registered, issued or
sold in accordance with applicable state or federal law,
or such law precludes the use of such shares as the
underlying investment medium of Variable Contracts issued
or to be issued by LIFE COMPANY. Termination shall be
effective upon such occurrence without notice;
(f) At the option of TRUST if the Variable Contracts cease to
qualify as annuity contracts or life insurance contracts,
as applicable, under the Code, or if TRUST reasonably
believes that the Variable Contracts may fail to so
qualify. Termination shall be effective upon receipt of
notice by LIFE COMPANY;
(g) At the option of LIFE COMPANY, upon TRUST's breach of any
material provision of this Agreement, which breach has not
been cured to the satisfaction of LIFE COMPANY within ten
days after written notice of such breach is delivered to
TRUST;
(h) At the option of TRUST, upon LIFE COMPANY's breach of any
material provision of this Agreement, which breach has not
been cured to the satisfaction of TRUST within ten days
after written notice of such breach is delivered to LIFE
COMPANY;
(i) At the option of TRUST, if the Variable Contracts are not
registered, issued or sold in accordance with applicable
federal and/or state law. Termination shall be effective
immediately upon such occurrence without notice;
14
<PAGE> 15
(j) In the event this Agreement is assigned without the prior
written consent of LIFE COMPANY, TRUST, MANAGERS TRUST and
N&B MANAGEMENT, termination shall be effective immediately
upon such occurrence without notice.
8.3 Notwithstanding any termination of this Agreement pursuant to
Section 8.2 hereof, TRUST at its option may elect to continue to make available
additional TRUST shares, as provided below, for so long as TRUST desires
pursuant to the terms and conditions of this Agreement, for all Variable
Contracts in effect on the effective date of termination of this Agreement
(hereinafter referred to as "Existing Contracts"). Specifically, without
limitation, if TRUST so elects to make additional TRUST shares available, the
owners of the Existing Contracts or LIFE COMPANY, whichever shall have legal
authority to do so, shall be permitted to reallocate investments in TRUST,
redeem investments in TRUST and/or invest in TRUST upon the payment of
additional premiums under the Existing Contracts. In the event of a
termination of this Agreement pursuant to Section 8.2 hereof, TRUST and N&B
MANAGEMENT, as promptly as is practicable under the circumstances, shall notify
LIFE COMPANY whether TRUST elects to continue to make TRUST shares available
after such termination. If TRUST shares continue to be made available after
such termination, the provisions of this Agreement shall remain in effect and
thereafter either TRUST or LIFE COMPANY may terminate the Agreement, as so
continued pursuant to this Section 8.3, upon sixty (60) days prior written
notice to the other party.
8.4 Except as necessary to implement Variable Contract owner initiated
transactions, or as required by state insurance laws or regulations, LIFE
COMPANY shall not redeem the shares attributable to the Variable Contracts (as
opposed to the shares attributable to LIFE COMPANY's assets held in the
Separate Accounts), and LIFE COMPANY shall not prevent Variable Contract owners
from allocating payments to a Portfolio that was otherwise available under the
Variable Contracts, until thirty (30) days after the LIFE COMPANY shall have
notified TRUST of its intention to do so.
Article IX. NOTICES
Any notice hereunder shall be given by registered or certified mail return
receipt requested to the other party at the address of such party set forth
below or at such other address as such party may from time to time specify in
writing to the other party.
If to TRUST, MANAGERS TRUST or N&B MANAGEMENT:
Neuberger&Berman Management Incorporated
605 Third Avenue
New York, NY 10158-0006
Attention: Ellen Metzger, General Counsel
15
<PAGE> 16
If to LIFE COMPANY:
Notice shall be deemed given on the date of receipt by the addressee as
evidenced by the return receipt.
Article X. MISCELLANEOUS
10.1 The captions in this Agreement are included for convenience of
reference only and in no way define or delineate any of the provisions hereof
or otherwise affect their construction or effect.
10.2 This Agreement may be executed simultaneously in two or more
counterparts, each of which taken together shall constitute one and the same
instrument.
10.3 If any provision of this Agreement shall be held or made invalid
by a court decision, statute, rule or otherwise, the remainder of the Agreement
shall not be affected thereby.
10.4 This Agreement shall be construed and the provisions hereof
interpreted under and in accordance with the laws of the State of New York. It
shall also be subject to the provisions of the federal securities laws and the
rules and regulations thereunder and to any orders of the SEC granting
exemptive relief therefrom and the conditions of such orders.
10.5 The parties agree that the assets and liabilities of each Series
are separate and distinct from the assets and liabilities of each other Series.
No Series shall be liable or shall be charged for any debt, obligation or
liability of any other Series. No Trustee, officer or agent shall be
personally liable for such debt, obligation or liability of any Series or
Portfolio and no Portfolio or other investor, other than the Portfolio or other
investors investing in the Series which incurs a debt, obligation or liability,
shall be liable therefor.
10.6 Each party shall cooperate with each other party and all
appropriate governmental authorities (including without limitation the SEC, the
National Association of Securities Dealers, Inc. and state insurance
regulators) and shall permit such authorities reasonable access to its books
and records in connection with any investigation or inquiry relating to this
Agreement or the transactions contemplated hereby.
10.7 The rights, remedies and obligations contained in this Agreement
are cumulative and are in addition to any and all rights, remedies and
obligations, at law or in equity, which the parties hereto are entitled to
under state and federal laws.
16
<PAGE> 17
10.8 No provision of this Agreement may be amended or modified in any
manner except by a written agreement properly authorized and executed by TRUST,
MANAGERS TRUST, N&B MANAGEMENT and the LIFE COMPANY.
IN WITNESS WHEREOF, the parties have caused their duly authorized officers
to execute this Fund Participation Agreement as of the date and year first
above written.
NEUBERGER&BERMAN
ADVISERS MANAGEMENT TRUST
By:
--------------------------
Name:
Title:
ADVISERS MANAGERS TRUST
By:
--------------------------
Name:
Title:
NEUBERGER&BERMAN
MANAGEMENT INCORPORATED
By:
--------------------------
Name:
Title:
NATIONAL LIFE
INSURANCE COMPANY
By:
--------------------------
Name:
Title:
17
<PAGE> 18
<TABLE>
<CAPTION>
APPENDIX A
<S> <C>
Neuberger&Berman Advisers Corresponding Series of
Management Trust and its Series (Portfolios) Advisers Managers Trust (Series)
- -------------------------------------------- --------------------------------
Balanced Portfolio AMT Balanced Investments
Government Income Portfolio AMT Government Income Investments
Growth Portfolio AMT Growth Investments
Guardian Portfolio AMT Guardian Investments
Limited Maturity Bond Portfolio AMT Limited Maturity Bond Investments
Liquid Asset Portfolio AMT Liquid Asset Investments
Mid-Cap Growth Portfolio AMT Mid-Cap Growth Investments
Partners Portfolio AMT Partners Investments
International Portfolio AMT International Investments
</TABLE>
18
<PAGE> 19
<TABLE>
<CAPTION>
Appendix B
<S> <C>
Separate Accounts Selected Portfolios
- ----------------- -------------------
</TABLE>
19
<PAGE> 1
EXHIBIT 1 A 8(g)
FUND PARTICIPATION AGREEMENT
This Agreement is entered into as of the 23rd day of March, 1998, between
National Life Insurance Company ("Insurance Company"), a life insurance company
organized under the laws of the State of Vermont, and J. P. Morgan Series
Trust II ("Fund"), a business trust organized under the laws of Delaware, with
respect to the Fund's portfolio or portfolios set forth on Schedule 1 hereto,
as such Schedule may be revised from time to time (the "Series"; if there are
more than one Series to which this Agreement applies, the provisions herein
shall apply severally to each such Series).
ARTICLE I 1.
DEFINITIONS
1.1 "Act" shall mean the Investment Company Act of 1940, as amended.
1.2 "Board" shall mean the Board of Trustees of the Fund having the
responsibility for management and control of the Fund.
1.3 "Business Day" shall mean any day for which the Fund calculates net
asset value per share as described in the Fund's Prospectus.
1.4 "Commission" shall mean the Securities and Exchange Commission.
1.5 "Contract" shall mean a variable annuity or variable life insurance
contract that uses the Fund as an underlying investment medium.
Individuals who participate under a group Contract are "Participants".
1.6 "Contractholder" shall mean any entity that is a party to a Contract
with a Participating Company.
1.7 "Disinterested Board Members" shall mean those members of the Board
that are not deemed to be "interested persons" of the Fund, as defined
by the Act.
1.8 "Participating Companies" shall mean any insurance company (including
Insurance Company), which offers variable annuity and/or variable life
insurance contracts to the public and which has entered into an
agreement with the Fund for the purpose of making Fund shares
available to serve as the underlying investment medium for the
aforesaid Contracts.
1.9 "Plans" shall mean qualified pension and retirement benefit plans.
1.10 "Prospectus" shall mean the Fund's current prospectus and statement of
additional information, as most recently filed with the Commission,
with respect to the Series.
1.11 "Separate Accounts" shall mean National Variable Life Insurance
Account and National Variable Annuity Account, each a separate account
established by Insurance Company in accordance with the laws of the
State of Vermont, as set forth on Schedule II.
1.12 "Software Program" shall mean the software program used by the Fund
for providing Fund and account balance information including net asset
value per share.
1.13 "Insurance Company's General Account(s)" shall mean the general
account(s) of Insurance Company and its affiliates which invest in the
Fund.
<PAGE> 2
ARTICLE II 2.
REPRESENTATIONS
2.1 Insurance Company represents and warrants that (a) it is an insurance
company duly organized and in good standing under applicable law; (b)
it has legally and validly established the Separate Accounts pursuant
to the Vermont Insurance Code for the purpose of offering to the
public certain individual variable annuity contracts; (c) it has
registered the Separate Accounts as a unit investment trust under the
Act to serve as the segregated investment account for the Contracts;
(d) each Separate Account is eligible to invest in shares of the Fund
without such investment disqualifying the Fund as an investment medium
for insurance company separate accounts supporting variable annuity
contracts or variable life insurance contracts; and (e) each Separate
Account shall comply with all applicable legal requirements.
2.2 Insurance Company represents and warrants that (a) the Contracts will
be described in a registration statement filed under the Securities
Act of 1933, as amended ("1933 Act"); (b) the Contracts will be issued
and sold in compliance in all material respects with all applicable
federal and state laws; and (c) the sale of the Contracts shall comply
in all material respects with state insurance law requirements.
Insurance Company agrees to inform the Fund promptly of any investment
restrictions imposed by state insurance law and applicable to the
Fund.
2.3 Insurance Company represents and warrants that the income, gains and
losses, whether or not realized, from assets allocated to the Separate
Accounts are, in accordance with the applicable Contracts, to be
credited to or charged against such Separate Accounts without regard
to other income, gains or losses from assets allocated to any other
accounts of Insurance Company. Insurance Company represents and
warrants that the assets of the Separate Accounts are and will be kept
separate from Insurance Company's General Account and any other
separate accounts Insurance Company may have, and will not be charged
with liabilities from any business that Insurance Company may conduct
or the liabilities of any companies affiliated with Insurance Company.
2.4 Fund represents that the Fund is registered with the Commission under
the Act as an open-end management investment company and possesses,
and shall maintain, all legal and regulatory licenses, approvals,
consents and/or exemptions required for the Fund to operate and offer
its shares as an underlying investment medium for Participating
Companies. The Fund has established five portfolios and may in the
future establish other portfolios.
2.5 Fund represents that it is currently qualified as a Regulated
Investment Company under Subchapter M of the Internal Revenue Code of
1986, as amended (the "Code"), and that it will make every effort to
maintain such qualification (under Subchapter M or any successor or
similar provision) and that it will notify Insurance Company
immediately upon having a reasonable basis for believing that it has
ceased to so qualify or that it might not so qualify in the future.
2.6 Insurance Company represents and agrees that the Contracts are
currently, and at the time of issuance will be, treated as life
insurance policies or annuity contracts, whichever is appropriate,
under applicable provisions of the Code, and that it will make every
effort to maintain such treatment and that it will notify the Fund and
its investment adviser immediately upon having a reasonable basis for
believing that the Contracts have ceased to be so treated or that they
might not be so treated in the future. Insurance Company agrees that
any prospectus offering a Contract that is a "modified endowment
contract," as that term is defined in Section 7702A of the Code, will
identify such Contract as a modified endowment contract (or policy).
<PAGE> 3
2.7 Fund agrees that the Fund's assets shall be managed and invested in a
manner that complies with the requirements of Section 817(h) of the
Code.
2.8 Insurance Company agrees that the Fund shall be permitted (subject to
the other terms of this Agreement) to make Series' shares available to
other Participating Companies and contractholders and to Plans.
2.9 Fund represents and warrants that any of its trustees, officers,
employees, investment advisers, and other individuals/entities who
deal with the money and/or securities of the Fund are and shall
continue to be at all times covered by a blanket fidelity bond or
similar coverage for the benefit of the Fund in an amount not less
than that required by Rule 17g-1 under the Act. The aforesaid Bond
shall include coverage for larceny and embezzlement and shall be
issued by a reputable bonding company.
2.10 Insurance Company represents and warrants that all of its employees
and agents who deal with the money and/or securities of the Fund are
and shall continue to be at all times covered by a blanket fidelity
bond or similar coverage in an amount not less than the coverage
required to be maintained by the Fund. The aforesaid Bond shall
include coverage for larceny and embezzlement and shall be issued by a
reputable bonding company.
2.11 Insurance Company agrees that the Fund's investment adviser shall be
deemed a third party beneficiary under this Agreement and may enforce
any and all rights conferred by virtue of this Agreement.
ARTICLE III 3.
FUND SHARES
3.1 The Contracts funded through the Separate Accounts will provide for
the investment of certain amounts in the Series' shares.
3.2 Fund agrees to make the shares of its Series available for purchase at
the then applicable net asset value per share by Insurance Company and
the Separate Accounts on each Business Day pursuant to rules of the
Commission. Notwithstanding the foregoing, the Fund may refuse to
sell the shares of any Series to any person, or suspend or terminate
the offering of the shares of any Series if such action is required by
law or by regulatory authorities having jurisdiction or is, in the
sole discretion of the Board, acting in good faith and in light of its
fiduciary duties under federal and any applicable state laws,
necessary and in the best interests of the shareholders of such
Series.
3.3 Fund agrees that shares of the Fund will be sold only to Participating
Companies and their separate accounts and to the general accounts of
those Participating Companies and their affiliates and to Plans. No
shares of any Series will be sold to the general public.
3.4 Fund shall use its best efforts to provide closing net asset value,
dividend and capital gain information for each Series available on a
per-share and Series basis to Insurance Company by 6:30 p.m. Eastern
Time on each Business Day. Any material errors in the calculation of
net asset value, dividend and capital gain information shall be
reported immediately upon discovery to Insurance Company.
Non-material errors will be corrected in the next Business Day's net
asset value per share for the Series in question.
3.5 At the end of each Business Day, Insurance Company will use the
information described in Sections 3.2 and 3.4 to calculate the
Separate Account unit values for the day. Using this unit value,
Insurance Company will process the day's Separate Account transactions
received by it by the close of trading on the floor of the New York
Stock Exchange (currently 4:00 p.m. Eastern time) to determine the net
dollar amount of Series shares which will be purchased or redeemed at
that day's closing net asset value per share for such Series. The net
purchase or redemption orders
<PAGE> 4
will be transmitted to the Fund by Insurance Company by 9:00 a.m.
Eastern Time on the Business Day next following Insurance Company's
receipt of that information. Subject to Sections 3.6 and 3.8, all
purchase and redemption orders for Insurance Company's General
Accounts shall be effected at the net asset value per share of the
relevant Series next calculated after receipt of the order by the Fund
or its Transfer Agent.
3.6 Fund appoints Insurance Company as its agent for the limited purpose
of accepting orders for the purchase and redemption of shares of each
Series for the Separate Account. Fund will execute orders for any
Series at the applicable net asset value per share determined as of
the close of trading on the day of receipt of such orders by Insurance
Company acting as agent ("effective trade date"), provided that the
Fund receives notice of such orders by 9:00 a.m. Eastern Time on the
next following Business Day and, if such orders request the purchase
of Series shares, the conditions specified in Section 3.8, as
applicable, are satisfied. A redemption or purchase request for any
Series that does not satisfy the conditions specified above and in
Section 3.8, as applicable, will be effected at the net asset value
computed for such Series on the Business Day immediately preceding the
next following Business Day upon which such conditions have been
satisfied.
3.7 Insurance Company will make its best efforts to notify Fund in advance
of any unusually large purchase or redemption orders.
3.8 If Insurance Company's order requests the purchase of Series shares,
Insurance Company will pay for such purchases by wiring Federal Funds
to Fund or its designated custodial account on the day the order is
transmitted. Insurance Company shall make all reasonable efforts to
transmit to the Fund payment in Federal Funds by 12:00 noon Eastern
Time on the Business Day the Fund receives the notice of the order
pursuant to Section 3.5. Fund will execute such orders at the
applicable net asset value per share determined as of the close of
trading on the effective trade date if Fund receives payment in
Federal Funds by 4:00 p.m. Eastern Time on the Business Day the Fund
receives the notice of the order pursuant to Section 3.5. If payment
in Federal Funds for any purchase is not received or is received by
the Fund after 4:00 p.m. Eastern Time on such Business Day, Insurance
Company shall promptly upon the Fund's request, reimburse the Fund for
any charges, costs, fees, interest or other expenses incurred by the
Fund in connection with any advances to, or borrowings or overdrafts
by, the Fund, or any similar expenses incurred by the Fund, as a
result of portfolio transactions effected by the Fund based upon such
purchase request. If Insurance Company's order requests the
redemption of Series shares valued at or greater than $1 million
dollars, the Fund may wire such amount to Insurance Company within
seven days of the order.
3.9 Fund has the obligation to ensure that Series shares are registered
with applicable federal agencies at all times.
3.10 Fund will confirm each purchase or redemption order made by Insurance
Company. Transfer of Series shares will be by book entry only. No
share certificates will be issued to Insurance Company. Insurance
Company will record shares ordered from Fund in an appropriate title
for the corresponding account.
3.11 Fund shall credit Insurance Company with the appropriate number of
shares.
3.12 On each ex-dividend date of the Fund or, if not a Business Day, on the
first Business Day thereafter, Fund shall communicate to Insurance
Company the amount of dividend and capital gain, if any, per share of
each Series. All dividends and capital gains of any Series shall be
automatically reinvested in additional shares of the relevant Series
at the applicable net asset value per share of such Series on the
payable date. Fund shall, on the day after the payable date or, if
not a Business Day, on the first Business Day thereafter, notify
Insurance Company of the number of shares so issued.
<PAGE> 5
ARTICLE IV 4.
STATEMENTS AND REPORTS
4.1 Fund shall provide monthly statements of account as of the end of each
month for all of Insurance Company's accounts by the fifteenth (15th)
Business Day of the following month.
4.2 Fund shall distribute to Insurance Company copies of the Fund's
Prospectuses, proxy materials, notices, periodic reports and other
printed materials (which the Fund customarily provides to its
shareholders) in quantities as Insurance Company may reasonably
request for distribution to each Contractholder and Participant.
4.3 Fund will provide to Insurance Company at least one complete copy of
all registration statements, Prospectuses, reports, proxy statements,
sales literature and other promotional materials, applications for
exemptions, requests for no-action letters, and all amendments to any
of the above, that relate to the Fund or its shares, contemporaneously
with the filing of such document with the Commission or other
regulatory authorities.
4.4 Insurance Company will provide to the Fund at least one copy of all
registration statements, Prospectuses, reports, proxy statements,
sales literature and other promotional materials, applications for
exemptions, requests for no-action letters, and all amendments to any
of the above, that relate to the Contracts or the Separate Accounts,
contemporaneously with the filing of such document with the
Commission.
ARTICLE V 5.
EXPENSES
5.1 The charge to the Fund for all expenses and costs of the Series,
including but not limited to management fees, administrative expenses
and legal and regulatory costs, will be made in the determination of
the relevant Series' daily net asset value per share so as to
accumulate to an annual charge at the rate set forth in the Fund's
Prospectus. Excluded from the expense limitation described herein
shall be brokerage commissions and transaction fees and extraordinary
expenses.
5.2 Except as provided in this Article V and, in particular in the next
sentence, Insurance Company shall not be required to pay directly any
expenses of the Fund or expenses relating to the distribution of its
shares. Insurance Company shall pay the following expenses or costs:
a. Such amount of the production expenses of any Fund materials,
including the cost of printing the Fund's Prospectus, or
marketing materials for prospective Insurance Company
Contractholders and Participants as the Fund's investment
adviser and Insurance Company shall agree from time to time.
b. Distribution expenses of any Fund materials or marketing
materials for prospective Insurance Company Contractholders
and Participants.
c. Distribution expenses of Fund materials or marketing materials
for Insurance Company Contractholders and Participants.
Except as provided herein, all other Fund expenses shall not be borne
by Insurance Company.
ARTICLE VI 6.
EXEMPTIVE RELIEF
6.1 Insurance Company has reviewed a copy of the order dated December,
1996 of the Securities and Exchange Commission under Section 6(c) of
the Act and, in particular, has reviewed the
<PAGE> 6
conditions to the relief set forth in the related Notice. As set
forth therein, Insurance Company agrees to report any potential or
existing conflicts promptly to the Board, and in particular whenever
contract voting instructions are disregarded, and recognizes that it
will be responsible for assisting the Board in carrying out its
responsibilities under such application. Insurance Company agrees to
carry out such responsibilities with a view to the interests of
existing Contractholders.
6.2 If a majority of the Board, or a majority of Disinterested Board
Members, determines that a material irreconcilable conflict exists
with regard to Contractholder investments in the Fund, the Board shall
give prompt notice to all Participating Companies. If the Board
determines that Insurance Company is responsible for causing or
creating said conflict, Insurance Company shall at its sole cost and
expense, and to the extent reasonably practicable (as determined by a
majority of the Disinterested Board Members), take such action as is
necessary to remedy or eliminate the irreconcilable material conflict.
Such necessary action may include, but shall not be limited to:
a. Withdrawing the assets allocable to the Separate Accounts from
the Series and reinvesting such assets in a different
investment medium, or submitting the question of whether such
segregation should be implemented to a vote or all affected
Contractholders; and/or
b. Establishing a new registered management investment company.
6.3 If a material irreconcilable conflict arises as a result of a decision
by Insurance Company to disregard Contractholder voting instructions
and said decision represents a minority position or would preclude a
majority vote by all Contractholders having an interest in the Fund,
Insurance Company may be required, at the Board's election, to
withdraw the Separate Accounts' investment in the Fund.
6.4 For the purpose of this Article, a majority of the Disinterested Board
Members shall determine whether or not any proposed action adequately
remedies any irreconcilable material conflict, but in no event will
the Fund be required to bear the expense of establishing a new funding
medium for any Contract. Insurance Company shall not be required by
this Article to establish a new funding medium for any Contract if an
offer to do so has been declined by vote of a majority of the
Contractholders materially adversely affected by the irreconcilable
material conflict.
6.5 No action by Insurance Company taken or omitted, and no action by the
Separate Accounts or the Fund taken or omitted as a result of any act
or failure to act by Insurance Company pursuant to this Article VI
shall relieve Insurance Company of its obligations under, or otherwise
affect the operation of, Article V.
ARTICLE VII 7.
VOTING OF FUND SHARES
7.1 Fund shall provide Insurance Company with copies at no cost to
Insurance Company, of the Fund's proxy material, reports to
shareholders and other communications to shareholders in such quantity
as Insurance Company shall reasonably require for distributing to
Contractholders or Participants.
<PAGE> 7
Insurance Company shall:
(a) solicit voting instructions from Contractholders or
Participants on a timely basis and in accordance with
applicable law;
(b) vote the Series shares in accordance with instructions
received from Contractholders or Participants; and
(c) vote Series shares for which no instructions have been
received in the same proportion as Series shares for which
instructions have been received.
Insurance Company agrees at all times to votes its General Account
shares in the same proportion as Series shares for which instructions
have been received from Contractholders or Participants. Insurance
Company further agrees to be responsible for assuring that voting
Series shares for the Separate Account is conducted in a manner
consistent with other Participating Companies.
7.2 Insurance Company agrees that it shall not, without the prior written
consent of the Fund and its investment adviser, solicit, induce or
encourage Contractholders to (a) change or supplement the Fund's
current investment adviser or (b) change, modify, substitute, add to
or delete the Fund from the current investment media for the
Contracts.
ARTICLE VIII 8.
MARKETING AND REPRESENTATIONS
8.1 The Fund or its underwriter shall periodically furnish Insurance
Company with the following documents, in quantities as Insurance
Company may reasonably request:
a. Current Prospectus and any supplements thereto;
b. other marketing materials.
Expenses for the production of such documents shall be borne by
Insurance Company in accordance with Section 5.2 of this Agreement.
8.2 Insurance Company shall designate certain persons or entities which
shall have the requisite licenses to solicit applications for the sale
of Contracts. No representation is made as to the number or amount of
Contracts that are to be sold by Insurance Company. Insurance Company
shall make reasonable efforts to market the Contracts and shall comply
with all applicable federal and state laws in connection therewith.
8.3 Insurance Company shall furnish, or shall cause to be furnished, to
the Fund, each piece of sales literature or other promotional material
in which the Fund, its investment adviser or the administrator is
named, at least fifteen Business Days prior to its use. No such
material shall be used unless the Fund approves such material. Such
approval (if given) must be in writing and shall be presumed not given
if not received within ten Business Days after receipt of such
material. The Fund shall use all reasonable efforts to respond within
ten days of receipt.
8.4 Insurance Company shall not give any information or make any
representations or statements on behalf of the Fund or concerning the
Fund or any Series in connection with the sale of the Contracts other
than the information or representations contained in the registration
statement or Prospectus, as may be amended or supplemented from time
to time, or in reports or proxy statements for the Fund, or in sales
literature or other promotional material approved by the Fund.
<PAGE> 8
8.5 Fund shall furnish, or shall cause to be furnished, to Insurance
Company, each piece of the Fund's sales literature or other
promotional material in which Insurance Company or the Separate
Accounts are named, at least fifteen Business Days prior to its use.
No such material shall be used unless Insurance Company approves such
material. Such approval (if given) must be in writing and shall be
presumed not given if not received within ten Business Days after
receipt of such material. Insurance Company shall use all reasonable
efforts to respond within ten days of receipt.
8.6 Fund shall not, in connection with the sale of Series shares, give any
information or make any representations on behalf of Insurance Company
or concerning Insurance Company, the Separate Accounts, or the
Contracts other than the information or representations contained in a
registration statement or prospectus for the Contracts, as may be
amended or supplemented from time to time, or in published reports for
the Separate Accounts which are in the public domain or approved by
Insurance Company for distribution to Contractholders or Participants,
or in sales literature or other promotional material approved by
Insurance Company.
8.7 For purposes of this Agreement, the phrase "sales literature or other
promotional material" or words of similar import include, without
limitation, advertisements (such as material published, or designed
for use, in a newspaper, magazine or other periodical, radio,
television, telephone or tape recording, videotape display, signs or
billboards, motion pictures or other public media), sales literature
(such as any written communication distributed or made generally
available to customers or the public, including brochures, circulars,
research reports, market letters, form letters, seminar texts, or
reprints or excerpts of any other advertisement, sales literature, or
published article), educational or training materials or other
communications distributed or made generally available to some or all
agents or employees, registration statements, prospectuses, statements
of additional information, shareholder reports and proxy materials,
and any other material constituting sales literature or advertising
under National Association of Securities Dealers, Inc. rules, the Act
or the 1933 Act.
<PAGE> 9
ARTICLE IX 9.
INDEMNIFICATION
9.1 Insurance Company agrees to indemnify and hold harmless the Fund, its
investment adviser, any sub-investment adviser of a Series, and their
affiliates, and each of their directors, trustees, officers,
employees, agents and each person, if any, who controls or is
associated with any of the foregoing entities or persons within the
meaning of the 1933 Act (collectively, the "Indemnified Parties" for
purposes of Section 9.1), against any and all losses, claims, damages
or liabilities joint or several (including any investigative, legal
and other expenses reasonably incurred in connection with, and any
amounts paid in settlement of, any action, suit or proceeding or any
claim asserted) for which the Indemnified Parties may become subject,
under the 1933 Act or otherwise, insofar as such losses, claims,
damages or liabilities (or actions in respect to thereof) (i) arise
out of or are based upon any untrue statement or alleged untrue
statement of any material fact contained in information furnished by
Insurance Company for use in the registration statement or Prospectus
or sales literature or advertisements of the Fund or with respect to
the Separate Accounts or Contracts, or arise out of or are based upon
the omission or the alleged omission to state therein a material fact
required to be stated therein or necessary to make the statements
therein not misleading; (ii) arise out of or as a result of conduct,
statements or representations (other than statements or
representations contained in the Prospectus and sales literature or
advertisements of the Fund) of Insurance Company or its agents, with
respect to the sale and distribution of Contracts for which Series
shares are an underlying investment; (iii) arise out of the wrongful
conduct of Insurance Company or persons under its control with respect
to the sale or distribution of the Contracts or Series shares; (iv)
arise out of Insurance Company's incorrect calculation and/or untimely
reporting of net purchase or redemption orders; or (v) arise out of
any breach by Insurance Company of a material term of this Agreement
or as a result of any failure by Insurance Company to provide the
services and furnish the materials or to make any payments provided
for in this Agreement. Insurance Company will reimburse any
Indemnified Party in connection with investigating or defending any
such loss, claim, damage, liability or action; provided, however, that
with respect to clauses (i) and (ii) above Insurance Company will not
be liable in any such case to the extent that any such loss, claim,
damage or liability arises out of or is based upon any untrue
statement or omission or alleged omission made in such registration
statement, prospectus, sales literature, or advertisement in
conformity with written information furnished to Insurance Company by
the Fund specifically for use therein; and provided, further, that the
Insurance Company shall not be liable for special, consequential, or
incidental damages. This indemnity agreement will be in addition to
any liability which Insurance Company may otherwise have.
9.22 The Fund agrees to indemnify and hold harmless Insurance Company and
each of its directors, officers, employees, agents and each person, if
any, who controls Insurance Company within the meaning of the 1933 Act
against any losses, claims, damages or liabilities to which Insurance
Company or any such director, officer, employee, agent or controlling
person may become subject, under the 1933 Act or otherwise, insofar as
such losses, claims, damages or liabilities (or actions in respect
thereof) (1) arise out of or are based upon any untrue statement or
alleged untrue statement of any material fact contained in the
registration statement or Prospectus or sales literature or
advertisements of the Fund; (2) arise out of or are based upon the
omission to state in the registration statement or Prospectus or sales
literature or advertisements of the Fund any material fact required to
be stated therein or necessary to make the statements therein not
misleading; or (3) arise out of or are based upon any untrue statement
or alleged untrue statement of any material fact contained in the
registration statement or Prospectus or sales literature or
advertisements with respect to the Separate Account or the Contracts
and such statements were based on information provided to Insurance
Company by the Fund; and the Fund will reimburse any legal or other
expenses reasonably incurred by Insurance Company or any such
director, officer, employee, agent or controlling person in connection
with investigating or defending any such loss, claim, damage,
liability or action; provided, however, that the Fund will not be
liable in any such case to the extent that any such loss, claim,
damage or liability arises out of or is based upon an untrue statement
or omission or alleged omission made in such Registration Statement,
Prospectus, sales literature or advertisements in conformity with
written information furnished to
<PAGE> 10
the Fund by Insurance Company specifically for use therein; and
provided, further, that the Fund shall not be liable for special,
consequential or incidental damages. This indemnity agreement will be
in addition to any liability which the Fund may otherwise have.
9.3 The Fund shall indemnify and hold Insurance Company harmless against
any and all liability, loss, damages, costs or expenses which
Insurance Company may incur, suffer or be required to pay due to the
Fund's (1) incorrect calculation of the daily net asset value,
dividend rate or capital gain distribution rate of a Series; (2)
incorrect reporting of the daily net asset value, dividend rate or
capital gain distribution rate; and (3) untimely reporting of the net
asset value, dividend rate or capital gain distribution rate; provided
that the Fund shall have no obligation to indemnify and hold harmless
Insurance Company if the incorrect calculation or incorrect or
untimely reporting was the result of incorrect information furnished
by Insurance Company or information furnished untimely by Insurance
Company or otherwise as a result of or relating to a breach of this
Agreement by Insurance Company; and provided, further, that the Fund
shall not be liable for special, consequential or incidental damages.
9.4 Promptly after receipt by an indemnified party under this Article of
notice of the commencement of any action, such indemnified party will,
if a claim in respect thereof is to be made against the indemnifying
party under this Article, notify the indemnifying party of the
commencement thereof. The omission to so notify the indemnifying
party will not relieve the indemnifying party from any liability under
this Article IX, except to the extent that the omission results in a
failure of actual notice to the indemnifying party and such
indemnifying party is damaged solely as a result of the failure to
give such notice. In case any such action is brought against any
indemnified party, and it notified the indemnifying party of the
commencement thereof, the indemnifying party will be entitled to
participate therein and, to the extent that it may wish, assume the
defense thereof, with counsel reasonably satisfactory to such
indemnified party, and to the extent that the indemnifying party has
given notice to such effect to the indemnified party and is performing
its obligations under this Article, the indemnifying party shall not
be liable for any legal or other expenses subsequently incurred by
such indemnified party in connection with the defense thereof, other
than reasonable costs of investigation. Notwithstanding the
foregoing, in any such proceeding, any indemnified party shall have
the right to retain its own counsel, but the fees and expenses of such
counsel shall be at the expense of such indemnified party unless (i)
the indemnifying party and the indemnified party shall have mutually
agreed to the retention of such counsel or (ii) the named parties to
any such proceeding (including any impleaded parties) include both the
indemnifying party and the indemnified party and representation of
both parties by the same counsel would be inappropriate due to actual
or potential differing interests between them. The indemnifying party
shall not be liable for any settlement of any proceeding effected
without its written consent.
A successor by law of the parties to this Agreement shall be entitled
to the benefits of the indemnification contained in this Article IX.
9.5 Insurance Company shall indemnify and hold the Fund, its investment
adviser and any sub-investment adviser of a Series harmless against
any tax liability incurred by the Fund under Section 851 of the Code
arising from purchases or redemptions by Insurance Company's General
Accounts or the account of its affiliates.
ARTICLE X 10.
COMMENCEMENT AND TERMINATION
10.1 This Agreement shall be effective as of the date hereof and shall
continue in force until terminated in accordance with the provisions
herein.
10.2 This Agreement shall terminate without penalty as to one or more
Series at the option of the terminating party:
<PAGE> 11
a. At the option of Insurance Company or the Fund at any time
from the date hereof upon 180 days' notice, unless a shorter
time is agreed to by the parties;
b. At the option of Insurance Company, if shares of any Series
are not reasonably available to meet the requirements of the
Contracts as determined by Insurance Company. Prompt notice
of election to terminate shall be furnished by Insurance
Company, said termination to be effective ten days after
receipt of notice unless the Fund makes available a sufficient
number of shares to meet the requirements of the Contracts
within said ten-day period;
c. At the option of Insurance Company, upon the institution of
formal proceedings against the Fund by the Commission,
National Association of Securities Dealers or any other
regulatory body, the expected or anticipated ruling, judgment
or outcome of which would, in Insurance Company's reasonable
judgment, materially impair the Fund's ability to meet and
perform the Fund's obligations and duties hereunder. Prompt
notice of election to terminate shall be furnished by
Insurance Company with said termination to be effective upon
receipt of notice;
d. At the option of the Fund, upon the institution of formal
proceedings against Insurance Company by the Commission,
National Association of Securities Dealers or any other
regulatory body, the expected or anticipated ruling, judgment
or outcome of which would, in the Fund's reasonable judgment,
materially impair Insurance Company's ability to meet and
perform Insurance Company's obligations and duties hereunder.
Prompt notice of election to terminate shall be furnished by
the Fund with said termination to be effective upon receipt of
notice;
e. At the option of the Fund, if the Fund shall determine, in its
sole judgment reasonably exercised in good faith, that
Insurance Company has suffered a material adverse change in
its business or financial condition or is the subject of
material adverse publicity and such material adverse change or
material adverse publicity is likely to have a material
adverse impact upon the business and operation of the Fund or
its investment adviser, the Fund shall notify Insurance
Company in writing of such determination and its intent to
terminate this Agreement, and after considering the actions
taken by Insurance Company and any other changes in
circumstances since the giving of such notice, such
determination of the Fund shall continue to apply on the
sixtieth (60th) day following the giving of such notice, which
sixtieth day shall be the effective date of termination;
f. Upon termination of the Investment Advisory Agreement between
the Fund and its investment adviser or its successors unless
Insurance Company specifically approves the selection of a new
Fund investment adviser. The Fund shall promptly furnish
notice of such termination to Insurance Company;
g. In the event the Fund's shares are not registered, issued or
sold in accordance with applicable federal law, or such law
precludes the use of such shares as the underlying investment
medium of Contracts issued or to be issued by Insurance
Company. Termination shall be effective immediately upon such
occurrence without notice;
h. At the option of the Fund upon a determination by the Board in
good faith that it is no longer advisable and in the best
interests of shareholders for the Fund to continue to operate
pursuant to this Agreement. Termination pursuant to this
Subsection (h) shall be effective upon notice by the Fund to
Insurance Company of such termination;
i. At the option of the Fund if the Contracts cease to qualify as
annuity contracts or life insurance policies, as applicable,
under the Code, or if the Fund reasonably believes that the
Contracts may fail to so qualify;
<PAGE> 12
j. At the option of either party to this Agreement, upon another
party's breach of any material provision of this Agreement;
k. At the option of the Fund, if the Contracts are not
registered, issued or sold in accordance with applicable
federal and/or state law; or
l. Upon assignment of this Agreement, unless made with the
written consent of the non-assigning party.
Any such termination pursuant to Section 10.2a, 10.2d, 10.2e, 10.2f or
10.2k herein shall not affect the operation of Article V of this
Agreement. Any termination of this Agreement shall not affect the
operation of Article IX of this Agreement.
10.3 Notwithstanding any termination of this Agreement pursuant to Section
10.2 hereof, the Fund and its investment adviser may, at the option of
the Fund, continue to make available additional Series shares for so
long as the Fund desires pursuant to the terms and conditions of this
Agreement as provided below, for all Contracts in effect on the
effective date of termination of this Agreement (hereinafter referred
to as "Existing Contracts"). Specifically, without limitation, if the
Fund so elects to make additional Series shares available, the owners
of the Existing Contracts or Insurance Company, whichever shall have
legal authority to do so, shall be permitted to reallocate investments
in the Series, redeem investments in the Fund and/or invest in the
Fund upon the making of additional purchase payments under the
Existing Contracts. In the event of a termination of this Agreement
pursuant to Section 10.2 hereof, the Fund, as promptly as is
practicable under the circumstances, shall notify Insurance Company
whether the Fund will continue to make Series shares available after
such termination. If Series shares continue to be made available
after such termination, the provisions of this Agreement shall remain
in effect and thereafter either the Fund or Insurance Company may
terminate the Agreement, as so continued pursuant to this Section
10.3, upon prior written notice to the other party, such notice to be
for a period that is reasonable under the circumstances but, if given
by the Fund, need not be for more than six months.
ARTICLE XI 11.
AMENDMENTS
11.1 Any other changes in the terms of this Agreement shall be made by
agreement in writing between Insurance Company and Fund.
ARTICLE XII 12.
NOTICE
12.1 Each notice required by this Agreement shall be given by certified
mail, return receipt requested, to the appropriate parties at the
following addresses:
Insurance Company:
National Life Insurance Company
One National Life Drive
Montpelier, Vermont 05604
Attention: D. Russell Morgan
Fund:
<PAGE> 13
J. P. Morgan Series Trust II
c/o Morgan Guaranty Trust Company
522 Fifth Avenue
New York, New York 10036
Attention: Sharon J. Weinberg
Notice shall be deemed to be given on the date of receipt by the
addresses as evidenced by the return receipt.
ARTICLE XIII 13.
MISCELLANEOUS
13.1 This Agreement has been executed on behalf of the Fund by the
undersigned officer of the Fund in his capacity as an officer of the
Fund. The obligations of this Agreement shall only be binding upon
the assets and property of the Fund and shall not be binding upon any
Trustee, officer or shareholder of the Fund individually.
ARTICLE XIV 14.
LAW
14.1 This Agreement shall be construed in accordance with the internal laws
of the State of New York, without giving effect to principles of
conflict of laws.
IN WITNESS WHEREOF, the parties hereto have executed this Agreement to be duly
executed and attested as of the date first above written.
NATIONAL LIFE INSURANCE COMPANY
By:
-------------------------------
Its:
------------------------------
J. P. MORGAN SERIES TRUST II
By:
-------------------------------
Its:
------------------------------
<PAGE> 14
SCHEDULE 1
Name of Series
J. P. Morgan International Opportunities Portfolio
J. P. Morgan Small Company Portfolio
SCHEDULE II
Separate Accounts
National Variable Life Insurance Account
National Variable Annuity Account II
<PAGE> 1
EXHIBIT 1a 8(b)
PARTICIPATION AGREEMENT
THIS AGREEMENT, made and entered into this __ day of ________, 1998 by
and between GOLDMAN SACHS VARIABLE INSURANCE TRUST, an unincorporated business
trust formed under the laws of Delaware (the "Trust"), GOLDMAN, SACHS & CO., a
New York limited partnership (the "Distributor"), and NATIONAL LIFE INSURANCE
COMPANY, a Vermont life insurance company (the "Company"), on its own behalf
and on behalf of each separate account of the Company identified herein.
WHEREAS, the Trust is a series-type mutual fund offering shares of
beneficial interest (the "Trust shares") consisting of one or more separate
series ("Series") of shares, each such Series representing an interest in a
particular investment portfolio of securities and other assets (a "Fund"), and
which Series may be subdivided into various classes ("Classes") with each such
Class supporting a distinct charge and expense arrangement; and
WHEREAS, the Trust was established for the purpose of serving as an
investment vehicle for insurance company separate accounts supporting variable
annuity contracts and variable life insurance policies to be offered by
insurance companies and may also be utilized by qualified retirement plans; and
WHEREAS, the Distributor has the exclusive right to distribute Trust
shares to qualifying investors; and
WHEREAS, the Company desires that the Trust serve as an investment
vehicle for a certain separate account(s) of the Company and the Distributor
desires to sell shares of certain Series and/or Class(es) to such separate
account(s);
NOW, THEREFORE, in consideration of their mutual promises, the Trust,
the Distributor and the Company agree as follows:
ARTICLE I
ADDITIONAL DEFINITIONS
1.1. "Account" -- the separate account of the Company described
more specifically in Schedule 1 to this Agreement. If more than one separate
account is described on Schedule 1, the term shall refer to each separate
account so described.
1.2. "Business Day" -- each day that the Trust is open for business
as provided in the Trust's Prospectus.
1.3. "Code" -- the Internal Revenue Code of 1986, as amended, and
any successor thereto.
1.4. "Contracts" -- the class or classes of variable annuity
contracts and/or variable life insurance policies issued by the Company and
described more specifically on Schedule 2 to this Agreement.
1.5. "Contract Owners" -- the owners of the Contracts, as
distinguished from all Product Owners.
1.6. "Participating Account" -- a separate account investing all or
a portion of its assets in the Trust, including the Account.
<PAGE> 2
1.7. "Participating Insurance Company" -- any insurance company
investing in the Trust on its behalf or on behalf of a Participating Account,
including the Company.
1.8. "Participating Plan" -- any qualified retirement plan
investing in the Trust.
1.9. "Participating Investor" -- any Participating Account,
Participating Insurance Company or Participating Plan, including the Account
and the Company.
1.10. "Products" -- variable annuity contracts and variable life
insurance policies supported by Participating Accounts, including the
Contracts.
1.11. "Product Owners" -- owners of Products, including Contract
Owners.
1.12. "Trust Board" -- the board of trustees of the Trust.
1.13. "Registration Statement" -- with respect to the Trust shares
or a class of Contracts, the registration statement filed with the SEC to
register such securities under the 1933 Act, or the most recently filed
amendment thereto, in either case in the form in which it was declared or
became effective. The Contracts' Registration Statement for each class of
Contracts is described more specifically on Schedule 2 to this Agreement. The
Trust's Registration Statement is filed on Form N-1A (File No. 333-35883).
1.14. "1940 Act Registration Statement" -- with respect to the Trust
or the Account, the registration statement filed with the SEC to register such
person as an investment company under the 1940 Act, or the most recently filed
amendment thereto. The Account's 1940 Act Registration Statement is described
more specifically on Schedule 2 to this Agreement. The Trust's 1940 Act
Registration Statement is filed on Form N-1A (File No. 811-08361).
1.15. "Prospectus" -- with respect to shares of a Series (or Class)
of the Trust or a class of Contracts, each version of the definitive prospectus
or supplement thereto filed with the SEC pursuant to Rule 497 under the 1933
Act. With respect to any provision of this Agreement requiring a party to take
action in accordance with a Prospectus, such reference thereto shall be deemed
to be to the version for the applicable Series, Class or Contracts last so
filed prior to the taking of such action. For purposes of Article IX, the term
"Prospectus" shall include any statement of additional information incorporated
therein.
1.16. "Statement of Additional Information" -- with respect to the
shares of the Trust or a class of Contracts, each version of the definitive
statement of additional information or supplement thereto filed with the SEC
pursuant to Rule 497 under the 1933 Act. With respect to any provision of this
Agreement requiring a party to take action in accordance with a Statement of
Additional Information, such reference thereto shall be deemed to be the last
version so filed prior to the taking of such action.
1.17. "SEC" -- the Securities and Exchange Commission.
1.18. "NASD" -- The National Association of Securities Dealers, Inc.
1.19. "1933 Act" -- the Securities Exchange Act of 1933, as amended.
1.20. "1940 Act" -- the Investment Company Act of 1940, as amended.
2
<PAGE> 3
ARTICLE II
SALE OF TRUST SHARES
2.1. AVAILABILITY OF SHARES
(a) The Trust has granted to the Distributor exclusive
authority to distribute the Trust shares and to select which Series or
Classes of Trust shares shall be made available to Participating
Investors. Pursuant to such authority, and subject to Article X
hereof, the Distributor shall make available to the Company for
purchase on behalf of the Account, shares of the Series and Classes
listed on Schedule 3 to this Agreement, such purchases to be effected
at net asset value in accordance with Section 2.3 of this Agreement.
Such Series and Classes shall be made available to the Company in
accordance with the terms and provisions of this Agreement until this
Agreement is terminated pursuant to Article X or the Distributor
suspends or terminates the offering of shares of such Series or
Classes in the circumstances described in Article X.
(b) Notwithstanding clause (a) of this Section 2.1, other
Series or Classes of Trust shares in existence now or that may be
established in the future will be made available to the Company only
as the Distributor may so provide, subject to the Distributor's rights
set forth in Article X to suspend or terminate the offering of shares
of any Series or Class or to terminate this Agreement.
(c) The parties acknowledge and agree that: (i) the
Trust may revoke the Distributor's authority pursuant to the terms and
conditions of its distribution agreement with the Distributor; and
(ii) the Trust reserves the right in its sole discretion to refuse to
accept a specific request for the purchase of Trust shares in
accordance with the Trust's prospectus.
2.2. REDEMPTIONS. The Trust shall redeem, at the Company's
request, any full or fractional Trust shares held by the Company on behalf of
the Account, such redemptions to be effected at net asset value in accordance
with Section 2.3 of this Agreement. Notwithstanding the foregoing, (i) the
Company shall not redeem Trust shares attributable to Contract Owners except in
the circumstances permitted in Article X of this Agreement, and (ii) the Trust
may delay redemption of Trust shares of any Series or Class to the extent
permitted by the 1940 Act, any rules, regulations or orders thereunder, or the
Prospectus for such Series or Class.
2.3. PURCHASE AND REDEMPTION PROCEDURES
(a) The Trust hereby appoints the Company as an agent of
the Trust for the limited purpose of receiving purchase and redemption
requests on behalf of the Account (but not with respect to any Trust
shares that may be held in the general account of the Company) for
shares of those Series or Classes made available hereunder, based on
allocations of amounts to the Account or subaccounts thereof under the
Contracts, other transactions relating to the Contracts or the Account
and customary processing of the Contracts. Receipt of any such
requests (or effectuation of such transaction or processing) on any
Business Day by the Company as such limited agent of the Trust prior
to the Trust's close of business as defined from time to time in the
applicable Prospectus for such Series or Class (which as of the date
of execution of this Agreement is defined as the close of regular
trading on the New York Stock Exchange (normally 4:00 p.m. New York
Time)) shall constitute receipt by the Trust on that same Business
Day, [PROVIDED THAT THE COMPANY USES ITS BEST EFFORTS TO PROVIDE
ACTUAL AND SUFFICIENT NOTICE OF SUCH REQUEST TO THE TRUST BY 8:00 A.M.
NEW YORK TIME ON THE NEXT FOLLOWING BUSINESS DAY AND THE TRUST
RECEIVES SUCH NOTICE NO LATER THAN 9:00 A.M. NEW YORK TIME ON
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SUCH BUSINESS DAY.] Such notice may be communicated by telephone to
the office or person designated for such notice by the Trust, and
shall be confirmed by facsimile.
(b) The Company shall pay for shares of each Series or
Class on the same day that it provides actual notice to the Trust of a
purchase request for such shares. Payment for Series or Class shares
shall be made in Federal funds transmitted to the Trust by wire to be
received by the Trust by [12:00 NOON] New York Time on the day the
Trust receives actual notice of the purchase request for Series or
Class shares (unless the Trust determines and so advises the Company
that sufficient proceeds are available from redemption of shares of
other Series or Classes effected pursuant to redemption requests
tendered by the Company on behalf of the Account). In no event may
proceeds from the redemption of shares requested pursuant to an order
received by the Company after the Trust's close of business on any
Business Day be applied to the payment for shares for which a purchase
order was received prior to the Trust's close of business on such day.
If the issuance of shares is canceled because Federal funds are not
timely received, the Company shall indemnify the respective Fund and
Distributor with respect to all costs, expenses and losses relating
thereto. Upon the Trust's receipt of Federal funds so wired, such
funds shall cease to be the responsibility of the Company and shall
become the responsibility of the Trust. If Federal funds are not
received on time, such funds will be invested, and Series or Class
shares purchased thereby will be issued, as soon as practicable after
actual receipt of such funds but in any event not on the same day that
the purchase order was received.
(c) Payment for Series or Class shares redeemed by the
Account or the Company shall be made in Federal funds transmitted by
wire to the Company or any other person properly designated in writing
by the Company, such funds normally to be transmitted by 6:00 p.m. New
York Time on the next Business Day after the Trust receives actual
notice of the redemption order for Series or Class shares (unless
redemption proceeds are to be applied to the purchase of Trust shares
of other Series or Classes in accordance with Section 2.3(b) of this
Agreement), except that the Trust reserves the right to redeem Series
or Class shares in assets other than cash and to delay payment of
redemption proceeds to the extent permitted by the 1940 Act, any rules
or regulations or orders thereunder, or the applicable Prospectus.
The Trust shall not bear any responsibility whatsoever for the proper
disbursement or crediting of redemption proceeds by the Company; the
Company alone shall be responsible for such action.
(d) Any purchase or redemption request for Series or
Class shares held or to be held in the Company's general account shall
be effected at the net asset value per share next determined after the
Trust's actual receipt of such request, provided that, in the case of
a purchase request, payment for Trust shares so requested is received
by the Trust in Federal funds prior to close of business for
determination of such value, as defined from time to time in the
Prospectus for such Series or Class.
(e) Prior to the first purchase of any Trust shares
hereunder, the Company and the Trust shall provide each other with all
information necessary to effect wire transmissions of Federal funds to
the other party and all other designated persons pursuant to such
protocols and security procedures as the parties may agree upon.
Should such information change thereafter, the Trust and the Company,
as applicable, shall notify the other in writing of such changes,
observing the same protocols and security procedures, at least three
Business Days in advance of when such change is to take effect. The
Company and the Trust shall observe customary procedures to protect
the confidentiality and security of such information, but the Trust
shall not be liable to the Company for any breach of security.
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(f) The procedures set forth herein are subject to any
additional terms set forth in the applicable Prospectus for the Series
or Class or by the requirements of applicable law.
2.4. NET ASSET VALUE. The Trust shall use its best efforts to
inform the Company of the net asset value per share for each Series or Class
available to the Company as soon as reasonably practicable after the net asset
value per share for such Series or Class is calculated. The Trust shall
calculate such net asset value in accordance with the Prospectus for such
Series or Class.
2.5. DIVIDENDS AND DISTRIBUTIONS. The Trust shall furnish notice
to the Company as soon as reasonably practicable of any income dividends or
capital gain distributions payable on any Series or Class shares. The Company,
on its behalf and on behalf of the Account, hereby elects to receive all such
dividends and distributions as are payable on any Series or Class shares in the
form of additional shares of that Series or Class. The Company reserves the
right, on its behalf and on behalf of the Account, to revoke this election and
to receive all such dividends and capital gain distributions in cash; to be
effective, such revocation must be made in writing and received by the Trust at
least ten Business Days prior to a dividend or distribution date. The Trust
shall notify the Company promptly of the number of Series or Class shares so
issued as payment of such dividends and distributions.
2.6. BOOK ENTRY. Issuance and transfer of Trust shares shall be by
book entry only. Stock certificates will not be issued to the Company or the
Account. Purchase and redemption orders for Trust shares shall be recorded in
an appropriate ledger for the Account or the appropriate subaccount of the
Account.
2.7. PRICING ERRORS. Any material errors in the calculation of net
asset value, dividends or capital gain information shall be reported
immediately upon discovery to the Company. An error shall be deemed "material"
based on our interpretation of the SEC's position and policy with regard to
materiality, as it may be modified from time to time. Neither the Trust, any
Fund, the Distributor, nor any of their affiliates shall be liable for any
information provided to the Company pursuant to this Agreement which
information is based on incorrect information supplied by or on behalf of the
Company or any other Participating Company to the Trust or the Distributor.
2.8. LIMITS ON PURCHASERS. The Distributor and the Trust shall
sell Trust shares only to insurance companies and their separate accounts and
to persons or plans ("Qualified Persons") that qualify to purchase shares of
the Trust under Section 817(h) of the Code and the regulations thereunder
without impairing the ability of the Account to consider the portfolio
investments of the Trust as constituting investments of the Account for the
purpose of satisfying the diversification requirements of Section 817(h). The
Distributor and the Trust shall not sell Trust shares to any insurance company
or separate account unless an agreement complying with Article VIII of this
Agreement is in effect to govern such sales. The Company hereby represents and
warrants that it and the Account are Qualified Persons.
ARTICLE III
REPRESENTATIONS AND WARRANTIES
3.1. COMPANY. The Company represents and warrants that: (i) the
Company is an insurance company duly organized and in good standing under
Vermont insurance law; (ii) the Account is a validly existing separate account,
duly established and maintained in accordance with applicable law; (iii) the
Account's 1940 Act Registration Statement has been filed with the SEC in
accordance with the provisions of the 1940 Act and the Account is duly
registered as a unit investment trust thereunder; (iv) the Contracts'
Registration Statement has been declared
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<PAGE> 6
effective by the SEC, or will be declared effective prior to the Company
purchasing shares in respect of such Contract; (v) the Contracts will be issued
in compliance in all material respects with all applicable Federal and state
laws; (vi) the Contracts have been filed, qualified and/or approved for sale,
as applicable, under the insurance laws and regulations of the states in which
the Contracts will be offered; (vii) the Account will maintain its registration
under the 1940 Act and will comply in all material respects with the 1940 Act;
(viii) the Contracts currently are, and at the time of issuance and for so long
as they are outstanding will be, treated as annuity contracts or life insurance
policies, whichever is appropriate, under applicable provisions of the Code;
and (ix) the Company's entering into and performing its obligations under this
Agreement does not and will not violate its charter documents or by-laws, rules
or regulations, or any agreement to which it is a party. The Company will
notify the Trust promptly if for any reason it is unable to perform its
obligations under this Agreement.
3.2. TRUST. The Trust represents and warrants that: (i) the Trust
is an unincorporated business trust duly formed and validly existing under the
Delaware law; (ii) the Trust's 1940 Act Registration Statement has been filed
with the SEC in accordance with the provisions of the 1940 Act and the Trust is
duly registered as an open-end management investment company thereunder; (iii)
the Trust's Registration Statement has been declared effective by the SEC; (iv)
the Trust shares will be issued in compliance in all material respects with all
applicable federal laws; (v) the Trust will remain registered under and will
comply in all material respects with the 1940 Act during the term of this
Agreement; (vi) each Fund of the Trust intends to qualify as a "regulated
investment company" under Subchapter M of the Code and to comply with the
diversification standards prescribed in Section 817(h) of the Code and the
regulations thereunder; and (vii) the investment policies of each Fund are in
material compliance with any investment restrictions set forth on Schedule 4 to
this Agreement. The Trust, however, makes no representation as to whether any
aspect of its operations (including, but not limited to, fees and expenses and
investment policies) otherwise complies with the insurance laws or regulations
of any state.
3.3. DISTRIBUTOR. The Distributor represents and warrants that:
(i) the Distributor is a limited partnership duly organized and in good
standing under New York law; (ii) the Distributor is registered as a
broker-dealer under federal and applicable state securities laws and is a
member of the NASD; and (iii) the Distributor is registered as an investment
adviser under federal securities laws.
3.4. LEGAL AUTHORITY. Each party represents and warrants that the
execution and delivery of this Agreement and the consummation of the
transactions contemplated herein have been duly authorized by all necessary
corporate, partnership or trust action, as applicable, by such party, and, when
so executed and delivered, this Agreement will be the valid and binding
obligation of such party enforceable in accordance with its terms.
3.5. BONDING REQUIREMENT. Each party represents and warrants that
all of its directors, officers, partners and employees dealing with the money
and/or securities of the Trust are and shall continue to be at all times
covered by a blanket fidelity bond or similar coverage for the benefit of the
Trust in an amount not less than the amount required by the applicable rules of
the NASD and the federal securities laws. The aforesaid bond shall include
coverage for larceny and embezzlement and shall be issued by a reputable
bonding company. All parties shall make all reasonable efforts to see that
this bond or another bond containing these provisions is always in effect,
shall provide evidence thereof promptly to any other party upon written request
therefor, and shall notify the other parties promptly in the event that such
coverage no longer applies.
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ARTICLE IV
REGULATORY REQUIREMENTS
4.1. TRUST FILINGS. The Trust shall amend the Trust's Registration
Statement and the Trust's 1940 Act Registration Statement from time to time as
required in order to effect the continuous offering of Trust shares in
compliance with applicable law and to maintain the Trust's registration under
the 1940 Act for so long as Trust shares are sold.
4.2. CONTRACTS FILINGS. The Company shall amend the Contracts'
Registration Statement and the Account's 1940 Act Registration Statement from
time to time as required in order to effect the continuous offering of the
Contracts in compliance with applicable law or as may otherwise be required by
applicable law, but in any event shall maintain a current effective Contracts'
Registration Statement and the Account's registration under the 1940 Act for so
long as the Contracts are outstanding unless the Company has supplied the Trust
with an SEC no-action letter or opinion of counsel satisfactory to the Trust's
counsel to the effect that maintaining such Registration Statement on a current
basis is no longer required. The Company shall be responsible for filing all
such Contract forms, applications, marketing materials and other documents
relating to the Contracts and/or the Account with state insurance commissions,
as required or customary, and shall use its best efforts: (i) to obtain any and
all approvals thereof, under applicable state insurance law, of each state or
other jurisdiction in which Contracts are or may be offered for sale; and (ii)
to keep such approvals in effect for so long as the Contracts are outstanding.
4.3. VOTING OF TRUST SHARES. With respect to any matter put to
vote by the holders of Trust shares ("Voting Shares"), the Company will provide
"pass-through" voting privileges to owners of Contracts registered with the SEC
as long as the 1940 Act requires such privileges in such cases. In cases in
which "pass-through" privileges apply, the Company will (i) solicit voting
instructions from Contract Owners of SEC-registered Contracts; (ii) vote Voting
Shares attributable to Contract Owners in accordance with instructions or
proxies timely received from such Contract Owners; and (iii) vote Voting Shares
held by it that are not attributable to reserves for SEC-registered Contracts
or for which it has not received timely voting instructions in the same
proportion as instructions received in a timely fashion from Owners of
SEC-registered Contracts. The Company shall be responsible for ensuring that
it calculates "pass-through" votes for the Account in a manner consistent with
the provisions set forth above and with other Participating Insurance
Companies. Neither the Company nor any of its affiliates will in any way
recommend action in connection with, or oppose or interfere with, the
solicitation of proxies for the Trust shares held for such Contract Owners,
except with respect to matters as to which the Company has the right under Rule
6e-2 or 6e-3(T) under the 1940 Act, to vote Voting Shares without regard to
voting instructions from Contract Owners.
4.4. STATE INSURANCE RESTRICTIONS. The Company acknowledges and
agrees that it is the responsibility of the Company and other Participating
Insurance Companies to determine investment restrictions and any other
restrictions, limitations or requirements under state insurance law applicable
to any Fund or the Trust or the Distributor, and that neither the Trust nor the
Distributor shall bear any responsibility to the Company, other Participating
Insurance Companies or any Product Owners for any such determination or the
correctness of such determination. Schedule 4 sets forth the investment
restrictions that the Company and/or other Participating Insurance Companies
have determined are applicable to any Fund and with which the Trust has agreed
to comply as of the date of this Agreement. The Company shall inform the Trust
of any investment restrictions imposed by state insurance law that the Company
determines may become applicable to the Trust or a Fund from time to time as a
result of the Account's investment therein, other than those set forth on
Schedule 4 to this Agreement. Upon receipt of any such information from the
Company or any other Participating Insurance Company, the Trust shall determine
whether it is in the best interests of shareholders to comply with any such
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restrictions. If the Trust determines that it is not in the best interests of
shareholders (it being understood that "shareholders" for this purpose shall
mean Product Owners) to comply with a restriction determined to be applicable
by the Company, the Trust shall so inform the Company, and the Trust and the
Company shall discuss alternative accommodations in the circumstances. If the
Trust determines that it is in the best interests of shareholders to comply
with such restrictions, the Trust and the Company shall amend Schedule 4 to
this Agreement to reflect such restrictions, subject to obtaining any required
shareholder approval thereof.
4.5. COMPLIANCE. Under no circumstances will the Trust, the
Distributor or any of their affiliates (excluding Participating Investors) be
held responsible or liable in any respect for any statements or representations
made by them or their legal advisers to the Company or any Contract Owner
concerning the applicability of any federal or state laws, regulations or other
authorities to the activities contemplated by this Agreement.
4.6. DRAFTS OF FILINGS. The Trust and the Company shall provide to
each other copies of draft versions of any Registration Statements,
Prospectuses, Statements of Additional Information, periodic and other
shareholder or Contract Owner reports, proxy statements, solicitations for
voting instructions, applications for exemptions, requests for no-action
letters, and all amendments or supplements to any of the above, prepared by or
on behalf of either of them and that mentions the other party by name. Such
drafts shall be provided to the other party sufficiently in advance of filing
such materials with regulatory authorities in order to allow such other party a
reasonable opportunity to review the materials.
4.7. COPIES OF FILINGS. The Trust and the Company shall provide to
each other at least one complete copy of all Registration Statements,
Prospectuses, Statements of Additional Information, periodic and other
shareholder or Contract Owner reports, proxy statements, solicitations of
voting instructions, applications for exemptions, requests for no-action
letters, and all amendments or supplements to any of the above, that relate to
the Trust, the Contracts or the Account, as the case may be, promptly after the
filing by or on behalf of each such party of such document with the SEC or
other regulatory authorities (it being understood that this provision is not
intended to require the Trust to provide to the Company copies of any such
documents prepared, filed or used by Participating Investors other than the
Company and the Account).
4.8. REGULATORY RESPONSES. Each party shall promptly provide to
all other parties copies of responses to no-action requests, notices, orders
and other rulings received by such party with respect to any filing covered by
Section 4.7 of this Agreement.
4.9. COMPLAINTS AND PROCEEDINGS
(a) The Trust and/or the Distributor shall immediately
notify the Company of: (i) the issuance by any court or regulatory
body of any stop order, cease and desist order, or other similar order
(but not including an order of a regulatory body exempting or
approving a proposed transaction or arrangement) with respect to the
Trust's Registration Statement or the Prospectus of any Series or
Class; (ii) any request by the SEC for any amendment to the Trust's
Registration Statement or the Prospectus of any Series or Class; (iii)
the initiation of any proceedings for that purpose or for any other
purposes relating to the registration or offering of the Trust shares;
or (iv) any other action or circumstances that may prevent the lawful
offer or sale of Trust shares or any Class or Series in any state or
jurisdiction, including, without limitation, any circumstance in which
(A) such shares are not registered and, in all material respects,
issued and sold in accordance with applicable state and federal law or
(B) such law precludes the use of such shares as an underlying
investment medium for the Contracts. The Trust will make every
reasonable effort to prevent the issuance of any such stop order,
cease and desist order or similar
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order and, if any such order is issued, to obtain the lifting thereof
at the earliest possible time.
(b) The Company shall immediately notify the Trust and
the Distributor of: (i) the issuance by any court or regulatory body
of any stop order, cease and desist order, or other similar order (but
not including an order of a regulatory body exempting or approving a
proposed transaction or arrangement) with respect to the Contracts'
Registration Statement or the Contracts' Prospectus; (ii) any request
by the SEC for any amendment to the Contracts' Registration Statement
or Prospectus; (iii) the initiation of any proceedings for that
purpose or for any other purposes relating to the registration or
offering of the Contracts; or (iv) any other action or circumstances
that may prevent the lawful offer or sale of the Contracts or any
class of Contracts in any state or jurisdiction, including, without
limitation, any circumstance in which such Contracts are not
registered, qualified and approved, and, in all material respects,
issued and sold in accordance with applicable state and federal laws.
The Company will make every reasonable effort to prevent the issuance
of any such stop order, cease and desist order or similar order and,
if any such order is issued, to obtain the lifting thereof at the
earliest possible time.
(c) Each party shall immediately notify the other parties
when it receives notice, or otherwise becomes aware of, the
commencement of any litigation or proceeding against such party or a
person affiliated therewith in connection with the issuance or sale of
Trust shares or the Contracts.
(d) The Company shall provide to the Trust and the
Distributor any complaints it has received from Contract Owners
pertaining to the Trust or a Fund, and the Trust and Distributor shall
each provide to the Company any complaints it has received from
Contract Owners relating to the Contracts.
4.10. COOPERATION. Each party hereto shall cooperate with the other
parties and all appropriate government authorities (including without
limitation the SEC, the NASD and state securities and insurance regulators) and
shall permit such authorities reasonable access to its books and records in
connection with any investigation or inquiry by any such authority relating to
this Agreement or the transactions contemplated hereby. However, such access
shall not extend to attorney-client privileged information.
ARTICLE V
SALE, ADMINISTRATION AND SERVICING OF THE CONTRACTS
5.1. SALE OF THE CONTRACTS. The Company shall be fully responsible
as to the Trust and the Distributor for the sale and marketing of the
Contracts. The Company shall provide Contracts, the Contracts' and Trust's
Prospectuses, Contracts' and Trust's Statements of Additional Information, and
all amendments or supplements to any of the foregoing to Contract Owners and
prospective Contract Owners, all in accordance with federal and state laws.
The Company shall ensure that all persons offering the Contracts are duly
licensed and registered under applicable insurance and securities laws. The
Company shall ensure that each sale of a Contract satisfies applicable
suitability requirements under insurance and securities laws and regulations,
including without limitation the rules of the NASD. The Company shall adopt and
implement procedures reasonably designed to ensure that information concerning
the Trust and the Distributor that is intended for use only by brokers or
agents selling the Contracts (i.e., information that is not intended for
distribution to Contract Owners or offerees) is so used.
5.2. ADMINISTRATION AND SERVICING OF THE CONTRACTS. The Company
shall be fully responsible as to the Trust and the Distributor for the
underwriting, issuance, service and
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administration of the Contracts and for the administration of the Account,
including, without limitation, the calculation of performance information for
the Contracts, the timely payment of Contract Owner redemption requests and
processing of Contract transactions, and the maintenance of a service center,
such functions to be performed in all respects at a level commensurate with
those standards prevailing in the variable insurance industry. The Company
shall provide to Contract Owners all Trust reports, solicitations for voting
instructions including any related Trust proxy solicitation materials, and
updated Trust Prospectuses as required under the federal securities laws.
5.3. CUSTOMER COMPLAINTS. The Company shall promptly address all
customer complaints and resolve such complaints consistent with high ethical
standards and principles of ethical conduct.
5.4. TRUST PROSPECTUSES AND REPORTS. In order to enable the
Company to fulfill its obligations under this Agreement and the federal
securities laws, the Trust shall provide the Company with a copy, in
camera-ready form or form otherwise suitable for printing or duplication of:
(i) the Trust's Prospectus for the Series and Classes listed on Schedule 3 and
any supplement thereto; (ii) each Statement of Additional Information and any
supplement thereto; (iii) any Trust proxy soliciting material for such Series
or Classes; and (iv) any Trust periodic shareholder reports. The Trust and the
Company may agree upon alternate arrangements, but in all cases, the Trust
reserves the right to approve the printing of any such material. The Trust
shall provide the Company at least 10 days advance written notice when any such
material shall become available, provided, however, that in the case of a
supplement, the Trust shall provide the Company notice reasonable in the
circumstances, it being understood that circumstances surrounding such
supplement may not allow for advance notice. The Company may not alter any
material so provided by the Trust or the Distributor (including without
limitation presenting or delivering such material in a different medium, e.g.,
electronic or Internet) without the prior written consent of the Distributor.
5.5. TRUST ADVERTISING MATERIAL. No piece of advertising or sales
literature or other promotional material in which the Trust or the Distributor
is named (including, without limitation, material for prospects, existing
Contract Owners, brokers, rating or ranking agencies, or the press, whether in
print, radio, television, video, Internet, or other electronic medium) shall be
used by the Company or any person directly or indirectly authorized by the
Company, including without limitation, underwriters, distributors, and sellers
of the Contracts, except with the prior written consent of the Trust or the
Distributor, as applicable, as to the form, content and medium of such
material. Any such piece shall be furnished to the Trust for such consent
prior to its use. The Trust or the Distributor shall respond to any request
for written consent on a prompt and timely basis, but failure to respond shall
not relieve the Company of the obligation to obtain the prior written consent
of the Trust or the Distributor. After receiving the Trust's or Distributor's
consent to the use of any such material, no further changes may be made without
obtaining the Trust's or Distributor's consent to such changes. The Trust or
Distributor may at any time in its sole discretion revoke such written consent,
and upon notification of such revocation, the Company shall no longer use the
material subject to such revocation. Until further notice to the Company, the
Trust has delegated its rights and responsibilities under this provision to the
Distributor.
5.6. CONTRACTS ADVERTISING MATERIAL. No piece of advertising or
sales literature or other promotional material in which the Company is named
shall be used by the Trust or the Distributor, except with the prior written
consent of the Company. Any such piece shall be furnished to the Company for
such consent prior to its use. The Company shall respond to any request for
written consent on a prompt and timely basis, but failure to respond shall not
relieve the Company of the obligation to obtain the prior written consent of
the Company. The Company may at any time in its sole discretion revoke any
written consent, and upon notification
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of such revocation, neither the Trust nor the Distributor shall use the
material subject to such revocation. The Company, upon prior written notice to
the Trust, may delegate its rights and responsibilities under this provision to
the principal underwriter for the Contracts.
5.7. TRADE NAMES. No party shall use any other party's names,
logos, trademarks or service marks, whether registered or unregistered, without
the prior written consent of such other party, or after written consent
therefor has been revoked. The Company shall not use in advertising, publicity
or otherwise the name of the Trust, Distributor, or any of their affiliates nor
any trade name, trademark, trade device, service mark, symbol or any
abbreviation, contraction or simulation thereof of the Trust, Distributor, or
their affiliates without the prior written consent of the Trust or the
Distributor in each instance.
5.8. REPRESENTATIONS BY COMPANY. Except with the prior written
consent of the Trust, the Company shall not give any information or make any
representations or statements about the Trust or the Funds nor shall it
authorize or allow any other person to do so except information or
representations contained in the Trust's Registration Statement or the Trust's
Prospectuses or in reports or proxy statements for the Trust, or in sales
literature or other promotional material approved in writing by the Trust or
its designee in accordance with this Article V, or in published reports or
statements of the Trust in the public domain.
5.9. REPRESENTATIONS BY TRUST. Except with the prior written
consent of the Company, the Trust shall not give any information or make any
representations on behalf of the Company or concerning the Company, the Account
or the Contracts other than the information or representations contained in the
Contracts' Registration Statement or Contracts' Prospectus or in published
reports of the Account which are in the public domain or in sales literature or
other promotional material approved in writing by the Company in accordance
with this Article V.
5.10. ADVERTISING. For purposes of this Article V, the phrase
"sales literature or other promotional material" includes, but is not limited
to, any material constituting sales literature or advertising under the NASD
rules, the 1940 Act or the 1933 Act.
ARTICLE VI
COMPLIANCE WITH CODE
6.1. SECTION 817(h). Each Fund of the Trust shall comply with
Section 817(h) of the Code and the regulations issued thereunder to the extent
applicable to the Fund as an investment company underlying the Account, and the
Trust shall notify the Company immediately upon having a reasonable basis for
believing that a Fund has ceased to so qualify or that it might not so qualify
in the future.
6.2. SUBCHAPTER M. Each Fund of the Trust shall maintain the
qualification of the Fund as a registered investment company (under Subchapter
M or any successor or similar provision), and the Trust shall notify the
Company immediately upon having a reasonable basis for believing that a Fund
has ceased to so qualify or that it might not so qualify in the future.
6.3. CONTRACTS. The Company shall ensure the continued treatment
of the Contracts as annuity contracts or life insurance policies, whichever is
appropriate, under applicable provisions of the Code and shall notify the Trust
and the Distributor immediately upon having a reasonable basis for believing
that the Contracts have ceased to be so treated or that they might not be so
treated in the future.
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ARTICLE VII
EXPENSES
7.1. EXPENSES. All expenses incident to each party's performance
under this Agreement (including expenses expressly assumed by such party
pursuant to this Agreement) shall be paid by such party to the extent permitted
by law.
7.2. TRUST EXPENSES. Expenses incident to the Trust's performance
of its duties and obligations under this Agreement include, but are not limited
to, the costs of:
(a) registration and qualification of the Trust shares under the
federal securities laws;
(b) preparation and filing with the SEC of the Trust's
Prospectuses, Trust's Statement of Additional Information,
Trust's Registration Statement, Trust proxy materials and
shareholder reports, and preparation of a camera-ready copy of
the foregoing;
(c) preparation of all statements and notices required by any
Federal or state securities law;
(d) printing and mailing of all materials and reports required to
be provided by the Trust to its existing shareholders;
(e) all taxes on the issuance or transfer of Trust shares;
(f) payment of all applicable fees relating to the Trust,
including, without limitation, all fees due under Rule 24f-2
in connection with sales of Trust shares to qualified
retirement plans, custodial, auditing, transfer agent and
advisory fees, fees for insurance coverage and Trustees' fees;
and
(g) any expenses permitted to be paid or assumed by the Trust
pursuant to a plan, if any, under Rule 12b-1 under the 1940
Act.
7.3. COMPANY EXPENSES. Expenses incident to the Company's
performance of its duties and obligations under this Agreement include, but are
not limited to, the costs of:
(a) registration and qualification of the Contracts under the
federal securities laws;
(b) preparation and filing with the SEC of the Contracts'
Prospectus and Contracts' Registration Statement;
(c) the sale, marketing and distribution of the Contracts,
including printing and dissemination of Contracts' and the
Trust's Prospectuses and compensation for Contract sales;
(d) administration of the Contracts;
(e) solicitation of voting instructions with respect to Trust
proxy materials;
(f) payment of all applicable fees relating to the Contracts,
including, without limitation, all fees due under Rule 24f-2;
(g) preparation, printing and dissemination of all statements and
notices to Contract Owners required by any Federal or state
insurance law other than those paid for by the Trust; and
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(h) preparation, printing and dissemination of all marketing
materials for the Contracts and Trust except where other
arrangements are made in advance.
7.4. 12b-1 PAYMENTS. The Trust shall pay no fee or other
compensation to the Company under this Agreement, except that if the Trust or
any Series or Class adopts and implements a plan pursuant to Rule 12b-1 under
the 1940 Act to finance distribution expenses, then payments may be made to the
Company in accordance with such plan. The Trust currently does not intend to
make any payments to finance distribution expenses pursuant to Rule 12b-1 under
the 1940 Act or in contravention of such rule, although it may make payments
pursuant to Rule 12b-1 in the future. To the extent that it decides to finance
distribution expenses pursuant to Rule 12b-1 and such formulation is required
by the 1940 Act or any rules or order thereunder, the Trust undertakes to have
a Board of Trustees, a majority of whom are not interested persons of the
Trust, formulate and approve any plan under Rule 12b-1 to finance distribution
expenses.
ARTICLE VIII
POTENTIAL CONFLICTS
8.1. EXEMPTIVE ORDER. The parties to this Agreement acknowledge
that the Trust has filed an application with the SEC to request an order (the
"Exemptive Order") granting relief from various provisions of the 1940 Act and
the rules thereunder to the extent necessary to permit Trust shares to be sold
to and held by variable annuity and variable life insurance separate accounts
of both affiliated and unaffiliated Participating Insurance Companies and other
Qualified Persons (as defined in Section 2.8 hereof). It is anticipated that
the Exemptive Order, when and if issued, shall require the Trust and each
Participating Insurance Company to comply with conditions and undertakings
substantially as provided in this Article VIII. The Trust will not enter into
a participation agreement with any other Participating Insurance Company unless
it imposes the same conditions and undertakings on that company as are imposed
on the Company pursuant to this Article VIII.
8.2. COMPANY MONITORING REQUIREMENTS. The Company will monitor its
operations and those of the Trust for the purpose of identifying any material
irreconcilable conflicts or potential material irreconcilable conflicts between
or among the interests of Participating Plans, Product Owners of variable life
insurance policies and Product Owners of variable annuity contracts.
8.3. COMPANY REPORTING REQUIREMENTS. The Company shall report any
conflicts or potential conflicts to the Trust Board and will provide the Trust
Board, at least annually, with all information reasonably necessary for the
Trust Board to consider any issues raised by such existing or potential
conflicts or by the conditions and undertakings required by the Exemptive
Order. The Company also shall assist the Trust Board in carrying out its
obligations including, but not limited to: (a) informing the Trust Board
whenever it disregards Contract Owner voting instructions with respect to
variable life insurance policies, and (b) providing such other information and
reports as the Trust Board may reasonably request. The Company will carry out
these obligations with a view only to the interests of Contract Owners.
8.4. TRUST BOARD MONITORING AND DETERMINATION. The Trust Board
shall monitor the Trust for the existence of any material irreconcilable
conflicts between or among the interests of Participating Plans, Product Owners
of variable life insurance policies and Product Owners of variable annuity
contracts and determine what action, if any, should be taken in response to
those conflicts. A majority vote of Trustees who are not interested persons of
the Trust as defined in the 1940 Act (the "disinterested trustees") shall
represent a conclusive determination as to the existence of a material
irreconcilable conflict between or among the interests of Product Owners and
Participating Plans and as to whether any proposed action adequately remedies
any material
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irreconcilable conflict. The Trust Board shall give prompt written notice to
the Company and Participating Plan of any such determination.
8.5. UNDERTAKING TO RESOLVE CONFLICT. In the event that a material
irreconcilable conflict of interest arises between Product Owners of variable
life insurance policies or Product Owners of variable annuity contracts and
Participating Plans, the Company will, at its own expense, take whatever action
is necessary to remedy such conflict as it adversely affects Contract Owners up
to and including (1) establishing a new registered management investment
company, and (2) withdrawing assets from the Trust attributable to reserves for
the Contracts subject to the conflict and reinvesting such assets in a
different investment medium (including another Fund of the Trust) or submitting
the question of whether such withdrawal should be implemented to a vote of all
affected Contract Owners, and, as appropriate, segregating the assets
supporting the Contracts of any group of such owners that votes in favor of
such withdrawal, or offering to such owners the option of making such a change.
The Company will carry out the responsibility to take the foregoing action with
a view only to the interests of Contract Owners.
8.6. WITHDRAWAL. If a material irreconcilable conflict arises
because of the Company's decision to disregard the voting instructions of
Contract Owners of variable life insurance policies and that decision
represents a minority position or would preclude a majority vote at any Fund
shareholder meeting, then, at the request of the Trust Board, the Company will
redeem the shares of the Trust to which the disregarded voting instructions
relate. No charge or penalty, however, will be imposed in connection with such
a redemption.
8.7. EXPENSES ASSOCIATED WITH REMEDIAL ACTION. In no event shall
the Trust be required to bear the expense of establishing a new funding medium
for any Contract. The Company shall not be required by this Article to
establish a new funding medium for any Contract if an offer to do so has been
declined by vote of a majority of the Contract Owners materially adversely
affected by the irreconcilable material conflict.
8.8. SUCCESSOR RULES. If and to the extent that Rule 6e-2 and Rule
6e-3(T) are amended, or Rule 6e-3 is adopted, to provide exemptive relief from
any provisions of the 1940 Act or the rules promulgated thereunder with respect
to mixed and shared funding on terms and conditions materially different from
those contained in the Exemptive Order, then (i) the Trust and/or the Company,
as appropriate, shall take such steps as may be necessary to comply with Rules
6e-2 and 6e-3(T), as amended, or Rule 6e-3, as adopted, as applicable, to the
extent such rules are applicable, and (ii) Sections 8.2 through 8.5 of this
Agreement shall continue in effect only to the extent that terms and conditions
substantially identical to such Sections are contained in such Rule(s) as so
amended or adopted.
ARTICLE IX
INDEMNIFICATION
9.1. INDEMNIFICATION BY THE COMPANY. The Company hereby agrees to,
and shall, indemnify and hold harmless the Trust, the Distributor and each
person who controls or is affiliated with the Trust or the Distributor within
the meaning of such terms under the 1933 Act or 1940 Act (but not any
Participating Insurance Companies or Qualified Persons) and any officer,
trustee, partner, director, employee or agent of the foregoing, against any and
all losses, claims, damages or liabilities, joint or several (including any
investigative, legal and other expenses reasonably incurred in connection with,
and any amounts paid in settlement of, any action, suit or proceeding or any
claim asserted), to which they or any of them may become subject under any
statute or regulation, at common law or otherwise, insofar as such losses,
claims, damages or liabilities:
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(a) arise out of or are based upon any untrue statement of any
material fact contained in the Contracts Registration
Statement, Contracts Prospectus, sales literature or other
promotional material for the Contracts or the Contracts
themselves (or any amendment or supplement to any of the
foregoing), or arise out of or are based upon the omission to
state therein a material fact required to be stated therein or
necessary to make the statements therein not misleading in
light of the circumstances in which they were made; provided
that this obligation to indemnify shall not apply if such
statement or omission was made in reliance upon and in
conformity with information furnished in writing to the
Company by the Trust or the Distributor for use in the
Contracts Registration Statement, Contracts Prospectus or in
the Contracts or sales literature or promotional material for
the Contracts (or any amendment or supplement to any of the
foregoing) or otherwise for use in connection with the sale of
the Contracts or Trust shares; or
(b) arise out of any untrue statement of a material fact contained
in the Trust Registration Statement, any Prospectus for Series
or Classes or sales literature or other promotional material
of the Trust (or any amendment or supplement to any of the
foregoing), or the omission to state therein a material fact
required to be stated therein or necessary to make the
statements therein not misleading in light of the
circumstances in which they were made, if such statement or
omission was made in reliance upon and in conformity with
information furnished to the Trust or Distributor in writing
by or on behalf of the Company; or
(c) arise out of or are based upon any wrongful conduct of, or
violation of federal or state law by, the Company or persons
under its control or subject to its authorization, including
without limitation, any broker-dealers or agents authorized to
sell the Contracts, with respect to the sale, marketing or
distribution of the Contracts or Trust shares, including,
without limitation, any impermissible use of broker-only
material, unsuitable or improper sales of the Contracts or
unauthorized representations about the Contracts or the Trust;
or
(d) arise as a result of any failure by the Company or persons
under its control (or subject to its authorization) to provide
services, furnish materials or make payments as required under
this Agreement; or
(e) arise out of any material breach by the Company or persons
under its control (or subject to its authorization) of this
Agreement; or
(f) any breach of any warranties contained in Article III hereof,
any failure to transmit a request for redemption or purchase
of Trust shares or payment therefor on a timely basis in
accordance with the procedures set forth in Article II, or any
unauthorized use of the names or trade names of the Trust or
the Distributor.
This indemnification is in addition to any liability that the Company may
otherwise have; provided, however, that no party shall be entitled to
indemnification if such loss, claim, damage or liability is caused by the
wilful misfeasance, bad faith, gross negligence or reckless disregard of duty
by the party seeking indemnification.
9.2. INDEMNIFICATION BY THE TRUST. The Trust hereby agrees to, and
shall, indemnify and hold harmless the Company and each person who controls or
is affiliated with the Company within the meaning of such terms under the 1933
Act or 1940 Act and any officer, director, employee or agent of the foregoing,
against any and all losses, claims, damages or liabilities, joint or several
(including any investigative, legal and other expenses reasonably incurred in
connection with, and any amounts paid in settlement of, any action, suit or
proceeding or any
15
<PAGE> 16
claim asserted), to which they or any of them may become subject under any
statute or regulation, at common law or otherwise, insofar as such losses,
claims, damages or liabilities:
(a) arise out of or are based upon any untrue statement of any
material fact contained in the Trust Registration Statement,
any Prospectus for Series or Classes or sales literature or
other promotional material of the Trust (or any amendment or
supplement to any of the foregoing), or arise out of or are
based upon the omission to state therein a material fact
required to be stated therein or necessary to make the
statements therein not misleading in light of the
circumstances in which they were made; provided that this
obligation to indemnify shall not apply if such statement or
omission was made in reliance upon and in conformity with
information furnished in writing by the Company to the Trust
or the Distributor for use in the Trust Registration
Statement, Trust Prospectus or sales literature or promotional
material for the Trust (or any amendment or supplement to any
of the foregoing) or otherwise for use in connection with the
sale of the Contracts or Trust shares; or
(b) arise out of any untrue statement of a material fact contained
in the Contracts Registration Statement, Contracts Prospectus
or sales literature or other promotional material for the
Contracts (or any amendment or supplement to any of the
foregoing), or the omission to state therein a material fact
required to be stated therein or necessary to make the
statements therein not misleading in light of the
circumstances in which they were made, if such statement or
omission was made in reliance upon information furnished in
writing by the Trust to the Company; or
(c) arise out of or are based upon wrongful conduct of the Trust
or its Trustees or officers with respect to the sale of Trust
shares; or
(d) arise as a result of any failure by the Trust to provide
services, furnish materials or make payments as required under
the terms of this Agreement; or
(e) arise out of any material breach by the Trust of this
Agreement (including any breach of Section 6.1 of this
Agreement and any warranties contained in Article III hereof);
it being understood that in no way shall the Trust be liable to the Company
with respect to any violation of insurance law, compliance with which is a
responsibility of the Company under this Agreement or otherwise or as to which
the Company failed to inform the Trust in accordance with Section 4.4 hereof.
This indemnification is in addition to any liability that the Trust may
otherwise have; provided, however, that no party shall be entitled to
indemnification if such loss, claim, damage or liability is caused by the
wilful misfeasance, bad faith, gross negligence or reckless disregard of duty
by the party seeking indemnification.
9.3. INDEMNIFICATION BY THE DISTRIBUTOR. The Distributor hereby
agrees to, and shall, indemnify and hold harmless the Company and each person
who controls or is affiliated with the Company within the meaning of such terms
under the 1933 Act or 1940 Act and any officer, director, employee or agent of
the foregoing, against any and all losses, claims, damages or liabilities,
joint or several (including any investigative, legal and other expenses
reasonably incurred in connection with, and any amounts paid in settlement of,
any action, suit or proceeding or any claim asserted), to which they or any of
them may become subject under any statute or regulation, at common law or
otherwise, insofar as such losses, claims, damages or liabilities:
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<PAGE> 17
(a) arise out of or are based upon any untrue statement of any
material fact contained in the Trust Registration Statement,
any Prospectus for Series or Classes or sales literature or
other promotional material of the Trust (or any amendment or
supplement to any of the foregoing), or arise out of or are
based upon the omission to state therein a material fact
required to be stated therein or necessary to make the
statements therein not misleading in light of the
circumstances in which they were made; provided that this
obligation to indemnify shall not apply if such statement or
omission was made in reliance upon and in conformity with
information furnished in writing by the Company to the Trust
or Distributor for use in the Trust Registration Statement,
Trust Prospectus or sales literature or promotional material
for the Trust (or any amendment or supplement to any of the
foregoing) or otherwise for use in connection with the sale of
the Contracts or Trust shares; or
(b) arise out of any untrue statement of a material fact contained
in the Contracts Registration Statement, Contracts Prospectus
or sales literature or other promotional material for the
Contracts (or any amendment or supplement to any of the
foregoing), or the omission to state therein a material fact
required to be stated therein or necessary to make the
statements therein not misleading in light of the
circumstances in which they were made, if such statement or
omission was made in reliance upon information furnished in
writing by the Distributor to the Company; or
(c) arise out of or are based upon wrongful conduct of the
Distributor or persons under its control with respect to the
sale of Trust shares; or
(d) arise as a result of any failure by the Distributor or persons
under its control to provide services, furnish materials or
make payments as required under the terms of this Agreement;
or
(e) arise out of any material breach by the Distributor or persons
under its control of this Agreement (including any breach of
Section 6.1 of this Agreement and any warranties contained in
Article III hereof);
it being understood that in no way shall the Distributor be liable to the
Company with respect to any violation of insurance law, compliance with which
is a responsibility of the Company under this Agreement or otherwise or as to
which the Company failed to inform the Distributor in accordance with Section
4.4 hereof. This indemnification is in addition to any liability that the
Distributor may otherwise have; provided, however, that no party shall be
entitled to indemnification if such loss, claim, damage or liability is caused
by the wilful misfeasance, bad faith, gross negligence or reckless disregard of
duty by the party seeking indemnification.
9.4. RULE OF CONSTRUCTION. It is the parties' intention that, in
the event of an occurrence for which the Trust has agreed to indemnify the
Company, the Company shall seek indemnification from the Trust only in
circumstances in which the Trust is entitled to seek indemnification from a
third party with respect to the same event or cause thereof.
9.5. INDEMNIFICATION PROCEDURES. After receipt by a party entitled
to indemnification ("indemnified party") under this Article IX of notice of the
commencement of any action, if a claim in respect thereof is to be made by the
indemnified party against any person obligated to provide indemnification under
this Article IX ("indemnifying party"), such indemnified party will notify the
indemnifying party in writing of the commencement thereof as soon as
practicable thereafter, provided that the omission to so notify the
indemnifying party will not relieve it from any liability under this Article
IX, except to the extent that the omission results in a failure of
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actual notice to the indemnifying party and such indemnifying party is damaged
solely as a result of the failure to give such notice. The indemnifying party,
upon the request of the indemnified party, shall retain counsel reasonably
satisfactory to the indemnified party to represent the indemnified party and
any others the indemnifying party may designate in such proceeding and shall
pay the reasonable fees and disbursements of such counsel related to such
proceeding. In any such proceeding, any indemnified party shall have the right
to retain its own counsel, but the fees and expenses of such counsel shall be
at the expense of such indemnified party unless (i) the indemnifying party and
the indemnified party shall have mutually agreed to the retention of such
counsel or (ii) the named parties to any such proceeding (including any
impleaded parties) include both the indemnifying party and the indemnified
party and representation of both parties by the same counsel would be
inappropriate due to actual or potential differing interests between them. The
indemnifying party shall not be liable for any settlement of any proceeding
effected without its written consent but if settled with such consent or if
there be a final judgment for the plaintiff, the indemnifying party agrees to
indemnify the indemnified party from and against any loss or liability by
reason of such settlement or judgment.
A successor by law of the parties to this Agreement shall be entitled
to the benefits of the indemnification contained in this Article IX. The
indemnification provisions contained in this Article IX shall survive any
termination of this Agreement.
ARTICLE X
RELATIONSHIP OF THE PARTIES; TERMINATION
10.1. RELATIONSHIP OF PARTIES. The Company is to be an independent
contractor vis-a-vis the Trust, the Distributor, or any of their affiliates for
all purposes hereunder and will have no authority to act for or represent any
of them (except to the limited extent the Company acts as agent of the Trust
pursuant to Section 2.3(a) of this Agreement). In addition, no officer or
employee of the Company will be deemed to be an employee or agent of the Trust,
Distributor, or any of their affiliates. The Company will not act as an
"underwriter" or "distributor" of the Trust, as those terms variously are used
in the 1940 Act, the 1933 Act, and rules and regulations promulgated
thereunder.
10.2. NON-EXCLUSIVITY AND NON-INTERFERENCE. The parties hereto
acknowledge that the arrangement contemplated by this Agreement is not
exclusive; the Trust shares may be sold to other insurance companies and
investors (subject to Section 2.8 hereof) and the cash value of the Contracts
may be invested in other investment companies, provided, however, that until
this Agreement is terminated pursuant to this Article X:
(a) the Company shall promote the Trust and the Funds made
available hereunder on the same basis as other funding
vehicles available under the Contracts;
(b) the Company shall not, without prior notice to the Distributor
(unless otherwise required by applicable law), take any action
to operate the Account as a management investment company
under the 1940 Act;
(c) the Company shall not, without the prior written consent of
the Distributor (unless otherwise required by applicable law),
solicit, induce or encourage Contract Owners to change or
modify the Trust to change the Trust's distributor or
investment adviser, to transfer or withdraw Contract Values
allocated to a Fund, or to exchange their Contracts for
contracts not allowing for investment in the Trust;
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(d) the Company shall not substitute another investment company
for one or more Funds without providing written notice to the
Distributor at least 60 days in advance of effecting any such
substitution; and
(e) the Company shall not withdraw the Account's investment in the
Trust or a Fund of the Trust except as necessary to facilitate
Contract Owner requests and routine Contract processing.
10.3. TERMINATION OF AGREEMENT. This Agreement shall not terminate
until (i) the Trust is dissolved, liquidated, or merged into another entity, or
(ii) as to any Fund that has been made available hereunder, the Account no
longer invests in that Fund and the Company has confirmed in writing to the
Distributor, if so requested by the Distributor, that it no longer intends to
invest in such Fund. However, certain obligations of, or restrictions on, the
parties to this Agreement may terminate as provided in Sections 10.4 through
10.6 and the Company may be required to redeem Trust shares pursuant to Section
10.7 or in the circumstances contemplated by Article VIII. Article IX and
Sections 5.7, 10.8 and 10.9 shall survive any termination of this Agreement.
10.4. TERMINATION OF OFFERING OF TRUST SHARES. The obligation of
the Trust and the Distributor to make Trust shares available to the Company for
purchase pursuant to Article II of this Agreement shall terminate at the option
of the Distributor upon written notice to the Company as provided below:
(a) upon institution of formal proceedings against the Company, or
the Distributor's reasonable determination that institution of
such proceedings is being considered by the NASD, the SEC, the
insurance commission of any state or any other regulatory body
regarding the Company's duties under this Agreement or related
to the sale of the Contracts, the operation of the Account,
the administration of the Contracts or the purchase of Trust
shares, or an expected or anticipated ruling, judgment or
outcome which would, in the Distributor's reasonable judgment
exercised in good faith, materially impair the Company's or
Trust's ability to meet and perform the Company's or Trust's
obligations and duties hereunder, such termination effective
upon 15 days prior written notice;
(b) in the event any of the Contracts are not registered, issued
or sold in accordance with applicable federal and/or state
law, such termination effective immediately upon receipt of
written notice;
(c) if the Distributor shall determine, in its sole judgment
exercised in good faith, that either (1) the Company shall
have suffered a material adverse change in its business or
financial condition or (2) the Company shall have been the
subject of material adverse publicity which is likely to have
a material adverse impact upon the business and operations of
either the Trust or the Distributor, such termination
effective upon 30 days prior written notice;
(d) if the Distributor suspends or terminates the offering of
Trust shares of any Series or Class to all Participating
Investors or only designated Participating Investors, if such
action is required by law or by regulatory authorities having
jurisdiction or if, in the sole discretion of the Distributor
acting in good faith, suspension or termination is necessary
in the best interests of the shareholders of any Series or
Class (it being understood that "shareholders" for this
purpose shall mean Product Owners), such notice effective
immediately upon receipt of written notice, it being
understood that a lack of Participating Investor interest in a
Series or Class
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may be grounds for a suspension or termination as to such
Series or Class and that a suspension or termination shall
apply only to the specified Series or Class;
(e) upon the Company's assignment of this Agreement (including,
without limitation, any transfer of the Contracts or the
Account to another insurance company pursuant to an assumption
reinsurance agreement) unless the Trust consents thereto, such
termination effective upon 30 days prior written notice;
(f) if the Company is in material breach of any provision of this
Agreement, which breach has not been cured to the satisfaction
of the Trust within 10 days after written notice of such
breach has been delivered to the Company, such termination
effective upon expiration of such 10-day period;
(g) upon the determination of the Trust s Board to dissolve,
liquidate or merge the Trust as contemplated by Section
10.3(i), upon termination of the Agreement pursuant to Section
10.3(ii), or upon notice from the Company pursuant to Section
10.5 or 10.6, such termination pursuant hereto to be effective
upon 15 days prior written notice; or
(h) at any time more than 18 months after the date of this
Agreement, upon six months prior written notice.
Except in the case of an option exercised under clause (b), (d) or (g), the
obligations shall terminate only as to new Contracts and the Distributor shall
continue to make Trust shares available to the extent necessary to permit
owners of Contracts in effect on the effective date of such termination
(hereinafter referred to as "Existing Contracts") to reallocate investments in
the Trust, redeem investments in the Trust and/or invest in the Trust upon the
making of additional purchase payments under the Existing Contracts.
10.5. TERMINATION OF INVESTMENT IN A FUND. The Company may elect to
cease investing in a Fund, promoting a Fund as an investment option under the
Contracts, or withdraw its investment or the Account's investment in a Fund,
subject to compliance with applicable law, upon written notice to the Trust
within 15 days of the occurrence of any of the following events (unless
provided otherwise below):
(a) if the Trust informs the Company pursuant to Section 4.4 that
it will not cause such Fund to comply with investment
restrictions as requested by the Company and the Trust and the
Company are unable to agree upon any reasonable alternative
accommodations;
(b) if shares in such Fund are not reasonably available to meet
the requirements of the Contracts as determined by the Company
(including any non-availability as a result of notice given by
the Distributor pursuant to Section 10.4(d)), and the
Distributor, after receiving written notice from the Company
of such non-availability, fails to make available, within 10
days after receipt of such notice, a sufficient number of
shares in such Fund or an alternate Fund to meet the
requirements of the Contracts; or
(c) if such Fund fails to meet the diversification requirements
specified in Section 817(h) of the Code and any regulations
thereunder and the Trust, upon written request, fails to
provide reasonable assurance that it will take action to cure
or correct such failure;
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Such termination shall apply only as to the affected Fund and shall not apply
to any other Fund in which the Company or the Account invests.
10.6. TERMINATION OF INVESTMENT BY THE COMPANY. The Company may
elect to cease investing in all Series or Classes of the Trust made available
hereunder, promoting the Trust as an investment option under the Contracts, or
withdraw its investment or the Account s investment in the Trust, subject to
compliance with applicable law, upon written notice to the Trust within 15 days
of the occurrence of any of the following events (unless provided otherwise
below):
(a) upon institution of formal proceedings against the Trust or
the Distributor (but only with regard to the Trust) by the
NASD, the SEC or any state securities or insurance commission
or any other regulatory body;
(b) if, with respect to the Trust or a Fund, the Trust or the Fund
ceases to qualify as a regulated investment company under
Subchapter M of the Code, as defined therein, or any successor
or similar provision, or if the Company reasonably believes
that the Trust may fail to so qualify, and the Trust, upon
written request, fails to provide reasonable assurance that it
will take action to cure or correct such failure within 30
days;
(c) if the Trust or Distributor is in material breach of a
provision of this Agreement, which breach has not been cured
to the satisfaction of the Company within 10 days after
written notice of such breach has been delivered to the Trust
or the Distributor, as the case may be; or
(d) at any time more than 18 months after the date of this
Agreement, upon six months prior written notice.
10.7. COMPANY REQUIRED TO REDEEM. The parties understand and
acknowledge that it is essential for compliance with Section 817(h) of the Code
that the Contracts qualify as annuity contracts or life insurance policies, as
applicable, under the Code. Accordingly, if any of the Contracts cease to
qualify as annuity contracts or life insurance policies, as applicable, under
the Code, or if the Trust reasonably believes that any such Contracts may fail
to so qualify, the Trust shall have the right to require the Company to redeem
Trust shares attributable to such Contracts upon notice to the Company and the
Company shall so redeem such Trust shares in order to ensure that the Trust
complies with the provisions of Section 817(h) of the Code applicable to
ownership of Trust shares. Notice to the Company shall specify the period of
time the Company has to redeem the Trust shares or to make other arrangements
satisfactory to the Trust and its counsel, such period of time to be determined
with reference to the requirements of Section 817(h) of the Code. In addition,
the Company may be required to redeem Trust shares pursuant to action taken or
request made by the Trust Board in accordance with the Exemptive Order
described in Article VIII or any conditions or undertakings set forth or
referenced therein, or other SEC rule, regulation or order that may be adopted
after the date hereof. The Company agrees to redeem shares in the
circumstances described herein and to comply with applicable terms and
provisions. Also, in the event that the Distributor suspends or terminates
the offering of a Series or Class pursuant to Section 10.4(d) of this
Agreement, the Company, upon request by the Distributor, will cooperate in
taking appropriate action to withdraw the Account's investment in the
respective Fund.
10.8. MINIMUM INVESTMENT. The Company acknowledges its intention to
make the selected Funds of the Trust available under the Contracts for a
significant period of time and acknowledges further that a termination of this
Agreement or the availability of a Fund would prevent the Trust from
benefitting from the anticipated economies of scale and the Distributor
21
<PAGE> 22
from recovering its up-front costs in establishing the systems and interface
required under the terms of this Agreement. Accordingly, in the event that the
Company withdraws all or substantially all of its investment in the Trust or a
Fund less than two years after the initial investment in the Trust or Fund
(other than in response to actions by the Distributor pursuant to Section
10.4(d) of this Agreement), the Company, upon request, shall reimburse the
Distributor for reasonably identifiable costs attributable to the start-up of
the Trust or Fund, as applicable, and establishing the systems and interface
contemplated by this Agreement.
10.9. CONFIDENTIALITY. The Company will keep confidential any
information acquired as a result of this Agreement regarding the business and
affairs of the Trust, the Distributor, and their affiliates.
ARTICLE XI
APPLICABILITY TO NEW ACCOUNTS AND NEW CONTRACTS
The parties to this Agreement may amend the schedules to this
Agreement from time to time to reflect, as appropriate, changes in or relating
to the Contracts, any Series or Class, additions of new classes of Contracts to
be issued by the Company and separate accounts therefor investing in the Trust.
Such amendments may be made effective by executing the form of amendment
included on each schedule attached hereto. The provisions of this Agreement
shall be equally applicable to each such class of Contracts, Series, Class or
separate account, as applicable, effective as of the date of amendment of such
Schedule, unless the context otherwise requires. The parties to this Agreement
may amend this Agreement from time to time by written agreement signed by all
of the parties.
ARTICLE XII
NOTICE, REQUEST OR CONSENT
Any notice, request or consent to be provided pursuant to this
Agreement is to be made in writing and shall be given:
If to the Trust:
Douglas C. Grip
President
Goldman Sachs Variable Insurance Trust
One New York Plaza
New York, NY 10004
If to the Distributor:
Douglas C. Grip
Vice President
Goldman Sachs & Co.
One New York Plaza
New York, NY 10004
If to the Company:
D. Russell Morgan
Counsel
National Life Insurance Company
One National Life Drive
Montpelier, Vermont 05604
or at such other address as such party may from time to time specify in writing
to the other party. Each such notice, request or consent to a party shall be
sent by registered or certified United
22
<PAGE> 23
States mail with return receipt requested or by overnight delivery with a
nationally recognized courier, and shall be effective upon receipt. Notices
pursuant to the provisions of Article II may be sent by facsimile to the person
designated in writing for such notices.
ARTICLE XIII
MISCELLANEOUS
13.1. INTERPRETATION. This Agreement shall be construed and the
provisions hereof interpreted under and in accordance with the laws of the
state of Delaware, without giving effect to the principles of conflicts of
laws, subject to the following rules:
(a) This Agreement shall be subject to the provisions of the 1933
Act, 1940 Act and Securities Exchange Act of 1934, as amended,
and the rules, regulations and rulings thereunder, including
such exemptions from those statutes, rules, and regulations as
the SEC may grant, and the terms hereof shall be limited,
interpreted and construed in accordance therewith.
(b) The captions in this Agreement are included for convenience of
reference only and in no way define or delineate any of the
provisions hereof or otherwise affect their construction or
effect.
(c) If any provision of this Agreement shall be held or made
invalid by a court decision, statute, rule or otherwise, the
remainder of the Agreement shall not be affected thereby.
(d) The rights, remedies and obligations contained in this
Agreement are cumulative and are in addition to any and all
rights, remedies and obligations, at law or in equity, which
the parties hereto are entitled to under state and federal
laws.
13.2. COUNTERPARTS. This Agreement may be executed simultaneously
in two or more counterparts, each of which together shall constitute one and
the same instrument.
13.3. NO ASSIGNMENT. Neither this Agreement nor any of the rights
and obligations hereunder may be assigned by the Company, the Distributor or
the Trust without the prior written consent of the other parties.
13.4. DECLARATION OF TRUST. A copy of the Declaration of Trust of
the Trust is on file with the Secretary of State of the state of Delaware, and
notice is hereby given that this instrument is executed on behalf of the
Trustees of the Trust as trustees, and is not binding upon any of the Trustees,
officers or shareholders of the Trust individually, but binding only upon the
assets and property of the Trust. No Series of the Trust shall be liable for
the obligations of any other Series of the Trust.
23
<PAGE> 24
IN WITNESS WHEREOF, each of the parties hereto has caused this
Agreement to be executed in its name and behalf by its duly authorized officer
on the date specified below.
<TABLE>
<S> <C>
GOLDMAN SACHS VARIABLE INSURANCE TRUST
(Trust)
Date: By:
------------------- ---------------------------------------------------
Name:
Title:
GOLDMAN, SACHS & CO.
(Distributor)
Date: By:
------------------- ---------------------------------------------------
Name:
Title:
NATIONAL LIFE INSURANCE COMPANY
(Company)
Date: By:
------------------- ---------------------------------------------------
Name:
Title:
</TABLE>
24
<PAGE> 25
SCHEDULE 1
Accounts of the Company
Investing in the Trust
Effective as of the date the Agreement was executed, the following separate
accounts of the Company are subject to the Agreement:
<TABLE>
<CAPTION>
==============================================================================================================
Date Established by
Name of Account and Board of Directors of the SEC 1940 Act Registration Type of Product
Subaccounts Company Number Supported by Account
==============================================================================================================
<S> <C> <C> <C>
National Variable Life
Insurance Account February 1, 1985 811-9044 Variable Life
- --------------------------------------------------------------------------------------------------------------
- --------------------------------------------------------------------------------------------------------------
- --------------------------------------------------------------------------------------------------------------
==============================================================================================================
</TABLE>
[Form of Amendment to Schedule 1]
Effective as of_____________ , the following separate accounts of the Company
are hereby added to this Schedule 1 and made subject to the Agreement:
<TABLE>
<CAPTION>
==============================================================================================================
Date Established by
Name of Account and Board of Directors of the SEC 1940 Act Registration Type of Product
Subaccounts Company Number Supported by Account
==============================================================================================================
<S> <C> <C> <C>
- --------------------------------------------------------------------------------------------------------------
- --------------------------------------------------------------------------------------------------------------
- --------------------------------------------------------------------------------------------------------------
==============================================================================================================
</TABLE>
IN WITNESS WHEREOF, the Trust, the Distributor and the Company hereby amend
this Schedule 1 in accordance with Article XI of the Agreement.
<TABLE>
<S> <C>
- --------------------------------------------------- ---------------------------------------------------
Goldman Sachs Variable Insurance Trust National Life Insurance Company
- ---------------------------------------------------
Goldman, Sachs & Co.
</TABLE>
25
<PAGE> 26
SCHEDULE 2
Classes of Contracts
Supported by Separate Accounts
Listed on Schedule 1
Effective as of the date the Agreement was executed, the following classes of
Contracts are subject to the Agreement:
<TABLE>
<CAPTION>
==============================================================================================================
SEC 1933 Act Registration
Policy Marketing Name Number Contract Form Number Annuity or Life
==============================================================================================================
<S> <C> <C> <C>
Sentinel Estate Provider Variable Life
- --------------------------------------------------------------------------------------------------------------
- --------------------------------------------------------------------------------------------------------------
- --------------------------------------------------------------------------------------------------------------
==============================================================================================================
</TABLE>
[Form of Amendment to Schedule 2]
Effective as of _______, the following classes of Contracts are hereby added to
this Schedule 2 and made subject to the Agreement:
<TABLE>
<CAPTION>
==============================================================================================================
SEC 1933 Act
Policy Marketing Name Registration Number Contract Form Number Annuity or Life
==============================================================================================================
<S> <C> <C> <C>
- --------------------------------------------------------------------------------------------------------------
- --------------------------------------------------------------------------------------------------------------
- --------------------------------------------------------------------------------------------------------------
==============================================================================================================
</TABLE>
IN WITNESS WHEREOF, the Trust, the Distributor and the Company hereby amend
this Schedule 2 in accordance with Article XI of the Agreement.
<TABLE>
<S> <C>
- --------------------------------------------------- ---------------------------------------------------
Goldman Sachs Variable Insurance Trust National Life Insurance Company
- ---------------------------------------------------
Goldman, Sachs & Co.
</TABLE>
26
<PAGE> 27
SCHEDULE 3
Trust Classes and Series
Available Under
Each Class of Contracts
Effective as of the date the Agreement was executed, the following Trust
Classes and Series are available under the Contracts:
<TABLE>
<CAPTION>
==================================================================================
Contracts Marketing Name Trust Classes and Series
==================================================================================
<S> <C>
Sentinel Estate Provider International Equity Fund
Global Income Fund
CORE Small Cap Equity Fund
Mid Cap Equity Fund
----------------------------------------------------------------------------------
----------------------------------------------------------------------------------
----------------------------------------------------------------------------------
==================================================================================
</TABLE>
[Form of Amendment to Schedule 3]
Effective as of __________________, this Schedule 3 is hereby amended to
reflect the following changes in Trust Classes and Series:
<TABLE>
<CAPTION>
==================================================================================
Contracts Marketing Name Trust Classes and Series
==================================================================================
<S> <C>
----------------------------------------------------------------------------------
----------------------------------------------------------------------------------
----------------------------------------------------------------------------------
==================================================================================
</TABLE>
IN WITNESS WHEREOF, the Trust, the Distributor and the Company hereby amend
this Schedule 3 in accordance with Article XI of the Agreement.
<TABLE>
<S> <C>
- --------------------------------------------------- ---------------------------------------------------
Goldman Sachs Variable Insurance Trust National Life Insurance Company
- ---------------------------------------------------
Goldman, Sachs & Co.
</TABLE>
27
<PAGE> 28
SCHEDULE 4
Investment Restrictions
Applicable to the Trust
Effective as of the date the Agreement was executed, the following investment
restrictions are applicable to the Trust:
[Form of Amendment to Schedule 4]
Effective as of ___________________, this Schedule 4 is hereby amended to
reflect the following changes:
IN WITNESS WHEREOF, the Trust, the Distributor and the Company hereby amend
this Schedule 4 in accordance with Article XI of the Agreement.
<TABLE>
<S> <C>
- --------------------------------------------------- ---------------------------------------------------
Goldman Sachs Variable Insurance Trust National Life Insurance Company
- ---------------------------------------------------
Goldman, Sachs & Co.
</TABLE>
28
<PAGE> 1
EXHIBIT 1.A.10
<TABLE>
<CAPTION>
[LOGO] NATIONAL LIFE National Life Insurance Company
OF VERMONT Montpelier, Vermont 05604 JOINT LIFE INSURANCE
Tel: 802 229-3333 APPLICATION - PART A
====================================================================================================================================
Read instructions before completing this application. Check the appropriate use of this application:
[ ] Life Application [ ] Qualified Retirement Plan - Code:
- ------------------------------------------------------------------------------------------------------------------------------------
Agency/Branch Name and Number: Policy Number:
====================================================================================================================================
<S> <C>
A-1. PRIMARY INSURED INFORMATION
1.1. Name: (Print first, middle, last) 1-10. Smoker Status: Does the First Proposed Insured now
use nicotine products in any form (including
------------------------------------------------------ cigarettes, cigars, chewing tobacco, smokeless
1.2. Social Security Number: tobacco, pipe, "the patch", snuff or nicotine gum)
or has the First Proposed Insured used nicotine
------------------------------------------------------ products in any form within the last 12 months?
1.3. Birthdate: (mm/dd/yyyy) [ ] Yes [ ] No
If 'Yes,' details:
------------------------------------------------------
1.4. Birthplace: (State or Foreign Country)
------------------------------------------------------
1.5. Sex: [ ] Male [ ] Female
------------------------------------------------------
1.6. Issue Policy at age: 1-11. Have you ever applied for life, health or disability
insurance or reinstatement of life, health or
------------------------------------------------------ disability insurance which was declined, postponed,
1-7. Residence Address: (Give street and number, city rated or modified in any way? [ ] Yes [ ] No
or town, state and zip code.) If 'Yes,' details:
------------------------------------------------------
1-8. In case further information is required please give
residence telephone number and best time of day to ----------------------------------------------------
call: 1-12. Are you or do you have any intention of becoming
a member of a military organization? [ ] Yes [ ] No
------------------------------------------------------ If 'Yes,' details:
1-9. Employment Information:
a. Employer:
----------------------------------------------------
b. Kind of Business: 1-13. a. Driver's License Number:
-------------------------
c. Business Address: b. State Licensed in:
-------------------------------
c. Have you had any moving vehicle violations or had
d. How long employed by present employer: your motor vehicle driving license suspended or
revoked during the last three years or have you
been convicted of Driving Under the Influence
e. Occupation: during the last five years? [ ] Yes [ ] No
If 'Yes,' details:
f. Specific duties:
g. Length of time in present position:
-----------------------------------------------------
h. Any change contemplated? [ ] Yes [ ] No 1-14. In the past six months have there been or are
If 'Yes', details: there now pending other negotiations for life or
disability insurance? [ ] Yes [ ] No
i. Is the First Proposed Insured actively at work at the If 'Yes,' list companies, amount, purpose and
customary workplace and actually doing the total amount to be purchased.
usual duties and functions required by the
position during the normal work hours and
weekly period? [ ] Yes [ ] No
If 'No,' details:
j. In case further information is required please give
business telephone number and best time of day to call:
====================================================================================================================================
</TABLE>
7500(0298)A Page 1 of 9
Cat. No. 45268
<PAGE> 2
<TABLE>
<CAPTION>
JOINT LIFE INSURANCE APPLICATION - PART A - Continued
====================================================================================================================================
<S> <C>
A-1. FIRST PROPOSED INSURED INFORMATION - Continued (The Agent will provide you with any Replacement
(If 'Yes', is selected for questions 1-15, 1-16 or 1- 17, forms required by law or National Life.)
complete form 1480, Avocation, Aviation & Foreign 1-19. Has there been or will there be a lapse,
Travel Supplemental Application.) surrender, replacement, reissue, conversion,
or change to reduce amount, premium or period of
1-15. Have you within the last three years participated in coverage of any existing life, disability or
or do you intend to participate in any motor powered annuity contract if the applied for policy or
racing, scuba, skin or sky diving, rodeos, hang rider is issued? [ ] Yes [ ] No
gliding, or any other avocation generally considered If 'Yes,' list Company Name(s) and Policy
hazardous? [ ] Yes [ ] No Number(s):
------------------------------------------------------------
1-16. Have you within the last three years been or do you have
any intention of becoming a pilot, student pilot or crew
member of any type of aircraft? [ ] Yes [ ] No
------------------------------------------------------------ ------------------------------------------------------
1-17. Do you intend to travel or reside outside the USA for 1-20. Will there be any substantial borrowing on any life
more than two weeks in a year? [ ] Yes [ ] No insurance policy if the applied for policy or rider
------------------------------------------------------------ is issued? [ ] Yes [ ] No
1-18. Are there any insolvency or bankruptcy proceedings If 'Yes,' list Company Name(s) and Policy Number(s):
now pending against the First Proposed Insured, or has
there been any such proceedings during the last
seven years? [ ] Yes [ ] No
If "yes," give details:
------------------------------------------------------------------------------------------------------------------------------
1-21. LIFE INSURANCE IN FORCE ON LIFE OF FIRST PROPOSED INSURED: Indicate Type of Insurance: B = Business, G = Group,
P = Personal. MUST indicate 'None,' if no insurance.
<CAPTION>
<S> <C> <C> <C> <C> <C> <C>
Total Coverage
Total Amount Protected by Total Accidental Date of Paid to
Company Name: Type: Life Insurance: Waiver of Premiums: Death Benefit: Issue: Date:
$ $ $
- ------------------------------------------------------------------------------------------------------------------------------------
====================================================================================================================================
</TABLE>
7500(0298)A Page 2 of 9
<PAGE> 3
<TABLE>
<CAPTION>
JOINT LIFE INSURANCE APPLICATION - PART A - Continued
====================================================================================================================================
<S> <C>
A-2. SECOND PROPOSED INSURED INFORMATION
2.1. Name: (Print first, middle, last) 2-10. Smoker Status: Does the Second Proposd Insured now
use nicotine products in any form (including
---------------------------------------------------- cigarettes, cigars, chewing tobacco, smokeless
2.2. Social Security Number: tobacco, pipe, "the patch", snuff or nicotine gum) or
has the Second Proposed Insured used nicotine
---------------------------------------------------- products in any form within the last 12 months?
2.3. Birthdate: (mm/dd/yyyy) [ ] Yes [ ] No
If 'Yes,' details:
----------------------------------------------------
2.4. Birthplace: (State or Foreign Country)
----------------------------------------------------
2.5. Sex: [ ] Male [ ] Female
---------------------------------------------------- ------------------------------------------------------
2.6. Issue Policy at age: 2-11. Have you ever applied for life, health or disability
insurance or reinstatement of life, health or
---------------------------------------------------- disability insurance which was declined, postponed,
2-7. Residence Address: (Give street and number, city rated or modified in any way? [ ] Yes [ ] No
or town, state and zip code.) If 'Yes,' details:
----------------------------------------------------
2.8. In case further information is required please give
residence telephone number and best time of day 2-12. Are you or do you have any intention of becoming
to call: a member of a military organization? [ ] Yes [ ] No
If 'Yes,' details:
----------------------------------------------------
2-9. Employment Information:
a. Employer: ------------------------------------------------------
2-13. a. Driver's License Number:
b. Kind of Business: ---------------------------
b. State Licensed in:
c. Business Address: ---------------------------------
c. Have you had any moving vehicle violations or had
d. How long employed by present employer: your motor vehicle driving license suspended or
revoked during the last three years or have you
e. Occupation: been convicted of Driving Under the Influence
during the last five years? [ ] Yes [ ] No
f. Specific duties: If 'Yes,' details:
g. Length of time in present position:
------------------------------------------------------
h. Any change contemplated? [ ] Yes [ ] No 2-14. In the past six months have there been or are there
If 'Yes', details: now pending other negotiations for life or disability
insurance? [ ] Yes [ ] No
If 'Yes,' list companies, amount, purpose and total
i. Is the Second Proposed Insured actively at work amount to be purchased.
at the customary workplace and actually doing the
usual duties and functions required by the
position during the normal work hours and
weekly period? [ ] Yes [ ] No
If 'No', details:
j. In case further information is required please
give business telephone number and best time
to call:
====================================================================================================================================
</TABLE>
7500(0298)A Page 3 of 9
<PAGE> 4
<TABLE>
<CAPTION>
JOINT LIFE INSURANCE APPLICATION - PART A - Continued
====================================================================================================================================
<S> <C>
A-2. SECOND PROPOSED INSURED INFORMATION - Continued (The Agent will provide you with any Replacement
forms required by law or National Life.)
(If 'Yes', is selected for questions 2-15, 2-16 or 2-17,
complete form 1480, Avocation, Aviation & Foreign 2-19. Has there been or will there be a lapse, surrender,
Travel Supplemental Application.) replacement, reissue, conversion, or change to reduce
amount, premium or period of coverage of any existing
2-15. Have you within the last three years participated in life, disability or annuity contract if the applied
or do you intend to participate in any motor powered for policy or rider is issued? [ ] Yes [ ] No
racing, scuba, skin or sky diving, rodeos, hang gliding,
or any other avocation generally considered If 'Yes,' list Company Name(s) and Policy Number(s):
hazardous? [ ] Yes [ ] No
---------------------------------------------------------------
2-16. Have you within the last three years been or do you
have any intention of becoming a pilot, student pilot
or crew member of any type of aircraft? [ ] Yes [ ] No
--------------------------------------------------------------- ------------------------------------------------------
2-17. Do you intend to travel or reside outside the USA for 2-20. Will there be any substantial borrowing on any life
more than two weeks in a year? [ ] Yes [ ] No insurance policy if the applied for policy or rider
is issued? [ ] Yes [ ] No
---------------------------------------------------------------
2-18. Are there any insolvency or bankruptcy proceedings If 'Yes,' list Company Name(s) and Policy Number(s):
now pending against the Second Proposed Insured, or has
there been any such proceedings during the last
seven years? [ ] Yes [ ] No
If "yes," give details
------------------------------------------------------------------------------------------------------------------------------
2-21. LIFE INSURANCE IN FORCE ON LIFE OF SECOND PROPOSED INSURED: Indicate Type of Insurance: B = Business, G =
Group, P = Personal. MUST indicate 'None,' if no insurance.
<CAPTION>
<S> <C> <C> <C> <C> <C> <C>
Total Coverage
Total Amount Protected by Total Accidental Date of Paid to
Company Name: Type: Life Insurance: Waiver of Premiums: Death Benefit: Issue: Date:
$ $ $
- ------------------------------------------------------------------------------------------------------------------------------------
====================================================================================================================================
</TABLE>
7500(0298)A Page 4 of 9
<PAGE> 5
<TABLE>
<CAPTION>
JOINT LIFE INSURANCE APPLICATION - PART A - Continued
====================================================================================================================================
<S> <C>
B.POLICY INFORMATION: 4. Special Billing Type:
1. Plan: (Not applicable for Qualified Retirement Business)
------------------------------------------------------- [ ] Group No.:
2. Amount: $ -------------------------------
[ ] Government Allotment
------------------------------------------------------- [ ] Payroll Deduction No.:
3. Premium Interval: -------------------------------------------------------
(Check one box and provide requested information.) 5. Send premium notices to: (Check one box)
[ ] Annual 12 Months [ ] Residence (A-1-7) [ ] Residence (A-2-7)
[ ] Semiannual 6 Months [ ] Business (A-1-9.c.) [ ] Business (A-2-9.c.)
[ ] Quarterly 3 Months [ ] Owner
[ ] Monthly (for Variable and Universal 1 Month [ ] Other: (Give name and address.)
allowed only if in Group or Qualified ---------------------
Retirement cases.)
[ ] COM (No., if existing): 1 Month -------------------------------------------------------
----------------- 6. Are the two Proposed Insureds legally married to
[ ] Single Premium (Variable & Universal only) each other? [ ] Yes [ ] No
(This question must be answered if either EPR or PSO
is requested.)
- ------------------------------------------------------------------------------------------------------------------------------------
COMPLETE EITHER QUESTION 7 OR 8, NEVER BOTH,
7. ADDITIONAL VARIABLE & UNIVERSAL PRODUCT OPTIONS: 8. ADDITIONAL TRADITIONAL PRODUCT OPTIONS:
a. Additional Benefits: a. Additional Benefits:
[ ] Additional Protection [ ] Accelerated Benefits Rider (ABR) (1st to Die Only)
Benefit (APB) $ [ ] Annual Premium (APAR) $
[ ] Automatic Increase ------------------- -------------------------
Rider (AIR) [ ] Payable on a Modal Basis
[ ] 5% [ ] 10% [ ] Stipulated [ ] Business Exchange Rider $
[ ] Continuing Coverage Rider (CCR) ------------------------
[ ] Enhanced Death Benefit Rider (EDBR) [ ] Policy Continuation Rider (1st to Die Only)
Target Age [ ] Single Premium (SPAR)
------------------ [ ] Rider for Split of Policy (PSO) (2nd to Die Only)
[ ] Estate Preservation [ ] Waiver of Premiums Rider (1st to Die Only)
Rider (EPR) $ [ ] Other:
------------------- ---------------------------------------------------------
[ ] Guaranteed Death Benefit (GDB) (Variable only) b. Life insurance policy loan interest rate:
[ ] 80 years [ ] Lifetime Variable Limit on loan interest rate, if any _____ %
[ ] Rider for Split of Policy (PSO) ---------------------------------------------------------
[ ] Term Rider on First Proposed Insured: c. Automatic payment of premium is: [ ] requested
[ ] Level Amount $ [ ] not requested
___________________ ---------------------------------------------------------
[ ] Increasing: Dur Yrs d. Use of Dividends: (Check one box and provide
___________________ requested information.)
[ ] Decreasing: Dur Yrs [ ] Cash
___________________ [ ] Applied
[ ] Term Rider on Second Proposed Insured: [ ] Held
[ ] Additions
[ ] Level Amount $___________________ [ ] Dividend Protection Riders: (Check one box.)
[ ] One Yr. Term + Adds = $
[ ] Increasing: Dur Yrs --------------------
___________________ (Flex Term I / B Decreasing)
[ ] Decreasing: Dur Yrs
___________________ [ ] One Yr. Term = $ , Adds
[ ] Other:
--------------------
-------------------------------------------------------- (Flex Term II / A Level)
b. Death Benefit Option: [ ] Dividend Term Option balance to:
[ ] Option A - Face Amount ------------------
[ ] Option B - Face Amount, plus Accumulated Value ----------------------------------------------------------
9. Qualified Retirement Business ONLY:
a. Issue Date: (mm/dd/yyyy)
--------------------------------
---------------------------------------------------------- b. Sex Issue Class: (Check one.)
c. Planned Periodic Premium:$ [ ] Sex Distinct
------------------------------ [ ] Sex Neutral
====================================================================================================================================
</TABLE>
7500(0298)A Page 5 of 9
<PAGE> 6
<TABLE>
<CAPTION>
JOINT LIFE INSURANCE APPLICATION - PART A - Continued
====================================================================================================================================
<S> <C>
C. INVESTMENT INFORMATION: (For Variable use ONLY) C. INVESTMENT INFORMATION: Continued
1. Has Applicant received a prospectus? 4. b. Allocation - Continued
[ ] Yes [ ] No Otherwise, the Monthly Deduction charges will
------------------------------------------------------- be deducted from the Fixed Account and
2. Does the Applicant understand that the Cash all Sub-Accounts of the Variable Account in
Surrender Value and Death Benefit may increase or proportion to the distribution of the
decrease based on the policy's investment return? Accumulated Value on the date of the deduction.
[ ] Yes [ ] No ------------------------------------------------------
5. Portfolio Rebalancing:
------------------------------------------------------- a. Does the Applicant request Portfolio Rebalancing
3. Does the Applicant believe that this policy will meet through which the Accumulated Values in the
his or her insurance needs and financial objectives? Sub-Accounts of the Variable Account will be
[ ] Yes [ ] No automatically reallocated according to the fund
------------------------------------------------------- allocation percentages? [ ] Yes [ ] No
4. Allocation:
a. Allocate net premium accordingly: (Use only whole b. Frequency: [ ] Annual [ ] Semi-Annual [ ] Quarterly
percentages. Allocation may not be less than 5%.) ------------------------------------------------------
SENTINEL/MARKET STREET FUND: 6. Dollar Cost Averaging:
% Money Market Sub-Account Once each month, the Accumulated Value in the
----- amount designated below is to be transferred from
% Growth Sub-Account the MONEY MARKET SUB-ACCOUNT to the other
----- Sub-Accounts as apportioned below.
% Aggressive Growth Sub-Account a. Allocation:
----- (Total allocation amount may not be less than $100.)
% Managed Sub-Account SENTINEL/MARKET STREET FUNDS:
----- $ Growth Sub-Account
% Bond Sub-Account -----
----- $ Aggressive Growth Sub-Account
% International Sub-Account -----
----- $ Managed Sub-Account
% Sentinel Growth Sub-Account -----
----- $ Bond Sub-Account
AMERICAN CENTURY VP SERIES: -----
% Value Sub-Account $ International Sub-Account
----- -----
% Income & Growth Sub-Account $ Sentinel Growth Sub-Account
----- -----
JP MORGAN SERIES TRUST II: AMERICAN CENTURY VP SERIES:
% International Opportunities Sub-Account $ Value Sub-Account
----- -----
% Small Company Sub-Account $ Income & Growth Sub-Account
----- -----
STRONG VARIABLE PRODUCTS FUNDS: JP MORGAN SERIES TRUST II:
% Opportunity Fund II Sub-Account $ International Opportunities Sub-Account
----- -----
% Growth Fund II Sub-Account $ Small Company Sub-Account
----- -----
NEUBERGER & BERMAN ADVISERS MANAGERS TRUST: STRONG VARIABLE PRODUCTS FUNDS:
% Partners Sub-Account $ Opportunity Fund II Sub-Account
----- -----
GOLDMAN SACHS VARIABLE INSURANCE TRUST: $ Growth Fund II Sub-Account
% International Equity Sub-Account -----
----- NEUBERGER & BERMAN ADVISERS MANAGERS TRUST:
% Global Income Sub-Account $ Partners Sub-Account
----- -----
% CORE Small Cap Equity Sub-Account GOLDMAN SACHS VARIABLE INSURANCE TRUST:
----- $ International Equity Sub-Account
% Mid Cap Equity Sub-Account -----
----- $ Global Income Sub-Account
FIDELITY VIP SERIES: -----
% Growth Sub-Account $ CORE Small Cap Equity Sub-Account
----- -----
% High Income Sub-Account $ Mid Cap Equity Sub-Account
----- -----
% Index 500 Sub-Account FIDELITY VIP SERIES:
----- $ Growth Sub-Account
% Contrafund Sub-Account -----
----- $ High Income Sub-Account
NATIONAL LIFE INSURANCE COMPANY: -----
% Fixed Account $ Index 500 Sub-Account
----- -----
OTHER (As available.) $ Contrafund Sub-Account
% -----
----- ---------------------------------------------- OTHER: (As available.)
% $
----- ---------------------------------------------- ----- ----------------------------------------------
%100 TOTAL $
------------------------------------------------------ ----- ----------------------------------------------
b. Does the Applicant elect that all Monthly Deduction $ TOTAL ALLOCATION
charges be deducted from the Money Market -----
Sub-Account to the extent the Accumulated Value
in such Sub-Account is sufficient to pay such charges?
[ ] Yes [ ] No
====================================================================================================================================
</TABLE>
7500(0298)A Page 6 of 9
<PAGE> 7
<TABLE>
<CAPTION>
JOINT LIFE INSURANCE APPLICATION - PART A - Continued
====================================================================================================================================
<S> <C>
C. INVESTMENT INFORMATION: Continued D. OWNER INFORMATION: Continued
7. Telephone Transaction Privilege: c.[ ] CORPORATION (Full Legal Name)
(Note: If C.7.b is answered "Yes.," then C.7.a. MUST -------------------------
be answered "Yes" also.)
a. Does the Applicant authorize the Company to accept ------------------------------------------------------
telephone requests by the Owner to: incorporated in (State),
= Transfer unloaned Accumulated Value among the ------------------------------
Fixed Account and Sub-Accounts of the Variable its successors or assigns.
Account; and
[ ] PARTNERSHIP (Full Legal Name)
= Effect Policy Loans up to $25,000 and; -------------------------
= Change the premium allocation percentages; and
= Change the distribution of fund allocations ------------------------------------------------------
according to the Portfolio Rebalancing feature? a partnership of (City & State)
[ ] Yes [ ] No
b. If Owner was given authorization in 7.a. above, ------------------------------------------------------
does the Applicant authorize the Company to or any successor partnership doing business in said
accept telephone requests by the representative city under said name.
for the same excluding effecting Policy Loans?
[ ] LIMITED PARTNERSHIP (Full Legal Name)
Name of Representative: (Print) [ ] Yes [ ] No -----------------
- -------------------------------------------------------------------
D. OWNER INFORMATION: ------------------------------------------------------
1. Owner: (Select either a, b or c and provide requested a (State),
information. If Owner is a minor, complete "Limitations --------------------------------------------
of Ownership," form 1481. If this is a Variable Policy, the Limited Partnership, its successors or assigns.
Owner may NOT be a minor.)
a. (Complete ONLY when death benefit is payable at the demise [ ] LIMITED LIABILITY COMPANY (Full Legal Name)
of the FIRST INSURED TO DIE.)
------------------------------------------------------
[ ] INSURED (Name of only one of the Insureds) a (State),
--------------------------------------------
Limited Liability Company, its successors or assigns.
---------------------------------------------------------
[ ] ALL INSUREDS, Jointly [ ] TRUST (Name of Trustee(s))
[ ] OTHER INDIVIDUAL (Name & Relationship) ----------------------------
-------------------
------------------------------------------------------
--------------------------------------------------------- trustee(s) under an instrument of trust between
while living, thereafter (Name & Relationship) (Name of Trustor)
-------------------------------------
---------------------------------------------------------
contingent owner, while living, and thereafter ------------------------------------------------------
(Check one box.) and said trustee(s), named (Name of Trust)
[ ] Insured (Name of only one of the Insureds)
--------------------------------------------------------- ------------------------------------------------------
[ ] All Insureds, Jointly
[ ] Estate of last survivor of the named owners. ------------------------------------------------------
b. (Complete ONLY when death benefit is payable at the demise and dated (Date of Trust)
of the LAST INSURED TO DIE.) -----------------------------
as heretofore or hereafter amended if trust is amend-
[ ] INSURED (Name of only one of the Insureds) able, or the successor(s) in said trust or assigns.
[ ] QUALIFIED PENSION OR PROFIT SHARING TRUST
--------------------------------------------------------- (Name of Trust Agreement)
while living, and thereafter the estate of such Insured. ------------------------
[ ] OTHER INDIVIDUAL (Name & Relationship of first Owner,
who may be one of the Insureds) -------------------------------------------------
--------------------------------------------------------- -------------------------------------------------
thereafter (Name & Relationship of the contingent
Owner, who may be another Insured) [ ] AS PER SUPPLEMENTAL REQUEST.
-------------------------------------------------------
--------------------------------------------------------- 2. Address: (Give street and number, city or town,
contingent owner, while living, and thereafter the state and zip code.)
estate of the last surviver of the named owners.
NOTE: If either A OR B are NOT completed, one choice
MUST be made in the following Section D.1.c. and 3. Social Security or Taxpayer ID Number if Owner
the requested information provided. is other than Insured:
(Complete IRS form W-9.)
====================================================================================================================================
</TABLE>
7500(0298)A Page 7 of 9
<PAGE> 8
JOINT LIFE INSURANCE APPLICATION - PART A - Continued
===============================================================================
E. BENEFICIARY INFORMATION:
1. Beneficiary: (Check one box or fill in the First and
Second Beneficiary information.)
The right to change the beneficiary is reserved.
[ ] AS PER SUPPLEMENTAL REQUEST.
[ ] QUALIFIED PENSION AND PROFIT SHARING ONLY:
Unless otherwise provided in this section, the
Beneficiary of this policy is the Owner.
[ ] When death benefit is payable at the demise
of the FIRST INSURED TO DIE ONLY: unless
otherwise provided in this section, payment
will be made in equal shares to the surviving
insured(s).
[ ] CORPORATION described in section D.
[ ] PARTNERSHIP described in section D.
[ ] LIMITED PARTNERSHIP described in section D.
[ ] LIMITED LIABILITY COMPANY described in
section D.
[ ] TRUST described in section D.
OTHER:
(Give each beneficiary's name, address, date of birth, Social Security
Number and relationship to Insured(s).)
FIRST -
SECOND -
When death benefit is payable at the demise of the FIRST INSURED TO DIE,
payment will be shared equally by all first beneficiaries who survive the
FIRST TO DIE OF THE INSUREDS; if none by all second beneficiaries who so
survive; if none, payment will be made to the Owner or the Owner's
estate.
When death benefit is payable at the demise of the LAST INSURED TO DIE,
payment will be shared equally by all first beneficiaries who survive the
LAST TO DIE OF THE INSUREDS; if none, by all second beneficiaries who so
survive; if none, payment will be made to the Owner or the Owner's
estate.
- -------------------------------------------------------------------------------
F. REMARKS:
- -------------------------------------------------------------------------------
G. PROPOSED INSUREDS' AND APPLICANT'S CERTIFICATION AND AGREEMENT:
The statements and answers on Part A of this application are, to the best
knowledge and belief of the respective Proposed Insureds, complete and true.
They, together with the statements and answers on Part B of this
application, shall be a part of the contract of insurance if one is issued.
The Applicant, if someone other than the Proposed Insureds, agrees to be
bound by all statements and answers signed by the Proposed Insureds in Parts
A and B of this application.
================================================================================
7500(0298)A Page 8 of 9
<PAGE> 9
JOINT LIFE INSURANCE APPLICATION - PART A - Continued
================================================================================
H. APPLICANT'S AGREEMENT:
National Life Insurance Company (the Company) may make administrative
corrections and changes to this application. These, if any, are noted on
the "Application Amendment" page which is attached to the policy at issue.
Acceptance of any policy issued on this application will ratify and will be
notice of any such change made. If the laws where the application is made
so require, any change of amount, age at issue, class of risk, plan of
insurance or benefits must be made in writing.
The Agent taking this application has no authority to make, change or
discharge any contract hereby applied for. The Agent may not extend credit
on behalf of the Company. No statement made to or information acquired by
any representative of the Company shall bind the Company unless set out in
writing in Parts A and B of this application.
If I have purchased variable insurance coverage and have elected the
Telephone Transaction Privilege, I appoint the Company as my agent to act
upon telephoned instructions reasonably believed to be authorized by me. I
hereby ratify any telephone instructions so given and consent to the tape
recording of these instructions. So long as the Company employs reasonable
procedures to confirm that the instructions are genuine, I agree that I
will not hold the Company liable for any unauthorized telephone
instructions.
The Company shall incur no liability under any policy issued on this
application unless and until:
a. such policy is delivered to the Owner, and
b. the first premium is paid prior to any change in either Proposed
Insured's good health and insurability.
I have paid $___________________ for Life Insurance with this application,
and I have received the Receipt. I have read the Receipt and understand
it.
==============================================================================
I. AUTHORIZATION TO RELEASE INFORMATION:
We, the Proposed Insureds, hereby authorize any licensed physician, medical
practitioner, hospital, clinic or other medical or medically related
facility, insurance company, the Medical Information Bureau or other
organization, institution or person, that has any records or knowledge of us
or our health, to give to the National Life Insurance Company or its
reinsurers any such infomation. We authorize National Life to request a copy
of our driving records from the state motor vehicle department.
In addition, we authorize the National Life Insurance Company to obtain
investigative consumer reports. We also acknowledge receipt of copies of the
Prenotifications relating to investigative consumer reports and the Medical
Information Bureau.
A photographic copy of this authorization shall be as valid as the original.
==============================================================================
J. SIGNATURES:
1. Signed at: (City & State) date (mm/dd/yyyy) .
---------------------- --------
2. Sign names in If Applicant is a Business Entity or Pension or Profit
full below: Sharing Trust, include full legal name and title.
If Applicant is a Personal/Business Trust, include
"Trustee" in signature.
If Applicant is an Individual other than Proposed
Insureds, print name below Applicant's signature.
<TABLE>
<S> <C>
FIRST PROPOSED SECOND PROPOSED
INSURED: INSURED:
------------------------------------------------------ -----------------------------------------------------
SOLICITING
APPLICANT: REPRESENTIVE/AGENT:
------------------------------------------------------ -----------------------------------------------------
</TABLE>
================================================================================
7500(0298)A Page 9 of 9
<PAGE> 1
EXHIBIT 1(A)(11))
DESCRIPTION OF ISSUANCE,
TRANSFER AND REDEMPTION PROCEDURES FOR POLICIES
PURSUANT TO RULE 6e-3(T)(b)(12)(iii)
FOR SENTINEL ESTATE PROVIDER LAST SURVIVOR FLEXIBLE PREMIUM LIFE INSURANCE
POLICIES
ISSUED BY
NATIONAL LIFE INSURANCE COMPANY
This document sets forth the administrative procedures that will be followed
by National Life Insurance Company ("National Life") in connection with the
issuance of its last survivor flexible premium variable adjustable benefit
life insurance policy ("Policy" or "Policies"), the transfer of assets held
thereunder, and the redemption by Policy owners ("Owners") of their interests
in those Policies. Capitalized terms used herein have the same meaning as in
the prospectus for the Policy that is included in the current registration
statement on Form S-6 for the Policy as filed with the Securities and
Exchange Commission ("Commission" or "SEC").
I. PROCEDURES RELATING TO PURCHASE AND ISSUANCE OF THE POLICIES AND
ACCEPTANCE OF PREMIUMS
A. OFFER OF THE POLICIES, APPLICATIONS, MINIMUM INITIAL PREMIUMS,
AND ISSUANCE
1. Offer of the Policies. The Policies will be offered and
sold subject to established cost of insurance schedules and
underwriting standards in accordance with state insurance laws.
Insurance charges will not be the same for all Owners selecting the
same Face Amount. Survivorship insurance is based on the principle
of pooling and distribution of mortality risks, which assumes that
each Owner pays insurance charges commensurate with the two
Insureds' joint mortality risk as actuarially determined utilizing
factors such as age, sex and health and occupation. A uniform
insurance charge for all sets of Insureds would discriminate
unfairly in favor of those sets of Insureds representing greater
risk. Although there will be no uniform insurance charges for all
sets of Insureds, there will be a uniform insurance rate for all
sets of Insureds of the same Rate Classes, ages, sexes, Policy
duration, if the Face Amount is divided among Basic Coverage and
Additional Coverage in the same way. A description of the Monthly
Deduction under the Policy, which includes charges for cost of
insurance, for the Variable Account Charge, the Monthly
Administrative Charge and for supplemental benefits, is at Appendix
A to this memorandum.
2. Application. Persons wishing to purchase a Policy must
complete an application and submit it to National Life through a
National Life authorized agent. This agent will also be a
registered representative of a securities broker-dealer
registered with the U.S. Securities and Exchange Commission. The
applicant must specify the two Insureds, and provide certain
required information about the two Insureds. The applicant will
also specify a plan for paying Planned Periodic Premiums, which
are level premiums of a specified amount at specified intervals,
either quarterly, semi-annually or annually, and may request that
National Life send reminder notices at the appropriate
intervals. Also, under the 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." An application will
not be deemed to be complete unless all required information,
including without limitation age, sex, and medical and other
background information with respect to each of the two Insureds,
has been provided in the application.
3. Minimum Initial Premium. An applicant for a new Policy
must pay at least a Minimum Initial Premium, which if not
submitted with the application or during the underwriting period,
must be submitted when the Policy is delivered. (Generally,
policy coverage does not become
<PAGE> 2
effective until the application has been accepted and the Minimum
Initial Premium is received in good order at National Life's home
office ("Home Office"). If, however, a premium less than the
Minimum Initial Premium has been received at the Home Office, a
Policy may be issued, but the agent delivering the Policy to the
Owner will collect the balance due before leaving the Policy with
the Owner). National Life may specify the form in which a premium
payment must be made in order for the premium to be in "good
order." Ordinarily, a check will be deemed to be in good order
upon receipt, although National Life may require that the check
first be converted into federal funds. In addition, for a
premium to be received in "good order," it must be accompanied by
all required supporting documentation, in whatever form
required.
The Minimum Initial Premium is equal to two times the
Minimum Monthly Premium (or in the case where the Guaranteed
Death Benefit Rider is elected, two times the Monthly Guarantee
Premium). The Minimum Monthly Premium depends on a number of
factors, such as the two Insureds' sexes, Issue Ages, and Rate
Classes, the Death Benefit Option selected, requested Initial
Face Amount and any optional benefits selected. The Minimum
Monthly Premium is used for purposes of determining whether,
during the first five Policy Years, the Policy will not lapse
regardless of investment performance. During the first five
Policy Years, the Cumulative Minimum Monthly Premium is the sum
of the Minimum Monthly Premiums in effect on each Monthly Policy
Date, plus all Withdrawals and outstanding Policy loans and
accrued interest. The Minimum Monthly Premium may change if, for
example, a Face Amount Change or Death Benefit Option Change is
elected by the Owner.
4. Minimum Basic Coverage Amount. The minimum Basic Coverage
amount for which National Life will issue a Policy is generally
$100,000.
5. Receipt of Application and Underwriting. Upon receipt of a
completed application in good order from an applicant, National
Life will follow certain insurance underwriting (risk evaluation)
procedures designed to determine whether the two proposed
Insureds are jointly insurable. This process may involve such
verification procedures as medical examinations and may require
that further information be provided about a proposed Insured
before a determination can be made.
The underwriting process determines the Rate Class to which
an Insured is assigned. This original Rate Class applies to the
Initial Face Amount. The Rate Class may change upon an increase
in Face Amount, as to the increase (see Death Benefits below).
A Policy cannot be issued until the initial underwriting
procedure has been completed, and any supplemental beneficiary
forms and forms required in accordance with state insurance laws
have been received. The Date of Issue occurs when the above
steps have been completed, the application has been accepted, the
Minimum Initial Premium has been received, and the computerized
issue system has generated a printed Policy.
National Life reserves the right to reject an application
for any reason permitted by law. If an application is rejected,
any premium received will be returned, without interest.
6. Acceptance of Application and Date of Issue. If an
application is accepted, insurance coverage under the Policy is
effective as of the Date of Issue. The Date of Issue is set
forth in the Policy. 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
last survivor insurance protection, pending issuance of the
Policy, by answering "no" with respect to both Insureds 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.
2
<PAGE> 3
The Date of Issue is used to determine Policy Years and
Monthly Policy Dates, as well as to measure suicide and
contestability periods.
B. ADDITIONAL PREMIUMS
1. Additional Premiums Permitted. Additional premiums may be
paid in any amount, frequency and time period, subject to the
following limits:
- A premium must be at least $100 and must be sent to the
Home Office. National Life may require satisfactory
evidence of insurability before accepting any premium if it
increases the Unadjusted Death Benefit more than it
increases the Accumulated Value (although National Life
will not limit premiums paid as Planned Periodic Premiums).
- Total premiums paid on a cumulative basis also may not
exceed guideline premium limitations for life insurance set
forth in the Internal Revenue Code.
- No premium will be accepted after the younger Insured
reaches Attained Age 100 (although loan payments will be
permitted after the younger Insured's Attained Age 100).
- National Life will monitor Policies and will attempt to
notify an owner on a timely basis if the Owner's Policy is
in jeopardy of becoming a modified endowment contract under
the Internal Revenue Code.
2. Refund of Excess Premium Amounts. If at any time a premium
is paid that would result in total premiums exceeding limits
established by law to qualify a Policy as a life insurance
policy, National Life will only accept that portion of the
premium that would make total premiums equal the maximum amount
that may be paid under the Policy. The excess will be promptly
refunded, and if 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. Excess amounts under $3
will not be refunded.
3. Planned Premiums. At the time of application, the Owner
will select a Planned Periodic Premium schedule, based on annual,
semi-annual, or quarterly payments. The Owner may request
National Life to send a premium reminder notice from National
Life at the specified interval. The Owner may change the Planned
Periodic Premium frequency and amount by notification to National
Life at its Home Office ot to a National life authorized agent.
Also, under the 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."
4. Crediting Additional Premiums
Premiums will be credited to the Policy and the Net
Premiums will be invested as requested on the Valuation Date that
the premium is received in good order by the Home Office in
accordance with the procedures described below in Section I.F.
National Life may specify the form in which a premium payment
must be made in order for the premium to be in "good order."
Ordinarily, a check will be deemed to be in good order upon
receipt, although National Life may require that the check first
be converted into federal funds. In addition, for an additional
premium to be received in "good order," it must be accompanied by
all required supporting documentation in whatever form required.
3
<PAGE> 4
C. OVERPAYMENTS AND UNDERPAYMENTS. In accordance with industry
practice, National Life will establish procedures to handle
errors in initial and additional premium payments to refund
overpayments and collect underpayments, except for amounts under
$3, or such other threshhold as may be established from time to
time.
D. SPECIAL PREMIUMS -- PREMIUMS UPON INCREASE IN FACE AMOUNT, DURING
A GRACE PERIOD, OR UPON REINSTATEMENT
1. Upon Increase in Face Amount. Depending on the Accumulated
Value at the time of an increase in the Face Amount and the
amount of the increase requested, an additional premium or change
in the amount of Planned Periodic Premiums may be advisable.
National Life will notify the Owner if a premium is necessary or
a change appropriate.
2. During a Grace Period. If the Cash Surrender Value is
insufficient to cover the Monthly Deductions and other charges
under the Policy and the Grace Period (as described below)
expires without a sufficient payment, the Policy will lapse.
During the first five Policy Years, however, the Policy will not
lapse if the Cumulative Minimum Monthly Premium has been paid.
In addition, if the Owner has elected at issue the Guaranteed
Death Benefit Rider, and has paid premiums at all times at least
equal to the Cumulative Guarantee Premium, the Policy will not
lapse either for the entire lifetimes of the Insureds, or prior
to the younger Insured's Attained Age 80, regardless of whether
the Cash Surrender Value is sufficient to cover the Monthly
Deductions.
- The Policy provides for a 61-day Grace Period that is
measured from the date on which notice is sent by National
Life. Thus, 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.
This amount will be identified in the notice sent out
pursuant to the immediately preceding paragraph.
- Failure to make a sufficient payment within the Grace
Period will result in lapse of the Policy without value.
3. Upon Reinstatement. A Policy that lapses without value may
be reinstated at any time within five years (or longer period if
required in a particular state) after the beginning of the Grace
Period by submitting evidence of both Insureds' 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. The effective date of
the reinstatement will be 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 Guaranteed
Death Benefit Rider may be reinstated.
E. REPAYMENT OF A POLICY LOAN
4
<PAGE> 5
1. Loan Repayments Permitted. While the Insured is living,
the Owner may repay all or a portion of a loan and accrued
interest.
2. Repayment Crediting and Allocation. 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 Fixed Account will be reduced by an amount
equal to the repayment, and such amount will be transferred to
the Subaccounts of the Variable Account and to the non-loaned
portion of the Fixed Account based on the net premium allocations
in effect at the time of the repayment.
F. ALLOCATIONS OF PREMIUMS AMONG THE ACCOUNTS
1. The Variable Account, Subaccounts, and Fixed Account. The
variable benefits under the Policies are supported by
National Variable Life Insurance Account (the "Variable
Account"). The Variable Account currently consists of
twenty two Subaccounts, the assets of which are used to
purchase shares of a designated corresponding mutual fund
Portfolio that is part of one of the following Funds: the
Market Street Fund, Variable Insurance Products Fund,
Variable Insurance products Fund II, JP Morgan Series Trust
II, American Century VP Series, Neuberger & Berman Advisers
Managers Trust, Goldman Sachs Variable Insurance Trust,
Strong Variable Insurance Funds II and Strong Opportunity
Fund II. Each Fund is registered under the Investment
Company Act of 1940 as an open-end management investment
company. Owners also may allocate Net Premiums to the
Fixed Account. Additional Subaccounts may be added from
time to time to invest in portfolios of the above
investment companies, or any other investment company.
2. Allocations Among the Accounts. Net Premiums are allocated
to the Subaccounts and the Fixed Account in accordance with
the following procedures.
a. General. The Net Premium equals the premium paid
less the Premium Expense Charge. In the application for
the Policy, the Owner will indicate how Net Premiums should
be allocated among the Subaccounts of the Variable Account
and/or the Fixed Account. Such allocations may be changed
at any time by the Owner by written notice to National Life
at the Home Office, or if the telephone transaction
privilege has been elected, by telephone instructions. The
percentages of each Net Premium that may be allocated to
any Subaccount must be a whole number not less than 5%, and
the sum of the allocation percentages must be 100%.
b. Premium Expense Charge. The Premium Expense Charge
consists of two portions. The first is that a deduction of
3.40% 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. The Premium Expense Charge
will also include, during the first 10 Policy Years, a
deduction of 7.0% of the premium up to the Target Premium,
and 4.0% of premium in excess of the Target Premium, from
each premium payment prior to allocation of Net Premiums,
to compensate National Life for the expenses incurred in
distributing the Policies, including commissions to selling
agents. National Life reserves the right to increase the
charge for premiums in excess of the Target Premium from
4.0% to 5.0% of such premiums. National Life currently
intends to reduce this deduction from premiums paid after
the tenth Policy Anniversary to 4.0% of all premiums,
although it reserves the right to make a deduction of up to
the maximum permitted during the first ten years.
5
<PAGE> 6
c. Initial Premiums. Any portion of the initial Net
Premium and any subsequent premiums received by
National Life before National Life before expiration of the
"free look" period that are to be allocated to the Variable
Account will be allocated to the Money Market Subaccount. At
the end of such period, which National Life will assume for
such purpose to be the date 20 days after the Date of Issue,
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 for such Subaccount bears to the sum of the
Variable Account premium allocation percentages.
d. Additional Premiums. Additional Net Premiums will be
allocated to the Accounts in accordance with the allocation
percentages then in effect on the Valuation Date that the
premium is received in good order at the Home Office,
unless other instructions accompany the premium, in which
case the net premium will be allocated in accordance with
those instructions. If those instructions do not comply
with National Life's allocation rules, crediting and
allocation will not be implemented until further
instructions are received from Owners.
II. TRANSFERS AMONG SUB-ACCOUNTS
A. TRANSFERS AMONG THE ACCOUNTS. The Owner may transfer the
Accumulated Value between and among the Subaccounts of the
Variable Account and the Fixed 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.
Transfers between and among the Subaccounts of the Variable Account
and the Fixed Account are made as of the Valuation Day that the
request for transfer is received in good order at the Home Office.
The Owner may, at any time, transfer all or part of the amount in
one of the Subaccounts of the Variable Account to another
Subaccount and/or to the Fixed Account.
One transfer in each Policy Year is allowed from the Fixed
Account to any or all of the Subaccounts of the Variable
Account. The amount transferred from the Fixed Account may not
exceed the greater of 25% of the value of such account at the
time of transfer, or $1,000. The transfer will be made as of the
date National Life receives the written or telephone request at
its Home Office.
Currently, an unlimited number of transfers are 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 to deduct a $25 transfer charge
from each transfer in excess of the twelfth transfer during any one
Policy Year. If such a charge is adopted in the future, the
following transfers will not be subject to a transfer charge and
will not count against the twelve free transfers in any Policy
Year: (1) transfers resulting from Policy loans, (2) the exercise
of the special transfer whereby the Owner may transfer the entire
Accumulated Value in the Variable Account to the Fixed Account
during the first two years following the Policy issue without
regard to limits on free transfers, (3) the special transfer right
whereby an Owner may transfer the portion of the Accumulated Value
in a Subaccount the investment policy of which is changed, without
regard to any limits on transfers or free transfers, (4) transfers
pursuant to automated Dollar Cost Averaging or Portfolio
Rebalancing transactions, and (5) the reallocation from the Money
Market Subaccount following the "free look" period. All transfers
requested during one Valuation Period are treated as one transfer
transaction.
B. DOLLAR COST AVERAGING
6
<PAGE> 7
This feature permits an Owner to automatically transfer funds
from the Money Market Subaccount to any other Subaccounts on a
monthly basis.
1. Election of Dollar Cost Averaging. Dollar Cost Averaging
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 by mail to the Home Office.
2. Operation of the Program. 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 following 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 "free look" period), until
the amount in the Money Market Fund is depleted. The minimum
monthly transfer by Dollar Cost Averaging is $100, except for the
transfer that 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.
C. PORTFOLIO REBALANCING
This feature permits an Owner to automatically rebalance the
value in the Subaccounts on a quarterly, semi-annual or annual
basis, based on the Owner's premium allocation percentages in
effect at the time of the rebalancing.
1. Election of Portfolio Rebalancing. Portfolio rebalancing
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 by mail to the Home Office.
2. Operation of the Program. In Policies utilizing Portfolio
Rebalancing from the Date of Issue, an automatic transfer will
take place that causes the percentages of the current values in
each Subaccount to match the current premium allocation
percentages, starting with the Monthly Policy Date three, six or
twelve months after the Date of Issue, and then on each Policy
Anniversary, and each Monthly Policy Date three, six or twelve
months thereafter. Policies electing Portfolio Rebalancing after
issue will have the first automated transfer occur as of the
Valuation Date on or next following the date that the election is
received at the Home Office, and subsequent rebalancing transfers
will occur every three, six or twelve months from such date. An
Owner may discontinue Portfolio Rebalancing at any time by
submitting an appropriate change request form to the Home Office
by mail.
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 and Dollar Cost Averaging may not be
in operation simultaneously on the same Policy.
III. "REDEMPTION" PROCEDURES: SURRENDERS, WITHDRAWALS, DEATH BENEFITS, AND
LOANS
A. "FREE-LOOK" PERIOD
The Policy provides for an initial "free-look" period. The Owner
may cancel the Policy before 10 days after the Owner receives the
Policy (or longer period provided by state law). Upon returning
7
<PAGE> 8
the Policy to National Life or to an agent of National Life
within such time with a written request for cancellation, the
Owner will receive a refund equal to the gross premiums paid on
the Policy.
B. REQUEST FOR CASH SURRENDER VALUE
1. Requests for Cash Surrender Value Permitted. At any time
before the death of both Insureds, 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 date it
receives, at the 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, unless a payment option was
selected (see Section III.H. below).
2. Surrender of Policy -- Surrender Charges. A Surrender
Charge is imposed if the Policy is surrendered or lapses at any
time before the end of the tenth Policy Year, or the ten years
after an increase in the Basic Coverage. The Surrender Charge
will initially be equal to the Policy's Target Premium, as shown
in Appendix B to this Prospectus. The Surrender Charge will be
level for the first five years, and then decline linearly by
month until it is zero at the beginning of Policy Year 11. For
increases in Basic Coverage, the Surrender Charge will initially
be the Target Premium associated with the increase. It will be
level for five years from the date of the increase, and then
decline linearly by month until it is zero at the beginning of
the eleventh year after the date of the increase. The Surrender
Charge will not decrease in the event of a decrease in Basic
Coverage. The actual Surrender Charge for your Policy will be
stated in the Policy.
C. REQUEST FOR WITHDRAWALS
1. When Withdrawals are Permitted. At any time before the
death of the last to die of the two Insureds and after the first
Policy Anniversary, the Owner may withdraw a portion of the
Policy's Cash Surrender Value, subject to the following
conditions:
- The minimum amount which may be withdrawn is $500.
- The maximum Withdrawal is the Cash Surrender Value 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.
- 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.
2. 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.
3. Allocation of Withdrawals. The Withdrawal will be taken
from the Subaccounts of the Variable 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 Variable Account. If the Accumulated
Value in one or more
8
<PAGE> 9
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 Fixed Account only to the extent that Accumulated
Value in the Variable Account is insufficient.
4. Effect of a Withdrawal on Face Amount. 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.
a. Option A. 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, effective on the date of the Withdrawal. 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).
b. 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. 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 (b) the applicable percentage of Accumulated
Value after deducting the amount of the Withdrawal.
5. Other Effects of Withdrawals. 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. In the case of simultaneously
added coverages, a Withdrawal will first reduce the amount added
through operation of the Automatic Increase Rider, then
Additional Coverage, and finally Basic Coverage. Because a
Withdrawal can affect the Face Amount (or increase in Face
Amount) and the Unadjusted Death Benefit as described above, a
Withdrawal may also affect the Net Amount(s) at Risk that is used
to calculate the Cost of Insurance Charge(s) under the Policy.
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.
6. When a Withdrawal Is Not Permitted. A request for
Withdrawal may not be allowed if such Withdrawal would reduce the
Basic Coverage below the Minimum Basic Coverage 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 the
Withdrawal.
D. MONTHLY DEDUCTIONS
On the Date of Issue and on each Monthly Policy Date, a
redemption will be made from Accumulated Value for the Monthly
Deduction, which is a charge compensating National Life for
9
<PAGE> 10
distribution and administrative expenses and for the insurance
coverage provided by the Policy. The Monthly Deduction consists
of four components: (a) the Cost of Insurance Charge, (b) the
Variable Account Charge, (c) the Monthly Administrative Charge,
and (d) the cost of any additional benefits provided by rider.
These charges are discussed in more detail in Appendix A hereto.
Because portions of the Monthly Deduction, such as the Cost of
Insurance Charge, can vary from month to month, the Monthly
Deduction may vary in amount from month to month. The Monthly
Deduction will be deducted on a pro rata basis from the
Subaccounts of the Variable Account and the Fixed 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, when 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 the Subaccounts of the Variable Account and the
Fixed Account.
E. DEATH BENEFITS
1. Payment of Death Benefit. As long as the Policy remains in
force, the Death Benefit of the Policy will, upon the Company's
receipt of due proof of the both Insureds' deaths and a
Claimant's Statement signed by or on behalf of the Beneficiary,
as well as any other necessary documentation, 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. The
amount payable under the designated Death Benefit Option will be
increased by any additional benefits, any dividend payable, and
by interest from the date National Life receives proof of the
last survivor of the Insureds' death and all other required
information to the payment date at a National Life declared
interest rate or any higher legal requirement, and will be
decreased by any outstanding Policy loan and accrued interest and
by any unpaid Monthly Deductions. The Face Amount of a Policy,
on which the Unadjusted Death Benefit is based, may be made up of
either Basic Coverage or Additional Coverage. Additional
Coverage is provided by the Additional Protection Benefit Rider.
2. 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 below. At the younger Insured's Attained Age 100,
Option B automatically becomes Option A.
a. Option A. The Unadjusted Death Benefit is equal to
the greater of (a) the Face Amount of the Policy and (b)
the Accumulated Value multiplied by the specified
percentage shown in the table below. For Attained Ages not
shown, the percentages will decrease by a ratable portion
of each full year.
<TABLE>
<CAPTION>
Younger Insured's
Attained Age Percentage
------------ ----------
<S> <C>
40 and under 250%
45 215%
50 185%
55 150%
60 130%
65 120%
70 115%
75-90 105%
91 104%
</TABLE>
10
<PAGE> 11
<TABLE>
<S> <C>
92 103%
93 102%
94 and over 101%
</TABLE>
b. 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 multiplied
by the specified percentage shown in the table above.
3. 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 but the Face Amount
will be decreased by the Accumulated Value on that
date. The order in which decreases will be applied
is the same as descibed below as the order in which
decreases in Face Amount are applied. However, this
change may not be made if it would reduce the Basic
Coverage to less than the Minimum Basic Coverage.
- 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 but 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.
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 partially
offsetting the effect of increases over time in the
Cost of Insurance Charge to the extent the decrease
in Net Amount at Risk more than offsets the increase
in rates as the Insureds age.
- 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.
4. How the Death Benefit May Vary. The amount of the Death
Benefit may vary with the Accumulated Value. 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.
5. 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
11
<PAGE> 12
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.
The effect of changes in Face Amount on Policy charges, as well as
other considerations, are described below.
a. Increase. A request for an increase in Face Amount
may not be for less than $50,000, or such lesser amount
required in a particular state. The Owner may not increase
the Face Amount after the older of the two Insureds'
Attained Age 90, or if the Joint Age of the Insureds is
greater than 90. To obtain the increase, the Owner must
submit an application for the increase and provide evidence
satisfactory to National Life of both Insureds'
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 to the
required level.
An increase in the Face Amount will generally have
the effect of increasing the total Net Amount at Risk,
which in turn will increase the monthly Cost of Insurance
Charges. In addition, either or both of the Insureds may
be in a different Rate Class as to the increase in
insurance coverage.
b. Decrease. The amount of the Face Amount after a
decrease (a) 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 and (b) may not be less than the Minimum Basic
Coverage, which is $100,000. 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 generally 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 Face Amount
provided by the most recent increase; (b) the next most
recent increases, successively; and (c) the Initial Face
Amount. For simulataneously added coverages, a decrease
will be applied first to the increase provided by the
Automatic Increase Rider, then to Additional Coverage, and
finally to Basic Coverage.
12
<PAGE> 13
G. LOANS
1. When Loans are Permitted. An Owner may at any time after
the first anniversary of the Date of Issue borrow money from
National Life using the Policy as the only security for the
loan. The Owner may obtain Policy loans in an amount not
exceeding the Policy's Cash Surrender Value on the date of the
loan, minus three times the Monthly Deduction for the most recent
Monthly Policy Date. While either 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 the
Home Office, or, if the telephone transaction privilege has been
elected, by providing telephone instructions to National Life at
the Home Office. National Life limits the amount of a Policy
loan taken pursuant to telephone instructions to $25,000.
2. 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. Interest due will be added to the loan balance and
bear interest at the same rate.
3. Allocation of Loans and Collateral. When a Policy loan is
taken, Accumulated Value is transferred to and held in the Fixed
Account as Collateral for the Policy loan. Accumulated Value to
be held as Collateral is taken from the Subaccounts of the
Variable 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, Accumulated Value to be held as
Collateral will taken from the Subaccounts based on the
proportion that each Subaccount's value bears to the total
Accumulated Value in the Variable 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 Fixed Account will become
Collateral for a loan only to the extent that the Accumulated
Value in the Variable Account is insufficient. Loan interest due
will be allocated among and transferred first from the
Subaccounts of the Variable Account in proportion to the
Accumulated Values held in the Subaccounts, and then from the
Fixed Account.
The Collateral for a Policy loan will initially be equal to
the loan amount. Loan interest due will be added to the
Collateral for the Policy loan. National Life will take
additional Collateral for the loan interest so added pro rata
from the Subaccounts of the Variable Account, and then, if the
amounts in the Variable Account are insufficient, from the
portion of the Fixed Account not held as Collateral, and hold the
Collateral in the Fixed Account. At any time, the amount of the
outstanding loan under a Policy equals the sum of all loans
(including interest added to the loan balance) minus any loan
repayments.
4. Interest Credited to Amounts Held as Collateral. As long
as the Policy is in force, National Life will credit the amount
in the Fixed 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 that follows the date of determination.
5. Preferred Policy Loans. In Policy Years 11 and thereafter,
National Life currently intends to make preferred Policy loans
available, for which the rate of interest charged on the loan
will be 4.25% and amounts held as Collateral in the Fixed Account
will be credited with interest at an annual rate of 4.00%.
Availability of preferred Policy loans is not guaranteed,
however. If preferred loans are available, then all existing
non-preferred loans will become preferred.
6. 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
13
<PAGE> 14
and the interest credited to the non-loaned Accumulated Value in
the Fixed Account is less than or greater than the interest being
credited on the amounts held as Collateral in the Fixed 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 is less than the investment experience of
assets held in the Variable Account and interest credited to the
non-loaned Accumulated Value in the Fixed Account. The longer a
loan is outstanding, the greater the effect a Policy loan is
likely to have. The Death Benefit and Cash Surrender Value will
be reduced by the amount of any outstanding Policy loan and
accrued interest.
H. SETTLEMENT OPTIONS
In lieu of a single sum payment on death or surrender, an
election may be made to apply the amount under any one of the
fixed benefit Settlement Options provided in the Policy.
I. DELAY IN REDEMPTIONS OR TRANSFERS
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 Fixed 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.
J. 24-MONTH TRANSFER RIGHT
Policy Owners may during the first two years following Policy issue and
on one occasion, transfer the entire Accumulated Value in the Variable
Account to the Fixed Account, without regard to any limits on transfers or
free transfers. Since a new policy, under which payments (or charges),
dividends, and cash values could vary from those under the existing Policy,
will not be issued, no adjustment in payments and cash values under the
Policy would be required to address such variances.
14
<PAGE> 15
APPENDIX A
Charges will be deducted from the Accumulated Value on the Date
of Issue and on each Monthly Policy Date to compensate National Life for
distribution and administrative expenses and for the insurance coverage
provided by the Policy. The Monthly Deduction consists of four components:
(a) the Cost of Insurance Charge, (b) the Variable Account Charge, (c) the
Monthly Administrative Charge, and (d) 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 month to month, the Monthly Deduction
may vary in amount from month to month. The Monthly Deduction will be
deducted on a pro rata basis from the Subaccounts of the Variable Account and
the Fixed 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, when 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 the Subaccounts of the
Variable Account and the Fixed 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%. 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.
If the Policy includes both Basic Coverage and Additional Coverage, the
Net Amount at Risk is separated into portions applicable to each type of
coverage. For this purpose, Accumulated Value is applied against Basic
Coverage first for Basic Coverage and Additional Coverage which began at the
same time. Any change in the Net Amount at Risk will affect the total Cost
of Insurance Charges paid by the Owner.
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, a rate based on the Rate Classes of the two Insureds on the
Date of Issue is applied to the Net Amount at Risk for the Initial Face
Amount. For each increase in Face Amount, a rate based on the Rate Classes
of the two Insureds applicable at the time of the increase is used. If,
however, the Unadjusted Death Benefit is calculated as the Accumulated Value
times the specified percentage, the rate based on the Rate Classes for the
Initial Face Amount will be used for the amount of the Unadjusted Death
Benefit in excess of the total Face Amount. Again, if any time segment
includes both Basic Coverage and Additional Coverage, separate cost of
insurance rates are applied to each type of coverage.
Cost of Insurance Rate. The guaranteed maximum cost of insurance rates
are set forth in the Policy, and will depend on each Insured's Issue Age,
sex, substandard or uninsurable status, the Duration of the coverage, and
the 1980 Commissioners Standard Ordinary Mortality Table. Guaranteed maximum
cost of insurance rates will also vary depending on whether the coverage is
Basic Coverage or Additional Coverage, with higher rates being applicable to
Additional Coverage. The actual cost of insurance rates used ("current
rates") will depend on each Insured's Issue Age, sex, and Rate Class, as well
as the Duration of the coverage, and whether the coverage is Basic Coverage
or Additional Coverage (however, current rates applicable to Additional
Coverage may be higher or lower than for Basic Coverage). 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 sets of persons of the same Issue Ages, sexes, and Rate
Classes, and with coverages of the same Duration.
A-1
<PAGE> 16
Rate Class. The Rate Classes of the two Insureds will affect the
current cost of insurance rates. National Life currently places Insureds
into preferred nonsmoker, nonsmoker, preferred smoker, smoker, substandard,
and uninsurable classes. Smoker, substandard, and uninsurable classes
reflect higher mortality risks. In an otherwise identical Policy, Insureds
in a preferred or standard class will have a lower Cost of Insurance Charge
than Insureds 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. Classification of an Insured as substandard or
uninsurable will also affect the guaranteed cost of insurance rates.
Variable Account Charge. The Variable Account Charge varies by the
amount of Basic Coverage in the Policy. It is a percentage of the
Accumulated Value in the Variable Account, and does not apply to Accumulated
Value in the Fixed Account. During the first 10 Policy Years, for Policies
with Basic Coverage less than $1,000,000, the current annual charge is 0.90%;
for Policies with Basic Coverage from $1,000,000 to $2,999,999, the current
annual charge is 0.80%, and for Policies with Basic Coverage of $3 million or
more, the current annual charge is 0.75%. In all cases, National Life
reserves the right to increase this charge to an amount not to exceed 0.90%.
For years after Policy Year 10, National Life currently intends to reduce
this charge to the following rates: for Polices with Basic Coverage of less
than $1,000,000, an annual charge of 0.35%; for Policies with Basic Coverage
from $1,000,000 to $2,999,999, an annual charge of 0.30%, and for Policies
with Basic Coverage of $3 million or more, an annual charge of 0.25%.
However, National Life reserves the right to continue to charge a Variable
Account Charge in an annual amount up to 0.90% in years after Policy Year 10.
Monthly Administrative Charge. The amount of the Monthly
Administrative Charge during the first ten Policy Years is $15.00, plus $0.08
per $1000 of Basic Coverage (this per $1000 portion of the Monthly
Administrative Charge is lower for Joint Ages 38 and under). The per $1000
portion of this charge during the first ten Policy Years will be increased by
$.005 per $1000 of Basic Coverage for each Insured who is a smoker. National
Life classifies all nicotine users as smokers, including cigarette, cigar,
pipe, chewing tobacco, snuff, nicotine patches and nicotine gum.
After the first ten Policy Years, National Life currently intends to
charge a Monthly Administrative Charge in the amount of $7.50, with no
additional amount per $1000 of Basic Coverage, and during this period the
Monthly Administrative Charge is guaranteed not to exceed $15.00, plus $0.08
per $1000 of Basic Coverage, and plus $.005 per smoker. The per $1000
portion of the Monthly Administrative Fee will apply to increases in Basic
Coverage for 10 years after the effective date of the increase.
Optional Benefit Charges. The Monthly Deduction will include charges
for any additional benefits added to the Policy. The cost of the Guaranteed
Death Benefit Rider is $0.01 per thousand of Face Amount per month. The cost
of the Continuing Coverage Rider is $2.50 (current) and $3.00 (guaranteed)
per thousand of Net Amount at Risk, beginning at the younger Insured's
Attained Age 90. There is no specific cost for the Policy Split Option
(other than a fixed charge of $200 if the option is exercised), the
Additional Protection Benefit, the Estate Preservation Rider, the Term Rider,
the Enhanced Death Benefit Rider, or the Automatic Increase Rider, except
that the an additional charge may be assessed relating to additional
insurance provided by these riders.
A-2
<PAGE> 1
EXHIBIT 2
April 13, 1998
National Life Insurance Company
National Life Drive
Montpelier, Vermont 05604
Dear Sirs:
This opinion is furnished in connection with the filing of a
Pre-Effective Amendment No. 1 to a Registration Statement on Form S-6
("Registration Statement") under the Securities Act of 1933, as amended, of
National Variable Life Insurance Account (the "Separate Account") and National
Life Insurance Company ("National Life"), covering an indefinite amount of
premiums expected to be received under certain last survivor flexible premium
adjustable benefit individual variable life insurance policies ("Policies") to
be offered by National Life. Under the Policies, amounts will be allocated by
National Life to the Separate Account as described in the prospectus included
in the Registration Statement to support reserves for such Policies.
In my capacity as General Counsel of National Life, I have examined
all such corporate records of National Life and such other documents and laws
as I consider appropriate as a basis for the opinion hereinafter expressed.
Based upon such examination, I am of the opinion that:
1. National Life is a corporation duly organized and validly
existing under the laws of the State of Vermont.
2. The Separate Account has been duly created and is validly
existing as a separate account pursuant to Title 8, Vermont Statutes Annotated,
Sections 3855 to 3859.
3. The portion of the assets to be held in the Separate Account
equal to the reserves and other liabilities under the Policies is not
chargeable with liabilities arising out of any other business National Life may
conduct.
4. The Policies have been duly authorized by National Life and,
when issued as contemplated by the Registration Statement, will constitute
legal, validly issued and binding obligations of National Life in accordance
with their terms.
I hereby consent to the use of this opinion as an exhibit to the
Registration Statement and to the reference to my name under the heading "Legal
Matters" in the prospectus.
Very truly yours,
Jeffrey P. Johnson
General Counsel
<PAGE> 1
Exhibit 6
April 13, 1998
Ladies and Gentlemen:
In my capacity as Associate Actuary - Development of National Life
Insurance Company, I have provided actuarial advice concerning: (a) the
preparation of Pre-Effective Amendment No. 1 to a registration statement for
National Variable Life Insurance Account filed on Form S-6 with the Securities
and Exchange Commission under the Securities Act of 1933 (the "Registration
Statement") regarding the offer and sale of Last Survivor Flexible Premium
Adjustable Benefit Variable Life Insurance Policies (the "Policies"); and (b)
the preparation of policy forms for the Policies described in the Registration
Statement.
It is my professional opinion that:
(1) The illustrations of Death Benefits, Cash Surrender Values, and
accumulated premiums in Appendix A of the prospectuses (the "Prospectuses")
contained in the Registration Statement, based on the assumptions stated in the
illustrations, are consistent with the assumptions stated in the Policies. The
rate structure of the Policies has not been designed so as to make the
relationship between premiums and benefits as shown in the illustrations,
appear to be correspondingly more favorable to the prospective purchasers of
Policies, who are male non-smokers age 40 in the preferred rate class, than to
prospective purchasers of Policies for males or females at other ages or other
rate classes.
(2) The information contained in the examples in the sections of the
prospectuses entitled "Detailed Description of Policy Provisions," "Charges and
Deductions," and "Policy Rights," based on the assumptions stated in the
examples, is consistent with the provisions of the Policies.
I hereby consent to the filing of this opinion as an exhibit to
Pre-Effective Amendment No. 1 to the Registration Statement and the use of my
name under the heading "Experts" in the prospectuses contained in the
Registration Statement.
Sincerely,
Elizabeth H. MacGowan, F.S.A., M.A.A.A.
Associate Actuary
<PAGE> 1
Exhibit 7(a)
Consent of Independent Accountants
We hereby consent to the use in the Prospectus constituting part of this
Pre-Effective Amendment No. 1 to the registration statement on Form S-6 (the
"Registration Statement") of our report dated April 7, 1998, related to the
consolidated financial statements of National Life Insurance Company, which
appear in such Prospectus. We also consent to the reference to us under the
heading "Experts" in the Prospectus.
PRICE WATERHOUSE LLP
Hartford, Connecticut
April 10, 1998
<PAGE> 1
EXHIBIT 7(b)
[SUTHERLAND, ASBILL & BRENNAN, L.L.P. LETTERHEAD]
April 7, 1998
National Life Insurance Company
One National Life Drive
Montpelier, Vermont 05604
Re: National Variable Life Insurance Account
Registration Statement on Form S-6
File No. 333-44723
Ladies and Gentlemen:
We hereby consent to the reference to our name under the caption
"Legal Matters" in the Prospectus filed as part of Pre-Effective Amendment No.
1 to Form S-6 for National Variable Life Insurance Account, which Prospectus
describes certain last survivor flexible premium adjustable benefit variable
life insurance policies. In giving this consent, we do not admit that we are in
the category of persons whose consent is required under Section 7 of the
Securities Act of 1933.
Very truly yours,
SUTHERLAND, ASBILL & BRENNAN LLP
By: /s/ STEPHEN E. ROTH
--------------------------
Stephen E. Roth
