As filed with the Securities and Exchange Commission on April 29, 2016
Registration No. 333-19583
Registration No. 811-08015
SECURITIES AND EXCHANGE COMMISSION
Washington, D. C. 20549
Form N-4
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REGISTRATION UNDER THE SECURITIES ACT OF 1933 |
x |
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Post-Effective Amendment No. 31 |
x |
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And |
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REGISTRATION UNDER THE INVESTMENT COMPANY ACT OF 1940 |
x |
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Amendment No. 34 |
x |
NATIONAL VARIABLE ANNUITY ACCOUNT II
(Exact name of Registrant)
NATIONAL LIFE INSURANCE COMPANY
One National Life Drive
Montpelier, VT 05604
(Complete name and address of depositors principal executive offices)
(802) 229-7410
Lisa Muller
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 LLP
700 Sixth Street, NW, Suite 700
Washington, DC 20001-3980
It is proposed that this filing will become effective:
x immediately upon filing pursuant to paragraph (b)
o on May 1, 2016 pursuant to paragraph (b)
o 60 days after filing pursuant to paragraph (a)(1)
o on (date) pursuant to paragraph (a)(1) of Rule 485
o This post-effective amendment designates a new effective date for a previously filed post-effective amendment.
Title of Securities Being Registered: Interests in a Variable Account under individual flexible premium variable annuity contracts.
Sentinel Advantage Variable Annuity 5
SAVA 5
P R O S P E C T U S
Dated May 1, 2016
National Life Insurance Company · Home Office: One National Life Drive, Montpelier, Vermont 05604 · 1-800-732-8939
The Contracts described in this prospectus are individual flexible premium variable annuity contracts supported by National Variable Annuity Account II (the Variable Account), a separate account of National Life Insurance Company (National Life, we, our, or us). We allocate net Premium Payments to either the Variable Account, the Fixed Account, or the Guaranteed Accounts. The Variable Account is divided into Subaccounts. Each Subaccount invests in shares of a corresponding underlying Fund (each a Fund) listed below:
Sentinel Asset Management, Inc. |
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AllianceBernstein L.P. |
|
American Century Investment |
Sentinel Variable Products Trust Balanced |
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AllianceBernstein Variable Products Series Fund, Inc. VPS Balanced Wealth Strategy |
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American Century Variable Portfolios, Inc. VP Capital Appreciation |
American Funds |
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Black Rock |
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Fidelity Management & Research |
American Funds AFIS Asset Allocation |
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Equity Dividend V.I. Fund iShares Alternative Strategies V.I. Fund |
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Fidelity® Variable Insurance Products VIP Contrafund |
Franklin Templeton |
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Goldman Sachs |
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Invesco Advisers, Inc. |
Franklin Templeton Variable Insurance Products Trust Templeton Foreign VIP |
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Goldman Sachs VIT Equity Index Fund |
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Invesco Variable Insurance Funds V.I Diversified Dividend Fund |
T. Rowe Price Associates, Inc. |
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Van Eck Associates |
|
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T. Rowe Price Equity Series, Inc. Blue Chip Growth Portfolio |
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VanEck VIP Trust VIP Emerging Markets Fund |
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This prospectus provides you with the basic information you should know before investing. You should read it and keep it for future reference. A Statement of Additional Information dated May 1, 2016 containing further information about the Contracts and the Variable Account is filed with the SEC. You can obtain a copy without charge from National Life by calling 1-800-732-8939, by writing to National Life at the address above, or by accessing the SECs website at http://www.sec.gov. You may also obtain prospectuses for each of the underlying Fund options identified above without charge by calling or writing to our Home Office.
Investments in these Contracts are not deposits or obligations of, and are not guaranteed or endorsed by, the adviser of any of the underlying Funds identified above, the U.S. government, or any bank or bank affiliate. Investments are not federally insured by the Federal Deposit Insurance Corporation, the Federal Reserve Board, or any other governmental agency. It may not be a good decision
to purchase a Contract as a replacement for another type of variable annuity if you already own another flexible premium deferred variable annuity.
The Statement of Additional Information, dated May 1, 2016, is incorporated herein by reference. The Table of Contents for the Statement of Additional Information appears on the last page of this prospectus.
The SEC has not approved or disapproved these securities or passed upon the accuracy or adequacy of the prospectus. Any representation to the contrary is a criminal offense.
Table of Contents
SUMMARY |
5 |
How Do I Purchase a Contract? |
5 |
Can I Make Additional Premium Payments? |
5 |
How Does the Free Look Right to Examine the Contract Work? |
5 |
What is the Purpose of the Variable Account? |
5 |
How Does the Fixed Account Work? |
5 |
How Do the Guaranteed Accounts Work? |
5 |
When Will I Receive Payments? |
5 |
What Happens if an Owner Dies Before Annuitization? |
6 |
What Happens if the Annuitant Dies Before Annuitization? |
6 |
Can I Make a Withdrawal from My Contract? |
6 |
What Charges Will I Pay? |
6 |
Can I Transfer My Contract Value Among the Different Investment Options? |
7 |
Are There any Other Contract Provisions? |
7 |
How Will the Contract be Taxed? |
7 |
What if I Have Questions? |
7 |
SUMMARY OF CONTRACT EXPENSES |
8 |
Contract Owner Transaction Expenses |
8 |
Variable Account Annual Expenses |
8 |
Optional Rider Expenses |
8 |
Examples |
14 |
ACCUMULATION UNIT VALUE |
15 |
NATIONAL LIFE, THE VARIABLE ACCOUNT, AND THE FUNDS |
15 |
National Life |
15 |
The Variable Account |
15 |
The Funds |
15 |
Other Information |
19 |
Change of Address Notification |
20 |
Unclaimed or Abandoned Property |
20 |
DETAILED DESCRIPTION OF CONTRACT PROVISIONS |
21 |
Issuance of a Contract |
21 |
Premium Payments |
21 |
Transfers |
22 |
Disruptive Trading |
23 |
Value of a Variable Account Accumulation Unit |
24 |
Annuitization |
25 |
Annuitization - Variable Account |
26 |
Annuitization - Fixed Account |
26 |
Annuity Payment Options |
26 |
Stretch Annuity Payment Option |
27 |
Death of Owner |
27 |
Death of Annuitant Prior to the Annuitization Date |
28 |
Generation-Skipping Transfers |
29 |
Ownership Provisions |
29 |
CHARGES AND DEDUCTIONS |
29 |
Deductions from the Variable Account |
30 |
Contingent Deferred Sales Charge |
30 |
Annual Contract Fee |
31 |
Transfer Charge |
31 |
Premium Taxes |
32 |
Other Charges |
32 |
More detailed information is contained in the Funds prospectuses, which are available at no charge by contacting us at the number and address listed on the first page of this prospectus |
32 |
CONTRACT RIGHTS AND PRIVILEGES |
32 |
Free Look |
32 |
Loan Privilege - Tax Sheltered Annuities |
32 |
Surrender and Withdrawal |
35 |
Payments |
36 |
Surrenders and Withdrawals Under a Tax-Sheltered Annuity Contract |
36 |
Telephone Transaction Privilege |
37 |
Facsimile Transaction Privilege |
38 |
Electronic Mail Transaction Privilege |
38 |
Available Automated Fund Management Features |
38 |
Contract Rights Under Certain Plans |
40 |
THE FIXED ACCOUNT |
40 |
Minimum Guaranteed and Current Interest Rates |
40 |
Enhanced Fixed Account |
40 |
THE GUARANTEED ACCOUNTS |
41 |
Investments in the Guaranteed Accounts |
42 |
Termination of a Guaranteed Account |
42 |
Market Value Adjustment |
42 |
Other Matters Relevant to the Guaranteed Accounts |
45 |
Preserver Plus Program |
45 |
OPTIONAL ACCELERATED BENEFIT RIDERS |
45 |
FEDERAL INCOME TAX CONSIDERATIONS |
45 |
Taxation of Non-Qualified Contracts |
46 |
Taxation of Qualified Contracts |
47 |
Federal Estate, Gift and Generation-Skipping Transfer Taxes |
48 |
Possible Tax Law Changes |
49 |
GENDER NEUTRALITY |
49 |
VOTING RIGHTS |
50 |
CHANGES TO VARIABLE ACCOUNT |
50 |
DISTRIBUTION OF THE CONTRACTS |
50 |
FINANCIAL STATEMENTS |
51 |
STATEMENTS AND REPORTS |
51 |
OWNER INQUIRIES |
52 |
LEGAL MATTERS |
52 |
GLOSSARY |
53 |
STATEMENT OF ADDITIONAL INFORMATION |
56 |
This prospectus does not constitute an offering in any jurisdiction in which such offering may not legally be made.
SUMMARY
This summary provides a brief description of some of the features and charges of the Contract. You will find more detailed information in the rest of this prospectus, the Statement of Additional Information and the Contract. Please keep the Contract and its riders or endorsements, if any, together with the application. Together they are the entire agreement between you and us. For your convenience, we have defined the capitalized terms we use in the Glossary at the end of the prospectus.
How Do I Purchase a Contract?
Generally, you may purchase a Contract if you are age 85 and younger (on an age on nearest birthday basis). See Issuance of a Contract, below. The initial Premium Payment must be at least $5,000 for Non-Qualified Contracts and at least $1,500 for Qualified Contracts. We may at our discretion permit initial Premium Payments lower than these minimums.
Can I Make Additional Premium Payments?
You may make additional Premium Payments at any time (except for Contracts purchased in Oregon and Massachusetts) but they must be at least $100 ($50 for IRAs). We may accept lower Premium Payments at our discretion if the Premium Payments are remitted electronically. The total of all Premium Payments under Contracts issued on the life of any one Owner (or Annuitant if the owner is not a natural person) may not exceed $1,000,000 without our prior consent (see Premium Payments, below).
How Does the Free Look Right to Examine the Contract Work?
To be sure that you are satisfied with the Contract, you have a ten-day free look right to examine the Contract. Some states may require a longer period. Within ten days of the day you receive the Contract, you may return the Contract to our Home Office. When we receive the Contract, we will void the Contract and refund the Contract Value plus any charges assessed when the Contract was issued, unless otherwise required by state and/or federal law. In the case of IRAs and Contracts issued in states that require the return of Premium Payments, you may revoke the Contract during the free look period and we will refund Premium Payments.
What is the Purpose of the Variable Account?
The Variable Account is a separate investment account that is divided into several Subaccounts. Amounts in the Variable Account will vary according to the investment performance of the Fund(s) in which your elected Subaccounts are invested. You may allocate Net Premium Payments among the Fixed Account, the Guaranteed Accounts and the Subaccounts of the Variable Account. The assets of each Subaccount are invested in the corresponding Funds that are listed on the cover page of this prospectus (see The Variable Account and Underlying Fund Options, below).
We cannot give any assurance that any Subaccount will achieve its investment objectives. You bear the entire investment risk on the value of your Contract which you allocate to the Variable Account. The value of your Contract may be more or less than the premiums paid.
How Does the Fixed Account Work?
You may allocate all or part of your Net Premium Payments or make transfers from the Variable Account or the Guaranteed Accounts to the Fixed Account. Contract Value held in the Fixed Account will earn an effective annual interest rate of at least the minimum required by your state (see The Fixed Account, below).
How Do the Guaranteed Accounts Work?
You may allocate all or part of your Net Premium Payments or make transfers from the Variable Account (or to a limited extent from the Fixed Account) to a Guaranteed Account with a duration of 5, 7 or 10 years. These Guaranteed Accounts guarantee a specified interest rate for the entire period of an investment if the Contract Value remains in the Guaranteed Account for the specified period of time. If you surrender your Contract or withdraw or transfer Contract value out of a Guaranteed Account prior to the end of the specified period, a market value adjustment will be applied to such Contract Value surrendered, withdrawn or transferred. (see The Guaranteed Accounts, below).
When Will I Receive Payments?
After the Contract Value is transferred to a payment option, we will pay proceeds according to the Annuity Payment Option you select. If the Contract Value at the Annuitization Date is less than $3,500, the Contract Value may be distributed in one lump sum
instead of annuity payments. If any annuity payment would be less than $100, we have the right to change the frequency of payments to intervals that will result in payments of at least $100. In no event will annuity payments be less frequent than annually (see Annuitization Frequency and Amount of Annuity Payments, below).
What Happens if an Owner Dies Before Annuitization?
If any Owner dies before the Contract Value is transferred to a payment option (Annuitization) and the Owner (or the oldest of Joint Owners) dies prior to the Contract Anniversary on which your age, on an age nearest birthday basis, is 81, we will pay the Beneficiary the greater of (a) the Contract Value, or (b) the Net Premium Payments made to the Contract (less all withdrawals, and less all outstanding loans and accrued interest), and adjusted such that if you effect a Withdrawal (including a systematic Withdrawal) at a time when the Contract Value is less than the amount of the Death Benefit that would then be payable to you, the Death Benefit will be reduced by the same proportion that the Withdrawal reduces the Contract Value (this adjustment will have the effect of reducing the Death Benefit by more than the amount of the Withdrawal, where a Withdrawal is taken at a time when the Death Benefit is greater than the Contract Value). If you die after the Contract Anniversary on which your age, on an age nearest birthday basis, is 81 (or in the case of Joint Owners, where the first of the Joint Owners to die dies after the Contract Anniversary on which the age of the oldest Joint Owner, on an age on nearest birthday basis, is 81), then the Death Benefit shall be equal to the Contract Value.
All amounts paid will be reduced by premium tax charges, if any.
For more information, see Death of Owner, below.
What Happens if the Annuitant Dies Before Annuitization?
If the Annuitant (who is not an Owner) dies before the Contract Value is transferred to a payment option, we will pay the Beneficiary a Death Benefit equal to the Cash Surrender Value, unless the Owner selects another available option (see Death of Annuitant Prior to the Annuitization Date, below).
Can I Make a Withdrawal from My Contract?
You may withdraw part or all of the Cash Surrender Value at any time before the Contract is Annuitized (see Surrender and Withdrawal, below). A Withdrawal or a surrender may be restricted under certain qualified Contracts and result in federal income tax, including a federal penalty tax (see Federal Income Tax Considerations, below). You may have to pay a surrender charge and/or (in the case of Contract Value allocated to a Guaranteed Account) a market value adjustment on the Withdrawal.
What Charges Will I Pay?
Contingent Deferred Sales Charge (CDSC). We do not deduct a sales charge from Premium Payments. However, if you surrender the Contract or make a Withdrawal, we will generally deduct from the Contract Value a CDSC not to exceed 7% of the lesser of the total of all Net Premium Payments made within 60 months prior to the date of the request to surrender or the amount surrendered (see Contingent Deferred Sales Charge, below).
Market Value Adjustment. We deduct, or add, a market value adjustment to any amount you surrender, withdraw, or transfer from a Guaranteed Account before its termination date (see The Guaranteed Accounts, below).
Annual Contract Fee. We deduct an Annual Contract Fee of $30.00 payable on each Contract Anniversary as long as the Contract Value is less than $50,000 (see Annual Contract Fee, below).
Administration Charge. We also deduct an Administration Charge each day at an annual rate of 0.15% from the assets of the Variable Account (see Deductions from the Variable Account, below).
Mortality and Expense Risk Charge. We deduct a mortality and expense risk charge each day from the assets of the Variable Account at an annual rate of 1.25% (see Deductions from the Variable Account, below).
Premium Taxes. If a governmental entity imposes premium taxes, we will make a deduction for premium taxes in a corresponding amount. Certain states impose a premium tax. Premium taxes may range up to 3.5% (see Premium Taxes, below).
Transfer Charge. We reserve the right to make a charge of $25 for each transfer in excess of 12 transfers in a Contract Year. However, we are not currently assessing transfer charges.
Investment Management Fees and Fund Operating Expenses. Charges for investment management services and operating expenses are deducted daily from each Fund (see Underlying Fund Annual Expenses, below, and the accompanying Fund prospectuses).
We pay compensation to broker-dealers who sell the Contracts. (See Distribution of Contracts, below).
Can I Transfer My Contract Value Among the Different Investment Options?
You may transfer the Contract Value among the Subaccounts of the Variable Account, between the Variable Account and the Fixed Account (subject to specific limitations), and between the Guaranteed Accounts and either the Fixed Account (subject to specific limitations) or the Subaccounts of the Variable Account, by making a written transfer request. In the case of transfers out of a Guaranteed Account prior to its termination date, a market value adjustment will be applied. If you elect the telephone transaction privilege, you may make transfers by telephone. Please note that frequent, large, or short-term transfers among Subaccounts, such as those associated with market timing transactions, can adversely affect the underlying Funds and the returns achieved by Owners. Such transfers may dilute the value of underlying Fund shares, interfere with the efficient management of the underlying Fund, and increase brokerage and administrative costs of the underlying Funds. To protect Owners and underlying Funds from such effects, we have developed procedures to detect and deter market timing and disruptive trading. See Disruptive Trading below.
Are There any Other Contract Provisions?
For information concerning other important Contract provisions, see Contract Rights and Privileges, below, and the remainder of this prospectus.
How Will the Contract be Taxed?
For general information regarding the federal tax laws concerning us and the Contract, see Federal Income Tax Considerations, below.
What if I Have Questions?
We will be happy to answer your questions about the Contract or our procedures. Call or write to us at our Home Office. All inquiries should include the Contract number and the names of the Owner and the Annuitant.
If you have questions concerning your investment strategies, please contact your registered representative.
SUMMARY OF CONTRACT EXPENSES
The following tables describe the fees and expenses that you will pay when buying, owning, taking a Withdrawal from, and surrendering the Contract.
The first table describes the fees and expenses that you will pay at the time that you buy the Contract, take a Withdrawal from or surrender the Contract, transfer Contract Value between investment options or, for certain Qualified Contracts, take a loan.
Contract Owner Transaction Expenses
Sales Load Imposed on Purchases |
|
None |
| |
Premium Taxes |
|
See below |
(1) | |
CDSC (as a percentage of Net Premium Payments surrendered or withdrawn) (2) |
|
|
| |
Maximum |
|
7 |
% | |
Transfer Charge |
|
$ |
25 |
(3) |
Loan Interest Spread (effective annual rate) |
|
2.5 |
%(4) | |
The next two tables describe the fees and expenses that you will pay periodically during the time that you own the Contract, not including Fund fees and expenses.
Variable Account Annual Expenses (deducted daily as a percentage of Variable Account Contract Value)
Mortality and Expense Risk Charge |
|
1.25 |
% | |
Administration Charge |
|
0.15 |
% | |
Total Basic Variable Account Annual Percentage Expenses |
|
1.40 |
% | |
Annual Contract Fee(5) |
|
$ |
30 |
|
(1) States may assess premium taxes on premiums paid under the Contract. Where National Life is required to pay this premium tax when a Premium Payment is made, it may deduct an amount equal to the amount of premium tax paid from the Premium Payment. National Life currently intends to make this deduction from Premium Payments only in South Dakota. In the remaining states which assess premium taxes, a deduction will be made only upon Annuitization, death of the Owner, or surrender. See Premium Taxes, below.
(2) The CDSC declines 1% for each completed year from the date of the affected premium payment through year four. After the premium payment has been in the Contract for five years, the CDSC is eliminated. Each Contract Year after the first one, the Owner may withdraw without a CDSC an amount equal to 15% of the Contract Value as of the most recent Contract Anniversary. In addition, any amount withdrawn in order for the Contract to meet minimum Distribution requirements under the Code shall be free of CDSC. Withdrawals may be restricted for Contracts issued pursuant to the terms of a Tax-Sheltered Annuity or under an annuity issued in conjunction with certain qualified pension or profit sharing plans. This CDSC-free Withdrawal privilege does not apply in the case of full surrenders and is non-cumulative. That is, free amounts not taken during any given Contract Year cannot be taken as free amounts in a subsequent Contract Year. In addition, New Jersey and the State of Washington do not permit this CDSC-free Withdrawal provision, in which case a different CDSC-free Withdrawal provision will apply. After annuitization, we will assess the CDSC, as applicable, on surrenders under Payment Option 1. See Contingent Deferred Sales Charge, below.
(3) We reserve the right to make a $25 charge on each transfer in excess of 12 transfers in a Contract Year. However, no such charge is currently applied.
(4) The Loan Interest Spread is the difference between the amount of interest we charge on loans (maximum 15%) and the amount of interest we credit to amounts held in the Collateral Fixed Account to secure the loan (maximum 12.5%).
(5) The Annual Contract Fee is assessed only upon Contracts which, as of the applicable Contract Anniversary, have a Contract Value of less than $50,000. The fee is not assessed on Contract Anniversaries after the Annuitization Date.
The following table describes the portfolio fees and expenses that you will pay periodically during the time that you own the Contract. The table shows the minimum and maximum fees and expenses charged by any of the portfolios for the year ended December 31, 2015. The expenses of the portfolios may be higher or lower in the future. More details concerning each portfolios fees and expenses are contained in the prospectus for each portfolio.
Underlying Fund Annual Expenses (as a percentage of underlying Fund average net assets)
|
|
Minimum |
|
Maximum |
|
Total Annual Fund Operating Expenses (expenses that are deducted from fund assets, including management fee, distribution and/or service 12b-1 fees, and other expenses). |
|
0.35 |
% |
8.14 |
% |
The annual expenses as of December 31, 2015 (unless otherwise noted) of each Fund, before any fee waivers or expense reimbursements, are shown below.(1)
Fund |
|
Management |
|
12b-1 Fees(2) |
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Other |
|
Acquired |
|
Gross Total |
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Waivers, |
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Net Total |
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Sentinel VPT |
|
|
|
|
|
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|
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|
|
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|
|
|
|
Variable Products Balanced Fund |
|
0.55 |
% |
0.00 |
% |
0.32 |
% |
0.02 |
% |
0.89 |
% |
0.02 |
% |
0.87 |
% |
Variable Products Bond Fund |
|
0.40 |
% |
0.00 |
% |
0.27 |
% |
0.01 |
% |
0.68 |
% |
0.00 |
% |
0.68 |
% |
Variable Products Common Stock Fund |
|
0.50 |
% |
0.00 |
% |
0.22 |
% |
0.00 |
% |
0.72 |
% |
0.00 |
% |
0.72 |
% |
Variable Products Small Company Fund |
|
0.50 |
% |
0.00 |
% |
0.28 |
% |
0.01 |
% |
0.79 |
% |
0.00 |
% |
0.79 |
% |
AllianceBernstein |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
VPS Balanced Wealth Strategy Portfolio - Class B |
|
0.55 |
% |
0.25 |
% |
0.15 |
% |
0.00 |
% |
0.95 |
% |
0.00 |
% |
0.95 |
% |
VPS Dynamic Asset Allocation Portfolio - Class B |
|
0.70 |
% |
0.25 |
% |
0.13 |
% |
0.00 |
% |
1.08 |
% |
0.00 |
% |
1.08 |
% |
VPS Growth Portfolio - Class B |
|
0.75 |
% |
0.25 |
% |
0.34 |
% |
0.00 |
% |
1.34 |
% |
0.00 |
% |
1.34 |
% |
VPS Real Estate Investment Portfolio - Class B |
|
0.55 |
% |
0.25 |
% |
0.53 |
% |
0.00 |
% |
1.33 |
% |
0.00 |
% |
1.33 |
% |
VPS International Value Portfolio - Class B |
|
0.75 |
% |
0.25 |
% |
0.10 |
% |
0.00 |
% |
1.10 |
% |
0.00 |
% |
1.10 |
% |
VPS Small/Mid Cap Value Portfolio - Class B |
|
0.75 |
% |
0.25 |
% |
0.07 |
% |
0.00 |
% |
1.07 |
% |
0.00 |
% |
1.07 |
% |
American Century |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
VP Capital Appreciation - Class 2 |
|
0.90 |
% |
0.25 |
% |
0.00 |
% |
0.00 |
% |
1.15 |
% |
0.01 |
%(4) |
1.14 |
% |
VP Growth - Class 2 |
|
0.90 |
% |
0.25 |
% |
0.01 |
% |
0.00 |
% |
1.16 |
% |
0.15 |
%(5) |
1.01 |
% |
VP Large Company Value - Class 2 |
|
0.80 |
% |
0.25 |
% |
0.01 |
% |
0.00 |
% |
1.06 |
% |
0.11 |
%(6) |
0.95 |
% |
VP Ultra - Class 2 |
|
0.90 |
% |
0.25 |
% |
0.01 |
% |
0.00 |
% |
1.16 |
% |
0.15 |
%(5) |
1.01 |
% |
VP Value - Class 2 |
|
0.87 |
% |
0.25 |
% |
|
|
0.00 |
% |
1.12 |
% |
0.18 |
%(7) |
0.94 |
% |
American Funds |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
AFIS Asset Allocation Fund - Class 4 |
|
0.28 |
% |
0.25 |
% |
0.26 |
% |
0.00 |
% |
0.79 |
% |
0.00 |
% |
0.79 |
% |
AFIS Global Bond Fund - Class 4 |
|
0.53 |
% |
0.25 |
% |
0.29 |
% |
0.00 |
% |
1.07 |
% |
0.00 |
% |
1.07 |
% |
AFIS Growth-Income Fund - Class 4 |
|
0.27 |
% |
0.25 |
% |
0.27 |
% |
0.00 |
% |
0.79 |
% |
0.00 |
% |
0.79 |
% |
AFIS Global Growth & Income Fund - Class 4 |
|
0.60 |
% |
0.25 |
% |
0.29 |
% |
0.00 |
% |
1.14 |
% |
0.00 |
% |
1.14 |
% |
AFIS Global Small Capitalization Fund - Class 4 |
|
0.69 |
% |
0.25 |
% |
0.29 |
% |
0.00 |
% |
1.23 |
% |
0.00 |
% |
1.23 |
% |
AFIS High-Income Bond Fund - Class 4 |
|
0.46 |
% |
0.25 |
% |
0.27 |
% |
0.00 |
% |
0.98 |
% |
0.00 |
% |
0.98 |
% |
AFIS New World Fund - Class 4 |
|
0.72 |
% |
0.25 |
% |
0.32 |
% |
0.00 |
% |
1.29 |
% |
0.00 |
% |
1.29 |
% |
Blackrock |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Equity Dividend V.I. Fund - Class III |
|
0.60 |
% |
0.25 |
% |
0.31 |
% |
0.01 |
% |
1.17 |
%(8) |
0.12 |
%(9),(10) |
1.05 |
%(9) |
iShares Alternative Strategies V.I. Fund - Class III |
|
0.25 |
%(11) |
0.25 |
% |
1.68 |
%(12) |
0.37 |
% |
2.55 |
%(8) |
1.28 |
% |
1.27 |
% |
iShares Dynamic Allocation V.I. Fund - Class III |
|
0.15 |
%(11) |
0.25 |
% |
1.42 |
%(12) |
0.29 |
% |
2.11 |
%(8) |
1.04 |
% |
1.07 |
% |
iShares Dynamic Fixed Income V.I. Fund - Class III |
|
0.15 |
%(11) |
0.25 |
% |
1.60 |
%(12) |
0.26 |
% |
2.26 |
%(8) |
1.25 |
% |
1.01 |
% |
iShares Equity Appreciation V.I. Fund - Class III |
|
0.15 |
%(11) |
0.25 |
% |
1.73 |
%(12) |
0.30 |
% |
2.43 |
%(8) |
1.43 |
% |
1.00 |
% |
Value Opportunities V.I. Fund - Class III |
|
0.75 |
% |
0.25 |
% |
0.29 |
% |
0.00 |
% |
1.29 |
%(8) |
0.20 |
%(10),(13) |
1.09 |
%(13) |
Government Money Market V.I. Fund - Class I |
|
0.50 |
% |
0.00 |
% |
0.11 |
% |
0.00 |
% |
0.61 |
%(8) |
0.31 |
%(10),(14) |
0.30 |
% |
Global Allocation V.I. Fund - Class III |
|
0.62 |
% |
0.25 |
% |
0.25 |
% |
0.00 |
% |
1.12 |
%(8) |
0.13 |
%(10),(15) |
0.99 |
%(15) |
Fidelity |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
VIP Contrafund - Service Class 2 |
|
0.55 |
% |
0.25 |
% |
0.08 |
% |
0.00 |
% |
0.88 |
% |
0.00 |
% |
0.88 |
% |
VIP Disciplined Small Cap - Service Class 2 |
|
0.70 |
% |
0.25 |
% |
0.15 |
% |
0.00 |
% |
1.10 |
% |
0.00 |
% |
1.10 |
% |
VIP Dynamic Capital Appreciation - Service Class 2 |
|
0.55 |
% |
0.25 |
% |
0.15 |
% |
0.00 |
% |
0.95 |
% |
0.00 |
% |
0.95 |
% |
VIP Freedom Income - Service Class 2 |
|
0.00 |
% |
0.25 |
% |
0.00 |
% |
0.46 |
% |
0.71 |
% |
0.00 |
% |
0.71 |
% |
VIP Growth Opportunities - Service Class 2 |
|
0.55 |
% |
0.25 |
% |
0.12 |
% |
0.00 |
% |
0.92 |
% |
0.00 |
% |
0.92 |
% |
VIP Index 500 - Service Class 2 |
|
0.05 |
% |
0.25 |
% |
0.06 |
% |
0.00 |
% |
0.35 |
% |
0.00 |
% |
0.35 |
% |
VIP Mid Cap - Service Class 2 |
|
0.55 |
% |
0.25 |
% |
0.08 |
% |
0.00 |
% |
0.88 |
% |
|
|
0.88 |
% |
VIP Real Estate Portfolio - Service Class 2 |
|
0.55 |
% |
0.25 |
% |
0.12 |
% |
0.00 |
% |
0.92 |
% |
0.00 |
% |
0.92 |
% |
Franklin Templeton VIPT |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Franklin Founding Funds Allocation VIP Fund - Class 4 |
|
0.00 |
% |
0.35 |
% |
0.11 |
% |
0.67 |
% |
1.13 |
% |
0.01 |
%(16) |
1.12 |
% |
Franklin Small-Mid Cap Growth VIP Fund* - Class 4 |
|
0.77 |
% |
0.35 |
% |
0.04 |
% |
0.00 |
% |
1.16 |
% |
0.00 |
% |
1.16 |
% |
Franklin High Income VIP Fund - Class 4 |
|
0.53 |
% |
0.35 |
% |
0.06 |
% |
0.00 |
% |
0.94 |
% |
0.00 |
% |
0.94 |
% |
Franklin Mutual Global Discovery VIP Fund - Class 4 |
|
0.94 |
% |
0.35 |
% |
0.08 |
% |
0.00 |
% |
1.37 |
% |
0.00 |
% |
1.37 |
% |
Franklin Rising Dividends VIP Fund - Class 4 |
|
0.61 |
% |
0.35 |
% |
0.02 |
% |
0.00 |
% |
0.98 |
% |
0.00 |
% |
0.98 |
% |
Templeton Developing Markets VIP Fund - Class 4 |
|
1.25 |
% |
0.35 |
%(17) |
0.08 |
% |
0.01 |
% |
1.69 |
% |
0.01 |
% |
1.68 |
% |
Templeton Global Bond VIP Fund - Class 4 |
|
0.46 |
% |
0.35 |
% |
0.06 |
% |
0.00 |
% |
0.87 |
% |
0.00 |
% |
0.87 |
% |
Goldman Sachs |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
VIT Equity Index Fund - Service Class |
|
0.30 |
% |
0.25 |
% |
0.15 |
% |
0.00 |
% |
0.70 |
% |
0.22 |
%(18) |
0.48 |
% |
VIT Global Trends Allocation - Service Class |
|
0.79 |
% |
0.25 |
% |
0.13 |
% |
0.07 |
% |
1.24 |
%(19) |
0.17 |
%(20) |
1.07 |
% |
VIT Growth Opportunities Fund - Service Class |
|
1.00 |
% |
0.25 |
% |
0.15 |
% |
0.00 |
% |
1.40 |
% |
0.35 |
%(21) |
1.05 |
%(22) |
VIT High Quality Floating Rate Fund - Service Class |
|
0.40 |
% |
0.25 |
% |
0.40 |
% |
0.01 |
% |
1.06 |
%(23) |
0.41 |
%(24) |
0.65 |
%(23) |
VIT Mid Cap Value Fund - Service Class |
|
0.80 |
% |
0.25 |
% |
0.07 |
% |
0.00 |
% |
1.12 |
% |
0.03 |
%(25) |
1.09 |
% |
VIT Small Cap Equity Insights Fund. - Service Class |
|
0.75 |
% |
0.25 |
% |
0.24 |
% |
0.00 |
% |
1.24 |
% |
0.18 |
%(26) |
1.06 |
% |
Invesco |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
V.I Diversified Dividend Fund - Series II |
|
0.49 |
% |
0.25 |
% |
0.22 |
% |
0.01 |
% |
0.97 |
% |
0.01 |
%(27) |
0.96 |
% |
V.I Equity and Income Fund - Series II |
|
0.38 |
% |
0.25 |
% |
0.27 |
% |
0.01 |
% |
0.91 |
% |
0.01 |
%(27) |
0.90 |
% |
V.I. Government Securities Fund - Series II |
|
0.47 |
% |
0.25 |
% |
0.30 |
% |
0.00 |
% |
1.02 |
% |
0.00 |
% |
1.02 |
% |
V.I Global Real Estate Fund - Series II |
|
0.75 |
% |
0.25 |
% |
0.36 |
% |
0.00 |
% |
1.36 |
% |
0.00 |
% |
1.36 |
% |
V.I High Yield Fund - Series II |
|
0.63 |
% |
0.25 |
% |
0.40 |
% |
0.00 |
% |
1.28 |
% |
0.00 |
% |
1.28 |
% |
V.I International Growth Fund - Series II |
|
0.71 |
% |
0.25 |
% |
0.30 |
% |
0.01 |
% |
1.27 |
% |
0.01 |
%(27) |
1.26 |
% |
V.I Mid Cap Growth Fund - Series II |
|
0.75 |
% |
0.25 |
% |
0.32 |
% |
0.00 |
% |
1.32 |
% |
0.00 |
% |
1.32 |
% |
T Rowe Price |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Blue Chip Growth Portfolio-II - VIP II |
|
0.85 |
% |
0.25 |
% |
0.00 |
% |
0.00 |
% |
1.10 |
% |
0.00 |
% |
1.10 |
% |
Equity Income Portfolio-II - VIP II |
|
0.85 |
% |
0.25 |
% |
0.00 |
% |
0.00 |
% |
1.10 |
% |
0.00 |
% |
1.10 |
% |
Health Sciences Portfolio-II - VIP II |
|
0.95 |
% |
0.25 |
% |
0.00 |
% |
0.00 |
% |
1.20 |
% |
0.00 |
% |
1.20 |
% |
Mid Cap Growth-II - VIP II |
|
0.85 |
% |
0.25 |
% |
0.00 |
% |
0.00 |
% |
1.10 |
% |
0.00 |
% |
1.10 |
% |
VanEck |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
VIP Emerging Markets Fund - Class S |
|
1.00 |
% |
0.00 |
% |
0.14 |
% |
0.00 |
% |
1.14 |
% |
0.00 |
%(28) |
1.14 |
% |
VIP Global Hard Assets Fund - Class S |
|
1.00 |
% |
0.25 |
% |
0.06 |
% |
0.00 |
% |
1.31 |
% |
0.00 |
%(29) |
1.31 |
% |
VIP Long/Short Equity Index Fund - Class S |
|
0.65 |
% |
0.25 |
% |
7.22 |
% |
0.02 |
% |
8.14 |
% |
7.06 |
%(30) |
1.08 |
% |
(1) The Fund fees and expenses used to prepare the table above were provided to us by the Funds. We have not independently verified such information. Current or future expenses may be greater or less than those shown. In addition, certain Funds may impose a redemption fee of no more than 2% of the amount of Fund shares redeemed. We may be required to implement a Funds redemption fee. The redemption fee will be assessed against your Contract Value. For more information, please see each Funds prospectus.
(2) Our affiliate, Equity Services, Inc., the principal underwriter for the Contracts, will receive 12b-1 fees deducted from certain Fund assets attributable to the Contracts for providing distribution and shareholder support services to some Funds.
(3) The Total Annual Fund Operating Expenses may not be the same as the reported in the portfolios financial highlights and shareholder reports, because Total Annual Fund Operating Expenses include expenses related to other investment companies acquired by the portfolio, if any, while the financial highlights and shareholder reports do not.
(4) The advisor has agreed to waive 0.01 percentage points of the funds management fee. The advisor expects this waiver to continue until April 30, 2017 and cannot terminate it prior to such date without the approval of the Board of Directors.
(5) The advisor has agreed to waive 0.15 percentage points of the funds management fee. The advisor expects this waiver to continue until April 30, 2017 and cannot terminate it prior to such date without the approval of the Board of Directors.
(6) The advisor has agreed to waive 0.11 percentage points of the funds management fee. The advisor expects this waiver to continue until April 30, 2017 and cannot terminate it prior to such date without the approval of the Board of Directors.
(7) The advisor has agreed to waive 0.18 percentage points of the funds management fee. The advisor expects this waiver to continue until April 30, 2017 and cannot terminate it prior to such date without the approval of the Board of Directors.
(8) The Total Annual Fund Operating Expenses do not correlate to the ratio of expenses to average net assets given in the Funds most recent annual report which does not include the Acquired Fund Fees and Expenses.
(9) As described in the Management of the Funds section of the Funds prospectus, BlackRock has contractually agreed to waive and/or reimburse fees or expenses in order to limit Total Annual Fund Operating Expenses After Fee Waivers and/or Expense Reimbursements (excluding Dividend Expense, Interest Expense, Acquired Fund Fees and Expenses and certain other Fund expenses) to 1.50% of average daily net assets through April 30, 2017. BlackRock has also contractually agreed to reimburse fees in order to limit certain operational and recordkeeping fees to 0.00% of average daily net assets through April 30, 2017. Each of these contractual agreements may be terminated upon 90 days notice by a majority of the non-interested directors of the Fund or by a vote of a majority of the outstanding voting securities of the Fund.
(10) The Manager may waive a portion of the Funds management fee in connection with the Funds investment in an affiliated money market fund.
(11) The Management Fee payable by the Fund is based on assets estimated to be attributable to the Funds direct investments in fixed-income and equity securities and instruments, including ETFs advised by BlackRock or other investment advisers, other investments and cash and cash equivalents (including money market funds). BlackRock has contractually agreed to waive the Management Fee on assets estimated to be attributed to the Funds investments in other equity and fixed-income mutual funds managed by BlackRock or its affiliates (the mutual funds).
(12) Other expenses have been restated to reflect current fees.
(13) As described in the Management of the Funds section of the Funds prospectus, BlackRock has contractually agreed to waive and/or reimburse fees or expenses in order to limit Total Annual Fund Operating Expenses After Fee Waivers and/or Expense Reimbursements (excluding Dividend Expense, Interest Expense, Acquired Fund Fees and Expenses and certain other Fund expenses) to 1.50% of average daily net assets through April 30, 2017. BlackRock has also contractually agreed to reimburse fees in order to limit certain operational and recordkeeping fees to 0.01% of average daily net assets through April 30, 2017. Each of these contractual agreements may be terminated upon 90 days notice by a majority of the non-interested directors of the Fund or by a vote of a majority of the outstanding voting securities of the Fund.
(14) The Manager voluntarily agreed to waive a portion of the management fee and reimburse operating expenses to enable the Fund to maintain a minimum daily net investment income dividend.
(15) As described in the Management of the Funds section of the Funds prospectus, BlackRock has contractually agreed to waive and/or reimburse fees or expenses in order to limit Total Annual Fund Operating Expenses After Fee Waivers and/or Expense Reimbursements (excluding Dividend Expense, Interest Expense, Acquired Fund Fees and Expenses and certain other Fund expenses) to 1.50% of average daily net assets through April 30, 2017. BlackRock has also contractually agreed to reimburse fees in order to limit certain operational and recordkeeping fees to 0.07% of average daily net assets through April 30, 2017. Each of these contractual agreements may be terminated upon 90 days notice by a majority of the non-interested directors of the Fund or by a vote of a majority of the outstanding voting securities of the Fund.
(16) The investment manager has contractually agreed to waive or assume certain expenses so that common expenses (excluding Rule 12b-1 fees, acquired fund fees and expenses, and certain non-routine expenses) do not exceed 0.71% until at least April 30, 2017.
(17) The investment manager has contractually agreed in advance to reduce its fees as a result of the funds investment in a Franklin Templeton money market fund (the acquired fund) for at least the next 12 month period.
(18) The Investment Adviser has agreed to (i) waive a portion of the management fee equal to 0.09% of the annual contractual rate applicable to the Funds average daily net assets between $0 and $400 million, and equal to 0.10% of the annual contractual rate applicable to the Funds average daily net assets exceeding $400 million, and (ii) reduce or limit Other Expenses (excluding acquired fund fees and expenses, transfer agency fees and expenses, taxes, interest, brokerage fees, shareholder meeting, litigation, indemnification and extraordinary expenses) to 0.004% of the Funds average daily net assets. Each arrangement will remain in effect through at least April 29, 2017, and prior to such date the Investment Adviser may not terminate the arrangements without the approval of the Board of Trustees.
(19) The Total Annual Fund Operating Expenses do not correlate to the ratios of net and total expenses to average net assets provided in the Financial Highlights, which reflect the operating expenses of the Fund and do not include Acquired Fund Fees and Expenses.
(20) The Investment Adviser has agreed to (i) reduce or limit Other Expenses (excluding acquired fund fees and expenses, transfer agency fees and expenses, taxes, interest, brokerage fees, shareholder meeting, litigation, indemnification and extraordinary expenses) to 0.004% of the Funds average daily net assets and (ii) waive a portion of its management fee payable by the Fund in an amount equal to any management fees it earns as an investment adviser to any of the affiliated funds in which the Fund invests. Each arrangement will remain in effect through at least April 29, 2017, and prior to such date the Investment Adviser may not terminate the arrangement without the approval of the Board of Trustees.
(21) The Investment Adviser has agreed to (i) waive a portion of the management fee in order to achieve an effective net management fee rate of 0.87% of the Funds average daily net assets, and (ii) reduce or limit Other Expenses (excluding acquired fund fees and expenses, transfer agency fees and expenses, taxes, interest, brokerage fees, shareholder meeting, litigation, indemnification and extraordinary expenses) to 0.004% of the Funds average daily net assets. These arrangements will remain in effect through at least April 29, 2017, and prior to such date the Investment Adviser may not terminate the arrangements without the approval of the Board of Trustees. In addition, Goldman, Sachs & Co. (Goldman Sachs) has agreed to waive distribution and service fees so as not to exceed an annual rate of 0.16% of the Funds average daily net assets attributable to Service Shares through at least April 29, 2017, and prior to such date Goldman Sachs may not terminate the arrangement without the approval of the Board of Trustees.
(22) The Total Annual Fund Operating Expenses After Fee Waiver and Expense Limitation does not correlate to the ratio of net expenses to average net assets provided in the Financial Highlights due to a management fee waiver change that was effective on April 30, 2015.
(23) The Total Annual Fund Operating Expenses do not correlate to the ratios of net and total expenses to average net assets provided in the Financial Highlights, which reflect the operating expenses of the Fund and do not include Acquired Fund Fees and Expenses.
(24) The Investment Adviser has agreed to (i) reduce or limit Other Expenses (excluding acquired fund fees and expenses, transfer agency fees and expenses, taxes, interest, brokerage fees, shareholder meeting, litigation, indemnification and extraordinary expenses) to 0.074% of the Funds average daily net assets and (ii) waive a portion of its management fee in order to achieve an effective net management fee rate of 0.31% as an annual percentage rate of the average daily net assets of the Fund and (iii) waive a portion of its management fee payable by the Fund in an amount equal to any management fees it earns as an investment adviser to any of the affiliated funds in which the Fund invests. Each arrangement will remain in effect through at least April 29, 2017, and prior to such date the Investment Adviser may not terminate the arrangements without the approval of the Board of Trustees.
(25) The Investment Adviser has agreed to (i) reduce or limit Other Expenses (excluding acquired fund fees and expenses, transfer agency fees and expenses, taxes, interest, brokerage fees, shareholder meeting, litigation, indemnification and extraordinary expenses) to 0.054% of the Funds average daily net assets and (ii) waive a portion of its management fee in order to achieve an effective net management fee rate of 0.77% as an annual percentage rate of the average daily net assets of the Fund. These arrangements will remain in effect through at least April 29, 2017, and prior to such date the Investment Adviser may not terminate the arrangements without the approval of the Board of Trustees.
(26) The Investment Adviser has agreed to (i) waive a portion of its management fee in order to achieve an effective net management fee rate of 0.70% of the Funds average daily net assets, and (ii) reduce or limit Other Expenses (excluding acquired fund fees and expenses, transfer agency fees and expenses, taxes, interest, brokerage fees, shareholder meeting, litigation, indemnification and extraordinary expenses) to 0.094% of the Funds average daily net assets. These arrangements will remain in effect through at least April 29, 2017, and prior to such date the Investment Adviser may not terminate the arrangements without the approval of the Board of Trustees.
(27) Invesco has contractually agreed to waive a portion of the Funds management fee in an amount equal to the net management fee that Invesco earns on the Funds investments in certain affiliated funds, which will have the effect of reducing Acquired Fund Fees and Expenses. Unless Invesco continues the fee waiver agreement, it will terminate on June 30, 2017. The fee waiver agreement cannot be terminated during its term.
(28) The Adviser has agreed to waive fees and/or pay Fund expenses to the extent necessary to prevent the operating expenses of the Fund (excluding acquired fund fees and expenses, interest expense, trading expenses, dividends and interest payments on securities sold short, taxes and extraordinary expenses) from exceeding 1.50% of the Funds average daily net assets per year until May 1, 2017. During such time, the expense limitation is expected to continue until the Board of Trustees acts to discontinue all or a portion of such expense limitation.
(29) The Adviser has agreed to waive fees and/or pay Fund expenses to the extent necessary to prevent the operating expenses of the Fund (excluding acquired fund fees and expenses, interest expense, trading expenses, dividends and interest payments on securities sold short, taxes and extraordinary expenses) from exceeding 1.45% of the Funds average daily net assets per year until May 1, 2017. During such time, the expense limitation is expected to continue until the Board of Trustees acts to discontinue all or a portion of such expense limitation.
(30) The Adviser has agreed to waive fees and/or pay Fund expenses to the extent necessary to prevent the operating expenses of the Fund (excluding acquired fund fees and expenses, interest expense, trading expenses, dividends and interest payments on securities sold short, taxes and extraordinary expenses) from exceeding 0.95% for Class S of the Funds average daily net assets per year until May 1, 2017. During such time, the expense limitation is expected to continue until the Board of Trustees acts to discontinue all or a portion of such expense limitation.
For information concerning compensation paid in connection with the sale of the Contracts, see Distribution of the Contracts.
Examples
The Example is intended to help you compare the cost of investing in the Contract with the cost of investing in other variable annuity contracts. These costs include Contract Owner transaction expenses, Contract fees, Variable Account annual expenses, and Fund fees and expenses. The Example includes the Annual Contract Fee, but excludes premium taxes.
The Example assumes that you invest $10,000 in the Contract for the time periods indicated. The Example also assumes that your investment has a 5% return each year, and that the maximum fees and expenses of any of the Funds apply as of December 31, 2015. The annual contract fee is contemplated in the examples below. Although your actual costs may be higher or lower, based on these assumptions, your costs would be:
(1) If you surrender your Contract at the end of the applicable time period:
1 Year |
|
3 Years |
|
5 Years |
|
1,028.81 |
|
1,505.82 |
|
2,009.51 |
|
(2) If you annuitize your Contract at the end of the applicable time period or if you do not surrender your Contract:
1 Year (1) |
|
3 Years |
|
5 Years |
|
328.81 |
|
1,005.82 |
|
1,709.51 |
|
(1) The Contract may not be annuitized in the first two years from the Date of Issue.
NATIONAL LIFE, THE VARIABLE ACCOUNT, AND THE FUNDS
National Life
National Life is authorized to transact life insurance and annuity business in Vermont and in 50 other jurisdictions. National Life was originally chartered as a mutual life insurance company in 1848 under Vermont law. It is now a stock life insurance company, all of the outstanding stock of which is indirectly owned by National Life Holding Company, a mutual insurance holding company established under Vermont law on January 1, 1999. All policyholders of National Life, including all the Owners of the Contracts, are voting members of National Life Holding Company. National Life assumes all mortality and expense risks under the Contracts and its assets support the Contracts benefits. Financial statements for National Life are contained in the Statement of Additional Information.
Our Financial Condition. As an insurance company, we are required by state insurance regulation to hold a specified amount of reserves in order to meet all of the contractual obligations of our General Account. To meet our claims-paying obligations, we monitor reserves so that we hold sufficient amounts to cover actual or expected claims payments. However, it is important to note that there is no guarantee that we will always be able to meet our claims-paying obligations, and that there are risks to purchasing any insurance product.
State insurance regulators also require insurance companies to maintain a minimum amount of capital, which acts as a cushion in the event that the insurer suffers a financial impairment, based on the inherent risks in the insurers operations. These risks include those associated with losses that we may incur as the result of defaults on the payment of interest or principal on our general account assets, which include bonds, mortgages, general real estate investments, and stocks, as well as the loss in market value of these investments.
How to Obtain More Information. We encourage both existing and prospective Owners to read and understand our financial statements. We prepare our financial statements on a statutory basis. Our financial statements, which are presented in conformity with accounting practices prescribed or permitted by the Vermont Department of Financial Regulationas well as the financial statements of the Variable Account and of NLV Financial Corporation, the parent company of National Life (NLV Financial) (on a consolidated basis)are located in the SAI. For a free copy of the SAI, call or write us at our Home Office. In addition, the SAI is available on the SECs website at http://www.sec.gov.
The Variable Account
The Variable Account was established by National Life on November 1, 1996, pursuant to the provisions of Vermont law.
National Life has caused the Variable Account to be registered with the SEC as a unit investment trust pursuant to the provisions of the Investment Company Act. Such registration does not involve supervision of the management of the Variable Account or National Life by the SEC.
The Variable Account is a separate investment account of National Life and, as such, is not chargeable with liabilities arising out of any other business National Life may conduct. National Life does not guarantee the investment performance of the Variable Account. Obligations under the Contracts are obligations of National Life. Income, gains and losses, whether or not realized, from the assets of the Variable Account are credited to or charged against the Variable Account without regard to other income, gains, or losses of National Life.
Net Premium Payments are allocated within the Variable Account among one or more Subaccounts made up of shares of the Fund options designated by the Owner. A separate Subaccount is established within the Variable Account for each of the Fund options.
We have claimed an exclusion from the definition of the term Commodity Pool Operator under the Commodity Exchange Act (the CEA) with respect to the Separate Account. Therefore, we are not subject to registration or regulation as a Commodity Pool Operator under the CEA with respect to the separate accounts.
The Funds
You may choose from among a number of different Subaccount options. The investment experience of each of the Subaccounts depends on the investment performance of the underlying Fund.
The investment objectives and policies of certain Funds are similar to the investment objectives and policies of other mutual funds that may be managed by the same investment adviser or manager. The investment results of the Funds, however, may be higher or lower than the results of such other funds. 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 funds, even if the other fund has the same investment adviser or manager.
The Variable Account purchases and redeems shares of the Funds at net asset value. The Variable Account automatically reinvests all dividend and capital gain distributions of the Funds in shares of the distributing Funds at their net asset value on the date of distribution. In other words, the Variable Account does not pay Fund dividends or Fund distributions out to you as additional units, but instead reflects them in unit values.
Before choosing to allocate your Premium Payments and Contract Value, carefully read the prospectus for each Fund, along with this prospectus. There is no assurance that any of the Funds will meet their investment objectives. We do not guarantee any minimum value for the amounts allocated to the Variable Account. You bear the investment risk of investing in the Funds. There is no assurance that the BlackRock Government Money Market V.I. Fund (the BlackRock Money Market Portfolio) will be able to maintain a stable net asset value per share. You should know that during extended periods of low interest rates, and partly as a result of contract charges, the yields of the BlackRock Money Market Portfolio in which a Subaccount invests (the Money Market Subaccount) may also become extremely low and possibly negative.
Not all Funds may be available in all states or in all markets.
The following table provides certain information on each Fund, including its fund type, and its investment adviser (and subadviser, if applicable). There is no assurance that any of the Funds will achieve their investment objective(s). Certain portfolios may employ hedging strategies to provide for downside protection during a sharp decline in the equity markets. The cost of those hedging strategies could limit the upside participation by such portfolios in rising equity markets relative to other portfolios. Please consult your registered representative. You can find detailed information about the Funds, including a description of risks and expenses, in the prospectuses for the Funds. You should read these prospectuses carefully before investing and keep them for future reference.
Fund |
|
Type of Fund |
|
Investment Adviser |
|
Subadviser |
Sentinel VPT |
|
|
|
|
|
|
Balanced Fund |
|
Hybrid Equity and Debt |
|
Sentinel Asset Management, Inc. |
|
None |
Bond Fund |
|
Investment-Grade Bond |
|
Sentinel Asset Management, Inc. |
|
None |
Common Stock Fund |
|
Large Blend Equity |
|
Sentinel Asset Management, Inc. |
|
None |
Small Company Fund |
|
Small Growth Equity |
|
Sentinel Asset Management, Inc. |
|
None |
AllianceBernstein VPS Fund, Inc. |
|
|
|
|
|
|
VPS Balanced Wealth Strategy Portfolio |
|
Growth & Income |
|
AllianceBernstein L.P. |
|
None |
VPS Dynamic Asset Allocation Portfolio |
|
Growth & Income |
|
AllianceBernstein L.P. |
|
None |
VPS Growth Portfolio |
|
Growth |
|
AllianceBernstein L.P. |
|
None |
VPS Real Estate Investment Portfolio |
|
Growth & Income |
|
AllianceBernstein L.P. |
|
None |
VPS International Value Portfolio |
|
International Equity |
|
AllianceBernstein L.P. |
|
None |
VPS Small/Mid Cap Value Portfolio |
|
Small Mid Value Equity |
|
AllianceBernstein L.P. |
|
None |
American Century VP |
|
|
|
|
|
|
VP Capital Appreciation |
|
Growth |
|
American Century Investment Management, Inc. |
|
None |
VP Growth |
|
Growth |
|
American Century |
|
None |
|
|
|
|
Investment Management, Inc. |
|
|
VP Large Company Value |
|
Growth & Income |
|
American Century Investment Management, Inc. |
|
None |
VP Ultra |
|
Growth |
|
American Century Investment Management, Inc. |
|
None |
VP Value |
|
Growth & Income |
|
American Century Investment Management, Inc. |
|
None |
American Funds |
|
|
|
|
|
|
AFIS Asset Allocation |
|
Growth & Income |
|
Capital Research and Management Company |
|
None |
AFIS Global Bond |
|
International Income |
|
Capital Research and Management Company |
|
None |
AFIS Growth-Income |
|
Growth & Income |
|
Capital Research and Management Company |
|
None |
AFIS Global Growth & Income |
|
International Growth & Income |
|
Capital Research and Management Company |
|
None |
AFIS Global Sm Capitalization |
|
International Equity |
|
Capital Research and Management Company |
|
None |
AFIS High-Income Bond |
|
High Income |
|
Capital Research and Management Company |
|
None |
AFIS New World |
|
International Equity |
|
Capital Research and Management Company |
|
None |
Blackrock |
|
|
|
|
|
|
Equity Dividend V.I. Fund |
|
International Equity |
|
BlackRock Advisors, LLC |
|
None |
iShares Alternative Strategies V.I. Fund |
|
Income |
|
BlackRock Advisors, LLC |
|
None |
iShares Dynamic Allocation V.I. Fund |
|
Growth & Income |
|
BlackRock Advisors, LLC |
|
None |
iShares Dynamic Fixed Income V.I. Fund |
|
Income |
|
BlackRock Advisors, LLC |
|
None |
iShares Equity Appreciation V.I. Fund |
|
Growth |
|
BlackRock Advisors, LLC |
|
None |
Value Opportunities V.I. Fund |
|
Growth & Income |
|
BlackRock Advisors, LLC |
|
None |
Government Money Market V.I. Fund |
|
Capital Preservation |
|
BlackRock Advisors, LLC |
|
None |
Global Allocation V.I. Fund |
|
International Growth & Income |
|
BlackRock Advisors, LLC |
|
None |
Fidelity® VIP |
|
|
|
|
|
|
VIP Contrafund |
|
Large Growth Equity |
|
Fidelity Management & Research Company (FMR) |
|
FMR Co., Inc. (FMRC) and other affiliates of FMR |
VIP Disciplined Small Cap |
|
Aggressive Growth |
|
Fidelity Management & Research Company (FMR) |
|
FMR Co., Inc. (FMRC) and other affiliates of FMR |
VIP Dynamic Capital Appreciation |
|
Growth |
|
Fidelity Management & Research Company (FMR) |
|
FMR Co., Inc. (FMRC) and other affiliates of FMR |
VIP Freedom Income |
|
Growth & Income |
|
Fidelity Management & Research Company (FMR) |
|
FMR Co., Inc. (FMRC) and other affiliates of FMR |
VIP Growth Opportunities |
|
Growth |
|
Fidelity Management & Research Company (FMR) |
|
FMR Co., Inc. (FMRC) and other affiliates of FMR |
VIP Index 500 |
|
Index Equity |
|
Fidelity Management & Research Company (FMR) |
|
Geode Capital Management, LLC (Geode®) and FMR Co., Inc. (FMRC) |
VIP Mid Cap |
|
Mid Cap Blend |
|
Fidelity Management & Research Company (FMR) |
|
FMR Co., Inc. (FMRC) and other affiliates of FMR |
VIP Real Estate Portfolio |
|
Growth & Income |
|
Fidelity Management & Research Company (FMR) |
|
FMR Co., Inc. (FMRC) and other affiliates of FMR |
Franklin Templeton |
|
|
|
|
|
|
Franklin Founding Funds Allocation VIP Fund |
|
Growth & Income |
|
None |
|
None |
Franklin Small-Mid Cap Growth VIP Fund* |
|
Small-Mid Cap Growth |
|
Franklin Advisors, Inc. |
|
None |
Franklin High Income VIP Fund |
|
High Income |
|
Franklin Advisors, Inc. |
|
None |
Franklin Mutual Global Discovery VIP Fund |
|
Value Equity |
|
Franklin Mutual Advisors, LLC |
|
Franklin Templeton Investment |
Franklin Rising Dividends VIP Fund |
|
Growth & Income |
|
Franklin Advisory Services, LLC |
|
None |
Templeton Developing Markets VIP Fund |
|
International Equity |
|
Templeton Asset Management Ltd. |
|
None |
Templeton Global Bond VIP Fund |
|
International Equity |
|
Franklin Advisors, Inc. |
|
None |
Goldman Sachs |
|
|
|
|
|
|
VIT Equity Index Fund |
|
Growth |
|
Goldman Sachs Asset Management, L.P |
|
SSGA Funds Management, Inc. |
VIT Global Trends Allocation |
|
International Growth & Income |
|
Goldman Sachs Asset Management, L.P |
|
None |
VIT Growth |
|
Aggressive Growth |
|
Goldman Sachs Asset Management, L.P |
|
None |
Opportunities Fund |
|
|
|
|
|
|
VIT High Quality Floating Rate Fund |
|
Income |
|
Goldman Sachs Asset Management, L.P. |
|
None |
VIT Mid Cap Value Fund |
|
Growth |
|
Goldman Sachs Asset Management, L.P. |
|
None |
VIT Small Cap Equity Insights Fund. |
|
Aggressive Growth |
|
Goldman Sachs Asset Management, L.P. |
|
None |
Invesco V.I. |
|
|
|
|
|
|
V.I Diversified Dividend Fund |
|
Growth & Income |
|
Invesco Advisers Inc. |
|
None |
V.I Equity and Income Fund |
|
Growth & Income |
|
Invesco Advisers Inc. |
|
None |
V.I. Government Securities Fund |
|
Income |
|
Invesco Advisers Inc. |
|
None |
V.I Global Real Estate Fund |
|
International Growth & Income |
|
Invesco Advisers Inc. |
|
None |
V.I High Yield Fund |
|
High Income |
|
Invesco Advisers Inc. |
|
None |
V.I International Growth Fund |
|
International Equity |
|
Invesco Advisers Inc. |
|
None |
V.I Mid Cap Growth Fund |
|
Mid Cap Growth Equity |
|
Invesco Advisers Inc. |
|
None |
T. Rowe Price |
|
|
|
|
|
|
Blue Chip Growth Portfolio-II |
|
Large Growth |
|
T. Rowe Price Associates, Inc. |
|
None |
Equity Income Portfolio-II |
|
Large Value |
|
T. Rowe Price Associates, Inc. |
|
None |
Health Sciences Portfolio-II |
|
Sector Equity |
|
T. Rowe Price Associates, Inc. |
|
None |
Mid Cap Growth-II |
|
Growth |
|
T. Rowe Price Associates, Inc. |
|
None |
VanEck VIP Trust |
|
|
|
|
|
|
VIP Emerging Markets Fund |
|
Foreign Equity |
|
Van Eck Associates Corporation |
|
None |
VIP Global Hard Assets Fund |
|
Global Sector Equity |
|
Van Eck Associates Corporation |
|
None |
VIP Long/Short Equity Index Fund |
|
Growth & Income |
|
Van Eck Associates Corporation |
|
None |
Other Information
Contractual Arrangements. National Life has entered into or may enter into agreements with Funds pursuant to which a Funds adviser or an affiliate pays National Life a fee based upon an annual percentage of the average net asset amount invested on behalf of the Variable Account and our other separate accounts in exchange for providing administration and other services to Owners on behalf of the Funds, which may include answering Owners questions about the Funds, providing prospectuses, shareholder reports and other Fund documents, providing Funds and their boards information about the Contracts and their operations and/or collecting voting instructions for Fund shareholder proposals. The amount of the compensation is based on a percentage of assets of the Funds attributable to the Contracts and certain other variable insurance products that National Life issues. These percentages may differ and we may be paid a greater percentage by some investment advisers or affiliates than others. The availability of these types of arrangements creates an incentive for us to seek and offer Funds (and classes of shares of such Funds) that pay us to provide these services. The payments we receive as compensation for providing these services may be used by us for any corporate purpose,
including payment of expenses (i) that we and our affiliates incur in promoting, issuing, marketing and administering the Contracts, and (ii) that we incur, in our role as intermediary, in promoting, marketing and administering a Fund. National Life may profit from these payments. For more information on the compensation we receive, see Contractual Arrangement between National Life and the Funds Investment Advisors or Distributors in the Statement of Additional Information.
Our affiliate, Equity Services, Inc. (ESI), the principal underwriter for the Contracts, will receive the service and distribution fees (also called 12b-1 fees) that are deducted from certain Fund assets pursuant to that Funds 12b-1 plan. The 12b-1 plan is described in more detail in each Funds prospectus. Because 12b-1 fees are paid out of a Funds assets on an ongoing basis, over time they will increase the cost of an investment in Fund shares.
We select the Funds offered through this Contract based on several criteria, including asset class coverage, the alignment of the investment objectives of a Fund with our hedging strategy, the strength of the advisers or subadvisers reputation and tenure, brand recognition, performance, and the capability and qualification of each investment firm. Another factor we consider during the selection process is whether the Funds adviser or subadviser is one of our affiliates or whether the Fund, its adviser, its subadviser(s), or an affiliate will compensate us or our affiliates, as described above and in the Statement of Additional Information under Contractual Arrangements Between National Life And The Funds Investment Advisors Or Distributors. The Sentinel Variable Products Funds are managed by our affiliate, Sentinel Asset Management, Inc. This relationship was one factor considered in making the decision to offer these Funds through this Contract. We review the Funds periodically and may remove a Fund or limit its availability to new Premium Payments and/or transfers of Contract Value if we determine that the Fund no longer meets one or more of the selection criteria, and/or if the Fund has not attracted significant allocations from Owners.
You bear the risk of any decline in the Contract Value of your Contract resulting from the performance of the Funds you have chosen.
Owners, through their indirect investment in the Funds, bear the costs of investment advisory or management and other fees that the Funds pay to their respective investment advisers, and in some cases, subadvisers and other service providers (see the Funds prospectuses for more information). As described above, an investment adviser or subadviser to a Fund, or its affiliates, may make payments to us and/or certain of our affiliates. These payments may be derived, in whole or in part, from the advisory (and in some cases, subadvisory) or other fees deducted from Fund assets.
Conflicts of Interest. The Funds may also be available to registered separate accounts offering variable annuity and variable life products of other participating insurance companies, as well as to the Variable Account and other separate accounts of National Life. Although we do not anticipate any disadvantages to this, there is a possibility that a material conflict may arise between the interest of the Variable Account and one or more of the other separate accounts participating in the underlying Funds. A conflict may occur due to a change in law affecting the operations of variable life and variable annuity separate accounts, differences in the voting instructions of the Owners and those of other companies, or some other reason. In the event of conflict, we will take any steps necessary to protect Owners and variable annuity Payees, including withdrawal of the Variable Account from participation in the underlying Fund(s) involved in the conflict.
Change of Address Notification
To protect you from fraud and theft, National Life may verify any changes in address you request by sending a confirmation of the change to both your old and new address. National Life may also call you to verify the change of address.
Unclaimed or Abandoned Property
Every state has unclaimed property laws that generally declare annuity contracts to be abandoned after a period of inactivity of three to five years from the contracts maturity date or the date the death benefit is due and payable. For example, if the payment of a death benefit has been triggered, but, if after a thorough search, we are still unable to locate the beneficiary of the death benefit, or the beneficiary does not come forward to claim the death benefit in a timely manner, then the death benefit will be paid to the abandoned property division or unclaimed property office of the state in which the beneficiary or the contract owner last resided, as shown on our books and records, or to our state of domicile. This escheatment is revocable, however, and the state is obligated to pay the death benefit (without interest) if your beneficiary steps forward to claim it with the proper documentation. To prevent such escheatment, it is important that you update your Beneficiary designations, including addresses, if and as they change. Please call 1-800-732-8939 to make such changes.
DETAILED DESCRIPTION OF CONTRACT PROVISIONS
We describe our basic Contract below. There may be differences in your Contract (such as differences in fees, charges or benefits) from the one described in this prospectus because of the requirements of the state where we issued your Contract. Please consult your Contract for its specific terms.
Issuance of a Contract
The Contract is available to Owners up to and including age 85, on an age on nearest birthday basis, on the Date of Issue. If the Contract is issued to Joint Owners, then the oldest Joint Owner must be 85 years of age or younger on the Date of Issue, again on an age on nearest birthday basis. If the Owner is not a natural person, then the age of the Annuitant must meet the requirements for Owners. At our discretion, we may issue Contracts at ages higher than age 85.
In order to purchase a Contract, an individual must forward an application to us through a licensed National Life agent who is also a registered representative of ESI, the principal underwriter of the Contracts, or another broker/dealer having a Selling Agreement with ESI or a broker/dealer having a Selling Agreement with such a broker/dealer.
If you are purchasing the Contract in connection with a tax-favored arrangement, including an IRA and a Roth IRA, you should carefully consider the costs and benefits of the Contract (such as annuitization benefits) before purchasing a Contract since the tax-favored arrangement itself provides for tax-sheltered growth.
You should not purchase this Contract if you plan to use it for speculation, arbitrage, viatication or any other type of collective investment scheme. Your Contract may not be traded on any stock exchange or secondary market. By purchasing this Contract, you represent and warrant that you are not using this Contract for speculation, arbitrage, viatication or any other type of collective investment trust.
Tax Free Section 1035 Exchanges. You can generally exchange one variable annuity contract for another in a tax-free exchange under Section 1035 of the Code. Before making the exchange, you should compare both contracts carefully. Remember that if you exchange another contract for the one described in this prospectus, you might have to pay a surrender charge on your old contract. There will be a new surrender charge period for this Contract and other charges might be higher (or lower) and the benefits may be different. If the exchange does not qualify for Section 1035 treatment, you may have to pay federal income and penalty taxes on the exchange. You should not exchange another contract for this one unless you determine, after knowing all the facts, that the exchange is in your best interests. You should be aware that your insurance agent will generally earn a commission if you buy this Contract through an exchange or otherwise.
Important Information About Procedures for Opening a New Account. To help the government fight the funding of terrorism and money laundering activities, Federal law requires all financial institutions to obtain, verify, and record information that identifies each person who opens an account.
What this means for you: When you open an account (i.e., purchase a Contract), we will ask for your name, address, date of birth and other information that will allow us to identify you. We may also ask to see your drivers license or other identifying documents.
Premium Payments
The Initial Premium Payment. The initial Premium Payment must be at least $5,000 for Non-Qualified Contracts, and must be at least $1,500 for Qualified Contracts. We may at our discretion permit initial Premium Payments lower than these minimums. For Contracts purchased in South Carolina, the initial Premium Payment for Qualified Contracts must be at least $3,000.
Subsequent Premium Payments. Subsequent Premium Payments may be made at any time, but must be at least $100 ($50 for IRAs). We may accept lower Premium Payments at our discretion if the Premium Payments are remitted electronically. Subsequent Premium Payments to the Variable Account will purchase Accumulation Units at the price next computed for the appropriate Subaccount after we receive the additional Premium Payment. We may accept subsequent premium payments only on or after the third Contract Anniversary for new Contracts purchased in the State of Oregon. For Contracts purchased in the State of Massachusetts by Owners who were less than 60 at the time of purchase, we will not accept Premium Payments after the Owner attains the age of 63. For Contracts purchased in the State of Massachusetts by Owners who were 60 or older at the time of purchase, we will not accept Premium Payments after the third Contract Anniversary.
The total of all Premium Payments under Contracts issued on the life of any one Owner (or Annuitant if the owner is not a natural person) may not exceed $1,000,000 without our prior consent.
Transactions will not be processed on the following days: New Years Day, Presidents Day, Martin Luther King, Jr. Day, Good Friday, Memorial Day, Independence Day, Labor Day, Thanksgiving, and Christmas Day. Please remember that we must receive
a transaction request in good order at our Home Office before the close of regular trading on the New York Stock Exchange, usually 4:00 p.m., Eastern Time, to process the transaction on that Valuation Day.
Allocation of Net Premium Payments. In the application for the Contract, the Owner will indicate how Net Premium Payments are to be allocated among the Subaccounts of the Variable Account, the Fixed Account and/or the Guaranteed Accounts. These allocations may be changed at any time by the Owner by written notice to us at our Home Office or, if the telephone transaction privilege has been elected, by telephone instructions (see Telephone Transaction Privilege, below); all such allocation instructions must be provided in good order. If you change the Contracts premium allocation percentages, Fund Rebalancing will automatically be discontinued unless you specifically direct otherwise. To allocate premiums other than to the existing allocation, the owner must submit a written request with clear direction separate from the check.
The percentages of Net Premium Payments that may be allocated to any Subaccount, the Fixed Account, or any Guaranteed Account must be in whole numbers of not less than 1%, and the sum of the allocation percentages must be 100%. We allocate the initial Net Premium Payment within two business days after receipt at our home office, if the application and all information necessary for processing the order are complete. We do not begin processing your purchase order until we receive the application and initial premium payment at our Home Office, identified on the first page of this prospectus, from your agents broker-dealer.
If the application is not properly completed, we retain the initial Premium Payment for up to five business days while attempting to complete the application. If the application is not complete at the end of the five day period, we inform the applicant of the reason for the delay and the initial Premium Payment will be returned immediately, unless the applicant specifically consents to our retaining the initial Premium Payment until the application is complete. Once the application is complete, we allocate the initial Net Premium Payment as designated by the Owner within two business days.
We allocate subsequent Net Premium Payments as of the Valuation Date we receive Net Premium Payments at our Home Office, based on your allocation percentages then in effect. Please note that if you submit your Premium Payment to your agent, we will not begin processing the Premium Payment until we have received it from your agents selling firm. At the time of allocation, we apply Net Premium Payments to the purchase of Fund shares. The net asset value of the shares purchased is converted into Accumulation Units.
When all or a portion of a premium payment is received without a clear subaccount designation or allocated to a subaccount that is not available for investment, we may allocate the undesignated portion or the entire amount, as applicable, into the Money Market Subaccount. You may at any time after the deposit direct us to redeem or exchange units in the Money Market Subaccount, which will be completed at the next appropriate net asset value. All transactions will be subject to any applicable fees or charges.
The Subaccount values will vary with their investment experience, and you bear the entire investment risk. You should periodically review your allocation percentages in light of market conditions and your overall financial objectives.
We offer a one-time credit in the amount of 3% of the initial Net Premium Payment to Owners whose initial Net Premium Payment comes from the surrender of an annuity contract issued by National Lifes affiliate, Life Insurance Company of the Southwest. We pay this credit after the free look right with respect to the Contract has expired.
Transfers
You may transfer the Contract Value among the Subaccounts of the Variable Account and among the Variable Account, the Fixed Account (subject to the limitations set forth below) and the Guaranteed Accounts by making a written transfer request. If you elect the telephone transaction privilege, you may make transfers by telephone. See Telephone Transaction Privilege, below. Transfers are made as of the Valuation Day that the request for transfer is received, in good order, at our Home Office. Please remember that a Valuation Day ends at the close of regular trading of the New York Stock Exchange, usually 4:00 p.m. Eastern Time. Transfers to or from the Subaccounts may be postponed under certain circumstances. See Payments, below. A market value adjustment will be applied to transfers out of a Guaranteed Account prior to its termination date. See The Guaranteed Accounts, below.
We currently allow transfers to the Fixed Account and the Guaranteed Accounts of all or any part of the Variable Account Contract Value, without charge or penalty. We reserve the right to restrict transfers to the Fixed Account and/or the Guaranteed Accounts to 25% of the Variable Account Contract Value during any Contract Year. For Contracts issued in Massachusetts only, we will enforce the above restrictions on your ability to move Contract Value into the Fixed Account and the Guaranteed Accounts only when the yield on investment would not support the statutory minimum interest rate. In addition, we will enforce these restrictions only in a manner that would not be unfairly discriminatory.
You may, one time each year between January 1st and February 15th, transfer a portion of the unloaned value in the Fixed Account to the Variable Account. We reserve the right to restrict this transfer to 10% of the Contract Value in the Fixed Account (25% in New York). After a transfer from the Fixed Account to the Variable Account or a Guaranteed Account, we reserve the right to require that the value transferred remain in the Variable Account or a Guaranteed Account for at least one year before it may be transferred back to the Fixed Account. Because of the Fixed Accounts transfer restrictions, it may take you several years to transfer all of your Accumulated Value in the Fixed Account to a Guaranteed Account or to the Subaccounts of the Variable Account. You should carefully consider whether the Fixed Account and a Guaranteed Account meet your investment criteria.
Where approved by your state insurance regulator, if you transfer Contract Value out of any Guaranteed Account, you may not transfer Contract Value back into any Guaranteed Account until one year has elapsed from the time of the transfer out of a Guaranteed Account.
We do not permit transfers between the Variable Account and the Fixed Account after the Annuitization Date.
We have no current intention to impose a transfer charge. However, we reserve the right, upon prior notice, to impose a transfer charge of $25 for each transfer in excess of 12 transfers in any one Contract Year. We may do this if the expense of administering transfers becomes burdensome. See Transfer Charge, below.
Disruptive Trading
Policy. The Contracts are intended for long-term investment by Owners. They were not designed for the use of market timers or other investors who make similar programmed, large, frequent, or short-term transfers. Market timing and other programmed, large, frequent, or short-term transfers among the Subaccounts or between the Subaccounts and the Fixed Account or a Guaranteed Account can cause risks with adverse effects for other Owners (and beneficiaries and Funds). These risks include:
· the dilution of interests of long-term investors in a subaccount if purchases or transfers into or out of a Fund are made at prices that do not reflect an accurate value for the Funds investments;
· an adverse effect on Fund management, such as impeding a Fund managers ability to sustain an investment objective, causing a Fund to maintain a higher level of cash than would otherwise be the case, or causing a Fund to liquidate investments prematurely (or at an otherwise inopportune time) to pay withdrawals or transfers out of the Fund; and
· increased brokerage and administrative expenses.
The risks and costs are borne by all Owners invested in those Subaccounts, not just those making the transfers.
We have developed policies and procedures with respect to market timing and other transfers (the Procedures) and we do not make special arrangements or grant exceptions to accommodate market timing or other potentially disruptive or harmful trading. Do not invest in this Contract if you intend to conduct market timing or other potentially disruptive trading.
Detection. We employ various means to attempt to detect and deter market timing and disruptive trading. However, despite our monitoring, we may not be able to detect or stop all harmful trading. In addition, because other insurance companies (and retirement plans) with different policies and procedures may invest in the Funds, we cannot guarantee that all harmful trading will be detected or that a Fund will not suffer harm from programmed, large, frequent, or short-term transfers among the Subaccounts of variable products issued by these companies or retirement plans.
Deterrence. Once an Owner has been identified as a market timer under the Procedures, we notify the Owner that we will not accept instructions for such market timing or other similar programmed, large, frequent or short-term transfers in the future. We also will mark the Contract on our administrative system so that the system will have to be overridden by the Variable Products services staff to process any transfers. We will only permit the Owner to make transfers when we believe the Owner is not market timing.
In our sole discretion, we may revise the Procedures at any time, without prior notice, as necessary to (i) better detect and deter frequent, large, or short-term transfers that may adversely affect other Owners or Fund shareholders, (ii) comply with state or federal regulatory requirements, or (iii) impose additional or alternate restrictions on market timers (such as dollars or percentage limits on transfers). We also reserve the right, to the extent permitted or required by applicable law, to (1) implement and administer redemption fees imposed by one or more Funds in the future, (2) deduct redemption fees imposed by the Funds, and (3) suspend the transfer privilege at any time we are unable to purchase or redeem shares of the Funds. We may be required to share personal information about you with the Funds.
We currently do not impose redemption fees on transfers. Further, for transfers between or among the Subaccounts, we currently do not expressly allow a certain number of transfers in a given period or limit the size of transfers in a given period. Redemption fees,
transfer limits, and other procedures or restrictions may be more or less successful than our Procedures in deterring market timing or other disruptive trading and in preventing or limiting harm from such trading.
Our ability to detect and deter such transfer activity is limited by our operational and technological systems, as well as by our ability to predict strategies employed by Owners (or those acting on their behalf) to avoid detection. Accordingly, despite our best efforts, we cannot guarantee that the Procedures will detect or deter frequent or harmful transfers by such Owners or intermediaries acting on their behalf. We apply the Procedures consistently to all Owners without waiver or exception.
Fund Frequent Trading Policies. The Funds may have adopted their own policies and procedures with respect to frequent purchases and redemptions of their respective shares. The prospectuses for the Funds describe any such policies and procedures. The frequent trading policies and procedures of a Fund may be different, and more or less restrictive, than the frequent trading policies and procedures of other Funds and the policies and procedures we have adopted to discourage market timing and other programmed, large, frequent, or short-term transfers. You should be aware that we may not have the operational capacity to apply the frequent trading policies and procedures of the respective Funds that would be affected by the transfers. Accordingly, Owners and other persons who have material rights under the Contracts should assume that the sole protections they may have against potential harm from frequent transfers are the protections, if any, provided by the Procedures.
Owners should be aware that we are required to provide to a portfolio or its designee, promptly upon request, certain information about the trading activity of individual Owners, and to restrict or prohibit further purchases or transfers by specific Owners identified by a portfolio as violating the frequent trading policies established for that portfolio. If we do not process a purchase because of such restriction or prohibition, we may return the premium to the Owner, place the premium in the Money Market Subaccount until we receive further instruction from the Owner and/or replace the restricted or prohibited Subaccount with the Money Market Subaccount in the Owners default allocation until we receive further instructions from the Owner.
Omnibus Orders. Owners and other persons with material rights under the Contracts also should be aware that the purchase and redemption orders received by the Funds generally are omnibus orders from intermediaries such as retirement plans and separate accounts funding variable insurance contracts. The omnibus orders reflect the aggregation and netting of multiple orders from individual owners of variable insurance contracts and individual retirement plan participants. The omnibus nature of these orders may limit each Funds ability to apply its respective frequent trading policies and procedures. We cannot guarantee that the Fund will not be harmed by transfer activity relating to the retirement plans or other insurance companies that may invest in the Funds. These other insurance companies are responsible for their own policies and procedures regarding frequent transfer activity. If their policies and procedures fail to successfully discourage harmful transfer activity, it will affect other owners of Fund shares, as well as the owners of all of the variable annuity or variable life insurance policies whose variable investment options correspond to the affected Funds. In addition, if a Fund believes that an omnibus order we submit may reflect one or more transfer requests from Owners engaged in market timing and other programmed, large, frequent, or short-term transfers, the Fund may reject the entire omnibus order and thereby delay or prevent us from implementing your request.
As a result of our discretion to permit Owners previously identified as market timers to make transfers that we do not believe involve market timing, and as a result of operational and technological limitations, differing fund procedures, and the omnibus nature of purchase and redemption orders, some Owners may still be able to engage in market timing, while other Owners bear any adverse effects of that market timing activity. To the extent we are unable to detect and deter market timing or other similar programmed, large, frequent, or short-term transfers, the performance of the Subaccount and the Fund could be adversely affected, including by (1) requiring the Fund to maintain larger amounts of cash or cash-type securities than the Funds manager might otherwise choose to maintain or to liquidate Fund holdings at disadvantageous times, thereby increasing brokerage, administrative, and other expenses and (2) diluting returns to long-term shareholders.
Value of a Variable Account Accumulation Unit
We set the value of a Variable Account Accumulation Unit for each Subaccount at $10 when the Subaccount commenced operations. We determine the value for any subsequent Valuation Period by multiplying the value of an Accumulation Unit for each Subaccount for the immediately preceding Valuation Period by the Net Investment Factor for the Subaccount during the subsequent Valuation Period. The value of an Accumulation Unit may increase or decrease from Valuation Period to Valuation Period. No minimum value of an Accumulation Unit is guaranteed. The number of Accumulation Units will not change as a result of investment experience.
Net Investment Factor. Each Subaccount of the Variable Account has its own Net Investment Factor.
The Net Investment Factor measures the daily investment performance of that Subaccount.
The Net Investment Factor may be greater or less than one; therefore, the value of an Accumulation Unit may increase or decrease.
Changes in the Net Investment Factor may not be directly proportional to changes in the net asset value of Fund shares because of the deduction for the Mortality and Expense Risk Charge and Administration Charge.
Fund shares are valued at their net asset value. The Net Investment Factor allows for the monthly reinvestment of daily dividends that are credited by some Funds (e.g., the BlackRock Money Market Portfolio).
Determining the Contract Value.
The Contract Value is the sum of:
1) the value of all Variable Account Accumulation Units, plus
2) amounts allocated and credited to the Fixed Account, plus
3) amounts allocated and credited to a Guaranteed Account, minus
4) any outstanding loans on the Contract and accrued interest on such loans.
When charges or deductions are made against the Contract Value, we deduct an appropriate number of Accumulation Units from the Subaccounts and an appropriate amount from the Fixed Account in the same proportion that your interest in the Subaccounts and the unloaned value in the Fixed Account bears to the total Contract Value. We will not deduct charges or deductions from a Guaranteed Account unless there is not sufficient Contract Value in the Subaccounts of the Variable Account and in the Fixed Account. If we need to deduct charges or deductions from the Guaranteed Accounts, we will do so pro rata from all Guaranteed Accounts, and within Guaranteed Accounts of the same duration, on a first-in-first-out basis; that is, the Contract Value with the earliest date of deposit will be deducted first. Value held in the Fixed Account and the Guaranteed Accounts is not subject to Variable Account charges (Mortality and Expense Risk and Administration Charges), but may be subject to CDSCs, the Annual Contract Fee, and premium taxes, if applicable.
Annuitization
Maturity Date. The Maturity Date is the date on which annuity payments are scheduled to begin. You may indicate the Maturity Date on the application. The earliest Maturity Date must be at least 2 years after the Date of Issue, unless otherwise approved (10 years after the Date of Issue in the States of Oregon and Massachusetts). If no specific Maturity Date is selected, the Maturity Date will be your 90th birthday, the 90th birthday of the oldest of Joint Owners, or the Annuitants 90th birthday if the Owner is not a natural person; or, if later, 10 years after the Date of Issue. You may elect a single payment equal to the Cash Surrender Value on the Maturity Date, rather than annuity payments. You may also settle the contract under a Payment Option prior to the scheduled maturity date. You may contact either your Registered Representative or the Home Office for requirements to settle the Contract. Please note that payment of any amount in excess of Contract Value is subject to the financial strength and claims-paying ability of National Life.
If you request in writing (see Ownership Provisions, below), and we approve the request, the Maturity Date may be accelerated or deferred. However, we will not permit an acceleration of a Contracts Maturity Date to any date before the 30-day window prior to the termination date of any Guaranteed Account held by the Contract. If an Owner of such a Contract desires to accelerate that Contracts Maturity Date, the Owner must first transfer the Contract Value in all Guaranteed Accounts the termination dates of which would occur more than 30 days after the accelerated Maturity Date into the Fixed Account or the Variable Account. A market value adjustment will be applied to such Contract Value transferred out of the Guaranteed Accounts. See The Guaranteed Accounts, below.
Election of Payment Options. You may, with prior written notice (in good order) and at any time prior to the Annuitization Date, elect one of the Annuity Payment Options. We apply the Contract Value in each Subaccount (less any premium tax previously unpaid) to provide a Variable Annuity payment. We apply the Contract Value in the Fixed Account (less any premium tax previously unpaid) to provide a Fixed Annuity payment.
If an election of an Annuity Payment Option is not on file with National Life on the Annuitization Date, we will pay the proceeds as Option 3 - Payments for Life with 120 months certain. You may elect, revoke or change an Annuity Payment Option at any time before the Annuitization Date with 30 days prior written notice. The Annuity Payment Options available are described below.
Frequency and Amount of Annuity Payments. The amount of your annuity payment depends in part on the frequency and duration of annuity payments. If you would like the amount of your annuity payments to be as large as possible, you should select an option that pays less frequently and for a shorter duration. On the other hand, if it is important for you to receive annuity payments as often and for as long a time period as possible, you should select an annuity payment option that pays more frequently and for a longer period of time. Please note that, in general, the more frequent or the longer the duration is for annuity payments, the smaller the amount that
each annuity payment will be. We pay annuity payments as monthly installments, unless you select annual, semi-annual or quarterly installments. If the amount to be applied under any Annuity Payment Option is less than $3,500, we have the right to pay such amount in one lump sum in lieu of the payments otherwise selected. In addition, if the payments selected would be or become less than $100, we have the right to change the frequency of payments that will result in payments of at least $100. In no event will we make payments under an annuity option less frequently than annually.
Annuitization - Variable Account
We will determine the dollar amount of the first Variable Annuity payment by dividing the Variable Account Contract Value on the Annuitization Date by 1,000 and applying the result as set forth in the applicable Annuity Table. The amount of each Variable Annuity payment depends on the age of the Chosen Human Being on his or her birthday nearest the Annuitization Date, and the sex of the Chosen Human Being, if applicable, unless otherwise required by law.
Variable Annuity payments vary in amount in accordance with the investment performance of the Variable Account. The following steps are taken to establish the number of Annuity Units representing each monthly annuity payment:
· The dollar amount of the first annuity payment as determined above is divided by the value of an Annuity Unit on the Annuitization Date;
· The number of Annuity Units remains fixed during the annuity payment period;
· The dollar amount of the second and subsequent payments is not predetermined and may change from payment to payment; and
· The dollar amount of each subsequent payment is determined by multiplying the fixed number of Annuity Units by the value of an Annuity Unit for the Valuation Period in which the payment is due.
Once payments have begun, future payments will not reflect any changes in mortality experience.
Value of an Annuity Unit. The value of an Annuity Unit for a Subaccount is set at $10 when the first Fund shares are purchased. The value of an Annuity Unit for a Subaccount for any subsequent Valuation Period is determined by multiplying the value of an Annuity Unit for the immediately preceding Valuation Period by the applicable Net Investment Factor for the Valuation Period for which the value of an Annuity Unit is being calculated and multiplying the result by an interest factor to neutralize the assumed investment rate of 3.5% per annum (see Net Investment Factor, above).
Assumed Investment Rate. A 3.5% Assumed Investment Rate is built into the Annuity Tables contained in the Contracts. We may make assumed investment rates available at rates other than 3.5%. A higher assumption would mean a higher initial payment but more slowly rising or more rapidly falling subsequent payments. A lower assumption would have the opposite effect. If the actual investment return, as measured by the Net Investment Factor, is at a constant annual rate of 3.5%, the annuity payments will be level.
Annuitization - Fixed Account
A Fixed Annuity is an annuity with payments that are guaranteed as to dollar amount during the annuity payment period. We determine the amount of the periodic Fixed Annuity payments by applying the Fixed Account Contract Value to the applicable Annuity Table in accordance with the Annuity Payment Option elected. This is done at the Annuitization Date using the age of the Chosen Human Being on his or her nearest birthday, and the sex of the Chosen Human Being, if applicable. The applicable Annuity Table will be based on our expectation of investment earnings, expenses and mortality (if payments depend on whether the Chosen Human Being is alive) on the Annuitization Date. The applicable Annuity Table will provide a periodic Fixed Annuity payment at least as great as the guarantee described in your Contract.
We do not credit discretionary interest to Fixed Annuity payments during the annuity payment period for annuity options based on life contingencies. The Annuitant must rely on the Annuity Tables applicable to the Contracts to determine the amount of Fixed Annuity payments.
Annuity Payment Options
Any of the following Annuity Payment Options may be elected:
Option 1-Payments for a Stated Time. We will make monthly payments for the number of years selected, which may range from 5 years to 30 years.
Option 2-Payments for Life. An annuity payable monthly during the lifetime of a Chosen Human Being (who may be named at the time of election of the Payment Option), ceasing with the last payment due prior to the death of the Chosen Human Being. It would be possible under this option for the Payee to receive only one annuity payment if the annuitant dies before the second annuity payment date, two annuity payments if the Annuitant dies before the third annuity payment date, and so on.
Option 3-Payments for Life with Period Certain-Guaranteed. For an annuity that if at the death of the Chosen Human Being payments have been made for less than 10 or 20 years, as selected, we guarantee to continue annuity payments during the remainder of the selected period.
We may allow other Annuity Payment Options, including, if applicable, the Stretch Annuity Payment Option described below.
Some of the stated Annuity Payment Options may not be available in all states. You may request an alternative non-guaranteed option by giving notice in writing prior to Annuitization. If a request is approved by us, it will be permitted under the Contract.
Qualified Contracts (except Roth IRAs before the Owners death) are subject to the minimum distribution requirements set forth in the Code. Payment Option 1 may not satisfy these requirements. Please consult a tax advisor.
Under Payment Option 1, you may change to any other Payment Option at any time. At the time of the change, remaining value will be applied to the new Payment Option to determine the amount of the new payments. Under Payment Option 1, you may also fully surrender the Contract at any time. Upon surrender in this situation, the Owner will receive the remaining value of the Contract, which is the value of the Contract used to determine the most recent payment amount, adjusted for investment performance through the date of surrender. Surrender is subject to any applicable CDSC at the time of the surrender.
Stretch Annuity Payment Option
We offer the Stretch Annuity Payment Option to Contracts that have paid Net Premium Payments, less any Withdrawals (including the impact of any CDSC associated with such Withdrawals), of at least $25,000 per beneficiary participating in the payment option.
Under this payment option, we will make annual payments for a period determined by the joint life expectancy of an initial Payee and a beneficiary, as calculated based on Table VI of Section 1.72-9 of the Income Tax Regulations (but if the Contract is a Qualified Contract, no less than the minimum required distribution under the Code). The beneficiary may be a much younger person than the initial Payee, such as a grandchild, so that under this payment option, payments may be made over a lengthy period of years.
Please consult your authorized National Life representative for more information on the Stretch Annuity Payment Option.
You should consult your tax advisor about potential income, gift, estate and generation-skipping transfer tax consequences of electing the Stretch Annuity Payment Option.
Death of Owner
If you or a Joint Owner dies prior to the Annuitization Date, then we will pay a Death Benefit to the Beneficiary.
The Contract provides that if you or a Joint Owner dies prior to the Contract Anniversary on which your age, on an age on nearest birthday basis, is 81, the Death Benefit will be equal to the greater of:
(a) the Contract Value, or
(b) the Net Premium Payments made to the Contract, minus all Withdrawals (including any CDSC deducted in connection with such Withdrawals), and minus any outstanding loans on the Contract and accrued interest, and adjusted such that if you effect a Withdrawal (including a systematic Withdrawal) at a time when the Contract Value is less than the amount of the Death Benefit that would then be payable to you, the Death Benefit will be reduced by the same proportion that the Withdrawal reduces the Contract Value (this adjustment will have the effect of reducing the Death Benefit by more than the amount of the Withdrawal, where a Withdrawal is taken at a time when the Death Benefit is greater than the Contract Value), and
(c) in each case minus any applicable premium tax charge to be assessed upon distribution.
Please note that payment of any amount in excess of Contract Value is subject to the financial strength and claims-paying ability of National Life.
If your state approved the adjustment referred to in (b) above for cases where a Withdrawal is taken at a time when the Death Benefit is greater than the Contract Value after that date, or has not yet approved that adjustment, that adjustment will not be made. In the case of these Contracts, a Withdrawal will reduce the Death Benefit only by the amount of the Withdrawal.
The Contract further provides that if you die after the Contract Anniversary on which your age, on an age nearest birthday basis, is 81 (or in the case of Joint Owners, where the first of Joint Owners to die dies after the Contract Anniversary on which the age of the oldest Joint Owner, on an age on nearest birthday basis, is 81), then the Death Benefit shall be equal to the Contract Value, minus any applicable premium tax charge.
Unless the Beneficiary is the deceased or the Owners (or Joint Owners) spouse (as defined under Federal law), the Death Benefit must be distributed within five years of such Owners death. The Beneficiary may elect to receive Distribution in the form of a life annuity or an annuity for a period not exceeding his or her life expectancy. Such annuity must begin within one year following the date of the Owners death and is currently available only as a Fixed Annuity. If the Beneficiary is the spouse of the deceased Owner (or, if applicable, a Joint Owner), then the Contract may be continued without any required Distribution. If the deceased Owner (or Joint Owner) and the Annuitant are the same person, the death of that person will be treated as the death of the Owner for purposes of determining the Death Benefit payable.
The right of a spouse to continue the Contract, and all Contract provisions relating to spousal continuation are available only to a person who meets the definition of spouse under Federal law. The U.S. Supreme Court has held that same-sex marriages must be permitted under state law and that marriages recognized under state law will be recognized for federal law purposes. Domestic partnerships and civil unions that are not recognized as legal marriages under state law, however, will not be treated as marriages under federal law. Consult a tax adviser for more information on this subject.
Qualified Contracts may be subject to specific rules set forth in the Plan, Contract, or Code concerning Distributions upon the death of the Owner.
Death of Annuitant Prior to the Annuitization Date
If an Annuitant who is not an Owner dies prior to the Annuitization Date, a Death Benefit equal to the Cash Surrender Value of the Contract will be payable to the Beneficiary. If the Owner is a natural person and a contingent Annuitant has been named or the Owner names a contingent Annuitant within 90 days of the Annuitants death, the Contract may be continued without any required Distribution. If no Beneficiary is named (or if the Beneficiary predeceases the Annuitant), then the Death Benefit will be paid to the Owner. If the Owner is not a natural person, then the death of the Annuitant will be treated as if it were the death of the Owner, and the disposition of the Contract will follow the death of the Owner provisions set forth above.
In any case where a Death Benefit is paid, the value of the Death Benefit will be determined as of the Valuation Day coinciding with or next following the date we receive, in good order, at our Home Office in writing:
· due proof of the Annuitants or an Owners (or Joint Owners) death;
· an election for either a single sum payment or an Annuity Payment Option (currently only Fixed Annuities are available in these circumstances); and
· any form required by state insurance laws.
If a single sum payment is requested, we will make payment in accordance with any applicable laws and regulations governing the payment of Death Benefits. If an Annuity Payment Option is requested, the Beneficiary must make an election during the 90-day period commencing with the date we receive written notice and as otherwise required by law. If no election has been made by the end of such 90-day period commencing with the date we receive written notice or as otherwise required by law the Death Benefit will be paid in a single sum payment.
If you or your Beneficiary elect to receive proceeds in a lump sum payment, unless the Beneficiary requests a National Life check, we will place the proceeds into an interest bearing special account maintained by a financial institution and retained by us in our General Account. In that case, we will send you or your Beneficiary a draftbook; you or your Beneficiary can access funds from the special account by writing a draft for all or a portion of the Death Benefit proceeds. We fund the draft writing privileges. The interest bearing special account is not a bank account and is subject to the claims of our creditors. The interest bearing special account is not insured nor guaranteed by the FDIC or any other government agency. We will send the payee the draftbook within seven days of when we placed the proceeds into the special account, and the payee will receive any interest on the proceeds placed in the special
account. There is no guaranteed rate of interest credited to the proceeds placed in the special account. However, any interest credited to the special interest bearing account will be currently taxable to you or your Beneficiary in the year in which it is credited. We may make a profit on all amounts left in the interest bearing special account.
Generation-Skipping Transfers
We may determine whether the Death Benefit or any other payment constitutes a direct skip as defined in Section 2612 of the Code, and the amount of the tax on the generation-skipping transfer resulting from such direct skip. If applicable, the payment will be reduced by any tax National Life is required to pay by Section 2603 of the Code.
A direct skip may occur when property is transferred to or a Death Benefit is paid to an individual two or more generations younger than the Owner.
Ownership Provisions
Unless otherwise provided, the Owner has all rights under the Contract. If the purchaser names someone other than himself or herself as owner, the purchaser will have no rights under the contract. If Joint Owners are named, each Joint Owner possesses an undivided interest in the Contract. The death of any Joint Owner triggers the provisions of the Contract relating to the death of the Owner. Unless otherwise provided, when Joint Owners are named, the exercise of any ownership right in the Contract (including the right to surrender the Contract or make a Withdrawal, to change the Owner, the Annuitant, a Contingent Annuitant, the Beneficiary, the Annuity Payment Option or the Maturity Date) requires a written indication of an intent to exercise that right, signed by all Joint Owners.
Prior to the Annuitization Date, the Owner may name a new Owner. Such change may be subject to state and federal gift taxes, and may also result in current federal income taxation (see Federal Income Tax Considerations, below). Any change of Owner will automatically revoke any prior Owner designation. Any request for change of Owner must be in good order(1) made by proper written application, (2) received and recorded by National Life at its Home Office, and (3) may include a signature guarantee as specified in the Surrender and Withdrawal provision below. The change is effective on the date the written request is signed. A new choice of Owner will not apply to any payment made or action we take prior to the time the request for change was received (in good order) and recorded.
The Owner may request a change in the Annuitant or contingent Annuitant before the Annuitization Date. Such a request must be made in writing on a form acceptable to us and must be signed by the Owner and the person to be named as Annuitant or contingent Annuitant. Any such change is subject to underwriting and approval by us.
CHARGES AND DEDUCTIONS
All of the charges described in this section apply to Variable Account allocations. Allocations to the Fixed Account are subject to CDSCs, the Annual Contract Fee and Premium Tax deductions. The Fixed Account and the Guaranteed Accounts are not subject to the Mortality and Expense Risk Charge and the Administration Charge.
We deduct the charges described below to cover our costs and expenses, services provided and risks assumed under the Contracts. We incur certain costs and expenses for the distribution and administration of the Contracts and for providing the benefits payable thereunder. More particularly, the administrative services include:
· processing applications for and issuing the Contracts;
· processing purchases and redemptions of Fund shares as required (including automatic withdrawal services);
· maintaining records;
· administering annuity payouts;
· furnishing accounting and valuation services (including the calculation and monitoring of daily Subaccount values);
· reconciling and depositing cash receipts;
· providing Contract confirmations;
· providing toll-free inquiry services; and
· furnishing telephone transaction privileges.
The risks we assume include:
· the risk that the actual life-span of persons receiving annuity payments under Contract guarantees will exceed the assumptions reflected in our guaranteed rates (these rates are incorporated in the Contract and cannot be changed);
· the risk that Death Benefits will exceed the actual Contract Value;
· the risk that more Owners than expected will qualify for and exercise waivers of the CDSC; and
· the risk that our costs in providing the services will exceed our revenues from the Contract charges (which we cannot change).
The amount of a charge will not necessarily correspond to the costs associated with providing the services or benefits indicated by the designation of the charge. For example, the CDSC collected may not fully cover all of the distribution expenses we incur. We may also realize a profit on one or more of these charges. We may use any profits for any corporate purpose, including sales expenses.
Deductions from the Variable Account
We deduct from the Variable Account an amount, computed daily, which is equal to an annual rate of 1.40% of the daily net asset value. The charge consists of a 0.15% Administration Charge and a 1.25% Mortality and Expense Risk Charge.
Contingent Deferred Sales Charge
We may pay a commission up to 6.5% for the sale of a Contract; however, we make no deduction for this commission payment from the Premium Payments for these Contracts. However, if a Withdrawal is made or a Contract is surrendered, we will with certain exceptions, deduct a CDSC.
The CDSC is calculated by multiplying the applicable CDSC percentages noted below by the Net Premium Payments that are withdrawn or surrendered. For purposes of calculating the CDSC Withdrawals or surrenders are considered to come first from the oldest Net Premium Payment made to the Contract, then the next oldest Net Premium Payment and so forth, and last from earnings on Net Premium Payments. No CDSC is ever assessed with respect to a Withdrawal or surrender of earnings on Net Premium Payments. For tax purposes, a surrender is usually treated as a withdrawal of earnings first. This charge will apply in the amounts set forth below to Net Premium Payments within the time periods set forth.
The CDSC applies to Net Premium Payments as follows:
Number of Completed |
|
Contingent Deferred |
|
|
|
|
|
0 |
|
7 |
% |
1 |
|
6 |
% |
2 |
|
5 |
% |
3 |
|
4 |
% |
4 |
|
3 |
% |
5 |
|
0 |
% |
In any Contract Year after the first Contract Year, you may make Withdrawals, without a CDSC, of an aggregate amount equal to 15% of the Contract Value (except for in New Jersey and the State of Washington where the free amount is 10%). This CDSC-free Withdrawal privilege does not apply to full surrenders of the Contract, and if a full surrender is made within one year of exercising a CDSC-free Withdrawal, then the CDSC which would have been assessed at the time of the Withdrawal will be assessed at the time of surrender. The CDSC-free feature is also non-cumulative. This means that free amounts not taken during any given Contract Year cannot be taken as free amounts in a subsequent Contract Year. In addition, any amount withdrawn in order to meet minimum Distribution requirements under the Code shall be free of CDSC.
In the first Contract Year, a CDSC-free Withdrawal is available in an amount not exceeding 1/12th of 15% (10% in New Jersey and the State of Washington) of each Premium Payment for each completed month since each Premium Payment. Two ways to access these CSDC-free amounts in the first Contract Year are by setting up a monthly systematic Withdrawal program for an amount not
exceeding the annual CDSC-free Withdrawal amount (see Available Automated Fund Management Features-Systematic Withdrawals, below), or by making a Withdrawal that is part of a series of substantially equal periodic payments over the life of the Owner or the joint lives of the Owner and his or her spouse, to which section 72(t)(2)(A)(iv) of the Code applies. Regardless of the method of Withdrawal, systematic or otherwise, at no point in the first Contract Year will total CDSC-free Withdrawals be available in an amount that exceeds 1/12th of 15% of each premium payment times the number of completed months since each premium payment. You may be subject to a tax penalty if you take Withdrawals prior to age 59½ (see Federal Income Tax Considerations, below). In New Jersey and the State of Washington, the CDSC-free provision will apply to full surrenders and Withdrawals but will be limited to 10% of the Contract Value as of the most recent Contract Anniversary for both Withdrawals and full surrenders.
In addition, no CDSC will be deducted:
· upon the Annuitization of Contracts,
· upon payment of a death benefit pursuant to the death of the Owner, or
· from any values which have been held under a Contract for at least 60 months.
No CDSC applies upon the transfer of value among the Subaccounts or between the Fixed Account or a Guaranteed Account and the Variable Account; however, a Market Value Adjustment may apply to transfers out of a Guaranteed Account before the termination date of such account.
When a Contract is held by a charitable remainder trust, the amount which may be withdrawn from this Contract without application of a CDSC after the first Contract Year, shall be the larger of (a) or (b), where
(a) is the amount which would otherwise be available for Withdrawal without application of a CDSC; and where
(b) is the difference between the Contract Value as of the last Contract Anniversary and the Net Premium Payments made to the Contract, less all Withdrawals and less any outstanding loan and accrued interest, as of the last Contract Anniversary.
We will waive the CDSC if the Owner dies or if the Owner annuitizes. However, if the Owner elects a settlement under Payment Option 1, and subsequently surrenders the Contract prior to seven years after the date of the last Premium Payment, the surrender will be subject to a CDSC.
We will also waive the CDSC if, following the first Contract Anniversary, you are confined to an eligible nursing home for at least the 90 consecutive days ending on the date of the Withdrawal request. This waiver is not available in the States of New Jersey and New York.
Annual Contract Fee
For Contracts with a Contract Value of less than $50,000 as of any Contract Anniversary prior to the Annuitization Date, we will assess an Annual Contract Fee of $30. This fee will be assessed annually on each Contract Anniversary on which the Contract Value is less than $50,000. No Annual Contract Fee will be assessed after the Annuitization Date. This fee will be taken pro rata from all Subaccounts of the Variable Account and the unloaned portion of the Fixed Account.
Transfer Charge
Currently, unlimited free transfers are permitted among the Subaccounts and the Guaranteed Accounts, and transfers among the Fixed Account, the Variable Account and the Guaranteed Accounts are permitted free of charge within the limits described above under Transfers (however, a market value adjustment will be applied to any transfer out of a Guaranteed Account prior to its termination date. See The Guaranteed Accounts, below). We have no present intention to impose a transfer charge in the foreseeable future. However, we reserve the right to impose in the future a transfer charge of $25 on each transfer in excess of 12 transfers in any Contract Year. We may do this if the expense of administering transfers becomes burdensome. We would not anticipate making a profit on any future transfer charge.
If we impose a transfer charge, we will deduct it 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 made pursuant to the Dollar Cost Averaging and Fund Rebalancing features, transfers resulting from loans, or if there has been a material change in the investment policy of the Fund from which the transfer is being made. These transfers will not count against the 12 free transfers in any Contract Year.
Premium Taxes
If a governmental entity imposes premium taxes, we make a deduction for premium taxes in a corresponding amount. Certain states impose a premium tax, currently ranging up to 3.5%. We will pay premium taxes at the time imposed under applicable law. Where we are required to pay this premium tax, we may deduct an amount equal to premium taxes from the Premium Payment. We currently intend to make this deduction from Premium Payments only in South Dakota. In the remaining states which assess premium taxes, we currently expect to make deductions for premium taxes at the time of Annuitization, death of the Owner, or surrender, although we also reserve the right to make such a deduction at the time we pay premium taxes to the applicable taxing authority.
Other Charges
The Variable Account purchases shares of the Funds at net asset value. The net asset value of those shares reflects management fees and expenses already deducted from the assets of the Funds. Information on the fees and expenses for the Funds is set forth in Underlying Fund Annual Expenses above.
More detailed information is contained in the Funds prospectuses, which are available at no charge by contacting us at the number and address listed on the first page of this prospectus.
We sell the Contracts through registered representatives of broker-dealers. These registered representatives are also appointed and licensed as our insurance agents. We pay commissions to the broker-dealers for selling the Contracts. You do not pay directly these commissions. We do. We intend to recoup commissions and other sales expenses through fees and charges imposed under the Contracts. (See Distribution of Contracts below).
A market value adjustment may apply to certain surrenders, withdrawals, transfers, and annuitization from a Guaranteed Account. See The Guaranteed Accounts Market Value Adjustment.
CONTRACT RIGHTS AND PRIVILEGES
Free Look
You may revoke the Contract at any time between the Date of Issue and the date 10 days after receipt of the Contract and receive a refund of the Contract Value plus any charges assessed at issue, including the Annual Contract Fee, and any premium tax, unless otherwise required by state and/or federal law. Some states may require a longer free look period. Where the Contract Value is refunded, you will have borne the investment risk and been entitled to the benefit of the investment performance of the chosen Subaccounts during the time the Contract was in force.
In the case of IRAs and states that require the return of Premium Payments, you may revoke the Contract during the free look period and we will refund Premium Payments.
In order to revoke the Contract, it must be mailed or delivered to our Home Office. Mailing or delivery must occur on or before 10 days after receipt of the Contract for revocation to be effective. In order to revoke the Contract, if it has not been received, written notice must be mailed or delivered to the Home Office.
The liability of the Variable Account under this provision is limited to the Contract Value in each Subaccount on the date of revocation. Any additional amounts refunded to you will be paid by us.
Loan Privilege - Tax Sheltered Annuities
Subject to approval in your state, if you own a section 403(b) Tax-Sheltered Annuity Contract, loans will be available on your Contract. Loans will be subject to the terms of the Contract and the Code.
If a loan provision is included in your Tax-Sheltered Annuity Contract, loans will be available anytime prior to the Annuitization Date. We may limit the number of loans available on a single contract. You will be able to borrow a minimum of $1,500 (we may permit lower amounts). The maximum loan balance which may be outstanding at any time on your Contract is 90% of the sum of Contract Value, outstanding loans and accrued interest on loans minus the CDSC that would apply if you surrendered your Contract (if you have Contract Value allocated to one or more Guaranteed Accounts, at the time you wish to take a loan, you must first transfer all such Contract Value out of those Guaranteed Accounts - see The Guaranteed Accounts, below). In no event may the aggregate amount borrowed from all your Tax-Sheltered Annuities under your 403(b) Plan, including this Contract, exceed the lesser of:
(a) 50% of the combined nonforfeitable account balances of all your Tax-Sheltered Annuities held under your 403(b) Plan (or $10,000 if greater); or
(b) $50,000.
The $50,000 limit will be reduced by the excess (if any) of the highest loan balances owed during the prior one-year period over the loan balance on the date the loan is made. The highest loan balance owed during the prior one-year period may be more than the amount outstanding at the time of the loan, if an interest payment or principal repayment has been made.
All loans will be made from the Collateral Fixed Account. When a loan is taken, an amount equal to the principal amount of the loan will be transferred to the Collateral Fixed Account. We will transfer to the Collateral Fixed Account an amount equaling the loan from the Subaccounts of the Variable Account and unloaned portion of the Fixed Account in the same proportion that such amounts bear to the total Contract Value. No CDSC is deducted at the time of the loan or on any transfers to the Collateral Fixed Account.
Until the loan is repaid in full, that portion of the Collateral Fixed Account equal to the outstanding loan balance shall be credited with interest at an annual rate we declare from time to time, but will never be less than the minimum annual rate guaranteed for your Contracts Fixed Account. On each Contract Anniversary and on each date that a loan repayment is received, any amount of interest credited on the Collateral Fixed Account will be allocated among the Fixed Account and the Subaccounts of the Variable Account in accordance with the allocation of Net Premium Payments then in effect.
Loans must be repaid in substantially level payments, not less frequently than quarterly, within five years. Loans used to purchase your principal residence must be repaid within 20 years. During the loan term, the outstanding balance of the loan will continue to accrue interest at annual rates specified in the loan agreement or an amendment to the loan agreement. The maximum interest rate will be the greater of:
· the Moodys Corporate Bond Yield Average Monthly Average Corporates, as published by Moodys Investors Service, Inc., or its successor, (or if that average is no longer published, a substantially similar average), for the calendar month ending two months before the date the rate is determined; or
· 4%.
The loan interest rate is subject to change on each Contract Anniversary. If the loan interest rate changes, we will send you a notice of the new loan interest rate and new level payment amount. We must reduce the loan interest if on a Contract Anniversary the maximum loan interest rate is lower than the interest rate for the previous Contract Year by 0.50% or more. We may increase the loan interest rate if the maximum loan interest rate is at least 0.50% higher than the loan interest rate for the previous Contract Year. The loan interest rate we charge will be equal to or less than the maximum loan interest rate at the time it is determined, and will never be higher than 15%.
Twenty days prior to the due date of each loan repayment, as set forth in the loan agreement or an amendment to the loan agreement, we will send you a notice of the amount due. Corresponding to the due date of each loan repayment, we will establish a billing window defined as the period beginning on the date that we mail the repayment notice (20 days prior to the payment due date) and extending 31 days after the due date.
Loan repayments received within the billing window that are sufficient to satisfy the amount due will be applied to the Contract as interest and repayment of principal. The amounts of principal and interest set forth in the loan agreement or an amendment to the loan agreement are the amounts if all loan repayments are made exactly on the due date. The actual amount of a repayment allocated to interest will be determined based on the actual date the repayment is received, the amount of the outstanding loan, and the number of days since the last repayment date. The amount of principal will be the repayment amount minus the interest. The loan principal repayment will, on the date it is received, be allocated among the Fixed Account and Subaccounts of the Variable Account in accordance with the allocation of Net Premium Payments then in effect.
Loan repayments received outside of the billing window will be processed as a repayment of principal only. Only repayments received within the billing window may satisfy the amount due. If a payment received within the billing window is less than the amount due, it will be returned to you.
If a loan repayment that is sufficient to satisfy the amount due is not made within the billing window, then the entire balance of the loan will be considered in default. This amount may be taxable to the borrower, and may be subject to the early withdrawal tax penalty. If you are not eligible to take a distribution pursuant to the Contract or plan provisions, the deemed distribution will be
reportable for tax purposes, but will not be offset against the Contract Value until such time as a distribution may be made. On each Contract Anniversary, while a loan is in default, interest accrued on loans will be added to the outstanding loans.
If you surrender your Contract while a loan is outstanding, you will receive the Cash Surrender Value, which is reduced to reflect the loan outstanding plus accrued interest. If the Owner/Annuitant dies while the loan is outstanding, the Death Benefit will also be reduced to reflect the amount of the loan outstanding plus accrued interest. If annuity payments start while the loan is outstanding, the Contract Value will be reduced by the amount of the outstanding loan plus accrued interest. Until the loan is repaid, we may restrict any transfer of the Contract that would otherwise qualify as a transfer as permitted in the Code.
Loans may also be subject to additional limitations or restrictions under the terms of the employers plan. Loans permitted under this Contract may still be taxable in whole or part if the participant has additional loans from other plans or contracts. We will calculate the maximum nontaxable loan based on the information provided by the participant or the employer. In addition, if the section 403(b) Tax-Sheltered Annuity Contract is subject to the Employee Retirement Income Security Act of 1974 (ERISA), a loan will be treated as a prohibited transaction subject to certain penalties unless additional ERISA requirements are satisfied. You should seek competent legal advice before requesting a loan. We are not responsible for determining whether a loan meets the requirements of ERISA, including the requirement that a loan bear a reasonable rate of interest.
If a loan is outstanding, all payments received from you will be considered loan repayments. Any payments received from your employer will be considered premium payments. We reserve the right to modify the terms or procedures associated with the loan privilege in the event of a change in the laws or regulations relating to the treatment of loans. We also reserve the right to assess a loan processing fee. IRAs, Non-Qualified Contracts and Qualified Contracts other than section 403(b) Tax-Sheltered Annuity Contracts are not eligible for loans.
Surrender and Withdrawal
At any time prior to the Annuitization Date (or thereafter if Payment Option 1 has been elected) you may, upon proper written application deemed by us to be in good order, surrender the Contract. Proper written application means that you must request the surrender in writing. We may require that the signature(s) be guaranteed by a member firm of a major stock exchange or other depository institution qualified to give such a guaranty.
We will, upon receipt of any such written request, pay to you the Cash Surrender Value. The Cash Surrender Value will reflect any applicable CDSC (see Contingent Deferred Sales Charge, above), any outstanding loan and accrued interest, and, in certain states, a premium tax charge (see Premium Taxes, above). The Cash Surrender Value may be more or less than the total of Premium Payments you made, depending on the market value of the underlying Fund shares, the amount of any applicable CDSC, and other factors.
We will normally not permit Withdrawal or Surrender of Premium Payments made by check within the 15 calendar days prior to the date the request for Withdrawal or Surrender is received.
At any time before the death of the Owner and before the Contract is annuitized, the Owner may make a Withdrawal of a portion of the Contract Value. The minimum Withdrawal is $500, except where the Withdrawal is a minimum distribution as required by certain Qualified Contract rules or where the Withdrawal is part of an automated process of paying investment advisory fees to the Owners investment advisor. At least $3,500 in Cash Surrender Value must remain after any Withdrawal. In some states, where approved by the state, at least $3,500 in Contract Value must remain after any Withdrawal. If a withdrawal causes your Contract Value to fall below the $3500 minimum, we may redeem your remaining contact value. Before we redeem your remaining Contract Value, we will provide you notice and give you the opportunity to increase your Contract Value to the $3500 minimum. Withdrawals made for the purpose of taking a required minimum distribution in a retirement account are not subject to the $3,500 restriction.
Generally, Withdrawals in the first Contract Year and Withdrawals in excess of 15% (10% in New Jersey and the State of Washington) of Contract Value as of the most recent Contract Anniversary in any Contract Year are subject to the CDSC. See Contingent Deferred Sales Charge, above. However, in the first Contract Year, a CDSC-free Withdrawal is currently available in an amount not exceeding 1/12th of 15% (10% in New Jersey and the State of Washington) of each premium payment for each completed month since each Premium Payment. For purposes of determining CDSC-free amounts in the first Contract Year only, all Premium Payments received prior to the first Monthly Contract Date will be considered to have been paid at the Date of Issue. One way to access these CDSC-free amounts in the first Contract Year is by setting up a monthly systematic Withdrawal program (see Available Automated Fund Management Features-Systematic Withdrawals below). Another limited way to make a Withdrawal in the first year without paying a CDSC is to make a Withdrawal which is part of a series of substantially equal periodic payments made for the life of the Owner or the joint lives of the Owner and his or her spouse, under section 72(t)(2)(a)(iv) of the Code. In addition, any amount withdrawn in order to meet minimum distribution requirements under the Code shall be free of CDSC. Regardless of the method of Withdrawal, systematic or otherwise, at no point in the first Contract Year will total CDSC-free Withdrawals be available in an amount that exceeds 1/12th of 15% of each premium payment times the number of completed months since each premium payment. Withdrawals will be deemed to be taken from Net Premium Payments in chronological order, with the oldest Net Premium Payment being withdrawn first. This method will tend to minimize the amount of the CDSC.
Withdrawals will be taken based on your instructions at the time of the Withdrawal. If you do not provide specific allocation instructions, or to the extent that Contract Value in the sources you specify are insufficient, the Withdrawal will be deducted pro rata from the Subaccounts and from the unloaned portion of the Fixed Account. The Withdrawal will not be taken from the Guaranteed Accounts unless there is not sufficient Contract Value in the Subaccounts of the Variable Account and the unloaned portion of the Fixed Account. If it is necessary to take the Withdrawal from the Guaranteed Accounts, it will be taken pro rata from all Guaranteed Accounts in which there is Contract Value, and within each Guaranteed Account duration, on a first-in-first-out basis. To the extent a Withdrawal is taken from a Guaranteed Account, a market value adjustment will be applied (see The Guaranteed Accounts - Market Value Adjustment, below).
Any CDSC associated with a Withdrawal will be deducted from the Subaccounts, the Fixed Account and/or the Guaranteed Accounts based on the allocation percentages of the Withdrawal. Any amount of CDSC that we deduct from a Subaccount that is in excess of the available value in that Subaccount will be deducted pro rata among the remaining Subaccounts and the unloaned portion of the Fixed Account (as above, it will not be taken from the Guaranteed Accounts unless there is not sufficient Contract Value in such remaining Subaccounts and the unloaned portion of the Fixed Account). We will process Withdrawals on the Valuation Day we receive your request in good order. If the Withdrawal cannot be processed in accordance with your instructions, then we will notify you through your agent, by telephone or by mail that we cannot process the Withdrawal, and we will not process it until we receive further instructions.
A Surrender or a Withdrawal may have tax consequences. See Federal Income Tax Considerations, below.
Payments
We will pay any funds surrendered or withdrawn from the Variable Account within seven days of receipt of such request in good order at our Home Office. Good order means the actual receipt by us of instructions relating to a transaction, along with all the information and supporting legal documentation we require to effect the transaction. To be in good order, instructions much be sufficiently clear so that we do not need to exercise any discretion to follow such instructions. However, we reserve the right to suspend or postpone the date of any payment or transfer of any benefit or values for any Valuation Period:
· when the New York Stock Exchange (Exchange) is closed;
· when trading on the Exchange is restricted;
· when an emergency exists as a result of which disposal of securities held in the Variable Account is not reasonably practicable or it is not reasonably practicable to determine the value of the Variable Accounts net assets; or
· during any other period when the SEC, by order, so permits for the protection of security holders.
The rules and regulations of the SEC shall govern as to whether certain of the conditions prescribed above exist.
In addition, if, pursuant to SEC rules, the BlackRock Money Market Portfolio suspends payment of redemption proceeds in connection with a liquidation of the Portfolio, we will delay payment of any transfer, partial surrender, surrender, loan, or death benefit from the BlackRock Money Market Subaccount until the Portfolio is liquidated.
In cases where you surrender your Contract within 15 days of making a premium payment by check, and we are unable to confirm that such payment has cleared, we may withhold an amount equal to such payment from your surrender proceeds until we are able to confirm that the payment item has cleared, but for no more than 15 days from our receipt of the payment item. You may avoid the possibility of this holdback by making premium payments by unconditional means, such as by certified check or wire transfer of immediately available funds.
We reserve the right to delay payment of any amounts allocated to the Fixed Account or to a Guaranteed Account payable as a result of a surrender, Withdrawal or loan for up to six months after we receive a written request in a form satisfactory to us.
If mandated under applicable law, we may be required to reject a premium payment. We may also be required to provide additional information about you and your account to government regulators. In addition, we may be required to block an Owners account and thereby refuse to honor any request for transfers, Withdrawals, surrenders, loans or Death Benefits, until instructions are received from the appropriate regulator.
Surrenders and Withdrawals Under a Tax-Sheltered Annuity Contract
Where the Contract has been issued as a Tax-Sheltered Annuity, the Owner may surrender or make a Withdrawal of part or all of the Contract Value at any time this Contract is in force prior to the earlier of the Annuitization Date or the death of the Designated Annuitant except as provided below:
(a) The surrender or Withdrawal of Contract Value attributable to contributions made pursuant to a salary reduction agreement (within the meaning of Code Section 402(g)(3)(A) or (C)), or transfers from a Custodial Account described in Section 403(b)(7) of the Code, may be executed only:
1. when the Owner attains age 59 1/2, severs employment, dies, or becomes disabled (within the meaning of Code Section 72(m) (7)); or
2. in the case of hardship (as defined for purposes of Code Section 401-(k)), provided that any surrender of Contract Value in the case of hardship may not include any income attributable to salary reduction contributions.
(b) Amounts transferred to a Tax-Sheltered Annuity from other 403(b) contracts or accounts are generally subject to the same restrictions on withdrawals applicable under the prior contract or account.
(c) For Tax-Sheltered Annuities issued on or after January 1, 2009, amounts attributable to employer contributions are subject to restrictions on withdrawals specified in your employers 403(b) plan, in order to comply with new tax regulations.
(d) The surrender and Withdrawal limitations described in (a) above for Tax-Sheltered Annuities apply to:
1. salary reduction contributions to Tax-Sheltered Annuities made for plan years beginning after December 31, 1988;
2. earnings credited to such contracts after the last plan year beginning before January 1, 1989, on amounts attributable to salary reduction contributions; and
3. all amounts transferred from 403(b)(7) Custodial Accounts (except that amounts held as of the close of the last plan year beginning before January 1, 1989 and salary reduction contributions (but not earnings) after such date may be withdrawn in the case of hardship).
(e) We do not allow a Distribution other than as described above, except in the exercise of a contractual ten-day free look provision (when available). Any Distribution taken by the Owner other than as described above, including a Distribution as a result of the ten-day free look provision, may result in the immediate application of taxes and penalties and/or retroactive disqualification of a Qualified Contract or Tax-Sheltered Annuity. National Life is not responsible for any taxes, penalties or other adverse consequences resulting from an Owner taking a Distribution.
A premature Distribution may not be eligible for rollover treatment. To assist in preventing disqualification in the event of a ten-day free look, National Life will agree to transfer the proceeds to another contract which meets the requirements of Section 403(b) of the Code, upon proper direction by the Owner. The foregoing is National Lifes understanding of the withdrawal restrictions which are currently applicable under Section 403(b)-(11). Such restrictions are subject to legislative change and/or reinterpretation from time to time. Distributions pursuant to Qualified Domestic Relations Orders will not be considered to be a violation of the restrictions stated in this provision.
The Contract surrender and Withdrawal provisions may also be modified pursuant to the plan terms and Code tax provisions for Qualified Contracts. If your Contract is a Tax-Sheltered Annuity, we generally are required to confirm, with your 403(b) plan sponsor or otherwise, that Premium Payments, as well as surrenders, withdrawals, loans or transfers you request, comply with applicable tax requirements and to decline premiums or requests that are not in compliance. We will not process Premium Payments, surrenders, withdrawals, loans or transfers until all information required under the tax law has been received. By directing Premium Payments to the Contract or requesting any one of these payments, you consent to the sharing of confidential information about you, the Contract, transactions under the Contract, and any other 403(b) contracts or accounts you have under the 403(b) plan among us, your employer or plan sponsor, any plan administrator or recordkeeper, and other product providers.
Telephone Transaction Privilege
If you elect the telephone transaction privilege, you may make changes in Net Premium Payment allocations, transfers, or initiate or make changes in dollar cost averaging or Fund rebalancing, in the case of section 403(b) Tax Sheltered Annuities, take loans up to $10,000, and modify systematic withdrawals by providing instructions to us at our Home Office over the telephone. You can make the election either on the application for the Contract or by providing a proper written authorization to us. We reserve the right to suspend telephone transaction privileges at any time and for any reason. You may, on the application or by a written authorization, authorize your National Life agent to provide telephone instructions on your behalf.
We employ reasonable procedures to confirm that instructions communicated by telephone are genuine. If we follow these procedures we will not be liable for any losses due to unauthorized or fraudulent instructions. We may be liable for any such losses if those reasonable procedures are not followed. The procedures 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.
You should protect any form of personal identification used to access your account, as we may not be able to verify that the person providing instructions using such personal information is you or someone authorized by you.
Telephone transfers may not always be available. Telephone systems, whether yours, ours, or your agents, can experience outages or slowdowns for a variety of reasons. These outages or slowdowns may prevent or delay our receipt of your request. If you are experiencing problems, you should make your transfer request in writing.
Facsimile Transaction Privilege
You may provide instructions by facsimile for all transactions, except for a death claim, by providing instructions to us at our Home Office at a designated fax number. Contact your agent for more information. We may suspend facsimile transaction privileges at any time, for any reason, if we deem such suspension to be in the best interests of the Owners.
Facsimile transactions may not always be available. Communication systems, whether yours, ours or your agents, can experience outages or slowdowns for a variety of reasons. These outages or slowdowns may prevent or delay our receipt of your request. If you are experiencing problems, you should make your request by mail.
Electronic Mail Transaction Privilege
A National Life agent may provide transfer instructions by e-mail to us at our Home Office on your behalf, if you have provided the agent the appropriate authority. Contact your agent for more information. We may suspend e-mail transaction privileges at any time, for any reason, if we deem such suspension to be in the best interests of the Owners.
E-mail transactions may not always be available. Electronic systems, whether yours, ours or your agents, can experience outages or slowdowns for a variety of reasons. These outages or slowdowns may prevent or delay our receipt of the request. If your agent experiences problems, you should make your request by mail.
Cyber Security Risk
Our variable insurance product business relies heavily on interconnected computer systems and digital data to conduct our variable product business activities. Because our variable product business is highly dependent upon the effective operation of our computer systems and those of our business partners, our business is vulnerable to disruptions from utility outages, and susceptible to operational and information security risks resulting from information systems failure (e.g., hardware and software malfunctions), and cyber-attacks. These risks include, among other things, the theft, misuse, corruption and destruction of data maintained online or digitally, interference with or denial of service, attacks on websites and other operational disruption and unauthorized release of confidential customer information. Such systems failures and cyber-attacks affecting us, any third party administrator, the underlying Funds, intermediaries and other affiliated or third-party service providers may adversely affect us and your contract value. For instance, systems failures and cyber-attacks may interfere with our processing of contract transactions, including the processing of orders from our website or with the underlying Funds, impact our ability to calculate AUVs, cause the release and possible destruction of confidential customer or business information, impede order processing, subject us and/or our service providers and intermediaries to regulatory fines and financial losses and/or cause reputational damage. Cyber security risks may also impact the issuers of securities in which the underlying Funds invest, which may cause the Funds underlying your Contract to lose value. There can be no assurance that we or the underlying Funds or our service providers will avoid losses affecting your Contract due to cyber-attacks or information security breaches in the future.
Available Automated Fund Management Features
We currently offer the following free automated fund management features. However, we are not legally obligated to continue to offer these features and we may cease offering one or more of such features at any time, after providing 60 days prior written notice to all Owners who are currently utilizing the features being discontinued. Only one of Dollar Cost Averaging and Fund Rebalancing is available under any single Contract at one time, but either may be used with Systematic Withdrawals.
Dollar Cost Averaging. This feature permits you to automatically transfer funds from the Money Market Subaccount to any other Subaccounts on a monthly basis. You may elect it at issue by marking the appropriate box on the initial application and completing the appropriate instruction or after issue by filling out similar information on a change request form and sending it to us (in good order).
If you elect this feature, each month on the Monthly Contract Date we will take the amount to be transferred from the Money Market Subaccount and transfer it to the Subaccount or Subaccounts designated to receive the funds. This procedure starts with the Monthly Contract Date next succeeding the Date of Issue or next succeeding the date of an election subsequent to purchase and stops when the amount in the Money Market Subaccount 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. You may discontinue Dollar Cost Averaging at any time by sending an appropriate change request form to us.
This feature allows you to move funds into the various investment classes on a more gradual and systematic basis than the frequency on which Premium Payments ordinarily are made. The dollar cost averaging method of investment is designed to reduce the risk of making purchases only when the price of units is high. 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 technique will not assure a profit or protect against a loss in declining markets. For the dollar cost averaging technique to be effective,
amounts should be available for allocation from the Money Market Subaccount through periods of low price levels as well as higher price levels.
Fund Rebalancing. This feature permits you to automatically rebalance the value in the Subaccounts on a quarterly, semi-annual or annual basis, based on the premium allocation percentages in effect at the time of the rebalancing. You may elect it at issue by marking the appropriate box on the initial application or after issue by completing a change request form and sending it to us (in good order).
In Contracts utilizing Fund Rebalancing from the Date of Issue, an automatic transfer takes place that causes the percentages of the current values in each Subaccount to match the current premium allocation percentages. This procedure starts with the Monthly Contract Date three, six or 12 months after the Date of Issue and continues on each Monthly Contract Date three, six or 12 months thereafter. Contracts electing Fund Rebalancing after issue will have the first automated transfer occur as of the Monthly Contract Date on or next following the date that the election is received. Subsequent rebalancing transfers occur every three, six or 12 months thereafter. You may discontinue Fund Rebalancing at any time by submitting an appropriate change request form.
If you change the Contracts premium allocation percentages, Fund Rebalancing will automatically be discontinued unless you specifically direct otherwise.
Fund Rebalancing results in periodic transfers out of Subaccounts that have had relatively favorable investment performance and into Subaccounts that have had relatively unfavorable investment performance. Fund Rebalancing does not guarantee a profit or protect against a loss.
Systematic Withdrawals. At any time after one year from the Date of Issue, if the Contract Value at the time of initiation of the program is at least $15,000, you may elect in writing to take Systematic Withdrawals of a specified dollar amount (of at least $100) on a monthly, quarterly, semi-annual or annual basis. You may provide specific instructions as to how the Systematic Withdrawals are to be taken, but the Withdrawals must be taken first from the Subaccounts and may only be taken from the unloaned portion of the Fixed Account to the extent that the Contract Value in the Variable Account is insufficient to accomplish the Withdrawal. Moreover, Withdrawals may only be taken from the Guaranteed Accounts to the extent that the Contract Value in the Variable Account and the Fixed Account is insufficient to accomplish the Withdrawal. If you have not provided specific instructions or if specific instructions cannot be carried out, we process the Withdrawals by taking Accumulation Units from all of the Subaccounts in which you have an interest and the unloaned portion of the Fixed Account on a pro rata basis; Contract Value will not be taken from the Guaranteed Accounts unless there is not sufficient Contract Value in the Variable Account and the Fixed Account to accomplish the Withdrawal. Each systematic Withdrawal is subject to federal income taxes. In addition, a 10% federal penalty tax may be assessed on systematic Withdrawals if you are under age 59½. If you direct, we will withhold federal income taxes from each systematic Withdrawal. You may elect to have your systematic withdrawal payment electronically transferred to your checking or savings account by submitting the appropriate paperwork deemed by us to be in good order. A Systematic Withdrawal program terminates automatically when a systematic Withdrawal would cause the remaining Cash Surrender Value to be $3,500 or less. If this happens, then the systematic Withdrawal transaction causing the Cash Surrender Value to fall below $3,500 will not be processed. You may discontinue Systematic Withdrawals at any time by notifying us in writing.
A CDSC may apply to systematic Withdrawals in accordance with the considerations set forth in Contingent Deferred Sales Charge, above. If you withdraw amounts pursuant to a systematic Withdrawal program, then, in most states, you may withdraw in each Contract Year after the first Contract Year without a CDSC an amount up to 15% of the Contract Value as of the most recent Contract Anniversary (a 10% CDSC-free Withdrawal provision applies in New Jersey and Washington - see Contingent Deferred Sales Charge, above). Both Withdrawals you request and Withdrawals pursuant to a systematic Withdrawal program will count toward the limit of the amount that may be withdrawn in any Contract Year free of the CDSC. In addition, any amount withdrawn in order to meet minimum distribution requirements under the Code shall be free of CDSC.
Limited Systematic Withdrawals are also available in the first Contract Year (but after 30 days from issue). These Systematic Withdrawals are limited to monthly Systematic Withdrawal programs only. The maximum aggregate amount for the remaining months of the first Contract Year is the annual amount that may be withdrawn in Contract Years after the first Contract Year free of a CDSC (i.e., either 15% or 10% of the Contract Value, depending on the state). These Systematic Withdrawals will not be subject to a CDSC. The other rules for Systematic Withdrawals made after the first Contract Year, including the $15,000 minimum Contract Value, minimum $100 payment, and allocation rules, will apply to these systematic Withdrawals. Regardless of the method of Withdrawal, systematic or otherwise, at no point in the first Contract Year will total CDSC-free Withdrawals be available in an amount that exceeds 1/12th of 15% of each premium payment times the number of completed months since each premium payment. Systematic withdrawals may not be elected if there is a policy loan.
Contract Rights Under Certain Plans
Contracts may be purchased in connection with a plan sponsored by an employer. In such cases, all rights under the Contract rest with the Owner, which may be the employer or other obligor under the plan and benefits available to participants under the plan, are governed solely by the provisions of the plan. Accordingly, some of the options and elections under the Contract may not be available to participants under the provisions of the plan. In such cases, participants should contact their employers for information regarding the specifics of the plan.
THE FIXED ACCOUNT
Net Premium Payments under the Fixed Account portion of the Contract and transfers to the Fixed Account portion are part of our general account, which supports insurance and annuity obligations. Because of exemptive and exclusionary provisions, interests in the general account, including the Guaranteed Accounts discussed below, are not registered under the Securities Act of 1933 (Securities Act), nor is the general account registered as an investment company under the Investment Company Act. Accordingly, neither the general account nor any interest therein are generally subject to the provisions of the Securities Act or Investment Company Act, and we have been advised that the staff of the SEC has not reviewed the disclosures in this prospectus which relate to the guaranteed interest portion. Disclosures regarding the Fixed Account, the Guaranteed Accounts, and the general account, however, are subject to certain generally applicable provisions of the federal securities laws relating to the accuracy and completeness of statements made in prospectuses.
Our general account is made up of all our general assets, other than those in the Variable Account and any other segregated asset account. Fixed Account Net Premium Payments will be allocated to the Fixed Account by election of the Owner at the time of purchase or by a later change in allocation of Net Premium Payments. We will invest the assets of the Fixed Account and the Guaranteed Accounts in those assets we choose and allowed by applicable law.
Minimum Guaranteed and Current Interest Rates
The Contract Value held in the Fixed Account that is not held in a Collateral Fixed Account is guaranteed to accumulate at a minimum effective annual interest rate which may vary from time to time, but which will be fixed at the issue of a Contract and will not vary over the life of the Contract, and will be at least the minimum effective interest rate required by your states law. We may credit the Contract Value in the unloaned portion of the Fixed Account with current rates in excess of the minimum guarantee but we are not obligated to do so. We have no specific formula for determining current interest rates. Because we, in our sole discretion, anticipate 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. We declare an interest rate each month to apply to amounts allocated or transferred to the Fixed Account in that month. The rate declared on such amounts remains in effect for 12 months. In general, National Life expects to set the interest rates applicable to Contract Value held in the Fixed Account at rates which permit National Life to earn a profit on the investment of the funds. At the end of the 12-month period, we reserve 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). We determine any interest credited on the amounts in the Fixed Account in excess of the minimum guaranteed rate in our discretion. You assume the risk that interest credited may not exceed the guaranteed minimum rate. Amounts allocated to the Fixed Account do not share in the investment performance of our general account or any portion thereof.
Amounts deducted from the unloaned portion of the Fixed Account for the charge for the Annual Contract Fee or transfers to the Variable Account are, for the purpose of crediting interest, accounted for on a last in, first out basis. Amounts deducted from the unloaned portion of the Fixed Account for Withdrawals are accounted for on a first in, first out basis for such purpose.
National Life reserves the right to change the method of crediting interest from time to time, provided that such changes do not have the effect of reducing the guaranteed rate of interest below the applicable minimum rate or shorten the period for which the interest rate applies to less than 12 months.
For Contracts purchased in the State of Washington, no Premium Payments or Contract Value may be allocated to the Fixed Account.
Enhanced Fixed Account
We may make available to the Contracts a special Fixed Account Option, called the Enhanced Fixed Account. The Enhanced Fixed Account allows you to move value into the Variable Account on a gradual and systematic basis, while earning interest at a higher fixed rate than otherwise offered on the Fixed Account on your value while it awaits transfer into the Variable Account. You should keep in mind that the interest rate applicable to the Enhanced Fixed Account applies only for a specified period of time and to a principal balance in the Enhanced Fixed Account that declines over time as funds are moved into the Variable Account.
The Enhanced Fixed Account will be available to new and existing Owners who make a one-time new Premium Payment of at least a minimum dollar amount we specify at the time. Contract Value in the Enhanced Fixed Account will accumulate at an effective annual interest rate in excess of the current rates then being credited to Contract Value in the Fixed Account. We will declare the interest rate for the Enhanced Fixed Account at the time of the offer in our discretion, and this interest rate will apply for the entire offer period. When we set an offer period, we will announce all the terms of the Enhanced Fixed Account, and post this information on our web site at www.nationallifegroup.com.
If more than one Enhanced Fixed Account is offered, we will reserve the right to allow you to participate in only one such offer at a time. In that case, once you have transferred all Contract Value out of the Enhanced Fixed Account under the terms of a given offer, you may participate in subsequent offers subject to the preceding condition and subject to any qualifying rules of any subsequent offers. Any Contract Value in the Enhanced Fixed Account accepted under one offer may not be transferred to any subsequent or concurrent offer. Offer availability and interest rates are determined solely by the date of receipt of the eligible new Premium Payment in our Home Office.
We will require that the Contract Value in the Enhanced Fixed Account be systematically transferred on a monthly basis from the Enhanced Fixed Account to the Subaccounts. The required monthly transfer amount will be a percentage of the Premium Payment allocated to the Enhanced Fixed Account. We will declare this percentage at the time of the offer, in our discretion. Each month on the Monthly Contract Date, the monthly transfer amount will be transferred from the Enhanced Fixed Account to the Subaccounts and in the percentage amounts selected by the Owner (other than the Money Market Subaccount), until the Contract Value in the Enhanced Fixed Account is exhausted.
The Enhanced Fixed Account will be part of the Fixed Account described above.
Transfers into the Enhanced Fixed Account will not be allowed. The Owner may transfer Contract Value out of the Enhanced Fixed Account at any time, by making a transfer request. If the entire Contract Value in the Enhanced Fixed Account is transferred out, the program ends. If less than the entire Contract Value in the Enhanced Fixed Account is transferred out, the scheduled monthly transfers will continue until the Enhanced Fixed Account is exhausted.
The Owner may terminate participation in the Enhanced Fixed Account at any time by notifying National Life at its Home Office. This will result in all value in the Enhanced Fixed Account being transferred in accordance with the Owners then-current premium allocation.
Withdrawals from the Enhanced Fixed Account will be allowed, in the same manner as for other Withdrawals, but will be subject to any applicable CDSC.
Guaranteed Accounts, as described below, are not available for the systematic transfers out of the Enhanced Fixed Account.
This program is not available simultaneously with Dollar Cost Averaging or Fund Rebalancing, but is available with Systematic Withdrawals. Also, if you elect to receive benefits under an Accelerated Benefits Rider while you have Contract Value in the Enhanced Fixed Account, your Contract Value in the Enhanced Fixed Account will immediately be transferred to the Money Market Subaccount.
We may permit, in our discretion, additional Premium Payments on the same Contract to be allocated to the Enhanced Fixed Account. If we do so, we will add a declared percentage of the new Premium Payment to the original monthly transfer amount, the same instructions for allocating to the Subaccounts will apply, and the program will continue to operate until the Contract Value in the Enhanced Fixed Account is exhausted.
We may need to refund Premium Payments intended for the Enhanced Fixed Account if they are less than the minimum required or if, for any other reason, the written instructions of the Owner cannot be carried out. We may hold these Premium Payments for up to 20 days before refunding them. Any amounts refunded will be credited with interest at 5.0% per annum. The Enhanced Fixed Account will not be available in the State of Washington.
THE GUARANTEED ACCOUNTS
Contract Owners may also allocate Net Premium Payments and/or Contract Value to one or more Guaranteed Accounts. These Guaranteed Accounts guarantee a specified interest rate for the entire period of an investment, if the Contract Value remains in a Guaranteed Account for the specified period of time. Guaranteed Accounts are currently available for five-, seven- and ten-year periods.
Like the Fixed Account described above, Net Premium Payments under any Guaranteed Account and transfers to any Guaranteed Account are part of National Lifes general account, which supports its insurance and annuity obligations.
Investments in the Guaranteed Accounts
You may invest in a Guaranteed Account by allocating Net Premium Payments to a Guaranteed Account of the desired five-, seven- and ten-year period, either on the application or by a later change in Net Premium Payment allocation. You may also transfer Contract Value from the Variable Account to a Guaranteed Account with the desired five-, seven- and ten-year period by making a written transfer request, or by telephone if the telephone transaction privilege applies. Transfers from the Fixed Account to a Guaranteed Account are permitted only to the same extent described under Transfers above for transfers from the Fixed Account to the Variable Account.
All deposits into a Guaranteed Account are subject to a $500 minimum. If such an allocation would result in a deposit to a Guaranteed Account of less than $500, such Net Premium Payments will be allocated instead to the Money Market Subaccount.
You may not invest in a Guaranteed Account where the end of the guarantee period for such Guaranteed Account is later than your Contracts Maturity Date.
Interest at a specified rate will be guaranteed to be credited to all Contract Value in a particular Guaranteed Account for the entire specified period, if the Contract Value remains in that Guaranteed Account for the entire specified period. We expect to change the specified rates for new investments in Guaranteed Accounts from time to time based on returns then available to us for the specified periods, but such changes will not affect the rates guaranteed on previously invested Contract Value. We expect to set the rates for the Guaranteed Accounts such that we will earn a profit on the investment of the funds. If you surrender your Contract or withdraw or transfer Contract Value out of a Guaranteed Account prior to the end of the specified period, a variable adjustment referred to in this prospectus as a market value adjustment will be applied to such Contract Value before the surrender, Withdrawal or transfer. This market value adjustment is described in detail below.
Currently there is no charge, apart from any market value adjustment as referred to above, for transfers into or out of a Guaranteed Account. However, although we have no present intention to impose a transfer charge in the foreseeable future, we reserve the right to impose in the future a transfer charge of $25 on each transfer in excess of 12 transfers in any Contract Year. We may do this if the expense of administering transfers becomes burdensome. Transfers into and out of a Guaranteed Account, other than at the termination of a Guaranteed Account, would count toward such limits.
We may at any time change the number and/or duration of Guaranteed Accounts we offer. Any such changes will not affect existing allocations to Guaranteed Accounts at the time of the change.
Termination of a Guaranteed Account
The termination date for a particular Guaranteed Account will be the anniversary of the date Contract Value is credited to a Guaranteed Account. For example, if Contract Value is transferred to a 7-year Guaranteed Account on May 2, 2016, the termination date for this Guaranteed Account is May 2, 2023, or the next following Valuation Day if May 2, 2023 is not a Valuation Day.
We will notify you in writing of the termination of your Guaranteed Account. Such notification will normally be mailed approximately 45 days prior to the termination date for a Guaranteed Account. During the 30-day period prior to the termination date (the 30-day window), you may provide instructions to reinvest the Contract Value in a Guaranteed Account, either as of the date we receive your instructions, or the termination date (or the next Valuation Day, if the date we receive your instructions or the termination date is not a Valuation Day), in any of the Subaccounts of the Variable Account, in the Fixed Account, or in any Guaranteed Account that we may be offering at that time. No market value adjustment will apply to any such reinvestment made as the result of instructions received during the 30-day window. In the event that you do not provide instructions during the 30-day window as to how to reinvest the Contract Value in a Guaranteed Account, we will, on the termination date, or the next following Valuation Day if the termination date is not a Valuation Day, transfer the Contract Value in a Guaranteed Account to the Money Market Subaccount of the Variable Account. No market value adjustment will be applied to this transfer. You will then be able to transfer the Contract Value from the Money Market Subaccount to any other available investment option.
Market Value Adjustment
Contract Value allocated to a Guaranteed Account is not restricted from being surrendered, withdrawn, transferred or annuitized prior to the termination date of the Guaranteed Account. However, a market value adjustment will be applied to a surrender of your Contract or any such Contract Value withdrawn or transferred (we refer to a surrender, Withdrawal or transfer before the 30-day window as a MVA Withdrawal) from the Guaranteed Account prior to the 30-day window before its termination date.
We will apply the market value adjustment before we deduct any applicable CDSC or taxes. A market value adjustment will apply to Withdrawals from a Guaranteed Account prior to the 30-day window before its termination date even if a waiver of the CDSC applies to such a Withdrawal.
A market value adjustment reflects the change in current interest rates since we established a Guaranteed Account. The market value adjustment may be positive or negative. Adjustments may be limited in amount, as described in more detail below.
Generally, if at the time of your MVA Withdrawal the applicable index interest rate for maturities equal to the time remaining before the termination date of your Guaranteed Account is higher than the applicable index interest rate for maturities equal to the period of your Guaranteed Account at the time of your investment in the Guaranteed Account, then the market value adjustment will result in a reduction of your Contract Value. If the opposite is true at the time of your MVA Withdrawal, then the market value adjustment will result in an increase in your Contract Value. However, the market value adjustment is limited so that the amount available for MVA Withdrawal, before any CDSC, will never be less than the amount of the initial deposit, less any Withdrawals, plus interest at the Contracts minimum guaranteed interest rate. This minimum guaranteed interest rate may vary based on your state law and on prevailing interest rates, but will be set at the time of issue of the Contract and, once set, will not vary over the life of the Contract.
We compute the amount of a market value adjustment as the lesser of (1) and (2) below. The market value adjustment will be positive if (1) below is positive. It will be negative if (1) below is negative.
(1) the absolute value of the Contract Value subject to the market value adjustment times:
((1+i)/ (1+j+c)) n/12 1
where
i = the interest rate from the U.S. Treasury Constant Maturities as found in the Federal Reserve Statistical Release H.15 available at the time of the initial deposit for the Guaranteed Account duration.
n = the number of whole months until the termination date of the Guaranteed Account
j = the current interest rate from the U.S. Treasury Constant Maturities as found in the Federal Reserve Statistical Release H.15 available for a period of length n/12, rounded down to the next whole year. If there is no interest rate for the maturity needed to calculate i or j, we will use straight line interpolation between the interest rate for the next highest and next lowest maturities to determine that interest rate. If the maturity is less than one year, we will use the index rate for a one-year maturity.
c = a constant, .0025 in most jurisdictions.
or
(2) the amount initially deposited into the Guaranteed Account times:
((1+k) d/365 (1 + g) d/365) the sum of all [TransferT ((1+k) e/365 (1 + g) e/365)]
where
k = the interest rate guaranteed for the guaranteed period.
d = (365 times the number of complete years since the initial deposit into the Guaranteed Account) plus the number of days since the last anniversary of such initial deposit (or the initial deposit date if less than one year has elapsed since the initial deposit) to the current date.
TransferT = a transfer from the Guaranteed Account on day T.
e = (365 times the number of complete years since T to the current transfer date) plus the number of days from the last anniversary of T (or the days since T if less than one year has elapsed).
g= your Contracts guaranteed minimum interest rate.
If you have made more than one deposit into a Guaranteed Account, and you do not instruct us otherwise, we will treat Withdrawals and transfers as coming from such Guaranteed Accounts on a pro rata basis, and within Guaranteed Accounts with the same initial guarantee period, on a first-in-first-out basis; that is, Contract Value with the earliest date of deposit into a Guaranteed Account will be withdrawn or transferred prior to Contract Value with later dates of deposit into such Guaranteed Account.
A market value adjustment will be applied to Funds transferred from a Guaranteed Account to collateralize a loan, whether for the initial loan or for loan interest.
We will not apply a market value adjustment to:
· any MVA Withdrawal during the 30-day window;
· Death Benefit proceeds;
· your Contract on its Maturity Date; or
· any deduction from a Guaranteed Account made to cover the Annual Contract Fee or Rider Charges.
Examples
Example #1:
Original Deposit: $10,000
Original Deposit Date: May 2, 2016
The $10,000 is placed in the seven-year Guaranteed Account. The guaranteed interest rate is 4.25%.
On May 2, 2020, the Owner wishes to transfer the full amount from the seven-year Guaranteed Account. The i rate as of May 2, 2016 for seven year periods was 2.48%. The j rate available for three year periods on May 2, 2020 is 0.34%. The contracts minimum guaranteed interest rate is 1.50%. There are 36 months remaining in the original guaranteed period. The Contract Value in this Guaranteed Account on May 2, 2018 is $10,868.06. (10,000 ´ 1.04252).
The first part of the market value adjustment formula gives:
$10,868.06 ´(((1+0.0248)/ (1+0.0034+0.0025))36/12 1) = $624.19.
The second part of the market value adjustment formula gives:
$10,000 ´ ((1 + 0.0425)1461/365 (1 + 0.0150)1461/365) = $1,198.76
The amount of the market value adjustment is the lesser of the absolute value of the first part, $624.19, and of the second part, $1,198.76. Because the result of the first part is positive, the market value adjustment is an increase in Contract Value.
The amount of the transfer will be $10,868.06 + $624.19 = $11,492.25.
Example #2
Original Deposit: $10,000
Original Deposit Date: August 1, 2016
The $10,000 is placed in the seven-year Guaranteed Account. The guaranteed interest rate is 3.00%.
On May 1, 2017, the Owner wishes to transfer the full amount from the seven-year guaranteed account. The i rate as of August 1, 2016 for seven year periods was 0.97%. The j rate available for six year periods on May 1, 2017 is 0.92%. The contracts minimum guaranteed interest rate is 1.50%. There are 75 months remaining in the original guaranteed period. The Contract Value in this Guaranteed Account on May 1, 2017 is $10,223.55. (10,000 ´ 1.0300273/365).
The first part of the market value adjustment formula gives:
$10,223.55 ´ (((1+0.0097)/ (1+0.0092+0.0025))75/12 1) = -$125.66
The second part of the market value adjustment formula gives:
$10,000 ´ ((1 + 0.0300)273/365 (1 + 0.0150)273/365) = $111.56
The amount of the market value adjustment is the lesser of the absolute value of the first part, $125.66, and of the second part, $111.56. Since the result of the first part is negative, the market value adjustment is a reduction in Contract Value.
The amount of the transfer will be $10,223.55 - $111.56 = $10,111.98.
Note that the amount $10,111.98 is $10,000 accumulated for 273 days at 1.50%. In this example, the market value adjustment was restricted to the amount of interest earned by the Guaranteed Account in excess of 1.50%, the guaranteed interest rate of the contract. Had the market value adjustment been positive in this example, it still would have been restricted to $111.56.
Other Matters Relevant to the Guaranteed Accounts
If you have Contract Value allocated to a Guaranteed Account when you or a Joint Owner dies, no market value adjustment will be applied to such Contract Value before the Death Benefit is paid.
If you own a section 403(b) Tax-Sheltered Annuity Contract on which loans are available, and you need to borrow Contract Value, you must transfer all Contract Value allocated to a Guaranteed Account to a Subaccount of the Variable Account or to the Fixed Account prior to the processing of the loan. A market value adjustment will apply to such transfer. We will allocate loan repayments to the Subaccounts of the Variable Account and to the unloaned portion of the Fixed Account according to your premium allocation percentages in effect at the time of the repayment. While a loan is outstanding, premiums may not be allocated to, and transfers may not be made to, the Guaranteed Accounts.
The Guaranteed Accounts are not available in the states of Washington and Oregon.
Preserver Plus Program
Under this program, you may place a portion of a Net Premium Payment into a seven-year or ten-year Guaranteed Account that will grow with guaranteed interest to 100% of that Net Premium Payment. We will calculate the portion of the Net Premium Payment needed to accumulate over the chosen guarantee period to 100% of the Net Premium Payment. The balance of the Net Premium Payment may be allocated to the Subaccounts of the Variable Account, the Fixed Account, or other Guaranteed Accounts in any manner you desire, subject to our normal allocation rules.
Amounts allocated to a Guaranteed Account under this program will not equal the original Net Premium Payment if any transfer or Withdrawal is made from a Guaranteed Account prior to the end of the guarantee period. Keep in mind that if you have a Qualified Contract, you will be required to take minimum required distributions.
OPTIONAL ACCELERATED BENEFIT RIDERS
If the Contract has been in force for at least five years, the Accelerated Benefit Riders provide accelerated Death Benefits prior to the death of the covered person in certain circumstances where a terminal illness or chronic illness creates a need for access to the Death Benefit. The terminal illness or chronic illness must have begun while the Contract was in force. Benefits accelerated under these Riders are discounted for interest and mortality. Once benefits have been accelerated, the Contract terminates. There is no cost for these Riders. They can be included in the Contract at issue, or they can be added after issue, for a covered person at the time of Contract issue whose age, on an age on nearest birthday basis, is 0-75.
The covered person is the Owner, unless the Owner is not a natural person, in which case the covered person is the Annuitant. If there are Joint Owners, then each is considered a covered person. If the covered person changes, then the Contract is not eligible for acceleration until the Contract has been in force five years from the date of the change.
These Riders may not be available in all states and their terms may vary by state. These Riders will not be available in New York, Oregon, Texas, Virginia or Washington. Connecticut, Kansas, Louisiana, Minnesota, New Jersey, Pennsylvania, South Carolina and Utah only allow the terminal illness portion of the Riders.
Any amount received under an Accelerated Benefits Rider should be taxed in the same manner as a surrender of the Contract. See Federal Income Tax Considerations, below.
FEDERAL INCOME TAX CONSIDERATIONS
The following discussion is general in nature and is not intended as tax advice. Each person concerned should consult a competent tax advisor. No attempt is made to consider any applicable state tax or other income tax laws, any state and local estate or inheritance tax, or other tax consequences of ownership or receipt of distributions under a Contract.
If you invest in a variable annuity as part of an individual retirement plan, pension plan or employer-sponsored retirement program, your contract is called a Qualified Contract. If your annuity is independent of any formal retirement or pension plan, it is termed a
Non-Qualified Contract. The tax rules applicable to Qualified Contracts vary according to the type of retirement plan and the terms and conditions of the plan. Because the tax benefits of annuity contracts may not be needed in the context of Qualified Contracts, you generally should not buy a Qualified Contract for the purpose of obtaining tax deferral.
Taxation of Non-Qualified Contracts
Non-Natural Person. If a non-natural person (e.g., a corporation or a trust) owns a Non-Qualified Contract, the taxpayer generally must include in income any increase in the excess of the account value over the investment in the Contract (generally, the premiums or other consideration paid for the contract) during the taxable year. There are some exceptions to this rule and a prospective owner that is not a natural person should discuss these with a tax adviser.
The following discussion generally applies to Contracts owned by natural persons.
Withdrawals. When a withdrawal from a Non-Qualified Contract occurs, the amount received will be treated as ordinary income subject to tax up to an amount equal to the excess (if any) of the account value immediately before the distribution over the Owners investment in the Contract (generally, the premiums or other consideration paid for the Contract, reduced by any amount previously distributed from the Contract that was not subject to tax) at that time. There is no guidance on the proper tax treatment of market value adjustment and it is possible that a positive market value adjustment at the time of a Withdrawal from a Guaranteed Account may be treated as part of the Contract Value immediately prior to the distribution. A tax advisor should be consulted on this issue. In the case of a surrender under a Non-Qualified Contract, the amount received generally will be taxable only to the extent it exceeds the Owners investment in the Contract.
Penalty Tax on Certain Withdrawals. In the case of a distribution from a Non-Qualified Contract, there may be imposed a federal tax penalty equal to ten percent of the amount treated as income. In general, however, there is no penalty on distributions:
· made on or after the taxpayer reaches age 59½;
· made on or after the death of an Owner;
· attributable to the taxpayers becoming disabled; or
· made as part of a series of substantially equal periodic payments for the life (or life expectancy) of the taxpayer.
Other exceptions may be applicable under certain circumstances and special rules may be applicable in connection with the exceptions enumerated above. Additional exceptions apply to distributions from a Qualified Contract. You should consult a tax adviser with regard to exceptions from the penalty tax.
Annuity Payments. Although tax consequences may vary depending on the payout option elected under an annuity contract, a portion of each annuity payment is generally not taxed and the remainder is taxed as ordinary income. The non-taxable portion of an annuity payment is generally determined in a manner that is designed to allow you to recover your investment in the contract ratably on a tax-free basis over the expected stream of annuity payments, as determined when annuity payments start. Once your investment in the contract has been fully recovered, however, the full amount of each annuity payment is subject to tax as ordinary income.
Partial Annuitization. Under a tax provision enacted in 2010, if part but not all of an annuity contracts value is applied to provide payments for one or more lives or for a period of at least ten years (a partial annuitization), those payments may be taxed as annuity payments. This tax treatment is not available under the Contract because the Policy does not permit you to partially annuitize, that is, the contract requires you to apply all of your contract value when selecting a payout option.
Taxation of Death Benefit Proceeds. Amounts may be distributed from a Contract because of your death or the death of the Annuitant. Generally, such amounts are includible in the income of the recipient as follows: (i) if distributed in a lump sum, they are taxed in the same manner as a surrender of the Contract, or (ii) if distributed under a payout option, they are taxed in the same way as annuity payments.
Transfers, Assignments or Exchanges of a Contract. A transfer or assignment of ownership of a Contract, the designation of an annuitant or Payee who is not an Owner, the selection of certain maturity dates, or the exchange of a Contract may result in certain tax consequences to you that are not discussed herein. An owner contemplating any such transfer, assignment, designation or exchange, should consult a tax advisor as to the tax consequences.
Withholding. Annuity distributions are generally subject to withholding for the recipients federal income tax liability. Recipients can generally elect, however, not to have tax withheld from distributions.
Multiple Contracts. All non-qualified deferred annuity contracts that are issued by us (or our affiliates) to the same owner during any calendar year are treated as one annuity contract for purposes of determining the amount includible in such owners income when a taxable distribution occurs.
Further Information. Further details regarding the qualification of the Contract for Federal income tax purposes can be found in the Statement of Additional Information under the heading Tax Status of the Contracts.
Taxation of Qualified Contracts
The tax rules applicable to Qualified Contracts vary according to the type of retirement plan and the terms and conditions of the plan. Your rights under a Qualified Contract may be subject to the terms of the retirement plan itself, regardless of the terms of the Qualified Contract. Adverse tax consequences may result if you do not ensure that contributions, distributions and other transactions with respect to the Contract comply with the law.
Individual Retirement Accounts (IRAs), as defined in Section 408 of the Code , permit individuals to make annual contributions up to a maximum amount specified in the Code. The contributions may be deductible in whole or in part, depending on the individuals income. Distributions from certain pension plans may be rolled over into an IRA on a tax-deferred basis without regard to these limits. Amounts in the IRA (other than nondeductible contributions) are taxed when distributed from the IRA. A 10% penalty tax generally applies to distributions made before age 59½, unless certain exceptions apply. The Internal Revenue Service has not reviewed the Contract for qualification as an IRA, and has not addressed in a ruling of general applicability whether a death benefit provision in the Contract comports with IRA qualification requirements. Distributions that are rolled over to an IRA within 60 days are not immediately taxable, however only one such rollover is permitted each year. Beginning in 2015, an individual can make only one rollover from an IRA to another (or the same) IRA in any 12-month period, regardless of the number of IRAs that are owned. The limit will apply by aggregating all of an individuals IRAs including SEP and SIMPLE IRAs as well as traditional and Roth IRAs, effectively treating them as one IRA for purposes of the limit. This limit does not apply to direct trustee-to-trustee transfers or conversions to Roth IRAs.
SIMPLE IRAs permit certain small employers to establish SIMPLE plans as provided by Section 408(p) of the Code, under which employees may elect to defer to a SIMPLE IRA a percentage of compensation up to a maximum amount specified in the Code. The sponsoring employer is required to make matching or non-elective contributions on behalf of employees. Distributions from SIMPLE IRAs are subject to the same restrictions that apply to IRA distributions and are taxed as ordinary income. Subject to certain exceptions, premature distributions prior to age 59½ are subject to a 10 percent penalty tax, which is increased to 25 percent if the distribution occurs within the first two years after the commencement of the employees participation in the plan. Distributions that are rolled over to an IRA within 60 days are not immediately taxable, however only one such rollover is permitted each year. Beginning in 2015, an individual can make only one rollover from an IRA to another (or the same) IRA in any 12-month period, regardless of the number of IRAs that are owned. The limit will apply by aggregating all of an individuals IRAs including SEP and SIMPLE IRAs as well as traditional and Roth IRAs, effectively treating them as one IRA for purposes of the limit. This limit does not apply to direct trustee-to-trustee transfers or conversions to Roth IRAs.
Roth IRAs, as described in Code section 408A, permit certain eligible individuals to contribute to make non-deductible contributions to a Roth IRA in cash or as a rollover or transfer from another Roth IRA or other IRA. A rollover from or conversion of an IRA to a Roth IRA is generally subject to tax. The Owner may wish to consult a tax adviser before combining any converted amounts with any other Roth IRA contributions, including any other conversion amounts from other tax years. Distributions from a Roth IRA generally are not taxed, except that, once aggregate distributions exceed contributions to the Roth IRA, income tax and a 10% penalty tax may apply to distributions made (1) before age 59½ (subject to certain exceptions) or (2) during the five taxable years starting with the year in which the first contribution is made to any Roth IRA. A 10% penalty tax may apply to amounts attributable to a conversion from an IRA if they are distributed during the five taxable years beginning with the year in which the conversion was made. Distributions that are rolled over to an IRA within 60 days are not immediately taxable, however only one such rollover is permitted each year. Beginning in 2015, an individual can make only one rollover from an IRA to another (or the same) IRA in any 12-month period, regardless of the number of IRAs that are owned. The limit will apply by aggregating all of an individuals IRAs including SEP and SIMPLE IRAs as well as traditional and Roth IRAs, effectively treating them as one IRA for purposes of the limit. This limit does not apply to direct trustee-to-trustee transfers or conversions to Roth IRAs.
Corporate pension and profit-sharing plans under Section 401(a) of the Code allow corporate employers to establish various types of retirement plans for employees, and self-employed individuals to establish qualified plans for themselves and their employees. Adverse tax consequences to the retirement plan, the participant or both may result if the Contract is transferred to any individual as a
means to provide benefit payments, unless the plan complies with all the requirements applicable to such benefits prior to transferring the Contract.
The Death Benefit could be characterized as an incidental benefit, the amount of which is limited in any pension or profit-sharing plan. Because the Death Benefit may exceed this limitation, and its value may need to be considered in calculating minimum required distributions, employers using the Contract in connection with such plans should consult their tax adviser.
Tax Sheltered Annuities under section 403(b) of the Code allow employees of certain Section 501(c)(3) organizations and public schools to exclude from their gross income the premium payments made, within certain limits, on a contract that will provide an annuity for the employees retirement. These premium payments may be subject to FICA (social security) tax. Distributions of (1) salary reduction contributions made in years beginning after December 31, 1988; (2) earnings on those contributions; and (3) earnings on amounts held as of the last year beginning before January 1, 1989, are not allowed prior to age 59½, severance from employment, death or disability. Salary reduction contributions may also be distributed upon hardship, but would generally be subject to penalties. The Death Benefit could be characterized as an incidental benefit, the amount of which is limited in any tax-sheltered annuity. Because the Death Benefit may exceed this limitation, and its value may need to be considered in calculating minimum required distributions, employers using the Contract in connection with such plans should consult their tax adviser.
If your Contract was issued pursuant to a 403(b) plan, we are generally required to confirm, with your 403(b) plan sponsor or otherwise, that surrenders or transfers you request comply with applicable tax requirements and to decline requests that are not in compliance. We will defer such payments you request until all information required under the tax law has been received. By requesting a surrender or transfer, you consent to the sharing of confidential information about you, the Contract and transactions under the Contract and any other 403(b) contracts or accounts you have under the 403(b) plan among us, your employer or plan sponsor, any plan administrator or recordkeeper, and other product providers.
Section 457 Plans, while not actually providing for a qualified plan as that term is normally used, provides for certain deferred compensation plans with respect to service for state governments, local governments, political subdivisions, agencies, instrumentalities and certain affiliates of such entities, and tax exempt organizations. The Contract can be used with such plans. Under such plans a participant may specify the form of investment for his or her deferred compensation account. For non-governmental Section 457 plans, all such investments are owned by and are subject to, the claims of the general creditors of the sponsoring employer. In general, all amounts received under a section 457 plan are taxable and are subject to federal income tax withholding as wages. The value of the Enhanced Death Benefit may need to be considered in calculating minimum required distributions.
Withdrawals. In the case of a withdrawal under a Qualified Contract, a ratable portion of the amount received is taxable, generally based on the ratio of the investment in the contract to the individuals total account balance or accrued benefit under the retirement plan. The investment in the contract generally equals the amount of any non-deductible Purchase Payments paid by or on behalf of the individual. In many cases, the investment in the contract under a Qualified Contract may be zero.
Other Tax Issues. Qualified Contracts have minimum distribution rules that govern the timing and amount of distributions. You should refer to your retirement plan or adoption agreement, or consult a tax advisor for more information about these distribution rules.
Distributions from Qualified Contracts generally are subject to withholding for the Owners federal income tax liability. The withholding rate varies according to the type of distribution and the Owners tax status. The Owner will be provided the opportunity to elect not have tax withheld from distributions.
Eligible rollover distributions from section 401(a) plans, Section 403(a) annuities, and Section 403(b) plans, and governmental 457 plans are subject to a mandatory federal income tax withholding of 20%. An eligible rollover distribution is any distribution, from such a plan, except certain distributions such as distributions required by the Code, distributions in a specified annuity form or hardship distributions. The 20% withholding does not apply, however, to nontaxable distributions or if (i) the employee (or employees spouse or former spouse as beneficiary or alternate payee) chooses a direct rollover from the plan to a tax-qualified plan, IRA, Roth IRA or tax sheltered annuity or to a governmental 457 plan that agrees to separately account for rollover contributions; or (ii) a non-spouse beneficiary chooses a direct rollover from the plan to an IRA established by the direct rollover.
Federal Estate, Gift and Generation-Skipping Transfer Taxes
While no attempt is being made to discuss in detail the Federal estate tax implications of the Contract, a purchaser should keep in mind that the value of an annuity contract owned by a decedent and payable to a beneficiary by virtue of surviving the decedent is included in the decedents gross estate. Depending on the terms of the annuity contract, the value of the annuity included in the gross
estate may be the value of the lump sum payment payable to the designated beneficiary or the actuarial value of the payments to be received by the beneficiary. Consult an estate planning advisor for more information.
Under certain circumstances, the Code may impose a generation skipping transfer (GST) tax when all or part of an annuity contract is transferred to, or a death benefit is paid to, an individual two or more generations younger than the Owner. Regulations issued under the Code may require us to deduct the tax from your Contract, or from any applicable payment, and pay it directly to the IRS.
For 2016, the federal estate tax, gift tax and GST tax exemptions and maximum rates are $5,450,000 and 40%, respectively. The potential application of these taxes underscores the importance of seeking guidance from a qualified adviser to help ensure that your estate plan adequately addresses your needs and those of your beneficiaries under all possible scenarios.
Medicare Tax. Distributions from non-qualified annuity contracts will be considered investment income for purposes of the Medicare tax on investment income. The 3.8% tax will be applied to the taxable portion of distributions (e.g. earnings) to individuals whose income exceeds certain threshold amounts. Consult a tax advisor for more information.
Annuity purchases by nonresident aliens and foreign corporations. The discussion above provides general information regarding U.S. federal income tax consequences to annuity purchasers that are U.S. citizens or residents. Purchasers that are not U.S. citizens or residents will generally be subject to U.S. federal withholding tax on taxable distributions from annuity contracts at a 30% rate, unless a lower treaty rate applies. In addition, purchasers may be subject to state and/or municipal taxes and taxes that may be imposed by the purchasers country of citizenship or residence. Additional withholding may occur with respect to entity purchasers (including foreign corporations, partnerships, and trusts) that are not U.S. residents. Prospective purchasers are advised to consult with a qualified tax adviser regarding U.S. state, and foreign taxation with respect to an annuity contract purchase.
Foreign Tax Credits. We may benefit from any foreign tax credits attributable to taxes paid by certain Funds to foreign jurisdictions to the extent permitted under federal tax law.
Definition of Spouse under Federal Law
The Contract provides that upon your death, a surviving spouse may have certain continuation rights that he or she may elect to exercise for the Contracts death benefit and any joint-life coverage under an optional living benefit. All Contract provisions relating to spousal continuation are available only to a person who meets the definition of spouse under federal law. The U.S. Supreme Court held that same-sex marriages must be permitted under state law and that marriages recognized under state law will be recognized for federal law purposes. Domestic partnerships and civil unions that are not recognized as legal marriages under state law, however, will not be treated as marriages under federal law. Consult a tax adviser for more information on this subject.
Possible Tax Law Changes
Although the likelihood of legislative changes is uncertain, there is always the possibility that the tax treatment of the Contract could change by legislation or otherwise. Consult a tax adviser with respect to legislative developments and their effect on the Contract.
We have the right to modify the contract in response to legislative changes that could otherwise diminish the favorable tax treatment that annuity contract owners currently receive. We make no guarantee regarding the tax status of any contact and do not intend the above discussion as tax advice.
For additional information relating to the tax status of the Contract, see the Statement of Additional Information.
GENDER NEUTRALITY
In 1983, the United States Supreme Court held that optional annuity benefits provided under an employees deferred compensation plan could not, under Title VII of the Civil Rights Act of 1964 vary between men and women on the basis of sex. The Court applied its decision to benefits derived from contributions made on or after August 1, 1983. Lower federal courts have since held that the Title VII prohibition of sex-distinct benefits may apply at an earlier date. In addition, some states prohibit using sex-distinct mortality tables.
The Contract uses sex-distinct actuarial tables, unless state law requires the use of sex-neutral actuarial tables. As a result, the Contract generally provides different benefits to men and women of the same age. Employers and employee organizations which may consider buying Contracts in connection with any employment-related insurance or benefits program should consult their legal advisors to determine whether the Contract is appropriate for this purpose.
VOTING RIGHTS
Voting rights under the Contracts apply only with respect to Net Premium Payments or accumulated amounts allocated to the Variable Account.
In accordance with our view of present applicable law, we vote the shares of the Funds held in the Variable Account at regular and special meetings of the shareholders of the Funds. These shares are voted in accordance with instructions received from you if you have an interest in the Variable Account. If the Investment Company Act or any regulation thereunder should be amended or if the present interpretation thereof should change, and as a result we determine that we are permitted to vote the shares of the Funds in our own right, we may elect to do so.
The person having the voting interest under a Contract is the Owner. The number of Fund shares attributable to each Owner is determined by dividing the Owners interest in each Subaccount by the net asset value of the Fund corresponding to the Subaccount.
We vote Fund shares held in the Variable Account as to which no timely instructions are received in the same proportions as the voting instructions we receive with respect to all Contracts participating in the Variable Account. This means that a small number of Owners may control how we vote.
Each person having a voting interest will receive periodic reports relating to the Funds, proxy material and a form with which to give such voting instructions.
CHANGES TO VARIABLE ACCOUNT
We reserve the right to create one or more new separate accounts, combine or substitute separate accounts, or to add new investment Funds for use in the Contracts at any time. In addition, if the shares of the Funds described in this prospectus should no longer be available for investment by the Variable Account or, if in our judgment further investment in such Fund shares should become inappropriate, we may eliminate Subaccounts, combine two or more Subaccounts or substitute one or more Funds for other Fund shares already purchased or to be purchased in the future under the Contract. The other Funds may have higher fees and charges than the ones they replaced, and not all Funds may be available to all classes of Contracts. In general, no substitution of securities in the Variable Account may take place without prior approval of the SEC and under such requirements as it may impose. We may also operate the Variable Account as a management investment company under the Investment Company Act, deregister the Variable Account under the Investment Company Act (if such registration is no longer required), transfer all or part of the assets of the Variable Account to another separate account or to the Fixed Account (subject to obtaining all necessary regulatory approvals), and make any other changes reasonably necessary under the Investment Company Act or applicable state law.
DISTRIBUTION OF THE CONTRACTS
We have entered into a distribution agreement with ESI, our affiliate, for the distribution and sale of the Contracts. ESI is a wholly owned indirect subsidiary of National Life Holding Company. Pursuant to this agreement, ESI serves as principal underwriter for the Contracts. ESI sells the Contracts through its registered representatives. ESI has also entered into selling agreements with other broker-dealers who in turn sell the Contracts through their registered representatives. ESI is registered as a broker-dealer with the SEC under the Securities Exchange Act of 1934, as well as with the securities commissions in the states in which it operates, and is a member of Financial Industry Regulatory Authority, Inc. (FINRA).
ESIs registered representatives who sell the Contracts are registered with the FINRA and with the states in which they do business. More information about ESI and its registered representatives is available at www.finra.org or by calling 1-800-289-9999. You also can obtain an investor brochure from FINRA through its BrokerCheck program.
National Life pays ESI commissions and other forms of compensation for sales of the Contracts. You may purchase a Contract through a registered representative of ESI, and you may also purchase a Contract from another broker-dealer that has a selling agreement with ESI. The maximum payment to a broker-dealer for selling the Contracts will generally be 6.5%. We will pay the broker-dealer commission either as a percentage of the Premium Payment at the time it is paid, as a percentage of Contract Value over time, or a combination of both. A portion of the payments made to selling broker-dealers will be passed on to their registered representatives in accordance with their internal compensation arrangements. Those arrangements may also include other types of cash and non-cash compensation and other benefits. You may ask your registered representative for further information about what your registered representative and the selling dealer for which he or she works may receive in connection with your purchase of a Contract.
National Life general agents, who may also be registered as principals with ESI, also receive compensation on Contracts sold through ESI registered representatives. National Life general agents may also receive fees from ESI relating to sales of the Contracts by broker-dealers other than ESI, where the selling registered representative has a relationship with such general agents National Life agency.
National Life may provide loans to unaffiliated broker-dealers, who in turn may provide loans to their registered representatives, to finance business development, and may then provide further loans or may forgive outstanding loans based on specified business criteria, including sales of the Contracts, and measures of business quality.
From time to time we may offer specific sales incentives to selling broker-dealers. The selling broker-dealers, on their own accord, may pass through some or all of these incentives to their registered representatives. These incentives may take the form of cash bonuses for reaching certain sales levels or for attaining a high ranking among registered representatives based on sales levels. These incentive programs may also include sales of National Lifes or their affiliates other products. To the extent, if any, that such bonuses are attributable to the sale of variable products, including the Contracts, such bonuses will be paid through the agents broker-dealer.
National Life, ESI and/or their affiliates may contribute amounts to various non-cash and cash incentives paid by ESI to its registered representatives the amounts of which may be based in whole or in part on the sales of the Contracts, including (1) sponsoring educational programs, (2) contributing to sales contests and/or promotions in which participants receive prizes such as travel, merchandise, hardware and/or software; (3) paying for occasional meals, lodging and/or entertainment; (4) making cash payments in lieu of business expense reimbursements; (5) making loans and forgiving such loans and/or (6) health and welfare benefit programs.
Commissions and other incentives or payments described above are not charged directly to Contract owners or to the Variable Account. We intend to recoup commissions and other sales expenses through fees and charges deducted under the Contract.
Most of the Funds make payments to ESI under their respective 12b-1 plans in consideration of services provided by ESI in selling or servicing shares of these Funds. In each case, these payments may total up to 0.35% of Variable Account assets invested in the particular Fund. Many of the Funds pay 0.25% of Variable Account assets under their respective 12b-1 plans, and some Funds do not have a 12b-1 Plan. Please see each Funds prospectus for information on 12b-1 payments.
See Distribution of the Contracts in the Statement of Additional Information for more information about compensation paid for the sale of the Contracts.
FINANCIAL STATEMENTS
The financial statements of National Life, the Variable Account, and of NLV Financial Corporation (NLV Financial), the parent company of National Life, are included in the Statement of Additional Information. The financial statements of National Life should be considered only as bearing on National Lifes general financial strength, claims paying ability and ability to meet its obligations under the Contracts. In addition to Fixed Account and Guaranteed Account allocations, general account assets are used to pay benefits that exceed your Contract Value under the Contract. National Lifes General Account assets principally consist of fixed-income securities, including corporate bonds, mortgage-backed/asset-backed securities, and mortgage loans on real estate. National Life also enters into equity derivative contracts (futures and options) to hedge exposures embedded in our equity indexed annuity products, and may enter into other types of derivatives transactions. All of National Lifes General Account assets are exposed to various investment risks. National Lifes financial statements include a further discussion of risks associated with General Account investments. They should not be considered as bearing on the investment performance of the assets held in the Variable Account.
Further, you should only consider NLV Financials financial statements as bearing on the ability of NLV Financial to meet its obligations under the keep well and pledge and security agreement.
STATEMENTS AND REPORTS
National Life will mail to Owners, at their last known address of record, any statements and reports required by applicable laws or regulations. Owners should therefore give National Life prompt notice of any address change. National Life will send a confirmation statement to Owners each time a transaction is made affecting the Owners Variable Account Contract Value, such as making additional Premium Payments, transfers, exchanges or Withdrawals. Quarterly statements are also mailed detailing the Contract activity during the calendar quarter. Instead of receiving an immediate confirmation of transactions made pursuant to some types of periodic payment plans (such as a dollar cost averaging program) or salary reduction arrangement, the Owner may receive confirmation of such transactions in their quarterly statements. The Owner should review the information in these statements carefully. All errors or corrections must be reported to National Life immediately to assure proper crediting to the Owners Contract.
National Life will assume all transactions are accurately reported on quarterly statements or confirmation statements unless the Owner notifies National Life otherwise within 30 days after receipt of the statement.
To eliminate duplicate mailings and reduce expenses, we may mail only one copy of the prospectus, prospectus supplements, annual and semi-annual reports, or any other required documents to your household, including the prospectuses or summary prospectuses for the Funds, even if more than one Owner lives there. If you would like an additional copy or if would like to continue to receive your own copy of any of these documents, you may call us toll-free at 1-800-732-8939 or write us at our Home Office.
OWNER INQUIRIES
Owner inquiries may be directed to National Life by writing to us at One National Life Drive, Montpelier, Vermont 05604, or calling 1-800-732-8939.
LEGAL MATTERS
National Life and its affiliates, like other life insurance companies, are involved from time to time in lawsuits, arbitrations and regulatory proceedings. In some cases, substantial damages and/or penalties have been sought. National Life believes that at the present time, there are no pending or threatened lawsuits or legal or regulatory proceedings that are reasonably likely to have a material adverse impact on the Variable Account, on the ability of National Life to meet its obligations under the Contracts, or on the ability of ESI to perform its obligations under the distribution agreement for the Contracts, described above.
GLOSSARY
Accumulation Unit - An accounting unit of measure used to calculate the Variable Account Contract Value prior to the Annuitization Date.
Annuitant - A person named in the Contract who is expected to become, at Annuitization, the person upon whose continuation of life any annuity payments involving life contingencies depends. Unless the Owner is a different individual who is age 85 or younger, this person must be age 85 or younger at the time of Contract issuance unless National Life has approved a request for an Annuitant of greater age. The Owner may change the Annuitant prior to the Annuitization Date, as set forth in the Contract.
Annuitization - The period during which annuity payments are received.
Annuitization Date - The date on which annuity payments commence.
Annuity Payment Option - The chosen form of annuity payments. Several options are available under the Contract.
Annuity Unit - An accounting unit of measure used to calculate the value of Variable Annuity payments.
Beneficiary - The Beneficiary is the person designated to receive certain benefits under the Contract upon the death of the Owner or Annuitant prior to the Annuitization Date. The Beneficiary can be changed by the Owner as set forth in the Contract.
Cash Surrender Value - An amount equal to Contract Value, minus any applicable CDSC, minus any applicable premium tax charge.
Chosen Human Being An individual named at the time of Annuitization upon whose continuance of life any annuity payments involving life contingencies depends.
Code - The Internal Revenue Code of 1986, as amended.
Collateral Fixed Account The portion of the Fixed Account which holds value that secures a loan on the Contract.
Contract Anniversary - An anniversary of the Date of Issue of the Contract.
Contract Value - The sum of the value of all Variable Account Accumulation Units attributable to the Contract, plus any amount held under the Contract in the Fixed Account, plus any amounts held in the Guaranteed Accounts, and minus any outstanding loan and accrued interest on such loans.
Contract Year - Each year the Contract remains in force commencing with the Date of Issue.
Date of Issue - The date shown as the Date of Issue on the Data Page of the Contract.
Death Benefit - The benefit payable to the Beneficiary upon the death of the Owner or the Annuitant.
Distribution - Any payment of part or all of the Contract Value.
Fixed Account - The Fixed Account is part of National Lifes general account and Guaranteed Accounts made up of all assets of National Life other than those in the Variable Account or any other segregated asset account of National Life.
Fixed Annuity - An annuity providing for payments which are guaranteed by National Life as to dollar amount during Annuitization.
Fund - A registered management investment company in which the assets of a Subaccount of the Variable Account will be invested.
Guaranteed Account A Guaranteed Account is part of National Lifes general account. We guarantee a specified interest rate for the entire time an investment remains in a Guaranteed Account.
Home Office National Lifes Home Office located at One National Life Drive, Montpelier, Vermont 05604; 1-800-732-8939 (telephone).
Individual Retirement Annuity (IRA) - An annuity which qualifies for favorable tax treatment under Section 408 of the Code.
Investment Company Act The Investment Company Act of 1940, as amended from time to time.
Joint Owners - Two or more persons who own the Contract as tenants in common or as joint tenants. If joint owners are named, references to Owner in this prospectus will apply to both of the Joint Owners.
Maturity Date - The date on which annuity payments are scheduled to commence. The Maturity Date is shown on the Data Page of the Contract, and is subject to change by the Owner, within any applicable legal limits, subject to National Lifes approval.
Monthly Contract Date - The day in each calendar month which is the same day of the month as the Date of Issue, or the last day of any month having no such date, except that whenever the Monthly Contract Date would otherwise fall on a date other than a Valuation Day, the Monthly Contract Date will be deemed to be the next Valuation Day.
Non-Qualified Contract - A Contract which does not qualify for favorable tax treatment under the provisions of Sections 401 or 403(a) (Qualified Plans), 408 (IRAs), 408A (Roth IRAs), 403(b) (Tax-Sheltered Annuities), or 457 of the Code.
Owner (you) - The Owner is the person who possesses all rights under the Contract, including the right to designate and change any designations of the Owner, Annuitant, Beneficiary, Annuity Payment Option, and the Maturity Date.
Payee - The person who is designated at the time of Annuitization to receive the proceeds of the Contract upon Annuitization.
Premium Payment - A deposit of new value into the Contract. The term Premium Payment does not include transfers among the Variable Account, Fixed Account, and Guaranteed Accounts, or among the Subaccounts.
Net Premium Payments - The total of all Premium Payments made under the Contract, less any premium tax deducted from premiums.
Qualified Contract - A Contract which qualifies for favorable tax treatment under the provisions of Sections 401 or 403(a) (Qualified Plans), 408 (IRAs), 408A (Roth IRAs), 403(b) (Tax-Sheltered Annuities) or 457 of the Code.
Qualified Plans - Retirement plans which receive favorable tax treatment under section 401 or 403(a) of the Code.
Subaccounts - Separate and distinct divisions of the Variable Account that purchase shares of underlying Funds. Separate Accumulation Units and Annuity Units are maintained for each Subaccount.
Tax-Sheltered Annuity - An annuity which qualifies for favorable tax treatment under section 403(b) of the Code.
Valuation Day - Each day the New York Stock Exchange is open for business other than any day on which trading is restricted. Unless otherwise indicated, when an event occurs or a transaction is to be effected on a day that is not a Valuation Day, it will be effected on the next Valuation Day. A Valuation Day ends at the close of regular trading of the New York Stock Exchange, usually 4:00 p.m., Eastern Time.
Valuation Period - The time between two successive Valuation Days.
Variable Account -The National Variable Annuity Account II, a separate investment account of National Life into which Net Premium Payments under the Contracts are allocated. The Variable Account is divided into Subaccounts, each of which invests in the shares of a separate underlying Fund.
Variable Annuity - An annuity the accumulated value of which varies with the investment experience of a separate account.
Withdrawal - A payment made at the request of the Owner pursuant to the right to withdraw a portion of the Contract Value of the Contract.
STATEMENT OF ADDITIONAL INFORMATION
TABLE OF CONTENTS
ADDITIONAL CONTRACT PROVISIONS |
3 |
The Contract |
3 |
Misstatement of Age or Sex |
3 |
Dividends |
3 |
Assignment |
3 |
CONTRACTUAL ARRANGEMENTS BETWEEN NATIONAL LIFE AND THE FUNDS INVESTMENT ADVISORS OR DISTRIBUTORS |
3 |
TAX STATUS OF THE CONTRACTS |
3 |
DISTRIBUTION OF THE CONTRACTS |
4 |
SAFEKEEPING OF ACCOUNT ASSETS |
4 |
STATE REGULATION |
5 |
RECORDS AND REPORTS |
5 |
LEGAL MATTERS |
5 |
EXPERTS |
5 |
OTHER INFORMATION |
5 |
FINANCIAL STATEMENTS |
F-000 |
The Statement of Additional Information contains more detailed information about the Contracts than is contained in this prospectus. The Statement of Additional Information is incorporated by reference into this prospectus and is legally a part of this prospectus.
Sentinel Advantage Variable Annuity
P R O S P E C T U S
Dated May 1, 2016
National Life Insurance Company · Home Office: One National Life Drive, Montpelier, Vermont 05604 · 1-800-732-8939
The Contracts described in this prospectus are individual flexible premium variable annuity contracts supported by National Variable Annuity Account II (the Variable Account), a separate account of National Life Insurance Company (National Life, we, our, or us). This contract is not available to new purchasers.
We allocate net Premium Payments to either the Variable Account, the Fixed Account, or the Guaranteed Accounts. The Variable Account is divided into Subaccounts. Each Subaccount invests in shares of a corresponding underlying Fund (each a Fund) listed below:
Sentinel Asset Management, Inc. |
|
Fred Alger Management, Inc. |
|
AllianceBernstein L.P. |
|
American Century Investment |
Sentinel Variable Products Trust |
|
The Alger Portfolios |
|
AB Variable Products Series Fund, Inc. International Growth |
|
American Century Variable Portfolios, Inc. VP Income & Growth American Century Variable Portfolios, Inc. II VP Inflation Protection |
The Dreyfus Corporation |
|
Deutsche Investment |
|
Fidelity Management & Research |
|
Franklin Templeton |
Dreyfus Variable Investment Fund VIF Opportunistic Small Cap Portfolio VIF Quality Bond Portfolio Dreyfus Socially Responsible |
|
Deutsche Variable Series II Deutsche Large Cap Value VIP Deutsche Small Mid Cap Value VIP Deutsche Investments VIT Funds Deutsche Small Cap Index VIP |
|
Fidelity® Variable Insurance Products VIP Equity-Income VIP Government Money Market |
|
Franklin Templeton Variable Insurance Products Trust Templeton Foreign VIP Franklin Global Real Estate VIP Franklin Mutual Shares VIP Franklin Small Cap Value VIP Franklin Small-Mid Cap Growth VIP Franklin U.S Government VIP Franklin Global Discovery VIP |
Invesco Advisers, Inc. |
|
J.P. Morgan Investment |
|
Neuberger Berman |
|
OppenheimerFunds, Inc. |
Invesco Variable Insurance Funds Invesco V.I. Mid Cap Growth Invesco V.I. Global Health Care Invesco V.I. Technology |
|
JPMorgan Insurance Trust Small Cap Core Portfolio |
|
Neuberger Berman Advisers Management Trust Short Duration Bond Portfolio Mid Cap Growth Portfolio Large Cap Value Portfolio Socially Responsive Portfolio |
|
Oppenheimer Variable Account Funds Capital Income Fund/VA Main Street Small Cap/VA Global Strategic Income/VA |
T. Rowe Price Associates, Inc. |
|
Van Eck Associates |
|
Wells Fargo Funds Management, |
|
|
T. Rowe Price Equity Series, Inc. Blue Chip Growth Portfolio Equity Income Portfolio Health Sciences Portfolio Personal Strategy Balanced Portfolio |
|
Van Eck VIP Trust Unconstrained Emerging Markets Bond Emerging Markets Global Hard Assets |
|
Wells Fargo Funds VT Discovery VT Opportunity |
|
|
(1) As of the date of this Prospectus, the Sentinel Variable Products Mid Cap Fund is soliciting shareholder proxies for a shareholder meeting to be held on May 23, 2016 to vote on a proposal to reorganize with and into the Sentinel Variable Products Small Company Fund. If shareholders approve the proposal, it is anticipated that the Reorganization will occur on or about June 17, 2016.
This prospectus provides you with the basic information you should know before investing. You should read it and keep it for future reference. A Statement of Additional Information dated May 1, 2016 containing further information about the Contracts and the Variable Account is filed with the SEC. You can obtain a copy without charge from National Life by calling 1-800-732-8939, by
writing to National Life at the address above, or by accessing the SECs website at http://www.sec.gov. You may also obtain prospectuses for each of the underlying Fund options identified above without charge by calling or writing to our Home Office.
Investments in these Contracts are not deposits or obligations of, and are not guaranteed or endorsed by, the adviser of any of the underlying Funds identified above, the U.S. government, or any bank or bank affiliate. Investments are not federally insured by the Federal Deposit Insurance Corporation, the Federal Reserve Board, or any other governmental agency. It may not be a good decision to purchase a Contract as a replacement for another type of variable annuity if you already own another flexible premium deferred variable annuity.
The Statement of Additional Information, dated May 1, 2016, is incorporated herein by reference. The Table of Contents for the Statement of Additional Information appears on the last page of this prospectus.
The SEC has not approved or disapproved these securities or passed upon the accuracy or adequacy of the prospectus. Any representation to the contrary is a criminal offense.
Table of Contents
SUMMARY |
4 |
How Do I Purchase a Contract? |
5 |
Can I Make Additional Premium Payments? |
5 |
How Does the Free Look Right to Examine the Contract Work? |
5 |
What is the Purpose of the Variable Account? |
5 |
How Does the Fixed Account Work? |
5 |
How Do the Guaranteed Accounts Work? |
5 |
When Will I Receive Payments? |
5 |
What Happens if an Owner Dies Before Annuitization? |
6 |
What Happens if the Annuitant Dies Before Annuitization? |
6 |
Can I Make a Withdrawal from My Contract? |
6 |
What Charges Will I Pay? |
6 |
Can I Transfer My Contract Value Among the Different Investment Options? |
7 |
Are There any Other Contract Provisions? |
7 |
How Will the Contract be Taxed? |
7 |
What if I Have Questions? |
7 |
SUMMARY OF CONTRACT EXPENSES |
7 |
Contract Owner Transaction Expenses |
8 |
Variable Account Annual Expenses |
8 |
Optional Rider Expenses |
8 |
Examples |
14 |
ACCUMULATION UNIT VALUE |
14 |
NATIONAL LIFE, THE VARIABLE ACCOUNT, AND THE FUNDS |
24 |
National Life |
24 |
The Variable Account |
24 |
The Funds |
24 |
Other Information |
28 |
Change of Address Notification |
29 |
Unclaimed or Abandoned Property |
29 |
DETAILED DESCRIPTION OF CONTRACT PROVISIONS |
29 |
Issuance of a Contract |
29 |
Premium Payments |
30 |
Transfers |
31 |
Disruptive Trading |
31 |
Value of a Variable Account Accumulation Unit |
33 |
Annuitization |
34 |
Annuitization - Variable Account |
34 |
Annuitization - Fixed Account |
35 |
Annuity Payment Options |
35 |
Stretch Annuity Payment Option |
36 |
Death of Owner |
36 |
Death of Annuitant Prior to the Annuitization Date |
37 |
Generation-Skipping Transfers |
37 |
Ownership Provisions |
38 |
CHARGES AND DEDUCTIONS |
38 |
Deductions from the Variable Account |
39 |
Contingent Deferred Sales Charge |
39 |
Annual Contract Fee |
40 |
Transfer Charge |
40 |
Premium Taxes |
40 |
Charge for Optional Enhanced Death Benefit Rider |
41 |
Other Charges |
41 |
More detailed information is contained in the Funds prospectuses, which are available at no charge by contacting us at the number and address listed on the first page of this prospectus. |
41 |
CONTRACT RIGHTS AND PRIVILEGES |
41 |
Free Look |
41 |
Loan Privilege - Tax Sheltered Annuities |
41 |
Surrender and Withdrawal |
43 |
Payments |
44 |
Surrenders and Withdrawals Under a Tax-Sheltered Annuity Contract |
44 |
Telephone Transaction Privilege |
45 |
Facsimile Transaction Privilege |
46 |
Electronic Mail Transaction Privilege |
46 |
Available Automated Fund Management Features |
46 |
Contract Rights Under Certain Plans |
48 |
THE FIXED ACCOUNT |
48 |
Minimum Guaranteed and Current Interest Rates |
48 |
Enhanced Fixed Account |
49 |
THE GUARANTEED ACCOUNTS |
50 |
Investments in the Guaranteed Accounts |
50 |
Termination of a Guaranteed Account |
50 |
Market Value Adjustment |
51 |
Other Matters Relevant to the Guaranteed Accounts |
53 |
Preserver Plus Program |
53 |
OPTIONAL ENHANCED DEATH BENEFIT RIDER |
53 |
OPTIONAL ACCELERATED BENEFIT RIDERS |
54 |
FEDERAL INCOME TAX CONSIDERATIONS |
54 |
Taxation of Non-Qualified Contracts |
54 |
Taxation of Qualified Contracts |
56 |
Federal Estate, Gift and Generation-Skipping Transfer Taxes |
57 |
Possible Tax Law Changes |
58 |
GENDER NEUTRALITY |
58 |
VOTING RIGHTS |
58 |
CHANGES TO VARIABLE ACCOUNT |
59 |
DISTRIBUTION OF THE CONTRACTS |
59 |
FINANCIAL STATEMENTS |
60 |
STATEMENTS AND REPORTS |
60 |
OWNER INQUIRIES |
60 |
LEGAL MATTERS |
60 |
GLOSSARY |
61 |
STATEMENT OF ADDITIONAL INFORMATION |
63 |
This prospectus does not constitute an offering in any jurisdiction in which such offering may not legally be made.
SUMMARY
This summary provides a brief description of some of the features and charges of the Contract. You will find more detailed information in the rest of this prospectus, the Statement of Additional Information and the Contract. Please keep the Contract and its riders or endorsements, if any, together with the application. Together they are the entire agreement between you and us. For your convenience, we have defined the capitalized terms we use in the Glossary at the end of the prospectus.
Can I Make Additional Premium Payments?
You may make additional Premium Payments at any time (except for Contracts purchased in Oregon and Massachusetts) but they must be at least $100 ($50 for IRAs). We may accept lower Premium Payments at our discretion if the Premium Payments are remitted electronically. The total of all Premium Payments under Contracts issued on the life of any one Owner (or Annuitant if the owner is not a natural person) may not exceed $1,000,000 without our prior consent (see Premium Payments, below).
What is the Purpose of the Variable Account?
The Variable Account is a separate investment account that is divided into several Subaccounts. Amounts in the Variable Account will vary according to the investment performance of the Fund(s) in which your elected Subaccounts are invested. You may allocate Net Premium Payments among the Fixed Account, the Guaranteed Accounts and the Subaccounts of the Variable Account. The assets of each Subaccount are invested in the corresponding Funds that are listed on the cover page of this prospectus (see The Variable Account and Underlying Fund Options, below).
We cannot give any assurance that any Subaccount will achieve its investment objectives. You bear the entire investment risk on the value of your Contract which you allocate to the Variable Account. The value of your Contract may be more or less than the premiums paid.
How Does the Fixed Account Work?
You may allocate all or part of your Net Premium Payments or make transfers from the Variable Account or the Guaranteed Accounts to the Fixed Account. Contract Value held in the Fixed Account will earn an effective annual interest rate of at least the minimum required by your state (see The Fixed Account, below).
How Do the Guaranteed Accounts Work?
You may allocate all or part of your Net Premium Payments or make transfers from the Variable Account (or to a limited extent from the Fixed Account) to a Guaranteed Account with a duration of 3, 5, 7 or 10 years. These Guaranteed Accounts guarantee a specified interest rate for the entire period of an investment if the Contract Value remains in the Guaranteed Account for the specified period of time. If you surrender your Contract or withdraw or transfer Contract value out of a Guaranteed Account prior to the end of the specified period, a market value adjustment will be applied to such Contract Value surrendered, withdrawn or transferred. (see The Guaranteed Accounts, below).
When Will I Receive Payments?
After the Contract Value is transferred to a payment option, we will pay proceeds according to the Annuity Payment Option you select. If the Contract Value at the Annuitization Date is less than $3,500, the Contract Value may be distributed in one lump sum
instead of annuity payments. If any annuity payment would be less than $100, we have the right to change the frequency of payments to intervals that will result in payments of at least $100. In no event will annuity payments be less frequent than annually (see Annuitization Frequency and Amount of Annuity Payments, below).
What Happens if an Owner Dies Before Annuitization?
For Contracts issued on or after November 1, 2003, if (1) any Owner dies before the Contract Value is transferred to a payment option (Annuitization); (2) the Enhanced Death Benefit Rider is not elected; and (3) the Owner (or the oldest of Joint Owners) dies prior to the Contract Anniversary on which your age, on an age nearest birthday basis, is 81, we will pay the Beneficiary the greater of (a) the Contract Value, or (b) the Net Premium Payments made to the Contract (less all withdrawals, and less all outstanding loans and accrued interest), and adjusted such that if you effect a Withdrawal (including a systematic Withdrawal) at a time when the Contract Value is less than the amount of the Death Benefit that would then be payable to you, the Death Benefit will be reduced by the same proportion that the Withdrawal reduces the Contract Value (this adjustment will have the effect of reducing the Death Benefit by more than the amount of the Withdrawal, where a Withdrawal is taken at a time when the Death Benefit is greater than the Contract Value). If you die after the Contract Anniversary on which your age, on an age nearest birthday basis, is 81 (or in the case of Joint Owners, where the first of the Joint Owners to die dies after the Contract Anniversary on which the age of the oldest Joint Owner, on an age on nearest birthday basis, is 81), then the Death Benefit shall be equal to the Contract Value.
For Contracts issued prior to November 1, 2003 only, we are currently providing a Death Benefit that is equal to the greater of (a) or (b) above even if you die after the Contract Anniversary on which your age, on an age nearest birthday basis, is 81, as long as your age, on an age on nearest birthday basis, was less than 81 on the Date of Issue of the Contract. We currently intend to pay this Death Benefit even though its terms are more favorable to you than what is guaranteed in the Contract. We will notify you if we discontinue this Death Benefit. For these Contracts, or if your state did not approve such adjustment in time for it to apply to your Contract, the adjustment referred to in (b) above will not be made.
All amounts paid will be reduced by premium tax charges, if any.
For more information, see Death of Owner, below.
What Happens if the Annuitant Dies Before Annuitization?
If the Annuitant (who is not an Owner) dies before the Contract Value is transferred to a payment option, we will pay the Beneficiary a Death Benefit equal to the Cash Surrender Value, unless the Owner selects another available option (see Death of Annuitant Prior to the Annuitization Date, below).
Can I Make a Withdrawal from My Contract?
You may withdraw part or all of the Cash Surrender Value at any time before the Contract is Annuitized (see Surrender and Withdrawal, below). A Withdrawal or a surrender may be restricted under certain qualified Contracts and result in federal income tax, including a federal penalty tax (see Federal Income Tax Considerations, below). You may have to pay a surrender charge and/or (in the case of Contract Value allocated to a Guaranteed Account) a market value adjustment on the Withdrawal.
What Charges Will I Pay?
Contingent Deferred Sales Charge (CDSC). We do not deduct a sales charge from Premium Payments. However, if you surrender the Contract or make a Withdrawal, we will generally deduct from the Contract Value a CDSC not to exceed 7% of the lesser of the total of all Net Premium Payments made within 84 months prior to the date of the request to surrender or the amount surrendered (see Contingent Deferred Sales Charge, below).
Market Value Adjustment. We deduct, or add, a market value adjustment to any amount you surrender, withdraw, or transfer from a Guaranteed Account before its termination date (see The Guaranteed Accounts, below).
Annual Contract Fee. We deduct an Annual Contract Fee of $30.00 payable on each Contract Anniversary as long as the Contract Value is less than $50,000 (see Annual Contract Fee, below).
Administration Charge. We also deduct an Administration Charge each day at an annual rate of 0.15% from the assets of the Variable Account (see Deductions from the Variable Account, below).
Mortality and Expense Risk Charge. We deduct a mortality and expense risk charge each day from the assets of the Variable Account at an annual rate of 1.25% (see Deductions from the Variable Account, below).
Charge for Optional Enhanced Death Benefit Rider. If elected, we deduct an annual charge of 0.20% of the Contract Value at the time of deduction for this option (see Charge for Optional Enhanced Death Benefit Rider, below).
Premium Taxes. If a governmental entity imposes premium taxes, we will make a deduction for premium taxes in a corresponding amount. Certain states impose a premium tax. Premium taxes may range up to 3.5% (see Premium Taxes, below).
Transfer Charge. We reserve the right to make a charge of $25 for each transfer in excess of 12 transfers in a Contract Year. However, we are not currently assessing transfer charges.
Investment Management Fees and Fund Operating Expenses. Charges for investment management services and operating expenses are deducted daily from each Fund (see Underlying Fund Annual Expenses, below, and the accompanying Fund prospectuses).
We pay compensation to broker-dealers who sell the Contracts. (See Distribution of Contracts, below).
Can I Transfer My Contract Value Among the Different Investment Options?
You may transfer the Contract Value among the Subaccounts of the Variable Account, between the Variable Account and the Fixed Account (subject to specific limitations), and between the Guaranteed Accounts and either the Fixed Account (subject to specific limitations) or the Subaccounts of the Variable Account, by making a written transfer request. In the case of transfers out of a Guaranteed Account prior to its termination date, a market value adjustment will be applied. If you elect the telephone transaction privilege, you may make transfers by telephone. Please note that frequent, large, or short-term transfers among Subaccounts, such as those associated with market timing transactions, can adversely affect the underlying Funds and the returns achieved by Owners. Such transfers may dilute the value of underlying Fund shares, interfere with the efficient management of the underlying Fund, and increase brokerage and administrative costs of the underlying Funds. To protect Owners and underlying Funds from such effects, we have developed procedures to detect and deter market timing and disruptive trading. See Disruptive Trading below.
Are There any Other Contract Provisions?
For information concerning other important Contract provisions, see Contract Rights and Privileges, below, and the remainder of this prospectus.
How Will the Contract be Taxed?
For general information regarding the federal tax laws concerning us and the Contract, see Federal Income Tax Considerations, below.
What if I Have Questions?
We will be happy to answer your questions about the Contract or our procedures. Call or write to us at our Home Office. All inquiries should include the Contract number and the names of the Owner and the Annuitant.
If you have questions concerning your investment strategies, please contact your registered representative.
SUMMARY OF CONTRACT EXPENSES
The following tables describe the fees and expenses that you will pay when buying, owning, taking a Withdrawal from, and surrendering the Contract.
The first table describes the fees and expenses that you will pay at the time that you buy the Contract, take a Withdrawal from or surrender the Contract, transfer Contract Value between investment options or, for certain Qualified Contracts, take a loan.
Contract Owner Transaction Expenses
Sales Load Imposed on Purchases |
|
None |
| |
Premium Taxes |
|
See below |
(1) | |
CDSC (as a percentage of Net Premium Payments surrendered or withdrawn) (2) |
|
|
| |
Maximum |
|
7 |
% | |
Transfer Charge |
|
$ |
25 |
(3) |
Loan Interest Spread (effective annual rate) |
|
2.5 |
%(4) | |
The next two tables describe the fees and expenses that you will pay periodically during the time that you own the Contract, not including Fund fees and expenses.
Variable Account Annual Expenses (deducted daily as a percentage of Variable Account Contract Value)
Mortality and Expense Risk Charge |
|
1.25 |
% | |
Administration Charge |
|
0.15 |
% | |
Total Basic Variable Account Annual Percentage Expenses |
|
1.40 |
% | |
Annual Contract Fee(5) |
|
$ |
30 |
|
Optional Rider Expenses
Annual Charge for Optional Enhanced Death Benefit Rider |
|
0.20% of Contract Value at the time of election |
(1) States may assess premium taxes on premiums paid under the Contract. Where National Life is required to pay this premium tax when a Premium Payment is made, it may deduct an amount equal to the amount of premium tax paid from the Premium Payment. National Life currently intends to make this deduction from Premium Payments only in South Dakota. In the remaining states which assess premium taxes, a deduction will be made only upon Annuitization, death of the Owner, or surrender. See Premium Taxes, below.
(2) The CDSC declines 1% for each completed year from the date of the affected premium payment, reaching zero after the premium payment has been in the Contract for seven years. Each Contract Year after the first one, the Owner may withdraw without a CDSC an amount equal to 15% of the Contract Value as of the most recent Contract Anniversary. In addition, any amount withdrawn in order for the Contract to meet minimum Distribution requirements under the Code shall be free of CDSC. Withdrawals may be restricted for Contracts issued pursuant to the terms of a Tax-Sheltered Annuity or under an annuity issued in conjunction with certain qualified pension or profit sharing plans. This CDSC-free Withdrawal privilege does not apply in the case of full surrenders and is non-cumulative. That is, free amounts not taken during any given Contract Year cannot be taken as free amounts in a subsequent Contract Year. In addition, New Jersey and the State of Washington do not permit this CDSC-free Withdrawal provision, in which case a different CDSC-free Withdrawal provision will apply. After annuitization, we will assess the CDSC, as applicable, on surrenders under Payment Option 1. See Contingent Deferred Sales Charge, below.
(3) We reserve the right to make a $25 charge on each transfer in excess of 12 transfers in a Contract Year. However, no such charge is currently applied.
(4) The Loan Interest Spread is the difference between the amount of interest we charge on loans (maximum 15%) and the amount of interest we credit to amounts held in the Collateral Fixed Account to secure the loan (maximum 12.5%).
(5) The Annual Contract Fee is assessed only upon Contracts which, as of the applicable Contract Anniversary, have a Contract Value of less than $50,000. The fee is not assessed on Contract Anniversaries after the Annuitization Date.
The following table describes the portfolio fees and expenses that you will pay periodically during the time that you own the Contract. The table shows the minimum and maximum fees and expenses charged by any of the portfolios for the year ended December 31, 2015. The expenses of the portfolios may be higher or lower in the future. More details concerning each portfolios fees and expenses are contained in the prospectus for each portfolio.
Underlying Fund Annual Expenses (as a percentage of underlying Fund average net assets)
|
|
Minimum |
|
Maximum |
|
Total Annual Fund Operating Expenses (expenses that are deducted from fund assets, including management fee, distribution and/or service 12b-1 fees, and other expenses). |
|
0.35 |
% |
8.14 |
% |
The annual expenses as of December 31, 2015 (unless otherwise noted) of each Fund, before any fee waivers or expense reimbursements, are shown below.(1)
Fund |
|
Management |
|
12b-1 Fees(2) |
|
Other |
|
Acquired |
|
Gross Total |
|
Waivers, |
|
Net Total |
|
Sentinel VPT |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Variable Products Balanced Fund |
|
0.55 |
% |
0.00 |
% |
0.32 |
% |
0.02 |
% |
0.89 |
% |
0.02 |
% |
0.87 |
% |
Variable Products Bond Fund |
|
0.40 |
% |
0.00 |
% |
0.27 |
% |
0.01 |
% |
0.68 |
% |
0.00 |
% |
0.68 |
% |
Variable Products Common Stock Fund |
|
0.50 |
% |
0.00 |
% |
0.22 |
% |
0.00 |
% |
0.72 |
% |
0.00 |
% |
0.72 |
% |
Variable Products Small Company Fund |
|
0.50 |
% |
0.00 |
% |
0.28 |
% |
0.01 |
% |
0.79 |
% |
0.00 |
% |
0.79 |
% |
AllianceBernstein |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
VPS Balanced Wealth Strategy Portfolio - Class B |
|
0.55 |
% |
0.25 |
% |
0.15 |
% |
0.00 |
% |
0.95 |
% |
0.00 |
% |
0.95 |
% |
VPS Dynamic Asset Allocation Portfolio - Class B |
|
0.70 |
% |
0.25 |
% |
0.13 |
% |
0.00 |
% |
1.08 |
% |
0.00 |
% |
1.08 |
% |
VPS Growth Portfolio - Class B |
|
0.75 |
% |
0.25 |
% |
0.34 |
% |
0.00 |
% |
1.34 |
% |
0.00 |
% |
1.34 |
% |
VPS Real Estate Investment Portfolio - Class B |
|
0.55 |
% |
0.25 |
% |
0.53 |
% |
0.00 |
% |
1.33 |
% |
0.00 |
% |
1.33 |
% |
VPS International Value Portfolio - Class B |
|
0.75 |
% |
0.25 |
% |
0.10 |
% |
0.00 |
% |
1.10 |
% |
0.00 |
% |
1.10 |
% |
VPS Small/Mid Cap Value Portfolio - Class B |
|
0.75 |
% |
0.25 |
% |
0.07 |
% |
0.00 |
% |
1.07 |
% |
0.00 |
% |
1.07 |
% |
American Century |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
VP Capital Appreciation - Class 2 |
|
0.90 |
% |
0.25 |
% |
0.00 |
% |
0.00 |
% |
1.15 |
% |
0.01 |
%(4) |
1.14 |
% |
VP Growth - Class 2 |
|
0.90 |
% |
0.25 |
% |
0.01 |
% |
0.00 |
% |
1.16 |
% |
0.15 |
%(5) |
1.01 |
% |
VP Large Company Value - Class 2 |
|
0.80 |
% |
0.25 |
% |
0.01 |
% |
0.00 |
% |
1.06 |
% |
0.11 |
%(6) |
0.95 |
% |
VP Ultra - Class 2 |
|
0.90 |
% |
0.25 |
% |
0.01 |
% |
0.00 |
% |
1.16 |
% |
0.15 |
%(5) |
1.01 |
% |
VP Value - Class 2 |
|
0.87 |
% |
0.25 |
% |
|
|
0.00 |
% |
1.12 |
% |
0.18 |
%(7) |
0.94 |
% |
American Funds |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
AFIS Asset Allocation Fund - Class 4 |
|
0.28 |
% |
0.25 |
% |
0.26 |
% |
0.00 |
% |
0.79 |
% |
0.00 |
% |
0.79 |
% |
AFIS Global Bond Fund - Class 4 |
|
0.53 |
% |
0.25 |
% |
0.29 |
% |
0.00 |
% |
1.07 |
% |
0.00 |
% |
1.07 |
% |
AFIS Growth-Income Fund - Class 4 |
|
0.27 |
% |
0.25 |
% |
0.27 |
% |
0.00 |
% |
0.79 |
% |
0.00 |
% |
0.79 |
% |
AFIS Global Growth & Income Fund - Class 4 |
|
0.60 |
% |
0.25 |
% |
0.29 |
% |
0.00 |
% |
1.14 |
% |
0.00 |
% |
1.14 |
% |
AFIS Global Small Capitalization Fund - Class 4 |
|
0.69 |
% |
0.25 |
% |
0.29 |
% |
0.00 |
% |
1.23 |
% |
0.00 |
% |
1.23 |
% |
AFIS High-Income Bond Fund - Class 4 |
|
0.46 |
% |
0.25 |
% |
0.27 |
% |
0.00 |
% |
0.98 |
% |
0.00 |
% |
0.98 |
% |
AFIS New World Fund - Class 4 |
|
0.72 |
% |
0.25 |
% |
0.32 |
% |
0.00 |
% |
1.29 |
% |
0.00 |
% |
1.29 |
% |
Blackrock |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Equity Dividend V.I. Fund - Class III |
|
0.60 |
% |
0.25 |
% |
0.31 |
% |
0.01 |
% |
1.17 |
%(8) |
0.12 |
%(9),(10) |
1.05 |
%(9) |
iShares Alternative Strategies V.I. Fund - Class III |
|
0.25 |
%(11) |
0.25 |
% |
1.68 |
%(12) |
0.37 |
% |
2.55 |
%(8) |
1.28 |
% |
1.27 |
% |
iShares Dynamic Allocation V.I. Fund - Class III |
|
0.15 |
%(11) |
0.25 |
% |
1.42 |
%(12) |
0.29 |
% |
2.11 |
%(8) |
1.04 |
% |
1.07 |
% |
iShares Dynamic Fixed Income V.I. Fund - Class III |
|
0.15 |
%(11) |
0.25 |
% |
1.60 |
%(12) |
0.26 |
% |
2.26 |
%(8) |
1.25 |
% |
1.01 |
% |
iShares Equity Appreciation V.I. Fund - Class III |
|
0.15 |
%(11) |
0.25 |
% |
1.73 |
%(12) |
0.30 |
% |
2.43 |
%(8) |
1.43 |
% |
1.00 |
% |
Value Opportunities V.I. Fund - Class III |
|
0.75 |
% |
0.25 |
% |
0.29 |
% |
0.00 |
% |
1.29 |
%(8) |
0.20 |
%(10),(13) |
1.09 |
%(13) |
Government Money Market V.I. Fund - Class I |
|
0.50 |
% |
0.00 |
% |
0.11 |
% |
0.00 |
% |
0.61 |
%(8) |
0.31 |
%(10),(14) |
0.30 |
% |
Global Allocation V.I. Fund - Class III |
|
0.62 |
% |
0.25 |
% |
0.25 |
% |
0.00 |
% |
1.12 |
%(8) |
0.13 |
%(10),(15) |
0.99 |
%(15) |
Fidelity |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
VIP Contrafund - Service Class 2 |
|
0.55 |
% |
0.25 |
% |
0.08 |
% |
0.00 |
% |
0.88 |
% |
0.00 |
% |
0.88 |
% |
VIP Disciplined Small Cap - Service Class 2 |
|
0.70 |
% |
0.25 |
% |
0.15 |
% |
0.00 |
% |
1.10 |
% |
0.00 |
% |
1.10 |
% |
VIP Dynamic Capital Appreciation - Service Class 2 |
|
0.55 |
% |
0.25 |
% |
0.15 |
% |
0.00 |
% |
0.95 |
% |
0.00 |
% |
0.95 |
% |
VIP Freedom Income - Service Class 2 |
|
0.00 |
% |
0.25 |
% |
0.00 |
% |
0.46 |
% |
0.71 |
% |
0.00 |
% |
0.71 |
% |
VIP Growth Opportunities - Service Class 2 |
|
0.55 |
% |
0.25 |
% |
0.12 |
% |
0.00 |
% |
0.92 |
% |
0.00 |
% |
0.92 |
% |
VIP Index 500 - Service Class 2 |
|
0.05 |
% |
0.25 |
% |
0.06 |
% |
0.00 |
% |
0.35 |
% |
0.00 |
% |
0.35 |
% |
VIP Mid Cap - Service Class 2 |
|
0.55 |
% |
0.25 |
% |
0.08 |
% |
0.00 |
% |
0.88 |
% |
|
|
0.88 |
% |
VIP Real Estate Portfolio - Service Class 2 |
|
0.55 |
% |
0.25 |
% |
0.12 |
% |
0.00 |
% |
0.92 |
% |
0.00 |
% |
0.92 |
% |
Franklin Templeton VIPT |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Franklin Founding Funds Allocation VIP Fund - Class 4 |
|
0.00 |
% |
0.35 |
% |
0.11 |
% |
0.67 |
% |
1.13 |
% |
0.01 |
%(16) |
1.12 |
% |
Franklin Small-Mid Cap Growth VIP Fund* - Class 4 |
|
0.77 |
% |
0.35 |
% |
0.04 |
% |
0.00 |
% |
1.16 |
% |
0.00 |
% |
1.16 |
% |
Franklin High Income VIP Fund - Class 4 |
|
0.53 |
% |
0.35 |
% |
0.06 |
% |
0.00 |
% |
0.94 |
% |
0.00 |
% |
0.94 |
% |
Franklin Mutual Global Discovery VIP Fund - Class 4 |
|
0.94 |
% |
0.35 |
% |
0.08 |
% |
0.00 |
% |
1.37 |
% |
0.00 |
% |
1.37 |
% |
Franklin Rising Dividends VIP Fund - Class 4 |
|
0.61 |
% |
0.35 |
% |
0.02 |
% |
0.00 |
% |
0.98 |
% |
0.00 |
% |
0.98 |
% |
Templeton Developing Markets VIP Fund - Class 4 |
|
1.25 |
% |
0.35 |
%(17) |
0.08 |
% |
0.01 |
% |
1.69 |
% |
0.01 |
% |
1.68 |
% |
Templeton Global Bond VIP Fund - Class 4 |
|
0.46 |
% |
0.35 |
% |
0.06 |
% |
0.00 |
% |
0.87 |
% |
0.00 |
% |
0.87 |
% |
Goldman Sachs |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
VIT Equity Index Fund - Service Class |
|
0.30 |
% |
0.25 |
% |
0.15 |
% |
0.00 |
% |
0.70 |
% |
0.22 |
%(18) |
0.48 |
% |
VIT Global Trends Allocation - Service Class |
|
0.79 |
% |
0.25 |
% |
0.13 |
% |
0.07 |
% |
1.24 |
%(19) |
0.17 |
%(20) |
1.07 |
% |
VIT Growth Opportunities Fund - Service Class |
|
1.00 |
% |
0.25 |
% |
0.15 |
% |
0.00 |
% |
1.40 |
% |
0.35 |
%(21) |
1.05 |
%(22) |
VIT High Quality Floating Rate Fund - Service Class |
|
0.40 |
% |
0.25 |
% |
0.40 |
% |
0.01 |
% |
1.06 |
%(23) |
0.41 |
%(24) |
0.65 |
%(23) |
VIT Mid Cap Value Fund - Service Class |
|
0.80 |
% |
0.25 |
% |
0.07 |
% |
0.00 |
% |
1.12 |
% |
0.03 |
%(25) |
1.09 |
% |
VIT Small Cap Equity Insights Fund. - Service Class |
|
0.75 |
% |
0.25 |
% |
0.24 |
% |
0.00 |
% |
1.24 |
% |
0.18 |
%(26) |
1.06 |
% |
Invesco |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
V.I Diversified Dividend Fund - Series II |
|
0.49 |
% |
0.25 |
% |
0.22 |
% |
0.01 |
% |
0.97 |
% |
0.01 |
%(27) |
0.96 |
% |
V.I Equity and Income Fund - Series II |
|
0.38 |
% |
0.25 |
% |
0.27 |
% |
0.01 |
% |
0.91 |
% |
0.01 |
%(27) |
0.90 |
% |
V.I. Government Securities Fund - Series II |
|
0.47 |
% |
0.25 |
% |
0.30 |
% |
0.00 |
% |
1.02 |
% |
0.00 |
% |
1.02 |
% |
V.I Global Real Estate Fund - Series II |
|
0.75 |
% |
0.25 |
% |
0.36 |
% |
0.00 |
% |
1.36 |
% |
0.00 |
% |
1.36 |
% |
V.I High Yield Fund - Series II |
|
0.63 |
% |
0.25 |
% |
0.40 |
% |
0.00 |
% |
1.28 |
% |
0.00 |
% |
1.28 |
% |
V.I International Growth Fund - Series II |
|
0.71 |
% |
0.25 |
% |
0.30 |
% |
0.01 |
% |
1.27 |
% |
0.01 |
%(27) |
1.26 |
% |
V.I Mid Cap Growth Fund - Series II |
|
0.75 |
% |
0.25 |
% |
0.32 |
% |
0.00 |
% |
1.32 |
% |
0.00 |
% |
1.32 |
% |
T Rowe Price |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Blue Chip Growth Portfolio-II - VIP II |
|
0.85 |
% |
0.25 |
% |
0.00 |
% |
0.00 |
% |
1.10 |
% |
0.00 |
% |
1.10 |
% |
Equity Income Portfolio-II - VIP II |
|
0.85 |
% |
0.25 |
% |
0.00 |
% |
0.00 |
% |
1.10 |
% |
0.00 |
% |
1.10 |
% |
Health Sciences Portfolio-II - VIP II |
|
0.95 |
% |
0.25 |
% |
0.00 |
% |
0.00 |
% |
1.20 |
% |
0.00 |
% |
1.20 |
% |
Mid Cap Growth-II - VIP II |
|
0.85 |
% |
0.25 |
% |
0.00 |
% |
0.00 |
% |
1.10 |
% |
0.00 |
% |
1.10 |
% |
VanEck |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
VIP Emerging Markets Fund Initial Class |
|
1.00 |
% |
0.00 |
% |
0.14 |
% |
0.00 |
% |
1.14 |
% |
0.00 |
%(28) |
1.14 |
% |
VIP Global Hard Assets Fund - Class S |
|
1.00 |
% |
0.25 |
% |
0.06 |
% |
0.00 |
% |
1.31 |
% |
0.00 |
%(29) |
1.31 |
% |
VIP Long/Short Equity Index Fund - Class S |
|
0.65 |
% |
0.25 |
% |
7.22 |
% |
0.02 |
% |
8.14 |
% |
7.06 |
%(30) |
1.08 |
% |
(1) The Fund fees and expenses used to prepare the table above were provided to us by the Funds. We have not independently verified such information. Current or future expenses may be greater or less than those shown. In addition, certain Funds may impose a redemption fee of no more than 2% of the amount of Fund shares redeemed. We may be required to implement a Funds redemption fee. The redemption fee will be assessed against your Contract Value. For more information, please see each Funds prospectus.
(2) Our affiliate, Equity Services, Inc., the principal underwriter for the Contracts, will receive 12b-1 fees deducted from certain Fund assets attributable to the Contracts for providing distribution and shareholder support services to some Funds.
(3) The Total Annual Fund Operating Expenses may not be the same as the reported in the portfolios financial highlights and shareholder reports, because Total Annual Fund Operating Expenses include expenses related to other investment companies acquired by the portfolio, if any, while the financial highlights and shareholder reports do not.
(4) The advisor has agreed to waive 0.01 percentage points of the funds management fee. The advisor expects this waiver to continue until April 30, 2017 and cannot terminate it prior to such date without the approval of the Board of Directors.
(5) The advisor has agreed to waive 0.15 percentage points of the funds management fee. The advisor expects this waiver to continue until April 30, 2017 and cannot terminate it prior to such date without the approval of the Board of Directors.
(6) The advisor has agreed to waive 0.11 percentage points of the funds management fee. The advisor expects this waiver to continue until April 30, 2017 and cannot terminate it prior to such date without the approval of the Board of Directors.
(7) The advisor has agreed to waive 0.18 percentage points of the funds management fee. The advisor expects this waiver to continue until April 30, 2017 and cannot terminate it prior to such date without the approval of the Board of Directors.
(8) The Total Annual Fund Operating Expenses do not correlate to the ratio of expenses to average net assets given in the Funds most recent annual report which does not include the Acquired Fund Fees and Expenses.
(9) As described in the Management of the Funds section of the Funds prospectus, BlackRock has contractually agreed to waive and/or reimburse fees or expenses in order to limit Total Annual Fund Operating Expenses After Fee Waivers and/or Expense Reimbursements (excluding Dividend Expense, Interest Expense, Acquired Fund Fees and Expenses and certain other Fund expenses) to 1.50% of average daily net assets through April 30, 2017. BlackRock has also contractually agreed to reimburse fees in order to limit certain operational and recordkeeping fees to 0.00% of average daily net assets through April 30, 2017. Each of these contractual agreements may be terminated upon 90 days notice by a majority of the non-interested directors of the Fund or by a vote of a majority of the outstanding voting securities of the Fund.
(10) The Manager may waive a portion of the Funds management fee in connection with the Funds investment in an affiliated money market fund.
(11) The Management Fee payable by the Fund is based on assets estimated to be attributable to the Funds direct investments in fixed-income and equity securities and instruments, including ETFs advised by BlackRock or other investment advisers, other investments and cash and cash equivalents (including money market funds). BlackRock has contractually agreed to waive the Management Fee on assets estimated to be attributed to the Funds investments in other equity and fixed-income mutual funds managed by BlackRock or its affiliates (the mutual funds).
(12) Other expenses have been restated to reflect current fees.
(13) As described in the Management of the Funds section of the Funds prospectus, BlackRock has contractually agreed to waive and/or reimburse fees or expenses in order to limit Total Annual Fund Operating Expenses After Fee Waivers and/or Expense Reimbursements (excluding Dividend Expense, Interest Expense, Acquired Fund Fees and Expenses and certain other Fund expenses) to 1.50% of average daily net assets through April 30, 2017. BlackRock has also contractually agreed to reimburse fees in order to limit certain operational and recordkeeping fees to 0.01% of average daily net assets through April 30, 2017. Each of these contractual agreements may be terminated upon 90 days notice by a majority of the non-interested directors of the Fund or by a vote of a majority of the outstanding voting securities of the Fund.
(14) The Manager voluntarily agreed to waive a portion of the management fee and reimburse operating expenses to enable the Fund to maintain a minimum daily net investment income dividend.
(15) As described in the Management of the Funds section of the Funds prospectus, BlackRock has contractually agreed to waive and/or reimburse fees or expenses in order to limit Total Annual Fund Operating Expenses After Fee Waivers and/or Expense Reimbursements (excluding Dividend Expense, Interest Expense, Acquired Fund Fees and Expenses and certain other Fund expenses) to 1.50% of average daily net assets through April 30, 2017. BlackRock has also contractually agreed to reimburse fees in order to limit certain operational and recordkeeping fees to 0.07% of average daily net assets through April 30, 2017. Each of these contractual agreements may be terminated upon 90 days notice by a majority of the non-interested directors of the Fund or by a vote of a majority of the outstanding voting securities of the Fund.
(16) The investment manager has contractually agreed to waive or assume certain expenses so that common expenses (excluding Rule 12b-1 fees, acquired fund fees and expenses, and certain non-routine expenses) do not exceed 0.71% until at least April 30, 2017.
(17) The investment manager has contractually agreed in advance to reduce its fees as a result of the funds investment in a Franklin Templeton money market fund (the acquired fund) for at least the next 12 month period.
(18) The Investment Adviser has agreed to (i) waive a portion of the management fee equal to 0.09% of the annual contractual rate applicable to the Funds average daily net assets between $0 and $400 million, and equal to 0.10% of the annual contractual rate applicable to the Funds average daily net assets exceeding $400 million, and (ii) reduce or limit Other Expenses (excluding acquired fund fees and expenses, transfer agency fees and expenses, taxes, interest, brokerage fees, shareholder meeting, litigation, indemnification and extraordinary expenses) to 0.004% of the Funds average daily net assets. Each arrangement will remain in effect through at least April 29, 2017, and prior to such date the Investment Adviser may not terminate the arrangements without the approval of the Board of Trustees.
(19) The Total Annual Fund Operating Expenses do not correlate to the ratios of net and total expenses to average net assets provided in the Financial Highlights, which reflect the operating expenses of the Fund and do not include Acquired Fund Fees and Expenses.
(20) The Investment Adviser has agreed to (i) reduce or limit Other Expenses (excluding acquired fund fees and expenses, transfer agency fees and expenses, taxes, interest, brokerage fees, shareholder meeting, litigation, indemnification and extraordinary expenses) to 0.004% of the Funds average daily net assets and (ii) waive a portion of its management fee payable by the Fund in an amount equal to any management fees it earns as an investment adviser to any of the affiliated funds in which the Fund invests. Each arrangement will remain in effect through at least April 29, 2017, and prior to such date the Investment Adviser may not terminate the arrangement without the approval of the Board of Trustees.
(21) The Investment Adviser has agreed to (i) waive a portion of the management fee in order to achieve an effective net management fee rate of 0.87% of the Funds average daily net assets, and (ii) reduce or limit Other Expenses (excluding acquired fund fees and expenses, transfer agency fees and expenses, taxes, interest, brokerage fees, shareholder meeting, litigation, indemnification and extraordinary expenses) to 0.004% of the Funds average daily net assets. These arrangements will remain in effect through at least April 29, 2017, and prior to such date the Investment Adviser may not terminate the arrangements without the approval of the Board of Trustees. In addition, Goldman, Sachs & Co. (Goldman Sachs) has agreed to waive distribution and service fees so as not to exceed an annual rate of 0.16% of the Funds average daily net assets attributable to Service Shares through at least April 29, 2017, and prior to such date Goldman Sachs may not terminate the arrangement without the approval of the Board of Trustees.
(22) The Total Annual Fund Operating Expenses After Fee Waiver and Expense Limitation does not correlate to the ratio of net expenses to average net assets provided in the Financial Highlights due to a management fee waiver change that was effective on April 30, 2015.
(23) The Total Annual Fund Operating Expenses do not correlate to the ratios of net and total expenses to average net assets provided in the Financial Highlights, which reflect the operating expenses of the Fund and do not include Acquired Fund Fees and Expenses.
(24) The Investment Adviser has agreed to (i) reduce or limit Other Expenses (excluding acquired fund fees and expenses, transfer agency fees and expenses, taxes, interest, brokerage fees, shareholder meeting, litigation, indemnification and extraordinary expenses) to 0.074% of the Funds average daily net assets and (ii) waive a portion of its management fee in order to achieve an effective net management fee rate of 0.31% as an annual percentage rate of the average daily net assets of the Fund and (iii) waive a portion of its management fee payable by the Fund in an amount equal to any management fees it earns as an investment adviser to any of the affiliated funds in which the Fund invests. Each arrangement will remain in effect through at least April 29, 2017, and prior to such date the Investment Adviser may not terminate the arrangements without the approval of the Board of Trustees.
(25) The Investment Adviser has agreed to (i) reduce or limit Other Expenses (excluding acquired fund fees and expenses, transfer agency fees and expenses, taxes, interest, brokerage fees, shareholder meeting, litigation, indemnification and extraordinary expenses) to 0.054% of the Funds average daily net assets and (ii) waive a portion of its management fee in order to achieve an effective net management fee rate of 0.77% as an annual percentage rate of the average daily net assets of the Fund. These arrangements will remain in effect through at least April 29, 2017, and prior to such date the Investment Adviser may not terminate the arrangements without the approval of the Board of Trustees.
(26) The Investment Adviser has agreed to (i) waive a portion of its management fee in order to achieve an effective net management fee rate of 0.70% of the Funds average daily net assets, and (ii) reduce or limit Other Expenses (excluding acquired fund fees and expenses, transfer agency fees and expenses, taxes, interest, brokerage fees, shareholder meeting, litigation, indemnification and extraordinary expenses) to 0.094% of the Funds average daily net assets. These arrangements will remain in effect through at least April 29, 2017, and prior to such date the Investment Adviser may not terminate the arrangements without the approval of the Board of Trustees.
(27) Invesco has contractually agreed to waive a portion of the Funds management fee in an amount equal to the net management fee that Invesco earns on the Funds investments in certain affiliated funds, which will have the effect of reducing Acquired Fund Fees and Expenses. Unless Invesco continues the fee waiver agreement, it will terminate on June 30, 2017. The fee waiver agreement cannot be terminated during its term.
(28) The Adviser has agreed to waive fees and/or pay Fund expenses to the extent necessary to prevent the operating expenses of the Fund (excluding acquired fund fees and expenses, interest expense, trading expenses, dividends and interest payments on securities sold short, taxes and extraordinary expenses) from exceeding 1.50% of the Funds average daily net assets per year until May 1, 2017. During such time, the expense limitation is expected to continue until the Board of Trustees acts to discontinue all or a portion of such expense limitation.
(29) The Adviser has agreed to waive fees and/or pay Fund expenses to the extent necessary to prevent the operating expenses of the Fund (excluding acquired fund fees and expenses, interest expense, trading expenses, dividends and interest payments on securities sold short, taxes and extraordinary expenses) from exceeding 1.45% of the Funds average daily net assets per year until May 1, 2017. During such time, the expense limitation is expected to continue until the Board of Trustees acts to discontinue all or a portion of such expense limitation.
(30) The Adviser has agreed to waive fees and/or pay Fund expenses to the extent necessary to prevent the operating expenses of the Fund (excluding acquired fund fees and expenses, interest expense, trading expenses, dividends and interest payments on securities sold short, taxes and extraordinary expenses) from exceeding 0.95% for Class S of the Funds average daily net assets per year until May 1, 2017. During such time, the expense limitation is expected to continue until the Board of Trustees acts to discontinue all or a portion of such expense limitation.
For information concerning compensation paid in connection with the sale of the Contracts, see Distribution of the Contracts.
Examples
The Example is intended to help you compare the cost of investing in the Contract with the cost of investing in other variable annuity contracts. These costs include Contract Owner transaction expenses, Contract fees, Variable Account annual expenses, and Fund fees and expenses. The Example includes the Annual Contract Fee, but excludes premium taxes.
The Example assumes that you invest $10,000 in the Contract for the time periods indicated. The Example also assumes that your investment has a 5% return each year, that the maximum fees and expenses of any of the Funds apply as of December 31, 2015, and that you elected the Optional Enhanced Death Benefit Rider. The annual contract fee is contemplated in the examples below. Although your actual costs may be higher or lower, based on these assumptions, your costs would be:
(1) If you surrender your Contract at the end of the applicable time period:
1 Year |
|
3 Years |
|
5 Years |
|
10 Years |
|
997.49 |
|
1,409.99 |
|
1,846.64 |
|
3,250.23 |
|
(2) If you annuitize your Contract at the end of the applicable time period or if you do not surrender your Contract:
1 Year (1) |
|
3 Years |
|
5 Years |
|
10 Years |
|
297.49 |
|
909.99 |
|
1,546.64 |
|
3,250.23 |
|
(1) The Contract may not be annuitized in the first two years from the Date of Issue.
ACCUMULATION UNIT VALUE
(in dollars)
The following table sets forth for each of the last ten years or since inception if less for an accumulation unit outstanding throughout the period, (1) the accumulation unit value at the beginning of each period; (2) the accumulation unit value at the end of each period; and (3) the number of accumulation units outstanding at the end of each period.
Subaccount |
|
Accumulation |
|
Accumulation |
|
Number of |
|
Accumulation |
|
Accumulation |
|
Number of |
|
Sentinel VPT Common Stock |
|
14.72 |
|
16.55 |
|
2,718,931.45 |
|
16.50 |
|
17.99 |
|
2,603,671.20 |
|
Sentinel VPT Mid Cap |
|
15.30 |
|
15.70 |
|
862,387.81 |
|
15.66 |
|
18.89 |
|
718,600.21 |
|
Sentinel VPT Small Company |
|
26.75 |
|
30.24 |
|
1,311,018.83 |
|
30.13 |
|
32.39 |
|
1,236,392.67 |
|
Sentinel VPT Bond |
|
14.16 |
|
14.46 |
|
1,198,084.12 |
|
14.47 |
|
15.26 |
|
1,062,958.34 |
|
Sentinel VPT Balanced |
|
13.93 |
|
15.14 |
|
1,103,557.87 |
|
15.12 |
|
16.19 |
|
943,052.50 |
|
Alger American Large Cap Growth |
|
15.52 |
|
15.74 |
|
682,503.49 |
|
10.15 |
|
18.62 |
|
488,401.32 |
|
Alger American Small Cap Growth |
|
12.13 |
|
14.17 |
|
374,887.08 |
|
14.10 |
|
16.38 |
|
315,152.75 |
|
Fidelity VIP Fund-Equity Income |
|
15.40 |
|
17.96 |
|
1,038,522.03 |
|
17.94 |
|
17.92 |
|
982,696.29 |
|
Fidelity VIP Fund-Growth |
|
13.90 |
|
14.41 |
|
876,813.03 |
|
14.44 |
|
18.05 |
|
718,993.66 |
|
Fidelity VIP Fund-High Income |
|
10.18 |
|
11.15 |
|
909,615.94 |
|
11.17 |
|
11.30 |
|
848,981.81 |
|
Fidelity VIP Fund-Overseas |
|
13.74 |
|
15.61 |
|
1,027,144.43 |
|
15.69 |
|
17.73 |
|
1,138,887.52 |
|
Fidelity VIP Fund -Contrafund® |
|
20.81 |
|
22.47 |
|
927,656.07 |
|
20.33 |
|
26.05 |
|
814,520.75 |
|
Fidelity VIP Fund -Index 500 |
|
14.12 |
|
15.86 |
|
1,666,576.30 |
|
14.23 |
|
16.17 |
|
1,356,246.26 |
|
Wells Fargo VT Discovery |
|
16.15 |
|
17.96 |
|
361,074.70 |
|
16.23 |
|
21.67 |
|
287,929.53 |
|
Wells Fargo VT Opportunity |
|
20.35 |
|
22.22 |
|
387,060.90 |
|
19.05 |
|
23.36 |
|
308,691.13 |
|
Subaccount |
|
Accumulation |
|
Accumulation |
|
Number of |
|
Accumulation |
|
Accumulation |
|
Number of |
|
Sentinel VPT Common Stock |
|
17.78 |
|
11.88 |
|
2,090,466.94 |
|
12.25 |
|
14.96 |
|
1,852,884.03 |
|
Sentinel VPT Mid Cap |
|
18.68 |
|
10.05 |
|
622,721.19 |
|
10.34 |
|
12.94 |
|
515,755.88 |
|
Sentinel VPT Small Company |
|
31.96 |
|
21.62 |
|
1,043,023.68 |
|
21.97 |
|
27.11 |
|
885,963.16 |
|
Sentinel VPT Bond |
|
15.35 |
|
15.56 |
|
845,060.54 |
|
15.55 |
|
17.05 |
|
731,602.26 |
|
Sentinel VPT Balanced |
|
16.09 |
|
12.14 |
|
753,402.99 |
|
12.39 |
|
14.54 |
|
644,007.07 |
|
Alger American Large Cap Growth |
|
18.42 |
|
9.89 |
|
1,168,059.30 |
|
10.21 |
|
14.39 |
|
960,958.58 |
|
Alger American Small Cap Growth |
|
16.19 |
|
8.63 |
|
249,280.35 |
|
8.80 |
|
12.38 |
|
193,876.81 |
|
Fidelity VIP Fund-Equity Income |
|
17.72 |
|
10.17 |
|
701,387.14 |
|
10.49 |
|
13.06 |
|
558,382.64 |
|
Fidelity VIP Fund-Growth |
|
17.82 |
|
9.40 |
|
1,094,611.21 |
|
9.66 |
|
11.89 |
|
542,841.22 |
|
Fidelity VIP Fund-High Income |
|
11.30 |
|
8.36 |
|
631,904.84 |
|
8.40 |
|
11.87 |
|
478,658.04 |
|
Fidelity VIP Fund-Overseas |
|
17.99 |
|
10.00 |
|
648,121.31 |
|
10.13 |
|
12.48 |
|
521,169.43 |
|
Fidelity VIP Fund -Contrafund® |
|
25.78 |
|
14.77 |
|
688,570.66 |
|
15.24 |
|
19.76 |
|
586,194.71 |
|
Fidelity VIP Fund -Index 500 |
|
16.25 |
|
10.24 |
|
1,094,611.21 |
|
10.57 |
|
12.79 |
|
957,017.03 |
|
Wells Fargo VT Discovery |
|
21.38 |
|
11.89 |
|
230,080.24 |
|
12.22 |
|
16.45 |
|
180,127.58 |
|
Wells Fargo VT Opportunity |
|
23.03 |
|
13.80 |
|
255,065.43 |
|
14.37 |
|
20.10 |
|
184,332.56 |
|
Subaccount |
|
Accumulation |
|
Accumulation |
|
Number of |
|
Accumulation |
|
Accumulation |
|
Number of |
|
Sentinel VPT Common Stock |
|
15.19 |
|
17.09 |
|
1,609,821.59 |
|
17.24 |
|
17.21 |
|
1,400,464.93 |
|
Sentinel VPT Mid Cap |
|
13.11 |
|
15.77 |
|
444,732.89 |
|
15.91 |
|
16.11 |
|
377,811.11 |
|
Sentinel VPT Small Company |
|
27.46 |
|
33.09 |
|
735,882.26 |
|
33.52 |
|
33.62 |
|
558,093.81 |
|
Sentinel VPT Bond |
|
17.08 |
|
18.04 |
|
684,171.33 |
|
16.19 |
|
16.51 |
|
499,377.33 |
|
Sentinel VPT Balanced |
|
14.69 |
|
16.09 |
|
586,494.67 |
|
16.25 |
|
15.81 |
|
864,389.41 |
|
Alger American LargeCap Growth |
|
14.63 |
|
16.09 |
|
861,743.94 |
|
15.50 |
|
14.61 |
|
141,290.03 |
|
Alger American SmallCap Growth |
|
12.64 |
|
15.30 |
|
168,009.27 |
|
15.05 |
|
14.77 |
|
401,299.59 |
|
Fidelity VIP Fund-Equity Income |
|
13.33 |
|
14.83 |
|
487,391.26 |
|
14.74 |
|
14.39 |
|
390,409.02 |
|
Fidelity VIP Fund-Growth |
|
12.09 |
|
14.57 |
|
467,591.54 |
|
13.37 |
|
13.67 |
|
373,467.07 |
|
Fidelity VIP Fund-High Income |
|
11.91 |
|
13.33 |
|
422,510.03 |
|
14.05 |
|
11.38 |
|
378,021.81 |
|
Fidelity VIP Fund-Overseas |
|
12.77 |
|
13.93 |
|
432,555.63 |
|
23.11 |
|
21.96 |
|
419,114.10 |
|
Fidelity VIP Fund -Contrafund® |
|
20.14 |
|
22.85 |
|
508,636.87 |
|
14.67 |
|
14.60 |
|
706,162.05 |
|
Fidelity VIP Fund -Index 500 |
|
12.99 |
|
14.51 |
|
823,067.78 |
|
22.24 |
|
21.78 |
|
122,589.41 |
|
Wells Fargo VT Discovery |
|
20.36 |
|
24.54 |
|
150,645.79 |
|
24.83 |
|
22.86 |
|
115,456.54 |
|
Wells Fargo VT Opportunity |
|
16.80 |
|
21.99 |
|
145,373.36 |
|
|
|
|
|
|
|
Subaccount |
|
Accumulation |
|
Accumulation |
|
Number of |
|
Accumulation |
|
Accumulation |
|
Number of |
|
Sentinel VPT Common Stock |
|
17.47 |
|
19.53 |
|
1,088,447.47 |
|
19.98 |
|
25.37 |
|
924,558.80 |
|
Sentinel VPT Mid Cap |
|
16.27 |
|
17.85 |
|
310,569.04 |
|
18.30 |
|
23.29 |
|
267,751.00 |
|
Sentinel VPT Small Company |
|
33.91 |
|
36.94 |
|
449,689.65 |
|
37.72 |
|
49.08 |
|
361,685.80 |
|
Sentinel VPT Bond |
|
19.03 |
|
20.01 |
|
731,507.11 |
|
19.99 |
|
19.67 |
|
639,331.80 |
|
Sentinel VPT Balanced |
|
16.70 |
|
18.14 |
|
455,379.43 |
|
18.44 |
|
21.27 |
|
447,641.60 |
|
Alger Large Cap Growth |
|
16.14 |
|
17.13 |
|
706,735.21 |
|
17.53 |
|
22.82 |
|
563,177.80 |
|
Alger Small Cap Growth |
|
14.73 |
|
16.20 |
|
100,880.01 |
|
16.66 |
|
21.45 |
|
91,210.64 |
|
Fidelity VIP Fund-Equity Income |
|
15.00 |
|
13.47 |
|
331,836.75 |
|
17.47 |
|
21.59 |
|
284,658.40 |
|
Fidelity VIP Fund-Growth |
|
14.57 |
|
16.28 |
|
324,333.16 |
|
16.69 |
|
21.89 |
|
275,136.20 |
|
Fidelity VIP Fund-High Income |
|
13.75 |
|
15.40 |
|
296,715.03 |
|
15.45 |
|
16.09 |
|
263,773 |
|
Fidelity VIP Fund-Overseas |
|
11.74 |
|
13.54 |
|
311,955.22 |
|
13.75 |
|
17.42 |
|
271,181.60 |
|
Fidelity VIP Fund -Contrafund® |
|
22.28 |
|
25.21 |
|
340,635.22 |
|
25.89 |
|
32.64 |
|
294,402.50 |
|
Fidelity VIP Fund -Index 500 |
|
14.82 |
|
16.69 |
|
579,576.49 |
|
17.11 |
|
21.76 |
|
490,085.90 |
|
Wells Fargo VT Discovery |
|
22.90 |
|
25.28 |
|
107,645.75 |
|
25.94 |
|
35.85 |
|
86,131.04 |
|
Wells Fargo VT Opportunity |
|
23.17 |
|
26.04 |
|
102,617.78 |
|
26.57 |
|
33.56 |
|
87,059.82 |
|
Subaccount |
|
Accumulation |
|
Accumulation |
|
Number of |
|
Sentinel VPT Common Stock |
|
27.57 |
|
27.28 |
|
624,066.48 |
|
Sentinel VPT Mid Cap |
|
23.95 |
|
23.41 |
|
193,980.56 |
|
Sentinel VPT Small Company |
|
51.42 |
|
50.24 |
|
265,364.55 |
|
Sentinel VPT Bond |
|
20.22 |
|
19.64 |
|
459,655.92 |
|
Sentinel VPT Balanced |
|
22.61 |
|
22.31 |
|
409,741.86 |
|
Alger Large Cap Growth |
|
24.94 |
|
25.05 |
|
350,836.43 |
|
Alger Small Cap Growth |
|
21.16 |
|
20.26 |
|
72,727.99 |
|
Fidelity VIP Fund-Equity Income |
|
23.15 |
|
21.92 |
|
230,943.86 |
|
Fidelity VIP Fund-Growth |
|
23.99 |
|
25.39 |
|
199,115.80 |
|
Fidelity VIP Fund-High Income |
|
16.05 |
|
15.26 |
|
210,409.70 |
|
Fidelity VIP Fund-Overseas |
|
15.73 |
|
16.14 |
|
218,798.90 |
|
Fidelity VIP Fund -Contrafund® |
|
36.00 |
|
35.78 |
|
232,699.39 |
|
Fidelity VIP Fund -Index 500 |
|
24.37 |
|
24.36 |
|
431,509.47 |
|
Wells Fargo VT Discovery |
|
35.39 |
|
34.48 |
|
74,617.28 |
|
Wells Fargo VT Opportunity |
|
36.46 |
|
34.93 |
|
67,928.88 |
|
The following provides the information for Subaccounts which began operations on August 3, 1998.
Subaccount |
|
Accumulation |
|
Accumulation |
|
Number of |
|
Accumulation |
|
Accumulation |
|
Number of |
|
American Century VP Income & Growth |
|
12.06 |
|
13.69 |
|
601,544.34 |
|
13.62 |
|
13.49 |
|
489,066.47 |
|
American Century VP Value |
|
17.07 |
|
19.76 |
|
1,044,070.29 |
|
19.80 |
|
18.48 |
|
1,112,047.50 |
|
JPMorgan Insurance Trust Small Cap Core |
|
15.19 |
|
16.95 |
|
115,961.99 |
|
16.94 |
|
15.76 |
|
93,558.57 |
|
Neuberger Berman Large Cap Value |
|
14.35 |
|
15.47 |
|
206,120.78 |
|
15.16 |
|
16.68 |
|
193,427.49 |
|
Subaccount |
|
Accumulation |
|
Accumulation |
|
Number of |
|
Accumulation |
|
Accumulation |
|
Number of |
|
American Century VP Income & Growth |
|
13.31 |
|
8.70 |
|
382,167.81 |
|
8.95 |
|
10.14 |
|
296,030.17 |
|
American Century VP Value |
|
18.18 |
|
13.34 |
|
556,018.48 |
|
13.71 |
|
15.77 |
|
438,223.47 |
|
JPMorgan Small Cap Core |
|
15.51 |
|
10.57 |
|
68,964.34 |
|
10.71 |
|
12.78 |
|
59,067.21 |
|
Neuberger Berman Large Cap Value |
|
16.53 |
|
7.83 |
|
182,054.98 |
|
8.23 |
|
12.05 |
|
155,553.56 |
|
Subaccount |
|
Accumulation |
|
Accumulation |
|
Number of |
|
Accumulation |
|
Accumulation |
|
Number of |
|
American Century VP Income & Growth |
|
10.28 |
|
11.41 |
|
246,646.92 |
|
11.52 |
|
11.60 |
|
209,996.35 |
|
American Century VP Value |
|
16.01 |
|
17.64 |
|
362,721.24 |
|
17.82 |
|
17.58 |
|
277,560.28 |
|
JPMorgan Insurance Trust Small Cap Core |
|
10.71 |
|
12.78 |
|
59,067.21 |
|
16.35 |
|
15.05 |
|
35,655.24 |
|
Neuberger Berman Large Cap Value |
|
8.23 |
|
12.05 |
|
155,553.56 |
|
13.93 |
|
12.02 |
|
116,413.78 |
|
Subaccount |
|
Accumulation |
|
Accumulation |
|
Number of |
|
Accumulation |
|
Accumulation |
|
Number of Accumulation |
|
American Century VP Income & Growth |
|
11.77 |
|
13.13 |
|
158,183.96 |
|
13.43 |
|
17.58 |
|
138,806.00 |
|
American Century VP Value |
|
17.85 |
|
19.86 |
|
222,379.03 |
|
20.31 |
|
25.80 |
|
190,847.00 |
|
JPMorgan Small Cap Core |
|
15.29 |
|
17.77 |
|
30,947.09 |
|
13.26 |
|
24.93 |
|
29,912.60 |
|
Neuberger Berman Large Cap Value |
|
12.25 |
|
13.82 |
|
90,753.31 |
|
13.30 |
|
17.87 |
|
79,603.68 |
|
Subaccount |
|
Accumulation |
|
Accumulation |
|
Number of |
|
Accumulation |
|
Accumulation |
|
Number of |
|
American Century VP Income & Growth |
|
17.41 |
|
19.51 |
|
120,194.70 |
|
19.51 |
|
18.16 |
|
114,223.33 |
|
American Century VP Value |
|
25.55 |
|
28.77 |
|
159,512.97 |
|
28.80 |
|
27.27 |
|
141,503.08 |
|
JPMorgan Small Cap Core |
|
14.27 |
|
26.94 |
|
27,633.89 |
|
26.84 |
|
25.17 |
|
27,255.65 |
|
Neuberger Berman Large Cap Value |
|
24.68 |
|
19.36 |
|
65,297.78 |
|
19.34 |
|
16.84 |
|
59,651.72 |
|
The following information is for Subaccounts which began operations on December 1, 2000.
Subaccount |
|
Accumulation |
|
Accumulation |
|
Number of |
|
Accumulation |
|
Accumulation |
|
Number of |
|
Alger Capital Appreciation |
|
8.83 |
|
10.18 |
|
240,392.62 |
|
11.05 |
|
14.80 |
|
11,903.74 |
|
Dreyfus Socially Responsible Growth Fund, Inc. |
|
7.21 |
|
7.66 |
|
110,434.28 |
|
7.66 |
|
8.15 |
|
90,726.74 |
|
Fidelity VIP Fund Investment Grade Bond |
|
12.78 |
|
13.14 |
|
1,816,680.33 |
|
13.18 |
|
13.52 |
|
1,660,150.65 |
|
Invesco V.I Mid Cap Growth |
|
8.19 |
|
9.26 |
|
274,930.33 |
|
9.24 |
|
10.25 |
|
230,558.37 |
|
Invesco V.I Global Health Care |
|
9.76 |
|
10.05 |
|
415,277.21 |
|
10.03 |
|
11.08 |
|
341,259.85 |
|
Invesco V.I Technology |
|
4.29 |
|
4.58 |
|
387,355.12 |
|
4.60 |
|
4.86 |
|
328,944.11 |
|
Subaccount |
|
Accumulation |
|
Accumulation |
|
Number of |
|
Accumulation |
|
Accumulation |
|
Number of |
|
Alger Capital Appreciation |
|
13.29 |
|
7.26 |
|
276,672.71 |
|
7.47 |
|
10.81 |
|
217,136.69 |
|
Dreyfus Socially Responsible Growth Fund, Inc. |
|
8.03 |
|
5.27 |
|
78,713.41 |
|
5.45 |
|
6.95 |
|
65,698.56 |
|
Fidelity VIP Fund Investment Grade Bond |
|
13.60 |
|
12.90 |
|
955,380.50 |
|
12.83 |
|
14.72 |
|
732,408.98 |
|
Invesco V.I Mid Cap Growth |
|
10.15 |
|
5.25 |
|
181,428.73 |
|
5.40 |
|
7.37 |
|
156,228.35 |
|
Invesco V.I Global Health Care |
|
11.02 |
|
7.80 |
|
289,042.57 |
|
7.92 |
|
9.83 |
|
239,579.74 |
|
Invesco V.I Technology |
|
4.76 |
|
2.66 |
|
310,842.44 |
|
2.76 |
|
4.13 |
|
308,473.43 |
|
Subaccount |
|
Accumulation |
|
Accumulation |
|
Number of |
|
Accumulation |
|
Accumulation |
|
Number of |
|
Alger American Capital Appreciation |
|
11.05 |
|
12.16 |
|
193,953.16 |
|
|
|
11.95 |
|
172,315.52 |
|
Dreyfus Socially Responsible Growth Fund, Inc. |
|
7.04 |
|
7.87 |
|
53,666.43 |
|
|
|
7.83 |
|
44,826.97 |
|
Fidelity VIP Fund Investment Grade Bond |
|
14.75 |
|
15.65 |
|
681,909.88 |
|
|
|
16.56 |
|
683,051.81 |
|
Invesco V.I Mid Cap Growth |
|
9.92 |
|
10.20 |
|
|
|
|
|
|
|
|
|
Invesco V.I Global Health Care |
|
4.19 |
|
4.94 |
|
189,817.60 |
|
|
|
10.46 |
|
154,939.91 |
|
Invesco V.I Technology |
|
11.05 |
|
12.16 |
|
278,272.43 |
|
|
|
4.63 |
|
222,342.60 |
|
Subaccount |
|
Accumulation |
|
Accumulation |
|
Number of |
|
Accumulation |
|
Accumulation |
|
Number of |
|
Alger American Capital Appreciation |
|
12.15 |
|
13.95 |
|
122,024.76 |
|
14.31 |
|
18.59 |
|
119,939.60 |
|
Dreyfus Socially Responsible Growth Fund, Inc. |
|
7.96 |
|
8.64 |
|
37,515.58 |
|
8.86 |
|
11.45 |
|
39,806.11 |
|
Fidelity VIP Fund Investment Grade Bond |
|
16.55 |
|
17.30 |
|
593,921.27 |
|
17.27 |
|
16.75 |
|
502,912.40 |
|
Invesco V.I Mid Cap Growth |
|
|
|
|
|
|
|
|
|
|
|
|
|
Invesco V.I Global Health Care |
|
10.65 |
|
12.47 |
|
126,142.60 |
|
12.69 |
|
17.28 |
|
119,888.50 |
|
Invesco V.I Technology |
|
4.68 |
|
5.08 |
|
154,613.37 |
|
5.26 |
|
6.26 |
|
146,880.00 |
|
Subaccount |
|
Accumulation |
|
Accumulation |
|
Number of |
|
Accumulation |
|
Accumulation Unit Value at |
|
Number of |
|
Alger American Capital Appreciation |
|
11.33 |
|
20.86 |
|
112,315.35 |
|
20.84 |
|
21.84 |
|
104,425.56 |
|
Dreyfus Socially Responsible Growth Fund, Inc. |
|
17.68 |
|
12.81 |
|
37,096.23 |
|
12.82 |
|
12.23 |
|
33,305.15 |
|
Fidelity VIP Fund Investment Grade Bond |
|
17.21 |
|
17.49 |
|
404,497.18 |
|
17.53 |
|
17.14 |
|
349,865.24 |
|
Invesco V.I Mid Cap Growth |
|
|
|
|
|
|
|
14.06 |
|
14.06 |
|
49,996.20 |
|
Invesco V.I Global Health Care |
|
6.20 |
|
20.40 |
|
112,112.85 |
|
20.44 |
|
20.75 |
|
100,481.08 |
|
Invesco V.I Technology |
|
18.44 |
|
6.86 |
|
152,148.24 |
|
6.86 |
|
7.23 |
|
152,182.01 |
|
The following information is for Subaccounts which began operations on May 1, 2004.
Subaccount |
|
Accumulation |
|
Accumulation |
|
Number of |
|
Accumulation |
|
Accumulation |
|
Number of |
|
American Century VP Ultra® |
|
10.96 |
|
10.34 |
|
13,485.09 |
|
10.34 |
|
12.33 |
|
25,823.45 |
|
American Century VP International |
|
13.02 |
|
15.55 |
|
547,977.29 |
|
15.68 |
|
18.10 |
|
617,151.45 |
|
American Century VP Inflation Protection |
|
10.59 |
|
10.62 |
|
1,113,774.87 |
|
10.64 |
|
11.49 |
|
1,255,391.41 |
|
Dreyfus Appreciation |
|
10.80 |
|
12.20 |
|
730,198.55 |
|
12.16 |
|
12.88 |
|
216,453.41 |
|
Dreyfus Opportunistic Small Cap |
|
11.54 |
|
11.63 |
|
18,175.86 |
|
11.64 |
|
10.20 |
|
26,843.81 |
|
Dreyfus Quality Bond |
|
10.55 |
|
10.82 |
|
80,546.12 |
|
10.86 |
|
11.05 |
|
111,744.60 |
|
Franklin Mutual Shares Securities |
|
12.10 |
|
13.96 |
|
127,395.59 |
|
14.02 |
|
14.24 |
|
166,258.59 |
|
Franklin Small Cap Value Securities |
|
13.07 |
|
14.85 |
|
99,096.41 |
|
14.80 |
|
14.30 |
|
92,809.05 |
|
Franklin Small-Mid Cap Growth Securities |
|
11.45 |
|
12.13 |
|
24,421.84 |
|
12.09 |
|
13.30 |
|
26,565.33 |
|
Franklin Templeton Foreign Securities |
|
12.81 |
|
15.01 |
|
612,574.72 |
|
15.10 |
|
17.09 |
|
774,545.98 |
|
Franklin Templeton Global Real Estate |
|
15.46 |
|
18.07 |
|
174,101.94 |
|
17.91 |
|
14.10 |
|
162,047.67 |
|
Fidelity Mid Cap |
|
14.61 |
|
15.90 |
|
329,694.21 |
|
15.78 |
|
18.05 |
|
296,830.63 |
|
Neuberger Berman Mid Cap Growth |
|
13.08 |
|
14.61 |
|
39,266.75 |
|
14.65 |
|
17.65 |
|
83,823.04 |
|
Neuberger Berman Small Cap Growth |
|
11.23 |
|
11.53 |
|
423,265.70 |
|
11.48 |
|
11.42 |
|
485,097.80 |
|
Neuberger Berman Short Duration Bond |
|
9.99 |
|
10.25 |
|
1,484,819.77 |
|
10.26 |
|
10.59 |
|
1,735,213.41 |
|
Deutsche Large Cap Value |
|
12.09 |
|
13.88 |
|
48,695.98 |
|
13.81 |
|
13.39 |
|
58,291.23 |
|
Deutsche Small Mid Cap Value |
|
13.18 |
|
15.87 |
|
161,908.40 |
|
15.73 |
|
16.06 |
|
544,208.87 |
|
T. Rowe Price Equity Income Portfolio II |
|
11.62 |
|
13.41 |
|
115,963.88 |
|
13.43 |
|
13.63 |
|
121,053.68 |
|
T. Rowe Price Blue Chip Growth Portfolio II |
|
13.27 |
|
12.12 |
|
1,264,773.03 |
|
12.11 |
|
13.44 |
|
1,139,712.20 |
|
T. Rowe Price Health Sciences Portfolio II |
|
14.27 |
|
12.36 |
|
140,366.74 |
|
12.30 |
|
14.35 |
|
97,259.18 |
|
Subaccount |
|
Accumulation |
|
Accumulation |
|
Number of |
|
Accumulation |
|
Accumulation |
|
Number of |
|
American Century VP Ultra® |
|
12.18 |
|
7.12 |
|
12,256.12 |
|
7.33 |
|
9.44 |
|
14,036.49 |
|
American Century VP International |
|
17.99 |
|
9.85 |
|
795,732.66 |
|
10.03 |
|
12.99 |
|
728,815.34 |
|
American Century VP Inflation Protection |
|
11.61 |
|
11.19 |
|
534,705.52 |
|
11.05 |
|
12.19 |
|
477,086.39 |
|
Dreyfus Appreciation |
|
12.74 |
|
8.95 |
|
128,320.28 |
|
9.19 |
|
10.82 |
|
106,107.14 |
|
Dreyfus Opportunistic Small Cap |
|
10.01 |
|
6.28 |
|
20,865.94 |
|
6.38 |
|
7.80 |
|
23,584.37 |
|
Dreyfus Quality Bond |
|
11.12 |
|
10.44 |
|
108,494.95 |
|
10.38 |
|
11.84 |
|
102,191.51 |
|
Franklin Mutual Shares Securities |
|
14.09 |
|
8.83 |
|
124,773.52 |
|
9.07 |
|
10.98 |
|
124,536.74 |
|
Franklin Small Cap Value Securities |
|
14.11 |
|
9.45 |
|
77,016.85 |
|
9.69 |
|
12.03 |
|
59,165.93 |
|
Franklin Small-Mid Cap Growth Securities |
|
13.11 |
|
7.54 |
|
21,119.58 |
|
7.81 |
|
10.68 |
|
20,304.76 |
|
Franklin Templeton Foreign Securities |
|
17.02 |
|
10.05 |
|
300,043.21 |
|
10.23 |
|
13.58 |
|
268,157.03 |
|
Franklin Templeton Global Real Estate |
|
14.00 |
|
8.01 |
|
127,569.73 |
|
7.97 |
|
9.41 |
|
129,572.15 |
|
Fidelity Mid Cap |
|
18.06 |
|
10.83 |
|
562,513.64 |
|
11.10 |
|
14.96 |
|
495,908.29 |
|
Neuberger Berman Mid Cap Growth |
|
17.45 |
|
9.86 |
|
56,291.55 |
|
10.10 |
|
12.79 |
|
50,688.18 |
|
Neuberger Berman Small Cap Growth |
|
11.26 |
|
6.81 |
|
138,379.37 |
|
6.92 |
|
8.25 |
|
130,420.47 |
|
Neuberger Berman Short Duration Bond |
|
10.62 |
|
9.04 |
|
1,235,140.63 |
|
9.00 |
|
10.10 |
|
1,158,958.58 |
|
Deutsche Large Cap Value |
|
13.24 |
|
7.11 |
|
39,204.64 |
|
7.36 |
|
8.76 |
|
29,440.35 |
|
Deutsche Small Mid Cap Value |
|
15.84 |
|
9.45 |
|
77,016.85 |
|
10.70 |
|
13.39 |
|
360,814.42 |
|
T. Rowe Price Equity Income Portfolio II |
|
13.44 |
|
8.57 |
|
1,153,421.31 |
|
8.85 |
|
10.58 |
|
1,112,837.08 |
|
T. Rowe Price Blue Chip Growth Portfolio II |
|
13.27 |
|
7.60 |
|
386,584.31 |
|
7.85 |
|
10.63 |
|
326,555.54 |
|
T. Rowe Price Health Sciences Portfolio II |
|
14.27 |
|
10.02 |
|
100,832.06 |
|
10.23 |
|
12.98 |
|
90,914.92 |
|
Subaccount |
|
Accumulation |
|
Accumulation |
|
Number of |
|
Accumulation |
|
Accumulation |
|
Number of |
|
American Century VP Ultra® |
|
9.59 |
|
10.81 |
|
6,989.10 |
|
10.92 |
|
10.77 |
|
6,030.16 |
|
American Century VP International |
|
13.34 |
|
14.52 |
|
652,356.05 |
|
14.67 |
|
12.59 |
|
520,318.72 |
|
American Century VP Inflation Protection |
|
12.21 |
|
12.67 |
|
463,138.08 |
|
12.64 |
|
14.00 |
|
286,462.82 |
|
Dreyfus Appreciation |
|
10.99 |
|
12.30 |
|
93,436.52 |
|
12.37 |
|
13.23 |
|
77,519.46 |
|
Dreyfus Opportunistic Small Cap |
|
8.00 |
|
10.09 |
|
30,651.89 |
|
10.28 |
|
8.57 |
|
22,022.39 |
|
Dreyfus Quality Bond |
|
11.86 |
|
12.65 |
|
110,255.68 |
|
12.65 |
|
13.35 |
|
153,808.86 |
|
Franklin Mutual Shares Securities |
|
11.12 |
|
12.04 |
|
103,906.51 |
|
12.15 |
|
12.80 |
|
221,431.90 |
|
Franklin Small Cap Value Securities |
|
12.31 |
|
15.21 |
|
51,192.43 |
|
15.46 |
|
14.44 |
|
38,831.59 |
|
Franklin Small-Mid Cap Growth Securities |
|
10.86 |
|
13.45 |
|
41,519.93 |
|
13.60 |
|
12.62 |
|
38,016.81 |
|
Franklin Templeton Foreign Securities |
|
13.85 |
|
14.52 |
|
254,859.44 |
|
14.65 |
|
12.80 |
|
221,431.90 |
|
Franklin Templeton Global Real Estate |
|
9.37 |
|
11.22 |
|
103,318.95 |
|
11.35 |
|
10.44 |
|
107,686.16 |
|
Fidelity Mid Cap |
|
15.25 |
|
19.01 |
|
440,731.77 |
|
19.16 |
|
|
|
|
|
Neuberger Berman Mid Cap Growth |
|
13.00 |
|
16.29 |
|
47,158.34 |
|
16.45 |
|
16.14 |
|
41,076.90 |
|
Neuberger Berman Small Cap Growth |
|
8.46 |
|
9.74 |
|
116,015.32 |
|
9.89 |
|
9.50 |
|
89,804.03 |
|
Neuberger Berman Short Duration Bond |
|
10.11 |
|
10.49 |
|
1,157,937.19 |
|
10.49 |
|
10.38 |
|
915,467.34 |
|
Deutsche Large Cap Value |
|
8.94 |
|
9.69 |
|
28,728.32 |
|
9.78 |
|
9.56 |
|
25,926.55 |
|
Deutsche Small Mid Cap Value |
|
13.65 |
|
16.20 |
|
307,510.77 |
|
16.37 |
|
14.97 |
|
181,880.32 |
|
T. Rowe Price Equity Income Portfolio II |
|
10.75 |
|
11.97 |
|
1,029,119.99 |
|
12.10 |
|
11.69 |
|
754,868.47 |
|
T. Rowe Price Blue Chip Growth Portfolio II |
|
10.77 |
|
12.16 |
|
297,989.29 |
|
12.31 |
|
12.15 |
|
234,388.30 |
|
T. Rowe Price Health Sciences Portfolio II |
|
13.18 |
|
14.76 |
|
87,932.93 |
|
14.97 |
|
16.07 |
|
74,895.39 |
|
Subaccount |
|
Accumulation |
|
Accumulation |
|
Number of |
|
Accumulation |
|
Accumulation |
|
Number of |
|
American Century VP Ultra® |
|
10.95 |
|
12.10 |
|
2,843.61 |
|
12.40 |
|
16.36 |
|
2171.37 |
|
American Century VP International |
|
12.91 |
|
15.04 |
|
415,345.95 |
|
14.79 |
|
13.44 |
|
183,822.80 |
|
American Century VP Inflation Protection |
|
13.98 |
|
14.85 |
|
236,597.50 |
|
14.75 |
|
17.20 |
|
45,407.09 |
|
Dreyfus Appreciation |
|
13.39 |
|
14.40 |
|
61,589.56 |
|
10.50 |
|
14.93 |
|
25,359.91 |
|
Dreyfus Opportunistic Small Cap |
|
8.71 |
|
10.19 |
|
25,767.79 |
|
1408 |
|
13.68 |
|
132,077.30 |
|
Dreyfus Quality Bond |
|
13.34 |
|
14.09 |
|
141,478.27 |
|
13.48 |
|
16.75 |
|
60,002.31 |
|
Franklin Templeton Mutual Shares Securities |
|
11.91 |
|
13.24 |
|
62,390.88 |
|
17.32 |
|
22.65 |
|
27,488.37 |
|
Franklin Templeton Small Cap Value Securities |
|
14.70 |
|
16.86 |
|
32,319.86 |
|
14.13 |
|
18.79 |
|
19,748.97 |
|
Franklin Templeton Small-Mid Cap Growth Securities |
|
12.96 |
|
13.80 |
|
24,519.49 |
|
15.13 |
|
18.01 |
|
142,661.90 |
|
Franklin Templeton Foreign Securities |
|
13.14 |
|
14.92 |
|
176,601.85 |
|
14.46 |
|
13.24 |
|
88,158.95 |
|
Franklin Templeton Global Real Estate |
|
10.56 |
|
13.12 |
|
95,314.18 |
|
19.46 |
|
25.49 |
|
184,336.00 |
|
Fidelity Mid Cap |
|
16.27 |
|
18.97 |
|
214,798.39 |
|
18.34 |
|
23.40 |
|
30,993.32 |
|
Neuberger Berman Mid Cap Growth |
|
16.23 |
|
17.90 |
|
31,324.27 |
|
10.47 |
|
14.66 |
|
52,535.92 |
|
Neuberger Berman Small Cap Growth |
|
9.55 |
|
10.20 |
|
72,099.97 |
|
10.71 |
|
10.62 |
|
649,726.80 |
|
Neuberger Berman Short Duration Bond |
|
10.37 |
|
10.70 |
|
773,755.80 |
|
10.57 |
|
13.29 |
|
24,718.38 |
|
DWS Large Cap Value |
|
9.70 |
|
13.82 |
|
25,572.53 |
|
17.18 |
|
22.23 |
|
109,502.50 |
|
DWS Small Mid Cap Value |
|
15.20 |
|
16.73 |
|
145,209.27 |
|
13.77 |
|
17.20 |
|
435,758.10 |
|
T. Rowe Price Equity Income Portfolio II |
|
11.87 |
|
13.47 |
|
570,153.84 |
|
14.51 |
|
19.63 |
|
145,549.10 |
|
T. Rowe Price Blue Chip Growth Portfolio II |
|
12.36 |
|
14.13 |
|
184,314.69 |
|
21.31 |
|
30.80 |
|
63,126.49 |
|
T. Rowe Price Health Sciences Portfolio II |
|
16.22 |
|
20.76 |
|
63,633.94 |
|
Accumulation |
|
Accumulation |
|
Number of |
|
Subaccount |
|
Accumulation |
|
Accumulation |
|
Number of |
|
Accumulation |
|
Accumulation |
|
Number of |
|
American Century VP Ultra® |
|
16.78 |
|
17.74 |
|
2,116.13 |
|
17.70 |
|
18.60 |
|
2,566.51 |
|
American Century VP International |
|
16.22 |
|
16.92 |
|
287,465.79 |
|
16.87 |
|
16.82 |
|
235,749.53 |
|
American Century VP Inflation Protection |
|
16.78 |
|
13.73 |
|
138,329.77 |
|
13.81 |
|
13.23 |
|
115,988.83 |
|
Dreyfus Appreciation |
|
17.94 |
|
18.34 |
|
30,709.49 |
|
18.29 |
|
17.64 |
|
25,244.02 |
|
Dreyfus Opportunistic Small Cap |
|
13.48 |
|
14.96 |
|
24,454.39 |
|
14.81 |
|
14.42 |
|
25,647.32 |
|
Dreyfus Quality Bond |
|
17.01 |
|
14.14 |
|
122,265.89 |
|
14.16 |
|
13.71 |
|
117,834.51 |
|
Franklin Templeton Mutual Shares Securities |
|
13.69 |
|
17.69 |
|
58,555.73 |
|
17.64 |
|
16.59 |
|
53,860.93 |
|
Franklin Templeton Small Cap Value Securities |
|
25.21 |
|
22.46 |
|
19,677.15 |
|
22.28 |
|
20.52 |
|
17,096.11 |
|
Franklin Templeton Small-Mid Cap Growth Securities |
|
16.62 |
|
19.92 |
|
17,638.69 |
|
19.88 |
|
19.12 |
|
16,814.56 |
|
Franklin Templeton Foreign Securities |
|
22.34 |
|
15.85 |
|
129,373.80 |
|
15.76 |
|
14.62 |
|
113,030.75 |
|
Franklin Templeton Global Real Estate |
|
18.59 |
|
15.02 |
|
68,152.00 |
|
15.10 |
|
14.89 |
|
69,900.59 |
|
Fidelity Mid Cap |
|
14.77 |
|
26.72 |
|
148,423.15 |
|
26.66 |
|
25.98 |
|
127,870.67 |
|
Neuberger Berman Mid Cap Growth |
|
17.85 |
|
24.82 |
|
28,881.19 |
|
24.72 |
|
24.79 |
|
29,610.05 |
|
Neuberger Berman Small Cap Growth |
|
13.19 |
|
14.96 |
|
40,811.58 |
|
14.86 |
|
9.58 |
|
48,381.17 |
|
Neuberger Berman Short Duration Bond |
|
23.16 |
|
10.54 |
|
518,398.54 |
|
10.55 |
|
10.41 |
|
424,356.87 |
|
DWS Large Cap Value |
|
18.28 |
|
14.46 |
|
23,599.58 |
|
14.46 |
|
13.24 |
|
22,802.67 |
|
DWS Small Mid Cap Value |
|
14.49 |
|
23.04 |
|
87,100.38 |
|
22.93 |
|
22.22 |
|
67,210.25 |
|
T. Rowe Price Equity Income Portfolio II |
|
10.62 |
|
18.16 |
|
352,465.38 |
|
18.16 |
|
16.64 |
|
281,582.16 |
|
T. Rowe Price Blue Chip Growth Portfolio II |
|
21.95 |
|
21.07 |
|
102,405.15 |
|
21.06 |
|
23.02 |
|
97,695.95 |
|
T. Rowe Price Health Sciences Portfolio II |
|
17.03 |
|
39.88 |
|
64,235.85 |
|
40.02 |
|
44.24 |
|
53,736.03 |
|
The following information is for Subaccounts which began operations on December 1, 2008.
Subaccount |
|
Accumulation |
|
Accumulation |
|
Number of |
|
Accumulation |
|
Accumulation |
|
Number of |
|
AB International Growth Portfolio - Class A Shares |
|
10.00 |
|
10.68 |
|
145,937.90 |
|
10.94 |
|
14.70 |
|
110,778.55 |
|
AB International Value Portfolio - Class A Shares |
|
10.00 |
|
10.49 |
|
415,283.19 |
|
10.76 |
|
13.93 |
|
368,991.87 |
|
AB Small/Mid Cap Value Portfolio - Class A Shares |
|
10.00 |
|
10.79 |
|
66,769.66 |
|
11.06 |
|
15.20 |
|
64,932.21 |
|
AB Value Portfolio - Class A Shares |
|
10.00 |
|
10.39 |
|
N/A |
|
10.59 |
|
12.31 |
|
1,145.93 |
|
Deutsche Small Cap Index VIP - Class A Shares |
|
10.00 |
|
10.58 |
|
227.12 |
|
10.71 |
|
13.20 |
|
1,508.37 |
|
Fidelity Value Strategies Portfolio - Initial Class |
|
10.00 |
|
10.60 |
|
N/A |
|
10.99 |
|
16.47 |
|
18,880.08 |
|
Franklin Templeton Mutual Global Discovery Securities - Class 1 Shares |
|
10.00 |
|
10.06 |
|
N/A |
|
10.19 |
|
12.26 |
|
5,683.54 |
|
Franklin Templeton U.S. Government - Class 1 Shares |
|
10.00 |
|
10.20 |
|
768,297.54 |
|
10.17 |
|
10.40 |
|
840,502.27 |
|
Neuberger Berman AMT Socially Responsive Portfolio - I Class |
|
10.00 |
|
9.96 |
|
342.53 |
|
10.32 |
|
12.90 |
|
996.06 |
|
Oppenheimer Capital Income Fund/VA - Service Shares |
|
10.00 |
|
10.06 |
|
N/A |
|
10.30 |
|
12.06 |
|
N/A |
|
Oppenheimer Main Street Small Cap Fund/VA® - Service Shares |
|
10.00 |
|
10.71 |
|
N/A |
|
11.00 |
|
14.46 |
|
853.52 |
|
Oppenheimer Global Strategic Income Fund/VA - Service Shares |
|
10.00 |
|
10.52 |
|
N/A |
|
10.49 |
|
12.28 |
|
5,196.48 |
|
T. Rowe Price Personal Strategy Balanced Portfolio VIP I |
|
10.00 |
|
10.31 |
|
N/A |
|
10.51 |
|
13.43 |
|
1,536.61 |
|
Van Eck VIP Trust Unconstrained Emerging Markets Bond - Initial Class |
|
10.00 |
|
10.63 |
|
68.66 |
|
10.61 |
|
11.11 |
|
8,127.71 |
|
Van Eck VIP Trust Emerging Markets Initial Class |
|
10.00 |
|
10.51 |
|
286,226.29 |
|
10.86 |
|
22.09 |
|
171,390.89 |
|
Van Eck VIP Trust Global Hard Assets - Initial Class |
|
10.00 |
|
9.93 |
|
N/A |
|
10.37 |
|
15.43 |
|
9,617.74 |
|
Subaccount |
|
Accumulation |
|
Accumulation |
|
Number of |
|
Accumulation |
|
Accumulation |
|
Number of |
|
AB International Growth Portfolio - Class A Shares |
|
15.13 |
|
16.37 |
|
104,030.48 |
|
16.47 |
|
13.58 |
|
47,272.06 |
|
AB International Value Portfolio - Class A Shares |
|
14.31 |
|
14.37 |
|
369,431.22 |
|
14.51 |
|
11.44 |
|
379,339.08 |
|
AB Small/Mid Cap Value Portfolio - Class A Shares |
|
15.54 |
|
19.03 |
|
60,894.65 |
|
19.27 |
|
17.19 |
|
206,338.46 |
|
AB Value Portfolio - Class A Shares |
|
12.59 |
|
13.58 |
|
2,561.47 |
|
13.72 |
|
12.92 |
|
1,643.76 |
|
Deutsche Small Cap Index VIP - Class A Shares |
|
13.51 |
|
16.45 |
|
2,192.27 |
|
16.76 |
|
15.51 |
|
3,506.21 |
|
Fidelity Value Strategies Portfolio - Initial Class |
|
16.86 |
|
20.57 |
|
21,293.36 |
|
20.82 |
|
18.50 |
|
14,044.55 |
|
Franklin Templeton Mutual Global Discovery Securities - Class 1 Shares |
|
12.40 |
|
13.57 |
|
40,480.65 |
|
13.70 |
|
13.02 |
|
40,131.57 |
|
Franklin Templeton U.S. Government - Class 1 Shares |
|
10.42 |
|
10.83 |
|
843,947.67 |
|
10.82 |
|
11.31 |
|
144,727.38 |
|
Neuberger Berman AMT Socially Responsive Portfolio - I Class |
|
13.09 |
|
15.63 |
|
996.06 |
|
15.74 |
|
14.94 |
|
1,923.35 |
|
Oppenheimer Capital Income Fund/VA - Service Shares |
|
12.22 |
|
13.40 |
|
2,848.23 |
|
13.47 |
|
13.27 |
|
1,585.15 |
|
Oppenheimer Main Street Small Cap Fund/VA® - Service Shares |
|
14.74 |
|
17.54 |
|
4,300.72 |
|
17.84 |
|
16.89 |
|
2,593.19 |
|
Oppenheimer Global Strategic Income Fund/VA - Service Shares |
|
12.35 |
|
13.90 |
|
29,984.65 |
|
13.92 |
|
13.80 |
|
50,095.48 |
|
T. Rowe Price Personal Strategy Balanced Portfolio VIP I |
|
13.60 |
|
15.06 |
|
9,013.88 |
|
15.19 |
|
14.81 |
|
12,332.93 |
|
Van Eck VIP Trust Unconstrained Emerging Markets Bond - Initial Class |
|
11.17 |
|
11.64 |
|
17,030.42 |
|
11.62 |
|
12.41 |
|
250,835.69 |
|
Van Eck VIP Trust Emerging Markets Initial Class |
|
22.56 |
|
27.63 |
|
153,592.44 |
|
28.09 |
|
20.23 |
|
97,834.22 |
|
Van Eck VIP Trust Global Hard Assets - Initial Class |
|
16.04 |
|
19.67 |
|
24,510.49 |
|
19.77 |
|
16.21 |
|
123,208.92 |
|
Subaccount |
|
Accumulation |
|
Accumulation |
|
Number of |
|
Accumulation |
|
Accumulation |
|
Number of |
|
AB International Growth Portfolio - Class A Shares |
|
13.98 |
|
15.47 |
|
36,897.31 |
|
15.73 |
|
17.33 |
|
23,468.50 |
|
AB International Value Portfolio - Class A Shares |
|
11.83 |
|
12.93 |
|
325,891.00 |
|
13.18 |
|
15.68 |
|
255,095.50 |
|
AB Small/Mid Cap Value Portfolio - Class A Shares |
|
17.39 |
|
20.13 |
|
154,740.53 |
|
20.68 |
|
27.41 |
|
108,888.30 |
|
AB Value Portfolio - Class A Shares |
|
13.15 |
|
14.75 |
|
2,471.78 |
|
15.14 |
|
19.90 |
|
2,681.89 |
|
Deutsche Small Cap Index VIP - Class A Shares |
|
15.75 |
|
17.78 |
|
4,086.37 |
|
18.29 |
|
24.31 |
|
4,256.70 |
|
Fidelity Value Strategies Portfolio - Initial Class |
|
18.77 |
|
23.22 |
|
3,976.15 |
|
23.74 |
|
29.87 |
|
3,552.64 |
|
Franklin Templeton Mutual Global Discovery Securities - Class 1 Shares |
|
13.21 |
|
14.59 |
|
34,847.12 |
|
14.84 |
|
18.41 |
|
37,053.40 |
|
Franklin Templeton U.S. Government - Class 1 Shares |
|
11.30 |
|
11.39 |
|
105,251.62 |
|
11.39 |
|
11.01 |
|
87,698.80 |
|
Neuberger Berman AMT Socially Responsive Portfolio - I Class |
|
15.22 |
|
16.35 |
|
1,086.05 |
|
16.71 |
|
22.20 |
|
1,350.38 |
|
Oppenheimer Capital Income Fund/VA - Service Shares |
|
13.39 |
|
14.67 |
|
2,608.45 |
|
14.86 |
|
16.32 |
|
5,253.50 |
|
Oppenheimer Main Street Small Cap Fund/VA® - Service Shares |
|
17.07 |
|
19.60 |
|
3,837.00 |
|
20.06 |
|
27.18 |
|
4,530.63 |
|
Oppenheimer Global Strategic Income Fund/VA - Service Shares |
|
13.82 |
|
15.40 |
|
77,499.39 |
|
15.42 |
|
15.13 |
|
80,900.00 |
|
T. Rowe Price Personal Strategy Balanced Portfolio VIP I |
|
15.01 |
|
16.81 |
|
23,737.84 |
|
17.06 |
|
19.55 |
|
29,004.73 |
|
Van Eck VIP Trust Unconstrained Emerging Markets Bond - Initial Class |
|
12.42 |
|
12.92 |
|
225,641.68 |
|
12.86 |
|
11.57 |
|
209,810.60 |
|
Van Eck VIP Trust Emerging Markets Initial Class |
|
20.74 |
|
25.90 |
|
81,811.67 |
|
26.36 |
|
28.611 |
|
74,363.37 |
|
Van Eck VIP Trust Global Hard Assets - Initial Class |
|
16.84 |
|
16.52 |
|
111,665.78 |
|
16.92 |
|
18.01 |
|
106,236.90 |
|
Subaccount |
|
Accumulation |
|
Accumulation |
|
Number of |
|
Accumulation Unit |
|
Accumulation Unit |
|
Number of |
|
AB International Growth Portfolio - Class A Shares |
|
27.04 |
|
16.89 |
|
22,159.27 |
|
16.85 |
|
16.35 |
|
19,542.65 |
|
AB International Value Portfolio - Class A Shares |
|
19.72 |
|
14.50 |
|
222,237.21 |
|
14.48 |
|
14.67 |
|
167,813.93 |
|
AB Small/Mid Cap Value Portfolio - Class A Shares |
|
30.67 |
|
29.52 |
|
87,317.22 |
|
29.37 |
|
27.51 |
|
65,734.03 |
|
AB Value Portfolio - Class A Shares |
|
19.48 |
|
21.81 |
|
3,645.24 |
|
21.81 |
|
20.01 |
|
2,525.49 |
|
Deutsche Small Cap Index VIP - Class A Shares |
|
13.10 |
|
25.11 |
|
3,068.46 |
|
24.99 |
|
23.63 |
|
3,815.58 |
|
Fidelity Value Strategies Portfolio - Initial Class |
|
15.44 |
|
31.48 |
|
5,988.32 |
|
31.45 |
|
30.11 |
|
6,914.86 |
|
Franklin Templeton Mutual Global Discovery Securities - Class 1 Shares |
|
17.13 |
|
19.24 |
|
41,840.60 |
|
19.21 |
|
18.33 |
|
49,217.96 |
|
Franklin Templeton U.S. Government - Class 1 Shares |
|
29.70 |
|
11.25 |
|
84,773.53 |
|
11.28 |
|
11.18 |
|
70,003.99 |
|
Neuberger Berman AMT Socially Responsive Portfolio - I Class |
|
13.16 |
|
24.16 |
|
685.33 |
|
24.09 |
|
23.71 |
|
1,487.39 |
|
Oppenheimer Capital Income Fund/VA - Service Shares |
|
24.05 |
|
17.39 |
|
5,000.67 |
|
17.40 |
|
17.25 |
|
12,672.62 |
|
Oppenheimer Main Street Small Cap Fund/VA® - Service Shares |
|
21.93 |
|
29.92 |
|
4,958.82 |
|
29.77 |
|
27.71 |
|
6,675.96 |
|
Oppenheimer Global Strategic Income Fund/VA - Service Shares |
|
26.93 |
|
15.29 |
|
79,865.57 |
|
15.29 |
|
14.70 |
|
78,625.08 |
|
T. Rowe Price Personal Strategy Balanced Portfolio VIP I |
|
16.30 |
|
20.29 |
|
23,986.56 |
|
20.29 |
|
20.00 |
|
19,644.33 |
|
Van Eck VIP Trust Unconstrained Emerging Markets Bond - Initial Class |
|
19.44 |
|
11.66 |
|
163,792.40 |
|
11.65 |
|
10.00 |
|
149,112.19 |
|
Van Eck VIP Trust Emerging Markets Initial Class |
|
15.10 |
|
28.10 |
|
68,605.52 |
|
28.07 |
|
23.83 |
|
62,696.96 |
|
Van Eck VIP Trust Global Hard Assets - Initial Class |
|
28.28 |
|
14.37 |
|
93,827.49 |
|
14.45 |
|
9.43 |
|
121,903.51 |
|
The following information is for the Subaccount which began operations on May 1, 2011.
Subaccount |
|
Accumulation |
|
Accumulation |
|
Number of |
|
Accumulation |
|
Accumulation |
|
Number of |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Fidelity VIP Government Money Market Fund |
|
|
|
12.09 |
|
416,096.61 |
|
12.09 |
|
11.93 |
|
5,197,173.93 |
|
Subaccount |
|
Accumulation |
|
Number of |
|
Accumulation |
|
Accumulation |
|
Accumulation |
|
Number of |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Fidelity VIP Government Money Market Fund |
|
11.93 |
|
547,074.90 |
|
11.76 |
|
11.76 |
|
11.60 |
|
632,529.40 |
|
Subaccount |
|
Accumulation |
|
Accumulation |
|
Number of |
|
|
|
|
|
|
|
|
|
Fidelity VIP Government Money Market Fund |
|
11.60 |
|
11.44 |
|
819,043.98 |
|
NATIONAL LIFE, THE VARIABLE ACCOUNT, AND THE FUNDS
National Life
National Life is authorized to transact life insurance and annuity business in Vermont and in 50 other jurisdictions. National Life was originally chartered as a mutual life insurance company in 1848 under Vermont law. It is now a stock life insurance company, all of the outstanding stock of which is indirectly owned by National Life Holding Company, a mutual insurance holding company established under Vermont law on January 1, 1999. All policyholders of National Life, including all the Owners of the Contracts, are voting members of National Life Holding Company. National Life assumes all mortality and expense risks under the Contracts and its assets support the Contracts benefits. Financial statements for National Life are contained in the Statement of Additional Information.
Our Financial Condition. As an insurance company, we are required by state insurance regulation to hold a specified amount of reserves in order to meet all of the contractual obligations of our General Account. To meet our claims-paying obligations, we monitor reserves so that we hold sufficient amounts to cover actual or expected claims payments. However, it is important to note that there is no guarantee that we will always be able to meet our claims-paying obligations, and that there are risks to purchasing any insurance product.
State insurance regulators also require insurance companies to maintain a minimum amount of capital, which acts as a cushion in the event that the insurer suffers a financial impairment, based on the inherent risks in the insurers operations. These risks include those associated with losses that we may incur as the result of defaults on the payment of interest or principal on our general account assets, which include bonds, mortgages, general real estate investments, and stocks, as well as the loss in market value of these investments.
How to Obtain More Information. We encourage both existing and prospective Owners to read and understand our financial statements. We prepare our financial statements on a statutory basis. Our financial statements, which are presented in conformity with accounting practices prescribed or permitted by the Vermont Department of Financial Regulationas well as the financial statements of the Variable Account and of NLV Financial Corporation, the parent company of National Life (NLV Financial) (on a consolidated basis)are located in the SAI. For a free copy of the SAI, call or write us at our Home Office. In addition, the SAI is available on the SECs website at http://www.sec.gov.
The Variable Account
The Variable Account was established by National Life on November 1, 1996, pursuant to the provisions of Vermont law.
National Life has caused the Variable Account to be registered with the SEC as a unit investment trust pursuant to the provisions of the Investment Company Act. Such registration does not involve supervision of the management of the Variable Account or National Life by the SEC.
The Variable Account is a separate investment account of National Life and, as such, is not chargeable with liabilities arising out of any other business National Life may conduct. National Life does not guarantee the investment performance of the Variable Account. Obligations under the Contracts are obligations of National Life. Income, gains and losses, whether or not realized, from the assets of the Variable Account are credited to or charged against the Variable Account without regard to other income, gains, or losses of National Life.
Net Premium Payments are allocated within the Variable Account among one or more Subaccounts made up of shares of the Fund options designated by the Owner. A separate Subaccount is established within the Variable Account for each of the Fund options.
We have claimed an exclusion from the definition of the term Commodity Pool Operator under the Commodity Exchange Act (the CEA) with respect to the Separate Account. Therefore, we are not subject to registration or regulation as a Commodity Pool Operator under the CEA with respect to the separate accounts.
The Funds
You may choose from among a number of different Subaccount options. The investment experience of each of the Subaccounts depends on the investment performance of the underlying Fund.
The investment objectives and policies of certain Funds are similar to the investment objectives and policies of other mutual funds that may be managed by the same investment adviser or manager. The investment results of the Funds, however, may be higher or lower
than the results of such other funds. 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 funds, even if the other fund has the same investment adviser or manager.
The Variable Account purchases and redeems shares of the Funds at net asset value. The Variable Account automatically reinvests all dividend and capital gain distributions of the Funds in shares of the distributing Funds at their net asset value on the date of distribution. In other words, the Variable Account does not pay Fund dividends or Fund distributions out to you as additional units, but instead reflects them in unit values.
Before choosing to allocate your Premium Payments and Contract Value, carefully read the prospectus for each Fund, along with this prospectus. There is no assurance that any of the Funds will meet their investment objectives. We do not guarantee any minimum value for the amounts allocated to the Variable Account. You bear the investment risk of investing in the Funds. There is no assurance that the Fidelity Variable Insurance Products Fund V Government Money Market Fund (the Fidelity Money Market Portfolio) will be able to maintain a stable net asset value per share. You should know that during extended periods of low interest rates, and partly as a result of contract charges, the yields of the Fidelity Money Market Portfolio in which a Subaccount invests (the Money Market Subaccount) may also become extremely low and possibly negative.
Not all Funds may be available in all states or in all markets.
The following table provides certain information on each Fund, including its fund type, and its investment adviser (and subadviser, if applicable). There is no assurance that any of the Funds will achieve their investment objective(s). Certain portfolios may employ hedging strategies to provide for downside protection during a sharp decline in the equity markets. The cost of those hedging strategies could limit the upside participation by such portfolios in rising equity markets relative to other portfolios. Please consult your registered representative. You can find detailed information about the Funds, including a description of risks and expenses, in the prospectuses for the Funds. You should read these prospectuses carefully before investing and keep them for future reference.
Fund |
|
Type of Fund |
|
Investment Adviser |
|
Subadviser |
Sentinel Variable Products Trust: |
|
|
|
|
|
|
Common Stock Fund |
|
Large Blend Equity |
|
Sentinel Asset Management, Inc. |
|
None |
Mid Cap Fund(1) |
|
Mid Cap Growth Equity |
|
Sentinel Asset Management, Inc. |
|
None |
Small Company Fund |
|
Small Growth Equity |
|
Sentinel Asset Management, Inc. |
|
None |
Bond Fund |
|
Investment-Grade Bond |
|
Sentinel Asset Management, Inc. |
|
None |
Balanced Fund |
|
Hybrid Equity and Debt |
|
Sentinel Asset Management, Inc. |
|
None |
The Alger Portfolios: |
|
|
|
|
|
|
Capital Appreciation Portfolio - Class O Shares |
|
Growth Equity |
|
Fred Alger Management, Inc. |
|
None |
Large Cap Growth Portfolio - Class O Shares |
|
Large Growth Equity |
|
Fred Alger Management, Inc. |
|
None |
Small Cap Growth Portfolio - Class O Shares |
|
Small Growth Equity |
|
Fred Alger Management, Inc. |
|
None |
AB Variable Products Series Fund, Inc.: |
|
|
|
|
|
|
International Growth Class A Shares |
|
International Equity |
|
AllianceBernstein L.P. |
|
None |
International Value Class A Shares |
|
International Equity |
|
AllianceBernstein L.P. |
|
None |
Small/Mid Cap Value Class A Shares |
|
Small Mid Value Equity |
|
AllianceBernstein L.P. |
|
None |
Value Class A Shares |
|
Large Value Equity |
|
AllianceBernstein L.P. |
|
None |
American Century Variable Portfolios, Inc.: |
|
|
|
|
|
|
VP Income & Growth Portfolio - Class I |
|
Large Value Equity |
|
American Century Investment Management, Inc. |
|
None |
VP Inflation Protection Portfolio - Class I |
|
Fixed Income |
|
American Century Investment Management, Inc. |
|
None |
VP International Portfolio - Class I |
|
International Equity |
|
American Century Investment |
|
None |
(1) As of the date of this Prospectus, the Sentinel Variable Products Mid Cap Fund is soliciting shareholder proxies for a shareholder meeting to be held on May 23, 2016 to vote on a proposal to reorganize with and into the Sentinel Variable Products Small Company Fund. If shareholders approve the proposal, it is anticipated that the Reorganization will occur on or about June 17, 2016.
|
|
|
|
Management, Inc. |
|
|
VP Ultra® Portfolio - Class I |
|
Large Growth Equity |
|
American Century Investment Management, Inc. |
|
None |
VP Value Portfolio - Class I |
|
Mid Cap Value Equity |
|
American Century Investment Management, Inc. |
|
None |
Dreyfus Variable Investment Fund |
|
|
|
|
|
|
Appreciation Portfolio - Initial Shares |
|
Large Blend |
|
The Dreyfus Corporation |
|
Fayez Sarofim & Co. |
Opportunistic Small Cap Portfolio - Initial Shares |
|
Aggressive Growth |
|
The Dreyfus Corporation |
|
None |
Quality Bond Portfolio - Initial Shares |
|
Investment Grade Bond |
|
The Dreyfus Corporation |
|
None |
Dreyfus Socially Responsible Growth Fund, Inc. - Initial Shares |
|
Large Cap Growth |
|
The Dreyfus Corporation |
|
None |
Deutsche Variable Series II: |
|
|
|
|
|
|
Deutsche Large Cap Value VIP - Class B Shares |
|
Large Value |
|
Deutsche Investment Management Americas, Inc. |
|
Deutsche Asset Management International GmbH (DeAMi) |
Deutsche Small Mid Cap Value VIP - Class B Shares |
|
Small Cap Value |
|
Deutsche Investment Management Americas, Inc. |
|
Deutsche Asset Management International GmbH (DeAMi) |
Deutsche Investments VIT Funds: |
|
|
|
|
|
|
Small Cap Index VIP - Class A Shares |
|
Small Index Equity |
|
Deutsche Investment Management Americas, Inc. |
|
Northern Trust Investments, Inc. |
Fidelity® Variable Insurance Products |
|
|
|
|
|
|
VIP Contrafund® Portfolio - Initial Class |
|
Large Growth Equity |
|
Fidelity Management & Research Company (FMR) |
|
FMR Co., Inc. (FMRC) and other affiliates of FMR |
VIP Equity-Income Portfolio - Initial Class |
|
Large Value Equity |
|
Fidelity Management & Research Company (FMR) |
|
FMR Co., Inc. (FMRC) and other affiliates of FMR |
VIP Growth Portfolio - Initial Class |
|
Large Growth Equity |
|
Fidelity Management & Research Company (FMR) |
|
FMR Co., Inc. (FMRC) and other affiliates of FMR |
VIP High Income Portfolio - Initial Class |
|
Below Investment Grade Bond |
|
Fidelity Management & Research Company (FMR) |
|
FMR Co., Inc. (FMRC) and other affiliates of FMR |
VIP Index 500 Portfolio - Initial Class |
|
Index Equity |
|
Fidelity Management & Research Company (FMR) |
|
Geode Capital Management, LLC (Geode®) and FMR Co., Inc. (FMRC) |
VIP Investment Grade Bond Portfolio - Initial Class |
|
Investment Grade Bond |
|
Fidelity Management & Research Company (FMR) |
|
FMR Co., Inc. (FMRC) and other affiliates of FMR |
VIP Mid Cap Portfolio - Initial Class |
|
Mid Cap Blend |
|
Fidelity Management & Research Company (FMR) |
|
FMR Co., Inc. (FMRC) and other affiliates of FMR |
VIP Government Money Market Portfolio - Service Class |
|
Money Market |
|
Fidelity Management & Research Company (FMR) |
|
Fidelity Investments Money |
|
|
|
|
|
|
Management, Inc. (FIMM) and other affiliates of FMR |
Overseas Portfolio - Initial Class |
|
International Equity |
|
Fidelity Management & Research Company (FMR) |
|
FMR Co., Inc. (FMRC) and other affiliates of FMR |
Value Strategies Portfolio - Initial Class |
|
Value Equity |
|
Fidelity Management & Research Company (FMR) |
|
FMR Co., Inc. (FMRC) and other affiliates of FMR |
Franklin Templeton Variable Insurance Products Trust |
|
|
|
|
|
|
Templeton Foreign VIP Fund - Class 2 Shares |
|
Foreign |
|
Templeton Investment Counsel, LLC |
|
None |
Franklin Global Real Estate VIP Fund - Class 2 Shares |
|
Sector Equity |
|
Franklin Advisors, Inc. |
|
None |
Franklin Mutual Shares VIP Fund - Class 2 Shares |
|
Mid Cap Value |
|
Franklin Mutual Advisors, LLC |
|
None |
Franklin Small Cap Value VIP Fund - Class 2 Shares |
|
Small Cap Value |
|
Franklin Advisory Services, LLC |
|
None |
Franklin Small-Mid Cap Growth VIP Fund - Class 2 Shares |
|
Small-Mid Cap Growth |
|
Franklin Advisors, Inc. |
|
None |
Franklin U.S. Government VIP Fund - Class 1 Shares |
|
Government Bond |
|
Franklin Advisors, Inc. |
|
None |
Franklin Global Discovery VIP Fund - Class 1 Shares |
|
Value Equity |
|
Franklin Mutual Advisors, LLC |
|
Franklin Templeton Investment |
Invesco Variable Insurance Funds: |
|
|
|
|
|
|
Invesco V.I. Mid Cap Growth Fund - Series I Shares |
|
Mid Cap Growth Equity |
|
Invesco Advisers Inc. |
|
None |
Invesco V.I. Global Health Care Fund - Series I Shares |
|
Sector Equity |
|
Invesco Advisers Inc. |
|
None |
Invesco V.I. Technology Fund - Series I Shares |
|
Sector Equity |
|
Invesco Advisers Inc. |
|
None |
JPMorgan Insurance Trust: |
|
|
|
|
|
|
Small Cap Core Portfolio - Class 1 Shares |
|
Small Cap Blend Equity |
|
J.P. Morgan Investment Management Inc. |
|
None |
Neuberger Berman Advisers Management Trust |
|
|
|
|
|
|
Short Duration Bond Portfolio - I Class |
|
Short-Term |
|
Neuberger Berman Advisers LLC |
|
None |
Mid Cap Growth Portfolio - I Class |
|
Mid-Cap Growth Equity |
|
Neuberger Berman Advisers LLC |
|
None |
Large Cap Value Portfolio - I Class |
|
Large Value |
|
Neuberger Berman Advisers LLC |
|
None |
Mid Cap Growth Portfolio S Class Shares |
|
Mid Cap Growth Equity |
|
Neuberger Berman Advisers LLC |
|
Neuberger Berman LLC |
Socially Responsive Portfolio - I Class |
|
Mid Large Value Equity Socially Responsible |
|
Neuberger Berman Advisers LLC |
|
None |
Oppenheimer Variable Account Funds |
|
|
|
|
|
|
Capital Income Fund/VA - Service Shares |
|
Hybrid Equity and Debt |
|
OppenheimerFunds, Inc. |
|
None |
Main Street Small Cap Fund/VA - Service Shares |
|
Small Value Equity |
|
OppenheimerFunds, Inc. |
|
None |
Global Strategic Income Fund/VA - Service Shares |
|
Bond |
|
OppenheimerFunds, Inc. |
|
None |
T. Rowe Price Equity Series, Inc. |
|
|
|
|
|
|
Equity Income Portfolio II - Class II shares |
|
Large Value |
|
T. Rowe Price Associates, Inc. |
|
None |
Blue Chip Growth Portfolio II - Class II shares |
|
Large Growth |
|
T. Rowe Price Associates, Inc. |
|
None |
Health Sciences Portfolio II - Class II shares |
|
Sector Equity |
|
T. Rowe Price Associates, Inc. |
|
None |
Personal Strategy Balanced Portfolio |
|
Blend |
|
T. Rowe Price Associates, Inc. |
|
None |
Van Eck VIP Trust |
|
|
|
|
|
|
Unconstrained Emerging Markets Bond Fund - Initial Class |
|
Unconstrained Emerging Markets Bond |
|
Van Eck Associates Corporation |
|
None |
Emerging Markets Fund - Initial Class |
|
Foreign Equity |
|
Van Eck Associates Corporation |
|
None |
Global Hard Assets Fund - Initial Class |
|
Global Sector Equity |
|
Van Eck Associates Corporation |
|
None |
Wells Fargo Variable Trust |
|
|
|
|
|
|
Wells Fargo VT Discovery Fund - Class 2 Shares |
|
Mid Cap Growth Equity |
|
Wells Fargo Funds Management, LLC |
|
Wells Capital Management, Incorporated |
Wells Fargo VT Opportunity Fund - Class 2 Shares |
|
Mid Cap Blend |
|
Wells Fargo Funds Management, LLC |
|
Wells Capital Management, Incorporated |
Other Information
Contractual Arrangements. National Life has entered into or may enter into agreements with Funds pursuant to which the adviser or an affiliate pays National Life a fee based upon an annual percentage of the average net asset amount invested on behalf of the Variable Account and our other separate accounts in exchange for providing administration and other services to Owners on behalf of the Funds, which may include answering Owners questions about the Funds, providing prospectuses, shareholder reports and other Fund documents, providing Funds and their boards information about the Contracts and their operations and/or collecting voting instructions for Fund shareholder proposals. The amount of the compensation is based on a percentage of assets of the Funds attributable to the Contracts and certain other variable insurance products that National Life issues. These percentages may differ and we may be paid a greater percentage by some investment advisers or affiliates than others. The amount of this compensation with respect to the Contracts during 2015 ranged from $653.17 to $58,533.35 per adviser / affiliate, and the percentages of assets on which the fees are based ranged from 0.05% to 0.35% (this includes payments received in 2015 for services rendered in 2014). The availability of these types of arrangements creates an incentive for us to seek and offer Funds (and classes of shares of such Funds) that pay us to provide these services. The payments we receive as compensation for providing these services may be used by us for any corporate purpose, including payment of expenses (i) that we and our affiliates incur in promoting, issuing, marketing and administering the Contracts, and (ii) that we incur, in our role as intermediary, in promoting, marketing and administering a Fund. National Life may profit from these payments. For more information on the compensation we receive, see Contractual Arrangement between National Life and the Funds Investment Advisors or Distributors in the Statement of Additional Information.
Our affiliate, Equity Services, Inc. (ESI), the principal underwriter for the Contracts, will receive 12b-1 fees deducted from certain Fund assets pursuant to a 12b-1 plan. The 12b-1 plan is described in more detail in each Funds prospectus. Because 12b-1 fees are paid out of a Funds assets on an ongoing basis, over time they will increase the cost of an investment in Fund shares.
We select the Funds offered through this Contract based on several criteria, including asset class coverage, the alignment of the investment objectives of a Fund with our hedging strategy, the strength of the advisers or subadvisers reputation and tenure, brand recognition, performance, and the capability and qualification of each investment firm. Another factor we consider during the selection process is whether the Funds adviser or subadviser is one of our affiliates or whether the Fund, its adviser, its subadviser(s), or an affiliate will compensate us or our affiliates, as described above and in the Statement of Additional Information under Contractual Arrangements Between National Life And The Funds Investment Advisors Or Distributors. We review the Funds periodically and may remove a Fund or limit its availability to new Premium Payments and/or transfers of Contract Value if we determine that the Fund no longer meets one or more of the selection criteria, and/or if the Fund has not attracted significant allocations from Owners.
You bear the risk of any decline in the Contract Value of your Contract resulting from the performance of the Funds you have chosen.
Owners, through their indirect investment in the Funds, bear the costs of investment advisory or management and other fees that the Funds pay to their respective investment advisers, and in some cases, subadvisers and other service providers (see the Funds prospectuses for more information). As described above, an investment adviser (other than our affiliate, Sentinel Asset Management, Inc.) or subadviser to a Fund, or its affiliates, may make payments to us and/or certain of our affiliates. These payments may be derived, in whole or in part, from the advisory (and in some cases, subadvisory) or other fees deducted from Fund assets.
Conflicts of Interest. The Funds may also be available to registered separate accounts offering variable annuity and variable life products of other participating insurance companies, as well as to the Variable Account and other separate accounts of National Life. Although we do not anticipate any disadvantages to this, there is a possibility that a material conflict may arise between the interest of the Variable Account and one or more of the other separate accounts participating in the underlying Funds. A conflict may occur due to a change in law affecting the operations of variable life and variable annuity separate accounts, differences in the voting instructions of the Owners and those of other companies, or some other reason. In the event of conflict, we will take any steps necessary to protect Owners and variable annuity Payees, including withdrawal of the Variable Account from participation in the underlying Fund(s) involved in the conflict.
Change of Address Notification
To protect you from fraud and theft, National Life may verify any changes in address you request by sending a confirmation of the change to both your old and new address. National Life may also call you to verify the change of address.
Unclaimed or Abandoned Property
Every state has unclaimed property laws that generally declare annuity contracts to be abandoned after a period of inactivity of three to five years from the contracts maturity date or the date the death benefit is due and payable. For example, if the payment of a death benefit has been triggered, but, if after a thorough search, we are still unable to locate the beneficiary of the death benefit, or the beneficiary does not come forward to claim the death benefit in a timely manner, then the death benefit will be paid to the abandoned property division or unclaimed property office of the state in which the beneficiary or the contract owner last resided, as shown on our books and records, or to our state of domicile. This escheatment is revocable, however, and the state is obligated to pay the death benefit (without interest) if your beneficiary steps forward to claim it with the proper documentation. To prevent such escheatment, it is important that you update your Beneficiary designations, including addresses, if and as they change. Please call 1-800-732-8939 to make such changes.
DETAILED DESCRIPTION OF CONTRACT PROVISIONS
We describe our basic Contract below. There may be differences in your Contract (such as differences in fees, charges or benefits) from the one described in this prospectus because of the requirements of the state where we issued your Contract. Please consult your Contract for its specific terms.
Issuance of a Contract
This Contract is not available to new purchasers.
The Contract is available to Owners up to and including age 85, on an age on nearest birthday basis, on the Date of Issue. If the Contract is issued to Joint Owners, then the oldest Joint Owner must be 85 years of age or younger on the Date of Issue, again on an age on nearest birthday basis. If the Owner is not a natural person, then the age of the Annuitant must meet the requirements for Owners. At our discretion, we may issue Contracts at ages higher than age 85.
In order to purchase a Contract, an individual must forward an application to us through a licensed National Life agent who is also a registered representative of ESI, the principal underwriter of the Contracts, or another broker/dealer having a Selling Agreement with ESI or a broker/dealer having a Selling Agreement with such a broker/dealer.
If you are purchasing the Contract in connection with a tax-favored arrangement, including an IRA and a Roth IRA, you should carefully consider the costs and benefits of the Contract (such as annuitization benefits) before purchasing a Contract since the tax-favored arrangement itself provides for tax-sheltered growth.
You should not purchase this Contract if you plan to use it for speculation, arbitrage, viatication or any other type of collective investment scheme. Your Contract may not be traded on any stock exchange or secondary market. By purchasing this Contract, you represent and warrant that you are not using this Contract for speculation, arbitrage, viatication or any other type of collective investment trust.
Tax Free Section 1035 Exchanges. You can generally exchange one variable annuity contract for another in a tax-free exchange under Section 1035 of the Code. Before making the exchange, you should compare both contracts carefully. Remember that if you exchange another contract for the one described in this prospectus, you might have to pay a surrender charge on your old contract. There will be a new surrender charge period for this Contract and other charges might be higher (or lower) and the benefits may be different. If the exchange does not qualify for Section 1035 treatment, you may have to pay federal income and penalty taxes on the exchange. You should not exchange another contract for this one unless you determine, after knowing all the facts, that the exchange is in your best interests. You should be aware that your insurance agent will generally earn a commission if you buy this Contract through an exchange or otherwise.
Important Information About Procedures for Opening a New Account. To help the government fight the funding of terrorism and money laundering activities, Federal law requires all financial institutions to obtain, verify, and record information that identifies each person who opens an account.
What this means for you: When you open an account (i.e., purchase a Contract), we will ask for your name, address, date of birth and other information that will allow us to identify you. We may also ask to see your drivers license or other identifying documents.
Premium Payments
The Initial Premium Payment. The initial Premium Payment must be at least $5,000 for Non-Qualified Contracts, and must be at least $1,500 for Qualified Contracts. We may at our discretion permit initial Premium Payments lower than these minimums. For Contracts purchased in South Carolina, the initial Premium Payment for Qualified Contracts must be at least $3,000.
Subsequent Premium Payments. Subsequent Premium Payments may be made at any time, but must be at least $100 ($50 for IRAs). We may accept lower Premium Payments at our discretion if the Premium Payments are remitted electronically. Subsequent Premium Payments to the Variable Account will purchase Accumulation Units at the price next computed for the appropriate Subaccount after we receive the additional Premium Payment. For Contracts purchased in the State of Oregon prior to March 2, 2005, we are not permitted to accept subsequent Premium Payments on or after the third Contract Anniversary. We may accept subsequent premium payments on or after the third Contract Anniversary for new Contracts purchased in the State of Oregon. For Contracts purchased in the State of Massachusetts by Owners who were less than 60 at the time of purchase, we will not accept Premium Payments after the Owner attains the age of 63. For Contracts purchased in the State of Massachusetts by Owners who were 60 or older at the time of purchase, we will not accept Premium Payments after the third Contract Anniversary.
The total of all Premium Payments under Contracts issued on the life of any one Owner (or Annuitant if the owner is not a natural person) may not exceed $1,000,000 without our prior consent.
Transactions will not be processed on the following days: New Years Day, Presidents Day, Martin Luther King, Jr. Day, Good Friday, Memorial Day, Independence Day, Labor Day, Thanksgiving, and Christmas Day. Please remember that we must receive a transaction request in good order at our Home Office before the close of regular trading on the New York Stock Exchange, usually 4:00 p.m., Eastern Time, to process the transaction on that Valuation Day.
Allocation of Net Premium Payments. In the application for the Contract, the Owner will indicate how Net Premium Payments are to be allocated among the Subaccounts of the Variable Account, the Fixed Account and/or the Guaranteed Accounts. These allocations may be changed at any time by the Owner by written notice to us at our Home Office or, if the telephone transaction privilege has been elected, by telephone instructions (see Telephone Transaction Privilege, below); all such allocation instructions must be provided in good order. If you change the Contracts premium allocation percentages, Fund Rebalancing will automatically be discontinued unless you specifically direct otherwise. To allocate premiums other than to the existing allocation, the owner must submit a written request with clear direction separate from the check.
The percentages of Net Premium Payments that may be allocated to any Subaccount, the Fixed Account, or any Guaranteed Account must be in whole numbers of not less than 1%, and the sum of the allocation percentages must be 100%. We allocate the initial Net Premium Payment within two business days after receipt at our home office, if the application and all information necessary for processing the order are complete. We do not begin processing your purchase order until we receive the application and initial premium payment at our Home Office, identified on the first page of this prospectus, from your agents broker-dealer.
If the application is not properly completed, we retain the initial Premium Payment for up to five business days while attempting to complete the application. If the application is not complete at the end of the five day period, we inform the applicant of the reason for the delay and the initial Premium Payment will be returned immediately, unless the applicant specifically consents to our retaining the initial Premium Payment until the application is complete. Once the application is complete, we allocate the initial Net Premium Payment as designated by the Owner within two business days.
We allocate subsequent Net Premium Payments as of the Valuation Date we receive Net Premium Payments at our Home Office, based on your allocation percentages then in effect. Please note that if you submit your Premium Payment to your agent, we will not begin processing the Premium Payment until we have received it from your agents selling firm. At the time of allocation, we apply Net Premium Payments to the purchase of Fund shares. The net asset value of the shares purchased is converted into Accumulation Units.
When all or a portion of a premium payment is received without a clear subaccount designation or allocated to a subaccount that is not available for investment, we may allocate the undesignated portion or the entire amount, as applicable, into the Money Market Subaccount. You may at any time after the deposit direct us to redeem or exchange units in the Money Market Subaccount, which will be completed at the next appropriate net asset value. All transactions will be subject to any applicable fees or charges.
The Subaccount values will vary with their investment experience, and you bear the entire investment risk. You should periodically review your allocation percentages in light of market conditions and your overall financial objectives.
We offer a one-time credit in the amount of 3% of the initial Net Premium Payment to Owners whose initial Net Premium Payment comes from the surrender of an annuity contract issued by National Lifes affiliate, Life Insurance Company of the Southwest. We pay this credit after the free look right with respect to the Contract has expired.
Transfers
You may transfer the Contract Value among the Subaccounts of the Variable Account and among the Variable Account, the Fixed Account (subject to the limitations set forth below) and the Guaranteed Accounts by making a written transfer request. If you elect the telephone transaction privilege, you may make transfers by telephone. See Telephone Transaction Privilege, below. Transfers are made as of the Valuation Day that the request for transfer is received, in good order, at our Home Office. Please remember that a Valuation Day ends at the close of regular trading of the New York Stock Exchange, usually 4:00 p.m. Eastern Time. Transfers to or from the Subaccounts may be postponed under certain circumstances. See Payments, below. A market value adjustment will be applied to transfers out of a Guaranteed Account prior to its termination date. See The Guaranteed Accounts, below.
We currently allow transfers to the Fixed Account and the Guaranteed Accounts of all or any part of the Variable Account Contract Value, without charge or penalty. We reserve the right to restrict transfers to the Fixed Account and/or the Guaranteed Accounts to 25% of the Variable Account Contract Value during any Contract Year. For Contracts issued in Massachusetts only, we will enforce the above restrictions on your ability to move Contract Value into the Fixed Account and the Guaranteed Accounts only when the yield on investment would not support the statutory minimum interest rate. In addition, we will enforce these restrictions only in a manner that would not be unfairly discriminatory.
You may, one time each year between January 1st and February 15th, transfer a portion of the unloaned value in the Fixed Account to the Variable Account. We reserve the right to restrict this transfer to 10% of the Contract Value in the Fixed Account (25% in New York). After a transfer from the Fixed Account to the Variable Account or a Guaranteed Account, we reserve the right to require that the value transferred remain in the Variable Account or a Guaranteed Account for at least one year before it may be transferred back to the Fixed Account. Because of the Fixed Accounts transfer restrictions, it may take you several years to transfer all of your Accumulated Value in the Fixed Account to a Guaranteed Account or to the Subaccounts of the Variable Account. You should carefully consider whether the Fixed Account and a Guaranteed Account meet your investment criteria.
For Contracts issued after July 1, 2004, where this provision has been approved by your state insurance regulator, if you transfer Contract Value out of any Guaranteed Account, you may not transfer Contract Value back into any Guaranteed Account until one year has elapsed from the time of the transfer out of a Guaranteed Account.
We do not permit transfers between the Variable Account and the Fixed Account after the Annuitization Date.
We have no current intention to impose a transfer charge. However, we reserve the right, upon prior notice, to impose a transfer charge of $25 for each transfer in excess of 12 transfers in any one Contract Year. We may do this if the expense of administering transfers becomes burdensome. See Transfer Charge, below.
Disruptive Trading
Policy. The Contracts are intended for long-term investment by Owners. They were not designed for the use of market timers or other investors who make similar programmed, large, frequent, or short-term transfers. Market timing and other programmed, large, frequent, or short-term transfers among the Subaccounts or between the Subaccounts and the Fixed Account or a Guaranteed Account can cause risks with adverse effects for other Owners (and beneficiaries and Funds). These risks include:
· the dilution of interests of long-term investors in a subaccount if purchases or transfers into or out of a Fund are made at prices that do not reflect an accurate value for the Funds investments;
· an adverse effect on Fund management, such as impeding a Fund managers ability to sustain an investment objective, causing a Fund to maintain a higher level of cash than would otherwise be the case, or causing a Fund to liquidate investments prematurely (or at an otherwise inopportune time) to pay withdrawals or transfers out of the Fund; and
· increased brokerage and administrative expenses.
The risks and costs are borne by all Owners invested in those Subaccounts, not just those making the transfers.
We have developed policies and procedures with respect to market timing and other transfers (the Procedures) and we do not make special arrangements or grant exceptions to accommodate market timing or other potentially disruptive or harmful trading. Do not invest in this Contract if you intend to conduct market timing or other potentially disruptive trading.
Detection. We employ various means to attempt to detect and deter market timing and disruptive trading. However, despite our monitoring, we may not be able to detect or stop all harmful trading. In addition, because other insurance companies (and retirement plans) with different policies and procedures may invest in the Funds, we cannot guarantee that all harmful trading will be detected or that a Fund will not suffer harm from programmed, large, frequent, or short-term transfers among the Subaccounts of variable products issued by these companies or retirement plans.
Deterrence. Once an Owner has been identified as a market timer under the Procedures, we notify the Owner that we will not accept instructions for such market timing or other similar programmed, large, frequent or short-term transfers in the future. We also will mark the Contract on our administrative system so that the system will have to be overridden by the Variable Products services staff to process any transfers. We will only permit the Owner to make transfers when we believe the Owner is not market timing.
In our sole discretion, we may revise the Procedures at any time, without prior notice, as necessary to (i) better detect and deter frequent, large, or short-term transfers that may adversely affect other Owners or Fund shareholders, (ii) comply with state or federal regulatory requirements, or (iii) impose additional or alternate restrictions on market timers (such as dollars or percentage limits on transfers). We also reserve the right, to the extent permitted or required by applicable law, to (1) implement and administer redemption fees imposed by one or more Funds in the future, (2) deduct redemption fees imposed by the Funds, and (3) suspend the transfer privilege at any time we are unable to purchase or redeem shares of the Funds. We may be required to share personal information about you with the Funds.
We currently do not impose redemption fees on transfers. Further, for transfers between or among the Subaccounts, we currently do not expressly allow a certain number of transfers in a given period or limit the size of transfers in a given period. Redemption fees, transfer limits, and other procedures or restrictions may be more or less successful than our Procedures in deterring market timing or other disruptive trading and in preventing or limiting harm from such trading.
Our ability to detect and deter such transfer activity is limited by our operational and technological systems, as well as by our ability to predict strategies employed by Owners (or those acting on their behalf) to avoid detection. Accordingly, despite our best efforts, we cannot guarantee that the Procedures will detect or deter frequent or harmful transfers by such Owners or intermediaries acting on their behalf. We apply the Procedures consistently to all Owners without waiver or exception.
Fund Frequent Trading Policies. The Funds may have adopted their own policies and procedures with respect to frequent purchases and redemptions of their respective shares. The prospectuses for the Funds describe any such policies and procedures. The frequent trading policies and procedures of a Fund may be different, and more or less restrictive, than the frequent trading policies and procedures of other Funds and the policies and procedures we have adopted to discourage market timing and other programmed, large, frequent, or short-term transfers. You should be aware that we may not have the operational capacity to apply the frequent trading policies and procedures of the respective Funds that would be affected by the transfers. Accordingly, Owners and other persons who have material rights under the Contracts should assume that the sole protections they may have against potential harm from frequent transfers are the protections, if any, provided by the Procedures.
Owners should be aware that we are required to provide to a portfolio or its designee, promptly upon request, certain information about the trading activity of individual Owners, and to restrict or prohibit further purchases or transfers by specific Owners identified by a portfolio as violating the frequent trading policies established for that portfolio. If we do not process a purchase because of such restriction or prohibition, we may return the premium to the Owner, place the premium in the Money Market Subaccount until we receive further instruction from the Owner and/or replace the restricted or prohibited Subaccount with the Money Market Subaccount in the Owners default allocation until we receive further instructions from the Owner.
Omnibus Orders. Owners and other persons with material rights under the Contracts also should be aware that the purchase and redemption orders received by the Funds generally are omnibus orders from intermediaries such as retirement plans and separate accounts funding variable insurance contracts. The omnibus orders reflect the aggregation and netting of multiple orders from individual owners of variable insurance contracts and individual retirement plan participants. The omnibus nature of these orders may limit each Funds ability to apply its respective frequent trading policies and procedures. We cannot guarantee that the Fund will not be harmed by transfer activity relating to the retirement plans or other insurance companies that may invest in the Funds. These other insurance companies are responsible for their own policies and procedures regarding frequent transfer activity. If their policies and procedures fail to successfully discourage harmful transfer activity, it will affect other owners of Fund shares, as well as the owners of all of the variable annuity or variable life insurance policies whose variable investment options correspond to the affected Funds. In addition, if a Fund believes that an omnibus order we submit may reflect one or more transfer requests from Owners engaged in market timing and other programmed, large, frequent, or short-term transfers, the Fund may reject the entire omnibus order and thereby delay or prevent us from implementing your request.
As a result of our discretion to permit Owners previously identified as market timers to make transfers that we do not believe involve market timing, and as a result of operational and technological limitations, differing fund procedures, and the omnibus nature of purchase and redemption orders, some Owners may still be able to engage in market timing, while other Owners bear any adverse effects of that market timing activity. To the extent we are unable to detect and deter market timing or other similar programmed, large, frequent, or short-term transfers, the performance of the Subaccount and the Fund could be adversely affected, including by (1) requiring the Fund to maintain larger amounts of cash or cash-type securities than the Funds manager might otherwise choose to maintain or to liquidate Fund holdings at disadvantageous times, thereby increasing brokerage, administrative, and other expenses and (2) diluting returns to long-term shareholders.
Value of a Variable Account Accumulation Unit
We set the value of a Variable Account Accumulation Unit for each Subaccount at $10 when the Subaccounts commenced operations. We determine the value for any subsequent Valuation Period by multiplying the value of an Accumulation Unit for each Subaccount for the immediately preceding Valuation Period by the Net Investment Factor for the Subaccount during the subsequent Valuation Period. The value of an Accumulation Unit may increase or decrease from Valuation Period to Valuation Period. No minimum value of an Accumulation Unit is guaranteed. The number of Accumulation Units will not change as a result of investment experience.
Net Investment Factor. Each Subaccount of the Variable Account has its own Net Investment Factor.
The Net Investment Factor measures the daily investment performance of that Subaccount.
The Net Investment Factor may be greater or less than one; therefore, the value of an Accumulation Unit may increase or decrease.
Changes in the Net Investment Factor may not be directly proportional to changes in the net asset value of Fund shares because of the deduction for the Mortality and Expense Risk Charge and Administration Charge.
Fund shares are valued at their net asset value. The Net Investment Factor allows for the monthly reinvestment of daily dividends that are credited by some Funds (e.g., the Fidelity Money Market Portfolio).
Determining the Contract Value.
The Contract Value is the sum of:
1) the value of all Variable Account Accumulation Units, plus
2) amounts allocated and credited to the Fixed Account, plus
3) amounts allocated and credited to a Guaranteed Account, minus
4) any outstanding loans on the Contract and accrued interest on such loans.
When charges or deductions are made against the Contract Value, we deduct an appropriate number of Accumulation Units from the Subaccounts and an appropriate amount from the Fixed Account in the same proportion that your interest in the Subaccounts and the unloaned value in the Fixed Account bears to the total Contract Value. We will not deduct charges or deductions from a Guaranteed Account unless there is not sufficient Contract Value in the Subaccounts of the Variable Account and in the Fixed Account. If we need to deduct charges or deductions from the Guaranteed Accounts, we will do so pro rata from all Guaranteed Accounts, and within Guaranteed Accounts of the same duration, on a first-in-first-out basis; that is, the Contract Value with the earliest date of deposit will be deducted first. Value held in the Fixed Account and the Guaranteed Accounts is not subject to Variable Account charges
(Mortality and Expense Risk and Administration Charges), but may be subject to CDSCs, the Annual Contract Fee, optional Enhanced Death Benefit Rider charge, and premium taxes, if applicable.
Annuitization
Maturity Date. The Maturity Date is the date on which annuity payments are scheduled to begin. You may indicate the Maturity Date on the application. The earliest Maturity Date must be at least 2 years after the Date of Issue, unless otherwise approved (10 years after the Date of Issue in the States of Oregon and Massachusetts). If no specific Maturity Date is selected, the Maturity Date will be your 90th birthday, the 90th birthday of the oldest of Joint Owners, or the Annuitants 90th birthday if the Owner is not a natural person; or, if later, 10 years after the Date of Issue. You may elect a single payment equal to the Cash Surrender Value on the Maturity Date, rather than annuity payments. You may also settle the contract under a Payment Option prior to the scheduled maturity date. You may contact either your Registered Representative or the Home Office for requirements to settle the Contract. Please note that payment of any amount in excess of Contract Value is subject to the financial strength and claims-paying ability of National Life.
If you request in writing (see Ownership Provisions, below), and we approve the request, the Maturity Date may be accelerated or deferred. However, we will not permit an acceleration of a Contracts Maturity Date to any date before the 30-day window prior to the termination date of any Guaranteed Account held by the Contract. If an Owner of such a Contract desires to accelerate that Contracts Maturity Date, the Owner must first transfer the Contract Value in all Guaranteed Accounts the termination dates of which would occur more than 30 days after the accelerated Maturity Date into the Fixed Account or the Variable Account. A market value adjustment will be applied to such Contract Value transferred out of the Guaranteed Accounts. See The Guaranteed Accounts, below.
Election of Payment Options. You may, with prior written notice (in good order) and at any time prior to the Annuitization Date, elect one of the Annuity Payment Options. We apply the Contract Value in each Subaccount (less any premium tax previously unpaid) to provide a Variable Annuity payment. We apply the Contract Value in the Fixed Account (less any premium tax previously unpaid) to provide a Fixed Annuity payment.
If an election of an Annuity Payment Option is not on file with National Life on the Annuitization Date, we will pay the proceeds as Option 3 - Payments for Life with 120 months certain. You may elect, revoke or change an Annuity Payment Option at any time before the Annuitization Date with 30 days prior written notice. The Annuity Payment Options available are described below.
Frequency and Amount of Annuity Payments. The amount of your annuity payment depends in part on the frequency and duration of annuity payments. If you would like the amount of your annuity payments to be as large as possible, you should select an option that pays less frequently and for a shorter duration. On the other hand, if it is important for you to receive annuity payments as often and for as long a time period as possible, you should select an annuity payment option that pays more frequently and for a longer period of time. Please note that, in general, the more frequent or the longer the duration is for annuity payments, the smaller the amount that each annuity payment will be. We pay annuity payments as monthly installments, unless you select annual, semi-annual or quarterly installments. If the amount to be applied under any Annuity Payment Option is less than $3,500, we have the right to pay such amount in one lump sum in lieu of the payments otherwise selected. In addition, if the payments selected would be or become less than $100, we have the right to change the frequency of payments that will result in payments of at least $100. In no event will we make payments under an annuity option less frequently than annually.
Annuitization - Variable Account
We will determine the dollar amount of the first Variable Annuity payment by dividing the Variable Account Contract Value on the Annuitization Date by 1,000 and applying the result as set forth in the applicable Annuity Table. The amount of each Variable Annuity payment depends on the age of the Chosen Human Being on his or her birthday nearest the Annuitization Date, and the sex of the Chosen Human Being, if applicable, unless otherwise required by law.
Variable Annuity payments vary in amount in accordance with the investment performance of the Variable Account. The following steps are taken to establish the number of Annuity Units representing each monthly annuity payment:
· The dollar amount of the first annuity payment as determined above is divided by the value of an Annuity Unit on the Annuitization Date;
· The number of Annuity Units remains fixed during the annuity payment period;
· The dollar amount of the second and subsequent payments is not predetermined and may change from payment to payment; and
· The dollar amount of each subsequent payment is determined by multiplying the fixed number of Annuity Units by the value of an Annuity Unit for the Valuation Period in which the payment is due.
Once payments have begun, future payments will not reflect any changes in mortality experience.
Value of an Annuity Unit. The value of an Annuity Unit for a Subaccount is set at $10 when the first Fund shares are purchased. The value of an Annuity Unit for a Subaccount for any subsequent Valuation Period is determined by multiplying the value of an Annuity Unit for the immediately preceding Valuation Period by the applicable Net Investment Factor for the Valuation Period for which the value of an Annuity Unit is being calculated and multiplying the result by an interest factor to neutralize the assumed investment rate of 3.5% per annum (see Net Investment Factor, above).
Assumed Investment Rate. A 3.5% Assumed Investment Rate is built into the Annuity Tables contained in the Contracts. We may make assumed investment rates available at rates other than 3.5%. A higher assumption would mean a higher initial payment but more slowly rising or more rapidly falling subsequent payments. A lower assumption would have the opposite effect. If the actual investment return, as measured by the Net Investment Factor, is at a constant annual rate of 3.5%, the annuity payments will be level.
Annuitization - Fixed Account
A Fixed Annuity is an annuity with payments that are guaranteed as to dollar amount during the annuity payment period. We determine the amount of the periodic Fixed Annuity payments by applying the Fixed Account Contract Value to the applicable Annuity Table in accordance with the Annuity Payment Option elected. This is done at the Annuitization Date using the age of the Chosen Human Being on his or her nearest birthday, and the sex of the Chosen Human Being, if applicable. The applicable Annuity Table will be based on our expectation of investment earnings, expenses and mortality (if payments depend on whether the Chosen Human Being is alive) on the Annuitization Date. The applicable Annuity Table will provide a periodic Fixed Annuity payment at least as great as the guarantee described in your Contract.
We do not credit discretionary interest to Fixed Annuity payments during the annuity payment period for annuity options based on life contingencies. The Annuitant must rely on the Annuity Tables applicable to the Contracts to determine the amount of Fixed Annuity payments.
Annuity Payment Options
Any of the following Annuity Payment Options may be elected:
Option 1-Payments for a Stated Time. We will make monthly payments for the number of years selected, which may range from 5 years to 30 years.
Option 2-Payments for Life. An annuity payable monthly during the lifetime of a Chosen Human Being (who may be named at the time of election of the Payment Option), ceasing with the last payment due prior to the death of the Chosen Human Being. It would be possible under this option for the Payee to receive only one annuity payment if the annuitant dies before the second annuity payment date, two annuity payments if the Annuitant dies before the third annuity payment date, and so on.
Option 3-Payments for Life with Period Certain-Guaranteed. For an annuity that if at the death of the Chosen Human Being payments have been made for less than 10 or 20 years, as selected, we guarantee to continue annuity payments during the remainder of the selected period.
We may allow other Annuity Payment Options, including, if applicable, the Stretch Annuity Payment Option described below.
Some of the stated Annuity Payment Options may not be available in all states. You may request an alternative non-guaranteed option by giving notice in writing prior to Annuitization. If a request is approved by us, it will be permitted under the Contract.
Qualified Contracts (except Roth IRAs before the Owners death) are subject to the minimum distribution requirements set forth in the Code. Payment Option 1 may not satisfy these requirements. Please consult a tax advisor.
Under Payment Option 1, you may change to any other Payment Option at any time. At the time of the change, remaining value will be applied to the new Payment Option to determine the amount of the new payments. Under Payment Option 1, you may also fully surrender the Contract at any time. Upon surrender in this situation, the Owner will receive the remaining value of the Contract, which is the value of the Contract used to determine the most recent payment amount, adjusted for investment performance through the date of surrender. Surrender is subject to any applicable CDSC at the time of the surrender.
Stretch Annuity Payment Option
We offer the Stretch Annuity Payment Option to Contracts that have paid Net Premium Payments, less any Withdrawals (including the impact of any CDSC associated with such Withdrawals), of at least $25,000 per beneficiary participating in the payment option.
Under this payment option, we will make annual payments for a period determined by the joint life expectancy of an initial Payee and a beneficiary, as calculated based on Table VI of Section 1.72-9 of the Income Tax Regulations (but if the Contract is a Qualified Contract, no less than the minimum required distribution under the Code). The beneficiary may be a much younger person than the initial Payee, such as a grandchild, so that under this payment option, payments may be made over a lengthy period of years.
Please consult your authorized National Life representative for more information on the Stretch Annuity Payment Option.
You should consult your tax advisor about potential income, gift, estate and generation-skipping transfer tax consequences of electing the Stretch Annuity Payment Option.
Death of Owner
If you or a Joint Owner dies prior to the Annuitization Date, then we will pay (unless the Enhanced Death Benefit Rider has been elected) a Death Benefit to the Beneficiary.
The Contract provides that if you or a Joint Owner dies prior to the Contract Anniversary on which your age, on an age on nearest birthday basis, is 81, the Death Benefit will be equal to the greater of:
(a) the Contract Value, or
(b) the Net Premium Payments made to the Contract, minus all Withdrawals (including any CDSC deducted in connection with such Withdrawals), and minus any outstanding loans on the Contract and accrued interest, and adjusted such that if you effect a Withdrawal (including a systematic Withdrawal) at a time when the Contract Value is less than the amount of the Death Benefit that would then be payable to you, the Death Benefit will be reduced by the same proportion that the Withdrawal reduces the Contract Value (this adjustment will have the effect of reducing the Death Benefit by more than the amount of the Withdrawal, where a Withdrawal is taken at a time when the Death Benefit is greater than the Contract Value), and
(c) in each case minus any applicable premium tax charge to be assessed upon distribution.
Please note that payment of any amount in excess of Contract Value is subject to the financial strength and claims-paying ability of National Life.
For Contracts issued prior to November 1, 2003 only, or if your state approved the adjustment referred to in (b) above for cases where a Withdrawal is taken at a time when the Death Benefit is greater than the Contract Value after that date, or has not yet approved that adjustment, that adjustment will not be made. In the case of these Contracts, a Withdrawal will reduce the Death Benefit only by the amount of the Withdrawal.
The Contract further provides that if you die after the Contract Anniversary on which your age, on an age nearest birthday basis, is 81 (or in the case of Joint Owners, where the first of Joint Owners to die dies after the Contract Anniversary on which the age of the oldest Joint Owner, on an age on nearest birthday basis, is 81), then the Death Benefit shall be equal to the Contract Value, minus any applicable premium tax charge.
For Contracts issued prior to November 1, 2003 only, we are currently providing a Death Benefit that is equal to the greater of (a) or (b) above even if you die after the Contract Anniversary on which your age, on an age nearest birthday basis, is 81, as long as your age, on an age on nearest birthday basis, was less than 81 on the Date of Issue of the Contract. We currently intend to pay this Death Benefit even though its terms are more favorable to you than what is guaranteed in the Contract. We will notify you if we discontinue this Death Benefit.
Unless the Beneficiary is the deceased or the Owners (or Joint Owners) spouse (as defined under Federal law), the Death Benefit must be distributed within five years of such Owners death. The Beneficiary may elect to receive Distribution in the form of a life annuity or an annuity for a period not exceeding his or her life expectancy. Such annuity must begin within one year following the date of the Owners death and is currently available only as a Fixed Annuity. If the Beneficiary is the spouse of the deceased Owner (or, if applicable, a Joint Owner), then the Contract may be continued without any required Distribution. If the deceased Owner (or
Joint Owner) and the Annuitant are the same person, the death of that person will be treated as the death of the Owner for purposes of determining the Death Benefit payable.
The right of a spouse to continue the Contract, and all Contract provisions relating to spousal continuation are available only to a person who meets the definition of spouse under Federal law. The U.S. Supreme Court has held that same-sex marriages must be permitted under state law and that marriages recognized under state law will be recognized for federal law purposes. Domestic partnerships and civil unions that are not recognized as legal marriages under state law, however, will not be treated as marriages under federal law. Consult a tax adviser for more information on this subject.
Qualified Contracts may be subject to specific rules set forth in the Plan, Contract, or Code concerning Distributions upon the death of the Owner.
Death of Annuitant Prior to the Annuitization Date
If an Annuitant who is not an Owner dies prior to the Annuitization Date, a Death Benefit equal to the Cash Surrender Value of the Contract will be payable to the Beneficiary. If the Owner is a natural person and a contingent Annuitant has been named or the Owner names a contingent Annuitant within 90 days of the Annuitants death, the Contract may be continued without any required Distribution. If no Beneficiary is named (or if the Beneficiary predeceases the Annuitant), then the Death Benefit will be paid to the Owner. If the Owner is not a natural person, then the death of the Annuitant will be treated as if it were the death of the Owner, and the disposition of the Contract will follow the death of the Owner provisions set forth above.
In any case where a Death Benefit is paid, the value of the Death Benefit will be determined as of the Valuation Day coinciding with or next following the date we receive, in good order, at our Home Office in writing:
· due proof of the Annuitants or an Owners (or Joint Owners) death;
· an election for either a single sum payment or an Annuity Payment Option (currently only Fixed Annuities are available in these circumstances); and
· any form required by state insurance laws.
If a single sum payment is requested, we will make payment in accordance with any applicable laws and regulations governing the payment of Death Benefits. If an Annuity Payment Option is requested, the Beneficiary must make an election during the 90-day period commencing with the date we receive written notice and as otherwise required by law. If no election has been made by the end of such 90-day period commencing with the date we receive written notice or as otherwise required by law the Death Benefit will be paid in a single sum payment.
If you or your Beneficiary elect to receive proceeds in a lump sum payment, unless the Beneficiary requests a National Life check, we will place the proceeds into an interest bearing special account maintained by a financial institution and retained by us in our General Account. In that case, we will send you or your Beneficiary a draftbook; you or your Beneficiary can access funds from the special account by writing a draft for all or a portion of the Death Benefit proceeds. We fund the draft writing privileges. The interest bearing special account is not a bank account and is subject to the claims of our creditors. The interest bearing special account is not insured nor guaranteed by the FDIC or any other government agency. We will send the payee the draftbook within seven days of when we placed the proceeds into the special account, and the payee will receive any interest on the proceeds placed in the special account. There is no guaranteed rate of interest credited to the proceeds placed in the special account. However, any interest credited to the special interest bearing account will be currently taxable to you or your Beneficiary in the year in which it is credited. We may make a profit on all amounts left in the interest bearing special account.
Generation-Skipping Transfers
We may determine whether the Death Benefit or any other payment constitutes a direct skip as defined in Section 2612 of the Code, and the amount of the tax on the generation-skipping transfer resulting from such direct skip. If applicable, the payment will be reduced by any tax National Life is required to pay by Section 2603 of the Code.
A direct skip may occur when property is transferred to or a Death Benefit is paid to an individual two or more generations younger than the Owner.
Ownership Provisions
Unless otherwise provided, the Owner has all rights under the Contract. If the purchaser names someone other than himself or herself as owner, the purchaser will have no rights under the contract. If Joint Owners are named, each Joint Owner possesses an undivided interest in the Contract. The death of any Joint Owner triggers the provisions of the Contract relating to the death of the Owner. Unless otherwise provided, when Joint Owners are named, the exercise of any ownership right in the Contract (including the right to surrender the Contract or make a Withdrawal, to change the Owner, the Annuitant, a Contingent Annuitant, the Beneficiary, the Annuity Payment Option or the Maturity Date) requires a written indication of an intent to exercise that right, signed by all Joint Owners.
Prior to the Annuitization Date, the Owner may name a new Owner. Such change may be subject to state and federal gift taxes, and may also result in current federal income taxation (see Federal Income Tax Considerations, below). Any change of Owner will automatically revoke any prior Owner designation. Any request for change of Owner must be in good order(1) made by proper written application, (2) received and recorded by National Life at its Home Office, and (3) may include a signature guarantee as specified in the Surrender and Withdrawal provision below. The change is effective on the date the written request is signed. A new choice of Owner will not apply to any payment made or action we take prior to the time the request for change was received (in good order) and recorded.
The Owner may request a change in the Annuitant or contingent Annuitant before the Annuitization Date. Such a request must be made in writing on a form acceptable to us and must be signed by the Owner and the person to be named as Annuitant or contingent Annuitant. Any such change is subject to underwriting and approval by us.
CHARGES AND DEDUCTIONS
All of the charges described in this section apply to Variable Account allocations. Allocations to the Fixed Account are subject to CDSCs, the Annual Contract Fee and Premium Tax deductions and the charge for the Enhanced Death Benefit Rider, if applicable. The Fixed Account and the Guaranteed Accounts are not subject to the Mortality and Expense Risk Charge and the Administration Charge.
We deduct the charges described below to cover our costs and expenses, services provided and risks assumed under the Contracts. We incur certain costs and expenses for the distribution and administration of the Contracts and for providing the benefits payable thereunder. More particularly, the administrative services include:
· processing applications for and issuing the Contracts;
· processing purchases and redemptions of Fund shares as required (including automatic withdrawal services);
· maintaining records;
· administering annuity payouts;
· furnishing accounting and valuation services (including the calculation and monitoring of daily Subaccount values);
· reconciling and depositing cash receipts;
· providing Contract confirmations;
· providing toll-free inquiry services; and
· furnishing telephone transaction privileges.
The risks we assume include:
· the risk that the actual life-span of persons receiving annuity payments under Contract guarantees will exceed the assumptions reflected in our guaranteed rates (these rates are incorporated in the Contract and cannot be changed);
· the risk that Death Benefits, or the Enhanced Death Benefit under the optional Enhanced Death Benefit Rider, will exceed the actual Contract Value;
· the risk that more Owners than expected will qualify for and exercise waivers of the CDSC; and
· the risk that our costs in providing the services will exceed our revenues from the Contract charges (which we cannot change).
The amount of a charge will not necessarily correspond to the costs associated with providing the services or benefits indicated by the designation of the charge. For example, the CDSC collected may not fully cover all of the distribution expenses we incur. We may also realize a profit on one or more of these charges. We may use any profits for any corporate purpose, including sales expenses.
Deductions from the Variable Account
We deduct from the Variable Account an amount, computed daily, which is equal to an annual rate of 1.40% of the daily net asset value. The charge consists of a 0.15% Administration Charge and a 1.25% Mortality and Expense Risk Charge.
Contingent Deferred Sales Charge
We may pay a commission up to 6.5% (up to 7.0% during certain promotional periods) for the sale of a Contract; however, we make no deduction for a sales charge from the Premium Payments for these Contracts. However, if a Withdrawal is made or a Contract is surrendered, we will with certain exceptions, deduct a CDSC.
The CDSC is calculated by multiplying the applicable CDSC percentages noted below by the Net Premium Payments that are withdrawn or surrendered. For purposes of calculating the CDSC Withdrawals or surrenders are considered to come first from the oldest Net Premium Payment made to the Contract, then the next oldest Net Premium Payment and so forth, and last from earnings on Net Premium Payments. No CDSC is ever assessed with respect to a Withdrawal or surrender of earnings on Net Premium Payments. For tax purposes, a surrender is usually treated as a withdrawal of earnings first. This charge will apply in the amounts set forth below to Net Premium Payments within the time periods set forth.
The CDSC applies to Net Premium Payments as follows:
Number of Completed |
|
Contingent Deferred |
|
|
|
|
|
0 |
|
7 |
% |
1 |
|
6 |
% |
2 |
|
5 |
% |
3 |
|
4 |
% |
4 |
|
3 |
% |
5 |
|
2 |
% |
6 |
|
1 |
% |
7 |
|
0 |
% |
In any Contract Year after the first Contract Year, you may make Withdrawals, without a CDSC, of an aggregate amount equal to 15% of the Contract Value (except for in New Jersey and the State of Washington where the free amount is 10%). This CDSC-free Withdrawal privilege does not apply to full surrenders of the Contract, and if a full surrender is made within one year of exercising a CDSC-free Withdrawal, then the CDSC which would have been assessed at the time of the Withdrawal will be assessed at the time of surrender. The CDSC-free feature is also non-cumulative. This means that free amounts not taken during any given Contract Year cannot be taken as free amounts in a subsequent Contract Year. In addition, any amount withdrawn in order to meet minimum Distribution requirements under the Code shall be free of CDSC.
In the first Contract Year, a CDSC-free Withdrawal is available in an amount not exceeding 1/12th of 15% (10% in New Jersey and the State of Washington) of each Premium Payment for each completed month since each Premium Payment. Two ways to access these CSDC-free amounts in the first Contract Year are by setting up a monthly systematic Withdrawal program for an amount not exceeding the annual CDSC-free Withdrawal amount (see Available Automated Fund Management Features-Systematic Withdrawals, below), or by making a Withdrawal that is part of a series of substantially equal periodic payments over the life of the Owner or the joint lives of the Owner and his or her spouse, to which section 72(t)(2)(A)(iv) of the Code applies. Regardless of the method of Withdrawal, systematic or otherwise, at no point in the first Contract Year will total CDSC-free Withdrawals be available in an amount that exceeds 1/12th of 15% of each premium payment times the number of completed months since each premium payment. You may be subject to a tax penalty if you take Withdrawals prior to age 59½ (see Federal Income Tax Considerations, below). In New Jersey and the State of Washington, the CDSC-free provision will apply to full surrenders and Withdrawals but will be limited to 10% of the Contract Value as of the most recent Contract Anniversary for both Withdrawals and full surrenders.
In addition, no CDSC will be deducted:
· upon the Annuitization of Contracts,
· upon payment of a death benefit pursuant to the death of the Owner, or
· from any values which have been held under a Contract for at least 84 months.
No CDSC applies upon the transfer of value among the Subaccounts or between the Fixed Account or a Guaranteed Account and the Variable Account; however, a Market Value Adjustment may apply to transfers out of a Guaranteed Account before the termination date of such account.
When a Contract is held by a charitable remainder trust, the amount which may be withdrawn from this Contract without application of a CDSC after the first Contract Year, shall be the larger of (a) or (b), where
(a) is the amount which would otherwise be available for Withdrawal without application of a CDSC; and where
(b) is the difference between the Contract Value as of the last Contract Anniversary and the Net Premium Payments made to the Contract, less all Withdrawals and less any outstanding loan and accrued interest, as of the last Contract Anniversary.
We will waive the CDSC if the Owner dies or if the Owner annuitizes. However, if the Owner elects a settlement under Payment Option 1, and subsequently surrenders the Contract prior to seven years after the date of the last Premium Payment, the surrender will be subject to a CDSC.
We will also waive the CDSC if, following the first Contract Anniversary, you are confined to an eligible nursing home for at least the 90 consecutive days ending on the date of the Withdrawal request. This waiver is not available in the States of New Jersey and New York.
Annual Contract Fee
For Contracts with a Contract Value of less than $50,000 as of any Contract Anniversary prior to the Annuitization Date, we will assess an Annual Contract Fee of $30. This fee will be assessed annually on each Contract Anniversary on which the Contract Value is less than $50,000. No Annual Contract Fee will be assessed after the Annuitization Date. This fee will be taken pro rata from all Subaccounts of the Variable Account and the unloaned portion of the Fixed Account.
Transfer Charge
Currently, unlimited free transfers are permitted among the Subaccounts and the Guaranteed Accounts, and transfers among the Fixed Account, the Variable Account and the Guaranteed Accounts are permitted free of charge within the limits described above under Transfers (however, a market value adjustment will be applied to any transfer out of a Guaranteed Account prior to its termination date. See The Guaranteed Accounts, below). We have no present intention to impose a transfer charge in the foreseeable future. However, we reserve the right to impose in the future a transfer charge of $25 on each transfer in excess of 12 transfers in any Contract Year. We may do this if the expense of administering transfers becomes burdensome. We would not anticipate making a profit on any future transfer charge.
If we impose a transfer charge, we will deduct it 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 made pursuant to the Dollar Cost Averaging and Fund Rebalancing features, transfers resulting from loans, or if there has been a material change in the investment policy of the Fund from which the transfer is being made. These transfers will not count against the 12 free transfers in any Contract Year.
Premium Taxes
If a governmental entity imposes premium taxes, we make a deduction for premium taxes in a corresponding amount. Certain states impose a premium tax, currently ranging up to 3.5%. We will pay premium taxes at the time imposed under applicable law. Where we are required to pay this premium tax, we may deduct an amount equal to premium taxes from the Premium Payment. We currently intend to make this deduction from Premium Payments only in South Dakota. In the remaining states which assess premium taxes, we currently expect to make deductions for premium taxes at the time of Annuitization, death of the Owner, or surrender, although we also reserve the right to make such a deduction at the time we pay premium taxes to the applicable taxing authority.
Other Charges
The Variable Account purchases shares of the Funds at net asset value. The net asset value of those shares reflects management fees and expenses already deducted from the assets of the Funds. Information on the fees and expenses for the Funds is set forth in Underlying Fund Annual Expenses above.
More detailed information is contained in the Funds prospectuses, which are available at no charge by contacting us at the number and address listed on the first page of this prospectus.
We sell the Contracts through registered representatives of broker-dealers. These registered representatives are also appointed and licensed as our insurance agents. We pay commissions to the broker-dealers for selling the Contracts. You do not pay directly these commissions. We do. We intend to recoup commissions and other sales expenses through fees and charges imposed under the Contracts. (See Distribution of Contracts below).
A market value adjustment may apply to certain surrenders, withdrawals, transfers, and annuitization from a Guaranteed Account. See The Guaranteed Accounts Market Value Adjustment.
CONTRACT RIGHTS AND PRIVILEGES
Free Look
You may revoke the Contract at any time between the Date of Issue and the date 10 days after receipt of the Contract and receive a refund of the Contract Value plus any charges assessed at issue, including the Annual Contract Fee, charge for the optional Enhanced Death Benefit Rider, and any premium tax, unless otherwise required by state and/or federal law. Some states may require a longer free look period. Where the Contract Value is refunded, you will have borne the investment risk and been entitled to the benefit of the investment performance of the chosen Subaccounts during the time the Contract was in force.
In the case of IRAs and states that require the return of Premium Payments, you may revoke the Contract during the free look period and we will refund Premium Payments.
In order to revoke the Contract, it must be mailed or delivered to our Home Office. Mailing or delivery must occur on or before 10 days after receipt of the Contract for revocation to be effective. In order to revoke the Contract, if it has not been received, written notice must be mailed or delivered to the Home Office.
The liability of the Variable Account under this provision is limited to the Contract Value in each Subaccount on the date of revocation. Any additional amounts refunded to you will be paid by us.
Loan Privilege - Tax Sheltered Annuities
Subject to approval in your state, if you own a section 403(b) Tax-Sheltered Annuity Contract, loans will be available on your Contract. Loans will be subject to the terms of the Contract and the Code.
If a loan provision is included in your Tax-Sheltered Annuity Contract, loans will be available anytime prior to the Annuitization Date. We may limit the number of loans available on a single contract. You will be able to borrow a minimum of $1,500 (we may permit lower amounts). The maximum loan balance which may be outstanding at any time on your Contract is 90% of the sum of Contract Value, outstanding loans and accrued interest on loans minus the CDSC that would apply if you surrendered your Contract (if you have Contract Value allocated to one or more Guaranteed Accounts, at the time you wish to take a loan, you must first transfer all such Contract Value out of those Guaranteed Accounts - see The Guaranteed Accounts, below). In no event may the aggregate amount borrowed from all your Tax-Sheltered Annuities under your 403(b) Plan, including this Contract, exceed the lesser of:
(a) 50% of the combined nonforfeitable account balances of all your Tax-Sheltered Annuities held under your 403(b) Plan (or $10,000 if greater); or
(b) $50,000.
The $50,000 limit will be reduced by the excess (if any) of the highest loan balances owed during the prior one-year period over the loan balance on the date the loan is made. The highest loan balance owed during the prior one-year period may be more than the amount outstanding at the time of the loan, if an interest payment or principal repayment has been made.
All loans will be made from the Collateral Fixed Account. When a loan is taken, an amount equal to the principal amount of the loan will be transferred to the Collateral Fixed Account. We will transfer to the Collateral Fixed Account an amount equaling the loan
from the Subaccounts of the Variable Account and unloaned portion of the Fixed Account in the same proportion that such amounts bear to the total Contract Value. No CDSC is deducted at the time of the loan or on any transfers to the Collateral Fixed Account.
Until the loan is repaid in full, that portion of the Collateral Fixed Account equal to the outstanding loan balance shall be credited with interest at an annual rate we declare from time to time, but will never be less than the minimum annual rate guaranteed for your Contracts Fixed Account. On each Contract Anniversary and on each date that a loan repayment is received, any amount of interest credited on the Collateral Fixed Account will be allocated among the Fixed Account and the Subaccounts of the Variable Account in accordance with the allocation of Net Premium Payments then in effect.
Loans must be repaid in substantially level payments, not less frequently than quarterly, within five years. Loans used to purchase your principal residence must be repaid within 20 years. During the loan term, the outstanding balance of the loan will continue to accrue interest at annual rates specified in the loan agreement or an amendment to the loan agreement. The maximum interest rate will be the greater of:
· the Moodys Corporate Bond Yield Average Monthly Average Corporates, as published by Moodys Investors Service, Inc., or its successor, (or if that average is no longer published, a substantially similar average), for the calendar month ending two months before the date the rate is determined; or
· 4%.
The loan interest rate is subject to change on each Contract Anniversary. If the loan interest rate changes, we will send you a notice of the new loan interest rate and new level payment amount. We must reduce the loan interest if on a Contract Anniversary the maximum loan interest rate is lower than the interest rate for the previous Contract Year by 0.50% or more. We may increase the loan interest rate if the maximum loan interest rate is at least 0.50% higher than the loan interest rate for the previous Contract Year. The loan interest rate we charge will be equal to or less than the maximum loan interest rate at the time it is determined, and will never be higher than 15%.
Twenty days prior to the due date of each loan repayment, as set forth in the loan agreement or an amendment to the loan agreement, we will send you a notice of the amount due. Corresponding to the due date of each loan repayment, we will establish a billing window defined as the period beginning on the date that we mail the repayment notice (20 days prior to the payment due date) and extending 31 days after the due date.
Loan repayments received within the billing window that are sufficient to satisfy the amount due will be applied to the Contract as interest and repayment of principal. The amounts of principal and interest set forth in the loan agreement or an amendment to the loan agreement are the amounts if all loan repayments are made exactly on the due date. The actual amount of a repayment allocated to interest will be determined based on the actual date the repayment is received, the amount of the outstanding loan, and the number of days since the last repayment date. The amount of principal will be the repayment amount minus the interest. The loan principal repayment will, on the date it is received, be allocated among the Fixed Account and Subaccounts of the Variable Account in accordance with the allocation of Net Premium Payments then in effect.
Loan repayments received outside of the billing window will be processed as a repayment of principal only. Only repayments received within the billing window may satisfy the amount due. If a payment received within the billing window is less than the amount due, it will be returned to you.
If a loan repayment that is sufficient to satisfy the amount due is not made within the billing window, then the entire balance of the loan will be considered in default. This amount may be taxable to the borrower, and may be subject to the early withdrawal tax penalty. If you are not eligible to take a distribution pursuant to the Contract or plan provisions, the deemed distribution will be reportable for tax purposes, but will not be offset against the Contract Value until such time as a distribution may be made. On each Contract Anniversary, while a loan is in default, interest accrued on loans will be added to the outstanding loans.
If you surrender your Contract while a loan is outstanding, you will receive the Cash Surrender Value, which is reduced to reflect the loan outstanding plus accrued interest. If the Owner/Annuitant dies while the loan is outstanding, the Death Benefit will also be reduced to reflect the amount of the loan outstanding plus accrued interest. If annuity payments start while the loan is outstanding, the Contract Value will be reduced by the amount of the outstanding loan plus accrued interest. Until the loan is repaid, we may restrict any transfer of the Contract that would otherwise qualify as a transfer as permitted in the Code.
Loans may also be subject to additional limitations or restrictions under the terms of the employers plan. Loans permitted under this Contract may still be taxable in whole or part if the participant has additional loans from other plans or contracts. We will calculate the maximum nontaxable loan based on the information provided by the participant or the employer. In addition, if the section
403(b) Tax-Sheltered Annuity Contract is subject to the Employee Retirement Income Security Act of 1974 (ERISA), a loan will be treated as a prohibited transaction subject to certain penalties unless additional ERISA requirements are satisfied. You should seek competent legal advice before requesting a loan. We are not responsible for determining whether a loan meets the requirements of ERISA, including the requirement that a loan bear a reasonable rate of interest.
If a loan is outstanding, all payments received from you will be considered loan repayments. Any payments received from your employer will be considered premium payments. We reserve the right to modify the terms or procedures associated with the loan privilege in the event of a change in the laws or regulations relating to the treatment of loans. We also reserve the right to assess a loan processing fee. IRAs, Non-Qualified Contracts and Qualified Contracts other than section 403(b) Tax-Sheltered Annuity Contracts are not eligible for loans.
Surrender and Withdrawal
At any time prior to the Annuitization Date (or thereafter if Payment Option 1 has been elected) you may, upon proper written application deemed by us to be in good order, surrender the Contract. Proper written application means that you must request the surrender in writing. We may require that the signature(s) be guaranteed by a member firm of a major stock exchange or other depository institution qualified to give such a guaranty.
We will, upon receipt of any such written request, pay to you the Cash Surrender Value. The Cash Surrender Value will reflect any applicable CDSC (see Contingent Deferred Sales Charge, above), any outstanding loan and accrued interest, and, in certain states, a premium tax charge (see Premium Taxes, above). The Cash Surrender Value may be more or less than the total of Premium Payments you made, depending on the market value of the underlying Fund shares, the amount of any applicable CDSC, and other factors.
We will normally not permit Withdrawal or Surrender of Premium Payments made by check within the 15 calendar days prior to the date the request for Withdrawal or Surrender is received.
At any time before the death of the Owner and before the Contract is annuitized, the Owner may make a Withdrawal of a portion of the Contract Value. The minimum Withdrawal is $500, except where the Withdrawal is a minimum distribution as required by certain Qualified Contract rules or where the Withdrawal is part of an automated process of paying investment advisory fees to the Owners investment advisor. At least $3,500 in Cash Surrender Value must remain after any Withdrawal. However, for Contracts issued prior to November 1, 2003 only (or a later date if your state approved this change after November 1, 2003), at least $3,500 in Contract Value must remain after any Withdrawal. If a withdrawal causes your Contract Value to fall below the $3500 minimum, we may redeem your remaining contact value. Before we redeem your remaining Contract Value, we will provide you notice and give you the opportunity to increase your Contract Value to the $3500 minimum. Withdrawals made for the purpose of taking a required minimum distribution in a retirement account are not subject to the $3,500 restriction.
Generally, Withdrawals in the first Contract Year and Withdrawals in excess of 15% (10% in New Jersey and the State of Washington) of Contract Value as of the most recent Contract Anniversary in any Contract Year are subject to the CDSC. See Contingent Deferred Sales Charge, above. However, in the first Contract Year, a CDSC-free Withdrawal is currently available in an amount not exceeding 1/12th of 15% (10% in New Jersey and the State of Washington) of each premium payment for each completed month since each Premium Payment. For purposes of determining CDSC-free amounts in the first Contract Year only, all Premium Payments received prior to the first Monthly Contract Date will be considered to have been paid at the Date of Issue. One way to access these CDSC-free amounts in the first Contract Year is by setting up a monthly systematic Withdrawal program (see Available Automated Fund Management Features-Systematic Withdrawals below). Another limited way to make a Withdrawal in the first year without paying a CDSC is to make a Withdrawal which is part of a series of substantially equal periodic payments made for the life of the Owner or the joint lives of the Owner and his or her spouse, under section 72(t)(2)(a)(iv) of the Code. In addition, any amount withdrawn in order to meet minimum distribution requirements under the Code shall be free of CDSC. Regardless of the method of Withdrawal, systematic or otherwise, at no point in the first Contract Year will total CDSC-free Withdrawals be available in an amount that exceeds 1/12th of 15% of each premium payment times the number of completed months since each premium payment. Withdrawals will be deemed to be taken from Net Premium Payments in chronological order, with the oldest Net Premium Payment being withdrawn first. This method will tend to minimize the amount of the CDSC.
Withdrawals will be taken based on your instructions at the time of the Withdrawal. If you do not provide specific allocation instructions, or to the extent that Contract Value in the sources you specify are insufficient, the Withdrawal will be deducted pro rata from the Subaccounts and from the unloaned portion of the Fixed Account. The Withdrawal will not be taken from the Guaranteed Accounts unless there is not sufficient Contract Value in the Subaccounts of the Variable Account and the unloaned portion of the Fixed Account. If it is necessary to take the Withdrawal from the Guaranteed Accounts, it will be taken pro rata from all Guaranteed Accounts in which there is Contract Value, and within each Guaranteed Account duration, on a first-in-first-out basis. To the extent a Withdrawal is taken from a Guaranteed Account, a market value adjustment will be applied (see The Guaranteed Accounts - Market Value Adjustment, below).
Any CDSC associated with a Withdrawal will be deducted from the Subaccounts, the Fixed Account and/or the Guaranteed Accounts based on the allocation percentages of the Withdrawal. Any amount of CDSC that we deduct from a Subaccount that is in excess of the available value in that Subaccount will be deducted pro rata among the remaining Subaccounts and the unloaned portion of the Fixed Account (as above, it will not be taken from the Guaranteed Accounts unless there is not sufficient Contract Value in such remaining Subaccounts and the unloaned portion of the Fixed Account). We will process Withdrawals on the Valuation Day we receive your request in good order. If the Withdrawal cannot be processed in accordance with your instructions, then we will notify you through your agent, by telephone or by mail that we cannot process the Withdrawal, and we will not process it until we receive further instructions.
A Surrender or a Withdrawal may have tax consequences. See Federal Income Tax Considerations, below.
Payments
We will pay any funds surrendered or withdrawn from the Variable Account within seven days of receipt of such request in good order at our Home Office. Good order means the actual receipt by us of instructions relating to a transaction, along with all the information and supporting legal documentation we require to effect the transaction. To be in good order, instructions much be sufficiently clear so that we do not need to exercise any discretion to follow such instructions. However, we reserve the right to suspend or postpone the date of any payment or transfer of any benefit or values for any Valuation Period:
· when the New York Stock Exchange (Exchange) is closed;
· when trading on the Exchange is restricted;
· when an emergency exists as a result of which disposal of securities held in the Variable Account is not reasonably practicable or it is not reasonably practicable to determine the value of the Variable Accounts net assets; or
· during any other period when the SEC, by order, so permits for the protection of security holders.
The rules and regulations of the SEC shall govern as to whether certain of the conditions prescribed above exist.
In addition, if, pursuant to SEC rules, the Fidelity Money Market Portfolio suspends payment of redemption proceeds in connection with a liquidation of the Portfolio, we will delay payment of any transfer, partial surrender, surrender, loan, or death benefit from the Fidelity Money Market Subaccount until the Portfolio is liquidated.
In cases where you surrender your Contract within 15 days of making a premium payment by check, and we are unable to confirm that such payment has cleared, we may withhold an amount equal to such payment from your surrender proceeds until we are able to confirm that the payment item has cleared, but for no more than 15 days from our receipt of the payment item. You may avoid the possibility of this holdback by making premium payments by unconditional means, such as by certified check or wire transfer of immediately available funds.
We reserve the right to delay payment of any amounts allocated to the Fixed Account or to a Guaranteed Account payable as a result of a surrender, Withdrawal or loan for up to six months after we receive a written request in a form satisfactory to us.
If mandated under applicable law, we may be required to reject a premium payment. We may also be required to provide additional information about you and your account to government regulators. In addition, we may be required to block an Owners account and thereby refuse to honor any request for transfers, Withdrawals, surrenders, loans or Death Benefits, until instructions are received from the appropriate regulator.
Surrenders and Withdrawals Under a Tax-Sheltered Annuity Contract
Where the Contract has been issued as a Tax-Sheltered Annuity, the Owner may surrender or make a Withdrawal of part or all of the Contract Value at any time this Contract is in force prior to the earlier of the Annuitization Date or the death of the Designated Annuitant except as provided below:
(a) The surrender or Withdrawal of Contract Value attributable to contributions made pursuant to a salary reduction agreement (within the meaning of Code Section 402(g)(3)(A) or (C)), or transfers from a Custodial Account described in Section 403(b)(7) of the Code, may be executed only:
1. when the Owner attains age 59 1/2, severs employment, dies, or becomes disabled (within the meaning of Code Section 72(m) (7)); or
2. in the case of hardship (as defined for purposes of Code Section 401-(k)), provided that any surrender of Contract Value in the case of hardship may not include any income attributable to salary reduction contributions.
(b) Amounts transferred to a Tax-Sheltered Annuity from other 403(b) contracts or accounts are generally subject to the same restrictions on withdrawals applicable under the prior contract or account.
(c) For Tax-Sheltered Annuities issued on or after January 1, 2009, amounts attributable to employer contributions are subject to restrictions on withdrawals specified in your employers 403(b) plan, in order to comply with new tax regulations.
(d) The surrender and Withdrawal limitations described in (a) above for Tax-Sheltered Annuities apply to:
1. salary reduction contributions to Tax-Sheltered Annuities made for plan years beginning after December 31, 1988;
2. earnings credited to such contracts after the last plan year beginning before January 1, 1989, on amounts attributable to salary reduction contributions; and
3. all amounts transferred from 403(b)(7) Custodial Accounts (except that amounts held as of the close of the last plan year beginning before January 1, 1989 and salary reduction contributions (but not earnings) after such date may be withdrawn in the case of hardship).
(e) We do not allow a Distribution other than as described above, except in the exercise of a contractual ten-day free look provision (when available). Any Distribution taken by the Owner other than as described above, including a Distribution as a result of the ten-day free look provision, may result in the immediate application of taxes and penalties and/or retroactive disqualification of a Qualified Contract or Tax-Sheltered Annuity. National Life is not responsible for any taxes, penalties or other adverse consequences resulting from an Owner taking a Distribution.
A premature Distribution may not be eligible for rollover treatment. To assist in preventing disqualification in the event of a ten-day free look, National Life will agree to transfer the proceeds to another contract which meets the requirements of Section 403(b) of the Code, upon proper direction by the Owner. The foregoing is National Lifes understanding of the withdrawal restrictions which are currently applicable under Section 403(b)-(11). Such restrictions are subject to legislative change and/or reinterpretation from time to time. Distributions pursuant to Qualified Domestic Relations Orders will not be considered to be a violation of the restrictions stated in this provision.
The Contract surrender and Withdrawal provisions may also be modified pursuant to the plan terms and Code tax provisions for Qualified Contracts. If your Contract is a Tax-Sheltered Annuity, we generally are required to confirm, with your 403(b) plan sponsor or otherwise, that Premium Payments, as well as surrenders, withdrawals, loans or transfers you request, comply with applicable tax requirements and to decline premiums or requests that are not in compliance. We will not process Premium Payments, surrenders, withdrawals, loans or transfers until all information required under the tax law has been received. By directing Premium Payments to the Contract or requesting any one of these payments, you consent to the sharing of confidential information about you, the Contract, transactions under the Contract, and any other 403(b) contracts or accounts you have under the 403(b) plan among us, your employer or plan sponsor, any plan administrator or recordkeeper, and other product providers.
Telephone Transaction Privilege
If you elect the telephone transaction privilege, you may make changes in Net Premium Payment allocations, transfers, or initiate or make changes in dollar cost averaging or Fund rebalancing, in the case of section 403(b) Tax Sheltered Annuities, take loans up to $10,000, and modify systematic withdrawals by providing instructions to us at our Home Office over the telephone. You can make the election either on the application for the Contract or by providing a proper written authorization to us. We reserve the right to suspend telephone transaction privileges at any time and for any reason. You may, on the application or by a written authorization, authorize your National Life agent to provide telephone instructions on your behalf.
We employ reasonable procedures to confirm that instructions communicated by telephone are genuine. If we follow these procedures we will not be liable for any losses due to unauthorized or fraudulent instructions. We may be liable for any such losses if those reasonable procedures are not followed. The procedures 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.
You should protect any form of personal identification used to access your account, as we may not be able to verify that the person providing instructions using such personal information is you or someone authorized by you.
Telephone transfers may not always be available. Telephone systems, whether yours, ours, or your agents, can experience outages or slowdowns for a variety of reasons. These outages or slowdowns may prevent or delay our receipt of your request. If you are experiencing problems, you should make your transfer request in writing.
Facsimile Transaction Privilege
You may provide instructions by facsimile for all transactions, except for a death claim, by providing instructions to us at our Home Office at a designated fax number. Contact your agent for more information. We may suspend facsimile transaction privileges at any time, for any reason, if we deem such suspension to be in the best interests of the Owners.
Facsimile transactions may not always be available. Communication systems, whether yours, ours or your agents, can experience outages or slowdowns for a variety of reasons. These outages or slowdowns may prevent or delay our receipt of your request. If you are experiencing problems, you should make your request by mail.
Electronic Mail Transaction Privilege
A National Life agent may provide transfer instructions by e-mail to us at our Home Office on your behalf, if you have provided the agent the appropriate authority. Contact your agent for more information. We may suspend e-mail transaction privileges at any time, for any reason, if we deem such suspension to be in the best interests of the Owners.
E-mail transactions may not always be available. Electronic systems, whether yours, ours or your agents, can experience outages or slowdowns for a variety of reasons. These outages or slowdowns may prevent or delay our receipt of the request. If your agent experiences problems, you should make your request by mail.
Cyber Security Risk
Our variable insurance product business relies heavily on interconnected computer systems and digital data to conduct our variable product business activities. Because our variable product business is highly dependent upon the effective operation of our computer systems and those of our business partners, our business is vulnerable to disruptions from utility outages, and susceptible to operational and information security risks resulting from information systems failure (e.g., hardware and software malfunctions), and cyber-attacks. These risks include, among other things, the theft, misuse, corruption and destruction of data maintained online or digitally, interference with or denial of service, attacks on websites and other operational disruption and unauthorized release of confidential customer information. Such systems failures and cyber-attacks affecting us, any third party administrator, the underlying funds, intermediaries and other affiliated or third-party service providers may adversely affect us and your contract value. For instance, systems failures and cyber-attacks may interfere with our processing of contract transactions, including the processing of orders from our website or with the underlying funds, impact our ability to calculate AUVs, cause the release and possible destruction of confidential customer or business information, impede order processing, subject us and/or our service providers and intermediaries to regulatory fines and financial losses and/or cause reputational damage. Cyber security risks may also impact the issuers of securities in which the underlying funds invest, which may cause the funds underlying your contract to lose value. There can be no assurance that we or the underlying funds or our service providers will avoid losses affecting your contract due to cyber-attacks or information security breaches in the future.
Available Automated Fund Management Features
We currently offer the following free automated fund management features. However, we are not legally obligated to continue to offer these features and we may cease offering one or more of such features at any time, after providing 60 days prior written notice to all Owners who are currently utilizing the features being discontinued. Only one of Dollar Cost Averaging and Fund Rebalancing is available under any single Contract at one time, but either may be used with Systematic Withdrawals.
Dollar Cost Averaging. This feature permits you to automatically transfer funds from the Money Market Subaccount to any other Subaccounts on a monthly basis. You may elect it at issue by marking the appropriate box on the initial application and completing the appropriate instruction or after issue by filling out similar information on a change request form and sending it to us (in good order).
If you elect this feature, each month on the Monthly Contract Date we will take the amount to be transferred from the Money Market Subaccount and transfer it to the Subaccount or Subaccounts designated to receive the funds. This procedure starts with the Monthly Contract Date next succeeding the Date of Issue or next succeeding the date of an election subsequent to purchase and stops when the
amount in the Money Market Subaccount 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. You may discontinue Dollar Cost Averaging at any time by sending an appropriate change request form to us.
This feature allows you to move funds into the various investment classes on a more gradual and systematic basis than the frequency on which Premium Payments ordinarily are made. The dollar cost averaging method of investment is designed to reduce the risk of making purchases only when the price of units is high. 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 technique will not assure a profit or protect against a loss in declining markets. For the dollar cost averaging technique to be effective, amounts should be available for allocation from the Money Market Subaccount through periods of low price levels as well as higher price levels.
Fund Rebalancing. This feature permits you to automatically rebalance the value in the Subaccounts on a quarterly, semi-annual or annual basis, based on the premium allocation percentages in effect at the time of the rebalancing.
In Contracts utilizing Fund Rebalancing from the Date of Issue, an automatic transfer takes place that causes the percentages of the current values in each Subaccount to match the current premium allocation percentages. This procedure starts with the Monthly Contract Date three, six or 12 months after the Date of Issue and continues on each Monthly Contract Date three, six or 12 months thereafter. Contracts electing Fund Rebalancing after issue will have the first automated transfer occur as of the Monthly Contract Date on or next following the date that the election is received. Subsequent rebalancing transfers occur every three, six or 12 months thereafter. You may discontinue Fund Rebalancing at any time by submitting an appropriate change request form.
If you change the Contracts premium allocation percentages, Fund Rebalancing will automatically be discontinued unless you specifically direct otherwise.
Fund Rebalancing results in periodic transfers out of Subaccounts that have had relatively favorable investment performance and into Subaccounts that have had relatively unfavorable investment performance. Fund Rebalancing does not guarantee a profit or protect against a loss.
Systematic Withdrawals. At any time after one year from the Date of Issue, if the Contract Value at the time of initiation of the program is at least $15,000, you may elect in writing to take Systematic Withdrawals of a specified dollar amount (of at least $100) on a monthly, quarterly, semi-annual or annual basis. You may provide specific instructions as to how the Systematic Withdrawals are to be taken, but the Withdrawals must be taken first from the Subaccounts and may only be taken from the unloaned portion of the Fixed Account to the extent that the Contract Value in the Variable Account is insufficient to accomplish the Withdrawal. Moreover, Withdrawals may only be taken from the Guaranteed Accounts to the extent that the Contract Value in the Variable Account and the Fixed Account is insufficient to accomplish the Withdrawal. If you have not provided specific instructions or if specific instructions cannot be carried out, we process the Withdrawals by taking Accumulation Units from all of the Subaccounts in which you have an interest and the unloaned portion of the Fixed Account on a pro rata basis; Contract Value will not be taken from the Guaranteed Accounts unless there is not sufficient Contract Value in the Variable Account and the Fixed Account to accomplish the Withdrawal. Each systematic Withdrawal is subject to federal income taxes. In addition, a 10% federal penalty tax may be assessed on systematic Withdrawals if you are under age 59½. If you direct, we will withhold federal income taxes from each systematic Withdrawal. You may elect to have your systematic withdrawal payment electronically transferred to your checking or savings account by submitting the appropriate paperwork deemed by us to be in good order. A Systematic Withdrawal program terminates automatically when a systematic Withdrawal would cause the remaining Cash Surrender Value to be $3,500 or less (or, in the case of Contracts issued prior to November 1, 2003, if a systematic Withdrawal would cause the Contract Value to be $3,500 or less). If this happens, then the systematic Withdrawal transaction causing the Cash Surrender Value to fall below $3,500 will not be processed. You may discontinue Systematic Withdrawals at any time by notifying us in writing.
A CDSC may apply to systematic Withdrawals in accordance with the considerations set forth in Contingent Deferred Sales Charge, above. If you withdraw amounts pursuant to a systematic Withdrawal program, then, in most states, you may withdraw in each Contract Year after the first Contract Year without a CDSC an amount up to 15% of the Contract Value as of the most recent Contract Anniversary (a 10% CDSC-free Withdrawal provision applies in New Jersey and Washington - see Contingent Deferred Sales Charge, above). Both Withdrawals you request and Withdrawals pursuant to a systematic Withdrawal program will count toward the limit of the amount that may be withdrawn in any Contract Year free of the CDSC. In addition, any amount withdrawn in order to meet minimum distribution requirements under the Code shall be free of CDSC.
Limited Systematic Withdrawals are also available in the first Contract Year (but after 30 days from issue). These Systematic Withdrawals are limited to monthly Systematic Withdrawal programs only. The maximum aggregate amount for the remaining months of the first Contract Year is the annual amount that may be withdrawn in Contract Years after the first Contract Year free of a
CDSC (i.e., either 15% or 10% of the Contract Value, depending on the state). These Systematic Withdrawals will not be subject to a CDSC. The other rules for Systematic Withdrawals made after the first Contract Year, including the $15,000 minimum Contract Value, minimum $100 payment, and allocation rules, will apply to these systematic Withdrawals. Regardless of the method of Withdrawal, systematic or otherwise, at no point in the first Contract Year will total CDSC-free Withdrawals be available in an amount that exceeds 1/12th of 15% of each premium payment times the number of completed months since each premium payment. Systematic withdrawals may not be elected if there is a policy loan.
Contract Rights Under Certain Plans
Contracts may be purchased in connection with a plan sponsored by an employer. In such cases, all rights under the Contract rest with the Owner, which may be the employer or other obligor under the plan and benefits available to participants under the plan, are governed solely by the provisions of the plan. Accordingly, some of the options and elections under the Contract may not be available to participants under the provisions of the plan. In such cases, participants should contact their employers for information regarding the specifics of the plan.
THE FIXED ACCOUNT
Net Premium Payments under the Fixed Account portion of the Contract and transfers to the Fixed Account portion are part of our general account, which supports insurance and annuity obligations. Because of exemptive and exclusionary provisions, interests in the general account, including the Guaranteed Accounts discussed below, are not registered under the Securities Act of 1933 (Securities Act), nor is the general account registered as an investment company under the Investment Company Act. Accordingly, neither the general account nor any interest therein are generally subject to the provisions of the Securities Act or Investment Company Act, and we have been advised that the staff of the SEC has not reviewed the disclosures in this prospectus which relate to the guaranteed interest portion. Disclosures regarding the Fixed Account, the Guaranteed Accounts, and the general account, however, are subject to certain generally applicable provisions of the federal securities laws relating to the accuracy and completeness of statements made in prospectuses.
Our general account is made up of all our general assets, other than those in the Variable Account and any other segregated asset account. Fixed Account Net Premium Payments will be allocated to the Fixed Account by election of the Owner at the time of purchase or by a later change in allocation of Net Premium Payments. We will invest the assets of the Fixed Account and the Guaranteed Accounts in those assets we choose and allowed by applicable law.
Minimum Guaranteed and Current Interest Rates
The Contract Value held in the Fixed Account that is not held in a Collateral Fixed Account is guaranteed to accumulate at a minimum effective annual interest rate which may vary from time to time, but which will be fixed at the issue of a Contract and will not vary over the life of the Contract, and will be at least the minimum effective interest rate required by your states law. For Contracts issued before November 1, 2003, the minimum guaranteed effective annual interest rate is 3.0%. We may credit the Contract Value in the unloaned portion of the Fixed Account with current rates in excess of the minimum guarantee but we are not obligated to do so. We have no specific formula for determining current interest rates. Because we, in our sole discretion, anticipate 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. We declare an interest rate each month to apply to amounts allocated or transferred to the Fixed Account in that month. The rate declared on such amounts remains in effect for 12 months. In general, National Life expects to set the interest rates applicable to Contract Value held in the Fixed Account at rates which permit National Life to earn a profit on the investment of the funds. At the end of the 12-month period, we reserve 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). We determine any interest credited on the amounts in the Fixed Account in excess of the minimum guaranteed rate in our discretion. You assume the risk that interest credited may not exceed the guaranteed minimum rate. Amounts allocated to the Fixed Account do not share in the investment performance of our general account or any portion thereof.
Amounts deducted from the unloaned portion of the Fixed Account for the charge for the optional Enhanced Death Benefit Rider, the Annual Contract Fee or transfers to the Variable Account are, for the purpose of crediting interest, accounted for on a last in, first out basis. Amounts deducted from the unloaned portion of the Fixed Account for Withdrawals are accounted for on a first in, first out basis for such purpose.
National Life reserves the right to change the method of crediting interest from time to time, provided that such changes do not have the effect of reducing the guaranteed rate of interest below the applicable minimum rate or shorten the period for which the interest rate applies to less than 12 months.
For Contracts purchased in the State of Washington, no Premium Payments or Contract Value may be allocated to the Fixed Account.
Enhanced Fixed Account
We may make available to the Contracts a special Fixed Account Option, called the Enhanced Fixed Account. The Enhanced Fixed Account allows you to move value into the Variable Account on a gradual and systematic basis, while earning interest at a higher fixed rate than otherwise offered on the Fixed Account on your value while it awaits transfer into the Variable Account. You should keep in mind that the interest rate applicable to the Enhanced Fixed Account applies only for a specified period of time and to a principal balance in the Enhanced Fixed Account that declines over time as funds are moved into the Variable Account.
The Enhanced Fixed Account will be available to new and existing Owners who make a one-time new Premium Payment of at least a minimum dollar amount we specify at the time. Contract Value in the Enhanced Fixed Account will accumulate at an effective annual interest rate in excess of the current rates then being credited to Contract Value in the Fixed Account. We will declare the interest rate for the Enhanced Fixed Account at the time of the offer in our discretion, and this interest rate will apply for the entire offer period. When we set an offer period, we will announce all the terms of the Enhanced Fixed Account, and post this information on our web site at www.nationallifegroup.com.
If more than one Enhanced Fixed Account is offered, we will reserve the right to allow you to participate in only one such offer at a time. In that case, once you have transferred all Contract Value out of the Enhanced Fixed Account under the terms of a given offer, you may participate in subsequent offers subject to the preceding condition and subject to any qualifying rules of any subsequent offers. Any Contract Value in the Enhanced Fixed Account accepted under one offer may not be transferred to any subsequent or concurrent offer. Offer availability and interest rates are determined solely by the date of receipt of the eligible new Premium Payment in our Home Office.
We will require that the Contract Value in the Enhanced Fixed Account be systematically transferred on a monthly basis from the Enhanced Fixed Account to the Subaccounts. The required monthly transfer amount will be a percentage of the Premium Payment allocated to the Enhanced Fixed Account. We will declare this percentage at the time of the offer, in our discretion. Each month on the Monthly Contract Date, the monthly transfer amount will be transferred from the Enhanced Fixed Account to the Subaccounts and in the percentage amounts selected by the Owner (other than the Money Market Subaccount), until the Contract Value in the Enhanced Fixed Account is exhausted.
The Enhanced Fixed Account will be part of the Fixed Account described above.
Transfers into the Enhanced Fixed Account will not be allowed. The Owner may transfer Contract Value out of the Enhanced Fixed Account at any time, by making a transfer request. If the entire Contract Value in the Enhanced Fixed Account is transferred out, the program ends. If less than the entire Contract Value in the Enhanced Fixed Account is transferred out, the scheduled monthly transfers will continue until the Enhanced Fixed Account is exhausted.
The Owner may terminate participation in the Enhanced Fixed Account at any time by notifying National Life at its Home Office. This will result in all value in the Enhanced Fixed Account being transferred in accordance with the Owners then-current premium allocation.
Withdrawals from the Enhanced Fixed Account will be allowed, in the same manner as for other Withdrawals, but will be subject to any applicable CDSC.
Guaranteed Accounts, as described below, are not available for the systematic transfers out of the Enhanced Fixed Account.
This program is not available simultaneously with Dollar Cost Averaging or Fund Rebalancing, but is available with Systematic Withdrawals. Also, if you elect to receive benefits under an Accelerated Benefits Rider while you have Contract Value in the Enhanced Fixed Account, your Contract Value in the Enhanced Fixed Account will immediately be transferred to the Money Market Subaccount.
We may permit, in our discretion, additional Premium Payments on the same Contract to be allocated to the Enhanced Fixed Account. If we do so, we will add a declared percentage of the new Premium Payment to the original monthly transfer amount, the same instructions for allocating to the Subaccounts will apply, and the program will continue to operate until the Contract Value in the Enhanced Fixed Account is exhausted.
We may need to refund Premium Payments intended for the Enhanced Fixed Account if they are less than the minimum required or if, for any other reason, the written instructions of the Owner cannot be carried out. We may hold these Premium Payments for up to 20
days before refunding them. Any amounts refunded will be credited with interest at 5.0% per annum. The Enhanced Fixed Account will not be available in the State of Washington.
THE GUARANTEED ACCOUNTS
Contract Owners may also allocate Net Premium Payments and/or Contract Value to one or more Guaranteed Accounts. These Guaranteed Accounts guarantee a specified interest rate for the entire period of an investment, if the Contract Value remains in a Guaranteed Account for the specified period of time. Guaranteed Accounts are currently available for three-, five-, seven- and ten-year periods.
Like the Fixed Account described above, Net Premium Payments under any Guaranteed Account and transfers to any Guaranteed Account are part of National Lifes general account, which supports its insurance and annuity obligations.
Investments in the Guaranteed Accounts
You may invest in a Guaranteed Account by allocating Net Premium Payments to a Guaranteed Account of the desired three-, five-, seven- and ten-year period, either on the application or by a later change in Net Premium Payment allocation. You may also transfer Contract Value from the Variable Account to a Guaranteed Account with the desired three-, five-, seven- and ten-year period by making a written transfer request, or by telephone if the telephone transaction privilege applies. Transfers from the Fixed Account to a Guaranteed Account are permitted only to the same extent described under Transfers above for transfers from the Fixed Account to the Variable Account.
All deposits into a Guaranteed Account are subject to a $500 minimum. If such an allocation would result in a deposit to a Guaranteed Account of less than $500, such Net Premium Payments will be allocated instead to the Money Market Subaccount.
You may not invest in a Guaranteed Account where the end of the guarantee period for such Guaranteed Account is later than your Contracts Maturity Date.
Interest at a specified rate will be guaranteed to be credited to all Contract Value in a particular Guaranteed Account for the entire specified period, if the Contract Value remains in that Guaranteed Account for the entire specified period. We expect to change the specified rates for new investments in Guaranteed Accounts from time to time based on returns then available to us for the specified periods, but such changes will not affect the rates guaranteed on previously invested Contract Value. We expect to set the rates for the Guaranteed Accounts such that we will earn a profit on the investment of the funds. If you surrender your Contract or withdraw or transfer Contract Value out of a Guaranteed Account prior to the end of the specified period, a variable adjustment referred to in this prospectus as a market value adjustment will be applied to such Contract Value before the surrender, Withdrawal or transfer. This market value adjustment is described in detail below.
Currently there is no charge, apart from any market value adjustment as referred to above, for transfers into or out of a Guaranteed Account. However, although we have no present intention to impose a transfer charge in the foreseeable future, we reserve the right to impose in the future a transfer charge of $25 on each transfer in excess of 12 transfers in any Contract Year. We may do this if the expense of administering transfers becomes burdensome. Transfers into and out of a Guaranteed Account, other than at the termination of a Guaranteed Account, would count toward such limits.
We may at any time change the number and/or duration of Guaranteed Accounts we offer. Any such changes will not affect existing allocations to Guaranteed Accounts at the time of the change.
Termination of a Guaranteed Account
The termination date for a particular Guaranteed Account will be the anniversary of the date Contract Value is credited to a Guaranteed Account. For example, if Contract Value is transferred to a 7-year Guaranteed Account on May 2, 2016, the termination date for this Guaranteed Account is May 2, 2023, or the next following Valuation Day if May 2, 2023 is not a Valuation Day.
We will notify you in writing of the termination of your Guaranteed Account. Such notification will normally be mailed approximately 45 days prior to the termination date for a Guaranteed Account. During the 30-day period prior to the termination date (the 30-day window), you may provide instructions to reinvest the Contract Value in a Guaranteed Account, either as of the date we receive your instructions, or the termination date (or the next Valuation Day, if the date we receive your instructions or the termination date is not a Valuation Day), in any of the Subaccounts of the Variable Account, in the Fixed Account, or in any Guaranteed Account that we may be offering at that time. No market value adjustment will apply to any such reinvestment made as the result of instructions received during the 30-day window. In the event that you do not provide instructions during the 30-day window as to how to reinvest the Contract Value in a Guaranteed Account, we will, on the termination date, or the next following Valuation Day if the termination date is not a Valuation Day, transfer the Contract Value in a Guaranteed Account to the Money Market Subaccount of
the Variable Account. No market value adjustment will be applied to this transfer. You will then be able to transfer the Contract Value from the Money Market Subaccount to any other available investment option.
Market Value Adjustment
Contract Value allocated to a Guaranteed Account is not restricted from being surrendered, withdrawn, transferred or annuitized prior to the termination date of the Guaranteed Account. However, a market value adjustment will be applied to a surrender of your Contract or any such Contract Value withdrawn or transferred (we refer to a surrender, Withdrawal or transfer before the 30-day window as a MVA Withdrawal) from the Guaranteed Account prior to the 30-day window before its termination date.
We will apply the market value adjustment before we deduct any applicable CDSC or taxes. A market value adjustment will apply to Withdrawals from a Guaranteed Account prior to the 30-day window before its termination date even if a waiver of the CDSC applies to such a Withdrawal.
A market value adjustment reflects the change in current interest rates since we established a Guaranteed Account. The market value adjustment may be positive or negative. Adjustments may be limited in amount, as described in more detail below.
Generally, if at the time of your MVA Withdrawal the applicable index interest rate for maturities equal to the time remaining before the termination date of your Guaranteed Account is higher than the applicable index interest rate for maturities equal to the period of your Guaranteed Account at the time of your investment in the Guaranteed Account, then the market value adjustment will result in a reduction of your Contract Value. If the opposite is true at the time of your MVA Withdrawal, then the market value adjustment will result in an increase in your Contract Value. However, the market value adjustment is limited so that the amount available for MVA Withdrawal, before any CDSC, will never be less than the amount of the initial deposit, less any Withdrawals, plus interest at the Contracts minimum guaranteed interest rate. For Contracts issued on or after November 1, 2003, this minimum guaranteed interest rate may vary based on your state law and on prevailing interest rates, but will be set at the time of issue of the Contract and, once set, will not vary over the life of the Contract. For Contracts issued prior to November 1, 2003, however, the market value adjustment is limited so that the amount available for MVA Withdrawal, before any CDSC, will never be less than the amount of the initial deposit, less any Withdrawals, plus interest at 3.0% per annum.
We compute the amount of a market value adjustment as the lesser of (1) and (2) below. The market value adjustment will be positive if (1) below is positive. It will be negative if (1) below is negative.
(1) the absolute value of the Contract Value subject to the market value adjustment times:
((1+i)/ (1+j+c)) n/12 1
where
i = the interest rate from the U.S. Treasury Constant Maturities as found in the Federal Reserve Statistical Release H.15 available at the time of the initial deposit for the Guaranteed Account duration.
n = the number of whole months until the termination date of the Guaranteed Account
j = the current interest rate from the U.S. Treasury Constant Maturities as found in the Federal Reserve Statistical Release H.15 available for a period of length n/12, rounded down to the next whole year. If there is no interest rate for the maturity needed to calculate i or j, we will use straight line interpolation between the interest rate for the next highest and next lowest maturities to determine that interest rate. If the maturity is less than one year, we will use the index rate for a one-year maturity.
c = a constant, .0025 in most jurisdictions.
or
(2) the amount initially deposited into the Guaranteed Account times:
((1+k) d/365 (1 + g) d/365) the sum of all [TransferT ((1+k) e/365 (1 + g) e/365)]
where
k = the interest rate guaranteed for the guaranteed period.
d = (365 times the number of complete years since the initial deposit into the Guaranteed Account) plus the number of days since the last anniversary of such initial deposit (or the initial deposit date if less than one year has elapsed since the initial deposit) to the current date.
TransferT = a transfer from the Guaranteed Account on day T.
e = (365 times the number of complete years since T to the current transfer date) plus the number of days from the last anniversary of T (or the days since T if less than one year has elapsed).
g= your Contracts guaranteed minimum interest rate.
If you have made more than one deposit into a Guaranteed Account, and you do not instruct us otherwise, we will treat Withdrawals and transfers as coming from such Guaranteed Accounts on a pro rata basis, and within Guaranteed Accounts with the same initial guarantee period, on a first-in-first-out basis; that is, Contract Value with the earliest date of deposit into a Guaranteed Account will be withdrawn or transferred prior to Contract Value with later dates of deposit into such Guaranteed Account.
A market value adjustment will be applied to Funds transferred from a Guaranteed Account to collateralize a loan, whether for the initial loan or for loan interest.
We will not apply a market value adjustment to:
· any MVA Withdrawal during the 30-day window;
· Death Benefit proceeds;
· your Contract on its Maturity Date; or
· any deduction from a Guaranteed Account made to cover the Annual Contract Fee or Rider Charges.
Examples
Example #1:
Original Deposit: $10,000
Original Deposit Date: May 1, 2009
The $10,000 is placed in the seven-year Guaranteed Account. The guaranteed interest rate is 4.25%.
On May 1, 2013, the Owner wishes to transfer the full amount from the seven-year Guaranteed Account. The i rate as of May 1, 2009 for seven year periods was 2.48%. The j rate available for three year periods on May 1, 2013 is 0.34%. The contracts minimum guaranteed interest rate is 1.50%. There are 36 months remaining in the original guaranteed period. The Contract Value in this Guaranteed Account on May 1, 2013 is $10,868.06. (10,000 ´ 1.0425(2)).
The first part of the market value adjustment formula gives:
$10,868.06 ´(((1+0.0248)/ (1+0.0034+0.0025))36/12 1) = $624.19.
The second part of the market value adjustment formula gives:
$10,000 ´ ((1 + 0.0425)1461/365 (1 + 0.0150)1461/365) = $1,198.76
The amount of the market value adjustment is the lesser of the absolute value of the first part, $624.19, and of the second part, $1,198.76. Because the result of the first part is positive, the market value adjustment is an increase in Contract Value.
The amount of the transfer will be $10,868.06 + $624.19 = $11,492.25.
Example #2
Original Deposit: $10,000
Original Deposit Date: August 1, 2012
The $10,000 is placed in the seven-year Guaranteed Account. The guaranteed interest rate is 3.00%.
On May 1, 2013, the Owner wishes to transfer the full amount from the seven-year guaranteed account. The i rate as of August 1, 2012 for seven year periods was 0.97%. The j rate available for six year periods on May 1, 2013 is 0.92%. The contracts minimum guaranteed interest rate is 1.50%. There are 75 months remaining in the original guaranteed period. The Contract Value in this Guaranteed Account on May 1, 2013 is $10,223.55. (10,000 ´ 1.0300273/365).
The first part of the market value adjustment formula gives:
$10,223.55 ´ (((1+0.0097)/ (1+0.0092+0.0025))75/12 1) = -$125.66
The second part of the market value adjustment formula gives:
$10,000 ´ ((1 + 0.0300)273/365 (1 + 0.0150)273/365) = $111.56
The amount of the market value adjustment is the lesser of the absolute value of the first part, $125.66, and of the second part, $111.56. Since the result of the first part is negative, the market value adjustment is a reduction in Contract Value.
The amount of the transfer will be $10,223.55 - $111.56 = $10,111.98.
Note that the amount $10,111.98 is $10,000 accumulated for 273 days at 1.50%. In this example, the market value adjustment was restricted to the amount of interest earned by the Guaranteed Account in excess of 1.50%, the guaranteed interest rate of the contract. Had the market value adjustment been positive in this example, it still would have been restricted to $111.56.
Other Matters Relevant to the Guaranteed Accounts
If you have Contract Value allocated to a Guaranteed Account when you or a Joint Owner dies, no market value adjustment will be applied to such Contract Value before the Death Benefit is paid.
If you own a section 403(b) Tax-Sheltered Annuity Contract on which loans are available, and you need to borrow Contract Value, you must transfer all Contract Value allocated to a Guaranteed Account to a Subaccount of the Variable Account or to the Fixed Account prior to the processing of the loan. A market value adjustment will apply to such transfer. We will allocate loan repayments to the Subaccounts of the Variable Account and to the unloaned portion of the Fixed Account according to your premium allocation percentages in effect at the time of the repayment. While a loan is outstanding, premiums may not be allocated to, and transfers may not be made to, the Guaranteed Accounts.
The Guaranteed Accounts are not available in the states of Washington and Oregon. In Texas, only Contracts issued after April 8, 2002 are eligible to invest in the Guaranteed Accounts.
Preserver Plus Program
Under this program, you may place a portion of a Net Premium Payment into a seven year or ten year Guaranteed Account that will grow with guaranteed interest to 100% of that Net Premium Payment. We will calculate the portion of the Net Premium Payment needed to accumulate over the chosen guarantee period to 100% of the Net Premium Payment. The balance of the Net Premium Payment may be allocated to the Subaccounts of the Variable Account, the Fixed Account, or other Guaranteed Accounts in any manner you desire, subject to our normal allocation rules.
Amounts allocated to a Guaranteed Account under this program will not equal the original Net Premium Payment if any transfer or Withdrawal is made from a Guaranteed Account prior to the end of the guarantee period. Keep in mind that if you have a Qualified Contract, you will be required to take minimum required distributions.
OPTIONAL ENHANCED DEATH BENEFIT RIDER
This rider is no longer available for new election effective July 6, 2015.
The Rider is subject to the restrictions and limitations set forth in it. Election of this optional benefit involves an additional cost. This Rider is not available in Texas. If you elected the Enhanced Death Benefit Rider, then the following enhanced death benefit will be payable to the Beneficiary if you (or the Annuitant if the Owner is not a natural person) die prior to the Contract Anniversary on which you are age 81 on an age on nearest birthday basis (or in the case of Joint Owners, if the first of the Joint Owners to die dies prior to the Contract Anniversary on which the oldest of the Joint Owners is age 81 on an age nearest birthday basis), and prior to annuitization. The Enhanced Death Benefit will equal the highest of:
(a) the basic Death Benefit as described above; and
(b) the largest Contract Value as of any prior Contract Anniversary after the Enhanced Death Benefit Rider was applicable to the Contract, plus Net Premium Payments, minus any Withdrawals (including any CDSC deducted in connection with such Withdrawals), and minus any loan taken and accrued interest thereon, in each case since such Contract Anniversary.
We calculate this as of the date we receive due proof of death (in good order). Any applicable premium tax charge payable on your death will be applied to reduce the value of the determined enhanced death benefit (see Premium Taxes, above).
If you (or the Annuitant if the Owner is not a natural person) die on or after the Contract Anniversary on which you are age 81 on an age on nearest birthday basis (or in the case of Joint Owners, if the first of the Joint Owners to die dies on or after the Contract Anniversary on which the oldest of the Joint Owners is age 81 on an age nearest birthday basis), or after annuitization, the death benefit will not be enhanced and will be an amount equal to Contract Value, less any applicable premium tax charge.
The annual charge for this Rider is 0.20% of Contract Value. After the Contract Anniversary on which you (or the Annuitant, if the Owner is not a natural person) are age 80 on an age on nearest birthday basis (or in the case of Joint Owners, after the Contract Anniversary in which the oldest Joint owner is age 80 on an age on nearest birthday basis), we discontinue the charge. See Charge for Optional Enhanced Death Benefit Rider, above.
It is possible that the Internal Revenue Service may take a position that rider charges are deemed to be taxable distributions to you. Although we do not believe that a rider charge under the Contract should be treated as taxable withdrawal, you should consult your tax advisor prior to selecting any rider or endorsement under the Contract.
We distribute the Enhanced Death Benefit in the same manner as the normal Death Benefit. See Death of Owner, above.
OPTIONAL ACCELERATED BENEFIT RIDERS
If the Contract has been in force for at least five years, the Accelerated Benefit Riders provide accelerated Death Benefits prior to the death of the covered person in certain circumstances where a terminal illness or chronic illness creates a need for access to the Death Benefit. The terminal illness or chronic illness must have begun while the Contract was in force. Benefits accelerated under these Riders are discounted for interest and mortality. Once benefits have been accelerated, the Contract terminates. There is no cost for these Riders. They can be included in the Contract at issue, or they can be added after issue, for a covered person at the time of Contract issue whose age, on an age on nearest birthday basis, is 0-75.
The covered person is the Owner, unless the Owner is not a natural person, in which case the covered person is the Annuitant. If there are Joint Owners, then each is considered a covered person. If the covered person changes, then the Contract is not eligible for acceleration until the Contract has been in force five years from the date of the change.
These Riders may not be available in all states and their terms may vary by state. These Riders will not be available in New York, Oregon, Texas, Virginia or Washington. Connecticut, Kansas, Louisiana, Minnesota, New Jersey, Pennsylvania, South Carolina and Utah only allow the terminal illness portion of the Riders.
Any amount received under an Accelerated Benefits Rider should be taxed in the same manner as a surrender of the Contract. See Federal Income Tax Considerations, below.
FEDERAL INCOME TAX CONSIDERATIONS
The following discussion is general in nature and is not intended as tax advice. Each person concerned should consult a competent tax advisor. No attempt is made to consider any applicable state tax or other income tax laws, any state and local estate or inheritance tax, or other tax consequences of ownership or receipt of distributions under a Contract.
If you invest in a variable annuity as part of an individual retirement plan, pension plan or employer-sponsored retirement program, your contract is called a Qualified Contract. If your annuity is independent of any formal retirement or pension plan, it is termed a Non-Qualified Contract. The tax rules applicable to Qualified Contracts vary according to the type of retirement plan and the terms and conditions of the plan. Because the tax benefits of annuity contracts may not be needed in the context of Qualified Contracts, you generally should not buy a Qualified Contract for the purpose of obtaining tax deferral.
Taxation of Non-Qualified Contracts
Non-Natural Person. If a non-natural person (e.g., a corporation or a trust) owns a Non-Qualified Contract, the taxpayer generally must include in income any increase in the excess of the account value over the investment in the Contract (generally, the premiums or other consideration paid for the contract) during the taxable year. There are some exceptions to this rule and a prospective owner that is not a natural person should discuss these with a tax adviser.
The following discussion generally applies to Contracts owned by natural persons.
Withdrawals. When a withdrawal from a Non-Qualified Contract occurs, the amount received will be treated as ordinary income subject to tax up to an amount equal to the excess (if any) of the account value immediately before the distribution over the Owners investment in the Contract (generally, the premiums or other consideration paid for the Contract, reduced by any amount previously distributed from the Contract that was not subject to tax) at that time. There is no guidance on the proper tax treatment of market value adjustment and it is possible that a positive market value adjustment at the time of a Withdrawal from a Guaranteed Account may be treated as part of the Contract Value immediately prior to the distribution. A tax advisor should be consulted on this issue. In the case of a surrender under a Non-Qualified Contract, the amount received generally will be taxable only to the extent it exceeds the Owners investment in the Contract.
Penalty Tax on Certain Withdrawals. In the case of a distribution from a Non-Qualified Contract, there may be imposed a federal tax penalty equal to ten percent of the amount treated as income. In general, however, there is no penalty on distributions:
· made on or after the taxpayer reaches age 59½;
· made on or after the death of an Owner;
· attributable to the taxpayers becoming disabled; or
· made as part of a series of substantially equal periodic payments for the life (or life expectancy) of the taxpayer.
Other exceptions may be applicable under certain circumstances and special rules may be applicable in connection with the exceptions enumerated above. Additional exceptions apply to distributions from a Qualified Contract. You should consult a tax adviser with regard to exceptions from the penalty tax.
Annuity Payments. Although tax consequences may vary depending on the payout option elected under an annuity contract, a portion of each annuity payment is generally not taxed and the remainder is taxed as ordinary income. The non-taxable portion of an annuity payment is generally determined in a manner that is designed to allow you to recover your investment in the contract ratably on a tax-free basis over the expected stream of annuity payments, as determined when annuity payments start. Once your investment in the contract has been fully recovered, however, the full amount of each annuity payment is subject to tax as ordinary income.
Partial Annuitization. Under a tax provision enacted in 2010, if part but not all of an annuity contracts value is applied to provide payments for one or more lives or for a period of at least ten years (a partial annuitization), those payments may be taxed as annuity payments. This tax treatment is not available under the Contract because the Policy does not permit you to partially annuitize, that is, the contract requires you to apply all of your contract value when selecting a payout option.
Taxation of Death Benefit Proceeds. Amounts may be distributed from a Contract because of your death or the death of the Annuitant. Generally, such amounts are includible in the income of the recipient as follows: (i) if distributed in a lump sum, they are taxed in the same manner as a surrender of the Contract, or (ii) if distributed under a payout option, they are taxed in the same way as annuity payments.
Transfers, Assignments or Exchanges of a Contract. A transfer or assignment of ownership of a Contract, the designation of an annuitant or Payee who is not an Owner, the selection of certain maturity dates, or the exchange of a Contract may result in certain tax consequences to you that are not discussed herein. An owner contemplating any such transfer, assignment, designation or exchange, should consult a tax advisor as to the tax consequences.
Withholding. Annuity distributions are generally subject to withholding for the recipients federal income tax liability. Recipients can generally elect, however, not to have tax withheld from distributions.
Multiple Contracts. All non-qualified deferred annuity contracts that are issued by us (or our affiliates) to the same owner during any calendar year are treated as one annuity contract for purposes of determining the amount includible in such owners income when a taxable distribution occurs.
Further Information. Further details regarding the qualification of the Contract for Federal income tax purposes can be found in the Statement of Additional Information under the heading Tax Status of the Contracts.
Taxation of Qualified Contracts
The tax rules applicable to Qualified Contracts vary according to the type of retirement plan and the terms and conditions of the plan. Your rights under a Qualified Contract may be subject to the terms of the retirement plan itself, regardless of the terms of the Qualified Contract. Adverse tax consequences may result if you do not ensure that contributions, distributions and other transactions with respect to the Contract comply with the law.
Individual Retirement Accounts (IRAs), as defined in Section 408 of the Code , permit individuals to make annual contributions up to a maximum amount specified in the Code. The contributions may be deductible in whole or in part, depending on the individuals income. Distributions from certain pension plans may be rolled over into an IRA on a tax-deferred basis without regard to these limits. Amounts in the IRA (other than nondeductible contributions) are taxed when distributed from the IRA. A 10% penalty tax generally applies to distributions made before age 59½, unless certain exceptions apply. The Internal Revenue Service has not reviewed the Contract for qualification as an IRA, and has not addressed in a ruling of general applicability whether a death benefit provision such as the optional Enhanced Death Benefit provision in the Contract comports with IRA qualification requirements. Distributions that are rolled over to an IRA within 60 days are not immediately taxable, however only one such rollover is permitted each year. Beginning in 2015, an individual can make only one rollover from an IRA to another (or the same) IRA in any 12-month period, regardless of the number of IRAs that are owned. The limit will apply by aggregating all of an individuals IRAs including SEP and SIMPLE IRAs as well as traditional and Roth IRAs, effectively treating them as one IRA for purposes of the limit. This limit does not apply to direct trustee-to-trustee transfers or conversions to Roth IRAs.
SIMPLE IRAs permit certain small employers to establish SIMPLE plans as provided by Section 408(p) of the Code, under which employees may elect to defer to a SIMPLE IRA a percentage of compensation up to a maximum amount specified in the Code. The sponsoring employer is required to make matching or non-elective contributions on behalf of employees. Distributions from SIMPLE IRAs are subject to the same restrictions that apply to IRA distributions and are taxed as ordinary income. Subject to certain exceptions, premature distributions prior to age 59½ are subject to a 10 percent penalty tax, which is increased to 25 percent if the distribution occurs within the first two years after the commencement of the employees participation in the plan. Distributions that are rolled over to an IRA within 60 days are not immediately taxable, however only one such rollover is permitted each year. Beginning in 2015, an individual can make only one rollover from an IRA to another (or the same) IRA in any 12-month period, regardless of the number of IRAs that are owned. The limit will apply by aggregating all of an individuals IRAs including SEP and SIMPLE IRAs as well as traditional and Roth IRAs, effectively treating them as one IRA for purposes of the limit. This limit does not apply to direct trustee-to-trustee transfers or conversions to Roth IRAs.
Roth IRAs, as described in Code section 408A, permit certain eligible individuals to contribute to make non-deductible contributions to a Roth IRA in cash or as a rollover or transfer from another Roth IRA or other IRA. A rollover from or conversion of an IRA to a Roth IRA is generally subject to tax. The Owner may wish to consult a tax adviser before combining any converted amounts with any other Roth IRA contributions, including any other conversion amounts from other tax years. Distributions from a Roth IRA generally are not taxed, except that, once aggregate distributions exceed contributions to the Roth IRA, income tax and a 10% penalty tax may apply to distributions made (1) before age 59½ (subject to certain exceptions) or (2) during the five taxable years starting with the year in which the first contribution is made to any Roth IRA. A 10% penalty tax may apply to amounts attributable to a conversion from an IRA if they are distributed during the five taxable years beginning with the year in which the conversion was made. Distributions that are rolled over to an IRA within 60 days are not immediately taxable, however only one such rollover is permitted each year. Beginning in 2015, an individual can make only one rollover from an IRA to another (or the same) IRA in any 12-month period, regardless of the number of IRAs that are owned. The limit will apply by aggregating all of an individuals IRAs including SEP and SIMPLE IRAs as well as traditional and Roth IRAs, effectively treating them as one IRA for purposes of the limit. This limit does not apply to direct trustee-to-trustee transfers or conversions to Roth IRAs.
Corporate pension and profit-sharing plans under Section 401(a) of the Code allow corporate employers to establish various types of retirement plans for employees, and self-employed individuals to establish qualified plans for themselves and their employees. Adverse tax consequences to the retirement plan, the participant or both may result if the Contract is transferred to any individual as a means to provide benefit payments, unless the plan complies with all the requirements applicable to such benefits prior to transferring the Contract. The Contract includes an Enhanced Death Benefit that in some cases may exceed the greater of the premium payments or the account value.
The Death Benefit could be characterized as an incidental benefit, the amount of which is limited in any pension or profit-sharing plan. Because the Death Benefit may exceed this limitation, and its value may need to be considered in calculating minimum required distributions, employers using the Contract in connection with such plans should consult their tax adviser.
Tax Sheltered Annuities under section 403(b) of the Code allow employees of certain Section 501(c)(3) organizations and public schools to exclude from their gross income the premium payments made, within certain limits, on a contract that will provide an annuity for the employees retirement. These premium payments may be subject to FICA (social security) tax. Distributions of
(1) salary reduction contributions made in years beginning after December 31, 1988; (2) earnings on those contributions; and (3) earnings on amounts held as of the last year beginning before January 1, 1989, are not allowed prior to age 59½, severance from employment, death or disability. Salary reduction contributions may also be distributed upon hardship, but would generally be subject to penalties. The Contract includes an Enhanced Death Benefit that in some cases may exceed the greater of the premium payments or the account value. The Death Benefit could be characterized as an incidental benefit, the amount of which is limited in any tax-sheltered annuity. Because the Death Benefit may exceed this limitation, and its value may need to be considered in calculating minimum required distributions, employers using the Contract in connection with such plans should consult their tax adviser.
Section 457 Plans, while not actually providing for a qualified plan as that term is normally used, provides for certain deferred compensation plans with respect to service for state governments, local governments, political subdivisions, agencies, instrumentalities and certain affiliates of such entities, and tax exempt organizations. The Contract can be used with such plans. Under such plans a participant may specify the form of investment for his or her deferred compensation account. For non-governmental Section 457 plans, all such investments are owned by and are subject to, the claims of the general creditors of the sponsoring employer. In general, all amounts received under a section 457 plan are taxable and are subject to federal income tax withholding as wages. The value of the Enhanced Death Benefit may need to be considered in calculating minimum required distributions.
Withdrawals. In the case of a withdrawal under a Qualified Contract, a ratable portion of the amount received is taxable, generally based on the ratio of the investment in the contract to the individuals total account balance or accrued benefit under the retirement plan. The investment in the contract generally equals the amount of any non-deductible Purchase Payments paid by or on behalf of the individual. In many cases, the investment in the contract under a Qualified Contract may be zero.
Other Tax Issues. Qualified Contracts have minimum distribution rules that govern the timing and amount of distributions. You should refer to your retirement plan or adoption agreement, or consult a tax advisor for more information about these distribution rules.
Distributions from Qualified Contracts generally are subject to withholding for the Owners federal income tax liability. The withholding rate varies according to the type of distribution and the Owners tax status. The Owner will be provided the opportunity to elect not have tax withheld from distributions.
Eligible rollover distributions from section 401(a) plans, Section 403(a) annuities, and Section 403(b) plans, and governmental 457 plans are subject to a mandatory federal income tax withholding of 20%. An eligible rollover distribution is any distribution, from such a plan, except certain distributions such as distributions required by the Code, distributions in a specified annuity form or hardship distributions. The 20% withholding does not apply, however, to nontaxable distributions or if (i) the employee (or employees spouse or former spouse as beneficiary or alternate payee) chooses a direct rollover from the plan to a tax-qualified plan, IRA, Roth IRA or tax sheltered annuity or to a governmental 457 plan that agrees to separately account for rollover contributions; or (ii) a non-spouse beneficiary chooses a direct rollover from the plan to an IRA established by the direct rollover.
Federal Estate, Gift and Generation-Skipping Transfer Taxes
While no attempt is being made to discuss in detail the Federal estate tax implications of the Contract, a purchaser should keep in mind that the value of an annuity contract owned by a decedent and payable to a beneficiary by virtue of surviving the decedent is included in the decedents gross estate. Depending on the terms of the annuity contract, the value of the annuity included in the gross estate may be the value of the lump sum payment payable to the designated beneficiary or the actuarial value of the payments to be received by the beneficiary. Consult an estate planning advisor for more information.
Under certain circumstances, the Code may impose a generation skipping transfer (GST) tax when all or part of an annuity contract is transferred to, or a death benefit is paid to, an individual two or more generations younger than the Owner. Regulations issued under the Code may require us to deduct the tax from your Contract, or from any applicable payment, and pay it directly to the IRS.
For 2016, the federal estate tax, gift tax and GST tax exemptions and maximum rates are $5,450,000 and 40%, respectively. The potential application of these taxes underscores the importance of seeking guidance from a qualified adviser to help ensure that your estate plan adequately addresses your needs and those of your beneficiaries under all possible scenarios.
Medicare Tax. Distributions from non-qualified annuity contracts will be considered investment income for purposes of the Medicare tax on investment income. The 3.8% tax will be applied to the taxable portion of distributions (e.g. earnings) to individuals whose income exceeds certain threshold amounts. Consult a tax advisor for more information.
Annuity purchases by nonresident aliens and foreign corporations. The discussion above provides general information regarding U.S. federal income tax consequences to annuity purchasers that are U.S. citizens or residents. Purchasers that are not U.S. citizens or residents will generally be subject to U.S. federal withholding tax on taxable distributions from annuity contracts at a 30% rate, unless a lower treaty rate applies. In addition, purchasers may be subject to state and/or municipal taxes and taxes that may be imposed by the purchasers country of citizenship or residence. Additional withholding may occur with respect to entity purchasers (including foreign corporations, partnerships, and trusts) that are not U.S. residents. Prospective purchasers are advised to consult with a qualified tax adviser regarding U.S. state, and foreign taxation with respect to an annuity contract purchase.
Foreign Tax Credits. We may benefit from any foreign tax credits attributable to taxes paid by certain Funds to foreign jurisdictions to the extent permitted under federal tax law.
Possible Tax Law Changes
Although the likelihood of legislative changes is uncertain, there is always the possibility that the tax treatment of the Contract could change by legislation or otherwise. Consult a tax adviser with respect to legislative developments and their effect on the Contract.
We have the right to modify the contract in response to legislative changes that could otherwise diminish the favorable tax treatment that annuity contract owners currently receive. We make no guarantee regarding the tax status of any contact and do not intend the above discussion as tax advice.
For additional information relating to the tax status of the Contract, see the Statement of Additional Information.
GENDER NEUTRALITY
In 1983, the United States Supreme Court held that optional annuity benefits provided under an employees deferred compensation plan could not, under Title VII of the Civil Rights Act of 1964 vary between men and women on the basis of sex. The Court applied its decision to benefits derived from contributions made on or after August 1, 1983. Lower federal courts have since held that the Title VII prohibition of sex-distinct benefits may apply at an earlier date. In addition, some states prohibit using sex-distinct mortality tables.
The Contract uses sex-distinct actuarial tables, unless state law requires the use of sex-neutral actuarial tables. As a result, the Contract generally provides different benefits to men and women of the same age. Employers and employee organizations which may consider buying Contracts in connection with any employment-related insurance or benefits program should consult their legal advisors to determine whether the Contract is appropriate for this purpose.
VOTING RIGHTS
Voting rights under the Contracts apply only with respect to Net Premium Payments or accumulated amounts allocated to the Variable Account.
In accordance with our view of present applicable law, we vote the shares of the Funds held in the Variable Account at regular and special meetings of the shareholders of the Funds. These shares are voted in accordance with instructions received from you if you have an interest in the Variable Account. If the Investment Company Act or any regulation thereunder should be amended or if the present interpretation thereof should change, and as a result we determine that we are permitted to vote the shares of the Funds in our own right, we may elect to do so.
The person having the voting interest under a Contract is the Owner. The number of Fund shares attributable to each Owner is determined by dividing the Owners interest in each Subaccount by the net asset value of the Fund corresponding to the Subaccount.
We vote Fund shares held in the Variable Account as to which no timely instructions are received in the same proportions as the voting instructions we receive with respect to all contracts participating in the Variable Account. This means that a small number of Owners may control how we vote.
Each person having a voting interest will receive periodic reports relating to the Funds, proxy material and a form with which to give such voting instructions.
CHANGES TO VARIABLE ACCOUNT
We reserve the right to create one or more new separate accounts, combine or substitute separate accounts, or to add new investment Funds for use in the Contracts at any time. In addition, if the shares of the Funds described in this prospectus should no longer be available for investment by the Variable Account or, if in our judgment further investment in such Fund shares should become inappropriate, we may eliminate Subaccounts, combine two or more Subaccounts or substitute one or more Funds for other Fund shares already purchased or to be purchased in the future under the Contract. The other Funds may have higher fees and charges than the ones they replaced, and not all Funds may be available to all classes of Contracts. In general, no substitution of securities in the Variable Account may take place without prior approval of the SEC and under such requirements as it may impose. We may also operate the Variable Account as a management investment company under the Investment Company Act, deregister the Variable Account under the Investment Company Act (if such registration is no longer required), transfer all or part of the assets of the Variable Account to another separate account or to the Fixed Account (subject to obtaining all necessary regulatory approvals), and make any other changes reasonably necessary under the Investment Company Act or applicable state law.
DISTRIBUTION OF THE CONTRACTS
We have entered into a distribution agreement with ESI, our affiliate, for the distribution and sale of the Contracts. ESI is a wholly owned indirect subsidiary of National Life Holding Company. Pursuant to this agreement, ESI serves as principal underwriter for the Contracts. ESI sells the Contracts through its registered representatives. ESI has also entered into selling agreements with other broker-dealers who in turn sell the Contracts through their registered representatives. ESI is registered as a broker-dealer with the SEC under the Securities Exchange Act of 1934, as well as with the securities commissions in the states in which it operates, and is a member of Financial Industry Regulatory Authority, Inc. (FINRA).
ESIs registered representatives who sell the Contracts are registered with the FINRA and with the states in which they do business. More information about ESI and its registered representatives is available at www.finra.org or by calling 1-800-289-9999. You also can obtain an investor brochure from FINRA through its BrokerCheck program.
National Life pays ESI commissions and other forms of compensation for sales of the Contracts. You may purchase a Contract through a registered representative of ESI, and you may also purchase a Contract from another broker-dealer that has a selling agreement with ESI. The maximum payment to a broker-dealer for selling the Contracts will generally be 6.5%; however, during certain promotional periods the commissions may be higher. These promotional periods will be determined by National Life and the maximum commission paid during these periods will not exceed 7.0%. We will pay the broker-dealer commission either as a percentage of the Premium Payment at the time it is paid, as a percentage of Contract Value over time, or a combination of both. A portion of the payments made to selling broker-dealers will be passed on to their registered representatives in accordance with their internal compensation arrangements. Those arrangements may also include other types of cash and non-cash compensation and other benefits. You may ask your registered representative for further information about what your registered representative and the selling dealer for which he or she works may receive in connection with your purchase of a Contract.
National Life general agents, who may also be registered as principals with ESI, also receive compensation on Contracts sold through ESI registered representatives. National Life general agents may also receive fees from ESI relating to sales of the Contracts by broker-dealers other than ESI, where the selling registered representative has a relationship with such general agents National Life agency.
National Life may provide loans to unaffiliated broker-dealers, who in turn may provide loans to their registered representatives, to finance business development, and may then provide further loans or may forgive outstanding loans based on specified business criteria, including sales of the Contracts, and measures of business quality.
From time to time we may offer specific sales incentives to selling broker-dealers. The selling broker-dealers, on their own accord, may pass through some or all of these incentives to their registered representatives. These incentives may take the form of cash bonuses for reaching certain sales levels or for attaining a high ranking among registered representatives based on sales levels. These incentive programs may also include sales of National Lifes or their affiliates other products. To the extent, if any, that such bonuses are attributable to the sale of variable products, including the Contracts, such bonuses will be paid through the agents broker-dealer.
National Life, ESI and/or their affiliates may contribute amounts to various non-cash and cash incentives paid by ESI to its registered representatives the amounts of which may be based in whole or in part on the sales of the Policies, including (1) sponsoring educational programs, (2) contributing to sales contests and/or promotions in which participants receive prizes such as travel, merchandise, hardware and/or software; (3) paying for occasional meals, lodging and/or entertainment; (4) making cash payments in lieu of business expense reimbursements; (5) making loans and forgiving such loans and/or (6) health and welfare benefit programs.
Commissions and other incentives or payments described above are not charged directly to Contract owners or to the Variable Account. We intend to recoup commissions and other sales expenses through fees and charges deducted under the Contract.
The Deutsche (with exception of the Small Cap Index Fund), Franklin Templeton (with exception of the Global Discovery Securities Fund and the U.S. Government Fund), Oppenheimer, T. Rowe Price (with exception of the Personal Strategy Balanced Fund), Wells Fargo Funds and the Small Cap Growth Portfolio of Neuberger Berman Advisers Management Trust offered in the Contracts, make payments to ESI under their 12b-1 plans in consideration of services provided by ESI in selling or servicing shares of these funds. In each case these payments amount to 0.25% of Variable Account assets invested in the particular fund. Fidelitys Money Market Portfolio may make payments under its 12b-1 plan to ESI in consideration of services provided by ESI in selling or servicing shares of this Portfolio of up to 0.10% of Variable Account assets invested in the Portfolios.
See Distribution of the Contracts in the Statement of Additional Information for more information about compensation paid for the sale of the Contracts.
FINANCIAL STATEMENTS
The financial statements of National Life, the Variable Account, and of NLV Financial Corporation (NLV Financial), the parent company of National Life, are included in the Statement of Additional Information. The financial statements of National Life should be considered only as bearing on National Lifes general financial strength, claims paying ability and ability to meet its obligations under the Contracts. In addition to Fixed Account and Guaranteed Account allocations, general account assets are used to pay benefits that exceed your Contract Value under the Contract. National Lifes General Account assets principally consist of fixed-income securities, including corporate bonds, mortgage-backed/asset-backed securities, and mortgage loans on real estate. National Life also enters into equity derivative contracts (futures and options) to hedge exposures embedded in our equity indexed annuity products, and may enter into other types of derivatives transactions. All of National Lifes General Account assets are exposed to various investment risks. National Lifes financial statements include a further discussion of risks associated with General Account investments. They should not be considered as bearing on the investment performance of the assets held in the Variable Account.
Further, you should only consider NLV Financials financial statements as bearing on the ability of NLV Financial to meet its obligations under the keep well and pledge and security agreement.
STATEMENTS AND REPORTS
National Life will mail to Owners, at their last known address of record, any statements and reports required by applicable laws or regulations. Owners should therefore give National Life prompt notice of any address change. National Life will send a confirmation statement to Owners each time a transaction is made affecting the Owners Variable Account Contract Value, such as making additional Premium Payments, transfers, exchanges or Withdrawals. Quarterly statements are also mailed detailing the Contract activity during the calendar quarter. Instead of receiving an immediate confirmation of transactions made pursuant to some types of periodic payment plans (such as a dollar cost averaging program) or salary reduction arrangement, the Owner may receive confirmation of such transactions in their quarterly statements. The Owner should review the information in these statements carefully. All errors or corrections must be reported to National Life immediately to assure proper crediting to the Owners Contract. National Life will assume all transactions are accurately reported on quarterly statements or confirmation statements unless the Owner notifies National Life otherwise within 30 days after receipt of the statement.
To eliminate duplicate mailings and reduce expenses, we may mail only one copy of the prospectus, prospectus supplements, annual and semi-annual reports, or any other required documents to your household, including the prospectuses or summary prospectuses for the Funds, even if more than one Owner lives there. If you would like an additional copy or if would like to continue to receive your own copy of any of these documents, you may call us toll-free at 1-800-732-8939 or write us at our Home Office.
OWNER INQUIRIES
Owner inquiries may be directed to National Life by writing to us at One National Life Drive, Montpelier, Vermont 05604, or calling 1-800-732-8939.
LEGAL MATTERS
National Life and its affiliates, like other life insurance companies, are involved from time to time in lawsuits, arbitrations and regulatory proceedings. In some cases, substantial damages and/or penalties have been sought. National Life believes that at the present time, there are no pending or threatened lawsuits or legal or regulatory proceedings that are reasonably likely to have a material adverse impact on the Variable Account, on the ability of National Life to meet its obligations under the Contracts, or on the ability of ESI to perform its obligations under the distribution agreement for the Contracts, described above.
GLOSSARY
Accumulation Unit - An accounting unit of measure used to calculate the Variable Account Contract Value prior to the Annuitization Date.
Annuitant - A person named in the Contract who is expected to become, at Annuitization, the person upon whose continuation of life any annuity payments involving life contingencies depends. Unless the Owner is a different individual who is age 85 or younger, this person must be age 85 or younger at the time of Contract issuance unless National Life has approved a request for an Annuitant of greater age. The Owner may change the Annuitant prior to the Annuitization Date, as set forth in the Contract.
Annuitization - The period during which annuity payments are received.
Annuitization Date - The date on which annuity payments commence.
Annuity Payment Option - The chosen form of annuity payments. Several options are available under the Contract.
Annuity Unit - An accounting unit of measure used to calculate the value of Variable Annuity payments.
Beneficiary - The Beneficiary is the person designated to receive certain benefits under the Contract upon the death of the Owner or Annuitant prior to the Annuitization Date. The Beneficiary can be changed by the Owner as set forth in the Contract.
Cash Surrender Value - An amount equal to Contract Value, minus any applicable CDSC, minus any applicable premium tax charge.
Chosen Human Being An individual named at the time of Annuitization upon whose continuance of life any annuity payments involving life contingencies depends.
Code - The Internal Revenue Code of 1986, as amended.
Collateral Fixed Account The portion of the Fixed Account which holds value that secures a loan on the Contract.
Contract Anniversary - An anniversary of the Date of Issue of the Contract.
Contract Value - The sum of the value of all Variable Account Accumulation Units attributable to the Contract, plus any amount held under the Contract in the Fixed Account, plus any amounts held in the Guaranteed Accounts, and minus any outstanding loan and accrued interest on such loans.
Contract Year - Each year the Contract remains in force commencing with the Date of Issue.
Date of Issue - The date shown as the Date of Issue on the Data Page of the Contract.
Death Benefit - The benefit payable to the Beneficiary upon the death of the Owner or the Annuitant.
Distribution - Any payment of part or all of the Contract Value.
Fixed Account - The Fixed Account is part of National Lifes general account and Guaranteed Accounts made up of all assets of National Life other than those in the Variable Account or any other segregated asset account of National Life.
Fixed Annuity - An annuity providing for payments which are guaranteed by National Life as to dollar amount during Annuitization.
Fund - A registered management investment company in which the assets of a Subaccount of the Variable Account will be invested.
Guaranteed Account A Guaranteed Account is part of National Lifes general account. We guarantee a specified interest rate for the entire time an investment remains in a Guaranteed Account.
Home Office National Lifes Home Office located at One National Life Drive, Montpelier, Vermont 05604; 1-800-732-8939 (telephone).
Individual Retirement Annuity (IRA) - An annuity which qualifies for favorable tax treatment under Section 408 of the Code.
Investment Company Act The Investment Company Act of 1940, as amended from time to time.
Joint Owners - Two or more persons who own the Contract as tenants in common or as joint tenants. If joint owners are named, references to Owner in this prospectus will apply to both of the Joint Owners.
Maturity Date - The date on which annuity payments are scheduled to commence. The Maturity Date is shown on the Data Page of the Contract, and is subject to change by the Owner, within any applicable legal limits, subject to National Lifes approval.
Monthly Contract Date - The day in each calendar month which is the same day of the month as the Date of Issue, or the last day of any month having no such date, except that whenever the Monthly Contract Date would otherwise fall on a date other than a Valuation Day, the Monthly Contract Date will be deemed to be the next Valuation Day.
Non-Qualified Contract - A Contract which does not qualify for favorable tax treatment under the provisions of Sections 401 or 403(a) (Qualified Plans), 408 (IRAs), 408A (Roth IRAs), 403(b) (Tax-Sheltered Annuities), or 457 of the Code.
Owner (you) - The Owner is the person who possesses all rights under the Contract, including the right to designate and change any designations of the Owner, Annuitant, Beneficiary, Annuity Payment Option, and the Maturity Date.
Payee - The person who is designated at the time of Annuitization to receive the proceeds of the Contract upon Annuitization.
Premium Payment - A deposit of new value into the Contract. The term Premium Payment does not include transfers among the Variable Account, Fixed Account, and Guaranteed Accounts, or among the Subaccounts.
Net Premium Payments - The total of all Premium Payments made under the Contract, less any premium tax deducted from premiums.
Qualified Contract - A Contract which qualifies for favorable tax treatment under the provisions of Sections 401 or 403(a) (Qualified Plans), 408 (IRAs), 408A (Roth IRAs), 403(b) (Tax-Sheltered Annuities) or 457 of the Code.
Qualified Plans - Retirement plans which receive favorable tax treatment under section 401 or 403(a) of the Code.
Subaccounts - Separate and distinct divisions of the Variable Account that purchase shares of underlying Funds. Separate Accumulation Units and Annuity Units are maintained for each Subaccount.
Tax-Sheltered Annuity - An annuity which qualifies for favorable tax treatment under section 403(b) of the Code.
Valuation Day - Each day the New York Stock Exchange is open for business other than any day on which trading is restricted. Unless otherwise indicated, when an event occurs or a transaction is to be effected on a day that is not a Valuation Day, it will be effected on the next Valuation Day. A Valuation Day ends at the close of regular trading of the New York Stock Exchange, usually 4:00 p.m., Eastern Time..
Valuation Period - The time between two successive Valuation Days.
Variable Account -The National Variable Annuity Account II, a separate investment account of National Life into which Net Premium Payments under the Contracts are allocated. The Variable Account is divided into Subaccounts, each of which invests in the shares of a separate underlying Fund.
Variable Annuity - An annuity the accumulated value of which varies with the investment experience of a separate account.
Withdrawal - A payment made at the request of the Owner pursuant to the right to withdraw a portion of the Contract Value of the Contract.
NATIONAL LIFE INSURANCE COMPANY
NATIONAL VARIABLE ANNUITY ACCOUNT II
SENTINEL ADVANTAGE VARIABLE ANNUITY 5
SENTINEL ADVANTAGE VARIABLE ANNUITY CONTRACT
STATEMENT OF ADDITIONAL INFORMATION
OFFERED BY
NATIONAL LIFE INSURANCE COMPANY
One National Life Drive
Montpelier, Vermont 05604
This Statement of Additional Information expands upon subjects discussed in the current prospectuses for the Sentinel Advantage Variable Annuity 5 and the Sentinel Advantage Variable Annuity Contract (each referred to as a Contract. The term Contract applies equally to the Sentinel Advantage Variable Annuity 5 and the Sentinel Advantage Variable Annuity unless otherwise indicated.) both offered by National Life Insurance Company. You may obtain a copy of the applicable prospectus dated May 1, 2016. as supplemented from time to time, by calling 1-800-732-8939, by writing to National Life Insurance Company, One National Life Drive, Montpelier, Vermont 05604 or by accessing the SECs website at http://www.sec.gov. Definitions of terms used in the current prospectus for the Contract are incorporated in this Statement of Additional Information.
This Statement of Additional Information is not a prospectus and should be read only in conjunction with the prospectus for the Contract.
Dated May 1, 2016
TABLE OF CONTENTS
ADDITIONAL CONTRACT PROVISIONS |
3 |
The Contract |
3 |
Misstatement of Age or Sex |
3 |
Dividends |
3 |
Assignment |
3 |
CONTRACTUAL ARRANGEMENTS BETWEEN NATIONAL LIFE AND THE FUNDS INVESTMENT ADVISORS OR DISTRIBUTORS |
3 |
TAX STATUS OF THE CONTRACTS |
4 |
DISTRIBUTION OF THE CONTRACTS |
4 |
SAFEKEEPING OF ACCOUNT ASSETS |
5 |
STATE REGULATION |
5 |
RECORDS AND REPORTS |
6 |
LEGAL MATTERS |
6 |
EXPERTS |
6 |
OTHER INFORMATION |
6 |
FINANCIAL STATEMENTS |
F-000 |
ADDITIONAL CONTRACT PROVISIONS
The Contract
Effective May 2, 2016 Sentinel Advantage Variable Annuity is not available for new issue.
The entire contract is made up of the Contract and the application. The statements made in the application are deemed representations and not warranties. National Life Insurance Company (National Life we our or us) cannot use any statement in defense of a claim or to void the Contract unless it is contained in the application and a copy of the application is attached to the Contract at issue.
Misstatement of Age or Sex
If the age or sex of the Chosen Human Being has been misstated, the amount which will be paid is that which is appropriate to the correct age and sex.
Dividends
The Contract is participating; however, no dividends are expected to be paid on the Contract. If dividends are ever declared, they will be paid in cash.
Assignment
Where permitted, the Owner may assign some or all of the rights under the Contract at any time during the lifetime of the Annuitant prior to the Annuitization Date. Such assignment will take effect upon receipt (in good order) and recording by National Life at its Home Office of a written notice executed by the Owner. National Life assumes no responsibility for the validity or tax consequences of any assignment. National Life shall not be liable as to any payment or other settlement made by National Life before recording of the assignment. Where necessary for the proper administration of the terms of the Contract, an assignment will not be recorded until National Life has received sufficient direction from the Owner and assignee as to the proper allocation of Contract rights under the assignment.
Any portion of Contract Value which is pledged or assigned shall be treated as a Distribution and shall be included in gross income to the extent that the cash value exceeds the investment in the Contract for the taxable year in which assigned or pledged. In addition, any Contract Values assigned may, under certain conditions, be subject to a tax penalty equal to 10% of the amount which is included in gross income. Assignment of the entire Contract Value may cause the portion of the Contract Value which exceeds the total investment in the Contract and previously taxed amounts to be included in gross income for federal income tax purposes each year that the assignment is in effect. Qualified Contracts are not eligible for assignment.
CONTRACTUAL ARRANGEMENTS BETWEEN NATIONAL LIFE AND
THE FUNDS INVESTMENT ADVISORS OR DISTRIBUTORS
We have entered into or may enter into agreements pursuant to which the Funds advisor or distributor or an affiliate pays us a fee, which may differ, based upon an annual percentage of the average net asset amount we invest on behalf of the Variable Account and our other separate accounts for administration and other services. Equity Services, Inc. (ESI) has also entered into agreements pursuant to which the Funds distributor pays ESI a fee, which may differ, based upon an annual percentage of average net asset amount we invest on behalf of the Variable Account and our other separate accounts for distribution and other services. The amount of this compensation with respect to the Contract during 2015, which is based upon the indicated percentages of assets of each Fund attributable to the Sentinel Advantage Variable Annuity Contract, is shown below:
Portfolios of the |
|
% of Assets |
|
Revenues Received By National |
| |
The Alger Portfolios |
|
0.10 |
% |
$ |
15,171.36 |
|
The AllianceBernstein Variable Product Series Fund, Inc. |
|
0.10 |
%(1) |
$ |
0.00 |
|
American Century Variable Portfolios, Inc. |
|
0.25 |
%(2) |
$ |
30,398.36 |
|
Dreyfus Variable Investment Fund and Dreyfus Socially Responsible Growth Fund, Inc. |
|
0.20 |
% |
$ |
6,181.15 |
|
Deutsche Investments VIT Funds |
|
0.10 |
%(3) |
$ |
9,202.05 |
|
Fidelity® Variable Insurance Products |
|
0.15 |
%(4) |
$ |
58,533.35 |
|
Franklin Templeton Variable Insurance Products Trust |
|
0.35 |
%(5) |
$ |
19,178.61 |
|
Invesco Variable Insurance Funds |
|
0.25 |
% |
$ |
7,786.85 |
|
JPMorgan Insurance Trust |
|
0.20 |
% |
$ |
653.17 |
|
Neuberger Berman Advisers Management Trust |
|
0.15 |
%(6) |
$ |
15,390.82 |
|
Oppenheimer Variable Account Funds |
|
0.25 |
% |
$ |
4,420.64 |
|
T. Rowe Price Equity Series, Inc. |
|
0.25 |
%(7) |
$ |
55,804.71 |
|
Van Eck VIP Trust |
|
0.20 |
% |
$ |
9,530.21 |
|
Wells Fargo Variable Trust |
|
0.25 |
% |
$ |
0.00 |
|
*Note: Revenues received by National Life during 2015 may include revenues received in 2015 for services rendered in 2014.
(1) 0.05% with respect to the Small Mid Cap Value Portfolio.
(2) 0.10% with respect to the VP Inflation Protection Fund.
(3) 0.10% with respect to the DWS Variable Series II funds.
(4) 0.05% with respect to the Index 500 Portfolio.
(5) Includes 0.25% payable under the Funds 12b-1 Plan.
(6) The Small Cap Growth Portfolio offers only an S-Series class, which has a 0.25% 12b-1 fee which is also paid to ESI.
(7) The 0.25% payment shown in the table is payable under the Funds 12b-1 plan. In addition, the Funds adviser will pay to National Life for administrative services an amount equal to 0.15% of the amount, if any, by which the shares held by National Life separate accounts exceed $25 million.
Revenues recieved by National Life during 2015 are not shown for Sentinel Advantage Variable Annuity 5 because it was not offered untill May 2, 2016.
These arrangements may change from time to time, and may include more Funds in the future.
TAX STATUS OF THE CONTRACTS
Tax law imposes several requirements that variable annuities must satisfy in order to receive the tax treatment normally accorded to annuity contracts.
Diversification Requirements. The Internal Revenue Code (Code) requires that the investments of each investment division of the separate account underlying the Contracts be adequately diversified in order for the Contracts to be treated as annuity contracts for Federal income tax purposes. It is intended that each investment division, through the fund in which it invests, will satisfy these diversification requirements.
Owner Control. In some circumstances, owners of variable annuity contracts who retain excessive control over the investment of the underlying separate account assets may be treated as the owners of those assets and may be subject to tax on income produced by those assets. Although published guidance in this area does not address certain aspects of our Contracts, we believe that the Owner of a Contract should not be treated as the owner of the assets of the separate account. We reserve the right to modify the Contracts to bring them into conformity with applicable standards should such modification be necessary to prevent Contract Owners from being treated as the owner of the underlying assets of the separate account asset.
Required Distributions. In order to be treated as an annuity contract for Federal income tax purposes, Section 72(s) of the Code requires any Non-Qualified Contract to contain certain provisions specifying how your interest in the Contract will be distributed in the event of the death of an owner of the Contract. Specifically, section 72(s) requires that (a) if any owner dies on or after the annuity starting date, but prior to the time the entire interest in the contract has been distributed, the entire interest in the contract will be distributed at least as rapidly as under the method of distribution being used as of the date of such owners death; and (b) if any owner dies prior to the annuity starting date, the entire interest in the contract will be distributed within five years after the date of such owners death. These requirements will be considered satisfied as to any portion of a owners interest which is payable to or for the benefit of a designated beneficiary and which is distributed over the life of such designated beneficiary or over a period not extending beyond the life expectancy of that beneficiary, provided that such distributions begin within one year of the owners death. The designated beneficiary refers to a natural person designated by the owner as a beneficiary and to whom ownership of the contract passes by reason of death. However, if the designated beneficiary is the surviving spouse of the deceased owner, the contract may be continued with the surviving spouse as the new owner.
The Non-Qualified Contracts contain provisions that are intended to comply with these Code requirements, although no regulations interpreting these requirements have yet been issued. We intend to review such provisions and modify them if necessary to assure that they comply with the applicable requirements when such requirements are clarified by regulation or otherwise.
Other rules may apply to Qualified Contracts.
DISTRIBUTION OF THE CONTRACTS
Equity Services, Inc. (ESI) is responsible for distributing the Contracts pursuant to a distribution agreement with us. ESI serves as principal underwriter for the Contracts. ESI, a Vermont corporation and an affiliate of National Life, is located at One National Life Drive, Montpelier, Vermont 05604.
We offer the Contracts to the public on a continuous basis through ESI. We anticipate continuing to offer the Contracts, but reserve the right to discontinue the offering.
ESI offers the Contracts through its registered representatives. ESI has also entered into selling agreements with other broker-dealers for sales of the Contracts through their registered representatives. Registered representatives must be licensed as insurance agents and appointed by us.
We pay commissions to ESI for sales of the Contracts. In addition, to promote sales of the Contracts and consistent with NASD Conduct Rules and FINRA rules, each administered by FINRA, National Life, ESI and/or their affiliates may contribute amounts to various non-cash and cash incentives to be paid by ESI to its registered representatives the amounts of which may be based in whole or in part on the sales of the Contracts, including: (1) contributing to educational programs; (2) sponsoring sales contests and/or promotions in which participants receive prizes such as travel, merchandise, hardware and/or software; (3) paying for occasional meals, lodging and/or entertainment; (4) making cash payments in lieu of business expense reimbursements; (5) making loans and forgiving such loans: and/or (6) health and welfare benefit programs.
Commissions paid on the Contract, as well as other incentives or payments, are not charged directly to the Contract Owners or the Variable Account. However, commissions and other sales expenses are reflected in the fees and charges a contract owner pays directly or indirectly.
ESI received underwriting commissions in connection with the Sentinel Advantage Variable Annuity Contract in the following amounts during the periods indicated:
Fiscal Year |
|
Aggregate Amount of |
|
Aggregate Amount of Commissions Retained by ESI |
| ||
2013 |
|
$ |
662,360 |
|
$ |
0 |
|
2014 |
|
$ |
680,522 |
|
$ |
0 |
|
2015 |
|
$ |
630,025 |
|
$ |
0 |
|
* Includes sales compensation paid to registered persons of ESI.
From time to time National Life, in conjunction with ESI, may conduct special sales programs.
SAFEKEEPING OF ACCOUNT ASSETS
National Life holds the title to the assets of the Variable Account. The assets are kept physically segregated and held separate and apart from the Companys General Account assets and from the assets in any other separate account.
All of National Lifes outstanding stock is directly owned by NLV Financial Corporation (NLV Financial), the parent company of National Life, and indirectly owned by National Life Holding Company, a mutual insurance holding company established under Vermont law on January 1, 1999. On January 1, 1999, National Life entered into a keep well agreement and a pledge and security agreement with NLV Financial. Under the agreements, NLV Financial agreed to maintain National Lifes total adjusted capital at the authorized control level and to grant National Life an unperfected pledge of all of its assets. As of December 30, 2015 National Lifes total adjusted capital of $1,966,408,387 exceeded the authorized control level set forth in the keep well agreement. The keep well agreement may terminate by written agreement between National Life and NLV Financial, upon the demutualization of National Life Holding Company, or by operation of law; provided, however, the agreement shall not terminate by operation of law upon the commencement of any insolvency or bankruptcy proceed under state or federal law. In addition, the keep well agreement provides that the agreement is not a direct or indirect guarantee by NLV Financial to any person of the payment or satisfaction of any debt or obligation of National Life or any of its subsidiaries to any such person.
Under the pledge and security agreement, NLV Financial pledges its assets to secure its obligations under the keep well agreement. If National Life receives a Perfection Notice from the Commissioner of the Vermont Department of Financial Regulation, National Life must perfect the pledge against NLV Financial. The pledge and security agreement terminates upon the termination of the keep well agreement.
Records are maintained of all purchases and redemptions of Fund shares held by each of the Subaccounts.
STATE REGULATION
National Life is subject to regulation and supervision by the State of Vermonts Department of Financial Regulation, Insurance Diversion, which periodically examines its affairs. It is also subject to the insurance laws and regulations of all jurisdictions where it
is authorized to do business. A copy of the Contract form has been filed with, and where required approved by, insurance officials in each jurisdiction where the Contracts are sold. National Life is required to submit annual statements of its operations, including financial statements, to the insurance departments of the various jurisdictions in which it does business for the purposes of determining solvency and compliance with local insurance laws and regulations.
RECORDS AND REPORTS
National Life will maintain all records and accounts relating to the Variable Account. As presently required by the Investment Company Act of 1940 and regulations promulgated thereunder, reports containing such information as may be required under the Act or by any other applicable law or regulation will be sent to Contract Owners semi-annually at the last address known to the Company.
LEGAL MATTERS
All matters relating to Vermont law pertaining to the Contracts, including the validity of the Contracts and National Lifes authority to issue the Contracts, have been passed upon by Lisa Muller, Senior Counsel of National Life. Sutherland Asbill & Brennan LLP of Washington, D.C. has provided advice on certain matters relating to the Federal securities laws.
EXPERTS
The statutory statements of admitted assets, liabilities, and capital and surplus of National Life as of December 31, 2015 and 2014, and the related statutory statements of income, capital and surplus, and cash flows for each of the three years in the period ended December 31, 2015; the statements of net assets and the related statements of operations and of changes in net assets of each of the subaccounts constituting the National Variable Life Annuity Account II at December 31, 2015 and the results of each of their operations for the year then ended and the changes in each of their net assets for each of the two years then ended; and the consolidated balance sheets and the related consolidated statements of operations, changes in stockholders equity and cash flows of NLV Financial Corporation and its subsidiaries at December 31, 2015 and 2014, and the results of their operations and their cash flows for each of the three years in the period ended December 31, 2015, included in this Statement of Additional Information, which is part of the registration statement, have been so included in reliance on the reports of PricewaterhouseCoopers LLP, independent registered public accounting firm, of 101 Seaport Boulevard, Suite 500, Boston, Massachusetts 02210, given on the authority of such firm as experts in accounting and auditing.
OTHER INFORMATION
A registration statement has been filed with the SEC under the Securities Act of 1933 as amended, with respect to the Contracts discussed in this Statement of Additional Information. Not all the information set forth in the registration statement, amendments and exhibits thereto has been included in this Statement of Additional Information. Statements contained in this Statement of Additional Information concerning the content of the Contracts and other legal instruments are intended to be summaries. For a complete statement of the terms of these documents, reference should be made to the instruments filed with the SEC at 100 F Street, N.E., Washington, D.C. 20549.
FINANCIAL STATEMENTS
The financial statements of National Life and the Variable Account appear on the following pages. The financial statements of National Life should be distinguished from the financial statements of the Variable Account and should be considered only as bearing upon National Lifes general financial strength and claims paying ability, and its ability to meet its obligations under the Contracts. In addition to Fixed Account and General Account allocations, general account assets are used to guarantee the payment of certain benefits under the Contract. To the extent that National Life is required to pay you amounts in addition to your Contract Value under these benefits, such amounts will come from General Account assets. National Lifes General Account assets principally consist of fixed-income securities, including corporate bonds, mortgage-backed/asset-backed securities, and mortgage loans on real estate. National Life and its affiliates enter into equity derivative contracts (futures and options) to hedge exposures embedded in their equity indexed insurance products, and may enter into other types of derivatives transactions. All of National Lifes General Account investments are exposed to various investment risks. National Lifes financial statements include a further discussion of risks associated with General Account investments.
Further, you should only consider NLV Financials financial statement as bearing on the ability of NLV Financial to meet its obligations under the keep well and pledge and security agreements.
F-0
National Life Insurance Company
Financial Statements Statutory-Basis
As of and for the Years Ended
December 31, 2015 and 2014
National Life Insurance Company
Financial Statements Statutory-Basis
As of and for the Years ended December 31, 2015 and 2014
Contents
Statutory-Basis Financial Statements |
|
|
|
|
|
Balance Sheets - Statutory-Basis |
|
|
Statements of Operations - Statutory-Basis |
|
|
Statements of Changes in Capital and Surplus - Statutory-Basis |
|
|
Statements of Cash Flow - Statutory-Basis |
|
|
Notes to Statutory-Basis Financial Statements |
|
|
Independent Auditors Report
To the Board of Directors of
National Life Insurance Company:
We have audited the accompanying statutory financial statements of National Life Insurance Company (the Company), which comprise the statutory balance sheets as of December 31, 2015 and 2014, and the related statutory statements of operations and changes in capital and surplus, and cash flow for each of the three years ended December 31, 2015.
Managements Responsibility for the Financial Statements
Management is responsible for the preparation and fair presentation of the financial statements in accordance with the accounting practices prescribed or permitted by the Department of Financial Regulation of Vermont. Management is also responsible for the design, implementation, and maintenance of internal control relevant to the preparation and fair presentation of financial statements that are free from material misstatement, whether due to fraud or error.
Auditors Responsibility
Our responsibility is to express an opinion on the financial statements based on our audits. We conducted our audits in accordance with auditing standards generally accepted in the United States of America. Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free from material misstatement.
An audit involves performing procedures to obtain audit evidence about the amounts and disclosures in the financial statements. The procedures selected depend on our judgment, including the assessment of the risks of material misstatement of the financial statements, whether due to fraud or error. In making those risk assessments, we consider internal control relevant to the Companys preparation and fair presentation of the financial statements in order to design audit procedures that are appropriate in the circumstances, but not for the purpose of expressing an opinion on the effectiveness of the Companys internal control. Accordingly, we express no such opinion. An audit also includes evaluating the appropriateness of accounting policies used and the reasonableness of significant accounting estimates made by management, as well as evaluating the overall presentation of the financial statements. We believe that the audit evidence we have obtained is sufficient and appropriate to provide a basis for our audit opinion.
Basis for Adverse Opinion on U.S. Generally Accepted Accounting Principles
As described in Note A to the financial statements, the financial statements are prepared by the Company on the basis of the accounting practices prescribed or permitted by the Department of Financial Regulation of Vermont, which is a basis of accounting other than accounting principles generally accepted in the United States of America.
The effects on the financial statements of the variances between the statutory basis of accounting described in Note A and accounting principles generally accepted in the United States of America are material.
PricewaterhouseCoopers LLP, 101 Seaport Boulevard, Suite 500, Boston, MA 02210
T: (617) 530 5000, F: (617) 530 5001, www.pwc.com/us
Adverse Opinion on U.S. Generally Accepted Accounting Principles
In our opinion, because of the significance of the matter discussed in the Basis for Adverse Opinion on U.S. Generally Accepted Accounting Principles paragraph, the financial statements referred to above do not present fairly, in accordance with accounting principles generally accepted in the United States of America, the financial position of the Company as of December 31, 2015 and 2014, or the results of its operations or its cash flows for each of the three years then ended.
Opinion on Statutory Basis of Accounting
In our opinion, the financial statements referred to above present fairly, in all material respects, the admitted assets, liabilities and surplus of the Company as of December 31, 2015 and 2014, and the results of its operations and its cash flows for each of the three years then ended, in accordance with the accounting practices prescribed or permitted by the Department of Financial Regulation of Vermont described in Note A.
April 26, 2016
National Life Insurance Company
Balance Sheets - Statutory-Basis
|
|
December 31, |
| ||||
|
|
2015 |
|
2014 |
| ||
|
|
(In Thousands) |
| ||||
Admitted Assets |
|
|
|
|
| ||
Cash and invested assets: |
|
|
|
|
| ||
Bonds |
|
$ |
5,260,983 |
|
$ |
5,389,989 |
|
Preferred stocks |
|
10,000 |
|
|
| ||
Common stocks |
|
836,249 |
|
774,556 |
| ||
Mortgage loans |
|
551,902 |
|
522,440 |
| ||
Real estate |
|
80,297 |
|
86,507 |
| ||
Policy loans |
|
533,875 |
|
546,739 |
| ||
Cash and short-term investments |
|
125,424 |
|
91,238 |
| ||
Derivatives |
|
19,819 |
|
31,564 |
| ||
Surplus notes |
|
94,467 |
|
64,635 |
| ||
Other invested assets |
|
280,387 |
|
311,605 |
| ||
Total cash and invested assets |
|
7,793,403 |
|
7,819,273 |
| ||
|
|
|
|
|
| ||
Deferred and uncollected premiums |
|
41,030 |
|
57,872 |
| ||
Accrued investment income |
|
74,016 |
|
74,326 |
| ||
Federal income taxes recoverable |
|
32,498 |
|
42,421 |
| ||
Net deferred tax asset |
|
131,238 |
|
142,599 |
| ||
Receivables from affiliates |
|
18,910 |
|
3,201 |
| ||
Notes receivable |
|
33,623 |
|
33,623 |
| ||
Other admitted assets |
|
303,300 |
|
258,904 |
| ||
Separate account assets |
|
720,710 |
|
777,726 |
| ||
|
|
|
|
|
| ||
Total admitted assets |
|
$ |
9,148,728 |
|
$ |
9,209,945 |
|
The accompanying notes are an integral part of these financial statements.
National Life Insurance Company
Balance Sheets - Statutory-Basis (continued)
|
|
December 31, |
| ||||
|
|
2015 |
|
2014 |
| ||
|
|
(In Thousands) |
| ||||
Liabilities and capital and surplus |
|
|
|
|
| ||
Liabilities: |
|
|
|
|
| ||
Policy and contract liabilities: |
|
|
|
|
| ||
Life and annuity reserves |
|
$ |
2,649,606 |
|
$ |
5,605,425 |
|
Accident and health reserves, net of reinsurance |
|
505,560 |
|
513,719 |
| ||
Liability for deposit-type contracts |
|
162,665 |
|
287,217 |
| ||
Unpaid policy and contract claims |
|
11,727 |
|
37,005 |
| ||
Policyholders dividends |
|
14,977 |
|
78,475 |
| ||
Other policy and contract liabilities |
|
1,047 |
|
2,114 |
| ||
Total policy and contract liabilities |
|
3,345,582 |
|
6,523,955 |
| ||
|
|
|
|
|
| ||
Funds held under coinsurance |
|
2,941,283 |
|
|
| ||
Employee and agent benefits |
|
76,659 |
|
77,878 |
| ||
Minimum pension benefit obligation |
|
29,594 |
|
34,129 |
| ||
Interest maintenance reserve |
|
30,202 |
|
73,513 |
| ||
Asset valuation reserve |
|
78,771 |
|
84,842 |
| ||
Payable to affiliates |
|
25,289 |
|
|
| ||
Derivatives |
|
3,785 |
|
7,589 |
| ||
Other liabilities |
|
124,935 |
|
95,215 |
| ||
Separate account liabilities |
|
714,621 |
|
771,669 |
| ||
Total liabilities |
|
7,370,721 |
|
7,668,790 |
| ||
|
|
|
|
|
| ||
Capital and surplus: |
|
|
|
|
| ||
Surplus notes |
|
190,330 |
|
200,000 |
| ||
Common stock, $1 par value: |
|
|
|
|
| ||
Authorized - 2.5 million shares |
|
|
|
|
| ||
Issued and outstanding - 2.5 million shares |
|
2,500 |
|
2,500 |
| ||
Additional paid-in surplus |
|
351,092 |
|
194,092 |
| ||
Special surplus funds |
|
6,763 |
|
6,741 |
| ||
Unassigned surplus |
|
1,227,322 |
|
1,137,822 |
| ||
Total capital and surplus |
|
1,778,007 |
|
1,541,155 |
| ||
|
|
|
|
|
| ||
Total liabilities and capital and surplus |
|
$ |
9,148,728 |
|
$ |
9,209,945 |
|
The accompanying notes are an integral part of these financial statements.
National Life Insurance Company
Statements of Operations - Statutory-Basis
|
|
Year ended December 31, |
| |||||||
|
|
2015 |
|
2014 |
|
2013 |
| |||
|
|
(In Thousands) |
| |||||||
Premiums and other revenue: |
|
|
|
|
|
|
| |||
Premiums and annuity considerations for life and accident and health contracts |
|
$ |
(2,918,970 |
) |
$ |
411,817 |
|
$ |
418,345 |
|
Considerations for supplementary contracts with life contingencies |
|
1,024 |
|
1,632 |
|
1,506 |
| |||
Net investment income |
|
326,613 |
|
395,164 |
|
408,243 |
| |||
Amortization of interest maintenance reserve |
|
5,961 |
|
5,087 |
|
4,758 |
| |||
Other income |
|
74,752 |
|
24,802 |
|
20,941 |
| |||
Total premiums and other revenue |
|
(2,510,620 |
) |
838,502 |
|
853,793 |
| |||
Benefits paid or provided: |
|
|
|
|
|
|
| |||
Death benefits |
|
91,187 |
|
214,164 |
|
188,619 |
| |||
Annuity benefits |
|
37,256 |
|
42,412 |
|
41,993 |
| |||
Surrender benefits and other fund withdrawals |
|
187,066 |
|
282,894 |
|
287,498 |
| |||
Other benefits |
|
(61,706 |
) |
40,975 |
|
39,006 |
| |||
(Decrease) increase in policy reserves |
|
(2,963,961 |
) |
(12,350 |
) |
5,360 |
| |||
Total benefits paid or provided |
|
(2,710,158 |
) |
568,095 |
|
562,476 |
| |||
Insurance expenses: |
|
|
|
|
|
|
| |||
Commissions |
|
53,103 |
|
48,915 |
|
39,788 |
| |||
General and administrative expenses |
|
200,813 |
|
176,300 |
|
135,320 |
| |||
Insurance taxes, licenses, and fees |
|
10,827 |
|
12,537 |
|
12,546 |
| |||
Net transfers from separate accounts |
|
(26,831 |
) |
(22,967 |
) |
(32,386 |
) | |||
Total insurance expenses |
|
237,912 |
|
214,785 |
|
155,268 |
| |||
Gain from operations before dividends to policyholders, income taxes, and net realized capital (losses) gains |
|
(38,374 |
) |
55,622 |
|
136,049 |
| |||
Dividends to policyholders |
|
(23,176 |
) |
73,817 |
|
79,172 |
| |||
Gain from operations before income taxes and net realized capital (losses) gains |
|
(15,198 |
) |
(18,195 |
) |
56,877 |
| |||
Federal income tax |
|
53,512 |
|
50,381 |
|
36,704 |
| |||
Gain from operations before net realized capital (losses) gains |
|
38,314 |
|
32,186 |
|
93,581 |
| |||
Net realized capital (losses) gains |
|
(26,305 |
) |
(13,107 |
) |
(5,057 |
) | |||
Net income |
|
$ |
12,009 |
|
$ |
19,079 |
|
$ |
88,524 |
|
The accompanying notes are an integral part of these financial statements.
National Life Insurance Company
Statements of Changes in Capital and Surplus - Statutory-Basis
|
|
|
|
|
|
|
|
Surplus Notes |
|
Total |
| |||||
|
|
Common |
|
Paid-in |
|
Unassigned |
|
and Special |
|
Capital and |
| |||||
|
|
Stock |
|
Surplus |
|
Surplus |
|
Surplus |
|
Surplus |
| |||||
|
|
(In Thousands) |
| |||||||||||||
Balances at January 1, 2013 |
|
$ |
2,500 |
|
$ |
126,976 |
|
$ |
952,666 |
|
$ |
204,914 |
|
$ |
1,287,056 |
|
Net income |
|
|
|
|
|
88,524 |
|
|
|
88,524 |
| |||||
Change in unrealized, net of deferred tax effects |
|
|
|
|
|
64,896 |
|
|
|
64,896 |
| |||||
Change in asset valuation reserve |
|
|
|
|
|
(11,017 |
) |
|
|
(11,017 |
) | |||||
Change in minimum pension benefit obligation, net of deferred tax effects |
|
|
|
|
|
2,879 |
|
|
|
2,879 |
| |||||
Change in non-admitted assets |
|
|
|
|
|
(14,023 |
) |
|
|
(14,023 |
) | |||||
Change in deferred tax asset |
|
|
|
|
|
18,746 |
|
|
|
18,746 |
| |||||
Dividends to stockholders |
|
|
|
|
|
(25,000 |
) |
|
|
(25,000 |
) | |||||
Other adjustments to surplus, net |
|
|
|
|
|
(217 |
) |
1,300 |
|
1,083 |
| |||||
Balances at December 31, 2013 |
|
2,500 |
|
126,976 |
|
1,077,454 |
|
206,214 |
|
1,413,144 |
| |||||
Net income |
|
|
|
|
|
19,079 |
|
|
|
19,079 |
| |||||
Change in unrealized, net of deferred tax effects |
|
|
|
|
|
40,077 |
|
|
|
40,077 |
| |||||
Change in asset valuation reserve |
|
|
|
|
|
(3,197 |
) |
|
|
(3,197 |
) | |||||
Change in minimum pension benefit obligation, net of deferred tax effects |
|
|
|
|
|
(8,413 |
) |
|
|
(8,413 |
) | |||||
Change in non-admitted assets |
|
|
|
|
|
(9,421 |
) |
|
|
(9,421 |
) | |||||
Change in deferred tax asset |
|
|
|
|
|
24,153 |
|
|
|
24,153 |
| |||||
Change in paid-in surplus |
|
|
|
67,116 |
|
|
|
|
|
67,116 |
| |||||
Other adjustments to surplus, net |
|
|
|
|
|
(1,910 |
) |
527 |
|
(1,383 |
) | |||||
Balances at December 31, 2014 |
|
2,500 |
|
194,092 |
|
1,137,822 |
|
206,741 |
|
1,541,155 |
| |||||
Net income |
|
|
|
|
|
12,009 |
|
|
|
12,009 |
| |||||
Change in unrealized, net of deferred tax effects |
|
|
|
|
|
11,007 |
|
|
|
11,007 |
| |||||
Change in asset valuation reserve |
|
|
|
|
|
6,071 |
|
|
|
6,071 |
| |||||
Change in minimum pension benefit obligation, net of deferred tax effects |
|
|
|
|
|
2,948 |
|
|
|
2,948 |
| |||||
Change in non-admitted assets |
|
|
|
|
|
(26,967 |
) |
|
|
(26,967 |
) | |||||
Change in deferred tax asset |
|
|
|
|
|
(2,447 |
) |
|
|
(2,447 |
) | |||||
Change in paid-in-surplus |
|
|
|
157,000 |
|
|
|
|
|
157,000 |
| |||||
Change in ceding commission |
|
|
|
|
|
87,391 |
|
|
|
87,391 |
| |||||
Other adjustments to surplus, net |
|
|
|
|
|
(512 |
) |
(9,648 |
) |
(10,160 |
) | |||||
Balances at December 31, 2015 |
|
$ |
2,500 |
|
$ |
351,092 |
|
$ |
1,227,322 |
|
$ |
197,093 |
|
$ |
1,778,007 |
|
The accompanying notes are an integral part of these financial statements.
National Life Insurance Company
Statements of Cash Flow - Statutory-Basis
|
|
Year ended December 31, |
| |||||||
|
|
2015 |
|
2014 |
|
2013 |
| |||
|
|
(In Thousands) |
| |||||||
Operating activities: |
|
|
|
|
|
|
| |||
Premiums, policy proceeds, and other considerations received, net of reinsurance paid |
|
$ |
408,214 |
|
$ |
416,135 |
|
$ |
420,990 |
|
Net investment income received |
|
351,458 |
|
408,596 |
|
415,913 |
| |||
Benefits paid |
|
(503,158 |
) |
(584,291 |
) |
(550,963 |
) | |||
Net transfers from Separate Accounts |
|
28,222 |
|
24,213 |
|
37,764 |
| |||
Insurance expenses paid |
|
(224,806 |
) |
(217,096 |
) |
(188,389 |
) | |||
Dividends paid to policyholders |
|
(74,362 |
) |
(80,513 |
) |
(93,467 |
) | |||
Federal income taxes recovered (paid) |
|
48,990 |
|
49,518 |
|
(16,684 |
) | |||
Other income received, net of other expenses paid |
|
161,622 |
|
23,491 |
|
21,329 |
| |||
Net cash provided (used) by operating activities |
|
196,180 |
|
40,053 |
|
46,493 |
| |||
|
|
|
|
|
|
|
| |||
Investing activities: |
|
|
|
|
|
|
| |||
Proceeds from sales, maturities, or repayments of investments: |
|
|
|
|
|
|
| |||
Bonds |
|
650,465 |
|
988,720 |
|
676,058 |
| |||
Stocks |
|
9,304 |
|
10,467 |
|
10,608 |
| |||
Mortgage loans |
|
80,619 |
|
99,565 |
|
116,923 |
| |||
Real estate |
|
6,585 |
|
475 |
|
158 |
| |||
Other invested assets |
|
101,897 |
|
64,616 |
|
52,811 |
| |||
Miscellaneous proceeds |
|
440 |
|
|
|
3,433 |
| |||
Total proceeds from sales, maturities, or repayments of investments |
|
849,310 |
|
1,163,843 |
|
859,991 |
| |||
Cost of investments acquired: |
|
|
|
|
|
|
| |||
Bonds |
|
(792,085 |
) |
(975,412 |
) |
(679,174 |
) | |||
Stocks |
|
(30,401 |
) |
(7,413 |
) |
(7,133 |
) | |||
Mortgage loans |
|
(112,350 |
) |
(18,158 |
) |
(91,775 |
) | |||
Real estate |
|
(1,671 |
) |
(2,594 |
) |
(5,997 |
) | |||
Other invested assets |
|
(106,075 |
) |
(127,893 |
) |
(67,232 |
) | |||
Miscellaneous applications |
|
(9,580 |
) |
(5,679 |
) |
(14,875 |
) | |||
Total cost of investments acquired |
|
(1,052,162 |
) |
(1,137,149 |
) |
(866,186 |
) | |||
Net change in policy loans |
|
12,864 |
|
12,784 |
|
4,349 |
| |||
Net cash (used) provided in investing activities |
|
(189,988 |
) |
39,478 |
|
(1,846 |
) | |||
|
|
|
|
|
|
|
| |||
Financing and miscellaneous activities: |
|
|
|
|
|
|
| |||
Other cash provided (applied): |
|
|
|
|
|
|
| |||
Deposits on deposit-type contract funds and other liabilities without life contingencies |
|
(27,308 |
) |
(405 |
) |
(10,755 |
) | |||
Surplus notes |
|
(15,079 |
) |
|
|
|
| |||
Capital and paid in surplus, less treasury stock |
|
109,000 |
|
|
|
|
| |||
Dividends to stockholders |
|
|
|
|
|
(25,000 |
) | |||
Other cash provided (applied) |
|
(38,619 |
) |
(50,616 |
) |
19,171 |
| |||
Net cash provided (applied) in financing and miscellaneous activities |
|
27,994 |
|
(51,021 |
) |
(16,584 |
) | |||
|
|
|
|
|
|
|
| |||
Net increase (decrease) in cash and short-term investments |
|
34,186 |
|
28,510 |
|
28,063 |
| |||
Cash and short-term investments: |
|
|
|
|
|
|
| |||
Beginning of year |
|
91,238 |
|
62,728 |
|
34,665 |
| |||
End of year |
|
$ |
125,424 |
|
$ |
91,238 |
|
$ |
62,728 |
|
The accompanying notes are an integral part of these financial statements.
National Life Insurance Company
Notes to Statutory-Basis Financial Statements
December 31, 2015 and December 31, 2014
A. Significant Accounting Policies
Description of Business
The Company, its upstream parents, and its subsidiaries and affiliates (collectively the Group) offer a broad range of financial products and services, including life insurance, annuities, mutual funds, and investment advisory and administrative services. The Groups principal insurance product lines include whole life, term life, universal life, indexed universal life, variable universal life, fixed annuities, indexed annuities and variable annuities. The Group also offers mutual funds and investment brokerage services. The organization was founded in 1848, when the Company was chartered in Vermont. The Group employs approximately 1,040 people, primarily concentrated in Montpelier, Vermont and Addison, Texas. The Company owns 100% of the stock of Life Insurance Company of the Southwest (LSW).
On January 1, 1999, pursuant to a mutual holding company reorganization, the Company converted from a mutual to a stock life insurance company. This reorganization was approved by policyowners(1) of National Life, and was completed with the approval of the Commissioner of the Vermont Department of Financial Regulation (the Commissioner). Prior to the conversion, policyowners held policy contractual and membership rights from the Company. The contractual rights, as defined in the various insurance and annuity policies, remained with the Company after the conversion. Membership interests held by policyowners at December 31, 1998 were converted to membership interests in National Life Holding Company (NLHC), a mutual insurance holding company created for this purpose.
Concurrent with the conversion to a stock life insurance company, National Life established and began operating the Closed Block. The Closed Block was established on January 1, 1999 pursuant to regulatory requirements as part of the reorganization into a mutual holding company corporate structure. The Closed Block was established for the benefit of policyholders of participating policies inforce at December 31, 1998. Included in the block are traditional dividend-paying life insurance policies, certain participating term insurance policies, dividend-paying flexible premium annuities, and other related liabilities. The Closed Block is expected to remain in effect until all policies within the Closed Block are no longer inforce. Assets assigned to the Closed Block at January 1, 1999, together with projected future premiums and investment returns, are reasonably expected to be sufficient to pay out all future Closed Block policy benefits. Such benefits include policyholder dividends paid out under the current dividend scale, adjusted to reflect future changes in the underlying experience.
(1) The reference to policyowner, policyholder, and policy throughout this document includes both life insurance and annuity contract owners.
National Life Insurance Company
Notes to Statutory-Basis Financial Statements
December 31, 2015 and December 31, 2014
A. Significant Accounting Policies (continued)
Description of Business (continued)
On August 5, 2015, Catamount Reinsurance Company (Catamount) was formed as a subsidiary of the Company. Catamount is a special purpose financial insurance company domiciled and licensed in the state of Vermont. All outstanding shares of Catamounts common stock are owned directly by the Company. Catamount entered into a coinsurance with funds withheld agreement with the Company to reinsure its Closed Block policies; the agreement was effective July 1, 2015.
All of the Companys outstanding shares are currently held by its parent, NLV Financial Corporation (NLVF), which is the wholly-owned subsidiary of NLHC. NLHC and its subsidiaries (including the Company) are collectively known as National Life Group. The Company is licensed in all 50 states and the District of Columbia. In 2015, approximately 32% of total collected premiums and deposits are from residents of the states of New York, Florida and California.
Basis of Presentation
The accompanying financial statements of the Company have been prepared in conformity with statutory accounting practices prescribed or permitted by the State of Vermont Department of Financial Regulation (the Department), which is a comprehensive basis of accounting other than accounting principles generally accepted in the United States of America (U.S. GAAP).
The Department recognizes only statutory accounting practices prescribed or permitted by the State of Vermont for determining solvency under Vermont Insurance Law. The National Association of Insurance Commissioners (NAIC) Accounting Practices and Procedures Manual version effective January 1, 2001 (and as amended) (NAIC SAP), has been adopted as a component of prescribed or permitted practices by the Department. NAIC SAP consists of Statements of Statutory Accounting Principles (SSAPs) and other authoritative guidance. Although the Company had no such practices in effect as of December 31, 2015, the Commissioner has the right to permit specific practices that deviate from NAIC SAP. The Companys subsidiary Catamount does have permitted and prescribed practices, but they did not have any impact on the Companys statutory surplus.
There are significant differences between statutory accounting practices and U.S. GAAP. Under statutory accounting practices:
Investments: Investments in bonds are reported at amortized cost or fair value based on their NAIC designation. For U.S. GAAP, such fixed maturity investments would be designated at purchase as held-to-maturity, trading, or available-for-sale. Held-to-maturity fixed investments would be reported at amortized cost. The remaining fixed maturity investments would be reported at fair value with unrealized holding gains and losses reported in operations for those designated as trading, and as a separate component of shareholders equity for those designated as available-for-sale.
National Life Insurance Company
Notes to Statutory-Basis Financial Statements
December 31, 2015 and December 31, 2014
A. Significant Accounting Policies (continued)
Basis of Presentation (continued)
Investments in preferred stock are reported at cost, including brokerage and other related fees. Under U.S. GAAP, these investments are classified as available-for-sale securities and reported at fair value; unrealized holding gains and losses are excluded from earnings and reported as a net amount in a separate component of shareholders equity until realized.
Investments in real estate are reported net of related obligations, if any, rather than on a gross basis. Real estate owned and occupied by the Company is included in investments rather than reported as an operating asset as required under U.S. GAAP and investment income and operating expenses include rent for the Companys occupancy of those properties. Changes between depreciated cost and admitted asset investment amounts are credited or charged directly to unassigned surplus rather than to income as would be required under U.S. GAAP.
Investments in low income housing tax credits (LIHTC) are accounted for using the proportional amortized cost method, and the amortization is reported as a component of net investment income in the Statements of Operations. For U.S. GAAP reporting, LIHTC are accounted for using the proportional amortization method, and the amortization of the investments is reported as a component of income tax expense.
Valuation allowances, if necessary, are established for mortgage loans based on the difference between the net value of the collateral, determined as the fair value of the collateral less estimated costs to obtain and sell, and the recorded investment in the mortgage loan. Under U.S. GAAP, such allowances are based on the present value of expected future cash flows discounted at the loans effective interest rate or, if foreclosure is probable, on the fair value of the collateral. The initial valuation allowance and subsequent changes in the allowance for mortgage loans as a result of a temporary impairment are charged or credited directly to unassigned surplus, rather than being included as a component of earnings as would be required under U.S. GAAP.
Valuation Reserves: Under a formula prescribed by the NAIC, the Company defers the portion of realized gains and losses on sales of fixed income investments, principally bonds and mortgage loans, attributable to changes in the general level of interest rates, and amortizes those deferrals over the remaining period to maturity based on groupings of individual securities sold in five-year bands. That net deferral is reported as the interest maintenance reserve (IMR) in the accompanying balance sheets. Realized gains and losses are reported in income, net of federal income tax and transfers to the interest maintenance reserve. Under U.S. GAAP, realized capital gains and losses would be reported in the income statement on a pretax basis in the period that the assets giving rise to the gains or losses are sold.
National Life Insurance Company
Notes to Statutory-Basis Financial Statements
December 31, 2015 and December 31, 2014
A. Significant Accounting Policies (continued)
Basis of Presentation (continued)
The asset valuation reserve (AVR) provides a valuation allowance for invested assets. The asset valuation reserve is determined by an NAIC-prescribed formula with changes reflected directly in unassigned surplus. The AVR is not recognized under U.S. GAAP.
Policy Acquisition Costs: The costs of acquiring and renewing business are expensed when incurred. Under U.S. GAAP, acquisition costs related to traditional life insurance and certain long-duration accident and health insurance, to the extent recoverable from future policy revenues, would be deferred and amortized over the premium-paying period of the related policies using assumptions consistent with those used in computing policy benefit reserves. For universal life insurance and annuity products, to the extent recoverable from future gross profits, deferred policy acquisition costs would be amortized generally in proportion to the present value of expected gross profits from surrender charges and investment, mortality, and expense margins.
Surplus Notes: Notes issued are recorded as a component of capital and surplus, whereas under U.S. GAAP, surplus notes are recorded as debt. Under NAIC SAP, surplus note interest is not recorded as a liability or an expense until approval for payment of such interest has been granted by the Commissioner, whereas, under U.S. GAAP, the interest is accrued throughout the year.
Investment in Subsidiaries: The accounts and operations of the Companys subsidiaries are not consolidated with the operations of the Company as would be required under U.S. GAAP, but are included as Investment in Subsidiaries at the statutory carrying value.
Nonadmitted Assets: Certain assets designated as nonadmitted, principally certain fixed asset balances, a portion of the Companys deferred tax asset balance, and other assets not specifically identified as admitted assets within the NAIC Accounting Practices and Procedures Manual, are excluded from the accompanying balance sheets, and are charged directly to unassigned surplus. The concept of nonadmitted assets is not recognized under U.S. GAAP.
Universal Life and Annuity Policies: Revenues for universal life and annuity policies with mortality or morbidity risk consist of the entire premium received, and benefits incurred represent the total of death benefits paid and the change in policy reserves. Premiums received for annuity policies without mortality or morbidity risk are recorded using deposit accounting, and are credited directly to an appropriate policy reserve account without recognizing premium income. Under U.S. GAAP, premiums received in excess of policy charges would not be recognized as premium revenue, and benefits would represent the excess of benefits paid over the policy account value and interest credited to the account values.
National Life Insurance Company
Notes to Statutory-Basis Financial Statements
December 31, 2015 and December 31, 2014
A. Significant Accounting Policies (continued)
Basis of Presentation (continued)
Benefit Reserves: Certain policy reserves are calculated based on statutorily required interest and mortality assumptions rather than on estimated expected experience or actual account balances as would be required under U.S. GAAP.
Reinsurance: Policy and contract liabilities ceded to reinsurers have been reported as reductions of the related reserves rather than as assets as would be required under U.S. GAAP. Commissions paid by reinsurers on business ceded are reported as income when received rather than being deferred and amortized with deferred policy acquisition costs as required under U.S. GAAP.
Deferred Income Taxes: Deferred income tax assets and liabilities are cumulative temporary differences between financial statement carrying amounts and income tax bases of assets and liabilities using enacted income tax rates and laws. Deferred income tax assets are subject to admissibility criteria which include the expected reversal of temporary timing differences, the Companys level of capital and surplus, and any deferred income tax liabilities. Unrealized gains and losses are presented net of related changes in deferred taxes. The net change in other deferred taxes is recorded in adjustments to unassigned surplus. Deferred taxes do not include amounts for state taxes.
Under U.S. GAAP, a deferred tax asset is recorded for the amount of gross deferred tax assets expected to be realized in future years, and a valuation allowance is established for deferred tax assets not realizable.
Policyholder Dividends: Policyholder dividends are recognized when declared rather than over the term of the related policies as required under U.S. GAAP.
Statements of Cash Flow: Cash and short-term investments in the statements of cash flow represent cash balances and investments with initial maturities of one year or less. Under U.S. GAAP, the corresponding caption of cash includes cash balances and investments with initial maturities of three months or less.
National Life Insurance Company
Notes to Statutory-Basis Financial Statements
December 31, 2015 and December 31, 2014
A. Significant Accounting Policies (continued)
Basis of Presentation (continued)
The following are supplemental disclosures for cash flow information from non-cash transactions:
|
|
(In Thousands) |
|
Operating: |
|
|
|
Capital contribution - Note Payable to affiliate |
|
(18,000 |
) |
Affiliated noncash reinsurance transactions |
|
3,124,001 |
|
Investing: |
|
|
|
Real estate acquired in satisfaction of debt |
|
2,302 |
|
Bonds transferred to affiliate as part of initial reinsurance transaction |
|
(279,961 |
) |
Financing: |
|
|
|
Surplus note acquired from parent as capital contribution |
|
30,000 |
|
Affiliated noncash reinsurance transactions |
|
(2,844,040 |
) |
Capital contribution - Note Receivable from affiliate |
|
18,000 |
|
A reconciliation of net income and capital and surplus of the Company as determined in accordance with statutory accounting practices to amounts determined in accordance with U.S. GAAP is as follows:
|
|
Net Income |
|
Capital and Surplus |
| |||||||||||
|
|
Year ended December 31 |
|
December 31 |
| |||||||||||
|
|
2015* |
|
2014 |
|
2013 |
|
2015 |
|
2014 |
| |||||
|
|
(In Thousands) |
| |||||||||||||
Statutory-basis |
|
$ |
12,009 |
|
$ |
19,079 |
|
$ |
88,524 |
|
$ |
1,778,007 |
|
$ |
1,541,155 |
|
Add (deduct) adjustments: |
|
|
|
|
|
|
|
|
|
|
| |||||
Investments |
|
135,448 |
|
132,961 |
|
120,191 |
|
3,831,973 |
|
1,049,758 |
| |||||
Policy acquisition costs |
|
(8,457 |
) |
(11,633 |
) |
(13,032 |
) |
249,194 |
|
257,613 |
| |||||
Nonadmitted assets |
|
|
|
|
|
|
|
148,304 |
|
121,336 |
| |||||
Policyholder reserves |
|
84,624 |
|
1,259 |
|
(13,788 |
) |
(3,137,672 |
) |
(71,533 |
) | |||||
Policyholder dividends |
|
(93,684 |
) |
(14,903 |
) |
(7,151 |
) |
(26,612 |
) |
34,029 |
| |||||
Asset valuation reserve |
|
|
|
|
|
|
|
78,771 |
|
84,842 |
| |||||
Interest maintenance reserve |
|
(43,311 |
) |
10,999 |
|
(3,803 |
) |
30,202 |
|
73,513 |
| |||||
Income taxes |
|
(44,151 |
) |
4,134 |
|
(10,416 |
) |
(157,208 |
) |
(123,020 |
) | |||||
Other comprehensive income, net |
|
|
|
|
|
|
|
(145,361 |
) |
(343,007 |
) | |||||
Other, net |
|
85,330 |
|
(2,676 |
) |
(273 |
) |
(15,516 |
) |
(1,684 |
) | |||||
Interest, Surplus Notes |
|
|
|
|
|
|
|
(5,553 |
) |
(6,125 |
) | |||||
GAAP-basis |
|
$ |
127,808 |
|
$ |
139,220 |
|
$ |
160,252 |
|
$ |
2,628,529 |
|
$ |
2,616,877 |
|
* The significant changes from year to year are associated with the Catamount transaction.
National Life Insurance Company
Notes to Statutory-Basis Financial Statements
December 31, 2015 and December 31, 2014
A. Significant Accounting Policies (continued)
Other significant accounting practices are as follows:
Investments
Bonds, preferred stocks, common stocks, and short-term investments are reported at values prescribed by the NAIC, as follows:
Bonds not backed by other loans are principally stated at amortized cost using the interest method.
Single class and multi-class mortgage-backed/asset-backed securities are valued at amortized cost using the interest method including anticipated prepayments. Prepayment assumptions are obtained from dealer surveys or internal estimates, and are based on the current interest rate and economic environment. The retrospective adjustment method is used to value all such securities.
Investments in preferred stock are reported at cost.
Common stocks of non-affiliates are reported at market value as determined by the Securities Valuation Office of the NAIC, and the related unrealized capital gains (losses) are reported in unassigned surplus.
Cash includes cash equivalents. Cash equivalents are short-term highly liquid investments with original maturities of three months or less, and are principally stated at amortized cost.
Short-term investments include investments with maturities of one year or less at the time of acquisition (except for cash equivalents classified as cash), and are principally stated at amortized cost.
Affiliated common stock is carried at the down-stream insurance subsidiarys statutory capital and surplus less surplus notes issued. If the carrying value is negative, it is floored at zero in accordance with SSAP 97 Investments in Subsidiary, Controlled and Affiliated Entities, A Replacement of SSAP No. 88.
Mortgage loans are reported at unpaid principal balances, less allowance for impairments, if any. A mortgage loan is considered to be impaired when, based on current information and events, it is probable that the Company will be unable to collect all principal and interest amounts due according to the contractual terms of the mortgage agreement. At that time, the mortgage loan is written down, and a realized loss is recognized.
National Life Insurance Company
Notes to Statutory-Basis Financial Statements
December 31, 2015 and December 31, 2014
A. Significant Accounting Policies (continued)
Investments (continued)
Real estate occupied by the Company and real estate held for the production of income are reported at depreciated cost net of related obligations, if any. Real estate that the Company has the intent to sell is reported at the lower of depreciated cost or fair value, less encumbrances and estimated costs to sell the property. Depreciation is calculated on a straight-line basis over the estimated useful lives of the properties.
Policy loans are reported at unpaid principal balances.
The Companys futures and options contracts qualify for hedge accounting and are included in derivatives and carried at fair value, with changes in fair value and gains and losses upon expiration included in net investment income, in accordance with SSAP No. 86 Accounting for Derivative Instruments and Hedging Activities. Swaps qualify as a fair value hedge and are carried on the same basis as the underlying hedged item in accordance with SSAP 86.
The Company has ownership interests of more than 3% in several limited partnerships. The Company generally carries these interests based on the underlying U.S. GAAP equity of the investee.
Realized capital gains and losses are determined using the specific identification basis. Changes in the carrying amounts of investments are credited or charged directly to unassigned surplus.
Recognition and Presentation of Other-Than-Temporary Impairments
The evaluation of securities for impairment is a quantitative and qualitative process, which is subject to risks and uncertainties, and is intended to determine whether declines in fair value of investments should be recognized in current period earnings and whether the securities are other-than-temporarily impaired (OTTI). The risks and uncertainties include changes in general economic conditions, the issuers financial condition and/or future prospects, the effects of changes in interest rates or credit spreads, and the expected recovery period. The Company has a security monitoring process, overseen by investment and accounting professionals, that uses certain quantitative and qualitative characteristics to identify securities that could be potentially impaired. These identified securities are subjected to an enhanced analysis to determine if the impairments are other-than-temporary.
National Life Insurance Company
Notes to Statutory-Basis Financial Statements
December 31, 2015 and December 31, 2014
A. Significant Accounting Policies (continued)
Recognition and Presentation of Other-Than-Temporary Impairments (continued)
The Companys best estimate of future cash flows involves assumptions including, but not limited to, various performance indicators, such as historical and projected default and recovery rates, credit ratings, current delinquency rates, loan-to-value ratios, and the possibility of obligor re-financing. In addition, for securitized debt securities, the Company considers factors including, but not limited to, commercial and residential property value declines that vary by property type and location and average cumulative collateral loss rates that vary by vintage year. These assumptions require the use of significant management judgment, and include the probability of issuer default and estimates regarding timing and amount of expected recoveries, which may include estimating the underlying collateral value. In addition, projections of expected future debt security cash flows may change based upon new information regarding the performance of the issuer and/or underlying collateral, such as changes in the projections of the underlying property value estimates.
Estimating the underlying future cash flows is a quantitative and qualitative process that incorporates information received from third-party sources along with certain internal assumptions and judgments regarding the future performance of the underlying collateral. Where possible, this data is benchmarked against third-party sources.
Fair Value Definition and Hierarchy
Fair value is defined as the price that would be received to sell an asset or paid to transfer a liability (i.e. the exit price) in an orderly transaction between market participants at the measurement date. SSAP No. 100 Fair Value Measurements requires consideration of three broad valuation techniques: (i) the market approach, (ii) the income approach, and (iii) the cost approach. Entities are required to determine the most appropriate valuation technique to use given what is being measured and the availability of sufficient inputs. The guidance prioritizes the inputs to fair valuation techniques and allows for the use of unobservable inputs to the extent that observable inputs are not available.
The Company has categorized its assets and liabilities into a three-level hierarchy, based on the priority of the inputs to the respective valuation technique. The fair value hierarchy gives the highest priority to quoted prices in active markets for identical assets or liabilities (Level 1) and the lowest priority to unobservable inputs (Level 3). The Company categorizes financial assets and liabilities recorded at fair value on the December 31, 2015 balance sheet as follows:
· Level 1 - Unadjusted quoted prices accessible in active markets for identical assets or liabilities at the measurement date. The types of assets and liabilities utilizing Level 1 inputs include short-term investments, U.S. Treasuries, and common stocks listed in active markets and futures listed in derivative markets. Separate accounts classified within this level principally include mutual funds and common stocks.
National Life Insurance Company
Notes to Statutory-Basis Financial Statements
December 31, 2015 and December 31, 2014
A. Significant Accounting Policies (continued)
Fair Value Definition and Hierarchy (continued)
· Level 2 - Inputs other than quoted prices included within Level 1 that are observable for the asset or liability, either directly or indirectly through corroboration with observable market data (market-corroborated inputs). The types of assets and liabilities utilizing Level 2 inputs include bonds and derivatives. Separate account assets classified as Level 2 are primarily bonds.
· Level 3 - Prices or valuation techniques that require inputs that are both unobservable and significant to the overall fair value measurement. Inputs reflect managements best estimate about the assumptions market participants would use at the measurement date in pricing the asset or liability. Consideration is given to the risk inherent in both the method of valuation and the valuation inputs. Level 3 assets include partnerships which are carried at the Companys pro-rata share of the limited partnerships net asset value (NAV), or its equivalent.
Valuation Techniques
Bonds - Bonds are stated at amortized cost with the exception of those bonds that have an NAIC 6 designation or that have been impaired. Bonds are valued using cash flow models based on appropriate observable inputs such as market quotes, yield curves, interest rates, and spreads. Those securities are generally categorized in Level 2 of the fair value hierarchy. In instances where significant inputs are unobservable, the securities are categorized as Level 3.
Common stock - Fair values of common stocks are based on unadjusted quoted market prices from pricing services as well as primary and secondary brokers/dealers. Actively traded common stocks with readily available market prices are categorized into Level 1 of the fair value hierarchy.
Short-term investments - Short-term investments consist of money market funds with observable market pricing, and are categorized into Level 1.
Partnerships - Investments in limited partnerships do not have a readily determinable fair value, and as such, the Company values them at its pro-rata share of the limited partnerships NAV, or its equivalent. Since these valuations have significant unobservable inputs, they are generally categorized as Level 3 in the fair value hierarchy.
Derivative assets and liabilities - Derivative assets and liabilities include option contracts. Fair value of these over the counter (OTC) derivative products is calculated using models such as the Black-Scholes option-pricing model, which uses pricing inputs as observed from actively quoted markets, and is widely accepted by the financial services industry. A substantial majority of the Companys OTC derivative products use pricing models and are categorized as Level 2 of the fair value hierarchy.
National Life Insurance Company
Notes to Statutory-Basis Financial Statements
December 31, 2015 and December 31, 2014
A. Significant Accounting Policies (continued)
Valuation Techniques (continued)
Separate account assets - Separate account assets are categorized into Level 1 where the balances represent mutual funds with observable market pricing, Level 2 where the balances represent government bonds carried at fair value, and Level 3 where the assets are partnerships which are carried as the pro-rata share of the limited partnerships NAV.
Presented below is the fair value of all assets and liabilities measured at fair value:
|
|
Level 1 |
|
Level 2 |
|
Level 3 |
|
Total |
| ||||
|
|
(In Thousands) |
| ||||||||||
At December 31, 2015 |
|
|
|
|
|
|
|
|
| ||||
Assets |
|
|
|
|
|
|
|
|
| ||||
Bonds |
|
$ |
|
|
$ |
386 |
|
$ |
|
|
$ |
386 |
|
Common stock |
|
25,360 |
|
|
|
|
|
25,360 |
| ||||
Total debt and equity securities |
|
25,360 |
|
386 |
|
|
|
25,746 |
| ||||
|
|
|
|
|
|
|
|
|
| ||||
Short-term investments |
|
113,500 |
|
|
|
|
|
113,500 |
| ||||
Partnerships |
|
|
|
|
|
204,653 |
|
204,653 |
| ||||
Derivative assets |
|
111 |
|
19,708 |
|
|
|
19,819 |
| ||||
Total cash and investments |
|
113,611 |
|
19,708 |
|
204,653 |
|
337,972 |
| ||||
|
|
|
|
|
|
|
|
|
| ||||
Separate account assets |
|
678,905 |
|
29,733 |
|
12,072 |
|
720,710 |
| ||||
Total assets |
|
$ |
817,876 |
|
$ |
49,827 |
|
$ |
216,725 |
|
$ |
1,084,428 |
|
|
|
|
|
|
|
|
|
|
| ||||
Liabilities |
|
|
|
|
|
|
|
|
| ||||
Derivative liabilities |
|
$ |
|
|
$ |
3,785 |
|
$ |
|
|
$ |
3,785 |
|
Total liabilities |
|
$ |
|
|
$ |
3,785 |
|
$ |
|
|
$ |
3,785 |
|
|
|
Level 1 |
|
Level 2 |
|
Level 3 |
|
Total |
| ||||
|
|
(In Thousands) |
| ||||||||||
At December 31, 2014 |
|
|
|
|
|
|
|
|
| ||||
Assets |
|
|
|
|
|
|
|
|
| ||||
Bonds |
|
$ |
|
|
$ |
8,638 |
|
$ |
|
|
$ |
8,638 |
|
Common stock |
|
25,577 |
|
|
|
|
|
25,577 |
| ||||
Total debt and equity securities |
|
25,577 |
|
8,638 |
|
|
|
34,215 |
| ||||
|
|
|
|
|
|
|
|
|
| ||||
Short-term investments |
|
83,200 |
|
|
|
|
|
83,200 |
| ||||
Partnerships |
|
|
|
|
|
243,807 |
|
243,807 |
| ||||
Derivative assets |
|
194 |
|
31,370 |
|
|
|
31,564 |
| ||||
Total cash and investments |
|
83,394 |
|
31,370 |
|
243,807 |
|
358,571 |
| ||||
|
|
|
|
|
|
|
|
|
| ||||
Separate account assets |
|
740,563 |
|
26,254 |
|
10,909 |
|
777,726 |
| ||||
Total assets |
|
$ |
849,534 |
|
$ |
66,262 |
|
$ |
254,716 |
|
$ |
1,170,512 |
|
|
|
|
|
|
|
|
|
|
| ||||
Liabilities |
|
|
|
|
|
|
|
|
| ||||
Derivative liabilities |
|
$ |
|
|
$ |
7,589 |
|
$ |
|
|
$ |
7,589 |
|
Total liabilities |
|
$ |
|
|
$ |
7,589 |
|
$ |
|
|
$ |
7,589 |
|
National Life Insurance Company
Notes to Statutory-Basis Financial Statements
December 31, 2015 and December 31, 2014
A. Significant Accounting Policies (continued)
Valuation Techniques (continued)
The tables below summarize the reconciliation of the beginning and ending balances and related changes for Level 3 assets and liabilities, for which significant unobservable inputs were used in determining each instruments fair value:
At December 31, 2015
|
|
|
|
|
|
|
|
Net |
|
|
|
|
|
|
|
|
|
|
|
|
| ||||||||||
|
|
|
|
|
|
|
|
Investment |
|
|
|
|
|
|
|
|
|
|
|
|
| ||||||||||
|
|
|
|
|
|
|
|
Gains/Loss in |
|
|
|
|
|
|
|
|
|
|
|
|
| ||||||||||
|
|
|
|
|
|
|
|
Earnings |
|
|
|
|
|
|
|
|
|
|
|
|
| ||||||||||
|
|
Beginning |
|
Transfers Into |
|
Transfer Out of |
|
(Realized and |
|
|
|
|
|
|
|
|
|
|
|
Ending |
| ||||||||||
Assets |
|
Balance |
|
Level 3 |
|
Level 3 |
|
Unrealized) |
|
Unrealized |
|
Purchases |
|
Issuances |
|
Sales |
|
Settlement |
|
Balance |
| ||||||||||
|
|
(In Thousands) |
| ||||||||||||||||||||||||||||
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| ||||||||||
Partnerships |
|
$ |
243,807 |
|
$ |
|
|
$ |
|
|
$ |
(2,020 |
) |
$ |
(21,312 |
) |
$ |
84,858 |
|
$ |
|
|
$ |
(100,680 |
) |
$ |
|
|
$ |
204,653 |
|
Separate Account Assets |
|
10,909 |
|
|
|
|
|
|
|
(271 |
) |
1,521 |
|
|
|
(87 |
) |
|
|
12,072 |
| ||||||||||
Total invested assets |
|
$ |
254,716 |
|
$ |
|
|
$ |
|
|
$ |
(2,020 |
) |
$ |
(21,583 |
) |
$ |
86,379 |
|
$ |
|
|
$ |
(100,767 |
) |
$ |
|
|
$ |
216,725 |
|
At December 31, 2014
|
|
|
|
|
|
|
|
Net |
|
|
|
|
|
|
|
|
|
|
|
|
| ||||||||||
|
|
|
|
|
|
|
|
Investment |
|
|
|
|
|
|
|
|
|
|
|
|
| ||||||||||
|
|
|
|
|
|
|
|
Gains/Loss in |
|
|
|
|
|
|
|
|
|
|
|
|
| ||||||||||
|
|
|
|
|
|
|
|
earnings |
|
|
|
|
|
|
|
|
|
|
|
|
| ||||||||||
|
|
Beginning |
|
Transfers Into |
|
Transfer Out of |
|
(Realized and |
|
|
|
|
|
|
|
|
|
|
|
Ending |
| ||||||||||
Assets |
|
Balance |
|
Level 3 |
|
Level 3 |
|
Unrealized) |
|
Unrealized |
|
Purchases |
|
Issuances |
|
Sales |
|
Settlement |
|
Balance |
| ||||||||||
|
|
(In Thousands) |
| ||||||||||||||||||||||||||||
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| ||||||||||
Partnerships |
|
$ |
219,469 |
|
$ |
|
|
$ |
|
|
$ |
(5,224 |
) |
$ |
3,335 |
|
$ |
88,358 |
|
$ |
|
|
$ |
(62,131 |
) |
$ |
|
|
$ |
243,807 |
|
Separate Account Assets |
|
10,087 |
|
|
|
|
|
|
|
532 |
|
290 |
|
|
|
|
|
|
|
10,909 |
| ||||||||||
Total invested assets |
|
$ |
229,556 |
|
$ |
|
|
$ |
|
|
$ |
(5,224 |
) |
$ |
3,867 |
|
$ |
88,648 |
|
$ |
|
|
$ |
(62,131 |
) |
$ |
|
|
$ |
254,716 |
|
During 2015 and 2014, there were no significant transfers between fair value levels 1 and 2.
National Life Insurance Company
Notes to Statutory-Basis Financial Statements
December 31, 2015 and December 31, 2014
A. Significant Accounting Policies (continued)
Valuation Techniques (continued)
The tables below show the aggregate fair value for all of the Companys financial instruments and their corresponding level within the fair value hierarchy. Since the SSAP No. 100 hierarchy only applies to items that are carried at fair value at the reporting date, the items in the previous tables are subsets of the amounts reported in the following tables.
At December 31, 2015
Type of Financial Instrument |
|
Aggregate Fair Value |
|
Admitted Assets |
|
(Level 1) |
|
(Level 2) |
|
(Level 3) |
|
Not Practicable |
| ||||||
|
|
(In Thousands) |
| ||||||||||||||||
Bonds |
|
$ |
5,475,363 |
|
$ |
5,260,983 |
|
$ |
227,517 |
|
$ |
5,247,846 |
|
$ |
|
|
$ |
|
|
Preferred Stock |
|
9,992 |
|
10,000 |
|
|
|
9,992 |
|
|
|
|
| ||||||
Common Stock |
|
25,360 |
|
836,249 |
|
25,360 |
|
|
|
|
|
|
| ||||||
Mortgage Loans |
|
573,496 |
|
551,902 |
|
|
|
|
|
573,496 |
|
|
| ||||||
Real Estate |
|
78,998 |
|
80,297 |
|
|
|
78,998 |
|
|
|
|
| ||||||
Short Term Investments |
|
113,500 |
|
113,500 |
|
113,500 |
|
|
|
|
|
|
| ||||||
Derivative Asset |
|
19,819 |
|
19,819 |
|
111 |
|
19,708 |
|
|
|
|
| ||||||
Other Invested Assets |
|
385,715 |
|
374,854 |
|
|
|
105,328 |
|
204,653 |
|
75,734 |
| ||||||
Separate Account Assets |
|
720,710 |
|
720,710 |
|
678,905 |
|
29,733 |
|
12,072 |
|
|
| ||||||
|
|
|
|
|
|
|
|
|
|
|
|
|
| ||||||
Derivative Liability |
|
(3,785 |
) |
(3,785 |
) |
|
|
(3,785 |
) |
|
|
|
| ||||||
Type or Class of Financial Instrument |
|
Carrying Value |
|
Effective Interest Rate |
|
Maturity Date |
|
Explanation |
|
|
|
|
|
|
|
|
|
|
|
Other Invested Assets |
|
75,734 |
|
|
|
|
|
A |
|
A - It was not practicable to determine the fair value of these financial instruments as a quoted market price is not available.
At December 31, 2014
Type of Financial Instrument |
|
Aggregate Fair Value |
|
Admitted Assets |
|
(Level 1) |
|
(Level 2) |
|
(Level 3) |
|
Not Practicable |
| ||||||
|
|
(In Thousands) |
| ||||||||||||||||
Bonds |
|
$ |
5,884,447 |
|
$ |
5,389,989 |
|
$ |
226,944 |
|
$ |
5,657,503 |
|
$ |
|
|
$ |
|
|
Common Stock |
|
25,577 |
|
774,556 |
|
25,577 |
|
|
|
|
|
|
| ||||||
Mortgage Loans |
|
566,391 |
|
522,440 |
|
|
|
|
|
566,391 |
|
|
| ||||||
Real Estate |
|
83,080 |
|
86,507 |
|
|
|
83,080 |
|
|
|
|
| ||||||
Short Term Investments |
|
83,200 |
|
83,200 |
|
83,200 |
|
|
|
|
|
|
| ||||||
Derivative Asset |
|
31,564 |
|
31,564 |
|
194 |
|
31,370 |
|
|
|
|
| ||||||
Other Invested Assets |
|
388,049 |
|
376,240 |
|
|
|
76,444 |
|
243,807 |
|
67,798 |
| ||||||
Separate Account Assets |
|
777,726 |
|
777,726 |
|
740,563 |
|
26,254 |
|
10,909 |
|
|
| ||||||
|
|
|
|
|
|
|
|
|
|
|
|
|
| ||||||
Derivative Liability |
|
(7,589 |
) |
(7,589 |
) |
|
|
(7,589 |
) |
|
|
|
| ||||||
Type or Class of Financial Instrument |
|
Carrying Value |
|
Effective Interest Rate |
|
Maturity Date |
|
Explanation |
| |
|
|
|
|
|
|
|
|
|
| |
Other Invested Assets |
|
$ |
67,798 |
|
|
|
|
|
A |
|
A - It was not practicable to determine the fair value of these financial instruments as a quoted market price is not available.
National Life Insurance Company
Notes to Statutory-Basis Financial Statements
December 31, 2015 and December 31, 2014
A. Significant Accounting Policies (continued)
Asset Valuation Reserve and Interest Maintenance Reserve
The AVR is designed to stabilize unassigned surplus from default losses on bonds, preferred stocks, mortgages, real estate, and other invested assets and from fluctuations in the value of common stocks. The AVR is calculated as prescribed by the NAIC.
The IMR defers interest rate related after-tax capital gains and losses on fixed income investments, and amortizes them into income over the remaining lives of the securities sold. IMR amortization is included in net investment income in the Statements of Operations. The Company uses the seriatim method for the amortization of IMR.
Nonadmitted Assets
In accordance with regulatory requirements, certain assets, including certain deferred tax assets, prepaid expenses, furniture and equipment, and internally developed software, are excluded from the balance sheet. The net change in these assets is included in the change in nonadmitted assets in the Statements of Changes in Capital and Surplus.
Federal Home Loan Bank Agreements
National Life is a member of the Federal Home Loan Bank (FHLB) of Boston which provides the Company with access to a secured asset-based borrowing capacity. It is part of the Companys strategy to utilize this borrowing capacity for funding agreements and for backup liquidity. The Company has received advances from FHLB in connection with funding agreements which are considered operating leverage. In accordance with SSAP No. 52 Deposit-type Contracts the balance is included in the liability for deposit-type contracts. For more information see Note I FHLB Agreements.
Property and Equipment
Property and equipment is reported at depreciated cost. Assets are depreciated over their useful life using the straight line method of depreciation. Real property owned by the Company is primarily depreciated over 40 years with a half year convention, and renovations and semi-permanent fixtures depreciated over 20 years. Furniture and equipment is depreciated over seven years and five years, respectively. Electronic Data Processing (EDP) equipment and software is depreciated for a period not exceeding three years.
National Life Insurance Company
Notes to Statutory-Basis Financial Statements
December 31, 2015 and December 31, 2014
A. Significant Accounting Policies (continued)
Property and Equipment (continued)
The tables below reflect the balances of major classes of depreciable assets, accumulated depreciation, and depreciation expense:
|
|
Depreciable |
|
Accumulated |
|
Depreciation |
| |||
|
|
Asset |
|
Depreciation |
|
Expense |
| |||
|
|
(In Thousands) |
| |||||||
At December 31, 2015 |
|
|
|
|
|
|
| |||
|
|
|
|
|
|
|
| |||
EDP equipment |
|
$ |
28,256 |
|
$ |
22,417 |
|
$ |
3,098 |
|
Furniture |
|
24,995 |
|
19,638 |
|
1,706 |
| |||
Software |
|
153,757 |
|
88,718 |
|
16,921 |
| |||
Vehicles |
|
549 |
|
431 |
|
17 |
| |||
Leasehold improvements |
|
919 |
|
206 |
|
168 |
| |||
Property occupied by the Company |
|
110,773 |
|
58,047 |
|
2,653 |
| |||
|
|
$ |
319,249 |
|
$ |
189,457 |
|
$ |
24,563 |
|
|
|
Depreciable |
|
Accumulated |
|
Depreciation |
| |||
|
|
Asset |
|
Depreciation |
|
Expense |
| |||
|
|
(In Thousands) |
| |||||||
At December 31, 2014 |
|
|
|
|
|
|
| |||
|
|
|
|
|
|
|
| |||
EDP equipment |
|
$ |
23,189 |
|
$ |
19,320 |
|
$ |
2,329 |
|
Furniture |
|
24,630 |
|
18,002 |
|
1,253 |
| |||
Software |
|
124,017 |
|
71,797 |
|
13,161 |
| |||
Vehicles |
|
454 |
|
414 |
|
16 |
| |||
Leasehold improvements |
|
919 |
|
83 |
|
81 |
| |||
Property occupied by the Company |
|
109,102 |
|
55,394 |
|
2,544 |
| |||
|
|
$ |
282,311 |
|
$ |
165,010 |
|
$ |
19,384 |
|
Corporate Owned Life Insurance
The Company holds life insurance contracts on certain members of management and other key individuals. During 2015 the Company expanded its Corporate Owned Life Insurance (COLI) program with existing carriers by purchasing additional COLI of $16.0 million. The total cash surrender value of these COLI contracts was $255.7 million and $233.1 million at December 31, 2015 and 2014, respectively, and is included in Other Admitted Assets on the Balance Sheets. COLI income includes the net change in cash surrender value and any benefits received. COLI income was $9.0 million, $8.3 million, and $8.4 million in 2015, 2014, and 2013, respectively, and is included in Other Income.
Recognition of Insurance Income and Related Expenses
Annual premiums and related reserve increases on traditional life insurance policies are recorded at each policy anniversary. Premiums and related reserve increases on annuity contracts and universal life policies are recorded when premiums are collected. Premiums from disability income policies are recognized as revenue over the period to which the premiums relate. Commissions and other policy and contract costs are expensed as incurred. First-year policy and contract costs and required additions to policy and contract reserves generally exceed first-year premiums.
National Life Insurance Company
Notes to Statutory-Basis Financial Statements
December 31, 2015 and December 31, 2014
A. Significant Accounting Policies (continued)
Benefit Reserves
Policy reserves for life, annuity and disability income contracts are developed using NAIC SAP. Actuarial factors used in determining life insurance reserves are based primarily upon the 1958, 1980, and 2001 Commissioners Standard Ordinary (CSO) mortality tables. Methods used to calculate life reserves consist primarily of net level premium, Commissioners Reserve Valuation Method, and modified preliminary term, with valuation interest rates ranging from 2.0% to 6.0%.
The Company waives deduction of deferred fractional premiums upon death of the insured and returns any portion of the final premium beyond the date of death. Surrender values are not promised in excess of the legally computed reserves.
Extra premiums are charged for substandard lives in addition to the gross premium for a true age. For term and traditional whole life business, reserves are determined by computing mean reserves using standard mortality, then calculating a substandard extra reserve. Where the extra premium is a flat rate, the extra reserve is equal to one-half the flat extra premium charge for the year. For policies with a percentage extra rating, the extra reserve is defined as the difference between mean reserves calculated using standard valuation mortality and mean reserves calculated using valuation mortality adjusted by the percentage rating. For fixed, indexed, and variable universal life, reserves are determined using the percentage rating and/or flat extra mortality associated with the policy. A substandard extra reserve is not separately computed. Table ratings for all life insurance policies expire after 20 years or at age 65, whichever is later.
Reserves for individual annuities are determined principally using the Commissioners Annuity Reserve Valuation Method, based on A-1949, 1983, 2000, and 2012 annuity tables with valuation interest rates from 2.0% to 9.0%. Liabilities for losses and loss/claim adjustment expenses for accident and health contracts are estimated by using statistical claim development models. Active life disability income reserves are determined primarily using the Commissioners Disability 1964 table with the 1958 CSO mortality table and Commissioners Individual Disability Table A morbidity tables with the 1980 CSO mortality tables. Valuation interest rates for active life reserves range from 3.0% to 6.0%. Disability income reserves are based on expected experience at 4.5% interest, and exceed statutory minimum reserves. The Company anticipates investment income as a factor in the premium deficiency calculation. Tabular components of reserves are calculated in accordance with NAIC instructions and, as appropriate, have been compared to related contract rates for reasonableness.
As of December 31, 2015 and 2014, the Company had $2.4 billion and $2.3 billion, respectively, of insurance inforce for which the gross premiums are less than the net premiums according to the standard valuation law adopted by the Department. At December 31, 2015 and 2014, reserves on the above inforce insurance totaled $29.8 million and $27.1 million, respectively, and are included in policy reserves.
National Life Insurance Company
Notes to Statutory-Basis Financial Statements
December 31, 2015 and December 31, 2014
A. Significant Accounting Policies (continued)
Policy and Contract Claims
Unpaid claims on accident and health policies represent the estimated ultimate net cost of all reported and unreported claims incurred through December 31. The Company discounts its claim reserves for long-term disability using disability tables and discount rates approved by the Department. Reserves for unpaid claims are estimated using individual case-basis valuations and statistical analyses. Those estimates are subject to the effects of trends in claim severity and frequency. Although considerable variability is inherent in such estimates, management believes that the reserves for unpaid claims are adequate. The estimates are continually reviewed and adjusted as necessary as experience develops or new information becomes known; such adjustments are included in current operations.
Reinsurance
Reinsurance premiums and benefits paid or provided are accounted for on a basis consistent with those used in accounting for the original policies issued and the terms of the reinsurance contracts.
Dividends to Policyholders
All of the Companys traditional life insurance and certain annuity policies are issued on a participating basis, while its universal life policies, most annuities, and disability income policies are issued on a non-participating basis. Term life insurance policies, while on a participating basis, currently receive no dividend. Liabilities for policyholders dividends primarily represent amounts estimated to be paid or credited in the subsequent year. The amount of policyholder dividends to be distributed is based upon a scale which seeks to reflect the relative contribution of each group of policies to the Companys overall operating results. The dividend scale is approved annually by the Companys Board of Directors.
Separate Accounts
Separate account assets represent segregated funds held for the benefit of certain variable annuity and variable life policyholders and the Companys pension plans. Separate account liabilities represent the policyholders share of separate account assets. The Company also participates in certain separate accounts. Policy values funded by separate accounts reflect the actual investment performance of the respective accounts, and are generally not guaranteed. Investments held in the separate accounts are primarily mutual funds, common stocks, and bonds, and are carried at fair value.
The Company had approximately $1.8 million and $1.4 million of reserves for minimum death benefit guarantees on variable annuities and variable universal life at December 31, 2015 and 2014, respectively.
National Life Insurance Company
Notes to Statutory-Basis Financial Statements
December 31, 2015 and December 31, 2014
A. Significant Accounting Policies (continued)
Separate Accounts (continued)
These benefits include a provision that allows withdrawals by policyholders to adjust the death benefit guarantee on a dollar for dollar basis, which increases the risk profile of this benefit. Partial withdrawals from policies issued after November 1, 2003 will use the pro-rata method subject to state approval. Policyholder partial withdrawals to date have not been significant. The Company assumes no partial withdrawals in its calculation of minimum death benefit guarantee reserves, but does include partial withdrawals in asset adequacy testing.
Subsequent Events
The Company has evaluated events subsequent to December 31, 2015 and through the statutory-basis financial statement issuance date of April 26, 2016. The Company has not evaluated subsequent events after the issuance date for presentation in these statutory-basis financial statements.
A note receivable received from the Companys parent, NLVF, for the issuance of capital stock is considered an admitted asset pursuant to SSAP 72 Surplus and Quasi-Reorganizations. The cash settled February 19, 2016, prior to the filing of the statutory-basis financial statements. The Company received approval from the Vermont Department of Financial Regulation to treat the note as an admitted asset.
Adoption of New Accounting Standards
SSAP No. 97 Investments in Subsidiary, Controlled and Affiliated Entities
In 2015, revisions were adopted to incorporate new disclosures detailing the reported value for Subsidiary, Controlled or Affiliated Entities (SCAs), as well as information received after filing the SCA with the NAIC. Additional disclosures are included in Note F - Information Concerning Parent, Subsidiaries and Affiliates.
SSAP No. 93 Accounting for Low Income Housing Tax Credit Property Investments
In 2015, the NAIC adopted proposed amendments to SSAP No. 93 to adopt ASU 2014-01, Accounting for Investments in Qualified Affordable Housing Projects, but to continue the gross income statement presentation. The guidance adopts the proportional amortized cost method.
National Life Insurance Company
Notes to Statutory-Basis Financial Statements
December 31, 2015 and December 31, 2014
A. Significant Accounting Policies (continued)
SSAP 69 Statement of Cash Flows
In 2015, non-substantive revisions were adopted to clarify that the Statement of Cash Flows only includes transactions that involve cash (as defined in SSAPs) and expand the disclosures to include non-cash operating items. The additional disclosures are included in Note A Significant Accounting Policies.
Use of Estimates
The preparation of financial statements requires management to make estimates and assumptions that affect the reported amounts of admitted assets, liabilities, surplus, income, and expenses, and related disclosures in the notes to financial statements. Actual results could differ from those estimates.
Reclassifications
Certain 2014 amounts have been reclassified to conform to the 2015 presentation.
National Life Insurance Company
Notes to Statutory-Basis Financial Statements
December 31, 2015 and December 31, 2014
B. Investments
The carrying value and the fair value of investments in bonds are summarized as follows:
|
|
|
|
Gross |
|
Gross |
|
|
| ||||
|
|
Carrying |
|
Unrealized |
|
Unrealized |
|
Fair |
| ||||
|
|
Value |
|
Gains |
|
Losses |
|
Value |
| ||||
|
|
(In Thousands) |
| ||||||||||
At December 31, 2015 |
|
|
|
|
|
|
|
|
| ||||
Bonds: |
|
|
|
|
|
|
|
|
| ||||
U.S. government obligations |
|
$ |
214,541 |
|
$ |
12,983 |
|
$ |
7 |
|
$ |
227,517 |
|
Government agencies, authorities and subdivisions |
|
217,611 |
|
5,670 |
|
1,259 |
|
222,022 |
| ||||
Corporate: |
|
|
|
|
|
|
|
|
| ||||
Communications |
|
325,891 |
|
28,816 |
|
6,179 |
|
348,528 |
| ||||
Consumer & retail |
|
817,688 |
|
38,369 |
|
8,405 |
|
847,652 |
| ||||
Financial institutions |
|
555,600 |
|
58,133 |
|
2,219 |
|
611,514 |
| ||||
Industrial and chemicals |
|
507,500 |
|
28,039 |
|
22,359 |
|
513,180 |
| ||||
REITS |
|
140,946 |
|
1,987 |
|
2,047 |
|
140,886 |
| ||||
Transportation |
|
70,840 |
|
8,537 |
|
764 |
|
78,613 |
| ||||
Utilities |
|
659,178 |
|
34,821 |
|
42,369 |
|
651,630 |
| ||||
Total corporate |
|
3,077,643 |
|
198,702 |
|
84,342 |
|
3,192,003 |
| ||||
|
|
|
|
|
|
|
|
|
| ||||
Private placements |
|
481,580 |
|
22,609 |
|
6,846 |
|
497,343 |
| ||||
Mortgage-backed securities |
|
1,269,608 |
|
78,836 |
|
11,966 |
|
1,336,478 |
| ||||
Total bonds |
|
$ |
5,260,983 |
|
$ |
318,800 |
|
$ |
104,420 |
|
$ |
5,475,363 |
|
|
|
|
|
Gross |
|
Gross |
|
|
| ||||
|
|
Carrying |
|
Unrealized |
|
Unrealized |
|
Fair |
| ||||
|
|
Value |
|
Gains |
|
Losses |
|
Value |
| ||||
|
|
(In Thousands) |
| ||||||||||
At December 31, 2014 |
|
|
|
|
|
|
|
|
| ||||
Bonds: |
|
|
|
|
|
|
|
|
| ||||
U.S. government obligations |
|
$ |
217,610 |
|
$ |
22,215 |
|
$ |
|
|
$ |
239,825 |
|
Government agencies, authorities and subdivisions |
|
23,886 |
|
4,707 |
|
|
|
28,593 |
| ||||
Corporate: |
|
|
|
|
|
|
|
|
| ||||
Communications |
|
332,925 |
|
49,702 |
|
548 |
|
382,079 |
| ||||
Consumer & retail |
|
761,509 |
|
68,270 |
|
1,267 |
|
828,512 |
| ||||
Financial institutions |
|
592,387 |
|
86,550 |
|
135 |
|
678,802 |
| ||||
Industrial and chemicals |
|
484,405 |
|
49,989 |
|
3,260 |
|
531,134 |
| ||||
REITS |
|
156,024 |
|
5,809 |
|
771 |
|
161,062 |
| ||||
Transportation |
|
73,527 |
|
11,943 |
|
83 |
|
85,387 |
| ||||
Utilities |
|
701,245 |
|
73,844 |
|
8,162 |
|
766,927 |
| ||||
Total corporate |
|
3,102,022 |
|
346,107 |
|
14,226 |
|
3,433,903 |
| ||||
|
|
|
|
|
|
|
|
|
| ||||
Private placements |
|
474,525 |
|
31,733 |
|
1,694 |
|
504,564 |
| ||||
Mortgage-backed securities |
|
1,571,946 |
|
112,477 |
|
6,861 |
|
1,677,562 |
| ||||
Total bonds |
|
$ |
5,389,989 |
|
$ |
517,239 |
|
$ |
22,781 |
|
$ |
5,884,447 |
|
National Life Insurance Company
Notes to Statutory-Basis Financial Statements
December 31, 2015 and December 31, 2014
B. Investments (continued)
A summary of the carrying value and fair value of investments in bonds at December 31, 2015, by contractual maturity, is as follows:
|
|
Carrying |
|
Fair |
| ||
|
|
Value |
|
Value |
| ||
|
|
(In Thousands) |
| ||||
Years to maturity: |
|
|
|
|
| ||
One or less |
|
$ |
171,466 |
|
$ |
174,793 |
|
After one through five |
|
920,511 |
|
978,039 |
| ||
After five through ten |
|
1,454,848 |
|
1,436,601 |
| ||
After ten |
|
1,447,055 |
|
1,551,936 |
| ||
Mortgage-backed securities |
|
1,267,103 |
|
1,333,994 |
| ||
Total |
|
$ |
5,260,983 |
|
$ |
5,475,363 |
|
The expected maturities in the foregoing table may differ from the contractual maturities because certain borrowers have the right to call or prepay obligations with or without call or prepayment penalties.
The gross unrealized gains and losses on, and the cost and fair value of, the Companys investments in preferred and common stocks are summarized as follows:
|
|
|
|
Gross Unrealized |
|
Gross Unrealized |
|
|
| ||||
|
|
Cost |
|
Gains |
|
Losses |
|
Fair Value |
| ||||
|
|
(In Thousands) |
| ||||||||||
At December 31, 2015: |
|
|
|
|
|
|
|
|
| ||||
Preferred stocks |
|
$ |
10,000 |
|
$ |
|
|
$ |
8 |
|
$ |
9,992 |
|
Unaffiliated common stocks |
|
26,479 |
|
71 |
|
1,190 |
|
25,360 |
| ||||
Total stocks |
|
$ |
36,479 |
|
$ |
71 |
|
$ |
1,198 |
|
$ |
35,352 |
|
|
|
|
|
Gross Unrealized |
|
Gross Unrealized |
|
|
| ||||
|
|
Cost |
|
Gains |
|
Losses |
|
Fair Value |
| ||||
|
|
(In Thousands) |
| ||||||||||
At December 31, 2014: |
|
|
|
|
|
|
|
|
| ||||
Unaffiliated common stocks |
|
$ |
25,419 |
|
$ |
820 |
|
$ |
662 |
|
$ |
25,577 |
|
Total stocks |
|
$ |
25,419 |
|
$ |
820 |
|
$ |
662 |
|
$ |
25,577 |
|
National Life Insurance Company
Notes to Statutory-Basis Financial Statements
December 31, 2015 and December 31, 2014
B. Investments (continued)
The following table shows investment gross unrealized losses and fair value (after the effect of other-than-temporary impairments), aggregated by investment category and length of time that individual securities have been in a continuous unrealized loss position at December 31, 2015 and 2014:
|
|
Less Than 12 Months |
|
12 Months or More |
|
Total |
| ||||||||||||
|
|
|
|
Gross |
|
|
|
Gross |
|
|
|
Gross |
| ||||||
|
|
|
|
Unrealized |
|
|
|
Unrealized |
|
|
|
Unrealized |
| ||||||
|
|
Fair Value |
|
Losses |
|
Fair Value |
|
Losses |
|
Fair Value |
|
Losses |
| ||||||
|
|
(In Thousands) |
| ||||||||||||||||
At December 31, 2015 |
|
|
|
|
|
|
|
|
|
|
|
|
| ||||||
Bonds: |
|
|
|
|
|
|
|
|
|
|
|
|
| ||||||
U.S. government obligations |
|
$ |
2,627 |
|
$ |
7 |
|
$ |
|
|
$ |
|
|
$ |
2,627 |
|
$ |
7 |
|
Government agencies, authorities and subdivisions |
|
97,208 |
|
1,259 |
|
|
|
|
|
97,208 |
|
1,259 |
| ||||||
Corporate: |
|
|
|
|
|
|
|
|
|
|
|
|
| ||||||
Communications |
|
101,873 |
|
3,521 |
|
6,950 |
|
2,658 |
|
108,823 |
|
6,179 |
| ||||||
Consumer & retail |
|
242,027 |
|
7,924 |
|
11,127 |
|
481 |
|
253,154 |
|
8,405 |
| ||||||
Financial institutions |
|
99,165 |
|
2,219 |
|
|
|
|
|
99,165 |
|
2,219 |
| ||||||
Industrial and chemicals |
|
208,526 |
|
14,312 |
|
9,703 |
|
8,047 |
|
218,229 |
|
22,359 |
| ||||||
REITS |
|
76,387 |
|
2,047 |
|
|
|
|
|
76,387 |
|
2,047 |
| ||||||
Transportation |
|
14,092 |
|
764 |
|
|
|
|
|
14,092 |
|
764 |
| ||||||
Utilities |
|
197,995 |
|
25,375 |
|
46,261 |
|
16,994 |
|
244,256 |
|
42,369 |
| ||||||
Total Corporate |
|
940,065 |
|
56,162 |
|
74,041 |
|
28,180 |
|
1,014,106 |
|
84,342 |
| ||||||
|
|
|
|
|
|
|
|
|
|
|
|
|
| ||||||
Private placements |
|
147,101 |
|
5,900 |
|
17,133 |
|
946 |
|
164,234 |
|
6,846 |
| ||||||
Mortgage-backed securities |
|
172,600 |
|
3,680 |
|
92,519 |
|
8,286 |
|
265,119 |
|
11,966 |
| ||||||
Total bonds |
|
1,359,601 |
|
67,008 |
|
183,693 |
|
37,412 |
|
1,543,294 |
|
104,420 |
| ||||||
|
|
|
|
|
|
|
|
|
|
|
|
|
| ||||||
Preferred stocks |
|
9,992 |
|
8 |
|
|
|
|
|
9,992 |
|
8 |
| ||||||
Common stocks |
|
12,982 |
|
1,190 |
|
|
|
|
|
12,982 |
|
1,190 |
| ||||||
Total bonds and stocks |
|
$ |
1,382,575 |
|
$ |
68,206 |
|
$ |
183,693 |
|
$ |
37,412 |
|
$ |
1,566,268 |
|
$ |
105,618 |
|
National Life Insurance Company
Notes to Statutory-Basis Financial Statements
December 31, 2015 and December 31, 2014
B. Investments (continued)
|
|
Less Than 12 Months |
|
12 Months or More |
|
Total |
| ||||||||||||
|
|
|
|
Gross |
|
|
|
Gross |
|
|
|
Gross |
| ||||||
|
|
|
|
Unrealized |
|
|
|
Unrealized |
|
|
|
Unrealized |
| ||||||
|
|
Fair Value |
|
Losses |
|
Fair Value |
|
Losses |
|
Fair Value |
|
Losses |
| ||||||
|
|
(In Thousands) |
| ||||||||||||||||
At December 31, 2014 |
|
|
|
|
|
|
|
|
|
|
|
|
| ||||||
Bonds: |
|
|
|
|
|
|
|
|
|
|
|
|
| ||||||
U.S. government obligations |
|
$ |
106 |
|
$ |
|
|
$ |
|
|
$ |
|
|
$ |
106 |
|
$ |
|
|
Corporate: |
|
|
|
|
|
|
|
|
|
|
|
|
| ||||||
Communications |
|
22,994 |
|
534 |
|
982 |
|
14 |
|
23,976 |
|
548 |
| ||||||
Consumer & retail |
|
40,869 |
|
325 |
|
45,805 |
|
942 |
|
86,674 |
|
1,267 |
| ||||||
Financial institutions |
|
36,656 |
|
23 |
|
12,244 |
|
112 |
|
48,900 |
|
135 |
| ||||||
Industrial and chemicals |
|
33,055 |
|
2,704 |
|
22,042 |
|
556 |
|
55,097 |
|
3,260 |
| ||||||
REITS |
|
3,617 |
|
324 |
|
26,432 |
|
447 |
|
30,049 |
|
771 |
| ||||||
Transportation |
|
|
|
|
|
2,395 |
|
83 |
|
2,395 |
|
83 |
| ||||||
Utilities |
|
106,518 |
|
5,711 |
|
31,071 |
|
2,451 |
|
137,589 |
|
8,162 |
| ||||||
Total Corporate |
|
243,709 |
|
9,621 |
|
140,971 |
|
4,605 |
|
384,680 |
|
14,226 |
| ||||||
|
|
|
|
|
|
|
|
|
|
|
|
|
| ||||||
Private placements |
|
12,569 |
|
431 |
|
33,403 |
|
1,263 |
|
45,972 |
|
1,694 |
| ||||||
Mortgage-backed securities |
|
9,399 |
|
326 |
|
199,958 |
|
6,535 |
|
209,357 |
|
6,861 |
| ||||||
Total bonds |
|
265,783 |
|
10,378 |
|
374,332 |
|
12,403 |
|
640,115 |
|
22,781 |
| ||||||
|
|
|
|
|
|
|
|
|
|
|
|
|
| ||||||
Common stocks |
|
5,035 |
|
662 |
|
|
|
|
|
5,035 |
|
662 |
| ||||||
Total bonds and stocks |
|
$ |
270,818 |
|
$ |
11,040 |
|
$ |
374,332 |
|
$ |
12,403 |
|
$ |
645,150 |
|
$ |
23,443 |
|
Of the $67.0 million total unrealized losses on debt securities in the less than 12 months category recognized in 2015, $56.2 million total unrealized losses are in the corporate bond portfolio. The unrealized losses are concentrated in the utilities, industrial and chemical, and consumer and retail sectors. In 2015, the Barclays US Corporate Investment Grade Index, an investment grade corporate bond index, widened by approximately 34 basis points from 131 basis points at the beginning of the year to 165 basis points at the end of the year. Over the same time period, the Barclays US Corporate High Yield Index widened by approximately 177 basis points from 483 basis points at the beginning of the year to 660 basis points at the end of the year. The spread widening in both investment-grade and high-yield corporate bonds was concentrated in the energy and metals and mining sectors, as the Barclays US Corporate Investment Grade Energy Index widened by approximately 114 basis points from 196 basis points at the beginning of 2015 to 310 basis points at the end of the year and the Barclays US Corporate Investment Grade Metals and Mining Index widened by approximately 258 basis points from 222 basis points to 480 basis points. Commodities-related sectors experienced weakening conditions during 2015 and the Company continues to hold and monitor some individual credits that experienced adverse price action during this timeframe.
National Life Insurance Company
Notes to Statutory-Basis Financial Statements
December 31, 2015 and December 31, 2014
B. Investments (continued)
Of the $37.4 million unrealized losses on debt securities in the 12 months or more category recognized in 2015, $28.2 million was in the corporate bond portfolio concentrated in the utilities and industrial and chemical categories. Based upon the facts and circumstances surrounding the individual securities, the Companys assessment around the probability of all contractual cash flows, and the Companys ability and intent to hold the individual securities to maturity or recovery, the Company believes that the unrealized losses on these bonds at December 31, 2015 are temporary.
The table below includes all loan-backed securities for which the present value of the cash flows expected to be collected is less than the amortized cost basis:
CUSIP |
|
Book/Adj Carrying |
|
Projected |
|
Recognized other- |
|
Amortized cost after |
|
Fair Value at |
| |||||
|
|
(In Thousands) |
| |||||||||||||
02076XAC6 |
|
$ |
1,549,375 |
|
$ |
70,000 |
|
$ |
(1,479,375 |
) |
$ |
70,000 |
|
$ |
74,375 |
|
67576JAA9 |
|
2,033,953 |
|
392,000 |
|
(1,641,953 |
) |
392,000 |
|
425,020 |
| |||||
USG785ARAA65 |
|
1,876,482 |
|
414,093 |
|
(1,462,389 |
) |
414,093 |
|
414,093 |
| |||||
17311QBQ2 |
|
3,797,500 |
|
2,618,161 |
|
(1,179,339 |
) |
2,618,161 |
|
2,894,430 |
| |||||
50180LAE0 |
|
3,733,850 |
|
2,306,408 |
|
(1,427,442 |
) |
2,306,408 |
|
2,810,760 |
| |||||
92978TBC4 |
|
35,000 |
|
6,200 |
|
(28,800 |
) |
6,200 |
|
64,720 |
| |||||
Total |
|
|
|
|
|
$ |
(7,219,298 |
) |
|
|
|
| ||||
The Company recorded $7.2 million, $1.1 million, and $2.2 million of other-than-temporary impairments on bonds in 2015, 2014, and 2013, respectively. There were no impairments recognized on common stock in 2015, 2014, and 2013.
National Life Insurance Company
Notes to Statutory-Basis Financial Statements
December 31, 2015 and December 31, 2014
B. Investments (continued)
Mortgage Loans and Real Estate
The distributions of mortgage loans and real estate at December 31 were as follows:
|
|
2015 |
|
2014 |
|
Geographic Region |
|
|
|
|
|
New England |
|
5.2 |
% |
4.7 |
% |
Middle Atlantic |
|
8.1 |
% |
4.4 |
% |
East North Central |
|
17.6 |
% |
17.2 |
% |
West North Central |
|
11.1 |
% |
8.3 |
% |
South Atlantic |
|
15.0 |
% |
18.2 |
% |
East South Central |
|
3.4 |
% |
3.0 |
% |
West South Central |
|
5.3 |
% |
9.7 |
% |
Mountain |
|
8.1 |
% |
10.4 |
% |
Pacific |
|
26.2 |
% |
24.1 |
% |
|
|
100.0 |
% |
100.0 |
% |
|
|
2015 |
|
2014 |
|
Property Type |
|
|
|
|
|
Apartment |
|
11.8 |
% |
14.3 |
% |
Retail |
|
22.7 |
% |
14.6 |
% |
Office Building |
|
32.7 |
% |
37.1 |
% |
Industrial |
|
17.7 |
% |
22.0 |
% |
Mixed Use |
|
11.6 |
% |
7.9 |
% |
Other Commercial |
|
3.5 |
% |
4.1 |
% |
|
|
100.0 |
% |
100.0 |
% |
The Company applies a consistent and disciplined approach to evaluating and monitoring credit risk, and monitors credit quality on an ongoing basis. Quality ratings are based on internal evaluations of each loans specific characteristics considering a number of key inputs. The two most significant contributors to the credit quality are debt service coverage and loan-to-value ratios. The debt service coverage ratio measures the amount of property cash flow available to meet annual interest and principal payments on debt. The loan-to-value ratio, commonly expressed as a percentage, compares the amount of the loan to the fair value of the underlying property collateralizing the loan.
National Life Insurance Company
Notes to Statutory-Basis Financial Statements
December 31, 2015 and December 31, 2014
B. Investments (continued)
Mortgage Loans and Real Estate (continued)
The following tables summarize the credit quality of the Companys commercial mortgage loan portfolio based on loan-to-value (LTV) and debt service coverage ratios:
|
|
Debt Service Coverage Ratios as of December 31, 2015 |
|
|
| ||||||||||||||
LTV Range |
|
2.0x and |
|
1.5x to 1.99x |
|
1.25x to 1.499x |
|
1.0x to 1.249x |
|
Less than |
|
Total Carrying |
| ||||||
|
|
(In Thousands) |
|
|
| ||||||||||||||
|
|
|
|
|
|
|
|
|
|
|
|
|
| ||||||
< 50% |
|
$ |
56,855 |
|
$ |
75,265 |
|
$ |
20,795 |
|
$ |
3,301 |
|
$ |
3,808 |
|
$ |
160,024 |
|
50% 60% |
|
46,459 |
|
59,250 |
|
19,941 |
|
17,923 |
|
|
|
143,573 |
| ||||||
60% 70% |
|
|
|
36,556 |
|
48,353 |
|
29,052 |
|
1,950 |
|
115,911 |
| ||||||
70% 80% |
|
|
|
42,756 |
|
14,676 |
|
22,399 |
|
3,850 |
|
83,681 |
| ||||||
80% 90% |
|
|
|
|
|
|
|
10,840 |
|
2,193 |
|
13,033 |
| ||||||
> 90% |
|
|
|
|
|
12,932 |
|
6,356 |
|
16,392 |
|
35,680 |
| ||||||
Total |
|
$ |
103,314 |
|
$ |
213,827 |
|
$ |
116,697 |
|
$ |
89,871 |
|
$ |
28,193 |
|
$ |
551,902 |
|
|
|
Debt Service Coverage Ratios as of December 31, 2014 |
|
|
| ||||||||||||||
LTV Range |
|
2.0x and |
|
1.5x to 1.99x |
|
1.25x to 1.499x |
|
1.0x to 1.249x |
|
Less than |
|
Total Carrying |
| ||||||
|
|
(In Thousands) |
|
|
| ||||||||||||||
|
|
|
|
|
|
|
|
|
|
|
|
|
| ||||||
< 50% |
|
$ |
37,634 |
|
$ |
62,998 |
|
$ |
11,637 |
|
$ |
33,697 |
|
$ |
4,209 |
|
$ |
150,175 |
|
50% 60% |
|
27,486 |
|
66,941 |
|
8,561 |
|
2,709 |
|
20,087 |
|
125,784 |
| ||||||
60% 70% |
|
|
|
77,977 |
|
24,122 |
|
13,823 |
|
|
|
115,922 |
| ||||||
70% 80% |
|
|
|
9,549 |
|
25,484 |
|
28,267 |
|
2,011 |
|
65,311 |
| ||||||
80% 90% |
|
4,536 |
|
|
|
|
|
5,646 |
|
11,868 |
|
22,050 |
| ||||||
> 90% |
|
|
|
1,908 |
|
2,089 |
|
9,229 |
|
29,972 |
|
43,198 |
| ||||||
Total |
|
$ |
69,656 |
|
$ |
219,373 |
|
$ |
71,893 |
|
$ |
93,371 |
|
$ |
68,147 |
|
$ |
522,440 |
|
National Life Insurance Company
Notes to Statutory-Basis Financial Statements
December 31, 2015 and December 31, 2014
B. Investments (continued)
Mortgage Loans and Real Estate (continued)
The distribution of mortgage loan book values, classified by scheduled year of contractual maturity as of December 31, 2015 and 2014, is shown below. Expected maturities will differ from contractual maturities because borrowers may have the right to prepay obligations with or without prepayment penalties.
|
|
2015 |
|
2014 |
|
Due in 1 year or less |
|
12.0 |
% |
10.0 |
% |
Due after 1 year through 3 years |
|
18.8 |
% |
27.2 |
% |
Due after 3 years through 5 years |
|
17.6 |
% |
11.1 |
% |
Due after 5 years through 10 years |
|
26.4 |
% |
36.0 |
% |
Due after 10 years through 15 years |
|
17.8 |
% |
11.6 |
% |
Due after 15 years |
|
7.4 |
% |
4.1 |
% |
|
|
100.0 |
% |
100.0 |
% |
The fair value of mortgage loans at December 31, 2015 and 2014 was $573.5 million and $566.4 million, respectively. The fair value of mortgages was estimated as the average of the present value of future cash flows under different scenarios of future mortgage interest rates (including appropriate provisions for default losses) and related changes in borrower prepayments.
During 2015, the Company originated mortgage loans of $112.4 million. The minimum and maximum lending rates for mortgage loans originated during 2015 were 3.65% and 4.28%, respectively. The Company reduced the interest rate on one outstanding mortgage loan in 2015 and did not reduce the interest rate on any outstanding mortgage loan in 2014. The maximum percentage of any one loan to the value of security at the time of the loan, exclusive of insured or guaranteed or purchase money loans was 71%.
National Life Insurance Company
Notes to Statutory-Basis Financial Statements
December 31, 2015 and December 31, 2014
B. Investments (continued)
Mortgage Loans and Real Estate (continued)
An age analysis of mortgage loans aggregated by type is as follows:
|
|
Commercial |
| |
|
|
All Other |
| |
|
|
(In Thousands) |
| |
a. December 31, 2015 |
|
|
| |
1. Recorded Investment (All) |
|
|
| |
(a) Current |
|
$ |
551,902 |
|
(b) 30-59 Days Past Due |
|
|
| |
(c) 60-89 Days Past Due |
|
|
| |
(d) 90-179 Days Past Due |
|
|
| |
(e) 180+ Days Past Due |
|
|
| |
2. Accruing Interest 90-179 Days Past Due |
|
|
| |
(a) Recorded Investment |
|
$ |
|
|
(b) Interest Accrued |
|
|
| |
3. Interest Reduced |
|
|
| |
(a) Recorded Investment |
|
5,898 |
| |
(b) Number of Loans |
|
1 |
| |
(c) Percent Reduced |
|
1.6 |
% | |
b. December 31, 2014 |
|
|
| |
1. Recorded Investment (All) |
|
|
| |
(a) Current |
|
$ |
517,955 |
|
(b) 30-59 Days Past Due |
|
|
| |
(c) 60-89 Days Past Due |
|
1,756 |
| |
(d) 90-179 Days Past Due |
|
7,720 |
| |
(e) 180+ Days Past Due |
|
|
| |
2. Accruing Interest 90-179 Days Past Due |
|
|
| |
(a) Recorded Investment |
|
$ |
7,720 |
|
(b) Interest Accrued |
|
40 |
|
Taxes, assessments and any amounts advanced and not included in the mortgage loans total were $41,047 and $98,505 as of December 31, 2015 and 2014, respectively.
National Life Insurance Company
Notes to Statutory-Basis Financial Statements
December 31, 2015 and December 31, 2014
B. Investments (continued)
Mortgage Loans and Real Estate (continued)
Investment in impaired loans with or without allowance for credit losses:
|
|
Commercial |
| |
|
|
All Other |
| |
|
|
(In Thousands) |
| |
a. December 31, 2015 |
|
|
| |
1. With Allowance for Credit Losses |
|
$ |
|
|
2. No Allowance for Credit Losses |
|
9,358 |
| |
b. December 31, 2014 |
|
|
| |
1. With Allowance for Credit Losses |
|
$ |
|
|
2. No Allowance for Credit Losses |
|
9,490 |
|
Interest income on non-performing loans is generally recognized on a cash basis.
Additional disclosures regarding impaired loans are as follows:
|
|
Commercial |
| |
|
|
All Other |
| |
|
|
(In Thousands) |
| |
a. December 31, 2015 |
|
|
| |
1. Average Recorded Investment |
|
$ |
7,840 |
|
2. Interest Income Recognized |
|
658 |
| |
3. Recorded Investments on Nonaccrual Status |
|
|
| |
4. Amount of Interest Income Recognized Using a Cash-Basis Method of Accounting |
|
663 |
| |
b. December 31, 2014 |
|
|
| |
1. Average Recorded Investment |
|
$ |
13,019 |
|
2. Interest Income Recognized |
|
441 |
| |
3. Recorded Investments on Nonaccrual Status |
|
|
| |
4. Amount of Interest Income Recognized Using a Cash-Basis Method of Accounting |
|
412 |
|
National Life Insurance Company
Notes to Statutory-Basis Financial Statements
December 31, 2015 and December 31, 2014
B. Investments (continued)
Mortgage Loans and Real Estate (continued)
The Company reviews loans for impairment based on several factors including, but not limited to, deteriorating market conditions, significant changes in debt coverage and loan-to-value ratios, and borrower specific credit issues. When the Company determines that, based on this current information and events, it is probable it will be unable to collect all amounts due according to the contractual terms, the Company measures an impairment based on the difference between the estimated fair market value of the underlying collateral less recovery costs and the recorded investment in the loan and records a valuation allowance for the impaired loan with a corresponding charge to unrealized gain or loss. The Company continues to accrue interest as due on these loans until such point it is deemed uncollectible. If there is a significant change in the estimated fair value of the collateral, then the valuation allowance is adjusted accordingly. If the impairment is deemed to be other than temporary in nature, a direct write-down of the loan is recognized as a realized loss. This new cost basis is not adjusted for subsequent change in the fair value of the underlying collateral. Loans that have been directly written down recognize interest income on a cash basis.
The Company has a high quality, well-performing commercial mortgage loan portfolio. For a small portion of the portfolio, classified as troubled debt restructuring, the Company grants concessions related to the borrowers financial difficulties. Generally, these types of concessions include: 1) a modification to the payment terms in order for the borrower not to become delinquent on payments, 2) a refinance or extension of the maturity date at below current market terms, and/or 3) a reduction of accrued interest. The Company considers the amount, timing and extent of the concession granted in determining any impairment or changes in the specific valuation allowance recorded in connection with the troubled debt restructuring. Through the portfolio monitoring process, the Company may have recorded a specific valuation allowance prior to the quarter when the loan was modified in a troubled debt restructuring. Accordingly, the carrying value (after specific valuation allowance) before and after modification through a troubled debt restructuring may not change significantly.
The Company had total recorded investments in restructured loans of $18.4 million and $36.5 million as of December 31, 2015 and 2014, respectively. The realized capital losses related to these restructured loans was $3.3 million, $4.5 million, and $0.8 million as of December 31, 2015, 2014, and 2013 respectively. The Company had no non-performing loans (delinquent more than 90 days) as of December 31, 2015 and one non-performing loan as of December 31, 2014.
National Life Insurance Company
Notes to Statutory-Basis Financial Statements
December 31, 2015 and December 31, 2014
B. Investments (continued)
Low Income Housing Tax Credit Properties
The Company invested in LIHTC properties of $75.7 million and $67.8 million as of December 31, 2015 and 2014, respectively, which is less than 10% of total admitted assets. The Company accounts for these investments using the proportional amortized cost method. In 2015, 2014, and 2013, amortization of $12.1 million, $11.8 million, and $11.6 million was included in net investment income, respectively. The Company recognized $0 in tax credits and $2.7 million of other tax benefits in 2015, and $12.5 million in tax credits and $2.4 million of other tax benefits in 2014. The remaining holding periods on these investments vary with the longest being 12 years, and the Company anticipates full absorption of all LIHTC. The required holding period is 15 years. The LIHTC properties are not subject to any regulatory reviews. The Company did not recognize any impairments or write-downs during 2015 on the LIHTC investments. The Company has $15.9 million in remaining commitments to be funded over the next nine years.
National Life Insurance Company
Notes to Statutory-Basis Financial Statements
December 31, 2015 and December 31, 2014
B. Investments (continued)
Restricted Assets
The following table discloses the amount and nature of any assets pledged to others as collateral or otherwise restricted by the Company as of December 31, 2015:
|
|
Gross Restricted |
|
|
|
Percentage |
| ||||||||||||||
|
|
Current Year |
|
|
|
|
|
|
|
|
|
|
| ||||||||
|
|
1 |
|
2 |
|
3 |
|
4 |
|
5 |
|
6 |
|
7 |
|
8 |
|
9 |
|
10 |
|
Restricted Asset Category |
|
Total General |
|
G/A |
|
Total Separate |
|
S/A Assets |
|
Total |
|
Total From |
|
Increase/ |
|
Total Current |
|
Gross |
|
Admitted |
|
FHLB capital stock |
|
10,854,600 |
|
|
|
|
|
|
|
10,854,600 |
|
10,687,000 |
|
167,600 |
|
10,854,600 |
|
0.12 |
% |
0.12 |
% |
On deposit with state |
|
6,952,274 |
|
|
|
|
|
|
|
6,952,274 |
|
6,960,335 |
|
(8,061 |
) |
6,952,274 |
|
0.07 |
% |
0.08 |
% |
Pledged as collateral to FHLB (including assets backing funding agreements) |
|
82,637,011 |
|
|
|
|
|
|
|
82,637,011 |
|
116,332,109 |
|
(33,695,098 |
) |
82,637,011 |
|
0.89 |
% |
0.90 |
% |
Pledged as collateral not captured in other categories |
|
2,498,912 |
|
|
|
|
|
|
|
2,498,912 |
|
|
|
2,498,912 |
|
2,498,912 |
|
0.03 |
% |
0.03 |
% |
Other restricted assets |
|
8,638,000 |
|
|
|
|
|
|
|
8,638,000 |
|
19,448,000 |
|
(10,810,000 |
) |
|
|
0.09 |
% |
0.00 |
% |
Total Restricted Assets |
|
111,580,797 |
|
|
|
|
|
|
|
111,580,797 |
|
153,427,444 |
|
(41,846,647 |
) |
102,942,797 |
|
1.17 |
% |
1.10 |
% |
Below provides detail for assets categorized as pledged as collateral not captured in other categories:
|
|
Gross Restricted |
|
|
|
Percentage |
| ||||||||||||||
|
|
Current Year |
|
|
|
|
|
|
|
|
|
|
| ||||||||
|
|
1 |
|
2 |
|
3 |
|
4 |
|
5 |
|
6 |
|
7 |
|
8 |
|
9 |
|
10 |
|
Description of Assets |
|
Total General |
|
G/A |
|
Total Separate |
|
S/A Assets |
|
Total (1 plus |
|
Total From |
|
Increase/ |
|
Total Current |
|
Gross |
|
Admitted |
|
Pledged assets for swaps |
|
2,498,912 |
|
|
|
|
|
|
|
2,498,912 |
|
|
|
2,498,912 |
|
2,498,912 |
|
0.03 |
% |
0.03 |
% |
Total |
|
2,498,912 |
|
|
|
|
|
|
|
2,498,912 |
|
|
|
2,498,912 |
|
2,498,912 |
|
0.03 |
% |
0.03 |
% |
National Life Insurance Company
Notes to Statutory-Basis Financial Statements
December 31, 2015 and December 31, 2014
B. Investments (continued)
Restricted Assets
Below provides detail for assets categorized as other restricted assets:
|
|
Gross Restricted |
|
|
|
Percentage |
| ||||||||||||||
|
|
Current Year |
|
|
|
|
|
|
|
|
|
|
| ||||||||
|
|
1 |
|
2 |
|
3 |
|
4 |
|
5 |
|
6 |
|
7 |
|
8 |
|
9 |
|
10 |
|
Description of Assets |
|
Total General |
|
G/A |
|
Total Separate |
|
S/A Assets |
|
Total |
|
Total From |
|
Increase/ |
|
Total Current |
|
Gross |
|
Admitted |
|
Cash collateral pledged from counterparties for derivative exposure |
|
8,638,000 |
|
|
|
|
|
|
|
8,638,000 |
|
19,448,000 |
|
(10,810,000 |
) |
|
|
0.09 |
% |
0.00 |
% |
Total |
|
8,638,000 |
|
|
|
|
|
|
|
8,638,000 |
|
19,448,000 |
|
(10,810,000 |
) |
|
|
0.09 |
% |
0.00 |
% |
Net Investment Income
Major categories of the Companys net investment income are summarized as follows:
|
|
Year ended December 31 |
| |||||||
|
|
2015 |
|
2014 |
|
2013 |
| |||
|
|
(In Thousands) |
| |||||||
Income |
|
|
|
|
|
|
| |||
Bonds |
|
$ |
283,589 |
|
$ |
297,557 |
|
$ |
302,040 |
|
Common stocks, unaffiliated |
|
1,491 |
|
2,052 |
|
1,544 |
| |||
Common stocks, affiliated |
|
|
|
30,000 |
|
25,000 |
| |||
Mortgage loans |
|
33,818 |
|
32,827 |
|
40,978 |
| |||
Real estate* |
|
14,332 |
|
10,903 |
|
9,860 |
| |||
Policy loans |
|
28,670 |
|
29,327 |
|
30,116 |
| |||
Short-term investments and cash |
|
14 |
|
6 |
|
7 |
| |||
Other invested assets |
|
28,818 |
|
26,926 |
|
24,868 |
| |||
Derivative instruments |
|
(10,331 |
) |
14,531 |
|
20,692 |
| |||
Other |
|
390 |
|
236 |
|
240 |
| |||
Total investment income |
|
380,791 |
|
444,365 |
|
455,345 |
| |||
Expenses |
|
|
|
|
|
|
| |||
Depreciation |
|
15,208 |
|
14,406 |
|
13,993 |
| |||
Interest expense |
|
21,000 |
|
21,000 |
|
21,000 |
| |||
Other |
|
17,970 |
|
13,795 |
|
12,109 |
| |||
Total investment expenses |
|
54,178 |
|
49,201 |
|
47,102 |
| |||
Net investment income |
|
$ |
326,613 |
|
$ |
395,164 |
|
$ |
408,243 |
|
*Includes amounts for the occupancy of company-owned property of $5,955, $6,113, and $6,141 in 2015, 2014, and 2013, respectively.
National Life Insurance Company
Notes to Statutory-Basis Financial Statements
December 31, 2015 and December 31, 2014
B. Investments (continued)
Net Investment Income
There was no nonadmitted accrued investment income at December 31, 2015, 2014 or 2013.
Net Realized Gains and Losses
Realized capital gains and losses are reported net of federal income taxes and amounts transferred to the IMR as follows:
|
|
2015 |
|
2014 |
|
2013 |
| |||
|
|
(In Thousands) |
| |||||||
Bonds and other debt securities |
|
|
|
|
|
|
| |||
Gross gains |
|
$ |
6,708 |
|
$ |
25,210 |
|
$ |
5,833 |
|
Gross losses |
|
(8,238 |
) |
(1,437 |
) |
(3,227 |
) | |||
Common stocks, unaffiliated |
|
|
|
|
|
|
| |||
Gross gains |
|
414 |
|
1,340 |
|
2,383 |
| |||
Gross losses |
|
(450 |
) |
(325 |
) |
(79 |
) | |||
Other |
|
|
|
|
|
|
| |||
Gross gains |
|
696 |
|
387 |
|
561 |
| |||
Gross losses |
|
(8,626 |
) |
(12,446 |
) |
(7,991 |
) | |||
Net realized capital (losses) gains |
|
(9,496 |
) |
12,729 |
|
(2,520 |
) | |||
Amount transferred to IMR, net of tax |
|
(3,638 |
) |
(24,748 |
) |
(1,469 |
) | |||
|
|
(13,134 |
) |
(12,019 |
) |
(3,989 |
) | |||
Less federal income taxes on realized capital (losses) gains after effect of transfer to IMR |
|
(13,171 |
) |
(1,088 |
) |
(1,068 |
) | |||
Net realized capital losses |
|
$ |
(26,305 |
) |
$ |
(13,107 |
) |
$ |
(5,057 |
) |
Loan-Backed Securities
Prepayment assumptions used in the calculation of the effective yield and valuation of loan-backed bonds and structured securities are based on available industry sources and information provided by lenders. The retrospective adjustment methodology is used for the valuation of securities held by the Company.
National Life Insurance Company
Notes to Statutory-Basis Financial Statements
December 31, 2015 and December 31, 2014
B. Investments (continued)
Joint Ventures, Partnerships and Limited Liability Companies
The Company has no investments in joint ventures, partnerships or limited liability companies that exceed 10% of its admitted assets.
The Company recorded $1.7 million, $5.1 million, and $3.0 million of impairments on non-public limited partnerships in 2015, 2014 and 2013, respectively. These limited partnerships have underlying characteristics of common stock. Fair values utilized in determining impairments were determined by the Company based on the limited partnerships operating results.
Repurchase Agreements
The Company 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 as the securities received at the end of the repurchase period are identical to the securities transferred. Any repurchase liability is included in other liabilities. There were no open transactions at December 31, 2015 or 2014.
C. Nonadmitted Assets
The Companys nonadmitted assets at December 31 are as follows:
|
|
2015 |
|
2014 |
| ||
|
|
(In Thousands) |
| ||||
Net deferred tax asset |
|
$ |
16,746 |
|
$ |
15,348 |
|
Furniture and equipment |
|
6,189 |
|
7,504 |
| ||
Software applications |
|
115,319 |
|
90,629 |
| ||
Prepaid expenses |
|
5,442 |
|
4,788 |
| ||
Other |
|
4,608 |
|
3,067 |
| ||
Total nonadmitted assets |
|
$ |
148,304 |
|
$ |
121,336 |
|
National Life Insurance Company
Notes to Statutory-Basis Financial Statements
December 31, 2015 and December 31, 2014
D. Reinsurance
The Company currently retains up to $2.0 million of risk on any individual person. Prior to that and beginning January 1, 2002, the Company generally retained no more than $1.0 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 agreements with various reinsurers. Total premiums from direct business were $485.0 million, $495.6 million, and $496.3 million in 2015, 2014, and 2013, respectively. Of those direct premiums, individual life premiums ceded were $3,289.4 million, $63.2 million, and $55.5 million for the years ended December 31, 2015, 2014, and 2013, respectively, and are included as a reduction of premium and annuity considerations. Total individual life insurance ceded was $23.0 billion and $17.7 billion of the $41.2 billion and $39.9 billion in force at December 31, 2015 and 2014, respectively. The Company has assumed a small amount of yearly renewable term reinsurance from non-affiliated insurers.
At December 31, 2015 and 2014, neither the Company nor any of its representatives, officers, trustees, or directors had more than 10% ownership of or direct or indirect control over any non-affiliated reinsurers, and there were no policies reinsured outside the United States with companies owned or controlled by an affiliated entity. There were no unilaterally cancelable reinsurance agreements (for reasons other than for nonpayment of premium or other similar credits) in effect at December 31, 2015 and 2014. The Companys largest reserve credit with a non-affiliate as of December 31, 2015 and 2014 was with Swiss Re for $135.8 million and $136.0 million, respectively.
No reinsurance agreements were in force at December 31, 2015 and 2014 which would likely result in a payment to the reinsurer in excess of the total direct premiums collected. No new reinsurance agreements with non-affiliates were enacted during the year which included life insurance policies inforce at the end of the previous year.
Effective July 1, 2015 the Company entered into a coinsurance with funds withheld agreement with Catamount domiciled under the laws of the state of Vermont. The agreement is for Catamount to reinsure National Lifes Closed Block policies, which includes policies that were in force and had existing reserves established by the Company as of the effective date of the agreement. The following table illustrates the amounts the Company ceded under the reinsurance treaty:
|
|
2015 |
| |
|
|
(In Thousands) |
| |
Insurance in force |
|
$ |
5,564,958 |
|
Premiums |
|
3,322,051 |
| |
Policy reserves |
|
3,109,384 |
| |
National Life Insurance Company
Notes to Statutory-Basis Financial Statements
December 31, 2015 and December 31, 2014
D. Reinsurance (continued)
Disability income products are significantly reinsured, primarily with Unum Provident Corporation (UNUM). All amounts reinsured by UNUM are on a modified coinsurance basis. The Company ceded 50% of the experience risk on open claims as of 1/1/1991 to UNUM. Interest is paid to UNUM on these reserves at a rate of 9.44%. The Company ceded 80% of the experience risk on the remaining reserves reinsured with UNUM post 1/1/1991. Interest is paid to UNUM on these reserves at a rate of 6.98%. Total disability income premiums ceded in 2015, 2014, and 2013 were $20.3 million, $21.5 million and $23.4 million, respectively.
In 2015, 2014, and 2013, there were no reinsurance assumption changes to life insurance and annuity products.
The Company would be liable with respect to any ceded insurance should any reinsurer be unable to meet its assumed obligations.
The Companys reinsurance treaties meet risk transfer criteria to qualify for reinsurance accounting treatment as prescribed by the Department.
E. Federal Income Taxes
The components of the net deferred tax asset (liability) at December 31 are as follows:
|
|
2015 |
|
2014 |
| ||||||||||||||
|
|
Ordinary |
|
Capital |
|
Total |
|
Ordinary |
|
Capital |
|
Total |
| ||||||
|
|
(In Thousands) |
| ||||||||||||||||
Gross deferred tax assets |
|
$ |
210,111 |
|
$ |
8,632 |
|
$ |
218,743 |
|
$ |
228,722 |
|
$ |
9,129 |
|
$ |
237,851 |
|
Valuation allowance |
|
|
|
|
|
|
|
|
|
|
|
|
| ||||||
Adjusted gross deferred tax assets |
|
210,111 |
|
8,632 |
|
218,743 |
|
228,722 |
|
9,129 |
|
237,851 |
| ||||||
Nonadmitted deferred tax asset |
|
(16,746 |
) |
|
|
(16,746 |
) |
(15,348 |
) |
|
|
(15,348 |
) | ||||||
Net deferred tax asset/ (liability) |
|
193,365 |
|
8,632 |
|
201,997 |
|
213,374 |
|
9,129 |
|
222,503 |
| ||||||
|
|
|
|
|
|
|
|
|
|
|
|
|
| ||||||
Gross deferred tax liabilities |
|
(65,789 |
) |
(4,970 |
) |
(70,759 |
) |
(67,321 |
) |
(12,583 |
) |
(79,904 |
) | ||||||
Net admitted deferred tax asset/ (liability) |
|
$ |
127,576 |
|
$ |
3,662 |
|
$ |
131,238 |
|
$ |
146,053 |
|
$ |
(3,454 |
) |
$ |
142,599 |
|
|
|
Change |
| |||||||
|
|
Ordinary |
|
Capital |
|
Total |
| |||
|
|
(In Thousands) |
| |||||||
Gross deferred tax assets |
|
$ |
(18,611 |
) |
$ |
(497 |
) |
$ |
(19,108 |
) |
Valuation allowance |
|
|
|
|
|
|
| |||
Adjusted gross deferred tax assets |
|
(18,611 |
) |
(497 |
) |
(19,108 |
) | |||
Nonadmitted deferred tax asset |
|
(1,398 |
) |
|
|
(1,398 |
) | |||
Net deferred tax asset/ (liability) |
|
(20,009 |
) |
(497 |
) |
(20,506 |
) | |||
Gross deferred tax liabilities |
|
1,532 |
|
7,613 |
|
9,145 |
| |||
Net admitted deferred tax asset/ (liability) |
|
$ |
(18,477 |
) |
$ |
7,116 |
|
$ |
(11,361 |
) |
National Life Insurance Company
Notes to Statutory-Basis Financial Statements
December 31, 2015 and December 31, 2014
E. Federal Income Taxes (continued)
The admission calculation components at December 31 are as follows:
|
|
2015 |
|
2014 |
| ||||||||||||||
|
|
Ordinary |
|
Capital |
|
Total |
|
Ordinary |
|
Capital |
|
Total |
| ||||||
|
|
(In Thousands) |
| ||||||||||||||||
Adjusted gross deferred tax assets expected to be realized after application of the threshold limitation. (The lesser of 1and 2 below) |
|
$ |
126,141 |
|
$ |
5,097 |
|
$ |
131,238 |
|
$ |
137,930 |
|
$ |
4,669 |
|
$ |
142,599 |
|
1. Adjusted gross deferred tax assets expected to be realized following the balance sheet date. |
|
126,141 |
|
5,097 |
|
131,238 |
|
137,930 |
|
4,669 |
|
142,599 |
| ||||||
2. Adjusted gross deferred tax assets allowed per limitation threshold. |
|
N/A |
|
N/A |
|
246,139 |
|
N/A |
|
N/A |
|
209,203 |
| ||||||
Adjusted gross deferred tax assets (excluding the amount of deferred tax assets from above) offset by gross deferred tax liabilities. |
|
67,224 |
|
3,535 |
|
70,759 |
|
75,444 |
|
4,460 |
|
79,904 |
| ||||||
Deferred tax assets admitted as the result of application of SSAP 101. |
|
$ |
193,365 |
|
$ |
8,632 |
|
$ |
201,997 |
|
$ |
213,374 |
|
$ |
9,129 |
|
$ |
222,503 |
|
|
|
Change |
| |||||||
|
|
Ordinary |
|
Capital |
|
Total |
| |||
|
|
(In Thousands) |
| |||||||
Adjusted gross deferred tax assets expected to be realized after application of the threshold limitation. (The lesser of 1 and 2 below) |
|
$ |
(11,789 |
) |
$ |
428 |
|
$ |
(11,361 |
) |
1. Adjusted gross deferred tax assets expected to be realized following the balance sheet date. |
|
(11,789 |
) |
428 |
|
(11,361 |
) | |||
2. Adjusted gross deferred tax assets allowed per limitation threshold. |
|
N/A |
|
N/A |
|
36,936 |
| |||
Adjusted gross deferred tax assets (excluding the amount of deferred tax assets from above) offset by gross deferred tax liabilities. |
|
(8,220 |
) |
(925 |
) |
(9,145 |
) | |||
Deferred tax assets admitted as the result of application of SSAP 101. |
|
$ |
(20,009 |
) |
$ |
(497 |
) |
$ |
(20,506 |
) |
At December 31, 2015 and 2014, the following ratio percentages were used to determine recovery period and threshold limitation:
|
|
2015 |
|
2014 |
|
|
|
(In Thousands) |
| ||
Ratio percentage |
|
15 |
% |
15 |
% |
Total adjusted capital exDTA |
|
1,771,654 |
|
1,566,329 |
|
National Life Insurance Company
Notes to Statutory-Basis Financial Statements
December 31, 2015 and December 31, 2014
E. Federal Income Taxes (continued)
At December 31, 2015 and 2014, tax planning strategies had the following impact on deferred tax assets:
|
|
2015 |
|
2014 |
| ||||||||
|
|
Ordinary |
|
Capital |
|
Ordinary |
|
Capital |
| ||||
|
|
(In Thousands) |
|
(In Thousands) |
| ||||||||
Adjusted Gross DTAs |
|
$ |
210,111 |
|
$ |
8,632 |
|
$ |
228,722 |
|
$ |
9,129 |
|
Percentage of total gross deferred tax assets |
|
58 |
% |
2 |
% |
60 |
% |
0 |
% | ||||
Net admitted adjusted gross DTAs |
|
$ |
193,365 |
|
$ |
8,632 |
|
$ |
213,374 |
|
$ |
9,129 |
|
Percentage of total net admitted deferred tax assets |
|
97 |
% |
3 |
% |
100 |
% |
0 |
% |
|
|
Change |
| ||||
|
|
Ordinary |
|
Capital |
| ||
|
|
(In Thousands) |
| ||||
Adjusted Gross DTAs |
|
$ |
(18,611 |
) |
$ |
(497 |
) |
Percentage of total gross deferred tax assets |
|
-2 |
% |
2 |
% | ||
Net admitted adjusted gross DTAs |
|
$ |
(20,009 |
) |
$ |
(497 |
) |
Percentage of total net admitted deferred tax assets |
|
-3 |
% |
3 |
% |
The Companys tax planning strategies do not include the use of reinsurance.
There were no unrecognized deferred tax liabilities pursuant to SSAP No. 101, Income Taxes at December 31, 2015.
Federal current income taxes incurred consists of the following major components:
|
|
2015 |
|
2014 |
|
Change |
| |||
|
|
(In Thousands) |
| |||||||
Tax (benefit) on operations |
|
$ |
(53,512 |
) |
$ |
(37,419 |
) |
$ |
(16,093 |
) |
Tax (benefit) on realized capital gains/losses |
|
14,444 |
|
9,750 |
|
4,694 |
| |||
Tax credits |
|
|
|
(12,962 |
) |
12,962 |
| |||
Total current income taxes incurred |
|
$ |
(39,068 |
) |
$ |
(40,631 |
) |
$ |
1,563 |
|
|
|
2014 |
|
2013 |
|
Change |
| |||
|
|
(In Thousands) |
| |||||||
Tax (benefit) on operations |
|
$ |
(37,419 |
) |
$ |
(24,208 |
) |
$ |
(13,211 |
) |
Tax (benefit) on realized capital gains/losses |
|
9,750 |
|
1,582 |
|
8,168 |
| |||
Tax credits |
|
(12,962 |
) |
(12,496 |
) |
(466 |
) | |||
Total current income taxes incurred |
|
$ |
(40,631 |
) |
$ |
(35,122 |
) |
$ |
(5,509 |
) |
National Life Insurance Company
Notes to Statutory-Basis Financial Statements
December 31, 2015 and December 31, 2014
E. Federal Income Taxes (continued)
The components of deferred tax assets and liabilities are as follows:
|
|
2015 |
|
2014 |
|
Change |
| |||
|
|
(In Thousands) |
| |||||||
Deferred Tax Assets: |
|
|
|
|
|
|
| |||
Ordinary |
|
|
|
|
|
|
| |||
Reserves |
|
$ |
52,984 |
|
$ |
76,108 |
|
$ |
(23,124 |
) |
Deferred acquisition costs |
|
42,266 |
|
47,561 |
|
(5,295 |
) | |||
Policyholder dividends |
|
3,533 |
|
14,725 |
|
(11,192 |
) | |||
Fixed assets |
|
42,528 |
|
34,347 |
|
8,181 |
| |||
Employee benefits |
|
47,390 |
|
48,986 |
|
(1,596 |
) | |||
Tax credit carryforward |
|
13,889 |
|
|
|
13,889 |
| |||
Other |
|
7,521 |
|
6,995 |
|
526 |
| |||
Subtotal |
|
210,111 |
|
228,722 |
|
(18,611 |
) | |||
Nonadmitted deferred tax assets |
|
(16,746 |
) |
(15,348 |
) |
(1,398 |
) | |||
Admitted ordinary deferred tax assets |
|
193,365 |
|
213,374 |
|
(20,009 |
) | |||
|
|
|
|
|
|
|
| |||
Capital |
|
|
|
|
|
|
| |||
Capital invested assets |
|
8,632 |
|
9,129 |
|
(497 |
) | |||
Nonadmitted deferred tax assets |
|
|
|
|
|
|
| |||
Admitted capital deferred tax assets |
|
8,632 |
|
9,129 |
|
(497 |
) | |||
|
|
|
|
|
|
|
| |||
Total admitted deferred tax assets |
|
$ |
201,997 |
|
$ |
222,503 |
|
$ |
(20,506 |
) |
|
|
|
|
|
|
|
| |||
Deferred Tax Liabilities: |
|
|
|
|
|
|
| |||
Ordinary |
|
|
|
|
|
|
| |||
Ordinary invested assets |
|
$ |
15,451 |
|
$ |
12,886 |
|
$ |
2,565 |
|
Fixed assets |
|
22,368 |
|
18,272 |
|
4,096 |
| |||
Deferred and uncollected premiums |
|
13,669 |
|
20,256 |
|
(6,587 |
) | |||
Reserves |
|
1,676 |
|
2,197 |
|
(521 |
) | |||
Real estate |
|
8,961 |
|
8,642 |
|
319 |
| |||
Employee benefits |
|
1,328 |
|
2,657 |
|
(1,329 |
) | |||
Other |
|
2,336 |
|
2,411 |
|
(75 |
) | |||
Total deferred tax liabilities |
|
65,789 |
|
67,321 |
|
(1,532 |
) | |||
|
|
|
|
|
|
|
| |||
Capital |
|
|
|
|
|
|
| |||
Capital invested assets |
|
4,970 |
|
12,583 |
|
(7,613 |
) | |||
|
|
|
|
|
|
|
| |||
Total deferred tax liabilities |
|
$ |
70,759 |
|
$ |
79,904 |
|
$ |
(9,145 |
) |
|
|
|
|
|
|
|
| |||
Net admitted deferred tax asset (liability) |
|
$ |
131,238 |
|
$ |
142,599 |
|
$ |
(11,361 |
) |
National Life Insurance Company
Notes to Statutory-Basis Financial Statements
December 31, 2015 and December 31, 2014
E. Federal Income Taxes (continued)
The Companys total provision for income taxes incurred is different from that which would be obtained by applying the statutory federal income tax rate of 35% to pretax income. The significant items causing this difference are as follows:
|
|
2015 |
|
2014 |
| ||
|
|
(In Thousands) |
| ||||
Permanent Differences: |
|
|
|
|
| ||
Pretax income computed at statutory rate |
|
$ |
(8,643 |
) |
$ |
(1,913 |
) |
Amortization of IMR |
|
(2,086 |
) |
(1,780 |
) | ||
Prior year taxes |
|
(262 |
) |
431 |
| ||
Dividends received deduction |
|
(2,099 |
) |
(2,249 |
) | ||
Subsidiary dividend |
|
|
|
(10,500 |
) | ||
COLI |
|
(3,341 |
) |
(3,125 |
) | ||
Interco management fee |
|
(2,551 |
) |
(2,365 |
) | ||
Tax credits |
|
(13,889 |
) |
(12,962 |
) | ||
Reinsurance gain in surplus |
|
17,040 |
|
|
| ||
Other permanent differences |
|
201 |
|
133 |
| ||
Total |
|
$ |
(15,630 |
) |
$ |
(34,330 |
) |
|
|
|
|
|
| ||
Total current income taxes incurred |
|
$ |
(39,068 |
) |
$ |
(40,631 |
) |
Adjusted (incr.) decr. in net deferred taxes |
|
23,438 |
|
6,301 |
| ||
Total |
|
$ |
(15,630 |
) |
$ |
(34,330 |
) |
The Company recognizes income tax benefits and any related reserves in accordance with SSAP No. 5R, Liabilities, Contingencies and Impairment of Assets, as modified by paragraph 3.a. of SSAP No. 101. Currently, the Company only files income tax returns in the United States.
The Company is no longer subject to US federal, state, and local income tax examinations by tax authorities for years prior to 2010. During 2014 the IRS started its examination of the Companys 2010, 2011, 2012 and 2013 consolidated federal income tax returns.
A reconciliation of the beginning and ending amount of unrecognized tax benefits is as follows:
|
|
2015 |
|
2014 |
| ||
|
|
(In Thousands) |
| ||||
Balance, beginning of year |
|
$ |
|
|
$ |
|
|
Additions based on tax positions related to the current year |
|
|
|
|
| ||
Additions (subtractions) for tax positions of prior years |
|
|
|
|
| ||
Settlements |
|
|
|
|
| ||
Balance, end of year |
|
$ |
|
|
$ |
|
|
National Life Insurance Company
Notes to Statutory-Basis Financial Statements
December 31, 2015 and December 31, 2014
E. Federal Income Taxes (continued)
As of December 31, 2015, there are no unrecognized tax benefits for the Company. It is likely there will be no significant change in the amount of unrecognized tax benefits within the next twelve months.
The Company recognizes interest and penalties related to unrecognized tax benefits in tax expense. During the years ended December 31, 2015, 2014, and 2013, the Company recognized an expense of approximately $0.0 million, $0.0 million, and $0.1 million for interest and penalties, respectively. The Company has approximately $0.2 million and $0.4 million accrued for interest and penalties at December 31, 2015 and 2014, respectively.
As of December 31, 2015, the Company has no operating loss carryovers available. The Company has tax credit carryforwards in the amount of $13.9 million which will expire in 2035.
The following are income taxes incurred in the current and prior years that will be available for recoupment in the event of future net losses:
|
|
Ordinary |
|
Capital |
| ||
|
|
(In Thousands) |
| ||||
2015 |
|
$ |
|
|
$ |
|
|
2014 |
|
|
|
|
| ||
2013 |
|
|
|
|
| ||
There are no admitted deposits pursuant to Section 6603 Internal Revenue Code.
The Companys federal income tax return is consolidated with the following entities: LSW, Catamount, NLHC, NLVF, Sentinel Asset Management, Inc. (SAMI), Sentinel Administrative Services, Inc., Sentinel Financial Services, Inc., and Equity Services, Inc. The method of allocation for federal income tax expense between the companies is pursuant to a written agreement. Allocation is based upon separate return calculations with current benefit for net losses and tax credits to the extent utilized in the consolidated income tax return. Intercompany tax balances are settled quarterly.
F. Information Concerning Parent, Subsidiaries and Affiliates
On March 6, 2015, National Life Distribution, LLC (NLD) was organized as a Vermont domestic limited liability company. LSW is the sole member of the LLC and paid cash of $100,000 on June 5, 2015 as a capital contribution. NLD is serving as paymaster for National Life Groups field force operations. All commission expenses continue to be incurred in the operating companies.
National Life Insurance Company
Notes to Statutory-Basis Financial Statements
December 31, 2015 and December 31, 2014
F. Information Concerning Parent, Subsidiaries and Affiliates (continued)
The Company made an initial capital contribution to Catamount of $10 million, comprised of $5 million shares at $1 par value per share, and $5 million additional paid in capital. Effective July 1, 2015, the Company entered into a coinsurance with funds withheld arrangement with Catamount. As a result of this transaction, the Company was paid a $136.0 million ceding commission, a portion of which was recorded in net income and the other portion through surplus. The amount recorded in surplus represents the gain on the reinsurance transaction and will be amortized into income as earnings arise from the business reinsured.
The Company reports an investment in Catamount Reinsurance Company, an insurance SCA, which was granted prescribed practices that are a departure from the NAIC statutory accounting practices and procedures. The Company carries Catamount at statutory valuation less surplus notes. The value is floored at zero in accordance with SSAP 97.
The Vermont Department of Financial Regulation has permitted or prescribed that Catamount may recognize as admitted assets the Fixed and Variable Funding Notes issued by its ultimate parent, NLVF, to immediately recognize into income the IMR transferred from the ceding company and to not maintain an IMR, and the realization limitation shall be determined without regard to the 15% of surplus limitation for calculating the net admitted deferred taxes. In 2015, the above practices increased Catamounts net income by $48.6 million and surplus by $283.8 million.
If Catamount had not been permitted to include the notes in surplus, its risk-based capital would have triggered a regulatory event for Catamount; there would not be an impact to National Lifes risk-based capital.
On June 26, 2015, a $30 million surplus note receivable due from LSW was contributed to the Company from its parent, NLVF. The transaction was considered a capital contribution. This is reported as an increase to gross paid in and contributed surplus.
In 2015, the Company sold seven partnerships to LSW totaling $45.6 million. The sale was recorded at the lower of book or fair value at the date of the transaction in accordance with SSAP 25 Accounting for and Disclosures about Transactions with Affiliates and Other Related Parties.
In 2009, NLVF formed a wholly owned subsidiary called National Life Real Estate Holdings, LLC, (NLREH), a limited liability company, which was an affiliate of the Company. NLREH operations consisted primarily of management and operation of other real estate owned. On October 15, 2014, NLREH was dissolved; all assets were transferred to its parent NLVF as a return of capital with a simultaneous contribution of those assets from NLVF to the Company. The contribution resulted in an increase in surplus of $67.1 million.
National Life Insurance Company
Notes to Statutory-Basis Financial Statements
December 31, 2015 and December 31, 2014
F. Information Concerning Parent, Subsidiaries and Affiliates (continued)
In 2009, the Company made an $8.6 million unsecured loan to NLVF. Prior notification was provided to the Department. The loan was originally due to be repaid January 31, 2012. An amendment was made to the agreement with a revised due date of January 31, 2017. Interest on the loan is calculated at LIBOR + 150 basis points.
In 2008, the Company made a $25 million unsecured loan to NLVF. Prior notification was provided to the Department. The loan was originally due to be repaid on December 31, 2008. An amendment was made to the agreement with a revised due date of December 31, 2016. Interest on the loan is calculated at LIBOR + 150 basis points.
The Company held equity interests in its affiliate, Sentinel Group Funds, Inc., of $14.2 million and $14.6 million as of December 31, 2015 and 2014, respectively. These investments represented 0.16% and 0.17% of total admitted assets as of December 31, 2015 and 2014, respectively.
All intercompany transactions are settled on a current basis. Amounts receivable or payable at December 31 generally represent year end cost allocations, reinsurance transactions, and income taxes and are included in the accompanying Balance Sheets. There was $18.9 million payable to LSW as of December 31, 2015 and $0.7 million receivable from LSW as of December 31, 2014.
There is an IT cost sharing agreement between the Company and LSW. The Company received reimbursement of $32.1 million, $30.7 million, and $28.0 million under this IT agreement in December 31, 2015, 2014, and 2013 respectively. Under all cost allocation agreements with LSW, the Company received reimbursement of $76.7 million each year for the years ended December 31, 2015 and 2014, and $69.2 million for the year ended December 31, 2013. Under all cost allocation agreements with Catamount, the Company received reimbursement of $3.7 million for the year ended December 31, 2015.
No guarantees or undertakings on behalf of an affiliate resulting in a material contingent exposure of the Companys assets or liabilities existed at December 31, 2015 and 2014.
The Company and several of its subsidiaries and affiliates share common facilities and employees. Expenses are periodically allocated according to specified reimbursement agreements. The Company had no agreements in place at December 31, 2015 or 2014 to potentially move non-admitted assets into the parent or other affiliates.
National Life Insurance Company
Notes to Statutory-Basis Financial Statements
December 31, 2015 and December 31, 2014
G. Benefit Plans
The Company sponsors a frozen non-contributory qualified defined benefit plan that provided benefits to employees in the Career channel general agencies. The plan was amended effective January 1, 2004 to freeze plan benefits. No new participants were admitted to the plan after December 31, 2003, and there were no increases in benefits after December 31, 2003 for existing participants. This pension plan is separately funded. Plan assets are primarily mutual funds and bonds held in a Company separate account and funds invested in a group variable annuity contract held in the general account of National Life. None of the securities held in the Companys separate account were issued by the Company, but some investments are advised by an affiliate.
The Company sponsors other pension plans including a non-contributory defined benefit plan for National Life career general agents who met the eligibility requirements to enter the plan prior to January 1, 2005. These plans are non-qualified and are not separately funded.
The Company sponsors defined benefit postretirement plans that provide medical benefits to agency staff and agents. Medical coverage is contributory; with retiree contributions adjusted annually, and contain cost sharing features such as deductibles and copayments. The postemployment plans are not separately funded, and the Company, therefore, pays for plan benefits from operating cash flows. The costs of providing these benefits are recognized as they are earned.
The Company also sponsors various defined contribution and deferred compensation plans.
National Life Insurance Company
Notes to Statutory-Basis Financial Statements
December 31, 2015 and December 31, 2014
G. Benefit Plans (continued)
The following tables show the plans combined funded status at December 31:
|
|
Pension Benefits |
|
Other Benefits |
| ||||||||||||||
|
|
2015 |
|
2014 |
|
2013 |
|
2015 |
|
2014 |
|
2013 |
| ||||||
|
|
(In Thousands) |
| ||||||||||||||||
Change in benefit obligation |
|
|
|
|
|
|
|
|
|
|
|
|
| ||||||
Benefit obligation, beginning of year |
|
$ |
94,905 |
|
$ |
82,413 |
|
$ |
90,171 |
|
$ |
2,049 |
|
$ |
1,738 |
|
$ |
2,145 |
|
Service cost |
|
661 |
|
560 |
|
490 |
|
|
|
|
|
|
| ||||||
Interest cost |
|
3,333 |
|
3,778 |
|
3,283 |
|
72 |
|
79 |
|
77 |
| ||||||
Plan participants contributions |
|
|
|
|
|
|
|
174 |
|
185 |
|
204 |
| ||||||
Actuarial (gain) loss |
|
(4,147 |
) |
15,587 |
|
(1,603 |
) |
24 |
|
474 |
|
(232 |
) | ||||||
Benefits paid |
|
(7,366 |
) |
(7,433 |
) |
(7,541 |
) |
(354 |
) |
(379 |
) |
(416 |
) | ||||||
Plan amendments |
|
|
|
|
|
|
|
|
|
|
|
|
| ||||||
Benefit obligation, end of year |
|
$ |
87,386 |
|
$ |
94,905 |
|
$ |
84,800 |
|
$ |
1,965 |
|
$ |
2,097 |
|
$ |
1,778 |
|
Change in plan assets |
|
|
|
|
|
|
|
|
|
|
|
|
| ||||||
Fair value of plan assets at beginning of year |
|
$ |
14,004 |
|
$ |
13,693 |
|
$ |
12,460 |
|
$ |
|
|
$ |
|
|
$ |
|
|
Actual return on plan assets |
|
(588 |
) |
517 |
|
1,494 |
|
|
|
|
|
|
| ||||||
Employer contribution |
|
6,366 |
|
7,227 |
|
7,069 |
|
180 |
|
194 |
|
212 |
| ||||||
Plan participants contributions |
|
|
|
|
|
|
|
174 |
|
185 |
|
204 |
| ||||||
Benefits paid |
|
(7,366 |
) |
(7,433 |
) |
(7,541 |
) |
(354 |
) |
(379 |
) |
(416 |
) | ||||||
Fair value of plan assets, end of year |
|
12,416 |
|
14,004 |
|
13,482 |
|
|
|
|
|
|
| ||||||
Funded status |
|
$ |
(74,970 |
) |
$ |
(80,901 |
) |
$ |
(71,318 |
) |
$ |
(1,965 |
) |
$ |
(2,097 |
) |
$ |
(1,778 |
) |
Unrecognized actuarial losses |
|
$ |
|
|
$ |
|
|
$ |
|
|
$ |
|
|
$ |
|
|
$ |
|
|
Unrecognized prior service cost (benefit) |
|
|
|
|
|
|
|
|
|
|
|
|
| ||||||
Unrecognized transition obligation |
|
|
|
|
|
|
|
|
|
|
|
|
| ||||||
Net activity subsequent to measurement date |
|
|
|
|
|
1,613 |
|
|
|
|
|
|
| ||||||
Net amount recognized |
|
$ |
(74,970 |
) |
$ |
(80,901 |
) |
$ |
(69,705 |
) |
$ |
(1,965 |
) |
$ |
(2,097 |
) |
$ |
(1,778 |
) |
|
|
Pension Benefits |
|
Other Benefits |
| ||||||||||||||
|
|
2015 |
|
2014 |
|
2013 |
|
2015 |
|
2014 |
|
2013 |
| ||||||
|
|
(In Thousands) |
| ||||||||||||||||
Amounts recognized in the balance sheets |
|
|
|
|
|
|
|
|
|
|
|
|
| ||||||
Pension and other post-retirement benefit obligations liability |
|
$ |
|
|
$ |
|
|
$ |
|
|
$ |
|
|
$ |
|
|
$ |
|
|
Minimum pension liability |
|
|
|
|
|
|
|
|
|
|
|
|
| ||||||
Net amount recognized |
|
$ |
|
|
$ |
|
|
$ |
|
|
$ |
|
|
$ |
|
|
$ |
|
|
Pension and other post-retirement benefit obligations liability |
|
$ |
(74,970 |
) |
$ |
(80,901 |
) |
$ |
(69,705 |
) |
$ |
(1,965 |
) |
$ |
(2,097 |
) |
$ |
(1,778 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
| ||||||
Amounts recognized in unassigned funds (surplus): |
|
|
|
|
|
|
|
|
|
|
|
|
| ||||||
Net transition asset or obligations |
|
$ |
|
|
$ |
|
|
$ |
|
|
$ |
|
|
$ |
|
|
$ |
|
|
Net actuarial (gain) loss |
|
30,453 |
|
35,188 |
|
24,476 |
|
(642 |
) |
(715 |
) |
(501 |
) | ||||||
Net prior service costs (benefits) |
|
|
|
|
|
|
|
(218 |
) |
(344 |
) |
(1,286 |
) | ||||||
Net amount recognized |
|
$ |
30,453 |
|
$ |
35,188 |
|
$ |
24,476 |
|
$ |
(860 |
) |
$ |
(1,059 |
) |
$ |
(1,787 |
) |
National Life Insurance Company
Notes to Statutory-Basis Financial Statements
December 31, 2015 and December 31, 2014
G. Benefit Plans (continued)
Amounts in unassigned funds (surplus) recognized as components of net periodic benefit cost at December 31 were as follows:
|
|
Pension Benefits |
|
Other Benefits |
| ||||||||||||||
|
|
2015 |
|
2014 |
|
2013 |
|
2015 |
|
2014 |
|
2013 |
| ||||||
|
|
(In Thousands) |
| ||||||||||||||||
Adjustments to Unassigned Funds (Surplus) |
|
|
|
|
|
|
|
|
|
|
|
|
| ||||||
Items not yet recognized as a component of net period cost - prior year |
|
$ |
35,023 |
|
$ |
21,151 |
|
$ |
27,117 |
|
$ |
(1,059 |
) |
$ |
(1,736 |
) |
$ |
(1,689 |
) |
Net transition asset or obligation recognized |
|
|
|
|
|
|
|
|
|
|
|
(90 |
) | ||||||
Net prior service cost or credit recognized |
|
|
|
|
|
|
|
126 |
|
126 |
|
126 |
| ||||||
Net gain or loss arising during the period |
|
(2,583 |
) |
16,003 |
|
(375 |
) |
23 |
|
426 |
|
(233 |
) | ||||||
Net gain or loss recognized |
|
(1,987 |
) |
(1,966 |
) |
(2,266 |
) |
50 |
|
125 |
|
99 |
| ||||||
Items not yet recognized as a component of net periodic cost - current year |
|
$ |
30,453 |
|
$ |
35,188 |
|
$ |
24,476 |
|
$ |
(860 |
) |
$ |
(1,059 |
) |
$ |
(1,787 |
) |
The components of net periodic benefit cost are as follows:
|
|
Pension Benefits |
|
Other Benefits |
| ||||||||||||||
|
|
2015 |
|
2014 |
|
2013 |
|
2015 |
|
2014 |
|
2013 |
| ||||||
|
|
(In Thousands) |
| ||||||||||||||||
Components of net periodic benefit cost |
|
|
|
|
|
|
|
|
|
|
|
|
| ||||||
Service cost |
|
$ |
661 |
|
$ |
560 |
|
$ |
490 |
|
$ |
|
|
$ |
|
|
$ |
|
|
Interest cost |
|
3,333 |
|
3,778 |
|
3,283 |
|
72 |
|
79 |
|
77 |
| ||||||
Expected (return) on plan assets |
|
(975 |
) |
(934 |
) |
(853 |
) |
|
|
|
|
|
| ||||||
Amortization of unrecognized transition obligation or transition asset |
|
|
|
|
|
|
|
|
|
|
|
90 |
| ||||||
Amortization of unrecognized gains and losses |
|
1,987 |
|
1,966 |
|
2,835 |
|
(50 |
) |
(125 |
) |
(99 |
) | ||||||
Amount of prior service cost recognized |
|
|
|
|
|
|
|
(126 |
) |
(126 |
) |
(126 |
) | ||||||
Total net periodic benefit cost |
|
$ |
5,006 |
|
$ |
5,370 |
|
$ |
5,755 |
|
$ |
(104 |
) |
$ |
(172 |
) |
$ |
(58 |
) |
Over the next year, the estimated amount of amortization from unassigned funds into net periodic benefit cost related to net actuarial losses is $2.0 million for pension plans. The estimated amount of amortization from unassigned funds into net periodic benefit cost related to net actuarial losses and prior service benefit are ($0.1) million and ($0.1) million, respectively, for other postretirement plans.
National Life Insurance Company
Notes to Statutory-Basis Financial Statements
December 31, 2015 and December 31, 2014
G. Benefit Plans (continued)
SSAP No. 92 Accounting for Postretirement Benefits Other Than Pensions and SSAP No. 102 Accounting for Pensions became effective January 1, 2013. These SSAPs require that any underfunded benefit obligation be recognized as a liability. At transition, the Company had a liability of $28.1 million and recognized an incremental liability of $0.96 million, before taxes, from unrecognized transition obligations, prior service credits and unrecognized gains and losses. This liability was recorded as an immediate recognition through unassigned funds. Based on the revised measurement of the benefit obligation the liability decreased to $22.7 million at December 31, 2013. The liability increased to $34.1 million and $29.6 million at December 31, 2014 and 2015, respectively.
With the adoption of SSAP No. 92 and SSAP No. 102 the measurement date in 2014 for all of the plans was changed to December 31. The measurement date in prior years was October 1 preceding the date of the Balance Sheets. In order to change measurement dates, the Company had to remeasure the funded status as of January 1, 2014. The difference of $2.5 million, pre-tax, was recorded as an increase to the opening balance of surplus and represents the difference between the prior year end and beginning of current year benefit obligation and fair value of plan assets in the tables above. In addition, the net periodic benefit cost of $1.5 million, pre-tax, during that period was also adjusted as a decrease through opening surplus. The net impact of these adjustments was an increase to surplus, net of taxes of $0.6 million.
The total accumulated benefit obligation was $85.8 million, $91.8 million and $81.0 million at December 31, 2015, 2014 and 2013, respectively.
In 2015, 2014, and 2013, there was no admitted intangible pension asset.
|
|
Pension Benefits |
|
Other Benefits |
| ||||||||
|
|
2015 |
|
2014 |
|
2013 |
|
2015 |
|
2014 |
|
2013 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
The actuarial assumptions used in determining the benefit obligation at the measurement date: |
|
|
|
|
|
|
|
|
|
|
|
|
|
a. Discount rate |
|
3.95 |
% |
3.65 |
% |
4.55 |
% |
3.95 |
% |
3.65 |
% |
4.55 |
% |
b. Rate of compensation increase |
|
5.00 |
% |
5.00 |
% |
5.00 |
% |
N/A |
|
N/A |
|
N/A |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Weighted-average assumptions used to determine net periodic pension cost: |
|
|
|
|
|
|
|
|
|
|
|
|
|
a. Discount rate |
|
3.65 |
% |
4.80 |
% |
3.80 |
% |
3.65 |
% |
4.80 |
% |
3.80 |
% |
b. Rate of compensation increase |
|
5.00 |
% |
5.00 |
% |
5.00 |
% |
N/A |
|
N/A |
|
N/A |
|
c. Expected long-term rate of return on plan assets |
|
7.00 |
% |
7.00 |
% |
7.00 |
% |
N/A |
|
N/A |
|
N/A |
|
National Life Insurance Company
Notes to Statutory-Basis Financial Statements
December 31, 2015 and December 31, 2014
G. Benefit Plans (continued)
The projected health care cost trend rate (HCCTR) was 5.0% for 2015, 2014 and 2013. The HCCTR of 5.0% is the ultimate trend rate.
Assumed health care cost trend rates have a significant effect on the amounts reported for the health care plans. Increasing the assumed HCCTR by one percentage point in each year would increase the accumulated postretirement benefit obligation (APBO) for the remaining plan by approximately $2.1 million and increase the service and interest cost of net periodic postretirement benefit cost by approximately $0.1 million. Decreasing the assumed HCCTR by one percentage point in each year would reduce the APBO by approximately $1.9 million and the service and interest cost of net periodic postretirement benefit cost by about $0.1 million.
The Company uses the straight-line method of amortization for prior service cost and unrecognized gains and losses.
In 2015, the Company changed the amortization period for one of its plans where all or almost all of the participants are inactive. For this plan, the change in amortization base was from average future service to average future life expectancy in accordance with SSAP No. 102 Accounting for Pensions. The change in methodology resulted in a decrease of net periodic expense of $1.7 million in 2015.
Plan assets are invested as follows:
Plan Asset Category |
|
December 31, 2015 |
|
December 31, 2014 |
|
Fixed Income |
|
38 |
% |
37 |
% |
Equities |
|
51 |
% |
54 |
% |
Group annuity contract and other |
|
11 |
% |
9 |
% |
Total |
|
100 |
% |
100 |
% |
The primary objective is to maximize long-term total return within the investment policy and guidelines. The Companys investment policy for the plan assets associated with the separately funded plans is to maintain a target allocation of approximately 40%-70% equities, 30%-50% fixed income and 0-10% alternative investments when measured at fair value.
The Companys expected long-term rate of return of 7.0% is based upon the combination of current asset mix of equities and fixed income and the Companys historical and projected experience on long-term projections by investment research organizations.
National Life Insurance Company
Notes to Statutory-Basis Financial Statements
December 31, 2015 and December 31, 2014
G. Benefit Plans (continued)
The concentrations of credit risk associated with the plan assets are shown in the table below:
|
|
|
|
2015 |
|
2014 |
| ||
|
|
|
|
(In Thousands) |
| ||||
Equities unaffiliated |
|
Equity Funds |
|
$ |
6,337 |
|
$ |
7,525 |
|
|
|
Total equities |
|
6,337 |
|
7,525 |
| ||
Fixed income |
|
Aerospace/Defense |
|
42 |
|
|
| ||
|
|
Chemicals |
|
73 |
|
97 |
| ||
|
|
Retailers |
|
79 |
|
56 |
| ||
|
|
Energy |
|
|
|
52 |
| ||
|
|
Food and Beverage |
|
222 |
|
261 |
| ||
|
|
Health Care |
|
45 |
|
55 |
| ||
|
|
Insurance - Health |
|
44 |
|
54 |
| ||
|
|
Insurance - Property and Casualty |
|
136 |
|
165 |
| ||
|
|
Machine Construction |
|
87 |
|
106 |
| ||
|
|
Manufacturing |
|
90 |
|
109 |
| ||
|
|
Media |
|
86 |
|
106 |
| ||
|
|
Pharmaceuticals |
|
191 |
|
156 |
| ||
|
|
Technology |
|
94 |
|
57 |
| ||
|
|
Transportation |
|
99 |
|
|
| ||
|
|
Wirelines |
|
43 |
|
52 |
| ||
|
|
Bond Funds |
|
3,402 |
|
3,844 |
| ||
|
|
Total fixed income |
|
4,733 |
|
5,170 |
| ||
Short term investments |
|
Money Market Funds - Banking |
|
|
|
238 |
| ||
|
|
Total short term investments |
|
|
|
238 |
| ||
Partnerships |
|
|
|
545 |
|
557 |
| ||
Cash |
|
|
|
38 |
|
23 |
| ||
Group annuity |
|
|
|
754 |
|
480 |
| ||
|
|
Total Investments (1) (2) |
|
$ |
12,407 |
|
$ |
13,993 |
|
(1) Includes investments totaling $2,816 in 2015 and $3,236 in 2014 advised by SAMI.
(2) The difference to total plan assets shown of $12,417 for 2015 and $14,004 for 2014 shown in the changes in plan assets are accruals for income and liabilities.
National Life Insurance Company
Notes to Statutory-Basis Financial Statements
December 31, 2015 and December 31, 2014
G. Benefit Plans (continued)
The valuation techniques used for the plan assets are:
Common stock - Common stocks consist of mutual funds that are traded daily and have a net asset value. These securities are categorized as Level 1.
Corporates - Corporate bonds are valued using cash flow models based on appropriate observable inputs such as market quotes, yield curves, interest rates, and spreads. Corporate bonds are categorized as Level 2 in the fair value hierarchy. Level 1 consists of bond mutual funds that are traded daily and have a readily determinable net asset value.
Partnerships - Investments in limited partnerships do not have a readily determinable fair value, and, as such, the Company values them at its pro-rata share of the limited partnerships net asset value, or its equivalent. Since these valuations have significant unobservable inputs, they are generally categorized as Level 3 in the fair value hierarchy.
Short term investments - Short term investments consist of mutual funds invested in money market funds and government agencies. Short term investments in money market funds are categorized in Level 1 of the hierarchy, whereas short term investments in government agencies, which are not traded daily, are categorized in Level 2 of the hierarchy.
Group annuity - This category consists of an investment in a National Life group variable annuity contract. The contract is carried at amortized cost, which approximates fair value. These assets are categorized in Level 2 of the hierarchy.
National Life Insurance Company
Notes to Statutory-Basis Financial Statements
December 31, 2015 and December 31, 2014
G. Benefit Plans (continued)
The valuation of plan assets for 2015 and 2014 are as follows:
2015 Fair Value
|
|
|
|
|
|
|
|
Not |
|
|
| |||||
|
|
|
|
|
|
|
|
Presented |
|
|
| |||||
|
|
Level 1 |
|
Level 2 |
|
Level 3 |
|
at Fair Value |
|
Total |
| |||||
|
|
(In Thousands) |
| |||||||||||||
Assets |
|
|
|
|
|
|
|
|
|
|
| |||||
Common stock |
|
$ |
6,337 |
|
$ |
|
|
$ |
|
|
$ |
|
|
$ |
6,337 |
|
Corporates |
|
3,402 |
|
1,342 |
|
|
|
|
|
4,744 |
| |||||
Partnerships |
|
|
|
|
|
545 |
|
|
|
545 |
| |||||
Cash |
|
38 |
|
|
|
|
|
|
|
38 |
| |||||
Short term investments |
|
|
|
|
|
|
|
|
|
|
| |||||
Group annuity |
|
|
|
754 |
|
|
|
|
|
754 |
| |||||
Total Assets |
|
$ |
9,777 |
|
$ |
2,096 |
|
$ |
545 |
|
$ |
|
|
$ |
12,418 |
|
Liabilities |
|
|
|
|
|
|
|
|
|
|
| |||||
Total Liabilities |
|
|
|
|
|
|
|
1 |
|
1 |
| |||||
Total Plan Assets |
|
$ |
9,777 |
|
$ |
2,096 |
|
$ |
545 |
|
$ |
(1 |
) |
$ |
12,417 |
|
2014 Fair Value
|
|
|
|
|
|
|
|
Not |
|
|
| |||||
|
|
|
|
|
|
|
|
Presented |
|
|
| |||||
|
|
Level 1 |
|
Level 2 |
|
Level 3 |
|
at Fair Value |
|
Total |
| |||||
|
|
(In Thousands) |
| |||||||||||||
Assets |
|
|
|
|
|
|
|
|
|
|
| |||||
Common stock |
|
$ |
7,525 |
|
$ |
|
|
$ |
|
|
$ |
|
|
$ |
7,525 |
|
Corporates |
|
3,844 |
|
1,340 |
|
|
|
|
|
5,184 |
| |||||
Partnerships |
|
|
|
|
|
557 |
|
|
|
557 |
| |||||
Cash |
|
23 |
|
|
|
|
|
|
|
23 |
| |||||
Short term investments |
|
238 |
|
|
|
|
|
|
|
238 |
| |||||
Group annuity |
|
|
|
480 |
|
|
|
|
|
480 |
| |||||
Accrued income |
|
|
|
|
|
|
|
|
|
|
| |||||
Total Assets |
|
$ |
11,630 |
|
$ |
1,820 |
|
$ |
557 |
|
$ |
|
|
$ |
14,007 |
|
Liabilities |
|
|
|
|
|
|
|
|
|
|
| |||||
Total Liabilities |
|
|
|
|
|
|
|
3 |
|
3 |
| |||||
Total Plan Assets |
|
$ |
11,630 |
|
$ |
1,820 |
|
$ |
557 |
|
$ |
(3 |
) |
$ |
14,004 |
|
During 2015 and 2014, there were no significant transfers between fair value Levels 1 and 2. The table below summarizes the reconciliation of the beginning and ending balances and related changes for the year ended December 31, 2015 for Level 3 fair value measurements for which significant unobservable inputs were used in determining each instruments fair value.
2015 Level 3 |
|
Beginning |
|
Net |
|
Purchases |
|
Issuances |
|
Sales |
|
Settlements |
|
Transfer In |
|
Transfer |
|
Ending |
| |||||||||
|
|
(in thousands) |
| |||||||||||||||||||||||||
Limited Partnerships |
|
$ |
557 |
|
$ |
(77 |
) |
$ |
69 |
|
$ |
|
|
$ |
(4 |
) |
$ |
|
|
$ |
|
|
$ |
|
|
$ |
545 |
|
National Life Insurance Company
Notes to Statutory-Basis Financial Statements
December 31, 2015 and December 31, 2014
G. Benefit Plans (continued)
Projected benefit payments for defined benefit obligations for each of the five years following December 31, 2015, and in aggregate for the five years thereafter is as follows:
|
|
Pension |
|
Other Benefit |
|
|
| |||
Year |
|
Payments |
|
Payments |
|
Total Payments |
| |||
|
|
(In Thousands) |
| |||||||
2016 |
|
$ |
7,155 |
|
$ |
181 |
|
$ |
7,336 |
|
2017 |
|
7,122 |
|
177 |
|
7,299 |
| |||
2018 |
|
7,106 |
|
174 |
|
7,280 |
| |||
2019 |
|
6,863 |
|
169 |
|
7,032 |
| |||
2020 |
|
6,776 |
|
164 |
|
6,940 |
| |||
2021-2025 |
|
29,012 |
|
738 |
|
29,750 |
| |||
The Companys general policy is to contribute the regulatory minimum required amount into its separately funded defined benefit pension plan. However, the Company may elect to make larger contributions subject to maximum contribution limitations. The Companys expected contribution for 2016 into its separately funded defined benefit pension plan for agency employees is approximately $0.3 million.
The Company participates in a 401(k) plan for its employees. Employees earning less than a specified amount will receive a 75% match on up to 6% of an employees salary, subject to applicable maximum contribution guidelines. Employees earning more than a specified amount will receive a 50% match on up to 6% of an employees salary, subject to applicable maximum contribution guidelines. Additional employee voluntary contributions may be made to the plans subject to contribution guidelines. Vesting and withdrawal privilege schedules are attached to the Companys matching contributions. Plan assets invested in the mutual funds are outside the Company and, as such, are excluded from the Companys assets and liabilities. The Companys contribution to the 401(k) plans for its employees for the years ended December 31, 2015, 2014, and 2013, was $1.7 million, $1.3 million and $1.1 million, respectively.
The Company also provides a 401(k) plan for its regular full-time agents. The Company makes an annual contribution equal to 6.1% of an agents compensation up to the Social Security taxable wage base plus 7.5% of the agents compensation in excess of the Social Security taxable wage base. In addition, the agent may elect to defer a portion of the agents compensation, up to the legal limit on elective deferrals, and have that amount contributed to the plan. Total annual contributions cannot exceed certain limits which vary based on total agent compensation. The Companys match on the agents 401(k) plan was $0.8 million, $0.8 million and $0.6 million for the years ended December 31, 2015, 2014, and 2013, respectively.
For all of the Companys defined contribution plans, accumulated funds may be invested by the employee in a group annuity contract issued by the Company or in mutual funds (several of which are sponsored by an affiliate of the Company).
National Life Insurance Company
Notes to Statutory-Basis Financial Statements
December 31, 2015 and December 31, 2014
H. Capital and Surplus, Shareholder Dividend Restrictions and Quasi-Reorganizations
The Company has outstanding surplus notes with a principal balance of $190.3 million, bearing interest at 10.5% and a maturity date of September 15, 2039. These surplus notes were originally issued at $200 million in exchange for cash. The notes were issued pursuant to Rule 144A under the Securities Act of 1933, as amended, and are administered by The Depository Trust Company. The interest on these notes is scheduled to be paid semiannually on March 15 and September 15 of each year. The Company paid $30.7 million in 2015 and had $5.6 million of unapproved interest that was not accrued at December 31, 2015. Total interest paid on the surplus note is $135.2 million. During 2015, the Company repurchased $9.7 million of the notes. The notes are unsecured and subordinated in right of payment to all present and future indebtedness, policy claims and prior claims and rank pari passu with any future surplus notes, and any redemption payment may be made only with prior approval of the Commissioner, whose approval will only be granted if, in the judgment of the Commissioner, the financial condition warrants the making of such payments. The notes shall not be entitled to any sinking fund.
The Company has outstanding 2.5 million common stock $1 par shares. The shares are wholly-owned by its parent NLVF. At the time of issuance, the Company recorded $5.0 million of additional paid-in-capital as transfers from retained earnings. At December 31, 2015 and 2014, the Company had 2.5 million shares authorized and outstanding. All shares are Class A shares. No preferred stock has been issued.
NLHC, a stock holding company, currently owns all the outstanding shares of NLVF, which in turn currently owns all the outstanding shares of the Company. NLHC currently has no other significant assets, liabilities or operations other than that related to its ownership of NLVFs outstanding stock. Similarly, NLVF currently has no significant assets or operations other than those related to investments funded by a 2002 dividend from the Company, issuance of $200.0 million in debt financing in 2003, issuance of an additional $75.0 million in debt financing in 2005, as the sponsor of certain employee related benefit plans, and its ownership of National Lifes outstanding stock. Under the terms of the mutual holding company reorganization described in Note A, NLHC must always hold a majority of the voting shares of NLVF.
Policyowner surplus is restricted by required statutory surplus of $5.0 million, other state permanent surplus (guaranty fund) requirements of $500,000, and special surplus amounts required by the State of New York in connection with variable annuity business. There were no changes in the balances of any special surplus funds from the prior period.
In 2015, no dividends were paid or received by the Company. In 2014, the Company received a $30.0 million ordinary dividend from LSW. In 2013, the Company received a $25.0 million ordinary dividend from LSW, which the Company then paid as a dividend to NLVF. Certain dividends declared by the Company in excess of the lesser of net gain from operations or 10% of statutory surplus require pre-approval by the Commissioner. Within the limitations of the above, there are no restrictions placed on the portion of the Companys profits that may be paid as ordinary dividends to the shareholder. No stock is held for special purposes.
National Life Insurance Company
Notes to Statutory-Basis Financial Statements
December 31, 2015 and December 31, 2014
H. Capital and Surplus, Shareholder Dividend Restrictions and Quasi-Reorganizations (continued)
On September 29, 2015, the Company received a $109 million capital contribution from its parent, NLVF, which was reported as an increase to gross paid in and contributed surplus. Effective December 31, 2015, the Company received a capital contribution of $18 million from NLVF, and simultaneously made a capital contribution to its subsidiary, LSW, for $18 million. The contribution is reflected as a note receivable, which is an admitted asset on the balance sheet. The cash was settled February 19, 2016, prior to the filing of the financial statements. The Company received approval from the Vermont Department of Financial Regulation to treat the note as an admitted asset. During 2014 and 2013, the Company did not receive any capital contributions.
As of December 31, 2015, the Company had securities of $7.0 million in insurance department special deposit accounts.
I. FHLB Agreements
The Company is a member of the Federal Home Loan Bank of Boston (FHLB) which provides National Life with access to a secured asset-based borrowing capacity. It is part of the Companys strategy to utilize this borrowing capacity for funding agreements and for backup liquidity. The Company has received advances from FHLB in connection with funding agreements, which are considered operating leverage and are included in liability for deposit-type contracts. The proceeds have been invested in a discrete pool of fixed income assets. The Company has a maximum borrowing capacity of approximately $1.7 billion, based on its membership investment base.
FHLB Capital Stock - Aggregate Totals
At December 31, 2015
|
|
General |
|
|
| ||
|
|
Account |
|
Total |
| ||
|
|
(In Thousands) |
| ||||
|
|
|
|
|
| ||
Membership Stock - Class A |
|
$ |
|
|
$ |
|
|
Membership Stock - Class B |
|
5,180 |
|
5,180 |
| ||
Activity Stock |
|
3,563 |
|
3,563 |
| ||
Excess Stock |
|
2,112 |
|
2,112 |
| ||
Aggregate Total |
|
$ |
10,855 |
|
$ |
10,855 |
|
|
|
|
|
|
| ||
Actual or estimated borrowing capacity as determined by the insurer |
|
$ |
1.7 billion |
|
National Life Insurance Company
Notes to Statutory-Basis Financial Statements
December 31, 2015 and December 31, 2014
I. FHLB Agreements (continued)
FHLB Capital Stock - Aggregate Totals (continued)
At December 31, 2014
|
|
General |
|
|
| ||
|
|
Account |
|
Total |
| ||
|
|
(In Thousands) |
| ||||
|
|
|
|
|
| ||
Membership Stock - Class A |
|
$ |
|
|
$ |
|
|
Membership Stock - Class B |
|
5,814 |
|
5,814 |
| ||
Activity Stock |
|
4,500 |
|
4,500 |
| ||
Excess Stock |
|
373 |
|
373 |
| ||
Aggregate Total |
|
$ |
10,687 |
|
$ |
10,687 |
|
|
|
|
|
|
| ||
Actual or estimated borrowing capacity as determined by the insurer |
|
$ |
1.9 billion |
|
FHLB Membership Stock (Class A and B) Eligible for Redemption
|
|
|
|
|
|
|
|
6 Months to |
|
|
|
|
| ||||||
|
|
Current Period |
|
Not Eligible for |
|
Less Than |
|
Less than |
|
1 to Less than |
|
|
| ||||||
|
|
Total |
|
Redemption |
|
6 Months |
|
1 Year |
|
3 Years |
|
3 to 5 Years |
| ||||||
|
|
(In Thousands) |
| ||||||||||||||||
|
|
|
|
|
|
|
|
|
|
|
|
|
| ||||||
Class A |
|
$ |
|
|
$ |
|
|
$ |
|
|
$ |
|
|
$ |
|
|
$ |
|
|
Class B |
|
5,180 |
|
5,180 |
|
|
|
|
|
|
|
|
| ||||||
Collateral Pledged to FHLB
Total Collateral Pledged
At December 31, 2015
|
|
|
|
|
|
Aggregate |
| |||
|
|
Fair |
|
Carrying |
|
Total |
| |||
|
|
Value |
|
Value |
|
Borrowing |
| |||
|
|
(In Thousands) |
| |||||||
|
|
|
|
|
|
|
| |||
General Account |
|
$ |
86,665 |
|
$ |
82,637 |
|
$ |
79,175 |
|
Total |
|
$ |
86,665 |
|
$ |
82,637 |
|
$ |
79,175 |
|
At December 31, 2014
|
|
|
|
|
|
Aggregate |
| |||
|
|
Fair |
|
Carrying |
|
Total |
| |||
|
|
Value |
|
Value |
|
Borrowing |
| |||
|
|
(In Thousands) |
| |||||||
|
|
|
|
|
|
|
| |||
General Account |
|
$ |
126,018 |
|
$ |
116,332 |
|
$ |
100,000 |
|
Total |
|
$ |
126,018 |
|
$ |
116,332 |
|
$ |
100,000 |
|
National Life Insurance Company
Notes to Statutory-Basis Financial Statements
December 31, 2015 and December 31, 2014
I. FHLB Agreements (continued)
Maximum Collateral Pledged
During 2015
|
|
|
|
|
|
Aggregate |
| |||
|
|
Fair |
|
Carrying |
|
Total |
| |||
|
|
Value |
|
Value |
|
Borrowing |
| |||
|
|
(In Thousands) |
| |||||||
|
|
|
| |||||||
General Account |
|
$ |
170,484 |
|
$ |
158,862 |
|
$ |
136,900 |
|
Total |
|
$ |
170,484 |
|
$ |
158,862 |
|
$ |
136,900 |
|
During 2014
|
|
|
|
|
|
Aggregate |
| |||
|
|
Fair |
|
Carrying |
|
Total |
| |||
|
|
Value |
|
Value |
|
Borrowing |
| |||
|
|
(In Thousands) |
| |||||||
|
|
|
|
|
|
|
| |||
General Account |
|
$ |
280,105 |
|
$ |
267,634 |
|
$ |
100,000 |
|
Total |
|
$ |
280,105 |
|
$ |
267,634 |
|
$ |
100,000 |
|
Borrowing from FHLB
At December 31, 2015
|
|
General |
|
|
|
Funding Agreements |
| |||
|
|
Account |
|
Total |
|
Reserves Established |
| |||
|
|
(In Thousands) |
| |||||||
Debt |
|
$ |
|
|
$ |
|
|
$ |
|
|
Funding Agreements |
|
79,175 |
|
79,175 |
|
79,175 |
| |||
Other |
|
|
|
|
|
|
| |||
Aggregate Total |
|
$ |
79,175 |
|
$ |
79,175 |
|
$ |
79,175 |
|
At December 31, 2014
|
|
General |
|
|
|
Funding Agreements |
| |||
|
|
Account |
|
Total |
|
Reserves Established |
| |||
|
|
(In Thousands) |
| |||||||
Debt |
|
$ |
|
|
$ |
|
|
$ |
|
|
Funding Agreements |
|
100,000 |
|
100,000 |
|
100,000 |
| |||
Other |
|
|
|
|
|
|
| |||
Aggregate Total |
|
$ |
100,000 |
|
$ |
100,000 |
|
$ |
100,000 |
|
National Life Insurance Company
Notes to Statutory-Basis Financial Statements
December 31, 2015 and December 31, 2014
I. FHLB Agreements (continued)
Maximum amount borrowed during the period ended December 31, 2015
|
|
General |
|
|
| ||
|
|
Account |
|
Total |
| ||
|
|
(In Thousands) |
| ||||
Debt |
|
$ |
|
|
$ |
|
|
Funding Agreements |
|
136,900 |
|
136,900 |
| ||
Other |
|
|
|
|
| ||
Aggregate Total |
|
$ |
136,900 |
|
$ |
136,900 |
|
The Company has no prepayment obligations under the funding arrangements with the FHLB.
J. Business Risks, Commitments and Contingencies
Business Risks
Federal Reserve policy, slowing global growth, European quantitative easing, and commodities weakness all drove risk sentiments throughout the year. In the beginning of the year rates rallied down to what would stand as the lows of the year driven by weak inflation metrics and concerns on flagging European growth. The European Central Bank also announced a large scale asset purchase program that helped spur rates lower. After stabilizing in the first several months of the year, oil prices again fell steadily, leading commodity prices lower and keeping inflation expectations muted. In August, China moved to devalue its currency, sending risk assets lower and again drove a strong bid for US Treasury securities. The year was capped off as the Federal Reserve took action to raise interest rates at their December FOMC meeting, thus beginning the process of normalization after a decade of easing. Given this backdrop, domestic equities were somewhat muted on the year, with the S&P 500 up 1.37% while the Barclays US Aggregate bond index posted a return of 0.55%.
While 2015 generally showed continued stabilization in the commercial mortgage market, with portfolio credit metrics improving and greater availability of financing, certain loans in the portfolio continue to exhibit higher risk characteristics. These include loans that are subject to high vacancy, significant lease expirations or financially weak sponsors. While these issues can lead to payment problems, particularly at maturity, conservative underwriting at inception results in limited downside risk and favorable recoveries in most situations. The statutory carrying value of commercial mortgage loans is stated at original cost net of repayments, amortization of premiums, accretion of discounts and valuation allowances.
National Life Insurance Company
Notes to Statutory-Basis Financial Statements
December 31, 2015 and December 31, 2014
J. Business Risks, Commitments and Contingencies
Business Risks (continued)
As of December 31, 2015 and 2014, the Company held $103.8 million and $253.3 million, respectively, of commercial mortgage-backed securities (CMBS). The fair value of the Companys CMBS was $109.4 million and $278.6 million at December 31, 2015 and December 31, 2014, respectively. The Company had other-than-temporary impairments related to CMBS investments of $2.6 million and $1.1 million as of December 31, 2015 and 2014, respectively. It is unclear how long it will take for a return to normal market conditions. The extent and duration of any future market or sector decline is unknown, as is the potential impact of such a decline on the Companys investment portfolio.
The Company routinely executes transactions with counterparties in the financial services industry, including brokers and dealers, commercial banks, investment banks and other financial institutions. Many of these transactions expose the Company to credit risk in the event of default of the respective counterparties. In addition, the underlying collateral supporting the Companys structured securities, including CMBS, may deteriorate or default causing these structured securities to incur losses. For example, the Company may hedge various business risks using over-the-counter derivative instruments to a pre-approved number of counterparties. While the Company carefully monitors counterparty exposures and holds collateral to limit such risk, if counterparties fail or refuse to honor their obligations, the hedges of the related risk will be ineffective. Such failure could have a material adverse effect on the Companys results of operations and financial condition. At December 31, 2015, the Companys over-the-counter notional exposure to derivative counterparties totaled $615.3 million with a combined market value of $16.0 million owed to the Company by these derivative counterparties. To mitigate this risk, the Company requires that counterparties post collateral when exposure exceeds certain thresholds. As of December 31, 2015, the net exposure with any individual counterparty related to the Companys derivative positions did not exceed $5.1 million. For more information on derivatives see Note O - Derivative Financial Instruments.
The Company also is subject to the risk that the issuers of, or other obligors of, securities owned by the Company may default on payments with respect to such securities. The Companys investment portfolio includes investment securities in the financial services sector and other sectors that have recently experienced defaults, and in the prevailing climate of economic uncertainty and volatility, the credit quality of many issuers has been adversely affected, which has increased the risk of default on such securities. Further defaults could have a material adverse effect on the Companys results of operations or financial condition.
National Life Insurance Company
Notes to Statutory-Basis Financial Statements
December 31, 2015 and December 31, 2014
J. Business Risks, Commitments and Contingencies (continued)
Business Risks (continued)
In addition, potential action by governments and regulatory bodies in response to the financial crisis affecting the global banking system and financial markets, such as investment, nationalization and other intervention, could negatively impact these instruments, securities, transactions and investments. There can be no assurance that any such losses or impairments to the carrying value of these assets would not materially and adversely affect the Companys results of operations or financial condition.
The profitability of the Companys life insurance and annuity businesses is sensitive to interest rate changes. Periods of high or increasing rates have the potential to negatively affect the Companys profitability in the following principal ways:
· In periods of increasing interest rates, life insurance policy loans and surrenders and withdrawals may increase as policyholders seek investments with higher perceived returns. As of December 31, 2015, the Company had outstanding $811.0 million of annuities that were subject to surrender at book value without a surrender charge or with a surrender charge of less than 5% of book value. This could result in cash outflows requiring the Company to sell invested assets at a time when the prices of those assets are adversely affected by the increase in market interest rates, which could cause the Company to suffer realized investment losses.
· The income from certain of the Companys insurance and annuity products is derived from the spread between the crediting rate required to be paid under the contracts and the rate of return earned on general account investments supporting such contracts. When interest rates rise, such as in inflationary periods, the Company may face competitive pressure to increase crediting rates on such contracts. Such changes in the Companys crediting rates may occur more quickly than corresponding changes to the rates earned on general account investments, thereby reducing spread income in respect of such contracts. This risk is heightened in the current market and economic environment, in which many securities with higher yields are unavailable. In addition, an increase in interest rates accompanied by unexpected extensions of certain lower yielding investments could result in a decline in the Companys profitability. An increase in interest rates would also adversely affect the fair values of bonds.
U.S. long-term interest rates remain at relatively low levels by historical standards. Periods of low or declining interest rates have the potential to negatively affect the Companys profitability in the following principal ways:
National Life Insurance Company
Notes to Statutory-Basis Financial Statements
December 31, 2015 and December 31, 2014
J. Business Risks, Commitments and Contingencies (continued)
Business Risks (continued)
· Low or declining interest rates tend to decrease the yield the Company earns on its portfolios of fixed income investments. This could in turn compress the spreads the Company earns on products, such as universal life and certain annuities, on which it is contractually obligated to pay customers a fixed minimum rate of interest. Should new money interest rates be sufficiently below guaranteed minimum rates for a long enough period, the Company may be required to pay policyholders or annuity owners at a higher rate than the rate of return it earns on the portfolio of investments supporting those products.
· In periods of low and declining interest rates, the Company generally must invest the proceeds from the maturity, redemption or sale of fixed income securities from its portfolio at a lower rate of interest than the rate it had been receiving on those securities. A low interest rate environment may also be likely to cause redemptions and prepayments to increase. In addition, in periods of low and declining interest rates, it may be difficult to identify and acquire suitable investments for proceeds from new product sales or proceeds from the maturity, redemption or sale of fixed income securities from the Companys portfolios, which could further decrease the yield it earns on its portfolio or cause the Company to reduce the sales of some products.
The success of the Companys investment strategy and hedging arrangements will also be affected by general economic conditions. These conditions may cause volatile interest rates and equity markets, which in turn could increase the cost of hedging. Volatility or illiquidity in the markets could significantly and negatively affect the Companys ability to appropriately execute its hedging strategies.
The Companys reserves for future policy benefits and claims may prove to be inadequate. The Company establishes and carries, as a liability, reserves based on estimates of the amount that will be needed to pay for future benefits and claims. For the Companys life insurance and annuity products, these reserves are calculated based on many assumptions and estimates, including estimated premiums that will be received over the assumed life of the policy, the timing of the event covered by the insurance policy, the lapse rate of the policies, the amount of benefits or claims to be paid and the investment returns on the assets purchased with the premiums received. The assumptions and estimates used in connection with establishing and carrying reserves are inherently uncertain. Accordingly, it cannot be determined with precision the ultimate amounts that will be paid or the timing of payment of, actual benefits and claims or whether the assets supporting the policy liabilities will grow to the level assumed prior to payment of benefits or claims.
If actual experience is different from assumptions or estimates, the reserves may prove to be inadequate in relation to the estimated future benefits and claims. As a result, the Company would incur a charge to earnings in the period in which reserves are increased.
National Life Insurance Company
Notes to Statutory-Basis Financial Statements
December 31, 2015 and December 31, 2014
J. Business Risks, Commitments and Contingencies (continued)
Business Risks (continued)
The Company sets prices for many of its insurance and annuity products based upon expected claims and payment patterns, using assumptions for mortality, persistency (how long a contract stays in force) and interest rates. In addition to the potential effect of natural or man-made disasters, significant changes in mortality could emerge gradually over time, due to changes in the natural environment, the health habits of the insured population, effectiveness of treatment for disease or disability or other factors.
In addition, the Company could fail to accurately anticipate changes in other pricing assumptions, including changes in interest and inflation rates. Significant negative deviations in actual experience from the Companys pricing assumptions could have a material adverse effect on the profitability of its products. The Companys earnings are significantly influenced by the claims paid under its insurance contracts and will vary from period to period depending upon the amount of claims incurred. There is only limited predictability of claims experience within any given month or year. The Companys future experience may not match the respective pricing assumptions or past results. As a result, the Companys summary of operations could be materially adversely affected.
State insurance regulators and the NAIC regularly re-examine existing laws and regulations applicable to insurance companies and their products. Changes in these laws and regulations, or in interpretations thereof, that are made for the benefit of the consumer sometimes lead to additional expense for the insurer and, thus, could have a material adverse effect on our financial condition and results of operations.
Federal legislation and administrative policies can significantly and adversely affect insurance companies, including policies regarding financial services regulation, securities regulation, derivatives regulation, pension regulation, health care regulation, privacy, tort reform legislation and taxation. In addition, various forms of direct and indirect federal regulation of insurance have been proposed from time to time, including proposals for the establishment of an optional federal charter for insurance companies.
In April 2016, the U.S. Department of Labor released a new regulation accompanied by new class exemptions and amendments to longstanding exemptions from the prohibited transaction provisions under the Employee Retirement Income Security Act. The rule expands the circumstances in which providers of investment advice to small plan sponsors, plan participants and beneficiaries, and Individual Retirement Account investors are deemed to act in a fiduciary capacity. The rule requires such providers to act in their clients best interests, not influenced by any conflicts of interest, including due to the direct or indirect receipt of compensation. In addition, the rule imposes certain upfront and ongoing contract and disclosure requirements on the provider. The Company is evaluating the scope of the final regulations and the impact on its business.
National Life Insurance Company
Notes to Statutory-Basis Financial Statements
December 31, 2015 and December 31, 2014
J. Business Risks, Commitments and Contingencies (continued)
Commitments and Contingencies
The Company is subject, in the ordinary course of business, to claims, litigation, arbitration proceedings and governmental examinations. Although the Company is not aware of any actions, proceedings or allegations that reasonably should give rise to a material adverse impact to the Companys financial position or liquidity, the outcome of any particular matter cannot be foreseen with certainty. It is the opinion of management that the ultimate resolution of these matters will not materially impact the Companys financial condition.
The Company anticipates additional capital investments of $154.0 million into existing limited partnerships due to funding commitments.
The Company participates in the guaranty association of each state in which it conducts business. The amount of any assessment is based on various rates, established by members of the National Organization of Life and Health Insurance Guaranty Associations (NOLHGA). At December 31, 2015, the Company had accrued assessment charges of $1.0 million with expected payment over the next ten years. The Company has also recorded a related asset of $1.6 million for premium tax credits, which are expected to be realized through 2025.
The Company currently leases rights to the use of certain data processing hardware from Dell Systems Corporation, Plano, Texas. The Company has extended its agreement with Dell through January 31, 2025. The following is a schedule of future minimum lease payments as of December 31, 2015:
|
|
Operating |
| |
Year |
|
Leases |
| |
(In Millions) |
| |||
2016 |
|
$ |
6.0 |
|
2017 |
|
6.0 |
| |
2018 |
|
6.0 |
| |
2019 |
|
6.0 |
| |
2020 |
|
6.0 |
| |
Total minimum lease payments |
|
$ |
30.0 |
|
The Company also has a services contract with Dell. In total, the Company paid $15.0 million and $12.9 million in 2015 and 2014, respectively, under the Dell contracts.
The Company has a multi-year contract for information systems application and infrastructure services from NTT Data, Boston, Massachusetts. The contract expires January 1, 2020. Expense paid under the contract with NTT was $25.0 million and $32.5 million in 2015 and 2014, respectively. The expense paid includes a base amount and variable expenses related to project work performed during the year.
National Life Insurance Company
Notes to Statutory-Basis Financial Statements
December 31, 2015 and December 31, 2014
K. Closed Block
The Closed Block was established on January 1, 1999 as part of the conversion to a mutual holding company corporate structure. The Closed Block was initially funded on January 1, 1999 with cash and securities totaling $2.2 billion. As described in Note D - Reinsurance, the Company entered into a reinsurance transaction with Catamount to reinsure the Closed Block policies. Assets, liabilities, and results of operations of the Closed Block are presented in their normal categories on the statements of admitted assets, liabilities and surplus, and on the statements of income and capital and surplus.
At December 31, 2015 and 2014, Closed Block liabilities exceeded Closed Block assets and no additional dividend obligation was required.
For the Year Ended December 31, |
|
2015 |
|
2014 |
|
2013 |
| |||
|
|
(in thousands) |
| |||||||
Income Statement Data |
|
|
|
|
|
|
| |||
|
|
|
|
|
|
|
| |||
Revenues: |
|
|
|
|
|
|
| |||
Premiums and considerations |
|
$ |
116,130 |
|
$ |
125,130 |
|
$ |
146,559 |
|
Net investment income |
|
147,944 |
|
153,367 |
|
168,329 |
| |||
Total revenues |
|
264,074 |
|
278,497 |
|
314,888 |
| |||
|
|
|
|
|
|
|
| |||
Benefits and Expenses: |
|
|
|
|
|
|
| |||
Change in reserves |
|
(60,190 |
) |
(106,642 |
) |
(70,165 |
) | |||
Policy benefits |
|
249,074 |
|
304,729 |
|
287,967 |
| |||
Operating expenses |
|
3,516 |
|
3,736 |
|
3,954 |
| |||
Commissions |
|
1,177 |
|
1,286 |
|
1,399 |
| |||
Other expenses |
|
1,710 |
|
1,922 |
|
2,329 |
| |||
Total benefits and expenses |
|
195,287 |
|
205,031 |
|
225,484 |
| |||
|
|
|
|
|
|
|
| |||
Dividends to policyholders |
|
62,187 |
|
62,464 |
|
67,722 |
| |||
Income tax expense |
|
(2,246 |
) |
(2,489 |
) |
(940 |
) | |||
Net realized capital gains (losses) |
|
(482 |
) |
13,499 |
|
(1,818 |
) | |||
|
|
|
|
|
|
|
| |||
Net income |
|
$ |
8,364 |
|
$ |
26,990 |
|
$ |
20,804 |
|
National Life Insurance Company
Notes to Statutory-Basis Financial Statements
December 31, 2015 and December 31, 2014
L. Annuity Reserves, Supplementary Contracts, and Other Deposit Fund Liabilities
At December 31, 2015, the Companys annuity reserves and other deposit fund liabilities that are subject to discretionary withdrawal (with adjustment), subject to discretionary withdrawal (without adjustment), and not subject to discretionary withdrawal provisions are summarized as follows:
|
|
|
|
Separate |
|
|
|
|
| |||
|
|
General |
|
Account |
|
|
|
|
| |||
|
|
Account |
|
Nonguaranteed |
|
Total |
|
Percent |
| |||
|
|
(In Thousands) |
|
|
| |||||||
Subject to discretionary withdrawal (with adjustment): |
|
|
|
|
|
|
|
|
| |||
With market value adjustment |
|
$ |
15,400 |
|
$ |
|
|
$ |
15,400 |
|
1.1 |
% |
At book value less current surrender charge of 5% or more |
|
139,611 |
|
9,002 |
|
148,613 |
|
10.6 |
% | |||
Total with adjustment or at market value |
|
155,011 |
|
9,002 |
|
164,013 |
|
11.7 |
% | |||
Subject to discretionary withdrawal (without adjustment) at book value with minimal or no charge or adjustment |
|
642,421 |
|
168,534 |
|
810,955 |
|
57.6 |
% | |||
Not subject to discretionary withdrawal |
|
173,538 |
|
258,485 |
|
432,023 |
|
30.7 |
% | |||
Total annuity reserves and deposit fund liabilities - before reinsurance |
|
970,970 |
|
436,021 |
|
1,406,991 |
|
100.0 |
% | |||
Less reinsurance ceded |
|
|
|
|
|
|
|
|
| |||
Net annuity reserves and deposit fund liabilities |
|
$ |
970,970 |
|
$ |
436,021 |
|
$ |
1,406,991 |
|
100.0 |
% |
M. Premium and Annuity Considerations Deferred and Uncollected
Deferred and uncollected life insurance premiums and annuity considerations at December 31, 2015, were as follows:
|
|
Gross |
|
Net of Loading |
| ||
|
|
(In Thousands) |
| ||||
Ordinary new business |
|
$ |
4,860 |
|
$ |
2,115 |
|
Ordinary renewal |
|
33,205 |
|
38,790 |
| ||
Total |
|
$ |
38,065 |
|
$ |
40,905 |
|
National Life Insurance Company
Notes to Statutory-Basis Financial Statements
December 31, 2015 and December 31, 2014
N. Separate Accounts
Separate and variable accounts held by the Company represent funds held in connection with certain variable annuity, variable universal life, and Company sponsored benefit plans. All separate account assets are carried at fair value. The Company participates in certain separate accounts.
As of December 31, 2015 and 2014 the Companys separate account assets included legally insulated assets of $714.8 million and $771.7 million, respectively. Separate account assets not legally insulated, which represent seed money, totaled $6.1 million and $6.1 million as of December 31, 2015 and 2014, respectively. The seed money is invested pursuant to general account directives.
|
|
2015 |
|
2014 |
| ||
|
|
(In Thousands) |
| ||||
Separate account premiums and considerations |
|
$ |
23,718 |
|
$ |
26,022 |
|
|
|
|
|
|
| ||
Reserves for accounts with assets at fair value |
|
712,796 |
|
768,281 |
| ||
The withdrawal characteristics of separate accounts at December 31 were as follows:
|
|
2015 |
|
2014 |
| ||
|
|
(In Thousands) |
| ||||
Subject to discretionary withdrawal without adjustment - At book value (which equals fair value) less surrender charge of 5% or more |
|
$ |
34,036 |
|
$ |
53,004 |
|
|
|
|
|
|
| ||
Subject to discretionary withdrawal without adjustment - At book value (which equals fair value) less surrender charge of less than 5% |
|
420,275 |
|
449,935 |
| ||
|
|
|
|
|
| ||
Not subject to discretionary withdrawal |
|
258,485 |
|
265,342 |
| ||
Total reserves |
|
$ |
712,796 |
|
$ |
768,281 |
|
A reconciliation of net transfers to (from) separate accounts during the years ended December 31, was as follows:
|
|
2015 |
|
2014 |
|
2013 |
| |||
|
|
(In Thousands) |
| |||||||
Net transfers to (from) separate accounts |
|
$ |
(27,251 |
) |
$ |
(23,509 |
) |
$ |
(32,734 |
) |
Reconciling items |
|
420 |
|
542 |
|
348 |
| |||
Total |
|
$ |
(26,831 |
) |
$ |
(22,967 |
) |
$ |
(32,386 |
) |
National Life Insurance Company
Notes to Statutory-Basis Financial Statements
December 31, 2015 and December 31, 2014
N. Separate Accounts (continued)
As of December 31, 2015, the general account had a maximum guarantee for separate account liabilities of $4.4 million. Amounts paid by the general account related to separate account guarantees during the past five years are as follows:
As of December 31, |
|
|
| |
2015 |
|
$ |
72,356 |
|
2014 |
|
89 |
| |
2013 |
|
127,084 |
| |
2012 |
|
105,380 |
| |
2011 |
|
105,523 |
| |
To compensate the general account for the risk taken, the separate account has paid risk charges for the past five years as follows:
As of December 31, |
|
|
| |
2015 |
|
$ |
57,215 |
|
2014 |
|
59,021 |
| |
2013 |
|
63,295 |
| |
2012 |
|
73,322 |
| |
2011 |
|
80,672 |
| |
O. Derivative Financial Instruments
The Company may purchase and sell various derivative instruments, including equity options, interest rate swaps, swaptions, forwards and futures based on the Standard & Poors (S&P 500), Russell 2000 and the MSCI Emerging Markets indices in order to hedge its obligation with respect to indexed products. These derivative instruments generally cost 5% or less of the indexed liabilities at the time they are purchased, are authorized under state law, and are purchased from counterparties which conform to the Companys policies and guidelines regarding derivative instruments. The standard option position involves contracts with durations of one year or less and, except for dynamic portfolio balancing (which is limited), are held to expiration. Exposure to market risk is reduced by the nature of the crediting strategy, which does not credit interest when the indices are below a certain level. If the related index decreases, options purchased expire worthless, and any future contracts will be settled at a loss.
These instruments are marked to market daily and may produce exposure in excess of internal counterparty limits established by the Companys investment policy. The Company requires the counterparties to post collateral on its behalf to correct any overage stemming from either trading activity or market movements. The Company receives cash, cash equivalents and securities as collateral for any excess exposure and records the collateral received as a liability.
National Life Insurance Company
Notes to Statutory-Basis Financial Statements
December 31, 2015 and December 31, 2014
O. Derivative Financial Instruments (continued)
Investments in these types of instruments generally involve the following types of risk: in the case of over-the-counter options, there are no guarantees that markets will exist for these investments if the Company desired to close out a position; exchanges may impose trading limits which may inhibit the Companys ability to close out positions in exchange-listed instruments; and, if the Company has an open position with a dealer that becomes insolvent, the Company may experience a loss. The Company analyzes its position in derivative instruments relative to its annuity and insurance requirements each market day.
Cash may be required, depending on market movement, when (1) buying an option or (2) closing an option or futures position. Counterparties may make a single net payment at expiration. Initial acquisition of instruments and subsequent balancing are performed solely for the purpose of hedging liabilities presented by indexed products.
The Company purchases options only from highly rated counterparties. However, in the event the counterparty failed to perform, the Companys loss would be equal to the fair value of the net options, less any collateral held from that counterparty. The Company is required, in certain instances, to post collateral in order to purchase option, futures, or swap contracts. The amount of collateral that may be required for future or swap trading is determined by the exchange on which it is traded. The amount of collateral that is required for option trading is dependent on the counterparty. Most counterparties do not require collateral.
As part of managing interest rate risk in its funding agreement business, the Company also enters into interest rate swaps. These swaps are primarily pay-fixed for receive-floating interest rate swaps designed to mitigate the interest rate risk in the assets used to back the funding agreements. These swaps are in qualifying hedging relationships and are therefore held in the same manner in which the hedged instruments are recorded.
The face or contract amount of futures, options purchased, options written, swaptions purchased, and interest rate swaps (original amount for futures, notional amounts for options and swaps) at December 31 were as follows:
|
|
2015 |
|
2014 |
| ||
|
|
(In Thousands) |
| ||||
Futures |
|
$ |
2,469 |
|
$ |
3,605 |
|
Options purchased |
|
435,600 |
|
348,010 |
| ||
Swaptions purchased |
|
500,000 |
|
500,000 |
| ||
Interest rate swaps |
|
73,350 |
|
|
| ||
Options written |
|
396,140 |
|
317,280 |
| ||
National Life Insurance Company
Notes to Statutory-Basis Financial Statements
December 31, 2015 and December 31, 2014
O. Derivative Financial Instruments (continued)
The carrying value of options, swaps, swaptions and futures at December 31 were as follows:
|
|
2015 |
|
2014 |
|
Primary Underlying Risk Exposure |
| ||
|
|
(In Thousands) |
|
|
| ||||
Options purchased |
|
$ |
17,098 |
|
$ |
29,769 |
|
Equity market |
|
Swaptions purchased |
|
1,161 |
|
1,601 |
|
Interest rates |
| ||
Interest rate swaps |
|
1,449 |
|
|
|
Interest rates |
| ||
Options written |
|
(3,785 |
) |
(7,589 |
) |
Equity market |
| ||
Futures purchased |
|
111 |
|
194 |
|
Equity market |
| ||
Net carrying value |
|
$ |
16,034 |
|
$ |
23,975 |
|
|
|
P. Fair Value of Financial Instruments
The carrying values and fair values of financial instruments at December 31 were as follows:
|
|
2015 |
|
2014 |
| ||||||||
|
|
Carrying |
|
Fair |
|
Carrying |
|
Fair |
| ||||
|
|
Value |
|
Value |
|
Value |
|
Value |
| ||||
|
|
(In Thousands) |
| ||||||||||
Bonds |
|
$ |
5,260,983 |
|
$ |
5,475,363 |
|
$ |
5,389,989 |
|
$ |
5,884,447 |
|
Preferred stocks |
|
10,000 |
|
9,992 |
|
|
|
|
| ||||
Mortgage loans |
|
551,902 |
|
573,496 |
|
522,440 |
|
566,391 |
| ||||
Policy loans |
|
533,875 |
|
671,169 |
|
546,739 |
|
670,009 |
| ||||
Investment product liabilities |
|
726,100 |
|
701,232 |
|
739,648 |
|
712,380 |
| ||||
Fair value for bonds and preferred stocks are based on published prices by the Securities Valuations Office (SVO) of the NAIC, if available. In the absence of SVO published prices, or when amortized cost is used by the SVO, quoted market prices by other third party organizations, if available, are used to calculate fair value. If neither SVO published prices nor quoted market prices are available, management estimates the fair value based on the quoted market prices of securities with similar characteristics or on industry recognized valuation techniques.
Mortgage loan fair values are determined using the average of discounted cash flows for the portfolio using current market rates and average durations.
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).
National Life Insurance Company
Notes to Statutory-Basis Financial Statements
December 31, 2015 and December 31, 2014
P. Fair Value of Financial Instruments (continued)
Investment product liabilities 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.
Q. Reconciliation to Statutory Annual Statements
There are no adjustments to net income (loss) or capital and surplus as filed.
NATIONAL VARIABLE
ANNUITY ACCOUNT II
(A Separate Account of National Life Insurance Company)
FINANCIAL STATEMENTS
* * * * *
DECEMBER 31, 2015
Report of Independent Registered Public Accounting Firm
To the Board of Directors of National Life Insurance Company
and Policyholders of National Variable Annuity Account II:
In our opinion, the accompanying statements of net assets and the related statements of operations and of changes in net assets present fairly, in all material respects, the financial position of each of the sub-accounts constituting the National Variable Annuity Account II (a Separate Account of National Life Insurance Company, the Sponsor Company) at December 31, 2015, and the results of each of their operations for the period then ended, the changes in each of their net assets for each of the two periods then ended, and the financial highlights for each of the five periods then ended, in conformity with accounting principles generally accepted in the United States of America. These financial statements and financial highlights (hereafter referred to as financial statements) are the responsibility of the Sponsor Companys management. Our responsibility is to express an opinion on these financial statements based on our audits. We conducted our audits of these financial statements in accordance with the standards of the Public Company Accounting Oversight Board (United States). Those standards require that we plan and perform the audits 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, which included confirmation of securities at December 31, 2015 by correspondence with the sub-accounts advisors, provide a reasonable basis for our opinion.
Boston, Massachusetts
April 26, 2016
NATIONAL VARIABLE ANNUITY ACCOUNT II
(A Separate Account of National Life Insurance Company)
STATEMENTS OF NET ASSETS
December 31, 2015
Total Assets and Net Assets: |
|
|
| |
Investments in shares of mutual fund portfolios at market value: |
|
|
| |
Alger American Capital Appreciation Fund (104,425.56 units at $21.84 per unit) |
|
$ |
2,281,021 |
|
Alger American Large Cap Growth Fund (350,836.43 units at $25.05 per unit) |
|
$ |
8,788,990 |
|
Alger American Small Cap Growth Fund (72,727.99 units at $20.26 per unit) |
|
$ |
1,473,459 |
|
AllianceBernstein VPS International Growth Fund (19,542.65 units at $16.35 per unit) |
|
$ |
319,449 |
|
AllianceBernstein VPS International Value Fund (167,813.93 units at $14.67 per unit) |
|
$ |
2,462,214 |
|
AllianceBernstein VPS Small/Mid Cap Value Fund (65,734.03 units at $27.51 per unit) |
|
$ |
1,808,438 |
|
AllianceBernstein VPS Value Fund (2,525.49 units at $20.01 per unit) |
|
$ |
50,539 |
|
American Century Variable Income & Growth Portfolio (114,223.33 units at $18.16 per unit) |
|
$ |
2,074,073 |
|
American Century Variable Inflation Protection Portfolio (115,988.83 units at $13.23 per unit) |
|
$ |
1,534,823 |
|
American Century Variable International Portfolio (235,749.53 units at $16.82 per unit) |
|
$ |
3,964,227 |
|
American Century Variable Ultra Portfolio (2,566.51 units at $18.60 per unit) |
|
$ |
47,725 |
|
American Century Variable Value Portfolio (141,503.08 units at $27.27 per unit) |
|
$ |
3,858,600 |
|
Deutsche Variable Series II Small Mid Cap Value Portfolio (67,210.25 units at $22.22 per unit) |
|
$ |
1,493,252 |
|
Deutsche Variable Series II Large Cap Value Portfolio (22,802.67 units at $13.24 per unit) |
|
$ |
301,857 |
|
Deutsche Investment VIT Small Cap Index Fund (3,815.58 units at $23.63 per unit) |
|
$ |
90,147 |
|
Dreyfus Variable Investment Appreciation Portfolio (25,244.02 units at $17.64 per unit) |
|
$ |
445,238 |
|
Dreyfus Variable Investment Opportunistic Small Cap Portfolio (25,647.32 units at $14.42 per unit) |
|
$ |
369,773 |
|
Dreyfus Variable Investment Quality Bond Portfolio (117,834.51 units at $13.71 per unit) |
|
$ |
1,615,662 |
|
Dreyfus Variable Investment Socially Responsible Growth Fund (33,305.15 units at $12.23 per unit) |
|
$ |
407,406 |
|
Fidelity Variable Insurance Product Equity Income Portfolio (230,943.86 units at $21.92 per unit) |
|
$ |
5,062,315 |
|
Fidelity Variable Insurance Product Growth Portfolio (199,115.80 units at $25.39 per unit) |
|
$ |
5,055,670 |
|
Fidelity Variable Insurance Product High Income Portfolio (210,409.70 units at $15.26 per unit) |
|
$ |
3,209,908 |
|
Fidelity Variable Insurance Products Overseas Portfolio (218,798.90 units at $16.14 per unit) |
|
$ |
3,531,463 |
|
Fidelity Variable Insurance Products II Contrafund Portfolio (232,699.39 units at $35.78 per unit) |
|
$ |
8,325,054 |
|
Fidelity Variable Insurance Products II Index 500 Portfolio (431,509.47 units at $24.36 per unit) |
|
$ |
10,511,415 |
|
Fidelity Variable Insurance Products III Mid Cap Portfolio (127,870.67 units at $25.98 per unit) |
|
$ |
3,322,358 |
|
Fidelity Variable Insurance Products III Value Strategies Portfolio (6,914.86 units at $30.11 per unit) |
|
$ |
208,231 |
|
Fidelity Variable Insurance Products V Investment Grade Bond Portfolio (349,865.24 units at $17.14 per unit) |
|
$ |
5,997,138 |
|
Fidelity Variable Insurance Products V Money Market Portfolio (819,043.98 units at $11.44 per unit) |
|
$ |
9,373,229 |
|
Franklin Templeton Variable Insurance Products Trust Foreign Securities Fund (113,030.75 units at $14.62 per unit) |
|
$ |
1,652,557 |
|
Franklin Templeton Variable Insurance Products Trust Global Real Estate Fund (69,900.59 units at $14.89 per unit) |
|
$ |
1,041,157 |
|
Franklin Templeton Variable Insurance Products Trust Mutual Global Discovery Fund (49,217.96 units at $18.33 per unit) |
|
$ |
902,091 |
|
The accompanying notes are an integral part of these financial statements.
NATIONAL VARIABLE ANNUITY ACCOUNT II
(A Separate Account of National Life Insurance Company)
STATEMENTS OF NET ASSETS
December 31, 2015
|
Total Assets and Net Assets: |
|
|
| |
|
Investments in shares of mutual fund portfolios at market value: |
|
|
| |
|
|
|
|
| |
|
Franklin Templeton Variable Insurance Products Trust Mutual Shares Securities Fund (53,860.93 units at $16.59 per unit) |
|
$ |
893,326 |
|
|
Franklin Templeton Variable Insurance Products Trust Small Cap Value Securities Fund (17,096.11 units at $20.52 per unit) |
|
$ |
350,727 |
|
|
Franklin Templeton Variable Insurance Products Trust Small-Midcap Growth Fund (16,814.56 units at $19.12 per unit) |
|
$ |
321,530 |
|
|
Franklin Templeton Variable Insurance Products Trust US Government Securities Fund (70,003.99 units at $11.18 per unit) |
|
$ |
782,320 |
|
|
Invesco V.I. Global Health Care Fund (100,481.08 units at $20.75 per unit) |
|
$ |
2,085,016 |
|
|
Invesco V.I. Mid Cap Growth Fund (49,996.20 units at $14.06 per unit) |
|
$ |
702,833 |
|
|
Invesco V.I. Technology Fund (152,182.01 units at $7.23 per unit) |
|
$ |
1,099,768 |
|
|
JP Morgan Insurance Trust Small Cap Core Portfolio (27,255.65 units at $25.17 per unit) |
|
$ |
685,976 |
|
|
Neuberger Berman Advisors Management Trust Mid Cap Growth Portfolio (29,610.05 units at $24.79 per unit) |
|
$ |
734,133 |
|
|
Neuberger Berman Advisors Management Trust Large Cap Value Portfolio (59,651.72 units at $16.84 per unit) |
|
$ |
1,004,553 |
|
|
Neuberger Berman Advisors Management Trust Short Duration Bond Portfolio (424,356.87 units at $10.41 per unit) |
|
$ |
4,417,502 |
|
(1) |
Neuberger Berman Advisors Management Trust Small Cap Growth Portfolio (0.00 units at $0.00 per unit) |
|
$ |
|
|
(1) |
Neuberger Berman Advisors Management Trust Mid Cap Growth Class S Portfolio (48,381.17 units at $9.58 per unit) |
|
$ |
463,441 |
|
|
Neuberger Berman Advisors Management Trust Socially Responsive Portfolio (1,487.39 units at $23.71 per unit) |
|
$ |
35,269 |
|
(2) |
Oppenheimer Variable Products Conservative Balanced Fund (12,672.62 units at $17.25 per unit) |
|
$ |
218,544 |
|
|
Oppenheimer Variable Products Main Street Small Cap Fund (6,675.96 units at $27.71 per unit) |
|
$ |
185,007 |
|
|
Oppenheimer Variable Products Global Strategic Income Fund (78,625.08 units at $14.70 per unit) |
|
$ |
1,156,032 |
|
|
Sentinel Variable Products Trust Balanced Fund (409,741.86 units at $22.31 per unit) |
|
$ |
9,139,682 |
|
|
Sentinel Variable Products Trust Bond Fund (459,655.92 units at $19.64 per unit) |
|
$ |
9,027,832 |
|
|
Sentinel Variable Products Trust Common Stock Fund (624,066.48 units at $27.28 per unit) |
|
$ |
17,023,515 |
|
|
Sentinel Variable Products Trust Mid Cap Fund (193,980.56 units at $23.41 per unit) |
|
$ |
4,541,102 |
|
|
Sentinel Variable Products Trust Small Company Fund (265,364.55 units at $50.24 per unit) |
|
$ |
13,331,894 |
|
|
T Rowe Price Equity Series Blue Chip Growth Portfolio (97,695.95 units at $23.02 per unit) |
|
$ |
2,249,123 |
|
|
T Rowe Price Equity Series Equity Income Portfolio (281,582.16 units at $16.64 per unit) |
|
$ |
4,685,340 |
|
|
T Rowe Price Equity Series Health Sciences Portfolio (53,736.03 units at $44.24 per unit) |
|
$ |
2,377,025 |
|
|
T Rowe Price Equity Series Personal Strategy Balanced Portfolio (19,644.33 units at $20.00 per unit) |
|
$ |
392,804 |
|
(3) |
Van Eck VIP Trust Unconstrained Emerging Markets Bond Portfolio (149,112.19 units at $10.00 per unit) |
|
$ |
1,490,529 |
|
|
Van Eck VIP Trust Emerging Markets Portfolio (62,696.96 units at $23.83 per unit) |
|
$ |
1,494,249 |
|
|
Van Eck VIP Trust Global Hard Assets Portfolio (121,903.51 units at $9.43 per unit) |
|
$ |
1,149,628 |
|
|
Wells Fargo VT Discovery Fund (74,617.28 units at $34.48 per unit) |
|
$ |
2,572,834 |
|
|
Wells Fargo VT Opportunity Fund (67,928.88 units at $34.93 per unit) |
|
$ |
2,372,869 |
|
(1) On November 6, 2015, Neuberger Berman Advisors Management Trust Small Cap Growth Portfolio was merged into Neuberger Berman Advisors Management Trust Mid Cap Growth Class S Portfolio
(2) During 2015, Oppenheimer Variable Products Capital Income Fund was renamed Oppenheimer Variable Products Conservative Balanced Fund
(3) During 2015, Van Eck VIP Trust Global Bond Portfolio was renamed Van Eck VIP Trust Unconstrained Emerging Markets Bond Portfolio
The accompanying notes are an integral part of these financial statements.
NATIONAL VARIABLE ANNUITY ACCOUNT II
(A Separate Account of National Life Insurance Company)
STATEMENTS OF OPERATIONS
FOR THE YEAR ENDED DECEMBER 31, 2015
|
|
Alger American Fund |
|
AllianceBernstein Variable Products |
| |||||||||||||||||
|
|
Capital |
|
LargeCap |
|
Small Cap |
|
International |
|
International |
|
Small/Mid Cap |
|
VPS |
| |||||||
|
|
Appreciation |
|
Growth |
|
Growth |
|
Growth |
|
Value |
|
Value |
|
Value |
| |||||||
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| |||||||
Investment income: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| |||||||
Dividend income |
|
$ |
1,892 |
|
$ |
|
|
$ |
|
|
$ |
1,223 |
|
$ |
65,815 |
|
$ |
17,833 |
|
$ |
1,571 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| |||||||
Expenses: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| |||||||
Mortality and expense risk and administrative charges |
|
33,386 |
|
145,928 |
|
23,441 |
|
4,895 |
|
42,697 |
|
31,815 |
|
958 |
| |||||||
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| |||||||
Net investment (loss) gain |
|
(31,494 |
) |
(145,928 |
) |
(23,441 |
) |
(3,672 |
) |
23,118 |
|
(13,982 |
) |
613 |
| |||||||
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| |||||||
Realized and unrealized gain(loss) on investments |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| |||||||
Capital gains distributions |
|
250,888 |
|
987,919 |
|
429,226 |
|
|
|
|
|
362,464 |
|
|
| |||||||
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| |||||||
Net realized gain from shares sold |
|
176,849 |
|
1,421,413 |
|
24,102 |
|
7,925 |
|
137,277 |
|
250,195 |
|
5,976 |
| |||||||
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| |||||||
Net unrealized (depreciation) appreciation on investments |
|
(282,757 |
) |
(2,141,469 |
) |
(496,440 |
) |
(14,950 |
) |
(96,577 |
) |
(743,211 |
) |
(12,340 |
) | |||||||
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| |||||||
Net realized and unrealized gain (loss) on investments |
|
144,980 |
|
267,863 |
|
(43,112 |
) |
(7,025 |
) |
40,700 |
|
(130,552 |
) |
(6,364 |
) | |||||||
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| |||||||
Increase (decrease) in net assets resulting from operations |
|
$ |
113,486 |
|
$ |
121,935 |
|
$ |
(66,553 |
) |
$ |
(10,697 |
) |
$ |
63,818 |
|
$ |
(144,534 |
) |
$ |
(5,751 |
) |
The accompanying notes are an integral part of these financial statements.
NATIONAL VARIABLE ANNUITY ACCOUNT II
(A Separate Account of National Life Insurance Company)
STATEMENTS OF OPERATIONS
FOR THE YEAR ENDED DECEMBER 31, 2015
|
|
American Century Variable Products |
| |||||||||||||
|
|
Income & |
|
Inflation |
|
|
|
|
|
|
| |||||
|
|
Growth |
|
Protection |
|
International |
|
Ultra |
|
Value |
| |||||
|
|
|
|
|
|
|
|
|
|
|
| |||||
Investment income: |
|
|
|
|
|
|
|
|
|
|
| |||||
Dividend income |
|
$ |
46,056 |
|
$ |
41,352 |
|
$ |
18,358 |
|
$ |
164 |
|
$ |
90,695 |
|
|
|
|
|
|
|
|
|
|
|
|
| |||||
Expenses: |
|
|
|
|
|
|
|
|
|
|
| |||||
Mortality and expense risk and administrative charges |
|
30,625 |
|
24,247 |
|
65,309 |
|
620 |
|
59,843 |
| |||||
|
|
|
|
|
|
|
|
|
|
|
| |||||
Net investment gain (loss) |
|
15,431 |
|
17,105 |
|
(46,951 |
) |
(456 |
) |
30,852 |
| |||||
|
|
|
|
|
|
|
|
|
|
|
| |||||
Realized and unrealized (loss)gain on investments |
|
|
|
|
|
|
|
|
|
|
| |||||
Capital gains distributions |
|
187,213 |
|
|
|
|
|
3,530 |
|
|
| |||||
|
|
|
|
|
|
|
|
|
|
|
| |||||
Net realized gain (loss) from shares sold |
|
51,944 |
|
(59,682 |
) |
409,739 |
|
1,755 |
|
248,407 |
| |||||
|
|
|
|
|
|
|
|
|
|
|
| |||||
Net unrealized (depreciation) appreciation on investments |
|
(413,370 |
) |
(19,849 |
) |
(358,084 |
) |
(2,979 |
) |
(504,764 |
) | |||||
|
|
|
|
|
|
|
|
|
|
|
| |||||
Net realized and unrealized (loss) gain on investments |
|
(174,213 |
) |
(79,531 |
) |
51,655 |
|
2,306 |
|
(256,357 |
) | |||||
|
|
|
|
|
|
|
|
|
|
|
| |||||
(Decrease) increase in net assets resulting from operations |
|
$ |
(158,782 |
) |
$ |
(62,426 |
) |
$ |
4,704 |
|
$ |
1,850 |
|
$ |
(225,505 |
) |
The accompanying notes are an integral part of these financial statements.
NATIONAL VARIABLE ANNUITY ACCOUNT II
(A Separate Account of National Life Insurance Company)
STATEMENTS OF OPERATIONS
FOR THE YEAR ENDED DECEMBER 31, 2015
|
|
Deutsche Variable Series II |
|
Dreyfus Variable Investment Fund |
| |||||||||||||||||
|
|
Small Mid Cap |
|
Large Cap |
|
Small |
|
|
|
Opportunistic |
|
Quality |
|
Socially |
| |||||||
|
|
Value (2) |
|
Value (3) |
|
Cap Index (4) |
|
Appreciation |
|
Small Cap |
|
Bond |
|
Responsible |
| |||||||
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| |||||||
Investment income: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| |||||||
Dividend income |
|
$ |
|
|
$ |
3,763 |
|
$ |
770 |
|
$ |
8,221 |
|
$ |
|
|
$ |
35,442 |
|
$ |
4,803 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| |||||||
Expenses: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| |||||||
Mortality and expense risk and administrative charges |
|
25,251 |
|
4,670 |
|
1,151 |
|
6,854 |
|
5,474 |
|
24,262 |
|
6,175 |
| |||||||
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| |||||||
Net investment (loss) gain |
|
(25,251 |
) |
(907 |
) |
(381 |
) |
1,367 |
|
(5,474 |
) |
11,180 |
|
(1,372 |
) | |||||||
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| |||||||
Realized and unrealized (loss)gain on investments |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| |||||||
Capital gains distributions |
|
161,744 |
|
14,743 |
|
5,547 |
|
24,445 |
|
5,968 |
|
|
|
60,259 |
| |||||||
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| |||||||
Net realized gain from shares sold |
|
269,061 |
|
5,840 |
|
1,497 |
|
36,599 |
|
11,837 |
|
2,229 |
|
18,406 |
| |||||||
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| |||||||
Net unrealized (depreciation) appreciation on investments |
|
(451,272 |
) |
(48,259 |
) |
(11,879 |
) |
(79,100 |
) |
(24,594 |
) |
(66,131 |
) |
(97,942 |
) | |||||||
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| |||||||
Net realized and unrealized (loss) gain on investments |
|
(20,467 |
) |
(27,676 |
) |
(4,835 |
) |
(18,056 |
) |
(6,789 |
) |
(63,902 |
) |
(19,277 |
) | |||||||
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| |||||||
(Decrease) increase in net assets resulting from operations |
|
$ |
(45,718 |
) |
$ |
(28,583 |
) |
$ |
(5,216 |
) |
$ |
(16,689 |
) |
$ |
(12,263 |
) |
$ |
(52,722 |
) |
$ |
(20,649 |
) |
The accompanying notes are an integral part of these financial statements.
NATIONAL VARIABLE ANNUITY ACCOUNT II
(A Separate Account of National Life Insurance Company)
STATEMENTS OF OPERATIONS
FOR THE YEAR ENDED DECEMBER 31, 2015
|
|
Fidelity Variable Insurance Product Funds |
| ||||||||||||||||||||||||||||
|
|
Equity |
|
|
|
High |
|
|
|
|
|
|
|
|
|
III Value |
|
V Investment |
|
V Money |
| ||||||||||
|
|
Income |
|
Growth |
|
Income |
|
Overseas |
|
II Contrafund |
|
II Index 500 |
|
III Mid Cap |
|
Strategies |
|
Grade Bond |
|
Market |
| ||||||||||
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| ||||||||||
Investment income: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| ||||||||||
Dividend income |
|
$ |
170,154 |
|
$ |
13,183 |
|
$ |
227,635 |
|
$ |
49,893 |
|
$ |
89,626 |
|
$ |
215,020 |
|
$ |
17,793 |
|
$ |
2,714 |
|
$ |
160,642 |
|
$ |
754 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| ||||||||||
Expenses: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| ||||||||||
Mortality and expense risk and administrative charges |
|
79,054 |
|
75,791 |
|
51,403 |
|
54,148 |
|
126,817 |
|
151,532 |
|
52,921 |
|
3,170 |
|
93,375 |
|
104,961 |
| ||||||||||
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| ||||||||||
Net investment gain (loss) |
|
91,100 |
|
(62,608 |
) |
176,232 |
|
(4,255 |
) |
(37,191 |
) |
63,488 |
|
(35,128 |
) |
(456 |
) |
67,267 |
|
(104,207 |
) | ||||||||||
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| ||||||||||
Realized and unrealized (loss)gain on investments |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| ||||||||||
Capital gains distributions |
|
544,036 |
|
176,931 |
|
|
|
3,682 |
|
818,609 |
|
7,073 |
|
464,770 |
|
177 |
|
5,519 |
|
|
| ||||||||||
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| ||||||||||
Net realized gain from shares sold |
|
24,348 |
|
520,944 |
|
46,877 |
|
137,322 |
|
392,297 |
|
533,894 |
|
274,929 |
|
6,650 |
|
35,839 |
|
|
| ||||||||||
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| ||||||||||
Net unrealized (depreciation) appreciation on investments |
|
(948,645 |
) |
(322,020 |
) |
(388,282 |
) |
(43,309 |
) |
(1,229,649 |
) |
(605,886 |
) |
(783,072 |
) |
(19,280 |
) |
(236,311 |
) |
|
| ||||||||||
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| ||||||||||
Net realized and unrealized (loss) gain on investments |
|
(380,261 |
) |
375,855 |
|
(341,405 |
) |
97,695 |
|
(18,743 |
) |
(64,919 |
) |
(43,373 |
) |
(12,453 |
) |
(194,953 |
) |
|
| ||||||||||
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| ||||||||||
(Decrease) increase in net assets resulting from operations |
|
$ |
(289,161 |
) |
$ |
313,247 |
|
$ |
(165,173 |
) |
$ |
93,440 |
|
$ |
(55,934 |
) |
$ |
(1,431 |
) |
$ |
(78,501 |
) |
$ |
(12,909 |
) |
$ |
(127,686 |
) |
$ |
(104,207 |
) |
The accompanying notes are an integral part of these finanical statements.
NATIONAL VARIABLE ANNUITY ACCOUNT II
(A Separate Account of National Life Insurance Company)
STATEMENTS OF OPERATIONS
FOR THE YEAR ENDED DECEMBER 31, 2015
|
|
Franklin Templeton Variable Insurance Products Trust |
| |||||||||||||||||||
|
|
Foreign |
|
Global |
|
Mutual Global |
|
Mutual Shares |
|
Small Cap |
|
Small-Midcap |
|
US |
| |||||||
|
|
Securities |
|
Real Estate |
|
Discovery |
|
Securities |
|
Value |
|
Growth |
|
Government |
| |||||||
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| |||||||
Investment income: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| |||||||
Dividend income |
|
$ |
63,319 |
|
$ |
32,690 |
|
$ |
28,061 |
|
$ |
30,084 |
|
$ |
2,744 |
|
$ |
|
|
$ |
25,153 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| |||||||
Expenses: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| |||||||
Mortality and expense risk and administrative charges |
|
27,213 |
|
14,328 |
|
12,634 |
|
13,741 |
|
5,771 |
|
4,979 |
|
12,456 |
| |||||||
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| |||||||
Net investment gain (loss) |
|
36,106 |
|
18,362 |
|
15,427 |
|
16,343 |
|
(3,027 |
) |
(4,979 |
) |
12,697 |
| |||||||
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| |||||||
Realized and unrealized (loss)gain on investments |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| |||||||
Capital gains distributions |
|
64,673 |
|
|
|
51,750 |
|
66,378 |
|
63,112 |
|
86,657 |
|
|
| |||||||
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| |||||||
Net realized gain (loss) from shares sold |
|
81,033 |
|
51,403 |
|
6,500 |
|
37,561 |
|
27,597 |
|
4,617 |
|
(11,741 |
) | |||||||
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| |||||||
Net unrealized (depreciation) appreciation on investments |
|
(315,362 |
) |
(77,935 |
) |
(122,168 |
) |
(179,454 |
) |
(122,555 |
) |
(99,377 |
) |
(6,729 |
) | |||||||
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| |||||||
Net realized and unrealized (loss) gain on investments |
|
(169,656 |
) |
(26,532 |
) |
(63,918 |
) |
(75,515 |
) |
(31,846 |
) |
(8,103 |
) |
(18,470 |
) | |||||||
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| |||||||
(Decrease) increase in net assets resulting from operations |
|
$ |
(133,550 |
) |
$ |
(8,170 |
) |
$ |
(48,491 |
) |
$ |
(59,172 |
) |
$ |
(34,873 |
) |
$ |
(13,082 |
) |
$ |
(5,773 |
) |
The accompanying notes are an integral part of these financial statements.
NATIONAL VARIABLE ANNUITY ACCOUNT II
(A Separate Account of National Life Insurance Company)
STATEMENTS OF OPERATIONS
FOR THE YEAR ENDED DECEMBER 31, 2015
|
|
Invesco V.I. Funds |
|
JP Morgan |
| ||||||||
|
|
Global Health |
|
Mid Cap |
|
|
|
Small |
| ||||
|
|
Care |
|
Growth |
|
Technology |
|
Cap Core |
| ||||
|
|
|
|
|
|
|
|
|
| ||||
Investment income: |
|
|
|
|
|
|
|
|
| ||||
Dividend income |
|
$ |
|
|
$ |
|
|
$ |
|
|
$ |
977 |
|
|
|
|
|
|
|
|
|
|
| ||||
Expenses: |
|
|
|
|
|
|
|
|
| ||||
Mortality and expense risk and administrative charges |
|
31,712 |
|
10,554 |
|
15,283 |
|
9,814 |
| ||||
|
|
|
|
|
|
|
|
|
| ||||
Net investment (loss) gain |
|
(31,712 |
) |
(10,554 |
) |
(15,283 |
) |
(8,837 |
) | ||||
|
|
|
|
|
|
|
|
|
| ||||
Realized and unrealized gain(loss) on investments |
|
|
|
|
|
|
|
|
| ||||
Capital gains distributions |
|
184,060 |
|
56,488 |
|
110,024 |
|
68,984 |
| ||||
|
|
|
|
|
|
|
|
|
| ||||
Net realized gain from shares sold |
|
273,639 |
|
26,823 |
|
38,329 |
|
40,310 |
| ||||
|
|
|
|
|
|
|
|
|
| ||||
Net unrealized (depreciation) appreciation on investments |
|
(363,041 |
) |
(72,605 |
) |
(78,575 |
) |
(146,597 |
) | ||||
|
|
|
|
|
|
|
|
|
| ||||
Net realized and unrealized gain (loss) on investments |
|
94,658 |
|
10,706 |
|
69,778 |
|
(37,303 |
) | ||||
|
|
|
|
|
|
|
|
|
| ||||
Increase (decrease) in net assets resulting from operations |
|
$ |
62,946 |
|
$ |
152 |
|
$ |
54,495 |
|
$ |
(46,140 |
) |
The accompanying notes are an integral part of these finanical statements.
NATIONAL VARIABLE ANNUITY ACCOUNT II
(A Separate Account of National Life Insurance Company)
STATEMENTS OF OPERATIONS
FOR THE YEAR ENDED DECEMBER 31, 2015
|
|
Neuberger Berman Advisors Management Trust |
|
Oppenheimer Variable Products |
| |||||||||||||||||||||||
|
|
Mid Cap |
|
Large Cap |
|
Short |
|
Small Cap |
|
Mid Cap Growth |
|
Socially |
|
Conservative |
|
Main Street |
|
Global Strategic |
| |||||||||
|
|
Growth |
|
Value |
|
Duration Bond |
|
Growth (1) |
|
Class S (1) |
|
Responsive |
|
Balanced (2) |
|
Small Cap |
|
Income |
| |||||||||
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| |||||||||
Investment income: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| |||||||||
Dividend income |
|
$ |
|
|
$ |
8,838 |
|
$ |
69,603 |
|
$ |
|
|
$ |
|
|
$ |
247 |
|
$ |
3,828 |
|
$ |
1,255 |
|
$ |
74,365 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| |||||||||
Expenses: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| |||||||||
Mortality and expense risk and administrative charges |
|
10,251 |
|
16,320 |
|
69,997 |
|
6,530 |
|
1,007 |
|
414 |
|
2,365 |
|
2,557 |
|
17,803 |
| |||||||||
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| |||||||||
Net investment (loss) gain |
|
(10,251 |
) |
(7,482 |
) |
(394 |
) |
(6,530 |
) |
(1,007 |
) |
(167 |
) |
1,463 |
|
(1,302 |
) |
56,562 |
| |||||||||
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| |||||||||
Realized and unrealized gain(loss) on investments |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| |||||||||
Capital gains distributions |
|
59,548 |
|
89,316 |
|
|
|
74,050 |
|
|
|
3,901 |
|
|
|
29,061 |
|
|
| |||||||||
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| |||||||||
Net realized gain (loss) from shares sold |
|
1,918 |
|
44,297 |
|
(149,601 |
) |
146,680 |
|
(531 |
) |
(355 |
) |
825 |
|
3,177 |
|
(25,252 |
) | |||||||||
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| |||||||||
Net unrealized (depreciation) appreciation on investments |
|
(52,807 |
) |
(283,022 |
) |
91,537 |
|
(225,719 |
) |
(18,287 |
) |
(5,206 |
) |
(6,315 |
) |
(46,758 |
) |
(82,730 |
) | |||||||||
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| |||||||||
Net realized and unrealized gain (loss) on investments |
|
8,659 |
|
(149,409 |
) |
(58,064 |
) |
(4,989 |
) |
(18,818 |
) |
(1,660 |
) |
(5,490 |
) |
(14,520 |
) |
(107,982 |
) | |||||||||
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| |||||||||
(Decrease) increase in net assets resulting from operations |
|
$ |
(1,592 |
) |
$ |
(156,891 |
) |
$ |
(58,458 |
) |
$ |
(11,519 |
) |
$ |
(19,825 |
) |
$ |
(1,827 |
) |
$ |
(4,027 |
) |
$ |
(15,822 |
) |
$ |
(51,420 |
) |
(1) On November 6, 2015, Neuberger Berman Advisors Management Trust Small Cap Growth Portfolio was merged into Neuberger Berman Advisors Management Trust Mid Cap Growth Class S Portfolio
(2) During 2015, Oppenheimer Variable Products Capital Income Fund was renamed Oppenheimer Variable Products Conservative Balanced Fund
The accompanying notes are an integral part of these financial statements.
NATIONAL VARIABLE ANNUITY ACCOUNT II
(A Separate Account of National Life Insurance Company)
STATEMENTS OF OPERATIONS
FOR THE YEAR ENDED DECEMBER 31, 2015
|
|
Sentinel Variable Products Trust |
| |||||||||||||
|
|
|
|
|
|
Common |
|
|
|
Small |
| |||||
|
|
Balanced |
|
Bond |
|
Stock |
|
Mid Cap |
|
Company |
| |||||
|
|
|
|
|
|
|
|
|
|
|
| |||||
Investment income: |
|
|
|
|
|
|
|
|
|
|
| |||||
Dividend income |
|
$ |
167,807 |
|
$ |
300,637 |
|
$ |
476,551 |
|
$ |
10,043 |
|
$ |
|
|
|
|
|
|
|
|
|
|
|
|
|
| |||||
Expenses: |
|
|
|
|
|
|
|
|
|
|
| |||||
Mortality and expense risk and administrative charges |
|
130,738 |
|
144,005 |
|
267,291 |
|
73,032 |
|
214,509 |
| |||||
|
|
|
|
|
|
|
|
|
|
|
| |||||
Net investment gain (loss) |
|
37,069 |
|
156,632 |
|
209,260 |
|
(62,989 |
) |
(214,509 |
) | |||||
|
|
|
|
|
|
|
|
|
|
|
| |||||
Realized and unrealized (loss)gain on investments |
|
|
|
|
|
|
|
|
|
|
| |||||
Capital gains distributions |
|
490,621 |
|
|
|
1,742,838 |
|
384,268 |
|
2,222,207 |
| |||||
|
|
|
|
|
|
|
|
|
|
|
| |||||
Net realized gain (loss) from shares sold |
|
127,683 |
|
(91,373 |
) |
1,298,284 |
|
370,716 |
|
523,233 |
| |||||
|
|
|
|
|
|
|
|
|
|
|
| |||||
Net unrealized (depreciation) appreciation on investments |
|
(789,632 |
) |
(322,382 |
) |
(3,467,100 |
) |
(772,338 |
) |
(2,826,511 |
) | |||||
|
|
|
|
|
|
|
|
|
|
|
| |||||
Net realized and unrealized (loss) gain on investments |
|
(171,328 |
) |
(413,755 |
) |
(425,978 |
) |
(17,354 |
) |
(81,071 |
) | |||||
|
|
|
|
|
|
|
|
|
|
|
| |||||
(Decrease) increase in net assets resulting from operations |
|
$ |
(134,259 |
) |
$ |
(257,123 |
) |
$ |
(216,718 |
) |
$ |
(80,343 |
) |
$ |
(295,580 |
) |
The accompanying notes are an integral part of these financial statements.
NATIONAL VARIABLE ANNUITY ACCOUNT II
(A Separate Account of National Life Insurance Company)
STATEMENTS OF OPERATIONS
FOR THE YEAR ENDED DECEMBER 31, 2015
|
|
T Rowe Price Equity Services |
|
Van Eck VIPT |
|
Wells Fargo Variable Trust Funds |
| |||||||||||||||||||||
|
|
Blue Chip |
|
Equity |
|
Health |
|
Personal |
|
Unconstrained |
|
Emerging |
|
Global Hard |
|
|
|
|
| |||||||||
|
|
Growth |
|
Income |
|
Sciences |
|
Strategy |
|
Emerging Markets (3) |
|
Markets |
|
Assets |
|
Discovery |
|
Opportunity |
| |||||||||
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| |||||||||
Investment income: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| |||||||||
Dividend income |
|
$ |
|
|
$ |
86,307 |
|
$ |
|
|
$ |
7,654 |
|
$ |
115,323 |
|
$ |
10,177 |
|
$ |
387 |
|
$ |
|
|
$ |
3,571 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| |||||||||
Expenses: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| |||||||||
Mortality and expense risk and administrative charges |
|
30,743 |
|
78,944 |
|
36,547 |
|
6,223 |
|
24,294 |
|
25,342 |
|
19,994 |
|
39,668 |
|
38,414 |
| |||||||||
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| |||||||||
Net investment (loss) gain |
|
(30,743 |
) |
7,363 |
|
(36,547 |
) |
1,431 |
|
91,029 |
|
(15,165 |
) |
(19,607 |
) |
(39,668 |
) |
(34,843 |
) | |||||||||
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| |||||||||
Realized and unrealized gain(loss) on investments |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| |||||||||
Capital gains distributions |
|
|
|
107,326 |
|
179,523 |
|
28,468 |
|
|
|
100,419 |
|
|
|
421,328 |
|
285,879 |
| |||||||||
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| |||||||||
Net realized gain (loss) from shares sold |
|
215,145 |
|
707,898 |
|
436,675 |
|
9,886 |
|
(170,031 |
) |
38,591 |
|
(74,143 |
) |
132,345 |
|
157,308 |
| |||||||||
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| |||||||||
Net unrealized appreciation (depreciation) on investments |
|
8,326 |
|
(1,329,993 |
) |
(281,873 |
) |
(44,740 |
) |
(191,587 |
) |
(399,325 |
) |
(488,059 |
) |
(579,321 |
) |
(524,718 |
) | |||||||||
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| |||||||||
Net realized and unrealized gain (loss) on investments |
|
223,471 |
|
(514,769 |
) |
334,325 |
|
(6,386 |
) |
(361,618 |
) |
(260,315 |
) |
(562,202 |
) |
(25,648 |
) |
(81,531 |
) | |||||||||
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| |||||||||
Increase (decrease) in net assets resulting from operations |
|
$ |
192,728 |
|
$ |
(507,406 |
) |
$ |
297,778 |
|
$ |
(4,955 |
) |
$ |
(270,589 |
) |
$ |
(275,480 |
) |
$ |
(581,809 |
) |
$ |
(65,316 |
) |
$ |
(116,374 |
) |
(3) During 2015, Van Eck VIP Trust Global Bond Portfolio was renamed Van Eck VIP Trust Unconstrained Emerging Markets Bond Portfolio
The accompanying notes are an integral part of these financial statements.
NATIONAL VARIABLE ANNUITY ACCOUNT II
(A Separate Account of National Life Insurance Company)
STATEMENTS OF CHANGES IN NET ASSETS
FOR THE YEAR ENDED DECEMBER 31, 2015
|
|
Alger American Fund |
|
AllianceBernstein Variable Products |
| |||||||||||||||||
|
|
Capital |
|
Large Cap |
|
Small Cap |
|
International |
|
International |
|
Small/Mid Cap |
|
VPS |
| |||||||
|
|
Appreciation |
|
Growth |
|
Growth |
|
Growth |
|
Value |
|
Value |
|
Value |
| |||||||
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| |||||||
Net investment (loss) gain |
|
$ |
(31,494 |
) |
$ |
(145,928 |
) |
$ |
(23,441 |
) |
$ |
(3,672 |
) |
$ |
23,118 |
|
$ |
(13,982 |
) |
$ |
613 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| |||||||
Realized and unrealized gain (loss) on investments |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| |||||||
Capital gains distributions |
|
250,888 |
|
987,919 |
|
429,226 |
|
|
|
|
|
362,464 |
|
|
| |||||||
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| |||||||
Net realized gain from shares sold |
|
176,849 |
|
1,421,413 |
|
24,102 |
|
7,925 |
|
137,277 |
|
250,195 |
|
5,976 |
| |||||||
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| |||||||
Net unrealized (depreciation) appreciation on investments |
|
(282,757 |
) |
(2,141,469 |
) |
(496,440 |
) |
(14,950 |
) |
(96,577 |
) |
(743,211 |
) |
(12,340 |
) | |||||||
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| |||||||
Net realized and unrealized gain (loss) on investments |
|
144,980 |
|
267,863 |
|
(43,112 |
) |
(7,025 |
) |
40,700 |
|
(130,552 |
) |
(6,364 |
) | |||||||
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| |||||||
Increase (decrease) in net assets resulting from operations |
|
113,486 |
|
121,935 |
|
(66,553 |
) |
(10,697 |
) |
63,818 |
|
(144,534 |
) |
(5,751 |
) | |||||||
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| |||||||
Accumulation unit transactions: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| |||||||
Participant deposits |
|
104,789 |
|
67,980 |
|
28,723 |
|
9,652 |
|
34,959 |
|
52,069 |
|
126 |
| |||||||
Transfers between investment sub-accounts and general account, net |
|
95,331 |
|
(615,219 |
) |
(13,959 |
) |
21,403 |
|
(41,271 |
) |
(64,386 |
) |
(9,052 |
) | |||||||
Net surrenders and lapses |
|
(372,863 |
) |
(1,965,545 |
) |
(232,552 |
) |
(74,845 |
) |
(803,675 |
) |
(600,293 |
) |
(14,199 |
) | |||||||
Contract benefits |
|
(1,143 |
) |
(32,686 |
) |
|
|
|
|
(14,316 |
) |
(11,089 |
) |
|
| |||||||
Loan collateral interest received |
|
76 |
|
81 |
|
|
|
|
|
|
|
|
|
|
| |||||||
Transfers for policy loans |
|
549 |
|
(122 |
) |
|
|
|
|
|
|
|
|
|
| |||||||
Contract charges |
|
(2,022 |
) |
(4,655 |
) |
(1,347 |
) |
(167 |
) |
(713 |
) |
(498 |
) |
(61 |
) | |||||||
Other |
|
99 |
|
(145 |
) |
298 |
|
(186 |
) |
438 |
|
(119 |
) |
(17 |
) | |||||||
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| |||||||
Total net accumulation unit transactions |
|
(175,184 |
) |
(2,550,311 |
) |
(218,837 |
) |
(44,143 |
) |
(824,578 |
) |
(624,316 |
) |
(23,203 |
) | |||||||
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| |||||||
(Decrease) increase in net assets |
|
(61,698 |
) |
(2,428,376 |
) |
(285,390 |
) |
(54,840 |
) |
(760,760 |
) |
(768,850 |
) |
(28,954 |
) | |||||||
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| |||||||
Net assets, beginning of period |
|
$ |
2,342,719 |
|
$ |
11,217,366 |
|
$ |
1,758,849 |
|
$ |
374,289 |
|
$ |
3,222,974 |
|
$ |
2,577,288 |
|
$ |
79,493 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| |||||||
Net assets, end of period |
|
$ |
2,281,021 |
|
$ |
8,788,990 |
|
$ |
1,473,459 |
|
$ |
319,449 |
|
$ |
2,462,214 |
|
$ |
1,808,438 |
|
$ |
50,539 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| |||||||
Units Issued, Transferred and Redeemed: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| |||||||
Beginning balance |
|
112,315.35 |
|
449,161.67 |
|
82,773.20 |
|
22,159.27 |
|
222,237.21 |
|
87,317.22 |
|
3,645.24 |
| |||||||
Units issued |
|
4,719.40 |
|
2,620.92 |
|
1,318.46 |
|
572.13 |
|
2,307.34 |
|
1,800.07 |
|
6.08 |
| |||||||
Units transferred |
|
4,293.43 |
|
(23,719.29 |
) |
(640.76 |
) |
1,268.68 |
|
(2,723.94 |
) |
(2,225.88 |
) |
(436.84 |
) | |||||||
Units redeemed |
|
(16,902.62 |
) |
(77,226.87 |
) |
(10,722.91 |
) |
(4,457.43 |
) |
(54,006.68 |
) |
(21,157.38 |
) |
(688.99 |
) | |||||||
Ending balance |
|
104,425.56 |
|
350,836.43 |
|
72,727.99 |
|
19,542.65 |
|
167,813.93 |
|
65,734.03 |
|
2,525.49 |
|
The accompanying notes are an integral part of these financial statements.
NATIONAL VARIABLE ANNUITY ACCOUNT II
(A Separate Account of National Life Insurance Company)
STATEMENTS OF CHANGES IN NET ASSETS
FOR THE YEAR ENDED DECEMBER 31, 2015
|
|
American Century Variable Portfolios |
| |||||||||||||
|
|
Income & |
|
Inflation |
|
|
|
|
|
|
| |||||
|
|
Growth |
|
Protection |
|
International |
|
Ultra |
|
Value |
| |||||
|
|
|
|
|
|
|
|
|
|
|
| |||||
Net investment gain (loss) |
|
$ |
15,431 |
|
$ |
17,105 |
|
$ |
(46,951 |
) |
$ |
(456 |
) |
$ |
30,852 |
|
|
|
|
|
|
|
|
|
|
|
|
| |||||
Realized and unrealized (loss) gain on investments |
|
|
|
|
|
|
|
|
|
|
| |||||
Capital gains distributions |
|
187,213 |
|
|
|
|
|
3,530 |
|
|
| |||||
|
|
|
|
|
|
|
|
|
|
|
| |||||
Net realized gain (loss) from shares sold |
|
51,944 |
|
(59,682 |
) |
409,739 |
|
1,755 |
|
248,407 |
| |||||
|
|
|
|
|
|
|
|
|
|
|
| |||||
Net unrealized (depreciation) appreciation on investments |
|
(413,370 |
) |
(19,849 |
) |
(358,084 |
) |
(2,979 |
) |
(504,764 |
) | |||||
|
|
|
|
|
|
|
|
|
|
|
| |||||
Net realized and unrealized (loss) gain on investments |
|
(174,213 |
) |
(79,531 |
) |
51,655 |
|
2,306 |
|
(256,357 |
) | |||||
|
|
|
|
|
|
|
|
|
|
|
| |||||
(Decrease) increase in net assets resulting from operations |
|
(158,782 |
) |
(62,426 |
) |
4,704 |
|
1,850 |
|
(225,505 |
) | |||||
|
|
|
|
|
|
|
|
|
|
|
| |||||
Accumulation unit transactions: |
|
|
|
|
|
|
|
|
|
|
| |||||
Participant deposits |
|
26,019 |
|
37,046 |
|
64,027 |
|
4,072 |
|
19,013 |
| |||||
Transfers between investment sub-accounts and general account, net |
|
2,830 |
|
(11,767 |
) |
(9,018 |
) |
5,450 |
|
49,417 |
| |||||
Net surrenders and lapses |
|
(140,157 |
) |
(326,281 |
) |
(929,306 |
) |
(1,234 |
) |
(570,512 |
) | |||||
Contract benefits |
|
|
|
|
|
(29,842 |
) |
|
|
|
| |||||
Loan collateral interest received |
|
134 |
|
|
|
|
|
|
|
66 |
| |||||
Transfers for policy loans |
|
86 |
|
|
|
|
|
|
|
(151 |
) | |||||
Contract charges |
|
(1,027 |
) |
(1,036 |
) |
(1,361 |
) |
(26 |
) |
(2,556 |
) | |||||
Other |
|
73 |
|
(151 |
) |
281 |
|
66 |
|
(103 |
) | |||||
|
|
|
|
|
|
|
|
|
|
|
| |||||
Total net accumulation unit transactions |
|
(112,042 |
) |
(302,189 |
) |
(905,219 |
) |
8,328 |
|
(504,826 |
) | |||||
|
|
|
|
|
|
|
|
|
|
|
| |||||
(Decrease) increase in net assets |
|
(270,824 |
) |
(364,615 |
) |
(900,515 |
) |
10,178 |
|
(730,331 |
) | |||||
|
|
|
|
|
|
|
|
|
|
|
| |||||
Net assets, beginning of period |
|
$ |
2,344,897 |
|
$ |
1,899,438 |
|
$ |
4,864,742 |
|
$ |
37,547 |
|
$ |
4,588,931 |
|
|
|
|
|
|
|
|
|
|
|
|
| |||||
Net assets, end of period |
|
$ |
2,074,073 |
|
$ |
1,534,823 |
|
$ |
3,964,227 |
|
$ |
47,725 |
|
$ |
3,858,600 |
|
|
|
|
|
|
|
|
|
|
|
|
| |||||
Units Issued, Transferred and Redeemed: |
|
|
|
|
|
|
|
|
|
|
| |||||
Beginning balance |
|
120,194.70 |
|
138,329.77 |
|
287,465.79 |
|
2,116.13 |
|
159,512.97 |
| |||||
Units issued |
|
1,386.70 |
|
2,738.82 |
|
3,657.94 |
|
220.21 |
|
678.30 |
| |||||
Units transferred |
|
150.83 |
|
(869.94 |
) |
(515.21 |
) |
294.74 |
|
1,762.97 |
| |||||
Units redeemed |
|
(7,508.90 |
) |
(24,209.82 |
) |
(54,858.99 |
) |
(64.57 |
) |
(20,451.16 |
) | |||||
Ending balance |
|
114,223.33 |
|
115,988.83 |
|
235,749.53 |
|
2,566.51 |
|
141,503.08 |
|
The accompanying notes are an integral part of these financial statements.
NATIONAL VARIABLE ANNUITY ACCOUNT II
(A Separate Account of National Life Insurance Company)
STATEMENTS OF CHANGES IN NET ASSETS
FOR THE YEAR ENDED DECEMBER 31, 2015
|
|
Deutsche Variable Series II |
|
Dreyfus Variable Investment Fund |
| |||||||||||||||||
|
|
Small Mid Cap |
|
Large Cap |
|
Small |
|
|
|
Opportunistic |
|
Quality |
|
Socially |
| |||||||
|
|
Value |
|
Value |
|
Cap Index |
|
Appreciation |
|
Small Cap |
|
Bond |
|
Responsible |
| |||||||
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| |||||||
Net investment (loss) gain |
|
$ |
(25,251 |
) |
$ |
(907 |
) |
$ |
(381 |
) |
$ |
1,367 |
|
$ |
(5,474 |
) |
$ |
11,180 |
|
$ |
(1,372 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| |||||||
Realized and unrealized (loss) gain on investments |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| |||||||
Capital gains distributions |
|
161,744 |
|
14,743 |
|
5,547 |
|
24,445 |
|
5,968 |
|
|
|
60,259 |
| |||||||
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| |||||||
Net realized gain from shares sold |
|
269,061 |
|
5,840 |
|
1,497 |
|
36,599 |
|
11,837 |
|
2,229 |
|
18,406 |
| |||||||
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| |||||||
Net unrealized (depreciation) appreciation on investments |
|
(451,272 |
) |
(48,259 |
) |
(11,879 |
) |
(79,100 |
) |
(24,594 |
) |
(66,131 |
) |
(97,942 |
) | |||||||
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| |||||||
Net realized and unrealized (loss) gain on investments |
|
(20,467 |
) |
(27,676 |
) |
(4,835 |
) |
(18,056 |
) |
(6,789 |
) |
(63,902 |
) |
(19,277 |
) | |||||||
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| |||||||
(Decrease) increase in net assets resulting from operations |
|
(45,718 |
) |
(28,583 |
) |
(5,216 |
) |
(16,689 |
) |
(12,263 |
) |
(52,722 |
) |
(20,649 |
) | |||||||
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| |||||||
Accumulation unit transactions: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| |||||||
Participant deposits |
|
27,617 |
|
7,376 |
|
22,817 |
|
4,638 |
|
5,687 |
|
31,911 |
|
360 |
| |||||||
Transfers between investment sub-accounts and general account, net |
|
(18,223 |
) |
(10,703 |
) |
(521 |
) |
5,962 |
|
31,658 |
|
74,095 |
|
(27,792 |
) | |||||||
Net surrenders and lapses |
|
(443,890 |
) |
(7,271 |
) |
(3,924 |
) |
(87,892 |
) |
(20,597 |
) |
(165,924 |
) |
(19,590 |
) | |||||||
Contract benefits |
|
(32,630 |
) |
|
|
|
|
(23,564 |
) |
|
|
|
|
|
| |||||||
Loan collateral interest received |
|
70 |
|
70 |
|
|
|
|
|
|
|
|
|
|
| |||||||
Transfers for policy loans |
|
(163 |
) |
(121 |
) |
|
|
|
|
|
|
|
|
|
| |||||||
Contract charges |
|
(708 |
) |
(209 |
) |
(51 |
) |
(297 |
) |
(558 |
) |
(835 |
) |
(251 |
) | |||||||
Other |
|
199 |
|
60 |
|
(11 |
) |
(49 |
) |
|
|
701 |
|
1 |
| |||||||
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| |||||||
Total net accumulation unit transactions |
|
(467,728 |
) |
(10,798 |
) |
18,310 |
|
(101,202 |
) |
16,190 |
|
(60,052 |
) |
(47,272 |
) | |||||||
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| |||||||
(Decrease) increase in net assets |
|
(513,446 |
) |
(39,381 |
) |
13,094 |
|
(117,891 |
) |
3,927 |
|
(112,774 |
) |
(67,921 |
) | |||||||
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| |||||||
Net assets, beginning of period |
|
$ |
2,006,698 |
|
$ |
341,238 |
|
$ |
77,053 |
|
$ |
563,129 |
|
$ |
365,846 |
|
$ |
1,728,436 |
|
$ |
475,327 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| |||||||
Net assets, end of period |
|
$ |
1,493,252 |
|
$ |
301,857 |
|
$ |
90,147 |
|
$ |
445,238 |
|
$ |
369,773 |
|
$ |
1,615,662 |
|
$ |
407,406 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| |||||||
Units Issued, Transferred and Redeemed: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| |||||||
Beginning balance |
|
87,100.38 |
|
23,599.58 |
|
3,068.46 |
|
30,709.49 |
|
24,454.39 |
|
122,265.89 |
|
37,096.23 |
| |||||||
Units issued |
|
1,174.41 |
|
544.35 |
|
931.02 |
|
250.48 |
|
419.04 |
|
2,354.79 |
|
28.87 |
| |||||||
Units transferred |
|
(774.93 |
) |
(789.89 |
) |
(21.26 |
) |
321.98 |
|
2,332.66 |
|
5,467.64 |
|
(2,228.84 |
) | |||||||
Units redeemed |
|
(20,289.61 |
) |
(551.37 |
) |
(162.64 |
) |
(6,037.93 |
) |
(1,558.77 |
) |
(12,253.81 |
) |
(1,591.11 |
) | |||||||
Ending balance |
|
67,210.25 |
|
22,802.67 |
|
3,815.58 |
|
25,244.02 |
|
25,647.32 |
|
117,834.51 |
|
33,305.15 |
|
The accompanying notes are an integral part of these financial statements.
NATIONAL VARIABLE ANNUITY ACCOUNT II
(A Separate Account of National Life Insurance Company)
STATEMENTS OF CHANGES IN NET ASSETS
FOR THE YEAR ENDED DECEMBER 31, 2015
|
|
Fidelity Variable Insurance Products |
| ||||||||||||||||||||||||||||
|
|
Equity |
|
|
|
High |
|
|
|
|
|
|
|
|
|
III Value |
|
V Investment |
|
V Money |
| ||||||||||
|
|
Income |
|
Growth |
|
Income |
|
Overseas |
|
II Contrafund |
|
II Index 500 |
|
III Mid Cap |
|
Strategies |
|
Grade Bond |
|
Market |
| ||||||||||
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| ||||||||||
Net investment gain (loss) |
|
$ |
91,100 |
|
$ |
(62,608 |
) |
$ |
176,232 |
|
$ |
(4,255 |
) |
$ |
(37,191 |
) |
$ |
63,488 |
|
$ |
(35,128 |
) |
$ |
(456 |
) |
$ |
67,267 |
|
$ |
(104,207 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| ||||||||||
Realized and unrealized (loss) gain on investments |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| ||||||||||
Capital gains distributions |
|
544,036 |
|
176,931 |
|
|
|
3,682 |
|
818,609 |
|
7,073 |
|
464,770 |
|
177 |
|
5,519 |
|
|
| ||||||||||
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| ||||||||||
Net realized gain from shares sold |
|
24,348 |
|
520,944 |
|
46,877 |
|
137,322 |
|
392,297 |
|
533,894 |
|
274,929 |
|
6,650 |
|
35,839 |
|
|
| ||||||||||
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| ||||||||||
Net unrealized (depreciation) appreciation on investments |
|
(948,645 |
) |
(322,020 |
) |
(388,282 |
) |
(43,309 |
) |
(1,229,649 |
) |
(605,886 |
) |
(783,072 |
) |
(19,280 |
) |
(236,311 |
) |
|
| ||||||||||
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| ||||||||||
Net realized and unrealized (loss) gain on investments |
|
(380,261 |
) |
375,855 |
|
(341,405 |
) |
97,695 |
|
(18,743 |
) |
(64,919 |
) |
(43,373 |
) |
(12,453 |
) |
(194,953 |
) |
|
| ||||||||||
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| ||||||||||
(Decrease) increase in net assets resulting from operations |
|
(289,161 |
) |
313,247 |
|
(165,173 |
) |
93,440 |
|
(55,934 |
) |
(1,431 |
) |
(78,501 |
) |
(12,909 |
) |
(127,686 |
) |
(104,207 |
) | ||||||||||
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| ||||||||||
Accumulation unit transactions: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| ||||||||||
Participant deposits |
|
42,609 |
|
47,921 |
|
113,956 |
|
47,652 |
|
247,013 |
|
373,017 |
|
58,059 |
|
5,000 |
|
87,351 |
|
421,846 |
| ||||||||||
Transfers between investment sub-accounts and general account, net |
|
37,181 |
|
(69,612 |
) |
99,069 |
|
80,411 |
|
39,671 |
|
248,001 |
|
(55,733 |
) |
51,899 |
|
33,671 |
|
4,569,820 |
| ||||||||||
Net surrenders and lapses |
|
(756,766 |
) |
(912,350 |
) |
(547,479 |
) |
(583,064 |
) |
(1,238,110 |
) |
(974,058 |
) |
(546,703 |
) |
(24,694 |
) |
(1,067,075 |
) |
(2,796,331 |
) | ||||||||||
Contract benefits |
|
(25,149 |
) |
(6,020 |
) |
(7,665 |
) |
(1,033 |
) |
(9,589 |
) |
(314,919 |
) |
(17,770 |
) |
|
|
|
|
(58,236 |
) | ||||||||||
Loan collateral interest received |
|
|
|
199 |
|
248 |
|
48 |
|
66 |
|
116 |
|
|
|
|
|
76 |
|
312 |
| ||||||||||
Transfers for policy loans |
|
|
|
(355 |
) |
943 |
|
(91 |
) |
(159 |
) |
164 |
|
|
|
|
|
561 |
|
5,129 |
| ||||||||||
Contract charges |
|
(3,307 |
) |
(2,589 |
) |
(2,020 |
) |
(2,357 |
) |
(5,570 |
) |
(6,043 |
) |
(2,368 |
) |
(162 |
) |
(3,142 |
) |
(5,113 |
) | ||||||||||
Other |
|
1,729 |
|
(61 |
) |
446 |
|
1,599 |
|
2,483 |
|
423 |
|
(139 |
) |
608 |
|
478 |
|
521 |
| ||||||||||
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| ||||||||||
Total net accumulation unit transactions |
|
(703,703 |
) |
(942,867 |
) |
(342,502 |
) |
(456,835 |
) |
(964,195 |
) |
(673,299 |
) |
(564,654 |
) |
32,651 |
|
(948,080 |
) |
2,137,948 |
| ||||||||||
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| ||||||||||
(Decrease) increase in net assets |
|
(992,864 |
) |
(629,620 |
) |
(507,675 |
) |
(363,395 |
) |
(1,020,129 |
) |
(674,730 |
) |
(643,155 |
) |
19,742 |
|
(1,075,766 |
) |
2,033,741 |
| ||||||||||
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| ||||||||||
Net assets, beginning of period |
|
$ |
6,055,179 |
|
$ |
5,685,290 |
|
$ |
3,717,583 |
|
$ |
3,894,858 |
|
$ |
9,345,183 |
|
$ |
11,186,145 |
|
$ |
3,965,513 |
|
$ |
188,489 |
|
$ |
7,072,904 |
|
$ |
7,339,488 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| ||||||||||
Net assets, end of period |
|
$ |
5,062,315 |
|
$ |
5,055,670 |
|
$ |
3,209,908 |
|
$ |
3,531,463 |
|
$ |
8,325,054 |
|
$ |
10,511,415 |
|
$ |
3,322,358 |
|
$ |
208,231 |
|
$ |
5,997,138 |
|
$ |
9,373,229 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| ||||||||||
Units Issued, Transferred and Redeemed: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| ||||||||||
Beginning balance |
|
261,619.14 |
|
236,660.71 |
|
231,602.07 |
|
246,603.18 |
|
259,330.84 |
|
458,902.09 |
|
148,423.15 |
|
5,988.32 |
|
404,497.18 |
|
632,529.40 |
| ||||||||||
Units issued |
|
1,857.38 |
|
1,908.21 |
|
7,051.05 |
|
2,900.24 |
|
6,822.60 |
|
15,175.89 |
|
2,113.25 |
|
141.89 |
|
5,033.49 |
|
36,801.84 |
| ||||||||||
Units transferred |
|
1,620.77 |
|
(2,771.95 |
) |
6,129.91 |
|
4,894.04 |
|
1,095.73 |
|
10,089.72 |
|
(2,028.59 |
) |
1,472.74 |
|
1,940.25 |
|
398,671.09 |
| ||||||||||
Units redeemed |
|
(34,153.43 |
) |
(36,681.17 |
) |
(34,373.33 |
) |
(35,598.56 |
) |
(34,549.78 |
) |
(52,658.23 |
) |
(20,637.14 |
) |
(688.09 |
) |
(61,605.68 |
) |
(248,958.35 |
) | ||||||||||
Ending balance |
|
230,943.86 |
|
199,115.80 |
|
210,409.70 |
|
218,798.90 |
|
232,699.39 |
|
431,509.47 |
|
127,870.67 |
|
6,914.86 |
|
349,865.24 |
|
819,043.98 |
|
The accompanying notes are an integral part of these financial statements.
NATIONAL VARIABLE ANNUITY ACCOUNT II
(A Separate Account of National Life Insurance Company)
STATEMENTS OF CHANGES IN NET ASSETS
FOR THE YEAR ENDED DECEMBER 31, 2015
|
|
Franklin Templeton Variable Insurance Products Trust |
| |||||||||||||||||||
|
|
Foreign |
|
Global |
|
Mutual Global |
|
Mutual Shares |
|
Small Cap |
|
Small-Midcap |
|
US |
| |||||||
|
|
Securities |
|
Real Estate |
|
Discovery |
|
Securities |
|
Value |
|
Growth |
|
Government |
| |||||||
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| |||||||
Net investment gain (loss) |
|
$ |
36,106 |
|
$ |
18,362 |
|
$ |
15,427 |
|
$ |
16,343 |
|
$ |
(3,027 |
) |
$ |
(4,979 |
) |
$ |
12,697 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| |||||||
Realized and unrealized (loss) gain on investments |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| |||||||
Capital gains distributions |
|
64,673 |
|
|
|
51,750 |
|
66,378 |
|
63,112 |
|
86,657 |
|
|
| |||||||
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| |||||||
Net realized gain (loss) from shares sold |
|
81,033 |
|
51,403 |
|
6,500 |
|
37,561 |
|
27,597 |
|
4,617 |
|
(11,741 |
) | |||||||
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| |||||||
Net unrealized (depreciation) appreciation on investments |
|
(315,362 |
) |
(77,935 |
) |
(122,168 |
) |
(179,454 |
) |
(122,555 |
) |
(99,377 |
) |
(6,729 |
) | |||||||
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| |||||||
Net realized and unrealized (loss) gain on investments |
|
(169,656 |
) |
(26,532 |
) |
(63,918 |
) |
(75,515 |
) |
(31,846 |
) |
(8,103 |
) |
(18,470 |
) | |||||||
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| |||||||
(Decrease) increase in net assets resulting from operations |
|
(133,550 |
) |
(8,170 |
) |
(48,491 |
) |
(59,172 |
) |
(34,873 |
) |
(13,082 |
) |
(5,773 |
) | |||||||
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| |||||||
Accumulation unit transactions: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| |||||||
Participant deposits |
|
43,632 |
|
50,909 |
|
142,105 |
|
26,020 |
|
4,107 |
|
20,570 |
|
8,880 |
| |||||||
Transfers between investment sub-accounts and general account, net |
|
147,559 |
|
116,327 |
|
60,733 |
|
8,344 |
|
(19,666 |
) |
6,526 |
|
(34,606 |
) | |||||||
Net surrenders and lapses |
|
(438,512 |
) |
(141,829 |
) |
(56,657 |
) |
(112,162 |
) |
(40,582 |
) |
(43,616 |
) |
(139,541 |
) | |||||||
Contract benefits |
|
(18,621 |
) |
|
|
|
|
(4,800 |
) |
|
|
|
|
|
| |||||||
Loan collateral interest received |
|
|
|
70 |
|
|
|
|
|
|
|
|
|
|
| |||||||
Transfers for policy loans |
|
|
|
(105 |
) |
|
|
|
|
|
|
|
|
|
| |||||||
Contract charges |
|
(1,116 |
) |
(520 |
) |
(465 |
) |
(888 |
) |
(249 |
) |
(76 |
) |
(541 |
) | |||||||
Other |
|
1,968 |
|
985 |
|
(72 |
) |
34 |
|
4 |
|
(147 |
) |
11 |
| |||||||
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| |||||||
Total net accumulation unit transactions |
|
(265,090 |
) |
25,837 |
|
145,644 |
|
(83,452 |
) |
(56,386 |
) |
(16,743 |
) |
(165,797 |
) | |||||||
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| |||||||
(Decrease) increase in net assets |
|
(398,640 |
) |
17,667 |
|
97,153 |
|
(142,624 |
) |
(91,259 |
) |
(29,825 |
) |
(171,570 |
) | |||||||
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| |||||||
Net assets, beginning of period |
|
$ |
2,051,197 |
|
$ |
1,023,490 |
|
$ |
804,938 |
|
$ |
1,035,950 |
|
$ |
441,986 |
|
$ |
351,355 |
|
$ |
953,890 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| |||||||
Net assets, end of period |
|
$ |
1,652,557 |
|
$ |
1,041,157 |
|
$ |
902,091 |
|
$ |
893,326 |
|
$ |
350,727 |
|
$ |
321,530 |
|
$ |
782,320 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| |||||||
Units Issued, Transferred and Redeemed: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| |||||||
Beginning balance |
|
129,373.80 |
|
68,152.00 |
|
41,840.60 |
|
58,555.73 |
|
19,677.15 |
|
17,638.69 |
|
84,773.53 |
| |||||||
Units issued |
|
2,689.95 |
|
3,445.41 |
|
7,198.09 |
|
1,463.82 |
|
188.00 |
|
1,012.50 |
|
791.05 |
| |||||||
Units transferred |
|
9,097.15 |
|
7,872.75 |
|
3,076.33 |
|
469.41 |
|
(900.20 |
) |
321.22 |
|
(3,082.77 |
) | |||||||
Units redeemed |
|
(28,130.15 |
) |
(9,569.57 |
) |
(2,897.06 |
) |
(6,628.03 |
) |
(1,868.84 |
) |
(2,157.85 |
) |
(12,477.82 |
) | |||||||
Ending balance |
|
113,030.75 |
|
69,900.59 |
|
49,217.96 |
|
53,860.93 |
|
17,096.11 |
|
16,814.56 |
|
70,003.99 |
|
The accompanying notes are an integral part of these financial statements.
NATIONAL VARIABLE ANNUITY ACCOUNT II
(A Separate Account of National Life Insurance Company)
STATEMENTS OF CHANGES IN NET ASSETS
FOR THE YEAR ENDED DECEMBER 31, 2015
|
|
Invesco V. I. Funds |
|
JP Morgan |
| ||||||||
|
|
Global |
|
Mid |
|
|
|
Small |
| ||||
|
|
Health Care |
|
Cap Growth |
|
Technology |
|
Cap Core |
| ||||
|
|
|
|
|
|
|
|
|
| ||||
Net investment gain (loss) |
|
$ |
(31,712 |
) |
$ |
(10,554 |
) |
$ |
(15,283 |
) |
$ |
(8,837 |
) |
|
|
|
|
|
|
|
|
|
| ||||
Realized and unrealized gain (loss) on investments |
|
|
|
|
|
|
|
|
| ||||
Capital gains distributions |
|
184,060 |
|
56,488 |
|
110,024 |
|
68,984 |
| ||||
|
|
|
|
|
|
|
|
|
| ||||
Net realized gain from shares sold |
|
273,639 |
|
26,823 |
|
38,329 |
|
40,310 |
| ||||
|
|
|
|
|
|
|
|
|
| ||||
Net unrealized appreciation (depreciation) on investments |
|
(363,041 |
) |
(72,605 |
) |
(78,575 |
) |
(146,597 |
) | ||||
|
|
|
|
|
|
|
|
|
| ||||
Net realized and unrealized gain (loss) on investments |
|
94,658 |
|
10,706 |
|
69,778 |
|
(37,303 |
) | ||||
|
|
|
|
|
|
|
|
|
| ||||
Increase (decrease) in net assets resulting from operations |
|
62,946 |
|
152 |
|
54,495 |
|
(46,140 |
) | ||||
|
|
|
|
|
|
|
|
|
| ||||
Accumulation unit transactions: |
|
|
|
|
|
|
|
|
| ||||
Participant deposits |
|
45,238 |
|
11,293 |
|
24,952 |
|
11,374 |
| ||||
Transfers between investment sub-accounts and general account, net |
|
48,688 |
|
(10,503 |
) |
55,734 |
|
51,318 |
| ||||
Net surrenders and lapses |
|
(356,496 |
) |
(53,705 |
) |
(79,414 |
) |
(74,785 |
) | ||||
Contract benefits |
|
(1,095 |
) |
(6,521 |
) |
(237 |
) |
|
| ||||
Loan collateral interest received |
|
76 |
|
|
|
152 |
|
|
| ||||
Transfers for policy loans |
|
552 |
|
|
|
1,120 |
|
(4 |
) | ||||
Contract charges |
|
(1,184 |
) |
(286 |
) |
(655 |
) |
(456 |
) | ||||
Other |
|
(375 |
) |
(55 |
) |
(182 |
) |
98 |
| ||||
|
|
|
|
|
|
|
|
|
| ||||
Total net accumulation unit transactions |
|
(264,596 |
) |
(59,777 |
) |
1,470 |
|
(12,455 |
) | ||||
|
|
|
|
|
|
|
|
|
| ||||
Increase (decrease) in net assets |
|
(201,650 |
) |
(59,625 |
) |
55,965 |
|
(58,595 |
) | ||||
|
|
|
|
|
|
|
|
|
| ||||
Net assets, beginning of period |
|
$ |
2,286,666 |
|
$ |
762,458 |
|
$ |
1,043,803 |
|
$ |
744,571 |
|
|
|
|
|
|
|
|
|
|
| ||||
Net assets, end of period |
|
$ |
2,085,016 |
|
$ |
702,833 |
|
$ |
1,099,768 |
|
$ |
685,976 |
|
|
|
|
|
|
|
|
|
|
| ||||
Units Issued, Transferred and Redeemed: |
|
|
|
|
|
|
|
|
| ||||
Beginning balance |
|
112,112.85 |
|
54,133.01 |
|
152,148.24 |
|
27,633.89 |
| ||||
Units issued |
|
1,988.68 |
|
781.52 |
|
573.21 |
|
345.41 |
| ||||
Units transferred |
|
2,140.35 |
|
(726.85 |
) |
1,280.36 |
|
1,558.44 |
| ||||
Units redeemed |
|
(15,760.80 |
) |
(4,191.48 |
) |
(1,819.80 |
) |
(2,282.09 |
) | ||||
Ending balance |
|
100,481.08 |
|
49,996.20 |
|
152,182.01 |
|
27,255.65 |
|
The accompanying notes are an integral part of these financial statements.
NATIONAL VARIABLE ANNUITY ACCOUNT II
(A Separate Account of National Life Insurance Company)
STATEMENTS OF CHANGES IN NET ASSETS
FOR THE YEAR ENDED DECEMBER 31, 2015
|
|
Neuberger Berman Advisors Management Trust |
|
Oppenheimer Variable Products |
| |||||||||||||||||||||||
|
|
Mid Cap |
|
Large Cap |
|
Short |
|
Small Cap |
|
Mid Cap Growth |
|
Socially |
|
Conservative |
|
Main Street |
|
Global Strategic |
| |||||||||
|
|
Growth |
|
Value |
|
Duration Bond |
|
Growth (1) |
|
Class S (1) |
|
Responsive |
|
Balanced (2) |
|
Small Cap |
|
Income |
| |||||||||
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| |||||||||
Net investment (loss) gain |
|
$ |
(10,251 |
) |
$ |
(7,482 |
) |
$ |
(394 |
) |
$ |
(6,530 |
) |
$ |
(1,007 |
) |
$ |
(167 |
) |
$ |
1,463 |
|
$ |
(1,302 |
) |
$ |
56,562 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| |||||||||
Realized and unrealized gain (loss) on investments |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| |||||||||
Capital gains distributions |
|
59,548 |
|
89,316 |
|
|
|
74,050 |
|
|
|
3,901 |
|
|
|
29,061 |
|
|
| |||||||||
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| |||||||||
Net realized gain (loss) from shares sold |
|
1,918 |
|
44,297 |
|
(149,601 |
) |
146,680 |
|
(531 |
) |
(355 |
) |
825 |
|
3,177 |
|
(25,252 |
) | |||||||||
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| |||||||||
Net unrealized (depreciation) appreciation on investments |
|
(52,807 |
) |
(283,022 |
) |
91,537 |
|
(225,719 |
) |
(18,287 |
) |
(5,206 |
) |
(6,315 |
) |
(46,758 |
) |
(82,730 |
) | |||||||||
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| |||||||||
Net realized and unrealized gain (loss) on investments |
|
8,659 |
|
(149,409 |
) |
(58,064 |
) |
(4,989 |
) |
(18,818 |
) |
(1,660 |
) |
(5,490 |
) |
(14,520 |
) |
(107,982 |
) | |||||||||
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| |||||||||
(Decrease) increase in net assets resulting from operations |
|
(1,592 |
) |
(156,891 |
) |
(58,458 |
) |
(11,519 |
) |
(19,825 |
) |
(1,827 |
) |
(4,027 |
) |
(15,822 |
) |
(51,420 |
) | |||||||||
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| |||||||||
Accumulation unit transactions: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| |||||||||
Participant deposits |
|
8,377 |
|
2,151 |
|
110,389 |
|
4,918 |
|
3,469 |
|
30,379 |
|
108,203 |
|
34,078 |
|
103,179 |
| |||||||||
Transfers between investment sub-accounts and general account, net |
|
56,271 |
|
2,353 |
|
418,039 |
|
(509,078 |
) |
482,652 |
|
(1,857 |
) |
30,084 |
|
24,087 |
|
(29,965 |
) | |||||||||
Net surrenders and lapses |
|
(45,746 |
) |
(106,950 |
) |
(1,497,923 |
) |
(77,630 |
) |
(9,760 |
) |
(7,980 |
) |
(2,576 |
) |
(5,679 |
) |
(73,642 |
) | |||||||||
Contract benefits |
|
|
|
|
|
(14,366 |
) |
(17,041 |
) |
|
|
|
|
|
|
|
|
(13,430 |
) | |||||||||
Loan collateral interest received |
|
|
|
70 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| |||||||||
Transfers for policy loans |
|
|
|
(131 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
| |||||||||
Contract charges |
|
(154 |
) |
(353 |
) |
(2,126 |
) |
(269 |
) |
(35 |
) |
(3 |
) |
(66 |
) |
(47 |
) |
(497 |
) | |||||||||
Other |
|
17 |
|
1 |
|
(129 |
) |
(7 |
) |
6,940 |
|
2 |
|
(28 |
) |
|
|
643 |
| |||||||||
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| |||||||||
Total net accumulation unit transactions |
|
18,765 |
|
(102,859 |
) |
(986,116 |
) |
(599,107 |
) |
483,266 |
|
20,541 |
|
135,617 |
|
52,439 |
|
(13,712 |
) | |||||||||
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| |||||||||
Increase (decrease) in net assets |
|
17,173 |
|
(259,750 |
) |
(1,044,574 |
) |
(610,626 |
) |
463,441 |
|
18,714 |
|
131,590 |
|
36,617 |
|
(65,132 |
) | |||||||||
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| |||||||||
Net assets, beginning of period |
|
$ |
716,960 |
|
$ |
1,264,303 |
|
$ |
5,462,076 |
|
$ |
610,626 |
|
|
|
$ |
16,555 |
|
$ |
86,954 |
|
$ |
148,390 |
|
$ |
1,221,164 |
| |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| |||||||||
Net assets, end of period |
|
$ |
734,133 |
|
$ |
1,004,553 |
|
$ |
4,417,502 |
|
$ |
|
|
463,441 |
|
$ |
35,269 |
|
$ |
218,544 |
|
$ |
185,007 |
|
$ |
1,156,032 |
| |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| |||||||||
Units Issued, Transferred and Redeemed: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| |||||||||
Beginning balance |
|
28,881.19 |
|
65,297.78 |
|
518,398.54 |
|
40,811.58 |
|
|
|
685.33 |
|
5,000.67 |
|
4,958.82 |
|
79,865.57 |
| |||||||||
Units issued |
|
325.38 |
|
118.07 |
|
10,527.33 |
|
335.02 |
|
347.29 |
|
1,186.20 |
|
6,121.12 |
|
1,115.90 |
|
9,334.34 |
| |||||||||
Units transferred |
|
2,185.66 |
|
129.16 |
|
39,866.60 |
|
(34,678.74 |
) |
48,319.90 |
|
(72.51 |
) |
1,701.87 |
|
788.74 |
|
(2,710.86 |
) | |||||||||
Units redeemed |
|
(1,782.18 |
) |
(5,893.29 |
) |
(144,435.60 |
) |
(6,467.86 |
) |
(285.82 |
) |
(311.63 |
) |
(151.04 |
) |
(187.50 |
) |
(7,863.97 |
) | |||||||||
Ending balance |
|
29,610.05 |
|
59,651.72 |
|
424,356.87 |
|
|
|
48,381.37 |
|
1,487.39 |
|
12,672.62 |
|
6,675.96 |
|
78,625.08 |
| |||||||||
(1) On November 6, 2015, Neuberger Berman Advisors Management Trust Small Cap Growth Portfolio was merged into Neuberger Berman Advisors Management Trust Mid Cap Growth Class S Portfolio
(2) During 2015, Oppenheimer Variable Products Capital Income Fund was renamed Oppenheimer Variable Products Conservative Balanced Fund
The accompanying notes are an integral part of these financial statements.
NATIONAL VARIABLE ANNUITY ACCOUNT II
(A Separate Account of National Life Insurance Company)
STATEMENTS OF CHANGES IN NET ASSETS
FOR THE YEAR ENDED DECEMBER 31, 2015
|
|
Sentinel Variable Products Trust |
| |||||||||||||
|
|
|
|
|
|
Common |
|
|
|
Small |
| |||||
|
|
Balanced |
|
Bond |
|
Stock |
|
Mid Cap |
|
Company |
| |||||
|
|
|
|
|
|
|
|
|
|
|
| |||||
Net investment gain (loss) |
|
$ |
37,069 |
|
$ |
156,632 |
|
$ |
209,260 |
|
$ |
(62,989 |
) |
$ |
(214,509 |
) |
|
|
|
|
|
|
|
|
|
|
|
| |||||
Realized and unrealized (loss) gain on investments |
|
|
|
|
|
|
|
|
|
|
| |||||
Capital gains distributions |
|
490,621 |
|
|
|
1,742,838 |
|
384,268 |
|
2,222,207 |
| |||||
|
|
|
|
|
|
|
|
|
|
|
| |||||
Net realized gain (loss) from shares sold |
|
127,683 |
|
(91,373 |
) |
1,298,284 |
|
370,716 |
|
523,233 |
| |||||
|
|
|
|
|
|
|
|
|
|
|
| |||||
Net unrealized (depreciation) appreciation on investments |
|
(789,632 |
) |
(322,382 |
) |
(3,467,100 |
) |
(772,338 |
) |
(2,826,511 |
) | |||||
|
|
|
|
|
|
|
|
|
|
|
| |||||
Net realized and unrealized (loss) gain on investments |
|
(171,328 |
) |
(413,755 |
) |
(425,978 |
) |
(17,354 |
) |
(81,071 |
) | |||||
|
|
|
|
|
|
|
|
|
|
|
| |||||
(Decrease) increase in net assets resulting from operations |
|
(134,259 |
) |
(257,123 |
) |
(216,718 |
) |
(80,343 |
) |
(295,580 |
) | |||||
|
|
|
|
|
|
|
|
|
|
|
| |||||
Accumulation unit transactions: |
|
|
|
|
|
|
|
|
|
|
| |||||
Participant deposits |
|
385,242 |
|
137,319 |
|
326,538 |
|
19,691 |
|
192,892 |
| |||||
Transfers between investment sub-accounts and general account, net |
|
379,089 |
|
(41,568 |
) |
(417,957 |
) |
(91,347 |
) |
(587,977 |
) | |||||
Net surrenders and lapses |
|
(704,795 |
) |
(1,846,921 |
) |
(3,463,708 |
) |
(1,081,007 |
) |
(2,392,447 |
) | |||||
Contract benefits |
|
(33,385 |
) |
(124,805 |
) |
(195,796 |
) |
(780 |
) |
(61,897 |
) | |||||
Loan collateral interest received |
|
|
|
454 |
|
|
|
|
|
124 |
| |||||
Transfers for policy loans |
|
|
|
(819 |
) |
(4 |
) |
|
|
441 |
| |||||
Contract charges |
|
(6,253 |
) |
(5,250 |
) |
(9,605 |
) |
(2,694 |
) |
(8,503 |
) | |||||
Other |
|
7 |
|
844 |
|
616 |
|
565 |
|
2,419 |
| |||||
|
|
|
|
|
|
|
|
|
|
|
| |||||
Total net accumulation unit transactions |
|
19,905 |
|
(1,880,746 |
) |
(3,759,916 |
) |
(1,155,572 |
) |
(2,854,948 |
) | |||||
|
|
|
|
|
|
|
|
|
|
|
| |||||
(Decrease) increase in net assets |
|
(114,354 |
) |
(2,137,869 |
) |
(3,976,634 |
) |
(1,235,915 |
) |
(3,150,528 |
) | |||||
|
|
|
|
|
|
|
|
|
|
|
| |||||
Net assets, beginning of period |
|
$ |
9,254,036 |
|
$ |
11,165,701 |
|
$ |
21,000,149 |
|
$ |
5,777,017 |
|
$ |
16,482,422 |
|
|
|
|
|
|
|
|
|
|
|
|
| |||||
Net assets, end of period |
|
$ |
9,139,682 |
|
$ |
9,027,832 |
|
$ |
17,023,515 |
|
$ |
4,541,102 |
|
$ |
13,331,894 |
|
|
|
|
|
|
|
|
|
|
|
|
| |||||
Units Issued, Transferred and Redeemed: |
|
|
|
|
|
|
|
|
|
|
| |||||
Beginning balance |
|
409,246.96 |
|
553,421.46 |
|
760,654.43 |
|
240,374.47 |
|
319,215.78 |
| |||||
Units issued |
|
9,578.25 |
|
6,846.11 |
|
11,862.28 |
|
790.55 |
|
3,638.41 |
| |||||
Units transferred |
|
9,425.27 |
|
(2,072.39 |
) |
(15,183.29 |
) |
(3,667.40 |
) |
(11,090.67 |
) | |||||
Units redeemed |
|
(18,508.62 |
) |
(98,539.26 |
) |
(133,266.94 |
) |
(43,517.06 |
) |
(46,398.97 |
) | |||||
Ending balance |
|
409,741.86 |
|
459,655.92 |
|
624,066.48 |
|
193,980.56 |
|
265,364.55 |
|
The accompanying notes are an integral part of these financial statements.
NATIONAL VARIABLE ANNUITY ACCOUNT II
(A Separate Account of National Life Insurance Company)
STATEMENTS OF CHANGES IN NET ASSETS
FOR THE YEAR ENDED DECEMBER 31, 2015
|
|
T Rowe Price Equity Series |
|
Van Eck VIPT |
|
Wells Fargo Variable Trust Funds |
| |||||||||||||||||||||
|
|
Blue Chip |
|
Equity |
|
Health |
|
Personal |
|
Unconstrained |
|
Emerging |
|
Global Hard |
|
|
|
|
| |||||||||
|
|
Growth |
|
Income |
|
Sciences |
|
Strategy |
|
Emerging Markets (3) |
|
Markets |
|
Assets |
|
Discovery |
|
Opportunity |
| |||||||||
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| |||||||||
Net investment (loss) gain |
|
$ |
(30,743 |
) |
$ |
7,363 |
|
$ |
(36,547 |
) |
$ |
1,431 |
|
$ |
91,029 |
|
$ |
(15,165 |
) |
$ |
(19,607 |
) |
$ |
(39,668 |
) |
$ |
(34,843 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| |||||||||
Realized and unrealized gain (loss) on investments |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| |||||||||
Capital gains distributions |
|
|
|
107,326 |
|
179,523 |
|
28,468 |
|
|
|
100,419 |
|
|
|
421,328 |
|
285,879 |
| |||||||||
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| |||||||||
Net realized gain (loss) from shares sold |
|
215,145 |
|
707,898 |
|
436,675 |
|
9,886 |
|
(170,031 |
) |
38,591 |
|
(74,143 |
) |
132,345 |
|
157,308 |
| |||||||||
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| |||||||||
Net unrealized appreciation (depreciation) on investments |
|
8,326 |
|
(1,329,993 |
) |
(281,873 |
) |
(44,740 |
) |
(191,587 |
) |
(399,325 |
) |
(488,059 |
) |
(579,321 |
) |
(524,718 |
) | |||||||||
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| |||||||||
Net realized and unrealized gain (loss) on investments |
|
223,471 |
|
(514,769 |
) |
334,325 |
|
(6,386 |
) |
(361,618 |
) |
(260,315 |
) |
(562,202 |
) |
(25,648 |
) |
(81,531 |
) | |||||||||
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| |||||||||
Increase (decrease) in net assets resulting from operations |
|
192,728 |
|
(507,406 |
) |
297,778 |
|
(4,955 |
) |
(270,589 |
) |
(275,480 |
) |
(581,809 |
) |
(65,316 |
) |
(116,374 |
) | |||||||||
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| |||||||||
Accumulation unit transactions: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| |||||||||
Participant deposits |
|
124,202 |
|
113,297 |
|
48,690 |
|
2,969 |
|
34,317 |
|
18,447 |
|
45,567 |
|
17,606 |
|
15,242 |
| |||||||||
Transfers between investment sub-accounts and general account, net |
|
47,215 |
|
18,023 |
|
(129,907 |
) |
(509 |
) |
204,784 |
|
153,361 |
|
620,058 |
|
(30,403 |
) |
595 |
| |||||||||
Net surrenders and lapses |
|
(275,372 |
) |
(1,318,060 |
) |
(390,376 |
) |
(90,864 |
) |
(380,190 |
) |
(314,504 |
) |
(277,804 |
) |
(196,785 |
) |
(390,613 |
) | |||||||||
Contract benefits |
|
|
|
(20,311 |
) |
(10,192 |
) |
|
|
(7,642 |
) |
(15,010 |
) |
(4,724 |
) |
(875 |
) |
(5,448 |
) | |||||||||
Loan collateral interest received |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
352 |
|
|
| |||||||||
Transfers for policy loans |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
95 |
|
(4 |
) | |||||||||
Contract charges |
|
(1,156 |
) |
(2,092 |
) |
(1,184 |
) |
(428 |
) |
(505 |
) |
(484 |
) |
(302 |
) |
(1,799 |
) |
(2,709 |
) | |||||||||
Other |
|
3,891 |
|
(9 |
) |
367 |
|
2 |
|
129 |
|
186 |
|
430 |
|
3 |
|
(74 |
) | |||||||||
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| |||||||||
Total net accumulation unit transactions |
|
(101,220 |
) |
(1,209,152 |
) |
(482,602 |
) |
(88,830 |
) |
(149,107 |
) |
(158,004 |
) |
383,225 |
|
(211,806 |
) |
(383,011 |
) | |||||||||
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| |||||||||
Increase (decrease) in net assets |
|
91,508 |
|
(1,716,558 |
) |
(184,824 |
) |
(93,785 |
) |
(419,696 |
) |
(433,484 |
) |
(198,584 |
) |
(277,122 |
) |
(499,385 |
) | |||||||||
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| |||||||||
Net assets, beginning of period |
|
$ |
2,157,615 |
|
$ |
6,401,898 |
|
$ |
2,561,849 |
|
$ |
486,589 |
|
$ |
1,910,225 |
|
$ |
1,927,733 |
|
$ |
1,348,212 |
|
$ |
2,849,956 |
|
$ |
2,872,254 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| |||||||||
Net assets, end of period |
|
$ |
2,249,123 |
|
$ |
4,685,340 |
|
$ |
2,377,025 |
|
$ |
392,804 |
|
$ |
1,490,529 |
|
$ |
1,494,249 |
|
$ |
1,149,628 |
|
$ |
2,572,834 |
|
$ |
2,372,869 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| |||||||||
Units Issued, Transferred and Redeemed: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| |||||||||
Beginning balance |
|
102,405.15 |
|
352,465.38 |
|
64,235.85 |
|
23,986.56 |
|
163,792.40 |
|
68,605.52 |
|
93,827.49 |
|
80,319.11 |
|
78,586.98 |
| |||||||||
Units issued |
|
5,778.42 |
|
6,641.73 |
|
1,059.33 |
|
145.13 |
|
3,378.65 |
|
689.82 |
|
3,338.35 |
|
473.95 |
|
424.14 |
| |||||||||
Units transferred |
|
2,196.65 |
|
1,056.55 |
|
(2,826.35 |
) |
(24.88 |
) |
20,161.84 |
|
5,734.92 |
|
45,427.01 |
|
(818.45 |
) |
16.56 |
| |||||||||
Units redeemed |
|
(12,684.27 |
) |
(78,581.50 |
) |
(8,732.80 |
) |
(4,462.48 |
) |
(38,220.70 |
) |
(12,333.30 |
) |
(20,689.34 |
) |
(5,357.33 |
) |
(11,098.81 |
) | |||||||||
Ending balance |
|
97,695.95 |
|
281,582.16 |
|
53,736.03 |
|
19,644.33 |
|
149,112.19 |
|
62,696.96 |
|
121,903.51 |
|
74,617.28 |
|
67,928.87 |
|
(3) During 2015, Van Eck VIP Trust Global Bond Portfolio was renamed Van Eck VIP Trust Unconstrained Emerging Markets Bond Portfolio
The accompanying notes are an integral part of these financial statements.
NATIONAL VARIABLE ANNUITY ACCOUNT II
(A Separate Account of National Life Insurance Company)
STATEMENTS OF CHANGES IN NET ASSETS
FOR THE YEAR ENDED DECEMBER 31, 2014
|
|
Alger American Fund |
|
AllianceBernstein Variable Products |
| |||||||||||||||||
|
|
Capital |
|
Large Cap |
|
Small Cap |
|
International |
|
International |
|
Small/Mid Cap |
|
VPS |
| |||||||
|
|
Appreciation |
|
Growth |
|
Growth |
|
Growth |
|
Value |
|
Value |
|
Value |
| |||||||
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| |||||||
Net investment (loss) gain |
|
$ |
(29,052 |
) |
$ |
(149,544 |
) |
$ |
(24,924 |
) |
$ |
(5,619 |
) |
$ |
76,539 |
|
$ |
(19,123 |
) |
$ |
375 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| |||||||
Realized and unrealized gain (loss) on investments: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| |||||||
Capital gains distributions |
|
340,893 |
|
1,772,541 |
|
160,859 |
|
|
|
|
|
324,102 |
|
|
| |||||||
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| |||||||
Net realized gain from shares sold |
|
109,486 |
|
1,676,085 |
|
30,512 |
|
25,495 |
|
138,270 |
|
290,408 |
|
1,351 |
| |||||||
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| |||||||
Net unrealized (depreciation) appreciation on investments |
|
(161,809 |
) |
(2,199,732 |
) |
(189,995 |
) |
(28,643 |
) |
(483,197 |
) |
(394,144 |
) |
5,243 |
| |||||||
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| |||||||
Net realized and unrealized gain (loss) on investments |
|
288,570 |
|
1,248,894 |
|
1,376 |
|
(3,148 |
) |
(344,927 |
) |
220,366 |
|
6,594 |
| |||||||
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| |||||||
Increase (decrease) in net assets resulting from operations |
|
259,518 |
|
1,099,350 |
|
(23,548 |
) |
(8,767 |
) |
(268,388 |
) |
201,243 |
|
6,969 |
| |||||||
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| |||||||
Accumulation unit transactions: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| |||||||
Participant deposits |
|
86,855 |
|
80,391 |
|
15,512 |
|
17,611 |
|
39,943 |
|
41,009 |
|
7,142 |
| |||||||
Transfers between investment sub-accounts and general account, net |
|
(42,275 |
) |
(989,443 |
) |
40,640 |
|
39,726 |
|
165,657 |
|
(110,238 |
) |
15,560 |
| |||||||
Net surrenders and lapses |
|
(190,885 |
) |
(1,740,556 |
) |
(227,274 |
) |
(69,312 |
) |
(704,774 |
) |
(530,530 |
) |
(3,153 |
) | |||||||
Contract benefits |
|
|
|
(77,224 |
) |
(1,742 |
) |
(10,332 |
) |
(8,201 |
) |
(8,151 |
) |
|
| |||||||
Loan collateral interest received |
|
92 |
|
77 |
|
|
|
|
|
|
|
|
|
|
| |||||||
Transfers for policy loans |
|
1,530 |
|
(114 |
) |
|
|
|
|
|
|
|
|
|
| |||||||
Contract charges |
|
(1,999 |
) |
(4,852 |
) |
(1,479 |
) |
(169 |
) |
(722 |
) |
(576 |
) |
(68 |
) | |||||||
Other |
|
(210 |
) |
(535 |
) |
(26 |
) |
(1,285 |
) |
(349 |
) |
3 |
|
(336 |
) | |||||||
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| |||||||
Total net accumulation unit transactions |
|
(146,892 |
) |
(2,732,256 |
) |
(174,369 |
) |
(23,761 |
) |
(508,446 |
) |
(608,483 |
) |
19,145 |
| |||||||
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| |||||||
Increase (decrease) in net assets |
|
112,626 |
|
(1,632,906 |
) |
(197,917 |
) |
(32,528 |
) |
(776,834 |
) |
(407,240 |
) |
26,114 |
| |||||||
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| |||||||
Net assets, beginning of period |
|
$ |
2,230,093 |
|
$ |
12,850,272 |
|
$ |
1,956,766 |
|
$ |
406,817 |
|
$ |
3,999,808 |
|
$ |
2,984,528 |
|
$ |
53,379 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| |||||||
Net assets, end of period |
|
$ |
2,342,719 |
|
$ |
11,217,366 |
|
$ |
1,758,849 |
|
$ |
374,289 |
|
$ |
3,222,974 |
|
$ |
2,577,288 |
|
$ |
79,493 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| |||||||
Units Issued, Transferred and Redeemed: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| |||||||
Beginning balance |
|
119,939.63 |
|
563,177.84 |
|
91,210.64 |
|
23,468.50 |
|
255,095.48 |
|
108,888.32 |
|
2,681.89 |
| |||||||
Units issued |
|
4,508.13 |
|
3,354.69 |
|
750.60 |
|
970.37 |
|
2,581.31 |
|
1,453.79 |
|
359.37 |
| |||||||
Units transferred |
|
(2,194.24 |
) |
(41,289.14 |
) |
1,966.51 |
|
2,188.91 |
|
10,705.56 |
|
(3,908.00 |
) |
782.96 |
| |||||||
Units redeemed |
|
(9,938.17 |
) |
(76,081.72 |
) |
(11,154.55 |
) |
(4,468.51 |
) |
(46,145.14 |
) |
(19,116.89 |
) |
(178.98 |
) | |||||||
Ending balance |
|
112,315.35 |
|
449,161.67 |
|
82,773.20 |
|
22,159.27 |
|
222,237.21 |
|
87,317.22 |
|
3,645.24 |
|
The accompanying notes are an integral part of these financial statements.
NATIONAL VARIABLE ANNUITY ACCOUNT II
(A Separate Account of National Life Insurance Company)
STATEMENTS OF CHANGES IN NET ASSETS
FOR THE YEAR ENDED DECEMBER 31, 2014
|
|
American Century Variable Portfolios |
| ||||||||||||||||
|
|
Income & |
|
Inflation |
|
|
|
|
|
|
|
|
| ||||||
|
|
Growth |
|
Protection |
|
International |
|
Ultra |
|
Value |
|
Vista (1) |
| ||||||
|
|
|
|
|
|
|
|
|
|
|
|
|
| ||||||
Net investment gain (loss) |
|
$ |
15,159 |
|
$ |
874 |
|
$ |
17,637 |
|
$ |
(373 |
) |
$ |
6,918 |
|
$ |
(5,424 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
| ||||||
Realized and unrealized gain (loss) on investments: |
|
|
|
|
|
|
|
|
|
|
|
|
| ||||||
Capital gains distributions |
|
|
|
58,002 |
|
|
|
|
|
|
|
126,319 |
| ||||||
|
|
|
|
|
|
|
|
|
|
|
|
|
| ||||||
Net realized gain (loss) from shares sold |
|
136,680 |
|
(15,964 |
) |
472,161 |
|
2,290 |
|
402,629 |
|
389,722 |
| ||||||
|
|
|
|
|
|
|
|
|
|
|
|
|
| ||||||
Net unrealized appreciation (depreciation) on investments |
|
89,855 |
|
15,036 |
|
(870,461 |
) |
1,172 |
|
101,028 |
|
(520,372 |
) | ||||||
|
|
|
|
|
|
|
|
|
|
|
|
|
| ||||||
Net realized and unrealized gain (loss) on investments |
|
226,535 |
|
57,074 |
|
(398,300 |
) |
3,462 |
|
503,657 |
|
(4,331 |
) | ||||||
|
|
|
|
|
|
|
|
|
|
|
|
|
| ||||||
Increase (decrease) in net assets resulting from operations |
|
241,694 |
|
57,948 |
|
(380,663 |
) |
3,089 |
|
510,575 |
|
(9,755 |
) | ||||||
|
|
|
|
|
|
|
|
|
|
|
|
|
| ||||||
Accumulation unit transactions: |
|
|
|
|
|
|
|
|
|
|
|
|
| ||||||
Participant deposits |
|
25,365 |
|
31,352 |
|
60,056 |
|
30 |
|
66,271 |
|
3,357 |
| ||||||
Transfers between investment sub-accounts and general account, net |
|
(45,235 |
) |
45,399 |
|
314,435 |
|
1,574 |
|
(68,045 |
) |
(1,172,726 |
) | ||||||
Net surrenders and lapses |
|
(294,735 |
) |
(689,091 |
) |
(1,183,621 |
) |
(2,636 |
) |
(813,418 |
) |
(173,252 |
) | ||||||
Contract benefits |
|
(22,786 |
) |
(16,362 |
) |
(10,963 |
) |
|
|
(27,590 |
) |
|
| ||||||
Loan collateral interest received |
|
137 |
|
|
|
|
|
|
|
91 |
|
|
| ||||||
Transfers for policy loans |
|
586 |
|
|
|
|
|
|
|
(199 |
) |
|
| ||||||
Contract charges |
|
(1,061 |
) |
(1,149 |
) |
(1,522 |
) |
(28 |
) |
(2,887 |
) |
(229 |
) | ||||||
Other |
|
165 |
|
269 |
|
(2,265 |
) |
1 |
|
785 |
|
(217 |
) | ||||||
|
|
|
|
|
|
|
|
|
|
|
|
|
| ||||||
Total net accumulation unit transactions |
|
(337,564 |
) |
(629,582 |
) |
(823,880 |
) |
(1,059 |
) |
(844,992 |
) |
(1,343,067 |
) | ||||||
|
|
|
|
|
|
|
|
|
|
|
|
|
| ||||||
(Decrease) increase in net assets |
|
(95,870 |
) |
(571,634 |
) |
(1,204,543 |
) |
2,030 |
|
(334,417 |
) |
(1,352,822 |
) | ||||||
|
|
|
|
|
|
|
|
|
|
|
|
|
| ||||||
Net assets, beginning of period |
|
$ |
2,440,767 |
|
$ |
2,471,072 |
|
$ |
6,069,285 |
|
$ |
35,517 |
|
$ |
4,923,348 |
|
$ |
1,352,822 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| ||||||
Net assets, end of period |
|
$ |
2,344,897 |
|
$ |
1,899,438 |
|
$ |
4,864,742 |
|
$ |
37,547 |
|
$ |
4,588,931 |
|
$ |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| ||||||
Units Issued, Transferred and Redeemed: |
|
|
|
|
|
|
|
|
|
|
|
|
| ||||||
Beginning balance |
|
138,805.97 |
|
183,822.76 |
|
334,208.73 |
|
2,171.37 |
|
190,847.05 |
|
79,750.51 |
| ||||||
Units issued |
|
1,398.47 |
|
2,265.47 |
|
3,407.28 |
|
1.56 |
|
2,457.47 |
|
199.34 |
| ||||||
Units transferred |
|
(2,493.99 |
) |
3,280.49 |
|
17,839.51 |
|
82.09 |
|
(2,523.25 |
) |
(69,635.77 |
) | ||||||
Units redeemed |
|
(17,515.75 |
) |
(51,038.95 |
) |
(67,989.73 |
) |
(138.89 |
) |
(31,268.30 |
) |
(10,314.08 |
) | ||||||
Ending balance |
|
120,194.70 |
|
138,329.77 |
|
287,465.79 |
|
2,116.13 |
|
159,512.97 |
|
|
|
(1) During 2014, American Century Variable Portfolios Vista was liquidated.
The accompanying notes are an integral part of these financial statements.
NATIONAL VARIABLE ANNUITY ACCOUNT II
(A Separate Account of National Life Insurance Company)
STATEMENTS OF CHANGES IN NET ASSETS
FOR THE YEAR ENDED DECEMBER 31, 2014
|
|
Deutsche Variable Series II |
|
Dreyfus Variable Investment Fund |
| |||||||||||||||||
|
|
Small Mid Cap |
|
Large Cap |
|
Small |
|
|
|
Opportunistic |
|
Quality |
|
Socially |
| |||||||
|
|
Value (2) |
|
Value (3) |
|
Cap Index (4) |
|
Appreciation |
|
Small Cap |
|
Bond |
|
Responsible |
| |||||||
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| |||||||
Net investment gain (loss) |
|
$ |
(20,951 |
) |
$ |
(128 |
) |
$ |
(233 |
) |
$ |
2,763 |
|
$ |
(5,119 |
) |
$ |
12,748 |
|
$ |
(1,558 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| |||||||
Realized and unrealized gain (loss) on investments: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| |||||||
Capital gains distributions |
|
10,889 |
|
|
|
5,353 |
|
19,783 |
|
|
|
|
|
32,363 |
| |||||||
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| |||||||
Net realized gain from shares sold |
|
301,278 |
|
14,934 |
|
18,592 |
|
82,277 |
|
28,467 |
|
17,641 |
|
24,563 |
| |||||||
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| |||||||
Net unrealized (depreciation) appreciation on investments |
|
(216,902 |
) |
15,611 |
|
(21,353 |
) |
(64,550 |
) |
(21,459 |
) |
27,645 |
|
(2,723 |
) | |||||||
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| |||||||
Net realized and unrealized gain on investments |
|
95,265 |
|
30,545 |
|
2,592 |
|
37,510 |
|
7,008 |
|
45,286 |
|
54,203 |
| |||||||
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| |||||||
Increase in net assets resulting from operations |
|
74,314 |
|
30,417 |
|
2,359 |
|
40,273 |
|
1,889 |
|
58,034 |
|
52,645 |
| |||||||
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| |||||||
Accumulation unit transactions: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| |||||||
Participant deposits |
|
38,233 |
|
37,662 |
|
12,107 |
|
4,604 |
|
44,555 |
|
72,570 |
|
10,067 |
| |||||||
Transfers between investment sub-accounts and general account, net |
|
(71,910 |
) |
(9,201 |
) |
(25,625 |
) |
(23,876 |
) |
(13,420 |
) |
61,412 |
|
(22,441 |
) | |||||||
Net surrenders and lapses |
|
(461,703 |
) |
(45,775 |
) |
(15,203 |
) |
(238,577 |
) |
(45,290 |
) |
(219,511 |
) |
(20,766 |
) | |||||||
Contract benefits |
|
(5,897 |
) |
|
|
|
|
|
|
|
|
(49,953 |
) |
|
| |||||||
Loan collateral interest received |
|
67 |
|
67 |
|
|
|
|
|
|
|
|
|
|
| |||||||
Transfers for policy loans |
|
(152 |
) |
(115 |
) |
|
|
|
|
|
|
|
|
|
| |||||||
Contract charges |
|
(773 |
) |
(232 |
) |
(51 |
) |
(349 |
) |
(560 |
) |
(813 |
) |
(304 |
) | |||||||
Other |
|
303 |
|
|
|
(17 |
) |
(57 |
) |
(2 |
) |
4 |
|
253 |
| |||||||
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| |||||||
Total net accumulation unit transactions |
|
(501,832 |
) |
(17,594 |
) |
(28,789 |
) |
(258,255 |
) |
(14,717 |
) |
(136,291 |
) |
(33,191 |
) | |||||||
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| |||||||
(Decrease) increase in net assets |
|
(427,518 |
) |
12,823 |
|
(26,430 |
) |
(217,982 |
) |
(12,828 |
) |
(78,257 |
) |
19,454 |
| |||||||
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| |||||||
Net assets, beginning of period |
|
$ |
2,434,216 |
|
$ |
328,415 |
|
$ |
103,483 |
|
$ |
781,111 |
|
$ |
378,674 |
|
$ |
1,806,693 |
|
$ |
455,873 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| |||||||
Net assets, end of period |
|
$ |
2,006,698 |
|
$ |
341,238 |
|
$ |
77,053 |
|
$ |
563,129 |
|
$ |
365,846 |
|
$ |
1,728,436 |
|
$ |
475,327 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| |||||||
Units Issued, Transferred and Redeemed: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| |||||||
Beginning balance |
|
109,502.53 |
|
24,718.38 |
|
4,256.71 |
|
45,407.09 |
|
25,359.91 |
|
132,077.33 |
|
39,806.11 |
| |||||||
Units issued |
|
1,706.75 |
|
2,394.94 |
|
499.71 |
|
262.02 |
|
2,741.44 |
|
5,224.24 |
|
821.92 |
| |||||||
Units transferred |
|
(3,210.12 |
) |
(585.09 |
) |
(1,057.66 |
) |
(1,358.81 |
) |
(825.72 |
) |
4,420.99 |
|
(1,832.20 |
) | |||||||
Units redeemed |
|
(20,898.78 |
) |
(2,928.65 |
) |
(630.30 |
) |
(13,600.81 |
) |
(2,821.24 |
) |
(19,456.67 |
) |
(1,699.60 |
) | |||||||
Ending balance |
|
87,100.38 |
|
23,599.58 |
|
3,068.46 |
|
30,709.49 |
|
24,454.39 |
|
122,265.89 |
|
37,096.23 |
|
(2) During 2014, DWS Variable Series II Small Mid Cap Value was renamed Deutsche Variable Series II Small Mid Cap Value
(3) During 2014, DWS Variable Series II Large Cap Value was renamed Deutsche Variable Series II Large Cap Value
(4) During 2014, DWS Investment VIT Small Cap Index was renamed Deutsche Investment VIT Small Cap Index
The accompanying notes are an integral part of these financial statements.
NATIONAL VARIABLE ANNUITY ACCOUNT II
(A Separate Account of National Life Insurance Company)
STATEMENTS OF CHANGES IN NET ASSETS
FOR THE YEAR ENDED DECEMBER 31, 2014
|
|
Fidelity Variable Insurance Products |
| ||||||||||||||||||||||||||||
|
|
Equity |
|
|
|
High |
|
|
|
|
|
|
|
|
|
III Value |
|
V Investment |
|
V Money |
| ||||||||||
|
|
Income |
|
Growth |
|
Income |
|
Overseas |
|
II Contrafund |
|
II Index 500 |
|
III Mid Cap |
|
Strategies |
|
Grade Bond |
|
Market |
| ||||||||||
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| ||||||||||
Net investment gain (loss) |
|
$ |
85,373 |
|
$ |
(70,388 |
) |
$ |
163,391 |
|
$ |
(3,083 |
) |
$ |
(44,885 |
) |
$ |
25,597 |
|
$ |
(50,280 |
) |
$ |
(248 |
) |
$ |
46,529 |
|
$ |
(93,076 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| ||||||||||
Realized and unrealized gain (loss) on investments: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| ||||||||||
Capital gains distributions |
|
83,653 |
|
|
|
|
|
1,136 |
|
181,978 |
|
9,748 |
|
102,819 |
|
|
|
3,231 |
|
|
| ||||||||||
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| ||||||||||
Net realized gain from shares sold |
|
85,693 |
|
502,492 |
|
108,671 |
|
157,890 |
|
486,070 |
|
485,183 |
|
487,307 |
|
9,162 |
|
48,654 |
|
|
| ||||||||||
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| ||||||||||
Net unrealized appreciation (depreciation) on investments |
|
164,112 |
|
117,462 |
|
(269,962 |
) |
(563,488 |
) |
315,118 |
|
715,324 |
|
(340,044 |
) |
1,638 |
|
240,093 |
|
|
| ||||||||||
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| ||||||||||
Net realized and unrealized gain (loss) on investments |
|
333,458 |
|
619,954 |
|
(161,291 |
) |
(404,462 |
) |
983,166 |
|
1,210,255 |
|
250,082 |
|
10,800 |
|
291,978 |
|
|
| ||||||||||
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| ||||||||||
Increase (decrease) in net assets resulting from operations |
|
418,831 |
|
549,566 |
|
2,100 |
|
(407,545 |
) |
938,281 |
|
1,235,852 |
|
199,802 |
|
10,552 |
|
338,507 |
|
(93,076 |
) | ||||||||||
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| ||||||||||
Accumulation unit transactions: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| ||||||||||
Participant deposits |
|
165,138 |
|
26,747 |
|
67,710 |
|
123,461 |
|
152,159 |
|
272,608 |
|
111,405 |
|
13,406 |
|
66,837 |
|
181,954 |
| ||||||||||
Transfers between investment sub-accounts and general account, net |
|
50,174 |
|
(89,354 |
) |
91,862 |
|
32,360 |
|
(71,786 |
) |
165,229 |
|
(121,935 |
) |
83,119 |
|
38,239 |
|
3,906,553 |
| ||||||||||
Net surrenders and lapses |
|
(709,865 |
) |
(628,240 |
) |
(668,438 |
) |
(558,677 |
) |
(1,192,586 |
) |
(1,118,198 |
) |
(887,477 |
) |
(23,605 |
) |
(1,737,552 |
) |
(3,084,841 |
) | ||||||||||
Contract benefits |
|
(10,372 |
) |
(198,118 |
) |
(21,202 |
) |
(16,487 |
) |
(84,810 |
) |
(34,298 |
) |
(32,961 |
) |
|
|
(57,465 |
) |
(8,126 |
) | ||||||||||
Loan collateral interest received |
|
|
|
369 |
|
274 |
|
45 |
|
63 |
|
337 |
|
|
|
|
|
92 |
|
662 |
| ||||||||||
Transfers for policy loans |
|
|
|
5,728 |
|
2,899 |
|
(91 |
) |
(144 |
) |
6,664 |
|
|
|
|
|
1,538 |
|
4,681 |
| ||||||||||
Contract charges |
|
(3,626 |
) |
(2,894 |
) |
(2,122 |
) |
(2,457 |
) |
(5,991 |
) |
(6,360 |
) |
(2,479 |
) |
(94 |
) |
(3,317 |
) |
(5,007 |
) | ||||||||||
Other |
|
(148 |
) |
(418 |
) |
198 |
|
(481 |
) |
31 |
|
(1,962 |
) |
466 |
|
(1,066 |
) |
35 |
|
409 |
| ||||||||||
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| ||||||||||
Total net accumulation unit transactions |
|
(508,699 |
) |
(886,180 |
) |
(528,819 |
) |
(422,327 |
) |
(1,203,064 |
) |
(715,980 |
) |
(932,981 |
) |
71,760 |
|
(1,691,593 |
) |
996,285 |
| ||||||||||
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| ||||||||||
(Decrease) increase in net assets |
|
(89,868 |
) |
(336,614 |
) |
(526,719 |
) |
(829,872 |
) |
(264,783 |
) |
519,872 |
|
(733,179 |
) |
82,312 |
|
(1,353,086 |
) |
903,209 |
| ||||||||||
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| ||||||||||
Net assets, beginning of period |
|
$ |
6,145,047 |
|
$ |
6,021,904 |
|
$ |
4,244,302 |
|
$ |
4,724,730 |
|
$ |
9,609,966 |
|
$ |
10,666,273 |
|
$ |
4,698,692 |
|
$ |
106,177 |
|
$ |
8,425,990 |
|
$ |
6,436,279 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| ||||||||||
Net assets, end of period |
|
$ |
6,055,179 |
|
$ |
5,685,290 |
|
$ |
3,717,583 |
|
$ |
3,894,858 |
|
$ |
9,345,183 |
|
$ |
11,186,145 |
|
$ |
3,965,513 |
|
$ |
188,489 |
|
$ |
7,072,904 |
|
$ |
7,339,488 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| ||||||||||
Units Issued, Transferred and Redeemed: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| ||||||||||
Beginning balance |
|
284,658.38 |
|
275,136.20 |
|
263,772.96 |
|
271,181.63 |
|
294,402.50 |
|
490,085.90 |
|
184,336.01 |
|
3,552.64 |
|
502,912.43 |
|
547,074.87 |
| ||||||||||
Units issued |
|
7,479.19 |
|
1,161.28 |
|
4,119.16 |
|
7,185.15 |
|
4,435.73 |
|
11,873.18 |
|
4,288.27 |
|
455.03 |
|
3,888.51 |
|
15,606.77 |
| ||||||||||
Units transferred |
|
2,272.41 |
|
(3,879.50 |
) |
5,588.46 |
|
1,883.28 |
|
(2,092.70 |
) |
7,196.39 |
|
(4,693.59 |
) |
2,821.22 |
|
2,224.71 |
|
335,077.50 |
| ||||||||||
Units redeemed |
|
(32,790.84 |
) |
(35,757.27 |
) |
(41,878.51 |
) |
(33,646.88 |
) |
(37,414.69 |
) |
(50,253.38 |
) |
(35,507.54 |
) |
(840.57 |
) |
(104,528.47 |
) |
(265,229.74 |
) | ||||||||||
Ending balance |
|
261,619.14 |
|
236,660.71 |
|
231,602.07 |
|
246,603.18 |
|
259,330.84 |
|
458,902.09 |
|
148,423.15 |
|
5,988.32 |
|
404,497.18 |
|
632,529.40 |
|
The accompanying notes are an integral part of these financial statements.
NATIONAL VARIABLE ANNUITY ACCOUNT II
(A Separate Account of National Life Insurance Company)
STATEMENTS OF CHANGES IN NET ASSETS
FOR THE YEAR ENDED DECEMBER 31, 2014
|
|
Franklin Templeton Variable Insurance Products Trust |
| |||||||||||||||||||
|
|
Foreign |
|
Global |
|
Mutual Global |
|
Mutual Shares |
|
Small Cap |
|
Small-Midcap |
|
US |
| |||||||
|
|
Securities |
|
Real Estate |
|
Discovery |
|
Securities |
|
Value |
|
Growth |
|
Government |
| |||||||
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| |||||||
Net investment gain (loss) |
|
$ |
10,195 |
|
$ |
(10,348 |
) |
$ |
6,827 |
|
$ |
6,818 |
|
$ |
(4,218 |
) |
$ |
(4,787 |
) |
$ |
13,695 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| |||||||
Realized and unrealized gain (loss) on investments: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| |||||||
Capital gains distributions |
|
|
|
|
|
46,613 |
|
5,441 |
|
38,372 |
|
66,025 |
|
|
| |||||||
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| |||||||
Net realized gain (loss) from shares sold |
|
162,499 |
|
92,950 |
|
11,300 |
|
55,119 |
|
109,980 |
|
22,927 |
|
(5,610 |
) | |||||||
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| |||||||
Net unrealized (depreciation) appreciation on investments |
|
(467,693 |
) |
54,886 |
|
(35,778 |
) |
(15,909 |
) |
(145,232 |
) |
(64,977 |
) |
12,948 |
| |||||||
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| |||||||
Net realized and unrealized (loss) gain on investments |
|
(305,194 |
) |
147,836 |
|
22,135 |
|
44,651 |
|
3,120 |
|
23,975 |
|
7,338 |
| |||||||
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| |||||||
(Decrease) increase in net assets resulting from operations |
|
(294,999 |
) |
137,488 |
|
28,962 |
|
51,469 |
|
(1,098 |
) |
19,188 |
|
21,033 |
| |||||||
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| |||||||
Accumulation unit transactions: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| |||||||
Participant deposits |
|
62,355 |
|
66,210 |
|
76,256 |
|
58,523 |
|
15,298 |
|
31,447 |
|
15,871 |
| |||||||
Transfers between investment sub-accounts and general account, net |
|
315,641 |
|
30,207 |
|
89,811 |
|
53,375 |
|
32,216 |
|
19,130 |
|
77,881 |
| |||||||
Net surrenders and lapses |
|
(611,232 |
) |
(383,623 |
) |
(71,700 |
) |
(128,403 |
) |
(226,586 |
) |
(87,673 |
) |
(90,572 |
) | |||||||
Contract benefits |
|
|
|
(1,651 |
) |
|
|
(3,190 |
) |
|
|
(2,104 |
) |
(35,435 |
) | |||||||
Loan collateral interest received |
|
|
|
67 |
|
|
|
|
|
|
|
|
|
|
| |||||||
Transfers for policy loans |
|
|
|
(101 |
) |
|
|
|
|
|
|
|
|
|
| |||||||
Contract charges |
|
(1,476 |
) |
(557 |
) |
(373 |
) |
(870 |
) |
(275 |
) |
(103 |
) |
(543 |
) | |||||||
Other |
|
17 |
|
216 |
|
(93 |
) |
189 |
|
(112 |
) |
298 |
|
134 |
| |||||||
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| |||||||
Total net accumulation unit transactions |
|
(234,695 |
) |
(289,232 |
) |
93,901 |
|
(20,376 |
) |
(179,459 |
) |
(39,005 |
) |
(32,664 |
) | |||||||
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| |||||||
(Decrease) increase in net assets |
|
(529,694 |
) |
(151,744 |
) |
122,863 |
|
31,093 |
|
(180,557 |
) |
(19,817 |
) |
(11,631 |
) | |||||||
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| |||||||
Net assets, beginning of period |
|
$ |
2,580,891 |
|
$ |
1,175,234 |
|
$ |
682,075 |
|
$ |
1,004,857 |
|
$ |
622,543 |
|
$ |
371,172 |
|
$ |
965,521 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| |||||||
Net assets, end of period |
|
$ |
2,051,197 |
|
$ |
1,023,490 |
|
$ |
804,938 |
|
$ |
1,035,950 |
|
$ |
441,986 |
|
$ |
351,355 |
|
$ |
953,890 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| |||||||
Units Issued, Transferred and Redeemed: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| |||||||
Beginning balance |
|
142,661.91 |
|
88,758.95 |
|
37,053.40 |
|
60,002.31 |
|
27,488.37 |
|
19,748.97 |
|
87,698.80 |
| |||||||
Units issued |
|
3,530.45 |
|
4,717.27 |
|
3,887.63 |
|
4,154.78 |
|
665.87 |
|
1,701.36 |
|
1,421.35 |
| |||||||
Units transferred |
|
17,871.16 |
|
2,152.16 |
|
4,578.69 |
|
3,789.30 |
|
1,402.25 |
|
1,034.98 |
|
6,974.74 |
| |||||||
Units redeemed |
|
(34,689.72 |
) |
(27,476.38 |
) |
(3,679.12 |
) |
(9,390.66 |
) |
(9,879.34 |
) |
(4,846.62 |
) |
(11,321.36 |
) | |||||||
Ending balance |
|
129,373.80 |
|
68,152.00 |
|
41,840.60 |
|
58,555.73 |
|
19,677.15 |
|
17,638.69 |
|
84,773.53 |
|
The accompanying notes are an integral part of these financial statements.
NATIONAL VARIABLE ANNUITY ACCOUNT II
(A Separate Account of National Life Insurance Company)
STATEMENTS OF CHANGES IN NET ASSETS
FOR THE YEAR ENDED DECEMBER 31, 2014
|
|
Invesco V. I. Funds |
|
JP Morgan Insurance Trust |
| |||||||||||
|
|
Global |
|
Mid |
|
|
|
International |
|
Small |
| |||||
|
|
Health Care |
|
Cap Growth |
|
Technology |
|
Equity (5) |
|
Cap Core |
| |||||
|
|
|
|
|
|
|
|
|
|
|
| |||||
Net investment (loss) gain |
|
$ |
(30,230 |
) |
$ |
(10,462 |
) |
$ |
(12,942 |
) |
$ |
6,648 |
|
$ |
(8,885 |
) |
|
|
|
|
|
|
|
|
|
|
|
| |||||
Realized and unrealized gain (loss) on investments: |
|
|
|
|
|
|
|
|
|
|
| |||||
Capital gains distributions |
|
84,581 |
|
|
|
79,893 |
|
|
|
57,890 |
| |||||
|
|
|
|
|
|
|
|
|
|
|
| |||||
Net realized gain from shares sold |
|
126,836 |
|
21,374 |
|
50,726 |
|
201,990 |
|
37,051 |
| |||||
|
|
|
|
|
|
|
|
|
|
|
| |||||
Net unrealized appreciation (depreciation) on investments |
|
177,900 |
|
36,086 |
|
(33,519 |
) |
(271,842 |
) |
(30,665 |
) | |||||
|
|
|
|
|
|
|
|
|
|
|
| |||||
Net realized and unrealized gain (loss) on investments |
|
389,317 |
|
57,460 |
|
97,100 |
|
(69,852 |
) |
64,276 |
| |||||
|
|
|
|
|
|
|
|
|
|
|
| |||||
Increase (decrease) in net assets resulting from operations |
|
359,087 |
|
46,998 |
|
84,158 |
|
(63,204 |
) |
55,391 |
| |||||
|
|
|
|
|
|
|
|
|
|
|
| |||||
Accumulation unit transactions: |
|
|
|
|
|
|
|
|
|
|
| |||||
Participant deposits |
|
46,139 |
|
14,947 |
|
40,363 |
|
23,822 |
|
18,222 |
| |||||
Transfers between investment sub-accounts and general account, net |
|
(50,351 |
) |
(510 |
) |
111,585 |
|
(1,377,574 |
) |
(9,928 |
) | |||||
Net surrenders and lapses |
|
(140,734 |
) |
(59,917 |
) |
(114,918 |
) |
(101,548 |
) |
(37,673 |
) | |||||
Contract benefits |
|
|
|
|
|
|
|
|
|
(26,641 |
) | |||||
Loan collateral interest received |
|
92 |
|
|
|
184 |
|
|
|
|
| |||||
Transfers for policy loans |
|
1,534 |
|
|
|
3,076 |
|
|
|
(4 |
) | |||||
Contract charges |
|
(1,128 |
) |
(330 |
) |
(669 |
) |
(806 |
) |
(489 |
) | |||||
Other |
|
36 |
|
(9 |
) |
(76 |
) |
3 |
|
(24 |
) | |||||
|
|
|
|
|
|
|
|
|
|
|
| |||||
Total net accumulation unit transactions |
|
(144,412 |
) |
(45,819 |
) |
39,545 |
|
(1,456,103 |
) |
(56,537 |
) | |||||
|
|
|
|
|
|
|
|
|
|
|
| |||||
Increase (decrease) in net assets |
|
214,675 |
|
1,179 |
|
123,703 |
|
(1,519,307 |
) |
(1,146 |
) | |||||
|
|
|
|
|
|
|
|
|
|
|
| |||||
Net assets, beginning of period |
|
$ |
2,071,991 |
|
$ |
761,279 |
|
$ |
920,100 |
|
$ |
1,519,307 |
|
$ |
745,717 |
|
|
|
|
|
|
|
|
|
|
|
|
| |||||
Net assets, end of period |
|
$ |
2,286,666 |
|
$ |
762,458 |
|
$ |
1,043,803 |
|
$ |
|
|
$ |
744,571 |
|
|
|
|
|
|
|
|
|
|
|
|
| |||||
Units Issued, Transferred and Redeemed: |
|
|
|
|
|
|
|
|
|
|
| |||||
Beginning balance |
|
119,888.48 |
|
57,585.88 |
|
146,879.95 |
|
104,679.01 |
|
29,912.60 |
| |||||
Units issued |
|
2,484.28 |
|
1,126.39 |
|
5,377.27 |
|
1,712.56 |
|
734.44 |
| |||||
Units transferred |
|
(2,711.07 |
) |
(38.43 |
) |
14,865.65 |
|
(99,033.57 |
) |
(400.15 |
) | |||||
Units redeemed |
|
(7,548.84 |
) |
(4,540.83 |
) |
(14,974.63 |
) |
(7,358.00 |
) |
(2,613.00 |
) | |||||
Ending balance |
|
112,112.85 |
|
54,133.01 |
|
152,148.24 |
|
|
|
27,633.89 |
|
(5) During 2014, JP Morgan Insurance Trust International Equity was liquidated.
The accompanying notes are an integral part of these financial statements.
NATIONAL VARIABLE ANNUITY ACCOUNT II
(A Separate Account of National Life Insurance Company)
STATEMENTS OF CHANGES IN NET ASSETS
FOR THE YEAR ENDED DECEMBER 31, 2014
|
|
Neuberger Berman Advisors Management Trust |
|
Oppenheimer Variable Products |
| ||||||||||||||||||||
|
|
Mid Cap |
|
Large Cap |
|
Short |
|
Small Cap |
|
Socially |
|
Capital |
|
Main Street |
|
Global Strategic |
| ||||||||
|
|
Growth |
|
Value |
|
Duration Bond |
|
Growth |
|
Responsive |
|
Income |
|
Small Cap |
|
Income |
| ||||||||
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| ||||||||
Net investment (loss) gain |
|
$ |
(9,809 |
) |
$ |
(8,833 |
) |
$ |
12,921 |
|
$ |
(8,948 |
) |
$ |
(254 |
) |
$ |
287 |
|
$ |
(1,010 |
) |
$ |
27,518 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| ||||||||
Realized and unrealized gain (loss) on investments: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| ||||||||
Capital gains distributions |
|
294,781 |
|
|
|
|
|
56,948 |
|
|
|
|
|
17,431 |
|
|
| ||||||||
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| ||||||||
Net realized gain (loss) from shares sold |
|
31,421 |
|
116,974 |
|
(151,353 |
) |
100,869 |
|
9,991 |
|
4,572 |
|
5,826 |
|
884 |
| ||||||||
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| ||||||||
Net unrealized (depreciation) appreciation on investments |
|
(273,520 |
) |
(4,236 |
) |
91,864 |
|
(140,365 |
) |
(7,973 |
) |
267 |
|
(8,605 |
) |
(17,720 |
) | ||||||||
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| ||||||||
Net realized and unrealized gain (loss) on investments |
|
52,682 |
|
112,738 |
|
(59,489 |
) |
17,452 |
|
2,018 |
|
4,839 |
|
14,652 |
|
(16,836 |
) | ||||||||
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| ||||||||
Increase (decrease) in net assets resulting from operations |
|
42,873 |
|
103,905 |
|
(46,568 |
) |
8,504 |
|
1,764 |
|
5,126 |
|
13,642 |
|
10,682 |
| ||||||||
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| ||||||||
Accumulation unit transactions: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| ||||||||
Participant deposits |
|
54,194 |
|
23,672 |
|
57,660 |
|
10,926 |
|
|
|
6,976 |
|
2,259 |
|
42,095 |
| ||||||||
Transfers between investment sub-accounts and general account, net |
|
(17,210 |
) |
(162,426 |
) |
328,572 |
|
10,956 |
|
(205 |
) |
32 |
|
14,808 |
|
106,910 |
| ||||||||
Net surrenders and lapses |
|
(87,885 |
) |
(123,115 |
) |
(1,718,662 |
) |
(189,691 |
) |
(15,025 |
) |
(10,986 |
) |
(5,407 |
) |
(161,958 |
) | ||||||||
Contract benefits |
|
|
|
|
|
(56,374 |
) |
|
|
|
|
|
|
|
|
|
| ||||||||
Loan collateral interest received |
|
|
|
67 |
|
|
|
|
|
|
|
|
|
|
|
|
| ||||||||
Transfers for policy loans |
|
|
|
(129 |
) |
|
|
|
|
|
|
|
|
|
|
|
| ||||||||
Contract charges |
|
(141 |
) |
(414 |
) |
(2,272 |
) |
(355 |
) |
(3 |
) |
(16 |
) |
(39 |
) |
(484 |
) | ||||||||
Other |
|
(71 |
) |
14 |
|
27 |
|
(45 |
) |
58 |
|
65 |
|
|
|
89 |
| ||||||||
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| ||||||||
Total net accumulation unit transactions |
|
(51,113 |
) |
(262,331 |
) |
(1,391,049 |
) |
(168,209 |
) |
(15,175 |
) |
(3,929 |
) |
11,621 |
|
(13,348 |
) | ||||||||
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| ||||||||
(Decrease) increase in net assets |
|
(8,240 |
) |
(158,426 |
) |
(1,437,617 |
) |
(159,705 |
) |
(13,411 |
) |
1,197 |
|
25,263 |
|
(2,666 |
) | ||||||||
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| ||||||||
Net assets, beginning of period |
|
$ |
725,200 |
|
$ |
1,422,729 |
|
$ |
6,899,693 |
|
$ |
770,331 |
|
$ |
29,966 |
|
$ |
85,757 |
|
$ |
123,127 |
|
$ |
1,223,830 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| ||||||||
Net assets, end of period |
|
$ |
716,960 |
|
$ |
1,264,303 |
|
$ |
5,462,076 |
|
$ |
610,626 |
|
$ |
16,555 |
|
$ |
86,954 |
|
$ |
148,390 |
|
$ |
1,221,164 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| ||||||||
Units Issued, Transferred and Redeemed: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| ||||||||
Beginning balance |
|
30,993.32 |
|
79,603.68 |
|
649,726.81 |
|
52,535.92 |
|
1,350.37 |
|
5,253.50 |
|
4,530.63 |
|
80,900.00 |
| ||||||||
Units issued |
|
2,239.44 |
|
1,290.92 |
|
5,443.65 |
|
761.55 |
|
|
|
448.91 |
|
83.24 |
|
3,262.23 |
| ||||||||
Units transferred |
|
(711.16 |
) |
(8,857.70 |
) |
31,020.33 |
|
763.64 |
|
(8.98 |
) |
2.06 |
|
545.62 |
|
8,285.19 |
| ||||||||
Units redeemed |
|
(3,640.41 |
) |
(6,739.12 |
) |
(167,792.25 |
) |
(13,249.53 |
) |
(656.06 |
) |
(703.80 |
) |
(200.67 |
) |
(12,581.85 |
) | ||||||||
Ending balance |
|
28,881.19 |
|
65,297.78 |
|
518,398.54 |
|
40,811.58 |
|
685.33 |
|
5,000.67 |
|
4,958.82 |
|
79,865.57 |
|
The accompanying notes are an integral part of these financial statements.
NATIONAL VARIABLE ANNUITY ACCOUNT II
(A Separate Account of National Life Insurance Company)
STATEMENTS OF CHANGES IN NET ASSETS
FOR THE YEAR ENDED DECEMBER 31, 2014
|
|
Sentinel Variable Products Trust |
| |||||||||||||
|
|
|
|
|
|
Common |
|
|
|
Small |
| |||||
|
|
Balanced |
|
Bond |
|
Stock |
|
Mid Cap |
|
Company |
| |||||
|
|
|
|
|
|
|
|
|
|
|
| |||||
Net investment gain (loss) |
|
$ |
23,420 |
|
$ |
175,609 |
|
$ |
39,189 |
|
$ |
(59,983 |
) |
$ |
(153,330 |
) |
|
|
|
|
|
|
|
|
|
|
|
| |||||
Realized and unrealized gain (loss) on investments: |
|
|
|
|
|
|
|
|
|
|
| |||||
Capital gains distributions |
|
577,922 |
|
|
|
2,442,314 |
|
1,198,663 |
|
2,587,595 |
| |||||
|
|
|
|
|
|
|
|
|
|
|
| |||||
Net realized gain (loss) from shares sold |
|
332,800 |
|
(28,785 |
) |
1,737,709 |
|
384,231 |
|
629,444 |
| |||||
|
|
|
|
|
|
|
|
|
|
|
| |||||
Net unrealized (depreciation) appreciation on investments |
|
(371,615 |
) |
181,642 |
|
(2,384,520 |
) |
(1,329,383 |
) |
(2,241,444 |
) | |||||
|
|
|
|
|
|
|
|
|
|
|
| |||||
Net realized and unrealized gain on investments |
|
539,107 |
|
152,857 |
|
1,795,503 |
|
253,511 |
|
975,595 |
| |||||
|
|
|
|
|
|
|
|
|
|
|
| |||||
Increase in net assets resulting from operations |
|
562,527 |
|
328,466 |
|
1,834,692 |
|
193,528 |
|
822,265 |
| |||||
|
|
|
|
|
|
|
|
|
|
|
| |||||
Accumulation unit transactions: |
|
|
|
|
|
|
|
|
|
|
| |||||
Participant deposits |
|
149,461 |
|
177,261 |
|
584,901 |
|
133,640 |
|
333,658 |
| |||||
Transfers between investment sub-accounts and general account, net |
|
549,876 |
|
197,394 |
|
(695,609 |
) |
(3,351 |
) |
59,039 |
| |||||
Net surrenders and lapses |
|
(1,145,447 |
) |
(2,034,190 |
) |
(3,859,489 |
) |
(643,923 |
) |
(2,385,237 |
) | |||||
Contract benefits |
|
(376,570 |
) |
(72,203 |
) |
(309,765 |
) |
(134,757 |
) |
(90,198 |
) | |||||
Loan collateral interest received |
|
|
|
439 |
|
|
|
|
|
158 |
| |||||
Transfers for policy loans |
|
|
|
(786 |
) |
(4 |
) |
|
|
1,386 |
| |||||
Contract charges |
|
(6,581 |
) |
(5,800 |
) |
(10,568 |
) |
(3,199 |
) |
(8,647 |
) | |||||
Other |
|
588 |
|
12 |
|
(805 |
) |
(1,373 |
) |
(1,514 |
) | |||||
|
|
|
|
|
|
|
|
|
|
|
| |||||
Total net accumulation unit transactions |
|
(828,673 |
) |
(1,737,873 |
) |
(4,291,339 |
) |
(652,963 |
) |
(2,091,355 |
) | |||||
|
|
|
|
|
|
|
|
|
|
|
| |||||
(Decrease) in net assets |
|
(266,146 |
) |
(1,409,407 |
) |
(2,456,647 |
) |
(459,435 |
) |
(1,269,090 |
) | |||||
|
|
|
|
|
|
|
|
|
|
|
| |||||
Net assets, beginning of period |
|
$ |
9,520,182 |
|
$ |
12,575,108 |
|
$ |
23,456,796 |
|
$ |
6,236,452 |
|
$ |
17,751,512 |
|
|
|
|
|
|
|
|
|
|
|
|
| |||||
Net assets, end of period |
|
$ |
9,254,036 |
|
$ |
11,165,701 |
|
$ |
21,000,149 |
|
$ |
5,777,017 |
|
$ |
16,482,422 |
|
|
|
|
|
|
|
|
|
|
|
|
| |||||
Units Issued, Transferred and Redeemed: |
|
|
|
|
|
|
|
|
|
|
| |||||
Beginning balance |
|
447,641.64 |
|
639,331.78 |
|
924,558.76 |
|
267,751.01 |
|
361,685.81 |
| |||||
Units issued |
|
6,924.93 |
|
8,762.75 |
|
22,339.84 |
|
5,603.07 |
|
6,775.73 |
| |||||
Units transferred |
|
25,477.25 |
|
9,758.01 |
|
(26,568.24 |
) |
(140.50 |
) |
1,198.93 |
| |||||
Units redeemed |
|
(70,796.86 |
) |
(104,431.08 |
) |
(159,675.93 |
) |
(32,839.11 |
) |
(50,444.69 |
) | |||||
Ending balance |
|
409,246.96 |
|
553,421.46 |
|
760,654.43 |
|
240,374.47 |
|
319,215.78 |
|
The accompanying notes are an integral part of these financial statements.
NATIONAL VARIABLE ANNUITY ACCOUNT II
(A Separate Account of National Life Insurance Company)
STATEMENTS OF CHANGES IN NET ASSETS
FOR THE YEAR ENDED DECEMBER 31, 2014
|
|
T Rowe Price Equity Series |
|
Van Eck VIPT |
|
Wells Fargo Variable Trust Funds |
| |||||||||||||||||||||
|
|
Blue Chip |
|
Equity |
|
Health |
|
Personal |
|
Unconstrained |
|
Emerging |
|
Global Hard |
|
|
|
|
| |||||||||
|
|
Growth |
|
Income |
|
Sciences |
|
Strategy |
|
Emerging Markets |
|
Markets |
|
Assets |
|
Discovery |
|
Opportunity |
| |||||||||
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| |||||||||
Net investment (loss) gain |
|
$ |
(34,494 |
) |
$ |
7,287 |
|
$ |
(29,737 |
) |
$ |
1,287 |
|
$ |
91,988 |
|
$ |
(17,754 |
) |
$ |
(22,581 |
) |
$ |
(40,294 |
) |
$ |
(38,614 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| |||||||||
Realized and unrealized gain (loss) on investments: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| |||||||||
Capital gains distributions |
|
|
|
|
|
183,684 |
|
32,912 |
|
197,545 |
|
245,544 |
|
|
|
374,648 |
|
|
| |||||||||
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| |||||||||
Net realized gain (loss) from shares sold |
|
580,731 |
|
851,628 |
|
276,779 |
|
28,734 |
|
(129,016 |
) |
147,143 |
|
79,022 |
|
177,336 |
|
145,039 |
| |||||||||
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| |||||||||
Net unrealized (depreciation) appreciation on investments |
|
(385,100 |
) |
(483,420 |
) |
132,689 |
|
(45,287 |
) |
(117,421 |
) |
(408,770 |
) |
(354,696 |
) |
(547,433 |
) |
139,333 |
| |||||||||
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| |||||||||
Net realized and unrealized gain (loss) on investments |
|
195,631 |
|
368,208 |
|
593,152 |
|
16,359 |
|
(48,892 |
) |
(16,083 |
) |
(275,674 |
) |
4,551 |
|
284,372 |
| |||||||||
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| |||||||||
Increase (decrease) in net assets resulting from operations |
|
161,137 |
|
375,495 |
|
563,415 |
|
17,646 |
|
43,096 |
|
(33,837 |
) |
(298,255 |
) |
(35,743 |
) |
245,758 |
| |||||||||
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| |||||||||
Accumulation unit transactions: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| |||||||||
Participant deposits |
|
48,731 |
|
76,721 |
|
138,839 |
|
17,221 |
|
13,301 |
|
64,657 |
|
43,672 |
|
53,396 |
|
20,915 |
| |||||||||
Transfers between investment sub-accounts and general account, net |
|
(147,519 |
) |
(92,619 |
) |
219,918 |
|
(63,002 |
) |
(85,039 |
) |
156,824 |
|
53,451 |
|
45,733 |
|
(1,334 |
) | |||||||||
Net surrenders and lapses |
|
(756,471 |
) |
(1,428,157 |
) |
(304,973 |
) |
(52,025 |
) |
(461,198 |
) |
(383,608 |
) |
(358,877 |
) |
(258,201 |
) |
(279,737 |
) | |||||||||
Contract benefits |
|
(4,386 |
) |
(20,633 |
) |
|
|
|
|
(27,681 |
) |
(3,232 |
) |
(4,814 |
) |
(42,846 |
) |
(32,546 |
) | |||||||||
Loan collateral interest received |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
371 |
|
|
| |||||||||
Transfers for policy loans |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
1,056 |
|
(4 |
) | |||||||||
Contract charges |
|
(1,154 |
) |
(2,145 |
) |
(942 |
) |
(435 |
) |
(596 |
) |
(520 |
) |
(412 |
) |
(1,974 |
) |
(2,768 |
) | |||||||||
Other |
|
246 |
|
(205 |
) |
150 |
|
36 |
|
170 |
|
(196 |
) |
(43 |
) |
91 |
|
15 |
| |||||||||
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| |||||||||
Total net accumulation unit transactions |
|
(860,553 |
) |
(1,467,038 |
) |
52,992 |
|
(98,205 |
) |
(561,043 |
) |
(166,075 |
) |
(267,023 |
) |
(202,374 |
) |
(295,459 |
) | |||||||||
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| |||||||||
(Decrease) increase in net assets |
|
(699,416 |
) |
(1,091,543 |
) |
616,407 |
|
(80,559 |
) |
(517,947 |
) |
(199,912 |
) |
(565,278 |
) |
(238,117 |
) |
(49,701 |
) | |||||||||
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| |||||||||
Net assets, beginning of period |
|
$ |
2,857,031 |
|
$ |
7,493,441 |
|
$ |
1,945,442 |
|
$ |
567,148 |
|
$ |
2,428,172 |
|
$ |
2,127,645 |
|
$ |
1,913,490 |
|
$ |
3,088,073 |
|
$ |
2,921,955 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| |||||||||
Net assets, end of period |
|
$ |
2,157,615 |
|
$ |
6,401,898 |
|
$ |
2,561,849 |
|
$ |
486,589 |
|
$ |
1,910,225 |
|
$ |
1,927,733 |
|
$ |
1,348,212 |
|
$ |
2,849,956 |
|
$ |
2,872,254 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| |||||||||
Units Issued, Transferred and Redeemed: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| |||||||||
Beginning balance |
|
145,549.09 |
|
435,758.10 |
|
63,126.49 |
|
29,004.73 |
|
209,810.56 |
|
74,363.37 |
|
106,236.87 |
|
86,131.04 |
|
87,059.82 |
| |||||||||
Units issued |
|
2,443.14 |
|
4,355.92 |
|
2,906.53 |
|
879.97 |
|
1,090.98 |
|
2,241.67 |
|
2,029.57 |
|
1,533.47 |
|
599.78 |
| |||||||||
Units transferred |
|
(7,395.89 |
) |
(5,258.55 |
) |
4,603.89 |
|
(3,219.32 |
) |
(6,975.11 |
) |
5,437.12 |
|
2,484.03 |
|
1,313.40 |
|
(38.25 |
) | |||||||||
Units redeemed |
|
(38,191.19 |
) |
(82,390.09 |
) |
(6,401.06 |
) |
(2,678.82 |
) |
(40,134.03 |
) |
(13,436.64 |
) |
(16,922.98 |
) |
(8,658.80 |
) |
(9,034.37 |
) | |||||||||
Ending balance |
|
102,405.15 |
|
352,465.38 |
|
64,235.85 |
|
23,986.56 |
|
163,792.40 |
|
68,605.52 |
|
93,827.49 |
|
80,319.11 |
|
78,586.98 |
|
The accompanying notes are an integral part of these financial statements.
NATIONAL VARIABLE ANNUITY ACCOUNT II
(A Separate Account of National Life Insurance Company)
NOTES TO THE FINANCIAL STATEMENTS
NOTE 1 - NATURE OF OPERATIONS
National Variable Annuity Account II (the Variable Account) began operations on June 20, 1997 and is registered as a unit investment trust under the Investment Company Act of 1940, as amended. The operations of the Variable Account are part of National Life Insurance Company (National Life). The Variable Account was established by National Life as a separate account to invest the net purchase payments received from the sale of certain variable annuity products. Equity Services, Inc., a controlled affiliate of National Life, is the principal underwriter for the variable annuity contracts issued by National Life.
The Variable Account invests the accumulated contractholder contract values in shares of mutual fund portfolios within The Alger Portfolios, AllianceBernstein Variable Products Series (VPS) Fund Inc., American Century Variable Portfolios (ACVP) Inc., Dreyfus Variable Investment Fund, Deutsche Variable Series II, Fidelity Variable Insurance Product Funds (FVIPF), Franklin Templeton Variable Insurance Products Trust, Invesco Variable Insurance Funds, JP Morgan Insurance Trust, Neuberger Berman Advisors Management Trust, Oppenheimer Variable Account Funds, Sentinel Variable Products Trust (SVPT), T Rowe Price Equity Series Inc., Van Eck VIP Trust, and Wells Fargo Variable Trust. Net purchase payments received by the Variable Account are deposited in the portfolios as designated by the contractholder. Contractholders may also direct the allocations of their contract value to a declared interest account within the General Account of National Life and may transfer contract value between the portfolios within the Variable Account and the declared interest account. Sentinel Asset Management, Inc., an affiliate that is controlled by National Life, provides investment advisory services for the SVPT portfolios. Sentinel Administrative Services, Inc., an affiliate that is controlled by National Life, provides transfer agent and administrative services to the SVPT portfolios.
There are sixty-two sub-accounts within the Variable Account as of December 31, 2015. Each sub-account, which invests exclusively in the shares of the corresponding portfolio, comprises the accumulated contractholder contract values of the underlying variable annuity contracts investing in the sub-account.
During 2015, the following changes were made: the Neuberger Berman Mid Cap Growth Class S was substituted for the Neuberger Berman Small Cap Growth, the Oppenheimer Capital Income Fund/VA was renamed Oppenheimer Conservative Balanced Fund/VA, and the Van Eck VIP Trust Global Bond Portfolio was renamed Van Eck VIP Trust Unconstrained Emerging Markets Bond Portfolio.
During 2014, the following changes were made: the DWS Variable Series II Small Mid Cap Value was renamed Deutsche Variable Series II Small Mid Cap Value, the DWS Variable Series II Large Cap Value was renamed Deutsche Variable Series II Large Cap Value, the DWS Investment VIT Small Index Fund was renamed Deutsche Investment VIT Small Index, the ACVP Vista Fund was liquidated, and the JP Morgan Insurance Trust International Equity portfolio was liquidated
NOTE 2 - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
These financial statements have been prepared in conformity with accounting principles generally accepted in the United States of America (U.S. GAAP). The preparation of financial statements in accordance with U.S. GAAP requires management to make estimates and assumptions that affect the reported amounts and disclosures in the financial statements. Actual results could differ from those estimates. The following is a summary of significant accounting policies followed in the preparation of the Variable Accounts financial statements:
NATIONAL VARIABLE ANNUITY ACCOUNT II
(A Separate Account of National Life Insurance Company)
NOTES TO THE FINANCIAL STATEMENTS (continued)
NOTE 2 SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (continued)
Investments
The portfolios consist of the Alger Capital Appreciation Fund, Alger Large Cap Growth Fund, Alger Small Cap Growth Fund, Alliance Bernstein VPS International Growth Fund, AllianceBernstein VPS International Value Fund, AllianceBernstein VPS Small/Mid Cap Value Fund, AllianceBernstein VPS Value Fund, ACVP Income & Growth Fund, ACVP Inflation Protection Fund, ACVP International Fund, ACVP Ultra Fund, ACVP Value Fund, Deutsche Variable Series II Small Mid Cap Value VIP, Deutsche Investments VIT Small Cap Index VIP, Deutsche Variable Series II Large Cap Value VIP, Dreyfus Appreciation Fund, Dreyfus Opportunistic Small Cap Fund, Dreyfus Quality Bond Fund, Dreyfus Socially Responsible Growth Fund, FVIPF Equity Income, FVIPF Growth, FVIPF High Income, FVIPF Overseas, FVIPF II Contrafund, FVIPF II Index 500, FVIPF III Mid Cap, FVIPF III Value Strategies, FVIPF V Investment Grade Bond, FVIPF V Money Market, Franklin Templeton Foreign Securities Fund, Franklin Templeton Global Real Estate Fund, Franklin Templeton Mutual Global Discovery Securities, Franklin Templeton Mutual Shares Securities Fund, Franklin Templeton Small Cap Value Securities Fund, Franklin Templeton Small-Midcap Growth Securities Fund, Franklin Templeton US Government, Invesco V.I. Mid Cap Growth Fund, Invesco V.I Global Health Care Fund, Invesco V.I Technology Fund, JP Morgan Insurance Trust Small Cap Core, Neuberger Berman Mid Cap Growth, Neuberger Berman Large Cap Value, Neuberger Berman Short Duration Bond, Neuberger Berman Mid Cap Growth Class S, Neuberger Berman Socially Responsive, Oppenheimer Conservative Balanced Fund/VA, Oppenheimer Main Street Small Cap/VA, Oppenheimer Global Strategic Income/VA, SVPT Balanced, SVPT Bond, SVPT Common Stock, SVPT Mid Cap, SVPT Small Company, T Rowe Price Blue Chip Growth, T Rowe Price Equity Income, T Rowe Price Health Sciences, T Rowe Price Personal Strategy Balanced, Van Eck VIP Trust Unconstrained Emerging Markets Bond, Van Eck VIP Trust Emerging Markets, Van Eck VIP Trust Global Hard Assets, Wells Fargo Variable Trust Discovery, and Wells Fargo Variable Trust Opportunity.
The assets of each portfolio are held separate from the assets of the other portfolios and each has different investment objectives and policies. Each portfolio operates separately and the gains or losses in one portfolio have no effect on the investment performance of the other portfolios.
Investment Valuation
Investments in the portfolios are valued at the closing net asset value per share as determined by each portfolios administrator, and are classified under Level 1 of the three-tier hierarchy established in Accounting Standards Codification (ASC) 820 Fair Value Measurement. Under that hierarchy, Level 1 inputs consist of quoted prices in active markets for identical investments. During 2015, there were no significant transfers between levels. The change in the difference between cost and market value is reflected as unrealized appreciation (depreciation) in the Statements of Operations.
Investment Transactions
Investment transactions are accounted for on the trade date (date the order to buy or sell is executed) and dividend income and capital gain distributions are recorded on the ex-dividend date. The cost of investments sold was determined using the first in, first out method.
Contract Loans
Contractholders may obtain loans as outlined in the variable annuity contract. At the time a loan is granted, accumulated value equal to the amount of the loan is designated as collateral and transferred from the Variable Account to the General Account of National Life. Interest is credited by National Life at predetermined rates on collateral held in the General Account. This interest is periodically transferred to the Variable Account.
NATIONAL VARIABLE ANNUITY ACCOUNT II
(A Separate Account of National Life Insurance Company)
NOTES TO THE FINANCIAL STATEMENTS (continued)
NOTE 2 SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (continued)
Policyholder Transactions
Payments received from contractholders represent deposits under the contracts (but exclude amounts allocated to the guaranteed interest account, reflected in the General Account) reduced by applicable deductions, charges and state premium taxes. Contractholders may allocate contract value to the Variable Account and to the guaranteed interest account of National Lifes General Account. Transfers between the Variable Account and guaranteed interest account, net, are amounts that participants have directed to be moved among investment options, including permitted transfers to and from the guaranteed interest account.
Surrenders, lapses and contract benefits are payments to contractholders and beneficiaries made under the terms of the contracts and amounts that contractholders have requested to be withdrawn and paid to them. Withdrawal charges, if applicable, are included in transfers for contract benefits and terminations. Included in contract charges are administrative, cost of insurance, and other variable charges deducted monthly from the contracts.
Federal Income Taxes
The operations of the Variable Account are part of and taxed with, the total operations of National Life, under Subchapter L of the Internal Revenue Code (IRC). Under the current provisions of the IRC, National Life does not expect to incur federal income taxes on the earnings or realized capital gains attributable to the Variable Account. Based on this, no Federal income tax provision is required. National Life will review periodically the status of this policy in the event of changes in the tax law. The Variable Account did not record any changes in and had no recorded liabilities for uncertain tax benefits or related interest and penalties as of and for the year ended December 31, 2015.
Subsequent Events
National Life has evaluated events subsequent to December 31, 2015 and through the financial statement issuance date. National Life has not evaluated subsequent events after the issuance date for presentation in these financial statements.
NATIONAL VARIABLE ANNUITY ACCOUNT II
(A Separate Account of National Life Insurance Company)
NOTES TO THE FINANCIAL STATEMENTS (continued)
NOTE 3 CHARGES AND EXPENSES
The following table describes the charges and expenses assessed when buying, owning and surrendering a contract. Such charges reimburse National Life for the insurance and other benefits provided, its assumption of mortality and expense risks, and contract administration. The mortality risk assumed is that the annuitants under the contract may die later than anticipated. The expense risk assumed is that expenses incurred in issuing and administering the contracts may exceed expected levels.
Charges and Deductions
Description of Charge |
|
When Charge is Deducted |
|
Amount Deducted |
|
How Deducted |
Mortality and Expense Risk Charge |
|
Daily |
|
Annual Rate of 1.25% of the average daily net assets of each sub-account of the Variable Account |
|
Deducted from sub-accounts as a Reduction in Unit Value |
Administration Charge |
|
Daily |
|
Annual Rate of 0.15% of the average daily net assets of each sub-account of the Variable Account |
|
Deducted from sub-accounts as a Reduction in Unit Value |
Contingent Deferred Sales Charge |
|
Upon Withdrawal or Surrender, depending on the specifics and duration of the Contract |
|
0% - 7% of Net Purchase Payments withdrawn or surrendered |
|
Deducted from Accumulated Value upon Surrender or Lapse |
Annual Contract Fee |
|
Annually on Contract Anniversary on Contract Values under $50,000 |
|
$30 |
|
Unit Liquidation from Contract Value |
Transfer Charge |
|
Upon making a Transfer |
|
Currently no amount is assessed |
|
Deducted from Transfer amount |
Premium Taxes |
|
Upon Purchase Payment, Annuitization, Death of owner, or Surrender, depending on specifics of the Contract |
|
Amount of Premium Taxes, up to 3.5% |
|
Deducted from Purchase Payment or by Unit Liquidation from Contract Value |
Riders |
|
On the Date of Issue of the Contract and on each Monthly Contract Date |
|
Amounts vary depending on the specifics of the Contract |
|
Unit liquidation from Contract Value |
The SVPT portfolios are managed by an affiliate of National Life. During the year ended December 31, 2015, management fees were paid directly by the sub-accounts to the affiliate investment manager. The advisory agreement provides for fees ranging from 0.40% to 0.55% based on individual portfolios and average daily net assets. The effective advisory fee rate paid by the sub-accounts in 2015 was 0.48%.
NATIONAL VARIABLE ANNUITY ACCOUNT II
(A Separate Account of National Life Insurance Company)
NOTES TO THE FINANCIAL STATEMENTS (continued)
NOTE 4 INVESTMENTS
The number of shares held and cost for each of the portfolios at December 31, 2015 are set forth below:
Portfolio |
|
Shares |
|
Cost |
| |
Alger American Fund |
|
|
|
|
| |
Capital Appreciation |
|
33,833 |
|
$ |
2,094,190 |
|
Large Cap Growth |
|
165,020 |
|
7,351,552 |
| |
Small Cap Growth |
|
71,981 |
|
1,932,050 |
| |
|
|
|
|
|
| |
AllianceBernstein Variable Portfolios |
|
|
|
|
| |
International Growth |
|
17,156 |
|
300,872 |
| |
International Value |
|
182,116 |
|
2,285,141 |
| |
Small/Mid Cap Value |
|
104,594 |
|
1,867,457 |
| |
VPS Value |
|
3,582 |
|
50,696 |
| |
|
|
|
|
|
| |
American Century Variable Portfolios |
|
|
|
|
| |
VP Income & Growth |
|
242,015 |
|
1,727,615 |
| |
VP Inflation Protection |
|
154,099 |
|
1,746,335 |
| |
VP International |
|
395,632 |
|
3,075,597 |
| |
VP Ultra |
|
3,085 |
|
37,871 |
| |
VP Value |
|
436,000 |
|
2,628,512 |
| |
|
|
|
|
|
| |
Deutsche Variable Series II |
|
|
|
|
| |
Small Mid Cap Value VIP |
|
93,621 |
|
1,136,601 |
| |
Large Cap Value VIP |
|
19,716 |
|
283,158 |
| |
VIT Small Cap Index VIP |
|
5,939 |
|
90,919 |
| |
|
|
|
|
|
| |
Dreyfus Variable Investment Fund |
|
|
|
|
| |
VIF Appreciation Portfolio |
|
9,844 |
|
382,997 |
| |
VIF Opportunistic Small Cap Portfolio |
|
8,035 |
|
288,890 |
| |
VIF Quality Bond Portfolio |
|
137,855 |
|
1,670,493 |
| |
Socially Responsible Growth |
|
10,566 |
|
334,320 |
| |
|
|
|
|
|
| |
Fidelity Variable Insurance Product Funds |
|
|
|
|
| |
Equity Income |
|
247,425 |
|
5,360,283 |
| |
Growth |
|
76,892 |
|
3,040,826 |
| |
High Income |
|
648,466 |
|
3,574,161 |
| |
Overseas |
|
185,087 |
|
3,035,701 |
| |
II Contrafund |
|
245,432 |
|
6,746,308 |
| |
II Index 500 |
|
50,920 |
|
7,465,850 |
| |
III Mid Cap |
|
101,757 |
|
3,134,709 |
| |
III Value Strategies |
|
14,321 |
|
212,861 |
| |
V Investment Grade Bond |
|
484,813 |
|
6,315,980 |
| |
V Money Market |
|
9,373,229 |
|
9,373,229 |
| |
|
|
|
|
|
| |
Franklin Templeton VIP Trust |
|
|
|
|
| |
Foreign Securities |
|
125,194 |
|
1,823,383 |
| |
Global Real Estate |
|
67,085 |
|
931,893 |
| |
Mutual Global Discovery Securities |
|
45,445 |
|
969,819 |
| |
Mutual Shares Securities |
|
46,527 |
|
834,733 |
| |
Small Cap Value Securities |
|
19,838 |
|
350,058 |
| |
Small-Midcap Growth Securities |
|
18,176 |
|
392,704 |
| |
US Government |
|
61,407 |
|
818,430 |
| |
NATIONAL VARIABLE ANNUITY ACCOUNT II
(A Separate Account of National Life Insurance Company)
NOTES TO THE FINANCIAL STATEMENTS (continued)
NOTE 4 INVESTMENTS (continued)
The number of shares held and cost for each of the portfolios at December 31, 2015 are set forth below:
Portfolio |
|
Shares |
|
Cost |
| |
Invesco Variable Insurance Funds |
|
|
|
|
| |
Global Health Care |
|
65,670 |
|
$ |
1,408,151 |
|
Mid Cap Growth |
|
130,638 |
|
549,964 |
| |
Technology |
|
58,405 |
|
962,218 |
| |
|
|
|
|
|
| |
JP Morgan Series Insurance Trust |
|
|
|
|
| |
Small Cap Core |
|
33,365 |
|
549,899 |
| |
|
|
|
|
|
| |
Neuberger Berman Advisors Management Trust |
|
|
|
|
| |
Mid-Cap Growth |
|
32,298 |
|
802,297 |
| |
Large Cap Value |
|
76,160 |
|
838,684 |
| |
Short Duration Bond |
|
419,915 |
|
4,577,840 |
| |
(1) Small Cap Growth |
|
|
|
0 |
| |
(1) Mid Cap Growth Class S |
|
21,707 |
|
481,727 |
| |
Socially Responsive |
|
1,643 |
|
39,514 |
| |
|
|
|
|
|
| |
Oppenheimer Variable Products |
|
|
|
|
| |
(2) Conservative Balanced Fund/VA |
|
15,304 |
|
216,624 |
| |
Main Street Small- & Mid Cap/VA |
|
8,789 |
|
214,325 |
| |
Global Strategic Income/VA |
|
231,207 |
|
1,280,874 |
| |
|
|
|
|
|
| |
Sentinel Variable Products Trust |
|
|
|
|
| |
Balanced |
|
731,760 |
|
9,288,069 |
| |
Bond |
|
962,455 |
|
9,769,308 |
| |
Common Stock |
|
1,101,133 |
|
16,147,603 |
| |
Mid Cap |
|
404,013 |
|
4,737,289 |
| |
Small Company |
|
1,098,179 |
|
15,507,847 |
| |
|
|
|
|
|
| |
T Rowe Price Equity Series |
|
|
|
|
| |
Blue Chip Growth |
|
100,542 |
|
1,151,191 |
| |
Equity Income |
|
175,284 |
|
3,370,287 |
| |
Health Sciences |
|
63,101 |
|
1,732,063 |
| |
Personal Strategy Balanced |
|
20,972 |
|
433,269 |
| |
|
|
|
|
|
| |
Van Eck VIPT |
|
|
|
|
| |
(3) Unconstrained Emerging Markets Bond |
|
195,351 |
|
2,000,705 |
| |
Emerging Markets |
|
142,309 |
|
1,817,498 |
| |
Global Hard Assets |
|
68,106 |
|
1,799,148 |
| |
|
|
|
|
|
| |
Wells Fargo Variable Trust Funds |
|
|
|
|
| |
Discovery |
|
98,993 |
|
2,174,930 |
| |
Opportunity |
|
94,725 |
|
1,768,003 |
| |
(1) On November 6, 2015, Neuberger Berman Advisors Management Trust Small Cap Growth Portfolio was merged into Neuberger Berman Advisors Management Trust Mid Cap Growth Class S Portfolio
(2) During 2015, Oppenheimer Variable Products Capital Income Fund was renamed Oppenheimer Variable Products Conservative Balanced Fund
(3) During 2015, Van Eck VIP Trust Global Bond Portfolio was renamed Van Eck VIP Trust Unconstrained Emerging Markets Bond Portfolio
NATIONAL VARIABLE ANNUITY ACCOUNT II
(A Separate Account of National Life Insurance Company)
NOTES TO THE FINANCIAL STATEMENTS (continued)
NOTE 5 PURCHASES AND SALES OF PORTFOLIO SHARES
Purchases and proceeds from sales of shares in the portfolios for the year ended December 31, 2015 are set forth below:
Portfolio |
|
Purchases |
|
Sales Proceeds |
| ||
Alger American Fund |
|
|
|
|
| ||
Capital Appreciation |
|
$ |
510,101 |
|
$ |
465,891 |
|
Large Cap Growth |
|
1,237,435 |
|
2,945,754 |
| ||
Small Cap Growth |
|
484,520 |
|
297,573 |
| ||
|
|
|
|
|
| ||
AllianceBernstein Variable Portfolios |
|
|
|
|
| ||
International Growth |
|
49,818 |
|
97,632 |
| ||
International Value |
|
343,069 |
|
1,144,528 |
| ||
Small/Mid Cap Value |
|
526,771 |
|
802,605 |
| ||
VPS Value |
|
11,668 |
|
34,258 |
| ||
|
|
|
|
|
| ||
American Century Variable Portfolios |
|
|
|
|
| ||
VP Income & Growth |
|
297,911 |
|
207,309 |
| ||
VP Inflation Protection |
|
170,441 |
|
455,526 |
| ||
VP International |
|
327,235 |
|
1,279,405 |
| ||
VP Ultra |
|
15,457 |
|
4,055 |
| ||
VP Value |
|
203,757 |
|
677,733 |
| ||
|
|
|
|
|
| ||
Deutsche Variable Series II |
|
|
|
|
| ||
Small Mid Cap Value VIP |
|
279,493 |
|
610,729 |
| ||
Large Cap Value VIP |
|
42,864 |
|
39,824 |
| ||
VIT Small Cap Index VIP |
|
31,397 |
|
7,920 |
| ||
|
|
|
|
|
| ||
Dreyfus Variable Investment Fund |
|
|
|
|
| ||
VIF Appreciation Portfolio |
|
52,837 |
|
128,227 |
| ||
VIF Opportunistic Small Cap Portfolio |
|
44,833 |
|
28,150 |
| ||
VIF Quality Bond Portfolio |
|
274,666 |
|
323,540 |
| ||
Socially Responsible Growth |
|
66,625 |
|
55,010 |
| ||
|
|
|
|
|
| ||
Fidelity Variable Insurance Product Funds |
|
|
|
|
| ||
Equity Income |
|
893,260 |
|
961,827 |
| ||
Growth |
|
270,122 |
|
1,098,666 |
| ||
High Income |
|
552,075 |
|
718,345 |
| ||
Overseas |
|
417,058 |
|
874,465 |
| ||
II Contrafund |
|
1,452,613 |
|
1,635,390 |
| ||
II Index 500 |
|
1,017,661 |
|
1,620,399 |
| ||
III Mid Cap |
|
652,114 |
|
787,126 |
| ||
III Value Strategies |
|
110,812 |
|
78,440 |
| ||
V Investment Grade Bond |
|
579,480 |
|
1,454,774 |
| ||
V Money Market |
|
8,431,005 |
|
6,397,264 |
| ||
|
|
|
|
|
| ||
Franklin Templeton VIP Trust |
|
|
|
|
| ||
Foreign Securities |
|
415,914 |
|
580,225 |
| ||
Global Real Estate |
|
256,090 |
|
211,891 |
| ||
Mutual Global Discovery Securities |
|
318,297 |
|
105,477 |
| ||
Mutual Shares Securities |
|
160,699 |
|
161,429 |
| ||
Small Cap Value Securities |
|
86,377 |
|
82,679 |
| ||
Small-Midcap Growth Securities |
|
128,330 |
|
63,393 |
| ||
US Government |
|
51,356 |
|
204,456 |
| ||
NATIONAL VARIABLE ANNUITY ACCOUNT II
(A Separate Account of National Life Insurance Company)
NOTES TO THE FINANCIAL STATEMENTS (continued)
NOTE 5 PURCHASES AND SALES OF PORTFOLIO SHARES (continued)
Purchases and proceeds from sales of shares in the portfolios for the year ended December 31, 2015 are set forth below:
Portfolio |
|
Purchases |
|
Sales Proceeds |
| |||
Invesco Variable Insurance Funds |
|
|
|
|
| |||
|
Global Health Care |
|
$ |
419,408 |
|
$ |
531,656 |
|
|
Mid Cap Growth |
|
72,444 |
|
86,288 |
| ||
|
Technology |
|
219,542 |
|
123,332 |
| ||
|
|
|
|
|
|
| ||
JP Morgan Insurance Trust |
|
|
|
|
| |||
|
Small Cap Core |
|
149,437 |
|
101,745 |
| ||
|
|
|
|
|
|
| ||
Neuberger Berman Advisors Management Trust |
|
|
|
|
| |||
|
Mid-Cap Growth |
|
152,732 |
|
84,670 |
| ||
|
Large Cap Value |
|
118,400 |
|
139,427 |
| ||
|
Short Duration Bond |
|
984,726 |
|
1,971,237 |
| ||
(1) |
Small Cap Growth |
|
91,765 |
|
623,353 |
| ||
(1) |
Mid Cap Growth Class S |
|
1,011,792 |
|
529,534 |
| ||
|
Socially Responsive |
|
34,598 |
|
10,324 |
| ||
|
|
|
|
|
|
| ||
Oppenheimer Variable Products |
|
|
|
|
| |||
(2) |
Conservative Balanced Fund/VA |
|
160,256 |
|
23,175 |
| ||
|
Main Street Small Cap/VA |
|
92,756 |
|
12,559 |
| ||
|
Global Strategic Income/VA |
|
496,983 |
|
454,131 |
| ||
|
|
|
|
|
|
| ||
Sentinel Variable Products Trust |
|
|
|
|
| |||
|
Balanced |
|
1,635,548 |
|
1,087,954 |
| ||
|
Bond |
|
1,281,414 |
|
3,005,527 |
| ||
|
Common Stock |
|
3,177,872 |
|
4,985,690 |
| ||
|
Mid Cap |
|
633,784 |
|
1,468,077 |
| ||
|
Small Company |
|
2,877,237 |
|
3,724,487 |
| ||
|
|
|
|
|
|
| ||
T Rowe Price Equity Series |
|
|
|
|
| |||
|
Blue Chip Growth |
|
318,497 |
|
450,460 |
| ||
|
Equity Income |
|
680,609 |
|
1,775,073 |
| ||
|
Health Sciences |
|
391,019 |
|
730,645 |
| ||
|
Personal Strategy Balanced |
|
43,838 |
|
102,769 |
| ||
|
|
|
|
|
|
| ||
Van Eck VIPT |
|
|
|
|
| |||
(3) |
Unconstrained Emerging Markets Bond |
|
452,896 |
|
510,975 |
| ||
|
Emerging Markets |
|
395,982 |
|
468,733 |
| ||
|
Global Hard Assets |
|
814,308 |
|
450,690 |
| ||
|
|
|
|
|
|
| ||
Wells Fargo Variable Trust Funds |
|
|
|
|
| |||
|
Discovery |
|
473,336 |
|
303,481 |
| ||
|
Opportunity |
|
335,185 |
|
467,160 |
| ||
(1) On November 6, 2015, Neuberger Berman Advisors Management Trust Small Cap Growth Portfolio was merged into Neuberger Berman Advisors Management Trust Mid Cap Growth Class S Portfolio
(2) During 2015, Oppenheimer Variable Products Capital Income Fund was renamed Oppenheimer Variable Products Conservative Balanced Fund
(3) During 2015, Van Eck VIP Trust Global Bond Portfolio was renamed Van Eck VIP Trust Unconstrained Emerging Markets Bond Portfolio
NATIONAL VARIABLE ANNUITY ACCOUNT II
(A Separate Account of National Life Insurance Company)
NOTES TO THE FINANCIAL STATEMENTS (continued)
NOTE 6 FINANCIAL HIGHLIGHTS
A summary of units outstanding and unit values for the Variable Account, the investment income ratios, the expense ratios, excluding expenses of the underlying funds, and total return for the years ended December 31, 2015, 2014, 2013, 2012, and 2011 are shown below. Information for the years ended December 31, 2015, 2014, 2013, 2012, and 2011 reflects the adoption of AICPA Statement of Position 03-5, Financial Highlights of Separate Accounts. Certain ratios presented for the prior years reflect the presentation used in the current year.
|
|
|
|
For the Year Ended December 31, |
| ||||||||
|
|
At December 31, 2015 |
|
2015 |
| ||||||||
|
|
|
|
|
|
|
|
Investment |
|
|
|
|
|
|
|
|
|
Unit Fair |
|
|
|
Income |
|
Expense |
|
Total |
|
Portfolio |
|
Units |
|
Value |
|
Net Assets |
|
Ratio (a) |
|
Ratio (b) |
|
Return (c) |
|
Alger American Fund |
|
|
|
|
|
|
|
|
|
|
|
|
|
Capital Appreciation |
|
104,425.56 |
|
21.84 |
|
2,281,021 |
|
0.08 |
% |
1.40 |
% |
4.72 |
% |
Large Cap Growth |
|
350,836.43 |
|
25.05 |
|
8,788,990 |
|
0.00 |
% |
1.40 |
% |
0.31 |
% |
Small Cap Growth |
|
72,727.99 |
|
20.26 |
|
1,473,459 |
|
0.00 |
% |
1.40 |
% |
-4.66 |
% |
Alliance Bernstein Variable Portfolios |
|
|
|
|
|
|
|
|
|
|
|
|
|
International Growth |
|
19,542.65 |
|
16.35 |
|
319,449 |
|
0.36 |
% |
1.40 |
% |
-3.22 |
% |
International Value |
|
167,813.93 |
|
14.67 |
|
2,462,214 |
|
2.27 |
% |
1.40 |
% |
1.17 |
% |
Small/Mid CapValue |
|
65,734.03 |
|
27.51 |
|
1,808,438 |
|
0.82 |
% |
1.40 |
% |
-6.79 |
% |
VPS Value |
|
2,525.49 |
|
20.01 |
|
50,539 |
|
2.40 |
% |
1.40 |
% |
-8.24 |
% |
American Century Variable Portfolios |
|
|
|
|
|
|
|
|
|
|
|
|
|
Income & Growth |
|
114,223.33 |
|
18.16 |
|
2,074,073 |
|
2.16 |
% |
1.40 |
% |
-6.93 |
% |
Inflation Protection |
|
115,988.83 |
|
13.23 |
|
1,534,823 |
|
2.45 |
% |
1.40 |
% |
-3.63 |
% |
International |
|
235,749.53 |
|
16.82 |
|
3,964,227 |
|
0.41 |
% |
1.40 |
% |
-0.63 |
% |
Ultra |
|
2,566.51 |
|
18.60 |
|
47,725 |
|
0.36 |
% |
1.40 |
% |
4.80 |
% |
Value |
|
141,503.08 |
|
27.27 |
|
3,858,600 |
|
2.19 |
% |
1.40 |
% |
-5.21 |
% |
Dreyfus Variable Investment Fund |
|
|
|
|
|
|
|
|
|
|
|
|
|
Appreciation |
|
25,244.02 |
|
17.64 |
|
445,238 |
|
1.75 |
% |
1.40 |
% |
-3.82 |
% |
Opportunistic Small Cap |
|
25,647.32 |
|
14.42 |
|
369,773 |
|
0.00 |
% |
1.40 |
% |
-3.63 |
% |
Quality Bond |
|
117,834.51 |
|
13.71 |
|
1,615,662 |
|
2.05 |
% |
1.40 |
% |
-3.01 |
% |
Socially Responsible Growth |
|
33,305.15 |
|
12.23 |
|
407,406 |
|
1.12 |
% |
1.40 |
% |
-4.53 |
% |
Deutsche Variable Series II |
|
|
|
|
|
|
|
|
|
|
|
|
|
Small Mid Cap Value |
|
67,210.25 |
|
22.22 |
|
1,493,252 |
|
0.00 |
% |
1.40 |
% |
-3.56 |
% |
Large Cap Value |
|
22,802.67 |
|
13.24 |
|
301,857 |
|
1.15 |
% |
1.40 |
% |
-8.45 |
% |
Small Cap Index Value |
|
3,815.58 |
|
23.63 |
|
90,147 |
|
0.90 |
% |
1.40 |
% |
-5.91 |
% |
Fidelity Variable Insurance Product Funds |
|
|
|
|
|
|
|
|
|
|
|
|
|
Equity Income |
|
230,943.86 |
|
21.92 |
|
5,062,315 |
|
3.12 |
% |
1.40 |
% |
-5.29 |
% |
Growth |
|
199,115.80 |
|
25.39 |
|
5,055,670 |
|
0.25 |
% |
1.40 |
% |
5.69 |
% |
High Income |
|
210,409.70 |
|
15.26 |
|
3,209,908 |
|
6.32 |
% |
1.40 |
% |
-4.96 |
% |
Overseas |
|
218,798.90 |
|
16.14 |
|
3,531,463 |
|
1.32 |
% |
1.40 |
% |
2.19 |
% |
II Contrafund |
|
232,699.39 |
|
35.78 |
|
8,325,054 |
|
1.01 |
% |
1.40 |
% |
-0.72 |
% |
II Index 500 |
|
431,509.47 |
|
24.36 |
|
10,511,415 |
|
2.02 |
% |
1.40 |
% |
-0.07 |
% |
III Mid Cap |
|
127,870.67 |
|
25.98 |
|
3,322,358 |
|
0.48 |
% |
1.40 |
% |
-2.75 |
% |
III Value Strategies |
|
6,914.86 |
|
30.11 |
|
208,231 |
|
1.22 |
% |
1.40 |
% |
-4.33 |
% |
V Investment Grade Bond |
|
349,865.24 |
|
17.14 |
|
5,997,138 |
|
2.45 |
% |
1.40 |
% |
-1.97 |
% |
V Money Market |
|
819,043.98 |
|
11.44 |
|
9,373,229 |
|
0.01 |
% |
1.40 |
% |
-1.37 |
% |
Franklin Templeton VIP Trust |
|
|
|
|
|
|
|
|
|
|
|
|
|
Foreign Securities |
|
113,030.75 |
|
14.62 |
|
1,652,557 |
|
3.40 |
% |
1.40 |
% |
-7.79 |
% |
Global Real Estate |
|
69,900.59 |
|
14.89 |
|
1,041,157 |
|
3.18 |
% |
1.40 |
% |
-0.82 |
% |
Mutual Global Discovery |
|
49,217.96 |
|
18.33 |
|
902,091 |
|
3.10 |
% |
1.40 |
% |
-4.73 |
% |
Mutual Shares Securities |
|
53,860.93 |
|
16.59 |
|
893,326 |
|
3.16 |
% |
1.40 |
% |
-6.25 |
% |
Small Cap Value Securities |
|
17,096.11 |
|
20.52 |
|
350,727 |
|
0.69 |
% |
1.40 |
% |
-8.67 |
% |
Small MidCap |
|
16,814.56 |
|
19.12 |
|
321,530 |
|
0.00 |
% |
1.40 |
% |
-4.00 |
% |
US Government |
|
70,003.99 |
|
11.18 |
|
782,320 |
|
2.90 |
% |
1.40 |
% |
-0.68 |
% |
Invesco Variable Investment Fund |
|
|
|
|
|
|
|
|
|
|
|
|
|
Global Health Care |
|
100,481.08 |
|
20.75 |
|
2,085,016 |
|
0.00 |
% |
1.40 |
% |
1.74 |
% |
Mid Cap Growth |
|
49,996.20 |
|
14.06 |
|
702,833 |
|
0.00 |
% |
1.40 |
% |
-0.19 |
% |
Technology |
|
152,182.01 |
|
7.23 |
|
1,099,768 |
|
0.00 |
% |
1.40 |
% |
5.34 |
% |
NATIONAL VARIABLE ANNUITY ACCOUNT II
(A Separate Account of National Life Insurance Company)
NOTES TO THE FINANCIAL STATEMENTS (continued)
NOTE 6 FINANCIAL HIGHLIGHTS (continued)
|
|
|
|
For the Year Ended December 31, |
| ||||||||
|
|
At December 31, 2015 |
|
2015 |
| ||||||||
|
|
|
|
|
|
|
|
Investment |
|
|
|
|
|
|
|
|
|
Unit Fair |
|
|
|
Income |
|
Expense |
|
Total |
|
Portfolio |
|
Units |
|
Value |
|
Net Assets |
|
Ratio (a) |
|
Ratio (b) |
|
Return (c) |
|
JP Morgan Series Trust II |
|
|
|
|
|
|
|
|
|
|
|
|
|
Small Cap Core |
|
27,255.65 |
|
25.17 |
|
685,976 |
|
0.14 |
% |
1.40 |
% |
-6.59 |
% |
Neuberger Berman Advisors Management Trust |
|
|
|
|
|
|
|
|
|
|
|
|
|
Mid Cap Growth |
|
29,610.05 |
|
24.79 |
|
734,133 |
|
0.00 |
% |
1.40 |
% |
-0.13 |
% |
Large Cap Value |
|
59,651.72 |
|
16.84 |
|
1,004,553 |
|
0.79 |
% |
1.40 |
% |
-13.02 |
% |
Short Duration Bond |
|
424,356.87 |
|
10.41 |
|
4,417,502 |
|
1.43 |
% |
1.40 |
% |
-1.20 |
% |
Small Cap Growth (1) |
|
0.00 |
|
|
|
|
|
0.00 |
% |
1.40 |
% |
-16.23 |
% |
Mid Cap Growth Class S (1) |
|
48,381.17 |
|
9.58 |
|
463,441 |
|
0.00 |
% |
1.40 |
% |
0.00 |
% |
Socially Responsive |
|
1,487.39 |
|
23.71 |
|
35,269 |
|
0.74 |
% |
1.40 |
% |
-1.84 |
% |
Oppenheimer Variable Products |
|
|
|
|
|
|
|
|
|
|
|
|
|
Conservative Balanced Fund (2) |
|
12,672.62 |
|
17.25 |
|
218,544 |
|
2.06 |
% |
1.40 |
% |
-0.82 |
% |
Main Street Small Cap |
|
6,675.96 |
|
27.71 |
|
185,007 |
|
0.67 |
% |
1.40 |
% |
-7.39 |
% |
Global Strategic Income Bond |
|
78,625.08 |
|
14.70 |
|
1,156,032 |
|
5.87 |
% |
1.40 |
% |
-3.84 |
% |
Sentinel Variable Products Trust |
|
|
|
|
|
|
|
|
|
|
|
|
|
Balanced |
|
409,741.86 |
|
22.31 |
|
9,139,682 |
|
1.81 |
% |
1.40 |
% |
-1.36 |
% |
Bond |
|
459,655.92 |
|
19.64 |
|
9,027,832 |
|
3.00 |
% |
1.40 |
% |
-2.65 |
% |
Common Stock |
|
624,066.48 |
|
27.28 |
|
17,023,515 |
|
2.58 |
% |
1.40 |
% |
-1.19 |
% |
Mid Cap Growth |
|
193,980.56 |
|
23.41 |
|
4,541,102 |
|
0.20 |
% |
1.40 |
% |
-2.59 |
% |
Small Company |
|
265,364.55 |
|
50.24 |
|
13,331,894 |
|
0.00 |
% |
1.40 |
% |
-2.70 |
% |
T Row e Price Equity Services |
|
|
|
|
|
|
|
|
|
|
|
|
|
Blue Chip Growth |
|
97,695.95 |
|
23.02 |
|
2,249,123 |
|
0.00 |
% |
1.40 |
% |
9.27 |
% |
Equity Income |
|
281,582.16 |
|
16.64 |
|
4,685,340 |
|
1.61 |
% |
1.40 |
% |
-8.39 |
% |
Health Sciences |
|
53,736.03 |
|
44.24 |
|
2,377,025 |
|
0.00 |
% |
1.40 |
% |
10.92 |
% |
Personal Strategies |
|
19,644.33 |
|
20.00 |
|
392,804 |
|
1.76 |
% |
1.40 |
% |
-1.43 |
% |
Van Eck VIPT |
|
|
|
|
|
|
|
|
|
|
|
|
|
Unconstrained Emerging Markets Bond (3) |
|
149,112.19 |
|
10.00 |
|
1,490,529 |
|
6.90 |
% |
1.40 |
% |
-14.29 |
% |
Emerging Markets |
|
62,696.96 |
|
23.83 |
|
1,494,249 |
|
0.59 |
% |
1.40 |
% |
-15.18 |
% |
Global Hard Assets |
|
121,903.51 |
|
9.43 |
|
1,149,628 |
|
0.03 |
% |
1.40 |
% |
-34.37 |
% |
Wells Fargo Variable Funds |
|
|
|
|
|
|
|
|
|
|
|
|
|
Discovery |
|
74,617.28 |
|
34.48 |
|
2,572,834 |
|
0.00 |
% |
1.40 |
% |
-2.83 |
% |
Opportunity |
|
67,928.88 |
|
34.93 |
|
2,372,869 |
|
0.13 |
% |
1.40 |
% |
-4.42 |
% |
(1) On November 6, 2015, Neuberger Berman Advisors Management Trust Small Cap Growth Portfolio was merged into Neuberger Berman Advisors Management Trust Mid Cap Growth Class S Portfolio. Total return has been calculated as of November 5, 2015.
(2) During 2015, Oppenheimer Variable Products Capital Income Fund was renamed Oppenheimer Variable Products Conservative Balanced Fund
(3) During 2015, Van Eck VIP Trust Global Bond Portfolio was renamed Van Eck VIP Trust Unconstrained Emerging Markets Bond Portfolio
(a) These amounts represent dividends, excluding distributions of capital gains, received by the sub-account from the underlying mutual fund, net of management fees assessed by the fund manager, divided by the average net assets for the period indicated. These ratios exclude those expenses, such as mortality and expense charges, that are assessed against contract value either through reductions in the unit values or the redemption of units. The recognition of investment income by the sub-account is affected by the timing of the declaration of dividends by the underlying fund in which the sub-account invests.
(b) These amounts represent the annualized contract expenses of the separate account, consisting primarily of mortality and expense charges, for each period indicated. The ratios include only those expenses that result in a direct reduction to unit values. Charges made directly to contract value through the redemption of units and expenses of the underlying fund have been excluded.
(c) These amounts represent the total return for the periods indicated, including changes in the value of the underlying fund, and expenses assessed through the reduction of unit values. These ratios do not include any expenses assessed through the redemption of units.
NATIONAL VARIABLE ANNUITY ACCOUNT II
(A Separate Account of National Life Insurance Company)
NOTES TO THE FINANCIAL STATEMENTS (continued)
NOTE 6 FINANCIAL HIGHLIGHTS (continued)
|
|
|
|
|
|
|
|
For the Year Ended December 31, |
| ||||
|
|
At December 31, 2014 |
|
2014 |
| ||||||||
|
|
|
|
|
|
|
|
Investment |
|
|
|
|
|
|
|
|
|
Unit Fair |
|
|
|
Income |
|
Expense |
|
Total |
|
Portfolio |
|
Units |
|
Value |
|
Net Assets |
|
Ratio (a) |
|
Ratio (b) |
|
Return (c) |
|
Alger American Fund |
|
|
|
|
|
|
|
|
|
|
|
|
|
Capital Appreciation |
|
112,315.35 |
|
20.86 |
|
2,342,719 |
|
0.09 |
% |
1.40 |
% |
12.18 |
% |
Large Cap Growth |
|
449,161.67 |
|
24.97 |
|
11,217,366 |
|
0.15 |
% |
1.40 |
% |
9.45 |
% |
Small Cap Growth |
|
82,773.20 |
|
21.25 |
|
1,758,849 |
|
0.00 |
% |
1.40 |
% |
-0.95 |
% |
Alliance Bernstein Variable Portfolios |
|
|
|
|
|
|
|
|
|
|
|
|
|
International Growth |
|
22,159.27 |
|
16.89 |
|
374,289 |
|
0.00 |
% |
1.40 |
% |
-2.56 |
% |
International Value |
|
222,237.21 |
|
14.50 |
|
3,222,974 |
|
3.54 |
% |
1.40 |
% |
-7.51 |
% |
Small/Mid CapValue |
|
87,317.22 |
|
29.52 |
|
2,577,288 |
|
0.71 |
% |
1.40 |
% |
7.69 |
% |
VPS Value |
|
3,645.24 |
|
21.81 |
|
79,493 |
|
1.85 |
% |
1.40 |
% |
9.57 |
% |
American Century Variable Portfolios |
|
|
|
|
|
|
|
|
|
|
|
|
|
Income & Growth |
|
120,194.70 |
|
19.51 |
|
2,344,897 |
|
2.02 |
% |
1.40 |
% |
10.95 |
% |
Inflation Protection |
|
138,329.77 |
|
13.73 |
|
1,899,438 |
|
1.48 |
% |
1.40 |
% |
2.15 |
% |
International |
|
287,465.79 |
|
16.92 |
|
4,864,742 |
|
1.75 |
% |
1.40 |
% |
-6.81 |
% |
Ultra |
|
2,116.13 |
|
17.74 |
|
37,547 |
|
0.35 |
% |
1.40 |
% |
8.47 |
% |
Value |
|
159,512.97 |
|
28.77 |
|
4,588,931 |
|
1.54 |
% |
1.40 |
% |
11.52 |
% |
Deutsche Variable Series II |
|
|
|
|
|
|
|
|
|
|
|
|
|
Small Mid Cap Value (1) |
|
87,100.38 |
|
23.04 |
|
2,006,698 |
|
2.99 |
% |
1.40 |
% |
3.64 |
% |
Large Cap Value (2) |
|
23,599.58 |
|
14.46 |
|
341,238 |
|
0.21 |
% |
1.40 |
% |
8.83 |
% |
Small Cap Index Value (3) |
|
3,068.46 |
|
25.11 |
|
77,053 |
|
1.11 |
% |
1.40 |
% |
3.29 |
% |
Dreyfus Variable Investment Fund |
|
|
|
|
|
|
|
|
|
|
|
|
|
Appreciation |
|
30,709.49 |
|
18.34 |
|
563,129 |
|
1.84 |
% |
1.40 |
% |
6.60 |
% |
Opportunistic Small Cap |
|
24,454.39 |
|
14.96 |
|
365,846 |
|
0.00 |
% |
1.40 |
% |
0.19 |
% |
Quality Bond |
|
122,265.89 |
|
14.14 |
|
1,728,436 |
|
2.13 |
% |
1.40 |
% |
3.35 |
% |
Socially Responsible Growth |
|
37,096.23 |
|
12.81 |
|
475,327 |
|
1.05 |
% |
1.40 |
% |
11.88 |
% |
Fidelity Variable Insurance Product Funds |
|
|
|
|
|
|
|
|
|
|
|
|
|
Equity Income |
|
261,619.14 |
|
23.15 |
|
6,055,179 |
|
2.80 |
% |
1.40 |
% |
7.22 |
% |
Growth |
|
236,660.71 |
|
24.02 |
|
5,685,290 |
|
0.18 |
% |
1.40 |
% |
9.76 |
% |
High Income |
|
231,602.07 |
|
16.05 |
|
3,717,583 |
|
5.48 |
% |
1.40 |
% |
-0.24 |
% |
Overseas |
|
246,603.18 |
|
15.79 |
|
3,894,858 |
|
1.35 |
% |
1.40 |
% |
-9.35 |
% |
II Contrafund |
|
259,330.84 |
|
36.04 |
|
9,345,183 |
|
0.91 |
% |
1.40 |
% |
10.40 |
% |
II Index 500 |
|
458,902.09 |
|
24.38 |
|
11,186,145 |
|
1.62 |
% |
1.40 |
% |
12.00 |
% |
III Mid Cap |
|
148,423.15 |
|
26.72 |
|
3,965,513 |
|
0.24 |
% |
1.40 |
% |
4.82 |
% |
III Value Strategies |
|
5,988.32 |
|
31.48 |
|
188,489 |
|
1.16 |
% |
1.40 |
% |
5.32 |
% |
V Investment Grade Bond |
|
404,497.18 |
|
17.49 |
|
7,072,904 |
|
2.04 |
% |
1.40 |
% |
4.36 |
% |
V Money Market |
|
632,529.40 |
|
11.60 |
|
7,339,488 |
|
0.01 |
% |
1.40 |
% |
-1.37 |
% |
Franklin Templeton VIP Trust |
|
|
|
|
|
|
|
|
|
|
|
|
|
Foreign Securities |
|
129,373.80 |
|
15.85 |
|
2,051,197 |
|
3.03 |
% |
1.40 |
% |
-12.36 |
% |
Global Real Estate |
|
68,152.00 |
|
15.02 |
|
1,023,490 |
|
0.46 |
% |
1.40 |
% |
13.42 |
% |
Mutual Global Discovery |
|
41,840.60 |
|
19.24 |
|
804,938 |
|
3.17 |
% |
1.40 |
% |
4.51 |
% |
Mutual Shares Securities |
|
58,555.73 |
|
17.69 |
|
1,035,950 |
|
4.17 |
% |
1.40 |
% |
5.64 |
% |
Small Cap Value Securities |
|
19,677.15 |
|
22.46 |
|
441,986 |
|
0.36 |
% |
1.40 |
% |
-0.82 |
% |
Small MidCap |
|
17,638.69 |
|
19.92 |
|
351,355 |
|
0.00 |
% |
1.40 |
% |
5.99 |
% |
US Government |
|
84,773.53 |
|
11.25 |
|
953,890 |
|
3.33 |
% |
1.40 |
% |
2.20 |
% |
Invesco Variable Investment Fund |
|
|
|
|
|
|
|
|
|
|
|
|
|
Global Health Care |
|
112,112.85 |
|
20.40 |
|
2,286,666 |
|
0.00 |
% |
1.40 |
% |
18.01 |
% |
Mid Cap Growth |
|
54,133.01 |
|
14.08 |
|
762,458 |
|
0.00 |
% |
1.40 |
% |
6.54 |
% |
Technology |
|
152,148.24 |
|
6.86 |
|
1,043,803 |
|
0.00 |
% |
1.40 |
% |
9.52 |
% |
(1) During 2014, DWS Variable Series II Dreman Small Mid Cap Value was renamed DWS Variable Series II Small Mid Cap Value.
NATIONAL VARIABLE ANNUITY ACCOUNT II
(A Separate Account of National Life Insurance Company)
NOTES TO THE FINANCIAL STATEMENTS (continued)
NOTE 6 FINANCIAL HIGHLIGHTS (continued)
|
|
|
|
For the Year Ended December 31, |
| ||||||||
|
|
At December 31, 2014 |
|
2014 |
| ||||||||
|
|
|
|
|
|
|
|
Investment |
|
|
|
|
|
|
|
|
|
Unit Fair |
|
|
|
Income |
|
Expense |
|
Total |
|
Portfolio |
|
Units |
|
Value |
|
Net Assets |
|
Ratio (a) |
|
Ratio (b) |
|
Return (c) |
|
JP Morgan Series Trust II |
|
|
|
|
|
|
|
|
|
|
|
|
|
Small Cap Core |
|
27,633.89 |
|
26.94 |
|
744,571 |
|
0.14 |
% |
1.40 |
% |
8.08 |
% |
Trust |
|
|
|
|
|
|
|
|
|
|
|
|
|
Mid Cap Growth |
|
28,881.19 |
|
24.82 |
|
716,960 |
|
0.00 |
% |
1.40 |
% |
6.09 |
% |
Large Cap Value |
|
65,297.78 |
|
19.36 |
|
1,264,303 |
|
0.74 |
% |
1.40 |
% |
8.33 |
% |
Short Duration Bond |
|
518,398.54 |
|
10.54 |
|
5,462,076 |
|
1.64 |
% |
1.40 |
% |
-0.78 |
% |
Small Cap Growth |
|
40,811.58 |
|
14.96 |
|
610,626 |
|
0.00 |
% |
1.40 |
% |
2.04 |
% |
Socially Responsive |
|
685.33 |
|
24.16 |
|
16,555 |
|
0.35 |
% |
1.40 |
% |
8.86 |
% |
Oppenheimer Variable Products |
|
|
|
|
|
|
|
|
|
|
|
|
|
Capital Income Fund (2) |
|
5,000.67 |
|
17.39 |
|
86,954 |
|
1.71 |
% |
1.40 |
% |
6.52 |
% |
Main Street Small Cap (3) |
|
4,958.82 |
|
29.92 |
|
148,390 |
|
0.60 |
% |
1.40 |
% |
10.11 |
% |
Global Strategic Income Bond |
|
79,865.57 |
|
15.29 |
|
1,221,164 |
|
3.76 |
% |
1.40 |
% |
1.07 |
% |
Sentinel Variable Products Trust |
|
|
|
|
|
|
|
|
|
|
|
|
|
Balanced |
|
409,246.96 |
|
22.61 |
|
9,254,036 |
|
1.66 |
% |
1.40 |
% |
6.32 |
% |
Bond |
|
553,421.46 |
|
20.18 |
|
11,165,701 |
|
2.88 |
% |
1.40 |
% |
2.58 |
% |
Common Stock |
|
760,654.43 |
|
27.61 |
|
21,000,149 |
|
1.58 |
% |
1.40 |
% |
8.82 |
% |
Mid Cap Growth |
|
240,374.47 |
|
24.03 |
|
5,777,017 |
|
0.39 |
% |
1.40 |
% |
3.18 |
% |
Small Company |
|
319,215.78 |
|
51.63 |
|
16,482,422 |
|
0.48 |
% |
1.40 |
% |
5.20 |
% |
T Row e Price Equity Services |
|
|
|
|
|
|
|
|
|
|
|
|
|
Blue Chip Growth |
|
102,405.15 |
|
21.07 |
|
2,157,615 |
|
0.00 |
% |
1.40 |
% |
7.34 |
% |
Equity Income |
|
352,465.38 |
|
18.16 |
|
6,401,898 |
|
1.51 |
% |
1.40 |
% |
5.62 |
% |
Health Sciences |
|
64,235.85 |
|
39.88 |
|
2,561,849 |
|
0.00 |
% |
1.40 |
% |
29.41 |
% |
Personal Strategies |
|
23,986.56 |
|
20.29 |
|
486,589 |
|
1.63 |
% |
1.40 |
% |
3.74 |
% |
Van Eck VIPT |
|
|
|
|
|
|
|
|
|
|
|
|
|
Unconstrained Emerging Markets Bond (4) |
|
163,792.40 |
|
11.66 |
|
1,910,225 |
|
6.07 |
% |
1.40 |
% |
0.77 |
% |
Emerging Markets |
|
68,605.52 |
|
28.10 |
|
1,927,733 |
|
0.49 |
% |
1.40 |
% |
-1.79 |
% |
Global Hard Assets |
|
93,827.49 |
|
14.37 |
|
1,348,212 |
|
0.10 |
% |
1.40 |
% |
-20.22 |
% |
Wells Fargo Variable Funds |
|
|
|
|
|
|
|
|
|
|
|
|
|
Discovery |
|
80,319.11 |
|
35.48 |
|
2,849,956 |
|
0.00 |
% |
1.40 |
% |
-1.03 |
% |
Opportunity |
|
78,586.98 |
|
36.55 |
|
2,872,254 |
|
0.06 |
% |
1.40 |
% |
8.90 |
% |
(2) During 2014, Oppenheimer Variable Products Balanced Fund was renamed Oppenheimer Variable Products Capital Income Fund.
(3) During 2014, Oppenheimer Variable Products Main Street Small & Mid Cap Fund was renamed Oppenheimer Variable Products Main Street Small Cap Fund.
(4) During 2014, Van Eck VIP Trust Global Bond was renamed Van Eck VIP Trust Unconstrained Emerging Markets Bond.
(a) These amounts represent dividends, excluding distributions of capital gains, received by the sub-account from the underlying mutual fund, net of management fees assessed by the fund manager, divided by the average net assets. These ratios exclude those expenses, such as mortality and expense charges, that are assessed against contract value either through reductions in the unit values or the redemption of units. The recognition of investment income by the sub-account is affected by the timing of the declaration of dividends by the underlying fund in which the sub-account invests.
(b) These amounts represent the annualized contract expenses of the separate account, consisting primarily of mortality and expense charges, for each period indicated. The ratios include only those expenses that result in a direct reduction to unit values. Charges made directly to contract value through the redemption of units and expenses of the underlying fund have been excluded.
(c) These amounts represent the total return for the periods indicated, including changes in the value of the underlying fund, and expenses assessed through the reduction of unit values. These ratios do not include any expenses assessed through the redemption of units.
NATIONAL VARIABLE ANNUITY ACCOUNT II
(A Separate Account of National Life Insurance Company)
NOTES TO THE FINANCIAL STATEMENTS (continued)
NOTE 6 FINANCIAL HIGHLIGHTS (continued)
|
|
At December 31, 2013 |
|
For the Year Ended December 31, 2013 |
| ||||||||
|
|
|
|
|
|
|
|
Investment Income |
|
|
|
|
|
Portfolio |
|
Units |
|
Unit Fair Value |
|
Net Assets |
|
Ratio (a) |
|
Expense Ratio (b) |
|
Total Return (c) |
|
Alger American Fund |
|
|
|
|
|
|
|
|
|
|
|
|
|
Capital Appreciation |
|
119,939.63 |
|
18.59 |
|
2,230,093 |
|
0.37 |
% |
1.40 |
% |
33.32 |
% |
Large Cap Growth |
|
563,177.84 |
|
22.82 |
|
12,850,272 |
|
0.74 |
% |
1.40 |
% |
33.21 |
% |
Small Cap Growth |
|
91,210.64 |
|
21.45 |
|
1,956,766 |
|
0.00 |
% |
1.40 |
% |
32.41 |
% |
Alliance Bernstein Variable Portfolios |
|
|
|
|
|
|
|
|
|
|
|
|
|
International Growth |
|
23,468.50 |
|
17.33 |
|
406,817 |
|
0.93 |
% |
1.40 |
% |
12.03 |
% |
International Value |
|
255,095.48 |
|
15.68 |
|
3,999,808 |
|
6.10 |
% |
1.40 |
% |
21.30 |
% |
Small/Mid CapValue |
|
108,888.32 |
|
27.41 |
|
2,984,528 |
|
0.59 |
% |
1.40 |
% |
36.15 |
% |
VPS Value |
|
2,681.89 |
|
19.90 |
|
53,379 |
|
2.23 |
% |
1.40 |
% |
34.96 |
% |
American Century Variable Portfolios |
|
|
|
|
|
|
|
|
|
|
|
|
|
Income & Growth |
|
138,805.97 |
|
17.58 |
|
2,440,767 |
|
2.19 |
% |
1.40 |
% |
33.94 |
% |
Inflation Protection |
|
183,822.76 |
|
13.44 |
|
2,471,072 |
|
1.89 |
% |
1.40 |
% |
-9.48 |
% |
International |
|
334,208.73 |
|
18.16 |
|
6,069,285 |
|
1.80 |
% |
1.40 |
% |
20.72 |
% |
Ultra |
|
2,171.37 |
|
16.36 |
|
35,517 |
|
0.54 |
% |
1.40 |
% |
35.18 |
% |
Value |
|
190,847.05 |
|
25.80 |
|
4,923,348 |
|
1.64 |
% |
1.40 |
% |
29.91 |
% |
Vista |
|
79,750.51 |
|
16.96 |
|
1,352,822 |
|
0.00 |
% |
1.40 |
% |
28.37 |
% |
Dreyfus Variable Investment Fund |
|
|
|
|
|
|
|
|
|
|
|
|
|
Appreciation |
|
45,407.09 |
|
17.20 |
|
781,111 |
|
1.94 |
% |
1.40 |
% |
19.43 |
% |
Opportunistic Small Cap |
|
25,359.91 |
|
14.93 |
|
378,674 |
|
0.00 |
% |
1.40 |
% |
46.50 |
% |
Quality Bond |
|
132,077.33 |
|
13.68 |
|
1,806,693 |
|
2.89 |
% |
1.40 |
% |
-2.90 |
% |
Socially Responsible Growth |
|
39,806.11 |
|
11.45 |
|
455,873 |
|
1.16 |
% |
1.40 |
% |
32.49 |
% |
DWS Variable Series II |
|
|
|
|
|
|
|
|
|
|
|
|
|
Small Mid Cap Value (1) |
|
109,502.53 |
|
22.23 |
|
2,434,216 |
|
0.83 |
% |
1.40 |
% |
32.84 |
% |
Large Cap Value |
|
24,718.38 |
|
13.29 |
|
328,415 |
|
4.63 |
% |
1.40 |
% |
28.74 |
% |
Small Cap Index Value |
|
4,256.71 |
|
24.31 |
|
103,483 |
|
0.55 |
% |
1.40 |
% |
36.72 |
% |
Fidelity Variable Insurance Products |
|
|
|
|
|
|
|
|
|
|
|
|
|
Equity Income |
|
284,658.38 |
|
21.59 |
|
6,145,047 |
|
2.39 |
% |
1.40 |
% |
26.38 |
% |
Growth |
|
275,136.20 |
|
21.89 |
|
6,021,904 |
|
0.27 |
% |
1.40 |
% |
34.45 |
% |
High Income |
|
263,772.96 |
|
16.09 |
|
4,244,302 |
|
5.81 |
% |
1.40 |
% |
4.48 |
% |
Overseas |
|
271,181.63 |
|
17.42 |
|
4,724,730 |
|
1.33 |
% |
1.40 |
% |
28.63 |
% |
II Contrafund |
|
294,402.50 |
|
32.64 |
|
9,609,966 |
|
1.04 |
% |
1.40 |
% |
29.47 |
% |
II Index 500 |
|
490,085.90 |
|
21.76 |
|
10,666,273 |
|
1.75 |
% |
1.40 |
% |
30.42 |
% |
III Mid Cap |
|
184,336.01 |
|
25.49 |
|
4,698,692 |
|
0.49 |
% |
1.40 |
% |
34.35 |
% |
III Value Strategies |
|
3,552.64 |
|
29.89 |
|
106,177 |
|
0.89 |
% |
1.40 |
% |
28.69 |
% |
V Investment Grade Bond |
|
502,912.43 |
|
16.75 |
|
8,425,990 |
|
2.29 |
% |
1.40 |
% |
-3.14 |
% |
V Money Market |
|
547,074.87 |
|
11.76 |
|
6,436,279 |
|
0.01 |
% |
1.40 |
% |
-1.37 |
% |
Franklin Templeton VIP Trust |
|
|
|
|
|
|
|
|
|
|
|
|
|
Foreign Securities |
|
142,661.91 |
|
18.09 |
|
2,580,891 |
|
2.47 |
% |
1.40 |
% |
21.27 |
% |
Global Real Estate |
|
88,758.95 |
|
13.24 |
|
1,175,234 |
|
4.67 |
% |
1.40 |
% |
0.90 |
% |
Mutual Global Discovery |
|
37,053.40 |
|
18.41 |
|
682,075 |
|
2.47 |
% |
1.40 |
% |
26.18 |
% |
Mutual Shares Securities |
|
60,002.31 |
|
16.75 |
|
1,004,857 |
|
2.08 |
% |
1.40 |
% |
26.49 |
% |
Small Cap Value Securities |
|
27,488.37 |
|
22.65 |
|
622,543 |
|
1.29 |
% |
1.40 |
% |
34.36 |
% |
Small MidCap |
|
19,748.97 |
|
18.79 |
|
371,172 |
|
0.00 |
% |
1.40 |
% |
36.25 |
% |
US Government |
|
87,698.80 |
|
11.01 |
|
965,521 |
|
3.01 |
% |
1.40 |
% |
-3.35 |
% |
Invesco Variable Investment Fund |
|
|
|
|
|
|
|
|
|
|
|
|
|
Global Health Care |
|
119,888.48 |
|
17.28 |
|
2,071,991 |
|
1.81 |
% |
1.40 |
% |
38.60 |
% |
Mid Cap Growth |
|
57,585.88 |
|
13.22 |
|
761,279 |
|
0.00 |
% |
1.40 |
% |
35.12 |
% |
Technology |
|
146,879.95 |
|
6.26 |
|
920,100 |
|
0.00 |
% |
1.40 |
% |
23.41 |
% |
(1) During 2013, DWS Variable Series II Dreman Small Mid Cap Value was renamed DWS Variable Series II Small Mid Cap Value.
NATIONAL VARIABLE ANNUITY ACCOUNT II
(A Separate Account of National Life Insurance Company)
NOTES TO THE FINANCIAL STATEMENTS (continued)
NOTE 6 FINANCIAL HIGHLIGHTS (continued)
|
|
At December 31, 2013 |
|
For the Year Ended December 31, 2013 |
| ||||||||
|
|
|
|
|
|
|
|
Investment Income |
|
|
|
|
|
|
|
Units |
|
Unit Fair Value |
|
Net Assets |
|
Ratio (a) |
|
Expense Ratio (b) |
|
Total Return (c) |
|
JP Morgan Series Insurance Trust |
|
|
|
|
|
|
|
|
|
|
|
|
|
International Equity |
|
104,679.01 |
|
14.51 |
|
1,519,307 |
|
1.93 |
% |
1.40 |
% |
13.86 |
% |
Small Cap Core |
|
29,912.60 |
|
24.93 |
|
745,717 |
|
0.54 |
% |
1.40 |
% |
40.33 |
% |
Neuberger Berman Advisors Management Trust |
|
|
|
|
|
|
|
|
|
|
|
|
|
Mid Cap Growth |
|
30,993.32 |
|
23.40 |
|
725,200 |
|
0.00 |
% |
1.40 |
% |
30.78 |
% |
Large Cap Value |
|
79,603.68 |
|
17.87 |
|
1,422,729 |
|
1.15 |
% |
1.40 |
% |
29.32 |
% |
Short Duration Bond |
|
649,726.81 |
|
10.62 |
|
6,899,693 |
|
2.06 |
% |
1.40 |
% |
-0.77 |
% |
Small Cap Growth |
|
52,535.92 |
|
14.66 |
|
770,331 |
|
0.00 |
% |
1.40 |
% |
43.82 |
% |
Socially Responsive |
|
1,350.37 |
|
22.19 |
|
29,966 |
|
0.75 |
% |
1.40 |
% |
35.70 |
% |
Oppenheimer Variable Products |
|
|
|
|
|
|
|
|
|
|
|
|
|
Capital Income Fund/VA (2) |
|
5,253.50 |
|
16.32 |
|
85,757 |
|
1.85 |
% |
1.40 |
% |
11.27 |
% |
Main Street Small Cap/VA (3) |
|
4,530.63 |
|
27.18 |
|
123,127 |
|
0.64 |
% |
1.40 |
% |
38.68 |
% |
Global Strategic Income/VA |
|
80,900.00 |
|
15.13 |
|
1,223,830 |
|
4.70 |
% |
1.40 |
% |
-1.74 |
% |
Sentinel Variable Products Trust |
|
|
|
|
|
|
|
|
|
|
|
|
|
Balanced |
|
447,641.64 |
|
21.27 |
|
9,520,182 |
|
1.55 |
% |
1.40 |
% |
17.24 |
% |
Bond |
|
639,331.78 |
|
19.67 |
|
12,575,108 |
|
3.01 |
% |
1.40 |
% |
-1.71 |
% |
Common Stock |
|
924,558.76 |
|
25.37 |
|
23,456,796 |
|
1.48 |
% |
1.40 |
% |
29.91 |
% |
Mid Cap Growth |
|
267,751.01 |
|
23.29 |
|
6,236,452 |
|
0.09 |
% |
1.40 |
% |
30.49 |
% |
Small Company |
|
361,685.81 |
|
49.08 |
|
17,751,512 |
|
0.12 |
% |
1.40 |
% |
32.86 |
% |
T Row e Price Equity Services |
|
|
|
|
|
|
|
|
|
|
|
|
|
Blue Chip Growth |
|
145,549.09 |
|
19.63 |
|
2,857,031 |
|
0.00 |
% |
1.40 |
% |
38.90 |
% |
Equity Income |
|
435,758.10 |
|
17.20 |
|
7,493,441 |
|
1.31 |
% |
1.40 |
% |
27.62 |
% |
Health Sciences |
|
63,126.49 |
|
30.82 |
|
1,945,442 |
|
0.00 |
% |
1.40 |
% |
48.43 |
% |
Personal Strategies Balanced |
|
29,004.73 |
|
19.55 |
|
567,148 |
|
1.48 |
% |
1.40 |
% |
16.30 |
% |
Van Eck VIPT |
|
|
|
|
|
|
|
|
|
|
|
|
|
Unconstrained Emerging Markets Bond (4) |
|
209,810.56 |
|
11.57 |
|
2,428,172 |
|
2.33 |
% |
1.40 |
% |
-10.42 |
% |
Emerging Markets |
|
74,363.37 |
|
28.61 |
|
2,127,645 |
|
1.59 |
% |
1.40 |
% |
10.47 |
% |
Global Hard Assets |
|
106,236.87 |
|
18.01 |
|
1,913,490 |
|
0.68 |
% |
1.40 |
% |
9.01 |
% |
Wells Fargo Advantage Funds |
|
|
|
|
|
|
|
|
|
|
|
|
|
Discovery |
|
86,131.04 |
|
35.85 |
|
3,088,073 |
|
0.01 |
% |
1.40 |
% |
41.81 |
% |
Opportunity |
|
87,059.82 |
|
33.56 |
|
2,921,955 |
|
0.19 |
% |
1.40 |
% |
28.87 |
% |
(2) During 2013, Oppenheimer Variable Products Balanced Fund was renamed Oppenheimer Variable Products Capital Income Fund.
(3) During 2013, Oppenheimer Variable Products Main Street Small & Mid Cap Fund was renamed Oppenheimer Variable Products Main Street Small Cap Fund.
(4) During 2013, Van Eck VIP Trust Global Bond was renamed Van Eck VIP Trust Unconstrained Emerging Markets Bond.
(a) These amounts represent dividends, excluding distributions of capital gains, received by the sub-account from the underlying mutual fund, net of management fees assessed by the fund manager, divided by the average net assets. These ratios exclude those expenses, such as mortality and expense charges, that are assessed against contract value either through reductions in the unit values or the redemption of units. The recognition of investment income by the sub-account is affected by the timing of the declaration of dividends by the underlying fund in which the sub-account invests.
(b) These amounts represent the annualized contract expenses of the separate account, consisting primarily of mortality and expense charges, for each period indicated. The ratios include only those expenses that result in a direct reduction to unit values. Charges made directly to contract value through the redemption of units and expenses of the underlying fund have been excluded.
(c) These amounts represent the total return for the periods indicated, including changes in the value of the underlying fund, and expenses assessed through the reduction of unit values. These ratios do not include any expenses assessed through the redemption of units.
NATIONAL VARIABLE ANNUITY ACCOUNT II
(A Separate Account of National Life Insurance Company)
NOTES TO THE FINANCIAL STATEMENTS (continued)
NOTE 6 FINANCIAL HIGHLIGHTS (continued)
|
|
At December 31, 2012 |
|
For the Year Ended December 31, 2012 |
| ||||||||
|
|
|
|
|
|
|
|
Investment |
|
|
|
|
|
|
|
|
|
|
|
|
|
Income |
|
Expense |
|
Total Return |
|
Portfolio |
|
Units |
|
Unit Fair Value |
|
Net Assets |
|
Ratio (a) |
|
Ratio (b) |
|
(c) |
|
Alger American Fund |
|
|
|
|
|
|
|
|
|
|
|
|
|
Capital Appreciation |
|
119,756.13 |
|
13.95 |
|
1,670,159 |
|
0.97 |
% |
1.40 |
% |
16.66 |
% |
Large Cap Growth |
|
706,406.75 |
|
17.13 |
|
12,099,619 |
|
1.16 |
% |
1.40 |
% |
8.34 |
% |
Small Cap Growth |
|
100,880.01 |
|
16.20 |
|
1,634,527 |
|
0.00 |
% |
1.40 |
% |
10.94 |
% |
Alliance Bernstein Variable Portfolios |
|
|
|
|
|
|
|
|
|
|
|
|
|
International Growth |
|
36,807.14 |
|
15.47 |
|
569,503 |
|
1.69 |
% |
1.40 |
% |
13.93 |
% |
International Value |
|
325,771.39 |
|
12.93 |
|
4,210,888 |
|
1.58 |
% |
1.40 |
% |
12.94 |
% |
Small/Mid CapValue |
|
154,693.89 |
|
20.13 |
|
3,114,210 |
|
0.53 |
% |
1.40 |
% |
17.10 |
% |
VPS Value |
|
2,471.78 |
|
14.75 |
|
36,453 |
|
1.62 |
% |
1.40 |
% |
14.12 |
% |
American Century Variable Portfolios |
|
|
|
|
|
|
|
|
|
|
|
|
|
VP Income & Growth |
|
158,183.96 |
|
13.13 |
|
2,076,613 |
|
2.03 |
% |
1.40 |
% |
13.15 |
% |
VP Inflation Protection |
|
236,564.41 |
|
14.85 |
|
3,513,258 |
|
2.62 |
% |
1.40 |
% |
6.05 |
% |
VP International |
|
415,257.23 |
|
15.04 |
|
6,246,849 |
|
0.89 |
% |
1.40 |
% |
19.48 |
% |
VP Ultra |
|
2,843.61 |
|
12.10 |
|
34,408 |
|
0.00 |
% |
1.40 |
% |
12.34 |
% |
VP Value |
|
222,127.76 |
|
19.86 |
|
4,411,113 |
|
1.90 |
% |
1.40 |
% |
12.98 |
% |
VP Vista |
|
107,324.65 |
|
13.21 |
|
1,418,177 |
|
0.00 |
% |
1.40 |
% |
14.01 |
% |
Dreyfus Variable Investment Fund |
|
|
|
|
|
|
|
|
|
|
|
|
|
VIF Appreciation |
|
61,628.86 |
|
14.40 |
|
887,688 |
|
3.72 |
% |
1.40 |
% |
8.90 |
% |
VIF Opportunistic Small Cap |
|
25,073.26 |
|
10.19 |
|
255,566 |
|
0.00 |
% |
1.40 |
% |
18.89 |
% |
VIF Quality Bond |
|
140,942.66 |
|
14.09 |
|
1,985,637 |
|
2.98 |
% |
1.40 |
% |
5.51 |
% |
Socially Responsible Growth |
|
37,515.58 |
|
8.64 |
|
324,288 |
|
0.83 |
% |
1.40 |
% |
10.42 |
% |
DWS Variable Series II |
|
|
|
|
|
|
|
|
|
|
|
|
|
DWS Dreman Small MidCap Value VIP |
|
144,397.55 |
|
16.73 |
|
2,416,467 |
|
0.82 |
% |
1.40 |
% |
11.81 |
% |
DWS Large Cap Value VIP |
|
24,572.53 |
|
10.32 |
|
253,601 |
|
1.62 |
% |
1.40 |
% |
7.92 |
% |
DWS Small Cap Index Value VIP |
|
4,086.37 |
|
17.78 |
|
72,660 |
|
0.89 |
% |
1.40 |
% |
14.64 |
% |
Fidelity Variable Insurance Products |
|
|
|
|
|
|
|
|
|
|
|
|
|
Equity Income |
|
330,986.27 |
|
17.08 |
|
5,653,839 |
|
2.98 |
% |
1.40 |
% |
15.68 |
% |
Growth |
|
324,333.53 |
|
16.28 |
|
5,279,708 |
|
0.57 |
% |
1.40 |
% |
13.10 |
% |
High Income |
|
296,672.91 |
|
15.40 |
|
4,568,890 |
|
5.28 |
% |
1.40 |
% |
12.64 |
% |
Overseas |
|
310,681.23 |
|
13.54 |
|
4,207,982 |
|
1.88 |
% |
1.40 |
% |
19.06 |
% |
II Contrafund |
|
340,635.22 |
|
25.21 |
|
8,588,000 |
|
1.26 |
% |
1.40 |
% |
14.80 |
% |
II Index 500 |
|
579,576.64 |
|
16.69 |
|
9,672,098 |
|
2.01 |
% |
1.40 |
% |
14.31 |
% |
III Mid Cap |
|
214,169.06 |
|
18.97 |
|
4,063,425 |
|
0.60 |
% |
1.40 |
% |
13.24 |
% |
III Value Strategies |
|
3,976.15 |
|
23.22 |
|
92,341 |
|
0.38 |
% |
1.40 |
% |
25.51 |
% |
V Investment Grade Bond |
|
593,800.39 |
|
17.30 |
|
10,270,806 |
|
2.22 |
% |
1.40 |
% |
4.43 |
% |
V Money Market |
|
442,999.69 |
|
11.93 |
|
5,284,386 |
|
0.04 |
% |
1.40 |
% |
-1.35 |
% |
Franklin Templeton VIP Trust |
|
|
|
|
|
|
|
|
|
|
|
|
|
Foreign Securities |
|
176,601.85 |
|
14.92 |
|
2,634,506 |
|
2.97 |
% |
1.40 |
% |
16.59 |
% |
Global Real Estate |
|
94,565.07 |
|
13.12 |
|
1,240,891 |
|
0.00 |
% |
1.40 |
% |
25.64 |
% |
Mutual Global Discovery |
|
34,847.12 |
|
14.59 |
|
508,373 |
|
3.07 |
% |
1.40 |
% |
12.06 |
% |
Mutual Shares Securities |
|
62,390.88 |
|
13.24 |
|
826,049 |
|
2.00 |
% |
1.40 |
% |
12.66 |
% |
Small Cap Value Securities |
|
32,319.86 |
|
16.86 |
|
544,796 |
|
0.80 |
% |
1.40 |
% |
16.74 |
% |
Small MidCap |
|
24,519.49 |
|
13.79 |
|
338,234 |
|
0.00 |
% |
1.40 |
% |
9.31 |
% |
US Government |
|
105,173.23 |
|
11.39 |
|
1,198,031 |
|
2.68 |
% |
1.40 |
% |
0.70 |
% |
NATIONAL VARIABLE ANNUITY ACCOUNT II
(A Separate Account of National Life Insurance Company)
NOTES TO THE FINANCIAL STATEMENTS (continued)
NOTE 6 FINANCIAL HIGHLIGHTS (continued)
|
|
At December 31, 2012 |
|
For the Year Ended December 31, 2012 |
| ||||||||
|
|
|
|
|
|
|
|
Investment |
|
|
|
|
|
|
|
|
|
|
|
|
|
Income |
|
Expense |
|
Total Return |
|
|
|
Units |
|
Unit Fair Value |
|
Net Assets |
|
Ratio (a) |
|
Ratio (b) |
|
(c) |
|
Invesco Variable Insurance Funds |
|
|
|
|
|
|
|
|
|
|
|
|
|
Global Health Care |
|
126,142.70 |
|
12.47 |
|
1,572,931 |
|
0.00 |
% |
1.40 |
% |
19.22 |
% |
Mid Cap Growth (1) |
|
65,950.64 |
|
9.78 |
|
645,243 |
|
0.00 |
% |
1.40 |
% |
0.00 |
% |
Technology |
|
154,613.37 |
|
5.08 |
|
784,790 |
|
0.00 |
% |
1.40 |
% |
9.73 |
% |
JP Morgan Series Insurance Trust |
|
|
|
|
|
|
|
|
|
|
|
|
|
International Equity |
|
113,040.41 |
|
12.75 |
|
1,440,983 |
|
2.21 |
% |
1.40 |
% |
19.38 |
% |
Small Cap Core |
|
30,947.44 |
|
17.77 |
|
549,787 |
|
0.20 |
% |
1.40 |
% |
18.06 |
% |
Neuberger Berman Advisors Management Trust |
|
|
|
|
|
|
|
|
|
|
|
|
|
Mid Cap Growth |
|
31,324.27 |
|
17.89 |
|
560,440 |
|
0.00 |
% |
1.40 |
% |
10.85 |
% |
Large Cap Value (2) |
|
90,753.31 |
|
13.82 |
|
1,254,215 |
|
0.40 |
% |
1.40 |
% |
14.98 |
% |
Short Duration Bond |
|
773,527.24 |
|
10.70 |
|
8,278,479 |
|
2.88 |
% |
1.40 |
% |
3.15 |
% |
Small Cap Growth |
|
72,136.98 |
|
10.20 |
|
735,463 |
|
0.00 |
% |
1.40 |
% |
7.31 |
% |
Socially Responsive |
|
1,086.05 |
|
16.35 |
|
17,760 |
|
0.18 |
% |
1.40 |
% |
9.44 |
% |
Oppenheimer Variable Products |
|
|
|
|
|
|
|
|
|
|
|
|
|
Balanced/VA |
|
2,608.45 |
|
14.67 |
|
38,266 |
|
1.02 |
% |
1.40 |
% |
10.55 |
% |
Main Street Small & Mid Cap/VA |
|
3,837.01 |
|
19.60 |
|
75,192 |
|
0.28 |
% |
1.40 |
% |
16.04 |
% |
Global Strategic Income Bond/VA |
|
77,505.88 |
|
15.40 |
|
1,193,301 |
|
4.76 |
% |
1.40 |
% |
11.58 |
% |
Sentinel Variable Products Trust |
|
|
|
|
|
|
|
|
|
|
|
|
|
Balanced |
|
455,379.56 |
|
18.14 |
|
8,260,808 |
|
1.97 |
% |
1.40 |
% |
9.89 |
% |
Bond |
|
732,533.72 |
|
20.01 |
|
14,658,672 |
|
2.82 |
% |
1.40 |
% |
5.05 |
% |
Common Stock |
|
1,089,026.01 |
|
19.53 |
|
21,268,600 |
|
1.65 |
% |
1.40 |
% |
13.50 |
% |
Mid Cap Growth |
|
310,834.82 |
|
17.85 |
|
5,548,209 |
|
0.22 |
% |
1.40 |
% |
10.78 |
% |
Small Company |
|
448,910.26 |
|
36.94 |
|
16,583,235 |
|
0.45 |
% |
1.40 |
% |
9.89 |
% |
T Row e Price Equity Series |
|
|
|
|
|
|
|
|
|
|
|
|
|
Blue Chip Growth |
|
184,314.69 |
|
14.13 |
|
2,604,645 |
|
0.00 |
% |
1.40 |
% |
16.27 |
% |
Equity Income |
|
569,915.95 |
|
13.47 |
|
7,679,552 |
|
1.91 |
% |
1.40 |
% |
15.30 |
% |
Health Sciences |
|
62,769.49 |
|
20.76 |
|
1,303,241 |
|
0.00 |
% |
1.40 |
% |
29.18 |
% |
Personal Strategy Balanced |
|
23,737.84 |
|
16.81 |
|
399,110 |
|
1.89 |
% |
1.40 |
% |
13.54 |
% |
Van Eck VIPT |
|
|
|
|
|
|
|
|
|
|
|
|
|
Global Bond |
|
225,491.16 |
|
12.92 |
|
2,913,356 |
|
2.28 |
% |
1.40 |
% |
4.08 |
% |
Emerging Markets |
|
81,788.25 |
|
25.90 |
|
2,118,263 |
|
0.00 |
% |
1.40 |
% |
28.00 |
% |
Global Hard Assets |
|
111,594.89 |
|
16.52 |
|
1,843,934 |
|
0.62 |
% |
1.40 |
% |
1.95 |
% |
Wells Fargo Variable Funds |
|
|
|
|
|
|
|
|
|
|
|
|
|
Discovery |
|
105,819.58 |
|
25.28 |
|
2,675,313 |
|
0.00 |
% |
1.40 |
% |
16.10 |
% |
Opportunity |
|
102,617.78 |
|
26.04 |
|
2,672,504 |
|
0.09 |
% |
1.40 |
% |
13.92 |
% |
(1) During 2012, the Invesco V.I. Mid Cap Growth Fund was added.
(2) During 2012, the Neuberger Partners Portfolio was renamed Large Cap Value Portfolio.
(a) These amounts represent dividends, excluding distributions of capital gains, received by the sub-account from the underlying mutual fund, net of management fees assessed by the fund manager, divided by the average net assets. These ratios exclude those expenses, such as mortality and expense charges, that are assessed against contract value either through reductions in the unit values or the redemption of units. The recognition of investment income by the sub-account is affected by the timing of the declaration of dividends by the underlying fund in which the sub-account invests.
(b) These amounts represent the annualized contract expenses of the separate account, consisting primarily of mortality and expense charges, for each period indicated. The ratios include only those expenses that result in a direct reduction to unit values. Charges made directly to contract value through the redemption of units and expenses of the underlying fund have been excluded.
(c) These amounts represent the total return for the periods indicated, including changes in the value of the underlying fund, and expenses assessed through the reduction of unit values. These ratios do not include any expenses assessed through the redemption of units.
NATIONAL VARIABLE ANNUITY ACCOUNT II
(A Separate Account of National Life Insurance Company)
NOTES TO THE FINANCIAL STATEMENTS (continued)
NOTE 6 FINANCIAL HIGHLIGHTS (continued)
|
|
At December 31, 2011 |
|
For the Year Ended December 31, 2011 |
| ||||||||
|
|
|
|
|
|
|
|
Investment |
|
|
|
|
|
|
|
|
|
|
|
|
|
Income |
|
Expense Ratio |
|
Total Return |
|
Portfolio |
|
Units |
|
Unit Fair Value |
|
Net Assets |
|
Ratio (a) |
|
(b) |
|
(c) |
|
Alger American Fund |
|
|
|
|
|
|
|
|
|
|
|
|
|
Capital Appreciation |
|
172,315.52 |
|
11.95 |
|
2,060,007 |
|
0.11 |
% |
1.40 |
% |
-1.68 |
% |
Large Cap Growth |
|
864,389.41 |
|
15.81 |
|
13,666,040 |
|
1.02 |
% |
1.40 |
% |
-1.72 |
% |
Small Cap Growth |
|
141,290.03 |
|
14.61 |
|
2,063,595 |
|
0.00 |
% |
1.40 |
% |
-4.52 |
% |
Alliance Bernstein Variable Products |
|
|
|
|
|
|
|
|
|
|
|
|
|
International Growth |
|
47,272.06 |
|
13.58 |
|
641,983 |
|
3.52 |
% |
1.40 |
% |
-17.02 |
% |
International Value |
|
379,339.08 |
|
11.44 |
|
4,341,467 |
|
4.48 |
% |
1.40 |
% |
-20.37 |
% |
Small/Mid CapValue |
|
206,338.46 |
|
17.19 |
|
3,547,368 |
|
0.32 |
% |
1.40 |
% |
-9.65 |
% |
VPS Value |
|
1,643.76 |
|
12.92 |
|
21,242 |
|
1.79 |
% |
1.40 |
% |
-4.84 |
% |
American Century Variable Portfolios |
|
|
|
|
|
|
|
|
|
|
|
|
|
Income & Growth |
|
209,996.35 |
|
11.60 |
|
2,436,406 |
|
1.58 |
% |
1.40 |
% |
1.69 |
% |
Inflation Protection |
|
286,462.82 |
|
14.00 |
|
4,011,466 |
|
4.51 |
% |
1.40 |
% |
10.60 |
% |
International |
|
520,318.72 |
|
12.59 |
|
6,551,244 |
|
1.54 |
% |
1.40 |
% |
-13.26 |
% |
Ultra |
|
6,030.16 |
|
10.77 |
|
64,950 |
|
0.00 |
% |
1.40 |
% |
-0.33 |
% |
Value |
|
277,560.28 |
|
17.58 |
|
4,878,505 |
|
2.09 |
% |
1.40 |
% |
-0.38 |
% |
Vista |
|
129,068.00 |
|
11.59 |
|
1,495,936 |
|
0.00 |
% |
1.40 |
% |
-9.17 |
% |
Dreyfus Variable Investment Fund |
|
|
|
|
|
|
|
|
|
|
|
|
|
Appreciation |
|
77,519.45 |
|
13.23 |
|
1,025,357 |
|
1.74 |
% |
1.40 |
% |
7.51 |
% |
Opportunistic Small Cap |
|
22,022.39 |
|
8.57 |
|
188,806 |
|
0.46 |
% |
1.40 |
% |
-15.04 |
% |
Quality Bond |
|
153,808.86 |
|
13.35 |
|
2,053,745 |
|
3.39 |
% |
1.40 |
% |
5.56 |
% |
Socially Responsible Growth |
|
44,826.97 |
|
7.83 |
|
350,925 |
|
0.97 |
% |
1.40 |
% |
-0.49 |
% |
DWS Variable Series II |
|
|
|
|
|
|
|
|
|
|
|
|
|
Dreman Small MidCap Value |
|
181,880.32 |
|
14.97 |
|
2,722,326 |
|
0.76 |
% |
1.40 |
% |
-7.62 |
% |
Small Cap Index Value |
|
3,506.21 |
|
15.51 |
|
54,384 |
|
0.76 |
% |
1.40 |
% |
-5.73 |
% |
Large Cap Value (1) |
|
25,926.55 |
|
9.56 |
|
247,948 |
|
0.00 |
% |
1.40 |
% |
0.00 |
% |
Fidelity Variable Insurance Products |
|
|
|
|
|
|
|
|
|
|
|
|
|
Contrafund |
|
419,114.10 |
|
21.96 |
|
9,204,435 |
|
0.96 |
% |
1.40 |
% |
-3.87 |
% |
Equity Income |
|
401,299.59 |
|
14.77 |
|
5,925,865 |
|
2.36 |
% |
1.40 |
% |
-0.42 |
% |
Growth |
|
390,409.02 |
|
14.39 |
|
5,619,421 |
|
0.35 |
% |
1.40 |
% |
-1.18 |
% |
High Income |
|
373,467.07 |
|
13.67 |
|
5,106,082 |
|
6.62 |
% |
1.40 |
% |
2.60 |
% |
Index 500 |
|
706,162.05 |
|
14.60 |
|
10,309,764 |
|
1.90 |
% |
1.40 |
% |
0.63 |
% |
Investment Grade Bond |
|
683,051.81 |
|
16.56 |
|
11,313,737 |
|
3.50 |
% |
1.40 |
% |
5.85 |
% |
Mid Cap |
|
250,740.88 |
|
16.76 |
|
4,201,237 |
|
0.18 |
% |
1.40 |
% |
-11.85 |
% |
Overseas |
|
378,021.81 |
|
11.38 |
|
4,300,281 |
|
1.40 |
% |
1.40 |
% |
-18.31 |
% |
Value Strategies |
|
14,044.55 |
|
18.50 |
|
259,865 |
|
0.57 |
% |
1.40 |
% |
-10.07 |
% |
Money Market (2) |
|
416,096.61 |
|
12.09 |
|
5,031,327 |
|
0.02 |
% |
1.40 |
% |
0.00 |
% |
Franklin Templeton VIP Trust |
|
|
|
|
|
|
|
|
|
|
|
|
|
Foreign Securities |
|
221,431.90 |
|
12.80 |
|
2,833,230 |
|
1.79 |
% |
1.40 |
% |
-11.87 |
% |
Global Real Estate |
|
107,686.16 |
|
10.44 |
|
1,124,684 |
|
8.49 |
% |
1.40 |
% |
-6.96 |
% |
Mutual Global Discovery |
|
40,131.57 |
|
13.02 |
|
522,476 |
|
2.55 |
% |
1.40 |
% |
-4.07 |
% |
Mutual Shares Securities |
|
86,948.86 |
|
11.75 |
|
1,021,862 |
|
2.47 |
% |
1.40 |
% |
-2.41 |
% |
Small Cap Value Securities |
|
38,831.59 |
|
14.44 |
|
560,684 |
|
0.73 |
% |
1.40 |
% |
-5.09 |
% |
Small MidCap |
|
38,016.81 |
|
12.62 |
|
479,754 |
|
0.00 |
% |
1.40 |
% |
-6.14 |
% |
US Government |
|
144,727.38 |
|
11.31 |
|
1,637,151 |
|
4.23 |
% |
1.40 |
% |
4.50 |
% |
(1) During 2011, the DWS Variable Series II Large Cap Value Fund was added.
(2) During 2011, the Fidelity VIPF Money Market was added.
NATIONAL VARIABLE ANNUITY ACCOUNT II
(A Separate Account of National Life Insurance Company)
NOTES TO THE FINANCIAL STATEMENTS (continued)
NOTE 6 FINANCIAL HIGHLIGHTS (continued)
|
|
At December 31, 2011 |
|
For the Year Ended December 31, 2011 |
| ||||||||
|
|
|
|
|
|
|
|
Investment |
|
|
|
|
|
|
|
|
|
|
|
|
|
Income |
|
Expense Ratio |
|
Total Return |
|
|
|
Units |
|
Unit Fair Value |
|
Net Assets |
|
Ratio (a) |
|
(b) |
|
(c) |
|
Invesco Variable Investment Fund |
|
|
|
|
|
|
|
|
|
|
|
|
|
Capital Development (3) |
|
108,479.47 |
|
8.17 |
|
886,655 |
|
0.00 |
% |
1.40 |
% |
0.00 |
% |
Global Health Care |
|
154,939.91 |
|
10.46 |
|
1,620,561 |
|
0.00 |
% |
1.40 |
% |
2.52 |
% |
Technology |
|
222,342.59 |
|
4.63 |
|
1,028,466 |
|
0.19 |
% |
1.40 |
% |
-6.36 |
% |
JP Morgan Series Trust II |
|
|
|
|
|
|
|
|
|
|
|
|
|
International Equity |
|
138,245.68 |
|
10.68 |
|
1,476,197 |
|
2.01 |
% |
1.40 |
% |
-12.67 |
% |
Small Cap Core |
|
35,655.24 |
|
15.05 |
|
536,510 |
|
0.14 |
% |
1.40 |
% |
-6.09 |
% |
Neuberger Berman Advisors Management Trust |
|
|
|
|
|
|
|
|
|
|
|
|
|
Mid Cap Growth |
|
41,076.90 |
|
16.14 |
|
662,984 |
|
0.00 |
% |
1.40 |
% |
-0.91 |
% |
Partners |
|
116,413.78 |
|
12.02 |
|
1,399,251 |
|
0.00 |
% |
1.40 |
% |
-12.58 |
% |
Short Duration Bond |
|
915,467.34 |
|
10.38 |
|
9,498,210 |
|
3.50 |
% |
1.40 |
% |
-1.09 |
% |
Small Cap Growth |
|
89,804.03 |
|
9.50 |
|
853,222 |
|
0.00 |
% |
1.40 |
% |
-2.43 |
% |
Socially Responsive |
|
1,923.35 |
|
14.94 |
|
28,740 |
|
0.52 |
% |
1.40 |
% |
-4.42 |
% |
Oppenheimer Variable Products |
|
|
|
|
|
|
|
|
|
|
|
|
|
Balanced |
|
1,585.15 |
|
13.27 |
|
21,035 |
|
3.68 |
% |
1.40 |
% |
-1.00 |
% |
Main Street Small & Mid Cap |
|
2,593.19 |
|
16.89 |
|
43,795 |
|
0.46 |
% |
1.40 |
% |
-3.73 |
% |
Global Strategic Income Bond |
|
50,095.48 |
|
13.80 |
|
691,255 |
|
2.30 |
% |
1.40 |
% |
-0.74 |
% |
Sentinel Variable Products Trust |
|
|
|
|
|
|
|
|
|
|
|
|
|
Balanced |
|
499,377.33 |
|
16.51 |
|
8,243,589 |
|
2.25 |
% |
1.40 |
% |
2.62 |
% |
Bond |
|
855,337.59 |
|
19.05 |
|
16,292,975 |
|
4.12 |
% |
1.40 |
% |
5.57 |
% |
Common Stock |
|
1,400,464.93 |
|
17.21 |
|
24,097,583 |
|
1.49 |
% |
1.40 |
% |
0.69 |
% |
Mid Cap Growth |
|
377,811.11 |
|
16.11 |
|
6,087,716 |
|
0.01 |
% |
1.40 |
% |
2.19 |
% |
Small Company |
|
558,093.81 |
|
33.62 |
|
18,760,889 |
|
0.00 |
% |
1.40 |
% |
1.59 |
% |
T Row e Price Equity Series |
|
|
|
|
|
|
|
|
|
|
|
|
|
Blue Chip Growth |
|
234,388.30 |
|
12.15 |
|
2,848,829 |
|
0.00 |
% |
1.40 |
% |
-0.04 |
% |
Equity Income |
|
754,868.47 |
|
11.69 |
|
8,822,136 |
|
1.50 |
% |
1.40 |
% |
-2.39 |
% |
Health Sciences |
|
74,895.39 |
|
16.07 |
|
1,203,753 |
|
0.00 |
% |
1.40 |
% |
8.86 |
% |
Personal Strategies |
|
12,332.93 |
|
14.81 |
|
182,623 |
|
2.09 |
% |
1.40 |
% |
-1.70 |
% |
Van Eck VIPT |
|
|
|
|
|
|
|
|
|
|
|
|
|
Global Bond |
|
250,835.70 |
|
12.41 |
|
3,113,676 |
|
1.26 |
% |
1.40 |
% |
6.65 |
% |
Emerging Markets |
|
97,834.22 |
|
20.23 |
|
1,979,489 |
|
1.21 |
% |
1.40 |
% |
-26.76 |
% |
Global Hard Assets |
|
123,208.92 |
|
16.21 |
|
1,996,911 |
|
0.61 |
% |
1.40 |
% |
-17.60 |
% |
Wells Fargo Advantage Funds |
|
|
|
|
|
|
|
|
|
|
|
|
|
Discovery |
|
122,589.41 |
|
21.78 |
|
2,669,505 |
|
0.00 |
% |
1.40 |
% |
-0.96 |
% |
Opportunity |
|
115,456.54 |
|
22.86 |
|
2,639,533 |
|
0.15 |
% |
1.40 |
% |
-6.82 |
% |
(3) During 2011, the Invesco V.I Capital Development Fund was added.
(a) These amounts represent dividends, excluding distributions of capital gains, received by the sub-account from the underlying mutual fund, net of management fees assessed by the fund manager, divided by the average net assets. These ratios exclude those expenses, such as mortality and expense charges, that are assessed against contract value either through reductions in the unit values or the redemption of units. The recognition of investment income by the sub-account is affected by the timing of the declaration of dividends by the underlying fund in which the sub-account invests.
(b) These amounts represent the annualized contract expenses of the separate account, consisting primarily of mortality and expense charges, for each period indicated. The ratios include only those expenses that result in a direct reduction to unit values. Charges made directly to contract value through the redemption of units and expenses of the underlying fund have been excluded.
(c) These amounts represent the total return for the periods indicated, including changes in the value of the underlying fund, and expenses assessed through the reduction of unit values. These ratios do not include any expenses assessed through the redemption of units.
NATIONAL VARIABLE ANNUITY ACCOUNT II
(A Separate Account of National Life Insurance Company)
NOTES TO THE FINANCIAL STATEMENTS (continued)
NOTE 7 DISTRIBUTION OF NET INCOME
The Variable Account does not expect to declare dividends to contractholders from accumulated net income. The accumulated net income will be distributed to contractholders as withdrawals (in the form of death benefits, surrenders or contract loans) in excess of the contractholders net contributions to the Variable Account.
NOTE 8 - DIVERSIFICATION REQUIREMENTS
Under the provisions of Section 817(h) of the IRC, a variable annuity contract, other than a contract issued in connection with certain types of employee benefit plans, will not be treated as a variable annuity contract for federal income tax purposes for any period for which the investments of the segregated asset account on which the contract is based are not adequately diversified. The IRC provides that the adequately diversified requirement may be met if the underlying investments satisfy either a statutory safe harbor test or diversification requirements set forth in regulations issued by the Secretary of the Treasury.
National Life believes that the Variable Account satisfies the current requirements of the regulations, and it intends that the Variable Account will continue to meet such requirements.
NOTE 9 FUND SUBSTITUTIONS
There were no fund substitutions in the years 2012, 2013, or 2014. In 2015, the Neuberger Berman Mid Cap Growth Fund Class S merged into the Neuberger Berman Small Cap Growth Fund, after obtaining shareholder approval. In 2011, the Fidelity VIP V Money Market Fund was substituted for the SVPT Money Market Fund pursuant to an order issued by the Securities and Exchange Commission approving such substitution.
NLV Financial Corporation and Subsidiaries
Financial Statements
As of and for the Years Ended
December 31, 2015 and 2014
NLV Financial Corporation and Subsidiaries
Index
December 31, 2015 and 2014
|
Page(s) |
|
|
Independent Auditors Report |
1 |
|
|
Consolidated Financial Statements |
|
|
|
Consolidated Balance Sheets |
2 |
|
|
Consolidated Statements of Comprehensive Income |
3 |
|
|
Consolidated Statements of Changes in Stockholders Equity |
4 |
|
|
Consolidated Statements of Cash Flows |
5 |
|
|
Notes to Consolidated Financial Statements |
6 - 55 |
Independent Auditors Report
To the Board of Directors of NLV Financial Corporation:
We have audited the accompanying consolidated financial statements of NLV Financial Corporation (the Company) and its subsidiaries, which comprise the consolidated balance sheets as of December 31, 2015 and 2014, and the related consolidated statements of comprehensive income, of changes in stockholders equity and of cash flows for each of the three years in the period ended December 31, 2015.
Managements Responsibility for the Consolidated Financial Statements
Management is responsible for the preparation and fair presentation of the consolidated financial statements in accordance with accounting principles generally accepted in the United States of America; this includes the design, implementation, and maintenance of internal control relevant to the preparation and fair presentation of consolidated financial statements that are free from material misstatement, whether due to fraud or error.
Auditors Responsibility
Our responsibility is to express an opinion on the consolidated financial statements based on our audits. We conducted our audits in accordance with auditing standards generally accepted in the United States of America. Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the consolidated financial statements are free from material misstatement.
An audit involves performing procedures to obtain audit evidence about the amounts and disclosures in the consolidated financial statements. The procedures selected depend on our judgment, including the assessment of the risks of material misstatement of the consolidated financial statements, whether due to fraud or error. In making those risk assessments, we consider internal control relevant to the Companys preparation and fair presentation of the consolidated financial statements in order to design audit procedures that are appropriate in the circumstances, but not for the purpose of expressing an opinion on the effectiveness of the Companys internal control. Accordingly, we express no such opinion. An audit also includes evaluating the appropriateness of accounting policies used and the reasonableness of significant accounting estimates made by management, as well as evaluating the overall presentation of the consolidated financial statements. We believe that the audit evidence we have obtained is sufficient and appropriate to provide a basis for our audit opinion.
Opinion
In our opinion, the consolidated financial statements referred to above present fairly, in all material respects, the financial position of NLV Financial Corporation and its subsidiaries as of December 31, 2015 and 2014, and the results of their operations and their cash flows for each of the three years in the period ended December 31, 2015 in accordance with accounting principles generally accepted in the United States of America.
February 25, 2016
NLV Financial Corporation and Subsidiaries
Consolidated Balance Sheets
As of December 31, 2015, and 2014
(in thousands) |
|
2015 |
|
2014 |
| ||
Assets: |
|
|
|
|
| ||
Cash and investments: |
|
|
|
|
| ||
Available-for-sale debt securities |
|
$ |
17,111,699 |
|
$ |
16,879,781 |
|
Available-for-sale equity securities |
|
60,916 |
|
25,938 |
| ||
Trading equity securities |
|
14,505 |
|
14,890 |
| ||
Mortgage loans |
|
2,686,711 |
|
2,331,749 |
| ||
Policy loans |
|
823,456 |
|
808,598 |
| ||
Real estate investments |
|
44,667 |
|
54,041 |
| ||
Derivatives |
|
299,941 |
|
677,169 |
| ||
Other invested assets |
|
631,439 |
|
511,624 |
| ||
Short term investments |
|
244,043 |
|
270,320 |
| ||
Cash and restricted cash |
|
141,168 |
|
258,452 |
| ||
Total cash and investments |
|
22,058,545 |
|
21,832,562 |
| ||
Deferred policy acquisition costs |
|
1,295,231 |
|
951,160 |
| ||
Accrued investment income |
|
199,025 |
|
184,877 |
| ||
Premiums and fees receivable |
|
19,685 |
|
19,422 |
| ||
Federal income tax recoverable |
|
|
|
12,863 |
| ||
Amounts recoverable from reinsurers |
|
135,208 |
|
126,013 |
| ||
Present value of future profits of insurance acquired |
|
9,751 |
|
13,236 |
| ||
Property and equipment, net |
|
169,978 |
|
144,304 |
| ||
Corporate owned life insurance |
|
268,115 |
|
245,025 |
| ||
Other assets |
|
124,930 |
|
116,495 |
| ||
Separate account assets |
|
714,621 |
|
771,669 |
| ||
Total assets |
|
$ |
24,995,089 |
|
$ |
24,417,626 |
|
|
|
|
|
|
| ||
Liabilities: |
|
|
|
|
| ||
Policy liabilities: |
|
|
|
|
| ||
Policy benefit liabilities |
|
$ |
4,509,427 |
|
$ |
4,572,292 |
|
Policyholder account liabilities |
|
15,760,710 |
|
14,358,653 |
| ||
Policyholders deposits |
|
85,591 |
|
82,482 |
| ||
Policy claims payable |
|
61,567 |
|
61,405 |
| ||
Policyholders dividends |
|
154,114 |
|
246,145 |
| ||
Total policy liabilities |
|
20,571,409 |
|
19,320,977 |
| ||
Amounts payable to reinsurers |
|
26,305 |
|
38,853 |
| ||
Derivatives |
|
139,507 |
|
358,905 |
| ||
Other liabilities and accrued expenses |
|
438,724 |
|
551,343 |
| ||
Pension and other post-retirement benefit obligations |
|
225,680 |
|
252,801 |
| ||
Deferred income taxes |
|
150,541 |
|
251,922 |
| ||
Federal income tax payable |
|
576 |
|
|
| ||
Debt |
|
457,743 |
|
467,381 |
| ||
Separate account liabilities |
|
714,621 |
|
771,669 |
| ||
Total liabilities |
|
$ |
22,725,106 |
|
$ |
22,013,851 |
|
|
|
|
|
|
| ||
Stockholders Equity: |
|
|
|
|
| ||
Class A common stock, 2,000 shares authorized, no shares issued and outstanding |
|
$ |
|
|
$ |
|
|
Class B common stock, par value of $0.01, 1,001 shares authorized, 100 shares issued and outstanding |
|
|
|
|
| ||
Preferred stock, 500 shares authorized, no shares issued and outstanding |
|
|
|
|
| ||
Retained earnings |
|
2,243,408 |
|
2,134,104 |
| ||
Accumulated other comprehensive income |
|
26,575 |
|
269,671 |
| ||
Total stockholders equity |
|
$ |
2,269,983 |
|
$ |
2,403,775 |
|
Total liabilities and stockholders equity |
|
$ |
24,995,089 |
|
$ |
24,417,626 |
|
The accompanying notes are an integral part of these financial statements.
NLV Financial Corporation and Subsidiaries
Consolidated Statements of Comprehensive Income
For the Years Ended December 31, 2015, 2014 and 2013
(in thousands) |
|
2015 |
|
2014 |
|
2013 |
| |||
|
|
|
|
|
|
|
| |||
Revenues: |
|
|
|
|
|
|
| |||
Insurance premiums |
|
$ |
227,547 |
|
$ |
231,629 |
|
$ |
256,567 |
|
Policy and contract charges |
|
445,899 |
|
396,358 |
|
346,338 |
| |||
Mutual fund commissions and fee income |
|
100,826 |
|
107,321 |
|
109,839 |
| |||
Net investment income |
|
925,208 |
|
1,186,100 |
|
1,297,458 |
| |||
Net realized investment (losses) gains |
|
(8,581 |
) |
24,685 |
|
(4,743 |
) | |||
Change in value of trading equity securities |
|
(1,130 |
) |
(1,029 |
) |
2,360 |
| |||
Other income |
|
16,661 |
|
15,359 |
|
15,194 |
| |||
|
|
|
|
|
|
|
| |||
Total revenues |
|
1,706,430 |
|
1,960,423 |
|
2,023,013 |
| |||
|
|
|
|
|
|
|
| |||
Benefits and Expenses: |
|
|
|
|
|
|
| |||
Decrease in policy liabilities |
|
(1,720 |
) |
(50,994 |
) |
(11,834 |
) | |||
Policy benefits |
|
440,896 |
|
512,671 |
|
457,809 |
| |||
Policyholders dividends and dividend obligations |
|
64,289 |
|
83,413 |
|
79,424 |
| |||
Interest credited to policyholder account liabilities |
|
427,754 |
|
564,687 |
|
743,522 |
| |||
Operating expenses |
|
274,790 |
|
264,332 |
|
243,260 |
| |||
Interest expense |
|
40,149 |
|
41,434 |
|
41,610 |
| |||
Policy acquisition expenses and amortization of present value of future profits, net |
|
309,024 |
|
338,696 |
|
269,997 |
| |||
Total benefits and expenses |
|
1,555,182 |
|
1,754,239 |
|
1,823,788 |
| |||
Income before income taxes |
|
151,248 |
|
206,184 |
|
199,225 |
| |||
Income tax expense |
|
41,944 |
|
61,866 |
|
56,780 |
| |||
Net income |
|
$ |
109,304 |
|
$ |
144,318 |
|
$ |
142,445 |
|
Other comprehensive income, net of tax: |
|
|
|
|
|
|
| |||
Unrealized (losses) gains on available-for-sale securities |
|
(258,047 |
) |
83,362 |
|
(267,301 |
) | |||
Cash flow hedge on debt issuance |
|
34 |
|
34 |
|
34 |
| |||
Change in funded status of retirement plans |
|
14,917 |
|
(76,077 |
) |
35,466 |
| |||
Total other comprehensive (loss) income |
|
(243,096 |
) |
7,319 |
|
(231,801 |
) | |||
Comprehensive (loss) income |
|
$ |
(133,792 |
) |
$ |
151,637 |
|
$ |
(89,356 |
) |
The accompanying notes are an integral part of these financial statements.
NLV Financial Corporation and Subsidiaries
Consolidated Statements of Changes in Stockholders Equity
For the Years Ended December 31, 2015, 2014, and 2013
(in thousands) |
|
Class A |
|
Class B |
|
Preferred |
|
Retained |
|
Accumulated |
|
Total |
| ||||||
December 31, 2012 |
|
$ |
|
|
$ |
|
|
$ |
|
|
$ |
1,847,341 |
|
$ |
494,153 |
|
$ |
2,341,494 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| ||||||
Net income |
|
|
|
|
|
|
|
142,445 |
|
|
|
142,445 |
| ||||||
Other comprehensive income |
|
|
|
|
|
|
|
|
|
(231,801 |
) |
(231,801 |
) | ||||||
Total comprehensive income |
|
|
|
|
|
|
|
|
|
|
|
(89,356 |
) | ||||||
|
|
|
|
|
|
|
|
|
|
|
|
|
| ||||||
December 31, 2013 |
|
|
|
|
|
|
|
1,989,786 |
|
262,352 |
|
2,252,138 |
| ||||||
|
|
|
|
|
|
|
|
|
|
|
|
|
| ||||||
Net income |
|
|
|
|
|
|
|
144,318 |
|
|
|
144,318 |
| ||||||
Other comprehensive income |
|
|
|
|
|
|
|
|
|
7,319 |
|
7,319 |
| ||||||
Total comprehensive income |
|
|
|
|
|
|
|
|
|
|
|
151,637 |
| ||||||
|
|
|
|
|
|
|
|
|
|
|
|
|
| ||||||
December 31, 2014 |
|
|
|
|
|
|
|
2,134,104 |
|
269,671 |
|
2,403,775 |
| ||||||
|
|
|
|
|
|
|
|
|
|
|
|
|
| ||||||
Net income |
|
|
|
|
|
|
|
109,304 |
|
|
|
109,304 |
| ||||||
Other comprehensive income |
|
|
|
|
|
|
|
|
|
(243,096 |
) |
(243,096 |
) | ||||||
Total comprehensive income |
|
|
|
|
|
|
|
|
|
|
|
(133,792 |
) | ||||||
|
|
|
|
|
|
|
|
|
|
|
|
|
| ||||||
December 31, 2015 |
|
$ |
|
|
$ |
|
|
$ |
|
|
$ |
2,243,408 |
|
$ |
26,575 |
|
$ |
2,269,983 |
|
The accompanying notes are an integral part of these financial statements.
NLV Financial Corporation and Subsidiaries
Consolidated Statements of Cash Flows
For the Years Ended December 31, 2015, 2014, and 2013
(in thousands) |
|
2015 |
|
2014 |
|
2013 |
| |||
Cash Flows from Operating Activities: |
|
|
|
|
|
|
| |||
Net income |
|
$ |
109,304 |
|
$ |
144,318 |
|
$ |
142,445 |
|
Adjustments to reconcile net income to net cash provided by operating activities: |
|
|
|
|
|
|
| |||
Provision for deferred income taxes |
|
29,663 |
|
42,057 |
|
35,770 |
| |||
Interest credited to policyholder account liabilities |
|
427,754 |
|
564,687 |
|
743,522 |
| |||
Amortization of deferred policy acquisition costs |
|
202,049 |
|
235,482 |
|
170,741 |
| |||
Policy and contract charges |
|
(445,899 |
) |
(396,358 |
) |
(346,338 |
) | |||
Net realized investment (gains) losses |
|
8,581 |
|
(24,685 |
) |
4,743 |
| |||
Net option (gains) losses |
|
79,606 |
|
(199,619 |
) |
(334,341 |
) | |||
Change on corporate owned life insurance policies |
|
(7,156 |
) |
(8,700 |
) |
(8,632 |
) | |||
Amortization of present value of future profits of insurance acquired |
|
3,485 |
|
3,928 |
|
4,416 |
| |||
Depreciation |
|
24,694 |
|
19,996 |
|
14,108 |
| |||
Other |
|
(9,040 |
) |
(10,229 |
) |
6,220 |
| |||
Changes in assets and liabilities: |
|
|
|
|
|
|
| |||
Accrued investment income |
|
(14,148 |
) |
(7,338 |
) |
351 |
| |||
Deferred policy acquisition costs |
|
(318,636 |
) |
(313,010 |
) |
(259,080 |
) | |||
Policy liabilities |
|
67,769 |
|
51,488 |
|
1,399 |
| |||
Other assets and liabilities |
|
6,973 |
|
(42,165 |
) |
(12,024 |
) | |||
Net cash provided by operating activities |
|
164,999 |
|
59,852 |
|
163,300 |
| |||
|
|
|
|
|
|
|
| |||
Cash Flows from Investing Activities: |
|
|
|
|
|
|
| |||
Proceeds from sales, maturities and repayments of investments |
|
3,272,590 |
|
2,805,312 |
|
2,326,530 |
| |||
Cost of investments acquired |
|
(4,613,227 |
) |
(3,715,105 |
) |
(2,951,453 |
) | |||
Property and equipment additions |
|
(40,036 |
) |
(47,585 |
) |
(41,051 |
) | |||
Cost of corporate owned life insurance acquired |
|
(15,934 |
) |
|
|
|
| |||
Change in policy loans |
|
(14,858 |
) |
(21,627 |
) |
(19,641 |
) | |||
Change in short term investments |
|
26,277 |
|
74,980 |
|
(62,429 |
) | |||
Change in short term broker collateral |
|
(145,130 |
) |
(75,790 |
) |
155,903 |
| |||
Other |
|
(33,898 |
) |
13,981 |
|
(296 |
) | |||
Net cash used by investing activities |
|
(1,564,216 |
) |
(965,834 |
) |
(592,437 |
) | |||
|
|
|
|
|
|
|
| |||
Cash Flows from Financing Activities: |
|
|
|
|
|
|
| |||
Policyholders deposits |
|
1,823,046 |
|
1,825,595 |
|
1,565,731 |
| |||
Policyholders withdrawals |
|
(1,017,670 |
) |
(1,011,044 |
) |
(972,223 |
) | |||
Advance from Federal Home Loan Bank |
|
610,770 |
|
50,000 |
|
|
| |||
Repayments to Federal Home Loan Bank |
|
(100,000 |
) |
|
|
|
| |||
Debt retirement |
|
(15,079 |
) |
(20,587 |
) |
|
| |||
Change in other deposits |
|
(19,134 |
) |
(4,601 |
) |
(27,967 |
) | |||
Net cash provided by financing activities |
|
1,281,933 |
|
839,363 |
|
565,541 |
| |||
|
|
|
|
|
|
|
| |||
Net Decrease in Cash |
|
(117,284 |
) |
(66,619 |
) |
136,404 |
| |||
|
|
|
|
|
|
|
| |||
Cash and Restricted Cash: |
|
|
|
|
|
|
| |||
Beginning of year |
|
258,452 |
|
325,071 |
|
188,667 |
| |||
|
|
|
|
|
|
|
| |||
End of year |
|
$ |
141,168 |
|
$ |
258,452 |
|
$ |
325,071 |
|
|
|
|
|
|
|
|
| |||
Supplemental disclosure of cash flow information: |
|
|
|
|
|
|
| |||
Interest paid |
|
$ |
40,421 |
|
$ |
40,744 |
|
$ |
41,290 |
|
Income taxes (received) paid |
|
$ |
(18,645 |
) |
$ |
11,817 |
|
$ |
11,924 |
|
The accompanying notes are an integral part of these financial statements.
NLV Financial Corporation and Subsidiaries
Notes to Consolidated Financial Statements
December 31, 2015
NOTE 1 NATURE OF OPERATIONS AND STRUCTURE
NLV Financial Corporation (NLVF) and its subsidiaries and affiliates (collectively the Company) offer a broad range of financial products and services, including life insurance, annuities, mutual funds, and investment advisory and administrative services. The flagship company of the organization, National Life Insurance Company (National Life), was chartered in 1848. The Company employs approximately 1,040 people, primarily concentrated in Montpelier, Vermont and Addison, Texas. Life Insurance Company of the Southwest (LSW), a Texas domiciled stock life insurer, is a wholly owned subsidiary of National Life. National Life, together with LSW, makes up NLVFs insurance operations.
On January 1, 1999, pursuant to a mutual holding company reorganization, National Life converted from a mutual to a stock life insurance company. All of National Lifes outstanding shares are currently held by its parent, NLVF, which is a wholly-owned subsidiary of National Life Holding Company (NLHC), the mutual holding company. Policyholders of National Life hold membership interests in NLHC. NLHC and its subsidiaries are collectively known as the National Life Group. NLHC has ownership of all of NLVFs common stock class B shares outstanding. NLVF has assets and operations primarily related to the issuance of debt and as the sponsor of certain employee related benefit plans. Under the terms of the reorganization, NLHC must always hold a majority of the voting shares of NLVF.
On March 6, 2015, National Life Distribution, LLC (NLD) was formed as a subsidiary of LSW. In 2015, the entity is serving as a paymaster for National Life Groups field force operations. All commission expenses continue to be incurred in the operating companies.
On August 5, 2015, Catamount Reinsurance Company (Catamount) was formed as a subsidiary of National Life. Catamount is a special purpose financial captive life insurance company domiciled in the state of Vermont. Catamount entered into a coinsurance with funds withheld agreement with National Life to reinsure the majority of in force Closed Block policies for statutory reporting.
The Companys insurance operations principally develop and distribute individual life insurance and annuity products. The Company markets this diverse product portfolio to small business owners, professionals, and other middle to upper income individuals. The Company provides financial solutions in the form of estate, business succession and retirement planning, deferred compensation and other key executive benefit planning, and asset management services. Insurance and annuity products are primarily distributed through a number of general agencies and branch offices in major metropolitan areas and a system of marketing general agents and independent marketing organizations throughout the United States of America. The Company has in excess of 724,000 policyholders(1) and, through its subsidiaries, is licensed to do insurance business in all 50 states and the District of Columbia(2). About 36% of the Companys total collected premiums and deposits are from residents of the states of California and Texas.
Through Sentinel Asset Management, Inc. (SAMI) and its subsidiaries, the Company also distributes and provides investment advisory and administrative services to the Sentinel Group Funds, Inc. (Sentinel Funds). The Sentinel Funds $5.7 billion of net assets represent twelve mutual funds managed on behalf of approximately 105,000 individual, corporate, and institutional shareholders worldwide.
(1) The reference to policyowner, policyholder or policy throughout this document includes both life insurance and annuity contract owners.
(2) National Life is licensed to do business in all 50 states and the District of Columbia. LSW is licensed in 49 states and the District of Columbia. Catamount Reinsurance Company is licensed to do business in Vermont only.
NLV Financial Corporation and Subsidiaries
Notes to Consolidated Financial Statements
December 31, 2015
NOTE 2 SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
Basis of Presentation and Principles of Consolidation
The Companys consolidated financial statements have been prepared in conformity with accounting principles generally accepted in the United States of America (U.S. GAAP).
The consolidated financial statements of the Company include the accounts of NLVF and its direct and indirect subsidiaries. Intercompany transactions and balances have been eliminated in consolidation.
Certain reclassifications have been made to conform prior periods to the current years presentation.
Use of Estimates
The preparation of U.S. GAAP financial statements requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities and the 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.
The most significant estimates include those used in determining estimated gross profits used in the valuation and amortization of assets and liabilities associated with variable annuity and universal life-type contracts; policy liabilities; valuation of investments and derivative instruments; embedded derivatives; determination of hedging effectiveness on interest rate swaps; evaluation of other-than-temporary impairments; valuations related to benefit plans; income taxes; and litigation and regulatory contingencies. Certain of these estimates are particularly sensitive to market conditions, and deterioration and/or volatility in the debt or equity markets could have a material impact on the consolidated financial statements.
Subsequent Events
The Company has evaluated events subsequent to December 31, 2015 and through the consolidated financial statement issuance date of February 25, 2016. The Company has not evaluated subsequent events after the issuance date for presentation in these consolidated financial statements.
Cash and Restricted Cash
Included in cash are cash equivalents which consist of commercial paper with maturities of three months or less.
At December 31, 2015 and 2014, the Company had restricted cash of $72.4 million and $235.1 million, respectively, related to broker collateral on the Companys derivative investments.
Short Term Investments
Short term investments include money markets that are carried at amortized cost which approximates fair value. These short term investments include liquid debt instruments purchased with original maturities of one year or less.
NLV Financial Corporation and Subsidiaries
Notes to Consolidated Financial Statements
December 31, 2015
NOTE 2 SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (continued)
Investments
The Companys investment portfolio consists primarily of available-for-sale (AFS) debt and equity securities. These securities are reported at fair value on the Consolidated Balance Sheets. Changes in the fair values of available-for-sale debt and equity securities are reflected in other comprehensive income (OCI) after adjustments for related deferred policy acquisition costs, policyholder dividend obligations, loss reserve recognition, reserves, and deferred income taxes. When determining fair value, the Company utilizes observable market inputs and considers available data from a third party pricing service, independent brokers and pricing matrices. Publicly available prices are used whenever possible. In the event that publicly available pricing is not available, the securities are submitted to independent brokers for pricing, or they are valued using a pricing matrix that maximizes the use of observable inputs that include, but are not limited to, reported trades, benchmark yields, issuer spreads, bids, offers and/or cash flows. The Company periodically performs an analysis on prices received from third parties to ensure that the price represents fair value. This process includes quantitative and qualitative analysis and is performed by the Companys investment professionals.
Recognition and Presentation of Other-Than-Temporary Impairments
The evaluation of securities for impairment is a quantitative and qualitative process, which is subject to risks and uncertainties and is intended to determine whether declines in fair value of investments should be recognized in current period earnings and whether the securities are other-than-temporarily impaired (OTTI). The risks and uncertainties include changes in general economic conditions, the issuers financial condition and/or future prospects, the effects of changes in interest rates or credit spreads and the expected recovery period. The Company has a security monitoring process overseen by investment and accounting professionals that identifies securities, using certain quantitative and qualitative characteristics, which could be potentially impaired. These identified securities are subjected to an enhanced analysis to determine if the impairments are other-than-temporary.
A debt security is deemed to be other-than-temporarily impaired if it meets the following conditions: (1) the Company intends to sell, or it is more likely than not the Company will be required to sell, the security before a recovery in value, or (2) the Company does not expect to recover the entire amortized cost basis of the security. If the Company intends to sell, or it is more likely than not that the Company will be required to sell, the security before a recovery in fair value, a charge is recorded in net realized investment losses equal to the difference between the fair value and amortized cost basis of the security. For those other-than-temporarily impaired debt securities which do not meet the first condition and for which the Company does not expect to recover the entire amortized cost basis, the difference between the securitys amortized cost basis and the fair value is separated into the portion representing a credit impairment, which is recorded in net realized investment losses, and the remaining impairment, which is recorded in OCI. Generally, the Company determines a securitys credit impairment as the difference between its amortized cost basis and its best estimate of expected future cash flows discounted at the securitys effective yield prior to impairment. The remaining non-credit impairment, which is recorded in OCI, is the difference between the securitys fair value and the Companys best estimate of expected future cash flows discounted at the securitys effective yield prior to the impairment. The remaining non-credit impairment typically represents current market liquidity, risk premiums, and interest rate fluctuations. The previous amortized cost basis less the impairment recognized in net realized capital losses becomes the securitys new cost basis.
Debt securities that are in an unrealized loss position are reviewed quarterly to determine if the decline in fair value would be considered other-than-temporary based on certain quantitative and qualitative factors. The primary factors considered in evaluating whether a decline in value is other-than-temporary include: (a) the length of time and extent to which the fair value has been less than cost or amortized cost and the expected recovery period of the security, (b) the financial condition, credit rating, and future prospects of the issuer, (c) whether the debtor is current on contractually obligated interest and principal payments, (d) the intent and ability of the Company not to sell the investment prior to anticipated recovery, and (e) the payment structure of the security.
NLV Financial Corporation and Subsidiaries
Notes to Consolidated Financial Statements
December 31, 2015
NOTE 2 SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (continued)
Recognition and Presentation of Other-Than-Temporary Impairments (continued)
For securitized debt securities, the Company considers factors including, but not limited to, commercial and residential property value declines that vary by property type and location, and average cumulative collateral loss rates that vary by vintage year. These assumptions require the use of significant management judgment and include the probability of issuer default and estimates regarding timing and amount of expected recoveries which may include estimating the underlying collateral value. In addition, projections of expected future debt security cash flows may change based upon the new information regarding the performance of the issuer and/or underlying collateral such as changes in the projections of the underlying property value estimates.
The Companys best estimate of future cash flows involves assumptions including, but not limited to, various performance indicators, such as historical and projected default and recovery rates, credit ratings, current delinquency rates, loan-to-value ratios and the possibility of obligor re-financing. Estimating the underlying future cash flows is a quantitative and qualitative process that incorporates information received from third-party sources along with certain internal assumptions and judgments regarding the future performance of the underlying collateral. Where possible, this data is benchmarked against third-party sources.
For those equity securities where the decline in the fair value is deemed to be other-than-temporary, a charge is recorded in net realized capital losses equal to the difference between the fair value and cost basis of the security. The primary factors considered in evaluating whether an other-than-temporary impairment exists for an equity security include, but are not limited to: (a) the length of time and extent to which the fair value has been less than the cost of the security, (b) changes in the financial condition, credit rating and near-term prospects of the issuer, (c) whether there has been a reduction or elimination of dividends, (d) the intent and ability of the Company to hold the investment until an anticipated recovery, and (e) losses from the security that were recorded subsequent to the reporting period.
Based on this evaluation, the Company determined that $33.9 million, $6.0 million, and $10.3 million of unrealized losses on available-for-sale securities were other-than-temporarily impaired due to credit-related losses for the years ended December 31, 2015, 2014 and 2013, respectively. The Companys remaining unrealized losses on available-for-sale securities of $370.0 million and $93.3 million were considered to be temporary as of December 31, 2015 and 2014, respectively.
Trading Equity Securities
Trading equity securities are reported at fair value. Realized and unrealized gains (losses) on trading equity securities are included in change in fair value of trading equity securities within the Consolidated Statements of Comprehensive Income.
Mortgage Loans
Mortgage loans on real estate are carried at amortized cost less a valuation allowance for probable losses on unidentified loans. The evaluation and assessment of the adequacy of the provision for losses and the need for mortgage impairments is based on known and inherent risks in the portfolio, adverse situations that may affect the borrowers ability to repay, the value of the underlying collateral, composition of the loan portfolio, current economic conditions, loss experience and other relevant factors. These assumptions require the use of significant management judgment and include the probability and timing of borrower default and loss frequency and severity estimates. Changes in the valuation allowance are recognized through net realized investment gains (losses). The total valuation allowance as of December 31, 2015 and 2014 was $1.6 million and $1.6 million, respectively.
NLV Financial Corporation and Subsidiaries
Notes to Consolidated Financial Statements
December 31, 2015
NOTE 2 SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (continued)
Mortgage Loans (continued)
For mortgage loans that are deemed impaired, an impairment loss is recognized through net realized investment gains (losses) as the difference between the carrying amount and the Companys share of either (a) the present value of the expected future cash flows discounted at the loans original effective interest rate, (b) the loans observable market price or (c) the fair value of the collateral. Interest income on an impaired loan is accrued to the extent it is deemed collectable and the loan continues to perform under its original or restructured terms. Interest income on defaulted loans is recognized when received. The Company recognized mortgage loan impairments of $0.7 million, $2.4 million and $5.5 million as of December 31, 2015, 2014, and 2013, respectively.
Policy Loans
Policy loans are reported at their unpaid balance and are fully collateralized by related cash surrender values.
Real Estate
Real estate acquired in satisfaction of debt is classified either as held for investment or available for sale, and transferred to real estate at the lower of cost or fair value. Real estate investments held for investment purposes are reported at depreciated cost and real estate investments classified as held for sale are reported at the lower of cost or fair value, less the costs to sell, and are not depreciated. In evaluating real estate impairments, the Company considers, among other things, the fair value of the real estate compared to its carrying value. The Company recognized real estate impairments of $1.1 million, $0.2 million and $4.7 million as of December 31, 2015, 2014 and 2013, respectively, through net realized investment gains (losses).
Limited Partnerships
Investments in limited partnerships are included in other invested assets. Partnerships for which the Company does not have significant influence over the limited partnership are carried at fair value. The Company obtains the fair value of these investments generally from net asset value information provided by the general partner or manager of the limited partnership, the financial statements of which generally are audited annually. Other-than-temporary impairments are recorded in net realized investment gains (losses) if the present value of future earnings is projected to be less than the carrying value of the investment. Changes in the fair value of these limited partnerships are included in change in unrealized gains and losses on available-for-sale securities, net of related deferred income taxes, within other comprehensive income. Limited partnerships over which the Company has significant influence are accounted for using the equity method. Under the equity method, the Companys pro-rata share of the partnerships profits and losses are recognized in the Companys net investment income and dividends received from the partnerships are recognized as return of capital up until the point that the initial investment has been fully recovered.
Investments in limited partnerships over which the Company does not have significant influence are reviewed quarterly to determine if a decline in fair value is other-than-temporary in nature. The selection of partnership investments to review for other than temporary declines is qualitative and quantitative in nature and based on many factors, including the severity and duration of the decline as well as qualitative information about the underlying investments. If a decline in fair value of a limited partnership is determined to be other-than-temporary, the value of the investment is reduced to its fair value, which becomes its new cost basis, through current period earnings. To determine fair value, the Company, among other things, reviews the underlying assets of the fund or partnership to determine what the realizable value is expected to be, which requires significant management judgment. The Company recognized impairments on limited partnerships of $1.4 million, $5.2 million and $3.6 million as of December 31, 2015, 2014, and 2013, respectively, through net realized investment gains (losses).
NLV Financial Corporation and Subsidiaries
Notes to Consolidated Financial Statements
December 31, 2015
NOTE 2 SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (continued)
Other Invested Assets
The Company receives U.S. Treasuries as broker collateral on the Companys derivative investments. These assets are considered restricted and are included in other invested assets on the Companys Consolidated Balance Sheets. The Company held $76.6 million and $63.8 million in Treasury securities as broker collateral as of December 31, 2015 and 2014 respectively. The Company also receives cash as broker collateral. For additional information, see the Cash and Restricted Cash information included in Note 2.
Derivatives
Derivatives include long options, short options, swaptions, interest rate swaps, and futures contracts which are carried at fair value. The fair values of derivatives are based on publicly available data, and when that data is not available, the Company uses independent broker pricing quotes. Changes in fair value are reflected in the Consolidated Statements of Comprehensive Income as a component of net investment income.
The Company designates interest rate swaps as fair value hedges when they have met the requirements to be deemed fair value hedges. The interest rate swaps are used to convert fixed rate assets to floating rate. The Company recognizes gains and losses on the swaps along with the related hedged items within net investment income on the Consolidated Statements of Comprehensive Income. For additional information, see Note 5.
Affordable Housing Tax Credits
The Companys investments in affordable housing projects are included in other invested assets and are amortized using the proportional amortization method within income tax expense in accordance with ASU 2014-01. The associated tax credits are also included as a component of income tax expense. For additional information, see Note 8.
Realized Gains and Losses
Realized investment gains (losses) are recognized using the specific identification method and are reported as net realized investment gains (losses). Realized investment gains (losses) include an adjustment for related deferred policy acquisition costs, sales inducement assets, reserves, policyholder dividend obligations, and income taxes.
Accumulated Other Comprehensive Income
The balance of and changes in each component of AOCI attributable to the Company for the years ended December 31 are as follows:
NLV Financial Corporation and Subsidiaries
Notes to Consolidated Financial Statements
December 31, 2015
NOTE 2 SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (continued)
Accumulated Other Comprehensive Income (continued)
|
|
Unrealized gains (losses) |
|
Cash flow hedge on |
|
Change in funded |
|
Total |
| ||||
Balance, December 31, 2013 |
|
$ |
299,934 |
|
$ |
(662 |
) |
$ |
(36,920 |
) |
$ |
262,352 |
|
Other comprehensive income before reclassifications |
|
104,547 |
|
34 |
|
(78,912 |
) |
25,669 |
| ||||
Amounts reclassified from AOCI |
|
(32,592 |
) |
|
|
4,361 |
|
(28,231 |
) | ||||
Income tax benefit (expense) |
|
11,407 |
|
|
|
(1,526 |
) |
9,881 |
| ||||
Balance, December 31, 2014 |
|
$ |
383,296 |
|
$ |
(628 |
) |
$ |
(112,997 |
) |
$ |
269,671 |
|
Other comprehensive income before reclassifications |
|
(258,204 |
) |
34 |
|
6,611 |
|
(251,559 |
) | ||||
Amounts reclassified from AOCI |
|
241 |
|
|
|
12,778 |
|
13,019 |
| ||||
Income tax benefit (expense) |
|
(84 |
) |
|
|
(4,472 |
) |
(4,556 |
) | ||||
Balance, December 31, 2015 |
|
$ |
125,249 |
|
$ |
(594 |
) |
$ |
(98,080 |
) |
$ |
26,575 |
|
Reclassifications out of AOCI during the year ended December 31, 2015 were as follows:
AOCI component |
|
Amounts reclassified out |
|
Affected line item in the Consolidated Statements of |
| |
|
|
|
|
|
| |
Unrealized gains (losses) on available-for-sale securities |
|
$ |
35,018 |
|
Sale of securities - in net realized investment gains/(losses) |
|
|
|
(35,259 |
) |
Impairment expense - in net realized investment gains/(losses) |
| |
|
|
$ |
(241 |
) |
Total before tax |
|
|
|
84 |
|
Income tax expense |
| |
|
|
(157 |
) |
Net of tax |
| |
|
|
|
|
|
| |
Change in funded status of retirement plans (2) |
|
$ |
(12,778 |
) |
Amortization of actuarial gain/(loss) - in operating expenses |
|
|
|
4,472 |
|
Income tax expense |
| |
|
|
(8,306 |
) |
Net of tax |
| |
|
|
|
|
|
| |
Total reclassifications for the period |
|
$ |
(8,463 |
) |
Net of tax |
|
(1) Positive amounts indicate gains/benefits reclassified out of AOCI. Negative amounts indicate losses/costs reclassified out of AOCI.
(2) These AOCI components are included in the computation of net periodic pension cost (see Note 9 for additional details).
NLV Financial Corporation and Subsidiaries
Notes to Consolidated Financial Statements
December 31, 2015
NOTE 2 SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (continued)
Accumulated Other Comprehensive Income (continued)
Reclassifications out of AOCI during the year ended December 31, 2014 were as follows:
AOCI component |
|
Amounts reclassified out |
|
Affected line item in the Consolidated Statements of |
| |
|
|
|
|
|
| |
Unrealized gains (losses) on available-for-sale securities |
|
$ |
43,797 |
|
Sale of securities - in net realized investment gains/(losses) |
|
|
|
(11,205 |
) |
Impairment expense - in net realized investment gains/(losses) |
| |
|
|
$ |
32,592 |
|
Total before tax |
|
|
|
(11,407 |
) |
Income tax expense |
| |
|
|
21,185 |
|
Net of tax |
| |
|
|
|
|
|
| |
Change in funded status of retirement plans (2) |
|
$ |
(4,361 |
) |
Amortization of actuarial gain/(loss) - in operating expenses |
|
|
|
1,526 |
|
Income tax expense |
| |
|
|
(2,835 |
) |
Net of tax |
| |
|
|
|
|
|
| |
Total reclassifications for the period |
|
$ |
18,350 |
|
Net of tax |
|
(1) Positive amounts indicate gains/benefits reclassified out of AOCI. Negative amounts indicate losses/costs reclassified out of AOCI.
(2) These AOCI components are included in the computation of net periodic pension cost (see Note 9 for additional details).
Federal Home Loan Bank
National Life is a member of the Federal Home Loan Bank of Boston (FHLB Boston) which provides National Life with access to a secured asset-based borrowing capacity of $1.7 billion as of December 31, 2015. The membership and any advances require an investment in the common stock of FHLB Boston. National Life currently has outstanding advances of $79.2 million and pledged collateral of $86.7 million as of December 31, 2015 and $100 million and $126 million respectively as of December 31, 2014. National Life had an investment in the common stock of FHLB Boston of $10.9 million at December 31, 2015 and $10.7 million as of 2014. The common stock is redeemable with the FHLB. It is considered restricted and is reflected in Other Invested Assets at par value.
All of these advances are considered funding agreements and included in policyholder account liabilities. The proceeds from these advances have been invested into a pool of fixed income assets. Total interest expense of $1.7 million and $1.8 million was paid to the FHLB Boston in 2015 and 2014, respectively.
During 2015, National Life repaid advances to FHLB Boston of $100 million.
LSW is a member of the Federal Home Loan Bank of Dallas (FHLB Dallas) which provides LSW with access to a secured asset-based borrowing capacity of $4.0 billion as of December 31, 2015. The membership and any advances require an investment in the common stock of FHLB Dallas. LSW currently has outstanding advances of $581.6 million and pledged collateral of $594.3 million as of December 31, 2015 and $50 million and $52.5 million respectively as of December 31, 2014. LSW had an investment in the common stock of FHLB Dallas of $23.6 million at December 31, 2015 and $7.0 million as of 2014. The common stock is redeemable with the FHLB. It is considered restricted and is reflected in Other Invested Assets at par value.
NLV Financial Corporation and Subsidiaries
Notes to Consolidated Financial Statements
December 31, 2015
NOTE 2 SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (continued)
Federal Home Loan Bank (continued)
All of these advances are considered funding agreements and included in policyholder account liabilities. The proceeds from these advances have been invested into a pool of fixed income assets. Total interest expense of $0.8 million and $0.01 million was paid to the FHLB Dallas in 2015 and 2014, respectively.
Policy Acquisition Expenses
Commissions and other costs that are related directly to the successful acquisition of new or renewal insurance contracts are eligible to be deferred. Deferred policy acquisition costs (DAC) for participating life insurance, universal life insurance, and annuities are amortized in relation to estimated gross profits. Amortization is adjusted retrospectively for actual experience and when estimates of future gross profits are revised. Future gross profits may be revised due to changes in projected investment rates, mortality assumptions, expenses, contract lapses, withdrawals, and surrenders. Deferred policy acquisition costs for these products are adjusted for related unrealized gains (losses) on available-for-sale debt and equity securities (after deducting any related policyholder dividend obligations) through OCI, net of related deferred income taxes. DAC for non-participating term and whole life insurance and participating limited-payment and single-payment life insurance is amortized in relation to premium income using assumptions consistent with those used in computing policy benefit liabilities.
Annually, the Company reviews long-term assumptions underlying the projections of estimated gross profits and its calculation of the recoverability of DAC balances. These assumptions include investment returns, policyholder dividend scales, interest crediting rates, mortality, persistency, and administrative expenses. The effect on DAC of the update of the actuarial assumptions for 2015 and 2014 was a decrease to policy acquisition expenses of $0.3 million and an increase of $1.6 million, respectively.
The Company offers various sales incentives including bonus interest credited on its annuity products at the point of sale, as well as higher interest crediting rates in the first policy year. The Company capitalizes and amortizes these incentives to the extent they are in excess of expected policy benefits and interest credits provided in renewal years. These incentives are amortized based on the underlying gross profits of the products, with amortization adjusted periodically to reflect actual experience.
The components of the sales inducement asset (SIA) are shown below (amounts in millions), and are included in DAC:
|
|
SIA |
| ||||
|
|
2015 |
|
2014 |
| ||
Beginning of year |
|
$ |
55.9 |
|
$ |
46.4 |
|
Deferral |
|
24.0 |
|
24.4 |
| ||
Amortization, net |
|
(11.4 |
) |
(14.9 |
) | ||
End of year |
|
$ |
68.5 |
|
$ |
55.9 |
|
For internal replacements, the Company determines whether the new contract has substantially changed from the original contract based on certain criteria such as whether the change requires additional underwriting, pricing that was not contemplated in the original contract or significant benefit changes. If the Company determines that the contract has substantially changed, the deferred acquisition costs related to the original contract are written off.
NLV Financial Corporation and Subsidiaries
Notes to Consolidated Financial Statements
December 31, 2015
NOTE 2 SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (continued)
Goodwill and Other Intangible Assets
Goodwill and other intangible assets with indefinite useful lives are reviewed for impairment in accordance with FASB ASC 350, Intangibles Goodwill and Other on an annual basis, or more frequently if circumstances indicate that a possible impairment has occurred. The assessment for impairment begins with a qualitative determination of factors that could indicate that an impairment is more likely than not to exist. If it is deemed that an impairment is more likely than not to exist, then a quantitative assessment is completed. The quantitative impairment testing is performed using the fair value approach, which requires the use of estimates and judgment at the reporting unit or intangible asset level. The determination of a reporting units fair value is based on managements best estimate, which generally considers market-based earnings and revenue multiples of the units peer companies as well as a discounted cash flow analysis. If the carrying value of a reporting unit or intangible asset exceeds its fair value, an impairment is recognized as a charge against income equal to the excess of the carrying value of goodwill or intangible asset over its fair value. The goodwill and intangible balances represent the Companys acquisition of partnership interests and other mutual funds to enhance its asset management business. The goodwill and intangible balance was $53.0 million, consisting of $45.7 million of intangibles and $7.3 million of goodwill, at both December 31, 2015 and 2014. For further information on goodwill and other intangible assets see Note 10.
Property and Equipment
Property and equipment is reported at depreciated cost. Assets are depreciated over their useful life using the straight-line method of depreciation. The table below outlines the useful life for each asset class:
Asset Class |
|
Years |
|
Software |
|
5 |
|
Equipment |
|
5 |
|
Furniture |
|
7 |
|
Renovations/semi-permanent fixtures |
|
20 |
|
Home office/other buildings |
|
40 |
|
The tables below reflect the cost and accumulated depreciation for each major asset class as of December 31, 2015 and 2014 (in millions):
|
|
December 31, 2015 |
| |||||||
|
|
Cost |
|
Accumulated Depreciation |
|
Carrying Value |
| |||
Software |
|
$ |
219.9 |
|
$ |
(104.0 |
) |
$ |
115.9 |
|
Equipment |
|
31.7 |
|
(23.5 |
) |
8.2 |
| |||
Furniture |
|
28.1 |
|
(22.2 |
) |
5.9 |
| |||
Renovations |
|
11.9 |
|
(1.8 |
) |
10.1 |
| |||
Home office |
|
87.0 |
|
(57.1 |
) |
29.9 |
| |||
|
|
$ |
378.6 |
|
$ |
(208.6 |
) |
$ |
170.0 |
|
|
|
December 31, 2014 |
| |||||||
|
|
Cost |
|
Accumulated Depreciation |
|
Carrying Value |
| |||
Software |
|
$ |
178.3 |
|
$ |
(86.9 |
) |
$ |
91.4 |
|
Equipment |
|
26.5 |
|
(20.9 |
) |
5.6 |
| |||
Furniture |
|
27.8 |
|
(20.4 |
) |
7.4 |
| |||
Renovations |
|
11.9 |
|
(1.2 |
) |
10.7 |
| |||
Home office |
|
84.1 |
|
(54.9 |
) |
29.2 |
| |||
|
|
$ |
328.6 |
|
$ |
(184.3 |
) |
$ |
144.3 |
|
NLV Financial Corporation and Subsidiaries
Notes to Consolidated Financial Statements
December 31, 2015
NOTE 2 SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (continued)
Property and Equipment (continued)
Depreciation expense recognized in operating expenses was $24.3 million, $19.6 million, and $16.2 million for the years ended December 31, 2015, 2014, and 2013, respectively. In 2014, the Company recognized an impairment on property and equipment for $6.3 million as the recoverability test indicated that an impairment existed. The impairment loss is included in net realized investment gains (losses). No impairments were recognized in 2015.
Corporate Owned Life Insurance
The Company holds life insurance contracts on certain members of management and other key individuals. During 2015 the Company expanded its Corporate Owned Life Insurance (COLI) program with existing carriers by purchasing additional COLI of $16.0 million. The total cash surrender value of these COLI contracts was $268.1 million and $245.0 million at December 31, 2015 and 2014, respectively.
COLI income includes the net change in cash surrender value and any benefits received. COLI income was $9.4 million, $8.7 million, and $8.7 million in 2015, 2014, and 2013, respectively, and is included in other income in the Consolidated Statements of Comprehensive Income.
Receivable from Agents
The Company accrues receivables for any amounts due from agents. These amounts due can take various forms including commissions recoverable from policy lapses or surrenders. As of December 31, 2015 and 2014, the Company had a receivable from agents of $33.1 million and $24.5 million, respectively, which is included in other assets on the Consolidated Balance Sheets. These numbers are reported net of an accrued valuation allowance if it is deemed that amounts may not be collectible. The allowance on the receivable was $7.4 million as of December 31, 2015 and 2014, respectively.
Separate Accounts
The Company maintains separate account assets, which are reported at fair value. Investments in separate accounts that pertain to variable products are directed by the policyholder. Those investments are segregated from other investments. Any gains and losses accrue directly to the policyholder who assumes the investment risk.
Separate account liabilities are reported in amounts consistent with separate account assets. Separate account liabilities are legally insulated from the general account liabilities of the insurance enterprise, and all investment performance net of contract fees and assessments is passed through to the individual policyholder. Minimum guarantees related to separate account policies are included in policy liabilities. Separate account results relating to policyholders interests are excluded from the Companys consolidated operations.
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 dividend reserves are accrued in relation to gross profits, and are included in policy benefit liabilities. The average investment yield used in estimating gross profits for participating contracts was 4.94% and 5.08% as of December 31, 2015 and 2014, respectively.
NLV Financial Corporation and Subsidiaries
Notes to Consolidated Financial Statements
December 31, 2015
NOTE 2 SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (continued)
Policy Liabilities (continued)
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, and voluntary terminations. In addition, disability income policy benefit liabilities include provisions for future claim administration expenses.
Policyholder account liabilities for non-indexed life insurance (universal life products) and investment-type annuities represent amounts that inure to the benefit of the policyholders before surrender charges. Policyholder account balances for indexed life insurance and annuity liabilities consist of a combination of underlying account value and embedded derivative values. The underlying account value is primarily based on the initial deposit plus any interest credited. The embedded derivative component is based on the fair value of the contracts expected participation in future increases in the S&P 500, Russell 2000 or MSCI Emerging Markets indexes.
The fair value of the embedded derivative component includes assumptions about future interest rates and interest rate structures, future costs for options used to hedge the contract obligations, the level and limits on contract participation in any future increases in the S&P 500, Russell 2000 or MSCI Emerging Markets indexes, and an explicit risk margin for variance of policyholder behavior along with the associated impact the Companys own credit rating would have in the view of a market participant.
The guaranteed minimum interest rates for the Companys fixed interest rate annuities range from 0.25% to 4.5%. The guaranteed minimum interest rates for the Companys fixed interest rate universal life insurance policies range from 2.0% to 5.0%. These guaranteed minimum rates are before deduction for any policy administration fees or mortality charges.
Reserves are established, as appropriate, for separate account product guarantees. The most significant of these relates to a guaranteed minimum death benefit on variable annuities equal to the amount of premiums paid less prior withdrawals (regardless of investment performance). In addition, a policyholder less than seventy-six years of age may elect, at issue, to purchase an enhanced death benefit rider, which pays a benefit on death equal to the sum of the highest prior anniversary value and the net of premiums received and funds withdrawn since that date. Coverage from this rider ceases at age eighty. Guaranteed death benefits are reduced dollar-for-dollar for partial withdrawals, which increases the risk profile of this benefit. Partial withdrawals from policies issued after November 1, 2003 will use the pro-rata method. Separate account product guarantee reserves are calculated as a percentage of collected mortality and expense risk and rider charges, with the current period change in reserves reflected in policyholder benefits.
As part of the Companys annual actuarial assumption update, certain assumptions were revised including lapse and surrender rates, earned rates, and persistency in various blocks of business which resulted in a $20.4 million decrease and $7.2 million decrease in policy liabilities as of December 31, 2015 and 2014, respectively.
The Company tests reserves for any premium deficiency using best estimate assumptions. If a deficiency is found to exist, an additional reserve is typically recorded. As a result of the current interest rates used in the projections, the Company recorded reserves of $13.8 million as of December 31, 2014. In 2015, due to changes in the mortality tables the Company increased the reserve to $15.1 million as of December 31, 2015. The Company also tests reserves for adequacy assuming that all of the unrealized gains (losses) are realized and posts shadow reserves for any deficiency. As of December 31, 2015 and 2014, the Company accrued shadow loss reserves of $10.8 million and $17.2 million, respectively.
The Company held a reserve on its Guaranteed Lifetime Income Rider through accumulated other comprehensive income of $18.2 million and $40.9 million, as of December 31, 2015 and 2014. The net impact after DAC and tax offsets was $7.3 million and $16.7 million. The SOP 03-1 liability was $205.6 million and $132.6 million as of December 31, 2015 and 2014 respectively.
NLV Financial Corporation and Subsidiaries
Notes to Consolidated Financial Statements
December 31, 2015
NOTE 2 SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (continued)
Policy Liabilities (continued)
The Company offers persistency bonuses on certain products, whereby policyholders can receive additional interest credits by maintaining their policy in force for predetermined durations. These additional interest credits are accrued ratably over the bonus period and adjusted for actual persistency.
The components of the sales inducement liability (SIL) are shown below (amounts in millions), and are included in policy liabilities:
|
|
SIL |
| ||||
|
|
2015 |
|
2014 |
| ||
Beginning of year |
|
$ |
37.7 |
|
$ |
26.5 |
|
Additional accruals |
|
1.4 |
|
1.5 |
| ||
Increase (decrease) due to interest, amortization and unlocking |
|
6.3 |
|
9.7 |
| ||
End of year |
|
$ |
45.4 |
|
$ |
37.7 |
|
Reinsurance
The Company reinsures certain risks assumed in the normal course of business to other companies. The Company assumes a small amount of reinsurance from other companies. These reinsurance arrangements provide for greater diversification of business, allow management to control exposure to potential losses, and provide additional capacity for growth. Amounts recoverable from and payable to reinsurers are estimated in a manner consistent with the related liabilities associated with the reinsured policies. Reinsurance premiums and benefits paid or provided are accounted for on bases consistent with those used in accounting for the original policies issued and the terms of the reinsurance contracts.
Policyholders Dividends and Dividend Obligations
Policyholders dividends consist of the pro-rata amount of dividends earned that will be paid or credited at the next policy anniversary and policyholder dividend obligations arising from the Closed Block. Dividends are based on a scale that seeks to reflect the relative contribution of each group of policies to LSWs and National Lifes overall operating results. The dividend scale is approved annually by the Board of Directors for the respective company.
Policyholder Deposits
Policyholder deposits primarily consist of death benefits held in interest-bearing accounts for life insurance contract beneficiaries.
Recognition of Insurance Revenues and Related Expenses
Premiums from traditional life and certain annuities are recognized as revenue when due from the policyholder. 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 and surrenders from universal life and investment-type annuities are reported as increases and decreases, respectively, in policyholder account liabilities. Revenues for these policies consist of mortality charges, policy administration fees, and surrender charges deducted from policyholder account liabilities. Policy benefits charged to expense include benefit claims in excess of related policyholder account liabilities.
Premiums from disability income policies are recognized as revenue over the period to which the premiums relate. 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.
NLV Financial Corporation and Subsidiaries
Notes to Consolidated Financial Statements
December 31, 2015
NOTE 2 SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (continued)
Federal Income Taxes
The Company files a consolidated tax return. 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.
NOTE 3 NEW ACCOUNTING PRONOUNCEMENTS
Adopted
Income Taxes
In July 2013, the FASB issued ASU 2013-11, Presentation of an Unrecognized Tax Benefit When a Net Operating Loss Carryforward, a Similar Tax Loss, or a Tax Credit Carryforward Exists. The objective of the amendments is to eliminate the diversity in practice in the presentation of unrecognized tax benefits and applies to all entities that have unrecognized tax benefits when a net operating loss carryforward, a similar tax loss, or a tax credit carryforward exists at the reporting date. For nonpublic entities, the amendments are effective for fiscal years, and interim periods within those years, beginning after December 15, 2014. The amendments should be applied prospectively to all unrecognized tax benefits that exist at the effective date. Retrospective application is permitted.
Not Yet Adopted
Revenue Recognition
In May 2014, the FASB issued ASU 2014-09, Revenue from Contracts with Customers (Topic 606). The objective of the amendments in this Update is to clarify the principles for recognizing revenue and to develop a common revenue standard for U.S. GAAP and International Financial Reporting Standards (IFRS) that would (1) remove inconsistencies and weaknesses from revenue requirements, (2) provide a more robust framework for addressing revenue issues, (3) improve comparability of revenue recognition practices across entities, industries, jurisdictions and capital markets, (4) provide more useful information to users of financial statements through improved disclosure requirements, and (5) simplify the preparation of financial statements by reducing the number of requirements to which an entity must refer. Insurance contracts are specifically excluded from the guidance, but this could impact the Companys non-insurance revenues. In August 2015, the FASB issued ASU 2015-14 which defers the effective date of ASU 2014-09 for nonpublic entities to fiscal years beginning after December 15, 2018, and interim periods within fiscal years beginning after December 15, 2019. The Company is evaluating the effects of this new guidance and has not yet determined the impact on the financial statements.
Consolidation
In February 2015, the FASB issued ASU 2015-02, Consolidation (Topic 810) Amendments to the Consolidation Analysis which provides targeted improvements to consolidation guidance with respect to limited partnerships and other similarly structured entities. The new guidance addresses instances where a reporting entity consolidates another entity when the reporting entity is simply acting on the behalf of others, among other related issues. While the guidance is targeted, the application is relevant for all companies that are required to assess whether or not to consolidate certain entities. For nonpublic entities, the pronouncement is effective for fiscal years beginning after December 15, 2016, and interim periods within fiscal years beginning after December 15, 2017. Early adoption is permitted. The Company is currently assessing the impact the implementation of this guidance will have on its consolidated financial statements.
NLV Financial Corporation and Subsidiaries
Notes to Consolidated Financial Statements
December 31, 2015
NOTE 3 NEW ACCOUNTING PRONOUNCEMENTS (continued)
Not Yet Adopted (continued)
Debt Issuance Costs
In April 2015, the FASB issued ASU 2015-03, Interest Imputation of Interest (Subtopic 835-30): Simplifying the Presentation of Debt Issuance Costs. This update aims to reduce the complexity in the presentation of debt issuance costs, as compared to debt discount and premium. Debt issuance costs should now be deducted from the carrying amount of the debt liability, consistent with the treatment of debt discounts. They should no longer be recognized as a deferred charge. For nonpublic entities, the pronouncement is effective for fiscal years beginning after December 15, 2015, and interim periods within fiscal years beginning after December 15, 2016. Early adoption is permitted. The new guidance should be applied on a retrospective basis, and treated as a change in an accounting principle.
Investments
In May 2015, the FASB issued ASU 2015-07, Fair Value Measurement (Topic 820): Disclosures for Investments in Certain Entities That Calculate Net Asset Value per Share (or its Equivalent). The guidance removes the requirement to categorize within the fair value hierarchy all investments for which fair value is measured using the practical expedient of net asset value per share. It also changes the requirement for disclosure of all investments eligible to be measured using the practical expedient, and now requires disclosure only for those investments which have been so measured. For nonpublic entities, the pronouncement is effective for fiscal years beginning after December 15, 2016, and interim periods within those fiscal years. Early application is permitted. The guidance should be applied retrospectively. The Company anticipates updating its fair value disclosures to adjust for any mutual funds currently included in the fair value hierarchies.
Short-Duration Contract Disclosures
In May 2015, the FASB issued ASU 2015-09, Financial Services insurance (Topic 944): Disclosures about Short-Duration Contracts to increase transparency of estimates made in measuring the liability for unpaid claims and claim adjustment expenses. The guidance requires a variety of new disclosures. For nonpublic entities, the pronouncement is effective for fiscal years beginning after December 15, 2016, and interim periods within fiscal years beginning after December 15, 2017. Early application is permitted. The amendments should be applied retrospectively by providing comparative disclosures for each period presented.
NOTE 4 FAIR VALUE MEASUREMENTS OF ASSETS AND LIABILITIES
The fair value of a financial instrument is the amount that would be received to sell an asset or paid to transfer a liability in an orderly transaction between market participants at the measurement date (the exit price).
FASB ASC 820, Fair Value Measurement (ASC 820) requires consideration of three broad valuation techniques: (i) the market approach, (ii) the income approach, and (iii) the cost approach. Entities are required to determine the most appropriate valuation technique to use, given what is being measured and the availability of sufficient inputs. The guidance prioritizes the inputs to fair valuation techniques and allows for the use of unobservable inputs to the extent that observable inputs are not available.
The Company has categorized its assets and liabilities into a three-level hierarchy, based on the priority of the inputs to the respective valuation technique. The fair value hierarchy gives the highest priority to quoted prices in active markets for identical assets or liabilities (Level 1) and the lowest priority to unobservable inputs (Level 3). The Company categorizes financial assets and liabilities recorded at fair value on the balance sheet as follows:
NLV Financial Corporation and Subsidiaries
Notes to Consolidated Financial Statements
December 31, 2015
NOTE 4 FAIR VALUE MEASUREMENTS OF ASSETS AND LIABILITIES (continued)
· Level 1 - Unadjusted quoted prices accessible in active markets for identical assets or liabilities at the measurement date. The types of assets and liabilities utilizing Level 1 inputs include equity securities listed in active markets, U.S. Treasury securities, and certain short term investments including money markets. Separate account assets classified within this level principally include mutual funds.
· Level 2 - Inputs other than quoted prices included within Level 1 that are observable for the asset or liability, either directly or indirectly through corroboration with observable market data (market-corroborated inputs). The types of assets and liabilities utilizing Level 2 inputs generally include U.S. agency and government securities, mortgage-backed securities (MBSs) and asset-backed securities (ABSs), corporate debt, private placement investments, preferred stocks, and derivatives, including options and interest rate swaps, and short term investments. Generally, the Company considers bonds Level 2 as market activity is not deemed to be substantial enough to warrant classification as an active market. Separate account assets classified within this level are generally similar to those classified within this level for the general accounts.
· Level 3 - Prices or valuation techniques that require inputs that are both unobservable and significant to the overall fair value measurement. Inputs reflect managements best estimate about the assumptions market participants would use at the measurement date in pricing the asset or liability. Consideration is given to the risk inherent in both the method of valuation and the valuation inputs. Generally, the types of assets and liabilities utilizing Level 3 valuations are limited partnerships and embedded derivative liabilities.
In many situations, inputs used to measure the fair value of an asset or liability position may fall into different levels of the fair value hierarchy. In these situations, the Company will determine the level in which the fair value falls based upon the lowest level input that is significant to the determination of the fair value. In most cases, both observable (e.g., changes in interest rates) and unobservable (e.g., changes in risk assumptions) inputs are used in the determination of fair values that the Company has classified within Level 3. Consequently, these values and the related gains and losses are based upon both observable and unobservable inputs. If inputs to pricing models that were previously unobservable become observable, then an asset or liability can be transferred from Level 3 to Level 2.
Determination of fair values
The Company determines the fair values of certain financial assets and financial liabilities based on quoted market prices where available and where prices represent fair value. The Company also determines fair value based on future cash flows discounted at the appropriate current market rate. Fair values reflect adjustments for counterparty credit quality, the Companys default spreads, liquidity, and, where appropriate, risk margins on unobservable parameters. In the event that the Company believes that quoted prices are not representative of the true market value, due to distressed sales or inactive markets, the Company may make adjustments to quoted prices to estimate fair value.
NLV Financial Corporation and Subsidiaries
Notes to Consolidated Financial Statements
December 31, 2015
NOTE 4 FAIR VALUE MEASUREMENTS OF ASSETS AND LIABILITIES (continued)
Valuation Techniques
Available-for-sale debt securities and short term investments - The fair value of AFS securities and short term investments in an active and orderly market (e.g. not distressed or forced liquidation) is determined by management after considering one of four primary sources of information: unadjusted quoted prices accessible in active markets for identical assets or liabilities at the measurement date, third-party pricing services, independent broker quotations, or pricing matrices. Security pricing is applied using a waterfall approach whereby publicly available prices are first sought from third-party pricing services; the remaining unpriced securities are submitted to independent brokers for prices; or lastly, securities are priced using an internal pricing matrix. Typical inputs used by these three pricing methods include, but are not limited to, reported trades, benchmark yields, issuer spreads, bids, offers, and/or cash flows, and prepayments speeds. Based on the typical trading volumes and the lack of quoted market prices for fixed maturities, third-party pricing services will normally derive the security prices from recent reported trades for identical or similar securities, making adjustments through the reporting date based upon available market observable information as outlined above. If there are no recent reported trades, the third-party pricing services and brokers may use matrix or model processes to develop a security price where future cash flow expectations are developed based upon collateral performance and are then discounted at a market rate. Included in the pricing of ABS, commercial mortgage-backed securities (CMBS), and residential mortgage-backed securities (RMBS) are estimates of the rate of future prepayments of principal over the remaining life of the securities. Such estimates are derived based on the characteristics of the underlying structure and prepayment speeds previously experienced at the interest rate levels projected for the underlying collateral. Actual prepayment experience may vary from these estimates.
Prices from third-party pricing services are often unavailable for securities that are rarely traded or are traded only in privately negotiated transactions. As a result, certain securities are priced via independent broker quotations which utilize inputs that may be difficult to corroborate with observable market based data. Additionally, the majority of these independent broker quotations are non-binding. A pricing matrix is used to price securities for which the Company is unable to obtain either a price from a third-party pricing service or an independent broker quotation, by discounting the expected future cash flows from the security by a developed market discount rate utilizing current credit spreads on comparable securities.
The Company has analyzed the third-party pricing services valuation methodologies and related inputs, and has also evaluated the various types of securities in its investment portfolio to determine an appropriate fair value hierarchy level based upon trading activity and the observability of market inputs. Money markets included in short term investments are classified into Level 1 of the fair value hierarchy. Most prices provided by a third-party pricing service are classified into Level 2 because the inputs used in pricing the securities are market observable. Due to a general lack of transparency in the process that brokers use to develop prices, valuations that are based on brokers prices are classified as Level 3. Some valuations may be classified as Level 2 if the price can be corroborated.
U.S. government obligations - The fair values of U.S. government obligations, which include U.S. Treasuries, are based on observable broker bids from active market makers and inter-dealer brokers, as well as yield curves from dealers for same or comparable issues. U.S. Treasury securities are actively traded and categorized in Level 1 of the fair value hierarchy.
Government agencies - Government agencies, authorities and subdivisions securities include U.S. agencies and municipal bonds. The fair values of municipal bonds are using market quotations from recently executed transactions, spread pricing models, as well as interest rates. Government agency securities are valued based on market observable yield curves, interest rates, and spreads. Municipal bonds and government agency securities are generally categorized in Level 2 of the fair value hierarchy.
NLV Financial Corporation and Subsidiaries
Notes to Consolidated Financial Statements
December 31, 2015
NOTE 4 FAIR VALUE MEASUREMENTS OF ASSETS AND LIABILITIES (continued)
Valuation Techniques (continued)
Corporates - Corporate bonds as well as ABS securities are valued using cash flow models based on appropriate observable inputs such as market quotes, yield curves, interest rates, and spreads and are generally categorized as Level 2.
Private placements - Fair values of private placement securities are determined using industry accepted models based on observable spreads. These securities are generally categorized in Level 2 of the fair value hierarchy. However, in instances where significant inputs are unobservable, they are categorized in Level 3 of the fair value hierarchy.
Mortgage backed securities - MBS consist primarily of FNMA and GNMA mortgage-backed securities. The fair value of the MBS are valued using cash flow models based on appropriate observable inputs such as market quotes, yield curves, interest rates, and spreads and are generally categorized as Level 2.
AFS equity securities - The fair value of equity securities is based on unadjusted quoted market prices from a third party pricing service as well as primary and secondary broker quotes. These securities are generally categorized in Level 1 for common stocks and Level 2 for preferred stocks.
Trading equity securities - Fair values of exchange traded equity securities are based on unadjusted quoted market prices from pricing services as well as primary and secondary brokers/dealers. Trading equities are categorized into Level 1 of the fair value hierarchy.
Derivatives - Such instruments held by the Company include options, swaptions, interest rate swaps and futures contracts. Fair value of these over the counter (OTC) derivative products is calculated using models such as the Black-Scholes option-pricing model, which uses pricing inputs observed from actively quoted markets, and is widely accepted by the financial services industry. The majority of the Companys OTC derivative products use this and other pricing models, and are categorized as Level 2 of the fair value hierarchy. Fair values of futures are based on quoted prices which are observable. These prices are readily and regularly available in an active market. Therefore, these securities are categorized as Level 1 of the fair value hierarchy.
Other invested assets - Investments in limited partnerships are included in other invested assets. Limited partnerships do not have a readily determinable fair value, and as such, the Company values them at its pro-rata share of the limited partnerships NAV, or its equivalent. Since these valuations have significant unobservable inputs, they are generally categorized as Level 3 in the fair value hierarchy. Also included in other invested assets are U.S. Treasuries which are categorized as Level 1.
Policyholder account liabilities - This represents the fair value of the embedded derivatives contained in equity-indexed annuity and life contracts are included in policyholder account liabilities. These derivatives are measured based on actuarial and capital market assumptions related to projected cash flows over the expected lives of the contracts.
Option pricing models are used to estimate fair value, taking into account assumptions for future equity indexed credited rates in light of market conditions and policyholder behavior assumptions. The fair value incorporates an explicit risk margin for variance of policyholder behavior and the impact the Companys own credit rating would have in the view of a market participant. Given the significant unobservable inputs used to value these financial instruments, they are included in Level 3.
NLV Financial Corporation and Subsidiaries
Notes to Consolidated Financial Statements
December 31, 2015
NOTE 4 FAIR VALUE MEASUREMENTS OF ASSETS AND LIABILITIES (continued)
Presented below is the fair value of all assets and liabilities subject to fair value determination as of December 31, 2015 (in thousands):
|
|
Level 1 |
|
Level 2 |
|
Level 3 |
|
Not Presented at |
|
Total |
| |||||
AFS debt and equity securities: |
|
|
|
|
|
|
|
|
|
|
| |||||
U.S. government obligations |
|
247,812 |
|
$ |
|
|
$ |
|
|
$ |
|
|
$ |
247,812 |
| |
Government agencies, authorities and subdivisions |
|
|
|
687,927 |
|
|
|
|
|
687,927 |
| |||||
Corporates |
|
|
|
10,031,195 |
|
|
|
|
|
10,031,195 |
| |||||
Private placements |
|
|
|
1,750,263 |
|
|
|
|
|
1,750,263 |
| |||||
Mortgage-backed securities |
|
|
|
4,394,502 |
|
|
|
|
|
4,394,502 |
| |||||
Total AFS debt securities |
|
247,812 |
|
16,863,887 |
|
|
|
|
|
17,111,699 |
| |||||
Preferred stock |
|
|
|
19,906 |
|
|
|
|
|
19,906 |
| |||||
Common stock |
|
41,005 |
|
|
|
5 |
|
|
|
41,010 |
| |||||
Total AFS equity securities |
|
41,005 |
|
19,906 |
|
5 |
|
|
|
60,916 |
| |||||
|
|
|
|
|
|
|
|
|
|
|
| |||||
Total AFS debt and equity securities |
|
288,817 |
|
16,883,793 |
|
5 |
|
|
|
17,172,615 |
| |||||
Trading equity securities |
|
14,505 |
|
|
|
|
|
|
|
14,505 |
| |||||
Derivatives |
|
3,727 |
|
296,214 |
|
|
|
|
|
299,941 |
| |||||
Other invested assets |
|
82,676 |
|
|
|
273,983 |
|
274,780 |
|
631,439 |
| |||||
Short term investments |
|
244,043 |
|
|
|
|
|
|
|
244,043 |
| |||||
Separate account assets |
|
672,816 |
(1) |
29,733 |
(1) |
12,072 |
|
|
|
714,621 |
| |||||
Total assets subject to fair value disclosure |
|
$ |
1,306,584 |
|
$ |
17,209,740 |
|
$ |
286,060 |
|
$ |
274,780 |
|
$ |
19,077,164 |
|
|
|
|
|
|
|
|
|
|
|
|
| |||||
|
|
Level 1 |
|
Level 2 |
|
Level 3 |
|
Not Presented at |
|
Total |
| |||||
Policyholder account liabilities |
|
$ |
|
|
$ |
|
|
$ |
1,760,404 |
(2) |
$ |
|
|
$ |
1,760,404 |
|
Derivatives |
|
|
|
139,507 |
|
|
|
|
|
139,507 |
| |||||
Total liabilities subject to fair value disclosure |
|
$ |
|
|
$ |
139,507 |
|
$ |
1,760,404 |
|
$ |
|
|
$ |
1,899,911 |
|
(1) Separate account assets are measured at fair value. Investment performance related to separate account assets is fully offset by corresponding amounts credited to contract holders, whose liability is reflected within separate account liabilities. Separate account liabilities are set equal to the fair value of separate account assets as prescribed by ASC 944-80: Financial Services Insurance Separate Accounts. Separate account assets are principally comprised of mutual funds, common stocks, and bonds.
(2) The most sensitive assumption in determining policy liabilities for indexed annuities is the rate used to discount the excess projected contract values. This discount rate reflects the Companys nonperformance risk. If the discount rates used to discount the excess projected contract values at December 31, 2015 were to change by approximately 100 basis points, the fair value of the embedded derivative would change significantly with an offset to the deferred policy acquisition costs.
NLV Financial Corporation and Subsidiaries
Notes to Consolidated Financial Statements
December 31, 2015
NOTE 4 FAIR VALUE MEASUREMENTS OF ASSETS AND LIABILITIES (continued)
The table below summarizes the reconciliation of the beginning and ending balances and related changes for the year ended December 31, 2015 for fair value measurements for which significant unobservable inputs were used in determining each instruments fair value (in thousands):
|
|
Beginning |
|
Net Investment |
|
Unrealized in |
|
Purchases |
|
Issuances |
|
Sales |
|
Settlements |
|
Transfer |
|
Transfer |
|
Ending |
|
Net Investment |
| |||||||||||
Assets |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| |||||||||||
Corporates |
|
$ |
|
|
$ |
|
|
|
|
$ |
|
|
$ |
|
|
|
|
$ |
|
|
$ |
|
|
$ |
|
|
$ |
|
|
$ |
|
| ||
Common stock |
|
5 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
5 |
|
|
| |||||||||||
Total AFS debt and equity securities |
|
5 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
5 |
|
|
| |||||||||||
Other invested assets |
|
245,043 |
|
(1,725 |
) |
(8,927 |
) |
148,639 |
|
|
|
(109,047 |
) |
|
|
|
|
|
|
273,983 |
|
|
| |||||||||||
Separate account assets |
|
10,909 |
|
|
|
(271 |
) |
1,521 |
|
|
|
(87 |
) |
|
|
|
|
|
|
12,072 |
|
|
| |||||||||||
Total invested assets |
|
$ |
255,957 |
|
$ |
(1,725 |
) |
$ |
(9,198 |
) |
$ |
150,160 |
|
$ |
|
|
$ |
(109,134 |
) |
$ |
|
|
$ |
|
|
$ |
|
|
$ |
286,060 |
|
$ |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| |||||||||||
Liabilities |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| |||||||||||
Policyholder account liabilities |
|
$ |
1,815,568 |
|
$ |
(74,387 |
) |
$ |
|
|
$ |
|
|
$ |
|
|
$ |
|
|
$ |
19,223 |
|
$ |
|
|
$ |
|
|
1,760,404 |
|
|
| ||
Total liabilities |
|
$ |
1,815,568 |
|
$ |
(74,387 |
) |
$ |
|
|
$ |
|
|
$ |
|
|
$ |
|
|
$ |
19,223 |
|
$ |
|
|
$ |
|
|
$ |
1,760,404 |
|
$ |
|
|
(1) Includes (losses) gains on sales of financial instruments, changes in market value of certain instruments, and other-than-temporary impairments.
(2) Includes changes in market value of certain instruments.
During 2015, there were no significant transfers between levels.
NLV Financial Corporation and Subsidiaries
Notes to Consolidated Financial Statements
December 31, 2015
NOTE 4 FAIR VALUE MEASUREMENTS OF ASSETS AND LIABILITIES (continued)
Presented below is the fair value of all assets and liabilities subject to fair value determination as of December 31, 2014 (in thousands):
|
|
Level 1 |
|
Level 2 |
|
Level 3 |
|
Not Presented |
|
Total |
| |||||
Assests |
|
|
|
|
|
|
|
|
|
|
| |||||
AFS debt and equity securities: |
|
|
|
|
|
|
|
|
|
|
| |||||
U.S. government obligations |
|
$ |
232,765 |
|
$ |
|
|
$ |
|
|
$ |
|
|
$ |
232,765 |
|
Government agencies, authorities and subdivisions |
|
|
|
84,662 |
|
|
|
|
|
84,662 |
| |||||
Corporates |
|
|
|
9,855,998 |
|
|
|
|
|
9,855,998 |
| |||||
Private placements |
|
|
|
1,772,427 |
|
|
|
|
|
1,772,427 |
| |||||
Mortgage-backed securities |
|
|
|
4,933,929 |
|
|
|
|
|
4,933,929 |
| |||||
Total AFS debt securities |
|
232,765 |
|
16,647,016 |
|
|
|
|
|
16,879,781 |
| |||||
Preferred stock |
|
|
|
6,767 |
|
|
|
|
|
6,767 |
| |||||
Common stock |
|
19,166 |
|
|
|
5 |
|
|
|
19,171 |
| |||||
Total AFS equity securities |
|
19,166 |
|
6,767 |
|
5 |
|
|
|
25,938 |
| |||||
Total AFS debt and equity securities |
|
251,931 |
|
16,653,783 |
|
5 |
|
|
|
16,905,719 |
| |||||
Trading equity securities |
|
14,890 |
|
|
|
|
|
|
|
14,890 |
| |||||
Derivatives |
|
516 |
|
676,653 |
|
|
|
|
|
677,169 |
| |||||
Other invested assets |
|
69,831 |
|
|
|
245,043 |
|
196,750 |
|
511,624 |
| |||||
Short term investments |
|
234,270 |
|
36,050 |
|
|
|
|
|
270,320 |
| |||||
Separate account assets |
|
734,757 |
(1) |
26,003 |
(1) |
10,909 |
|
|
|
771,669 |
| |||||
Total assets subject to fair value disclosure |
|
$ |
1,306,195 |
|
$ |
17,392,489 |
|
$ |
255,957 |
|
$ |
196,750 |
|
$ |
19,151,391 |
|
|
|
|
|
|
|
|
|
|
|
|
| |||||
|
|
Level 1 |
|
Level 2 |
|
Level 3 |
|
Not Presented at |
|
Total |
| |||||
Liabilities |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Policyholder account liabilities |
|
$ |
|
|
$ |
|
|
$ |
1,815,568 |
(2) |
$ |
|
|
$ |
1,815,568 |
|
Derivatives |
|
|
|
358,905 |
|
|
|
|
|
358,905 |
| |||||
Total liabilities subject to fair value disclosure |
|
$ |
|
|
$ |
358,905 |
|
$ |
1,815,568 |
|
$ |
|
|
$ |
2,174,473 |
|
(1) Separate account assets are measured at fair value. Investment performance related to separate account assets is fully offset by corresponding amounts credited to contract holders, whose liability is reflected within separate account liabilities. Separate account liabilities are set equal to the fair value of separate account assets as prescribed by ASC 944-80: Financial Services Insurance Separate Accounts. Separate account assets are principally comprised of mutual funds, common stocks, and bonds.
(2) The most sensitive assumption in determining policy liabilities for indexed annuities is the rate used to discount the excess projected contract values. This discount rate reflects the Companys nonperformance risk. If the discount rates used to discount the excess projected contract values at December 31, 2014 were to change by approximately 100 basis points, the fair value of the embedded derivative would change significantly with an offset to the deferred policy acquisition costs.
NLV Financial Corporation and Subsidiaries
Notes to Consolidated Financial Statements
December 31, 2015
NOTE 4 FAIR VALUE MEASUREMENTS OF ASSETS AND LIABILITIES (continued)
The table below summarizes the reconciliation of the beginning and ending balances and related changes for the year ended December 31, 2014 for fair value measurements for which significant unobservable inputs were used in determining each instruments fair value (in thousands):
|
|
Beginning |
|
Net |
|
Unrealized in |
|
Purchases |
|
Issuances |
|
Sales |
|
Settlements |
|
Transfer |
|
Transfer |
|
Ending |
|
Net |
| |||||||||||
Assets |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| |||||||||||
Corporates |
|
$ |
1,145 |
|
$ |
|
|
$ |
(713 |
) |
$ |
|
|
$ |
|
|
$ |
(432 |
) |
$ |
|
|
$ |
|
|
$ |
|
|
$ |
|
|
$ |
|
|
Common stock |
|
5 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
5 |
|
|
| |||||||||||
Total AFS debt and equity securities |
|
1,150 |
|
|
|
(713 |
) |
|
|
|
|
(432 |
) |
|
|
|
|
|
|
5 |
|
|
| |||||||||||
Other invested assets |
|
193,287 |
|
(5,332 |
) |
3,574 |
|
88,358 |
|
|
|
(62,275 |
) |
|
|
27,431 |
|
|
|
245,043 |
|
(5,332 |
) | |||||||||||
Separate account assets |
|
10,088 |
|
|
|
531 |
|
290 |
|
|
|
|
|
|
|
|
|
|
|
10,909 |
|
|
| |||||||||||
Total invested assets |
|
$ |
204,525 |
|
$ |
(5,332 |
) |
$ |
3,392 |
|
$ |
88,648 |
|
$ |
|
|
$ |
(62,707 |
) |
$ |
|
|
$ |
27,431 |
|
$ |
|
|
$ |
255,957 |
|
$ |
(5,332 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| |||||||||||
Liabilities |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| |||||||||||
Policyholder account liabilities |
|
$ |
1,673,028 |
|
$ |
130,354 |
|
$ |
|
|
$ |
|
|
$ |
|
|
$ |
|
|
$ |
12,186 |
|
$ |
|
|
$ |
|
|
1,815,568 |
|
|
| ||
Total liabilities |
|
$ |
1,673,028 |
|
$ |
130,354 |
|
$ |
|
|
$ |
|
|
$ |
|
|
$ |
|
|
$ |
12,186 |
|
$ |
|
|
$ |
|
|
$ |
1,815,568 |
|
$ |
|
|
(1) Includes (losses) gains on sales of financial instruments, changes in market value of certain instruments, and other-than-temporary impairments.
(2) Includes changes in market value of certain instruments.
During 2014, there were no significant transfers between fair value Levels 1 and 2. In 2014, certain partnerships were categorized into Level 3 of the fair value hierarchy and are reflected as transfers in.
NLV Financial Corporation and Subsidiaries
Notes to Consolidated Financial Statements
December 31, 2015
NOTE 4 FAIR VALUE MEASUREMENTS OF ASSETS AND LIABILITIES (continued)
Fair Value of Financial Instruments
The carrying values and fair values of financial instruments as of December 31, 2015 and 2014 were as follows (in thousands):
|
|
2015 |
|
2014 |
| ||||
|
|
Carrying Value |
|
Fair Value |
|
Carrying Value |
|
Fair Value |
|
Mortgage loans |
|
2,686,711 |
|
2,798,919 |
|
2,331,749 |
|
2,474,107 |
|
Policy loans |
|
823,456 |
|
957,363 |
|
808,598 |
|
927,921 |
|
Investment product liabilities |
|
12,268,024 |
|
11,249,685 |
|
11,772,836 |
|
12,166,237 |
|
Debt |
|
457,743 |
|
601,560 |
|
467,381 |
|
620,550 |
|
FHLB capital stock |
|
34,434 |
|
34,434 |
|
17,700 |
|
17,700 |
|
For short term investments, amortized cost approximates fair value.
Mortgage loan fair values are determined using the average of discounted cash flows for the portfolio using current market rates and average durations.
For variable rate policy loans, the unpaid balance approximates fair value. Fixed rate policy loan fair values are determined based on discounted cash flows using the current variable policy loan rate (including appropriate provisions for mortality and repayments).
Investment product liabilities include flexible premium annuities, single premium deferred annuities, and supplementary contracts not involving life contingencies. Investment product fair values are determined using 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 determined using discounted cash flows derived from current interest rates adjusted for the Companys credit rating.
For FHLB capital stock, par value approximates fair value.
NLV Financial Corporation and Subsidiaries
Notes to Consolidated Financial Statements
December 31, 2015
NOTE 5 - INVESTMENTS
Available-for-Sale Debt and Equity Securities
The amortized cost and the fair values of AFS debt securities and the cost for AFS equity securities at December 31, 2015 and December 31, 2014 are as follows (in thousands):
2015 |
|
Amortized Cost |
|
Gross Unrealized |
|
Gross Unrealized |
|
Fair Value |
| ||||
AFS debt and equity securities: |
|
|
|
|
|
|
|
|
| ||||
U.S. government obligations |
|
$ |
234,395 |
|
$ |
13,478 |
|
$ |
61 |
|
$ |
247,812 |
|
Government agencies, authorities and subdivisions |
|
676,653 |
|
15,772 |
|
4,498 |
|
687,927 |
| ||||
Corporate: |
|
|
|
|
|
|
|
|
| ||||
Communications |
|
844,968 |
|
48,903 |
|
12,583 |
|
881,288 |
| ||||
Consumer & retail |
|
2,643,296 |
|
101,896 |
|
33,108 |
|
2,712,084 |
| ||||
Financial institutions |
|
1,996,786 |
|
156,931 |
|
11,019 |
|
2,142,698 |
| ||||
Industrial and chemicals |
|
1,627,288 |
|
63,195 |
|
84,674 |
|
1,605,809 |
| ||||
REITS |
|
595,928 |
|
7,922 |
|
9,129 |
|
594,721 |
| ||||
Transportation |
|
240,380 |
|
17,268 |
|
2,481 |
|
255,167 |
| ||||
Utilities |
|
1,915,056 |
|
70,249 |
|
145,877 |
|
1,839,428 |
| ||||
Total corporate |
|
9,863,702 |
|
466,364 |
|
298,871 |
|
10,031,195 |
| ||||
Private placements |
|
1,725,580 |
|
58,787 |
|
34,104 |
|
1,750,263 |
| ||||
Mortgage-backed securities |
|
4,206,369 |
|
218,839 |
|
30,706 |
|
4,394,502 |
| ||||
Total AFS debt securities |
|
$ |
16,706,699 |
|
$ |
773,240 |
|
$ |
368,240 |
|
$ |
17,111,699 |
|
|
|
|
|
|
|
|
|
|
| ||||
Preferred stocks |
|
20,000 |
|
|
|
94 |
|
19,906 |
| ||||
Common stocks |
|
40,281 |
|
2,403 |
|
1,674 |
|
41,010 |
| ||||
Total AFS equity securities |
|
$ |
60,281 |
|
$ |
2,403 |
|
$ |
1,768 |
|
$ |
60,916 |
|
|
|
|
|
|
|
|
|
|
| ||||
Total AFS debt and equity securities |
|
$ |
16,766,980 |
|
$ |
775,643 |
|
$ |
370,008 |
|
$ |
17,172,615 |
|
2014 |
|
Amortized Cost |
|
Gross Unrealized |
|
Gross Unrealized |
|
Fair Value |
| ||||
AFS debt and equity securities: |
|
|
|
|
|
|
|
|
| ||||
U.S. government obligations |
|
$ |
223,191 |
|
$ |
22,693 |
|
$ |
8 |
|
$ |
245,876 |
|
Government agencies, authorities and subdivisions |
|
61,315 |
|
10,236 |
|
|
|
71,551 |
| ||||
Corporate: |
|
|
|
|
|
|
|
|
| ||||
Communications |
|
816,456 |
|
84,583 |
|
1,693 |
|
899,346 |
| ||||
Consumer & retail |
|
2,247,662 |
|
169,870 |
|
4,284 |
|
2,413,248 |
| ||||
Financial institutions |
|
1,910,246 |
|
236,594 |
|
1,773 |
|
2,145,067 |
| ||||
Industrial and chemicals |
|
1,459,004 |
|
109,399 |
|
16,966 |
|
1,551,437 |
| ||||
REITS |
|
620,402 |
|
21,817 |
|
3,235 |
|
638,984 |
| ||||
Transportation |
|
214,849 |
|
26,973 |
|
258 |
|
241,564 |
| ||||
Utilities |
|
1,846,386 |
|
150,734 |
|
30,768 |
|
1,966,352 |
| ||||
Total corporate |
|
9,115,005 |
|
799,970 |
|
58,977 |
|
9,855,998 |
| ||||
Private placements |
|
1,687,316 |
|
93,873 |
|
8,762 |
|
1,772,427 |
| ||||
Mortgage-backed securities |
|
4,655,757 |
|
303,555 |
|
25,383 |
|
4,933,929 |
| ||||
Total AFS debt securities |
|
$ |
15,742,584 |
|
$ |
1,230,327 |
|
$ |
93,130 |
|
$ |
16,879,781 |
|
|
|
|
|
|
|
|
|
|
| ||||
Preferred stocks |
|
6,767 |
|
|
|
|
|
6,767 |
| ||||
Common stocks |
|
16,965 |
|
2,415 |
|
209 |
|
19,171 |
| ||||
Total AFS equity securities |
|
$ |
23,732 |
|
$ |
2,415 |
|
$ |
209 |
|
$ |
25,938 |
|
|
|
|
|
|
|
|
|
|
| ||||
Total AFS debt and equity securities |
|
$ |
15,766,316 |
|
$ |
1,232,742 |
|
$ |
93,339 |
|
$ |
16,905,719 |
|
NLV Financial Corporation and Subsidiaries
Notes to Consolidated Financial Statements
December 31, 2015
NOTE 5 INVESTMENTS (continued)
Available-for-Sale Debt and Equity Securities (continued)
Unrealized gains (losses) on available-for-sale debt and equity securities included as a component of accumulated other comprehensive income and changes therein for the years ended December 31 were as follows (in thousands):
|
|
2015 |
|
2014 |
|
2013 |
| |||
|
|
|
|
|
|
|
| |||
Net unrealized (losses) gains on AFS securities |
|
$ |
(734,177 |
) |
$ |
284,961 |
|
$ |
(873,037 |
) |
Net unrealized gains on separate accounts |
|
30 |
|
513 |
|
1,277 |
| |||
Net unrealized gains on other invested assets |
|
(8,926 |
) |
3,575 |
|
1,572 |
| |||
Related deferred policy acquisition costs |
|
227,484 |
|
(54,110 |
) |
292,539 |
| |||
Related loss reserve |
|
6,373 |
|
(2,316 |
) |
7,121 |
| |||
Related reserves |
|
22,736 |
|
(40,922 |
) |
|
| |||
Related deferred income taxes |
|
139,094 |
|
(45,043 |
) |
143,931 |
| |||
Related policyholder dividend obligation |
|
89,339 |
|
(63,296 |
) |
159,776 |
| |||
Increase in net unrealized (losses) gains |
|
(258,047 |
) |
83,362 |
|
(266,821 |
) | |||
Balance, beginning of year |
|
383,296 |
|
299,934 |
|
566,755 |
| |||
Balance, end of year |
|
$ |
125,249 |
|
$ |
383,296 |
|
$ |
299,934 |
|
|
|
|
|
|
|
|
| |||
|
|
2015 |
|
2014 |
|
|
| |||
Balance, end of year includes: |
|
|
|
|
|
|
| |||
Net unrealized gains on available-for-sale securities |
|
$ |
404,957 |
|
$ |
1,139,134 |
|
|
| |
Net unrealized gains on separate accounts |
|
6,088 |
|
6,058 |
|
|
| |||
Net unrealized gains on other invested assets |
|
16,276 |
|
25,202 |
|
|
| |||
Related deferred policy acquisition costs |
|
(92,620 |
) |
(320,104 |
) |
|
| |||
Related loss reserve |
|
(10,797 |
) |
(17,170 |
) |
|
| |||
Related reserves |
|
(18,186 |
) |
(40,922 |
) |
|
| |||
Related deferred income taxes |
|
(67,442 |
) |
(206,536 |
) |
|
| |||
Related policyholder dividend obligation |
|
(113,027 |
) |
(202,366 |
) |
|
| |||
Total |
|
$ |
125,249 |
|
$ |
383,296 |
|
|
|
Net other comprehensive income related to unrealized (losses) gains on available-for-sale securities for 2015, 2014, and 2013 of ($258.0) million, $83.4 million, and ($267.3) million, respectively, is presented net of reclassifications to net income for net realized investment gains (losses) during the period of $22.0 million, $26.0 million, and $19.0 million, and net of tax and deferred acquisition cost offsets of $13.9 million, $16.6 million, and $12.3 million, respectively.
The amortized cost and fair values of debt securities by contractual maturity at December 31, 2015, 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.
Maturity Schedule
|
|
Amortized cost |
|
Fair Value |
| ||
Due in one year or less |
|
$ |
538,236 |
|
$ |
548,202 |
|
Due after one yr through 5 yrs |
|
2,981,366 |
|
3,136,927 |
| ||
Due after 5 yrs through 10 yrs |
|
5,663,224 |
|
5,525,673 |
| ||
Due after ten years |
|
3,340,956 |
|
3,529,754 |
| ||
Mortgage-backed securities |
|
4,182,915 |
|
4,371,143 |
| ||
Total |
|
$ |
16,706,697 |
|
$ |
17,111,699 |
|
NLV Financial Corporation and Subsidiaries
Notes to Consolidated Financial Statements
December 31, 2015
NOTE 5 INVESTMENTS (continued)
Available-for-Sale Debt and Equity Securities (continued)
The Company determines the cost of investments sold based on average cost. Proceeds from sales of available-for-sale debt and equity securities for the years ended December 31, 2015, 2014, and 2013 were $840.3 million, $605.3 million, and $270.2 million, respectively. Gross realized gains on sales of available-for-sale debt securities for the years ended December 31, 2015, 2014, and 2013 were $36.4 million, $24.5 million, and $16.1 million, respectively. Gross realized losses on sales of available-for-sale debt securities for the years ended December 31, 2015, 2014, and 2013 were $0.4 million, $0.1 million, and $2.3 million, respectively. Gross realized gains on available-for-sale equity securities for the years ended December 31, 2015, 2014, and 2013 were $0.02 million, $14.6 million, and $4.8 million, respectively. Gross realized losses on available-for-sale equity securities for the years ended December 31, 2015, 2014, and 2013 were $0.2 million, $0.4 million, and $0.1 million, respectively.
The Company recognized the following realized losses resulting from other-than-temporary declines in fair value for the years ended December 31, (in millions):
|
|
2015 |
|
2014 |
|
2013 |
| |||
|
|
|
|
|
|
|
| |||
Debt securities |
|
$ |
33.9 |
|
$ |
3.8 |
|
$ |
9.7 |
|
Common and preferred equity securities |
|
|
|
2.2 |
|
0.6 |
| |||
Limited partnerships |
|
1.4 |
|
5.2 |
|
3.6 |
| |||
Total |
|
$ |
35.3 |
|
$ |
11.2 |
|
$ |
13.9 |
|
See Note 2 for additional information on the factors considered in determining whether declines in the fair value of investments are other-than-temporary.
Gross unrealized losses and investment fair values, aggregated by investment category and length of time that individual securities have been in a continuous unrealized loss position as of December 31, 2015 were as follows (in thousands):
|
|
Less than 12 months |
|
12 months or more |
|
Total |
| ||||||||||||
2015 |
|
Fair Value |
|
Unrealized |
|
Fair Value |
|
Unrealized |
|
Fair Value |
|
Unrealized |
| ||||||
Description of Securities |
|
|
|
|
|
|
|
|
|
|
|
|
| ||||||
U.S. government obligations |
|
$ |
19,390 |
|
$ |
61 |
|
$ |
|
|
$ |
|
|
$ |
19,390 |
|
$ |
61 |
|
Government agencies, authorities and subdivisions |
|
244,804 |
|
4,498 |
|
|
|
|
|
244,804 |
|
4,498 |
| ||||||
Corporate: |
|
|
|
|
|
|
|
|
|
|
|
|
| ||||||
Communications |
|
243,478 |
|
9,187 |
|
10,077 |
|
3,396 |
|
253,555 |
|
12,583 |
| ||||||
Consumer & retail |
|
932,482 |
|
30,064 |
|
37,248 |
|
3,044 |
|
969,730 |
|
33,108 |
| ||||||
Financial institutions |
|
463,534 |
|
8,380 |
|
7,972 |
|
2,639 |
|
471,506 |
|
11,019 |
| ||||||
Industrial and chemicals |
|
722,011 |
|
44,804 |
|
71,423 |
|
39,870 |
|
793,434 |
|
84,674 |
| ||||||
REITS |
|
321,022 |
|
6,889 |
|
30,644 |
|
2,240 |
|
351,666 |
|
9,129 |
| ||||||
Transportation |
|
82,850 |
|
2,481 |
|
|
|
|
|
82,850 |
|
2,481 |
| ||||||
Utilities |
|
709,493 |
|
88,024 |
|
175,076 |
|
57,853 |
|
884,569 |
|
145,877 |
| ||||||
Total corporate |
|
3,474,870 |
|
189,829 |
|
332,440 |
|
109,042 |
|
3,807,310 |
|
298,871 |
| ||||||
Private placements |
|
612,475 |
|
33,109 |
|
16,624 |
|
995 |
|
629,099 |
|
34,104 |
| ||||||
Mortgage-backed securities |
|
710,199 |
|
12,355 |
|
256,433 |
|
18,351 |
|
966,632 |
|
30,706 |
| ||||||
Subtotal debt securities |
|
5,061,738 |
|
239,852 |
|
605,497 |
|
128,388 |
|
5,667,235 |
|
368,240 |
| ||||||
Preferred stock |
|
19,906 |
|
94 |
|
|
|
|
|
19,906 |
|
94 |
| ||||||
Common stock |
|
27,945 |
|
1,239 |
|
5,835 |
|
435 |
|
33,780 |
|
1,674 |
| ||||||
Total securities |
|
$ |
5,109,589 |
|
$ |
241,185 |
|
$ |
611,332 |
|
$ |
128,823 |
|
$ |
5,720,921 |
|
$ |
370,008 |
|
NLV Financial Corporation and Subsidiaries
Notes to Consolidated Financial Statements
December 31, 2015
NOTE 5 INVESTMENTS (continued)
Available-for-Sale Debt and Equity Securities (continued)
Gross unrealized losses and investment fair values, aggregated by investment category and length of time that individual securities have been in a continuous unrealized loss position as of December 31, 2014 were as follows (in thousands):
|
|
Less than 12 months |
|
12 months or more |
|
Total |
| ||||||||||||
2014 |
|
Fair Value |
|
Unrealized |
|
Fair Value |
|
Unrealized |
|
Fair Value |
|
Unrealized |
| ||||||
Description of Securities |
|
|
|
|
|
|
|
|
|
|
|
|
| ||||||
Government agencies, authorities and subdivisions |
|
$ |
2,212 |
|
$ |
5 |
|
$ |
200 |
|
$ |
3 |
|
$ |
2,412 |
|
$ |
8 |
|
Corporate: |
|
|
|
|
|
|
|
|
|
|
|
|
| ||||||
Communications |
|
49,960 |
|
1,001 |
|
20,287 |
|
692 |
|
70,247 |
|
1,693 |
| ||||||
Consumer & retail |
|
149,899 |
|
1,729 |
|
128,744 |
|
2,555 |
|
278,643 |
|
4,284 |
| ||||||
Financial institutions |
|
47,203 |
|
1,162 |
|
29,710 |
|
611 |
|
76,913 |
|
1,773 |
| ||||||
Industrial and chemicals |
|
213,274 |
|
9,532 |
|
93,834 |
|
7,434 |
|
307,108 |
|
16,966 |
| ||||||
REITS |
|
59,454 |
|
2,047 |
|
49,542 |
|
1,188 |
|
108,996 |
|
3,235 |
| ||||||
Transportation |
|
2,374 |
|
25 |
|
10,898 |
|
233 |
|
13,272 |
|
258 |
| ||||||
Utilities |
|
469,748 |
|
25,906 |
|
57,763 |
|
4,862 |
|
527,511 |
|
30,768 |
| ||||||
Total corporate |
|
991,912 |
|
41,402 |
|
390,778 |
|
17,575 |
|
1,382,690 |
|
58,977 |
| ||||||
Private placements |
|
202,883 |
|
6,117 |
|
69,353 |
|
2,645 |
|
272,236 |
|
8,762 |
| ||||||
Mortgage-backed securities |
|
67,453 |
|
3,052 |
|
553,257 |
|
22,331 |
|
620,710 |
|
25,383 |
| ||||||
Subtotal debt securities |
|
1,264,460 |
|
50,576 |
|
1,013,588 |
|
42,554 |
|
2,278,048 |
|
93,130 |
| ||||||
Preferred stock |
|
|
|
|
|
|
|
|
|
|
|
|
| ||||||
Common stock |
|
6,260 |
|
209 |
|
|
|
|
|
6,260 |
|
209 |
| ||||||
Total securities |
|
$ |
1,270,720 |
|
$ |
50,785 |
|
$ |
1,013,588 |
|
$ |
42,554 |
|
$ |
2,284,308 |
|
$ |
93,339 |
|
In 2015, of the $239.9 million total unrealized losses on debt securities in the less than 12 months category, $189.8 million total unrealized losses are in the corporate bond portfolio. The unrealized losses are concentrated in the utilities, industrial and chemical, and consumer and retail sectors. In 2015, the Barclays US Corporate Investment Grade Index, an investment grade corporate bond index, widened by approximately 34 basis points from 131 basis points at year end 2014 to 165 basis points at year end 2015. Over the same time period, the Barclays US Corporate High Yield Index widened by approximately 177 basis points from 483 basis points at year end 2014 to a level of 660 basis points at year end 2015. The spread widening in both investment-grade and high-yield corporate bonds was concentrated in the energy and metals and mining sectors, as the Barclays US Corporate Investment Grade Energy Index widened by approximately 114 basis points from 196 basis points to 310 basis points and the Barclays US Corporate Investment Grade Metals and Mining Index widened by approximately 258 basis points from 222 basis points to 480 basis points. Commodities related sectors experienced weakening conditions during 2015 and the group continues to hold and monitor some individual credits that experienced adverse price action during this timeframe.
Of the $128.4 million unrealized losses on debt securities in the 12 months or more category, $109.0 million was in the corporate bond portfolio concentrated in the utilities and industrial and chemical categories. Based upon the facts and circumstances surrounding the individual securities, the Companys assessment around the probability of all contractual cash flows, and the Companys ability and intent to hold the individual securities to maturity or recovery, the Company believes that the unrealized losses on these bonds at December 31, 2015 are temporary.
NLV Financial Corporation and Subsidiaries
Notes to Consolidated Financial Statements
December 31, 2015
NOTE 5 INVESTMENTS (continued)
Available-for-Sale Debt and Equity Securities (continued)
The debt securities in an unrealized loss position for 12 months or more are concentrated in the corporate bond commodities related sectors of energy and metals and mining, with approximately $55 million and $32 million, respectively. The majority of the unrealized loss position in these securities is attributable to credit spread increases primarily reflecting lower energy and metals prices during 2015. The Company has no intention to sell these securities nor are there any requirements to sell these securities. The Company will continue to monitor these holdings for any underlying deterioration in future quarters that would indicate that an individual security will not recover. At that time the Company will record OTTI as appropriate.
Trading Equity Securities
These securities represent investments by the Company in the Sentinel Funds. SAMI has a contract with the Sentinel Funds (Funds), renewed annually, to manage the assets of the Funds. For the years ended December 31, 2015, 2014, and 2013 the equity securities held in the trading category recorded $1.2 million, $2.0 million, and $1.3 million, respectively, of net investment income. The cost of trading securities held at December 31, 2015 and 2014 was $15.6 million and $14.7 million respectively.
The total return on these equity investments is intended to offset the net appreciation or depreciation in value of certain defined contribution deferred compensation liabilities. The net change in deferred compensation liabilities is included in operating expenses.
Mortgage Loans and Real Estate
The distributions of mortgage loans and real estate at December 31 were as follows (in thousands):
|
|
2015 |
|
2014 |
| ||
Geographic Region |
|
|
|
|
| ||
New England |
|
4.7 |
% |
5.1 |
% | ||
Middle Atlantic |
|
5.0 |
|
5.4 |
| ||
East North Central |
|
15.7 |
|
17.4 |
| ||
West North Central |
|
11.9 |
|
6.5 |
| ||
South Atlantic |
|
24.0 |
|
22.3 |
| ||
East South Central |
|
4.3 |
|
5.5 |
| ||
West South Central |
|
10.1 |
|
13.1 |
| ||
Mountain |
|
9.9 |
|
9.4 |
| ||
Pacific |
|
14.4 |
|
15.3 |
| ||
Total |
|
100.0 |
% |
100.0 |
% | ||
|
|
|
|
|
| ||
Property Type |
|
|
|
|
| ||
Apartment |
|
14.7 |
% |
18.0 |
% | ||
Retail |
|
26.9 |
|
22.9 |
| ||
Office Building |
|
33.4 |
|
37.5 |
| ||
Industrial |
|
15.2 |
|
15.3 |
| ||
Hotel/Motel |
|
0.2 |
|
0.2 |
| ||
Other Commercial |
|
9.6 |
|
6.1 |
| ||
Total |
|
100.0 |
% |
100.0 |
% | ||
|
|
|
|
|
| ||
Mortgage loans |
|
$ |
2,686,711 |
|
$ |
2,331,749 |
|
Real estate |
|
44,667 |
|
54,041 |
| ||
Total mortgage loans and real estate |
|
$ |
2,731,378 |
|
$ |
2,385,790 |
|
NLV Financial Corporation and Subsidiaries
Notes to Consolidated Financial Statements
December 31, 2015
NOTE 5 INVESTMENTS (continued)
Mortgage Loans and Real Estate (continued)
The Company applies a consistent and disciplined approach to evaluating and monitoring credit risk, and monitors credit quality on an ongoing basis. Quality ratings are based on internal evaluations of each loans specific characteristics, considering a number of key inputs. The two most significant contributors to the credit quality are debt service coverage and loan-to-value ratios. The debt service coverage ratio measures the amount of property cash flow available to meet annual interest and principal payments on debt. The loan-to-value ratio, commonly expressed as a percentage, compares the amount of the loan to the fair value of the underlying property collateralizing the loan.
The following tables summarize the credit quality of the Companys commercial mortgage loan portfolio based on loan-to-value and debt service coverage ratios:
Debt Service Coverage Ratios as of December 31, 2015
(amounts in millions)
|
|
|
|
|
|
|
|
|
|
|
|
Total |
| ||||||
|
|
Greater than |
|
1.5x to |
|
1.25x to |
|
1.0x to |
|
Less than |
|
Carrying |
| ||||||
LTV Range |
|
2.0x |
|
2.0x |
|
1.5x |
|
1.25x |
|
1.0x |
|
Value |
| ||||||
< 50% |
|
288.4 |
|
$ |
188.3 |
|
$ |
44.0 |
|
$ |
11.2 |
|
$ |
4.2 |
|
$ |
536.1 |
| |
50% - 60% |
|
372.2 |
|
296.1 |
|
32.5 |
|
23.8 |
|
|
|
724.6 |
| ||||||
60% - 70% |
|
104.8 |
|
547.7 |
|
167.8 |
|
43.7 |
|
8.6 |
|
872.6 |
| ||||||
70% - 80% |
|
22.0 |
|
232.8 |
|
73.2 |
|
58.4 |
|
7.6 |
|
394.0 |
| ||||||
80% - 90% |
|
|
|
|
|
52.2 |
|
21.1 |
|
3.8 |
|
77.1 |
| ||||||
> 90% |
|
|
|
5.9 |
|
12.9 |
|
17.1 |
|
47.5 |
|
83.4 |
| ||||||
Total |
|
$ |
787.4 |
|
$ |
1,270.8 |
|
$ |
382.6 |
|
$ |
175.3 |
|
$ |
71.7 |
|
$ |
2,687.8 |
|
Debt Service Coverage Ratios as of December 31, 2014
(amounts in millions)
|
|
|
|
|
|
|
|
|
|
|
|
Total |
| ||||||
|
|
Greater than |
|
1.5x to |
|
1.25x to |
|
1.0x to |
|
Less than |
|
Carrying |
| ||||||
LTV Range |
|
2.0x |
|
2.0x |
|
1.5x |
|
1.25x |
|
1.0x |
|
Value |
| ||||||
< 50% |
|
160.0 |
|
$ |
153.2 |
|
$ |
33.7 |
|
$ |
43.9 |
|
$ |
5.9 |
|
$ |
396.7 |
| |
50% - 60% |
|
250.8 |
|
231.8 |
|
59.0 |
|
23.0 |
|
20.1 |
|
584.7 |
| ||||||
60% - 70% |
|
74.0 |
|
443.6 |
|
191.5 |
|
22.0 |
|
17.1 |
|
748.2 |
| ||||||
70% - 80% |
|
15.4 |
|
163.3 |
|
116.0 |
|
58.6 |
|
11.1 |
|
364.4 |
| ||||||
80% - 90% |
|
6.4 |
|
20.8 |
|
60.0 |
|
18.0 |
|
21.4 |
|
126.6 |
| ||||||
> 90% |
|
|
|
28.0 |
|
25.5 |
|
10.3 |
|
48.8 |
|
112.6 |
| ||||||
Total |
|
$ |
506.6 |
|
$ |
1,040.7 |
|
$ |
485.7 |
|
$ |
175.8 |
|
$ |
124.4 |
|
$ |
2,333.2 |
|
The difference between the total carrying value reflected in the tables above and the carrying value reflected in the Consolidated Balance Sheets is due to the related valuation allowance which is a general valuation allowance not attributable to any one mortgage.
Mortgage loans and related valuation allowances at December 31 were as follows (in thousands):
|
|
2015 |
|
2014 |
| ||
Commercial loans |
|
$ |
2,693,531 |
|
$ |
2,337,961 |
|
Related valuation allowances |
|
(1,568 |
) |
(1,566 |
) | ||
Impaired loans |
|
(5,687 |
) |
(4,797 |
) | ||
Market value adjustment on hedge |
|
435 |
|
151 |
| ||
Total |
|
$ |
2,686,711 |
|
$ |
2,331,749 |
|
NLV Financial Corporation and Subsidiaries
Notes to Consolidated Financial Statements
December 31, 2015
NOTE 5 INVESTMENTS (continued)
Mortgage Loans and Real Estate (continued)
The table below includes additional disclosures for impaired loans as of December 31, (in thousands):
|
|
2015 |
|
2014 |
|
2013 |
| |||
Impaired loans: |
|
|
|
|
|
|
| |||
Average total investment |
|
$ |
20,876 |
|
$ |
20,180 |
|
$ |
19,044 |
|
Interest income recognized |
|
1,132 |
|
966 |
|
1,078 |
| |||
Interest received |
|
699 |
|
743 |
|
1,220 |
| |||
Unpaid principal balance |
|
24,159 |
|
17,593 |
|
22,768 |
| |||
The Company reviews loans where there are indicators of potential impairments based on certain criteria, including macro-economic factors and loan specific indicators, and establishes a valuation allowance where applicable. As of December 31, 2015 and 2014, respectively the loan valuation allowance was $1.6 million and $1.6 million, with the change in valuation allowance recorded in net realized investment gains (losses).
Activity in the valuation allowances for mortgage loans for the years ended December 31 was as follows (in thousands):
|
|
2015 |
|
2014 |
|
2013 |
| |||
Changes to previously established valuation allowances |
|
$ |
2 |
|
$ |
(938 |
) |
$ |
(12,052 |
) |
Balance, beginning of year |
|
1,566 |
|
2,504 |
|
14,556 |
| |||
Balance, end of year |
|
$ |
1,568 |
|
$ |
1,566 |
|
$ |
2,504 |
|
Mortgage Loans Modified in a Troubled Debt Restructuring
The Company has a high quality, well performing commercial mortgage loan portfolio. For a small portion of the portfolio, classified as troubled debt restructuring, the Company grants concessions related to the borrowers financial difficulties. Generally, the types of concessions include: 1) reduction of the contractual interest rate, 2) extension of the maturity date at an interest rate lower than current market interest rates and/or 3) a reduction of accrued interest. The Company considers the amount, timing and extent of the concession granted in determining any impairment or changes in the specific valuation allowance recorded in connection with the troubled debt restructuring. Through the portfolio monitoring process, the Company may have recorded a specific valuation allowance prior to the quarter when the loan was modified in a troubled debt restructuring. Accordingly, the carrying value (after specific valuation allowance) before and after modification through a troubled debt restructuring may not change significantly.
At December 31, 2015, no loans were modified during the period in a troubled debt restructuring. At December 31, 2014, the Company had two mortgage loans which were modified during the period in a troubled debt restructuring. After restructuring, these loans had a subsequent payment default. Payment default is determined in the same manner as delinquency status when interest and principal payments are 90 days past due.
NLV Financial Corporation and Subsidiaries
Notes to Consolidated Financial Statements
December 31, 2015
NOTE 5 INVESTMENTS (continued)
Net Investment Income
The components of net investment income for the years ended December 31 were as follows (in thousands):
|
|
2015 |
|
2014 |
|
2013 |
| |||
Debt securities interest |
|
$ |
821,146 |
|
$ |
805,164 |
|
$ |
766,757 |
|
Equity securities dividends |
|
2,936 |
|
4,432 |
|
5,329 |
| |||
Mortgage loan interest |
|
135,120 |
|
125,904 |
|
130,576 |
| |||
Policy loan interest |
|
41,175 |
|
40,886 |
|
40,010 |
| |||
Real estate income |
|
9,254 |
|
8,525 |
|
6,750 |
| |||
Derivative income |
|
(86,402 |
) |
199,074 |
|
334,341 |
| |||
Partnership distributions |
|
27,131 |
|
24,594 |
|
22,556 |
| |||
Other investment income |
|
273 |
|
740 |
|
47 |
| |||
Gross investment income |
|
950,633 |
|
1,209,319 |
|
1,306,366 |
| |||
Less: investment expenses |
|
(25,425 |
) |
(23,219 |
) |
(20,960 |
) | |||
Less: valuation allowance on mortgage loans |
|
|
|
|
|
12,052 |
| |||
Net investment income |
|
$ |
925,208 |
|
$ |
1,186,100 |
|
$ |
1,297,458 |
|
The following summarizes the components of net realized investment gains (losses), including other than temporary impairments, by investment category for the years ended December 31 (in thousands):
|
|
2015 |
|
2014 |
|
2013 |
| |||
Debt securities |
|
$ |
1,664 |
|
$ |
25,878 |
|
$ |
5,248 |
|
Equity securities |
|
(180 |
) |
12,046 |
|
5,109 |
| |||
Mortgage loans |
|
(2,802 |
) |
(1,481 |
) |
(5,598 |
) | |||
Partnerships |
|
(1,725 |
) |
(5,332 |
) |
(3,595 |
) | |||
Other invested assets |
|
(156 |
) |
(1,452 |
) |
(1,478 |
) | |||
Real estate |
|
26 |
|
1,170 |
|
(4,429 |
) | |||
Property and equipment |
|
|
|
(6,144 |
) |
|
| |||
Debt retirement |
|
(5,409 |
) |
|
|
|
| |||
Total |
|
$ |
(8,582 |
) |
$ |
24,685 |
|
$ |
(4,743 |
) |
Derivatives
The Company purchases OTC options and exchange-traded futures on the S&P 500, Russell 2000, and MSCI Emerging Markets indexes to hedge obligations relating to indexed products. These instruments and their related indexed embedded derivative obligations do not qualify for hedge accounting and, therefore, changes in their fair value are included within net investment income in the Consolidated Statements of Comprehensive Income. Call options purchased are included in derivatives on the Consolidated Balance Sheets and are carried at fair value. Call options written are included in the derivatives liability and carried at fair value.
The Company purchases options only from highly rated counterparties. However, in the event a counterparty fails to perform, the Companys loss would be equal to the fair value of the net options held from that counterparty. The Company held collateral from counterparties as secured OTC call options to mitigate a portion of this risk in the amount of $149.0 million as of December 31, 2015. The Company utilizes a scale based on credit rating of the counterparty to determine the appropriate amount of counterparty risk. As of December 31, 2015, there was no derivative counterparty exposure that exceeded $20.5 million, net of collateral.
NLV Financial Corporation and Subsidiaries
Notes to Consolidated Financial Statements
December 31, 2015
NOTE 5 INVESTMENTS (continued)
Derivatives (continued)
Indexed annuity and life contracts are included in policyholder account liabilities and consist of a combination of underlying host contract and embedded derivative values. The embedded derivative component is based on the fair value of the contracts expected participation in future increases in the S&P 500, Russell 2000, or MSCI Emerging Markets indexes. The fair value of the embedded derivative component includes assumptions about future interest rates and interest rate structures, future costs for options used to hedge the contract obligations, projected withdrawal and surrender activity, and the level and limits on contract participation in any future increases in the S&P 500, Russell 2000, or MSCI Emerging Markets indexes. The Company incorporates two additional requirements in determining the fair value of a financial liability: (1) reflection of the reporting companys nonperformance risk and (2) reflection of a risk margin. The Company did not elect hedge accounting for any of those transactions, and therefore, changes in their fair value are included in the Consolidated Statements of Comprehensive Income. The embedded derivative value was $1,760.4 million and $1,815.6 million at December 31, 2015 and 2014 respectively.
The Company credits interest on policyholder account liabilities based on S&P 500, Russell 2000, and MSCI Emerging Markets index performance at participation rates and with certain caps on returns. These participation rates and caps are set each policy year. The Company economically hedges this annual exposure, at the time the participation rates and caps are set, by purchasing S&P 500, Russell 2000, and MSCI Emerging Markets index based derivatives in an amount that approximates the obligation of the Company to credit interest at the end of the year with adjustments for lapse assumptions. Since the derivatives purchased are based on the same indexes that the crediting rates are based upon, they substantially offset the market risk associated with the crediting rate in the policy year being hedged. Since these movements are so closely correlated, there has not been any significant hedging ineffectiveness in the years ended December 31, 2015 and 2014.
The Company enters into interest rate swaps to reduce market risks from changes in interest rates. These swaps are used to hedge changes in fair value. The Company designates interest rate swaps as fair value hedges when they have met the requirements to be deemed fair value hedges. The interest rate swaps are used to convert fixed rate assets to floating rate. The Company recognizes gains and losses on the swaps along with the related hedged items within net investment income on the Consolidated Statements of Comprehensive Income. Ineffectiveness recognized through net investment income in the years ended December 31, 2015 and 2014 was a $1.7 million loss and a $0.2 million loss respectively.
The notional amounts and the fair value of derivatives at December 31 were as follows (in thousands):
|
|
2015 |
|
2014 |
|
Primary Underlying |
| ||||||||
|
|
Notional |
|
Fair Value |
|
Notional |
|
Fair Value |
|
Risk Exposure |
| ||||
|
|
|
|
|
|
|
|
|
|
|
| ||||
Options purchased |
|
$ |
7,879,380 |
|
$ |
296,534 |
|
$ |
7,642,970 |
|
$ |
675,055 |
|
Equity market |
|
Options written |
|
(7,170,320 |
) |
(139,507 |
) |
(6,882,470 |
) |
(358,905 |
) |
Equity market |
| ||||
Swaptions purchased |
|
500,000 |
|
1,161 |
|
500,000 |
|
1,601 |
|
Interest rates |
| ||||
Interest rate swaps |
|
582,925 |
|
(1,481 |
)(1) |
34,100 |
|
(558 |
) |
Interest rates |
| ||||
Futures purchased |
|
103,055 |
|
3,727 |
|
18,098 |
|
516 |
|
Equity market |
| ||||
Credit default swaps |
|
|
|
|
|
|
|
|
|
Credit |
| ||||
Net fair market value |
|
|
|
$ |
160,434 |
|
|
|
$ |
317,709 |
|
|
| ||
(1) Interest rates swaps are reflected net of cash margin collateral of $1.5 million and $0.55 million in 2015 and 2014 respectively in the Consolidated Balance Sheets.
NLV Financial Corporation and Subsidiaries
Notes to Consolidated Financial Statements
December 31, 2015
NOTE 6 REINSURANCE
The Company reinsures certain risks assumed in the normal course of business. For individual life products sold on or after August 16, 2004, the Company generally retains no more than $2.0 million of risk on any person (excluding accidental death benefits and dividend additions). For individual life products sold after 2001 but prior to August 16, 2004, the Company generally retains no more than $1.0 million of risk on any person (excluding accidental death benefits and dividend additions). On individual life business issued prior to 2002, the Company generally retains no more than $3.0 million of risk (excluding accidental death benefits and dividend additions). Reinsurance for life products is ceded under yearly renewable term, coinsurance, and modified coinsurance agreements with various reinsurers.
Disability income products are primarily reinsured under coinsurance and modified coinsurance agreements primarily with Unum Provident Corporation (UNUM). Under the terms of the agreements, the Company has agreed to pay UNUM an interest rate of 9.5% on the reserves of original modified coinsurance block and 7.0% on the other modified coinsurance reserves held by the Company. All other rights and responsibilities outlined in the reinsurance agreements between the Company and UNUM remain in force.
Other income on the Consolidated Statements of Comprehensive Income includes income of $4.2 million, $4.2 million, and $4.5 million for 2015, 2014, and 2013, respectively, related to the Companys disability income reinsurance. Such income is primarily offset by expenses incurred by the Company related to this block of business. Reserve transfers and interest payments under modified coinsurance agreements are included in the Consolidated Statements of Comprehensive Income as a component of increase in policy liabilities expense.
The effects of reinsurance for the years ended December 31 were as follows (in thousands).
|
|
2015 |
|
2014 |
|
2013 |
| |||
Insurance premiums: |
|
|
|
|
|
|
| |||
Direct |
|
$ |
284,452 |
|
$ |
291,018 |
|
$ |
317,441 |
|
Reinsurance assumed |
|
1,047 |
|
906 |
|
1,052 |
| |||
Reinsurance ceded |
|
(57,952 |
) |
(60,295 |
) |
(61,926 |
) | |||
Total insurance premiums |
|
$ |
227,547 |
|
$ |
231,629 |
|
$ |
256,567 |
|
|
|
|
|
|
|
|
| |||
Increase in policy liabilities: |
|
|
|
|
|
|
| |||
Direct |
|
$ |
(38,970 |
) |
$ |
(94,923 |
) |
$ |
(45,627 |
) |
Reinsurance assumed |
|
|
|
|
|
(54 |
) | |||
Reinsurance ceded |
|
37,250 |
|
43,929 |
|
33,847 |
| |||
Total increase in policy liabilities |
|
$ |
(1,720 |
) |
$ |
(50,994 |
) |
$ |
(11,834 |
) |
|
|
|
|
|
|
|
| |||
Policy benefits: |
|
|
|
|
|
|
| |||
Direct |
|
$ |
519,441 |
|
$ |
577,930 |
|
$ |
532,348 |
|
Reinsurance assumed |
|
|
|
351 |
|
133 |
| |||
Reinsurance ceded |
|
(78,545 |
) |
(65,610 |
) |
(74,672 |
) | |||
Total policy benefits |
|
$ |
440,896 |
|
$ |
512,671 |
|
$ |
457,809 |
|
|
|
|
|
|
|
|
| |||
Policyholders dividends: |
|
|
|
|
|
|
| |||
Direct |
|
$ |
64,751 |
|
$ |
83,921 |
|
$ |
79,967 |
|
Reinsurance ceded |
|
(462 |
) |
(508 |
) |
(543 |
) | |||
Total policyholders dividends |
|
$ |
64,289 |
|
$ |
83,413 |
|
$ |
79,424 |
|
NLV Financial Corporation and Subsidiaries
Notes to Consolidated Financial Statements
December 31, 2015
NOTE 6 REINSURANCE (continued)
The Company remains liable in the event any reinsurer is unable to meet its assumed obligations. The Company 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 Companys largest reserve credit as of December 31, 2015 and 2014 was with Swiss Re for $147.1 million and $146.5 million, respectively. Total life insurance in force as of December 31, 2015 and 2014 was approximately $93.8 billion and $83.2 billion, respectively.
NOTE 7 DEFERRED POLICY ACQUISITION COSTS AND PRESENT VALUE OF FUTURE PROFITS OF INSURANCE ACQUIRED
The table below reflects the changes in the deferred policy acquisition costs asset.
(in thousands) |
|
2015 |
|
2014 |
|
2013 |
| |||
Balance, beginning of year |
|
$ |
951,160 |
|
$ |
927,742 |
|
$ |
546,864 |
|
Acquisition costs deferred during the year |
|
318,636 |
|
313,010 |
|
259,080 |
| |||
Amortization during the year |
|
(202,049 |
) |
(235,482 |
) |
(170,741 |
) | |||
Adjustment through other comprehensive income during the year |
|
227,484 |
|
(54,110 |
) |
292,539 |
| |||
Balance, end of year |
|
$ |
1,295,231 |
|
$ |
951,160 |
|
$ |
927,742 |
|
The Company holds present value of future profits of insurance acquired (PVFP) attributable to two purchased blocks of insurance; the first attributed to an indirect purchase of a two-thirds ownership interest in LSW in February 1996; the second attributed to the indirect purchase of the remaining third ownership interest in July 1999. Amortization of PVFP was $3.5 million, $3.9 million, and $4.4 million for the years ended December 31, 2015, 2014, and 2013, respectively.
Projected amortization of PVFP during the next four years is as follows (in thousands):
|
|
Projected |
|
Year |
|
Amortization |
|
2016 |
|
3,100 |
|
2017 |
|
2,800 |
|
2018 |
|
2,600 |
|
2019 |
|
1,200 |
|
NLV Financial Corporation and Subsidiaries
Notes to Consolidated Financial Statements
December 31, 2015
NOTE 8 FEDERAL INCOME TAXES
The Company files income tax returns in the U.S. federal and certain state jurisdictions. The Company is no longer subject to U.S federal, state, and local income tax examinations by tax authorities for years prior to 2010. During 2014, the IRS started its examination of the Companys 2010, 2011, 2012, and 2013 consolidated federal income tax returns.
The components of federal income taxes and a reconciliation of the expected and actual federal income taxes and income tax rates for the years ended December 31 were as follows (in thousands):
|
|
|
|
|
|
2013 |
| |||||||||
|
|
2015 |
|
2014 |
|
(as adjusted) |
| |||||||||
|
|
Amount |
|
Rate |
|
Amount |
|
Rate |
|
Amount |
|
Rate |
| |||
Current |
|
$ |
12,281 |
|
|
|
$ |
19,809 |
|
|
|
$ |
21,010 |
|
|
|
Deferred |
|
29,663 |
|
|
|
42,057 |
|
|
|
35,770 |
|
|
| |||
Total income tax expense |
|
$ |
41,944 |
|
|
|
$ |
61,866 |
|
|
|
$ |
56,780 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| |||
Expected income taxes |
|
$ |
52,937 |
|
35.0 |
% |
$ |
72,164 |
|
35.0 |
% |
$ |
65,675 |
|
35.0 |
% |
Dividends received deduction |
|
(2,156 |
) |
(1.4 |
) |
(2,478 |
) |
(1.2 |
) |
(1,840 |
) |
(1.0 |
) | |||
Affordable housing tax credit |
|
(20,602 |
) |
(13.6 |
) |
(16,435 |
) |
(8.0 |
) |
(15,232 |
) |
(8.1 |
) | |||
Corporate owned life insurance |
|
(3,503 |
) |
(2.3 |
) |
(3,250 |
) |
(1.6 |
) |
(3,230 |
) |
(1.7 |
) | |||
Other, net |
|
3,901 |
|
2.5 |
|
2,652 |
|
1.3 |
|
(176 |
) |
(0.1 |
) | |||
Total without amortization |
|
$ |
30,577 |
|
|
|
$ |
52,653 |
|
|
|
$ |
45,197 |
|
|
|
Effective rate without amortization |
|
|
|
20.2 |
% |
|
|
25.5 |
% |
|
|
24.1 |
% | |||
|
|
|
|
|
|
|
|
|
|
|
|
|
| |||
Affordable housing tax credit amortization |
|
11,367 |
|
7.5 |
|
9,213 |
|
4.5 |
|
11,583 |
|
4.0 |
| |||
Total income tax expense |
|
$ |
41,944 |
|
|
|
$ |
61,866 |
|
|
|
$ |
56,780 |
|
|
|
Effective federal income tax rate |
|
|
|
27.7 |
% |
|
|
30.0 |
% |
|
|
28.1 |
% |
As discussed in Note 2, Summary of Significant Accounting Policies, in 2014 the Company adopted ASU 2014-01: Accounting for Investments in Qualified Affordable Housing Projects. The prior years were restated to present the amortization of affordable housing tax credit investments in the current income tax expense line.
The Company paid $0.0 million, $10.0 million, and $10.0 million in federal income taxes during 2015, 2014, and 2013, respectively.
A reconciliation of the beginning to ending amount of unrecognized tax benefits is as follows (in thousands):
|
|
2015 |
|
2014 |
| ||
Balance, beginning of year |
|
$ |
7,325 |
|
$ |
8,491 |
|
Additions/(reductions) based on tax positions related to current year |
|
|
|
(1,166 |
) | ||
Additions/(reductions) based on tax positions related to prior years |
|
(1,165 |
) |
|
| ||
Reductions to unrecognized tax benefits as a result of a lapse of the applicable statute of limitations |
|
|
|
|
| ||
Settlements |
|
|
|
|
| ||
Balance, end of year |
|
$ |
6,160 |
|
$ |
7,325 |
|
Total unrecognized tax benefits were $7.2 million at December 31, 2015, including $1.0 million that would impact net income if recognized. The Company does not expect any significant change in liability for federal income tax loss contingencies within the next twelve months.
The Company recognizes interest and penalties accrued related to unrecognized tax benefits in tax expense. During the years ended December 31, 2015, 2014, and 2013, the Company has recognized approximately $0.2 million in expense, $0.3 million in expense, and $0.1 million in expense, respectively, related to interest and penalties. The Company had approximately $1.0 million and $0.8 million accrued for interest and penalties at December 31, 2015 and 2014, respectively.
NLV Financial Corporation and Subsidiaries
Notes to Consolidated Financial Statements
December 31, 2015
NOTE 8 FEDERAL INCOME TAXES (continued)
Components of net deferred income tax assets at December 31 were as follows (in thousands):
|
|
2015 |
|
2014 |
| ||
|
|
|
|
|
| ||
Deferred income tax assets: |
|
|
|
|
| ||
Policy liabilities |
|
$ |
308,374 |
|
$ |
363,631 |
|
Pension and other employee benefits |
|
78,014 |
|
90,659 |
| ||
Loss carryforwards |
|
5,929 |
|
1,487 |
| ||
Tax credits |
|
21,776 |
|
|
| ||
Other |
|
1,874 |
|
2,851 |
| ||
Total deferred income tax assets |
|
415,967 |
|
458,628 |
| ||
|
|
|
|
|
| ||
Deferred income tax liabilities: |
|
|
|
|
| ||
Deferred policy acquisition costs |
|
350,642 |
|
238,762 |
| ||
Debt/Equity Securities |
|
33,882 |
|
36,741 |
| ||
Other invested assets |
|
419 |
|
3,989 |
| ||
Net UCL AFS Debt/Equity Securities |
|
145,911 |
|
398,791 |
| ||
PV Future Profits |
|
3,413 |
|
4,633 |
| ||
Property and Equipment |
|
32,241 |
|
27,634 |
| ||
Total deferred income tax liabilities |
|
566,508 |
|
710,550 |
| ||
|
|
|
|
|
| ||
Total net deferred income tax assets (liabilities) |
|
$ |
(150,541 |
) |
$ |
(251,922 |
) |
Management believes it is more likely than not that the Company will realize the benefit of deferred tax assets. Therefore, no valuation allowance was recorded as of December 31, 2015 or 2014.
At December 31, 2015, the Company has federal operating loss carryforwards related to the non-life insurance companies of $15.8 million which expire in 2031 and 2034.
NOTE 9 BENEFIT PLANS
The Company sponsors a qualified defined benefit pension plan covering substantially all employees. The plan is non-contributory, with benefits for National Life employees hired prior to July 1, 2001, based on an employees retirement age, years of service, and compensation near retirement. Benefits for National Life employees hired after June 30, 2001, and other Company employees, are based on the amount credited to the employees account each year, which is a factor of the employees age, service, and compensation, increased at a specified rate of interest. The Company also sponsors a frozen non-contributory qualified defined benefit plan that provided benefits to employees in the Career channel general agencies. The plan was amended effective January 1, 2004 to freeze plan benefits. No new participants were admitted to the plan after December 31, 2003, and there were no increases in benefits after December 31, 2003 for existing participants. These pension plans are separately funded. Plan assets are primarily mutual funds and bonds held in a Company separate account and funds invested in a group variable annuity contract held in the general account of National Life. None of the securities held in the Companys separate account were issued by the Company, but some investments are advised by an affiliate.
NLV Financial Corporation and Subsidiaries
Notes to Consolidated Financial Statements
December 31, 2015
NOTE 9 BENEFIT PLANS (continued)
The Company sponsors other pension plans, including a non-contributory defined benefit plan for National Life career general agents who met the eligibility requirements to enter the plan prior to January 1, 2005, and a noncontributory defined supplemental benefit plan for certain executives. These defined benefit pension plans are non-qualified and are not separately funded.
The Company sponsors defined benefit postretirement plans that provide medical benefits to employees, agency staff and agents. Medical coverage is contributory; with retiree contributions adjusted annually, and contain cost sharing features such as deductibles and copayments. The postemployment plans are not separately funded, and the Company, therefore, pays for plan benefits from operating cash flows. The costs of providing these benefits are recognized as they are earned by employees.
The Company also sponsors various defined contribution and deferred compensation plans.
Information with respect to the defined benefit plans at December 31 was as follows (in thousands):
|
|
Pension Benefits |
|
Other Benefits |
| ||||||||||||||
|
|
2015 |
|
2014 |
|
2013 |
|
2015 |
|
2014 |
|
2013 |
| ||||||
Change in benefit obligation: |
|
|
|
|
|
|
|
|
|
|
|
|
| ||||||
Benefit obligation, beginning of year |
|
$ |
457,918 |
|
$ |
349,373 |
|
$ |
374,259 |
|
$ |
32,086 |
|
$ |
26,457 |
|
$ |
29,935 |
|
Service cost for benefits earned during the period |
|
9,541 |
|
7,104 |
|
7,013 |
|
335 |
|
266 |
|
382 |
| ||||||
Interest cost on benefit obligation |
|
17,008 |
|
16,210 |
|
13,783 |
|
1,196 |
|
1,220 |
|
1,091 |
| ||||||
Plan participants contributions |
|
|
|
|
|
|
|
1,067 |
|
1,231 |
|
976 |
| ||||||
Actuarial (gains)/ losses |
|
(27,336 |
) |
105,524 |
|
(24,945 |
) |
(7,689 |
) |
6,201 |
|
(3,484 |
) | ||||||
Benefits paid |
|
(22,162 |
) |
(20,293 |
) |
(20,737 |
) |
(3,128 |
) |
(3,289 |
) |
(2,443 |
) | ||||||
Benefit obligation, end of year |
|
434,969 |
|
457,918 |
|
349,373 |
|
23,867 |
|
32,086 |
|
26,457 |
| ||||||
Change in plan assets: |
|
|
|
|
|
|
|
|
|
|
|
|
| ||||||
Plan assets, beginning of year |
|
266,332 |
|
243,897 |
|
208,014 |
|
|
|
|
|
|
| ||||||
Actual income on plan assets |
|
(5,824 |
) |
9,073 |
|
32,431 |
|
|
|
|
|
|
| ||||||
Employer contributions |
|
24,129 |
|
33,655 |
|
24,189 |
|
2,061 |
|
2,058 |
|
2,443 |
| ||||||
Plan participants contributions |
|
|
|
|
|
|
|
1,067 |
|
1,231 |
|
976 |
| ||||||
Benefits paid |
|
(22,162 |
) |
(20,293 |
) |
(20,737 |
) |
(3,128 |
) |
(3,289 |
) |
(3,419 |
) | ||||||
Plan assets, end of year |
|
262,475 |
|
266,332 |
|
243,897 |
|
|
|
|
|
|
| ||||||
Funded Status |
|
$ |
(172,494 |
) |
$ |
(191,586 |
) |
$ |
(105,476 |
) |
$ |
(23,867 |
) |
$ |
(32,086 |
) |
$ |
(26,457 |
) |
|
|
Pension Benefits |
|
Other Benefits |
| ||||||||||||||
|
|
2015 |
|
2014 |
|
2013 |
|
2015 |
|
2014 |
|
2013 |
| ||||||
Amounts recognized in the Consolidated |
|
|
|
|
|
|
|
|
|
|
|
|
| ||||||
Balance Sheets: |
|
|
|
|
|
|
|
|
|
|
|
|
| ||||||
Pension and other post-retirement benefit obligations liability |
|
$ |
17,198 |
|
$ |
19,493 |
|
$ |
41,605 |
|
$ |
28,271 |
|
$ |
30,337 |
|
$ |
33,528 |
|
Accumulated other comprehensive income |
|
155,296 |
|
172,093 |
|
63,871 |
|
(4,404 |
) |
1,749 |
|
(7,071 |
) | ||||||
Net amount recognized |
|
$ |
172,494 |
|
$ |
191,586 |
|
$ |
105,476 |
|
$ |
23,867 |
|
$ |
32,086 |
|
$ |
26,457 |
|
Pension and other post-retirement benefit obligations liability |
|
$ |
(172,494 |
) |
$ |
(191,586 |
) |
$ |
(105,476 |
) |
$ |
(23,867 |
) |
$ |
(32,086 |
) |
$ |
(26,457 |
) |
Amounts recognized in accumulated other comprehensive income consists of: |
|
|
|
|
|
|
|
|
|
|
|
|
| ||||||
Net actuarial loss |
|
$ |
155,296 |
|
$ |
172,093 |
|
$ |
63,871 |
|
$ |
(374 |
) |
$ |
8,793 |
|
$ |
2,987 |
|
Net prior service costs (benefits) |
|
|
|
|
|
|
|
(4,030 |
) |
(7,044 |
) |
(10,058 |
) | ||||||
|
|
$ |
155,296 |
|
$ |
172,093 |
|
$ |
63,871 |
|
$ |
(4,404 |
) |
$ |
1,749 |
|
$ |
(7,071 |
) |
NLV Financial Corporation and Subsidiaries
Notes to Consolidated Financial Statements
December 31, 2015
NOTE 9 BENEFIT PLANS (continued)
The total accumulated benefit obligation (ABO), the accumulated benefit obligation and fair value of plan assets for the Companys pension plans with accumulated benefit obligations in excess of plan assets, and the projected benefit obligation and fair value of plan assets for pension plans with projected benefit obligations in excess of plan assets as of the measurement date was as follows (in thousands):
|
|
2015 |
|
2014 |
|
2013 |
| |||
Total Accumulated Benefit Obligation |
|
$ |
406,842 |
|
$ |
419,910 |
|
$ |
335,384 |
|
Plans with ABO in excess of plan assets: |
|
|
|
|
|
|
| |||
ABO |
|
406,842 |
|
419,910 |
|
335,384 |
| |||
Fair value of plan assets (1) |
|
262,489 |
|
266,369 |
|
244,395 |
| |||
Plans with PBO in excess of plan assets: |
|
|
|
|
|
|
| |||
PBO |
|
434,969 |
|
457,918 |
|
349,373 |
| |||
Fair value of plan assets (1) |
|
262,489 |
|
266,369 |
|
244,395 |
| |||
(1) The difference to total plan assets shown on the prior page is due to accrual for income and liabilities that are not carried at fair value.
The components of net periodic benefit cost for the years ended December 31 were as follows (in thousands):
|
|
Pension Benefits |
|
Other Benefits |
| ||||||||||||||
|
|
2015 |
|
2014 |
|
2013 |
|
2015 |
|
2014 |
|
2013 |
| ||||||
Service cost for benefits earned during the period |
|
$ |
9,541 |
|
$ |
7,104 |
|
$ |
7,013 |
|
$ |
335 |
|
$ |
266 |
|
$ |
382 |
|
Interest cost on benefit obligation |
|
17,008 |
|
16,210 |
|
13,783 |
|
1,196 |
|
1,220 |
|
1,091 |
| ||||||
Expected (income) on plan assets |
|
(19,151 |
) |
(17,060 |
) |
(14,566 |
) |
|
|
|
|
|
| ||||||
Net amortization of actuarial losses (gains) |
|
14,315 |
|
5,289 |
|
11,175 |
|
1,478 |
|
396 |
|
1,121 |
| ||||||
Amortization of prior service costs (benefits) and plan amendments |
|
|
|
|
|
(38 |
) |
(3,014 |
) |
(3,014 |
) |
(3,014 |
) | ||||||
Net periodic benefit cost (included in operating expenses) |
|
$ |
21,713 |
|
$ |
11,543 |
|
$ |
17,367 |
|
$ |
(5 |
) |
$ |
(1,132 |
) |
$ |
(420 |
) |
Other changes in plan assets and benefit obligations recognized in other comprehensive income (in thousands):
|
|
Pension Benefits |
|
Other Benefits |
| ||||||||||||||
|
|
2015 |
|
2014 |
|
2013 |
|
2015 |
|
2014 |
|
2013 |
| ||||||
Net gain (loss) |
|
$ |
2,482 |
|
$ |
(113,511 |
) |
$ |
42,746 |
|
$ |
7,690 |
|
$ |
(6,202 |
) |
$ |
1,278 |
|
Prior service (cost) benefit |
|
|
|
|
|
|
|
|
|
|
|
|
| ||||||
Amortization of (gain) loss |
|
14,315 |
|
5,289 |
|
11,175 |
|
1,477 |
|
396 |
|
1,121 |
| ||||||
Amortization of prior service cost (benefits) |
|
|
|
|
|
(38 |
) |
(3,014 |
) |
(3,014 |
) |
(3,014 |
) | ||||||
Total recognized in other comprehensive income |
|
$ |
16,797 |
|
$ |
(108,222 |
) |
$ |
53,883 |
|
$ |
6,153 |
|
$ |
(8,820 |
) |
$ |
(615 |
) |
Over the next year, the estimated amount of amortization from accumulated other comprehensive income into net periodic benefit cost related to net actuarial losses and prior service benefit is $13.6 million and $3.0 million, respectively.
NLV Financial Corporation and Subsidiaries
Notes to Consolidated Financial Statements
December 31, 2015
NOTE 9 BENEFIT PLANS (continued)
The actuarial assumptions used in determining benefit obligations at the measurement dates were as follows:
|
|
Pension Benefits |
|
Other Benefits |
| ||||||||
|
|
2015 |
|
2014 |
|
2013 |
|
2015 |
|
2014 |
|
2013 |
|
Discount rate |
|
4.20% |
|
3.85% |
|
4.80% |
|
4.20% |
|
3.85% |
|
4.80% |
|
Rate of increase in future compensation levels |
|
3.0% - 5.0% |
|
3.0% - 5.0% |
|
3.0% - 5.0% |
|
|
|
|
|
|
|
The weighted-average assumptions used to determine net periodic benefit cost:
|
|
Pension Benefits |
|
Other Benefits |
| ||||||||
|
|
2015 |
|
2014 |
|
2013 |
|
2015 |
|
2014 |
|
2013 |
|
Discount rate |
|
3.85% |
|
4.80% |
|
3.80% |
|
3.85% |
|
4.80% |
|
3.80% |
|
Rate of increase in future compensation levels |
|
3.0% - 5.0% |
|
3.0% - 5.0% |
|
3.0% - 5.0% |
|
|
|
|
|
|
|
Expected long term return on plan assets |
|
7.00% |
|
7.00% |
|
7.00% |
|
|
|
|
|
|
|
Included in the pension and other post-retirement benefit obligations liability as reported on the Consolidated Balance Sheets are deferred compensation and employee disability liabilities of $29.3 million and $29.0 million as of December 31, 2015 and 2014, respectively.
Effective January 1, 2013, the cost sharing arrangements associated with the other post-retirement employee benefits were amended. This created a $12.2 million benefit which is included as a prior service cost benefit in other comprehensive income and resulted in a decrease in the other post-retirement benefit liability.
Assumed health care cost trend rates (HCCTR) at December 31, 2015:
Weighted average health care cost trend rate assumed for next year |
|
7.67 |
% |
Rate to which the cost trend rate is assumed to decline |
|
5 |
% |
Year that the rate reaches the ultimate trend rate |
|
2025 |
|
Increasing the assumed HCCTR by one percentage point in each year would increase the accumulated post-retirement benefit obligation (APBO) by about $0.8 million and would increase service and interest costs by about $0.1 million. Decreasing the assumed HCCTR by one percentage point in each year would reduce the APBO by about $0.7 million and would reduce service and interest costs by about $0.1 million.
The Company uses the straight-line method of amortization for prior service cost and unrecognized gains and losses.
In 2015, the Company changed the amortization period for one of its plans where all or almost all of the participants are inactive. For these plans, the change in amortization base was from average future service to average future life expectancy in accordance with ASC 715 Compensation Retirement Plans. The change in methodology resulted in a decrease of net periodic expense of $1.6 million in 2015.
The percentage distribution of the fair value of total plan assets held as of the measurement date is as follows:
Plan Asset Category |
|
December 31, 2015 |
|
December 31, 2014 |
|
Fixed income |
|
40 |
% |
38 |
% |
Equities |
|
54 |
% |
55 |
% |
Group annuity contract and other |
|
6 |
% |
7 |
% |
Total |
|
100 |
% |
100 |
% |
NLV Financial Corporation and Subsidiaries
Notes to Consolidated Financial Statements
December 31, 2015
NOTE 9 BENEFIT PLANS (continued)
The primary objective is to maximize long-term total return within the investment policy and guidelines. The Companys investment policy for the plan assets associated with the separately funded plans is to maintain a target allocation of approximately 40%-70% equities, 30%-50% fixed income, and 0 10% alternative investments when measured at fair value.
The Companys expected future long-term rate of return of 7.0% is based upon the combination of current asset mix of equities and fixed income, the Companys historical and projected experience, and on long-term projections by investment research organizations.
The concentrations of credit risk associated with the plan assets are shown in the table below (in thousands):
|
|
|
|
2015 |
|
2014 |
| ||
Equities unaffiliated |
|
Equity Funds |
|
$ |
140,329 |
|
$ |
147,415 |
|
|
|
Total equities - unaffiliated |
|
140,329 |
|
147,415 |
| ||
Fixed income |
|
Aerospace/Defense |
|
933 |
|
|
| ||
|
|
Chemicals |
|
1,619 |
|
1,893 |
| ||
|
|
Retailers |
|
1,748 |
|
1,096 |
| ||
|
|
Energy |
|
|
|
1,010 |
| ||
|
|
Food and Beverage |
|
4,915 |
|
5,118 |
| ||
|
|
Health Care |
|
1,007 |
|
1,078 |
| ||
|
|
Insurance - Health |
|
973 |
|
1,053 |
| ||
|
|
Insurance - Property and Casualty |
|
3,001 |
|
3,240 |
| ||
|
|
Machine Construction |
|
1,926 |
|
2,087 |
| ||
|
|
Manufacturing |
|
1,989 |
|
2,133 |
| ||
|
|
Media |
|
1,899 |
|
2,085 |
| ||
|
|
Pharmaceuticals |
|
4,230 |
|
3,060 |
| ||
|
|
Technology |
|
2,075 |
|
1,119 |
| ||
|
|
Transportation |
|
2,189 |
|
|
| ||
|
|
Wirelines |
|
950 |
|
1,030 |
| ||
|
|
Bond Funds |
|
75,328 |
|
75,300 |
| ||
|
|
Total fixed income |
|
104,782 |
|
101,302 |
| ||
Short term investments |
|
Money Market Funds - Banking |
|
|
|
4,660 |
| ||
|
|
Total short term investments |
|
|
|
4,660 |
| ||
Partnerships |
|
|
|
12,072 |
|
10,909 |
| ||
Cash |
|
|
|
832 |
|
459 |
| ||
Group annuity |
|
|
|
4,196 |
|
1,373 |
| ||
|
|
Total Investments (1) (2) |
|
$ |
262,211 |
|
$ |
266,118 |
|
(1) Includes investments totaling $62,365 in 2015 and $63,404 in 2014 advised by the Companys subsidiary SAMI.
(2) The difference to total plan assets shown of $262,475 for 2015 and $266,332 for 2014 shown in the changes in plan assets are accruals for income and liabilities.
The assets of the Companys separately funded pension plans are held in the Companys separate account, and are included on the hierarchy in Note 4.
NLV Financial Corporation and Subsidiaries
Notes to Consolidated Financial Statements
December 31, 2015
NOTE 9 BENEFIT PLANS (continued)
The valuation techniques used for the plan assets are:
Common stock Common stocks consist of mutual funds that are traded daily and have a net asset value. These securities are categorized as Level 1.
Corporates - Corporate bonds are valued using cash flow models based on appropriate observable inputs such as market quotes, yield curves, interest rates, and spreads. Corporate bonds are categorized as Level 2 in the fair value hierarchy. Level 1 consists of bond mutual funds that are traded daily and have a readily determinable net asset value.
Partnerships - Investments in limited partnerships do not have a readily determinable fair value, and, as such, the Company values them at its pro-rata share of the limited partnerships net asset value, or its equivalent. Since these valuations have significant unobservable inputs, they are generally categorized as Level 3 in the fair value hierarchy.
Short term investments - Short term investments consist of mutual funds invested in money market and government agencies. Short term investments in money market funds are categorized in Level 1 of the hierarchy, whereas short term investments in government agencies, which are not traded daily, are categorized in Level 2 of the hierarchy.
Group annuity - This category consists of an investment in a National Life group variable annuity contract. The contract is carried at amortized cost, which approximates fair value. These assets are categorized in Level 2 of the hierarchy.
The valuation of plan assets as of December 31 is as follows (in thousands):
|
|
|
|
|
|
|
|
Not Presented |
|
|
| |||||
2015 Fair Value |
|
Level 1 |
|
Level 2 |
|
Level 3 |
|
at Fair Value |
|
Total |
| |||||
Assets |
|
|
|
|
|
|
|
|
|
|
| |||||
Common Stock |
|
140,329 |
|
|
|
|
|
|
|
140,329 |
| |||||
Corporates |
|
75,328 |
|
29,732 |
|
|
|
|
|
105,060 |
| |||||
Partnerships |
|
|
|
|
|
12,072 |
|
|
|
12,072 |
| |||||
Cash |
|
832 |
|
|
|
|
|
|
|
832 |
| |||||
Short term investments |
|
|
|
|
|
|
|
|
|
|
| |||||
Group annuity |
|
|
|
4,196 |
|
|
|
|
|
4,196 |
| |||||
Total Assets |
|
$ |
216,489 |
|
$ |
33,928 |
|
$ |
12,072 |
|
$ |
|
|
$ |
262,489 |
|
Liabilities |
|
|
|
|
|
|
|
|
|
|
| |||||
Total Liabilities |
|
|
|
|
|
|
|
(14 |
) |
(14 |
) | |||||
Total Plan Assets |
|
$ |
216,489 |
|
$ |
33,928 |
|
$ |
12,072 |
|
$ |
(14 |
) |
$ |
262,475 |
|
|
|
|
|
|
|
|
|
Not Presented |
|
|
| |||||
2014 Fair Value |
|
Level 1 |
|
Level 2 |
|
Level 3 |
|
at Fair Value |
|
Total |
| |||||
Assets |
|
|
|
|
|
|
|
|
|
|
| |||||
Common Stock |
|
147,415 |
|
|
|
|
|
|
|
147,415 |
| |||||
Corporates |
|
75,300 |
|
26,253 |
|
|
|
|
|
101,553 |
| |||||
Partnerships |
|
|
|
|
|
10,909 |
|
|
|
10,909 |
| |||||
Cash |
|
459 |
|
|
|
|
|
|
|
459 |
| |||||
Short term investments |
|
4,660 |
|
|
|
|
|
|
|
4,660 |
| |||||
Group annuity |
|
|
|
1,373 |
|
|
|
|
|
1,373 |
| |||||
Total Assets |
|
$ |
227,834 |
|
$ |
27,626 |
|
$ |
10,909 |
|
$ |
|
|
$ |
266,369 |
|
Liabilities |
|
|
|
|
|
|
|
|
|
|
| |||||
Total Liabilities |
|
|
|
|
|
|
|
(37 |
) |
(37 |
) | |||||
Total Plan Assets |
|
$ |
227,834 |
|
$ |
27,626 |
|
$ |
10,909 |
|
$ |
(37 |
) |
$ |
266,332 |
|
NLV Financial Corporation and Subsidiaries
Notes to Consolidated Financial Statements
December 31, 2015
NOTE 9 BENEFIT PLANS (continued)
The tables below summarize the reconciliation of the beginning and ending balances and related changes for the years ended December 31, 2015 and 2014 for Level 3 fair value measurements for which significant unobservable inputs were used in determining each instruments fair value.
2015 Level 3 |
|
Beginning |
|
Net Investment |
|
Purchases |
|
Issuances |
|
Sales |
|
Settlements |
|
Transfer In to |
|
Transfer Out of |
|
Ending |
| |||||||||
|
|
(in thousands) |
| |||||||||||||||||||||||||
Limited Partnerships |
|
$ |
10,909 |
|
$ |
(272 |
) |
$ |
1,522 |
|
$ |
|
|
$ |
(87 |
) |
$ |
|
|
$ |
|
|
$ |
|
|
$ |
12,072 |
|
2014 Level 3 |
|
Beginning |
|
Net Investment |
|
Purchases |
|
Issuances |
|
Sales |
|
Settlements |
|
Transfer In to |
|
Transfer Out of |
|
Ending |
| |||||||||
|
|
(in thousands) |
| |||||||||||||||||||||||||
Limited Partnerships |
|
$ |
10,088 |
|
$ |
531 |
|
$ |
290 |
|
$ |
|
|
$ |
|
|
$ |
|
|
$ |
|
|
$ |
|
|
$ |
10,909 |
|
Projected benefit payments for defined benefit obligations, and for projected Medicare Part D reimbursements for each of the five years following December 31, 2015, and in aggregate for the five years thereafter is as follows (in thousands):
|
|
Projected Pension |
|
Projected Other |
|
Projected Medicare |
| |||
Year |
|
Benefit Payments |
|
Benefit Payments |
|
Part D Reimbursements |
| |||
2016 |
|
$ |
19,669 |
|
$ |
1,725 |
|
$ |
41 |
|
2017 |
|
26,117 |
|
1,749 |
|
39 |
| |||
2018 |
|
23,182 |
|
1,759 |
|
40 |
| |||
2019 |
|
25,446 |
|
1,751 |
|
38 |
| |||
2020 |
|
25,052 |
|
1,769 |
|
36 |
| |||
2021-2025 |
|
129,093 |
|
8,905 |
|
166 |
| |||
The Companys general policy is to contribute the regulatory minimum required amount into its separately funded defined benefit pension plan. However, the Company may elect to make larger contributions subject to maximum contribution limitations. The Companys expected contribution for 2016 into its separately funded defined benefit pension plans is anticipated to be up to $15.0 million.
The Company provides employee 401(k) plans for its employees. Under the Companys 401(k) pension plan for employees, eligible employees earning less than a specified amount receive a 75% match up to 6% of an employees salary, subject to maximum contribution guidelines. Employees earning more than the specified amount receive a 50% match up to 6% of an employees salary, subject to maximum contribution guidelines. Additional employee voluntary contributions may be made to the plans subject to contribution guidelines. Vesting and withdrawal privilege schedules are attached to the Companys matching contributions.
The Company also provides a 401(k) plan for its regular full-time agents. The Company makes an annual contribution equal to 6.1% of an agents compensation up to the Social Security Taxable Wage Base plus 7.5% of the agents compensation in excess of the Social Security Taxable Wage Base. In addition, the agent may elect to defer a portion of the agents compensation, up to the legal limit on elective deferrals, and have that amount contributed to the plan. Total annual contributions cannot exceed certain limits which vary based on total agent compensation.
Under the Companys 401(k) plan for agency employees, eligible agency employees receive a matching contribution of 100% of their elective deferrals up to 4% of compensation. The Company provides non-qualified defined contribution deferred compensation plans for certain employees, agents, general agents, and independent directors.
NLV Financial Corporation and Subsidiaries
Notes to Consolidated Financial Statements
December 31, 2015
NOTE 9 BENEFIT PLANS (continued)
For all of the Companys 401(k) plans, accumulated funds may be invested in a group annuity contract issued by National Life or in mutual funds (several of which are sponsored by the Companys subsidiary, SAMI). These plans are not separately funded. Costs associated with these plans are included in operating expenses. Liabilities for these plans are included in pension and other post-retirement benefit obligations.
NOTE 10 GOODWILL AND OTHER INTANGIBLES
The Company had goodwill of $7.3 million and intangible assets of $45.7 million at December 31, 2015. In 2015 and 2014, there were no impairments or other reductions recorded.
|
|
December 31, 2015 |
| |||||||
|
|
(Amounts in millions) |
| |||||||
|
|
|
|
Accumulated |
|
Carrying |
| |||
|
|
Gross |
|
Impairments |
|
Value |
| |||
Goodwill |
|
$ |
7.7 |
|
$ |
(0.4 |
) |
$ |
7.3 |
|
Intangibles - Non-amortizing |
|
47.2 |
|
(1.5 |
) |
45.7 |
| |||
Total |
|
$ |
54.9 |
|
$ |
(1.9 |
) |
$ |
53.0 |
|
NOTE 11 DEBT
Debt consists of the following (in thousands):
|
|
2015 |
|
2014 |
| ||
7.5% Senior Notes: |
|
$ |
199,399 |
|
$ |
199,367 |
|
$200 million, maturing August 2033, interest payable semiannually on February 15 and August 15. The notes are unsecured and subordinated to any existing or future indebtedness of NLVF and its subsidiaries. |
|
|
|
|
| ||
|
|
|
|
|
| ||
6.5% Senior Notes: |
|
68,014 |
|
68,014 |
| ||
Original issue of $75 million, maturing March 2035, interest payable semiannually on March 15 and September 15. The notes are unsecured and subordinated to any existing or future indebtedness of NLVF and its subsidiaries. In 2009, the Companys subsidiary, National Life repurchased $7.0 million of the senior note. Interest paid to the subsidiary is eliminated in consolidation. |
|
|
|
|
| ||
|
|
|
|
|
| ||
10.5% Surplus Notes: |
|
190,330 |
|
200,000 |
| ||
Original issue of $200 million, maturing September 15, 2039, interest payable semiannually on March 15 and September 15. The notes are unsecured and subordinated to any existing or future indebtedness of National Life. |
|
|
|
|
| ||
|
|
|
|
|
| ||
Total debt |
|
$ |
457,743 |
|
$ |
467,381 |
|
Interest paid on the 7.5% senior notes was $15.0 million in 2015, 2014, and 2013. Interest paid on the 6.5% senior notes was $4.4 million in 2015, 2014 and 2013. Interest paid on the 10.5% surplus note was $21.0 million in 2015, 2014 and 2013.
In May 2014, NLVF repaid the outstanding note payable of $20.6 million plus accrued interest of $0.2 million. The $20.6 million note payable was created via a Trust Preferred Pool of mandatorily redeemable trust preferred stock (TPS) which held similar preferred stock from a number of other insurance companies. Upon repayment, the company that was created as part of this transaction, the NL Group Statutory Trust, was dissolved. Interest paid on the $20.6 million note payable was $0.3 million in 2014, and $0.9 million in 2013.
NLV Financial Corporation and Subsidiaries
Notes to Consolidated Financial Statements
December 31, 2015
NOTE 11 DEBT (continued)
Throughout 2015, National Life repurchased $9.7 million of the outstanding 10.5% surplus notes. A loss of $5.4 million was recorded on the repurchase and is included in net realized investment gains (losses).
National Life has a secured asset-based borrowing capacity of $1.7 billion with FHLB Boston. LSW has a secured asset-based borrowing capacity of $4.0 billion with FHLB Dallas. National Life has an outstanding advance with FHLB Boston of $79.2 million, and LSW has an outstanding advance with FHLB Dallas of $581.6 million. These advances are considered operating leverage and are included in policyholder account liabilities. For additional information on FHLB see Note 2.
NOTE 12 COMMITMENTS AND CONTINGENCIES
The Company is subject, in the ordinary course of business, to claims, litigation, arbitration proceedings, and governmental examinations. Although the Company is not aware of any actions, proceedings or allegations that reasonably should give rise to a material adverse impact to the Companys financial position or liquidity, the outcome of any particular matter cannot be foreseen with certainty. It is the opinion of management that the ultimate resolution of these matters will not materially impact the Companys financial condition.
The Company is also involved in class action or putative class action litigation. On September 24, 2010, three individuals (including two former policyholders and one now former policyholder) brought a putative class action against LSW concerning their purchases of indexed universal life insurance policies sold in California (SecurePlus Provider and SecurePlus Paragon), which is pending before the U.S. District Court for the Central District of California (the Court) and captioned Walker, et al. v. Life Ins. Co. of the Southwest. Plaintiffs assert claims under the California Unfair Competition Law and for fraudulent concealment, alleging that LSW and independent agents did not sufficiently and/or appropriately disclose, in illustrations and otherwise, certain features of the policies, including the amount and duration of certain charges and fees set forth in the policies themselves, the method by which policy values are calculated under the policies, and the potential tax treatment for policy loans under certain circumstances. Plaintiffs seek a variety of alternative forms of relief, including actual and punitive damages or rescission, injunctive relief, and an award of attorneys fees. The Company denies engaging in any misconduct, and believes it has meritorious defenses to the claims asserted in Walker. On November 9, 2012, the Court certified a class of all Provider and Paragon policyholders who purchased their policies in California on or after September 24, 2006 and a sub-class of those who received an illustration on or before the date they submitted a policy application. On November 26, 2012, LSW filed a petition with the U.S. Court of Appeals for the Ninth Circuit seeking an interlocutory appeal of the class certification order. On February 27, 2013, LSWs petition for permission to appeal the District Courts certification order was denied. On May 20, 2013, the parties appeared before the Court for a show cause hearing regarding why the Court should not decertify the illustration subclass. On May 28, 2013, the Court issued a ruling decertifying the illustration subclass on predominance grounds. On or about August 19, 2013, notice was sent to potential class members advising them of the remaining certified claims and the November 19, 2013 deadline to opt out of the class. On September 10, 2013, Plaintiffs filed a motion for Reconsideration and Leave to Amend the operative Complaint. LSW opposed the motion and, also on September 10, 2013 filed, a Motion to Decertify the remaining class claims. On November 1, 2013, the Court denied both motions. A jury trial on the fraudulent concealment claims was held in April 2014 and resulted in a defense verdict. No liability was found and no damages awarded. In an Order dated April 14, 2015, U.S. District Court Judge James V. Selna found in favor of LSW as to all remaining claims. On May 29, 2015, plaintiffs filed a notice of appeal from the final judgment with the United States Court of Appeals for the Ninth Circuit. Plaintiffs filed their appellate brief in December 2015. LSW will timely file its reply brief. It is anticipated that the matter will be set for oral argument in late 2016.
NLV Financial Corporation and Subsidiaries
Notes to Consolidated Financial Statements
December 31, 2015
NOTE 12 COMMITMENTS AND CONTINGENCIES (continued)
The Company currently leases rights to the use of certain data processing hardware from Dell Systems Corporation (formerly known as Perot Systems Corporation), Plano, Texas. This agreement was extended through January 31, 2025. The following is a schedule of future minimum lease payments as of December 31, 2015 (in thousands).
Year |
|
Contract Obligation |
| |
2016 |
|
6,000 |
| |
2017 |
|
6,000 |
| |
2018 |
|
6,000 |
| |
2019 |
|
6,000 |
| |
2020 |
|
6,000 |
| |
Total minimum payments |
|
$ |
30,000 |
|
The Company also has a services contract with Dell. In total, the Company paid $15.0 million, $12.9 million, and $13.1 million for the years ended December 31, 2015, 2014, and 2013, respectively under the Dell contracts.
The Company has a multi-year contract for information systems application and infrastructure services from NTT Data, Boston, Massachusetts. The contract expires January 1, 2020. Expense paid under the contract with NTT was $25.0 million, $32.5 million, and $23.5 million for the years ended December 31, 2015, 2014, and 2013, respectively. The expense paid includes a base amount and variable expenses related to project work performed during the year.
The Company has a multi-year contract with I-Pipeline which expires December 31, 2017. The contract provides new business support through electronic application. The Company paid $2.3 million, $2.3 million, and $0.9 million for the years ended December 31, 2015, 2014, and 2013, respectively.
The Company signed a multi-year contract with Cognizant which expires December 31, 2017. The contract provides application support, web development and QA services. The Company paid $10.2 million, $8.1 million, and $6.7 million for the years ended December 31, 2015, 2014, and 2013, respectively.
The Companys subsidiary, LSW, is a party to an amended lease agreement with Gaedeke Holdings IX, LLC for its LSW office facilities in Addison, Texas. The expiration date of this agreement is January 31, 2027. Rental expense incurred under this agreement was $1.3 million and $0.9 million in 2015 and 2014, respectively.
The following is a schedule of future minimum rental payments pursuant to the amended lease as described above:
Year |
|
Contract Obligation |
| |
2016 |
|
1,434 |
| |
2017 |
|
1,558 |
| |
2018 |
|
1,578 |
| |
2019 |
|
1,730 |
| |
2020 |
|
1,808 |
| |
Thereafter |
|
10,678 |
| |
Total minimum payments |
|
$ |
18,786 |
|
NLV Financial Corporation and Subsidiaries
Notes to Consolidated Financial Statements
December 31, 2015
NOTE 12 COMMITMENTS AND CONTINGENCIES (continued)
Unfunded Commitments The Company had unfunded mortgage loan and partnership commitments of $61.7 million and $253.7 million respectively, at December 31, 2015. Partnership commitments may be called by the partnership during the commitment period (on average two to five years) to fund the purchase of new investments and partnership expenses. Once the commitment period expires, the Company is under no obligation to fund the remaining unfunded commitment but may elect to do so.
NOTE 13 NATIONAL LIFE CLOSED BLOCK
National Life established and began operating the Closed Block on January 1, 1999. The Closed Block was established pursuant to regulatory requirements as part of the reorganization into a mutual holding company corporate structure. The Closed Block was established for the benefit of policyholders of participating policies in force at December 31, 1998, and includes traditional dividend paying life insurance policies, certain participating term insurance policies, dividend paying flex premium annuities, and other related liabilities. The Closed Blocks primary purpose is to protect the policy dividend expectations related to these policies. The Closed Block is expected to remain in effect until all policies within the Closed Block are no longer in force. Assets assigned to the Closed Block at January 1, 1999, together with projected future premiums and investment returns, are reasonably expected to be sufficient to pay out all future Closed Block policy benefits, expenses, and taxes. Such benefits include dividends paid out under the current dividend scale, adjusted to reflect future changes in the underlying experience. The assets and liabilities allocated to the Closed Block are recorded in the Companys financial statements on the same basis as other similar assets and liabilities. Based on current projections, Closed Block assets are sufficient to meet all future obligations. National Life remains contingently liable for all contractual benefits and expenses of the Closed Block.
If actual cumulative Closed Block earnings are greater than expected cumulative earnings, only the expected earnings will be recognized in net income of the Company. Actual cumulative earnings in excess of expected earnings represent undistributed earnings attributable to Closed Block policyholders.
These excess earnings are recorded as a policyholder dividend obligation (included in policyholders dividend liability) to be paid to Closed Block policyholders unless offset by future results that are less than expected. If actual cumulative performance is less favorable than expected, only actual earnings will be recognized in income. In 2015 and 2014, the Company recorded a policyholder dividend obligation of $11.3 million and $13.8 million respectively. Similarly, unrealized gains on Closed Block investments may increase the policyholder dividend obligation liability. Unrealized gains in the Closed Block generated a policyholder dividend obligation through accumulated other comprehensive income of $113.0 million, $202.4 million, and $139.1 million at December 31, 2015, 2014 and 2013, respectively. These gains and their related policyholder dividend obligation and income tax offsets are included in other comprehensive income. The total policyholder dividend obligation at December 31, 2015 and 2014 was $124.3 million and $216.2 million, respectively.
NLV Financial Corporation and Subsidiaries
Notes to Consolidated Financial Statements
December 31, 2015
NOTE 13 NATIONAL LIFE CLOSED BLOCK (continued)
Summarized financial information for the Closed Block effects included in the consolidated financial statements as of December 31, 2015 and 2014, and for the three years ended December 31, 2015, 2014 and 2013 is as follows (in thousands):
|
|
2015 |
|
2014 |
| ||
|
|
|
|
|
| ||
Liabilities: |
|
|
|
|
| ||
Policy liabilities and accruals |
|
$ |
3,387,243 |
|
$ |
3,553,967 |
|
Other liabilities |
|
177 |
|
|
| ||
Total liabilities |
|
$ |
3,387,420 |
|
$ |
3,553,967 |
|
|
|
|
|
|
| ||
Assets: |
|
|
|
|
| ||
Cash |
|
$ |
7,826 |
|
$ |
330 |
|
Short term investments |
|
15,000 |
|
|
| ||
Available-for-sale debt and equity securities |
|
2,443,863 |
|
2,626,323 |
| ||
Mortgage loans |
|
205,530 |
|
190,296 |
| ||
Policy loans |
|
403,474 |
|
424,447 |
| ||
Accrued investment income |
|
33,821 |
|
35,270 |
| ||
Premiums and fees receivable |
|
6,774 |
|
6,917 |
| ||
Other assets |
|
52,093 |
|
42,125 |
| ||
Total assets |
|
$ |
3,168,381 |
|
$ |
3,325,708 |
|
|
|
|
|
|
| ||
Excess of reported liabilities over assets |
|
$ |
219,039 |
|
$ |
228,259 |
|
Closed Block accumulated other comprehensive loss |
|
|
|
|
| ||
Unrealized loss and liabilities |
|
$ |
219,039 |
|
$ |
228,259 |
|
NLV Financial Corporation and Subsidiaries
Notes to Consolidated Financial Statements
December 31, 2015
NOTE 13 NATIONAL LIFE CLOSED BLOCK (continued)
|
|
2015 |
|
2014 |
|
2013 |
| |||
|
|
|
|
|
|
|
| |||
Revenues: |
|
|
|
|
|
|
| |||
Insurance premiums and other income |
|
$ |
116,480 |
|
$ |
125,453 |
|
$ |
146,121 |
|
Net investment income |
|
147,947 |
|
153,618 |
|
169,674 |
| |||
Net realized investment gain (loss) |
|
93 |
|
22,086 |
|
(500 |
) | |||
|
|
|
|
|
|
|
| |||
Total revenues |
|
$ |
264,520 |
|
$ |
301,157 |
|
$ |
315,295 |
|
|
|
|
|
|
|
|
| |||
Benefits and Expenses: |
|
|
|
|
|
|
| |||
Decrease in policy liabilities |
|
(60,593 |
) |
(102,746 |
) |
(69,023 |
) | |||
Policy benefits |
|
243,208 |
|
295,728 |
|
280,967 |
| |||
Policyholders dividends and dividend obligations |
|
53,619 |
|
72,535 |
|
70,126 |
| |||
Interest credited to policyholder account liabilities |
|
7,659 |
|
8,006 |
|
8,505 |
| |||
Operating expenses |
|
5,264 |
|
5,696 |
|
6,059 |
| |||
Commission expenses |
|
1,177 |
|
1,286 |
|
1,399 |
| |||
|
|
|
|
|
|
|
| |||
Total benefits and expenses |
|
$ |
250,334 |
|
$ |
280,505 |
|
$ |
298,033 |
|
|
|
|
|
|
|
|
| |||
Pre-tax results of operations |
|
14,186 |
|
20,652 |
|
17,262 |
| |||
|
|
|
|
|
|
|
| |||
Income taxes |
|
4,966 |
|
7,236 |
|
6,110 |
| |||
|
|
|
|
|
|
|
| |||
Closed Block results of operations |
|
$ |
9,220 |
|
$ |
13,416 |
|
$ |
11,152 |
|
Other comprehensive income: |
|
|
|
|
|
|
| |||
Unrealized loss |
|
|
|
|
|
|
| |||
Total Closed Block comprehensive income |
|
$ |
9,220 |
|
$ |
13,416 |
|
$ |
11,152 |
|
|
|
|
|
|
|
|
| |||
Excess of reported Closed Block liabilities over Closed Block assets: |
|
|
|
|
|
|
| |||
Beginning of year |
|
228,259 |
|
241,675 |
|
252,827 |
| |||
Closed Block comprehensive income |
|
9,220 |
|
13,416 |
|
11,152 |
| |||
End of year |
|
$ |
219,039 |
|
$ |
228,259 |
|
$ |
241,675 |
|
Amortized cost of bonds held by the Closed Block at December 31, 2015 and 2014 were $2,302.6 million and $2,395.6 million, respectively.
Participating insurance in force within the Closed Block at December 31, 2015 and 2014 was $6.6 billion and $7.0 billion, respectively.
Many expenses related to Closed Block policies and operations, including amortization of policy acquisition costs, are charged to operations outside the Closed Block; accordingly, the contribution from the Closed Block presented above does not represent the actual profitability of the Closed Block operations. Operating costs and expenses outside the Closed Block are therefore disproportionate to the actual business outside the Closed Block.
NLV Financial Corporation and Subsidiaries
Notes to Consolidated Financial Statements
December 31, 2015
NOTE 14 STATUTORY INFORMATION AND RESTRICTIONS
The Companys insurance operations, domiciled in the states of Vermont for National Life and Catamount Reinsurance Company and Texas for LSW, prepare statutory financial statements in accordance with statutory accounting principles (SAP) prescribed or permitted by the insurance departments of the states of domicile. Prescribed statutory accounting principles include the Accounting Practices and Procedures Manual of the National Association of Insurance Commissioners (NAIC) as well as state laws, regulations, and general administrative rules applicable to all insurance enterprises domiciled in a particular state. Permitted statutory accounting practices include practices not prescribed by the domiciliary state, but allowed by the domiciliary state regulatory authority. National Life and LSW do not have any permitted practices. Catamount has permitted practices approved by the State of Vermont.
Concurrent with the conversion to a stock life insurance company, National Life created a closed block of insurance and annuity policies (the Closed Block). Prior to the conversion, policyowners held policy contractual and membership rights from National Life. The contractual rights, as defined in the various insurance and annuity policies, remained with National Life after the conversion. This reorganization was approved by policyowners of National Life and was completed with the approval of the Commissioner of the Vermont Department of Financial Regulation. Membership interests held by policyowners of National Life at December 31, 1998, were converted to membership interests in NLHC, a mutual insurance holding Company created for this purpose. Under the provisions of the reorganization of National Life from a mutual to a stock life insurance company, National Life issued 2.5 million common stock $1 par shares to its parent, NLVF, as a transfer from retained earnings.
Catamount Reinsurance Company commenced business on August 5, 2015 as a special purpose financial captive life insurance company domiciled and licensed in the state of Vermont. Catamount entered into a coinsurance with funds withheld agreement with National Life to reinsure the majority of in force Closed Block policies. All outstanding shares of the Companys common stock are directly owned by National Life. All outstanding shares of National Life are currently held by its parent, NLVF. Catamount Reinsurance Companys use of permitted practices has no impact on National Lifes surplus.
In 2015, LSW did not pay any dividends to National Life. In 2014 and 2013, LSW paid an ordinary dividend to National Life of $30 million and $25 million, respectively. In 2015 and 2014, National Life did not pay any dividend to NLVF. In 2013, National Life paid an ordinary dividend to NLVF of $25 million. For U.S. GAAP, the dividends were eliminated in consolidation. Dividends declared by National Life in excess of the lesser of ten percent of statutory surplus or statutory net gain from operations require pre-approval by the Commissioner of the Vermont Department of Financial Regulation.
In 2015, there was a capital contribution of $18 million from NLVF to National Life. There was a subsequent capital contribution of $18 million from National Life to LSW.
The New York Department of Financial Services 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 New York Department of Financial Services to financial statements prepared in accordance with U.S. GAAP in making such determinations.
National Lifes statutory surplus was $1,770.0 million (unaudited) and $1,541.2 million at December 31, 2015 and 2014, respectively. Statutory net income was $12.0 million (unaudited), $19.1 million, and $88.5 million in 2015, 2014, and 2013, respectively.
Pursuant to certain statutory requirements, as of December 31, 2015, National Life and LSW had securities on deposit with a statutory carrying value of $7.0 million and $3.4 million, respectively, in insurance department special deposit accounts.
NLV Financial Corporation and Subsidiaries
Notes to Consolidated Financial Statements
December 31, 2015
NOTE 15 PARTICIPATING LIFE INSURANCE
Participating life insurance in force was 27.5% and 31.2% of the face value of total insurance in force at December 31, 2015 and 2014, respectively. The premiums on participating life insurance policies were 16.1%, 18.2%, and 23.1% of total individual life insurance premiums in 2015, 2014, and 2013, respectively.
PART C - OTHER INFORMATION
Item 24. Financial Statements and Exhibits
(a) |
|
Financial Statements |
|
(1) |
Financial statements and schedule included in the Prospectus |
|
(2) |
Financial statements and schedule included in Statement of Additional Information |
(b) |
|
Exhibits |
|
(1) |
Resolution of the Depositors Board of Directors authorizing the establishment of the Registrant.(1) |
|
(2) |
Not Applicable |
|
(3)(a) |
Form of Distribution Agreement between National Life Insurance Company and Equity Services, Inc (12) |
|
(3)(b) |
Form of Selling Agreement (12) |
|
(4)(a) |
The form of the variable annuity contract (2) |
|
(4)(b) |
Enhanced Death Benefit Rider (13) |
|
(4)(c) |
Guaranteed Account Endorsement (13) |
|
(4)(d) |
Accelerated Benefits Rider - Covered Chronic Illness (6) |
|
(4)(e) |
Accelerated Benefits Rider - Terminal Illness (6) |
|
(4)(f) |
Endorsement to the Death Benefit, Systematic Withdrawals, and General Withdrawal Terms Provisions (8) |
|
(4)(g) |
Limited Power of Attorney (9) |
|
(4)(h) |
Roth IRA Endorsement (13) |
|
(4)(i) |
SIMPLE IRA Endorsement (13) |
|
(4)(j) |
IRA Endorsement (13) |
|
(4)(k) |
TDA Endorsement (13) |
|
(4)(l) |
Endorsement to the Payment Options (13) |
|
(4)(m) |
Loan Endorsement (13) |
|
(4)(n) |
Endorsement to the Limit on Transfers Provision (13) |
|
(4)(o) |
Endorsement to the Flexible Premium Variable Deferred Annuity when the Owner is a NIMCRUT (14) |
|
(4)(p) |
SAVA-5 Endorsement |
|
(5) |
Variable Annuity Application (13) |
|
(5)(a) |
9212 Application (14) |
|
(5)(b) |
SAVA-5 Application |
|
(6) |
Articles of Incorporation and By-Laws of Depositor (12) |
|
(7) |
Reinsurance agreement: Automatic Modified -Coinsurance (Mod-Co) Reinsurance and Service Agreement - National Life Insurance Company and xxxxx, effective December 31, 1998 (9) |
|
(8)(a) |
Participation Agreement by and among The Alger American Fund, National Life Insurance Company and Fred Alger and Company, dated January 31, 1995 (3) 1. Schedule A to the Participation Agreement by and among The Alger American Fund, National Life Insurance Company and Fred Alger Company, dated April 25, 1997 (2) 2. Amendment No. 2 to Participation Agreement- Alger American Fund, National Life Insurance Company (15) 3. Amendment dated April 25, 2013 to the Participation Agreement Alger American Fund, National Life Insurance Company 4. Rule 22c-2 Agreement- National Life Insurance Company and Fred Alger & Company entered into April 16, 2007 (14) 5. Service Agreement among National Life Insurance Co. and Fred Alger Management, Inc. as amended through June 1, 1997 (15) |
|
(8)(b) |
Participation Agreement between National Life Insurance Company and American Century Investment, Inc. (4) 1. Shareholder Services Agreement between American Century Investment Services, Inc., American Century Services, LLC and National Life Insurance Company dated April 1, 2016. 2. Rule 22c-2 Agreement among American Century Investment Services, Inc. and National Life Insurance Company entered into October 16, 2006 (14) |
|
(8)(c) |
Participation agreement among National Life Insurance Company, Equity Services , Inc. and ALLIANCEBERNSTEIN L.P. AND ALLIANCEBERNSTEIN INVESTMENTS, INC. dated as of September 2, 2008 (20) 1. Amendment No. 2 dated April 1, 2016 to the Participation Agreement 2. Letter of Service Agreement between AllianceBernstein Investments, Inc. and National Life Insurance Company dated April 1, 2016. |
|
(8)(d) |
Participation Agreement between National Life Insurance Company, American Funds Distributors, Inc., American Funds Service Company, Capital Research and Management Company, and the American Funds Insurance Series dated April 11, 2016 1. Rule 22c-2 Agreement between National Life Insurance Company and American Funds Service Company dated April 11, 2016 2. Business Agreement between National Life Insurance Company, American Funds Distributors, Inc., American Funds Service Company, Capital Research and Management Company, and the American Funds Insurance Series dated April 11, 2016 |
|
(8)(e) |
Participation Agreement between National Life Insurance Company, Blackrock Variable Series Fund, Inc. and BlackRock Investments, LLC dated May 1, 2016 1. Distribution Sub- Agreement between BlackRock Variable Series, Fund, Inc. and National Life Insurance Company dated May 1, 2016 2. Administrative Services Agreement between National Life Insurance Company and BlackRock Advisors, LLC |
|
(8)(f) |
Participation Agreement between National Life Insurance Company and The Dreyfus Socially Responsible Growth Fund, Inc.(5) 1. Amendment to Participation Agreement among National Life Insurance Company, The Dreyfus Socially Responsible Growth Fund, Inc., and Dreyfus Variable Investment Fund (10) 2. Supplemental Agreement to the Participation Agreement entered into April 16, 2007 (14) 3. Administrative Services Agreement as amended through May 1, 2004 among National Life Insurance Co. and Dreyfus Corporation (15) |
|
(8)(g) |
Participation Agreement - National Life Insurance Company, Scudder Variable Series II, Scudder Distributors, Inc. and Deutsche Investment Management Americas, Inc. (10) 1. Supplemental Agreement to the Participation Agreement entered into March 12, 2007 (14) 2. Services Agreement as amended through April 10, 2006 among National Life Insurance Co. and Deutsche Asset Management, Inc. (15 |
|
(8)(h) |
Amended and Restated Participation Agreement between National Life Insurance Company, Fidelity Variable Insurance Products Fund III and Fidelity Distributors Corporation (10) 1. Amendment to the Fidelity Participation Agreement dated May 18, 2007 (15) 2. Rule 22c-2 Agreement among Fidelity Distributors Corporation and National Life Insurance Company effective October 16, 2007 (14) 3. Service Agreement among National Life Insurance Co. and Fidelity Investments Institutional Operations Company, Inc. dated April 1, 2000 (15) 4. Sub- License Agreement among National Life Insurance Co. and Fidelity Distributors Corp. effective April 30, 2004 (15) |
|
(8)(i) |
Form of Participation Agreement - National Life Insurance Company, Franklin Templeton Variable Insurance Products Trust and Franklin Templeton Distributors, Inc. (10) 1. Amendment to Participation Agreement dated June 1, 2007 (16) 2. Amendment to the Agreement between National Life Insurance Company, Franklin Templeton Variable Insurance Products Trust and Franklin Templeton Distributors, Inc. (20) 3. Amendment dated August 16, 2010 to the Participation Agreement between National Life Insurance Company, Franklin Templeton Variable Insurance Products Trust and Franklin Templeton Distributors, Inc. (24) 4. Amendment dated January 15, 2013 to the Participation Agreement between National Life Insurance Company, Franklin Templeton Variable Insurance Products Trust and Franklin Templeton Distributors, Inc. 5. Rule 22c-2 Agreement among Franklin Templeton Variable Insurance Products Trust and National Life Insurance Company entered into April 16, 2007 (14) 6. Administrative Services Agreement among Franklin Templeton Services, LLC and National Life Insurance Co. dated May 1, 2004 (15) 7. Amendment Number 1 dated October 30, 2008 to the Administrative Services Agreement (20) 8. Amendment Number 2 to the Administrative Services Agreement dated April 1, 2016 9. Amendment Number 5 to the Participation Agreement dated April 1, 2016 |
|
(8)(j) |
Participation Agreement between Goldman Sachs Variable Insurance Trust, Goldman, Sachs & Co. and National Life Insurance Company dated April 7, 2016 1. Amendment Number 1 to the Participation Agreement dated April 7, 2016 2. Service Class Services Agreement between Goldman, Sachs and Co. and Equity Services, Inc. dated April 7, 2016 |
|
|
3. Administrative Services Agreement between National Life Insurance Company, Equity Services, Inc. & Goldman, Sachs & Co. dated April 7, 2016. 4. Shareholder Information Agreement (22c-2) between Goldman, Sachs and Co and National Life Insurance Company dated April 7, 2016 |
|
(8)(k) |
Participation Agreement - Invesco Variable Insurance Funds, Invesco Distributors, Inc., National Life Insurance Company and Equity Services, Inc. (11) 1. Amendment to the Participation Agreement between Invesco Variable Insurance Funds, Invesco Distributors, Inc., National Life Insurance Company and Equity Services, Inc. dated April 30, 2010 (25) 2. Rule 22c-2 Agreement among Invesco Investment Services, Inc. and National Life Insurance Company entered into March 16, 2007 (14) 3. Administrative Services Agreement among National Life Insurance Co. and AIM Advisors, INC. dated April 30, 2004 (15) 4. Distribution Services Agreement between National Life Insurance Company and Invesco Distributors, Inc. dated April 1, 2016 |
|
(8)(l) |
Participation Agreement among National Life Insurance Company, JPMorgan Insurance Trust, JPMorgan Investment Advisors Inc., J.P. Morgan Investment Management Inc. and JPMorgan Funds Management, Inc. dated April 24, 2009 (22) 1. Supplemental Payment Agreement between National Life Insurance Company, JPMorgan Investment Advisors Inc. and J.P. Morgan Investment Management Inc. dated April 24, 2009 (22) |
|
(8)(m) |
Form of Participation Agreement between National Life Insurance Company and Neuberger Berman Advisers Managers Trust (4) 1. Form of Amendment to Participation Agreement (10) 2. Amendment to Participation Agreement dated June 23, 2008 (20) 3. Rule 22c-2 Agreement among Neuberger Berman Family of Funds and National Life Insurance Company entered into October 1, 2006 (14) 4. Service Agreement as amended through October 1, 2001 among National Life Insurance Co. and Neuberger Berman Management Inc. (15) 5. Amendment to Service Agreement dated June 2, 2008 among National Life Insurance Co. and Neuberger Berman Management Inc. (21) |
|
(8)(n) |
Participation Agreement among National Life Insurance Company and Oppenheimer dated November 11, 2008 (20) |
|
(8)(o) |
Participation Agreement between Sentinel Variable Products Trust, National Life Insurance Company and Equity Services, Inc. dated July 27, 2000. (7) 1. Information Sharing agreement among Sentinel Variable Products Trust and National Life Insurance Company dated April 7, 2007 (22) 2. Administrative Services Agreement between Sentinel Variable Products Trust & Sentinel Financial Services Company dated May 1, 2016 |
|
(8)(p) |
Participation Agreement - National Life Insurance Company, T. Rowe Price Equity Services, Inc. and T. Rowe Price Investment Services, Inc. (10) 1. Amendment to the Participation Agreement among T. Rowe Price Equity Services, Inc., T. Rowe Price Investment Services, Inc. and National Life Insurance Company dated 9/24/08 (19) 2. Rule 22c-2 Agreement among T. Rowe Price Services, Inc. and National Life Insurance Company entered into April 16, 2007 (14) 3. Administration Services Agreement as supplemented through May 1, 2004 among National Life Insurance Co. and T. Rowe Price Investment Services, Inc. (15) 4. Amendment to Participation Agreement dated March 1, 2016 |
|
(8)(q) |
Participation Agreement among VAN ECK WORLDWIDE INSURANCE TRUST, VAN ECK SECURITIES CORPORATION, VAN ECK ASSOCIATES CORPORATION and NATIONAL LIFE INSURANCE COMPANY dated December 1, 2008. (20) 1. Service Agreement among VAN ECK WORLDWIDE INSURANCE TRUST, VAN ECK SECURITIES CORPORATION, VAN ECK ASSOCIATES CORPORATION and NATIONAL LIFE INSURANCE COMPANY dated December 1, 2008. (20) 2. Rule 22c-2 Agreement among Van Eck Worldwide Insurance Trust, Van Eck Securities Corporation, Van Eck Associates Corporation And National Life Insurance Company dated December 1, 2008. (20) 3. Amendment No. 1 to the Participation Agreement dated April 1, 2016 4. Amendment No. 1 to the Services Agreement dated April 1, 2016 |
|
(8)(r) |
Form of Participation Agreement Wells Fargo Variable Trust, Wells Fargo Funds Distributor, LLC and National Life Insurance Company (12) 1. First Amendment to Participation Agreement dated July 16, 2010 2. Rule 22c-2 Agreement among Wells Fargo Advantage Funds and National Life Insurance Company entered into October 16, 2006 (14) |
|
(8)(s) |
Data Sharing Agreement among SunGard Institutional Products Inc. and National Life Insurance Co. |
|
|
dated October 12, 2007 (16) |
|
(9) |
Opinion and consent of Counsel |
|
(10)(a) |
Consent of Sutherland Asbill & Brennan LLP |
|
(b) |
Consent of PricewaterhouseCoopers LLP |
|
(11) |
Not Applicable. |
|
(12) |
Not Applicable. |
|
(13) |
Powers of Attorney (26) |
(1) Incorporated herein by reference to Registration Statement (File No. 333-19583) for National Variable Annuity Account II filed on January 10, 1997.
(2) Incorporated herein by reference to Pre-Effective Amendment No. 1 to the Form N-4 Registration Statement (File No. 333-19583) for National Variable Annuity Account II filed May 28, 1997.
(3) Incorporated herein by reference to Post-Effective Amendment No. 1 to the Form S-6 Registration Statement (File No. 33-91938) for National Variable Life Insurance Account (VariTrak- File No. 33-91938) filed March 12, 1996.
(4) Incorporated herein by reference to Pre-Effective Amendment No. 1 to the Form S-6 Registration Statement for National Variable Life Insurance Account (Sentinel Estate Provider - File No. 333-44723) filed April 16, 1998.
(5) Incorporated herein by reference to Post-Effective Amendment No. 4 to the Form S-6 Registration Statement for National Variable Life Insurance Account (Sentinel Estate Provider - File No. 333-44723) filed May 1, 2001.
(6) Incorporated herein by reference to Post-Effective Amendment No. 7 to the Form N-4 Registration Statement (File No. 333-19583) for National Variable Annuity Account II (Sentinel Advantage) filed May 1, 2001.
(7) Incorporated herein by reference to Post Effective Amendment No. 12 to the Form N-6 Registration Statement for National Variable Life Insurance Account (VariTrak - File No. 33-91938) filed February 28, 2003.
(8) Incorporated herein by reference to Post-Effective Amendment No. 12 to the Form N-4 Registration Statement (File No. 33-19583 for National Variable Annuity Account II (Sentinel Advantage) filed July 30, 2003.
(9) Incorporated herein by reference to Post-Effective Amendment No. 14 to the Form N-6 Registration Statement for National Variable Life Insurance Account (VariTrak - File No. 33-91938) filed March 1, 2004.
(10) Incorporated herein by reference to Post-Effective Amendment No. 15 to the Form N-6 Registration Statement for National Variable Life Insurance Account (VariTrak - File No. 33-91938) filed May 1, 2004.
(11) Incorporated herein by reference to Post-Effective Amendment No. 17 to the Form N-6 Registration Statement for National Variable Life Insurance Account (VariTrak - File No. 33-91938) filed May 2, 2005.
(12) Incorporated herein by reference to Post-Effective Amendment No. 18 to the Form N-6 Registration Statement for National Variable Life Insurance Account (VariTrak - File No. 33-91938) filed May 1, 2006.
(13) Incorporated herein by reference to Post-Effective Amendment No. 19 to the Form N-4 Registration Statement (File No. 33-19583) for National Variable Annuity Account II (Sentinel Advantage) filed May 1, 2006.
(14) Incorporated herein by reference to Post-Effective Amendment No. 20 to the Form N-4 Registration Statement (File No. 333-19583) for National Variable Annuity Account II filed May 1, 2007.
(15) Incorporated herein by reference to Post- Effective Amendment No. 14 to the Form N-6 Registration Statement (Sentinel Estate Provider - File No. 333-44723) filed for the National Variable Account June 25, 2007.
(16) Incorporated herein by reference to Post- Effective Amendment No. 15 to the Form N-6 Registration Statement (Sentinel Estate Provider - File No. 333-44723) filed for the National Variable Account May 1, 2008.
(17) Incorporated herein by reference to Post-Effective Amendment No. 21 to the Form N-4 Registration Statement (File No. 333-19583) for National Variable Annuity Account II filed May 1, 2008.
(18) Incorporated herein by reference to the Post-Effective Amendment No. 22 to the Form N-6 Registration Statement for National Variable Life Insurance Account (Varitrak- File No. 33-91938) filed May 1, 2008.
(19) Incorporated herein by reference to the initial Form N-6 Registration Statement for National Variable Life Insurance Account (Investor Select- File No. 333-51535) filed June 9, 2008.
(20) Incorporated herein by reference to the Post-Effective Amendment No. 23 to the Form N-6 Registration Statement for National Variable Life Insurance Account (Varitrak- File No. 33-91938) filed December 1, 2008.
(21) Incorporated herein by reference to the Pre-Effective Amendment No. 1 to the Form N-6 Registration Statement for National Variable Life Insurance Account (Investor Select File No. 333-51535) filed December 23, 2008
(22) Incorporated herein by reference to the Post-Effective Amendment No. 24 to the Form N-6 Registration Statement for National Variable Life Insurance Account (Varitrak- File No. 33-91938) filed May 1, 2009.
(23) Incorporated herein by reference to the Post Effective Amendment No. 2 to the Form N-6 Registration Statement for National Variable Life Insurance Account (Investor Select-File No. 333-151535) filed April 30, 2010.
(24) Incorporated herein by reference to the Post Effective Amendment No. 3 to the Form N-6 Registration Statement for National Variable Life Insurance Account (Investor Select-File No. 333-151535) filed April 30, 2011.
(25) Incorporated herein by reference to the Post-Effective Amendment No. 26 to the Form N-6 Registration Statement for National Variable Life Insurance Account (Varitrak- File No. 33-91938) filed April 20, 2011.
(26) Incorporated herein by reference to the Post Effective Amendment No. 7 to the Form N-4 Registration Statement for National Variable Life Insurance Account (Investor Select-File No. 333-151535) filed May 1, 2015.
Item 25. Directors and Officers of the Depositor
Name and Principal Business Address* |
|
Positions and Offices with Depositor |
Thomas H. MacLeay |
|
Chairman (Director) |
|
|
|
Mehran Assadi |
|
Director, President & CEO |
|
|
|
David Coates |
|
Director |
474 Coates Island |
|
|
Colchester, VT 05446 |
|
|
|
|
|
Bruce Lisman |
|
Director |
1370 Sixth Avenue |
|
|
New York, NY 10021 |
|
|
|
|
|
V. Louise McCarren |
|
Director |
6654 East Immigration Canyon |
|
|
Salt Lake City, UT 84108 |
|
|
|
|
|
Roger B. Porter |
|
Director |
Kennedy School of Government |
|
|
Harvard University |
|
|
79 John F. Kennedy Street |
|
|
Cambridge, MA 02138 |
|
|
|
|
|
Harris H. Simmons |
|
Director |
Zions Bank |
|
|
One South Main Street 2nd Floor |
|
|
Salt Lake City, Utah 84111 |
|
|
|
|
|
James H. Douglas |
|
Director |
One National Life Drive |
|
|
Montpelier, VT 05604 |
|
|
|
|
|
Kim Goodman |
|
Director |
One National Life Drive |
|
|
Montpelier, VT 05604 |
|
|
|
|
|
Thomas H. Brownell |
|
Executive Vice President & Chief Investment Officer |
Robert E. Cotton |
|
Executive Vice President & Chief Financial Officer |
Ruth B. Smith |
|
Executive Vice President |
Thomas Anfuso |
|
Senior Vice President & Chief Information Officer |
Ataollah Azarshahi |
|
Senior Vice President |
Eric Sandberg |
|
Senior Vice President, Chief Actuary & Chief Risk Officer |
William D. Whitsell |
|
Senior Vice President |
Sean N. Woodroffe |
|
Senior Vice President & Chief People Officer |
Gregory D. Woodworth |
|
Senior Vice President & General Counsel |
Pamela Blalock |
|
Vice President |
Matthew L. DeSantos |
|
Vice President |
Scott W. Edblom |
|
Vice President |
Maryann Ellis |
|
Vice President |
Alfred J. Foice, Jr. |
|
Vice President |
Michael Craig Fowler |
|
Vice President |
Matthew C. Frazee |
|
Vice President, Controller & Treasurer |
Christopher L Graff |
|
Vice President |
Paul G. Green |
|
Vice President and Chief Underwriter |
Joyce B. LaRosa |
|
Vice President |
David Longfritz |
|
Vice President |
Elizabeth H. MacGowan |
|
Vice President & Chief Product Officer |
Gregory M. Mateja |
|
Vice President |
Angela McCraw |
|
Vice President |
Nimesh Mehta |
|
Vice President & Chief Strategy Officer |
Eric Plasse |
|
Vice President |
Louis D. Puglisi |
|
Vice President |
Catherine Shires |
|
Vice President |
David B. Soccodato |
|
Vice President & Tax Officer |
Kerry A. Jung |
|
Secretary |
Robert S. Burke |
|
Assistant General Counsel |
Barbara B. Fitch |
|
Compliance Officer & AML Compliance Officer |
Gregory D. Teese |
|
Chief Compliance Officer - Separate Accounts |
Michael B. Richardson |
|
Illustration Officer |
Michael C. Ward |
|
Retirement Filing Actuary |
Michele Granitz |
|
HIPAA Privacy Officer-Plans |
Michele K. Dungworth |
|
HIPAA Privacy Officer LTC |
Catherine C. Fisk |
|
Assistant Secretary |
Janet S. Astore |
|
Tax Officer |
Jeffrey M. Kemp |
|
Tax Officer |
*Unless otherwise indicated, the principal business address is National Life Drive, Montpelier, VT 05604.
Item 26. Persons Controlled by or Under Common Control with the Depositor or Registrant.
A list of all persons directly or indirectly controlled by or under common control with National Life Insurance Company (National Life) is set forth below. All of the stock of National Life is owned by NLV Financial Corporation, a Delaware corporation. All of the stock of NLV Financial Corporation is owned by National Life Holding Company, a mutual insurance holding company organized under Vermont law.
National Life owns 100% of Life Insurance Company of the Southwest (LSW), a Texas corporation. LSW owns 100% of National Life Distribution, LLC., a Vermont Corporation.
NLV Financial Corporation owns 100% of National Retirement Plan Advisors, a Vermont corporation, NL Group Statutory Trust I, a Connecticut trust; Equity Services, Inc., a Vermont corporation, National Life Real Estate Holdings, LLC, a Vermont LLC, and Sentinel Asset Management, Inc. (SAMI), a Vermont corporation.
SAMI owns 100% of Sentinel Administrative Services, Inc., a Vermont corporation, and Sentinel Financial Services, Inc., a Delaware corporation.
SAMI and Sentinel Financial Services, Inc. are partners of Sentinel Financial Services Company, a Vermont general partnership.
Equity Services, Inc. owns 100% of Equity Services of Colorado, LLC, a Colorado LLC, and Equity Services of Nevada, Inc., a Nevada corporation.
Item 27. Number of Contract Owners.
As of April 26, 2016, there are 2,961 contracts are in force.
Item 28. Indemnification
The By-Laws of Depositor provide, in part in Article VI, as follows
7.1 Indemnification.
(a) The Corporation shall indemnify and hold harmless any officer, director, employee or agent of the Corporation to the fullest extent permitted under Title 11A, Chapter 8, Subchapter 5 of the Vermont Statutes Annotated, as the same may be amended from time to time. Any repeal or modification of this Section 7.1 or of Title 11A, Chapter 8, Subchapter 5 of the Vermont Statutes Annotated shall not adversely affect any right of indemnification of any officer, director or employee of the Corporation existing at any time prior to such repeal or modification. Provided, however, that the Corporation shall not be required to indemnify a person in connection with a proceeding initiated by such person, including a counterclaim or crossclaim, unless the proceeding was authorized by the Board of Directors.
(b) The Corporation may pay or reimburse the reasonable expenses incurred in defending any proceeding in advance of its final disposition if the Corporation has received in advance an undertaking by the person receiving such payment or reimbursement to repay all amounts advanced if it should be ultimately determined that he or she is not entitled to be indemnified under this article or otherwise. The Corporation may require security for any such undertaking.
Insofar as indemnification for liabilities arising under the Securities Act of 1933 may be permitted to directors, officers, and controlling persons of the Registrant pursuant to the foregoing provisions, or otherwise, the Registrant has been advised that in the opinion of the Securities and Exchange Commission such indemnification is against public policy as expressed in the Act and is, therefore, unenforceable. In the event that a claim for indemnification against such liabilities (other than the payment by the Registrant of expenses incurred or paid by a director, officer or controlling person of the Registrant in the successful defense of any such action, suit or proceeding) is asserted by such director, officer, or controlling person in connection with the securities being registered, the Registrant will, unless in the opinion of its counsel the matter has been settled by controlling precedent, submit to a court of appropriate jurisdiction the question of whether such indemnification by it is against public policy as expressed in the Act and will be governed by the final adjudication of such issue.
In addition, the Registrant purchases liability coverage for the Directors and Officers of the Depositor listed in Item 27 above. This coverage is consistent with industry standards. The cost of the coverage is borne entirely by the Registrant.
Item 29. Principal Underwriter
(a) Equity Services, Inc. (ESI) is also the principal underwriter for National Variable Life Insurance Account.
(b) The following information is furnished with respect to the officers and directors of ESI:
Name and Principal Business |
|
Positions and Offices with ESI |
Mehran Assadi |
|
Director (Chairman) |
Ruth B. Smith |
|
Director |
Robert E. Cotton |
|
Director |
Lance A. Reihl |
|
President & Chief Executive Officer |
Gregory D. Teese |
|
Senior Vice President Chief Compliance Officer |
Timothy V. Ryder |
|
Senior Vice President |
Jeffery Wood |
|
Senior Vice President |
Heather L. Lyon |
|
Vice President |
Matthew C. Frazee |
|
Vice President and Treasurer |
Eric Kucinskas |
|
Vice President |
Thomas C. Longfellow |
|
Vice President, Investment Adviser Compliance |
Frances Tierno |
|
Vice President |
Andrew Speirs |
|
Chief Information Security Officer |
Ian A. McKenny |
|
Counsel & Secretary |
Catherine C. Fisk |
|
Assistant Secretary |
Kerry A. Jung |
|
Assistant Secretary |
David B. Soccodato |
|
Tax Officer |
Janet S. Astore |
|
Tax Officer |
Jeffrey M. Kemp |
|
Tax Officer |
*Unless otherwise indicated, principal business address is One National Life Drive, Montpelier, Vermont 05604.
(c) Commission and other compensation received, directly or indirectly from the Registrant during Registrants last fiscal year by each principal underwriter:
Name of |
|
Net Underwriting |
|
Compensation on |
|
Brokerage |
|
Other |
Equity Services, Inc. |
|
1,381,551 |
|
-0- |
|
1,381,551 |
|
-0- |
Item 30. Location of Accounts and Records
All accounts and records required to be maintained by Section 31(a) of the Investment Company Act of 1940 and the rules thereunder are maintained by National Life Insurance Company at One National Life Drive, Montpelier, Vermont 05604.
Item 31. Management Services
All management contracts are discussed in Part A or Part B.
Item 32. Undertakings
(a) Registrant hereby undertakes to file a post-effective amendment to this registration statement as frequently as is necessary to ensure that the audited financial statements in the registration statement are never more than sixteen (16) months old for so long as payments under the variable annuity contracts may be accepted;
(b) Registrant hereby undertakes to include either (1) as part of any application to purchase a contract offered by the Prospectus, a space that an applicant can check to request a Statement of Additional Information, or (2) a postcard or similar written communication affixed to or included in the Prospectus that the applicant can remove to send for a Statement of Additional Information; and
(c) Registrant hereby undertakes to deliver any Statement of Additional Information and any financial statement required to be made available under this form promptly upon written or oral request.
(d) Reliance on No-Action Letter Regarding Section 403(b) Retirement Plan. National Life Insurance Company and the Registrant/Variable Account rely on a no-action letter issued by the Division of Investment Management to the American Council of Life Insurance on November 28, 1988 and represent that the conditions enumerated therein have been or will be complied with.
(e) National Life Insurance Company hereby represents that the fees and charges deducted under the Contract, in the aggregate, are reasonable in relation to the services rendered, the expenses expected to be incurred, and the risks assumed by National Life Insurance Company.
SIGNATURES
Pursuant to the requirements of the Securities Act of 1933 and the Investment Company Act of 1940, the Registrant, National Variable Annuity Account II, certifies that it meets the requirements of Securities Act Rule 485(b) for effectiveness of this registration statement and has caused this Post-Effective Amendment No. 31 to be signed on its behalf by the undersigned thereunto duly authorized, in the City of Montpelier and the State of Vermont, on the 29th day of April, 2016.
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NATIONAL VARIABLE ANNUITY | ||||
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ACCOUNT II (Registrant) | ||||
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Attest: |
/s/ Kerry A. Jung |
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By: |
/s/ Mehran Assadi | |
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Kerry A. Jung |
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Mehran Assadi | |
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Secretary |
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President and | |
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Chief Executive Officer | |
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NATIONAL LIFE INSURANCE COMPANY (Depositor) | ||||
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Attest: |
/s/ Kerry A. Jung |
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By: |
/s/ Mehran Assadi | |
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Kerry A. Jung |
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Mehran Assadi | |
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Secretary |
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President and | |
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Chief Executive Officer | |
Pursuant to the requirements of the Securities Act of 1933, this Post-Effective Amendment No. 30 to the Registration Statement has been signed below by the following persons in the capacities indicated on the date(s) set forth below.
Signature |
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Title |
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Date |
/s/ Mehran Assadi |
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President, Chief Executive Officer |
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Mehran Assadi |
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(Principal Executive Officer) |
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April 29, 2016 |
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/s/ Robert Cotton |
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Senior Vice President & CFO |
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Robert E. Cotton |
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(Principal Financial Officer) |
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April 29, 2016 |
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/s/ Matthew Frazee |
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Vice President, Controller & Treasurer |
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Matthew C. Frazee |
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(Controller & Treasurer) |
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April 29, 2016 |
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Thomas H. MacLeay* |
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Director |
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April 29, 2016 |
Bruce Lisman* |
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Director |
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April 29, 2016 |
David R. Coates* |
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Director |
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April 29, 2016 |
V. Louise McCarren* |
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Director |
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April 29, 2016 |
Roger B. Porter* |
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Director |
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April 29, 2016 |
Harris Simmons* |
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Director |
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April 29, 2016 |
James Douglas* |
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Director |
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April 29, 2016 |
Kim GoodMan |
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* Mehran Assadi signs this document pursuant to the power of attorney filed post effective amendment No. 7 to the form N-6 for the National Variable Life Insurance Account (Investor Select File No. 333-151535).
/s/ Mehran Assadi |
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Mehran Assadi |
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Exhibits
(4)(p) |
SAVA-5 Endorsement |
(5)(b) |
SAVA-5 Application |
(8)(b) |
1. Shareholder Services Agreement between American Century Investment Services, Inc., American Century Services, LLC and National Life Insurance Company dated April 1, 2016.
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(8)(c) |
1. Amendment No. 2 dated April 1, 2016 to the Participation Agreement 2. Letter of Service Agreement between AllianceBernstein Investments, Inc. and National Life Insurance Company dated April 1, 2016. |
(8)(d) |
Participation Agreement between National Life Insurance Company, American Funds Distributors, Inc., American Funds Service Company, Capital Research and Management Company, and the American Funds Insurance Series dated April 11, 2016 1. Rule 22c-2 Agreement between National Life Insurance Company and American Funds Service Company dated April 11, 2016 2. Business Agreement between National Life Insurance Company, American Funds Distributors, Inc., American Funds Service Company, Capital Research and Management Company, and the American Funds Insurance Series dated April 11, 2016 |
(8)(e) |
Participation Agreement between National Life Insurance Company, Blackrock Variable Series Fund, Inc. and BlackRock Investments, LLC dated May 1, 2016 1. Distribution Sub- Agreement between BlackRock Variable Series, Fund, Inc. and National Life Insurance Company dated May 1, 2016 2. Administrative Services Agreement between National Life Insurance Company and BlackRock Advisors, LLC |
(8)(i) |
8. Amendment Number 2 to the Administrative Services Agreement dated April 1, 2016 (Franklin) 9. Amendment Number 5 to the Participation Agreement dated April 1, 2016 (Franklin) |
(8)(j) |
Participation Agreement between Goldman Sachs Variable Insurance Trust, Goldman, Sachs & Co. and National Life Insurance Company dated April 7, 2016 1. Amendment Number 1 to the Participation Agreement dated April 7, 2016 2. Service Class Services Agreement between Goldman, Sachs and Co. and Equity Services, Inc. dated April 7, 2016 4. Shareholder Information Agreement (22c-2) between Goldman, Sachs and Co and National Life Insurance Company dated April 7, 2016 3. Administrative Services Agreement between National Life Insurance Company & Equity Services, Inc. dated April 7, 2016. |
(8)(k) |
4.Distribution Services Agreement between National Life Insurance Company and Invesco Distributors, Inc. dated April 1, 2016 |
(8)(o)(2) |
Administrative Services Agreement between Sentinel Variable Products Trust & Sentinel Financial Services Company dated May 1, 2016 |
(8)(p) |
4.Amendment to Participation Agreement dated March 1, 2016 |
(8)(q) |
3. Amendment No. 1 to the Participation Agreement dated April 1, 2016 4. Amendment No. 1 to the Services Agreement dated April 1, 2016 |
(9) |
Opinion and consent of Counsel |
(10)(a) |
Consent of Sutherland Asbill & Brennan LLP |
(b) |
Consent of PricewaterhouseCoopers LLP |
Exhibit 99.(4)(p)
Contingent Deferred Sales Charge Endorsement
This Endorsement is part of the contract to which it is attached; it is subject to all terms, conditions, and provisions contained in the contract.
The provisions of this Endorsement begin on the Date of Issue and apply in lieu of any contract provision to the contrary. All terms not defined in this Endorsement refer to the terms as used in the contract. In all other respects, the provisions of the contract remain unchanged.
This Endorsement modifies the Contingent Deferred Sales Charge provision of the contract in its entirety.
Contingent Deferred Sales Charge
For purposes of determining the Contingent Deferred Sales Charge, the Contract Value will be apportioned into segments of size equal to the Net Premiums paid into this contract. Such segments will be considered withdrawn in the order in which the corresponding Net Premiums were received.
The Contingent Deferred Sales Charge is a percentage of the apportioned Contract Value withdrawn and is determined independently for each segment. The percentage depends upon the number of full 365-day years elapsed between the date the Net Premium was credited and the date of the withdrawal.
The Contingent Deferred Sales Charge for each segment of the Contract Value withdrawn is determined by multiplying the amount of the Contract Value in that segment times the appropriate Contingent Deferred Sales Charge Percentage shown in the table below:
Contingent Deferred Sales Charge Percentage
Number of Full Years |
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Contingent Deferred |
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Elapsed Since |
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Sales Charge |
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Net Premium Payment |
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Percentage |
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0 Years |
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7 |
% |
1 Year |
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6 |
% |
2 Years |
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5 |
% |
3 Years |
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4 |
% |
4 Years |
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3 |
% |
5+ Years |
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0 |
% |
All surrenders and withdrawals will be made last from available earnings credited to this contract. No Contingent Deferred Sales Charge will be assessed upon the surrender or withdrawal of any earnings.
National Life Insurance Company
Signed for National Life Insurance Company, as of the Date of Issue of the contract to which this Endorsement is attached, by
President & Chief Executive Officer |
Secretary |
Sentinel Advantage Variable Annuity Application Agency/Branch # Pension Code Contract No. As per supplemental request. Payment will be shared equally by all Primary Beneficiaries who survive the Owner. If none, by all Secondary Beneficiaries who so survive; if none, payment will be made to the Owner's estate. 1. Non-Qualified 2. Qualified Individually Owned Jointly Owned 1035 Exchange Other (Describe) Pension or Profit-Sharing Plan§401(a) or §403(a) Tax-Deferred Annuity §403(b) Individual IRA SEP IRA SIMPLE IRA* Roth IRA* *Original Participation Year: Regular Contribution: Year: $ Transfer Rollover 1. Send a periodic reminder to fund this contract? Yes No 5. I authorize the Company to draft monthly payments from my account. (Attach a void check/deposit slip) 2. Amount $ 3. Frequency Checking Savings Money Market Draft on the 1st 8th 15th 22nd Annual Semi-Annual Quarterly Annuitant Owner Monthly (Group) EFT/COM (Complete #5) 4. Notice to Other: (Street, City, State & Zip) 1. Has there been or will there be a lapse, surrender, replacement, reissue, conversion, or change to reduce amount, premium or period of coverage of any existing life, disability, or annuity contract if the applied for contract or rider is issued? 2. Will there be any substantial borrowing on any life insurance policy if the applied for contract or rider is issued? Company Name(s) and Policy Number(s): Yes Yes No No Does the Applicant have existing policies or contracts with any financial institution? (If 'Yes', list financial institution name(s) and policy or contract number(s) below.) Yes No ICC10-7405(0910) National Life Group® is a trade name of National Life Insurance Company (NLIC) and its affiliates. National Life Variable Contracts distributed by Equity Services, Inc., Member FINRA/SIPC, Broker/Dealer Affiliate of NLIC. Centralized Mailing Address: One National Life Drive, Montpelier, VT 05604 | P: 800-732-8939 | www.NationalLifeGroup.com Page 1 Part H - Riders Enhanced Death Benefit Rider (Not available in WA)Other Other Part G - Existing Policy or Contract Information (The following question must be answered whether or not any policies or contracts are being replaced.) Part F - Replacement (If 'Yes', Replacement forms must be provided according to state requirements; list company name and policy numbers.) Part E - Reminder Notice Part D - Type of Plan Part A.1. - Owner Information Part A.2. - Joint Owner Information a. Full Name a. Full Name b. Soc. Sec. #/TIN f. Full Address b. Soc. Sec. #/TIN f. Full Address c. D.O.B./Trust Date c. D.O.B./Trust Date d. Sex M F d. Sex M F e. Daytime Phone (with area code) g. E-mail Address e. Daytime Phone (with area code) g. E-mail Address Part B - Annuitant Information (Complete if different from Owner.) 1. Full Name 6. Full Address 2. D.O.B 3. Soc. Sec. # 4. SexMF 5. Daytime Phone (with area code) Part C - Beneficiary(ies) (If 401(a) plan, do not complete. The Beneficiary will be the Owner.) Primary Secondary D.O.B Soc. Sec. # Relationship to Owner/Annuitant D.O.B Soc. Sec. # Relationship to Owner/Annuitant
Sentinel Advantage Variable Annuity Application - Continued 1. Portfolio Rebalancing a. Does the Owner request Portfolio Rebalancing, through which the Contract Values will be automatically redistributed according to the 2. Dollar Cost Averaging Does the Owner request Dollar Cost Averaging to reallocate funds once each month as indicated on the Investment fund allocation percentages? Yes No Allocation, form 9293? Yes No b. Frequency Annual Semi-Annual Quarterly Unless waived below, I appoint the Company as my agent to act upon telephoned instructions reasonably believed to be authorized by me. I hereby ratify any telephoned 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 telephoned instructions. This will allow me and my representative named below to transfer funds among Sub-Accounts, change the fund allocation percentages, and add, cancel or change the Portfolio Rebalancing or Dollar Cost Averaging features. In the case of 403(b) Tax Sheltered Annuities, the Owner may request policy loans up to $10,000 over the telephone. Representative(s): I do not authorize the Company to accept telephone instructions. I hereby represent my answers to the above questions to be true and correct to the best of my knowledge and belief. I understand that annuity payments or surrender values, when based upon the investment experience of a separate account, are variable and not guaranteed as to a fixed dollar amount and will decrease or increase with investment experience. I acknowledge Receipt of the Sentinel Advantage Variable Annuity Prospectus. I have paid $ for Variable Annuity with this application. Monies remitted via: Check Wire 1035 Transfer Under penalties of perjury, I certify that (1) the number shown on this application is my correct taxpayer identification number; (2) the IRS has never notified me that I am subject to backup withholding, or has notified me that I am no longer subject to such withholding or I am exempt from such withholding; and (3) I am a U.S. person (including a U.S. resident alien). You must cross out item 2 if you have been notified by the IRS that you are currently subject to backup withholding because of underreporting interest or dividends on your tax return. The Internal Revenue Service does not require your consent to any provision of this document other than the certifications required to avoid backup withholding. Signed at: (City & State) Owner's on this day of: (mm/dd/yyyy) Annuitant's Signature: (If different than Owner.) Signature: Any person who knowingly presents a false statement in an application for insurance may be guilty of a criminal offense and subject to penalties under state law. 1. Will there be any replacement, as defined by any regulation of the state in which this application is taken? (If 'Yes', fulfill all state requirements.) Yes No Signature of Registered Representative 2. % of Credit Date Signed (mm/dd/yyyy) Registered Representative Name & No. (Print) 3. (Select one of the following.) Schedule 1 Schedule 2 Schedule 3 Schedule 4 Signature of Broker Dealer B/D Name (Print) B/D Phone ICC10-7405(0910) Page 2 Part O - Registered Representative's Report & Schedule Part N - Signatures Part M - Owner's Taxpayer ID Number Certification Part L - Authorization Part K - Remarks Part J - Telephone Transaction Agreement Part I - Investment Information - (You may elect Portfolio Rebalancing or Dollar Cost Averaging, but not both. See Investment Allocation form 9293.)
Exhibit 99.(8)(b)
SHAREHOLDER SERVICES AGREEMENT
This SHAREHOLDER SERVICES AGREEMENT (Agreement) is made and entered into as of April 1, 2016 by and among National Life Insurance Company (the Company), AMERICAN CENTURY INVESTMENT SERVICES, INC. (Distributor), and AMERICAN CENTURY SERVICES, LLC (Transfer Agent and together with Distributor, American Century).
WHEREAS, the Company offers to the public certain group and individual variable annuity and variable life insurance contracts (the Contracts);
WHEREAS, the Company wishes to make available as investment options under the Contracts one or more of Class I and/or Class II shares of the funds (the Funds) made available by the Distributor from time to time, each of which is a series of mutual fund shares registered under the Investment Company Act of 1940, as amended (the 1940 Act), and issued by American Century Variable Portfolios, Inc. and/or American Century Variable Portfolios II, Inc. (collectively, the Issuer); and
WHEREAS, on the terms and conditions hereinafter set forth, American Century 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, in consideration of the mutual covenants and agreements contained herein and other good and valuable consideration, the receipt and sufficiency of which is hereby acknowledged, the parties hereby agree as follows:
1. Transactions in the Funds. (a) Subject to the terms and conditions of this Agreement, Distributor will cause the Issuer to make shares of the Funds (Shares) 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. Each transaction is made subject to confirmation by Distributor at the net asset value next computed after receipt of the order.
(b) Any order for the purchase of Shares pursuant to this Agreement shall be accepted at the time when it is received by the Transfer Agent, unless rejected by Distributor or the Transfer Agent. No order that is placed on a conditional basis or is subject to any delay or contingency prior to execution will be accepted.
2. Administrative Services. (a) The Company agrees to provide all administrative and shareholder services for the Contract owners, including but not limited to those services specified in EXHIBIT A (the Administrative Services). Neither Distributor nor the Issuer shall be required to provide Administrative Services for the benefit of Contract owners.
(b) For certain classes of the Funds, the Company will provide distribution services for such classes, including but not limited to receiving and answering correspondence from prospective shareholders, distributing prospectuses, statements of additional information, and shareholder reports; providing facilities to answer questions from prospective investors about Shares; assisting investors in completing application forms and selecting dividend and other account options; and other reasonable services designed to assist in the distribution of the Funds (collectively the Distribution Services).
(c) 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, if applicable, the Distribution 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 and the Distribution Services. Upon request, the Company will provide Distributor or its representatives reasonable information regarding the quality of the Administrative Services and, if applicable, the Distribution Services being provided and its compliance with the terms of this Agreement.
3. Timing of Transactions.
(a) Distributor hereby appoints the Company as agent for the Funds for the limited purpose of accepting purchase and redemption orders for 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 (Orders). Orders received and accepted by the Company prior to the price time for each Fund as set forth in its prospectus (the Price Time) generally 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 in accordance with Section 4 hereof either (1) to the Transfer Agent prior to the Price Time on such Business Day or (2) pursuant to the National Securities Clearing Corporations (NSCC) Mutual Fund Settlement, Entry and Redemption Verification (Fund/SERV) system, will be executed at the net asset value determined as of the relevant Funds Price Time on such Business Day. Any Orders received by the Company on such day but after the relevant Funds Price Time on a Business Day, will be executed at the net asset value next determined as of that Funds Price Time on the next Business Day. The day as of which an Order is executed by the Transfer Agent pursuant to the provisions set forth above is referred to herein as the Trade Date. All Orders are subject to acceptance or rejection by American Century or the Funds in the sole discretion of any of them.
(b) Notwithstanding Section 3(a) above, if the Securities and Exchange Commission (SEC) adopts a rule, or Congress adopts a law, that changes the requirements for intermediaries with regard to accepting Orders on behalf of the Funds, the timing of transmitting Orders to the Funds, or otherwise affects the way Orders are accepted, transmitted and priced, Section 3(a) shall be deemed to be automatically amended to comply with such new rule or law.
4. Processing of Transactions.
(a) If transactions in Shares are to be settled through the Fund/SERV system, the following provisions shall apply:
(1) Each party to this Agreement represents that it or one of its affiliates has entered into the Standard Networking Agreement with the NSCC and it desires to participate in the programs offered by the NSCC Fund/SERV system which provide (i) an automated process whereby shareholder purchases and redemptions, exchanges and transactions of mutual fund shares are executed through the Fund/SERV system, and (ii) a centralized and standardized communication system for the exchange of customer-level information and account activity through the Fund/SERV Networking system.
(2) For each Fund/SERV transaction, including transactions establishing accounts with American Century or its affiliates, the Company shall provide the Funds and American Century or its affiliates with all information necessary or appropriate to establish and maintain each Fund/SERV transaction (and any subsequent changes to such information), which the Company hereby certifies is and shall remain true and correct. The Company shall maintain documents required by American Century or the Funds to effect Fund/SERV transactions. Each instruction shall be deemed to be accompanied by a representation by the Company that it has received proper authorization from each person whose purchase, redemption, account transfer or exchange transaction is effected as a result of such instruction.
(3) At all times each party shall maintain insurance coverage that is reasonable and customary in light of all its responsibilities hereunder and under applicable law. Such coverage shall insure for losses resulting from the criminal acts, errors or omissions of each partys employees and agents.
(4) The Company represents and warrants that all instructions, questions and other correspondence concerning the accounts for which trades are made in accordance with this Section 4(a) shall come from the Company, and that individual account holders shall contact the Company, rather than contact Distributor or the Funds directly, with instructions, questions and requests concerning the Funds. The Company further represents and warrants that it, rather than Distributor or the Funds, has reporting responsibility to its customers for confirmations of transactions and monthly, quarterly and year-end statements. The Company is a member of the Securities Investor Protection Corporation and is current with the dues required by such membership.
(b) If transactions in Shares are to be settled directly with the Transfer Agent, procedures relating to the processing and settlement of Orders shall be subject to such instructions as American Century may forward to the Company from time to time. Payment for net purchase transactions shall be made by wire transfer or through a clearinghouse agency approved by American Century to the applicable Fund custodial account designated by American Century on the Business Day next following the Trade Date. Such wire transfers shall be initiated by the Companys 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. If payment for a purchase Order is not timely received, the Fund may cancel the Order or, at American Centurys option, resell the Shares to the applicable Fund at the then prevailing net asset value, and the Company shall be responsible for all costs to American Century, the Funds or any affiliate of American Century or the Funds resulting from such resale. The Company shall be responsible for any loss, expense, liability
or damage, including loss of profit suffered by American Century and/or the respective Funds resulting from delay or failure to make timely payment for such Shares or cancellation of any trade, or for any Orders that are processed on an as of basis as an accommodation to the Company. The Company shall not be entitled to any gains generated thereby.
(c) The Company agrees not to withhold placing Orders received from any customers for the purchase or sale of Shares so as to profit itself as a result of such withholding. The Company shall not purchase Shares through American Century except for the purpose of covering purchase Orders received by the Company, or for the Companys bona fide investment. The Company agrees to purchase Shares only from the Funds or its customers. If the Company purchases Shares from its customers, it will pay such customers not less than the applicable redemption price as established by the then-current prospectuses of the Funds.
5. Prospectus and Proxy Materials. (a) Distributor shall provide the Company with reasonable quantities of the Issuers prospectuses, statements of additional information, proxy materials, periodic fund reports to shareholders and other materials (the Fund Materials) that are required by law to be sent to the Issuers shareholders, each in the amounts and at the times requested by the Company.
(b) The parties agree to coordinate the functions related to the printing, distribution, and payment of expenses of Fund Materials pursuant to the terms of Exhibit B attached hereto.
6. Compensation and Expenses. (a) Certain of the Funds have adopted distribution contracts pursuant to which Distributor, on behalf of each such Fund, will pay a service fee to dealers in accordance with the provisions of such Funds distribution contracts for the Class II shares of such Funds. The service fee is paid as additional consideration for all personal services, account maintenance services and/or Distribution Services provided by the broker/dealer of record to shareholders of the applicable Fund. The provisions and terms of these Funds distribution contracts are described in their respective prospectuses, and the Company hereby agrees that Distributor has made no representations with respect to the distribution contracts of such Funds in addition to, or conflicting with, the description set forth in their respective prospectuses. The fee for each class of Shares will be set by Distributor based on the relevant distribution contracts.
(b) Transfer Agent 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, Transfer Agent will pay the Company a fee (the Administrative Services Fee) set forth on Exhibit C attached hereto, per annum of the average aggregate amount invested by the Company in each class of Shares made available under the Agreement.
(c) For the purposes of computing the payments 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 Companys aggregate investment (Share net asset value multiplied by total number of Shares held by the Company) on each calendar day during the month and dividing by the total number of calendar days during such month.
(d) American Century will calculate the amount of the payments 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 payments will be accompanied by a statement showing the calculation of the amounts being paid 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
One National Life Drive
Montpelier, VT 05604
Attention: Penny Dooley
Phone No.: 802-229-3327
Fax No.: PDooley@nationallife.com
x Check this box to receive Statements
electronically at the email address provided above
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 Life Variable Life Insurance Account and 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 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) Distributor represents that (i) this Agreement has been duly authorized by all necessary corporate action and, when executed and delivered, shall constitute its legal, valid and binding obligation of Distributor, 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 are registered and authorized for sale in accordance with all federal and state securities laws.
(c) Transfer Agent represents that this Agreement has been duly authorized by all necessary corporate action and, when executed and delivered, shall constitute its legal, valid and binding obligation, enforceable in accordance with its terms.
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. To the extent applicable, the parties agree to abide by the terms of the Foreign Account Tax Compliance Act (FATCA), including the Companys provision to American Century of any information necessary for American Centurys or the Funds FATCA compliance.
(b) Each party shall promptly notify the other party 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. Further, upon reasonable request by American Century, the Company will provide evidence reasonably satisfactory to the Funds Board of Directors to demonstrate its compliance with Rule 22c-1 (under the 1940 Act) requirements and provide the requester with copies of its internal control report, if one is obtained. The Company agrees to promptly return any requested certification of such practices and understands that if it does not American Century may require it to stop trading through the NSCC (if applicable) and send all trades directly to Transfer Agent by each Funds Price Time on any Business Day.
(d) The Company covenants and agrees that all Orders transmitted to the Transfer Agent whether by telephone, telecopy, or other electronic transmission acceptable to American Century, shall be sent by or under the authority and direction of a person designated by the Company as being duly authorized to act on behalf of the owner of the Accounts. American Century 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 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 Shares. The Company further agrees to be responsible for the accuracy, propriety and consequences of all data transmitted to American Century by the Company by telephone, telecopy or other electronic transmission acceptable to American Century.
(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 as is given to other underlying investments of the Accounts, subject to applicable SEC 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 American Century, make representations concerning the Issuer, the Funds or the Shares except those contained in the then-current prospectus and in current printed sales literature approved by American Century.
(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 as underlying investment media to Contract owners shall be submitted to American Century for review and approval before such material is used.
9. Use of Names. Except as otherwise expressly provided for in this Agreement, neither American Century nor any of its affiliates nor 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 Companys prior written consent, the granting of which shall be at the Companys 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, American Century or any variation of any such trademarks, trade names, service marks, or logos, without the prior written consent of American Century, the granting of which shall be at the sole option of American Century.
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 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 Distributor and will vote shares in accordance with instructions received from such Contract owners. The Company shall vote 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 Shares held for such Contract owners.
11. Indemnity. (a) American Century 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, as amended (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 a breach by American Century of a material provision of this Agreement. American Century will reimburse any legal or other expenses reasonably incurred by the Indemnified Parties in connection with investigating or defending any such Losses. American Century 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 American Century and the Issuer, and their respective officers, directors, employees, agents, affiliates and each person, if any, who controls Issuer or Distributor within the meaning of the Securities Act of 1933, as amended (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 a breach by
the Company of a material provision of this or (ii) the Companys sales practices and procedures, including the provision of any information not provided or approved by American Century in accordance with Section 8(g) hereof. 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 American Century in performing its 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 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 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 Boards election, to withdraw an Accounts 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 any party upon 60 days prior written notice to the other parties, or such longer period required for the Company to obtain any necessary exemptive relief. This Agreement shall terminate automatically without notice upon any attempted assignment hereof. This Agreement may be terminated at any time as to any Fund by vote of a majority of the outstanding securities of that Fund or vote of a
majority of the independent directors or trustees of that Fund. 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 Issuers obligation to maintain the Accounts. Following termination, Distributor 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). American Century reserves the right, in its sole discretion and without prior notice, to suspend sales of Shares in any state or other jurisdiction, to withdraw entirely the offering of Shares, or to modify or amend the terms of its offering of Shares.
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 party is free to enter into similar agreements and arrangements with other entities.
15. Privacy Procedures. Each of the parties to this Agreement affirms that it has procedures in place reasonably designed to protect the privacy of non-public customer information and it will maintain such information that it may acquire pursuant to this Agreement in confidence and in accord with all applicable privacy laws. Each of the parties agrees not to use, or permit the use of, any such customer information for any purpose except to carry out the terms of this Agreement and/or pursuant to any exceptions set forth in such privacy laws.
16. Survival. The provisions of Section 9 (Use of Names), Section 11 (Indemnity) and Section 15 (Privacy Procedures) of this Agreement shall survive termination of this Agreement.
17. 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.
18. Rule 498 of the Securities Act of 1933 (Rule 498). Rule 498 provides for the option on the part of American Century and the Company to provide a Summary Prospectus in lieu of Statutory Prospectus under certain circumstances with respect to the Fund and its series. The parties desire to set out the roles and responsibilities for complying with Rule 498 and other applicable laws in the event they take advantage of Rule 498 and distribute a Summary Prospectus in lieu of a Statutory Prospectus, including but not limited to those roles and responsibilities specified in EXHIBIT D.
19. Notices. All notices and other communications (other than those specified in Section 6(d)) hereunder shall be given or made in writing and shall be delivered personally, or sent by facsimile, 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
One National Life Drive
Montpelier, VT 05604
Attention: Keith Jones, Senior Counsel
(802) 229-3111 (office number)
(802) 229-3743 (facsimile number)
To American Century:
American Century Investment Services, Inc.
4500 Main Street
Kansas City, Missouri 64111
Attention: General Counsel
(816) 531-5575 (office number)
(816) 340-4964 (facsimile number)
Any notice, demand or other communication given in a manner prescribed in this Section 19 shall be deemed to have been delivered on receipt.
20. Assignment. This Agreement will terminate automatically in the event of its assignment
21. 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.
22. 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.
23. 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, specifically including the Shareholder Services Agreement dated April 28, 1998 (as amended).
[Remainder of Page Intentionally Left Blank]
IN WITNESS WHEREOF, the undersigned have executed this Agreement as of the date first above written.
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AMERICAN CENTURY INVESTMENT | |
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SERVICES, INC. | |
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By: |
/s/ Cindy Johnson |
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Name: |
Cindy A. Johnson |
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Title: |
Vice President |
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AMERICAN CENTURY SERVICES, LLC | |
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By: |
/s/ Otis H. Cowan |
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Name: |
Otis H. Cowan |
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Title: |
Vice President |
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NATIONAL LIFE INSURANCE COMPANY | |
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By: |
/s/ Scott Edblom |
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Name: |
Scott Edblom |
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Title: |
Vice President, Product Strategy & Innovation |
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 and such account shall be in the name of the Company (or its nominee) as the record owner of Shares purchased under the Contract owners.
2. Disburse or credit to the Contract owners all proceeds of redemptions of Shares and all dividends and other distributions not reinvested in Shares.
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 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 Shares), and such other information as may be required, from time to time, by the Contracts.
4. Transmit purchase and redemption orders to the Transfer Agent on behalf of the Contract owners in accordance with the procedures set forth in Section 4 of 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 under the Contracts.
SCHEDULE B
FUND MATERIALS
The Distributor and the Company will coordinate the functions related to Fund Materials and pay the costs of completing these functions based upon an allocation of costs in the tables below.
To the extent Fund Materials are bundled with materials of other funds offered by Company, costs shall be allocated to reflect the Distributors share of the total costs determined according to the number of pages of the Funds respective portions of the documents. Notwithstanding anything to the contrary, the parties agree that to the extent that Distributor reimburses Company for printing or delivery costs incurred with respect to the distribution of Fund Materials, Distributor will only be responsible for reimbursing commercially reasonable expenses incurred by the Company. Distributor shall not be responsible for reimbursing expenses that are excessive or unnecessary based on available industry standards.
Company shall send invoices for such expense to the Distributor within 90 days of the event, along with such other supporting data as may be reasonably requested. The invoice will reference the applicable Item and Function, along with the Distributors number of pages printed. The Company invoices should be sent to the following email message group: INTOPS@americancentury.com. Fees will be payable within 45 days of receipt of the invoice, as long as such supporting data defines the appropriate expenses.
Item |
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Function |
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Party Responsible |
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Party |
Mutual Fund Prospectus and, if applicable, Summary Prospectus |
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Distributor shall supply the Company with such numbers of the Designated Portfolio(s) prospectus(es) as the Company may reasonably request and/or provide the Company with a print ready PDF of the Designated Portfolio(s) prospectus(es) for printing and expense reimbursement |
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Distributor and/or Company |
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Distributor will pay for printing and delivering (including postage) copies to existing Contract owners who allocate contract value to any Designated Portfolio. |
Product Prospectus |
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Printing, Filing and Distribution |
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Company |
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Company will pay printing and delivery. |
Item |
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Function |
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Party Responsible |
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Party |
Mutual Fund Prospectus and, if applicable, Summary Prospectus Update & Distribution (Supplements) |
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Fund, Distributor or Funds adviser shall supply the Company with such numbers of the Designated Portfolio(s) prospectus supplements as the Company may reasonably request and/or provide the Company with a print ready PDF of the Designated Portfolio(s) prospectus supplements for printing and expense reimbursement |
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Fund and/or Company |
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Distributor will pay for printing and delivering (including postage) to existing Contract owners who allocate contract value to any Designated Portfolio. |
Product Prospectus Update & Distribution |
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If Required by Fund or Distributor |
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Company |
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Distributor |
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If Required by the Company |
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Company |
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Company |
Mutual Fund SAI |
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Printing |
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Distributor |
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Distributor |
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Distribution |
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Company |
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Distributor |
Product SAI |
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Printing & Distribution |
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Company |
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Company |
Proxy Material for Mutual Fund: |
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Printing |
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Distributor or a proxy solicitation firm chosen by the Fund |
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Distributor |
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Distribution (including labor and postage) |
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Company or a proxy solicitation firm chosen by the Fund |
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Distributor |
Mutual Fund Annual & Semi-Annual Report |
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Fund, Distributor or Funds adviser shall supply the Company with such numbers as the Company may reasonably request and/or provide the Company with a print ready PDF for printing and expense reimbursement |
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Company |
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Distributor will pay for printing and delivering (including postage) copies to existing Contract owners who allocate contract value to |
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Function |
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Party Responsible |
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Party |
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any Designated Portfolio. |
Other communication to Prospective clients |
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If Required by the Fund or Distributor |
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Company |
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Distributor |
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If Required by the Company |
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Company |
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Company |
Other communication to existing Contract owners |
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Distribution (including labor and printing) if required by the Fund or Distributor |
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Company |
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Distributor |
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Distribution (including labor and printing) if required by the Company |
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Company |
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Company |
Operations of the Fund |
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All operations and related expenses, including the cost of registration and qualification of shares, taxes on the issuance or transfer of shares, cost of management of the business affairs of the Fund, and expenses paid or assumed by the Fund pursuant to any Rule 12b-1 plan |
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Fund or Distributor |
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Fund or Funds adviser |
Operations of the Account |
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Federal registration of units of separate account (24f-2 fees) |
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Company |
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Company |
EXHIBIT C
Funds Available and Fees
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Administrative |
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Distribution |
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Services Fees* |
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Services Fees* |
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Class I of: |
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VP International Fund |
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Redacted |
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Redacted |
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VP Income & Growth Fund |
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Redacted |
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Redacted |
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VP Value Fund |
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Redacted |
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Redacted |
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VP Ultra Fund |
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Redacted |
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Redacted |
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VP Inflation Protection Fund |
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Redacted |
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Redacted |
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Class II of: |
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VP Capital Appreciation Fund |
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Redacted |
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Redacted |
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VP Growth Fund |
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Redacted |
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Redacted |
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VP Large Company Value Fund |
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Redacted |
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Redacted |
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VP Ultra Fund |
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Redacted |
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Redacted |
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VP Value Fund |
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Redacted |
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Redacted |
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VP Inflation Protection Fund |
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Redacted |
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Redacted |
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*Fees will be paid only on accounts where the assigned NSCC #4555 is listed.
EXHIBIT D
RULE 498 OF THE SECURITIES ACT OF 1933
SUMMARY PROSPECTUS
1. For purposes of this Agreement, the terms Summary Prospectus and Statutory Prospectus shall have the same meaning as set forth in Rule 498.
2. In the event the Company desires to use Summary Prospectuses in lieu of Statutory Prospectuses, American Century shall provide the Company with copies of the Summary Prospectuses in the same manner and at the same times as the Agreement requires that American Century provide the Company with Statutory Prospectuses.
3. American Century shall be responsible for compliance with Rule 498(e) and any applicable guidance received from the U.S. Securities and Exchange Commission (the SEC) or SEC Staff.
4. American Century represents and warrants that the Summary Prospectuses and the web site hosting of such Summary Prospectuses will comply with the requirements of Rule 498 applicable to the Fund and its series.
5. American Century agrees that the uniform resource locator (URL) indicated on each Summary Prospectus will lead the Company contract owners (Contract Owners) directly to the web page used for hosting Summary Prospectuses and that such web page will host the current Fund and series documents required to be posted in compliance with Rule 498 and any applicable guidance received from the SEC or from the SEC Staff.
6. American Century represents and warrants that it will be responsible for compliance with the provisions of Rule 498(f)(i) involving Contract Owner requests for additional Fund documents made directly to the Fund. American Century further represents and warrants that any information obtained about Contract Owners pursuant to this provision will be used solely for the purposes of responding to requests for additional Fund documents.
7. The Company represents and warrants that it will respond to requests for additional Fund documents made by Contract Owners directly to the Company or one of its affiliates.
8. The Company represents and warrants that any binding together of Summary Prospectuses and/or Statutory Prospectuses for which the Company is responsible will be done in compliance with Rule 498 and any applicable guidance received from the SEC or from the SEC Staff.
9. At the Companys request, American Century will provide the Company with URLs to the current Fund and series documents for use with the Companys electronic delivery of Fund documents or on the Companys website. American Century will be responsible for maintaining the Fund and series current documents on the website to which such URLs originally navigate. In addition, the Company shall be permitted in its sole discretion to post a copy of the Funds Summary and/or Statutory Prospectus on the Companys website. The Company agrees to be solely responsible for the maintenance of web links and Fund documents on its website.
10. If American Century determines that it will end its use of the Summary Prospectus delivery option, American Century will provide the Company with advance notice of its intent as soon as reasonably practicable, but in no event less than 60-days advance written notice of this intent. After the termination of any notice period, American Century shall continue to maintain a Fund documents web site in compliance with the requirements of this Agreement and Rule 498 for a minimum of 90 days, in order to comply with Rule 498.
11. American Century shall not deem the Company, by reason of executing this Agreement, to be service provider of the Fund as that term is used in connection with Rule 38a-1 under the Investment Company Act of 1940. The parties agree that all other provisions of the Agreement will apply to the terms as applicable.
12. The parties agree that the Company is not required to distribute Summary Prospectuses to Contract Owners, but rather that the use of the Summary Prospectuses will be at the discretion of the Company. The Company agrees that it will give American Century sufficient notice of its intended use of the Summary Prospectuses or the Statutory Prospectuses.
Exhibit 99.(8)(c)1
Amendment No.2 Participation Agreement
This Amendment to the Participation Agreement (Agreement) dated September 2, 2008 by and among AllianceBernstein L.P., AllianceBernstein Investments, Inc. (the Distributor), National Life Insurance Company (Insurer) and Equity Services, Inc. (the Contracts Distributor) is effective this 1st day of April, 2016. All capitalized terms used herein and not otherwise defined shall have the meaning ascribed to such term in the Agreement.
WHEREAS the Parties have expressed their desire that the Distributor make available to serve as underlying investment media for the Contracts Class B shares of all of the Portfolios of AllianceBernstein Variable Products Series Fund, Inc., (the Fund) at net asset value and with no sales charges for investment by the Separate Account;
NOW THEREFORE, in consideration of the mutual covenants hereinafter set forth, and intending to be legally bound, the Agreement is hereby amended to make available to serve as underlying investment media for the Contracts Class B shares of all of the Funds Portfolios at net asset value and with no sales charges for investment by the Separate Account. The Agreement is further amended by adding the following new Section (this Section):
Class B Distribution Payments
From time to time during the term of the Agreement the Distributor may make payments to the Contracts Distributor pursuant to a distribution plan adopted by the Fund with respect to the Class B shares of the Portfolios pursuant to Rule 12b-1 under the 1940 Act (the Rule 12b-1 Plan) in consideration of the Contracts Distributors furnishing distribution services relating to the Class B shares of the Portfolios and providing administrative, accounting and other services, including personal service and/or the maintenance of Participant accounts, with respect to such shares. The Distributor has no obligation to make any such payments, and the Contracts Distributor waives any such payment, until the Distributor receives monies therefor from the Fund. Any such payments made pursuant to this Section shall be subject to the following terms and conditions:
(a) Any such payments shall be in such amounts as the Distributor may from time to time advise the Contracts Distributor in writing but in any event not in excess of the amounts permitted by the Rule 12b-1 Plan. Such payments may include a service fee in the amount of .25 of 1% per annum of the average daily net assets of the Fund attributable to the Class B shares of a Portfolio held by clients of the Contracts Distributor. Any such service fee shall be paid solely for personal service and/or the maintenance of Participant accounts.
(b) The provisions of this Section relate to a plan adopted by the Fund pursuant to Rule 12b-1. In accordance with Rule 12b-1, any person authorized to direct the disposition of monies paid or payable by the Fund pursuant to this Section shall provide the Funds Board of Directors, and the Directors shall review, at least quarterly, a
written report of the amounts so expended and the purposes for which such expenditures were made.
(c) The provisions of this Section shall remain in effect for not more than a year and thereafter for successive annual periods only so long as such continuance is specifically approved at least annually in conformity with Rule 12b-1 and the 1940 Act. The provisions of this Section shall automatically terminate in the event of the assignment (as defined by the 1940 Act) of this Agreement, in the event the Rule 12b-1 Plan terminates or is not continued or in the event this Agreement terminates or ceases to remain in effect. In addition, the provisions of this Section may be terminated at any time, without penalty, by either the Distributor or the Contracts Distributor with respect to any Portfolio on not more than 60 days nor less than 30 days written notice delivered or mailed by registered mail, postage prepaid, to the other party.
This Amendment shall become effective as of the date written below and shall remain in effect unless terminated. The parties may amend this Amendment upon mutual agreement at any time.
IN WITNESS WHEREOF, each of the parties hereto has caused this Amendment to be executed in its name and behalf by its duly authorized officer.
Dated as of April 1, 2016. |
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ALLIANCEBERNSTEIN L.P. |
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By: |
/s/ Stephen Laffey |
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Name: Stephen Laffey |
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Title: Vice President |
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ALLIANCEBERNSTEIN INVESTMENTS, INC. |
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By: |
/s/ Stephen Laffey |
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Name: Stephen Laffey |
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Title: Vice President |
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NATIONAL LIFE INSURANCE COMPANY |
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By: |
/s/ Scott Edblom |
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Name: Scott Edblom |
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Title: Vice President, Product Strategy and Innovation |
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EQUITY SEVICES, INC. |
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By: |
/s/ Gregory D. Teese |
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Name: Gregory D. Teese |
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Title: CCO |
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Exhibit 99.(8)(c)2
April 1, 2016
National Life Insurance Company
One National Life Drive
Montpelier, Vermont, 05604
Ladies and Gentlemen:
We the undersigned AllianceBernstein Investments, Inc. (ABI), herewith confirm our agreement with you as follows:
1. Subject to our direction and control, we hereby employ you to provide certain administrative services respecting the operations of AllianceBernstein Variable Products Series Fund, Inc. (the Fund) as described on Schedule A attached hereto.
It is understood that you will from time to time employ, or associate with yourselves, such persons as you believe to be particularly fitted to assist you in the execution of your duties hereunder, the compensation of such persons, and all other expenses in connection with the performance of your duties hereunder, to be paid by you. No obligation may be incurred on our behalf or on behalf of the Fund in any such respect.
During the continuance of this agreement you will furnish us without charge such administrative assistance and such office facilities as you may believe appropriate or as we may reasonably request, subject to the requirements of any regulatory authority to which you may be subject. Subject to our prior consent, you may, at your expense, retain other persons or firms, which may include affiliates, to assist you in carrying out your administrative and clerical obligations hereunder.
2. You will bear all expenses in connection with the performance of your services under this agreement.
3. In consideration of the foregoing, we will pay you a fee on a quarterly basis, in arrears, as described in Schedule B attached hereto and made a part hereof. Upon any termination of this agreement before the end of any quarter during which you acted under this agreement, such fees will be prorated according to the proportion which the period bears to the full quarter and will be payable upon the date of termination of this agreement.
4. This agreement shall become effective as of the date written above and shall remain in effect unless specifically terminated as provided below.
5. This agreement may be terminated at any time, without the payment of any penalty, by mutual agreement of the parties in writing. This agreement will terminate automatically upon the termination of the Participation Agreement, dated as of September 2, 2008, among National Life Insurance Company, Equity Services, Inc., AllianceBernstein L.P., a Delaware limited partnership, and ABI.
6. This agreement may not be transferred, assigned, sold in any manner, hypothecated or pledged by you and this agreement shall terminate automatically in the event of any such transfer, assignment, sale, hypothecation or pledge by you.
7. You agree that all records which you maintain for us are our property and you will surrender them to us promptly upon our request.
If the foregoing is in accordance with your understanding, will you kindly so indicate by signing and returning to us the enclosed copy hereof.
Very truly yours,
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ALLIANCEBERNSTEIN INVESTMENTS, INC. | |
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By: |
/s/ Stephen J. Laffey |
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Name: Stephen J. Laffey |
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Title: Assistant Vice President |
Accepted:
NATIONAL LIFE INSURANCE COMPANY
By: |
/s/ Scott Edblom |
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Name: Scott Edblom |
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Title: Vice President, Product Strategy and Innovation |
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SCHEDULE A
ADMINISTRATIVE SERVICES FOR
ALLIANCEBERNSTEIN VARIABLE PRODUCTS SERIES FUND, INC.
National Life Insurance Company (the Insurer) shall provide certain administrative services respecting the operations of AllianceBernstein Variable Products Series Fund, Inc. (the Fund), as set forth below. This Schedule may be amended from time to time as mutually agreed upon by the Insurer and ABI.
Maintenance of books and records
· Maintain an inventory of shares purchased to assist the Funds transfer agent in recording issuance of shares.
· Perform miscellaneous accounting services to assist transfer agent in recording transfers of shares (via net purchase and redemption orders).
· Reconcile and balance the Insurers separate account at the Fund level in the general ledger and reconciliation of cash accounts at general account.
Purchase orders
· Determine net amount of cash flow into the Fund.
· Reconcile and notify Fund of net purchase orders (wire) and confirmation thereof.
Redemption orders
· Determine net amount required for redemptions by Fund.
· Reconcile and notify Fund of cash required for net redemption orders and confirmation thereof.
Reports
· Report information periodically to the Fund.
Fund-related contract owner services
· Provide telephonic support for contract owners with respect to inquiries about the Fund (not including information about performance or related to sales).
· Assist with Fund proxy solicitations, specifically with respect to soliciting voting instructions from contract owners. However, the Fund or ABI or one of their affiliates shall be responsible for any out-of-pocket expenses related to such assistance and solicitation.
Other administration support
· Sub-accounting services.
· Providing other administrative support to the Fund as mutually agreed between the Insurer and the Fund from time to time.
· Relieving the Fund of other usual or incidental administration services provided to individual shareholders as agreed by Insurer.
SCHEDULE B
AllianceBernstein Investments, Inc. will pay National Life Insurance Company (Insurer) a quarterly Servicing Fee as follows:
I. For Contracts funded by Class A shares:
at an annual rate of Redacted% of the average daily net assets of each Portfolio attributable to Contracts funded by Class A shares of the Funds International Growth Portfolio, International Value Portfolio and Small/Mid Cap Value Portfolio issued by National Life Insurance Company
and
at an annual rate of Redacted% of the average daily net assets of each Portfolio attributable to Contracts funded by Class A shares of Value Portfolio issued by National Life Insurance Company.
II. For Contracts funded by Class B shares:
at an annual rate of Redacted% of the average daily net assets of each Portfolio attributable to Contracts funded by Class B shares issued by Insurer. Insurer acknowledges that some part of the payment may be for distribution related services and may represent payments under the Class B distribution plans.
Exhibit 99.(8)(d)
FUND PARTICIPATION AND SERVICE AGREEMENT
National Life Insurance Company (Insurance Company), for itself and on behalf of one or more separate accounts of the Insurance Company (Separate Accounts), American Funds Distributors, Inc. (AFD), American Funds Service Company (Transfer Agent), Capital Research and Management Company (CRMC), and the American Funds Insurance Series (the Series), an open-end investment company for which AFD, CRMC and Transfer Agent provide services and which is divided into funds (hereinafter collectively called the Funds and, individually, a Fund), for good and valuable consideration, hereby agree on this 11th day of April 2016, that Class 4 shares of the Funds (Class 4 Shares together , the shares) shall be made available to serve as underlying investment media for certain variable annuity contracts (hereinafter called Contract(s); holders of such Contracts hereinafter called Contractholder(s)) to be offered by the Insurance Company subject to the following provisions:
1. Authorization; Services.
a. As distributor of the Series, AFD agrees to make Class 4 shares of the Funds that offer such share class (the initial Funds are listed on Exhibit A) available to the Insurance Company for itself and on behalf of the Separate Accounts on the attached Exhibit B pursuant to the terms of this Agreement. Insurance Company agrees to give the Series and CRMC at least (thirty) 30 days notice prior to adding any additional Funds as underlying investment options to the Contracts. AFD reserves the right to approve any proposed addition by the Insurance Company. The Insurance Company will offer shares of the Funds in connection with the sale of Contracts to Contractholders. Fund shares to be made available to Separate Accounts for the Contracts shall be sold by the Series and purchased by the Insurance Company for a given account in accordance with the provisions of this Agreement and at the net asset value of the respective class of the respective Fund (without the imposition of a sales load) computed in accordance with the provisions of the then current Prospectus of the Series. This Agreement is in all respects subject to statements regarding the sale and repurchase or redemption of shares made in the offering prospectuses of the Funds, and to the applicable Rules of FINRA, which shall control and override any provision to the contrary in this Agreement.
b. Transfer Agent hereby appoints Insurance Company as limited agent and designee with respect to shares of the Funds purchased, held, and redeemed by the Separate Accounts solely for purposes of the provisions of this Agreement, and Insurance Company accepts such appointment, on the terms set forth herein.
c. During the term of this Agreement, Insurance Company shall perform the administrative services (Services) set forth on Exhibit C hereto, as such exhibit may be amended from time to time by mutual consent of the parties, in respect of Separate Accounts holding Class 4 Shares of each Fund. In consideration of
Insurance Company performing the Services, the Series agrees to pay Insurance Company an administrative services fee of 0.25% of the average daily net asset value of all Class 4 Shares of the Funds held by each Separate Account, payable quarterly, in arrears pursuant to an Insurance Administrative Services Plan adopted by the Series. The Series shall pay all fees within forty-five (45) days following the end of each calendar quarter for fees accrued during that quarter. The fee will be calculated as the product of (a) the average daily net asset value of all Class 4 Shares, as applicable, of the Funds held by each Separate Account during the quarter; (b) the number of days in the quarter; and (c) the quotient of 0.0025 divided by 365. The Series shall not be responsible for payment of fees for Services more than six (6) months in arrears in respect of accounts that were not timely identified by Company as eligible for compensation pursuant to this Agreement. CRMC will evaluate periodically Insurance Companys service levels, including compliance with established NSCC guidelines, transaction errors, compliance with the prospectus and complaints from Contractholders, in determining whether to continue making payments under the Insurance Administrative Services Plan. Insurance Company represents to the Series and CRMC that it will not receive compensation for the Services from contractholder fees or any other source.
d. Insurance Company shall transmit to Transfer Agent or the Funds (or to any agent designated by either of them) such information in the possession of Insurance Company concerning the Contractholders as shall reasonably be necessary for Transfer Agent to provide services as transfer agent for the Funds and as any Fund shall reasonably conclude is necessary to enable that Fund to comply with applicable state Blue Sky laws or regulations.
2. The Insurance Company will be entitled to a Rule 12b-1 distribution fee paid by the Series, to be accrued daily and paid monthly at an annual rate of 0.25% of the average daily net assets of the Class 4 shares of each Fund attributable to the Contracts for as long as the Series Plans of Distribution pursuant to Rule 12b-1 under the 1940 Act for such share class remains in effect.
3. Compliance with Laws; Reliance on Instructions.
a. AFD and CRMC acknowledge and agree that Insurance Company is not responsible for: (i) any information contained in any prospectus, registration statement, annual report, proxy statement, or item of advertising or marketing material prepared by AFD and/or CRMC, which relates to any Fund; (ii) registration or qualification of any shares of any Fund under any federal or state laws; or (iii) compliance by AFD, CRMC and the Funds with all applicable federal and state laws, rules and regulations, the rules and regulations of any self-regulatory organization with jurisdiction (the foregoing laws, rules and regulations are collectively referred to herein as Applicable Law) over AFD, CRMC or Funds, and the provisions of the Funds prospectus and statement of additional information.
b. Insurance Company acknowledges and agrees that it is responsible for (i) any representations concerning the Funds made by Insurance Company or its agents that are not included in the prospectuses, statements of additional information or advertising or marketing material relating to the Funds and prepared or approved in writing by AFD; (ii) satisfying prospectus delivery requirements, to the extent required by law; and (iii) in connection with the services performed in connection with this Agreement, the compliance or failure to comply with any Applicable Law with jurisdiction over Insurance Company.
c. Insurance Company and its affiliates shall make no representations concerning the Funds shares except those contained in the then current definitive prospectus and statement of additional information of the Series and any further supplements thereto (the Prospectus), in such printed information subsequently issued on behalf of the Series or other funds managed by CRMC as supplemental to the Series Prospectus, in information published on the Series or CRMCs internet site, or in materials approved by AFD, as provided in the Business Agreement in effect among Insurance Company, Equity Services Inc., AFD and CRMC dated even date herewith (the Business Agreement).
d. Each party is entitled to rely on any written records or instructions provided to it by responsible persons of the other party(ies).
4. Insurance Company Representations and Warranties.
a. The Insurance Company represents and warrants that:
(i) it has the corporate power and the authority to enter into and perform all of its duties and obligations under this Agreement;
(ii) this Agreement constitutes its legal, valid and binding obligation, enforceable against each above-named party in accordance with its terms;
(iii) 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;
(iv) it will or has established the Separate Accounts as separate accounts under Vermont Insurance law;
(v) it has registered the Separate Accounts as unit investment trusts under the Investment Company Act of 1940, as amended (the 1940 Act), to serve as investment vehicles for certain Contracts or, alternatively, has not registered one or more of the Separate Accounts in proper reliance upon an exclusion from registration under the 1940 Act;
(vi) the Contracts are or will be and at the time of issuance will be treated as annuity contracts and life insurance policies, as applicable, under applicable provisions of the Internal Revenue Code of 1986, as amended, and the regulations thereunder (the Code), that Insurance Company will maintain such treatment and that it will notify the Series 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;
(vii) the offer of the Contracts has been registered with the U.S. Securities and Exchange Commission (the SEC) under the Securities Act of 1933, as amended (the 1933 Act), or it is properly exempt from registration under the 1933 Act, and each such registration statement and any further amendments or supplements thereto will, when they become effective, conform in all material respects to the requirements of the 1933 Act, and the rules and regulations of the SEC thereunder, and will not contain any untrue statement of a material fact or omit to state a material fact required to be stated therein or necessary to make the statements therein not misleading; provided, however, that this representation and warranty shall not apply to any statement or omission made in reliance upon and in conformity with the information furnished in writing to Insurance Company by AFD, Transfer Agent, CRMC or the Series expressly for use therein;
(viii) the Contracts provide for the allocation of net amounts received by the Insurance Company to the Separate Accounts, for investment in the shares of specified investment companies selected among those companies available through the Separate Accounts to act as underlying investment media;
(ix) (a) it, or its affiliate, is a properly registered or licensed broker or dealer under applicable federal laws and regulations and is complying with and will continue to comply with all applicable federal laws, rules and regulations, (b) it, or its affiliate, is a member of FINRA, and (c) its, or its affiliates membership with FINRA is not currently suspended or terminated. Insurance Company agrees to notify AFD immediately in writing if any of the foregoing representations ceases to be true to a material extent.
(x) any information furnished in writing by Insurance Company for use in the registration statement or annual report of the Series will not contain any untrue statement of a material fact or omit to state a material fact required to be stated therein or necessary to make the statements therein not misleading, nor result in the Series registration statements failing to materially conform in all respects to the requirements of the 1933 Act and 1940 Act and the rules and regulations thereunder;
(xi) investment by each Separate Account in a Fund is in reliance on and consistent with the terms of the Series Mixed and Shared Funding Order; and
(xiii) the Separate Accounts invest in the Funds in reliance on the status of each
Separate Account as a Permitted Investor within the meaning of Section 817(h)(4)(A) of the Internal Revenue Code of 1986, as amended.
5. Representations and Warranties of AFD, Transfer Agent, CRMC and the Series.
a. AFD and Transfer Agent each represents and warrants (as applicable) that:
(i) this Agreement constitutes its legal, valid and binding obligation, and is enforceable against it in accordance with its terms;
(ii) 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;
(iii) the execution, performance and delivery of this Agreement by it will not result in its violating any Applicable Law or breaching or otherwise impairing any of its contractual obligations;
(iv) AFD represents that the Funds are registered as investment companies under the 1940 Act and Fund shares sold by the Funds are, and will be, registered under the Securities Act of 1933, as amended;
(v) AFD represents that it is registered as a broker-dealer under the Securities Exchange Act of 1934, as amended, and may properly cause Fund shares to be made available for the purposes of this Agreement;
(vi) Shares of the Series may be offered to separate accounts of various insurance companies in addition to Insurance Company. AFD represents, warrants and covenants that no shares of the Series shall be sold to the general public in contravention of Section 817 of the Internal Revenue Code of 1986, as amended, and the regulations thereunder (the Code).
(vii) it has the corporate power and the authority to enter into and perform all of its duties and obligations under this Agreement;
(viii) AFD and its affiliates are solely responsible for information contained in any prospectus, registration statement, annual report, proxy statement, or item of advertising or marketing material prepared by AFD relating to any Fund; and
(ix) AFD represents that prospectuses, other materials concerning the Funds are complete and accurate in all material respects and do not contain any material omission or misstatement of a material fact necessary to make the information not misleading or untrue.
b. CRMC and the Series represent and warrant that:
(i) the Series is, and shall be at all times while this Agreement is in force, lawfully organized, validly existing, and properly qualified as an open-end management investment company in accordance with the laws of the Commonwealth of Massachusetts;
(ii) a registration statement under the 1933 Act and under the 1940 Act with respect to the Series has been filed with the SEC in the form previously delivered to Insurance Company and the Series registration statement and any further amendments thereto will, when they become effective, and the Prospectus shall, conform in all material respects to the requirements of the 1933 Act and the 1940 Act and the rules and regulations of the SEC thereunder, and will not contain any untrue statement of a material fact or omit to state a material fact required to be stated therein or necessary to make the statement therein not misleading; provided, however, that this representation and warranty shall not apply to any statements or omissions made in reliance upon and in conformity with information furnished in writing to CRMC or the Series by Insurance Company expressly for use therein.
(iii) the Series has obtained an order exempting it from certain provisions of the 1940 Act and rules thereunder so that each of the Funds is available for investment by certain other entities, including, without limitation, separate accounts funding variable annuity contracts and variable life insurance policies and separate accounts of unaffiliated insurance companies (Mixed and Shared Funding Order), and the operation of each of the Funds is and will be in compliance with the terms of thereof.
(iv) Each Fund will comply with the diversification requirements of Section 817 and shall maintain its qualification as a regulated investment company (RIC) under the Code.
(v) The Series makes no representation or warranty as to whether any aspect of its operations (including but not limited to fees, expenses and investment policies) complies or will comply with the insurance laws or regulations of the various states.
6. Omnibus Accounts. The Funds recognize that the Insurance Company, for itself or on behalf of the Separate Accounts, will be the sole shareholder of shares of the Funds issued pursuant to the Contracts, and that the Insurance Company intends to establish one or more omnibus accounts per Fund. Such arrangement will result in aggregated share orders. In the event that the aggregate Contractholder accounts maintained by the Insurance Company do not balance with the omnibus accounts maintained by the Transfer Agent, neither the Transfer Agent, any of its affiliates nor the Funds shall be liable to the Contractholders for any shortfall, provided that such shortfall is not a result of an error or omission on the part of the Transfer Agent, its affiliates or the Funds.
7. Pricing Information. The Series or the Transfer Agent will compute the closing net asset
value, and any distribution information (including the applicable ex-date, record date, payable date, distribution rate per share, income accrual and capital gains information) for each Fund as of the close of regular trading on the New York Stock Exchange (normally 4:00 p.m. Eastern Time) on each day the New York Stock Exchange is open for business (a Business Day) or at such other time as the net asset value of a Fund is calculated, as disclosed in the relevant Funds current prospectuses. The Series or the Transfer Agent will use their best efforts to communicate to the Insurance Company such information by 6:30 p.m. Eastern Time on each Business Day. Such information shall be accurate and true in all respects and updated continuously.
8. Pricing Adjustments.
a. In the event an adjustment is made to the computation of the net asset value of Fund shares as reported to Insurance Company under paragraph 7, (1) the correction will be handled in a manner consistent with SEC guidelines and the Investment Company Act of 1940, as amended and (2) the Funds or Transfer Agent shall notify Insurance Company as soon as practicable after discovering the need for any such adjustment. Notification may be made in the following manner:
Method of Communication
(i) Fund/SERV Transactions. The parties agree that they will ordinarily choose to use the National Securities Clearing Corporations Mutual Fund Settlement, Entry and Registration Verification (Fund/SERV) system, and if Fund/SERV is used, any corrections to the fund prices for the prior trade date will be submitted through the Mutual Fund Profile with the correct fund prices and applicable date.
(ii) Manual Transactions. If there are technical problems with Fund/SERV, or if the parties are not able to transmit or receive information through Fund/SERV, any corrections to the fund prices should be communicated by facsimile or by electronic transmission acceptable to Transfer Agent, and will include for each day on which an adjustment has occurred the incorrect Fund price, the correct price, and, to the extent communicated to the applicable Funds shareholders, the reason for the adjustment. Funds and Transfer Agent agree that the Insurance Company may send this notification or a derivation thereof (so long as such derivation is approved in advance by Funds or AFD, as applicable) to Contractholders whose accounts are affected by the adjustment.
b. To the extent a price adjustment results in a deficiency or excess to a Contractholders account, Insurance Company and Transfer Agent agree to evaluate the situation together on a case-by-case basis with the goal towards pursuing an appropriate course of action. To the extent the price adjustment was due to Transfer Agents error, Transfer Agent shall reimburse Contractholders account. Any administrative costs incurred for correcting Contractholder
accounts will be at Insurance Companys expense.
9. Purchases and Redemption Orders; Settlement of Transactions
a. Manual Transactions. Manual transactions via facsimile or other electronic transmission acceptable to Transfer Agent shall be used by Insurance Company only in the event that Insurance Company is in receipt of orders for purchase or redemption of shares and is unable to transmit the orders to the Transfer Agent due to unforeseen circumstances such as system wide computer failures experienced by Insurance Company or the National Securities Clearing Corporation (NSCC) or other events beyond the Insurance Companys reasonable control. In the event manual transactions are used, the following provisions shall apply:
(i) Next Day Transmission of Orders. The Insurance Company will notify the Transfer Agent by 9:00 a.m. Eastern Time, on the next Business Day the aggregate amounts of purchase orders and redemption orders, that were placed by Contractholders in each Separate Account by 4:00 p.m. Eastern time on the prior Business Day (the Trade Date). Insurance Company represents that orders it receives after 4:00 p.m. Eastern time on any given Business Day will be transmitted to the Transfer Agent using the following Business Days net asset value. Transfer Agent may process orders it receives after the 9:00 a.m. Eastern time deadline using the net asset value next determined.
(ii) Purchases. All orders received by Insurance Company by 4:00 p.m. on a Business Day and communicated to the Transfer Agent by the 9:00 a.m. deadline shall be treated by the Transfer Agent as if received as of the close of trading on the Trade Date and the Transfer Agent will therefore execute orders at the net asset values determined as of the close of trading on the Trade Date. Insurance Company will initiate payment by wire transfer to a custodial account designated by the Funds for the aggregate purchase amounts prior to 4:00 p.m. Eastern time on the next Business Day following Trade Date.
(iii) Redemptions. Aggregate orders for redemption of shares of the Funds will be paid in cash and wired from the Funds custodial account to an account designated by the Insurance Company. Transfer Agent will initiate payment by wire to Insurance Company or its designee proceeds of such redemptions two (2) Business Days following the Trade Date (T+2).
(iv) When transmitting instructions for the purchase and/or redemption of shares of the Funds, Insurance Company shall submit one order for all contractholder purchase and redemption transactions, unless otherwise agreed to by the Insurance Company and the Transfer Agent.
b. Fund/SERV Transactions. The parties will ordinarily use the Fund/SERV system, and if used, the following provisions shall apply:
(i) Without limiting the generality of the following provisions of this section, the Insurance Company and Transfer Agent each will perform any and all duties, functions, procedures and responsibilities assigned to it and as otherwise established by the NSCC applicable to Fund/SERV and the Networking Matrix Level utilized.
(ii) Any information transmitted through the NSCCs Networking system (Networking) by any party to the other and pursuant to this Agreement will be accurate, complete, and in the format prescribed by the NSCC. Each party will adopt, implement and maintain procedures reasonably designed to ensure the accuracy of all transmissions through Networking and to limit the access to, and the inputting of data into, Networking to persons specifically authorized by such party.
(iii) Same Day Trades. On each Business Day, the Insurance Company shall aggregate and calculate the purchase orders and redemption orders for each Separate Account received by the Insurance Company prior to 4:00 p.m. Eastern time. The Insurance Company shall communicate to Transfer Agent for that Trade Date, by Fund/SERV, the aggregate purchase orders and redemption orders (if any) for each Separate Account received by 4:00 p.m. Eastern time on such Trade Date by no later than the NSCCs Defined Contribution Clearance & Settlement (DCC&S) Cycle 8 (generally, 6:30 a.m. Eastern time) on the following Business Day. Transfer Agent shall treat all trades communicated to Transfer Agent in accordance with the foregoing as if received prior to 4:00 p.m. Eastern time on the Trade Date. All orders received by the Insurance Company after 4:00 p.m. Eastern time on a Business Day shall not be transmitted to NSCC prior to the conclusion of the DCC&S Cycle 8 on the following Business Day, and Insurance Company represents that orders it receives after 4:00 p.m. Eastern time on any given Business Day will be transmitted to the Transfer Agent using the following Business Days net asset value. Transfer Agent may process orders it receives after the DCC&S Cycle 8 deadline using the net asset value next determined.
(iv) When transmitting instructions for the purchase and/or redemption of shares of the Funds, Insurance Company shall submit one order for all contractholder purchase and redemption transactions, unless otherwise agreed to by the Insurance Company and the Transfer Agent.
c. Procedures. Insurance Company represents and warrants that it has policies and procedures in place to ensure that only those orders received by it by 4:00 p.m. Eastern time on any Business Day will be submitted with that business days net asset value.
d. Contingencies. All orders are subject to acceptance by Transfer Agent and become effective only upon confirmation by Transfer Agent. Upon confirmation, the Transfer Agent will verify total purchases and redemptions and the closing share position for each fund/account. In the case of delayed settlement, Transfer Agent and Insurance Company shall make arrangements for the settlement of redemptions by wire no later than the time permitted for settlement of redemption orders by the Investment Company Act of 1940. Such wires for Insurance Company should be sent to:
Such wires for Transfer Agent should be sent to:
Wells Fargo Bank
707 Wilshire Blvd. 13th Floor
Los Angeles, CA 90017
ABA#: 121000248
AFS Account#: 4100-060532
For Credit to AFS acct. no. (account number and fund) FBO National Life Insurance Company (Insurance Company)
e. Processing Errors. Processing errors which result from any delay or error caused by Insurance Company may be adjusted through the NSCC System by Insurance Company by the necessary transactions on a current basis.
f. Coding. If applicable, orders for the purchase of Fund shares shall include the appropriate coding to enable Transfer Agent to properly calculate commission payments to any broker-dealer firm assigned to the Separate Account.
g. Reconciliation. Insurance Company shall reconcile share positions with respect to each Fund for each Separate Account daily as reflected on its records to those reflected on statements from Transfer Agent and shall, on request, certify that each Separate Accounts share positions with respect to each Fund reported by Transfer Agent reconcile with Insurance Companys share positions for that Separate Account. Insurance Company shall promptly inform Transfer Agent of any record differences and shall identify and resolve all non-reconciling items
within five (5) business days.
h. Verification. Within a reasonable period of time after receipt of a confirmation relating to an instruction, Insurance Company shall verify its accuracy in terms of such instruction and shall notify Transfer Agent of any errors appearing on such confirmation.
i. Order Processing. Any order by Insurance Company for the purchase of shares of the respective Funds through AFD shall be accepted at the time when it is received by AFD/Transfer Agent (or any clearinghouse agency that AFD/Transfer Agent may designate from time to time), and at the offering and sale price determined in accordance with this Agreement, unless rejected by AFD, Transfer Agent or the respective Funds. In addition to the right to reject any order, the Funds have reserved the right to withhold shares from sale temporarily or permanently. AFD/Transfer Agent will not accept any order from Insurance Company that is placed on a conditional basis or subject to any delay or contingency prior to execution. The procedure relating to the handling of orders shall be subject to instructions that AFD shall forward from time to time. The shares purchased will be issued by the respective Funds only against receipt of the purchase price, in collected New York or Los Angeles Clearing House funds. If payment for the shares purchased is not received within three (3) days after the date of confirmation, the sale may be cancelled by AFD or by the respective Funds without any responsibility or liability on the part of AFD or the Funds, and AFD and/or the respective Funds may hold the Insurance Company responsible for any loss, expense, liability or damage, including loss of profit suffered by AFD and/or the respective Funds, resulting from Insurance Companys delay or failure to make payment as aforesaid.
j. Dividends and Distributions. The Transfer Agent shall furnish notice promptly to the Insurance Company of any dividend or distribution payable on any Funds held by the Separate Accounts. The Insurance Company hereby elects to receive all such dividends and distributions as are payable on shares of a Fund recorded in the title for the corresponding Separate Account in additional shares of that Fund. The Series shall notify the Insurance Company of the number of shares so issued. All such dividends and distributions shall be automatically reinvested at the ex-dividend date net asset value. The Insurance Company reserves the right to revoke this election and to receive all such income dividends and capital gain distributions in cash.
k. Right to Suspend. The Series reserves the right to temporarily suspend sales if the Board of Trustees of the Series, acting in good faith and in light of its fiduciary duties under federal and any applicable state laws, deems it appropriate and in the best interests of shareholders or in response to the order of an appropriate regulatory authority. Insurance Company shall abide by requirements of the Funds frequent trading policy as described in the Series prospectus and statement of additional information.
l. Book Entry. Transfer of the Series shares will be by book entry only. No stock certificates will be issued to the Separate Accounts. Shares ordered from a particular Fund will be recorded by the Series as instructed by Insurance Company in an appropriate title for the corresponding Separate Account.
m. Limitations on Redemptions. The Insurance Company shall not redeem Fund shares attributable to the Contracts (as opposed to Fund shares attributable to the Insurance Companys assets held in the Account) except (i) as necessary to implement Contractholder-initiated transactions, or (ii) as required by state and/or federal laws or regulations or judicial or other applicable legal precedent (a Legally Required Redemption). Upon request, the Insurance Company will promptly furnish to the Series and AFD an opinion of counsel for the Insurance Company (which counsel shall be reasonably satisfactory to the Series and AFD) to the effect that any redemption pursuant to clause (ii) above is a Legally Required Redemption.
10. Account Activity. Upon request, the Transfer Agent shall send to the Insurance Company, (i) confirmations of activity in each Separate Account within five (5) Business Days after each Trade Date on which a purchase or redemption of shares of a Fund is effected for a Separate Account; (ii) statements detailing activity in each Separate Account no less frequently than quarterly; and (iii) such other information as may reasonably be requested by Insurance Company and agreed upon by Transfer Agent.
11. Expenses. All expenses incident to each partys performance of this Agreement shall be paid by the respective party.
The Funds shall pay the cost of registration of their shares with the SEC, preparation of the Funds prospectuses, proxy materials and reports, or the preparation of other related statements and notices required by Applicable Law. The Funds shall pay the cost of qualifying Fund shares in states where required.
12. Proxy and Other Communication Materials. The Funds shall distribute to the Insurance Company their proxy material and periodic Fund reports to shareholders. AFD, Transfer Agent or the Funds shall provide the Insurance Company with a reasonable quantity of the Funds prospectuses and sales literature upon request to be used for the Separate Accounts in connection with the transactions contemplated by this Agreement. AFD, Transfer Agent or the Funds shall provide to Insurance Company, or its authorized representative, at no expense to Insurance Company, the following Contractholder communication materials prepared for circulation to Contractholders in quantities reasonably requested by Insurance Company which are sufficient to allow mailing thereof by Insurance Company, to the extent required by Applicable Law, to all Contractholders in the Separate Accounts: proxy or information statements, annual reports, semi-annual reports, and all updated prospectuses, supplements and amendments thereof. AFD, Transfer Agent or the Funds shall provide Insurance Company with other documents and materials as Insurance Company may reasonably request from time to
time.
AFD will provide Insurance Company on a timely basis with investment performance information for each Fund, including (a) the top ten portfolio holdings on a quarterly basis; and (b) on a monthly basis, average annual total return for the prior one-year, three year, five-year, ten-year and life of the Fund. AFD will endeavor to provide the information in clause (a) to Insurance Company within twenty (20) business days after the end of each quarter, and will endeavor to provide the information in clause (b) to Insurance Company within five (5) business days after the end of each month.
13. Proxy Materials/Voting. The Insurance Company will distribute all proxy material furnished by the Funds to the extent required by Applicable Law. For so long as the SEC interprets the 1940 Act to require pass-through voting by insurance companies whose separate accounts are registered as investment companies under the 1940 Act (Registered Separate Accounts), the Insurance Company shall vote shares of the Funds held in Registered Separate Accounts at shareholder meetings of the Funds in accordance with instructions timely received by the Insurance Company (or its designated agent) from owners of Contracts funded by such Registered Separate Accounts having a voting interest in the Funds. The Insurance Company shall vote shares of the Funds held in Registered Separate Accounts that are attributable to the Contracts as to which no timely instructions are received, as well as shares held in such Registered Separate Account that are not attributable to the Contracts and owned beneficially by the Insurance Company (resulting from charges against the Contracts or otherwise), in the same proportion as the votes cast by owners of the Contracts funded by the Registered Separate Account having a voting interest in the Funds from whom instructions have been timely received. The Insurance Company shall vote shares of the Funds held in its general account or in any Separate Account that is not registered under the 1940 Act, if any, in its discretion.
14. Future Registration of Separate Account(s). If Insurance Company registers a Separate Account as a unit investment trust under the 1940 Act, Insurance Company will provide to each Fund, as appropriate, 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 the Contracts or any Separate Account contemporaneously with the filing of such document with the SEC, FINRA or other regulatory authority.
15. Independent Contractor Status. The Insurance Company shall, for all purposes herein, be deemed to be an independent contractor and shall have, unless otherwise expressly provided or authorized, no authority to act for or represent AFD or the Funds in any way or otherwise be deemed an agent of AFD or the Funds.
16. Termination. At the terminating partys election and the other partys concurrence, termination of this Agreement may be limited solely as to new Contracts. This Agreement shall terminate:
a. at the option of the Insurance Company, AFD, Transfer Agent, CRMC or the Series upon ninety (90) days advance written notice to the other parties;
b. at any time by giving thirty (30) days advance written notice to the other party in the event of a material breach of this Agreement by the other party that is not cured during such 30-day period;
c. at the option of the Insurance Company, CRMC, AFD or the Series, upon institution of formal proceedings relating to (i) the marketing of the Contracts, (ii) the Separate Accounts, (iii) the Insurance Company, (iv) AFD or (v) the Funds by FINRA, the SEC or any other regulatory body;
d. at the option of Insurance Company immediately upon written notice, if the Series or CRMC fails to meet the requirements for either diversification under Section 817 or RIC status under the Code;
e. at the option of any party upon termination of CRMCs investment advisory agreement with the Series. Notice of such termination shall be promptly furnished. This paragraph (e) shall not be deemed to apply if, contemporaneously with such termination, a new contract of substantially similar terms is entered into between CRMC and the Series;
f. except for Insurance Companys delegation of its duties to a subcontractor or to an affiliate, upon assignment of this Agreement, at the option of any party not making the assignment, unless made with the written consent of the other parties;
g. in the event interests in the Separate Accounts, the Contracts, or Fund shares are not registered, issued or sold in conformity with Applicable Law or such Applicable Law precludes the use of Fund shares as an underlying investment medium of Contracts issued or to be issued by the Insurance Company. Prompt notice shall be given by the terminating party to the other parties in the event the conditions of this provision occur;
h. for Registered Separate Accounts, they may terminate upon a decision by the Insurance Company, in accordance with regulations of the SEC for Registered Separate Accounts, to substitute Fund shares with the shares of another investment company for Contracts for which the Fund shares have been selected to serve as the underlying investment medium for Registered Separate Accounts, in which case the Insurance Company will give sixty (60) days written notice to the applicable Fund and AFD upon the occurrence of the earlier of the following actions taken for the purpose of substituting shares of the Fund: (1) an application made to the SEC, (2) a proposed Contractholder vote, or (3) the Insurance Companys determination to substitute Fund shares with the shares of another investment company;
i. upon such shorter notice 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.
Upon termination and at the request of the requesting party, the other party shall deliver to the requesting party, any records which the requesting party may be required by law or regulations to have access to or to maintain.
17. Notices. All notices under this Agreement, unless otherwise specified in the Agreement shall be given in writing and delivered via overnight delivery (postage prepaid, return receipt requested), facsimile transmission or registered or certified mail, as follows:
If to the Insurance Company:
Scott Edblom
National Life Insurance Company
15455 North Dallas Parkway, Suite 1100
Addison, TX 75001
with a copy to:
Keith Jones
National Life Insurance Company
One National Life Drive
Montpelier, VT 05604
If to AFD, Transfer Agent, CRMC or to the Series:
Kenneth R. Gorvetzian
Capital Research and Management Company
333 South Hope Street
55th Floor
Los Angeles, CA 90071
with a copy to:
Stephen T. Joyce
American Funds Distributors, Inc.
333 South Hope Street
55th Floor
Los Angeles, CA 90071
And:
American Funds Service Company
Attn: Contract Administration
3500 Wiseman Blvd.
San Antonio, TX 78251-4321
phone: 800/421-5475, ext. 8
facsimile: 210/474-4088
or to such other address or person as may be specified in a written notice given to the other parties. The date of service of any notice shall be the date it is received by the recipient.
18. Books and Records. Each party hereto shall cooperate with the other parties and all appropriate governmental authorities and shall permit authorities reasonable access to its books and records upon proper notice in connection with any investigation or inquiry relating to this Agreement or the transactions contemplated hereby. Each party shall maintain and preserve all records in its possession as required by law to be maintained and preserved in connection with the provision of the services contemplated hereunder. Upon the request of a party, the other party shall provide copies of all records as may be necessary to (a) monitor and review the performance of either partys activities, (b) assist either party in resolving disputes, reconciling records or responding to auditors inquiries, (c) comply with any request of a governmental body or self-regulatory organization, (d) verify compliance by a party with the terms of this Agreement, (e) make required regulatory reports, or (f) perform general customer service. The parties agree to cooperate in good faith in providing records to one another under this provision.
19. Indemnification.
a. Insurance Company shall indemnify and hold harmless AFD, Transfer Agent, CRMC, the Series, each of the Funds, and each of their affiliates, directors, officers, employees and agents and each person who controls them within the meaning of the 1933 Act, from and against any and all losses, claims, damages, liabilities and expenses, including reasonable attorneys fees (Losses), they may incur, insofar as such Losses arise out of or are based upon (i) Insurance Companys negligence or willful misconduct in the performance of its duties and obligations under this Agreement, (ii) Insurance Companys violation of any Applicable Law in connection with the performance of its duties and obligations under this Agreement, and (iii) any breach by Insurance Company of any provision of this Agreement, including any representation, warranty or covenant made in the Agreement. Insurance Company shall also reimburse AFD, Transfer Agent, CRMC, the Series, the Funds and their respective affiliates for any legal or other expenses reasonably incurred by any of them in connection with investigating or defending against such Losses. This indemnity provision is in addition to any other liability which Insurance Company may otherwise have to AFD, the Transfer Agent, CRMC, the Series, the Funds or their respective affiliates.
b. AFD, Transfer Agent or CRMC, as applicable, shall indemnify and hold harmless, Insurance Company and its directors, officers, employees and agents and each person who controls them within the meaning of the 1933 Act, from and
against any and all Losses they may incur, insofar as such Losses arise out of or are based upon (i) AFDs, Transfer Agents or CRMCs negligence or willful misconduct in the performance of its duties and obligations under this Agreement, (ii) AFDs, Transfer Agents or CRMCs violation of any Applicable Law in connection with the performance of its duties and obligations under this Agreement, and (iii) any breach by AFD, Transfer Agent or CRMC of any provision of this Agreement, including any representation, warranty or covenant made in the Agreement by AFD, Transfer Agent or the Series. AFD, Transfer Agent or CRMC, as applicable, shall also reimburse Insurance Company for any legal or other expenses reasonably incurred in connection with investigating or defending against such Losses. This indemnity provision is in addition to any other liability which AFD, Transfer Agent or CRMC may otherwise have to Insurance Company.
c. Promptly after receipt by a party entitled to indemnification under this paragraph 19 (an Indemnified Party) of notice of the commencement of an investigation, action, claim or proceeding, such Indemnified Party will, if a claim in respect thereof is to be made against the indemnifying party under this paragraph 19, notify the indemnifying party of the commencement thereof. The indemnifying party will be entitled to assume the defense thereof, with counsel satisfactory to the Indemnified Party. After notice from the indemnifying party of its intention to assume the defense of an action and the appointment of satisfactory counsel, 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 paragraph for any legal expenses subsequently incurred by such Indemnified Party in connection with the defense thereof other than reasonable costs of investigation. The indemnifying party shall not, without the prior written consent of the Indemnified Party, settle or compromise the liability of the Indemnified Party; provided, however, that in the event that the Indemnified Party fails to provide its written consent, the indemnifying party shall thereafter be liable to provide indemnification only to the extent of the amount for which the action could otherwise have been settled or compromised.
20. Governing Law. This Agreement shall be governed by and interpreted in accordance with the laws of the State of New York exclusive of conflicts of laws.
21. Subchapter M. CRMC will endeavor to have each Fund comply with Subchapter M of the Internal Revenue Code of 1986, as amended, and the regulations thereunder and shall qualify as a regulated investment company thereunder.
22. Entire Agreement/Amendments. This Agreement (together with the Business Agreement) contains the entire understanding and agreement among the parties with respect to the subject matter of this Agreement and supersedes any and all prior agreements, understandings, documents, projections, financial data, statements, representations and warranties, oral or written, express or implied, between the parties hereto and their respective affiliates, representatives and agents in respect of the subject
matter hereof. This Agreement may not be amended except by written agreement of the parties. If there should be any conflict between the terms of this Agreement and those of the Business Agreement, the terms of this Agreement shall govern.
23. Assignability. This Agreement shall extend to and be binding upon the Insurance Company, the Series, AFD, CRMC and the Transfer Agent and their respective successors and assigns. Nothing expressed or mentioned in this Agreement is intended or shall be construed to give any person or corporation, other than the parties hereto and their respective successors and permitted assigns, any legal or equitable right, remedy or claim in respect of this Agreement or any provision herein contained. Neither this Agreement nor any rights, privileges, duties or obligations of the parties hereto may be assigned by any party without the prior written consent of the other parties or as expressly contemplated by this Agreement; provided, however, that a merger of, reinsurance arrangement by, or change of control of a party shall not be deemed to be an assignment for purposes of this Agreement.
24. Proprietary Information. AFD and the Funds agree that the names, addresses, and other information relating to the Contractholders or prospects for the sale of the Contracts developed by Insurance Company are the exclusive property of the Insurance Company and may not be used by AFD, Transfer Agent, CRMC or the Funds without the written consent of the Insurance Company except for carrying out the terms of this Agreement or as otherwise provided for in this Agreement and any amendments thereto. Each party to this Agreement agrees to maintain the confidentiality of all information (including personal financial information of the customers of either party) received from the other party pursuant to this Agreement. Each party agrees not to use any such information for any purpose, or disclose any such information to any person, except as permitted or required by applicable laws, rules and regulations, including applicable state privacy laws and the Gramm-Leach-Bliley Act and any regulations promulgated thereunder. This provision, to the extent permissible by applicable law, shall not be construed to limit the parties obligation to comply with paragraph 19, above.
AFD, the Transfer Agent, CRMC and the Series hereby consent to the Insurance Companys use of the names of the Series, the Funds, AFD, the Transfer Agent and CRMC in connection with marketing the Funds and Contracts, subject to the terms of this Agreement and the Business Agreement. Insurance Company acknowledges and agrees that AFD, CRMC and/or their affiliates own all right, title and interest in and to the names American Funds, American Funds Distributors, American Funds Insurance Series, American Funds Service Company and Capital Research and Management Company and covenants not, at any time, to challenge the rights of AFD, CRMC and/or its affiliates to such name or design, or the validity or distinctiveness thereof. AFD, the Transfer Agent, CRMC and the Series hereby consent to the use of any trademark, trade name, service mark or logo used by AFD, the Transfer Agent, CRMC and the Series, subject to AFD, the Transfer Agent, CRMC or the Series approval of such use and in accordance with reasonable requirements of that party. Such consent will terminate with the termination of this Agreement. The Insurance Company agrees and acknowledges that all use of any designation comprised in whole or in part of the name, trademark, trade name, service
mark and logo under this Agreement shall inure to the benefit of AFD, the Transfer Agent, CRMC and/or the Series.
25. Severability. 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.
26. No Waiver. No waiver of any provision of this Agreement will be binding unless in writing and executed by the party granting such waiver. 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.
27. No Joint Venture, Etc. Neither the execution nor performance of this Agreement shall be deemed to create a partnership or joint venture by and among Insurance Company, Transfer Agent, AFD, CRMC and the Funds.
28. Counterparts; Facsimile and Electronic Signatures. This Agreement may be executed in one or more counterparts, each of which shall be deemed an original, but all of which together shall constitute one and the same Agreement. Neither this Agreement nor any amendment shall become effective until all counterparts have been fully executed and delivered. Each party (a) agrees to permit the use, from time to time and where appropriate, of telecopied signatures and signatures sent via electronic mail in PDF format (or other format acceptable to the parties), for the execution of this Agreement, or any amendments hereto, and in order to expedite the transactions contemplated by this Agreement, (b) intends to be bound by its telecopied signature and its signature sent via electronic mail, (c) is aware that the other party will rely on its telecopied signature and on its signature sent via electronic mail, and (d) acknowledges such reliance and waives any defenses to the enforcement of this Agreement, including any amendments, and any documents effecting the transactions contemplated by this Agreement based on the fact that a signature was sent by telecopy or via electronic mail.
29. Survival. The provisions of paragraphs 4, 5, 19 and 24 survive termination of this Agreement. If this Agreement terminates, the Series, at Insurance Companys option, will continue to make additional shares of the Funds available for all existing Contracts as of the effective date of termination (under the same terms and conditions as were in effect prior to termination of this Agreement with respect to existing Contractholders), unless the applicable Fund liquidates or applicable laws prohibit further sales.
30. 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.
31. Insurance. At all times Insurance Company shall maintain insurance coverage that is reasonable and customary in light of all its responsibilities hereunder. Such coverage shall insure for losses resulting from the criminal acts or errors and omissions of
Insurance Companys employees and agents.
32. Oversight of Insurance Company. Insurance Company will permit Transfer Agent or its representative to have reasonable access to Insurance Companys personnel and records pertaining to this Agreement in order to facilitate the monitoring of the quality of the services performed by Insurance Company under this Agreement.
33. Independent Audit. In the event Transfer Agent determines, based on a review of complaints received in accordance with paragraph 18, above, that Insurance Company is not processing Contractholder transactions accurately, Transfer Agent reserves the right to require that Insurance Companys data processing activities as they relate to this Agreement be subject to an audit by an independent accounting firm to ensure the existence of, and adherence to, proper operational controls. Insurance Company shall make available upon Transfer Agents request a copy of any report by such accounting firm as it relates to said audit. Insurance Company shall immediately notify Transfer Agent in the event of a material breach of operational controls.
34. Arbitration. In the event of a dispute between the parties with respect to this Agreement, and in the event the parties are unable to resolve the dispute between them, such dispute shall be settled by arbitration; one arbitrator to be named by each party to the disagreement and a third arbitrator to be selected by the two arbitrators named by the parties. The decision of a majority of the arbitrators shall be final and binding on all parties to the arbitration. The expenses of such arbitration shall be paid by the non-prevailing party.
35. No Recourse. The obligations of the Series under this Agreement are not binding upon any of the Trustees, officers, employees or shareholders (except CRMC if it is a shareholder) of the Series individually, but bind only the Series assets. When seeking satisfaction for any liability of the Series in respect of this Agreement, Insurance Company and the Account agree not to seek recourse against said Trustees, officers, employees or shareholders, or any of them, or any of their personal assets for such satisfaction.
36. Conflicts. The parties to this Agreement recognize that due to differences in tax treatment or other considerations, the interests of various Contractholders participating in one or more Funds might, at some time, be in conflict. Each party shall report to the other party any potential or existing conflict of which it becomes aware. The Board of Trustees of the Series shall promptly notify Insurance Company of the existence of irreconcilable material conflict and its implications. If such a conflict exists, Insurance Company will, at its own expense, take whatever action it deems necessary to remedy such conflict; in any case, Contractholders will not be required to bear such expenses.
37. Mixed and Shared Funding. The Series hereby notifies Insurance Company that it may be appropriate to include in the Prospectus pursuant to which a Contract is offered disclosure regarding the risks of mixed and shared funding.
38. Shareholder Information Agreement. The Insurance Company has executed or will execute an agreement with Transfer Agent pursuant to Rule 22c-2 under the Investment Company Act of 1940, under which the Insurance Company is required, upon request, to provide the Funds with certain account information and to prohibit transactions that violate the policies established by the Funds for the purpose of eliminating or reducing any dilution of the value of the outstanding shares issued by the Funds.
39. Confidentiality of Holdings Information. The Insurance Company may receive certain holdings information (the Holdings Information) related to the Funds on a daily, weekly, monthly or other periodic basis from the Series, CRMC or one of their designees in order to help evaluate the Funds for inclusion in the Contracts and to evaluate and coordinate with Insurance Companys internal hedging program (the Purpose). Insurance Company agrees that the Holdings Information is confidential and may only be used by Insurance Company for the Purpose. Insurance Company agrees that it (a) will hold any and all Holdings Information it obtains in strictest confidence; (b) may disclose or provide access to its employees who have a need to know and may make copies of Holdings Information only to the extent reasonably necessary to carry out the Purpose; (c) currently has, and in the future will maintain in effect and enforce, rules and policies to protect against access to or use or disclosure of Holdings Information other than in accordance with this Agreement, including without limitation written instruction to and agreements with employees and agents who are bound by an obligation of confidentiality no less stringent than set forth in this Agreement to ensure that such employees and agents protect the confidentiality of Holdings Information; (d) will instruct its employees and agents not to disclose Holdings Information to third parties, including without limitation customers, sub-contractors or consultants; and (e) will notify the Series and CRMC immediately of any unauthorized disclosure or use, and will cooperate with them in taking action to ensure that the Holdings Information is not used by such receiving party. Without limiting the foregoing, Insurance Company shall use at least the same degree of care, but no less than reasonable care, to avoid disclosure or use of this Holdings Information as it employs with respect to its own confidential information of a like importance
IN WITNESS WHEREOF, the parties hereto have caused this Agreement to be duly executed as
of the date first above written.
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NATIONAL LIFE INSURANCE COMPANY, | |
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for itself and on behalf of the Separate Accounts | |
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By: |
/s/ Scott Edblom |
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Name: |
Scott Edblom |
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Title: |
Vice President |
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AMERICAN FUNDS DISTRIBUTORS, INC. | |
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By: |
/s/ Timothy W. Mittale |
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Name: |
Timothy W. Mittale |
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Title: |
Secretary |
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AMERICAN FUNDS INSURANCE SERIES | |
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By: |
/s/ Steven Kuszalka |
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Name: |
Steven Kuszalka |
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Secretary |
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AMERICAN FUNDS SERVICE COMPANY | |
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By: |
/s/ Angela M. Mitchell |
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Name: |
Angela M. Mitchell |
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Title: |
Secretary |
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CAPITAL RESEARCH AND MANAGEMENT COMPANY | |
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By: |
/s/ Michael J. Dawner |
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Name: |
Michael J. Dawner |
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Title: |
Sr. Vice President & Secretary |
EXHIBIT A
American Funds Insurance Series Funds
Class 4
Asset Allocation Fund
Global Bond Fund
Growth-Income Fund
Global Growth & Income Fund
Global Small Capitalization Fund
High-Income Bond Fund
New World Fund
EXHIBIT B
Insurance Company Accounts
National Life Variable Life Insurance Account
National Variable Annuity Account II
EXHIBIT C
Administrative Services
1. Periodic Reconciliation. The Insurance Company shall provide the Funds with sufficient information to allow for the periodic reconciliation of outstanding units of Insurance Company separate accounts and shares of the Funds.
2. Record Maintenance. To facilitate the reconciliation activities described in paragraph 1, the Insurance Company shall maintain with respect to each Separate Account holding the Funds Class 4 Shares and each Contractholder for whom such shares are beneficially owned the following records:
a. Number of shares;
b. Date, price and amount of purchases and redemptions (including dividend reinvestments) and dates and amounts of dividends paid for at least the current year to date;
c. Name and address and taxpayer identification numbers;
d. Records of distributions and dividend payments; and
e. Any transfers of shares.
3. Fund Information. The Insurance Company shall respond to inquiries from Contractholders regarding the Funds, including questions about the Funds objectives and investment strategies.
4. Shareholder Communications. The Insurance Company shall provide for the delivery of certain Fund-related materials as required by applicable law or as requested by Contractholders. The Fund related materials shall consist of updated prospectuses and any supplements and amendments thereto, statements of additional information, annual and other periodic reports, proxy or information statements and other appropriate shareholder communications. The Insurance Company shall respond to inquiries from Contractholders relating to the services provided by it and inquiries relating to the Funds.
5. Transactional Services. The Insurance Company shall (a) communicate to the Funds transfer agent, purchase, redemption and exchange orders; and (b) communicate to the Separate Accounts and Contractholders, mergers, splits and other reorganization activities of the Funds.
6. Other Information. The Insurance Company shall provide to the Separate Accounts and Contractholders such other information as shall be required under applicable law and regulations.
Exhibit 99.(8)(d)1
AMERICAN FUNDS RULE 22c-2 AGREEMENT
WHEREAS, American Funds Service Company (AFS) serves as transfer agent for the American Funds group of mutual funds (the Funds);
WHEREAS, the financial intermediary that has executed this American Funds Rule 22c-2 Agreement (Intermediary) submits trades on behalf of indirect intermediaries that maintain on the books of AFS one or more omnibus accounts that hold shares of the Funds on behalf of its customers that are invested in the Funds and for which the indirect intermediary maintains individual accounts;
WHEREAS, pursuant to Rule 22c-2 under the Investment Company Act of 1940, the Funds are required to enter into an agreement with Intermediary under which Intermediary is required to provide the Funds, upon request, with certain shareholder and account information and to prohibit transactions that violate each Funds prospectus;
NOW, THEREFORE, in consideration of the premises and mutual covenants hereinafter contained, the parties hereby agree as follows:
(1) Shareholder Information
(a) Agreement to Provide Information. Intermediary agrees to provide AFS, upon written request, (1) the taxpayer identification number (TIN), if known, of any or all Shareholder(s) of the account, (2) the amount and date of any transaction in the account, (3) the name or other identifier of any investment professional(s) associated with the Shareholder(s) or account (if known), and (4) the transaction type (purchase, redemption, transfer, or exchange) of every purchase, redemption, transfer, or exchange of Fund Shares held through an account maintained by the Intermediary during the period covered by the request.
(i) Period Covered by Request. Requests must set forth a specific period, not to exceed 90 days from the date of the request, for which transaction information is sought. AFS may request transaction information older than 90 days from the date of the request as it deems necessary to investigate compliance with policies established by the Funds for the purpose of eliminating or reducing any dilution of the value of the outstanding Shares issued by the Funds, but shall not make a request for any information older than 12 months from the date of the request, unless the Fund deems necessary to investigate potentially harmful market timing, frequent trading, or other practices related to the dilution of the value of the Shares.
(ii) Form and Timing of Response. Intermediary agrees to transmit the requested information that is on its books and records to AFS or its designee promptly, but in any event not later than 10 business days
after receipt of a request. If the requested information is not on the Intermediarys books and records, Intermediary agrees to: (A) provide or arrange to provide to AFS the requested information from shareholders who hold an account with an indirect intermediary; and (B) if directed by AFS, block further purchases of Fund Shares from such indirect intermediary. Responses required by this paragraph must be communicated in writing and in a format mutually agreed upon by the parties. To the extent practicable, the format for any transaction information provided to AFS should be consistent with the NSCC Standardized Data Reporting Format.
(iii) Limitations on Use of Information. AFS agrees not to use the information received for marketing or any other similar purpose without the prior written consent of the Intermediary.
(b) Agreement to Restrict Trading. Intermediary agrees to execute written instructions from AFS to restrict or prohibit further purchases or exchanges of Shares by a Shareholder that has been identified by AFS as having engaged in transactions of the Funds Shares (directly or indirectly through the Intermediarys account) that violate policies established by the Funds for the purpose of eliminating or reducing any dilution of the value of the outstanding Shares issued by the Funds.
(i) Form of Instructions. Instructions must include TIN, if known, and the specific restriction(s) to be executed. If the TIN is not known, the instructions must include an equivalent identifying number of the Shareholder(s) or account(s) or other agreed upon information to which the instruction relates.
(ii) Timing of Response. Intermediary agrees to execute instructions as soon as reasonably practicable, but not later than five business days after receipt of the instructions by the Intermediary.
(iii) Confirmation by Intermediary. Intermediary must provide written confirmation to AFS that instructions have been executed. Intermediary agrees to provide confirmation as soon as reasonably practicable, but not later than 10 business days after the instructions have been executed.
(c) Definitions. For purposes of this paragraph:
(i) The term provide or arrange to provide means if the record keeping is not done on the books of Intermediary, you will provide AFS with the name of the individual or entity performing the record keeping or assist AFS in working with the client to obtain the information through another means.
(ii) The term Fund includes the funds principal underwriter and transfer agent. The term does not include any excepted funds as defined in SEC Rule 22c-2(b) under the Investment Company Act of 1940.(1)
(iii) The term Shares means the interests of Shareholders corresponding to the redeemable securities of record issued by the Funds under the Investment Company Act of 1940 that are held by the Intermediary. Shares also refers to unit ownership within a variable annuity or variable life insurance contract issued by Intermediary and for which one or more of the Funds serve as underlying investments.
(iv) The term Shareholder means (A) the beneficial owner of Shares, whether the Shares are held directly or by the Intermediary in nominee name, or (B) the holder of interests in a variable annuity or variable life insurance contract issued by Intermediary and for which one or more of the Funds serve as underlying investments.
(v) The term written includes electronic writings and facsimile transmissions.
(vi) The term indirect intermediary has the same meaning as in SEC Rule 22c-2 under the Investment Company Act.
Termination. This Agreement will automatically terminate upon the termination of all Fund Participation Agreements between AFS and Intermediary.
IN WITNESS WHEREOF, the parties hereto have executed and delivered this Agreement as of the date below.
AMERICAN FUNDS SERVICE COMPANY |
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NATIONAL LIFE INSURANCE COMPANY | ||||
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By: |
/s/ Angela M. Mitchell |
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By: |
/s/ Scott Edblom | ||
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Print Name: |
Scott Edblom | ||
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Vice President, Product | |||
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Strategy & Innovation | |||
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Date: |
April 11, 2016 | |||
(1) As defined in SEC Rule 22c-2(b), the term excepted fund means any: (1) money market fund; (2) fund that issues securities that are listed on a national exchange; and (3) fund that affirmatively permits short-term trading of its securities, if its prospectus clearly and prominently discloses that the fund permits short-term trading of its securities and that such trading may result in additional costs for the fund.
Exhibit 99.(8)(d)2
BUSINESS AGREEMENT
This Agreement is entered into as of the 11th day of April, 2016 (the Effective Date) by and among National Life Insurance Company (Insurance Company), a life insurance company organized under the laws of the State of Vermont (on behalf of itself and certain of its separate accounts); Equity Services, Inc. (the Distributor), a corporation organized under the laws of the State of Vermont; American Funds Distributors, Inc. (AFD), a corporation organized under the laws of the State of California; and Capital Research and Management Company (CRMC), a corporation organized under the laws of the State of Delaware.
WITNESSETH:
WHEREAS, Insurance Company proposes to issue, now and in the future, certain multi-manager variable annuity and variable life insurance contracts that provide certain funds (Funds) of the American Funds Insurance Series (the Series) as investment options (the Contracts);
WHEREAS, Insurance Company has established pursuant to the insurance law of the State of Vermont one or more separate accounts (each, an Account) with respect to the Contracts and has or will register each Account with the U. S. Securities and Exchange Commission (the SEC) as a unit investment trust under the Securities Act of 1933, as amended (the 1933 Act), and the Investment Company Act of 1940, as amended (the 1940 Act) (unless the Account is exempt from such registration);
WHEREAS, the Contracts, which are or will be registered (unless exempt from such registration) by Insurance Company with the SEC for offer and sale, will be in compliance with all applicable laws prior to being offered for sale;
WHEREAS, the Distributor, a broker-dealer registered under the Securities Exchange Act of 1934, as amended (the 1934 Act), and a member of the Financial Industry Regulatory Authority (FINRA), will serve as principal underwriter of the Contracts and will arrange for the distribution of the Contracts;
WHEREAS, AFD, a broker-dealer registered under the 1934 Act, a member of FINRA, and the principal underwriter of the shares of the Series, will provide certain marketing assistance in connection with the Contracts;
WHEREAS, the Series is divided into various Funds, each Fund being subject to certain fundamental investment policies which may not be changed without a majority vote of the shareholders of such Fund;
WHEREAS, the Series has received a Mixed and Shared Funding Order from the SEC granting relief from certain provisions of the 1940 Act and the rules thereunder to the extent necessary to permit shares of the Series to be sold to variable annuity and life insurance separate accounts of unaffiliated insurance companies;
WHEREAS, certain share classes of certain Funds in the Series will be available as an underlying investment to the Contracts pursuant to the terms of a Fund Participation and Service Agreement among the Insurance Company, AFD, American Funds Service Company, CRMC and the Series to be executed in the form attached hereto as Exhibit A (the Fund Participation Agreement);
WHEREAS, the distribution of Contracts pursuant to this Agreement will take place primarily through selling agreements between Distributor and certain non-affiliated broker-dealers (Members) for distribution of the Contracts through the Members registered representatives; and
WHEREAS, CRMC, by virtue of an Investment Advisory and Service Agreement between CRMC and the Series, will serve as investment adviser to the Series, as the term investment adviser is defined in the 1940 Act.
NOW, THEREFORE, in consideration of the foregoing, and of the mutual covenants and conditions set forth herein, and for other good and valuable consideration, Insurance Company, (on behalf of itself and each Account), the Distributor, AFD and CRMC hereby agree as follows:
1. Duties of Insurance Company
a. Insurance Company will administer the Contracts and the Accounts, including all Contract owner service and communication activities, such as: filing any reports or other filings required by any law or regulation; establishing each Account; creating the Contracts, confirmation and other administrative forms or documents; and obtaining all required regulatory approvals to permit the sale and maintenance of the Contracts.
b. The Insurance Company will make reasonable efforts to market its Contracts. In marketing its Contracts, the Insurance Company will comply in all material respects with applicable state insurance and federal and state securities laws. The Insurance Company may market the Contracts it issues through insurance agencies or brokers including those which may be controlled by insurance companies.
c. Insurance Company will not distribute any prospectus, sales literature, advertising material or any other printed matter or material relating to the Contracts, the Series or the Funds, if, to its knowledge, any of the foregoing contains any material misstatements or omits to state a material fact required to be stated therein or necessary to make the statements therein not misleading.
d. Insurance Company will provide to AFD and/or CRMC, upon AFDs and/or CRMCs request, 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 or requests for no-action letters, and all amendments to any of the above, that materially impact the Series, any Fund or their relationship to the Contracts. Insurance Company will advise AFD and CRMC immediately of:
(i) the issuance by the SEC of any stop order suspending the effectiveness of the registration statement of the Contracts or the initiation of any proceedings for that purpose;
(ii) the institution of any regulatory proceeding, investigation or hearing involving the offer or sale of the Contracts of which it becomes aware; or
(iii) the occurrence of any material event that, if known, makes untrue any statement made in the registration statement of the Contracts or the Series (made in reliance on disclosure received from Insurance Company) or which requires the making of a change therein in order to make any statement made therein not misleading.
e. Insurance Company or its agents will receive and process applications and purchase payments in accordance with the terms of the Contracts and the current prospectus. All applications for Contracts are subject to acceptance or rejection by Insurance Company in its sole discretion.
f. Insurance Company shall amend its registration statement for its Contracts under the 1933 Act and the 1940 Act from time to time as required by law, and, should it ever be required, under the state securities laws, in order to effect the continuous offering of its Contracts; and Insurance Company shall file for approval of the Contracts under state insurance laws, when necessary, and to maintain registration of the Accounts (unless the Accounts are exempt from such registration) under the 1940 Act.
g. Insurance Company may invoke its then existing limits on transfers as stated in the Contracts or in a Contracts prospectus. Insurance Company reserves the right to refuse, to impose limitations on, or to limit any transaction request if the request would tend to disrupt Contract administration or is not in the best interest of the Contract holders or an Account or Subaccount.
h. Insurance Company agrees to provide information (in writing) to AFD and CRMC on a quarterly basis, or more frequently as reasonably requested by AFD and/or CRMC, regarding the gross sales of each Fund offered as an underlying investment under the Contracts.
2. Duties of Distributor
a. Any selling agreement between Distributor and a Member described in this Section will provide that:
(i) each Member will distribute the Contracts only in those jurisdictions in which the Contracts are registered or qualified for sale and only through duly licensed registered representatives of the Members who are properly appointed by Insurance Company to sell the Contracts in the applicable
jurisdiction(s);
(ii) all applications and initial and subsequent payments under the Contracts collected by the Member will be remitted promptly by the Member to Insurance Company at such address as it may from time to time designate; and
(iii) each Member will comply with all applicable federal and state laws,
rules and regulations.
b. The Distributor will promptly provide Members with current prospectuses, and any supplements thereto, for the Contracts and for the Series. The Distributor will use reasonable efforts to ensure that its registered representatives deliver only the currently effective prospectuses of the Contracts and the Series to existing clients.
c. The Distributor will use reasonable efforts to provide information and marketing assistance to its registered representatives and to Members, including preparing and providing such registered representatives with advertising materials and sales literature, and other promotional or marketing materials. The Distributor will provide wholesaling and marketing services with respect to the Contracts.
d. The Distributor will use reasonable efforts to ensure that any sales literature and advertising materials it disseminates with respect to the Contracts conforms with the requirements of all pertinent federal and state laws and rules and regulations thereunder.
e. The Distributor will be responsible for filing sales literature and advertising materials, where necessary, used in connection with its marketing efforts for the Contracts with appropriate regulatory authorities, including FINRA.
f. The Distributor will not distribute any prospectus, sales literature, advertising material or any other printed matter or material relating to the Contracts or the Series, if, to its knowledge, any of the foregoing contains any material misstatements or omits to state a material fact required to be stated therein or necessary to make the statements therein not misleading.
3. Duties of AFD
a. AFD will conduct training of Insurance Companys wholesalers regarding CRMCs approach to investment management and specific Fund positioning and sales. Training will include initial hire training, periodic training in conjunction with sales meetings, and refresher training. From time to time, AFD will provide, at its expense, speakers and panelists at due diligence meetings regarding the Contracts.
b. AFD will furnish to Insurance Company and/or the Distributor such information with respect to the Series in such form as Insurance Company and/or the Distributor may reasonably request, including but not limited to, at least one complete copy of all registration
statements, prospectuses, statements of additional information, reports, solicitations for voting instructions, applications for exemptions or requests for no-action letters, and all amendments to any of the above, that relate to the Series or any Fund as it relates to their relationship to the Contracts. AFD will advise Insurance Company and/or the Distributor upon becoming aware of:
(i) the issuance by the SEC of any stop order suspending the effectiveness of the registration statement of the Series or the initiation of any proceedings for that purpose;
(ii) the institution of any proceeding, investigation or hearing involving the offer or sale of the Series of which it becomes aware; or
(iii) the occurrence of any material event, if known, which makes untrue any statement made in the registration statement of the Series or which requires the making of a change therein in order to make any statement made therein not misleading.
4. Duties of CRMC
a. CRMC agrees to allow Insurance Company to include in the Contracts certain Funds described in the Fund Participation Agreement. CRMC will cause the Series: (a) to make available for use in the Contracts the Funds in the Series, as described in the Fund Participation Agreement and (b) to adequately diversify the Funds of the Series, pursuant to the requirements of Section 817(h) of the Internal Revenue Code of 1986, as amended, and the regulations thereunder relating to the diversification requirements for variable annuity, endowment and life insurance contracts.
b. CRMC will furnish to Insurance Company and/or the Distributor such information with respect to the Series in such form as Insurance Company and/or the Distributor may reasonably request. CRMC will advise Insurance Company and the Distributor upon becoming aware of:
(i) the issuance by the SEC of any stop order suspending the effectiveness of the registration statement of the Series or the initiation of any proceedings for that purpose;
(ii) the institution of any proceeding, investigation or hearing involving the offer or sale of the Series of which it becomes aware; or
(iii) the occurrence of any material event, if known, which makes untrue any statement made in the registration statement of the Series or which requires the making of a change therein in order to make any statement made therein not misleading.
5. Joint Duties
a. All the parties to this Agreement will cooperate in the development of advertising, sales literature and all other sales materials to be used with respect to the Funds.
b. The parties shall coordinate with each other in the filing with the SEC of amendments to the registration statements for the Contracts (if required by law) and for the Series, respectively.
c. Each of the parties hereto agrees: (a) to comply with all laws applicable to it in the sale of Contracts and (b) to refrain from participating, cooperating, or assisting in any way with its or any third partys (i) development of marketing programs or other activities (written or oral) which directly encourage exchanges from the Contracts or (ii) creation of broker and/or client marketing tools which provide direct comparisons between the Contracts and any other investment products directly targeting the holders of the Contracts to exchange or transfer assets from the Contracts, unless such marketing programs or other activities or broker or client tools relate to variable insurance products issued by Insurance Company or an affiliate; or if agreed to by the parties. Insurance Company will permit CRMC or its representative to have reasonable access to Insurance Companys personnel and records pertaining to this Agreement in order to facilitate the monitoring of the quality of the services performed by Insurance Company under this Agreement.
6. Expenses
a. Insurance Company and Distributor will bear their respective expenses under this Agreement, including:
(i) the cost of providing service to Contract owners;
(ii) the expenses and fees of registering or qualifying the Contracts and the Account under federal or state laws;
(iii) any expenses incurred by Insurance Company employees in assisting AFD and/or CRMC in performing AFDs and/or CRMCs duties hereunder;
(iv) the costs attributable to wholesaling efforts, advertising, and producing and distributing sales literature and prospectuses used by its registered representatives and the Members with prospective Contract owners; and
b. CRMC and AFD shall bear their respective expenses under this Agreement, including costs associated with AFD training of Insurance Companys wholesalers regarding CRMCs approach to investment management and costs associated with speakers and panelists at due diligence meetings regarding the Contracts that AFD may from time to time organize.
7. Approval of Marketing Materials
a. Insurance Company may, based on the SEC-mandated information supplied by AFD, prepare communications. In addition, Insurance Company may prepare such materials, based on performance information supplied by third party information providers (e.g., Lipper, Morningstar). Insurance Company shall provide copies of all such materials to AFD prior to their first use for its review and AFD shall have five (5) business days to approve or reject such material. It is understood that AFD shall be responsible for errors or omissions in, or the content of, such materials based upon information supplied by the Funds. Insurance Company shall be responsible for all other errors or omissions. Any such material will be deemed approved unless the reviewer AFD notifies Insurance Company of any required changes within five (5) business days of his/her receipt of the material.
b. Neither Insurance Company nor any person associated with Insurance Company shall make representations concerning a Fund, CRMC or its affiliates, except those contained in the current promotional literature produced by AFD, unless specifically approved in writing by AFD. Neither Insurance Company nor any person associated with Insurance Company shall make use of the names, logos or any likeness of the Funds, CRMC or its affiliates without the prior written consent of AFD.
c. References to the Funds on Contractholder statements and on Insurance Companys web site shall include the full name of the Fund and a reference to American Funds Insurance Series. By way of example, American Funds Insurance Series Growth Fund. If field size prohibits the use of the full name of the Fund and a reference to American Funds Insurance Series, the Fund name may be abbreviated with the approval of AFD.
d. Insurance Company shall have the right to approve all sales material that mentions Insurance Companys and/or the Distributors name (the Insurance Company Material) prior to its use. AFD and/or CRMC shall send all Insurance Company Material to Insurance Companys Director of Marketing Literature at the address listed in Section 12 of this Agreement (or such other person as Insurance Company may direct AFD and/or CRMC in writing) at the following address:
Insurance Company Material will be deemed approved unless the reviewer for Insurance Company notifies AFD and/or CRMC of any required changes within five (5) business days of his/her receipt of Insurance Company Material. No review of sales material produced by AFD and/or the Series shall be necessary if all references contained in such materials regarding Insurance Company and/or the Distributor are identical to those references that appear in Insurance Companys current Contract prospectus(es) or statement(s) of additional information.
8. Representations and Warranties
a. Insurance Company represents and warrants to AFD and CRMC that:
(i) each of the recitals applicable to it and/or each Account is true and correct;
(ii) Insurance Company is validly existing as a stock life insurance company under the laws of the State of Vermont, with power (corporate or other) to own its properties and conduct its business, as described in the prospectus for the Contracts, and has been duly qualified for the transaction of business and is in good standing under the laws of each other jurisdiction in which it owns or leases properties, or conducts any business to the extent such qualification is required;
(iii) the Contracts to be issued through the Account have been duly and validly authorized and, when issued and delivered against payment therefor as provided in the prospectus (if a prospectus is required by law) and in the Contracts, will be duly and validly issued, and will conform to the description of the Contracts contained in the prospectuses (if a prospectus is required by law);
(iv) the performance of this Agreement and the consummation of the transactions herein contemplated will not result in a breach or violation of any of the terms or provisions of, or constitute a default under, any statute, any indenture, mortgage, deed of trust, note agreement or other agreement or instrument to which Insurance Company is a party or by which Insurance Company is bound, Insurance Companys charter as a life insurance company or By-Laws or any order, rule or regulation of any court or governmental agency or body having jurisdiction over Insurance Company or any of their properties; and no consent, approval, authorization or order of any court or governmental agency or body which has not been obtained by the Effective Date of this Agreement is required for the consummation by Insurance Company of the transactions contemplated by this Agreement, except for the SECs approval of the registration statement referred to in Section 1.f. hereof;
(v) there are no material legal or governmental proceedings pending to which Insurance Company or the Account is a party or of which any property of Insurance Company or the Account is subject, other than as set forth in the prospectus relating to the Contracts, and other than litigation incidental to the kind of business conducted by Insurance Company which, if determined adversely to Insurance Company, would not individually or in the aggregate have a material adverse effect on the financial position, surplus or operations of Insurance Company;
(vi) any information furnished in writing by Insurance Company to AFD or CRMC for use in the registration statement or annual report of the Series will not contain any untrue statement of a material fact or omit to state a material fact required to be stated therein or necessary to make the statements therein not misleading, nor result in the Series registration statements failing to materially conform in all respects to the
requirements of the 1933 Act and 1940 Act and the rules and regulations thereunder; and
(vii) Insurance Company will materially comply with all applicable requirements of state insurance laws and regulations in connection with the Contracts.
b. The Distributor represents and warrants to AFD and CRMC that:
(i) each of the recitals applicable to it is true and correct;
(ii) The Distributor is validly existing as a corporation under the laws of the State of Vermont, and it is a broker-dealer duly registered with the SEC pursuant to the 1934 Act and is a member in good standing of FINRA, with power (corporate or other) to own its properties and conduct its business, and has been duly qualified for the transaction of business and is in good standing under the laws of each other jurisdiction in which it owns or leases properties, or conducts any business to the extent such qualification is required;
(iii) there are no material legal or governmental proceedings pending to which the Distributor is a party or of which any property of the Distributor is subject, other than as set forth in the prospectus relating to the Contracts, and other than litigation incidental to the kind of business conducted by the Distributor which, if determined adversely to the Distributor, would not individually or in the aggregate have a material adverse effect on the financial position, surplus or operations of the Distributor;
(iv) any information furnished in writing by the Distributor to AFD or CRMC for use in the registration statement or annual report of the Series will not contain any untrue statement of a material fact or omit to state a material fact required to be stated therein or necessary to make the statements therein not misleading, nor result in the registration statements failing to conform materially in all respects to the requirements of the 1933 Act and 1940 Act and the rules and regulations thereunder;
(v) any exchanges or replacements of existing variable insurance policies and contracts with the Contracts will be effected in compliance with all applicable federal and state securities rules and regulations;
(vi) the Distributor will comply with all applicable requirements of state insurance laws and regulations in connection with the sale of the Contracts; and
(vii) the Distributor will not pay commissions to persons who, to the best of the Distributors knowledge, are not appropriately licensed in a manner as to
comply with applicable state insurance laws and regulations.
c. AFD and CRMC represent and warrant to Insurance Company and the Distributor that:
(i) each of the recitals applicable to it, them, and/or the Series is true and correct;
(ii) AFD is validly existing as a corporation under the laws of the State of California and it is a broker-dealer duly registered with the SEC pursuant to the 1934 Act and is a member in good standing of FINRA, with power (corporate or other) to own its properties and conduct its business, and has been duly qualified for the transaction of business and is in good standing under the laws of each other jurisdiction in which it owns or leases properties, or conducts any business to the extent such qualification is required;
(iii) CRMC is validly existing as a corporation under the laws of the State of Delaware and it is an investment adviser duly registered with the SEC pursuant to the Investment Advisers Act of 1940, with power (corporate or other) to own its properties and conduct its business, and has been duly qualified for the transaction of business and is in good standing under the laws of each other jurisdiction in which it owns or leases properties, or conducts any business to the extent such qualification is required;
(iv) the shares to be issued by the Series have been duly and validly authorized and, when issued and delivered against payment therefor as provided in the Series prospectus, will be duly and validly issued, and will conform to the description of such shares contained in that prospectus;
(v) the performance of duties under this Agreement by AFD and CRMC will not result in a breach or violation of any of the terms or provisions of, or constitute a default under, any statute, any indenture, mortgage, deed of trust, note agreement or other agreement or instrument to which AFD or CRMC is a party or by which AFD or CRMC is bound, the Articles of Incorporation or By-Laws of AFD or CRMC, or any order, rule or regulation of any court or governmental agency or body having jurisdiction over AFD or CRMC or its property;
(vi) there are no material legal or governmental proceedings pending to which AFD or CRMC is a party or of which any property of AFD or CRMC is subject, other than as set forth in the prospectus relating to the Series, and other than litigation incidental to the kind of business conducted by AFD or CRMC which, if determined adversely to AFD or CRMC, would not individually or in the aggregate have a material adverse effect on the financial position, surplus or operations of AFD or CRMC;
(vii) any information furnished in writing by AFD or CRMC to Insurance Company or the Distributor for use in a registration statement (if required by law) of the Contracts will not contain any untrue statement of a material fact or omit to state a material fact required to be stated therein or necessary to make the statements therein not misleading, nor result in the registration statements failing to materially conform in all respects to the requirements of the 1933 Act and the rules and regulations thereunder; and
(viii) AFD will comply with all applicable requirements of state broker-dealer regulations and the 1934 Act as each applies to AFD and shall conduct its affairs in accordance with the rules of FINRA.
9. Indemnification
a. Insurance Company and Distributor, as applicable, shall indemnify and hold harmless AFD, CRMC, the Series, the Funds and each of their affiliates, directors, officers, employees and agents and each person who controls them within the meaning of the 1933 Act, from and against any and all losses, claims, damages, liabilities and expenses, including reasonable attorneys fees (Losses), they may incur, insofar as such Losses arise out of or are based upon (i) Insurance Companys negligence or willful misconduct in the performance of its duties and obligations under this Agreement, (ii) Insurance Company or Distributors violation of any Applicable Law (as defined in the Fund Participation Agreement) in connection with the performance of its duties and obligations under this Agreement, and (iii) any breach by Insurance Company or Distributor of any provision of this Agreement, including any representation, warranty or covenant made in the Agreement. Insurance Company and Distributor shall also reimburse AFD, CRMC, the Series, the Funds and their respective affiliates for any legal or other expenses reasonably incurred by any of them in connection with investigating or defending against such Losses. This indemnity provision is in addition to any other liability which Insurance Company or Distributor may otherwise have to AFD, CRMC, the Series, the Funds or their respective affiliates.
b. AFD and CRMC, as applicable, shall indemnify and hold harmless, Insurance Company, Distributor and each of their directors, officers, employees and agents and each person who controls them within the meaning of the 1933 Act, from and against any and all Losses they may incur, insofar as such Losses arise out of or are based upon (i) AFDs or CRMCs negligence or willful misconduct in the performance of its duties and obligations under this Agreement, (ii) AFDs or CRMCs violation of Applicable Law in connection with the performance of its duties and obligations under this Agreement, and (iii) any breach by AFD or CRMC of any provision of this Agreement, including any representation, warranty or covenant made in the Agreement by AFD or CRMC. AFD and CRMC, as applicable, shall also reimburse Insurance Company and Distributor for any legal or other expenses reasonably incurred in connection with investigating or defending against such Losses. This indemnity provision is in addition to any other liability which AFD or CRMC may otherwise have to Insurance Company or Distributor.
c. Promptly after receipt by a party entitled to indemnification under this paragraph 9 (an Indemnified Party) of notice of the commencement of an investigation, action, claim or proceeding, such Indemnified Party will, if a claim in respect thereof is to be made against the indemnifying party under this paragraph 9, notify the indemnifying party of the commencement thereof. The indemnifying party will be entitled to assume the defense thereof, with counsel satisfactory to the Indemnified Party. After notice from the indemnifying party of its intention to assume the defense of an action and the appointment of satisfactory counsel, 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 paragraph for any legal expenses subsequently incurred by such Indemnified Party in connection with the defense thereof other than reasonable costs of investigation. The indemnifying party shall not, without the prior written consent of the Indemnified Party, settle or compromise the liability of the Indemnified Party; provided, however, that in the event that the Indemnified Party fails to provide its written consent, the indemnifying party shall thereafter be liable to provide indemnification only to the extent of the amount for which the action could otherwise have been settled or compromised.
10. Rule 12b-1 Fee
a. The Series will pay Insurance Company a Rule 12b-1 service fee to be accrued daily and paid monthly at an annual rate of 0.25% of the average daily net assets of the Class 4 assets of each Fund attributable to the Contracts for personal services and account maintenance services for Contract owners with investments in Subaccounts corresponding to the Class 4 shares of each Fund so long as the Series 12b-1 plan is effective with respect to the Class 4 shares of a Fund. Such payments shall be calculated by the Series and be paid by the Series to Insurance Company as soon as practicable after the end of each month and in any event within thirty (30) days.
b. If the Series 12b-1 plan is no longer effective or is no longer applicable to the Funds in the Contracts (the 12b-1 Termination), AFD, CRMC and the Series shall discuss with Insurance Company, in good faith, an alternate fee arrangement. If no new agreement is reached within thirty (30) days after the 12b-1 Termination (or at such later date mutually acceptable to all of the parties), Insurance Company, at its option, may elect to terminate this Agreement, and/or may elect to obtain an order of exemption pursuant to Section 26(b) of the 1940 Act (Substitution Order) for the Fund(s) or a vote of Contract owners authorizing redemption and substitution of Fund shares. The Series, AFD and CRMC shall cooperate with Insurance Company in obtaining and implementing any such Substitution Order.
11. Termination
a. This Agreement may be terminated:
(i) by mutual agreement at any time; or
(ii) by any party at any time upon ninety (90) days written notice to the other parties; or
(iii) at Insurance Companys option, pursuant to Section 10.b. hereof.
(iv) upon termination of the Fund Participation and Service Agreement
(v) at Insurance Companys option by written notice to AFD and/or CRMC if Insurance Company shall determine in its sole judgment exercised in good faith, that either AFD or CRMC 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.
(vi) at AFD or CRMCs option by written notice to Insurance Company if AFD or CRMC shall determine in its sole judgment exercised in good faith, that Insurance Company or Distributor 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.
b. If this Agreement terminates, the parties shall cooperate after termination to effect an orderly windup of the business.
12. Notices
All notices, consents, waivers, and other communications under this Agreement must be in writing, and will be deemed to have been duly received: (a) when delivered by hand (with written confirmation of receipt); (b) when sent by telecopier (with written confirmation of receipt), provided that a copy is mailed by registered mail, return receipt requested; or (c) the day after it is sent by a nationally recognized overnight delivery service, in each case to the appropriate addresses and telecopier numbers set forth below (or to such other addresses and facsimile numbers as a party may designate by notice to the other parties):
If to Insurance Company:
National Life Insurance Company
15455 North Dallas Parkway, Suite 1100
Addison, TX 75001
Attention: Scott Edblom, Vice President, Product Strategy and Innovation
with a copy to:
National Life Insurance Company
One National Life Drive
Montpelier, VT 05604
Attention: Keith Jones, Senior Counsel
Facsimile No.: (802)229-3743
If to the Distributor:
Equity Services, Inc.
One National Life Drive
Montpelier, VT 05604
Attention: Gregory Teese, Senior Vice President - Compliance
If to AFD:
American Funds Distributors, Inc.
333 S. Hope Street, 55th Floor
Los Angeles, CA 90071
Attention: Stephen T. Joyce
Facsimile No.: (213) 486-9223
with a copy to:
American Funds Distributors, Inc.
333 S. Hope Street, 55th Floor
Los Angeles, CA 90071
Attention: Kenneth R. Gorvetzian, Senior Vice President and Senior Counsel,
Fund Business Management Group, Capital Research and Management Company
Facsimile No.: (213) 486-9041
If to CRMC:
Capital Research and Management Company
333 S. Hope Street, 55th Floor
Los Angeles, CA 90071
Attention: Michael J. Downer, Senior Vice President and Legal Counsel,
Fund Business Management Group and Secretary
Facsimile No.: (213) 486-9041
with a copy to:
Capital Research and Management Company
333 S. Hope Street, 55th Floor
Los Angeles, CA 90071
Attention: Kenneth R. Gorvetzian, Senior Vice President and Senior Counsel,
Fund Business Management Group
Facsimile No.: (213) 486-9041
13. Miscellaneous
a. This Agreement shall be governed by the laws of the State of New York.
b. This Agreement (together with the Fund Participation and Service Agreement) contains the entire understanding and agreement among the parties with respect to the subject matter of this Agreement and supersedes any and all prior agreements, understandings, documents, projections, financial data, statements, representations and warranties, oral or written, express or implied, between the parties hereto and their respective affiliates, representatives and agents in respect of the subject matter hereof. This Agreement may not be amended except by written agreement of the parties. If there should be any conflict between the terms of this Agreement and those of the Fund Participation Agreement, the terms of the Fund Participation Agreement shall govern.
c. This Agreement shall extend to and be binding upon the Insurance Company, the Distributor, AFD and CRMC and their respective successors and assigns. Nothing expressed or mentioned in this Agreement is intended or shall be construed to give any person or corporation, other than the parties hereto and their respective successors and permitted assigns, any legal or equitable right, remedy or claim in respect of this Agreement or any provision herein contained. Neither this Agreement nor any rights, privileges, duties or obligations of the parties hereto may be assigned by any party without the prior written consent of the other parties or as expressly contemplated by this Agreement; provided, however, that a merger of, reinsurance arrangement by, or change of control of a party shall not be deemed to be an assignment for purposes of this Agreement.
d. The provisions of this Agreement are severable. 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.
e. No waiver of any provision of this Agreement will be binding unless in writing and executed by the party granting such waiver. 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.
f. Neither the execution nor performance of this Agreement shall be deemed to create a partnership or joint venture by and among Insurance Company, Distributor, AFD, CRMC and the Funds.
g. This Agreement and any amendment to it may be executed in one or more counterparts. All of those counterparts shall constitute one and the same agreement. Neither this Agreement nor any amendment shall become effective until all counterparts have been fully executed and delivered.
h. The provisions contained in Sections 9, 10 and 12 shall survive the termination of this Agreement for so long as any of the Series shares remain as investment options in any of the Contracts.
i. 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.
j. Insurance Company will permit Transfer Agent or its representative to have reasonable access to Insurance Companys personnel and records pertaining to this Agreement in order to facilitate the monitoring of the quality of the services performed by Insurance Company under this Agreement.
k. In the event of a dispute between the parties with respect to this Agreement, and in the event the parties are unable to resolve the dispute between them, such dispute shall be settled by arbitration; one arbitrator to be named by each party to the disagreement and a third arbitrator to be selected by the two arbitrators named by the parties. The decision of a majority of the arbitrators shall be final and binding on all parties to the arbitration. The expenses of such arbitration shall be paid by the non-prevailing party.
IN WITNESS WHEREOF, the parties hereto have caused this Agreement to be duly executed and attested as of the date first above written.
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NATIONAL LIFE INSURANCE COMPANY | |
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By: |
/s/ Scott Edblom |
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Its: |
Vice President, Product Strategy & Innovation |
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EQUITY SERVICES, INC. | |
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By: |
/s/ Jeff Wood |
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Its: |
Senior Vice President |
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AMERICAN FUNDS DISTRIBUTORS, INC. | |
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By: |
/s/ American Funds Distributors, Inc. |
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Its: |
Secretary |
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CAPITAL RESEARCH AND MANAGEMENT COMPANY | |
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By: |
Micheal Downer |
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Its: |
Sr. Vice President & Secretary |
Exhibit 99.(8)(e)
FUND PARTICIPATION AGREEMENT
THIS AGREEMENT is executed as of May 1, 2016, and effective as of May 1, 2016 (the Effective Date), by and among BLACKROCK VARIABLE SERIES FUNDS, INC. an open-end management investment company organized as a Maryland corporation (the Fund), BLACKROCK INVESTMENTS, LLC (BRIL or the Underwriter), a broker-dealer registered as such under the Securities Exchange Act of 1934, as amended (the 1934 Act), and NATIONAL LIFE INSURANCE COMPANY, a life insurance company organized under the laws of the state of Vermont (the Company), on its own behalf and on behalf of each separate account of the Company set forth on Schedule A, as may be amended from time to time (each separate account hereinafter referred to individually as an Account and collectively as the Accounts).
W I T N E S S E T H:
WHEREAS, the Fund has filed a registration statement with the Securities and Exchange Commission (SEC) to register itself as an open-end management investment company under the Investment Company Act of 1940, as amended (the 1940 Act), and to register the offer and sale of its shares under the Securities Act of 1933, as amended (the 1933 Act); and
WHEREAS, the Fund desires to act as an investment vehicle for separate accounts established for variable life insurance policies and variable annuity contracts to be offered by insurance companies that have entered into participation agreements with the Fund (the Participating Insurance Companies); and
WHEREAS, the Underwriter is registered as a broker-dealer with the SEC under the 1934 Act, is a member in good standing of the Financial Industry Regulatory Authority, Inc. (FINRA) and acts as principal underwriter of the shares of the Fund; and
WHEREAS, the capital stock of the Fund is divided into several series of shares, each series representing an interest in a particular managed portfolio of securities and other assets; and
WHEREAS, the several series of shares of the Fund offered now or in the future by the Fund to the Company and the Accounts are described on Schedule B attached hereto (each, a Portfolio, and, collectively, the Portfolios); and
WHEREAS, the Fund has received an order from the SEC granting Participating Insurance Companies and their separate accounts exemptions from the provisions of sections 9(a), 13(a), 15(a) and 15(b) of the 1940 Act, and rules 6e-2(b)(15) and 6e-3(T)(b)(15) thereunder, to the extent necessary to permit shares of the Fund to be sold to and held by variable annuity and variable life insurance separate accounts of both affiliated and unaffiliated life insurance companies (the Shared Fund Exemptive Order); and
WHEREAS, BlackRock Advisors, LLC (BAL) is duly registered as an investment adviser under the Investment Advisers Act of 1940, as amended, and is the Funds investment adviser; and
WHEREAS, the Company has registered or will register under the 1933 Act certain variable life insurance policies and/or variable annuity contracts funded or to be funded through one or more of the Accounts (the Contracts) and will sell the Contracts to owners of the Contracts (Contract owners); and
WHEREAS, the Company has registered or will register each Account as a unit investment trust under the 1940 Act; and
WHEREAS, to the extent permitted by applicable insurance laws and regulations, the Company intends to purchase shares in one or more of the Portfolios (the Shares) on behalf of the Accounts to fund the Contracts, and the Fund intends to sell such Shares to the relevant Accounts at such Shares net asset value.
NOW, THEREFORE, in consideration of their mutual promises, the parties agree as follows:
ARTICLE 1
Sale of the Fund Shares
1.1 Subject to Section 1.3, the Fund shall make Shares of the Portfolios available to the Accounts at net asset value in accordance with the operational procedures mutually agreed to by the Fund and the Company from time to time and the provisions of the then current prospectuses and statements of additional information of the Portfolios (collectively, the Prospectus). Shares of a particular Portfolio of the Fund shall be ordered in such quantities and at such times as determined by the Company to be necessary to meet the requirements of the Contracts. The Directors of the Fund (the Directors) may refuse to sell Shares of any Portfolio to any person (including the Company and the Accounts), or suspend or terminate the offering of Shares of any Portfolio, if such action is required by law or by regulatory authorities having jurisdiction in their sole discretion when acting in good faith and in light of their fiduciary duties under federal and any applicable state laws, if they deem such actions necessary in the best interests of the shareholders of such Portfolio.
1.1(a) If there are corrections to a Portfolios net asset value, the following provisions shall apply:
Fund/SERV Transactions. If the parties choose to use the National Securities Clearing Corporations Mutual Fund Settlement, Entry and Registration Verification (Fund/SERV) system, any corrections to a Portfolios net asset value for the prior Trade Date (as hereinafter defined) will be submitted through the Mutual Fund Profile with the correct net asset value and applicable date. If the corrections are dated later than Trade Date plus one, an electronic transmission should be sent in addition to the Mutual Fund Profile submission; or
Manual Transactions. If the parties choose not to use Fund/SERV, if there are technical problems with Fund/SERV, or if the parties are not able to transmit or receive information through Fund/SERV, any corrections to a Portfolios net asset value should be communicated by facsimile or by electronic transmission, and will include for each day on which an adjustment has occurred the incorrect Portfolio net asset value, the correct net asset value, and, to the extent communicated to Portfolio shareholders, the reason for the adjustment.
1.1(b) Fund/SERV Transactions. If the parties choose to use Fund/SERV or any other NSCC service, the following provisions shall apply:
The Company and the Fund or its designee will each be bound by the rules of the National Securities Clearing Corporation (NSCC) and the terms of any NSCC agreement filed by it with the NSCC. Without limiting the generality of the following provisions of this section, the Company and the Fund or its designee will each perform any and all duties, functions, procedures and responsibilities assigned to it and as otherwise established by the NSCC applicable to Fund/SERV, the Mutual Fund Profile Service, the Networking Matrix Level utilized and any other relevant NSCC service or system (collectively, the NSCC Systems).
Any information transmitted through the NSCC Systems by any party to the other and pursuant to this Agreement will be accurate, complete, and in the format prescribed by the NSCC.
Each party will adopt, implement and maintain procedures reasonably designed to ensure the accuracy of all transmissions through the NSCC Systems and to limit the access to, and the inputting of data into, the NSCC Systems to persons specifically authorized by such party.
On each Business Day (as hereinafter defined), the Company shall aggregate and calculate the net purchase and redemption orders for each Account received by the Company prior to the Close of Trading (as hereinafter defined) on each Business Day. The Company shall communicate to the Fund or its designee for that Business Day, by Fund/SERV, the net aggregate purchase or redemption orders (if any) for each Account received by the Close of Trading on such Business Day (the Trade Date) no later than 7:00 a.m. Eastern Time (or such other time as may be agreed by the parties from time to time) on the Business Day following the Trade Date. All orders received by the Company after the Close of Trading on a Business Day shall not be transmitted to NSCC prior to the following Business Day. The Fund or its designee shall treat all trades communicated to the Fund or its designee in accordance with this provision as if received prior to the Close of Trading on the Trade Date.
All orders are subject to acceptance by the Fund or its designee and become effective only upon confirmation by the Fund or its designee. Upon confirmation, the Fund or its designee will verify total purchases and redemptions and the closing share position for each Account. In the case of delayed settlement, the Fund or its designee shall make arrangements for the settlement of redemptions by wire no later than the time permitted for settlement of redemption orders by the 1940 Act. Unless otherwise informed in writing, such redemption wires should be sent to:
JP Morgan Chase
One Chase Manhattan Plaza
New York City, New York
ABA Routing #021 000 021
Account No. 910-4-017752
1.1(c) Manual Transactions. If the parties choose not to use Fund/SERV, if there are technical problems with Fund/SERV, or if the parties are not able to transmit or receive information through Fund/SERV, the following provisions shall apply:
Next Day Transmission of Orders. On each Business Day, the Company shall aggregate and calculate the net purchase and redemption orders for each Account received by the Company prior to the Close of Trading on such Business Day. Prior to 9:00 a.m. Eastern Time (or such other time as may be agreed by the parties from time to time) on the next following Business Day, the Company shall communicate to the Fund or its designee by facsimile or, in the Companys discretion, by telephone or any other method agreed upon by the parties, the net aggregate purchase or redemption orders (if any) for each Account received by the Close of Trading on the prior Business Day. All orders communicated to the Fund or its designee by the 9:00 a.m. deadline (or such other time as may be agreed by the parties from time to time) shall be treated by the Fund or its designee as if received prior to the Close of Trading on the Trade Date.
Purchases. The Company will use its best efforts to transmit each purchase order to the Fund or its designee in accordance with written instructions previously provided by the Fund or its designee to the Company. The Company will use its best efforts to initiate by wire transfer to BRIL or its designee purchase amounts no later than the close of the Federal Reserve Wire Transfer System (the Fedwire System) on the next Business Day following the Trade Date.
Redemptions. With respect to redemption orders placed by the Company by 9:00 a.m. Eastern Time (or such other time as may be agreed by the parties from time to time) on the first
Business Day following the Trade Date, the Fund or its designee will use its best efforts to initiate by wire transfer to the Company proceeds of such redemptions no later than the close of the Fedwire System on the next Business Day following the Trade Date.
Unless otherwise informed in writing, such redemption wires should be sent to:
JP Morgan Chase
One Chase Manhattan Plaza
New York City, New York
ABA Routing #021 000 021
Account No. 910-4-017752
1.2 Subject to Section 1.3, the Fund will redeem any full or fractional Shares of any Portfolio when requested by the Company on behalf of an Account at net asset value in accordance with the operational procedures mutually agreed to by the Fund and the Company from time to time and the provisions of the Prospectus of the Portfolios. The Fund shall make payment for such Shares in accordance with Section 1.4, but in no event shall payment be delayed for a greater period than is permitted by the 1940 Act (including any Rule or order of the SEC thereunder).
1.3 (a) The Company will not aggregate orders received from its Contract owners after close of the New York Stock Exchange (generally, 4:00 p.m. Eastern Time) (the Close of Trading) with orders received before the Close of Trading, and warrants that its internal control structure concerning the processing and transmission of orders is suitably designed to prevent or detect on a timely basis orders received after the Close of Trading from being aggregated with orders received before the Close of Trading and to minimize errors that could result in late transmission of orders. Orders received by the Company before the Close of Trading are eligible to receive that Business Days net asset value, and Orders received by the Company after the Close of Trading are eligible to receive the next Business Days net asset value.
(b) Notwithstanding anything to the contrary in this Agreement, the Fund shall accept purchase and redemption orders resulting from investment in and payments under the Contracts on each Business Day, provided that such orders are received prior to 9:00 a.m. Eastern Time and reflect instructions received by the Company from Contract owners in good order prior to the time the net asset value of each Portfolio is priced in accordance with the preceding paragraph and the Funds Prospectus on the prior Business Day. Business Day shall mean any day on which the New York Stock Exchange is open for trading and on which the Fund calculates its net asset value pursuant to the rules of the SEC. Purchase and redemption orders shall be provided by the Company in such written or electronic form (including, without limitation, facsimile) as may be mutually acceptable to the Company and the Fund. The Fund may reject purchase and redemption orders which are not in the form prescribed in the Funds Prospectus. In the event that the Company and the Fund agree to use a form of written or electronic communication which is not capable of recording the time, date and recipient of any communication and confirming good transmission, the Company agrees that it shall be responsible for confirming that any communication sent by the Company was in fact received by the Fund or its designee, in proper form and in accordance with the terms of this Agreement. The Fund and its agents or designees shall be entitled to rely upon, and shall be fully protected from all liability in acting upon, the instructions of the authorized individuals.
1.4 Purchase orders that are transmitted to the Fund or its designee in accordance with Section 1.3 shall be paid for on the next Business Day following the Trade Date. Payments shall be made in federal funds transmitted by wire. In the event that the Company shall fail to pay in a timely manner for any purchase order validly received by the Fund or its designee pursuant to Section 1.3, the Company shall hold the Fund or its designee harmless from any losses reasonably sustained by the Fund or its designee as the result of acting in reliance on such purchase order.
Redemption orders that are transmitted to the Fund or its designee in accordance with Section 1.3 shall be paid for no later than the end of the Business Day after the Fund receives notice of the order. Payments shall be made in federal funds transmitted by wire. In the event that the Fund or its designee shall fail to pay in a timely manner for any redemption order validly received by the Fund or its designee pursuant to Section 1.3, the Fund or its designee shall hold the Company harmless from any losses reasonably sustained by the Company as the result of acting in reliance on such redemption order.
1.5 Issuance and transfer of Shares of the Portfolios will be by book entry only. Share certificates will not be issued to the Company or the Account. Shares ordered from the Fund will be recorded in the appropriate title for each Account or the appropriate sub-account of each Account.
1.6 The Fund or its designee shall furnish prompt written notice by email to the Company of any income, dividends or capital gain distribution payable on Shares. The Company hereby elects to receive all such income, dividends and capital gain distributions as are payable on a Portfolios Shares in additional Shares of that Portfolio. The Fund shall notify the Company in writing by email of the number of Shares so issued as payment of such income, dividends and distributions.
1.7 The Fund shall make the net asset value per Share for each Portfolio available to the Company on a daily basis as soon as reasonably practical after the net asset value per Share is calculated and shall use its best efforts to make such net asset value per Share available by 7:00 p.m. Eastern Time. The Fund shall transmit the net asset value per Share for each Portfolio to the Company via e-mail to NAVGroup@nationallife.com on a daily basis. If the Fund provides materially incorrect net asset value information, it shall make an adjustment to the number of Shares purchased or redeemed for any affected Account to reflect the correct net asset value. Any material error in the calculation or reporting of net asset value, dividend or capital gains information shall be reported promptly in writing by email upon discovery to the Company.
1.8 The Company agrees that it will not take any action to operate an Account as a management investment company under the 1940 Act without the Funds and the Underwriters prior written consent.
1.9 The Fund agrees that its Shares will be sold only to Participating Insurance Companies and their separate accounts. No Shares of any Portfolio will be sold directly to the general public. The Company agrees that Shares will be used only for the purposes of funding the Contracts and Accounts listed in Schedule A, as amended from time to time.
1.10 The Fund agrees that all Participating Insurance Companies shall have the obligations and responsibilities regarding conflicts of interest corresponding to those contained in Article 4 of this Agreement.
1.11 The Fund reserves the right to reject any purchase orders, including exchanges, for any reason, including if the Fund, in its sole opinion, believes any of the Companys Contract owners is engaging in short-term or excessive trading into and out of a Portfolio or otherwise engaging in trading that may be disruptive to a Portfolio (Market Timing). The Company agrees to cooperate with the Underwriter and the Fund to monitor for Market Timing by its Contract owners, to provide such relevant information about Market Timing to the Fund as it may reasonably request, including but not limited to such Contract owners identity, and to prevent Market Timing from occurring by or because of Contract owners. Failure of the Fund to reject any purchase orders that might be deemed to be Market Timing shall not constitute a waiver of the Funds rights under this section. Pursuant to Rule 22c-2 of the 1940 Act, on behalf of the Fund, the Underwriter and the Company agree to comply with the terms included in the attached Schedule C as of the effective date of this Agreement.
ARTICLE 2
Obligations of the Parties
2.1 The Fund shall prepare and be responsible for filing with the SEC and any state securities 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 the Fund required to be so filed. The Fund shall bear the costs of registration and qualification of its Shares, preparation and filing of the documents listed in this Section 2.1 and all taxes to which an issuer is subject on the issuance and transfer of its Shares.
2.2 At least annually, the Underwriter or its designee shall provide the Company with a PDF of the current prospectus of the applicable Portfolio(s) suitable for duplication by the Company for distribution to existing Contract owners whose Contracts are funded by Shares of such Portfolio(s) and to prospective purchasers of Contracts. The Underwriter or its designee will pay the Companys usual, customary and reasonable printing costs for printing prospectuses for existing Contract owners. The Company will bear the costs of printing prospectuses for prospective purchasers of Contracts. The Company will provide the Underwriter or its designee with supporting documentation which is sufficient in the reasonable opinion of the Underwriter or its designee to enable the Underwriter or its designee to verify the printing expenses for which the Company requests reimbursement. The Company agrees to use its best efforts to minimize any printing expenses. If the Company prints such documents, Company agrees that any printer its selects shall be a reputable printer within the industry.
The Company may use such PDF described above to assist with the updating of any of its Contract prospectuses or related materials in order to have the prospectuses of the Portfolios conform to the Companys Contract prospectuses or related materials, with the expenses of such updating, including printing, to be borne by the Company.
For purposes of this Section 2.2 only, references to a Portfolios prospectus shall exclude the related statement of additional information.
2.3 The Fund or its designee shall provide a master PDF of the statement of additional information for the Portfolios to the Company (suitable for duplication by the Company at the Companys expense) for distribution to any owner of a Contract funded by the Shares or to a prospective purchaser who requests such statement.
2.4 The Underwriter or its designee shall provide the Company free of charge copies, if and to the extent applicable to the Shares, of the Funds proxy materials, reports to shareholders and other communications to shareholders in such quantity as the Company shall reasonably request for distribution to Contract owners.
2.5 The Company shall furnish, or cause to be furnished, to the Fund or its designee, a copy of language that would be used in any prospectus for the Contracts or statement of additional information for the Contracts in which the Fund, the Underwriter or BAL (Fund Parties) or any Portfolio or any entity with BlackRock in its name is named at least fifteen Business Days prior to the filing of such document with the SEC. The Company shall furnish, or shall cause to be furnished, to the Fund or its designee, each piece of sales literature or other promotional material in which the Fund, any Portfolio, the Underwriter, or BAL or any entity with BlackRock in its name is named (such materials together with Contract prospectuses and statements of additional information, Company Materials), at least fifteen Business Days prior to its use. No Company Materials shall be used if any of the Fund Parties reasonably objects to such use within fifteen Business Days after receipt of such material. Notwithstanding the foregoing, the Company need not furnish, or cause to be furnished, to the Fund or its
designee revisions to Company Materials previously approved by the Fund or its designee (Updated Company Materials) unless the Company Materials on which they are based have been materially changed. The Fund or its designee also reserves the right to review Company Materials and Updated Company Materials at any time upon request made by the Fund or its designee to the Company. The Fund or its designee may reasonably object to the continued use of any Company Materials or Updated Company Materials. No Company Materials or Updated Company Materials shall be used if the Fund or its designee so objects.
2.6 At the reasonable request of the Fund or its designee, the Company shall furnish, or shall cause to be furnished, as soon as practical, to the Fund or its designee copies of the following reports:
(a) the Companys annual financial report (prepared under generally accepted accounting principles (GAAP), if any);
(b) the Companys quarterly statements, if any;
(c) any financial statement, proxy statement, notice or report of the Company sent to policyholders; and
(d) any registration statement (without exhibits) and financial reports of the Company filed with any state insurance regulator.
2.7 Notwithstanding anything to the contrary in this Agreement, the Company shall not give any information or make any representations or statements on behalf of the Fund or Underwriter or concerning the Fund, the Underwriter or BAL in connection with the Contracts other than information or representations contained in and accurately derived from the registration statement or Prospectus for the Shares (as such registration statement and Prospectus may be amended or supplemented from time to time), reports of the Fund, Fund-sponsored proxy statements, or in sales literature or other promotional material approved by the Fund or Underwriter, except with the written permission of the Fund or Underwriter.
2.8 Neither the Fund nor the Underwriter shall give any information or make any representations or statements on behalf of the Company or concerning the Company, the Accounts or the Contracts other than information or representations contained in and accurately derived from the registration statements or Contract prospectuses (as such registration statements or Contract prospectuses may by amended or supplemented from time to time), except with the written permission of the Company.
2.9 The Company shall register and qualify the Contracts for sale to the extent required by applicable law. The Company shall amend the registration statement of the Contracts under the 1933 Act and registration statement for each Account under the 1940 Act from time to time as required in order to effect the continuous offering of the Contracts or as may otherwise be required by applicable law. The Company shall register and qualify the Contracts for sale to the extent required by applicable securities laws and insurance laws of the various states.
2.10 Solely with respect to Contracts and Accounts that are subject to the 1940 Act, so long as, and to the extent that the SEC interprets the 1940 Act to require pass-through voting privileges for variable Contract owners: (a) the Company will provide pass-through voting privileges to owners of Contracts whose cash values are invested, through the Accounts, in Shares of the Fund; (b) the Fund shall require all Participating Insurance Companies to calculate voting privileges in the same manner and the Company shall be responsible for assuring that the Accounts calculate voting privileges in the manner established by the Fund; (c) with respect to each Account, the Company will vote Shares of the Fund held by the Account and for which no timely voting instructions from
Contract owners are received, as well as Shares held by the Account that are owned by the Company for its general accounts, in the same proportion as the Company votes Shares held by the Account for which timely voting instructions are received from Contract owners; and (d) the Company and its agents will in no way recommend or oppose or interfere with the solicitation of proxies for Fund Shares held by Contract owners without the prior written consent of the Fund, which consent may be withheld in the Funds sole discretion.
2.11 (a) The Company will furnish the Fund or its designee (including, without limitation, any auditors designated by the Fund) with such information in connection with this Agreement and/or any agreement for the provision of administrative services or distribution-related services by the Company for the Fund (the Related Agreements) as it may reasonably request (including, without limitation, periodic certifications confirming the Companys provision of services for the Fund) and will cooperate with the Fund or its designee in connection with the preparation of reports to the Board of Directors concerning this Agreement and/or any Related Agreement and the monies paid or payable pursuant to this Agreement or any Related Agreement, as well as any other reports or filings that may be required by law.
(b) The Company and its employees will, upon reasonable request, be available during normal business hours to consult with the Fund or its designee concerning this Agreement and/or any Related Agreement.
(c) Each party will maintain and preserve all records as required by law to be maintained and preserved by it in connection with the performance of its obligations under this Agreement and any Related Agreement. Upon the reasonable request of another party, a party will provide copies of historical records relating to transactions between the Fund and the Accounts, written communications regarding the Fund to or from the Accounts and other materials that enable the requesting party to monitor and review the other partys or parties performance or perform general customer supervision. The Company shall also maintain and preserve all records which would enable the Fund or its designee to substantiate the fees charged by the Company, the services provided by the Company and the internal controls over services provided by the Company as well as any other records reasonably required by the Fund or its designee. Upon reasonable request, the Company agrees to make these records available to the Fund or its designee.
(d) From time-to-time, the Fund or its designee may submit a due diligence questionnaire to the Company, and the Company shall complete and return such due diligence questionnaire within a reasonable timeframe. Upon request, the Company shall promptly provide to the Fund or its designee a copy of its Statement on Standards for Attestation Engagements 16 Report (SSAE 16) and its Financial Intermediary Controls and Compliance Assessment.
(e) The Company shall permit the Fund or its designee to conduct one physical audit per calendar year to ensure compliance with the terms of this Agreement and the Related Agreements. The Fund or its designee agrees to provide the Company with reasonable notice of their intention to conduct such an audit. For purposes of these audit privileges, the Company shall permit the authorized personnel of the Fund or its designee to have access to its books, records, information, systems and employees pertinent to the Companys performance under this Agreement and/or any Related Agreement. The Fund or its designee will not perform any activity that materially interferes with any activities of the Company or its systems during the audit. The Company is entitled to observe all audit activity or the Fund or its designee, and the audit will be subject to such reasonable security and confidentiality measures as the Company may require.
(f) Nothing in this Agreement will impose upon the Fund or its designee the obligation to review the Companys practices, procedures and controls.
ARTICLE 3
Representations and Warranties
3.1 The Company represents and warrants that it is an insurance company duly organized and in good standing under the laws of the State of Vermont, with full power, authority and legal right to execute, deliver and perform its duties and comply with its obligations under this Agreement and has established each Account as a separate account under such law and the Accounts comply in all material respects with all applicable federal and state laws and regulations.
3.2 The Company represents and warrants that it has registered or, prior to any issuance or sale of the Contracts, will register each Account as a unit investment trust in accordance with the provisions of the 1940 Act to serve as a separate account for the Contracts. The Company further represents and warrants that the Contracts will be registered under the 1933 Act prior to any issuance or sale of the Contracts; the Contracts will be issued in compliance in all material respects with all applicable federal and state laws.
3.3 The Company represents and warrants that the Contracts are currently and at the time of issuance will be treated as annuity contracts or life insurance policies, whichever is appropriate, under applicable provisions of the Internal Revenue Code of 1986, as amended (Code). The Company shall make every effort to maintain such treatment and shall notify the Fund and the Underwriter 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.
3.4 The Fund represents and warrants that it is duly organized and validly existing under the laws of the State of Maryland.
3.5 The Fund represents and warrants that the Fund Shares offered and sold pursuant to this Agreement will be registered under the 1933 Act and the Fund is registered under the 1940 Act. The Fund shall amend its registration statement under the 1933 Act and the 1940 Act from time to time as required in order to effect the continuous offering of its Shares. If the Fund determines that notice filings are appropriate, the Fund shall use its best efforts to make such notice filings in accordance with the laws of such jurisdictions reasonably requested by the Company.
3.6 The Fund has adopted a Distribution Plan (the Plan) with regard to the Class II and Class III shares of each Portfolio, pursuant to Rule 12b-1 under the 1940 Act. The Plan permits the Underwriter to pay to each Participating Insurance Company that enters into an agreement with the Underwriter to provide distribution-related services to Contract owners, a fee, at the end of each month, of up to 0.15% of the average daily net asset value of the Class II shares and up to 0.25% of the average daily net asset value of Class III shares of each Portfolio held by such Participating Insurance Company. The Company agrees to waive the payment of any such distribution fee unless and until Underwriter has received such fees from the Fund. All distribution-related services will be provided in accordance with all applicable federal and state securities laws and the rules and regulations of applicable regulatory agencies or authorities, such as the SEC and FINRA, specifically including but not limited to Rule 22c-1(a) under the 1940 Act, all requirements to provide specific disclosures to Contract Owners regarding fees paid for such services, and the requirements of the applicable Portfolios prospectus and statement of additional information, this Agreement and any Related Agreement.
3.7 The Fund represents that it will comply and maintain each Portfolios compliance with the diversification requirements set forth in Section 817(h) of the Code and Section 1.817-5 of the regulations under the Code. The Fund will notify the Company immediately upon having a reasonable basis for believing that a Portfolio has ceased to so comply or that a Portfolio might not
so comply in the future. In the event of a breach of this Section 3.7 by the Fund, it will take all reasonable steps to adequately diversify the Portfolio so as to achieve compliance within the grace period afforded by Section 1.817-5 of the regulations under the Code.
3.8 The Fund represents and warrants that each Portfolio is currently qualified as a regulated investment company (RIC) under Subchapter M of the Code, and represents that it will use its best efforts to qualify and to maintain qualification of each Portfolio as a RIC. The Fund will notify the Company immediately in writing upon having a reasonable basis for believing that a Portfolio has ceased to so qualify or that it might not so qualify in the future.
3.9 The Company hereby certifies that it has established and maintains an anti-money laundering (AML) program that includes written policies, procedures and internal controls reasonably designed to identify its Contract owners and has undertaken appropriate due diligence efforts to know its customers in accordance with all applicable anti-money laundering regulations in its jurisdiction including, but not limited to, the USA PATRIOT Act of 2001 (the Patriot Act). The Company further confirms that it will monitor for suspicious activity in accordance with the requirements of the Patriot Act and any other applicable regulations. The Company agrees to provide the Fund with such information as it may reasonably request, including but not limited to, the filling out of questionnaires, attestations and other documents, to enable the Fund to fulfill its obligations under the Patriot Act, and, upon its request, to file a notice pursuant to Section 314 of the Patriot Act and the implementing regulations related thereto to permit the voluntary sharing of information between the parties hereto. Upon filing such a notice the Company agrees to forward a copy to the Fund, and further agrees to comply with all requirements under the Patriot Act and implementing regulations concerning the use, disclosure, and security of any information that is shared. To the best of Companys knowledge none of its customer(s): (i) is an individual or entity named on any lists administered by the United States Office of Foreign Assets Control (OFAC), European Union, United Nations and any other applicable sanctions regimes in which Company is doing business; and (ii) customer funds have not been derived from activities subject to sanctions administered by OFAC, European Union, United Nations and any other applicable sanctions regimes. Company has established procedures to identify customer(s) on such lists.
3.10 The Company acknowledges and agrees that it is the responsibility of the Company to determine investment restrictions under state insurance law applicable to any Portfolio, and that the Fund shall bear no responsibility to the Company for any such determination or the correctness of such determination. The Company has determined that the investment restrictions set forth in the current Prospectus are sufficient to comply with all investment restrictions under state insurance laws that are currently applicable to the Portfolios as a result of the Accounts investment therein. The Company shall inform the Fund of any additional investment restrictions imposed by state insurance law after the date of this Agreement that may become applicable to the Fund or any Portfolio from time to time as a result of the Accounts investment therein. Upon receipt of any such information from the Company, the Fund shall determine whether it is in the best interests of shareholders to comply with any such restrictions. If the Fund determines that it is not in the best interests of shareholders to comply with a restriction determined to be applicable by the Company, the Fund shall so inform the Company, and the Fund and the Company shall discuss alternative accommodations in the circumstances.
3.11 The Company represents and warrants that each Account is a segregated asset account and that interests in each Account are offered exclusively through the purchase of or transfer into a variable contract, within the meaning of such terms under Section 817 of the Code and the regulations thereunder. The Company will use its best efforts to continue to meet such definitional requirements, and it will notify the Fund immediately upon having a reasonable basis for believing that such requirements have ceased to be met or that they might not be met in the future.
ARTICLE 4
Potential Conflicts
4.1 The parties acknowledge that the Funds Shares may be made available for investment to other Participating Insurance Companies. In such event, the Directors of the Fund will monitor the Fund for the existence of any material irreconcilable conflict between the interests of the contract owners of all Participating Insurance Companies. A material irreconcilable 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 interpretative 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 any Portfolio are being managed; (e) a difference in voting instructions given by variable annuity contract and variable life insurance contract owners; or (f) a decision by a Participating Insurance Company to disregard the voting instructions of contract owners. The Directors shall promptly inform the Company in writing if they determine that an irreconcilable material conflict exists and the implications thereof.
4.2 The Company agrees to promptly report any potential or existing conflicts of which it is aware to the Directors. The Company will assist the Directors in carrying out their responsibilities under the Shared Fund Exemptive Order by providing the Directors with all information reasonably necessary for them to consider any issues raised including, but not limited to, information as to a decision by the Company to disregard Contract owner voting instructions.
4.3 If it is determined by a majority of the Directors, or a majority of the Directors who are not affiliated with BAL or the Underwriter (the Disinterested Directors), that a material irreconcilable conflict exists that affects the interests of Contract owners, the Company shall, in cooperation with other Participating Insurance Companies whose contract owners are also affected, at its expense and to the extent reasonably practicable (as determined by the Directors) take whatever steps are necessary to remedy or eliminate the irreconcilable material conflict, which steps could include: (a) withdrawing the assets allocable to some or all of the Accounts from the Fund or any Portfolio and reinvesting such assets in a different investment medium, including (but not limited to) another Portfolio of the Fund, or submitting the question of whether or not 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 Insurance Companies) that votes in favor of such segregation, or offering to the affected Contract owners the option of making such a change; and (b) establishing a new registered management investment company or managed separate account.
4.4 If a material irreconcilable conflict arises because of a decision by the Company to disregard Contract owner voting instructions and that decision represents a minority position or would preclude a majority vote, the Company may be required, at the Funds election, to withdraw the affected Accounts investment in the Fund and terminate this Agreement with respect to such Account; 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. Any such withdrawal and termination must take place within 30 days after the Fund gives written notice that this provision is being implemented, subject to applicable law but in any event consistent with the terms of the Shared Fund Exemptive Order. Until the end of such 30 day period, the Fund shall continue to accept and implement orders by the Company for the purchase and redemption of Shares.
4.5 If a material irreconcilable conflict arises because a particular state insurance regulators decision applicable to the Company conflicts with the majority of other state regulators,
then the Company will withdraw the affected Accounts investment in the Fund and terminate this Agreement with respect to such Account within 30 days after the Fund informs 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 such 30 day period, the Fund shall continue to accept and implement orders by the Company for the purchase and redemption of Shares.
4.6 For purposes of section 4.3 through 4.6 of this Agreement, a majority of the Disinterested Directors shall determine whether any proposed action adequately remedies any irreconcilable material conflict, but in no event will the Company be required to establish a new funding medium for the Contracts if an offer to do so has been declined by vote of a majority of Contract owners materially adversely 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 Accounts investment in the Fund and terminate this Agreement within 30 days 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 as determined by a majority of the Disinterested Directors.
4.7 Upon request, the Company shall submit to the Directors such reports, materials or data as the Directors may reasonably request so that the Directors may fully carry out the duties imposed upon them by the Shared Fund Exemptive Order, and said reports, materials and data shall be submitted more frequently if deemed appropriate by the Directors.
4.8 If and to the extent that (a) Rule 6e-2 and Rule 6e-3 (T) are amended, or Rule 6e-3 is adopted, to provide exemptive relief from any provision of the 1940 Act or the rules promulgated thereunder with respect to mixed or shared funding (as defined in the application for the Shared Fund Exemptive Order) on terms and conditions materially different from those contained in the application for the Shared Fund Exemptive Order, or (b) the Shared Fund Exemptive Order is granted on terms and conditions that differ from those set forth in this Article 4, then the Fund and/or the Participating Insurance Companies, as appropriate, shall take such steps as may be necessary (a) 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, or (b) to conform this Article 4 to the terms and conditions contained in the Shared Fund Exemptive Order, as the case may be.
ARTICLE 5
Indemnification
5.1 The Company agrees to indemnify and hold harmless the Fund Parties and each of their respective Directors, officers, employees and agents and each person, if any, who controls a Fund Party within the meaning of Section 15 of the 1933 Act (collectively the Indemnified Parties for purposes of this Section 5.1) against any and all losses, claims, damages, liabilities (including amounts paid in settlement with the written consent of the Company) or expenses (including the reasonable costs of investigating or defending any loss, claim, damage, liability or expense and reasonable legal counsel fees incurred in connection therewith) (collectively, Losses), to which the Indemnified Parties may become subject under any statute or regulation, or common law or otherwise, insofar as such Losses:
(a) arise out of or are based upon any untrue statements or untrue statements of any material fact contained in the registration statement, prospectus(es) or statements of additional information for the Contracts or in the Contracts themselves or in sales literature or other promotional material
generated or approved by the Company on behalf of the Contracts or Accounts (or any amendment or supplement to any of the foregoing) (collectively, Company Documents for the purposes of this Article 5), 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, provided that this indemnity shall not apply as to any Indemnified Party if such statement or omission was made in reliance upon and was accurately derived from written information furnished to the Company by or on behalf of the Fund or Underwriter for use in Company Documents or otherwise for use in connection with the sale of the Contracts or Shares; or
(b) arise out of or result from statements or representations (other than statements or representations contained in and accurately derived from Fund Documents as defined in Section 5.2(a)) or wrongful conduct of the Company or persons under its control, with respect to the sale or acquisition of the Contracts or Shares; or
(c) arise out of or result from any untrue statement of a material fact contained in Fund Documents as defined in Section 5.2(a) or the 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 and accurately derived from written information furnished to the Fund or Underwriter by or on behalf of the Company; or
(d) arise out of or result from any failure by the Company to provide the services or furnish the materials required under the terms of this Agreement; or
(e) arise out of or result from any material breach of any representation and/or warranty made by the Company in this Agreement or any Related Agreement or arise out of or result from any other material breach of this Agreement or any Related Agreement by the Company.
5.2 The Underwriter and the Fund agree severally to indemnify and hold harmless the Company and each of its directors, officers, employees and agents and each person, if any, who controls the Company within the meaning of Section 15 of the 1933 Act (collectively, the Indemnified Parties for purposes of this Section 5.2) against any and all losses, claims, damages, liabilities (including amounts paid in settlement with the written consent of the Fund Parties) or expenses (including the reasonable costs of investigating or defending any loss, claim, damage liability or expense and reasonable legal counsel fees incurred in connection therewith) (collectively, Losses), to which the Indemnified Parties may become subject under any statute or regulation, or at common law or otherwise, insofar as such Losses:
(a) arise out of or are based upon any untrue statements of any material fact contained in the registration statement or Prospectus for the Fund (or any amendment or supplement thereto) (collectively, Fund Documents for the purposes of this Article 5), 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, provided that this indemnity shall not apply as to any Indemnified Party if such statement or omission was made in reliance upon and was accurately derived from written information furnished to the Fund Parties by or on behalf of the Company for use in Fund Documents or otherwise for use in connection with the sale of the Contracts or Shares; or
(b) arise out of or result from statements or representations (other than statements or representations contained in and accurately derived from Company Documents) or wrongful conduct of a Fund Party or persons under its respective control, with respect to the sale or acquisition of the Contracts or Shares; or
(c) arise out of or result from any untrue statement of a material fact contained in Company Documents or the 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 and accurately derived from written information furnished to the Company by or on behalf of the Fund Parties;
(d) arise out of or result from any failure by a Fund Party to provide the services or furnish the materials required under the terms of this Agreement; or
(e) arise out of or result from any material breach of any representation and/or warranty made by the Underwriter or the Fund in this Agreement or any Related Agreement or arise out of or result from any other material breach of this Agreement or any Related Agreement by the Underwriter or the Fund.
5.3 Neither the Company, the Underwriter nor the Fund shall be liable under the indemnification provisions of Section 5.1 or 5.2, as applicable, with respect to any Losses incurred or assessed against any Indemnified Party to the extent such Losses arise out of or result from such Indemnified Partys willful misfeasance, bad faith or gross negligence in the performance of such Indemnified Partys duties or by reason of such Indemnified Partys reckless disregard of obligations or duties under this Agreement.
5.4 Neither the Company, the Underwriter nor the Fund shall be liable under the indemnification provisions of Section 5.1 or 5.2, as applicable, with respect to any claim made against an Indemnified Party unless such Indemnified Party shall have notified the other parties in writing within a reasonable time after the summons, or other first written notification, giving information of the nature of the claim shall have been served upon or otherwise received by such Indemnified Party (or after such Indemnified Party shall have received notice of service upon or other notification to any designated agent), but failure to notify the party against whom indemnification is sought of any such claim shall not relieve that party from any liability which it may have to the Indemnified Party in the absence of Sections 5.1 and 5.2.
5.5 In case any such action is brought against the Indemnified Parties, the indemnifying party shall be entitled to participate, at its own expense, in the defense of such action. The indemnifying party also shall be entitled to assume the defense thereof, with counsel reasonably satisfactory to the party named in such action. After notice from the indemnifying party to the Indemnified Party of an election to assume such defense, the Indemnified Party shall bear the fees and expenses of any additional counsel retained by it, and the indemnifying party will not be liable to the Indemnified 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 6
Termination
6.1 This Agreement may be terminated by any party for any reason by sixty (60) days advance written notice to the other parties.
6.2 This Agreement may be terminated by any party immediately upon written notice to the other parties upon institution of formal proceedings against the Company, the Underwriter or the Fund by FINRA, the SEC, the insurance commission of any state or any other regulatory body regarding duties under this Agreement or related to the sale of the Contracts, the operation of the Account(s), the operation of the Fund, the administration of the Contracts or the purchase of the Shares, or an expected or anticipated ruling, judgment or outcome which would, in the terminating partys reasonable judgment, materially impair its ability to meet and perform its obligations and duties hereunder.
6.3 This Agreement may be terminated immediately upon written notice to the other parties at the option of the Fund or the Underwriter if the Internal Revenue Service determines that the Contracts cease to qualify as annuity contracts or life insurance policies, as applicable, under the Code, or if the Fund or Underwriter reasonably believes that the Contracts may fail to so qualify or if interests in an Account under the Contracts are not registered, where required, and, in all material respects, are not issued or sold in accordance with any applicable federal or state law.
6.4 This Agreement may be terminated immediately upon written notice to the other parties by the Fund or the Underwriter, at eithers option, if either the Fund or the Underwriter shall determine, in its sole judgment exercised in good faith, that (1) the Company shall have suffered a material adverse change in its business or financial condition, (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 Fund or the Underwriter, or (3) the Company breaches any obligation under this Agreement or any Related Agreement in a material respect and such breach shall continue unremedied for thirty (30) days after receipt by the Company of notice in writing from the Fund or Underwriter of such breach.
6.5 This Agreement may be terminated immediately upon written notice to the other parties at the option of the Company if (A) the Internal Revenue Service determines that any Portfolio fails to qualify as a RIC under the Code or fails to comply with the diversification requirements of Section 817(h) of the Code and the Fund, upon written request fails to provide reasonable assurance that it will take action to cure such failure, or (B) the Company shall determine, in its sole judgment exercised in good faith, that (1) the Fund or the Underwriter shall have suffered a material adverse change in its business or financial condition, (2) the Fund or the Underwriter shall have been the subject of material adverse publicity which is likely to have a material adverse impact upon the business and operations of the Company, or (3) the Fund or Underwriter breaches any obligation under this Agreement or any Related Agreement in a material respect and such breach shall continue unremedied for thirty (30) days after receipt of notice in writing to the Fund or the Underwriter from the Company of such breach.
6.6 Notwithstanding any termination of this Agreement, the Fund and the Underwriter may continue to make available additional Shares of the Portfolios of the Fund pursuant to the terms and conditions of this Agreement, for all existing Contracts in effect on the effective date of termination of this Agreement (hereinafter referred to as Existing Contracts). Specifically, without limitation, if the Fund and Underwriter so agree to make additional Shares available, the owners of the Existing Contracts will be permitted to reallocate investments in the Fund (as in effect on such date), 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 this Article 6, the Fund and the Underwriter shall promptly notify the Company in writing whether the Underwriter and the Fund will continue to make Shares available to Existing Contracts after such termination; if the Underwriter and the Fund will continue to make Shares so available, the provisions of this Agreement shall remain in effect with respect to transactions in Shares by such Existing Contracts except for Section 6.1 and thereafter either the Fund, Underwriter or the Company may terminate the Agreement as so continued pursuant to this Section 6.6 upon prior written notice to the other parties, such notice to be for a period that is reasonable under the circumstances but need not be greater than six months.
6.7 The provisions of Section 2.11, Articles 5, 7 and 8 and Section 10 of Schedule C shall survive the termination of this Agreement, and the provisions of Articles 2 and 4 shall survive the termination of this Agreement as long as Shares of the Fund are held on behalf of Contract owners.
ARTICLE 7
Notices
Unless otherwise specified in this Agreement, any notice shall be sufficiently given when sent by registered or certified mail (postage prepaid, return receipt requested) or by prepaid courier (return receipt requested) to the other parties at the addresses of such parties set forth below or at such other addresses as such parties may from time to time specify in writing to the other parties in accordance with this Article 7.
To the Advisor: |
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With a copy to: |
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BlackRock Advisors, LLC |
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BlackRock, Inc. |
Attn: Lisa Hill, Managing Director |
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Attn: General Counsel |
U.S. Retail, Contracts & Administration |
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40 East 52nd Street |
55 East 52nd Street |
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New York, NY 10022 |
New York, NY 10055 |
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To BRIL: |
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with a copy to: |
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BlackRock Investments, LLC |
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BlackRock Investments, LLC |
Attn: Frank Porcelli |
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Attn: Chief Compliance Officer |
Managing Director, |
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400 Howard Street |
Global Client Group |
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San Francisco, CA 94105 |
55 East 52nd Street |
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New York, NY 10055 |
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If to the Company: |
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With a copy to: |
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NATIONAL LIFE INSURANCE COMPANY |
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Attn: Scott Edblom |
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Attn: Keith Jones |
Vice President, |
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Senior Counsel |
Product Strategy and Innovation |
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15455 North Dallas Parkway, Suite 1100 |
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One National Life Drive |
Addison, TX 75001 |
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Montpelier, VT 05604 |
ARTICLE 8
Miscellaneous
8.1 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.
8.2 This Agreement may be executed in two or more counterparts, each of which shall be deemed an original but all of which shall together constitute one and the same instrument.
8.3 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.
8.4 This Agreement, including the attached schedules, shall be interpreted, construed, and enforced in accordance with the laws of the State of New York, without reference to any conflict of laws provisions thereof that would cause the application of laws of any jurisdiction other than those of the State of New York, and shall, to the extent applicable, be subject to the provisions of the 1933, 1934, and 1940 Acts, 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 interpreted and construed in accordance therewith.
8.5 The parties to this Agreement acknowledge and agree that the Fund is a Maryland corporation, and that all liabilities of the Fund arising, directly or indirectly, under this Agreement, of any and every nature whatsoever, shall be satisfied solely out of the assets of the relevant Portfolio(s) of the Fund and that no Director, officer, agent or holder of Shares of the Fund shall be personally liable for any such liabilities.
8.6 Each party shall cooperate with each other party and all appropriate governmental authorities (including without limitation the SEC, FINRA 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.
8.7 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, to which the parties hereto are entitled under state and federal laws.
8.8 The parties to this Agreement acknowledge and agree that this Agreement shall not be exclusive in any respect.
8.9 This Agreement shall be binding upon and shall inure to the benefit of the parties and their respective successors and permitted assigns; provided, however, that neither this Agreement nor any rights, privileges, duties or obligations of the parties may be assigned by a party without the written consent of the other parties. Any attempted assignment in violation of this Section 8.9 shall be null and void.
8.10 No provisions of this Agreement may be amended or modified in any manner except by a written agreement properly authorized and executed by all parties.
8.11 This Agreement, including all attachments hereto, constitutes the entire agreement between the parties with respect to the subject matter contained herein, and supersedes all prior or contemporaneous understandings and agreements, both written and oral, with respect to such subject matter, including, without limitation, any agreements between the Company or its affiliates and (i) State Street Research & Management Company, its affiliates and/or the State Street
Research mutual funds or (ii) FAM Distributors, Inc. and/or the mutual funds previously advised by Merrill Lynch Investment Managers or one of its affiliates.
8.12 Nothing in this Agreement shall be construed to give any person or entity other than the parties hereto any legal or equitable claim, right or remedy. Rather, this Agreement is intended to be for the sole and exclusive benefit of the parties hereto.
8.13 NOTWITHSTANDING ANYTHING IN THIS AGREEMENT TO THE CONTRARY, IN NO EVENT SHALL ANY PARTY BE LIABLE FOR SPECIAL, CONSEQUENTIAL, INDIRECT OR INCIDENTAL DAMAGES (INCLUDING, BUT NOT LIMITED TO, LOST PROFITS), EVEN IF SUCH PARTY HAS BEEN ADVISED OF THE POSSIBILITY OF SUCH DAMAGES.
IN WITNESS WHEREOF, the parties have caused their duly authorized officers to execute this Fund Participation Agreement as of the Effective Date.
BLACKROCK VARIABLE SERIES FUNDS, INC. |
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By: |
/s/ Jennifer McGovern |
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Name: |
Jennifer McGovern |
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Title: |
Managing Director |
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BLACKROCK INVESTMENTS, LLC |
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By: |
/s/ Jonathan Maro |
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Name: |
Jonathan Maro |
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Title: |
Director |
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NATIONAL LIFE INSURANCE COMPANY |
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By: |
/s/ Scott Edblom |
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Name: |
Scott Edblom |
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Title: |
Vice President, Product Strategy and Innovation |
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Schedule A
Separate Accounts of NATIONAL LIFE INSURANCE COMPANY participating in Portfolios of BlackRock Variable Series Funds, Inc.
National Life Variable Life Insurance Account
National Variable Annuity Account II
Schedule B
Portfolios and Classes of BlackRock Variable Series Funds, Inc. now or in the future offered to Separate Accounts of NATIONAL LIFE INSURANCE COMPANY, including, but not limited to:
Fund Name |
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Class |
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CUSIP |
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Ticker |
Equity Funds |
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BlackRock Basic Value V.I. Fund |
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I |
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09253L405 |
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BAVLI |
BlackRock Basic Value V.I. Fund |
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II |
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09253L504 |
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BAVII |
BlackRock Basic Value V.I. Fund |
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III |
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09253L603 |
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BVIII |
BlackRock Capital Appreciation V.I. Fund |
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I |
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09253L843 |
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FDGRI |
BlackRock Capital Appreciation V.I. Fund |
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III |
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09253L827 |
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FGIII |
BlackRock Equity Dividend V.I. Fund |
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I |
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09253L512 |
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UTTLI |
BlackRock Equity Dividend V.I. Fund |
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III |
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09253L488 |
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UTIII |
BlackRock Global Allocation V.I. Fund |
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I |
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09253L777 |
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GLALI |
BlackRock Global Allocation V.I. Fund |
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II |
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09253L769 |
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GLAII |
BlackRock Global Allocation V.I. Fund |
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III |
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09253L751 |
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GAIII |
BlackRock Global Opportunities V.I. Fund |
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I |
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09253L819 |
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GLGRI |
BlackRock Global Opportunities V.I. Fund |
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III |
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09253L785 |
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GGIII |
BlackRock International V.I. Fund |
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I |
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09253L645 |
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IVVVI |
BlackRock iShares Alternative Strategies V.I. Fund |
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I |
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09253L397 |
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BVASX |
BlackRock iShares Alternative Strategies V.I. Fund |
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III |
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09253L389 |
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BASVX |
BlackRock iShares Dynamic Allocation V.I. Fund |
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I |
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09253L371 |
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BVDAX |
BlackRock iShares Dynamic Allocation V.I. Fund |
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III |
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09253L363 |
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BDAVX |
BlackRock iShares Equity Appreciation V.I. Fund |
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I |
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09253L447 |
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BVEAX |
BlackRock iShares Equity Appreciation V.I. Fund |
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III |
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09253L439 |
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BEAVX |
BlackRock Large Cap Core V.I. Fund |
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I |
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09253L611 |
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LGCCI |
BlackRock Large Cap Core V.I. Fund |
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II |
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09253L595 |
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LGCII |
BlackRock Large Cap Core V.I. Fund |
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III |
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09253L587 |
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LCIII |
BlackRock Large Cap Growth V.I. Fund |
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I |
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09253L579 |
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LGGGI |
BlackRock Large Cap Growth V.I. Fund |
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III |
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09253L553 |
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LGIII |
BlackRock Large Cap Value V.I. Fund |
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I |
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09253L546 |
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LCATT |
BlackRock Large Cap Value V.I. Fund |
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II |
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09253L538 |
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LCBTT |
BlackRock Large Cap Value V.I. Fund |
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III |
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09253L520 |
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LVIII |
BlackRock Managed Volatility V.I. Fund |
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I |
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09253L108 |
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AMBLI |
BlackRock Value Opportunities V.I. Fund |
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I |
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09253L470 |
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SMCPI |
BlackRock Value Opportunities V.I. Fund |
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II |
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09253L462 |
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SMCII |
BlackRock Value Opportunities V.I. Fund |
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III |
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09253L454 |
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SCIII |
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Fixed Income Funds |
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BlackRock High Yield V.I. Fund |
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I |
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09253L710 |
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HICUI |
BlackRock High Yield V.I. Fund |
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III |
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09253L686 |
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HCIII |
BlackRock iShares Dynamic Fixed Income V.I. Fund |
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I |
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09253L421 |
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BVDFX |
BlackRock iShares Dynamic Fixed Income V.I. Fund |
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III |
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09253L413 |
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BDFVX |
BlackRock Total Return V.I. Fund |
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I |
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09253L702 |
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CRBDI |
BlackRock Total Return V.I. Fund |
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III |
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09253L884 |
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CBIII |
BlackRock U.S. Government Bond V.I. Fund |
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I |
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09253L744 |
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GVBDI |
BlackRock U.S. Government Bond V.I. Fund |
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III |
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09253L728 |
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GBIII |
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Index Fund |
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BlackRock S&P 500 Index V.I. Fund |
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I |
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09253L678 |
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IDXVI |
BlackRock S&P 500 Index V.I. Fund |
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II |
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09253L660 |
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IXVII |
Money Market Fund |
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BlackRock Government Money Market V.I. Fund* |
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I |
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09253L876 |
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DMMKI |
*No payments for administrative services will be made on this Portfolio. |
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Schedule C
Shareholder Information Schedule entered into by and between BlackRock Investments, LLC and its successors, assigns and designees (BRIL) and the Intermediary.
For Schedule C, the following terms shall have the following meanings, unless a different meaning is clearly required by the contexts:
The term Intermediary shall mean National Life Insurance Company, which is (i) a broker, dealer, bank, or other entity that holds securities of record issued by the Fund in nominee name; (ii) in the case of a participant directed employee benefit plan that owns securities issued by the Fund (1) a retirement plan administrator under ERISA or (2) any entity that maintains the plans participant records; or (iii) an insurance company separate account.
The term Fund shall mean any open-ended management investment company that is registered or required to register under Section 8 of the Investment Company Act of 1940 and for which BRIL acts as distributor, and includes (i) an investment adviser to or administrator for the Fund; and (ii) the transfer agent for the Fund. The term not does include any excepted funds as defined in SEC Rule 22c-2(b) under the Investment Company Act of 1940.(1)
The term Shares means the interests of Shareholders corresponding to the redeemable securities of record issued by the Fund under the Investment Company Act of 1940 that are held by the Intermediary.
The term Shareholder means the holder of interests in a variable annuity or variable life insurance contract issued by the Intermediary (Contract), or a participant in an employee benefit plan with a beneficial interest in a contract.
The term Shareholder-Initiated Transfer Purchase means a transaction that is initiated or directed by a Shareholder that results in a transfer of assets within a Contract to a Fund, but does not include the following: (i) transactions that are executed automatically pursuant to a contractual or systematic program or enrollment such as transfer of assets within a Contract to a Fund as a result of dollar cost averaging programs, insurance company approved asset allocation programs, or automatic rebalancing programs; (ii) transactions that are executed pursuant to a Contract death benefit; (iii) one-time step-up in Contract value pursuant to a Contract death benefit; (iv) allocation of assets to a Fund through a Contract as a result of payments such as loan repayments, scheduled contributions, retirement plan salary reduction contributions, or planned premium payments to the Contract; or (v) prearranged transfers at the conclusion of a required free look period.
The term Shareholder-Initiated Transfer Redemption means a transaction that is initiated or directed by a Shareholder that results in a transfer of assets within a Contract out of a Fund, but does not include transactions that are executed: (i) automatically pursuant to a contractual or systematic program or enrollments such as transfers of assets within a Contract out of a Fund as a result of annuity payouts, loans, systematic withdrawal programs, insurance company approved asset allocation programs and automatic rebalancing programs; (ii) as a result of any deduction of charges or fees under a Contract; (iii) within a Contract out of a Fund as a result of scheduled withdrawals or surrenders from a Contract; or (iv) as a result of payment of a death benefit from a Contract.
(1) As defined in SEC Rule 22c-2(b), term excepted fund means any: (1) money market fund; (2) fund that issues securities that are listed on a national exchange; and (3) fund that affirmatively permits short-term trading of its securities, if its prospectus clearly and prominently discloses that the fund permits short-term trading of its securities and that such trading may result in additional costs for the fund.
BRIL and the Intermediary hereby agree as follows:
Shareholder Information
1. Agreement to Provide Information. Intermediary agrees to provide the Fund or its designee, upon written request of BRIL or the Fund, the taxpayer identification number (TIN), the Individual/International Taxpayer Identification Number (ITIN), or other government issued identifier (GII) and the Contract owner number or participant account number associated with the Shareholder, if known, of any or all Shareholder(s) of the account, and the amount, date, name or other identifier of any investment professional(s) associated with the Shareholder(s) or the account (if known) and transaction type (purchase, redemption, transfer, or exchange) of every purchase, redemption, transfer, or exchange of Shares held through an account maintained by the Intermediary during the period covered by the request. Unless otherwise specifically requested by the Fund, the Intermediary shall only be required to provide information relating to Shareholder-Initiated Transfer Purchases or Shareholder-Initiated Transfer Redemptions.
2. Period Covered by Request. Requests must set forth a specific period, which generally will not exceed 90 days from the date of the request, for which transaction information is sought. BRIL and/or the Fund may request transaction information older than 90 days from the date of the request as they deem necessary to investigate compliance with policies (including, but not limited to, polices of the Fund regarding market-timing and the frequent purchasing and redeeming or exchanges of Fund shares or any other inappropriate trading activity) established or utilized by the Fund for the purpose of eliminating or reducing any dilution of the value of the outstanding shares issued by the Fund.
3. Form and Timing of Response. (a) Intermediary agrees to provide, promptly, but in any event not later than five (5) business days after receipt of a request from the Fund, BRIL or their designee, the requested information specified in Section 1. If requested by the Fund, BRIL or their designee, Intermediary agrees to use best efforts to determine promptly, but in any event not later than five (5) business days after receipt of a request, whether any specific person about whom it has received the identification and transaction information specified in Section 1 is itself a financial intermediary (as defined in Rule 22c-2) (indirect intermediary) and, upon further request of the Fund, BRIL or their designee, promptly, but in any event not later than five (5) business days after receipt of a request, either (i) provide (or arrange to have provided) the information set forth in Section 1 for those Shareholders who hold an account with an indirect intermediary or (ii) restrict or prohibit the indirect intermediary from purchasing, in nominee name on behalf of other persons, securities issued by the Fund. Intermediary additionally agrees to inform the Fund whether it plans to perform (i) or (ii).
(b) Responses required by this paragraph must be communicated in writing and in a format mutually agreed upon by the Fund, BRIL or their designee and the Intermediary; and
(c) To the extent practicable, the format for any transaction information provided to the Fund, BRIL or their designee should be consistent with the NSCC Standardized Data Reporting Format.
4. Limitations on Use of Information. BRIL and the Fund agree not to use the information received pursuant to this Agreement for any purpose other than as necessary to comply with the provisions of Rule 22c-2 or to fulfill other regulatory requests or legal requirements subject to the privacy provisions of Title V of the Gramm-Leach-Bliley Act (Public Law 106-102) and comparable state laws.
5. Agreement to Restrict Trading. Intermediary agrees to execute written instructions from BRIL or the Fund to restrict or prohibit further purchases or exchanges of Shares by a Shareholder that has been identified by BRIL or the Fund, in their sole discretion, as having engaged in transactions of the
Funds Shares (directly or indirectly through the Intermediarys account) that violate policies (including, but not limited to, policies of the Fund regarding market-timing and the frequent purchasing and redeeming or exchanging of Fund Shares or any other inappropriate trading activity) established or utilized by the Fund for the purpose of eliminating or reducing, or that would result in any dilution of the value of the outstanding Shares issued by the Fund. Unless otherwise directed by the Fund, any such restrictions or prohibitions shall only apply to Shareholder-Initiated Transfer Purchases or Shareholder-Initiated Transfer Redemptions that are effected directly or indirectly through Intermediary. Instructions must be received by Intermediary at the following address, or such other address that Intermediary may communicate to BRIL or the Fund in writing from time to time, including, if applicable, an e-mail and/or facsimile telephone number:
Penny Dooley
pdooley@nationallife.com
(802)229-3327
6. Form of Instructions. Instructions to restrict or prohibit trading must include the TIN, ITIN, or GII and the specific individual Contract owner number or participant account number associated with the Shareholder, if known, and the specific restriction(s) to be executed, including how long the restriction(s) is(are) to remain in place. If the TIN, ITIN, GII or the specific individual Contract owner number or participant account number associated with the Shareholder is not known, the instructions must include an equivalent identifying number of the Shareholder(s) or account(s) or other agreed upon information to which the instruction relates.
7. Timing of Response. Intermediary agrees to execute instructions to restrict or prohibit trading as soon as reasonably practicable, but not later than five (5) business days after receipt of the instructions by the Intermediary.
8. Confirmation by Intermediary. Intermediary must provide written confirmation to BRIL and the Fund that instructions to restrict or prohibit trading have been executed. Intermediary agrees to provide confirmation as soon as reasonably practicable, but not later than ten (10) business days after the instructions have been executed.
9. Construction of the Schedule; Fund Participation Agreement. This Schedule C supplements the Fund Participation Agreement. To the extent the terms of this Schedule C conflict with the terms of the Fund Participation Agreement, the terms of this Schedule C shall control.
10. Termination. This Schedule C will terminate upon the termination of the Fund Participation Agreement (except for obligations arising from trading activities that occurred prior to such termination and transactions in Shares by Existing Contracts pursuant to Section 6.6 of the Fund Participation Agreement).
Exhibit 99.(8)(e)1
FORM OF DISTRIBUTION SUB-AGREEMENT
BLACKROCK VARIABLE SERIES FUNDS, INC. (the Company), on behalf of each of its series as may be amended from time to time (the Portfolios), and NATIONAL LIFE INSURANCE COMPANY (the Insurance Company) mutually agree to the arrangements set forth in this Agreement (the Agreement) dated as of May 1, 2016.
WHEREAS, the Company is an open-end investment company registered under the Investment Company Act of 1940, as amended (the Investment Company Act); and
WHEREAS, the Insurance Company issues variable life insurance policies and/or variable annuity contracts (the Contracts); and
WHEREAS, amounts invested in the Contracts by Contract holders are deposited in separate accounts of the Insurance Company which in turn purchase Class II and or Class III Shares of one or more of the Portfolios, each of which is an investment option offered by the Contracts; and
WHEREAS, the Insurance Company will provide certain services to the Contract holders; and
WHEREAS, the Insurance Company desires to be compensated for providing such services to the Contract holders.
NOW, THEREFORE, the parties agree as follows:
1. Services. The Insurance Company shall provide the services listed below in respect of the Class II and/or Class III Shares of the Portfolios held by the Insurance Companys separate accounts. Such services include, but are not limited to, the following:
(a) printing and mailing of Company prospectuses, statements of additional information, any supplements thereto and shareholder reports for existing and/or prospective Contract holders;
(b) services relating to the development, preparation, printing and mailing of Company advertisements, sales literature and other promotional materials describing and/or relating to the Portfolios and including materials intended for use within the Insurance Company, or for broker-dealer only use or retail use;
(c) holding seminars and sales meetings designed to promote the distribution of the Class II and/or Class III Shares of the Portfolios;
(d) obtaining information and providing explanations to Contract holders regarding the investment objectives and policies and other information about the Company and the Portfolios, including the performance of the Portfolios;
(e) training sales personnel regarding the Company and the Portfolios;
(f) compensating sales personnel in connection with the allocation of cash values and premiums of the Contract holders to the Company;
(g) providing personal services and/or maintenance of the accounts of Contract holders with respect to Class II and/or Class III Shares of the Portfolios attributable to such accounts;
(h) financing any other activity that the Companys Board of Directors determines is primarily intended to result in the sale of the Class II and/or Class III Shares.
2. Distribution Fee Payments. The Company agrees to pay, with respect to each Portfolio, to the Insurance Company at the end of each month an amount equal to redacted% of the average daily net asset value of the Class II Shares or redacted% of the average daily net asset value of the Class III Shares of such Portfolio held by the Insurance Company separate accounts during that month.
The Insurance Company shall provide BlackRock Investments, LLC (the Distributor) such information as reasonably requested by the Distributor to enable the Distributor to comply with the reporting requirements of Rule 12b-1 under the Investment Company Act (Rule 12b-1) regarding the disbursement of the distribution fee during such period.
3. Termination. This Agreement may be terminated at any time with respect to a Portfolio, without the payment of any penalty, by vote of a majority of the members of the Board of Directors of the Company who are not interested persons of the Company, as defined in the Investment Company Act, and have no direct or indirect financial interest in the operation of the Plan or in any agreement related to the Plan or a majority of the outstanding voting securities (as defined in the Investment Company Act) of the Portfolio on not more that 60 days written notice to the Insurance Company.
4. Amendment. This Agreement may be amended only upon mutual agreement of the parties hereto in writing.
5. Notices. All notices, requests, demands and other communications hereunder shall be in writing and shall be deemed to have been duly given if delivered.
To the Company: |
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With a copy to: |
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BlackRock Variable Series Funds, Inc. |
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BlackRock, Inc. |
Attn: Lisa Hill, Managing Director |
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Attn: Howard Surloff, Managing Director |
U.S. Retail, Contracts & Administration |
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General Counsels Office |
55 East 52nd Street |
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40 East 52nd Street |
New York, NY 10055 |
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New York, NY 10022 |
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To the Insurance Company: |
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With a copy to: |
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Attn: Scott Edblom |
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Attn: Keith Jones |
Vice President, |
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Senior Counsel |
Product Strategy and Innovation |
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15455 North Dallas Pkwy, Suite 1100 |
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One National Life Drive |
Addison, TX 75001 |
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Montpelier, VT 05604 |
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6. Miscellaneous.
(a) Assignment. This Agreement shall automatically terminate in the event of its assignment (as defined in the Investment Company Act) or in the event of the termination of the Plan or any amendment to the Plan that requires such termination.
(b) Intended Beneficiaries. Nothing in this Agreement shall be construed to give any person or entity other than the parties hereto any legal or equitable claim, right or remedy. Rather, this Agreement is intended to be for the sole and exclusive benefit of the parties hereto.
(c) Counterparts. This Agreement may be executed in counterparts, each of which shall be deemed an original but all of which shall together constitute one and the same instrument.
(d) Applicable Law. This Agreement shall be interpreted, construed, and enforced in accordance with the laws of the State of New York, without reference to the conflict of law principles thereof.
(e) Severability. If any portion of this Agreement shall be found to be invalid or unenforceable by a court or tribunal or regulatory agency of competent jurisdiction, the remainder shall not be affected thereby, but shall have the same force and effect as if the invalid or unenforceable portion had not been inserted.
BlackRock Variable Series Funds, Inc.
BlackRock Basic Value V.I. Fund
BlackRock Capital Appreciation V.I. Fund
BlackRock Equity Dividend V.I. Fund
BlackRock Global Allocation V.I. Fund
BlackRock Global Opportunities V.I. Fund
BlackRock Large Cap Core V.I. Fund
BlackRock Large Cap Growth V.I. Fund
BlackRock Large Cap Value V.I. Fund
BlackRock Value Opportunities V.I. Fund
BlackRock High Yield V.I. Fund
BlackRock Total Return V.I. Fund
BlackRock U.S. Government Bond V.I. Fund
BlackRock S&P 500 Index V.I. Fund
BlackRock iShares Alternative Strategies V.I. Fund
BlackRock iShares Dynamic Allocation V.I. Fund
BlackRock iShares Dynamic Fixed Income V.I. Fund
BlackRock iShares Equity Appreciation V.I. Fund
IN WITNESS WHEREOF, the parties hereto have caused the foregoing instrument to be executed by their duly authorized officers, all as of the day and the year first above written.
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BLACKROCK VARIABLE SERIES FUNDS, INC. | ||
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By: |
/s/ Jennifer McGovern | |
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Name: Jennifer McGovern | ||
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Title: Managing Director | ||
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NATIONAL LIFE INSURANCE COMPANY | ||
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By: |
/s/ Scott Edblom | |
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Name: Scott Edblom | ||
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Title: Vice President, Product Strategy & Innovation | ||
Exhibit 99.(8)(e)2
ADMINISTRATIVE SERVICES AGREEMENT
THIS AGREEMENT is executed as of May 1, 2016, and effective as of May 1, 2016 (the Effective Date, between BLACKROCK ADVISORS, LLC (BAL) and NATIONAL LIFE INSURANCE COMPANY, a life insurance company organized under the laws of the State of Vermont (the Insurer).
WHEREAS, BAL is the investment advisor to the BlackRock Variable Series Funds, Inc. (the Fund); and
WHEREAS, the Insurer issues variable annuity contracts and/or variable life insurance policies (the Contracts); and
WHEREAS, the Insurer, the Fund and BlackRock Investments, LLC have entered into a Fund Participation Agreement (Participation Agreement) executed as of May 1, 2016 and effective as of May 1, 2016, providing for the sale of shares of the Fund to certain separate accounts of the Insurer (Separate Accounts); and
WHEREAS, amounts invested in the Contracts by contract owners (Contract owners) are deposited in the Separate Accounts of the Insurer which will in turn purchase shares of certain portfolios of the Fund, each of which is an investment option offered by the Contracts (the Portfolios); and
WHEREAS, the Fund may derive savings in administrative expenses by virtue of having the Separate Accounts of the Insurer as shareholders of record of Fund shares and having the Insurer perform certain administrative services for the Fund (which are identified on Schedule A hereto; and
WHEREAS, neither BAL nor the Insurer has any contractual or other legal obligation to perform such administrative services for the Fund; and
WHEREAS, the Insurer desires to be compensated for providing such administrative services to the Fund; and
WHEREAS, BAL desires that the Fund benefit from the lower administrative expenses expected to result from the administrative services performed by the Insurer holding omnibus accounts with the Funds transfer agent on behalf of Contract owners.
NOW, THEREFORE, the parties hereto agree as follows:
1. Administrative Expense Payments.
(a) BAL or its designee shall pay the Insurer an annual fee equal to Redacted of the average daily assets attributable to shares of the equity Portfolios, excluding index Portfolios, described on Schedule B of the Participation Agreement that are held in Separate Accounts of the Insurer.
(b) BAL or its designee shall pay the Insurer an annual fee equal to Redacted of the average daily assets attributable to shares of the fixed Income Portfolios, excluding index Portfolios, described on Schedule B of the Participation Agreement that are held in Separate Accounts of the Insurer.
(c) BAL or its designee shall pay the Insurer an annual fee equal to 5 basis points (0.05%) of the average daily assets attributable to shares of the index Portfolios described on Schedule B of the Participation Agreement that are held in Separate Accounts of the Insurer.
(d) At the end of each calendar quarter month (the Invoicing Period), Insurer shall provide BAL with such assistance as is reasonably requested by BAL or its designee to assist BAL in accurately calculating an invoice for such period. After this information is received from the Insurer, BAL or its designee shall send Insurer an invoice with the fees proposed by it to be paid for the Invoicing Period (the Invoice) and a statement demonstrating how the fees were calculated. Insurer shall have thirty (30) days from its receipt of the Invoice (the Thirty Day Reconciliation Period) to request (in writing) additions or adjustments. Unless Insurer requests additions or adjustments to the Invoice by the end of the Thirty Day Reconciliation Period (or such earlier date on which Insurer informs BAL or its designee in writing that it shall not dispute the Invoice), (i) Insurer shall waive any rights to dispute the Invoice, (ii) any subsequent additions or adjustments to the Invoice requested by Insurer shall be at the discretion of BAL or its designee and (iii) payment of the fees shall be made to Insurer by BAL or its designee within a reasonable time after the earlier to occur of (i) the date Insurer informs BAL or its designee in writing that it is not disputing the Invoice and (ii) the end of the Thirty Day Reconciliation Period. If Insurer requests additions or adjustments to the Invoice during the Thirty Day Reconciliation Period, payment of the fees shall be made to Insurer by BAL or its designee within a reasonable time after the parties agree upon a revised, final invoice (the Revised Invoice), and any subsequent additions or adjustments to the Revised Invoice requested by Insurer shall be at the discretion of BAL or its designee. The parties agree to negotiate the Revised Invoice promptly and in good faith. Information described in this paragraph shall be sent to email addresses provided by one party to the other from time to time.
The parties acknowledge and agree that the funds, assets and/or accounts covered under this Agreement (the Assets) will not be subject to fees or any additional payment arrangements with the Fund, BAL or BlackRock Investments, LLC (collectively, the Fund Parties) or any of their respective affiliates for administrative, sub-transfer agency, sub-accounting or networking services or for any similar services (Services), other than as described herein. The Insurer covenants that neither it, any of its affiliates, nor any entity with which the Insurer or any of its affiliates has established a contractual arrangement with respect to the Assets (a Third Party Entity) will invoice any of the Fund Parties or any of their respective affiliates for duplicative fees as described in the preceding sentence. If the Insurer, any affiliate of the Insurer or any Third Party Entity invoices any of the Fund Parties or any of their respective affiliates for duplicative fees for Services with respect to the Assets, upon the Insurers discovery of such occurrence or upon the request of BAL or its designee, the Insurer will promptly refund to BAL or its designee any duplicative fees paid to Insurer, any of its affiliates or any Third Party Entity. Refunds shall be made no more than thirty (30) days after the Insurer discovers the duplicative payment or receives a request of repayment of duplicative fees from BAL or its designee. If duplicative fees are not timely repaid to BAL or its designee, the Insurer authorizes any of the Fund Parties or any of their respective affiliates to offset such duplicative fees against any funds otherwise payable to the Insurer, any of its affiliates or any Third Party Entity by
any of the Fund Parties or any of their respective affiliates including, without limitation, commissions or services fees. Any invoices shall only cover time periods for which this Agreement is in effect.
(e) Notwithstanding anything herein to the contrary, BAL or its designee shall not be obligated to make any payments under this Agreement that exceed the maximum amounts permitted under any applicable rule or regulation, including any rule promulgated by the Financial Industry Regulatory Authority (FINRA).
(f) The Insurer hereby represents that the fees paid to it pursuant to this Agreement are reasonable in relation to the services it provides and reasonably similar to fees it receives for equivalent services provided to other parties.
(g) For the purpose of computing payments to the Insurer under this Section 1 with respect to any Separate Account, the average daily assets attributable to shares of a Portfolio held by the Separate Account for any calendar quarter will be computed by totaling the share net asset value multiplied by total number of shares of the Portfolio held by the Separate Account on each calendar day during the calendar quarter and dividing by the total number of calendar days during such calendar quarter.
2. Nature of Payments.
The parties to this Agreement recognize and agree that the payments to the Insurer are for administrative services only and do not constitute payment in any manner for investment advisory services or for costs of distribution of Contracts or of Fund shares and are not otherwise related to investment advisory or distribution services or expenses. The amount of administrative expense payments made to the Insurer pursuant to Section 1 of this Agreement is intended to reimburse or compensate the Insurer for providing administrative services with respect to the Contracts or any Separate Accounts.
3. Confidentiality.
Any basis point rates paid to the Insurer by BAL or its designee shall be deemed confidential information of the Fund Parties and shall not be disclosed by Insurer to any other person. Notwithstanding the foregoing, this shall not preclude the Insurer from making any required filings with its regulators, making any other disclosure required by law or disclosing a range of fees paid to it by fund companies so long as the specific basis point rates used to calculate the fees paid to the Insurer by BAL or its designee pursuant to this Agreement are not attributed to any of the Fund Parties.
4. Term and Termination.
(a) Any party may terminate this Agreement, without penalty, on thirty days advance written notice to the other party.
(b) This Agreement shall automatically terminate upon (i) the termination of the Participation Agreement, or (ii) the dissolution or bankruptcy of any party hereto, or in the event that any party hereto is placed in receivership or rehabilitation, or in the event that the management of its affairs is assumed by any governmental, regulatory or judicial authority.
5. Amendment; Waiver.
No modification of any provision of this Agreement will be binding unless in writing and executed by all parties to the Agreement. No waiver of any provision of this Agreement will be binding unless in writing and executed by the party granting such waiver. 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.
6. Notices.
Unless otherwise specified in this Agreement, any notice shall be sufficiently given when sent by registered or certified mail (postage prepaid, return receipt requested) or by prepaid courier (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 in accordance with this Section 6.
To BAL: |
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With a copy to: |
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BlackRock Advisors, LLC |
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BlackRock, Inc. |
Attn: Lisa Hill |
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Attn: General Counsel |
Managing Director |
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40 East 52nd Street |
U.S. Retail, Contracts & Administration |
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New York, NY 10022 |
55 East 52nd Street |
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New York, NY 10055 |
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To the Insurer: |
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With a copy to: |
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NATIONAL LIFE INSURANCE COMPANY |
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Attn: Scott Edblom |
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Attn: Keith Jones |
Vice President, Product Strategy and Innovation |
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Senior Counsel |
15455 North Dallas Parkway, Suite 1100 |
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One National Life Drive |
Addison, TX 75001 |
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Montpelier, VT 05604 |
7. Miscellaneous.
(a) Assignment. This Agreement shall be binding upon and shall inure to the benefit of the parties and their respective successors and permitted assigns; provided, however, that neither this Agreement nor any rights, privileges, duties or obligations of the parties may be assigned by a party without the written consent of the other party. Any attempted assignment in violation of this Section 7(a) shall be null and void.
(b) Intended Beneficiaries. Nothing in this Agreement shall be construed to give any person or entity other than the parties hereto any legal or equitable claim, right or remedy. Rather, this Agreement is intended to be for the sole and exclusive benefit of the parties hereto.
(c) Counterparts. This Agreement may be executed in two or more counterparts, each of which shall be deemed an original but all of which shall together constitute one and the same instrument.
(d) Applicable Law. This Agreement, including the attached schedules, shall be interpreted, construed, and enforced in accordance with the laws of the State of New York, without reference to any conflict of laws provisions thereof that would cause the application of laws of any jurisdiction other than those of the State of New York.
(e) Severability. If any provision of this Agreement shall be held or made invalid by court decision, statute, rule or otherwise, the remainder of the Agreement shall not be affected thereby.
(f) Entire Agreement. This Agreement, including all attachments hereto, is subject to the terms and conditions of the Participation Agreement. This Agreement, including the attachments hereto, and the Participation Agreement, including the attachments thereto, constitute the entire agreement between the parties with respect to the subject matter contained herein, and supersede all prior or contemporaneous understandings and agreements, both written and oral, with respect to such subject matter including, without limitation, any agreements between the Insurer or its affiliates and (i) State Street Research & Management Insurer, its affiliates and/or the State Street Research mutual funds or (ii) FAM Distributors, Inc. and/or the mutual funds previously advised by Merrill Lynch Investment Managers or one of its affiliates.
(g) Survival. The provisions of Sections 1(d), 1(e), 3, 6 and 7 shall survive the termination of this Agreement, and all the provisions of this Agreement shall survive the termination of this Agreement for so long as transactions in shares of the Fund are permitted pursuant to Section 6.6 of the Fund Participation Agreement.
(h) Captions. 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.
(i) Rights, Remedies and Obligations Cumulative. The rights, remedies and obligations contained in this Agreement are cumulative and are in addition to any and all rights, remedies, and obligations, at law or in equity, which the parties hereto are entitled to under state or federal laws.
(j) Cooperation. Each party shall cooperate with each other party and all appropriate governmental authorities (including without limitation the SEC, FINRA 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.
(k) Non-Exclusivity. The parties to this Agreement acknowledge and agree that this Agreement shall not be exclusive in any respect.
(l) NOTWITHSTANDING ANYTHING IN THIS AGREEMENT TO THE CONTRARY, IN NO EVENT SHALL ANY PARTY BE LIABLE FOR SPECIAL, CONSEQUENTIAL, INDIRECT OR INCIDENTAL DAMAGES (INCLUDING, BUT NOT LIMITED TO, LOST PROFITS), EVEN IF SUCH PARTY HAS BEEN ADVISED OF THE POSSIBILITY OF SUCH DAMAGES.
IN WITNESS WHEREOF, the parties hereto have executed this Agreement as of the Effective Date.
BLACKROCK ADVISORS, LLC |
NATIONAL LIFE INSURANCE COMPANY | |||
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By: |
/s/ Jonathan Maro |
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By: |
/s/ Scott Edblom |
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Name: |
Jonathan Maro |
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Name: |
Scott Edblom |
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Title: |
Director |
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Title: |
Vice President, |
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Product Strategy and Innovation |
Schedule A
ADMINISTRATIVE SERVICES FOR THE FUND
Maintenance of books and records
· Maintaining an inventory of share purchases to assist transfer agent in recording issuance of shares.
· Performing miscellaneous accounting services to assist transfer agent in recording transfers of shares (via net purchase orders).
· Reconciliation and balancing of the Separate Account at the Fund level in the general ledger and reconciliation of cash accounts at general account level.
Purchase Orders
· Determination of net amount of cash flow into the Fund.
· Reconciliation and notification of the Fund of net purchase orders and confirmation thereof.
Redemption Orders
· Determination of net amount required for redemptions by the Fund.
· Notification to the Fund of cash required to meet payments.
· Determination of cost of share redemptions.
Other Administrative Support
· Telephonic support for contract owners with respect to inquiries about the Fund (not including information about performance or related to sales.)
· Providing other administrative support to the Fund as mutually agreed between the Insurer and the Fund.
· Relieving the Fund of other usual or incidental administrative services provided to individual contract owners as mutually agreed between the Insurer and the Fund.
Exhibit 99.(8)(i)8
Amendment No. 2 to
Administrative Services Agreement
Franklin Templeton Services, LLC
National Life Insurance Company
THIS AMENDMENT is made by and between Franklin Templeton Services, LLC (the Fund Administrator) and National Life Insurance Company (the Company).
WHEREAS, The Company and the Fund Administrator have entered into an Administrative Services Agreement, dated as of May 1, 2004, as may be amended from time to time (the Agreement), concerning certain administrative services with respect to each series (Fund or Funds) of Franklin Templeton Variable Insurance Products Trust (the Trust) listed on the Schedule B of the Agreement;
WHEREAS, the Company and the Fund Administrator wish to amend the Agreement for the purpose of updating schedules and adding certain new Funds and variable life or variable annuity insurance contracts covered by the Agreement.
NOW, THEREFORE, in consideration of past and prospective business relations, the Fund Administrator and the Company hereby amend the Agreement as follows:
1. Schedules A and B of the Agreement are hereby deleted in their entirety and replaced with the Schedules A and B attached hereto.
2. All other terms and provisions of the Agreement not amended herein shall remain in full force and effect.
This Amendment is executed as of April 1, 2016
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NATIONAL LIFE INSURANCE COMPANY | |
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By: |
/s/ Scott Edblom |
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Name: |
Scott Edblom |
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Title: |
Vice President Product Strategy & Innovation |
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FRANKLIN TEMPLETON SERVICES, LLC | |
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By: |
/s/ Laura Fergenrson |
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Name: |
Laura Fergenrson |
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Title: |
Senior Vice President |
Schedule A
Administrative Services
Maintenance of Books and Records
· Assist as necessary to maintain book entry records on behalf of the Funds regarding issuance to, transfer within (via net purchase orders) and redemption by the Accounts of Fund shares.
· Maintain general ledgers regarding the Accounts holdings of Fund shares, coordinate and reconcile information, and coordinate maintenance of ledgers by financial institutions and other contract owner service providers.
Communication with the Funds
· Serve as the designee of the Funds for receipt of purchase and redemption orders from the Account and to transmit such orders, and payment therefore, to the Funds.
· Coordinate with the Funds agents respecting daily valuation of the Funds shares and the Accounts units.
· Purchase Orders
· Determine net amount available for investment in the Funds.
· Deposit receipts at the Funds custodians (generally by wire transfer).
· Notify the custodians of the estimated amount required to pay dividends or distributions.
· Redemption Orders
· Determine net amount required for redemptions by the Funds.
· Notify the custodian and Funds of cash required to meet payments.
· Purchase and redeem shares of the Funds on behalf of the Accounts at the then-current price in accordance with the terms of each Funds then current prospectus.
· Assistance in enforcing procedures adopted on behalf of the Trust to reduce, discourage, or eliminate market timing transactions in a Funds shares in order to reduce or eliminate adverse effects on a Fund or its shareholders.
Processing Distributions from the Funds
· Process ordinary dividends and capital gains.
· Reinvest the Funds distributions.
Reports
· Periodic information reporting to the Funds, including, but not limited to, furnishing registration statements, prospectuses or private offering memorandum, statements of additional information, reports, solicitations for instructions, disclosure statements, sales or promotional materials and any other filings with the Securities and Exchange Commission with respect to the Accounts invested in the Funds, if necessary.
· Periodic information reporting about the Funds to contract owners, including necessary delivery of the Funds prospectus and annual and semi-annual reports.
Fund-related Contract Owner Services
· Maintain adequate fidelity bond or similar coverage for all Company officers, employees, investment advisors and other individuals or entities controlled by the Company who deal with the money and/or securities of the Funds.
· Provide general information with respect to Fund inquiries (not including information about performance or related to sales).
· Provide information regarding performance of the Funds.
· Oversee and assist the solicitation, counting and voting of contract owner pass-through voting interests in the Funds pursuant to Fund proxy statements.
Other Administrative Support
· Provide other administrative and legal compliance support for the Funds as mutually agreed upon by the Company and the Funds or the Fund Administrator.
· Relieve the Funds of other usual or incidental administrative services provided to individual contract owners.
Schedule B
Administrative Expense Payments
The Fund Administrator agrees to pay the Company a fee, computed daily and paid quarterly in arrears, equal to an annual rate as set forth below, applied to the average daily net assets of the shares of the Funds held in the subaccounts of the Accounts. The payment will be computed and paid in the manner described more completely in the Agreement.
# |
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Company Name |
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Separate Account/ |
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Class/Funds of the Trust |
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Fee |
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Date of |
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1. |
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National Life Insurance Company |
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National Life Variable Life Insurance Account Yes |
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Class 1 Shares: |
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Redacted |
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12/01/08 |
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Class 2 Shares: |
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Redacted |
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05/01/04 |
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2. |
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National Life Insurance Company |
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National Variable Annuity Account II Yes |
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Class 1 Shares: |
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Redacted |
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12/01/08 |
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Class 2 Shares: |
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Redacted |
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05/01/04 |
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Class 4 Shares: |
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Redacted |
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05/01/16 |
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Exhibit 99.(8)(i)9
Amendment No. 5 to Participation Agreement
Franklin Templeton Variable Insurance Products Trust
Franklin/Templeton Distributors, Inc.
National Life Insurance Company
Equity Services, Inc.
Franklin Templeton Variable Insurance Products Trust (the Trust), Franklin/Templeton Distributors, Inc. (the Underwriter, and together with the Trust, we or us), National Life Insurance Company and Equity Services, Inc., your distributor (collectively, the Company you or your), on your behalf and on behalf of certain Accounts, (individually a Party, collectively, the Parties) have previously entered into a Participation Agreement dated May 1, 2004 and subsequently amended June 5, 2007, October 30, 2008, August 16, 2010 and January 15, 2013 (the Agreement). The Parties now desire to amend the Agreement by this amendment (the Amendment).
Except as modified hereby, all other terms and conditions of the Agreement shall remain in full force and effect. Unless otherwise indicated, the terms defined in the Agreement shall have the same meaning in this Amendment.
A M E N D M E N T
For good and valuable consideration, the receipt of which is hereby acknowledged, the Parties agree to amend the Agreement as follows:
1. Paragraph 3.3.1 of Section 3.3 of the Agreement is deleted and replaced in its entirety with the paragraph 3.3.1 below:
3.3 Manual Purchase and Redemption
3.3.1 You are hereby appointed as our designee for the sole purpose of receiving from Contract owners purchase and exchange orders and requests for redemption resulting from investment in and payments under the Contracts that pertain to subaccounts that invest in Portfolios (Instructions). Business Day shall mean any day on which the New York Stock Exchange is open for trading and on which the Trust calculates its net asset value pursuant to the rules of the SEC and its current prospectus. Close of Trading shall mean the close of trading on the New York Stock Exchange, generally 4:00 p.m. Eastern Time. You represent and warrant that all Instructions transmitted to us for processing on or as of a given Business Day (the Designated Day) shall have been received in proper form and time stamped by you prior to the Close of Trading on the Designated Day. Such Instructions shall receive the Portfolio share price next calculated following the Close of Trading on the Designated Day (the Designated Day Price), provided that we receive the Instructions from you before 9:00 a.m. Eastern Time on the Business Day following the Designated Day (the Submission Time). Any such Instructions that we receive after the Submission Time may, but are not guaranteed to, receive the Designated Day Price. You assume responsibility for any loss to a Portfolio caused by our receipt of Instructions after the Submission Time, including but not limited to, losses caused by such Instructions receiving the Designated Day Price, or any cancellation or correction made subsequent to the Submission Time. You will immediately pay the amount of such loss to a Portfolio upon notification by us. You represent and warrant that you have, maintain and periodically test, procedures and systems in place reasonably designed to prevent Instructions
received after the Close of Trading on a Designated Day from being executed with Instructions received before the Close of Trading on that Designated Day.
2. Paragraph 3.4.3 of Section 3.4 of the Agreement is deleted and replaced in its entirety with the paragraph 3.4.3 below:
3.4 Automated Purchase and Redemption
3.4.3 On each Business Day, you shall aggregate all purchase and redemption orders for shares of a Portfolio that you received prior to the Close of Trading. You represent and warrant that all orders for net purchases or net redemptions derived from Instructions received by you and transmitted to Fund/SERV for processing on or as of a given Business Day (the Designated Day) shall have been received in proper form and time stamped by you prior to the Close of Trading on the Designated Day. Such orders shall receive the Portfolio share price next calculated following the Close of Trading on the Designated Day (the Designated Day Price), provided that we receive Instructions from Fund/SERV by 9:00 a.m. Eastern Time on the Business Day following the Designated Day (the Submission Time). Any such Instructions that we receive after the Submission Time may, but are not guaranteed to, receive the Designated Day Price. You assume responsibility for any loss to a Portfolio caused by our receipt of Instructions after the Submission Time including, but not limited to, losses caused by such Instructions receiving the Designated Day Price, or any cancellation or correction made subsequent to the Submission Time. You will immediately pay the amount of such loss to a Portfolio upon notification by us. You represent and warrant that you have, maintain and periodically test, procedures and systems in place reasonably designed to prevent Instructions received after the Close of Trading on a Designated Day from being executed with Instructions received before the Close of Trading on that Designated Day.
3. Schedules C and G of the Agreement are deleted and replaced in their entirety with the Schedules C and G attached hereto, respectively.
4. All other terms and provisions of the Agreement not amended herein shall remain in full force and effect.
IN WITNESS WHEREOF, each of the Parties has caused its duly authorized officers to execute this Amendment as of April 1, 2016.
The Trust: |
FRANKLIN TEMPLETON VARIABLE INSURANCE PRODUCTS TRUST | ||
Only on behalf of |
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each Portfolio listed |
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on Schedule C of |
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the Agreement. |
By: |
/s/ Karen L. Skidmore | |
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Name: Karen L. Skidmore |
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Title: Vice President |
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The Underwriter: |
FRANKLIN/TEMPLETON DISTRIBUTORS, INC. | |
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By: |
/s/ Christopher A. Felchlin |
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Name: |
Christopher A. Felchlin |
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Title: |
Vice President |
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The Company: |
NATIONAL LIFE INSURANCE COMPANY | |
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By: |
/s/ Scott Edblom |
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Name: |
Scott Edblom |
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Title: |
Vice President Product Strategy & Innovation |
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The Distributor: |
EQUITY SERVICES, INC. | |
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By: |
/s/ Gregory D. Teese |
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Name: |
Gregory D. Teese |
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Title: |
Vice President - Compliance |
Schedule C
Available Portfolios and Classes of Shares of the Trust
1. Franklin Global Real Estate VIP Fund, Class 2
2. Franklin Small-Mid Cap Growth VIP Fund, Class 2
3. Franklin Small Cap Value VIP Fund, Class 2
4. Franklin Mutual Global Discovery VIP Fund, Class 1
5. Franklin Mutual Shares VIP Fund, Class 2
6. Franklin U.S. Government Securities VIP Fund, Class 1
7. Templeton Foreign VIP Fund, Class 2
8. Franklin Funding Funds Allocation VIP Fund, Class 4
9. Franklin High Income VIP Fund, Class 4
10. Franklin Mutual Global Discovery VIP Fund, Class 4
11. Franklin Rising Dividend VIP Fund, Class 4
12. Franklin Small-Mid Cap Growth VIP Fund, Class 4
13. Templeton Developing Markets VIP Fund, Class 4
14. Templeton Global Bond VIP Fund, Class 4
In addition to portfolios and classes of shares listed above, any additional Portfolios and classes of shares other than Class 3 shares are included in this Schedule C listing provided that:
(1) the General Counsel of Franklin Templeton Investments receives from a person authorized by you a written notice in the form attached (which may be electronic mail or sent by electronic mail) (Notice) identifying this Agreement as provided in the Notice and specifying: (i) the names and classes of shares of additional Portfolios that you propose to offer as investment options of the Separate Accounts under the Contracts; and (ii) the date that you propose to begin offering Separate Account interests investing in the additional Portfolios under the Contracts; and
(2) we do not within ten (10) Business Days following receipt of the Notice send you a writing (which may be electronic mail) objecting to your offering such Separate Accounts investing in the additional Portfolios and classes of shares under the Contracts.
Provided that we do not object as provided above, your Notice shall amend, supplement and become a part of this Schedule C and the Agreement.
FORM OF NOTICE PURSUANT TO SCHEDULE C OF PARTICIPATION AGREEMENT
To: |
General Counsel c/o |
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Linda Lai (Linda.lai@franklintempleton.com;) or |
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Kevin Kirchoff (Kevin.kirchoff@franklintempleton.com) |
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Fax: 650 525-7059 |
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Franklin Templeton Investments |
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1 Franklin Parkway, |
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Bldg. 920, 2nd Floor |
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San Mateo, CA 94403 |
With respect to the following agreement(s) (collectively, the Agreement)
(please reproduce and complete table for multiple agreements):
Date of Participation Agreement: |
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Insurance Company(ies): |
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Insurance Company Distributor(s): |
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As provided by Schedule C of the Agreement, this Notice proposes to Franklin Templeton Variable Insurance Products Trust, and Franklin/Templeton Distributors, Inc. the addition as of the offering date(s) listed below of the following Portfolios as additional investment options listed on Schedule C:
Names and Classes of Shares of Additional Portfolios Listing of current classes for your reference: Class 1 (no 12b-1 fee); Class 2 (12b-1 fee of 25 bps); Class 4 (12b-1 fee of 35 bps); or Class 5 (12b-1 fee of 15 bps). |
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Offering Date(s) |
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Name and title of authorized person of insurance company:
Contact Information:
Schedule G
Addresses for Notices
To the Company: |
National Life Insurance Company |
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National Life Drive |
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Montpelier, VT 05604 |
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Attention: Keith Jones, Senior Counsel |
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To the Distributor: |
Equity Services, Inc. |
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National Life Drive |
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Montpelier, VT 05604 |
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Attention: Counsel |
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To the Trust: |
Franklin Templeton Variable Insurance Products Trust |
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One Franklin Parkway, Bldg. 920 2nd Floor |
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San Mateo, California 94403 |
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Attention: Karen L. Skidmore, Vice President |
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To the Underwriter: |
Franklin/Templeton Distributors, Inc. |
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100 Fountain Parkway, Bldg. 140, 7th Floor |
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St. Petersburg, FL 33716 |
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Attention: Peter Jones, President |
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If to the Trust or Underwriter |
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with a copy to: |
Franklin Templeton Investments |
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One Franklin Parkway, Bldg. 920 2nd Floor |
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San Mateo, California 94403 |
|
Attention: General Counsel |
Exhibit 99.(8)(j)
PARTICIPATION AGREEMENT
THIS AGREEMENT, made and entered into this 7th day of April, 2016 by and between GOLDMAN SACHS VARIABLE INSURANCE TRUST, a statutory 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 engages in business as an open-end management investment company of the series-type offering shares of beneficial interest (the Trust Shares) in one or more separate series (Series), and each such Series represents an interest in a particular investment portfolio of securities and other assets (a Fund) and may be issued in 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 life 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 certain retirement plans and other persons as described herein; and
WHEREAS, an order of the Securities and Exchange Commission dated February 2, 1998, (File No. 812-10794) grants certain separate accounts supporting variable life insurance policies, their life insurance company depositors, and their principal underwriters, exemptions from Sections 9(a), 13(a), 15(a) and 15(b) of the Investment Company Act of 1940, and from Rules 6e-2(b)(15) and 6e-3(T)(b)(15) thereunder, to the extent necessary for such separate accounts to purchase and hold Trust Shares at the same time that such shares are sold to or held by separate accounts of affiliated and unaffiliated insurance companies supporting either variable annuity contracts or variable life insurance policies, or both, or by qualified pension and retirement plans (the SEC Order); 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 Trust 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. Accounts the separate accounts of the Company identified in Schedules 1A, 2A and 3A to this Agreement.
1.2 Applicable Law the federal securities laws as defined in Rule 38a-1 under the 1940 Act, any rules promulgated under the federal securities laws, FINRA regulations, any Applicable SEC Guidance, and any state or municipal laws or regulations that may apply to the Trust, the Distributor, the Company, the Accounts, or the Contracts.
1.3. Applicable SEC Guidance any applicable: (a) SEC release, opinion, or order, as well as any published no-action position or written interpretive guidance by the SEC staff; and (b) FINRA interpretive memoranda or notices to members, as well as any written interpretive guidance from the FINRA staff. Applicable SEC Guidance does not include oral statements, speeches, or informal guidance by the SEC or its staff.
1.4. Business Dayeach day that the Trust is open for business as provided in the Trusts Prospectus.
1.5. Codethe Internal Revenue Code of 1986, as amended, and any successor thereto.
1.6. Contractsthe class or classes of variable annuity contracts and/or variable life insurance policies issued by the Company and described more specifically on Schedules 1B, 2B, or 3B to this Agreement.
1.7. Contract Ownersthe owners of the Contracts, as distinguished from all Product Owners.
1.8. FINRAThe Financial Industry Regulatory Authority, Inc.
1.9. Fund Documents documents prepared by the Trust that, pursuant to Rule 498(e)(1), must be publicly accessible free of charge at the Web site address shown on the cover page or at the beginning of the Summary Prospectus.
1.10. Fund Documents Web Sitethe web site maintained by the Trust (or its agent) where Contract Owners, prospective Contract Owners, participants in Participating Plans, or individual investors who are Qualified Persons or invest through a Qualified Person may access Fund Documents.
1.11. Participating Accounta separate account investing all or a portion of its assets in the Trust, including the Accounts.
1.12. Participating Insurance Companyany life insurance company with a Participating Account, including the Company.
1.13. Participating Planany pension or profit-sharing plan qualified under Section 401 of the Code investing in the Trust and certain other retirement plans that are Qualified Persons investing in the Trust.
1.14. Participating Investorany Participating Account, Participating Insurance Company, Participating Plan, or other Qualified Person, including the Accounts and the Company.
1.15. Productsvariable annuity contracts and variable life insurance policies supported by Participating Accounts, including the Contracts.
1.16. Product Ownersowners of Products, including Contract Owners.
1.17. Prospectuswith respect to a Series (or Class) of Trust Shares or a class of Schedule 1 Contracts, each version of the definitive Prospectus or Summary Prospectus (where used or required to be used) and 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, Prospectus shall mean the version of the Prospectus for the applicable Series, Class or Contracts filed most recently (or most current for Schedule 2 Contracts and Schedule 3 Contracts) prior to the taking of such action. For purposes of Article IX, the term Prospectus shall include any statement of additional information incorporated therein. With respect to a class of Schedule 2 Contracts or Schedule 3 Contracts, Prospectus includes any offering circular or memorandum for such Contracts.
1.18. Qualified Person a person permitted to hold Trust Shares under Treasury Regulation Section 1.817-5(f), as supplemented by published rulings and procedures issued thereunder by the Internal Revenue Service, in order for any Fund of the Trust to qualify for look-through treatment by Participating Accounts in applying the diversification requirements of Section 817(h) of the Code by taking into account the portfolio investments of a Fund.
1.19. Registration Statementwith respect to the Trust Shares or Schedule 1 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 Schedule 1 Contracts is identified on Schedule 1B to this Agreement. The Trusts Registration Statement is filed on Form N-1A (File No. 333-35883).
1.20. 1940 Act Registration Statementwith respect to the Trust or Schedule 1 Accounts, 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 Trusts 1940 Act Registration Statement is filed on Form N-1A (File No. 811-08361).
1.21. Schedule 1 AccountsAccounts registered under the 1940 Act as unit investment trusts and listed on Schedule 1A.
1.22. Schedule 2 AccountsAccounts excluded from the definition of an investment company as provided for by Section 3(c)(11) of the 1940 Act and listed on Schedule 2A.
1.23. Schedule 3 AccountsAccounts excluded from the definition of an investment company as provided for by Section 3(c)(1) or Section 3(c)(7) of the 1940 Act and listed on Schedule 3A.
1.24. Schedule 1 ContractsContracts through which interests in Schedule 1 Accounts are offered and issued, which interests are registered as securities under the 1933 Act.
1.25. Schedule 2 ContractsContracts through which interests in Schedule 2 Accounts are offered and issued to trustees of qualified pension and profit-sharing plans and certain government plans identified in Section 3(a)(2) of the 1933 Act (which Contracts and interests are not registered as securities in reliance upon Section 3(a)(2) of the 1933 Act).
1.26. Schedule 3 ContractsContracts through which interests in Schedule 3 Accounts are offered and issued to accredited investors, as that term is defined in Regulation D under the 1933 Act, or other investors permitted by Regulation D (which Contracts and interests are not registered as securities in reliance upon Regulation D).
1.27. SECthe Securities and Exchange Commission.
1.28. Statement of Additional Informationwith respect to the shares of the Trust or Schedule 1 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, Statement of Additional Information shall mean the last version so filed prior to the taking of such action.
1.29. Statutory Prospectus a prospectus that satisfies the requirements of Section 10(a) of the 1933 Act.
1.30. Summary Prospectus a prospectus described in paragraph (b) of Rule 498 under the 1933 Act.
1.31. Trust Boardthe board of trustees of the Trust.
1.32. 1933 Actthe Securities Exchange Act of 1933, as amended.
1.33. 1940 Actthe Investment Company Act of 1940, as amended.
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 Accounts, shares of the Series and Classes listed on Schedules 1B, 2B, and 3B to this Agreement, such purchases to be effected at net asset value in accordance with Section 2.3 of this Agreement. The Distributor shall make such Series and Classes available to the Company in accordance with the terms and provisions of this Agreement until: (i) this Agreement is terminated pursuant to Article X, or (ii) the Distributor suspends or terminates the offering of shares of such Series or Classes in the circumstances described in Article X.
(b) The parties acknowledge and agree that: (i) the Trust may revoke the Distributors authority to distribute Trust Shares 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 request for the purchase of Trust Shares.
2.2. Redemptions. At the Companys request, the Trust shall redeem any full or fractional Trust Shares held by the Company on behalf of an Account at net asset value in accordance with Section 2.3 of this Agreement. However, the Trust may delay redemption or suspend the right of redemption of Trust Shares of any Series or Class to the extent permitted by the Applicable Law or as disclosed in the Prospectus for such Series or Class. The Company shall not redeem Trust Shares attributable to Contract Owner investments except in the circumstances permitted in Article X of this Agreement.
2.3. Purchase and Redemption Procedures
(a) The Trust hereby appoints the Company as its designee for the limited purpose of receiving purchase and redemption requests for Trust Shares under Schedule 1 Contracts resulting from purchase and redemption requests by Owners of Schedule 1 Contracts for units of the Schedule 1 Accounts (but not for units of the Schedule 2 Accounts or Schedule 3 Accounts). Receipt by the Company, as designee of the Trust for this purpose, of requests for the purchase and redemption of units of the Schedule 1 Accounts on any Business Day prior to the Trusts close of business, as disclosed from time to time in the applicable Prospectus for such Series or Class (which as of the date of execution of this Agreement is the close of regular trading on the New York Stock Exchange), shall constitute receipt by the Trust on that Business Day of requests from
such Schedule 1 Accounts for the purchase and redemption of Trust Shares necessary to facilitate such purchase and redemption of units of such Schedule 1 Accounts. This limited agency only extends to requests by the Schedule 1 Accounts for the purchase and redemption of Trust Shares that the Trust (or its transfer agent) receives by 9:00 a.m. New York Time on the next following Business Day. Such requests for the purchase and redemption of Trust Shares may be communicated by facsimile, electronic mail, or telephone to the office or person designated by the Trust and shall be confirmed by facsimile or electronic mail.
(b) The Company shall pay for Trust Shares on the same day that it provides a purchase request for such Shares. Payment for Trust Shares shall be made in federal funds transmitted to the Trust by wire by 12:00 p.m. New York Time on that day (unless the Trust determines and so advises the Company that sufficient proceeds are available from redemption of Trust Shares of other Series or Classes on that day by the Company). Proceeds from the redemption of Trust Shares requested pursuant to an order received by the Company after the Trusts close of business on any Business Day shall not be applied to the payment for shares for which a purchase order was received prior to the Trusts close of business on the same day. If federal funds are not received on time, issuance of the requested Trust Shares will be cancelled and such funds will be applied to the purchase of Trust Shares as soon as practicable after receipt of such funds at the Share price next computed after receipt. If the issuance of Trust Shares is canceled because federal funds are not timely received, the Company shall indemnify the respective Fund and the Distributor with respect to all costs, expenses and losses relating thereto and the Company shall be responsible for any impact on Contract Owners.
(c) Payment for Trust Shares redeemed shall be made in federal funds transmitted by wire to 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 the redemption request (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). Notwithstanding the foregoing, the Trust reserves the right to redeem Trust Shares in assets other than cash to the extent disclosed in the applicable Prospectus and permitted by Applicable Law. The Trust shall not be responsible for the proper disbursement or crediting of redemption proceeds by the Company or the Accounts.
(d) Any purchase or redemption request for Trust Shares held or to be held by Schedule 2 Accounts, Schedule 3 Accounts, or in the Companys general account, shall be effected at the net asset value per share next determined after the Trusts actual receipt of such request, provided that payment for Trust Shares purchased is received by the Trust in federal funds prior to the Trusts close of business, as disclosed from time to time in the Prospectus for such Series or Class.
(e) The Company and the Trust shall provide each other with all information necessary to effect wire transmissions of federal funds to the other party or the other
partys agents pursuant to such protocols and security procedures as the parties may agree upon from time to time. The Trust and the Company, as applicable, shall notify the other in writing of any changes in such information 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.
(f) The procedures set forth in this Section 2.3 are subject to any additional terms set forth in the applicable Prospectus for the Series or Class and 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 and Class available to the Company as soon as reasonably practicable after the computation of the same. The Trust shall calculate such net asset values 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 Accounts, hereby elects to receive all such dividends and distributions in the form of additional shares of that Series or Class. The Company reserves the right, on its behalf and on behalf of the Accounts, 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 Accounts. Purchase and redemption orders for Trust Shares shall be recorded in an appropriate ledger for each Account.
2.7. Pricing Errors. Any material errors in the calculation of the net asset value of a Fund, the net asset value per share of any Series or Class of Trust Shares, dividends or capital gain information shall be reported to the Company immediately upon discovery. An error shall be deemed material based on the Trusts interpretation of Applicable Law. To the extent necessary for the Company to reimburse Contract Owners for actual loses, the Distributor shall reimburse the Company for losses arising as a direct result of any material error in the calculation of the net asset value of any Fund or the net asset value per share of any Series or Class of Trust Shares. 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 other Qualified Persons. 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 Distributor and the Trust shall not sell more than 10% of any Series of Trust Shares to any Participating Plan unless an agreement is in effect between the Distributor, the Trust and the trustee (or other fiduciary) of the Plan containing provisions substantially the same as those in Article VIII of this Agreement. The Distributor and the Trust shall not sell Trust Shares to any Participating Plan unless a written acknowledgment of the foregoing condition is received from the trustee (or other fiduciary) of the Plan.
2.9. Disruptive Trading.
(a) The Trust has adopted policies designed to prevent frequent purchases and redemptions of any Series of Trust Shares in quantities great enough to: (i) disrupt orderly management of the corresponding Funds investment portfolio, or (ii) dilute the value of the outstanding Trust Shares of that Series (Disruptive Trading Policies). From time to time, the Trust and the Distributor implement procedures reasonably designed to enforce the Trusts Disruptive Trading Policies and shall provide a written description of such procedures (and revisions thereto) to the Company. As a procedure in furtherance of its Disruptive Trading Policies, the Trust may assess fees, to be paid by one or more Accounts or by the Company, upon redemption of one or more Series or Classes of Trust Shares within certain stated time periods after such shares have been purchased.
(b) The Company agrees to develop, adopt and maintain policies regarding transactions in Account units reasonably designed to complement the Trusts Disruptive Trading Policies and, from time to time, to implement procedures regarding transactions in Account units reasonably designed to effectuate the Trusts procedures for preventing disruptive trading in Trust Shares. In particular, in the event that the Trust or the Distributor identifies a particular Contract Owner as having engaged in transactions in Account units that directly or indirectly violate the Trusts Disruptive Trading Policies, the Company agrees, at the written request of the Trust or the Distributor, to restrict or prohibit further transactions in Account units by that Contract Owner which could result in additional purchases and redemptions of a specified Series and/or Class of Trust Shares in violation of the Trusts Disruptive Trading Policies.
(c) In furtherance of Section 2.9(b), the Trust and the Distributor may, from time to time, investigate purchases and redemptions of any Series or Class of Trust Shares by the Company on behalf of the Accounts that appears to violate, or has the potential to violate, the Trusts Disruptive Trading Policies. When requested by the Trust or the Distributor in writing, the Company agrees to provide the following with respect to purchases and redemptions of a specific Series and/or Class of Trust Shares over a designated period:
· the identity of the Contract Owner or Contract Owners whose transactions in Account units underlies the Trust share purchases and redemptions being investigated,
· the amounts and dates of transactions in Account units during the designated period representing an indirect investment in the Series and/or Class of Trust Shares being investigated, and
· the identity of any investment professional known by the Company to be associated with the Contract Owner or Contract Owners.
The Company agrees to provide the foregoing information that is on its books and records promptly. If the requested information is not on its books and records, it agrees to make reasonable efforts to:
· promptly obtain the requested information, or
· if requested by the Trust or the Distributor restrict or prohibit further transactions in Account units by that Contract Owner which could result in additional purchases and redemptions of a specified Series and/or Class of Trust Shares.
ARTICLE III
Representations and Warranties
3.1. Company. The Company represents and warrants that: (a) it is an insurance company duly organized and in good standing under the laws of the jurisdiction of its organization, (b) it has legally and validly established each Account as a segregated asset account under applicable state law to serve as segregated investment accounts for the Contracts, (c) each Schedule 1 Account is registered as a unit investment trust under the 1940 Act and each such Accounts 1940 Act Registration Statement has been filed with the SEC in accordance with the 1940 Act, (d) the Schedule 2 Accounts and Schedule 3 Accounts each qualify for the exclusions on which they rely for not registering as investment companies under the 1940 Act, (e) it has registered, or will register, all Schedule 1 Contracts offered and sold pursuant to this Agreement under the 1933 Act and, except as provided in Article 4.2 of this Agreement, has effective Registration Statements for that purpose, (f) it will offer and sell the Contracts in compliance in all material respects with all applicable federal and state laws and regulations, including, but not limited to, state insurance law and federal securities law suitability requirements, (g) 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, (h) sales of the Schedule 2 Contracts and Schedule 3 Contracts properly qualify for exemptions on which the Company relies in not registering such Contracts, or interests in the Account through which each is issued, under the 1933 Act, (i) its activities and those of its employees in
promoting the sale and distribution of the Contracts and effecting Contract Owner transactions in Account units have not caused, and will not cause, the Company to be deemed a broker-dealer, (j) orders it places for the purchase and redemption of Trust Shares pursuant to Article 2.3 of this Agreement are the net result of transactions in units issued by an Account, instructions for which are received by the Company prior to the Trusts 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 the close of regular trading on the New York Stock Exchange), (k) as long as this Agreement remains in effect, it shall remain in continuous compliance with Article 6.3, Article 6.4 and Article 6.5 of this Agreement, (l) it complies with the requirements of Rule 498 under the 1933 Act and Applicable SEC Guidance regarding the Rule in connection with delivery of Summary Prospectuses for the Series and Classes of Trust Shares available under this Agreement, (m) it maintains policies and procedures reasonably designed to ensure that it can meet obligations in connection with Summary Prospectuses, (n) it will notify the Distributor and the Trust promptly if for any reason it is unable to perform its obligations under this Agreement, (o) with respect to any Schedule 3 Accounts: (1) the principal underwriter for each Schedule 3 Account and any subaccounts thereof is a broker or dealer registered with the SEC under the Securities Exchange Act of 1934 or a person controlled (as defined in the 1940 Act) by such a broker or dealer; (2) shares of a Fund are and will continue to be the only securities held by the relevant subaccount; (3) it will either (i) seek instructions from Contract Owners with account value in the Schedule 3 Accounts allocated to shares of a Fund with regard to the voting of all proxies solicited in connection with the Fund and will vote those proxies only in accordance with those instructions, or (ii) vote such Fund shares held in the Schedule 3 Accounts in the same proportion as the vote of all the Funds other shareholders; and (4) it will not substitute another security for shares of the Fund held in a Schedule 3 Account unless the SEC has approved the substitution in the manner provided in Section 26 of the 1940 Act.
3.2. Trust. The Trust represents and warrants that: (a) it is a statutory trust duly organized and validly existing under Delaware law, (b) it is registered under the 1940 Act as an open-end management investment company and has filed a 1940 Act Registration Statement with the SEC in accordance with the provisions of the 1940 Act, (c) Trust Shares issued pursuant to this Agreement have been, or will be, duly authorized and validly issued in accordance with Applicable Law, (d) it will offer and sell Trust Shares pursuant to this Agreement in compliance in all material respects with all applicable federal and state laws and regulations, (e) it has registered, or will register, all Trust Shares offered and sold pursuant to this Agreement under the 1933 Act and has an effective Registration Statement for that purpose, (f) as long as this Agreement remains in effect, it shall remain in continuous compliance with Article 6.1 and Article 6.2 of this Agreement, (g) the Trusts Board, a majority of whom are not interested persons of the Trust, have formulated and approved any plans to finance distribution expenses pursuant to Rule 12b-1 under the 1940 Act (Rule 12b-1 Plans), (h) the Trust or its service provider complies with the requirements of Rule 498 under the 1933 Act and Applicable SEC Guidance regarding the Rule in connection with the offer and sale of Trust Shares, (i) the Trust or its service provider maintains policies and procedures reasonably designed to ensure that Fund Documents are available on the Fund Documents Web Site in the manner required by Rule 498(e)(1), (e)(2), and (e)(3) and Applicable SEC Guidance related thereto, and (j) as provided by
Rule 498(e)(4)(ii), the Trust or its service provider shall take prompt action to ensure that Fund Documents become available in the manner required by Rule 498(e)(1), (e)(2), and (e)(3) and Applicable SEC Guidance as soon as practicable following the earlier of the time it knows or should reasonably have known that the Fund Documents are not available in the required manner.
3.3. Distributor. The Distributor represents and warrants that: (a) it is a limited partnership duly organized and in good standing under New York law, and (b) it is registered as a broker-dealer under federal and applicable state securities laws and is a member in good standing of FINRA.
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.
ARTICLE IV
Regulatory Requirements
4.1. Trust Filings. The Trust shall amend its Registration Statement from time to time and maintain its effectiveness as required in order to effect the continuous offering of Trust Shares in compliance with Applicable Law. Notwithstanding the foregoing, the Trust shall register and qualify Trust Shares for sale in accordance with the laws of various states if, and to the extent, deemed advisable by the Trust or the Distributor. The Trust shall amend its 1940 Act Registration Statement as required by the 1940 Act to maintain its registration under the 1940 Act for as long as Trust Shares are outstanding. The Trust shall file Form 24F-2 and pay 1933 Act registration fees for all Series and Classes of Trust Shares as required by Rule 24f-2 under the 1940 Act. The Trust shall comply in all material respects with the 1940 Act.
4.2. Account Filings. The Company shall amend the Registration Statement for each Schedule 1 Contract from time to time and maintain its effectiveness as required in order to effect the continuous offering of such Contracts in compliance with Applicable Law for as long as purchase payments may be made under such Contracts. Notwithstanding the foregoing, the Company: (a) may permit the effectiveness of a Schedule 1 Contracts Registration Statement expire if the Company has supplied the Trust with an SEC no-action letter or opinion of counsel satisfactory to the Trusts counsel to the effect that maintaining such Registration Statement on a current basis is no longer required, and (b) shall register and qualify the Contracts for sale in accordance with the securities laws of the various states only if, and to the extent, it considers such registration and qualification necessary. The Company shall amend each Schedule 1 Accounts 1940 Act Registration Statement as required by the 1940 Act to maintain the Accounts registration under the 1940 Act for as long as the Schedule 1 Contracts issued through that Account are in force. With regard to each Schedule 1 Account and, as applicable,
Schedule 3 Account, the Company shall comply in all material respects with the 1940 Act. The Company shall make such filings and take such other actions as are required by the exemptions and exclusions on which it relies.
The Company shall be responsible for filing all Contract forms, applications, marketing materials and other documents relating to the Contracts and/or the Accounts with state insurance commissions, as required or as is customary, and shall use its best efforts: (a) 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 (b) to keep such approvals in effect for so long as the Contracts are outstanding.
4.3 Delivery of Prospectuses by the Company. The Company shall deliver (or arrange for delivery of) an appropriate Prospectus to each prospective Contract Owner describing in all material respects the terms and features of the Contract being offered. Except as provided below, the Company also shall deliver (or arrange for delivery of) a Summary Prospectus for each Fund that a prospective Contract Owner identifies on his or her application as an intended investment option under a Contract or to which a Contract Owner allocates premium payments to or transfers Contract value. In addition, the Company reserves the right to deliver (or arrange for delivery of) the Statutory Prospectus in place of the Summary Prospectus. The Company shall deliver (or arrange for delivery of) such Summary or Statutory Prospectuses at the times and in the manner required by applicable provisions of the 1933 Act and rules or regulations thereunder and Applicable SEC Guidance.
4.4. Specific Requests for Summary Prospectuses. The Company shall not bind together the Summary Prospectuses or Statutory Prospectuses for the Series and Classes available under this Agreement with Summary Prospectuses and Statutory Prospectuses for shares of other investment companies, or any other document except as expressly permitted by and in Rule 498(c)(2) and any Applicable SEC Guidance. The Company shall deliver or provide all Summary Prospectuses and all Statutory Prospectuses in compliance with the Greater Prominence requirements of Rule 498(f)(2) and any Applicable SEC Guidance.
4.5. Web Site Posting. The Trust or its service provider shall maintain the Fund Documents Web Site. At the Companys request, the Trust or its service provider may provide the Company with URLs to the current Fund Documents for use with the Companys electronic delivery of Fund Documents or on the Companys Web site. The Company will be responsible for the maintenance of any web links to such URLs on the Companys Web site. The Trust agrees to use commercially reasonable efforts to employ procedures consistent with industry practices designed to reduce exposure to viruses. However, the Trust and the Distributor make no warranty, express or implied, that the Fund Documents Web Site, the Fund Documents, or any URLs provided will be free from any defects, bugs, errors or malfunctions.
4.6. Response to Requests for Additional Fund Documents. Within three (3) Business Days of receiving a request for a paper copy of a Fund Document, the Trust shall promptly send the same to the person requesting it free of charge. Within three (3) Business
Days of receiving a request for an electronic copy of a Fund Document, the Trust shall send, by e-mail to the requestor, either a PDF copy of, or an electronic link to, the same free of charge. The Company shall respond in accordance with Rule 498(f)(1) to requests for additional Fund Documents made by a person directly to the Company or one of its affiliates.
4.7. Cessation of Use of Summary Prospectuses. The Trust shall provide the Company with at least thirty (30) days advance written notice of its intent to cease using the Summary Prospectus delivery option so that the Company can arrange to deliver a Statutory Prospectus in place of a Summary Prospectus in compliance with Section 4.3 of this Agreement. In order to comply with Rule 498(e)(1), the Trust shall continue to maintain the Fund Documents Web Site in compliance with the requirements of this Agreement and Rule 498 for a minimum of 90 days after the termination of any such notice period.
4.8. Voting of Trust Shares. To the extent required by the 1940 Act or Rule 6e-2 or Rule 6e-3(T) thereunder, or other Applicable Law, whenever the Trust shall have a meeting of holders of any Series or Class of Trust Shares, the Company shall:
· solicit voting instructions from Contract Owners;
· vote Trust Shares held in each Account at such shareholder meetings in accordance with instructions received from Contract Owners;
· vote Trust Shares held in each Account for which it has not received timely instructions in the same proportion as it votes the applicable Series or Class of Trust Shares for which it has received timely instructions; and
· vote Trust Shares held in its general account in the same proportion as it votes the applicable Series or Class of Trust Shares held by the Accounts for which it has received timely instructions.
Except with respect to matters as to which the Company has the right in connection with Schedule 1 Contracts under Rule 6e-2 or Rule 6e-3(T) under the 1940 Act to vote Trust Shares without regard to voting instructions from Contract Owners, neither the Company nor any of its affiliates will recommend action in connection with, or oppose or interfere with, the actions of the Trust Board to hold shareholder meetings for the purpose of obtaining approval or disapproval from shareholders (and, indirectly, from Contract Owners) of matters put before the shareholders.
The Company shall remain responsible for ensuring that it calculates voting instructions and votes Trust Shares at shareholder meetings in a manner consistent with other Participating Investors. The Trust will notify the Company of any changes to the SEC Order or the conditions attaching thereto relating to voting of Trust Shares of which it becomes aware.
4.9. State Insurance Law 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 any 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 Accounts 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 restrictions. If the Trust determines that it is not in the best interests of shareholders (which, 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. 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.
4.10. Interpretation of Law. The Trust, the Distributor and their affiliates are not responsible or liable for acts or omissions by the Company or the Companys affiliates taken (or not taken) in reliance upon any statements or representations made by the Trust, the Distributor or any of their affiliates or their legal advisers, to the Company or the Companys affiliates concerning the applicability of any Applicable Law or Applicable SEC Guidance to the activities contemplated by this Agreement.
The Company and its affiliates are not responsible or liable for acts or omissions by the Trust, the Distributor and their affiliates taken (or not taken) in reliance upon any statements or representations made by the Company or its affiliates or their legal advisers, to the Trust, the Distributor and their affiliates concerning the applicability of any Applicable Law or Applicable SEC Guidance to the activities contemplated by this Agreement.
4.11. Disclosure. The Trusts prospectus shall state that the statement of additional information for the Trust is available from either the Distributor or the Trust. The Trust hereby notifies the Company that it is appropriate to include in Contract Prospectuses, disclosure of the potential risks of mixed and shared funding.
4.12. 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, information statements, solicitations for voting instructions, applications for exemptions (including applications by the Company to the SEC seeking approval of substitutions of any Fund under Section 26(c) of the 1940 Act), 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 documents.
4.13. 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, information statements, solicitations of voting instructions, applications for exemptions (including applications by the Company to the SEC seeking approval of substitutions of any Fund under Section 26(c) of the 1940 Act), requests for no-action letters, and all amendments or supplements to any of the above, that relate to the Trust, the Contracts or the Accounts, 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 Accounts). If the Trust, Distributor or any of their affiliates are named in the filing(s), the Company shall send the filings to the contacts listed in Article XII.
4.14. 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 4.13 of this Agreement. If the Trust, Distributor or any of their affiliates are named in the regulatory response(s), the Company shall send the regulatory response(s) to the contacts listed in Article XII.
4.15. 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 Trusts Registration Statement or the Prospectus of any Series or Class, (ii) any request by the SEC for any amendment to the Trusts 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 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 with such party arising in connection with the Trust or the Accounts or 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.
4.16. Cooperation. Each party hereto shall cooperate with the other parties and all appropriate government authorities (including without limitation the SEC, FINRA 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.
4.17. Money Market Fund. The Company acknowledges and agrees that Contract Owners will suffer no financial loss or other harm in the event that the Trust Board determines to temporarily or permanently use market values rather than the amortized cost value to value the assets of the Trusts Money Market Fund, thereby preventing the Trust from maintaining a constant net asset value per share for the Money Market Fund Class of Trust Shares.
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 Trusts Prospectuses (or Summary Prospectuses), Contracts and Trusts 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 Applicable Law. Without limiting the generality of the foregoing, the Company shall: (1) enter into and enforce agreements with affiliated and unaffiliated parties to, and (2) adopt and implement written compliance policies and procedures reasonably designed to, ensure that:
· all persons offering or selling the Contracts are duly licensed and registered under Applicable Law,
· all individuals offering or selling the Contracts are duly appointed agents of the Company and are registered representatives of a FINRA member broker-dealer,
· each sale of a Contract satisfies all suitability requirements under Applicable Law,
· all persons offering or selling the Contracts disclose to prospective Contract Owners remuneration each expects to receive in connection with sales of the Contracts and any conflicts of interest arising therefrom as required by Applicable Law,
· no persons offering or selling the Contracts intend to engage in Account unit transactions that would violate the Companys or the Trusts Disruptive Trading Policies, and
· Prospectuses are delivered as required by Article IV of this Agreement and Applicable Law.
5.2. Anti-Money Laundering. The Company shall comply with all Applicable Law designed to prevent money laundering, and if required by such laws or regulations, to share with the Trust information about individuals, entities, organizations and countries suspected of possible terrorist or money laundering activities in accordance with Section 314(b) of the USA Patriot Act. In particular, the Company agrees that:
· as part of processing an application for a Contract, it will verify the identity of applicants and, if an applicant is not a natural person, will verify the identity of prospective principal and beneficial owners submitting an application for a Contract,
· as part of its ongoing compliance with the USA Patriot Act, it will, from time to time, reverify the identity of Contract Owners, including the
identity of principal and beneficial owners of Contracts held by non-natural persons,
· as part of processing an application for a Contract, it will verify that no applicant, including prospective principal or beneficial Contract Owners, is a specially designated national or a person from an embargoed or blocked country as indicated by the Office of Foreign Asset Control (OFAC) list of such persons,
· as part of its ongoing compliance with the USA Patriot Act, it will, from time to time, reverify that no Contract Owner, including a principal or beneficial Contract Owners, is a specially designated national or a person from an embargoed or blocked country as indicated by the OFAC list of such persons,
· it will ensure that money tendered to the Trust as payment for Trust Shares did not originate with a bank lacking a physical place of business (i.e., a shell bank) or from a country or territory named on the list of high-risk or non-cooperating countries or jurisdictions published by the Financial Action Task Force, and
· if any of the foregoing cease to be true, the Trust or its agents, in compliance with the USA Patriot Act or Bank Secrecy Act, may seek authority to block transactions in Account units arising from accounts of one or more such Contract Owners with the Company or of one or more of the Companys accounts with the Trust.
The Trust and the Distributor shall comply with all Applicable Laws designed to prevent money laundering, and if required by such laws or regulations, to share with the Company information about individuals, entities, organizations and countries suspected of possible terrorist or money laundering activities in accordance with Section 314(b) of the USA Patriot Act.
5.3. Administration and Servicing of the Contracts. The Company shall be fully responsible for the underwriting, issuance, service and administration of the Contracts and for the administration of the Accounts, 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, information statements, proxy statements and other voting instruction solicitation materials, and updated Trust Prospectuses (or Summary Prospectuses) as required by Applicable Law.
5.4. Trust Prospectuses and Reports. In order to enable the Company to fulfill its obligations under this Agreement and Applicable Law, the Trust shall provide the Company with a copy, in camera-ready form or form otherwise suitable for printing or duplication of: (a) the Trusts Prospectus for the Series and Classes listed on Schedules 1B, 2B, and 3B and any
supplement thereto; (b) any Trust proxy soliciting material for such Series or Classes; and (c) any Trust periodic shareholder reports. The Trust and the Company may amend this section 5.4, but the Trust reserves the right to require its prior approval of the printing of the foregoing documents. The Trust shall make available to the Company on the Trusts website each Statement of Additional Information and supplement thereto. 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 such as electronic mail or attachments thereto) without the prior written consent of the Distributor.
5.5. Trust Advertising Material. Neither the Company nor any person directly or indirectly authorized by the Company (including, without limitation, underwriters, distributors, and sellers of the Contracts) shall use any piece of advertising, sales literature or other promotional material in which the Trust, the Distributor, or an affiliate of either is named, except with the prior written consent of the Trust or the Distributor. The Company shall furnish to the Trust or the Distributor each such piece of advertising, sales literature or other promotional material at least ten (10) days 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 Trusts or Distributors consent to the use of any such material, no further changes may be made without obtaining the Trusts or Distributors written 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. The Company shall not be responsible for filing any materials with FINRA.
5.6. Contracts Advertising Material. The Trust and the Distributor shall not use any piece of advertising, sales literature or other promotional material in which the Company, an Account or a Contract is named, except with the prior written consent of the Company. The Trust or the Distributor shall furnish to the Company each such piece of advertising, sales literature or other promotional material at least ten (10) days 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 Trust or the Distributor of the obligation to obtain the prior written consent of the Company. After receiving the Companys consent to the use of any such material, no further changes may be made by the Trust or Distributor without obtaining the Companys consent to such changes. The Company may at any time in its sole discretion revoke any written consent, and upon notification of such revocation, neither the Trust nor the Distributor shall use the material subject to such revocation. The Trust and the Distributor shall not be responsible for filing any such materials with FINRA.
5.7. Trade Names. No party shall use any other partys 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. Additional Covenants and 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 Trusts Registration Statement or the Trusts Prospectuses or in proxy statements for the Trust, or in advertisements, 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.
The Company represents that advertisements, sales literature or other promotional material for the Contracts prepared by the Company or its affiliates are and will be consistent with Applicable Law, including, but not limited to, FINRA Conduct Rules 2210, 2212, 2213, and 2214.
The Company has adopted and implemented, or shall adopt and implement, written compliance procedures reasonably designed to ensure that information concerning the Trust, the Distributor, or any of their affiliates which is intended for use by brokers or agents selling the Contracts (i.e., information that is not intended for distribution to Contract Owners or prospective Contract Owners) is used solely in the manner so intended. Neither the Trust, the Distributor, nor any of their affiliates shall be liable for any losses, damages, or expenses relating to the improper use of such broker only materials by agents of the Company or its affiliates who are unaffiliated with the Trust or the Distributor.
The parties agree that this Section 5.8 is not intended to imply that the Company is an underwriter or distributor of the Trusts shares or a dealer in the Trusts shares.
5.9. Additional Covenants and Representations by Trust. Except with the prior written consent of the Company, the Trust shall not give any information or make any representations or statements on behalf of the Company or concerning the Company, the Accounts or the Contracts nor shall it authorize any other person to do so except the information or representations contained in the appropriate Contract Registration Statement or Contract Prospectus or in published reports of or statements by the Company or the Accounts which are in the public domain or in advertisements, sales literature or other promotional material approved in writing by the Company in accordance with this Article V.
The Trust represents that advertisements, sales literature or other promotional material for the Trust prepared by the Distributor or its affiliates in connection with the sale of the Contracts are and will be consistent with Applicable Law, including, but not limited to, FINRA Conduct Rules 2210, 2212, 2213, and 2214.
The Trust or the Distributor shall mark information produced by or on behalf of the Trust which is intended for use by brokers or agents selling the Contracts (i.e., information that is not intended for distribution to Contract Owners or prospective Contract Owners) FOR BROKER USE ONLY, and neither the Company nor any of its affiliates shall be liable for any losses, damages, or expenses arising on account of the use by brokers of such information with third parties in the event that it is not so marked.
5.11. Advertising. For purposes of this Article V, the phrase advertising, sales literature or other promotional material includes, but is not limited to, any material constituting sales literature, advertising, or communications with the public under FINRA Conduct rules, the 1940 Act or the 1933 Act. Such material includes, without limitation, the following materials for prospective Contract Owners, existing Contract Owners, wholesalers and other broker-dealers, rating or ranking agencies, or the press:
· 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, websites, or other public media),
· sales literature (i.e., any written communication distributed or made generally available to customers or the public, including brochures, circulars, research reports, market letters, form letters, seminar texts, reprints or excerpts of any other advertisement, sales literature, electronic mail, or published article),
· educational or training materials or other communications distributed or made generally available to some or all agents or employees, and
· registration statements, prospectuses, statements of additional information, shareholder reports, and proxy materials.
ARTICLE VI
Compliance with Code
6.1. Section 817(h). The Trust, on behalf of each Fund, will comply with Section 817(h) of the Code and Treasury Regulation 1.817-5 thereunder, relating to the diversification requirements for variable annuity, endowment, or life insurance contracts, and any amendments or other modifications to such Section and Regulation or successors thereto, to the extent applicable to the Fund as an investment company underlying the Account. The Trust shall notify the Company immediately upon having a reasonable basis for believing that a Fund has ceased to
so comply and will not be able to comply within the grace period afforded by Treasury Regulation 1.817-5.
6.2. Subchapter M. The Trust shall maintain the qualification of each Fund as a regulated investment company (under Subchapter M of the Code 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 and will not be able to qualify within the grace period afforded by Section 851 of the Code.
6.3. Company and Contracts. The Company represents and warrants that it is a life insurance company within the meaning of Section 816(a) of the Code. The Company shall ensure that at the time each Contract is issued it is a variable contract (as defined in Section 817(d) of the Code) which is treated as a life insurance, endowment, or annuity contract under applicable provisions of the Code, and that as long as the Accounts hold shares of the Trust the Company shall maintain such treatment for each outstanding Contract. The Company shall notify the Trust and the Distributor immediately upon having any basis for believing that the Contracts will not be treated as life insurance, endowment, or annuity contracts under applicable provisions of the Code.
6.4 Regulation 1.817-5(f). The Company shall ensure that no Fund fails to remain eligible for look-through treatment under Treasury Regulation 1.817-5(f) by reason of a current or future failure of the Company, the Accounts or the Contracts to comply with any applicable requirements of the Code or Treasury Regulations. The Company shall notify the Trust and the Distributor immediately upon having any basis for believing that the failure of the Company, the Accounts or the Contracts to comply with any applicable requirements of the Code or Treasury Regulations could render a Fund ineligible, or jeopardize a Funds eligibility, for look-through treatment under Treasury Regulation 1.817-5(f). In the event of such a failure, the Company shall take all necessary steps to cure any such failure, including, if necessary, obtaining a waiver or closing agreement with respect to such failure from the U.S. Internal Revenue Service at the Companys expense.
6.5 Modified Endowment Contracts. The Company shall ensure that any Prospectus offering a variable life insurance contract in circumstances where it is reasonably probable that such Contract would be a modified endowment contract, as that term is defined in Section 7702A of the Code, will identify such Contract as a modified endowment contract.
ARTICLE VII
Expenses
7.1. Expenses. All expenses incident to each partys performance under this Agreement (including expenses expressly assumed by such party pursuant to this Agreement) shall be borne by such party to the extent permitted by law, except as otherwise provided below or in a separate agreement.
7.2. Trust Expenses. Expenses incident to the Trusts 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 Trusts Prospectuses, Summary Prospectuses, Statement of Additional Information, Registration Statement, information statements, proxy statements and other proxy materials, and shareholder reports, and preparation of a camera-ready copy of the foregoing;
(c) preparation of all statements and notices required by Applicable Law;
(d) provision and maintenance of the Fund Documents Web Site;
(e) printing of all information statements, proxy statements and other proxy materials, shareholder reports, Prospectuses, Summary Prospectuses and other documents required to be provided by the Trust to its existing shareholders, and providing sufficient copies of the same to the Company for distribution to Contract Owners then invested in Accounts that hold Trust Shares; provided, however, that if the Company prints copies of a Trust Prospectus (or portions thereof) or Summary Prospectus as part of a larger document containing Prospectuses of other investment companies, any expense obligation of the Trust shall be limited only to its share of the cost of printing the document. For this purpose, the Trusts share shall be the percentage of the total cost of the document represented by the ratio that the number of pages of the Trusts Prospectus or Summary Prospectus bears to the total number of pages in the document;
(f) all taxes on the issuance or transfer of Trust Shares;
(g) payment of all expenses of operating the Trust, including, without limitation, expenses relating to fees for custody, auditing, transfer agency services, legal services, investment management services, and insurance coverage, as well as Trustee compensation and 1940 Act Rule 24f-2 fees in connection with sales of Trust Shares to Schedule 2 Accounts, Schedule 3 Accounts, and Qualified Persons;
(h) payment of any expenses permitted to be paid or assumed by the Trust pursuant to a Rule 12b-1 Plan and/or shareholder service plan; and
(i) provision or printing of Trust proxy statements and other proxy materials required in connection with the Companys obligation to solicit voting instructions from Contract Owners.
7.3. Company Expenses. Expenses incident to the Companys performance of its duties and obligations under this Agreement include, but are not limited to, the costs of:
(a) registration and qualification of the Schedule 1 Contracts under Applicable Law;
(b) preparation of Contract Prospectuses, preparation of Registration Statements with the SEC for Schedule 1 Contracts, payment of registration fees for Schedule 1 Contracts pursuant to Rule 24f-2 under the 1940 Act;
(c) the sale, marketing and distribution of the Contracts, including compensation for Contract sales, printing and delivery of Contract Prospectuses to current and prospective Contract owners, and printing and delivery of the Trusts Prospectuses or Summary Prospectuses to prospective Contract Owners;
(d) provision and maintenance of internet websites other than the Fund Documents Web Site;
(e) administration of the Contracts;
(f) payment of all expenses of operating the Accounts; and
(g) preparation, printing and delivery of all statements and notices to Contract Owners required by Applicable Law other than those paid for by the Trust.
7.4. Other Expenses and Payments. The Trust and the Distributor shall pay no fee or other compensation to the Company under this Agreement. Each party, however, shall, in accordance with the allocation of expenses specified in this Agreement, reimburse other parties for expenses paid by such other parties, but allocated to it. In addition, nothing herein shall prevent the parties from otherwise agreeing to perform, and arranging for appropriate compensation for, services relating to the Trust, the Distributor, the Company or the Accounts.
Notwithstanding anything else in this Agreement, pursuant to any Rule 12b-1 Plan adopted by the Trust, and as contemplated by Article 3.2(g) of this Agreement, the Trust or any Series or Class thereof may pay the Distributor, and the Distributor may pay the principal underwriter or distributor of one or more classes of Contracts, for activities primarily intended to result in the sale of Trust Shares to the Accounts through which such Contracts are issued. Likewise, pursuant to any shareholder service plan adopted and implemented by the Trust or any Series or Class thereof under Rule 12b-1 of the 1940 Act or otherwise, the Trust or the appropriate Series or Class may pay the Distributor and the Distributor may pay the principal underwriter or distributor of one or more classes of Contracts, or the Company, for activities related to personal service and/or maintenance of Contract Owner accounts and/or administration services, as permitted by such plan.
ARTICLE VIII
Potential Conflicts
8.1. SEC Order. The parties to this Agreement acknowledge that the Trust has obtained the SEC Order granting exemptions from various provisions of the 1940 Act and the rules thereunder to Participating Accounts supporting variable life insurance policies to the extent necessary to permit them to hold Trust Shares when Trust Shares also are 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 1.18 hereof). The relief provided by the SEC Order is conditioned upon the Trust and each Participating Insurance Company complying with conditions and undertakings substantially as provided in this Article VIII. The Trust and the Distributor reserve the right to determine that one or more provisions of this Article VIII are no longer applicable, and in that event will notify the Company to that effect. Upon receipt of such notice by the Company, this Agreement shall be deemed amended to eliminate the provisions of Article VIII specified in the notice.
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 or variable annuity contracts, 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 irreconcilable conflict. The Trust Board shall give prompt written notice to the Company and Participating Plan of any such determination. Minutes of the meetings of the Trust Board, or
other appropriate records of the Trust, shall record all reports received by the Board regarding such conflicts and all actions taken by the Board in response.
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) 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 Companys 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, if Trust Board so requests, the Company will redeem the shares of the Trust to which the disregarded voting instructions relate and terminate this Agreement with respect to the Account through which such Contracts were issued. 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 VIII 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 SEC Order, then: (a) 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 (b) Sections 8.2 through 8.7 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.
8.9. Money Market Fund. The Company acknowledges and agrees that the Trusts failure to maintain a constant net asset value per share for the Money Market Fund Class of Trust Shares, as contemplated by Section 4.17 of this Agreement, will not give rise to a material
irreconcilable material conflict between the interests of Contract Owners or any class of Contract Owners and the interests of any other class of Product Owners, or Product Owners generally.
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 other 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, expenses or liabilities:
(a) arise out of or are based upon any untrue statement of any material fact or alleged untrue statement of material fact contained in a Contract Registration Statement, Contract 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 a Contract Registration Statement, Contract 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 or alleged 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 Applicable 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 material 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, expense 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 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, expenses or liabilities:
(a) arise out of or are based upon any untrue statement of any material fact or alleged untrue statement of 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 or alleged untrue statement of material fact contained in a Contract Registration Statement, Contract 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 strict conformity with and in reasonable 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 material 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 4.9 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, expenses or liabilities:
(a) arise out of or are based upon any untrue statement of any material fact or alleged untrue statement of 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 or alleged untrue statement of material fact contained in a Contract Registration Statement, Contract 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 strict conformity with and in reasonable 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 material 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), or any unauthorized use of the names or trade names of the Company;
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 4.9 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 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 (a) the indemnifying party and the indemnified party shall have mutually agreed to the retention of such counsel or (b) 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 has no authority to act for or represent any of them (except to the limited extent the Company acts as designee of the Trust pursuant to Section 2.3(a) of this Agreement). In addition, no officer or employee of the Company shall be deemed to be an employee or agent of the Trust, Distributor, or any of their affiliates. The Company does not act as an underwriter or distributor of Trust Shares, as those terms variously are used in the 1940 Act, the 1933 Act, and rules and regulations thereunder. Likewise, the Company is not a transfer agent of the Trust as that term is used in the 1934 Act and rules thereunder. Consistent with the foregoing, the Company is not a transfer agent or administrator to the Trust as those terms are referenced in Rule 38a-1 under the 1940 Act.
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 Schedule 1 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 Trusts 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;
(d) the Company shall not substitute another investment company for one or more Funds without providing: (i) written notice to the Distributor at least 120 days in advance of such substitution; and (ii) copies of any application by the Company to the SEC seeking approval of such substitution as required by Section 4.13 of this Agreement; and
(e) the Company shall not redeem Trust Shares attributable to Contract Owner investments except as necessary to facilitate Contract Owner transactions, payment of expenses by Accounts, and routine Contract processing, or as permitted by any SEC order issued pursuant to Section 26(c) of the 1940 Act.
10.3. Termination of Agreement. This Agreement shall not terminate until: (a) the Trust is dissolved, liquidated, or merged into another entity, or (b) 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. Articles III and IX and Section 10.8 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 Distributors reasonable determination that institution of such proceedings is being
considered by FINRA, the SEC, the insurance commission of any state or any other regulatory body regarding the Companys 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 Distributors reasonable judgment exercised in good faith, materially impair the Companys or Trusts ability to meet and perform the Companys or Trusts 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 (i.e., Product Owners indirectly invested in any Series or Class), such notice effective immediately upon receipt of written notice, it being understood that a lack of Participating Investor interest in a Series or Class 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 Companys 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; or
(g) upon the determination of the Trusts Board to dissolve, liquidate or merge the Trust as contemplated by Section 10.3(a), upon termination of the Agreement pursuant to Section 10.3(b), 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.
Except in the case of an option exercised under clause (b), (d) or (g), the obligations shall terminate only as to Contracts issued after the exercise of the option 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 Accounts investment in a Fund, subject to compliance with Applicable Law, upon written notice to the Trust at least six months in advance, or such longer period required for the Insurer to obtain any necessary exemptive relief, or within 15 days of the occurrence of any of the following events (unless provided otherwise below):
(a) the Trust informs the Company pursuant to Section 4.9 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) 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;
(c) 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; or
(d) such Fund fails to qualify as a regulated investment company under Sub-Section 851 of the Code, or any successor provision, or if the Company reasonably believes that the Fund may fail to so qualify and the Trust, upon written request, fails to provide reasonable assurance that it will correct the failure within 30 days.
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 in the Trust. 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 Accounts 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 FINRA, the SEC or any state securities or insurance commission or any other regulatory body; or
(b) 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.
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 Accounts investment in the respective Fund.
10.8. Confidentiality. All Confidential Information (as defined in this section) supplied by one party to the another party in connection with the negotiation or carrying out of this Agreement shall remain the property of the party providing such information and shall be kept confidential by the receiving party or parties except: (a) as may be required by Applicable Law, (b) as authorized in writing by the party providing the information, or (c) in the event that such information is otherwise made public. Each party agrees to take all reasonable precautions to prevent any unauthorized disclosure of Confidential Information. Confidential Information means (individually or collectively) proprietary information of the parties to this Agreement, including but not limited to, their inventions, know-how, trade secrets, business affairs,
prospect lists, product designs, product plans, business strategies, finances, fee structures, etc. Without limiting the generality of the foregoing, Confidential Information includes: (a) information that the disclosing party designates in writing is confidential or proprietary, (b) any non-public personal information or personally identifiable financial information about any Contract Owner or prospective Contract Owner, and (c) information that a reasonable business-person would assume to be confidential or proprietary. Notwithstanding the foregoing, Confidential Information does not include information provided by the Company to the Distributor pursuant to section 2.9 of this Agreement.
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 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 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:
Caroline Kraus
Secretary
Goldman Sachs Variable Insurance Trust
200 West Street
New York, NY 10282
If to the Distributor:
James McNamara
Goldman Sachs & Co.
200 West Street
New York, NY 10282
If to the Company:
Keith Jones
Senior Counsel
National Life Insurance Company
One National Life Drive
Montpelier, VT 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 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 Applicable Law 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.
13.5. Arbitration. Any controversy or claim between or among the parties arising out of or relating to this Agreement, or breach thereof, shall be settled by arbitration in a forum jointly selected by the relevant parties (or in a forum required by law) in accordance with the Commercial Arbitration Rules of the American Arbitration Association, and judgment upon the award rendered by the arbitrators may be entered in any court having jurisdiction over the same.
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.
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GOLDMAN SACHS VARIABLE INSURANCE TRUST | ||
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(Trust) | |
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Date: |
April 22, 2016 |
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By: |
/s/ Greg Wilson | |
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Name: Greg Wilson | |
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Title: Managing Director | |
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GOLDMAN, SACHS & CO. | ||
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(Distributor) | |
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Date: |
April 22, 2016 |
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By: |
/s/ Greg Wilson | |
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Name: Greg Wilson | |
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Title: Managing Director | |
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NATIONAL LIFE INSURANCE COMPANY | ||
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(Company) | |
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Date: |
April 7, 2016 |
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By: |
/s/ Scott Edblom | |
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Name: |
Scott Edblom |
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Title: |
Vice President, Product Strategy and Innovation |
SCHEDULE 1
Schedule 1A
Separate Accounts of the Company Registered Under the 1940 Act as Unit Investment Trusts
The following separate accounts of the Company are subject to the Agreement:
Name of Account |
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Date Established by |
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SEC 1940 Act |
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Type of Product |
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National Variable Annuity Account II |
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811-08015 |
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Variable Annuity |
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National Variable Life Insurance Account |
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811-09044 |
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Variable Life Insurance |
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Schedule 1B
Variable Annuity Contracts and Variable Life Insurance Contracts Registered Under the Securities Act of 1933
The following Contracts are subject to the Agreement:
Name of Contract |
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Available Funds/Share |
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1933 Act |
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Type of Product |
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VariTrak Variable Universal Life Insurance |
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All Goldman Sachs Variable Insurance Trust Funds (Institutional, Service and Advisor Shares) |
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33-91938 |
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Variable Life Insurance |
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Sentinel Estate Provider Survivorship Variable Universal Life Insurance |
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All Goldman Sachs Variable Insurance Trust Funds (Institutional, Service and Advisor Shares) |
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333-44723 |
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Variable Life Insurance |
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Sentinel Advantage Variable Annuity |
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All Goldman Sachs |
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333-19583 |
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Variable Annuity |
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Variable Insurance Trust Funds (Institutional, Service and Advisor Shares) |
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Investor Select Variable Universal Life |
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All Goldman Sachs Variable Insurance Trust Funds (Institutional, Service and Advisor Shares) |
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333-151535 |
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Variable Life Insurance |
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[Form of Amendment to Schedule 1A]
Effective as of , the following separate accounts of the Company are hereby added to this Schedule 1A and made subject to the Agreement:
Name of Account |
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Date Established by |
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SEC 1940 Act |
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Type of Product |
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IN WITNESS WHEREOF, the Trust, the Distributor and the Company hereby amend this Schedule 1A in accordance with Article XI of the Agreement.
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Goldman Sachs Variable Insurance Trust |
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Life Insurance Company |
Name: |
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Name: |
Title: |
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Title: |
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Goldman, Sachs & Co. |
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Name: |
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Title: |
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[Form of Amendment to Schedule 1B]
Effective as of , the following Contracts are hereby added to this Schedule 1B and made subject to the Agreement:
Name of Contract |
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Available Funds/Share |
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1933 Act |
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Type of Product |
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IN WITNESS WHEREOF, the Trust, the Distributor and the Company hereby amend this Schedule 1B in accordance with Article XI of the Agreement.
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Goldman Sachs Variable Insurance Trust |
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Life Insurance Company |
Name: |
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Name: |
Title: |
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Title: |
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Goldman, Sachs & Co. |
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Name: |
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Title: |
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SCHEDULE 2
Schedule 2A
Separate Accounts of the Company Excluded From the Definition of an Investment Company as Provided for by Section 3(c)(11) of the 1940 Act
The following separate accounts of the Company are subject to the Agreement:
Name of Account |
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Date Established by |
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Type of Product |
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Variable Annuity |
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Variable Annuity |
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Variable Annuity |
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Variable Life Insurance |
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Schedule 2B
Variable Annuity Contracts and Variable Life Insurance Contracts Not Registered Under the Securities Act of 1933 in Reliance Upon Section 3(a)(2) of the Act
The following Contracts are subject to the Agreement:
Name of Contract |
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Available Funds/Share |
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Group or Individual |
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Type of Product |
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Group |
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Variable Annuity |
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Group |
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Variable Annuity |
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Individual |
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Variable Annuity |
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Group |
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Variable Life Insurance |
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[Form of Amendment to Schedule 2A]
Effective as of , the following separate accounts of the Company are hereby added to this Schedule 2A and made subject to the Agreement:
Name of Account |
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Date Established by |
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Type of Product |
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IN WITNESS WHEREOF, the Trust, the Distributor and the Company hereby amend this Schedule 2A in accordance with Article XI of the Agreement.
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Goldman Sachs Variable Insurance Trust |
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Life Insurance Company |
Name: |
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Name: |
Title: |
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Title: |
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Goldman, Sachs & Co. |
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Name: |
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Title: |
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[Form of Amendment to Schedule 2B]
Effective as of , the following Contracts are hereby added to this Schedule 2B and made subject to the Agreement:
Name of Contract |
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Available Funds/Share |
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Group or Individual |
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Type of Product |
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IN WITNESS WHEREOF, the Trust, the Distributor and the Company hereby amend this Schedule 2B in accordance with Article XI of the Agreement.
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Goldman Sachs Variable Insurance Trust |
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Life Insurance Company |
Name: |
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Name: |
Title: |
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Title: |
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Goldman, Sachs & Co. |
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Name: |
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Title: |
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SCHEDULE 3
Schedule 3A
Separate Accounts of the Company Excluded From the Definition of an Investment Company as Provided for by Section 3(c)(1) or 3(c)(7) of the 1940 Act
The following separate accounts of the Company are subject to the Agreement:
Name of Account |
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Date Established by |
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Type of Product |
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Variable Annuity |
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Variable Annuity |
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Variable Annuity |
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Variable Life Insurance |
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Schedule 3B
Variable Annuity Contracts and Variable Life Insurance Contracts Not Registered Under the Securities Act of 1933 in Reliance Upon Section 4(2) of the Act and Regulation D Thereunder
The following Contracts are subject to the Agreement:
Name of Contract |
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Available Funds/Share |
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Group or Individual |
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Type of Product |
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Group |
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Variable Annuity |
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Group |
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Variable Annuity |
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Individual |
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Variable Annuity |
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Group |
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Variable Life Insurance |
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[Form of Amendment to Schedule 3A]
Effective as of , the following separate accounts of the Company are hereby added to this Schedule 3A and made subject to the Agreement:
Name of Account |
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Date Established by |
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Type of Product |
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IN WITNESS WHEREOF, the Trust, the Distributor and the Company hereby amend this Schedule 3A in accordance with Article XI of the Agreement.
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Goldman Sachs Variable Insurance Trust |
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Life Insurance Company |
Name: |
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Name: |
Title: |
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Title: |
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Goldman, Sachs & Co. |
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Name: |
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Title: |
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[Form of Amendment to Schedule 3B]
Effective as of , the following Contracts are hereby added to this Schedule 3B and made subject to the Agreement:
Name of Contract |
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Available Funds/Share |
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Group or Individual |
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Type of Product |
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IN WITNESS WHEREOF, the Trust, the Distributor and the Company hereby amend this Schedule 3B in accordance with Article XI of the Agreement.
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Goldman Sachs Variable Insurance Trust |
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Life Insurance Company |
Name: |
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Name: |
Title: |
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Title: |
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Goldman, Sachs & Co. |
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Name: |
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Title: |
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Exhibit 99.(8)(j)1
AMENDMENT NO. 1 TO THE PARTICIPATION AGREEMENT
THIS AMENDMENT NO. 1 TO THE PARTICIPATION AGREEMENT (the Amendment) is made as of this 7th day of April, 2016 by and between GOLDMAN SACHS VARIABLE INSURANCE TRUST (the Trust), GOLDMAN, SACHS & CO (the Distributor) and NATIONAL LIFE INSURANCE COMPANY (the Company). Capitalized terms not otherwise defined herein shall have the meaning ascribed to them in the Agreement (defined below).
RECITALS
WHEREAS, the Trust, Distributor and Company are parties to a certain Participation Agreement dated April 7, 2016, as amended (the Agreement), in which the Company offers to the public certain variable annuity contracts and variable life insurance contracts; and
WHEREAS, the Company has established operational capabilities to utilize the National Securities Clearing Corporations (NSCC) Mutual Fund Settlement, Entry and Registration verification system (Fund/SERV); and
WHEREAS, the parties desire to process purchase and redemption orders through the Fund/SERV system; and
WHEREAS, the parties are members of NSCC or otherwise have access to Fund/SERV; and
WHEREAS, the parties now desire to further modify the Agreement as provided herein.
NOW, THEREFORE, in consideration of the mutual promises set forth herein, the parties hereto agree as follows:
1. Amendment to Section 2.3. Section 2.3 of the Agreement is hereby amended to include the following provisions:
(g) NSCC. The parties agree that they will ordinarily use the Fund/SERV system when the Company has the operational capacity to do so. When using Fund/SERV, the following provisions apply:
(i) Same Day Trades. On each Business Day, the Company shall aggregate all purchase orders and redemption orders for each Account received by the Company prior to the Trusts close of business as defined from time to time in the applicable Prospectus of the relevant Series or Class (which as of the date of execution of this Amendment is
defined as the close of regular trading on the New York Stock Exchange, normally 4:00 p.m. Eastern Time (Close of Trading)) (Day 1). The Company shall communicate to the Trust by Fund/SERV the aggregate purchase orders and redemption orders (if any) for each Account received by the Close of Trading on Day 1 by no later than the NSCCs Defined Contribution Clearance & Settlement (DCC&S) Cycle 8 (generally 8:00 a.m. Eastern Time) on the following Business Day (Day 2). The Trust shall treat all trades communicated to the Trust in accordance with the foregoing as if received prior to the Close of Trading on Day 1.
(ii) Representations and Warranties. The Company represents and warrants that all orders for net purchases or net redemptions derived from orders received by the Company and transmitted to Fund/SERV for processing on or as of Day 1 shall have been received in proper form and time stamped by the Company prior to the Close of Trading on Day 1. The Company represents and warrants that it has, maintains and periodically tests procedures and systems in place reasonably designed to prevent orders received after the Close of Trading on Day 1 from being executed with orders received before the Close of Trading on Day 1. The Company represents that orders it receives after the Close of Trading on Day 1, but before the Close of Trading on Day 2, will be transmitted to the Trust using Day 2s net asset value. The Company will provide such information as may be reasonably requested by the Trust or Distributor to provide assurance that the Company is complying with the foregoing procedures. The Trust or Distributor may request a detailed explanation and demonstration relating to the operation of such internal controls as part of regular due diligence efforts.
The Company and Distributor represent and warrant that each: (a) has entered into an agreement with NSCC; (b) has met and will continue to meet all of the requirements to participate in Fund/SERV and Networking; (c) intends to remain at all times in compliance with the then current rules and procedures of NSCC, all to the extent necessary or appropriate to facilitate such communications, processing, and settlement of share transactions; and (d) will notify the other parties to the Agreement if there is a change in or a pending failure with respect to its agreement with NSCC.
The Trust, Distributor and Company each represents and warrants to the other that it has the necessary facilities, equipment and personnel to perform all of its responsibilities pursuant to this Amendment and that all such responsibilities will be performed competently and in accordance with (a) all applicable laws, regulations and rules, (b) the Prospectuses and Statements of Additional Information, as amended from time to time, of the relevant Series of the Trust that are offered under the Agreement, (c)
NSCCs rules, procedures and allocations of responsibility for Fund/SERV, and (c) any agreements between the parties including, without limitation, any selling or service agreement.
The Company represents and warrants that: (a) any information it supplies to the Trust or Distributor will be accurate, complete and in the appropriate format; (b) all instructions, communications and actions by the Company regarding each Account shall be true and correct and will have been duly authorized by such Account; and (c) it shall adopt, implement and maintain procedures reasonably designed to ensure the accuracy of all transmissions through Fund/SERV and to limit the access to, and the inputting of data into, Fund/SERV and Networking to persons specifically authorized by the Company.
(iii) The Trust shall calculate the net asset value per share of each Series on each Business Day, and shall furnish to the Company through NSCCs Networking or Mutual Fund Profile System and via e-mail to NAVGroup@nationallife.com: (a) the most current net asset value information for each Series; and (b) in the case of fixed income funds that declare daily dividends, the daily accrual or the interest rate factor. All such information shall be furnished to the Company by 6:30 p.m. Eastern Time on each Business Day or at such other time as that information becomes available.
(iv) The Company will wire payment for net purchase orders by the Trusts NSCC Firm Number, in immediately available funds, to an NSCC settling bank account designated by the Company in accordance with NSCC rules and procedures on the same Business Day such purchase orders are communicated to NSCC. For purchases of shares of daily dividend accrual funds, those shares will not begin to accrue dividends until the day the payment for those shares is received.
(v) The Trust will redeem any full or fractional shares of any Series, when requested by the Company on behalf of an Account, at the net asset value next computed after receipt by the Trust (or its agent or the Company as the Trusts designee) of the request for redemption, as established in accordance with the provisions of the then current Prospectus of the Trust. NSCC will wire payment for net redemption orders by the Trust, in immediately available funds, to an NSCC settling bank account designated by the Company in accordance with NSCC rules and procedures on the Business Day such redemption orders are communicated to NSCC, except as provided in the Trusts Prospectus and Statement of Additional Information.
(vi) The Trust shall furnish through NSCCs Networking or Mutual Fund Profile System on or before the ex-dividend date, notice to the Company of any income dividends or capital gain distributions payable to the Accounts on the shares of any Series. The Company hereby elects to receive all such income dividends and capital gain distributions as are payable on shares of a Series in additional shares of that Series, and the Company reserves the right to change this election in the future. The Trust will notify the Company of the number of shares so issued as payment of such dividends and distributions.
(vii) All orders are subject to acceptance by the Distributor and become effective only upon confirmation by the Distributor. The Distributor reserves the right: (a) not to accept any specific order or part of any order for the purchase or exchange of shares through Fund/SERV; and (b) to require any redemption order or any part of any redemption order to be settled outside of Fund/SERV, in which case the order or portion thereof shall not be confirmed by the Distributor, but rather shall be accepted for redemption in accordance with Section 2.3(g)(viii) below.
(viii) All trades placed through Fund/SERV and confirmed by the Distributor via Fund/SERV shall settle in accordance with the Distributors profile within Fund/SERV applicable to the Company. The Distributor agrees to provide the Company with account positions and activity data relating to share transactions via Networking.
(ix) If on any specific day the Company or Distributor are unable to meet the NSCC deadline for the transmission of purchase or redemption orders for that day, a party may at its option transmit such orders and make such payments for purchases and redemptions directly to the Company or Trust, as applicable, as is otherwise provided in the Agreement; provided, however, that the Trust must receive written notification from the Company by 8:00 a.m. Eastern Time on any day that the Company wishes to transmit such orders and/or make such payments directly to the Trust.
(x) In the event that the Company or Trust is unable to or prohibited from electronically communicating, processing or settling share transactions via Fund/SERV, the Company or Trust shall notify the other, including providing the notification provided above in Section 2.3(g)(viii). After all parties have been notified, the Company and Trust shall submit orders using manual transmissions as are otherwise provided in the Agreement.
(xi) Each party to the Agreement agrees that, in the event of a material error resulting from incorrect information or confirmations, the
parties will seek to comply in all material respects with the provisions of applicable federal securities laws.
(xii) In all circumstances where overpayments, including, without limitation, distributions, are made to the Company pursuant to this Section 2.3(g), the Company shall repay such amounts promptly, but in no event more than fifteen (15) days after the Company receives notice of such overpayment. If such amounts are not repaid timely, the Company authorizes the Trust, Distributor or any of their affiliates to offset any amount overpaid to the Company against amounts otherwise payable to the Company by the Trust, Distributor or by any of their affiliates, including, without limitation, commissions, service fees and redemption proceeds from omnibus, house, or street name accounts. In addition, processing errors which result from any delay or error caused by the Company may be adjusted through Fund/SERV by the Company by the necessary transactions on an as-of basis and the cost to the Trust or Distributor of such transactions shall be borne by the Company; provided however, prior authorization must be obtained from the Trust or Distributor if the transaction is back dated more than five days or to a previous calendar year.
(xiii) If the duties, restrictions or responsibilities for Fund/SERV or Networking are modified by NSCC, a party may request an amendment to the Agreement to provide for such changes. However, duties shall remain as stated herein until an amendment is executed by all of the parties hereto.
(xiv) NSCCs rules and procedures relating to Fund/SERV and Networking shall govern any matter in which any provision contained in this Section 2.3(g) conflicts with any such NSCC rule or procedure.
(xv) The Company is responsible for communicating in each of its instructions to the Trust or Distributor the correct account number assigned by a Series of the Trust to an Account.
2. Amendment to Section 9.1. Section 9.1 of the Agreement is hereby amended to include the following provisions:
(g) arise out of any negligent act or omission by the Company, the Companys correspondents or their agents relating to Networking and Fund/SERV;
(h) arise out of the execution and settlement of redemption of non-certificated book shares or certificated shares of a Series of the Trust pursuant to instructions received from the Company, its agents, employees or representatives under the Agreement;
(i) Arise out of the execution of any transactions with respect to Trust shares pursuant to instructions received from the Company or its agents through Fund/Serv
(j) arise out of any breach of the Companys representations or warranties contained in this Amendment;
(k) arise out of the failure of the Company to comply with any of the terms of this Amendment; or
(l) arise out of the Trusts acceptance of any transaction or account maintenance information from the Company through Networking or Fund/SERV.
3. Amendment to Section 9.2. Section 9.2 of the Agreement is hereby amended to include the following provisions:
(f) arise out of any negligent act or omission by the Trust or its agents relating to Networking and Fund/SERV, provided the Company has not acted negligently;
(g) arise out of any breach of the Trusts representations or warranties contained in this Amendment;
(h) arise out of the Trusts failure to comply with any of the terms of this Amendment; or
(i) arise out of the Companys acceptance of any transaction or account maintenance information from the Trust through Networking or Fund/SERV.
4. Termination of Amendment. Any party may terminate Section 1 of this Amendment upon thirty (30) days written notice to the other party, commencing from the date of receipt of such notice. The obligations of the Company and Trust under Sections 2 and 3 of this Amendment, respectively, shall survive any termination hereof with respect to any transactions occurring or circumstances arising out of supplied or omitted information or actions or omissions to act before the effective date of any termination hereof. Commencing from the date of receipt of such notice (Notification Date), the Trust, Distributor and Company shall proceed with the termination of Section 1 of this Amendment in accordance with the following schedule unless otherwise agreed to by the parties: (a) transactions through Fund/SERV shall cease as of the Notification Date; (b) a plan which sets forth the procedures that must be followed to effect the termination of Section 1 of this Amendment (Termination Plan) must be agreed upon by all of the parties within sixty (60) days of the Notification Date; (c) the Termination Plan must be fully implemented within ninety (90) days of the Notification Date; and (d) the Termination Plan must be fully completed within one hundred eighty (180) days of the Notification Date.
5. Ratification and Confirmation of Agreement. In the event of a conflict between the terms of this Amendment and the Agreement, it is the intention of the parties that the terms of this Amendment shall control and the Agreement shall be interpreted on that basis. To the extent the provisions of the Agreement have not been amended by this Amendment, the parties hereby confirm and ratify the Agreement.
6. Counterparts. This Amendment may be executed in two or more counterparts, each of which shall be an original and all of which together shall constitute one instrument.
7. Full Force and Effect. Except as expressly supplemented, amended or consented to hereby, all of the representations, warranties, terms, covenants and conditions of the Agreement shall remain unamended and shall continue to be in full force and effect.
IN WITNESS WHEREOF, the undersigned have executed this Amendment as of the date first above written.
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GOLDMAN SACHS VARIABLE INSURANCE TRUST | |||
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By: |
/s/ Greg Wilson | ||
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Name: |
Greg Wilson | ||
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Title: |
Managing Director | ||
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Date: |
April 22, 2016 | ||
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GOLDMAN, SACHS & CO. | |||
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By: |
/s/ Greg Wilson | ||
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Name: |
Greg Wilson | ||
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Title: |
Managing Director | ||
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Date: |
April 22, 2016 | ||
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NATIONAL LIFE INSURANCE COMPANY | |||
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By: |
/s/ Scott Edblom | ||
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Name: |
Scott Edblom | ||
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Title: |
Vice President Product Strategy & Innovation | ||
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Date: |
April 7, 2016 | ||
Exhibit 99.(8)(j)2
Goldman Sachs Variable Insurance Trust Service Class Services Agreement
April 7, 2016
Equity Services, Inc.
One National Life Drive
Montpelier, VT 05604
RE: Goldman Sachs Variable Insurance Trust (the Trust) Service Class Services Agreement
Ladies and Gentlemen:
The undersigned, Goldman, Sachs & Co. (Goldman Sachs), 200 West Street, New York, New York 10282, is the principal distributor of the shares of each series of the Trust listed on Schedule A to this Agreement (each a Fund and, collectively, the Funds). Goldman Sachs Asset Management, a separate operating division of Goldman Sachs, or an affiliate thereof, acts as an investment adviser to the Trust, which is an open-end management investment company that offers its shares exclusively to separate accounts of life insurance companies and various qualifying retirement plans or accounts. Shares of each Fund are divided into separate classes. This Agreement (the Agreement) relates to the Service Class Shares of the Funds (Service Shares).
You are a broker-dealer and the principal underwriter of variable annuity contracts and/or variable life insurance contracts (the Contracts) issued through one or more separate accounts by National Life Insurance Company (the Company). The Company, acting on behalf of its separate account, purchases, holds, exchanges and redeems Service Shares as investments for values accumulated under the Contracts (Contract Value). The Company has entered into an agreement with the Trust and Goldman Sachs regarding its purchase and redemption of Service Shares (the Participation Agreement). With respect to each Fund, you (the Contract Underwriter) are willing to provide, and Goldman Sachs wishes to compensate you for providing, certain services with respect to the sale and distribution of the Contracts (the Services) that may indirectly result in the sale of Service Shares to the Company. Accordingly, the Contract Underwriter and Goldman Sachs agree as follows:
1. Agreement to Provide Services. Goldman Sachs hereby engages the Contract Underwriter, and the Contract Underwriter hereby agrees, to provide the following Services: (a) establish and maintain (or assist the Company in establishing and maintaining) relationships with owners of Contracts who are its customers or customers of other broker-dealers with whom it has entered into agreements to sell the Contracts (Selling Dealers); (b) provide Contract owners with personal services (within the meaning of NASD Conduct Rule 2830(b)(9)); (c) assist in the preparation of advertisements and other sales literature for the Contracts that describes or discusses the Funds; (d) provide sales compensation to representatives of the Contract Underwriter; (e) pay money to Selling Dealers for any of the foregoing purposes; and (f) perform any additional services primarily intended to result in the distribution of the Contracts and the sale of the Service Shares to the Company.
2. Expenses of the Contract Underwriter. The Contract Underwriter shall furnish such office space, equipment, facilities and personnel as may be necessary to perform its duties hereunder. The Contract Underwriter shall bear all costs incurred by it in performing such duties.
3. Fees Payable to the Contract Underwriter. For the Services provided and the expenses incurred by the Contract Underwriter hereunder, Goldman Sachs will pay to the Contract Underwriter a quarterly fee equal on an annual basis to the amount designated as Distribution and Service (12b-1) Fees in the Service Share fee table of the applicable Fund prospectus, which may be amended, or in any notice in writing from us, of the average daily net asset
value of Service Shares of the Fund held by separate accounts under the Contracts during such period. You acknowledge that such prospectus or writing may set forth a description of waivers or reductions of such fees in certain cases. Goldman Sachs will periodically review its relationship with the Contract Underwriter throughout the year and reserves the right to, in its sole discretion, modify or discontinue such payments.
4. Performance of Duties. In performing its duties hereunder, the Contract Underwriter will act in conformity with Goldman Sachs instructions, the terms of the Contracts and the Contract prospectuses, the then effective prospectuses and statements of additional information for each Fund, the Investment Company Act of 1940, as amended (the 1940 Act), and all other applicable federal and state laws, regulations and rulings and the constitution, by-laws and rules of any applicable self-regulatory organization. The Contract Underwriter will assume sole responsibility for its compliance with applicable federal and state laws and regulations, and shall rely exclusively upon its own determination, or that of its legal advisers, that the performance of its duties hereunder complies with such laws and regulations. Under no circumstances shall the Trust, any Fund, Goldman Sachs or any of their affiliates be held responsible or liable in any respect for any statements or representations made by them or their legal advisers to the Contract Underwriter or any Contract owner concerning the applicability of any federal or state laws or regulations to the activities described herein. The Contract Underwriter will perform its duties hereunder in a manner consistent with the customs and practices of other institutions that provide similar services.
5. Anti-Money Laundering. The Contract Underwriter and its agents as well as the Company and its affiliates are required either by law, regulation or order, or as a matter of good practice, to operate policies and procedures for the purpose of guarding against money laundering activities. Among other matters, those policies and procedures include the identification of Contract owners and the source of moneys provided by Contract owners, the identification of suspicious transactions and the adoption of anti-money laundering programs. As a consequence, you hereby agree that you will identify your Contract owners underlying each transaction and the source of the moneys used for each transaction, and will identify whether such transactions are suspicious transactions. In addition, you hereby agree that you will fully comply with all applicable anti-money laundering laws, regulations and orders, as now or hereafter in force. Without limiting the generality of the foregoing, you agree to assist the Company in complying with the anti-money laundering provisions of the Participation Agreement.
6. Representations and Warranties. The Contract Underwriter hereby represents, warrants and covenants to Goldman Sachs:
(a). That it is a broker or dealer as defined in Section 3(a)(4) or 3(a)(5) of the Securities Exchange Act of 1934, as amended (the Exchange Act); that it is registered and in good standing, and will during the term of the Agreement remain in good standing, (A) as a broker-dealer with the U.S. Securities and Exchange Commission (the Commission) pursuant to Section 15 of the Exchange Act and with the securities commission of any state, territory or possession of the United States and (B) as a member of the Financial Industry Regulatory Authority, Inc. (FINRA) and/or any stock exchange or other self-regulatory organization in which the Contract Underwriters membership is necessary for the conduct of its business under the Agreement, and is in full compliance with the rules, regulations and policies of the aforesaid commissions and organizations, particularly those rules, regulations and policies governing capital requirements, financial reporting, bonding, fiduciary standards and supervisory concerns; and its entering into and performing its obligations under the Agreement does not and will not violate any laws, rules or regulations (including the net capital and customer protection rules of the Commission and the rules or regulations of FINRA or any self-regulatory organization or any so-called restriction letter with FINRA);
(b). That it is a corporation, association or partnership duly organized, validly existing, and in good standing under the laws of the state of its organization;
(c). That entering into and performing its obligations under the Agreement does not and will not violate (i) its charter or by-laws; or (ii) any agreements to which it is a party;
(d). It will keep confidential any information acquired as a result of the Agreement regarding the business and affairs of the Trust and Goldman Sachs, which requirement shall survive the term of the Agreement; and
(e). It will not, without written consent of the Trust in each instance, use in advertising, publicity, administering and servicing the Funds or otherwise the name of the Trust, Goldman Sachs, or any of their affiliates nor any trade name, trademark, trade device, service mark, symbol or any abbreviation, contraction or simulation thereof (the Mark) of the Trust, Goldman Sachs or their affiliates. Contract Underwriter acknowledges that Goldman Sachs owns all right, title and interest in and to the Mark and the registration thereof. Upon termination of the Agreement, the Contract Underwriter or its successor (to the extent and as soon as it lawfully can) will cease the use of the Mark.
(f). You covenant and agree that you will only offer or sell Contracts to U.S. persons, all of whom qualify as Qualified Persons as defined in the Participation Agreement, and that all offering or other solicitation activities in which you engage shall be conducted by you or any of your agents solely within the United States, in each case as defined in Rule 902 promulgated under the Securities Act of 1933, as amended. In addition, you covenant and agree that you shall have received and shall maintain duly executed and completed Internal Revenue Service Form W-9s for each one of your Contract owner customers and shall update such Form W-9s as may be required by law.
7. Representations and Warranties. Goldman Sachs hereby represents, warrants and covenants to the Contract Underwriter:
(a). That it is a broker or dealer as defined in Section 3(a)(4) or 3(a)(5) of the Securities Exchange Act of 1934, as amended (the Exchange Act); that it is registered and in good standing, and will during the term of the Agreement remain in good standing, (A) as a broker-dealer with the U.S. Securities and Exchange Commission (the Commission) pursuant to Section 15 of the Exchange Act and with the securities commission of any state, territory or possession of the United States and (B) as a member of the Financial Industry Regulatory Authority, Inc. (FINRA) and/or any stock exchange or other self-regulatory organization in which Goldman Sachs membership is necessary for the conduct of its business under the Agreement, and is in full compliance with the rules, regulations and policies of the aforesaid commissions and organizations, particularly those rules, regulations and policies governing capital requirements, financial reporting, bonding, fiduciary standards and supervisory concerns; and its entering into and performing its obligations under the Agreement does not and will not violate any laws, rules or regulations (including the net capital and customer protection rules of the Commission and the rules or regulations of FINRA or any self-regulatory organization or any so-called restriction letter with FINRA);
(b). That it is a corporation, association or partnership duly organized, validly existing, and in good standing under the laws of the state of its organization;
(c). That entering into and performing its obligations under the Agreement does not and will not violate (i) its charter or by-laws; or (ii) any agreements to which it is a party;
(d). It will keep confidential any information acquired as a result of the Agreement regarding the business and affairs of the Company and the Contract Underwriter, which requirement shall survive the term of the Agreement, however, nothing in this provision shall restrict GSAM or any of its affiliates from
engaging in any financing, investment banking, asset management, trading, market making, arbitrage, brokerage, or any other activities it conducts or in which it seeks to engage in the ordinary course of business; and
(e). It will not, without written consent of the Company in each instance (such consent not to be withheld unreasonably), use in advertising, publicity or otherwise the name of the Company, the Contract Underwriter, or any of their affiliates nor any trade name, trademark, trade device, service mark, symbol or any abbreviation, contraction or simulation thereof (the Mark) of the Company, the Contract Underwriter or their affiliates. Goldman Sachs acknowledges that the Company owns all right, title and interest in and to the Mark and the registration thereof. Upon termination of the Agreement, Goldman Sachs or its successor (to the extent and as soon as it lawfully can) will cease the use of the Mark.
8. Responsibilities of the Contract Underwriter. The Contract Underwriter agrees that neither Goldman Sachs nor any Fund nor any of its agents shall have any responsibility or liability to review any purchase, exchange or redemption request which is presented by the Company (A) to determine whether such request is genuine or authorized by the Contract owner; or (B) to determine the suitability of the selected Class or Fund for such Contract owner. Goldman Sachs, each Fund and their agents shall be entitled to rely conclusively on any purchase or redemption request communicated to any of them by the Company pursuant to the Participation Agreement, and shall have no liability whatsoever for any losses, claims or damages to or against the Contract Underwriter or any Contract owner resulting from a failure of the Contract Underwriter to provide the services provided for under the Agreement. Goldman Sachs and the Contract Underwriter agree that the Participation Agreement shall govern the process by which the Company purchases, exchanges and redeems Service Shares for its separate accounts.
9. Amendment; Termination. The Agreement may be amended by a written instrument executed by both parties and may be terminated by Goldman Sachs or the Contract Underwriter at any time on 60 days written notice mailed or delivered to the other party at its address set forth above. The Agreement will also terminate automatically with respect to Service Shares of a Fund upon termination of the Participation Agreement with respect to the Fund or Service Shares; will terminate automatically in the event of its assignment (as such term is defined in the 1940 Act) or upon termination of the relevant plan adopted pursuant to Rule 12b-1 under the 1940 Act (a Plan); and may be terminated at any time without penalty by the vote of a majority of the Independent Trustees of the Trust (as defined in the applicable Plan) or a majority of the outstanding Service Shares of the applicable Fund on sixty days written notice. Unless sooner terminated, the Agreement will continue until terminated in accordance with its terms, provided that the continuance of the relevant Plan is specifically approved at least annually in accordance with the terms of such Plan.
10. Information and Reports. Upon our reasonable request, you will provide to us a written report of amounts expended under the Agreement and a description of the purposes for which the expenditures are made. You will furnish to the Trust or its designees such information as the Trust or its designees may reasonably request and will otherwise cooperate with us, the Trust and its designees in the preparation of reports to the Trusts Trustees concerning the Agreement and the monies paid, reimbursed, payable, or reimbursable hereunder, the Services provided and related expenses, and any other reports or filings that may be required by law.
11. Indemnification. Goldman Sachs agrees to indemnify the Contract Underwriter and each person who controls (as defined in Section 2(a)(9) of the 1940 Act) the Contract Underwriter from and against any losses, claims, damages, expenses (including reasonable fees and expenses of counsel) or liabilities (Damages) to which the Contract Underwriter or such person may become subject in so far as such Damages arise out of the failure of Goldman Sachs or its employees or agents to comply with Goldman Sachs obligations under the Agreement or any other agreement between Goldman Sachs and the Contract Underwriter relating to the performance of Services hereunder (a Covered Agreement). The Contract Underwriter agrees to indemnify Goldman Sachs, the Trust, the Funds, their agents and each person who controls (as defined in Section 2(a)(9) of the 1940 Act) any of them from and against any Damages to which any of them may become subject in so far as such Damages arise out of the failure of the Contract Underwriter or
its employees, agents or Contract owners to comply with the Contract Underwriters obligations under a Covered Agreement. Notwithstanding the foregoing, neither Goldman Sachs nor the Contract Underwriter shall be entitled to be indemnified for Damages arising out of its or its agents or employees gross negligence. The foregoing indemnity agreements shall be in addition to any liability or cause of action that Goldman Sachs or the Contract Underwriter may otherwise have, and shall survive the termination of the Agreement.
12. No Association or Agency. The Contract Underwriter shall be deemed an independent contractor and not an agent of Goldman Sachs, the Trust or any Fund for all purposes hereunder and shall have no authority to act for or represent Goldman Sachs, the Trust or any Fund. In addition, no officer or employee of the Contract Underwriter shall be deemed to be an employee or agent of the Trust, the Funds or Goldman Sachs or be subject, in any respect, to the supervision of Goldman Sachs or any affiliate thereof.
13. Applicable Law. If any provision of the Agreement shall be held or made invalid by a decision in a judicial or administrative proceeding, statute, rule or otherwise, the enforceability of the remainder of the Agreement will not be impaired thereby. The Agreement shall be governed by the laws of the State of New York and shall be binding upon and inure to the benefit of the parties hereto and their respective successors.
14. Important Information. In accordance with government regulations, financial institutions are required to obtain, verify, and record information that identifies each person or entity that opens an account. Except as provided in the Participation Agreement, when the Company opens a Contract owner account, the Trust may ask for the name, address, identification number and other information that will allow us to identify the Contract owner. The Trust may also ask to see government-issued identifying documents.
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Very truly yours, | |
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GOLDMAN, SACHS & CO. | |
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By: |
/s/ Goldman, Sachs & Co |
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[Authorized Officer] |
Accepted and agreed to as of the date first above written: |
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EQUITY SERVICES, INC. |
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By: |
/s/ Jeffrey Wood |
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[Authorized Officer] |
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Jeffrey Wood |
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(Print Name) |
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April 11, 2016 |
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(Date) |
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Exhibit 99.(8)(j)3
Goldman, Sachs Asset Management, L.P.
200 West Street
New York, NY 10282
April 7, 2016
National Life Insurance Company
One National Life Drive
Montpelier, VT 05604
Ladies and Gentlemen:
This letter sets forth the agreement (the Agreement) between National Life Insurance Company (you or the Company) and the undersigned (we or Goldman, Sachs Asset Management, L.P., or GSAM) concerning certain administrative services to be provided by you, with respect to the Goldman Sachs Variable Insurance Trust (the Trust).
1. The Trust. The Trust is a Delaware statutory trust registered with the Securities and Exchange Commission (the SEC) under the Investment Company Act of 1940, as amended (the Act), as an open-end management investment company. The Trust offers shares of one or more separate series, each representing an interest in a particular investment portfolio of securities and other assets (Portfolios), and serves as a funding vehicle for variable annuity contracts and variable life insurance contracts. As such, the Trust sells its shares to insurance companies and their separate accounts. With respect to various provisions of the Act, the SEC requires that owners of variable annuity contracts and variable life insurance contracts offering underlying mutual funds as investment options for their separate accounts be provided with certain materials and rights similar to those afforded to mutual fund shareholders.
2. The Company. The Company is a Vermont life insurance company. The Company issues variable annuity contracts and/or variable life insurance contracts (the Contracts) supported by the Separate Account(s) identified on Schedule A (the Separate Account; if more than one, the term Separate Account shall apply to each Separate Account subject hereto). The Separate Account is registered with the SEC as a unit investment trust. The Company has entered into a participation agreement (the Participation Agreement) with the Trust and Goldman, Sachs & Co. as the Trusts Distributor (Distributor) with respect to the Portfolios listed on Schedule B (the Funds). The Participation Agreement governs the Companys purchases and redemptions of shares of the Trust for the Separate Account supporting the Companys Contracts, and related matters.
3. Goldman, Sachs & Co. Goldman, Sachs & Co. serves as the distributor for the Trust. GSAM serves as the Trusts investment adviser. GSAM supervises and assists in the overall management of the Trusts affairs under an Investment Management Agreement with the Trust, subject to the overall authority of the Trusts Board of Trustees in accordance with Delaware law. Under the Investment Management Agreement, we are compensated for providing investment advisory and certain administrative services.
4. Administrative Services. You have agreed to assist us, as we may request from time to time, with the provision of administrative services with respect to the Trust, as they may relate to the Separate Accounts purchase and redemption of shares of the Funds. It is anticipated that such services may include (but shall not be limited to) the mailing of Trust reports, notices, proxies and proxy statements and other informational materials to owners of the Contracts supported by the Separate Account; the transmission of purchase and redemption requests to the Trusts transfer agent; the maintenance of separate records for each owner of a Contract reflecting shares purchased and redeemed and share balances attributable to such Contract Owner in the form of units; the preparation of various reports for submission to the Trusts Trustees; the provision of shareholder support services with respect to the Funds serving as funding vehicles for the Companys Contracts; and the services listed on Schedule C.
5. Payment for Administrative Services. In consideration of the services to be provided by you, we shall pay you on a quarterly basis, from our assets, including GSAMs bona fide profits as investment adviser to the Trust, amounts equal to those described in Schedule D. For purposes of computing the payment to the Company contemplated under this Section 5 for each Fund, the average aggregate net asset value of the relevant shares of the Fund held by the Separate Account over a one-month period shall be computed by totaling the Separate Accounts aggregate investment (share net asset value multiplied by total number of the relevant shares held by the Separate Account) in each Fund on each calendar day during the month, and dividing by the total number of calendar days during such month. The payment contemplated by this Section 5 shall be calculated by GSAM at the end of each calendar quarter and will be paid to the Company within sixty (60) business days thereafter.
6. Nature of Payments. The parties to this Agreement recognize and agree that GSAMs payments to the Company relate to administrative services only and do not constitute payment in any manner for investment advisory services or for costs of distribution of the Contracts or of Trust shares and are not otherwise related to investment advisory or distribution services or expenses. The Company represents that these payments are not for or related to administrative services which the Company is required to provide to owners of the Contracts by law or pursuant to the terms of the Contracts. The Parties acknowledge that there are substantial savings in administrative expenses to the Trust by virtue of having a Separate Account as the sole shareholder in a Fund rather than multiple accounts reflecting the Separate Accounts investment. You represent that:
· you may legally receive the payments contemplated by this Agreement.
· the administrative services provided under this Agreement are not services that the Trust has agreed to perform, provide or pay for under the Participation Agreement.
· to the extent required by applicable law, you have taken payments received from GSAM under this Agreement into account in making any determinations pursuant to Section 26(f)(2)(A) and 26(f)(3) of the Act.
7. Term. This Agreement shall remain in full force and effect for an initial term of one year from the date hereof, and shall automatically renew for successive one-year periods unless either party notifies the other upon sixty (60) days written notice of its intent not to continue this Agreement. This Agreement shall terminate automatically with respect to a Fund upon (i) the redemption of the Separate Accounts investment in the Fund, or (ii) upon termination of the Trusts obligation to sell shares of a Fund under the Participation Agreement.
8. Representations and Warranties of the Company. The Company represents and warrants that:
(a) it is an insurance company duly organized and in good standing under Vermont insurance law;
(b) its 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; and
(c) it will keep confidential any information acquired in connection with the matters contemplated by this Agreement regarding the business and affairs of the Trust, GSAM and their affiliates.
9. Representations and Warranties of GSAM. GSAM represents and warrants that:
(a) it is a limited partnership duly organized and in good standing under [New York] law;
(b) its entering into and performing its obligations under this Agreement does not and will not violate its charter documents or partnership agreement, rules or regulations, or any agreement to which it is a party; and
(c) it will keep confidential any information acquired in connection with the matters contemplated by this Agreement regarding the business and affairs of the Company and its affiliates, however, nothing in this provision shall restrict GSAM or any of its affiliates from engaging in any financing, investment banking, asset management, trading, market making, arbitrage, brokerage, or any other activities it conducts or in which it seeks to engage in the ordinary course of business.
10. Interpretation. This Agreement shall be construed 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 Act, and the rules, regulations and rulings thereunder, including such exemptions from that
statute, rules and regulations as the SEC may grant, and the terms herein shall be limited, interpreted and construed in accordance therewith.
(b) The captions in this Agreement are included for convenience of reference and in no way define or delineate any of the provisions herein or otherwise affect their construction or effect.
11. Amendment. This Agreement may be amended only upon mutual agreement of the parties hereto in writing. Any notice to be provided pursuant to this Agreement is to be made in writing and shall be given:
If to GSAM:
Marci Green
Managing Director
Goldman, Sachs Asset Management, L.P.
200 West Street
New York, NY 10282
If to the Company:
Keith M. Jones
Senior Counsel
National Life Insurance Company
One National Life Drive
Montpelier, VT 05604
or at such other address as such party may from time to time specify in writing to the other party. Each such notice to a party shall be sent by registered or certified United States mail with return receipt requested or by overnight delivery with a nationally recognized courier, and shall be effective upon receipt.
12. Counterparts. This Agreement may be executed in counterparts, each of which shall be deemed an original but all of which shall together constitute one and the same instrument.
If this Agreement is consistent with your understanding of the matters we discussed concerning your administrative services, kindly sign below and return a signed copy to us.
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Very truly yours, |
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Goldman, Sachs Asset Management, L.P. |
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By: |
/s/ Marci Green |
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Name: |
Marci Green |
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Title: |
Managing Director |
Acknowledged and Agreed to:
NATIONAL LIFE INSURANCE COMPANY |
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By: |
/s/ Scott Edblom |
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Name: |
Scott Edblom |
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Title: |
Vice President, Product Strategy and Innovation |
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SCHEDULE A
Separate Accounts
All current and future Separate Accounts of the Company available for sale through the Contracts.
SCHEDULE B
Funds
All available series of Goldman Sachs Variable Insurance Trust, if available according to the series current Prospectuses and Statements of Additional Information.
SCHEDULE C
Services
Maintenance of books and records
· Record issuance of shares
· Record transfers (via net purchase orders)
· Reconciliation and balancing of the Separate Account at the Trust level in the general ledger, at various banks and within systems interface to the summary of each Contract Owners position
Fund-related Contract Owner services
· Printing and mailing costs associated with dissemination of Trust prospectus to existing Contract Owners
· Telephonic support for Contract Owners with respect to inquiries about the Trust (but not inquiries about the Contracts) unrelated to the sales of Contracts or distribution of Trust shares
· Trust proxies (solicitation of voting instructions and preparation of materials, inclusive of printing, distribution, tabulation, and reporting)
· Printing and mailing costs associated with dissemination of Trust reports and notices to existing Contract Owners
Other administrative support
· Sub-accounting services
· Providing other administrative support to the Trust as mutually agreed between insurer and the Trust
· Relieving the Trust of the burden of providing other usual or incidental administrative services provided to individual shareholders as agreed by the Company, which agreement shall not be unreasonably withheld
SCHEDULE D
Fees
Share Class of the Trust |
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Amounts per annum of the average |
Equity Funds - Service and Institutional Class - Advisor Class |
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Redacted Redacted |
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Fixed Income Funds - Service, Institutional and Advisor Class |
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Redacted |
Exhibit 99.(8)(j)4
Variable Annuity Shareholder Information Agreement
(Goldman Sachs Variable Insurance Trust)
This VARIABLE ANNUITY SHAREHOLDER INFORMATION AGREEMENT (the Agreement) is entered into as of April 7, 2016 by and between Goldman, Sachs & Co. (the Fund Agent) and National Life Insurance Company (Intermediary), with an effective date of April 7, 2016.
As used in this Agreement, the following terms shall have the following meanings indicated, unless a different meaning is clearly required by the context:
The term Intermediary shall mean (i) any broker, dealer, bank, or other entity that holds securities of record issued by a Fund in nominee name; (ii) in the case of a participant-directed employee benefit plan that owns securities issued by a Fund (1) a retirement plan administrator under ERISA or (2) any entity that maintains the plans participant records; and (iii) an insurance company that holds securities issued by a Fund in a separate account.
The terms Fund, individually, and Funds, collectively, shall mean the Goldman Sachs Variable Insurance Trust (the Trust) and each of its separately designated series, with the exception of any series of the Trust that would be deemed an excepted fund, as such term is defined in Rule 22c-2(b) under the Investment Company Act of 1940 (the 1940 Act).(1)
The term Shares means the interests of Shareholders corresponding to the redeemable securities of record issued by a Fund under the 1940 Act that are held by the Intermediary.
The term Shareholder means the holder of interests in a variable annuity or variable life insurance contract issued by the Intermediary (Contract), or a participant in an employee benefit plan with a beneficial interest in a Contract.
The term Shareholder-Initiated Transfer Purchase means a transaction that is initiated or directed by a Shareholder that results in a transfer of assets within a Contract to a Fund, but does not include transactions that are executed: (i) automatically pursuant to a contractual or systematic program or enrollment such as transfer of assets within a Contract to a Fund as a result of dollar cost averaging programs, insurance company approved asset allocation programs, or automatic rebalancing programs; (ii) pursuant to a Contract death benefit; (iii) one-time step-up in Contract value pursuant to a Contract death benefit; (iv) allocation of assets to a Fund through a Contract as a result of
(1) As defined in Rule 22c-2(b) under the 1940 Act, the term excepted fund means any: (1) money market fund; (2) fund that issues securities that are listed on a national exchange; and (3) fund that affirmatively permits short-term trading of its securities, if its prospectus clearly and prominently discloses that the fund permits short-term trading of its securities and that such trading may result in additional costs for the fund.
payments such as loan repayments, scheduled contributions, retirement plan salary reduction contributions, or planned premium payments to the Contract; or (v) pre-arranged transfers at the conclusion of a required free look period.
The term Shareholder-Initiated Transfer Redemption means a transaction that is initiated or directed by a Shareholder that results in a transfer of assets within a Contract out of a Fund, but does not include transactions that are executed: (i) automatically pursuant to a contractual or systematic program or enrollments such as transfers of assets within a Contract out of a Fund as a result of annuity payouts, loans, systematic withdrawal programs, insurance company approved asset allocation programs and automatic rebalancing programs; (ii) as a result of any deduction of charges or fees under a Contract; (iii) within a Contract out of a Fund as a result of scheduled withdrawals or surrenders from a Contract; or (iv) as a result of payment of a death benefit from a Contract.
The term written includes electronic writings and facsimile transmissions.
WHEREAS, the Fund Agent is the Principal Underwriter of the Funds; and
WHEREAS, the Intermediary is a financial intermediary within the meaning of Rule 22c-2 under the 1940 Act, and holds shares of the Funds in connection with the issuance of variable life insurance and/or variable annuity contracts; and
WHEREAS, the Fund Agent, the Trust and the Intermediary have entered into a Participation Agreement dated April 7, 2016, as amended (the Participation Agreement), pursuant to which the Fund Agent has agreed to make shares of certain Funds available for purchase and redemption by certain Accounts of the Intermediary in connection with the Intermediarys variable insurance products; and
WHEREAS, the parties desire to comply with the Rule 22c-2; and
WHEREAS, this Agreement shall inure to the benefit of and shall be binding upon the undersigned.
NOW, THEREFORE, the Fund Agent and the Intermediary hereby agree as follows:
Shareholder Information
1. Agreement to Provide Information. The Intermediary agrees to provide the Fund Agent or its designee, upon written request, the taxpayer identification number (TIN), the Individual/International Taxpayer Identification Number (ITIN),* or other
* According to the IRS website, the ITIN refers to the Individual Taxpayer Identification number, which is a nine-digit number that always begins with the number 9 and has a 7 or 8 in the fourth digit, example 9XX-7X-XXXX. The IRS issues ITINs to individuals who are required to have a U.S. taxpayer identification number but who do not have, and are not eligible to obtain a Social Security Number (SSN) from the Social Security Administration (SSA). Rule 22c-2 inadvertently refers to the ITIN as the International Taxpayer Identification Number.
government-issued identifier (GII) and the Contract owner number or participant account number associated with the Shareholder(s), if known, of the account, and the amount, date, identifier of any investment professional(s) associated with the Shareholder(s) or account(s) (if known) and transaction type (purchase, redemption, transfer, or exchange) of every purchase, redemption, transfer, or exchange of Shares held through an account maintained by the Intermediary during the period covered by the request. Unless otherwise specifically requested by the Fund Agent or its designee, the Intermediary shall only be required to provide information relating to Shareholder-Initiated Transfer Purchases or Shareholder-Initiated Transfer Redemptions.
1.1. Period Covered by Request. Requests must set forth a specific period, not to exceed 180 calendar days from the date of the request, for which transaction information is sought. The Fund Agent or its designee may request transaction information older than 180 calendar days from the date of the request as it deems necessary to investigate compliance with policies established by a Fund for the purpose of eliminating or reducing any dilution of the value of the outstanding shares issued by the Fund.
1.2 Timing of Requests. Fund Agent requests for Shareholder information shall be made no more frequently than quarterly except as the Fund Agent deems necessary to investigate compliance with policies established by a Fund for the purpose of eliminating or reducing any dilution of the value of the outstanding shares issued by a Fund.
1.3. Form and Timing of Response. (a) The Intermediary agrees to provide, promptly upon request of the Fund Agent or its designee, but in any event not later than five (5) business days after receipt of a request, the requested information specified in paragraph 1. If requested by the Fund Agent or its designee, the Intermediary agrees to use best efforts to determine promptly whether any specific person about whom it has received the identification and transaction information specified in paragraph 1 is itself a financial intermediary (indirect intermediary) and, upon further request of the Fund Agent or its designee, promptly either (i) provide (or arrange to have provided) the information set forth in paragraph 1 for those Shareholders who hold an account with an indirect intermediary or (ii) restrict or prohibit the indirect intermediary from purchasing, in nominee name on behalf of other persons, securities issued by a Fund. The Intermediary additionally agrees to inform the Fund Agent whether it plans to perform (i) or (ii).
(b) Responses required by this paragraph must be communicated in writing and in a format mutually agreed upon by the Fund Agent or its designee and the Intermediary; and
(c) To the extent practicable, the format for any transaction information provided to the Fund Agent should be consistent with the NSCC Standardized Data Reporting Format.
1.4. Limitations on Use of Information. The Fund Agent agrees not to use the information received pursuant to this Agreement for any purpose other than as necessary to comply with the provisions of Rule 22c-2, or to fulfill other regulatory or legal requirements subject to the privacy provisions of Title V of the Gramm-Leach-Bliley Act (Public Law 106-102) and comparable state laws.
2. Agreement to Restrict Trading. Intermediary agrees to execute written instructions from the Fund Agent or its designee to restrict or prohibit further purchases or exchanges of Shares by a Shareholder that has been identified by the Fund Agent as having engaged in transactions in a Funds Shares (directly or indirectly through the Intermediarys account) that violate policies established by a Fund for the purpose of eliminating or reducing any dilution of the value of the outstanding Shares issued by a Fund. Unless otherwise directed by the Fund Agent or its designee, any such restrictions or prohibitions shall only apply to Shareholder-Initiated Transfer Purchases or Shareholder-Initiated Transfer Redemptions that are effected directly or indirectly through the Intermediary. Instructions must be received by the Intermediary at the following address, or such other address that the Intermediary may communicate to the Fund Agent in writing from time to time, including, if applicable, an e-mail and/or facsimile telephone number:
Penny Dooley
pdooley@nationallife.com
(802)229-3327
2.1. Form of Instructions. Instructions must include the TIN, ITIN, or GII and the specific individual Contract owner number or participant account number associated with the Shareholder, if known, and the specific restriction(s) to be executed, including how long the restriction(s) is (are) to remain in place. If the TIN, ITIN, GII or the specific individual Contract owner number or participant account number associated with the Shareholder is not known, the instructions must include an equivalent identifying number of the Shareholder(s) or account(s) or other agreed upon information to which the instruction relates.
2.2. Timing of Response. The Intermediary agrees to execute instructions as soon as reasonably practicable, but not later than five (5) business days after receipt of the instructions by the Intermediary.
2.3. Confirmation by Intermediary. The Intermediary must provide written confirmation to the Fund Agent or its designee that instructions have been executed. The Intermediary agrees to provide confirmation as soon as reasonably practicable, but not later than ten (10) business days after the instructions have been executed. Such confirmation should be sent to:
Secretary
Goldman, Sachs & Co.
200 West Street, 15th Floor
New York, NY 10004
3. Construction of the Agreement; Participation Agreement. The Fund Agent, the Trust and the Intermediary have entered into a Participation Agreement between or among them, for the purchase and redemption of Shares of the Funds by the Accounts in connection with the Contracts. This Agreement supplements the Participation Agreement. To the extent the terms of this Agreement conflict with the terms of the Participation Agreement, the terms of this Agreement shall control with respect to the subject matter of this Agreement. Termination of this Agreement by either party shall not automatically result in a termination of the Participation Agreement.
4. Termination. This Agreement will terminate upon the termination of the Participation Agreement.
5. Applicable Law. This Agreement shall be governed and construed in accordance with the laws of the State of New York, without giving effect to principles of conflicts of laws.
6. Applicability to Affiliates. The Intermediary acknowledges and agrees that the Intermediary has identified and/or will identify to the Fund Agent all persons affiliated with the Intermediary and known to the Intermediary who meet the definition of Intermediary as set forth above in this Agreement. In the event that any such person is not so identified, such person shall be deemed to be subject to the terms and conditions of this Agreement until such person has entered into a separate agreement with the Fund Agent.
7. Amendments. The Fund Agent may unilaterally modify this Agreement at any time by written notice to the Intermediary to comport with the requirements of applicable laws and regulations, and any interpretation thereof by the U.S. Securities and Exchange Commission or its staff. The first order for a transaction in the Shares placed by the Intermediary subsequent to the giving of such notice shall be deemed acceptance by the Intermediary of the modification described in such notice.
8. Assignment. Neither party may assign the Agreement, or any of the rights, obligations, or liabilities under the Agreement, without the written consent of the other party.
9. Counterparts. This Agreement may be executed in counterparts, each of which shall be deemed to be an original, but both of which together shall constitute one and the same instrument.
10. Third-Party Beneficiaries. As required by Rule 22c-2, the Fund Agent is entering into this Agreement on behalf of the Funds. The Funds shall have the right to enforce all terms and provisions of this Agreement against any and all parties hereto and otherwise involved in the activities contemplated herein.
IN WITNESS WHEREOF, the undersigned has caused this Agreement to be executed as of the date first above written.
GOLDMAN, SACHS & CO.
/s/ Marci Green |
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By: |
Marci Green |
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NATIONAL LIFE INSURANCE COMPANY, |
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on behalf of itself and the Accounts |
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/s/ Scott Edblom |
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By: |
Scott Edblom |
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Vice President, Product Strategy & Innovation |
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Exhibit 99.(8)(k)4
DISTRIBUTION SERVICES AGREEMENT
NATIONAL LIFE INSURANCE COMPANY, (Insurer) and INVESCO DISTRIBUTORS, INC. (Distributor) (collectively, the Parties) mutually agree to the arrangements set forth in this Distribution Services Agreement (this Agreement) dated April 1, 2016.
WHEREAS, Distributor is the principal underwriter to AIM Variable Insurance Funds (Invesco Variable Insurance Funds) (the Fund); and
WHEREAS, Distributor has entered into a Master Distribution Agreement, with the Fund (the Master Agreement); and
WHEREAS, the Fund has adopted a Master Distribution Plan pursuant to Rule 12b-1 under the Investment Company Act of 1940 (the Plan), and has created a class of shares designated Series II shares, which are subject to the Plan; and
WHEREAS, Distributor has agreed to provide, or arrange to provide, certain distribution services, including such services as may be requested by the Funds Board of Trustees from time to time, in connection with the Series II shares (Fund shares); and
WHEREAS, Insurer issues variable life insurance policies and/or variable annuity contracts (collectively, the Contracts); and
WHEREAS, Insurer has entered into a participation agreement, dated April 30, 2004, (the Participation Agreement) with the Fund, pursuant to which the Fund has agreed to make shares of certain of its portfolios (Portfolios) available for purchase by one or more of Insurers separate accounts or divisions thereof (each, a Separate Account), in connection with the allocation by Contract owners of purchase payments to corresponding investment options offered under the Contracts; and
WHEREAS, Insurer and Distributor expect that the Fund and its Portfolios can derive certain benefits from Insurers performance of the distribution services listed on Schedule A hereto for the Fund in connection with the Contracts issued by Insurer; and
WHEREAS, Insurer has no contractual or other legal obligation to perform such distribution services, other than pursuant to this Agreement and the Participation Agreement; and
WHEREAS, Insurer desires to be compensated for providing such distribution services; and
WHEREAS, Distributor desires to retain the distribution services of Insurer and to compensate Insurer for providing such distribution services;
NOW, THEREFORE, the Parties agree as follows:
Section 1. Distribution Services; Payments Therefor.
(a) Insurer shall provide the distribution services set out in Schedule A, attached hereto and made a part hereof, as the same may be amended from time to time. For such services, Distributor agrees to pay to Insurer a quarterly fee (the Distribution Fee) equal to 0.25% of the average daily net assets of the Fund attributable to the Contracts issued by Insurer.
(b) Distributor shall calculate the Distribution Fee at the end of each calendar quarter and will make such payment to Insurer, without demand or notice by Insurer, within 30 days thereafter, in a manner mutually agreed upon by the Parties from time to time.
(c) From time to time, the Parties shall review the Distribution Fee to determine whether it exceeds or is reasonably expected to exceed the incurred and anticipated costs, over time, of Insurer. The Parties agree to negotiate in good faith a reduction to the Distribution Fee as necessary to eliminate any such excess or as necessary to reflect a reduction in the fee paid by the Fund to Distributor pursuant to the Plan.
Section 2. Nature of Payments.
The Parties to this Agreement recognize and agree that Distributors payments hereunder are for distribution services only and do not constitute payment in any manner for investment advisory services or for administrative services, and are not otherwise related to investment advisory or administrative services or expenses, recognizing that Insurer may have contracted separately with Invesco Advisors, Inc., to provide administrative services to the Fund. Insurer represents and warrants that the fees to be paid by Distributor for services to be rendered by Insurer pursuant to the terms of this Agreement are to compensate the Insurer only for providing distribution services to the Fund, do not reimburse or compensate Insurer for providing distribution services with respect to the Contracts or any Separate Account, and are not duplicative of any services that Insurer provides to the Fund pursuant to any administrative services or other agreement.
Section 3. Reports.
Insurer acknowledges that Distributor is obligated to provide to the Funds Board of Trustees, at least quarterly, a written report of the amounts expended pursuant to the Plan and this Agreement and the purposes for which such expenditures were made. Accordingly, Insurer agrees to provide Distributor with such assistance as Distributor may reasonably request so that Distributor can report such information to the Funds Board in a timely manner. Insurer acknowledges that such information and assistance shall be in addition to the information and assistance required of Insurer pursuant to the Funds mixed and shared funding SEC exemptive order, described in the Participation Agreement.
Insurer further agrees to provide Distributor with such assistance as Distributor may reasonably request with respect to the preparation and submission of reports and other documents pertaining to the Fund to appropriate regulatory bodies and third party reporting services.
Section 4. Term and Termination.
(a) This Agreement shall continue in effect for a period of more than one year from the date of its execution only so long as such continuance is specifically approved by a vote of the Board of Trustees of the Fund, and of the Trustees who are not interested persons of the Fund and have no direct or indirect financial interest in the operation of the Plan or in any agreements related to the Plan, cast in person at a meeting called for the purpose of voting on the Plan or agreements.
(b) Any Party may terminate this Agreement, without the payment of any penalty, on not more than 60 days written notice to the other Party. This Agreement may be terminated at any time by a vote of a majority of the members of the Board of Trustees of the Fund who are not interested persons of
the Fund and have no direct or indirect financial interest in the operation of the Plan or any agreements related to the Plan or by a vote of a majority of the outstanding voting securities of the Fund.
(c) This Agreement shall automatically terminate in the event of its assignment.
Section 5. Amendment; Entire Agreement.
This Agreement may be amended upon mutual agreement of the Parties in writing. However, the Parties recognize that the Plan that this Agreement implements may not be amended to increase materially the amount to be spent for distribution without shareholder approval and that all material amendments of the Plan must be approved by a vote of the Board of Trustees of the Fund, and of the Trustees who are not interested persons of the Fund and have no direct or indirect financial interest in the operation of the Plan or in any agreements related to the Plan, cast in person at a meeting called for the purpose of voting the Plan or agreements. This Agreement, together with Schedule A hereto, constitutes the sole agreement between the Parties regarding the distribution services listed on Schedule A hereto.
Section 6. Notices.
All notices, requests, demands and other communications hereunder shall be in writing and shall be deemed to have been duly given if delivered:
NATIONAL LIFE INSURANCE COMPANY
One National Life Drive
Montpelier, Vermont 05604
Facsimile: (802)229-3743
Attention: Keith Jones, Senior Counsel
INVESCO DISTRIBUTORS, INC.
11 Greenway Plaza, Suite 1000
Houston, Texas 77046
Facsimile: (713) 993-9185
Attention: Veronica Castillo, Esquire
Section 7. Miscellaneous.
(a) Successors and Assigns. This Agreement shall be binding upon the Parties and their transferees, successors and permitted assigns. The benefits of and the right to enforce this Agreement shall accrue to the Parties and their transferees, successors and assigns.
(b) Intended Beneficiaries. Nothing in this Agreement shall be construed to give any person or entity other than the Parties, as well as the Fund, any legal or equitable claim, right or remedy. Rather, this Agreement is intended to be for the sole and exclusive benefit of the Parties, as well as the Fund.
(c) Counterparts. This Agreement may be executed in counterparts, each of which shall be deemed an original but all of which shall together constitute one and the same instrument.
(d) Applicable Law. This Agreement shall be interpreted, construed, and enforced in accordance with the laws of the State of Delaware without reference to the conflict of law principles thereof.
(e) Severability.
(i) This Agreement shall be severable as it applies to each Fund Portfolio, and action on any matter shall be taken separately for each Fund Portfolio affected by the matter.
(ii) If any portion of this Agreement shall be found to be invalid or unenforceable by a court or tribunal or regulatory agency of competent jurisdiction, the remainder shall not be affected thereby, but shall have the same force and effect as if the invalid or unenforceable portion had not been inserted.
IN WITNESS WHEREOF, the Parties have executed this Agreement as of the date of first above written.
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NATIONAL LIFE INSURANCE COMPANY | |
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By: |
/s/ Scott Edblom |
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Name: |
Scott Edblom |
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Title: |
Vice President, Product Strategy & Innovation |
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INVESCO DISTRIBUTORS, INC. | |
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By: |
/s/ Brian Thorp |
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Name: |
Brian Thorp |
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Title: |
Vice President |
SCHEDULE A
Distribution Services For
AIM Variable Insurance Funds (Invesco Variable Insurance Funds)
Insurer shall provide certain distribution services that are primarily intended to result in the sale of Fund shares, as set forth below. This Schedule, which may be amended from time to time as mutually agreed upon by Insurer and Distributor, constitutes an integral part of the Agreement to which it is attached. Capitalized terms used herein shall, unless otherwise noted, have the same meaning as the defined terms in the Agreement to which this Schedule relates.
Distribution services shall include without limitation:
a) The development, preparation, printing and distribution of advertisements and sales literature and other promotional materials describing and/or relating to the Fund;
b) Training sales personnel regarding the Fund;
c) Organizing and conducting seminars and sales meetings designed to promote the distribution of Fund shares;
d) Compensating financial intermediaries and broker-dealers to pay or reimburse them for their services or expenses in connection with the distribution of variable annuity and variable life insurance contracts investing directly in Fund shares; and
e) Compensating sales personnel in connection with the allocation of cash values and premium of variable annuity and variable insurance contracts to investments in Fund shares.
Exhibit 99.(8)(o)
ADMINISTRATIVE SERVICES AGREEMENT
By and Among
SENTINEL ASSET MANAGMENT, INC.
And
NATIONAL LIFE INSURANCE COMAPANY
Dated as of May 1, 2016
WHEREAS, Sentinel Asset Management, Inc. (Investment Adviser), acts as an investment adviser to the Sentinel Variable Products Trust (the Trust) and supervises and assists in the overall management of the Trusts affairs under an Investment Management Agreement with the Trust, subject to the overall authority of the Trusts Board of Trustees in accordance with Delaware law;
WHEREAS, the Trust is an open-end diversified, management investment company that offers its shares exclusively to separate accounts of life insurance companies and various qualifying retirement plans or accounts;
WHEREAS, beneficial interests in the Trust are divided into several series of shares, each representing the interest in a particular managed portfolio of securities and other assets (the Funds);
WHEREAS, the National Life Insurance Company (the Company), acting on behalf of its separate accounts, purchases, holds, exchanges and redeems shares as investments for values accumulated under variable annuity contracts and variable life insurance contracts (the Contracts) issued through one or more separate accounts by the Company;
WHEREAS, the Company has entered into an agreement with the Trust and Sentinel Financial Services Company, as principal underwriter and distributor of the shares, regarding its purchase and redemption of shares of the Funds (the Participation Agreement); and
WHEREAS, with respect to each Fund, the Company is willing to provide, and Investment Adviser wishes to compensate the Company for providing, certain services with respect to the sale and distribution of the Contracts (the Services).
NOW, THEREFORE, for and in consideration of the promises and the mutual covenants contained herein, and for other good and valuable consideration, the receipt, adequacy and legal sufficiency of which are hereby acknowledged, the parties do hereby agree as follows:
1. Administrative Services. The Company agrees to assist Investment Adviser, as it may request from time to time, with the provision of administrative services with respect to the Trust, as they may relate to the purchase and redemption of shares of the Funds by the separate accounts of the Company listed on Schedule A. It is anticipated that such services may include (but shall not be limited to) the mailing of Trust reports, notices, proxies and proxy statements
and other informational materials to owners of the Contracts supported by the separate accounts; the transmission of purchase and redemption requests to the Trusts transfer agent; the maintenance of separate records for each owner of a Contract reflecting shares purchased and redeemed and share balances attributable to such Contract owner in the form of units; the preparation of various reports for submission to the Trusts Trustees; the provision of shareholder support services with respect to the Funds serving as funding vehicles for the Companys Contracts; and the services listed on Schedule B.
2. Payment for Administrative Services. In consideration of the services to be provided by the Company, Investment Adviser shall pay the Company on a quarterly basis, from its assets, including Investment Advisers bona fide profits as investment adviser to the Trust, amounts equal to those described in Schedule C. For purposes of computing the payment to the Company contemplated under this Section 2 for each Fund, the average aggregate net asset value of the relevant shares of the Fund held by the separate accounts over a one-month period shall be computed by totaling the separate accounts aggregate investment (share net asset value multiplied by total number of the relevant shares held by the separate account) in each Fund on each calendar day during the month, and dividing by the total number of calendar days during such month. The payment contemplated by this Section 2 shall be calculated by Investment Adviser at the end of each calendar quarter and will be paid to the Company within sixty (60) business days thereafter.
3. Nature of Payments. The parties to this Agreement recognize and agree that Investment Advisers payments to the Company relate to administrative services only and do not constitute payment in any manner for investment advisory services or for costs of distribution of the Contracts or of Trust shares and are not otherwise related to investment advisory or distribution services or expenses. The Company represents that these payments are not for or related to administrative services which the Company is required to provide to owners of the Contracts by law or pursuant to the terms of the Contracts. The Parties acknowledge that there are substantial savings in administrative expenses to the Trust by virtue of having a separate account as the sole shareholder in a Fund rather than multiple accounts reflecting the separate accounts investment. The Company represents that:
· it may legally receive the payments contemplated by this Agreement.
· the administrative services provided under this Agreement are not services that the Trust has agreed to perform, provide or pay for under the Participation Agreement.
· to the extent required by applicable law, the Company has taken payments received from Investment Adviser under this Agreement into account in making any determinations pursuant to Section 26(f)(2)(A) and 26(f)(3) of the Investment Company Act of 1940, as amended (the Act).
4. Term. This Agreement shall remain in full force and effect for an initial term of one year from the date hereof, and shall automatically renew for successive one-year periods unless either party notifies the other upon sixty (60) days written notice of its intent not to continue this Agreement. This Agreement shall terminate automatically with respect to a Fund
upon (i) the redemption of the Separate Accounts investment in the Fund, or (ii) upon termination of the Trusts obligation to sell shares of a Fund under the Participation Agreement.
5. Representations and Warranties of the Company. The Company represents and warrants that:
(a) it is an insurance company duly organized and in good standing under Vermont insurance law;
(b) its 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; and
(c) it will keep confidential any information acquired in connection with the matters contemplated by this Agreement regarding the business and affairs of the Trust, Investment Adviser and their affiliates.
6. Representations and Warranties of Investment Adviser. Investment Adviser represents and warrants that:
(a) it is a corporation duly organized and in good standing under Vermont law;
(b) its 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; and
(c) it will keep confidential any information acquired in connection with the matters contemplated by this Agreement regarding the business and affairs of the Company and its affiliates, however, nothing in this provision shall restrict Investment Adviser or any of its affiliates from engaging in any financing, investment banking, asset management, trading, market making, arbitrage, brokerage, or any other activities it conducts or in which it seeks to engage in the ordinary course of business.
7. Interpretation. This Agreement shall be construed 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 Act, and the rules, regulations and rulings thereunder, including such exemptions from that statute, rules and regulations as the Securities and Exchange Commissioner (the SEC) may grant, and the terms herein shall be limited, interpreted and construed in accordance therewith.
(b) The captions in this Agreement are included for convenience of reference and in no way define or delineate any of the provisions herein or otherwise affect their construction or effect.
8. Amendment. This Agreement may be amended only upon mutual agreement of the parties hereto in writing. Any notice to be provided pursuant to this Agreement is to be made in writing and shall be given:
If to Investment Adviser:
Lisa F. Muller
Chief Operating Officer & Senior Counsel
Sentinel Asset Management, Inc.
One National Life Drive
Montpelier, VT 05604
If to the Company:
Keith M. Jones
Senior Counsel
National Life Insurance Company
One National Life Drive
Montpelier, VT 05604
or at such other address as such party may from time to time specify in writing to the other party. Each such notice to a party shall be sent by registered or certified United States mail with return receipt requested or by overnight delivery with a nationally recognized courier, and shall be effective upon receipt.
9. Counterparts. This Agreement may be executed in counterparts, each of which shall be deemed an original but all of which shall together constitute one and the same instrument.
IN WITNESS WHEREOF, the parties have executed this Agreement as of the date first above written.
SENTINEL ASSET MANAGEMENT, INC. |
NATIONAL LIFE INSURANCE COMPANY | |||
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By: |
/s/ Lisa F. Muller |
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By: |
/s/ Scott Edblom |
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Lisa F. Muller |
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Scott Edblom |
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Chief Operating Officer |
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Vice President, Product Strategy & Innovation |
SCHEDULE A
Separate Accounts
National Variable Annuity Account II - Sentinel Advantage Variable Annuity 5
SCHEDULE B
Services
Maintenance of books and records
· Record issuance of shares
· Record transfers (via net purchase orders)
· Reconciliation and balancing of separate accounts at the Trust level in the general ledger, at various banks and within systems interface to the summary of each Contract owners position
Fund-related Contract Owner services
· Printing and mailing costs associated with dissemination of Trust prospectus to existing Contract owners
· Telephonic support for Contract owners with respect to inquiries about the Trust (but not inquiries about the Contracts) unrelated to the sales of Contracts or distribution of Trust shares
· Trust proxies (solicitation of voting instructions and preparation of materials, inclusive of printing, distribution, tabulation, and reporting)
· Printing and mailing costs associated with dissemination of Trust reports and notices to existing Contract owners
Other administrative support
· Sub-accounting services
· Providing other administrative support to the Trust as mutually agreed between insurer and the Trust
· Relieving the Trust of the burden of providing other usual or incidental administrative services provided to individual shareholders as agreed by the Company, which agreement shall not be unreasonably withheld
SCHEDULE C
Fees
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Amounts per annum of the average |
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aggregate net asset value of shares of the |
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Trust held by the Separate Account and allocated to Sentinel Advantage |
Fund Name |
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Variable Annuity 5 under the Participation Agreement |
Variable Products Balanced Fund |
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Redacted |
Variable Products Bond Fund |
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Redacted |
Variable Products Common Stock Fund |
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Redacted |
Variable Products Small Company Fund |
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Redacted |
Exhibit 99.(8)(p)4
AMENDMENT TO PARTICIPATION AGREEMENT
AMONG
T. ROWE PRICE EQUITY SERIES, INC.,
T. ROWE PRICE INVESTMENT SERVICES, INC.,
AND
NATIONAL LIFE INSURANCE COMPANY
WHEREAS, National Life Insurance Company, T. Rowe Price Equity Series, Inc. and T. Rowe Price Investment Services, Inc. entered into a Participation Agreement effective May 1, 2004, as amended (Participation Agreement); and
WHEREAS, the parties desire to amend the Participation Agreement by mutual written agreement; and
WHEREAS, the parties desire to amend the Participation Agreement to add the T. Rowe Price Mid-Cap
Growth Portfolio to the Designated Portfolios listed in Schedule A.
NOW THEREFORE, the parties do hereby agree:
1. Schedule A is hereby replaced with the attached Schedule A effective March 1, 2016.
All terms and conditions of the Participation Agreement and Schedules thereto shall continue in full force and effect except as amended herein.
IN WITNESS WHEREOF, each of the parties hereto has caused this Amendment to the Participation Agreement to be executed in its name and on its behalf by its duly authorized representative.
COMPANY: |
NATIONAL LIFE INSURANCE COMPANY | |
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By its authorized officer | |
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By: |
/s/ Scott Edblom |
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Name: |
Scott Edblom |
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Title: |
Vice President, Product Strategy & Innovation |
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Date: |
April 1, 2016 |
FUND: |
T. ROWE PRICE EQUITY SERIES, INC. | |
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By its authorized officer | |
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By: |
/s/ Darrell N. Braman |
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Name: |
Darrell N. Braman |
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Title: |
Vice President |
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Date: |
4/6/16 |
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UNDERWRITER: |
T. ROWE PRICE INVESTMENT SERVICES, INC. | |
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By its authorized officer | |
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By: |
/s/ Fran Pollack-Matz |
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Name: |
Fran Pollack-Matz |
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Title: |
Vice President |
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Date: |
4/7/16 |
SCHEDULE A
Name of Separate Account and |
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Contracts Funded by |
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Designated Portfolios |
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National Variable Life Insurance Account |
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VariTrak Variable Universal Life Insurance, Sentinel Estate Provider Survivorship Variable Life Insurance, Sentinel Benefit Provider Variable Universal Life Insurance Investor Select, Insurance Variable Universal Life |
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T. Rowe Price Equity Series, Inc. |
(established February 1, 1985) |
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- T. Rowe Price Blue Chip | |
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Growth Portfolio | |
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- T. Rowe Price Equity | |
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Income Portfolio | |
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- T. Rowe Price Health | |
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Sciences Portfolio | |
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- T. Rowe Price Mid-Cap Growth | |
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Portfolio | |
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- T. Rowe Price Personal | |
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Strategy Balanced | |
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Portfolio | |
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National Variable Annuity Account II |
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Sentinel Advantage |
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(established November 1, 1996) |
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Variable Annuity |
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Exhibit 99.(8)(q)3
Amendment No. 1 to
Participation Agreement
This Amendment No. 1 to that certain Participation Agreement (the Agreement) dated as of December 1, 2008 among National Life Insurance Company (the Company), Van Eck VIP Trust (f/k/a Van Eck Worldwide Insurance Trust) (the Trust), Van Eck Associates Corporation (the Adviser) and Van Eck Securities Corporation (the Underwriter) is effective April 1, 2016.
WHEREAS, the Company, Trust, Adviser and Underwriter (each a Party and, together, the Parties) desire to amend the Agreement; and
NOW THEREFORE, in consideration of the mutual covenants hereinafter set forth, and intending to be legally bound, the Parties agree as follows:
1. Article XII of the Agreement is hereby amended and restated by revising the addresses of the Fund, Underwriter and Adviser as follows:
If to the Fund:
666 Third Avenue, 9th Floor
New York, NY 10017
Attention: General Counsel
If to Underwriter:
666 Third Avenue, 9th Floor
New York, NY 10017
Attention: General Counsel
If to Adviser:
666 Third Avenue, 9th Floor
New York, NY 10017
Attention: General Counsel
2. Schedule B to the Agreement is hereby amended and restated in its entirety as follows:
SCHEDULE
B
Name of Fund
· Each Series of Van Eck VIP Trust Initial Class
· Each Series of Van Eck VIP Trust Class S
12b-1 Fees
· Initial Class: None
· Class S: Class S shares of each series of Van Eck VIP Trust are subject to an annual distribution and/or service fee (Rule 12b-1 fee) of 0.25% of average daily net assets of the class payable quarterly. For the avoidance of doubt, to the extent the 12b-1 Plan for a Fund is terminated or modified, the Rule 12b-1 fee as set forth herein shall be modified accordingly.
3. Except as specifically set forth herein, all other provisions of the Agreement shall remain in full force and effect.
(Signature Page to follow)
Each of the parties hereto has caused this Amendment to be executed in its name and behalf by its duly authorized officer.
National Life Insurance Company |
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By: |
/s/ Scott Edblom |
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Name: |
Scott Edblom |
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Title: |
Vice President Product Strategy & Innovation |
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Van Eck Securities Corporation |
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By: |
/s/ Bruce J. Smith |
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Name:Bruce J. Smith |
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Title: |
SVP & CFO |
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Van Eck Associates Corporation |
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By: |
/s/ Bruce J. Smith |
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Name:Bruce J. Smith |
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Title: |
SVP & CFO |
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Van Eck VIP Trust |
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By: |
/s/ Bruce J. Smith |
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Name:Bruce J. Smith |
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Title: |
SVP & CFO |
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Exhibit 99.(8)(q)4
Amendment No. 1 to
Service Agreement
This Amendment No. 1 to that certain Service Agreement (the Agreement) dated as of October 28, 2008 between National Life Insurance Company (the Company) and Van Eck Securities Corporation (the Distributor) is effective April 1, 2016.
WHEREAS, the Distributor and the Company (each a Party and, together, the Parties) desire to amend the Agreement; and
NOW THEREFORE, in consideration of the mutual covenants hereinafter set forth, and intending to be legally bound, the Parties agree as follows:
1. Section 3 of the Agreement is hereby amended and restated in its entirety as follows:
In consideration for the services to be provided by Company to the Contract owners pursuant to this Agreement, the Distributor will calculate and pay, or cause one of its affiliates to pay, and Company will be entitled to receive from the Distributor a fee at an annualized rate equal to 0.20% for the Initial Class and 0.20% for Class S (together, the Service Fee) of the average aggregate amount invested in the Funds under the Contracts issued by the Variable Accounts for the applicable period. The average aggregate amount shall be computed by totaling the aggregate investment (net asset value multiplied by total number of Fund shares held in the Variable Accounts) on each calendar day during the period and dividing by the total number of calendar days during the period.
2. Section 11 of the Agreement is hereby amended and restated in its entirety as follows:
Each notice required by this Agreement shall be given by wire and confirmed in writing to:
If to Company:
Keith Jones, Senior Counsel
National Life Insurance Company
One National Life Drive
Montpelier, Vermont, 05604
If to Distributor:
Van Eck Securities Corporation
666 Third Avenue, 9th Floor
New York, New York 10017
Attn: General Counsel
3. Exhibit A to the Agreement is hereby amended and restated in its entirety as follows:
EXHIBIT A
TO SERVICE AGREEMENT
Name of Fund
· Each Series of Van Eck VIP Trust Initial Class
· Each Series of Van Eck VIP Trust Class S
4. Except as specifically set forth herein, all other provisions of the Agreement shall remain in full force and effect.
(Signature Page to follow)
Each of the parties hereto has caused this Amendment to be executed in its name and behalf by its duly authorized officer.
National Life Insurance Company (Company) |
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By: |
/s/ Scott Edblom |
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Name: |
Scott Edblom |
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Title: |
Vice President, Product Strategy & Innovation |
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Van Eck Securities Corporation (Distributor) |
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By: |
/s/ Bruce J. Smith |
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Name: |
Bruce J. Smith |
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Title: |
SVP & CFO |
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Exhibit 99.(9)
April 29, 2016
National Life Insurance Company
One National Life Drive
Montpelier, Vermont 05604
To Whom It May Concern:
With reference to the Registration Statement on Form N-4 (Registration Statement), as amended, filed by National Life Insurance Company and National Variable Annuity Account II with the Securities and Exchange Commission covering individual variable annuity contracts, I have examined such documents and such laws as I considered necessary and appropriate and on the basis of such examination, it is my opinion that:
1. National Life Insurance Company is duly organized and validly existing under the laws the State of Vermont, and has been duly authorized to issue individual variable annuity contracts by the Department of Insurance of the State of Vermont.
2. National Variable Annuity Account II is a duly authorized and existing separate account established pursuant to the provisions of Title 8, Vermont Statutes Annotated, sections 3855 to 3859.
3. The individual variable annuity contracts, when issued as contemplated by the Registration Statement, will constitute legal, validly issued and binding obligations of National Life Insurance Company.
I hereby consent to the filing of this opinion as an Exhibit to the Registration Statement and to the use of my name under the caption Legal Matters in the Registration Statement.
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Sincerely, |
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/s/ Lisa Muller |
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Lisa Muller |
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Senior Counsel |
NATIONAL LIFE GROUP® IS A TRADE NAME OF NATIONAL LIFE INSURANCE COMPANY AND ITS AFFILIATES. EACH COMPANY OF THE NATIONAL LIFE GROUP® IS RESPONSIBLE FOR ITS OWN FINANCIAL CONDITION AND CONTRACTUAL OBLIGATIONS.
NATIONAL LIFE INSURANCE COMPANY · ONE NATIONAL LIFE DRIVE · MONTPELIER, VERMONT 05604
Exhibit 99.(10)(a)
STEPHEN E. ROTH
DIRECT LINE: 202.383.0158
E-mail: steve.roth@sutherland.com
April 29, 2016
VIA EDGAR
Board of Directors
National Life Insurance Company
One National Life Drive
Montpelier, Vermont 05604
RE: National Variable Annuity Account II
File Nos. 333-19583/811-08015
Ladies and Gentlemen:
We hereby consent to the reference to our name under the caption Legal Matters in the Statement of Additional Information filed as part of Post-Effective Amendment No. 31 to the Form N-4 Registration Statement by National Variable Annuity Account II for certain variable annuity contracts (File No. 333-19583). 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.
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Sincerely, | |
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SUTHERLAND ASBILL & BRENNAN LLP | |
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By: |
/s/ Stephen Roth |
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Stephen E. Roth |
Exhibit 99.(10)(b)
CONSENT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM
We hereby consent to the use in Statement of Additional Information constituting part of this Post-Effective Amendment No. 31 to the Registration Statement on Form N-4 of our report dated April 26, 2016 relating to the statutory basis financial statements of the National Life Insurance Company, which appears in such Statement of Additional Information. We also hereby consent to the use of our report dated February 25, 2016 relating to the consolidated financial statements of NLV Financial Corporation and our report dated April 26, 2016 relating to the financial statements of the National Variable Annuity Account II, both of which appear in such Statement of Additional Information. We also consent to the reference to us under the heading Experts in such Statement of Additional Information.
Boston, Massachusetts
April 26, 2016
PricewaterhouseCoopers LLP, 101 Seaport Boulevard, Suite 500, Boston, MA 02210
T: (617) 530 5000, F: (617) 530 5001, www.pwc.com/us
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